<PAGE>
As filed with the Securities and Exchange Commission on January 15, 1998.
Registration No.333-______________________
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM S-4
REGISTRATION STATEMENT
Under the Securities Act of 1933
__________
COMMERCIAL BANCSHARES, INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
West Virginia 6711 55-0622108
<S> <C> <C>
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Code) Identification No.)
</TABLE>
Commercial BancShares, Incorporated
415 Market Street
Parkersburg, West Virginia 26102-1427
(304) 424-0300
(Address and telephone number of principal executive offices)
__________
Larry G. Johnson
Commercial BancShares, Incorporated
415 Market Street, P. O. Box 1427
Parkersburg, West Virginia 26102-1427
(304) 424-3131
(Name, address and telephone number of agent for service)
Copy: Sandra M. Murphy, Esq.
Bowles Rice McDavid Graff & Love, P.L.L.C.
600 Quarrier Street
Charleston, WV 25301
(304) 347-1131
__________
Approximate date of commencement of the proposed sale of securities to the
public:
As soon as practicable after this Registration Statement becomes effective.
__________
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------------------------------------
Title of Securities Amount to Proposed Maximum Proposed Maximum Amount of
be registered offering price (2) aggregate offering registration
per unit (1) amount (2) fee (2)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock
$ 5.00 par value 141, 902 $ 50.89 $7,221,393 $ 2,130.31
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) This Registration Statement covers the maximum number of shares of common
stock of the Registrant issuable upon consummation of the merger of Gateway
Bancshares, Inc. ("Gateway") into CBG Holding Company, a wholly-owned
subsidiary of Registrant.
(2) Estimated solely for the purpose of calculation of the registration fee.
Pursuant to Rule 457(f)(2) under the Securities Act of 1933, the
registration fee is based on the book value of the Gateway common stock as
of September 30, 1997.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission acting pursuant to Section 8(a) may
determine.
- --------------------------------------------------------------------------------
<PAGE>
COMMERCIAL BANCSHARES, INCORPORATED
CROSS REFERENCE SHEET PURSUANT TO RULE 501(b)
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<CAPTION>
Form S-4 Section Caption
Item Number and Caption in Prospectus*
----------------------- ----------------
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1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus.................................. Cross Reference Sheet;
Prospectus Page;
Outside Front Cover
Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................... TABLE OF CONTENTS
INCORPORATION OF
CERTAIN
DOCUMENTS BY REFERENCE
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information............... SUMMARY, THE PROPOSED
TRANSACTION
4. Terms of the Transaction ................... SUMMARY, THE PROPOSED
TRANSACTION
5. Proforma Financial Information.............. SUMMARY, SELECTED
FINANCIAL DATA, PRO
FORMA STATEMENTS
6. Material Contracts with the Company Being
Acquired.................................... INTERESTS OF CERTAIN
PERSONS IN THE
MERGER AND THE
WESBANCO MERGER
7. Additional Information Required for
Reoffering by Persons and Parties Deemed to
be Underwriters............................. Not Applicable
8. Interests of Named Experts and Counsel...... LEGAL MATTERS, EXPERTS
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................. PART II
10. Information with Respect to S-3
Registrants................................. SUMMARY, INFORMATION
CONCERNING COMMERCIAL
BANCSHARES,
INCORPORATED
11. Incorporation of Certain Information by
Reference................................... PART I
12. Information with Respect to S-2 or S-3
Registrants................................. SUMMARY,
INCORPORATION OF
CERTAIN DOCUMENTS BY
REFERENCE
13. Incorporation of Certain Information by
Reference................................... ADDITIONAL INFORMATION
14. Information with Respect to Registrants
Other than S-3 or S-2 Registrants........... Not Applicable
15. Information with Respect to S-2 or S-3
Companies................................... Not Applicable
16. Information with Respect to Companies Other
than S-3 or S-2 Companies................... SUMMARY, INFORMATION
WITH RESPECT TO
GATEWAY BANCSHARES,
INC.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form S-4 Section Caption
Item Number and Caption in Prospectus*
----------------------- ----------------
<S> <C> <C>
17. Information if Proxies, Consents or
Authorizations are to be Solicited.......... SPECIAL MEETING OF
GATEWAY SHAREHOLDERS
18. Information if Proxies, Consents or
Authorizations are to be Solicited.......... Not Applicable
19. Indemnification of Directors and Officers... PART II
Indemnification of
Directors and
Officers of
Commercial and its
Subsidiaries
20. Exhibits and Financial Statement Schedules.. EXHIBIT INDEX, INDEX
TO FINANCIAL
STATEMENTS
21. Undertakings................................ PART II
</TABLE>
* This Registration Statement on Form S-4 contains a prospectus/proxy
statement to be sent to the shareholders of the company the Registrant
proposes to acquire via a merger transaction, Gateway Bancshares, Inc.
<PAGE>
[GATEWAY BANCSHARES, INC. LETTERHEAD]
___________, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of
Shareholders of Gateway Bancshares, Inc. to be held at the main office of the
Bank of McMechen, 700 Marshall Street, McMechen, West Virginia, on _________
__, 1998 at _____ _.m., local time. At this meeting, you will be asked to
consider and approve the Agreement and Plan of Merger dated as of August 15,
1997, and as amended as of September 30, 1997 and December 15, 1997, (the
"Merger Agreement") among Commercial BancShares, Incorporated ("Commercial")
and the parties to the Plan of Merger, Gateway Bancshares, Inc. ("Gateway")
and CBG Holding Company ("CBG Holding Company"), a wholly owned subsidiary of
Commercial formed solely to facilitate the acquisition of Gateway by
Commercial. The Merger Agreement sets forth the terms and conditions under
which Commercial will acquire Gateway (the "Merger").
Pursuant to the terms of the Merger Agreement and upon the effective
date of the Merger, shareholders of Gateway will be entitled to receive not
less than 1.742 nor more than 2.129 shares of Commercial common stock in
exchange for each share of Gateway common stock owned. The exact number of
shares of Commercial common stock shareholders of Gateway will be entitled to
receive will be determined by dividing $80.00 by the average price of
Commercial common stock reported on the American Stock Exchange for the twenty
(20) trading days preceding Closing; provided such consideration shall be paid
for no more than 66,652 shares of Gateway common stock. In the event there
are no reported trades on any day during such twenty (20) day period, then the
closing price for such a day for purposes of calculating the average price
("Average Price"), shall be the closing price last reported on a date
preceding the date on which no trade occurred. If the Average Price quotient
is less than or equal to 1.742, the exchange ratio will be 1.742 and Gateway
shareholders will be entitled to receive 1.742 shares of Commercial Common
Stock. If such quotient is greater than or equal to 2.129, then the exchange
ratio will be 2.129 and Gateway shareholders will receive 2.129 shares of
Commercial common stock for each share of Gateway stock they own. No
fractional shares of Commercial common stock will be issued in connection with
the acquisition and, in lieu thereof, Commercial will pay Gateway shareholders
the value of any fractional shares of Commercial common stock in cash based on
the Average Price.
Under West Virginia corporate law, the Merger is subject to approval
of the holders of a majority of the outstanding shares of Gateway. The Merger
is further subject to receipt of all required regulatory approvals and other
conditions described in the enclosed materials.
A notice of the Special Meeting, a proxy for your use in connection
with that meeting, and a Prospectus/Proxy Statement describing the proposed
transaction in detail accompany this letter. We urge you to read all of these
documents carefully before deciding how to vote your shares.
Your Board of Directors has unanimously determined that the Merger
is fair to and in the best interests of Gateway and its shareholders.
Accordingly, your Board of Directors unanimously recommends that you vote
"FOR" approval of the Merger Agreement.
We hope that you will attend the Special Meeting. Regardless of
your plans to attend, we urge you, because of the importance of this matter,
to execute and mail the enclosed proxy in the envelope provided. If you
decide to attend the meeting, you may withdraw your proxy and vote in person
on all matters brought before it.
Sincerely,
_______________________________________
Michael E. Moore
President and Chief Executive Officer
<PAGE>
GATEWAY BANCSHARES, INC.
700 Marshall Street
McMechen, West Virginia 26040
(304) 232-5750
NOTICE OF SPECIAL MEETING OF GATEWAY BANCSHARES, INC. SHAREHOLDERS
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that, pursuant to the call of the Board of
Directors, a Special Meeting of Shareholders of Gateway Bancshares, Inc. will
be held at the main office of the Bank of McMechen, 700 Marshall Street,
McMechen, West Virginia on ________ __, 1998 at _____ p.m., local time, for
the purpose of considering and voting upon the following matter:
To consider and vote upon an Agreement and Plan of Merger dated as
of August 15, 1997 and as amended as of September 30, 1997 and December 15,
1997, among Commercial BancShares, Incorporated, Gateway Bancshares, Inc. and
CBG Holding Company, a wholly-owned subsidiary of Commercial. A copy of the
Merger Agreement is attached as Annex A to the accompanying Prospectus/Proxy
Statement.
The close of business on __________ __, 1997, has been fixed by the
Board of Directors as the record date for determining shareholders entitled to
notice of and to vote at this Special Meeting.
The Board of Directors of Gateway Bancshares, Inc. has unanimously
determined the Merger to be fair to and in the best interests of Gateway
Bancshares, Inc. and its shareholders and unanimously recommends that
shareholders vote "FOR" approval of the Agreement.
McMechen, West Virginia By Order of the Board of Directors
________________, 1998
__________________________________
__________________
______________________
Secretary
YOU ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. FAILURE TO
RETURN A PROPERLY EXECUTED PROXY CARD OR TO VOTE AT THE SPECIAL MEETING
WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE AGREEMENT.
ACCORDINGLY, EVEN IF YOU PLAN TO BE PRESENT AT THE SPECIAL MEETING, YOU
ARE REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE PROXY CARD IN THE
ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE. IF YOU ATTEND THE
SPECIAL MEETING, YOU MAY VOTE EITHER IN PERSON OR BY PROXY. ANY PROXY
GIVEN MAY BE REVOKED BY YOU IN WRITING OR IN PERSON AT ANY TIME PRIOR
TO THE EXERCISE THEREOF.
<PAGE>
COMMERCIAL BANCSHARES, INCORPORATED
PROSPECTUS
GATEWAY BANCSHARES, INC. PROXY STATEMENT
141,902 Shares of Common Stock
This Prospectus/Proxy Statement is being furnished in connection with
the solicitation of proxies by the Board of Directors of Gateway Bancshares,
Inc. ("Gateway") to be used at a special meeting of stockholders of Gateway,
to be held on ________ __, 1998 (the "Gateway Special Meeting"). The purpose
of the Gateway Special Meeting is to consider and take action upon an
Agreement and Plan of Merger, dated as of August 15, 1997, as amended on
September 30, 1997 and December 15, 1997 (the "Merger Agreement"), among
Commercial, and the parties to the Plan of Merger, Gateway and CBG Holding
Company, which provides, among other things, for the merger of Gateway with
and into CBG Holding Company (the "Merger").
Upon consummation of the Merger, one share of common stock of
Gateway, par value $12.50 per share ("Gateway Stock") shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into the right to receive not less than 1.742 nor more than 2.129 shares of
common stock of Commercial, par value $5.00 per share ("Commercial Stock"),
plus cash in lieu of any fractional share interest, as described in this
Prospectus/Proxy Statement. See "Summary," "The Merger" and Annex A.
The exact number of shares of Commercial stock shareholders of
Gateway will be entitled to receive will be determined by dividing $80.00 by
the average price of Commercial stock reported on the American Stock Exchange
for the twenty (20) days preceding the closing of the Merger (the "Closing"),
provided such consideration shall be paid for no more than 66,652 shares of
Gateway Stock. In the event there are no reported trades on any day during
such twenty (20) day period, then the closing price for such a day for
purposes of calculating the average price ("Average Price"), shall be the
closing price last reported on a date preceding the date on which no trade
occurred. If the Average Price quotient is less than or equal to 1.742, the
exchange ratio will be 1.742 and Gateway shareholders will be entitled to
receive 1.742 shares of Commercial Common Stock. If such quotient is greater
than or equal to 2.129, then the exchange ratio will be 2.129 and Gateway
shareholders will receive 2.129 shares of Commercial common stock for each
share of Gateway stock they own.
This Prospectus/Proxy Statement also constitutes a prospectus of
Commercial relating to the shares of Commercial Stock issuable to holders of
Gateway Stock upon consummation of the Merger. Based on 66,652 shares of
Gateway Stock outstanding on the date hereof, a maximum of 141,902 shares of
Commercial Stock will be issuable upon consummation of the Merger.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Information included or incorporated by reference in this Proxy
Statement/Prospectus contains "forward-looking statements" which can be
identified by the use of forward-looking terminology such as "believes,"
"contemplates," "expects," "may," "will," "should," "would," or "anticipates"
or the negative thereof or other variations thereon or comparable terminology,
or by discussions of strategy. No assurance can be given that the future
results encompassed within the forward-looking statements will be achieved.
Important factors with respect to such forward-looking statements, including
certain risks and uncertainties, that could cause actual results to vary
materially from the future results encompassed within such forward-looking
statements are discussed herein under the option "Risk Factors" and in other
information included or incorporated by reference herein. Other factors could
also cause actual results to vary materially from the future results covered
in such forward-looking statements. This prospectus/proxy statement and
accompanying proxy cards are first being mailed to shareholders of Gateway on
or about ___________________, 1998.
The date of this Prospectus/Proxy Statement is _____________, 1998.
<PAGE>
AVAILABLE INFORMATION
Commercial is subject to the information and reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and, in accordance with those requirements, files reports, proxy and
information statements, and other information with the Securities and
Exchange Commission (the "SEC"). The documents filed by Commercial with
the SEC can be inspected and copied at the Public Reference Section of the
SEC at 450 Fifth Street, NW, Washington, D.C. 20549 and at the SEC's
Regional Office in New York, which is located at 7 World Trade Center,
Suite 1300, New York, New York 10048. The Commission maintains a web site
that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the
Commission. Such reports, proxy and information statements and other
information may be found at the Commission's web site address,
http://www.sec.gov.
Commercial Common Stock is listed on the American Stock Exchange
(the "AMEX") and accordingly, periodic reports, proxy and information
statements concerning Commercial may be inspected at the offices of AMEX,
86 Trinity Place, New York, New York 10006-1881.
Gateway Common Stock is not listed on a stock exchange or stock
quotation system.
All information concerning Commercial contained herein has been
provided by Commercial and all information concerning Gateway has been
supplied by Gateway.
This Prospectus/Proxy Statement does not contain all of the
information set forth in the Registration Statement on Form S-4, of which
this Prospectus/Proxy Statement is a part, and the exhibits thereto
(together with the amendments thereto, the "Registration Statement") which
has been filed by Commercial with the SEC under the Securities Act of 1933,
as amended (the "Securities Act") and the regulations thereunder, certain
portions of which have been omitted pursuant to the regulations of the SEC
and to which portions reference is hereby made for further information.
No person has been authorized to give any information or make any
representation not contained in this Prospectus/Proxy Statement in
connection with the offer and proxy solicitations contained herein, and, if
given or made, such information or representation must not be relied upon
as having been authorized by Commercial. Neither the delivery of this
Prospectus/Proxy Statement nor any distribution of the securities to which
this Prospectus/Proxy Statement relates shall, under any circumstances,
create any implication that there has been no change in the affairs of
Commercial or Gateway since the date hereof or that the information
contained herein is correct as of any time subsequent to its date. This
Prospectus/Proxy Statement does not constitute an offer to sell or a
solicitation of an offer to buy any securities other than the securities to
which it relates or an offer to sell or solicitation to buy such securities
in any circumstances in which such an offer or solicitation is not lawful.
INFORMATION INCORPORATED BY REFERENCE
Commercial
The following documents previously filed with the SEC by Commercial
(File No. 1-11791) are hereby incorporated herein by reference:
1. Annual Report on Form 10-K, for the fiscal year
ended December 31, 1996;
2. The Proxy Statement filed pursuant to
Section 14 (a) of the Securities Act of 1934 on April
21, 1997;
3. Quarterly Report on Form 10-Q, for the quarter
ended June 30, 1997;
4. Form 8-K filed on August 21, 1997;
5. Form 8-K filed on September 27, 1997;
<PAGE>
6. Quarterly Report on Form 10-Q, for the
quarter ended September 30, 1997; and
7. Form 8-K filed on October 6, 1997.
All documents filed by Commercial pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus/Proxy Statement and prior to the date of the Special Meeting
shall be deemed to be incorporated by reference in this Prospectus/Proxy
Statement and to be a part hereof from the date of filing of such
documents. Any statement incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus/Proxy
Statement to the extent that a statement contained herein or in any other
such subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus/Proxy
Statement.
This Prospectus/Proxy Statement incorporates documents by
reference which are not presented herein or delivered herewith. These
documents (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference) are available without charge upon
written or oral request from Larry G. Johnson, Commercial BancShares,
Incorporated, 415 Market Street, Parkersburg, West Virginia 26101
(telephone number (304) 424-3131). Requested documents will be sent by
first class mail within one business day of receipt of the request. In
order to ensure timely delivery of the documents, any request should be
made by ________ __, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
RECENT DEVELOPMENTS...................................................................................... 1
SUMMARY.................................................................................................. 2
The Special Meeting.................................................................................. 2
Parties to the Agreement and Plan of Merger.......................................................... 2
The Merger........................................................................................... 3
Gateway's Reasons for the Merger/Opinion of Financial Advisor........................................ 3
Commercial's Reasons for the Merger.................................................................. 3
Interests of Certain Persons in the Merger and WesBanco Merger....................................... 4
Accounting Treatment................................................................................. 4
Risk Factors......................................................................................... 4
Certain Federal Income Tax Consequences.............................................................. 5
Regulatory Approvals................................................................................. 5
Conditions to Consummation of the Merger............................................................. 5
Payment of Merger Consideration...................................................................... 5
Dividend Policy of Commercial........................................................................ 5
Resale of Commercial Stock........................................................................... 5
Dissenters' Rights................................................................................... 6
COMPARATIVE STOCK PRICES AND DIVIDENDS................................................................... 6
COMPARATIVE PER SHARE DATA............................................................................... 8
COMMERCIAL BANCSHARES, INC. AND GATEWAY BANCSHARES, INC.
SELECTED CONSOLIDATED FINANCIAL DATA................................................................. 9
Commercial BancShares - Historical Basis............................................................. 10
Gateway Bancshares - Historical Basis................................................................ 11
Commercial BancShares Selected Financial Data - Pro Forma Combined................................... 12
WESBANCO, INC. FIVE YEAR SELECTED PRO-FORMA COMBINED FINANCIAL SUMMARY................................... 13
INTRODUCTION............................................................................................. 14
SPECIAL MEETING OF GATEWAY SHAREHOLDERS.................................................................. 14
Time and Place....................................................................................... 14
Shares Outstanding and Entitled to Vote; Record Date................................................. 14
Purpose and Vote Required............................................................................ 14
Proxies.............................................................................................. 15
Accountants.......................................................................................... 15
INFORMATION WITH RESPECT TO GATEWAY BANCSHARES, INC...................................................... 16
Organizational History............................................................................... 16
Business of McMechen................................................................................. 16
Concentrations....................................................................................... 16
Employees............................................................................................ 17
Competition.......................................................................................... 17
Properties........................................................................................... 17
Legal Proceedings.................................................................................... 17
Transactions with Directors, Executive Officers and Principal Shareholders........................... 17
</TABLE>
i
<PAGE>
<TABLE>
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Executive Compensation............................................................................... 17
Employment Agreements................................................................................ 18
CERTAIN BENEFICIAL OWNERS OF GATEWAY STOCK............................................................... 18
INFORMATION WITH RESPECT TO COMMERCIAL................................................................... 20
History.............................................................................................. 20
Operations........................................................................................... 20
CERTAIN BENEFICIAL OWNERS OF COMMERCIAL STOCK............................................................ 23
Principal Shareholders............................................................................... 23
Competition.......................................................................................... 23
Commercial KSOP...................................................................................... 23
Directors and Executive Officers..................................................................... 23
Executive Compensation.............................................................................. 23
Certain Relationships and Related Transactions....................................................... 23
THE MERGER............................................................................................... 24
General.............................................................................................. 24
The Merger Consideration............................................................................. 24
Exchange of Gateway Stock Certificates............................................................... 24
Background of and Reasons for the Merger............................................................. 25
Opinion of Financial Advisor......................................................................... 27
Summary of Selected M & A Transactions Where Target is a Banking Institution......................... 28
Certain Federal Income Tax Consequences.............................................................. 29
Conditions to Consummation of the Merger............................................................. 30
Regulatory Approvals................................................................................. 31
Business Pending the Merger.......................................................................... 31
Effective Time of the Merger; Termination and Amendment.............................................. 33
Interests of Certain Persons in the Merger and the WesBanco Merger................................... 34
Resale of Commercial Stock........................................................................... 34
Expenses of the Merger............................................................................... 35
Accounting Treatment................................................................................. 35
THE WESBANCO MERGER AGREEMENT............................................................................ 37
The WesBanco Merger.................................................................................. 37
Conversion of Securities............................................................................. 37
Representations and Warranties....................................................................... 38
Certain Covenants.................................................................................... 38
Conditions........................................................................................... 39
Termination: Expenses............................................................................... 40
Amendment or Waiver.................................................................................. 40
INFORMATION WITH RESPECT TO WESBANCO..................................................................... 41
History.............................................................................................. 41
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Recent Acquisitions.................................................................................. 41
Future Acquisitions.................................................................................. 41
Operations........................................................................................... 41
COMPARISON OF SHAREHOLDERS' RIGHTS....................................................................... 43
General.............................................................................................. 43
Amendment of Articles of Incorporation and Bylaws.................................................... 43
Authorized Capital Stock............................................................................. 43
Issuance of Capital Stock............................................................................ 44
Size and Classification of Board of Directors........................................................ 44
Vacancies and Removal of Directors................................................................... 44
Directors Liability and Indemnification.............................................................. 44
Special Meetings of Shareholders..................................................................... 45
Director Nominations................................................................................. 45
Shareholder Voting Rights in General................................................................. 45
Antitakeover Provisions.............................................................................. 46
Dividends and Other Distributions.................................................................... 46
Shareholders' Right to Examine Books and Records..................................................... 46
DISSENTERS' RIGHTS....................................................................................... 47
CBG Holding Company Approval......................................................................... 48
MANAGEMENT OF COMMERCIAL AFTER THE MERGER................................................................ 48
DESCRIPTION OF COMMERCIAL STOCK.......................................................................... 49
COMMERCIAL BANCSHARES, INC. PRO FORMA COMBINED FINANCIAL STATEMENTS...................................... 50
COMMERCIAL BANCSHARES, INC. NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED
FINANCIAL STATEMENTS................................................................................. 57
REGULATION AND SUPERVISION OF COMMERCIAL................................................................. 58
General.............................................................................................. 58
Non-banking Activities Permitted to Commercial....................................................... 58
Credit and Monetary Policies and Related Matters..................................................... 59
Capital Requirements................................................................................. 59
Commercial BancShares, Inc. Risk Based Capital Ratio & Leverage Ratio................................ 61
Gateway Bancshares, Inc. Risk Based Capital Ratio & Leverage Ratio................................... 62
Commercial BancShares, Inc. Pro Forma Risk Based Capital Ratio & Leverage Ratio...................... 63
Federal Deposit Insurance Corporation Improvement Act of 1991........................................ 64
Reigle-Neal Interstate Banking Bill.................................................................. 64
Community Reinvestment Act........................................................................... 64
Deposit Acquisition Limitation....................................................................... 65
RELATIONSHIP WITH INDEPENDENT AUDITORS................................................................... 65
LEGAL MATTERS............................................................................................ 65
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
LEGAL PROCEEDINGS........................................................................................ 66
EXPERTS.................................................................................................. 66
FINANCIAL INFORMATION CONCERNING GATEWAY BANCSHARES, INC................................................. F-1
Management's Discussion and Analysis of Financial Condition and Results of Operations
(For the Quarter and Nine Months Ended September 30, 1997 and for the years ended
December 31, 1996 and the period ended December 31, 1995)......................................... F-3
Financial Statements (For the Quarter and Nine Months Ended September 30, 1997....................... F-10
Audited Financial Statements (As of December 31, 1996 and 1995)...................................... F-14
ANNEX A - Agreement and Plan of Merger................................................................. A-1
ANNEX B - Fairness Opinion............................................................................. A-53
ANNEX C - Dissenters Rights Provision.................................................................. A-56
ANNEX D - Tax Opinion.................................................................................. A-60
</TABLE>
iv
<PAGE>
RECENT DEVELOPMENTS
On September 30, 1997, Commercial entered into a definitive
Agreement and Plan of Merger (the "WesBanco Merger Agreement") with
WesBanco, Inc., a West Virginia bank holding company ("WesBanco") whereby
Commercial will be merged with and into CBI Holding Company, a West
Virginia corporation and wholly-owned subsidiary of WesBanco ("CBI").
Under the terms of the WesBanco Merger Agreement, each issued and
outstanding share of Commercial Common Stock, par value $5.00 per share,
immediately prior to the effective time of the merger of Commercial and CBI
(the "WesBanco Merger") will be converted into the right to receive 2.85
shares of WesBanco common stock.
As of September 30, 1997, WesBanco had five banking affiliates,
located in Wheeling, Parkersburg, Charleston and Fairmont, West Virginia
and Barnesville, Ohio. On a consolidated historical basis, as of September
30, 1997, WesBanco had assets of approximately $1.761 billion, net loans of
approximately $1.0 billion, deposits of approximately $1.4 billion and
shareholders equity of $247 million. As of December 31, 1996, WesBanco had
approximately 4,627 shareholders and 10,521,854 shares of common stock
outstanding. As of December 18, 1997, WesBanco had approximately 4,391
shareholders, and 16,064,449 shares of common stock outstanding. WesBanco
has no preferred stock issued and outstanding.
It is anticipated that the WesBanco Merger will be consummated after
the Merger with the effect that current shareholders of Gateway will be
shareholders of Commercial as of the WesBanco Merger effective date.
Accordingly, shareholders of Gateway who do not dissent from the Merger
will become Commercial shareholders, and as such will be entitled to vote
on the WesBanco Merger and will also have dissenters' rights with respect
to the WesBanco Merger. For a more detailed discussion of the WesBanco
Merger, shareholders are referred to the sections captioned herein "THE
MERGER - Interests of Certain Persons in the Merger and the WesBanco
Merger" and "The WesBanco Merger". Selected Financial Data, giving a Pro
Forma effect of the WesBanco Merger is presented under the caption
"WesBanco, Inc." - Selected Financial Data - Pro Forma Combined." See also
"Comparative Stock Prices and Dividends" and "Comparative Per Share Data."
There is a possibility that the WesBanco Merger will not be
consummated. See "The WesBanco Merger Agreement-Conditions." In the event
the WesBanco Merger is not consummated, shareholders of Gateway who do not
dissent from the Merger will become shareholders of Commercial. These
proxy materials should be read by Gateway shareholders with the knowledge
that the WesBanco Merger may not be consummated and that they may
ultimately become shareholders of Commercial.
<PAGE>
SUMMARY
The following is a summary of the information contained in this
Prospectus/Proxy Statement. This summary is not intended to be a complete
statement of all material contained in this Prospectus/Proxy Statement and
it is qualified in its entirety by reference to the more detailed
discussions contained elsewhere in this document, in the accompanying
Annexes attached hereto and the information incorporated herein by
reference. Shareholders should read this entire Prospectus/Proxy Statement
carefully.
The Special Meeting
The Gateway Special Meeting will be held at the main office of
the Bank of McMechen, 700 Marshall Street, McMechen, West Virginia, on
________ __, 1998, at _____ p.m., local time. Only the holders of record
of outstanding shares of Gateway Stock at the close of business on
__________ __, 1998 (the "Gateway Record Date"), respectively, are entitled
to notice of and to vote at the Gateway Special Meeting. At the Gateway
Record Date, 66,652 shares of Gateway Stock were outstanding and entitled
to be voted.
At the Special Meeting and at any adjournment or adjournments
thereof, stockholders of Gateway will consider and vote upon the matters
presented in the Notice of Meeting.
At the Gateway Special Meeting, shareholders will vote upon the
Merger Agreement. The affirmative vote of the holders of a majority of
each of the issued and outstanding shares of Gateway Stock, voting in
person or by proxy, is necessary to approve the Merger Agreement.
As of the Gateway Record Date, the directors and executive
officers of Gateway and their affiliates in the aggregate beneficially
owned 8,415 shares, or 12.6%, of the outstanding Gateway Stock. Each of
the directors and executive officers of Gateway has entered into an
agreement with Commercial which requires, among other things, that each
such person vote all shares of Gateway Stock beneficially owned in favor of
the Agreement and Plan of Merger. See "Certain Beneficial Owners of
Gateway Stock."
Parties to the Agreement and Plan of Merger
Gateway. Gateway is a West Virginia bank holding company.
Gateway was incorporated on October 20, 1983 and organized on February 27,
1984. Gateway has one subsidiary bank, The Bank of McMechen ("McMechen"),
with its main office located in McMechen, West Virginia, and a branch
office in Benwood, West Virginia. McMechen is a state banking corporation
which accepts deposits and utilizes its deposits as the primary source of
funds to originate loans. As of September 30, 1997, Gateway had
consolidated assets of $31.1 million and shareholders' equity of $3.39
million. Gateway is a party to the Agreement and Plan of Merger.
Commercial. Commercial is a West Virginia corporation and a
registered bank holding company pursuant to the Bank Holding Company Act of
1956, as amended ("BHCA"). It was incorporated on October 23, 1983. As a
bank holding company, Commercial's present business is the operation of its
subsidiaries, including seven banking subsidiaries, one finance company and
a brokerage subsidiary. As of September 30, 1997, Commercial had
consolidated assets of approximately $425 million and stockholders' equity
of $ 43.3 million. Commercial is a party to the Agreement but is not a
party to the Plan of Merger.
CBG Holding Company. CBG Holding Company, Inc. ("CBG") is a wholly
owned subsidiary of Commercial which was formed solely to facilitate the
acquisition of Gateway. CBG is a party to the Agreement and Plan of
Merger.
2
<PAGE>
The Merger
In accordance with the terms of and subject to the conditions set
forth in the Merger Agreement, Gateway will be merged with and into CBG,
with CBG as the surviving corporation. Pursuant to the terms of the Merger
Agreement and upon the effective date of the Merger, shareholders of
Gateway will be entitled to receive not less than 1.742 nor more than 2.129
shares of of Commercial Stock for each share of Gateway they own (the
"Exchange Ratio"), plus cash in lieu of any fractional share interest (the
"Merger Consideration"). The exact number of shares of Commercial Stock
which shareholders of Gateway will be entitled to receive will be
determined by dividing $80.00 by the average price of Commercial Stock
reported, on the American Stock Exchange for the twenty (20) days preceding
the Closing of the Merger, provided such consideration shall be paid for no
more than 66,652 share of Gateway Stock. In the event there are no
reported trades on any day during such twenty (20) day period, then the
closing price for such a day for purposes of calculating the average price
("Average Price"), shall be the closing price last reported on a date
preceding the date on which no trade occurred. If the Average Price
quotient is less than or equal to 1.742, the exchange ratio will be 1.742
and Gateway shareholders will be entitled to receive 1.742 shares of
Commercial Common Stock. If such quotient is greater than or equal to
2.129, then the exchange ratio will be 2.129 and Gateway shareholders will
receive 2.129 shares of Commercial common stock for each share of Gateway
stock they own. No fractional shares of Commercial Stock will be issued in
connection with the Merger and, in lieu thereof, Commercial will pay
shareholders the value of any fractional shares of Commercial Stock in
cash, as described herein. See "THE MERGER-Merger Consideration."
For further information on the Merger Agreement and its terms and
the related Merger, see "The Merger" and Annex A hereto.
Gateway's Reasons for the Merger/Opinion of Financial Advisor
The Board of Directors of Gateway evaluated numerous financial,
legal and market considerations in deciding to approve the Merger
Agreement. See "The Merger-Background of and Reasons for the Merger -
Gateway."
The Board of Directors of Gateway has received a written opinion
from Charles Webb & Company , a Division of Keefe, Bruyette & Woods, Inc.
("Charles Webb & Company") to the effect that, based on the factors stated
therein, the Exchange Ratio to be received by stockholders of Gateway
pursuant to the Merger Agreement is fair to the stockholders of Gateway
from a financial point of view. For information on the assumptions made,
matters considered and limits of the review by Charles Webb & Company, see
"The Merger - Opinion of Financial Advisor." A copy of the opinion of
Charles Webb & Company is attached hereto as Annex B and should be read in
its entirety.
Commercial's Reasons for the Merger
Commercial's management and Board of Directors view the proposed
transaction as a desirable opportunity to add a new geographic market and
new product markets to the Commercial organization. The Merger will
further expand its presence into the northern panhandle of West Virginia.
See "The Merger-Background of and Reasons for the Merger."
3
<PAGE>
Interests of Certain Persons in the Merger and WesBanco Merger
Pursuant to the Merger Agreement, if the WesBanco Merger is not
consummated, Commercial has agreed to appoint to the Board of Directors of
Commercial one representative from Gateway, to be selected by Gateway and
approved by Commercial; and the current Board of Directors of the Bank of
McMechen will continue to constitute a majority of its Board for at least
two (2) years from the Closing, unless any such member shall resign, die or
be removed for cause; and Commercial will select up to two (2) additional
representatives to serve on the Board of Directors of the Bank of McMechen.
Michael E. Moore, President of the Bank of McMechen, has executed an
Employment Continuity Agreement with Commercial pursuant to which he will
continue to be employed by Commercial for 3 years after consummation of the
Merger. Linda Miller, Vice President of the Bank of McMechen, has executed
a Change in Control Agreement pursuant to which, subject to certain
conditions, her employment will be guaranteed in the event a change in
control of Commercial occurs. See "Interests of Certain Persons in the
Merger."
On September 30, 1997, Gateway, Commercial and WesBanco entered into
a First Amendment Agreement (the "First Amendment") whereby the Merger
Agreement was amended in anticipation of the WesBanco Merger. Under the
First Amendment, if the WesBanco Merger is consummated, as of the effective
date of the Merger of Commercial with and into CBI Holding Co., Inc., a
wholly-owned subsidiary of WesBanco, McMechen will be merged with and into
WesBanco Bank Wheeling, a wholly-owned subsidiary of WesBanco. Under the
First Amendment, the current Board of Directors of McMechen will be
entitled to serve as members of an Advisory Board to WesBanco Bank Wheeling
for a two-year period. Each such director will be entitled to receive a
monthly director fee while serving on the Advisory Board equal to the
monthly amount currently being received by such director.
Under the First Amendment, if the WesBanco Merger is consummated, it
is further agreed that upon acquisition of Commercial, Michael E. Moore
will be President of the Marshall County branches of WesBanco reporting to
the Chief Executive Officer or Chief Operating Officer of WesBanco Bank
Wheeling, and Linda Miller will be Vice President of the Marshall County
branches of WesBanco reporting to Mr. Moore. Mr. Moore and Ms. Miller will
perform substantially the same functions, duties and responsibilities as
are currently being performed by them for McMechen. See "Interests of
Certain Persons in the Merger and the WesBanco Merger."
The WesBanco Merger Agreement provides that William E. Mildren, Jr.,
Robert K. Tebay, James W. Swearingen and Larry G. Johnson, Commercial
directors, or directors of one of Commercial's affiliate banks, will become
directors of WesBanco on the WesBanco Effective Date. In addition, it is a
condition of the WesBanco Merger that William E. Mildren, Jr., Larry G.
Johnson, W. Bryan Pennybacker, James A. Meagle, Jr., C. Randall Law and
Thomas M. Lookbaugh enter into Employment Agreements with WesBanco.
Accounting Treatment
The parties expect the Merger to be accounted for under the pooling
method of accounting. See "The Merger - Accounting Treatment."
Risk Factors
Gateway shareholders who do not exercise their dissenter's rights
will be exchanging their Gateway Stock for Commercial Stock. Many of the
risks associated with holding Gateway Stock will be similar to the risks of
holding Commercial Stock. There are risks inherent in any equity
investment. Both companies are subject to substantial state and federal
regulation, including regulation of business opportunities and the ability
to pay dividends. For information on the impact of regulation see
"Regulation and Supervision".
As to the transaction described herein, there is a risk that the
Merger will not receive the required shareholder approvals or that other
conditions to consummation will not be met. See the Section entitled
"Conditions to Consummation of the Merger".
4
<PAGE>
Certain Federal Income Tax Consequences
The Merger is intended to qualify as a reorganization under Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
Gateway has received an opinion from Bowles Rice McDavid Graff & Love,
P.L.L.C. to the effect that, assuming the Merger is consummated and subject
to certain qualifications set forth in the opinion, a Gateway stockholder
who receives shares of Commercial Stock in exchange for shares of Gateway
Stock pursuant to the Merger will recognize no gain or loss as a result of
the Merger, except that gain or loss will be recognized with respect to any
cash received by a Gateway stockholder in lieu of any fractional share
interests. The income tax basis of the Commercial Stock received will
equal the income tax basis of the Gateway Stock surrendered; and, provided
that the surrendered Gateway Stock was held as a capital asset on the date
of the Merger, the holding period of the Commercial Stock received will
include the holding period of the Gateway Stock surrendered. Gateway
shareholders are urged to consult their tax advisors concerning all tax
consequences of the consummation of the Merger as it relates to their own
circumstances, including but not limited to, consequences under federal,
state and local income tax and other tax laws. For a more detailed
discussion of the tax consequences of the Merger, including the tax
consequences to Gateway shareholders who elect to exercise dissenters'
rights, and the opinion of counsel to be rendered regarding the federal
income tax consequences of the Merger in connection with the closing
thereof, see "The Merger - Certain Federal Income Tax Consequences."
Regulatory Approvals
The Merger is subject to the prior approval or consent of certain
federal and state regulatory authorities, including the Board of Governors
of the Federal Reserve System ("FRB"), and the West Virginia Board of
Banking and Financial Institutions ("WV Board"). As of the date of these
proxy materials, all required regulatory approvals have been obtained.
Conditions to Consummation of the Merger
Consummation of the Merger is subject to various conditions,
including the approval of the Merger Agreement by the requisite Gateway
shareholder vote, receipt of all necessary regulatory approvals of the
Merger and other requirements set forth in the Merger Agreement. For
further information as to these and the other conditions to consummation of
the Merger, see "The Merger - Regulatory Approvals" and "The Merger -
Conditions to Consummation of the Merger."
Payment of Merger Consideration
As soon as practicable after the consummation of the Merger,
shareholders of Gateway will be mailed written materials with instructions
as to how to exchange their certificates for the Merger Consideration.
Certificates evidencing Gateway Stock should not be returned to Gateway
with the enclosed proxy and should not be forwarded until after receipt of
a letter of transmittal which will be provided to Gateway shareholders upon
consummation of the Merger.
Dividend Policy of Commercial
Commercial shareholders are entitled to receive dividends when and
as declared by Commercial's Board of Directors as funds are legally
available. Therefore, payment of dividends by Commercial is dependent upon
payment of dividends by its banking subsidiaries. Historically, Commercial
has paid dividends on a quarterly basis. See "Comparative Per Stock
Prices and Dividends".
Resale of Commercial Stock
The shares of Commercial Stock to be issued in connection with the
Merger will be freely tradeable by the holders of such shares, provided
that the resale of shares held by persons who may be deemed to be
"affiliates" of Gateway and Commercial under applicable federal securities
laws will be subject to the requirements of such laws and regulations
thereunder. See "The Merger - Resale of Commercial Stock."
5
<PAGE>
Dissenters' Rights
Pursuant to Sections 31-1-122 and 31-1-123 of the WVCA, holders of
Gateway Stock who (i) file with Gateway prior to or at the Gateway Special
Meeting a written objection to the Merger Agreement and (ii) do not vote in
favor of the Merger Agreement, may make a written demand of Gateway within
ten days after the date of the Gateway Special Meeting for the payment of
the fair value of their shares of Gateway Stock as of the day prior to the
date on which the vote was taken on the Merger Agreement at the Gateway
Special Meeting, excluding any appreciation or depreciation in anticipation
of such corporate action. The written objection and written demand
required to be delivered by a dissenting Gateway stockholder is in addition
to and separate from any proxy or vote against the Merger Agreement. The
procedures which must be followed in connection with the exercise of
dissenters' rights by dissenting stockholders of Gateway are described
herein under "Dissenters' Rights" and in Sections 31-1-122 and 31-1-123 of
the WVCA, copies of which are attached hereto as Annex C to this
Prospectus/Proxy Statement. Failure to take any step in connection with
the exercise of such rights may result in termination or waiver thereof.
COMPARATIVE STOCK PRICES AND DIVIDENDS
Commercial BancShares, Inc.
On June 27, 1996, Commercial BancShares, Inc. common stock began trading on
the American Stock Exchange under the symbol CWV. The following stock
prices of Commercial BancShares, Inc. represent the range of published
quotations by the American Stock Exchange for each quarter following the
June 27, 1996 date. For the quarters presented prior to June 27, 1996, the
data presented relating to the price of Commercial BancShares, Inc. common
stock is based on information available to Commercial from one or more of
the parties involved or from local brokers who have handled transactions in
the stock.
Gateway Bancshares, Inc.
There is no established public trading market for Gateway Bancshares, Inc.
and Gateway Bancshares, Inc. is not aware of the terms of any trades by
private individuals or organizations in its stock during the periods
presented. The data presented relating to the price of Gateway Bancshares,
Inc. common stock is based on purchases by Gateway of its own shares.
COMPARATIVE STOCK PRICES AND DIVIDENDS
<TABLE>
<CAPTION>
Commercial BancShares, Inc.* Gateway Bancshares, Inc.
--------------------------------------- ---------------------------------
Dividends Dividends
Declared Declared
High Low Per Share High Low Per Share
-------- ------------- -------------- ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
1994
1/st/ Quarter $ 26.82 $ 25.91 $.2273 $36.00 $35.00 $.20
2/nd/ Quarter $ 26.82 $ 25.91 $.2273 $36.00 $35.00 $.20
3/rd/ Quarter $ 26.82 $ 25.91 $.2273 $36.00 $35.00 $.20
4/th/ Quarter $ 27.73 $ 26.82 $.2545 $36.00 $35.00 $.20
1995
1/st/ Quarter $ 28.18 $ 27.27 $.2545 $36.00 $35.00 $.20
2/nd/ Quarter $ 28.41 $ 27.50 $.2545 $36.00 $35.00 $.20
3/rd/ Quarter $ 30.00 $ 29.09 $.2545 $36.00 $35.00 $.20
4/th/ Quarter $ 30.91 $ 30.00 $.2545 $36.00 $35.00 $.25
1996
1/st/ Quarter $ 31.82 $ 30.23 $.2727 $36.00 $35.00 $.20
2/nd/ Quarter $ 34.09 $ 31.14 $.2727 $36.00 $35.00 $.20
3/rd/ Quarter $ 35.80 $ 34.09 $.2727 $36.00 $35.00 $.20
4/th/ Quarter $ 38.18 $ 35.45 $.2727 $36.00 $35.00 $.30
1997
1/st/ Quarter $39.375 $ 37.78 $.2800 $36.00 $35.00 $.20
2/nd/ Quarter $ 42.25 $39.375 $.3000 $36.00 $35.00 $.20
3/rd/ Quarter $ 77.00 $ 42.50 $.3000 $36.00 $35.00 $.20
4/th/ Quarter $ 85.00 $ 77.75 $.3000 $36.00 $35.00 $.20
</TABLE>
* Prior periods were restated to reflect a ten percent (10 %) stock dividend
paid March 14, 1997.
6
<PAGE>
On August 15, 1997, the last full trading day before the announcement of
the Merger Agreement, the closing price of Commercial Common Stock as
reported on the AMEX was $47.00 per share. On ____________, 1997, the most
recent practicable date prior to the printing of this Joint Proxy
Statement/Prospectus, the closing price of Commercial Common Stock as
reported on the AMEX was $________ per share.
Shareholders are urged to obtain current market quotations for Commercial
and Gateway common stock. The market price of the Commercial Common Stock
upon consummation of the Merger may be higher or lower than the market
price at the time the Merger Agreement was executed, at the date of mailing
of this Prospectus/Joint Proxy Statement or at the time of the Special
Meetings.
It is anticipated that the annual rate of cash dividends to be declared on
shares of Commercial Common Stock following the Merger will initially be
$1.20 per share. It should be noted that no such dividends have been
declared and that future dividends will be determined by Commercial's Board
of Directors in light of the earnings and financial condition of Commercial
and its subsidiaries and other factors deemed relevant by its Board of
Directors.
Stockholders are advised to obtain current market quotations for the
Commercial Stock and the Gateway Stock. Because the Exchange Ratio is (i)
based on $80.00 divided by the average price of Commercial stock reported
on the American Stock Exchange for the twenty (20) trading days preceding
the Closing, and (ii) will be not less than 1.742 nor more than 2.129,
stockholders of Gateway are assured only of receiving consideration equal
to $80.00 per share of Commercial Stock upon consummation of the Merger.
In the event there are no reported trades on any day during such twenty
(20) day period, then the closing price for such a day for purposes of
calculating the Average Price, shall be the closing price last reported on
a date preceding the date on which no trade occurred. If the Average Price
quotient is less than or equal to 1.742, the exchange ratio will be 1.742
and Gateway shareholders will be entitled to receive 1.742 shares of
Commercial Common Stock. If such quotient is greater than or equal to
2.129, then the exchange ratio will be 2.129 and Gateway shareholders will
receive 2.129 shares of Commercial common stock for each share of Gateway
stock they own. The market price of the Commercial Stock upon consummation
of the Merger may be higher or lower than the market price at the time the
Merger Agreement was executed, at the date of mailing of this
Prospectus/Proxy Statement or at the time of the Special Meetings.
Commercial Dividend Policy
It has been the policy of Commercial to declare and pay cash
dividends on a quarterly basis. However, declaration and payment of future
dividends will depend upon the earnings of Commercial and its subsidiaries,
their financial condition and other factors, including applicable
governmental regulations and policies. The principal source of
Commercial's income is dividends from its subsidiary banks.
Dividends may be paid on Commercial Common stock at the discretion of
Commercial's Board of Directors out of any funds legally available
therefor. Under the West Virginia Corporation Act, dividends may be paid
out of unreserved and unrestricted earned surplus, and additionally, in
certain circumstances and with the affirmative vote of holders of a
majority of its outstanding shares, out of capital surplus, provided,
however, that in no event may dividends be paid if Commercial is at the
time insolvent or would be insolvent after payment of such dividends. The
amount and timing of any future dividends will depend on the earnings of
Commercial, its financial condition and other relevant factors. See
"Regulation and Supervision." The WesBanco Merger Agreement provides that
Commercial may not pay or declare dividends or other distributions on
Commercial Common Stock other than cash dividends which do not in the
aggregate exceed the lesser of $1.20 per share or 50% of the after-tax
income of Commercial for the tax year in which paid. See "the WesBanco
Merger Agreement."
7
<PAGE>
COMPARATIVE PER SHARE DATA
(In Dollars, Except for Average Shares)
(Unaudited)
The table which follows presents certain consolidated historical per share
financial information for Commercial BancShares, Inc. and Gateway
Bancshares, Inc., pro forma combined per share data and equivalent per
share data at the dates and for the periods indicated, giving effect to the
Merger using the pooling of interests method. The per share data included
in the tables which follow should be read in conjunction with the
historical consolidated financial statements of Commercial BancShares, Inc.
and Gateway Bancshares, Inc. and related notes accompanying each such
consolidated financial statements, in each case as incorporated by
reference herein, or included in the accompanying reports of Gateway
Bancshares, Inc. The data presented is not necessarily indicative of the
results which would have been obtained if the combination had been
consummated in the periods indicated or which may be obtained in the
future. The data presented below regarding Commercial has been
retroactively restated to reflect a ten percent (10 %) stock dividend, paid
March 14, 1997.
<TABLE>
<CAPTION>
For The Nine Months
Ended September 30, For The Year Ended December 31,
---------------------------------- ----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------------------------------- ----------------------------------------------------------
Commercial BancShares, Inc.
- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Historical:
----------
Cash Dividends Declared $ .88 $ .82 $ 1.09 $ 1.02 $ .94 $ .85 $ .75
Net Income $ 2.23 $ 2.07 $ 2.96 $ 2.95 $ 2.97 $ 2.50 $ 2.16
Book Value $ 26.79 $ 24.62 $ 25.36 $ 23.65 $ 21.25 $ 20.45 $ 18.66
Average Shares 1,616,187 1,616,187 1,616,187 1,608,847 1,410,417 1,374,974 1,374,748
Gateway Bancshares, Inc.
- ------------------------
Historical:
----------
Cash Dividends Declared $ .80 $ .90 $ .90 $ .85 $ .80 $ .80 $ .80
Net Income $ 3.30 $ 3.98 $ 4.66 $ 2.99 $ 3.43 $ 2.60 $ 1.65
Book Value $ 50.89 $ 47.82 $ 48.21 $ 44.57 $ 42.35 $ 39.65 $ 37.83
Average Shares 66,652 66,652 66,652 66,652 66,595 67,151 67,745
Commercial BancShares, Inc
- --------------------------
Pro Forma Combined (1)
----------------------
Cash Dividends Declared $ .88 $ .82 $ 1.09 $ 1.02 $ .94 $ .85 $ .75
Net Income $ 2.21 $ 2.08 $ 2.94 $ 2.87 $ 2.90 $ 2.43 $ 2.05
Book Value $ 26.95 $ 24.81 $ 25.51 $ 23.87 $ 23.86 $ 22.35 $ 20.64
Average Shares 1,732,295 1,732,295 1,732,295 1,724,955 1,526,525 1,499,144 1,498,918
Gateway Bancshares, Inc
- -----------------------
Equivalent Per Share Data (2)
-----------------------------
Cash Dividends $ 1.53 $ 1.43 $ 1.90 $ 1.78 $ 1.64 $ 1.48 $ 1.31
Net Income $ 3.85 $ 3.62 $ 5.12 $ 5.00 $ 5.05 $ 4.23 $ 3.57
Book Value $ 46.95 $ 43.22 $ 44.44 $ 41.58 $ 41.56 $ 38.93 $ 35.95
</TABLE>
(1) Assumes receipt of 100% of the outstanding shares of Gateway Bancshares,
Inc. common stock in exchange for Commercial BancShares, Inc.
common stock at an exchange of 1.742 to 1.
(2) The equivalent per share amounts are the result of multiplying the cash
dividends declared by Commercial BancShares, Inc., the pro forma
combined net income, and pro forma combined book value by the
1.742 to 1 exchange ratio of Commercial BancShares, Inc. Common
Stock for each common share of Gateway Bancshares, Inc.
8
<PAGE>
COMMERCIAL BANCSHARES, INC AND GATEWAY BANCSHARES, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data of Commercial
BancShares, Inc. and Gateway Bancshares, Inc. for the five years ended
December 31, 1996 is derived in part from the audited consolidated
financial statements. The historical consolidated financial data of
Commercial BancShares, Inc. and Gateway Bancshares, Inc. for the nine
months ended September 30, 1997 and 1996 is derived from unaudited
consolidated financial statements of each company and have been prepared by
management of the respective companies. The unaudited consolidated
financial statements include all adjustments, consisting of normal
recurring accruals, which are considered necessary by management of
Commercial BancShares, Inc. and Gateway Bancshares, Inc. for a fair
presentation of the consolidated financial position and results of
operations of Commercial BancShares, Inc. and Gateway Bancshares, Inc. for
these periods, respectively. Consolidated operating results for the nine
months ended September 30, 1997, are not necessarily indicative of the
results that may be expected for any other interim period or the entire
year ending December 31, 1997.
Commercial BancShares, Inc. Selected Historical Consolidated Financial
Data
The Commercial BancShares, Inc. selected historical consolidated financial
data presented herein should be read in conjunction with, and is qualified
in its entirety by, the historical consolidated financial statements of
Commercial BancShares, Inc., including the related notes, incorporated
herein by reference. See "Available Information" and "Information
Incorporated by Reference." The selected consolidated financial data
presented herein has been retroactively adjusted to reflect a 10% stock
dividend, paid March 14, 1997.
Gateway Bancshares, Inc. Selected Historical Consolidated Financial Data
The Gateway Bancshares, Inc. selected historical consolidated financial
data presented herein should be read in conjunction with, and is qualified
in its entirety by, the historical consolidated financial statements of
Gateway Bancshares, Inc., including the related notes, incorporated herein
by reference and in the reports of Gateway Bancshares, Inc. that accompany
this Prospectus/Joint Proxy Statement. See "Available Information" and
"Information Incorporated by Reference."
Commercial BancShares, Inc. and Gateway Bancshares, Inc. Selected Pro Forma
Consolidated Financial Data
The selected unaudited consolidated pro forma financial data of Commercial
BancShares, Inc. and Gateway Bancshares, Inc. at the dates and for the
periods indicated, give effect to the Merger using the pooling of interests
method of accounting. See "The Merger-Accounting Treatment of the Merger"
and "Pro Forma Consolidated Financial Statements."
The selected unaudited consolidated pro forma financial data presented
herein should be read in conjunction with, and is qualified in its entirety
by, the historical consolidated financial statements of Commercial
BancShares, Inc. and Gateway Bancshares, Inc., including the related notes,
which are incorporated herein by reference and which are in the reports of
Gateway Bancshares, Inc. that accompany this Prospectus/Joint Proxy
Statement, and in conjunction with the selected consolidated historical and
other unaudited pro forma combined condensed consolidated financial
information appearing elsewhere herein. See "Available Information,"
"Information Incorporated by Reference" and "Pro Forma Consolidated
Financial Statements." The data presented is not necessarily indicative of
the results of the future operations of Commercial BancShares, Inc. upon
consummation of the Merger or the actual results that would have been
achieved had the Merger been consummated prior to the periods indicated.
9
<PAGE>
COMMERCIAL BANCSHARES, INC.
SELECTED FINANCIAL DATA - HISTORICAL BASIS
(In Thousands except for Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
For The Nine Months Ended
September 30, For The Years Ended December 31,
------------------------------ ---------------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------------------------------ ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Income
Statement Data
Total Interest Income $ 24,807 $ 23,368 $ 31,445 $ 30,425 $ 26,933 $ 25,559 $ 27,468
Total Interest Expense 10,540 9,918 13,394 12,552 9,621 9,965 11,974
------------------------------ ---------------------------------------------------------------------
Net Interest Income $ 14,267 $ 13,450 $ 18,051 $ 17,873 $ 17,312 $ 15,594 $ 15,494
Provision for Loan Loss 372 358 459 418 417 247 983
Net Interest Income after
Provision for Loan Loss $ 13,895 $ 13,092 $ 17,592 $ 17,445 $ 16,895 $ 15,347 $ 14,511
Other Income 2,225 2,513 3,384 3,019 2,015 2,355 1,995
Other Expenses 10,698 10,585 13,891 13,553 12,986 12,070 11,630
------------------------------ ---------------------------------------------------------------------
Income before Income Taxes
and Cumulative Effect of
Accounting Change $ 5,422 $ 5,020 $ 7,085 $ 6,921 $ 5,924 $ 5,632 $ 4,876
Income Tax Expense 1,813 1,676 2,304 2,176 1,526 1,916 1,636
------------------------------ ---------------------------------------------------------------------
Income before Cumulative
Effect of Accounting
Change $ 3,609 $ 3,344 $ 4,781 $ 4,745 $ 4,398 $ 3,716 $ 3,240
Cumulative Effect of
Accounting Change
------------------------------ ---------------------------------------------------------------------
Net Income $ 3,609 $ 3,344 $ 4,781 $ 4,745 $ 4,398 $ 3,716 $ 3,240
============================== =====================================================================
Net Income Available for
Common Shares $ 3,609 $ 3,344 $ 4,781 $ 4,745 $ 4,194 $ 3,444 $ 2,967
============================== =====================================================================
Per Common Share Data
Cash Dividends Declared $ .88 $ .82 $ 1.09 $ 1.02 $ .94 $ .85 $ .75
Primary EPS $ 2.23 $ 2.07 $ 2.96 $ 2.95 $ 2.97 $ 2.50 $ 2.16
Book Value $ 26.79 $ 24.62 $ 25.36 $ 23.65 $ 21.25 $ 20.45 $ 18.66
Average Shares 1,616,187 1,616,187 1,616,187 1,608,847 1,410,417 1,374,974 1,374,748
Balance Sheet Data
Federal Funds Sold $ 9,960 $ 2,200 $ 5,000 $ 1,680 $ 1,405 $ 8,699 $ 15,579
Investment Securities $ 72,842 $ 78,756 $ 75,021 $ 87,424 $ 84,090 $ 92,564 $ 72,248
Loans, Net $ 302,918 $ 287,175 $ 293,941 $ 260,470 $ 252,972 $ 219,483 $ 223,013
Total Assets $ 425,164 $ 409,454 $ 412,979 $ 385,656 $ 372,223 $ 349,713 $ 337,005
Total Deposits $ 366,812 $ 357,353 $ 359,840 $ 340,584 $ 323,959 $ 318,869 $ 301,714
Shareholders' Equity $ 43,300 $ 39,787 $ 40,995 $ 38,203 $ 33,608 $ 30,844 $ 28,373
Loan Quality Ratios
As a % of Net Loans
-------------------
Allowance for Loan Losses 1.25 % 1.23 % 1.20 % 1.33 % 1.34 % 1.41% 1.33 %
Past Due > 90 Days and
Still Accruing Interest 0.44 % 0.12 % 0.09 % 0.38 % 0.18 % 0.15 % 0.21 %
Nonaccrual and
Restructured Loans 0.65 % 0.91 % 0.97 % 0.84 % 0.84 % 0.21 % 0.38 %
</TABLE>
The selected consolidated financial data presented above has been
retroactively adjusted to reflect a 10% stock dividend.
10
<PAGE>
GATEWAY BANCSHARES, INC.
SELECTED FINANCIAL DATA - HISTORICAL BASIS
(In Thousands except for Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
For The Nine Months
Ended September 30, For The Years Ended December 31,
----------------------------------- ---------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------------------------------- ---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Income
Statement Data
Total Interest Income $ 1,704 $ 1,756 $ 2,310 $ 2,222 $ 2,046 $ 2,187 $ 2,458
Total Interest Expense 595 662 868 913 778 885 1,116
----------------------------------- ---------------------------------------------------------------
Net Interest Income $ 1,109 $ 1,094 $ 1,442 $ 1,309 $ 1,268 $ 1,302 $ 1,342
Provision for Loan Loss 6 29 47 81 11 113 258
----------------------------------- ---------------------------------------------------------------
Net Interest Income after
Provision for Loan Loss $ 1,103 $ 1,065 $ 1,395 $ 1,228 $ 1,257 $ 1,189 $ 1,084
Other Income 137 162 201 187 200 152 153
Other Expenses 888 790 1,101 1,094 1,076 1,097 1,065
----------------------------------- ---------------------------------------------------------------
Income before Income Taxes
and Cumulative Effect of
Accounting Change $ 352 $ 437 $ 496 $ 321 $ 381 $ 244 $ 172
Income Tax Expense 132 172 186 122 153 95 60
----------------------------------- ---------------------------------------------------------------
Income before Cumulative
Effect of Accounting
Change $ 220 $ 265 $ 310 $ 199 $ 228 $ 149 $ 112
Cumulative Effect of
Accounting Change 26
----------------------------------- ---------------------------------------------------------------
Net Income $ 220 $ 265 $ 310 $ 199 $ 228 $ 175 $ 112
=================================== ===============================================================
Net Income Available for
Common Shares $ 220 $ 265 $ 310 $ 199 $ 228 $ 175 $ 112
=================================== ===============================================================
Per Common Share Data
Cash Dividends Declared $ .80 $ .90 $ .90 $ .85 $ .80 $ .80 $ .80
Primary EPS $ 3.30 $ 3.98 $ 4.66 $ 2.99 $ 3.43 $ 2.60 $ 1.65
Book Value $ 50.89 $ 47.82 $ 48.21 $ 44.57 $ 42.35 $ 39.65 $ 37.83
Average Shares 66,652 66,652 66,652 66,652 66,595 67,151 67,745
Balance Sheet Data
Federal Funds Sold $ 2,375 $ 1,750 $ 1,800 $ 1,200 $ 475 $ 3,900 $ 2,250
Investment Securities $ 4,429 $ 8,111 $ 5,749 $10,650 $12,625 $ 8,521 $ 9,833
Loans, Net $21,944 $19,579 $20,303 $17,407 $16,022 $15,627 $16,624
Total Assets $31,141 $32,155 $30,656 $31,647 $31,360 $30,357 $31,118
Total Deposits $27,634 $28,753 $27,237 $28,499 $28,269 $27,577 $28,413
Shareholders' Equity $ 3,392 $ 3,187 $ 3,213 $ 2,971 $ 2,820 $ 2,662 $ 2,563
Loan Quality Ratios
As a % of Net Loans
-------------------
Allowance for Loan Losses 1.02 % 1.22 % 1.18 % 1.23 % 1.20 % 0.93 % 1.56 %
Past Due > 90 Days and
Still Accruing Interest .63 % 1.29 % 0.58 % 0.0 % 0.26 % 0.67 % 1.02 %
Nonaccrual and
Restructured Loans .42 % 0.76 % 0.47 % 1.44 % 0.47 % 0.89 % 1.48 %
</TABLE>
11
<PAGE>
COMMERCIAL BANCSHARES, INC.
