<PAGE>
As filed with the Securities and Exchange Commission on November 6, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
COMMERCE BANCORP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
New Jersey 6712 22-2433468
- ---------------------------------------- --------------------------------------- ----------------------------------------
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
Commerce Atrium
1701 Route 70 East
Cherry Hill, New Jersey 08034-5400
(609) 751-9000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Thomas J. Sukay, Senior Vice President
Commerce Atrium
1701 Route 70 East
Cherry Hill, New Jersey 08034-5400
(609) 751-9000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Lawrence R. Wiseman, Esquire Herbert H. Davis, III, Esquire
Blank Rome Comisky & McCauley LLP Rothgerber Johnson & Lyons LLP
One Logan Square Suite 3000, One Tabor Center
Philadelphia, PA 19103 1200 Seventeenth Street
(215) 569-5500 Denver, Colorado 80202-5839
(303) 623-9000
--------------------
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the Registration Statement becomes effective.
If the securities being registered on this Form are to be 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, please check the following box
and list the Securities Act registration statement number of the earlier
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 Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=============================================================================================================================
<S> <C> <C> <C> <C>
Proposed Proposed
Maximum Maximum Amount of
Title of Each Class of Securities Amount To Be Offering Price Aggregate Registration
To Be Registered Registered Per Share Offering Price Fee
- -----------------------------------------------------------------------------------------------------------------------------
Common Stock, par value
$1.5625 per share.......................... 1,925,000(1) $40.91(2) $78,751,750(2) $21,895
=============================================================================================================================
</TABLE>
(1) In addition, pursuant to Rule 416(a) under the Securities Act of
1933, this Registration Statement also covers an indeterminate amount
of shares as may be issued pursuant to stock splits, stock dividends
and certain anti-dilution provisions.
(2) Based upon the average of the last reported high and low sale prices
of Commerce Bancorp, Inc. Common Stock as reported on the New York
Stock Exchange on November 2, 1998, estimated solely for the
purpose of calculating the registration fee in accordance with Rule
457(f)(1) under the Securities Act of 1933, as amended.
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
================================================================================
<PAGE>
[PFC LETTERHEAD]
November [ ], 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
(the "Meeting") of Prestige Financial Corp. ("PFC"), to be held on December [ ],
1998, at 5:30 p.m. (local time) at One Royal Road, Flemington, New Jersey 08822.
In connection with the Meeting, holders of PFC Common Stock ("PFC
Common Stock") are being asked to consider and vote upon a proposal to approve
an Agreement and Plan of Reorganization and a related Amended Agreement and Plan
of Merger, each dated as of September 17, 1998 (collectively, the "Merger
Agreement"), pursuant to which PFC will merge (the "Merger") with and into
Commerce Bancorp, Inc. ("CBH"). CBH is a multi-bank holding company
headquartered in Cherry Hill, New Jersey with $4.4 billion in total assets as of
June 30, 1998.
Upon consummation of the Merger, each outstanding share of PFC Common
Stock ("PFC Common Stock") will be converted into a number of shares of CBH
Common Stock ("CBH Common Stock") (the "Exchange Ratio"), with cash paid in lieu
of fractional shares. The Exchange Ratio will be calculated by dividing $16.25
by the average of the closing sale prices for CBH Common Stock as quoted on the
New York Stock Exchange for the five business day period ending on and excluding
the second business day before the Merger is consummated (the "Average Price").
However, a minimum Exchange Ratio of .378 will apply if the Average Price is
above $43.00, and a maximum Exchange Ratio of .439 will apply if the Average
Price is below $37.00. Your Board of Directors will have the right to terminate
the Merger Agreement if the Average Price is below $33.00.
It is expected that the Merger generally will be tax free to PFC's
shareholders for federal income tax purposes.
Consummation of the Merger is subject to certain conditions, including
obtaining the requisite approval of PFC's shareholders and by bank regulatory
authorities.
We urge you to read carefully the accompanying Proxy
Statement-Prospectus, including the Annexes thereto, which contain important
information about the proposed Merger.
Whether or not you personally attend the Meeting, please complete, sign
and date the enclosed proxy card and return it in the enclosed prepaid envelope,
as soon as possible. This action will not limit your right to vote in person
should you wish to attend the Meeting and vote in person.
Your Board of Directors has unanimously approved the Merger Agreement
and believes the Merger is fair to, and is in the best interests of, PFC's
shareholders. Accordingly, we unanimously recommend that you vote "FOR" approval
of the Merger Agreement.
Sincerely,
LOUIS R. DeFALCO
Chairman
<PAGE>
PRESTIGE FINANCIAL CORP.
One Royal Road
P.O. Box 2480
Flemington, New Jersey 08822
---------------------------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER [ ], 1998
---------------------------------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "
Meeting") of Prestige Financial Corp. ("PFC") will be held on December [ ],
1998, at 5:30 p.m. (local time) at One Royal Road, Flemington, New Jersey 08822,
for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Reorganization and a related Amended
Agreement and Plan of Merger, each dated as of September 17, 1998
(collectively, the "Merger Agreement"), between PFC and Commerce
Bancorp, Inc. ("CBH"), pursuant to which (i) PFC would merge (the
"Merger") with and into CBH and (ii) each outstanding share of PFC
Common Stock ("PFC Common Stock") would be converted into a number
of shares of CBH Common Stock ("CBH Common Stock") (the "Exchange
Ratio"), with cash paid in lieu of fractional shares. The Exchange
Ratio will be calculated by dividing $16.25 by the average of the
closing sale prices for CBH Common Stock as quoted on the New York
Stock Exchange for the five business day period ending on and
excluding the second business day before the Merger is consummated
(the "Average Price"). However, a minimum Exchange Ratio of .378
will apply if the Average Price is more than $43.00, and a maximum
Exchange Ratio of .439 will apply if the Average Price is less than
$37.00. Consummation of the Merger is subject to the terms and
conditions contained in the Merger Agreement.
2. To consider and vote upon such other business as may properly
come before the Meeting or any adjournment thereof.
A copy of the Merger Agreement is set forth in Annex A and Annex B to
the accompanying Proxy Statement-Prospectus.
Only holders of record of PFC Common Stock as of the close of business
on November [ ], 1998, are entitled to notice of, and to vote at, the Meeting
and any adjournments or postponements thereof.
The PFC Board of Directors has unanimously approved the Merger
Agreement and believes the Merger is fair to, and is in the best interests of,
its shareholders. Accordingly, the Board of Directors of PFC unanimously
recommends that its shareholders vote "FOR" approval of the Merger Agreement.
By Order of the Board of Directors
PRESTIGE FINANCIAL CORP.
LOUIS R. DeFALCO
Chairman
- --------------------------------------------------------------------------------
Whether or not you plan to attend the Meeting in person, you are urged to date,
sign and return promptly the enclosed proxy in the accompanying envelope. You
may revoke such proxy at any time prior to its exercise in the manner provided
in the accompanying Proxy Statement-Prospectus.
- --------------------------------------------------------------------------------
<PAGE>
Proxy Statement
PRESTIGE FINANCIAL CORP.
Prospectus
COMMERCE BANCORP, INC.
1,925,000 Shares Common Stock
The Board of Directors of Commerce Bancorp, Inc. and Prestige Financial
Corp. have approved the acquisition of Prestige Financial Corp. through a
merger.
If the merger is completed, each share of Prestige Financial Corp.
common stock will be converted into a number of shares of Commerce Bancorp, Inc.
common stock (the "Exchange Ratio"), with cash being paid in lieu of any
fractional share interest. The Exchange Ratio will be calculated by dividing
$16.25 by the average of the closing sale prices for Commerce Bancorp, Inc.
common stock as quoted on the New York Stock Exchange for the five business day
period ending on and excluding the second business day before the merger is
consummated, with a minimum Exchange Ratio of .378 and a maximum Exchange Ratio
of .439.
The merger cannot be completed unless the shareholders of Prestige
Financial Corp. approve it. Prestige Financial Corp. has scheduled a special
meeting of its shareholders to vote on the merger.
Whether or not you plan to attend the special meeting of shareholders
of Prestige Financial Corp., please vote by completing and mailing the enclosed
proxy card.
The date, time and place of the special meeting of shareholders of
Prestige Financial Corp. is:
December ____, 1998
5:30 p.m.
One Royal Road, Flemington, New Jersey 08822
Commerce Bancorp, Inc. common stock trades on the New York Stock
Exchange under the symbol "CBH". Prestige Financial Corp. trades on the Nasdaq
National Market under the symbol "PRFN".
Neither the securities of Commerce Bancorp, Inc. nor those of Prestige
Financial Corp. are savings accounts, deposits or other obligations of a bank or
savings association and are not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this Proxy Statement-Prospectus. Any representation to
the contrary is a criminal offense.
This Proxy Statement-Prospectus is dated November 6, 1998, and is
first being mailed to Prestige Financial Corp. shareholders on November [ ],
1998.
<PAGE>
TABLE OF CONTENTS
Page
----
SUMMARY...................................................................... 1
Parties to the Merger............................................... 1
The Merger.......................................................... 2
PFC's Reasons for the Merger........................................ 3
The Meeting......................................................... 3
Approval of the Merger.............................................. 3
Recommendation of the PFC Board of
Directors to Shareholders........................................ 4
Ownership of CBH Following the Merger............................... 4
Effective Date...................................................... 4
Opinion of Financial Advisor........................................ 4
Interests of Certain Persons........................................ 4
Certain Federal Income Tax Considerations........................... 5
Regulatory Approvals................................................ 5
Conditions to Consummation.......................................... 5
Termination......................................................... 5
Resale of CBH Common Stock.......................................... 6
No Appraisal Rights................................................. 6
Accounting Treatment................................................ 6
Certain Differences in the Rights of PFC and
CBH Shareholders................................................. 6
Listing of CBH Common Stock......................................... 6
SUMMARY SELECTED HISTORICAL CONSOLIDATED
FINANCIAL INFORMATION OF CBH............................................ 7
SUMMARY SELECTED HISTORICAL CONSOLIDATED
FINANCIAL INFORMATION OF PFC............................................ 8
RECENT DEVELOPMENTS.......................................................... 9
COMPARATIVE PER SHARE DATA...................................................11
SPECIAL MEETING OF PFC SHAREHOLDERS..........................................13
General.............................................................13
Purposes............................................................13
Voting Rights; Votes Required for Approval..........................13
Voting and Revocation of Proxies....................................14
Solicitation of Proxies.............................................14
Other Matters.......................................................14
THE MERGER...................................................................15
Certain Terms of the Merger Agreement...............................15
Background of Merger................................................17
Recommendation of the PFC Board;
PFC's Reasons for the Merger.....................................18
CBH's Reasons for the Merger........................................20
Opinion of PFC's Financial Advisor..................................21
Interests of Certain Persons........................................24
Certain Federal Income Tax Consequences of
the Merger.......................................................28
Business Pending Consummation and Related
Matters..........................................................28
Commitments with Respect to Other Offers............................29
<PAGE>
Page
----
Regulatory Approvals.................................................29
Conditions to Consummation...........................................30
Termination..........................................................30
Resale of CBH Common Stock...........................................31
No Dissenters' Appraisal Rights......................................31
Accounting Treatment.................................................31
Certain Effects of the Merger........................................32
New York Stock Exchange Listing......................................32
Waiver; Amendment....................................................32
COMPARATIVE PER SHARE MARKET PRICE
AND DIVIDEND INFORMATION.................................................33
FORWARD-LOOKING STATEMENTS....................................................34
BUSINESS OF PFC...............................................................35
General..............................................................35
History and Business.................................................35
BUSINESS OF CBH......................................................36
General..............................................................36
History and Business................................................ 36
DESCRIPTION OF CBH CAPITAL STOCK..............................................38
Authorized Capital...................................................38
CBH Common Stock.....................................................38
CBH Preferred Stock..................................................38
"Anti-Takeover" Provisions and Management
Implications......................................................39
Payment of Dividends.................................................41
CERTAIN DIFFERENCES IN THE RIGHTS OF PFC
AND CBH SHAREHOLDERS........................................................42
General..............................................................42
Authorized Capital...................................................42
PFC Common Stock.....................................................42
CBH Common Stock.....................................................42
Director Nominations.................................................43
LEGAL MATTERS.................................................................43
EXPERTS.......................................................................43
WHERE YOU CAN FIND MORE INFORMATION...........................................44
CONSOLIDATED FINANCIAL STATEMENTS OF
PFC......................................................................46
ANNEX A -- Agreement and Plan of Reorganization
(excluding exhibits and schedules)......................................A-1
ANNEX B -- Amended Agreement and Plan of Merger.............................B-1
ANNEX C -- Opinion of Endicott Financial Advisors,
L.L.C..................................................................C-1
HOW TO GET COPIES OF RELATED DOCUMENTS
This Proxy Statement-Prospectus incorporates important business and
financial information about Commerce Bancorp, Inc. and Prestige Financial Corp.
that is not included in or delivered with this Proxy Statement-Prospectus. The
information is available without charge to Prestige Financial Corp.
shareholders, with respect to Commerce Bancorp, Inc., upon written or oral
request to: Commerce Bancorp, Inc., 1701 Route 70 East, Cherry Hill, New Jersey
08034-5400, Attention: Thomas J. Sukay, Senior Vice President, (telephone number
(609) 751-9000), and with respect to Prestige Financial Corp., upon written or
oral request to: Prestige Financial Corp., One Royal Road, P.O. Box 2480,
Flemington, New Jersey 08822, Attention: Robert J. Jablonski, Chief Executive
Officer. Responses to any request will be made within one business day by
sending the requested documents by first class mail or equally prompt means. In
order to ensure timely delivery of such documents, any request should be made by
December [ ], 1998.
<PAGE>
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 fully, and for more complete
descriptions of the legal terms of the Merger, you should read carefully this
entire Proxy Statement-Prospectus, the Annexes hereto and the documents we have
referred you to. See "WHERE YOU CAN FIND MORE INFORMATION." As used in this
Proxy Statement-Prospectus, the terms "CBH" and "PFC" refer to such
organizations, respectively, and, unless the context otherwise requires, to
their respective consolidated subsidiaries. All information contained in this
Proxy Statement-Prospectus has been adjusted to reflect common stock dividends
paid through [ ], 1998.
Parties to the Merger
CBH
Commerce Bancorp, Inc. ("CBH") is a multi-bank holding company
headquartered in Cherry Hill, New Jersey which operates three nationally
chartered bank subsidiaries: Commerce Bank, N.A., Cherry Hill, New Jersey
("Commerce NJ"), Commerce Bank/Pennsylvania, N.A., Devon, Pennsylvania
("Commerce PA"), Commerce Bank/Shore, N.A., Toms River, New Jersey ("Commerce
Shore"), and one state chartered bank subsidiary, Commerce Bank/North, Ramsey,
New Jersey ("Commerce North"). These four bank subsidiaries have 64 retail
branch offices in New Jersey, and 17 retail branch offices in Metropolitan
Philadelphia. CBH operates one nonbank subsidiary, Commerce Capital Markets,
Inc., Philadelphia, Pennsylvania ("CCMI"), which engages in certain securities
activities permitted to bank holding company subsidiaries under Section 20 of
the Glass-Steagall Act. In addition, CBH, through Commerce National Insurance
Services, Inc., a nonbank subsidiary of Commerce North ("Commerce National"),
operates an insurance brokerage firm concentrating on commercial property,
casualty and surety as well as personal lines of insurance for clients in
multiple states, primarily Delaware, New Jersey and Pennsylvania. As of June 30,
1998, CBH, on a consolidated basis, had total assets of approximately $4.4
billion, total deposits of approximately $3.9 billion and total shareholders'
equity of approximately $282.0 million.
CBH, through its four bank subsidiaries, provides a full range of
retail and commercial banking services for consumers and small and mid-sized
companies. Lending services are focused on commercial real estate, commercial
and consumer loans to local borrowers. CBH's lending and investment activities
are funded principally by retail deposits gathered through its retail branch
office network.
CBH maintains its executive offices at 1701 Route 70 East, Cherry Hill,
New Jersey, 08034-5400; telephone (609) 751-9000.
See "COMPARATIVE PER SHARE DATA" and "SUMMARY SELECTED HISTORICAL
CONSOLIDATED FINANCIAL INFORMATION OF CBH", "RECENT DEVELOPMENTS", "THE MERGER
- -- Business Pending Consummation and Related Matters" and "BUSINESS OF CBH --
History and Business."
<PAGE>
PFC
Prestige Financial Corp. ("PFC") is a one-bank holding company
headquartered in Raritan Township, New Jersey. As of June 30, 1998, on a
consolidated basis, PFC had total assets of approximately $310.4 million, total
deposits of approximately $287.6 million, and total shareholders' equity of
approximately $21.2 million.
PFC has one bank subsidiary, Prestige State Bank (the "Bank"), which is
a New Jersey chartered commercial bank. PSB Investment Management, Inc., a New
Jersey corporation and wholly-owned subsidiary of the Bank ("PSB Investment"),
manages a portfolio of investments for its own account. In addition, PFC
operates one nonbank subsidiary, PFC Financial Services, Inc., a New Jersey
corporation ("PFC Financial"), which provides customers with financial planning
and access to non-deposit investment products such as mutual funds, debt and
equity securities, and fixed and variable annuities, through Financial Network
Investment Corporation, a licensed broker/dealer, insurance agency and
registered investment advisor.
PFC, through the Bank, offers a broad range of lending, depository and
related financial services to individual consumers, businesses and governmental
units. Commercial lending services provided by the Bank include short and medium
term loans, Small Business Administration ("SBA") loans, revolving credit
arrangements, lines of credit, asset-based lending, real estate construction
loans and mortgage loans. Consumer banking services include various types of
deposit accounts, secured and unsecured loans, consumer installment loans,
mortgage loans and mortgage and other consumer oriented services. The Bank
currently accounts for substantially all of the total assets and the net income
of PFC.
PFC maintains its executive offices at 1 Royal Road, P.O. Box 2480,
Flemington, New Jersey, 08822; telephone (908) 806-6200.
See "COMPARATIVE PER SHARE DATA3" and "SUMMARY SELECTED HISTORICAL
CONSOLIDATED FINANCIAL INFORMATION OF PFC", "THE MERGER -- Business Pending
Consummation and Related Matters" and "BUSINESS OF PFC -- History and Business."
The Merger
Under the terms of the Agreement and Plan of Reorganization and a
related Amended Agreement and Plan of Merger each dated as of September 17, 1998
(collectively, the "Merger Agreement"), attached as Annex A and Annex B, PFC
will merge (the "Merger") with and into CBH. As a result of the Merger, each
share of PFC Common Stock ("PFC Common Stock") will be converted into a number
of shares of CBH Common Stock ("CBH Common Stock") (the "Exchange Ratio"), with
cash paid in lieu of fractional shares. The Exchange Ratio will be calculated by
dividing $16.25 ("PFC Per Share Price") by the average of the closing sale
prices for CBH Common Stock as quoted on the New York Stock Exchange ("NYSE")
for the five business day period ending on and excluding the second business day
before the Merger is consummated (the "Average Price"). However, a minimum
Exchange Ratio of .378 will apply if the Average Price is more than $43.00, and
a maximum Exchange Ratio of .439 will apply if the Average Price is less than
$37.00. The Board of Directors of PFC (the "PFC Board") will have the right to
terminate the Merger Agreement if the Average Price is below $33.00 (a
"Termination Event"). The PFC Board has not made any determination whether they
would elect to terminate the Merger Agreement if a Termination Event occurred,
and you should not assume that the PFC Board would exercise such right if the
Average Price is below $33.00.
-2-
<PAGE>
The effects of the above provisions on the Exchange Ratio may be
illustrated as follows:
<TABLE>
<CAPTION>
Average Price of CBH Common Stock Exchange Ratio
- ----------------------------------------------------- ------------------------------------------
<S> <C>
Greater than $43.00.................................. 0.378
Between $37.00 and $43.00............................ $16.25 divided by the Average Price
Less than $37.00..................................... 0.439
Less than $33.00..................................... 0.439; provided, however, that the PFC
Board will have the right to terminate
the Merger Agreement
</TABLE>
For illustrative purposes, if, hypothetically, the Average Price of CBH
Common Stock were $39.20, the Exchange Ratio would be 0.415 ($16.25 divided by
$39.20), and the holder of 100 shares of PFC Common Stock would receive 41
shares of CBH Common Stock and $19.60 (0.50 x $39.20) with respect to the
fractional share interest.
Upon the consummation of the Merger, CBH intends to convert the Bank
into a nationally charted banking association under the name, Commerce
Bank/Central, N.A.
PFC's Reasons For The Merger
The PFC Board unanimously approved the Merger and believes that the
Merger is in the best interests of the PFC shareholders. In reaching its
determination that the Merger is fair to, and in the best interests of, PFC and
its shareholders, the PFC Board considered a number of factors, including, but
not limited to: the relative liquidity offered by CBH Common Stock; the
historical financial results of CBH; the tax free nature of the transaction to
the PFC shareholders and the compatibility of the respective business and
management philosophies of CBH and PFC.
See "THE MERGER -- Background of Merger" and "-- Recommendation of the
PFC Board; PFC's Reasons for the Merger."
The Meeting
The Special Meeting of Shareholders of PFC (the "Meeting") will be held
on December [ ], 1998, at 5:30 p.m. at One Royal Road, Flemington, New Jersey
08822. The purpose of the Meeting is to consider and vote upon a proposal to
approve the Merger Agreement.
Only holders of record of PFC Common Stock as of the close of business
on November [ ], 1998 (the "Record Date") are entitled to notice of, and to vote
at, the Meeting.
See "SPECIAL MEETING OF PFC SHAREHOLDERS."
Approval of the Merger
The affirmative vote, in person or by proxy, of a majority of the votes
cast at the Meeting by the holders of shares of PFC Common Stock entitled to
vote thereon is required to approve the Merger. For purposes of determining the
votes cast with respect to any matter presented for consideration at the
Meeting, only those votes cast "FOR" or "AGAINST" are included; abstentions will
be counted solely for the purpose of determining whether a quorum is present.
-3-
<PAGE>
Recommendation of the PFC Board of Directors to Shareholders
The PFC Board believes that the Merger is in your best interest and
unanimously recommends that you vote FOR the proposal to approve the Merger
Agreement.
Ownership of CBH Following the Merger
CBH will issue approximately 1.9 million shares of CBH Common Stock to
PFC shareholders in the Merger. Based on that number, the shares of CBH Common
Stock issued to PFC shareholders in the Merger will constitute approximately
7.8% of the outstanding Common Stock of CBH after the Merger.
Effective Date
The effective date of the Merger (the "Effective Date") will occur as
soon as practicable after certain conditions to consummation of the Merger,
relating to approval of the Merger Agreement by PFC shareholders, receipt of the
requisite regulatory approvals and required consents of third parties to the
Merger and the listing on the NYSE of the shares of CBH Common Stock have been
satisfied or waived, or such other date as shall be mutually agreed upon by the
parties to the Merger Agreement. Subject to the foregoing, we anticipate that
the Effective Date will occur in January 1999.
Opinion of Financial Advisor
In deciding to approve the Merger, PFC's Board considered the oral
opinion rendered by its financial advisor, Endicott Financial Advisors, L.L.C.
("Endicott"), on September 16, 1998 (the "September Opinion") that the Exchange
Ratio was fair, from a financial point of view, to the shareholders of PFC as of
that date. That opinion was updated and rendered in written form as of November
6, 1998 (the "Proxy Opinion"), and is attached as Annex C to this Proxy
Statement-Prospectus. We encourage you to read this opinion. See "THE MERGER --
Opinion of Financial Advisor" and Annex C.
Interests of Certain Persons
In considering the PFC Board's recommendations that you vote in favor
of the Merger, you should be aware that Arnold F. Horvath, President of PFC, and
Robert J. Jablonski, Chief Executive Officer of PFC, (each of whom is a
director) have employment agreements that provide them with interests in the
Merger that are different from, or in addition to, yours. In addition, upon the
consummation of the Merger, each of Messrs. Horvath and Jablonski will be
entering into two-year employment agreements (with the option of CBH to extend
each for three one-year periods) with CBH. Moreover, there are provisions in the
Merger Agreement relating to indemnification, directors' and officers' liability
insurance, and certain employee benefits that provide certain members of PFC's
management and of the PFC Board with interests in the Merger that are different
from, or in addition to, yours. See "THE MERGER -- Interests of Certain Persons"
and "-- Resale of CBH Common Stock."
-4-
<PAGE>
Certain Federal Income Tax Considerations
The Merger has been structured so that neither CBH, PFC nor the
shareholders will recognize any gain or loss for federal income tax purposes in
the Merger, other than with respect to any cash received in lieu of fractional
share interests. Each of CBH and PFC have conditioned the Merger on its receipt
of an opinion of counsel that such is the case.
As certain tax consequences may vary depending upon the particular
circumstances of each of you as PFC shareholders, it is recommended that you
consult your own tax advisor concerning the federal (and any state, local and
foreign) tax consequences of the Merger in your particular circumstances.
See "THE MERGER -- Certain Federal Income Tax Consequences of the
Merger."
Regulatory Approvals
The Merger is subject to the prior approval of the Board of Governors
of the Federal Reserve System (the "Federal Reserve Board") under the Bank
Holding Company Act of 1956, as amended (the "BHCA"). In addition, the Merger
requires approval of the New Jersey Department of Banking and Insurance and the
conversion of the Bank into a nationally charted banking association under the
name, Commerce Bank/Central, N.A., requires approval of the Office of the
Comptroller of the Currency (the "OCC"). Applications have been filed with the
Federal Reserve Board, the New Jersey Department of Banking and Insurance and
the OCC. Approval by bank regulators does not constitute an endorsement of the
Merger or a determination by such regulators that the terms of the Merger are
fair to the PFC shareholders. We cannot assure you that any necessary regulatory
approval will be obtained or as to the timing or conditions of such approvals.
See "THE MERGER -- Regulatory Approvals."
Conditions to Consummation
The completion of the Merger depends upon satisfaction of a number of
conditions, including the continued accuracy of each party's representations and
warranties, the performance by each party of its obligations under the Merger
Agreement, and the absence of any events or changes with respect to either
having, or which reasonably could be expected to have, an adverse effect on that
party. Each of these conditions is subject to a "materiality" standard. In
addition, the approval of the PFC shareholders and certain regulatory
authorities as discussed elsewhere in this Proxy Statement-Prospectus is
required in order to consummate the Merger. Certain of the conditions to the
Merger may be waived by the company entitled to assert the condition.
Termination
We can agree to terminate the Merger Agreement without completing the
Merger, and either of us can terminate the Merger Agreement under various
circumstances, including if (i) the Merger is not completed by March 31, 1999,
for instance because the conditions summarized above are not met, or (ii) the
required approval of either the PFC shareholders or the regulatory authorities
(including the Federal Reserve Board) are not obtained. In addition, the PFC
Board may terminate the Merger Agreement if the Average Price is below $33.00.
See "THE MERGER -- Termination."
-5-
<PAGE>
Resale of CBH Common Stock
The shares of CBH Common Stock into which shares of PFC Common Stock
are converted on the Effective Date, will be freely transferable by the holders
of such shares, except for those shares held by those holders who may be deemed
to be "affiliates" of PFC or CBH under applicable federal securities laws.
In addition to the foregoing, consummation of the Merger is conditioned
upon "affiliates" of PFC having agreed not to sell or otherwise dispose of any
CBH Common Stock or PFC Common Stock beneficially owned by them during a period
commencing 30 days prior to the Effective Date and ending upon publication by
the CBH of combined financial statements covering at least 30 days of the
combined entities' operations after the Merger and except as permitted by SEC
Rule 145.
No Appraisal Rights
Under the New Jersey Business Corporation Act, as amended (the
"NJBCA"), PFC shareholders do not have the right to dissent from the Merger and
receive the appraised value of their shares in cash in connection with the
Merger.
Accounting Treatment
CBH expects the Merger to qualify as a pooling of interests, which
means that CBH will treat CBH and PFC as if they had always been combined for
accounting and financial reporting purposes. See "THE MERGER -- Accounting
Treatment."
Certain Differences in the Rights of PFC and CBH Shareholders
The rights of shareholders of PFC currently are determined by reference
to the NJBCA, PFC's Certificate of Incorporation (as amended, the "PFC
Certificate") and PFC's Bylaws. On the Effective Date, shareholders of PFC will
become shareholders of CBH, and their rights as shareholders of CBH will
continue to be determined by the NJBCA and by CBH's Restated Certificate of
Incorporation (as amended, the "CBH Certificate") and CBH's Bylaws. See
"DESCRIPTION OF CBH CAPITAL STOCK" and "CERTAIN DIFFERENCES IN THE RIGHTS OF PFC
AND CBH SHAREHOLDERS."
Listing of CBH Common Stock
The shares of CBH Common Stock issued in connection with the Merger
will be listed on the NYSE.
-6-
<PAGE>
SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF CBH
(In thousands, except per share data)
CBH is providing the following summary financial information with
respect to CBH to aid you in your analysis of the financial aspects of the
Merger. This information was derived from CBH's historical financial statements
(and related notes) contained in the annual reports and other information that
CBH has filed with the SEC and should be read in conjunction with that
information. See "WHERE YOU CAN FIND MORE INFORMATION." The historical financial
statements for the full years were audited; those for interim periods were not
audited. The unaudited financial information reflects all adjustments
(consisting only of normal recurring accruals) which are considered necessary to
present fairly the financial information for such periods. The following
historical financial information has been adjusted to reflect CBH's declaration
of a five-for-four stock split in the form of a twenty-five percent stock
dividend on its Common Stock paid on July 24, 1998 to CBH shareholders of record
as of July 13, 1998. The results of operations for any interim period are not
necessarily indicative of results for a full year, and historical results are
not necessarily indicative of future results.
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended December 31,
----------------------- ----------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ----------- ----------- ----------- ----------- ------------ -----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net interest income.................$ 82,662 $ 70,920 $ 147,140 $ 125,413 $ 109,899 $ 102,997 $ 81,432
Provision for loan losses........... 2,779 2,952 4,668 4,857 2,774 5,224 8,616
Non-interest income................. 40,600 26,520 57,374 32,776 23,623 19,591 20,677
Non-interest expense................ 84,009 64,313 137,929 109,031 89,316 82,734 68,785
Income before income taxes.......... 36,474 30,175 61,917 44,301 41,432 34,630 24,708
Net income.......................... 23,594 19,468 40,325 28,250 26,652 22,145 15,824
Balance Sheet Data:
Total assets........................$4,449,697 $3,597,979 $ 3,938,967 $ 3,232,152 $ 2,738,587 $ 2,571,704 $ 2,291,545
Loans (net)......................... 1,638,276 1,341,513 1,390,028 1,248,880 1,032,801 916,437 811,580
Securities available for sale....... 1,304,742 939,782 1,315,120 767,487 571,553 126,437 191,881
Securities held to maturity......... 1,039,730 934,687 874,032 837,512 772,999 1,257,551 1,001,040
Trading securities.................. 35,098 25,677 7,911 15,327 8,843 -- --
Federal funds sold.................. -- -- -- 26,975 42,370 18,300 23,675
Deposits............................ 3,862,590 3,187,279 3,369,404 2,919,670 2,529,186 2,099,247 1,989,598
Long-term debt...................... 24,795 25,821 25,308 26,333 27,359 28,385 28,954
Trust preferred securities.......... 57,500 57,500 57,500 -- -- -- --
Stockholders' equity................ 282,023 221,652 250,760 203,964 179,695 126,582 112,810
Per Share Data:
Net income-basic....................$ 1.06 $ 0.92 $ 1.89 $ 1.45 $ 1.38 $ 1.27 $ 0.89
Net income-diluted.................. 1.00 0.86 1.78 1.33 1.30 1.18 0.87
Cash dividends...................... 0.37 0.30 0.60 0.50 0.44 0.41 0.31
Book value ......................... 12.52 10.32 11.47 9.68 9.36 7.29 6.15
Average Shares Outstanding:
Basic............................ 22,260 20,929 21,055 18,875 18,511 16,215 15,313
Diluted.......................... 23,574 22,422 22,599 21,197 20,367 18,588 17,928
Selected Ratios (unaudited):
Performance:
Return on average assets............ 1.14% 1.17% 1.13% 0.96% 1.01% 0.89% 0.79%
Return on average equity............ 17.57 18.71 18.18 15.43 16.57 18.54 15.55
Net interest margin................. 4.40 4.70 4.55 4.72 4.58 4.51 4.50
Liquidity and Capital:
Average loans to average deposits... 40.65% 43.30% 42.42% 42.84% 41.92% 43.24% 44.23%
Dividend payout ratio............... 35.37 32.45 31.89 34.57 32.19 32.15 34.64
Stockholders' equity to total
assets............................ 6.34 6.16 6.37 6.31 6.56 4.92 4.92
Risk-based capital:
Tier 1............................ 14.83 15.58 15.66 12.57 12.64 10.04 9.13
Total............................. 16.93 17.99 17.73 15.09 15.49 13.08 12.20
Leverage capital.................... 7.68 8.14 7.81 6.46 6.43 4.93 4.59
Asset Quality:
Non-performing assets to total
period-end assets................. 0.30% 0.48% 0.44% 0.60% 0.81% 1.05% 1.48%
Net charge-offs to average loans
outstanding....................... 0.09 0.08 0.10 0.25 0.14 0.35 1.19
Non-performing loans to total
period-end loans.................. 0.46 0.76 0.82 0.89 0.97 1.64 1.44
Allowance for loan losses to total
period-end loans.................. 1.40 1.50 1.51 1.42 1.53 1.58 1.52
Allowance for loan losses to
non-performing loans.............. 305.34 197.70 183.46 159.88 156.72 96.26 105.53
</TABLE>
-7-
<PAGE>
SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF PFC
(In thousands, except per share data)
PFC is providing the following summary financial information with
respect to PFC to aid you in your analysis of the financial aspects of the
Merger. This information was derived from PFC's audited historical financial
statements (and related notes) for the years ended December 31, 1993 through
1997 and unaudited financial statements for the six months ended June 30, 1997
and 1998. See "CONSOLIDATED FINANCIAL STATEMENTS OF PFC." The unaudited
financial information reflects all adjustments (consisting only of normal
recurring accruals) which are considered necessary to present fairly the
financial information for such periods. The following historical financial
information has been restated to give retroactive effect to stock dividends and
stock splits through November [ ], 1998, and selected ratios for the six months
ended June 30, 1997 and 1998 have been annualized for comparability with year
ended results. The results of operations for any interim period are not
necessarily indicative of results for a full year, and historical results are
not necessarily indicative of future results.
