<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 6, 1995
REGISTRATION NO. 33-55899
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
TO
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
(PRIMARY STANDARD (I.R.S. EMPLOYER
(STATE OR OTHER INDUSTRIAL IDENTIFICATION NO.)
JURISDICTION OF CLASSIFICATION CODE
INCORPORATION OR NUMBER)
ORGANIZATION)
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 OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER UNIT(2) OFFERING PRICE FEE
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock $2.00 par
value.................. 950,000(1) $23.50 $22,325,000 $4,465.00
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Based upon the maximum number of shares to be issued pursuant to a Merger
Agreement between the Registrant and Southwest Bankers, Inc.
(2) Based upon the average of the bid and asked prices of Compass Bancshares,
Inc. common stock on October 3, 1994.
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>
LOCATION OF PROXY STATEMENT/
S-4 ITEM NUMBER AND HEADING PROSPECTUS HEADING
--------------------------- ----------------------------
<S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus.......................... Forepart of the Registration
Statement; Outside Front Cover
Page of Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus................. Table of Contents; Available
Information; Incorporation of
Certain Documents by Reference;
Introduction
3. Risk Factors, Ratio of Earnings to
Fixed Charges and Other Information. Introduction; Summary; Risk
Factors; Selected Financial
Data; Market Prices; The Merger;
Supervision and Regulation;
Index to Consolidated Financial
Statements of Southwest
4. Terms of the Transaction............. Forepart of the Registration
Statement; Introduction;
Summary; The Merger; Description
of Compass Common and Preferred
Stock; Comparison of Rights of
Shareholders of Southwest and
Compass; Information About
Compass; Appendix I and
Appendix II
5. Pro Forma Financial Information...... Not Applicable
6. Material Contacts with the Company
Being Acquired...................... Summary--The Merger; Summary--
Background and Reasons for the
Merger; Recommendation of Board
of Directors; The Merger;
Information About Southwest--
Certain Transactions
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters........... Not applicable
8. Interests of Named Experts and
Counsel............................. Relationships with Independent
Accountants; Experts; Legal
Opinions
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities......................... Indemnification
</TABLE>
<PAGE>
CROSS REFERENCE SHEET--(CONTINUED)
<TABLE>
<CAPTION>
LOCATION OF PROXY STATEMENT/
S-4 ITEM NUMBER AND HEADING PROSPECTUS HEADING
--------------------------- ----------------------------
<S> <C>
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 Reference........................ Incorporation of Certain
Documents by Reference;
Information About Compass
12. Information with Respect to S-2 or
S-3 Registrants..................... Not applicable
13. Incorporation of Certain Information
by Reference........................ Not applicable
14. Information with respect to
Registrants Other Than S-3 or S-2
Registrants......................... Not applicable
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 Companies....................... Not applicable
17. Information with Respect to Companies
Other Than S-2 or S-3 Companies..... Introduction; Summary; The
Merger; Selected Financial Data;
Market Prices; Information About
Southwest; Comparison of Rights
of Shareholders of Southwest and
Central; Index to Consolidated
Financial Statements of
Southwest
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations are to be Solicited.. The Proxy Card; Incorporation of
Certain Documents by Reference;
Introduction; Summary; The
Merger; Information About
Compass; Information About
Southwest; Relationships with
Independent Accountants;
Experts; Appendix II
19. Information if Proxies, Consents or
Authorizations are not to be
Solicited, or in an Exchange Offer.. Not applicable
</TABLE>
<PAGE>
[SOUTHWEST BANKERS, INC. LETTERHEAD]
FEBRUARY 6, 1995
Dear Shareholders:
A special meeting of shareholders (the "Meeting") of Southwest Bankers, Inc.
("Southwest") will be held at 9:00 A.M., San Antonio time, on Wednesday, March
8, 1995, at The Bank of San Antonio, 660 N. Main in San Antonio, Texas. At the
Meeting, Southwest's shareholders will consider and vote to approve, ratify,
confirm and adopt an Agreement and Plan of Reorganization pursuant to which it
is proposed that Southwest will merge (the "Merger") with and into Compass
Bancshares, Inc. ("Compass"), a Delaware corporation. 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 Southwest and
Compass. We urge you to read these materials carefully.
Your Board of Directors believes that the Merger will provide significant
value to all Southwest shareholders, and the affiliation of Southwest with
Compass through the Merger will enable Southwest to serve its customers and
communities better and to compete more effectively with other financial
institutions. After the Merger, Southwest'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 (2/3) of the
outstanding shares of Southwest's common stock and each class of Southwest's
preferred stock must vote in favor of the Merger. THE BOARD OF DIRECTORS OF
SOUTHWEST 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 Stephen M. Dufilho or
Brent Given at Southwest at (210) 224-6111.
Very truly yours,
/s/ Stephen M. Dufilho
Stephen M. Dufilho
President
<PAGE>
SOUTHWEST BANKERS, INC.
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
Notice is hereby given that a Special Meeting of Shareholders ("Meeting") of
Southwest Bankers, Inc. ("Southwest") will be held at The Bank of San Antonio,
660 N. Main, in San Antonio, Texas on Wednesday, March 8, 1995, at 9:00 A.M.,
San Antonio time, for the following purposes:
1. To consider and vote upon an Agreement and Plan of Reorganization
dated as of June 16, 1994, as amended ("Merger Agreement"), providing for
the merger ("Merger") of Southwest with and into Compass Bancshares, Inc.
("Compass"). The terms of the Merger Agreement are described in the
attached Proxy Statement/Prospectus, which the Board of Directors of
Southwest 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 Southwest has fixed January 17, 1995 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
Southwest'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
ofSouthwest Bankers, Inc.
/s/ Stephen M. Dufilho
Chairman of the Board
San Antonio, Texas
February 6, 1995
<PAGE>
SOUTHWEST BANKERS, INC. COMPASS BANCSHARES, INC.
PROXY STATEMENT/PROSPECTUS
Compass Bancshares, Inc., a Delaware corporation ("Compass"), has filed this
Proxy Statement/Prospectus as part of a registration statement (the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), with respect to 950,000 shares of Compass $2.00 par value
common stock ("Compass Common Stock") to be issued in a proposed transaction
whereby Southwest Bankers, Inc., a Texas corporation ("Southwest"), will be
merged (the "Merger") with and into Compass.
This Proxy Statement/Prospectus constitutes the proxy statement of Southwest
relating to the solicitation of proxies for use at the special meeting of
shareholders of Southwest (the "Meeting") scheduled to be held on Wednesday,
March 8, 1995, at 9:00 A.M., San Antonio time, at The Bank of San Antonio (the
"Bank"), 660 N. Main, San Antonio, Texas, and any adjournment thereof. At the
Meeting, the shareholders of Southwest will consider and vote upon a proposal
to approve, ratify, confirm and adopt an Agreement and Plan of Reorganization,
dated as of June 16, 1994, by and between Compass and Southwest, as amended
(the "Merger Agreement"), providing for, among other things, the merger of
Southwest with and into Compass and, in connection therewith, the receipt by
Southwest shareholders (other than dissenting shareholders) of 950,000 shares
of Compass Common Stock.
The Merger Agreement provides for the holders of Southwest's common stock,
par value $150 per share ("Southwest Common Stock"), Southwest's Series A
Cumulative Convertible Preferred Stock, par value $100 per share (the "Series
A Preferred Stock"), and Southwest's Series B Non-Cumulative Convertible
Preferred Stock, par value $100 per share (the "Series B Preferred Stock"),
issued and outstanding immediately prior to the effective time of the Merger
(the "Effective Time") (the Series A Preferred Stock and the Series B
Preferred Stock are collectively referred to as the "Southwest Preferred
Stock" and the Southwest Common Stock and the Southwest Preferred Stock are
collectively referred to as the "Southwest Stock"), other than dissenting
shareholders, to receive aggregate merger consideration (the "Merger
Consideration") equal to 950,000 Shares of Compass Common Stock.
Holders of Southwest Common Stock shall receive for each share of Southwest
Common Stock held at the Effective Time a number of shares of Compass Common
Stock equal to (i) 950,000 shares of Compass Common Stock to be issued to the
holders of Southwest Stock divided by (ii) the sum of (x) the number of shares
of Southwest Common Stock outstanding immediately prior to the Effective Time
and (y) the deemed number of shares of Southwest Common Stock into which the
shares of Southwest Preferred Stock outstanding immediately prior to the
Effective Time are convertible (the "Per Share Merger Consideration").
Holders of Series A Preferred Stock and Series B Preferred Stock shall
receive for each share of Series A Preferred Stock and Series 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 deemed
number of shares of Southwest Common Stock into which each such share of
Series A Preferred Stock and Series 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 average closing
price for Compass Common Stock as reported by the National Association of
Securities Dealers, Inc. ("NASD") Automated Quotation System ("NASDAQ")
National Market System for the thirty days of trading of Compass Common Stock
immediately preceding the tenth business day prior to the first business day
following the later of (i) the receipt of required regulatory approvals from
the Federal Deposit Insurance Corporation and the Federal Reserve Board and
the expiration of any applicable waiting period with respect thereto and (ii)
the approval of the Merger by Southwest's shareholders.
SEE "SUMMARY--THE MERGER"; "SUMMARY--DISSENTERS' RIGHTS"; "THE MERGER--
GENERAL"; "THE MERGER--DISSENTERS' APPRAISAL 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 Southwest Stock and
certain other conditions, all as more fully described in this Proxy
Statement/Prospectus. SEE "SUMMARY--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 shares of Compass Common Stock to be issued to the holders of
Southwest 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.
This Proxy Statement/Prospectus is first being mailed or delivered to
Southwest shareholders on or about February 6, 1995.
Compass Common Stock is publicly traded in the over-the-counter market and
quoted on the NASDAQ National Market System. On February 1, 1995, the last
reported sale price per share of Compass Common Stock was $26. No active
public trading market exists for Southwest 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 has been furnished by Compass, and all
information regarding Southwest and the Bank has been furnished by Southwest.
SOUTHWEST SHAREHOLDERS ARE URGED TO REVIEW AND CAREFULLY CONSIDER THE RISKS
DESCRIBED UNDER "RISK FACTORS".
The date of this Proxy Statement/Prospectus is February 6, 1995.
<PAGE>
PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION..................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 1
INTRODUCTION.............................................................. 3
SUMMARY................................................................... 5
Parties to the Merger.................................................... 5
Background of the Merger................................................. 5
The Merger............................................................... 6
Reasons for the Merger; Recommendation of Board of Directors............. 7
The Meeting.............................................................. 8
Record Date.............................................................. 8
Shareholder Votes Required............................................... 8
Dissenters' Rights....................................................... 8
Conditions to Consummation and Regulatory Approvals; Termination......... 8
Federal Income Tax Consequences.......................................... 9
Accounting Treatment..................................................... 9
RISK FACTORS.............................................................. 10
SELECTED FINANCIAL DATA................................................... 11
MARKET PRICES............................................................. 13
THE MERGER................................................................ 13
Background of the Merger................................................. 13
General.................................................................. 13
Reasons for the Merger................................................... 15
Operations After the Merger.............................................. 16
Other Terms and Conditions............................................... 16
Additional Agreements.................................................... 18
Business Pending Effective Time.......................................... 18
Amendment; Termination................................................... 18
Exchange of Shares....................................................... 19
Dissenters' Appraisal Rights............................................. 20
Federal Income Tax Consequences.......................................... 21
Government Approvals..................................................... 22
Accounting Treatment..................................................... 23
SUPERVISION AND REGULATION................................................ 23
General.................................................................. 23
Compass and Compass of Texas............................................. 23
The Subsidiary Banks..................................................... 25
Other.................................................................... 27
DESCRIPTION OF COMPASS COMMON AND PREFERRED STOCK......................... 28
Compass Common Stock..................................................... 28
Dividends................................................................ 28
Preemptive Rights........................................................ 29
Voting Rights............................................................ 29
Liquidation.............................................................. 29
Compass Preferred Stock.................................................. 29
COMPARISON OF RIGHTS OF SHAREHOLDERS OF SOUTHWEST AND COMPASS............. 29
Charter and By-Law Provisions Affecting Southwest and Compass Stock...... 29
Certain Differences Between the Corporation Law of Texas and Delaware and
Corresponding Charter and By-Law Provisions............................. 30
Mergers.................................................................. 30
Appraisal Rights......................................................... 30
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Special Meetings........................................................ 31
Actions Without a Meeting............................................... 31
Election of Directors................................................... 31
Voting on Other Matters................................................. 32
Preemptive Rights....................................................... 32
Dividends............................................................... 32
Liquidation Rights...................................................... 33
Redemption.............................................................. 33
Limitation of Liability and Indemnification............................. 33
Removal of Directors.................................................... 34
Inspection of Books and Records......................................... 34
Antitakeover Provisions................................................. 34
RESALE OF COMPASS STOCK.................................................. 35
INFORMATION ABOUT COMPASS................................................ 35
Incorporation of Certain Documents by Reference......................... 35
Interests of Certain Persons............................................ 35
Recent Developments..................................................... 35
INFORMATION ABOUT SOUTHWEST.............................................. 35
General................................................................. 35
Competition............................................................. 36
Legal Proceedings....................................................... 36
Regulatory Commitments.................................................. 36
Market Price and Dividends.............................................. 36
Security Ownership of Management and Principal Shareholders............. 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF SOUTHWEST.............................................. 38
Results of Operations................................................... 38
General................................................................. 38
Net Interest Income..................................................... 38
Provision for Loan Losses............................................... 41
Non-Interest Income..................................................... 41
Operating Expenses...................................................... 42
Federal Income Taxes.................................................... 42
Capital Resources, Liquidity and Financial Condition.................... 43
Capital Resources....................................................... 43
Note Payable............................................................ 44
Liquidity............................................................... 44
Interest Rate Sensitivity............................................... 45
Securities.............................................................. 47
Deposits................................................................ 47
Loans................................................................... 48
Allowance for Loan Losses and Risk Elements............................. 48
Non-Accrual, Past Due, and Restructured Loans........................... 49
Return on Equity and Assets............................................. 50
RELATIONSHIPS WITH INDEPENDENT ACCOUNTANTS............................... 50
EXPERTS.................................................................. 50
LEGAL OPINIONS........................................................... 50
INDEMNIFICATION.......................................................... 51
OTHER MATTERS............................................................ 51
INDEX TO FINANCIAL STATEMENTS OF SOUTHWEST BANKERS, INC.................. F-1
APPENDIX I--MERGER AGREEMENT, AS AMENDED
APPENDIX II--DISSENTERS' RIGHTS OF APPRAISAL
</TABLE>
<PAGE>
AVAILABLE INFORMATION
Compass has filed with the Commission in Washington, D.C. a Registration
Statement on Form S-4 under the Securities Act, for the registration of the
Compass Common Stock to be issued and exchanged in the proposed 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, 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
material 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 PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS CONCERNING COMPASS
(OTHER THAN CERTAIN EXHIBITS TO SUCH DOCUMENTS) ARE AVAILABLE TO EACH
BENEFICIAL OWNER OF SOUTHWEST STOCK WITHOUT CHARGE UPON REQUEST FROM THE
CONTROLLER OF COMPASS AT 15 SOUTH 20TH 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 DECEMBER 8, 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,
1993 (File No. 0-6032);
(ii) Compass' Quarterly Report on Form 10-Q for the quarter ended March
31, 1994 (File No. 0-6032);
(iii) Compass' Quarterly Report on Form 10-Q for the quarter ended June
30, 1994 (File No. 0-6032);
(iv) Compass' 1st Amendment to its Quarterly Report on Form 10-Q/A for
the quarter ended June 30, 1994 (File No. 0-6032);
(v) Compass' Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994 (File No. 0-6032);
(vi) Compass' Proxy Statement dated March 27, 1994, relating to its
annual meeting of shareholders held on May 16, 1994 (File No. 0-
6032); and
(vii) 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).