SELECTED FINANCIAL DATA - PRO FORMA COMBINED
(In Thousands except for Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
For The Nine Months Ended
September 30, For The Years Ended December 31,
-------------------------------- --------------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------------------------------- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Income
Statement Data
Total Interest Income $ 26,511 $ 25,124 $ 33,755 $ 32,647 $ 28,979 $ 27,746 $ 29,926
Total Interest Expense 11,135 10,580 14,262 13,465 10,399 10,850 13,090
-------------------------------- --------------------------------------------------------------------
Net Interest Income $ 15,376 $ 14,544 $ 19,493 $ 19,182 $ 18,580 $ 16,896 $ 16,836
Provision for Loan Loss 378 387 506 499 428 360 1,241
-------------------------------- --------------------------------------------------------------------
Net Interest Income after
Provision for Loan Loss $ 14,998 $ 14,157 $ 18,987 $ 18,683 $ 18,152 $ 16,536 $ 15,595
Other Income 2,362 2,675 3,585 3,206 2,215 2,507 2,148
Other Expenses 11,586 11,375 14,992 14,647 14,062 13,167 l2,695
-------------------------------- --------------------------------------------------------------------
Income before Income Taxes
and Cumulative Effect of
Accounting Change $ 5,774 $ 5,7457 $ 7,580 $ 7,242 $ 6,305 $ 5,876 $ 5,048
Income Tax Expense 1,945 1,848 2,49089 2,298 1,679 2,011 1,696
-------------------------------- --------------------------------------------------------------------
Income before Cumulative
Effect of Accounting
Change $ 3,829 $ 3,609 $ 5,091 $ 4,944 $ 4,626 $ 3,865 $ 3,352
Cumulative Effect of
Accounting Change 26
-------------------------------- --------------------------------------------------------------------
Net Income $ 3,829 $ 3,609 $ 5,091 $ 4,944 $ 4,626 $ 3,891 $ 3,352
================================ ====================================================================
Net Income Available for
Common Shares $ 3,829 $ 3,609 $ 5,091 $ 4,944 $ 4,422 $ 3,619 $ 3,079
================================ ====================================================================
Per Common Share Data
Cash Dividends Declared $ .88 $ .82 $ 1.09 $ 1.02 $ .94 $ .85 $ .75
Primary EPS $ 2.21 $ 2.08 $ 2.94 $ 2.87 $ 2.90 $ 2.43 $ 2.05
Book Value $ 26.95 $ 24.81 $ 25.51 $ 23.87 $ 23.86 $ 22.35 $ 20.64
Average Shares 1,732,295 1,732,295 1,732,295 1,724,955 1,526,525 1,499,144 1,498,918
Balance Sheet Data
Federal Funds Sold $ 12,335 $ 3,950 $ 6,800 $ 2,880 $ 1,880 $ 12,599 $ 17,829
Investment Securities $ 77,271 $ 86,867 $ 80,770 $ 98,074 $ 96,715 $ 101,085 $ 82,081
Loans, Net $ 324,862 $ 306,754 $ 314,244 $ 277,877 $ 268,994 $ 235,110 $ 239,637
Total Assets $ 456,305 $ 441,609 $ 443,635 $ 417,303 $ 403,583 $ 380,070 $ 368,123
Total Deposits $ 394,446 $ 386,106 $ 387,077 $ 369,083 $ 352,228 $ 346,446 $ 330,127
Shareholders' Equity $ 46,692 $ 42,974 $ 44,208 $ 41,174 $ 36,428 $ 33,506 $ 30,936
Loan Quality Ratios
As a % of Net Loans
-------------------
Allowance for Loan Losses 1.23 % 1.23 % 1.20 % 1.33 % 1.33 % 1.38 % 1.34 %
Past Due > 90 Days and
Still Accruing Interest 0.45 % 0.19 % 0.12 % 0.35 % 0.19 % 0.19 % 0.27 %
Nonperforming and
Restructured Loans 0.64 % 0.90 % 0.94 % 0.88 % 0.81 % 0.26 % 0.46 %
</TABLE>
The following selected pro forma financial information reflects the combination
of WesBanco, Inc., and Commercial BancShares, Incorporated, using the pooling of
interests method of accounting. It does not include the effects of the proposed
merger of Gateway Bancshares with Commercial BancShares, Incorporated.
12
<PAGE>
<TABLE>
<CAPTION>
WesBanco, Inc.
Five Year Selected Pro Forma-Combined Financial Summary*
- ------------------------------------------------------------------------------------------------------------------------------------
(Unaudited, dollars in thousands, except per share data)
For the Nine Months Ended
September 30, For the Years Ended December 31,
---------------------------- -------------------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------------------------- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Summary Statement of
- --------------------
Income:
- ------
Interest income $ 117,115 $ 107,012 $ 144,383 $ 138,507 $ 128,653 $ 130,827 $ 140,319
Interest expense 51,512 45,641 61,612 59,122 49,281 53,692 65,635
---------------------------- -------------------------------------------------------------------------
Net interest income 65,603 61,371 82,771 79,385 79,372 77,135 74,684
Provision for loan
losses 3,236 3,206 4,795 3,206 6,490 3,494 4,280
---------------------------- -------------------------------------------------------------------------
Net interest income
after provision for
loan losses 62,367 58,165 77,976 76,179 72,882 73,641 70,404
Other income 12,636 11,214 15,657 14,385 13,043 12,722 12,267
Other expense 46,330 42,031 57,043 55,683 55,826 53,943 52,240
---------------------------- -------------------------------------------------------------------------
Income before
income taxes 28,673 27,348 36,590 34,881 30,099 32,420 30,431
Income tax provision 7,973 7,931 10,648 9,832 7,809 8,986 8,680
---------------------------- -------------------------------------------------------------------------
Income before effect
of change in
accounting for post
retirement benefits 20,700 19,417 25,942 25,049 22,290 23,434 21,751
Effect of change in
accounting for post
retirement benefits - - - - - - (592)
---------------------------- -------------------------------------------------------------------------
Net income $ 20,700 $ 19,417 $ 25,942 $ 25,049 $ 22,290 $ 23,434 $ 21,159
============================ =========================================================================
Net income available
for common
shareholders $ 20,700 $ 19,417 $ 25,942 $ 24,885 $ 21,903 $ 22,977 $ 20,702
============================ =========================================================================
Primary earnings per
share* $ 1.01 $ 0.98 $ 1.31 $ 1.26 $ 1.13 $ 1.18 $ 1.06
Average shares
outstanding* 20,416,098 19,885,817 19,859,240 19,825,706 19,441,005 19,487,925 19,513,928
Dividends per
common share* $ 0.586 $ 0.533 $ 0.720 $ 0.640 $ 0.573 $ 0.527 $ 0.467
Equivalent per share data
- -------------------------
(Commercial):
- -------------
Primary earnings per
share $ 2.88 $ 2.79 $ 3.73 $ 3.59 $ 3.22 $ 3.36 $ 3.02
Dividends per
common share 1.67 1.52 2.05 1.82 1.63 1.50 1.33
</TABLE>
<TABLE>
<CAPTION>
As of September 30, As of December 31,
---------------------------- -------------------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------------------------- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Balance Sheet
- ---------------------
Data:
----
Assets $ 2,187,249 $ 2,010,223 $ 2,090,750 $ 1,934,675 $ 1,905,055 $ 1,883,844 $ 1,837,692
Securities 625,049 577,854 600,330 609,712 672,043 695,452 673,929
Net Loans 1,315,871 1,237,127 1,304,783 1,140,950 1,051,385 978,801 946,169
Deposits 1,758,878 1,628,865 1,702,660 1,595,428 1,578,545 1,576,980 1,547,692
Shareholders' equity 289,612 254,213 268,527 245,199 225,913 222,645 209,014
Book value per
common share* 14.02 12.75 13.17 12.33 11.41 11.34 10.59
</TABLE>
* Reflects pro forma combined WesBanco and Commercial Bancshares selected
financial information, using the pooling of interests method of accounting.
Share and per share amounts have been adjusted for the acquisition of all the
outstanding common stock shares of Commercial.
13
<PAGE>
INTRODUCTION
This Prospectus/Proxy Statement is being furnished to the holders
of Gateway Stock in connection with the solicitation of proxies by the Board
of Director of Gateway for use at the Gateway Special Meeting, , and at any
adjournment or adjournments thereof. This Prospectus/Proxy Statement also
serves as a prospectus of Commercial in connection with the issuance of
Commercial Stock to holders of Gateway Stock upon consummation of the Merger.
This Prospectus/Proxy Statement, the attached notices of Special
Meetings of Stockholders and the form of proxy and other documents enclosed
herewith are being first mailed to stockholders of Gateway on or about ____
_____ ___, 1998.
SPECIAL MEETING OF GATEWAY SHAREHOLDERS
Time and Place
The Gateway Special Meeting will be held at the main office of
the Bank of McMechen, 700 Marshall Street, McMechen, West Virginia, on
________ __, 1998 at _____ p.m., local time.
Shares Outstanding and Entitled to Vote; Record Date
The close of business on __________ __, 1998 has been fixed by the
Board of Directors of Gateway as the record date for the determination of
holders of Gateway Stock entitled to notice of and to vote at the Gateway
Special Meeting and any adjournment or adjournments thereof. At the close of
business on the Gateway Record Date, there were 66,652 shares of Gateway Stock
outstanding and entitled to vote. At the Gateway Special Meeting, Gateway
shareholders will be entitled to cast one vote for each share of Gateway Stock
they hold on the Gateway Record Date.
Purpose and Vote Required
The purpose of the Special Meeting of Gateway shareholders
is to act upon the Merger Agreement. The Merger is subject to the approval of
the holders of a majority of the outstanding shares of Gateway. No other
business may properly come before the Gateway Special Meeting.
A detailed description of the Merger Agreement is set forth in
this Prospectus/Proxy Statement and the exhibits attached to it. See the
sections of this Prospectus/Proxy Statement titled "Summary" and "The Merger."
Shareholders are urged to read this entire document carefully before voting
their shares.
Gateway's Board of Directors has unanimously approved the proposed
Merger Agreement and unanimously recommends that the shareholders of Gateway
vote "FOR" approval of the Merger Agreement.
The presence in person or by proxy of at least a majority of
the outstanding shares of Gateway Stock entitled to vote is necessary to
constitute a quorum at the Gateway Special Meeting. The affirmative vote of
the holders of a majority of the outstanding Gateway Stock is required for
approval of the Merger Agreement at the Gateway Special Meeting.
14
<PAGE>
Proxies
A proxy for use by Gateway shareholders in connection with the
Gateway Special Meeting is enclosed with this Prospectus/Proxy Statement.
The proxy will be voted as specified thereon by the shareholder, and where
no specification is made on the proxy, a properly executed proxy will be
voted "FOR" approval of the Merger Agreement.
Any stockholder of Gateway giving a proxy has the power to
revoke it at any time before it is exercised by (i) filing with the President
of Gateway written notice thereof (Michael E. Moore, President, Gateway
Bancshares, Inc., Bank of McMechen, 700 Marshall Street, McMechen, West
Virginia 26040); (ii) submitting a duly-executed proxy bearing a later date;
or (iii) appearing at the Gateway Special Meeting and giving the Secretary
notice of his or her intention to vote in person. Proxies solicited hereby may
be exercised only at the Gateway Special Meeting and any adjournment thereof
and will not be used for any other meeting. Proxies voting against the
proposal may not be used by management to vote "for" adjournment pursuant to
its discretionary authority in order to permit further solicitation.
Accountants
Glatz, Obecny & Company, PLLC, independent public accountants,
have provided auditing services to Gateway since 1995. Representatives of
Glatz, Obecny & Company, P.L.L.C. are expected to be present at the Gateway
Special Meeting to respond to questions. See "Relationship with Independent
Auditors" and "Experts."
Harman, Thompson, Mallory & Ice, A.C., independent accountants,
have provided auditing services to Commercial since 1990. Representatives of
Harman, Thompson, Mallory & Ice, A.C., are expected to be present at the
Gateway Special Meeting. Such representatives will have the opportunity to
make a statement if they desire and will be available to respond to questions.
Gateway will bear its costs of mailing this Prospectus/Proxy
Statement to its shareholders, as well as all other costs incurred by it in
connection with the solicitation of proxies from its shareholders on behalf of
its Board of Directors. In addition to solicitation by mail, the directors,
officers and employees of Gateway and its subsidiaries may solicit proxies
from Gateway shareholders by telephone, telegram or in person without
compensation other than reimbursement for their actual expenses. Arrangements
also will be made with brokerage firms and other custodians, nominees and
fiduciaries for the forwarding of solicitation material to the beneficial
owners of stock held of record by such persons, and Gateway will reimburse
such custodians, nominees and fiduciaries for their reasonable out-of-pocket
expenses in connection therewith.
15
<PAGE>
INFORMATION WITH RESPECT TO GATEWAY BANCSHARES, INC.
Organizational History
Gateway Bancshares, Inc. ("Gateway") is a West Virginia
bank holding company, incorporated on the 20th day of October, 1983, formed
for the purpose of acquiring and owning the stock of The Bank of McMechen
("McMechen"), a West Virginia state banking corporation. McMechen was
originally formed in 1906 and has operated as a commercial bank in the
Marshall County, West Virginia area since that time to the present. Gateway
was formed by the directors and management of McMechen shortly after the
adoption of new banking laws in West Virginia which authorized the formation
of bank holding companies. At the time of the formation of Gateway, McMechen's
shareholders transferred their shares in McMechen in exchange for shares of
the stock of Gateway and Gateway became a one bank holding company.
Business of McMechen
McMechen is a federally-insured depository institution
offering a full range of banking services, primarily to customers located
within its market area, i.e., Marshall County, West Virginia, and the greater
Wheeling area. Deposit accounts are insured by the FDIC up to the maximum
applicable limits. McMechen offers both its individual and business customers
assorted deposit products with varying maturities and interest rates,
including a full line of interest bearing and non-interest bearing accounts;
certificates of deposit; individual retirement accounts; club savings
accounts; safe deposit boxes; and official checks. Nontraditional products
such as mutual funds and annuities are not presently offered.
McMechen offers a full spectrum of lending services to its
customers, including commercial loans and lines of credit, residential real
estate loans, consumer installment loans, and other personal loans. Loan
terms, including interest rates, loan to value ratios, and maturities are
tailored as much as possible to meet the needs of the borrower. Commercial
loans are generally secured by various collateral, including commercial real
estate, accounts receivable and business machinery and equipment. Residential
real estate loans consist primarily of loans secured by first priority
mortgages on the borrowers' personal residences. Consumer and personal loans
are generally secured, often by first liens on automobiles, consumer goods or
depository accounts. McMechen also provides direct financing to consumers for
their purchase of motor vehicles, but is not currently involved in any
indirect automobile lending.
A special effort is made to keep loan products as flexible as
possible within the guidelines of prudent banking practices in terms of
interest rate risk and credit risk. McMechen's lending personnel adhere to
established lending limits and authorities based on each individual's lending
expertise and experience. McMechen does not currently originate loans for
sale.
When considering loan requests, the primary factors taken into
consideration by McMechen are the cash flow and financial condition of the
borrower, the value of the underlying collateral, if any, and the character
and integrity of the borrower. These factors are evaluated in a number of ways
including an analysis of financial statements, credit reviews and visits to
the borrower's place of business.
Concentrations
McMechen grants installment, commercial and residential loans
to customers primarily in Marshall County, West Virginia, and the greater
Wheeling area. Although the Bank strives to maintain a diversified loan
portfolio, exposure to credit losses can be adversely impacted by downturns in
local economic and employment conditions. Major employment within the market
area is diverse but primarily includes the industries of government, health
care, education, coal production and related services, and various
professional, financial and related service industries.
McMechen had a concentration of deposits from one related party
(the Sheriff of Marshall County) which approximated $ 1,486,925, or 5.5% of
total deposits, at September 30, 1997.
Additional information related to these risk concentrations is
included in the Notes to Financial Statements which are included in the
section "Financial Information Concerning Gateway Bancshares, Inc."
16
<PAGE>
Employees
As of September 30, 1997, McMechen employed 18 full-time, 4
part-time, and 3 temporary employees. Such employees are not represented by
any collective bargaining unit, and management believes its employee relations
are satisfactory.
Competition
McMechen's primary competition consists of other commercial
banks located in the Wheeling and Moundsville areas, as well as local savings
and loan associations, credit unions and brokerage firms like Prudential
Securities, Inc. and Legg, Mason, Wood, Walker Inc. which offer a variety of
checking and money market accounts.
Properties
McMechen owns real estate located on Marshall Street in
McMechen, West Virginia, where the Bank owns a building which houses its main
banking office and where, on the other side of the street, the Bank has a
drive-in window facility. The main banking office is located at 700 Marshall
Street (Main Bank) and 704 Marshall Street. Additionally, McMechen owns a
storage/apartment building located at 614 Marshall Street in McMechen (the
Reilly Building).
In addition to its main office facilities located on Marshall
Street in McMechen, McMechen also owns a banking office located 43 Marshall
Street in Benwood, West Virginia, and vacant lots at 21-23-25 Marshall Street
in Benwood.
Legal Proceedings
To the best of management's knowledge, there are no pending
legal proceedings to which Gateway is a party which may have a materially
adverse effect upon Gateway's business or financial position.
Transactions with Directors, Executive Officers and Principal Shareholders
Directors and executive officers of Gateway and McMechen,
members of their immediate family and business organizations, and individuals
associated with them are customers of, and have had normal banking
transactions with, McMechen. All such transactions were made in the ordinary
course of business on substantially the same terms, including interest rates
and collateral, as those prevailing at the time for comparable transactions
with other persons and did not involve more than the normal risk of
collectibility or present other unfavorable features. The aggregate amount of
activity with respect to loans granted to related parties was $95,839, which
is approximately 2.8% of total equity capital for the period ended September
30, 1997. Deposits from related parties totaled approximately $406,167 or 1.4%
of total deposits at September 30, 1997. It is anticipated that loan and
deposit relationships with related parties will continue in 1998, although the
extent of such transactions is not known.
Executive Compensation
The following table sets forth the compensation paid by
McMechen for its last fiscal year to the chief executive officer. No officer
received in excess of $100,000 on an annualized basis. Gateway does not have
any retirement plans, stock plans or other compensatory plans.
17
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
===============================================================================
Annual Compensation
-----------------------------
Name and Principal Other Annual
Fiscal Year Salary (1) Compensation (2)
===============================================================================
<S> <C> <C> <C>
Michael E. Moore 1997 $69,500 $7,275
===============================================================================
</TABLE>
(1) The executive officers of McMechen, including Mr. Moore, have in
the past, received bonuses in the range of 4-5% of their annual salaries
and it is anticipated that similar bonuses will be set and paid in February
after completion of the year-end audit.
(2) This amount represents directors fees paid to Mr. Moore.
Employment Agreements
Michael E. Moore entered into an Employment Continuity Agreement
with Commercial effective as of the Closing pursuant to which Mr. Moore
will be employed by Commercial for three (3) years. Linda Miller entered
into a Change in Control Agreement with Commercial pursuant to which,
subject to certain conditions, she will be employed by Commercial in the
event of a change in control of Commercial.
CERTAIN BENEFICIAL OWNERS OF GATEWAY STOCK
The following table sets forth information as of November
30, 1997, concerning (i) the only persons or entities, including any
"group" as that term is used in Section 13(d)(3) of the Exchange Act, who
or which were not affiliated with Gateway and who were known to Gateway to
be the beneficial owner of more than 5% of the issued and outstanding
Gateway Stock and (ii) the shares of Gateway Stock beneficially owned by
each director of Gateway and all directors and executive officers of
Gateway as a group excluding qualifying shares of directors.
<TABLE>
<CAPTION>
Title of Class Name and Address of Amount and Nature of Percent of
- -------------- Beneficial Ownership Beneficial Ownership Beneficial Ownership
--------------------- --------------------- -------------------
<S> <C> <C> <C> <C>
Common Stock Direct Indirect
Donald Finnegan 1,793 1,740 (1) 5.39%
Benjamin Honecker 7,067 3,072 (2) 15.22%
The Estate of Kathryn Summers 6,419 9.67%
Benwood - McMechen 3,921 6.0%
United Methodist Church
(WesBanco Trust Dept.)
</TABLE>
18
<PAGE>
Directors and Executive Officers:
<TABLE>
<CAPTION>
Name, Age, Position and Offices
with Bank and Year Each Amount and Nature of
Became a Director Occupation for Past Five Years Beneficial Ownership (1) Percent of Class
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dr. T. O. Dickey - 75 Medical Director, Marshall County Health 3,592 (3) 5.4%
Director since 1961 Dept. 1992-1996; Retired
- ----------------------------------------------------------------------------------------------------------------------------------
Dr. Robert E. Durig - 82 Retired 2,178 (4) 3.2%
Director since 1969
- ----------------------------------------------------------------------------------------------------------------------------------
Donald R. Eddy - 61 President, Saturn Bronze 1992-1996; 412 (5) *
Director since 1988 Retired
- ----------------------------------------------------------------------------------------------------------------------------------
Linda A. Miller - 46 Vice President & Cashier, Bank of 777 (6) 1.2%
Director since 1994 McMechen 1992-Present
- ----------------------------------------------------------------------------------------------------------------------------------
Michael E. Moore - 56 President, Bank of McMechen 1992-Present 860 1.3%
Director since 1977
- ----------------------------------------------------------------------------------------------------------------------------------
Robert W. Munn, Jr. -47 Executive Director of Green Tab 292 *
Director Since 1983 Publishing 1992-Present
- ----------------------------------------------------------------------------------------------------------------------------------
Directors and Executive
Officers as a Group of 7 Persons 8,175 12.2%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Less than 1%
(1) Owned by Regina Finnegan, the wife of Donald Finnegan.
(2) 1,680 shares owned by Mr. Honecker's wife, Janet Honecker;
729 shares owned by his daughter, Elizabeth Hestick, and 663 shares
owned by grandson, Liam Honecker.
(3) Includes 1,816 shares owned by Dr. Dickey's wife, Mary
Angela Dickey.
(4) Includes 2,120 shares owned jointly by Dr. Durig with
his wife, Juanita Durig; 18 shares owned by his son, James; and 80
shares owned by Dr. Durig, individually.
(5) Includes 100 shares owned by Mr. Eddy's wife, Martha M. Eddy.
(6) Includes 728 shares owned jointly by Mrs. Miller and her
husband, George W. Miller.
19
<PAGE>
INFORMATION WITH RESPECT TO COMMERCIAL
History
The management of Commercial Banking and Trust Company ("CB&T")
of Parkersburg, West Virginia, caused Commercial to be formed in 1982 to
provide greater flexibility in meeting CB&T's capital requirements and to
permit future acquisition and ownership of bank-related businesses and the
pursuit of other bank-related activities not permitted CB&T under
applicable law. On October 28, 1983, the shareholders of CB&T became
shareholders of Commercial and CB&T became a wholly-owned subsidiary of
Commercial.
On January 29, 1985, shareholders of Jackson County Bank,
Ravenswood, West Virginia ("Jackson") approved an agreement and plan of
merger pursuant to which Jackson would merge into a wholly-owned subsidiary
of Commercial and thereby become a wholly-owned subsidiary of Commercial.
The transaction was finalized March 1, 1985.
On May 15, 1987, shareholders of Farmers and Merchants Bank of
Ritchie County ("F&M") (formerly Farmers and Merchants Bank of Cairo),
Harrisville, West Virginia, approved an agreement and plan of merger
pursuant to which F&M would merge into a wholly-owned subsidiary of
Commercial and thereby become a wholly-owned subsidiary of Commercial.
The transaction was finalized November 30, 1987.
On March 21, 1991, shareholders of The Dime Bank, Marietta, Ohio
approved an agreement and plan of merger pursuant to which The Dime Bank
would merge into a wholly-owned subsidiary of Commercial and thereby become
a wholly-owned subsidiary of Commercial. The transaction was finalized
February 28, 1992.
On June 7, 1994, shareholders of Hometown Bancshares, Inc.,
("Hometown") approved an agreement and plan of merger pursuant to which
Hometown would merge with Commercial. Commercial would be the surviving
corporation and the former subsidiaries of Hometown (The Union Bank of
Tyler County, The Community Bank, the Bank of Paden City, and Hometown
Insurance Inc.) would become wholly-owned subsidiaries of Commercial. The
transaction was finalized August 1, 1994.
Operations
Commercial is the parent company of seven community banks with 17
banking locations in Wood, Jackson, Ritchie, Wetzel and Tyler Counties in
West Virginia and in Washington County, Ohio. Its subsidiaries include
CB&T, Jackson, F&M, The Dime Bank, Union Bank of Tyler County, The
Community Bank, Bank of Paden City, Hometown Finance Company, Hometown
Insurance Agency, Inc., and CommBanc Investments, Inc. Commercial has also
recently executed a definitive agreement to acquire Gateway, with offices
in Benwood and McMechen, Marshall County, West Virginia.
As of September 30, 1997, Commercial had consolidated assets of
$425 million, deposits of $366 million, and loans of $302 million. The
company operates seven banks in the mid and upper Ohio Valley region of
West Virginia and Ohio. For the nine months ended September 30, 1997,
Commercial's net earnings were $3,609,000.
Set forth below is a description of each of Commercial's major
subsidiaries. As of December 31, 1996, Commercial and its subsidiaries had
223 full-time equivalent employees.
CB&T was chartered as a West Virginia Banking Corporation on
August 18, 1903, and opened its doors on the corner of Third Street and
Court Square, Parkersburg, West Virginia. CB&T remained in its original
location until January, 1916, when it acquired the assets of the
Parkersburg Banking and Trust Company and moved to its present location at
415 Market Street, Parkersburg, West Virginia. On December 10, 1984, it
opened a branch in Mineral Wells, West Virginia. On September 29, 1986, a
second branch was opened on Grand Central Avenue in Vienna, West Virginia.
It was enlarged and remodeled extensively during 1995. A third branch was
opened at 2107 Pike Street, Parkersburg, West Virginia on May 8, 1989. In
1996, the West Virginia Division of Banking authorized CB&T to open a
branch on West Virginia State Route 47 near West Virginia University--
Parkersburg. Construction on that facility has not been started. CB&T
provides a complete range of financial services to both retail and
commercial customers. Additionally, CB&T has full trust powers and
provides a wide variety of those services to individuals, corporations,
foundations and others.
20
<PAGE>
Jackson was chartered as a West Virginia Banking Corporation on April
1, 1889, and was originally located on Walnut Street in Ravenswood, West
Virginia. In 1958 the present quarters on Wall Street were first occupied.
As the only full-service commercial bank headquartered in Ravenswood,
Jackson provides a complete range of retail banking services to the
community's individuals and businesses. Jackson does not provide trust or
correspondent banking services.
F&M was incorporated in 1941 as a West Virginia Banking
Corporation with the name "Farmers and Merchants Bank of Cairo" and was
located in Cairo, West Virginia. In 1984 offices were rented at 1500 East
Main Street in Harrisville, West Virginia, to serve as a branch location.
In 1985, the main offices of F&M were moved from Cairo to the Harrisville
location, and the Cairo office continued as a branch facility. The
Harrisville offices were purchased by F&M in 1987. F&M is the smaller of
two banks in Harrisville, the county seat of Ritchie County. It offers
services normally offered by a full-service commercial bank, including all
types of deposit accounts and loans. It does not offer trust services or
correspondent banking services.
The Dime Savings Society of Marietta, Ohio, was converted to a
commercial bank, The Dime Bank, on May 1, 1972. At that time, The Dime
Savings Society of Marietta had moved from the former Dime Savings Society
Building at the corner of Front and Greene Streets to the corner of Second
and Putnam Streets in Marietta. On April 1, 1982, The Dime Bank of Ross
County, N.A. was merged into The Dime Bank. On December 31, 1983 The Dime
Bank sold its branch in Ross County, formerly The Dime Bank of Ross County,
N.A., to Kingston National Bank. On March 31, 1986, a group of forty-two
investors purchased one hundred percent of the stock of The Dime Bank from
American Bancorporation of Wheeling, West Virginia. The main offices of
The Dime Bank established a branch at Second and Butler Streets in
Marietta, Ohio. In February of 1981, The Dime Bank established a branch in
Devola, on State Route 60. A branch in Barlow, Ohio, at the intersection
of State Routes 339 and 501 was opened in November, 1995.
The Dime Bank is a State of Ohio bank and a member of the Federal
Reserve System. Its main operations are conducted at its offices at 200
Putnam Street in Marietta, Ohio, with drive-in banking services at each of
the two branches. The Dime Bank provides services normally offered by a
full-service commercial bank, but does not offer trust services and is not
active in correspondent banking services.
The Union Bank of Tyler County ("Union") was organized and
chartered under the laws of the State of West Virginia as "Tyler County
Bank" on February 18, 1947. The bank has been at its present location at
the corner of Fair and Dodd Streets in Middlebourne, West Virginia, since
1977. On January 1, 1984, the bank merged with Union National Bank of
Sistersville and was rechartered under the name "Union Bank of Tyler
County." Its main office remains in Middlebourne and the Sistersville
branch is the former main office of the merged Union National Bank. Union
operates as a full-service bank in both Middlebourne and Sistersville,
offering a wide range of financial services to retail and commercial
customers, including trust services.
The Community Bank ("Community") was organized and chartered as a
West Virginia banking corporation on September 30, 1936. It is located at
112 Collins Avenue, Pennsboro, West Virginia and operates a drive-through
facility on Masonic Avenue, also in Pennsboro. A new branch is opened in
1997 in Ellenboro, West Virginia. Community offers a wide range of
financial serves to retain and commercial customers in its local area,
although it does not offer trust or correspondent banking services.
The Bank of Paden City ("Paden City") was organized and chartered
under the laws of the State of West Virginia on May 14, 1976. Its
principal office is located at 4th and Main Streets in Paden City, West
Virginia. In December, 1984, Paden City opened a full-service branch on
State Route 2 in New Martinsville, West Virginia, referred to as the
Steelton Financial Center. Paden City offers the wide range of services
usually offered by a full-service commercial bank, but it does not offer
trust or correspondent banking services.
The Hometown Insurance Agency, Inc. ("Hometown Insurance") is a
wholly-owned subsidiary corporation chartered under the laws of West
Virginia on June 21, 1989. The agency was historically operated through
July 31, 1993, under provisions of the Federal Reserve Board's Regulation
Y, allowing a bank holding company to operate an insurance agency in a
place with a population of 5,000 or less. The insurance agency is
presently inactive, conducts no business and has no employees. The charter
exists to preserve the name.
21
<PAGE>
Hometown Finance Company was chartered June 13, 1997. It
acquired the assets of the Mid Ohio Valley Loan Company and opened for
business in St. Marys, West Virginia, on July 15, 1997. It provides
secured and unsecured consumer loans to customers in Pleasants County, West
Virginia, and nearby communities.
CommBanc Investments, Inc., was chartered on November 14, 1996.
It is a full-service broker/dealer which offers a varied line of financial
products to its customers. It began operations in October, 1997, in
Marietta, Ohio, and Parkersburg, West Virginia.
22
<PAGE>
CERTAIN BENEFICIAL OWNERS OF COMMERCIAL STOCK
Principal Shareholders
To the best of management's knowledge, the Commercial BancShares,
Inc., Employee Stock Ownership Plan (with 401(k) provisions) ("KSOP") is
the only holder or beneficial owner of more than 5% of Commercial Common
Stock. As of December 1, 1997, the KSOP held 169,612 shares of Commercial
Common Stock, representing 10.5% of the shares outstanding.
<TABLE>
<CAPTION>
Title Name and Address Amount and Nature of Percent of
of Class Beneficial Ownership Beneficial Ownership of Beneficial Ownership
-------- -------------------- -------------------- -----------------------
<S> <C> <C> <C>
Common Commercial BancShares, Inc. 169,612 10.5%
Employee Stock Ownership
Plan (with 401(k) Provisions
</TABLE>
Competition
The information with respect to competition is set forth in
Commercial's Annual Report on Form 10-K for the fiscal year ended December
31, 1996, and is incorporated herein by reference. See "Incorporation of
Certain Documents by Reference."
Commercial KSOP
The information with respect to the KSOP is set forth in
Commercial's Annual Report on Form 11-K for the fiscal year ended December
31, 1996 as is incorporated herein by reference. See "Incorporation of
Certain Documents by Reference."
Directors and Executive Officers
The information with respect to directors and executive officers of
Commercial is set forth in Commercial's Definitive Proxy Statement filed
pursuant to Section 14(a) of the Securities Act of 1934, filed on April 21,
1997, and is incorporated herein by reference. See "Incorporation of
Certain Documents by Reference."
Executive Compensation
The information with respect to executive compensation is set forth
in Commercial's Definitive Proxy Statement filed pursuant to Section 14(a)
of the Securities Act of 1934, on April 21, 1997, and is incorporated
herein by reference. See "Incorporation of Certain Documents by
Reference."
Certain Relationships and Related Transactions
The information with respect to certain relationships and related
transactions is set forth in Commercial's Definitive Proxy Statement filed
pursuant to Section 14(a) of the Securities Act of 1934, filed on April 21,
1997, and is incorporated herein by reference. See "Incorporation of
Certain Documents by Reference."
23
<PAGE>
THE MERGER
The following is a discussion of the material aspects of the proposed
transaction. It includes a summary of the terms of the Merger Agreement
and is qualified in its entirety by reference to the Agreement, which is
attached to this Prospectus/Proxy Statement as Annex A.
General
The Board of Directors of Gateway has determined that the Merger is
fair to and in the best interests of the stockholders of Gateway, and has
unanimously approved the Merger Agreement. Accordingly, the Board of
Directors of Gateway unanimously recommends that the stockholders of
Gateway, vote "FOR" approval of the Merger Agreement.
The Merger Consideration
In accordance with the terms of, and subject to the conditions set
forth in, the Merger Agreement, Gateway will be merged with and into CBG
Holding Company ("CBG Holding Company"), a wholly owned subsidiary of
Commercial which was chartered to facilitate the Merger. CBG Holding
Company will survive the Merger and will assume the name "Gateway
Bancshares, Inc." The Merger Agreement provides that at the Effective Time
each outstanding share of Gateway Stock (not including any shares held by
Commercial or a subsidiary thereof other than in a fiduciary capacity or in
satisfaction of a debt previously contracted) shall, by virtue of the
Merger and without any action on the part of the holder thereof, be
converted into the right to receive not less than 1.742 nor more than 2.129
shares of Commercial Stock. The exact number of Commercial Gateway
shareholders will be entitled to receive will be determined by dividing
80.00 by the average price reported on the American Stock Exchange for the
twenty (20) days preceding the Closing, provided such consideration shall
be paid for no more than 66,652 shares of Gateway Stock. In the event
there are no reported trades on any day during such twenty (20) day period,
then the closing price for such a day for purposes of calculating the
Average Price, shall be the closing price last reported on a date preceding
the date on which no trade occurred. If the Average Price quotient is less
than or equal to 1.742, the exchange ratio will be 1.742 and Gateway
shareholders will be entitled to receive 1.742 shares of Commercial Common
Stock. If such quotient is greater than or equal to 2.129, then the
exchange ratio will be 2.129 and Gateway shareholders will receive 2.129
shares of Commercial common stock for each share of Gateway stock they own.
No fractional shares of Commercial Stock will be issued in connection
with the Merger and, in lieu thereof, Gateway shareholders will be entitled
to receive cash for such fractional shares based on the Average Price of
Commercial stock. No shareholder will be entitled to dividends, voting
rights or any other rights in respect of any fractional shares. If the
outstanding shares of Commercial Stock are changed into a different number
or class by virtue of any reclassification, split, stock dividend, exchange
of shares or similar event, then the Exchange Ratio will be adjusted
proportionately. The issuance of Commercial Stock for other corporate
purposes, such as for other acquisitions or pursuant to stock option plans,
will not result in an adjustment to the Exchange Ratio. From and after the
consummation of the Merger, Gateway shareholders will cease to have any
rights with respect to such shares other than the right to receive the
Merger Consideration, and such shares will thereafter be deemed canceled
and void. The sole rights of such shareholders will be to receive the
Merger Consideration.
Exchange of Gateway Stock Certificates
Each holder of certificates representing shares of Gateway Stock
will, upon the surrender to Commercial, or its agent, of such certificates
in proper form, be entitled to receive a certificate or certificates
representing the number of whole shares of Commercial Stock into which the
surrendered certificates shall have been converted by reason of the Merger.
Until surrendered for exchange, each outstanding certificate of Gateway
Stock shall be deemed for all corporate purposes to evidence the ownership
of the full number of shares of Commercial Stock into which such shares
have been converted by reason of the Merger.
Until a Gateway shareholder's outstanding certificates have been
surrendered, Commercial may, at its sole discretion, withhold, with respect
to such Gateway shareholder, as applicable (i) the certificates
representing the shares of Commercial Stock into which such Gateway shares
are converted by reason of the Merger; and (ii) the distribution of any
and all dividends and payment for fractional shares with respect to the
Commercial Stock to which the Gateway shareholder
24
<PAGE>
is entitled. Upon the delivery to Commercial of the outstanding Gateway
certificates by a Gateway shareholder, there will be delivered to the
record holder thereof the certificate representing the shares of the
Commercial Stock to which the exchanging Gateway holder is entitled, along
with any dividends thereon and any payment for fractional shares, all
without interest.
Certificates evidencing Gateway Stock should not be returned to
Gateway with the enclosed proxy and should not be forwarded until after
receipt of a letter of transmittal which will be provided to Gateway
shareholders by Commercial's, transfer agent, upon consummation of the
Merger.
Background of and Reasons for the Merger
Reasons for the Merger - Commercial . In the opinion of the
Management of Commercial, the proposed transaction will be in the best
interests of Commercial shareholders. Commercial's Management and Board of
Directors view the proposed transaction as a desirable opportunity to add
new geographic markets and new product markets to the Commercial
organization. The Merger will expand Commercial's presence into the
northern panhandle of West Virginia.
Commercial's Board of Directors believes that the proposed Merger
will allow Commercial to combine its resources with those of Gateway,
thereby affording the resulting combined institution better opportunities
to complete with other financial and non-financial institutions (including
other commercial banks, thrift institutions, finance companies, credit
unions, money market mutual funds, brokerage firms, investment companies,
credit companies, insurance companies and retail stores that maintain their
own credit operations) in the markets in which Commercial and Gateway
subsidiary banks conduct their business. The Merger will provide Commercial
with a greater presence in the northern panhandle area of West Virginia
which will provide Commercial with an opportunity for future growth in that
market. In addition, the Merger will provide Commercial with a greater
presence in the other areas of West Virginia in which Commercial currently
conducts business, and will provide Commercial with an opportunity for
future growth in those markets. Moreover, the affiliation should permit a
greater investment in data processing systems, accounting and other support
services, as well as provide greater economies of scale. Benefits to the
combined entity will also be available through the elimination of
duplicative expenses.
Commercial will be able to offer a broader range of services than
those currently available to Gateway customers, in particular more
extensive trust services and sale of mutual funds, and the combined entity
will be able to offer a broader loan program and, through participation by
the subsidiary banks, to service larger loan transactions. In summary,
Commercial's Board of Directors believes that the Merger will enable both
Commercial's and Gateway's subsidiaries to better serve the financial needs
of their communities.
Reasons for the Merger- Gateway. From 1996 through mid-1997, Gateway
was contacted by and had preliminary discussions with certain financial
institutions or their holding companies regarding a possible combination
with or acquisition of Gateway. In connection with such preliminary
discussions, the Board of Directors and management of Gateway considered
the long-term ability of Gateway to grow in the very competitive banking
community of greater Wheeling and to provide its stockholders with the
returns necessary to remain an independent company. Further, the addition
of new products, services and branch locations were evaluated as a means to
facilitate deposit growth and enhance the franchise. Given the potential
negative earnings impact of additional products and services and the
uncertainty of ultimate success, the Board did not opt to follow this
route. The Board also considered the continued consolidation of the
banking industry and the fact that larger financial institutions are able
to compete more effectively for new customers.
As the directors considered the foregoing facts, the Board of
Directors determined to investigate the possible sale of Gateway, and in
February, 1997, Gateway retained the services of Charles Webb & Company, a
Division of Keefe, Bruyette & Woods, inc. ("Webb") to assist in such an
investigation.
Beginning in the second quarter of 1997, the Board of Directors
conducted through Webb a confidential inquiry into the possible interest of
five entities in pursuing a merger with or acquisition of Gateway. All
five entities expressed an interest and were provided with certain
information on Gateway, including financial statements, loan and deposit
summaries and other data, after signing a confidentiality agreements. In
May, 1997, Commercial and three other companies submitted preliminary, non-
binding indications of interest to acquire Gateway. One proposal was
substantially lower than the other three proposals and that potential
acquiror opted not to revise its proposal. Commercial and two other
companies
25
<PAGE>
then conducted extensive due diligence in June 1997 and revised
proposals were received from each of the three remaining companies in late
June. Commercial proposed a stock transaction with merger consideration
priced at $80.00 per share, with an exchange ratio not less than 1.742 nor
more than 2.129. The complete terms and conditions of the transaction are
described in the Merger Agreement, a copy of which is attached as Annex A.
Two other all stock proposals were received, priced at $79.46 and $79.31,
respectively.
From mid-July until mid-August, the management of Gateway reviewed
and revised several drafts of the merger agreement with the assistance of
its legal counsel and investment banker. The terms of the Merger Agreement
were reviewed in detail and actively negotiated at several board meetings
during this period. After consideration of all factors deemed relevant and
in conjunction with advice from Gateway's financial and legal advisors, the
Board of Directors determined that the proposed merger with Commercial was
in Gateway's best interests and the best interests of Gateway's
stockholders and unanimously approved the Merger. Commercial and Gateway
executed the Merger Agreement on August 15, 1997 and publicly announced the
transaction on such date.
Reasons for the Merger. The terms of the Merger Agreement, including
the Merger Consideration to be paid to Gateway's shareholders, were the
result of arm's length negotiations between the representatives of
Commercial and Gateway. Among the factors considered by the Board of
Directors of Gateway in deciding to approve and recommend the terms of the
Merger were (1) the Merger Consideration to be paid to Gateway's
shareholders in relation to the market value, book value, earnings per
share and dividend rates of Gateway Common Stock, (ii) information
concerning the financial condition, results of operations, capital levels,
asset quality and prospects for Gateway, (iii) industry and economic
conditions, (iv) the impact of the Merger on the depositors, employees,
customer and communities served by Gateway, (v) the opinion of Gateway's
financial advisor as to the fairness of the Merger Consideration from a
financial point of view to the holders of Gateway Common Stock, (vi) the
general structure of the transaction and the compatibility of management
and business philosophy, (vii) the likelihood of receiving the requisite
approvals in a timely manner, and (viii) the ability of the combined
enterprise to compete in relevant banking and non-banking markets. In
making its determination , the Board of Directors of Gateway did not
ascribe relative weights to the factors which it considered.
The Board of Directors of Gateway believes that the Merger is in the
best interests of Gateway and its stockholders. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE APPROVAL OF THE
MERGER AGREEMENT.
26
<PAGE>
Opinion of Financial Advisor
In February, 1997, Webb was retained by Gateway to evaluate Gateway's
strategic alternatives as part of a stockholder enhancement program and to
evaluate any specific proposals that might be received regarding an acquisition
of Gateway. Webb, as part of its investment banking business, is continuously
engaged in the evaluation of businesses and securities in connection with
mergers and acquisitions, negotiated underwritings, and distributions of listed
and unlisted securities. Webb is familiar with the market for common stock of
publicly traded banks, savings institutions and bank and savings institution
holding companies. The Board of Directors of Gateway selected Webb on the basis
on the firm's reputation and its experience and expertise in transactions
similar to the Merger. Except as described herein, Webb is not affiliated with
Gateway, Commercial or their respective affiliates.
Pursuant to its engagement, Webb was asked to render an opinion as to
the fairness, from a financial point of view, of the Merger Consideration to the
stockholders of Gateway. Webb delivered a fairness opinion dated as of August
15, 1997 to the Board of Directors of Gateway that the Merger Consideration is
fair to the stockholders of Gateway from a financial point of view. No
limitations were imposed by Gateway upon Webb with respect to the investigations
made or procedures followed by Webb in rendering its opinion. Webb has consented
to the inclusion herein of the summary of its opinion to the Board of Directors
of Gateway and to the entire opinion being attached hereto as Annex B.
The full text of the opinion of Webb, updated as of the date of the
Proxy Statement, which sets forth certain assumptions made, matters considered
and limitations on the reviews undertaken, is attached as Annex B to the Proxy
Statement and should be read in its entirety. The summary of the opinion of Webb
set forth in this Proxy Statement is qualified in its entirety by reference to
the opinion. Such opinion does not constitute a recommendation by Webb to any
Gateway shareholder as to how such shareholder should vote with respect to the
Merger. The opinion does not give effect to or consider the impact of the
WesBanco transaction.
In rendering its opinion, Webb (i) reviewed the financial and business
data supplied to it by Gateway, including Gateway's Annual Report and Proxy
Statement for the year ended December 31, 1996; (ii) reviewed unaudited
quarterly results for the quarters ended March 31 and June 30, 1997; (iii)
discussed with senior management and the Boards of Directors of Gateway and Bank
of McMechen the current position and prospective outlook for Gateway; (iv)
considered historical quotations, lack of an active market for the common shares
of Gateway and the prices of the few recorded transactions that have taken place
in Gateway common stock over the last few years; (v) reviewed the financial and
stock market data of other financial institutions, particularly in the Midwest
region of the United States, and the financial and structural terms of several
other recent transactions involving mergers and acquisitions of financial
institutions or proposed changes of control of comparably situated companies;
and (vi) reviewed certain other information which it deemed relevant.
In rendering its opinion, Webb assumed and relied upon the accuracy and
completeness of the information provided to it by Gateway and Commercial and
obtained by it from public sources. In its review, with the consent of the
Gateway Board, Webb did not undertake any independent appraisal or evaluation of
the assets and liabilities of Gateway or Commercial, or of potential or
contingent liability of Gateway or Commercial. With respect to the financial
information, including forecasts and asset valuations received from Gateway,
Webb assumed (with Gateway's consent) that such information had been reasonably
prepared reflecting the best currently available estimates and judgment of
Gateway's management. Webb also assumed that no restrictions or conditions would
be imposed by regulatory authorities that would have a material adverse effect
on the contemplated benefits of the Merger to Gateway or the ability to
consummate the Merger.
Webb's review of comparable transactions included the compilation of
pending or recently completed acquisitions of banks. The results of the analysis
are summarized below along five industry-accepted ratios. The information in the
following table summarizes the material information analyzed by Webb with
respect to the Merger. The summary does not purport to be a complete description
of the analysis performed by Webb in rendering its opinion. Selecting portions
of Webb's analysis or isolating certain aspects of the comparable transactions
without considering all analyses and factors could create an incomplete or
potentially misleading view of the evaluation process.
27
<PAGE>
SUMMARY OF SELECTED M&A TRANSACTIONS
WHERE THE TARGET IS A BANK INSTITUTION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Price to
- -----------------------------------------------------------------------------------------------------------------------------------
Tangible LTM Core Dep
Book EPS Assets Deposits Premium
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
M&A Group 1 - All deals completed and/or pending as of 1/31/97
Completed (n=71)
Average 168.8% 15.0x 16.2% 18.8% 11.7%
Median 191.2% 16.8x 17.6% 19.5% 10.7%
Pending (n=60)
Average 217.1% 18.0x 18.3% 21.2% 13.3%
Median 216.4% 17.2x 18.3% 21.2% 12.4%
M&A Group 2 - Purchase value between $3 million and $10 million
Completed (n=20)
Average 180.4% 17.4x 15.2% 17.3% 7.9%
Median 173.6% 13.1s 14.5% 16.0% 6.6%
Pending (n=9)
Average 181.6% 14.7x 16.3% 18.8% 8.6%
Median 158.7% 14.7x 15.4% 17.1% 7.8%
M&A Group 3 -Target bank asset size between $25 million and $50 million
Completed (n=20)
Average 195.7% 15.4x 17.4% 19.9% 10.4%
Median 180.4% 13.0x 16.0% 18.9% 9.9%
Pending (n=18)
Average 178.2% 16.6x 19.3% 22.3% 10.8%
Median 163.3% 17.0x 16.2% 18.4% 9.6%
M&A Group 4 -Target tangible equity/assets between 9% and 11%
Completed (n=28)
Average 226.4% 18.5x 18.5% 22.6% 16.9%
Median 220.1% 17.1x 17.1% 22.8% 16.6%
Pending (n=21)
Average 183.6% 17.2x 18.6% 21.7% 11.1%
Median 170.7% 17.0x 16.6% 18.8% 8.2%
M&A Group 5 -Target located in Midwest Region
Completed (n=42)
Average 195.6% 20.1x 21.1% 25.6% 13.1%
Median 178.4% 18.5x 22.4% 26.0% 11.8%
Pending (n-18)
Average 199.3% 18.3x 19.1% 22.4% 12.5%
Median 179.3% 16.3x 18.9% 21.8% 10.4%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
In its analysis of comparable transactions, Webb evaluated each pricing
ratio against the proposed pricing analysis of Commercial's acquisition of
Gateway. Slightly more weight was given to the price to tangible book value
ratio, the price to last twelve month earnings per share and the core deposit
premium ratio. At a current stock price for Commercial of $82.00 per share, the
acquisition of Gateway prices out at (this will be updated as of the date of the
Proxy Statement) an implied sale price of $142.85 and pricing ratios as follows:
281% price to tangible book value per share, 32.5 price earnings ratio and 22%
core deposit premium.
In preparing its analysis, Webb made numerous assumptions with respect
to industry performance, business and economic conditions and other matters,
many of which are beyond the control of Webb and Gateway. The analyses performed
by Webb are not necessarily indicative of actual values or future results, which
may be significantly more or less favorable than suggested by such analyses and
do not purport to be appraisals or reflect the prices at which a business may be
sold.
In February 1997, Gateway engaged Webb to, among other things, assist
Gateway in determining appropriate and desirable values that could be realized
in a merger, prepare a summary of recent merger and acquisition trends in the
financial services industry, advise Gateway as to the structure and form of any
proposed merger, and render an opinion as to the fairness of the consideration
to be paid in any proposed merger. Gateway agreed to pay Webb a fee of $25,000
for delivery of a fairness opinion, which fee was paid in September, 1997.
Further, Gateway agreed to pay Webb a "Success Fee" in the event of the
consummation of a merger, plus reasonable out-of-pcoket expenses not to exceed
$5,000, related to Webb's work, and an additional amount not to exceed $3,000
related to Webb's counsel fees. The "Success Fee" to be paid to Gateway is
$100,000 less the fee paid for the fairness opinion. Gateway has further agreed
to indemnify Webb and its affiliates, and their respective directors, officers
and employees and each such other person controlling Webb or any of its
affiliates from and against certain claims and liabilities.
Certain Federal Income Tax Consequences
General. The following is a summary description of the material
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federal income tax consequences of the Merger to shareholders of Gateway. This
summary is not a complete description of all of the consequences of the Merger
and, in particular, may not address federal income tax considerations that may
affect the treatment of a shareholder which, at the Effective Time, already owns
some Commercial Stock, is not a U.S. citizen, is a tax-exempt entity or an
individual who acquired Gateway Stock pursuant to an employee stock option, or
exercises some form of control over Gateway. In addition, no information is
provided herein with respect to the tax consequences of the Merger under
applicable foreign, state or local laws. Consequently, each shareholder of
Gateway is urged to consult a tax advisor as to the specific tax consequences of
the transaction to that shareholder. The following discussion is based on the
Internal Revenue Code, as in effect on the date of this Prospectus/Proxy
Statement, without consideration of the particular facts or circumstances of any
holder of Gateway Stock. There are certain conditions that must be met in order
for the transaction to result in the tax consequences described herein and in
the opinion. The full text of the opinion is attached to this Prospective Joint
Proxy Statement at Annex E. This summary is qualified in its entirety by
reference to the more detailed discussion in the attached opinion.
The Merger. Gateway has received an opinion from Bowles Rice McDavid
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Graff & Love, P.L.L.C., special counsel to Gateway, to the effect that, assuming
the Merger is consummated, the material federal income tax consequences of the
Merger to the shareholders of Gateway will be as follows:
No gain or loss will be recognized to shareholders of Gateway upon
the exchange of their Gateway Stock solely for shares of Commercial Stock
(excluding cash received for any fractional share interest to which they may be
entitled) pursuant to the Merger. The basis of the Commercial Stock to be
received by a Gateway shareholder receiving solely Commercial Stock will be the
same as his or her basis in the Gateway Stock surrendered in exchange therefor.
The holding period of the shares of Commercial Stock to be received by a Gateway
shareholder receiving solely Commercial Stock will include the period during
which such Gateway shareholder held the Gateway Stock surrendered in exchange
therefor, provided the surrendered Gateway Stock was held by such shareholder as
a capital asset on the date of the Merger.
Shareholders of Gateway will receive cash in lieu of a fractional
share of Commercial Stock and such fractional share interest will be treated as
if the shareholders actually received the fractional share from Commercial and
then Commercial redeemed it for cash. Such cash payments will be treated by the
former Gateway shareholders as having been received as full payment in exchange
for the fractional share interests so redeemed. Gain or loss will be realized
and recognized by each such
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Gateway shareholder equal to the difference between the amount of cash received
for the fractional share and the tax basis of the fractional share. If the
fractional share is a capital asset in the hands of a Gateway shareholder, then
the gain or loss recognized should constitute a capital gain or loss.
Each party's obligation to effect the Merger is conditioned on the
delivery of an opinion to Gateway from Bowles Rice McDavid Graff & Love,
P.L.L.C., with respect to the foregoing federal income tax consequences of the
Merger. Such opinion will be dated as of _____________, 1998, based upon certain
customary representations and assumptions set forth therein, with respect to
certain federal income tax consequences of the Merger.
THE MERGER MAY HAVE CONSEQUENCES AFFECTING TAXES OTHER THAN THE FEDERAL
INCOME TAX CONSEQUENCES DISCUSSED ABOVE. SHAREHOLDERS ARE URGED TO CONSULT THEIR
TAX ADVISORS CONCERNING ALL TAX CONSEQUENCES OF THE CONSUMMATION OF THE MERGER
AS IT RELATES TO THEIR OWN CIRCUMSTANCES, INCLUDING BUT NOT LIMITED TO,
CONSEQUENCES UNDER FEDERAL, STATE AND LOCAL INCOME TAX AND OTHER TAX LAWS.
Conditions to Consummation of the Merger
The Merger Agreement provides that consummation of the Merger is subject
to the satisfaction of certain conditions, or the waiver of such conditions by
the party or parties entitled to do so, at or before the Effective Time. Each of
the parties' obligations under the Merger Agreement is subject to the following
conditions: (i) Before the closing, Gateway shall have obtained the approval,
ratification and confirmation of the Merger Agreement and the transactions
contemplated therein by the requisite vote of its shareholders, as required by
law and by any applicable provision of its articles of incorporation and bylaws
(in the case of Gateway); (ii) Commercial shall have caused the organization and
chartering of CBG and CBG shall have executed the Adoption Agreement; (iii) no
order to restrain, enjoin or otherwise prevent the consummation of the
transactions contemplated in the Merger Agreement shall have been entered by any
court or administrative body which remains in effect on the Merger Effective
Date; (iv) there shall have been obtained by the Merger Effective Date any and
all permits, approvals and consents of every governmental body or regulatory
authority which are necessary or appropriate so that consummation of the
transactions contemplated in this Agreement shall be in compliance with all
applicable laws, including, without limitation, those of the Federal Reserve
Board ("FRB") and the West Virginia Board of Banking and Financial Institutions
(the "West Virginia Board") and any other governmental or regulatory authority
with jurisdiction over the transaction; (v) all of the representations and
warranties of the parties contained in the Merger Agreement shall be true in all
material respects at and as of the Merger Effective Date with the same force and
effect as if they had been made at and as of such dates (except for changes
contemplated and permitted by the Merger Agreement or otherwise consented to in
writing by the appropriate party to the Merger Agreement) and each party shall
have complied with and performed, in all material respects, all of the
agreements contained in the Agreement to be performed by it at or before the
Merger Effective Date. At the Closing, each party shall have received from the
other party to the Agreement, a certificate, in affidavit form, dated as of the
date of the Closing, signed by each party's chief executive officer and chief
financial officer, certifying that the foregoing statements made in this section
are true and correct to the best of their knowledge and belief; (vi) the
Registration Statement to be filed by Commercial with the Securities and
Exchange Commission shall be declared effective on or before the date of the
Closing. No order suspending the effectiveness thereof shall have been issued
which remains in effect on the date of the Closing, and no proceedings for that
purpose shall, before the Closing, have been initiated or, to the best knowledge
of Commercial, threatened. All state securities and "blue sky" permits or
approvals required to carry out the transactions contemplated in the Merger
Agreement shall have been received to permit free trading of the Commercial
stock issued to the non-affiliate Gateway shareholders; (vii) Commercial and
Gateway shall each execute mutually agreed upon confidentiality agreements;
(viii) all criteria to assure the tax-free exchange of Gateway stock for
Commercial stock must be met; and (ix) all criteria for the Merger to be
accounted for under the pooling of interest method of accounting shall have been
met, and no party to the Merger Agreement shall knowingly take action which
would have the effect of disqualifying the Merger under the pooling of interests
method of accounting.
In addition to the foregoing conditions, the obligations of
Commercial under the Merger Agreement are conditioned upon (i) receipt by
Commercial of an opinion of counsel for Gateway dated as of the Merger Effective
Date; and (ii) receipt by Commercial of an agreement, executed and delivered by
each shareholder of Gateway who, in the reasonable opinion of Commercial, may be
deemed an affiliate of Gateway as that term is defined in Rule 145 promulgated
by the Securities and Exchange Commission.
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In addition to the other conditions set forth above, Gateway's
obligations under the Agreement are conditioned upon (i) receipt by Gateway of
the opinion of counsel to Commercial; (ii) on or before the Closing, receipt by
Gateway of an opinion from Bowles Rice McDavid Graff & Love, P.L.L.C.,
Charleston, West Virginia in a form reasonably satisfactory to Gateway's counsel
concerning the tax consequences of the transaction; and (iii) the board and
shareholders of Gateway shall have received the opinion of Charles Webb &
Company, that the transaction is fair, from a financial perspective, to the
shareholders of Gateway. As of the date of these proxy materials, the following
conditions have been met: (i) Commercial has caused the organization and
chartering of CBG Holding Company and CBG Holding Company has executed the
Adoption Agreement (ii) Gateway shareholders have received an opinion of Bowles
Rice McDavid Graff & Love, P.L.L.C. concerning the tax consequences of the
Merger. The Bowles Rice opinion is attached as Annex D and (iii) the Board and
shareholders of Gateway have received the opinion of Charles Webb & Company that
the transaction is fair from a financial perspective, to the shareholders of
Gateway. Charles Webb & Company's opinion is attached as Annex B.
Regulatory Approvals
Consummation of the Merger is subject to prior receipt of all required
approvals, consents or waivers of the Merger by all applicable federal and state
regulatory authorities. In order to consummate the Merger, Commercial and
Gateway must obtain the prior consent, approval or waiver, as applicable, of the
FRB and the West Virginia Board of Banking and Financial Institutions (the "West
Virginia Board").
Business Pending the Merger
Pursuant to the Merger Agreement, Gateway has agreed that between the
date of the Merger Agreement and the Merger Effective Date, it will:
(a) take no action, and not permit any action to be taken, which
will have a material adverse effect upon Gateway or its subsidiary, or their
respective properties, financial condition, businesses or operations, including,
without limitation, the commencement of any new branch banking operation;
(b) take no action or do anything (i) which will cause Gateway
or its subsidiary to be, as of the Merger Effective Date, in violation of any of
their respective representations, warranties, covenants and agreements contained
in the Merger Agreement or (ii) which will materially and adversely affect the
consummation of the transactions contemplated in the Merger Agreement;
(c) take no action to reclassify or alter Gateway's authorized
stock, to issue shares of capital stock, debt instruments, or other securities,
or to amend the Articles of Incorporation or Bylaws of Gateway or its
subsidiary;
(d) not pay or declare any dividend or make any other
distribution in respect of Gateway's shares of common stock or acquire for value
any of such shares or pay any dividend, except as permitted herein;
(e) take no action, and not permit any action to be taken, to
mortgage, pledge or subject to any lien or any other encumbrance on any of
Gateway's material assets, to dispose of any material assets, or to incur or
cancel any material debt or claim, except in the ordinary course of business as
heretofore conducted;
(f) afford to the officers, attorneys, accountants, and other
authorized representatives of Commercial full access to the respective
properties, books, tax returns and records of Gateway or its subsidiary, during
normal business hours and upon reasonable request, in order that they may make
such investigations of the affairs of Gateway or its subsidiary as Commercial
deems necessary or advisable;
(g) promptly advise Commercial of any material adverse change in
the financial condition, assets, businesses or operations of Gateway or its
subsidiary and any material breach of any representation, warranty, covenant or
agreement made by Gateway in the Merger Agreement;
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(h) maintain in full force and effect adequate fire, casualty,
public liability, employee fidelity and other insurance coverage in accordance
with prudent practices to protect Gateway or its subsidiary against losses for
which insurance protection can be obtained at reasonable cost;
(i) take no action, and take such reasonable steps as are
practicable to avoid any action to be taken, to change the senior management of
Gateway, to increase any compensation, benefits, or fees payable by Gateway to
their respective directors and officers, employees, or former employees, or to
increase any loans, insurance, pension or other employee benefit plan, payment
or arrangement for such officers, directors, employees; provided, however, that
Gateway and its subsidiary may: (i) make such increase in salary or wages as may
be required by law, and (ii) at the time of its regular periodic compensation
adjustments make increases in salaries and wages in amounts not to exceed three
percent (3%) of any individual's salary or wage rate.
(j) take no action (i) to acquire, or to be acquired by, to
merge or merge with, any company or business, (ii) to sell substantially all of
Gateway's or its subsidiary's assets, or to enter into similar transaction other
than pursuant to the provisions of the Merger Agreement, or (iii) to acquire any
branch, or, except in the ordinary course of business, any material assets of
any other company or business;
(k) take no material action, and not permit any material action
to be taken, whatsoever with respect to its properties, assets, businesses or
operations, other than in the ordinary course of its business;
(l) continue to fund the loan loss reserve consistent with
current practice so that as of the Merger Effective Date it is not less than
$225,000, less any amounts recovered from previously charged-off loans; and in
addition Gateway agrees that it will (i) properly and timely charge-off any loan
losses, as required by any applicable regulatory agency and prudent banking
practices, and (ii) at the time of any such charge-off, Gateway will make a
provision to the loan loss reserve equal to the amount of the loss, less the
specific amount allocated in the reserve, if any, relating to the charged-off
loan (such specific amounts having been previously identified in writing by loan
and amount). The requirements of this subparagraph (l) are qualified in that
Gateway is not obligated to take the actions set forth if such action will cause
Gateway to report a loss in any quarter; in such case Gateway shall fulfill the
foregoing requirements to the extent possible without producing a loss. The
requirements of this subparagraph shall not be construed to preclude the payment
of bonuses otherwise expressly authorized herein;
(m) make no loans including but not limited to any extension,
renewal, modification or refinancing of an existing loan, in excess of $150,000,
without Commercial's prior written consent, which will not be unreasonably
withheld; and
(n) not sell, trade or purchase any securities in its investment
portfolio without prior consent of Commercial's Treasurer, which will not be
unreasonably withheld.
Commercial, as a bank holding company, in the normal conduct of its
business, may acquire other banks or bank holding companies or engage in certain
nonbanking activities which are closely related to banking, all as permitted
under federal and state law. Accordingly, Commercial may continue to seek and
consider such opportunities and will not be restrained from doing so by the
terms of the Merger Agreement. In the event that Commercial should reach an
understanding with another entity regarding a merger, purchase or consolidation,
Commercial may proceed with a merger, purchase or consolidation concurrently
with the acquisition by the merger contemplated by the Agreement.