<TABLE>
<CAPTION>
Six Months
Ended June 30, Year Ended December 31,
-------------------------- ---------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net interest income..................$ 5,617 $ 5,113 $ 10,603 $ 8,471 $ 6,545 $ 4,862 $ 3,949
Provision for loan losses............ 363 323 745 516 350 100 451
Non-interest income.................. 1,494 1,243 2,500 1,536 700 563 525
Non-interest expense................. 4,373 3,833 8,457 6,222 4,898 4,124 3,276
Income before income taxes........... 2,375 2,200 3,901 3,269 1,997 1,201 747
Net income........................... 1,650 1,408 2,704 2,043 1,172 710 523
Balance Sheet Data:
Total assets.........................$ 310,399 $ 257,551 $ 283,587 $ 229,517 $ 176,382 $ 132,572 $ 109,636
Loans (net).......................... 177,369 148,821 156,093 136,876 112,263 92,534 73,786
Securities available for sale........ 8,112 -- -- -- -- -- --
Securities held to maturity.......... 94,390 82,042 94,818 68,874 43,270 22,541 22,733
Trading securities................... -- -- -- -- -- -- --
Federal funds sold................... 10,307 6,030 11,313 8,950 10,525 8,525 7,425
Deposits............................. 287,616 238,984 263,156 212,596 163,517 122,439 100,112
Long-term debt....................... -- -- -- -- -- -- --
Trust preferred securities........... -- -- -- -- -- -- --
Stockholders' equity................. 21,189 17,347 18,889 15,710 12,058 9,505 8,951
Per Share Data:
Net income-basic.....................$ 0.39 $ 0.35 $ 0.66 $ 0.53 $ 0.33 $ 0.21 $ 0.15
Net income-diluted................... 0.36 0.33 0.62 0.50 0.32 0.21 0.15
Cash dividends....................... 0.14 0.11 0.26 0.17 0.07 0.04 0.02
Book value........................... 4.99 4.27 4.57 3.94 3.26 2.66 2.49
Average Shares Outstanding:
Basic............................ 4,178,833 4,020,453 4,053,170 3,842,460 3,314,139 3,236,404 3,108,948
Diluted.......................... 4,531,362 4,301,065 4,348,061 4,051,904 3,439,741 3,236,404 3,108,948
Selected Ratios (unaudited):
Performance:
Return on average assets............. 1.14% 1.17% 1.06% 1.01% 0.79% 0.61% 0.55%
Return on average equity............. 16.54 17.05 15.60 14.75 11.27 7.72 6.13
Net interest margin.................. 4.24 4.51 4.48 4.42 4.68 4.50 4.39
Liquidity and Capital:
Average loans to average deposits.... 61.84% 64.00% 63.06% 66.50% 75.67% 76.29% 78.23%
Dividend Payout Ratio................ 36.55 31.46 37.57 30.35 20.84 17.74 13.46
Stockholders' equity to total assets. 6.83 6.74 6.66 6.84 6.84 7.17 8.16
Risk-based capital:
Tier 1.......................... 10.33% 11.10% 10.78% 11.69% 10.71% 9.09% 9.87%
Total........................... 11.32 12.19 11.83 12.87 11.89 10.23 11.12
Leverage capital..................... 7.18 7.01 6.75 7.01 6.81 6.45 7.18
Asset Quality:
Non-performing assets to total
period-end assets.................. 0.44% 0.52% 0.38% 0.35% 0.01% 0.48% 0.45%
Net charge-offs to average loans
outstanding........................ 0.11 0.15 0.34 0.20 0.10 0.10 0.07
Non-performing loans to total
period-end loans................... 0.78 0.90 1.13 1.18 0.05 2.83 2.19
Allowance for loan losses to total
period-end loans................... 1.14 1.15 1.16 1.15 1.17 1.15 1.41
Allowance for loan losses to
non-performing loans............... 146.62 126.97 171.14 196.54 6022.73 169.07 212.88
</TABLE>
-8-
<PAGE>
RECENT DEVELOPMENTS
On August 12, 1998, CBH reached an agreement in principle to acquire
Community First Banking Company, Tinton Falls, New Jersey. The acquisition will
be completed by the issuance of CBH Common Stock totaling approximately 1.5
million shares. This acquisition, like the Merger, is intended to be a tax-free
reorganization under appropriate provisions of the Internal Revenue Code of
1986, as amended (the "Code"), and will be accounted for by CBH under the
pooling-of-interests method. Subject to stockholder and required governmental
approvals, the acquisition is expected to close during the first quarter of
1999. Unaudited pro forma combined financial information for CBH and Community
First Banking Company at or for the year ended December 31, 1997, includes the
following (dollars in thousands):
Assets $ 4,104,000
Deposits 3,521,000
Stockholders' equity 263,000
Net interest income 156,000
Net income 42,000
Pro forma diluted net income per common share will not differ materially from
the $1.78 historical net income per common share reported by CBH for 1997 after
adjusting for the 5-for-4 stock split in the form of a 25% stock dividend paid
on July 24, 1998.
On August 14, 1998, CBH completed the acquisition of J. A. Montgomery,
Inc., Wilmington, Delaware ("Montgomery"), an insurance brokerage firm, and
merged Montgomery with and into Commerce National. The acquisition was completed
by the issuance of CBH Common Stock totaling approximately 191,905 shares. The
transaction was accounted for as a pooling of interests. The financial
statements of CBH for the periods prior to the acquisition have not been
restated, as the changes would be immaterial.
A new national banking association subsidiary of CBH, Commerce
Bank/Delaware, N.A., is expected to open in the first quarter of 1999.
On October 14, 1998, CBH publicly released unaudited consolidated
condensed financial information as of and for the nine months ended September
30, 1998. The following table sets forth certain consolidated condensed
financial information with respect to CBH:
Nine Months Ended
September 30,
(In thousands, except per
share data)
--------------------------------
1998 1997
------------- ---------------
(unaudited)
Income Statement Data:
Net income................................. $ 36,153 $ 29,845
Per Share Data:
Net income - diluted(1).................... $ 1.53 $ 1.32
Balance Sheet Data:
Total assets............................... $ 4,579,894 $ 3,845,175
Loans (net)................................ 1,735,997 1,370,454
Total deposits............................. 4,133,495 3,325,214
Stockholders' equity....................... 294,587 236,826
Performance Ratios:
Return on average assets.................... 1.13% 1.14%
Return on average equity.................... 17.61 18.51
- -------------------------
(1) Adjusted for a five-for-four stock split in the form of a twenty-five
percent stock dividend on CBH Common Stock payable on July 24, 1998 to
stockholders of record as of July 13, 1998.
-9-
<PAGE>
On October 13, 1998, PFC publicly released unaudited consolidated
condensed financial information as of and for the nine months ended September
30, 1998. The following table sets forth certain consolidated condensed
financial information with respect to PFC:
Nine Months Ended
September 30,
(In thousands, except per
share data)
-------------------------------
1998 1997
------------- ---------------
(unaudited)
Income Statement Data:
Net income................................. $ 2,499 $ 2,120
Per Share Data:
Net income - diluted (1)................... $ 0.55 $ 0.49
Balance Sheet Data:
Total assets............................... $ 321,907 $ 268,510
Loans (net)................................ 195,533 158,112
Total deposits............................. 298,443 248,826
Stockholders' equity....................... 21,778 18,199
Performance Ratios:
Return on average assets.................... 1.12% 1.15%
Return on average equity.................... 16.24 16.70
- -------------------------
(1) Adjusted for the 6-for-5 stock split effective April 18, 1997 and the
5-for-4 stock split effective April 17, 1998.
-10-
<PAGE>
COMPARATIVE PER SHARE DATA
The following unaudited information, adjusted for any past stock
dividends and stock splits, sets forth certain comparative per share data
related to book value, cash dividends paid, net income and market value: (i) on
a historical basis for CBH and PFC; (ii) on a pro forma combined basis per share
of CBH Common Stock reflecting consummation of the Merger; and (iii) on an
equivalent pro forma basis per share PFC Common Stock reflecting consummation of
the Merger. Such information has been prepared (i) assuming a .415 Exchange
Ratio (assuming an Average Price of $39.20) and (ii) giving effect to the Merger
on a pooling of interests accounting basis as if the Merger had been consummated
at the beginning of the earliest period presented. See "THE MERGER -- Accounting
Treatment."
The information set forth below should be read in conjunction with, and
is qualified in its entirety by, the Summary Selected Historical Consolidated
Financial Information of CBH and PFC and the Consolidated Financial Statements
of PFC, including notes thereto, appearing elsewhere in this Proxy
Statement-Prospectus and the Consolidated Financial Statements of CBH included
in documents incorporated by reference in this Proxy Statement-Prospectus. See
"WHERE YOU CAN FIND MORE INFORMATION" and "CONSOLIDATED FINANCIAL STATEMENTS OF
PFC."
Book Value per Share
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
-------------------- --------------------
<S> <C> <C>
Historical book value per share of:
CBH Common Stock................................................. $ 12.52 $ 11.47
PFC Common Stock................................................. 4.99 4.57
Pro forma combined book value per share of CBH Common Stock (1).... 12.40 11.56
Equivalent pro forma book value per share of PFC Common Stock (2).. 5.15 4.80
</TABLE>
- ------------------------
(1) The pro forma combined book value per share of CBH Common Stock amounts
represent the sum of the pro forma combined common shareholders' equity
amounts, divided by the pro forma combined period-end number of shares
of common stock outstanding.
(2) The equivalent pro forma book value per share of PFC Common Stock
amounts represent the pro forma combined book value per share of CBH
Common Stock amounts, multiplied by a .415 Exchange Ratio.
Cash Dividends Paid per Share
<TABLE>
<CAPTION>
Six Months
Ended June 30, Years Ended December 31,
----------------- ---------------------------------
1998 1997 1996 1995
----------------- -------- --------- ---------
<S> <C> <C> <C> <C>
Historical cash dividends paid per share of:
CBH Common Stock..................................... $ 0.37 $ 0.60 $ 0.50 $ 0.44
PFC Common Stock..................................... 0.14 0.26 0.17 0.07
Pro forma combined cash dividends paid per share of
CBH Common Stock (1):
CBH and PFC.......................................... 0.36 0.56 0.44 0.34
Equivalent pro forma cash dividends paid per share of PFC
Common Stock (2):
CBH and PFC.......................................... 0.15 0.23 0.18 0.14
</TABLE>
- ------------------------
(1) The pro forma combined cash dividends paid per share of CBH Common Stock
amounts represent the pro forma combined cash dividends paid on shares of
CBH Common Stock outstanding, divided by the pro forma combined average
number of shares of CBH Common Stock outstanding, rounded to the nearest
cent.
(2) The equivalent pro forma cash dividends paid per share of PFC Common Stock
amounts represent the pro forma combined dividends paid per share of CBH
Common Stock amounts, multiplied by a .415 Exchange Ratio, rounded to the
nearest cent. The current annualized dividend rate per share of CBH Common
Stock, based upon the most recently declared quarterly dividend rate of
$0.195 per share of CBH Common Stock payable on October 20, 1998, would be
$0.78 (excluding the one-time special cash dividend of $0.20 per share
declared on June 29, 1998). On an equivalent pro forma basis, such current
annualized CBH dividend per share of PFC Common Stock would be $0.32,
based on a .415 Exchange Ratio, rounded down to the nearest cent. No
assurances can be given as to future dividend rates. Future CBH and PFC
dividends will be dependent upon the respective earnings and financial
conditions of CBH and PFC, as well as government regulations and policies
and other factors.
-11-
<PAGE>
Net Income per Share applicable to Common Shareholders
<TABLE>
<CAPTION>
Six Months
Ended June 30, Years Ended December 31,
------------------ -------------------------------------
1998 1997 1996 1995
------------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
Historical net income per share of:
CBH Common Stock (basic).................... $ 1.06 $ 1.89 $ 1.45 $ 1.38
CBH Common Stock (diluted).................. 1.00 1.78 1.33 1.30
PFC Common Stock (basic).................... 0.39 0.66 0.53 0.33
PFC Common Stock (diluted).................. 0.36 0.62 0.50 0.32
Pro forma net income per share of CBH Common Stock (1):
CBH and PFC (basic)......................... 1.04 1.85 1.42 1.31
CBH and PFC (diluted)....................... 0.99 1.75 1.31 1.24
Equivalent pro forma net income per share of
PFC Common Stock (2):
CBH and PFC (basic)......................... 0.43 0.77 0.59 0.54
CBH and PFC (diluted)....................... 0.41 0.73 0.54 0.51
</TABLE>
- ------------------------
(1) The pro forma combined net income per share of CBH Common Stock amounts
represent the pro forma combined net income applicable to holders of CBH
Common Stock, divided by the pro forma combined average number of shares
of CBH Common Stock outstanding.
(2) The equivalent pro forma net income per share of PFC Common Stock amounts
represent the pro forma combined net income per share of CBH Common Stock
amounts, multiplied by a .415 Exchange Ratio.
Market Value per Share
<TABLE>
<CAPTION>
September 16, 1998
----------------------
<S> <C>
Historical market value per share of:
CBH Common Stock................................................. $ 39.94
PFC Common Stock................................................. 13.00
Equivalent pro forma market value per share of
PFC Common Stock (1).......................................... 16.50
</TABLE>
- ------------------------
(1) The equivalent pro forma market values per share of PFC Common Stock
represent the historical market values per share of CBH Common Stock,
multiplied by a .415 Exchange Ratio, rounded down to the nearest
one-sixteenth. The CBH and PFC historical market values per share
represent the last reported sales price per share of CBH Common Stock
on the NYSE and PFC Common Stock on the NASDAQ National Market,
respectively, on September 16, 1998, the last trading day preceding
public announcement of the execution of the Merger Agreement. See
"COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION."
Because the market price of CBH Common Stock is subject to fluctuation,
the Exchange Ratio assumed herein may increase or decrease (subject, however, to
the limitations placed on the Average Price and the resulting minimum and
maximum Exchange Ratio as discussed elsewhere in this Proxy
Statement-Prospectus) prior to, as well as after, the receipt of such shares
following the Effective Date. PFC shareholders are urged to obtain current
market quotations for CBH Common Stock and PFC Common Stock. We cannot assure
you of the market prices of CBH Common Stock or PFC Common Stock at any time
before the Effective Date or as to the market price of CBH Common Stock
thereafter.
-12-
<PAGE>
SPECIAL MEETING OF PFC SHAREHOLDERS
General
We are sending you this Proxy Statement-Prospectus in order to provide
you with important information regarding the Merger and to solicit your proxy
for use at the Meeting (and any adjournments or postponements thereof). The
Meeting is scheduled to be held at One Royal Road, Flemington, New Jersey 08822,
and this document also serves as the official notice of such meeting. PFC has
established November , 1998, as the Record Date for its meeting. Only
shareholders of record of PFC Common Stock on the Record Date are entitled to
attend and vote at the special meetings.
Purposes
At the Meeting (and any adjournments or postponements thereof), the
shareholders of PFC will be asked (a) to approve the Merger Agreement and (b) to
consider such other business as may properly be presented at the Meeting.
Each copy of this Proxy Statement-Prospectus that is being sent to
shareholders is accompanied by an appropriate proxy card.
Voting Rights; Votes Required for Approval
On the Record Date, there were approximately _____________ shares of
PFC Common Stock outstanding and entitled to vote at the Meeting, held by
approximately ________ shareholders of record. Each of these holders is entitled
to cast one vote per share. The presence, in person or by proxy, of the holders
of a majority of the outstanding shares is necessary to constitute a quorum at
the Meeting. Pursuant to the NJBCA, abstentions and broker non-votes (which may
occur if a beneficial owner of PFC Common Stock where shares are held in a
brokerage or bank account fails to provide the broker or bank voting
instructions as to such shares) will be counted solely for the purpose of
determining whether a quorum is present. The affirmative vote, in person or by
proxy, of a majority of the votes cast at the Meeting by the holders of shares
of PFC Common Stock entitled to vote thereon is required to approve the Merger.
For purposes of determining the votes cast with respect to any matter presented
for consideration at the Meeting, only those votes cast "FOR" or "AGAINST" are
included; abstentions will be counted solely for the purpose of determining
whether a quorum is present.
As of the Record Date, the directors and executive officers of PFC
beneficially owned and have the right to vote, in the aggregate, [ ] shares of
PFC Common Stock, representing approximately [ ] percent of the votes entitled
to be cast at the Meeting by the holders of PFC Common Stock.
As of the Record Date, each of the directors of PFC have agreed in
writing to vote all shares of PFC Common Stock which they own or, subject to
their fiduciary duties, are entitled to vote, representing [ ] shares in the
aggregate, in favor of the Merger Agreement.
-13-
<PAGE>
Voting and Revocation of Proxies
All shares of PFC Common Stock represented at the Meeting by properly
executed proxies will be voted in accordance with the instructions indicated in
such proxies, except to the extent such proxies are revoked in advance of a
vote. If a stockholder signs and returns a proxy without voting instructions,
and the proxy is not revoked, the proxy will be voted for the approval of the
Merger Agreement.
A stockholder may revoke his or her proxy at any time in advance of a
vote by delivering to the Secretary of PFC, a signed notice of revocation or a
later-dated signed proxy or by attending the applicable special meeting and
voting in person. All written notices of revocation and other communications
with respect to revocation of PFC proxies should be addressed to: Prestige
Financial Corp., 1 Royal Road, P.O. Box 2480, Flemington, New Jersey 08822,
Attn: Corporate Secretary. Attendance at the Meeting will not, in and of itself,
constitute the revocation of a proxy.
Solicitation of Proxies
PFC will bear the expenses of soliciting proxies from the PFC
shareholders for the Meeting. In addition to solicitation by use of the mails,
PFC's directors, officers and employees may solicit proxies in person or by
telephone, telegram or by any other means of communication. These individuals
will not receive any special compensation for soliciting proxies, but they will
be reimbursed for their out-of-pocket expenses.
Other Matters
In the event that insufficient votes in favor of the Merger are
received prior to the scheduled meeting date, PFC may decide to postpone or
adjourn the Meeting, in which event the proxies that have been received that
either have been voted for the Merger or contain no instructions will be voted
for adjournment. PFC is not aware of any business to be brought before the
Meeting other than that described herein. If, however, other matters are
properly brought before the Meeting or any adjournments or postponements
thereof, the persons appointed as proxies will have discretionary authority to
vote the shares represented by properly executed proxies in accordance with
their discretion and judgment as to the best interests of PFC.
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THE MERGER
Certain Terms of the Merger Agreement
The following is a brief summary of certain terms of the Merger
Agreement. This summary is qualified in its entirety by reference to the Merger
Agreement, which is incorporated herein and attached hereto as Annex A and Annex
B. You are urged to read the Merger Agreement in its entirety.
Effect of the Merger
On the Effective Date, PFC will merge with and into CBH. CBH will be
the surviving corporation and PFC shareholders will automatically become
shareholders of CBH. Upon consummation of the Merger, CBH intends to convert the
Bank into a nationally charted banking association under the name, Commerce
Bank/Central, N.A.
Conversion of Shares
As a result of the Merger, each share of PFC Common Stock will be
converted into a number of shares of CBH Common Stock (the "Exchange Ratio"),
with cash paid in lieu of fractional shares. The Exchange Ratio will be
calculated by dividing $16.25 by the Average Price. However, a minimum Exchange
Ratio of .378 will apply if the Average Price is above $43.00, and a maximum
Exchange Ratio of .439 will apply if the Average Price is below $37.00. The PFC
Board will have the right to terminate the Merger Agreement if the Average Price
is below $33.00 (a "Termination Event"). The PFC Board has not made any
determination whether they would elect to terminate the Merger Agreement if a
Termination Event occurred, and you should not assume that the Board would
exercise such right if the Average Price is below $33.00. See "-- Termination."
The effects of the above provisions on the Exchange Ratio may be
illustrated as follows:
<TABLE>
<CAPTION>
Average Price of CBH Common Stock Exchange Ratio
--------------------------------- --------------
<S> <C>
Greater than $43.00................................. 0.378
Between $37.00 and $43.00........................... $16.25 divided by the Average Price
Less than $37.00.................................... 0.439
Less than $33.00.................................... 0.439; provided, however, that the PFC Board
will have the right to terminate the Merger
Agreement
</TABLE>
For illustrative purposes, if, hypothetically, the Average Price of CBH
Common Stock were $39.20, the Exchange Ratio would be 0.415 ($16.25 divided by
$39.20), and the holder of 100 shares of PFC Common Stock would receive 41
shares of CBH Common Stock and $19.60 (0.50 x $39.20) with respect to the
fractional share interest.
The calculation of the Exchange Ratio called for the by Merger
Agreement was intended by CBH and PFC to result in shareholders of PFC receiving
in the Merger CBH Common Stock with a value of $16.25 for each share of PFC
Common Stock, provided that the Average price of CBH Common Stock is between
$37.00 and $43.00. However, there can be no assurance that the Average
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Price will fall between $37.00 and $43.00 or, even if it does, that the number
of shares of CBH Common Stock issued in exchange per share of PFC Common Stock
in the Merger will have a value of $16.25 on the Effective Time or on the day
when certificates representing such shares of CBH Common Stock are issued or
delivered to PFC shareholders.
If, prior to the Effective Date, CBH Common Stock undergoes a stock
split, stock dividend, recapitalization or similar transaction, the Average
Price, and therefore the Exchange Ratio, will be proportionately adjusted.
Effective Date
The Effective Date will occur as soon as practicable after certain
conditions to consummation of the Merger, relating to approval of the Merger
Agreement by PFC shareholders, receipt of the requisite regulatory approvals and
required consents of third parties to the Merger and the listing on the NYSE of
the shares of CBH Common Stock to be issued in the Merger, have been satisfied
or waived, or such other date as shall be mutually agreed upon by the parties to
the Merger Agreement. Subject to the foregoing, we currently anticipate that the
Effective Date will occur in January 1999.
PFC Stock Certificates; Fractional Shares
As promptly as practicable after the Effective Date, CBH will cause
Chase/Mellon Shareholder Services, LLC (the "Exchange Agent") to send to each
holder of record of PFC Common Stock on the Effective Date, transmittal
materials for use in exchanging all of the holder's certificates representing
PFC Common Stock for a certificate or certificates representing the CBH Common
Stock to which the holder is entitled, and a check for the holder's fractional
share interest, if any. The transmittal materials will contain information and
instructions with respect to the surrender and exchange of such certificates.
Holders of PFC Common Stock should not send in their certificates until
they receive the letter of transmittal and instructions. Certificates should not
be returned with proxy cards.
Upon surrender of all of the certificates for PFC Common Stock
registered in the name of a holder of such certificates (or indemnity
satisfactory of CBH and the Exchange Agent if any of such certificates are lost,
stolen or destroyed), in accordance with the letter of transmittal, the Exchange
Agent will mail to the holder a certificate or certificates representing the
number of shares of CBH Common Stock to which the holder is entitled, together
with all undelivered dividends or distributions in respect of such shares and,
where applicable, a check for any fractional share interest (in each case,
without interest).
All shares of CBH Common Stock into which shares of PFC Common Stock
are converted on the Effective Date, will be deemed issued as of the Effective
Date. After the Effective Date, former holders of record of PFC Common Stock
will be entitled to vote at any meeting of holders of CBH Common Stock the
number of whole shares of CBH Common Stock into which their shares of PFC Common
Stock have been converted, regardless of whether they have surrendered their PFC
Common Stock certificates. CBH dividends having a record date on or after the
Effective Date will include dividends on shares of CBH Common Stock issued in
the Merger, but no dividend or other distribution payable to the holders of
record of shares of CBH Common Stock after 30 days after the Effective Date will
be distributed to the holder of any CBH Common Stock certificates until such
holder physically
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surrenders all of the certificates for such shares of PFC Common Stock as
herein-described above. Promptly after such surrender, all undelivered dividends
and other distributions and, where applicable, a check for any fractional share
interest, will be delivered to such holder (in each case, without interest). As
of the Effective Date, the stock transfer books of PFC will be closed, and there
will be no transfers on the transfer books of PFC of the shares of PFC Common
Stock that were outstanding immediately prior to the Effective Date.
Treatment of PFC Stock Options
On the Effective Date, PFC's obligations under its 1990 Long-Term
Incentive Compensation Plan for Key Employees (the "1990 Plan"), 1994 Stock
Option Plan for Key Employees (the "KEP"), 1994 Stock Option Plan for Senior
Management and 1994 Stock Option Plan for Outside Directors (collectively, the
"Plans") with respect to stock options granted thereunder (and to the extent
vested with respect to stock options granted under the KEP) and not therefore
exercised will be canceled and CBH shall deliver to the holders of PFC options
the number of shares of CBH Common Stock equal to the product of (i) the number
of shares of PFC Common Stock issuable upon the exercise of such holder's PFC
options and (ii) the excess, if any, of the Exchange Ratio multiplied by the
Average Price over the exercise price of such holder's PFC options; provided,
however that the holder of PFC options shall receive cash in lieu of any
fractional share of CBH Common Stock resulting from such multiplication in an
amount equal to such fractional part of a share of CBH Common Stock multiplied
by a number equal to the product of the Exchange Ratio and the Average Price.
On the Effective Date, each outstanding unvested option to purchase
shares of PFC Common Stock under the KEP will be converted into unvested options
to purchase CBH Common Stock (each a "CBH Stock Option"). Each holder of PFC
options under the KEP will receive an option to purchase the number of shares of
CBH Common Stock equal to the product of (i) the number of shares of PFC Common
Stock issuable upon the exercise of such holder's PFC options under the KEP and
(ii) the Exchange Ratio; provided, however that any fractional shares of CBH
Common Stock resulting from such multiplication will be rounded down to the
nearest whole share. The exercise price for the CBH Stock Options will be equal
to (i) the exercise price of the PFC Stock Option for which the CBH Stock Option
is being converted and issued in place thereof divided by (ii) the Exchange
Ratio; provided, however, that such exercise price will be rounded down to the
nearest whole cent. The duration and certain other terms of each CBH Stock
Option shall be substantially the same as that of each PFC Stock Option
exchanged therefor.
CBH has reserved for issuance a sufficient number of shares of CBH
Common Stock for delivery (i) to holders of PFC Options under the
above-referenced Plans in exchange for such options in accordance with the
Merger Agreement and (ii) upon exercise of the CBH Stock Options exchanged for
unvested PFC Stock Options granted under the KEP in accordance with the Merger
Agreement.
Background of Merger
In the late spring of 1998, PFC's Board discussed the economic,
business and competitive climate for banking and financial institutions in
general and for PFC in particular. The PFC Board noted that PFC had, for nearly
nine years, maintained a pace of asset and earnings growth virtually unmatched
by any other financial institution of which they were aware. This growth was
achieved through such things as de-novo branch openings, quality staff expansion
and retention, SBA lending leadership, technological superiority, aggressive
capital acquisition, high loan quality maintenance, creation of new divisions
and formation of operating subsidiaries. These factors led to nearly constant
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improvement in the market value of PFC's stock and the PFC Board believed that
investors had come to expect continuing growth at historical rates with trading
values reflecting performance expectations at least 12-15 months out. The PFC
Board concluded it would be very difficult to maintain the historical rates of
earnings and asset growth which could continually increase the value of PFC's
stock and that external factors beyond PFC's control posed additional risks.
Therefore, the PFC Board concluded that it was in the best interest of
shareholders to determine if there was a strategic merger candidate with greater
resources and diversity which would allow continued growth in shareholder value
as well as provide a merger premium with increased liquidity for existing
shareholders.
The PFC Board formed the Mergers and Acquisitions Committee (the "M&A
Committee") consisting of Messrs. DeFalco, Horvath and Jablonski. Over the next
few months the M&A Committee worked with Endicott, its investment bankers, to
identify a merger candidate and met with several potential candidates. One such
candidate was CBH. After CBH announced its plans in August 1998 to acquire
Tinton Falls Bank located in Monmouth County, New Jersey, Endicott discussed
with the M&A Committee that pursuant to CBH's strong de novo expansion strategy,
CBH may be interest in expanding in other New Jersey counties. Endicott was then
authorized by the M&A Committee to initiate conversations with CBH regarding PFC
serving as a base for CBH's expansion in Hunterdon and Somerset Counties.
Meetings with CBH's management led to CBH presenting an initial proposal to the
M&A Committee in early September 1998 which was manifested by a definitive
agreement prepared, reviewed and negotiated over several days by the M&A
Committee and representatives of CBH.
On September 16, 1998, the PFC Board met with legal counsel and
representatives of Endicott to review and vote upon the Merger Agreement and the
transactions contemplated thereby. The PFC Board unanimously approved the Merger
Agreement and it was executed on behalf of PFC effective September 17, 1998.
Recommendation of the PFC Board; PFC's Reasons for the Merger
The PFC Board unanimously approved the Merger and believes that the
Merger is in the best interests of the shareholders of PFC.
In reaching its determination that the Merger is fair to, and in the
best interests of, PFC and its shareholders, the PFC Board considered a number
of factors, both from a short-term and longer-term perspective, including, but
not limited to, the following:
i) the historical trading prices for PFC Common Stock and CBH
Common Stock, the relative liquidity offered by CBH Common Stock, which is
traded on the NYSE, compared with PFC Common Stock, which is traded on the
NASDAQ National Market, and the likelihood that the CBH Common Stock to be
received by PFC shareholders in the Merger would constitute a favorable premium
compared to expected future values of PFC Common Stock under a variety of
circumstances and assumptions;
ii) the historical financial results of CBH, information
furnished to the PFC Board regarding CBH's business, operations, financial
condition and future prospects, and the results of the due diligence
investigation conducted by PFC's management and financial advisors;
iii) the advice of Endicott, the detailed financial analyses,
pro forma results and other information presented by Endicott to the PFC Board,
including a comparison on the value of the
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<PAGE>
consideration to be paid in the Merger to that paid in other comparable
financial institution mergers, and Endicott's opinion that, as of September 16,
1998, the consideration to be received by the shareholders of PFC was fair from
a financial point of view. See " -- Opinion of PFC's Financial Advisor";
iv) the tax free nature of the transaction to PFC
shareholders;
v) the PFC Board's familiarity with and review of the
business, financial condition, results of operations and future prospects of
PFC, including the potential growth, development, productivity and profitability
of PFC should PFC remain independent;
vi) the current and prospective environment in which PFC
operates, including economic conditions, the competitive environment for banks
and financial institutions generally, the trend toward consolidation in the
financial services industry, and the likely effect of those factors on PFC's
potential growth, development and profitability;
vii) the compatibility of the respective business and
management philosophies of CBH and PFC, CBH's growing franchise in New Jersey,
the likelihood that the combined company would be more likely than PFC alone to
possess the financial and technological resources to compete more effectively in
the rapidly changing marketplace for banking and financial services, and the
expectation that CBH will continue to provide quality service to the communities
and customers served by PFC;
viii) PFC's possible alternatives to the Merger, including the
range of possible values of those alternatives and the timing and likelihood of
success in soliciting, negotiating, and actually receiving those values;
ix) the review by the PFC Board with its legal and financial
advisors of the provisions of the Merger Agreement;
x) the price protection afforded to PFC's shareholders in the
Merger due to the method of calculation of the Exchange Ratio and the ability of
the PFC Board to terminate the Merger Agreement if the Average Price of CBH
Common Stock is less than $33.00 per share;
xi) the "fiduciary out" provisions in the Merger Agreement and
the absence of any "lock-up" stock option;
xii) the impact the Merger would be likely to have on the
various constituencies served by PFC, including its shareholders, employees,
customers and community;
xiii) the provisions of the Merger Agreement on a variety of
issues affecting PFC directors and officers, including covenants that CBH will
terminate and pay out in full PFC's existing employment agreements with Arnold
F. Horvath and Robert J. Jablonski, that CBH will offer two year employment
contracts to each of Messrs. Horvath and Jablonski (with the option of CBH to
extend each for three one-year periods), and that CBH will appoint Louis R.
DeFalco as Vice Chairman to the Board of Directors of Commerce Bank/Central,
N.A.; and
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<PAGE>
xiv) the likelihood, based on CBH's prior acquisition history,
the non-overlapping nature of PFC's and CBH's existing markets and discussions
between the respective Chairman of CBH and PFC that CBH would be more inclined
than many other potential acquirors of PFC to offer continued employment and, in
some cases, enhanced employment opportunities, to a large number of current PFC
employees.
The foregoing does not purport to be a complete list of the matters
considered by the PFC Board in approving the Merger. In approving the Merger,
the PFC Board did not identify any one factor or group of factors as being more
important or significant than any other factor in the decision making process.
Because the PFC Board concluded that the long-term interests of PFC and
the maximization of value for its shareholders would best be served by combining
with CBH under the terms and conditions set forth in the Merger Agreement, PFC's
Board did not give substantial consideration to any proposals other than the one
made by CBH.
For the reasons described above, the PFC Board has unanimously approved
the Merger Agreement and has determined that the Merger is fair to, and is in
the best interest of, PFC and its shareholders. Accordingly, the PFC Board
unanimously recommends that PFC shareholders vote "FOR" the adoption and
approval of the Merger Agreement.
CBH's Reasons for the Merger
In reaching its conclusion to approve the Merger, the CBH Board
consulted with CBH's senior management, as well as with its legal advisors, and
considered various factors, including the following:
Consistency with CBH Strategy. The effectiveness of the Merger as a
method of implementing and accelerating CBH's strategy for long-term growth and
enhanced shareholder value. This included (a) increased revenue from the sale of
CBH products and services to PFC customers, (b) the strong PFC banking franchise
with a retail and middle-market focus in important markets in New Jersey, (c) a
bank with similar approaches to customer services, credit quality, expense
reduction, and growth and (d) opportunities to leverage capacity in technology
over a larger asset and customer base and to realize other expense savings.
Certain Financial Information. Certain financial information about the
Merger, CBH and PFC. This information included, but was not limited to,
information with regard to respective recent and historical stock performance,
valuation analyses, pro forma analyses, comparative financial data, and
comparable merger and acquisition transactions as presented by CBH's senior
management. CBH senior management also commented on its due diligence review.
Certain Nonfinancial Information. Certain nonfinancial terms and the
structure of the Merger, including information about the terms of the Merger
Agreement.
Regulatory Approvals. The likelihood of the Merger being approved by
the appropriate regulatory authorities. See "-- Regulatory Approvals."
The foregoing discussion of the information and factors considered by
the CBH Board is not intended to be exhaustive but includes all material factors
considered by the CBH Board. In reaching
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its determination to approve the Merger, the CBH Board did not assign any
relative or specific weights to the foregoing factors, and individual directors
may have given differing weights to different factors. After deliberating with
respect to the Merger and the other transactions contemplated by the Merger
Agreement, and considering, among other things, the matters discussed above, the
CBH Board unanimously approved the Merger Agreement and the transactions
contemplated thereby, as being in the best interests of CBH and its
shareholders.
Opinion of PFC's Financial Advisor
Since March 12, 1996, Endicott has formally acted as financial advisor
to PFC on a contractual basis. Endicott was initially retained, pursuant to a
retainer agreement, to provide general financial advisory services to PFC, and
such retainer agreement was supplemented with an agreement (the "Endicott
Agreement") signed on July 20, 1998 which outlined more specifically the
services Endicott would provide in the context of a potential merger
transaction.
The investment banking business of Endicott includes the valuation of
financial institutions and their securities in connection with mergers and
acquisitions and other corporate transactions. The PFC Board chose Endicott
because of its expertise, experience and familiarity with the financial
institutions industry.
In connection with its acting as financial advisor PFC, at the
September 16, 1998 meeting at which the PFC Board approved the Merger Agreement,
Endicott delivered its oral opinion (the "September Opinion") to the PFC Board,
that, as of such date, the Exchange Ratio was fair, from a financial point of
view, to the holders of PFC Common Stock. Endicott has delivered to PFC a
written opinion (the "Proxy Opinion") dated as of November 6, 1998 that, as of
the date of such opinion, the Exchange Ratio is fair, from a financial point of
view, to the holders of PFC Common Stock.
The full text of the Proxy Opinion is attached as Annex C to this Proxy
Statement-Prospectus and is incorporated herein by reference. The description of
the Proxy Opinion set forth herein is qualified in its entirety by reference to
Annex C. PFC shareholders are urged to read the Proxy Opinion in its entirety
for a description of the procedures followed, assumptions made, matters
considered and qualifications on the review undertaken by Endicott in connection
herewith. The Proxy Opinion is directed only to the Exchange Ratio and does not
constitute a recommendation to any shareholder of PFC as to how such shareholder
should vote at the Meeting.
In connection with rendering its September and Proxy Opinions, Endicott
reviewed and considered, among other things: (i) the Merger Agreement; (ii)
audited consolidated financial statements and management's discussion and
analysis of financial condition and results of operations for PFC for the three
fiscal years ended December 31, 1995, December 31, 1996 and December 31, 1997
and the unaudited consolidated financial statements of PFC for the periods
ending March 31, 1998 and June 30, 1998; (iii) audited consolidated financial
statements and management's discussion and analysis of financial condition and
results of operations for CBH for the three fiscal years ended December 31,
1995, December 31, 1996 and December 31, 1997 and the unaudited consolidated
financial statements of CBH for the periods ending March 31, 1998 and June 30,
1998; (iv) financial analyses and forecasts for PFC and CBH prepared by and/or
reviewed with the respective managements of PFC and CBH; (v) the views of senior
management of PFC and CBH of their respective past and current business
operations, results thereof, financial condition and future prospects; (vi)
certain reported price and
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trading activity for PFC Common Stock and CBH Common Stock, including a
comparison of certain financial and stock market information for PFC and CBH
with similar information for certain other companies the securities of which are
publicly traded; (vii) the financial terms of recent business combinations in
the banking industry; (viii) the pro forma impact of the transaction on CBH;
(ix) the current market environment generally and the banking environment in
particular; and (x) such other information, financial studies, analyses and
investigations and financial, economic and market criteria with Endicott
considered relevant.
