As filed with the Securities and Exchange Commission on February 6, 2007

Registration No. 333-      

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

 

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

 

Commerce Bancshares, Inc.

(Exact name of registrant as specified in its charter)

 

 

1000 Walnut

Kansas City, Missouri 64141

(816) 234-2000

(Address including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

 

 

 

 

J. DANIEL STINNETT, ESQ.

Vice President, Secretary and General Counsel

Commerce Bancshares, Inc.

1000 Walnut

Kansas City, Missouri 64141

(816) 234-2350

Fax: (816) 234-2333

(Name, address, including zip code, and telephone number,

including area code, of agent for service)

 

 

 

 

Copies to:

 

 

Approximate date of commencement of proposed sale of the securities to the public:  As soon as practicable after this registration statement is declared effective and all other conditions to the merger (as described herein) have been satisfied or waived.

 

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o _ _

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o _ _

 

 

 

 

CALCULATION OF REGISTRATION FEE

 

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

PROSPECTUS

 

of

 

Commerce Bancshares, Inc.

 

602,591 Shares of Common Stock

 

$5.00 par Value

 

The Boards of Directors of Commerce Bancshares, Inc, CBI-Kansas, Inc. (a wholly-owned subsidiary of Commerce) and South Tulsa Financial Corporation have agreed to the merger of South Tulsa into CBI-Kansas, whereby South Tulsa shareholders will receive the merger consideration of approximately $340.54 per share of South Tulsa common stock, consisting of Commerce common stock, within certain limits. Commerce Bank, N.A. is a direct wholly-owned subsidiary of CBI-Kansas. South Tulsa owns all of the outstanding capital stock of Bank South. After the merger, South Tulsa will cease to exist as a separate legal entity and CBI-Kansas will continue as the merger’s surviving corporation. In addition, Bank South will be merged with Commerce Bank, N.A. and Commerce Bank, N.A. will survive. The total merger consideration value is estimated to be $26,250,000. Commerce common stock is traded on The Nasdaq Stock Market under the symbol “CBSH.”

 

PROXY STATEMENT

 

of

 

South Tulsa Financial Corporation

 

For a Special Meeting of Shareholders

 

To be Held on          , 2007

 

The merger cannot be completed unless the South Tulsa shareholders approve it by an affirmative vote of the holders of at least a majority of the outstanding shares. South Tulsa’s Board of Directors has scheduled a special meeting for South Tulsa shareholders to vote on the merger as follows:

 

          , 2007
10:00 a.m., local time
6130 East 81st Street
Tulsa, Oklahoma

 

This document gives you detailed information about the proposed merger. We encourage you to read this entire document carefully, including the section titled “Risk Factors” beginning on page   . Please see “Where You Can Find More Information” beginning on page    for additional information about Commerce on file with the Securities and Exchange Commission.

 

This Proxy Statement/Prospectus is first being mailed to shareholders on or about          , 2007.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved the Commerce Common Stock to be issued under this Proxy Statement/Prospectus or determined if the Proxy Statement/Prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The shares of Commerce common stock are not savings accounts, deposits or other obligations of any bank or savings association and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency. Stock is subject to investment risks, including loss of value.

 

Subject to completion, dated February 6, 2007.

DOCUMENTS INCORPORATED BY REFERENCE

 

This Proxy Statement/Prospectus incorporates by reference important business and financial information about Commerce that we are not delivering with this document. The Securities and Exchange Commission (“SEC”) allows us to “incorporate by reference” information into this document, which means that we can disclose important information to you by referring you to another document separately filed with the SEC. See “Where You Can Find More Information” beginning on page   . You can obtain this information from Commerce without charge upon written or oral request by contacting:

 

Commerce Bancshares, Inc.
1000 Walnut, Suite 700
Kansas City, Missouri 64141
Attention: Corporate Finance
(816) 234-2000

 

To ensure timely delivery of the documents in advance of the special meeting, you should make your request no later than          , 2007.

(GRAPHICS)

 

          , 2007

 

Dear South Tulsa Financial Corporation Shareholder:

 

You are cordially invited to attend the Special Meeting of the Shareholders of South Tulsa Financial Corporation which will be held at our corporate offices, 6130 East 81st Street, Tulsa, Oklahoma, on          , 2007, commencing at 10:00 a.m., local time. At this important meeting, holders of common stock of South Tulsa will be asked to adopt an Agreement and Plan of Merger and approve a merger between South Tulsa and CBI-Kansas, Inc., a wholly owned subsidiary of Commerce Bancshares, Inc. South Tulsa presently owns all of the issued and outstanding shares of Bank South (the “Bank”). As a result of the merger, shares of South Tulsa common stock will be converted into shares of Commerce common stock.

 

The Agreement and Plan of Merger was executed on December 4, 2006 and provides for the merger of South Tulsa into CBI-Kansas, after certain conditions are met, including the approval of South Tulsa shareholders. The merger is also subject to certain required regulatory approvals and will be completed shortly after the necessary regulatory approvals are obtained and other conditions are satisfied or waived. Under Oklahoma law, holders of common stock of South Tulsa have dissenters’ rights of appraisal with respect to the merger.

 

The enclosed Proxy Statement/Prospectus describes the terms of the merger in more detail. You should review the Proxy Statement/Prospectus carefully, including the section titled “Risk Factors” on page   . Your Board of Directors has carefully reviewed and considered the terms and conditions of the merger and believes that it is fair and in the best interests of South Tulsa and its shareholders and unanimously recommends that shareholders vote “for” the proposal.

 

A majority vote of all outstanding shares of South Tulsa’s common stock is required to approve the merger. To ensure your shares will be represented at the meeting, whether or not you plan to attend, we urge you to promptly sign, date and mail your proxy in the enclosed self-addressed envelope, which requires no postage. You may cancel your proxy by attending the meeting and voting in person.

 

Sincerely,

SOUTH TULSA FINANCIAL CORPORATION

6130 East 81st Street

Tulsa, Oklahoma 74137

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

 

To the Shareholders of South Tulsa Financial Corporation:

 

A Special Meeting of the shareholders of South Tulsa Financial Corporation, an Oklahoma corporation, will be held at our corporate offices, 6130 East 81st Street, Tulsa, Oklahoma, on          , 2007 commencing at 10:00 a.m., local time for the following purpose:

 

To consider and vote upon a proposal to approve the Agreement and Plan of Merger, dated as of December 4, 2006 among Commerce Bancshares, Inc., CBI-Kansas, Inc. and South Tulsa Financial Corporation, a copy of which is attached as Appendix A to the accompanying Proxy Statement/Prospectus.

 

Holders of South Tulsa common stock of record at the close of business on          , 2007, will be entitled to notice of and to vote at the Special Meeting or any adjournment or postponement thereof. Approval of the Agreement and Plan of Merger, which is a condition to the consummation of the transactions contemplated by the Agreement and Plan of Merger, requires the affirmative vote of the holders of a majority of the outstanding shares of South Tulsa common stock. Pursuant to Section 1091 of the Oklahoma General Corporation Act, South Tulsa’s shareholders are entitled to dissenters’ rights.

 

YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE AGREEMENT AND PLAN OF MERGER AND THE MERGER. YOUR BOARD BELIEVES THAT THE MERGER IS FAIR AND IN THE BEST INTERESTS OF SOUTH TULSA AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE PROPOSAL TO ADOPT THE AGREEMENT AND PLAN OF MERGER AND THE MERGER.

 

By Order of the Board of Directors

 

Tulsa, Oklahoma

          , 2007

 

TABLE OF CONTENTS

 

 

The number of shares of Commerce common stock into which one share of South Tulsa common stock will be converted in the merger is referred to in this document as the “merger consideration.” The total merger consideration value is estimated to be $26,250,000. Shares of South Tulsa common stock will be converted into merger consideration of $340.54 per share of South Tulsa common stock, consisting of shares of Commerce common stock.

 

The merger consideration will be equal to $340.54 in Commerce common stock if the Commerce stock price (as determined under the Agreement and Plan of Merger) is between $45.30 and $50.06. If the Commerce stock price is less than $45.30, the Commerce stock price will nevertheless be deemed to be $45.30 and therefore the merger consideration will be less than $340.54 per share of South Tulsa common stock. If the Commerce stock price is greater than $50.06, the Commerce stock price will nevertheless be deemed to be $50.06 and therefore the merger consideration will be greater than $340.54 per share of South Tulsa common stock. The last reported sales price on February 2, 2007 for Commerce shares as reported by The Nasdaq Stock Market was $49.66. You should obtain current market prices for the Commerce common stock. See “Risk Factors” beginning at page   .

 

 

SUMMARY

 

The Companies

 

The Merger

 

The Merger Consideration

 

Reasons for the Merger

 

Recommendation to Shareholders

 

Vote Required

 

Regulatory Approvals

 

Certain U.S. Federal Income Tax Consequences

 

Conditions to Completing the Merger

	•	approval by the South Tulsa shareholders;
	•	the continued accuracy of each company’s representations and warranties and compliance by each company with its obligations contained in the Agreement and Plan of Merger;
	•	receipt of a legal opinion from Commerce’s counsel as to the tax consequences of the merger;
	•	receipt of legal opinions from Commerce’s counsel and South Tulsa’s counsel covering customary corporate law matters;
	•	receipt of the required regulatory approvals;
	•	the absence of any legal action or court order that prohibits the merger;
	•	the declaration of effectiveness of this registration statement;
	•	the absence of any material adverse change in the financial condition or assets of either Commerce or South Tulsa;
	•	the satisfaction of certain financial measures applicable to South Tulsa;
	•	the delivery to Commerce of a letter by each person who is an “affiliate” (as defined in Rules 145 and 405 adopted under the Securities Act of 1933) of South Tulsa at the time the Agreement and Plan of Merger is submitted to approval of the shareholders of South Tulsa;
	•	dissenters’ rights shall not have been exercised with respect to more than 10% of the outstanding shares of South Tulsa common stock on the closing date;
	•	the removal of certain loans from the Bank’s loan portfolio;
	•	the cancellation of all outstanding unexercised stock options under South Tulsa’s stock option plans; and
	•	the execution of non-competition agreements between Commerce and certain directors and officers of South Tulsa.

 

Termination of the Agreement and Plan of Merger

	•	by any of the companies if the merger has not been consummated by June 30, 2007, but such date may be extended in certain circumstances;
	•	by any of the companies if any banking regulatory approval of the merger is denied or if any governmental entity has issued an order imposing a burdensome condition on any of the companies;

	•	by Commerce or CBI-Kansas, on the one hand, or South Tulsa on the other, if the other party has materially breached the Agreement and Plan of Merger and has not cured such breach within 45 days of notice of the breach;
	•	by Commerce or CBI-Kansas if the South Tulsa Board of Directors fails to recommend adoption of the Agreement and Plan of Merger by the shareholders of South Tulsa, or amends or modifies such recommendation in a manner materially adverse to Commerce, or withdraws such recommendation;
	•	by any of the companies if the shareholders of South Tulsa fail to approve the Agreement and Plan of Merger;
	•	by Commerce or CBI-Kansas, on the one hand, and South Tulsa, on the other hand, if there has been a material adverse change in the business or financial condition of the other party and such change has not been cured within 45 days of notice of the change or the closing date, whichever is earlier; or
	•	by South Tulsa prior to the vote of the shareholders if South Tulsa desires to enter into a definitive agreement with respect to a superior proposal.

 

Voting Agreements

 

Stock Certificates and Dividend Withholding

 

Comparative Stock Prices

 

Dissenters’ Rights

 

Comparison of Shareholder Rights

 

Opinion of Financial Advisor

 

Accounting Treatment

 

SELECTED FINANCIAL DATA

		Nine Months Ended
		September 30,								For the Year Ended December 31,
		2006				2005				2005				2004				2003				2002				2001
Net interest income and other income:
Commerce		$	650,534			$	627,262			$	842,901			$	824,262			$	804,059			$	780,537			$	743,774
South Tulsa		$	4,561			$	3,631			$	5,017			$	4,211			$	3,519			$	3,131			$	3,106
Net income:
Commerce		$	162,825			$	167,005			$	223,247			$	220,341			$	206,524			$	196,310			$	178,712
South Tulsa		$	1,135			$	731			$	1,058			$	716			$	295			$	243			$	482
Diluted income per common and common equivalent share:
Commerce		$	2.29			$	2.23			$	3.01			$	2.81			$	2.54			$	2.34			$	2.10
South Tulsa		$	15.13			$	10.05			$	14.53			$	10.14			$	4.42			$	4.26			$	8.47
Historical dividends paid per common share:
Commerce		$	0.700			$	0.653			$	0.871			$	0.795			$	0.642			$	0.509			$	0.477
South Tulsa		$	0			$	0			$	0			$	0			$	0			$	0			$	0
Total assets (end of period):
Commerce		$	15,151,612			$	13,948,077			$	13,885,545			$	14,250,368			$	14,287,164			$	13,308,415			$	12,908,146
South Tulsa		$	124,220			$	111,037			$	111,920			$	98,718			$	91,714			$	81,306			$	74,171
Long-term borrowings (end of period):
Commerce		$	166,372			$	370,729			$	269,390			$	389,542			$	400,977			$	338,457			$	392,586
South Tulsa		$	9,285			$	10,014			$	9,808			$	5,371			$	3,499			$	0			$	0
Total shareholders’ equity (end of period):
Commerce		$	1,459,787			$	1,364,038			$	1,337,838			$	1,426,880			$	1,450,954			$	1,422,452			$	1,277,157
South Tulsa		$	12,241			$	10,776			$	11,099			$	9,676			$	8,890			$	6,666			$	6,416
Book value per common share (end of period):
Commerce		$	20.55			$	18.90			$	18.85			$	18.96			$	18.46			$	17.46			$	15.30
South Tulsa		$	169.57			$	149.28			$	153.75			$	141.08			$	130.51			$	119.85			$	115.35

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

	•	projected business increases following process changes and other investments are lower than expected;
	•	competitive pressure among financial services companies increases significantly;
	•	general economic conditions are less favorable than expected;
	•	political conditions including the threat of future terrorist activity and related actions by the United States abroad may adversely affect either company’s businesses and economic conditions as a whole;
	•	changes in the interest rate environment reduce interest margins and impact funding sources;
	•	changes in foreign exchange rates increase exposure;
	•	changes in market rates and prices may adversely impact the value of financial products;
	•	legislation or regulatory environments, requirements or changes may adversely affect businesses in which either company is engaged;
	•	litigation liabilities, including costs, expenses, settlements and judgments, may adversely affect either company or its businesses;
	•	completion of the merger is dependent on, among other things, receipt of shareholder and regulatory approvals, the timing of which cannot be predicted with precision and which may not be received at all;
	•	the merger may be more expensive to complete than anticipated, including as a result of unexpected factors or events;
	•	the integration of South Tulsa’s business and operations with those of Commerce may take longer than anticipated, may be more costly than anticipated and may have unanticipated adverse results relating to South Tulsa’s or Commerce’s existing businesses;
	•	the anticipated cost savings and other synergies of the merger may take longer to be realized or may not be achieved in their entirety, and attrition in key customer, partner and other relationships relating to the merger may be greater than expected; and
	•	decisions to downsize, sell or close units or otherwise change the business mix of either company.