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 to which this Proxy Statement/Prospectus relates 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
1
<PAGE>
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, Southwest, 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, Southwest,
the Bank, or their respective affiliates since the date of this Proxy
Statement/Prospectus.
2
<PAGE>
PROXY STATEMENT/PROSPECTUS
INTRODUCTION
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Board of Directors of Southwest Bankers, Inc.
("Southwest"), San Antonio, Texas, for use at the special meeting of Southwest
shareholders to be held at the time and place set forth in the foregoing notice
and at any adjournments thereof (the "Meeting"). This 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 the merger ("Merger") of Southwest
with and into Compass.
The following proposals will be considered and voted upon at the Meeting:
(1) To approve, ratify, confirm and adopt an Agreement and Plan of
Reorganization, dated as of June 16, 1994, by and between Compass and
Southwest, as amended (the "Merger Agreement"), pursuant to which Southwest
will be merged with and into Compass (the "Merger"); and
(2) To consider and transact such other business as may properly come
before the Meeting.
The Board of Directors of Southwest has fixed , 1995 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,
Southwest had (i) 10,000 shares of Southwest Common Stock, $150.00 par value
per share, authorized, of which 1,326 shares were issued and outstanding, (ii)
15,000 shares of Series A Preferred Stock, par value $100.00 per share,
authorized, all of which were issued and outstanding, and (iii) 21,550 shares
of Series B Preferred Stock, par value $100.00 per share, authorized, all of
which were issued and outstanding. Holders of Series A Preferred Stock are
entitled to preferred cumulative dividends of $10.00 per share per annum.
Holders of Series B Preferred Stock are entitled to non-cumulative dividends of
$10.00 per share per annum. Series A Preferred Stock is convertible, upon the
affirmative vote of the holders of at least two-thirds ( 2/3) of the then
outstanding shares of Series A Preferred Stock, into Southwest Common Stock at
a rate of .06504 shares of Southwest Common Stock for each share of Series A
Preferred Stock held. Series B Preferred Stock is convertible, upon the
affirmative vote of the holders of at least two-thirds ( 2/3) of the then
outstanding shares of Series B Preferred Stock, into shares of Southwest Common
Stock at a rate of .074074 shares of Southwest Common Stock for each share of
Series B Preferred Stock held.
As of the Record Date, the Southwest Common Stock was held by 23 holders of
record, the Series A Preferred Stock was held by 15 holders of record, and the
Series B Preferred Stock was held by 15 holders of record. Each share of
Southwest Stock entitles the holder of record on the Record Date to one vote as
to the Merger. Each share of Southwest Common Stock entitles the holder of
record on the Record Date 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 the shares of Southwest 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 ( 2/3) of the outstanding shares of Southwest
Common Stock, two-thirds of the outstanding shares of Series A Preferred Stock,
and two-thirds of the outstanding shares of Series B Preferred Stock is
required for approval of the Merger. SOUTHWEST'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.
Certain holders of Southwest Stock have agreed, pursuant to a Voting
Agreement and Irrevocable Proxy (the "Voting Agreement"), to vote all of their
shares of Southwest Stock in favor of the Merger, provided that the closing
price for Compass Common Stock, as quoted in the NASDAQ National Market System,
on the trading day immediately preceding the date of the Meeting is not less
than $23.25 per share. Of the 1,326 shares of Southwest Common Stock, 15,000
shares of Series A Preferred Stock and 21,550 shares of Series B Preferred
Stock currently outstanding, 887, or 66.9%, of the Southwest Common Stock,
11,845, or 79.0%,
3
<PAGE>
of the Series A Preferred Stock, and 17,018, or 79.0%, of the Series B
Preferred Stock are subject to the Voting Agreement. SUBJECT TO THE CONDITIONS
DESCRIBED ABOVE, BECAUSE THE HOLDERS OF THE SHARES OF SOUTHWEST STOCK SUBJECT
TO THE VOTING AGREEMENT CONTROL, WITH THE POWER TO VOTE, OVER TWO-THIRDS OF THE
SHARES OF EACH CLASS OF SOUTHWEST 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 SOUTHWEST SHAREHOLDERS. SEE "SUMMARY--REASONS FOR THE MERGER;
RECOMMENDATION OF BOARD OF DIRECTORS"; "SUMMARY--SHAREHOLDER VOTES REQUIRED";
"THE MERGER--GENERAL"; AND "THE MERGER--ADDITIONAL AGREEMENTS".
Proxies in the form enclosed are solicited by Southwest'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 vote at the Meeting will have the same
effect as a vote against the Merger. At present, Southwest'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 Southwest's Board of Directors' recommendation
pursuant to the discretionary authority conferred, if any, by the proxy. SEE
"OTHER MATTERS"; "THE MERGER--DISSENTERS' APPRAISAL RIGHTS"; AND APPENDIX II.
A proxy may be revoked at any time prior to its exercise by filing, at
Southwest'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 Southwest and its affiliates, 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 Southwest Stock held of record by such persons, and
Southwest 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
Southwest Stock held of record by them, and Southwest will reimburse them, upon
request, for their reasonable expenses in connection with such mailing or other
communications with such beneficial owners.
Compass' principal executive offices are located at 15 South 20th Street,
Birmingham, Alabama 35233; telephone number (205)933-3000. Southwest's
principal executive offices are located at 660 North Main Avenue, San Antonio,
Texas 78205; telephone number (210)224-6111.
4
<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
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 ("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, formerly a federal savings bank which has
been converted to a Florida state member bank headquartered in Jacksonville,
Florida ("Compass Bank-Florida"). These wholly owned banking subsidiaries
conduct a general, full-service commercial and consumer banking business
through 90 banking offices located in 47 communities in Alabama and 29 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
Bancshares 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 16 banking
offices in Houston, Texas and 21 banking offices in Dallas, Texas.
During 1991, Compass acquired the River Oaks Bank and River Oaks Trust
Company, Plaza National Bank, Bank of Las Colinas, N.A., Gleneagles National
Bank, Promenade Bancshares, Inc., 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. During
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. During 1994, Compass acquired
1st Performance National Bank of Jacksonville, Florida, a wholly owned
subsidiary of Resource Bancshares Corporation of Columbia, South Carolina,
Security Bank, National Association, located in Houston, Texas, three banking
offices of Anchor Savings Bank, F.S.B., located in Jacksonville, Florida, and
approximately $885 million in deposits, 22 banking offices and certain other
assets of First Heights Bank, located in Houston, Texas. Acquisitions pending
include the Merger and the acquisition of The American Bank Corporation of the
South and its bank subsidiary, The American Bank of the South, located in
Merritt Island, Florida, which has assets of approximately $190 million.
5
<PAGE>
On September 30, 1994, Compass and its subsidiaries had consolidated assets
of $8.4 billion, consolidated deposits of $6.1 billion, and total shareholders'
equity of $586 million. Of Compass' $8.4 billion of consolidated assets,
approximately $5.4 billion are held in Alabama, $2.4 billion are held in Texas,
and $552 million are held in Florida. SEE "AVAILABLE INFORMATION";
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE"; "SELECTED FINANCIAL DATA";
AND "INFORMATION ABOUT COMPASS".
Southwest is a Texas corporation which was organized in 1984. It is a bank
holding company registered with the Federal Reserve under the BHC Act.
Southwest's principal assets consist of cash and all of the issued and
outstanding capital stock of Bank Asset Management Corporation, a Delaware
corporation ("BAMC"), which owns all of the issued and outstanding capital
stock of The Bank of San Antonio (the "Bank"). The Bank is a Texas state bank
organized in 1918.
On September 30, 1994, Southwest had consolidated total assets of
approximately $144 million, consolidated total deposits of approximately $128
million, and total shareholders' equity of $11 million. SEE "SELECTED FINANCIAL
DATA"; "INFORMATION ABOUT SOUTHWEST"; "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SOUTHWEST"; AND INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS OF SOUTHWEST.
BACKGROUND OF THE MERGER
Southwest began analyzing the possible merger of Southwest in January of
1994, and contacted Compass at that time. Representatives of Southwest and
Compass of Texas commenced discussions concerning a possible affiliation of the
two entities and, in May of 1994, Compass and Southwest executed a letter of
intent. Following arm's-length negotiations between representatives of Compass
and Southwest, Compass and Southwest entered into the Merger Agreement on June
16, 1994. The Merger Agreement has since been amended three times to add
various conditions to the parties' obligation to consummate the Merger. SEE
"THE MERGER--OTHER TERMS AND CONDITIONS." The aggregate price to be paid to
holders of Southwest Stock resulted from negotiations which considered the
historical earnings and dividends of Compass and Southwest, the earnings
potential and deposit base of Southwest, potential growth in Southwest's
market, Southwest's asset quality, and the effect of the Merger on the
shareholders, customers and employees of Compass and Southwest. SEE "THE
MERGER--REASONS FOR THE MERGER".
A special meeting of the shareholders of Southwest was called and held on
December 15, 1994 for the purpose of considering and voting upon the Merger.
Prior to this meeting, however, Compass notified Southwest that it had not
concluded to its satisfaction its environmental investigation of certain
properties which were owned or held as collateral by Southwest or the Bank and
that it intended to continue its review of these properties. As a result,
Southwest's shareholders elected not to vote on the Merger at that time, and
the meeting was adjourned.
Since that time, Compass has concluded to its satisfaction the environmental
investigation of these properties. Accordingly, the Meeting was rescheduled for
the purpose of enabling Southwest's shareholders to consider and vote on the
Merger.
THE MERGER
As of the Record Date, there were 1,326 shares of Southwest Common Stock
issued and outstanding, 15,000 shares of Series A Preferred Stock issued and
outstanding, and 21,550 shares of Series B Preferred Stock issued and
outstanding.
The Merger Agreement provides for the merger of Southwest with and into
Compass and for the receipt by Southwest shareholders (other than dissenting
shareholders) of a total Merger Consideration of 950,000 shares of Compass
Common Stock, reduced by the number of shares that would otherwise be issued to
dissenting shareholders.
6
<PAGE>
Holders of Southwest Common Stock shall receive for each share of Southwest
Common Stock held at the effective time of the Merger (the "Effective Time") a
number of shares of Compass Common Stock equal to (i) 950,000 shares of Compass
Common Stock to be issued to the holders of Southwest Stock divided by (ii) the
sum of (x) the number of shares of Southwest Common Stock outstanding
immediately prior to the Effective Time and (y) the deemed number of shares of
Southwest Common Stock into which the shares of Southwest Preferred Stock
outstanding immediately prior to the Effective Time are convertible (the "Per
Share Merger Consideration").