No limitations were imposed on Endicott by the PFC Board with respect
to the investigation made or procedures followed by Endicott in rendering its
September Opinion or its Proxy Opinion. In connection with rendering its
September and Proxy Opinions to the PFC Board, Endicott performed a variety of
financial analyses. The following is a summary of the material financial
analyses performed by Endicott, but does not purport to be a complete
description of Endicott's analyses of presentation at the September 16, 1998
meeting of the PFC Board. Endicott believes that its analyses 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 the process underlying the fairness
opinion of Endicott. The preparation of a fairness opinion is a complex process
involving subjective judgments and is not necessarily susceptible to partial
analyses or summary description. In its analyses, Endicott made numerous
assumptions with respect to industry performance, business and economic
conditions and various other matters, many of which are beyond the control of
PFC and CBH. Any estimates contained in Endicott's analyses are not necessarily
indicative of future results or values, which may be significantly more or less
favorable than such estimates. Estimates of values of companies do not purport
to be appraisals or necessarily reflect the prices at which the companies or
their securities may be sold.
The following summary of selected analyses prepared by Endicott and
presented to the PFC Board in connection with the September Opinion and analyzed
by Endicott in connection with the September and Proxy Opinions. In connection
with delivering the Proxy Opinion, Endicott updated certain analyses described
below to reflect current market conditions and events occurring since the date
of the September Opinion. Such reviews and updates led Endicott to conclude that
it was not necessary to change the conclusions it had reached in connection with
rendering the September Opinion.
Analysis of Publicly Traded Companies. In preparing its presentation,
Endicott used publicly available information to compare selected financial and
market information, including book value, tangible book value, earnings, asset
quality ratios, loan loss reserve levels, profitability and capital adequacy for
CBH and other publicly traded regional commercial banks located in the
Mid-Atlantic United States. This peer group consisted of institutions ranging in
assets from $1 billion to $6 billion. Endicott used similar data for nationwide
high-performance commercial banks in the same asset size range that had a return
on equity for the last fiscal quarter of greater than 15% and a
price-to-tangible book value greater than 150%. Endicott reviewed the historical
financial information for CBH and the median value for each group since December
1993. Endicott calculated a range of stock market valuation of the selected peer
groups based on their valuation multiples at December 31, 1997, June 30, 1998,
and at September 10, 1998. The range for December 31, 1997 was $31.36 to $40.40,
for June 30, 1998 was $33.12 to $41.63, and for September 10, 1998, was $27.24
to $35.92.
Separately, Endicott performed a similar analysis for PFC and
comparable publicly traded companies. The peers consisted of a group of
commercial banks located in the Mid-Atlantic United States with assets ranging
between $100 million to $500 million and nationwide high performing commercial
banks within the same asset size range with return on equity greater than 15%
and price-to-tangible book value greater than 150%. Endicott calculated a range
of stock market valuation of the selected peer groups based on their valuation
multiples at December 31, 1997, June 30, 1998, and at September 10, 1998. The
range for December 31, 1997 was $9.60 to $13.70, for June 30, 1998 was $9.57 to
$14.02, and for September 10, 1998, was $8.42 to $12.91.
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Analysis of Selected Merger Transactions. Endicott reviewed merger and
acquisition transactions announced since January 1, 1990 involving public
commercial banking institutions as acquirees and having a transaction value over
$15 million (each a "Transaction"). Among those reviewed were: (i) Transactions
announced between January 1, 1998 and September 14, 1998 (the "1998 Nationwide
Transactions"); (ii) Transactions involving institutions with total assets of
between $200 and $500 million announced between January 1, 1998 and September
14, 1998 (the "1998 Transactions"); and (iii) Transactions involving
institutions located in the Mid-Atlantic States between January 1, 1998 and
September 14, 1998 (the "1998 Regional Transactions"). Endicott reviewed the
price to last twelve months earnings, price to book value, price to tangible
book value, price to deposits, price to assets, and deposit premium paid in each
such transaction and computed high, low, mean and median ratios and premiums for
the respective groups of transactions. Endicott's computations yielded the
following median mutiples for the 1998 Nationwide Transactions, 1998
Transactions, and the 1998 Regional Transactions, respectively, as compared with
the following indicated multiples for the Merger: (i) price to last twelve
months earnings multiples of 22.81x, 23.87x, and 29.84x, compared with 24.62x
for the Merger; (ii) price to book value of 300.0%, 285.7%, and 293.3% as
compared with 325.65% for the Merger; (iii) price to tangible book value of
313.8%, 307.1%, and 293.3% as compared to 325.65% for the Merger, and (iv) core
deposit premiums of 26.6%, 24.0%, and 29.3% as compared with 21.09% for the
Merger.
In addition to the analysis of selected merger transactions, Endicott
reviewed the stock market performance of the most active acquiring commercial
banks in the country. Endicott considered the impact that the recent drop in the
value of the stocks of such acquiring companies would have on merger and
acquisition pricing in the near future.
No company or transaction, however, used in this analysis is identical
to PFC, CBH or the Merger. Accordingly, an analysis of the result of the
foregoing is not mathematical; rather, it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that would affect the public trading values of
the companies or company to which they are being compared.
Discounted Earnings, Dividend Stream and Terminal Value Analysis. Using
a discount earnings and dividend stream and terminal value analysis, Endicott
estimated the future stream of earnings flows that PFC could be expected to
produce through 2004 under various operating assumptions. Terminal values were
calculated utilizing a range of price to earnings multiples from ten to
twenty-four times and price to tangible book value multiples from 160% to 300%.
The net income streams and terminal values were then discounted to present
values using discount rates between 9% and 12% chosen to reflect different
assumptions regarding the required rates of return holders or prospective buyers
of PFC Common Stock would expect. This analysis assumed that PFC continued its
current cash dividend policy and indicated a reference range of between $9.38
and $23.61 per share.
Pro Forma Merger Analysis. Endicott performed pro forma merger analyses
that combined PFC's and CBH's current and projected income statements and
balance sheets based on earnings forecasts of PFC and CBH management,
respectively. Assumptions and analyses of the accounting treatment, acquisition
adjustments, operating efficiencies and other adjustments were made to arrive at
a base case pro forma analysis to determine the effect of the transaction on
both PFC and CBH. Endicott noted that, based on a $16.25 per share price for
each share of Prestige Common Stock, the impact of the Merger on Commerce did
not appear to be material based on such forecasts.
Pursuant to the terms of the Endicott Agreement, PFC paid Endicott a
fee of $50,000 (the "September Opinion Fee") for rendering its September
Opinion. In addition, and pursuant to the terms of the Endicott Agreement, PFC
will pay Endicott a transaction fee (the "Transaction Fee") equal to .80% of
the value of the Merger (calculated at the Effective Date), of which
approximately 25% was paid upon the signing of the Merger Agreement and the
remaining portion is payable upon the consummation of the Merger. Pursuant to
the Endicott Agreement, the September Opinion Fee will be credited against the
Transaction Fee. Based upon the consummation of the Merger as contemplated in
the Merger Agreement, Endicott will be paid a Transaction Fee of approximately
$600,000 for its services in connection with the Merger. PFC has also agreed
to reimburse Endicott for its reasonable
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out-of-pocket expenses incurred in connection with its engagement and to
indemnify Endicott and its affiliates and their respective partners, directors,
officers, employees, agents and controlling persons against certain expense and
liabilities, including liabilities under securities laws.
Interests of Certain Persons
In considering the recommendations of the PFC Board with respect to the
Merger, shareholders of PFC should be aware that certain members of the PFC
Board and management of PFC have certain interests in the Merger that may be in
addition to or different from the interests of shareholders of PFC generally.
The PFC Board was aware of these interests and considered them, among other
factors, in approving the Merger. These interests are summarized below.
Employment Agreements with PFC Senior Management. Two members of PFC's
senior management, Arnold F. Horvath and Robert J. Jablonski, had employment
agreements with PFC providing them with certain benefits in the event of a
"Change in Control", as defined therein, of PFC. In general, these benefits
included: (i) the right to receive a payment from PFC, upon a termination of
employment in the event of a Change in Control, in an amount equal to 2.99 times
the annual base salary and yearly average incentive compensation paid to such
employee for the two fiscal years prior to such Change in Control; (ii)
accelerated vesting of all granted but unvested Stock Appreciation Rights
("SARs") and all ungranted SARs under PFC's Long Term Incentive Compensation
Plan for Senior Management upon a Change in Control; provided, however, that PFC
shall cause such accelerated vesting of the SARs value to such employee to be in
a manner so as to minimize any potential "excess parachute payment" as defined
in Section 280G of the Code; and (iii) the right to receive a lump sum payment
of $200,000, if such employee elects at any time within 24 months after a Change
in Control to leave the employ of PFC.
Given that the consummation of the Merger Agreement will constitute a
Change in Control for purposes of each of the employment agreements with Messrs.
Horvath and Jablonski, each such agreement will be terminated and paid out in
full in an amount equal to $1,879,596 and $1,879,596, respectively, as a result
of the Merger. In addition, upon the consummation of the Merger, each of Messrs.
Horvath and Jablonski will receive retirement benefits pursuant to PFC's
Executive Supplemental Retirement Income Agreement ("SERP"), described below,
and will be entering into two-year employment agreements (with the option of CBH
to extend each for three one-year periods) with CBH under which they will each
receive an annual base salary of $145,000.
Designation of Louis R. DeFalco, PFC's Chairman of the Board, Arnold F.
Horvath and Robert J. Jablonski to the Board of Directors of Commerce
Bank/Central, N.A. In the Merger Agreement, CBH has agreed to have Mr. DeFalco
elected as Vice Chairman to the Board of Directors of Commerce Bank/Central,
N.A. ("Commerce Bank/Central") effective upon completion of the Merger. CBH has
also agreed to have Messrs. Horvath and Jablonski elected to the Board of
Directors of Commerce Bank/Central.
Indemnification; Directors' and Officers' Insurance. The Merger
Agreement provides that CBH will indemnify the past and present directors,
officers and employees of PFC against certain liabilities (and will advance
certain expenses) following the Effective Date, to the fullest extent that such
persons would have been entitled to indemnification (or to advancement of
certain expenses) under the laws of the State of New Jersey and the PFC
Certificate and Bylaws as in effect on the date of the Merger Agreement.
-24-
<PAGE>
Stock Options for Senior Management. PFC has granted stock options to
each of Messrs. Horvath and Jablonski under the PFC 1994 Stock Option Plan for
Senior Management (as amended, the "PFC Senior Management Stock Option Plan").
Options granted pursuant to the PFC Senior Management Stock Option Plan may be
Incentive Stock Options or Non-Qualified Stock Options within the meaning of
Section 422 of the Code, and vest in not more than five years from the date of
grant unless all or part are accelerated upon a "Change in Control", as defined
in the PFC Senior Management Stock Option Plan. Unless terminated earlier by its
terms, the options under the PFC Senior Management Stock Option Plan expire ten
years after the date they are granted. Pursuant to the PFC Senior Management
Stock Option Plan and as of the date of this Proxy Statement-Prospectus, each of
Messrs Horvath and Jablonski held options to purchase 58,131 shares of PFC
Common Stock exercisable by their terms. Pursuant to the terms of the PFC Senior
Management Stock Option Plan, and the individual stock option agreements with
each of Messrs. Horvath and Jablonski, options to purchase 28,624 shares of PFC
Common Stock will become exercisable to each of Messrs. Horvath and Jablonski
upon a Change in Control. The consummation of the Merger Agreement will
constitute a Change in Control for purposes of the PFC Senior Management Stock
Option Plan. Accordingly, currently unvested options issued pursuant to the PFC
Senior Management Stock Option Plan will become vested and exercisable upon
consummation of the Merger Agreement.
The following table sets forth information relating to options granted
under the PFC Senior Management Stock Option Plan with respect to each of
Messrs. Horvath and Jablonski, including (i) the number of shares covered by
options held by such persons, (ii) the number of shares covered by options held
by such persons that are currently exercisable, (iii) the number of shares
covered by options held by such persons that will become exercisable upon
consummation of the Merger Agreement, (iv) the weighted average exercise price
for such exercisable options held by such persons (assuming the consummation of
the Merger), and (v) the aggregate value of such exercisable options based upon
the per share value (i.e., the PFC Per Share Price less the option exercise
price).
<TABLE>
<CAPTION>
Options Weighted Average
Exercisable Exercise Price Per
Options Upon Consummation Share for Aggregate Value
Currently of the Exercisable of Exercisable
Options Held Exercisable Merger Options Options
------------ ------------ ------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Horvath, Arnold F................. 86,755 58,131 28,624 $ 6.99 $803,139
Jablonski, Robert J............... 86,755 58,131 28,624 6.99 $803,139
</TABLE>
Stock Options for Key Employees. PFC has granted stock options to
certain key employees of PFC and the Bank including, without limitation, each of
Messrs. Horvath and Jablonski, under the PFC 1994 Stock Option Plan for Key
Employees (the "KEP"). Options granted pursuant to the KEP may be Incentive
Stock Options or Non-Qualified Stock Options within the meaning of Section 422
of the Code, and vest in not more than five years from the date of grant. Unless
terminated earlier by its terms, the options under the KEP expire ten years
after the date they are granted. Pursuant to the KEP and as of the date of this
Proxy Statement-Prospectus, options to purchase 276,150 shares of PFC Common
Stock have been granted of which 87,813 options are exercisable by their terms
and 1,562 are unvested and therefore unexercisable by each of Messrs. Horvath
and
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<PAGE>
Jablonski. On the Effective Date, each outstanding vested option to purchase
shares of PFC Common Stock under the KEP will be canceled and CBH will deliver
to holders of such options a number of shares of CBH Common Stock reflecting the
Exchange Ratio, with cash paid in lieu of fractional shares. Each unvested
option to purchase shares of PFC Common Stock under the KEP will be converted,
on the Effective Date, into unvested options to purchase CBH Common Stock. See
"-- Treatment of PFC Stock Options"
The following table sets forth information relating to options granted
under the KEP with respect to each of Messrs. Horvath and Jablonski, including
(i) the number of shares covered by options held by such persons, (ii) the
number of shares covered by options held by such persons whether currently
exercisable, (iii) the weighted average exercise price for such exercisable
options held by such persons, and (iv) the aggregate value of such exercisable
options based upon the per share value (i.e., the PFC Per Share Price less the
option exercise price).
<TABLE>
<CAPTION>
Weighted Average
Exercise Price per
Options Share for Aggregate Value
Currently Exercisable of Exercisable
Options Held Exercisable Options Options
------------ ------------ ---------------- ----------------
<S> <C> <C> <C> <C>
Horvath, Arnold F................. 89,375 87,813 $ 6.14 $887,586
Jablonski, Robert J............... 89,375 87,813 6.14 $887,586
</TABLE>
Stock Options for Outside Directors. PFC has granted stock options to
certain non-employee directors under the PFC 1994 Stock Option Plan for Outside
Directors (the "PFC Outside Director Plan"). Options granted pursuant to the PFC
Outside Director Plan are Non-Qualified Stock Options within the meaning of
Section 422 of the Code, and vest in two equal annual installments with the
first installment vesting one year from the date of grant unless all or part are
accelerated upon a "Change in Control", as defined in the PFC Outside Director
Plan. Unless terminated earlier by the option's terms, the options under the PFC
Outside Director Plan expire upon the earlier of ten years following the date of
grant or one year following the date on which the optionee ceases to serve as a
director. Pursuant to the PFC Outside Director Plan and as of the date of this
Proxy Statement-Prospectus, options to purchase 111,373 shares of PFC Common
Stock are exercisable by their terms. Pursuant to the terms of the individual
stock option agreements with outside directors, options to purchase an
additional 45,625 shares, in the aggregate, of PFC Common Stock will become
exercisable upon a Change in Control. The consummation of the Merger Agreement
will constitute a Change in Control for purposes of the PFC Outside Director
Plan. Accordingly, the foregoing options issued pursuant to the PFC Outside
Director Plan will become vested and exercisable upon consummation of the Merger
Agreement.
The following table sets forth information relating to options granted
under the PFC Outside Director Plan with respect to the named outside directors
therein and all outside directors as a group (collectively, the "Outside
Director Group"), including (i) the number of shares covered by options held by
such persons, (ii) the number of shares covered by options held by such persons
that are currently exercisable, (iii) the number of shares covered by options
held by such persons that will become exercisable upon consummation of the
Merger Agreement, (iv) the weighted average exercise price for such exercisable
options held by such persons (assuming the consummation of the Merger), and (v)
the aggregate value of such exercisable options based upon the per share value
(i.e., the PFC Per Share Price less the option exercise price).
<TABLE>
<CAPTION>
Options Weighted Average
Exercisable Exercise Price Per
Options Upon Consummation Share for Aggregate Value
Currently of the Exercisable of Exercisable
Options Held Exercisable Merger Options Options
------------ ------------ ------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Boehm, Roland D................... 35,937 26,812 9,125 $ 7.84 $302,144
DeFalco, Louis R.................. 35,937 26,812 9,125 7.84 302,144
Lustig, Gerald A.................. 35,937 26,812 9,125 7.84 302,144
MacDonald, James W................ 35,937 26,812 9,125 7.84 302,144
Stryker, Jr., Arthur.............. 13,250 4,125 9,125 10.21 80,062
Outside Director Group,
including the 5 directors
named above (5 persons in
total)........................ 156,998 111,373 45,625 $ 8.04 $1,288,639
</TABLE>
Plan Share Awards for Outside Directors. Non-employee directors who had
served as directors of PFC or the Bank for at least three years as of January 1,
1994 were eligible to receive shares of PFC
-26-
<PAGE>
Common Stock held in trust by PFC ("Plan Share Awards") pursuant to PFC's
Recognition and Retention Plan for Founding Outside Directors (the "PFC
Recognition Plan"). Each of Messrs. Boehm, DeFalco, Lustig and MacDonald have
been awarded 14,025 Plan Shares under the Recognition Plan, of which 3,509 Plan
Shares are unearned by each such person as of the Record Date. Pursuant to the
PFC Recognition Plan, all unearned Plan Shares will be deemed earned by such
persons as of such person's last day of service as an outside director with PFC
or the Bank upon a "Change in Control", as defined therein. The consummation of
the Merger Agreement will constitute a Change in Control for purposes of the PFC
Recognition Plan.
Supplemental Executive Retirement Plan. PFC adopted a non-tax qualified
retirement plan for certain of its executives ("SERP") to supplement the benefit
such executives can receive under PFC's 401(k) Thrift Plan. The SERP is designed
to provide a benefit (less the benefits estimated to be provided under the
Thrift Plan) that is equal to 60 percent of the executive's final salary. The
benefit is payable over the greater of 180 months or the executive's life. In
the case of an executive's involuntary termination of employment for any reason
(other than for cause) or voluntary termination of employment in connection with
a "Change in Control", as defined in the SERP, the executive is entitled to a
benefit equal to the greater of the annuitized present value of the accrued
benefit of $75,000 per year, payable within 30 days of such termination. The
consummation of the Merger Agreement will constitute a Change in Control for
purposes of the SERP giving rise to PFC making a final lump sum contribution
equal to the present value of all remaining contributions to the Retirement
Income Trust Fund, as defined in the SERP; provided that such contribution shall
be made in such a manner as to minimize any potential "excess parachute payment"
as defined in Section 280G of the Code. As of the Record Date, Messrs. Horvath
and Jablonski were the only participants in the SERP. Pursuant to the terms of
the SERP, $1,092,132 and $1,098,677, respectively, will be paid to the trustee
of the Retirement Income Trust Fund to fund the retirement plans for each of
Messrs. Horvath and Jablonski.
Retirement Benefits for Directors of the Bank. The Bank has adopted a
non-tax qualified retirement plan for directors (the "PFC Directors Retirement
Plan") that provides directors who serve on the Board of the Bank for at least
ten years with an annual retirement benefit equal to a designated amount ("Level
1 Retirement Benefit"). In the event that a director continues to serve on the
Board of the Bank to an age specified in such person's Directors Retirement Plan
Joinder Agreement, as defined in the Directors Retirement Plan, the director is
entitled to a Level 2 Retirement Benefit (in lieu of the Level 1 Retirement
Benefit). Under the PFC Directors Retirement Plan, if a "Change in Control", as
defined therein, occurs at the Bank or PFC, and thereafter a director's service
is terminated (voluntarily or involuntarily), then such director will be
entitled to receive his Level 2 Retirement Benefit commencing on the first day
of the month following his termination of service and payable in monthly
installments throughout the Level 2 Payout Period, as defined therein. The
consummation of the Merger Agreement will constitute a Change in Control for
purposes of the PFC Directors Retirement Plan. Pursuant to the terms of the PFC
Directors Retirement Plan, $603,618, $380,297, $229,566, $696,626 and $257,201,
respectively, will be paid to the trustee to fund the Level 2 Retirement
Benefits for Messrs. Boehm, MacDonald, Lustig, Stryker and DeFalco.
As of the Record Date, Messrs. Boehm, MacDonald, Lustig, Stryker and
Defalco beneficially owned, respectively, ____________, ____________,
____________, ____________, and ____________ shares of PFC Common Stock.
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<PAGE>
Certain Federal Income Tax Consequences of the Merger
The following is a summary of the anticipated material federal income
tax consequences of the Merger to CBH, PFC and the shareholders of PFC. The
discussion is based on current provisions of the Code, applicable Treasury
Regulations and the applicable judicial and administrative interpretations on
the date hereof, any of which is subject to change at any time. It is based upon
the parties' understanding of the federal income tax laws as currently
interpreted and does not address issues of state or local taxation. The summary
of the anticipated material federal income tax consequences of the Merger to the
shareholders of PFC which follows is limited to those persons who hold shares of
PFC Common Stock as "capital assets" (generally property held for investment)
within the meaning of Section 1221 of the Code. The following discussion does
not address all aspects of federal income taxation that may be important to
particular taxpayers in light of their personal circumstances or to taxpayers
subject to special treatment under the federal income tax laws (including life
insurance companies, foreign persons, tax-exempt entities, holders who acquired
their common stock pursuant to the exercise of employee stock options or
otherwise as compensation and persons who hold, directly or indirectly, 10% or
more of PFC Common Stock or any class of PFC Common Stock) and does not address
any aspect of state, local or foreign taxation. No rulings have been or will be
requested from the IRS with respect to any of the matters discussed herein.
There can be no assurance that future legislation, regulations, administrative
rulings or court decisions will not alter the tax consequences set forth below.
It is a condition to the Merger that CBH and PFC will receive an
opinion of counsel, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a)(1)(A) of the Code.
Tax Consequences to CBH and PFC. No gain or loss will be recognized by
CBH or PFC as a result of the Merger.
Receipt of CBH Common Stock in Exchange for PFC Common Stock. A PFC
shareholder who receives shares of CBH Common Stock in exchange for shares of
PFC Common Stock will not recognize federal gain or loss upon receipt of such
shares of CBH Common Stock. The shareholder's tax basis in the stock received
will be the same as the shareholder's tax basis in the shares exchanged in the
Merger. The holding period of the CBH Common Stock received by the shareholders
of PFC in the Merger will include the period during which the shares of PFC
Common Stock was held as a capital asset as of the completion of the Merger.
Receipt of Cash in Lieu of CBH Fractional Shares. The receipt of cash
by PFC shareholders in lieu of fractional shares will generally be treated as a
taxable distribution in redemption of their fractional interests. This payment
of cash in lieu of fractional shares will generally be treated as a sale or
exchange by a PFC shareholder of such fractional shares provided that the cash
payment is being made solely for the purpose of avoiding the administrative
inconvenience related to issuing and transferring fractional share interests and
is not separately bargained-for consideration. In that case, a PFC shareholder
will generally recognize gain or loss, if any, for federal income tax purposes
in an amount equal to the difference between the cash received and the
shareholder's tax basis in the fractional shares (which basis will include a
proportionate amount of a PFC shareholder's tax basis in the PFC Common Stock
relinquished in the Merger); such gain or loss will generally be long-term
capital gain or loss to the extent that the PFC shareholder held such shares as
a capital asset for more than one year as of the date of the Merger.
This federal income tax discussion is for general information only and
may not apply to all holders of PFC Common Stock. Such holders are urged to
consult their tax advisors as to the specific tax consequences to them of the
Merger.
Business Pending Consummation and Related Matters
Pursuant to the Merger Agreement, each of PFC and CBH has made certain
covenants, with respect to itself and its subsidiaries, relating to the conduct
of business pending consummation of the
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<PAGE>
Merger. Among other things, PFC agreed (except as otherwise contemplated by the
Merger Agreement or with the written consent of CBH) not to: (i) conduct its
business other than in the ordinary and usual course; (ii) pay dividends above
certain specified levels (i.e., $0.32 per share on an annualized basis) or
redeem or otherwise acquire shares of its capital stock, issue additional shares
of its capital stock (except upon the exercise of currently outstanding stock
options) or give any person the right to acquire any such shares; (iii) increase
any salaries or employee benefits or enter into or modify any employee benefit
plans, except for certain increases in the ordinary course of business and
certain changes required by law or to satisfy pre-existing contractual
obligations; or (iv) dispose of any of its material assets, business or property
or acquire any material business or property of any other entities.
Commitments with Respect to Other Offers
Under the Merger Agreement, PFC has agreed that it will not, without
the prior written consent of CBH and subject to the fiduciary duties of its
board of directors, solicit or encourage inquiries or proposals with respect to,
or engage in negotiations concerning, or provide any confidential information
to, or have any discussions with, any third party relating to the acquisition of
a substantial equity interest in, or a substantial portion of the assets of,
PFC.
Regulatory Approvals
The Merger is subject to prior approval by the Federal Reserve Board
under the BHCA. Under the BHCA, the Federal Reserve Board considers the
financial and managerial resources of the companies involved and whether the
proposed transaction can reasonably be expected to produce benefits to the
public, such as greater convenience, increased competition, or gains in
efficiency, that outweigh possible adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interests, or
unsound banking practices. In addition, the Federal Reserve Board has the
authority to deny an application if it concludes that the combined organization
would have an inadequate capital position or if the acquiring organization does
not meet the requirements of the Community Reinvestment Act of 1977.
The Merger is also subject to the approval of the New Jersey state bank
regulatory authority. In addition, the conversion of the Bank into a nationally
charted banking association under the name, Commerce Bank/Central, N.A.,
requires approval of the OCC.
Applications have been filed by CBH with the Federal Reserve Board, the
New Jersey Department of Banking and Insurance and the OCC.
We cannot assure you that such regulatory approvals will be obtained or
as to the dates of any of such approvals, and we cannot consummate the Merger in
the absence of such regulatory approvals. Furthermore, we cannot assure you that
such approvals will not contain a condition or requirement which causes such
approvals to fail to satisfy the conditions contained in the Merger Agreement.
See "-- Conditions to Consummation." Likewise we cannot assure you that the
United States Department of Justice will not challenge the Merger, or, if such
challenge is made, as to the result thereof.
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<PAGE>
Conditions to Consummation
Under the Merger Agreement, various conditions are required to be
satisfied before the parties are obligated to complete the Merger. For the most
part these conditions are customary and include such items as the receipt of
stockholder, regulatory, and NYSE listing approval, the receipt of corporate and
tax legal opinions. In addition, the obligations of the parties are subject to
the continued accuracy of the other party's representations and warranties, the
performance by the other party of its obligations under the Merger Agreement,
and the absence of any events or changes with respect to the other party having,
or which reasonably could be expected to have, an adverse effect on the other
party. Each of these three conditions is subject to a "materiality" standard.
The approval of the PFC shareholders and certain regulatory authorities as
discussed elsewhere in this Proxy Statement-Prospectus is also required in order
to consummate the Merger. Certain of the conditions to the Merger may be waived
by the company entitled to assert the condition.
Termination
The Merger Agreement may be terminated by mutual agreement of the PFC
Board and the CBH Board. The Merger Agreement may also be terminated by either
the PFC Board or the CBH Board (i) if the Merger does not occur on or before
March 31, 1999 or (ii) if the requisite approval of the PFC shareholders or the
Federal Reserve Board are not obtained.
In addition, the Merger Agreement may be terminated by the PFC Board,
at its sole option, if the Average Price is below $33.00 (a "Termination
Event").
It is not possible to know whether a Termination Event will occur until
after the determination of the Average Price. The PFC Board has not made any
determination as to whether it would exercise its right to terminate the Merger
Agreement if there is a Termination Event, and you should not assume that the
PFC Board would exercise such right if the Average Price is below $33.00. In
considering whether to exercise its termination right in such situation, the PFC
Board would, consistent with its fiduciary duties, take into account all
relevant facts and circumstances that exist at such time and would consult with
its financial advisors and legal counsel. Approval of the Merger Agreement by
the shareholders of PFC at the Meeting will confer on the PFC Board the power,
consistent with its fiduciary duties, to elect either to terminate the Merger or
to consummate the Merger in the event of a Termination Event and without any
further action by, or resolicitation of, the shareholders of PFC. If the PFC
Board elects to exercise its termination right, PFC must give CBH prompt notice
of that decision.
The foregoing discussion is qualified in its entirety by reference to
the applicable provisions in the Merger Agreement (a copy of which is set forth
as Annex A and Annex B to this Proxy Statement-Prospectus) relating to a
possible Termination Event.
PFC shareholders should be aware that the market price of CBH Common
Stock between the determination of the Average Price and the Effective Date, as
well as on the date certificates representing shares of CBH Common Stock are
delivered in exchange for shares of PFC Common Stock following consummation of
the Merger, will fluctuate and possibly decline and the value of the CBH Common
Stock actually received by holders of PFC Common Stock may be more or less than
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<PAGE>
(i) the Average Price, or (ii) the value of the CBH Common Stock on the
Effective Date resulting from the Exchange Ratio.
Resale of CBH Common Stock
The CBH Common Stock issued pursuant to the Merger will be freely
transferable under the Securities Act, except for shares issued to any PFC
stockholder who is considered to be an "affiliate" of CBH or PFC for purposes of
Rule 145 under the Securities Act or of CBH for purposes of Rule 144 under the
Securities Act. The definition of "affiliate" is complex and depends on the
specific facts, but generally encompasses directors, senior officers, 10%
shareholders and any other person with the power to direct the management and
policies of the issuer in question.
Shareholders who are affiliates of CBH or PFC may not sell shares of
CBH Common Stock received in the Merger except (a) pursuant to an effective
registration under the Securities Act, (b) in compliance with an exemption from
the registration requirements of the Securities Act or (c) in compliance with
Rule 144 and Rule 145 of the Securities Act. Generally, those rules permit
resales of stock received in a registered offering by an affiliate of CBH or PFC
as long as CBH has complied with certain reporting requirements and the selling
stockholder complies with certain volume and manner of sale restrictions set
forth in Rule 144 and Rule l45.
In addition, the terms and conditions of the Merger Agreement require
that all of the affiliates of CBH and PFC agree not to sell any CBH or PFC
securities until the date on which financial results of the combined operations
of PFC and CBH covering at least 30 days after the completion of the Merger have
been published (within the meaning of Section 201.01 of the SEC's Codification
of Financial Reporting Policies) by CBH in an effective registration statement,
Annual Report on Form 10-K, Quarterly Report on Form 10-Q or Current Report on
Form 8-K filed with the SEC, or any publicly disclosed quarterly earnings report
or press release or other authorized public disclosure by CBH that includes the
combined results of operation of PFC and CBH. These restrictions are intended to
fulfill one of the requirements for pooling accounting treatment for the Merger.
No Dissenters' Appraisal Rights
Under the NJBCA, PFC shareholders do not have any right to dissent from
the Merger and receive the appraised value of their shares in cash in connection
with the Merger.
Accounting Treatment
It is expected that the Merger, if consummated, will qualify as a
transaction to be accounted for in accordance with the pooling of interests
method of accounting under Opinion No. 16, Business Combinations, of the
Accounting Principles Board of the American Institute of Certified Public
Accountants. Under this accounting method, the assets and liabilities of PFC
will be carried forward to CBH at their historical recorded bases. The reported
balance sheet amounts and results of operations of the separate corporations for
prior periods will be combined, reclassified and conformed, as appropriate, to
reflect the combined financial position and results of operations for CBH.
-31-
<PAGE>
Certain Effects of the Merger
The purpose of the Merger is to combine CBH and PFC. This is being done
through the merger of PFC with CBH. As a result of the Merger, the former
holders of PFC Common Stock will receive CBH Common Stock and no longer have any
direct interest in PFC or be able to vote with respect to the future affairs of
PFC. Although former holders of PFC Common Stock will no longer enjoy the
possibility of a direct interest in any future appreciation in their equity
interest in PFC, after the Merger such former holders will enjoy the possibility
of future appreciation in their equity interest in CBH.
The current Certificate and Bylaws of CBH will continue as its
certificate and bylaws after the completion of the Merger and will govern the
CBH Common Stock and management of CBH thereafter. See "DESCRIPTION OF CBH
CAPITAL STOCK" and "CERTAIN DIFFERENCES IN THE RIGHTS OF PFC AND CBH
SHAREHOLDERS."
Following completion of the Merger, the PFC Common Stock will be
removed from trading on the NASDAQ National Market. PFC expects that the PFC
Common Stock will continue to be listed and traded on the NASDAQ National Market
until the consummation of the Merger.
New York Stock Exchange Listing
The Merger Agreement requires CBH to file an application with the NYSE
for approval to list the shares of CBH Common Stock issued in the Merger on the
New York Stock Exchange, subject to official notice of issuance.
Waiver; Amendment
Prior to the Effective Date, any provision of the Merger Agreement may
be: (i) waived by the party benefitted by the provision; or (ii) amended or
modified at any time by an agreement in writing among the parties thereto,
approved by their respective Boards of Directors and executed in the same manner
as the Merger Agreement, provided that, after approval by the shareholders of
PFC, such amendment, modification or waiver does not result in the reduction in
the Exchange Ratio or result in a materially adverse tax or other effect to the
holders of PFC Common Stock.
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<PAGE>
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION
CBH Common Stock is listed on the NYSE (and prior to September 26,
1996, on the NASDAQ National Market) under the ticker symbol of "CBH". PFC
Common Stock is listed on the NASDAQ National Market under the symbol "PRFN".
The tables below set forth, for the calendar quarters indicated, the
reported high and low sale prices of CBH Common Stock and PFC Common Stock as
reported on the NYSE and NASDAQ National Market, respectively, and in each case
based on published financial sources, and the dividends declared on such stock.
<TABLE>
<CAPTION>
CBH Common Stock PFC Common Stock
--------------------------------- ---------------------------------
Market Price Cash Market Price Cash
---------------------- Dividends ---------------------- Dividends
High Low Declared High Low Declared
----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1996
First quarter.............................. $ 16.59 $ 14.61 $ 0.12 $ 9.86 $ 7.46 $ 0.03
Second quarter............................. 17.95 14.69 0.12 10.50 8.58 0.03
Third quarter.............................. 20.31 15.23 0.13 9.17 7.50 0.03
Fourth quarter............................. 24.03 18.69 0.13 9.58 7.42 0.07
1997
First quarter.............................. $ 24.38 $ 20.95 $ 0.15 $ 11.83 $ 8.66 0.05
Second quarter............................. 29.53 21.05 0.15 12.50 10.92 0.06
Third quarter.............................. 30.91 27.42 0.15 13.60 11.20 0.06
Fourth quarter............................. 39.23 28.63 0.15 14.40 11.20 0.08
1998
First quarter.............................. $ 44.05 $ 34.45 $ 0.18 $ 13.60 $ 11.90 $ 0.06
Second quarter............................. 48.70 42.59 0.19 15.00 12.75 0.08
Third quarter.............................. 47.45 35.13 0.19(1) 15.75 10.75 0.08
Fourth quarter (through November ___, 1998) [ ] [ ] [ ] [ ] [ ] 0.08
</TABLE>
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(1) Excludes the one time special cash dividend of $0.20 per share declared on
June 29, 1998 and paid on July 24, 1998 to shareholders of record as of
July 13, 1998.