 

Because the Market Price of Commerce Common Stock Will Fluctuate, South Tulsa Shareholders Cannot Be Sure of the Value of the Merger Consideration They Will Receive.

 

Upon completion of the merger, each share of South Tulsa common stock will be converted into merger consideration consisting of $340.54 of Commerce common stock. The market value of the Commerce common stock may vary from the closing price of Commerce common stock on the date we announced the merger, on the date that this document was mailed to South Tulsa shareholders, on the date of the special meeting of the South Tulsa shareholders and on the date we complete the merger and thereafter. While the exchange ratio will be appropriately adjusted if the Commerce common stock price is between $45.30 and $50.06, any change in the market value of Commerce common stock prior to completion of the merger outside of that range will affect the value of the merger consideration that South Tulsa shareholders will receive upon completion of the merger. Accordingly, at the time of the special meeting, South Tulsa shareholders may not know or be able to calculate the market value of the merger consideration they would receive upon completion of the merger. Stock price changes may result from a variety of factors, including general market and economic conditions, changes in South Tulsa’s and Commerce’s respective businesses, operations and prospects, and regulatory considerations. Many of these factors are beyond South Tulsa’s and Commerce’s control. You should obtain current market quotations for shares of Commerce common stock and for shares of South Tulsa common stock.

 

The Market Price of Commerce Common Stock after the Merger May Be Affected by Factors Different from Those Affecting the Shares of South Tulsa or Commerce Currently.

 

The businesses of Commerce and South Tulsa differ in important respects and, accordingly, the results of operations of the combined company and the market price of the combined company’s shares of common stock may be affected by factors different from those currently affecting the independent results of operations of South Tulsa. For a discussion of the businesses of Commerce and South Tulsa and of certain factors to consider in connection with those businesses, see the documents incorporated by reference in this document and referred to under “Where You Can Find More Information,” and the “Information About South Tulsa Financial Corporation”

 

The Opinion Obtained by South Tulsa from its Financial Advisor Will Not Reflect Changes in Circumstances between Signing the Agreement and Plan of Merger and the Merger.

 

South Tulsa has not obtained an updated opinion as of the date of this document from its financial advisor. Changes in the operations and prospects of Commerce or South Tulsa, general market and economic conditions and other factors which may be beyond the control of Commerce and South Tulsa, and on which the financial advisor’s opinion was based, may significantly alter the value of Commerce or South Tulsa or the prices of shares of Commerce common stock or South Tulsa common stock by the time the merger is completed. The opinion does not speak as of the time the merger will be completed or as of any date other than the date of such opinion. Because South Tulsa currently does not anticipate asking its financial advisor to update its opinion, the opinion will not address the fairness of the merger consideration, from a financial point of view, at the time the merger is completed. For a description of the opinion that South Tulsa received from its financial advisor, please refer to “The Merger — Opinion of South Tulsa Financial Advisor.” For a description of the other factors considered by the South Tulsa Board of Directors in determining to approve the merger, please refer to “The Merger — Reasons for the Merger — South Tulsa.”

 

The Agreement and Plan of Merger Limits South Tulsa’s Ability to Pursue Alternatives to the Merger.

 

The Agreement and Plan of Merger contains “no shop” provisions that, subject to limited exceptions, limit South Tulsa’s ability to discuss, facilitate or commit to competing third-party proposals to acquire all or a significant part of South Tulsa. These provisions might discourage a potential competing acquiror that might have an interest in acquiring all or a significant part of South Tulsa from considering or proposing that acquisition even if it were prepared to pay consideration with a higher per share market price than that proposed in the merger, or might result in a potential competing acquirer proposing to pay a lower per share price to acquire South Tulsa than it might otherwise have proposed to pay.

The Merger is Subject to the Receipt of Consents and Approvals from Government Entities that May Impose Conditions that Could Have an Adverse Effect on Commerce.

 

Before the merger may be completed, various approvals or consents must be obtained from the Board of Governors of the Federal Reserve System and the Office of the Comptroller of Currency. These governmental entities may impose conditions on the completion of the merger or require changes to the terms of the merger. Although Commerce and South Tulsa do not currently expect that any such conditions or changes would be imposed, there can be no assurance that they will not be, and such conditions or changes could have the effect of delaying completion of the merger or imposing additional costs on or limiting the revenues of Commerce following the merger, any of which might have a material adverse effect on Commerce following the merger.

 

South Tulsa Executive Officers and Directors Have Financial Interests in the Merger that Are Different from, or in Addition to, the Interests of South Tulsa Shareholders.

 

Executive officers of South Tulsa negotiated the terms of the Agreement and Plan of Merger with their counterparts at Commerce, and the South Tulsa Board of Directors approved the Agreement and Plan of Merger and unanimously recommended that South Tulsa shareholders vote to approve the merger. In considering these facts and the other information contained in this document, you should be aware that South Tulsa’s executive officers and directors have financial interests in the merger that are different from, or in addition to, the interests of South Tulsa shareholders. For example, certain directors and executive officers have entered into agreements with South Tulsa and Commerce that provide, among other things, the grant by Commerce of Commerce restricted stock and the payment of other benefits following the merger in consideration for such directors’ and executive officers’ agreements related to non-competition, non-solicitation and non-disclosure. In addition, each of the current directors of South Tulsa has entered into agreements with Commerce that provide, among other things, the election of each director to an advisory board of the Bank, which is a paid position. These and some other additional interests of South Tulsa directors and executive officers may create potential conflicts of interest and cause some of these persons to view the proposed transaction differently than you may view it, as a shareholder. Please see “Financial Interests of Directors and Officers” for information about these financial interests.

 

Certain shareholders representing approximately 50.61% of the shares of South Tulsa common stock have executed voting agreements to vote in favor of the Agreement and Plan of Merger and the merger.

 

This Proxy Statement/Prospectus is provided to the shareholders of South Tulsa in connection with the solicitation of proxies by the South Tulsa Board of Directors for use at the South Tulsa special meeting to be held on          , 2007 at 10:00 a.m., local time, at 6130 East 81st Street, Tulsa, Oklahoma.

 

At the special meeting, South Tulsa’s shareholders will consider and vote upon a proposal to approve the Agreement and Plan of Merger. Under South Tulsa’s Certificate of Incorporation, no other business may properly be brought before the special meeting by a shareholder unless the shareholder has given notice of their intention to do so by          , 2007.

 

The Agreement and Plan of Merger provides, among other things, for the merger of South Tulsa with and into CBI-Kansas. CBI-Kansas will be the surviving corporation and the Articles of Incorporation, Bylaws, directors and officers of CBI-Kansas will remain the Articles of Incorporation, Bylaws, directors and officers of CBI-Kansas. Shareholders of South Tulsa will receive shares of Commerce common stock in the merger.

 

The South Tulsa Board of Directors has established the close of business on          , 2007 as the date to determine those record holders of South Tulsa common stock entitled to notice of and to vote at the South Tulsa

special meeting. On that date, there were 72,189 shares of South Tulsa common stock outstanding held by approximately      holders of record. A majority of the shares outstanding and entitled to vote on the record date are required to be represented in person or by proxy in order for a quorum to be present for purposes of approving the merger at the special meeting, and a vote of a majority of the outstanding shares is required for approval of the merger. In the event a quorum is not present at the special meeting, it is expected that the meeting will be adjourned or postponed to solicit additional proxies. Holders of record of South Tulsa common stock on the record date are each entitled to one vote per share on the merger to be considered at the special meeting.

 

The approval and adoption of the Agreement and Plan of Merger requires the affirmative vote of the holders of a majority of the outstanding shares of South Tulsa common stock outstanding on          , 2007. Shares which are present but not voted, either by abstention or non-vote (including broker non-vote) will be counted for purposes of establishing a quorum but will not be counted to determine whether the merger is approved.

 

In order to induce Commerce and CBI-Kansas to enter into the Agreement and Plan of Merger, holders of approximately 50.61% of the shares of South Tulsa common stock have executed Voting Agreements, pursuant to which each of them has agreed to vote all shares of South Tulsa common stock that each of them owns respectively “FOR” the approval of the Agreement and Plan of Merger and the merger and have given certain employees of Commerce proxies to vote their shares in such manner. Therefore, the Agreement and Plan of Merger and merger will be approved. As of the record date, those shareholders who executed voting agreements owned 36,538 shares of our common stock, representing 50.61% of our outstanding common stock.

 

As of          , 2007, there were 72,189 shares of South Tulsa common stock outstanding. As of          , 2007, the directors and officers of South Tulsa beneficially owned, directly and indirectly, approximately 21.14% of the outstanding shares of South Tulsa common stock. All officers and directors of South Tulsa owning South Tulsa common stock have indicated they intend to vote in favor of the Agreement and Plan of Merger.

 

All shares of South Tulsa common stock represented at the special meeting by properly executed proxies received before or at the special meeting, unless the proxies have been revoked, will be voted at the special meeting, including any postponement or adjournment of the special meeting. If no instructions are indicated, the proxies will be voted FOR approval of the Agreement and Plan of Merger. In addition, the persons designated in the proxies will have the discretion to vote upon any adjournment of the special meeting to solicit additional proxies.

 

A person giving a proxy pursuant to this solicitation may revoke it at any time before the proxy is voted at the special meeting. A proxy may be properly revoked by:

 

 

Attendance at the special meeting will not, in and of itself, constitute the revocation of a proxy.

 

South Tulsa will appoint one or more inspectors, who may be employees of South Tulsa to determine, among other things, the number of shares of South Tulsa common stock represented at the special meeting and the validity of the proxies submitted for vote at the special meeting. The inspector(s) of election appointed for the special meeting will tabulate votes cast by proxy and in person.

 

This Proxy Statement/Prospectus is being furnished to the shareholders of South Tulsa in connection with the solicitation of proxies by the South Tulsa Board of Directors for use at the special meeting and at any adjournment or adjournments of the special meeting. Except for the cost of preparing this Proxy Statement/Prospectus, the cost of solicitation of proxies for the South Tulsa special meeting will be borne by South Tulsa. In addition to solicitation by mail, South Tulsa may cause proxies to be solicited personally or by telephone or email by South Tulsa’s regular employees.

 

Commerce Bancshares, Inc., a bank holding company as defined in the Bank Holding Company Act of 1956, as amended (the “1956 BHC Act”), was incorporated under the laws of Missouri on August 4, 1966. Commerce presently owns all of the outstanding capital stock of three national banking associations. One bank is limited in its activities to the issuance of credit cards. The remaining two banking subsidiaries engage in general banking business, providing a broad range of retail, corporate, investment, trust and asset management products and services to individuals and businesses. Commerce also owns, directly, or through its banking subsidiaries, various non-banking subsidiaries. Their activities include owning real estate leased to Commerce’s banking subsidiaries, underwriting credit life and credit accident and health insurance, selling property and casualty insurance (relating to consumer loans made by the banking subsidiaries), venture capital investment, securities brokerage, mortgage banking and leasing activities. The total assets of Commerce on a consolidated basis, as of December 31, 2005, were approximately $13.9 billion and net income for the year ended December 31, 2005, was approximately $223.2 million, and for the nine months ended September 30, 2006, was approximately $162.8 million.

 

See “Where You Can Find More Information” beginning on page    and “Selected Financial Data” on page   . The principal executive offices of Commerce are at the Commerce Bank Building, 1000 Walnut, Kansas City, Missouri 64141 (telephone number: (816) 234-2000).

 

South Tulsa Financial Corporation, which was organized in 1998, is a one-bank holding company that is registered under the 1956 BHC Act. Like other bank holding companies in the United States, South Tulsa is subject to regulation, supervision and periodic examination by the Board of Governors of the Federal Reserve System. South Tulsa owns all of the capital stock of Bank South, an Oklahoma state-chartered bank, which is South Tulsa’s sole subsidiary and accounts for substantially all of its consolidated assets, liabilities and operating results.