Notwithstanding the foregoing, unless the prior written consent of
Gateway is obtained between the date of the Merger Agreement and the Effective
Time of the Merger, Commercial will:
(a) take no action, and not permit any action to be taken, by it
or its subsidiaries, which will have a material adverse effect upon its
properties, financial condition, businesses or operations;
(b) take no action or do anything (i) which will cause it or CBG
to be in violation of their representations, warranties, covenants and
agreements contained in this Agreement or (ii) which will materially and
adversely affect the consummation of the transaction contemplated in this
Agreement;
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(c) promptly advise Gateway of any material adverse change in
the financial condition, assets, businesses or operations of Commercial and any
breach of any representation, warranty, covenant or agreement made by
Commercial, or CBG in this Agreement;
(d) maintain in full force and effect adequate fire, casualty,
public liability, employee fidelity and other insurance coverage in accordance
with prudent practices to protect fully Commercial and its subsidiaries against
losses for which insurance protection can reasonably be obtained; and
(e) afford to the officers, attorneys, accountants, and other
authorized representatives of Gateway full access to the respective properties,
books and records of Commercial, during normal business hours and upon
reasonable request, in order that they may make such investigations of the
affairs of Commercial as it deems necessary or advisable.
Commercial and Gateway and their respective affiliates have agreed to
use all information that each obtains from the other pursuant to the Merger
Agreement solely for the effectuation of the transactions contemplated by the
Merger Agreement or for purposes consistent with the intent of the Merger
Agreement, and shall not use any of such information for any other purpose,
including, without limitation, the competitive detriment of any party. Each of
the parties to the Merger Agreement and their respective affiliates shall
maintain as strictly confidential all information it learns from another of the
parties to the Merger Agreement and shall, at any time, upon request, return
promptly all documentation provided or made available to it or to third parties.
Each of the parties may disclose such information to its respective affiliates,
counsel, accountants, tax advisers, and consultants.
Effective Time of the Merger; Termination and Amendment
The Effective Time of the Merger shall be the date and time of the
filing of articles of merger with the Secretary of State of West Virginia,
unless a different date and time is specified as the effective time in such
articles of merger and certificate of merger. The Effective Time shall be as set
forth in such articles of merger and certificate of merger, which will be filed
only after the receipt of all requisite regulatory approvals of the Merger,
approval of the Merger Agreement by the requisite vote of Gateway shareholders
and the satisfaction or waiver of all other conditions to the Merger and the
Bank Merger.
The Merger Agreement may be terminated, either before or after approval
by the shareholders of Gateway and Commercial, as follows:
(a) By mutual consent of the Board of Directors of Commercial
and Gateway as evidenced by a majority vote of each of their respective Boards
of Directors; or
(b) By Commercial if any of the conditions required to be
satisfied by Gateway specified in Sections 4.1 and 4.2 of the Merger Agreement
shall not have been satisfied within the time contemplated by this Agreement for
consummation of this transaction; or
(c) By Gateway if any of the conditions required to be satisfied
by Commercial specified in Section 4.1 and 4.3 of the Merger Agreement shall not
have been satisfied within the time contemplated by this Agreement for
consummation of the transactions; or
(d) By any party if the Merger will violate any nonappealable
final order, decree or judgment of any court of governmental body which binds
any party.
In any event, the obligations of the parties under this Agreement shall
terminate March 31, 1998, if the Closing have not occurred before that date,
unless the parties hereto mutually agree in writing to an extension of the time
within which to close.
The Agreement may be amended by mutual consent of the Board of Directors
of Commercial and Gateway, evidenced by a majority vote of each of their
respective Boards of Directors, at any time before or after approval thereof by
the shareholders; but, after any such shareholder approval, no amendment shall
be made to this Agreement which substantially and adversely changes the terms of
the particular agreement without obtaining the further approval of the
respective shareholders of that
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party. The Agreement may not be amended except by an instrument in writing duly
executed by the appropriate officers on behalf of each of the parties hereto.
Interests of Certain Persons in the Merger and the WesBanco Merger
Certain members of the Board of Directors of Gateway who are executive
officers of Gateway may be deemed to have interests in the Merger in addition to
their interests as stockholders generally, as discussed below. The Board of
Directors of Gateway was aware of these factors and considered them, among other
matters, in approving the Merger Agreement and the transactions contemplated
thereby.
Pursuant to the Merger Agreement, if the WesBanco Merger is not
consummated, Commercial has agreed to appoint to the Board of Directors of
Commercial one representative from Gateway, to be selected by Gateway and
approved by Commercial.
In addition, the current Board of Directors of the Bank of McMechen will
continue to constitute a majority of its Board of Directors for at least two (2)
years from the Closing, unless any such member shall resign, die or be removed
for cause. Commercial shall select up to two (2) additional representatives to
serve on the Board of Directors.
Michael E. Moore entered into an Employment Continuity Agreement with
Commercial effective as of the Closing pursuant to which Mr. Moore will be
employed by Commercial for three (3) years. Linda Miller entered into a Change
in Control Agreement with Commercial pursuant to which, subject to certain
conditions, she will be employed by Commercial in the event of a change in
control of Commercial.
On September 30, 1997, Gateway, Commercial and WesBanco entered into a
First Amendment Agreement (the "First Amendment") whereby the Merger Agreement
was amended in anticipation of the WesBanco Merger. Under the First Amendment,
if the WesBanco Merger is consummated, as of the effective date of the Merger of
Commercial with and into CBI Holding Co., Inc., a wholly-owned subsidiary of
WesBanco, McMechen will be merged with and into WesBanco Bank Wheeling, a
wholly-owned subsidiary of WesBanco. Under the First Amendment, the current
Board of Directors of McMechen will be entitled to serve as members of an
Advisory Board to WesBanco Bank Wheeling for a two-year period. Each such
director will be entitled to receive a monthly director fee while serving on the
Advisory Board equal to the monthly amount currently being received by such
director.
Under the First Amendment, if the WesBanco Merger is consummated, it is
further agreed that upon acquisition of Commercial, Michael E. Moore will be
President of the Marshall County branches of WesBanco reporting to the Chief
Executive Officer or Chief Operating Officer of WesBanco Bank Wheeling, and
Linda Miller will be Vice President of the Marshall County branches of WesBanco
reporting to Mr. Moore. Mr. Moore and Ms. Miller will perform substantially the
same functions, duties and responsibilities as are currently being performed by
them for McMechen. See "Interests of Certain Persons in the Merger and the
WesBanco Merger."
The WesBanco Merger Agreement provides that William E. Mildren, Jr.,
Robert K. Tebay, James W. Swearingen and Larry G. Johnson, directors of
Commercial, or directors of one of Commercial's affiliate banks, will become
directors of WesBanco on the WesBanco Effective Date. In addition, it is a
condition of the WesBanco Merger that William E. Mildren, Jr., Larry G. Johnson,
W. Bryan Pennybacker, James A. Meagle, Jr., C. Randall Law and Thomas M.
Lookbaugh enter into Employment Agreements with WesBanco.
Resale of Commercial Stock
The Commercial Stock issued pursuant to the Merger will be freely
transferable under the Securities Act, except for shares issued to any Gateway
shareholder who may be deemed to be an affiliate of Commercial for purposes of
Rule 144 promulgated under the Securities Act ("Rule 144") or an affiliate of
Gateway for purposes of Rule 145 promulgated under the Securities Act ("Rule
145") (each an "Affiliate"). Affiliates will include persons (generally
executive officers, directors and 10%
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shareholders) who control, are controlled by or are under common control with
(i) Commercial or Gateway at the time of the Gateway Special Meeting or (ii)
Commercial at or after the Effective Time.
Rules 144 and 145 will restrict the sale of Commercial Stock received in
the Merger by Affiliates and certain of their family members and related
interests. Generally speaking, during the one year following the Effective Time,
those persons who are Affiliates of Commercial at or following the Effective
Time, may publicly resell any Commercial Stock received by them in the Merger,
subject to certain limitations as to, among other things, the amount of
Commercial Stock sold by them in any three-month period and as to the manner of
sale. After the one-year period, such Affiliates may resell their shares without
such restrictions so long as there is adequate current public information with
respect to Commercial as required by Rule 144. Persons who are Affiliates of
Commercial after the Effective Time may publicly resell the Commercial Stock
received by them in the Merger subject to similar limitations and subject to
certain filing requirements specified in Rule 144.
The ability of Affiliates to resell shares of Commercial Stock received
in the Merger under Rule 144 or 145 as summarized herein generally will be
subject to Commercial's having satisfied its Exchange Act reporting requirements
for specified periods prior to the time of sale. Affiliates also would be
permitted to resell Commercial Stock received in the Merger pursuant to an
effective registration statement under the Securities Act or another available
exemption from the Securities Act registration requirements. This
Prospectus/Proxy Statement does not cover any resales of Commercial Stock
received by persons who may be deemed to be Affiliates of Commercial or Gateway
in the Merger.
Expenses of the Merger
The Merger Agreement provides that each party thereto shall each bear
and pay all costs and expenses incurred by it in connection with the
transactions contemplated by the Merger Agreement, including fees and expenses
of its own financial consultants, accountants and counsel.
Accounting Treatment
Under generally accepted accounting principles, it is anticipated that
the Merger will be accounted for under the pooling method of accounting. Under
this method of accounting, the recorded assets and liabilities of Commercial and
Gateway will be carried forward to Commercial at their recorded amounts; income
of Commercial will include income of Commercial and Gateway for the entire
fiscal year in which the Merger occurs; and the reported income of the separate
corporations for prior periods will be combined and restated as income of
Commercial. There are however, certain criteria that must be met before a
transaction may be accounted for as a pooling of interests. Two of these
criteria are:
One combining entity must offer and issue stock with rights identical to
those of the majority of its outstanding voting common stock in
exchange for 90% or more of the voting common stock of the combining
entity.
Each of the combining entities is precluded from reacquiring shares of
its own voting common stock for purposes of affecting a business
combination. Generally, all treasury shares of the combining entities
acquired during the two year period immediately preceding the date the
plan of combination is initiated are presumed to have been purchased
in contemplation of effecting a business combination. Treasury shares
so acquired are said to be "tainted". Generally accepted accounting
principles require that in connection with a business combination any
"tainted" treasury shares are to be combined with all shares acquired
other than by the exchange of stock for purposes of applying the 90%
test discussed above.
Failure to meet any one of these criteria could eliminate the
availability of the pooling of interests method of accounting. A transaction
that does not qualify for the pooling of interests method of accounting is
required to be accounted for as a purchase. Under the purchase method of
accounting, the historical value of certain assets and liabilities of the
acquired entity are to be adjusted to their estimated fair values.
As of September 30, 1997, Gateway holds 4,628 treasury shares.
However, all treasury shares held were purchased prior to the two year period
preceding the date the plan of combination was initiated. Therefore, the
percentage of Commercial and
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Gateway shares that may be acquired for cash as a result of dissenters
exercising their rights or for the payment of fractional shares is limited to
10% of the equivalent shares of Commercial common stock proposed to be issued in
consideration of this transaction.
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THE WESBANCO MERGER AGREEMENT
Following is a summary of the material terms of the WesBanco Merger
Agreement. Such summary is qualified in its entirety by reference to the
WesBanco Merger Agreement which will be circulated to Gateway shareholders in a
Joint Proxy Statement/Prospectus prepared in connection with the WesBanco
Merger. Shareholders of Gateway who do not dissent from the Merger will be
entitled to vote on the WesBanco Merger and will receive proxy materials
including a more detailed discussion of the WesBanco Merger in connection with
the vote thereon at a later date.
The WesBanco Merger
The WesBanco Merger Agreement provides that, following the approval and
adoption of the WesBanco Merger Agreement and the transactions contemplated
thereby by the shareholders of WesBanco and of Commercial, and the satisfaction
or waiver of the other conditions to the Merger, Commercial will be merged with
and into CBI, with CBI as the corporation surviving the Merger.
If all such conditions to the Merger are satisfied or waived,
the WesBanco Merger will become effective at the WesBanco Effective Time (as
defined below). At the WesBanco Effective Time, the Articles of Incorporation
and the Bylaws of CBI immediately prior to the WesBanco Merger will constitute
the Articles of Incorporation and Bylaws of the corporation surviving the
WesBanco Merger.
Conversion of Securities
Upon consummation of the WesBanco Merger, pursuant to the WesBanco
Merger Agreement, each share of Commercial Common Stock issued and outstanding
immediately prior to the effective time of the WesBanco Merger (the "WesBanco
Effective Time")(except for shares of Commercial Common Stock issued and held in
treasury of Commercial or beneficially owned by CBI or WesBanco, other than in a
fiduciary capacity, and shares as to which dissenters rights are exercised in
accordance with the West Virginia Corporation Act), will be converted into and
become, without action on the part of the holder thereof, the right to receive
2.85 shares of WesBanco common stock ("WesBanco Common Stock"), having equal
rights and privileges with respect to all other WesBanco Common Stock issued and
outstanding as of the Effective Time of the Merger. No fractional shares of
WesBanco Common Stock will be issued in connection with the Merger. Cash will be
paid in lieu of issuing fractional shares of WesBanco Common Stock, based on a
whole share value of $28.37 per share, or at the election of each Commercial
shareholder, such shareholder may purchase the remaining fraction of such share
at the aforesaid value. Shares of Commercial Common Stock issued and held in the
treasury of Commercial or beneficially owned by WesBanco or CBI, other than in a
fiduciary capacity, will be canceled and retired at the WesBanco Effective Time.
Each share of common stock of CBI issued and outstanding immediately prior to
the WesBanco Effective Time, shall at the WesBanco Effective Time, become one
issued and outstanding share of common stock of CBI as the corporation surviving
the Merger.
Promptly after the WesBanco Effective Time, American Stock Transfer &
Trust Company (the "Exchange Agent"), will mail transmittal forms and exchange
instructions to each holder of record of Commercial Common Stock to be used to
surrender and exchange certificates evidencing shares of Commercial Common Stock
for certificates evidencing the shares of WesBanco Common Stock to which such
holder has become entitled. After receipt of such transmittal forms, each holder
of certificates formerly representing shares of Commercial Common Stock will be
able to surrender such certificates to the Exchange Agent, and each holder will
receive in exchange therefor certificates evidencing the number of shares of
WesBanco Common Stock to which such holder is entitled. Such transmittal letters
will be accompanied by instructions specifying other details of the exchange.
After the WesBanco Effective Time, each certificate evidencing
shares of Commercial Common Stock, until so surrendered and exchanged, will be
deemed, for all purposes, to evidence only the right to receive the number of
shares of WesBanco Common Stock which the holder of such certificate is entitled
to receive by virtue of the Merger, and the payment in cash for any fractional
share of Commercial Common Stock which such holder is entitled to receive,
without interest, should such shareholder not elect to purchase the remaining
fraction of such share of common stock at the price set forth above. The holder
of an unexchanged certificate will not be entitled to receive any dividends or
other distributions payable by WesBanco until the certificate has been
exchanged. Following such exchange such dividends or other distributions will be
paid to the holder entitled thereto, without interest, together with payment of
cash for the fractional share to which such holder is entitled.
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WesBanco or the WesBanco Exchange Agent will be entitled to deduct and
withhold from the consideration otherwise payable or issuable pursuant to the
WesBanco Merger Agreement to any holder of Commercial Common Stock such amounts
as WesBanco or the WesBanco Exchange Agent may be required to deduct and
withhold with respect to the making of such payment or issuance under the IRC,
or any provision of state, local or foreign tax law. To the extent that amounts
are so withheld by WesBanco or the WesBanco Exchange Agent, such withheld
amounts shall be treated as having been paid to the holder of shares of
Commercial Common Stock in respect of which such deduction and withholding was
made by WesBanco or the WesBanco Exchange Agent.
Immediately upon the completion of the exchange of shares of Commercial
Common Stock for shares of WesBanco Common Stock as described in the preceding
paragraphs, the continuing Directors of Commercial or its subsidiaries who have
been elected to serve on the board of directors of one or more banking
subsidiaries of WesBanco will maintain at least the minimum number of shares of
WesBanco Common Stock as is required to be held as directors' qualifying shares
under applicable law for continued membership on the Board of Directors of
WesBanco or any of its subsidiaries.
Representations and Warranties
The WesBanco Merger Agreement contains various customary representations
and warranties of WesBanco, Commercial and CBI (which will terminate upon the
consummation of the Merger) relating to, among other things, (a) the corporate
organization and qualification of Commercial and its subsidiaries, WesBanco and
its subsidiaries and CBI and certain similar corporate matters; (b) the
authorization, execution, delivery and enforceability of the Merger Agreement
and the consummation of the transactions contemplated thereby and related
matters; (c) the absence of any violation under the respective charters and
bylaws of Commercial or WesBanco, as the case may be, and certain instruments
and laws; (d) the financial statements of each of WesBanco and Commercial; (e)
no actions, suits, claims or proceedings being brought against either Commercial
and its subsidiaries or WesBanco and its subsidiaries; (f) the capital structure
of each of WesBanco, CBI and Commercial; (g) material contracts; (h) the absence
of materially adverse contracts; (i) the absence of undisclosed liabilities; (j)
title to properties; (k) the accuracy of information provided in the WesBanco
Joint Proxy Statement/Prospectus; (l) taxes, tax returns and audits and certain
tax matters; (m) the absence of certain material adverse changes or events; (n)
the maintenance of fidelity bonds by Commercial, WesBanco and their respective
subsidiaries; (o) certain benefit matters; (p) the absence of labor disputes;
(q) the adequacy of reserves for possible loan losses; (r) the ownership by
WesBanco and Commercial of their subsidiaries; (s) the filing and delivery of
certain Exchange Act reports; and (t) the authority of WesBanco to issue shares
of WesBanco Common Stock under the Merger Agreement.
Certain Covenants
Pursuant to the WesBanco Merger Agreement, each of WesBanco and
Commercial has agreed that, during the period from the date of the WesBanco
Merger Agreement until the earlier of the termination of the WesBanco Merger
Agreement in accordance with its terms, or the Effective Time, except as
otherwise disclosed to the other party in writing in connection with the
WesBanco Merger Agreement, or consented to in writing by the other party, it
will, with certain exceptions: (a) use its best efforts in good faith to take,
or cause to be taken, all action required under the WesBanco Merger Agreement on
its part so as to permit the consummation of the WesBanco Merger at the earliest
possible date; (b) deliver certain securities filings; (c) cooperate in
furnishing of information in preparation of this Joint Proxy
Statement/Prospectus; (d) cooperate in the filing of any regulatory
applications, including an application to the Federal Reserve Board and the West
Virginia Department of Banking, with respect to the WesBanco Merger; (e)
cooperate in providing information with respect to the preparation and filing of
this Registration Statement; and (f) advise WesBanco or Commercial, as the case
may be, of any material adverse change in the financial condition, assets,
business or operation of the other party or its subsidiaries.
In addition, Commercial has further agreed that: (a) it will not make
any change in its authorized capital stock; (b) except for shares to be issued
in connection with a pending acquisition, it will not issue any shares of
Commercial Common Stock (except with respect to the Gateway Merger); (c) it will
not issue or grant any options, warrants or other rights to purchase shares of
Commercial Common Stock; (d) it will not declare or pay cash dividends other
than those which do not in the aggregate exceed the lesser of $1.20 per share
per year or 50% of the after-tax income of Commercial for such year; (e) it will
not purchase, acquire or agree to acquire for consideration, any Commercial
Common Stock (other than in a fiduciary capacity); (f) except as otherwise
contemplated by the Merger Agreement or required by law, it will not amend any
employment agreement, pension, retirement, stock option, profit sharing,
deferred compensation, consultant, bonus, group insurance or similar plan; (g)
it will not take any action
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materially adversely affecting the financial condition (present or prospective)
of it or its subsidiaries; (h) will not acquire or merge with any other company
or acquire any branch or, other than in the ordinary course of business, any
assets of any company; (i) except in the ordinary course of business, it will
not create any mortgage, pledge or subject any of its material assets to a lien
or other encumbrance, incur or cancel any material debts or claims, increase any
compensation or benefits payable to its officers or employees, except in the
ordinary course of its business as heretofore conducted, or take any other
action not in the ordinary course of its business as heretofore conducted or
incur any material obligation or enter into any material contract; (j) it will
not amend its charter or bylaws; (k) it will advise WesBanco of the name,
address and the number of shares of Commercial Common Stock held by each
shareholder who elects to exercise his or her right to dissent to the WesBanco
Merger; (l) operate its business only in the ordinary course consistent with
past practice; (m) it will not, and will not permit any person acting on its
behalf, to solicit any acquisition proposal or to merge or consolidate with, or
acquire all or any substantial portion of the assets of Commercial or its
subsidiaries, or any tender or exchange offer (or proposal to make any tender or
exchange offer) for any shares of stock of Commercial, or any proposal to
acquire more than 10% of the outstanding shares of stock of Commercial or any
options, warrants or rights to acquire, or securities convertible into or
exchangeable for, more than 10% of the outstanding shares of stock of
Commercial; (n) it will deliver to WesBanco all forms filed with the Commission
after the date of the WesBanco Merger Agreement; and (o) it will maintain its
insurance at the existing levels.
WesBanco has also agreed that: (a) prior to the WesBanco Effective Time,
it will deliver to the WesBanco Exchange Agent, shares of WesBanco Common Stock
and cash sufficient in amount to meet the requirements of the Merger; (b) it
will file all documentation necessary to organize and incorporate CBI in West
Virginia; (c) it will deliver to Commercial copies of its Forms 10-K, 10-Q and
8-K filed after the execution of the Merger Agreement; and (d) as of the
Effective Time, it will appoint (i) William E. Mildren, Jr., Robert K. Tebay,
James W. Swearingen and Larry G. Johnson, or if one or more of them should be
unwilling or unable to serve, a substitute, to the Board of Directors of
WesBanco and (ii) William E. Mildren, Jr. (or a designated substitute) as a
member of the Executive Committee of the Board of Directors of WesBanco.
Conditions
The respective obligations of WesBanco and Commercial to effect the
Merger are subject to the following conditions, among others: (a) approval by
the shareholders of WesBanco, CBI and Commercial of the Merger Agreement as
required by law; (b) the West Virginia Banking Board shall have (i) approved the
organization and incorporation of CBI and the WesBanco Merger and (ii) shall not
have entered an order disapproving the acquisition of Commercial by WesBanco
pursuant to the WesBanco Merger Agreement; (c) the issuance of a charter by the
West Virginia Secretary of State for CBI; (d) the approval by the Board of
Governors of the Federal Reserve System of the application of WesBanco to
acquire Commercial and of CBI becoming a bank holding company; (e) the
Registration Statement and any post-effective amendments thereto shall have been
declared effective and no stop order or proceedings seeking a stop order shall
have been issued or threatened; (f) the absence of any order to restrain, enjoin
or otherwise prevent the consummation of the WesBanco Merger shall have been
entered by any court or administrative body which remains in effect; (g) the
receipt of all material governmental or other authorizations, consents, orders
or approvals, including the filing of this Registration Statement with the
Commission; (h) expiration of all periods for review, objection or appeal of any
consents, approvals or permissions required for the consummation of the WesBanco
Merger; (i) the holders of no more than 10% of the issued and outstanding voting
shares of Commercial shall have exercised dissenters' rights in accordance with
the Act; (j) the receipt of an opinion of Kirkpatrick & Lockhart, dated as of
the WesBanco Effective Time, to the effect that the WesBanco Merger will be
treated for federal income tax purposes as a tax-free reorganization within the
meaning of Section 368(a) of the IRC and to certain other tax matters; (k) no
action, proceeding, regulation or legislation shall have been instituted before
any court, governmental agency or legislative body to enjoin, restrain or
prohibit, or to obtain substantial damages with respect to, the WesBanco Merger
Agreement or the consummation of the WesBanco Merger; (l) the approvals sought
in accordance with the WesBanco Merger Agreement shall not have required any
divestiture or cessation of any material part of the present operations of
WesBanco, Commercial or any of their subsidiaries; (m) the accuracy in all
material respects of the representations and warranties of the other party set
forth in the WesBanco Merger Agreement; (n) the delivery of certified copies of
the resolutions duly adopted by the Boards of Directors and shareholders of
WesBanco and Commercial; and (o) the receipt of certain legal opinions.
In addition, the consummation of the WesBanco Merger Agreement by
WesBanco is also conditioned upon: (a) the receipt of an opinion from Ernst &
Young, that the Merger will be treated as a "pooling of interests" for
accounting purposes; (b) the receipt of a schedule identifying all persons who
may be deemed "affiliates" of Commercial under Rule 145 of the Securities Act
and the delivery of affiliate letters by such persons; (c) the execution and
delivery of employment agreements for William E. Mildren, Jr., Larry G. Johnson,
W. Bryan Pennybacker, James A Meagle, Jr., Thomas M. Lookbaugh and C. Randall
Law; (d) the absence of any pending suit, action or proceeding, including the
case styled Citizens Bancshares, Inc. v. Commercial Bancshares,
---------------------------------------------------
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Inc. and the Complaint styled Peoples Bancorp, Inc. v. Commercial Bancshares,
- ---- -----------------------------------------------
Inc. which, in the reasonable judgment of WesBanco, if successful, could have a
- ----
material adverse effect on the financial condition or operations of Commercial
or its subsidiaries; provided, however, that WesBanco shall not have the right
to terminate the WesBanco Merger Agreement unless (i) WesBanco's Board of
Directors, acting reasonably and upon the advice of counsel, concludes that such
suits could result in a loss exposure to Commercial, including fees, expenses
and damages of $250,000 or more, or (ii) injunctive relief or specific
performance has been awarded to Citizens or Peoples or substantive requests for
the same are pending, which injunctive relief or specific performance, in the
judgment of WesBanco's Board of Directors, acting reasonably and upon the advice
of counsel, could materially hinder consummation of the WesBanco Merger; (e) the
delivery of the Option Agreement, dated September 12, 1997, between WesBanco and
Commercial; (f) the rights issued under Commercial's Rights Plan shall have been
terminated in accordance with the terms of the Rights Plan, the right to
exercise the rights and the Rights Plan shall have been terminated in accordance
with the provisions of such plan, with no further obligations to the
shareholders of Commercial, the rights and the Rights Plan shall no longer be in
force or effective, and no right or claim pursuant to the Rights Plan shall have
been made, alleged or threatened by any shareholder of Commercial; and (g) the
delivery by Gateway of the First Amendment Agreement modifying certain terms of
the Agreement and Plan of Merger dated August 15, 1997 by and between
Commercial, Gateway and CWV Holding Company, Inc.
The consummation of the WesBanco Merger Agreement by Commercial is also
conditioned upon: (a) the receipt of an opinion of Danielson Associates as to
the effect that the WesBanco Merger and the transactions contemplated by the
WesBanco Merger Agreement are fair from a financial point of view, to Commercial
and its shareholders; (b) the absence of a change in control of WesBanco since
July 1, 1997; and (c) the assumption by WesBanco of the Change in Control
Arrangements with William E. Mildren, Jr. and Larry G. Johnson dated November 1,
1996.
Termination; Expenses
The WesBanco Merger Agreement may be terminated at any time prior to the
WesBanco Effective Time (a) by mutual consent of WesBanco and Commercial; (b) by
either WesBanco or Commercial if any of the conditions to such party's
obligations to close under the Merger Agreement have not been met and such
conditions have not been waived by the party adversely affected thereby; (c) by
either WesBanco or Commercial if the WesBanco Merger shall violate any
nonappealable final order, decree or judgment of any court or governmental body
having competent jurisdiction; (d) by either WesBanco or Commercial if the
Merger has not been consummated by March 31, 1998; (e) by Commercial, unless
waived by Commercial, if the market value of WesBanco Common Stock falls below
$25.00 per share as of the closing date, calculated as the average bid price of
WesBanco Common Stock quoted by Nasdaq for the 30 calendar days preceding five
business days before the closing date; and (f) by either WesBanco or Commercial,
if at the Commercial Special Meeting or WesBanco Special Meeting (including any
adjournment or postponement thereof), the requisite vote of the shareholders of
either WesBanco or Commercial in favor of the Merger Agreement is not obtained.
In the event of any termination of the WesBanco Merger Agreement by
either WesBanco or Commercial as provided above, the WesBanco Merger Agreement
will become void and there will be no liability or obligation on the part of
WesBanco, Commercial, CBI or their respective officers, directors, stockholders
or affiliates, except with respect to certain specified matters, including
without limitation, those related to confidentiality and expenses.
Whether or not the WesBanco Merger is consummated, all legal and
accounting fees, and other costs and expenses incurred in connection with the
Merger Agreement and the transactions contemplated thereby shall be paid by the
party incurring such expenses.
Amendment or Waiver
The provisions of the WesBanco Merger Agreement may be waived at any
time by the party which, or the shareholders of which are, entitled to the
benefit thereof, by action taken by the Board of Directors of such party. Any of
the terms or conditions of the WesBanco Merger Agreement may be amended or
modified in writing (signed by all the parties to the WesBanco Merger Agreement)
before or after the Commercial Special Meeting at any time prior to the
Effective Time, provided, however, that if amended after such meeting, the
conversion ratio per share at which each share of Commercial Common Stock will
be converted in the WesBanco Merger and any other material terms of the WesBanco
Merger shall not be amended unless the amended terms are resubmitted to the
shareholders of Commercial for approval.
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INFORMATION WITH RESPECT TO WESBANCO
History
WesBanco is a multi-bank holding company chartered under the laws of the
State of West Virginia. As of September 30, 1997, WesBanco had five banking
affiliates located in Wheeling, Parkersburg, Charleston and Fairmont in West
Virginia and Barnesville, Ohio. On a consolidated historical basis, as of
September 30, 1997, WesBanco had total assets of approximately $1.76 billion,
net loans of approximately $1.0 billion, deposits of approximately $1.4 billion
and shareholders' equity of $247 Million. As of December 31, 1996, WesBanco had
approximately 4,267 shareholders, and 10,521,854 shares of common stock
outstanding. As of December 18, 1997, WesBanco had approximately 4,391
shareholders, and 16,064,449 shares of common stock outstanding. WesBanco has no
preferred stock issued and outstanding.
WesBanco is a decentralized banking operation, with affiliates acting
autonomously in day to day decisions. The principal role of the holding company
is to provide management, leadership and access to specialized staff resources
in areas such as: asset/liability management, regulations, lending policies,
data processing, accounting, investment and budgeting.
Dividends received from affiliates are WesBanco's major source of
income. Dividend payments by the banking affiliates depend primarily on their
earnings and are limited by various regulatory restrictions. On September 30,
1997, the affiliates, without prior approval from the regulators, could have
distributed dividends of approximately $1,332,000. WesBanco has not issued debt
securities as a source of funding for the assets of the affiliate banks.
WesBanco has reported to its stockholders that it may engage in other
activities of a financial nature authorized by the Board of Governors of the
Federal Reserve System either directly through a subsidiary or through
acquisition of established companies, though no specific proposals are underway.
As of September 30, 1997, neither the parent corporation nor any of the
subsidiaries were engaged in any operation in foreign countries and have had no
material transactions with customers in foreign countries.
Recent Acquisitions
On June 30, 1997, WesBanco, Inc. consummated the acquisition of Shawnee
Bank, Inc. ("Shawnee") through a statutory merger of Shawnee into WesBanco
affiliate, WesBanco Bank Charleston. The acquisition, which was accounted for as
a purchase transaction, was effected through an exchange of stock, whereby
Shawnee shareholders received 10.094 shares of WesBanco Common Stock for each
share of Shawnee common stock. WesBanco registered 323,506 common shares for the
purpose of issuance with respect to this acquisition. For the twelve months
ended December 31, 1996, Shawnee's net income was $553,269 or $17.28 per share.
Shawnee's total assets were approximately $38,939,000 total deposits were
approximately $29,676,000, and total stockholders' equity was approximately
$5,501,000.
Future Acquisitions
WesBanco continues to foster discussion with respect to additional
acquisitions of banks, thrifts and thrift and bank holding companies. The
tentative nature of such discussions, however, makes it impossible to predict
the number or size of any future acquisitions.
Operations
WesBanco, through its subsidiaries, conducts a general banking,
commercial and trust business. Its full service banks offer, among other things,
retail banking services, such as demand, savings and time deposits; commercial,
mortgage and consumer installment loans; credit card services through VISA and
MasterCard; personal and corporate trust services; and discount brokerage
services. The banking machines are linked to CIRRUS, a nationwide banking
network.
The principal operations of WesBanco are conducted at the main offices
of WesBanco and WesBanco Bank Wheeling located at Bank Plaza, Wheeling, West
Virginia. This facility was constructed in 1976, and consists of a modern eight
story glass enclosed commercial building with a main lobby for banking
operations and an integral four-lane drive-in facility with additional space for
customer parking. The structure provides office space for WesBanco and WesBanco
Bank Wheeling.
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WesBanco Bank Wheeling (formerly Wheeling Dollar Bank), a state banking
corporation is the largest banking subsidiary of WesBanco. It is a full service
bank offering a wide range of services to consumers, businesses and government
bodies, including but not limited to, checking and savings accounts,
certificates of deposit, consumer loans, mortgage loans, commercial loans,
personal and corporate trusts, data processing and other banking services. The
bank has approximately 419 full-time equivalent employees. The bank's Trust
Department is one of the largest in the State of West Virginia and offers a wide
range of services as Executor, Trustee, Guardian and Agent. It serves as
Transfer Agent and Registrar for corporations and performs fiduciary services
for municipalities. Total market value of assets under management in the Trust
Department was approximately $1.9 Billion as of September 30, 1997. As of
September 30, 1997, the Bank had total assets of $869,220,000, and deposits of
$650,267,000. The Bank also operates fourteen branch offices, five of which are
located in Wheeling, two of which are located in Follansbee, two in New
Martinsville, one in Pine Grove, one in Sistersville, one in Wellsburg and two
in Weirton, West Virginia. All branch offices of the bank also operate drive-in
facilities.
WesBanco Bank Charleston (formerly South Hills Bank) is a state banking
corporation located in Charleston, West Virginia. The bank also provides general
banking services similar to the services provided by WesBanco Bank Wheeling. The
bank operates a drive-in facility which is located at its main banking facility
and a full service facility with drive-in lanes in Sissonville. As of September
30, 1997, the bank had total assets of approximately $145,627,000 deposits of
approximately $117,454,000 and 62 full time equivalent employees.
WesBanco Bank Parkersburg (formerly Mountain State Bank) is also a state
banking corporation located in Parkersburg, West Virginia. The bank also
provides general banking and trust services similar to the services provided by
WesBanco Bank Wheeling. The bank also operates a drive-in facility which is
located at its main banking facility and two full service branches which are
located at Mineral Wells and Elizabeth, West Virginia. As of September 30, 1997,
the bank had approximately $121,131,000 in assets, $107,079,000 in deposits, and
67 full time equivalent employees.
WesBanco Bank Barnesville is an Ohio banking corporation located in
Barnesville, Ohio, the bank also provides general banking and trust services
similar to the services provided by WesBanco Bank Wheeling. The bank operates
out of its principal office located at 101 E. Main Street, Barnesville, Ohio,
and also operates branch facilities in Beallsville, Bethesda and Woodsfield,
Ohio. As of September 30, 1997, the bank had approximately $155,315,000 in
assets and $134,862,000 in deposits, and 65 full time employees.
WesBanco Bank Fairmont is a West Virginia banking corporation located in
Fairmont, West Virginia. The bank also provides general banking and trust
services. The bank operates out of its principal office located at 301 Adams
Street, Fairmont, West Virginia, and also operates seventeen branch offices in
Monongalia, Marion, Preston and Harrison Counties, in West Virginia. As of
September 30, 1997, the bank had approximately $489,446,000 in assets and
$390,739,000 in deposits and 253 full-time employees.
WesBanco Mortgage Company is primarily a single residence mortgage
lender with business operations in Bridgeport, South Charleston, Morgantown,
Wheeling, Huntington and Elkins, West Virginia. WesBanco Mortgage Company offers
Veterans Administration and Federal Housing Administration Home Loans, as well
as home buyer loans facilitated through the West Virginia Housing Development
Fund, which provides assistance for low-to-moderate income families. Loan
originations, which are sold in various secondary markets, will approximate $60
million for the year 1997.
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COMPARISON OF SHAREHOLDERS' RIGHTS
General
Commercial and Gateway are West Virginia corporations subject to the
provisions of the West Virginia Corporations Act. Shareholders of Gateway, whose
rights are governed by Gateway's Articles of Incorporation and Bylaws and by the
West Virginia Corporation Act, will become shareholders of Commercial upon
consummation of the Merger. The rights of such shareholders as shareholders of
Commercial will then be governed by the Articles of Incorporation and Bylaws of
Commercial and by the West Virginia Corporation Act.
The following summary is not intended to be a complete statement of the
differences affecting the rights of Gateway's shareholders, but rather
summarizes the more significant differences affecting the rights of such
shareholders and certain important similarities; the summary is qualified in its
entirety by reference to the Articles and Bylaws of Commercial, the Certificate
of Incorporation and Bylaws of Gateway and applicable laws and regulations.
Amendment of Articles of Incorporation or Bylaws
The West Virginia Corporation Act provides that an amendment to a
corporation's articles of incorporation must be approved by a majority of the
affirmative vote of the holders of a majority of the shares entitled to vote
thereon, unless any class of shares is entitled to vote thereon as a class, in
which event the proposed amendment shall be adopted by the affirmative vote of
the holders of a majority of the shares of each class entitled to vote thereon
as a class and of the total shares entitled to vote thereon. Under West Virginia
law, the power to amend the articles of incorporation is duly vested in the
majority vote of the shares, unless the articles or bylaws provide otherwise.
Gateway. The Articles and Bylaws of Gateway do not address the
-------
required vote for an amendment of the Articles of Incorporation; therefore,
Gateway is governed by the provisions of the West Virginia Corporation Act.
Gateway's Bylaws provide that the power to amend the Bylaws is vested in
both the shareholders and the Board of Directors. Thus, Gateway's Bylaws may be
amended by a majority vote of the shareholders, and the Bylaws may be amended,
subject to the right of the shareholders to amend such bylaws, by a majority
vote of the total number of the directors.
Commercial. Commercial's Articles of Incorporation do not address
----------
the required vote to amend the Articles. Accordingly, Commercial is governed by
the West Virginia Corporation Act.
Commercial's Bylaws may be amended by the Board of Directors at any
regular meeting (if at least two days notice is given beforehand) or a special
meeting of the Board of Directors. The Bylaws may also be amended by a two-
thirds vote of the shareholders of Commercial.
Authorized Capital Stock
Gateway. Gateway's Articles of Incorporation (the "Gateway
-------
Articles") authorize the issuance of up to 200,000 shares of common stock, of
which 66,652 shares were issued and outstanding as of the Gateway Record Date.
Gateway is not authorized to issue shares of preferred stock.
Commercial. Commercial is authorized to issue 5,000,000 shares of
----------
common stock, of which _____ shares were issued and outstanding as of the
Commercial Record Date. Commercial may also issue up to 43,328 shares of
preferred stock, par value of $100.00 each. No preferred stock is outstanding.
However, Commercial's Articles of Incorporation provide that the Board of
Directors shall have all power and authority with respect to the Preferred Stock
that may be delegated to the Board under the West Virginia Corporation Act.
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Issuance of Capital Stock
Commercial and Gateway. Under the West Virginia Corporation Act,
----------------------
Commercial and Gateway may issue shares of capital stock on such terms and for
such consideration as may be determined by the Board of Directors of Commercial
and Gateway. Neither the West Virginia Corporation Act nor the Articles and
Bylaws of either Commercial or Gateway require shareholder approval of any such
actions. Shareholder approval of stock-related compensation plans also may be
sought in certain instances in order to qualify such plans for favorable federal
income tax and securities law treatment under current laws and regulations.
Size and Classification of Board of Directors
Gateway. Gateway's Bylaws provide that its Board of Directors shall
-------
consist of no less than five and no more than 7 shareholders. Pursuant to the
Bylaws of Gateway, the Board of Directors of Gateway is divided into three
classes as nearly equal in number as possible and approximately one-third of the
directors are elected annually to serve three-year terms.
Commercial. Commercial's Bylaws provide for a board of directors
----------
consisting of no less than 5 and no more than 25 individuals. No one who has
attained the age of 70 shall be appointed, nominated or elected to the Board.
Under the West Virginia Corporation Act, each director shall be elected at the
annual meeting of shareholders and shall hold office until the next succeeding
annual meeting.
Vacancies and Removal of Directors
Gateway. Gateway's Bylaws provide that any vacancy on the Board of
-------
Directors may be filled by a majority vote of the directors than in office, and
any director so chosen shall hold office for the remainder of the term to which
the director has been selected and until his or her successor shall have been
elected and qualified.
Gateway's Bylaws provide that any director may be removed, with or
without cause, by the shareholders at the regular annual meeting or a meeting
called for that purpose by a vote of the holders of a majority of the shares
then entitled to vote at an election of that director. Gateway's Bylaws also
provide that a majority vote of the entire board is sufficient to remove a
director for cause.
Commercial. Commercial's Bylaws provide that any vacancy on the
----------
Board of Directors may be filed by a majority of the remaining directors. A
director elected to fill a vacancy shall be elected for the unexpired term of
his or her predecessor in office. Any directorship to be filled by reason of an
increase in the number of directors shall be filled by election at a special
meeting of the Board of Directors or at a regular meeting of the Board of
Directors if notice is given at least two (2) days beforehand.
Commercial's Bylaws do not address removal. Under the West Virginia
Corporation Act, any director or the entire board of directors may be removed,
with or without cause, by a vote of the majority of shares then entitled to vote
at an election of directors. If less than the entire board is to be removed, no
one of the directors may be removed, if the votes cast against the removal would
be sufficient to elect the director.
Director Liability and Indemnification
The West Virginia Corporation Act provides that a corporation has the
power to indemnify any person who is threatened to be made a party to any
threatened proceeding by reason of the fact that he is or was a director,
officer, employee or agent of the corporation against expenses, judgments,
fines, taxes and penalties and interest thereon, and amounts paid in settlement
actually and reasonably incurred by him in connection with such action or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interest of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful.
Gateway. Gateway's Bylaws provide that each director and officer,
-------
whether or not then in office, shall be indemnified by the corporation against
all costs and expenses reasonably incurred by him in connection with or
resulting from any
44
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action, suit or proceeding, to which he may be made party by reason of his being
or having been a director or officer of the corporation.
Gateway's Articles of Incorporation provide that each director and
officer shall be indemnified by Gateway against liability (including amounts
paid in settlement) by reason of having been such a director or officer, whether
or not then continuing so to be, and against all expenses (including counsel
fees) reasonably incurred by him in connection therewith, except in relation to
matters as to which he shall have been finally adjudged to be liable by reason
of having been guilty of willful misconduct or a knowing violation of the
minimal law. The Articles also provide that the indemnification rights set forth
therein shall also extend to every person who may have served at Gateway's
request as a director, officer or trustee of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise. The Articles of
Incorporation do not limit the liability of Gateway Directors.
Commercial. Commercial's Bylaws provide that each director and
----------
officer or former director or officer of Commercial shall be indemnified against
expenses actually and necessarily incurred by him in connection with the defense
of any action, suit or proceeding, civil or criminal, in which he is made a
party by reason of being or having been such director or officer, except in
relation to matters in which he shall be adjudged, in such action, suit or
proceeding, to be liable for willful misconduct in the performance of duty to
the corporation. A conviction or judgment (whether based on a plea of guilty or
its equivalent or after trial) in a criminal or civil proceeding shall not be
deemed an adjudication of liability for willful misconduct in the performance of
duty to the corporation if such director or officer acted in good faith in what
he considered to be the best interest of the corporation and with no reasonable
cause to believe that the action was illegal. If in the judgment of the board of
directors a settlement of any claim so arising is deemed in the best interests
of the corporation, any such director or officer shall be reimbursed for any
amounts paid in effecting such settlement and reasonable expenses thereby
incurred.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Holding Company pursuant to the foregoing provisions, the Holding Company has
been informed that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
Special Meetings of Shareholders
Gateway. Gateway's Bylaws provide that special meetings of Gateway
-------
shareholders may be called by the Board of Directors, the Chairman, the
President or the holders of not less than one-third of the Gateway stock
outstanding.
Commercial. Commercial's Bylaws provide that special meetings of
----------
Commercial shareholders may be called by the Board of Directors, the President,
or the holders of not less than one-tenth of the Commercial Stock outstanding.
Director Nominations
Gateway. Gateway's Bylaws provide procedures for shareholder
-------
nominations. Nominations by shareholders must be made in writing and shall be
delivered or mailed to the secretary of the corporation and to the proper
regulatory authority no less than 14 days nor more than 50 days prior to any
meeting of shareholders called for the purpose of electing directors, provided
that if less than 21 days notice of the meeting is given such nominations shall
be mailed or delivered to the president of the corporation and the proper
regulatory authority not later than the close of business or the seventh day
following the date on which the notice of meeting was mailed.
Commercial. Commercial's Bylaws do not prescribe procedures for
----------
directors' nominations, nor do they provide for shareholder nomination
procedures. It is the practice of Commercial for the board to nominate directors
for shareholders' consideration.
Shareholder Voting Rights in General
Gateway and Commercial. Each share of Commercial and Gateway Stock is
----------------------
entitled to one vote per share on all matters properly presented at meetings of
respective shareholders. Pursuant to the West Virginia Corporation Act and the
West
45
<PAGE>
Virginia Constitution, holders of Commercial Stock and Gateway Stock have
cumulative voting rights in elections of directors. Cumulative voting enables
each shareholder to give one nominee for director as many votes as is equal to
the total number of nominees multiplied by the number of shares voted, or to
distribute such votes on the same basis among two or more nominees.
A plan of merger or consolidation shall be approved by receiving
the affirmative vote of the holders of a majority of the shares entitled to vote
thereon of each such corporation, unless any class of shares of such corporation
is entitled to vote thereon as a class, in which event, as to such corporation,
the plan of merger or consolidation shall be approved upon receiving the
affirmative vote of the holders of a majority of the shares of each class of
shares entitled to vote thereon as a class and of the total shares entitled to
vote thereon.
Anti-Takeover Provisions
State Takeover Statutes. The West Virginia Corporations Act
-----------------------
does not contain provisions which were designed to deter certain takeovers of
West Virginia Corporations.
Gateway. Gateway's bylaws provide that the Board of Directors is
-------
divided into three classes and approximately one-third of the directors are
elected annually to serve three year terms. To control the board, a potential
acquiror must place directors on the Board at intervals instead of at a single
shareholder meeting.
Commercial. Commercial's Articles and Bylaws do not contain any
----------
antitakeover provisions.
Dividends and Other Distributions
Commercial and Gateway. The West Virginia Corporation Act provides
----------------------
that Commercial and Gateway may each pay dividends in cash or property out of
unreserved and unrestricted earned surplus. Only under certain very limited
circumstances could either Gateway or Commercial distribute from capital
surplus.
Commercial and Gateway are legal entities separate and distinct from
their respective banking subsidiaries. Commercial's principal source of revenue
for general corporate purposes, such as the payment of dividends on Commercial
Stock, consists of dividends from Commercial's banking subsidiaries. The payment
of dividends by a bank holding company such as Commercial is subject to various
regulatory requirements, such as the maintenance of adequate capital in
accordance with the requirements of applicable laws and regulations. For
example, the Federal Deposit Insurance Act generally prohibits an
undercapitalized depository institution from paying dividends. In addition, if,
in the opinion of the applicable federal banking agency, a bank holding company
or a bank under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of their
institution, could include the payment of dividends), such authority may
require, after notice and hearing, that such organization cease and desist from
such practice. The federal banking agencies also have issued policy statements
which provide that bank holding companies and insured depository institutions
should generally only pay dividends out of current operating earnings.
Shareholders' Right to Examine Books and Records
Commercial and Gateway. Neither Commercial nor Gateway has a bylaw
----------------------
provision in its Articles of Incorporation relating to the right of a
shareholder to examine books and records. The West Virginia Corporation Act
provides that any shareholder, after having been a shareholder for six months,
or the owner of five percent of Commercial or Gateway Stock, without regard to
the length of ownership, may, upon written demand, for any proper purpose,
inspect the relevant books and records and make extracts therefrom. The West
Virginia Corporation Act also affords legal remedies to a shareholder improperly
denied access, including penalty equal to ten percent of the value of the shares
held by the shareholder.
46
<PAGE>
DISSENTERS' RIGHTS
Gateway shareholders eligible to vote on the Plan of Merger
contained in the Merger Agreement have certain statutory rights to dissent
and to elect to receive cash for their shares under Sections 31-1-122 and
31-1-123 of the WVCA, copies of which are included as Annex C hereto. A
brief description of these rights follows. This discussion does not
purport to cover every aspect of the applicable statutes and shareholders
of Gateway are referred to Annex C for the complete text of the relevant
statutory provisions.
Gateway shareholders who object to the Merger and who comply with
the provisions of (S) 31-1-123 of the WVCA may demand the right to receive
a cash payment from Gateway for the "fair value" of their stock as
determined as of the day prior to the date on which the Merger was approved
by the Commercial shareholders. Under (S) 31-1-123 of the WVCA, such
"fair value" of Gateway Stock shall not include any appreciation or
depreciation of the price of shares of Gateway Stock resulting from
anticipation of the Merger.
To exercise their dissenters' rights, Gateway shareholders electing
to dissent ("Dissenting Gateway Shareholders") must file with Gateway at
Bank of McMechen, 700 Marshall Street, McMechen, West Virginia 26040,
Attention: Secretary, prior to or at the Gateway Special Meeting, a
written objection to the proposed merger. A Dissenting Shareholder may
dissent as to less than all of shares of Gateway Stock owned beneficially
by him. If the Merger is approved by the Gateway shareholders, and a
Dissenting Shareholder did not vote the related shares in favor of the
Merger, he or she must then, within ten days after the date on which the
vote was taken, file with Gateway a written demand for payment of the fair
value of such shares.
Within 20 days after demanding payment for his or her shares, each
Dissenting Shareholder must submit the certificate or certificates
representing his or her shares to Gateway for notation thereon that such
demand has been made. His or her failure to do so shall, at the option of
Gateway, terminate his or her rights under Section 3-1-122 and 31-1-123 of
the WVCA unless a court of general civil jurisdiction, for good and
sufficient cause shown, shall otherwise direct. If shares of Gateway Stock
represented by a certificate on which notation has been so made shall be
transferred, each new certificate issued therefor shall bear similar
notation, together with the name of the original dissenting holder of such
shares, and a transferee of such shares shall acquire by such transfer no
rights in Gateway, as applicable, other than those which the original
Dissenting Shareholder had after making demand for payment under Section
31-1-123 of the WVCA.
A demand filed by a Dissenting Shareholder may not be withdrawn
unless Gateway consents. Within ten days after the Effective Date of the
Merger, Gateway shall give written notice thereof to each Dissenting
Shareholder who has made a demand as required by the WVCA, and shall make a
written offer to each such Dissenting Shareholder to pay for his or her
related shares at a specified price deemed by Gateway to be the fair value
thereof. Such notice and offer shall be accompanied by a balance sheet of
Gateway as of the latest available date and not more than 12 months prior
to the making of such offer, and a profit and loss statement for the 12
months period ended on the date of such balance sheet. If within 30 days
after the Effective Date, the fair value of such shares is agreed upon
between any Dissenting Shareholder and Gateway, payment therefor shall be
made within 90 days after the Effective Date, upon surrender of the
certificate(s) representing such share(s). Upon payment of the agreed
value a Dissenting Shareholder shall cease to have any interest in such
shares.
If within the 30-day period described above, a Dissenting
Shareholder and Gateway do not agree as to the fair value of the shares,
Gateway shall within 30 days after receipt of written demand from any
Dissenting Shareholder, which written demand must be given within 60 days
after the Effective Date, file a complaint in a court of general civil
jurisdiction in the county where Gateway's principal office is located
requesting that the fair value of such shares be determined, or Gateway may
file such a complaint within such 60-day period at its own election. If
Gateway fails to bring such action within the 60-day period, and at this
time cannot predict whether it would file such a complaint, any Dissenting
Shareholder may do so in the name of Gateway. If no complaint is filed,
Dissenting Shareholders may be deemed to have waived their rights under the
WVCA. All Dissenting Shareholders, except those who have agreed upon a
price to be paid for their shares by Gateway, may be made parties to the
proceeding and may receive a copy of the petition or summons. All
Dissenting Shareholders who are parties to the proceeding shall be entitled
to judgment against Gateway for the amount of the fair value of their
shares plus accrued interest except any Dissenting Shareholder whom the
court determines not to be entitled to receive payment for his or her
shares. The judgment shall be payable only upon and concurrently with the
surrender to Gateway of the certificate(s) representing such share(s).
Section 31-1-123(e) of the WVCA provides that any costs and expenses
of any such proceeding shall be determined by the court and assessed
against Gateway, except that all or any part of such costs and expenses may
be assessed against all or some Dissenting Shareholders, in amounts the
court finds equitable, to the extent the court finds the Dissenting
Shareholders did not act
47
<PAGE>
in good faith in contesting Gateway's offer. Such expenses shall not
include experts' or attorneys' expenses and fees unless the court, in its
discretion, awards such fees and expenses.
Reference is made to Annex C attached hereto for the complete text
of the provisions of Section 31-1-122 and 33-1-123 of the WVCA relating to
the rights of dissenting shareholders. The statements made in this summary
of such provisions are qualified in their entirety by reference to Annex C.
The provisions of Section 31-1-123 of the WVCA are technical and complex
and it is suggested that any shareholder who desires to exercise his or her
right to dissent consult counsel because failure to comply strictly with
such provisions may defeat his or her dissenters' rights.
CBG Holding Company Approval
The Board of Directors of Commercial has approved the Merger
Agreement and has agreed to cause the Board of Directors of CBG Holding
Company to approve the Merger Agreement. Commercial, as sole shareholder
of CBG Holding Company, has agreed to vote all of the outstanding shares of
said corporation in favor of the Merger.
MANAGEMENT OF COMMERCIAL AFTER THE MERGER
Upon consummation of the Merger, and if the WesBanco Merger is not
consummated, the directors and executive officers of Commercial will be the
directors and executive officers of Commercial immediately prior to the
Merger, except that one director of Gateway will become a director of
Commercial, as described under "The Merger - Interests of Certain Persons
in the Merger." As of the date of the proxy materials, this representative
has not been determined.
48
<PAGE>
DESCRIPTION OF COMMERCIAL STOCK
The authorized capital stock of Commercial consists of 5,000,000
shares of Commercial Stock and 43,328 shares of Commercial Preferred Stock
at the par value of $100.00 each. No preferred stock is outstanding.
However, Commercial's Articles of Incorporation provide that the Board of
Directors shall have all power and authority with respect to the Preferred
Stock that may be delegated to the Board under the West Virginia
Corporation Act. The Commercial Stock does not represent or constitute a
deposit account and is not insured by the FDIC.
The authorized but unissued shares of Commercial Stock are
available for issuance in future mergers or acquisitions, in a future
public offering or private placement or for other general corporate
purposes.
The following description of the Commercial Stock does not
purport to be complete and is qualified in all respects by reference to the
Articles and Bylaws of Commercial and the WVCA.
General. Each share of Commercial Stock has the same relative
-------
rights and is identical in all respects with each other share of Commercial
Stock. The Commercial Stock is not subject to call for redemption and, upon
receipt by Commercial of the shares of Gateway Stock surrendered in
exchange for Commercial Stock, each share of Commercial Stock offered
hereby will be fully paid and non-assessable.
Voting Rights. The holders of Commercial Stock possess exclusive
-------------
voting rights in Commercial. Each holder of Commercial Stock is entitled to
one vote for each share held on all matters voted upon by shareholders, and
shareholders are permitted to cumulate votes in elections of directors.
Dividends. The holders of the Commercial Stock are entitled to such
---------
dividends as may be declared from time to time by the Board of Directors of
Commercial out of funds legally available therefor.
Preemptive Rights. Holders of Commercial Stock do not have any
-----------------
preemptive rights with respect to any shares which may be issued by
Commercial in the future; thus; Commercial may sell shares of Commercial
Stock without first offering them to the then holders of the Commercial
Stock.
Liquidation. In the event of any liquidation, dissolution or winding
-----------
up of Commercial, the holders of the Commercial Stock would be entitled to
receive, after payment of all debts and liabilities of Commercial, all
assets of Commercial available for distribution.
On August 14, 1996, the Board of Directors of Commercial, declared a
dividend distribution of one right for each outstanding share of Commercial
Common Stock to shareholders of record at the close of business on August
30, 1996 (the "Record Date"). Each Right entitles the registered holder to
purchase from Commercial 1/1000 of a share of a new series of preferred
stock designated "Junior Participating Cumulative Preferred Stock, Series
A". Shareholders received one Right per share of Common Stock held of
record at the close of business on the Record Date. The exercise price of
each Right will be $116, subject to adjustment.
Rights also attach to shares of Common Stock issued after the Record
Date but prior to the Distribution Date unless the Board of Directors
determines otherwise at the time of issuance. The description and terms of
the Rights are set forth in a Rights Agreement, dated as of August 14,
1996, between the Company and Fifth Third Bank, as Rights Agent.
The Board of Directors redeemed Rights outstanding under its Rights
Agreement at a meeting thereof held on September 19, 1997, at a cash
redemption price of $0.01 per Right. Payment of the $0.01 per Right
redemption price was made on December 12, 1997.
49
<PAGE>
COMMERCIAL BANCSHARES, INC.
PRO FORMA COMBINED FINANCIAL STATEMENTS
Pro Forma Combined Balance Sheets (Unaudited)
The following unaudited pro forma combined consolidated balance sheet
combines the consolidated historical balance sheets of Commercial
BancShares, Inc. and Gateway Bancshares, Inc., assuming the Merger was
consummated as of the beginning of the earliest period presented on a
pooling of interests accounting basis.
Pro Forma Combined Statements of Income (Unaudited)
The following unaudited pro forma combined consolidated statement of income
presents the combined consolidated historical statements of income of
Commercial BancShares, Inc. and Gateway Bancshares, Inc., assuming
Commercial BancShares, Inc. and Gateway Bancshares, Inc. had been combined
at the beginning of each period presented on a pooling of interests
accounting basis.
Other Pro Forma Combined Financial Data
For a description of the pooling of interests accounting method, see "The
Merger-Accounting Treatment."
The pro forma combined financial data does not give effect to anticipated
cost savings in connection with the Merger.
The pro forma combined information presented is not necessarily indicative
of the results of operations or the combined financial position that would
have resulted had the Merger been consummated at the beginning of the
applicable periods indicated, nor is it necessarily indicative of the
results of operations in future periods or the future financial position of
the combined entities.
The pro forma information should be read in conjunction with the historical
consolidated financial statements of Commercial BancShares, Inc. and
Gateway Bancshares, Inc., including the related notes, which are
incorporated by reference in this Prospectus/Joint Proxy Statement, and in
conjunction with the selected consolidated historical and other pro forma
financial information, including the notes thereto, appearing elsewhere in
this Prospectus/Joint Proxy Statement. See "Information Incorporated by
Reference."
50
<PAGE>
COMMERCIAL BANCSHARES, INC.
PRO FORMA COMBINED BALANCE SHEET
SEPTEMBER 30, 1997
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Commercial
Commercial Gateway Pro Forma BancShares
BancShares, Bancshares, Adjustments Pro Forma
Inc. Inc. Debit Credit Combined
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and Due From Banks $ 16,606 $ 1,130 $-0- $-0- $ 17,736
Interest Bearing Deposits with Other Banks 1,119 300 1,419
Federal Funds Sold 9,960 2,375 12,335
Investment Securities 72,842 4,429 77,271
Loans 306,747 22,171 328,918
LESS: Valuation Reserve ( 3,829) ( 227) ( 4,056)
Bank Premises And Equipment 10,431 724 11,155
Foreclosed Properties - Net 1,372 12 1,384
Accrued Interest Receivable 2,707 172 2,879
Other Assets 7,209 55 7,264
-----------------------------------------------------------------------------
TOTAL ASSETS $425,164 $31,141 $-0- $-0- $456,305
=============================================================================
LIABILITIES
Deposits:
Non Interest Bearing $ 47,235 $ 2,819 $-0- $-0- $ 50,054
Interest Bearing 319,577 24,815 344,392
-----------------------------------------------------------------------------
Total Deposits $366,812 $27,634 $394,446
-----------------------------------------------------------------------------
Federal Funds Purchased and Repurchase $ 10,384 $ -0- $-0- $-0- $ 10,384
Agreements
Other Liabilities 4,668 115 4,783
-----------------------------------------------------------------------------
TOTAL LIABILITIES $381,864 $27,749 $-0- $-0- $409,613
-----------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common Stock $ 8,081 $ 891(a) $ 891(a) $580 $ 8,661
Capital Surplus 15,114 300 (a) 218 15,632
Retained Earnings 19,842 2,294 22,136
Treasury Stock -0- ( 93) (a) 93 0
Net Unrealized Gains (Losses) On
Available-For-Sale Securities 263 -0- 263
-----------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $ 43,300 $ 3,392 $891 $891 $ 46,692
-----------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$425,164 $31,141 $891 $891 $456,305
=============================================================================
</TABLE>
See Notes to Unaudited Pro Forma Combined Consolidated Financial Statements.
51
<PAGE>
COMMERCIAL BANCSHARES, INC.
PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1996
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Commercial
Commercial Gateway Pro Forma BancShares
BancShares, Bancshares, Adjustments Pro Forma
Inc. Inc. Debit Credit Combined
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and Due From Banks $ 18,602 $ 1,220 $-0- $-0- $ 19,822
Interest Bearing Deposits with Other Banks 669 300 969
Federal Funds Sold 5,000 1,800 6,800
Investment Securities 75,021 5,749 80,770
Loans 297,515 20,545 318,060
LESS: Valuation Reserve (3,574) (242) (3,816)
Bank Premises And Equipment 8,851 773 9,624
Foreclosed Properties - Net 1,373 1,640
Accrued Interest Receivable 2,565 161 2,726
Other Assets 6,957 83 7,040
---------------------------------------------------------------
TOTAL ASSETS $412,979 $30,656 $-0- $-0- $443,635
===============================================================
LIABILITIES
Deposits:
Non Interest Bearing $ 48,697 $ 2,794 $-0- $-0- $ 51,491
Interest Bearing 311,143 24,443 335,586
---------------------------------------------------------------
Total Deposits $359,840 $27,237 $387,077
---------------------------------------------------------------
Federal Funds Purchased and Repurchase Agreements $ 2,540 $ -0- $-0- $-0- $ 2,540
Other Liabilities 9,604 206 9,810
---------------------------------------------------------------
TOTAL LIABILITIES $371,984 $27,443 $-0- $-0- $399,427
---------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common Stock $ 7,348 $ 891(a) $ 891(a) $ 580 $ 7,928
Capital Surplus 10,261 300 (a) 218 10,779
Retained Earnings 23,247 2,115 25,362
Treasury Stock (93) (a) 93
Net Unrealized Gains (Losses) On
Available-For-Sale Securities 139 -0- 139
---------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $ 40,995 $ 3,213 $891 $891 $ 44,208
---------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$412,979 $30,656 $891 $891 $443,635
===============================================================
</TABLE>
See Notes to Unaudited Pro Forma Combined Consolidated Financial Statements.
