<PAGE>
As filed with the Securities and Exchange Commission on January 14, 1994
Registration No. 33-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
COMPASS BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Delaware 6711 63-0593897
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Identification No.)
Classification Code
Number)
15 South 20th Street
Birmingham, Alabama 35233
(205) 933-3000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
--------------------
Jerry W. Powell, Esquire
General Counsel
Compass Bancshares, Inc.
15 South 20th Street
Birmingham, Alabama 35233
(205) 933-3960
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable following the effective date of this Registration
Statement
--------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================
Proposed Proposed
Title of each class Amount maximum maximum Amount of
of securities to be offering price aggregate registration
to be registered registered (1) per share offering price (3) fee
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $2.00 par value 700,000 (2) $5,788,958 $1,997
=======================================================================================================
</TABLE>
(1) Based upon the maximum number of shares anticipated to be issued pursuant
to an Agreement and Plan of Merger dated November 19, 1993 between the
Registrant and Security Bank, National Association. The actual number of
shares to be issued will vary depending on the closing sales prices of
Compass Bancshares, Inc. common stock over a specified period.
(2) Not applicable.
(3) Computed in accordance with Rule 457(f) under the Securities Act of 1933,
as amended, based on the book value as of September 30, 1993 of the
securities to be received by the Registrant in exchange for the securities
registered hereby.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
COMPASS BANCSHARES, INC.
------------------------------------
CROSS REFERENCE SHEET
(Pursuant to Item 501(b) of Regulation S-K
and Item 1 of Part I of Form S-4)
<TABLE>
<CAPTION>
S-4 Item Number and Heading Location of Proxy Statement/Prospectus Heading
- --------------------------------------------------------------------------------------------------------------------
<S> <C>
A. Information About the Transaction
---------------------------------
1. Forepart of Registration Statement and Forepart of Registration Statement; Outside Front Cover Page
Outside Front Cover Page of Prospectus of Prospectus
2. Inside Front and Outside Back Cover Pages of Table of Contents; Available Information; Incorporation of
Prospectus Certain Documents by Reference; Introduction
3. Risk Factors, Ratio of Earnings to Fixed Introduction; Summary; Risk Factors; Selected Financial Data;
Charges and Other Information Market Prices; The Merger; Supervision and Regulation; Index to
Consolidated Financial Statements of Security
4. Terms of the Transaction Forepart of Registration Statement; Introduction; Summary;
The Merger; Description of Compass Common and Preferred Stock;
Comparison of Rights of Shareholders of Security and Compass;
Information About Compass; Appendix I and Appendix II
5. Pro Forma Financial Information Selected Financial Data
6. Material Contacts with the Company Being Summary; Recommendation of Board of Directors; The Merger;
Acquired Information About Security
7. Additional Information Required for Reoffer- Not Applicable
ing by Persons and Parties Deemed to be
Underwriters
8. Interests of Named Experts and Counsel Relationships with Independent Accountants; Experts; Legal
Opinions
9. Disclosure of Commission Position on Indemnification
Indemnification for Securities Act
Liabilities
B. Information About the Registrant
--------------------------------
10. Information With Respect to S-3 Registrants Available Information; Incorporation of Certain Documents by
Reference; Summary; Selected Financial Data; Market Prices;
Information About Compass
11. Incorporation of Certain Information by Incorporation of Certain Documents by Reference; Information
Reference About Compass
12. Information With Respect to S-2 or S-3 Not Applicable
Registrants
13. Incorporation of Certain Information by Not Applicable
Reference
14. Information With Respect to Registrants Not Applicable
Other Than S-2 or S-3 Registrants
C. Information About the Company Being Acquired
--------------------------------------------
15. Information With Respect to S-3 Companies Not Applicable
16. Information With Respect to S-2 or S-3 Not Applicable
Companies
17. Information With Respect to Companies Other Introduction; Summary; The Merger; Selected Financial Data;
Than S-2 or S-3 Companies Market Prices; Information About Security; Comparison of
Rights of Stockholders of Security and Compass; Index to
Financial Statements of Security
D. Voting and Management Information
---------------------------------
18. Information if Proxies, Consents or The Proxy Card; Incorporation of Certain Documents by
Authorizations Are to be Solicited Reference; Introduction; Summary; The Merger; Information
About Compass; Information About Security; Relationships
with Independent Accountants; Experts; Appendix II
19. Information if Proxies, Consents or Not Applicable
Authorizations Are Not to be Solicited,
or in an Exchange Offer
</TABLE>
<PAGE>
SECURITY BANK, NATIONAL COMPASS BANCSHARES, INC.
ASSOCIATION
PROXY STATEMENT/PROSPECTUS
Compass Bancshares, Inc., a Delaware corporation formerly named Central
Bancshares of the South, Inc. ("Compass"), has filed this Proxy
Statement/Prospectus with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities Act of 1933, as amended (the
"Securities Act") with respect to the shares of Compass $2.00 par value common
stock ("Compass Common Stock") to be issued in the proposed merger (the
"Merger") of Security Bank, National Association, a national banking association
("Security"), with and into Compass Security Interim Bank ("Interim"), a Texas
state interim bank and wholly owned subsidiary of Compass being formed for the
purpose of effecting the Merger.
This Proxy Statement/Prospectus constitutes the proxy statement of Security
relating to the solicitation of proxies for use at the special meeting of
shareholders of Security (the "Meeting") scheduled to be held on ________,
_________, 1994 at ____ P.M., Houston time, at Security's office located at
__________________ in Houston, Texas, and any adjournments thereof. At the
Meeting, the shareholders of Security will consider and vote upon a proposal to
approve, ratify, confirm and adopt an Agreement and Plan of Merger dated as of
November 19, 1993, by and between Compass and Security (the "Merger Agreement"),
providing for, among other things, the merger of Security with and into Interim
and, in connection therewith, the receipt by Security shareholders of Compass
Common Stock.
The Merger Agreement provides for the holders of Security common stock, par
value $5.00 per share ("Security Common Stock"), Security class A preferred
stock, par value $12.25 per share ("Security Class A Preferred Stock"), Security
class B preferred stock, par value $12.25 per share ("Security Class B Preferred
Stock") (the Security Class A Preferred Stock and Security Class B Preferred
Stock are collectively referred to as the "Security Preferred Stock", and the
Security Common Stock and Security Preferred Stock are collectively referred to
as the "Security Stock") at the effective time of the Merger (the "Effective
Time"), other than dissenting shareholders, to receive aggregate merger
consideration (the "Merger Consideration") equal to that number of shares of
Compass Common Stock (as adjusted due to the exercise of dissenter's rights)
which is equal to $11,250,000 divided by the average closing sales price of the
Compass Common Stock as reported by the NASDAQ National Market System for the 20
trading days preceding the tenth business day prior to the later of (i) the
receipt of required regulatory approvals and the expiration of any applicable
waiting periods with respect thereto and (ii) the approval of the Merger by
Security's shareholders (the "Compass Share Determination Market Value"). If,
however, the Compass Share Determination Market Value over such period is less
than $22.00 per share, then unless the number of shares of Compass Common Stock
is increased as set forth below, the number of shares of Compass Common Stock to
be issued in the Merger shall be equal to the quotient of $11,250,000 divided by
$22.00 per share. If, over specified periods of time, the average market value
of Compass Common Stock is less than $20.00 per share or if the Compass Share
Determination Market Value is less than $22.00 per share, Security has the
option, but is not obligated, to require that the Merger Agreement be terminated
unless Compass agrees to issue a number of shares of Compass Common Stock equal
to $11,250,000 divided by such average market value. Unless Compass agrees to
issue additional shares pursuant to the preceding sentence, Compass is not
obligated to issue more than 511,363 shares of Compass Common Stock as the
Merger Consideration. The decision of the Board of Directors of Security
regarding whether to terminate the Merger Agreement will be made in its sole
discretion and could result in either (i) Security shareholders receiving Merger
Consideration with an aggregate market value of less than $11,250,000, (ii) the
termination of the Merger Agreement, or (iii) Compass agreeing to increase the
number of shares of Compass Common Stock constituting the Merger Consideration.
If the Board of Directors of Security elects to terminate the Merger Agreement,
there can be no assurance that Compass will agree to increase the number of
shares of Compass Common Stock and that the Merger Agreement will not terminate,
in which event Security shareholders would not receive any Merger Consideration
but would retain their Security Stock.
Holders of Security Common Stock shall receive for each share of Security
Common Stock held at the Effective Time a number of shares of Compass Common
Stock equal to (i) the aggregate number of shares of Compass Common Stock to be
issued to the holders of Security Stock as set forth in the preceding paragraph
divided by (ii) the sum of (x) the number of shares of Security Common Stock
outstanding immediately prior to the Effective Time and (y) the number of shares
of Security Common Stock into which the shares of Security Class A
- 1 -
<PAGE>
Preferred Stock and Security Class B Common Stock outstanding immediately prior
to the Effective Time are convertible (the "Per Share Merger Consideration").
Holders of Security Class A Preferred Stock and Security Class B Preferred
Stock shall receive for each share of Security Class A Preferred Stock and
Security Class B Preferred Stock held at the Effective Time a number of shares
of Compass Common Stock equal to (i) the Per Share Merger Consideration,
multiplied by (ii) the number of shares of Security Common Stock into which each
such share of Security Class A Preferred Stock and Security Class B Preferred
Stock so held is convertible.
Compass will not issue fractional shares of Compass Common Stock, but
instead will pay cash to any shareholder otherwise entitled to receive a
fractional share. Such cash payment shall be based on the Per Share Merger
Consideration.
SEE "SUMMARY--THE MERGER"; "SUMMARY--DISSENTERS' RIGHTS"; "THE
MERGER--GENERAL"; "THE MERGER--DISSENTERS' RIGHTS"; APPENDIX I; AND APPENDIX II.
Consummation of the Merger is subject to the receipt of required
governmental approvals, the approval of the holders of two-thirds of the
outstanding Security Common Stock, holders of two-thirds of the outstanding
Security Class A Preferred Stock and holders of two-thirds of the outstanding
Security Class B Preferred Stock and certain other conditions, all as more fully
described in this Proxy Statement/Prospectus. SEE "SUMMARY--SHAREHOLDER VOTES
REQUIRED; CONDITIONS TO CONSUMMATION AND REGULATORY APPROVALS; TERMINATION";
"THE MERGER--OTHER TERMS AND CONDITIONS"; AND APPENDIX I.
This Proxy Statement/Prospectus also constitutes the prospectus of Compass
with respect to the shares of Compass Common Stock to be issued to the holders
of Security Stock in the Merger; however, it does not cover resales of shares of
Compass Common Stock upon consummation of the proposed reorganization, and no
person is authorized to use this Proxy Statement/Prospectus in connection with
any such resale. SEE "RESALE OF COMPASS STOCK".
This Proxy Statement/Prospectus is first being mailed or delivered to
Security shareholders on or about _________, 1994.
Compass Common Stock is publicly traded in the over-the-counter market and
quoted on the NASDAQ National Market System. On __________, 1994, the last
reported sale price per share of Compass Common Stock was $____. No active
public trading market exists for the Security Stock.
THE SECURITIES OF COMPASS BANCSHARES, INC. OFFERED IN CONNECTION WITH
THE MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
All information concerning Compass and Interim has been furnished by
Compass, and all information regarding Security has been furnished by Security.
SECURITY SHAREHOLDERS ARE URGED TO REVIEW AND CAREFULLY CONSIDER THE
RISKS DESCRIBED UNDER "RISK FACTORS".
The date of this Proxy Statement/Prospectus is ___________, 1994.
- 2 -
<PAGE>
PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION.................................................... 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................... 4
INTRODUCTION............................................................. 6
SUMMARY.................................................................. 9
PARTIES TO THE MERGER................................................. 9
THE MERGER............................................................ 10
REASONS FOR THE MERGER; RECOMMENDATION OF BOARDS OF DIRECTORS......... 12
THE MEETING........................................................... 12
RECORD DATE........................................................... 12
SHAREHOLDER VOTES REQUIRED............................................ 12
DISSENTERS' RIGHTS.................................................... 13
CONDITIONS TO CONSUMMATION AND REGULATORY APPROVALS; TERMINATION...... 13
FEDERAL INCOME TAX CONSEQUENCES....................................... 14
ACCOUNTING TREATMENT.................................................. 14
RISK FACTORS............................................................. 15
SELECTED FINANCIAL DATA.................................................. 17
MARKET PRICES............................................................ 19
THE MERGER............................................................... 20
GENERAL............................................................... 20
BACKGROUND AND REASONS FOR THE MERGER................................. 22
OPINION OF FINANCIAL ADVISOR.......................................... 23
OPERATIONS AFTER THE MERGER........................................... 23
OTHER TERMS AND CONDITIONS............................................ 23
ADDITIONAL AGREEMENTS................................................. 25
BUSINESS PENDING EFFECTIVE TIME....................................... 25
AMENDMENT; TERMINATION................................................ 25
EXCHANGE OF SHARES.................................................... 26
DISSENTERS' RIGHTS.................................................... 27
FEDERAL INCOME TAX CONSEQUENCES....................................... 28
GOVERNMENT APPROVALS.................................................. 29
ACCOUNTING TREATMENT.................................................. 29
SUPERVISION AND REGULATION............................................... 30
GENERAL............................................................... 30
COMPASS AND COMPASS OF TEXAS.......................................... 30
THE SUBSIDIARY BANKS.................................................. 32
IMPLICATIONS OF BEING A SAVINGS AND LOAN HOLDING COMPANY.............. 33
OTHER................................................................. 34
DESCRIPTION OF COMPASS COMMON AND PREFERRED STOCK........................ 35
COMPASS COMMON STOCK.................................................. 35
DIVIDENDS........................................................... 35
PREEMPTIVE RIGHTS................................................... 36
VOTING RIGHTS....................................................... 36
LIQUIDATION......................................................... 36
COMPASS PREFERRED STOCK............................................... 36
COMPARISON OF RIGHTS OF SHAREHOLDERS OF SECURITY AND COMPASS............. 37
CHARTER AND BY-LAW PROVISIONS AFFECTING COMPASS STOCK................. 37
CERTAIN DIFFERENCES BETWEEN THE CORPORATION LAW OF DELAWARE AND THE
NATIONAL BANK ACT AND CORRESPONDING CHARTER AND BY-LAW PROVISIONS... 37
NOTICE TO SHAREHOLDERS AND RECORD DATE.............................. 37
SPECIAL MEETINGS OF SHAREHOLDERS.................................... 37
INSPECTION OF SHAREHOLDER LIST...................................... 38
CUMULATIVE VOTING FOR DIRECTORS..................................... 38
CLASSIFICATION AND REMOVAL OF BOARD OF DIRECTORS.................... 38
LIMITATION OF LIABILITY OF DIRECTORS................................ 38
ACTION BY WRITTEN CONSENT........................................... 39
DIVIDENDS........................................................... 39
VOLUNTARY DISSOLUTION............................................... 40
DISSENTERS' RIGHTS.................................................. 40
CERTAIN BUSINESS COMBINATIONS....................................... 41
AMENDMENT OF CHARTERS............................................... 41
RESALE OF COMPASS STOCK.................................................. 42
INFORMATION ABOUT COMPASS................................................ 42
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..................... 42
INTERESTS OF CERTAIN PERSONS........................................ 42
INFORMATION ABOUT SECURITY............................................... 42
SERVICES, EMPLOYEES AND PROPERTIES.................................. 42
COMPETITION......................................................... 43
LEGAL PROCEEDINGS................................................... 43
REGULATORY COMMITMENTS.............................................. 43
MARKET PRICE AND DIVIDENDS.......................................... 44
BENEFICIAL OWNERSHIP OF SECURITY COMMON STOCK BY SECURITY
MANAGEMENT AND PRINCIPAL SHAREHOLDERS.............................. 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF SECURITY BANK, NATIONAL ASSOCIATION.................... 47
GENERAL............................................................. 47
NET INTEREST INCOME................................................. 47
PROVISION FOR LOAN LOSSES........................................... 51
NON-INTEREST INCOME................................................. 51
OPERATING EXPENSES.................................................. 52
CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL CONDITION..................... 52
CAPITAL RESOURCES................................................... 52
LIQUIDITY........................................................... 53
INTEREST RATE SENSITIVITY........................................... 54
INVESTMENTS......................................................... 56
DEPOSITS............................................................ 57
LOANS............................................................... 58
ALLOWANCE FOR LOAN LOSSES AND RISK ELEMENTS......................... 58
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS......................... 60
RELATIONSHIPS WITH INDEPENDENT ACCOUNTANTS............................... 61
EXPERTS.................................................................. 61
LEGAL OPINIONS........................................................... 62
INDEMNIFICATION.......................................................... 62
OTHER MATTERS............................................................ 62
</TABLE>
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<PAGE>
AVAILABLE INFORMATION
Compass has filed with the Commission a Registration Statement on Form S-4
(the "Registration Statement") under the Securities Act for the registration of
the Compass Common Stock proposed to be issued and exchanged in the Merger.
This Proxy Statement/Prospectus was filed as a part of the Registration
Statement.
This Proxy Statement/Prospectus does not contain all of the information set
forth in the Registration Statement, as certain parts are permitted to be
omitted by the rules and regulations of the Commission. For further information
pertaining to Compass, the Compass Common Stock, and related matters, reference
is made to the Registration Statement, including the exhibits filed as a part
thereof, which may be inspected at, and copies of which may be obtained by mail
from, the Public Reference Branch of the Commission referred to below.
Compass is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, accordingly, files
reports, proxy statements and other information with the Commission. Such
reports, proxy statements and other information can be inspected and copied at
the Commission's public reference rooms located at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, and the public reference facilities in the New
York Regional Office, 13th Floor, Seven World Trade Center, New York, New York
10048, and the Chicago Regional Office, Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60621-2511. Copies of such
materials can be obtained at prescribed rates by writing to the Securities and
Exchange Commission, Public Reference Branch, 450 Fifth Street, N.W.,
Washington, D.C. 20549.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT INCLUDED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS
CONCERNING COMPASS (OTHER THAN CERTAIN EXHIBITS TO SUCH DOCUMENTS) ARE
AVAILABLE TO EACH BENEFICIAL OWNER OF SECURITY COMMON STOCK, WITHOUT CHARGE
AND UPON REQUEST, FROM THE CONTROLLER OF COMPASS AT 701 SOUTH 32ND STREET,
BIRMINGHAM, ALABAMA 35233 (TELEPHONE NO. (205) 558-5740). IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY SUCH REQUEST SHOULD BE MADE BY
____________, 1994.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by Compass with the Commission are
incorporated herein by reference:
(i) Compass' Annual Report on Form 10-K for the year ended December
31, 1992 (File No. 0-6032);
(ii) Compass' Quarterly Report on Form 10-Q for the quarter ended
March 31, 1993 (File No. 0-6032);
(iii) Compass' Quarterly Report on Form 10-Q for the quarter ended
June 30, 1993 (File No. 0-6032);
(iv) Compass' Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993 (File No. 0-6032);
(v) Compass' Proxy Statement dated March 24, 1993, relating to its
annual meeting of shareholders held on April 26, 1993
(File No. 0-6032);
(vi) The description of Compass Common Stock contained in its Proxy
Statement dated April 16, 1982, relating to its Annual Meeting
held May 17, 1982 (File No. 0-6032); and
(vii) Compass' Form 8-K and Form 10-C, each dated November 9, 1993,
relating to the change of corporate name from Central Bancshares
of the South, Inc. to Compass Bancshares, Inc.
- 4 -
<PAGE>
All documents filed by Compass pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the date of
the Meeting are incorporated herein by reference, and shall be deemed a part
hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein, or contained in this Proxy
Statement/Prospectus, shall be deemed to be modified or superseded for purposes
of this Proxy Statement/Prospectus to the extent that a statement contained
herein or in any subsequently filed document which also is deemed to be
incorporated herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed to constitute a part of this Proxy
Statement/Prospectus, except as so modified or superseded.
No person has been authorized to give any information or to make any
representations other than those contained in this Proxy Statement/Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by Compass, Interim, Security or their respective
affiliates. This Proxy Statement/Prospectus does not constitute an offer to
exchange or sell, or a solicitation of an offer to exchange or purchase, any
securities other than the Compass Common Stock offered hereby, nor does it
constitute an offer to exchange or sell or a solicitation of an offer to
exchange or purchase such securities in any state or other jurisdiction to any
person to whom such an offer or solicitation would be unlawful.
Neither the delivery of this Proxy Statement/Prospectus nor any
distribution of securities made hereunder shall under any circumstances create
any implication that there has been no change in the affairs of Compass,
Interim, Security or their respective affiliates since the date of this Proxy
Statement/Prospectus.
- 5 -
<PAGE>
PROXY STATEMENT/PROSPECTUS
INTRODUCTION
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Board of Directors of Security Bank, National
Association, a national banking association ("Security"), for use at the special
meeting of Security shareholders to be held at the time and place set forth in
the foregoing notice and at any adjournments thereof (the "Meeting"). This
Proxy Statement/Prospectus is also a prospectus for the shares of Compass
Bancshares, Inc. ("Compass") $2.00 par value common stock ("Compass Common
Stock") to be issued in connection with the merger ("Merger") of Security with
and into Compass Security Interim Bank ("Interim"), a Texas state interim bank
and wholly-owned subsidiary of Compass being formed for the purpose of effecting
the Merger.
The following proposals will be considered and voted upon at the Meeting:
(1) To approve, ratify, confirm and adopt an Agreement and Plan of
Merger, dated as of November 19, 1993, by and between Compass and
Security (the "Merger Agreement"), pursuant to which Security
will be merged with and into Interim and become a wholly-owned
subsidiary of Compass; and
(2) To consider and transact such other business as may properly come
before the Meeting.
The Board of Directors of Security has fixed ___________, 1994 as the
record date for the determination of shareholders entitled to notice of and to
vote at the Meeting and any adjournments thereof (the "Record Date"). As of such
date, Security had (i) 1,030,000 shares of common stock, $5.00 par value per
share ("Security Common Stock"), authorized, of which 349,025 shares were issued
and outstanding, (ii) 95,000 shares of Class A preferred stock, par value $12.25
per share ("Security Class A Preferred Stock"), authorized, of which 28,479
shares were issued and outstanding, and (iii) 190,000 shares of Class B
preferred stock, par value $12.25 per share ("Security Class B Preferred
Stock"), authorized, of which 56,958 shares were issued and outstanding (the
Security Class A Preferred Stock and Security Class B Preferred Stock are
collectively referred to as the "Security Preferred Stock", and the Security
Common Stock and Security Preferred Stock are collectively referred to as the
"Security Stock"). Holders of Security Class A Preferred Stock are entitled to
preferred cumulative dividends of $1.1025 per share per annum. Holders of
Security Class B Preferred Stock are entitled to participate ratably in any
dividends declared on Security Common Stock. Security Class A Preferred Stock
is convertible into Security Common Stock at a rate of (x) one share of Security
Common Stock for each share of Security Class A Preferred Stock held plus (y)
one share of Security Common Stock for each $12.25 of cumulative unpaid
dividends. Security Class B Preferred Stock is convertible into shares of
Security Common Stock at a rate of one share of Security Common Stock for each
share of Security Class B Preferred Stock held. In addition, there are
outstanding stock options ("Options") which are exercisable for an additional
33,937 shares of Security Common Stock. As of the Record Date, the Security
Common Stock was held by 283 holders of record, the Security Class A Preferred
Stock was held by 11 holders of record and the Security Class B Preferred Stock
was held by 11 holders of record. Each share of Security Stock entitles the
holder of record on the Record Date to one vote as to the Merger. Each share of
Security Common Stock entitles the holder of record on the Record Date also to
one vote as to any other proposal to be voted on at the Meeting. The presence,
in person or by proxy, of the holders of a majority of each class of shares of
Security Stock entitled to vote at the Meeting is necessary to constitute a
quorum at the Meeting. The affirmative vote of the holders of at least
two-thirds of the outstanding shares of Security Common Stock, two-thirds of the
outstanding shares of Security Class A Preferred Stock, and two-thirds of the
outstanding shares of Security Class B Preferred Stock is required for approval
of the Merger. SECURITY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
APPROVAL OF THE MERGER. SEE "SUMMARY--RECORD DATE"; "SUMMARY--SHAREHOLDER VOTES
REQUIRED"; "THE MERGER--GENERAL"; "THE MERGER--OTHER TERMS AND CONDITIONS"; AND
APPENDIX I.
- 6 -
<PAGE>
Of the 349,025 shares of Security Common Stock, 28,479 shares of Security
Class A Preferred Stock and 56,958 shares of Security Class B Preferred Stock
currently outstanding, 342,825, or 98.2%, of the Security Common Stock, 24,355,
or 85.5%, of the Security Class A Preferred Stock and 48,710, or 85.5%, of the
Security Class B Preferred Stock are subject to a Voting and Stock Restriction
Agreement (the "Security Voting Agreement") pursuant to which Frank S. Goldberg,
Marvin Isgur and Irving Pozmantier (the "Voting Representatives") have the right
to vote such shares at any meeting on any issue with respect to which the
Security shareholders would otherwise have the right to vote their respective
shares, including the right to vote to merge Security with a third party.
Accordingly, the Voting Representatives have the power to vote the shares of
Security Stock which are subject to the Security Voting Agreement at the Meeting
with respect to the Merger.
The Voting Representatives have agreed, pursuant to a Voting Agreement and
Irrevocable Proxy (the "Proxy"), to vote all of the Security Stock subject to
the Security Voting Agreement in favor of the Merger. The Proxy terminates upon
the termination of the Merger Agreement (which in turn can be terminated if the
market price of Compass Common Stock is not at least $20.00 per share over
certain periods or if the Compass Share Determination Market Value (as
hereinafter defined) is not at least $22.00). Subject to such termination
rights, because the Voting Representatives control, with the power to vote, over
two-thirds of the shares of Security Common Stock and Security Preferred Stock
issued and outstanding, the effect of their agreement to vote in favor of the
Merger is to assure approval of the Merger by the Security shareholders. SEE
"SUMMARY--REASONS FOR THE MERGER"; RECOMMENDATION OF BOARD OF DIRECTORS";
"SUMMARY--SHAREHOLDER VOTES REQUIRED"; "THE MERGER--GENERAL"; "THE
MERGER--ADDITIONAL AGREEMENTS"; AND "INFORMATION ABOUT SECURITY--MANAGEMENT AND
PRINCIPAL SHAREHOLDERS".
Proxies in the form enclosed are solicited by Security's Board of
Directors. Any such proxy, if received in time for voting and not revoked, will
be voted at the Meeting in accordance with the shareholder's instructions. If no
instructions are given on the proxy, the proxy will be voted in favor of the
Merger. Failure to submit a proxy or to vote at the Meeting will have the same
effect as a vote against the Merger. At present, Security's Board of Directors
knows of no other matters to be presented at the Meeting, but if other matters
are properly presented, the persons named in the proxy will vote or refrain from
voting in accordance with Security's Board of Directors' recommendation pursuant
to the discretionary authority conferred by the proxy. SEE "OTHER MATTERS";
"THE MERGER--DISSENTERS' RIGHTS"; AND APPENDIX II.
A proxy may be revoked at any time prior to its exercise by filing, at
Security's principal office, a duly executed proxy bearing a later date or a
written notice revoking such proxy. Any shareholder entitled to vote at the
Meeting may attend the Meeting and vote in person by written ballot on any
matter presented for a vote at such Meeting, whether or not such shareholder has
given a proxy previously, and such action will constitute a revocation of any
prior proxy.
Proxies will be solicited initially by mail, and may also be solicited
personally, by telephone, facsimile transmission or other means by the
directors, officers and employees of Security, with no special or extra
compensation therefor, although such officers, directors and employees may be
reimbursed for out-of-pocket expenses incurred in connection with the
solicitation. Arrangements will also be made with custodians, nominees, and
fiduciaries for the forwarding of soliciting materials to the beneficial owners
of Security Stock held of record by such persons, and Security may reimburse
such custodians, nominees, and fiduciaries for reasonable out-of-pocket expenses
that they incur in that connection. Expenses incurred in connection with the
Merger, including those attributable to the solicitation of proxies, will be
paid by the party to the Merger Agreement incurring the expense.
Brokerage firms, banks, nominees, fiduciaries and other custodians are
requested to forward these proxy materials to the beneficial owners of Security
Stock held of record by them, and Security will reimburse them, upon request,
for their reasonable expenses incurred in connection with such mailing or other
communications with such beneficial owners.
- 7 -
<PAGE>
Compass' principal executive offices are located at 15 South 20th Street,
Birmingham, Alabama 35233, and its telephone number is (205) 933-3000.
Security's principal executive offices are located at 1800 West Loop South,
Suite 100, Houston, Texas 77027, and its telephone number is (713) 777-2500.
- 8 -
<PAGE>
SUMMARY
The following is a brief summary of certain information relating to the
Merger contained elsewhere in this Proxy Statement/Prospectus. This summary is
not intended to describe all material information relating to the Merger and is
qualified in its entirety by reference to the more detailed information and
financial statements contained elsewhere in this Proxy Statement/Prospectus,
including the Appendices hereto and the documents referred to herein or
incorporated by reference. Shareholders are urged to read carefully the entire
Proxy Statement/Prospectus and the related documents.
PARTIES TO THE MERGER
Compass is a Delaware corporation which was organized in 1970. It is a
bank holding company registered with the Board of Governors of the Federal
Reserve System (the "Federal Reserve") under the Bank Holding Company Act of
1956, as amended (the "BHC Act"). Substantially all of Compass' revenues are
derived from its subsidiaries, which are primarily banks located in Alabama,
Texas and Florida.
Compass owns Compass Bank ("Compass Bank"), a state bank headquartered in
Birmingham, Alabama, Central Bank of the South, a state bank headquartered in
Anniston, Alabama, Compass Bank, N.A., a national bank headquartered in
Pensacola, Florida, and Compass Bank, a federal savings bank headquartered in
Fort Walton Beach, Florida. These wholly-owned commercial and savings bank
subsidiaries conduct a general, full-service commercial and consumer banking
business through approximately 88 banking offices located in 48 communities in
Alabama and 12 banking offices in Florida. Compass Bank also is engaged in the
investment, trust and equipment leasing businesses, and other bank operating
activities.
Compass Banks of Texas, Inc., a Delaware corporation ("Compass of
Texas"), is a wholly owned subsidiary of Compass. Compass of Texas and its
wholly owned subsidiary, Compass Bancorporation of Texas, Inc., a Delaware
corporation ("Compass Bancorporation"), are bank holding companies registered
with the Federal Reserve under the BHC Act. Compass Bancorporation owns Compass
Bank-Houston in Houston, Texas ("Compass Bank-Houston"), Compass Bank-Dallas in
Dallas, Texas ("Compass Bank-Dallas"), River Oaks Trust Company, a trust company
located in Houston, Texas ("River Oaks Trust Company"), and Compass Texas
Management, Inc., a Texas corporation ("Compass Management"). Compass Management
provides management services to affiliated banks. These wholly-owned commercial
bank subsidiaries conduct a general, full-service commercial and consumer
banking business through approximately 13 banking offices in Houston, Texas and
22 banking offices in Dallas, Texas.
During 1991, Compass acquired River Oaks Bank and River Oaks Trust
Company, Plaza National Bank, Bank of Las Colinas, N.A., Gleneagles National
Bank, Promenade Bancshares, Inc., and Ameriway National Bank, as well as certain
other assets and deposits. During 1992, Compass acquired Interstate Bancshares,
Inc., located in Houston, Texas, City National Bancshares, Inc., located in
Carrollton, Texas, and FWNB Bancshares, Inc., located in Plano, Texas, and in
1993, Compass acquired Cornerstone Bancshares, Inc., located in Dallas, Texas,
Spring National Bank located in Spring, Texas, East Plano National Bank, located
in Plano, Texas, The Peoples Holding Company, Inc. and its wholly owned
subsidiary, Liberty Bank of Fort Walton Beach, both of which are located in Fort
Walton Beach, Florida, and First Federal Savings Bank of Northwest Florida,
located in Fort Walton Beach, Florida. In addition to the Merger Agreement to
acquire Security, on August 6, 1993 Compass signed a definitive agreement to
acquire 1st Performance National Bank of Jacksonville, Florida, a wholly owned
subsidiary of Resource Bancshares Corporation of Columbia, South Carolina.
- 9 -
<PAGE>
Interim will be a Texas state interim bank and a wholly-owned subsidiary
of Compass and is being formed for the purpose of effecting the Merger.
On September 30, 1993, Compass and its subsidiaries had consolidated
assets of $7.1 billion, consolidated deposits of $5.4 billion, and total
shareholders' equity of $527 million. Of Compass' $7.1 billion of consolidated
assets, approximately $5.2 billion are held in Alabama, $1.8 billion are held in
Texas, and $67 million are held in Florida. SEE "AVAILABLE INFORMATION";
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE"; "SELECTED FINANCIAL DATA";
AND "INFORMATION ABOUT COMPASS".
Security is a national banking association organized under the laws of
the United States in 1985, and is located in Houston, Texas, with full service
branch offices in Houston located at 7700 West Bellfort, 4939 Beechnut and 1800
West Loop South.
On September 30, 1993, Security had total assets of $77 million, total
deposits of $69 million, and total shareholders' equity of $6 million. SEE
"SELECTED FINANCIAL DATA"; "INFORMATION ABOUT SECURITY"; "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
SECURITY"; AND FINANCIAL STATEMENTS OF SECURITY.
THE MERGER
As of the Record Date, there were 349,025 shares of Security Common Stock
issued and outstanding, 28,479 shares of Security Class A Preferred Stock issued
and outstanding, and 56,958 shares of Security Class B Preferred Stock issued
and outstanding. In addition, there are presently outstanding Options
exercisable for 33,937 shares of Security Common Stock, which, according to the
Merger Agreement, must either terminate or be exercised prior to the effective
time of the Merger (the "Effective Time").
The Merger Agreement provides for the merger of Security with and into
Interim and for the holders of Security Stock at the Effective Time, other than
dissenting shareholders, to receive aggregate merger consideration (the "Merger
Consideration") equal to that number of shares of Compass Common Stock (as
adjusted due to the exercise of dissenter's rights) which is equal to
$11,250,000 divided by the average closing sales price of the Compass Common
Stock as reported by the NASDAQ National Market System for the 20 trading days
preceding the tenth business day prior to the later of (i) the receipt of
required regulatory approvals and the expiration of any applicable waiting
periods with respect thereto and (ii) the approval of the Merger by Security's
shareholders (the "Compass Share Determination Market Value"). If, however, the
Compass Share Determination Market Value over such period is less than $22.00
per share, then unless Compass has agreed to increase the number of shares of
Compass Common Stock included in the Merger Consideration, the number of shares
of Compass Common Stock to be issued in the Merger shall be equal to the
quotient of $11,250,000 divided by $22.00 per share. If the Compass Share
Determination Market Value is less than $22.00 per share or the average market
value of Compass Common Stock over specified periods of time is less than $20.00
per share, Security has the option, but is not obligated, to require that the
Merger Agreement be terminated unless Compass agrees to issue a number of shares
of Compass Common Stock equal to $11,250,000 divided by such average market
value. Unless Compass agrees to issue additional shares pursuant to the
preceding sentence, Compass is not obligated to issue more than 511,363 shares
of Compass Common Stock as the Merger Consideration. The decision of the Board
of Directors of Security regarding whether to terminate the Merger Agreement
will be made in its sole discretion and could result in either (i) Security
shareholders receiving Merger Consideration with an aggregate market value of
less than $11,250,000, (ii) the termination of the Merger Agreement, or (iii)
Compass agreeing to increase the number of shares of Compass Common Stock
- 10 -
<PAGE>
constituting the Merger Consideration. If the Board of Directors of Security
elects to terminate the Merger Agreement, there can be no assurance that Compass
will agree to increase the number of shares of Compass Common Stock constituting
the Merger Consideration and that the Merger Agreement will not terminate, in
which event Security shareholders would not receive any Merger Consideration but
would retain their Security Stock.
Holders of Security Common Stock shall receive for each share of Security
Common Stock held at the Effective Time a number of shares of Compass Common
Stock equal to (i) the aggregate number of shares of Compass Common Stock to be
issued to the holders of Security Stock as set forth in the preceding paragraph
divided by (ii) the sum of (x) the number of shares of Security Common Stock
outstanding immediately prior to the Effective Time and (y) the number of shares
of Security Common Stock into which the shares of Security Class A Preferred
Stock and Security Class B Common Stock outstanding immediately prior to the
Effective Time are convertible (the "Per Share Merger Consideration").
Holders of Security Class A Preferred Stock and Security Class B
Preferred Stock shall receive for each share of Security Class A Preferred Stock
and Security Class B Preferred Stock held at the Effective Time a number of
shares of Compass Common Stock equal to (i) the Per Share Merger Consideration,
multiplied by (ii) the number of shares of Security Common Stock into which each
such share of Security Class A Preferred Stock and Security Class B Common Stock
so held is convertible.
Compass will not issue fractional shares of Compass Common Stock, but
instead will pay cash to any shareholder otherwise entitled to receive a
fractional share. Such cash payment shall be based on the Per Share Merger
Consideration.
The Merger Agreement also provides that the number of shares of Compass
Common Stock to be received by Security shareholders in the Merger will be
adjusted to give effect to any stock dividends or splits with respect to Compass
Common Stock occurring between the date of execution of the Merger Agreement and
the Effective Time. SEE "INTRODUCTION"; "SUMMARY--DISSENTERS' RIGHTS"; "THE
MERGER--GENERAL"; "THE MERGER--DISSENTERS' RIGHTS"; APPENDIX I; AND APPENDIX II.
Interim will be the surviving entity in the Merger and the officers and
directors of Interim will continue to be the officers and directors of Interim
after the Merger. Compass intends that Security's personnel will remain
following the Merger. SEE "THE MERGER--GENERAL"; AND "INFORMATION ABOUT
SECURITY".
The Merger Agreement was the result of arm's-length negotiations between
representatives of Security and Compass. Subject to the shareholders of
Security receiving Merger Consideration with a market value (as determined in
accordance with the Merger Agreement) of at least $11,250,000, Security's Board
of Directors believes the terms of the Merger to be in the best interest of
Security's shareholders. Security's Board of Directors, however, has not
addressed, and is not expressing any opinion regarding, whether the receipt of
Merger Consideration in an amount less than $22.00 per share is in the best
interest of Security's shareholders. Security's Board of Directors obtained an
opinion from Alex Sheshunoff & Co. Investment Banking with respect to the
fairness, from a financial point of view, of the Merger to the Security
shareholders. The fairness opinion is attached to this Proxy
Statement/Prospectus as Appendix III. SEE "SUMMARY--REASONS FOR THE MERGER;
RECOMMENDATION OF BOARD OF DIRECTORS"; AND "THE MERGER--BACKGROUND AND REASONS
FOR THE MERGER"; "THE MERGER--OPINION OF FINANCIAL ADVISOR"; AND APPENDIX III.
- 11 -
<PAGE>
REASONS FOR THE MERGER; RECOMMENDATION OF BOARDS OF DIRECTORS
Consummation of the Merger offers the holders of Security Stock the
opportunity to acquire an equity interest in a larger, more diversified
financial institution, which is interested in expanding its operations in Texas,
but which is not dependent solely upon the economic conditions of the Houston
metropolitan area or Texas. Compass Common Stock is publicly traded and has a
history of paying dividends. Security's Board of Directors anticipates that the
Merger will expand the banking products and services offered to Security's
customers and community and will enable Security's facilities to compete more
effectively among banks and non-bank financial institutions. As part of a much
larger holding company system, Security's facilities will be provided with
specialized staff resources in accounting, auditing, investment, trust
management, loan review, marketing, data processing and electronic funds
transfer services. Subject to the shareholders of Security receiving Merger
Consideration with a market value (as determined in accordance with the Merger
Agreement) of at least $11,250,000, Security's Board of Directors has concluded
unanimously that the proposed Merger is in the best interest of Security and its
shareholders. Security's Board of Directors, however, has not addressed, and is
not expressing any opinion regarding, whether the receipt of Merger
Consideration in an amount less than $22.00 per share is in the best interest of
Security's shareholders. SECURITY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT SECURITY SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER and has authorized
consummation thereof subject to approval of the Security shareholders and the
satisfaction of certain other conditions. SEE "INTRODUCTION"; SEE
"SUMMARY--PARTIES TO THE MERGER"; "SUMMARY--THE MERGER"; "THE MERGER--BACKGROUND
AND REASONS FOR THE MERGER"; "THE MERGER--OTHER TERMS AND CONDITIONS";
"DESCRIPTION OF COMPASS COMMON AND PREFERRED STOCK"; "COMPARISON OF RIGHTS OF
SHAREHOLDERS OF SECURITY AND COMPASS"; "INFORMATION ABOUT COMPASS"; AND
"INFORMATION ABOUT SECURITY".
THE MEETING
The Meeting will be held on ______, ________, 1994 at _____ P.M., Houston
time, at Security's office located at _____________________ in Houston, Texas
for purposes of (i) approving, ratifying, confirming and adopting the Merger
Agreement; and (ii) transacting such other business as may properly come before
the Meeting.
RECORD DATE
The Record Date has been set by Security's Board of Directors as the
close of business on ________, 1994. Only holders of Security Stock as of such
date will be entitled to vote at the Meeting. SEE "INTRODUCTION".
SHAREHOLDER VOTES REQUIRED
The Merger must be approved by the affirmative vote of the holders of at
least two-thirds of the shares of the Security Common Stock, two-thirds of the
shares of Security Class A Preferred Stock and two-thirds of the shares of
Security Class B Preferred Stock issued and outstanding and entitled to vote at
the Meeting.
Each of the three individuals who are Voting Representatives under the
Security Voting Agreement, have agreed, pursuant to the Proxy and subject to the
terms and conditions thereof, to vote in favor of the Merger an aggregate of
342,825 shares of Security Common Stock, comprising 98.2% of the total shares of
Security Common Stock issued and outstanding, 24,355 shares of Security Class A
- 12 -
<PAGE>
Preferred Stock, comprising 85.5% of the total shares of Security Class A
Preferred Stock issued and outstanding, and 48,710 shares of Security Class B
Preferred Stock, comprising 85.5% of the total shares of Security Class B
Preferred Stock issued and outstanding. THUS, BECAUSE THE VOTING
REPRESENTATIVES HAVE THE POWER TO VOTE OVER TWO-THIRDS OF THE SHARES OF EACH
CLASS OF SECURITY STOCK ISSUED AND OUTSTANDING AND ENTITLED TO VOTE AT THE
MEETING, THE EFFECT OF THEIR AGREEMENT TO VOTE IN FAVOR OF THE MERGER IS TO
ASSURE APPROVAL OF THE MERGER BY THE SECURITY SHAREHOLDERS SUBJECT TO THE
TERMINATION RIGHTS CONTAINED IN THE MERGER AGREEMENT. SEE "INTRODUCTION"; AND
"THE MERGER--GENERAL".
Interim will have 50 shares of common stock, par value $100 per share,
issued and outstanding, all of which will be owned and held by Compass. Subject
to the satisfaction or waiver of all of the conditions to the parties'
obligations to effect the Merger, Compass, as the sole shareholder of Interim,
will approve the Merger Agreement in the manner prescribed by the General
Corporation Law of the State of Delaware ("GCL") and the Security shareholders
will be asked to approve the Merger at the Meeting. The Board of Directors of
Security has approved the Merger in the manner prescribed by the National Bank
Act, 12 U.S.C. 21, et seq. (the "NBA") and the Board of Directors of Interim
will approve the Merger as required by the Texas Banking Code. SEE "THE
MERGER--GENERAL".
DISSENTERS' RIGHTS
Holders of Security Stock who timely object to the Merger will be
entitled to exercise dissenters' appraisal rights. A shareholder who properly
exercises such rights is entitled to the appraised value of his shares. SEE
"THE MERGER--DISSENTERS' RIGHTS"; "COMPARISON OF RIGHTS OF SHAREHOLDERS OF
SECURITY AND COMPASS--DISSENTERS' RIGHTS"; AND APPENDIX II.
CONDITIONS TO CONSUMMATION AND REGULATORY APPROVALS; TERMINATION
Consummation of the Merger is subject to approval of the Merger by the
shareholders of Security, receipt or waiver of certain required regulatory
approvals from the Federal Reserve under the BHC Act, the Federal Deposit
Insurance Corporation ("FDIC") and the Banking Commissioner of Texas (the
"Commissioner"), and the satisfaction or waiver of a number of other conditions.
SEE "THE MERGER--OTHER TERMS AND CONDITIONS". It is expected that the Federal
Reserve, the FDIC and the Commissioner will issue their respective approvals of
the transaction. SEE "THE MERGER--GOVERNMENTAL APPROVALS".
If the Federal Reserve requires a formal application under the BHC Act,
following Federal Reserve approval, the United States Department of Justice
("Justice Department"), pursuant to the BHC Act, has 30 days in which to bring
an action opposing the Merger under the antitrust laws, which action would stay
the Merger unless otherwise ordered by an appropriate judicial authority. The
Justice Department has a similar 30 day period in which to object to the Merger
after FDIC approval. No Justice Department objection or adverse action is
anticipated.
The respective boards of directors of Compass and Security may terminate
the Merger Agreement as a result of, among other things, the failure of any of
the several conditions to each of their respective obligations to close, or if
the Effective Time does not occur on or before August 19, 1994 or such later
date agreed to in writing by Compass and Security. The Board of Directors of
Security has the right to terminate the Merger Agreement if the Compass Share
Determination Market Value is less than $22.00 per share or the average price of
Compass Common Stock over specified periods of time is $20.00 per share. SEE
"THE MERGER--OTHER TERMS AND CONDITIONS"; "THE MERGER--BUSINESS PENDING
EFFECTIVE
- 13 -
<PAGE>
TIME"; "THE MERGER--AMENDMENT; TERMINATION"; "THE MERGER--GOVERNMENT APPROVALS";
AND APPENDIX I.
FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. ("Liddell,
Sapp"), counsel to Compass and Interim, based upon certain representations and
assumptions, the Merger, if consummated in accordance with the Merger Agreement,
will qualify as a "reorganization" under Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and, as a result of such qualification,
no gain or loss will be recognized by holders of Security Stock for federal
income tax purposes upon receipt of Compass Common Stock in accordance with the
Merger Agreement. Any gain attributable to cash received by holders of Security
Stock in lieu of fractional shares of Compass Common Stock will be taxed as
ordinary income (loss) or capital gain (loss) depending upon each shareholder's
situation. Those shareholders who receive cash upon exercise of their
dissenters' rights will recognize gain or loss for federal income tax purposes
which may be ordinary income (loss) or capital gain (loss) depending upon each
shareholder's situation. No information is provided herein with respect to the
tax consequences, if any, of the Merger to shareholders under any state, local
or foreign tax laws. SECURITY SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISERS AS TO ALL TAX CONSEQUENCES OF THE MERGER AFFECTING THEM. SEE "THE
MERGER--FEDERAL INCOME TAX CONSEQUENCES".
Compass and Security expect to receive an opinion from Liddell, Sapp at
the closing of the transaction contemplated by the Merger Agreement (the
"Closing") that the Merger will qualify as a reorganization under Section 368(a)
of the Code in satisfaction of a condition to consummation of the Merger. SEE
"THE MERGER--OTHER TERMS AND CONDITIONS" AND "LEGAL OPINIONS".
ACCOUNTING TREATMENT
Compass will account for the Merger under the pooling-of-interests method
for financial reporting and all other purposes. SEE "THE MERGER--ACCOUNTING
TREATMENT".
- 14 -
<PAGE>
RISK FACTORS
Security shareholders currently control Security through their ability to
elect the Board of Directors and vote on various matters affecting Security. The
Merger will transfer control of Security from Security's shareholders to
Compass, and the former offices of Security will eventually become branches of
Compass Bank-Houston. As of the Effective Time, the shareholders of Security
will become shareholders of Compass, a multi-bank holding company. As a result
of the Merger, the former shareholders of Security will no longer have the
ability to control or influence the management policies of Security's
operations, and as shareholders of Compass they will have little ability to
influence the management policies of Compass due to the fact that they will hold
a relatively small percentage of the voting stock of Compass.
Compass' banking subsidiaries compete with other banking institutions on
the basis of service, convenience and, to some extent, price. Due in part to
both regulatory changes and consumer demands, banks have experienced increased
competition from other financial entities offering similar products.
Competition from both bank and non-bank organizations is expected to continue.
SEE "INFORMATION ABOUT SECURITY--COMPETITION".
In addition, general economic conditions impact the banking industry. The
credit quality of Compass' loan portfolio necessarily reflects, among other
things, the general economic conditions in the areas in which it conducts its
business. The continued financial success of Compass and its subsidiaries
depends somewhat on factors which are beyond Compass' control, including
national and local economic conditions, the supply and demand for investable
funds, interest rates and federal, state and local laws affecting these matters.
Any substantial deterioration in any of the foregoing conditions could have a
material adverse effect on Compass' financial condition and results of
operations, which, in all likelihood, would adversely affect the market price of
Compass Common Stock. SEE "MARKET PRICES".
Compass' Restated Certificate of Incorporation, as amended (the
"Certificate"), and By-Laws contain several provisions which may make Compass a
less attractive target for acquisition by anyone who does not have the support
of Compass' Board of Directors. Such provisions include, among other things, the
requirement of a supermajority vote of shareholders or directors to approve
certain business combinations and other corporate actions, a minimum price
provision, several special procedural rules, a staggered Board of Directors, and
the limitation that shareholder actions without a meeting may only be taken by
unanimous written shareholder consent. Security's Articles of Association and
By-Laws do not contain similar restrictions. SEE "COMPARISON OF RIGHTS OF
SHAREHOLDERS OF SECURITY AND COMPASS--CHARTER AND BY-LAW PROVISIONS AFFECTING
COMPASS COMMON STOCK".
If the Compass Share Determination Market Value is less than $22.00 per
share, then unless Compass has agreed to increase the number of shares of
Compass Common Stock constituting the Merger Consideration, the number of shares
of Compass Common Stock to be issued in the Merger shall be equal to the
quotient of $11,250,000 divided by $22.00 per share. If the Compass Share
Determination Market Value is less than $22.00 per share or the average market
value of Compass Common Stock over specified periods of time is less than $20.00
per share, the Merger Agreement grants the discretion, but does not obligate,
the Board of Directors of Security to either (i) accept such Merger
Consideration or (ii) terminate the Merger Agreement (in which event Compass may
override such termination by agreeing to deliver sufficient shares of Compass
Common Stock so that the Merger Consideration has a market value of
$11,250,000). The decision of the Board of Directors of Security regarding
whether to terminate the Merger Agreement will be made in its sole discretion
and could result in either (i) Security shareholders receiving Merger
Consideration with an aggregate market value of less than $11,250,000, (ii) the
termination of the Merger Agreement, or (iii) Compass agreeing to increase the
number of shares of Compass Common Stock constituting the Merger Consideration.
If the Board of Directors of Security elects to terminate the Merger Agreement,
there can be no assurance that Compass will agree to increase the number of
shares of Compass Common Stock constituting the Merger Consideration and that
the Merger Agreement will not terminate, in which event Security shareholders
would not receive any Merger Consideration but would retain their Security
Stock. Unless Compass agrees to issue additional shares as stated above in this
paragraph, Compass is not obligated to issue more than 511,363 shares of Compass
Common Stock as the Merger Consideration.
- 15 -
<PAGE>
In addition, since the market price of the shares of Compass Common Stock
to be delivered as the Merger Consideration is determined based on an average of
the closing prices of Compass Common Stock as reported by the NASDAQ National
Market System over a period of time, it is possible for the shareholders of
Security to receive shares of Compass Common Stock with a market value less than
$11,250,000 at the Effective Time of the Merger.
SEE "SUPERVISION AND REGULATION" for a description of the regulatory
considerations relating to the ownership of Compass Common Stock.
- 16 -
<PAGE>
SELECTED FINANCIAL DATA
The following table, except for the lines designated as pro forma,
summarizes certain unaudited consolidated historical financial data of Compass,
and certain unaudited historical financial data of Security. The table also
summarizes, where indicated, certain pro forma financial data for Compass,
giving effect to the acquisition of Security assuming that the Merger had been
effective at the beginning of 1988. The historical data of Compass as of and
for the years ended December 31, 1992, 1991, 1990, 1989 and 1988 has been
restated to reflect the January, 1993 acquisition of Cornerstone Bancshares,
Inc. which was accounted for under the pooling-of-interests method of
accounting. The historical data for Compass does not reflect the November, 1993
acquisition of Spring National Bank that has been accounted for under the
pooling-of-interests method of accounting. The effect of the acquisition of
Spring National Bank on the financial position and results of operations of
Compass is not material. The historical data of Compass as of and for the years
ended December 31, 1992, 1991, 1990, 1989, and 1988 are derived from the audited
consolidated financial statements of Compass. The historical data of Security as
of and for the years ended December 31, 1992, 1991, 1990, 1989, and 1988 are
derived from the audited financial statements of Security. The pro forma income
information is not necessarily indicative of the results of operations had the
proposed transaction occurred at the beginning of 1988, nor is it necessarily
indicative of the results of future operations. This information should be read
in conjunction with the historical consolidated financial statements and the
related notes included elsewhere or incorporated by reference in this Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
As of and
for the Nine As of and for the Years Ended
Months Ended December 31,
September 30, ----------------------------------------------------------
1993 1992 1991 1990 1989 1988
------------ ---------- ---------- ---------- ---------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
TOTAL ASSETS
Compass $7,064,908 $6,931,490 $6,634,786 $5,416,637 $4,921,928 $4,466,826
Security 76,575 80,063 69,176 56,514 53,796 47,544
TOTAL DEPOSITS
Compass 5,337,975 5,278,623 4,986,449 3,977,682 3,603,249 3,128,498
Security 68,977 70,737 59,675 51,689 49,591 43,934
LONG-TERM DEBT
Compass 325,450 203,877 11,901 12,700 12,188 13,650
Security --- --- --- --- --- ---
TOTAL SHAREHOLDERS' EQUITY
Compass 520,910 501,233 443,634 354,877 325,787 301,579
Security 5,789 4,391 3,865 3,268 2,735 2,579
NET INTEREST INCOME
Compass 241,096 309,449 251,036 193,337 163,041 148,402
Security 2,841 3,600 2,972 2,521 2,234 1,859
NET INCOME (LOSS)
BEFORE EXTRAORDINARY ITEM:
Compass 66,251 74,803 62,001 51,307 43,183 42,423
Security 403 612 590 366 102 (10)
NET INCOME (LOSS) PER COMMON SHARE
BEFORE EXTRAORDINARY ITEM:
Compass
Historical 1.78 2.02 1.74 1.51 1.25 1.22
Pro Forma 1.77 2.01 1.73 1.50 1.23 1.21
Security
Historical 0.98 1.72 1.67 1.05 0.30 (0.03)
Equivalent Pro Forma (1) 1.78 2.02 1.74 1.51 1.24 1.21
</TABLE>
- 17 -
<PAGE>
<TABLE>
<CAPTION>
As of and
for the Nine As of and for the Years Ended
Months Ended December 31,
September 30, ----------------------------------------------------------
1993 1992 1991 1990 1989 1988
------------ ---------- ---------- ---------- ---------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
TOTAL ASSETS
CASH DIVIDENDS PER COMMON SHARE:
Compass
Historical 0.57 0.67 0.59 0.53 0.51 0.47
Pro Forma 0.56 0.61 0.53 0.48 0.47 0.43
Security
Historical --- 0.30 0.30 --- --- ---
Equivalent Pro Forma (1) 0.56 0.61 0.54 0.49 0.47 0.43
SHAREHOLDERS' EQUITY (BOOK
VALUE) PER COMMON SHARE:
Compass
Historical 14.42 13.26 11.88 10.49 9.43 8.67
Pro Forma 14.37 13.21 11.83 10.44 9.39 8.63
Security
Historical 13.59 12.61 11.20 9.47 7.93 7.48
Equivalent Pro Forma (1) 14.44 13.27 11.89 10.50 9.43 8.68
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING:
Compass
Historical 36,400 36,069 34,801 34,043 34,669 34,654
Pro Forma 36,871 36,540 35,272 34,514 35,140 35,125
Security
Historical 398 357 353 349 345 345
NUMBER OF COMMON SHARES
OUTSTANDING AT END OF PERIOD:
Compass
Historical 36,115 36,067 35,404 33,829 34,531 34,767
Pro Forma 36,586 36,538 35,875 34,300 35,002 35,238
Security
Historical 349 348 345 345 345 345
</TABLE>
____________________
(1) Security's Equivalent Pro Forma per share amounts are computed by
multiplying Compass' Pro Forma amounts by the exchange ratio. The exchange
ratio was computed assuming the exercise of all exercisable stock options
on Security Common Stock and the conversion of all outstanding Security
Class A Preferred Stock and Security Class B Preferred Stock into Security
Common Stock. The Merger Consideration assumed is based on the average
closing sales price of the Compass Common Stock as reported by the NASDAQ
National Market System for the 20 trading days preceding October 26, 1993,
the day of the announcement of a letter of intent concerning the Merger.
Assuming Merger Consideration of $22.00 per share, equivalent pro forma net
income per share for the nine months ended September 30, 1993 would be
$1.93 and for the year ended December 31, 1992 would be $2.19. Equivalent
pro forma cash dividends per share for the nine months ended September 30,
1993 and the year ended December 31, 1992 would be $0.61 and $0.66 per
share, respectively. Equivalent pro forma book value per share would be
$15.67 per share at September 30, 1993, and $14.40 per share at December
31, 1992.
- 18 -
<PAGE>
MARKET PRICES
Compass Common Stock is traded in the national over-the-counter securities
market. Since July 1984, it has been quoted under the symbol "CBSS" on the
NASDAQ National Market System.
The following table sets forth for the periods indicated the high and low
sales prices for Compass Common Stock reported through the NASDAQ National
Market System published in The Wall Street Journal. The prices shown do
-----------------------
not include retail mark-ups, mark-downs or commissions. All share values have
been rounded to the nearest 1/8 of one dollar and have been restated to take
into account the three-for-two stock split with respect to Compass Common Stock,
which was effected by a stock dividend payable on July 2, 1992.
<TABLE>
<CAPTION>
Compass Common
--------------
Stock
-----
Period High Low
- ------ ------ ------
<S> <C> <C>
1992
- ---- 22-1/8 18-1/2
First Quarter 23-3/8 19-1/2
Second Quarter 23-1/2 18-1/2
Third Quarter 23-1/2 19-1/4
Fourth Quarter
1993
- ---- 25-3/4 22-1/2
First Quarter 26-1/2 22-1/2
Second Quarter 26 23-1/2
Third Quarter 25 20-3/4
Fourth Quarter
1994
- ----
First Quarter
(through _______, 1994)
</TABLE>
On October 25, 1993, the business day immediately preceding the
announcement of a letter of intent concerning the Merger, the last reported sale
price for Compass Common Stock was $23.25. On ___________, 1994, the last
reported sale price for Compass Common Stock was $_______. There is no
assurance that such transactions or those reflected in the table of actual high
and low sales prices represent all or a representative sample of the actual
transactions which occurred or that the high and low prices shown reflect the
full ranges at which transactions occurred during the period indicated.
There is no active public trading market for Security Stock, although it is
traded infrequently in private transactions about which Security's management
has little reliable information.