 

Bank South, which also commenced business operations in 1998, was originally organized as a national bank, operating under the name Bank South, National Association. In 2000, Bank South converted from a national banking association to an Oklahoma state-chartered bank. The head office of the Bank is located at 6130 E. 81st Street in Tulsa, Oklahoma. In 2001, Bank South established a second banking facility located at 2054 Utica Square in Tulsa to better serve its mid-town customers. These are the only banking offices operated by Bank South.

 

Bank South offers a variety of traditional loan and deposit products, together with personal service, to its customers who include individuals, professionals, executives, small to medium size businesses, and builders and developers. Bank South emphasizes personalized service, convenience and the ability to customize services to meet the banking needs of its customers in order to attract business within its market area. Walk-up facilities are available at both of the banking offices, and the 81st Street facility offers drive-through and 24-hour ATM service. Bank South also offers internet banking services to its customers, enabling them to conduct many of their banking transactions online, from their businesses or residences. See “Information About South Tulsa Financial Corporation” beginning on page   .

 

The Agreement and Plan of Merger and certain related matters are summarized below. This summary does not purport to be a complete statement of the terms and conditions of the merger and is qualified in its entirety by reference to the Agreement and Plan of Merger, which is attached as Appendix A to this Proxy Statement/Prospectus and is incorporated herein by reference.

 

South Tulsa shareholders will receive Commerce common stock with a value of $340.54. The value of Commerce common stock that a holder of South Tulsa common stock would receive in an exchange will vary if the price of Commerce common stock falls outside the range of $45.30 and $50.06 because the merger consideration is not further adjusted if the Commerce stock price is below $45.30 or above $50.06.

 

If between the date of the Agreement and Plan of Merger and the Effective Time, the outstanding shares of Commerce common stock shall have been further changed into a different number of shares or a different class, by reason of any issuance of common stock, recapitalization, reclassification, split-up, combination, exchange, readjustment, reorganization, merger, consolidation, distribution, stock split, stock or other dividend, or similar transaction, the Agreement and Plan of Merger shall be adjusted to the extent appropriate to reflect such event.

 

As of          , 2007, options to purchase 7,970 shares of South Tulsa common stock were issued and outstanding to certain officers and directors of South Tulsa and its subsidiary, Bank South. All of these options are fully vested and exercisable. Prior to the merger, South Tulsa expects to amend certain of its option award agreements which will enable the option holders under those agreements to surrender vested stock options to satisfy the option exercise price with respect to other stock options which such persons hold. As a result, although options to purchase 7,970 shares currently are outstanding, fewer than 7,970 shares of South Tulsa common stock may be issued by South Tulsa prior to the merger if option holders surrender vested stock options to satisfy the option exercise price. If any options to purchase shares of South Tulsa stock are outstanding at the closing of the merger, the Agreement and Plan of Merger provides that such options will be cancelled as of the Effective Time.

 

Prior to the completion of the merger, Commerce will appoint Commerce Bank, N.A. or a commercial bank or trust company that is acceptable to South Tulsa, to act as the Exchange Agent. The Exchange Agent will effect the exchange of shares of South Tulsa common stock into shares of Commerce common stock.

 

Holders of unexchanged South Tulsa shares will not be entitled to receive any dividends or other distributions payable by Commerce until their certificates are surrendered after the merger is completed. Upon surrender, however, subject to applicable laws, the holders will receive accumulated dividends and distributions, without interest, together with cash in lieu of any fractional shares.

 

Promptly after the completion of the merger, the Exchange Agent will mail to holders of unexchanged South Tulsa stock certificates (other than South Tulsa stock certificates representing dissenting shares) a letter of transmittal and instructions for surrendering South Tulsa stock certificates in exchange for the merger consideration that a holder of shares of South Tulsa common stock is entitled to receive, along with any dividends and other distributions and any cash in lieu of fractional shares. After a holder of South Tulsa stock certificates sends the South Tulsa stock certificates to the Exchange Agent together with the properly completed letter of transmittal, and any other documents that the Exchange Agent may reasonably require, the holder of South Tulsa stock certificates will be entitled to receive such consideration. No interest will be paid or will accrue on any cash paid to holders of South Tulsa stock certificates.

 

If there has been a transfer of ownership of South Tulsa common stock that is not registered in the transfer records of South Tulsa, such holder must present to the Exchange Agent the certificate representing such shares of

South Tulsa common stock, along with all documents required to evidence and effect the transfer of ownership and to evidence that any applicable stock transfer taxes have been paid prior to receiving any merger consideration.

 

No fractional shares will be issued by Commerce in connection with the merger. If you are a South Tulsa shareholder who would otherwise have been entitled to a fraction of a share of Commerce common stock, you will be paid the cash value of such fraction determined by multiplying such fraction by the average of ten (10) closing sale prices of Commerce common stock as reported by Nasdaq on each of the ten (10) consecutive trading days preceding the fifth trading date prior to the Effective Time.

 

In February 2004, Nevyle Cable and Carl Hudgins, the President and Vice President of South Tulsa, met with representatives from an Oklahoma based bank significantly larger than Bank South regarding the bank’s interest in acquiring South Tulsa and its subsidiary, Bank South. The parties agreed that South Tulsa would entertain an offer of interest based on their discussions. Carl Hudgins had a second meeting with the bank’s representatives regarding the bank’s continuing interest in South Tulsa. On March 2, 2004, the bank’s representatives communicated a verbal offer to purchase South Tulsa and to pay additional consideration for non-compete agreements with three of Bank South’s executive officers, Carl Hudgins, Steve Austin and Bruce Humphrey. Ultimately, management of South Tulsa determined that the offer was insufficient and discussions were terminated after the inquiring bank made it clear that it would not increase the amount of its initial offer.

 

For the next several months and during 2005, South Tulsa received several inquiries regarding its possible interest in being acquired. Carl Hudgins met with representatives of several different Oklahoma banks, spending considerable time with each bank’s representatives. Additionally, in October 2005, South Tulsa received an inquiry from a financial holding company in Missouri. Carl Hudgins subsequently met with the attorneys representing that company. However, following this initial meeting, the company failed to respond to additional questions asked by South Tulsa, and South Tulsa did not receive further communication from the representatives or the company.

 

In January 2006, Carl Hudgins met again with representatives of the Oklahoma bank that had approached South Tulsa in 2004, and that bank again expressed an interest in proceeding with a transaction. Shortly thereafter, however, the bank contacted South Tulsa and advised that it had elected to pursue an alternative transaction.

 

As South Tulsa continued to receive inquiries and overtures regarding its interest in a possible sale, South Tulsa contacted Hovde in early March 2006 and requested Hovde provide a valuation of South Tulsa in order to assist management in considering its options in a sale. Based on projected financials through March 31, 2006, representatives of Hovde provided an initial valuation of South Tulsa. The Board of Directors of South Tulsa agreed to take the Hovde valuation under consideration while contemplating its desired course of action. Within approximately two weeks following receipt of this valuation, Hovde advised management of South Tulsa that a financial institution had indicated to Hovde its interest in making an offer to acquire South Tulsa. The Board of Directors of South Tulsa then requested Hovde to assist South Tulsa in its negotiations with this potential acquiror. On April 17, 2006, South Tulsa received a non-binding letter of interest from this Oklahoma City-based bank, expressing the bank’s interest in acquiring South Tulsa and its willingness to pay additional consideration for non-compete agreements from Messrs. Hudgins, Austin and Humphrey. After a meeting of the joint Boards of South Tulsa and Bank South on April 18, 2006, South Tulsa made a counter-offer which proposed a higher purchase price. Upon receiving South Tulsa’s counter-offer, the Oklahoma City-based bank determined that it did not wish to pursue further discussions regarding the proposed acquisition.

 

At a May 11, 2006 meeting of the executive committee of South Tulsa’s Board of Directors, the executive committee formally agreed to recommend to South Tulsa and Bank South’s Boards of Directors that Hovde be hired to assist in marketing South Tulsa to potential purchasers. Nevyle Cable and Carl Hudgins were appointed as representatives to negotiate the terms of South Tulsa’s arrangement with Hovde. Upon finalizing that arrangement in early June 2006, Hovde began preparing offering materials with respect to South Tulsa and its subsidiary, Bank South, with the intention that these offering materials would be distributed to prospective purchasers as the initial step in soliciting bids from parties interested in acquiring South Tulsa. However, in early July 2006 and before the

offering materials could be completed and distributed, Hovde advised South Tulsa that Commerce had indicated to Hovde its interest in acquiring South Tulsa.

 

On August 2, 2006, representatives of Commerce attended a joint meeting of the Boards of Directors of South Tulsa and Bank South to discuss matters relevant to a possible transaction between Commerce and South Tulsa, including the manner in which Bank South would be operated if a transaction were to occur. Following this meeting, representatives of South Tulsa authorized Hovde to provide a variety of both public and non-public information with respect to South Tulsa and Bank South to Commerce. Following execution of a Confidentiality Agreement by Commerce on August 7, 2006, this information was provided.

 

On September 8, 2006, Commerce provided to Hovde a formal written proposal with respect to Commerce’s possible acquisition of South Tulsa. This proposal contemplated an initial total purchase price of $25 million which would be paid half in Commerce’s common stock and half in cash. Following additional negotiation between representatives of South Tulsa and Commerce, Commerce modified its original proposal in a letter dated September 25, 2006. Included among the changes to its proposal was an increase in the total consideration for South Tulsa to $26.25 million, all of which would be paid in the form of Commerce common stock.

 

A joint meeting of South Tulsa and Bank South’s Boards was held on September 25, 2006, to review Commerce’s modified proposal and to discuss the potential transaction with Commerce. A representative of Hovde participated in this meeting by telephone and discussed the Commerce offer as well as the possibility of any other acquisition proposals which might arise. At this meeting, South Tulsa’s Board of Directors decided to proceed with negotiations with Commerce, subject to completion of Commerce’s final due diligence which was completed during the week of October 9, 2006.

 

Shortly following completion of its due diligence, Commerce provided to South Tulsa a proposed form of acquisition agreement, as well as related agreements to be entered into between South Tulsa, Commerce and Bank South’s directors and certain executive officers in conjunction with entering into a definitive acquisition agreement. Negotiations with respect to the terms of these agreements continued through November, 2006. At a special joint meeting of the Boards of Directors of South Tulsa and Bank South held November 20, 2006, South Tulsa and Bank South’s Boards of Directors considered the Agreement and Plan of Merger and the related agreements to which South Tulsa would be a party. At that meeting, counsel for South Tulsa reviewed the terms and conditions of each of these agreements, and responded to questions from the directors. The Company’s financial advisor, Hovde, also delivered an oral opinion at that meeting, subsequently confirmed in writing, that, as of the date of its opinion, and based upon and subject to the considerations described in its opinion, the consideration to be received by holders of shares of South Tulsa common stock in the merger pursuant to the Agreement and Plan of Merger was fair to the holders of South Tulsa’s common stock from a financial point of view. In support of its opinion, representatives of Hovde provided a presentation to South Tulsa and Bank South’s Boards of Directors summarizing its analysis and responding to questions from the directors. Following these presentations and after further discussions by the directors, South Tulsa’s Board of Directors unanimously approved the Agreement and Plan of Merger as well as the related agreements to which South Tulsa would be a party and submitted the Agreement and Plan of Merger for approval to South Tulsa’s shareholders with its recommendation that the Agreement and Plan of Merger be approved.

 

On December 4, 2006, Commerce and South Tulsa executed the Agreement and Plan of Merger and related agreements to which South Tulsa was a party. In conjunction with entering into the Agreement and Plan of Merger, shareholders of South Tulsa owning a majority of South Tulsa’s common stock entered into the Voting Agreements pursuant to which they agreed to vote in favor of the Agreement and Plan of Merger.

 

South Tulsa.  South Tulsa’s Board of Directors has determined that the merger is advisable and in the best interests of South Tulsa and its shareholders. The South Tulsa Board of Directors believes that the merger presents an opportunity to merge with a similar financial institution and create a combined company that will have significantly greater financial strength and earnings power than South Tulsa would have on its own. Accordingly, the South Tulsa Board of Directors has approved the merger. In reaching its decision to approve the Agreement and Plan of Merger and recommend its approval by South Tulsa’s shareholders, the South Tulsa Board of Directors

consulted with South Tulsa’s management, as well as South Tulsa’s legal and financial advisors, and considered a number of factors, including, but not limited to, those discussed below.

 

Financial Considerations.  The South Tulsa Board of Directors considered the financial terms of the merger based on, among other things, the following factors:

 

 

Strategic Considerations.  The South Tulsa Board of Directors also considered a number of strategic advantages of the merger in comparison to a stand-alone strategy, including, but not limited to, the following factors:

 

 

Social Considerations.  The South Tulsa Board of Directors considered the social and economic effect on the South Tulsa shareholders, employees, customers and community, including, but not limited to, the following factors:

 

 

 

While the South Tulsa Board of Directors considered the foregoing and other factors individually, the South Tulsa Board of Directors did not collectively assign any specific or relative weight to the factors considered and did not make any determination with respect to any individual factor. The South Tulsa Board of Directors collectively made its determination with respect to the Agreement and Plan of Merger based on the unanimous conclusion reached by its members, in light of the factors that each of them considered appropriate, that the Agreement and Plan of Merger is fair and in the best interests of the South Tulsa shareholders.