52
<PAGE>
COMMERCIAL BANCSHARES, INC.
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(In Thousands, Except For Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Commercial
Commercial Gateway Pro Forma BancShares
BancShares, Bancshares, Adjustments Pro Forma
Inc. Inc. Debit Credit Combined
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $20,877 $1,379 $-0- $-0- $22,256
Interest on Investment Securities 3,533 241 3,774
Interest on Federal Funds Sold 370 70 440
Deposits with Other Banks 27 14 41
----------------------------------------------------
Total Interest Income $24,807 $1,704 $-0- $-0- $26,511
----------------------------------------------------
INTEREST EXPENSE
Interest on Deposits $10,180 $ 595 $-0- $-0- $10,775
Interest on Other Borrowings 360 -0- 360
----------------------------------------------------
Total Interest Expense $10,540 $ 595 $-0- $-0- $11,135
----------------------------------------------------
NET INTEREST INCOME $14,267 $1,109 $-0- $-0- $15,376
Provision for Possible Loan Losses 372 6 378
----------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES $13,895 $1,103 $-0- $-0- $14,998
----------------------------------------------------
OTHER INCOME
Trust Fees $ 623 $ -0- $-0- $-0- $ 623
Service Charges and Other Income 919 101 1,020
Net Securities Gains (Losses) ( 2) -0- ( 2)
Other Operating Income 685 36 721
----------------------------------------------------
Total Other Income $ 2,225 $ 137 $-0- $-0- $ 2,362
----------------------------------------------------
OTHER EXPENSE
Employee Compensation and Benefits $ 6,060 $ 471 $-0- $-0- $ 6,531
Occupancy Expense, Net of Revenues 636 37 673
Furniture and Equipment Expense 855 72 927
Other Operating Expenses 3,147 308 3,455
----------------------------------------------------
Total Other Expenses $10,698 $ 888 $-0- $-0- $11,586
----------------------------------------------------
Income Before Income Taxes $ 5,422 $ 352 $-0- $-0- $ 5,774
Provision For Income Taxes 1,813 132 1,945
----------------------------------------------------
NET INCOME $ 3,609 $ 220 $-0- $-0- $ 3,829
====================================================
</TABLE>
See Notes to Unaudited Pro Forma Combined Consolidated Financial Statements.
53
<PAGE>
COMMERCIAL BANCSHARES, INC. AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(In Thousands, Except For Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Commercial
Commercial Gateway Pro Forma BancShares
BancShares, Bancshares, Adjustments Pro Forma
Inc. Inc. Debit Credit Combined
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $25,979 $1,674 $-0- $-0- $27,653
Interest on Investment Securities 5,115 484 5,599
Interest on Federal Funds Sold 302 139 441
Deposits with Other Banks 49 13 62
---------------------------------------------------
Total Interest Income $31,445 $2,310 $-0- $-0- $33,755
---------------------------------------------------
INTEREST EXPENSE
Interest on Deposits $13,080 $ 868 $-0- $-0- $13,948
Interest on Other Borrowings 314 0 314
---------------------------------------------------
Total Interest Expense $13,394 $ 868 $-0- $-0- $14,262
---------------------------------------------------
NET INTEREST INCOME $18,051 $1,442 $-0- $-0- $19,493
Provision for Possible Loan Losses 459 47 506
---------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES $17,592 $1,395 $-0- $-0- $18,987
---------------------------------------------------
OTHER INCOME
Trust Fees $ 738 $ -0- $-0- $-0- $ 738
Service Charges and Other Income 1,284 143 1,427
Net Securities Gains (Losses) 26 11 37
Other Operating Income 1,336 47 1,383
---------------------------------------------------
Total Other Income $ 3,384 $ 201 $-0- $-0- $ 3585
---------------------------------------------------
OTHER EXPENSE
Employee Compensation and Benefits $ 7,732 $ 567 $-0- $-0- $ 8,299
Occupancy Expense, Net of Revenues 860 160 1,020
Furniture and Equipment Expense 933 933
Other Operating Expenses 4,366 374 4,740
---------------------------------------------------
Total Other Expenses $13,891 $1,101 $-0- $-0- $14,992
---------------------------------------------------
Income Before Income Taxes $ 7,085 $ 495 $-0- $-0- $ 7,580
Provision For Income Taxes 2,304 185 2,489
---------------------------------------------------
NET INCOME $ 4,781 $ 310 $-0- $-0- $ 5,091
===================================================
</TABLE>
See Notes to Unaudited Pro Forma Combined Consolidated Financial Statements.
54
<PAGE>
COMMERCIAL BANCSHARES, INC.
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(In Thousands, Except For Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Commercial
Commercial Gateway Pro Forma BancShares
BancShares, Bancshares, Adjustments Pro Forma
Inc. Inc. Debit Credit Combined
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $24,609 $1,517 $-0- $-0- $26,126
Interest on Investment Securities 5,243 650 5,893
Interest on Federal Funds Sold 535 44 579
Deposits with Other Banks 38 11 49
----------------------------------------------------
Total Interest Income $30,425 $2,222 $-0- $-0- $32,647
----------------------------------------------------
INTEREST EXPENSE
Interest on Deposits $12,161 $ 900 $-0- $-0- $13,061
Interest on Other Borrowings 391 13 404
----------------------------------------------------
Total Interest Expense $12,552 $ 913 $-0- $-0- $13,465
----------------------------------------------------
NET INTEREST INCOME $17,873 $1,309 $-0- $-0- $19,182
Provision for Possible Loan Losses 418 81 499
----------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES $17,455 $1,228 $-0- $-0- $18,683
----------------------------------------------------
OTHER INCOME
Trust Fees $ 684 $ -0- $-0- $-0- $ 684
Service Charges and Other Income 1,199 145 1,344
Net Securities Gains (Losses) ( 1) -0- ( 1)
Other Operating Income 1,137 42 1,179
----------------------------------------------------
Total Other Income $ 3,019 $ 187 $-0- $-0- $ 3,206
----------------------------------------------------
OTHER EXPENSE
Employee Compensation and Benefits $ 7,486 $ 520 $-0- $-0- $ 8,006
Occupancy Expense, Net of Revenues 900 153 1,053
Furniture and Equipment Expense 1,004 -0- 1,004
Other Operating Expenses 4,163 421 4,584
----------------------------------------------------
Total Other Expenses $13,553 $1,094 $-0- $-0- $14,647
----------------------------------------------------
Income Before Income Taxes $ 6,921 $ 321 $-0- $-0- $ 7,242
Provision For Income Taxes 2,176 122 2,298
----------------------------------------------------
NET INCOME $ 4,745 $ 199 $-0- $-0- $ 4,944
====================================================
</TABLE>
See Notes to Unaudited Pro Forma Combined Consolidated Financial
Statements.
55
<PAGE>
COMMERCIAL BANCSHARES, INC.
PRO FORMA COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(In Thousands, Except For Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Commercial
Commercial Gateway Pro Forma BancShares
BancShares, Bancshares, Adjustments Pro Forma
Inc. Inc. Debit Credit Combined
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $21,777 $1,376 $-0- $-0- $23,153
Interest on Investment Securities 4,894 561 5,455
Interest on Federal Funds Sold 242 99 341
Deposits with Other Banks 20 10 30
------------------------------------------------------
Total Interest Income $26,933 $2,046 $-0- $-0- $28,979
------------------------------------------------------
INTEREST EXPENSE
Interest on Deposits $ 9,370 $ 778 $-0- $-0- $10,148
Interest on Other Borrowings 251 -0- 251
------------------------------------------------------
Total Interest Expense $ 9,621 $ 778 $-0- $-0- $10,399
------------------------------------------------------
NET INTEREST INCOME $17,312 $1,268 $-0- $-0- $18,580
Provision for Possible Loan Losses 417 11 l,428
------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES $16,895 $1,257 $-0- $-0- $18,152
------------------------------------------------------
OTHER INCOME
Trust Fees $ 529 $ -0- $-0- $-0- $ 529
Service Charges and Other Income 1,221 112 1,333
Net Securities Gains (Losses) ( 220) -0- ( 220)
Other Operating Income 485 88 573
------------------------------------------------------
Total Other Income $ 2,015 $ 200 $-0- $-0- $ 2,215
------------------------------------------------------
OTHER EXPENSE
Employee Compensation and Benefits $ 7,000 $ 520 $-0- $-0- $ 7,520
Occupancy Expense, Net of Revenues 675 142 817
Furniture and Equipment Expense 955 -0- 955
Other Operating Expenses 4,356 414 4,770
------------------------------------------------------
Total Other Expenses $12,986 $1,076 $-0- $-0- $14,062
------------------------------------------------------
Income Before Income Taxes $ 5,924 $ 381 $-0- $-0- $ 6,305
Provision For Income Taxes 1,526 153 1,679
------------------------------------------------------
NET INCOME $ 4,398 $ 228 $-0- $-0- $ 4,626
======================================================
</TABLE>
See Notes to Unaudited Pro Forma Combined Consolidated Financial Statements.
56
<PAGE>
COMMERCIAL BANCSHARES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED FINANCIAL STATEMENTS
On August 15, 1997, Commercial BancShares, Inc. announced the execution of
an Agreement and Plan of Merger for the acquisition of Gateway Bancshares,
Inc.. The Gateway Bancshares, Inc. acquisition will be accounted for under
the pooling-of-interest method of accounting. Under the terms of the
Agreement and Plan of Merger, shareholders of Gateway's common stock will
receive common stock of Commercial equal to $80.00 per share for each share
of Gateway common stock they own in a tax free exchange. However, Gateway
shareholders will not receive fewer than 116,108 ( 1.742 to 1 Ratio ) nor
more than 141,902 ( 2.129 to 1 Ratio ) shares of Commercial common stock
for each share of Gateway common they own. The transaction is valued at
approximately $5,332,160 based on a price of $80.00 per share of the
66,652 shares of Gateway common stock outstanding.
Gateway Bancshares, Inc., acquisition will be accounted for using the
pooling-of-interests method. Under this method of accounting, the
consolidated historical financial statements for Commercial BancShares and
Gateway Bancshares, Inc. have been combined for all periods presented.
(a) To record the changes in equity caused by the issuance of 116,108
shares of Commercial's common stock with a par value of $5.00 in
exchange for 66,652 shares of Gateway's $12.50 common stock and
related transfer from capital surplus, and to record the
retirement of Gateway's treasury stock.
There were no intercompany transactions or adjustments to the
pro forma combined financial statements.
The pro forma combined financial data does not give effect to
anticipated cost savings in connection with the Merger.
The pro forma combined information presented is not necessarily indicative
of the results of operations or the combined financial position that would
have resulted had the Merger been consummated at the beginning of the
applicable periods indicated, nor is it necessarily indicative of the
results of operations in future periods or the future financial position of
the combined entities.
The pro forma information should be read in conjunction with the historical
consolidated financial statements of Commercial BancShares, Inc. and
Gateway Bancshares, Inc., including the related notes, which are
incorporated by reference in this Prospectus/Joint Proxy Statement, and in
conjunction with the selected consolidated historical and other pro forma
financial information, including the notes thereto, appearing elsewhere in
this Prospectus/Joint Proxy Statement. See "Information Incorporated by
Reference."
57
<PAGE>
REGULATION AND SUPERVISION OF COMMERCIAL
General
Commercial, as a bank holding company, is subject to the
restrictions of the BHCA, and is registered pursuant to its provisions. As
a registered bank holding company, Commercial is subject to the reporting
requirements of the FRB, and is subject to examination by the FRB.
The BHCA prohibits the acquisition by a bank holding company
of direct or indirect ownership of more than five percent of the voting
shares of any bank within the United States without prior approval of the
FRB. With certain exceptions, a bank holding company is prohibited from
acquiring direct or indirect ownership or control or more than five percent
of the voting shares of any company which is not a bank, and from engaging
directly or indirectly in business unrelated to the business of banking or
managing or controlling banks.
The FRB, in its Regulation Y, permits bank holding companies
to engage in non-banking activities closely related to banking or managing
or controlling banks. Approval of the FRB is necessary to engage in these
activities or to make acquisitions of corporations engaging in these
activities as the FRB determines whether these acquisitions or activities
are in the public interest. In addition, by order, and on a case by case
basis, the FRB may approve other non-banking activities.
As a bank holding company doing business in West Virginia,
Commercial is also subject to regulation by the WV Board and must submit
annual reports to the West Virginia Division of Banking.
Federal law restricts subsidiary banks of a bank holding
company from making certain extensions of credit to the parent bank holding
company or to any of its subsidiaries, from investing in the holding
company stock, and limits the ability of a subsidiary bank to take its
parent company stock as collateral for the loans of any borrower.
Additionally, federal law prohibits a bank holding company and its
subsidiaries from engaging in certain tie-in arrangements in conjunction
with the extension of credit or furnishing of services.
Commercial's banking subsidiaries are state banks and,
therefore, are regulated primarily by the West Virginia Board or the Ohio
Division of Banks, depending upon location. One subsidiary is a member of
the Federal Reserve System and is subject to federal statutes which apply
to member banks. All subsidiary banks are members of the FDIC and are
subject to regulations promulgated by the FDIC and FRB. Deposits of
banking subsidiaries are insured as required by state statute. The West
Virginia Board, Ohio Division of Banks, FRB and FDIC regularly examine
Commercial's subsidiaries under their jurisdiction. These authorities
renew safety and soundness and compliance with applicable laws and
regulations. These examinations are conducted primarily to protect
depositors, borrowers and the regulators and not shareholders. In addition
to these periodic examinations, banking subsidiaries provide quarterly to
the regulators reports containing full and accurate statements of their
affairs.
Non-banking Activities Permitted to Commercial
The FRB permits, within prescribed limits, bank holding
companies to engage in non-banking activities closely related to banking or
to managing or controlling banks. Such activities are not limited to the
state of West Virginia. Some examples of non-banking activities which
presently may be performed by a bank holding company are: making or
acquiring, for its own account or the account of others, loans and other
extensions of credit; operating as an industrial bank, or industrial loan
company, in the manner authorized by state law; servicing loans and other
extensions of credit; performing or carrying on any one or more of the
functions or activities that may be performed or carried on by a trust
company in the manner authorized by federal or state law; acting as an
investment or financial advisor; leasing real or personal property; making
equity or debt investments in corporations or projects designed primarily
to promote community welfare, such as the economic rehabilitation and the
development of low income areas; providing bookkeeping services or
financially oriented data processing services for the holding company and
its subsidiaries; acting as an insurance agent or a broker, to a limited
extent, in relation to insurance directly related to an extension of
credit; acting as an underwriter for credit life insurance which is
directly related to extensions of credit by the bank holding company
system; providing courier services for certain financial documents;
providing management consulting advice to nonaffiliated banks; selling
retail money orders having a face value of not more than $1,000,
58
<PAGE>
traveler's checks and U. S. savings bonds; performing appraisals of real
estate; arranging commercial real estate equity financing under certain
limited circumstances; providing securities brokerage services related to
securities credit activities; underwriting and dealing in government
obligations and money market instruments; providing foreign exchange
advisory and transactional services; and acting under certain
circumstances, as futures commission merchant for nonaffiliated persons in
the execution and clearance on major commodity exchanges of futures
contracts and options.
Credit and Monetary Policies and Related Matters
Commercial's subsidiary banks are affected by the fiscal and
monetary policies of the federal government and its agencies, including the
FRB. An important function of these policies is to curb inflation and
control recessions through control of the supply of money and credit. The
operations of Commercial's subsidiary banks are affected by the policies of
government regulatory authorities, including the FRB which regulates money
and credit conditions through open market operations in United States
Government and federal agency securities, adjustments in the discount rate
on member bank borrowings, and requirements against deposits and regulation
of interest rates payable by member banks on time and savings deposits.
These policies have a significant influence on the growth and distribution
of loans, investments and deposits, and interest rates charged on loans, or
paid for time and savings deposits, as well as yields on investments. The
FRB has had a significant effect on the operating results of commercial
banks in the past and is expected to continue to do so in the future.
Future policies of the FRB and other authorities and their effect on future
bank earnings cannot be predicted.
The FRB has a policy to the effect that a bank holding
company is expected to act as a source of financial and managerial strength
to each of its subsidiary banks and to commit resources to support each
such subsidiary bank. Under the source of strength doctrine, the FRB may
require a bank holding company to contribute capital to a troubled
subsidiary bank, and may charge the bank holding company with engaging in
unsafe and unsound practices for failure to commit resources to such a
subsidiary bank. This capital injection may be required at times when
Commercial may not have the resources to provide it. Any capital loans by
a holding company to any of the subsidiary banks are subordinate in right
of payment to deposits and to certain other indebtedness of such
subsidiary bank. In addition, the Crime Control Act of 1990 provides that
in the event of a bank holding company's bankruptcy, any commitment by such
holding company to a federal bank or thrift regulatory agency to maintain
the capital of a subsidiary bank will be assumed by the bankruptcy trustee
and entitled to a priority of payment.
In 1989, the United States Congress enacted the Financial
Institutions Reform, Recovery and Enforcement Act ("FIRREA"). Under FIRREA
depository institutions insured by the FDIC may now be liable for any
losses incurred by, or reasonably expected to be incurred by, the FDIC
after August 9, 1989, in connection with (i) the default of a commonly
controlled FDIC-insured depository institution, or (ii) any assistance
provided by the FDIC to commonly controlled FDIC-insured depository
institution in danger of default. "Default" is defined generally as the
appointment of a conservator or receiver and "in danger of default" is
defined generally as the existence of certain conditions indicating that a
"default" is likely to occur in the absence of regulatory assistance.
Accordingly, in the event that any insured bank or subsidiary of Commercial
causes a loss to the FDIC, other bank subsidiaries of Commercial could be
liable to the FDIC for the amount of such loss.
Capital Requirements
As a holding company Commercial is subject to FRB risk-based
capital guidelines. The guidelines establish a systematic analytical
framework that makes regulatory capital requirements more sensitive to
differences in risk profiles among banking organizations, takes off-balance
sheet exposures into explicit account in assessing capital adequacy, and
minimizes disincentives to holding liquid, low-risk assets. Under the
guidelines and related policies, bank holding companies must maintain
capital sufficient to meet both a risk-based asset ratio test and leverage
ratio test on a consolidated basis. The risk-based ratio is determined by
allocating assets and specified off-balance sheet commitments into four
weighted categories, with higher levels of capital being required for
categories perceived as representing greater risk. All of Commercial's
depository institution subsidiaries are subject to substantially similar
capital requirements adopted by applicable regulatory agencies.
Generally, under the applicable guidelines, the financial
institution's capital is divided into two tiers. "Tier 1," or core
capital, includes common equity, noncumulative perpetual preferred stock
(excluding auction rate issues) and minority interests in equity accounts
of consolidated subsidiaries, less goodwill and other intangibles. "Tier
2," or supplementary capital, includes, among other things, cumulative and
limited-life preferred stock, hybrid capital instruments,
59
<PAGE>
mandatory convertible securities, qualifying subordinated debt, and the
allowance for loan losses, subject to certain limitations, less required
deductions. "Total capital" is the sum of Tier 1 and Tier 2 capital. Bank
holding companies are subject to substantially identical requirements,
except that cumulative perpetual preferred stock can constitute up to 25%
of a bank holding company's Tier 1 capital.
Bank holding companies are required to maintain a risk-based
ratio of 8%, of which 4% must be Tier 1 capital. The appropriate
regulatory authority may set higher capital requirements when an
institution's particular circumstances warrant.
For purposes of the leverage ratio, the numerator is defined
as Tier 1 capital and the denominator is defined as adjusted total assets
(as specified in the guidelines). The guidelines provide for a minimum
leverage ratio of 3% for bank holding companies that meet certain specified
criteria, including excellent asset quality, high liquidity, low interest
rate exposure and the highest regulatory rating. Bank holding companies
not meeting these criteria are required to maintain a leverage ratio which
exceeds 3% by a cushion of at least 1 to 2 percent.
- -
The guidelines also provide that bank holding companies
experiencing internal growth or making acquisitions will be expected to
maintain strong capital positions substantially above the minimum
supervisory levels, without significant reliance on intangible assets.
Furthermore, the FRB's guidelines indicate that the FRB will continue to
consider a "tangible Tier 1 leverage ratio" in evaluating proposals for
expansion or new activities. The tangible Tier 1 leverage ratio is the
ratio of an institution's Tier 1 capital, less all intangibles, to total
assets, less all intangibles.
On August 2, 1995, the FRB and other banking agencies issued
their final rule to implement the portion of Section 305 of FDICIA that
requires the banking agencies to revise their risk-based capital standards
to ensure that those standards take adequate account of interest rate risk.
This final rule amends the capital standards to specify that the banking
agencies will include, in their evaluations of a bank's capital adequacy,
an assessment of the exposure to declines in the economic value of the
bank's capital due to changes in interest rates.
Failure to meet applicable capital guidelines could subject
the bank holding company to a variety of enforcement remedies available to
the federal regulatory authorities, including limitations on the ability to
pay dividends, the issuance by the regulatory authority of a capital
directive to increase capital and termination of deposit insurance by the
FDIC, as well as to the measures described under the "Federal Deposit
Insurance Corporation Improvement Act of 1991" as applicable to
undercapitalized institutions.
As of September 30, 1997, the pro forma regulatory capital
ratios of Commercial were as set forth in the following tables, assuming
the Merger was consummated as of such date under the pooling method of
accounting as follows:
60
<PAGE>
COMMERCIAL BANCSHARES, INC.
RISK BASED CAPITAL RATIO AND LEVERAGE RATIO
SEPTEMBER 30, 1997
(In Thousands)
<TABLE>
<CAPTION>
RISK WEIGHT
-----------------------------------------------------------------------
0% 20% 50% 100% TOTAL
------- ------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Assets
Cash and Due from Banks $15,223 $ 2,501 $ -0- $ -0- $ 17,724
Federal Funds Sold -0- 9,960 -0- -0- 9,960
Securities 13,628 50,834 $ 7,770 610 72,842
Loans Held for Sale -0- -0- -0- -0- -0-
Loans -0- 43 114,670 192,034 306,747
Other Assets 213 -0- -0- 21,507 21,720
-----------------------------------------------------------------------
TOTAL GROSS ASSETS $29,064 $63,338 $122,440 $214,151 $428,993
=======================================================================
TOTAL RISK WEIGHTED BALANCE SHEET ASSETS
$ -0- $12,668 $ 61,220 $214,151 $288,039
=======================================================================
Off-Balance Sheet Transactions:
CONVERTED AT 100%
Financial Letters Of Credit $ -0- $ -0- $ -0- $ 168 $ 168
CONVERTED AT 50%
Performance Standby Letters Of Credit -0- -0- 618 -0- 618
Commitments To Extend Credit -0- -0- -0- -0- -0-
CONVERTED AT 20%
Commercial and Similar Letters Of Credit -0- 33 -0- -0- 6
-----------------------------------------------------------------------
TOTAL RISK WEIGHTED ASSETS $ 0 $12,674 $ 61,529 $214,319 $288,522
=======================================================================
<CAPTION>
COMMERCIAL BANCSHARES, INC. MINIMUM REGULATORY GUIDELINE
-----------------------------------------------------------------------
<S> <C> <C>
TIER 1 CAPITAL
Common Stock $ 8,081
Surplus 15,114
Retained Earnings 19,842
Goodwill ( 188)
-----------------------------------------------------------------------
TOTAL TIER 1 CAPITAL $42,849 $11,541
-----------------------------------------------------------------------
TIER II CAPITAL
Loan loss reserve $ 3,604
-----------------------------------------------------------------------
TOTAL TIER II CAPITAL $ 3,604
-----------------------------------------------------------------------
TOTAL CAPITAL $46,453 $23,082
=======================================================================
TIER 1 CAPITAL RATIO 14.85% 4.00%
TOTAL CAPITAL RATIO 16.10% 8.00%
LEVERAGE RATIO 10.17% 3.00%
</TABLE>
61
<PAGE>
GATEWAY BANCSHARES, INC.
RISK BASED CAPITAL RATIO AND LEVERAGE RATIO
SEPTEMBER 30, 1997
(In Thousands)
<TABLE>
<CAPTION>
RISK WEIGHT
- ------------------------------------------------------------------------------------------------
0% 20% 50% 100% TOTAL
<S> <C> <C> <C> <C> <C>
Balance Sheet Assets
Cash and Due from Banks $ 934 $ 496 $ -0- $ -0- $ 1,430
Federal Funds Sold -0- 2,375 -0- -0- 2,375
Securities 1,349 3,080 -0- -0- 4,429
Loans Held for Sale -0- -0- -0- -0- -0-
Loans -0- -0- 11,446 10,725 22,171
Other Assets 23 -0- -0- 940 963
--------------------------------------------------
TOTAL GROSS ASSETS $2,306 $5,951 $11,446 $11,665 $31,368
==================================================
TOTAL RISK WEIGHTED BALANCE SHEET ASSETS
$ -0- $1,190 $ 5,723 $11,665 $18,578
==================================================
Off-Balance Sheet Transactions:
CONVERTED AT 100%
Financial Letters Of Credit $ -0- $ -0- $ -0- $ -0- $ -0-
CONVERTED AT 50%
Performance Standby Letters Of Credit -0- -0- -0- -0- -0-
Commitments To Extend Credit -0- -0- -0- 1,056 528
CONVERTED AT 20%
Commercial and Similar Letters Of Credit
-0- -0- -0- -0- -0-
--------------------------------------------------
TOTAL RISK WEIGHTED ASSETS $ -0- $1,190 $ 5,723 $12,193 $19,106
==================================================
<CAPTION>
GATEWAY BANCSHARES, INC. MINIMUM REGULATORY GUIDELINE
- --------------------------------------------------------------------------------
<S> <C> <C>
TIER 1 CAPITAL
Common Stock $ 891
Surplus 300
Retained Earnings 2,294
Treasury Stock ( 93)
-------------------------------------------------------
TOTAL TIER 1 CAPITAL $ 3,392 $ 764
-------------------------------------------------------
TIER II CAPITAL
Loan loss reserve $ 227
-------------------------------------------------------
TOTAL TIER II CAPITAL $ 227
-------------------------------------------------------
TOTAL CAPITAL $ 3,619 $1,528
=======================================================
TIER 1 CAPITAL RATIO 17.75% 4.00%
TOTAL CAPITAL RATIO 18.94% 8.00%
LEVERAGE RATIO 10.96% 3.00%
</TABLE>
62
<PAGE>
COMMERCIAL BANCSHARES, INC.
PRO FORMA COMBINED RISK BASED CAPITAL RATIO AND LEVERAGE RATIO
SEPTEMBER 30, 1997
(In Thousands)
<TABLE>
<CAPTION>
RISK WEIGHT
---------------------------------------------------------------
0% 20% 50% 100% TOTAL
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Assets
Cash and Due from Banks $16,157 $ 2,997 $ -0- $ -0- $ 19,154
Federal Funds Sold -0- 12,335 -0- -0- 12,335
Securities 14,977 53,914 7,770 610 77,271
Loans Held for Sale -0- -0- -0- -0- -0-
Loans -0- 43 126,116 202,759 328,918
Other Assets 236 -0- -0- 22,447 22,683
---------------------------------------------------------------
TOTAL GROSS ASSETS $31,370 $69,289 $133,886 $225,816 $460,361
===============================================================
TOTAL RISK WEIGHTED BALANCE SHEET ASSETS $ -0- $13,858 $ 66,943 $225,816 $306,617
===============================================================
Off-Balance Sheet Transactions:
CONVERTED AT 100%
Financial Letters Of Credit $ -0- $ -0- $ -0- $ 168 $ 168
CONVERTED AT 50%
Performance Standby Letters Of Credit -0- -0- 618 -0- 618
Commitments To Extend Credit -0- -0- -0- 1,056 1,056
CONVERTED AT 20%
Commercial and Similar Letters Of Credit -0- 33 -0- -0- 6
---------------------------------------------------------------
TOTAL RISK WEIGHTED ASSETS $ -0- $13,864 $ 67,252 $225,984 $307,100
===============================================================
<CAPTION>
COMMERCIAL BANCSHARES, INC.
PRO FORMA COMBINED MINIMUM REGULATORY GUIDELINE
---------------------------------------------------------------
<S> <C> <C>
TIER 1 CAPITAL
Common Stock $ 8,972
Surplus 15,414
Retained Earnings 22,136
Intangible Assets ( 281)
---------------------------------------------------------------
TOTAL TIER 1 CAPITAL $46,241 $12,284
---------------------------------------------------------------
TIER II CAPITAL
Loan loss reserve $ 3,831
---------------------------------------------------------------
TOTAL TIER II CAPITAL $ 3,831
---------------------------------------------------------------
TOTAL CAPITAL $50,072 $24,568
===============================================================
TIER 1 CAPITAL RATIO 15.06% 4.00%
TOTAL CAPITAL RATIO 16.30% 8.00%
LEVERAGE RATIO 10.22% 3.00%
</TABLE>
63
<PAGE>
Federal Deposit Insurance Corporation Improvement Act of 1991
In December, 1991, Congress enacted the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), which substantially revised
the bank regulatory and funding provisions of the Federal Deposit Insurance
Corporation Act and made revisions to several other banking statues.
FDICIA establishes a new regulatory scheme, which ties the level of
supervisory intervention by bank regulatory authorities primarily to a
depository institution's capital category. Among other things, FDICIA
authorizes regulatory authorities to take "prompt corrective action" with
respect to depository institutions that do not meet minimum capital
requirements. FDICIA establishes five capital tiers: well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized
and critically under capitalized.
By regulation, an institution is "well-capitalized" if it has a
total risk-based capital ratio of 10% or greater, a Tier 1 risk-based
capital ratio of 6% or greater and a Tier 1 leverage ratio of 5% or greater
and is not subject to a regulatory order, agreement or directive to meet
and maintain a specific capital level for any capital measure. Each of the
banking subsidiaries of Commercial was a "well capitalized" institution as
of September 30, 1997. As well-capitalized institutions, the banking
subsidiaries of Commercial are permitted to engage in a wider range of
banking activities, including among other things, the accepting of
"brokered deposits," and the offering of interest rates on deposits higher
than the prevailing rate in their respective markets.
Another requirement of FDICIA is that federal banking agencies must
prescribe regulations relating to various operational areas of banks and
bank holding companies. These include standards for internal audit
systems, loan documentation, information systems, internal controls, credit
underwriting, interest rate exposure, asset growth, compensation, a maximum
ratio of classified assets to capital, minimum earnings sufficient to
absorb losses, a minimum ratio of market value to book value for publicly
traded shares and such other standards as the agency deems appropriate.
Reigle-Neal Interstate Banking Bill
In 1994, Congress passed the Reigle-Neal Interstate Banking Bill
(the "Interstate Bill"). The Interstate Bill permits certain interstate
banking activities through a holding company structure, effective September
30, 1995. It permits interstate branching by merger effective June 1, 1997
unless states "opt-in" sooner, or "opt-out" before that date. States may
elect to permit de novo branching by specific legislative election. In
March, 1996, West Virginia adopted changes to its banking laws so as to
permit interstate banking and branching to the fullest extent permitted by
the Interstate Bill. The Interstate Bill will permit consolidation of
banking institutions across state lines and, perhaps, de novo entry. As
its provisions become effective, it is likely that the resulting
restructurings and interstate activities will result in the realization of
economies of scale within those institutions with entities in more than one
state. One result could be increased competitiveness, due to the
realization of economies of scale and/or, where permitted, due to de novo
market entrants.
Community Reinvestment Act
Bank holding companies and their subsidiary
banks are also subject to the provisions of the Community Reinvestment Act
of 1977 ("CRA"). Under the CRA, the Federal Reserve Board (or other
appropriate bank regulatory agency) is required, in connection with its
examination of a bank, to assess such bank's record in meeting the credit
needs of the communities served by that bank, including low and moderate
income neighborhoods. Further such assessment is also required of any bank
holding company which has applied to (i) charter a national bank, (ii)
obtain deposit insurance coverage for a newly chartered institution, (iii)
establish a new branch office that will accept deposits, (iv) relocate an
office, or (v) merge or consolidate with, or acquire the assets or assume
the liabilities of, a federally-regulated financial institution. In the
case of a bank holding company
64
<PAGE>
applying for approval to acquire a bank or other bank holding company, the
Federal Reserve Board will assess the record of each subsidiary of the
applicant bank holding company, and such records may be the basis for
denying the application or imposing conditions in connection with approval
of the application. On December 8, 1993, the federal regulators jointly
announced proposed regulations to simplify enforcement of the CRA by
substituting the present twelve categories with three assessment categories
for use in calculating CRA ratings (the "December 1993 Proposal"). In
response to comments received by the regulators regarding the December 1993
Proposal, the federal bank regulators issued revised CRA proposed
regulations on September 26, 1994 (the "Revised CRA Proposal"). The Revised
CRA Proposal, compared to the December 1993 Proposal, would essentially
broaden the scope of CRA performance examinations and more explicitly
consider community development activities. Moreover, in 1994, the
Department of Justice became more actively involved in enforcing fair
lending laws.
In its most recent CRA examination by the Federal Reserve Board,
Commercial and its bank subsidiaries were given "outstanding" or
"satisfactory" CRA ratings. Gateway is also examined for compliance under
the CRA and its current rating is "satisfactory."
Deposit Acquisition Limitation
Under West Virginia banking law, an acquisition or merger is not
permitted if the resulting depository institution or its holding company,
including any depository institutions affiliated therewith, would assume
additional deposits to cause it to control deposits in the State of West
Virginia in excess of twenty five percent (25%) of such total amount of all
deposits held by insured depository institutions in West Virginia. This
limitation may be waived by the Commissioner of Banking for good cause
shown. If the Merger is consummated, Commercial will not be in violation
of this limitation on deposits.
RELATIONSHIP WITH INDEPENDENT AUDITORS
Harman, Thompson, Mallory & Ice, A.C. ("Harman"), independent
public accounts, served as Commercial's independent auditors for the year
1997. Harman has provided such services since 1990.
Glatz, Obecny & Company, PLLC, independent public accountants
have served as Gateway's independent auditors for the year 1997. The firm
has also provided auditing services to Gateway for the years 1995 and 1996.
A representative of Glatz & Obecny is expected to be available to respond
to appropriate questions from the stockholders who are present at the
Gateway Special Meeting.
LEGAL MATTERS
Certain matters will be passed upon for Commercial by its
counsel, Bowles, Rice, McDavid, Graff & Love, 600 Quarrier Street, P.O. Box
1386, Charleston, WV 25325-1386. As of September 30, 1997, the members of
Bowles, Rice, McDavid, Graff & Love participating in the preparation of
this Proxy Statement/Prospectus owned an aggregate of _______ shares of
Commercial Common Stock.
65
<PAGE>
LEGAL PROCEEDINGS
In response to Commercial's decision to accept the WesBanco
proposal, two banking institutions which were in discussion with Commercial
instituted legal proceedings. Suit was filed in the United States District
Court for the Northern District of Ohio by Citizens Bancshares, Inc.
("Citizens") in the case styled Citizens Bancshares, Inc. v. Commercial
---------------------------------------
BancShares, Inc. v. Commercial BancShares, Inc., under the Civil Action
------------------------------------------------
No. 97CV2355. On January 9, 1998, the law suit involving Citizen's was
settled and a dismissal ordered entered.
Subsequently, on September 24, 1997, Peoples Bancorp, Inc.
("Peoples") filed a Motion in the United States District Court for the
Northern District of Ohio, Eastern Division, seeking to intervene as a
plaintiff in the case filed by Citizens and styled Citizens Bancshares,
----------------------------------------
Inc. v. Commercial BancShares, Inc. The Motion to Intervene includes a
-----------------------------------
Complaint whereby Peoples alleges the execution of the Confidentiality
Agreement effective July 7, 1997, which it alleges prohibited any
discussion or solicitation of outside offers by Commercial. The Complaint
alleges that Commercial secretly solicited a proposal from WesBanco and
that Commercial breached the Confidentiality Agreement by soliciting the
proposal from WesBanco, failing to notify Peoples of the WesBanco offer,
disclosing to unauthorized entities the existence and terms of the stock
exchange and soliciting a revised proposal from WesBanco. The Complaint
also alleges promissory estoppel on the basis that People's expended
considerable sums in reliance upon Commercial's oral and written promises
that confidentiality of the merger discussions would be maintained. The
Complaint seeks compensatory damages in excess of $500,000, specific
performance of the stock exchange agreement between the parties, though no
such agreement is alleged in the Complaint, preliminary and a permanent
injunctions preventing Commercial from negotiating or completing a merger
with any entities other than Citizens and Peoples, or in the alternative,
compensatory damages.
Commercial intends to vigorously defend the foregoing law suit.
EXPERTS
The financial statements of Commercial as of December 31, 1996 and
1995, and for each of the three years in the period ended December 31,
1996, incorporated in this Prospectus, have been so incorporated in
reliance on the report of Harman, Thompson, Mallory & Ice, A.C.,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of Gateway Bancshares, Inc. & Subsidiary as
of December 31, 1996 and 1995, and for each of the two years in the period
ended December 31, 1996, incorporated in this Prospectus, have been so
incorporated in reliance on the report of Glatz, Obecny & Company, PLLC,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
CHS140291
66
<PAGE>
FINANCIAL INFORMATION
CONCERNING GATEWAY
BANCSHARES, INC.
F-1
<PAGE>
GATEWAY BANCSHARES, INC. AND SUBSIDIARY
MCMECHEN, WV
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
AND THE YEAR ENDED DECEMBER 31, 1996
F-2
<PAGE>
GATEWAY BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion presents management's analysis of the primary factors
affecting the performance and financial condition of Gateway. It should be read
in conjunction with the accompanying audited financial statements beginning on
page _______ of this Prospectus/Proxy Statement. This discussion contains
forward-looking statements. For this purpose, any statements contained herein
that are not statements of historical fact may be deemed to be forward-looking
statements. There are a number of important factors that could cause Gateway's
actual results to differ materially from those contemplated by such forward-
looking statements. These factors include, without limitation, Gateway's
continued ability to originate quality loans, fluctuation of interest rates,
real estate market conditions in Gateway's lending areas, general and local
economic conditions, Gateway's continued ability to attract and retain deposits,
Gateway's ability to control costs, new accounting pronouncements, and changing
regulatory requirements.
RESULTS OF OPERATIONS
EARNINGS SUMMARY
Net income for the nine months ended September 30, 1997, of $220,000 or
$3.30 per share was 17.1% less than net income of $265,000 or $3.98 per share
for the nine months ended September 30, 1996. This decrease was due primarily to
a $97,000 increase in non-interest expense and a $23,000 decrease in non-
interest income. Approximately $50,000 of the non-interest expense is related to
the merger transaction. Net interest income increased $12,000 (1.10%) from 1996
to 1997.
Gateway's net income for 1996 was $310,000 or $4.66 per share, an increase
of 55.9% over the $199,000 for 1995. The increase in net income was primarily
due to a $133,000 (10.14%) increase in net interest income from $1,310,000 in
1995 to $1,442,000 in 1996. Additionally, the 1996 provision for loan losses
was $34,000 (42.3%) less than the 1995 provision. An increase of $14,000 (7.4%)
in non-interest income more than offset a $6,000 (0.6%) increase in non-interest
expense. The return on average shareholders' equity and return on average assets
for 1996 were 10.03% and 1.00%, respectively, for the year ended December 31,
1996.
NET INTEREST INCOME
Gateway's primary source of revenue is its net interest income, which is
the difference between the interest received on its earning assets and the
interest paid on the funds acquired to support those assets. Loans made to
businesses and individuals are the primary interest earning assets, followed by
investment securities and federal funds sold in the inter-bank market. Deposits
are the primary interest bearing liabilities used to support the interest
earning assets. The level of net interest income is affected by both the
balances and mix of interest earning assets and interest bearing liabilities,
the changes in their corresponding yields and costs, the volume of interest
earning assets funded by noninterest bearing deposits, and the level of capital.
Gateway's long term objective is to manage this income to provide the largest
possible amount of income while balancing interest rate, credit and liquidity
risks.
During 1996, funds were redirected from the securities portfolio into
loans. This resulted in a 10.3% increase in loan income, from $1,518,000 to
$1,674,000. Simultaneously, securities income decreased $166,000 (25.6%).
Income on federal funds sold was $95,000 (213.3%) more in 1996 than it was in
1995, growing from $44,000 to $139,000. Proceeds from securities were invested
in federal funds until they could be utilized in the loan portfolio. Interest on
deposits with banks increased by $3,000 in 1996, to $13,000, up 23.7% from 1995.
Total interest expense decreased in 1996, as the volume of interest bearing
deposits declined. Deposit interest was down $32,000 (3.6%), from $900,000 in
1995 to $868,000 in 1996. In addition, there was no expense for borrowed funds
in 1996, compared to $12,000 in 1995. The decrease in total interest expense
amounted to $45,000, a 4.9% reduction.
F-3
<PAGE>
PROVISION AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Gateway maintains its allowance for loan losses (the "allowance") at a
level that is considered sufficient to absorb potential losses in the loan
portfolio. The allowance is increased by the provision for loan losses as well
as recoveries of previously charged-off loans, and is decreased by loan charge-
offs. The provision is the necessary charge to expense to provide for current
loan losses and to maintain the allowance at an adequate level commensurate with
management's evaluation of the risks inherent in the loan portfolio. Various
factors are taken into consideration when Gateway determines the amount of the
provision and the adequacy of the allowance. Some of the factors include: past
due and nonperforming assets; specific internal analyses of loans requiring
special attention; the current level of regulatory classified and criticized
assets and the risk factors associated with each; and examinations of the loan
portfolio by federal and state regulatory agencies.
The data collected from these sources is evaluated with regard to current
national and local economic trends, prior loss history, underlying collateral
values, credit concentrations, and industry risks. An estimate of potential
future loss on specific loans is developed in conjunction with an overall risk
evaluation of the total loan portfolio.
The provision for loan losses and net charge offs were $6,000 and $21,000,
respectively, for the first nine months of 1997, compared to $29,000 and $3,000,
respectively for the first nine months of 1996. The allowance for loan losses
at September 30, 1997, was 1.02% of loans outstanding, and was considered by
management to be adequate to absorb future losses.
The provision for loan losses was $47,000 in 1996 compared to $81,000 in
1995, a decrease of $34,000. In 1996, net charge offs were $22,000 compared to
$59,000 in 1995. The allowance at December 31, 1996, was $242,000 or 1.18% of
outstanding loans. At December 31, 1995, the allowance was 1.23% of outstanding
loans.
NON-INTEREST INCOME AND EXPENSE
Gateway's non-interest income includes deposit service charges, credit life
insurance premiums, gains on the sales of investments, and fees from other
corporate and retail products. Non-interest income for the first nine months of
1997 decreased $23,000 (14.2%) from the $162,000 realized during the same period
in 1996. There was a $2,000 decrease in service charges, as well as a $10,000
decline in all other operating income. There were no gains realized on
investments in 1997, as there were in 1996.
Non-interest income increased $14,000 or 7.44% from $187,000 in 1995 to
$201,000 in 1996. There was an $11,000 gain realized on investments called for
redemption, a decrease of $1,000 in service charge income and a $4,000 increase
in all other non-interest income.
Non-interest expense includes all personnel, occupancy, data processing,
and other ordinary operating expenses associated with financial institutions.
Non-interest expense for the first nine months of 1997 was $97,000 more than it
was during the first nine months of 1996. A decrease of $4,000 in occupancy
expense did not offset increases of $51,000 in employee compensation and
benefits, $8,000 in furniture and equipment expense and $42,000 in other
operating expenses.
Non-interest expense increased only $6,000 or 0.56% in 1996 compared to
1995. Increases of $46,000 (8.94%) in employee compensation and benefits and
$7,000 (4.45%) in occupancy and equipment expense were offset by a decrease of
$47,000 in other non-interest expenses.
INCOME TAXES
Income tax expense was $132,000 for the first nine months of 1997 compared
to $172,000 for the same period of 1996. The decrease was due primarily to a
decrease in pre-tax income.
Gateway recorded income tax expense for 1996 of $186,000, which represented
37.4% of pre-tax income, compared to $122,000 in 1995 or 37.9% of pre-tax
income. The increased expense was due to the increase in pre-tax income.
F-4
<PAGE>
FINANCIAL CONDITION
LENDING ACTIVITIES
Loans are Gateway's primary use of financial resources and represent the
largest component of earning assets. Gateway's loans are made predominantly
within Gateway's market area and the portfolio is diversified. Credit risk is
inherent in each financial institution's loan and investment portfolio. In an
effort to minimize credit risk, Gateway utilizes a credit administration
program, including specific lending authorities for each loan officer, a loan
committee to review and approve loans, and a loan review and credit quality
rating system. This program assists in the evaluation of the quality of new
loans and in the identification of problem or potential problem credits and
provides information to aid management in determining the adequacy of the
allowance for loan losses.
Total loans, net of unearned income, were $22.2 million on September 30,
1997, an increase of $1.9 million (9.4%) from the 1996 year-end amount. Total
loans were $20.3 million at December 31, 1996, compared with $17.4 million at
December 31, 1995, an increase of 16.6%.
Commercial loans generally are made to small-to-medium size businesses
located within Gateway's defined market area and typically are secured by
business assets and guarantees of the principal owners. Real estate mortgage
loans include residential properties and generally do not exceed 80% of the
value of the real property securing the loan, based on recent independent
appraisals. The Bank's real estate mortgage loan portfolio primarily consists
of fixed rate residential mortgage loans. Consumer loans generally are made to
individuals living in Gateway's defined market area who are known to Gateway's
staff. Consumer loans are made on a secured or unsecured basis.
RISK ELEMENTS
NONPERFORMING ASSETS.
Nonperforming assets consist of loans on which interest is no longer
accrued, certain restructured loans where interest rate or other terms have been
renegotiated, accruing loans past due 90 days or more and real estate acquired
through foreclosure.
Gateway discontinues the accrual of interest on loans that become 90 days
past due as to principal or interest unless they are adequately secured and in
the process of collection. A loan remains in a nonaccrual status until doubts
concerning the collectibility no longer exist. A loan is classified as a
restructured loan when the interest rate is materially reduced or the term is
extended beyond the original maturity date because of the inability of the
borrower to service the loan under the original terms. Other real estate is
recorded at the lower of cost or fair value less estimated costs to sell.
A summary of the components of nonperforming assets, including several
ratios using period-end data, is shown below:
F-5
<PAGE>
NONPERFORMING ASSETS
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30 December 31
--------------------------------------------------
1997 1996 1995 1994 1993 1992
-------------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Nonaccrual loans 94 96 254 76 140 250
Accruing loans which are
contractually past due
90 days or more 139 120 0 42 105 172
Restructured loans 0 0 0 0 0 0
-------------- ---------------------------------
Total nonperforming loans 233 216 254 118 245 422
-------------- ---------------------------------
Real estate acquired
through foreclosure 12 267 0 48 43 111
-------------- ---------------------------------
Nonperforming loans as a
percentage of net loans 1.05% 1.05% 1.44% 0.73% 1.55% 2.47%
Nonperforming loans and
other real estate as a
percentage of total assets 0.79% 1.58% 0.80% 0.53% 0.95% 1.71%
</TABLE>
Nonaccrual loans at September 30, 1997, were $94,000 compared to
$96,000 at December 31, 1996, and $254,000 at December 31, 1995. Total
nonperforming assets declined from 1.58% of total assets at December 31, 1996,
to 0.79% at September 30, 1997.
OTHER RISK ELEMENTS
Management is not aware of any loans not included in the nonperforming
loans where the borrower may not be able to comply with present payment terms.
Because of the possibility of such loans existing unbeknownst to management, a
portion of the allowance for loan losses is considered to be generally available
to cover any such losses. Gateway has no foreign outstandings. As noted above,
loans are to a broad and varied group of customers located in Gateway's market
area. There are no concentrations of loans to borrowers engaged in similar
activities that would cause them to be similarly impacted by economic or other
conditions, other than matters that would impact the market area as a whole.
INVESTMENT ACTIVITIES
The securities portfolio consists of debt and other securities that
provide a relatively stable source of income. Additionally, the investment
portfolio provides a balance to interest rate and credit risks in other
categories of the balance sheet. The securities portfolio is also used as a
secondary source of liquidity by Gateway. Gateway has classified all
securities, except a Federal Home Loan Bank deposit, as held to maturity. The
portfolio otherwise consists of U.S. Treasury and agency securities that are
held as a source of stable, long-term income. They can also be used as
collateral to secure municipal deposits and repurchase agreements. The
securities portfolio does not contain any holdings of mortgage-backed
securities, collateralized mortgage obligations or other mortgage-related
derivative products and/or structured notes.
Securities as a percentage of total assets at December 31 decreased
from 33.7% in 1995 to 18.8% in 1996. At September 30, 1997, investment
securities represented 14.2% of assets. This reduction in securities since 1995
reflects management's emphasis on originating higher yielding loans and placing
less reliance on the securities portfolio as a source of income.
F-6
<PAGE>
LIQUIDITY
Liquidity for a financial institution can be expressed in terms of
maintaining sufficient cash flows to meet both existing and unplanned
obligations in a cost effective manner. Adequate liquidity allows Gateway to
meet the demands of both the borrower and the depositor on a timely basis, as
well as pursuing other business opportunities as they arise. Liquidity is
maintained through Gateway's ability to convert assets into cash, manage the
maturities of liabilities and generate funds through the attraction of local
deposits.
Gateway prefers to manage its liquidity requirements primarily through
the matching of maturities of assets and liabilities. As a second source of
funds, Gateway has access to overnight federal funds which can be purchased from
correspondent institutions.
The cash flow statements for the periods presented in the financial
statements of Gateway included in this Proxy Statement/Prospectus provide an
indication of Gateway's sources and uses of cash as well as an indication of its
ability to maintain an adequate level of liquidity. A discussion of the cash
flow statements for 1996 and 1995 follows.
Net cash provided from operating activities was $529,000 and $246,000
for the years ended December 31, 1996, and 1995, respectively. The net cash
provided from operating activities was primarily due to the net income of
Gateway plus non cash expenses.
Investing activities provided $862,000 and used $252,000 in cash for
the years ended December 31, 1996, and 1995, respectively. The cash provided by
investing activities in 1996 was primarily due to excess cash received from
maturing securities, while cash was used for loans and federal funds sales in
1995.
Financing activities used $1,322,000, in 1996, largely due to a
decrease in interest bearing deposits. For the year ended December 31, 1995,
financing activities provided $173,000. During the year interest bearing
deposits increased by more than non-interest bearing deposits decreased.
Liquidity risk is the possibility that Gateway may not be able to meet
its cash requirements. Management of liquidity risk includes maintenance of
adequate cash and sources of cash to fund operations and meet the needs of
borrowers, depositors and creditors. Liquidity must be maintained at a level
that is adequate but not excessive. Excess liquidity has a negative impact on
earnings resulting from the lower yields on short-term assets.
In addition to cash, cash equivalents and Federal funds sold, the
securities portfolio provides an important source of liquidity. The total of
securities maturing within one year along with cash, due from banks and Federal
funds sold totaled $5,573,000, or 18.2% of total assets, at December 31, 1996.
These securities are available to meet liquidity needs on a continuing basis.
To maintain a desired level of liquidity, Gateway has several sources
of funds available. One is the cash flow generated daily from its portfolio in
the form of principal and interest payments. Another source is its deposit base.
Gateway maintains a relatively stable base of customer deposits. Due to the
nature of the market served by Gateway, management believes that the majority of
certificates of deposit of $100,000 or more are no more volatile than its core
deposits. Certificates of deposits and other time deposits of $100,000 or more
represented only 0.4% and 0% of total deposits for 1996 and 1995, respectively.
A number of techniques are used to measure the liquidity position, including the
utilization of certain ratios that are presented below. These ratios are
calculated based on annual averages for each year.
F-7
<PAGE>
LIQUIDITY RATIOS
<TABLE>
<CAPTION>
For the
Nine Months
Ended September 30, For the Years Ended December 31,
--------------------- ----------------------------------
1997 1996 1995 1994
------------- ------ ------ ------
<S> <C> <C> <C> <C>
Total loans/total deposits.............. 80.23% 75.43% 61.08% 57.36%
Net short-term borrowings/total assets.. 0.00% 0.00% 0.00% 0.00%
</TABLE>
This analysis shows that Gateway's loan to deposit ratios increased in
1996 and 1995 compared to the prior year due to an increase in loan demand that
exceeded the increase in deposit generation and retention.
INTEREST RATE SENSITIVITY
The interest spread and liability funding discussed above are directly
related to changes in asset and liability mixes, volumes, maturities and
repricing opportunities of interest-earning assets and interest-bearing
liabilities. Interest-sensitive assets and liabilities are those which are
subject to being repriced in the near term, including both floating or
adjustable rate instruments and instruments approaching maturity. The interest
rate sensitivity gap is the difference between total interest-sensitive assets
and total interest-sensitive liabilities. Interest rates on Gateway's various
asset and liability categories do not respond uniformly to changing market
conditions. Interest rate risk is the degree to which interest rate fluctuations
in the marketplace can affect net interest income.
The need for interest rate sensitivity gap management is most critical
in times of a significant change in overall interest rates. Management
generally seeks to limit the exposure of Gateway to interest rate fluctuations
by maintaining a relatively balanced mix of rate sensitive assets and
liabilities on a one-year time horizon. This mix is altered periodically
depending upon management's assessment of current business conditions and the
interest rate outlook.
DEPOSIT ACTIVITIES
Managing the mix and repricing of deposit liabilities is an important
factor affecting Gateway's ability to maximize its net interest margin. The
strategies used to manage interest-bearing deposit liabilities are designed to
adjust as the interest rate environment changes. In this regard, management of
Gateway regularly assesses its funding needs, deposit pricing, and interest rate
outlooks.
Deposits totaled $27.6 million at September 30, 1997, compared to
$27.2 million at December 31, 1996, and $28.5 million at December 31, 1995.
Non-interest bearing deposits were 10.2% of total deposits at September 30,
1997, compared to 10.3% at December 31, 1996, and 9.74% at December 31, 1995.
F-8
<PAGE>
CAPITAL
The various regulatory agencies having supervisory authority over
financial institutions have adopted risk-based capital guidelines that define
the adequacy of the capital levels of regulated institutions. These risk-based
capital guidelines require minimum levels of capital based upon the risk rating
of assets and certain off-balance-sheet items. Assets and off-balance-sheet
items are assigned regulatory-risk weights ranging from 0% to 100% depending on
their level of credit risk. The guidelines classify capital in two tiers, Tier I
and Tier II, the sum of which is total capital. Tier I capital is essentially
common equity, less intangible assets. Tier II capital is essentially qualifying
long-term debt and a portion of the allowance for loan losses. Gateway's capital
ratios significantly exceed all regulatory minimums.
Gateway's capital ratios were as follows:
<TABLE>
<CAPTION>
SELECTED CAPITAL INFORMATION
(Dollars in Thousands)
September 30, 1997 December 31, 1996
------------------- ------------------
Amount Ratio Amount Ratio
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Total Capital $3,619 18.94% 3,455 19.81%
(to Risk Weighted Assets)
Tier I Capital $3,392 17.75% 3,213 18.42%
(to Risk Weighted Assets)
Tier I Leverage Ratio $3,392 10.96% 3,213 10.02%
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 129, "Disclosure of Information
about Capital Structure" ("SFAS 129") and Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS No. 129 establishes
standards for disclosing information about an entity's capital structure. SFAS
129 is effective for financial statements for the period ending after December
15, 1997. Gateway will adopt SFAS 129 in the year ending December 31, 1997 and
has not yet determined the effect of the adoption.
SFAS 128 simplifies the standards for computing earnings per share
("EPS") previously found in APB No. 15, "Earnings per Share," and makes them
comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the financial statements for all
entities with complex capital structures. Basic EPS excludes dilution and is
computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding for the period. Diluted EPS is
computed similarly to fully diluted EPS under APB Opinion No. 15. SFAS 128 is
effective for Gateway's year ending December 31, 1997, and is not expected to
have a material impact on the financial statements.
F-9
<PAGE>
GATEWAY BANCSHARES, INC. AND SUBSIDIARY
MCMECHEN, WV
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1997
(UNAUDITED)
F-10
<PAGE>
GATEWAY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(In Thousands)
<TABLE>
<CAPTION>
September 30,
-----------------------------
1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
ASSETS
Cash and Due From Banks $ 1,130 $ 1,397
Interest Bearing Deposits with Other Banks 300 200
Federal Funds Sold 2,375 1,750
Investment Securities:
Available for Sale -0- 1,012
Held to Maturity 4,429 7,099
Loans 22,171 19,821
LESS: Valuation Reserve (227) (242)
Bank Premises And Equipment 724 790
Accrued Interest Receivable 172 182
Other Assets 67 146
-----------------------------
TOTAL ASSETS $31,141 $32,155
=============================
LIABILITIES
Deposits:
Non Interest Bearing $ 2,819 $ 2,838
Interest Bearing 24,815 25,915
-----------------------------
TOTAL DEPOSITS $27,634 $28,753
-----------------------------
Other Liabilities 115 215
TOTAL LIABILITIES $27,749 $28,968
-----------------------------
SHAREHOLDERS' EQUITY
Common Stock $ 891 $ 891
Capital Surplus 300 300
Retained Earnings 2,294 2,081
Treasury Stock (93) (93)
Net Unrealized Gains On Available-For-Sale
Securities -0- 8
-----------------------------
TOTAL SHAREHOLDERS' EQUITY $ 3,392 $ 3,187
-----------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $31,141 $32,155
=============================
</TABLE>
F-11
<PAGE>
GATEWAY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
For The Nine Months Ended
September 30,
--------------------------
1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $1,379 $1,257
Interest on Investment Securities 241 378
Interest on Federal Funds Sold 70 111
Deposits with Other Banks 14 10
--------------------------
TOTAL INTEREST INCOME $1,704 $1,756
--------------------------
INTEREST EXPENSE
Interest on Deposits $ 595 $ 662
--------------------------
TOTAL INTEREST EXPENSE $ 595 $ 662
--------------------------
NET INTEREST INCOME $1,109 $1,094
Provision for Possible Loan Losses 6 29
--------------------------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES $1,103 $1,065
--------------------------
OTHER INCOME
Service Charges and Other Income $ 101 $ 99
Net Securities Gains (Losses) -0- 11
Other Operating Income 36 52
--------------------------
TOTAL OTHER INCOME $ 137 $ 162
--------------------------
OTHER EXPENSE
Employee Compensation and Benefits $ 471 $ 420
Occupancy Expense, Net of Revenues 37 40
Furniture and Equipment Expense 72 64
Other Operating Expenses 308 266
--------------------------
TOTAL OTHER EXPENSES $ 888 $ 790
--------------------------
INCOME BEFORE INCOME TAXES $ 352 $ 437
Provision For Income Taxes 132 172
--------------------------
NET INCOME $ 220 $ 265
==========================
</TABLE>
F-12
<PAGE>
GATEWAY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
For The Nine Months Ended
September 30,
-------------------------
1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 220 $ 265
Adjustments To Reconcile Net Income To Net Cash Provided By
Operating Activities:
Depreciation 63 59
Provision for Loan Losses 6 29
Change In:
Other Assets 272 (21)
Other Liabilities (91) 38
-------------------------
Net Cash Provided by (Used by) Operating Activities $ 470 $ 370
-------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of Securities Available for Sale
Proceeds from Sale of Securities Available for Sale
Proceeds from Maturities of Securities Available for Sale
Purchases of Securities Held to Maturity (3,744)
Proceeds from Sale of Securities Held to Maturity 1,299
Proceeds from Maturities of Securities Held to Maturity 6,283
(Increase) Decrease in Federal Fund Sold (575) (550)
(Increase) Decrease in Loans (1,626) (2,197)
Purchases of Bank Premises and Equipment (14) (131)
-------------------------
Net Cash Provided by (Used by) Investing Activities $ (916) $ (339)
-------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in Deposits $ 397 $ 254
Dividends Paid (41) (40)
-------------------------
Net Cash Provided by (Used by) Financing Activities $ 356 $ 214
-------------------------
Net Increase (Decrease) in Cash and Cash Equivalents $ (90) $ 245
Cash and Cash Equivalents at Beginning of Period 1,220 1,152
-------------------------
Cash and Cash Equivalents at End of Period $ 1,130 $ 1,397
=========================
</TABLE>
F-13
<PAGE>
GATEWAY BANCSHARES, INC. AND SUBSIDIARY
MCMECHEN, WV
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
F-14
<PAGE>
GATEWAY BANCSHARES, INC. AND SUBSIDIARY
---------------------------------------
MCMECHEN, WV
------------
*TABLE OF CONTENTS
------------------
DECEMBER 31, 1996 AND 1995
--------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Report 1
Consolidated Balance Sheets 2
Consolidated Statements of Changes
in Shareholders' Equity 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6 - 14
</TABLE>
F-15
<PAGE>
Glatz, Obecny & Company, PLLC
Certified Public Accountants
Telephone (304) 232-1358
Fax (304) 232-1361
Suite 400, Central Union Building
40 Fourteenth Street
Wheeling, WV 26O03
Independent Auditor's Report
----------------------------
To the Board of Directors
Gateway Bancshares, Inc.
We have audited the accompanying consolidated balance sheets of Gateway
Bancshares, Inc. and Subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of income, changes in shareholders' equity and
cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Bank'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 consolidated 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 consolidated financial position of
Gateway Bancshares, Inc. and Subsidiary as of December 31, 1996 and 1995, and
the consolidated results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
February 7, 1997
Wheeling, WV
F-16
<PAGE>
GATEWAY BANCSHARES, INC. AND SUBSIDIARY
---------------------------------------
MCMECHEN, WV
------------
*CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995
-------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1996 1995
- ------ ----------- -----------
<S> <C> <C>
Cash and due from banks $ 1,220,445 $ 1,151,671
Interest earning deposits with banks 300,000 200,000
Federal funds sold 1,800,000 1,200,000
Investment securities:
Available for sale -0- 1,012,110
Held-to-maturity 5,748,787 9,638,243
Loans net of allowance for loan losses of $242,084
in 1996 and $216,678 in 1995 20,302,653 17,407,286
Property and equipment - net 773,462 730,492
Accrued interest receivable 161,387 247,431
Other assets 349,779 59,730
----------- -----------
Total assets $30,656,513 $31,646,963
----------- -----------
<CAPTION>
==============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Liabilities:
Deposits:
Non-interest bearing $ 2,793,818 $ 2,774,571
Interest bearing 24,443,467 25,724,431
----------- -----------
Total deposits 27,237,285 28,499,002
Accrued expenses and other liabilities 206,201 177,301
----------- -----------
Total liabilities 27,443,486 28,676,303
----------- -----------
Shareholders' equity:
Common stock, par value $12.50; 200,000 shares
authorized, 71,280 shares issued, 66,652 shares
outstanding December 31, 1996 and 1995, respectively 891,000 891,000
Paid in capital 300,000 300,000
Retained earnings:
Appropriated 150,000 150,000
Unappropriated 1,964,608 1,714,289
Unrealized gain on securities available for sale
net of deferred taxes of $4,600 -0- 7,952
----------- -----------
Subtotals 3,305,608 3,063,241
Treasury shares, at cost, 4,628 shares December 31,
1996 and 1995, respectively (92,581) (92,581)
----------- -----------
Total shareholders' equity 3,213,027 2,970,660
----------- -----------
Total liabilities and shareholders' equity $30,656,513 $31,646,963
----------- -----------
==============================================================================
</TABLE>
*See Accompanying Notes to Consolidated Financial Statements.