Holders of Series A Preferred Stock and Series B Preferred Stock shall
receive for each share of Series A Preferred Stock and Series 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 deemed number of
shares of Southwest Common Stock into which each such share of Series A
Preferred Stock and Series 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 average closing price for
Compass Common Stock as reported by the NASDAQ National Market System for the
thirty days of trading of Compass Common Stock immediately preceding the tenth
business day prior to the first business day following the later of (i) the
receipt of required regulatory approvals from the Federal Deposit Insurance
Corporation ("FDIC") and the Federal Reserve and the expiration of any
applicable waiting period with respect thereto and (ii) the approval of the
Merger by Southwest's shareholders.
The Merger Agreement also provides that the number of shares of Compass
Common Stock to be received by Southwest shareholders in the Merger will be
adjusted to give effect to any stock 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' APPRAISAL RIGHTS"; APPENDIX I; AND
APPENDIX II.
Compass will be the surviving entity in the Merger, and the officers and
directors of Compass will continue to be the officers and directors of Compass
after the Merger. Compass intends that certain of the Bank's personnel will
remain following the Merger. SEE "THE MERGER--GENERAL"; AND "INFORMATION ABOUT
SOUTHWEST".
As of the Record Date, there were 1,326 shares of Southwest Common Stock
issued and outstanding, 15,000 shares of Series A Preferred Stock issued and
outstanding, and 21,550 shares of Series B Preferred Stock issued and
outstanding. Assuming that the number of shares of each of these classes of
Southwest Stock which are issued and outstanding as of the Effective Time does
not change, each holder of Southwest Common Stock will be entitled to receive
243.72 shares of Compass Common Stock for each share of Southwest Common Stock
held, each holder of Series A Preferred Stock will be entitled to receive 15.85
shares of Compass Common Stock for each share of Series A Preferred Stock held,
and each holder of Series B Preferred Stock will be entitled to receive 18.05
shares of Compass Common Stock for each share of Series B Preferred Stock held
(except, in each case, for shareholders choosing to exercise their dissenters'
rights). SEE "INTRODUCTION"; "THE MERGER--GENERAL"; AND APPENDIX I. SEE
"SUMMARY--REASONS FOR THE MERGER; RECOMMENDATION OF BOARD OF DIRECTORS"; AND
"THE MERGER--REASONS FOR THE MERGER".
REASONS FOR THE MERGER; RECOMMENDATION OF BOARD OF DIRECTORS
Consummation of the Merger offers the holders of Southwest 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
San Antonio metropolitan area or Texas. Compass Common Stock is publicly traded
and has a history of paying dividends. Southwest's Board of Directors
anticipates that the Merger will expand the banking products and services
offered to Southwest's customers and community and will enable Southwest's
facilities to compete more effectively
7
<PAGE>
among banks and non-bank financial institutions. As part of a much larger
holding company system, Southwest'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.
The Merger Agreement was the result of arm's-length negotiations between
representatives of Southwest and Compass. Subject to the shareholders of
Southwest receiving Merger Consideration with a market value (as determined in
accordance with the Merger Agreement) of at least $22,087,500.00, Southwest's
Board of Directors believes the Merger to be in the best interests of
Southwest's shareholders. Southwest'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 $23.25 per share is in the best
interest of Southwest's shareholders. Moreover, no investment banking firm's
opinion was sought or obtained by any party with respect to the fairness, from
a financial point of view, of the Merger to any party or its shareholders.
SOUTHWEST'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SOUTHWEST
SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER and has authorized consummation
thereof subject to approval of the Southwest shareholders and the satisfaction
of certain other conditions. SEE "INTRODUCTION"; "SUMMARY--PARTIES TO THE
MERGER"; "SUMMARY--THE MERGER"; "SELECTED FINANCIAL DATA"; "MARKET PRICES";
"THE MERGER--REASONS FOR THE MERGER"; "THE MERGER--OTHER TERMS AND CONDITIONS";
"DESCRIPTION OF COMPASS COMMON AND PREFERRED STOCK"; "COMPARISON OF RIGHTS OF
SHAREHOLDERS OF SOUTHWEST AND COMPASS"; "INFORMATION ABOUT COMPASS"; AND
"INFORMATION ABOUT SOUTHWEST".
THE MEETING
The Meeting will be held on Wedensday, March 8, 1995, at 9:00 A.M., San
Antonio time, at the Bank, 660 N. Main, in San Antonio, Texas for purposes of
(i) consideration of the approval and adoption of 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 Southwest's Board of Directors as the close
of business on January 17, 1995. Only holders of Southwest 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 Southwest Common Stock, two-thirds of the
shares of Series A Preferred Stock, and two-thirds of the shares of Series B
Preferred Stock issued and outstanding and entitled to vote at the Meeting.
Certain holders of the Southwest Stock have agreed, pursuant to the Voting
Agreement, to vote all of their shares of Southwest Stock in favor of the
Merger, provided that the closing price for Compass Common Stock, as quoted on
the NASDAQ National Market System, on the trading day immediately preceding the
date of the Meeting is not less than $23.25 per share. Of the 1,326 shares of
Southwest Common Stock, 15,000 shares of Series A Preferred Stock and 21,550
shares of Series B Preferred Stock currently outstanding, 887 shares, or 66.9%,
of the Southwest Common Stock, and 11,845 shares, or 79.0%, of the Series A
Preferred Stock, and 17,018 shares, or 79.0%, of the Series B Preferred Stock
are subject to the Voting Agreement. SUBJECT TO THE CONDITIONS DESCRIBED ABOVE,
BECAUSE THE HOLDERS OF THE SHARES OF SOUTHWEST STOCK WHICH ARE SUBJECT TO THE
VOTING AGREEMENT CONTROL, WITH THE POWER TO VOTE, OVER TWO-THIRDS OF THE SHARES
OF EACH CLASS OF SOUTHWEST 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 SOUTHWEST SHAREHOLDERS. SEE "INTRODUCTION"; "THE MERGER--GENERAL" AND "THE
MERGER--ADDITIONAL AGREEMENTS."
Subject to the satisfaction or waiver of all of the conditions to Compass'
obligations to effect the Merger, Compass has approved the Merger Agreement in
the manner prescribed by the General Corporation Law of the State of Delaware
("GCL"). SEE "THE MERGER--GENERAL".
8
<PAGE>
DISSENTERS' RIGHTS
Holders of Southwest Stock who timely object to the Merger, and who otherwise
comply with the provisions of the Texas Business Corporation Act ("TBCA"), will
be entitled to exercise dissenters' rights. SEE "THE MERGER--DISSENTERS'
APPRAISAL RIGHTS"; "COMPARISON OF RIGHTS OF SHAREHOLDERS OF SOUTHWEST AND
COMPASS--APPRAISAL 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 Southwest, receipt of certain required regulatory approvals
from the Federal Reserve under the BHC Act, and the satisfaction or waiver of a
number of other conditions. SEE "THE MERGER--OTHER TERMS AND CONDITIONS". A
formal application has been filed with the Federal Reserve under the BHC Act
with respect to the Merger, and a separate agreement has been filed with the
Banking Commissioner of Texas (the "Commissioner") to acquire the Bank. It is
expected that the necessary approvals will be received with respect to the
Merger. SEE "THE MERGER--GOVERNMENTAL APPROVALS" AND "THE MERGER--FEDERAL
INCOME TAX CONSEQUENCES".
A formal application has been filed with the Federal Reserve under the BHC
Act, and following Federal Reserve approval, the United States Department of
Justice ("Justice Department"), under the BHC Act, has thirty (30) days in
which to bring action opposing the Merger under the antitrust laws, which
action would stay the approval of the transaction unless otherwise ordered by
an appropriate judicial authority. No Justice Department objection or adverse
action is anticipated.
The respective boards of directors of Compass and Southwest 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 the
failure of the Merger to become effective on or before March 16, 1995, or such
later date agreed to in writing by Compass and Southwest. SEE "THE MERGER--
OTHER TERMS AND CONDITIONS"; "THE MERGER--BUSINESS PENDING EFFECTIVE 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"), special counsel to Compass, 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 Southwest
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 Southwest 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. SOUTHWEST 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 the holders of Southwest Stock expect to receive a legal 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".
9
<PAGE>
RISK FACTORS
Southwest shareholders currently control Southwest through their ability to
elect the Board of Directors and vote on various matters affecting Southwest.
The Merger will transfer control of Southwest from Southwest's shareholders to
Compass, and the former offices of Southwest are expected to eventually become
branches of Compass Bank-Houston. As of the Effective Time, the shareholders of
Southwest will become shareholders of Compass, a multi-bank holding company. As
a result of the Merger, the former shareholders of Southwest will no longer
have the ability to control or influence the management policies of Southwest's
operations, and as shareholders of Compass their ability to influence the
management policies of Compass will be limited 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 SOUTHWEST--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 facts 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. Southwest's Articles of Association
and By-Laws do not contain similar restrictions, although shareholder actions
without a meeting require unanimous written consent. SEE "COMPARISON OF RIGHTS
OF SHAREHOLDERS OF SOUTHWEST AND COMPASS--CHARTER AND BY-LAW PROVISIONS
AFFECTING COMPASS COMMON STOCK" AND "INFORMATION ABOUT COMPASS--RECENT
DEVELOPMENTS".
SEE "SUPERVISION AND REGULATION" for a description of the regulatory
considerations relating to the ownership of Compass Common Stock.
10
<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 consolidated historical financial data of Southwest. The
table also summarizes, where indicated, certain pro forma financial data for
Compass, giving effect to the acquisition of Southwest and the Bank assuming
that the Merger had been effective at the beginning of 1989. The historical
data of Compass as of and for the years ended December 31, 1993, 1992, 1991,
1990 and 1989 has been restated to reflect the May, 1994 acquisition of
Security Bank, N.A., which was accounted for under the pooling-of-interest
method of accounting. The historical data of Southwest as of and for the years
ended December 31, 1993, 1992, 1991, 1990 and 1989 are derived from the audited
consolidated financial statements of Southwest. The pro forma income
information is not necessarily indicative of the results of operations had the
proposed transaction occurred at the beginning of 1989, 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 MONTHS
ENDED AS OF AND FOR THE YEARS ENDED DECEMBER 31,
SEPTEMBER 30, --------------------------------------------------------
1994 1993 1992 1991 1990 1989
--------------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
TOTAL ASSETS
Compass................ $8,445,646 $7,333,594 $7,084,441 $6,781,121 $5,541,716 $5,032,562
Southwest.............. 144,449 123,471 125,710 117,752 124,212 126,656
TOTAL DEPOSITS
Compass................ 6,070,523 5,625,097 5,420,013 5,117,766 4,092,919 3,705,598
Southwest.............. 128,429 108,291 112,586 106,370 111,732 113,585
LONG-TERM DEBT
Compass................ 374,962 325,437 203,913 13,181 11,750 11,238
Southwest.............. 3,233 3,492 3,817 7,155 7,155 8,855
TOTAL SHAREHOLDERS'
EQUITY
Compass................ 585,943 551,337 510,817 453,505 363,090 332,842
Southwest.............. 10,747 10,027 7,451 1,950 2,315 1,009
NET INTEREST INCOME
Compass................ 244,263 329,013 316,924 257,593 198,976 167,924
Southwest.............. 4,826 6,342 5,850 5,066 4,422 4,018
NET INCOME (LOSS)
Compass................ 73,164 89,718 76,003 63,374 52,605 43,484
Southwest.............. 1,096 2,961 1,215 (365) (2,716) (1,226)
NET INCOME (LOSS) PER
COMMON SHARE:
Compass
Historical............. 1.97 2.37 2.01 1.74 1.51 1.23
Pro Forma.............. 1.94 2.38 1.98 1.68 1.39 1.16
Southwest
Historical............. 620.18 2,037.42 819.80 (271.58) (2,020.71) (912.00)
Equivalent Pro
Forma(1).............. 472.41 580.84 483.46 409.62 339.78 282.86
CASH DIVIDENDS PER
COMMON SHARE:
Compass
Historical............. 0.69 0.76 0.667 0.587 0.533 0.513
Pro Forma.............. 0.67 0.72 0.59 0.51 0.47 0.45
Southwest
Historical............. -- -- -- -- -- --
Equivalent pro forma... 162.16 175.76 142.58 124.89 113.65 110.57
SHAREHOLDERS' EQUITY
(BOOK VALUE) PER COMMON
SHARE:
Compass
Historical............. 15.85 14.93 13.23 11.89 10.18 9.41
Pro Forma.............. 15.64 14.72 13.00 11.64 9.98 9.19
Southwest
Historical............. 5,348.42 4,805.63 2,862.99 1,470.89 1,722.47 750.74
Equivalent Pro
Forma(1).............. 3,812.89 3,588.60 3,168.29 2,836.77 2,431.37 2,240.86
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR
THE NINE MONTHS
ENDED AS OF AND FOR THE YEARS ENDED DECEMBER 31,
SEPTEMBER 30, --------------------------------------------
1994 1993 1992 1991 1990 1989
--------------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING:
Compass
Historical............. 37,220 37,187 36,861 35,593 34,835 35,461
Pro Forma.............. 38,170 38,137 37,811 36,543 35,785 36,411
Southwest
Historical (fully
diluted).............. 1 4 3 1 1 1
NUMBER OF COMMON SHARES
OUTSTANDING AT END OF
PERIOD:
Compass
Historical............. 36,957 36,927 36,859 36,195 35,678 35,361
Pro Forma.............. 37,907 37,877 37,809 37,145 36,628 36,311
Southwest
Historical............. 1 1 1 1 1 1
</TABLE>
- --------
(1) Southwest's Equivalent Pro Forma is computed by multiplying Compass' Pro
Forma by the exchange rate.