- 19 -
<PAGE>
THE MERGER
The following information relating to the Merger is not intended to be a
complete description of all information relating to the Merger and is qualified
in its entirety by reference to more detailed information contained elsewhere in
this Proxy Statement/Prospectus, including the Appendices hereto and the
documents referred to herein or incorporated herein by reference. A copy of the
Merger Agreement is included as Appendix I, and is incorporated herein by
reference.
GENERAL
The Merger Agreement provides for the merger of Security with and into
Interim in accordance with the terms and conditions of the Merger Agreement.
Interim will be the surviving entity in the Merger and the separate existence of
Security will cease. The officers and directors of Interim will continue to be
the officers and directors of the surviving bank after the Merger. Compass
intends that Security's personnel will remain following the Merger. Following
the Merger, Interim will merge into Compass Bank-Houston and the former Security
locations will become branches of Compass Bank-Houston. SEE "SUMMARY--CONDITIONS
TO CONSUMMATION AND REGULATORY APPROVALS"; "THE MERGER--OPERATIONS AFTER THE
MERGER"; "THE MERGER--GOVERNMENT APPROVALS"; AND APPENDIX I.
The Merger Agreement provides for the holders of Security Stock at the
Effective Time, other than dissenting shareholders, to receive aggregate merger
consideration equal to that number of shares of Compass Common Stock (as
adjusted due to the exercise of dissenter's rights) which is equal to
$11,250,000 divided by the Compass Share Determination Market Value. If,
however, the Compass Share Determination Market Value is less than $22.00 per
share, then the number of shares of Compass Common Stock to be issued in the
Merger shall be equal to the quotient of $11,250,000 divided by $22.00 per
share. If, over specified periods of time, the average market value is less
than $20.00 per share or if the Compass Share Determination Market Value is less
than $22.00 per share, Security has the option, but is not obligated, to require
that the Merger Agreement be terminated unless Compass agrees to issue as the
Merger Consideration a number of shares of Compass Common Stock equal to
$11,250,000 divided by such average market value. Unless Compass agrees to
issue additional shares pursuant to the preceding sentence, Compass is not
obligated to issue more than 511,363 shares of Compass Common Stock as the
Merger Consideration. The decision of the Board of Directors of Security
regarding whether to terminate the Merger Agreement will be made in its sole
discretion and could result in either (i) Security shareholders receiving Merger
Consideration with an aggregate market value of less than $11,250,000, (ii) the
termination of the Merger Agreement, or (iii) Compass agreeing to increase the
number of shares of Compass Common Stock constituting the Merger Consideration.
If the Board of Directors of Security elects to terminate the Merger Agreement,
there can be no assurance that Compass will agree to increase the number of
shares of Compass Common Stock constituting the Merger Consideration and that
the Merger Agreement will not terminate, in which event the Security
shareholders would not receive any Merger Consideration but would retain their
Security Stock.
Holders of Security Common Stock shall receive for each share of Security
Common Stock held at the Effective Time a number of shares of Compass Common
Stock equal to the Per Share Merger Consideration.
Holders of Security Class A Preferred Stock and Security Class B Preferred
Stock shall receive for each share of Security Class A Preferred Stock and
Security Class B Preferred Stock held at the Effective Time a number of shares
of Compass Common Stock equal to (i) the Per Share Merger Consideration,
multiplied by (ii) the number of shares of Security Common Stock into which each
such share of Security Class A Preferred Stock and Security Class B Common Stock
so held is convertible. In addition, upon conversion the Security Class A
Preferred Stock is entitled to one share of Security Common Stock for every
$12.25 of cumulative unpaid dividends with respect to such share of Security
Class A Preferred Stock. The Merger Agreement permits Security to pay all
cumulative dividends on the Security Class A Preferred Stock through the
Effective Time and the Board of Directors of Security intends to declare and pay
all cumulative dividends on the Security Class A Preferred Stock accumulated
through the Effective Time.
- 20 -
<PAGE>
Compass will not issue fractional shares of Compass Common Stock, but
instead will pay cash to any shareholder otherwise entitled to receive a
fractional share. Such cash payment shall be based on the Per Share Merger
Consideration.
The Merger Agreement also provides that the Merger Consideration,
consisting of shares of Compass Common Stock, shall be adjusted to give effect
to any stock dividends or splits with respect to Compass Common Stock occurring
between the date of execution of the Merger Agreement and the Effective Time.
SEE "SUMMARY--THE MERGER"; "SUMMARY--DISSENTERS' RIGHTS"; "THE
MERGER--DISSENTERS' RIGHTS"; APPENDIX I; AND APPENDIX II.
As of the Record Date, there were 349,025 shares of Security Common Stock
issued and outstanding, 28,479 shares of Security Class A Preferred Stock issued
and outstanding, and 56,958 shares of Security Class B Preferred Stock issued
and outstanding. There are also Options outstanding exercisable for 33,957
shares of Security Common Stock. All Options not exercised prior to the
Effective Time will terminate. Assuming the exercise of all outstanding Options
prior to the Effective Time, there will be 382,982 shares of Security Common
Stock issued and outstanding immediately prior to the Effective Time. Assuming
that (i) there will be 382,982 shares of Security Common Stock, 56,958 shares of
Security Class A Preferred Stock and 28,479 shares of Security Class B Preferred
Stock issued and outstanding as of the Effective Time; (ii) all cumulative
unpaid dividends on the Security Class A Preferred Stock will be paid, and (iii)
the Share Determination Market Value will be $________ (closing sale price on
________, 1994), each shareholder of Security (except for shareholders choosing
to exercise their dissenters' rights) will be entitled to receive ____ shares of
Compass Common Stock for each share of Security Stock held. SEE "INTRODUCTION";
"SUMMARY--THE MERGER"; AND APPENDIX I.
The Merger must be approved by the affirmative vote of the holders of
two-thirds of the outstanding shares of Security Common Stock, two-thirds of the
outstanding shares of Security Class A Preferred Stock and two-thirds of the
outstanding shares of Security Class B Preferred Stock entitled to vote at the
Meeting. SEE "INTRODUCTION"; "SUMMARY--SHAREHOLDER VOTES REQUIRED"; "THE
MERGER--OTHER TERMS AND CONDITIONS"; AND APPENDIX I.
Of the 349,025 shares of Security Common Stock, 28,479 shares of Security
Class A Preferred Stock and 56,958 shares of Security Class B Preferred Stock
currently outstanding, 342,825, or 98.2%, of the Security Common Stock, 24,355
or 85.5% of the Security Class A Preferred Stock and 48,710, or 85.5%, of the
Security Class B Preferred Stock are subject to the Security Voting Agreement
pursuant to which the Voting Representatives will vote such shares at any
meeting on any issue with respect to which the Security shareholders would
otherwise have the right to vote their respective shares, including the right to
vote to merge Security with a third party. Accordingly, the Voting
Representatives have the power to vote the shares of Security Stock which are
subject to the Security Voting Agreement at the Meeting with respect to the
Merger.
Subject to certain termination rights, the Voting Representatives under the
Security Voting Agreement, have agreed, pursuant to a Proxy, to vote all of the
Security Stock subject to such Voting Agreement in favor of the Merger. BECAUSE
THE VOTING REPRESENTATIVES HAVE THE POWER TO VOTE OVER TWO-THIRDS OF THE SHARES
OF EACH CLASS OF SECURITY STOCK ISSUED AND OUTSTANDING, THE EFFECT OF THEIR
AGREEMENT TO VOTE IN FAVOR OF THE MERGER IS TO ASSURE APPROVAL OF THE MERGER BY
THE SECURITY SHAREHOLDERS. SEE "INTRODUCTION"; "SUMMARY--SHAREHOLDER VOTES
REQUIRED"; AND "INFORMATION ABOUT SECURITY--MANAGEMENT AND PRINCIPAL
SHAREHOLDERS".
Interim will have 50 shares of common stock, $100 par value per share,
issued and outstanding, all of which will be owned and held by Compass. Subject
to the satisfaction or waiver of all of the conditions to the parties'
obligations to effect the Merger, Compass, as sole shareholder of Interim, will
approve the Merger Agreement in the manner prescribed by the GCL, and the
Security shareholders will be asked to approve the Merger at the Meeting. The
Board of Directors of Security has approved the Merger Agreement in the manner
prescribed by the NBA, and the Board of Directors of Interim will approve the
Merger as required by the Texas Banking Code. SEE "SUMMARY--SHAREHOLDER VOTES
REQUIRED".
- 21 -
<PAGE>
The Merger will be effective as soon as practicable following the receipt
of all necessary regulatory approvals and the satisfaction of all conditions to
the consummation of the Merger. At the Effective Time, by operation of law,
holders of Security Stock (other than those shareholders who perfect their
dissenters' rights of appraisal) will become owners of Compass Common Stock and
will no longer be owners of Security Stock. After the Effective Time, all
certificates for Security Stock will represent the right to receive Compass
Common Stock pursuant to the Merger Agreement, but otherwise will be null and
void after such date. SEE "SUMMARY--DISSENTERS' RIGHTS"; "THE
MERGER--DISSENTERS' RIGHTS"; AND APPENDIX II.
BACKGROUND AND REASONS FOR THE MERGER
Compass and Compass of Texas began analyzing the possible acquisition of
Security in August of 1993, and contacted Security at that time.
Representatives of Security and Compass of Texas commenced discussions
concerning a possible affiliation of the two entities and, in September of 1993,
Compass and Security executed a letter of intent. In evaluating whether to
affiliate with Compass, Security's management considered the value of Security
Stock, competitive conditions in the market served by Security, the prospects
for trading Security Stock, Security's future growth prospects in light of the
Houston economy, and the fact that Compass Common Stock is publicly traded and
has a history of paying dividends. In addition, Security believed that
affiliating with Compass, a larger financial institution with significantly
greater financial resources and expertise, offered expansion opportunities and
services not otherwise available to Security and its customers, which would
better enable Security to compete. Security and its Board of Directors
determined that Security's competitive position and the value of its stock could
best be enhanced through affiliation with Compass. SEE "SUMMARY--THE MERGER";
"SUMMARY--REASONS FOR THE MERGER; RECOMMENDATION OF BOARD OF DIRECTORS"; AND
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION OF SECURITY--CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL CONDITION".
The Board of Directors of Security was interested in the prospect of
affiliating with a larger institution which has significantly greater financial
resources and more diversified operations. Holders of Security Stock will
benefit from receiving common stock in a larger company with a history of paying
dividends on its common stock. Security's customers will have access to a much
larger banking network with greater services and higher lending limits.
Security engaged Alex Sheshunoff & Co. Investment Banking to review the fairness
of the Merger to the shareholders of Security from a financial point of view.
SEE "THE MERGER--OPINION OF FINANCIAL ADVISOR".
Compass and Compass of Texas have considered further expansion
opportunities in Houston in order to enlarge their Houston operations to a more
economical size and to expand into additional market areas. Acquiring Security
will result in economies of scale and increase the market served by Compass'
affiliates in the greater Houston market. It will also assist Compass' Texas
affiliates in providing the management and organizational flexibility needed to
expand elsewhere in Texas by branching and other acquisitions.
Following arm's length negotiations between representatives of Compass and
Security and the receipt of a fairness opinion by the Board of Directors of
Security as described below, Compass and Security entered into the Merger
Agreement on November 19, 1993. The aggregate price to be paid to holders of
Security Common Stock resulted from negotiations which considered the historical
earnings and dividends of Compass and Security, the earnings potential and
deposit base of Security, potential growth in Security's market, Security's
asset quality and the effect of the Merger on the shareholders, customers and
employees of Compass and Security. SEE "SUMMARY--THE MERGER".
Subject to the shareholders of Security receiving Merger Consideration with
a market value (as determined in accordance with the Merger Agreement) of at
least $11,250,000, Security's Board of Directors believes the Merger to be in
the best interest of Security's shareholders. Security's Board of Directors,
however, has not addressed, and is not expressing any opinion regarding, whether
the receipt of Merger Consideration in an amount less than $22.00 per share is
in the best interest of Security's shareholders. SECURITY'S BOARD OF
- 22 -
<PAGE>
DIRECTORS UNANIMOUSLY RECOMMENDS THAT SECURITY SHAREHOLDERS VOTE FOR APPROVAL OF
THE MERGER and has authorized consummation thereof subject to approval of the
Security shareholders and the satisfaction of certain other conditions. SEE
"SUMMARY--REASONS FOR THE MERGER; RECOMMENDATION OF BOARD OF DIRECTORS".
OPINION OF FINANCIAL ADVISOR
As indicated above, Alex Sheshunoff & Co. Investment Banking delivered a
written opinion and orally advised the Security Board of Directors that in its
opinion, as of the date of such opinion, the consideration to be paid to the
shareholders of Security pursuant to the Merger Agreement was fair to the
shareholders of Security from a financial point of view. A copy of the written
opinion of Alex Sheshunoff & Co. Investment Banking is attached to this Proxy
Statement as Appendix III, and the shareholders of Security are urged to read it
in its entirety for a description of the procedures followed, the factors
considered and the assumptions and qualifications made by Alex Sheshunoff & Co.
Investment Banking.
For its services, Security paid Alex Sheshunoff & Co. Investment Banking a
fee of $15,000. Security has also agreed to indemnify Alex Sheshunoff & Co.
Investment Banking against certain liabilities and expenses in connection with
its engagement, including liabilities under the federal securities laws.
OPERATIONS AFTER THE MERGER
Compass and Interim presently intend that immediately following the
completion of the Merger, Interim will be merged with and into Compass
Bank-Houston, subject to the necessary regulatory approvals. Thereafter, the
separate existence of Interim will cease, and the former offices of Security
will become branches of Compass Bank-Houston. SEE "SUMMARY--CONDITIONS TO
CONSUMMATION AND REGULATORY APPROVALS; TERMINATION"; "THE MERGER--GENERAL"; AND
"THE MERGER--OTHER TERMS AND CONDITIONS".
OTHER TERMS AND CONDITIONS
The Merger Agreement contains a number of terms, conditions,
representations and covenants which must be satisfied as of the Effective Time,
including, but not limited to, the following:
(i) Receipt of required regulatory approvals and the expiration of
any applicable waiting periods with respect thereto. SEE "THE
MERGER--GOVERNMENT APPROVALS";
(ii) The consummation of the Merger will not violate any injunction,
order or decree of any court or governmental body having
competent jurisdiction;
(iii) Approval of the Merger by each class of shareholders of Security
entitled to vote at the Meeting;
(iv) The Registration Statement relating to the Compass Common Stock
shall be effective under the Securities Act and any applicable
state securities or blue sky laws and no stop order suspending
the effectiveness of the Registration Statement or any other
Commission or state proceedings shall be threatened or pending;
(v) Compass and Security shall have received an opinion of Liddell,
Sapp, or other counsel acceptable to Compass, that the Merger
will qualify as a reorganization under Section 368(a) of the
Code. SEE "SUMMARY--FEDERAL INCOME TAX CONSEQUENCES"; AND "THE
MERGER--FEDERAL INCOME TAX CONSEQUENCES";
(vi) The continued accuracy of the representations and warranties made
by the parties in the Merger Agreement;
- 23 -
<PAGE>
(vii) The performance of and compliance with the respective
obligations and covenants undertaken by the parties in the Merger
Agreement;
(viii) There shall not have occurred a Material Adverse Effect (as
defined in Section 10.13(b) of the Merger Agreement) with respect
to Security or Compass;
(ix) Compass shall have received from Security's directors and
executive officers their resignations and instruments dated the
Effective Time releasing Compass, Interim, Compass Bank-Houston
and Security from any and all claims of such directors and
executive officers, except with respect to accrued compensation,
rights of indemnification pursuant to the Articles of Association
and By-Laws of Security and the Indemnification Agreements
entered into between such directors and executive officers of
Security and indebtedness or contractual obligations or liability
to such directors and executive officers;
(x) Compass shall have received an opinion of counsel to Security
reasonably acceptable to it as to certain matters;
(xi) The holders of no more than 5% of the outstanding shares of
Security Stock shall have demanded or be entitled to demand
payment of the fair value of their shares as dissenting
shareholders;
(xii) Compass shall have received a letter from KPMG Peat Marwick,
dated as of the Effective Time, to the effect that the Merger
will qualify for pooling-of-interests accounting treatment if
closed and consummated in accordance with the Merger Agreement.
SEE "SUMMARY--ACCOUNTING TREATMENT"; AND "THE MERGER--ACCOUNTING
TREATMENT";
(xiii) Compass shall have received from Security shareholders
receiving at least 50% of the total Merger Consideration (as
defined in Section 1.6(a) of the Merger Agreement) a
representation that they have no present plan or intention to
sell or otherwise dispose of shares of Compass Common Stock
received pursuant to the Merger;
(xiv) All of the Options shall have been exercised or expired
unexercised;
(xv) Security shall have delivered to Compass a schedule of all
transactions in the capital stock of Security and the Options, of
which Security has knowledge, from the date of the Merger
Agreement through the Effective Time;
(xvi) Security shall have received an opinion of counsel to Compass
reasonably acceptable to it as to certain matters;
(xvii) The officers and directors of Security shall have received an
instrument dated the Effective Time releasing such directors and
officers from any and all claims of Security, except as to
actions arising from intentional fraud, deceit or wilful
misconduct of such officers and directors and such officers' and
directors' obligations and liabilities in connection with any
indebtedness or other contractual liabilities to Security; and
(xviii) Interim and Security shall have received certificates of the
other as to certain items described in (vi)-(viii) and (xi)
above.
Any condition to the consummation of the Merger, except the required shareholder
and regulatory approvals, may be waived in writing by the party to the Merger
Agreement entitled to the benefit of such condition. SEE APPENDIX I.
- 24 -
<PAGE>
ADDITIONAL AGREEMENTS
Each of the directors, executive officers and principal shareholders of
Security has entered into a Pooling Transfer Restrictions Agreement with Compass
and Security pursuant to which they have agreed, among other things, (i) not to
transfer any of their respective shares of Security Stock within 30 days prior
to the Effective Time, (ii) not to transfer any shares of Compass Common Stock
acquired by them in the Merger until the publication of financial results
covering at least 30 days of post-Merger combined operations of Security and
Compass, except for shareholder pledges to secure loans, provided the lender
agrees to be bound by the terms of the Pooling Transfer Restrictions Agreement,
and (iii) not to transfer such Compass Common Stock except in compliance with
the applicable provisions of the Securities Act and the Exchange Act, and the
respective rules and regulations thereunder.
Pursuant to the Proxy, the Voting Representatives have agreed to vote at
the Meeting all the shares of Security Stock which such Voting Representatives
have the authority to vote as of the date of the Meeting in favor of the Merger.
As of the date hereof, the Voting Representatives have the power to vote an
aggregate of 342,825 shares of Security Common Stock, 24,355 shares of Security
Class A Preferred Stock and 48,710 shares of Security Class B Preferred Stock.
The shares subject to the Proxy represent 98.2% of the total shares of Security
Common Stock, 85.5% of the total shares of Security Class A Preferred Stock and
85.5% of the total shares of Security Class B Preferred Stock issued and
outstanding and entitled to vote at the Meeting. As part of the Proxy, each of
such Voting Representatives granted to Compass a proxy with respect to such
shares for the purpose of voting such shares in favor of the Merger in the event
such Voting Representatives do not vote in favor of the Merger. BECAUSE THE
VOTING REPRESENTATIVES CONTROL, WITH THE POWER TO VOTE, OVER TWO-THIRDS OF THE
SHARES OF SECURITY COMMON STOCK AND SECURITY PREFERRED STOCK ISSUED AND
OUTSTANDING, THE EFFECT OF THEIR AGREEMENT TO VOTE IN FAVOR OF THE MERGER IS TO
ASSURE APPROVAL OF THE MERGER BY THE SECURITY SHAREHOLDERS. SEE "INTRODUCTION";
"SUMMARY--SHAREHOLDER VOTES REQUIRED"; "THE MERGER--GENERAL"; AND "INFORMATION
ABOUT SECURITY--BENEFICIAL OWNERSHIP OF SECURITY COMMON STOCK BY SECURITY
MANAGEMENT AND PRINCIPAL SHAREHOLDERS".
BUSINESS PENDING EFFECTIVE TIME
The Merger Agreement imposes certain limitations on the conduct of
Security's business pending consummation of the Merger. Among other things,
Security must conduct its business only in the ordinary course, consistent with
prudent banking practices. SEE "THE MERGER--OTHER TERMS AND CONDITIONS"; AND
APPENDIX I.
AMENDMENT; TERMINATION
The Merger Agreement may be amended or supplemented at any time, before or
after the Meeting, by an instrument in writing duly executed by all the parties
thereto. However, no change which reduces the Merger Consideration or which
materially and adversely affects the rights of Security shareholders can be made
after the Meeting without the approval of Security's shareholders.
The Merger Agreement may be terminated and the Merger abandoned,
notwithstanding approval by Security shareholders, at any time before the
Effective Time by:
(i) mutual written consent duly authorized by the Boards of Directors
of Compass and Security;
(ii) Compass (a) if Compass learns or becomes aware of a state of
facts or breach or inaccuracy of any representation or warranty
of Security which constitutes a Material Adverse Effect, as
defined in the Merger Agreement, as to Security, (b) if over
specified periods of time the average market value of the Compass
Common Stock is less than $20.00 per share or the Compass Share
Determination Market Value is less than $22.00 per share and
Security exercises its right to
- 25 -
<PAGE>
terminate the Merger Agreement and Compass does not override such
termination by increasing the Merger Consideration as set forth
in Section 1.6(b) of the Merger Agreement, (c) due to certain
unacceptable environmental circumstances pursuant to Section 6.10
of the Merger Agreement, (d) if the factual substance of certain
warranties and representations regarding certain Security assets
is not true and accurate, or (e) if the conditions to the
obligation of Compass and Interim to effect the Merger contained
in the Merger Agreement are not satisfied or waived in writing by
Compass;
(iii) Security (a) if Security learns or becomes aware of a state of
facts or breach or inaccuracy of any representation or warranty
of Compass which constitutes a Material Adverse Effect, as
defined in the Merger Agreement, as to Compass, (b) if over
specified periods of time the average market value of the Compass
Common Stock is less than $20.00 per share or the Compass Share
Determination Market Value is less than $22.00 per share and
Security exercises its right to terminate the Merger Agreement
and Compass does not override such termination by increasing the
Merger Consideration as set forth in Section 1.6(b) of the Merger
Agreement, or (c) if the conditions to the obligation of Security
to effect the Merger contained in the Merger Agreement are not
satisfied or waived in writing by Security;
(iv) Compass or Security if the Effective Time shall not have occurred
on or before August 19, 1994, or such later date agreed to in
writing by Compass and Security; or
(v) Compass or Security if any court of competent jurisdiction in the
United States or other United States (federal or state)
governmental body shall have issued an order, decree or ruling or
taken any other action restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other
action is final and nonappealable. SEE "SUMMARY--CONDITIONS TO
CONSUMMATION AND REGULATORY APPROVALS; TERMINATION"; "THE
MERGER--GENERAL"; "THE MERGER--OTHER TERMS AND CONDITIONS"; AND
APPENDIX I.
Upon termination of the Merger Agreement, the Merger Agreement shall be
void and have no effect, without any liability on the part of any party or its
directors, officers or shareholders, except as otherwise expressly provided in
the Merger Agreement and provided that the parties shall not be relieved of
liability for any breach of the Merger Agreement. In the event the Merger
Agreement is terminated as a result of the Compass Share Determination Market
Value being less than $22.00, Compass has agreed to reimburse Security for its
reasonable out-of-pocket legal and accounting fees incurred in connection with
the transactions contemplated in the Merger Agreement in an amount equal to the
lesser of (i) Security's reasonable out-of-pocket legal and accounting fees
related to the transactions contemplated by the Merger Agreement, or (ii)
$70,000.
EXCHANGE OF SHARES
As soon as practicable after the Effective Time, River Oaks Trust Company,
which will serve as the exchange agent in connection with the Merger, will
furnish each holder of record of Security Stock as of the Effective Time with
transmittal materials for use in exchanging certificates representing Security
Stock for certificates representing Compass Common Stock in accordance with the
Exchange Agent Agreement (attached as Exhibit B to the Merger Agreement). The
transmittal materials will contain information and instructions with respect to
the procedure for exchanging such certificates. The certificates for Compass
Common Stock will be delivered to the persons entitled thereto, within a
reasonable time after delivery of Security Stock certificates for exchange
accompanied by the appropriate transmittal materials.
Under the terms of the Merger Agreement, Compass will not issue
certificates representing fractional shares of Compass Common Stock, and in lieu
thereof, shall pay cash to any holder of Security Stock otherwise entitled to
receive such fractional share. Such cash payment shall be based on the Compass
Share Determination Market
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<PAGE>
Value. SEE "SUMMARY--FEDERAL INCOME TAX CONSEQUENCES"; "THE MERGER--FEDERAL
INCOME TAX CONSEQUENCES"; AND APPENDIX I.
Persons who are entitled to receive Compass Common Stock pursuant to the
Merger will not be entitled to vote such Compass Common Stock or to receive any
dividends thereon until they have properly surrendered their certificates
representing Security Stock in exchange for certificates representing Compass
Common Stock.
Upon the Effective Time of the Merger, former Security shareholders will
cease to have any rights as shareholders of Security, and the Security
shareholders shall only have the right to receive the Merger Consideration
specified in the Merger Agreement or, in the case of dissenting shareholders, to
exercise their rights under the NBA. SEE "THE MERGER--DISSENTERS' RIGHTS".
DISSENTERS' RIGHTS
The NBA provides, in substance, that a shareholder of Security who votes
against the Merger or has given notice to Security in writing at or prior to the
Meeting that he is dissenting from the Merger shall be entitled to receive in
cash the value of his Security Stock after the consummation of the Merger. IN
ORDER TO CLAIM THIS RIGHT, A DISSENTING SHAREHOLDER MUST (I) EITHER VOTE AGAINST
THE MERGER OR GIVE WRITTEN NOTICE TO SECURITY AT OR PRIOR TO THE MEETING THAT HE
OR SHE DISSENTS FROM THE MERGER AND (II) WITHIN THIRTY DAYS FOLLOWING THE
CONSUMMATION OF THE MERGER, MAKE WRITTEN DEMAND UPON INTERIM FOR SUCH PAYMENT,
ACCOMPANIED BY THE SURRENDER OF THE CERTIFICATES REPRESENTING HIS SHARES OF
SECURITY STOCK. FAILURE TO COMPLETE ALL REQUIRED STEPS TO PERFECT THE RIGHT TO
DISSENT WILL RESULT IN THE LOSS OF SUCH RIGHT. INTERIM WILL PROVIDE WRITTEN
NOTICE OF THE CONSUMMATION OF THE MERGER TO THOSE HOLDERS OF SECURITY STOCK WHO
VOTED AGAINST THE MERGER OR GAVE WRITTEN NOTICE PRIOR TO THE MEETING OF THEIR
ELECTION TO DISSENT. SEE "SUMMARY--DISSENTERS' RIGHTS"; "COMPARISON OF RIGHTS
OF SHAREHOLDERS OF SECURITY AND COMPASS--DISSENTERS' RIGHTS"; AND APPENDIX II.
The value of any shares of Security Stock submitted for appraisal will be
determined as of the date of the Meeting by an appraisal made by a committee of
three persons. This committee will be comprised of one member selected by the
vote of the holders of a majority of the shares submitted for appraisal, one
member selected by Interim, and one member selected by the other two members. If
the value determined by two of the three committee members shall be
unsatisfactory to any dissenting shareholder, or if such committee is not formed
or cannot reach a decision within 90 days following the consummation of the
Merger, upon written request of any interested party, the Office of the
Comptroller of the Currency ("OCC") will cause a binding appraisal to be made.
The expenses of the OCC in making such appraisal or reappraisal, as the case may
be, will be paid by Interim. Expenses other than those incurred by Interim and
those which Interim is required to pay will be borne by the dissenting
shareholder. The value of the shares ascertained shall be promptly paid to the
dissenting holder thereof by Interim. SEE "SUMMARY--DISSENTERS' RIGHTS";
"COMPARISON OF RIGHTS OF SHAREHOLDERS OF SECURITY AND COMPASS--DISSENTERS'
RIGHTS"; AND APPENDIX II.
It is a condition to Compass' obligations under the Merger Agreement that
not more than 5% of the outstanding shares of Security Stock shall have been
determined to be held by dissenting or potentially dissenting shareholders. If
such condition is not met, Compass will be entitled to terminate the Merger
Agreement. SEE "THE MERGER AGREEMENT--OTHER TERMS AND CONDITIONS".
SEE "THE MERGER--FEDERAL INCOME TAX CONSEQUENCES" for a description of the
tax consequences of exercising dissenters' rights.
This summary of the rights of dissenting shareholders is qualified in its
entirety by the relevant provisions of the NBA (attached hereto as Appendix II).
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FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Liddell, Sapp, the Merger, if consummated in accordance
with the Merger Agreement, will qualify as a tax-free "reorganization" within
the meaning of Section 368(a) of the Code. An opinion of counsel is not binding
on the Internal Revenue Service ("IRS") or the courts.
Liddell, Sapp has relied upon certain assumptions and representations in
issuing its opinion, including the following:
1. Security shareholders will receive only Compass Common Stock in
the Merger and they will not receive or be deemed by the IRS to
receive any cash (other than cash paid in lieu of fractional
shares of Compass Common Stock) or other property which would
constitute "boot" for federal income tax purposes.
2. Compass has received representations from certain Security
shareholders receiving at least 50% of the Compass Common Stock
issued in the Merger stating that they have no present intention
to dispose of the Compass Common Stock received.
In such counsel's opinion, the following federal income tax consequences to
Security shareholders will result from the qualification of the Merger as a
reorganization under Section 368(a) of the Code:
1. A Security shareholder will not recognize any gain or loss upon
the exchange of his Security Stock solely for Compass Common
Stock.
2. The aggregate tax basis of Compass Common Stock received by a
Security shareholder in the Merger will be the same as the
aggregate basis of the Security Stock surrendered in exchange
therefor. For purposes of allocating this aggregate basis to
individual shares of Compass Common Stock received, the IRS
position is that each separate block of stock surrendered shall
be treated separately. Under this rule, for example, if a
Security shareholder surrenders two blocks of Security Stock in
the Merger, having an adjusted basis of $1.00 per share for the
first block and $2.00 per share for the second block, the Compass
Common Stock which he receives in exchange for each share of
Security Stock in the first block will have a basis of $1.00, and
the Compass Common Stock which he receives in exchange for each
share of Security Common Stock in the second block will have a
basis of $2.00.
3. The holding period of Compass Common Stock to be received by each
Security shareholder will include the period during which he held
the Security Stock surrendered in exchange therefor, provided
that the Security Stock is held as a capital asset on the date of
the exchange.
4. The payment of cash in lieu of fractional shares of Compass
Common Stock will be treated as if the fractional shares were
distributed as part of the exchange and then redeemed by Compass.
Such cash payment will be treated as having been received as a
distribution in full payment in exchange for the stock redeemed
as provided in Section 302 of the Code.
5. For a Security shareholder who dissents from the Merger and
receives solely cash in exchange for his Security Stock, such
cash will be treated as having been received by such shareholder
as a distribution in redemption of his stock, subject to the
provisions and limitations of Section 302 of the Code.
SEE "SUMMARY--CONDITIONS TO CONSUMMATION AND REGULATORY APPROVALS; TERMINATION";
AND "SUMMARY--FEDERAL INCOME TAX CONSEQUENCES".
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<PAGE>
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR
GENERAL INFORMATION ONLY. SECURITY SHAREHOLDERS ARE URGED TO CONSULT WITH THEIR
OWN TAX ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE
MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN INCOME OR
OTHER TAX LAWS.
Compass and Security expect to receive a legal opinion from Liddell, Sapp
at the Closing that the Merger will qualify as a reorganization under Section
368(a) of the Code in satisfaction of a condition to consummation of the
Merger. SEE "THE MERGER--OTHER TERMS AND CONDITIONS".
GOVERNMENT APPROVALS
The Merger is subject to, and conditioned upon, receipt of approval from
the Commissioner and either approval of a formal application under the BHC Act
by the Federal Reserve, or confirmation by the Federal Reserve that a formal
application under the BHC Act is not required. The Merger will also require the
approval of the FDIC. A request for confirmation that no formal application
under the BHC Act is required has been submitted to the Federal Reserve, and
applications to the FDIC and the Commissioner have been submitted with respect
to the Merger, which approvals are expected to be issued timely.
If the Federal Reserve requires a formal application under the BHC Act, the
Merger may not be consummated for a period of 30 days after Federal Reserve
approval. In addition, the Merger may not be consummated for a period of 30 days
following FDIC approval. During either such 30 day waiting period, the Justice
Department may object to the Merger on antitrust grounds, which action will stay
the consummation of the transactions unless otherwise ordered by an appropriate
judicial authority. Neither Security nor Compass has any reason to believe that
the Justice Department will take any action to stay the approval of the Merger.
Chapter IX of the Texas Banking Code allows out-of-state bank holding
companies to acquire bank holding companies that own or control state or
national banks located within Texas. Under the Texas Banking Code, an
out-of-state bank holding company, such as Compass, must provide the
Commissioner with, among other things, certain agreements as to compliance with
the law and evidence as to certain financial matters. The Commissioner must make
a recommendation to the Federal Reserve as to whether the transaction should be
approved under the BHC Act. To date, the parties are not aware of and do not
expect any adverse recommendation from the Commissioner.
Compass believes that its acquisition of Security will comply with all
provisions of the Texas Banking Code. As required by the Texas Banking Code,
Compass has entered into an agreement with the Commissioner containing certain
provisions with respect to all national and state bank subsidiaries located in
Texas. SEE "SUMMARY--CONDITIONS TO CONSUMMATION AND REGULATORY APPROVALS";
"TERMINATION"; AND "SUPERVISION AND REGULATION".
ACCOUNTING TREATMENT
Compass expects to account for the Merger using the "pooling-of-interests"
method of accounting. Compass has received a letter from KPMG Peat Marwick,
dated as of the date of the Merger Agreement and to be updated as of the
Effective Time, to the effect that the Merger will qualify for
pooling-of-interests accounting treatment. Under this accounting method, at the
Effective Time, Security's assets and liabilities will be added at their
recorded book values to those of Compass, and its shareholders' equity will be
added to Compass' consolidated balance sheet. Income and other financial
statements of Compass issued after consummation of the Merger will be restated
retroactively to reflect the consolidated operations of Security and Compass as
if the Merger had taken place prior to the periods covered by such financial
statements. SEE "SUMMARY--ACCOUNTING TREATMENT"; "SELECTED FINANCIAL DATA"; AND
"THE MERGER--OTHER TERMS AND CONDITIONS".
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<PAGE>
SUPERVISION AND REGULATION
GENERAL
Bank holding companies and banks are regulated extensively under both
federal and state law. Compass and Compass of Texas are subject to regulation by
the Federal Reserve and their respective bank subsidiaries (the "Subsidiary
Banks") are subject to regulation by the OCC, FDIC and/or the appropriate state
banking departments. The deposits of each of the Subsidiary Banks are insured by
the FDIC, and Compass Bank and Compass Bank, N.A., are members of the Federal
Reserve System. Although the various laws and regulations which apply to
Compass and its Subsidiary Banks are intended to insure safe and sound banking
practices, they are mainly intended to benefit depositors and the federal
deposit insurance fund, not the shareholders of Compass. The following
discussion highlights certain laws and regulations affecting Compass and the
Subsidiary Banks and should be read in conjunction with the more detailed
information incorporated by reference herein. SEE "INCORPORATION OF DOCUMENTS
BY REFERENCE".
COMPASS AND COMPASS OF TEXAS
Compass and Compass of Texas are bank holding companies within the meaning
of the BHC Act and are registered as such with the Federal Reserve. As bank
holding companies, Compass and Compass of Texas are required to file with the
Federal Reserve an annual report and such additional information as the Federal
Reserve may require pursuant to the BHC Act. The Board may also make
examinations of the Company and each of its subsidiaries. Under the BHC Act,
bank holding companies are prohibited, with certain exceptions, from acquiring
direct or indirect ownership or control of more than five percent of the voting
shares of any company engaging in activities other than banking or managing or
controlling banks or furnishing services to or performing services for their
banking subsidiaries. However, the BHC Act authorizes the Federal Reserve to
permit bank holding companies to engage in, and to acquire or retain shares of
companies that engage in, activities which the Federal Reserve determines to be
so closely related to banking or managing or controlling banks as to be a proper
incident thereto.
The BHC Act requires a bank holding company to obtain the prior approval of
the Federal Reserve before it may acquire substantially all of the assets of any
bank or ownership or control of any voting shares of any bank if, after such
acquisition, it would own or control, directly or indirectly, more than five
percent of the voting shares of any such bank. The BHC Act prohibits the Federal
Reserve from approving an application by a registered bank holding company to
acquire shares of a bank located outside of the state in which the operations of
the applicant's banking subsidiaries are principally conducted unless such
acquisition is specifically authorized by the laws of the state in which the
bank to be acquired is located or the acquisition involves a closed or failed
bank, which also requires special regulatory approval.
The States of Alabama, Florida, and Texas, where Compass currently operates
banking subsidiaries, each have laws relating specifically to acquisitions of
banks, bank holding companies, and other types of financial institutions in
those states by financial institutions that are based in, and not based in,
those states. In 1986, the State of Alabama enacted a regional reciprocal
banking act. In general, the Alabama statute permits Alabama banks and bank
holding companies to be acquired by regional bank holding companies and
effectively permits Alabama banks and bank holding companies to acquire banks
located in 14 other designated jurisdictions including Texas and Florida if such
jurisdictions have adopted reciprocal statutes. Texas law currently permits
out-of-state bank holding companies to acquire banks in Texas regardless of
where the acquiror is based, subject to the satisfaction of various conditions
such as agreements with respect to compliance with state law and evidence as to
certain financial matters.
Florida's regional reciprocal banking act, enacted in 1984, permits
acquisitions of banks and bank holding companies in Florida by financial
institutions based in 13 designated jurisdictions other than Florida including
Alabama, but not Texas. As a result of acquisitions in Texas which had the
effect of increasing its consolidated deposits outside of Florida's region,
Compass does not meet the definition of a regional bank holding company under
Florida law. Therefore, in order to complete certain acquisitions in Florida,
Compass established a Florida
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<PAGE>
subsidiary federal savings bank into which Compass merged the banks which it had
agreed to acquire. Unless there is additional growth by Compass within
Florida's region or a change in governing statutes at the state or federal
level, any Florida banks or other financial institutions that are acquired by
Compass in the future will be held by Compass as part of Compass' federal
savings bank in Florida.
Because the laws of the states designated in Alabama's and Florida's
regional reciprocal banking statutes are not uniform, there is an absence of
complete symmetry with respect to the permissibility of interstate expansion in
Alabama, Florida, Texas and other states in which Compass may in the future seek
to undertake acquisitions. Unless and until federal or state legislation is
enacted which permits nationwide interstate acquisitions of banks, bank holding
companies, and other types of financial institutions, the Company may encounter
various restrictions and limitations with respect to acquisitions outside of the
States of Alabama and Texas by virtue of state laws relating to interstate
expansion.
The Federal Reserve Act generally imposes certain limitations on extensions
of credit and other transactions by and between banks which are members of the
Federal Reserve System and other affiliates (which includes any holding company
of which such bank is a subsidiary and any other non-bank subsidiary of such
holding company). Banks which are not members of the Federal Reserve System are
also subject to these limitations. Further, federal law prohibits a bank holding
company and its subsidiaries from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of property, or the
furnishing of services.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") enacted major regulatory reforms, stronger capital standards for
savings associations and stronger civil and criminal enforcement provisions.
FIRREA allows the acquisition of healthy and failed savings associations by bank
holding companies and imposes no interstate barriers on such bank holding
company acquisitions. With certain qualifications, FIRREA also allows bank
holding companies to merge acquired savings and loans into their existing
commercial bank subsidiaries. FIRREA also provides that a depository institution
insured by the FDIC can be held liable for any loss incurred by, or reasonably
expected to be incurred by, the FDIC after August 9, 1989 in connection with (i)
the default of a commonly controlled FDIC-insured depository institution or (ii)
any assistance provided by the FDIC to a commonly controlled FDIC-insured
depository institution in danger of default.
In December of 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") was enacted. This act recapitalized the Bank Insurance
Fund ("BIF"), of which the Subsidiary Banks are members, substantially revised
statutory provisions, including capital standards, restricted certain powers of
state banks, gave regulators the authority to limit officer and director
compensation and required holding companies to guarantee the capital compliance
of their banks in certain instances. Among other things, FDICIA requires the
federal banking agencies to take "prompt corrective action" with respect to
banks that do not meet minimum capital requirements. FDICIA establishes five
capital tiers: "well capitalized", "adequately capitalized", "undercapitalized",
"significantly undercapitalized" and "critically undercapitalized", as defined
by regulations recently adopted by the Federal Reserve, the FDIC and the other
federal depository institution regulatory agencies. A depository institution is
well capitalized if it significantly exceeds the minimum level required by
regulation for each relevant capital measure, adequately capitalized if it meets
such measure, undercapitalized if it fails to meet any such measure,
significantly undercapitalized if it is significantly below such measure and
critically undercapitalized if it fails to meet any critical capital level set
forth in the regulations. The critical capital level must be a level of tangible
equity capital equal to not less than 2% of total tangible assets and not more
than 65% of the minimum leverage ratio to be prescribed by regulation (except to
the extent that 2% would be higher than such 65% level). An institution may be
deemed to be in a capitalization category that is lower than is indicated by its
actual capital position if it receives an unsatisfactory examination rating.
If a depository institution fails to meet regulatory capital requirements,
the regulatory agencies can require submission and funding of a capital
restoration plan by the institution, place limits on its activities, require the
raising of additional capital and, ultimately, require the appointment of a
conservator or receiver for the institution. The obligation of a controlling
bank holding company under FDICIA to fund a capital restoration plan is limited
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<PAGE>
to the lesser of 5% of an undercapitalized subsidiary's assets or the amount
required to meet regulatory capital requirements. If the controlling bank
holding company fails to fulfill its obligations under FDICIA and files (or has
filed against it) a petition under the Federal Bankruptcy Code, the FDIC's claim
may be entitled to a priority in such bankruptcy proceeding over third party
creditors of the bank holding company.
An insured depository institution may not pay management fees to any person
having control of the institution nor may an institution, except under certain
circumstances and with prior regulatory approval, make any capital distribution
(including the payment of dividends) if, after making such payment or
distribution, the institution would be undercapitalized. FDICIA also restricts
the acceptance of brokered deposits by insured depository institutions and
contains a number of consumer banking provisions, including disclosure
requirements and substantive contractual limitations with respect to deposit
accounts.
At September 30, 1993, the Subsidiary Banks were "well capitalized", and
were not subject to any of the foregoing restrictions, including, without
limitation, those relating to brokered deposits. The Subsidiary Banks do not
rely upon brokered deposits as a primary source of deposit funding, although
such deposits are sold through the Correspondent and Investment Services
Division of Compass Bank.
FDICIA contains numerous other provisions, including new reporting
requirements, termination of the "too big to fail" doctrine except in special
cases, limitations on the FDIC's payment of deposits at foreign branches and
revised regulatory standards for, among other things, real estate lending and
capital adequacy. In addition, FDICIA requires the FDIC to establish a system of
risk-based assessments for federal deposit insurance, by which banks that pose a
greater risk of loss to the FDIC (based on their capital levels and the FDIC's
level of supervisory concern) will pay a higher insurance assessment. The full
effect of FDICIA on Compass cannot be assessed at this time.
THE SUBSIDIARY BANKS
In general, federal and state banking laws and regulations govern all areas
of the operations of the Subsidiary Banks, including reserves, loans, mortgages,
capital, issuances of securities, payment of dividends and establishment of
branches. Federal and state bank regulatory agencies also have the general
authority to limit the dividends paid by insured banks and bank holding
companies if such payments may be deemed to constitute an unsafe and unsound
practice. Federal and state banking agencies also have authority to impose
penalties, initiate civil and administrative actions and take other steps
intended to prevent banks from engaging in unsafe or unsound practices.
Compass Bank, organized under the laws of the State of Alabama, is a member
of the Federal Reserve System. As such, it is supervised, regulated and
regularly examined by the Alabama State Banking Department and the Federal
Reserve. Compass Bank, N.A. is a national banking association subject to
supervision, regulation and examination by the OCC. Compass Bank-Houston and
Compass Bank-Dallas, both of which are organized under the laws of the State of
Texas, are state banks that are not members of the Federal Reserve System. The
Texas banks are supervised, regulated and regularly examined by the Department
of Banking of the State of Texas and the FDIC. The Subsidiary Banks, as
participants in the BIF and the Savings Association Insurance Fund of the FDIC,
are subject to the provisions of the Federal Deposit Insurance Act and to
examination by and regulations of the FDIC. SEE "SUPERVISION AND
REGULATION--IMPLICATIONS OF BEING A SAVINGS AND LOAN HOLDING COMPANY".
Compass Bank is governed by Alabama laws restricting the declaration and
payment of dividends to ninety percent (90%) of annual net income until its
surplus funds equal at least twenty percent (20%) of capital stock. Compass Bank
has surplus in excess of this amount. Compass Bank-Houston and Compass
Bank-Dallas, governed by the laws of the State of Texas, are, under certain
circumstances, restricted in the declaration and payment of dividends to the
extent that before declaring any dividends, each of these banks must transfer to
its "certified surplus" accounts an amount not less than ten percent (10%) of
the net profits of such bank earned since the last dividend was declared, except
that there is no requirement for a transfer to certified surplus of a sum which
would increase the certified surplus to more than the capital stock of the
respective bank. In addition, Compass Bank-
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<PAGE>
Houston has entered into an agreement with the Commissioner that it will not
declare dividends in excess of fifty percent (50%) of its current earnings. The
approval of the OCC is required if the total of all dividends declared by
Compass Bank, N.A. in any calendar year exceeds the total of the net profits of
Compass Bank, N.A. for that year, plus its retained net profits for the
preceding two years, less any required transfers to surplus. As a member of the
Federal Reserve System, Compass Bank is also subject to dividend limitations
imposed by the Federal Reserve that are similar to those applicable to national
banks. SEE "SUPERVISION AND REGULATION--IMPLICATIONS OF BEING A SAVINGS AND
LOAN HOLDING COMPANY".
Federal law further provides that no insured depository institution may
make any capital distribution (which would include a cash dividend) if, after
making the distribution, the institution would not satisfy one or more of its
minimum capital requirements. Moreover, the federal bank regulatory agencies
also have the general authority to limit the dividends paid by insured banks if
such payments may be deemed to constitute an unsafe and unsound practice.
Insured banks are prohibited from paying dividends on its capital stock while in
default in the payment of any assessment due to the FDIC except in those cases
where the amount of the assessment is in dispute and the insured bank has
deposited satisfactory security for the payment thereof.
The Community Reinvestment Act of 1977 ("CRA") and the regulations of the
OCC, the Federal Reserve and the FDIC implementing that act are intended to
encourage regulated financial institutions to help meet the credit needs of
their local community or communities, including low and moderate income
neighborhoods, consistent with the safe and sound operation of such financial
institutions. The CRA and such regulations provide that the appropriate
regulatory authority will assess the records of regulated financial institutions
in satisfying their continuing and affirmative obligations to help meet the
credit needs of their local communities as part of their regulatory examination
of the institution. The results of such examinations are made public and are
taken into account upon the filing of any application to establish a domestic
branch, to merge or to acquire the assets or assume the liabilities of a bank.
In the case of a bank holding company, the CRA performance record of the banks
involved in the transaction are reviewed in connection with the filing of an
application to acquire ownership or control of shares or assets of a bank or to
merge with any other bank holding company. An unsatisfactory record can
substantially delay or block the transaction.
IMPLICATIONS OF BEING A SAVINGS AND LOAN HOLDING COMPANY
As a result of Compass' ownership of a federal savings bank headquartered
in Florida, Compass is a savings and loan holding company under Section 10 of
the Home Owners' Loan Act, as amended ("HOLA"). Accordingly, Compass has
registered with the Office of Thrift Supervision (the "OTS") and is subject to
OTS regulations, supervision and reporting requirements.
With certain exceptions, a savings and loan holding company must obtain the
prior written approval of the OTS before acquiring control of an insured savings
association or savings and loan holding company through the acquisition of stock
or through a merger or some other business combination. HOLA prohibits the OTS
from approving an acquisition by a savings and loan holding company which would
result in the holding company controlling savings associations in more than one
state unless (i) the holding company is authorized to do so by the FDIC as an
emergency acquisition, (ii) the holding company controls a savings association
which operated an office in the additional state or states on March 5, 1987, or
(iii) the statutes of the state in which the savings association to be acquired
is located specifically permit a savings association chartered by such state to
be acquired by an out-of-state savings association or savings and loan holding
company.
As a subsidiary of a savings and loan holding company, Compass' federal
savings association subsidiary in Florida is subject to certain restrictions in
its dealings with Compass and with other companies affiliated with Compass. In
addition, savings association subsidiaries of savings and loan holding companies
are required to give the OTS thirty days' prior notice of any proposed payment
of dividends to the savings and loan holding company.
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<PAGE>
Compass' federal savings bank subsidiary is subject to the capital adequacy
guidelines of the OTS. In general, a federal savings bank is required to satisfy
three capital requirements: (i) a leverage ratio, (ii) a Tier 1/core risk-based
capital ratio, and (iii) a total risk-based capital ratio. To be adequately
capitalized under the fully phased-in capital requirements for January 1, 1995,
an institution must meet or exceed (i) a leverage ratio of 4%, or a leverage
ratio of 3% if the institution received the top rating in its most recent
examination, (ii) a Tier 1/core risk-based capital ratio of 4%, and (iii) a
total risk-based capital ratio of 8%.
In general, a savings and loan holding company that has a federal savings
bank subsidiary that fails to meet the "qualified thrift lender" test is
required to become a bank holding company. In addition, if a federal savings
bank does not satisfy the "qualified thrift lender" test, then such federal
savings bank must either convert to a bank or it (i) will be limited to
establishing new branches as if it were a national bank located in the same
state, (ii) will be barred from obtaining new Federal Home Loan Bank advances,
(iii) will be prohibited from making any new investment or engaging in any new
activity unless the investment or activity is permitted for a national bank, and
(iv) will be subject to the dividend restrictions applicable to national banks.
Moreover, three years after it has failed to qualify as a "qualified thrift
lender", a federal savings bank must (i) divest any investments and activities
not permitted for a national bank and (ii) repay any of its outstanding Federal
Home Loan Bank advances "as promptly as can prudently be done" consistent with
its safe and sound operation and must divest any investment and cease any
activity not permitted for a national bank. Should a Compass federal savings
bank subsidiary fail the "qualified thrift lender" test, that institution might
be required to convert to a bank and Compass' ability to retain it would be
subject to question in light of Florida law which does not now authorize Compass
to acquire a bank in that state.
To be a "qualified thrift lender" a federal savings bank must maintain
"qualified thrift investments" of at least sixty-five percent (65%) of its
"portfolio assets" as measured on a monthly average basis in nine out of the
last twelve months. The assets that qualify as "qualified thrift investments"
include assets generally related to the development of domestic residential (and
other) real property. "Portfolio assets" is defined as a federal savings bank's
total assets, minus (i) goodwill and other intangible assets, (ii) the value
-----
of property used by the savings associations to conduct its business, and (iii)
subject to a maximum of twenty percent (20%) of total assets, liquid assets
required to be maintained under Section 6 of HOLA.
OTHER
Other legislative and regulatory proposals regarding changes in banking,
and the regulation of banks, thrifts and other financial institutions, are being
considered by the executive branch of the Federal government, Congress and
various state governments, including Alabama, Texas, and Florida. Certain of
these proposals, if adopted, could significantly change the regulations of banks
and the financial services industry. It cannot be predicted whether any of these
proposals will be adopted or, if adopted, how these proposals will affect
Compass or the Subsidiary Banks.
The Correspondent and Investment Services Division of Compass Bank is
treated as a municipal securities dealer and a government securities dealer for
purposes of the federal securities laws and, therefore, is subject to certain
reporting requirements and regulatory controls by the Commission, the United
States Department of the Treasury and the Federal Reserve. Compass Brokerage,
Inc., a wholly-owned subsidiary of Compass Bank, is a discount brokerage service
registered with the Commission and the National Association of Securities
Dealers, Inc. The subsidiary is subject to certain reporting requirements and
regulatory control by these agencies. Compass Bancshares Insurance, Inc., a
wholly-owned subsidiary of Compass Bank, is a licensed insurance agent or broker
for various insurance companies. The insurance subsidiary and its licensed
agents are subject to reporting and licensing regulations of the Alabama
Insurance Commission.
References under the heading "SUPERVISION AND REGULATION" to applicable
statutes are brief summaries of portions thereof, do not purport to be complete
and are qualified in their entirety by reference to such statutes.
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DESCRIPTION OF COMPASS COMMON AND PREFERRED STOCK
The following summary of the terms and provisions of the Compass Common
Stock and the Compass Preferred Stock does not purport to be complete and is
qualified in its entirety by reference to Compass' Restated Certificate of
Incorporation and the Certificates of Amendment thereto. Such Certificates are
filed as exhibits to the Registration Statement of which this Proxy
Statement/Prospectus is a part.
COMPASS COMMON STOCK
Compass is incorporated under the General Corporation Law of the State of
Delaware ("GCL"). Compass is authorized to issue 50,000,000 shares of Compass
Common Stock, of which ___________ shares were issued and outstanding on
______________, 1994. Compass' Board of Directors may at any time, without
additional approval of the holders of Compass Common Stock, issue additional
authorized but previously unissued shares of Compass Common Stock.
DIVIDENDS
Holders of Compass Common Stock are entitled to receive dividends ratably
when, as and if declared by Compass' Board of Directors from assets legally
available therefor, after payment of all dividends on preferred stock, if any is
outstanding. Under Delaware law, Compass may pay dividends out of surplus or net
profits for the fiscal year in which declared and/or for the preceding fiscal
year, even if its surplus accounts are in a deficit position. Dividends paid by
its subsidiary banks, principally Compass Bank, are the primary source of funds
available to Compass for payment of dividends to its shareholders and for other
needs. Compass' Board of Directors intends to maintain its present policy of
paying regular quarterly cash dividends. The declaration and amount of future
dividends will depend on circumstances existing at the time, including Compass'
earnings, financial condition and capital requirements, as well as regulatory
limitations and such other factors as Compass' Board of Directors deems
relevant.
Compass' principal assets and sources of income consist of investments in
its operating subsidiaries, which are separate and distinct legal entities.
Federal and state banking regulations applicable to Compass and its banking
subsidiaries require minimum levels of capital which limit the amounts available
for payment of dividends. Compass Bank is governed by Alabama laws restricting
the declaration and payment of dividends to 90% of annual net income until its
surplus funds equal at least 20% of capital stock. Compass Bank's surplus
exceeded this amount as of September 30, 1993 by $38,147,000. Compass
Bank-Houston and Compass Bank-Dallas, both of which are governed by the laws of
the State of Texas, are, under certain circumstances, restricted in the
declaration and payment of dividends to the extent that before declaring any
dividends each of these banks must transfer to its "certified surplus" account
an amount not less than 10% of the net profits of such bank earned since the
last dividend was declared, except that there is no requirement for a transfer
to certified surplus of a sum which would increase the certified surplus to more
than the capital stock of the respective bank. The certified surplus of Compass
Bank-Houston and Compass Bank-Dallas exceeded their respective capital stock
accounts by $28,758,000 and $31,980,000, respectively, as of September 30,
1993. In addition, Compass Bank-Houston has entered into an agreement with the
Commissioner that it will not declare dividends in excess of 50% of its current
earnings. The approval of the OCC is required if the total of all dividends
declared by Compass Bank, N.A. in any calendar year exceeds the total of such
bank's net profits as defined for that year, plus its retained net profits for
the preceding two years, less any required transfers to surplus. At September
30, 1993, Compass Bank, N.A. had no capital available for distribution. SEE
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE"; "SUMMARY--REASONS FOR THE
MERGER; RECOMMENDATION OF BOARD OF DIRECTORS"; "RISK FACTORS"; "SELECTED
FINANCIAL DATA"; "MARKET PRICES"; "COMPARISON OF RIGHTS OF SHAREHOLDERS OF
SECURITY AND COMPASS--DIVIDENDS"; AND "INFORMATION ABOUT COMPASS".
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PREEMPTIVE RIGHTS
The holders of Compass Common Stock do not have preemptive rights to
subscribe for a proportionate share of any additional securities issued by
Compass before such securities are offered to others. The absence of preemptive
rights increases Compass' flexibility to issue additional shares of Compass
Common Stock in connection with acquisitions, employee benefit plans and for
other purposes, without affording the holders of Compass Common Stock a right to
subscribe for their proportionate share of those additional securities. Any
further issuance of Compass Common Stock after the Effective Time may reduce
former Security shareholders' proportionate interest in Compass.
VOTING RIGHTS
The holders of Compass Common Stock are entitled to one vote per share on
all matters presented to shareholders. Holders of Compass Common Stock are not
entitled to cumulate their votes in the election of directors. Cumulative voting
rights, if provided for, entitle shareholders to a number of votes equal to the
product of the number of shares held times the number of directors to be elected
and allow shareholders to distribute such votes among any number of nominees for
director. Cumulative voting rights tend to enhance the voting power of minority
shareholders. SEE "COMPARISON OF RIGHTS OF SHAREHOLDERS OF SECURITY AND
COMPASS--CUMULATIVE VOTING FOR DIRECTORS".
LIQUIDATION
Upon liquidation, dissolution or the winding up of the affairs of Compass,
holders of Compass Common Stock are entitled to receive their pro rata portion
of the remaining assets of Compass after the holders of Compass preferred stock
have been paid in full any sums to which they may be entitled.
COMPASS PREFERRED STOCK
Compass has authorized 25,000,000 shares of $.10 par value preferred stock.
The preferred stock is issuable in one or more series and Compass' Board of
Directors, subject to certain limitations, is authorized to fix the number of
shares, dividend rate, liquidation prices, redemption, conversion, voting
rights, and other terms. Compass' Board of Directors may issue preferred stock
without approval of the holders of Compass Common Stock. No shares of preferred
stock are outstanding as of the date hereof. SEE "RISK FACTORS" AND "COMPARISON
OF RIGHTS OF SHAREHOLDERS OF SECURITY AND COMPASS-- DIVIDENDS".
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COMPARISON OF RIGHTS OF
SHAREHOLDERS OF SECURITY AND COMPASS
CHARTER AND BY-LAW PROVISIONS AFFECTING COMPASS STOCK
Compass' Certificate and By-Laws contain several provisions which may make
Compass a less attractive target for an acquisition of control by anyone who
does not have the support of Compass' Board of Directors. Such provisions
include, among other things, the requirement of a supermajority vote of
shareholders or directors to approve certain business combinations and other
corporate actions, a minimum price provision, several special procedural rules,
a staggered Board of Directors, and the limitation that shareholder actions
without a meeting may only be taken by unanimous written shareholder consent.
Security's Articles of Association and By-Laws do not contain similar
restrictions.
The foregoing summary is qualified in its entirety by reference to Compass'
Certificate and By-Laws which are available upon written request from Compass
and which are on file with the Commission, and to the Articles of Association
and By-Laws of Security, which are available upon request from Security. SEE
"AVAILABLE INFORMATION"; "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE";
"RISK FACTORS"; AND "INFORMATION ABOUT COMPASS".