F-17
<PAGE>
GATEWAY BANCSHARES, INC. AND SUBSIDIARY
---------------------------------------
MCMECHEN, WV
------------
*CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
----------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
----------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Common Stock:
------------
Balances beginning of years $ 891,000 $ 891,000
Transactions -0- -0-
---------- ----------
Balances end of years 891,000 891,000
---------- ----------
Paid in Capital:
---------------
Balances beginning of years 300,000 300,000
Transactions -0- -0-
---------- ----------
Balances end of years 300,000 300,000
---------- ----------
Retained earnings:
-----------------
Appropriated:
Balances beginning of years 150,000 150,000
Transactions -0- -0-
---------- ----------
Balances end of years 150,000 150,000
---------- ----------
Unappropriated:
Balances beginning of years 1,714,289 1,571,580
Net income 310,306 199,363
Cash dividends ($.90 per share in 1996,
$.85 per share in 1995) (59,987) (56,654)
---------- ----------
Balances end of years 1,964,608 1,714,289
---------- ----------
Net unrealized gain on securities available for sale:
----------------------------------------------------
Balances beginning of years 7,952 -0-
Net change (7,952) 7,952
---------- ----------
Balances end of years -0- 7,952
---------- ----------
Treasury Stock:
--------------
Balances beginning of years (92,581) (92,581)
Net change -0- -0-
---------- ----------
Balances end of years (92,581) (92,581)
---------- ----------
Total shareholder's equity $3,213,027 $2,970,660
====================================================================================
</TABLE>
*See Accompanying Notes to Consolidated Financial Statements.
F-18
<PAGE>
GATEWAY BANCSHARES, INC. AND SUBSIDIARY
---------------------------------------
MCMECHEN, WV
------------
*CONSOLIDATED STATEMENTS OF INCOME
----------------------------------
FOR THE YEARS ENDED DECEMBER 31. 1996 AND 1995
----------------------------------------------
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Interest income:
Loans and fees on loans $1,674,439 $1,517,550
Investment securities:
Taxable 483,530 643,687
Exempt -0- 6,000
Federal funds sold 138,962 44,348
Deposits with banks 13,196 10,670
---------- ----------
Total interest income 2,310,127 2,222,255
---------- ----------
Interest expense:
Deposits 867,711 900,192
Borrowed funds -0- 12,462
---------- ----------
Total interest expense 867,711 912,654
---------- ----------
Net interest income 1,442,416 1,309,601
Provision for loan losses 46,578 80,743
---------- ----------
Net interest income after provision for loan losses 1,395,838 1,228,858
---------- ----------
Other income:
Customer service fees 143,484 144,811
Gain on disposal of investments 10,644 -0-
Other income 47,000 42,386
---------- ----------
Total other income 201,128 187,197
---------- ----------
Other expenses:
Salaries and employee benefits 566,612 520,119
Occupancy and equipment expense - Net 159,790 152,980
Other expenses 374,558 421,693
---------- ----------
Total other expenses 1,100,960 1,094,792
---------- ----------
Income before income taxes 496,006 321,263
Income tax expense 185,700 121,900
---------- ----------
Net income $ 310,306 $ 199,363
========== ==========
Per share information:
Net income per share of common stock $4.66 $2.99
========== ==========
Weighted average shares outstanding 66,652 66,652
==================================================================================
</TABLE>
*See Accompanying Notes to Consolidated Financial Statements.
F-19
<PAGE>
GATEWAY BANCSHARES, INC. AND SUBSIDIARY
---------------------------------------
MCMECHEN, WV
------------
*CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
----------------------------------------------
<TABLE>
<CAPTION>
Increase (decrease) in cash and due from banks:
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 310,306 $ 199,363
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income taxes (23,818) (20,400)
Loan loss provision 46,578 80,743
Gain on sale of assets (10,644) -0-
Depreciation 87,606 71,136
Other - Net 118,571 (84,690)
----------- -----------
Net cash provided (used) by operating activities 528,599 246,152
----------- -----------
Cash flows from investing activities:
(Increase) decrease in federal funds sold (600,000) (725,000)
Funds used to purchase:
Securities to be held to maturity (3,743,945) -0-
Interest bearing deposits with banks (100,000) -0-
Proceeds from:
Maturity of securities held to maturity 7,645,000 -0-
Maturity of securities available for sale 1,000,000 2,000,000
(Increase) decrease in loans - Net (3,208,600) (1,466,063)
Purchase of premises and equipment - Net (130,576) (60,444)
----------- -----------
Net cash provided (used) by investing activities 861,879 (251,507)
----------- -----------
Cash flows from financing activities:
Increase (decrease) in non-interest bearing deposits 19,247 (166,694)
Increase (decrease) in interest-bearing deposits (1,280,964) 396,463
Dividends paid (59,987) (56,654)
----------- -----------
Net cash provided (used) by financing activities (1,321,704) 173,115
----------- -----------
Increase (decrease) in cash and due from banks 68,774 167,760
Cash and due from banks balance, beginning of year 1,151,671 983,911
----------- -----------
Cash and due from banks balance, end of year $ 1,220,445 $ 1,151,671
===========================================================================================
</TABLE>
*See Accompanying Notes to Consolidated Financial Statements.
F-20
<PAGE>
GATEWAY BANCSHARES, INC. AND SUBSIDIARY
---------------------------------------
MCMECHEN, WV
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1996 AND 1995
--------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
The accounting and reporting policies of Gateway Bancshares, Inc. and
Subsidiary are in accordance with generally accepted accounting principles and
conform to general practices within the banking industry. The more significant
of the principles used in preparing the financial statements are briefly
described below.
Consolidation - The consolidated financial statements of Gateway
-------------
Bancshares, Inc. (the Bank) include the accounts of the Bank and its wholly
owned subsidiary, The Bank of McMechen. Significant inter-company transactions
and amounts have been eliminated.
Nature of operations - The Bank operates under a state banking charter and
--------------------
provides full banking services, including trust services. It is regulated by the
WV state banking commission and the Federal Deposit Insurance Corporation. The
area served by the Bank includes portions of West Virginia, Ohio and
Pennsylvania commonly known as the Upper Ohio Valley. The Bank has one branch
location.
Estimates - The preparation of financial statements in conformity with
---------
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and due from banks - For the purpose of presentation in the statements
-----------------------
of cash flows, cash and due from banks include cash on hand, cash items in the
process of collection, non-interest bearing deposits in other institutions and
interest-earning deposits in other institutions with original maturities of
three months or less when acquired.
Investment securities - Securities are classified at the time of their
---------------------
purchase as either "held to maturity", "trading" or "available for sale". If it
is management's intent and the Bank has the ability to hold such securities
until their approximate maturity, these securities are classified as held to
maturity and are carried on the Bank's books at cost, adjusted for amortization
of premiums and accretion of discounts on a level yield basis. Alternatively,
if it is management's intent at the time of purchase to hold securities for the
purpose of resale in the near future, the securities are classified as trading
and are carried at market value. Securities not classified as held to maturity
or trading are classified as available for sale and are carried at market value.
Investments available for sale include investment securities which may be sold
in response to changes in interest rates, resultant prepayment risk and other
factors related to interest rate or prepayment risk. Gains or losses on sales
of securities are recognized upon realization. The cost of investment
securities sold is determined using the specific identification method.
Allowance for loan losses and accounting for impaired loans - The
-----------------------------------------------------------
allowance is maintained at a level adequate to absorb probable losses.
Management determines the adequacy of the allowance based upon reviews of
individual loans, recent loss experience, current economic conditions, the risk
characteristics of the various categories of loans and other relevant factors.
Losses are charged and recoveries are credited to the allowance for loan losses
at the time the loss or recovery is incurred.
Impaired loans are measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair value of the
collateral if
F-21
<PAGE>
the loan is collateral dependent. At December 31, 1996 and 1995 the Bank had no
material loans which would be considered impaired within the scope of Statement
of Financial Accounting Standards No. 114.
Bank premises and equipment - Bank premises and equipment are stated at
---------------------------
cost less accumulated depreciation. The provision for depreciation is computed
principally by the straight-line method over the estimated useful lives of the
assets.
Expenditures for maintenance and repairs are charged to operations, and the
expenditures for major replacements and betterments are added to the property
and equipment accounts. The cost and accumulated depreciation of the property
and equipment retired or sold are eliminated from the property accounts at the
time of retirement or sale and the resulting gain or loss is reflected in
current operations.
Other assets - Real estate acquired in satisfaction of a loan is carried in
------------
other assets. Properties acquired by foreclosure or deed in lieu of foreclosure
are transferred to other assets and recorded at the lower of cost or fair market
value based on appraisal value at the date actually or constructively received.
Losses arising from acquisition of such property are charged against the
allowance for loan losses.
Interest income on loans - Interest on loans is accrued and credited to
------------------------
income based on the principal amount outstanding. The accrual of interest on
loans is discontinued when, in the opinion of management, there is an indication
that the borrower may be unable to meet payments as they become due.
Loan origination fees and costs - Loan origination fees and certain direct
-------------------------------
origination costs are capitalized and recognized as an adjustment of the yield
on the related loan.
Retirement costs - Retirement costs are charged to salaries and employee
----------------
benefits expense and are funded as accrued.
Income taxes - Provisions for income taxes are based on taxes payable or
------------
refundable for the current year (after exclusion of non-taxable income such as
interest on state and municipal securities) and deferred taxes on temporary
differences between the amount of taxable and pretax financial income and
between the tax bases of assets and liabilities and their reported amounts in
the financial statements. Deferred tax assets and liabilities are included in
the financial statements at currently enacted income tax rates applicable to the
period in which the deferred tax asset and liabilities are expected to be
realized or settled. As changes in tax laws or rates are enacted, deferred tax
assets and liabilities are adjusted through the provision of income taxes.
The Bank and its subsidiary file a consolidated Federal income tax
return.
Net income per share of common stock - Net income per share of common stock
------------------------------------
is computed by dividing net income by the weighted average number of shares of
common stock outstanding during the period.
Off balance sheet financial instruments - In the ordinary course of
---------------------------------------
business the Bank has entered into off balance sheet financial instruments
consisting of commitments to extend credit. Such financial instruments are
recorded in the financial statements when they become payable.
NOTE 2 - INVESTMENT SECURITIES
- ------------------------------
Held-to Maturity:
----------------
The carrying amounts and estimated market values of investment securities
classified as held-to-maturity at December 31, 1996 and 1995 are as follows:
F-22
<PAGE>
GATEWAY BANCSHARES, INC. AND SUBSIDIARY
---------------------------------------
MCMECHEN, WV
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1996 AND 1995
--------------------------
NOTE 2 - INVESTMENT SECURITIES (CONT.)
- -------------------------------------
<TABLE>
<CAPTION>
(Amounts in Thousands)
-------------------------------------------------
Carrying Unrealized Unrealized Market
Amounts Gains Losses Value
------- ----- -------- ------
<S> <C> <C> <C> <C>
December 31, 1996:
U.S. Treasury $2,599 $ 6 $ -0- $ 2,605
U.S. Government agencies 3,150 6 (12) 3,144
State and municipal -0- -0- -0- -0-
------- ------ ------- -------
Totals $5,749 $ 12 $ (12) $ 5,749
======= ====== ======= =======
December 31, 1995:
U.S. Treasury $4,906 $ 19 $ (6) $ 4,919
U.S. Government agencies 4,732 11 (23) 4,720
State and municipal -0- -0- -0- -0-
------- ------ ------- -------
Totals $9,638 $ 30 $ (29) $ 9,639
======= ====== ======= =======
</TABLE>
There were no realized gains or losses from investment securities
transactions in 1995. The bank realized gains of $10,644 on disposal of
securities to be held to maturity which were called for redemption during 1996.
The maturities of investment securities held-to-maturity at December 31,
1996 were as follows:
<TABLE>
<CAPTION>
Amounts in Thousands
--------------------
Carrying Market
Amount Value
-------- -------
<S> <C> <C>
December 31, 1996:
Due in one year or less $2,253 $2,253
Due from one to five years 3,496 3,496
Due from five to ten years -0- -0-
Due after ten years -0- -0-
------ ------
Totals $5,749 $5,749
====== ======
</TABLE>
F-23
<PAGE>
GATEWAY BANCSHARES, INC. AND SUBSIDIARY
---------------------------------------
MCMECHEN, WV
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1996 AND 1995
--------------------------
NOTE 2 - INVESTMENT SECURITIES (CONT.)
- --------------------------------------
Investment securities held-to-maturity have been pledged to secure public
deposits and for other reasons as follows:
<TABLE>
<CAPTION>
12/31/96 12/31/95
-------- --------
<S> <C> <C>
Carrying value $2,099,735 $2,356,940
---------- ----------
Market value $2,099,688 $2,363,489
========== ==========
</TABLE>
Available for sale:
------------------
At December 31, 1996 there were no securities classified as available
for sale.
The Bank transferred securities with an amortized cost of $999,559 and
unrealized gains of $7,952 from the held-to-maturity classification in December
of 1995 to provide alternatives for financing arrangements.
The carrying amounts and estimated market values of investment securities
classified as available for sale at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
(Amounts in Thousands)
----------------------
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
December 31, 1995:
U.S. Treasury $ -0- $ -0- $ -0- $ -0-
U.S. Government agencies 1,000 12 -0- 1,012
State and municipal -0- -0- -0- -0-
-------- --------- --------- --------
Totals $1,000 $ 12 $ -0- $ 1,012
-------- --------- --------- --------
</TABLE>
There were no realized gains or losses from investment securities
available for sale transactions in 1996 or 1995.
NOTE 3 - LOANS
- --------------
The components of loans in the consolidated balance sheets were as follows:
<TABLE>
<CAPTION>
12/31/96 12/31/95
----------- -----------
<S> <C> <C>
Residential real estate $11,817,427 $10,638,435
Commercial and other real estate 2,570,096 3,249,248
Other commercial 1,106,048 240,207
Consumer and other 5,051,166 3,496,074
----------- -----------
Subtotals 20,544,737 17,623,964
Allowance for loan losses (242,084) (216,678)
----------- -----------
Loans - Net $20,302,653 $17,407,286
=========== ===========
</TABLE>
Loans on non-accrual status were approximately $96,000 at
December 31, 1996 and $254,000 at December 31, 1995.
F-24
<PAGE>
GATEWAY BANCSHARES, INC. AND SUBSIDIARY
---------------------------------------
MCMECHEN, WV
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1996 AND 1995
--------------------------
NOTE 3 - LOANS (CONT.)
- ---------------------
As of December 31, 1996 and 1995, the Bank serviced loans for others of
approximately $388,000 and $481,000, respectively. These loans serviced for
others are not assets of the Bank and are appropriately excluded from the Bank's
financial statements.
Allowance for loan losses
-------------------------
An analysis of the change in the allowance for loan losses follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Balance, beginning of year $216,678 $194,612
Provision charged to operations 46,578 80,743
Loans charged off (37,485) (69,930)
Recoveries of loans previously charged off 16,313 11,253
-------- --------
Balance, end of year $242,084 $216,678
-------- --------
</TABLE>
NOTE 4 - BANK PREMISES AND EQUIPMENT
- ------------------------------------
The components of bank premises and equipment included in the consolidated
balance sheets were as follows:
<TABLE>
<CAPTION>
12/31/96 12/31/95
---------- ----------
<S> <C> <C>
Cost:
Land $ 132,808 $ 132,808
Buildings & improvements 787,780 762,789
Furniture & equipment 498,574 557,919
---------- ----------
1,419,162 1,453,516
Accumulated depreciation (645,700) (723,024)
---------- ----------
Net book value $ 773,462 $ 730,492
---------- ----------
</TABLE>
The amount shown as occupancy expense in the statements of income is net of
rental income. Rental income amounted to $10,369 in 1996 and $8,723 in 1995.
NOTE 5 - OTHER ASSETS
- ---------------------
Other assets in the consolidated balance sheets include other real estate
which was acquired through foreclosure or deed in lieu of foreclosure in the
amounts of $266,655 and $-0-, respectively, at December 31, 1996 and 1995.
F-25
<PAGE>
GATEWAY BANCSHARES, INC. AND SUBSIDIARY
---------------------------------------
MCMECHEN, WV
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1996 AND 1995
--------------------------
NOTE 6 - DEPOSITS
- -----------------
Deposit balances at December 31, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Non-interest-bearing:
Demand accounts $ 2,793,818 $ 2,774,571
Interest-bearing:
NOW accounts 5,012,824 5,926,709
Passbook savings accounts 11,371,754 11,134,679
Time deposits:
Under $100,000 certificates 7,957,026 8,663,043
Certificates $100,000 or more 101,863 -0-
----------- -----------
Totals $27,237,285 $28,499,002
----------- -----------
</TABLE>
The following table summarizes the contractual maturity of certificates of
deposit.
<TABLE>
<CAPTION>
Due within Amount
---------- ------
<S> <C>
1 year $ 6,078,559
2 years 1,560,661
3 years 313,840
4 years 93,575
5 years 12,254
-----------
$ 8,058,889
===========
</TABLE>
NOTE 7 - RETIREMENT PLAN
- -------------------------
The Bank has a defined contribution profit-sharing type retirement plan in
effect for substantially all full-time employees. Salaries and employee benefits
expense includes $27,500 in 1996 and $23,000 in 1995 for this plan.
Contributions under the defined contribution plan are made at the discretion of
the board of directors.
NOTE 8 - INCOME TAXES
- ---------------------
The consolidated provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Currently payable:
Federal $180,518 $125,000
State 29,000 17,300
Deferred:
Federal (20,818) (18,700)
State (3,000) (1,700)
-------- --------
Totals $185,700 $121,900
======== ========
</TABLE>
F-26
<PAGE>
GATEWAY BANCSHARES, INC. AND SUBSIDIARY
---------------------------------------
MCMECHEN, WV
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1996 AND 1995
--------------------------
NOTE 8 - INCOME TAXES (CONT.)
- ----------------------------
The components of the deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax assets:
Federal $ 53,250 $ 41,667
State 7,208 6,134
-------- --------
Total 60,458 47,801
-------- --------
Deferred tax liabilities:
Federal (20,636) (34,527)
State (2,794) (4,674)
-------- --------
Total (23,430) (39,201)
-------- --------
Net deferred tax assets (liabilities) $ 37,028 $ 8,600
======== ========
</TABLE>
The components of deferred income taxes were principally related to the
allowance for loan losses, depreciation, loan origination fees and costs and to
accretion of discounts on investment securities.
The provision for federal income taxes is less than that computed by
applying the federal statutory rate of 34% in 1996 and 1995 as indicated in the
following analysis:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Tax based on statutory rate $168,642 $109,229
Effect of tax-exempt income (1,510) (2,460)
State income taxes net of federal benefit 19,140 10,296
Other (572) 4,835
-------- --------
Totals $185,700 $121,900
======== ========
</TABLE>
NOTE 9 - RELATED PARTIES
- ------------------------
The Bank has loans outstanding to its principal officers, directors and
their affiliates (related parties). Such transactions were made in the ordinary
course of business on substantially the same terms and conditions, including
interest rates and collateral, as those prevailing at the same time for
comparable transactions with other customers, and did not, in the opinion of
management, involve more than normal credit risk or present other unfavorable
features. The aggregate amount of loans to such related parties at December 31,
1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Balance, beginning of year $166,910 $207,319
New loans 36,794 36,959
Payments (29,730) (77,368)
-------- --------
Balance, end of year $173,974 $166,910
======== ========
</TABLE>
F-27
<PAGE>
GATEWAY BANCSHARES, INC. AND SUBSIDIARY
---------------------------------------
MCMECHEN, WV
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1996 AND 1995
--------------------------
NOTE 10 - CONTINGENT LIABILITIES AND COMMITMENTS
- ------------------------------------------------
The Bank's consolidated financial statements do not reflect various
commitments and contingent liabilities which arise in the normal course of
business and which involve elements of credit risk, interest rate risk and
liquidity risk. These commitments and contingent liabilities are commitments to
extend credit, commercial letters of credit, standby letters of credit and
commitments to purchase assets. A summary of the Bank's commitments and
contingent liabilities at December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Commitments to extend credit $928,570 $778,617
Commercial letters of credit -0- -0-
Standby letters of credit -0- -0-
Commitments to purchase assets -0- 68,916
</TABLE>
Commitments to extend credit, commercial letters of credit and standby
letters of credit all include exposure to some credit loss in the event of non-
performance of the customer. The Bank's credit policies and procedures for
credit commitments and financial guarantees are the same as those for extension
of credit that are recorded on the consolidated balance sheets. Because these
instruments have fixed maturity dates, and because many of them expire without
being drawn upon, they do not generally present any significant liquidity risk
to the Bank. The Bank has not been required to perform on any financial
guarantees during the past two years. The Bank has not incurred any losses on
its commitments in either 1996 or 1995.
The Bank and its subsidiary are parties to litigation and claims arising in
the normal course of business. A group of former and present customers of the
Bank have filed a suit for damages claiming breach of fiduciary duties.
Management, after consultation with legal council, believes that liabilities, if
any, arising from current litigation and claims will not be material to the
consolidated financial position.
NOTE 11 - CONCENTRATIONS OF CREDIT
- ----------------------------------
All of the Bank's loans and commitments have been granted to customers in
the Bank's market area. Generally, such customers are depositors of the Bank.
Investments in state and municipal securities also involve governmental entities
within the Bank's market area. The concentrations of credit by type of loan are
set forth in Note 3. The distribution of commitments to extend credit
approximates the distribution of loans outstanding. The Bank, as a matter of
policy, does not extend credit to any single borrower or group of related
borrowers in excess of ten percent of its capital.
At December 31, 1996 cash and due from banks included one commercial bank
deposit account which was $7,900 in excess of the Federal Deposit Insurance
Corporation limit of $100,000 per institution.
F-28
<PAGE>
GATEWAY BANCSHARES, INC. AND SUBSIDIARY
---------------------------------------
MCMECHEN, WV
------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
DECEMBER 31, 1996 AND 1995
--------------------------
NOTE 12 - REGULATORY MATTERS
- ----------------------------
The Bank is subject to regulations promulgated by the State Banking
Commission and the Federal Deposit Insurance Corporation (FDIC). These
regulations require the Bank to maintain certain minimum amounts of capital to
total "risk weighted" assets as defined by the FDIC. The Bank is required to
have minimum Tier I and total capital ratios of 4.0% and 8.0% respectively. At
December 31, 1996 and 1995 the bank was in compliance with these ratio
requirements.
NOTE 13 - SUPPLEMENTAL CASH FLOW INFORMATION
- --------------------------------------------
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Interest paid $895,295 $879,474
======== ========
Income taxes paid $139,028 $250,216
======== ========
Non cash investing activity included:
Acquisition of other real estate
by foreclosure $266,655 $ -0-
======== ========
</TABLE>
CHS135583
F-29
<PAGE>
ANNEX A
A-1
<PAGE>
AGREEMENT AND PLAN OF MERGER
By and Among
GATEWAY BANCSHARES, INC.
COMMERCIAL BANCSHARES, INCORPORATED
and
CWV HOLDING COMPANY, INC.
August 15, 1997
A-2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I. PLAN OF MERGER................................................... 2
1.1 Parties to Merger and Surviving Bank............................. 2
1.2 Terms of Merger.................................................. 2
1.3 Effect of Merger................................................. 3
1.4 Consideration.................................................... 3
1.5 Exchange of Shares............................................... 4
1.6 Articles of Incorporation and Bylaws of
Surviving Bank Holding Company................................... 5
1.7 Additional Requirements.......................................... 5
ARTICLE II. REPRESENTATIONS AND WARRANTIES.................................. 6
2.1 Representations and Warranties of Commercial and CWV............. 6
(a) Organization............................................... 6
(b) Authority.................................................. 6
(c) Financial Statements....................................... 7
(d) Applications............................................... 7
(e) Authority to Exchange Shares............................... 7
(f) Registered Bank Holding Company............................ 8
(g) Absence of Certain Changes................................. 8
(h) Litigation................................................. 8
(i) Absence of Undisclosed or Contingent Liabilities........... 9
(j) No Adverse Event........................................... 9
(k) SEC Reports................................................ 9
(l) Capitalization............................................. 9
(m) Registration............................................... 10
(n) Title to Properties........................................ 10
(o) Taxes...................................................... 11
(p) Subsidiaries of Commercial................................. 11
(q) ERISA...................................................... 11
(r) Absence of Defaults and Violation.......................... 12
(s) Other Transactions......................................... 13
(t) Environmental Concerns..................................... 13
(u) Matters Relevant to Tax Treatment.......................... 15
2.2. Representation and Warranties of Gateway......................... 17
(a) Organization
(b) Authority of Gateway....................................... 17
(c) Capital Stock of Gateway................................... 18
(d) Absence of Certain Changes................................. 18
(e) Taxes...................................................... 20
(f) Litigation, Etc............................................ 20
(g) Absence of Defaults and Violations......................... 21
(h) Absence of Undisclosed Assets and of
Undisclosed Contingent Liabilities......................... 21
(i) Financial Statements....................................... 22
(j) Real Property.............................................. 22
</TABLE>
A-3
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(k) No Adverse Event........................................... 22
(l) Material Contracts......................................... 22
(m) ERISA...................................................... 23
(n) Regulatory Reports......................................... 24
(o) Environmental Concerns..................................... 24
ARTICLE III. ADDITIONAL AGREEMENTS.......................................... 25
3.1 Approval of Gateway Shareholders................................. 25
3.2 Approval of Commercial Shareholders and Sole Shareholder of CWV.. 25
3.3 Rights of Dissenting Stockholders................................ 25
3.4 Regulatory Approval.............................................. 25
3.5 Conduct of Business by Gateway and Its Subsidiary Until Closing.. 26
3.6 Conduct of Business by Commercial Until Closing.................. 29
3.7 Proxy Statement.................................................. 31
3.8 Directors, Independent Bank...................................... 31
(a) Board of Directors......................................... 31
(b) Independent Bank........................................... 31
(c) Commercial Board of Directors.............................. 32
3.9 Employees of Bank of McMechen.................................... 32
ARTICLE IV. CONDITIONS...................................................... 33
4.1 Conditions to Obligations of All Parties......................... 33
(a) Shareholder Approval of Transaction........................ 33
(b) CWV........................................................ 33
(c) Absence of Restraints...................................... 33
(d) Governmental Approvals..................................... 33
(e) Compliance and Representations............................. 33
(f) Securities Law Compliance.................................. 34
(g) Confidentiality............................................ 34
(h) Accounting Treatment....................................... 34
(i) Tax Free Exchange.......................................... 34
(j) Execution of Closing....................................... 35
4.2 Additional Conditions to Obligations of Commercial............... 35
(a) Shareholder Approval....................................... 35
(b) Counsel's Opinion.......................................... 35
(c) Affiliates Agreements...................................... 36
4.3 Additional Conditions to Obligations of Gateway.................. 37
(a) Opinion of Counsel......................................... 37
(b) Tax Opinion................................................ 38
(c) Fairness Opinion........................................... 39
</TABLE>
A-4
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE V. CLOSING.......................................................... 39
5.1 Closing.......................................................... 39
ARTICLE VI. MISCELLANEOUS................................................... 40
6.1 Termination...................................................... 40
6.2 Expenses......................................................... 41
6.3 Survival of Provisions........................................... 41
6.4 Individual Directors of Gateway.................................. 41
6.5 Amendment........................................................ 42
6.6 Assignability.................................................... 42
6.7 Notices.......................................................... 42
6.8 Entire Agreement................................................. 43
6.9 Counterparts..................................................... 43
6.10 Governing Law.................................................... 43
6.11 Invalid Provisions............................................... 43
6.12 Headings and Subheadings......................................... 43
6.13 Third-Party Beneficiaries........................................ 43
EXHIBIT LIST................................................................. 45
EXHIBIT A
EXHIBIT B
EXHIBIT C
EXHIBIT D
</TABLE>
A-5
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), is made and
entered into as of this 15th day of August, 1997, among GATEWAY BANCSHARES,
INC., a West Virginia banking corporation ("Gateway"); COMMERCIAL BANCSHARES,
INCORPORATED, a West Virginia bank holding company ("Commercial") and CWV
HOLDING COMPANY, INC., ("CWV"), a West Virginia banking corporation to be formed
as a wholly-owned subsidiary of Commercial.
WHEREAS, Gateway is a West Virginia corporation organized and existing
under the laws of the State of West Virginia with its principal office in
McMechen, West Virginia, and a registered bank holding company under the Bank
Holding Company Act of 1956, as amended;
WHEREAS, Gateway owns one hundred percent of the issued and
outstanding shares of The Bank of McMechen, a state chartered banking
corporation with its main office in McMechen, West Virginia.
WHEREAS, CWV will be organized as a West Virginia corporation with its
principal office located in Parkersburg, West Virginia, and will be registered
as a bank holding company under the Bank Holding Company Act of 1956, as
amended;
WHEREAS, Commercial is a West Virginia corporation with its principal
office located in Parkersburg, West Virginia, and is a registered bank holding
company under the Bank Holding Company Act of 1956, as amended;
WHEREAS, the parties hereto desire to accomplish the merger of Gateway
into CWV with CWV surviving and operating under the name "CWV Holding Company,
Inc." (the "Merger");
WHEREAS, shareholders of Gateway will receive common stock of
Commercial ("Commercial stock") equal to $80.00 for each share of Gateway common
stock ("Gateway stock") they own as consideration for the Merger; provided,
however that no fractional shares of Commercial stock will be issued and in lieu
thereof Gateway shareholders will receive cash consideration as provided herein;
WHEREAS, for federal income tax purposes, the transaction is intended
to be treated as a tax free reorganization under Internal Revenue Code
(S)368(a)(2)(D).
A-6
<PAGE>
NOW, THEREFORE, for and in consideration of the premises and the
representations, warranties, covenants and agreements contained herein,
Commercial and Gateway do represent, warrant, covenant and agree (and CWV will
represent, warrant, covenant and agree) as follows:
ARTICLE I
----------
PLAN OF MERGER
--------------
1.1 Parties to Merger and Surviving Bank. The parties to the Plan of
------------------------------------
Merger are Gateway Bancshares, Inc. and CWV. Gateway shall merge with and
into CWV under the charter of the latter, pursuant to the laws of West Virginia.
At the time of the Merger, Gateway will cease to exist and CWV will be the
surviving bank holding company (the "Surviving Bank Holding Company"). The name
of the Surviving Bank Holding Company shall be "CWV Holding Company, Inc." and
its principal office will be in Parkersburg, West Virginia.
1.2 Terms of Merger. The terms and conditions of the Merger are set
---------------
forth in this Agreement. Upon satisfaction of all of the terms and conditions
set forth herein, the Merger shall be effective upon the date (the "Merger
Effective Date") so indicated by the West Virginia Secretary of State
("Secretary of State").
1.3 Effect of Merger. Upon consummation, the Merger shall have the
----------------
following effects:
(a) The Surviving Bank Holding Company will, upon the time of the
Merger and thereafter, possess all of the rights, privileges, immunities and
franchises of CWV and Gateway.
(b) All property, real, personal and mixed; all debts due in
whatever amount; all choses in action; and all other rights and interests
belonging to or due to CWV and Gateway will be taken and deemed to be
transferred to and vested in CWV as the Surviving Bank Holding Company and all
such property, real, personal and mixed; all debts due in whatever amount; all
choses in action; and all other rights and interests belonging to or due to CWV
and Gateway shall remain in the Surviving Bank Holding Company without further
act, and the title to any real estate, or any interest therein, vested in
Gateway shall not revert or be in any way impaired by reason of the Merger.
(c) The Surviving Bank Holding Company will be responsible and
liable for all of the liabilities and obligations of CWV and Gateway,
respectively, and neither the rights of creditors nor liens upon the property of
Gateway shall be impaired by the Merger, including, but not limited to, any
liability of Gateway arising under its bylaws or the applicable laws of West
Virginia in connection with the indemnification of directors and officers of
Gateway arising at any time prior to the Merger Effective Date.
A-7
2
<PAGE>
(d) The Surviving Bank Holding Company will have a capital stock
account equal to the capital stock account of CWV.
1.4 Consideration. As consideration for the Merger, shareholders of
-------------
Gateway who do not dissent to this transaction will be entitled to receive the
number of shares of Commercial common stock equal to $80.00 divided by the
average price of Commercial common stock reported on the American Stock Exchange
for the twenty (20) trading days preceding Closing; provided, however, that such
consideration shall be paid for no more than 66,652 shares of Gateway common
stock. The average price shall be calculated by adding the closing prices of
Commercial stock reported by the American Stock Exchange on each of the twenty
(20) trading days preceding the Closing and dividing the sum by twenty (20) (the
"Average Price"). In the event there are no reported trades on any day during
such twenty (20) day period then the closing price for such a day, for purposes
of calculating the Average Price, shall be the closing price last reported on a
date preceding the date on which no trade occurred. For purposes of this
paragraph "trading day" shall mean a day on which the American Stock Exchange is
open and conducts business. If the Average Price quotient is less than or equal
to 1.742, the exchange ratio will be 1.742 and Gateway shareholders will be
entitled to receive 1.742 shares of Commercial common stock for each share of
Gateway stock they own. If such quotient is greater than or equal to 2.129, then
the exchange ratio will be 2.129 and Gateway shareholders will be entitled to
receive 2.129 shares of Commercial common stock for each share of Gateway stock
they own.
No fractional shares of Commercial stock will be issued and in lieu
thereof, Gateway shareholders will be entitled to receive cash based upon the
Average Price of Commercial stock, without interest. If on or after the date
hereof, and prior to the Merger, the outstanding shares of Commercial stock are
changed into a different number or class by virtue of any reclassification,
split, stock dividend or similar event, then the exchange ratio provided herein
will be adjusted proportionately. The issuance of Commercial stock in
accordance with Section 2.1(l) will not result in an adjustment to the exchange
ratio. From and after the date of the Merger, the holders of certificates
representing Gateway shares shall cease to have any rights with respect to such
shares (except dissenters' rights) and such shares will thereafter be deemed
canceled and void. The sole rights of such shareholders (excluding dissenters'
rights) will be to receive the Merger Consideration.
1.5 Exchange of Shares. Except for any shares of Gateway as to which
------------------
dissenters' rights are exercised pursuant to the West Virginia Corporation Act,
(S) 31-1-122 (the "West Virginia Appraisal Statute"), each holder of
certificates representing shares of the stock of Gateway will, upon the
surrender to Commercial, or its agent, of such certificates in proper form, be
entitled to receive a certificate or certificates representing the number of
whole shares of the common stock of Commercial into which the surrendered
certificates shall have been converted by reason of the Merger. Until
surrendered for exchange, each outstanding certificate of Gateway submitted for
exchange for Commercial
A-8
3
<PAGE>
stock shall be deemed for all corporate purposes to evidence the ownership of
the full shares of stock of Commercial into which such shares have been
converted by reason of the Merger. Until a Gateway shareholder's outstanding
certificates have been surrendered, Commercial may, at its sole discretion,
withhold, with respect to such Gateway shareholder, as applicable (i) the
certificates representing the shares of its stock into which such Gateway shares
are converted by reason of the Merger; and (ii) the distribution of any and all
dividends and payment for fractional shares with respect to the stock of
Commercial to which the Gateway shareholder is entitled. Upon the delivery to
Commercial of the outstanding Gateway certificates by a Gateway shareholder,
there will be delivered to the record holder thereof (i) the certificate
representing the shares of the stock of Commercial to which the exchanging
Gateway holder is entitled, (ii) any dividends and (iii) any payment for
fractional shares, all without interest.
1.6 Articles of Incorporation and Bylaws of Surviving Bank Holding
--------------------------------------------------------------
Company. Upon the Merger being consummated, the Articles of Incorporation of
- -------
CWV will be the Articles of Incorporation of the Surviving Bank Holding Company
and the Bylaws of CWV shall be the Bylaws of the Surviving Bank Holding Company
until altered, amended or repealed in accordance with their provisions and
applicable law.
1.7 Additional Requirements. If at any time the Surviving Bank
-----------------------
Holding Company shall consider or be advised that any further assignments,
conveyances or assurances are necessary or desirable to vest, perfect or conform
in the Surviving Bank Holding Company the title to any property or rights of
Gateway or are otherwise necessary to carry out the provisions of the Plan of
Merger and this Agreement, the proper officers and directors of Gateway, as of
the Merger Effective Date, and, thereafter, the officers of the Surviving Bank
Holding Company, will execute and deliver any and all property assignments,
conveyances, assurances, and other instruments necessary to vest, perfect or
confirm title to any such property or rights in the Surviving Bank Holding
Company or to otherwise carry out the provisions of this Agreement.
ARTICLE II
-----------
REPRESENTATIONS AND WARRANTIES
------------------------------
2.1 Representations and Warranties of Commercial and CWV. Unless
----------------------------------------------------
disclosed in Exhibit A hereto , as of the date of this Agreement, and as of the
date of the consummation of the transactions contemplated herein, Commercial
represents and warrants, and CWV will represent and warrant as of the date it
executes the Adoption Agreement contained in Exhibit B hereto and as of the date
of consummation of the transactions contemplated herein, the following to
Gateway:
(a) Organization. Commercial is a West Virginia corporation duly
------------
organized, validly existing and in good standing under the laws of the State of
West Virginia. Commercial has the requisite corporate power and authority to
own and lease its properties and to conduct its business as currently conducted
and as currently
A-9
4
<PAGE>
contemplated to be conducted. Commercial shall cause CWV to be to be formed,
and as of the date of its execution of the Adoption Agreement, it will be a duly
organized, validly existing West Virginia bank holding company in good standing
under the laws of the State of West Virginia.
(b) Authority. Commercial has and CWV will have the power to enter
---------
into this Agreement and to consummate the transactions contemplated herein. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein have been duly authorized by the Board of
Directors of Commercial and will be so authorized by the Board of Directors of
CWV. Commercial, as sole shareholder of CWV, will vote all shares of CWV in
favor of the Merger and the transactions contemplated herein. Upon its
execution and delivery, this Agreement will constitute the valid and legally
binding obligation of Commercial, and will constitute the valid and legally
binding obligation of CWV upon its execution of the Adoption Agreement. Subject
to obtaining the permits, approvals, consents and authorizations set forth in
Article IV hereto, the execution and delivery of this Agreement does not and
will not, and the consummation of the transaction contemplated herein will not,
violate (i) any provisions of the Articles of Incorporation or Bylaws of
Commercial or CWV, (ii) any laws of the State of West Virginia, or (ii) any
material restriction to which either of them is subject.
(c) Financial Statements. Commercial has delivered to Gateway copies
--------------------
of its audited consolidated financial statements for the fiscal year ended
December 31, 1996, and its unaudited consolidated financial statements for the
period ended June 30, 1997. Commercial represents and warrants that the
financial statements which have been or will be delivered pursuant to any
provision of this Agreement fairly present its financial position of as of the
date thereof and the results of its operations and its cash flows for each of
the respective periods specified therein in conformity with generally accepted
accounting principles applied on a consistent basis.
(d) Applications. Commercial and CWV, with the cooperation of
------------
Gateway, will cause to be filed all necessary regulatory applications with the
appropriate bank regulators to accomplish the transactions contemplated herein.
Commercial will pay all expenses associated with the filing of such regulatory
applications, excluding legal, accounting or other expenses incurred by Gateway
in connection therewith.
(e) Authority to Exchange Shares. The shares of Commercial to be
----------------------------
issued pursuant to this Agreement are or will be duly authorized. When issued
upon the terms and conditions specified in this Agreement, the shares will be
validly issued, fully paid and non-assessable. There are no preemptive or
similar rights with regard to the shares of Commercial to be issued in
connection with the transactions contemplated herein. The shares of Commercial
stock to be issued pursuant to this Agreement to Gateway shareholders will be,
when issued, registered with the SEC pursuant to an effective registration on
Form S-4.
A-10
5
<PAGE>
(f) Registered Bank Holding Company. Commercial is a duly registered
-------------------------------
bank holding company under the Bank Holding Company Act of 1956, as amended.
Authority for CWV, as a wholly-owned second-tier bank holding company, will be
obtained in the regulatory filings made in connection with the transactions
contemplated herein.
(g) Absence of Certain Changes. Except as may be disclosed in Exhibit
--------------------------
A hereto and made a part hereof, since June 30, 1997:
(i) There has been no material change in the operations, financial
condition, or results of operation of Commercial or any subsidiary of Commercial
which could have a material adverse effect on the consolidated assets, financial
condition, or operations of Commercial, nor has any event or condition occurred
which is known to its officers which may result in such a change;
(ii) There has not been any damage, destruction, or loss by reason
of fire, flood, accident or other casualty (whether insured or not insured)
materially and adversely affecting the consolidated assets, financial condition
or operations of Commercial;
(iii) Neither Commercial nor any subsidiary of Commercial has
disposed of or agreed to dispose of any properties or assets material to
Commercial, nor has it leased to others, or agreed to so lease, any of such
material properties or assets; and
(iv) Commercial has not granted any warrant, option or right to
acquire, or agreed to repurchase, redeem or otherwise acquire, any shares of its
capital stock or any other of its securities whatsoever, except as set forth on
Exhibit A hereto.
(h) Litigation. Except as disclosed in Exhibit A, neither Commercial
----------
nor any subsidiary of Commercial is a party to, or, to the knowledge of its
executive officers, threatened with, any litigation, action, governmental or
other proceeding, investigation, strike or other labor dispute which might
affect the validity of this Agreement or which, individually or in the
aggregate, might have a materially adverse effect on Commercial's consolidated
assets, financial condition, operations or material contractual rights; and
there is no outstanding order, writ, injunction or decree of any court or
governmental agency against or materially affecting Commercial or a material
portion of any of its consolidated businesses or assets.
(i) Absence of Undisclosed or Contingent Liabilities. Except to the
------------------------------------------------
extent set forth in the footnotes to the December 31, 1996, consolidated
financial statements of Commercial and its subsidiaries delivered
A-11
6
<PAGE>
to Gateway, or on Exhibit A hereto, there exists no claim, liability,
obligation, or any known asserted claim, secured or unsecured (whether accrued,
absolute, contingent or otherwise), that would have a material adverse effect on
the consolidated operations, financial condition or results of operations of
Commercial.
(j) No Adverse Event. Since June 30, 1997, there has been no change
----------------
or changes, which, individually or in the aggregate, has or have materially and
adversely affected the business of Commercial.
(k) SEC Reports. The Form 10-K Annual Report to the Securities and
-----------
Exchange Commission by Commercial for the year ended December 31, 1996, its
quarterly filings made during 1997 on Form 10-Q, and its current reports made on
Form 8-K made during 1997, if any, do not contain, as of the date hereof or as
of their respective dates, any untrue statement of a material fact or omission
of any material fact necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading.
(l) Capitalization. As of June 30, 1997, the authorized capital stock
--------------
of Commercial is 2,000,000 shares of common stock, par value of $5.00 per share,
of which 1,616,187 are issued and outstanding as of the date hereof and are
fully paid and nonassessable, and of which no shares are held in treasury by
Commercial. Commercial may issue additional shares or options or similar rights
pursuant to its Employee Stock Ownership Plan with 401(K) provisions("KSOP")or
in connection with other acquisitions. On May 14, 1997, the shareholders of
Commercial approved an amendment to the Articles of Incorporation of Commercial,
increasing authorized common stock to 5,000,000 shares. The Amendment to the
Articles of Incorporation reflecting this change will be filed in August, 1997.
As of June 30, 1997, Commercial has authorized 43,328 shares of cumulative $100
preferred stock, none of which has been issued.
(m) Registration. As soon as practicable after the date hereof,
------------
Commercial will cause a Registration Statement (or, in the case of State "blue
sky" filings, other appropriate form) to be filed with and declared effective by
the Securities and Exchange Commission, the appropriate state agencies
regulating securities, and any other governmental agencies having jurisdiction,
with respect to the Commercial stock to be issued pursuant to this Agreement.
The Registration Statement (and other appropriate forms) will comply as to form
with applicable requirements of law and, except as to the information about
Gateway furnished by it in writing for use in the Registration Statement (or
other appropriate form), or written information about Gateway contained therein
and reviewed by it, the Registration Statement will contain no untrue statement
of any material fact required to be stated therein or omission of any material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. The Registration Statement and
"blue sky" filings contemplated by this Agreement will be sufficient to ensure
that the Commercial stock held by non-affiliates of Gateway may be freely resold
without further registration.
A-12
7
<PAGE>
(n) Title to Properties. Commercial and its subsidiaries have good
-------------------
and marketable title to all of their property and assets set forth on the
consolidated balance sheet of Commercial as of June 30, 1997 subject to no
liens, mortgages, pledges, encumbrances or charges of any kind except liens
reflected on said balance sheet, liens which do not materially affect the
current use of the property, or liens for ad valorem taxes not yet due and
payable, and all of their leases are in full force and effect, and neither
Commercial nor any of its subsidiaries is aware of any default thereunder.
(o) Taxes. Except as disclosed in Exhibit A hereto, (i) Commercial
-----
and its subsidiaries have filed all federal income tax returns and all other
federal, state, municipal and other tax returns which they are required to file,
have paid all taxes shown to be due on such returns and, in the opinion of their
respective chief executive and financial officers, have adequately reserved for
all current taxes; (ii) neither the Internal Revenue Service ("IRS") nor any
other taxing authority is now asserting against Commercial or its subsidiaries,
or, to their knowledge, threatening to assert against them, or any of them, any
deficiency or claim for additional taxes, interest or penalties; (iii) there is
no pending or threatened examination of the federal income tax returns of
Commercial or its subsidiaries and, except for tax years still subject to the
assessment and collection of additional federal income taxes under the three-
year period of limitations described in IRC (S) 6501(a), no tax year of
Commercial or its subsidiaries remains open to the assessment and collection of
additional federal income taxes; and (iv) there is no pending or threatened
examination of the West Virginia business and occupation tax returns of
Commercial or its subsidiaries and, except for tax years still subject to the
assessment and collection of additional business and occupation taxes under the
three-year period of limitations described in W.Va. Code (S) 11-10-15, no tax
year of Commercial or its subsidiaries remains open to the assessment and
collection of additional business and occupation taxes.
(p) Subsidiaries of Commercial. The subsidiaries of Commercial
--------------------------
consist of state banking corporations which are duly organized, validly existing
and in good standing under applicable laws. Each has the corporate power, and
all necessary Federal, state, and local banking and other authorizations, to own
its property and conduct its business as currently conducted and as currently
contemplated to be conducted. Commercial owns, free and clear of liens and
encumbrances of any nature, 100% of the issued and outstanding stock of its
subsidiaries.
(q) ERISA. For purposes of this Agreement, Benefit Arrangement means
-----
(i) any employee welfare benefits plan or employee pension benefit plan within
the meaning of section 3(1) or section 3(2) of the Employee Retirement Income
Security Act of 1974 ("ERISA"), (ii) any profit sharing, deferred compensation,
bonus, stock option, pension retainer, consulting, retirement, severance,
welfare, or incentive plan, agreement, or arrangement; or (iii) any plan,
agreement or arrangement providing for fringe benefits or perquisites to
employees, officers, directors, or agents, including, but not limited to
benefits relating to automobiles, clubs, vacations, child care, sabbatical, sick
leave, medical benefits, dental benefits, hospitalization, life insurance and
other types of insurance.
A-13
8
<PAGE>
Each Benefit Arrangement that is subject to (i) the group health care
continuation coverage requirements of section 4980B of the Internal Revenue Code
of 1986 (the "Code") and sections 601-608 of ERISA; (ii) the secondary payor
requirements imposed by section 1862 of the Social Security Act; or (iii) the
health insurance portability and anti-discrimination requirements of Part 7 of
ERISA (29 U.S.C. (S)(S) 1181-1183), has been operated in all material respects
in accordance with those provisions to the extent they apply.
There have been no acts or omissions relating to any Benefit
Arrangement that has resulted or may result in the imposition of fines,
penalties, taxes or related charges under ERISA or the Code, including, but not
limited to (i) ERISA sections 502(c), (i) or (l); (ii) ERISA section 4071; (iii)
the prohibited transaction provisions of ERISA section 406 or Code section 4975;
(iv) or the imposition of a lien pursuant to Code sections 401(a)(29) or 412(n).
Unless disclosed in Exhibit A, each Benefit Arrangement has been fully
operated and administered in all material respects in accordance with its terms.
Each Benefit Arrangement that is intended to comply with section 401(a) of the
Internal Revenue Code or ERISA complies in all material respects in form,
operation and administration with such provisions to the extent they apply.
All contributions (including all employer contributions and employee
salary reductions contributions, if any) which are due have been paid to each
Benefit Arrangement.
(r) Absence of Defaults and Violation. Except as disclosed in Exhibit
---------------------------------
A attached hereto and made a part hereof, neither Commercial nor its
subsidiaries (i) are in default under any term or provision of any mortgage,
deed of trust, note, bond, indenture, commitment, contract, agreement,
franchise, permit, license, lease or instrument to which they are a party or by
which any of them or any of their properties is bound and which is material to
the consolidated financial condition, businesses or operations of Commercial,
(ii) are subject to any decree, order, writ or injunction of any court or
authority which materially restricts their operations or requires any material
actions, (iii) are in violation of any law, rule or regulation known and
applicable to them which could materially affect the consolidated financial
condition, assets, businesses or operations of Commercial; or (iv) has received
notification from any agency or department of any federal, state or local
governmental or regulatory authority or the staff thereof asserting that any of
them is not in compliance with any of the statutes, regulations, rules or
ordinances which such governmental or regulatory authority or regulatory
authority enforces, or any threat to revoke any license, franchise, permit or
governmental authorization which could materially affect the consolidated
financial condition, assets, business, or operations of Commercial or its
subsidiaries.
A-14
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<PAGE>
(s) Other Transactions. Nothing herein shall be construed to limit at
------------------
any time the ability of Commercial or any of its subsidiaries from entering into
other agreements or transactions pursuant to which it or its subsidiaries may
merge, consolidate or affiliate with any other entity, or acquire or establish
other branches or subsidiaries.
(t) Environmental Concerns. Unless otherwise indicated in Exhibit
----------------------
A, to the knowledge of their respective chief executive and chief financial
officers, neither Commercial nor its subsidiary banks own any property where:
1. Material amounts of Hazardous Substances have been
generated, treated, stored, disposed of, incinerated or recycled
at or on the property;
2. Aboveground or underground storage tanks are or have
been located;
3. Spills, discharges, releases, deposits of material
amounts of any Hazardous Substances have occurred;
4. Hazardous Substances have been released on adjacent
properties which could migrate on to the property of Commercial
or any of its subsidiaries;
5. An investigation or administrative proceeding by a
governmental agency or a lawsuit by a governmental agency or
private third party has occurred involving Applicable
Environmental Law or where the property contains conditions which
would give rise to such an event; or
6. Solid waste, as defined in the West Virginia Solid Waste
Management Act, West Virginia Code (S) 20-5F-1 et seq., has been
-- ---
disposed of.
To the knowledge of their respective chief executive and chief
financial officers, neither Commercial nor any of its subsidiary banks has a
loan secured by property which is owned or operated by an entity or person in
violation of Applicable Environmental Law or has a condition which could lead to
a claim of violation of Applicable Environmental Law.
For purposes of this Agreement, (i) the term "Applicable Environmental
Law" shall include but shall not be limited to the laws and implementing
regulations of the United States Government, the State of West
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Virginia and local governments, whether currently in existence or hereafter
enacted, that govern: (a) the existence, cleanup and/or remedy of or for
hazardous substance contamination on property; (b) the protection of the
environment from released, spilled, deposited or otherwise emplaced hazardous
substance contamination; (c) the control of hazardous substances and hazardous
substance waste; and (d ) the reporting, use, generation, transport, treatment
and removal of Hazardous Substances and (ii) the term "Hazardous Substance"
shall mean any substance which at any time is toxic, ignitable, reactive or
corrosive and that is regulated by any Applicable Environmental Law or which has
been or shall be determined at any time by any agency or court to be a toxic,
ignitable, reactive or corrosive substance regulated under Applicable
Environmental Law or detrimental to the environment or health of living
organisms. "Hazardous Substance" includes any and all materials or substances
that are defined as "hazardous wastes", "extremely hazardous wastes" or a
"hazardous substances" pursuant to any Applicable Environmental Law. "Hazardous
Substance" includes, but is not restricted to, asbestos, polychlorinated
biphenyls ("PCBs"), radon, nuclear materials and petroleum.
(u) Matters Relevant to Tax Treatment.
---------------------------------
(i) Commercial has no plan or intention to liquidate CWV; to
merge CWV with or into another corporation; to sell or otherwise dispose of the
stock of CWV; or to cause CWV to sell or otherwise dispose of any of the assets
of Gateway acquired in the Merger, except for dispositions made in the ordinary
course of business or transfers described in I.R.C. Section 368(a)(2)(C).
(ii) Following the Merger, CWV will continue the historic
business of Gateway or use a significant portion of Gateway's business assets in
such business.
(iii) Commercial has no plan or intention to reacquire any
of its stock issued in the Merger.
(iv) Neither Commercial nor CWV has any plan or intention to
sell or otherwise dispose of any of the assets of Gateway acquired in the
Merger, except for dispositions made in the ordinary course of business,
dispositions in arm's length transactions made to avoid duplicative facilities
or to comply with regulatory requirements.
(v) Prior to the Merger, Commercial will be in control of
CWV within the meaning of I.R.C. Section 368(c).
(vi) Following the Merger, CWV will not issue additional
shares of its stock that would result in Commercial losing control of CWV within
the meaning of Section 368(c).
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(vii) Neither Commercial nor CWV are investment companies,
as defined in I.R.C. Section 368(a)(2)(F)(iii) and (iv).
(viii) The payment of cash to Gateway shareholders in lieu of
fractional shares of Commercial stock is not separately bargained for
consideration and is solely for the purpose of saving Commercial the expense and
inconvenience of issuing fractional shares. The total cash consideration that
will be paid in the Merger to the Gateway shareholders instead of issuing
fractional shares of Commercial stock will not exceed 1% of the total
consideration to be issued in the transaction to Gateway shareholders in
exchange for their shares of Gateway common stock. The fractional share
interests of each Gateway shareholder will be aggregated and no Gateway
shareholder will receive cash for fractional shares in an amount equal to or
greater than the value of one full share of Commercial stock.
(ix) None of the compensation received by any shareholder-
employee of Gateway will be separate consideration for, or allocable to, any of
his or her shares of Gateway stock; none of the shares of Commercial stock
received by any shareholder-employee will be separate consideration for, or
allocable to, any employment agreement; and the compensation paid to any
shareholder-employee will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's-length for
similar services.
2.2. Representation and Warranties of Gateway. Unless disclosed in
----------------------------------------
Exhibit C hereto as of the date of this Agreement and as of the date of the
consummation of the transactions contemplated herein, Gateway represents and
warrants the following to Commercial and CWV:
(a) Organization. Gateway is a West Virginia corporation duly
------------
organized, validly existing and in good standing under the laws of the State of
West Virginia. Bank of McMechen is a state banking corporation duly organized,
validly existing and in good standing under the laws of the State of West
Virginia. Each has all of the requisite corporate power and authority to own
and lease its properties and to conduct its business as it is now being
conducted and as currently contemplated to be conducted.
(b) Authority of Gateway. Subject to all applicable state and
--------------------
federal regulatory approvals and the requisite shareholder approval, Gateway has
the power to enter into this Agreement and to cause the transaction contemplated
herein to be carried out. The execution and delivery of this Agreement and the
consummation of the transaction contemplated herein have been duly authorized by
the Board of Directors of Gateway. Except for the ratification, confirmation and
approval of this Agreement by Gateway's stockholders, no other acts or
proceedings on its part are necessary to authorize the transaction contemplated
by this Agreement. Upon its execution and delivery, subject only to shareholder
ratification, confirmation and approval, this Agreement constitutes the valid
and legally binding obligation of Gateway. Subject to obtaining the permits,
approvals, consents and authorizations set forth in
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<PAGE>
Article IV hereto, the execution and delivery of this Agreement does not, and
the consummation of the transaction contemplated herein will not, violate (i)
any provision of the Articles of Incorporation or Bylaws of Gateway, (ii) any
laws of the State of West Virginia or of the United States of America or (iii)
any other material restriction of any kind or character to which Gateway is
subject. No acceleration of payment, default, breach or termination will occur
in any material respect by virtue of the consummation of the transaction
contemplated in this Agreement under any material contract, agreement, deed of
trust, note, instrument, order, judgment or decree.
(c) Capital Stock of Gateway. Gateway has one class of capital stock
------------------------
consisting of 200,000 shares of authorized common stock having a par value of
$12.50 per share, 66,652 of which are issued and outstanding. The outstanding
shares of Gateway stock have been duly and validly authorized and issued and
have not been issued in violation of any preemptive rights of any of its
shareholders. Gateway holds 4,628 shares of its stock as treasury stock, none
of which has been acquired within the last two (2) years.
(d) Absence of Certain Changes. Except as disclosed in Exhibit C
--------------------------
attached hereto and made a part hereof, since June 30, 1997:
(i) There has been no change in the assets, consolidated financial
condition, or results of operations of Gateway, taken as a whole, which has had,
or changes which in the aggregate have had, a materially adverse effect on
Gateway's assets, financial condition or operations, nor has any event occurred
which is known to the officers of Gateway which may result in such changes.
(ii) There has not been any damage, destruction, or loss by reason
of fire, flood, accident or other casualty (whether insured or not insured)
materially and adversely affecting the assets, financial condition or operations
of Gateway;
(iii) Gateway has not disposed of or agreed to dispose of any
of its material properties or assets, nor has either leased to others, or agreed
to so lease, any of such material properties or assets;
(iv) There has not been any change in the authorized, issued or
outstanding capital stock of Gateway or any material change in the outstanding
debt of Gateway, other than changes due to payments in accordance with the terms
of such debt and other than the acceptance of deposits by Gateway in the
ordinary course of business;
(v) There has not been, nor will there be, any declaration,
setting aside or payment of any dividend or distribution in respect of any
shares of the common stock of Gateway except for dividends
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<PAGE>
of up to twenty (20) cents per share per quarter; provided that Gateway shall
not pay such a dividend for any quarter for which Gateway shareholders will be
entitled to receive a dividend as Commercial shareholders;
(vi) Gateway has not granted at any time any warrant, option or
right to acquire, or agreed to repurchase, redeem or otherwise acquire, any
shares of its capital stock or any other of its securities whatsoever except as
granted or agreed to in this Agreement;
(vii) No change has occurred in the personnel who are key
personnel with respect to the operations of Gateway; nor has there been any
increase in the compensation or fees payable by Gateway to its directors,
officers, employees or former employees, nor has there been any increase in any
loans, bonus, insurance, pension or other employee benefit plan, payment or
arrangement for or with any of such directors, officers, employees or former
employees;
(viii) Gateway has not made any loan or advance, other
than in the ordinary course of business;
(ix) Gateway has not made any expenditure or commitment for the
purchase, acquisition, construction or improvement of any material capital asset
or of capital assets which in the aggregate would be material;
(x) Except transactions contemplated herein, Gateway has not
entered into any other material transaction, contract or lease, or incurred any
other material obligation or liability; and
(xi) There has not been any other event, condition or development
of any kind which materially and adversely affects the assets, financial
condition or operations of Gateway, and it has no knowledge of any such event,
condition or development which may materially and adversely affect the assets,
financial condition or operations of Gateway.
(e) Taxes. Except as disclosed in Exhibit C attached hereto
-----
and made a part hereof:
(i) Gateway has filed all federal income tax returns and all other
federal, state, municipal and other tax returns which it is required to file,
has paid all taxes shown to be due on such returns and, in the opinion of its
chief executive and chief financial officer, has adequately reserved or
recognized for all current and deferred taxes;
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<PAGE>
(ii) Neither the IRS nor any other taxing authority is now
asserting against Gateway or its subsidiary, or, to its knowledge, threatening
to assert against either of them, any material deficiency or material claim for
additional taxes, interest or penalties;
(iii) There is no pending or threatened examination of the
federal income tax returns of Gateway and, except for tax years still subject to
the assessment and collection of additional federal income taxes under the three
year period of limitations prescribed in IRC (S) 6501(a), no tax year of Gateway
remains open to the assessment and collection of additional federal income
taxes; and
(iv) There is no pending or threatened examination or outstanding
liability for any West Virginia state taxes, except for tax liabilities not yet
due and payable.
(f) Litigation, Etc. Except as disclosed in Exhibit C attached
---------------
hereto and made a part hereof, neither Gateway nor its subsidiary is a party to,
or, to the knowledge of its chief executive officer, threatened with, any
litigation, action, governmental or other proceeding, investigation, strike or
other labor dispute which might affect the validity of this Agreement, or which,
individually or in the aggregate, might have a materially adverse affect on its
assets, financial condition or operations or on any of its material contractual
rights; and there is no outstanding material order, writ, injunction or decree
of any court or governmental agency against or affecting Gateway or a material
portion its business or assets.
(g) Absence of Defaults and Violations. Except as disclosed in
----------------------------------
Exhibit C attached hereto and made a part hereof, Gateway and its subsidiary are
not (i) in default under any term or provision of any mortgage, deed of trust,
note, bond, indenture, commitment, contract, agreement, franchise, permit,
license, lease or instrument to which it is a party or by which it or its
properties are bound and which is material to its financial condition,
businesses or operations, (ii) subject to any judgment, decree or order of any
court or order, agreement, or similar arrangement with a regulatory authority
which materially restricts it operations or requires any material action, (iii)
in violation of any law, rule or regulation known and applicable to either of
them which then violation of which could materially affect their financial
condition, assets, businesses or operations, or (iv) in receipt of notification
from any agency or department of any federal, state or local governmental or
regulatory authority or the staff thereof asserting that either of them is not
in compliance with any of the statutes, regulations, rules or ordinances which
such governmental authority or regulatory authority enforces and which lack of
compliance could materially affect the financial condition, assets, business or
operations of either of them, or any threat to revoke any license, franchise,
permit or governmental or regulatory authorization which could materially affect
the financial condition, assets, business or operations of either of them.