On September 16, 1998, the last business day prior to public
announcement of the execution of the Merger Agreement, the last reported sale
prices per share of CBH Common Stock on the NYSE and PFC Common Stock on the
NASDAQ National Market were $ 39.938 and $13.00, respectively. On November [ ],
1998, the last practicable trading day prior to the mailing of this Proxy
Statement-Prospectus, such prices were $[ ] and $[ ], respectively.
PFC and CBH shareholders are urged to obtain current market quotations
for CBH Common Stock and PFC Common Stock prior to mailing any decision with
respect to the Merger. We cannot assure you of the market prices of CBH Common
Stock or PFC Common Stock at any time before the Effective Date or as to the
market price of CBH Common Stock thereafter.
The Merger Agreement provides for the filing of a listing
application with the NYSE covering the shares of CBH Common Stock to be issued
in the Merger. It is a condition to consummation of the Merger that such shares
be authorized for listing on the NYSE, subject to official notice of issuance.
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FORWARD-LOOKING STATEMENTS
This Proxy Statement-Prospectus contains statements that may be
"forward-looking". In particular, some of the statements in "RECENT
DEVELOPMENTS", "THE MERGER -- CBH's Reasons for the Merger", "-- Recommendation
of the PFC Board; PFC's Reasons for the Merger", "-- Opinion of PFC's Financial
Advisor" and in the summaries of these sections, may be forward-looking. We want
to caution you that given the recent developments in the banking industry, it is
difficult, if not impossible, to predict accurately what will happen to CBH's
and PFC's businesses in the future. Some of these developments are discussed or
referred to in "RECENT DEVELOPMENTS", and we urge you to read that information
carefully. As a consequence of these uncertainties, it could be that some of the
assumptions that we made in approving and recommending the Merger --
particularly with regard to how CBH and PFC are likely to perform relative to
each other in the future -- could be wrong and our actual results could differ
materially. Errors in our assumptions could mean that the Exchange Ratio was too
high or too low, or possibly even that the Merger was inadvisable.
While this certainly is not our expectation, as a result of our
advising you of this uncertainty the new "safe harbor" section of the Private
Securities Litigation Reform Act of 1995 provides certain protection for each of
CBH and PFC, as reporting companies under the Securities Exchange Act of 1934,
as amended (including the rules and regulations thereunder, the "Exchange Act"),
for any forward-looking statements that ultimately are proven inaccurate.
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BUSINESS OF PFC
General
Financial and other information relating to PFC is set forth in PFC's
Consolidated Financial Statements which are included in this Proxy
Statement-Prospectus and in PFC's 1997 Annual Report on Form 10-K (which
incorporated certain portions of PFC's 1998 Annual Meeting Proxy Statement) and
PFC's 1998 First and Second Quarter Reports on Form 10-Q, which are incorporated
by reference herein, copies of which may be obtained from PFC as indicated in
"WHERE YOU CAN FIND MORE INFORMATION." See "CONSOLIDATED FINANCIAL STATEMENTS OF
PFC."
History and Business
Prestige Financial Corp. ("PFC") is a one-bank holding company
headquartered in Raritan Township, New Jersey. PFC has one bank subsidiary,
Prestige State Bank (the "Bank"), which is a New Jersey chartered commercial
bank. The Bank currently accounts for substantially all of the total assets and
the net income of PFC. PSB Investment Management, Inc., a New Jersey corporation
and wholly-owned subsidiary of the Bank ("PSB Investment"), manages a portfolio
of investments for its own account. In addition, PFC operates one nonbank
subsidiary, PFC Financial Services, Inc., a New Jersey corporation ("PFC
Financial"), which provides customers with financial planning and access to
non-deposit investment products such as mutual funds, debt and equity
securities, fixed and variable annuities, through Financial Network Investment
Corporation, a licensed broker/dealer, insurance agency and registered
investment advisor.
PFC, through the Bank, offers a broad range of lending, depository and
related financial services to individual consumers, businesses and governmental
units. Commercial lending services provided by the Bank include short and medium
term loans, SBA loans, revolving credit arrangements, lines of credit,
asset-based lending, real estate construction loans and mortgage loans. Consumer
banking services include various types of deposit accounts, secured and
unsecured loans, consumer installment loans, mortgage loans and mortgage and
other consumer oriented services.
PFC was incorporated in the State of New Jersey in February 1993. On
July 31, 1993, the Bank consummated its reorganization into a holding company
structure pursuant to a Plan of Acquisition whereby the Bank became a
wholly-owned subsidiary of PFC. The reorganization was accounted for under the
pooling of interests method of accounting for financial reporting purposes.
PFC operates chiefly in its approximately 228 square mile primary trade
area surrounding its headquarters facility in Raritan Township, New Jersey. The
primary trade area consists of all of Hunterdon County; four southwestern
townships of Warren that border on Hunterdon County; and four western townships
of Somerset bordering on Hunterdon County.
As of June 30, 1998, on a consolidated basis, PFC had total assets of
approximately $310.4 million, total deposits of approximately $287.6 million,
and total shareholders' equity of approximately $21.2 million.
PFC maintains its executive offices at 1 Royal Road, P.O. Box 2480,
Flemington, New Jersey, 08822; telephone (908) 806-6200.
Year 2000 Compliance
The Year 2000 problem is the result of computer programs being written
using two digits rather than four to define the applicable year. Programs that
have time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in system failures or
miscalculations. The Year 2000 issue extends beyond individual companies to
include the effect on other companies with which they do business or by which
they may be affected. PFC has conducted a comprehensive review of its computer
systems and third-party vendors to identify the processes that could be affected
by the Year 2000 issue and is devoting the necessary internal and external
resources to implement a plan to address Year 2000 issues. Because PFC's primary
operating software is obtained and maintained by external software providers
under maintenance agreements or is already Year 2000 compliant, PFC has not
invested any material amounts to convert critical mainframe and PC-based
operating systems and software to Year 2000 compliant hardware and software.
Management anticipates that all remaining operations affected by Year 2000
issues will be tested and compliant in advance of Year 2000 and will meet all
regulatory milestones. The Federal Deposit Insurance Corporation in their most
recent exam has assessed PFC's progress to date as satisfactory. Related
expenditures in future years to complete systems projects and ensure Year 2000
compliance are not expected by management to have a material impact on PFC's
financial position, results of operations or cash flow.
For additional information regarding PFC's business, see "CONSOLIDATED
FINANCIAL STATEMENTS OF PFC" and "WHERE YOU CAN FIND MORE INFORMATION."
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BUSINESS OF CBH
General
Financial and other information relating to CBH, including information
relating to CBH's directors and executive officers, is set forth in CBH's 1997
Annual Report on Form 10-K, as amended (which incorporated certain portions of
CBH's 1998 Annual Meeting Proxy Statement), and CBH's 1998 First and Second
Quarter Reports on Form 10-Q, which are incorporated by reference herein, copies
of which may be obtained from CBH as indicated in "WHERE YOU CAN FIND
INFORMATION."
History and Business
Commerce Bancorp, Inc. ("CBH") is a multi-bank holding company
headquartered in Cherry Hill, New Jersey which operates three nationally
chartered bank subsidiaries: Commerce Bank, N.A., Cherry Hill, New Jersey
("Commerce NJ"), Commerce Bank/Pennsylvania, N.A., Devon, Pennsylvania
("Commerce PA"), Commerce Bank/Shore, N.A., Toms River, New Jersey ("Commerce
Shore"), and one state chartered bank subsidiary, Commerce Bank/North, Ramsey,
New Jersey ("Commerce North"). These four bank subsidiaries have 64 retail
branch offices in New Jersey, and 17 retail branch offices in Metropolitan
Philadelphia. Average deposits per branch as of June 30, 1998 (excluding
branches open less than two years) were approximately $59.5 million.
CBH, through its four bank subsidiaries, provides a full range of
retail and commercial services to individuals and businesses. These services
include free checking accounts for customers maintaining certain minimum
balances, savings programs, money market accounts, negotiable orders of
withdrawal ("NOW") accounts, certificates of deposit, safe deposit facilities,
consumer loan programs, home equity and Visa Gold(TM) card revolving lines of
credit, overdraft checking, automated teller facilities and expanded banking
hours. Lending services include commercial, residential, construction, real
estate, term and installment loans. Corporate trust services are offered by
Commerce NJ and Commerce PA.
CBH operates one nonbank subsidiary, Commerce Capital Markets, Inc.,
Philadelphia, Pennsylvania ("CCMI"), which engages in certain securities
activities permitted to bank holding company subsidiaries under Section 20 of
the Glass-Steagall Act.
In addition, CBH, through Commerce National Insurance Services, Inc., a
nonbank subsidiary of Commerce North ("Commerce National"), operates an
insurance brokerage firm concentrating on commercial property, casualty and
surety as well as personal lines. Commerce National also offers a line of
employee benefit programs including both group as well as individual medical,
life, disability and pension. Commerce National places insurance for clients in
multiple states, primarily Delaware, New Jersey and Pennsylvania.
CBH, a New Jersey business corporation, which was incorporated on
December 9, 1982, became a registered bank holding company under the BHCA on
June 30, 1983, by acquiring Commerce NJ. Commerce PA was acquired by CBH on
January 2, 1987. Commerce Shore was acquired by CBH on December 31, 1988.
Commerce North was acquired by CBH on January 21, 1997. CCMI was acquired by CBH
on March 27, 1998.
As of June 30, 1998, CBH, on a consolidated basis, had total assets of
approximately $4.4 billion, total deposits of approximately $3.9 billion and
total shareholders' equity of approximately $282.0 million.
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CBH's principal executive offices are located at Commerce Atrium, 1701
Route 70 East, Cherry Hill, New Jersey, 08034-5400, and its telephone number is
(609) 751-9000.
For additional information regarding CBH's business, see "WHERE YOU CAN
FIND MORE INFORMATION."
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<PAGE>
DESCRIPTION OF CBH CAPITAL STOCK
The following statements are summaries of certain provisions of CBH's
capital stock and are qualified in their entirety by reference to the complete
text of the CBH Certificate, copies of which are incorporated by reference as
exhibits to the Registration Statement of which this Proxy Statement-Prospectus
is a part.
Authorized Capital
The authorized capital stock of CBH consists of 50,000,000 shares of
Common Stock, par value $1.5625 per share, and 10,000,000 shares of Preferred
Stock, without par value.
Under CBH's Certificate, the CBH Board is authorized, without further
shareholder action, to provide for the issuance of the Preferred Stock in one or
more series, with such designations, number of shares, relative rights,
preferences and limitations as shall be set forth in resolutions providing for
the issuance thereof adopted by the CBH Board.
CBH Common Stock
Based on the number of shares of CBH Common Stock and PFC Common Stock
outstanding as of the Record Date and giving effect to the issuance of the
approximately 1.9 million shares of CBH Common Stock that will be issued to the
shareholders of PFC in the Merger, there will be approximately 26.2 million
shares of CBH Common Stock outstanding upon completion of the Merger. Based on
the number of shareholders of record of CBH and PFC as of the Record Date, and
assuming no duplication, CBH is expected to have approximately 17,000 holders of
record upon completion of the Merger.
The shares of CBH Common Stock, when issued to holders of outstanding
shares of PFC Common Stock in connection with the Merger, will be validly
issued, fully paid and non-assessable.
The rights, preferences and privileges of holders of CBH Common Stock
are subject to, and may be adversely affected by, the rights of the holders of
shares of any series of preferred stock which CBH may designate and issue in the
future.
Voting Rights. Holders of CBH Common Stock are entitled to one vote for
each share held on all matters submitted to a vote of shareholders and do not
have cumulative voting rights. Holders of a majority of the shares of common
stock entitled to vote in any election of directors may elect all of the
directors standing for election.
Dividends. Holders of CBH Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the CBH Board out of funds legally
available therefor, subject to any preferential dividend rights of outstanding
preferred stock.
Liquidation. Upon the liquidation, dissolution or winding up of CBH,
the holders of CBH Common Stock are entitled to receive ratably the net assets
of CBH available after the payment of all debts and other liabilities and
subject to the prior rights of any outstanding preferred stock.
Preemptive Rights. Holders of CBH Common Stock have no preemptive,
subscription, redemption or conversion rights.
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Transfer Agent and Registrar. The transfer agent and registrar for the
CBH's Common Stock is Chase/Mellon Shareholder Services, LLC.
CBH Preferred Stock
CBH preferred stock ("CBH Preferred Stock") may be issued with such
preferences, voting rights and conversion rights as the CBH Board, without
further approval by the shareholders, may determine by duly adopted resolution.
The issuance of preferred stock may have the effect of delaying, deferring or
preventing a Change in Control of CBH. As of the Record Date, there were no
shares of CBH Preferred Stock issued and outstanding. CBH has no present plans
to issue any shares of preferred stock.
"Anti-Takeover" Provisions and Management Implications
The CBH Certificate requires the affirmative vote of the holders of at
least 80% of the outstanding capital stock of CBH entitled to vote thereon in
order to permit the consummation of any of the following transactions: (i) any
merger or consolidation of CBH with or into any other corporation; or (ii) any
sale, lease, exchange or other disposition of all of the assets of CBH to or
with any other corporation, person or other entity. The 80% voting requirement
would not, however, apply to any transaction approved by the CBH Board prior to
the consummation thereof. The CBH Certificate also provides for the issuance of
up to 10,000,000 shares of preferred stock, the rights, preferences and
limitations of which may be determined by the Board of Directors of CBH.
The provisions in the CBH Certificate relating to the 80% voting
requirements and issuance of preferred stock may have the effect not only of
discouraging tender offers or other stock acquisitions but also of deterring
existing shareholders from making management changes. Issuance of preferred
stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could make it more difficult for a third party to
secure a majority of outstanding voting stock. Similarly, absent the 80% voting
requirement provision relating to mergers and dispositions of assets, the
transactions described above could be consummated upon the favorable vote of the
holders of a majority of the votes cast by holders of shares entitled to vote
thereon.
These provisions may enhance the possibility that a potential bidder
for control of CBH will be required to act through arms-length negotiation with
respect to such major transactions as a merger, consolidation or purchase of
substantially all of the assets of CBH. Such provisions may also have the effect
of discouraging tender offers or other stock acquisitions, giving management of
CBH power to reject certain transactions which might be desired by the owners of
a majority of CBH's voting securities. These provisions could also be deemed to
benefit incumbent management to the extent they deter such offers by persons who
would wish to make changes in management or exercise control over management.
The CBH Board does not presently know of a third party that plans to make an
offer to acquire CBH through a tender offer, merger or purchase of substantially
all the assets of CBH.
The Change in Bank Control Act prohibits a person or group of persons
from acquiring "control" of a bank holding company unless that Federal Reserve
Board has been given 60 days' prior written notice of such proposed acquisition
and within that time period the Federal Reserve Board has not issued a notice
disapproving the proposed acquisition or extending for up to another 30 days the
period during which such a disapproval may be issued, or unless the acquisition
is subject to Federal Reserve Board approval under the BHCA. An acquisition may
be made prior to the expiration of the disapproval period if the Federal Reserve
Board issues written notice of its intent not to disapprove the action. Under a
rebuttable presumption established by the Federal Reserve Board, the acquisition
of
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<PAGE>
more than ten percent of a class of voting stock of a bank holding company with
a class of securities registered under Section 12 of the Exchange Act, such as
CBH, would, under the circumstances set forth in the presumption, constitute the
acquisition of control.
In addition, any "company" would be required to obtain the approval of
the Federal Reserve Board under the BHCA before acquiring 25 percent (five
percent in the case of an acquiror that is a bank holding company) or more of
the outstanding shares of CBH Common Stock, or otherwise obtaining "control"
over CBH. Under the BHCA, "control" generally means (i) the ownership, control
or power to vote 25 percent or more of any class of voting securities of the
banking holding company, (ii) the ability to elect a majority of the bank
holding company's directors, or (iii) the ability otherwise to exercise a
controlling influence over the management and policies of the bank holding
company. See "THE MERGER -- Regulatory Approvals" for a description of the
standards applicable to the Merger under the BHCA.
In addition, in certain instances the issuance of authorized but
unissued shares of CBH Common Stock or CBH Preferred Stock may have an
anti-takeover effect. The authority of the CBH Board to issue CBH Preferred
Stock with rights and privileges, including voting rights, as it may deem
appropriate, may enable the CBH Board to prevent a change of control despite a
shift in ownership of CBH Common Stock. In addition, the CBH Board's authority
to issue additional shares of CBH Common Stock may help deter or delay a change
of control by increasing the number of shares needed to gain control.
The NJBCA provides that no publicly held corporation organized under
the laws of New Jersey with its principal executive offices or significant
operations located in New Jersey (a "resident domestic corporation") may engage
in any "business combination" (as defined in the NJBCA) with any "interested
shareholder" (generally, a ten percent or greater beneficial owner of 10% or
more of the voting power) of such corporation for a period of five years
following such interested shareholder's stock acquisition unless such business
combination is approved by the board of directors of such corporation prior to
the "interested shareholder's" stock acquisition. A resident domestic
corporation, such as CBH, cannot opt out of the foregoing provisions of the
NJBCA.
In addition, no resident domestic corporation may engage, at any time,
in any business combination with any interested shareholders of such corporation
other than: (i) a business combination approved by the board of directors of
such corporation prior to the "interested shareholder's" stock acquisition; (ii)
a business combination approved by the affirmative vote of the holders of
two-thirds of the voting stock not beneficially owned by that interested
shareholder at a meeting called for such purpose; or (iii) a business
combination in which the interested shareholder pays a formula price designed to
ensure that all other shareholders receive at least the highest price per share
paid by that interested shareholder. The business combination statute will not
be applicable to the Merger because the Merger was approved by the PFC Board
prior to CBH becoming an "interested shareholder."
Under the NJBCA, the director of a New Jersey corporation may consider,
in discharging his or her duties to the corporation and in determining what he
or she reasonably believes to be in the best interest of the corporation, any of
the following (in addition to the efforts of any action on shareholders): (i)
the effects of the action on the corporation's employees, suppliers, creditors
and customers; (ii) the effects of the action on the community in which the
corporation operates; and (iii) the long-term as well as the short-term
interests of the corporation and its shareholders, including the possibility
that these interest may best be served by the continued independence of the
corporation. If, on the basis of the foregoing factors, the board of directors
determines that any proposal or offer to
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<PAGE>
acquire the corporation is not in the best interest of the corporation, it may
reject such proposal or offer, in which event the board of directors will have
no duty to facilitate, remove any obstacles to, or refrain from impeding, such
proposal or offer.
The existence of the foregoing provisions could (i) result in CBH being
less attractive to a potential acquiror, and (ii) result in CBH shareholders
receiving less for their shares of CBH Common Stock than otherwise might be
available in the event of a takeover attempt.
Payment of Dividends
CBH is a legal entity separate and distinct from its banking and other
subsidiaries. Under the NJBCA, a corporation may pay dividends or purchase,
redeem or otherwise acquire its own share unless, after giving effect thereto,
(i) the corporation would be unable to pay its debts as they become due in the
usual course of its business, or (ii) its assets would be less than the sum of
its liabilities plus the amount that would be needed to satisfy the preferential
dissolution rights of shareholders whose preferential rights are superior to
those receiving the distribution.
A major portion of the revenues of CBH result from amounts paid as
dividends to CBH by its national bank subsidiaries. CBH's banking subsidiaries
are subject to legal limitations on the amount of dividends they can pay. The
prior approval of the Comptroller of the Currency (the "Comptroller") is
required if the total of all dividends declared by a national bank in any
calendar year will exceed the sum of such bank's net profits for the year and
its retained net profits for the preceding two calendar years, less any required
transfer to surplus. Federal law also prohibits national banks from paying
dividends which would be greater than the bank's undivided profits after
deducting statutory bad debt in excess of the bank's allowance from loan losses.
Under the foregoing dividend restrictions, as of June 30, 1998, CBH's
national bank subsidiaries, without obtaining affirmative governmental
approvals, could pay aggregate dividends of $66.1 million to CBH during the
remainder of 1998. During the first two quarters of 1998, CBH's subsidiaries
paid $7.0 million in cash dividends to CBH.
In addition, both CBH and its national bank subsidiaries are subject to
various general regulatory policies and requirements relating to the payment of
dividends, including requirements to maintain adequate capital above regulatory
minimums. The appropriate federal regulatory authority is authorized to
determine under certain circumstances relating to the financial condition of a
national bank or bank holding company that the payment of dividends that deplete
a national banks' capital base to an inadequate level would be an unsound and
unsafe banking practice. The Comptroller and the Federal Reserve Board have each
indicated that banking organizations should generally pay dividends only out of
certain operating earnings.
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CERTAIN DIFFERENCES IN THE RIGHTS OF PFC AND CBH SHAREHOLDERS
General
The rights of shareholders of a corporation are governed by the laws of
the state in which the corporation is incorporated, as well as the governing
instruments of the corporation itself--that is, its certificate (or articles) of
incorporation and bylaws. Each of CBH and PFC is incorporated under the laws of
the State of New Jersey and the rights of the holders of CBH Common Stock and
PFC Common Stock are therefore governed by the NJBCA, the CBH Certificate and
the CBH Bylaws, with respect to CBH, and the PFC Certificate and the PFC Bylaws,
with respect to PFC. Upon consummation of the Merger, the rights of the PFC
shareholders will be governed by the CBH Certificate and the CBH Bylaws and
continue to be governed by the NJBCA. The following is a summary of certain
material differences between the CBH Certificate and CBH Bylaws and the PFC
Certificate and the PFC Bylaws.
The following summary does not reflect any rules of the NYSE that may
apply to CBH or the NASDAQ National Market with respect to PFC in connection
with the matters discussed. This summary does not purport to be a complete
discussion of, and is qualified in its entirety by reference to, the NJBCA, and
the constituent documents of each corporation.
Authorized Capital
PFC. The authorized capital stock of PFC consists of 5,000,000 shares
of PFC Common Stock, par value $0.01 per share. As of the Record Date, PFC had
outstanding [ ] shares of PFC Common Stock.
CBH. CBH's authorized capital is set forth under "DESCRIPTION OF CBH
CAPITAL STOCK."
PFC Common Stock
Voting Rights. Holders of PFC Common Stock are entitled to one vote for
each share held on all matters submitted to a vote of shareholders and do not
have cumulative voting rights. Holders of a majority of the shares of common
stock entitled to vote in any election of directors may elect all of the
directors standing for election.
Dividends. Holders of PFC Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the PFC Board out of funds legally
available therefor.
Liquidation. In the event of any liquidation, dissolution or winding
up of the affairs of PFC, whether voluntary or otherwise, after payment or
provision for payment of the debts and other liabilities of PFC, the holders of
the outstanding PFC Common Stock shall be entitled to receive and share ratably
with any distribution of assets to be made by PFC.
CBH Common Stock
CBH's Common Stock is set forth under "DESCRIPTION OF CBH CAPITAL
STOCK."
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Director Nominations
PFC. PFC's Bylaws do not provide for any formal process with respect to
the nomination of directors. Similar to CBH, all of PFC's directors are elected
annually.
CBH. CBH's Bylaws provide that nominations for directors to be elected
at an annual meeting of the shareholders must be in writing and submitted to the
Secretary of CBH not later than the close of business on the fifth business day
immediately preceding the date of the meeting, with all late nominations being
rejected.
LEGAL MATTERS
An opinion will be delivered by Blank Rome Comisky & McCauley LLP,
Philadelphia, Pennsylvania and Cherry Hill, New Jersey, to the effect that the
shares of CBH Common Stock to be issued in the Merger will, when issued as
contemplated by the Merger Agreement, be validly issued, fully paid and
non-assessable. Jack R Bershad, a partner in Blank Rome Comisky & McCauley LLP,
is a director of CBH, Commerce NJ and Commerce PA. Mr. Bershad and certain other
partners of Blank Rome Comisky & McCauley LLP are shareholders of CBH. Certain
legal matters relating to PFC will be passed upon by Rothgerger Johnson & Lyons
LLP, Denver, Colorado.
EXPERTS
The consolidated financial statements of CBH as of December 31, 1997
and 1996, and for each of the three years in the period ended December 31, 1997,
appearing in CBH's Annual Report on Form 10-K for the year-ended December 31,
1997, as amended, have been audited by Ernst & Young LLP, independent auditors,
as set forth in their report thereon included therein and incorporated herein by
reference. Such financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of PFC as of December 31, 1997
and 1996, and for each of the years in the three-year period ended December 31,
1997, appearing in PFC's Annual Report on Form 10-K for the year ended December
31, 1997, have been included herein and in the Registration Statement, in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
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WHERE YOU CAN FIND MORE INFORMATION
CBH and PFC are subject to the informational requirements of the
Exchange Act, and accordingly, file reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). You may
read and copy any reports, proxy statements and other information CBH and/or PFC
files at the SEC's public reference rooms at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the SEC's Regional Offices in New York (7 World Trade Center,
Suite 1300, New York, New York 10048) and Chicago (Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661). You may call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. In
addition, you may read any reports, proxy statements and other information CBH
files at the offices of the New York Stock Exchange (the "NYSE"), 20 Broad
Street, New York, New York 10005, and any reports, proxy statements and other
information PFC files at the offices of the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. CBH's and PFC's SEC
filings are also available on the SEC's Internet site at http://www.sec.gov.
CBH filed a Registration Statement on Form S-4 (No. 333-____) (the
"Registration Statement") to register with the SEC the CBH Common Stock ("CBH
Common Stock") to be issued to PFC shareholders in the Merger. This Proxy
Statement-Prospectus is a part of that Registration Statement and constitutes a
prospectus of CBH in addition to being a proxy statement of PFC for the Meeting.
As allowed by SEC rules, this Proxy Statement-Prospectus does not contain all
the information you can find in the Registration Statement or the exhibits to
the Registration Statement.
Some of the information that you may want to consider in deciding how
to vote with respect to the Merger is not physically included in this Proxy
Statement-Prospectus, but rather is "incorporated by reference" to documents
that have been filed by CBH and PFC with the SEC. The information that is
incorporated by reference consists of:
Documents Filed by CBH (SEC File No. 0-12874):
* Annual Report on Form 10-K for the year-ended December 31,
1997, as amended; and
* Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998 and June 30, 1998.
Documents Filed by PFC (SEC File No. 0-22186):
* Annual Report on Form 10-K for the year-ended December 31,
1997; and
* Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998 and June 30, 1998.
All documents filed by CBH pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Proxy Statement-Prospectus and
prior to the Meeting also are incorporated by reference into this Proxy
Statement-Prospectus and will be deemed to be a part hereof from the date of
filing of such documents.
Any statement contained in a document that is incorporated by reference
will be deemed to be modified or superseded for all purposes to the extent that
a statement contained herein (or in any other document that is subsequently
filed with the SEC and incorporated by reference) modifies or is contrary to
that previous statement.
-44-
<PAGE>
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 CBH and/or PFC without charge, excluding all
exhibits unless we have specifically incorporated by reference an exhibit in
this Proxy Statement-Prospectus. PFC shareholders may obtain documents
incorporated by reference in this Proxy Statement-Prospectus, with respect to
CBH, by requesting them in writing or by telephone from: Commerce Bancorp, Inc.,
1701 Route 70 East, Cherry Hill, New Jersey 08034-5400, Attention: Thomas J.
Sukay, Senior Vice President, (telephone number (609) 751-9000), and with
respect to PFC, by requesting them in writing or by telephone from: Prestige
Financial Corp., One Royal Road, P.O. Box 2480, Flemington, New Jersey 08822,
Attention: Robert J. Jablonski, Chief Executive Officer (telephone number (908)
806-6200). Responses to any request will be made within one business day by
sending the requested documents by first class mail or equally prompt means. In
order to ensure timely delivery of such documents, any request should be made by
December [ ], 1998.
All information contained or incorporated by reference in this Proxy
Statement-Prospectus relating to CBH and its subsidiaries has been supplied by
CBH. All information contained or incorporated by reference in this Proxy
Statement-Prospectus relating to PFC and its subsidiaries has been supplied by
PFC.
Copies of PFC's 1997 Annual Report on Form 10-K and Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998 are delivered together with this
Proxy Statement-Prospectus.
You should rely only on the information contained or incorporated by
reference in this Proxy Statement-Prospectus to vote on the Merger. 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 November 6, 1998. You should not assume that the information contained
in the Proxy Statement-Prospectus is accurate as of any other date or that there
had been no change in the affairs of CBH or PFC since that date, and neither in
the delivery of this Proxy Statement-Prospectus to PFC shareholders nor the
issuance of CBH Common Stock in the Merger shall create any implication to the
contrary. This Proxy Statement-Prospectus does not constitute an offer to sell
or a solicitation of an offer to buy any securities, or the solicitation of a
Proxy, in any jurisdiction in which, or to any person to whom, it is unlawful to
make any such offer or solicitation.
-45-
<PAGE>
PRESTIGE FINANCIAL CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Audited Consolidated Financial Statements:
Independent Auditors' Report...........................................................................F-1
Consolidated Statements of Financial Condition as of December 31, 1997 and
December 31, 1996......................................................................................F-2
Consolidated Statements of Income for the years ended December 31, 1997,
December 31, 1996 and December 31, 1995................................................................F-3
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1997, December 31, 1996 and December 31, 1995.............................................F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1997,
December 31, 1996 and December 31, 1995................................................................F-5
Notes to Audited Consolidated Financial Statements.....................................................F-6
</TABLE>
46
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Prestige Financial Corp.:
We have audited the accompanying consolidated statements of financial
condition of Prestige Financial Corp. and subsidiary as of December 31, 1997 and
1996, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1997. These consolidated financial statements are the
responsibility of the Corp.'s management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Prestige
Financial Corp. and subsidiary as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Short Hills, New Jersey
January 20, 1998 except as to Note 1(M), which
is as of April 17, 1998
F-1
<PAGE>
PRESTIGE FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
--------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Assets:
Cash and due from banks.................................................. $ 10,297,330 $ 9,579,368
Federal funds sold and short-term investments............................ 11,312,578 8,950,028
------------ ------------
Total cash and cash equivalents............................ 21,609,908 18,529,396
------------ ------------
Loans held for sale, net................................................. 16,284,462 15,013,245
Investment securities, net (estimated market value of $95,360,123
and $68,680,887 in 1997 and 1996, respectively)..................... 94,818,190 68,874, 149
Loans, net............................................................... 141,646,514 123,454,671
Less: Allowance for loan losses......................................... 1,838,207 1,592,078
------------ ------------
Net loans................................................................ 139,808,307 121,862,593
------------ ------------
Accrued interest receivable.............................................. 2,009,120 1,537,994
Premises and equipment, net.............................................. 3,427,564 2,490,059
Other assets............................................................. 5,629,122 1,210,011
------------ ------------
Total assets............................................... $283,586,673 $229,517,447
============ ============
Liabilities and Stockholders' Equity:
Liabilities:
Deposits:
Non-interest bearing............................................ $ 47,595,244 $ 35,318,480
Interest bearing................................................ 215,560,598 177,277,801
------------- ------------
Total deposits 263,155,842 212,596,281
Accrued interest payable............................................ 426,111 308,082
Accrued expenses and other liabilities.............................. 1,115,879 903,162
------------- ------------
Total liabilities.......................................... 264,697,832 213,807,525
------------- ------------
Stockholders' equity:
Common stock, par value $.01; 5,000,00 shares authorized; 3,308,624
shares and 2,661,331 shares issued and
outstanding at December 31, 1997 and 1996, respectively......... 33,086 26,613
Paid-in capital..................................................... 15,071,131 13,581,186
Retained earnings................................................... 3,784,624 2,102,123
------------ ------------
Total stockholders' equity................................. 18,888,841 15,709,922
Commitments and contingencies (note 10)..................................
------------- ------------
Total liabilities and stockholders' equity................. $ 283,586,673 $229,517,447
============= ============
</TABLE>
See accompanying notes to audited consolidated financial statements
F-2
<PAGE>
PRESTIGE FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Interest income:
Loans......................................................... $ 14,032,350 $ 11,920,839 $ 10,048,068
Investment securities.........................................