12
<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 a three-for-two stock split with respect to Compass Common Stock which
was effected by a stock dividend payable on July 2, 1992.
COMPASS COMMON STOCK
<TABLE>
<CAPTION>
PERIOD HIGH LOW
------ ------ ------
<S> <C> <C>
1992
First Quarter............................................... 21 1/8 18 1/2
Second Quarter.............................................. 23 3/8 19 1/2
Third Quarter............................................... 23 1/2 18 1/2
Fourth Quarter.............................................. 23 1/2 19 1/4
1993
First Quarter............................................... 25 3/4 22 1/2
Second Quarter.............................................. 26 1/2 22 1/2
Third Quarter............................................... 26 23 1/2
Fourth Quarter.............................................. 25 20 3/4
1994
First Quarter............................................... 24 21
Second Quarter.............................................. 26 3/4 23
Third Quarter............................................... 26 23
</TABLE>
On June 17, 1994, the business day immediately preceding the announcement
concerning the Merger, the last reported sale price for Compass Common Stock
was $26.25. On February 1, 1995, the last reported sale price for Compass
Common Stock was $26. 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 Southwest Stock.
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.
BACKGROUND OF THE MERGER
Southwest began analyzing the possible merger of Southwest in January of
1994, and contacted Compass at that time. Representatives of Southwest and
Compass of Texas commenced discussions concerning a possible affiliation of
the two entities and, in May of 1994, Compass and Southwest executed a letter
of intent. Following arm's-length negotiations between representatives of
Compass and Southwest, Compass and Southwest entered into the Merger Agreement
on June 16, 1994. The Merger Agreement has since been amended three times to
add various conditions to the parties' obligation to consummate the Merger.
SEE
13
<PAGE>
"THE MERGER--OTHER TERMS AND CONDITIONS." The aggregate price to be paid to
holders of Southwest Stock resulted from negotiations which considered the
historical earnings and dividends of Compass and Southwest, the earnings
potential and deposit base of Southwest, potential growth in Southwest's
market, Southwest's asset quality, and the effect of the Merger on the
shareholders, customers and employees of Compass and Southwest.
A special meeting of the shareholders of Southwest was called and held on
December 15, 1994 for the purpose of considering and voting upon the Merger.
Prior to this meeting, however, Compass notified Southwest that it had not
concluded to its satisfaction its environmental investigation of certain
properties which were owned or held as collateral by Southwest or the Bank and
that it intended to continue its review of these properties. As a result,
Southwest's shareholders elected not to vote on the Merger at that time, and
the meeting was adjourned.
Since that time, Compass has concluded to its satisfaction the environmental
investigation of these properties. Accordingly, the Meeting was rescheduled for
the purpose of enabling Southwest's shareholders to consider and vote on the
Merger.
GENERAL
The Merger Agreement provides for the merger of Southwest with and into
Compass in accordance with the terms and conditions of the Merger Agreement.
Compass will be the surviving entity in the Merger and the officers and
directors of Compass will continue to be the officers and directors of Compass
after the Merger. Following the Merger, it is anticipated that the Bank will
merge with Compass Bank-Houston and the former locations of the Bank will
become branches of Compass Bank-Houston. Compass intends that certain of the
Bank's personnel will remain following the Merger. 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 Southwest shareholders (other than
dissenting shareholders) to receive a total Merger Consideration of 950,000
shares of Compass Common Stock.
Holders of Southwest Common Stock shall receive for each share of Southwest
Common Stock held at the Effective Time a number of shares of Compass Common
Stock equal to the Per Share Merger Consideration. Holders of Series A
Preferred Stock and Series B Preferred Stock shall receive for each share of
Series A Preferred Stock and Series 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 deemed number of shares of
Southwest Common Stock into which each such share of Series A Preferred Stock
and Series 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 average closing price for
Compass Common Stock as reported by the NASDAQ National Market System for the
thirty days of trading of Compass Common Stock immediately 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 Federal Reserve
and the expiration of any applicable waiting period with respect thereto and
(ii) the approval of the Merger by Southwest's shareholders.
The Merger Agreement also provides that the Merger Consideration of shares of
Compass Common Stock shall be adjusted to give effect to any stock 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' APPRAISAL RIGHTS"; APPENDIX I;
AND APPENDIX II.
As of the Record Date, there were 1,326 shares of Southwest Common Stock
issued and outstanding, 15,000 shares of Series A Preferred Stock issued and
outstanding, and 21,550 shares of Series B Preferred Stock issued and
outstanding. Assuming that the number of shares of each of these classes of
Southwest Stock
14
<PAGE>
which are issued and outstanding as of the Effective Time does not change,
each holder of Southwest Common Stock will be entitled to receive 243.72
shares of Compass Common Stock for each share of Southwest Common Stock held,
each holder of Series A Preferred Stock will be entitled to receive 15.85
shares of Compass Common Stock for each share of Series A Preferred Stock
held, and each holder of Series B Preferred Stock will be entitled to receive
18.05 shares of Compass Common Stock for each share of Series B Preferred
Stock held (except, in each case, for shareholders choosing to exercise their
dissenters' rights). 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 Southwest Common Stock, two-thirds of the
outstanding shares of Series A Preferred Stock, and two-thirds of the
outstanding shares of Series B Preferred Stock entitled to vote at the
Meeting. SEE "INTRODUCTION"; "SUMMARY--SHAREHOLDER VOTES REQUIRED"; "THE
MERGER--OTHER TERMS AND CONDITIONS"; AND APPENDIX I.
Certain holders of the Southwest Stock have agreed, pursuant to the Voting
Agreement, to vote all of their shares of Southwest Stock in favor the Merger,
provided that the closing price for Compass Common Stock, as quoted on the
NASDAQ National Market System, on the trading day immediately preceding the
date of the Meeting is not less than $23.25 per share. Of the 1,326 shares of
Southwest Common Stock, 15,000 shares of Series A Preferred Stock, and 21,550
shares of Series B Preferred Stock currently outstanding, 887 shares, or
66.9%, of the Southwest Common Stock, 11,845 shares, or 79.0%, of the Series A
Preferred Stock, and 17,018 shares, or 79.0%, of the Series B Preferred Stock
are subject to the Voting Agreement. SUBJECT TO THE CONDITIONS DESCRIBED
ABOVE, BECAUSE THE HOLDERS OF THE SHARES OF SOUTHWEST STOCK WHICH ARE SUBJECT
TO THE VOTING AGREEMENT CONTROL, WITH THE POWER TO VOTE, OVER TWO-THIRDS OF
THE SHARES OF EACH CLASS OF SOUTHWEST 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 SOUTHWEST SHAREHOLDERS. SEE "INTRODUCTION"; "SUMMARY--
SHAREHOLDER VOTES REQUIRED"; AND "THE MERGER--ADDITIONAL AGREEMENTS."
Subject to the satisfaction or waiver of all of the conditions to Compass'
obligations to effect the Merger, Compass has approved the Merger Agreement in
the manner prescribed by the GCL. SEE "SUMMARY--SHAREHOLDER VOTES REQUIRED";
"THE MERGER--OTHER TERMS AND CONDITIONS"; AND "THE MERGER--GOVERNMENT
APPROVALS".
The Merger will be effective upon the issuance of a Certificate of Merger by
the Texas Secretary of State in accordance with Texas law and the filing of
the Certificate of Merger with the Delaware Secretary of State in accordance
with Delaware law, or such later time and date as may be specified in such
Certificates of Merger. The Certificates of Merger are expected to be issued
simultaneously with or as soon as practicable after the Closing. At the
Effective Time, holders of Southwest Stock (other than those shareholders who
perfect their dissenters' rights of appraisal) will become holders of Compass
Common Stock and will no longer be owners of Southwest Stock. After the
Effective Time, all certificates for Southwest 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' APPRAISAL RIGHTS"; AND APPENDIX II.
REASONS FOR THE MERGER
In evaluating whether to affiliate with Compass, Southwest's management
considered the value of Southwest Stock, competitive conditions in the market
served by Southwest, the prospects for trading Southwest Stock, Southwest's
future growth prospects in light of the San Antonio economy, the fact that
Compass Common Stock is publicly traded, thereby representing a more liquid
investment than the Southwest Stock, the appreciation in the price of Compass
Common Stock over the past ten years and Compass' history of paying dividends.
In addition, Southwest 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 Southwest and its customers, which would better enable Southwest
to compete. Southwest and its Board of Directors determined that Southwest'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 SOUTHWEST--
CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL CONDITION".
Compass and Compass of Texas have considered expansion opportunities in San
Antonio in order to enlarge their Texas-based operations to a more economical
size and to expand into additional market areas.
15
<PAGE>
Acquiring Southwest will result in economies of scale and increase the market
served by Compass' affiliates in the Texas market. It will also assist Compass'
Texas affiliates in providing the management and organizational flexibility
needed to expand in the San Antonio area by branching and other acquisitions.
Subject to the shareholders of Southwest receiving Merger Consideration with
a market value (as determined in accordance with the Merger Agreement) of at
least $22,087,500.00, Southwest's Board of Directors believes the Merger to be
in the best interest of Southwest's shareholders. Southwest'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
$23.25 per share is in the best interest of Southwest's shareholders. Moreover,
no investment banking firm's opinion was sought or obtained by any party with
respect to the business, from a financial point of view, of the Merger to any
party or its shareholders. SOUTHWEST'S BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT SOUTHWEST SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER and has
authorized consummation thereof, subject to approval of the Southwest
shareholders and the satisfaction of certain other conditions. SEE "SUMMARY--
REASONS FOR THE MERGER; RECOMMENDATION OF BOARD OF DIRECTORS".
OPERATIONS AFTER THE MERGER
Compass expects that following the consummation of the Merger, the Bank will
be operated separately from Compass' Texas banking subsidiaries unless and
until Compass merges the Bank into its other Texas banking operations, which
requires the necessary regulatory approvals. SEE "SUMMARY--CONDITIONS TO
CONSUMMATION AND REGULATORY APPROVALS; TERMINATION"; 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 closing will not violate any injunction, order or decree of any
court or governmental body having competent jurisdiction;
(iii) Approval of the Merger by the requisite vote of Southwest's
shareholders entitled to vote at the Meeting;
(iv) The Registration Statement relating to the 950,000 shares of 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) The continued accuracy of the representations and warranties made by
the parties in the Merger Agreement;
(vi) The performance of and compliance with the respective material
obligations and covenants undertaken by the parties in the Merger
Agreement;
(vii) There shall not have occurred a Material Adverse Effect (as defined
in Section 10.13(b) of the Merger Agreement) with respect to Southwest or
Compass or their subsidiaries taken as a whole;
(viii) Compass shall have received the resignations of the directors of
Southwest, BAMC and the Bank, as well as instruments, signed by directors
and officers of Southwest, BAMC and the Bank, dated as of the Effective
Time, releasing Southwest and the Bank from any and all claims of such
directors and officers, except with respect to accrued compensation, rights
of indemnification pursuant to the Articles of Association and By-Laws of
Southwest, BAMC and the Bank, and indebtedness or contractual obligations
or liability to such directors and officers;
(ix) Compass shall have received an opinion of counsel to Southwest
reasonably acceptable to it as to certain matters;
(x) The holders of no more than 5% of the outstanding shares of Southwest
Stock shall have demanded or be entitled to demand payment of the fair
value of their shares as dissenting shareholders;
16
<PAGE>
(xi) Compass shall have received a letter from KPMG Peat Marwick, LLP,
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";
(xii) The aggregate principal amount of all Southwest indebtedness shall
not exceed $3,362,000;
(xiii) Compass shall have received from Southwest shareholders receiving
at least 50% of the total Merger Consideration a representation that they
have no plan or intention to sell or otherwise dispose of shares of Compass
Common Stock received pursuant to the Merger;
(xiv) Compass and the holders of Southwest Stock shall have received an
opinion of Liddell, Sapp 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";
(xv) Southwest shall have delivered to Compass a schedule of all
transactions in the capital stock (or instruments exercisable for or
convertible into capital stock) of Southwest of which Southwest has
knowledge, from the date of the Merger Agreement through the Effective
Time;
(xvi) Compass shall have determined, in its sole judgment, that certain
liabilities and obligations of Southwest do not have a Material Adverse
Effect;
(xvii) The Compensation Agreement, dated as of January 1, 1992, by and
between Stephen M. Dufilho and Southwest shall have been amended in a
manner satisfactory to Compass with respect to the Equity Bonus payable to
Stephen M. Dufilho, and such amendment shall have been approved by
Southwest's shareholders in a manner satisfying the requirements of Section
280G of the Code and applicable Treasury Regulations so as to cause the
Equity Bonus not to constitute an "excess parachute payment";
(xviii) The Management Agreement between the Bank and BAMC, Inc., a
corporation which is owned by certain of the shareholders of Southwest
("BAMC, Inc."), shall have been terminated with no liability to the Bank;
(xix) The land and improvements owned by the Bank located at 123-125 San
Pedro, San Antonio, Texas shall be sold in 1994 for a net sales price of
not less than the book value of such property as of March 31, 1994, as
reflected in the Bank's financial statements;
(xx) If the Bank's commercial loan account number 26625 shall not have
been paid off in full prior to the effective time of the Merger, such loan
shall have been sold prior to the effective time of the Merger to an entity
to be owned by the holders of Southwest Stock for a net sales price of not
less than the March 31, 1994 book value of such loan, as reflected on the
Bank's financial statements, plus accrued and unpaid interest, unless a
sale to an entity to be owned by the holders of Southwest Stock would cause
the Merger not to be eligible for pooling-of-interests accounting
treatment, in which case this condition shall be deemed waived;
(xxi) On or before October 1, 1994, all consents shall have been obtained
and all other actions necessary shall have been taken to waive the transfer
restrictions under the Stock Transfer Restriction Agreement, dated
effective as of December 31, 1990, by and among Southwest and the holders
of Southwest Common Stock set forth therein and the Preferred Stock
Transfer Restriction Agreement, dated effective as of February 27, 1992, by
and among Southwest and the holders of the Southwest Preferred Stock.