 

Commerce.  In reaching its decision to approve the Agreement and Plan of Merger, the Board of Directors of Commerce considered a variety of factors, including the following:

 

 

The foregoing discussion of the information and factors considered by Commerce is not intended to be exhaustive. In reaching its determination to enter into the Agreement and Plan of Merger, Commerce did not assign any relative or specific weights to the foregoing factors.

 

In early June 2006, South Tulsa formalized its retention of Hovde to provide its financial services to South Tulsa, including a potential sale of South Tulsa. Hovde has delivered to the Board of Directors of South Tulsa its opinion that, based upon and subject to the various considerations set forth in its written opinion dated December 4, 2006, the merger consideration to be paid to the shareholders of South Tulsa is fair from a financial point of view as of such date. In requesting Hovde’s advice and opinion, no limitations were imposed by South Tulsa upon Hovde with respect to the investigations made or procedures followed by it in rendering its opinion. The full text of the opinion of Hovde, which describes the procedures followed, assumptions made, matters considered and limitations on the review undertaken, is attached as Appendix C to this Proxy Statement/Prospectus and is incorporated herein by reference. South Tulsa’s shareholders should read this opinion in its entirety. The following summary of the opinion of Hovde is qualified in its entirety by reference to the full text of the opinion.

 

Hovde is a nationally recognized investment banking firm and, as part of its investment banking business, is continually engaged in the valuation of financial institutions in connection with mergers and acquisitions, private placements and valuations for other purposes. As a specialist in securities of financial institutions, Hovde has experience in, and knowledge of, banks, thrifts and bank and thrift holding companies. The Board of Directors of South Tulsa selected Hovde to act as its financial advisor in connection with the merger on the basis of the firm’s reputation and expertise in transactions such as the merger.

 

Hovde received a fee from South Tulsa for performing a financial analysis of the merger and rendering a written opinion to the Board of Directors of South Tulsa as to the fairness, from a financial point of view, of the merger to the shareholders of South Tulsa. South Tulsa has agreed to pay Hovde fees upon the consummation of the merger equal to one and one-half percent of the final value of the transaction with certain adjustments for its services as financial advisor in connection with the merger. If the merger is consummated Hovde will receive approximately $467,500 for its services. In addition to its fees and regardless of whether the merger is consummated, Hovde will be reimbursed for its reasonable out-of-pocket expenses. South Tulsa has also agreed to indemnify Hovde against any claims, losses and expenses arising out of the merger or Hovde’s engagement that did not arise from Hovde’s gross negligence or willful misconduct.

 

Hovde’s opinion is directed only to the fairness, from a financial point of view, of the merger consideration, and, as such, does not constitute a recommendation to any shareholder of South Tulsa as to how the shareholder should vote at the Special Meeting. The summary of the opinion of Hovde set forth in this Proxy Statement/Prospectus is qualified in its entirety by reference to the full text of the opinion.

 

The following is a summary of the analyses performed by Hovde in connection with its fairness opinion. Certain of these analyses were discussed in a presentation to the Board of Directors of South Tulsa by Hovde made on November 20, 2006. The summary set forth below does not purport to be a complete description of either the analyses performed by Hovde in rendering its opinion or the presentation delivered by Hovde to the Board of Directors of South Tulsa, but it does summarize all of the material analyses performed and presented by Hovde.

 

The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial analyses and the application of those methods to the particular circumstances. In arriving at its opinion, Hovde did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Hovde believes that its analyses and the following summary must be considered as a whole and that selecting portions of its analyses, without considering all factors and analyses, could create an incomplete view of the process underlying the analyses set forth in its report to the Board of Directors of South Tulsa and its fairness opinion.

 

In performing its analyses, Hovde made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the control of South Tulsa and Commerce. The analyses performed by Hovde are not necessarily indicative of actual value or actual future results, which may be significantly more or less favorable than suggested by such analyses. Such analyses were prepared solely as part of Hovde’s analysis of the fairness of the merger consideration, from a financial point of view, to the shareholders of South Tulsa. The analyses do not purport to be an appraisal or to reflect the prices at which a company might actually be sold or the prices at which any securities may trade at the present time or at any time in the future. Hovde’s opinion does not address the relative merits of the merger as compared to any other business combination in which South Tulsa might engage. In addition, as described above, Hovde’s opinion to the Board of Directors of South Tulsa was one of many factors taken into consideration by the Board of Directors of South Tulsa in making its determination to approve the merger agreement.

 

The Commerce average closing price amounts described below under the caption “— Trading Price Analysis” have not been adjusted for the 5% common stock dividend announced by Commerce on October 20, 2006 and paid on December 13, 2006 to shareholders of record as of November 29, 2006. Because the Agreement and Plan of Merger was entered into after the record date of the stock dividend, the terms of the acquisition, as originally proposed by Commerce, with respect to the price range in which the number of shares of Commerce common stock to be issued would be increased or decreased in order to equal the $340.54 per share in merger consideration were modified in the final terms of the Agreement and Plan of Merger to proportionately lower the price range in order to reflect the effect of the Commerce stock dividend. Accordingly the Commerce common stock dividend has no effect on Hovde’s analysis of the Commerce common stock trading price or any of the other analyses performed by Hovde which are described herein.

 

The opinion expressed by Hovde was based on market, economic and other relevant considerations as they existed and could be evaluated as of the date of the opinion. Events occurring after the date of issuance of the opinion, including changes affecting the securities markets, the results of operations or material changes in the

financial condition of either South Tulsa or Commerce could materially affect the assumptions used in preparing this opinion.

 

During the course of its engagement, and as a basis for arriving at its opinion, Hovde reviewed and analyzed material bearing upon the financial and operating conditions of South Tulsa and Commerce and material prepared in connection with the merger, including, among other things, the following:

 

 

In addition, Hovde:

 

 

In rendering its opinion, Hovde assumed, without independent verification, the accuracy and completeness of the financial and other information provided to it and relied upon the accuracy of the representations of the parties contained in the merger agreement. Hovde also assumed the financial forecasts furnished to or discussed with Hovde by South Tulsa and Commerce were reasonably prepared and reflected the best currently available estimates and judgments of senior management of South Tulsa and Commerce as to the future financial performance of South Tulsa, Commerce or the combined company, as the case may be. Hovde has not made any independent evaluation or appraisal of any properties, assets or liabilities of South Tulsa.

 

Contribution Analysis.  Hovde prepared a contribution analysis showing percentages of assets, net loans, deposits, equity and tangible equity at September 30, 2006 for South Tulsa and Commerce, and the trailing twelve months and estimated calendar-year 2006 net income that would be contributed to the combined company on a pro-forma basis. These contribution percentages were compared to the approximately 0.77% of the pro forma common shares outstanding that holders of South Tulsa common stock would own.

 

 

Trading Price Analysis.  Hovde reviewed the average trading prices for Commerce common stock at different intervals during the period commencing November 16, 2006, using the 5-day, 10-day, 20-day, 30-day, 45-day, 60-day and 90-day average closing price of Commerce common stock during such period. As noted above, the Commerce average closing prices set forth below have not been adjusted for the 5% Commerce common stock dividend which was paid to Commerce shareholders on December 13, 2006.

 

 

Stock Trading History Analysis.  Hovde reviewed the relationship between the movements in the prices of Commerce common stock to movements in certain stock indices, including the SNL Bank Index, the Standard & Poor’s 500 Index and the Russell 2000 Index. Hovde noted that during the one year period ended November 16, 2006, Commerce common stock underperformed each of the indices.

 

 

Hovde also noted that during the three year period ended November 16, 2006, Commerce common stock underperformed the SNL Bank Index, the Standard & Poor’s 500 Index and the Russell 2000 Index.

 

 

Analysis of Selected Transactions.  As part of its analysis, Hovde reviewed two groups of comparable transactions. The first peer group included transactions, which have occurred since January 1, 2001, that involved target banks headquartered in the four-state Arkansas, Kansas, Missouri and Oklahoma areas, in which the total

assets of the seller were between $50 million and $500 million (the “Four-State Merger Group”). This Four-State Merger Group consisted of the following 26 transactions:

 

 

Hovde then reviewed comparable transactions involving banks headquartered in the metropolitan areas Nationwide excluding California, Colorado, Florida, Georgia and Texas announced since January 1, 2005, in which

the total assets of the seller were between $50 million and $150 million and the sellers’ ROA was greater than 1.00% (the “Nationwide Merger Group”). This Nationwide Merger Group consisted of the following 28 transactions:

 

 

Hovde calculated the medians of the following relevant transaction ratios in the Four-State Merger Group and the Nationwide Merger Group: the multiple of the offer value to the acquired company’s tangible book value; the multiple of the offer value to the acquired company’s core 6.5% adjusted tangible book value; the multiple of the offer value to the acquired company’s earnings for the twelve months preceding the announcement date of the transaction; and the tangible book value premium to core deposits. Hovde compared these multiples with the corresponding multiples for the merger, valuing the per share consideration that would be received pursuant to the merger agreement at $340.54 per diluted share of South Tulsa. In calculating the multiples for the merger, Hovde used South Tulsa’s earnings for the twelve months ended September 30, 2006 and South Tulsa’s tangible book value, core 6.5% adjusted tangible book value and core deposits as of September 30, 2006. The results of this analysis are as follows:

 

 

Discounted Cash Flow Analysis.  Hovde estimated the present value of all shares of the South Tulsa common stock by utilizing South Tulsa’s estimated future earnings stream. Reflecting South Tulsa’s internal projections and historical averages, we assumed a 10.0% annual asset growth and 2006-2010 net income of $1.6 million, $1.7 million, $1.9 million, $2.1 million, and $2.3 million, respectively. No dividends were projected to be paid.

In all cases, the present value of these cash flows was calculated based on a range of discount rates of 13.0%, 14.0%, and 15.0%. These rates and values were chosen to reflect different assumptions regarding the required rates of return of holders or prospective buyers of South Tulsa common stock.

 

Hovde derived the take-out value of South Tulsa common stock using both the terminal value earnings multiple and book value approaches. In arriving at the terminal value of South Tulsa’s earnings stream in 2010, Hovde assumed a terminal earnings value multiple at a range of 19.0x, 20.0x and 21.0x. Similarly, in arriving at the terminal value of South Tulsa’s book value in 2010, Hovde assumed a terminal book value multiple at a range of 175.0%, 200.0% and 225.0%. The terminal values were then discounted, along with annual cash flows, to arrive at the present value for South Tulsa common stock. These analyses and its underlying assumptions yielded a per share range of value for South Tulsa common stock of approximately $286.87 to $343.44 with a midpoint of $314.14 based on the earnings approach and $238.59 to $329.61 with a midpoint of $282.31 based on the book value approach.

 

Comparable Company Analysis.  Using publicly available information, Hovde compared the stock market valuation and operating characteristics of Commerce on standalone basis with other Midwestern banks with assets between $5.0 billion and $25.0 billion (the “Comparable Group”). The Comparable Group consisted of the following 14 publicly traded institutions:

 

 

Indications of such financial performance and stock market valuation included the calculation of price-to-book value, price-to-tangible book value, price-to-2006 estimated GAAP earnings and price-to-2007 estimated GAAP earnings.

 

 

Based upon the foregoing analyses and other investigations and assumptions set forth in its opinion, without giving specific weightings to any one factor or comparison, Hovde determined that the merger consideration was fair from a financial point of view to the shareholders of South Tulsa.

 

At the Effective Time the separate corporate existence of South Tulsa will terminate as it merges with and into CBI-Kansas. The Articles of Incorporation and Bylaws of CBI-Kansas as in effect immediately prior to the effective

time will remain the Articles of Incorporation and Bylaws of CBI-Kansas from and after the effective time until amended as provided by law. The officers and directors of CBI-Kansas will remain the officers and directors of CBI-Kansas from and after the Effective Time. It is expected that existing management of the surviving corporation will be supplemented with personnel from Commerce who will assist in bringing new methods and systems to the surviving corporation which have been developed by Commerce. Commerce also expects to enhance the net interest margin and non-interest income of the surviving corporation by expanding the products and services offered. Commerce will also analyze the surviving corporation’s operations for potential efficiencies and anticipates achieving operating cost savings through the proposed consolidation and the elimination of redundant costs. While there can be no assurances that operating cost savings will be realized or in what fiscal period the savings will actually be recorded, plans are currently being developed to realize operating cost savings. It is expected that the annualized level of operating cost savings achieved will be realized unevenly throughout the period of consolidation, with the majority of any savings realized in the latter part of the period. The extent to which the operating cost savings will be achieved depends, among other things, on the regulatory environment and economic conditions, and may be affected by unanticipated changes in business activities, inflation and operating costs.

 

The merger is conditioned on the fulfillment prior to the closing of certain conditions set forth in the Agreement and Plan of Merger, including, among other things, the following:

 

 

 

Pursuant to the Agreement and Plan of Merger, South Tulsa has agreed to carry on its business and cause the Bank and its other subsidiaries to carry on their respective businesses in the usual, regular and ordinary course in substantially the same manner as conducted prior to the execution of the Agreement and Plan of Merger. South Tulsa has agreed to certain limitations on its ability to engage in material transactions.

 

The Agreement and Plan of Merger provides that unless and until the Agreement and Plan of Merger has been terminated, neither South Tulsa nor any of its subsidiaries will solicit or encourage or, subject to the fiduciary duties of their directors as advised by counsel, hold discussions or negotiations with, or provide information to, any person in connection with any proposal from any person relating to the acquisition of all or a substantial portion of the business, assets or stock of South Tulsa, the Bank, or any other subsidiary of South Tulsa. South Tulsa is required to promptly advise Commerce of its receipt of, and the substance of, any such proposal or inquiry.