Taxable.................................................. 5,041,347 3,590,295 1,624,625
Exempt from Federal income tax........................... 201,937 100,244 138,744
Federal funds sold and short-term investments................. 446,435 427,861 443,000
------------ ------------ ------------
Total interest income.................................... 19,722,069 16,039,239 12,254,437
------------ ------------ ------------
Interest expense:
Deposits...................................................... 9,117,481 7,565,484 5,708,330
Short-term borrowings......................................... 1,872 2,901 408
------------ ------------ ------------
Total interest expense................................... 9,119,353 7,568,385 5,708,738
------------ ------------ ------------
Net interest income...................................... 10,602,716 8,470,854 6,545,699
Provision for loan losses.......................................... 744,500 515,600 350,000
------------ ------------ ------------
Net interest income after provision for loan losses...... 9,858,216 7,955,254 6,195,699
------------ ------------ ------------
Non-interest income:
Service charges on deposit accounts........................... 384,687 266,719 153,419
Gain on sale of loans held for sale........................... 1,764,750 1,180,301 571,837
Loss on sale of securities.................................... -- -- (76,125)
Other income.................................................. 350,166 89,116 51,060
------------ ------------ ------------
Total non-interest income................................ 2,499,603 1,536,136 700,191
------------ ------------ ------------
Non-interest expense:
Salaries and employee benefits................................ 3,918,682 3,149,948 2,257,405
Net occupancy expense......................................... 1,848,310 1,268,291 1,033,182
Data processing............................................... 408,917 308,680 203,002
Advertising and business development.......................... 374,436 244,382 187,008
Directors' compensation....................................... 326,971 162,980 124,219
Federal deposit insurance..................................... 26,480 2,000 139,781
Other operating expenses...................................... 1,553,676 1,086,050 953,706
------------ ------------ ------------
Total non-interest expense............................... 8,457,472 6,222,331 4,898,303
------------ ------------ ------------
Income before provision for income taxes................. 3,900,347 3,269,059 1,997,587
Provision for income taxes......................................... 1,196,863 1,226,341 825,322
------------ ------------ ------------
Net income.................................................... $ 2,703,484 $ 2,042,718 $ 1,172,265
============ ============ ============
Net income per common share:
Basic ........................................................ $ .66 $ .53 $ .33
Diluted....................................................... $ .62 $ .50 $ .32
============ ============ ============
Weighted average shares outstanding:
Basic......................................................... 4,053,170 3,842,460 3,314,139
Diluted....................................................... 4,348,061 4,051,904 3,439,741
============ ============ ============
</TABLE>
See accompanying notes to audited consolidated financial statements
F-3
<PAGE>
PRESTIGE FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Total
Preferred Common Paid-in Retained stockholders'
stock stock capital earnings equity
--------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 900,000 15,709 7,804,087 785,551 9,505,347
Exercise of options (26,118 shares)................ -- 261 116,446 -- 116,707
Common stock grants (6,800 shares)................. -- 68 59,432 -- 59,500
Private placement (176,000 shares)................. -- 1,760 1,978,240 -- 1,980,000
Dividend reinvestment and stock purchase plan
(34,326 shares)............................... -- 343 426,074 -- 426,417
Common stock cash dividend ($.125 per share)....... -- -- -- (228,739) (228,739)
10% Common stock dividend (158,351 shares)......... -- 1,584 969,842 (971,426) --
Preferred stock cash dividend...................... -- -- -- (73,024) (73,024)
Redemption of preferred stock...................... (900,000) -- -- -- (900,000)
Net income......................................... -- -- -- 1,172,265 1,172,265
--------- ------- ----------- ----------- -----------
Balance, December 31, 1995......................... -- 19,725 11,354,121 684,627 12,058,473
Exercise of warrants (6,600 shares)................ -- 66 50,952 -- 51,018
Exercise of options (5,673 shares)................. -- 57 35,065 -- 35,122
Common stock grants (7,480 shares)................. -- 75 59,425 -- 59,500
Dividend reinvestment and stock purchase plan
(161,895 shares).............................. -- 1,619 2,042,741 -- 2,044,360
401(k) plan (3,029 shares)......................... -- 30 38,882 -- 38,912
Five-for-four common stock split (504,115 shares).. -- 5,041 -- (5,041) --
Common stock cash dividend ($.25 per share)........ -- -- -- (620,181) (620,181)
Net income......................................... -- -- -- 2,042,718 2,042,718
---------- -------- ----------- ----------- ------------
Balance, December 31, 1996......................... -- 26,613 13,581,186 2,102,123 15,709,922
Exercise of warrants (3,737 shares)................ -- 37 38,029 -- 38,066
Exercise of options (7,619 shares)................. -- 77 49,572 -- 49,649
Common stock grants (9,348 shares)................. -- 93 59,407 -- 59,500
Dividend reinvestment and stock purchase
plan (81,714 shares).......................... -- 817 1,247,298 -- 1,248,115
401(k) plan (6,452 shares)......................... -- 65 95,639 -- 95,704
Six-for-five common stock split (538,423 shares)... -- 5,384 -- (5,384) --
Common stock cash dividend ($.325 per share)....... -- -- -- (1,015,599) (1,015,599)
Net income......................................... -- -- -- 2,703,484 2,703,484
---------- ------- ------------ ----------- ------------
Balance, December 31, 1997......................... -- 33,086 $ 15,071,131 $ 3,784,624 $ 18,888,841
========== ======= ============ =========== ============
</TABLE>
See accompanying notes to audited consolidated financial statements
F-4
<PAGE>
PRESTIGE FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------
1997 1996 1995
------------- ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................................. $ 2,703,484 $ 2,042,718 $ 1,172,265
Adjustments to reconcile net income to net cash used in
operating activities:
Provision for loan losses......................................... 744,500 515,600 350,000
Depreciation...................................................... 489,815 367,961 297,842
Amortization (accretion) of investment securities
premiums and discounts, net................................... 600,575 479,182 (329,627)
Amortization of organizational costs.............................. 14,137 14,137 18,131
Increase in accrued interest receivable........................... (471,126) (579,629) (492,072)
(Increase) decrease in other assets............................... (627,248) 680,010 (971,344)
Loss on sale of securities........................................ -- -- 76,125
Gain on sale of loans held for sale............................... (1,764,750) (1,180,301) (571,837)
Proceeds from sale of loans held for sale......................... 38,710,090 24,076,664 9,423,281
Loss on sale of other real estate owned........................... -- -- 25,000
Net increase in loans held for sale............................... (38,216,557) (27,668,627) (18,060,531)
Increase in accrued interest payable.............................. 118,029 59,069 111,960
Increase in accrued expenses and other liabilities................ 212,717 345,804 67,250
Increase (decrease) in deferred loan fees and
unearned discounts............................................ 51,116 (273,507) 265,924
Common stock grants............................................... 59,500 59,500 59,500
----------- ------------ -----------
Net cash provided by (used in) operating activities........... 2,624,282 (1,061,419) (8,558,133)
----------- ------------ -----------
Cash flows from investing activities:
Proceeds from sale of securities available for sale.................... -- -- 3,630,250
Proceeds from maturities of investment securities...................... 31,074,402 32,379,423 15,933,625
Principal paydowns on mortgage-backed securities....................... 7,336,561 4,915,156 1,079,558
Purchases of investment and mortgage-backed securities................. (64,955,579) (63,377,775) (41,119,376)
Net increase in loans.................................................. (18,741,330) (19,472,380) (11,510,847)
Loan participations purchased.......................................... -- (610,750) --
Purchase of corporate owned life insurance............................. (3,806,000) -- --
Capital expenditures................................................... (1,427,320) (927,263) (215,615)
Proceeds from sale of other real estate owned.......................... -- -- 350,000
----------- ------------ -----------
Net cash used in investing activities......................... (50,519,266) (47,093,589) (31,852,405)
----------- ------------ -----------
Cash flows from financing activities:
Net increase in demand deposits, money market,
NOW accounts and savings accounts................................. 33,271,174 34,014,121 11,636,393
Net increase in certificates of deposit................................ 17,288,387 15,065,274 29,441,226
Proceeds from issuance of common stock, net............................ 1,431,534 2,169,412 2,523,124
Dividends paid......................................................... (1,015,599) (620,181) (301,763)
Redemption of preferred stock.......................................... -- -- (900,000)
----------- ------------ -----------
Net cash provided by financing activities..................... 50,975,496 50,628,626 42,398,980
----------- ------------ -----------
Increase in cash and cash equivalents......................... 3,080,512 2,473,618 1,988,442
Cash and cash equivalents at beginning of year.............................. 18,529,396 16,055,778 14,067,336
----------- ------------ -----------
Cash and cash equivalents at end of year.................................... $21,609,908 $18,529,396 $16,055,778
=========== ============ ===========
Supplemental disclosures:
Cash paid for interest................................................. $ 9,001,324 $ 7,509,316 $ 5,596,778
Cash paid for income taxes............................................. 1,906,000 1,251,008 800,078
Loans transferred to other real estate owned........................... 417,893 -- 375,000
Investment securities transferred to securities available for sale..... -- -- 3,706,375
=========== =========== ===========
</TABLE>
See accompanying notes to audited consolidated financial statements
F-5
<PAGE>
PRESTIGE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(A) Business
Prestige Financial Corp. provides a full range of banking services to
individual and corporate customers through its subsidiary, Prestige State Bank
(the Bank), with branches located in Hunterdon and Somerset counties, New
Jersey. The Bank is subject to competition from other financial institutions.
The Bank is subject to the regulations of certain Federal and state agencies,
and undergoes periodic examinations by those regulatory authorities.
(B) Basis of Consolidated Financial Statement Presentation
The consolidated financial statements of Prestige Financial Corp. and
Subsidiary (the Corp.) have been prepared in conformity with generally accepted
accounting principles and reporting practices applied in the banking industry.
The consolidated financial statements include the accounts of Prestige Financial
Corp. and its wholly-owned subsidiary, Prestige State Bank. All significant
intercompany accounts and transactions have been eliminated in consolidation. In
preparing the consolidated financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, as well as contingent assets and liabilities, as of the dates of
the consolidated statements of financial condition and revenues and expenses for
the years then ended. Actual results could differ significantly from those
estimates and assumptions.
Material estimates that are particularly susceptible to significant
change in the near term relate to the determination of the allowance for loan
losses. In connection with the determination of the allowance for loan losses,
management generally obtains independent appraisals for significant properties.
(C) Cash and Cash Equivalents
Cash and cash equivalents, for purposes of the consolidated statements
of cash flows, consist of cash on hand and in banks, Federal funds sold, and
short-term investments with a maturity of three months or less.
(D) Investment Securities
Investment Securities are carried at cost, adjusted for amortization of
premiums and accretion of discounts over estimated lives of the securities using
a method which approximates the level-yield method. Investment Securities are
carried at amortized cost because it is management's intention, and the Corp.
has the ability, to hold them to maturity. Management determines the appropriate
classification of securities at the time of purchase. If management has the
intent and the Corp. has the ability at the time of purchase to hold securities
until maturity, they are classified as Investment Securities and carried at
amortized historical cost.
F-6
<PAGE>
PRESTIGE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Securities to be held for indefinite periods of time and not intended
to be held to maturity are classified as Available for Sale and carried at
estimated fair value. Unrealized holding gains and losses are excluded from
earnings and reported net of taxes as a separate component of stockholders'
equity. Securities Available for Sale include securities that management intends
to use as part of its asset/liability management strategy and that may be sold
in response to changes in interest rates, resultant changes in prepayment risk,
and other factors related to interest rate risk and resultant prepayment risk.
Gains or losses on the sale of securities are based on identifiable
certificate cost and are accounted for on a trade date basis.
(E) Loans
Loans are stated at the principal amount outstanding, net of deferred
loan origination fees, costs and unearned discounts, and the allowance for loan
losses. Loans held for sale are carried at the lower of aggregate cost or market
value. Interest on loans is accrued and credited to income as earned. Loan
origination fees and certain direct loan origination costs are deferred and
amortized, using the level yield method, into interest income over the estimated
life of the loan as an adjustment to the loan's yield.
A loan is considered impaired when, based on current information and
events, it is probable that the Bank will be unable to collect all amounts due
according to the contractual terms of the loan agreement. Impaired loans are
measured based on the present value of expected future cash flows, or, as a
practical expedient, at the loan's observable market price, or the fair value of
the underlying collateral if the loan is collateral dependent. Conforming
residential mortgage loans, home equity and second mortgage loans, and consumer
loans are excluded from the definition of impaired loans as they are
characterized as smaller balance, homogeneous loans and therefore are
collectively evaluated for impairment.
The accrual of income on loans, including impaired loans, is generally
discontinued when a loan becomes more than 90 days delinquent and is not
considered well secured and in the process of collection or when certain factors
indicate reasonable doubt as to the ability of the borrower to meet contractual
principal and/or interest obligations. Loans on which the accrual of income has
been discontinued are designated as nonaccrual loans. All previously accrued
interest is reversed and income is recognized subsequently only in the period
received, provided the remaining principal balance is deemed collectible. A
nonaccrual loan is not returned to an accrual status until principal and
interest payments are brought current and factors indicating doubtful collection
no longer exist.
(F) Allowance for Loan Losses
The allowance for loan losses is established through a provision for
loan losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that the collectibility of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb possible losses on existing loans that may become uncollectible, based
on evaluations of the collectibility of loans. The evaluations take into
consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans, industry
experience, collateral value and current economic conditions that may affect the
borrower's ability to pay. Management believes that the allowance for loan
losses is adequate. While management
F-7
<PAGE>
PRESTIGE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
uses available information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in economic conditions. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Corp.'s allowance for loan losses. Such agencies may
require the Corp. to recognize additions to the allowance based on their
judgments of information available to them at the time of their examination.
(G) Loan Sales
The Bank originates Small Business Administration (SBA) guaranteed
loans which have maturities of up to 25 years. The loans are guaranteed up to
90% by the Federal government. From time to time, the Corp. may sell the
guaranteed portion of such loans and retain the unguaranteed portion as well as
the rights to service the loans. Gains recorded on sales are calculated on the
basis of a pro rata allocation of the carrying value of the loan, which
approximates a fair value pro rata allocation considering premiums, servicing
fees and costs to service.
(H) Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets or leases. Leasehold improvements are
depreciated using the straight-line method over the shorter of the lease term or
the estimated useful lives of the improvements.
Repair and maintenance items are expensed and improvements are
capitalized. Leasehold improvements are depreciated over periods not exceeding
twenty years, while furniture and equipment is depreciated over periods not
exceeding seven years.
(I) Stock-based Employee Compensation
Compensation expense under the Corp.'s fixed stock option plans and
restricted stock plans is measured by the excess, if any, of the market price of
the underlying stock over the exercise price. Compensation expense is measured
at grant date and recognized ratably over the vesting period.
(J) Income Taxes
Income taxes are accounted for under the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment.
F-8
<PAGE>
PRESTIGE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
(K) Net Income Per Common Share
Effective December 31, 1997, the Corp. adopted the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings Per Share." All
prior period share amounts have been restated to conform with the provisions of
this Statement.
Basic net income per common share is calculated by dividing net income
less preferred stock dividends, if any, by weighted average shares outstanding.
Diluted net income per common share is calculated by dividing net
income less preferred stock dividends, if any, by weighted average shares
outstanding (as adjusted for the assumed exercise of potential common stock,
using the treasury stock method). Potential common stock resulting from stock
option agreements totaled 294,891 shares, 209,444 shares and 125,602 shares in
1997, 1996 and 1995, respectively.
Preferred stock dividends totaled $73,024 in 1995. All outstanding
preferred stock was redeemed in 1995.
(L) Reclassifications
Certain amounts relating to 1996 and 1995 have been reclassified to
conform with the 1997 presentation.
(M) Stock Split
All share and related per share amounts have been adjusted to reflect
the five-for-four stock split effective on April 17, 1998.
(2) Cash and Due from Banks
The Corp.'s banking subsidiary is required to maintain reserve balances
with the Federal Reserve Bank. Such balances amounted to $2,770,000 and
$1,190,000 at December 31, 1997 and 1996, respectively.
F-9
<PAGE>
PRESTIGE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
(3) Investment Securities, Net
The amortized cost, gross unrealized gains and losses and estimated
market values of Investment Securities at December 31, 1997 and 1996 are
summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
1997 Cost Gains Losses Value
- -------------------------------------------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
U.S. Government Federal agencies.................. $ 41,379,452 $ 252,165 $ 73,412 $ 41,558,205
Other securities.................................. 7,002,628 99,725 14,336 7,088,017
Mortgage-backed securities........................ 46,436,110 349,371 71,580 46,713,901
------------ ----------- ----------- ------------
Total investment securities.............. $ 94,818,190 $ 701,261 $ 159,328 $ 95,360,123
============ =========== =========== ============
Gross Gross Estimated
Amortized Unrealized Unrealized Market
1996 Cost Gains Losses Value
- -------------------------------------------------- ------------ ----------- ----------- ------------
U.S. Government Federal agencies.................. $ 36,226,852 $ 58,934 $ 255,060 $ 36,030,726
Other securities.................................. 4,216,489 5,263 -- 4,221,752
Mortgage-backed securities........................ 28,430,808 146,901 149,300 28,428,409
------------ ----------- ----------- ------------
Total investment securities.............. $ 68,874,149 $ 211,098 $ 404,360 $ 68,680,887
============ =========== =========== ============
</TABLE>
There were no sales of investment securities during 1997 or 1996. In
December 1995, pursuant to the provisions of Special Report No. 155-B, "A Guide
to Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities--Questions and Answers" issued by the Financial Accounting
Standards Board, the Corp. made a one time transfer of Investment Securities
with an amortized cost of $3,706,375 and an unrealized loss of $76,125 to
Securities Available for Sale. These securities were sold in 1995 resulting in
gross realized losses of $76,125 with no realized gains.
At December 31, 1997, securities having a book value of approximately
$19,000,000 were pledged to secure certain public fund deposits and for other
purposes required by law.
The amortized cost and estimated market values of investment debt
securities at December 31, 1997 are shown by contractual maturity in the table
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call obligations. The contractual maturities of
mortgage-backed securities and SBA guaranteed loan pool certificates generally
exceed 10 years; however, the effective lives are expected to be less due to
anticipated prepayments.
<TABLE>
<CAPTION>
Estimated
Amortized Cost Market Value
-------------- -------------
<S> <C> <C>
Due in one year or less.......................................... $ 6,967,243 $ 6,952,955
Due after one year through five years............................ 16,394,432 16,426,866
Due after five years through ten years........................... 5,270,115 5,283,910
Due after ten years.............................................. 1,884,478 1,960,995
Mortgage-backed securities....................................... 46,436,110 46,713,901
SBA guaranteed loan pool certificates............................ 17,865,812 18,021,496
------------- -------------
Total................................................... $ 94,818,190 $ 95,360,123
============= =============
</TABLE>
F-10
<PAGE>
PRESTIGE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
(4) Loans
A summary of loans at December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
Real estate mortgages:
Residential................................... $ 10,112,982 $ 9,964,053
Construction and land development............. 7,835,831 7,950,569
Commercial.................................... 50,400,048 37,909,538
Commercial loans................................... 57,586,106 55,758,733
Home equity and second mortgages................... 11,900,094 7,069,592
Consumer........................................... 22,855,600 22,524,000
------------ ------------
160,690,661 141,176,485
Less:
Allowance for loan losses..................... 1,838,207 1,592,078
Deferred loan fees and discounts.............. 2,759,685 2,708,569
Loans held for sale........................... 16,284,462 15,013,245
------------ ------------
Net loans..................................... $139,808,307 $121,862,593
============ ============
</TABLE>
Loans in the amount of $920,433 and $454,135 were on a nonaccrual
status and considered impaired at December 31, 1997 and 1996, respectively. If
these loans had continued to realize interest in accordance with their
contractual terms, approximately $73,000 and $37,000 of interest income would
have been realized in 1997 and 1996, respectively. Actual interest income
recognized on these loans was nominal. No specific reserves were required for
impaired loans at December 31, 1997 or 1996. The average recorded investments in
impaired loans during 1997 and 1996 were approximately $424,000 and $330,000,
respectively. Loans which were past due 90 days or more and still accruing
totaled $153,744 and $355,865 at December 31, 1997 and 1996, respectively.
At December 31, 1997 and 1996, loans to directors, executive officers
and their affiliated interests amounted to $3,966,911 and $2,568,098,
respectively, which were current as to principal and interest. During 1997, new
extensions of credit to directors, executive officers and their affiliated
interests totaled $1,975,000 and repayments by such persons were $576,187.
An analysis of the allowance for loan losses for the years ended
December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year....................... $1,592,078 $1,324,626 $1,077,026
Provision charged to operations.................... 744,500 515,600 350,000
Loans charged off, net............................. (498,371) (248,148) (102,400)
---------- ---------- ----------
Balance at end of year............................. $1,838,207 $1,592,078 $1,324,626
========== ========== ==========
</TABLE>
F-11
<PAGE>
(5) Accrued Interest Receivable
A summary of accrued interest receivable at December 31, 1997 and 1996
is as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Loans............................................................ $ 852,362 $ 689,347
Investment securities and other interest-earning assets.......... 1,156,758 848,647
----------- -----------
$ 2,009,120 $ 1,537,994
=========== ===========
</TABLE>
(6) Premises and Equipment
Premises and equipment consists of the following at December 31, 1997
and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Premises and improvements........................................ $ 3,055,137 $ 2,067,628
Furniture and equipment.......................................... 2,281,121 1,841,310
----------- -----------
Total................................................... 5,336,258 3,908,938
Accumulated depreciation......................................... (1,908,694) (1,418,879)
----------- -----------
$ 3,427,564 $ 2,490,059
=========== ===========
</TABLE>
(7) Deposits
A summary of deposit balances at December 31, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Regular checking............................................. $ 47,595,244 $ 35,318,480
NOW accounts................................................. 19,746,360 14,121,069
Money market accounts........................................ 30,804,508 20,362,771
Regular savings accounts..................................... 43,317,475 38,390,093
Certificates of deposit:
$100,000 and over........................................ 29,328,715 21,462,600
Less than $100,000....................................... 92,363,540 82,941,268
------------ ------------
$263,155,842 $212,596,281
============ ============
</TABLE>
F-12
<PAGE>
PRESTIGE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Certificates of deposit with remaining terms exceeding one year are
scheduled to mature as follows:
1997
------------
1999............................................... $ 14,542,539
2000............................................... 6,643,264
2001............................................... 1,727,508
2002............................................... 310,979
Thereafter......................................... 30,911
Interest expense includes interest on certificates of deposit greater
than $100,000 of $1,408,966, $1,059,333 and $1,047,725 for the years ended
December 31, 1997, 1996 and 1995, respectively.
(8) Income Taxes
Total income tax expense in the consolidated statements of income is
summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- -----------
<S> <C> <C> <C>
Year ended December 31, 1997:
U.S. Federal................................. $ 1,264,861 $ (150,000) $ 1,114,861
State and local.............................. 127,002 (45,000) 82,002
----------- ---------- -----------
$ 1,391,863 $ (195,000) $ 1,196,863
=========== ========== ===========
Year ended December 31, 1996:
U.S. Federal................................. $ 1,127,066 $ (147,563) $ 979,503
State and local.............................. 286,894 (40,056) 246,838
----------- ---------- -----------
$ 1,413,960 $ (187,619) $ 1,226,341
=========== ========== ===========
Year ended December 31, 1995:
U.S. Federal................................. $ 628,806 $ (387) $ 628,419
State and local.............................. 196,974 (71) 196,903
----------- ---------- ------------
$ 825,780 $ (458) $ 825,322
=========== ========== ============
</TABLE>
F-13
<PAGE>
PRESTIGE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of "expected" income tax expense at December 31, 1997,
1996 and 1995, computed at the Federal statutory rate, to reported income tax
expense is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
Provision computed at statutory tax rate........... $ 1,326,118 $ 1,111,480 $ 679,180
State and local taxes, net of Federal benefit...... 54,121 162,913 129,956
Tax exempt income.................................. (192,998) (42,837) (57,568)
Change in valuation allowance...................... -- (7,554) --
Other, net......................................... 9,622 2,339 73,754
----------- ----------- ------------
$ 1,196,863 $ 1,226,341 $ 825,322
=========== =========== ============
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Deferred fee income................................. $ 2,095 $ 17,917
Non-qualified stock options......................... 104,424 54,352
Allowance for loan losses........................... 637,975 585,034
Net operating loss carryforward..................... 46,053 --
Other............................................... 51,035 23,621
----------- -----------
Total gross deferred tax assets.............. 841,582 680,924
Deferred tax liabilities:
Differences in depreciation methods................. 27,954 62,296
Total gross deferred tax liabilities......... 27,954 62,296
---------- -----------
Net deferred tax asset....................... $ 813,628 $ 618,628
========== ===========
</TABLE>
Except for the effects of the reversal of net deductible temporary
differences, the Corp. is not currently aware of any factors which would cause
any significant differences between taxable income and pretax book income in
future years. However, there can be no assurances that there will be no
significant differences in the future between taxable income and pretax book
income if circumstances change (such as, for example, changes in tax laws or the
Corp.'s financial condition or performance). Management has determined that
based upon its assessment of recoverable taxes, realization of the net deferred
tax asset is more likely than not.
(9) Regulatory Capital Requirements Matters
The Federal Reserve Board in the case of bank holding companies such as
the Corp. and the Federal Deposit Insurance Corporation (FDIC) in the case of
state banks such as the Bank have adopted risk-based capital guidelines which
require a minimum ratio of 8% of total risk-based capital to assets, as defined
in the guidelines. At least one half of the total capital, or 4%, is to be
comprised of common equity and qualifying perpetual preferred stock, less
deductible intangibles (Tier 1 capital).
F-14
<PAGE>
PRESTIGE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
In addition, the Federal Reserve Board and the FDIC supplemented the
risk-based capital guidelines with an additional capital ratio referred to as
the leverage ratio or core capital ratio. The regulations require a financial
institution to maintain a minimum leverage ratio of 4% to 5%, depending upon the
condition of the institution.
Under its prompt corrective action regulations, the FDIC is required to
take certain supervisory actions (and may take additional discretionary actions)
with respect to an undercapitalized institution. Such actions could have a
direct material effect on the institution's financial statements. The
regulations establish a framework for the classification of depository
institutions into five categories: well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized. Generally, an institution is considered well capitalized if it
has a leverage ratio of at least 5.0%; a Tier 1 capital ratio of at least 6.0%;
and a total risk-based capital ratio of at least 10.0%.
The foregoing capital ratios are based in part on specific quantitative
measures of assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. Capital amounts and
classifications are subject to qualitative judgments by the regulatory
authorities about capital components, risk weightings and other factors.
Management believes that, as of December 31, 1997, the Corp. and the
Bank meet all capital adequacy requirements to which they are subject. Further,
the most recent FDIC notification characterized the Bank as a well capitalized
institution under the prompt corrective action regulations. There have been no
conditions or events since that notification that management believes have
changed the Bank's capital classification.
F-15
<PAGE>
PRESTIGE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of the Corp.'s and the Bank's actual capital
amounts and ratios as of December 31, 1997 and 1996, compared to the regulatory
authorities minimum capital adequacy requirements and requirements for
classification as a well capitalized institution (dollars in thousands):
<TABLE>
<CAPTION>
Regulatory Requirements
----------------------------------------------------
Minimum Capital For Classification
Actual Adequacy as Well Capitalized
------------------------ ------------------------- -------------------------
Amount Ratio Amount Ratio Amount Ratio
----------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Corp.: December 31, 1997
- -----------------------------------------
Leverage (Tier 1) capital................ $ 18,880 6.75% $ 11,191 4.00% $ 13,989 5.00%
Risk-based capital:
Tier 1.............................. 18,880 10.78% 7,007 4.00% 10,510 6.00%
Total............................... 20,718 11.83% 14,013 8.00% 17,517 10.00%
December 31, 1996
- -----------------------------------------
Leverage (Tier 1) capital................ 15,686 7.01% 8,954 4.00% 11,193 5.00%
Risk-based capital:
Tier 1.............................. 15,686 11.69% 5,369 4.00% 8,054 6.00%
Total............................... $ 17,278 12.87% $ 10,738 8.00% $ 13,423 10.00%
----------- ----------- ----------- ----------- ----------- ---------
Bank: December 31, 1997
- -----------------------------------------
Leverage (Tier 1) capital................ $ 17,224 6.26% $ 10,998 4.00% $ 13,748 5.00%
Risk-based capital:
Tier 1.............................. $ 17,224 9.85% 6,991 4.00% 10,487 6.00%
Total............................... 19,062 10.91% 13,982 8.00% 17,478 10.00%
December 31, 1996
- -----------------------------------------
Leverage (Tier 1) capital................ 14,584 6.55% 8,902 4.00% 11,177 5.00%
Risk-based capital:
Tier 1.............................. 14,584 10.89% 5,358 4.00% 8,037 6.00%
Total............................... $ 16,176 12.08% $ 10,715 8.00% $ 13,394 10.00%
----------- ----------- ----------- ----------- ----------- ---------
</TABLE>
(10) Commitments, Contingencies and Concentrations of Credit Risk
The Corp. is party to financial instruments and commitments with
off-balance-sheet credit risk in the normal course of business. These financial
instruments and commitments include unused home equity lines of credit,
commitments to extend credit, and commitments to purchase securities. These
commitments and instruments involve, to varying degrees, elements of risk in
excess of the amounts recognized in the consolidated financial statements.
The Corp.'s maximum exposure to credit losses in the event of
nonperformance by the other party to these financial instruments and commitments
is represented by the contractual amount. The Corp. uses the same credit
policies in granting commitments and conditional obligations as it does for
financial instruments recorded in the consolidated statements of financial
condition.
F-16
<PAGE>
PRESTIGE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
At December 31, 1997 and 1996, financial instruments and commitments
whose contractual amounts represent off-balance-sheet credit risk are as
follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Unused portions of commercial lines of credit, letters of credit and
undisbursed portion of construction loans:
Fixed-rate...................................................... $ 1,656,301 $ 270,000
Variable-rate................................................... 18,353,874 17,650,314
Unused home equity lines of credit (primarily floating rate)........... 8,777,758 5,583,328
Unused portion of consumer lines of credit............................. 1,261,206 841,999
Commitments to extend credit:
Fixed-rate...................................................... 10,961,850 1,819,000
Variable-rate................................................... 18,293,455 11,872,000
------------- -------------
$ 59,304,444 $ 38,036,641
============= =============
</TABLE>
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Since many of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. The Corp. evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Corp. upon extension of credit, is based on management's credit evaluation
of the customer. Fixed-rate commitments had interest rates ranging from 7.50% to
9.75% at December 31,1997.
Letters of credit are conditional commitments issued by the Bank to
guarantee the performance of an act of a customer to a third party.
The Corp. leases land and buildings for its banking facilities under
operating leases which expire at various dates through 2007 but which contain
certain renewal options. Included in these leases is an obligation of the Corp.
to Prestige Quarters LP, a partnership whose controlling general partner is a
director of the Corp., for a 20-year lease which commenced in 1993. Also
included in these leases are obligations of the Corp. to Prestige Realty Group
LLC and Prestige Clinton Realty LLC, limited liability companies owned by
certain directors of the Corp., for ten-year leases which commenced in 1994 and
1996. As of December 31, 1997, future minimum rental payments, excluding the
renewal options under these leases, are as follows:
1998................................... $ 570,109
1999................................... 571,150
2000................................... 553,025
2001................................... 533,234
2002................................... 514,459
Thereafter............................. $ 3,580,396
F-17
<PAGE>
PRESTIGE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
The above amounts represent minimum rentals not adjusted for possible
future increases due to escalation provisions. Rental expense, primarily related
to the above described lease obligations, aggregated $625,283, $427,650 and
$318,537 for the years ended December 31, 1997, 1996 and 1995, respectively,
which is included in net occupancy expense in the consolidated statements of
income.
Contingencies
The Corp. may, in the ordinary course of business, be a party to
litigation involving collection matters, contract claims and other legal
proceedings relating to the conduct of its business. In management's judgment,
the financial position or results of operation of the Corp. will not be affected
materially by the final outcome of any current legal proceedings or other
contingent liabilities and commitments.
Concentrations of Credit Risk
The Corp. extends credit in the normal course of business to its
customers, the majority of whom operate or reside within the New Jersey, eastern
Pennsylvania, and southern New York business areas. The ability of its customers
to meet contractual obligations is, to some extent, dependent upon the economic
conditions existing in this region.
(11) Stockholders' Equity
The payment of dividends by the Bank is restricted. Under the New
Jersey Banking Act of 1948, as amended, the Bank may pay dividends only out of
retained earnings and out of paid-in capital to the extent that paid-in capital
exceeds 50% of stated capital.
Stock Compensation and Other Benefit Plans
At December 31, 1997 the Corp. has four stock-based compensation plans,
which are described below. The Corp. has elected to continue to account for
stock-based compensation under APB Opinion No. 25, "Accounting for Stock Issued
to Employees" and to provide pro forma disclosures of net income and earnings
per share as if the Corp. had adopted the fair value based method of accounting
in accordance with SFAS No. 123, "Accounting for Stock-Based Compensation." The
compensation cost that has been charged against income for option plans where
the exercise price is less than the market value of the underlying stock at the
date of grant was $132,646, $117,944 and $18,799 in 1997, 1996 and 1995,
respectively. Had compensation cost for the Corp.'s stock option plans been
determined consistent with SFAS No. 123, the Corp.'s net income and earnings per
share would have been reduced to the pro forma amounts indicated below:
F-18
<PAGE>
PRESTIGE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net income As Reported $ 2,703,484 $ 2,042,718 $ 1,172,265
Pro forma 2,488,673 1,918,311 1,157,534
Basic earnings per share As Reported $ .66 $ .53 $ .33
Pro forma $ .62 $ .50 $ .33
Diluted earnings per share As Reported $ .62 $ .50 $ .32
Pro forma $ .58 $ .47 $ .31
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997, 1996 and 1995: dividend yield of 2%;
expected volatility of 20%; risk-free interest rates equal to the five year CMT
on the date of each option grant; and expected lives of five years.
Pursuant to the 1990 Long-term Incentive Compensation Plan for Key
Employees (the 1990 Plan), 4,950 shares of Corp. stock remain reserved for
issuance to eligible employees of the Corp. upon the exercise of options granted
under the 1990 Plan. Under the 1994 Stock Option Plan for Key Employees (the
KEP), the Corp. may grant options to its key employees for up to 310,875 shares
of common stock. Under the 1990 Plan and the KEP, the exercise price of each
option granted equals 85% of the market price of the Corp.'s stock on the date
of grant. Under the 1994 Stock Option Plan for Senior Management (the SMP), the
Corp. may grant option to its senior management personnel for up to 130,125
shares of common stock. Under the 1994 Stock Option Plan for Outside Directors
(the ODP), the Corp. may grant options to its outside directors for up to
132,000 shares of common stock. Under the SMP and the ODP, the exercise price of
each option equals the market price of the Corp.'s stock on the date of grant.
Options granted in accordance with the above plans vest over a period
not to exceed five years and have a maximum term of ten years.
F-19
<PAGE>
PRESTIGE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
A summary of the status of the Corp.'s stock option plans as of
December 31, 1997 and 1996 and changes during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
1997 1996
-------------------------------- --------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year..................... 480,871 $5.55 240,727 $4.02
Granted.............................................. 92,875 9.16 251,675 6.90
Exercised............................................ (9,523) 4.43 (8,550) 3.50
Forfeited............................................ (1,775) 7.96 (2,981) 5.67
Outstanding at end of year........................... 562,448 6.16 480,871 5.55
Options exercisable at year-end...................... 346,235 5.07 194,186 4.06
Weighted average fair value of options granted
during the year................................. $ 2.54 $ 2.23
</TABLE>
The following table summarizes information about stock options
outstanding at December 31, 1997.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Range of Exercise Price Outstanding Life Price Exercisable Price
- --------------------------- --------------- --------------- -------------- ------------- --------------
$3.42 -- 4.25 223,648 79 months $4.06 223,648 $4.06
$6.35 -- 9.00 314,175 101 months $7.38 122,587 $6.94
$9.60 -- 9.63 24,625 118 months $9.60 -- $ --
</TABLE>
The Corp. established a stock grant plan for founding outside directors
in 1994. The plan provides for the issuance of 70,125 shares of Corp. common
stock. At December 31, 1997, 42,075 shares have been issued under this plan.
In addition, the Corp. provides a 401(k) deferred compensation plan to
all eligible employees. Under this plan, the employer matches employee
contributions up to 7% of base salary. Employer matching contributions totaled
$124,000, $97,000 and $75,000 for the years ended December 31, 1997, 1996 and
1995, respectively.
F-20
<PAGE>
PRESTIGE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Corp. established a supplemental retirement plan for certain
officers and directors in 1997. The compensation cost recognized in 1997 totaled
$203,000.
(12) Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments"
requires disclosure of fair value information about financial instruments,
whether or not recognized on the face of the balance sheet, for which it is
practicable to estimate that value. The assumptions used in the estimation of
fair value of the Corp.'s financial instruments are detailed below. Where quoted
prices are not available, fair values are based on estimates using discounted
cash flows and other valuation techniques. The following fair value estimates
were made as of December 31, 1997 and 1996 based on pertinent market data and
relevant information on each financial instrument. These estimates do not
include any premium or discount that could result from an offer to sell the
Corp.'s entire holdings of a particular financial instrument or category thereof
at one time. Since no market exists for a substantial portion of the Corp.'s
financial instruments, fair value estimates were necessarily based on judgments
with respect to future loss experience, current economic conditions, risk
assessments of various financial instruments involving a myriad of individual
borrowers and other factors. Given the innately subjective nature of these
estimates, the uncertainties surrounding them and the matters of significant
judgment that must be applied, these fair value estimations cannot be calculated
with precision. Modifications in such assumptions could meaningfully alter these
estimates. Since these fair value approximations were made solely for financial
instruments at December 31, 1997 and 1996, no attempt was made to estimate the
value of anticipated future business or the value of nonfinancial assets and
liabilities. Other important elements which are not deemed to be financial
assets or liabilities include the value of the Corp.'s existing core deposit
base, premises and equipment, and goodwill. Furthermore, certain tax
implications related to the realization of the unrealized gains and losses could
have a substantial impact on these fair value estimates and have not been
incorporated into the estimates.
The following methods and assumptions were used by the Corp. in
estimating the fair value of its financial instruments:
Cash and due from banks: Fair value equals the carrying value of such
assets.
Federal funds sold and short-term investments: Due to the short-term
nature of these assets, the carrying values of these assets approximate their
fair values.
Loans held for sale: Fair values are based upon quoted market prices
for comparable loans as to interest rate, credit risk and term.
Investment Securities: Fair values are based on quoted market prices.
Loans: All fixed rate loans were valued using discounted cash flows.
The discount rate used to determine the present value of these loans was based
on interest rates currently being charged by the Bank on comparable loans as to
credit risk and term. Fair values for variable rate loans are considered to
approximate carrying values.
F-21
<PAGE>
PRESTIGE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Commitments to extend credit and letters of credit: The majority of the
Corp.'s commitments to extend credit and letters of credit carry current market
interest rates if converted to loans. Because commitments to extend credit and
letters of credit are generally unassignable by either the Corp. or the
borrower, they only have value to the Corp. and the borrower. The estimated fair
value approximates the recorded deferred fee amounts.
Deposits: The fair values of deposits without stated maturities are
equal to the carrying value of such deposits.
Deposits without stated maturities include noninterest bearing demand
deposits, savings accounts, NOW accounts and money market demand accounts.
Discounted cash flows have been used to value certificates of deposit. The
discount rate used is based on interest rates currently being offered by the
Bank on comparable deposits as to amount and term.