(xxii) Shareholders of Southwest shall have deposited into the Bank such
amount of deposits, which are not subject to withdrawal prior to December
31, 1995, bearing such rates of interest that result in interest income to
the Bank for the fiscal years of the Bank ending December 31, 1994, and
December 31, 1995, attributable solely to those deposits of $120,000 and
$240,000, respectively.
(xxiii) Southwest shall have received an opinion of counsel to Compass
reasonably acceptable to it as to certain matters;
17
<PAGE>
(xxiv) The directors of Southwest, BAMC and the Bank shall have received
an instrument, dated as of the Effective Time, releasing such directors
from any and all claims of Southwest, BAMC and the Bank, except as to
indebtedness or other contractual liabilities; provided, however, that such
releases shall not release any action against such directors or officers by
Compass for fraud or deceit in connection with the transactions
contemplated by the Merger Agreement; and
(xxv) Compass and Southwest shall have received certificates of the other
as to certain items described in (v)-(vii), (x), (xii), (xxi) and (xxii)
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.
ADDITIONAL AGREEMENTS
Each of the directors and principal shareholders of Southwest will enter into
a Pooling Transfer Restrictions Agreement with Compass and Southwest pursuant
to which they will agree, among other things, (i) not to transfer any of their
respective shares of Southwest Stock within 30 days of 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 Southwest 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
otherwise transfer such Compass Common Stock in a manner which is inconsistent
with Compass' accounting for the Merger using the pooling of interests method
of accounting.
Certain holders of the Southwest Stock have agreed, pursuant to the Voting
Agreement, to vote all of their shares of Southwest Stock in favor the Merger,
provided that the closing price for Compass Common Stock, as quoted on the
NASDAQ National Market System, on the trading day immediately preceding the
date of the Meeting is not less than $23.25 per share. Of the 1,326 shares of
Southwest Common Stock, 15,000 shares of Series A Preferred Stock, and 21,550
shares of Series B Preferred Stock currently outstanding, 887 shares, or 66.9%,
of the Southwest Common Stock, 11,845 shares, or 79.0%, of the Series A
Preferred Stock, and 17,018 shares, or 79.0%, of the Series B Preferred Stock
are subject to the Voting Agreement. SUBJECT TO THE CONDITIONS DESCRIBED ABOVE,
BECAUSE THE HOLDERS OF THE SHARES OF SOUTHWEST STOCK WHICH ARE SUBJECT TO THE
VOTING AGREEMENT CONTROL, WITH THE POWER TO VOTE, OVER TWO-THIRDS OF THE SHARES
OF EACH CLASS OF SOUTHWEST 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 SOUTHWEST SHAREHOLDERS. SEE "INTRODUCTION"; "SUMMARY--SHAREHOLDER VOTE
REQUIRED"; AND "THE MERGER--GENERAL".
The Company has agreed to amend or delete Section 7.09 of its Bylaws in order
that the restrictions against change in control transactions will not affect
the Merger.
BUSINESS PENDING EFFECTIVE TIME
The Merger Agreement imposes certain limitations on the conduct of
Southwest's business pending consummation of the Merger. Among other things,
Southwest and the Bank must conduct their respective businesses 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 Southwest shareholders can be
made after the Meeting without the required approval of Southwest's
shareholders.
18
<PAGE>
The Merger Agreement may be terminated and the Merger abandoned,
notwithstanding approval by Southwest shareholders, at any time before the
Effective Time by:
(i) mutual written consent duly authorized by the Boards of Directors of
Compass and Southwest;
(ii) Compass (a) if Compass learns or becomes aware of a state of facts
or breach or inaccuracy of any representation or warranty of Southwest
which constitutes a Material Adverse Effect, as defined in the Merger
Agreement, as to the Bank or Southwest and the Bank considered as a whole,
(b) due to certain unacceptable environmental circumstances pursuant to
Section 6.10 of the Merger Agreement, or (c) if the conditions to the
obligations of Compass to effect the Merger contained in the Merger
Agreement are not satisfied or waived in writing by Compass;
(iii) Southwest if the conditions to the obligations of Southwest to
effect the Merger contained in the Merger Agreement are not satisfied or
waived in writing by Southwest;
(iv) Compass or Southwest if the Effective Time shall not have occurred
on or before March 16, 1995, or such later date agreed to in writing by
Compass and Southwest; or
(v) Compass or Southwest 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 that the parties are not relieved
of liability for any breach of the Merger Agreement.
EXCHANGE OF SHARES
As soon as practicable after the Effective Time, the Exchange Agent will
furnish each holder of record of Southwest Stock as of the Effective Time with
transmittal materials for use in exchanging certificates representing Southwest
Stock for certificates representing Compass Common Stock in accordance with the
Exchange Agent 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
Southwest 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 Southwest Stock otherwise entitled to receive
such fractional share. Such cash payment shall be based on the average closing
price for Compass Common Stock as reported by the NASDAQ National Market System
for the thirty days of trading of Compass Common Stock immediately 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 Federal
Reserve and the expiration of any applicable waiting period with respect
thereto and (ii) the approval of the Merger by Southwest's shareholders. 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 Southwest Stock
certificates in exchange for Compass Common Stock.
Upon the Effective Time of the Merger, former Southwest shareholders will
cease to have any rights as shareholders of Southwest, and the Southwest
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 Texas law. SEE "THE MERGER--DISSENTERS'
APPRAISAL RIGHTS".
19
<PAGE>
DISSENTERS' APPRAISAL RIGHTS
By following the specific procedures set forth in the TBCA, Southwest
shareholders have a statutory right to dissent from the Merger. If the Merger
is approved and consummated, any Southwest shareholder who properly perfects
his dissenters' rights will be entitled, upon consummation of the Merger, to
receive an amount of cash equal to the fair value of his shares of Southwest
Stock rather than receiving the consideration set forth in the Merger
Agreement. The following summary is not a complete statement of the statutory
dissenters' rights of appraisal, and such summary is qualified by reference to
the applicable provisions of the TBCA, which are reproduced in full in Appendix
II to this Proxy Statement/Prospectus. A shareholder must complete each step in
the precise order prescribed by the statute to perfect his dissenter's rights
of appraisal.
Any shareholder who desires to dissent from the Merger shall file a written
objection to the Merger with Southwest prior to the Meeting at which a vote on
the Merger shall be taken, stating that the shareholder will exercise his right
to dissent if the Merger is effective and giving the shareholder's address to
which notice thereof shall be sent. A vote against the Merger is not sufficient
to perfect a shareholder's dissenters' rights of appraisal. If the Merger is
effected, each shareholder who sent notice to Southwest as described above and
who did not vote in favor of the Merger will be deemed to have dissented from
the Merger ("Dissenting Shareholder"). Failure to vote against the Merger will
not constitute a waiver of the dissenters' rights of appraisal; on the other
hand, a vote in favor of the Merger will constitute such a waiver.
Compass will be liable for discharging the rights of Dissenting Shareholders
and shall, within ten (10) days after the Effective Time, notify the Dissenting
Shareholders in writing that the Merger has been effected. Each Dissenting
Shareholder so notified shall, within ten (10) days of the delivery or mailing
of such notice, make a written demand on Compass at 15 South 20th Street,
Birmingham, Alabama 35233 for payment of the fair value of the Dissenting
Shareholder's shares as estimated by the Dissenting Shareholder. Such demand
shall state the number and class of shares owned by the Dissenting Shareholder.
The fair value of the shares shall be the value thereof as of the date
immediately preceding the Meeting, excluding any appreciation or depreciation
in anticipation of the Merger. Dissenting Shareholders who fail to make a
written demand within the ten (10) day period will be bound by the Merger and
lose their rights to dissent. Within twenty (20) days after making a demand,
the Dissenting Shareholder shall submit certificates representing his shares of
Southwest Stock to Compass for notation thereon that such demand has been made.
Within twenty (20) days after receipt of a Dissenting Shareholder's demand
letter as described above, Compass shall deliver or mail to the Dissenting
Shareholder written notice (i) stating that Compass accepts the amount claimed
in the demand letter and agrees to pay that amount within ninety (90) days
after the Effective Time upon surrender of the relevant certificates of
Southwest Stock duly endorsed by the Dissenting Shareholder, or (ii) containing
Compass' written estimate of the fair value of the shares of Southwest Stock
together with an offer to pay such amount within ninety (90) days after the
Effective Time if Compass receives notice, within sixty (60) days after the
Effective Time, stating that the Dissenting Shareholder agrees to accept that
amount upon surrender of the relevant certificates of Southwest Stock duly
endorsed by the Dissenting Shareholder. In either case, the Dissenting
Shareholder shall cease to have any ownership interest in Compass, Southwest or
the Bank following payment of the agreed value.
If the Dissenting Shareholder and Compass cannot agree on the fair value of
the shares within sixty (60) days after the Effective Time, the Dissenting
Shareholder or Compass may, within sixty (60) days of the expiration of the
initial sixty (60) day period, file a petition in any court of competent
jurisdiction in Bexar County, Texas requesting a finding and determination of
the fair value of the Dissenting Shareholder's shares. If no petition is filed
within the appropriate time period, then all Dissenting Shareholders who have
not reached an agreement with Compass on the value of their shares shall be
bound by the Merger and lose their rights to dissent. After a hearing
concerning the petition, the court shall determine which Dissenting
Shareholders have complied with the provisions of the TBCA and have become
entitled to the valuation of, and payment for, their shares, and shall appoint
one or more qualified appraisers to determine the value of the shares of
Southwest Stock in question. The appraisers shall determine such value and file
a report with
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the court. The court shall then in its judgment determine the fair value of the
shares of Southwest Stock, which judgment shall be binding on Compass and on
all Dissenting Shareholders receiving notice of the hearing. The court shall
direct Compass to pay such amount, together with interest thereon to the date
of judgment, to the Dissenting Shareholders entitled thereto. The judgment
shall be payable upon the surrender to Compass of certificates representing
shares of Southwest Stock duly endorsed by the Dissenting Shareholders. Upon
payment of the judgment, the Dissenting Shareholders shall cease to have any
interest in Compass, Southwest or the Bank. All court costs and fees of the
appraisers shall be allocated between the parties in the manner that the court
determines is fair and equitable.
Any Dissenting Shareholder who has made a written demand on Compass for
payment of the fair value of his Southwest Stock shall not thereafter be
entitled to vote or exercise any other rights as a shareholder except the
statutory right of appraisal as described herein and the right to maintain an
appropriate action to obtain relief on the ground that the Merger would be or
was fraudulent. In the absence of fraud in the transaction, a Dissenting
Shareholder's statutory right of appraisal is the exclusive remedy for the
recovery of the value of his shares or money damages to the shareholder with
respect to the Merger.
Any Dissenting Shareholder who has made a written demand on Compass for
payment of the fair value of his Southwest Stock may withdraw such demand at
any time before payment for his shares or before a petition has been filed with
an appropriate court for determination of the fair value of such shares. If a
Dissenting Shareholder withdraws his demand, or if he is otherwise unsuccessful
in asserting his dissenters' rights of appraisal, such Dissenting Shareholder
shall be bound by the Merger and his status as a shareholder shall be restored
without prejudice to any corporate proceedings, dividends, or distributions
which may have occurred during the interim. SEE "SUMMARY--DISSENTERS' RIGHTS";
"COMPARISON OF RIGHTS OF SHAREHOLDERS OF SOUTHWEST AND COMPASS--APPRAISAL
RIGHTS"; AND APPENDIX II.
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.
Counsel has relied upon certain assumptions and representations in issuing
its opinion, including the following:
1. Southwest 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 to dissenters or 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 Southwest
shareholders receiving at least 50% of the Compass Common Stock transferred
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
Southwest shareholders will result from the qualification of the Merger as a
reorganization under Section 368(a) of the Code:
1. A Southwest shareholder will not recognize any gain or loss upon the
exchange of his Southwest Stock solely for Compass Common Stock.