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<PAGE>
(h) Absence of Undisclosed Assets and of Undisclosed Contingent
-----------------------------------------------------------
Liabilities. Except to the extent reflected on the latest financial statements
- -----------
of Gateway delivered to Commercial or except as disclosed in Exhibit C attached
hereto and made a part hereof, Gateway and its subsidiary have no undisclosed
assets, or any material claim, liability, obligation, or any known asserted
claim, secured or unsecured, any of which is material (whether accrued,
absolute, contingent or otherwise), against either of them or either of their
assets.
(i) Financial Statements. Gateway has delivered to Commercial copies
--------------------
of the audited financial statements of Gateway for the year ended December 31,
1996, and unaudited statements for the period ended June 30, 1997, consisting of
Balance Sheets, Statements of Income, and Statements of Changes in Stockholders'
Equity and Statements of Cash Flows and notes thereto. Gateway represents and
warrants that its financial statements which have been or will be delivered
pursuant to any provision of this Agreement fairly present the financial
position of Gateway as of the date thereof and the results of its operations for
each period specified therein.
(j) Real Property. Gateway or its subsidiary owns the real property
-------------
shown on Exhibit C. Except as disclosed on Exhibit C, each is the owner of good
and marketable title in fee simple of the real property reflected on its books
and records as being owned by it. All real property owned by Gateway or its
subsidiary is free and clear of liens and encumbrances except for liens of
record, liens which do not materially affect the current use of the property or
liens for ad valorem taxes not yet due and payable.
(k) No Adverse Event. Since June 30, 1997, there has been no change,
----------------
other than changes in the ordinary course of business, which, individually or in
the aggregate, has or have materially and adversely affected the financial
condition, results of operations or businesses of Gateway.
(l) Material Contracts. Except as disclosed in Exhibit C attached
------------------
hereto and made a part hereof, Gateway or its subsidiary is not a party to, or
bound or affected by, nor receives benefits under (i) any material agreement,
arrangement or commitment not cancelable by it without penalty, other than
agreements, arrangements or commitments entered into in the ordinary course of
business consistent with its past practice and negotiated on an arm's length
basis, or (ii) any material agreement, arrangement or commitment relating to the
employment, election or retention in office of any director or officer.
(m) ERISA. For purposes of this Agreement, Benefit Arrangement means
-----
(i) any employee welfare benefits plan or employee pension benefit plan within
the meaning of section 3(1) or section 3(2) of the Employee Retirement Income
Security Act of 1974 ("ERISA"), (ii) any profit sharing, deferred compensation,
bonus, stock option, pension retainer, consulting, retirement, severance,
welfare, or incentive plan, agreement, or arrangement; or (iii) any plan,
agreement or arrangement providing for fringe benefits or perquisites to
employees, officers, directors,
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<PAGE>
or agents, including, but not limited to benefits relating to automobiles,
clubs, vacations, child care, sabbatical, sick leave, medical benefits, dental
benefits, hospitalization, life insurance and other types of insurance.
Each Benefit Arrangement that is subject to (i) the group health
care continuation coverage requirements of section 4980B of the Internal Revenue
Code of 1986 (the "Code") and sections 601-608 of ERISA; (ii) the secondary
payor requirements imposed by section 1862 of the Social Security Act; or (iii)
the health insurance portability and anti-discrimination requirements of Part 7
of ERISA (29 U.S.C. (S)(S) 1181-1183), has been operated in all material
respects in accordance with those provisions to the extent they apply.
There have been no acts or omissions relating to any Benefit
Arrangement that has resulted or may result in the imposition of fines,
penalties, taxes or related charges under ERISA or the Code, including, but not
limited to (i) ERISA sections 502(c), (i) or (l); (ii) ERISA section 4071; (iii)
the prohibited transaction provisions of ERISA section 406 or Code section 4975;
(iv) or the imposition of a lien pursuant to Code sections 401(a)(29) or 412(n).
Unless disclosed in Exhibit C, each Benefit Arrangement has been
fully operated and administered in all material respects in accordance with its
terms. Each Benefit Arrangement that is intended to comply with section 401(a)
of the Internal Revenue Code or ERISA complies in all material respects in form,
operation and administration with such provisions to the extent they apply.
All contributions (including all employer contributions and
employee salary reductions contributions, if any) which are due have been paid
to each Benefit Arrangement.
(n) Regulatory Reports. Gateway and its subsidiary have filed all
------------------
material reports required to be filed by it with all applicable banking
regulators, and with any other regulatory authority to which it must report, and
such reports have been completed in accord with applicable regulations and
requirements.
(o) Environmental Concerns. Unless otherwise indicated in Exhibit
----------------------
C, to the knowledge of its chief executive and chief financial officer, Gateway
and its subsidiary own or lease no property where:
(i) Material amounts of Hazardous Substances have been generated,
treated, stored, disposed of, incinerated or recycled at or on the property;
(ii) Aboveground or underground storage tanks are or have
been located;
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<PAGE>
(iii) Spills, discharges, releases, or deposits of material
amounts of any Hazardous Substances have occurred;
(iv) Hazardous Substances have been released on adjacent
properties which could migrate on to the property of Gateway or its subsidiary;
(v) Any investigation or administrative proceeding by a
governmental agency or any lawsuit by a governmental agency or private third
party has occurred involving Applicable Environmental Law or where the property
contains conditions which would give rise to such an event; or
(vi) Solid waste, as defined in the West Virginia Solid Waste
Management Act , West Virginia Code (S) 20-5F-1 et seq., has been disposed of.
To the knowledge of its respective chief executive and chief financial
officer, Gateway and its subsidiary have no loan secured by property which is
owned or operated by an entity or person in violation of Applicable
Environmental Law or has a condition which could lead to a claim of violation of
Applicable Environmental Law.
ARTICLE III
------------
ADDITIONAL AGREEMENTS
---------------------
3.1 Approval of Gateway Shareholders. Gateway will submit to its
--------------------------------
shareholders, as part of the proxy materials prepared for its shareholders'
consideration, this Agreement, and the transaction contemplated herein, for
approval, ratification and confirmation by the holders of at least a majority of
the issued and outstanding shares in accordance with law.
3.2 Approval of Commercial Shareholders and Sole Shareholder of CWV.
---------------------------------------------------------------
Commercial will vote all its shares in CWV in favor of the Merger of Gateway
into CWV.
3.3 Rights of Dissenting Stockholders. Any shareholder of Gateway
---------------------------------
who properly perfects his or her right to dissent under West Virginia Code (S)
31-1-123 (the "West Virginia Appraisal Statute") shall be entitled to the fair
value of such shares as determined in the West Virginia Appraisal Statute.
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<PAGE>
3.4 Regulatory Approval. Commercial and CWV, with Gateway's
------------------- -
cooperation and assistance, will prepare and file with the Board of Governors of
the Federal Reserve System ("FRB"), the West Virginia Board of Banking and
Financial Institutions and any other applicable regulatory authority all
applications required to seek approval of the Merger. The parties hereto agree
to expeditiously, continuously and aggressively pursue regulatory approval of
the transactions contemplated herein. Commercial shall provide Gateway with
copies of all correspondence, applications, and other documents submitted in the
regulatory approval proceedings.
3.5 Conduct of Business by Gateway and Its Subsidiary Until Closing.
---------------------------------------------------------------
Gateway acknowledges and agrees that the obligations contained in this Section
3.5 are an integral part of the consideration for this Agreement and that
Commercial's commitments herein are conditioned upon performance of these
operational covenants. Unless the prior written consent of Commercial is
obtained, or unless otherwise provided for herein, Gateway, between the date of
this Agreement and the Merger Effective Date will:
(a) Take no action, and not permit any action to be taken, which
will have a material adverse effect upon Gateway or its subsidiary, or their
respective properties, financial condition, businesses or operations, including,
without limitation, the commencement of any new branch banking operation.
(b) Take no action or do anything (i) which will cause Gateway or
its subsidiary to be, as of the Merger Effective Date, in violation of any of
their respective representations, warranties, covenants and agreements contained
in this Agreement or (ii) which will materially and adversely affect the
consummation of the transactions contemplated in this Agreement.
(c) Take no action to reclassify or alter Gateway's authorized
stock, to issue shares of capital stock, debt instruments, or other securities,
or to amend the Articles of Incorporation or Bylaws of Gateway or its
subsidiary.
(d) Not pay or declare any dividend or make any other
distribution in respect of Gateway's shares of common stock or acquire for value
any of such shares or pay any dividend, except as permitted herein.
(e) Take no action, and not permit any action to be taken, to
mortgage, pledge or subject to any lien or other encumbrance any of Gateway's
material assets; to dispose of any material assets; or to incur or cancel any
material debt or claim, except in the ordinary course of business as heretofore
conducted.
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(f) Afford to the officers, attorneys, accountants, and other
authorized representatives of Commercial full access to the respective
properties, books, tax returns and records of Gateway and its subsidiary, during
normal business hours and upon reasonable request, in order that they may make
such investigations of the affairs of Gateway and its subsidiary as Commercial
deems necessary or advisable. The parties hereto and their respective
affiliates shall use all information that each obtains from the other pursuant
to this Agreement solely for the transaction contemplated by this Agreement or
for purposes consistent with the intent of this Agreement, and shall not use any
of such information for any other purpose, including, without limitation, the
competitive detriment of any party. Each of the parties hereto and their
respective affiliates shall maintain as strictly confidential all information
any of them learns from another of the parties hereto pursuant to this
Agreement and shall, at any time, upon request, return promptly all
documentation provided or made available to them or third parties, including all
copies thereof. Each of the parties may disclose such information to its
respective affiliates, counsel, accountants, tax advisers, and consultants. The
confidentiality agreement contained in this section shall remain operative and
in full force, and shall survive the termination of this Agreement.
The parties hereto shall mutually agree in advance upon the
form and substance of all public disclosures concerning this Agreement and the
transaction contemplated hereby.
(g) Promptly advise Commercial of any material adverse change in
the financial condition, assets, businesses or operations of Gateway or its
subsidiary and of any material breach of any representation, warranty, covenant
or agreement made by Gateway or its subsidiary set forth in this Agreement.
(h) Maintain in full force and effect adequate fire, casualty,
public liability, employee fidelity and other insurance coverage in accordance
with prudent practices to protect Gateway or its subsidiary against losses for
which insurance protection can be obtained at reasonable cost.
(i) Take no action, and take such reasonable steps as are
practicable to avoid any action to be taken to change the senior management of
Gateway; to increase any compensation, benefits, or fees payable by Gateway to
their respective directors and officers, employees, or former employees; or to
increase any loans, insurance, pension or other employee benefit plan, payment
or arrangement for such officers, directors, employees; provided, however, that
Gateway and its subsidiary may: (i) make such increases in salary or wages as
may be required by law and (ii) at the time of its regular periodic compensation
adjustments, make increases in salaries and wages in amounts not to exceed three
percent (3%) of any individual's salary or wage rate.
(j) Take no action (i) to acquire, or to be acquired by, to merge
or merge with, any company or business;, (ii) to sell substantially all of
Gateway or its subsidiary's assets, or to enter into any similar
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transaction other than pursuant to the provisions of this Agreement; or (iii) to
acquire any branch, or, except in the ordinary course of business, any material
assets of any other company or business.
(k) Take no material action, and not permit any material action
to be taken, whatsoever with respect to its properties, assets, businesses or
operations, other than in the ordinary course of its business.
(l) Not permit the loan loss reserve to be less than $225,000
before the Merger Effective Date, less any amounts recovered from previously
charged-off loans; and in addition, Gateway agrees that it will (i) properly and
timely charge-off any loan losses, as required by any applicable regulatory
agency and prudent banking practices, and (ii) at the time of any such charge-
off, Gateway will make a provision to the loan loss reserve equal to the amount
of the loss, less the specific amount allocated in the reserve, if any, relating
to the charged-off loan (such specific amounts having been previously identified
in writing by loan and amount). The requirements of this subparagraph (l) are
qualified in that Gateway is not obligated to take the actions set forth if such
action will cause Gateway to report a loss in any quarter; in which case Gateway
shall fulfill the foregoing requirements to the extent possible without
producing a loss. The requirements of this subparagraph shall not be construed
to preclude the payment of bonuses otherwise expressly authorized herein.
(m) Make no loans including but not limited to any extension,
renewal, modification or refinancing of an existing loan, in excess of $150,000,
without Commercial's prior written consent, which consent will not be
unreasonably withheld.
(n) Not sell, trade or purchase any securities in its investment
portfolio without prior consent of Commercial's Chief Financial Officer, which
will not be unreasonably withheld.
3.6 Conduct of Business by Commercial Until Closing. Commercial, as
-----------------------------------------------
a bank holding company, in the normal conduct of its business, may acquire other
banks or bank holding companies or engage in certain nonbanking activities which
are closely related to banking, all as permitted under federal and state law.
Accordingly, Commercial may continue to seek and consider such opportunities and
will not be restrained from doing so by the terms of this Agreement. In the
event that Commercial should reach an understanding with another entity
regarding a merger, purchase or consolidation, Commercial may proceed with a
merger, purchase or consolidation concurrently with the acquisition by merger
contemplated by this Agreement.
Notwithstanding the prior paragraph of this Section 3.6 to the
contrary, unless the prior written consent of Gateway is obtained, Commercial,
between the date hereof and the Effective Time of the Merger, shall:
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<PAGE>
(a) Take no action, and not permit any action to be taken, by it
or its subsidiaries, which will have a material adverse effect upon any of their
properties, financial conditions, businesses or operations.
(b) Take no action or do anything (i) which will cause Commercial
or CWV to be in violation of their representations, warranties, covenants and
agreements contained in this Agreement or (ii) which will materially and
adversely affect the consummation of the transaction contemplated in this
Agreement.
(c) Promptly advise Gateway of any material adverse change in the
financial condition, assets, businesses or operations of Commercial and any
breach of any representation, warranty, covenant or agreement made by Commercial
or CWV in this Agreement.
(d) Maintain in full force and effect adequate fire, casualty,
public liability, employee fidelity and other insurance coverage in accordance
with prudent practices to protect fully Commercial and its subsidiaries against
losses for which insurance protection can reasonably be obtained.
(e) Afford to the officers, attorneys, accountants, and other
authorized representatives of Gateway full access to the respective properties,
books and records of Commercial and its subsidiaries, during normal business
hours and upon reasonable request, in order that they may make such
investigations of the affairs of Commercial and its subsidiaries as they deem
necessary or advisable. The parties hereto and their respective affiliates
shall use all information that any of them obtains from the other pursuant to
this Agreement solely for the effectuation of the transactions contemplated by
this Agreement or for purposes consistent with the intent of this Agreement, and
shall not use any of such information for any other purpose, including, without
limitation, the competitive detriment of any party. Each of the parties hereto
and their respective affiliates shall maintain as strictly confidential all
information it learns from another of the parties hereto pursuant to this
Agreement and shall, at any time, upon request, return promptly all
documentation provided or made available to it or to any third parties. Each of
the parties may disclose such information to its respective affiliates, counsel,
accountants, tax advisers, and consultants. The confidentiality agreement
contained in this section shall remain operative and in full force, and shall
survive the termination of this Agreement.
3.7 Proxy Statement. It is understood that as an integral part of
---------------
the transaction contemplated by this Agreement, proxy materials must be prepared
and sent to Gateway shareholders presenting certain disclosures about
Commercial, Gateway and the transaction contemplated herein. Gateway agrees to
assist in the due diligence related thereto, and to cooperate fully in the
preparation of the proxy materials to be sent to the shareholders of Gateway.
The proxy materials sent to shareholders of Gateway shall be subject to prior
review and approval by of the management of Gateway.
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<PAGE>
3.8 Directors, Independent Bank. In order to assure continuity, the
---------------------------
parties agree as follows:
(a) Board of Directors. Commercial and CWV agree that the current
------------------
Board of Directors of The Bank of McMechen (designated on the signature page,
the "Current Board") will continue to constitute a majority of its Board of
Directors for at least two (2) years from the Closing, unless any such member
shall resign, die or be removed for cause. Commercial shall select up to two (2)
additional representatives to serve on the Board of Directors, and the parties
hereto shall cause to be made any amendments to the Articles of Incorporation or
Bylaws of The Bank of McMechen necessary to increase the size of its Board of
Directors.
(b) Independent Bank. Further, The Bank of McMechen shall remain
----------------
an independent subsidiary bank for a period of not less than two (2) years from
the Closing; provided, however, that The Bank of McMechen need not remain an
independent subsidiary bank for said two (2) year period if (i) a majority of
the Current Board then serving on The Bank of McMechen Board of Directors,
approve a merger, consolidation or other restructuring or (ii) all of the
existing seven (7) subsidiary banks currently owned by Commercial are merged,
consolidated or otherwise combined into a single subsidiary. In the event the
transaction contemplated by the preceding subparagraph (ii) is consummated, the
Current Board (as defined above) shall be entitled (a) to serve as members of an
advisory board to the surviving subsidiary bank for the remainder of the two (2)
year period referred to herein and (b) to receive directors fees equal to an
amount that is not less than the fees received by the Current Board as of the
date of this Agreement.
(c) Commercial Board of Directors. The continuing members of the
-----------------------------
Current Board, after the Closing, shall nominate a representative to the Board
of Directors of Commercial. Commercial agrees, in turn, to elect the nominee to
its Board of Directors, effective as of the Closing and to include the nominee
among its slate of directors at the next annual meeting of its shareholders.
3.9 Employees of Bank of McMechen. Commercial anticipates that all
-----------------------------
employees of Bank of McMechen will continue their employment following the
Closing. If, however, Commercial finds it necessary to terminate any current
employee of the Bank of McMechen due to a reduction in staff during the first
twelve months after Closing, it will provide severance for those terminated
employees. Severance will equal one week's base pay for each full year of
continuous service as an employee of the Bank of McMechen as of the severance
date. Any officer of the Bank of McMechen (excluding Michael E. Moore) who is
terminated will receive severance equal to two weeks' base pay for each full
year of continuous service as an employee of the Bank of McMechen as of the
severance date. Severance will be in addition to any payment for accumulated
vacation. Severed employees will be offered health benefits paid for entirely
by the employee under COBRA. Notwithstanding the foregoing, in no event shall
the severance to which an employee or officer is entitled exceed fifty-two (52)
weeks of base pay.
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<PAGE>
ARTICLE IV
-----------
CONDITIONS
----------
4.1 Conditions to Obligations of All Parties. Subject to the
----------------------------------------
respective right of each party to waive any condition required to be met by the
other party or parties hereto by this Section 4.1, the parties are not obligated
to consummate, or to cause to be consummated, the transactions contemplated by
this Agreement unless:
(a) Shareholder Approval of Transaction. Before the Closing,
-----------------------------------
Gateway shall have obtained the approval, ratification and confirmation of this
Agreement and the transaction contemplated herein by the requisite vote of its
shareholders, as required by law and by any applicable provision of its articles
of incorporation and bylaws.
(b) CWV. Commercial shall have caused the organization and
---
chartering of CWV and CWV shall have executed the Adoption Agreement.
(c) Absence of Restraint. No order to restrain, enjoin or
--------------------
otherwise prevent the consummation of the transaction contemplated in this
Agreement shall have been entered by any court or administrative body which
remains in effect on the Merger Effective Date.
(d) Governmental Approvals. There shall have been obtained by the
----------------------
Merger Effective Date any and all permits, approvals and consents of every
governmental body or regulatory authority which are necessary or appropriate so
that consummation of the transaction contemplated in this Agreement shall be in
compliance with all applicable laws, including, without limitation, those the
FRB, the Board of Banking and Financial Institutions and any other governmental
or regulatory authority with jurisdiction over the transaction.
(e) Compliance with Representations, Warranties and Additional
----------------------------------------------------------
Agreements. All of the representations and warranties of the parties contained
- ----------
in this Agreement shall be true in all material respects at and as of the Merger
Effective Date with the same force and effect as if they had been made at and as
of such date (except for changes contemplated and permitted by this Agreement or
otherwise consented to in writing by the appropriate party to this Agreement)
and each party shall have complied with and performed, in all material respects,
all of the agreements contained in this Agreement to be performed by it at or
before the Merger Effective Date. At the Closing of the transaction
contemplated herein, each party shall have received from the other party to this
Agreement, a certificate, in affidavit form, dated as of the date of the
Closing, signed by the other party's chief executive officer and chief financial
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<PAGE>
officer, certifying that the foregoing statements made in this Section 4.1(e)
are true and correct to the best of their knowledge and belief.
(f) Securities Law Compliance. The Registration Statement to be
-------------------------
filed by Commercial with the Securities and Exchange Commission pursuant to
Section 2.1(m) hereof, shall be declared effective on or before the date of the
Closing. No order suspending the effectiveness thereof shall have been issued
which remains in effect on the date of the Closing, and no proceedings for that
purpose shall, before the Closing, have been initiated or, to the best knowledge
of Commercial, threatened. All state securities and "blue sky" permits or
approvals required to carry out the transaction contemplated in this Agreement
shall have been received to permit free trading of the Commercial stock issued
to the non-affiliate Gateway shareholders.
(g) Confidentiality. Commercial and Gateway shall each execute
---------------
mutually agreed upon confidentiality agreements.
(h) Accounting Treatment. All criteria for the Merger to be
--------------------
accounted for under the pooling of interests method of accounting shall have
been met, and no party hereto shall knowingly take any action which would have
the effect of disqualifying the Merger under the pooling of interests method of
accounting.
(i) All criteria to assure the tax-free exchange of Gateway
shares for Commercial shares shall have been met.
(j) Commercial and/or The Bank of McMechen, as appropriate, shall
have negotiated, for execution as of Closing: (1) an employment agreement with
change of control provisions for a term of not more than three (3) years from
the date of the Closing, with Michael E. Moore, President and (2) a change of
control agreement with Linda Miller, Chief Operating Officer; both of which must
be, in form and substance, satisfactory to Commercial.
4.2 Additional Conditions to Obligations of Commercial.
--------------------------------------------------
(a) Shareholder Approval. Holders of an aggregate of greater than
--------------------
10% of the issued and outstanding shares of Gateway shall not have perfected
their rights to dissent to the transaction contemplated herein.
(b) Counsel's Opinion. Commercial shall have received an opinion
-----------------
of counsel for Gateway dated as of the Merger Effective Date, to the effect
that:
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<PAGE>
(i) Gateway is a state chartered bank duly organized, validly
existing and in good standing under the laws of the State of West Virginia;
(ii) The authorized capital stock and the number of shares
issued and outstanding of Gateway are as stated in the opinion. The issued and
outstanding shares are validly issued, fully paid and non-assessable, and were
not issued in violation of any preemptive rights of the shareholders of Gateway.
As of such date, to the best of counsel's knowledge, there are no options,
warrants, convertible securities or similar items outstanding on behalf of
Gateway.
(iii) Gateway has the corporate power and authority to
execute, deliver and perform its obligations under this Agreement. This
Agreement has been duly authorized, executed and delivered by Gateway and
constitutes the legal, valid and binding obligation of Gateway, enforceable in
accordance with its terms except as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, reorganization, moratorium, or
other laws affecting creditors' rights generally.
(iv) The Affiliate's agreements in the form of Exhibit D
executed on or prior to the Merger Effective Date have been duly executed and
delivered by the Gateway directors and constitute the legal, valid and binding
obligation of the respective directors and are enforceable in accordance with
their terms.
(v) All necessary corporate proceedings have been duly and
validly taken by Gateway, to the extent required by law, its respective articles
of incorporation and bylaws, or otherwise, to authorize the execution and
delivery of this Agreement by Gateway and the consummation of the transaction
contemplated herein.
(vi) Counsel has reviewed the proxy statement contemplated
hereby and, with respect to all information relating to Gateway contained
therein, counsel does not know of any misleading statement of any material fact
or failure to state a material fact which was necessary to be stated to prevent
the statements made from being false or misleading in any material respect,
except as to financial data, as to which counsel expresses no opinion.
(vii) The consummation of the transaction contemplated herein
will not violate or result in a breach of, or constitute a default under, the
articles of incorporation or bylaws of Gateway, or constitute a breach or
termination of, or default under, any agreement or instrument of which counsel
is aware and which would have a material adverse effect on the business of
Gateway, and to which it is a party or by which it or any of its property is
bound.
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<PAGE>
(c) Affiliates Agreements. Commercial shall have received an
---------------------
agreement, in the form of Exhibit D hereto, executed and delivered by each
shareholder of Gateway who, in the reasonable opinion of Commercial, may be
deemed an "affiliate" of Gateway, as that term is defined in Rule 145
promulgated by the Securities and Exchange Commission.
4.3 Additional Conditions to Obligations of Gateway.
-----------------------------------------------
(a) Opinion of Counsel. Gateway shall have
------------------
received the opinion of counsel to Commercial to the effect that:
(i) Commercial is a West Virginia corporation, validly
existing and in good standing under the laws of West Virginia and is duly
authorized to own its properties and to conduct its business as presently
conducted. CWV is validly existing and in good standing under the laws of the
State of West Virginia is duly authorized to own its properties and to conduct
its business as presently conducted.
(ii) All necessary corporate proceedings have been duly
taken by Commercial and CWV to the extent required by law, their respective
articles of incorporation, bylaws or otherwise, to authorize the execution and
delivery of this Agreement and the consummation of the transactions contemplated
herein. This Agreement constitutes the legal, valid and binding obligation of
Commercial and CWV (once it executes the Adoption Agreement) and is enforceable
against them in accordance with its terms except as enforceability may be
limited by general equitable principles, bankruptcy, insolvency, reorganization,
moratorium, or other laws affecting creditors rights generally.
(iii) All regulatory approvals of federal or state banking
authorities and regulators necessary to consummate the transactions contemplated
herein have been obtained.
(iv) Counsel has reviewed the proxy statement described
herein with respect to all information relating to the Merger and to Commercial
and CWV contained therein, and knows of no respect in which the proxy statement
contained any false or misleading statement of any material fact or of any
failure to state a material fact which was necessary to be stated to prevent the
statements made from being false or misleading in any material respect, except
as to the financial statements and other financial data as to which counsel
expresses no opinion.
(b) Tax Opinion. On or before the Closing, Gateway shall have
-----------
received an opinion from Bowles Rice McDavid Graff & Love, P.L.L.C., Charleston,
West Virginia in a form reasonably satisfactory to Gateway's counsel to the
effect that:
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<PAGE>
(i) The statutory merger of Gateway with and into CWV will
constitute a tax-free reorganization within the meaning of IRC Section
368(a)(1)(A) and IRS Section 368(a)(2)(D);
(ii) Except as provided in (iii) immediately below, no gain
or loss will be recognized by a Gateway shareholder as a result of the exchange
of the stock owned by Gateway in the Bank of McMechen in exchange for the
Commercial stock by Gateway and the subsequent liquidation of Gateway and
distribution of the stock held by Gateway in Commercial to the shareholders of
Gateway in exchange for their stock in Gateway.
(iii) The shareholders of Gateway will recognize gain or loss
on the receipt of cash, if any, received in lieu of fractional shares. The
provisions of IRC Section 302 will govern whether the character of the gain will
be ordinary income or capital gain.
(iv) The tax basis of the shares of Commercial received by
each shareholder of Gateway will equal the tax basis of such shareholder's
shares of Gateway (reduced by any amount allocable to fractional share or
interests for which cash is received) exchanged in the merger.
(v) The holding period for the shares of Commercial received
by each shareholder of Gateway will include the holding period for the shares of
Gateway of such shareholder exchanged in the merger.
(vi) Commercial will not recognize any gain or loss as a
result of the merger.
(vii) Bank of McMechen will not recognize any gain or loss as
a result of the merger.
(viii) Gateway will not recognize any gain or loss as a
result of the merger and its subsequent liquidation.
(ix) A Gateway shareholder who dissents from the transaction
and receives solely cash in exchange for his stock in Gateway will be treated as
having received such cash in redemption of his or her Gateway stock subject to
the provisions of IRC (S)(S) 302 and 318.
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<PAGE>
(c) Fairness Opinion. The board and shareholders of Gateway shall
----------------
have received the opinion of Charles Webb & Company that the transaction is
fair, from a financial perspective, to the shareholders of Gateway.
ARTICLE V
----------
CLOSING
-------
5.1 Closing. The closing (the "Closing") of each merger transaction
-------
shall take place at the principal office of Commercial, or such other place as
may be agreeable to the parties hereto, shall consist of the exchange of items
required hereby and the filing of the Articles of Merger. The parties will use
their best efforts to close on or about December 31, 1997. The payment of the
Merger Consideration will commence as soon as possible after the Merger
Effective Date.
ARTICLE VI
-----------
MISCELLANEOUS
-------------
6.1 Termination. This Agreement may be terminated and canceled, and
-----------
the transaction contemplated herein may be abandoned, notwithstanding
shareholder authorization, at any time before the Merger Effective Date as
follows:
(a) By mutual consent of the Board of Directors of Commercial and
Gateway as evidenced by a majority vote of each of their respective Boards of
Directors; or
(b) By Commercial, if any of the conditions required to be
satisfied by Gateway specified in Sections 4.1 and 4.2 hereof shall not have
been satisfied within the time contemplated by this Agreement for consummation
of this transaction; or
(c) By Gateway, if any of the conditions required to be satisfied
by Commercial specified in Section 4.1 and 4.3 hereof shall not have been
satisfied within the time contemplated by this Agreement for consummation of the
transactions; or
(d) By any party, if the Merger will violate any nonappealable
final order, decree or judgment of any court of governmental body which binds
any party.
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<PAGE>
In any event, the obligations of the parties under this Agreement
shall terminate March 31, 1998, if the Closing has not occurred before that
date, unless the parties hereto mutually agree in writing to an extension of the
time within which to close.
In the event of the termination of this Agreement for any reason, each
party shall forthwith deliver to the other parties hereto all documents, work
papers and other material obtained from it or any of its subsidiaries relating
to the transaction contemplated herein, whether obtained before or after the
execution hereof, and will continue to treat as confidential all such
information in the same manner as it treats similar confidential information of
its own and shall cause its and its subsidiaries' employees, agents and
representatives, to keep all such information confidential except for such
disclosures that are required by law or regulation or by rule, order or decree
or any court or government agency.
6.2 Expenses. Each of the parties to this Agreement agrees to pay,
--------
without a right to reimbursement from the other party hereto and whether or not
the transaction contemplated in this Agreement shall be consummated, all of the
costs incurred by it incident to the performance of its obligations under this
Agreement and to the consummation of the transaction contemplated herein.
6.3 Survival of Provisions. The representations, warranties,
----------------------
obligations and other agreements contained in all sections of Article I and
Article II and Sections 3.5(f) and 6.2 of this Agreement shall survive the
consummation of the transactions contemplated herein and shall be and remain
strictly enforceable thereafter in accordance with the terms thereof for the
period of three (3) years after the date each merger transaction is consummated.
Except as aforesaid, and except as may be otherwise explicitly provided in this
Agreement, the respective representations, warranties, obligations and other
agreements of the parties hereto shall not survive the Closings.
6.4 Individual Directors of Gateway. The Directors of Gateway have
-------------------------------
executed this Agreement solely to evidence their assent hereto and for the
express purpose of binding them, to the extent consistent with and not in
violation of their fiduciary duty, to the fulfillment of each of the terms and
conditions hereof by the respective parties and the diligent, expeditious and
good faith pursuit and timely consummation of the transaction contemplated
herein. The Directors of Gateway further agree to cooperate fully with the
parties hereto, their employees, representatives and agents, in consummating the
transaction as proposed and each agrees to vote the shares he or she
beneficially owns and the shares as to which he or she controls or exercises
voting authority or power in favor of the Merger. The Directors of Gateway
agree to take no action inconsistent with this Agreement or the consummation of
the Merger; provided, that each Director shall act at all times in a manner
consistent with his or her fiduciary responsibilities. Any shares beneficially
acquired by a Gateway Director or as to which each such Director acquires
control or the right to vote, will, without further action, be subject to the
agreements contained in this paragraph 6.4.
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<PAGE>
Each Director further acknowledges and agrees that his or her
agreement to vote his or her shares in favor of the Merger is necessary to
fulfill certain conditions precedent to consummation of the Merger.
6.5 Amendment. This Agreement may be amended by mutual consent of
---------
the Board of Directors of Commercial and Gateway, evidenced by a majority vote
of each of their respective Boards of Directors, at any time before or after
approval thereof by the shareholders; but, after any such shareholder approval,
no amendment shall be made to this Agreement which substantially and adversely
changes the terms of the particular agreement without obtaining the further
approval of the respective shareholders of that party. This Agreement may not
be amended except by an instrument in writing duly executed by the appropriate
officers on behalf of each of the parties hereto.
6.6 Assignability. This Agreement shall inure to the benefit of and
-------------
be binding upon the parties hereto and their respective successors and assigns,
provided that this Agreement may not be assigned by any party without the prior
written consent of the other parties hereto.
6.7 Notices. Any notice or other communication required or permitted
-------
under this Agreement shall be made in writing and shall be deemed to have been
duly given or received if delivered in person or if sent by certified mail, with
postage prepaid, addressed as follows:
TO COMMERCIAL: TO GATEWAY:
Larry Johnson Michael E. Moore
Commercial BancShares, Inc. Bank of McMechen
415 Market Street 700 Marshall Street
P. O. Box 1427 P. O. Box 68
Parkersburg, West Virginia 26102-1427 McMechen, West Virginia 26040
COPY TO: COPY TO:
Sandra M. Murphy, Esq. Evans L. King, Jr., Esq.
BOWLES RICE MCDAVID GRAFF STEPTOE & JOHNSON
& LOVE, P.L.L.C. Bank One Center
600 Quarrier Street P. O. Box 2190
P. O. Box 1386 Clarksburg, West Virginia 26302
Charleston, WV 25325-1386
6.8 Entire Agreement. This Agreement, together with all exhibits
----------------
attached hereto, constitutes the entire agreement among the parties and shall
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter of the transaction contemplated
herein and may not be changed except by amendment pursuant to the provisions of
Section 6.5 of this Agreement.
6.9 Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original; but all of which shall
constitute one and the same instrument.
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<PAGE>
6.10 Governing Law. Subject to the applicable law of the United
-------------
States of America, this Agreement shall be governed and construed in all
respects, including, but not limited to, validity, interpretation and effect,
pursuant to the laws of the State of West Virginia.
6.11 Invalid Provisions. The invalidity or unenforceability of any
------------------
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provision were omitted.
6.12 Headings and Subheadings. The headings and subheadings used in
------------------------
this Agreement are included for convenience of reference only and shall have no
effect on the construction or meaning of this Agreement.
6.13 Third-Party Beneficiaries. Nothing in this Agreement shall be
-------------------------
construed as and this Agreement shall not be deemed to be for the benefit of any
third party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their corporate officers thereunto duly authorized.
Attest: COMMERCIAL BANCSHARES, INCORPORATED
By /s/ Larry G. Johnson By /s/ William E. Mildren, Jr.
----------------------------- --------------------------------
Larry G. Johnson William E. Mildren, Jr.
Its Secretary Its President
---------------------------- --------------------------------
Attest: GATEWAY BANCSHARES, INC.
By /s/ Robert E. Durig By /s/ Michael E. Moore
----------------------------- --------------------------------
Robert E. Durig Michael E. Moore
Its Chairman Its President
---------------------------- --------------------------------
DIRECTORS OF GATEWAY BANCSHARES, INC.*
/s/ Dr. Robert E. Durig, Chairman /s/Donald Eddy, Vice Chairman
- --------------------------------- -----------------------------------
Dr. Robert E. Durig, Chairman Donald Eddy, Vice Chairman
/s/ Dr. Thomas O. Dickey, Secretary /s/Robert Munn, Jr.
- ----------------------------------- -----------------------------------
Dr. Thomas O. Dickey, Secretary Robert Munn, Jr.
/s/ Michael E. Moore /s/Linda Miller
- ----------------------------------- -----------------------------------
Michael E. Moore Linda Miller
*[The Directors of Gateway have signed this Agreement solely to acknowledge
their individual agreements contained in Sections 4.1(h) and 6.4.]
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<PAGE>
EXHIBIT LIST
Exhibit A - Commercial Disclosures
Exhibit B - Adoption Agreement
Exhibit C - Gateway Disclosures
Exhibit D - Form of Affiliates Agreement
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<PAGE>
EXHIBIT A
COMMERCIAL BANCSHARES, INCORPORATED
DISCLOSURE SCHEDULE
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<PAGE>
COMMERCIAL BANCSHARES, INCORPORATED
DISCLOSURE SCHEDULE
2.1(g)(iv) The Commercial BancShares, Incorporated Employee Stock
Ownership Plan with 401(k) provisions ("KSOP") periodically purchases Commercial
stock on behalf of participants of the KSOP.
2.1(o) Commercial has not filed its 1996 Federal income tax
return, but has been granted a six-month automatic extension of time to file.
Commercial will file its return by the extension due date.
35
A-40
<PAGE>
EXHIBIT B
ADOPTION AGREEMENT
This Adoption Agreement is made and entered into as of
__________________________, 1997, among CWV Holding Company, Inc. ("CWV"),
Gateway Bancshares, Inc. ("Gateway") and Commercial BancShares, Incorporated
("Commercial").
WHEREAS, Commercial and Gateway have entered into that certain
Agreement and Plan of Merger dated July ____, 1997 (the "Merger Agreement"),
the provisions of which are incorporated herein by reference and made a part of
this Adoption Agreement;
WHEREAS, it is provided in Section 2.1 of the Merger Agreement that as
soon as possible after the chartering of CWV, Commercial shall cause CWV to
execute and enter into this Adoption Agreement to cause CWV to be bound by the
applicable terms and conditions of the Merger Agreement;
WHEREAS, the charter of CWV has now been issued;
NOW THEREFORE, for and in consideration of the premises and mutual
agreements of the parties, CWV, Gateway and Commercial do hereby agree as
follows:
1. CWV hereby joins in and agrees to be bound by the terms,
representations, warranties, covenants, conditions and other provisions of the
Merger Agreement applicable to it, to the same extent, as if it were an original
party thereto.
2. CWV agrees that it shall use its best efforts and good faith to
take or cause to be taken as soon as practicable all actions on its part
required to be taken to permit the consummation of the Merger Agreement and the
Merger, as defined therein, and it shall cooperate fully with Gateway and
Commercial to that end.
3. CWV also represents and warrants that:
(a) CWV is a corporation, duly organized, validly existing and in
good standing under the laws of the State of West Virginia.
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(b) CWV has the corporate power to execute and deliver this
Adoption Agreement and has taken all action required by law, its charter, its
bylaws or otherwise, to authorize the execution and delivery of this Adoption
Agreement, the consummation of the Merger and the transaction contemplated in
the Merger Agreement.
(c) The Merger Agreement is the valid and binding obligation of
CWV.
IN WITNESS WHEREOF, CWV, Gateway Bank, Inc. and Commercial BancShares,
Inc. have caused this Adoption Agreement to be duly executed as of the date
first written above.
CWV HOLDING COMPANY, INC.
By:
--------------------------------
Its:
--------------------------------
GATEWAY BANCSHARES, INC.
By:
--------------------------------
Its:
--------------------------------
COMMERCIAL BANCSHARES, INCORPORATED
By:
--------------------------------
Its:
--------------------------------
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<PAGE>
EXHIBIT C
GATEWAY BANCSHARES, INC. REQUIRED DISCLOSURES
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<PAGE>
GATEWAY BANCSHARES, INC. REQUIRED DISCLOSURES
2.2(d)(vii) Gateway Bancshares, Inc. granted a two percent (2%)
increase in salaries for four of its executive officers effective July 1, 1997.
The individuals who received salary increases are: Michael E. Moore, Chief
Executive Officer; Linda Miller, Chief Operating Officer; Nancy Angalich, Vice
President; and Larry Randolph, Assistant Vice President.
2.2(f) Litigation and (h) Absence of Undisclosed Assets and of
Undisclosed Contingent Liabilities
Becker, et al. v. The Bank of McMechen
- --------------------------------------
Civil Action No. 96-C-40K
Circuit Court of Marshall County, West Virginia
Thirteen customers whose names were used in an embezzlement scheme in
1992 by a former loan officer filed a complaint against The Bank of McMechen on
counts of fraud, negligence, breach of fiduciary duty, conversion and outrage,
and they seek punitive and compensatory damages.
At a later date, nine of the plaintiffs dismissed their claims. The
attorney for the remaining plaintiffs has informed The Bank of McMechen's
attorneys that he intends to withdraw from the case. The Bank of McMechen is
informed he has filed a motion to be allowed to withdraw, but the Court has not
acted on it.
White, et al. v. Hall, et al.
- -----------------------------
Civil Action No. 95-C-104K
Circuit Court of Marshall County, West Virginia
The Bank of McMechen made a loan to Hall during November, 1994, using
real estate as collateral which was deeded to Hall by her father, Hugh White.
Mr. White is now deceased, and the executor is asking for a declaratory judgment
to split the property among five children, claiming Mr. White's reduced judgment
at the time the property was deeded to Hall. As lienholder, the Bank has been
named in the complaint. The plaintiffs seek an order voiding the deed of trust.
The Bank of McMechen (Ohio Casualty Insurance Company)
- ------------------------------------------------------
v. Progressive Casualty Company
- -------------------------------
Civil Action No. 97-C-1M
Circuit Court of Marshall County, West Virginia
A-44
2
<PAGE>
A complaint has been filed due to Progressive Casualty Company's
failure to defend The Bank of McMechen in a prior lawsuit arising from the
embezzlement referred to in the Becker case. Ohio Casualty Insurance Company is
------
seeking recovery for its disbursements in an earlier case, which has been
settled. Under certain agreements with the insurance company, The Bank of
McMechen has the right to participate, in a fractional amount, in any recovery,
and The Bank of McMechen also may have to pay, in a fractional amount, any
attorney's fees and litigation costs and expenses incurred in this civil action.
2.2(j) The Bank of McMechen owns the following real estate:
<TABLE>
<CAPTION>
Square Footage
Description Building Land Total
------------- ---------------------------------
<S> <C> <C> <C> <C>
1. Main Bank Lot 30 & N Pt. Lot 31 112,600 12,000 124,600
700 Marshall Doyle & Bloyd Addn.
McMechen & 1/2 abandoned E 7th
Deed Book 121 St. McMechen Corp.
page 452
2. Loan Dept. Lot 32 & Pt. Lot 31 60,400 6,700 67,100
704 Marshall Doyle & Bloyd Addn.
McMechen McMechen Corp.
Deed Book 442
page 183
3. Drive -In Pt Lts 30-31-32 108,500 3,500 122,000
613 Marshall Marshall St
McMechen BB McM Addn.
Deed Book 463
page 295
4. Parking Lot Lots 28-29 D & B None 7,000 7,000
(between bank Addn. & 1/2 aband.
& Reilley Bldg.) E. 7th St.
& Bookkeeping McMechen Corp.
Deed Book 397
page 278
5. Benwood - Lots 1-2-3 Tappe Addn. 85,900 4,800 90,700
Banking Ctr. Benwood Corp.
43 Marshall St.
Benwood
Deed Book 520
page 379
6. Vacant Lot - N 1/2 Lt. 6 Sq. 2 None 5,100 5,100
Benwood Hanlan Addn.
25 Marshall St. Benwood Corp.
Benwood
Deed Book 554
page 474
</TABLE>
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3
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
7. Vacant Lot - Pt Lt 5 Hanlan Addn. None 4,600 4,600
Benwood Sq 2 Add
23 Marshall St. Benwood Corp.
Benwood
Deed Book 554
page 474
8. Vacant Lot - Pt Lt 5 Sq. 2 None 4,600 4,600
Benwood Hanlan Addn.
21 Marshall St. Benwood Corp.
Benwood (from Tusina)
Deed Book 555
page 378
</TABLE>
Gateway owns the following real estate:
<TABLE>
<S> <C> <C> <C> <C>
1. Reilley Bldg. Lot 27 D & B Addn. 23,000 2,500 25,500
614 Marshall McMechen Corp.
McMechen (owned by Gateway Bancshares)
Deed Book 525
page 180
</TABLE>
2.2(l) Gateway is a party to a Software Maintenance Agreement
dated as of June 1, 1996 (the "Agreement") with Midwest Software, Inc. ("Midwest
Software"). Under the Agreement, Midwest Software agrees to provide to Gateway
maintenance services and updates of all enhancements and improvements and
corrections developed and/or implemented by Midwest Software for a period of one
year. Gateway believes the Agreement may be terminated with thirty (30) days
prior written notification to Midwest Software. Maintenance service charges on
a monthly basis are $440.
A-46
4
<PAGE>
EXHIBIT D
AFFILIATE'S AGREEMENT
_______________________
Date
Gentlemen:
Reference is made to the Agreement and Plan of Merger (the "Plan")
dated the ____ day of __________________, 1997 by and among Commercial
BancShares, Incorporated ("Commercial"), Gateway Bancshares, Inc. ("Gateway")
and CWV Holding Company, Inc., providing for the merger of Gateway into a
wholly-owned subsidiary of Commercial, CWV Holding Company, Inc. As a result of
the merger, Commercial will acquire all of the issued and outstanding common
stock of Gateway in exchange for shares of the common stock of Commercial. As a
result of the merger, CWV will survive the Merger. The undersigned stockholder
has been identified as one who may be an "affiliate" of Gateway for the purposes
of Rule 145 of the Securities Act of 1933, as amended (the "Act"). As a result
of the transaction contemplated by the Plan, the affiliate will receive shares
of Commercial stock. In consideration for the receipt of such shares, the
affiliate represents, warrants and covenants to Commercial as follows:
(1) Until the expiration of the limitation on the transfer of the
affiliate shares as provided in Rule 145, the affiliate will not sell, assign or
transfer any of the affiliate shares except (a) within the limits and in
accordance with the applicable provisions of Rule 145 or (b) upon receipt by
Commercial of an opinion of counsel, in form and substance satisfactory to
Commercial and its counsel, to the effect that such disposition complies with
the Act.
(2) Until the expiration of the limitation on the transfer of the
affiliate shares as provided in Rule 145(d), each certificate for the affiliate
may bear a restrictive legend in substantially the following form:
The shares represented by this certificate have been issued to
the registered holder as a result of a transaction to which Rule 145
under the Securities Act of 1933, as amended (the "Act") applies. The
shares represented by this certificate may not be sold, transferred or
assigned, and the issuer shall not be required to give effect to any
attempted sale, transfer or assignment, except pursuant to (i) the
Registration Statement then in effect under the Act, (ii) a
transaction permitted by Rule 145 as to which the issuer has received
evidence of compliance with the provisions of Rule 145 reasonably
satisfactory to it, or (iii) a transaction which, in the opinion of
counsel or as described in a "no action" or interpretive letter from
the staff of the Securities and Exchange Commission, in each case
satisfactory in form and substance to the issuer, is exempt from the
registration requirements of the Act.
Very truly yours,
__________________________________
Accepted this ____ day of _______________, 1997, by:
COMMERCIAL BANCSHARES, INCORPORATED
By:
-------------------------------------
Its:
-------------------------------------
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<PAGE>
FIRST AMENDMENT AGREEMENT
THIS FIRST AMENDMENT AGREEMENT (the "Amended Agreement") is made and
entered into as of the 30th day of September, 1997, among GATEWAY BANCSHARES,
INC., a West Virginia bank holding corporation ("Gateway"), COMMERCIAL
BANCSHARES, INCORPORATED, a West Virginia bank holding company ("Commercial"),
CWV HOLDING COMPANY, INC., a West Virginia corporation to be formed as a wholly
owned subsidiary of Commercial ("CWV") and WESBANCO, INC., a West Virginia
corporation ("WesBanco").
WHEREAS, Gateway and Commercial heretofore entered into an Agreement
and plan of Merger dated the 15th day of August, 1997 (the "Agreement"), which
provides for the merger of Gateway with and into CWV in accordance with the
terms and conditions therein set forth, and
WHEREAS, subsequent to the date of said Agreement, Commercial and Wes
Banco have entered into a binding Letter of Agreement dated September 12,1 997
("Letter of Agreement"), and intend to enter into a definitive Agreement and
Plan of Merger, providing for the merger of Commercial with and into CBI Holding
Company ("CBI"), a corporation to be formed under the laws of the State of West
Virginia as a wholly owned subsidiary of WesBanco solely for the purpose of
affecting the merger contemplated by the Letter of Intent (the "Merger"), and
WHEREAS, pursuant to the provisions of Section 6.5 of said Agreement,
Commercial and Gateway reserved the right to amend said Agreement, and
WHEREAS, the parties desire to make certain amendments to said
Agreement in accordance with the terms and conditions hereinafter set forth.
NOW, THEREFORE, THIS AGREEMENT WITNESSETH: That for and in
consideration of the mutual covenants and agreements hereinafter contained, the
parties hereto intending to be legally bound hereby, do covenant and agree as
follows:
1. Section 3.8 Directors, Independent Bank of said Agreement is hereby
---------------------------
deleted in its entirety and the following substituted therefore:
3.8 Directors Bank Merger. It is anticipated that the wholly owned
---------------------
subsidiary of Gateway, The Bank of McMechen, will be merged as of the
effective date of the merger between Commercial and CBI with and into
WesBanco Bank Wheeling, a wholly owned banking subsidiary of WesBanco. In
order to assure the continuity, the parties agree that the current Board of
Directors of The Bank of McMechen set forth on the attached Exhibit A shall
be entitled to serve as members of an Advisory Board to WesBanco Bank
Wheeling for a two year period, meeting periodically. Each such director
shall be entitled to receive a monthly director fee while serving on the
Advisory Board equal to the monthly amount currently being received by such
director as set forth on the attached Exhibit A.
2. Section 3.9 Employees of The Bank of McMechen is hereby rescinded
---------------------------------
in its entirety and the following Section 3.9 is substituted therefore:
3.9 Employees of The Bank of McMechen. Commercial and WesBanco (upon
---------------------------------
consummation of the merger between Commercial and CBI) will endeavor to
continue in employment as many employees of The Bank of McMechen as are
economically feasible, and to transfer such other employees as WesBanco may
determine appropriate to provide for an efficient operation of its
facilities. If, however, Commercial or WesBanco find it necessary to
terminate any current employee of The Bank of McMechen due to a reduction
in staff during the first 12 months after closing, it will provide
severance for those terminated employees. Severance will equal one week's
base pay for each full year of continuous service as an employee of The
Bank of McMechen as of the severance date. Any officer of The Bank of
McMechen (excluding Michael E. Moore) who is terminated will receive
A-48
2
<PAGE>
severance equal to two weeks base pay for each full year of continuous
service as an employee of The Bank of McMechen as of the severance date.
Severance will be in addition to any payment for accumulated vacation.
Severed employees will be offered health benefits paid for entirely by the
employee under COBRA. Notwithstanding the foregoing, in no event shall the
severance to which an employee or officer is entitled exceed 52 weeks of
base pay.
3. Section 4.1(j) is deleted in its entirety and the following is
substituted therefore:
(j) At the time of closing under the Agreement, Commercial will enter
into an Employment Continuity Agreement with Michael E. Moore in the form
of Exhibit B hereto and enter into a Change of Control Agreement with Linda
Miller in the form of Exhibit C hereto. Commercial and WesBanco agree and
acknowledge that the acquisition of Commercial by WesBanco will constitute
a Change in Control under the above-mentioned agreements. It is further
agreed that upon consummation of WesBanco's acquisition of Commercial,
Michael E. Moore will be President of the Marshall County branches of
WesBanco reporting to the CEO or COO of WesBanco Bank Wheeling and Linda
Miller will be Vice President of the Marshall County branches of WesBanco
reporting to Mr. Moore, with such officers performing substantially the
same functions, duties and responsibilities as are currently being
performed by them for The Bank of McMechen.
WITNESS the following signatures:
GATEWAY BANCSHARES, INC.
By /s/ Michael E. Moore
---------------------------------
Its President
---------------------------------
COMMERCIAL BANCSHARES, INCORPORATED
- --------------------------------
By /s/ William E. Mildren, Jr.
---------------------------------
Its Chairman, President & CEO
---------------------------------
CWV HOLDING COMPANY, INC.
- --------------------------------
By
---------------------------------
Its
- -------------------------------- ---------------------------------
WESBANCO, INC.
- --------------------------------
By /s/ E. M. George
- -------------------------------- ---------------------------------
Its President
- -------------------------------- ---------------------------------
A-49
3
<PAGE>
EXHIBIT A
MONTHLY DIRECTORS' FEES
<TABLE>
<CAPTION>
<S> <C>
Dr. Durig $475.00
Dr. Dickey $425.00
Mr. Eddy $425.00
Mr. Munn $425.00
Mr. Moore $500.00
Mrs. Miller $500.00
</TABLE>
A-50
4
<PAGE>
SECOND AMENDMENT AGREEMENT
--------------------------
This Second Amendment Agreement (the "Second Amendment"), is made and
entered into as of this 15th day of December, 1997, among GATEWAY BANCSHARES,
INC., a West Virginia Bank holding company ("Gateway")and COMMERCIAL BANCSHARES,
INCORPORATED, a West Virginia Bank holding company ("Commercial");
WHEREAS, Gateway and Commercial heretofore entered into an Agreement
and Plan of Merger dated the 15th day of August, 1997 (the "Agreement"), which
provides for the merger of Gateway with and into CWV HOLDING COMPANY, INC., a
West Virginia corporation, wholly-owned subsidiary to be formed by Commercial to
facilitate the Merger, in accordance with the terms and conditions therein set
forth, and
WHEREAS, subsequent to the date of said Agreement, Commercial has
determined that the name "CWV Holding Company, Inc." is not available from the
Secretary of State's office;
WHEREAS, pursuant to the provisions of Section 6.5 of the Agreement,
Commercial and Gateway reserved the right to amend the Agreement;
WHEREAS, the parties desire to amend the Agreement to provide for the
substitution of the name "CBG Holding Company, Inc." for CWV Holding Company,
Inc.
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements hereinafter contained, the parties hereto intending to be legally
bound hereby covenant and agree as follows:
4. Substitution of name, CBG Holding Company, Inc.: Gateway and
-----------------------------------------------
Commercial agree that in all places in the Agreement that the name CWV
Holding Company, Inc., appears, there will be substituted in its place
the name CBG Holding Company, Inc.
5. All other Terms in Full Force and Effect: Except as amended herein or
----------------------------------------
by another properly executed amendment, all other terms and conditions
of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, Gateway Bancshares, Inc., and Commercial
BancShares, Incorporated, have caused this Second Amendment to be duly executed
as of the date first written above.
A-51
5
<PAGE>
Attest: GATEWAY BANCSHARES, INC.
By /s/ Linda Miller By /s/ Michael E. Moore
----------------------------- ---------------------------------
Its Vice President Its /s/ President
----------------------------- ---------------------------------
Attest: COMMERCIAL BANCSHARES, INCORPORATED
By /s/Larry G. Johnson By /s/ William E. Mildren, Jr.
----------------------------- ---------------------------------
Its Secretary Its President
----------------------------- ---------------------------------
A-52
<PAGE>
ANNEX B
A-53
<PAGE>
August 15, 1997
Board of Directors
Gateway Bancshares/The Bank of McMechen
700 Marshall Street
McMechen, WV 26040
Dear Board Members:
You have requested our opinion as an independent investment banking firm
regarding the fairness, from a financial point of view, to the stockholders of
Gateway Bancshares, Inc. ("Gateway", "Bank of McMechen", or the "Company"), of
the consideration to be received by such stockholders in the merger (the
"Merger") between the Company and Commercial BancShares, Inc., a West Virginia
bank holding company ("Commercial"). We have not been requested to opine as to,
and our opinion does not in any manner address, the Company's underlying
business decision to proceed with or effect the Merger.
Pursuant to the Agreement and Plan of Merger, dated August 15, 1997, by and
among the Company and Commercial (the "Agreement"), at the effective time of the
Merger, Commercial will acquire all of the Company's issued and outstanding
shares of common stock.. The holders of Company common stock will receive, in
exchange for each share of Company common stock, shares of common stock of
Commercial based on an Exchange Ratio which equates to a $80.00 per share price,
within a certain range, for each share of Company common stock. For calculation
purposes, the Exchange Ratio will be determined based upon $80 divided by the
average Commercial stock price. "Average Commercial Stock Price" means the
average closing price of Commercial common stock on the American Stock Exchange
for the twenty (20) days immediately prior to closing. If the quotient of the
Exchange Ratio calculation is less than or equal to 1.742, then the Exchange
Ratio will be 1.742. If such quotient is greater than 2.129, then the Exchange
Ratio will be 2.129. The Agreement provides additional details regarding the
consideration provisions for the merger. The complete terms of the proposed
transaction are described in the Agreement, and this summary is qualified in its
entirety by reference thereto.
Charles Webb & Company, a Division of Keefe, Bruyette & Woods, Inc., as part of
its investment banking business, is regularly engaged in the evaluation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, and distributions of listed and unlisted securities.
We are familiar with the market for common stocks of publicly traded banks,
savings institutions and bank and savings institution holding companies.
In connection with this opinion, we reviewed certain financial and other
business data supplied to us by the Company and certain other information we
deemed relevant. We discussed with senior management and the board of directors
of the Company the position and prospective outlook for the Company. We
considered historical data as well as the prices of recorded transactions in the
Company's common stock since January 1992. We reviewed financial and stock
market data of other savings institutions, particularly in the midwestern region
of the United States, and the financial and structural terms of several other
recent transactions involving mergers and acquisitions of banks and savings
institutions or proposed changes of control of comparably situated companies.
For Commercial, we reviewed the audited financial statements for the fiscal
years ended December 31, 1996, 1995 and 1994, quarterly and annual filings
required by the Securities Exchange Commission, proxy statements, and certain
other information deemed relevant.
A-54
<PAGE>
For purposes of this opinion we have relied, without independent verification,
on the accuracy and completeness of the material furnished to us by the Company
and Commercial and the material otherwise made available to us, including
information from published sources, and we have not made any independent effort
to verify such data. With respect to the financial information, including
forecasts and asset valuations we received from the Company, we assumed (with
your consent) that they had been reasonably prepared reflecting the best
currently available estimates and judgment of the Company's management. In
addition, we have not made or obtained any independent appraisals or evaluations
of the assets or liabilities, and potential and/or contingent liabilities of the
Company or Commercial. We have further relied on the assurances of management
of the Company and Commercial that they are not aware of any facts that would
make such information inaccurate or misleading. We express no opinion on
matters of a legal, regulatory, tax or accounting nature, or the ability of the
Merger as set forth in the Agreement to be consummated.
In rendering our opinion, we have assumed that in the course of obtaining the
necessary approvals for the Merger, no restrictions or conditions will be
imposed that would have a material adverse effect on the contemplated benefits
of the Merger to the Company or the ability to consummate the Merger. Our
opinion is based on the market, economic and other relevant considerations as
they exist and can be evaluated on the date hereof.
Consistent with the engagement letter with you, we have acted as financial
advisor to the Company in connection with the Merger and will receive a fee for
such services, a majority of which is contingent upon the consummation of the
Merger. In addition, the Company has agreed to indemnify us for certain
liabilities arising out of our engagement by the Company in connection with the
Merger.
Based upon and subject to the foregoing, as outlined in the foregoing paragraphs
and based on such other matters as we considered relevant, it is our opinion
that as of the date hereof, the consideration to be received by the stockholders
of the Company in the Merger is fair, from a financial point of view, to the
stockholders of the Company.
This opinion may not, however, be summarized, excerpted from or otherwise
publicly referred to without our prior written consent, although this opinion
may be included in its entirety in the proxy statement of the Company used to
solicit stockholder approval of the Merger. It is understood that this letter
is directed to the Board of Directors of the Company in its consideration of the
Agreement, and is not intended to be and does not constitute a recommendation to
any stockholder as to how such stockholder should vote with respect to the
Merger.
Very truly yours,
/s/ Charles Webb & Company
- ----------------------------------------------------
Charles Webb & Company
A Division of Keefe, Bruyette & Woods, Inc.
A-55
<PAGE>
ANNEX C
A-56
<PAGE>
WEST VIRGINIA DISSENTERS' RIGHTS STATUTE
31-1-122. Rights of shareholders to dissent.
Any shareholder of a corporation shall have the right to dissent
from any of the following corporate actions:
(a) Any plan of merger or consolidation to which the corporation
is a party; or
(b) Any sale or exchange of all or substantially all of the property
and assets of the corporation not made in the usual and regular course of its
business, including a sale in dissolution, but not including a sale pursuant to
an order of a court having jurisdiction in the premises or a sale for cash on
terms requiring that all or substantially all of the net proceeds of sale be
distributed to the shareholders in accordance with their respective interests
within one year after the date of sale.
A shareholder may dissent as to less than all of the shares registered
in his name. In that event, his rights shall be determined as if the shares as
to which he has dissented and his other shares were registered in the names of
different shareholders.
31-1-123. Rights of dissenting shareholders; procedure for purchasing of
dissenting shareholders' shares; civil action for determining value of shares;
procedure for transferring of such shares to corporation and payment therefor.
(a) Any shareholder electing to exercise his right to dissent,
pursuant to section one hundred twenty-two [(S) 31-1-122] of this article, shall
file with the corporation, prior to or at the meeting of shareholders at which
such proposed corporate action is submitted to a vote, a written objection to
such proposed corporate action. If such proposed corporate action be approved
by the required vote and such shareholder shall not have voted in favor thereof,
such shareholder may, within ten days after the date on which the vote was taken
or if a corporation is to be merged without a vote of its shareholders into
another corporation, any of its shareholders may, within fifteen days after the
plan of such merger shall have been mailed to such shareholders, make written
demand on the corporation, or, in the case of a merger or consolidation, on the
surviving or new corporation, domestic or foreign, for payment of the fair value
of such shareholder's shares, and, if such proposed corporate action is
effected, such corporation shall pay to such shareholder, upon surrender of the
certificate or certificates representing such shares, the fair value thereof as
of the day prior to the date on which the vote was taken approving the proposed
corporate action, excluding any appreciation or depreciation in anticipation of
such corporate action. Any shareholder failing to make demand within the ten-
day period shall be bound by the terms of the proposed corporate action. Any
shareholder making such demand shall thereafter be entitled only to payment as
in this section provided and shall not be entitled to vote or to exercise any
other rights of a shareholder.
(b) No such demand may be withdrawn unless the corporation shall
consent thereto. If, however, such demand shall be withdrawn upon consent, or
if the proposed corporate action shall be abandoned or rescinded or the
shareholders shall revoke the authority to effect such action, or if, in the
case of a merger, on the date of the filing of the articles of merger the
surviving corporation, is the owner of all the outstanding shares of the other
corporations, domestic and foreign, that are parties to the merger, or if no
demand or petition for the determination of fair value by a court of general
civil jurisdiction have been made or filed within the time provided in
subsection (e) of this section, or if a court of general civil jurisdiction
shall determine that such shareholder is not entitled to the relief provided by
this section, then the right of such shareholder to be paid the fair value of
his shares shall cease and his status as a shareholder shall be restored,
without prejudice to any corporate proceedings which may have been taken during
the interim.