In addition to the foregoing differences between Security's and Compass'
charters, as a result of the Merger Security shareholders, whose rights are
governed by the NBA, will become shareholders of Compass, and their rights as
shareholders will then be governed primarily by the GCL.
CERTAIN DIFFERENCES BETWEEN THE CORPORATION LAW OF DELAWARE AND THE
NATIONAL BANK ACT AND CORRESPONDING CHARTER AND BY-LAW PROVISIONS
Certain differences between the GCL and the NBA, as well as a description
of the corresponding provisions contained in Compass' and Security's respective
charters and by-laws, as such differences and provisions may affect the rights
of shareholders, are set forth below. The following summary does not purport to
be complete and is qualified in its entirety by reference to the provisions of
the GCL and the NBA.
NOTICE TO SHAREHOLDERS AND RECORD DATE
Federal regulations pertaining to national banking associations provide
that written notice of each shareholders' meeting must be delivered to each
national banking association shareholder of record entitled to vote at the
meeting not less than 10 nor more than 60 days before the meeting. A national
banking association's board of directors may fix a record date for determining
the shareholders entitled to notice of, and to vote at, any meeting of
shareholders. This date must be in reasonable proximity to the date notice of
the shareholders' meeting is given.
Delaware law provides that written notice of each shareholders' meeting
must be delivered to each shareholder of record entitled to vote at the meeting
not less than 10 nor more than 60 days before the meeting, except in the case of
a meeting to vote on a proposed merger or consolidation, wherein written notice
must be delivered to each shareholder of record, whether voting or nonvoting, at
least 20 days before the meeting. A Delaware corporation's board of directors
may fix in advance a record date for determining shareholders entitled to notice
of, or to vote at, any meeting of shareholders. The record date may not be more
than 60 days nor less than 10 days prior to the date of the meeting.
SPECIAL MEETINGS OF SHAREHOLDERS
Federal law does not set forth specific rules for the calling of special
meetings of shareholders. The Security Articles and By-Laws provide that
meetings must be called by either the Board of Directors of Security or by five
or more shareholders of Security owning not less than 25% of the outstanding
shares of Security Common
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Stock. Shareholders of Delaware corporations do not have a right to call
special meetings unless such right is conferred upon the shareholders in the
corporation's certificate of incorporation or by-laws. Neither Compass'
Certificate nor its By-laws allow shareholders to call special meetings.
INSPECTION OF SHAREHOLDER LIST
The NBA requires the president and cashier of every national banking
association to keep a full and correct list of the names and residences of all
the shareholders in the association, and the number of shares held by each, in
the office where its business is transacted. All shareholders and creditors of
the association, and officers authorized to assess taxes under state authority,
may inspect the list during business hours of each legal business day.
Delaware law requires that a complete list of the shareholders entitled to
vote at the next meeting of shareholders be compiled and made available at least
10 days before every meeting of shareholders. The list must be open to the
examination of any shareholder, for any purpose germane to the meeting, during
ordinary business hours for a period of at least 10 days prior to every
shareholder meeting. Directors who willfully neglect or refuse to produce such a
list at any meeting for the election of directors shall be ineligible for
election to any office at such meeting.
CUMULATIVE VOTING FOR DIRECTORS
Under the NBA, each shareholder has the right in all elections of directors
to vote the number of shares owned by him for as many persons as there are
directors to be elected, or to cumulate such shares and give one candidate the
number of votes equal to the number of directors multiplied by the number of his
shares, or to distribute his votes on the same cumulative principle among as
many candidates as he wishes. The candidates receiving the highest number of
votes, up to the number of directors to be elected, are elected. On all other
matters, each share has one vote. Under cumulative voting, shareholders who own
less than a majority of a corporation's common stock can obtain representation
on the board of directors. If voting is not conducted by cumulative voting, each
share is entitled to one vote, and the holders of a majority of the shares
voting at the meeting can elect all of the directors if they choose to do so,
leaving the other members unable to elect a director.
Under Delaware law, shareholders are not entitled to cumulate their votes
in an election of directors unless the corporation's certificate of
incorporation so provides. Compass' Certificate does not provide for cumulative
voting. SEE "DESCRIPTION OF COMPASS COMMON AND PREFERRED STOCK--VOTING RIGHTS".
CLASSIFICATION AND REMOVAL OF BOARD OF DIRECTORS
Federal law provides that a national banking association's board of
directors shall consist of not fewer than 5 nor more than 25 members.
Security's Articles and Bylaws do not explicitly address the removal of
directors and federal law is unsettled on this issue. As a result, the extent
of the right, if any, of Security's shareholders to remove Security's directors,
with or without cause, is uncertain.
A majority of shareholders of a Delaware corporation may remove a director
with or without cause, unless the directors are classified and elected for
staggered terms, in which case, directors may be removed only for cause.
Compass' Certificate provides for a classified board, and any such removal must
be for cause and requires a supermajority vote (80%) of the shareholders.
LIMITATION OF LIABILITY OF DIRECTORS
Federal laws pertaining to national banking associations do not include
specific provisions regarding the limitation of liability and indemnification of
directors of the association. Federal regulations provide that a national bank
may provide in its articles of association for the indemnification of directors,
officers, and employees for
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expenses reasonably incurred in actions to which the directors, officers, or
employees are parties or potential parties by reason of the performance of their
official duties. Indemnification articles which substantially reflect general
standards of law as evidenced by the law of the state in which the bank is
headquartered, the law of the state in which the bank's holding company is
incorporated, or the relevant provisions of the Model Business Corporation Act
are presumed by the OCC to be within the corporate powers of a national bank.
Security's Articles of Association provide that a director, officer, or
employee may be indemnified or reimbursed by Security for reasonable expenses
actually incurred in connection with any action, suit, or proceeding, civil or
criminal, to which he shall be made a party by reason of his being or having
been a director, officer, or employee of Security or of any firm, corporation,
or organization in which he served in any such capacity at the request of
Security, except for liability or guilt arising from gross negligence, willful
misconduct, or criminal acts in the performance of his duties to Security. No
indemnification or reimbursement shall follow from any action, suit, or
proceeding which has been made the subject of a compromise settlement except
with the approval of a court of competent jurisdiction, or the holders of record
of a majority of the outstanding shares of Security, or its Board of Directors,
acting by vote of directors not party to the same or substantially the same
action, suit, or proceeding, constituting a majority of the whole number of
directors. In addition, Security has entered into Indemnification Agreements
with all of its directors and executive officers pursuant to which Security has
agreed to indemnify such persons from all such liabilities to the maximum extent
permitted by law.
Delaware law permits a corporation to set limits on the extent of a
director's liability. Delaware law permits a corporation to indemnify its
officers, directors, employees and agents if such person acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the corporation. Indemnification is not allowed under Delaware law, absent a
court order to the contrary, if an officer, director, employee or agent of the
corporation is finally adjudged liable to the corporation.
Under Compass' Certificate, a director will not be liable to Compass or its
shareholders for monetary damages for any breach of fiduciary duty as a
director, except (i) for breach of a director's duty of loyalty, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) pursuant to Section 174 of the GCL (unlawful payment of
dividend or unlawful stock purchase or redemption), or (iv) any transaction from
which the director derived an improper personal benefit. Compass' Certificate
requires indemnification of officers, directors, and others to the full extent
permitted by Delaware law. SEE "AVAILABLE INFORMATION"; "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE"; AND "INDEMNIFICATION".
ACTION BY WRITTEN CONSENT
Federal laws pertaining to national banking associations do not provide for
action by the written consent of a national banking association's shareholders;
however, the OCC has determined that shareholders of a national banking
association may take action by written consent unless the subject matter to be
considered specifically requires a meeting.
Delaware law provides that shareholders may take action without a meeting
if a consent in writing to such action is signed by the shareholders having the
minimum number of votes that would be necessary to take such action at a
meeting, unless prohibited in the certificate of incorporation. Compass'
Certificate prohibits shareholder action by written consent except where such
action is taken unanimously. SEE "RISK FACTORS".
DIVIDENDS
Under the NBA, the directors of a national banking association may declare
a dividend quarterly, semiannually, or annually equal to that amount of the net
profits of the association as they determine, except that no dividend may be
declared until the surplus fund of the association at least equals its common
capital stock, and there has been carried to the surplus fund not less than 10%
of the association's net profits for the appropriate time period preceding the
dividend. The OCC must approve all dividends declared by an association where
the total of
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those dividends exceeds the total of its net profits of that year combined with
its retained net profits (defined as the remainder of all earnings from current
operations plus actual recoveries on loans and investments and other assets,
after deducting current operating expenses, losses, taxes, and accrued dividends
on preferred stock) of the preceding two years, less any required transfers to
surplus or a fund for the retirement of any preferred stock.
Holders of the Security Class A Preferred Stock are entitled to dividends
of $1.1025 per share per annum. Such dividends are preferred cumulative and any
unpaid dividends shall not bear interest. Holders of Security Class B Preferred
Stock are entitled to participate ratably in dividends declared with respect to
Security Common Stock.
A Delaware corporation may pay dividends not only out of surplus (the
excess of net assets over capital) but also out of net profits for the current
or preceding fiscal year if it has no surplus; provided, however, that if the
capital of the corporation has been decreased to an amount less than the
aggregate amount of the capital represented by the issued and outstanding stock
having a preference upon the distribution of assets, no dividends may be
declared out of net profits.
Holders of Compass Common Stock are entitled to receive dividends ratably
when, as and if declared by Compass' Board of Directors from assets legally
available therefor, after payment of all dividends on preferred stock, if any is
outstanding. SEE "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE";
"SUMMARY--REASONS FOR THE MERGER; RECOMMENDATION OF BOARD OF DIRECTORS";
"SELECTED FINANCIAL DATA"; "MARKET PRICES"; "DESCRIPTION OF COMPASS COMMON AND
PREFERRED STOCK"; AND "INFORMATION ABOUT SECURITY--MARKET PRICE AND DIVIDENDS".
VOLUNTARY DISSOLUTION
Under federal law, a national banking association may go into liquidation
and be closed by the vote of shareholders owning two-thirds of its stock.
Delaware law requires that dissolution must be approved by the holders of a
majority of the corporation's stock entitled to vote thereon, unless the
certificate of incorporation requires the vote of a larger portion of the
outstanding stock. Compass' Certificate does not provide for approval by more
than a majority vote.
DISSENTERS' RIGHTS
Federal law provides that a shareholder generally has the right to dissent
from any consolidation or merger. Any shareholder who exercises his right to
dissent in the prescribed manner will be entitled to receive the appraised value
of his shares. SEE "SUMMARY--DISSENTERS' RIGHTS"; "THE MERGER--DISSENTERS'
RIGHTS"; AND APPENDIX II.
Delaware law provides appraisal rights to shareholders entitled to vote in
merger transactions. It does not, however, recognize rights of appraisal in a
merger or consolidation if the shares of the corporation are either listed on a
national securities exchange, admitted on the NASDAQ National Market System or
held of record by more than 2,000 shareholders or if the corporation is the
surviving corporation and no vote of its shareholders is required, and if the
shareholders will receive in the transaction one or more of the following: stock
of the surviving corporation, stock of any other corporation which would be so
listed or held, and cash in lieu of fractional shares. The Compass Common Stock
is traded on the NASDAQ National Market System.
A Delaware corporation may, but is not required to, provide in its
certificate of incorporation that appraisal rights shall be available to
shareholders in the event of an amendment to the certificate of incorporation,
the sale of all or substantially all of the assets of the corporation, or the
occurrence of any merger or consolidation in which appraisal rights are not
otherwise available and in which that Delaware corporation is not the surviving
or resulting company. No such provision is included in Compass' Certificate.
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CERTAIN BUSINESS COMBINATIONS
Under federal law, a national banking association may generally only enter
into certain business combinations (e.g., mergers, consolidations, and sales of
substantially all of an association's assets) with the approval of the OCC, a
majority vote of its board of directors, and the affirmative vote of the holders
of two-thirds of its outstanding capital stock. SEE "SUPERVISION AND
REGULATION--THE COMPANY". Under Delaware law, unless the certificate of
incorporation requires a greater-than-majority vote, a merger or consolidation
of a Delaware corporation must be approved by the affirmative vote of a majority
of the shares of each class of shares entitled to vote thereon as a class and a
majority of the total shares entitled to vote thereon. However, Delaware law
provides that no shareholder vote is required to authorize a merger if: (a) the
plan of merger does not amend the corporation's certificate of incorporation;
(b) each share of stock of the corporation outstanding immediately prior to the
merger remains outstanding immediately after the merger as an identical share of
the surviving corporation; and (c) the authorized but unissued shares or
treasury shares of common stock of the surviving corporation to be issued or
delivered pursuant to the merger, plus the number of shares of common stock
issuable upon conversion of any other securities issued pursuant to the merger,
do not exceed 20% of the shares of common stock of such corporation outstanding
immediately prior to the merger. Compass' Certificate requires supermajority
approval by its Board of Directors and shareholders in certain cases, as
described above. SEE "RISK FACTORS" AND "COMPARISON OF RIGHTS OF SHAREHOLDERS
OF SECURITY AND COMPASS--CHARTER AND BY-LAW PROVISIONS AFFECTING COMPASS STOCK".
In addition, under Delaware law, any corporation owning at least 90% of the
outstanding shares of each class of another corporation may merge such
corporation into itself or merge itself into such corporation without a vote of
the shareholders of either corporation.
A Delaware corporation may sell, lease or exchange all or substantially all
of its property and assets when and as authorized by the holders of a majority
of the outstanding stock of the corporation entitled to vote thereon, unless the
certificate of incorporation requires the vote of a larger portion of the
outstanding stock. Compass' Certificate does not so provide.
Delaware has enacted anti-takeover legislation. Compass has opted out of
such provisions as provided thereby. Certain provisions of Compass' Certificate
and By-Laws limiting a takeover without the support of its Board of Directors
are described in "COMPARISON OF RIGHTS OF SHAREHOLDERS OF SECURITY AND
COMPASS--CHARTER AND BY-LAW PROVISIONS AFFECTING COMPASS STOCK".
AMENDMENT OF CHARTERS
Amendments to the articles of association of a national banking association
require the affirmative vote of the holders of a majority of its stock, unless
the affirmative vote of the holders of a greater amount of its stock is required
by law.
Delaware law provides that amendments to the certificate of incorporation
must be approved by the holders of a majority of the corporation's stock
entitled to vote thereon, and the holders of a majority of the outstanding stock
entitled to vote thereon as a class, unless the certificate of incorporation
requires the vote of a larger portion of the outstanding stock or any class
thereof. Compass' Certificate does not provide for approval by more than a
majority vote.
Although certain of the specific differences between the voting and other
rights of Security shareholders and Compass shareholders are discussed above,
the foregoing summary is not intended to be a complete statement of the
comparative rights of such shareholders under the GCL and the NBA, or the rights
of such persons under the respective charters and by-laws of Compass and
Security. Nor is the identification of certain specific differences meant to
indicate that other differences do not exist. The foregoing summary is qualified
in its entirety by reference
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to the particular requirements of the NBA and the GCL, and the specific
provisions of Compass' Certificate and By-Laws, and Security's Articles of
Association and By-Laws.
RESALE OF COMPASS STOCK
The Compass Common Stock to be issued to holders of Security Common Stock
upon consummation of the Merger will be freely transferable under the Securities
Act, except for shares issued to any person who may be an "affiliate" of
Security within the meaning of Rule 145 under the Securities Act. The directors
and executive officers of Security, the beneficial owners of 10% or more of
Security Common Stock and certain of their related interests may be deemed to be
affiliates of Security. Such affiliates are not permitted to transfer any
Compass Common Stock except in compliance with the Securities Act and the rules
and regulations thereunder. Such affiliates have delivered to Compass a written
agreement in substantially the form of Exhibit A to the Merger Agreement
providing that each such affiliate will not (i) sell, pledge, transfer or
otherwise dispose of any of such affiliate's Security Stock within 30 days prior
to the Effective Time (ii) sell, pledge, transfer or otherwise dispose of any
shares of Compass Common Stock until the publication of financial results
covering at least 30 days of post-Merger combined operations of Security and
Compass, except for loans to any such affiliates secured by a pledge of all or
part of such Compass Common Stock, provided the lender agrees to be bound by the
terms of such written agreement, and (iii) agrees not to transfer any Compass
Common Stock except in compliance with the applicable provisions of the
Securities Act and the Exchange Act and the respective rules and regulations
thereunder. SEE "SUMMARY--ACCOUNTING TREATMENT"; "THE MERGER--ACCOUNTING
TREATMENT"; AND APPENDIX I.
As a condition to consummation of the Merger, Compass must receive from
Security shareholders receiving at least 50% of the aggregate Merger
Consideration a representation that they currently have no present plan or
intention to sell or otherwise dispose of the shares of Compass Common Stock
received pursuant to the Merger. SEE "THE MERGER--OTHER TERMS AND CONDITIONS".
INFORMATION ABOUT COMPASS
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Certain documents filed by and relating to Compass, including Compass'
Annual Report on Form 10-K for the year ended December 31, 1992 and its
Quarterly Reports on Form 10-Q for its first quarter ended March 31, 1993, its
second quarter ended June 30, 1993 and its third quarter ended September 30,
1993, are included herewith and incorporated herein by reference. SEE
"AVAILABLE INFORMATION" AND "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
INTERESTS OF CERTAIN PERSONS
No director or executive officer of Compass has any material direct or
indirect financial interest in Security or the Merger, except as a director,
executive officer or shareholder of Compass or its subsidiaries.
INFORMATION ABOUT SECURITY
SERVICES, EMPLOYEES AND PROPERTIES
Security was incorporated as a national banking association in October of
1985 to provide traditional banking services in southwest Houston. Security
offers individual and commercial customers interest and non-interest bearing
transaction accounts, savings products, annuities and personal and business
loans. Security is supervised, regulated, and examined by the OCC, and, as a
national bank, is a member of the Federal Reserve System. The deposits of
Security are insured by the FDIC to the fullest extent permitted by law.
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Security has three locations in Houston. The West Bellfort location,
located at 7700 West Bellfort, serves the southwest portion of the Houston
metropolitan area. The Meyerland location, at 4939 Beechnut on the grounds of
Meyerland Plaza, serves the Bellaire and Meyerland neighborhoods. Security's
Galleria location serves the Galleria area and customers residing in the
Tanglewood and Memorial neighborhoods of Houston. The West Bellfort and
Meyerland locations have attached drive-through banking facilities. Each
location offers all of Security's services which include checking accounts,
savings accounts, certificates of deposits, individual retirement accounts,
annuities, and personal and commercial loans.
On September 30, 1993, Security had 57 fulltime employees, 11 of whom were
officers. On September 30, 1993, Security had 12 directors and one advisory
director. Security's directors are compensated for their services.
Security's principal office at 7700 West Bellfort is situated in a 14,546
square foot building on a 60,000 square foot site that is owned by Security.
The building was constructed by Security in 1987.
Security's Meyerland location is a full service bank located in
approximately 14,420 square feet of space in a two-story building at 4939
Beechnut leased from the Resolution Trust Corporation under a 15-year lease that
expires on February 28, 2007. The second story of the building is subleased
through October of 1995.
The Galleria facility is a full service bank located in approximately 3,050
square feet of space in a multi-story office building at 1800 West Loop South
and is leased from Aetna Life Insurance Company under a lease expiring in
February of 1997.
COMPETITION
The banking business is highly competitive. Numerous other banking
facilities are located within Security's primary service areas and such banking
facilities compete directly with Security with regard to the full range of
commercial banking services. To a certain extent, Security also competes for
deposits and loans with branches of savings and loan associations located in and
around Security's primary service areas and for loans with credit unions and
finance companies located in or near Security's primary service areas.
Security also faces competition from a wide variety of depository
institutions from other geographical areas which compete for deposits, loans and
bank-related services. As deregulation of depository institutions and financial
services continues, competition from nonbank financial intermediaries, such as
savings and loan associations, credit unions, mortgage companies, insurance
companies and other financial institutions, may be expected to intensify.
Security and similar institutions have also experienced significant competition
for deposits from mutual funds and other money center bank's offerings of high
yielding deposit accounts. Some of the institutions with which Security
competes have capital and resources much larger than those of Security and some
are not subject to the same regulatory restrictions.
LEGAL PROCEEDINGS
In the normal course of its business, Security from time to time is
involved in legal proceedings. Other than such proceedings incidental to its
business, Security's management is not aware of any pending or threatened legal
proceedings which, upon resolution, would have a material adverse effect upon
its financial condition or results of operations. The continued absence of such
proceedings is a condition to Compass' obligation to consummate the Merger. SEE
"THE MERGER--OTHER TERMS AND CONDITION".
REGULATORY COMMITMENTS
Security is subject to a Letter of Commitment with the OCC pursuant to
which Security's Board of Directors committed to correct certain problems in
Security's operations noted in its most recent examination by
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the OCC. With the exception of this agreement, Security is not subject to any
agreements, commitments or understandings with any regulatory authorities,
except to the extent that it is required to comply with the various regulations
set forth by these authorities.
MARKET PRICE AND DIVIDENDS
There is no active public trading market for the Security Common Stock; it
is traded infrequently in private transactions about which Security's management
has little reliable information. As of the Record Date, Security Common Stock
was held by 283 persons, Security Class A Preferred Stock was held by 11 persons
and Security Class B Preferred Stock was held by 11 persons. Security has paid
dividends on the Security Common Stock of $0.30 per share in 1991, 1992 and
1993. Security has paid all cumulative dividends on the Security Class A
Preferred Stock through December 31, 1993 and intends to declare and pay such
dividends through the Effective Time. The holders of the Security Class B
Preferred Stock received dividends of $0.30 per share in 1993. SEE "MARKET
PRICES".
BENEFICIAL OWNERSHIP OF SECURITY COMMON STOCK BY SECURITY MANAGEMENT AND
PRINCIPAL SHAREHOLDERS
The following table shows as of December 31, 1993 the number of shares of
Security Common Stock, beneficially owned by each director and executive officer
of Security, each person known by Security to be the beneficial owner of more
than 5% of the outstanding shares of Security Common Stock, and information for
all Security directors and executive officers as a group.
- 44 -
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares of Stock Percent of Total
Name of Directors, Executive Beneficially Outstanding
Officers and Shareholders Owned (1) Shares (1)
- --------------------------------- ---------------- -----------------
<S> <C> <C>
Phillip Aronoff 6,300 1.35%
H. Wesley Ashendorf 200 *
David W. Barg 200 *
Jack R. Burchfield 21,800 4.65%
Joyce E. Canino (2) 2,200 *
Tony Connelly 340 *
Martin Fein 1,334 *
Frank S. Goldberg(3)(4) 437,027 93.30%
Marvin P. Isgur(5) 416,090 88.83%
Melvyn Kleiman 400 *
Adam J. Newar(6) 10,325 2.20%
Irving Pozmantier(7) 416,090 88.83%
Joe Samuel Ratliff 1,000 *
Mallory Robinson 5,086 1.09%
Eugene Winograd 11,436 2.44%
Alvin L. Zimmerman 3,576 *
All Security Directors 451,427 96.38%
and Executive Officers
as a Group (16 persons) (8)(9)
</TABLE>
*Less than 1%
(1) Includes shares of Security Common Stock to be issued upon conversion of
Security Class A Preferred Stock and Security Class B Preferred Stock.
(2) Includes options to acquire 2,000 shares of Security Common Stock.
Such holder has agreed to exercise such options prior to the Effective
Time.
(3) Includes 354,014 shares held by others over which the named person, as
a Voting Representative under the Security Voting Agreement, has shared
voting power. Such person owns directly 36,200 shares of Security Common
Stock, 8,692 shares of Security Class A Preferred Stock and 17,384 shares
of Security Class B Preferred Stock.
(4) Includes options to acquire 20,937 shares of Security Common Stock.
Such holder has agreed to exercise the Options prior to the Effective Time.
(5) Includes 415,890 shares held by others over which the named person, as
a Voting Representative under the Security Voting Agreement, has shared
voting power. An affiliate of such person owns 18,673 shares of Security
Common Stock, 5,448 shares of Security Class A Preferred Stock and 10,896
shares of Security Class B Preferred Stock. Such person disclaims
beneficial ownership of such shares.
- 45 -
<PAGE>
(6) Includes options to acquire 10,000 shares of Security Common Stock.
Such holder has agreed to exercise the Options prior to the Effective Time.
(7) Includes 415,890 shares held by others over which the named person, as
a Voting Representative under the Security Voting Agreement, has shared
voting power.
(8) Includes 415,890 shares subject to the Security Voting Agreement. The
Voting Representatives under the Security Voting Agreement have the right
to vote such shares.
(9) Includes options to acquire 33,937 shares of Security Common Stock.
Such holders have agreed to exercise the Options prior to the Effective
Time.
The persons listed above will receive the same Merger Consideration
described in "The Merger--General" as the other Security shareholders for each
share of Security Stock held at the Effective Time.
Messrs. Goldberg, Isgur and Pozmantier who are Voting Representatives under
the Security Voting Agreement have the right to vote the shares of Security
Stock subject to the Voting Agreement at any meeting on any issue with respect
to which the Security shareholders would otherwise have the right to vote their
respective shares, including the right to vote to merge Security with a third
party. The Voting Representatives have agreed, pursuant to the Proxy, to vote
in favor of the Merger an aggregate of 342,825 shares of Security Common Stock,
comprising 98.2% of the total shares of Security Common Stock issued and
outstanding, 24,355 shares of Security Class A Preferred Stock, comprising 85.5%
of the total shares of Security Class A Preferred Stock issued and outstanding,
and 48,710 shares of Security Class B Preferred Stock, comprising 85.5% of the
total shares of Security Class B Preferred Stock issued and outstanding.
BECAUSE THE VOTING REPRESENTATIVES HAVE THE POWER TO VOTE OVER TWO-THIRDS OF THE
SHARES OF EACH CLASS OF SECURITY STOCK ISSUED AND OUTSTANDING AND ENTITLED TO
VOTE AT THE MEETING, THE EFFECT OF THEIR AGREEMENT TO VOTE IN FAVOR OF THE
MERGER IS TO ASSURE APPROVAL OF THE MERGER BY THE SECURITY SHAREHOLDERS. SEE
"INTRODUCTION"; AND "THE MERGER--GENERAL".
- 46 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF SECURITY BANK, NATIONAL ASSOCIATION
The following discussion provides certain information regarding the
financial condition and results of operations of Security. This discussion
should be read in conjunction with Security's Financial Statements and Notes to
Financial Statements presented elsewhere in this Proxy Statement/Prospectus.
SEE "INDEX TO SECURITY FINANCIAL STATEMENTS".
RESULTS OF OPERATIONS
GENERAL
The earnings of Security depend primarily on Security's net interest income
(i.e., the difference between the income earned on Security's loans and
investments and the interest paid on its deposits and other borrowed funds).
Among the factors affecting net interest income are the type, volume and quality
of the bank's assets, the type and volume of its deposits and other borrowed
funds, and the relative sensitivity of its interest-earning assets and its
interest-bearing liabilities to changes in market interest rates.
Security's income is also affected by fees it receives from other banking
services, by gains and losses on its investments, by its provisions for loan
losses and by the level of its operating expenses. All aspects of Security's
operations are affected by general market, economic and competitive conditions.
Security reported net income of $409,000 for the nine months ended
September 30, 1993, a slight decrease from net income of $413,000 for the nine
months ended September 30, 1992. Pretax income before securities transactions
was $543,000 for the nine months ended September 30, 1993, a $209,000 increase
over the $334,000 earned during the nine months ended September 30, 1992.
Security had net income of $612,000 for the year ended December 31, 1992,
$590,000 for the year ended December 31, 1991, and $523,000 for the year ended
December 31, 1990. Changes occurring in the major components of the Security's
income statement for such periods are discussed below.
NET INTEREST INCOME
Net interest income is the primary source of income for Security and
represents the amount by which interest and fees generated by earning assets
exceed the cost of funds, primarily interest paid to Security's depositors on
interest bearing accounts. Net interest income was $2,841,000 for the nine
months ended September 30, 1993, a 7.5% increase over net interest income of
$2,644,000 for the nine months ended September 30, 1992. Average rates paid on
interest bearing funds dropped from 3.9% as of September 30, 1992 to 2.9% as of
September 30, 1993. Average loans, net of unearned discount, of $52.1 million
for the nine months ended September 30, 1993 increased 20.9% over average loans
of $43.1 million for the similar 1992 period. Average deposits for the nine
months ended September 30, 1993 were $70.1 million, an increase of 7.4% over
average deposits of $65.3 million for the same period in 1992.
For the year ended December 31, 1992, net interest income increased
$629,000 or 21.2% over the year ended December 31, 1991. Net interest income
increased $450,000 or 17.9% in 1991 over 1990 net interest income of
$2,521,000. The increase of $629,000 in 1992 was due primarily to significant
improvements in loan volumes and the decline in interest rates paid on
interest-bearing deposits. The increase of $450,000 in 1991 was due to an
increase in average earning assets.
- 47 -
<PAGE>
The following table sets forth for the periods indicated an analysis of net
interest income by each major category of interest-earning assets and
interest-bearing liabilities. The rates earned and paid on each major type of
asset and liability account are set forth beside the average level in the
account for the period, and the average yields on all interest-earning assets
and the average rate paid on all interest-bearing liabilities are also
summarized.
<TABLE>
<CAPTION>
(Dollars in Thousands)
Nine Months Ended September 30
1993 1992
-------------------------- ---------------------------
ASSETS Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
-------- -------- ------ ------- -------- ------
Interest earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans (1) $52,074 $3,318 8.52% $43,125 $3,088 9.56%
Investment securities-taxable 16,265 667 5.48% 15,633 869 7.44%
Investment securities-nontaxable 449 15 4.47% 100 5 6.68%
Interest-bearing deposits 192 6 4.17% 1,969 69 4.69%
Federal funds sold 1,964 45 3.05% 5,690 162 3.81%
------- ------ ---- ------- ------ ----
Total interest-earning assets/
interest income/average yield 70,944 4,051 7.63% 66,517 4,193 8.42%
Non-interest earning assets:
Cash and due from banks 4,117 3,926
Other assets 3,606 2,926
Allowance for loan losses (575) (446)
------- -------
TOTAL $78,092 $72,923
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities
NOW, money market and savings 28,000 496 2.37% 24,722 587 3.17%
Certificates of deposit 24,472 671 3.67% 25,387 886 4.67%
Other borrowings 2,593 43 2.22% 3,238 76 3.14%
------- ------ ---- ------- ------ ----
Total interest-bearing liabilities/
interest expense/rate 55,065 1,210 2.94% 53,347 1,549 3.88%
Noninterest-bearing demand deposits 17,663 15,158
Other liabilities 324 360
Total liabilities ------- -------
73,052 68,865
Stockholders' equity 5,040 4,058
------- -------
TOTAL $78,092 $72,923
======= =======
Net interest income $2,841 $2,644
------ ------
Net yield on interest-earnings assets 5.35% 5.30%
(annualized) ---- ----
</TABLE>
(1) Includes nonaccrual loans. See Note (1) to the Security financial
statements.
- 48 -
<PAGE>
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
1992 1991 1990
----------------------------- ----------------------------- -----------------------------
Average Interest Yield/ Average Interest Yield/ Average Interest Yield/
Balance Inc/Exp Rate Balance Inc/Exp Rate Balance Inc/Exp Rate
---------- ---------- ------- --------- ---------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans (1) $45,060 $4,226 9.38% $37,326 $3,982 10.67% $34,892 $4,017 11.51%
Investment securities-taxable 15,256 1,089 7.14% 12,829 1,149 8.96% 10,527 951 9.03%
Investment securities-nontaxable 100 6 6.00% 80 5 6.25% --- --- ---
Interest-bearing deposits 1,654 75 4.53% 1,881 123 6.54% 192 15 7.81%
Federal funds sold 4,986 184 3.69% 4,133 226 5.48% 2,674 216 8.08%
------- ------ ---- ------- ------ ----- ------- ------ -----
Total interest-earning
assets/interest income/
average yield 67,056 5,580 8.33% 56,249 5,485 9.76% 48,285 5,199 10.77%
Non-interest earning assets:
Cash and due from banks 3,942 2,987 2,870
Other assets 2,979 2,177 2,935
Allowance for possible
loan losses (452) (419) (334)
------- ------- -------
TOTAL $73,525 $60,994 $53,756
======= ======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest bearing liabilities:
NOW, money market
and savings $25,098 763 3.04% 17,294 818 4.72% 12,988 684 5.27%
Certificates of deposit 25,182 1,126 4.47% 23,795 1,538 6.46% 24,260 1,841 7.59%
Other borrowings 3,014 90 2.99% 3,292 158 4.80% 2,319 153 6.60%
------- ------ ---- ------- ------ ----- ------- ------ -----
Total interest bearing
liabilities/interest
expense/rate 53,294 1,979 3.71% 44,381 2,514 5.66% 39,567 2,678 6.77%
Noninterest bearing
demand deposits 15,704 12,680 10,926
Other liabilities 373 361 314
Total Liabilities ------- ------- -------
69,371 57,422 50,807
------- ------- -------
Stockholders' equity 4,154 3,572 2,949
------- ------- -------
TOTAL $73,525 $60,994 $53,756
======= ======= =======
Net interest income $3,601 $2,971 $2,521
====== ====== ======
Net yield on interest
earning assets 5.37% 5.28% 5.22%
---- ----- -----
</TABLE>
(1) Includes nonaccrual loans. See Note (1) to the Security financial
statements.
Changes in interest income and interest expense can result from variances
in both volume and rate. Security has an asset and liability management strategy
designed to provide a proper balance between rate sensitive assets and rate
sensitive liabilities to attempt to maximize interest margins, and to provide
adequate liquidity for anticipated needs.
- 49 -
<PAGE>
The following table sets forth for the periods indicated a summary of the
changes in interest earned and interest paid resulting from changes in volume
and rate.
<TABLE>
<CAPTION>
(Dollars in Thousands)
Nine Months Ended Year Ended Year Ended
September 30, 1993 December 31, 1992 December 31, 1991
--------------------------------------------------------------------------------------------------
Change Change Change
1993 Attributed to 1992 Attributed to 1991 Attributed to
to ------------------------ to --------------------------- to -------------------------
1992 Volume Rate Mix 1991 Volume Rate Mix 1990 Volume Rate Mix
Interest Income:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans $ 230 $ 641 ($340) ($71) $ 244 $ 825 ($481) ($100) ($35) $ 280 ($295) ($20)
Investment securities
- taxable (202) 35 (228) (9) (60) 217 (233) (44) 198 208 (8) (2)
Investment securities
- nontaxable 10 17 (2) (5) 1 1 0 0 5 0 0 5
Fed funds sold (117) (106) (32) 21 (42) 47 (73) (16) 10 118 (70) (38)
Time deposits in other
banks (63) (62) (7) 6 (48) (15) (38) 5 108 132 (2) (22)
------ ----- ----- ---- ------ ------ ----- ----- ------ ----- ----- ----
Increase (decrease)
in interest income ($142) $ 525 ($609) ($58) $ 95 $1,075 ($825) ($155) $ 286 $ 738 ($375) ($77)
====== ===== ===== ==== ====== ====== ===== ===== ====== ===== ===== ====
Interest expense:
Savings and
transaction
accounts ($91) $ 78 ($149) ($20) ($54) $ 369 ($291) ($132) $ 133 $ 227 ($70) ($24)
Time deposits (215) (32) (189) 6 (412) 90 (474) (28) (303) (35) (273) 5
Other borrowings (33) (15) (22) 4 (68) (13) (60) 5 6 64 (41) (17)
------ ----- ----- ---- ------ ------ ----- ----- ------ ----- ----- ----
Increase
(decrease) in
interest
expense ($339) $ 31 ($360) ($10) ($534) $ 446 ($825) ($155) ($164) $ 256 ($384) ($36)
====== ===== ===== ==== ====== ====== ===== ===== ====== ===== ===== ====
</TABLE>
- 50 -
<PAGE>
PROVISION FOR LOAN LOSSES
Security's allowance for loan losses is established through charges to
operating income in the form of the provision for loan losses. Actual loan
losses or recoveries of loan losses are charged or credited directly to the
allowance for loan losses.
Security's provision for loan losses was $245,000 for the nine months ended
September 30, 1993, as compared with $185,000 for the same period in 1992. This
increase of $60,000 was primarily due to higher loan volume. Management
determines the amount of the provision for loan losses after considering various
factors, including current and historic levels of net loan losses, changes in
the size and character of the loan portfolio, the existing level of the
allowance, and economic conditions. The allowance for loan losses expressed as
a percentage of outstanding loans net of unearned interest was 1.1% and 0.9% as
of September 30, 1993 and September 30, 1992, respectively.
Security's provision for loan losses was $290,000 for the year ended
December 31, 1992, which was $55,000 more than the provision of $235,000 for the
same period in 1991. Security's provision for loan losses was $329,000 for the
year ended December 31, 1990. The increase in Security's provision for loan
losses in 1992 from 1991 was primarily the result of the increase in net loans
from $39.8 million on December 31, 1991 to $51.5 million on December 31, 1992.
The decrease in provision for loan losses from 1990 to 1991 was primarily the
result of improvement in the credit quality of Security's loan portfolio. The
allowance for possible loan losses expressed as a percentage of outstanding
loans net of unearned interest was 1.0%, 1.1% and 1.1% as of December 31, 1992,
1991 and 1990, respectively.
NON-INTEREST INCOME
Non-interest income, which includes, among other items, service charges and
fees, decreased 23.1% from $957,000 for the nine months ended September 30, 1992
to $736,000 for the nine months ended September 30, 1993. This resulted from a
decline in net investment securities gains of $240,000 for the nine months ended
September 30, 1993 compared to 1992, which was offset by an increase in service
fees during this period of $57,000. In 1992, Security executed a restructuring
of its investment portfolio in accordance with Banking Circular 228: FFIEC
Supervisory Policy Statement on Securities Activities, which became effective on
February 10, 1992. This resulted in $290,000 in net securities gains for the
nine months ended September 30, 1992.
Non-interest income increased 61.3% from $816,000 to $1,316,000 for the
year ended December 31, 1992, compared to the same period in 1991. An increase
of $69,000 in service fee income and an increase in gains on sales of securities
of $434,000 made up the majority of this increase. The increase in gains on
sales of securities was the result of a restructuring of the investment
portfolio due to a significant new business opportunity for Security. In 1992,
Security had the opportunity to expand its indirect automobile loan portfolio.
To underwrite a large volume of automobile loans without violating Security's
interest rate risk policies, the Asset/Liability Committee of Security undertook
a strategic restructuring of Security's investment portfolio in accordance with
Banking Circular 228. Security sold $10,146,000 of securities which consisted
primarily of long-term fixed rate mortgage backed securities. Security used the
proceeds to fund a $7,651,000 net increase in consumer installment, principally
automobile, loans. The remaining proceeds were substantially reinvested in
floating rate mortgage-backed securities for the purpose of managing Security's
interest rate risk.
Non-interest income decreased 11.6% for the year ended December 31, 1991,
compared to the year ended December 31, 1990. This decrease was primarily due
to a decline in other operating income of $197,000 offset by an increase in
service fee income of $54,000. During 1990 Security had a non-recurring gain on
the sale of credit card receivables of $59,000.
- 51 -
<PAGE>
OPERATING EXPENSES
Non-interest expenses include expenses which Security incurs in the course
of day-to-day operations such as employee compensation and benefits, occupancy
expense, data processing charges, communication expense, professional fees,
advertising and supplies and depreciation and amortization of furniture and
equipment. These expenses decreased 1.9% from $2,792,000 for the nine months
ended September 30, 1992 to $2,739,000 for the nine months ended September 30,
1993. Net non-interest expense as a percentage of average assets for the nine
months ended September 30, 1993 was 3.5%, an improvement of 0.3% over the 3.8%
reported for the nine months ended September 30, 1992. This improvement was
principally due to the growth in average assets and a reduction in occupancy
expense resulting from the purchase by Security of the West Bellfort location,
which was previously leased.
Operating expenses for the year 1992 increased $1,105,000 or 42.0% to
$3,736,000 from $2,631,000 for the year 1991. This increase was primarily a
result of increases of $498,000 in salaries and benefits for bank employees and
$257,000 in net occupancy expense due to the opening of the Galleria and
Meyerland locations. During 1992, Security opened two new locations, one in the
Galleria area at 1800 West Loop South and the other at 4939 Beechnut on the
property of Meyerland Plaza.
Operating expenses for the year 1991 increased by $86,000 or 3.4% over 1990
operating expenses. Salaries and benefits increased $135,000 and occupancy
expenses increased $30,000, while combined other operating expenses declined
$79,000.
CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL CONDITION
CAPITAL RESOURCES
The OCC has adopted risk-based and leverage capital measures to assist in
the assessment of the capital adequacy of national banks. The principal
objectives of the risk-based measures are to: (i) make regulatory capital
requirements more sensitive to differences in risk profiles among financial
institutions; (ii) factor off-balance sheet exposures into the assessment of
capital adequacy; (iii) minimize disincentives to holding liquid, low-risk
assets; and (iv) achieve greater consistency in the evaluation of the capital
adequacy of financial institutions.
The risk-based capital guidelines include both a definition of capital and
a framework for calculating risk weighted assets by assigning assets and
off-balance sheet items to broad risk categories. A financial institution's
risk-based capital ratio is calculated by dividing its qualifying capital (the
numerator of the ratio) by its risk weighted assets (the denominator).
The risk-based capital ratio focuses principally on broad categories of
credit risk. The risk-based ratio does not, however, incorporate other factors
that can affect a bank's financial condition. These factors include overall
interest rate exposure, liquidity, funding and market risks, the quality and
level of earnings, investment or loan portfolio concentrations, the quality of
loans and investments, the effectiveness of loan and investment policies, and
management's ability to monitor and control financial and operating risks.
A national bank's qualifying total capital consists of two types of capital
components: "core capital elements" (comprising Tier 1 capital) and
"supplementary capital elements" (comprising Tier 2 capital). Certain assets are
deducted from a financial institution's capital for the purpose of calculating
the risk-based capital ratio.
Assets and credit equivalent amounts of off-balance sheet items are
assigned to one of four risk categories, according to certain criteria. The
aggregate dollar value of the amount in each category is then multiplied by the
risk weight associated with that category. The resulting weighted values from
each of the risk categories are added together, and this sum is the financial
institution's total risk weighted assets that comprise the denominator of the
- 52 -
<PAGE>
risk-based capital ratio. Assets deducted from a bank's capital in determining
the numerator of the risk-based capital ratio are not included as part of the
financial institution's risk weighted assets.
Risk weights for off-balance sheet items are determined by a two-step
process. First, the "credit equivalent amount" of off-balance sheet items is
determined, in most cases by multiplying the off-balance sheet item by a credit
conversion factor. Second, in most cases, the credit equivalent amount is
assigned to the appropriate risk category according to designated criteria.
National banks are required to maintain a minimum risk-based capital ratio
of total capital (after deductions) to risk weighted assets of 8%. In general,
50% of this ratio must consist of Tier 1 capital. Certain restrictions and
limitations also apply regarding the calculation of Tier 1 capital. Tier 2
capital elements that are not used as part of Tier 1 capital generally will
qualify for inclusion in a financial institution's capital base up to a maximum
of 100% of the financial institution's Tier 1 capital. As of September 30,
1993, the Tier I capital ratio was 9.88% and the total risk-based capital ratio
was 11.66%.
In addition, the OCC has promulgated capital leverage guidelines designed
to supplement the risk-based capital guidelines. The principal objective of the
leverage ratio is to address the extent to which a financial institution could
leverage its equity capital base. The OCC requires national banks to meet a
minimum leverage capital requirement of Tier 1 capital to total assets of not
less than 3% for a bank that is not anticipating or experiencing significant
growth and is highly rated (i.e., a composite rating of 1 on a scale of 1 to
5). Banks that the OCC determines are anticipating or experiencing significant
growth or that are not highly rated must meet a minimum leverage ratio of 3%
plus an additional cushion of at least 100 to 200 basis points.
Security's leverage ratio was 7.04% as of September 30, 1993 and 5.48% as
of December 31, 1992.
LIQUIDITY
Security's asset and liability management policy is intended to maintain
adequate liquidity and thereby enhance its ability to raise funds to support
asset growth, meet deposit withdrawals and lending needs, maintain reserve
requirements, and otherwise sustain operations. Security accomplishes this
through management of the maturities of its interest-earning assets and
interest-bearing liabilities. Liquidity is monitored daily and overall interest
rate risk is assessed through reports showing both sensitivity ratios and
existing dollar "gap" data. Security believes its present position to be
adequate to meet its current and future liquidity needs.
The liquidity of Security is maintained in the form of readily marketable
investment securities, demand deposits with commercial banks, vault cash and
federal funds sold. While the minimum liquidity requirement for banks is
determined by federal bank regulatory agencies as a percentage of deposit
liabilities, Security's management monitors liquidity requirements as warranted
by interest rate trends, changes in the economy and the scheduled maturity and
interest rate sensitivity of the investment and loan portfolios and deposits.
In addition to the liquidity provided by the foregoing, Security has excellent
correspondent relationships with other institutions for the purpose of
purchasing overnight funds should additional liquidity be needed.
In 1993, Security established a held-for-sale securities portfolio in
accordance with Banking Circular 228. Securities in this portfolio are used to
meet the asset/liability needs of Security, manage Security's interest rate and
tax positions and other similar needs. At September 30, 1993 Security's
held-for-sale portfolio account equalled $10,560,000. This portfolio did not
exist on September 30, 1992.
Average non-interest bearing demand deposits were $17,663,000 for the nine
months ended September 30, 1993, an increase of $2,505,000 over the average
balance for the nine months ended September 30, 1992. Average interest bearing
deposits for the nine months were $52,472,000 in 1993 and $50,109,000 in 1992.
- 53 -
<PAGE>
Average non-interest bearing demand deposits were $15,704,000, $12,680,000
and $10,926,000 in 1992, 1991 and 1990, respectively. Average interest bearing
deposits for such years were $50,280,000, $41,089,000 and $37,248,000,
respectively.
Net cash generated by operating activities was $141,000, $1,235,000 and
$1,493,000 in 1992, 1991, and 1990, respectively. Proceeds from sales,
principal paydowns, and maturities of investment securities were $11,436,000,
$6,998,000 and $1,987,000 in the same periods. Security utilized these funds to
originate loans and purchase investment securities. Loans originated, net of
principal collected, were $12,036,000, $4,504,000 and $1,893,000 in 1992, 1991,
and 1990, respectively. Security purchased investment securities of $18,173,000
in 1992, $7,824,000 in 1991, and $5,443,000 in 1990.
Funds utilized for the purchase of bank premises and equipment, net of
sales, were $882,000, $88,000 and $78,000 in 1992, 1991, and 1990. In 1992,
Security opened two new locations, one in the Galleria area at 1800 West Loop
South and the other at 4939 Beechnut on the property of Meyerland Plaza.
Security's deposit customer base consists primarily of individuals and
businesses within its market areas. On September 30, 1993, non-interest bearing
deposits were $17,284,000 and deposits in savings and transaction-related
accounts were $28,477,000.
INTEREST RATE SENSITIVITY
Interest rate sensitivity refers to the relationship between market
interest rates and net interest income resulting from the repricing of certain
assets and liabilities. Interest rate risk arises when an earning asset matures
or when its rate of interest changes in a time frame different from that of the
supporting interest-bearing liability. One way to reduce the risk of significant
adverse effects on net interest income of market rate fluctuations is to
minimize the difference between rate sensitive assets and liabilities, referred
to as "gap," by maintaining an interest rate sensitivity position within a
particular time frame.
Maintaining an equilibrium between rate sensitive assets and liabilities
will reduce some of the risk associated with adverse changes in market rates,
but it will not guarantee a stable net interest spread because yields and rates
may change simultaneously and by different amounts. These changes in market
spreads could materially affect the overall net interest spread even if assets
and liabilities were perfectly matched. If more assets than liabilities reprice
within a given period, an asset sensitive position or "positive gap" is
created. During a positive gap, a decline in market rates will have a negative
impact on net interest income. Alternatively, where more liabilities than
assets reprice in a given period, a liability sensitive position or "negative
gap" is created (rate sensitivity ratio is less than 100%) and a decline in
interest rates will have a positive impact on net interest income.
- 54 -
<PAGE>
The following table shows interest sensitivity gaps for these different
intervals as of September 30, 1993.
ESTIMATED PERIOD OF POTENTIAL REPRICING
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Over Over
One Day to Three to Six Six to One Over One
Floating Three Months Months Year Year Total
--------- -------------- ------------ ----------- --------- -------
INTEREST SENSITIVE ASSETS ("ISA")
<S> <C> <C> <C> <C> <C> <C>
Loans
Commercial & Real Estate $16,059 $ 986 $ 1,466 $ 2,225 $ 8,433 $29,169
Installment - Gross 0 2,719 2,508 4,599 14,926 24,752
Investment Securities (Fixed Rate) 0 249 0 1,515 6,646 8,410
Investment Securities (Floating Rate) 0 5,363 2,397 0 0 7,760
Fed Funds Sold 1,725 0 0 0 0 1,725
Time Deposits in Banks 0 111 0 0 0 111
TOTAL INTEREST SENSITIVE ASSETS ------- -------- ------- ------- ------- -------
17,784 9,428 6,371 8,339 30,005 71,927
INTEREST SENSITIVE LIABILITIES ("ISL")
Interest Bearing Deposits
Savings Accounts $ 0 $ 20,242 $ 0 $ 0 $ 0 $20,242
Money Market Checking 0 8,235 0 0 0 8,235
Certificates of Deposit 0 8,365 4,626 3,820 6,405 23,216
TOTAL DEPOSITS ------- -------- ------- ------- ------- -------
$ 0 $ 36,842 $ 4,626 $ 3,820 $ 6,405 $51,693
OTHER BORROWED FUNDS 1,557 0 0 0 0 1,557
------- -------- ------- ------- ------- -------
TOTAL INTEREST SENSITIVE
LIABILITIES 1,557 36,842 4,626 3,820 6,405 53,250
PERIODIC GAP 16,227 (27,414) 1,745 4,519 23,600 18,677
======= ======== ======= ======= ======= =======
CUMULATIVE GAP
16,227 (11,187) (9,442) (4,923) 18,677
======= ======== ======= ======= =======
PERIODIC GAP TO TOTAL EARNING
ASSETS 22.56% (38.11%) 2.43% 6.28% 32.81%
</TABLE>
Varying interest rate environments can create unexpected changes in
prepayment levels of assets and liabilities which are not reflected in the
interest sensitivity analysis. These prepayments may have significant effects on
Security's net interest margin. Because of these factors, an interest
sensitivity gap report may not provide a complete assessment of Security's
exposure to changes in interest rates.
- 55 -
<PAGE>
INVESTMENTS
Set forth is a distribution of Security's investments by contractual
maturity dates at September 30, 1993 (mortgage-backed securities are classified
in the period of final maturity):
<TABLE>
(dollars in thousands)
Maturing
Within One Year After One but After Five But After Ten Years
Within five Years Within Ten Years Total
----------------- ----------------- ---------------- ---------------- ---------------
Amount Yield Amount Yield Amount Yield Amount Yield Amount
------ ----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities:
Mortgage-backed 0 - 0 - 0 - 4,122 4.27 4,122
State and political
subdivisions 0 - 238 4.04 490 5.04 112 5.60 840
Other bonds 0 - 25 7.50 225 7.28 50 7.50 300
Other investments 0 - 0 - 0 - 0 - 349
--- --- --- ---- ----
Total investment
securities 0 - 263 4.37 715 5.74 4,284 4.34 5,611
=== ==== === ===== =====
Securities held
for sale:
U.S. Treasury 1,764 5.25 3,748 4.63 0 - 0 - 5,512
Mortgage-backed 0 - 0 - 0 - 5,048 3.76 5,048
---- --- -- ----- -----
Total securities held
for sale: 1,764 5.25 3,748 4.63 0 - 5,048 3.76 10,560
===== ===== == ===== ======
</TABLE>
- 56 -
<PAGE>
DEPOSITS
The daily average balances and average rates paid by category of deposit at
the dates shown below are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
For the Nine Months As of and for the Years
September 30, 1993 Ended December 31
------------------- -----------------------
1992 1991
---- ----
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Demand $17,663 0% $15,704 0% $12,680 0%
NOW accounts 0 0% 0 0% 0 0%
Money market 23,005 2.20% 21,693 2.95% 15,228 4.53%
Savings 4,995 3.13% 3,405 3.64% 2,066 6.15%
Time 24,472 3.62% 25,182 4.47% 23,795 6.46%
------- ------- -------
Total $70,135 $65,984 $53,769
======= ======= =======
</TABLE>
The scheduled maturities of certificates of deposit in denominations of
$100,000 or more at September 30, 1993 and December 31, 1992, including public
funds, are shown below:
<TABLE>
<CAPTION>
(Dollars in Thousands)
September 30, 1993 December 31, 1992
------------------ -----------------
<S> <C> <C>
Due in three months or less $2,655 $3,778
Due in over three to six
months 1,426 1,700
Due in over six to twelve
months 1,400 1,100
Due in over twelve months 1,760 1,050
------ ------
Totals $7,241 $7,628
====== ======
</TABLE>
- 57 -
<PAGE>
LOANS
The following table classifies Security's loans according to type as of the
dates shown:
<TABLE>
<CAPTION>
(Dollars in Thousands)
September 30, December 31,
-------------- ------------------
1993 1992 1991
-------------- -------- --------
<S> <C> <C> <C>
Commercial $13,292 $11,029 $ 7,479
Real estate-construction 2,773 1,406 223
Real estate-mortgage 11,447 10,161 10,465
Installment 24,729 29,277 21,495
Other 1,680 2,382 2,513
------- ------- -------
Total 53,921 54,255 42,175
Unearned income (1,815) (2,727) (2,393)
Allowance for possible
loan losses (593) (508) (421)
------- ------- -------
Totals $51,513 $51,020 $39,361
======= ======= =======
</TABLE>
Total loans increased 29.6% in 1992 from 1991 levels. At September 30,
1993, total loans exceeded year-end 1992 levels by 1.0%.
Of fixed rate loans aggregating $37,862,000 as of September 30, 1993, loans
totalling $14,503,000 mature within one year, while loans totalling $23,359,000
mature within one to five years. Floating rate loans as of September 30, 1993
totalled $16,059,000. Commercial and real estate loans with a fixed rate and
maturing within one year at September 30, 1993 totalled $4,677,000 while those
with a fixed rate and maturing within one to five years totalled $8,433,000.
Of fixed rate loans aggregating $42,401,000 as of December 31, 1992, loans
totalling $15,953,000 matured within one year, while loans totalling $26,448,000
matured within one to five years. Floating rate loans as of December 31, 1992
totalled $11,854,000. Commercial and real estate loans with a fixed rate and
maturing within one year at December 31, 1992 totalled $5,093,000 while those
with a fixed rate and maturing within one to five years totalled $8,009,000.
ALLOWANCE FOR LOAN LOSSES AND RISK ELEMENTS
The provision for loan losses represents a determination by Security's
management of the amount necessary to be charged to operating income and
transferred to the allowance for loan losses to maintain a level which it
considers adequate in relation to the risk of future losses inherent in the loan
portfolio. It is Security's policy to provide for exposure to losses of
specifically identified credits, and, while it is also Security's policy to
charge off in the current period those loans in which a loss is deemed to exist,
risks of future losses also exist which cannot be quantified precisely or
attributed to particular loans or classes of loans.
In assessing the adequacy of its allowance for loan losses, management
relies predominantly on its ongoing review of the loan portfolio, which is
undertaken both to ascertain whether there are probable losses which must be
charged off and to assess the risk characteristics of individually significant
loans and of the portfolio in the aggregate. This review takes into
consideration the judgments of the responsible lending officers, the loan review
officer and the Board of Directors, and also those of bank regulatory agencies
that review the loan portfolio as part of their regular examination of Security.
- 58 -
<PAGE>
In evaluating the allowance for loan losses, management also considers
Security's loan loss experience, the amount of past due and non-performing
loans, current and anticipated economic conditions, and other appropriate
information as outlined in OCC Banking Circular 201. The allowance for loan
losses also reflects an analysis of the risks associated with each class of
loans.
The allowance for loan losses at September 30, 1993 was $593,000, compared
to $508,000 at December 31, 1992, and $421,000 at December 31, 1991. For more
information in connection with the allowance for loan losses and the provision
for loan losses, see Note 4 of the Notes to Financial Statements. Although
additional losses may occur, management believes the allowance for loan losses
to be adequate as of the dates presented and at present.
<TABLE>
<CAPTION>
(Dollars in Thousands)
As of and for
the nine As of and for the
Transactions in allowance for months ended years ended
possible loan losses September 30, December 31,
- ---------------------------------- ------------- -----------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Balance at Beginning of period $ 508 $ 421 $ 404
Charge-offs
- -----------
Commercial (43) (30) (137)
Real estate - mortgage (11) 0 0
Real estate - construction 0 0 0
Installment loans (137) (191) (112)
Credit card and related plan 0 (2) 0
----- ----- -----
Total charge-offs (191) (223) (249)
Recoveries
- ----------
Commercial 5 7 9
Real estate - mortgage 0 0 0
Real estate - construction 0 0 0
Installment loans 26 13 21
Credit card and related plan 0 0 1
----- ----- -----
Total recoveries 31 20 31
----- ----- -----
Net charge-offs (160) (203) (218)
Provision charged to expense 245 290 235
----- ----- -----
Balance at end of period $ 593 $ 508 $ 421
===== ===== =====
Net charge-offs as a percentage
of average loans .41% .45% .58%
===== ===== =====
</TABLE>
- 59 -
<PAGE>
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The following is an analysis of non-performing assets as of the dates
shown:
<TABLE>
<CAPTION>
(Dollars in Thousands)
September 30, December 31,
------------- -----------
1993 1992 1991
---- ---- -----
<S> <C> <C> <C>
Loans accounted for on a nonaccrual basis $ 117 $ 132 $ 0
Accruing loans which are contractually past
due 90 days or more as to principal or
interest payments 30 5 37
Troubled debt restructuring 0 0 0
----- ----- -----
Total $ 147 $ 137 $ 37
===== ===== =====
Forgone interest on nonaccrual loans $ 8 $ 9 $ 0
</TABLE>
The accrual of interest on a loan is discontinued when, in the opinion of
management (based upon such criteria as default in payment, asset deterioration,
decline in cash flow, recurring operating loss, declining sales, bankruptcy and
other financial conditions which could result in default), the borrower's
financial condition is such that the collection of interest is doubtful. As of
September 30, 1993, loans totalling $117,000, or 0.2% of total net loans
outstanding, were on a non-accrual basis and, therefore, no income was being
recognized. Management believes the risks in these loans to be significant as
there may be some portion of the principal which will become uncollectible.
Placing a loan on non-accrual status has a two-fold impact on net interest
income. First, it causes an immediate charge against earnings for the interest
which had been accrued but not yet collected on the loan. Second, it eliminates
future interest earnings with respect to that particular loan from the bank's
revenues. Interest on such loans is not recognized until all of the principal
is collected or until the loan is returned to a performing status.