2. The aggregate tax basis of Compass Common Stock received by a
Southwest shareholder in the Merger will be the same as the aggregate basis
of the Southwest 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
Southwest shareholder surrenders two blocks of Southwest 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 Southwest Stock in the
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first block will have a basis of $1.00, and the Compass Common Stock which
he receives in exchange for each share of Southwest 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
Southwest shareholder will include the period during which he or she held
the Southwest Stock surrendered in exchange therefor, provided that the
Southwest 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 Southwest shareholder who dissents from the Merger and receives
solely cash in exchange for his or her Southwest Stock, such cash will be
treated as having been received by such shareholder as a distribution in
redemption of his or her 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".
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR
GENERAL INFORMATION ONLY. SOUTHWEST 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 the Southwest shareholders 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 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 Bank Merger, if consummated, would require the approval of the
FDIC and the Commissioner. A formal application was filed with the Federal
Reserve under the BHC Act with respect to the Merger, and the Federal Reserve
approved the Merger as of December 19, 1994. An agreement has been filed with
the Commissioner to acquire the Bank. It is expected that the necessary
approvals with respect to the Bank Merger will be issued timely.
The Bank Merger may not be consummated until thirty (30) days following FDIC
approval. During this thirty (30) day waiting period, the Justice Department
may object to the Bank Merger on antitrust grounds, which action will stay the
consummation of the transactions unless otherwise ordered by an appropriate
judicial authority. Neither Southwest nor Compass has any reason to believe
that the Justice Department will take any action to stay the approval of the
Bank Merger. Approval of the Bank Merger is not a condition to consummation 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.
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Compass believes that its acquisition of Southwest will comply with all
provisions of the Texas Banking Code. As required by the Texas Banking Code,
Compass expects to enter 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".
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,
LLP, dated as of the date of the Merger Agreement, to the effect that the
Merger will qualify for pooling-of-interests accounting treatment, which
letter is expected to be updated as of the Effective Time. Under this
accounting method, at the Effective Time, Southwest'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 Southwest 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".
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 Office of the Comptroller of the
Currency (the "OCC"), the 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 Compass 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 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. Congress enacted and the
President recently signed into law the Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 ("Interstate Act"), which permits, commencing
one
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year after enactment, bank holding companies to acquire banks located in any
state without regard to whether the transaction is prohibited under any state
law (except that states may establish the minimum age of their local banks (up
to a maximum of 5 years) subject to interstate acquisition of out-of-state
bank holding companies).
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. Florida's regional
reciprocal banking act currently permits acquisitions of banks and bank
holding companies in Florida by financial institutions based in certain
designated jurisdictions other than Florida, including Alabama and Texas. In
addition, Florida has adopted legislation, to become effective in 1995, which
will permit out-of-state bank holding companies to acquire banks in Florida
regardless of where such companies are based, subject to various conditions.
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.
Upon the effectiveness of the Interstate Act, the restrictions imposed by
these state laws with respect to acquisitions by out-of-state bank holding
companies will no longer be effective. Accordingly, following the effective
date of the Interstate Act's bank holding company acquisition provisions, the
Company and all other bank holding companies will be permitted to undertake
interstate acquisitions of banks consistent with those provisions,
notwithstanding the limitations currently imposed by the interstate banking
laws of any state.
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 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,"
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"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized," as defined by regulations 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 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 June 30, 1994, the Subsidiary Banks were "well capitalized," and were not
subject to any of the foregoing restrictions, including, without limitation,
those related 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 and Central Bank of the South are both organized under the laws
of the State of Alabama. Compass Bank is a member of the Federal Reserve
System. Compass Bank and Central Bank of the South
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are both supervised, regulated and regularly examined by the Alabama State
Banking Department and Compass Bank is also regulated and examined by 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 of the FDIC, are subject to the provisions
of the Federal Deposit Insurance Act and to examination by and regulations of
the FDIC.
Compass Bank is governed by Alabama laws restricting the declaration and
payment of dividends to 90 percent of annual net income until its surplus
funds equal at least 20 percent 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. The Texas banks are currently not so restricted. Compass
Bank-Florida, governed by the laws of the State of Florida, may declare and
pay dividends not to exceed the current period's net profits combined with the
net retained profits of the previous two years--after charging off bad debts,
depreciation, and other worthless assets and after making provision for
reasonably anticipated future losses on loans and other assets--and may, with
the approval of the Department of Banking and Finance of the State of Florida,
declare and pay dividends from retained net profits which accrued prior to the
preceding two years; provided that, prior to declaring any dividend, the bank
shall carry 20 percent of its net profits for such preceding period as is
covered by the dividend to its surplus fund until such surplus fund shall at
least equal the amount of the bank's common and preferred stock issued and
outstanding. As members of the Federal Reserve System, Compass Bank and
Compass Bank-Florida are also subject to dividend limitations imposed by the
Federal Reserve that are similar to those applicable to national banks. The
approval of the OCC is required if the total of all dividends declared by a
national bank, in any calendar year exceeds the total of the respective bank's
net profits for that year, plus its retained net profits for the preceding two
years, less any required transfers to surplus.
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 their 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
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
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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.
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 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
Services, Inc., a wholly owned subsidiary of Compass, is a discount brokerage
service registered with the Commission and the NASD. The subsidiary is subject
to certain reporting requirements and regulatory control by these agencies.
Compass Insurance, Inc., a wholly owned subsidiary of Compass, 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.
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, which include the
express terms of the Compass Common Stock and the Compass Preferred Stock.
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 100,000,000 shares of Compass
Common Stock, of which 36,953,548 shares were issued and outstanding on August
31, 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
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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 percent (90%) of
annual net income until its surplus funds equal at least 20 percent (20%) of
capital stock. Compass Bank's surplus exceeded this amount as of June 30, 1994,
by $41,221,000. 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 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. 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 June 30, 1994. In addition, Compass Bank-
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 either bank's net
profits for that year, plus its retained net profits for the preceding two
years, less any required transfers to surplus. SEE "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE"; "SUMMARY--PARTIES TO THE MERGER"; "SUMMARY--REASONS
FOR THE MERGER; RECOMMENDATION OF BOARD OF DIRECTORS"; "RISK FACTORS";
"SELECTED FINANCIAL DATA"; "MARKET PRICES"; "COMPARISON OF RIGHTS OF
SHAREHOLDERS OF SOUTHWEST AND COMPASS--DIVIDENDS"; AND "INFORMATION ABOUT
COMPASS".
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 Southwest 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 such number of votes
which is equal to the number of shares held, times the number of directors to
be elected and to distribute such votes among nominees for director or cast
such votes entirely for one director. Cumulative voting rights tend to enhance
the voting power of minority shareholders.
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.
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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 SOUTHWEST AND COMPASS--DIVIDENDS".
COMPARISON OF RIGHTS OF SHAREHOLDERS OF SOUTHWEST 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.
Southwest's Articles of Incorporation, as amended, and By-Laws do not contain
similar restrictions, except that the TBCA requires that actions of
shareholders without a meeting be by unanimous written consent, unless the
articles of incorporation provide for actions by holders of the number of
shares that would be required for action at a meeting. Southwest's Articles of
Incorporation, as amended, and By-Laws do not provide for shareholder action by
less than unanimous consent.
The foregoing summary is qualified in its entirety by reference to the
Certificate and Compass' By-Laws which are available upon written request from
Compass and which are on file with the Commission, and to the Articles of
Incorporation, as amended, and By-Laws of Southwest, which are available upon
request from Southwest. SEE "AVAILABLE INFORMATION"; "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE"; "RISK FACTORS"; AND "INFORMATION ABOUT COMPASS".
In addition to the foregoing differences between Southwest's and Compass'
charters, as a result of the Merger, Southwest shareholders, whose rights are
governed by the TBCA, will become shareholders of Compass, and their rights as
shareholders will then be governed primarily by the GCL.
CERTAIN DIFFERENCES BETWEEN THE CORPORATION LAWS OF TEXAS AND DELAWARE AND
CORRESPONDING CHARTER AND BY-LAW PROVISIONS
Certain differences between the Delaware and Texas corporation laws, as well
as a description of the corresponding provisions contained in Compass' and
Southwest's respective Charter 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 TBCA.
Mergers
Both Texas law and Delaware law generally permit a merger to become effective
without the approval of the surviving corporation's shareholders if the
articles of incorporation of the surviving corporation do not change following
the merger, the amount of the surviving corporation's common stock to be issued
or
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delivered under the plan of merger does not exceed twenty percent (20%) of the
total shares of outstanding voting stock immediately prior to the acquisition,
and the board of directors of the surviving corporation adopts a resolution
approving the plan of merger.
Where shareholder approval is required under Texas law, a merger must be
approved by the holders of two-thirds of the outstanding shares of the Texas
corporation entitled to vote thereon, unless there is a class of stock that is
entitled to vote as a class, in which event the merger must be approved by the
holders of two-thirds of the outstanding shares of stock of each class entitled
to vote as a class and by the holders of two-thirds of the outstanding shares
otherwise entitled to vote. Where shareholder approval is required under
Delaware law, a merger can be approved by a majority vote of the outstanding
shares of capital stock of each class entitled to vote thereon. 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 SOUTHWEST AND COMPASS--CHARTER AND BY-
LAW PROVISIONS AFFECTING COMPASS STOCK".
Appraisal Rights
Shareholders of Texas corporations are entitled to exercise certain
dissenters' rights in the event of a sale, lease, exchange, or other
disposition of all, or substantially all, of the property and assets of the
corporation, and, with the exceptions discussed below, a merger or
consolidation. Shareholders of a Delaware corporation shall have rights of
appraisal in connection with certain mergers or consolidations. In addition, 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. The appraisal
rights of a shareholder of a Texas corporation are set forth in Appendix II.
SEE "SUMMARY--DISSENTERS' RIGHTS"; "THE MERGER--DISSENTERS' APPRAISAL RIGHTS";
AND APPENDIX II.
No appraisal rights are available under either Texas or, except as described
below, Delaware law for the holders of any shares of a class or series of stock
of a Texas or Delaware corporation to a merger if that corporation survives the
merger and the merger did not require the vote of the holders of that class or
series of such corporation's stock; provided, however, that under Delaware law
appraisal rights will be available in any event to shareholders of a Delaware
corporation who are required to accept consideration for their shares other
than the consideration described below.
Both Texas and Delaware law have a provision which states that shareholders
do not have appraisal rights in connection with a merger where, on the record
date fixed to determine the shareholders entitled to vote on the merger or
consolidation, the stock of the corporation is listed on a national securities
exchange or is held of record by more than 2,000 shareholders, unless any of
the following exceptions concerning consideration paid to the shareholder for
his shares are met. Under Texas law, a shareholder will be entitled to dissent
and be paid for his shares if, notwithstanding the above, the shareholder is
required to accept for his shares any consideration other than (a) shares of
stock of a corporation which, immediately after the effective date of the
merger, are listed on a national securities exchange or are held of record by
not less than 2,000 shareholders, and (b) cash in lieu of fractional shares
otherwise entitled to be received. The Delaware statute contains a similar
consideration provision which is somewhat broader. Appraisal rights will be
available to shareholders of a Delaware corporation in the event of a merger or
consolidation if such shareholders are required by the terms of an agreement of
merger or consolidation to accept for their stock anything other than (a)
shares of stock of the corporation surviving or resulting from such merger or
consolidation, (b) shares of stock of any other corporation which, at the
effective date of the merger or consolidation, will be either listed on a
national securities exchange or held of record by more than 2,000
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shareholders, (c) cash in lieu of fractional shares of a corporation described
in (a) and (b) above, or (d) any combination of the shares of stock and cash in
lieu of fractional shares described in (a), (b), and (c) above.
Special Meetings
A special meeting of shareholders of a Texas corporation may be called by the
holders of shares entitled to cast not less than ten percent (10%) of all
shares entitled to vote at the meeting, unless a different percentage, not to
exceed fifty percent (50%), is provided in the articles of incorporation.
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. Southwest's By-Laws
provide that special meetings of shareholders may be called at any time by the
President, by the Board of Directors, or by one or more shareholders the
aggregate of whose shares comprise not less than one-tenth of all the shares
entitled to vote at the meeting. Compass' Certificate prohibits shareholders
from calling special meetings.
Actions Without a Meeting
Under Texas law, the shareholders may act without a meeting if a consent in
writing to such action is signed by all shareholders; provided, however, that
the articles of incorporation may provide that the 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. Southwest's Articles of Incorporation, as amended, do
not so provide. 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".
Election of Directors
Pursuant to Texas law, unless otherwise provided in the articles of
incorporation, shareholders shall be entitled to cumulative voting in the
election of directors if they provide the secretary of the corporation with
written notice prior to the day of the election of their intent to cumulate
their votes. Absent such notice, the directors of a corporation shall be
elected by a plurality of the votes cast by the holders of shares entitled to
vote in the election of directors at a meeting of shareholders at which a
quorum is present. Southwest's Articles of Incorporation, as amended, provide
that cumulative voting for the election of directors shall not be permitted.
Likewise, holders of Compass Common Stock are not entitled to cumulate their
votes in the election of directors. SEE "DESCRIPTION OF COMPASS COMMON AND
PREFERRED STOCK--VOTING RIGHTS."
Voting on Other Matters
Under Texas law, an amendment to the articles of incorporation requires the
approval of the holders of at least two-thirds of the outstanding shares of the
corporation entitled to vote thereon, and the holders of two-thirds of the
outstanding shares of each class or series entitled to vote thereon as a class,
unless a different number, not less than a majority, is specified in the
articles of incorporation. Southwest's Articles of Incorporation, as amended,
do not so provide. 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. The certificate of incorporation of
Compass does not provide for approval by more than a majority vote.