 

Prior to or at the Effective Time, any provision of the Agreement and Plan of Merger, including, without limitation, the conditions to consummation of the merger, may be (i) waived, to the extent permitted under law, in writing by the party which is entitled to the benefits thereof; or (ii) amended at any time by written agreement of the parties, whether before or after approval of the Agreement and Plan of Merger by the shareholders of South Tulsa; provided, however, that after any such approval, no such amendment shall alter the amount or change the form of the consideration or alter or change any of the terms of the Agreement and Plan of Merger if such alteration or change would adversely affect the holders of South Tulsa common stock or would legally require further approval of such holders. It is anticipated that a condition to consummate the merger would be waived only in those circumstances where the Board of Directors of Commerce, CBI-Kansas or South Tulsa, as the case may be, deems such waiver to be in the best interests of such company and its shareholders.

 

The Agreement and Plan of Merger and the merger may be terminated at any time prior to the closing date, provided that the terminating party is not then in material breach of the Agreement and Plan of Merger, by:

 

 

 

Effect of Termination.  If the Agreement and Plan of Merger is terminated, it will become void, and there will be no liability on the part of Commerce or South Tulsa, except that (1) both Commerce and South Tulsa will remain liable for any willful breach of the Agreement and Plan of Merger and (2) designated provisions of the Agreement and Plan of Merger, including the payment of fees and expenses, the confidential treatment of information and publicity restrictions, will survive the termination.

 

Termination Fee.  If the Agreement and Plan of Merger is terminated because South Tulsa desires to enter into an acquisition agreement with another party that it considers to be a superior proposal, South Tulsa must pay Commerce a termination fee of $1.25 million (the “Termination Fee”). The Termination Fee is also payable if the Agreement and Plan of Merger is terminated and, within 12 months, South Tulsa enters into an agreement to be acquired by another party, if the Agreement and Plan of Merger was terminated because (i) the South Tulsa board of directors did not recommend approval of the Agreement and Plan of Merger to the stockholders, (ii) the stockholders of South Tulsa failed to approve the Agreement and Plan of Merger, (iii) there was a voluntary breach of a material representation of warranty by South Tulsa or (iv) required regulatory approvals have not been obtained by June 30, 2007 or the relevant later date, as applicable.

 

It is presently anticipated that the Effective Time will occur in the second quarter of 2007, but no assurance can be given to that effect.

 

The shares of Commerce to be issued pursuant to the merger have been registered under the Securities Act of 1933, as amended. The provisions of Rule 145 under the Securities Act allow such shares to be sold without restriction by shareholders of South Tulsa who are not deemed to be “affiliates” (as that term is defined in the rules under the Securities Act) of South Tulsa. An “affiliate” of South Tulsa is a person who directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, South Tulsa. These restrictions are expected to apply to the directors and executive officers of South Tulsa and the holders of 10% or more of the outstanding South Tulsa common stock. The same restrictions apply to the spouses and certain relatives of those persons and any trusts, estates, corporations or other entities in which those persons have a 10% or greater beneficial or equity interest. Shareholders not falling into the category of affiliate have no restrictions on when they may sell the Commerce stock received in the merger.

 

If you are considered an affiliate of South Tulsa or become an affiliate of Commerce after the merger, you may resell the shares of Commerce common stock acquired in connection with the merger only pursuant to an effective registration statement under the securities laws, pursuant to Rule 145 under the Securities Act of 1933, or in transactions otherwise exempt from registration under the securities laws. Under Rule 145, during the first calendar year after the merger becomes effective, affiliates of South Tulsa at the time of the special meeting who are not affiliates of Commerce at or following the effective time of the merger may publicly resell the Commerce common stock they receive in the merger but only within certain limitations as to the number of shares of Commerce common stock they can sell in any three-month period and as to the manner of sale. After the one-year period, affiliates of South Tulsa who are not affiliates of Commerce may resell their shares without restriction. Commerce must continue to satisfy its reporting requirements under the Securities Exchange Act of 1934 in order for affiliates to resell, under Rule 145, shares of Commerce common stock received in the merger. Commerce is not obligated and does not intend to register for resale the shares issued to affiliates of South Tulsa. Pursuant to the Agreement and Plan of Merger, each affiliate of South Tulsa has signed a written agreement to the effect that he will not offer or sell

or otherwise dispose of any of the shares of Commerce common stock issued to him in the merger in violation of the Securities Act of 1933.

 

Under Oklahoma law, the relevant provisions of which are attached to this document as Appendix D (Section 1091 of the OGCA), each South Tulsa shareholder who dissents from the merger and who complies with various procedural requirements of Section 1091 of the OGCA is entitled to “appraisal rights,” pursuant to which the shareholder will receive the fair value of his or her shares of South Tulsa common stock in cash, with accrued interest. Specifically, a South Tulsa shareholder may dissent from the merger, and CBI-Kansas, as the merger’s surviving corporation, must pay to the shareholder, upon the surrender of certificates representing his or her shares, the fair value of the shares as of the day prior to South Tulsa’s special meeting, with accrued interest. If CBI-Kansas and you cannot agree on the fair value of your shares, then the OGCA provides for a judicial determination of these amounts. The value as determined by an Oklahoma court may be more or less than the value you are entitled to under the Agreement and Plan of Merger. If you desire to dissent and exercise your appraisal rights, you should refer to the Section 1091 of the OGCA in its entirety and should consult with legal counsel prior to taking any action to ensure that you comply strictly with the applicable statutory provisions.

 

To dissent and exercise your appraisal rights, you must do all of the following:

 

 

If you do not vote against the merger, it will not constitute a waiver of your appraisal rights under the OGCA if you make written demand for payment before the vote is taken at the          , 2007 shareholders’ meeting. Conversely, voting against the merger will not, by itself, be sufficient to satisfy your obligations if you dissent and want to exercise your appraisal rights. You must follow the procedures set forth in Section 1091 of the OGCA to exercise your appraisal rights.

 

Each outstanding share of South Tulsa common stock as to which a legally sufficient demand in accordance with Section 1091 of the OGCA has been made and that did not vote in favor of approval of the merger retains all other rights of a shareholder until those rights are cancelled by consummation of the merger. However, after the Effective Time, no dissenting shareholder who has demanded appraisal rights shall be entitled to vote the stock for any purpose or to receive payment of dividends (except dividends payable to shareholders of records prior to the Effective Time).

 

Within 10 days after the effective date of the merger, CBI-Kansas will notify the dissenting shareholders who have complied with the provisions of Section 1091 that the merger has become effective. Within 120 days after the effective date of the merger, CBI-Kansas will send to such dissenting shareholders, upon written request, a statement setting forth the aggregate number of shares not voted in favor of the merger and with respect to which demands for appraisal have been received and the aggregate number of holders of the shares. The written statement will be mailed to the dissenting shareholders within 10 days after the written request is received by CBI-Kansas or within 10 days after expiration of the period for delivery of demands for appraisal, whichever is later.

 

Also within 120 days after the effective date of the merger, any dissenting shareholder who has complied with the provisions of Section 1091 or CBI-Kansas may file a petition in district court demanding a determination of the value of the stock of the dissenting shareholders; however, at any time within 60 days after the effective date of the merger, each of the dissenting shareholders has the right to withdraw the shareholder’s demand for appraisal and to accept the terms offered in the Agreement and Plan of Merger. The court shall provide notice to CBI-Kansas of any such petition filed by a shareholder, and upon receipt of that notice, CBI-Kansas shall provide to the court a list of all shareholders who have demanded payment for their shares and with whom agreements regarding the value of their shares have not been reached by CBI-Kansas. After providing proper notice of the proceeding, the court will

determine the shareholders who are entitled to appraisal rights and will direct CBI-Kansas to pay the fair value of the shares, together with interest, to the shareholders entitled to such payment. The court will determine the costs of the proceeding and may tax the parties as it deems appropriate. Upon request by a dissenting shareholder, the court may order all or a portion of the expenses incurred by any shareholder, including attorneys’ fees and expenses of experts, be charged pro rata against the value of all of the shares entitled to an appraisal.

 

The shares for which a dissenting shareholder has properly exercised appraisal rights and followed the required procedures in the OGCA will not be converted into, or represent, the right to receive Commerce common stock as provided under the Agreement and Plan of Merger. None of these shares will, after the Effective Time, be entitled to vote for any purpose or receive any dividends or other distributions. If, however, the holder of such shares fails to properly perfect, effectively withdraw, waive or lose, or otherwise become ineligible to exercise dissenting shareholder’s rights of appraisal under the OGCA, then at that time shares held by you will be converted into Commerce common stock as provided in the Agreement and Plan of Merger.

 

The regulatory approvals required to complete the transactions contemplated by the Agreement and Plan of Merger include approval from the Board of Governors of the Federal Reserve System and the Office of the Comptroller of Currency. Commerce will complete the filing of applications and notifications to obtain the required regulatory approvals.

 

Federal Reserve System.  The merger is subject to approval of the Board of Governors of the Federal Reserve System pursuant to Section 3 of the Bank Holding Company Act of 1956. The Board of Governors of the Federal Reserve System is prohibited from approving any transaction under the applicable statutes that (1) would result in a monopoly, (2) would be in furtherance of any combination or conspiracy to monopolize or to attempt to monopolize the business of banking in any part of the United States, or (3) may have the effect in any section of the United States of substantially lessening competition, tending to create a monopoly or resulting in a restraint of trade, unless the Board of Governors of the Federal Reserve System finds that the anti-competitive effects of the transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the communities to be served. The Board of Governors of the Federal Reserve System may not approve an interstate acquisition without regard to state law if the applicant controls, or after completion of the acquisition the combined entity would control, more than 10 percent of the total deposits of insured depository institutions in the United States.

 

In addition, in reviewing a transaction under the applicable statutes, the Board of Governors of the Federal Reserve System will consider the financial and managerial resources of the companies and their subsidiary banks and the convenience and needs of the community to be served as well as the companies’ effectiveness in combating money-laundering activities. In connection with its review, the Board of Governors of the Federal Reserve System will provide an opportunity for public comment on the application for the merger, and is authorized to hold a public meeting or other proceeding if it determines that would be appropriate.

 

Under the Community Reinvestment Act of 1977, as amended (the “CRA”), the Board of Governors of the Federal Reserve System must take into account the record of performance of each of Commerce and South Tulsa in meeting the credit needs of the entire communities, including low-and moderate-income neighborhoods, served by the company and its subsidiaries. Each of Commerce’s and South Tulsa’s principal depository institution has received an “outstanding” CRA rating from the United States Office of the Comptroller of the Currency, and its other depository institutions have received either an outstanding or satisfactory CRA rating.

 

Antitrust Considerations.  At any time before or after the acquisition is completed, the Antitrust Division of the United States Department of Justice or the United States Federal Trade Commission, which we refer to as the Antitrust Division and the FTC, respectively, could take action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the acquisition or seeking divestiture of substantial assets of Commerce or South Tulsa or their subsidiaries. Private parties also may seek to take legal action under the antitrust laws under some circumstances. Based upon an examination of information available relating to the businesses in which the companies are engaged, Commerce and South Tulsa believe that the completion of the merger will not violate U.S. antitrust laws. However, Commerce and South Tulsa can give no assurance that a

challenge to the merger on antitrust grounds will not be made, or, if such a challenge is made, that Commerce and South Tulsa will prevail.

 

In addition, the merger may be reviewed by the state attorneys general in the various states in which Commerce and South Tulsa operate. Although Commerce and South Tulsa believe there are substantial arguments to the contrary, these agencies may claim the authority, under the applicable state and federal antitrust laws and regulations, to investigate and/or disapprove the merger. There can be no assurance that one or more state attorneys general will not attempt to file an antitrust action to challenge the merger.

 

Timing.  We cannot assure you that all of the regulatory approvals described above will be obtained, and, if obtained, we cannot assure you as to the date of any approvals or the absence of any litigation challenging such approvals. Likewise, we cannot assure you that the Antitrust Division, the FTC or any state attorney general will not attempt to challenge the merger on antitrust grounds, and, if such a challenge is made, we cannot assure you as to its results.

 

Pursuant to the Bank Holding Company Act, a transaction approved by the Board of Governors of the Federal Reserve System may not be completed until 30 days after approval is received, during which time the Antitrust Division may challenge the merger on antitrust grounds. The commencement of an antitrust action would “stay” — that is, suspend-the effectiveness of an approval unless a court specifically were to order otherwise. With the approval of the Board of Governors of the Federal Reserve System and the concurrence of the Antitrust Division, the waiting period may be reduced to no less than 15 days.

 

Commerce and South Tulsa believe that the merger does not raise substantial antitrust or other significant regulatory concerns and that they will be able to obtain all requisite regulatory approvals on a timely basis without the imposition of any condition that would have a material adverse effect on Commerce or South Tulsa.

 

We are not aware of any material governmental approvals or actions that are required for completion of the merger other than those described above. It is presently contemplated that if any such additional governmental approvals or actions are required, those approvals or actions will be sought. There can be no assurance, however, that any additional approvals or actions will be obtained.

 

No shares of South Tulsa common stock are presently owned by Commerce or by any of its subsidiaries or principals, or by trustees for the benefit of Commerce or any of its subsidiaries, shareholders or employees as a class or by an escrow arrangement instituted by Commerce.