(c) Within ten days after such corporate action is effected, the
corporation, or, in the case of a merger or consolidation, the surviving or new
corporation, domestic or foreign, shall give written notice thereof to each
dissenting shareholder who has made demand as herein provided, and shall make a
written offer to each shareholder to
A-57
<PAGE>
pay for such shares at a specified price deemed by such corporation to be fair
value thereof. Such notice and offer shall be accompanied by a balance sheet of
the corporation the shares of which the dissenting shareholder holds, as of the
latest available date and not more than twelve months prior to the making of
such offer, and a profit and loss statement of such corporation for the twelve
months' period ended on the date of such balance sheet.
(d) If within thirty days after the date on which such corporate
action is effected the fair value of such shares is agreed upon between any such
dissenting shareholder and the corporation, payment therefor shall be made
within ninety days after the date on which such corporate action was effected,
upon surrender of the certificate or certificates representing such shares.
Upon payment of the agreed value the dissenting shareholder shall cease to have
any interest in such shares.
(e) If within such period of thirty days, a dissenting shareholder and
the corporation do not so agree, then the corporation shall within thirty days
after receipt of written demand from any dissenting shareholder, which written
demand must be given within sixty days after the date on which such corporate
action was effected, file a complaint in a court of general civil jurisdiction
requesting that the fair value of such shares be found and determined, or the
corporation may file such complaint at any time within such sixty-day period at
its own election. Such complaint shall be filed in any court of general civil
jurisdiction in the county in which the principal office of the corporation is
situated, or, if there be no such office in this State, in the county in which
any dissenting shareholder resides or is found or in which the property of such
corporation, or any part of it, may be. If the corporation shall fail to
institute such proceedings, any dissenting shareholder may do so in the name of
the corporation. All dissenting shareholders wherever residing, may be made
parties to the proceedings as an action against their shares quasi in rem. A
copy of the complaint shall be served on each dissenting shareholder who is a
resident of this State in the same manner as in other civil actions. Dissenting
shareholders who are nonresidents of this State shall be served a copy of the
complaint by registered or certified mail, return receipt requested. In
addition, service upon such nonresident shareholders shall be made by
publication, as provided in Rule 4 (e) (2) of the West Virginia Rules of Civil
Procedure. All shareholders who are parties to the proceeding shall be entitled
to judgment against the corporation for the amount of the fair value of their
shares. The court may, if it so elects, appoint one or more persons as
appraisers to receive evidence and recommend a decision on the question of fair
value. The appraiser shall have such power and authority as shall be specified
in the order of their appointment or any subsequent appointment. The judgment
shall be payable only upon and concurrently with the surrender to the
corporation of the certificate or certificates representing such shares. Upon
payment of the judgment, the dissenting shareholder shall cease to have any
interest in such shares.
The judgment shall include an allowance for interest at such rate as
the court may find to be fair and equitable in all the circumstances, from the
date on which the vote was taken on the proposed corporate action to the date of
payment.
The costs and expenses of any such proceeding shall be determined by
the court and shall be assessed against the corporation, but all or any part of
such costs and expenses may be apportioned and assessed as the court may deem
equitable against any and all of the dissenting shareholders who are parties to
the proceeding to whom the corporation shall have made an offer to pay for the
shares if the court shall find that the action of such shareholders in failing
to accept such offer was arbitrary or vexations or not in good faith. Such
expenses shall include reasonable compensation for and reasonable expenses of
the appraisers, but shall exclude the fees and expenses of counsel for and
experts employed by any party; but if the fair value of the shares as determined
materially exceeds the amount which the corporation offered to pay therefor, or
if no offer was made, the court in its discretion may award to any shareholder
who is a party to the proceeding such sum as the court may determine to be
reasonable compensation to any expert or experts employed by the shareholder in
the proceeding. Any part to the proceeding may appeal any judgment or ruling of
the court as in other civil cases.
(f) Within twenty days after demanding payment for his shares, each
shareholder demanding payment shall submit the certificate or certificates
representing his shares to the corporation for notation thereon that such demand
has been made. His failure to do so shall, at the option of the corporation,
terminate his rights under this section unless a court of general civil
jurisdiction, for good and sufficient cause shown, shall otherwise direct. If
shares represented by a certificate on which notation has been so made shall be
transferred, each new certificate issued therefor
A-58
2
<PAGE>
shall bear similar notation, together with the name of the original dissenting
holder of such shares, and a transferee of such shares shall acquire by such
transfer no rights in the corporation other than those which the original
dissenting shareholder had after making demand for payment of the fair value
thereof.
(g) Shares acquired by a corporation pursuant to payment of the agreed
value therefor or to payment of the judgment entered therefor, as in this
section provided, may be held and disposed of by such corporation as in the case
of other treasury shares, except that, in the case of a merger or consolidation,
they may be held and disposed of as the plan of merger or consolidation may
otherwise provide.
A-59
3
<PAGE>
ANNEX D
A-60
<PAGE>
Bowles Rice
McDavid Graff & Love, p.l.l.c.
ATTORNEYS AT LAW
<TABLE>
<S> <C> <C>
1000 TECHNOLOGY DRIVE, 600 QUARRIER STREET
SUITE 1330 POST OFFICE BOX 1386 1200 VINE CENTER TOWER
FAIRMONT, WEST VIRGINIA CHARLESTON, WEST VIRGINIA 25325-1386 333 WEST VINE STREET
26554 TELEPHONE 304-347-1100 LEXINGTON, KENTUCKY 40507
TELEPHONE 304-368-4000 FACSIMILE 304-343-2867 TELEPHONE 606-225-8700
105 WEST BURKE STREET
MARTINSBURG, WEST
VIRGINIA 25401
TELEPHONE 304-263-0836
206 SPRUCE STREET 633 STARKS BUILDING
MORGANTOWN, WEST 455 SOUTH FOURTH STREET
VIRGINIA 26505 LOUISVILLE, KENTUCKY 40202
TELEPHONE 304-284-4013
601 AVERY STREET ONE DAVE COWENS DRIVE
PARKERSBURG, WEST ONE RIVERFRONT PLACE, SUITE
VIRGINIA 26102 950
TELEPHONE 304-485-8500 January 15, 1998 NEWPORT, KENTUCKY 41071
TELEPHONE 606-581-8700
WRITER'S DIRECT DIAL E-MAIL
347-1132 * Fax 343-3058 [email protected]
Gateway Bancshares, Inc.
Bank of McMechen
700 Marshall Street
P.O. Box 68
McMechen, West Virginia 26040
</TABLE>
Ladies and Gentlemen:
You have requested our opinion on certain federal income tax consequences
relating to the merger (the " Merger") of Gateway Bancshares, Inc.("Gateway")
with and into CBG Holding Company, Inc. ("CBG"), a wholly- owned subsidiary of
Commercial Bancshares, Incorporated ("Commercial").
The relevant facts concerning the Merger are set forth in the Agreement
and Plan of Merger executed by the above parties. A description of the
transaction set forth therein is incorporated herein by reference. For purposes
of this opinion, the acquisition of the Purchased Shares will be treated as
though it occurred as part of the Merger transaction.
Representations
---------------
In addition to the general statement of facts set forth in the
Registration Statement, and exhibits attached thereto, you have made the
following representations concerning the proposed transaction:
A-61
<PAGE>
BOWLES RICE
MCDAVID GRAFF & LOVE, P.L.L.C.
Commercial Bancshares, Incorporated and
Gateway Bancshares, Inc.
January 15, 1998
Page 2
(1) The fair market value of the Commercial stock and other
consideration to be received by each Gateway shareholder will be approximately
equal to the fair market value of the Gateway common stock surrendered in the
exchange.
(2) There is no plan or intention by the shareholders of Gateway who
own one percent (1%) or more of the Gateway stock, and to the best of the
knowledge of the management of Gateway, there is no plan or intention on the
part of the remaining shareholders of Gateway to sell, exchange or otherwise
dispose of a number of shares of Commercial stock received in the transaction
that would reduce the Gateway shareholder's ownership of Commercial stock to a
number of shares having a value, as of the date of the transaction, of less than
fifty percent (50%) of the value of all the formerly outstanding stock of
Gateway as of the same date. For purposes of this representation, shares of
Gateway stock exchanged for cash or other property, surrendered by dissenters,
exchanged for cash in lieu of fractional shares of Commercial stock, and the
Purchased Shares already owned by Commercial will be treated as outstanding
Gateway stock on the date of the transaction. Moreover, shares of Gateway stock
and shares of Commercial stock held by Gateway shareholders and otherwise sold,
redeemed, or disposed of prior or subsequent to the transaction will be
considered in making its representation.
(3) CBG will acquire at least ninety percent (90%) of the fair market
value of the net assets and at least seventy percent (70%) of the fair market
value of the gross assets held by Gateway immediately prior to the transaction.
For purposes of this representation, amounts paid by Gateway to dissenters,
amounts paid by Gateway to shareholders who receive cash or other property,
capital assets used to pay its reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends) made by Gateway immediately
preceding the transfer, will be included as assets of Gateway held immediately
prior to the transaction.
(4) Prior to the transaction, Commercial will be in control of CBG
within the meaning of Section 368(c) of the Internal Revenue Code.
(5) Following the transaction, CBG will not issue additional shares of
its stock that would result in Commercial losing control of CBG within the
meaning of Section 368(c) of the Internal Revenue Code.
(6) Commercial has no plan or intention to reacquire any of its stock
issued in the transaction.
(7) Commercial has no plan or intention to liquidate CBG; to merge CBG
with and into another corporation; to sell or otherwise dispose of the stock of
CBG; or to cause CBG to sell or otherwise dispose of any of the assets of
Gateway acquired in the transaction, except for dispositions made in the
ordinary course of business or transfers described in Section 368(a)(2)(C) of
the Internal Revenue Code.
A-62
<PAGE>
BOWLES RICE
MCDAVID GRAFF & LOVE, P.L.L.C.
Commerical Bancshares, Incorporated and
Gateway Bancshares, Inc.
January 15, 1998
Page 3
(8) The liabilities of Gateway assumed by CBG and the liabilities to
which the transferred assets of Gateway are subject were incurred by Gateway in
the ordinary course of its business .
(9) Following the transaction, CBG will continue the historic business
of Gateway or use a significant portion of Gateway's historic business assets in
a business.
(10) Commercial, CBG, Gateway and the shareholders of Gateway will pay
their respective expenses, if any, incurred in connection with the transaction.
(11) There is no intercorporate indebtedness existing between
Commercial and Gateway or between Gateway and CBG that was issued, acquired, or
will be settled at a discount.
(12) No two parties to the transaction are investment companies as
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
(13) Gateway is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
(14) The fair market value of the assets of Gateway transferred to CBG
will equal or exceed the sum of the liabilities assumed by CBG plus the amount
of liabilities, if any, to which the transferred assets are subject.
(15) The payment of cash in lieu of fractional shares of Commercial
stock is solely for the purpose of avoiding the expense and inconvenience to
Commercial of issuing fractional shares and does not represent separately
bargained-for consideration. The total cash consideration that will be paid in
the transaction to the Gateway shareholders instead of issuing fractional shares
of Commercial will not exceed one percent (1%) of the total consideration that
will be issued in the transaction to the Gateway shareholders in exchange for
their shares of Gateway stock. The fractional share interests of each Gateway
shareholder will be aggregated, and no Gateway shareholder will receive cash in
an amount equal to or greater than the value of one (1) full share of Commercial
stock.
(16) No stock of CBG will be issued in the transaction.
Opinion
-------
Based solely upon the information submitted and on the representations
set forth above, we are of the opinion that:
A-63
<PAGE>
BOWLES RICE
MCDAVID GRAFF & LOVE, P.L.L.C.
Commercial Bancshares, Incorporated and
Gateway Bancshares, Inc.
January 15, 1998
Page 4
(a) The Merger of Gateway with and into CBG should constitute a tax-
free reorganization within the meaning of I.R.C. Section 368(a)(1)(A) and I.R.C.
Section 368(a)(2)(D).
(b) The gain, if any, realized by a Gateway shareholder upon receipt of
cash for fractional shares should be recognized, but not in an amount in excess
of the cash received as part of the merger transaction. The provisions of I.R.C.
Section 302 will govern whether the character of the gain will be ordinary
income or capital gains. Each shareholder should consult his or her own tax
advisor with respect to the determination of whether the exchange has the effect
of a redemption or the distribution of a dividend.
(c) The holding period of the Commercial common stock received by each
holder of Gateway's common stock will include the period during which the stock
of Gateway surrendered in exchange therefor was held, provided such stock was a
Gateway asset in the hands of the shareholder at the time of the effective date
of the merger.
(d) A Gateway shareholder who dissents from the merger and receives
solely cash in exchange for his or her stock in Gateway, should be treated as
having received all such cash in redemption of his or her Gateway stock subject
to the provisions of I.R.C. Sections 302 and 318.
It should be noted that the opinions expressed in this letter are based
upon statutory, judicial and administrative authority as of the date of this
opinion. There can be no assurance that such authority will not be changed in
the future, or that such changes will not be made retroactively applicable to
the transactions considered herein. Moreover, the above-stated opinions are
based upon the facts as we understand them and upon the representations provided
to us. If the facts turn out to be different in any material respect from the
facts or representations stated herein, or if the laws or regulations applicable
to the proposed transactions are changed or reinterpreted by competent
tribunals, some or all of the opinions expressed in this letter may become
inapplicable.
Please note further that Treas. Reg. Section 1.368-3 requires certain
records to be kept and information to be filed with the federal income tax
returns of each corporation which is a party to the reorganization. This same
regulation requires each Gateway shareholder who received Commercial shares in
connection with the reorganization to attached to his or her federal income tax
return for the year in which such shares are received a statement disclosing
the exchange of Gateway stock for shares of Commercial and reporting the cost
or other basis of the Gateway stock given up and the number and value of
Commercial shares received.
A-64
<PAGE>
BOWLES RICE
MCDAVID GRAFF & LOVE, P.L.L.C.
Commerical Bancshares, Incorporated and
Gateway Bancshares, Inc.
January 15, 1998
Page 5
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and the reference of our firm in the Registration
Statement.
Sincerely,
BOWLES RICE McDAVID GRAFF & LOVE, P.L.L.C.
By /s/ Marc A. Monteleone
----------------------------------------
Marc A. Monteleone
MAM/ms
A-65
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 31-1-9 of the West Virginia Code of 1931, as amended, permits
indemnification of present or former officers or directors who are named or
threatened to be named as parties to a legal action arising out of their
activities as officers or directors under certain circumstances.
The Bylaws of Commercial BancShares, Incorporated, as amended, contain the
following provision with regard to the indemnification of its directors and
officers:
Each director and officer or former director and officer of this
corporation, shall be indemnified against expenses actually and necessarily
incurred by him in connection with the defense of any action, suit or
proceeding, civil or criminal, in which he is made a party by reason of being or
having been such director or officer, except in relation to matters in which he
shall be adjudged, in such action, suit or proceeding, to be liable for willful
misconduct in the performance of duty to the corporation. A conviction or
judgment (whether based on a plea of guilty or its equivalent or after trial) in
a criminal or civil proceeding shall not be deemed an adjudication of liability
for willful misconduct in the performance of duty to the corporation if such
director or officer acted in good faith in what he considered to be the best
interest of the corporation and with no reasonable cause to believe that the
action was illegal. If in the judgment of the board of directors a settlement of
any claim so arising is deemed in the best interests of the corporation, any
such director or officer shall be reimbursed for any amounts paid in effecting
such settlement and reasonable expenses thereby incurred.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item 21. Exhibits and Financial Statement Schedules.
Exhibits required to be filed with this Registration Statement by Item 601
of Regulations S-K follow the execution pages of the Registration Statement.
The required exhibit index precedes these documents. Required exhibits which
are a part of the preceding Prospectus and Proxy Statement are incorporated by
reference to their location.
Item 22. Undertakings.
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 other Items of the applicable form.
2. The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (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 (230.415), will be filed as a part
of an amendment is
<PAGE>
effective, and that, for purposes of determining any liability of the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
3. Insofar as indemnification for liabilities under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
4. 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 business day of receipt of
such request, and to send the incorporation documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
5. 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 when it became effective.
6. The undersigned registrant hereby undertakes:
a. To file during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, present a fundamental change in the information set forth in
the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
b. That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at this time shall be deemed
to be the initial bona fide offering thereof.
c. To remove from the registration by means of post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
2
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly issued this registration
statement or amendment thereto to be signed on its behalf by the undersigned
hereunto duly authorized, in the City of Parkersburg, State of West Virginia, on
the 15th day of January, 1998.
COMMERCIAL BANCSHARES, INCORPORATED
By /s/ William E. Mildren, Jr.
----------------------------
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears
below constitutes and appointsWilliam E. Mildren, Jr. and Larry G. Johnson, and
each of them, his true and lawful attorneys-in-fact and agents with full power
of substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any or all amendments to this
registration statement and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in the about the premises, as fully to all intents and purposes as he
or she might do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully do or cause to
be done by virtue hereof.
<TABLE>
<CAPTION>
Signature Date Signature Date
- --------- ---- --------- ----
<S> <C> <C> <C>
/s/ Bruce Bingham January 15, 1998
- ----------------------------- ----------------
Bruce Bingham
/s/ A. Vernon Criss, III January 15, 1998 /s/ Gary R. Davis January 15, 1998
- ----------------------------- ---------------- ----------------------- ----------------
A. Vernon Criss, III Gary R. Davis
/s/ Wilson Davis January 15, 1998 /s/ Carl E. Dollman January 15, 1998
- ----------------------------- ---------------- ----------------------- ----------------
Wilson Davis Carl E. Dollman
/s/ James A. Meagle, Jr. January 15, 1998 /s/ David L. Mendenhall January 15, 1998
- ----------------------------- ---------------- ----------------------- ----------------
James A. Meagle, Jr. David L. Mendenhall
/s/ William E. Mildren, Jr. January 15, 1998 /s/ Jack F. Poe January 15, 1998
- ----------------------------- ---------------- ----------------------- ----------------
William E. Mildren, Jr. Jack F. Poe
(Chief Executive Officer)
/s/ Robert E. Richardson, Sr. January 15, 1998 /s/ W. S. Ritchie, Jr. January 15, 1998
- ----------------------------- ---------------- ----------------------- ----------------
Robert E. Richardson, Sr. W. S. Ritchie, Jr.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
/s/ Susan S. Ross January 15, 1998 /s/ Donald L. Scothorn January 15, 1998
- --------------------- ---------------- ---------------------- ----------------
Susan S. Ross Donald L. Scothorn
/s/ Thomas N. Webster January 15, 1998 /s/ Larry G. Johnson January 15, 1998
- --------------------- ---------------- ---------------------- ----------------
Thomas N. Webster Larry G. Johnson
(Chief Financial Officer)
</TABLE>
4
<PAGE>
COMMERCIAL BANCSHARES, INCORPORATED
-----------------------------------
FORM S-4
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
S-B Item 601
Table Exhibit
Description Reference Number
- ----------- --------- ------
<S> <C> <C>
Underwriting agreement (1) N/A
Agreement and Plan of Merger (2)
Articles of Incorporation and Bylaws: (3)
(a) Articles of Incorporation of Commercial
BancShares, Incorporated as last amended
and restated September 4, 1997 Exhibit 3(a)
(b) Bylaws of Commercial BancShares, Incorporated
as last amended, effective May 8, 1996 Exhibit 3(b)
Instruments Defining the Rights of Security Holders (4) (a)
Opinions Re: Legality (5) Exhibit 5
Opinion Re: Liquidation Preference (7) N/A
Opinion Re: Tax Matters and Consent (8) Annex D
Voting Trust Agreement (9) N/A
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Material Contracts (10) (b)
10.1 Change in Control Agreement between Commercial
BancShares, Incorporated, and William E. Mildren,
Jr., dated November 1, 1996.
10.2 Change in Control Agreement between Commercial (c)
BancShares, Incorporated, and Larry G. Johnson,
dated November 1, 1996.
10.3 Change in Control Agreement between Gary R. Exhibit 10.3
Davis, Hometown Bancshares, Inc., and Union Bank
of Tyler County, dated August 11, 1993 (filed
herewith)
10.4 Change in Control Agreement between Patty S. Exhibit 10.4
Poling, Hometown Bancshares, Inc., and The
Community Bank of Pennsboro, Inc., dated August
17, 1993 (filed herewith)
10.5 Change in Control Agreement between David L. Exhibit 10.5
Mendenhall, Hometown Bancshares, Inc., and The
Bank of Paden City, dated August 10, 1993 (filed
herewith)
10.6 Agreement and Plan of Merger with WesBanco, Inc. (d)
Statement Re: Computation of Per Share Earnings (11) N/A
Annual Report to Security Holders, et al. (13) N/A
Material Foreign Patents (14) N/A
Letter Re: Unaudited Interim Financial Information (15) N/A
Letter Re: Changes in Certifying Accountant (16) N/A
Subsidiaries of the Registrant (21) Exhibit 21
Consents:
(a) Consent of Harman Thompson Mallory & Ice (23) Exhibit 23(a)
(b) Consent of Glatz, Ibecny & Company, PLLC (23) Exhibit 23(b)
(c) Consent of Charles Webb & Company, L.P. (23) Exhibit 23(c)
(d) Consent of Bowles Rice McDavid Graff & Love, (23) included in Exhibit 5
P.L.L.C. included in Annex D
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Power of Attorney (24)
Statement of Eligibility of Trustee (25) N/A
Invitation for Competitive Bids (26) N/A
Financial Data Schedule (27)
Information From Reports Furnished To State Insurance (28) N/A
Regulatory Authorities
Additional Exhibits: (29)
(a) Form of Agreement Regarding
Affiliates Exhibit 99
(b) Form of Proxy Exhibit 99(a)
</TABLE>
Footnotes:
- ----------
(a) Incorporated herein by reference to Exhibit 1 of Commercial's Registration
Statement on Form 8-A filed with the SEC on April 18, 1995.
(b) Incorporated herein by reference to Exhibit 10.1 of Commercial's Annual
Report on Form 10-K for the year ended December 31, 1996 filed on March 28,
1997.
(c) Incorporated herein by reference to Exhibit 10.2 of Commercial's Annual
Report on Form 10-K for the year ended December 31, 1996, filed on March
28, 1997.
(d) Incorporated herein by reference to Exhibit 1 of Commercial's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997 filed on
November 14, 1997.
<PAGE>
EXHIBIT 3(a)
RESTATED
ARTICLES OF INCORPORATION
OF
COMMERCIAL BANCSHARES, INCORPORATED
-----------------------------------------------
Pursuant to the provisions of Sections 110 and 33 of Article 1, Chapter 31 of
the Code of West Virginia, the undersigned adopts the following Restated
Articles of Incorporation.
I. The undersigned agree to become a corporation by the name of COMMERCIAL
BANCSHARES, INCORPORATED.
II. The address of the principal office of said corporation will be located at
415 Market Street, in the City of Parkersburg in the county of Wood, State
of West Virginia, ZIP 26101.
III. The purpose or purposes for which this corporation is formed are as
follows:
A. Primarily, to purchase, own, and hold the stock of other corporations,
and to do every act and thing covered generally by the denomination
"holding corporation," and especially to direct the operations of other
corporations through the ownership of stock therein; to purchase,
subscribe for, acquire, own, hold, sell, exchange, assign, transfer,
create security interests in, pledge, or otherwise dispose of shares or
voting trust certificates for shares of the capital stock, or any bonds,
notes, securities, or evidences of indebtedness created by any other
corporation or corporations organized under the laws of this state or
any other state or district or country, nation, or government and also
bonds or evidences of indebtedness of the United States or of any state,
district, territory, dependency or country or subdivision or
municipality thereof; to issue in exchange therefor shares of the
capital stock, bonds, notes, or other obligations of the Corporation and
while the owner thereof to exercise all the rights, powers, and
privileges of ownership including the right to vote on any shares of
stock or voting trust certificates so owned; to promote, lend money to,
and guarantee the dividends, stocks, bonds, notes, evidences of
indebtedness, contracts, or other obligations of, and otherwise aid in
any manner which shall be lawful, any corporation or association of
which any bonds, stocks, voting trust certificates, or other securities
or evidences of indebtedness shall be held by or for this Corporation,
or in which, or in the welfare of which, this Corporation shall have any
interest, and to do any acts and things permitted by law and designed to
protect, preserve, improve, or enhance the value of any such bonds,
stocks, or other securities or evidences of indebtedness or the property
of this Corporation.
B. To purchase, to receive by way of gift, subscribe for, invest in, and in
all other ways acquire, import, lease, possess, maintain, handle on
consignment, own, hold for investment or otherwise use, enjoy, exercise,
operate, manage, conduct, perform, make, borrow, guarantee, contract in
respect of, trade and deal in, sell, exchange, let, lend, export,
mortgage, pledge, deed in trust, hypothecate, encumber, transfer, assign
and in all other ways dispose of, design, develop, invent, improve,
equip, repair, alter, fabricate, assemble, build, construct, operate,
manufacture, and in all other ways, deal in and with property of every
kind and character, real, personal or mixed, tangible or intangible,
wherever situated and however held, including, but not limited to,
money, credits, choses in action, securities, stocks, bonds, warrants,
script, certificates, debentures, mortgages, notes, commercial paper and
other obligations and evidences of interest in or indebtedness of any
person, firm or corporation, foreign or domestic, or of any government
or subdivision or agency thereof, documents of title, and
1
<PAGE>
accompanying rights, and every other kind and character of personal
property, real property (improved or unimproved), and the products and
avails thereof, and every character of interest therein and
appurtenances thereto, including, but not limited to, mineral, oil, gas
and water rights, all or any part of any going business and its
incidents, franchises, subsidies, charters, concessions, grants, rights,
powers or privileges, granted or conferred by any government or
subdivision or agency thereof, and any interest in or part of any of the
foregoing, and to exercise in respect thereof all of the rights, powers,
privileges, and immunities of individual owners or holders thereof.
C. To hire and employ agents, servants and employees, and to enter into
agreements of employment and collective bargaining agreements, and to
act as agent, contractor, trustee, factor or otherwise, either alone or
in company with others.
D. To promote or aid in any manner, financially or otherwise, any person,
firm, association or corporation, and to guarantee contracts and other
obligations.
E. To let concessions to others to do any of the things that this
corporation is empowered to do, and to enter into, make, perform and
carry out, contracts and arrangements of every kind and character with
any person, firm, association or corporation, or any government or
authority or subdivision or agency thereof.
F. To conduct its business and affairs, carry on its operations, and have
offices and exercise the powers granted by Chapter 31, Article 1, of the
Code of the State of West Virginia, within or without the State of West
Virginia.
G. To elect or appoint officers and agents of the corporation, and define
their duties and fix their compensation.
H. To make and alter by-laws, not inconsistent with these articles of
incorporation or with the laws of the State of West Virginia, for the
administration and regulation of the business and affairs of the
corporation.
I. To make donations for the public welfare or for charitable, scientific
or educational purposes.
J. To transact any lawful business which the board of directors shall find
will be in the aid of governmental policy.
K. To pay pensions and establish pension plans or pension trusts for any or
all of its directors, officers and employees, establish profit-sharing
plans, stock bonus plans, stock option plans and other incentive plans
for any or all of its directors, officers and employees.
L. To be a promoter, partner, member, associate, or manager of any
partnership, joint venture, trust or other enterprise.
M. To cease its corporate activities and surrender its corporate franchise
in accordance with the provisions of Chapter 31, Article 1 of the Code
of the State of West Virginia.
N. To carry on any business whatsoever that this corporation may deem
proper or convenient in connection with any of the foregoing purposes or
otherwise, or that it may deem calculated, directly or indirectly, to
improve the interests of this corporation, and to have and to exercise
all powers conferred by the laws of the State of West Virginia on
corporations formed under the laws pursuant to which and under which
this corporation is formed, as such laws are now in effect or may at any
time hereafter be amended, and to do any and all things hereinbefore set
forth to the same extent and as
2
<PAGE>
fully as natural persons might or could do, either alone or in
connection with other persons, firms, associations or corporations, and
in any part of the world.
The foregoing statement of purpose shall be construed as a
statement of both purposes and powers, shall be liberally construed in aid
of the powers of this corporation, and the powers and purposes stated in
each clause shall, except where otherwise stated, be in nowise limited or
restricted by any term or provision of any other clause, and shall be
regarded not only as independent purposes, but the purposes and powers
stated shall be construed distributively as each object expressed, and the
enumeration as to specific powers shall not be construed as to limit in any
manner the aforesaid general powers, but are in furtherance of, and in
addition to and not in limitation of said general powers.
IV. Provisions granting preemptive rights are:
None.
V. Provisions for the regulation of the internal affairs of the corporation
are:
The internal affairs will be regulated by the Board of Directors in
accordance with the By-Laws adopted by the Stockholders.
Each director and officer of this corporation, or former director or
officer of this corporation, or any person who may have served at its
request as a director or officer of another corporation, his heirs and
personal representatives, shall be indemnified by this corporation against
costs and expenses at any time reasonably incurred by him arising out of or
in connection with any claim, action, suit or proceeding, civil or
criminal, against him or to which he may be made a party by reason of his
being or having been such director or officer except in relation to matters
as to which he shall be adjudged in such action, suit or proceeding to be
liable for gross negligence or willful misconduct in the performance of a
duty to the corporation. If in the judgment of the board of directors of
this corporation a settlement of any claim, action, suit or proceeding so
arising be deemed in the best interest of the corporation, any such
director or officer shall be reimbursed for any amounts paid by him in
effecting such settlement and reasonable expenses incurred in connection
therewith. The foregoing right of indemnification shall be in addition to
any and all other rights to which any director or officer may be entitled
as a matter of law.
VI. The amount of total authorized capital stock of said Corporation shall be
Five Million Forty-Three Thousand Three Hundred Twenty-Eight (5,043,328)
shares, which shall be divided into Five Million (5,000,000) shares of
common stock of the par value of Five Dollars ($5.00) each and Forty-Three
Thousand Three Hundred Twenty-Eight (43,328) shares of preferred stock of
the par value of One Hundred Dollars ($100.00) each.
A. The Board of Directors shall have the power and authority at any time
and from time to time to issue, sell or otherwise dispose of any
unissued but authorized shares of any class or classes of stock
presently provided for in the Certificate of Incorporation, or that may
hereafter be provided for by a subsequent amendment to the Certificate
of Incorporation, to such person or parties, including the holders of
Common Stock or Preferred Stock or of any such other class of stock, for
such considerations (not less than the par value, if any, thereof) and
upon such terms and conditions as the Board of Directors in its
discretion may deem to be in the best interests of the Corporation.
Except as expressly provided to the contrary hereinafter, such issuance,
sale or other disposition may be made without offering such shares, or
any part or class thereof, to the holders of Common Stock or Preferred
Stock or any such other class of stock, and no such holder shall have
any preemptive right to subscribe for any such shares.
B. Each holder of Common Stock of the Corporation entitled to vote shall
have one vote for each share thereof held.
3
<PAGE>
C. The Corporation may issue shares of preferred or special classes subject
to the right of the Corporation to redeem any of such shares at the
price fixed by the articles of incorporation for the redemption thereof;
entitling the holders thereof to cumulative, noncumulative or partially
cumulative dividends; having preference over any other class or classes
of shares as to the payment of dividends; having preference in the
assets of the Corporation over any other class or classes of shares upon
the voluntary or involuntary liquidation of the corporation; and
convertible into shares of any other class or into shares of any series
of the same or any other class, except a class having prior or superior
rights and preferences as to dividends or distribution of assets upon
liquidation, but shares without par value, if any, shall not be
converted into shares with par value unless that part of the stated
capital of the Corporation represented by such shares without the par
value is, at the time of conversion, at least equal to the aggregate par
value of the shares into which the shares without par value are to be
converted or the amount of any such deficiency is transferred from
surplus to stated capital.
D. Preferred Stock may be divided into and issued by the Board of Directors
from time to time in one or more series. All shares of Preferred Stock
shall be of equal rank and shall be identical, except in respect of the
particulars that are fixed in the Certificate of Incorporation or may be
fixed by the Board of Directors as hereinafter provided pursuant to
authority which is hereby expressly vested in the Board of Directors;
and each share of each series shall be identical in all respects with
the other shares of such series, except as to the following relative
rights and preferences which may be fixed and determined by the Board of
Directors, as to which there may be variations between different series:
(a) the rate of dividends;
(b) whether shares may be redeemed and, if so, the redemption price
and the terms and conditions of redemption;
(c) the amount payable upon shares in event of voluntary and
involuntary liquidation;
(d) sinking fund provisions, if any, for the redemption or purchase of
shares;
(e) the terms and conditions, if any, on which shares may be
converted; and
(f) voting rights, if any.
E. The Board of Directors of the Corporation shall have all of the power
and authority with respect to the shares of Preferred Stock that may be
delegated to the Board of Directors pursuant to the terms and provisions
of Chapter 31, Article 1, Sections 78 and 79 of the Code of West
Virginia, as amended, and shall exercise such power and authority by the
adoption of a resolution or resolutions as prescribed by law.
VII. The full names and addresses of the incorporator(s), including street and
street numbers, if any, and the city, town or village, including ZIP
number, and if a stock corporation, the number of shares subscribed for
by each.
NAME ADDRESS NO. OF SHARES
---- ------- -------------
(Optional)
William E. Mildren, Sr. 5110 - 1st Avenue
Vienna, WV 26105
William E. Mildren, Jr. 415 Market Street
Parkersburg, WV 26101
Thomas N. Webster 4201 - 3rd Avenue
Vienna, WV 26105
4
<PAGE>
VIII. The existence of this corporation is to be perpetual.
IX. The name and address of the appointed person to whom notice or process
may be sent:
WILLIAM E. MILDREN, JR.,
415 Market Street
Parkersburg, WV 26101
X. The number of directors constituting the initial board of directors of
the corporation is thirteen (13), and the names and addresses of the
persons who are to serve as directors until the first annual meeting of
shareholders or until their successors are elected and shall qualify.
(Naming the board of directors is optional.)
NAME ADDRESS
---- -------
SEE ATTACHED LIST
5
<PAGE>
These Restated Articles of Incorporation correctly set forth without
change the corresponding provisions of the Articles of Incorporation as
heretofore amended. These Restated Articles of Incorporation supersede the
original Articles of Incorporation and all amendments thereto.
COMMERCIAL BANCSHARES, INCORPORATED
By: ______________________________
William E. Mildren, Jr.
Its: President
By: ______________________________
Larry G. Johnson
Its: Secretary
This instrument prepared by:
Sandra M. Murphy
Bowles Rice McDavid Graff & Love
600 Quarrier Street
Post Office Box 1386
Charleston, West Virginia 25325-1386
(304) 347-1131
6
<PAGE>
ATTACHMENT TO "X" - Names and addresses of directors
constituting initial board of directors
----------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
F. Lloyd Blair, M.D. Jack F. Poe
Route 1, Box 120 4013 Powell Street
Walker, WV 26180 Parkersburg, WV 26104
Robert W. Burk, Jr. George M. Ruoff
P. O. Box 287 # 11 Meadowcrest
Parkersburg, WV 26101 Parkersburg, WV 26101
Peyton J. Dudley Jack L. Shafer
21 Meadowcrest Drive 105 Country Club Drive
Parkersburg, WV 26101 Vienna, WV 26015
Arthur A. Maher Carl E. Stephens
c/o St. Joseph's Hospital 3900 River Road
P. O. Box 327 Vienna, WV 26105
Parkersburg, WV 26101
William E. Mildren, Sr. James M. Thompson
5110 1st Avenue P. O. Box 1046
Vienna, WV 26105 Parkersburg, WV 26101
William E. Mildren, Jr. Thomas N. Webster
P. O. Box 1427 4201 Third Avenue
Parkersburg, WV 26101 Vienna, WV 26105
Frank L. Christy
P. O. Box D
Marietta, Ohio 45750
</TABLE>
7
<PAGE>
STATE OF WEST VIRGINIA,
COUNTY OF WOOD, TO-WIT:
I, , a notary public in and for the State
--------------------------
and County aforesaid, do hereby certify that on this day there personally
appeared before me, WILLIAM E. MILDREN, JR., being by me first duly sworn,
declared that he is President of Commercial BancShares, Incorporated, that he
signed the foregoing document as President of that corporation, and that to the
best of his knowledge and belief the statements contained therein are true and
correct.
IN TESTIMONY WHEREOF, witness my signature and notarial seal this
day of , 1997.
- ------------ ------------------
--------------------------
Notary Public
My commission expires:
------------------------------------.
[SEAL]
8
<PAGE>
STATE OF WEST VIRGINIA,
COUNTY OF WOOD, TO-WIT:
I, , a notary public in and for the State
--------------------------
and County aforesaid, do hereby certify that on this day there personally
appeared before me, LARRY G. JOHNSON, being by me first duly sworn, declared
that he is Secretary of Commercial BancShares, Incorporated, that he signed the
foregoing document as Secretary of that corporation, and that to the best of his
knowledge and belief the statements contained therein are true and correct.
IN TESTIMONY WHEREOF, witness my signature and notarial seal this
day of , 1997.
- ------------ ---------------------
--------------------------
Notary Public
My commission expires:
------------------------------------.
[SEAL]
9
<PAGE>
EXHIBIT 3(B)
BY-LAWS
OF
COMMERCIAL BANCSHARES, INCORPORATED
May 8, 1996
Article I. Offices.
The principal office of the corporation shall be located at 415 Market
Street, in the City of Parkersburg, Wood County, West Virginia. The corporation
may have such other offices, either within or without the State of West
Virginia, as the board of directors may designate or as the business of the
corporation may require from time to time.
Article II. Shareholders.
Section 1. Annual Meeting. The annual meeting of the shareholders
--------------
shall be held on such date as may be determined by the Board of Directors, for
the purpose of electing directors and for the transaction of such other business
as may come before the meeting. The board of directors shall fix the time and
place of the annual meeting. If the day fixed for the annual meeting shall be a
legal holiday in the State of West Virginia, such meeting shall be held on the
next succeeding business day. If the election of directors shall not be held on
the day designated herein for any annual meeting of the shareholders, or at any
adjournment thereof, the board of directors shall cause the election to be held
at a special meeting of the shareholders as soon thereafter as conveniently may
be.
Section 2. Special Meetings. Special meetings of the shareholders,
----------------
for any purpose or purposes, unless otherwise prescribed by statute, may be
called by the president, the chairman of the board, the chief executive officer,
or by a majority of the board of directors, and shall be called by the president
at the request of the holders of not less than twenty-five percent (25%) of all
the outstanding shares of the corporation entitled to vote at the meeting. The
president shall give notice of the meeting to all shareholders entitled to vote
at such meeting. No matter how called, every request for a special meeting
shall state the purpose or purposes of such meeting and the matters proposed to
be acted upon at the meeting. No special meeting need be called at the request
of shareholders to consider any matter which is substantially the same as a
matter voted upon at any annual or special meeting held during the preceding
twelve (12) months.
Section 3. Place of Meeting. The board of directors may designate
----------------
any place, either within or without the State of West Virginia, as the place of
meeting for any annual meeting or for any special meeting called by the board of
directors. A waiver of notice signed by all shareholders entitled to vote at a
meeting may designate any place, either within or without the State of West
Virginia, as the place for the holding of such meeting. If no designation is
made, or if a special meeting be otherwise called, the place of meeting shall be
the principal office of the corporation in the State of West Virginia.
Section 4. Notice of Meeting. Written or printed notice stating the
-----------------
place, day, and hour of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered not less
than twenty (20) nor more than fifty (50) days before the date of the meeting,
either personally or by mail, by or at the direction of the president, or the
officer or persons calling the meeting, to each shareholder of record entitled
to vote at such meeting. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail, addressed to the shareholder at his
address as it appears on the stock transfer books of the corporation, with
postage thereon prepaid. Business transacted at any special meeting of
shareholders shall be limited to the purposes stated in the notice.
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<PAGE>
Section 5. Closing of Transfer, Fixing of Record Date. For the
------------------------------------------
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or entitled to receive
payment of any dividend, or in order to make a determination of shareholders for
any other purpose, the board of directors shall not close the stock transfer
books. The board of directors may fix in advance a date as the record date in
order to make a determination of shareholders in the manner provided herein. In
the case of the fixing of a record date with respect to the declaration of a
dividend, such date shall be fixed at least ten (10) business days after the
date of declaration. In the case of the fixing of a record date with respect to
a meeting of shareholders, such date shall be not less than ten (10) days prior
to the date on which the particular action, requiring such determination of
shareholders, is to be taken. In the case of any other action requiring a
determination of shareholders, such date shall be not more than fifty (50) days
prior to the date on which the particular action is to be taken. If no record
date is fixed for the determination of shareholders entitled to notice of or to
vote at a meeting of shareholders, the date on which notice of the meeting is
mailed shall be the record date for such determination of shareholders. When a
determination of shareholders entitled to vote at any meeting of shareholders
has been made as provided in this section, such determination shall apply to any
adjournment thereof.
Section 6. Voting Record. The officer or agent having charge of the
-------------
stock transfer records for shares of the corporation shall make a complete
record of the shareholders entitled to vote at such meeting, or any adjournment
thereof, arranged in alphabetical order, with the address of and the number of
shares held by each, which list shall be kept on file at the office of the
corporation and shall be subject to inspection by any shareholder at any time
during usual business hours. Such list shall also be produced and kept open at
the time and place of the meeting and shall be subject to the inspection of any
shareholder during the whole time of the meeting. The original stock transfer
record shall be prima facie evidence as to who are the shareholders entitled to
examine such list or transfer records or to vote at any meeting of shareholders.
Section 7. Quorum. A majority of the outstanding shares of the
------
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than a majority of
the outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice.
At such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. The shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough shareholders to leave less than a quorum.
Section 8. Proxies. At all meetings of shareholders, a shareholder
-------
may vote by proxy executed in writing by the shareholder or by his duly
authorized attorney in fact. Such proxy shall be filed with the secretary of
the corporation before or at the time of the meeting. No proxy shall be valid
after eleven (11) months from the date of its execution, unless otherwise
provided in the proxy.
Section 9. Voting of Shares. Each outstanding share entitled to vote
----------------
shall be entitled to one vote upon each matter submitted to a vote at a meeting
of shareholders.
Section 10. Voting of Shares by Certain Holders. Shares standing in
-----------------------------------
the name of another corporation, domestic or foreign, may be voted by such
officer, agent or proxy as the by-laws of such other corporation may prescribe
or, in the absence of such provision, as the board of directors of such other
corporation may determine.
Shares held by an administrator, executor, guardian, committee,
curator, or conservator may be voted by him, either in person or by proxy,
without a transfer of such shares into his name. Shares standing in the name of
a trustee may be voted by him either in person or by proxy.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority so to do
be contained in an appropriate order of the court by which such receiver was
appointed.
2
<PAGE>
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
On and after the date on which written notice of redemption of
redeemable shares has been mailed to the holders thereof and a sum sufficient to
redeem such shares has been deposited with a bank or trust company with
irrevocable instruction and authority to pay the redemption price to the holders
thereof upon surrender of certificates therefor, such shares shall not be
entitled to vote on any matter and shall not be deemed to be outstanding shares.
Section 11. Cumulative Voting. At each election for directors every
-----------------
shareholder entitled to vote at such election shall have the right to vote, in
person or by proxy, the number of shares owned by him for as many persons as
there are directors to be elected and for whose election he has a right to vote
or to cumulate his votes by giving one candidate as many votes as the number of
such directors multiplied by the number of his shares shall equal, or by
distributing such votes on the same principle among any number of candidates.
Section 12. Informal Action by Shareholders. Any action required to
-------------------------------
be taken at a meeting of the shareholders, or any other action which may be
taken at a meeting of the shareholders, may be taken without a meeting if a
consent in writing, setting for the action so taken, shall be signed by all of
the shareholders entitled to vote with respect to the subject matter thereof.
Article III. Board of Directors
Section 1. General Powers. The business and affairs of the
--------------
corporation shall be managed by its board of directors.
Section 2. Number, Tenure and Qualifications. After the initial
---------------------------------
board of directors which shall be twelve (12) in number, the number of directors
of the corporation shall be not less than five (5) nor more than twenty-five
(25). Each director shall hold office until the next annual meeting of
shareholders and until his successor shall have been elected and qualified.
Directors need not be residents of the State of West Virginia or shareholders of
the corporation; however, no one shall be appointed, nominated or elected to the
board who has attained the age of seventy (70). Provided, however, members of
the initial board of directors shall not be subject to the age restriction.
Provided further, that in the event the corporation acquires by merger, purchase
or otherwise another financial institution the age restriction shall not apply
to the appointment, nomination or election of a Director to the board of
directors of this corporation who was a member of the Board of Directors of the
financial institution so acquired. Further provided that the age restriction
may be waived by the affirmative vote of three fourths of the elected members of
the Board.
Section 3. Regular Meetings. A regular meeting of the board of
----------------
directors shall be held without other notice than these By-Laws, immediately
after, and at the same place as, the annual meeting of shareholder. The Board
of Directors may provide, by resolution, the time and place, either within or
without the State of West Virginia for the holding of additional regular
meetings without other notice than such resolution.
Section 4. Special Meetings. Special meetings of the board of
----------------
directors may be held at any time by the call of the president, the chairman of
the board, the chief executive officer, or a majority of the board of directors.
The person or person authorized to call special meetings of the board of
directors may fix any place, either within or without the State of West
Virginia, as the place for holding any special meeting of the board of directors
called by them.
Section 5. Notice. Notice of any special meeting shall be give at
------
least two (2) days previously thereto by written notice delivered personally or
mailed to each director at his business address, or by telegram. If mailed,
such notice shall be deemed to be delivered when deposited in the United States
mail so addressed, with postage thereon prepaid. If notice be given by
telegram, such notice shall be deemed to be delivered when the telegram is
delivered to the telegraph company. If a special meeting is called by the
chairman of the board or the president, notice of the meeting may be given to
every director no less than one (1) hour prior to the time of such meeting, and
such notice may be give either orally or by telephone, telegraph or letter. The
presence of any director at a meeting shall constitute a waiver of
3
<PAGE>
notice of such meeting as to that director, except when a director attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
board of directors need be specified in the notice or waiver of notice of such
meeting except that such notice must set forth the nature of the business
intended to be transacted if such business is (a) amending the By-Laws, (b)
authorizing the sale of all or substantially all of the assets of the
corporation or (c) electing a director.
Section 6. Quorum. A majority of the number of directors fixed by
------
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors, but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time without further notice.
Section 7. Manner of Acting. The act of the majority of the
----------------
directors present at a meeting at which a quorum is present shall be the act of
the board of directors.
Section 8. Vacancies. Any vacancy occurring in the board of
---------
directors may be filled by the affirmative vote of a majority of the remaining
directors though less than a quorum of the board of directors. A director
elected to fill a vacancy shall be elected for the unexpired term of his
predecessor in office. Any directorship to be filled by reason of an increase
in the number of directors shall be filled by election at a special meeting of
the board of directors or at a regular meeting of the board of directors if
notice is given at least two (2) days beforehand.
Section 9. Compensation. By resolution of the board of directors,
------------
the directors may be paid their expenses, if any, of attendance at each meeting
of the board of directors, and may be paid a fixed sum for attendance at each
meeting of the board of directors and/or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
Section 10. Presumption of Assent. A director of the corporation who
---------------------
is present at a meeting of the board of directors at which action on any
corporate matter is taken shall be presumed to have assented to the action taken
unless his dissent shall be entered in the minutes of the meeting or unless he
shall file his written dissent to such action with the person acting as the
secretary of the meeting before the adjournment thereof or shall forward such
dissent by certified mail to the secretary of the corporation immediately after
the adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
Section 11. Informal Action by Directors. Any action required to be
----------------------------
taken at a meeting of the directors or of a committee, or any other action which
may be taken at a meeting of the directors, or of a committee, may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the directors or all of the members of the committee
entitled to vote with respect to the subject matter thereof.
Section 12. Committees of Directors. The board of directors shall
-----------------------
appoint from among its members an executive committee as provided by Article XII
hereof. The board of directors may appoint other committees composed of two or
more directors; it may delegate to the executive committee, in the intervals
between meetings of the board of directors, any or all of the powers of the
board of directors in the management of the business and affairs of the
corporation, except the power to declare dividends, to issue stock or to
recommend to stockholders any action requiring stockholders' approval. In the
absence of any member of any committee, the members thereof present at any
meeting, whether or not they constitute a quorum, may appoint a member of the
board of directors to act in the place of absent members. Any action by any
committee of the board shall be subject to revision and alteration by the board
of directors, provided that no rights of third persons shall be affected by any
such revision or alteration.
Article IV. Officers.
Section 1. Number. The officers of the corporation shall be a
------
president, treasurer, a secretary, and, if desired, a chairman of the board,
vice chairman, chief executive officer, and one or more vice presidents, each of
whom
4
<PAGE>
shall be elected by the board of directors. Such other officers as may be
deemed necessary may be elected or appointed by the board of directors. Any two
(2) or more offices may be held by the same person, except the offices of
president and secretary; however, no officer shall execute, acknowledge or
verify any instrument in more than one capacity, if such instrument is required
by law, the charter or these By-Laws to be executed, acknowledged or verified by
two (2) or more officers.
Section 2. Election and Term of Office. The officers of the
---------------------------
corporation to be elected by the board of directors shall be elected annually by
the board of directors at the first meeting of the board of directors held after
each annual meeting of the shareholders. If the election of officers shall not
be held at such meeting, such election shall be held as soon thereafter as
conveniently may be. Each officer shall hold office until his successor shall
have been duly elected and shall have qualified or until his death or until he
shall resign or shall have been removed in the manner hereinafter provided.
Section 3. Removal. Any officer or agent elected or appointed by the
-------
board of directors may be removed by the board of directors whenever in its
judgment the best interests of the corporation would be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. Election or appointment of an officer or agent shall not of itself
create contract rights.
Section 4. Vacancies. A vacancy in any office because of death,
---------
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Chairman of the Board. The Chairman of the Board shall
---------------------
preside at all meetings of the shareholders and of the Board of Directors, and
have such other duties as may be prescribed by the Board of Directors from time
to time.
Section 6. President. The president, subject to the control of the
---------
board of directors, shall in general supervise and control all of the business
and affairs of the corporation. He shall, in the absence of the Chairman of the
Board, preside at all meetings of the shareholders and of the board of
directors. He may sign, individually, or with the secretary or any other proper
officer of the corporation thereunto authorized by the board of directors,
certificates for shares of the corporation, any deeds, mortgages, bonds,
contracts, or other instruments for the corporation, except in cases where the
signing and execution thereof shall be expressly delegated by the board of
directors or by these By-Laws to some other officer or agent of the corporation,
or shall be required by law to be otherwise signed or executed; and in general
shall perform all duties incident to the office of president and such other
duties as may be prescribed by the board of directors from time to time.
Section 7. The Secretary. The secretary shall (a) keep the minutes
-------------
of the shareholders' and of the board of directors' meetings in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these By-Laws or as required by law; (c) be
custodian of the corporate records and of the seal of the corporation and see
that the seal of the corporation is affixed to all documents, the execution of
which on behalf of the corporation under its seal, is duly authorized; (d) keep
a register of the post office
address of each shareholder which shall be furnished to the secretary by such
shareholder; (e) sign with the president, or a vice president, certificates for
shares of the corporation, the issuance of which shall have been authorized by
resolution of the board of directors; (f) have general charge of the stock
transfer books of the corporation; and (g) in general perform all duties
incident to the office of secretary and such other duties as from time to time
may be assigned to him by the president or by the board of directors.
Section 8. The Treasurer. The treasurer shall give a bond for the
-------------
faithful discharge of his duties in such sum and with such surety or sureties as
the board of directors shall determine. He shall: (a) have charge and custody
of and be responsible for all funds and securities of the corporation; receive
and give receipts and monies due and payable to the corporation from any source
whatsoever, and deposit all such monies in the name of the corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with the provisions of Article V of these By-Laws; and (b) in general perform
all of the duties incident to the office of treasurer and such other duties as
from time to time may be assigned to him by the president or by the board of
directors.
5
<PAGE>
Section 9. Salaries. The salaries of the officers shall be fixed
--------
from time to time by the board of directors and no officer shall be prevented
from receiving such salary by reason of the fact that he is also a director of
the corporation.
Article V. Contracts, Loans, Checks and Deposits.
Section 1. Contracts. The board of directors may authorize any
---------
officer or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
Section 2. Loans. Loans shall be contracted on behalf of the
-----
corporation and evidences of indebtedness shall be issued in its name in such
manner as shall from time to time be determined by resolution of the board of
directors. Such authority may be general or confined to specific instances.
Section 3. Checks, Drafts, etc. All checks, drafts or other orders
-------------------
for the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation, shall be signed either manually or if authorized by the
board of directors, by facsimile signature, by such officer or officers, agent
or agents of the corporation and in such manner as shall from time to time be
determined by resolution of the board of directors.
Section 4. Deposits. All funds of the corporation not otherwise
--------
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositories as the board of directors
may select.
Articles VI. Certificates for Shares and their Transfer.
Section 1. Certificates for Shares. Certificates representing shares
-----------------------
of the corporation shall be in such form as shall be determined by the board of
directors. Such certificates shall be signed by the president or a vice
president and by the secretary or an assistant secretary. If authorized by the
board of directors, such signatures may be by facsimile signature by means of a
reproduction by engraving, imprinting, stamping or other means. Such facsimile
signature shall have the same legal effect as manual signature. All
certificates for shares shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares represented thereby are
issued, with the number of shares and date of issue, shall be entered on the
stock transfer records of the corporation. All certificates surrendered to the
corporation for transfer shall be canceled and no new certificate shall be
issued until the former certificate for a like number of shares shall have been
surrendered and cancelled, except that in case of a lost, destroyed or mutilated
certificate, a new one may be issued therefor upon such terms and indemnity to
the corporation as the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of the corporation
------------------
shall be made only on the stock transfer records of the corporation by the
holder of record thereof or by his legal representative, who shall furnish
proper evidence of authority to transfer, or by his attorney thereunto
authorized by power of attorney duly executed and filed with the secretary of
the corporation, and on surrender for cancellation of the certificate for such
shares. The person in whose name shares stand on the books of the corporation
shall be deemed by the corporation to be the owner thereof for all purposes.
Article VII. Indemnity.
Each director and officer or former director or officer of this
corporation, shall be indemnified against expenses actually and necessarily
incurred by him in connection with the defense of any action, suit or
proceeding, civil or criminal, in which he is made a party by reason of being or
having been such director or officer, except in relation to matters in which he
shall be adjudged, in such action, suit or proceeding, to be liable for willful
misconduct in the
6
<PAGE>
performance of duty to the corporation. A conviction or judgment (whether based
on a plea of guilty or its equivalent or after trial) in a criminal or civil
proceeding shall not be deemed an adjudication of liability for willful
misconduct in the performance of duty to the corporation if such director or
officer acted in good faith in what he considered to be the best interest of the
corporation and with no reasonable cause to believe that the action was illegal.
If in the judgment of the board of directors a settlement of any claim so
arising is deemed in the best interests of the corporation, any such director or
officer shall be reimbursed for any amounts paid in effecting such settlement
and reasonable expenses thereby incurred.
Article VIII. Dividends.
The board of directors may from time to time declare, and the
corporation may pay, dividends on its outstanding shares in the manner and upon
the terms and conditions provided by law and its articles of incorporation.
Article IX. Seal.
The board of directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation,
the state and year of incorporation, and the words "Corporate Seal", but the
board may adopt a different seal from time to time.
Article X. Waiver of Notice.
Whenever any notice is required to be given to any shareholder or
director of the corporation under the provisions of these By-Laws or under the
provisions of the articles of incorporation or under the provisions of law, a
waiver thereof in writing, signed by the person or persons entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
Article XI. Executive Committee.
Section 1. Appointment. The board of directors by resolution adopted
-----------
by a majority of the full board, shall designate two (2) or more of its members
to constitute an executive committee. The designation of such committee and the
delegation thereto of authority shall not operate to relieve the board of
directors, or any member thereof, of any responsibility imposed by law.
Section 2. Authority. The executive committee, when the board of
---------
directors is not in session shall have and may exercise all of the authority of
the board of directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee and except also
that the executive committee shall not have the authority of the board of
directors in reference to amending the articles of incorporation, adopting a
plan of merger or consolidation, recommending to the shareholders the sale,
lease or other disposition of all or substantially all of the property and
assets of the corporation otherwise than in the usual and regular course of its
business, recommending to the shareholders a voluntary dissolution of the
corporation or a revocation thereof, or amending the By-Laws of the corporation.
Section 3. Tenure and Qualifications. Each member of the executive
-------------------------
committee shall hold office until the next regular annual meeting of the board
of directors following his designation and until his successor is designated as
a member of the executive committee and is elected and qualified.
Section 4. Meetings. Regular meetings of the executive committee may
--------
be held without notice at such times and places as the executive committee may
fix from time to time by resolution. Special meetings of the executive
committee may be called by the chairman of the board, the chief executive
officer, the president or a majority of the
7
<PAGE>
members of the committee upon not less than one day's notice stating the place,
date and hour of the meeting, which notice may be written or oral, and if
mailed, shall be deemed to be delivered when deposited in the United States mail
addressed to the member of the executive committee at his business address. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive
------
committee shall constitute a quorum for the transaction of business at any
meeting thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without A Meeting. Any action required or
------------------------
permitted to be taken by the executive committee at a meeting may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may be
---------
filled by a resolution adopted by a majority of the full board of directors.
Section 8. Resignations and Removal. Any member of the executive
------------------------
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full board of directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the president or secretary of the corporation, and unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 9. Procedure. The executive committee shall elect a
---------
presiding officer from its members and may fix its own rules of procedure which
shall not be inconsistent with these By-Laws. It shall keep regular minutes of
its proceedings and report the same to the board of directors for its
information at the meeting thereof held next after the proceedings shall have
been taken.
Article XII. Audit Committee.
Section 1. Appointment. The board of directors by resolution adopted
-----------
by a majority of the full board, shall designate not more than seven (7) persons
to constitute an audit committee. Members of the audit committee shall be
members of the corporation's board of directors provided that a majority of the
members of the audit committee shall be outside, independent directors. No
member of the audit committee may be an active officer of the corporation or any
of its subsidiaries.
Section 2. Authority. The audit committee shall establish and
---------
implement an audit program that will provide adequate safeguards to ensure the
corporation's and each subsidiary bank's general operating efficiency and its
compliance with managerial policies, laws, regulations and accepted accounting
principles. The committee shall work with the corporation's and any subsidiary
bank's auditors, both internal and external, to ensure comprehensive audit
coverage. It shall meet with them and regulatory personnel to receive reports
and discuss findings. The audit committee shall also monitor management's
efforts to correct deficiencies discovered in an audit or supervisory
examination. The committee will determine the size and composition of any
internal audit staff and consult with the chief executive officer in setting
compensation and evaluating performance of the audit staff.
Section 3. Tenure and Qualifications. Each member of the audit
-------------------------
committee shall hold office until the next regular annual meeting of the board
of directors following his designation and until his successor is designated as
a member of the audit committee.
Section 4. Meetings. Regular meetings of the audit committee may be
--------
held without notice at such times and places as the audit committee may fix from
time to time by resolution. Special meetings of the audit committee
8
<PAGE>
may be called by the chairman of the board, the chief executive officer, the
chairman of the audit committee or a majority of the members of the committee
upon not less than one day's notice stating the place, date and hour of the
meeting, which notice may be written or oral, and if mailed, shall be deemed to
be delivered when deposited in the United States mail addressed to the member of
the audit committee at his business address. Any member of the audit committee
may waive notice of any meeting and no notice of any meeting need be given to
any member thereof who attends in person. The notice of a meeting of the audit
committee need not state the business proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the audit committee
------
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the audit committee must be authorized by the affirmative
vote of a majority of the members present at a meeting at which a quorum is
present.
Section 6. Action Without A Meeting. Any action required or
------------------------
permitted to be taken by the audit committee at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the members of the audit committee.
Section 7. Vacancies. Any vacancy in the audit committee may be
---------
filled by a resolution adopted by a majority of the corporation's board of
directors, present and voting.
Section 8. Resignations and Removal. Any member of the audit
------------------------
committee may be removed at any time with or without cause by resolution adopted
by a majority of the corporation's full board of directors. Any member of the
audit committee may resign from the audit committee at any time by giving
written notice to the president or secretary of the corporation, and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 9. Procedure. The audit committee shall elect a presiding
---------
officer, who shall be a member of the corporation's board of directors, from its
members and may fix its own rules of procedure which shall not be inconsistent
with these By-Laws. It shall keep regular minutes of its proceedings and report
the same to the board of directors for its information at the meeting thereof
held next after the proceedings shall have been taken.
Article XIII. Amendments.
These By-Laws may be altered, amended or repealed and new By-Laws may
be adopted by the board of directors at any regular, if notice is given at least
two (2) days beforehand, or special meeting of the board of directors, but any
By-Laws or amendments to By-Laws made by the directors may be amended, altered
or repealed by the board of directors or by a two-thirds (2/3rds) vote of the
stockholders.
9
<PAGE>
Exhibit 5
[LETTERHEAD OF BOWLES RICE MCDAVID GRAFF & LOVE]
______________________
Gateway Bancshares, Inc.
Bank of McMechen
700 Marshall Street
McMechen, West Virginia 26040
Re: Form S-4 Registration Statement
-------------------------------
Ladies and Gentlemen:
This opinion is rendered in connection with the Form S-4 Registration
Statement (the "Registration Statement") filed by Commercial BancShares,
Incorporated, Inc. (the "Registrant") with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
proposed offering of up to 141,902 shares of common stock of Registrant, $5.00
par value ("Common Stock") issuable in connection with the proposed acquisition
of Gateway Bancshares, Inc. ("Gateway"),McMechen, West Virginia, by Registrant,
as amended on September 30, 1997 and December 15, 1997 pursuant to the terms of
the Agreement and Plan of Merger dated August 15, 1997, between Gateway and
Registrant (the "Plan").
We are of the opinion that if all the conditions set forth in the Plan
are satisfied, the Common Stock, when issued in connection with the Plan in
accordance with the terms set forth therein, will be duly authorized, validly
issued, fully paid and nonassessable and will not be issued in violation of any
preemptive rights of any shareholder of Registrant.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to our firm therein.
Very truly yours,
BOWLES RICE MCDAVID GRAFF & LOVE, P.L.L.C.