The sale, lease, exchange or other disposition (not including any pledge,
mortgage, deed of trust or trust indenture unless otherwise provided in the
articles of incorporation) of all, or substantially all, the property
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and assets, with or without the goodwill, of a Texas corporation, if not made
in the usual and regular course of its business, requires the approval of the
holders of at least two-thirds of the outstanding shares of the corporation
entitled to vote thereon, and the holders of two-thirds of the outstanding
shares of each class or series entitled to vote thereon as a class, unless the
articles of incorporation require the vote of a different number, not less
than a majority, of the shares outstanding. Southwest's Articles of
Incorporation, as amended, do not provide for a different voting requirement
or entitle the shares of any class or series to vote thereon. 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. The certificate of incorporation of Compass does not so
provide.
Under Texas law, the dissolution of a corporation requires the approval of
the holders of at least two-thirds of the total outstanding shares of the
corporation, and the holders of two-thirds of the outstanding shares of each
class or series entitled to vote thereon as a class, unless a different
amount, not less than a majority, is specified in the articles of
incorporation. Each outstanding share of a Texas corporation is entitled to
vote on dissolution. The Articles of Incorporation, as amended, of Southwest
do not provide for a different number of shares for approval of dissolution or
permit the shares of any class or series to vote thereon. 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.
Preemptive Rights
Under Texas law, shareholders possess preemptive rights as to the issuance
of additional or treasury securities by the corporation, unless the
corporation's articles of incorporation provide otherwise. Southwest's
Articles of Incorporation, as amended, and Compass' Certificate both provide
that their respective shareholders shall not have preemptive rights.
Dividends
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. A Texas corporation may make distributions only
out of surplus.
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. Holders of Southwest Common Stock are entitled to receive
dividends ratably when, as and if declared by Southwest's Board of Directors
from assets legally available therefor, after payment of all dividends payable
on Southwest Preferred Stock. Holders of Series A Preferred Stock are entitled
to preferred cumulative dividends of $10.00 per share per annum. Holders of
Series B Preferred Stock are entitled to non-cumulative dividends of $10.00
per share per annum. SEE "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE";
"SUMMARY--PARTIES TO THE MERGER"; "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 SOUTHWEST--MARKET PRICE AND DIVIDENDS".
Liquidation Rights
Generally under Texas and Delaware law, shareholders are entitled to share
ratably in the distribution of assets upon the dissolution of their
corporation. Preferred shareholders typically do not participate in the
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distribution of assets of a dissolved corporation beyond their established
contractual preferences. Once the rights of preferred shareholders have been
fully satisfied, common shareholders are entitled to the distribution of any
remaining assets.
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. Currently, there
are no outstanding shares of Compass preferred stock. Upon liquidation,
dissolution or winding up of the affairs of Southwest, the holders of the
Series B Preferred Stock will be entitled to receive, in respect of each share
held, payment in cash equal to $100.00 per share, plus accrued and unpaid
dividends, if any, before any distribution of assets is made to the holders of
the Series A Preferred Stock or any other stock ranking junior to the Series B
Preferred Stock with respect to liquidation preferences. Thereafter, the
holders of Series A Preferred Stock will be entitled to receive, in respect of
each share held, payment in cash equal to $100.00 per share, plus accrued and
unpaid dividends, if any, before any distribution of assets is made to the
holders of stock ranking junior to the Series B Preferred Stock. Holders of
Southwest Common Stock are entitled to receive their pro rata portion of the
remaining assets of Southwest after the holders of Southwest Preferred Stock
have been paid in full the sums to which they are entitled.
Redemption
The Southwest Preferred Stock may be redeemed, in whole or in part, by
Southwest at the election of the Southwest Board of Directors, upon the payment
of $100.00 to the holder thereof for each share of Southwest Preferred Stock
held, together with the amount of any accrued and unpaid dividends thereon to
the date fixed for redemption.
Limitation of Liability and Indemnification
Both Texas and Delaware law permit a corporation to set limits on the extent
of a director's liability. Both Texas and Delaware law permit 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
either Texas or 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 authorizes indemnification of officers, directors, and
others to the full extent permitted by Delaware law.
Southwest's Articles of Incorporation, as amended, provide that directors,
officers, employees and agents of Southwest or persons who serve in similar
capacities of other corporations at the request of Southwest shall be
indemnified against expenses incurred by such persons in connection with the
defense of any action, suit, or proceeding in which they are made a party by
reason of being or having been directors or officers, except in relation to
matters as to which such persons shall be adjudged in such action, suit or
proceeding to be liable for negligence or misconduct in the performance of
their duty. Southwest's Bylaws further provide that such persons shall be
indemnified, in the case of derivative actions, for expenses incurred in
connection with the defense or settlement of the suit, and, in the case of non-
derivative actions, for expenses, amounts paid in settlement, judgments and
fines. In order for such persons to be indemnified in a derivative action,
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such person must be successful on the merits or must have acted in good faith
and in a manner reasonably believed to be in, or not opposed to, the best
interests of the corporation; provided, however, that he shall not be
indemnified in respect to any claim, issue, or matter as to which he has been
adjudged liable for negligence or misconduct in the performance of his duty to
the corporation unless the court in which the suit was brought determines that
he is fairly and reasonably entitled to indemnity for such expenses as the
court shall deem proper. In order for such persons to be indemnified in the
non-derivative actions, such persons must be successful on the merits or must
have acted in good faith and in a manner reasonably believed to be in, or not
opposed to, the best interests of the corporation, and, with respect to any
criminal action or proceeding, such person shall have no reason to believe his
conduct was unlawful. SEE "AVAILABLE INFORMATION"; "INCORPORATION BY REFERENCE
OF CERTAIN DOCUMENTS"; AND "INDEMNIFICATION".
Removal of Directors
A Texas corporation may provide in its articles of incorporation or by-laws
that a director can be removed with or without cause by a vote of the holders
of not less than a majority of the shares entitled to vote, and Southwest's
Bylaws do contain this provision. 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 after a supermajority vote (80%)
of the shareholders.
Inspection of Books and Records
Under Texas law, any person who has been a shareholder of record for at
least six months preceding his demand, or who is the holder of at least five
percent (5%) of all of the outstanding shares of a corporation, is entitled to
examine a corporation's relevant books and records for any proper purpose.
Under Delaware law, any shareholder has such a right.
Antitakeover Provisions
Delaware has enacted antitakeover legislation. Compass has opted out of such
provisions as provided thereby. Certain provisions of Compass' charter and By-
laws limiting a takeover without the support of its Board of Directors are
described in "COMPARISON OF RIGHTS OF SHAREHOLDERS OF SOUTHWEST AND COMPASS--
CHARTER AND BY-LAW PROVISIONS AFFECTING COMPASS STOCK." Texas has not enacted
similar legislation.
Although certain of the specific differences between the voting and other
rights of Southwest 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 Texas and Delaware law, or the
rights of such persons under the respective charters and By-Laws of Compass
and Southwest. 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 to the particular requirements of the
TBCA and the GCL, and the specific provisions of Compass' Certificate and By-
Laws, and Southwest's Articles of Incorporation, as amended, and By-Laws.
RESALE OF COMPASS STOCK
The Compass Common Stock to be issued to holders of Southwest 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
Southwest within the meaning of Rule 145 under the Securities Act. The
directors and executive officers of Southwest, the beneficial owners of ten
percent (10%) or more of Southwest Common Stock and certain of their related
interests may be deemed to be affiliates of Southwest. Such affiliates are not
permitted to transfer any Compass Common Stock except in compliance with the
Securities Act and the rules and regulations
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thereunder. Southwest will use its best efforts to cause such affiliates to
deliver to Compass prior to the Effective Time a written agreement providing
that each such affiliate will not sell, pledge, transfer, or otherwise dispose
of the Compass Common Stock to be received by such person in the Merger,
except in a manner which is consistent with Compass' accounting for the Merger
as a pooling-of-interests and in compliance with the applicable provisions of
the Securities Act and the respective rules and regulations thereunder. SEE
"SUMMARY--ACCOUNTING TREATMENT"; "THE MERGER--ACCOUNTING TREATMENT"; AND
APPENDIX I.
Pursuant to the Merger Agreement, Southwest has represented that holders of
shares of Southwest Common Stock holding one percent (1%) or more of the
outstanding shares of Southwest Common Stock will represent to Compass their
intention not to sell or otherwise dispose of the shares of Compass Common
Stock received in the Merger that would reduce their 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 of the Southwest
Common Stock owned by them, immediately prior to the Effective Time. As a
condition to consummation of the Merger, Compass must receive from Southwest
shareholders receiving at least fifty percent (50%) of the aggregate Merger
Consideration a representation that they currently have no plan or present
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' 1993
Annual Report to Shareholders and its Quarterly Report to Shareholders for the
quarters ending March 31, 1994 and June 30, 1994, 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 Southwest or the Merger, except as a director,
executive officer, or shareholder of Compass or its subsidiaries.
RECENT DEVELOPMENTS
On January 27, 1995, Harry B. Brock, Jr., a director and former employee of
Compass, announced that he, along with his son, Stanley M. Brock, and Grady W.
("Red") Leach, also directors of Compass, formed a group, known as the
"Committee to Maximize Stockholder Value" (the "Committee"), for the purpose
of proposing and supporting candidates for election to the Board of Directors
of Compass at its 1995 Annual Meeting. Mr. Brock also announced that he and
Mr. Leach had submitted proposals for consideration by the shareholders at the
1995 Annual Meeting. The Committee has filed with the Commission a preliminary
Proxy Statement on Schedule 14A pursuant to which it intends to solicit
proxies in support of its nominees to Compass' Board of Directors and the two
shareholder proposals. The Committee has stated that if it succeeds, it will
seek proposals from third party financial institutions to acquire Compass.
INFORMATION ABOUT SOUTHWEST
GENERAL
Southwest is a Texas bank holding company registered under the Bank Holding
Company Act of 1956, as amended, and is regulated as such by the Board of
Governors of the Federal Reserve System. Southwest's principal assets consist
of cash and all of the issued and outstanding common stock of BAMC. BAMC's
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principal assets consist of all of the common stock of the Bank. The Bank is a
state chartered non-member bank organized in 1918. In September of 1986, Bank
of San Antonio/Medical Center ("Med Center") was opened as a De Novo state
chartered non-member bank which had approximately 80% of its capital provided
by Southwest in return for a like amount of ownership. In September 1993, Med
Center was merged with and into the Bank. The deposits of the Bank are insured
by the FDIC to the fullest extent permitted by law.
The Bank is located in three sections of the city of San Antonio served by
four (4) full service branches and six (6) "mini-branches". The principal
office is located in downtown San Antonio. There are also two full service
branches on the campus of the South Texas Medical Center in the Northwest
sector of San Antonio. The fourth full service branch is in the Northeast
sector of San Antonio in Lincoln Heights. The mini-branches are limited
service, one teller operations located in the medical office complexes which
are open 2 to 3 hours per day. There are three of these mini-branches in the
downtown area and three that serve the South Texas Medical Center. There are
attached drive-thru facilities at each of the downtown, medical center and
Lincoln Heights facilities. Each full service location offers all of the Bank's
services which include checking accounts, savings accounts, certificates of
deposit, individual retirement accounts, annuities, and personal and commercial
loans.
On September 30, 1994, the Bank had 69 full time employees, 18 of whom were
officers. On September 30, 1994, the Bank had 12 directors and 2 advisory
directors. Outside directors are compensated for their services.
COMPETITION
The banking business is highly competitive. Numerous other banking facilities
are located within the Bank's primary service area, and such banking facilities
compete directly with the Bank with regard to the full range of commercial
banking services. To a certain extent, the Bank also competes for deposits and
loans with savings and loan associations and credit unions located in and
around the Bank's primary service area and for loans with finance companies
located in or near the Bank's primary service area.
The Bank 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 loans associations, credit unions, mortgage
companies, insurance companies, and other financial institutions, may be
expected to intensify. The Bank and similar institutions have also experienced
significant competition for deposits from mutual funds and other money center
banks' offerings of high yielding deposit accounts. Some of the institutions
with which the Bank competes have capital and resources much larger than those
of the Bank, and some are not subject to the same regulatory restrictions.
LEGAL PROCEEDINGS
In the normal course of their business, Southwest and the Bank from time to
time are involved in legal proceedings. Other than such proceedings incidental
to its business, Southwest's management is not aware of any pending or
threatened legal proceedings which, upon resolution, would have a material
adverse effect upon it's 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
Southwest is currently subject to certain agreements and commitments with the
Federal Reserve which prevent Southwest from, among other things, incurring
additional debt or repurchasing or redeeming preferred stock without prior
approval of the Federal Reserve, if such actions would cause its debt to equity
ratio to exceed 30%.
36
<PAGE>
MARKET PRICE AND DIVIDENDS
There is no active public trading market for the Southwest Stock. As of
September 30, 1994, Southwest Common Stock was held by 23 persons, the Series
A Preferred Stock was held by 15 persons and the Series B Preferred Stock was
held by 15 persons. Southwest has never paid a dividend on the Southwest
Common Stock. Southwest has paid a dividend of $10.00 per share for each
outstanding share of Series A Preferred Stock from the date of issuance on
February 27, 1992 through December 31, 1994. Southwest has paid a dividend of
$10.00 per share for each outstanding share of Series B Preferred Stock from
the date of issuance on July 1, 1993 through December 31, 1994. See "MARKET
PRICES"; AND "COMPARISON OF RIGHTS OF SHAREHOLDERS OF SOUTHWEST AND COMPASS--
DIVIDENDS".