 

The following general discussion sets forth the anticipated material United States federal income tax consequences of the merger to U.S. holders (as defined below) of South Tulsa common stock that exchange their shares of South Tulsa common stock for shares of Commerce common stock in the merger. This discussion does not address any tax consequences arising under the laws of any state, local or foreign jurisdiction, or under any United States federal laws other than those pertaining to income tax. This discussion is based upon the Code, the regulations promulgated under the Code and court and administrative rulings and decisions in effect on the date of this document. These laws may change, possibly retroactively, and any change could affect the continuing validity of this discussion.

 

This discussion addresses only those South Tulsa shareholders that hold their shares of South Tulsa common stock as capital assets within the meaning of Section 1221 of the Code. Further, this discussion does not address all aspects of United States federal income taxation that may be relevant to you in light of your particular circumstances or that may be applicable to you if you are subject to special treatment under the United States federal income tax laws, including if you are:

 

 

 

Determining the actual tax consequences of the merger to you may be complex. They will depend on your specific situation and on factors that are not within our control. You should consult with your own tax advisor as to the tax consequences of the merger in your particular circumstances, including the applicability and effect of the alternative minimum tax and any state, local, foreign or other tax laws and of changes in those laws.

 

For purposes of this discussion, the term “U.S. holder” means a beneficial owner of South Tulsa common stock that is (i) an individual citizen or resident of the United States, (ii) a corporation or partnership organized in or under the laws of the United States or any state thereof or the District of Columbia, (iii) a trust, if a United States court can exercise primary supervision over it, and one or more United States persons have authority to control substantial decisions that affect it, or (iv) an estate subject to United States income tax on its worldwide income.

 

The parties intend for the merger to qualify as a reorganization for United States federal income tax purposes. The consummation of the merger is conditioned on the delivery, by Blackwell Sanders Peper Martin LLP, of an opinion to Commerce and to South Tulsa to the effect that (1) the merger will be a tax-free reorganization within the meaning of Section 368(a) of the Code, and (2) no gain or loss will be recognized by the shareholders of South Tulsa to the extent they receive Commerce common stock in exchange for shares of South Tulsa common stock.

 

This opinion will be based on representation letters provided by Commerce and South Tulsa and on customary factual assumptions, all of which must continue to be true and accurate in all material respects as of the Effective Time. None of the opinions described above will be binding on the Internal Revenue Service. Commerce and South Tulsa have not sought and will not seek any ruling from the Internal Revenue Service regarding any matters relating to the merger, and as a result, there can be no assurance that the Internal Revenue Service will not disagree with or challenge any of the conclusions described herein.

 

As a result of the merger qualifying as a reorganization within the meaning of Section 368(a) of the Code, if you exchange your South Tulsa common stock exclusively for Commerce common stock, you will recognize no gain or loss.

 

If you receive cash in lieu of a fractional share of Commerce common stock, you will be treated as having received the fractional share of Commerce common stock pursuant to the merger and then as having exchanged the fractional share of Commerce common stock for cash in a redemption by Commerce. As a result, assuming that the redemption of a fractional share of Commerce common stock is treated as a sale or exchange and not as a dividend, you generally will recognize gain or loss equal to the difference between the amount of cash received and the basis

of the fractional share of Commerce common stock as set forth above. This gain or loss generally will be capital gain or loss, and will be long-term capital gain or loss if, as of the effective date of the merger, the holding period for the shares is greater than one year. The deductibility of capital losses is subject to limitations.

 

If you are a non-corporate holder of South Tulsa common stock you may be subject to information reporting and backup withholding at a rate of 28% if the cash payment is $20 or more. You generally will not be subject to backup withholding, however, if you:

 

 

Any amounts withheld under the backup withholding rules will generally be allowed as a refund or credit against your United States federal income tax liability, provided you timely furnish the required information to the Internal Revenue Service.

 

If you receive shares of Commerce common stock as a result of the merger, you will be required to retain records pertaining to the merger and you will be required to file with your United States federal income tax return for the year in which the merger takes place a statement setting forth certain facts relating to the merger.

 

THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY. EACH SOUTH TULSA SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM OR HER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS.

 

The following table sets forth certain information as of          , 2007, regarding the beneficial ownership of South Tulsa common stock by (a) the directors of South Tulsa, (b) the chief executive officer South Tulsa, (c) the four other most-highly compensated executive officers of South Tulsa or its subsidiary, Bank South, (d) any person (including any group) who is known to South Tulsa to be the beneficial owner of more than 5% of South Tulsa common stock; and (e) the directors and executive officers of South Tulsa or its subsidiary, Bank South, as a group.

 

Under the rules of the SEC, beneficial ownership includes voting or investment power that is sole or shared. Unless otherwise indicated in the footnotes, the percentage beneficial ownership for the following table is based upon 72,189 shares of South Tulsa common stock outstanding as of the record date. To South Tulsa’s knowledge, unless indicated in the footnotes to this table, each person named in the table has sole voting and investment power with respect to all shares of stock attributed to him or her. The references to ownership are derived from South Tulsa’s share transfer records. The business address of each person listed is 6130 East 81st Street, Tulsa, Oklahoma 74137.

 

 

 

 

 

Certain members of management of South Tulsa and the Bank, and their Boards of Directors, may have interests in the transaction in addition to their interests as shareholders of South Tulsa which are summarized below. The South Tulsa Board of Directors was aware of these factors and considered them, among other matters, in approving the Agreement and Plan of Merger.

 

As a condition to Commerce’s willingness to enter into the Agreement and Plan of Merger, R. Carl Hudgins, Steven H. Austin and Bruce C. Humphrey, each of whom is an executive officer of South Tulsa and/or Bank South, entered into agreements with Commerce and South Tulsa that will become effective upon the consummation of the merger. These agreements are referred to in this Proxy Statement/Prospectus as the “Officers Agreements.” Under the Officer Agreements, following consummation of the merger, each of the executives are expected to serve as an officer of Commerce or an affiliate and will receive a one-time stock award pursuant to the Commerce 2005 Equity Incentive Plan for restricted shares of Commerce common stock with a fair market value in the following amounts: R. Carl Hudgins — $400,000, Steven H. Austin — $300,000 and Bruce C. Humphrey — $300,000. One-third of the restricted shares will vest each year beginning on the first anniversary date of the grant; provided that an executive will forfeit any unvested restricted shares in the event that the executive is terminated for “Cause” or the executive terminates his employment under circumstances not constituting “Good Reason,” each as defined in his respective Officer Agreement.

 

The Officer Agreements also provide that these executives are subject to certain non-compete, non-solicitation and confidentiality restrictions. Generally, the executives are subject to the non-compete and non-solicitation restrictions while employed by Commerce or an affiliate and for at least six months after the date on which employment is terminated; provided, the restriction period will not be less than three years in the event that the executive is terminated for Cause or the executive terminates his employment under circumstances not constituting Good Reason. The non-competition and non-solicitation restrictions do not apply to any period after the seventh anniversary of the Officer Agreements. In addition, after the third anniversary of the consummation of the merger, in order for the restrictions to apply in the six-month post-termination period, Commerce must continue to pay to the executive his base salary during that six-month period. If Commerce elects not to pay this amount, the non-competition and non-solicitation restrictions will expire.

 

The Officer Agreements are intended to replace agreements entered into by South Tulsa with Messrs. Hudgins, Austin and Humphrey in August 2006 in contemplation of the acquisition of South Tulsa. Those agreements provide for cash payments to Messrs. Hudgins, Austin and Humphrey in the same amounts specified in the Officer Agreements with the payments to be made on the first, second and third anniversaries of a change in control of South Tulsa. Although these agreements also included non-competition and non-solicitation restrictions, these restrictions did not extend after termination of each executive’s employment. Upon consummation of the merger, those agreements are being terminated and replaced by the Officer Agreements.

 

As a condition to Commerce’s willingness to enter into the Agreement and Plan of Merger, the directors of South Tulsa and Bank South, each of whom is a shareholder of South Tulsa, entered into agreements with Commerce and South Tulsa that become effective upon the consummation of the merger. These agreements are

referred to in this Proxy Statement/Prospectus as the “Director Agreements.” Pursuant to the Director Agreements, following completion of the merger, each of the directors will serve, at the election of Commerce, as an advisory board member of Commerce’s Tulsa banking operations and will receive compensation that Commerce pays to similarly situated advisory board members. In accordance with the Director Agreements, the directors are subject to certain non-compete, non-solicitation and confidentiality provisions for three years following the consummation of the merger.

 

On February     , 2007, Bank South, South Tulsa, Commerce, and M. Paige Miller, South Tulsa’s Treasurer and Bank South’s chief financial officer, entered into an agreement pursuant to which the following payments will be made, in addition to Ms. Miller’s salary, at the following times: (i) $72,700 at the Effective Time; (ii) $72,700 on September 30, 2007; and (iii) $20,000 on January 15, 2008. A payment will be forfeited if certain events occur before that payment is due, including Ms. Miller’s resignation without “Good Reason.”

 

The agreement with Ms. Miller replaces two previous agreements entered into by her with Bank South. The first of these agreements was entered into in May 2004, and provided for a lump sum cash payment to Ms. Miller under certain conditions in the event of a change in control of South Tulsa or Bank South. The second agreement was entered into in August 2006, and provided for a cash payment to Ms. Miller if she remained as an employee of Bank South for a six-month period following a change in control of South Tulsa or Bank South. However, under the terms of the August 2006 agreement, Bank South was not obligated to make the payment if it also became obligated to make the payment to Ms. Miller under the May 2004 agreement. Under the terms of the new agreement with Ms. Miller, the May 2004 agreement and the August 2006 agreement are terminated and replaced by her new agreement. If the merger is not consummated, Ms. Miller’s new agreement will terminate and the May 2004 and August 2006 agreements are subject to reinstatement.

 

South Tulsa currently has outstanding stock options to purchase 7,970 shares of South Tulsa’s common stock at a weighted exercise price of $131.41 per share. These options were granted under South Tulsa’s Stock Option Plan which was adopted by South Tulsa in March 1998. No options have been awarded under this Plan by South Tulsa since July 2004.

 

Of these 7,970 options outstanding, all but 733 options were fully vested prior to approval by South Tulsa’s Board of Directors, of the Agreement and Plan of Merger on November 20, 2006. At that meeting, and without conditioning the vesting upon the consummation of the merger, South Tulsa’s Board of Directors elected to immediately vest these remaining options which are held by two employees of Bank South, one of which is M. Paige Miller, an executive officer of South Tulsa. At that time, the vesting of 333 stock options previously awarded to Ms. Miller was accelerated. Based upon the merger consideration to be paid under the Agreement and Plan of Merger, the estimated value of these 333 options, the vesting of which was accelerated by the Board, is $61,785.

 

The bylaws for South Tulsa provide for the indemnification of each officer and employee, of South Tulsa against any liabilities and expenses related to his or her capacity as a director, officer or employee of South Tulsa, subject to certain exceptions.

 

The Agreement and Plan of Merger provides that Commerce will indemnify the present directors, officers, employees and agents of South Tulsa and the Bank following the Effective Time against all damages in connection with any action arising out of actions or omissions occurring prior to the Effective Time to the fullest extent permitted under Missouri law. The Agreement and Plan of Merger further provides that CBI-Kansas will cause all persons covered under South Tulsa’s directors’ and officers’ liability insurance at the Effective Time to be covered for a period of at least three years following the Effective Time by CBI-Kansas’ directors’ and officers’ liability policy, or any equivalent substitute for that policy.

 

South Tulsa is incorporated in the State of Oklahoma, while Commerce is incorporated in the State of Missouri. As a result of the merger, South Tulsa shareholders, whose rights are currently governed by the South Tulsa Certificate of Incorporation, as amended (the “South Tulsa Certificate of Incorporation”), Amended and Restated Bylaws (the “South Tulsa Bylaws”) and the OGCA, will, upon consummation of the merger, become Commerce shareholders. Following the merger, their rights will be governed by Missouri law (rather than Oklahoma law), and will also be governed by the Commerce Articles of Incorporation, as amended (the “Commerce Articles of Incorporation”) and Bylaws, as amended (the “Commerce Bylaws”). The material differences between the rights of South Tulsa’s shareholders and Commerce’s shareholders result from differences in the governing state law and the companies’ governing corporate documents.

 

The following summary is not intended to be an exhaustive description of the provisions discussed. It is qualified in its entirety by reference to the OGCA, the General and Business Corporation Law of Missouri (the “MGBCL”), the South Tulsa Certificate of Incorporation, the South Tulsa Bylaws, the Commerce Articles of Incorporation and Commerce Bylaws.

 

South Tulsa is authorized under the South Tulsa Certificate of Incorporation to issue 100,000 shares of common stock, $1.00 par value per share.

 

Commerce is authorized under the Commerce Articles of Incorporation to issue 102,000,000 shares of capital stock, consisting of 100,000,000 common shares, $5.00 par value per share, and 2,000,000 preferred shares, $1.00 par value per share.

 

Pursuant to the OGCA and the Commerce Articles of Incorporation, holders of shares of South Tulsa common stock and Commerce common stock are entitled to dividends when and if declared by the Board of Directors of their respective corporations; upon liquidation, such holders are entitled to share pro rata in the assets of their respective corporations remaining after payments to creditors and any preferred shareholders.

 

Under the OGCA, no shareholder of a corporation shall have any preemptive right to acquire additional shares of the corporation unless, and to the extent that, such right is expressly granted in the certificate of incorporation. The South Tulsa Certificate of Incorporation does not include any provision regarding preemptive rights.