The carrying amounts and estimated fair values of the Corp.'s financial
instruments are as follows at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
--------------- ---------------
<S> <C> <C>
December 31, 1997
Financial Assets:
Cash and due from banks............................... $ 10,297,330 $ 10,297,330
Federal funds sold and short-term investments......... 11,312,578 11,312,578
Loans held for sale, net.............................. 16,284,462 17,098,685
Investment Securities, net............................ 94,818,190 95,360,123
Loans, net............................................ 141,646,514 141,968,078
Less: Allowance for loan losses..................... 1,838,207 1,838,207
Net loans............................................. 139,808,307 140,129871
Financial liabilities:
Deposits with no stated maturities.................... 141,463,587 141,463,587
Certificates of deposit............................... $ 121,692,255 $ 121,766,173
December 31, 1996
Financial Assets:
Cash and due from banks............................... $ 9,579,368 $ 9,579,368
Federal funds sold and short-term investments......... 8,950,028 8,950,028
Loans held for sale, net.............................. 15,013,245 15,763,907
Investment Securities, net ........................... 68,874,149 68,680,887
Loans, net............................................ 123,454,671 124,137,000
Less: Allowance for loan losses..................... 1,592,078 1,592,078
Net loans............................................. 121,862,593 122,544,922
Financial liabilities:
Deposits with no stated maturities.................... 108,192,413 108,192,413
Certificates of deposit............................... $ 104,403,868 $ 104,587,000
</TABLE>
F-22
<PAGE>
PRESTIGE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
(13) Condensed Financial Information of Parent Company
The condensed financial statements of Prestige Financial Corp. are as
follows:
<TABLE>
<CAPTION>
Parent Only Statements of Financial Condition 1997 1996
----------- ------------
<S> <C> <C>
Assets:
Cash and due from banks.................................... $ 277,263 $ 185,303
Investment securities, net (estimated market value
$1,679,711 and $1,099,957 in December 31, 1997 1,679,711 1,099,957
and 1996, respectively)...............................
Investment in subsidiary................................... 17,224,411 14,584,185
Other assets............................................... 15,599 28,868
----------- ------------
Total assets.......................................... $19,196,984 $ 15,898,313
=========== ============
Liabilities and stockholders' equity:
Other liabilities.......................................... 308,143 188,391
Stockholders' equity....................................... 18,888,841 15,709,922
----------- ------------
Total liabilities and stockholders' equity: $19,196,984 $ 15,898,313
=========== ============
Parent Only Statements of Income
Interest income................................................. $ 78,967 $ 50,912
Operating expenses.............................................. (14,137) (14,137)
Income tax provision............................................ (1,572) (5,000)
Equity in undistributed income of subsidiary.................... 2,640,226 2,010,943
----------- ------------
Net income available to common stockholders..................... $ 2,703,484 $ 2,042,718
=========== ============
Parent Only Statements of Cash Flows
Cash flows from operating activities:
Net income available to common stockholders................ $ 2,703,484 $ 2,042,718
Less equity in undistributed income of subsidiary.......... (2,640,226) (2,010,943)
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization of organizational costs.............. 14,137 14,137
(Increase) decrease in other assets............... (868) 1,609
Increase in other liabilities..................... 119,752 114972
Common stock grants............................... 59,500 59,500
----------- ------------
Net cash provided by operating activities.... 255,779 221,993
----------- ------------
</TABLE>
F-23
<PAGE>
PRESTIGE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1997 1996
------------ --------------
<S> <C> <C>
Cash flows from investing activities:
Proceeds from maturities of investment securities.......... 9,601,902 9,185,575
Purchases of investment securities......................... (10,181,656) (9,785,532)
Increase in investment in subsidiary....................... -- (1,500,000)
Net cash used in investing activities........ (579,754) (2,099,957)
Cash flows from financing activities:
Proceeds from issuance of common stock, net................ 1,431,534 2,169,412
Cash dividends paid........................................ (1,015,599) (620,181)
------------ --------------
Net cash provided by financing activities.... 415,935 1,549,231
------------ --------------
Increase (decrease) in cash and cash
equivalents.............................. 91,960 (328,733)
Cash and cash equivalents at beginning of year.................. 185,303 514,036
------------ --------------
Cash and cash equivalents at end of year........................ $ 277,263 $ 185,303
============ ==============
</TABLE>
(14) Merger Agreement (unaudited)
On September 17, 1998, the Corp. announced that it had entered into an
Agreement and Plan of Reorganization and related Agreement and Plan of Merger
with Commerce Bancorp, Inc. whereby the Corp. would be merged with and into
Commerce Bancorp, Inc. in a stock-for-stock exchange which is expected to close
during the first quarter of 1999.
F-24
<PAGE>
ANNEX A
AGREEMENT AND
PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated September 17, 1998 by and
between COMMERCE BANCORP, INC. ("CBH"), a New Jersey business corporation
registered as a bank holding company under the Bank Holding Company Act of 1956,
as amended ("Holding Company Act"), and PRESTIGE FINANCIAL CORP. ("PFC"), a New
Jersey business corporation registered as a bank holding company under the
Holding Company Act.
BACKGROUND
The Board of Directors of CBH has determined to merge PFC with and into
CBH (hereinafter referred to as the "Merger") in accordance with the provisions
of the New Jersey Business Corporation Act, as amended ("BCA"), and the terms
and conditions of the Amended Agreement and Plan of Merger of even date herewith
between PFC and CBH (the "Merger Agreement") in the form of Exhibit "A" attached
hereto.
The Board of Directors of PFC has determined that PFC be merged with
and into CBH in accordance with the provisions of the BCA and the Merger
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants, agreements
and provisions contained herein and subject to the satisfaction of the terms and
conditions set forth herein and the Merger Agreement, intending to be legally
bound hereby, CBH and PFC agree as follows:
1. THE MERGERS
(a) Subject to the provisions of this Agreement and the Merger
Agreement, PFC will be merged with and into CBH. CBH agrees to issue shares of
CBH's common stock, par value $1.5625 per share, to the shareholders of PFC, on
the Effective Date (as hereinafter defined) of the Merger, in exchange for the
outstanding shares of PFC's common stock, par value $.01 per share, as provided
in this Agreement and in the Merger Agreement and to abide and comply with all
of the other terms and conditions set forth in the Merger Agreement.
(b) Upon consummation of the Merger, CBH shall cause Prestige
State Bank ("Prestige State Bank"), PFC's wholly-owned bank subsidiary, to be
converted into a nationally chartered banking association under the name,
Commerce Bank/Central, N.A.
2. EFFECTIVE DATE
The "Effective Date" shall be the date and time at which an
executed Certificate of Merger is duly filed with the New Jersey Secretary of
State in accordance with Chapter 10 of the BCA.
A-1
<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF PFC
PFC represents and warrants to CBH and agrees as follows:
3.1 PFC is a corporation duly organized under the BCA and is
validly existing and in good standing under the laws of the State of New Jersey.
Prestige State Bank is a banking corporation duly organized under the New Jersey
Banking Act of 1948, as amended and is validly existing and in good standing
under the laws of the State of New Jersey. Except as set forth in Schedule 3.1
to this Agreement, PFC has no subsidiaries except Prestige State Bank and
neither Prestige State Bank nor any other subsidiary of PFC has any
subsidiaries. All references to "PFC" hereinafter contained in Section 3 of this
Agreement shall be deemed to include PFC, Prestige State Bank and all of the
subsidiaries of either. The deposits of Prestige State Bank are insured by the
Bank Insurance Fund of the FDIC to the maximum extent permitted by law.
3.2 The authorized capital stock of PFC consists of 5,000,000
shares of common stock, par value $.01 per share ("PFC Common Stock"), 4,260,392
shares of which have been validly issued and are outstanding, fully paid and
non-assessable as of the date hereof and no shares are held in treasury. PFC
owns all of the shares of the issued and outstanding capital stock of Prestige
State Bank, free and clear of any lien or other encumbrance. As of the date
hereof, no shares of PFC capital stock were reserved for issuance, except that
(a) 607,805 shares of PFC Common Stock were reserved for issuance in connection
with PFC's stock option plans, (b) certain shares of PFC Common Stock were
reserved for issuance pursuant to PFC's Dividend Reinvestment and Common Stock
Purchase Plan ("PFC Drip"), (c) 14,036 shares of PFC Common Stock were reserved
for issuance in connection with PFC's Retention Plan for Founding Outside
Directors, and (d) certain shares of PFC Common Stock were reserved for issuance
in connection with PFC's Employees' Savings and Profit Sharing Plan. If all
stock options heretofore granted pursuant to PFC's stock option plans were
exercised, 607,805 shares of PFC Common Stock would be issued pursuant thereto.
There are no outstanding subscriptions, Rights, options, warrants, calls,
commitments or agreements to which PFC or any of its subsidiaries is a party or
by which any of them may be bound, which relate to the issuance or sale by any
of them of shares of their capital stock except as set forth above. The number
of issued and outstanding shares of PFC's capital stock will be the same on the
Effective Date as on the date hereof except for additional shares of PFC Common
Stock issued pursuant to the exercise of currently outstanding stock options
granted pursuant to PFC's stock option plans or granted pursuant to PFC's
Retention Plan for Founding Outside Directors as set forth above. None of the
shares of PFC's capital stock has been issued in violation of the preemptive
rights of any person. PFC does not own, directly or indirectly, 5% or more of
the outstanding capital stock or other voting securities of any corporation,
bank or other organization except as set forth in Schedule 3.1 to this
Agreement.
3.3 There have been delivered to CBH (a) the audited
consolidated balance sheets of PFC and its subsidiaries as of December 31, 1997
and 1996 and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the years ended December 31, 1997 and
1996 together with the notes related thereto and (b) the unaudited consolidated
balance sheet of PFC and its subsidiaries as of June 30, 1998, and the related
consolidated statement of income for the six month period ended June 30, 1998.
Such financial statements (i) are in accordance with the books and records of
PFC and its subsidiaries, (ii) are
A-2
<PAGE>
true and correct in all material respects and present fairly PFC's and its
subsidiaries' consolidated financial condition as of December 31, 1997 and 1996
and the results of their operations for the years then ended and as of June 30,
1998 and the result of their operations for the six month period ended June 30,
1998, and (iii) have been prepared in accordance with generally accepted
accounting principles consistently applied. The audited financial statements
(with related notes) referred to in the first sentence of this subsection have
been examined and reported upon by KPMG Peat Marwick LLP, independent certified
public accountants. KPMG Peat Marwick LLP is "independent" with respect to PFC
under the criteria established and applied by the Securities and Exchange
Commission.
3.4 Except as set forth in Schedule 3.4 to this Agreement, (a)
PFC and its subsidiaries have filed all federal, state, city, county and local
tax returns which are required to be filed by them, and such returns are true
and correct in all material respects; (b) PFC and its subsidiaries have paid all
taxes required to be paid prior to the date of this Agreement or have
established adequate reserves therefor; (c) there are no deficiencies of tax,
interest or penalties which have been assessed against PFC or any of its
subsidiaries which have not been paid in full; (d) no extensions of time with
respect to any date on which any tax return was or is to be filed by PFC or any
of its subsidiaries is in force and no waiver or agreement by PFC or any of its
subsidiaries is in force for the extension of time for the assessment or payment
of any tax; and (e) the statute of limitations with respect to any tax year
still open has not been waived. Except as set forth in Schedule 3.4, copies of
which agreements PFC has delivered to CBH, neither the transactions contemplated
hereby nor the termination of the employment of any employees of PFC or any PFC
subsidiary prior to or following consummation of the transactions contemplated
hereby could result in PFC or any PFC subsidiary making or being required to
make any "excess parachute payment" as that term is defined in Section 280G of
the Code (as hereinafter defined).
3.5 PFC and its subsidiaries have good and marketable title to
all their respective assets free and clear of all liens or other encumbrances
other than (a) the liens or other encumbrances described in Schedule 3.5 to this
Agreement, or (b) such liens or other encumbrances, as the case may be, shown in
the financial statements or the notes thereto, or (c) encumbrances and
restrictions imposed by law, ordinances or regulations incidental to the usual
and normal conduct of business or other imperfections of title, or restrictions
or encumbrances, all of which, in the aggregate, do not materially adversely
interfere with the present use of such property in PFC's and any of its
subsidiaries' business and with respect to any real estate which do not result
in the inability to procure title insurance thereon at regular rates. With the
foregoing exceptions, no person owns any interest in any of the assets of PFC or
any of its subsidiaries except as incidental to banking transactions entered
into in the ordinary course of business consistent with past practices.
3.6 Since June 30, 1998, there has been no change in the
consolidated condition, financial or otherwise, of PFC and its subsidiaries,
other than changes occurring in the ordinary course of business consistent with
past practices, which changes have not materially adversely changed or affected
their business or condition, financial or otherwise. Except as set forth in
Schedule 3.6 to this Agreement, from June 30, 1998 to the date of this
Agreement, neither PFC nor any of its subsidiaries has (i) incurred any
indebtedness, liabilities (whether
A-3
<PAGE>
current, long term, fixed, contingent, liquidated, unliquidated, or otherwise)
or obligations other than in the ordinary course of business consistent with
past practices; (ii) excluding transfers among PFC and its subsidiaries,
declared or paid any dividends or made any distribution of any of its assets in
kind or redeemed or repurchased any shares of its capital stock; (iii) sold or
transferred any of its assets, except in the ordinary course of business
consistent with past practices; or (iv) acquired the assets or capital stock of
any other entity other than in the ordinary course of business consistent with
past practices.
3.7 Since June 30, 1998, there has been no damage, destruction
or loss, whether covered by insurance or not materially adversely affecting the
assets or business of PFC or any of its subsidiaries, or any other event or
condition of any character materially adversely affecting the assets or business
of PFC or any of its subsidiaries (other than external market conditions
affecting banks generally).
3.8 PFC has delivered to CBH a list of all insurance policies
and binders maintained by PFC or any of its subsidiaries. Such policies and
binders are in full force and effect and will continue to be in full force and
effect to the Effective Date.
3.9 Except as set forth in Schedule 3.9 to this Agreement,
neither PFC nor any of its subsidiaries is a party to, nor have any obligation
under, any written or oral (a) contracts and other agreements with any current
or former director, officer, employee, shareholder, consultant or agent (except
those terminable on ninety days' or less notice without premium or penalty or
which do not involve more than $10,000 per year), (b) contracts and other
agreements with any labor union (whether in effect or expired), (c) bonus,
severance, hospitalization, vacation, deferred compensation, pension or profit
sharing, retirement, payroll savings, stock option, group life or medical
insurance, death benefit, welfare, or other employee benefit plan as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended,
("ERISA") (hereinafter collectively the "Employee Benefit Plans"), (d) material
leases for real or personal property, or (e) other material contracts and
agreements of any other nature with any person other than contracts and other
agreements made in the ordinary course of business consistent with past
practices. A true and correct copy of each of such contracts and other
agreements and branch leases has been made available to CBH or, if oral, have
been described in Schedule 3.9. All of the material contracts and agreements
(whether or not set forth in Schedule 3.9) to which PFC or any of its
subsidiaries is a party are in full force and effect; PFC or any of its
subsidiaries is not in material default under any of them nor to the best of
PFC's knowledge is any other party to any such contract or other agreement in
material default thereunder. Except as set forth in Schedule 3.9 or as
contemplated by Sections 7. 15, 7.16, 6.10 and/or 6.11 hereof, neither the
execution of this Agreement nor the consummation of the transactions
contemplated hereby will result in any breach or acceleration of, or constitute
(or with notice or lapse of time or both would constitute) a default under any
such contract or other agreement or any branch lease. To the best of PFC's
knowledge, no employee of PFC or any of its subsidiaries is represented by a
labor union with respect to his or her employment by PFC or any of its
subsidiaries and no attempt has been or is currently being made by any person to
have the employees of PFC or any of its subsidiaries represented by a labor
union.
A-4
<PAGE>
3.10 The Employee Benefit Plans of PFC and its subsidiaries
comply in all material respects with all applicable laws including, without
limitation, ERISA and the Internal Revenue Code of 1986, as amended ("Code"). In
respect of the Employee Benefit Plans identified on Schedule 3.9, PFC and its
subsidiaries each have made all contributions required to be made by them and
have or will have accrued as of the Effective Date all payments due and payable
as of the Effective Date. The employee pension benefit plans (as defined in
Section 3(2) of ERISA) of PFC and its subsidiaries have received determination
letters from the Internal Revenue Service that such plans are qualified plans
pursuant to Section 401(a) of the Code. To the best of PFC's knowledge, there
has been no "reportable event" (as defined in the Code or ERISA), no event
described in Section 4062(e) of ERISA, no violation of Section 404 of ERISA, no
"prohibited transaction" (as defined in the Code or ERISA) and, except as
contemplated by this Agreement, no termination or partial termination of any
Employee Benefit Plan maintained or established by PFC or any of its
subsidiaries or to which PFC or any of its subsidiaries contributes. There would
be no liability of PFC under Title IV of ERISA if any of the Employee Benefit
Plans of PFC were terminated as of the Closing Date. There is no material issue
relating to Prestige State Bank's employee pension benefit plan, or its related
trust, currently pending before the Internal Revenue Service, the Department of
Labor or the Pension Benefit Guaranty Corporation and neither PFC nor its
subsidiaries have any knowledge of any fact or circumstances which adversely
affects the status of any Employee Benefit Plan listed in Schedule 3.9. Except
as disclosed in Schedule 3.9, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will (i)
result in any payment (including, without limitation, severance, unemployment
compensation, golden parachute or otherwise) becoming due from PFC under any of
the Employee Benefit Plans, of PFC, (ii) increase any benefits otherwise payable
under any of the Employee Benefit Plans of PFC, or (iii) result in the
acceleration of the time of payment or vesting of any such benefits to any
extent. Except as disclosed in Schedule 3.9, no event has occurred or will occur
which will result in liability to PFC in connection with any Employee Benefit
Plan established, maintained, contributed to or to which there has been an
obligation to contribute (currently or previously) by PFC or by any other entity
which, together with PFC, constitute elements of either (a) a controlled group
of corporations (within the meaning of Section 414(b) of the Code), (b) a group
of trades or businesses under common control (within the meaning of Sections
414(c) of the Code or 4001 of ERISA), (c) an affiliated service group (within
the meaning of Section 414(m) of the Code), or (d) another arrangement covered
by Section 414(o) of the Code.
3.11 Schedule 3.11 to this Agreement sets forth a list of all
actions, suits, investigations (formal or informal) or proceedings pending
against PFC or any of its subsidiaries in any court or before any governmental
agency or arbitration tribunal other than those actions, suits, investigations
or proceedings in which the liability of PFC or any of its subsidiaries is
reasonably anticipated to be less than $10,000 per action, suit, investigation
or proceeding provided that the liability of PFC and its subsidiaries under all
such omitted actions, suits, investigations or proceedings is reasonably
anticipated to be less than $100,000. Schedule 3.11 may, at the option of PFC,
list actions, suits, investigations or proceedings in which the liability of PFC
or any of its subsidiaries is reasonably anticipated to be less than $10,000 and
any listing in such Schedule shall not be deemed an admission of liability.
There are no actions, suits, investigations (formal or informal) or proceedings
pending or to the knowledge of PFC or any of
A-5
<PAGE>
its subsidiaries, threatened against PFC or any of its subsidiaries in any court
or before any governmental agency or arbitration tribunal which (either
individually or in the aggregate) are reasonably anticipated to have a material
adverse effect on the consolidated net worth of PFC. Neither PFC nor any of its
subsidiaries is subject to or bound by any judgment, order, writ, injunction or
decree of any such court, agency or tribunal, except in the ordinary course of
Prestige State Bank's business consistent with past practices.
3.12 Except as disclosed on Schedule 3.12, there are no
pending actions, suits or proceedings which have been brought by, or on behalf
of PFC or any of its subsidiaries in any court or before any governmental agency
or arbitration tribunal, except such actions, suits and proceedings in the
ordinary course of Prestige State Bank's business consistent with past
practices.
3.13 On and after the date hereof, to and including the
Effective Date, neither PFC nor any of its subsidiaries will, without the prior
written consent of CBH, do any of the following:
(a) except as specifically permitted herein, make any
changes in (and to the terms of) its authorized, issued or outstanding capital
stock or any security convertible into capital stock;
(b) declare or pay any dividends (in cash, stock or
in kind) on shares of its capital stock except (i) dividends paid by Prestige
State Bank or any other subsidiary of PFC to PFC, and (ii) quarterly cash
dividends by PFC to its shareholders (including a pro rata cash dividend for the
calendar quarter in which the Effective Date occurs) not to exceed $0.[ ] per
share on an annualized basis;
(c) effect any recapitalization, reclassification,
stock dividend, stock split or like change in its capital or grant any Rights
(including any additional options under any existing PFC stock option plan);
(d) make any other distribution of its assets or
properties to its shareholders except as permitted in clause (b) above;
(e) acquire any shares of PFC's or any of its
subsidiaries' capital stock;
(f) enter into or commit to enter into any new
employment contract or amend any existing employment contract or grant any
salary increase, bonus, or other form of compensation payable to any officer,
employee or agent, except for salary increases and bonuses consistent with the
past practice of PFC and its subsidiaries, provided, however, that nothing
contained herein shall be deemed to restrict PFC's ability to hire, as an
employee at will, any person who would not be deemed an executive officer of PFC
and provided further that PFC and CBH shall mutually agree on a mechanism for
calculating and paying prior to closing bonuses
A-6
<PAGE>
designed to provide PFC and Prestige State Bank officers and employees with a
proportional level of bonuses equal to that they would have received had closing
hereunder not occurred.
(g) amend the Articles of Incorporation or the Bylaws
of PFC or any of its subsidiaries except where required by applicable law;
(h) except in the ordinary course of business
consistent with past practices, incur any indebtedness, liabilities (whether
current, long term, fixed, contingent, liquidated, unliquidated or otherwise) or
obligations;
(i) except in the ordinary course of business
consistent with past practices, purchase or otherwise acquire, or sell or
otherwise dispose of, any equity security, debt security or asset;
(j) change the criteria with respect to risk, or
overall quality, of Prestige State Bank's investment portfolio or loan
portfolio;
(k) make capital expenditures other than in the
ordinary course of Prestige State Bank's business consistent with past
practices;
(l) create any new Employee Benefit Plan or make any
contributions to any Employee Benefit Plan or other plan relating to its
officers, employees and agents except as may be required by the terms of any
existing Employee Benefit Plan or by applicable law; or
(m) file any application with any state or federal
agency having jurisdiction over the affairs of PFC and its subsidiaries or
conduct its business in any manner other than in accordance with generally
accepted methods and procedures for conducting a banking business;
and neither PFC nor any of its subsidiaries has done any of the things described
in clauses (a) through (m) of this Section 3.13 since June 30, 1998 except as
set forth in Schedule 3.13.
3.14 PFC and each of its subsidiaries will (and have done so
since June 30, 1998) continue to conduct their businesses in the usual, regular
and ordinary manner consistent with past practices. CBH hereby consents to the
incurring and payment, prior to the Effective Date, of all reasonable expenses
of PFC and its subsidiaries in connection with the transactions contemplated by
this Agreement and the Merger Agreement, including the printing of PFC's proxy
material and reasonable legal, investment advisory and accounting fees.
3.15 PFC and its subsidiaries each have the corporate power
and authority to own, lease and operate their properties and to conduct their
businesses as now conducted. PFC and its subsidiaries each have complied and are
in compliance in all material respects with all federal, state and local laws,
regulations, ordinances, rules or orders affecting or regulating the conduct and
operations of their respective businesses except for such non-compliance as
would not have a material adverse effect upon the financial condition or results
of operations of PFC,
A-7
<PAGE>
and neither PFC nor any PFC subsidiary has received notification from any agency
or department of federal, state or local government (i) asserting a material
violation of any such statute or regulation, (ii) threatening to revoke any
license, franchise, permit or government authorization or (iii) restricting or
in any way limiting its operation. Neither PFC nor any PFC subsidiary is subject
to any regulatory or supervisory cease and desist order, agreement, directive,
memorandum of understanding or commitment and none of them has received any
communication requesting that they enter into any of the foregoing. PFC and its
subsidiaries have all federal, state, local and foreign governmental
authorizations necessary for it to own or lease its properties and assets and to
carry on its business as it is now being conducted. Schedule 3.15 to this
Agreement sets forth a list, brief description of the purpose of and the current
status of, any notice, application or similar filing made by PFC or any of its
subsidiaries within the last two years with any state or federal agency having
jurisdiction over the affairs of PFC and its subsidiaries.
3.16 PFC has the legal power and authority to enter into this
Agreement and the Merger Agreement and to consummate the transactions
contemplated hereby and thereby, subject to the approval thereof by the
shareholders of PFC under applicable law and subject to the approval of the
Department of Banking of the State of New Jersey, the Office of the Comptroller
of the Currency and the Federal Reserve Board. This Agreement and the Merger
Agreement constitute legal, valid and binding obligations of PFC enforceable
against it in accordance with their respective terms. Except as may otherwise be
required in order to comply with their fiduciary duties, the Board of Directors
of PFC will recommend to its shareholders that they approve the Merger and all
other acts and transactions contemplated by the Merger and all other acts and
transactions contemplated by this Agreement and the Merger Agreement, and after
the receipt of such shareholder approval in the manner required by law, such
shareholder approval shall not be revokable. Approval of this Agreement and the
Merger Agreement by the PFC shareholders shall also be deemed to authorize the
PFC Board of Directors to amend, supplement or waive any of the provisions of
this Agreement and the Merger Agreement as provided in Section 16.6.
3.17 The Board of Directors of PFC has authorized the
execution and delivery of this Agreement and Merger Agreement, and the
transactions contemplated hereby and thereby and neither the execution and
delivery of this Agreement or the Merger Agreement, nor, subject to the approval
of PFC's shareholders and subject to the approval of the Department of Banking
of the State of New Jersey, the Office of the Comptroller of the Currency and
the Federal Reserve Board, the consummation of the transactions contemplated
hereby or the fulfillment of, or the compliance with, the terms, conditions, and
provisions of this Agreement and the Merger Agreement will conflict with, or
result in a breach of, any of the terms, conditions or provisions of the
Articles of Incorporation or the Bylaws of PFC or any of its subsidiaries or of
any contract or other agreement to which PFC or any of its subsidiaries is a
party or by which any of them may be bound, or constitute (with or without the
giving of notice or the passage of time, or both) a default under any such
contract or other agreement or cause the acceleration of the maturity of any
obligation of PFC or of any of its subsidiaries other than with regard to such
contracts or other agreements a default under which would not have a material
adverse effect upon the financial condition or results of operations of PFC.
Other than as set forth herein, no consent,
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<PAGE>
approval or authorization of, or declaration, notice, filing or registration
with, any governmental or regulatory authority, or any other person, is required
to be made or obtained by PFC on or prior to the Effective Date in connection
with the execution, delivery and performance of this Agreement or the Merger
Agreement or the consummation of the transactions contemplated hereby or
thereby.
3.18 All documents and other papers delivered by or on behalf
of PFC in connection with this Agreement, the Merger Agreement and the
transactions contemplated hereby are true and, subject to Section 3.22 hereof,
complete in all material respects. The information furnished by or on behalf of
PFC to CBH in connection with this Agreement, the Merger Agreement and the
transactions contemplated hereby do not contain any untrue statement of a
material fact and, subject to Section 3.22 hereof, do not omit to state any
material fact necessary to make the statements made, in the context in which
made, not false or misleading. Except for facts affecting the banking industry
in general, subject to Section 3.22 hereof, there is no fact which PFC has not
disclosed to CBH in writing which materially adversely affects the business or
condition (financial or other) of PFC or any of its subsidiaries.
3.19 Each loan reflected as an asset on the books and records
of PFC (i) is evidenced by notes, agreements or other evidences of indebtedness
which are true, genuine and what they purport to be, (ii) to the extent secured,
has been secured by valid liens and security interests which have been
perfected, and (iii) is the legal, valid and binding obligation of the obligor
named therein, enforceable in accordance with its terms except as such
enforcement may be affected by bankruptcy or other statutes or regulatory
provisions effecting creditors rights generally.
3.20 Neither PFC nor any PFC subsidiary has received any
written notice of any legal, administrative, arbitral or other proceeding, claim
or action and, to the knowledge of PFC and the PFC subsidiaries, there is no
governmental investigation of any nature ongoing, in each case that could
reasonably be expected to result in the imposition, on PFC or any PFC
subsidiary, of any liability arising under any local, state or federal
environmental statute, regulation or ordinance including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, and there are no facts or circumstances which could reasonably
be expected to form the basis for any such proceeding, claim, action or
governmental investigation that would impose any such liability; and neither PFC
nor any PFC subsidiary is subject to any agreement, order, judgment, decree or
memorandum by or with any court, governmental authority, regulatory agency or
third party imposing any such liability.
3.21 To the best of PFC's knowledge, Schedule 3.21 to this
Agreement is a true and correct list of the Affiliates of PFC as the term
"Affiliates" is used in Rule 145 promulgated under the Securities Act of 1933,
as amended.
3.22 To the extent the Schedules delivered to CBH on or prior
to the date hereof are incomplete in any respect, PFC shall cause revised
complete Schedules referred to in
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this Section 3 to be delivered to CBH within ten business days of the date
hereof and such revised complete Schedules shall supercede the previously
delivered Schedules.
3.23 Assuming the condition set forth in Section 7.15 hereof
is met, as of the date of this Agreement, PFC knows of no reason relating to it
or any of its subsidiaries which would reasonably cause it to believe that the
Merger will not qualify as a pooling of interests for financial accounting
purposes.
4. REPRESENTATIONS AND WARRANTIES OF CBH
CBH represents and warrants to PFC and agrees as follows:
4.1 CBH is a corporation duly organized under the BCA and is
validly existing and in good standing under the laws of the State of New Jersey.
CBH is registered as a bank holding company under the Holding Company Act.
Commerce Bank, N.A., Commerce Bank/Pennsylvania, N.A., Commerce Bank/North and
Commerce Bank/Shore, N.A. are each banking organizations duly organized under
the laws of the United States and/or New Jersey, as the case may be, and are
each validly existing and in good standing under the laws of the United States.
Except as set forth in the CBH Annual Report on Form 10-K for the fiscal year
ended December 31, 1997 ("CBH Form 10-K"), CBH has no material active
subsidiaries except Commerce Bank, N.A., Commerce Bank/Pennsylvania, N.A.,
Commerce Bank/North and Commerce Bank/Shore, N.A., and neither Commerce Bank,
N.A., Commerce Bank/Pennsylvania, N.A., Commerce Bank/North and Commerce
Bank/Shore, N.A. nor any other material subsidiary of CBH has any material
active subsidiaries.
4.2 The authorized capital stock of CBH consists of (i)
10,000,000 shares of preferred stock, no par value per share (the "CBH Preferred
Stock") of which no series is issued and outstanding and (ii) 50,000,000 shares
of common stock, par value $1.5625 per share ("CBH Common Stock") 22,806,455
shares of which have been validly issued and are outstanding, fully paid and
non-assessable as of the date hereof and 100,159 shares are held in treasury.
CBH owns all of the shares of the issued and outstanding capital stock of the
Commerce Bank, N.A., Commerce Bank/Pennsylvania, N.A., Commerce Bank/North and
Commerce Bank/Shore, N.A. free and clear of any lien or other encumbrance. As of
the date hereof, there are no outstanding subscriptions, Rights, options,
warrants, calls, commitments or agreements to which either CBH or any of its
subsidiaries is a party or by which any of them may be bound, which relate to
the issuance or sale by any of them of shares of their capital stock except as
set forth below. As of the date hereof, no shares of CBH Preferred Stock or CBH
Common Stock were reserved for issuance, except (i) those shares which relate to
the issuance of CBH Common Stock in connection with the acquisition of insurance
agencies, (ii) those contemplated by the Merger Agreement, (iii) 94,000 shares
of CBH Common Stock were reserved for issuance pursuant to CBH's dividend
reinvestment and stock purchase plans, and (iv) 5,500,000 shares of CBH Common
Stock were reserved for issuance pursuant to CBH stock option plans, and
provided however, that the foregoing shall not be construed as preventing CBH or
any of its subsidiaries from proceeding with other mergers or acquisitions using
CBH's capital stock as the consideration whether or not such mergers or
acquisitions are completed prior to the Effective Date. The shares of CBH common
stock to be issued and delivered to the shareholders of PFC
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pursuant to the Merger Agreement are presently authorized but unissued and will,
upon issuance and delivery pursuant to the Merger Agreement, be validly issued
and outstanding, fully paid and non-assessable and no shareholder of CBH will
have any preemptive rights of subscription or purchase in respect thereto.
4.3 There has been delivered to PFC (a) the audited
consolidated balance sheet of CBH and its subsidiaries as of December 31, 1997
and December 31, 1996 and the related consolidated statements of income, changes
in shareholders' equity and cash flows for the years ended December 31, 1997 and
December 31, 1996 together with the notes related thereto and (b) the unaudited
consolidated balance sheet of CBH and its subsidiaries as of June 30, 1998 and
the related consolidated statement of income for the six month period ended June
30, 1998. Such financial statements (i) are in accordance with the books and
records of CBH and its subsidiaries, (ii) are true and correct in all material
respects and present fairly CBH's and its subsidiaries' consolidated financial
condition as of December 31, 1997 and 1996 and the results of their operations
for the years then ended and as of June 30, 1998 and the results of their
operations for the six-month period ended June 30, 1998, and (iii) have been
prepared in accordance with generally accepted accounting principles
consistently applied. The audited financial statements (with related notes)
referred to in the first sentence of this subsection have been examined and
reported upon by Ernst & Young LLP, independent certified public accountants.
Ernst & Young LLP is "independent" with respect to CBH under the criteria
established and applied by the Securities and Exchange Commission.
4.4 Since June 30, 1998, there has been no material change in
the consolidated condition, financial or otherwise, of CBH and its subsidiaries,
other than changes occurring in the ordinary course of business consistent with
past practices, which changes have not materially adversely changed or affected
their business or condition, financial or otherwise. Since June 30, 1998,
neither CBH nor any of its subsidiaries has (i) incurred any indebtedness,
liabilities (whether current, long term, fixed, contingent, liquidated,
unliquidated, or otherwise) or obligations other than in the ordinary course of
business consistent with past practices; (ii) excluding transfers among CBH and
its subsidiaries, declared or paid any dividends (other than its regular
quarterly cash dividends and annual stock dividend, and a special 25% stock
dividend and a special $0.25 per share cash dividend) or made any distribution
of any of its assets in kind or redeemed or repurchased any shares of its
capital stock; (iii) sold or transferred any of its assets, except in the
ordinary course of business consistent with past practices; or (iv) acquired the
assets or capital stock of any other entity other than in the ordinary course of
business consistent with past practices.
4.5 Since June 30, 1998, there has been no damage, destruction
or loss, whether covered by insurance or not, materially adversely affecting the
assets or business of CBH or any of its subsidiaries, or any other event or
condition of any character materially adversely affecting the assets or business
of CBH or any of its subsidiaries (other than external market conditions
affecting banks generally).
4.6 CBH has the legal power and authority to enter into this
Agreement and the Merger Agreement, and to consummate the transactions
contemplated hereby and thereby subject to the approval of the Department of
Banking of the State of New Jersey, the Office of
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the Comptroller of the Currency and the Federal Reserve Board. This Agreement
and the Merger Agreement constitute the legal, valid and binding obligation of
CBH enforceable against CBH in accordance with their respective terms.
4.7 The execution and delivery of this Agreement and the
Merger Agreement, and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by the Board of Directors of CBH; and
subject to the approval of the Department of Banking of the State of New Jersey,
the Office of the Comptroller of the Currency and the Federal Reserve Board,
neither the execution and delivery of this Agreement or the Merger Agreement nor
the consummation of the transactions contemplated hereby and thereby will
conflict with or result in the breach of, the terms, conditions or provisions of
the Articles of Incorporation or the Bylaws of CBH or any of its subsidiaries,
or of any contract or other agreement to which CBH or any of its subsidiaries is
a party or by which any of them may be bound or constitute (with or without the
giving of notice or passage of time, or both) a default under any such
instrument or cause the acceleration of the maturity of any obligation of CBH or
any of its subsidiaries. Other than as set forth herein, no consent, approval or
authorization of, or declaration, notice, filing or registration with, any
governmental or regulatory authority, or any other person, is required to be
made or obtained by CBH on or prior to the Effective Date in connection with the
execution, delivery and performance of this Agreement or the Merger Agreement or
the consummation of the transactions contemplated hereby or thereby.