The anticipated amounts of charge-offs by category during the next full
year of operations are as follows:
<TABLE>
<S> <C>
Commercial $76,250
Real estate - mortgage 0
Real estate - construction 0
Installment 20,526
-------
$96,776
</TABLE>
- 60 -
<PAGE>
RETURN ON EQUITY AND ASSETS
The return on equity and return on assets for the periods shown below are
as follows:
<TABLE>
<CAPTION>
For the years ended
December 31
-----------
For the nine months
ended September 30,
1993 1992 1991
-------------------- ------ ------
<S> <C> <C> <C>
Return on Average Assets 0.70% 0.82% 0.94%
Return on Average Equity 10.73% 14.84% 16.55%
Equity to Assets Ratio 6.50% 5.53% 5.68%
Dividend Payout Ratio _____ 16.90% ____
</TABLE>
RELATIONSHIPS WITH INDEPENDENT ACCOUNTANTS
Compass' Board of Directors appointed KPMG Peat Marwick as independent
auditors for Compass for the year ending December 31, 1993. KPMG Peat Marwick
has served as Compass' independent auditors continuously since 1971.
Security's Board of Directors appointed KPMG Peat Marwick as independent
auditors for Security for the fiscal year ending December 31, 1993. KPMG Peat
Marwick has served as Security's independent auditors since 1990.
Compass and Security have been advised by KPMG Peat Marwick that KPMG Peat
Marwick does not have any direct financial interest or any material indirect
financial interest in Compass or Security other than arising from that firm's
employment as auditor for Compass and Security.
It is expected that representatives of KPMG Peat Marwick will be present at
the Meeting and will be available to respond to appropriate questions of
shareholders and to make a statement if they desire.
EXPERTS
The financial statements of Compass as of December 31, 1992 and 1991 and
for each of the years in the three-year period ended December 31, 1992
incorporated by reference herein and elsewhere in the Registration Statement
have been incorporated herein and in the Registration Statement in reliance upon
the report of KPMG Peat Marwick, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
The financial statements of Security as of December 31, 1992 and 1991 and
for each of the years in the three-year period ended December 31, 1992 included
in this Registration Statement have been included herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
- 61 -
<PAGE>
LEGAL OPINIONS
Jerry W. Powell, Esquire, General Counsel, Secretary and an employee of
Compass, has rendered an opinion concerning the validity of the securities being
offered pursuant to this Proxy Statement/Prospectus and certain other matters.
As of December 31, 1993, Mr. Powell was the beneficial owner of an aggregate of
approximately 41,432 shares of Compass Common Stock. Liddell, Sapp has passed
upon, among other things, certain federal income tax consequences of the Merger,
and the receipt by Compass and Security of its opinion as to such federal income
tax consequences of the Merger is a condition to the Closing of the Merger.
INDEMNIFICATION
Compass' By-Laws contain provisions similar to those of Section 145 of the
GCL, which authorize Compass to indemnify its officers, directors, employees and
agents to the full extent permitted by law. SEE "COMPARISON OF RIGHTS OF
SHAREHOLDERS OF SECURITY AND COMPASS--CERTAIN DIFFERENCES BETWEEN THE
CORPORATION LAWS OF TEXAS AND DELAWARE AND CORRESPONDING CHARTER AND BY-LAW
PROVISIONS--LIMITATION OF LIABILITY AND INDEMNIFICATION".
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Compass, Compass
has been informed that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
OTHER MATTERS
Security's Board of Directors does not know of any matters to be presented
at the Meeting other than those set forth above. If any other matters are
properly brought before the Meeting or any adjournment thereof, the enclosed
proxy will be voted in accordance with the recommendations of Security's Board
of Directors unless "Authority Withheld" is indicated in the appropriate box on
the proxy. SEE "INTRODUCTION".
- 62 -
<PAGE>
INDEX TO FINANCIAL STATEMENTS
OF
SECURITY BANK, NATIONAL ASSOCIATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Auditors' Report regarding the December 31, 1992 and 1991
Financial Statements F-2
2. Balance Sheets as of December 31, 1992 and 1991 F-3
3. Statements of Income for the Years Ended December 31, 1992,
1991 and 1990 F-4
4. Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 1992, 1991 and 1990 F-5
5. Statements of Cash Flows for the Years Ended
December 31, 1992, 1991 and 1990 F-6
6. Notes to Financial Statements F-7
7. Balance Sheets as of September 30, 1993
and 1992 (Unaudited) F-17
8. Statements of Income for the Nine Months Ended
September 30, 1993 and 1992 (Unaudited) F-18
9. Statements of Cash Flows for the Nine Months Ended
September 30, 1993 and 1992 (Unaudited) F-19
10. Notes to Unaudited Financial Statements F-20
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors
Security Bank, N.A.:
We have audited the accompanying balance sheets of Security Bank, N.A. (formerly
Fondren National Bank) as of December 31, 1992 and 1991, and the related
statements of income, changes in stockholders' equity and cash flows for each of
the years in the three-year period ended December 31, 1992. These financial
statements are the responsibility of the Bank's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Security Bank, N.A. as of
December 31, 1992 and 1991, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1992, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK
February 19, 1993,
except as to note 12,
which is as of March 25,
1993
Houston, Texas
F-2
<PAGE>
SECURITY BANK, N.A.
Balance Sheets
December 31, 1992 and 1991
<TABLE>
<CAPTION>
Assets 1992 1991
------ ---- ----
<S> <C> <C>
Cash and due from banks (note 2) $ 6,425,582 3,583,774
Federal funds sold -- 9,775,000
----------- -----------
Total cash and cash equivalents 6,425,582 13,358,774
----------- -----------
Interest-bearing deposits in other banks (note 3) 207,236 2,313,686
Investment securities (market value of $19,368,647
in 1992 and $12,699,133 in 1991) (note 3) 19,212,040 12,039,685
Loans, net of unearned discount 51,527,825 39,781,787
Less allowance for loan losses 507,647 421,067
----------- -----------
Net loans (note 4) 51,020,178 39,360,720
----------- -----------
Bank premises and equipment, net (note 5) 2,035,036 1,503,649
Accrued interest receivable 262,746 239,262
Other real estate owned 160,117 196,388
Other assets 739,805 164,313
----------- -----------
$ 80,062,740 69,176,477
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities:
Deposits:
Noninterest-bearing 17,861,302 14,227,476
Interest-bearing (note 6) 52,875,604 45,447,915
----------- -----------
Total deposits 70,736,906 59,675,391
Securities sold under agreements to repurchase
(note 7) 4,422,501 5,050,003
Accrued interest payable 86,825 115,180
Other liabilities 425,234 470,614
----------- -----------
Total liabilities 75,671,466 65,311,188
----------- -----------
Stockholders' equity (notes 10 and 11):
Common stock, $5 par value. Authorized
750,000 shares; 348,200 and 345,000
shares issued and outstanding at
December 31, 1992 and 1991, respectively 1,741,000 1,725,000
Surplus 1,726,984 1,725,000
Retained earnings 923,290 415,289
----------- -----------
Total stockholders' equity 4,391,274 3,865,289
Commitments and contingent liabilities (notes 3,
4, 5 and 9) ----------- -----------
$ 80,062,740 69,176,477
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
SECURITY BANK, N.A.
Statements of Income
Years ended December 31, 1992, 1991 and 1990
<TABLE>
<CAPTION>
1992 1991 1990
---- ---- ----
<S> <C> <C> <C>
Interest income:
Loans, including fees $ 4,226,179 3,982,143 4,016,571
Investment securities 1,094,527 1,154,234 957,845
Federal funds sold 183,668 226,340 216,032
Interest-bearing deposits in other banks 75,675 122,389 8,331
----------- ----------- -----------
Total interest income 5,580,049 5,485,106 5,198,779
----------- ----------- -----------
Interest expense:
Deposits 1,889,337 2,290,912 2,524,814
Borrowed funds 90,304 222,516 152,663
----------- ----------- -----------
Total interest expense 1,979,641 2,513,428 2,677,477
----------- ----------- -----------
Net interest income 3,600,408 2,971,678 2,521,302
Provision for loan losses (note 4) 290,000 235,000 329,000
----------- ----------- -----------
Net interest income after
provision for loan losses 3,310,408 2,736,678 2,192,302
----------- ----------- -----------
Other income:
Service fees 704,665 636,157 581,945
Net investment securities gains (losses) 444,601 10,364 (24,893)
Other operating income 166,597 169,761 366,739
----------- ----------- -----------
Total other income 1,315,863 816,282 923,791
----------- ----------- -----------
Other expenses:
Salaries 1,372,899 935,430 810,120
Net occupancy expense 671,517 414,097 384,355
Employee benefits 276,836 216,236 206,896
Equipment maintenance 245,419 175,421 170,711
Data processing fees 183,367 154,986 149,029
Legal and professional 138,352 113,651 127,741
FDIC insurance premiums 134,724 103,512 54,986
Advertising 121,316 37,233 40,224
Other operating expenses 591,572 480,442 600,969
----------- ----------- -----------
Total other expenses 3,736,002 2,631,008 2,545,031
----------- ----------- -----------
Income before income taxes
and extraordinary item 890,269 921,952 571,062
Income tax expense (note 8) 227,808 331,584 205,000
----------- ----------- -----------
Income before extraordinary
item 612,461 590,368 366,062
Extraordinary item -
utilization of operating loss
carryfoward -- -- 157,000
----------- ----------- -----------
Net income $ 612,461 590,368 523,062
=========== =========== ===========
Earnings per share $ 1.72 1.67 1.50
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
SECURITY BANK, N.A.
Statements of Changes in Stockholders' Equity
Years ended December 31, 1992, 1991 and 1990
<TABLE>
<CAPTION>
Net
unrealized
loss on
Common stock Retained marketable Total
---------------------- earnings equity stockholders'
Shares Par value Surplus (deficit) securities equity
------ --------- ------- ------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1990 345,000 $ 1,725,000 1,725,000 (594,641) (120,846) 2,734,513
Net unrealized gain on marketable
equity securities -- -- -- -- 10,446 10,446
Net income for 1990 -- -- -- 523,062 -- 523,062
--------- ---------- ---------- ---------- ---------- ----------
Balance, Janaury 1, 1991 345,000 1,725,000 1,725,000 (71,579) (110,400) 3,268,021
Sale of marketable equity securities -- -- -- -- 110,400 110,400
Dividends declared -- -- -- (103,500) -- (103,500)
Net income for 1991 -- -- -- 590,368 -- 590,368
--------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1991 345,000 1,725,000 1,725,000 415,289 -- 3,865,289
Exercise of common stock options
(note 10) 3,200 16,000 1,984 -- -- 17,984
Dividends declared -- -- -- (104,460) -- (104,460)
Net income for 1992 -- -- -- 612,461 -- 612,461
--------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1992 348,200 $ 1,741,000 1,726,984 923,290 -- 4,391,274
========= ========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
SECURITY BANK, N.A.
Statements of Cash Flows
Years ended December 31, 1992, 1991 and 1990
<TABLE>
<CAPTION>
1992 1991 1990
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 612,461 590,368 523,062
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 354,429 227,070 230,299
Provision for loan losses 290,000 235,000 329,000
(Gain) loss on sale of investment securities (444,601) (10,364) 24,893
Gain on sale of other real estate owned (2,772) -- --
(Amortization) accretion on investment securities 8,618 (26,142) (3,366)
(Gain) loss on disposal of bank premises and equipment (3,662) 204 2,916
Gain on sale of credit card receivables -- -- (58,870)
(Increase) decrease in accrued interest receivable (23,484) 48,583 29,167
(Increase) decrease in other assets (575,492) (57,124) 498,775
Increase (decrease) in accrued interest payable (28,355) (51,480) 1,338
Increase (decrease) in other liabilities (46,340) 279,260 (84,488)
----------- ----------- -----------
Net cash provided by operating activities 140,802 1,235,375 1,492,726
----------- ----------- -----------
Cash flows from investing activities:
Decrease (increase) in interest-bearing
deposits in other banks 2,106,450 692,862 (2,906,548)
Proceeds from sales of investment securities 10,146,458 5,586,079 1,180,320
Proceeds from principal paydowns and maturities of
investment securities 1,289,688 1,411,922 807,021
Purchases of investment securities (18,172,518) (7,823,924) (5,442,879)
Loans originated, net of principal collected (12,035,772) (4,504,025) (1,892,795)
Proceeds from sale of credit card receivables -- -- 1,201,047
Recoveries on charged-off loans 19,725 31,173 42,400
Purchases of bank premises and equipment, net (882,154) (88,377) (77,664)
Amounts capitalized to other real estate owned (3,840) -- --
Proceeds from sale of other real estate owned 109,472 -- --
----------- ----------- -----------
Net cash used in investing activities (17,422,491) (4,694,290) (7,089,098)
----------- ----------- -----------
Cash flows from financing activities:
Net increase in deposits 11,061,515 8,242,593 2,097,975
Net decrease in treasury, tax and loans note payable -- (255,781) (557,833)
Net increase (decrease) in securities sold under
agreements to repurchase (627,502) 3,747,104 727,899
Proceeds from sale of common stock 17,984 -- --
Dividends paid (103,500) -- --
----------- ----------- -----------
Net cash provided by financing activities 10,348,497 11,733,916 2,268,041
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents (6,933,192) 8,275,001 (3,328,331)
Cash and cash equivalents at beginning of year 13,358,774 5,083,773 8,412,104
----------- ----------- -----------
Cash and cash equivalents at end of year $ 6,425,582 13,358,774 5,083,773
=========== =========== ===========
Supplemental disclosures of cash flow information:
Interest paid $ 2,007,995 2,564,908 2,676,139
Income taxes paid 212,000 30,000 23,000
=========== =========== ===========
Supplemental schedule of noncash investing activity--
foreclosure and repossession of collateral in
partial satisfaction of debt $ 66,589 -- 196,388
Supplemental schedule of noncash financing activity--
dividends declared, not yet paid 104,460 103,500 --
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
SECURITY BANK, N.A.
NOTES TO FINANCIAL STATEMENTS
December 31, 1992 and 1991
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accompanying financial statements of Security Bank, N.A. (formerly
Fondren National Bank) (the Bank) have been prepared in conformity with
generally accepted accounting principles and conform with practices within
the banking industry.
CASH EQUIVALENTS
For purposes of the statement of cash flows, cash equivalents include all
highly liquid investments with original maturities of three months or less.
INVESTMENT SECURITIES
Investment securities, including direct U.S. government obligations and
other securities, are stated at cost adjusted for amortization of premiums
and accretion of discounts as management has the intent and the Bank has the
ability to hold such securities to maturity. Marketable equity securities
are reflected at the lower of cost or market. Stockholders' equity is
reduced for unrealized losses on these securities. Gains or losses on
disposition are recognized at the time of sale and are based on the net
proceeds and the adjusted carrying amount of the securities sold, using the
specific identification method.
LOANS
The allowance for loan losses is maintained at a level considered adequate
to provide for potential loan losses. The allowance is increased by
provisions charged to operating expense and reduced by net charge-offs.
Management believes that the allowance for losses on loans are adequate.
While management uses available information to recognize losses on loans,
future additions to the allowances may be necessary based on changes in
economic conditions. In addition, various regulatory agencies as an
integral part of their examination process periodically review the Bank's
allowances for losses on loans and other real estate owned. Such agencies
may require the Bank to recognize additions to the allowances based on their
judgments of information available to them at the time of their examination.
Unearned interest on consumer loans is recognized as income over the terms
of the loans using a method which approximates the interest method.
Interest on other loans is calculated using the simple interest method on
daily balances of the principal amount outstanding.
Loan origination fees and certain direct loan origination costs are being
deferred and the net amount amortized as an adjustment of the related loan's
yield. Amortization of these amounts is generally over the contractual life
of the related loans.
(Continued)
F-7
<PAGE>
SECURITY BANK, N.A.
NOTES TO FINANCIAL STATEMENTS
Nonaccrual loans are loans for which the accrual of interest ceases when the
collection of principal or interest payments is determined by management to
be doubtful. It is the policy of the Bank to discontinue the accrual of
interest when principal or interest payments are delinquent for 90 days (or
at an earlier date if deemed appropriate by management) unless the loan
principal and interest are determined by management to be fully collecti-
ble. Any unpaid amounts previously accrued are reversed from income at the
time the loan is put on nonaccrual status, and thereafter interest is
recognized only to the extent payments are received.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are recorded at cost. Expenditures for renewals
and improvements are capitalized. Repairs and maintenance are charged to
expense as incurred. Depreciation is calculated using the straight-line
method over the estimated useful lives of the assets. Any gain or loss
resulting from disposition of properties is reflected in operations.
OTHER REAL ESTATE OWNED
Other real estate owned represents properties acquired by foreclosure or by
deed taken in lieu of foreclosure and is recorded at the lower of the unpaid
principal loan balance or fair value at the date of foreclosure, not to
exceed fair value, net of estimated selling costs, at subsequent balance
sheet dates. Losses on the foreclosure date are charged to the allowance
for loan losses and are credited directly to the carrying value of the
related property. Subsequent valuation adjustments are charged to operating
expense and credited to the allowance for revaluation of other real estate.
Costs of holding properties including operating expenses, net of rental
income, are charged to operating expense.
Gains or losses on the sales of such properties are recognized when certain
criteria relating to the nature of the property sold and the terms of sale
are met and are included in operating expense.
INCOME TAXES
Deferred federal income taxes arise from timing differences resulting from
items of income or expense reported in the financial statements and those
reported for federal income tax purposes. The differences relate primarily
to depreciation of bank premises and equipment, accretion of discounts on
investment securities, provision for loan losses, and using the cash basis
of accounting for tax purposes.
Franchise tax for the state of Texas is the higher of a designated
percentage of capital and a designated percentage of adjusted taxable
income, payable annually. Although the franchise tax is paid subsequent to
year-end, the portion of the franchise tax attributable to the Bank's
earnings is required to be accrued in the fiscal year the earnings are
recognized.
EARNINGS PER SHARE
Earnings per share is calculated by dividing net income by the weighted
average number of common shares and common stock equivalents. Stock options
are regarded as common stock equivalents and are therefore considered in
earnings per share calculations if dilutive. Common stock equivalents are
computed using the treasury stock method. The weighted average numbers of
shares used in the computation of earnings per share are 356,597, 352,933
and 349,315 at December 31, 1992, 1991 and 1990, respectively.
(Continued)
F-8
<PAGE>
SECURITY BANK, N.A.
NOTES TO FINANCIAL STATEMENTS
(2) RESERVE REQUIREMENTS
Cash and due from banks of approximately $1,115,000 and $1,073,000 at
December 31, 1992 and 1991, respectively, were maintained to satisfy
regulatory reserve requirements.
(3) INVESTMENT SECURITIES
The amortized cost and estimated market values of investments in securities
at December 31, 1992 and 1991 follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized market
cost gains losses value
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1992:
Mortgage-backed securities $ 9,721,757 49,063 -- 9,770,820
Treasury notes 9,032,053 102,976 -- 9,135,029
Other securities 458,230 4,568 -- 462,798
----------- ------- ---------- ----------
$19,212,040 156,607 -- 19,368,647
=========== ======= ========== ==========
December 31, 1991:
Mortgage-backed securities $11,631,490 658,309 -- 12,289,799
Other securities 408,195 1,139 -- 409,334
----------- ------- ---------- ----------
$12,039,685 659,448 -- 12,699,133
=========== ======= ========== ==========
</TABLE>
The amortized cost and estimated market value of investment securities at
December 31, 1992, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized market
cost value
--------- ---------
<S> <C> <C>
Due within one year $ 3,478,057 3,480,577
Due after one year through five years 5,553,997 5,654,452
Due after five years through ten years 150,000 150,000
Due after ten years 199,629 204,198
--------- ---------
9,381,683 9,489,227
--------- ---------
Mortgage-backed securities 9,721,757 9,770,820
Federal Reserve Bank and MESBIC stock 108,600 108,600
--------- ---------
$ 19,212,040 19,368,647
========== ==========
</TABLE>
Proceeds from sales of investment securities during 1992, 1991 and 1990 were
$10,146,458, $5,586,079 and $1,180,320, respectively. Gross gains of
$444,601, $107,064 and $6,365 and losses of $-0-, $96,700 and $31,258 were
realized on sales during 1992, 1991 and 1990, respectively.
(Continued)
F-9
<PAGE>
SECURITY BANK, N.A.
NOTES TO FINANCIAL STATEMENTS
At December 31, 1992, investment securities and interest-bearing deposits in
banks with a carrying amount of approximately $17,715,000 and $198,000
respectively, were pledged to secure public deposits and for other purposes
required or permitted by law.
At December 31, 1991, investment securities and interest-bearing deposits in
banks with a carrying amount of approximately $10,004,000 and $1,326,000,
respectively, were pledged to secure public deposits and for other purposes
required or permitted by law.
(4) LOANS
A summary of loans at December 31, 1992 and 1991 follows:
<TABLE>
<CAPTION>
1992 1991
---- ----
<S> <C> <C>
Commercial $11,028,643 7,478,950
Real estate - mortgage 10,161,229 10,465,011
Real estate - construction 1,405,664 223,397
Consumer installment, principally automobile
loans 31,659,002 24,007,516
------------ ----------
54,254,538 42,174,874
Unearned discount (2,726,713) (2,393,087)
------------ ----------
$ 51,527,825 39,781,787
============ ==========
</TABLE>
A summary of the activity in the allowance for loan losses for the years
ended December 31, 1992, 1991 and 1990 is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1992 1991 1990
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 421,067 403,638 301,129
Provisions charged to operations 290,000 235,000 329,000
Recoveries 19,725 31,173 42,400
Loans charged off (223,145) (248,744) (268,891)
--------- -------- --------
Balance at end of year $ 507,647 421,067 403,638
========= ======== ========
</TABLE>
Certain directors of the Bank and other related parties incurred
indebtedness, in the form of loans, as customers. It is the opinion of
management that these loans were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other customers and did not involve more than
the normal risk of collectibility when made. An analysis of these loans for
the years ended December 31, 1992 and 1991 follows:
<TABLE>
<CAPTION>
1992 1991
------------ ----------
<S> <C> <C>
Balance at beginning of year $ 885,238 1,368,671
Additions 1,438,103 340,085
Reductions (698,423) (823,518)
---------- ---------
Balance at end of year $1,624,918 885,238
========== =========
</TABLE>
(Continued)
F-10
<PAGE>
SECURITY BANK, N.A.
NOTES TO FINANCIAL STATEMENTS
(5) BANK PREMISES AND EQUIPMENT
A summary of bank premises and equipment at December 31, 1992 and 1991
follows:
<TABLE>
<CAPTION>
Estimated
useful
lives 1992 1991
----------- ----------- ---------
<S> <C> <C> <C>
Buildings and improvements 5-40 years $ 2,338,776 1,856,275
Furniture and equipment 3-10 years 1,135,547 774,831
=========== --------- ---------
3,474,323 2,631,106
Less accumulated depreciation 1,439,287 1,127,457
--------- ---------
$ 2,035,036 1,503,649
========= =========
</TABLE>
The land on which an existing bank premise is located is being leased from
an affiliate of a stockholder and director. The lease term is 25 years
expiring in 2012, with two ten-year renewal options. Rent paid to the
affiliate for the years ended December 31, 1992, 1991 and 1990 totaled
$95,760, $91,770 and $85,896, respectively. The Bank has an option to buy
the land for its fair market value any time between January 1, 1992 and
December 30, 2011.
The Bank also leases office space from unaffiliated parties for its branch
banking facilities. These leases expire in 1996 and 2007. The Bank
subleases space in one of its branch banking locations to an unaffiliated
party for approximately $3,500 per month under a noncancellable sublease
agreement. The rental amount is adjusted by the consumer price index
beginning in May 1994, and expires in October 1995. Rental income of
approximately $37,000 is recorded in the accompanying 1992 statement of
income.
Rent expense for the years ended December 31, 1992, 1991 and 1990 totaled
approximately $255,000, $131,000 and $125,000, respectively.
Minimum future rental payments under noncancellable operating leases having
remaining terms in excess of one year as of December 31, 1992, for each of
the next five years and in the aggregate are:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
<S> <C>
1993 $ 242,412
1994 253,114
1995 253,088
1996 185,978
1997 172,356
Thereafter 2,050,484
---------
Total minimum future rental payments $ 3,157,432
=========
</TABLE>
(Continued)
F-11
<PAGE>
SECURITY BANK, N.A.
NOTES TO FINANCIAL STATEMENTS
(6) INTEREST-BEARING DEPOSITS
A summary of interest-bearing deposits at December 31, 1992 and 1991
follows:
<TABLE>
<CAPTION>
1992 1991
----------- ----------
<S> <C> <C>
Money market accounts $ 27,774,023 20,729,642
Certificates of deposit in denominations of
$100,000 or more 7,527,837 7,657,824
Certificates of deposit in denominations of
less than $100,000 17,573,744 17,060,449
---------- ----------
$ 52,875,604 45,447,915
========== ==========
</TABLE>
Interest expense on time deposits in denominations of $100,000 or more was
approximately $370,000, $525,000 and $689,000 for the years ended December
31, 1992, 1991 and 1990, respectively.
(7) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase at December 31, 1992 and 1991
consisted of the following:
<TABLE>
<CAPTION>
1992 1991
-------------------------- -------------------------
Market value Market value
Repurchase of securities Repurchase of securities
liability sold liability sold
----------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Securities with book value
of $6,194,678 in 1992
and $7,236,745 in 1991 $ 4,422,501 6,287,262 5,050,003 7,554,794
=========== ========= ========= =========
Weighted average
interest rate 2.19% 3.60%
===== =====
</TABLE>
The Bank enters into sales of securities under agreements to repurchase.
Fixed coupon agreements are treated as financing arrangements, and the
obligations to repurchase securities sold are reflected as a liability in
the balance sheets. The dollar amount of securities underlying the
agreements are recorded in the respective asset accounts. Securities sold
under agreements to repurchase averaged approximately $3,014,000 and
$3,292,000 during 1992 and 1991, respectively, and the maximum outstanding
amounts at any month-end during 1992 and 1991 were approximately $4,264,000
and $5,050,000, respectively.
(Continued)
F-12
<PAGE>
SECURITY BANK, N.A.
NOTES TO FINANCIAL STATEMENTS
(8) INCOME TAXES
The components of income tax expense for the years ended December 31, 1992,
1991 and 1990 are as follows:
<TABLE>
<CAPTION>
1992 1991 1990
---- ---- ----
<S> <C> <C> <C>
Federal:
Current $ 389,015 347,558 205,000
Deferred (76,822) (50,974) --
------- ------- -------
312,193 296,584 205,000
State earned surplus tax (34,385) 35,000 --
------- ------- -------
$ 277,808 331,584 205,000
======= ======= =======
</TABLE>
The income tax expense for the years ended December 31, 1992, 1991 and 1990
differs from the amount computed by applying the federal income tax rate
of 34% to the income before income tax expense. The reasons for the
differences are as follows:
<TABLE>
<CAPTION>
1992 1991 1990
----- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense $ 302,691 313,464 194,000
Nondeductible capital loss -- 32,878 11,000
Utilization of alternative minimum tax credit -- (35,939) --
State earned surplus tax, net of related
tax effect (22,694) 23,100 --
Other (2,189) (1,919) --
------- ------- -------
$ 277,808 331,584 205,000
======= ======= =======
</TABLE>
(Continued)
F-13
<PAGE>
SECURITY BANK, N.A
Notes to Financial Statements
The sources of deferred federal income taxes for the years ended December
31, 1992, 1991 and 1990 and their tax effects are as follows::
<TABLE>
<CAPTION>
December 31
-------------------------------
1992 1991 1990
---------- ---------- ---------
<S> <C> <C> <C>
Use of cash basis of accounting for
income tax purposes $ (13,859) (32,295) (839)
Book depreciation over tax depreciation (46,308) (7,226) 8,065
Tax deduction for loan losses in excess
of book deduction (book deduction for
loan losses in excess of tax deduction) (28,555) 1,295 37,075
State earned surplus tax 11,900 (11,900) --
Capital loss on sale of other real estate -- -- (64,938)
Writedowns of other real estate -- -- 10,521
Deferred taxes not recognized for
financial reporting purposes due to net
operating losses -- -- 41,110
Organization costs amortization -- -- (10,363)
ITC utilized -- -- 11,067
Alternative minimum tax -- -- (32,000)
Other -- -- 302
-------- ------- -------
$ (76,822) (50,126) --
======== ======= =======
</TABLE>
At December 31, 1992, the Bank had available a capital loss carryforward for
financial statement purposes of approximately $127,000.
Current income taxes payable of approximately $164,000 are included in other
liabilities and deferred income tax assets of approximately $127,000 are
included in other assets at December 31, 1992.
The FASB has issued Statement 109, "Accounting for Income Taxes" which will
supersede Statement 96, "Accounting for Income Taxes." The Bank currently
accounts for income taxes under APB 11, having elected not to adopt
Statement 96 prior to its required effective date. Statement 109 will
change the Company's method of accounting for income taxes from the
deferred method required under APB 11 to the asset and liability method.
The Bank presently does not know and cannot reasonably estimate the impact
of Statement 109 on its financial statements.
Statement 109 is effective for fiscal years beginning after December 15,
1992 and earlier adoption is permitted. Statement 109 can be adopted by
retroactively restating financial statements for any number of consecutive
years before the effective date. In the earliest year restated, or in the
year of adoption if no years are restated, the effect of initially
applying this new pronouncement shall be reported as the cumulative effect
of a change in accounting principle in the results of operations. The
Bank has not made a determination whether it will restate any prior years
or adopt Statement 109 in 1993 on a prospective basis.
(Continued)
F-14
<PAGE>
SECURITY BANK, N.A.
Notes to Financial Statements
(9) COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Bank enters into various transactions
which, in accordance with generally accepted accounting principles, are not
included on the balance sheets. These transactions are referred to as
"off-balance sheet commitments." The Bank enters into these transactions
to meet the financing needs of its customers. These transactions include
commitments to extend credit and letters of credit which involve elements
of credit risk in excess of the amounts recognized in the balance sheets.
The Bank minimizes its exposure to loss under these commitments by
subjecting them to credit approval and monitoring procedures.
The Bank enters into contractual commitments to extend credit, normally
with fixed expiration dates or termination clauses, at specified rates and
for specific purposes. Customers use credit commitments to ensure that
funds will be available for working capital purposes, for capital
expenditures and to ensure access to funds under specified terms and
conditions. Substantially all of the Bank's commitments to extend credit
are contingent upon customers maintaining specific credit standards at the
time of loan funding. Management assesses the credit risk associated with
certain commitments to earned credit in determining the level of the
allowance for possible losses.
Letters of credit are written conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The Bank's
policies generally require that letters of credit arrangements contain
security and debt covenants similar to those contained in loan agreements.
At December 31, 1992, commitments under standby letters of credit and
unfunded loan commitments aggregated approximately $548,000 and $3,881,000,
respectively. The Bank does not anticipate any material losses as a result
of the commitments and contingent liabilities.
(10) EMPLOYEE STOCK OPTION PLAN
In March 1990, the stockholders approved a Key Executive Stock Option Plan
(the Plan). During 1992, the Board of Directors approved an increase in
the number of options provided for under the Plan to 40,000 shares. The
option price is determined by a committee of the Board of Directors, but
shall not be less than the higher of the par value of the stock or the fair
value of the stock at the time the option is granted. Exercise prices for
options outstanding at December 31, 1992 range from $5.62 to $7.50 per
share. Options granted become ratably exercisable beginning one year from
the date of grant and ending ten years after the date of grant. The amount
of options exercisable depends on the employees length of service with the
Bank. Options expire when employment with the Bank is terminated.
(Continued)
F-15
<PAGE>
SECURITY BANK, N.A.
Notes to Financial Statements
Information with respect to options under the Plan follows:
<TABLE>
<CAPTION>
Number of options
-----------------------
1992 1991 1990
------ ------ ------
<S> <C> <C> <C>
Outstanding at beginning of year 20,000 16,250 --
Granted 16,250 3,750 16,250
Exercised (3,200) -- --
Canceled (3,800) -- --
------ ------ ------
Outstanding at end of year 29,250 20,000 16,250
====== ====== ======
Exercisable at end of year 14,950 10,125 --
====== ====== ======
</TABLE>
During 1992, options for 3,200 shares of common stock were exercised at
$5.62 per share. Amounts paid in excess of par were credited to surplus.
(11) RETAINED EARNINGS AND DIVIDENDS
In December 1992, the Bank declared a dividend of $.30 per share to common
shareholders, paid in January 1993.
Dividends paid are subject to restrictions by certain regulatory agencies.
At December 31, 1992, all of the Bank's retained earnings were legally
available for payment of dividends.
(12) STOCK OFFERING
A Private Placement Memorandum was issued on June 8, 1992, amended in March
1993, to offer for sale up to approximately 81,633 units of convertible
preferred stock. Each unit, consisting of one share of Class A preferred
stock and two shares of Class B preferred stock, is offered for sale at
$36.75 per unit, for a total maximum of $3,000,000. The par value of the
Class A and Class B preferred stock is $12.25 per share. The Class A
preferred stock has cumulative dividends of 9 percent per annum, and the
Class B preferred stock has no stated dividend and therefore is not
cumulative. This Private Placement was approved on March 25, 1993 and
terminates on June 30, 1993.
F-16
<PAGE>
SECURITY BANK,N.A.
BALANCE SHEETS
September 30, 1993 and 1992
<TABLE>
<CAPTION>
Assets 1993 1992
------ ---- (unaudited) ----
<S> <C> <C>
Cash and due from banks $ 2,971,815 5,647,629
Federal funds sold 1,725,000 500,000
------------ ------------
Total cash and cash equivalents 4,696,815 6,147,629
------------ ------------
Interest-bearing deposits in other banks 110,657 944,021
Securities held for sale 10,559,951 --
Investment securities 5,610,867 14,772,240
Loans, net of unearned discount 52,106,187 49,328,722
Less allowance for loan losses 592,905 445,422
------------ ------------
Net loans 51,513,282 48,883,300
------------ ------------
Bank premises and equipment, net 2,924,344 2,075,933
Accrued interest receivable 298,629 325,181
Other real estate owned 178,117 160,117
Other assets 682,286 604,121
------------ ------------
$ 76,574,948 73,912,542
============ ============
<CAPTION>
Liabilities and Stockholders' Equity
------------------------------------
<S> <C> <C>
Liabilities:
Deposits:
Noninterest-bearing 17,284,423 18,011,160
Interest-bearing 51,692,992 50,375,018
------------ ------------
Total deposits 68,977,415 68,386,178
Securities sold under agreements to re-
purchase and other borrowed money 1,556,561 904,463
Accrued interest payable 73,412 85,947
Other liabilities 178,602 239,850
------------ ------------
Total liabilities 70,785,990 69,616,438
------------ ------------
Stockholders' equity:
Preferred stock, par value $12.25; 285,000
authorized shares, convertible:
Class A, cumulative; 28,479 shares issued
outstanding in 1993 327,867 --
Class B, noncumulative 56,958 shares issued
and outstanding in 1993 655,735 --
Common stock, $5 par value. Authorized
1,030,000 shares in 1993
and 750,000 shares in 1992; 349,025 and
348,200 shares issued
and outstanding at September 30, 1993 and
1992, respectively 1,745,125 1,741,000
Surplus 1,727,496 1,726,984
Retained earnings 1,332,735 828,120
------------ ------------
Total stockholders' equity 5,788,958 4,296,104
Commitments and contingent liabilities
------------ ------------
$ 76,574,948 73,912,542
============ ============
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE>
SECURITY BANK, N.A.
Statements of Income
Nine months ended September 30, 1993 and 1992
<TABLE>
<CAPTION>
1993 1992
---- ----
(unaudited)
<S> <C> <C>
Interest income:
Loans, including fees $ 3,317,993 3,087,502
Investment securities and securities
held for sale 682,259 874,410
Federal funds sold 44,329 162,158
Interest-bearing deposits in other banks 6,149 68,511
---------- ----------
Total interest income 4,050,730 4,192,581
---------- ----------
Interest expense:
Deposits 1,166,441 1,472,234
Borrowed funds 43,159 76,551
---------- ----------
Total interest expense 1,209,600 1,548,785
---------- ----------
Net interest income 2,841,130 2,643,796
Provision for loan losses 245,000 185,000
---------- ----------
Net interest income after provision
for loan losses 2,596,130 2,458,796
---------- ----------
Other income:
Service fees 559,656 502,454
Net investment securities gains 49,554 289,975
Other operating income 125,955 164,470
---------- ----------
Total other income 735,165 956,899
---------- ----------
Other expenses:
Salaries and employee benefits 1,346,571 1,254,477
Net occupancy expense 394,276 517,167
Equipment 167,128 184,047
Data processing fees 165,471 148,641
Legal and professional 79,659 121,233
Advertising 49,778 112,339
Other operating expenses 536,321 453,926
---------- ----------
Total other expenses 2,739,204 2,791,830
---------- ----------
Income before income taxes and
cumulative effect of accounting
change 592,091 623,865
Income tax expense 189,452 211,034
---------- ----------
Income before cumulative effect
of accounting change 402,639 412,831
Cumulative effect of change in accounting
for income taxes 6,806 --
---------- ----------
Net income $ 409,445 412,831
========== ==========
Primary earnings per common share:
Income before cumulative effect of
accounting change $ 1.01 1.16
Net income 1.03 1.16
========== ==========
Fully diluted earnings per common share:
Income before cumulative effect of
accounting change $ 0.98 1.16
Net income 1.00 1.16
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE>
SECURITY BANK, N.A.
Statements of Cash Flows
Nine months ended September 30, 1993 and 1992
<TABLE>
<CAPTION>
1993 1992
---- ----
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 409,445 412,831
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 251,243 273,672
Provision for loan losses 245,000 185,000
Gain on sale of securities held for sale (29,047) --
Gain on sale of investment securities (20,507) (289,975)
Gain on sale of other real estate owned -- (2,772)
Writedown of other real estate owned 8,510 --
Amortization on investment securities and
securities held for sale 34,932 3,249
(Gain) loss on disposal of bank premises and
equipment -- (3,662)
Increase in accrued interest receivable (35,883) (85,919)
Decrease (increase) in other assets 57,519 (439,808)
Decrease in accrued interest payable (13,413) (29,233)
Decrease in other liabilities (142,172) (230,764)
----------- ------------
Net cash provided by (used in) operating
activities 765,627 (207,381)
----------- ------------
Cash flows from investing activities:
Decrease in interest-bearing deposits in other
banks 96,579 1,369,665
Proceeds from sales of securities held for
sale 4,060,838 --
Proceeds from principal paydowns and
maturities of securities held for sale 2,142,641 --
Purchases of securities held for sale (2,987,045) --
Proceeds from sales of investment securities -- 7,069,900
Proceeds from principal paydowns and
maturities of investment securities 1,637,832 1,153,284
Purchases of investment securities (1,798,422) (10,669,013)
Loans originated, net of principal collected (795,561) (9,783,198)
Recoveries on charged-off loans 30,947 9,029
Purchases of bank premises and equipment,
net (821,120) (842,294)
Amounts capitalized to other real estate owned -- (3,840)
Proceeds from sale of other real estate owned -- 109,472
----------- ------------
Net cash provided by (used in) investing
activities 1,566,689 (11,586,995)
----------- ------------
Cash flows from financing activities:
Net increase (decrease) in deposits (1,759,491) 8,710,787
Net decrease in securities sold under
agreements to repurchase (2,865,940) (4,145,540)
Proceeds from sale of common stock 4,637 17,984
Proceeds from issuance of preferred stock 664,171 --
Dividends paid (104,460) --
----------- ------------
Net cash provided by (used in) financing
activities (4,061,083) 4,583,231
----------- ------------
Net decrease in cash and cash equivalents (1,728,767) (7,211,145)
Cash and cash equivalents at beginning of period 6,425,582 13,358,774
----------- ------------
Cash and cash equivalents at end of period $ 4,696,815 6,147,629
=========== ============
Supplemental disclosures of cash flow information:
Interest paid $ 1,223,013 1,578,018
Income taxes paid 265,000 187,000
=========== ============
Supplemental schedule of noncash investing
and financing activities:
Foreclosure and repossession of collateral in
partial satisfaction of debt $ 26,510 66,589
Issuance of preferred stock for purchase of
bank premises 319,431 --
=========== ============
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE>
SECURITY BANK, N.A.
NOTES TO FINANCIAL STATEMENTS
September 30, 1993 and 1992
(1) The accompanying unaudited financial statements of Security Bank, N.A.
(formerly Fondren National Bank) (the Bank) were prepared in accordance
with the instructions to Article 10 of Regulation S-X and therefore do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, the accompanying financial statements contain all adjustments,
consisting only of normal recurring accruals, necessary to present fairly
the financial position of Security Bank, N.A. as of September 30, 1993 and
1992 and the income and cash flows for the nine months then ended. The
income for the nine months ended September 30, 1993 is not necessarily
indicative of the results that may be expected for the full year.
(2) In 1993, the Bank established a securities held for sale account and
transferred approximately $11,758,000 from the investment securities
account. Securities held for sale are accounted for at the lower of
amortized cost or market value.
(3) At September 30, 1993, the Bank had commitments under standby letters
of credit and unfunded loan commitments of approximately $402,000 and
$5,971,000, respectively.
(4) Effective January 1, 1993, the Bank adopted Statement 109, "Accounting
for Income Taxes," issued by the Financial Accounting Standards Board. The
cumulative effect of this change in accounting for income taxes of $6,806,
determined as of January 1, 1993, is reported separately in the statement
of income for the nine months ended September 30, 1993. Prior years'
financial statements have not been restated to apply the provisions of
Statement 109.
Pursuant to the deferred method under APB Opinion 11, which was applied in
1992 and prior years, deferred income taxes were recognized for income and
expense items that were reported in different years for financial reporting
purposes and income tax purposes using the tax rates applicable for the
year of the calculation under the deferred method, deferred taxes were not
adjusted for subsequent changes in tax rates.
At January 1, 1993, the tax effects of temporary differences that give rise
to significant portions of the deferred tax assets and deferred tax
liabilities are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Loans, due to provision for loan losses $ 59,983
Bank premises and equipment, due to depreciation 98,016
-------
157,999
Deferred tax liability:
Other liabilities, due to accrual to cash adjustment (27,718)
-------
Net deferred tax asset $130,281
=======
</TABLE>
(Continued)
F-20
<PAGE>
SECURITY BANK, N.A.
NOTES TO FINANCIAL STATEMENTS
(5) A Private Placement Memorandum was issued on June 8, 1992, amended in
March 1993, to offer for sale up to approximately 81,633 units of
convertible preferred stock. Each unit, consisting of one share of Class A
preferred stock and two shares of Class B preferred stock, was offered for
sale at $36.75 per unit, for a total maximum of $3,000,000. The par value
of the Class A and Class B preferred stock is $12.25 per share. The Class
A preferred stock has cumulative dividends of 9 percent per annum, and the
Class B preferred stock has no stated dividend and therefore is not
cumulative. This Private Placement was approved on March 25, 1993 and
terminated on June 30, 1993.
In connection with the Private Placement, 19,787 shares of Class A and
39,574 shares of Class B were issued.
(6) In May 1993, the Bank purchased land on which an existing bank premise
was located from an affiliate of a stockholder and director. The land was
purchased for approximately $1,070,000, which was the fair market value of
the land at the time of sale. The Bank paid approximately $750,000 in cash
and issued 26,076 shares of preferred stock to the seller for the purchase
price of the land.
F-21
<PAGE>
APPENDIX I
MERGER AGREEMENT
==================
<PAGE>
==============================================================================
AGREEMENT AND PLAN OF MERGER BETWEEN
COMPASS BANCSHARES, INC.
AND
SECURITY BANK, N.A.
Dated as of November 19, 1993
==============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I THE MERGER............................................. 2
SECTION 1.1 The Merger..................................... 2
SECTION 1.2 Effective Time................................. 2
SECTION 1.3 Certain Effects of the Merger.................. 3
SECTION 1.4 Certificate of Incorporation and By-Laws....... 3
SECTION 1.5 Directors and Officers......................... 3
SECTION 1.6 Conversion of Shares........................... 3
SECTION 1.7 Shareholders' Meeting.......................... 8
SECTION 1.8 Registration of the Compass Common Stock....... 9
SECTION 1.9 Closing........................................ 9
ARTICLE II DISSENTING SHARES; EXCHANGE OF SHARES.................. 10
SECTION 2.1 Dissenting Shares.............................. 10
SECTION 2.2 Exchange of Shares............................. 10
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BANK............. 13
SECTION 3.1 Organization and Qualification................. 14
SECTION 3.2 Bank Capitalization............................ 14
SECTION 3.3 Bank Shares; Other Securities.................. 15
SECTION 3.4 Authority Relative to the Agreement............ 15
SECTION 3.5 No Violation................................... 16
SECTION 3.6 Consents and Approvals......................... 18
SECTION 3.7 Regulatory Reports............................. 18
SECTION 3.8 SEC Status; Securities Issuances............... 18
SECTION 3.9 Financial Statements........................... 19
SECTION 3.10 Absence of Certain Changes..................... 20
SECTION 3.11 Bank Indebtedness.............................. 23
SECTION 3.12 Litigation..................................... 23
SECTION 3.13 Tax Matters.................................... 24
SECTION 3.14 Employee Benefit Plans......................... 25
SECTION 3.15 Employment Matters............................. 30
SECTION 3.16 Leases, Contracts and Agreements............... 31
SECTION 3.17 Related Company Transactions................... 32
SECTION 3.18 Compliance with Laws........................... 33
SECTION 3.19 Insurance...................................... 34
SECTION 3.20 Loans.......................................... 34
SECTION 3.21 Fiduciary Responsibilities..................... 35
SECTION 3.22 Patents, Trademarks and Copyrights............. 35
SECTION 3.23 Environmental Compliance....................... 35
SECTION 3.24 Regulatory Actions............................. 38
SECTION 3.25 Title to Properties; Encumbrances.............. 38
SECTION 3.26 Shareholder List............................... 39
SECTION 3.27 Proxy Statement................................ 39
SECTION 3.28 Dissenting Shareholders........................ 40
SECTION 3.29 Section 368 Representations.................... 40
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
SECTION 3.30 Employee Stock Options......................... 43
SECTION 3.31 Accounting Matters............................. 43
SECTION 3.32 Representations Not Misleading................. 43
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF COMPASS.............. 43
SECTION 4.1 Organization and Authority..................... 43
SECTION 4.2 Authority Relative to Agreement................ 44
SECTION 4.3 Financial Reports.............................. 47
SECTION 4.4 Capitalization................................. 48
SECTION 4.5 Consents and Approvals......................... 49
SECTION 4.6 Proxy Statement................................ 49
SECTION 4.7 Pooling........................................ 50
SECTION 4.8 Availability of Compass Common Stock........... 50
SECTION 4.9 Representations Not Misleading................. 51
ARTICLE V COVENANTS OF THE BANK.................................. 51
SECTION 5.1 Affirmative Covenants of the Bank.............. 51
SECTION 5.2 Negative Covenants of the Bank................. 54
SECTION 5.3 Affirmative Covenants of Compass............... 58
SECTION 5.4 Negative Covenants of Compass.................. 59
ARTICLE VI ADDITIONAL AGREEMENTS.................................. 59
SECTION 6.1 Access To, and Information Concerning,
Properties and Records......................... 59
SECTION 6.2 Filing of Regulatory Approvals................. 60
SECTION 6.3 Miscellaneous Agreements and Consents.......... 61
SECTION 6.4 Limited Survival of Certain Indemnities........ 61
SECTION 6.5 Best Good Faith Efforts........................ 63
SECTION 6.6 Exclusivity.................................... 63
SECTION 6.7 Public Announcement............................ 63
SECTION 6.8 Employee Benefit Plans......................... 63
SECTION 6.9 Merger of Surviving Bank....................... 64
SECTION 6.10 Environmental Investigation; Right to
Terminate Agreement............................ 64
SECTION 6.11 Proxies........................................ 75
SECTION 6.12 Exchange Agreement............................. 75
SECTION 6.13 Exercise or Termination of Options............. 75
ARTICLE VII CONDITIONS TO CONSUMMATION OF THE MERGER............... 76
SECTION 7.1 Conditions to Each Party's Obligation to
Effect the Merger.............................. 76
SECTION 7.2 Conditions to the Obligations of Compass
and Interim to Effect the Merger............... 77
SECTION 7.3 Conditions to the Obligations of the Bank
to Effect the Merger........................... 79
ARTICLE VIII TERMINATION; AMENDMENT; WAIVER......................... 80
SECTION 8.1 Termination.................................... 80
SECTION 8.2 Effect of Termination.......................... 82
SECTION 8.3 Amendment...................................... 82
SECTION 8.4 Extension; Waiver.............................. 83
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE IX SURVIVAL............................................... 84
SECTION 9.1 Termination of Representations and Warranties.. 84
SECTION 9.2 Survival of Certain Agreements after Closing... 84
ARTICLE X MISCELLANEOUS.......................................... 84
SECTION 10.1 Expenses....................................... 84
SECTION 10.2 Brokers and Finders............................ 85
SECTION 10.3 Entire Agreement; Assignment................... 85
SECTION 10.4 Further Assurances............................. 86
SECTION 10.5 Enforcement of the Agreement................... 86
SECTION 10.6 Severability................................... 87
SECTION 10.7 Notices........................................ 87
SECTION 10.8 Governing Law.................................. 88
SECTION 10.9 Descriptive Headings........................... 89
SECTION 10.10 Parties in Interest............................ 89
SECTION 10.11 Counterparts................................... 89
SECTION 10.12 Incorporation by References.................... 89
SECTION 10.13 Certain Definitions............................ 89
</TABLE>
iii
<PAGE>
ATTACHMENTS
EXHIBITS
A. Pooling Transfer Restrictions Agreement
B. Exchange Agent Agreement
C. Section 368 Certificate
D. Pooling of Interest Criteria
E. Voting Agreement and Irrevocable Proxy
F. Release of Claims (Bank)
G. Opinion of Counsel for the Bank
H. Opinion of Counsel for Compass
I. Release of Claims (Bank Directors and Officers)
J. Agreement to Terminate Options
LIST OF SCHEDULES
Schedule 3.2 Bank Capitalization
Schedule 3.3 Bank Capitalization; List of Equity Ownership
Schedule 3.5 Violations of Law; Conflicts of Interest; Share Litigation;
Termination of Existence
Schedule 3.6 Bank Prior Consents
Schedule 3.7 Regulatory Reports
Schedule 3.9 New Accounting Standards
Schedule 3.10 Absence of Material Changes or Adverse Effects
Schedule 3.12 Bank Legal Proceedings
Schedule 3.13 Tax Liabilities
Schedule 3.14(a) Employee Welfare Benefit Plans
Schedule 3.14(b) Employee Pension Benefit Plans
Schedule 3.14(f) Deferred Compensation, Bonus and Stock
Purchase Plans
iv
<PAGE>
Schedule 3.14(l) Additional Payments Due Under Deferred Compensation, Bonus,
Employee Welfare Benefit Plans and Employee Pension
Benefit Plans
Schedule 3.15 Employment Contracts and Collective Bargaining Agreements
Schedule 3.16 Leases, Subleases, Contracts and Agreements; Participations;
Default of Contracts; Marketable Title
Schedule 3.17 Related Bank Transactions
Schedule 3.18 Compliance with Laws
Schedule 3.19 Insurance Policies
Schedule 3.20 Loans Exceeding Legal Lending Limit, Troubled Loans
Schedule 3.22 Patents, Trademarks and Copyrights
Schedule 3.23 Environmental Compliance
Schedule 3.24 Regulatory Actions; Agreements
Schedule 3.25 Title to Properties; Title Policies; Property
Schedule 3.29 Bank Shareholders Disposing of Stock
Schedule 3.30 Stock Option Plans
Schedule 4.2 Compass and Interim Prior Consents
Schedule 5.1(d) Insurance Policies to be Maintained
Schedule 5.1(i) List of Accounts and Safe Deposit Boxes
Schedule 5.l(j) List of Liabilities and Obligations of the Company and the
Bank
Schedule 6.11 List of Proxy Holders Voting Affirmatively for the Agreement
v
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("Agreement") dated as of November 19, 1993,
by and between Compass Bancshares, Inc., a Delaware corporation ("Compass"), and
Security Bank, N.A., a national banking association ("Bank").
WHEREAS, pursuant to the terms and subject to the conditions of this
Agreement, Compass shall acquire the Bank by way of a merger of the Bank with
and into a wholly-owned banking subsidiary of Compass to be incorporated under
the banking laws of the State of Texas ("Interim");
WHEREAS, Compass and the Bank believe that the Merger (as defined herein)
of the Bank with and into Interim in the manner provided by, and subject to the
terms and conditions set forth in, this Agreement and all exhibits, schedules
and supplements hereto is desirable and in the best interests of their
respective institutions and shareholders; and
WHEREAS, the respective boards of directors of Compass and the Bank have
approved this Agreement and the proposed transactions, and the board of
directors of Interim will promptly approve this Agreement upon its organization
prior to the Effective Time as defined herein, substantially on the terms and
conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound, hereby agree as follows:
<PAGE>
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions
----------
hereof, and in accordance with the National Bank Act, the Federal Deposit
Insurance Act, and the Texas Banking Code, the Bank shall be merged with and
into Interim (the "Merger") as soon as practicable following the satisfaction or
waiver, if permissible, of the conditions set forth in Article VII hereof.
Compass agrees to cause Interim upon its organization promptly to ratify and
adopt this Agreement and to take all other steps necessary to consummate the
Merger in accordance with this Agreement. Following the Merger, Interim shall
continue as the surviving bank (the "Surviving Bank") and the separate corporate
existence of the Bank shall cease. Compass shall not be deemed a party to the
Merger for the purposes of the National Bank Act, the Texas Banking Code, or the
General Corporation Law of the State of Delaware. Nothing in the preceding
sentence shall be deemed to diminish or negate Compass' obligations and duties
under or arising out of this Agreement.
SECTION 1.2 Effective Time. The Merger shall be consummated as soon as
--------------
practicable upon the satisfaction of all conditions to such consummation set
forth in Article VII hereof. (The date and time of such consummation shall be
the "Effective Time").
2
<PAGE>
SECTION 1.3 Certain Effects of the Merger. The Merger shall have the
-----------------------------
effects set forth in Article 342-308 of the Texas Banking Code and in Title 12,
United States Code, Section 214a.
SECTION 1.4 Certificate of Incorporation and By-Laws. The Certificate
----------------------------------------
of Incorporation and the By-Laws of Interim, in each case as in effect at the
Effective Time, shall be the Certificate of Incorporation and By-Laws of the
Surviving Bank.
SECTION 1.5 Directors and Officers. The directors and officers of
----------------------
Interim at the Effective Time shall be the directors and officers of the
Surviving Bank and shall hold office from the Effective Time until their
respective successors are duly elected or appointed and qualified in the manner
provided in the Articles of Association and By-Laws of the Surviving Bank, or as
otherwise provided by law.
SECTION 1.6 Conversion of Shares. (a) Each share of the Bank's Common
--------------------
Stock, par value $5.00 per share ("Bank Common Stock"), each share of the Bank's
Class A Convertible Preferred Stock, par value $12.25 per share (the "Class A
Preferred Stock"), and each share of the Bank's Class B Convertible Preferred
Stock, par value $12.25 per share (the "Class B Preferred Stock") issued and
outstanding immediately prior to the Effective Time (the Class A Preferred Stock
and the Class B Preferred Stock are together called the "Bank Preferred Stock"
and the Bank Common Stock and the Bank Preferred Stock are collectively called
the "Shares"), other than Dissenting Shares (as defined in Section 2.1), shall,
by virtue of the Merger and without any action on the part of the
3
<PAGE>
holder thereof, be converted into and represent the right to receive the
consideration payable as set forth below (the "Merger Consideration") to the
holder of record thereof, without interest thereon, upon surrender of the
certificate representing such Share. For the purposes of determining the number
of Shares issued and outstanding, the number of Shares issued and outstanding
shall be increased by the number and class of Shares that may be acquired upon
exercise or conversion of any warrant, option, convertible debenture or other
security (other than the outstanding shares of Bank Preferred Stock) entitling
the holder thereof to acquire Shares which is in effect or outstanding
immediately prior to the Effective Time.
(b) In consideration for the Merger, Compass will issue to the holders of
the Shares an aggregate number of shares of its common stock, par value $2.00
per share ("Compass Common Stock"), which is equal to $11,250,000 (the "Target
Price") divided by the average closing sale price of the Compass Common Stock as
reported by the NASDAQ National Market System for the 20 days of trading
preceding the tenth business day prior to the first business day following the
later of (i) the receipt of required regulatory approvals from the FDIC and the
FRB (all as defined in Section 3.5) and the expiration of any applicable waiting
period with respect thereto and (ii) the approval of the Merger by the Bank's
shareholders (the "Share Determination Market Value"); provided, however, that
in the event that the Share Determination Market Value is less than $22.00 per
share, the number of shares of
4
<PAGE>
Compass Common Stock to be issued in the Merger shall be a number of shares
equal to the quotient of the Target Price divided by $22.00, subject to the
provisions of the remainder of this Section 1.6(b). In the event that the Share
Determination Market Value is less than $22.00 or in the event that on any
Monday after the date hereof and prior to Closing the average closing sale price
of the Compass Common Stock as recorded by the NASDAQ National Market System for
the thirty consecutive trading days prior to such Monday (the "Average Market
Value") is less than $20.00 per share, the Bank shall have the option (the
"Pricing Termination Option") of terminating this Agreement by written notice to
Compass (i) within five business days after the Share Determination Market Value
of less than $22.00 per share is capable of being determined or (ii) by the
Friday after an Average Market Value of less than $20.00 per share is capable of
being determined, subject to Compass' rights pursuant to the remainder of this
Section 1.6(b). In the event that the Bank fails to notify Compass of its
exercise of its Pricing Termination Option within the applicable time period,
this Agreement shall remain in full force and effect and may not be terminated
by the Bank on the basis of the Share Determination Market Value of less than
$22.00 per share or such Average Market Value of less than $20.00 per share for
such particular instance; however, the Bank may from time to time elect to
exercise its Pricing Termination Option in the event that on a Monday subsequent
thereto and prior to the Closing such Average Market Value is again less than
$20.00 per share. The failure of
5
<PAGE>
the Bank to exercise, or the election of the Bank not to exercise, its Pricing
Termination Option on the basis of such Average Market Value being less than
$20.00 per share shall not be deemed a waiver of or in any way diminish, negate
or affect Bank's right to exercise such Pricing Termination Option if on a
Monday subsequent thereto and prior to the Closing such Average Market Value
should again be less than $20.00 per share. In the event that the Bank
exercises its Pricing Termination Option, Compass shall have the right to reject
such termination of the Agreement by the Bank (the "Termination Rejection") by
agreeing to issue a number of shares of Compass Common Stock equal to the Target
Price divided by the Share Determination Market Value or the Average Market
Value which is the specific subject of the Bank's exercise of its Pricing
Termination Option, as the case may be, which Termination Rejection shall be
exercised by a notice to the Bank within five business days following the date
on which Compass receives notice of the Bank's exercise of the Pricing
Termination Option. In the event that Compass fails to notify the Bank of its
Termination Rejection within such time period, this Agreement shall be
terminated.