 

Under the MGBCL, the preemptive right of a shareholder to acquire additional shares of a corporation may be limited or denied to the extent provided in the articles of incorporation. The Commerce Articles of Incorporation provide that no holder of any of the shares of any class of stock shall have any preemptive rights.

 

Under the OGCA, a corporation shall have a board of directors consisting of one or more members (who need not be shareholders unless required under the certificate or incorporation or bylaws), the number of which is to be fixed by the certificate of incorporation or bylaws. The South Tulsa Bylaws provide that the South Tulsa Board of Directors shall have not less than 5 nor more than 25 directors consisting of shareholders of South Tulsa or shareholders of any holding company of South Tulsa, the exact number of which is to be fixed by resolution of a majority of the South Tulsa Board of Directors or shareholders at any meeting thereof. Currently the South Tulsa Board of Directors consists of six directors.

 

Under the MGBCL, a corporation shall have a board of directors consisting of one or more members, the number of which shall be specified in the corporation’s articles of incorporation or bylaws. Under the Commerce

Bylaws, the Commerce Board of Directors consists of 12 directors; however, the Commerce Board of Directors has the authority to increase or decrease the number of directors, provide that the number of directors shall not fall below three. Currently, the Commerce Board of Directors consists of 12 directors.

 

The OGCA permits classification of an Oklahoma corporation’s board of directors into one, two or three classes, if the corporation’s certificate of incorporation or bylaws so provide. Neither the South Tulsa Certificate of Incorporation nor the South Tulsa Bylaws provide for more than one class of directors. OGCA and the South Tulsa Bylaws provide that a shareholders’ meeting shall be held each year to elect directors.

 

The MGBCL permits classification of a Missouri corporation’s board of directors, with as equal of number in each class as possible, if the corporation’s articles of incorporation or bylaws so provide. The Commerce Articles of Incorporation and Commerce Bylaws provide for a staggered board of directors comprised of three classes as equal in size as possible. The MGBCL permits a corporation to elect each director to a term of between one and three years. The Commerce Articles of Incorporation and the Commerce Bylaws provide that directors are elected to a three year term.

 

The OGCA provides that one or more directors of a corporation may be removed, with or without cause, by a vote of the holders of a majority of the shares then entitled to vote at an election of directors, except in certain circumstances, including for corporations having cumulative voting, that no director may be removed without cause if the votes casts against such director’s removal would be sufficient to elect that director if cumulatively voted at an election of the entire South Tulsa Board of Directors. Neither the South Tulsa Certificate of Incorporation nor the South Tulsa Bylaws provide any provision regarding the removal of directors.

 

The MGBCL provides that, unless the articles of incorporation or bylaws provide otherwise, one or more directors of a corporation may be removed, with or without cause, by a vote of the holders of a majority of the shares then entitled to vote at an election of directors. The MGBCL also provides that any director may be removed for cause by action of a majority of the entire board of directors if the director, at the time of removal, fails to meet the qualifications stated in the articles of incorporation or bylaws for election as a director or is in breach of any agreement between such director and the corporation relating to such director’s services as a director or employee of the corporation. The Commerce Articles of Incorporation provide that the entire Commerce Board of Directors may be removed only by a vote of 80% of the holders of the shares then entitled to vote generally in the election of directors, voting together as one class.

 

The OGCA and the MGBCL each provide that, unless otherwise provided in the corporation’s certificate or articles of incorporation or bylaws, the board of directors can fill vacancies by a majority vote until the next election of directors by shareholders at regular or special meeting. The South Tulsa Bylaws provide that any vacancy shall be filled by a vote of a majority of the remaining South Tulsa Board of Directors, at any regular meeting or at a special meeting called for that purpose, or by a majority of the shareholders, at a special meeting called for that purpose. The Commerce Bylaws provide that any vacancy or newly created directorship shall be filled by a vote of the majority of the Commerce Board of Directors.

 

The South Tulsa Bylaws provide that special meetings of the South Tulsa Board of Directors may be called by South Tulsa or at the request of three or more of the members of the South Tulsa Board of Directors.

 

The MGBCL provides that special meetings of the board of directors shall be held upon such notice as prescribed by the bylaws. The Commerce Bylaws provide that special meetings of the Commerce Board of Directors shall be called by the Secretary of Commerce at the written request of the Chairman, Vice-Chairman,

President or a majority of the Commerce Board of Directors and that such request shall state the purpose of the proposed special meeting.

 

Under the OGCA and the MGBCL, a corporation may indemnify any person made or threatened to be made a party to any legal proceeding (under the OGCA, other than, and under the MGBCL, including, any suit by or in the name of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation in any such capacity with respect to another enterprise, against expenses and other amounts reasonably incurred by him in connection with such legal proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the corporation, and, with respect to any criminal proceeding, had no reasonable cause to believe his conduct was unlawful. The foregoing notwithstanding, no indemnification may be made in respect to any claim brought by or in the name of the corporation as to which such person is adjudged to be liable to the corporation unless and only to the extent that a proper court determines that in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses that the court deems proper. A corporation is required to indemnify its directors or officers, and also under the MGBCL, its employees or agents, to the extent that such persons have been successful in defending an action, suit or proceeding or any claim, issue or matter therein. These indemnification rights are not exclusive of any other rights to which the person seeking indemnification is entitled and do not limit a corporation’s right to provide further indemnification.

 

The South Tulsa Certificate of Incorporation and South Tulsa Bylaws provide rights of indemnification generally as set forth in the OGCA as described above, except that the right of indemnification in the South Tulsa Certificate of Incorporation is limited to directors. The Commerce Bylaws provide rights of indemnification generally as set forth in the MGBCL as described above, except that the right of indemnification is limited to directors and officers.

 

Insofar as indemnification of directors, officers or persons controlling Commerce for liabilities arising under the Securities Act of 1933 may be permitted pursuant to the foregoing provisions, Commerce has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is therefore unenforceable.

 

Cumulative voting.  The OGCA provides for cumulative voting of directors if a corporation’s certificate of incorporation so states. The South Tulsa Certificate of Incorporation does not provide for cumulative voting; however, the South Tulsa Bylaws provide for cumulative voting at a special meeting of shareholders to fill vacancies of directors if the number of directors then in office is not sufficient to constitute a quorum.

 

The MGBCL provides for cumulative voting of directors; however, a corporation’s articles of incorporation may limit or eliminate cumulative voting rights. The Commerce Bylaws provide that there shall be no cumulative voting by shareholders for the election of directors.

 

Quorum.  The OGCA and the MGBCL each provide that, unless provided in the corporation’s certificate or articles of incorporation or bylaws, a majority of votes of shares entitled to vote on a matter shall constitute a quorum. Under the OGCA, a quorum must be at least 1/3, and under the MGBCL, a quorum must be at least a majority. The South Tulsa Bylaws and the Commerce Bylaws each state that a majority of the outstanding shares of stock entitled to vote, represented in person or by proxy at a meeting of shareholders, constitutes a quorum at such meeting.

 

Majority voting.  The OGCA and the MGBCL each provide that the affirmative vote of a majority of the holders of the shares represented at a meeting where a quorum is present shall constitute the act of the shareholders, unless a greater number or percent is required by the corporation’s certificate or articles of incorporation, bylaws or by statute. The South Tulsa Bylaws and the Commerce Bylaws both contain provisions requiring majority voting on all matters except for those where otherwise specified in the company’s certificate or articles of incorporation, bylaws or by statute.

 

Special voting.  Special voting provisions apply in the case of a merger or change in control. See “— Shareholders’ Vote for Mergers” on page    and “— Anti-takeover Statutes” on page   .

 

Under the OGCA, a special meeting of shareholders may be called by the board of directors or by the person or persons that may be authorized in the certificate of incorporation or bylaws. The South Tulsa Bylaws provide that special meetings of shareholders may be called for any purpose at any time by the South Tulsa Board of Directors or by any three or more shareholders owning, in the aggregate, not less than 25% of the stock of South Tulsa. The South Tulsa Bylaws also provide that the shareholders (or the South Tulsa Board of Directors) may call a special meeting to amend the South Tulsa Certificate of Incorporation or the South Tulsa Bylaws, whether or not such bylaws may be amended by the South Tulsa Board of Directors in the absence of shareholder approval.

 

Under the MGBCL, a special meeting of shareholders may be called by the board of directors or by such other person or persons as may be authorized by the articles of incorporation or the bylaws. The Commerce Bylaws provide that special meetings of Commerce shareholders may be called only by the Chairman of the Commerce Board of Directors (or any Vice-Chairman or President in the Chairman’s absence) or by a majority of the Commerce Board of Directors.

 

Under the OGCA, any shareholder shall have the right to examine, in person or by agent, during the usual hours of business, the corporation’s stock ledger, list of shareholders and its other books and records (and the books and records of a subsidiary, to some extent), and to make copies and extracts therefrom, but only if for a proper purpose. In order to exercise this right, a shareholder must make written demand upon the corporation, under oath, stating the records sought to be examined and the purpose of the examination.

 

Under the MGBCL, any shareholder may at all proper times inspect the corporation’s amount of assets and liabilities, minutes, officer information, stock ledger, shareholder list and other books and records as may be regulated by the corporation’s bylaws. Missouri statutory law and Missouri case law, however, do not provide specific guidance as to whether a shareholder may appoint an agent for the purpose of examining books and records or the extent to which a shareholder must have a “proper purpose.”

 

Under the OGCA, a corporation may amend its certificate of incorporation upon (i) a resolution of the board of directors (setting forth the proposed amendment, declaring its advisability and either calling a special meeting of shareholders entitled to vote or directing that the proposed amendment be considered at the next annual meeting of shareholders) and (ii) an affirmative vote of at least a majority of all of the outstanding shares entitled to vote on the amendment and a majority of the votes of the outstanding shares of each class entitled to voted as a class on the proposed amendment. The South Tulsa Bylaws provide that a special meeting may be called by the shareholders or the South Tulsa Board of Directors to amend the South Tulsa Certificate of Incorporation.

 

Under the MGBCL, a corporation may amend its articles of incorporation upon a resolution of the board of directors, proposing the amendment and its submission to the shareholders for their approval by the holders of a majority of the shares of common stock entitled to vote thereon. The Commerce Articles of Incorporation provide that provisions of the Commerce Articles of Incorporation dealing with the number, term, and removal of directors, and certain business combinations may not be repealed or amended without the affirmative vote of holders of at least 75% of the outstanding shares of voting stock. The Commerce shareholders may otherwise amend, alter, change or repeal any provision of the Commerce Articles of Incorporation as provided by the MGBCL.

 

Under the OGCA, the bylaws of a corporation may be adopted, amended or repealed by the board of directors. The South Tulsa Certificate of Incorporation and South Tulsa Bylaws provide that the South Tulsa Board of Directors may adopt, amend or repeal the South Tulsa Bylaws by a vote of a majority of the board of directors. The

South Tulsa Bylaws further state that the shareholders may also amend or repeal the South Tulsa Bylaws. The South Tulsa Bylaws also allow the shareholders or the South Tulsa Board of Directors to call a special meeting to amend the South Tulsa Bylaws, whether or not such bylaws may be amended by the South Tulsa Board of Directors in the absence of shareholder approval.

 

Under the MGBCL, the bylaws of a corporation may be made, altered, amended or repealed by the shareholders, unless and to the extent that such power is vested in the board of directors by the articles of incorporation. The Commerce Articles of Incorporation and Commerce Bylaws authorize the Commerce Board of Directors to make, alter, amend or repeal the Commerce Bylaws, subject to the rights of shareholders at any regular or special meeting to alter or repeal bylaws made by the Commerce Board of Directors.

 

The South Tulsa Bylaws provide that any shareholder who intends to nominate a director for election to the South Tulsa Board of Directors must deliver written notice of such nomination to the president of South Tulsa. Such notice must be delivered or mailed to the president not less than 14 nor more than 50 days prior to any meeting of shareholders called for the elections of directors. Such written notice must set forth (i) the name and address of each proposed nominee, (ii) the principal occupation of each proposed nominee, (iii) the total number of shares of capital stock of South Tulsa that will voted for each proposed nominee, (iv) the name and residence address of the notifying shareholder, and (v) the number of shares of capital stock of South Tulsa owned by the notifying shareholder.

 

The Commerce Bylaws provide that any shareholder who intends to bring a matter before the annual meeting of shareholders must deliver written notice of such shareholder’s intent to the Secretary of Commerce. Such notice must be received by the Secretary not less than 60 days nor more than 90 days in advance of such meeting. Such written notice must set forth (i) a brief description of the business to be brought before the meeting and the reasons for it, (ii) the name and address of the shareholder, (iii) the class or series and number of shares of capital stock of Commerce which are beneficially owned by the shareholder, (iv) any arrangement between such shareholder and any other person in connection with the proposal and any material interest of the shareholder in the proposed business described in the notice, and (v) a representation that such shareholder will appear in person or by proxy at the annual meeting. Such written notice with respect to nominations for the election of directors shall set forth (i) the name, age, business address and residential address of the nominee, (ii) the principal occupation or employment of the nominee, (iii) the class or series and number of shares of capital stock of Commerce which are beneficially owned by the nominee, and (iv) any other information about the nominee that is required by Section 14 of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder, to be disclosed in the proxy materials for the meeting involved as if he or she were a nominee of the corporation for election as one of its directors.