/s/ Sandra M. Murphy
-------------------------
Sandra M. Murphy
SMM/jam
cc: Larry G. Johnson
<PAGE>
EXHIBIT 10.3
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT made and entered into as of the 11th day of August,
1993 by and between Union Bank of Tyler County, a West Virginia state bank with
its principal offices located in Middlebourne, West Virginia (the "Bank") and
Gary R. Davis (the "Executive"), and Hometown Bancshares, Inc., a corporation,
(the "Holding Company").
WHEREAS, the Executive is presently employed by the Bank as and Chief
Executive Officer; and President.
WHEREAS, the Board of directors of the Bank and the Holding Company,
as sole shareholder of the Bank, recognize the valuable contribution of the
Executive to the successful operation of the Bank and desire to assure
continuity in the management and operation of the Bank; and
WHEREAS, the Bank, the Executive and the Holding Company agree that
this Agreement is not intended to alter the terms of the Executive's employment
by the Bank absent a change in control of the Bank but rather is intended to be
operative only upon a change in control of the Bank, as that term is defined
herein.
NOW, THEREFORE, for and in good consideration, the receipt of which is
hereby acknowledged, the parties agree as follows:
1. Operation of Agreement. This Agreement shall be effective
--------- -- ---------
immediately upon its execution by the parties, but notwithstanding anything to
the contrary contained herein, the provisions of this agreement concerning
employment shall not become operative unless and until a change in control of
the Bank, as that term is defined herein, shall occur and Executive is, on the
date of such change in control, an employee of the Bank. Upon a change in
control of the Bank, this Agreement and all provisions contained herein shall
become operative immediately.
2. Change in Control of the Bank. For purposes of this Agreement, a
------ -- ------- -- --- ----
"change in control of the Bank" shall be deemed to have occurred if (i) any
person or any combination of persons, partnerships, associations or other non-
corporate entities acting as a group in concert, (other than the Bank, the Board
of Directors of the Bank or the Board of Directors of the Holding Company, which
for purposes hereof shall not without more be considered a group), owns or
becomes the beneficial owner, directly or indirectly, of securities of the Bank
or securities of the Holding Company representing 51% or more of the combined
voting power of the Bank's or the Holding Company's then outstanding securities,
or (ii) if the Bank or the Holding Company is acquired by a corporation or the
Bank's assets or the Holding Company's assets are combined with or transferred
to another bank or bank holding company, as the case may be, and less than a
majority of the outstanding voting shares of the acquiring or surviving bank or
holding company, as the case may be, after such acquisition, combination or
transfer are owned, immediately after such acquisition,
1
<PAGE>
combination or transfer, by the owners of the voting shares of the Bank and
Holding Company outstanding immediately prior to such acquisition, combination
or transfer.
3. Employment. Upon the occurrence of a change in control of the
----------
Bank, the Bank hereby employs the Executive, and the Executive hereby agrees to
serve the Bank, on the terms and conditions set forth herein.
4. Position and Duties. The Executive shall serve as CEO, President,
-------- --- ------
Director and employee of the Bank and shall have such responsibilities and
authority as may be from time to time assigned to the Executive by the Board of
Directors of the Bank (the "Board"); provided, however, that any duties assigned
to the Executive shall be consistent with Executive's position in the Bank or,
if inconsistent, then only as voluntarily agreed to by the Executive in writing.
The duties of Executive hereunder shall be performed exclusively within Tyler
County, West Virginia except that occasional trips outside these counties
incidental to Bank business may be required hereunder from time to time. The
Executive shall devote substantially all his working time and efforts to the
business and affairs of the Bank and any affiliate of the Bank. During the term
of this Agreement, the Executive shall not perform service for or accept any
position with any depository institution or affiliate of a depository
institution other than the Bank and its affiliates.
5. Term. The original term of this Agreement shall be for five (5)
----
years; provided, however, that upon a change in control of the bank the
Executive's employment hereunder shall be for five (5) years commencing as of
the date of such change in control ("Effective Date").
6. Compensation and Related Matters.
------------ --- ------- -------
(a) Salary. During the period of the Executive's employment
------
hereunder, the Bank shall pay to the Executive a salary at a rate of not less
than the rate in effect immediately prior to the Effective Date. Thereafter,
the Executive shall receive increases of 5% per year or, if greater, increases
as determined by the Board in its discretion. Once so increased, compensation
hereunder shall not thereafter during the term of this Agreement be decreased.
Compensation shall be paid in substantially equal monthly installments or on a
more frequent basis as may be convenient for the Bank. In addition to the
regular salary, Executive shall be entitled to participate fully and equitably
in any bonus plan which the Bank makes available to its employees.
(b) Expenses. During the term of the Executive's employment
--------
hereunder, the Executive shall be entitled to receive prompt reimbursement for
all reasonable expenses incurred by the Executive in performing services
hereunder, including but not limited to all expenses of travel and living
expenses while away from home on business or at the request of and in the
service of the Bank, provided that such expenses are (i) incurred and accounted
for in accordance with the reasonable policies and procedures established by the
Bank.
(c) Other Benefits. The Executive shall be entitled to participate
----- --------
in all of the Bank's Executive benefit plans and arrangements that are now or
hereafter made available by the Bank to its executives and key
2
<PAGE>
management employees on a basis consistent with the terms, conditions and
overall administration of such plans or arrangements. The Bank shall not make
any changes in any such plans or arrangements which would adversely affect the
Executive's rights or benefits thereunder, unless such change occurs pursuant to
a program applicable to all officers of the Bank and does not result in a
proportionately greater reduction in the rights of or benefits to the Executive
as compared with any other officers of the Bank. Any payments or benefits
payable to the Executive hereunder in respect of any calendar year during which
the Executive is employed by the Bank for less than the entire such year shall,
unless otherwise provided in the applicable plan or arrangement, be pro-rated in
accordance with the number of days in such calendar year during which the
Executive is so employed.
(d) Vacations. The Executive shall be entitled each year to a period
---------
of Four (4) weeks out of the Bank for vacation. The Executive shall also be
entitled to additional time out of the Bank for attendance at such professional
meetings, seminars and conventions as he shall deem reasonable and necessary for
the personal well-being and professional advancement of the Executive. The time
at which the Executive may be absent from the Bank shall be at the Executive's
discretion provided that such time shall be reasonably compatible with the
vacation, meeting and work schedule of other officers of the Bank.
(e) Services Furnished. The Bank shall furnish the Executive with
-------- ---------
office space, secretarial assistance and such other facilities and services as
shall be suitable to the Executive's position and adequate for the performance
of the duties as set forth in Paragraph four (4) hereof.
(f) Taxes. the Bank shall deduct from the compensation paid to the
-----
Executive under the provisions of this Agreement, social security taxes and all
federal, state and municipal taxes and charges as may now be in effect or which
may hereafter be enacted or required as charges on the Executive's compensation.
(g) Sick Leave. The Executive shall annually be entitled to a maximum
---- -----
of twelve (12) weeks sick leave with full pay. In the event of extended
illness, the Bank may request reasonable explanation from the physician of the
Executive as to the nature and extent of his illness.
(h) Automobiles. If the Bank is presently providing the Executive
-----------
with the use of an automobile to be used in the performance of his duties at the
Bank, during the term of this Agreement and any renewal thereof, the Bank shall
continue to provide the said automobile or an automobile of comparable cost and
quality every three (3) years for use by the Executive. Within a reasonable
period after the end of the calendar year, the Executive shall provide the Bank
with reasonable documentation as to the amount of personal use of the automobile
and an estimate as to the fair value thereof. The Bank shall then issue a Form
1099 to the Executive reflecting the value of the personal use of the vehicle,
but shall not be entitled to receive from the Executive said amount. The Bank
shall pay the entire cost of the operation of said vehicle including, but not
limited to, gas, oil, tune-up, repairs, tires and insurance, provided, however,
if the Executive uses the automobile for vacation purposes, the Executive shall
personally pay for the gas and oil used during that time.
3
<PAGE>
7. Termination By Bank. After a change in control of the Bank,
----------- -- ----
Executive's employment may be terminated by Bank only for the following reasons
and if Executive's employment is so terminated, Executive shall receive the
benefits hereinafter provided:
(a) Death. The Executive's employment hereunder shall terminate
-----
upon death, in which event the Bank shall be liable for any salary and other
benefits which shall have accrued as of the date of the Executive's death.
(b) Disability. In the event of the physical or mental disability of
----------
the Executive resulting in the inability of the Executive to perform his usual
and customary services contemplated under this Agreement, the Executive shall be
entitled to continue to receive such benefits, including full compensation, as
are set forth in this Agreement for a period of up to three (3) years from the
date such disability occurs. After the expiration of such period, the Executive
shall be deemed to have voluntarily terminated this Agreement. During the term
of this Agreement, the payments called for hereunder shall be reduced by all
payments to which the Executive may be entitled under any disability insurance
policies maintained by the Bank.
(c) Cause. The Bank may terminate the Executive's employment
-----
hereunder for Cause by giving the Executive ten (10) days written notice of
termination which notice shall specifically state that the termination is for
cause and setting forth in reasonable detail the facts and circumstances
providing a basis for the termination. If Executive's employment is terminated
for Cause, Bank shall be liable for any salary and other benefits which shall
have accrued as of the termination date stated in such notice of termination.
For purposes of this Agreement, the Executive shall not be
satisfactorily performing his duties and the Bank shall have "Cause" to
terminate the Executive's employment hereunder upon (A) the willful and
continued failure by the Executive to substantially perform his duties hereunder
(other than any such failure resulting from the Executive's incapacity due to
physical or mental illness), after written notice is given to the Executive by
the Bank that specifically identifies the manner in which the Bank believes the
Executive has not substantially performed his duties and the Executive is given
a reasonable opportunity to rectify his performance, or (B) the commission of
any act or acts of dishonesty constituting a felony under the laws of the State
of West Virginia, or (C) the commission of any fraud, misappropriation or
embezzlement from the Bank or (D) the determination of the West Virginia Board
of Banking and Financial Institutions, the Board of Governors of the Federal
Reserve System or other bank regulatory authority that the Executive has
willfully violated any law relating to the Bank or has willfully engaged in any
unsafe or unsound practices in conducting the business of the Bank. For
purposes of this paragraph, no act, or failure to act, on the Executive's part
shall be considered "willful" unless done, or omitted to be done, by him not in
good faith and without reasonable belief that his action or omission was in the
best interest of the Bank.
The parties agree that if Bank attempts to terminate this Agreement
for Cause under this subparagraph (c) of paragraph seven (7) which termination
is disputed by the Executive, and the Executive prevails, such
4
<PAGE>
termination shall be deemed to be a termination without cause under subparagraph
(d) of paragraph seven (7), and the Executive shall be entitled to all
termination benefits provided therein.
(d) Without Cause. The Bank may terminate the Executive's employment
------- -----
hereunder for reasons other than death, disability or Cause by giving Executive
ninety (90) days written notice of termination which notice shall specifically
state that the termination is for other than Cause. If Executive's employment
is terminated for other than Cause, Bank shall be liable for any salary and
other benefits which shall have accrued as of the termination date stated in
such notice. Not later than thirty (30) days after said termination date, Bank
shall also pay to Executive a sum equal to three times the Executive's then
current annual salary in one lump sum payment, plus continuation of all benefit
plans in effect at date of termination for a period of three (3) years, without
any cost to the Executive.
8. Termination by the Executive. The Executive may terminate employment
----------- -- --- ---------
hereunder without any breach of this Agreement under the following circumstances
and if Executive's employment is so terminated, Executive shall receive the
benefits hereinafter provided:
(a) Illness. Executive's mental or physical health shall have become
-------
impaired to an extent that the continued performance of his duties hereunder
will constitute a substantial threat to the physical or mental health of the
Executive. At Bank's request, Executive will furnish Bank with a written
statement of Executive's physician to such effect. In the event Executive so
terminates employment, Bank shall be liable for six (6) months salary and other
benefits.
(b) Good Reason. If the Bank, without the Executive's express written
---- ------
consent (i) fails to comply with any provision of this agreement which has not
been cured within ten (10) days after written notice thereof from the Executive
to Bank, or (ii) assigns the Executive duties inconsistent with the Executive's
position, then Executive may give Bank thirty (30) days written notice that he
is terminating employment under this subparagraph (b). If Executive terminates
the employment under this subparagraph (b) Bank shall be liable for any salary
and other benefits which shall have accrued as of the termination date stated in
such notice. Not later than thirty (30) days after said termination date, Bank
shall also pay the Executive a sum equal to three (3) times the Executive's
current annual salary in one lump sum payment, along with continuation of all
benefit plans in effect at date of termination for a period of three (3) years
without any cost to the Executive.
(c) Resignation. During the first 12 months after the change in
-----------
control of the Bank, Executive may resign all positions hereunder with the Bank
by delivering written notice of such resignation to the Bank Board. In the event
of such resignation, the Bank shall pay Executive in one lump sum an amount
equal to (i) Executive's then current annual salary and shall continue all
benefit plans in effect at time of Executives resignation for one (1) year from
date of resignation, without any cost to the Executive.
5
<PAGE>
9. Compensation During Disability. During any period that the Executive
------------ ------ ----------
is unable to perform the duties hereunder as a result of incapacity due to
physical or mental illness ("disability period" ), the Executive shall continue
to receive full salary at the rate then in effect for such period until the
employment is terminated pursuant to Paragraph 7(b) hereof, provided that
payments so made to the Executive during such period shall be reduced by the sum
of the amounts, if any, payable to the Executive under any disability benefit
plan of the Bank which were not previously applied to reduce any such payment.
10. Application of Section 280G. In the event all or any portion of a
----------- -- ------- ----
payment made to Executive under Paragraph 7 or 8 would not be deductible by the
Bank because it constitutes an excess "parachute" payment under Section 280G of
the Internal Revenue Code of 1986, as amended from time to time, such payment
shall be reduced, to the minimum extent possible, so that no portion of the
payment is not deductible as a result of Section 280G of the Code.
11. Arbitration. The parties agree that any dispute or claim
-----------
concerning this agreement or the terms and conditions of employment of the
Executive, including whether such dispute or claim is arbitrable, will be
settled by binding arbitration. The arbitration proceedings shall be conducted
under the Commercial Arbitration Rules of the American Arbitration Association
in effect at the time a demand for arbitration of the rules was made. A
decision and award of the arbitrator made under the said rules shall be
exclusive, final and binding on both parties, their heirs, executors,
administrators, successors and assigns. The costs and expenses of the
arbitration shall be borne evenly by the parties.
12. Successors; Binding Agreement
----------- -------
(a) This Agreement shall be binding upon the Bank and any successor
to the Bank or the Holding Company whether direct or indirect, by purchase,
merger, consolidation or otherwise, to all or substantially all of the business
and/or assets of the Bank. The Bank will require that any entity, including any
bank holding company which acquires all or substantially all of the Bank's
outstanding voting stock (whether such acquisition or succession is direct or
indirect, by purchase, merger, consolidation or otherwise) shall expressly
guarantee the Bank's obligations hereunder in the same manner and to the same
extent that the Bank would be required to perform if no such acquisition or
succession had taken place.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amounts would
still be payable hereunder if the Executive had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the Executive's estate or other person designated in
writing by Executive to receive such payments.
6
<PAGE>
13. Notice. For the purposes of this Agreement, notices, demands and all
-----
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive: Gary R. Davis
P.O. Box 1
Middlebourne, WV 26149
If to the Bank: Union Bank of Tyler County
Attn: Timothy R. Aiken, V.P.
P.O. Box 177
Sistersville, WV 26175
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
14. Miscellaneous. No provisions of this Agreement may be
-------------
modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing signed by the Executive and such other
officers as may be specifically designated by the Board of Directors of the
Bank. No waiver by any party hereto at any time of any breach by the other
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter hereof have been made by any
party which are not set forth expressly in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of West Virginia.
15. Validity. The invalidity or unenforceability of any provision
--------
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect.
16. Counterparts. This Agreement may be executed in
------------
one or more counterparts, each of which shall be deemed to be an original but
all of which together will constitute one and the same instrument.
17. Attorneys' Fees. In the event the Bank disputes
---------- ----
its obligation to pay any amount due the Executive under this Agreement and the
Executive prevails, the Bank shall pay or reimburse the Executive for all
reasonable costs incurred by the Executive in such dispute, including attorneys'
fees and costs.
18. Covenant Not to Compete. Executive will not for a period of one
-------- --- -- -------
(1) year from the termination of employment, within Tyler County, West Virginia,
directly or indirectly own, manage, operate, control, be employed by or
participate in the ownership, management, operation or control of or be
connected in any manner with
7
<PAGE>
any bank, savings and loan or other financial institution of the type and
character engaged in and competitive with that conducted by Bank at the time of
such termination. The provisions of this paragraph shall not prevent Executive
from purchasing solely for investment the stock or other securities of any
corporation which is competitive with that of bank and the stock and securities
of which are traded on any national or regional securities exchange or are
actively traded in the over-the-counter market and registered under Section
12(g) of the Securities Exchange Act of 1934. The provisions of this paragraph
shall apply regardless of whether the employment is terminated by the Bank or
Executive.
19. Consulting. For a period of one (1) year after termination of
----------
this Agreement by either party, the Executive shall be available at reasonable
times on an irregular basis as a general advisor and consultant on all matters
pertaining to the operations of the Bank. The Executive shall report to and be
responsible only to the Board of Directors. The consulting services are to be
performed at a mutually agreed upon rate of compensation plus reimbursement of
all travel expense and all other expenses reasonably incurred in the performance
of the duties under this paragraph. In no event shall Executive be required to
spend in excess of seven (7) hours per week in the performance of Consulting
services.
20. Assignment. This Agreement is personal to each of the parties
----------
hereto and neither party may assign or delegate any of its rights or obligations
hereunder. This Agreement shall be binding upon the heirs, successors and
assigns hereto.
21. Indemnity. The Bank shall indemnify the Executive and hold the
---------
Executive harmless for any acts or decisions made by the Executive in good faith
while performing services for the Bank and shall use its best efforts to obtain
coverage for the Executive under any insurance policy now in force or
hereinafter obtained during the term of this agreement covering the other
officers and directors of the Bank against losses. The Bank will pay all
expenses, including attorneys fees, actually and necessarily incurred by the
Executive in connection with the defense of any such act, suit or proceeding and
in connection with the appeal thereon, including the cost of court settlements.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
/s/ Gary R. Davis
-----------------------------
Gary R. Davis
Attest: HOMETOWN BANCSHARES, INC.
By /s/ Philip B. Hill Sec'y By /s/ Philip B. Hill Sec'y
------------------------ ------------------------
Attest: UNION BANK OF TYLER COUNTY
By /s/Gloria J. Burge, Sec. By /s/ Gloria J. Burge, EVP
------------------------ -------------------------
8
<PAGE>
EXHIBIT 10.4
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT made and entered into as of the 17th day of August,
1993 by and between The Community Bank of Pennsboro, Inc., a West Virginia state
bank with its principal offices located in Pennsboro, West Virginia (the "Bank")
and Patty S. Poling (the "Executive"), and Hometown Bancshares, Inc., a
corporation, (the "Holding Company").
WHEREAS, the Executive is presently employed by the Bank as and Chief
Executive Officer; and Cashier;
WHEREAS, the Board of directors of the Bank and the Holding Company,
as sole shareholder of the Bank, recognize the valuable contribution of the
Executive to the successful operation of the Bank and desire to assure
continuity in the management and operation of the Bank; and
WHEREAS, the Bank, the Executive and the Holding Company agree that
this Agreement is not intended to alter the terms of the Executive's employment
by the Bank absent a change in control of the Bank but rather is intended to be
operative only upon a change in control of the Bank, as that term is defined
herein.
NOW, THEREFORE, for and in good consideration, the receipt of which is
hereby acknowledged, the parties agree as follows:
1. Operation of Agreement. This Agreement shall be effective
--------- -- ---------
immediately upon its execution by the parties, but notwithstanding anything to
the contrary contained herein, the provisions of this agreement concerning
employment shall not become operative unless and until a change in control of
the Bank, as that term is defined herein, shall occur and Executive is, on the
date of such change in control, an employee of the Bank. Upon a change in
control of the Bank, this Agreement and all provisions contained herein shall
become operative immediately.
2. Change in Control of the Bank. For purposes of this Agreement,
------ -- ------- -- --- ----
a "change in control of the Bank" shall be deemed to have occurred if (i) any
person or any combination of persons, partnerships, associations or other non-
corporate entities acting as a group in concert, (other than the Bank, the Board
of Directors of the Bank or the Board of Directors of the Holding Company, which
for purposes hereof shall not without more be considered a group), owns or
becomes the beneficial owner, directly or indirectly, of securities of the Bank
or securities of the Holding Company representing 51% or more of the combined
voting power of the Bank's or the Holding Company's then outstanding securities,
or (ii) if the Bank or the Holding Company is acquired by a corporation or the
Bank's assets or the Holding Company's assets are combined with or transferred
to another bank or bank holding company, as the case may be, and less than a
majority of the outstanding voting shares of the acquiring or surviving bank or
holding company, as the case may be, after such acquisition, combination or
transfer are owned, immediately after such acquisition,
<PAGE>
combination or transfer, by the owners of the voting shares of the Bank and
Holding Company outstanding immediately prior to such acquisition, combination
or transfer.
3. Employment. Upon the occurrence of a change in control of the Bank,
----------
the Bank hereby employs the Executive, and the Executive hereby agrees to
serve the Bank, on the terms and conditions set forth herein.
4. Position and Duties. The Executive shall serve as CEO, Cashier and
-------- --- ------
employee of the Bank and shall have such responsibilities and authority as
may be from time to time assigned to the Executive by the Board of Directors of
the Bank (the "Board"); provided, however, that any duties assigned to the
Executive shall be consistent with Executive's position in the Bank or, if
inconsistent, then only as voluntarily agreed to by the Executive in writing.
The duties of Executive hereunder shall be performed exclusively within Ritchie
County, West Virginia except that occasional trips outside these counties
incidental to Bank business may be required hereunder from time to time. The
Executive shall devote substantially all her working time and efforts to the
business and affairs of the Bank and any affiliate of the Bank. During the term
of this Agreement, the Executive shall not perform service for or accept any
position with any depository institution or affiliate of a depository
institution other than the Bank and its affiliates.
5. Term. The original term of this Agreement shall be for five (5)
----
years; provided, however, that upon a change in control of the bank the
Executive's employment hereunder shall be for five (5) years commencing as of
the date of such change in control ("Effective Date").
6. Compensation and Related Matters.
------------ --- ------- -------
(a) Salary. During the period of the Executive's employment
------
hereunder, the Bank shall pay to the Executive a salary at a rate of not less
than the rate in effect immediately prior to the Effective Date. Thereafter, the
Executive shall receive increases of 5% per year or, if greater, increases as
determined by the Board in its discretion. Once so increased, compensation
hereunder shall not thereafter during the term of this Agreement be decreased.
Compensation shall be paid in substantially equal monthly installments or on a
more frequent basis as may be convenient for the Bank. In addition to the
regular salary, Executive shall be entitled to participate fully and equitably
in any bonus plan which the Bank makes available to its employees.
(b) Expenses. During the term of the Executive's employment
--------
hereunder, the Executive shall be entitled to receive prompt reimbursement for
all reasonable expenses incurred by the Executive in performing services
hereunder, including but not limited to all expenses of travel and living
expenses while away from home on business or at the request of and in the
service of the Bank, provided that such expenses are (i) incurred and accounted
for in accordance with the reasonable policies and procedures established by the
Bank.
(c) Other Benefits. The Executive shall be entitled to participate
----- --------
in all of the Bank's Executive benefit plans and arrangements that are now or
hereafter made available by the Bank to its executives and key
2
<PAGE>
management employees on a basis consistent with the terms, conditions and
overall administration of such plans or arrangements. The Bank shall not make
any changes in any such plans or arrangements which would adversely affect the
Executive's rights or benefits thereunder, unless such change occurs pursuant to
a program applicable to all officers of the Bank and does not result in a
proportionately greater reduction in the rights of or benefits to the Executive
as compared with any other officers of the Bank. Any payments or benefits
payable to the Executive hereunder in respect of any calendar year during which
the Executive is employed by the Bank for less than the entire such year shall,
unless otherwise provided in the applicable plan or arrangement, be pro-rated in
accordance with the number of days in such calendar year during which the
Executive is so employed.
(d) Vacations. The Executive shall be entitled each year to a period
---------
of Four (4) weeks out of the Bank for vacation. The Executive shall also be
entitled to additional time out of the Bank for attendance at such professional
meetings, seminars and conventions as he shall deem reasonable and necessary for
the personal well-being and professional advancement of the Executive. The time
at which the Executive may be absent from the Bank shall be at the Executive's
discretion provided that such time shall be reasonably compatible with the
vacation, meeting and work schedule of other officers of the Bank.
(e) Services Furnished. The Bank shall furnish the Executive with
-------- ---------
office space, secretarial assistance and such other facilities and services as
shall be suitable to the Executive's position and adequate for the performance
of the duties as set forth in Paragraph four (4) hereof.
(f) Taxes. the Bank shall deduct from the compensation paid to the
-----
Executive under the provisions of this Agreement, social security taxes and all
federal, state and municipal taxes and charges as may now be in effect or which
may hereafter be enacted or required as charges on the Executive's compensation.
(g) Sick Leave. The Executive shall annually be entitled to a maximum
---- -----
of twelve (12) weeks sick leave with full pay. In the event of extended
illness, the Bank may request reasonable explanation from the physician of the
Executive as to the nature and extent of her illness.
(h) Automobiles. If the Bank is presently providing the Executive
-----------
with the use of an automobile to be used in the performance of his duties at the
Bank, during the term of this Agreement and any renewal thereof, the Bank shall
continue to provide the said automobile or an automobile of comparable cost and
quality every three (3) years for use by the Executive. Within a reasonable
period after the end of the calendar year, the Executive shall provide the Bank
with reasonable documentation as to the amount of personal use of the automobile
and an estimate as to the fair value thereof. The Bank shall then issue a Form
1099 to the Executive reflecting the value of the personal use of the vehicle,
but shall not be entitled to receive from the Executive said amount. The Bank
shall pay the entire cost of the operation of said vehicle including, but not
limited to, gas, oil, tune-up, repairs, tires and insurance, provided, however,
if the Executive uses the automobile for vacation purposes, the Executive shall
personally pay for the gas and oil used during that time.
3
<PAGE>
7. Termination By Bank. After a change in control of the Bank,
----------- -- ----
Executive's employment may be terminated by Bank only for the following reasons
and if Executive's employment is so terminated, Executive shall receive the
benefits hereinafter provided:
(a) Death. The Executive's employment hereunder shall terminate
-----
upon death, in which event the Bank shall be liable for any salary and other
benefits which shall have accrued as of the date of the Executive's death.
(b) Disability. In the event of the physical or mental
----------
disability of the Executive resulting in the inability of the Executive to
perform his usual and customary services contemplated under this Agreement, the
Executive shall be entitled to continue to receive such benefits, including full
compensation, as are set forth in this Agreement for a period of up to three (3)
years from the date such disability occurs. After the expiration of such period,
the Executive shall be deemed to have voluntarily terminated this Agreement.
During the term of this Agreement, the payments called for hereunder shall be
reduced by all payments to which the Executive may be entitled under any
disability insurance policies maintained by the Bank.
(c) Cause. The Bank may terminate the Executive's employment
-----
hereunder for Cause by giving the Executive ten (10) days written notice of
termination which notice shall specifically state that the termination is for
cause and setting forth in reasonable detail the facts and circumstances
providing a basis for the termination. If Executive's employment is terminated
for Cause, Bank shall be liable for any salary and other benefits which shall
have accrued as of the termination date stated in such notice of termination.
For purposes of this Agreement, the Executive shall not be
satisfactorily performing her duties and the Bank shall have "Cause" to
terminate the Executive's employment hereunder upon (A) the willful and
continued failure by the Executive to substantially perform her duties hereunder
(other than any such failure resulting from the Executive's incapacity due to
physical or mental illness), after written notice is given to the Executive by
the Bank that specifically identifies the manner in which the Bank believes the
Executive has not substantially performed her duties and the Executive is given
a reasonable opportunity to rectify his performance, or (B) the commission of
any act or acts of dishonesty constituting a felony under the laws of the State
of West Virginia, or (C) the commission of any fraud, misappropriation or
embezzlement from the Bank or (D) the determination of the West Virginia Board
of Banking and Financial Institutions, the Board of Governors of the Federal
Reserve System or other bank regulatory authority that the Executive has
willfully violated any law relating to the Bank or has willfully engaged in any
unsafe or unsound practices in conducting the business of the Bank. For
purposes of this paragraph, no act, or failure to act, on the Executive's part
shall be considered "willful" unless done, or omitted to be done, by him not in
good faith and without reasonable belief that his action or omission was in the
best interest of the Bank.
The parties agree that if Bank attempts to terminate this
Agreement for Cause under this subparagraph (c) of paragraph seven (7) which
termination is disputed by the Executive, and the Executive prevails,
4
<PAGE>
such termination shall be deemed to be a termination without cause under
subparagraph (d) of paragraph seven (7), and the Executive shall be entitled to
all termination benefits provided therein.
(d) Without Cause. The Bank may terminate the Executive's employment
------- -----
hereunder for reasons other than death, disability or Cause by giving Executive
ninety (90) days written notice of termination which notice shall specifically
state that the termination is for other than Cause. If Executive's employment
is terminated for other than Cause, Bank shall be liable for any salary and
other benefits which shall have accrued as of the termination date stated in
such notice. Not later than thirty (30) days after said termination date, Bank
shall also pay to Executive a sum equal to three times the Executive's then
current annual salary in one lump sum payment, plus continuation of all benefit
plans in effect at date of termination for a period of three (3) years, without
any cost to the Executive.
8. Termination by the Executive. The Executive may terminate employment
----------- -- --- ---------
hereunder without any breach of this Agreement under the following circumstances
and if Executive's employment is so terminated, Executive shall receive the
benefits hereinafter provided:
(a) Illness. Executive's mental or physical health shall have become
-------
impaired to an extent that the continued performance of his duties hereunder
will constitute a substantial threat to the physical or mental health of the
Executive. At Bank's request, Executive will furnish Bank with a written
statement of Executive's physician to such effect. In the event Executive so
terminates employment, Bank shall be liable for six (6) months salary and other
benefits.
(b) Good Reason. If the Bank, without the Executive's express written
---- ------
consent (i) fails to comply with any provision of this agreement which has not
been cured within ten (10) days after written notice thereof from the Executive
to Bank, or (ii) assigns the Executive duties inconsistent with the Executive's
position, then Executive may give Bank thirty (30) days written notice that she
is terminating employment under this subparagraph (b). If Executive
terminates the employment under this subparagraph (b), Bank shall be liable for
any salary and other benefits which shall have accrued as of the termination
date stated in such notice. Not later than thirty (30) days after said
termination date, Bank shall also pay the Executive a sum equal to three (3)
times the Executive's current annual salary in one lump sum payment, along with
continuation of all benefit plans in effect at date of termination for a period
of three (3) years without any cost to the Executive.
(c) Resignation. During the first 12 months after the change in
-----------
control of the Bank, Executive may resign all positions hereunder with the Bank
by delivering written notice of such resignation to the Bank Board. In the
event of such resignation, the Bank shall pay Executive in one lump sum an
amount equal to (i) Executive's then current annual salary and shall continue
all benefit plans in effect at time of Executives resignation for one (1) year
from date of resignation, without any cost to the Executive.
9. Compensation During Disability. During any period that the Executive
------------ ------ ----------
is unable to perform the duties hereunder as a result of incapacity due to
physical or mental illness ("disability period" ), the Executive shall
5
<PAGE>
continue to receive full salary at the rate then in effect for such period until
the employment is terminated pursuant to Paragraph 7(b) hereof, provided that
payments so made to the Executive during such period shall be reduced by the sum
of the amounts, if any, payable to the Executive under any disability benefit
plan of the Bank which were not previously applied to reduce any such payment.
10. Application of Section 280G. In the event all or any portion of a
----------- -- ------- ----
payment made to Executive under Paragraph 7 or 8 would not be deductible by
the Bank because it constitutes an excess "parachute" payment under Section 280G
of the Internal Revenue Code of 1986, as amended from time to time, such payment
shall be reduced, to the minimum extent possible, so that no portion of the
payment is not deductible as a result of Section 280G of the Code.
11. Arbitration. The parties agree that any dispute or claim concerning
-----------
this agreement or the terms and conditions of employment of the Executive,
including whether such dispute or claim is arbitrable, will be settled by
binding arbitration. The arbitration proceedings shall be conducted under the
Commercial Arbitration Rules of the American Arbitration Association in effect
at the time a demand for arbitration of the rules was made. A decision and award
of the arbitrator made under the said rules shall be exclusive, final and
binding on both parties, their heirs, executors, administrators, successors and
assigns. The costs and expenses of the arbitration shall be borne evenly by the
parties.
12. Successors; Binding Agreement
----------- -------
(a) This Agreement shall be binding upon the Bank and any successor
to the Bank or the Holding Company whether direct or indirect, by purchase,
merger, consolidation or otherwise, to all or substantially all of the business
and/or assets of the Bank. The Bank will require that any entity, including any
bank holding company which acquires all or substantially all of the Bank's
outstanding voting stock (whether such acquisition or succession is direct or
indirect, by purchase, merger, consolidation or otherwise) shall expressly
guarantee the Bank's obligations hereunder in the same manner and to the same
extent that the Bank would be required to perform if no such acquisition or
succession had taken place.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amounts would
still be payable hereunder if the Executive had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the Executive's estate or other person designated in
writing by Executive to receive such payments.
6
<PAGE>
13. Notice. For the purposes of this Agreement, notices, demands and all
-----
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive: Patty S. Poling
228 McDougal Drive
Pennsboro, WV 26415
If to the Bank: The Community Bank
Attn: Wilson Davis, Pres.
P.O. Box 517
Pennsboro, WV 26415
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
14. Miscellaneous. No provisions of this Agreement may be modified,
-------------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such other officers as may be
specifically designated by the Board of Directors of the Bank. No waiver by any
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by any party which are not set forth
expressly in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of West
Virginia.
15. Validity. The invalidity or unenforceability of any provision or
--------
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
16. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
17. Attorneys' Fees. In the event the Bank disputes its obligation to
---------- ----
pay any amount due the Executive under this Agreement and the Executive
prevails, the Bank shall pay or reimburse the Executive for all reasonable costs
incurred by the Executive in such dispute, including attorneys' fees and costs.
18. Covenant Not to Compete. Executive will not for a period of one (1)
-------- --- -- -------
year from the termination of employment, within Ritchie County, West Virginia,
directly or indirectly own, manage, operate, control, be employed by or
participate in the ownership, management, operation or control of or be
connected in any manner with
7
<PAGE>
any bank, savings and loan or other financial institution of the type and
character engaged in and competitive with that conducted by Bank at the time of
such termination. The provisions of this paragraph shall not prevent Executive
from purchasing solely for investment the stock or other securities of any
corporation which is competitive with that of bank and the stock and securities
of which are traded on any national or regional securities exchange or are
actively traded in the over-the-counter market and registered under Section
12(g) of the Securities Exchange Act of 1934. The provisions of this paragraph
shall apply regardless of whether the employment is terminated by the Bank or
Executive.
19. Consulting. For a period of one (1) year after termination of this
----------
Agreement by either party, the Executive shall be available at reasonable times
on an irregular basis as a general advisor and consultant on all matters
pertaining to the operations of the Bank. The Executive shall report to and be
responsible only to the Board of Directors. The consulting services are to be
performed at a mutually agreed upon rate of compensation plus reimbursement of
all travel expense and all other expenses reasonably incurred in the performance
of the duties under this paragraph. In no event shall Executive be required to
spend in excess of seven (7) hours per week in the performance of Consulting
services.
20. Assignment. This Agreement is personal to each of the parties hereto
----------
and neither party may assign or delegate any of its rights or obligations
hereunder. This Agreement shall be binding upon the heirs, successors and
assigns hereto.
21. Indemnity. The Bank shall indemnify the Executive and hold the
---------
Executive harmless for any acts or decisions made by the Executive in good faith
while performing services for the Bank and shall use its best efforts to obtain
coverage for the Executive under any insurance policy now in force or
hereinafter obtained during the term of this agreement covering the other
officers and directors of the Bank against losses. The Bank will pay all
expenses, including attorneys fees, actually and necessarily incurred by the
Executive in connection with the defense of any such act, suit or proceeding and
in connection with the appeal thereon, including the cost of court settlements.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first above written.
/s/ Patty S. Poling
------------------------
Patty S. Poling
Attest: HOMETOWN BANCSHARES, INC.
By /s/ Philip B. Hill By /s/ Philip B. Hill
------------------ ------------------
THE COMMUNITY BANK OF
Attest: PENNSBORO, INC.
By /s/ R. J. Michels By /s/ Wilson Davis
------------------ ------------------
8
<PAGE>
EXHIBIT 10.5
EXECUTIVE EMPLOYMENT AGREEMENT
THIS AGREEMENT made and entered into as of the 10th day of August, 1993
by and between The Bank of Paden City, a West Virginia state bank with its
principal offices located in Paden City, West Virginia (the "Bank") and David L.
Mendenhall (the "Executive"), and Hometown Bancshares, Inc., a corporation, (the
"Holding Company").
WHEREAS, the Executive is presently employed by the Bank as and Chief
Executive Officer; and President;
WHEREAS, the Board of directors of the Bank and the Holding Company, as
sole shareholder of the Bank, recognize the valuable contribution of the
Executive to the successful operation of the Bank and desire to assure
continuity in the management and operation of the Bank; and
WHEREAS, the Bank, the Executive and the Holding Company agree that
this Agreement is not intended to alter the terms of the Executive's employment
by the Bank absent a change in control of the Bank but rather is intended to be
operative only upon a change in control of the Bank, as that term is defined
herein.
NOW, THEREFORE, for and in good consideration, the receipt of which is
hereby acknowledged, the parties agree as follows:
1. Operation of Agreement. This Agreement shall be effective
--------- -- ---------
immediately upon its execution by the parties, but notwithstanding anything to
the contrary contained herein, the provisions of this agreement concerning
employment shall not become operative unless and until a change in control of
the Bank, as that term is defined herein, shall occur and Executive is, on the
date of such change in control, an employee of the Bank. Upon a change in
control of the Bank, this Agreement and all provisions contained herein shall
become operative immediately.
2. Change in Control of the Bank. For purposes of this Agreement, a
------ -- ------- -- --- ----
"change in control of the Bank" shall be deemed to have occurred if (i) any
person or any combination of persons, partnerships, associations or other non-
corporate entities acting as a group in concert, (other than the Bank, the Board
of Directors of the Bank or the Board of Directors of the Holding Company, which
for purposes hereof shall not without more be considered a group), owns or
becomes the beneficial owner, directly or indirectly, of securities of the Bank
or securities of the Holding Company representing 51% or more of the combined
voting power of the Bank's or the Holding Company's then outstanding securities,
or (ii) if the Bank or the Holding Company is acquired by a corporation or the
Bank's assets or the Holding Company's assets are combined with or transferred
to another bank or bank holding company, as the case may be, and less than a
majority of the outstanding voting shares of the acquiring or surviving bank or
holding company, as the case may be, after such acquisition, combination or
transfer are owned, immediately after such acquisition,
<PAGE>
combination or transfer, by the owners of the voting shares of the Bank and
Holding Company outstanding immediately prior to such acquisition, combination
or transfer.
3. Employment. Upon the occurrence of a change in control of the Bank,
----------
the Bank hereby employs the Executive, and the Executive hereby agrees to
serve the Bank, on the terms and conditions set forth herein.
4. Position and Duties. The Executive shall serve as CEO, President,
-------- --- ------
Director and employee of the Bank and shall have such responsibilities and
authority as may be from time to time assigned to the Executive by the Board of
Directors of the Bank (the "Board"); provided, however, that any duties assigned
to the Executive shall be consistent with Executive's position in the Bank or,
if inconsistent, then only as voluntarily agreed to by the Executive in writing.
The duties of Executive hereunder shall be performed exclusively within Wetzel
County, West Virginia except that occasional trips outside these counties
incidental to Bank business may be required hereunder from time to time. The
Executive shall devote substantially all his working time and efforts to the
business and affairs of the Bank and any affiliate of the Bank. During the term
of this Agreement, the Executive shall not perform service for or accept any
position with any depository institution or affiliate of a depository
institution other than the Bank and its affiliates.
5. Term. The original term of this Agreement shall be for five (5)
----
years; provided, however, that upon a change in control of the bank the
Executive's employment hereunder shall be for five (5) years commencing as of
the date of such change in control ("Effective Date").
6. Compensation and Related Matters.
------------ --- ------- -------
(a) Salary. During the period of the Executive's employment
------
hereunder, the Bank shall pay to the Executive a salary at a rate of not less
than the rate in effect immediately prior to the Effective Date. Thereafter, the
Executive shall receive increases of 5% per year or, if greater, increases as
determined by the Board in its discretion. Once so increased, compensation
hereunder shall not thereafter during the term of this Agreement be decreased.
Compensation shall be paid in substantially equal monthly installments or on a
more frequent basis as may be convenient for the Bank. In addition to the
regular salary, Executive shall be entitled to participate fully and equitably
in any bonus plan which the Bank makes available to its employees.
(b) Expenses. During the term of the Executive's employment
--------
hereunder, the Executive shall be entitled to receive prompt reimbursement for
all reasonable expenses incurred by the Executive in performing services
hereunder, including but not limited to all expenses of travel and living
expenses while away from home on business or at the request of and in the
service of the Bank, provided that such expenses are (i) incurred and accounted
for in accordance with the reasonable policies and procedures established by the
Bank.
(c) Other Benefits. The Executive shall be entitled to participate in
----- --------
all of the Bank's Executive benefit plans and arrangements that are now or
hereafter made available by the Bank to its executives and key management
employees on a basis consistent with the terms, conditions and overall
administration of such plans or
2
<PAGE>
arrangements. The Bank shall not make any changes in any such plans or
arrangements which would adversely affect the Executive's rights or benefits
thereunder, unless such change occurs pursuant to a program applicable to all
officers of the Bank and does not result in a proportionately greater reduction
in the rights of or benefits to the Executive as compared with any other
officers of the Bank. Any payments or benefits payable to the Executive
hereunder in respect of any calendar year during which the Executive is employed
by the Bank for less than the entire such year shall, unless otherwise provided
in the applicable plan or arrangement, be pro-rated in accordance with the
number of days in such calendar year during which the Executive is so employed.
(d) Vacations. The Executive shall be entitled each year to a period
---------
of Four (4) weeks out of the Bank for vacation. The Executive shall also be
entitled to additional time out of the Bank for attendance at such professional
meetings, seminars and conventions as he shall deem reasonable and necessary for
the personal well-being and professional advancement of the Executive. The time
at which the Executive may be absent from the Bank shall be at the Executive's
discretion provided that such time shall be reasonably compatible with the
vacation, meeting and work schedule of other officers of the Bank.
(e) Services Furnished. The Bank shall furnish the Executive with
-------- ---------
office space, secretarial assistance and such other facilities and services as
shall be suitable to the Executive's position and adequate for the performance
of the duties as set forth in Paragraph four (4) hereof.
(f) Taxes. the Bank shall deduct from the compensation paid to the
-----
Executive under the provisions of this Agreement, social security taxes and all
federal, state and municipal taxes and charges as may now be in effect or which
may hereafter be enacted or required as charges on the Executive's compensation.
(g) Sick Leave. The Executive shall annually be entitled to a maximum
---- -----
of twelve (12) weeks sick leave with full pay. In the event of extended
illness, the Bank may request reasonable explanation from the physician of the
Executive as to the nature and extent of his illness.
(h) Automobiles. If the Bank is presently providing the Executive
-----------
with the use of an automobile to be used in the performance of his duties at the
Bank, during the term of this Agreement and any renewal thereof, the Bank shall
continue to provide the said automobile or an automobile of comparable cost and
quality every three (3) years for use by the Executive. Within a reasonable
period after the end of the calendar year, the Executive shall provide the Bank
with reasonable documentation as to the amount of personal use of the automobile
and an estimate as to the fair value thereof. The Bank shall then issue a Form
1099 to the Executive reflecting the value of the personal use of the vehicle,
but shall not be entitled to receive from the Executive said amount. The Bank
shall pay the entire cost of the operation of said vehicle including, but not
limited to, gas, oil, tune-up, repairs, tires and insurance, provided, however,
if the Executive uses the automobile for vacation purposes, the Executive shall
personally pay for the gas and oil used during that time.
3
<PAGE>
7. Termination By Bank. After a change in control of the Bank,
----------- -- ----
Executive's employment may be terminated by Bank only for the following reasons
and if Executive's employment is so terminated, Executive shall receive the
benefits hereinafter provided:
(a) Death. The Executive's employment hereunder shall terminate upon
-----
death, in which event the Bank shall be liable for any salary and other benefits
which shall have accrued as of the date of the Executive's death.
(b) Disability. In the event of the physical or mental disability of
----------
the Executive resulting in the inability of the Executive to perform his usual
and customary services contemplated under this Agreement, the Executive shall be
entitled to continue to receive such benefits, including full compensation, as
are set forth in this Agreement for a period of up to three (3) years from the
date such disability occurs. After the expiration of such period, the Executive
shall be deemed to have voluntarily terminated this Agreement. During the term
of this Agreement, the payments called for hereunder shall be reduced by all
payments to which the Executive may be entitled under any disability insurance
policies maintained by the Bank.
(c) Cause. The Bank may terminate the Executive's employment hereunder
-----
for Cause by giving the Executive ten (10) days written notice of termination
which notice shall specifically state that the termination is for cause and
setting forth in reasonable detail the facts and circumstances providing a basis
for the termination. If Executive's employment is terminated for Cause, Bank
shall be liable for any salary and other benefits which shall have accrued as of
the termination date stated in such notice of termination.
For purposes of this Agreement, the Executive shall not be satisfactorily
performing his duties and the Bank shall have "Cause" to terminate the
Executive's employment hereunder upon (A) the willful and continued failure by
the Executive to substantially perform his duties hereunder (other than any such
failure resulting from the Executive's incapacity due to physical or mental
illness), after written notice is given to the Executive by the Bank that
specifically identifies the manner in which the Bank believes the Executive has
not substantially performed his duties and the Executive is given a reasonable
opportunity to rectify his performance, or (B) the commission of any act or acts
of dishonesty constituting a felony under the laws of the State of West
Virginia, or (C) the commission of any fraud, misappropriation or embezzlement
from the Bank or (D) the determination of the West Virginia Board of Banking and
Financial Institutions, the Board of Governors of the Federal Reserve System or
other bank regulatory authority that the Executive has willfully violated any
law relating to the Bank or has willfully engaged in any unsafe or unsound
practices in conducting the business of the Bank. For purposes of this
paragraph, no act, or failure to act, on the Executive's part shall be
considered "willful" unless done, or omitted to be done, by him not in good
faith and without reasonable belief that his action or omission was in the best
interest of the Bank.
4
<PAGE>
The parties agree that if Bank attempts to terminate this Agreement for
Cause under this subparagraph (c) of paragraph seven (7) which termination
is disputed by the Executive, and the Executive prevails, such termination shall
be deemed to be a termination without cause under subparagraph (d) of paragraph
seven (7), and the Executive shall be entitled to all termination benefits
provided therein.
(d) Without Cause. The Bank may terminate the Executive's employment
------- -----
hereunder for reasons other than death, disability or Cause by giving Executive
ninety (90) days written notice of termination which notice shall specifically
state that the termination is for other than Cause. If Executive's employment
is terminated for other than Cause, Bank shall be liable for any salary and
other benefits which shall have accrued as of the termination date stated in
such notice. Not later than thirty (30) days after said termination date, Bank
shall also pay to Executive a sum equal to three times the Executive's then
current annual salary in one lump sum payment, plus continuation of all benefit
plans in effect at date of termination for a period of three (3) years, without
any cost to the Executive.
8. Termination by the Executive. The Executive may terminate employment
----------- -- --- ---------
hereunder without any breach of this Agreement under the following circumstances
and if Executive's employment is so terminated, Executive shall receive the
benefits hereinafter provided:
(a) Illness. Executive's mental or physical health shall have become
-------
impaired to an extent that the continued performance of his duties hereunder
will constitute a substantial threat to the physical or mental health of the
Executive. At Bank's request, Executive will furnish Bank with a written
statement of Executive's physician to such effect. In the event Executive so
terminates employment, Bank shall be liable for six (6) months salary and other
benefits.
(b) Good Reason. If the Bank, without the Executive's express written
---- ------
consent (i) fails to comply with any provision of this agreement which has not
been cured within ten (10) days after written notice thereof from the Executive
to Bank, or (ii) assigns the Executive duties inconsistent with the Executive's
position, then Executive may give Bank thirty (30) days written notice that he
is terminating employment under this subparagraph (b). If Executive terminates
the employment under this subparagraph (b) Bank shall be liable for any salary
and other benefits which shall have accrued as of the termination date stated in
such notice. Not later than thirty (30) days after said termination date, Bank
shall also pay the Executive a sum equal to three (3) times the Executive's
current annual salary in one lump sum payment, along with continuation of all
benefit plans in effect at date of termination for a period of three (3) years
without any cost to the Executive.
(c) Resignation. During the first 12 months after the change in
-----------
control of the Bank, Executive may resign all positions hereunder with the Bank
by delivering written notice of such resignation to the Bank Board. In the
event of such resignation, the Bank shall pay Executive in one lump sum an
amount equal to (I) Executive's
5
<PAGE>
then current annual salary and shall continue all benefit plans in effect at
time of Executives resignation for one (1) year from date of resignation,
without any cost to the Executive.
9. Compensation During Disability. During any period that the Executive
------------ ------ ----------
is unable to perform the duties hereunder as a result of incapacity due to
physical or mental illness ("disability period" ), the Executive shall continue
to receive full salary at the rate then in effect for such period until the
employment is terminated pursuant to Paragraph 7(b) hereof, provided that
payments so made to the Executive during such period shall be reduced by the sum
of the amounts, if any, payable to the Executive under any disability benefit
plan of the Bank which were not previously applied to reduce any such payment.
10. Application of Section 280G. In the event all or any portion of a
----------- -- ------- ----
payment made to Executive under Paragraph 7 or 8 would not be deductible by
the Bank because it constitutes an excess "parachute" payment under Section 280G
of the Internal Revenue Code of 1986, as amended from time to time, such payment
shall be reduced, to the minimum extent possible, so that no portion of the
payment is not deductible as a result of Section 280G of the Code.
11. Arbitration. The parties agree that any dispute or claim concerning
-----------
this agreement or the terms and conditions of employment of the Executive,
including whether such dispute or claim is arbitrable, will be settled by
binding arbitration. The arbitration proceedings shall be conducted under the
Commercial Arbitration Rules of the American Arbitration Association in effect
at the time a demand for arbitration of the rules was made. A decision and award
of the arbitrator made under the said rules shall be exclusive, final and
binding on both parties, their heirs, executors, administrators, successors and
assigns. The costs and expenses of the arbitration shall be borne evenly by the
parties.
12. Successors; Binding Agreement
----------- -------
(a) This Agreement shall be binding upon the Bank and any successor
to the Bank or the Holding Company whether direct or indirect, by purchase,
merger, consolidation or otherwise, to all or substantially all of the business
and/or assets of the Bank. The Bank will require that any entity, including any
bank holding company which acquires all or substantially all of the Bank's
outstanding voting stock (whether such acquisition or succession is direct or
indirect, by purchase, merger, consolidation or otherwise) shall expressly
guarantee the Bank's obligations hereunder in the same manner and to the same
extent that the Bank would be required to perform if no such acquisition or
succession had taken place.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive should die while any amounts would
still be payable hereunder if the Executive had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with
6
<PAGE>
the terms of this Agreement to the Executive's estate or other person designated
in writing by Executive to receive such payments.
13. Notice. For the purposes of this Agreement, notices, demands and
------
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: David L. Mendenhall
912 Meadow Heights
Paden City, WV 26159
If to the Bank: The Bank of Paden City
Attn: Larry M. Tracey, V.P.
P.O. Box 178
Paden City, WV 26159
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
14. Miscellaneous. No provisions of this Agreement may be modified,
-------------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such other officers as may be
specifically designated by the Board of Directors of the Bank. No waiver by any
party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by any party which are not set forth
expressly in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of West
Virginia.
15. Validity. The invalidity or unenforceability of any provision or
--------
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
16. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
17. Attorneys' Fees. In the event the Bank disputes its obligation to
---------- ----
pay any amount due the Executive under this Agreement and the Executive
prevails, the Bank shall pay or reimburse the Executive for all reasonable costs
incurred by the Executive in such dispute, including attorneys' fees and costs.
7
<PAGE>
18. Covenant Not to Compete. Executive will not for a period of one (1)
-------- --- -- -------
year from the termination of employment, within Wetzel County, West Virginia,
directly or indirectly own, manage, operate, control, be employed by or
participate in the ownership, management, operation or control of or be
connected in any manner with any bank, savings and loan or other financial
institution of the type and character engaged in and competitive with that
conducted by Bank at the time of such termination. The provisions of this
paragraph shall not prevent Executive from purchasing solely for investment the
stock or other securities of any corporation which is competitive with that of
bank and the stock and securities of which are traded on any national or
regional securities exchange or are actively traded in the over-the-counter
market and registered under Section 12(g) of the Securities Exchange Act of
1934. The provisions of this paragraph shall apply regardless of whether the
employment is terminated by the Bank or Executive.
19. Consulting. For a period of one (1) year after termination of this
----------
Agreement by either party, the Executive shall be available at reasonable
times on an irregular basis as a general advisor and consultant on all matters
pertaining to the operations of the Bank. The Executive shall report to and be
responsible only to the Board of Directors. The consulting services are to be
performed at a mutually agreed upon rate of compensation plus reimbursement of
all travel expense and all other expenses reasonably incurred in the performance
of the duties under this paragraph. In no event shall Executive be required to
spend in excess of seven (7) hours per week in the performance of Consulting
services.
20. Assignment. This Agreement is personal to each of the parties
----------
hereto and neither party may assign or delegate any of its rights or obligations
hereunder. This Agreement shall be binding upon the heirs, successors and
assigns hereto.
21. Indemnity. The Bank shall indemnify the Executive and hold the
---------
Executive harmless for any acts or decisions made by the Executive in good faith
while performing services for the Bank and shall use its best efforts to obtain
coverage for the Executive under any insurance policy now in force or
hereinafter obtained during the term of this agreement covering the other
officers and directors of the Bank against losses. The Bank will pay all
expenses, including attorneys fees, actually and necessarily incurred by the
Executive in connection with the defense of any such act, suit or proceeding and
in connection with the appeal thereon, including the cost of court settlements.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date and year first above written.
/s/ David L. Mendenhall
------------------------
David L. Mendenhall
Attest: HOMETOWN BANCSHARES, INC.
By /s/ Philip B. Hill Sec'y By /s/ Philip B. Hill Sec'y
------------------------- -------------------------
Attest: THE BANK OF PADEN CITY
By /s/ Shirley D. Kendle By /s/ Larry M. Tracey V. Pres.
--------------------- ----------------------------
Cashier
9
<PAGE>
Exhibit 21
SUBSIDIARIES OF COMMERCIAL BANCSHARES, INCORPORATED
Commercial Banking and Trust Company
Jackson County Bank
Farmers and Merchants Bank of Ritchie County
The Dime Bank
The Union Bank of Tyler County
The Community Bank
Bank of Paden City
CBG HOLDING COMPANY, INC.
(formed to facilitate the acquisition of
Gateway BancShares, Inc.)
Hometown Insurance, Inc.
Hometown Finance Company
CommBanc Investments, Inc.
<PAGE>
Exhibit 23 (a)
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the reference to our firm under the caption
"Experts" in the Registration Statement on Form S-4 and related Prospectus of
Commercial BancShares, Incorporated for the registration of up to 141,902 shares
of its common stock and to the incorporation by reference therein of our report
dated February 10, 1997, with respect to the consolidated financial statements
of Commercial BancShares, Incorporated and Subsidiaries incorporated by
reference in its Annual Report on form 10-K for the year ended December 31,
1996, filed with the Securities and Exchange Commission.
/s/ Harman, Thompson Mallory & Ice, A.C.
--------------------------------------------
HARMAN, THOMPSON MALLORY & ICE, A.C.
Parkersburg, West Virginia
January 15, 1997
<PAGE>
Exhibit 23 (b)
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the reference to our firm under the caption
"Experts" in the Registration Statement on Form S-4 and related Prospectus of
Commercial BancShares, Incorporated for the registration of up to 141,902 shares
of its common stock, and to the incorporation therein of our report dated
February 7, 1997, on the consolidated balance sheets of Gateway Bancshares, Inc.
as of December 31, 1996 and 1995, and the related consolidated statements of
income, changes in shareholders' equity and cash flows for the years ended
December 31, 1996 and December 31, 1995.
/s/ Glatz, Obecny & Company, PLLC
-----------------------------------
GLATZ, OBECNY & COMPANY, PLLC
Wheeling, West Virginia
January 15, 1998
<PAGE>
Exhibit 23 (c)
[LOGO AND LETTERHEAD OF CHARLES WEBB & COMPANY]
January 14, 1997
Commercial Bancshares, Incorporated
415 Market Street
Parkersburg, WV 26102-1427
We hereby consent to the use of our firm's name, Charles Webb & Company, a
Division of Keefe, Bruyette & Woods, Inc. ("Webb"), and the use of and
references to our fairness opinion in the Form S-4 to be filed by Commercial
Bancshares, Incorporated.
Very truly yours,
/s/ Charles Webb & Company
CHARLES WEBB & COMPANY,
a DIVISION OF KEEFE, BRUYETTE & WOODS, INC.
<PAGE>
Exhibit 99
AFFILIATE'S AGREEMENT
_______________________
Date
Gentlemen:
Reference is made to the Agreement and Plan of Merger (the "Plan")
dated the ____ day of __________________, 1997 between Commercial BancShares,
Incorporated ("Commercial") and Gateway Bancshares, Inc. ("Gateway"), and
providing for the merger of Gateway into a wholly-owned subsidiary of
Commercial, CBG Holding Company ("CBG"). As a result of the merger, Commercial
will acquire all of the issued and outstanding common stock of Gateway in
exchange for shares of the common stock of Commercial. Gateway will merge into
CBG Holding Company, a wholly-owned subsidiary chartered to facilitate the
merger. CBG will survive the merger. The undersigned stockholder has been
identified as one who may be an "affiliate" of Gateway for the purposes of Rule
145 of the Securities Act of 1933, as amended (the "Act"). As a result of the
transactions contemplated by the Plan, the affiliate will receive shares of
Commercial stock. In consideration for the receipt of such shares, the
affiliate represents, warrants and covenants as follows:
(1) Until the expiration of the limitation on the transfer of the
affiliate shares as provided in Rule 145, the affiliate will not sell, assign or
transfer any of the affiliate shares except (a) within the limits and in
accordance with the applicable provisions of Rule 145 or (b) upon receipt by
Commercial of an opinion of counsel, in form and substance satisfactory to
Commercial and its counsel, to the effect that such disposition complies with
the Act.
(2) Until the expiration of the limitation on the transfer of the
affiliate shares as provided in Rule 145(d), each certificate for the affiliate
may bear a restrictive legend in substantially the following form:
The shares represented by this certificate have been issued to
the registered holder as a result of a transaction to which Rule 145
under the Securities Act of 1933, as amended (the "Act") applies. The
shares represented by this certificate may not be sold, transferred or
assigned, and the issuer shall not be required to give effect to any
attempted sale, transfer or assignment, except pursuant to (i) the
Registration Statement then in effect under the Act, (ii) a
transaction permitted by Rule 145 as to which the issuer has received
evidence of compliance with the provisions of Rule 145 reasonably
satisfactory to it, or (iii) a transaction which, in the opinion of
counsel or as described in a "no action" or interpretive letter from
the staff of the Securities and Exchange Commission, in each case
satisfactory in form and substance to the issuer, is exempt from the
registration requirements of the Act.
Very truly yours,
----------------------------------
Accepted this day of , 1998, by:
---- ---------------
COMMERCIAL BANCSHARES, INCORPORATED
By:
--------------------------------
Its:
--------------------------------
<PAGE>
Exhibit 99 (a)
GATEWAY BANCSHARES, INC.
PROXY FOR 1997 SPECIAL SHAREHOLDERS' MEETING
KNOW ALL MEN BY THESE PRESENTS that the undersigned shareholder(s) of
Gateway Bancshares, Inc., McMechen, West Virginia, does hereby nominate
constitute, and appoint ______________________ and ______________________, or
either of them will full power to act alone as the true and lawful attorneys for
the undersigned with full power of substitution for and in the name, place and
stead of the undersigned to vote all the common stock of Gateway Bancshares,
Inc., McMechen, West Virginia, standing in the undersigned's name on its books
on __________________ at the _____ Special Meeting of Shareholders to be held at
_______________________________________________________, on ________________,
1998, at __________ a.m. local time or any adjournments thereof, with all the
powers the undersigned would possess if personally present as follows:
1. To approve, ratify and confirm the Agreement and Plan of Merger
dated as of August 151997, as amended as of September 30, 1997, and December 15,
1997, among the parties to the Agreement and Plan of Merger, Commercial
BancShares, Incorporated ("Commercial"), Gateway Bancshares, Inc. ("Gateway")
and CBG Holding Company , a West Virginia banking corporation being chartered by
Commercial to facilitate its acquisition of Gateway, and to approve, ratify and
confirm the transaction contemplated therein.
FOR _________ AGAINST _________ ABSTAIN _________
2. To transact other business that may properly come before the
meeting.
The undersigned acknowledges receipt of the Notice and Proxy Statement
dated _________________, 1998 and hereby revokes all proxies previously given by
the undersigned for said meeting.
THIS PROXY CONFERS AUTHORITY TO VOTE "FOR" THE PROPOSITIONS LISTED
ABOVE UNLESS OTHERWISE INDICATED. THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR" THE ABOVE PROPOSALS. IF ANY OTHER MATTER SHALL PROPERLY COME BEFORE THE
MEETING, OR ANY ADJOURNMENTS THEREOF, THIS PROXY WILL BE VOTED ON SUCH MATTERS
IN ACCORDANCE WITH THE JUDGMENT OF THE ABOVE PROXIES, BASED UPON THE CONDITIONS
THEN PREVAILING AND ANY RECOMMENDATIONS OF THE BOARD OF DIRECTORS.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF GATEWAY
BANCSHARES, INC. AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
<PAGE>
PLEASE MARK, DATE, SIGN AND RETURN IMMEDIATELY. ALL JOINT OWNERS MUST
SIGN.
___________________________________
___________________________________
Dated: __________________, 1998
When signing as attorney, executor, administrator, trustee or
guardian, please give full title. If more than one trustee, all should sign.