(c) The "Exchange Ratio" shall equal (i) the aggregate number of shares
of Compass Common Stock to be issued to the holders of the Shares as calculated
pursuant to Section 1.6(b), divided by (ii) the sum of the number of Shares of
Bank Common Stock outstanding immediately prior to the Effective Time, plus the
number of Shares of Bank Common Stock into which the Shares of Bank Preferred
Stock outstanding immediately prior to the Effective Time
6
<PAGE>
are convertible (the sum in this clause (ii) being referred to as the "Fully
Diluted Shares Outstanding"). At the Closing, the Bank shall calculate and
certify to Compass and the Exchange Agent the Fully Diluted Shares Outstanding.
Each holder of Class A Preferred Stock shall receive for each share of Class A
Preferred Stock held immediately prior to the Effective Time a number of shares
of Compass Common Stock equal to the product of (i) the Exchange Ratio, times
(ii) the number of shares of Bank Common Stock into which each such share of
Class A Preferred Stock is convertible. Each holder of Class B Preferred Stock
shall receive for each share of Class B Preferred Stock held immediately prior
to the Effective Time a number of shares of Compass Common Stock equal to the
product of (y) the Exchange Ratio, times (z) the number of shares of Bank Common
Stock into which each such share of Class B Preferred Stock is convertible.
Each holder of Bank Common Stock shall receive for each share of Bank Common
Stock held immediately prior to the Effective Time a number of shares of Compass
Common Stock equal to the Exchange Ratio. Except as consented to by Compass
pursuant to Section 1.6(b) hereof, in no event shall Compass be obligated to
issue more than 511,363 shares of Compass Common Stock in exchange for all
outstanding Shares. The ratio of the number of shares of Compass Common Stock
to be exchanged for each Share shall be adjusted appropriately to reflect any
stock dividends or splits with respect to Compass Common Stock, where the record
date or payment occurs prior to the Effective Time.
7
<PAGE>
(d) Compass will not issue any certificates for any fractional shares of
Compass Common Stock otherwise issuable pursuant to the Merger. In lieu of
issuing such fractional shares, Compass shall pay cash to any holder of Shares
otherwise entitled to receive such fractional share. Such cash payment shall be
based on the Share Determination Market Value.
SECTION 1.7 Shareholders' Meeting. The Bank, acting through its Board
---------------------
of Directors, shall, in accordance with applicable law:
(a) duly call, give notice of, convene and hold a meeting (the
"Shareholders' Meeting") of its shareholders as soon as reasonably practicable
for the purpose of approving and adopting this Agreement and the Merger (subject
to the terms and conditions of this Agreement);
(b) require no greater than the minimum vote required by applicable law
of each class of the Shares in order to approve this Agreement and the Merger;
(c) include in the Proxy Statement (defined in paragraph (d) below) the
recommendation of its Board of Directors that the shareholders of the Bank vote
in favor of the approval and adoption of this Agreement and the Merger (subject
to the terms and conditions of this Agreement); and
(d) use its best efforts (i) to obtain and furnish the information
required to be included by it in the Proxy Statement and cause the Proxy
Statement to be mailed to its shareholders at the earliest reasonably
practicable time following the date of this
8
<PAGE>
Agreement, and (ii) to obtain the approval and adoption of the Merger (subject
to the terms and conditions of this Agreement) by shareholders holding at least
the minimum number of Shares of each class of the Shares entitled to vote at the
Shareholders' Meeting to approve the Merger under applicable law. The letter to
shareholders, notice of meeting, proxy statement and form of proxy to be
distributed to shareholders in connection with the Merger shall be in form and
substance reasonably satisfactory to Compass, and are collectively referred to
herein as the "Proxy Statement."
SECTION 1.8 Registration of the Compass Common Stock.
----------------------------------------
(a) At soon as reasonably practicable, Compass shall file a registration
statement (the "Registration Statement") with the Securities and Exchange
Commission ("SEC") under the Securities Act of 1933 ("Securities Act") covering
the shares of Compass Common Stock to be issued to Bank shareholders in the
Merger and Compass shall cooperate with the Bank in connection with the
preparation and delivery of the Proxy Statement to shareholders of the Bank.
(b) The Bank shall use its best efforts to cause each Bank shareholder
receiving Compass Common Stock who is an "affiliate" (as defined in SEC Rule
405) of the Bank to deliver to Compass, within 30 days after the date hereof, a
written agreement in the form of Exhibit A hereto.
SECTION 1.9 Closing. Upon the terms and subject to the conditions
-------
hereof, as soon as practicable and in any event within 10 days after the
satisfaction or waiver, if permissible, of the conditions set forth in Article
VII and Section 1.6(b) hereof, the
9
<PAGE>
parties hereto shall take all such other and further actions as may be required
by law to make the Merger effective. Prior to the Effective Time, a closing
(the "Closing") will be held at such place as the parties may agree for the
purpose of confirming all of the foregoing.
ARTICLE II
DISSENTING SHARES; EXCHANGE OF SHARES
SECTION 2.1 Dissenting Shares. Notwithstanding anything in this
-----------------
Agreement to the contrary, Shares which are issued and outstanding immediately
prior to the Effective Time and which are held by shareholders who have not
voted such shares in favor of the Merger and who shall have delivered a written
demand for payment of the fair value of such shares within the time and in the
manner provided in Title 12, United States Code, Section 214a(b) (the
"Dissenting Shares") shall not be converted into or be exchangeable for the
right to receive the Merger Consideration provided in Section 1.6 of this
Agreement, unless and until such holder shall have failed to perfect or shall
have effectively withdrawn or lost his right to appraisal and payment under the
National Bank Act. If any such holder shall have so failed to perfect or shall
have effectively withdrawn or lost such right, such holder's Shares shall
thereupon be deemed to have been converted into and to have become exchangeable
for, at the Effective Time, the right to receive the Merger Consideration
without any interest thereon.
SECTION 2.2 Exchange of Shares.
------------------
10
<PAGE>
(a) Compass shall deposit or cause to be deposited in trust with River
Oaks Trust Company, Houston, Texas (the "Exchange Agent"), pursuant to an
exchange agent agreement (the "Exchange Agreement") in substantially the form of
Exhibit B attached hereto, prior to the Effective Time cash in an aggregate
amount estimated to be sufficient to make the cash payments in lieu of
fractional shares of Compass Common Stock pursuant to Section 1.6 hereof and to
make the appropriate cash payments, if any, to holders of Dissenting Shares
(such amounts being hereinafter referred to as the "Exchange Fund"). The
Exchange Agent shall, pursuant to irrevocable instructions jointly given by
Compass and the Bank, promptly make the payments in lieu of fractional shares
out of the Exchange Fund upon surrender of Shares in accordance with Section
2.2(b). Payments to dissenting shareholders shall be made as required by Title
12, United States Code, Section 214a(b). Subject to holding sufficient cash to
make prompt payments for fractional shares and Dissenting Shares, the Exchange
Agent shall invest the Exchange Fund in The Starburst Government Money Market
Fund, managed by Compass Bank of the South, an affiliate of Compass. The
Exchange Fund shall not be used for any other purpose, except as provided in
this Agreement.
(b) Promptly after the Effective Time, the Exchange Agent shall pursuant
to the Exchange Agreement mail to each record holder of an outstanding
certificate or certificates which as of the Effective Time represented Shares
(the "Certificates"), a form letter of transmittal approved by the Bank and
Compass (which shall
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specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Exchange Agent) and instructions for use in effecting the surrender of the
Certificates for payment therefor. Upon surrender to the Exchange Agent of a
Certificate, together with such letter of transmittal duly executed, the holder
of such Certificate shall be entitled to receive in exchange therefor cash and
Compass Common Stock in the amount provided in Section 1.6, and such Certificate
shall forthwith be canceled. Compass shall provide the Exchange Agent with
certificates for Compass Common Stock, as requested by the Exchange Agent, in
the amounts provided in Section 1.6 hereof. No interest will be paid or accrued
on the cash payable upon surrender of the Certificate and no dividend will be
disbursed with respect to the shares of Compass Common Stock until the holder's
Shares are surrendered in exchange therefor. If payment or delivery of Compass
Common Stock is to be made to a person other than the person in whose name the
Certificate surrendered is registered, it shall be a condition of payment that
the Certificate so surrendered shall be properly endorsed or otherwise in proper
form for transfer and that the person requesting such payment shall pay any
transfer or other taxes required by reason of the payment and delivery of
Compass Common Stock to a person other than the registered holder of the
Certificate surrendered or establish to the reasonable satisfaction of Compass
that such tax has been paid or is not applicable. Until surrendered in
accordance with the provisions of this Section 2.2,
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each Certificate (other than Certificates representing Dissenting Shares) shall
represent for all purposes the right to receive the Merger Consideration without
any interest thereon.
(c) After the Effective Time, the stock transfer ledger of the Bank shall
be closed and there shall be no transfers on the stock transfer books of the
Bank of the Shares which were outstanding immediately prior to such time. If,
after the Effective Time, Certificates are presented to the Surviving Bank or
Compass, they shall be promptly presented to the Exchange Agent and exchanged as
provided in this Article II.
(d) Any portion of the Exchange Fund (including the proceeds of any
investments thereof) that remains unclaimed by the shareholders of the Bank for
six months after the Effective Time shall be paid to Compass and the holders of
Shares not theretofore presented to the Exchange Agent shall look to Compass
only, and not the Exchange Agent, for the payment of any Merger Consideration in
respect of such Shares.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BANK
The Bank hereby makes the representations and warranties set forth in this
Article III to Compass and Interim. The Bank shall deliver to Compass on or
before the close of business on the 14th business day after the date of this
Agreement the Schedules to this Agreement referred to in this Article III which
shall be subject to review and approval by Compass in its sole discretion within
14 business days of Compass' receipt of such Schedules. The Bank
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<PAGE>
agrees that, at the Closing, it shall provide Compass with supplemental
Schedules reflecting any material changes thereto between the date of such
Schedules and the date of the Closing.
SECTION 3.1 Organization and Qualification. The Bank is a national
------------------------------
banking association, duly organized, validly existing and in good standing under
the laws of the United States of America, and is a member of the Federal Reserve
System. The Bank has all requisite corporate power and authority to carry on
its business as now being conducted and to own, lease and operate its properties
and assets as now owned, leased or operated. The Bank does not own or control
any Affiliate (as defined in Section 3.17) or Subsidiary (as defined in Section
10.13(a)). True and correct copies of the Articles of Association and Bylaws of
the Bank, with all amendments thereto through the date of this Agreement, have
been delivered by the Bank to Compass. The Bank is in good standing in the
State of Texas. The nature of the business of the Bank and its activities, as
currently conducted, do not require it to be qualified to do business in any
jurisdiction other than the State of Texas.
SECTION 3.2 Bank Capitalization. As of the date hereof, the authorized
-------------------
capital stock of the Bank consists solely of (a) 1,030,000 shares of Bank Common
Stock, of which 349,025 shares are issued and outstanding, and none of which are
held in treasury, (b) 95,000 shares of Class A Preferred Stock, of which 28,479
shares are issued and outstanding, and none of which are held in treasury; and
(c) 190,000 shares of Class B Preferred Stock, of which 56,958 shares are issued
and outstanding, and none of which
14
<PAGE>
are held in treasury. Except as set forth on Schedule 3.2 and except for the
Bank Preferred Stock, there are no outstanding subscriptions, options,
convertible securities, rights, warrants, calls, or other agreements or
commitments of any kind issued or granted by, or binding upon, the Bank to
purchase or otherwise acquire any security of or equity interest in the Bank
(collectively, the "Options"). There are no restrictions applicable to the
payment of dividends on the Shares except pursuant to (i) the terms of the Bank
Preferred Stock set forth in the Bank's Articles of Association, as amended, and
(ii) applicable banking laws and regulations, and all dividends declared prior
to the date hereof have been paid.
SECTION 3.3 Bank Shares; Other Securities. All of the issued and
-----------------------------
outstanding shares of Bank Common Stock are duly authorized, validly issued,
fully paid and, except as provided in the National Bank Act, nonassessable. Set
forth on Schedule 3.3 hereto is a list of all equity ownership by the Bank for
the account of the Bank in any entity other than the Bank (the "Other
Securities"). The Bank owns each Other Security free and clear of any lien,
encumbrance, security interest or charge.
SECTION 3.4 Authority Relative to the Agreement. The Bank has full
-----------------------------------
corporate power and authority, and, except for the approval by the Bank's
shareholders, no further proceedings on the part of the Bank are necessary, to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby, which have been duly and validly authorized by its Board of
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Directors. The Bank has received an opinion of Alex Sheshunoff & Co. Investment
Banking that the Merger Consideration to be received by holders of Shares is
fair, from a financial point of view, to such holders. This Agreement has been
duly executed and delivered by the Bank and is a duly authorized, valid, legally
binding and enforceable obligation of the Bank, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium, or other similar laws
relating to creditors' rights generally and general equitable principles, and
subject to such shareholder approvals and such approval of regulatory agencies
and other governmental authorities having authority over the Bank as may be
required by statute or regulation. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby will
not conflict with, or result in any violation or breach of or default under, the
Articles of Association or By-Laws of the Bank.
SECTION 3.5 No Violation. Except as set forth on Schedule 3.5, neither
------------
the execution, delivery nor performance of this Agreement in its entirety, nor
the consummation of all of the transactions contemplated hereby, following the
receipt of such approvals as may be required from the Bank's shareholders, the
SEC, the Comptroller of the Currency ("OCC"), the Federal Deposit Insurance
Corporation ("FDIC"), the Board of Governors of the Federal Reserve System
("FRB"), and the Texas Department of Banking ("Department") will (i) violate
(with or without the giving of notice or the passage of time), any law, order,
writ, judgment,
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<PAGE>
injunction, award, decree, rule, statute, ordinance or regulation applicable to
the Bank or (ii) be in conflict with, result in a breach or termination of any
provision of, cause the acceleration of the maturity of any debt or obligation
pursuant to, constitute a default (or give rise to any right of termination,
cancellation or acceleration) under, or result in the creation of any security
interest, lien, charge or other encumbrance upon any property or assets of the
Bank pursuant to, any terms, conditions or provisions of any note, license,
instrument, indenture, mortgage, deed of trust or other agreement or
understanding or any other restriction of any kind or character, to which the
Bank is a party or by which any of its assets or properties are subject or
bound. Except as set forth on Schedule 3.5, there are no proceedings pending
or, to the knowledge of the Bank, threatened, against the Bank or involving the
Shares, at law or in equity or before or by any foreign, federal, state,
municipal or other governmental court, department, commission, board, bureau,
agency, instrumentality or other person which may result in liability to Compass
or Interim upon the consummation of the transactions contemplated hereby or
which would prevent or delay such consummation. Except as set forth in Schedule
3.5, or as contemplated hereby, the corporate existence, business organization,
assets, licenses, permits, authorizations and contracts of the Bank will not be
terminated or impaired by reason of the execution, delivery or performance by
the Bank of this Agreement or consummation by the Bank of the
17
<PAGE>
transactions contemplated hereby, assuming the receipt of required shareholder
and regulatory approvals.
SECTION 3.6 Consents and Approvals. The Bank's Board of Directors (at a
----------------------
meeting called and duly held) has approved this Agreement and the transactions
contemplated thereby, and has resolved to recommend approval and adoption of
this Agreement by the Bank's shareholders. Except as described in Schedule 3.6
hereto, no prior consent, approval or authorization of, or declaration, filing
or registration with any person, domestic or foreign, is required of the Bank in
connection with the execution, delivery and performance by the Bank of this
Agreement and the transactions contemplated hereby or the resulting change of
control of the Bank, except such approvals as may be required from the SEC, the
FRB, the OCC, the FDIC and the Department and holders of Shares.
SECTION 3.7 Regulatory Reports. Except as set forth on Schedule 3.7,
------------------
the Bank has filed all reports, registrations and statements, together with any
amendments required to be made thereto, that are required to be filed with the
FRB, the OCC, the Department, the FDIC, or any other regulatory authority having
jurisdiction over any such persons.
SECTION 3.8 SEC Status; Securities Issuances. The Bank is not subject
--------------------------------
to the registration provisions of Section 12 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), nor the rules and regulations of the SEC
promulgated under Section 12 of the Exchange Act, other than anti-fraud
provisions of such
18
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act. All issuances of securities by the Bank have been registered under the
Securities Act, the Securities Act of the State of Texas, the National Bank Act
and all other applicable laws or were exempt from any such registration
requirements.
SECTION 3.9 Financial Statements. The Bank has provided Compass with a
--------------------
true and complete copy of (i) the audited statement of financial position of the
Bank as of December 31, 1992, and the related statements of income, changes in
stockholders' equity and cash flows for the years ended December 31, 1992 and
1991, (ii) the unaudited internally prepared statement of financial position of
the Bank as of August 31, 1993 and the related statement of income for the
periods ended August 31, 1993, and (iii) the call reports of the Bank as of and
for the periods ended March 31, June 30 and September 30, 1993, and promptly
following their availability the Bank will provide Compass with the call reports
of the Bank for all periods ending subsequent to September 30, 1993 (such
statements of financial position and the related statements of income, changes
in stockholders' equity and cash flows, unaudited financial statements, and call
reports and the notes and schedules thereto are referred to as the "Financial
Statements"). Except as described in the notes to the Financial Statements, the
Financial Statements, including the statements of financial position and the
related statements of income, changes in stockholders' equity and cash flows
(including the related notes thereto) of the Bank, fairly present, or when
delivered will fairly present, the financial position of the Bank as of the
dates thereof and the
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results of operations and cash flows of the Bank for the periods then ended, in
conformity with Generally Accepted Accounting Principles ("GAAP") applied on a
basis consistent with prior periods (subject, in the case of the unaudited
financial statements and the call reports, to normal year-end adjustments and
accruals and the fact that they do not contain all of the footnote disclosures
required by GAAP), except as otherwise noted therein and except for the
application of new accounting standards, as set forth on Schedule 3.9, and the
accounting records underlying the Financial Statements accurately and fairly
reflect in all material respects the transactions of the Bank. The Bank has no
liabilities or obligations of a type which should be included in or reflected on
the Financial Statements if prepared in accordance with GAAP, whether related to
tax or non-tax matters, accrued or contingent, due or not yet due, liquidated or
unliquidated, or otherwise, except as and to the extent disclosed or reflected
in the Financial Statements. The Bank will provide Compass with the unaudited
statements of financial position of the Bank as of the end of each month
hereafter, prepared on a basis consistent with prior periods, promptly following
their availability.
SECTION 3.10 Absence of Certain Changes. Except as and to the extent set
--------------------------
forth on Schedule 3.10, since August 31, 1993 (the "Balance Sheet Date") the
Bank has not:
(a) made any amendment to its Articles of Association or Bylaws or
changed the character of its business in any material manner;
20
<PAGE>
(b) suffered any Material Adverse Effect (as defined in Section 10.13);
(c) entered into any agreement, commitment or transaction except in the
ordinary course of business and consistent with prudent banking practices;
(d) except in the ordinary course of business and consistent with prudent
banking practices, incurred, assumed or become subject to, whether directly or
by way of any guarantee or otherwise, any obligations or liabilities (absolute,
accrued, contingent or otherwise);
(e) permitted or allowed any of its property or assets to be subject to
any mortgage, pledge, lien, security interest, encumbrance, restriction or
charge of any kind (other than statutory liens not yet delinquent) except in the
ordinary course of business and consistent with prudent banking practices;
(f) except in the ordinary course of business and consistent with prudent
banking practices, canceled any debts, waived any claims or rights, or sold,
transferred, or otherwise disposed of any of its properties or assets;
(g) disposed of or permitted to lapse any rights to the use of any
trademark, service mark, trade name or copyright, or disposed of or disclosed to
any person other than its employees or agents, any trade secret not theretofore
a matter of public knowledge;
(h) except for regular salary increases granted in the ordinary course of
business within the Bank's 1993 and 1994 budgets
21
<PAGE>
and consistent with prior practices, granted any increase in compensation or
paid or agreed to pay or accrue any bonus, percentage compensation, service
award, severance payment or like benefit to or for the credit of any director,
officer, employee or agent, or entered into any employment or consulting
contract or other agreement with any director, officer or employee or adopted,
amended or terminated any pension, employee welfare, retirement, stock purchase,
stock option, stock appreciation rights, termination, severance, income
protection, golden parachute, savings or profit-sharing plan (including trust
agreements and insurance contracts embodying such plans), any deferred
compensation, or collective bargaining agreement, any group insurance contract
or any other incentive, welfare or employee benefit plan or agreement maintained
by the Bank, for the directors, employees or former employees of the Bank
("Employee Benefit Plan");
(i) directly or indirectly declared, set aside or paid any dividend or
made any distribution in respect to its capital stock or redeemed, purchased or
otherwise acquired, or arranged for the redemption, purchase or acquisition of,
any share of its capital stock or other of its securities;
(j) organized or acquired any capital stock or other equity securities or
acquired any equity or ownership interest in any person (except through
settlement of indebtedness, foreclosure, the exercise of creditors' remedies or
in a fiduciary capacity, the ownership of which does not to the Bank's knowledge
expose the Bank
22
<PAGE>
to any liability from the business, operations or liabilities of such person);
(k) issued, reserved for issuance, granted, sold or authorized the
issuance of any shares of its capital stock or subscriptions, options, warrants,
calls, rights or commitments of any kind relating to the issuance or sale of or
conversion into shares of its capital stock;
(l) made any or acquiesced with any change in any accounting methods,
principles or practices;
(m) except for the transactions contemplated by this Agreement or as
otherwise permitted hereunder, entered into any transaction, or entered into,
modified or amended any contract or commitment, other than in the ordinary
course of business and consistent with prudent banking practices; or
(n) agreed, whether in writing or otherwise, to take any action the
performance of which would change the representations contained in this Section
3.10 in the future so that any such representation would not be true in all
material respects as of the Closing.
SECTION 3.11 Bank Indebtedness. The Bank has no indebtedness other than
-----------------
deposits and other indebtedness incurred in the ordinary course of business.
SECTION 3.12 Litigation. Except as set forth on Schedule 3.12, there are
----------
no actions, suits, claims, investigations, reviews or other proceedings pending
or, to the knowledge of the Bank, threatened against the Bank or involving any
of its properties or
23
<PAGE>
assets, at law or in equity or before or by any foreign, federal, state,
municipal, or other governmental court, department, commission, board, bureau,
agency, or other instrumentality or person or any board of arbitration or
similar entity ("Proceeding"). The Bank will notify Compass immediately in
writing of any Proceedings against the Bank.
SECTION 3.13 Tax Matters. The Bank has duly filed all tax returns
-----------
required to be filed by it involving a tax liability or other material potential
detriment for failure to file (the "Filed Returns"). The Bank has paid, or has
established adequate reserves for the payment of, all federal income taxes and
all state and local income taxes and all franchise, property, sales, employment,
foreign or other taxes required to be paid with respect to the periods covered
by the Filed Returns. With respect to the periods for which returns have not
yet been filed, the Bank has established adequate reserves determined in
accordance with GAAP for the payment of all federal income taxes and all state
and local income taxes and all franchise, property, sales, employment, foreign
or other taxes. Except as described in Schedule 3.13, to the Bank's knowledge
the Bank has no direct or indirect liability for the payment of federal income
taxes, state and local income taxes, and franchise, property, sales, employment
or other taxes in excess of amounts paid or reserves established. The Bank has
not entered into any tax sharing agreement or other agreement regarding the
allocation of the tax liability of the Bank or similar arrangement with any
person or entity. Set forth on Schedule 3.13 are the
24
<PAGE>
dates of filing of all Filed Returns and any amendments thereto. The Bank has
not filed any Internal Revenue Service ("IRS") Forms 1139 (Application for
Tentative Refund). Except as set forth on Schedule 3.13, there are no pending
questions raised in writing by the IRS or other taxing authority for taxes or
assessments of the Bank, nor are there any outstanding agreements or waivers
extending the statutory period of limitation applicable to any tax return of the
Bank for any period. The Bank has withheld from employee wages and paid over to
the proper governmental authorities all amounts required to be so withheld and
paid over. For the purposes of this Agreement, the term "tax" shall include all
federal, state and local taxes and any interest or penalties payable in
connection with the payment of taxes.
SECTION 3.14 Employee Benefit Plans. With respect to all Employee
----------------------
Benefit Plans in which employees of the Bank participate the following are true
and correct:
(a) Schedule 3.14(a) lists each "employee welfare benefit plan" (as
defined in Section 3(1) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) maintained by the Bank or to which the Bank contributes or
is required to contribute, including any multiemployer welfare plan (such
employee welfare benefit plans being hereinafter collectively referred to as the
"Welfare Benefit Plans") and sets forth (i) the amount of any liability of the
Bank for contributions more than thirty days past due with respect to each
Welfare Benefit Plan as of the date hereof and as of the end of any subsequent
month ending prior to the
25
<PAGE>
Closing and (ii) the annual cost attributable to each of the Welfare Benefit
Plans; no Welfare Benefit Plan provides for continuing benefits or coverage for
any participant, beneficiary or former employee after such participant's or
former employee's termination of employment except as may be required by Section
4980B of the Internal Revenue Code of 1986, as amended (the "Code") and Sections
601-608 of ERISA;
(b) Schedule 3.14(b) lists each "employee pension benefit plan" (as
defined in Section 3(2) of ERISA and not exempted under Section 4(b) or 201 of
ERISA) maintained by the Bank or to which the Bank contributes or is required to
contribute, including any multiemployer plan (as defined in Section 3(37) of
ERISA) (such employee pension benefit plans being hereinafter collectively
referred to as the "Pension Benefit Plans");
(c) All of the Pension Benefit Plans and Welfare Benefit Plans and any
related trust agreements or annuity contracts (or any other funding instruments)
comply currently, and have complied in the past, both as to form and operation,
with the provisions of ERISA, the Code and with all other applicable laws, rules
and regulations governing the establishment and operation of the Pension Benefit
Plans and Welfare Benefit Plans; all necessary governmental approvals relating
to the establishment of the Pension Benefit Plans have been obtained; and with
respect to each Pension Benefit Plan that is intended to be tax-qualified under
Section 401(a) or 403(a) of the Code, a favorable determination letter as to the
qualification under the Code of each such Pension Benefit
26
<PAGE>
Plan and each material amendment thereto has been issued by the Internal Revenue
Service (and nothing has occurred since the date of the last such determination
letter which resulted in, or is likely to result in the revocation of such
determination), including amendments which may be required by the Tax Reform Act
of 1986, the Omnibus Budget Reconciliation Acts of 1986 and 1987, the Technical
and Miscellaneous Revenue Act of 1988, the Revenue Reconciliation Act of 1989
and the Omnibus Budget Reconciliation Act of 1990;
(d) Each Welfare Benefit Plan and each Pension Benefit Plan has been
administered in compliance with the requirements of the Code, ERISA and all
other applicable laws, and all reports and disclosures required by ERISA, the
Code and any other applicable laws with respect to each Welfare Benefit Plan and
each Pension Benefit Plan have been timely filed;
(e) On and after January 1, 1975, neither the Bank nor any plan fiduciary
of any Welfare Benefit Plan or Pension Benefit Plan has engaged in any
transaction in violation of Section 406 of ERISA (for which transaction no
exemption exists under Section 408 of ERISA) or in any "prohibited transaction"
as defined in Section 4975(c)(1) of the Code (for which no exemption exists
under Section 4975(c)(2) or 4975(d) of the Code);
(f) Schedule 3.14(f) lists each deferred compensation plan, bonus plan,
stock option plan, employee stock purchase plan, restricted stock, excess
benefit plan, incentive compensation, stock bonus, cash bonus, severance pay,
golden parachute, life
27
<PAGE>
insurance, nonqualified deferred compensation arrangement, rabbi trust, unfunded
plan and any other employee benefit plan, agreement, arrangement or commitment
not required under a previous subsection to be listed (other than normal
policies concerning holidays, vacations and salary continuation during short
absences for illness or other reasons) maintained by the Bank;
(g) Neither the Bank nor any corporation or other trade or business
controlled by or under common control with the Bank (as determined under
Sections 414(b) and 414(c) of the Code) ("Common Control Entity") is, or has
been within the past five years, a contributing sponsor (as defined in Section
4001(a)(13) of ERISA) of a Pension Benefit Plan subject to the provisions of
Title IV of ERISA, nor has the Bank or a Common Control Entity maintained or
participated in any employee pension benefit plan (defined in Section 3(2) of
ERISA) subject to the provision of Title IV of ERISA. In addition, neither the
Bank nor a Common Control Entity (i) is a party to a collective bargaining
agreement, (ii) has maintained or contributed to, or has participated in or
agreed to participate in, a multiemployer plan (as defined in Section 3(37) of
ERISA), or (iii) has made a complete or partial withdrawal from a multiemployer
plan (as defined in Section 3(37) of ERISA) so as to incur withdrawal liability
as defined in Section 4201 of ERISA (without regard to subsequent reduction or
waiver of such liability under Section 4207 or 4208 of ERISA);
(h) True and complete copies of each Welfare Benefit Plan and each
Pension Benefit Plan, related trust agreements or annuity
28
<PAGE>
contracts (or any other funding instruments), summary plan descriptions, each
plan, agreement, arrangement, and commitment referred to in subsection 3.14(f)
of this Section, the most recent determination letter issued by the Internal
Revenue Service with respect to each Pension Benefit Plan, the most recent
application for a determination letter from the Internal Revenue Service with
respect to each Pension Benefit Plan and Annual Reports on Form 5500 Series
filed with any governmental agency for each Welfare Benefit Plan and each
Pension Benefit Plan for the two most recent plan years, have been furnished to
Compass;
(i) All Welfare Benefit Plans, Pension Benefit Plans, related trust
agreements or annuity contracts (or any other funding instruments), and all
plans, agreements, arrangements and commitments referred to in subsection
3.14(f) of this Section are legally valid and binding and in full force and
effect and there are no promised increases in benefits (whether expressed,
implied, oral or written) under any of these plans nor any obligations,
commitments or understandings to continue any of these plans, (whether
expressed, implied, oral or written) except as required by Section 4980B of the
Code and Sections 601-608 of ERISA;
(j) There are no claims pending with respect to, or under, any Pension
Benefit Plan, Welfare Benefit Plan or any plan, agreement, arrangement or
commitment described in subsection 3.14(f), other than routine claims for plan
benefits, and there are no disputes or litigation pending or threatened with
respect to any such plans;
29
<PAGE>
(k) No action has been taken, nor has there been a failure to take any
action that would subject any person or entity to any liability for any income,
excise or other tax or penalty in connection with any Pension Benefit Plan,
Welfare Benefit Plan or any plan, agreement, arrangement or commitment described
in subsection 3.14(f), other than for income taxes due with respect to benefits
paid; and
(l) Except as otherwise set forth in Schedule 3.14(1), neither the
execution and delivery of this Agreement nor the consummation of the transaction
contemplated hereby will (i) result in any payment to be made by the Bank
(including, without limitation, severance, unemployment compensation, golden
parachute (defined in Section 280G of the Code), or otherwise) becoming due to
any employee, or (ii) increase any benefits otherwise payable under any Welfare
Benefit Plan, Pension Benefit Plan, or any plan, agreement, arrangement, or
commitment referred to in subsection 3.14(f) of this Section.
SECTION 3.15 Employment Matters. Except as disclosed on Schedule
------------------
3.14(a), (b) or (f) or 3.15 and except for at will employment relationships, the
Bank is not a party to any oral or written contracts or agreements granting
benefits or rights to employees or any collective bargaining agreement or to any
conciliation agreement with the Department of Labor, the Equal Employment
opportunity commission or any federal, state or local agency which requires
equal employment opportunities or affirmative action in employment. To the
Bank's knowledge there are no unfair
30
<PAGE>
labor practice complaints pending against the Bank before the National Labor
Relations Board and no similar claims pending before any similar state, local or
foreign agency. The Bank has no knowledge of any activity or proceeding of any
labor organization (or representative thereof) or employee group to organize any
employees of the Bank, or of any strikes, slowdowns, work stoppages, lockouts,
or threats thereof, by or with respect to any such employees. The Bank is in
compliance in all material respects with all applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, and the Bank is not engaged in any unfair labor practice.
SECTION 3.16 Leases, Contracts and Agreements. Schedule 3.16 sets forth
--------------------------------
an accurate and complete description of all leases, subleases, licenses,
contracts and agreements to which the Bank is a party or by which the Bank is
bound which obligate or may obligate the Bank to pay in the aggregate an amount
in excess of $25,000 over the entire term of any such agreement or related
contracts of a similar nature which in the aggregate obligate or may obligate
the Bank in the aggregate to pay an amount in excess of $25,000 over the entire
term of such related contracts (the "Contracts"). Employment or other
agreements listed on Schedule 3.14(a), (b) or (f) or 3.15 and otherwise meeting
the requirements of the preceding sentence shall be deemed to be Contracts
listed on Schedule 3.16. The Bank has delivered to Compass true and correct
copies of all Contracts. For the purposes of this Agreement, the Contracts
shall be deemed not to include loans made by, repurchase
31
<PAGE>
agreements made by, spot foreign exchange transactions of, bankers acceptances
of, agreements with Bank customers for trust services, or deposits by the Bank,
but does include unfunded loan commitments and letters of credit issued by the
Bank where the borrower's total direct and indirect or contingent indebtedness
to the Bank is in excess of $25,000. Except as set forth in Schedule 3.16, no
participations or loans have been sold which have buy back, recourse or guaranty
provisions which create contingent or direct liabilities of the Bank. All of
the Contracts are legal, valid and binding obligations of the Bank, and to the
Bank's knowledge any other party to the Contracts, enforceable in accordance
with their terms, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium, or other similar laws relating to creditors' rights
generally and to general equitable principles, and are in full force and
effect. Except as described in Schedule 3.16, all rent and other payments by
the Bank under the Contracts are current, there are no existing defaults by the
Bank under the Contracts and no termination, condition or other event has
occurred which (whether with or without notice, lapse of time or the happening
or occurrence of any other event) would constitute a default by the Bank. The
Bank has a good and indefeasible leasehold interest in each parcel of real
property leased by it free and clear of all leasehold mortgages, pledges, liens,
encumbrances and security interests.
SECTION 3.17 Related Company Transactions. Except as set forth on
----------------------------
Schedule 3.14(a), (b) or (f), 3.15 or 3.17, there are no
32
<PAGE>
agreements, instruments, commitments, extensions of credit, tax sharing or
allocation agreements or other contractual agreements of any kind between or
among the Bank, whether on its own behalf or in its capacity as trustee or
custodian for the funds of any employee benefit plan (as defined in ERISA), and
any of its Affiliates. The term "Affiliate" as used in this Agreement means,
with respect to any person, any person that, directly or indirectly, controls,
is controlled by, or is under common control with, such person in question. For
the purposes of this definition, "control" (including, with correlative meaning,
the terms "controlled by" and "under common control with") as used with respect
to any person, shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such person,
whether through the ownership of voting securities or by contract or otherwise.
SECTION 3.18 Compliance with Laws. Except as set forth on Schedule 3.18,
--------------------
the Bank is not in default with respect to or in violation of (i) any judgment,
order, writ, injunction or decree of any court or (ii) any statute, law,
ordinance, rule, order or regulation of any governmental department, commission,
board, bureau, agency or instrumentality, federal, state or local, including
(for purposes of illustration and not limitation) capital and FRB reserve
requirements, capital ratios and loan limitations of the FRB, the OCC or the
FDIC, which default or violation could materially adversely affect the ability
of the Bank to conduct its business as now conducted or could result in a
Material Adverse
33
<PAGE>
Effect on the Bank; and, subject to receipt of required approvals from the
Department, the OCC, the SEC, the FRB and the FDIC, the consummation of the
transactions contemplated by this Agreement will not constitute such a default
or violation as to the Bank. The Bank has all permits, licenses, and franchises
from governmental agencies required to conduct its business as it is now being
conducted.
SECTION 3.19 Insurance. The Bank has in effect the insurance coverage
---------
(including fidelity bonds) described in Schedule 3.19 and, except as set forth
in Schedule 3.19, has had similar insurance in force for the last five years.
Except as set forth in Schedule 3.19, there have been no claims under such bonds
within the last five years and the Bank is not aware of any facts which would
form the basis of a claim under such bonds. The Bank has no reason to believe
that the existing fidelity coverage would not be renewed by its carrier on
substantially the same terms.
SECTION 3.20 Loans. Each loan reflected as an asset in the Financial
-----
Statements is, to the Bank's knowledge, the legal, valid and binding obligation
of the obligor of each loan, enforceable in accordance with its terms, subject
to the effect of bankruptcy, insolvency, reorganization, moratorium, or other
similar laws relating to creditors' rights generally and to general equitable
principles, and the Bank has no knowledge of any assertion or claim by any
obligor that any such loan is not his legal, valid and binding obligation. The
Bank does not have in its portfolio any loan exceeding its legal lending limit,
and except as disclosed on
34
<PAGE>
Schedule 3.20, the Bank has no known significant delinquent, substandard,
doubtful, loss, nonperforming or problem loans.
SECTION 3.21 Fiduciary Responsibilities. The Bank has performed in all
--------------------------
material respects all of its respective duties as a trustee, custodian, guardian
or escrow agent in a manner which complies in all material respects with all
applicable laws, regulations, orders, agreements, instruments and common law
standards.
SECTION 3.22 Patents, Trademarks and Copyrights. Except as set forth in
----------------------------------
Schedule 3.22, the Bank does not require the use of any material patent, patent
application, invention, process, trademark (whether registered or unregistered),
trademark application, trade name, service mark, copyright, or any material
trade secret for the business or operations of the Bank. The Bank owns or is
licensed or otherwise has the right to use the items listed in Schedule 3.22.
SECTION 3.23 Environmental Compliance. Except as set forth in Schedule
------------------------
3.23:
(a) To the Bank's knowledge, (i) the Bank and any property owned or
operated by it is in compliance in all material respects with all applicable
Environmental Laws (as defined in Section 10.14(c)), (ii) the Bank and any
property owned or operated by it has obtained and is in compliance in all
material respects with all permits, licenses and other authorizations required
under any applicable Environmental Law and (iii) there is no past or present
event, condition or circumstance that is likely to interfere with
35
<PAGE>
the conduct of the business of the Bank in the manner now conducted relating to
such entity's compliance with Environmental Laws or which constitutes a material
violation thereof or which, as such event, condition or circumstance relates to
Environmental Laws, could have a Material Adverse Effect upon the Bank;
(b) The Bank does not now nor has it owned, leased, operated or, to its
knowledge, exercised managerial control at any facility or real property with
respect to which such entity, facility or real property is subject to any
actual, or, to the knowledge of the Bank, threatened Proceeding under any
Environmental Law;
(c) There are no Proceedings pending or, to the knowledge of the Bank,
threatened against the Bank under any Environmental Law, and the Bank has not
received any notice (whether from any regulatory body or private person) of a
violation, or any written notice of a potential or threatened violation, of any
Environmental Law;
(d) There are no Proceedings pending against the Bank or, to the
knowledge of the Bank, otherwise pending or threatened under any Environmental
Law involving the release or threat of release of any Polluting Substances (as
defined in Section 10.14(d)) at or on (i) any Property currently or in the past
owned, operated, or leased by the Bank or over which the Bank, to its knowledge,
exercised management control, or (ii) at any Property where Polluting Substances
generated by the Bank have been disposed;
(e) To the Bank's knowledge, there is no Property for which the Bank is
or was required to obtain any permit under an
36
<PAGE>
Environmental Law to construct, demolish, renovate, occupy, operate, or use such
Property or any portion of it;
(f) Except as disclosed to Compass, the Bank has not generated any
Polluting Substances in quantities or concentrations which violate any
Environmental Law or which require reporting or disclosure to applicable
governmental authorities and for any such Polluting Substances disposed of at
offsite locations properly executed manifests are maintained by the Bank in its
files;
(g) To the Bank's knowledge, there has been no release of Polluting
Substances in violation of any Environmental Laws, which would require any
report or notification to any governmental or regulatory authority, in or on any
Property currently or in the past owned, operated or leased by the Bank;
(h) To the Bank's knowledge, (i) there are no underground or above ground
storage tanks on or under any Property which are not in conformity with
applicable Environmental Laws and (ii) any Property previously containing such
tanks where there has been a release of Polluting Substances has been remediated
in compliance in all material respects with all applicable Environmental Laws;
(i) To the Bank's knowledge, there is no asbestos containing material on
any Property;
(j) To the Bank's knowledge, the Bank does not have managerial control
over any Property which is not owned, operated or leased by the Bank; and
(k) For purposes of this Section 3.23 and Section 6.10, "Property"
includes any property (whether real or personal) which
37
<PAGE>
the Bank currently or in the past has leased, operated or owned including
without limitation any property acquired by foreclosure or deed in lieu thereof
and property now held as security for a loan or other indebtedness by the Bank.
SECTION 3.24 Regulatory Actions. Except as set forth on Schedule 3.24,
------------------
there are no actions or proceedings pending or, to the knowledge of the Bank,
threatened against the Bank by or before the FRB, the OCC, the FDIC, the U. S.
Environmental Protection Agency, the Texas Natural Resource Conservation
Commission, or any other nation or government, any state or political
subdivision thereof, or any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government. Except
as set forth on Schedule 3.24, the Bank is not subject to a formal or informal
agreement or memorandum of understanding with, or any type of financial
assistance or, to its knowledge, enforcement action or investigation by, any
regulatory authority having jurisdiction over such entity.
SECTION 3.25 Title to Properties; Encumbrances. Except as set forth on
---------------------------------
Schedule 3.25, the Bank has good and indefeasible title to all its real
properties and assets including, without limitation, all the properties and
assets reflected in the Financial Statements except for those properties and
assets disposed of in the ordinary course of business and consistent with
prudent banking practice since the date of the Financial Statements. Except as
set forth on Schedule 3.25, as to all real estate owned in fee simple, the Bank
has title policies, all of
38
<PAGE>
which are listed on Schedule 3.25, in full force and effect insuring good and
indefeasible title to all real property owned by the Bank in favor of the Bank,
except for any title exceptions reflected in the title policies listed on
Schedule 3.25. The Bank has made available to Compass all of the files and
information known to be in the possession of the Bank concerning such
properties, including any title exceptions which might affect indefeasible title
or value of such property. The Bank holds good and valid leasehold rights to
all assets that are, together with the assets owned in fee simple by the Bank,
necessary for it to conduct its business as it is currently being conducted.
Except as set forth on Schedule 3.25, the Bank owns all furniture, equipment,
art and other property used to transact business presently located on its
premises.
SECTION 3.26 Shareholder List. The Bank has provided to Compass prior to
----------------
the date of this Agreement a list of the holders of Shares as of September 30,
1993 containing the names, addresses and number of Shares held of record, which
is accurate in all respects as of such date, and the Bank will promptly, and in
any event prior to the mailing of the Proxy Statement, advise Compass of any
significant changes thereto.
SECTION 3.27 Proxy Statement. None of the information supplied or to be
---------------
supplied pursuant to this Agreement or otherwise in writing by the Bank, or, to
the knowledge of the Bank, any of its directors, officers, employees or agents
for inclusion in:
(a) the Proxy Statement; or
39
<PAGE>
(b) any registration statement or other documents to be filed with the SEC
or any regulatory or governmental agency or authority in connection with the
transactions contemplated hereby, at the respective times such documents are
filed, and, with respect to the Proxy Statement, when first mailed to the
shareholders of Bank; will be false or misleading with respect to any material
fact, or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, or, in the case of the Proxy Statement or any amendment thereof
or supplement thereto, at the time of the Shareholders' Meeting, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of any proxy for the Shareholders' Meeting. All documents that
the Bank is responsible for filing with any regulatory or governmental agency in
connection with the Merger will, as they relate to the Bank, comply in all
material respects with the provisions of applicable law.
SECTION 3.28 Dissenting Shareholders. The Bank and its directors have no
-----------------------
knowledge of any plan or intention on the part of any Bank shareholders to make
written demand for payment of the fair value of such Shares in the manner
provided in Title 12, United States Code, Section 214a(b).
SECTION 3.29 Section 368 Representations. (a) To the knowledge of the
---------------------------
Bank and its directors, there is no present plan or intention by any Bank
shareholder who is expected to receive 1%
40
<PAGE>
or more of the total Merger Consideration ("1% Shareholder") or by any of the
remaining Bank shareholders to sell or otherwise dispose of shares of Compass
Common Stock received pursuant to the Merger that would reduce all such
shareholders' holdings to a number of shares having a total fair market value at
the time of the Merger of less than fifty percent (50%) of the total fair market
value of all Shares outstanding immediately prior to the Effective Time. For
purposes of this Section 3.29, Shares surrendered by dissenting shareholders and
Shares sold, redeemed or otherwise disposed of prior or subsequent to and as a
part of the overall transaction contemplated by the Merger will be considered to
be outstanding Shares immediately prior to the Merger.
(b) The Bank will provide to Compass within 60 days after the date hereof
true and correct copies of statements in substantially the form of Exhibit C
attached hereto received from each 1% Shareholder with respect to his plan or
intention to sell or otherwise dispose of the Compass Common Stock to be
received pursuant to the Merger. The Bank agrees to send such statements to its
1% Shareholders as soon as practicable and to request its 1% Shareholders to
execute and return such statements within 30 days after the date hereof. The
Bank has set forth on Schedule 3.29 all knowledge of the Bank and its directors
about the present plans or intentions of any other Bank shareholders to sell or
otherwise dispose of the Compass Common Stock to be received pursuant to the
Merger.
41
<PAGE>
(c) Neither Interim nor Compass will assume any debts or obligations of
the holders of the Shares as part of the Merger (but nothing in this Section
3.29(c) shall be construed as a limitation on the Bank's, Interim's or Compass'
obligations to certain of the Bank's directors and officers who are also holders
of Shares under their respective Indemnity Agreements with the Bank).
(d) Except as set forth on Schedule 3.29, to the Bank's knowledge there
have not been any sales or redemptions of Shares in contemplation of the Merger
or within the past twelve months.
(e) The liabilities of the Bank assumed by Interim as a part of the
Merger and the liabilities to which the transferred assets of the Bank are
subject were incurred by the Bank in the ordinary course of its business.
(f) Except as set forth in Section 10.1, the Bank and its shareholders
will pay their respective expenses, if any, which are incurred in connection
with the Merger.
(g) The Bank has not disposed of any assets (either as a dividend or
otherwise) constituting more than 10% of the fair market value of all of its
assets (ignoring any liabilities) at any time either during the past twelve
months or in contemplation of the Merger.
(h) The Bank is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(i) Except in its capacity as a creditor, the Bank is not under the
jurisdiction of a court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
42
<PAGE>
SECTION 3.30 Employee Stock Options. Except as set forth on Schedule 3.30
----------------------
or 3.15, there are no Bank employee stock option plans or provisions in any
other plan, program, or arrangement providing for the issuance or grant of any
other interest in respect of the capital stock of the Bank.
SECTION 3.31 Accounting Matters. The Bank has not, and, to the Bank's
------------------
knowledge, none of its affiliates has, taken or agreed to take any action that
would prevent Compass from accounting for the business combination to be
effected by the Merger as a pooling of interests, including, without limitation,
any action inconsistent with the provisions of Exhibit D hereto.
SECTION 3.32 Representations Not Misleading. No representation or
------------------------------
warranty by the Bank in this Agreement, nor any statement, summary, exhibit or
schedule furnished to Compass or Interim by the Bank under and pursuant to this
Agreement or included in the Proxy Statement, contains or will contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements contained herein or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF COMPASS
Compass hereby makes the representations and warranties set forth in this
Article IV to the Bank.
SECTION 4.1 Organization and Authority.
--------------------------
(a) Compass is a corporation duly organized, validly existing, and in
good standing under the laws of the State of
43
<PAGE>
Delaware, and has all requisite corporate power and authority to conduct its
business as now conducted, to own, lease and operate its properties and assets
as now owned, leased or operated and to enter into and carry out its obligations
under this Agreement.
(b) Interim will be a Texas state bank formed solely for the purpose of
accomplishing the Merger under this Agreement. When organized, Interim will be
duly organized, validly existing and in good standing under the laws of the
State of Texas, and will have all requisite corporate power and authority to
conduct its business to be conducted, to own, lease and operate its properties
and assets to be owned, leased or operated and to enter into and carry out its
obligations under this Agreement.
(c) Compass is a bank holding company under the Bank Holding Company Act
of 1956, as amended, and is not in violation of any laws, rules and regulations
applicable to bank holding companies, the violation of which could reasonably be
expected to result in a Material Adverse Effect on Compass. Compass is duly
qualified or licensed and in good standing in each jurisdiction which requires
such qualification.
SECTION 4.2 Authority Relative to Agreement. Compass has full corporate
-------------------------------
power and authority, and no further corporate proceedings on the part of Compass
are necessary, to execute and deliver this Agreement and to consummate the
transactions contemplated hereby, all of which have been duly and validly
authorized by Compass' Board of Directors. Interim, when incorporated and
organized, will have full corporate power and
44
<PAGE>
authority to consummate the transactions contemplated hereby, all of which will
be duly and validly authorized by Interim's Board of Directors promptly
following its organization. This Agreement has been duly executed and delivered
by Compass and is a duly authorized, valid, legally binding and enforceable
obligation of Compass, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium, or other similar laws relating to creditors' rights
generally and general equitable principles, and subject to such shareholder
approvals and such approvals of regulatory agencies and other governmental
authorities having authority over Compass as may be required by statute or
regulation. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not conflict with, or
result in any violation or breach of or default under, the respective
Certificate of Incorporation or Articles of Association or By-Laws of Compass or
Interim. Except as set forth on Schedule 4.2, neither the execution, delivery
nor performance of this Agreement in its entirety, nor the consummation of all
the transactions contemplated hereby, following the receipt of such approvals as
may be required from the SEC, the OCC, the FRB, the FDIC, and the Department,
will (i) violate (with or without the giving of notice or passage of time) any
law, order, writ, judgment, injunction, award, decree, rule, statute, ordinance
or regulation applicable to Compass or Interim, or (ii) be in conflict with,
result in a breach or termination of any provision of, cause the acceleration of
the maturity of any debt or obligation pursuant
45
<PAGE>
to, constitute a default (or give rise to any right of termination, cancellation
or acceleration) under, or result in the creation of any security interest,
lien, charge or other encumbrance upon any property or assets of Compass or
Interim pursuant to, any terms, conditions or provisions of any note, license,
instrument, indenture, mortgage, deed of trust or other agreement or
understanding or any other restriction of any kind or character, to which
Compass or Interim (when incorporated and organized) is a party or by which any
of their assets or properties are bound, where such violation, conflict, breach
or other consequence could have a Material Adverse Effect on Compass and its
Subsidiaries taken as a whole or any adverse effect on the Bank prior to the
Effective Time. Except as set forth on Schedule 4.2, there are no proceedings
pending or, to the knowledge of Compass, threatened, against Compass, at law or
in equity or before any foreign, federal, state, municipal or other governmental
court, department, commission, board, bureau, agency, instrumentality or other
person which may result in liability to the Bank on the consummation of the
transactions contemplated hereby or which would prevent or delay such
consummation. Except as set forth in Schedule 4.2, or as contemplated hereby,
the corporate existence, business, organization, assets, licenses, permits,
authorizations and contracts of Compass or Interim (when incorporated and
organized) will not be terminated or impaired by reason of the execution,
delivery or performance by Compass of this Agreement or
46
<PAGE>
consummation by Compass or Interim of the transactions contemplated hereby,
assuming receipt of the required regulatory approvals.
SECTION 4.3 Financial Reports. Compass has previously furnished the
-----------------
Bank a true and complete copy of (i) the 1992 Annual Report to Shareholders,
which report (the "Compass 1992 Annual Report") includes, among other things,
consolidated balance sheets of Compass and its consolidated Subsidiaries as at
December 31, 1992 and 1991, and the related consolidated statements of income,
shareholders' equity and cash flows for the two years then ended, and (ii)
Compass' quarterly reports on Form 10-Q for the quarters ended March 31 and June
30, 1993 (the "Quarterly Reports"), which reports include among other things
consolidated balance sheets of Compass and its consolidated Subsidiaries as at
March 31 and June 30, 1993 and 1992, respectively, and the related consolidated
statements of income and cash flows for the three- and six-month periods ended
March 31 and June 30, 1993 and 1992. The financial statements contained in the
Compass 1992 Annual Report and such Quarterly Reports have been prepared in
conformity with GAAP applied on a basis consistent with prior periods. The
consolidated balance sheets of Compass and its consolidated Subsidiaries at
December 31, 1992 and 1991 contained in the Compass 1992 Annual Report fairly
present the consolidated financial condition of Compass and its consolidated
Subsidiaries as at the dates thereof, and the related consolidated statements of
income, shareholders' equity and cash flows of Compass and its consolidated
Subsidiaries contained therein fairly present the results of operations and cash
47
<PAGE>
flows thereof for the fiscal years then ended. The consolidated financial
statements of Compass and its consolidated Subsidiaries at and for the periods
ended March 31 and June 30, 1993 and 1992 contained in Compass' Quarterly
Reports fairly present the financial condition, the results of the operations
and cash flows thereof as of such dates and for the periods indicated. For the
purposes of this Agreement, all financial statements referred to in this Section
4.3 shall be deemed to include any notes to such financial statements. Compass
has made all filings required to be made in compliance with the Exchange Act.
None of the information contained in the Compass 1992 Annual Report or the
Quarterly Reports, or in any reports filed by Compass with the SEC after the
date hereof pursuant to Section 13(a) of the Exchange Act, is or will be false
or misleading with respect to any material fact, or omits or will omit to state
any material fact necessary in order to make the statements therein, at the time
and in light of the circumstances under which they were made, not misleading.
SECTION 4.4 Capitalization. The shares of Compass Common Stock to be
--------------
issued pursuant to this Agreement, when so issued, will be duly and validly
authorized and issued, fully paid and nonassessable, and not issued in violation
of any preemptive rights. As of September 30, 1993, Compass had 36,114,878
shares of common stock, $2.00 per share par value, issued and outstanding, none
of which are held as treasury stock. None of the shares of Compass Common Stock
to be issued pursuant to this Agreement will be subject to any lien, charge,
encumbrance, claim, rights of
48
<PAGE>
others, mortgage, pledge or security interest, and none will be subject to any
agreements or understandings among any persons with respect to the voting or
transfer of such shares of Compass Common Stock except as contemplated hereby.
Except for the Compass Common Stock to be issued pursuant to this Agreement,
there are no outstanding subscriptions, options (except for employee stock
options), convertible securities, warrants or calls of any kind issued or
granted by or binding upon Compass. Compass will own when Interim is organized
all the issued and outstanding shares of capital stock of Interim.
SECTION 4.5 Consents and Approvals. No prior consent, approval or
----------------------
authorization of, or declaration, filing or registration with any person,
domestic or foreign, is required of or by Compass, or will be required of or by
Interim, in connection with the execution, delivery or performance by Compass or
Interim of this Agreement and the transactions contemplated hereby or the
resulting change in control of the Bank, except such approvals as may be
required from the SEC, the FRB, the OCC, the Department and the FDIC.
SECTION 4.6 Proxy Statement. None of the information supplied or to be
---------------
supplied by Compass, or, when incorporated and organized, Interim, or, to the
best knowledge of Compass any of their respective directors, officers, employees
or agents for inclusion in:
(a) the Proxy Statement; or
49
<PAGE>
(b) any registration statement or other documents to filed with the SEC
or any regulatory or governmental agency or authority in connection
with the transactions contemplated herein, at the respective times
such documents are filed, and, with respect to the Proxy Statement,
when first mailed to the shareholders of Bank;
will be false or misleading with respect to any material fact, or omit to state
any material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, or, in the case of
the Proxy Statement or any amendment thereof or supplement thereto, at the time
of the Shareholders' Meeting, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the Shareholders' Meeting. All documents that Compass or Interim is
responsible for filing with any regulatory or governmental agency in connection
with the Merger will, as they relate to Compass or Interim, comply in all
material respects with the provisions of applicable law.
SECTION 4.7 Pooling. Compass has received a preliminary opinion from
--------
KPMG Peat Marwick to the effect that at the time of the consummation of the
Merger, the Merger may be accounted for by Compass as a pooling of interests
transaction.
SECTION 4.8 Availability of Compass Common Stock. Compass has available
------------------------------------
a sufficient number of authorized and unissued shares
50
<PAGE>
of Compass Common Stock to pay the Merger Consideration, and Compass will not
take any action during the term of this Agreement that will cause it not to have
a sufficient number of authorized and unissued shares of Compass Common Stock to
pay the Merger Consideration.
SECTION 4.9 Representations Not Misleading. No representation or
------------------------------
warranty by Compass in this Agreement, nor any statement, summary, exhibit or
Schedule furnished to the Bank under and pursuant to, or in anticipation of this
Agreement, contains or will contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements contained herein
or therein not misleading.
ARTICLE V
COVENANTS OF THE BANK
SECTION 5.1 Affirmative Covenants of the Bank. For so long as this
---------------------------------
Agreement is in effect, the Bank shall from the date of this Agreement to the
Closing, except as specifically contemplated by this Agreement:
(a) operate and conduct the business of the Bank in the ordinary course
of business and consistent with prudent banking practices;
(b) preserve intact in the ordinary course of business the Bank's
corporate existence, business organization, assets, licenses, permits,
authorizations, and business opportunities (such business opportunities to be
considered as a whole);
51
<PAGE>
(c) comply with all material contractual obligations applicable to the
Bank's operations;
(d) maintain all the Bank's properties in good repair, order and
condition, reasonable wear and tear excepted, and maintain the insurance
coverages described in Schedule 5.1(d) (which shall list all Property insured by
such coverages) or obtain comparable insurance coverages from reputable insurers
which, in respect to amounts, types and risks insured, are, to the Bank's
knowledge, adequate for the business conducted by the Bank and consistent with
the existing insurance coverages;
(e) in good faith and in a timely manner (i) cooperate with Compass and
Interim in satisfying the conditions in this Agreement, (ii) assist Compass and
Interim in obtaining as promptly as possible all consents, approvals,
authorizations and rulings, whether regulatory, corporate or otherwise, as are
necessary for Compass and Interim and the Bank (or any of them) to carry out and
consummate the transactions contemplated by this Agreement, including all
consents, approvals and authorizations required by any agreement or
understanding existing at the Closing between the Bank and any governmental
agency or other third party, (iii) furnish information concerning the Bank not
previously provided to Compass required for inclusion in any filings or
applications that may be necessary in that regard and (iv) subject to the terms
and conditions of this Agreement, perform all acts and execute and deliver all
documents reasonably necessary to cause the
52
<PAGE>
transactions contemplated by this Agreement to be consummated at the earliest
possible date in accordance with this Agreement;
(f) timely file with the FRB, the OCC, the Department, and the FDIC, all
financial statements and other reports required to be so filed by the Bank and
to the extent permitted by applicable law, promptly thereafter deliver to
Compass copies of all financial statements and other reports required to be so
filed;
(g) comply in all material respects with all applicable laws and
regulations, domestic and foreign, where the failure to do so could have a
Material Adverse Effect on the Bank;
(h) promptly give written notice to Compass upon obtaining knowledge of
any event or fact that would cause any of the representations or warranties of
the Bank contained in or referred to in this Agreement to be untrue or
misleading in any material respect;
(i) deliver to Compass a list (Schedule 5.l(i)), dated as of the
Effective Time, showing (i) the name of each bank or institution where the Bank
has accounts or safe deposit boxes, (ii) the name(s) in which such accounts or
boxes are held and (iii) the name of each person authorized to draw thereon or
have access thereto;
(j) deliver to Compass a list (Schedule 5.1(j)), dated as of the
Effective Time, showing all liabilities and obligations of the Bank, except
deposits, repurchase agreements and other liabilities arising in the ordinary
course of its business, incurred since the Balance Sheet Date, certified by an
officer of the Bank; and
53
<PAGE>
(k) promptly notify Compass of any material change or inaccuracies in any
data previously given or made available to Compass pursuant to this Agreement.