 

Under the OGCA, an Oklahoma corporation must obtain the affirmative vote of the holders of a majority of the outstanding shares of the corporation entitled to vote thereon to approve a merger or consolidation. Under the MGBCL, a Missouri corporation must obtain the affirmative vote of the holders of 2/3 of the outstanding shares of the corporation entitled to vote thereon to approve a merger or consolidation.

 

Neither the OGCA nor the MGBCL require a vote of a corporation’s shareholders if such corporation is merged with and into a parent corporation that owns 90% or more of such corporation’s stock.

 

Dissenters’ rights, also known as appraisal rights, are rights afforded to shareholders who dissent from specific transactions.

 

The OGCA and the MGBCL each provide dissenters’ rights to shareholders entitled to vote in mergers and consolidations. The dissenting shareholders, if they comply with the procedural requirements of the respective statutes, are entitled to elect not to participate in the subject transaction and to receive instead the fair value of their shares in cash.

 

The OGCA and the MGBCL each have statutes known as a “business combination statute.” These statutes restrict certain “business combinations” between a corporation in that state and an “interested shareholder.” For this purpose, a “business combination” means one of various types of transactions, including mergers, that increases the proportionate voting power of the interested shareholder. Under the OGCA, an “interested shareholder” means any person who owns or controls 15% or more of the outstanding shares of the corporation’s voting stock. Under the MGBCL, an “interested shareholder” means any person who owns or controls twenty percent (20%) or more of the outstanding shares of the corporation’s voting stock.

 

Under the OGCA, a corporation may not engage in a business combination with an interested shareholder for a period of three years following the time that the shareholder became an “interested shareholder” unless:

 

 

Under the MGBCL, a corporation may not engage in a business combination with an interested shareholder for a period of five (5) years following the time that the shareholder became an “interested shareholder” other than:

 

 

Both the OGCA and the MGBCL provide that a corporation in that state may opt out of coverage by the business combination statute by including a provision to that effect in its governing corporate documents. Neither South Tulsa nor Commerce has done so.

 

The OGCA provides procedures for control share acquisitions; however, the statute does not apply to South Tulsa.

 

The MGBCL provides certain procedures for control share acquisitions to be followed unless the corporation’s articles of incorporation or bylaws provide that the statute does not apply. The Commerce Bylaws specifically provide that the provision in the MGBCL regarding control share acquisitions shall not apply to Commerce.

 

South Tulsa was incorporated in 1998 for the purpose of acquiring all of the outstanding capital stock of Bank South upon the issuance of a charter to Bank South’s predecessor bank, Bank South, National Association, by the Comptroller of the Currency. That charter was issued in July, 1998. South Tulsa is a registered bank holding company under the Bank Holding Company Act of 1956, as amended, and owns all of the capital stock of its subsidiary bank, Bank South. South Tulsa does not conduct any separate business operations other than its ownership of Bank South.

 

Bank South is an Oklahoma state-chartered bank regulated and examined by the Oklahoma State Banking Department and the Federal Reserve. Originally, Bank South was organized as a national bank regulated by the Comptroller of the Currency. Following the issuance of its charter in July 1998, it operated under the name “Bank South, National Association” until May 2000, at which time it converted to a state-chartered institution operating under the name “Bank South.” References to Bank South in this Proxy Statement/Prospectus include, where applicable, its predecessor, Bank South, National Association.

 

Since it commenced business in July 1998, Bank South has conducted a general banking business embracing the customary functions of commercial banking, including commercial, industrial and consumer lending, safe deposit operations, and other services tailored to individual customer needs. It has specialized in serving the credit and deposit needs of professionals and executives, small to medium size businesses, and builders and developers. At September 30, 2006, Bank South had total assets of $124.2 million, total deposits of $100.7 million and total loans (net of allowance for loan losses of $849,000) of $106.4 million.

 

Bank South offers similar types of deposit accounts to those offered by other financial institutions. The categories of deposit accounts within the Bank’s portfolio include non-interest bearing demand deposits, interest bearing demand deposits, savings and money market deposits, time deposits of less than $100,000 and time deposits of $100,000 and more.

 

Core deposits continue to be the Bank’s most reliable and most important source of funds. Deposit products are offered to individuals, partnerships, corporations, public entities and not-for-profit organizations. Within each deposit category, customers have a variety of product options to choose from, each of which may have characteristics specifically suited to their needs. These product options may have variations in service fees, minimum balance requirements and interest rates. In the case of time deposits, Bank South offers a wide variety of products with varying maturity terms and rates. Bank South operates in a highly competitive market place for deposits and strives to price its deposit products accordingly. Bank South has no brokered deposits.

 

Bank South’s primary geographic market area consists of the Tulsa metropolitan area which is comprised of Tulsa County and portions of Okmulgee County to the south, Creek County to the west and Wagoner and Rogers Counties to the east. It maintains its main office and one full-service branch location in Tulsa. Its main office is located at 6130 E. 81st Street in a facility which is owned by the Bank. Its full-service branch facility was opened in April 2001, to serve the Bank’s mid-town customers. It is located at 2054 Utica Square in the Utica Square Shopping Center.

 

South Tulsa believes that the area in which Bank South operates is experiencing growth in both commercial and residential populations. Its strategy has been to operate as a niche institution emphasizing relationship banking with professionals and executives, small to medium size businesses, and builders and developers located in its market areas. Its commitment is to provide a broad range of personalized products and services in order to meet the needs of its customers.

 

As of June 30, 2006, Bank South ranked 31st in total deposits within its market area, with .62% of the total deposits within the Tulsa metropolitan statistical area. Each activity in which Bank South is engaged involves competition with other banks, as well as with non-banking financial institutions and non-financial enterprises. In addition to competing with other commercial banks within and outside its primary service area, Bank South competes with other financial institutions such as savings and loan associations, credit unions, finance companies, mutual funds, insurance companies, brokerage and investment banking companies, and other financial intermediaries. Most of these competitors have substantially greater resources and lending limits, and may offer certain services that Bank South does not currently provide. In addition, many of Bank South’s non-bank competitors are not subject to the same extensive federal regulations that govern federally-insured banks.

 

As of September 30, 2006, Bank South had 25 full-time equivalent employees. South Tulsa does not have any separate employees and utilizes the employees of Bank South.

 

South Tulsa is not currently involved in any litigation. From time to time, Bank South is involved in litigation as part of the normal conduct of its business. However, Bank South is not currently involved in any litigation that management believes, either individually or in the aggregate, could reasonably be expected to have a material adverse effect on the business, financial condition or results of operations of either South Tulsa or Bank South.

 

Commerce

 

Shares of Commerce common stock are traded on The Nasdaq Stock Market. The following table sets forth the high and low sales prices Commerce common stock, and cash dividends paid thereon during the periods indicated:

 

 

The last sale price for Commerce common stock as reported by The Nasdaq Stock Market on February 2, 2007 (the most recent date for which it was practicable to obtain market price data prior to the printing of this Proxy Statement/Prospectus), was $49.66.

 

South Tulsa

 

There is no established public trading market for South Tulsa common stock, and no market for South Tulsa common stock is expected to develop if the merger does not occur. As of          , 2007, there were           holders of record of South Tulsa common stock.

 

During the period commencing January 1, 2005 through February 2, 2007, South Tulsa is aware of only one transaction involving its common stock. That transaction occurred in April 2005, when a South Tulsa shareholder sold a total of 1,200 shares of South Tulsa common stock in two separate transactions at a sales price of $141.00 per share.

 

The shareholders of South Tulsa’s common stock are entitled to dividends when, as and if declared by the Board of Directors, subject to the restrictions imposed by law. However, South Tulsa has not paid any dividends to its shareholders since it was organized. There are no contractual restrictions that currently limit South Tulsa’s ability to pay dividends.

 

The Federal Reserve Board generally prohibits a bank holding company from declaring or paying a cash dividend that would impose undue pressure on the capital of subsidiary banks or would be funded only through borrowing or other arrangements that might adversely affect a bank holding company’s financial position. The Federal Reserve Board’s policy is that a bank holding company should not initiate or continue cash dividends on its common stock unless its net income is sufficient to fully fund each dividend and its prospective rate of earnings retention appears consistent with its capital needs, asset quality and overall financial condition. A bank holding company is expected to act as a source of financial strength for each of its subsidiary banks and to commit resources to support its banks in circumstances when it might not do so in the absence of such policy.

 

The legality of the Commerce common stock offered hereby will be passed upon by Blackwell Sanders Peper Martin LLP. Blackwell Sanders Peper Martin LLP will also render an opinion to Commerce and South Tulsa regarding the material U.S. federal income tax consequences of the merger.

 

The consolidated financial statements and management’s report on the effectiveness of internal control over financial reporting incorporated in this Proxy Statement/Prospectus by reference from Commerce’s Annual Report on Form 10-K for the year ended December 31, 2005 have been audited by KPMG LLP, an independent registered public accounting firm, as stated in their reports, which are incorporated herein by reference, and have been so incorporated in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.

 

If the merger is consummated, shareholders of South Tulsa will become shareholders of Commerce at the Effective Time. Proposals of Commerce shareholders pursuant to Rule 14a-8 for inclusion in the proxy statement for the annual meeting of Commerce’s shareholders to be held on April 18, 2007, must have been received by Commerce at its principal offices not later than November 13, 2006. For proposals other than those submitted pursuant to Rule 14a-8, Commerce’s Bylaws provide that shareholders must give timely written notice to the Secretary of Commerce of a nomination for director or before bringing any business before the annual meeting. Notice of nominations and shareholder proposals for the annual meeting to be held on April 18, 2007 must be received by the Secretary no later than February 17, 2007 nor before January 18, 2007. To be considered, the notice must contain the name and record address of the shareholder; the class or series and number of shares of capital stock of Commerce owned beneficially or of record by the shareholder; a description of all arrangements or understandings between such shareholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) or shareholder proposal is made; and a representation that such shareholder intends to appear in person or by proxy at the meeting to nominate the person or bring the business proposal before the meeting. For shareholder proposals, the notice must also set forth a brief description of the business to be brought before the meeting and the reasons for conducting such business at the meeting and any material interest of such shareholder in such business. For nominations, the notice must also set forth as to each person the shareholder proposes to nominate for election as a director the name, age, business and residence address of the person; the principal occupation or employment of the person; the class or series and number of shares of capital stock of Commerce which are owned beneficially or of record by the person and any other information relating to the person nominated or the nominating shareholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities and Exchange Act of 1934. Such notice must also be accompanied by a written consent of each proposed nominee to be named a nominee and to serve as a director if elected.

 

Commerce files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any reports, proxy statements or other information that Commerce files at the SEC’s public reference room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC at 1-800-SEC-0330. Commerce’s SEC filings are also available to the public from commercial retrieval services and at the website maintained by the SEC at http://www.sec.gov.

 

The reports and other information filed by Commerce with the SEC are also available on Commerce’s internet website. The address of the site is http://www.commercebank.com. We have included the web addresses of the SEC,

Commerce and South Tulsa as inactive textual references only. Except as specifically incorporated by reference into this document, information on those websites is not part of this document.

 

Commerce has filed a Registration Statement on Form S-4 with the SEC to register the Commerce common stock to be issued to South Tulsa’s shareholders in the merger. This document is a part of that registration statement and constitutes a prospectus of Commerce in addition to being a proxy statement of South Tulsa for its special meeting. As allowed by the SEC rules, this document does not contain all the information you can find in the registration statement or the exhibits to the registration statement.

 

The SEC allows Commerce to “incorporate by reference” information into this Proxy Statement/Prospectus, which means that Commerce can disclose important information to you by referring you to another document separately filed with the SEC. The information incorporated by reference is deemed to be a part of this Proxy Statement/Prospectus, except for any information superseded by information in, or incorporated by reference in, this Proxy Statement/Prospectus. This Proxy Statement/Prospectus incorporates by reference the documents set forth below that we have previously filed with the SEC. These documents contain important information about Commerce and its financial status.

 

 

Additional documents that Commerce may file with the SEC between the date of this Proxy Statement/Prospectus and the date of the South Tulsa special meeting are also incorporated by reference. These include periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, as well as proxy statements.

 

Commerce has supplied all information contained or incorporated by reference in this document relating to Commerce and South Tulsa has supplied all information relating to South Tulsa.

 

We may have sent you some of the documents incorporated by reference, but you can obtain any of them through Commerce or the SEC. Documents incorporated by reference are available from Commerce without charge, but without exhibits unless Commerce has specifically incorporated by reference an exhibit in this Proxy Statement/Prospectus. South Tulsa shareholders may obtain documents incorporated by reference in this Proxy Statement/Prospectus by requesting them in writing or by telephone from Commerce at the following address:

 

Commerce Bancshares, Inc.
1000 Walnut, Suite 700
Kansas City, Missouri 64141
Attention: Corporate Finance
Telephone Number: (816) 234-2000

 

In order to ensure timely delivery of the documents, any request should be made by          , 2007.

 

You should rely only on the information contained or incorporated by reference in this document to vote your shares at the special meeting. We have not authorized anyone to provide you with information that is different from what is contained in this Proxy Statement/Prospectus. This Proxy Statement/Prospectus is dated          , 2007, and you should not assume that the information contained in the Proxy Statement/Prospectus is accurate as of any other date. Neither the mailing of this Proxy Statement/Prospectus to South Tulsa shareholders nor the issuance of Commerce common stock in connection with the merger shall create any implication to the contrary.

 

 

AGREEMENT AND PLAN OF MERGER
among
COMMERCE BANCSHARES, INC.,
SOUTH TULSA FINANCIAL CORPORATION
and
CBI-KANSAS, INC.
Dated December 4, 2006

 

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