4.8 All documents and other papers delivered by or on behalf
of CBH in connection with this Agreement, the Merger Agreement and the
transactions contemplated hereby are true and complete in all material respects.
The information furnished by or on behalf of CBH to PFC in connection with this
Agreement, the Merger Agreement and the transactions contemplated hereby do not
contain any untrue statement of a material fact and do not omit to state any
material fact necessary to make the statements made, in the context in which
made, not false or misleading. Except for facts affecting the banking industry
in general, there is no fact which CBH has not disclosed to PFC in writing which
materially adversely affects the business or condition (financial or other) of
CBH or any of its subsidiaries.
4.9 As of the date of this Agreement, CBH knows of no reason
relating to it or any of its subsidiaries which would reasonably cause it to
believe that the Merger will not qualify as a pooling of interests for financial
accounting purposes.
4.10 There are no actions, suits, investigations (formal or
informal) or proceedings pending or to the knowledge of CBH or any of its
subsidiaries, threatened against CBH or any of its subsidiaries in any court or
before any governmental agency or arbitration tribunal which (either
individually or in the aggregate) are reasonably anticipated to have a material
adverse effect on the consolidated net worth of CBH. Neither CBH nor any of its
subsidiaries is subject to or bound by any judgment, order, writ, injunction or
decree of any such court, agency or tribunal, except in the ordinary course of
CBH's and its subsidiaries business consistent with past practices.
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4.11 There are no pending actions, suits or proceedings which
have been brought by, or on behalf of CBH or any of its subsidiaries in any
court or before any governmental agency or arbitration tribunal, except such
actions, suits and proceeding in the ordinary course of CBH's and its
subsidiaries business consistent with past practices.
4.12 CBH and its subsidiaries each have the corporate power
and authority to own, lease, operate their properties and to conduct their
businesses as now conducted. CBH and its subsidiaries each have complied and are
in compliance in all material respects with all federal, state and local laws,
regulations, ordinances, rules or orders affecting or regulating the conduct and
operations of their respective businesses except for such non-compliance as
would not have a material adverse effect upon the financial condition or results
of operations of CBH, and neither CBH nor any CBH subsidiary has received
notification from any agency or department of federal, state or local government
(i) asserting a material violation of any such statute or regulation, (ii)
restricting or in any way limiting its operation. Neither CBH nor any CBH
subsidiary is subject to any regulatory or supervisory cease and desist order,
agreement, directive, memorandum of understanding or commitment and none of them
has received any communication requesting that they enter into any of the
foregoing. CBH and its subsidiaries have all federal, state, local and foreign
governmental authorizations necessary for it to own or lease its properties and
assets and to carry on its business as it is now being conducted.
4.13 Neither CBH nor any CBH subsidiary has received any
written notice of any legal, administration, arbitral or other proceeding, claim
or action and, to the knowledge of CBH and the CBH subsidiaries, there is no
governmental investigation of any nature ongoing, in each case that could
reasonably be expected to result in the imposition, on CBH or any CBH
subsidiary, of any material liability arising under any local, state or federal
environmental statute, regulation or ordinance including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, and there are no facts or circumstances which could reasonably
be expected to form the basis for any such proceeding, claim, action or
governmental investigation that would impose any such material liability; and
neither CBH nor any CBH subsidiary is subject to any agreement, order, judgment,
decree or memorandum by or with any court, governmental authority, regulatory
agency or third party imposing any such material liability.
5. APPROVAL OF PFC'S SHAREHOLDERS AND SECURITIES ACT OF 1933
5.1 As promptly as practicable after the "Registration
Statement" referred to below becomes effective with the Securities and Exchange
Commission ("SEC" or "Commission"), PFC will duly hold a meeting of its
shareholders for the purpose of authorizing the transactions contemplated by
this Agreement and the Merger Agreement insofar as they relate to PFC. PFC will,
in accordance and full compliance with the Securities Exchange Act of 1934, as
amended ("1934 Act") and the rules and regulations promulgated thereunder, and
to the extent permitted consistent with the Board's exercise of its fiduciary
duty, solicit proxies from its shareholders, for use at the meeting of PFC
shareholders referred to above, in favor of the transactions contemplated by
this Agreement and the Merger Agreement. Except with the prior written consent
of CBH, PFC will not distribute any materials to its shareholders in connection
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with such solicitation of proxies other than materials contained in the
Registration Statement (as defined in Section 5.2 hereof) after such
Registration Statement shall have become effective.
5.2 CBH and PFC acknowledge that the transactions contemplated
hereby are subject to the provisions of the Securities Act of 1933, as amended
(the "1933 Act"), and Rule 145 promulgated thereunder. CBH agrees to prepare at
its cost and expense promptly (with the assistance and cooperation of PFC) and
file a "Registration Statement" pursuant to the provisions of the 1933 Act for
the purposes of registering the shares of CBH common stock to be issued in
connection with the transactions contemplated hereby. PFC agrees to provide
promptly to CBH information concerning the business and financial condition and
affairs of PFC and its subsidiaries as may be required or appropriate for
inclusion in the Registration Statement and to cause its counsel and auditors to
cooperate with CBH's counsel and auditors in the preparation and filing of such
Registration Statement. CBH and PFC agree to use their respective best efforts
to have such Registration Statement declared effective under the 1933 Act as
soon as may be practicable and to distribute the prospectus contained in such
Registration Statement ("Prospectus") to the shareholders of PFC in accordance
with applicable law. Except to the extent permitted by Rule 145(b) or with the
prior consent of the other, CBH and PFC agree not to publish any communication,
other than the Registration Statement or notice and proxy material accompanied
by the Prospectus, in respect of this Agreement, the Merger Agreement, or the
transactions contemplated hereby. CBH shall not be required to maintain the
effectiveness of the Registration Statement or the Prospectus for the purpose of
resale by the affiliates of PFC, as such term is used in Rule 145. CBH shall
promptly take all actions necessary to register or qualify the shares of CBH
Common Stock to be issued in the Merger pursuant to all applicable state "blue
sky" or securities laws, and shall maintain such registrations or qualifications
in effect for all purposes hereof. CBH shall furnish PFC with copies of all such
filings and keep PFC advised of the status thereof. CBH shall cause the shares
of CBH Common Stock to be issued in the Merger to be listed on the NYSE, subject
to official notice of issuance, prior to the Effective Date.
5.3 Each party warrants, represents and covenants to the other
that when the Registration Statement shall become effective, and at all times
subsequent to effectiveness, up to and including the date of the PFC
shareholders meeting with respect to the transactions contemplated hereby, such
Registration Statement and all amendments or supplements thereto will, with
respect to the information furnished by each party or its representatives to the
other party or its representatives, (i) comply in all material respects with the
applicable provisions of the 1933 Act and the 1934 Act and the rules and
regulations thereunder and (ii) not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements contained therein not misleading. Each party warrants,
represents and covenants to the other that all information furnished to each
other for use in the regulatory filings described in or contemplated by this
Agreement and the Merger Agreement shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein not misleading. Each party
hereby agrees to fully indemnify and hold harmless the other party, and its
directors, officers and representatives, from and against any and all losses,
claims, liabilities, damages and
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expenses (including reasonable attorneys fees and costs of litigation) that
arise out of or are based upon a breach of this warranty, representation and
covenant.
6. PRIOR TO CLOSING
6.1 From and after the date hereof, CBH or PFC, as the case
may be, will provide to the officers and accredited representatives of the
other, their (including subsidiaries') books and records at such times as either
shall reasonably request in order that CBH or PFC, as the case may be, may have
full opportunity to make such investigation as either shall desire to make of
the business and affairs of the other and its subsidiaries, provided that such
investigation shall not unduly interfere with the normal conduct by the other
and its subsidiaries of their business. CBH and PFC, as the case may be, shall
each furnish to the other such information about its business and affairs as the
other may reasonably request in order to consummate the transactions herein
contemplated. All non-public materials and information furnished by the parties
hereto shall be held strictly confidential and may not be used by the receiving
party for their own benefit whatsoever if the closing contemplated hereunder
does not occur. In such event, any party receiving such non-public materials and
information shall return such materials and information to the party providing
such materials and information. The obligations of the parties pursuant to the
preceding sentence shall survive any termination of this Agreement for any
reason whatsoever.
6.2 CBH and PFC will use their respective best efforts and
cooperate with each other in promptly obtaining all government, regulatory and
shareholder consents and approvals necessary for the consummation of the
transactions contemplated by this Agreement and the Merger Agreement. CBH and
PFC shall cooperate with each other and shall promptly furnish and make
available to each other any and all information, data and facts which may be
required to obtain all government, regulatory and shareholder consents and
approvals and to comply with all rules in obtaining PFC's shareholders consent
to the Merger. CBH and PFC shall promptly furnish each other with copies of
written communications received by them from, or delivered by them to, any
governmental body relating to the Merger.
6.3 No party hereto shall take or fail to take, or cause or
permit its subsidiaries to take or fail to take, or to the best of its ability
permit to be taken or omitted to be taken by any third persons, any action that
would substantially impair the prospects of completing the Merger pursuant to
this Agreement and the Merger Agreement, that would materially delay such
completion, or that would adversely affect the qualification of the Merger for
pooling of interests accounting treatment or as a reorganization within the
meaning of Section 368(a) of the Code.
6.4 CBH and PFC shall agree with each other as to the form and
substance of any press release related to the Merger and shall consult each
other as to the form and substance of other public disclosures related thereto,
provided, however, that nothing contained herein shall prohibit any party,
following notification to the other, from making any disclosure which is
required by applicable law or the rules of the NYSE and/or the NASDAQ National
Market.
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6.5 PFC shall not authorize or permit any of its officers,
directors, employees or agents to directly or indirectly solicit, initiate or
encourage any inquiries relating to, or the making of any proposal which
constitutes, a "takeover proposal" (as defined below), or recommend or endorse
any takeover proposal, or participate in any discussions or negotiations, or
provide third parties with any non-public information, relating to any such
inquiry or proposal or otherwise facilitate any effort or attempt to make or
implement a takeover proposal except to the extent required for the discharge of
the fiduciary duties of its Board of Directors; provided, however, that PFC may
communicate information about any such takeover proposal to its stockholders if,
in the judgment of its Board of Directors, based upon the advice of outside
counsel, such communication is required under applicable law. PFC will take all
actions necessary or advisable to inform the appropriate individuals or entities
referred to in the first sentence hereof of the obligations undertaken herein.
PFC will notify CBH immediately if any such inquiries or takeover proposals are
received by, any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with, PFC, and PFC will
promptly inform CBH in writing of all of the relevant details with respect to
the foregoing. As used in this Agreement, "takeover proposal" shall mean any
tender or exchange offer, proposal for a merger, consolidation or other business
combination involving PFC or any of its subsidiaries or any proposal or offer to
acquire in any manner a substantial equity interest in, or a substantial portion
of the assets of, PFC or any of its subsidiaries other than the transactions
contemplated or permitted by this Agreement and the Merger Agreement.
6.6 (a) CBH and PFC shall cooperate and use their best efforts
to identify those persons who may be deemed to be "affiliates" of CBH or PFC
within the meaning of Rule 145 promulgated by the Commission under the
Securities Act and for purposes of qualifying the "Merger" for "pooling of
interests" accounting treatment. PFC and CBH shall use its respective best
efforts to cause each person so identified to deliver to CBH, no later than 30
days prior to the Effective Date, a written agreement in form and substance
satisfactory to CBH with respect to the resale of CBH Common Stock. Shares of
CBH Common Stock issued to such PFC and CBH affiliates in exchange for PFC
Common Stock or previously owned by them shall not be transferable until such
time as financial results covering at least 30 days of combined operations of
CBH and PFC have been published within the meaning of Section 201.01 of the
Commission's Codification of Financial Reporting Policies, regardless of whether
each such affiliate has provided the written agreement referred to in this
section.
(b) CBH shall use its best efforts to publish no
later than ninety (90) days after the end of the first month after the Effective
Date in which there are at least thirty (30) days of post-Merger combined
operations (which month may be the month in which the Effective Date occurs),
combined revenues and net income figures as contemplated by and in accordance
with the terms of SEC Accounting Series Release No. 135.
6.7 After the date of this Agreement, each of PFC and CBH
shall coordinate with the other the declaration of any dividends in respect of
PFC Common Stock and CBH Common Stock and the record dates and payment dates
relating thereto, it being the intention of the parties hereto that holders of
PFC Common Stock or CBH Common Stock shall not receive two dividends, or fail to
receive one dividend, for any single calendar quarter with respect to
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their shares of PFC Common Stock and/or CBH Common Stock and any shares of CBH
Common Stock any such holder receives in exchange therefor in the Merger.
6.8 (a) CBH agrees that all rights to indemnification or
exculpation now existing in favor of the directors, officers, employees and
agents of PFC and its subsidiaries as provided in their respective charters or
Bylaws or otherwise in effect as of the date hereof with respect to matters
occurring prior to the Effective Date of the Merger shall survive the Merger and
shall continue in full force and effect. To the maximum extent permitted by the
BCA, such indemnification shall be mandatory rather than permissive and CBH
shall advance expenses in connection with such indemnification.
(b) In additional to the rights provided for in
Section (a) hereof, and not in limitation thereof, CBH shall indemnify, defend
and hold harmless each present and former director, officer, employee and agent
of PFC and its subsidiaries ("Indemnified Parties") to the fullest extent
permitted by law for all claims, losses, damages, liabilities, costs, judgments
and amounts paid in settlement, including advancement of expenses (including
attorneys' fees) as incurred in respect of any threatened, pending or
contemplated claim, action, suit or proceeding, whether criminal, civil,
administrative or investigative, including, without limitation, any action by or
on behalf of any or all securityholders of PFC or by or in the right of PFC or
CBH, or investigation relating to any action or omission by such party in its
capacity as such (including service to any other entity, plan, trust or the like
at PFC's request) occurring on or prior to the Effective Date of the Merger
which arise out of or related to the transactions contemplated by this
Agreement.
(c) In the event that CBH or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person, then and in each such case, proper provisions shall be made so
that the successors and assigns of CBH shall assume its obligations as set forth
in this Section 6.8.
(d) The provisions of this Section 6.8 are intended
to be for the benefit of, and shall be enforceable by, each Indemnified Party,
his heirs and his personal representatives.
6.9 PFC shall immediately terminate the PFC Drip, and the
issuance of any further shares thereunder shall be immediately suspended.
6.10 PFC shall immediately cease the issuance of any further
shares of its Common Stock under and/or pursuant to its Retention Plan for
Founding Outside Directors and its Employee Savings and Profit Sharing Plan.
6.11 PFC shall terminate, (i.e., pay out in full to all PFC
employees, officers and/or directors entitled to benefits thereunder), and to
the extent necessary to avoid an excess parachute payment under Code Sections
280G and 4999 pay in 1998, all of its obligations under
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the following plans so that at closing neither PFC and/or CBH shall have any
further liability thereunder: employment agreements with Arnold F. Horvath and
Robert J. Jablonski; the PFC Director Retirement Plan, the PFC SERP, the PFC SAR
Plan, the PFC Retention Plan for Founding Outside Directors and PFC's Employee
Savings and Profit Sharing Plan.
7. CONDITIONS PRECEDENT TO CBH'S OBLIGATION
The obligation of CBH hereunder to close the transactions
contemplated by this Agreement and the Merger Agreement is subject to the
following conditions precedent (all or any of which may be waived by CBH in its
sole discretion):
7.1 Each of the representations and warranties herein made by
PFC shall be true in all material respects on the Effective Date as if made on,
as of, and with respect to the Effective Date, and the agreements to be
performed by PFC and its subsidiaries on or before the Effective Date shall have
been so performed in all material respects. On the Effective Date, PFC will
furnish a certificate to CBH, dated as of the Effective Date, of its President
and Secretary to the effect set forth in this Section 7.1.
7.2 On or before the Effective Date, CBH and PFC shall have
received all required permits, consents and approvals (which permits, consents
and approvals shall be unconditional and free of any material restrictions or
requirements by reason of the acceptance of any such permit, consent or
approval) from all federal and state governmental agencies and boards
(including, without limitation, the Department of Banking of the State of New
Jersey, the Office of the Comptroller of the Currency and the Federal Reserve
Board) and any application waiting period shall have expired.
7.3 A ruling shall have been obtained from the Internal
Revenue Service or an opinion of counsel satisfactory to CBH shall have been
received, to the effect that the transactions contemplated by this Agreement and
the Merger Agreement will constitute a tax free reorganization so that no gain
or loss will be recognized to CBH or PFC by reason of the Merger or to the
shareholders of PFC who exchange their PFC common stock for CBH common stock
(other than with respect to cash received in lieu of fractional shares). CBH
agrees that it will not unreasonably withhold its approval with respect to the
form and/or content of any such ruling or opinion of counsel.
7.4 On or before the Effective Date, PFC shall have delivered
to CBH certified copies of the minutes of the meetings of the Board of Directors
and shareholders of PFC approving this Agreement, the Merger Agreement and the
transactions contemplated by this Agreement and the Merger Agreement.
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7.5 On or before the Effective Date, there shall have been no
material adverse change in the business, consolidated earnings or consolidated
net worth of PFC and its subsidiaries since December 31, 1997. It is understood,
however, that material adverse changes caused by external market conditions
affecting banks generally (e.g. changes in banking legislation and changes in
interest rates) will not relieve CBH or its subsidiaries of their obligation to
close.
7.6 The Registration Statement shall have been declared
effective by the SEC; no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceeding for that purpose
shall have been initiated, or to the knowledge of CBH or PFC, shall be
contemplated or threatened by the SEC.
7.7 On or before the Effective Date, PFC shall have delivered
to CBH all material consents and authorizations of landlords or others necessary
to permit the Merger to be consummated without the violation of any such
material lease or other agreement to which PFC or any of its subsidiaries is a
party.
7.8 Each affiliate (as the term is defined in SEC Rule 145) of
PFC shall have delivered to CBH a letter in form and substance satisfactory to
counsel for CBH, stating that he will not resell shares of CBH common stock
acquired pursuant to this Agreement and the Merger Agreement, except as
permitted by SEC Rule 145 which permits regular trading transactions in limited
quantities, and by SEC Accounting Series Release No. 135.
7.9 No action, proceeding or material claim shall be pending
to prevent consummation or seek damages by reason of the transaction
contemplated by this Agreement and the Merger Agreement; no governmental
authority shall be claiming that the transaction shall constitute a violation of
law.
7.10 On or before the Effective Date, the shareholders of PFC
shall have duly approved the transactions contemplated by this Agreement and the
Merger Agreement insofar as they related to PFC and, if necessary, similarly the
shareholders of CBH shall have duly approved the transactions contemplated by
this Agreement and the Merger Agreement.
7.11 No event shall have occurred that shall preclude the
Merger from being accounted for as a pooling of interests and, if deemed
necessary by CBH, CBH shall have received a letter from its independent public
accountants to such effect.
7.12 CBH shall have received an opinion of Rothgerber Johnson
& Lyons LLP reasonably satisfactory to it, dated the Closing Date.
7.13 PFC shall have delivered to CBH the revised complete
Schedules on or before the date required by Section 3.22 hereof and the
Schedules as so delivered to CBH by PFC in accordance with Section 3.22 hereof
do not disclose facts which either individually or in the aggregate, materially
adversely affect or are reasonably likely to materially adversely affect the
assets, properties, earnings or business of PFC or any of its subsidiaries. This
condition to
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closing shall be deemed to have been met, or waived by CBH, unless CBH notifies
PFC to the contrary in a writing specifically referring to this Section 7.13
within twenty business days after PFC delivers to CBH such revised complete
Schedules.
7.14 All holders of currently outstanding PFC stock options
shall have agreed in writing not to exercise any cash election option granted to
them thereunder.
7.15 The Employment Agreements with Arnold F. Horvath and
Robert J. Jablonski shall have been terminated (i.e. paid out in full) without
any further liability to PFC and/or CBH, and each of them shall have entered
into employment arrangements with CBH in a form reasonably acceptable to CBH.
7.16 The PFC Director Retirement Plan, all PFC employment
agreements, the PFC SERP and the PFC SAR Plan, shall have been terminated (i.e.
paid out in full to all PFC employees, officers and/or directors entitled to
benefits thereunder) without any further liability to PFC and/or CBH.
8. CONDITIONS PRECEDENT TO PFC'S OBLIGATION
The obligation of PFC hereunder to close the transactions
contemplated by this Agreement and the Merger Agreement is subject to the
following conditions precedent (all or any of which may be waived by PFC in its
sole discretion):
8.1 Each of the representations and warranties herein made by
CBH shall be true in all material respects on the Effective Date as if made on,
as of, and with respect to the Effective Date, and the agreements to be
performed by CBH on or before the Effective Date shall have been so performed in
all material respects. On the Effective Date, CBH shall furnish a certificate to
PFC dated the Effective Date, of its President and its Secretary, to the effect
set forth in this Section 8.1.
8.2 On or before the Effective Date, PFC and CBH shall have
received all permits, consents and approvals from all federal and state
governmental agencies and boards (including, without limitation, the Department
of Banking of the State of New Jersey, the Office of the Comptrollor of the
Currency and the Federal Reserve Board) and any applicable waiting period shall
have expired.
8.3 A ruling shall have been obtained from the Internal
Revenue Service or an opinion of counsel satisfactory to PFC shall have been
received, to the effect that the transactions contemplated by this Agreement and
the Merger Agreement will constitute a tax free reorganization so that no gain
or loss will be recognized to CBH or PFC by reason of the Merger or to the
shareholders of PFC who exchange their PFC common stock for CBH common stock
(other than with respect to cash received in lieu of fractional shares). PFC
agrees that it will not unreasonably withhold its approval with respect to the
form and/or content of any such ruling or opinion of counsel.
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8.4 On or before the Effective Date, CBH shall have delivered
to PFC certified copies of the minutes of the meetings of the Board of Directors
of CBH and, if required, the shareholders of CBH, approving this Agreement and
the Merger Agreement, and the transactions contemplated by this Agreement and
the Merger Agreement.
8.5 On or before the Effective Date, there shall be no
material adverse change in the business, consolidated earnings or consolidated
net worth of CBH and its subsidiaries since December 31, 1997. It is understood,
however, that material adverse changes caused by external market conditions
affecting banks generally (e.g. changes in banking legislation and changes in
interest rates) will not relieve PFC or its subsidiaries of their obligations to
close.
8.6 The Registration Statement shall have been declared
effective by the SEC; no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceeding for that purpose
shall have been initiated or, to the knowledge of CBH or PFC, shall be
contemplated or threatened by the SEC.
8.7 CBH shall have sufficient authorized but unissued shares
of CBH common stock and cash to meet all of CBH's obligations under this
Agreement and the Merger Agreement.
8.8 No action, proceeding or material claim shall be pending
to prevent consummation or seek damages by reason of the transaction
contemplated by this Agreement and the Merger Agreement; no governmental
authority shall be claiming that the transaction shall constitute a violation of
law. Notwithstanding the foregoing, if CBH provides full indemnification to PFC
and its directors and officers (in form and substance and amount reasonably
satisfactory to such directors and officers and specifically providing for the
advancement of expenses) with respect to an such action, proceeding or material
claim brought by a non-governmental party, such action, proceeding or material
claim shall not be deemed a condition precedent to PFC's obligation to close.
8.9 On or before the Effective Date, the shareholders of PFC
shall have duly approved the transactions contemplated by this Agreement and the
Merger Agreement.
8.10 The shares of CBH Common Stock that will be issued in the
Merger shall have been approved for listing on the NYSE, subject to official
notice of issuance.
8.11 No event shall have occurred that shall preclude the
Merger from being accounted for as a pooling of interests.
8.12 PFC shall have received an opinion of Blank Rome Comisky
& McCauley LLP, reasonably acceptable to it, dated the Closing Date.
8.13 Within ten business days of the date on which the PFC
proxy materials are mailed to PFC shareholders to vote on the Merger, PFC's
financial advisor shall have issued its
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written fairness opinion that the Exchange Ratio is fair to the shareholders of
PFC from a financial point of view.
8.14 Two-year employment agreements (with the option of CBH to
extend each for three one-year periods) shall have been offered to Arnold J.
Horvath for an annual base salary of $145,000 and to Robert J. Jablonski for an
annual base salary of $145,000.
9. CLOSING AND POST-CLOSING
9.1 Closing shall take place at the office of CBH, 1701 Route
70 East, Cherry Hill, New Jersey, commencing at 10:00 A.M. on the tenth business
day immediately following the later of (i) the approval of the Merger by PFC
shareholders or (ii) approval of the Merger by all regulatory authorities and
the expiration of all applicable waiting periods, or such other date as is
mutually agreed to by CBH and PFC provided that all conditions precedent to the
obligations of PFC and CBH to close have then been met or waived. Immediately
upon completion of the closing, CBH shall be telephone instruct its
representative in Trenton, New Jersey to file, or shall otherwise cause the
filing of, an executed Certificate of Merger with the New Jersey Secretary of
State in accordance with Chapter 10 of the BCA.
9.2 At the close of business on the last business day
preceding the closing, the stock transfer books of PFC shall be closed.
9.3 As part of the closing, but effective immediately
following closing, Louis R. DeFalco shall be appointed to the Board of Directors
of Commerce Bank/Central, N.A. as a Vice Chairman.
9.4 As part of the closing, but effective immediately
following closing and subject to Section 8.14 hereof, each of Arnold F. Horvath
and Robert J. Jablonski shall be offered employment as a Senior Vice Presidents
of Commerce Bank/Central, N.A.
10. EXPENSES
If the transactions contemplated by this Agreement and the
Merger Agreement are consummated, CBH and PFC each shall pay all expenses
incurred by it in connection with this Agreement, the Merger Agreement and such
consummation. If the transactions contemplated by this Agreement and the Merger
Agreement are not consummated each party shall pay its own expenses except that
the cost of printing the Registration Statement and related Prospectus
heretofore referred to shall be incurred equally by CBH and PFC and if this
Agreement is terminated because of the wilful or intentional breach of any term
or provision hereof, the non-breaching party shall be entitled to be reimbursed
from the breaching party for all of its out-of-pocket expenses incurred in
connection with this Agreement to the date of termination, including without
limitation, legal, accounting and financial advisor costs and expenses. If the
transactions contemplated hereby are not consummated for any reason whatsoever,
nothing contained in this Section shall be deemed to preclude either party from
seeking to recover damages which it incurs as a result of such non-consummation
or to obtain other legal or equitable relief (including
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specific performance), if such non-consummation results from a wilful or
intentional (but not a negligent or unintentional) breach of any term or
provision of this Agreement or the Merger Agreement by the party from whom
damages are or against whom such other legal or equitable relief is sought.
11. BROKERS, FINDERS AND FINANCIAL ADVISORS
Each party to this Agreement represents and warrants that such
party has not dealt with any broker, finder or other person, firm or corporation
performing brokerage, finder or similar services, and does not know of any
person, firm or corporation asserting a brokerage, finder's or similar claim, in
connection with the making or negotiation of this Agreement, the Merger
Agreement or the transactions contemplated thereby. CBH acknowledges that it has
received a copy of the retainer agreement between PFC and Endicott Financial
Advisors LLC ("EFA") pursuant to which EFA will act as financial advisor to PFC
in connection with the Merger.
12. TERMINATION
(a) This Agreement may be terminated and the Merger abandoned
(either before or after approval by the shareholders of PFC contemplated hereby
and without seeking further shareholder approval) at any time prior to the
Effective Date:
(i) by mutual written consent of the parties
authorized by their respective Boards of Directors;
(ii) by written notice from PFC to CBH or CBH to PFC,
as the case may be, if the Effective Date shall not have occurred by March 31,
1999;
(iii) by written notice from PFC to CBH, or CBH to
PFC, as the case may be, stating that the party giving such notice elects to
terminate this Agreement and abandon the Merger, as of a stated date, which
shall not be less than ten business days after the date on which such notice is
given, because (a) the party receiving such notice will be unable, by March 31,
1999, to meet or satisfy one or more specified conditions precedent to the
obligation of the party sending such notice to close under this Agreement and
(b) the party sending such notice does not intend to waive the satisfaction of
such conditions precedent;
(iv) in the event of termination of the Merger
Agreement pursuant to the terms thereof;
(v) by CBH, if the Board of Directors of PFC shall
(i) withdraw, modify or change its recommendation or approval in respect of this
Agreement in a manner adverse to CBH or (ii) approve or recommend any proposal
other than by CBH in respect of a takeover proposal (as defined in Section 6.5
hereof);
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(vi) assuming PFC shall not have contravened Section
6.5 hereof, by PFC to allow PFC to enter into a takeover proposal (as defined in
Section 6.5 hereof); or
(vii) by PFC if the "Average Price" of a share of CBH
Common Stock, as that term is defined in the Merger Agreement, is not $33.00 or
above.
13. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
The respective representations, warranties and covenants of
the parties in this Agreement shall not survive the Effective Date and shall
terminate on the Effective Date, except for the covenants contained in Section
4.2 (last sentence only), 6.8 and 16.3 hereof. However, such termination shall
not be deemed to deprive any of the parties hereto or their subsidiaries, or any
of their directors, officers or controlling persons, of any defense in law or
equity which otherwise would be available against the claims of any person,
including, but not limited to, any shareholder or former shareholder of the
parties hereto. Prior to the Effective Date, each party shall be deemed to have
relied upon each and every representation and warranty of the other party,
regardless of any investigation heretofore or hereafter made by or on behalf of
such party.
14. BENEFITS OF THIS AGREEMENT AND MERGER AGREEMENT
This Agreement and the Merger Agreement and the rights and
obligations of CBH and PFC hereunder shall not be assigned by any party to any
third party, except with the written consent of the other. This Agreement and
the Merger Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective permitted successors and assigns. Except as
provided in Section 6.8 hereof, nothing in this Agreement or the Merger
Agreement, expressed or implied, is intended to confer upon any person, other
than the parties hereto and their respective permitted successors and assigns,
any rights or remedies under or by reason of this Agreement and there are no
third party beneficiaries of this Agreement or the Merger Agreement. PFC agrees
that to the extent necessary or appropriate to facilitate the transaction
contemplated hereby, PFC will agree and consent to any change in the method of
accomplishing such transaction requested by CBH so long as such change does not
result in a reduction in the Exchange Ratio (as defined in the Merger Agreement)
or result in an adverse tax or other effect to PFC's shareholders, or change the
covenants set forth in Sections 6.10 and 6.11 hereof or the conditions set forth
in Sections 7.15 and 7.16 hereof.
15. NOTICES
Any notice, request, instruction, legal process, or other
instrument to be given or served hereunder by any party to another shall be
deemed given or served if in writing and delivered personally or sent by
facsimile or overnight express or registered or certified mail, postage prepaid,
to the respective party or parties at the following addresses:
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A. If to CBH:
Commerce Atrium
1701 Route 70 East
Cherry Hill, NJ 08034
Attn: Vernon W. Hill, II
With a copy to:
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103
Attn: Lawrence R. Wiseman, Esquire
B. If to PFC:
One Royal Road
P.O. Box 2480
Flemington, NJ 08822
Attn: Robert J. Jablonski, Chief Executive Officer
With copies to:
Rothgerber Johnson & Lyons LLP
One Tabor Center
1200 17th Street, Suite 3000
Denver, Colorado 80202
Attn: Herbert H. Davis III, Esquire
and to such other address or addresses as either party may designate to the
other by like notice as set forth above.
16. MISCELLANEOUS
16.1 As used in this Agreement, the following terms have the
following meanings unless the context otherwise requires:
(i) "contracts and other agreements" means and
includes all contracts, agreements, indentures, leases, franchises, licenses,
commitments or legally binding arrangements, express or implied, written or
oral;
(ii) "lien or other encumbrance" means and includes
any lien, pledge, mortgage, security interest, claim, lease, charge, option,
right of first refusal, easement or any other encumbrance whatsoever;
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(iii) "person' means a natural person, corporation,
partnership, sole proprietorship, joint venture, association, joint-stock
company, trust, estate, unincorporated organization, government (and any branch
or subdivision thereof), government agency, cooperative or other entity.
(iv) "subsidiaries" means when used with respect to a
party to this Agreement any corporation 50% or more of whose outstanding stock
is either directly or indirectly (through one or more other subsidiaries) owned
by such party.
(v) "Rights" means any warrants, options, rights,
convertible securities or other arrangements or commitments which obligates an
entity to issue or dispose of its equity securities.
(vi) "business day" means any day on which regular
trading of securities occurs on the "NYSE".
16.2 PFC and CBH will each cause its respective subsidiaries
to abide by its respective obligations under this Agreement.
16.3 Subsequent to the Effective Date, the Board of Directors
of CBH shall reserve the right to withhold the payment of dividends on its
common stock from any former shareholder of PFC who fails to exchange
certificates representing the shares of PFC common stock for certificates
representing the shares of CBH common stock in accordance with the Merger
Agreement within a reasonable period of time after such shareholders have been
advised by the Board of Directors of CBH of its determination that the exchange
is in the best interests of CBH. Such shareholders shall retain the right to be
paid any such withheld dividends, without interest, upon presentation of their
PFC certificates for exchange or, in the event such PFC certificates are lost of
destroyed, an affidavit of lost certificate acceptable to CBH.
16.4 PFC and CBH shall use their best efforts to have all
publicity, press releases and other announcements relating to this Agreement,
the Merger Agreement or the transactions contemplated thereby reviewed in
advance by both CBH and PFC.
16.5 This Agreement and the Merger Agreement contains the
entire agreement between the parties hereto with respect to the transactions
contemplated hereby, supersedes all prior and contemporaneous agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties, and there are no warranties, representations, covenants or other
agreements between the parties in connection with the subject matter hereof
except as specifically set forth herein.
16.6 Any party to this Agreement may, at any time prior to the
Effective Date, by action taken by its Board of Directors or officers thereunto
duly authorized, waive any of the terms or conditions of this Agreement binding
on the other party or agree to an amendment or modification to this Agreement by
an agreement in writing executed in the same manner (but not necessarily by the
same persons) as this Agreement. No amendment, modification or waiver of
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this Agreement shall be binding unless executed in writing by the party to be
bound thereby. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar), nor shall any waiver constitute a continuing waiver unless
otherwise expressly provided. PFC's Board of Directors may authorize the
amendment or supplementation of this Agreement or the Merger Agreement or waiver
of any provision hereof or thereof, either before or after the approval of PFC's
shareholders provided in Section 5 hereof (and without seeking further
shareholder approval), so long as such amendment, supplement or waiver does not
result in the reduction of the Exchange Ratio (as defined in the Merger
Agreement) or result in a materially adverse tax or other effect to PFC's
shareholders, or change the covenants set forth in Sections 6.10 and 6.11 hereof
or the conditions set forth in Sections 7.15 and 7.16 hereof..
16.7 This Agreement has been executed in the State of New
Jersey and shall be construed in accordance with the laws of the State of New
Jersey. This Agreement may be executed in any number of copies, each of which
shall be deemed an original, and all of which together, shall be deemed one and
the same instrument.
IN WITNESS WHEREOF, pursuant to authority duly given by the respective
Boards of Directors of CBH and PFC, this Agreement has been signed on behalf of
said corporations by their respective Presidents under their respective
corporate seals, and attested by their respective Secretaries or Assistant
Secretaries, as the case may be, all on the day, month and year first written
above. The signature of a Secretary or Assistant Secretary of a corporate entity
is intended not only as an execution hereof, but also is a certification that
such corporation's board of directors has duly authorized the execution and
delivery of this Agreement.
COMMERCE BANCORP, INC.