SECTION 5.2 Negative Covenants of the Bank. Except with the prior
------------------------------
written consent of Compass or as otherwise specifically permitted by this
Agreement, the Bank will not from the date of this Agreement to the Closing:
(a) make any amendment to its articles of association or bylaws;
(b) make any change in the methods used in allocating and charging costs,
except as may be required by applicable law, regulation or GAAP and after notice
to Compass;
(c) except pursuant to the exercise of the Options and the conversion of
the Bank Preferred Stock, permit or make any change in the number of shares of
the capital stock issued and outstanding, or issue, reserve for issuance, grant,
sell or authorize the issuance of any shares of its capital stock or
subscriptions, options, warrants, calls, rights or commitments of any kind
relating to the issuance or sale of or conversion into shares of its capital
stock;
(d) contract to create any obligation or liability (absolute, accrued,
contingent or otherwise) except in the ordinary course of business and
consistent with prudent banking practices;
(e) contract to create any mortgage, pledge, lien, security interest or
encumbrances, restrictions, or charge of any kind (other than statutory liens
for which the obligations secured
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thereby shall not become delinquent), except in the ordinary course of business
and consistent with prudent banking practices;
(f) cancel any debts, waive any claims or rights of value or sell,
transfer, or otherwise dispose of any of its material properties or assets,
except in the ordinary course of business and consistent with prudent banking
practices;
(g) sell any real estate owned as of the date of this Agreement or
acquired thereafter, which real estate qualifies as "other real estate owned"
under accounting principles applicable to it, except in the ordinary course of
business and consistent with prudent banking practices and applicable banking
laws and regulations;
(h) dispose of or permit to lapse any rights to the use of any material
trademark, service mark, trade name or copyright, or dispose of or disclose to
any person other than its employees any material trade secret not theretofore a
matter of public knowledge;
(i) except as set forth on Schedule 3.10 and except for regular salary
increases granted in the ordinary course of business within the Bank's 1993 and
1994 budgets and consistent with prior practices, grant any increase in
compensation or pay or agree to pay or accrue any bonus or like benefit to or
for the credit of any director, officer, employee or other person or enter into
any employment, consulting or severance agreement or other agreement with any
director, officer or employee, or adopt, amend or terminate any Employee Benefit
Plan or change or modify the period of vesting or retirement age for any
participant in such a plan;
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(j) except for (i) the declaration in 1993 by the Bank of the regular cash
dividends of $.30 per share on the Bank Common Stock and the Class B Preferred
Stock and the regular cash dividend payable at a rate of $1.1025 per annum per
share on the Class A Preferred Stock and the payment of such dividends, and (ii)
the declaration and payment in 1994 of the regular cash dividend at a rate of
$1.1025 per annum per share on the Class A Preferred Stock, declare, pay or set
aside for payment any dividend or other distribution or payment in respect of
shares of its capital stock;
(k) except through settlement of indebtedness, foreclosure, the exercise
of creditors' remedies or in a fiduciary capacity, acquire the capital stock or
other equity securities or interest of any person;
(l) make any capital expenditure or a series of capital expenditures of a
similar nature in excess of $25,000 in the aggregate;
(m) except as set forth in Schedule 3.13, make any income tax or
franchise tax election or settle or compromise any federal, state, local or
foreign income tax or franchise tax liability, or, except in the ordinary course
of business consistent with prudent banking practices, make any other tax
election or settle or compromise any other federal, state, local or foreign tax
liability;
(n) except for negotiations and discussions between the parties hereto
relating to the transactions contemplated by this Agreement or as otherwise
permitted hereunder, enter into any
56
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transaction, or enter into, modify or amend any contract or commitment other
than in the ordinary course of business and consistent with prudent banking
practices;
(o) except as contemplated by this Agreement, adopt a plan of complete or
partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization, or other reorganization or business combination of the Bank;
(p) issue any certificates of deposit except in the ordinary course of
business and in accordance with prudent banking practices;
(q) make any investments except in the ordinary course of business and in
accordance with prudent banking practices;
(r) modify any outstanding loan, make any new loan, or acquire any loan
participation, unless such modification, new loan, or participation is made in
the ordinary course of business and in accordance with prudent banking
practices;
(s) sell or contract to sell any part of the Bank premises;
(t) change any fiscal year or the length thereof;
(u) take or agree to take any action that would prevent Compass from
accounting for the business combination to be effected by the Merger as a
pooling of interests, including, without limitation, any action inconsistent
with the provisions of Exhibit D hereto; or
(v) enter into any agreement, understanding or commitment, written or
oral, with any other person which is in any manner
57
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materially inconsistent with the obligations of the Bank under this Agreement or
any related written agreement.
Nothing contained in this Section 5.2 or in Section 5.1 is intended to influence
the general management or overall operations of the Bank in a manner not
permitted by applicable law and the provisions thereof shall automatically be
reduced in compliance therewith.
SECTION 5.3 Affirmative Covenants of Compass. For so long as this
--------------------------------
Agreement is in effect, Compass shall, from the date of this Agreement to the
Closing, and except as specifically contemplated by this Agreement:
(a) in good faith and in a timely matter (i) cooperate with the Bank in
satisfying the conditions in this Agreement, (ii) assist the Bank in obtaining
as promptly as possible all consents, approvals, authorizations and rulings,
whether regulatory, corporate or otherwise, as are necessary for Compass and
Interim and the Bank (or any of them) to carry out and consummate the
transactions contemplated by this Agreement, including all consents, approvals
and authorizations required by any agreement or understanding existing at the
Closing between the Bank and any governmental agency or any third party, (iii)
furnish information concerning Compass or Interim required for inclusion in any
filings or applications that may be necessary in that regard, if any, and (iv)
subject to the terms and conditions of this Agreement, perform all acts and
execute and deliver all documents reasonably necessary to cause the transactions
contemplated by this Agreement to be
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consummated at the earliest possible date in accordance with this Agreement;
(b) timely file with the SEC all reports required to be so filed pursuant
to Section 13(a) of the Exchange Act and promptly thereafter deliver copies of
such reports to the Bank;
(c) comply in all material respects with all applicable laws and
regulations, domestic and foreign, where the failure to do so would have a
Material Adverse Effect on Compass; and
(d) promptly give written notice to the Bank upon obtaining knowledge of
any event or fact which would cause any of the representations or warranties of
Compass contained in or referred to in this Agreement to be untrue or misleading
in any material respect.
SECTION 5.4 Negative Covenants of Compass. Except with the prior
-----------------------------
written consent of the Bank or as otherwise specifically permitted by this
Agreement, Compass will not from the date of this Agreement to the Closing enter
into any agreement, understanding or commitment, written or oral, with any other
person which is in any manner materially inconsistent with obligations of
Compass under this Agreement or any related written agreement.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Access To, and Information Concerning, Properties and
------------------------------------- --------------
Records. During the pendency of the transactions contemplated hereby, the Bank
- -------
shall, to the extent permitted by law, give Compass, its legal counsel,
accountants and other
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representatives full access, during normal business hours, throughout the period
prior to the Closing, to all of the Bank's properties, books, contracts,
commitments and records, permit Compass to make such inspections (including
without limitation with regard to such properties physical inspection of the
surface and subsurface thereof and any structure thereon) as it may require and
furnish to Compass during such period all such information concerning the Bank
and its affairs as Compass may reasonably request. All information disclosed by
the Bank to Compass which is confidential shall be held confidential by Compass
and its representatives, except to the extent counsel to Compass has advised it
such information is required to or should be disclosed in filings with
regulatory agencies or governmental authorities or in proxy materials delivered
to shareholders of the Bank. In the event this Agreement is terminated pursuant
to the provisions of Article VIII, upon the written request of the Bank, Compass
agrees to return to the Bank all copies of such confidential information, retain
the confidentiality of information about the Bank reflected in such copies, and
refrain from using any confidential information about the Bank to compete for
customers of the Bank for a period of two years after such termination.
SECTION 6.2 Filing of Regulatory Approvals. As soon as reasonably
------------------------------
practicable, Compass shall file (and shall cause Interim to file) all notices
and applications to the FRB, the OCC, the Department and the FDIC which Compass
deems necessary or appropriate to complete the transactions contemplated herein,
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including those relating to the incorporation and organization of Interim and
the merger of the Surviving Bank and Compass Bank -Houston, a Texas state bank
and indirect wholly-owned subsidiary of Compass ("Compass Bank"). Compass will
deliver to the Bank, and the Bank will deliver to Compass, copies of all
non-confidential portions of any such applications and correspondence to and
from regulatory authorities relating to such applications.
SECTION 6.3 Miscellaneous Agreements and Consents. Subject to the terms
-------------------------------------
and conditions of this Agreement, Compass and the Bank agree to use all
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper, or advisable under applicable
laws and regulations to consummate and make effective, as soon as practicable
after the date hereof, the transactions contemplated by this Agreement. Compass
and the Bank shall use their respective best efforts to obtain or cause to be
obtained consents of all third parties and governmental and regulatory
authorities necessary or desirable for the consummation of the transactions
contemplated herein.
SECTION 6.4 Limited Survival of Certain Indemnities. Compass agrees
---------------------------------------
that, for a period of four years after the Effective Time and, with respect to
any particular claim for indemnification made in writing within four years after
the Effective Time, thereafter until its final resolution, the Surviving Bank
and any successor to the Surviving Bank shall remain obligated to indemnify the
directors and officers of the Bank at the Effective Time to the extent provided
in the Articles of Association and Bylaws of the
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Bank and the Indemnity Agreements entered into between such directors and
officers and the Bank, all of which Indemnity Agreements are identified on the
Schedules to this Agreement; provided, however, that no indemnification shall be
provided in respect of any matter relating to loans by the Bank to the Bank's
directors or executive officers (including violations of lending limits) or in
respect of any fines or penalties (civil or criminal) payable to governmental
authorities, and related expenses of defending any such claims of governmental
authorities if the indemnified director or officer is finally determined to be
guilty or liable. In the event that any Bank director or officer is assessed
civil money penalties, the Surviving Bank or other indemnifying party shall not
settle such matter without the consent of the affected director or officer, but
in the event such director or officer does not consent to the settlement, the
indemnifying party shall have no further indemnification obligation to the
director or officer and the officer or director shall assume responsibility for
his defense at his own expense. Compass hereby agrees that after the Effective
Time Compass shall be liable for such indemnification obligations to the same
extent and for the same period of time as the Surviving Bank or its successor.
The Bank agrees to cooperate with Compass in obtaining bids for directors and
officers insurance to provide coverage for periods after the Effective Time for
actions and omissions occurring prior to the Effective Time, and, subject to the
consummation of the
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Merger, shall purchase such insurance only on Compass' request and with Compass'
approval.
SECTION 6.5 Best Good Faith Efforts. Each party hereto agrees to use
-----------------------
its best good faith efforts to secure all regulatory approvals necessary to
consummate the Merger and other transactions provided herein and to satisfy the
other conditions to Closing contained herein.
SECTION 6.6 Exclusivity. During the term of this Agreement the Bank
-----------
shall not solicit, entertain or negotiate with respect to any offer to acquire
the Bank from any other person. During the term of this Agreement, the Bank
shall not provide information to any other person in connection with a possible
acquisition of the Bank. Immediately upon receipt of any such unsolicited
offer, the Bank will communicate the terms of any proposal or request for
information and the identity of parties involved.
SECTION 6.7 Public Announcement. Subject to written advice of counsel
-------------------
with respect to legal requirements relating to public disclosure of matters
related to the subject matter of this Agreement, the timing and content of any
announcements, press releases or other public statements concerning this
Agreement or the Merger will occur upon, and be determined by, the mutual
consent of the Bank and Compass.
SECTION 6.8 Employee Benefit Plans. Compass presently intends that,
----------------------
after the Merger, Compass and the Bank will not make additional contributions to
the Employee Benefit Plans. However, Compass agrees that the employees of the
Bank will be entitled to
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participate as new employees in the employee welfare and pension benefit plans
maintained for employees of Compass and its Affiliates, in accordance with their
respective terms. Compass agrees that the employees of the Bank will be
entitled to participate immediately in the health medical, accidental death and
dismemberment and life insurance plans maintained for the employees of Compass
and its Affiliates, and will be entitled to credit for prior service with the
Bank for purposes of calculating vacation benefits. Employees of the Bank will
not receive any credit for prior service with the Bank with respect to the
employee stock ownership plan, 401(k) plan, retirement plan or any other defined
contribution or defined benefit plan now or hereafter maintained by Compass for
the benefit of any of the employees of Compass and its Affiliates.
SECTION 6.9 Merger of Surviving Bank. Compass presently intends to
------------------------
cause the Surviving Bank to merge into Compass Bank immediately after the
Merger, and the Bank agrees to execute documents and take actions (conditioned
on the Merger being effective) and otherwise reasonably cooperate with Compass
and Interim during the time the Merger transaction is pending in order to
facilitate such merger of the Surviving Bank into Compass Bank immediately after
the Closing.
SECTION 6.10 Environmental Investigation; Right to Terminate Agreement.
---------------------------------------------------------
(a) Compass and its consultants, agents and representatives shall have the
right, but not the obligation or responsibility, to inspect the Property to the
extent that the Bank
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has the right to permit Compass and its consultants, agents and representatives
to inspect the Property, including, without limitation, conducting asbestos
surveys and sampling, environmental assessments and investigations, and other
environmental surveys and analyses including soil and ground sampling
("Environmental Inspections") at any reasonable time and shall complete such
inspections on or prior to the fifty-second day after the date hereof. If, as a
result of any such Environmental Inspection, further investigation ("secondary
investigation") including, without limitation, test borings, soil, water and
other sampling is deemed desirable by Compass, Compass shall notify the Bank of
the Properties on which it intends to conduct a secondary investigation on or
prior to the fifty-ninth day after the date hereof. Compass shall notify the
Bank of any Properties that are unacceptable and require remediation on or prior
to the 116th day after the date hereof. With respect to any Property which is
owned, operated or leased by the Bank including without limitation the Bank's
premises and other real estate owned ("Controlled Property"), that Compass has
notified the Bank is not acceptable and requires remediation, the Bank shall
promptly prepare a remediation plan acceptable to Compass and obtain approval of
such remediation plan by the Texas Natural Resource Conservation Commission or
any other appropriate governmental authority ("Environmental Regulatory
Authority") with any changes thereto required by an Environmental Regulatory
Authority on or prior to the 240th day after the date hereof. Promptly following
the preparation of any such remediation plan and
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<PAGE>
its approval by the appropriate Environmental Regulatory Authority, the Bank
shall perform the remediation contemplated by any such plan. In the event that
the Bank is unable to obtain the approval of any such remediation plan within
the time period described above, any such approved remediation plan is not
acceptable to Compass, the Bank refuses or fails to conduct remediation in
accordance with any such approved plan, or the applicable Environmental
Regulatory Authority disapproves of the results of any such remediation
conducted by the Bank, Compass shall have the right to terminate this Agreement
pursuant to written notice to the Bank on or prior to the fifth business day
after the date the Bank advises Compass in writing that, as applicable, the Bank
has been unable to obtain timely approval of any remediation plan, that any such
approved remediation plan has been obtained, that any such Controlled Property
has been remediated by the Bank but the applicable Environmental Regulatory
Authority does not approve the results of the remediation, or that the Bank does
not intend to remediate or has not timely remediated any such Controlled
Property.
With respect to any Property other than a Controlled Property ("Collateral
Property") that Compass has notified the Bank is not acceptable and requires
remediation, the Bank agrees promptly to request the person ("Third Party
Owner") who owns, operates, leases or otherwise exercises managerial control
over any such Collateral Property to remediate such Collateral Property pursuant
to a remediation plan approved by the appropriate Environmental
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<PAGE>
Regulatory Authority on or prior to the 240th day after the date hereof. If the
Third Party Owner's approved remediation plan is not acceptable to Compass,
Compass shall have the right to terminate this Agreement within five business
days after receiving notice and a copy of the approved remediation plan. In the
event that the Third Party Owner remediates the Collateral Property but the
applicable Environmental Regulatory Authority does not approve the results of
the remediation or obtains the approval by the appropriate Environmental
Regulatory Authority of a remediation plan but is unable to complete the
remediation within the time period described above, the Bank shall so advise
Compass in writing of such Third Party Owner's attempted remediation or approved
but unperformed remediation plan, and Compass shall have the right to terminate
this Agreement within five business days after the date of receiving such
written notice from the Bank. If a Third Party Owner refuses or fails to
conduct any remediation or obtain any approved remediation plan with respect to
any Collateral Property, the Bank agrees to obtain a written estimate
("Remediation Estimate") from an environmental professional acceptable to
Compass of all costs of remediating any such Collateral Property (including the
costs of preparing a remediation plan acceptable to Compass and approved by the
appropriate Environmental Regulatory Authority). A remediation plan prepared by
the Third Party Owner and acceptable to Compass may be the basis of the
Remediation Estimate. Compass shall have the right to terminate this Agreement
by written notice to the Bank within five business days after receipt from the
Bank
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of any Remediation Estimate for a particular Collateral Property.
Notwithstanding the foregoing, and without limiting any rights of Compass, the
Bank shall not be obligated to incur aggregate expenditures in excess of $50,000
in connection with preparing and obtaining approval by the appropriate
Environmental Regulatory Authority of remediation plans with respect to
Controlled Properties and in connection with obtaining Remediation Estimates in
connection with Collateral Properties.
(b) All Environmental Inspections and secondary investigations shall be
performed by environmental professionals selected by Compass and reasonably
acceptable to the Bank. All such environmental professionals will be required
to carry appropriate workers' compensation, general liability and professional
liability insurance in amounts reasonably acceptable to Compass and the Bank.
Prior to commencing any Environmental Inspection or secondary investigation
Compass will submit to the Bank a listing of the Properties on which Compass
proposes to conduct its Environmental Inspections or secondary investigations,
as the case may be, and the Bank shall within seven days thereafter notify
Compass of any objection to any Environmental Inspection or secondary
investigation of a particular Property on the basis that the Bank has no right
to permit Compass to conduct such Environmental Inspection or secondary
investigation and of any limitations ("Inspection Limitations") imposed on
Compass under the Bank's agreements relating to such Property or otherwise
imposed by the owner (or any lessee or occupant) of such Property with respect
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to any Environmental Inspection or secondary investigation, all of which
objections or limitations shall be in writing. If any of the Inspection
Limitations imposed on an Environmental Inspection or secondary investigation
prevent Compass from inspecting a Property to the extent it believes sufficient,
Compass shall have the right to terminate this Agreement by written notice to
the Bank on or before the 116th day after the date hereof. Compass agrees to
conduct any Environmental Inspection or secondary investigation in accordance
with any Inspection Limitations. In the event that the Bank does not have the
right to permit Compass to conduct any Environmental Inspection or secondary
investigation of any Property not owned, occupied or operated by the Bank, the
Bank shall promptly and diligently pursue obtaining the consent of the owner
(and any lessee or occupant) of such Property to the proposed Environmental
Inspection or secondary investigation. In the event that the Bank notifies
Compass in writing that after diligent efforts (which notice shall describe such
efforts) the Bank is unable to obtain the consent of the owner (and any lessee
or occupant) of such Property to such Environmental Inspection or secondary
investigation, Compass shall have the right to terminate this Agreement by
written notice to the Bank on or before the 116th day after the date hereof.
Compass agrees promptly to cease its Environmental Inspection or secondary
investigation of any Property should the owner or any lessee or occupant thereof
(other than the Bank) make written demand or complaint to the Bank or Compass
regarding such Environmental Inspection or secondary investigation.
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The Bank will evaluate any such demand or complaint and will in good faith
attempt to cause the owner (and any lessee or occupant) of the Property to
withdraw his demand or complaint and notify Compass whether or not Compass may
proceed with its Environmental Inspection or secondary investigation. If the
Bank is unable to obtain the withdrawal of any such demand or complaint and
Compass is unable to proceed with any such Environmental Inspection or secondary
investigation, Compass shall have the right to terminate this Agreement by
written notice to the Bank on or before the 116th day after the date hereof. In
the event that the Bank does not have the right to permit an environmental
professional acting as its agent to take necessary steps in order to prepare a
Remediation Estimate for any Collateral Property, the Bank shall promptly and
diligently pursue obtaining the consent of the owner (and any lessee or
occupant) of such Property to the proposed actions. In the event that the Bank
notifies Compass in writing that after diligent efforts (which notice shall
describe such efforts) the Bank is unable to obtain the consent of the owner
(and any lessee or occupant) of such Property to such actions, Compass shall
have the right to terminate this Agreement by written notice to the Bank within
five business days after receipt of such written notice. The Bank is not
obligated to incur any material out-of-pocket cost or expense, file a lawsuit or
take any other legal action in order to (i) obtain the consent of any owner (and
any lessee or occupant) of a Property to a proposed Environmental Inspection or
secondary investigation, (ii) obtain the withdrawal of any written demand or
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complaint regarding an Environmental Inspection or secondary investigation, or
(iii) obtain consent to take necessary actions to prepare a Remediation Estimate
for any Collateral Property. Compass agrees that neither it nor its consultants,
agents or representatives will communicate directly or indirectly with the owner
or any lessee or occupant of any Property (other than the Bank) or their
respective agents or employees except for purposes of (i) identifying
themselves and their purpose upon entering the Property in question or (ii)
conducting the Environmental Inspections or secondary investigations.
(c) Each party hereto hereby agrees to indemnify and hold harmless the
other party hereto and its affiliates for any claims for damage to property or
injury or death to persons arising in connection with any Environmental
Inspection or secondary investigation to the extent such damage, injury or death
is directly or indirectly attributable to the negligent actions or negligent
omissions of such indemnifying party. Neither Compass nor Interim shall have
any liability or responsibility of any nature whatsoever for the results,
conclusions or other findings related to any Environmental Inspection, secondary
investigation or other environmental survey.
(d) If this Agreement is terminated, then except as otherwise required by
law, Compass and Interim shall have no obligation to make any reports to any
governmental authority of the results of any Environmental Inspection, secondary
investigation or other environmental survey, but such reporting shall remain the
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responsibility of and within the discretion of the Bank, as the case may be. If
the Environmental Inspection or secondary investigation identifies matters which
Compass or Interim believes trigger a legal reporting obligation, Compass will
notify the Bank of such reporting obligation, including a reference to the
applicable legal requirement. The Bank will then promptly, and in any event
within five business days, determine in good faith and after consultation with
legal counsel whether or not it agrees with Compass that such reporting is
required by law. If it agrees that such reporting is required by law, the Bank
will so advise Compass in writing and the Bank will make the required reporting
and will furnish Compass a copy of any such report. If the Bank does not agree
that there is a legal reporting obligation, it will so advise Compass in
writing. If Compass nevertheless makes any such report after receiving written
notice of the Bank's disagreement, Compass shall be responsible for any and all
consequences if such reporting is determined to have been wrongful and without
legal basis. In the event that Compass does not make any such report after
receiving written notice of the Bank's view that no such reporting is required,
the Bank shall indemnify and hold Compass and its affiliates harmless from any
and all consequences in the event it is determined that such reporting should
have been made by Compass or any of its affiliates. Except for reporting to a
governmental authority as provided above, and except for disclosure to Third
Party Owners and environmental professionals consistent with the provisions of
this Section 6.10 or as otherwise required pursuant
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to applicable legal requirements or valid legal process, Compass and the Bank
will keep all information relating to the Environmental Inspections and the
secondary investigations confidential.
(e) Compass shall have the right to terminate this Agreement in the
following circumstances: (i) the Bank's breach of any warranty or
representation set forth in Section 3.23; (ii) the factual substance of any
warranty or representation set forth in Section 3.23 is not true and accurate
irrespective of the knowledge or lack of knowledge of the Bank; or (iii) the
other circumstances permitting termination of this Agreement by Compass
described in this Section 6.10. Termination of this Agreement shall be Compass'
sole and exclusive remedy for the matters described above (excluding any breach
of representation or warranty in Section 3.23 resulting from intentional
misrepresentation) and as contemplated by this Section 6.10 in the absence of
any intentional breach of this Section 6.10 by the Bank, including without
limitation any breach resulting from the Bank's refusal to prepare and seek
approval by the appropriate Environmental Regulatory Authority of any
remediation plan with respect to Controlled Properties or to obtain Remediation
Estimates in connection with Collateral Properties that would require aggregate
estimated expenditures by the Bank not in excess of $50,000, which breach is not
cured by the Bank to Compass' satisfaction within five business days after
receiving written notice from Compass of such breach of this Section 6.10 (or in
the case of a breach which cannot be cured
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<PAGE>
within five business days, which breach the Bank does not commence to cure
within five business days and diligently pursue the cure of such breach
thereafter until such breach is cured to Compass' satisfaction).
(f) The Bank agrees to make available to Compass and its consultants,
agents and representatives all documents and other material relating to
environmental conditions of the Property including, without limitation, the
results of other environmental inspections and surveys. The Bank also agrees
that all engineers and consultants who prepared or furnished such reports may
discuss such reports and information with Compass and shall be entitled to
certify the same in favor of Compass and its consultants, agents and
representatives and make all other data available to Compass and its
consultants, agents and representatives. Compass agrees to provide the Bank
with a copy of all environmental reports prepared by its consultants as a result
of the Environmental Inspections, secondary investigations or other
environmental surveys.
(g) Notwithstanding anything herein contained to the contrary, Compass
may not exercise any right to terminate this Agreement under this Section 6.10
on account of any matter relating to a Collateral Property unless such matter
causes a material adverse effect on the transaction contemplated hereunder after
taking into consideration the financial impact of the lesser of (i) writing off
the loan secured by such Collateral Property, or (ii) the Bank's expenditure of
the amounts necessary to cure or remedy
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the matter, including the costs of any remediation of such Collateral Property.
SECTION 6.11 Proxies. The Bank acknowledges that the persons listed in
-------
Schedule 6.11 have agreed that they will vote at the Shareholders' Meeting the
Shares owned by them or the Shares which they have the right to vote, as the
case may be, in favor of the approval of the Merger and this Agreement, and that
they will retain the right to vote such Shares during the term of this Agreement
and have given Compass a proxy to vote such Shares in favor of the Merger if
they should fail to do so, pursuant to a Voting Agreement and Irrevocable Proxy
in substantially the form attached hereto as Exhibit E. The obligations of the
persons listed in Schedule 6.11 to vote in favor of the approval of the Merger
and this Agreement shall be subject to required regulatory approvals of the
Merger and this Agreement, and the terms and conditions of this Agreement and of
the Voting Agreements and Irrevocable Proxies executed by such persons.
SECTION 6.12 Exchange Agreement. Immediately prior to the Effective
------------------
Time, the Bank and Compass agree to enter into the Exchange Agreement with the
Exchange Agent, or if the Exchange Agent refuses to serve as exchange agent,
such other exchange agent as shall mutually agreed to by the Bank and Compass.
SECTION 6.13 Exercise or Termination of Options. Within 14 business days
----------------------------------
after the date hereof, the Bank shall execute and deliver, and cause each holder
of Options to execute and deliver his agreement in substantially the form of
Exhibit J attached
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<PAGE>
hereto that the Options shall terminate and lapse at the Effective Time if not
previously exercised.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 7.1 Conditions to Each Party's Obligation to Effect the Merger.
----------------------------------------------------------
The respective obligations of each party to effect the Merger are subject to the
satisfaction or waiver of the following conditions prior to the Effective Time:
(a) the receipt of regulatory approvals and the expiration of any
applicable waiting period with respect thereto;
(b) the Closing will not violate any injunction, order or decree of any
court or governmental body having competent jurisdiction;
(c) the approval of the Merger by each class of shareholders of the Bank
entitled to vote at the Shareholders' Meeting;
(d) a registration statement covering the Compass Common Stock to be
issued in the Merger shall be effective under the Securities Act and any
applicable state securities or "blue sky" acts and no stop order suspending the
effectiveness of such registration statement shall be in effect and no
proceedings for such purpose, or any proceedings under the SEC or applicable
state securities authorities rules with respect to the transactions contemplated
hereby, shall be pending before or threatened by the SEC or any applicable state
securities or blue sky authorities; and
(e) Compass and the Bank shall have received an opinion of Liddell, Sapp,
Zivley, Hill & LaBoon, L.L.P., or other counsel
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<PAGE>
acceptable to Compass and the Bank, that the Merger will qualify as a
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended.
SECTION 7.2 Conditions to the Obligations of Compass and Interim to
-------------------------------------------------------
Effect the Merger.
- -----------------
The obligations of Compass and Interim to effect the Merger are subject to
the satisfaction or waiver of the following conditions prior to the Effective
Time:
(a) all representations and warranties of the Bank shall be true and
correct in all material respects as of the date hereof and at and as of the
Closing, with the same force and effect as though made on and as of the Closing;
provided however, that any changes or supplements to the Bank's Schedules to
reflect facts or circumstances coming into existence, occurrences happening or
matters (to the extent that the applicable representation or warranty is based
on the Bank's knowledge) being discovered after the date hereof and arising in
the ordinary course of business and not resulting in a Material Adverse Effect
with respect to the Bank will be deemed added to and shall be a part of the
applicable Schedule for all purposes and will be considered in determining the
truth and correctness of the representations and warranties of the Bank at and
as of the Closing;
(b) the Bank shall have performed in all material respects all
obligations and agreements and in all material respects complied with all
covenants and conditions, contained in this
77
<PAGE>
Agreement to be performed or complied with by it prior to the Effective Time;
(c) there shall not have occurred a Material Adverse Effect with respect
to the Bank;
(d) the directors of the Bank shall have delivered to Compass an
instrument dated the Effective Time in substantially the form of Exhibit F
attached hereto;
(e) the executive officers of the Bank shall have delivered to Compass an
instrument dated the Effective Time in substantially the form of Exhibit F
attached hereto;
(f) Compass shall have received the opinions of counsel to the Bank
acceptable to it as to the matters set forth on Exhibit G attached hereto;
(g) the holders of no more than 5% of the Shares shall have demanded or
be entitled to demand payment of the fair value of their shares as dissenting
shareholders;
(h) Compass shall have received a letter from KPMG Peat Marwick, dated as
of the Effective Time, to the effect that the Merger will qualify for
pooling-of-interests accounting treatment if closed and consummated in
accordance with this Agreement;
(i) Compass shall have received from the holders of Shares receiving at
least 50% of the total Merger Consideration a representation that they have no
present plan or intention to sell or otherwise dispose of shares of Compass
Common Stock received pursuant to the Merger;
78
<PAGE>
(j) the Bank shall have delivered to Compass a schedule of all
transactions in the capital stock (or instruments exercisable for or convertible
into capital stock) of the Bank of which the Bank has knowledge from and
including the date of this Agreement through the Effective Time;
(k) Compass shall have received certificates dated the Closing executed
by the Chairman and by the Secretary or Cashier of the Bank, certifying in such
reasonable detail as Compass may reasonably request, to the effect described in
Sections 7.2(a), (b), (c), and (g); and
(l) all of the Options shall have been exercised or terminated prior to
the Effective Time.
SECTION 7.3 Conditions to the Obligations of the Bank to Effect the
-------------------------------------------------------
Merger. The obligations of the Bank to effect the Merger are subject to the
- ------
satisfaction or waiver of the following conditions prior to the Effective Time:
(a) all representations and warranties of Compass contained herein shall
be true and correct in all material respects as of the date hereof and at and as
of the Closing, with the same force and effect as though made on and as of the
Closing; provided however, that any changes or supplements to Compass' Schedules
to reflect facts or circumstances coming into existence, occurrences happening
or matters (to the extent that the applicable representation or warranty is
based on Compass' knowledge) being discovered after the date hereof and arising
in the ordinary course of business and not resulting in a Material Adverse
Effect with respect to Compass will
79
<PAGE>
be deemed added to and shall be a part of the applicable Schedule for all
purposes and will be considered in determining the truth and correctness of the
representations and warranties of Compass at and as of the Closing;
(b) Compass shall have performed in all material respects all obligations
and agreements and in all material respects complied with all covenants and
conditions contained in this Agreement to be performed or complied with by it or
Interim prior to the Effective Time;
(c) the board of directors of the Bank shall have received the opinions
of counsel to Compass acceptable to it as to the matters set forth on Exhibit H
attached hereto;
(d) the Bank shall have delivered to the directors and executive officers
of the Bank an instrument dated the Effective Time in substantially the form of
Exhibit I attached hereto;
(e) There shall not have occurred a Material Adverse Effect with respect
to Compass; and
(f) the Bank shall have received certificates dated the Closing, executed
by appropriate officers of Compass, certifying, in such detail as the Bank may
reasonably request, to the effect described in Sections 7.3(a), (b), and (e).
ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER
SECTION 8.1 Termination. This Agreement may be terminated and the
-----------
Merger contemplated hereby may be abandoned at any time
80
<PAGE>
notwithstanding approval thereof by the shareholders of the Bank and Interim,
but prior to the Effective Time:
(a) by mutual written consent duly authorized by the Boards of Directors
of Compass and the Bank;
(b) by Compass (i) if Compass learns or becomes aware of a state of facts
or breach or inaccuracy of any representation or warranty of the Bank contained
in Article III which constitutes a Material Adverse Effect as to the Bank, (ii)
pursuant to Section 1.6(b) or 6.10, (iii) the factual substance of any warranty
or representation set forth in the first sentence of Section 3.20 is not true
and accurate irrespective of the knowledge or lack of knowledge of the Bank if
such constitutes a Material Adverse Effect as to the Bank, (iv) Compass
determines within 14 days after the date hereof that the Bank's consumer law
compliance is not acceptable to Compass and in the reasonable opinion of Compass
would have a material adverse effect on the transactions contemplated hereby; or
(v) if any of the conditions to Closing contained in Section 7.1 or 7.2 are not
satisfied or waived in writing by Compass;
(c) by the Bank (i) if the Bank learns or becomes aware of a state of
facts or breach or inaccuracy of any representation or warranty of Compass
contained in Article IV which constitutes a Material Adverse Effect as to
Compass, (ii) pursuant to Section 1.6(b), or (iii) if the conditions to Closing
contained in Section 7.1 or 7.3 are not satisfied or waived in writing by the
Bank;
81
<PAGE>
(d) by Compass or the Bank if the Effective Time shall not have occurred
on or before August 19, 1994 or such later date agreed to in writing by Compass
and the Bank; or
(e) by Compass or the Bank if any court of competent jurisdiction in the
United States or other United States (federal or state) governmental body shall
have issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the Merger and such order, decree, ruling or
other action shall have been final and nonappealable.
SECTION 8.2 Effect of Termination. In the event of the termination and
---------------------
abandonment of this Agreement pursuant to Section 8.1 hereof, this Agreement
shall forthwith become void and have no effect, without any liability on the
part of any party or its directors, officers or shareholders except as otherwise
expressly provided herein; provided, however, that except to the extent limited
by Section 6.10, nothing contained in this Section 8.2 shall relieve any party
from liability for any breach of this Agreement.
SECTION 8.3 Amendment. To the extent permitted by applicable law, this
---------
Agreement may be amended by action taken by or on behalf of the Board of
Directors of the Bank and Compass at any time before or after adoption of this
Agreement by the shareholders of the Bank, but, after any submission of this
Agreement to such shareholders for approval, no amendment shall be made which
reduces the Merger Consideration or which materially and adversely affects the
rights of the Bank's shareholders hereunder without any
82
<PAGE>
required approval of such shareholders. This Agreement may not be amended
except by an instrument in writing signed on behalf of all the parties.
SECTION 8.4 Extension; Waiver. (a) At any time prior to the Effective
-----------------
Time, the parties may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document, certificate or writing delivered pursuant hereto, or (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of any party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
(b) If pursuant to this Agreement either party advises the other party in
writing of any breach or inaccuracy of any representation or warranty made by
such notifying party in this Agreement or any breach of any covenant made by the
notifying party in this Agreement which is not capable of being cured by such
notifying party prior to the termination of this Agreement, then the other party
to this Agreement shall within ten business days of receipt of such notice
advise the notifying party in writing as to whether it elects (i) to terminate
this Agreement or (ii) waive the breach identified by the notifying party.
Notwithstanding any waiver of the notified party's right to terminate this
Agreement because of any such breach, for purposes of determining the
materiality of any other breach by the notifying party or
83
<PAGE>
determining whether any state of facts would constitute, when considered in
connection with all such waived breaches, a Material Adverse Effect with respect
to the notifying party, the notified party shall be entitled to take into
consideration any such waived breach in determining what action to take in
connection with any such other breach by the notifying party or any state of
facts existing with respect to the notifying party.
ARTICLE IX
SURVIVAL
SECTION 9.1 Termination of Representations and Warranties. The parties
---------------------------------------------
hereto agree that all of their respective representations and warranties
contained in this Agreement (including the Schedules hereto) shall terminate at
the Effective Time.
SECTION 9.2 Survival of Certain Agreements after Closing. The parties
--------------------------------------------
hereto agree that Compass' agreements contained in Sections 6.4 and 6.8 of this
Agreement shall survive the Closing.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Expenses. All costs and expenses incurred in connection
--------
with the transactions contemplated by this Agreement shall be paid by the party
incurring such costs and expenses; provided, however, that in the event this
Agreement is terminated by the Bank pursuant to Section 1.6(b) because the Share
Determination Market Value is less than $22.00 per share and such termination is
not rejected by Compass pursuant to Section 1.6(b),
84
<PAGE>
then Compass agrees to reimburse the Bank for its reasonable out-of-pocket legal
and accounting fees incurred in connection with the transactions contemplated by
this Agreement in an amount equal to the lesser of (i) the Bank's total
reasonable out-of-pocket legal and accounting fees related to the transactions
contemplated by this Agreement, or (ii) $70,000.00.
SECTION 10.2 Brokers and Finders. All negotiations on behalf of Compass
-------------------
and the Bank relating to this Agreement and the transactions contemplated by
this Agreement have been carried on by the parties hereto and their respective
agents directly without the intervention of any other person in such manner as
to give rise to any claim against Compass or the Bank for financial advisory
fees, brokerage or commission fees, finder's fees or other like payment in
connection with the consummation of the transactions contemplated hereby.
SECTION 10.3 Entire Agreement; Assignment. This Agreement (a)
----------------------------
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes all other prior agreements and understandings, both
written and oral, among the parties or any of them with respect to the subject
matter hereof, except for that certain Confidentiality Agreement dated July 7,
1993, between Compass Bank-Houston and the Bank, which shall remain in effect
until the Effective Time in accordance with its terms, and (b) shall not be
assigned by operation of law or otherwise, provided that Compass may assign its
rights and obligations or those of Interim to any direct or indirect,
wholly-owned,
85
<PAGE>
subsidiary of Compass, but no such assignment shall relieve Compass of its
obligations hereunder if such assignee does not perform such obligations.
SECTION 10.4 Further Assurances. (a) From time to time as and when
------------------
requested by Compass or its successors or assigns, the Bank, and the officers
and directors of the Bank, shall execute and deliver such further agreements,
documents, deeds, certificates and other instruments and shall take or cause to
be taken such other actions, including those as shall be necessary to vest or
perfect in or to confirm of record or otherwise the Bank's title to and
possession of, all of its property, interests, assets, rights, privileges,
immunities, powers, franchises and authority, as shall be reasonably necessary
or advisable to carry out the purposes of and effect the transactions
contemplated by this Agreement in accordance with its terms.
(b) From time to time as and when requested by the Bank, Compass shall
execute and deliver such further agreements, documents, deeds, certificates and
other instruments and shall take or cause to be taken such other actions, as
shall be reasonably necessary or advisable to carry out the purposes of and
effect the transactions contemplated by this Agreement in accordance with its
terms.
SECTION 10.5 Enforcement of the Agreement. The parties hereto agree that
----------------------------
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached.
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<PAGE>
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof, this being in addition to any other remedy to
which they are entitled at law or in equity.
SECTION 10.6 Severability. The invalidity or unenforceability of any
------------
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
SECTION 10.7 Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered, if delivered in person, by cable, telegram or telex,
or by telecopy, or five business days after mailing, if delivered by registered
or certified mail (postage prepaid, return receipt requested), to the respective
parties as follows:
if to Compass:
D. Paul Jones, Jr.
Chairman and Chief Executive Officer
Compass Bancshares, Inc.
15 South 20th Street
Birmingham, Alabama 35233
Telecopy No.: (205) 933-3043
Charles E. McMahen
Chairman and Chief Executive Officer
Compass Banks of Texas, Inc.
24 Greenway Plaza
Houston, Texas 72046
Telecopy No.: (713) 993-8500
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<PAGE>
with copies to:
Jerry W. Powell
General Counsel
Compass Bancshares, Inc.
15 South 20th Street
Birmingham, Alabama 35233
Telecopy No.: (205) 933-3043
Gene G. Lewis
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
3300 Texas Commerce Tower
Houston, Texas 77002
Telecopy No.: (713) 223-3717
if to the Company:
Frank S. Goldberg
Chairman of the Board
Security Bank, N.A.
1800 West Loop South, Suite 100
Houston, Texas 77027
Telecopy No.: (713) 623-8923
with a copy to:
Irwin M. Barg, P.C.
Schlanger, Mills, Mayer & Grossberg, L.L.P.
5847 San Felipe, Suite 1700
Houston, Texas 77057
Telecopy No.: (713) 785-2091
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
SECTION 10.8 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Texas, regardless of the
laws that might otherwise govern under applicable principles of conflicts of
laws thereof, except to the extent that federal law governs aspects of the
Merger.
88
<PAGE>
SECTION 10.9 Descriptive Headings. The descriptive headings are inserted
--------------------
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
SECTION 10.10 Parties in Interest. This Agreement shall be binding upon
-------------------
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
SECTION 10.11 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 10.12 Incorporation by References. Any and all schedules,
---------------------------
exhibits, annexes, statements, reports, certificates or other documents or
instruments referred to herein or attached hereto are incorporated herein by
reference hereto as though fully set forth at the point referred to in the
Agreement. Any information set forth on one Schedule of a party shall be deemed
to be set forth on all Schedules of such party.
SECTION 10.13 Certain Definitions.
-------------------
(a) "Subsidiary" shall mean, when used with reference to an entity, any
corporation, a majority of the outstanding voting securities of which are owned
directly or indirectly by such entity or any partnership, joint venture or other
enterprise in which any entity has, directly or indirectly, any equity interest.
89
<PAGE>
(b) "Material Adverse Effect" shall mean any material adverse change in
the financial condition, assets, liabilities (absolute, accrued, contingent or
otherwise), reserves, business or results of operations of the Bank taken as a
whole (or when the reference is to Compass, to Compass and its Subsidiaries,
taken as a whole).
(c) "Environmental Laws" shall mean laws, including, without limitation,
federal, state or local laws, ordinances, rules, regulations, interpretations
and orders of courts or administrative agencies or authorities relating to
pollution or protection of the environment (including, without limitation,
ambient air, surface water, ground water, land surface, and subsurface strata),
including, without limitation, the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1987, as amended ("SARA"), the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"), Hazardous and Solid
Waste Amendments of 1984, as amended ("HSWA"), the Hazardous Materials
Transportation Act, as amended ("HMTA"), the Toxic Substance Control Act
("TSCA"), National Emissions Standard for Hazardous Pollutants ("NESHAP"),
Occupational Safety and Health Act ("OSHA"), Federal Water Pollution Control
Act, Clean Air Act, and other laws relating to pollution or protection of the
environment, or to the manufacture, processing, distribution, use, treatment,
handling, storage, disposal or transportation of Polluting Substances.
90
<PAGE>
(d) "Polluting Substances" shall mean (a) asbestos, (b) oil and gasoline
products or wastes, and (c) all pollutants, contaminants, chemicals, or
industrial, toxic or hazardous substances or wastes and shall include, without
limitation, any flammable explosives, radioactive materials, oil, hazardous
materials, hazardous or solid wastes, hazardous or toxic substances or regulated
materials defined in CERCLA, SARA, RCRA, HSWA, HMTA, TSCA, OSHA, NESHAP and/or
any other Environmental Laws, as amended, and in the regulations adopted and
publications promulgated thereto; provided to the extent that the laws of the
State of Texas establish a meaning for "hazardous substance," "hazardous waste,"
"hazardous materials," "solid waste," or "toxic substance," which is broader
than that specified in any of CERCLA, SARA, RCRA, HSWA, HMTA, TSCA, OSHA or
other Environmental Laws such broader meaning shall apply.
(e) "Knowledge" or "known" -- An individual shall be deemed to have
"knowledge" of or to have "known" a particular fact or other matter if (i) such
individual is actually aware of such fact or other matter, or (ii) an ordinary
prudent individual acting under similar circumstances could reasonably be
expected to be aware of such fact or other matter. A corporation or bank shall
be deemed to have "knowledge" of or to have "known" a particular fact or other
matter if any individual who is currently serving as a director or senior vice
president or higher ranking officer ("Senior Officer") of the corporation or
bank who devoted substantive attention to matters of such nature during the
ordinary
91
<PAGE>
course of his position or employment with such corporation or bank, has, or at
any time had, knowledge of such fact or other matter. The Bank is understood to
have made inquiry of its directors and Senior Officers in connection with the
transactions contemplated hereby to determine the existence or absence of facts
or other matters in the statements qualified as "known" by, or to the
"knowledge" of, the Bank.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
day and year first above written.
ATTEST: COMPASS BANCSHARES, INC.
By JERRY W.POWELL By GARRETT R. HEGEL
--------------------- -----------------------------------
Secretary Its Senior Vice President and Chief
Financial Officer
ATTEST: SECURITY BANK, N.A.
By LISA BOWDOIN By FRANK S. GOLDBERG
--------------------- ----------------------------------
Secretary Its Chairman
92
<PAGE>
SCHEDULE 4.2
None.
<PAGE>
EXHIBIT A
---------
POOLING TRANSFER RESTRICTIONS AGREEMENT
---------------------------------------
This Pooling Transfer Restrictions Agreement (this "Agreement") is executed
and delivered this ______ day of ______________, 1993 by and between Compass
Bancshares, Inc. ("Compass"), Security Bank, N.A. (the "Bank") and the
undersigned shareholder of the Bank (the "Shareholder").
WHEREAS, Compass and the Bank entered into an Agreement and Plan of Merger
dated November ____, 1993 ("Merger Agreement") pursuant to which the Bank will
be merged with and into a subsidiary of Compass to be formed (the "Merger"), and
WHEREAS, Compass has required as a condition to entering into the Merger
Agreement that the Bank and the Shareholder and each other affiliate of the Bank
deliver to Compass an agreement in substantially the form hereof,
NOW, THEREFORE, in consideration of Compass's agreement to enter into the
Merger Agreement and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned, intending to be
legally bound, hereby agree as follows:
1. The Shareholder agrees that he will not sell, pledge, transfer or
otherwise dispose of any shares of the Bank's common stock, par value $5.00 per
share, Class A Convertible Preferred Stock, par value $12.25 per share, or Class
B Convertible Preferred Stock, par value $12.25 per share (collectively, "Bank
Stock"), within 30 days prior to the Effective Time (as defined in the Merger
Agreement). The Shareholder further agrees that until the publication of
financial results covering at least 30 days of post-Merger combined operations
of the Bank and Compass, he will not sell, pledge, transfer or otherwise dispose
of any shares of the Compass common stock, par value $2.00 per share ("Compass
Common Stock"), to be acquired by him in the Merger, except for pledges by the
Shareholder of all or part of such Shareholder's Compass Common Stock acquired
in the Merger to secure loans, provided the lender agrees to be bound by the
terms of this Agreement.
2. Compass agrees to publish financial results covering at least 30 days
of post-Merger combined operations of the Bank and Compass, and thereby cause
the expiration of the transfer restrictions described in Section 1, not later
than 20 days after the last day of the fiscal quarter ending at least 30 days
after the Effective Time (as defined in the Merger Agreement).
3. The Shareholder further acknowledges and agrees that he will be subject
to Rule 145 promulgated by the Securities and Exchange Commission under the
Securities Act, and agrees not to transfer any Compass Common Stock received by
him in the Merger except in compliance with the applicable provisions of the
<PAGE>
Securities Act, the Exchange Act, and the respective rules and regulations
thereunder.
4. The Shareholder agrees that the shares of Compass Common Stock to be
issued to him in the Merger will bear a restrictive transfer legend in
substantially the following form:
The shares represented by this certificate are subject to a Pooling
Transfer Restrictions Agreement dated __________________, 1993 which
restricts any sale or other transfer of such shares prior to [insert
appropriate date]. The issuer will furnish to the record holder of this
certificate, without charge, upon written request to the issuer at its
principal place of business, a copy of the Pooling Transfer Restrictions
Agreement.
Compass agrees to instruct its transfer agent to remove the restrictive legend
from any certificates evidencing shares subject hereto promptly following the
expiration of the transfer restrictions described in Section 1.
5. The Bank agrees and the Shareholder acknowledges and agrees that the
Bank will not permit the transfer of any shares of Bank Stock by the Shareholder
or any other Bank affiliate within 30 days prior to the Effective Time.
IN WITNESS WHEREOF, the undersigned set his hand effective as of the day
first written above.
COMPASS BANCSHARES, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
SECURITY BANK, N.A.
By:__________________________________
Name:________________________________
Title:_______________________________
_____________________________________
Signature of Shareholder
_____________________________________
Printed Name of Shareholder
2
<PAGE>
EXHIBIT B
EXCHANGE AGENT AGREEMENT
This Exchange Agent Agreement, dated as of _______________, 1994, is made
and entered into by and among Compass Bancshares, Inc., a Delaware corporation
("Compass"), Security Bank, N.A., a national banking association ("Bank"),
___________________, a Texas state bank ("Interim"), and River Oaks Trust
Company, a Texas trust company ("Exchange Agent").
PREAMBLE:
Pursuant to the Agreement and Plan of Merger dated as of November ____,
1993 ("Merger Agreement") by and between Compass and the Bank, as amended, the
Bank shall at the Effective Time be merged with and into Interim, with Interim
continuing as the surviving bank (the "Surviving Bank") after such merger.
After the Effective Time, the shares of the Common Stock, par value $5.00
per share ("Bank Common Stock"), Class A Convertible Preferred Stock, par value
$12.25 per share (the "Class A Preferred Stock"), and the Class B Convertible
Preferred Stock, par value $12.25 per share (the "Class B Preferred Stock") (the
Class A Preferred Stock and the Class B Preferred Stock are together called the
"Bank Preferred Stock" and Bank Common Stock and the Bank Preferred Stock are
collectively called the "Stock") issued and outstanding immediately prior to the
Effective Time (including for this purpose any shares of Stock which can be
acquired upon the exercise of any warrant, option, right, convertible debt
instrument or other security (other than the Bank Preferred Stock) pursuant to
which shares of Stock may be obtained (collectively, "Derivative Securities"))
of the Bank shall solely represent, in the aggregate, the right to payment by
Compass of total Merger Consideration of __________ shares of Compass common
stock, par value $2.00 per share ("Compass Common Stock") (or cash in lieu of
fractional shares), subject to the rights of qualified dissenting shareholders
of the Bank.
The Bank has requested Compass to designate the Exchange Agent in
connection with the exchange (the "Exchange") of shares of Stock for shares of
Compass Common Stock, subject to the terms and conditions hereof and of the
Merger Agreement. The Exchange Agent will receive Stock delivered for exchange
pursuant to the terms of the Merger Agreement, and will process such
certificates representing Stock ("Certificates") and related documents. Compass
desires that the Exchange Agent act in such capacity.
NOW THEREFORE, in consideration of the premises and of the mutual
agreements and covenants contained herein, and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties,
intending to be legally bound, hereby agree as follows:
<PAGE>
1. Appointment of Exchange Agent. River Oaks Trust Company is hereby
-----------------------------
appointed as the Exchange Agent for payment of the Merger Consideration to
shareholders of the Bank. Such appointment shall be in accordance with the terms
and conditions set forth herein.
2. Closing of Stock Transfer Books. At the Effective Time, the Bank's
-------------------------------
stock transfer books will be closed and no transfers shall be permitted.
3. Duties of Exchange Agent. The Exchange Agent is authorized and
------------------------
directed to perform the following functions contemplated by the Merger Agreement
and the Letter of Transmittal:
(a) Distribution of Letter of Transmittal. The Exchange Agent shall
-------------------------------------
mail to the holders of record of Stock, by first class United States mail,
postage prepaid, copies of Letters of Transmittal, including Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 in
substantially the forms attached hereto as Exhibits A, B and C ("Letters of
-------------------
Transmittal"), and return envelopes to the Exchange Agent, at the earliest
practicable time following the Effective Time. A form of Stock Assignment,
Power of Attorney and Lost Stock Certificate Affidavit will be provided to
the Exchange Agent by Compass for use by shareholders, if necessary.
(b) Acceptance of Certificates.
--------------------------
(i) The Exchange Agent will examine the Letters of Transmittal,
Certificates and other documents and instruments delivered to the Exchange
Agent by or on behalf of holders tendering Stock and shall determine
whether (i) the Letters of Transmittal have been completed and executed
properly, and are accompanied by proper evidence of authority, (ii)
Certificates corresponding to the names of the registered holders,
Certificate numbers and the number of shares represented thereby with the
information set forth in the Bank's shareholder and other records and which
appear to be in negotiable, good delivery form, properly endorsed or
accompanied by stock powers with transfer tax stamps or evidence of payment
or exemption from transfer taxes affixed (where required), and (iii)
signatures are guaranteed (where required), all in accordance with the
terms and conditions of the Merger Agreement and the Letters of
Transmittal. The Exchange Agent shall accept Certificates which are
surrendered in accordance with the provisions of the Merger Agreement and
accompanied by the executed Letters of Transmittal. Such Certificates and
Letters of Transmittal shall only be accepted by the Exchange Agent and
eligible for payment hereunder if they have been properly executed and
completed in accordance with the instructions contained in the Letters of
Transmittal and if the person or persons surrendering such Certificates
2
<PAGE>
and Letters of Transmittal appears as a shareholder of record of the number
of shares surrendered on the list of shareholders supplied and certified to
the Exchange Agent by the Bank ("Shareholder List") attached as Exhibit B
---------
hereto. In the event the Exchange Agent shall have any questions as to
whether a Certificate and Letters of Transmittal have been properly
executed and completed or whether the Certificates have been surrendered by
the holder of record thereof, the Exchange Agent shall promptly refer such
questions to Compass for resolution by Compass and the Exchange Agent shall
be able to rely on the written instructions and decisions of any officer of
Compass. Determination of all questions as to the proper completion or
execution of the Letters of Transmittal or as to the proper form for
transfer of the Certificates for Stock shall be made by Compass together
with its attorneys, and such other persons as Compass shall designate, and
such determinations shall be final and binding; provided, however, that the
rejection by Compass of any Letters of Transmittal or Certificates deemed
by Compass to be ineffective to transfer the Certificates shall not affect
the right of any shareholder in or to his respective share of the Merger
Consideration;
(ii) If any defect or irregularity appears to exist in connection
with a purported tender, the Exchange Agent will notify promptly the
persons by whom the tender was made and will return all documents delivered
in connection therewith or take such action as is necessary or advisable to
cause such defect or irregularity to be cured;
(iii) Tenders may be made only as set forth in the Letters of
Transmittal;
(iv) Letters of Transmittal, and facsimiles thereof submitted to the
Exchange Agent, shall be marked by the Exchange Agent's designated officers
to show the date and time of receipt and their review and acceptance
thereof;
(v) At the close of business each Friday, the Exchange Agent shall
provide Compass and First National Bank of Boston, Compass's transfer agent
and registrar ("Transfer Agent") with a list of shareholders who have
properly tendered their Stock. In addition, the Exchange Agent shall inform
Compass in writing of the number of shares of Stock which have been
properly tendered and the number which have been improperly tendered to the
Exchange Agent during the week then ended and on a cumulative basis through
that day. The Exchange Agent
3
<PAGE>
shall provide Compass such other information concerning the Stock as it may
reasonably request. Such communications should be sent to:
Compass Bancshares, Inc.
701 South 20th Street
Birmingham, Alabama 35233
Attn: Michael A. Bean
Telephone No. (205) 558-5740
With a copy to: First National Bank of Boston
Post Office Box 1865
Boston, Massachusetts 02105
Attn: Caroline Rees, Shareholder
Services Officer
Telephone No. (617) 575-2571
(c) Exchange Fund. In order to provide for payment of the Merger
-------------
Consideration in accordance with the terms of the Merger Agreement, from
time to time prior to or after the Effective Time Compass shall deposit or
cause to be deposited with the Exchange Agent cash in an amount sufficient
to make payments in lieu of fractional shares (the "Exchange Fund"). This
Exchange Fund shall not be used for any purpose except as provided by this
Agreement.
(d) Compass Common Stock. Immediately prior to the Effective Time
--------------------
Interim and the Bank shall jointly advise the Exchange Agent as to the
number of shares of Compass Common Stock to be distributed to each
shareholder, which shall be calculated by Interim and the Bank as follows:
(i) Bank Common Stock. Each holder of Bank Common Stock shall
-----------------
receive Merger Consideration equal to ___________ shares of Compass Common
Stock for each share of Bank Common Stock held immediately prior to the
Effective Time.
(ii) Class A Preferred Stock. Each holder of Class A Preferred Stock
-----------------------
shall receive Merger Consideration equal to ________ shares of Compass
Common Stock for each share of Class A Preferred Stock held immediately
prior to the Effective Time.
(iii) Class B Preferred Stock. Each holder of Class B Preferred
-----------------------
Stock shall receive Merger Consideration equal to ________ shares of
Compass Common Stock for each share of Class B Preferred Stock held
immediately prior to the Effective Time.
(iv) Fractional Shares. For each fractional share of Compass Common
-----------------
Stock which would be delivered upon the surrender of Stock, each holder of
Stock shall receive cash in
4
<PAGE>
an amount equal to the product of such fraction and $_____________.
As soon as practicable after acceptance of properly executed
Certificates and accompanying Letters of Transmittal in accordance with the
terms of paragraph 3(b) hereof, the Exchange Agent shall instruct and
Compass shall cause the Transfer Agent to issue and mail certificates
representing shares of Compass Common Stock to the shareholder surrendering
such certificates. The Exchange Agent shall promptly make the payments in
lieu of fractional shares out of the Exchange Fund upon proper surrender of
the Certificates.
(e) Other Duties of Exchange Agent.
------------------------------
(i) The Exchange Agent shall have no obligation to make payment for
surrendered Certificates unless Compass shall have issued sufficient
Compass Common Stock or caused such stock to be issued and shall have
deposited or caused to be deposited in the Exchange Fund sufficient cash
with which to pay all amounts due and payable for such shares.
(ii) The Exchange Agent shall be regarded as having made no
representations or warranties as to the validity, sufficiency, value or
genuineness of any Certificates or the shares of Stock represented thereby,
and the Exchange Agent shall not be deemed to have made any representations
as to the value of such shares.