By: /s/ Vernon W. Hill, II
-------------------------------------------
Vernon W. Hill, II, President
Attest: /s/ Thomas J. Sukay
---------------------------------------
Thomas J. Sukay, Senior Vice President
PRESTIGE FINANCIAL CORP.
By: /s/ Robert J. Jablonski
--------------------------------------------
Robert J. Jablonski, Chief Executive Officer
Attest: /s/ Susan Berger
----------------------------------------
Susan Berger, Secretary
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ANNEX B
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT made this 17 day of September, 1998 by and between
PRESTIGE FINANCIAL CORP. ("PFC"), a New Jersey business corporation registered
as a bank holding company under the Bank Holding Company Act of 1956, as amended
("Holding Company Act"), and COMMERCE BANCORP, INC. ("CBH"), a New Jersey
business corporation registered as a bank holding company under the Holding
Company Act (PFC and CBH sometimes collectively referred to as the "Constituent
Corporations").
BACKGROUND
----------
CBH and PFC have entered into an Agreement and Plan of Reorganization
of even date herewith (the "Plan"), which contemplates the merger of PFC with
and into CBH (the "Merger") in accordance with the terms and conditions of this
Merger Agreement.
NOW THEREFORE, in consideration of the premises and mutual covenants
and agreements herein contained, and subject to the satisfaction of the terms
and conditions set forth herein and in the Plan, intending to be legally bound
hereby, PFC and CBH do hereby agree as follows:
SECTION 1
---------
On the Effective Date of the Merger, as hereinafter defined, PFC shall
be merged with and into CBH under and pursuant to Chapter 10 of the New Jersey
Business Corporation Act, as amended ("BCA").
SECTION 2
---------
CBH shall be the surviving corporation (hereinafter referred to as the
"Surviving Corporation"), and the name of the Surviving Corporation shall be
"Commerce Bancorp, Inc."
SECTION 3
---------
On the Effective Date of the Merger:
(a) For all purposes the separate existence of PFC shall cease. PFC
shall be merged with and into CBH, the Surviving Corporation, and the Surviving
Corporation shall thereupon and thereafter possess all the rights, privileges
and powers, of a public as well as of a private nature, and all property (real,
personal and mixed), and franchises of each of the Constituent Corporations.
(b) All debts due on whatever account to any of the Constituent
Corporations including subscriptions to shares and other chooses in action
belonging to any of the Constituent Corporations shall be taken and deemed to be
transferred to and vested in the Surviving Corporation without further act or
deed.
(c) The Surviving Corporation thenceforth shall be responsible for all
the liabilities and obligations of each of the Constituent Corporations, but the
liabilities of the Constituent
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Corporations, or of their shareholders, directors, or officers, shall not be
affected; nor shall the rights of the creditors thereof, or of any persons
dealing with the Constituent Corporations, or any liens upon the property of the
Constituent Corporations, be impaired by the Merger; and any claim existing or
action or proceeding pending by or against any of the Constituent Corporations
may be prosecuted to judgment as if the Merger had not taken place, or the
Surviving Corporation may be proceeded against or substituted in its place.
(d) Any taxes, penalties and public accounts of the State of New Jersey
claimed against any of the Constituent Corporations, but not settled, assessed
or determined prior to the Merger shall be settled, assessed or determined
against the Surviving Corporation and, together with interest thereon, shall be
a lien against the franchises and property, both real and personal, of the
Surviving Corporation.
If at any time the Surviving Corporation shall consider or be advised
that any further assignment or assurances in law, or any things are necessary or
desirable to vest in the Surviving Corporation, according to the terms hereof,
the title of any property or rights of PFC, the last acting officers and
directors of PFC, or the corresponding officers and directors of the Surviving
Corporation, as the case may be, then shall and will execute and make all such
property assignments and assurances, and do all things necessary or proper to
vest title in such property or rights in the Surviving Corporation, and
otherwise to carry out the purposes of this Merger Agreement.
SECTION 4
---------
(a) On the Effective Date, the Articles of Incorporation and By-laws of
CBH, as in effect immediately prior to the Effective Date, shall become the
Articles of Incorporation and By-laws of the Surviving Corporation (whose name
shall remain Commerce Bancorp, Inc.), until duly amended in accordance with law.
(b) On the Effective Date, the then Board of Directors of CBH shall
serve as the Board of Directors of the Surviving Corporation until such time as
their successors have been elected and qualified.
(c) On the Effective Date, the persons who are executive or other
offices of CBH shall serve as officers of the Surviving Corporation until such
time as the Board of Directors of the Surviving Corporation shall otherwise
determine.
SECTION 5
---------
On the Effective Date:
(a) The shares of CBH Common Stock and Preferred Stock then issued or
outstanding (or held in Treasury) shall by virtue of the Merger and without any
action on the part of the holder thereof, be automatically converted into and
become the same number of shares of Common Stock and Preferred Stock of the
Surviving Corporation. From and after the Effective Date, each certificate
which, prior to the Effective Date, represented shares of CBH, shall evidence
ownership of shares of the Surviving Corporation on the basis hereinbefore set
forth. Each share of Common Stock and Preferred Stock of the Surviving
Corporation issued pursuant to this Subsection shall be fully paid and
non-assessable.
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(b) Each share of PFC Common Stock then issued and outstanding
immediately prior to the Effective Date (except as provided in Subsection (d)
hereof) shall, by virtue of the Merger and without any action on the part of the
holder thereof, be automatically converted into and become fully paid and
non-assessable shares of the common stock, par value $1.5625 per share, of CBH
("CBH Common Stock") equal to $16.25 divided by the Average Price of CBH Common
Stock (as determined pursuant to Subsection (e) hereof), subject to adjustment
as set forth in Subsection (f) hereof, (hereinafter the "Exchange Ratio"). From
and after the Effective Date, each certificate which, prior to the Effective
Date, represented shares of PFC Common Stock, shall evidence ownership of shares
of CBH Common Stock on the basis hereinbefore set forth.
(c) No fractional shares of CBH Common Stock shall be issued as a
result of the Merger. In lieu of the issuance of fractional shares, cash
adjustments will be paid to the shareholders of PFC in respect of any fraction
of a share of CBH Common Stock which would otherwise be issuable under this
Merger Agreement. Such cash adjustment shall be equal to an amount determined by
multiplying such fraction by the Average Price of CBH Common Stock (as
determined pursuant to Subsection (e) hereof).
(d) Each issued, but not outstanding share of PFC Common Stock held as
a treasury share by PFC or owned beneficially by any subsidiary of PFC other
than in a fiduciary capacity or in connection with a debt previously contracted
and all shares of PFC Common Stock owned by CBH or owned beneficially by any
subsidiary of CBH other than in a fiduciary capacity or in connection with a
debt previously contracted at the Effective Date of the Merger, if any, shall
thereupon and without more be cancelled and retired and cease to exist and no
cash, stock or other property shall be delivered in exchange therefor.
(e) Subject to the next sentence of this Subsection (e) hereof,
"Average Price" of CBH Common Stock as used herein shall refer to the mean
average of the closing sale prices for CBH Common Stock as quoted in the New
York Stock Exchange as reported by The Wall Street Journal, for the five
business day period ending on and excluding the second business day next
preceding the Effective Date. Notwithstanding anything to the contrary contained
in the Plan and this Agreement, if the Average Price of CBH Common Stock would
otherwise be more than $43.00, the Average Price shall be deemed to be $43.00
and if the Average Price of CBH Common Stock would otherwise be less than
$37.00, the Average Price shall be deemed to be $37.00.
(f) If prior to the Effective Date, CBH shall issue to holders of CBH
Common Stock any shares of CBH Common Stock as a stock dividend, shall subdivide
the number of out standing shares of CBH Common Stock into a greater number of
shares or shall contract the number of outstanding shares, then, in any such
case, the number of shares of CBH Common Stock into which shares of PFC Common
Stock are automatically convertible into as set forth in Subsection (b) hereof
shall be adjusted equitably. For purposes of this Section of this Merger
Agreement, a dividend, subdivision or contraction shall be deemed to have become
final at the close of business on the record date fixed for determining
stockholders entitled to receive such dividend, or whose shares are to be
affected by such subdivision or contraction; provided, however, that in the
event that after such record date, but not before payment of such dividend or
before such subdivision or contraction became effective, CBH shall legally
abandon its plan to pay such dividend, or to effect such subdivision or
contraction, the number of shares of CBH Common Stock issuable on the Effective
Date of the Merger, if adjusted as herein above provided, shall forthwith be
readjusted to the number of shares of CBH Common Stock issuable
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<PAGE>
upon the Effective Date of the Merger which would have been in effect had such
dividend, subdivision or contraction never been declared.
(g) At or prior to the Effective Date, CBH shall designate its Transfer
Agent to act as exchange agent to receive from the holders thereof, certificates
which immediately prior to the Effective Date represented PFC Common Stock and
to exchange such certificates for certificates of CBH Common Stock and cash as
hereinbefore provided.
(h) (i) Promptly, but in no event later than ten business days, after
the Effective Date, the exchange agent shall mail to each record holder, as of
the Effective Date, of an outstanding certificate or certificates, which prior
to the Effective Date represented shares of PFC Common Stock, a letter of
transmittal in a form reasonably acceptable to PFC (which shall specify how
delivery shall be effected, and that risk of loss and title to such certificate
or certificates shall pass only upon proper delivery of such certificate or
certificates, together with a properly executed letter of transmittal, to the
exchange agent at its address stated therein), and instructions for use in
effecting the surrender of such certificate or certificates for exchange
therefor. Upon surrender to the exchange agent of such certificate or
certificates, together with such letter of transmittal, properly executed, the
exchange agent shall exchange such certificate or certificates for shares of CBH
Common Stock and pay to such record holder any payment due for a fractional
share of CBH Common Stock as heretofore provided. Until so surrendered, each
outstanding certificate or certificates, which prior to the Effective Date
represented shares of PFC Common Stock shall be deemed for all purposes to
evidence ownership of the number of shares of CBH Common Stock, and the right to
receive payment for any fractional share of CBH Common Stock into which the
shares represented by such certificate or certificates have been changed or
converted as aforesaid.
(ii) No dividends or other distributions declared or made with
respect to shares of CBH Common Stock with a record date after the Effective
Date shall be paid to the holder of any unsurrendered certificate or
certificates, which prior to the Effective Date represented shares of PFC Common
Stock, with respect to shares of CBH Common Stock that such holder would be
entitled to receive upon surrender of such certificate or certificates and no
cash payment in lieu of fractional shares of CBH Common Stock shall be paid to
any such holder pursuant to Subsection (c) hereof until such holder shall
surrender such certificate or certificates in accordance with this Subsection
(h) hereof. Subject to the effect of applicable laws, following surrender of any
such certificate or certificates, there shall be paid to such holder of shares
of CBH Common Stock issuable in exchange therefor, without interest, (a)
promptly after the time of such surrender, the amount of any cash payable in
lieu of fractional shares of CBH Common Stock to which such holder is entitled
pursuant to Subsection (c) hereof and the amount of dividends or other
distributions with a record date after the Effective Date theretofore paid with
respect to such whole shares of CBH Common Stock, and (b) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Date but prior to such surrender and a payment date
subsequent to such surrender payable with respect to such shares of CBH Common
Stock.
(iii) If any certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such certificate, the Exchange Agent
will deliver in exchange for such lost, stolen or destroyed certificate the
applicable merger consideration with respect to the shares of PFC Common Stock
formerly represented thereby, any cash in lieu of
B-4
<PAGE>
fractional shares of CBH Common Stock, and unpaid dividends and distributions on
shares of CBH Common Stock deliverable in respect thereof, pursuant to this
Agreement.
SECTION 6
---------
(a) On the Effective Date, PFC's obligations under its stock option
plans (collectively, the "Plans") with respect to vested stock options granted
thereunder and not therefore exercised shall be cancelled at the Effective Date
and CBH shall deliver to the holder of each such option, in respect thereof, the
number of shares of CBH Common Stock having an aggregate fair market value on
the Effective Date equal to the product of (i) the number of shares of PFC
Common Stock subject to such option and (ii) the excess, if any, of the Exchange
Ratio multiplied by the fair market value of CBH Common Stock (as defined in
Subsection (c) below) over the exercise price of such option. Notwithstanding
any other provision hereof, each holder of stock options who would otherwise
have been entitled to receive a fraction of a share of CBH Common Stock (after
taking into account all shares to be delivered to such holder upon termination
of stock options) shall receive, in lieu thereof, cash in an amount equal to
such fractional part of a share of CBH Common Stock multiplied by a number
derived by multiplying the Exchange Ratio by the fair market value of CBH Common
Stock (as defined in Subsection (c) below). No such holder shall be entitled to
dividends, voting rights or any other shareholder right in respect of any
fractional share.
(b) From and after the Effective Date, all unvested stock options to
purchase shares of PFC Common Stock (each, a "PFC Stock Option") under the
Plans, which are then outstanding and unexercised, shall be automatically
converted into and become options to purchase shares of CBH Common Stock, and
CBH shall assume each such PFC Stock Option in accordance with the terms of this
Plan and the Agreement by which it is evidenced; provided, however, that from
and after the Effective Date (i) each such PFC Stock Option assumed by CBH may
be exercised solely to purchase shares of CBH Common Stock, (ii) the number of
shares of CBH Common Stock purchasable upon exercise of such PFC Stock Option
shall be equal to the number of shares of PFC Common Stock that were purchasable
under such PFC Stock Option immediately prior to the Effective Date multiplied
by the Exchange Ratio and rounding down to the nearest whole share, with cash
being paid for any fractional share interests that otherwise would be
purchasable, and (iii) the per share exercise price under each such PFC Stock
Option shall be adjusted by dividing the per share exercise price of each such
PFC Stock Option by the Exchange Ratio, and rounding up to the nearest cent. The
terms of each PFC Stock Option shall, in accordance with its terms, be subject
to further adjustment as appropriate to reflect any stock split, stock dividend,
recapitalization or other similar transaction with respect to CBH Common Stock
on or subsequent to the Effective Date. It is intended that the foregoing
assumption shall be effected in a manner which is consistent with the
requirements of Section 424 of the Internal Revenue Code of 1986, as amended
(the "Code", as to any PFC Stock Option that is an "incentive stock option" (as
defined in Section 422 of the Code).
(c) The "fair market value" with respect to share of CBH Common Stock
on the Effective Date shall be the average closing price of such Common Stock
in the New York Stock Exchange Composite Transactions List (as reported by
The Wall Street Journal or other authoritative source) for the five business
day period ending on and excluding the second business day next preceding the
Effective Date of the Merger.
SECTION 7
---------
(a) The obligations of the parties hereto to effect the Merger shall be
subject to all of the terms and conditions contained in the Plan.
(b) This Merger Agreement may be terminated and the Merger abandoned by
the mutual written consent of the Boards of Directors of the parties hereto
prior to, or after the approval of the shareholders of the parties. If the Plan
is terminated pursuant to the terms thereof, then this Merger Agreement shall
terminate simultaneously, and the Merger shall be abandoned without further
action by the parties hereto.
SECTION 8
---------
The Merger shall become effective (the "Effective Date") at the date
and time at which executed Certificate of Merger are duly filed with the New
Jersey Secretary of State in accordance with Chapter 10 of the BCA.
SECTION 9
---------
(a) Any party to this Merger Agreement may, at any time prior to the
Effective Date, by action taken by its Board of Directors or officers thereunto
duly authorized, waive any of the terms or conditions of this Merger Agreement,
or agree to an amendment or modification to this Merger Agreement by an
agreement in writing executed in the same manner (but no necessarily by the same
persons) as this Merger Agreement. No amendment, modification or waiver of this
Merger Agreement shall be binding unless executed in writing by the party to be
bound thereby.
B-5
<PAGE>
No waiver of any of the provisions of this Merger Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar), nor shall any waiver constitute a continuing waiver unless otherwise
expressly provided. PFC's Board of Directors may authorize the amendment or
supplementation of this Merger Agreement or waiver of any provision hereof,
either before or after the approval of PFC's shareholders provided in Section 5
of the Plan (and without seeking further shareholder approval), so long as such
amendment, supplement or waiver does not result in the reduction of the Exchange
Ratio, or result in an adverse tax or other effect to PFC's shareholders, or
change the covenants set forth in Sections 6.10 and 6.11 of the Plan or the
conditions set forth in Sections 7.15 and 7.16 of the Plan.
(b) Nothing expressed or implied in this Merger Agreement is intended
or shall be construed to confer upon or give any person, firm or corporation
other than the parties hereto any rights or remedies under or by reason of this
Merger Agreement, and there are no third-party beneficiaries of this Merger
Agreement.
(c) No party hereto shall assign this Merger Agreement, or any part
hereof without the prior written consent of the other parties. Except as
otherwise provided herein, this Merger Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective permitted successors
and assigns.
(d) This Merger Agreement and the Plan constitute the entire agreement
between the parties pertaining to the subject matter hereof, and supersede all
prior and contemporaneous agreements, understandings, negotiations and
discussions, whether oral or written, of the parties, and there are no
warranties, representations, covenants or other agreements between the parties
in connection with the subject matter hereof except as specifically set forth
herein or therein.
(e) This Merger Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(f) This Merger Agreement shall be governed by the laws of the State of
New Jersey applicable to contracts executed in and to be performed exclusively
within the State of New Jersey, regardless of where it is executed.
WITNESS the signatures and seals of the Constituent Corporations on the
day and year first above written, each hereunto set by its duly authorized
officers and attested by its Secretary or Assistant Secretary, pursuant to a
resolution of the Board of Directors.
COMMERCE BANCORP, INC.
By: /s/ Vernon W. Hill, II
---------------------------------
Vernon W. Hill, II, President
Attest: /s/ Thomas J. Sukay
-----------------------------
Thomas J. Sukay,
Senior Vice President
B-6
<PAGE>
PRESTIGE FINANCIAL CORP.
By: /s/ Robert J. Jablonski
--------------------------------------------
Robert J. Jablonski, Chief Executive Officer
Attest: /s/ Susan Berger
----------------------------------------
Susan Berger, Secretary
B-7
<PAGE>
ANNEX C
November 6, 1998
Board of Directors
Prestige Financial Corp.
1 Royal Road
P.O. Box 2480
Attention: Mr. Louis R. DeFalco
Chairman of the Board of Directors
Directors:
You have requested our opinion as to the fairness, from a financial
point of view, to the holders of the outstanding shares of common stock, par
value $0.01 per share (the "Prestige Shares"), of Prestige Financial Corp.
("Prestige") of the exchange ratio (as described below, the "Exchange Ratio")
pursuant to the Amended Agreement and Plan of Merger, dated as of September 17,
1998 (the "Merger Agreement"), between Prestige and Commerce Bancorp, Inc.
("Commerce").
Pursuant to the Merger Agreement, Prestige will merge with and into
Commerce (the "Merger") and each Prestige Share issued and outstanding
immediately prior to the Effective Date (subject to certain exceptions) shall be
converted into the number of shares (the "Exchange Ratio") of common stock of
Commerce, par value $1.5625 per share ("Commerce Common Stock"), equal to $16.25
subject to adjustment as described in the Merger Agreement. It is our
understanding that the merger will be accounted for as a pooling-of-interests
under generally accepted accounting principles.
The investment banking business of Endicott Financial Advisors, L.L.C.
("Endicott") includes the valuation of financial institutions and their
securities in connection with mergers and acquisitions and other corporate
transactions.
In connection with this opinion, we have reviewed and considered, among
other things: (a) the Merger Agreement; (b) audited consolidated financial
statements and management's discussion and analysis of the financial condition
and results of operations for each of Prestige and Commerce for the three fiscal
years ended December 31, 1995, December 31, 1996 and December 31, 1997; (c)
unaudited consolidated financial statements and management's discussion and
analysis of the financial condition and results of operations for each of
Prestige and Commerce for the quarters ended March 31, 1998 and June 30, 1998;
(d) financial analyses and forecasts for Prestige and Commerce prepared by
and/or reviewed with the respective managements of Prestige and Commerce; (e)
the views of senior management of Prestige and Commerce of their respective past
and current business operations, results thereof, financial condition and future
prospects; (f) certain reported price and trading activity for the
C-1
<PAGE>
Prestige and Commerce common stock, including a comparison of certain financial
and stock market information with similar information for certain other
companies the securities of which are publicly traded; (g) the financial terms
of recent business combinations in the banking industry; (h) the pro-forma
impact of the transaction on Commerce; (i) the current market environment
generally and the banking environment in particular; and (j) such other
information, financial studies, analyses and investigations and financial,
economic and market criteria as we considered relevant.
In performing our review, we have assumed and relied upon, without
independent verification, the accuracy and completeness of all of the financial
information, analyses and other information reviewed by and discussed with us,
and we did not make an independent evaluation or appraisal of the specific
assets, the collateral securing assets or the liabilities of Prestige or
Commerce or any of their subsidiaries, or the collectibility of any such assets
(relying, where relevant on the analyses and estimates of Prestige and
Commerce). With respect to the financial projections reviewed with management,
we have assumed that they reflect the best currently available estimates and
judgments of the respective managements of the respective future financial
performances of each of Prestige and Commerce and of the combined company, and
that such performances will be achieved. We have also assumed that there has
been no material change in Prestige's or Commerce's assets, financial condition,
results of operations, business or prospects since the date of the last
financial statements made available to us. We have also assumed without
independent verification that the aggregate consolidated allowance for loan
losses for Prestige and Commerce were adequate to cover such losses. We have
further assumed that the conditions precedent in the Agreement are not waived.
Our opinion is necessarily based on economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. Events occurring after the date hereof could materially affect the
assumptions used in preparing this opinion. We have not undertaken to reaffirm
or revise this opinion or otherwise comment upon any events occurring after the
date hereof.
We have acted as Prestige's financial advisor in connection with the
Merger and will receive a fee for our services, a significant portion of which
is contingent upon consummation of the Merger. We will also receive a fee for
rendering this opinion.
It is understood that this opinion is not to be quoted or referred to,
in whole or in part, in a registration statement, prospectus, or proxy
statement, or in any other document used in connection with the offering or sale
or securities, nor shall this letter be used for any other purposes, without
Endicott's prior written consent, provided, however, that we hereby consent to
the inclusion of this opinion in this Proxy Statement/Prospectus and the
Registration Statement on Form S-4 of which it comprises a part.
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the Exchange Ratio is fair from a financial point of view to
the holders of Prestige Shares.
C-2
<PAGE>
Very Truly Yours,
/s/ ENDICOTT FINANCIAL ADVISORS, L.L.C.
C-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 14A:3-5 of the NJBCA provides, in substance, that New Jersey
corporations shall have the power, under specified circumstances, to indemnify
their directors, officers, employees and agents in connection with actions,
suits or proceedings brought against them or in the right of the corporation, by
reason of the fact that they were or are such directors, officers, employees or
agents, against expenses incurred in any such action, suit or proceeding.
Article VI of CBH's By-laws provides for indemnification to the fullest
extent permitted by Section 14A:3-5. Reference is made to the By-laws of CBH
filed as Exhibit 3.3 hereto.
Item 21. Exhibits
(a) Exhibits
Exhibit
No. Description
- --------------- ------------------------------------------------------------
2.1 Agreement and Plan of Reorganization, dated as of September
17, 1998, by and between Commerce Bancorp, Inc. and Prestige
Financial Corp. (attached as Annex "A" to the Proxy
Statement-Prospectus). The Schedules to this agreement are
not filed as an exhibit hereto pursuant to Regulation S-K,
Item 601(b)(2); however, the Registrant will furnish a copy
of these Schedules to the SEC upon its request.
2.2 Amended Agreement and Plan of Merger, dated as of
September 17, 1998, by and between Commerce Bancorp, Inc.
and Prestige Financial Corp. (attached as Annex "B" to the
Proxy Statement-Prospectus).
3.1(1) Restated Certificate of Incorporation of Commerce Bancorp,
Inc., as amended.
3.2(2) By-laws of Commerce Bancorp, Inc., as amended.
5.1 Opinion of Blank Rome Comisky & McCauley LLP.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Blank Rome Comisky & McCauley LLP (to be included
in Opinion filed as Exhibit 5.1).
23.4 Consent of Endicott Financial Advisors, L.L.C.
24.1 Powers of Attorney of certain signatories (included on
signature page).
II-1
<PAGE>
Exhibit
No. Description
- -------------- --------------------------------------------------------------
99.1 Form of Proxy of Prestige Financial Corp.
- ------------------------
(1) Incorporated by reference from CBH's Registration Statement on
Form S-2 and Amendments Nos. 1 and 2 thereto (Registration
No. 33-62702).
(2) Incorporated by reference from CBH's Registration Statement on
Form S-4 (Registration No. 333-10771).
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which any offers or sales
are being made, a post-effective amendment to the Registration
Statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933, as amended;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually or in
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change
in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective Registration Statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any other material change to such information
in the Registration Statement.
Provided, however, that paragraphs (a)(1)(i) and
(a)(1)(ii) do not apply if the Registration Statement is on
Form S-3 or Form S-8, and the information required to be
included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant
to Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended, that are incorporated by reference in the
Registration Statement.
II-2
<PAGE>
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, as amended, each such post-effective
amendment shall be deemed to be a new Registration Statement relating
to the securities being offered therein, and the offering of such
securities at the time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, as amended, each
filing of the registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934, as amended, that is incorporated
by reference in the Registration Statement shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(e) The undersigned registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934, as amended; and where interim financial information required to be
presented by Article 3 of Regulation S-X are not set forth in the prospectus, to
deliver, or cause to be delivered to each person to whom the prospectus is sent
or given, the latest quarterly report that is specifically incorporated by
reference in the prospectus to provide such interim financial information.
(g)(1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this Registration Statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other Items of the applicable form.
(g)(2) The registrant undertakes that every prospectus (i) that is
filed pursuant to paragraph (g)(1) 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 to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, as amended, 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.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers and
controlling persons of CBH pursuant to the foregoing provisions, or otherwise,
CBH has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933, as amended, and is therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by CBH of expenses incurred or paid by a director, officer or
controlling person of CBH in the successful defense of any action, suit or
proceeding) is
II-3
<PAGE>
asserted by such director, officer or controlling person in connection with the
securities being registered, CBH will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933, as amended,
and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes 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 (1) 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.
The undersigned registrant hereby undertakes 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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has duly caused this Registration Statement on
Form S-4 to be signed on its behalf by the undersigned, thereunto duly
authorized, in Cherry Hill, New Jersey, on this 6th day of November 1998.
COMMERCE BANCORP, INC.
By: /s/ VERNON W. HILL, II
-------------------------------------
VERNON W. HILL, II
Chairman of the Board and President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons, in
the capacities indicated, on November 6, 1998. Each person whose signature
appears below hereby authorizes Vernon W. Hill, II or C. Edward Jordan, Jr. to
file one or more Amendments, including Post-Effective Amendments, to this
Registration Statement, which Amendments may make such changes as Vernon W.
Hill, II or C. Edward Jordan, Jr. deem appropriate, and each person whose
signature appears below, individually and in each capacity stated below hereby
appoints Vernon W. Hill, II or C. Edward Jordan, Jr. as attorney-in-fact to
execute in his name and on his behalf any such Amendments to this Registration
Statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ----------------------------------------- ----------------------------------- ----------------------------
<S> <C> <C>
/s/ VERNON W. HILL, II
- ---------------------------------------- Chairman of the Board, November 6, 1998
VERNON W. HILL, II President and Director
(Principal Executive Officer)
/s/ C. EDWARD JORDAN, JR. .
- ---------------------------------------- Executive Vice President and November 6, 1998
C. EDWARD JORDAN, JR. Director (Principal Financial
and Accounting Officer)
/s/ ROBERT C. BECK
- ---------------------------------------- Secretary and Director November 6, 1998
ROBERT C. BECK
- ---------------------------------------- Director
DAVID BAIRD, IV
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ----------------------------------------- ----------------------------------- ----------------------------
<S> <C> <C>
/s/ JACK R BERSHAD
- ---------------------------------------- Director November 6, 1998
JACK R BERSHAD
/s/ MORTON N. KERR
- ---------------------------------------- Director November 6, 1998
MORTON N. KERR
- ---------------------------------------- Director
STEVEN M. LEWIS
/s/ DANIEL J. RAGONE
- ---------------------------------------- Director November 6, 1998
DANIEL J. RAGONE
/s/ WILLIAM A. SCHWARTZ, JR.
- ---------------------------------------- Director November 6, 1998
WILLIAM A. SCHWARTZ, JR.
- ---------------------------------------- Director
JOSEPH T. TARQUINI, JR.
- ---------------------------------------- Director
JOSEPH BUCKELEW
- ---------------------------------------- Director
FRANK C. VIDEON, SR.
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
- --------------- ------------------------------------------------------------
2.1 Agreement and Plan of Reorganization, dated as of September
17, 1998, by and between Commerce Bancorp, Inc. and Prestige
Financial Corp. (attached as Annex "A" to the Proxy
Statement-Prospectus). The Schedules to this agreement are
not filed as an exhibit hereto pursuant to Regulation S-K,
Item 601(b)(2); however, the Registrant will furnish a copy
of these Schedules to the SEC upon its request.
2.2 Amended Agreement and Plan of Merger, dated as of
September 17, 1998, by and between Commerce Bancorp, Inc.
and Prestige Financial Corp. (attached as Annex "B" to the
Proxy Statement-Prospectus).
3.1(1) Restated Certificate of Incorporation of Commerce Bancorp,
Inc., as amended.
3.2(2) By-laws of Commerce Bancorp, Inc., as amended.
5.1 Opinion of Blank Rome Comisky & McCauley LLP.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG Peat Marwick LLP.
23.3 Consent of Blank Rome Comisky & McCauley LLP (to be included
in Opinion filed as Exhibit 5.1).
23.4 Consent of Endicott Financial Advisors, L.L.C.
24.1 Powers of Attorney of certain signatories (included on
signature page).
99.1 Form of Proxy of Prestige Financial Corp.
- ------------------------
(1) Incorporated by reference from CBH's Registration Statement on
Form S-2 and Amendments Nos. 1 and 2 thereto (Registration
No. 33-62702).
(2) Incorporated by reference from CBH's Registration Statement on
Form S-4 (Registration No. 333-10771).
<PAGE>
EXHIBIT 5.1
[BLANK ROME COMISKY & McCAULEY LLP LETTERHEAD]
November 6, 1998
Commerce Bancorp, Inc.
Commerce Atrium
1701 Route 70 East
Cherry Hill, NJ 08034
Re: Commerce Bancorp, Inc.
Registration Statement on Form S-4
(Registration No. 333-_______)
----------------------------------------------
Gentlemen:
We have acted as counsel to Commerce Bancorp, Inc. (the "Company") in
connection with the Registration Statement on Form S-4 (Registration No.
333-_______) filed by the Company pursuant to the Securities Act of 1933, as
amended (the "Registration Statement"), relating to the issuance of up to
1,925,000 shares of Common Stock, $1.5625 par value (the "Common Stock") in
connection with the proposed acquisition of Prestige Financial Corp.,
Flemington, New Jersey by the Company. This opinion is furnished pursuant to the
requirements of Items 601(b)(5) of Regulation S-K.
In rendering this opinion, we have examined only the following
documents: (1) the Certificate of Incorporation of the Company, as amended; (2)
the By-laws of the Company, as amended, (3) resolutions adopted by the Company's
Board of Directors (the "Resolutions"); and (4) the Registration Statement. We
have not performed any independent investigation other than the document
examination described. We have assumed and relied on the truth, completeness,
authenticity and due authorization of all documents and records examined and the
genuineness of all signatures. This opinion is limited to the laws of the State
of New Jersey.
Based upon and subject to the assumptions, limitations and
qualifications contained herein, we are of the opinion that:
When the Common Stock of the Company which is being registered is
issued in the manner, and for the consideration contemplated by, the
Registration Statement, such Common Stock will be legally issued, fully paid and
non-assessable.
The opinions expressed herein are subject in all respects to the
following qualifications: (a) no opinion is rendered as to the availability of
equitable remedies including, but not limited to, specific performance and
injunctive relief; (b) the effect of bankruptcy, reorganization, insolvency,
fraudulent conveyance, moratorium and other similar laws or equitable principles
affecting creditors' rights or remedies; and (c) the effect of applicable laws
and court decisions which may now or hereafter limit or render unenforceable
certain rights and remedies.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus, which is part of the Registration Statement.
Very truly yours,
/s/ Blank Rome Comisky & McCauley LLP
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BLANK ROME COMISKY & McCAULEY LLP
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement Form S-4, No. 333-00000 and related Prospectus of
Commerce Bancorp, Inc. for the registration of 1,925,000 shares of its common
stock and to the incorporation by reference therein of our report dated January
26, 1998 (except as to Note 1, as to which the date is June 29, 1998), with
respect to the consolidated financial statements of Commerce Bancorp, Inc. and
Subsidiaries, included in its Annual Report (Form 10-K), as amended, for the
year ended December 31, 1997, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
November 5, 1998
<PAGE>
EXHIBIT 23.2
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
Prestige Financial Corp.:
We consent to the inclusion of our report dated January 20, 1998,
except as to Note 1(M), which is as of April 17, 1998, with respect to the
consolidated statements of financial condition of Prestige Financial Corp. and
subsidiary as of December 31, 1997 and 1996 and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1997, which report
appears in the Form S-4 of Commerce Bancorp, Inc. dated November 6, 1998 and
to the reference to our firm under the heading "Experts" in the Prospectus.
/s/ KPMG PEAT MARWICK LLP
Short Hills, New Jersey
November 6, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF FINANCIAL ADVISOR
November 6, 1998
We hereby consent to the inclusion of the Opinion of Endicott Financial
Advisors, L.L.C. dated November [ ], 1998 as an Annex to the Proxy
Statement-Prospectus filed as part of the Form S-4 Registration Statement
(Registration No. 333-________) of Commerce Bancorp, Inc, and to the references
to our firm as Financial Advisor to Prestige Financial Corp. in the text of said
Proxy Statement-Prospectus. In giving such consent, we do not thereby admit that
we come within the category of persons whose consent is required under Section 7
of the Securities Act of 1933 or the rules and regulations of the Securities and
Exchange Commission.
Sincerely,
/s/ ENDICOTT FINANCIAL ADVISORS, L.L.C.
<PAGE>
EXHIBIT 99.1
|X| PLEASE MARK VOTES
AS IN THIS EXAMPLE
REVOCABLE PROXY
PRESTIGE FINANCIAL CORP.
SPECIAL MEETING OF SHAREHOLDERS
December [ ], 1998
Solicited on behalf of the Board of Directors
The undersigned hereby constitutes and appoints Greg Schneider and
Annette M. Dalley, and each of them, as Proxies, each with full power of
substitution, to vote all of the shares of PRESTIGE FINANCIAL CORP. standing in
the undersigned's name at the Special Meeting of Shareholders of Prestige
Financial Corp., to be held at the Company's headquarters, One Royal Road, P.O.
Box 2480, Flemington, New Jersey, on November [ ], 1998 at 5:30 p.m., and at any
adjournment thereof. The undersigned hereby revokes any and all proxies
heretofore given with respect to such meeting.
1. Proposal to approve the merger of Prestige Financial Corp. with and
into Commerce Bancorp, Inc. pursuant to the Agreement and Plan of
Reorganization and the related Agreement and Plan of Merger, each dated
as of September 17, 1998, as more fully described in the accompanying
Proxy Statement-Prospectus.
FOR AGAINST ABSTAIN
|_| |_| |_|
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
PLEASE PROMPTLY MARK, DATE, SIGN AND RETURN IN THE ENCLOSED ENVELOPE.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSAL 1, AND IN THE PROXIES' DISCRETION ON SUCH OTHER BUSINESS
AS MAY PROPERLY COME BEFORE THE MEETING.
The Board of Directors recommends a vote FOR the proposal listed on
this proxy.
Please sign exactly as your name appears on stock certificate. When
signing as an executor, administrator, guardian, trustee or attorney, please
give your title as such. If signer is a corporation, please sign the full
corporate name and then an authorized officer should sign his or her name and
print his or her name and title below his or her signature. If the shares are
held in joint name, all joint owners should sign.
Date:
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(Signature)
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(Signature)