(iii) The Exchange Agent may rely on and shall be protected in acting
upon the written instructions of any officer of Compass or the Surviving
Bank with respect to any matter relating to its actions or duties
hereunder; and the Exchange Agent shall be entitled to request further
instructions from Compass or the Surviving Bank, as appropriate, and to act
in accordance therewith.
(iv) The Exchange Agent may consult attorneys satisfactory to the
Exchange Agent (including, without limitation, attorneys for Compass or the
Surviving Bank) and the written advice and opinion of such attorneys shall
constitute full and complete authorization and protection in respect of any
action taken, suffered or omitted by it hereunder in good faith and in
accordance with such advice or opinion.
(v) The Exchange Agent shall take all other actions which it or
Compass deems necessary or appropriate under the terms of the Merger
Agreement, the Letters of Transmittal and under the customs and practices
normally applied to transactions of this type and appropriate to the proper
transfer of the Stock and the proper maintenance of the Bank's
5
<PAGE>
and Compass's shareholder books and records. Following payment in
accordance with the terms hereof, the Exchange Agent shall forward to
Compass all documents received by it in connection with tenders of
Certificates (including Letters of Transmittal, telegrams, facsimile
transmissions or letters representing tenders made without concurrent
deposit of certificates) and the tendered Certificates prominently marked
"CANCELLED" on the front thereof, via nationally recognized overnight
courier or other means acceptable to Compass.
5. Alteration of Instructions. The Exchange Agent shall follow and act
--------------------------
upon any written amendments, modifications or supplements to these instructions
and upon any further instructions from Compass or the Surviving Bank in
connection with the Merger Agreement or any of the transactions contemplated
thereby.
6. Indemnification of Exchange Agent. Compass and the Surviving Bank
---------------------------------
covenant and agree to indemnify the Exchange Agent and hold it harmless against
any loss, liability or expense it may incur in the absence of negligence or bad
faith on the part of the Exchange Agent arising out of or in connection with the
administration of its duties hereunder, including but not limited to legal fees
and other costs and expenses of defending or preparing to defend against any
claim or liabilities in connection with this Agreement.
7. Compensation for Services. Compass shall compensate the Exchange
-------------------------
Agent for its services hereunder.
8. Payment of Amounts Due Dissenting Shareholders. In the event that
----------------------------------------------
qualified dissenting shareholders of the Bank exercise the rights afforded them
under Title 12, United States Code, Section 214a(b), such shareholders may be
entitled to payment of an amount other than the Merger Consideration. Any
payment for shares other than the Merger Consideration will be paid only upon
the written instructions of the Surviving Bank. The Exchange Agent may request
and shall be provided additional funds from the Surviving Bank in order to make
any required payment to dissenting shareholders, and the Exchange Agent shall
return to Compass any Merger Consideration which would have otherwise been
payable to such persons. The Exchange Agent shall rely on the instructions of
the Surviving Bank as to all matters covered by this paragraph, including,
without limitation, the time and amount of payment to dissenting shareholders.
9. Unclaimed Funds. Any moneys or certificates deposited hereunder which
---------------
shall remain unclaimed by the holders of shares of Stock for a period of six (6)
months following the Effective Time shall, upon written request of Compass or
the Surviving Bank, be returned to Compass, plus interest earned on the cash
portion thereof and the shareholders of Certificates not theretofore presented
to and accepted by the Exchange Agent shall look to
6
<PAGE>
Compass only, and not the Exchange Agent, for the payment of any Merger
Consideration in respect of such Certificates.
10. Investment of Exchange Fund. At the direction of the Surviving Bank,
---------------------------
the Exchange Agent shall invest portions of the Exchange Fund and remit earnings
thereon monthly to the Surviving Bank, provided that all such investments shall
be in The Starburst Government Money Market Fund (the "Fund"), managed by
Compass Bank, an Alabama banking corporation and an affiliate of Compass, or if
for any reason the Fund is not available to the Exchange Agent as an investment
alternative, as otherwise directed by the Surviving Bank.
11. Amendment. Except as otherwise expressly provided herein, neither
---------
this Agreement nor any provision hereof may be amended, modified, waived,
discharged or terminated except in a writing signed by all of the parties hereto
prior to the Effective Time or by Compass and the Exchange Agent after the
Effective Time; provided, however, that no amendment shall be made if such
modification shall reduce the amount of or eliminate the opportunity of any
shareholder to receive his share of the Merger Consideration contemplated by the
Merger Agreement.
12. Section Headings. The section headings used herein are for convenience
----------------
of reference only and shall not define or limit the provisions of this
Agreement.
13. GOVERNING LAW. THIS AGREEMENT AND THE APPOINTMENT OF THE EXCHANGE
-------------
AGENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF TEXAS AND SHALL INURE TO THE BENEFIT OF AND BE BINDING UPON THE SUCCESSORS
AND ASSIGNS OF THE PARTIES HERETO.
14. Notices. Notices under this Agreement shall be deemed given if made
-------
in writing and sent via prepaid first-class United States mail, or by nationally
recognized overnight courier, to:
If to Compass:
Compass Bancshares, Inc.
701 South 20th Street
Birmingham, Alabama 35233
Attn: Jerry W. Powell,
General Counsel
7
<PAGE>
If to the Exchange Agent:
River Oaks Trust Company
2001 Kirby Drive
Houston, Texas 77219
Attn: Thomas J. Radigan, Jr.
Senior Vice President
and Secretary
If to the Bank:
Security Bank, N.A.
1800 West Loop South, Suite 100
Houston, Texas 77027
Attn: Mr. Frank S. Goldberg
If to Interim or, following
the Effective Time, the
Surviving Bank:
_______________________________
c/o Compass Bank
24 Greenway Plaza
Houston, Texas 77046
Attn: Charles E. McMahen
15. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16. Conflict. In the event the terms of this Agreement conflict with the
--------
terms and provisions of the Merger Agreement, the terms and provisions of the
Merger Agreement shall be controlling.
17. Defined Terms. Capitalized terms not defined herein have the meanings
-------------
ascribed to them in the Merger Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized appointed officers on the date first written
above.
COMPASS BANCSHARES, INC.
By:_____________________________
Name:___________________________
Title:__________________________
8
<PAGE>
SECURITY BANK, N.A.
By:_____________________________
Name:___________________________
Title:__________________________
________________________________
By:_____________________________
Name:___________________________
Title:__________________________
RIVER OAKS TRUST COMPANY
By:_____________________________
Name:___________________________
Title:__________________________
9
<PAGE>
EXHIBIT "A"
LETTER OF TRANSMITTAL
For Shares of Common Stock of
SECURITY BANK, N.A.
Delivered Pursuant to the Agreement and Plan of Merger
dated as of November ____, 1993
By Mail or Overnight Delivery Service:
River Oaks Trust Company
6990 Portwest, Suite 170
Houston, Texas 77024
Attention: Mr. Stephen K. Brownlow
DO NOT HAND DELIVER
DESCRIPTION OF SHARES SURRENDERED
---------------------------------
Based on its stock transfer records, Security Bank, N.A. (the "Bank")
has listed below your name, address and the certificate numbers representing
your shares of Common Stock, par value $5.00 per share ("Shares"), of the Bank.
If any of the listed information appears to be incorrect, please notify Mr.
Stephen K. Brownlow at (713) 867-1101 at once.
<TABLE>
<CAPTION>
==========================================================================
Name, Address and Social Security
Number of Registered Holders Certificate(s) Surrendered
- --------------------------------------------------------------------------
Total Number of
Certificate Shares Represented
Number(s) by Certificate(s)
<S> <C> <C>
_______________________________ ____________ _________________
Name ____________ _________________
____________ _________________
_______________________________
_______________________________
Address
_______________________________ Total Shares _________________
Social Security Number
==========================================================================
</TABLE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Gentlemen:
I, as the registered holder of the above described Shares of the Bank,
hereby tender to Compass Bancshares, Inc. ("Compass"), such Shares pursuant to
the Agreement and Plan of Merger dated as of November _____, 1993, as amended
("the Merger Agreement"), by and between Compass and the Bank. I hereby
acknowledge receipt of the Proxy Statement dated _________________, 199__, which
described the merger ("Merger") provided by the Merger Agreement.
I represent and warrant to Compass that I am the true and lawful owner
of the Shares, and have full capacity, power and authority to exchange the
Shares, free and clear of all liens, restrictions and encumbrances of any kind
whatsoever, and the Shares will not be subject to any adverse claim. I
understand that River Oaks Trust Company, as Exchange Agent for this exchange,
may require additional documentation, and I agree, upon request, to execute and
deliver any additional documents or instruments deemed by the Exchange Agent or
Compass reasonably necessary to complete the exchange of the Shares.
<PAGE>
The authority conferred in this Letter of Transmittal shall not be
affected by, and shall survive, my death or incapacity, and any obligation I may
have hereunder shall be binding upon my successors, assigns, heirs, executors,
administrators, trustees in bankruptcy and personal and legal representatives.
I acknowledge that the tender of my Shares is irrevocable.
INSTRUCTIONS REGARDING ISSUANCE OF SHARES
If you wish to have the shares of Compass Common Stock to be issued
pursuant to the Merger Agreement in the name and at the address set forth above,
please sign and date this letter on page 3. If you wish to have the shares of
Compass Common Stock to be issued pursuant to the Merger Agreement in a name or
to an address other than the name and address specified above, please complete
the following section. You will be required to pay any transfer or other taxes
required by reason of the payment and delivery of Compass Common Stock to such
other person.
NEW CERTIFICATES TO BE ISSUED
IN A DIFFERENT NAME OR TO A DIFFERENT ADDRESS
If you are entitled to receive shares of Compass Common Stock and wish
to have certificates representing Compass Common Stock issued in a name or to an
address other than the name or address shown on your Bank stock certificates,
please indicate the name and address of your assignee below:
Name and Address of Assignee
----------------------------
Name:______________________________________ Taxpayer I.D. No. or
(Type or print full name) Social Security No.:_______________
Address:________________________________________________________________________
City, State, Zip Code:__________________________________________________________
-2-
<PAGE>
PLEASE SIGN AND DATE BELOW AS INDICATED
THEN PLEASE COMPLETE SUBSTITUTE FORM W-9
Signatures _________________________________
_________________________________
Dated _________________________, 1994
Name(s) _____________________________________________________________
(Please Print)
Capacity _________________________________
(Full Title)
Address _________________________________
_________________________________
(Include Zip Code)
Area Code and Telephone Number _____________________________
Tax Identification or Social Security Number _____________________________
_______________________________________________________________________________
GUARANTEE OF SIGNATURES
(Must be signed by registered holder(s) as name(s) appear on the certificate(s)
or by person(s) authorized to become registered holder(s) by certificate(s) and
documents transmitted. If signing is by an officer or a corporation, or by an
attorney, executor, administrator, trustee, guardian, agent or other person
acting in a fiduciary or representative capacity, please set forth full title.
See Instruction 1).
- -----------------
Authorized Signature __________________________________
Name __________________________________
(Please Print)
Title __________________________________
Name of Firm __________________________________
Address __________________________________
__________________________________
(Include Zip Code)
Area Code and Telephone Number __________________
Dated ____________________________, 1994
_______________________________________________________________________________
PLEASE COMPLETE SUBSTITUTE FORM W-9
IT IS THE LAST FORM IN THIS PACKAGE
_______________________________________________________________________________
DO NOT WRITE IN SPACE BELOW
Date Received:________________ By:________________ Date:______________________
<TABLE>
<CAPTION>
=============================================================================================
Bank Compass No. of
Shares Share Accepted Stock Certificate Fractional Cash Check
Surrendered for Exchange Certificate Nos. No. issued Shares Paid No.
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
=============================================================================================
</TABLE>
Accepted by:_______________ Checked By:_______________ Date:______________, 1994
-3-
<PAGE>
LETTER OF TRANSMITTAL
INSTRUCTIONS
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; SIGNATURE
GUARANTEES. Please send all certificates for Shares to River Oaks Trust
Company, as Exchange Agent (the "Exchange Agent"), with the Letter of
Transmittal, or a facsimile thereof, fully completed and signed by you, the
registered holder(s). Compass retains the right to require that a signature on
the Letter of Transmittal and the Share certificates be guaranteed by an
Eligible Institution. An Eligible Institution is a member of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc. (the "NASD") or a commercial bank or trust company having an
office, branch or agency located in the United States. If Compass wishes to
have your signature guaranteed by an Eligible Institution, you will be notified
by separate letter.
If certificates are registered in the name of a person other than you,
the certificate(s) must be duly endorsed or accompanied by stock powers signed
by the registered holder and the Letter of Transmittal. If the Letter of
Transmittal is executed by an officer on behalf of a corporation or by an
executor, administrator, trustee, guardian, attorney, agent or other person
acting in a fiduciary or representative capacity, the Exchange Agent reserves
the right to require that proper documentary evidence of the authority of the
person executing the Letter of Transmittal. If the tendered certificates are
owned of record by two or more joint owners, each of you must sign the Letter of
Transmittal. Questions regarding such evidence of authority may be referred to
Mr. Stephen K. Brownlow, a representative of the Exchange Agent, at (713)
867-1101.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES, THE LETTER OF TRANSMITTAL AND
ANY OTHER REQUIRED DOCUMENTS IS AT YOUR OPTION AND RISK. IF DELIVERY IS BY
MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
STRONGLY RECOMMENDED.
2. ISSUANCE OF COMPASS COMMON STOCK. You will receive the Compass
Common Stock for your Shares only after receipt and acceptance by the Exchange
Agent and Compass of all of the certificates representing your Shares, a
properly completed and executed Letter of Transmittal, and any other required
documents and upon processing of the documents by the Exchange Agent.
3. PAYMENT FOR FRACTIONAL SHARES. As provided in Section 1.6(c) of the
Merger Agreement, Compass will not issue any certificates of Compass Common
Stock for fractional shares. In lieu of issuing fractional shares, Compass will
pay to any Bank shareholder entitled to receive a fractional share of Compass
Common Stock, a cash payment based on a price of $_______ per share.
4. NO CONDITIONAL TENDERS; WAIVER OF NOTICE. No alternative,
conditional, irregular or contingent deliveries of Shares will be accepted. By
execution of the Letter of Transmittal or any manually signed facsimile thereof,
you waive any rights to receive any notice of the acceptance of your Shares for
exchange.
5. SIGNATURES ON LETTER OF TRANSMITTAL. In order for the Letter of
Transmittal to be properly signed by you, the signature must correspond exactly
with the name(s) as written on the face of the certificate(s).
If the Shares tendered hereby are owned of record by two or more joint
owners, all of you must sign the Letter of Transmittal.
If your Shares are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of certificates.
If the certificate(s) representing the Shares transmitted hereby are
registered in your name and the Letter of Transmittal is properly signed by you,
no endorsements of certificates or separate stock powers are required. In all
other cases, the certificate(s) representing the Shares transmitted hereby must
be endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered holder(s) appear on the certificate(s),
and if required, signature(s) on such certificate(s) or stock power(s) must be
guaranteed by an Eligible Institution.
If the Letter of Transmittal or any certificate or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of corporation or other acting in a fiduciary or representative
capacity, such person should so indicate when signing, and the Exchange Agent
reserves the right to require proper evidence of their authority to so act.
6. IRREGULARITIES. All questions as to the validity, form, eligibility,
acceptance of and delivery of Shares and the issuance of Compass Common Stock
and the payment of cash in lieu of fractional shares will be determined by
Compass, which determination shall be final and binding. Compass reserves the
absolute right to reject any or all tenders determined by Compass not to be in
appropriate form or which would, in the opinion of Compass's counsel, be
unlawful. Compass also reserves the absolute right in its sole discretion, to
waive any of the conditions hereof, or any defect in any tender with respect to
any particular Shares of any particular shareholder, and Compass's
interpretations of the terms and conditions of the Merger Agreement and these
instructions shall be
-4-
<PAGE>
final and binding. The Exchange Agent and Compass shall not be obligated to
give notice of defects or irregularities in tenders, nor shall they incur any
liability for failure to give any such notice. Tenders will be deemed not to
have been made until all defects and irregularities have been cured or waived.
7. 20% BACKUP WITHHOLDING. Under the Federal income tax law, you must
provide Compass with a correct taxpayer identification number ("TIN") unless an
exemption applies. If the correct TIN is not provided, a $50 penalty may be
imposed upon you by the Internal Revenue Service and you will be subject to
backup withholding of 20% of the payments to be received by you.
8. REQUEST FOR ASSISTANCE OF ADDITIONAL COPIES. Questions and requests
for assistance or additional copies of the Letter of Transmittal may be directed
to the Exchange Agent at the addresses set forth at the top of page 1.
IMPORTANT TAX INFORMATION
Under the Federal income tax law, you are to provide Compass (as payer)
with a correct taxpayer identification number on Substitute Form W-9 below. If
Compass is not provided with the correct taxpayer identification number, you may
be subject to a $50 penalty imposed by the Internal Revenue Service. In
addition, all payments that are made to you with respect to Shares (including
any cash payable to you under the Merger Agreement in lieu of fractional shares)
may be subject to backup withholding.
Exempt shareholders (including among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. Nonetheless, exempt shareholders should complete the
Substitute Form W-9 below and so indicate their exempt status by writing
"exempt" across the face of the Substitute Form W-9. In order for a foreign
individual to qualify as an exempt recipient, that shareholder must submit a
statement, signed under penalties of perjury, attesting to that individual's
exempt status. Such statements can be obtained from the Exchange Agent. See
the enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional information.
If backup withholding applies, Compass is required to withhold 20% of
any payments made to the shareholder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be obtained.
Purpose of Substitute Form W-9
To prevent backup withholding on payments that are made to you with
respect to shares of Compass Common Stock acquired as a result of the Merger or
with respect to cash payments, if any, receivable in lieu of fractional shares
pursuant to the Merger Agreement, you are required to notify Compass of your
correct taxpayer identification number by completing the form below certifying
that the taxpayer identification number provided on Substitute Form W-9 is
correct (or that you are awaiting a taxpayer identification number).
What Number to Give
As the record owner of the Shares, you are required to give Compass your
Social Security Number or Employer Identification Number. If the Shares are in
more than one name or are not in the name of the actual owners, consult the
enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional guidelines on which number to report.
-5-
<PAGE>
SUBSTITUTE FORM W-9
Department of the Treasury
Internal Revenue Service
Taxpayer Identification Number
PART 1 - PLEASE PROVIDE YOUR TAXPAYER IDENTIFICATION - -
NUMBER IN THE BOX AT RIGHT AND CERTIFY BY Social Security Number or
SIGNING AND DATING BELOW Employer Identification
Number
PART 2 - Check the following box if you are NOT subject to backup - -
withholding under the provisions of Section 3406(a)(1)(C)
of the Internal Revenue Code because (1) you have not been
notified that you are subject to backup withholding as a
result of failure to report all interest or dividends or
(2)the Internal Revenue Service has notified you that you
are no longer subject to backup withholding.
PART 3 - Check the following box if you are awaiting a Taxpayer - -
Identification Number.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
By checking the box in Part 3, I certify under penalties of perjury that a
taxpayer identification number has not been issued to me, and either (a) I have
mailed or delivered an application to receive a taxpayer identification number
to the appropriate Internal Revenue Service Center or Social Security
Administration Office, or (b) I intend to mail or deliver an application in the
near future. I understand that if I do not provide a taxpayer identification
number within sixty (60) days, 20% of all reportable payments made to me
thereafter will be withheld until I provide a number.
CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT THE INFORMATION
PROVIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE.
Signature: _____________________________ Date: ________________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 20% OF ANY PAYMENTS MADE TO YOU. PLEASE REVIEW THE ENCLOSED GUIDELINES
FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
FOR ADDITIONAL DETAILS.
________________________________________________________________________________
-6-
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.---Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------- ----------------------------------------------------------
GIVE THE SOCIAL GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: SECURITY NUMBER FOR THIS TYPE OF IDENTIFICATION
OF ---- ACCOUNT: NUMBER OF ----
- --------------------------------------------------------------------- ----------------------------------------------------------
<S> <C> <C> <C>
1. An individual's account The individual 9.A valid trust, The legal entity
estate, or (Do not furnish the
2. Two or more individuals (joint The actual owner of the pension trust identifying number
account) account or, if combined of the personal
funds, any one of the representative or
individuals (1) trustee unless the
legal entity itself
3. Husband and wife (joint The actual owner of the is not designated
account) account or, if joint in the account
funds, either person(1) title.) (5)
4. Custodian account of a minor The minor(2) 10. Corporate The corporation
(Uniform Gift to Minors Act) account
5. Adult and minor (joint The adult or, if the 11. Religious, The organization
account) minor is the only charitable, or
contributor, the educational
minor(1) organization
account The partnership
12. Partnership
account held in
the name of the
business
6. Account in the name of The ward, minor, or 13. Association, The organization
guardian or committee for a incompetent person (3) club, or other
designated ward, minor, or tax-exempt
incompetent person organization
7. a The usual revocable savings The grantor-trustee(1) 14. A broker or The broker or
trust account (grantor is registered nominee
also trustee) nominee
b So-called trust account that The actual owner(1) 15. Account with The public entity
is not a legal or valid trust the
under State law Department of
Agriculture
8. Sole proprietorship account The owner(4) in the name of a
public
entity (such as a
State or
local government,
school
district, or
prison) that
receives
agricultural
program payments
- --------------------------------------------------------------------- ----------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
Note: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
-7-
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a), or an individual
retirement plan.
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government, or any
agency or instrumentality thereof.
. An international organization or any agency, or instrumentality thereof.
. A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a).
. An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
. An entity registered at all times under the Investment Company Act of 1940.
. A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid in
the course of the payer's trade or business and you have not provided your
correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
. Payments described in section 6049(b)(5) to nonresident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER. WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045 and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend, interest
or other payments to give taxpayer identification numbers to payers who must
report the payments to the IRS. The IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1984, payers must generally
withhold 20% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDINGS.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE
-8-
<PAGE>
EXHIBIT "B"
LETTER OF TRANSMITTAL
For Shares of Class A Convertible Preferred Stock,
SECURITY BANK, N.A.
Delivered Pursuant to the Agreement and Plan of Merger
dated as of November ____, 1993
By Mail or Overnight Delivery Service:
River Oaks Trust Company
6990 Portwest, Suite 170
Houston, Texas 77024
Attention: Mr. Stephen K. Brownlow
DO NOT HAND DELIVER
DESCRIPTION OF SHARES SURRENDERED
---------------------------------
Based on its stock transfer records, Security Bank, N.A. (the "Bank") has
listed below your name, address and the certificate numbers representing your
shares of Class A Convertible Preferred Stock, par value $12.25 per share
("Shares"), of the Bank. If any of the listed information appears to be
incorrect, please notify Mr. Stephen K. Brownlow at (713) 867-1101 at once.
<TABLE>
<CAPTION>
================================================================================
Name, Address and Social Security
Number of Registered Holders Certificate(s) Surrendered
- --------------------------------------------------------------------------------
Total Number of
Certificate Shares Represented
Number(s) by Certificate(s)
<S> <C> <C>
_______________________________ ____________ ___________________
Name ____________ ___________________
____________ ___________________
_______________________________
_______________________________
Address
_______________________________ Total Shares ___________________
Social Security Number
================================================================================
</TABLE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Gentlemen:
I, as the registered holder of the above described Shares of the Bank,
hereby tender to Compass Bancshares, Inc. ("Compass"), such Shares pursuant to
the Agreement and Plan of Merger dated as of November _____, 1993, as amended
("the Merger Agreement"), by and between Compass and the Bank. I hereby
acknowledge receipt of the Proxy Statement dated _________________, 199__, which
described the merger ("Merger") provided by the Merger Agreement.
I represent and warrant to Compass that I am the true and lawful owner of
the Shares, and have full capacity, power and authority to exchange the Shares,
free and clear of all liens, restrictions and encumbrances of any kind
whatsoever, and the Shares will not be subject to any adverse claim. I
understand that River Oaks Trust Company, as Exchange Agent for this exchange,
may require additional documentation, and I agree, upon request, to execute and
deliver any additional documents or instruments deemed by the Exchange Agent or
Compass reasonably necessary to complete the exchange of the Shares.
<PAGE>
The authority conferred in this Letter of Transmittal shall not be affected
by, and shall survive, my death or incapacity, and any obligation I may have
hereunder shall be binding upon my successors, assigns, heirs, executors,
administrators, trustees in bankruptcy and personal and legal representatives.
I acknowledge that the tender of my Shares is irrevocable.
INSTRUCTIONS REGARDING ISSUANCE OF SHARES
If you wish to have the shares of Compass Common Stock to be issued
pursuant to the Merger Agreement in the name and at the address set forth above,
please sign and date this letter on page 3. If you wish to have the shares of
Compass Common Stock to be issued pursuant to the Merger Agreement in a name or
to an address other than the name and address specified above, please complete
the following section. You will be required to pay any transfer or other taxes
required by reason of the payment and delivery of Compass Common Stock to such
other person.
NEW CERTIFICATES TO BE ISSUED
IN A DIFFERENT NAME OR TO A DIFFERENT ADDRESS
If you are entitled to receive shares of Compass Common Stock and wish to
have certificates representing Compass Common Stock issued in a name or to an
address other than the name or address shown on your Bank stock certificates,
please indicate the name and address of your assignee below:
Name and Address of Assignee
----------------------------
Name:______________________________________ Taxpayer I.D. No. or
(Type or print full name) Social Security No.:_______________
Address:________________________________________________________________________
City, State, Zip Code:__________________________________________________________
-2-
<PAGE>
PLEASE SIGN AND DATE BELOW AS INDICATED
THEN PLEASE COMPLETE SUBSTITUTE FORM W-9
Signatures _________________________________
_________________________________
Dated _________________________, 1994
Name(s) _____________________________________________________________
(Please Print)
Capacity _________________________________
(Full Title)
Address _________________________________
_________________________________
(Include Zip Code)
Area Code and Telephone Number _____________________________
Tax Identification or Social Security Number _____________________________
_______________________________________________________________________________
GUARANTEE OF SIGNATURES
(Must be signed by registered holder(s) as name(s) appear on the certificate(s)
or by person(s) authorized to become registered holder(s) by certificate(s) and
documents transmitted. If signing is by an officer or a corporation, or by an
attorney, executor, administrator, trustee, guardian, agent or other person
acting in a fiduciary or representative capacity, please set forth full title.
See Instruction 1).
- -----------------
Authorized Signature __________________________________
Name __________________________________
(Please Print)
Title __________________________________
Name of Firm __________________________________
Address __________________________________
__________________________________
(Include Zip Code)
Area Code and
Telephone Number __________________________________
Dated ____________________________, 1994
_______________________________________________________________________________
PLEASE COMPLETE SUBSTITUTE FORM W-9
IT IS THE LAST FORM IN THIS PACKAGE
_______________________________________________________________________________
DO NOT WRITE IN SPACE BELOW
Date Received:__________________ By:_________________ Date:___________________
<TABLE>
<CAPTION>
Bank Compass No. of
Shares Share Accepted Stock Certificate Fractional Cash Check
Surrendered for Exchange Certificate Nos. No. issued Shares Paid No.
<S> <C> <C> <C> <C> <C> <C>
======================================================================================
</TABLE>
Accepted by:_____________ Checked By:______________ Date:________________, 1994
-3-
<PAGE>
LETTER OF TRANSMITTAL
INSTRUCTIONS
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; SIGNATURE
GUARANTEES. Please send all certificates for Shares to River Oaks Trust
Company, as Exchange Agent (the "Exchange Agent"), with the Letter of
Transmittal, or a facsimile thereof, fully completed and signed by you, the
registered holder(s). Compass retains the right to require that a signature on
the Letter of Transmittal and the Share certificates be guaranteed by an
Eligible Institution. An Eligible Institution is a member of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc. (the "NASD") or a commercial bank or trust company having an
office, branch or agency located in the United States. If Compass wishes to
have your signature guaranteed by an Eligible Institution, you will be notified
by separate letter.
If certificates are registered in the name of a person other than you,
the certificate(s) must be duly endorsed or accompanied by stock powers signed
by the registered holder and the Letter of Transmittal. If the Letter of
Transmittal is executed by an officer on behalf of a corporation or by an
executor, administrator, trustee, guardian, attorney, agent or other person
acting in a fiduciary or representative capacity, the Exchange Agent reserves
the right to require that proper documentary evidence of the authority of the
person executing the Letter of Transmittal. If the tendered certificates are
owned of record by two or more joint owners, each of you must sign the Letter of
Transmittal. Questions regarding such evidence of authority may be referred to
Mr. Stephen K. Brownlow, a representative of the Exchange Agent, at (713)
867-1101.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES, THE LETTER OF TRANSMITTAL AND
ANY OTHER REQUIRED DOCUMENTS IS AT YOUR OPTION AND RISK. IF DELIVERY IS BY
MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
STRONGLY RECOMMENDED.
2. ISSUANCE OF COMPASS COMMON STOCK. You will receive the Compass
Common Stock for your Shares only after receipt and acceptance by the Exchange
Agent and Compass of all of the certificates representing your Shares, a
properly completed and executed Letter of Transmittal, and any other required
documents and upon processing of the documents by the Exchange Agent.
3. PAYMENT FOR FRACTIONAL SHARES. As provided in Section 1.6(c) of the
Merger Agreement, Compass will not issue any certificates of Compass Common
Stock for fractional shares. In lieu of issuing fractional shares, Compass will
pay to any Bank shareholder entitled to receive a fractional share of Compass
Common Stock, a cash payment based on a price of $____________ per share.
4. NO CONDITIONAL TENDERS; WAIVER OF NOTICE. No alternative,
conditional, irregular or contingent deliveries of Shares will be accepted. By
execution of the Letter of Transmittal or any manually signed facsimile thereof,
you waive any rights to receive any notice of the acceptance of your Shares for
exchange.
5. SIGNATURES ON LETTER OF TRANSMITTAL. In order for the Letter of
Transmittal to be properly signed by you, the signature must correspond exactly
with the name(s) as written on the face of the certificate(s).
If the Shares tendered hereby are owned of record by two or more joint
owners, all of you must sign the Letter of Transmittal.
If your Shares are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of certificates.
If the certificate(s) representing the Shares transmitted hereby are
registered in your name and the Letter of Transmittal is properly signed by you,
no endorsements of certificates or separate stock powers are required. In all
other cases, the certificate(s) representing the Shares transmitted hereby must
be endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered holder(s) appear on the certificate(s),
and if required, signature(s) on such certificate(s) or stock power(s) must be
guaranteed by an Eligible Institution.
If the Letter of Transmittal or any certificate or stock power is signed
by a trustee, executor, administrator, guardian, attorney-in-fact, officer of
corporation or other acting in a fiduciary or representative capacity, such
person should so indicate when signing, and the Exchange Agent reserves the
right to require proper evidence of their authority to so act.
6. IRREGULARITIES. All questions as to the validity, form,
eligibility, acceptance of and delivery of Shares and the issuance of Compass
Common Stock and the payment of cash in lieu of fractional shares will be
determined by Compass, which determination shall be final and binding. Compass
reserves the absolute right to reject any or all tenders determined by Compass
not to be in appropriate form or which would, in the opinion of Compass's
counsel, be unlawful. Compass also reserves the absolute right in its sole
discretion, to waive any of the conditions hereof, or any defect in any tender
with respect to any particular Shares of any particular shareholder, and
Compass's interpretations of the terms and conditions of the Merger Agreement
and these instructions shall be
-4-
<PAGE>
final and binding. The Exchange Agent and Compass shall not be obligated to
give notice of defects or irregularities in tenders, nor shall they incur any
liability for failure to give any such notice. Tenders will be deemed not to
have been made until all defects and irregularities have been cured or waived.
7. 20% BACKUP WITHHOLDING. Under the Federal income tax law, you must
provide Compass with a correct taxpayer identification number ("TIN") unless an
exemption applies. If the correct TIN is not provided, a $50 penalty may be
imposed upon you by the Internal Revenue Service and you will be subject to
backup withholding of 20% of the payments to be received by you.
8. REQUEST FOR ASSISTANCE OF ADDITIONAL COPIES. Questions and requests
for assistance or additional copies of the Letter of Transmittal may be directed
to the Exchange Agent at the addresses set forth at the top of page 1.
IMPORTANT TAX INFORMATION
Under the Federal income tax law, you are to provide Compass (as payer)
with a correct taxpayer identification number on Substitute Form W-9 below. If
Compass is not provided with the correct taxpayer identification number, you may
be subject to a $50 penalty imposed by the Internal Revenue Service. In
addition, all payments that are made to you with respect to Shares (including
any cash payable to you under the Merger Agreement in lieu of fractional shares)
may be subject to backup withholding.
Exempt shareholders (including among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. Nonetheless, exempt shareholders should complete the
Substitute Form W-9 below and so indicate their exempt status by writing
"exempt" across the face of the Substitute Form W-9. In order for a foreign
individual to qualify as an exempt recipient, that shareholder must submit a
statement, signed under penalties of perjury, attesting to that individual's
exempt status. Such statements can be obtained from the Exchange Agent. See
the enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional information.
If backup withholding applies, Compass is required to withhold 20% of
any payments made to the shareholder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be obtained.
Purpose of Substitute Form W-9
To prevent backup withholding on payments that are made to you with
respect to shares of Compass Common Stock acquired as a result of the Merger or
with respect to cash payments, if any, receivable in lieu of fractional shares
pursuant to the Merger Agreement, you are required to notify Compass of your
correct taxpayer identification number by completing the form below certifying
that the taxpayer identification number provided on Substitute Form W-9 is
correct (or that you are awaiting a taxpayer identification number).
What Number to Give
As the record owner of the Shares, you are required to give Compass your
Social Security Number or Employer Identification Number. If the Shares are in
more than one name or are not in the name of the actual owners, consult the
enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional guidelines on which number to report.
-5-
<PAGE>
SUBSTITUTE FORM W-9
Department of the Treasury
Internal Revenue Service
Taxpayer Identification Number
PART 1 - PLEASE PROVIDE YOUR TAXPAYER IDENTIFICATION / /
NUMBER IN THE BOX AT RIGHT AND CERTIFY BY Social Security Number
SIGNING AND DATING BELOW or Employer Identifi-
cation Number
PART 2 - Check the following box if you are NOT subject to backup / /
withholding under the provisions of Section 3406(a)(1)(C)
of the Internal Revenue Code because (1) you have not
been notified that you are subject to backup withholding
as a result of failure to report all interest or divi-
dends or (2) the Internal Revenue Service has notified
you that you are no longer subject to backup withholding.
PART 3 - Check the following box if you are awaiting a Taxpayer / /
Identification Number.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
By checking the box in Part 3, I certify under penalties of perjury that a
taxpayer identification number has not been issued to me, and either (a) I have
mailed or delivered an application to receive a taxpayer identification number
to the appropriate Internal Revenue Service Center or Social Security
Administration Office, or (b) I intend to mail or deliver an application in the
near future. I understand that if I do not provide a taxpayer identification
number within sixty (60) days, 20% of all reportable payments made to me
thereafter will be withheld until I provide a number.
CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT THE INFORMATION
PROVIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE.
Signature: _______________________________________ Date:______________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 20% OF ANY PAYMENTS MADE TO YOU. PLEASE REVIEW THE ENCLOSED GUIDELINES
FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
FOR ADDITIONAL DETAILS.
________________________________________________________________________________
-6-
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.---Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
- ------------------------------------------------------------- -------------------------------------------------
GIVE THE SOCIAL GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: SECURITY NUMBER FOR THIS TYPE OF IDENTIFICATION
OF ---- ACCOUNT: NUMBER OF ----
- ------------------------------------------------------------- -------------------------------------------------
<S> <C> <C> <C>
1. An individual's account The individual 9. A valid trust, estate, The legal entity
pension trust (Do not furnish the
2. Two or more individuals (joint The actual owner of the identifying number
account) account or, if combined of the personal
funds, any one of the representative or
individuals (1) trustee unless the
legal entity itself
is not designated
in the account
title.) (5)
3. Husband and wife (joint The actual owner of the
account) account or, if joint
funds, either person(1)
4. Custodian account of a minor The minor(2) 10. Corporate account The corporation
(Uniform Gift to Minors Act)
5. Adult and minor (joint The adult or, if the 11. Religious, charitable, The organization
account) minor is the only or educational
contributor, the organization account
minor(1)
12. Partnership account The partnership
held in the name of
the business
6. Account in the name of The ward, minor, or 13. Association, club, or The organization
guardian or committee for a incompetent person (3) other tax-exempt
designated ward, minor, or organization
incompetent person
7. a The usual revocable savings The grantor-trustee(1) 14. A broker or The broker or
trust account (grantor is registered nominee nominee
also trustee)
b So-called trust account that The actual owner(1) 15. Account with the The public entity
is not a legal or valid trust Department of Agri-
under State law culture in the name of
a public entity (such
as a State or local
8. Sole proprietorship account The owner(4) government, school
district, or prison)
that receives agri-
cultural program pay-
ments
- ------------------------------------------------------------- -------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
Note: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
-7-
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a), or an individual
retirement plan.
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government, or any
agency or instrumentality thereof.
. An international organization or any agency, or instrumentality thereof.
. A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a).
. An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
. An entity registered at all times under the Investment Company Act of 1940.
. A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid in
the course of the payer's trade or business and you have not provided your
correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
. Payments described in section 6049(b)(5) to nonresident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER. WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045 and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend, interest
or other payments to give taxpayer identification numbers to payers who must
report the payments to the IRS. The IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1984, payers must generally
withhold 20% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDINGS.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE
-8-
<PAGE>
EXHIBIT "C"
LETTER OF TRANSMITTAL
For Shares of Class B Convertible Preferred Stock
SECURITY BANK, N.A.
Delivered Pursuant to the Agreement and Plan of Merger
dated as of November ____, 1993
By Mail or Overnight Delivery Service:
River Oaks Trust Company
6990 Portwest, Suite 170
Houston, Texas 77024
Attention: Mr. Stephen K. Brownlow
DO NOT HAND DELIVER
DESCRIPTION OF SHARES SURRENDERED
---------------------------------
Based on its stock transfer records, Security Bank, N.A. (the "Bank") has
listed below your name, address and the certificate numbers representing your
shares of Class B Convertible Preferred Stock, par value $12.25 per share
("Shares"), of the Bank. If any of the listed information appears to be
incorrect, please notify Mr. Stephen K. Brownlow at (713) 867-1101 at once.
<TABLE>
<CAPTION>
==========================================================================
Name, Address and Social Security
Number of Registered Holders Certificate(s) Surrendered
- --------------------------------------------------------------------------
Total Number of
Certificate Shares Represented
Number(s) by Certificate(s)
<S> <C> <C>
_______________________________ ____________ _________________
Name ____________ _________________
____________ _________________
_______________________________
_______________________________
Address
_______________________________ Total Shares _________________
Social Security Number
==========================================================================
</TABLE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Gentlemen:
I, as the registered holder of the above described Shares of the Bank,
hereby tender to Compass Bancshares, Inc. ("Compass"), such Shares pursuant to
the Agreement and Plan of Merger dated as of November _____, 1993, as amended
("the Merger Agreement"), by and between Compass and the Bank. I hereby
acknowledge receipt of the Proxy Statement dated _________________, 199__, which
described the merger ("Merger") provided by the Merger Agreement.
I represent and warrant to Compass that I am the true and lawful owner of
the Shares, and have full capacity, power and authority to exchange the Shares,
free and clear of all liens, restrictions and encumbrances of any kind
whatsoever, and the Shares will not be subject to any adverse claim. I
understand that River Oaks Trust Company, as Exchange Agent for this exchange,
may require additional documentation, and I agree, upon request, to execute and
deliver any additional documents or instruments deemed by the Exchange Agent or
Compass reasonably necessary to complete the exchange of the Shares.
<PAGE>
The authority conferred in this Letter of Transmittal shall not be affected
by, and shall survive, my death or incapacity, and any obligation I may have
hereunder shall be binding upon my successors, assigns, heirs, executors,
administrators, trustees in bankruptcy and personal and legal representatives.
I acknowledge that the tender of my Shares is irrevocable.
INSTRUCTIONS REGARDING ISSUANCE OF SHARES
If you wish to have the shares of Compass Common Stock to be issued
pursuant to the Merger Agreement in the name and at the address set forth above,
please sign and date this letter on page 3. If you wish to have the shares of
Compass Common Stock to be issued pursuant to the Merger Agreement in a name or
to an address other than the name and address specified above, please complete
the following section. You will be required to pay any transfer or other taxes
required by reason of the payment and delivery of Compass Common Stock to such
other person.
NEW CERTIFICATES TO BE ISSUED
IN A DIFFERENT NAME OR TO A DIFFERENT ADDRESS
If you are entitled to receive shares of Compass Common Stock and wish to
have certificates representing Compass Common Stock issued in a name or to an
address other than the name or address shown on your Bank stock certificates,
please indicate the name and address of your assignee below:
Name and Address of Assignee
----------------------------
Name:______________________________________ Taxpayer I.D. No. or
(Type or print full name) Social Security No.:_______________
Address:________________________________________________________________________
City, State, Zip Code:__________________________________________________________
-2-
<PAGE>
PLEASE SIGN AND DATE BELOW AS INDICATED
THEN PLEASE COMPLETE SUBSTITUTE FORM W-9
Signatures _________________________________
_________________________________
Dated _________________________, 1994
Name(s) _____________________________________________________________
(Please Print)
Capacity _________________________________
(Full Title)
Address _________________________________
_________________________________
(Include Zip Code)
Area Code and Telephone Number _____________________________
Tax Identification or Social Security Number _____________________________
_______________________________________________________________________________
GUARANTEE OF SIGNATURES
(Must be signed by registered holder(s) as name(s) appear on the certificate(s)
or by person(s) authorized to become registered holder(s) by certificate(s) and
documents transmitted. If signing is by an officer or a corporation, or by an
attorney, executor, administrator, trustee, guardian, agent or other person
acting in a fiduciary or representative capacity, please set forth full title.
See Instruction 1).
- -----------------
Authorized Signature __________________________________
Name __________________________________
(Please Print)
Title __________________________________
Name of Firm __________________________________
Address __________________________________
__________________________________
(Include Zip Code)
Area Code and Telephone Number __________________
Dated ____________________________, 1994
_______________________________________________________________________________
PLEASE COMPLETE SUBSTITUTE FORM W-9
IT IS THE LAST FORM IN THIS PACKAGE
_______________________________________________________________________________
DO NOT WRITE IN SPACE BELOW
Date Received:___________________ By:__________________ Date:__________________
<TABLE>
<CAPTION>
======================================================================================
Bank Compass No. of
Shares Share Accepted Stock Certificate Fractional Cash Check
Surrendered for Exchange Certificate Nos. No. issued Shares Paid No.
<S> <C> <C> <C> <C> <C> <C>
======================================================================================
</TABLE>
Accepted by:_______________ Checked By:________________ Date:___________, 1994
-3-
<PAGE>
LETTER OF TRANSMITTAL
INSTRUCTIONS
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; SIGNATURE
GUARANTEES. Please send all certificates for Shares to River Oaks Trust
Company, as Exchange Agent (the "Exchange Agent"), with the Letter of
Transmittal, or a facsimile thereof, fully completed and signed by you, the
registered holder(s). Compass retains the right to require that a signature on
the Letter of Transmittal and the Share certificates be guaranteed by an
Eligible Institution. An Eligible Institution is a member of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc. (the "NASD") or a commercial bank or trust company having an
office, branch or agency located in the United States. If Compass wishes to
have your signature guaranteed by an Eligible Institution, you will be notified
by separate letter.
If certificates are registered in the name of a person other than you,
the certificate(s) must be duly endorsed or accompanied by stock powers signed
by the registered holder and the Letter of Transmittal. If the Letter of
Transmittal is executed by an officer on behalf of a corporation or by an
executor, administrator, trustee, guardian, attorney, agent or other person
acting in a fiduciary or representative capacity, the Exchange Agent reserves
the right to require that proper documentary evidence of the authority of the
person executing the Letter of Transmittal. If the tendered certificates are
owned of record by two or more joint owners, each of you must sign the Letter of
Transmittal. Questions regarding such evidence of authority may be referred to
Mr. Stephen K. Brownlow, a representative of the Exchange Agent, at (713)
867-1101.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES, THE LETTER OF TRANSMITTAL AND
ANY OTHER REQUIRED DOCUMENTS IS AT YOUR OPTION AND RISK. IF DELIVERY IS BY
MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
STRONGLY RECOMMENDED.
2. ISSUANCE OF COMPASS COMMON STOCK. You will receive the Compass
Common Stock for your Shares only after receipt and acceptance by the Exchange
Agent and Compass of all of the certificates representing your Shares, a
properly completed and executed Letter of Transmittal, and any other required
documents and upon processing of the documents by the Exchange Agent.
3. PAYMENT FOR FRACTIONAL SHARES. As provided in Section 1.6(c) of the
Merger Agreement, Compass will not issue any certificates of Compass Common
Stock for fractional shares. In lieu of issuing fractional shares, Compass will
pay to any Bank shareholder entitled to receive a fractional share of Compass
Common Stock, a cash payment based on a price of $___________ per share.
4. NO CONDITIONAL TENDERS; WAIVER OF NOTICE. No alternative,
conditional, irregular or contingent deliveries of Shares will be accepted. By
execution of the Letter of Transmittal or any manually signed facsimile thereof,
you waive any rights to receive any notice of the acceptance of your Shares for
exchange.
5. SIGNATURES ON LETTER OF TRANSMITTAL. In order for the Letter of
Transmittal to be properly signed by you, the signature must correspond exactly
with the name(s) as written on the face of the certificate(s).
If the Shares tendered hereby are owned of record by two or more joint
owners, all of you must sign the Letter of Transmittal.
If your Shares are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of certificates.
If the certificate(s) representing the Shares transmitted hereby are
registered in your name and the Letter of Transmittal is properly signed by you,
no endorsements of certificates or separate stock powers are required. In all
other cases, the certificate(s) representing the Shares transmitted hereby must
be endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered holder(s) appear on the certificate(s),
and if required, signature(s) on such certificate(s) or stock power(s) must be
guaranteed by an Eligible Institution.
If the Letter of Transmittal or any certificate or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of corporation or other acting in a fiduciary or representative
capacity, such person should so indicate when signing, and the Exchange Agent
reserves the right to require proper evidence of their authority to so act.
6. IRREGULARITIES. All questions as to the validity, form, eligibility,
acceptance of and delivery of Shares and the issuance of Compass Common Stock
and the payment of cash in lieu of fractional shares will be determined by
Compass, which determination shall be final and binding. Compass reserves the
absolute right to reject any or all tenders determined by Compass not to be in
appropriate form or which would, in the opinion of Compass's counsel, be
unlawful. Compass also reserves the absolute right in its sole discretion, to
waive any of the conditions hereof, or any defect in any tender with respect to
any particular Shares of any particular shareholder, and Compass's
interpretations of the terms and conditions of the Merger Agreement and these
instructions shall be
-4-
<PAGE>
final and binding. The Exchange Agent and Compass shall not be obligated to
give notice of defects or irregularities in tenders, nor shall they incur any
liability for failure to give any such notice. Tenders will be deemed not to
have been made until all defects and irregularities have been cured or waived.
7. 20% BACKUP WITHHOLDING. Under the Federal income tax law, you must
provide Compass with a correct taxpayer identification number ("TIN") unless an
exemption applies. If the correct TIN is not provided, a $50 penalty may be
imposed upon you by the Internal Revenue Service and you will be subject to
backup withholding of 20% of the payments to be received by you.
8. REQUEST FOR ASSISTANCE OF ADDITIONAL COPIES. Questions and requests
for assistance or additional copies of the Letter of Transmittal may be directed
to the Exchange Agent at the addresses set forth at the top of page 1.
IMPORTANT TAX INFORMATION
Under the Federal income tax law, you are to provide Compass (as payer)
with a correct taxpayer identification number on Substitute Form W-9 below. If
Compass is not provided with the correct taxpayer identification number, you may
be subject to a $50 penalty imposed by the Internal Revenue Service. In
addition, all payments that are made to you with respect to Shares (including
any cash payable to you under the Merger Agreement in lieu of fractional shares)
may be subject to backup withholding.
Exempt shareholders (including among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. Nonetheless, exempt shareholders should complete the
Substitute Form W-9 below and so indicate their exempt status by writing
"exempt" across the face of the Substitute Form W-9. In order for a foreign
individual to qualify as an exempt recipient, that shareholder must submit a
statement, signed under penalties of perjury, attesting to that individual's
exempt status. Such statements can be obtained from the Exchange Agent. See
the enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional information.
If backup withholding applies, Compass is required to withhold 20% of
any payments made to the shareholder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be obtained.
Purpose of Substitute Form W-9
To prevent backup withholding on payments that are made to you with
respect to shares of Compass Common Stock acquired as a result of the Merger or
with respect to cash payments, if any, receivable in lieu of fractional shares
pursuant to the Merger Agreement, you are required to notify Compass of your
correct taxpayer identification number by completing the form below certifying
that the taxpayer identification number provided on Substitute Form W-9 is
correct (or that you are awaiting a taxpayer identification number).
What Number to Give
As the record owner of the Shares, you are required to give Compass your
Social Security Number or Employer Identification Number. If the Shares are in
more than one name or are not in the name of the actual owners, consult the
enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional guidelines on which number to report.
-5-
<PAGE>
SUBSTITUTE FORM W-9
Department of the Treasury
Internal Revenue Service
Taxpayer Identification Number
PART 1 - PLEASE PROVIDE YOUR TAXPAYER IDENTIFICATION - -
NUMBER IN THE BOX AT RIGHT AND CERTIFY BY Social Security Number or
SIGNING AND DATING BELOW Employer Identification
Number
PART 2 - Check the following box if you are NOT subject to backup - -
withholding under the provisions of Section 3406(a)(1)(C)
of the Internal Revenue Code because (1) you have not
been notified that you are subject to backup withholding
as a result of failure to report all interest or dividends
or (2) the Internal Revenue Service has notified you that
you are no longer subject to backup withholding.
PART 3 - Check the following box if you are awaiting a Taxpayer - -
Identification Number.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
By checking the box in Part 3, I certify under penalties of perjury that a
taxpayer identification number has not been issued to me, and either (a) I have
mailed or delivered an application to receive a taxpayer identification number
to the appropriate Internal Revenue Service Center or Social Security
Administration Office, or (b) I intend to mail or deliver an application in the
near future. I understand that if I do not provide a taxpayer identification
number within sixty (60) days, 20% of all reportable payments made to me
thereafter will be withheld until I provide a number.
CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT THE INFORMATION
PROVIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE.
Signature: __________________________________ Date:____________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 20% OF ANY PAYMENTS MADE TO YOU. PLEASE REVIEW THE ENCLOSED GUIDELINES
FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
FOR ADDITIONAL DETAILS.
________________________________________________________________________________
-6-
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.---Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------- ---------------------------------------
GIVE THE SOCIAL GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: SECURITY NUMBER FOR THIS TYPE OF IDENTIFICATION
OF ---- ACCOUNT: NUMBER OF ----
- ------------------------------------------------------------------- ---------------------------------------
<S> <C> <C> <C>
1. An individual's account The individual 9. A valid trust, The legal entity
estate, or (Do not furnish the
pension trust identifying number
2. Two or more individuals (joint The actual owner of the of the personal
account) account or, if combined representative or
funds, any one of the trustee unless the
individuals (1) legal entity itself
is not designated
3. Husband and wife (joint The actual owner of the in the account
account) account or, if joint title.) (5)
funds, either person(1)
4. Custodian account of a minor The minor(2) 10. Corporate The corporation
(Uniform Gift to Minors Act) account
5. Adult and minor (joint The adult or, if the 11. Religious, The organization
account) minor is the only charitable, or
contributor, the educational
minor(1) organization
account
12. Partnership The partnership
account held in
the name of the
business
6. Account in the name of The ward, minor, or 13. Association, The organization
guardian or committee for a incompetent person (3) club, or other
designated ward, minor, or tax-exempt
incompetent person organization
7. a The usual revocable savings The grantor-trustee(1) 14. A broker or The broker or
trust account (grantor is registered nominee
also trustee) nominee
b So-called trust account that The actual owner(1) 15. Account with The public entity
is not a legal or valid trust the
under State law Department of
Agriculture
in the name of a
8. Sole proprietorship account The owner(4) public
entity (such as a
State or
local government,
school
district, or
prison) that
receives
agricultural
program payments
- ------------------------------------------------------------------- ---------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
Note: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
-7-
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a), or an individual
retirement plan.
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government, or any
agency or instrumentality thereof.
. An international organization or any agency, or instrumentality thereof.
. A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a).
. An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
. An entity registered at all times under the Investment Company Act of 1940.
. A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid in
the course of the payer's trade or business and you have not provided your
correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
. Payments described in section 6049(b)(5) to nonresident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER. WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045 and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend, interest
or other payments to give taxpayer identification numbers to payers who must
report the payments to the IRS. The IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1984, payers must generally
withhold 20% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDINGS.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE
-8-
<PAGE>
EXHIBIT C
---------
SECTION 368 CERTIFICATE
-----------------------
The undersigned, being a holder of shares of capital stock of Security
Bank, N.A., a national banking association (the "Bank"), does hereby certify to
Compass Bancshares, Inc., a Delaware corporation ("Compass"), as of the date of
this certificate, that the undersigned does not have any present plan or
intention to sell or otherwise dispose of shares of Compass common stock, $2.00
per share par value, to be received by the undersigned pursuant to the terms of
the Agreement and Plan of Merger dated November ______, 1993 between Compass and
the Bank, as amended (the "Merger Agreement"), other than as set forth below.
The undersigned further acknowledges that Compass and its counsel will rely on
this certificate in determining whether the Merger described in the Merger
Agreement will qualify as a reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended, and agrees to advise Compass in writing if the
undersigned's plans or intentions change before the Merger becomes effective.
Failure to provide such written advice of any changed intention shall constitute
a reaffirmation, as of the Effective Time (as defined in the Merger Agreement),
that there has been no change in the undersigned's plan or intention to dispose
of said Compass common stock.
______________________________
______________________________
[Printed Name]
DATED: _________________,1993
<PAGE>
EXHIBIT D
---------
POOLING OF INTEREST CRITERIA
----------------------------
ATTRIBUTES OF COMBINING ENTERPRISES
(a) AUTONOMY CONDITION. Each of the combining enterprises is autonomous and
has not been a subsidiary or division of another enterprise within two
years before the plan of combination is initiated.
(b) INDEPENDENCE CONDITION. Each of the combining enterprises is independent
of the other combining enterprises.
MANNER OF COMBINING INTERESTS
(c) ONE-YEAR RULE. The combination is effected in a single transaction or is
completed in accordance with a specific plan within one year after the plan
is initiated.
(d) COMMON-STOCK-FOR-COMMON-STOCK-CONDITION. An enterprise offers and issues
only common stock with rights identical to those of the majority of its
outstanding voting common stock in exchange for substantially all of the
voting common stock interest of another enterprise at the date the plan of
combination is consummated.
(e) CHANGE-IN-EQUITY-INTERESTS CONDITION. None of the combining enterprises
changes the equity interest of the voting common stock in contemplation of
effecting the combination either within two years before the plan of
combination is initiated or between the dates the combination is initiated
and consummated; changes in contemplation of effecting the combination may
include distributions to stockholders and additional issuances, exchanges,
and retirements of securities.
(f) TREASURY-STOCK CONDITION. Each of the combining enterprises reacquires
shares of voting common stock only for purposes other than business
combinations, and no enterprise reacquires more than a normal number of
shares between the dates the plan of combination is initiated and
consummated.
(g) PROPORTIONATE-INTEREST CONDITION. The ratio of the interest of an
individual common stockholder to those of other common stockholders in a
combining enterprise remains the same as a result of the exchange of stock
to effect the combination.
(h) VOTING-RIGHTS CONDITION. The voting rights to which the common stock
ownership interests in the resulting combined enterprise are entitled are
exercisable by the stockholders; the stockholders are neither deprived of
nor restricted in exercising those rights for a period.
<PAGE>
(i) CONTINGENCY CONDITION. The combination is resolved at the date the
plan is consummated and no provisions of the plan relating to the issue of
securities or other consideration are pending.
ABSENCE OF PLANNED TRANSACTIONS
(j) The combined enterprise does not agree directly or indirectly to retire or
reacquire all or part of the common stock issued to effect the combination.
(k) The combined enterprise does not enter into other financial arrangements
for the benefit of the former stockholders of a combining enterprise, such
as a guaranty of loans secured by stock issued in the combination, that in
effect negates the exchange of equity securities.
(l) The combined enterprise does not intend or plan to dispose of a significant
part of the assets of the combining enterprises within two years after the
combination other than disposals in the ordinary course of business of the
formerly separate enterprise and to eliminate duplicate facilities or
excess capacity.
- 2 -
<PAGE>
EXHIBIT E
---------
VOTING AGREEMENT AND IRREVOCABLE PROXY
This Voting Agreement and Irrevocable Proxy (this "Agreement") dated as of
November 19, 1993 is executed by and among Security Bank, N.A., a national
banking association (the "Bank"), Compass Bancshares, Inc., a Delaware
corporation ("Compass"), and Frank Goldberg, Irving Pozmantier and Marvin Isgur
(referred to herein individually as a "Voting Representative" and collectively
as the "Voting Representatives").
WHEREAS, the Bank and Compass have executed that certain Agreement and Plan
of Merger dated November 19, 1993 (the "Merger Agreement") whereby the Bank will
be merged into a wholly-owned bank subsidiary ("Interim") of Compass to be
formed after the date hereof (the "Merger"); and
WHEREAS, Section 6.11 of the Merger Agreement requires that the Bank
deliver to Compass the voting agreements and irrevocable proxies of the Voting
Representatives; and
WHEREAS, Compass and the Bank are relying on, and Interim will rely on, the
irrevocable proxies in incurring expense in reviewing the Bank's business, in
preparing a proxy statement, in proceeding with the filing of applications for
regulatory approvals, and in undertaking other actions necessary for the
consummation of the Merger;
NOW THEREFORE, the parties hereto agree as follows:
1. The Voting Representatives represent and warrant to Compass and the
Bank that they have been designated, and currently serve, as voting
representatives under certain Voting and Stock Restriction Agreements (the
"Voting Agreements") entered into by and among certain shareholders of the Bank
and the Voting Representatives with respect to the outstanding capital stock of
the Bank (the "Stock"). The Voting Representatives hereby represent and warrant
to Compass and the Bank that they have the exclusive right to vote the shares of
the Stock set forth below their names on the signature pages hereto. The Voting
Representatives hereby agree to vote at the shareholders' meeting referred to in
Section 1.7 of the Merger Agreement (the "Meeting") the shares of Stock set
forth below their names on the signature pages hereto and all other shares of
Stock over which the Voting Representatives have the power and authority to
direct the voting as of the date of the Meeting (collectively, the "Shares") in
favor of approval of the Merger Agreement and the other agreements and
transactions contemplated thereby. The Voting Representatives hereby represent
and warrant that they have the full right, power and authority to vote the
Shares identified on the signature pages hereto at the Meeting in favor of the
approval of the Merger Agreement and the other agreements and transactions
contemplated thereby. Each of the Voting Representatives hereby jointly and
<PAGE>
severally agrees that he will not voluntarily take any action or fail to take
any action which could result in (i) the release of any shares of Stock from the
voting agreement and irrevocable proxy contained in the Voting and Stock
Restriction Agreements, or (ii) the termination or amendment of any Voting and
Stock Restriction Agreement with respect to some or all of the Shares. This
Agreement shall not be affected by any resignation or removal of one or more of
the Voting Representatives after the date hereof, or by any amendment or
termination of any Voting and Stock Restriction Agreement.
2. In order better to effect the provisions of Section 1, the Voting
Representatives hereby revoke any previously executed proxies and hereby
constitute and appoint Compass (the "Proxy Holder"), with full power of
substitution, their true and lawful proxy and attorney-in-fact to vote at the
Meeting all of the Shares in favor of the authorization and approval of the
Merger Agreement and the other agreements and transactions contemplated thereby,
with such modifications to the Merger Agreement and the other agreements and
transactions contemplated thereby as the parties thereto may make, solely in the
event the Voting Representative do not vote all of the Shares in favor of the
authorization and approval of the Merger Agreement and the other agreements and
transactions contemplated thereby.
3. This proxy shall be limited strictly to the power to vote the Shares in
the manner set forth in Section 2 and shall not extend to any other matters.
4. Each Voting Representative hereby covenants and agrees that until this
Agreement is terminated in accordance with its terms, such Voting Representative
will not, in his capacity as a shareholder, director or officer of the Bank or
otherwise, directly or indirectly, (i) oppose, solicit proxies against,
encourage any Bank shareholder to vote against or abstain from voting on, or
otherwise frustrate or hinder the approval and authorization of the Merger
Agreement or any of the other agreements or transactions contemplated thereby,
or (ii) encourage, or, except for general disclosure in any proxy statement
delivered to the Bank's shareholders in connection with the Meeting, referring
any Bank shareholder to such proxy statement, or advising any Bank shareholder
to consult with such shareholder's own counsel, advise or assist any Bank
shareholder in dissenting from the Merger. Nothing contained in this Section 5
is intended to prevent any officer or director of the Bank from exercising the
Bank's rights or performing the Bank's obligations under the Merger Agreement,
including the Bank's rights under Sections 1.6 and 8.1.
5. The Voting Representatives acknowledge that Compass and the Bank are
relying on this Agreement in incurring expense in reviewing the Bank's business,
in preparing a proxy statement, in proceeding with the filing of applications
for regulatory
2
<PAGE>
approvals, and in undertaking other actions necessary for the consummation of
the Merger and that the proxy granted hereby is coupled with an interest and is
irrevocable to the full extent permitted by applicable law. The Voting
Representatives and the Bank acknowledge that the performance of this Agreement
is intended to benefit Compass and Interim.
6. The irrevocable proxy granted pursuant hereto shall continue in effect
until the earlier to occur of (i) the termination of the Merger Agreement, as it
may be amended or extended from time to time, or (ii) the consummation of the
Merger. In no event shall this Agreement apply to shares of common stock, par
value $2.00 per share, of Compass to be received by the Voting Representatives
or other parties to the Voting Agreements upon consummation of the Merger.
7. The vote of the Proxy Holder shall control in any conflict between its
vote of the Shares and a vote by any Voting Representative of the Shares, and
the Bank agrees to recognize the vote of the Proxy Holder instead of the vote of
any of the Voting Representatives in the event any Voting Representative does
not vote in favor of the approval of the Merger Agreement as set forth in
Section 1 hereof.
8. This Agreement may not be modified, amended, altered or supplemented
except upon the execution and delivery of a written agreement executed by the
Bank, Compass and the Voting Representatives.
9. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
10. This Agreement, together with the Merger Agreement and the agreements
contemplated thereby, embody the entire agreement and understanding of the
parties hereto in respect to the subject matter contained herein. This
Agreement supersedes all prior agreements and understandings among the parties
with respect to such subject matter contained herein.
11. All notices, requests, demands and other communications required or
permitted hereby shall be in writing and shall be deemed to have been duly given
if delivered by hand or mail, certified or registered mail (return receipt
requested) with postage prepaid to the addresses of the parties hereto set forth
on below their signature on the signature pages hereof or to such other address
as any party may have furnished to the others in writing in accordance herewith.
12. This Agreement and the relations among the parties hereto arising from
this Agreement shall be governed by and construed in accordance with the laws of
the State of Texas.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
above written.
SECURITY BANK, N.A.
By:________________________________
Name:______________________________
Title:_____________________________
Address:
1800 West Loop South, Suite 100
Houston, Texas 77027
Attention: Frank S. Goldberg
COMPASS BANCSHARES, INC.
By:________________________________
Name:______________________________
Title:_____________________________
Address:
15 South 20th Street
Birmingham, Alabama 35233
Attention: Mr. Jerry W. Powell
General Counsel
4
<PAGE>
VOTING REPRESENTATIVES:
___________________________________
Frank Goldberg
___________________________________
Irving Pozmantier
___________________________________
Marvin Isgur
Address: 1800 West Loop South
Suite 100
Houston, Texas 77027
Attn: Frank S. Goldberg
_________ shares of Bank Common Stock
_________ shares of Bank Class A
Convertible Preferred Stock
_________ shares of Bank Class B
Convertible Preferred Stock
5
<PAGE>
EXHIBIT F
---------
RELEASE OF CLAIMS
-----------------
THIS RELEASE OF CLAIMS ("Release") dated the _____ day of ____________,
1994, is executed and delivered by the person executing below to Security Bank,
N.A., a national banking association (the "Bank").
WHEREAS, Compass Bancshares, Inc. ("Compass") is to acquire the Bank
pursuant to that certain Agreement and Plan of Merger dated as of November ____,
1993 by and between Compass and the Bank (the "Agreement"), whereby the Bank
will be merged with and into __________________, a Texas banking association
("Interim"); and
WHEREAS, Compass has required as a condition to such acquisition that the
undersigned execute and deliver this Release to confirm the absence of any
claims by the undersigned against the Bank;
NOW, THEREFORE, in consideration of the premises contained herein and ten
dollars and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the undersigned hereby agrees as follows:
Section 1. Release. The undersigned hereby RELEASES and FOREVER
-------
DISCHARGES the Bank from all manners of action, causes of action, suits, debts,
sums of money, accounts, reckonings, bonds, bills, specialties, covenants,
contracts, controversies, agreements, premises, variances, trespasses, damages,
judgments, executions, claims and demands whatsoever in law or in equity which
the undersigned ever had, now has, or hereafter can, shall or may have against
the Bank, in respect of any and all agreements and obligations incurred on or
prior to the date hereof, or in respect of any event occurring or circumstances
existing on or prior to the date hereof; provided, however, that the Bank shall
not be released from any of its obligations or liabilities to the undersigned
(i) in respect of accrued compensation permitted by his agreement with the Bank;
(ii) subject to Section 2 hereof, pursuant to his Indemnity Agreement with the
Bank or the provisions of the articles of association or bylaws of the Bank
regarding the indemnification of directors and officers; and (iii) in connection
with any indebtedness or contractual obligation or liability to the undersigned
existing on the date hereof.
Section 2. Termination of Indemnity Rights. The undersigned agrees that
-------------------------------
all rights to indemnification by the Bank or its successors or assigns, whether
arising under the articles of association or bylaws of the Bank, pursuant to his
Indemnity Agreement with the Bank or otherwise, and as modified by the
Agreement, shall terminate four years after the date hereof, or in the case of a
particular claim for indemnification made in writing within four years after the
date hereof, until such claim is finally resolved, and all such rights to
indemnification from the
<PAGE>
Bank or its successors or assigns after such date are hereby waived and
released.
Section 3. Successors. This Release shall be binding upon the undersigned
----------
and his or her heirs, devisees, administrators, executors, personal
representatives, successors and assigns and shall inure to the benefit of the
Bank and its successors and assigns.
Section 4. Governing Law. This Release shall be governed by and construed
-------------
in accordance with the laws of the State of Texas, without giving effect to
Texas principles of conflicts of law.
Section 5. Counterparts. This Release may be executed in several
------------
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one and the same instrument.
Section 6. Modification. This Release may be modified only by a written
------------
instrument executed by the undersigned and the Bank.
IN WITNESS WHEREOF, the undersigned has executed this Release effective as
of the date first above written.
-----------------------------------------
Signature
-----------------------------------------
Printed Name
STATE OF TEXAS (S)
(S)
COUNTY OF HARRIS (S)
This instrument was acknowledged before me on ____________________________,
1994 by ____________________.
-----------------------------------------
Notary Public in and for the
State of Texas
-----------------------------------------
Notary's Name Typed or Printed
My Commission Expires:___________________
2
<PAGE>
EXHIBIT G
---------
OPINIONS REQUIRED FROM COUNSEL TO THE BANK
------------------------------------------
(i) The Bank is a national banking association, duly organized, validly
existing and in good standing under the laws of the United States of America.
The Bank has all requisite corporate power and authority to carry on its
business as now being conducted and to own, lease and operate its properties and
assets as now owned, leased or operated. The Bank is in good standing in the
State of Texas.
(ii) The Bank has all requisite power and authority to execute and
deliver the Agreement and the other agreements contemplated by the Agreement
(collectively, the "Other Agreements") and to consummate the transactions
contemplated thereby; all acts (corporate or otherwise) and other proceedings
required to be taken by or on the part of the Bank to execute and deliver the
Agreement and the Other Agreements and to consummate the transactions
contemplated therein have been duly and validly taken; and the Agreement and the
Other Agreements have been duly executed and delivered by, and constitute the
valid and binding obligations of, the Bank enforceable against the Bank in
accordance with their terms, subject to the effect of (a) any applicable
bankruptcy, insolvency, fraudulent transfer, reorganization or other law
relating to or affecting creditors' rights generally and (b) general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(iii) The authorized capital stock of the Bank consists solely of (a)
1,030,000 shares of common stock, par value $5.00 per share, of which
_____________ shares are issued and outstanding and of which no shares are held
in the treasury; (b) 95,000 shares of Class A Preferred Stock, of which _______
shares are issued and outstanding, and none of which are held in treasury; and
(c) 190,000 shares of Class B Preferred Stock, of which ______ shares are issued
and outstanding, and none of which are held in treasury; all of the outstanding
shares of the capital stock of the Bank are validly issued, fully paid and,
except as provided in the National Bank Act, nonassessable; and to our current
actual knowledge, none of such stock was issued in violation of the preemptive
rights of any person;
(iv) To our current actual knowledge and except as set forth on Schedule
3.2 to the Agreement, there are no outstanding subscriptions, options, rights,
warrants, calls, convertible securities, irrevocable proxies, or other
agreements or commitments obligating the Bank to issue any shares of, or solely
to the extent the Bank is a party thereto, restricting the transfer of or
otherwise relating to shares of its capital stock of any class.
(v) The execution and delivery by the Bank of the Agreement does not and
the consummation of the transactions contemplated
<PAGE>
thereby will not contravene or violate any provision of or constitute a default
under (a) the articles of association or bylaws of the Bank, (b) to our current
actual knowledge and except as disclosed in the Agreement, any note, license,
instrument, mortgage, deed of trust, or other agreement or understanding,
permit, authorization or contract, order, arbitration award, judgment or decree,
or any other restriction of any kind or character actually known to us to which
the Bank is a party or by which the Bank or any of its assets or properties is
bound, and (c) to our current actual knowledge and except as disclosed in the
Agreement, any law, regulation, rule, administrative regulation or decree of any
court or any governmental agency or body whether domestic or foreign applicable
to the Bank or its assets or properties.
(vi) Except as disclosed in the Agreement and except for such consents,
approvals, authorizations, actions or filings as have already been obtained, no
consent, approval, authorization, action or filing with any court, governmental
agency or public body is required in connection with the execution, delivery and
performance by the Bank of the Agreement.
(vii) Except as set forth in Schedule 3.12 or 3.24 to the Agreement, to
our current actual knowledge, the Bank is not a party to any Proceeding (as
defined in the Agreement), nor to our current actual knowledge, is any
Proceeding threatened against or affecting the Bank, which by the terms of the
Agreement would be required to be set forth in Schedule 3.12 or 3.24.
(viii) To our current actual knowledge and except as set forth on Schedule
3.18 to the Agreement, the Bank is not in default under any law or regulation,
or under any order of any court, commission, board, bureau, agency or
instrumentality wherever located, which default would have a Material Adverse
Effect on the Bank.
2
<PAGE>
EXHIBIT H
---------
OPINIONS REQUIRED FROM COUNSEL TO Compass
-----------------------------------------
(i) Compass is a corporation duly organized, validly existing and in
good standing under the laws of the state of Delaware, and a bank holding
company under the Bank Holding Company Act of 1956, as amended. Interim is a
bank duly organized and validly existing and in good standing under the laws of
the State of Texas.
(ii) Compass and Interim each have all requisite power and authority to
execute and deliver the Agreement and the other agreements contemplated by the
Agreement (collectively, the "Other Agreements") and to consummate the
transactions contemplated thereby; all acts (corporate or otherwise) and other
proceedings required to be taken by or on the part of Compass and Interim (or
either of them) to execute and deliver the Agreement and the Other Agreements
and to consummate the transactions contemplated therein have been duly and
validly taken; and the Agreement and the Other Agreements have been duly
executed and delivered by, and constitute the valid and binding obligations of,
each of Compass and Interim enforceable against Compass and Interim in
accordance with their terms, subject to the effect of (a) any applicable
bankruptcy, insolvency, fraudulent transfer, reorganization or other law
relating to or affecting creditors' rights generally and (b) general principles
or equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(iii) The _________ shares of Compass Common Stock issued pursuant to the
Agreement are validly issued, fully paid and nonassessable and have not been
issued in violation of the preemptive rights of any person. To our current
actual knowledge, and except as contemplated by the Agreement, the shares of
Compass Common Stock issued pursuant to the Agreement are not subject to any
agreements or understandings to which Compass is a party with respect to the
voting or transfer of such shares, and are not subject to any agreements or
understandings among any other parties with respect to the voting or transfer of
such shares.
(iv) The execution and delivery by Compass and Interim of the Agreement
does not and the consummation of the transactions contemplated thereby will not
contravene or violate any provision of or constitute a default under (a) the
respective certificate or articles of incorporation or bylaws of Compass or
Interim, (b) to our current actual knowledge and except as disclosed in the
Agreement, any note, license, instrument, mortgage, deed of trust, or other
agreement or understanding, permit, authorization or contract, order,
arbitration award, judgment of decree, or any other restriction of any kind
actually known to us to which Compass or Interim is a party or by which Compass
or Interim or any of their assets or properties is bound, the breach or
violation of which could have a material adverse effect on Compass and its
<PAGE>
Subsidiaries taken as a whole, and (c) to our current actual knowledge and
except as disclosed in the Agreement, any law, regulation, rule, administrative
regulation or decree of any court or any governmental agency or body applicable
to Compass or Compass or their respective assets or properties.
(v) Except as disclosed in the Agreement and except for such consents,
approvals, authorizations, actions or filings as have already been obtained, no
consent, approval, authorization, action or filing with any court, governmental
agency or public body is required in connection with the execution, delivery and
performance by Compass and Interim of the Agreement.
(vi) Neither Compass nor Interim is in violation of or default under the
respective certificate or articles of association or bylaws of Compass or
Interim or, to our current actual knowledge and except as disclosed in the
Agreement, any agreement, document or instrument under which Compass or Interim
is obligated or bound, or any law, order, judgment, or regulation applicable to
Compass or any of its Subsidiaries, the violation of which could have a material
adverse effect on Compass and its Subsidiaries taken as a whole.
(vii) The __________ shares of Compass Common Stock to be issued pursuant
to the Agreement have been registered under the Securities Act of 1933, as
amended (the "Act"). The Registration Statement has become effective under the
Act and, to our current actual knowledge, no stop order under the Act suspending
the effectiveness of the Registration Statement has been issued and no
proceeding for that purpose has been instituted or is threatened, pending or
contemplated.
2
<PAGE>
EXHIBIT I
---------
RELEASE OF CLAIMS
-----------------
THIS RELEASE OF CLAIMS ("Release") dated the _____ day of
_________________, 1994, is executed and delivered by Security Bank, N.A., a
national banking association (the "Bank").
WHEREAS, the persons listed on Exhibit A attached hereto and made a part
---------
hereof constitute the duly elected officers ("Officers") and directors
("Directors") of the Bank on the date hereof;
WHEREAS, Compass Bancshares, Inc., a Delaware corporation ("Compass"), is
to acquire the Bank pursuant to that certain Agreement and Plan of Merger dated
as of November ____, 1993 by and between Compass and the Bank ("Agreement"),
whereby the Bank will be merged with and into ______________, a Texas banking
association ("Interim"); and
WHEREAS, the Bank has required as a condition to such acquisition that the
Officers and Directors be released of any claims by the Bank against the
Officers and Directors;
NOW, THEREFORE, in consideration of the premises contained herein and ten
dollars and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Bank hereby agrees as follows:
Section 1. Release. The Bank hereby RELEASES and FOREVER DISCHARGES the
-------
Officers and Directors from all manners of action, causes of action, suits,
debts, sums of money, accounts, reckonings, bonds, bills, specialties,
covenants, contracts, controversies, agreements, premises, variances,
trespasses, damages, judgments, executions, claims and demands whatsoever in law
or in equity which the Bank ever had, now has, or hereafter can, shall or may
have against the Officers and Directors, in respect of any and all agreements
and obligations incurred on or prior to the date hereof, or in respect of any
event occurring or circumstances existing on or prior to the date hereof;
provided, however, that no Officer or Director shall be released from (i) any
action arising from intentional fraud, deceit or wilful misconduct in connection
with the transactions contemplated by the Agreement or otherwise, or (ii) his or
her obligations or liabilities to the Bank in connection with any indebtedness
or any contractual obligation or liability of such Officer or Director to the
Bank existing on the date hereof.
Section 2. Successors. This Release shall be binding upon the Bank and
----------
its successors and assigns and shall inure to the benefit of the Officers and
Directors and their respective heirs, devisees, administrators, executors,
successors and assigns.
<PAGE>
Section 3. Governing Law. This Release shall be governed by and construed
-------------
in accordance with the laws of the State of Texas, without giving effect to
Texas principles of conflicts of law.
Section 4. Counterparts. This Release may be executed in several
------------
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one and the same instrument.
Section 5. Modification. This Release may be modified as to any Officer
------------
or Director only by a written instrument executed by the undersigned and such
Officer or Director.
IN WITNESS WHEREOF, the Bank has executed this Release effective as of the
date first above written.
SECURITY BANK, N.A.
By: -----------------------------
Name:----------------------------
Title: --------------------------
STATE OF TEXAS (S)
(S)
COUNTY OF HARRIS (S)
This instrument was acknowledged before me on _______________, 1994 by
____________________, the ____________________ of Security Bank, N.A., a
national banking association.
-------------------------------------
Notary Public in and for the
State of Texas
-------------------------------------
Notary's Name Typed or Printed
My Commission Expires: ______________
2
<PAGE>
EXHIBIT A
---------
Officers and Directors
<PAGE>
EXHIBIT J
---------
AGREEMENT TO TERMINATE OPTIONS
------------------------------
This Agreement to Terminate Options (this "Agreement") is entered into as
of this ______ day of ________________, 1993 by and among Compass Bancshares,
Inc. ("Compass"), Security Bank, N.A. (the "Bank") and the undersigned holder
(the "Holder") of warrants, options or rights to purchase shares of the Bank
common stock, par value $5.00 per share ("Common Stock").
WHEREAS, Compass and the Bank entered into an Agreement and Plan of Merger
dated ________________, 1993 ("Merger Agreement") pursuant to which the Bank
will be merged with and into a Texas bank subsidiary of Compass to be formed
("Interim"), and
WHEREAS, Compass has required as a condition to entering into the Merger
Agreement that the undersigned and each other holder of warrants, options or
rights to acquire Common Stock deliver to Compass and the Bank an agreement in
substantially the form hereof,
NOW, THEREFORE, in consideration of Compass's agreement to enter into the
Merger Agreement and the mutual covenants hereinafter set forth, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. The Holder hereby agrees that all rights to purchase shares of Common
Stock he may have under that certain Stock Option dated _____________ and any
other agreement or instrument (collectively, the "Option") shall terminate at
the Effective Time (as defined in the Merger Agreement). Notwithstanding
anything to the contrary in the Option, after the Effective Time the Option
shall be null and void and unenforceable against Compass, the Bank or Interim
and shall be deemed to be lapsed, terminated and expired for all purposes. Upon
the request of the Bank or Compass, the Holder agrees to surrender to Interim
the Option and any certificate or other evidence of the Holder's rights to
purchase Common Stock of the Bank.
2. The Bank hereby agrees that the Option may be exercised prior to the
Effective Time contingent upon the consummation of the merger of the Bank with
and into Interim pursuant to the Merger Agreement, but such exercise shall in
all other respects be in compliance with the requirements of the Option. In the
event of a contingent exercise of the Option, the Bank agrees to hold in trust
any exercise price tendered to the Bank as consideration for the shares to be
purchased pursuant to such contingent exercise of the Option. At the Effective
Time the Bank shall apply such exercise price held in trust to the payment of
the exercise price for the shares of Common Stock purchased pursuant to the
exercise of the Option. In the event that the Merger Agreement is terminated,
the Bank shall promptly return to the Holder, without interest, the exercise
price previously tendered to the Bank by the Holder.
<PAGE>
3. This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas. This Agreement may not be amended or modified
except in a writing executed by all of the parties hereto.
IN WITNESS WHEREOF, the undersigned set their hands effective as of the day
first written above.
COMPASS BANCSHARES, INC.
By:----------------------------------
Name:--------------------------------
Title:-------------------------------
SECURITY BANK, N.A.
By:---------------------------------
Name:-------------------------------
Title:------------------------------
------------------------------------
Signature of Holder
------------------------------------
Printed Name of Holder
2
<PAGE>
APPENDIX II
DISSENTERS' RIGHTS OF APPRAISAL
=================================
<PAGE>
PROVISIONS OF THE NATIONAL BANK ACT
RELATING TO
RIGHTS OF DISSENTING STOCKHOLDERS
12 U.S.C (S)214a
(b) Rights of dissenting stockholders
A shareholder of a national banking association who votes against the
conversion, merger, or consolidation, or who has given notice in writing to the
bank at or prior to such meeting that he dissents from the plan, shall be
entitled to receive in cash the value of the shares held by him, if and when the
conversion, merger, or consolidation is consummated, upon written request made
to the resulting State bank at any time before thirty days after the date of
consummation of such conversion, merger, or consolidation, accompanied by the
surrender of his stock certificates. The value of such shares shall be
determined as of the date on which the shareholders' meeting was held
authorizing the conversion, merger, or consolidation, by a committee of three
persons, one to be selected by majority vote of the dissenting shareholders
entitled to receive the value of their shares, one by the directors of the
resulting State bank, and the third by the two so chosen. The valuation agreed
upon by any two of three appraisers thus chosen shall govern; but, if the value
so fixed shall not be satisfactory to any dissenting shareholder who has
requested payment as provided herein, such shareholder may within five days
after being notified of the appraised value of his shares appeal to the
Comptroller of the Currency, who shall cause a reappraisal to be made, which
shall be final and binding as to the value of the shares of the appellant. If,
within ninety days from the date of consummation of the conversion, merger, or
consolidation, for any reason one or more of the appraisers is not selected as
herein provided, or the appraisers fail to determine the value of such shares,
the Comptroller shall upon written request of any interested party, cause an
appraisal to be made, which shall be final and binding on all parties. The
expenses of the Comptroller in making the reappraisal, or the appraisal as the
case may be, shall be paid by the resulting State bank. The plan of conversion,
merger, or consolidation shall provide the manner of disposing of the shares of
the resulting State bank not taken by the dissenting shareholders of the
national banking association.
Appendix II
<PAGE>
==================
APPENDIX III
FAIRNESS OPINION
==================
<PAGE>
[ALEX SHESHUNOFF & CO. INVESTMENT BANKING LETTERHEAD]
November 18, 1993
Security Bank, N.A.
Houston, Texas
Gentlemen:
You have requested our opinion, as an independent financial analyst to Security
Bank, N.A., Houston, Texas ("Bank"), as to the fairness, from a financial point
of view to Bank's shareholders, of the terms of the transactions contemplated by
an Agreement and Plan of Merger pursuant to which, among other things, Bank will
merge into Compass Bancshares, Inc., Birmingham, Alabama ("Compass"). Pursuant
to the terms of the Agreement and Plan of Merger, Compass will issue to the
holders of the shares of 100% of Bank's outstanding common stock (after
conversion of Convertible Preferred A Stock, Convertible Preferred B Stock and
exercise of common and preferred stock options), an aggregate number of shares
of its common stock, par value $2.00 per share, which is equal to $11,250,000
("Target Price").
As part of its banking analysis business, Alex Sheshunoff & Co. is continually
engaged in the valuation of bank and bank holding company securities in
connection with mergers and acquisitions nationwide. Prior to being retained
for this assignment, Alex Sheshunoff & Co. has provided professional services
and products to Bank and Compass. The revenues derived from such services and
products are insignificant when compared to the firm's total gross revenues.
In connection with this assignment, we (i) reviewed the Agreement and Plan of
Merger between Compass and Bank, (ii) reviewed the September 30, 1993 Report of
Condition and Income for each organization and the audited December 31, 1992
Balance Sheet and Income Statements for each organization; (iii) reviewed each
organization's listing of marketable securities showing rate, maturity and
market value as compared to book value; (iv) reviewed each organization's
internal loan classification list; (v) reviewed a listing of other real estate
owned for each organization; (vi) reviewed the budget and long range operating
plan of each organization; and (vii) reviewed market conditions and current
trading levels of outstanding equity securities of both organizations.
We have also had discussions with the management of Bank and Compass regarding
their respective financial results and have analyzed the most current financial
data available on Bank and Compass. We also considered such other information,
financial studies, analyses and investigations, and economic and market criteria
which we deemed relevant.
<PAGE>
Board of Directors
Security Bank, N.A.
November 18, 1993
Page 2
We have considered certain financial data of Bank and Compass, and have compared
that data with similar data for other banks and bank holding companies which
have recently merged or been acquired; furthermore, we have considered the
financial terms of these business combinations involving said banks and bank
holding companies.
We have not independently verified any of the information reviewed by us and
have relied on its being complete and accurate in all material respects. In
addition, we have not made an independent evaluation of the assets of Bank or
Compass.
In reaching our opinion we took into consideration the financial benefits of the
proposed transaction to Bank's shareholders. Based on all factors that we deem
relevant and assuming the accuracy and completeness of the information and data
provided to us by Bank and Compass, it is our opinion that as of November 18,
1993, the transaction is fair and equitable to Bank's shareholders from a
financial point of view.
We hereby consent to the reference to our firm in the proxy statement or
prospectus related to the merger transaction and to the inclusion of our opinion
as an exhibit to the proxy statement or prospectus related to the merger
transaction.
Respectfully submitted,
ALEX SHESHUNOFF & CO.
INVESTMENTS BANKING
AUSTIN, TEXAS
By: THOMAS R. MECREDY
-----------------------
Thomas R. Mecredy
Senior Vice President
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20:
- -------
Section 17 of Article V of Compass' By-Laws provides in part as follows:
Without limitation, the Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, 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 as
a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding to the full extent
permitted by the General Corporation Law of Delaware, upon such
determination having been made as to his good faith and conduct as is
required by said General Corporation Law. Expenses incurred in
defending a civil or criminal action, suit or proceeding shall be paid
by the Corporation in advance of the final disposition of such action,
suit or proceeding to the extent, if any, authorized by the Board of
Directors in accordance with the provisions of said General
Corporation Law, officer, employee or agent to repay such amount
unless it shall ultimately be determined that he is entitled to be
indemnified by the Corporation.
Under Section 145 of the Delaware General Corporation Law (the "GCL"),
directors, advisory directors and officers of a Delaware corporation are
entitled to indemnification permitted by the statute as provided in such
corporation's certificate of incorporation, by-laws, resolutions and other
proper action.
In addition, Article 8 of Compass' Restated Certificate of
Incorporation, as amended, provides:
No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty of
such director, except (i) for breach of the director's duty of loyalty
to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) pursuant to Section 174 of the Delaware
General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit. No amendment to or
repeal of this Article 8 shall apply to or have any effect on the
liability or alleged liability of any director of the Corporation for
or with respect to any acts or omissions of such director occurring
prior to such amendment or repeal.
This provision is identical to, and is authorized by, 1986 amendments to
the GCL, Section 102(b)(7).
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of Compass
pursuant to the foregoing provisions, or otherwise, Compass has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by Compass of expenses incurred or paid by a director, officer or
controlling person of Compass in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, Compass will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II - 1
<PAGE>
Item 21: Exhibits and Financial Statement Schedules.
- ------- -------------------------------------------
An index to Exhibits appears at pages II-6 through II-7 hereof.
Item 22: Undertakings.
- ------- ------------
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of the
Registrant's annual report pursuant to section 15(d) of the Securities Exchange
Act of 1934) that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed
pursuant to the immediately preceding paragraph or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II - 2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Birmingham,
State of Alabama, on January 14, 1994.
COMPASS BANCSHARES, INC.
By: *
------------------------------------
D. Paul Jones, Jr.
Chairman, Chief Executive Officer
and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
II - 3
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
* Director, Chairman, January 14, 1994
- --------------------------- Chief Executive
D. Paul Jones, Jr. Officer and Treasurer
* Chief Financial January 14, 1994
- --------------------------- Officer
Garrett R. Hegel
* Chief Accounting January 14, 1994
- --------------------------- Officer
Michael A. Bean
Director January __, 1994
- ---------------------------
Harry B. Brock, Jr.
* Director January 14, 1994
- ---------------------------
Stanley M. Brock
* Director January 14, 1994
- ---------------------------
Charles M. Daniel
* Director January 14, 1994
- ---------------------------
William Eugene Davenport
* Director January 14, 1994
- ---------------------------
Garry Neil Drummond, Sr.
* Director January 14, 1994
- ---------------------------
Marshall Durbin, Jr.
Director January __, 1994
- ---------------------------
Tranum Fitspatrick
* Director January 14, 1994
- ---------------------------
Thomas E. Jernigan
Director January __, 1994
- ---------------------------
G. W. "Red" Leach, Jr.
Director January __, 1994
- ---------------------------
Goodwin L. Myrick
* Director January 14, 1994
- ---------------------------
John S. Stein
*By: DANIEL B. GRAVES
-----------------------
Daniel B. Graves, Attorney-in-Fact
II - 4
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- ----------------------
*2 Agreement and Plan of Merger by and between
Compass Bancshares, Inc. and Security Bank, N.A.,
dated as of November 19, 1993 (included as
Appendix I to the Proxy Statement/Prospectus in
Part I of this Registration Statement)
*3(a) Restated Certificate of Incorporation of the
Registrant dated May 17, 1982 (Filed with the
December 31, 1982 Form 10-K of the Registrant and
incorporated herein by reference) (File No.
0-6032)
*3(b) Certificate of Amendment dated May 20, 1986 to
Restated Certificate of Incorporation of the
Registrant (filed as Exhibit 4(b) to Registration
Statement on Form S-8, Registration No. 33-39095,
and incorporated herein by reference) (File No.
0-6032)
*3(c) Certificate of Amendment dated May 15, 1987 to
Restated Certificate of Incorporation of the
Registrant (Filed as Exhibit 3.1.2 to
Post-Effective Amendment No. 1 to Registration
Statement on Form S-4, Registration No. 33-10797
and incorporated herein by reference) (File No.
0-6032)
3(d) Certificate of Amendment dated November 3, 1993
to Restated Certificate of Incorporation of the
Registrant
*3(e) Bylaws of the Registrant (Amended and Restated as
of March 15, 1982) (Filed with the December 31,
1982 10-K of the Registrant and incorporated
herein by reference) (File No. 0-6032)
5 Opinion and consent of Jerry W. Powell, Esquire,
as to the legality of the securities being
registered
8 Opinion and consent of Liddell, Sapp, Zivley,
Hill & LaBoon, L.L.P., regarding tax matters
*10 Supplemental Retirement Agreement dated as of
March 18, 1991, between the Registrant and Harry
B. Brock, Jr. (filed as Exhibit 10 to the
December 31, 1991 Form 10-K of the Registrant and
incorporated herein by reference.) (File No.
0-6032)
*13(a) The Registrant's Annual Report to Shareholders
and Annual Report on Form 10-K for the fiscal
year ended December 31, 1992 (File No. 0-6032)
II - 5
<PAGE>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
-------------- ----------------------
*13(b) The Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1993 (File No.
06032)
*13(c) The Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993 (File No.
06032)
*13(d) The Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1993 (File
No. 06032)
21 List of Subsidiaries of Compass Bancshares, Inc.
23(a) Consent of KPMG Peat Marwick,
Independent Certified Public Accountants--Compass
Bancshares, Inc.
23(b) Consent of KPMG Peat Marwick, Independent
Certified Public Accountants--Security Bank,
National Association
23(c) Consent of Jerry W. Powell, Esquire (included in
the opinion in Exhibit 5)
23(d) Consent of Liddell, Sapp, Zivley, Hill & LaBoon,
L.L.P. (included in the opinion in Exhibit 8)
23(e) Consent of Alex Sheshunoff & Co. Investment
Banking
24(a) Power of Attorney
24(b) Compass Board of Director Resolutions
99(a) Notice of Special Meeting of Shareholders of
Security
99(b) Form of Proxy for Special Meeting of Shareholders
of Security
99(c) President's letter to Security Shareholders
____________________________
*Incorporated by reference
II - 6
<PAGE>
===========================
EXHIBIT 3(d)
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE
OF
INCORPORATION
===========================
<PAGE>
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
CENTRAL BANCSHARES OF THE SOUTH, INC.
(Originally Incorporated under the name "Central and State
National Corporation of Alabama" on December 8, 1970)
Central Bancshares of the South, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Central
Bancshares of the South, Inc. resolutions were duly adopted setting forth
the proposed amendment to the Restated Certificate of Incorporation of said
corporation, declaring said amendment to be advisable and calling for the
presentation of the proposed amendment to shareholders of the Corporation
at a special meeting. The resolution setting forth the proposed amendment
is as follows:
RESOLVED, that Article 1 of the corporation's Restated
Certificate of Incorporation be revised to read as follows:
"1. Name. The name of the corporation is COMPASS
BANCSHARES, INC. (hereinafter referred to as the "Corporation")."
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, a special meeting of the stockholders of said corporation was
duly called and held, upon notice in accordance with Section 222 of the
General Corporation Law of the State of Delaware, at which meeting the
necessary number of shares as required by statute were voted in favor of
the amendment.
<PAGE>
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation will not be reduced
under or by reason of said amendment.
IN WITNESS WHEREOF, Central Bancshares of the South, Inc. has caused
this certificate to be executed by D. Paul Jones, Jr. , as
------------------------- -
Chairman, Chief Executive Officer, and President and attested by
---------------------------------------------------
Jerry W. Powell , as Secretary , this the 3rd day of November,
------------------- -------------- -------
1993.
CENTRAL BANCSHARES OF THE SOUTH, INC.
By: D. PAUL JONES
---------------------------------------
Its: Chairman, Chief Executive Officer ,
------------------------------------
and President
------------------------------------
ATTEST:
JERRY W. POWELL
----------------------------------
Its: Secretary
--------------------------------
<PAGE>
STATE OF ALABAMA )
JEFFERSON COUNTY )
I, Barbara S. Edmonds , a Notary Public in and
----------------------------------------
for said county in said state, hereby certify that D. Paul Jones, Jr.
----------------------
, as Chairman, CEO and President , and Jerry W. Powell , as
------------------------------- --------------------------
Secretary of Central Bancshares of the South, Inc., a Delaware
------------------
corporation, whose names in such capacities are signed to the foregoing
instrument, and who are known to me, acknowledged before me on this day
that being informed of the contents of the instrument, they, as such
officers and with full authority, executed the same voluntarily for and as
the act and deed of said Corporation, and that the facts contained therein
are true.
Given under my hand this 3 day of November , 1993.
----- --------------
BARBARA S. EDMONDS
-----------------------------------------
Notary Public
My Commission Expires: 9-8-95
-------------------
<PAGE>
===========================
EXHIBIT 5
OPINION AND CONSENT OF
JERRY W. POWELL, ESQUIRE
===========================
<PAGE>
January 14, 1994
Board of Directors
Compass Bancshares, Inc.
15 South 20th Street
Birmingham, Alabama 35233
Re: Compass Bancshares, Inc. -- Registration of 700,000 Shares of
Common Stock $2.00 Per Share Par Value on Securities and Exchange
Commission Form S-4
Dear Sirs:
In connection with the registration under the Securities Act of 1933,
as amended, of 700,000 shares of common stock, $2.00 per share par value
(the "Company Stock") of Compass Bancshares, Inc., a Delaware corporation
(the "Company"), for issuance and sale in the manner described in the
Company's registration statement on Form S-4 filed with the Securities and
Exchange Commission, to which this opinion is an exhibit (the "Registration
Statement"), I, as General Counsel to the Company, have examined such
corporate records, certificates and other documents as I have considered
necessary or appropriate for the purposes of this opinion.
On the basis of the foregoing, I am of the opinion that the shares of
the Company Stock offered pursuant to the Registration Statement have been
duly and validly authorized and are, or when issued in accordance with
appropriate corporate proceedings and the terms of the respective governing
documents will be, duly and validly issued, fully paid and nonassessable.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Yours very truly,
JERRY W. POWELL
-----------------------
Jerry W. Powell
General Counsel
<PAGE>
=========================
EXHIBIT 8
OPINION AND CONSENT OF
LIDDELL, SAPP, ZIVLEY,
HILL & LABOON, L.L.P.
REGARDING TAX MATTERS
=========================
<PAGE>
[LIDDELL, SAPP, ZIVLEY, HILL & LABOON, L.L.P. LETTERHEAD]
January 14, 1994
Compass Bancshares, Inc.
15 South 20th Street
Birmingham, Alabama 35233
Gentlemen:
You have requested our opinion with respect to the disclosures relating to the
material federal income tax consequences generally applicable to the receipt by
shareholders of Security Bank, National Association, a national banking
association ("Security"), of shares of common stock, $2.00 par value per share
("Compass Common Stock"), of Compass Bancshares, Inc., a Delaware corporation
("Compass"), in connection with the proposed merger (the "Merger") of Security
with and into Compass Security Interim Bank, a Texas state bank ("Interim") and
a wholly-owned subsidiary of Compass formed for the purpose of effecting the
Merger, as described in the Proxy Statement/Prospectus relating to the Merger
(the "Proxy Statement/Propsectus") forming a part of the Registration Statement
on Form S-4 (the "Registration Statement") being filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the "Act").
It is our opinion that the discussions and legal conclusions set forth
in the Proxy Statement/Prospectus under the heading "Summary-Federal Income Tax
Consequences" and "The Merger-Federal Income Tax Consequences" are accurate and
complete in all material respects and constitute our opinion of the material tax
consequences to shareholders of Security receiving Compass Common Stock in the
Merger.
Our opinion is based and conditioned upon the initial and continuing
accuracy of the facts and the factual matters assumed as set forth in the Proxy
Statement/Prospectus. Our opinion is also based upon existing provisions of the
Internal Revenue Code of 1986, as amended, regulations promulgated or proposed
thereunder and interpretations thereof by the Internal Revenue Service and the
courts, all of which are subject to change with prospective or retroactive
effect, and our opinion could be adversely affected or rendered obsolete by any
such change.
<PAGE>
Compass Bancshares, Inc
January 14, 1994
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the use of our name in the Proxy Statement/Prospectus
under the captions "Summary-Federal Income Tax Consequences", "The
Merger-Federal Income Tax Consequences" and "Legal Opinions". In giving this
consent, we do not thereby admit that we are within the category of persons
whose consent is required under Section 7 of the Act and the rules and
regulations thereunder.
Very truly yours,
LIDDELL, SAPP, ZIVLEY,
HILL & LABOON, L.L.P.
<PAGE>
===========================
EXHIBIT 21
LIST OF SUBSIDIARIES OF
COMPASS BANCSHARES, INC.
===========================
<PAGE>
LIST OF SUBSIDIARIES OF
COMPASS BANCSHARES, INC.
Name of Subsidiary Place of Incorporation
- ------------------ ----------------------
Compass Bank Alabama
Compass Bancshares Insurance, Inc. Alabama
Compass Brokerage, Inc. Alabama
Compass Mortgage Corporation Delaware
Compass Capital Markets, Inc. Alabama
Compass Multistate Services Corporation Alabama
Compass Fiduciary Services, Ltd., Inc. Alabama
Compass Financial Corporation Alabama
Central Bank of the South Alabama
Compass Securities, Inc. Alabama
Central Land Holding Corporation Alabama
Compass Investments, Inc. Alabama
Compass Underwriters, Inc. Alabama
Compass Bank, N.A. United States
Compass Bank United States
Compass Banks of Texas, Inc. Delaware
Compass Bancorporation of Texas, Inc. Delaware
Compass Bank - Dallas Texas
River Oaks Trust Company Texas
Compass Texas Management, Inc. Texas
River Oaks Trust Corporation Texas
Compass Bank - Houston Texas
River Oaks Bank Building, Inc. Texas
River Oaks Securities, Inc. Texas
P.I. Holdings No. 1, Inc. Texas
P.I. Console, Inc. Texas
P.I. Holdings No. 2, Inc. Texas
<PAGE>
===============================
EXHIBIT 23(a)
COMPASS BANCSHARES, INC.
CONSENT OF KPMG PEAT MARWICK
INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
===============================
<PAGE>
ACCOUNTANT'S CONSENT
Board of Directors
Compass Bancshares, Inc.
We consent to the use of our report incorporated herein by reference and to
the reference to our firm under the heading "Experts" in the Prospectus.
KPMG PEAT MARWICK
Birmingham, Alabama
January 14, 1994
<PAGE>
======================================
EXHIBIT 23(b)
SECURITY BANK, NATIONAL ASSOCIATION
CONSENT OF KPMG PEAT MARWICK
INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
======================================
<PAGE>
ACCOUNTANT'S CONSENT
Board of Directors
Security Bank, National Association
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the Prospectus.
KPMG PEAT MARWICK
Houston, Texas
January 14, 1994
<PAGE>
===================================
EXHIBIT 23(e)
CONSENT OF ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
===================================
<PAGE>
ALEX SHESHUNOFF & CO. INVESTMENT BANKING LETTERHEAD
CONSENT OF ALEX SHESHUNOFF & CO. INVESTMENT BANKING
In connection with the proposed merger of Security Bank, Houston,
Texas and Central Bancshares of the South, Birmingham, Alabama, the
undersigned, acting as an independent financial analyst to the common
shareholders of Security Bank, hereby consent to the reference to our
firm in the proxy statement and to the inclusion of our fairness
opinion as an exhibit to the proxy statement.
January 7, 1994
ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
AUSTIN, TEXAS
By: THOMAS R. MECREDY
----------------------------------
Thomas R. Mecredy
Senior Vice President
<PAGE>
====================
EXHIBIT 24(a)
POWER OF ATTORNEY
====================
<PAGE>
POWER OF ATTORNEY
WHEREAS, Central Bancshares of the South, Inc. (the "Company")
proposes to file registration statements and amendments thereto under the
Securities Act of 1933, as amended, with respect to the issuance and sale
of shares of common stock of the Company in connection with the acquisition
by the Company of Security Bank, N.A.;
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, that the Company and
the undersigned directors and officers of said Company, individually as a
director and/or as an officer of the Company, hereby make, constitute and
appoint each of D. Paul Jones, Jr., Garrett R. Hegel, Jerry W. Powell, and
Daniel B. Graves their true and lawful attorney-in-fact for each of them
and in each of their names, places and steads to sign and cause to be filed
with the Securities and Exchange Commission said registration statement and
any appropriate amendments thereto, to be accompanied by prospectuses and
any appropriately amended prospectuses and any necessary exhibits.
The Company hereby authorizes said persons or any one of them to
execute said registration statement and amendments thereto on its behalf as
attorney-in-fact for it and its authorized officers, and to file the same
as aforesaid.
The undersigned directors and officers of the Company hereby authorize
said persons or any one of them to sign said registration statements on
their behalf as attorney-in-fact and to amend, or remedy any deficiencies
with respect to, said registration statements by appropriate amendment or
amendments and to file the same as aforesaid.
DONE as of this the 18th day of October, 1993.
CENTRAL BANCSHARES OF THE SOUTH, INC.
By: D. PAUL JONES, JR.
----------------------------------
Its Chairman, Chief Executive
Officer and Treasurer
D. PAUL JONES, JR.
----------------------------------
D. Paul Jones, Jr.
GARRETT R. HEGEL
----------------------------------
Garrett R. Hegel
MICHAEL A. BEAN
----------------------------------
Michael A. Bean
<PAGE>
-----------------------------
Harry B. Brock, Jr.
STANLEY M. BROCK
-----------------------------
Stanley M. Brock
CHARLES M. DANIEL
-----------------------------
Charles M. Daniel
WILLIAM EUGENE DAVENPORT
-----------------------------
William Eugene Davenport
GARRY N. DRUMMOND, SR.
-----------------------------
Garry N. Drummond, Sr.
MARSHALL DURBIN, JR.
-----------------------------
Marshall Durbin, Jr.
-----------------------------
Tranum Fitzpatrick
THOMAS E. JERNIGAN
-----------------------------
Thomas E. Jernigan
-----------------------------
G. W. Leach, Jr.
-----------------------------
Goodwin L. Myrick
JOHN S. STEIN
-----------------------------
John S. Stein
<PAGE>
============================
EXHIBIT 24(b)
COMPASS BOARD OF DIRECTOR
RESOLUTIONS
============================
<PAGE>
CERTIFICATE OF THE ASSISTANT SECRETARY REGARDING
RESOLUTIONS OF THE BOARD OF DIRECTORS
OF COMPASS BANCSHARES, INC., RELATING TO
ACQUISITION OF SECURITY BANK, N.A., HOUSTON, TEXAS
I, the undersigned Assistant Secretary of Compass Bancshares, Inc., a
Delaware corporation (which was, until November 8, 1993, known as "Central
Bancshares of the South, Inc.), and a custodian of the minutes book and other
records of the Board of Directors of said Corporation, do hereby certify that
the following resolutions were adopted by the Board of Directors of said
Corporation in a meeting, duly called and held on October 18, 1993:
RESOLVED, that the Board of Directors of Central Bancshares of
the South, Inc., a Delaware corporation (the "Corporation"), has
determined that it is desirable and in the best interests of the
Corporation and its stockholders to acquire (the "Security Bank
Acquisition") Security Bank, N.A. (the "Bank"), which is located in
Houston, Texas, in accordance with the basic terms of such transaction
as described to this Board by the Chairman and Chief Executive
Officer, the Chief Financial Officer, and/or the General Counsel and
Secretary of the Corporation at the meeting at which these resolutions
were adopted and as described in the letter of intent dated September
27, 1993, between the Bank and Compass Bancshares, Inc., a
wholly-owned subsidiary of the Corporation; and further
RESOLVED, that the proper officers of the Corporation, in
consultation with counsel, are authorized, empowered, and directed to
negotiate the terms and conditions of a definitive agreement and plan
or plans of merger, as well as any amendments or supplements thereto,
among the Corporation, the Bank, and any subsidiary banks or
subsidiary corporations of the Corporation now in existence or to be
formed for the purposes of effectuating the acquisition by the
Corporation of the Bank (referred to collectively herein as the
"Agreement"), and to execute, attest, and deliver the Agreement in
such form as they, in their sole discretion, shall approve, such
approval to be conclusively evidenced by their execution, attestation,
and delivery of the Agreement; and further
RESOLVED, that all negotiations and any other actions taken and
things done heretofore by the officers of the Corporation with respect
to the execution, attestation, and delivery of written agreements in
principle or definitive agreements relating to the acquisition of the
Bank are hereby ratified and approved; and further
RESOLVED, that the organization of a corporation as a subsidiary
of the Corporation or as a subsidiary of an existing affiliate of the
Corporation for the purpose of effectuating the Security Bank
Acquisition is hereby authorized, approved, and ratified in the event
that it shall be determined or has been determined by the officers of
the Corporation, after consultation with counsel,
<PAGE>
that such organization of a subsidiary is necessary or appropriate for
the effectuation of the acquisition of the Bank; and further
RESOLVED, that to the extent that the approval of the
Corporation as the sole stockholder of any of its subsidiaries is
required in connection with the Security Bank Acquisition, the
Corporation hereby waives any and all notice of a meeting or meetings
of stockholders of any such subsidiary or subsidiaries for the
purposes of approving the Security Bank Acquisition or the Agreement,
and the Board of Directors of the Corporation hereby approves,
authorizes, and ratifies the Security Bank Acquisition and the
Agreement as the stockholder of its subsidiaries now existing or to be
organized, it being the intent of the Board of Directors of the
Corporation that the approval by the Corporation set forth in this
resolution shall constitute any and all approval required by law for
the approval of the Security Bank Acquisition or the Agreement by the
Corporation as a stockholder; and further
RESOLVED, that the Corporation's and the Corporation's
subsidiaries' officers are authorized, empowered, and directed to
prepare, or cause to be prepared, and to execute, attest, and file all
applications, or requests for waiver of application requirements,
which they shall deem necessary or appropriate with the Office of the
Comptroller of the Currency, Board of Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation, the Texas Banking
Department, and any other appropriate bank and bank holding company
regulatory authorities with respect to the Security Acquisition; and
further
RESOLVED, that, in the event that the Agreement shall
contemplate that the Corporation shall issue as consideration in
connection with the Security Bank Acquisition shares of its common
stock or other securities of the Corporation, the proper officers of
the Corporation, in consultation with counsel, are authorized and
directed to prepare, execute, attest, and file a Registration
Statement on Form S-4 (the "Registration Statement") with the United
States Securities and Exchange Commission (the "Commission") relating
to the Security Bank Acquisition and the proposed issuance of
securities of the Corporation as consideration in such transaction;
and further
RESOLVED, that the proper officers of the Corporation are
authorized, empowered, and directed for and on behalf of the
Corporation to do any and all acts and things necessary or appropriate
in connection with such filing of the Registration Statement,
including the execution, attestation, and filing of any amendments or
supplements thereto, to effectuate the registration of securities of
the Corporation to be issued in the Security Bank Acquisition and the
continuation of the effectiveness of the Registration Statement; and
further
2
<PAGE>
RESOLVED, that each officer or director who may be required to
execute the Registration Statement or any amendment or supplement to
the Registration Statement (whether on behalf of the Corporation or as
an officer or director thereof) is hereby authorized to constitute and
appoint D. Paul Jones, Jr., Garrett R. Hegel, Jerry W. Powell, and
Daniel B. Graves, and each of them acting singularly, his true and
lawful attorney-in-fact and agents, with full power of substitution
for him and in his name, place, and stead, in any and all capacities,
to sign the Registration Statement and any and all amendments and
supplements thereto; and further
RESOLVED, that the proper officers of the Corporation are
authorized in the name and on behalf of the Corporation to take any
and all action that they deem necessary or appropriate in order to
effect the registration, qualification, or exemption from registration
or qualification of securities of the Corporation included in the
Registration Statement for issue, offer, sale, or trade under the
"blue sky" or securities laws of any of the states of the United
States of America or the securities laws of any jurisdiction or
foreign country where such action may be advisable or necessary, to
effect the registration of securities of the Corporation to issued in
connection with the Security Bank Acquisition, to execute,
acknowledge, verify, deliver, file or cause to be published any
application, surety bonds, reports, irrevocable consents to service of
process, appointment of attorneys for service of process, and any
other documents or instruments that may be required under such laws,
and to take any and all further action that they may deem necessary or
advisable in order to maintain any such registration, qualification,
or exemption for so long as they deem necessary as required by law;
and further
RESOLVED, that the Corporation hereby consents to service of
process in any state or jurisdiction in which such consent is required
under the blue sky laws as a precondition to the offer and sale of
securities of the Corporation to be issued in the Security Bank
Acquisition, and that Jerry W. Powell, General Counsel and Secretary
of the Corporation, is hereby designated as agent for service of
process in connection with the Registration Statement and any consent
to service of process that may be required by the blue sky laws of any
jurisdiction as a precondition to the offer and sale of such
securities; and further
RESOLVED, that the appropriate officers of the Corporation are
hereby authorized, empowered, and directed to do any and all other or
further acts, and to prepare, or cause to be prepared, and to execute,
attest, and deliver all other or further instruments, certificates,
applications, reports, and documents, including without limitation
obtaining any necessary or appropriate regulatory approvals, all on
behalf of the Corporation as they, in their discretion, may deem
necessary or appropriate to effectuate the purposes of these
resolutions, and that all acts and things undertaken and completed
heretofore by the proper officers of
3
<PAGE>
the Corporation in connection with the Security Bank Acquisition as
contemplated by these resolutions are hereby approved, ratified, and
confirmed.
I further certify that the foregoing resolutions have not been
modified, amended, or rescinded and that said resolutions are in full force
and effect as of the date of this certificate.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of the
Corporation this the 11th day of January, 1994.
DANIEL B. GRAVES
----------------
Daniel B. Graves
Assistant Secretary
Compass Bancshares, Inc.
[Corporate Seal]
4
<PAGE>
==========================
EXHIBIT 99(a)
NOTICE OF SPECIAL
MEETING OF SHAREHOLDERS
OF SECURITY
==========================
<PAGE>
SECURITY BANK, NATIONAL ASSOCIATION
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
Notice is hereby given that a Special Meeting of Shareholders
("Meeting") of Security Bank, National Association ("Security") will be
held at Security's office located at ________________________________, in
Houston, Texas on _______________, _______________, 1994, at ______ P.M.,
Houston time, for the following purposes:
1. To approve, ratify, confirm and adopt an Agreement and Plan of
Merger dated as of November 19, 1993 ("Merger Agreement"), providing for
the merger ("Merger") of Security into Compass Security Interim Bank, a
Texas state interim bank and wholly-owned subsidiary of Compass Bancshares,
Inc. being formed for the purpose of effecting the Merger. The terms of
the Merger Agreement are described in the attached Proxy
Statement/Prospectus, which the Board of Directors of Security encourages
each Shareholder to review carefully; and
2. To consider and transact such other business as may properly come
before the Meeting or any adjournments thereof.
The Board of Directors of Security has fixed _______________, 1994 as
the record date for the determination of the shareholders entitled to
notice of and to vote at the Meeting and any adjournment thereof. Only the
holders of shares of Security's common stock and preferred stock of record
at the close of business on such date are entitled to notice of, and to
vote at, the Meeting or any adjournments thereof.
IT IS IMPORTANT THAT YOUR STOCK BE REPRESENTED AT THE MEETING
REGARDLESS OF THE NUMBER OF SHARES YOU OWN, SINCE FAILURE TO VOTE BY PROXY
OR IN PERSON AT THE MEETING IS EQUIVALENT TO A VOTE AGAINST THE MERGER.
EVEN IF YOU PLAN TO ATTEND THE MEETING, AND CERTAINLY IF YOU DO NOT, PLEASE
COMPLETE, SIGN AND MAIL THE ENCLOSED PROXY IN THE ENCLOSED RETURN ENVELOPE
PROMPTLY. SUCH PROXY CAN BE REVOKED AT ANY TIME PRIOR TO ITS EXERCISE BY
FILING A DULY EXECUTED PROXY BEARING A LATER DATE, BY FILING A WRITTEN
NOTICE OF REVOCATION, OR BY APPEARING IN PERSON AT THE MEETING AND VOTING
BY WRITTEN BALLOT.
By Order of the Board of Directors
of Security Bank, National Association
___________________________________
Chairman of the Board
Houston, Texas
______________, 1994
<PAGE>
================
EXHIBIT 99(b)
FORM OF PROXY
================
<PAGE>
PROXY SECURITY BANK, NATIONAL ASSOCIATION PROXY
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
____________________, 1994
The undersigned hereby appoints _________________________ and
____________________, and each of them, with or without the other, proxies,
with full power of substitution, to vote all shares of common stock that
the undersigned is entitled to vote at the Special Meeting of the
Shareholders of Security Bank, National Association to be held at the
offices of Security Bank, National Association,
________________________________________, Houston, Texas ______, on
____________________, 1994 at __________ p.m. and at all adjournments
thereof as follows:
(1) Approval, ratification, confirmation and adoption of the
Agreement and Plan of Merger, dated as of November 19, 1993, by
and between Compass Bancshares, Inc. and Security Bank,
National Association.
[] For [] Against [] Abstain
(2) In their discretion, upon any other business which may properly
come before said meeting.
This Proxy will be voted as you specify above. If no
specification is made, the Proxy will be voted FOR proposal (1) above.
Receipt of the Notice of Special Meeting and the Proxy Statement/Prospectus
dated ____________________, 1994 is hereby acknowledged.
THIS PROXY IS SOLICITED BY THE SECURITY BANK, NATIONAL ASSOCIATION
BOARD OF DIRECTORS.
PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE PROXY CARD USING
THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES.
Please sign your name, exactly as it appears below. Joint owners must each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as it appears hereon. If held by a
corporation, please sign in full corporate name by the president or other
authorized officer. If held by a partnership, please sign in the
partnership's name by an authorized partner of officer.
Dated ___________________, 1994
_______________________________
Signature
_______________________________
Signature, if held jointly, or office or
title held
<PAGE>
===========================
EXHIBIT 99(c)
PRESIDENT'S LETTER
TO SECURITY SHAREHOLDERS
===========================
<PAGE>
[SECURITY BANK, NATIONAL ASSOCIATION LETTERHEAD]
_____________________, 1994
Dear Shareholders:
A special meeting of shareholders (the "Meeting") of Security Bank,
National Association ("Security") will be held at ________ P.M., Houston
time, on ___________ ___, 1994, at __________________________________ in
Houston, Texas. At the Meeting, Security's shareholders will consider and
vote to approve, ratify, confirm and adopt an Agreement and Plan of Merger
pursuant to which it is proposed that Security will merge (the "Merger")
with and into Compass Security Interim Bank ("Interim"), a Texas state
interim bank and wholly-owned subsidiary of Compass Bancshares, Inc.
("Compass") being formed for the purpose of effecting the Merger. The
enclosed Notice of Special Meeting of Shareholders outlines the business to
be transacted at the Meeting, and the enclosed Proxy Statement/Prospectus
explains the terms of the proposed Merger and provides other information
concerning Security, Interim and Compass. We urge you to read these
materials carefully.
Your Board of Directors believes that the Merger will provide
significant value to all Security shareholders and the affiliation of
Security with Compass through the Merger will enable Security to serve its
customers and communities better and to compete more effectively with other
financial institutions. After the Merger, Security's shareholders will own
publicly traded stock in Compass, a much larger, more diversified financial
institution with a history of paying dividends on its common stock.
For the Merger to become effective, among other conditions described
in the Proxy Statement/Prospectus, the holders of at least two-thirds of
the outstanding shares of Security's common stock and each class of
Security's preferred stock must vote in favor of the Merger. THE BOARD OF
DIRECTORS OF SECURITY UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
MERGER.
You are cordially invited to attend the Meeting. Your Board of
Directors cannot stress strongly enough that the vote of every shareholder,
regardless of the number of shares owned, is important. FAILURE TO VOTE BY
PROXY OR IN PERSON AT THE MEETING IS EQUIVALENT TO A VOTE AGAINST THE
MERGER. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE
REQUESTED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE. If you need assistance in completing
your Proxy, please call Adam J. Newar at Security at (713) 666-3100.
Very truly yours,
Frank S. Goldberg