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table shows the number of shares of Southwest Common Stock,
the Series A Preferred Stock and the Series B Preferred Stock beneficially
owned by each director of Southwest as of December 31, 1994, and information
for all Southwest directors as a group. No executive officers of Southwest
hold Southwest Stock. The table also sets forth the name and address for each
person known by Southwest to be the beneficial owner of more than 5% of the
outstanding shares of any class of Southwest Stock.
<TABLE>
<CAPTION>
SOUTHWEST SERIES A SERIES B
COMMON STOCK PREFERRED STOCK PREFERRED STOCK
---------------------------- -------------------------- --------------------------
NAME OF DIRECTORS AND PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
NAMES AND ADDRESSES NUMBER OF SHARES NUMBER OF SHARES NUMBER OF SHARES
OF 5% SHAREHOLDERS SHARES HELD OUTSTANDING(1) SHARES HELD OUTSTANDING(2) SHARES HELD OUTSTANDING(3)
--------------------- ----------- -------------- ----------- -------------- ----------- --------------
<C> <S> <C> <C> <C> <C> <C>
J. Bruce Bugg, Jr. .......... 128 9.65% 1,369 9.13% 1967 9.13%
1660 Frost Bank Tower
100 West Houston Street
San Antonio, Texas 78205
Jack E. Gorman................ 88 6.64% 583 3.87% 838 3.89%
508 E. Mandalay
San Antonio, Texas 78212
James W. Gorman............... 295 22.25% 7,417 49.45% 10,655 49.44%
200 Patterson, # 1000
San Antonio, Texas 78209
Rowena C. Gorman.............. 3 .23% 0 -- 0 --
Steven Q. Lee (5)............. 376 28.36% 2,476 16.51% 3,558 16.51%
1335 N.E. Loop 410
San Antonio, Texas 78209-1515
Ruskin C. Norman, M.D. ....... 115 8.67% 761 5.07% 1,093 5.07%
7950 Floyd Curl
Suite 1001
San Antonio, Texas 78229
Three Lee Investments Limited. 376 28.36% 2,476 16.51% 3,559 16.51%
1335 N.E. Loop 410
San Antonio, Texas 78209-1515
Southwest Directors as a
Group (3 persons)............ 467 35.22% 3,059 20.39% 4,396 20.40%
</TABLE>
- --------
(1) Based upon 1,326 shares outstanding as of the date hereof.
(2) Based upon 15,000 shares outstanding as of the date hereof.
(3) Based upon 21,550 shares outstanding as of the date hereof.
(4) Consists of shares held by Three Lee Investments Limited, a limited
partnership of which Mr. Lee is a general partner.
The persons listed above will receive the same Merger Consideration
described in "THE MERGER--GENERAL" as the other Southwest shareholders for
each share of Southwest Stock held at the Effective Time.
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF
OPERATIONS OF SOUTHWEST
The following discussion provides certain information regarding the financial
condition and results of operations of Southwest. This discussion should be
read in conjunction with Southwest's Financial Statements and Notes to
Financial Statements presented elsewhere in this Proxy Statement/Prospectus.
See "Index to Southwest Financial Statements".
RESULTS OF OPERATIONS
General
The earnings of Southwest depend primarily on Southwest's net interest income
(i.e., the difference between the income earned on Southwest'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.
Southwest's income is also affected by fees it receives from other banking
services, by its provision for loan losses and by the level of its operating
expenses. All aspects of Southwest's operations are affected by general market,
economic and competitive conditions.
Southwest reported net income of $1,096,000 for the nine months ended
September 30, 1994, a decrease from net income of $1,718,000 for the nine
months ended September 30, 1993. Pretax income was $1,447,000 for the nine
months ended September 30, 1994, a $310,000 decrease from the $1,756,000 earned
during the nine months ended September 30, 1993. Southwest had net income of
$2,961,000 for the year ended December 31, 1993, $1,867,000 for the year ended
December 31, 1992, and a $365,000 loss for the year ended December 31, 1991.
Changes occurring in the major components of the Southwest's income statement
for such periods are discussed below.
Net Interest Income
Net interest income is the primary source of income for Southwest and
represents the amount by which interest and fees generated by earning assets
exceed the cost of funds, primarily interest paid to Southwest's depositors on
interest bearing accounts. Net interest income was $4,826,000 for the nine
months ended September 30, 1994, a 1.9% increase from net interest income of
$4,738,000 for the nine months ended September 30, 1993. Average rates earned
on interest bearing assets dropped from 8.0% as of September 30, 1993 to 7.6%
as of September 30, 1994. Average loans, net of unearned discount, of
$60,195,000 for the nine months ended September 30, 1994 increased $1,134,000
over average loans of $59,061,000 for the same period in 1993. Average deposits
for the nine months ended September 30, 1994 were $116,919,000, an increase of
9.9% over average deposits of $106,384,000 for the same period in 1993.
For the year ended December 31, 1993, net interest income increased $493,000
or 8.4% over the year ended December 31, 1992. Net interest income increased
$783,000 in 1992 or 15.5% over 1991 net interest income of $5,066,000. The
increase of $493,000 in 1993 and $783,000 in 1992 was due primarily to a
significant decline in interest rates paid on interest-bearing deposits.
38
<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-bearing liabilities are also
summarized.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------------
1994 1993
------------------------ ------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
ASSETS -------- ------- ------ -------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets:
Loans(1)................. $ 60,195 $4,400 9.77% $ 59,061 $4,463 10.10%
Securities--Held to Matu-
rity.................... 38,512 1,575 5.47% 44,100 2,011 6.10%
Securities--Available for
Sale.................... 13,190 632 6.41% 0 0 0
Federal funds sold....... 8,658 247 3.81% 7,156 159 2.97%
-------- ------ ---- -------- ------ -----
Total interest-bearing
assets/interest
income/average yield.... 120,555 6,854 7.60% 110,317 6,633 8.04%
Non-interest earning as-
sets:
Cash and due from banks.. 5,769 6,268
Other assets............. 7,184 5,504
Allowance for loan loss-
es...................... (1,140) (1,578)
-------- --------
TOTAL.................... $132,368 $120,511
======== ========
LIABILITIES AND STOCKHOLD-
ERS' EQUITY
Interest-bearing liabili-
ties:
NOW, money market and
savings................. $ 71,535 1,450 2.71% $ 64,354 1,254 2.61%
Certificates of deposit.. 16,311 394 3.23% 16,388 418 3.41%
Note payable............. 3,334 183 7.34% 3,714 223 8.03%
Other borrowings......... 103 1 1.95% 0 0 0
-------- ------ ---- -------- ------ -----
Total interest-bearing
liabilities/interest
expense/rate............ 91,283 2,028 2.97% 84,456 1,895 3.00%
Noninterest-bearing demand
deposits................. 29,073 25,642
Other liabilities......... 1,592 2,078
-------- --------
Total liabilities........ 121,948 112,176
Stockholders' equity..... 10,420 8,335
-------- --------
TOTAL.................... $132,368 $120,511
======== ========
Net interest income....... 4,826 4,738
------ ------
Net yield on interest-
earning assets
(annualized)............. 5.35% 5.74%
---- -----
</TABLE>
- --------
(1) Includes non-accrual loans. See Note 1 to Consolidated Financial Statements
of Southwest.
39
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------
1993 1992 1991
------------------------ ------------------------ ------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
-------- ------- ------ -------- ------- ------ -------- ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Loans(1)............... $ 59,816 $6,004 10.04% $ 59,286 $6,270 10.58% $ 66,597 $7,180 10.78%
Investment securities--
taxable............... 43,943 2,620 5.96% 37,727 2,569 6.81% 27,483 2,190 7.97%
Federal funds sold..... 7,090 208 2.93% 9,228 312 3.38% 11,981 680 5.68%
-------- ------ ----- -------- ------ ----- -------- ------ -----
Total interest-bearing
assets/interest
income/average yield.. 110,849 8,832 7.97% 106,241 9,151 8.61% 106,061 10,050 9.48%
Non-interest earning
assets:
Cash and due from
banks................. 6,059 9,286 7,587
Other assets........... 5,728 2,409 3,548
Allowance for loan
losses................ (1,581) (1,589) (1,547)
-------- -------- --------
TOTAL.................. $121,055 $116,347 $115,649
======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing
liabilities:
NOW, money market and
savings............... $ 64,671 1,661 2.57% $ 57,950 1,947 3.36% $ 44,656 2,015 4.51%
Certificates of
deposit............... 16,086 545 3.39% 22,635 995 4.40% 37,147 2,340 6.30%
Note payable........... 3,737 283 7.57% 4,188 339 8.10% 7,155 606 8.47%
Other borrowings....... 0 0 0 680 20 2.94% 482 23 4.56%
-------- ------ ----- -------- ------ ----- -------- ------ -----
Total interest-bearing
liabilities/interest
expense/rate.......... 84,494 2,489 2.95% 85,453 3,301 3.86% 89,440 4,984 5.57%
Noninterest-bearing
demand deposits........ 25,960 22,696 21,930
Other liabilities....... 1,984 2,021 2,119
-------- -------- --------
Total liabilities...... 112,438 110,170 113,489
Stockholders' equity... 8,617 6,177 2,160
-------- -------- --------
TOTAL.................. $121,055 $116,347 $115,649
======== ======== ========
Net interest income..... 6,342 5,850 5,066
------ ------ ------
Net yield on interest-
earning assets......... 5.72% 5.51% 4.78%
----- ----- -----
</TABLE>
- --------
(1) Includes non-accrual loans. See Note 1 to Consolidated Financial Statements
of Southwest.
40
<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>
NINE MONTHS ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, 1994 1993 YEAR ENDED DECEMBER 31, 1992
-------------------------- --------------------------- -------------------------------
CHANGE CHANGE CHANGE
1994 ATTRIBUTED TO 1993 ATTRIBUTED TO 1992 ATTRIBUTED TO
TO ------------------ TO ------------------- TO ----------------------
1993 VOLUME RATE MIX 1992 VOLUME RATE MIX 1991 VOLUME RATE MIX
------ ------ ----- --- ------ ------ ----- ---- ------- ------ ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans........... $ (63) $ 86 $(146) $(3) $(266) $ 56 $(319) $ (3) $ (910) $(788) $ (137) $ 15
Securities-Held
to Maturity.... (436) (255) (207) 26 51 423 (320) (52) 379 816 (319) (118)
Securities-
Available for
Sale........... 632 632 0 0
Fed funds sold.. 88 33 45 10 (104) (72) (41) 9 (368) (156) (275) 63
----- ----- ----- --- ----- ----- ----- ---- ------- ----- ------- -----
Increase
(decrease) in
interest
income......... $ 221 $492 $(304) $33 $(319) $ 407 $(680) $(46) $ (899) $(128) $ (731) $ (40)
===== ===== ===== === ===== ===== ===== ==== ======= ===== ======= =====
Interest Expense:
Savings and
transaction
accounts....... $ 195 $139 $ 50 $ 6 $(285) $ 226 $(458) $(53) $ (68) $ 600 $ (515) $(153)
Time deposits... (24) (2) (22) 0 (450) (288) (228) 66 (1,345) (914) (707) 276
Note payable.... (40) (23) (19) 2 (56) (37) (22) 3 (267) (251) (27) 11
Other
borrowings..... 2 0 0 2 (21) (20) 0 0 (2) 9 (8) (3)
----- ----- ----- --- ----- ----- ----- ---- ------- ----- ------- -----
Increase
(decrease) in
interest
expense........ $ 133 $ 114 $ 9 $10 $(812) $(119) $(708) $ 16 $(1,682) $(556) $(1,257) $ 131
===== ===== ===== === ===== ===== ===== ==== ======= ===== ======= =====
</TABLE>
Provision for Loan Losses
Southwest'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.
Southwest recorded no provision for loan losses for the nine month periods
ended September 30, 1994 and September 30, 1993. Management determined that no
provision was necessary in 1994 and 1993 and that the allowance for loan
losses was adequate despite one loan being placed on nonaccrual in 1994. The
allowance for loan losses expressed as a percentage of outstanding loans net
of unearned interest was 1.8% and 2.6% as of September 30, 1994 and September
30, 1993, respectively.
Southwest recorded a credit to the provision for loan losses of $450,000 for
the year ended December 31, 1993 compared to a provision of $0 for the year
ended December 31, 1992 and $552,000 for the year ended 1991. The credit to
the provision in 1993 was a result of improved credit quality of Southwest's
loan portfolio as well as taking into consideration current economic
conditions, volume, growth and composition of the loan portfolio, as well as
various other relevant factors. The decreased provision from 1991 to 1992
again was a result of the improved credit quality of Southwest's loan
portfolio. For the years ended 1991, 1992, 1993, total nonaccrual, past due
greater than 90 days and restructured loans decreased from $597,000 to
$164,000 to $90,000, respectively. The allowance for loan losses expressed as
a percentage of outstanding loans net of unearned interest was 1.9%, 2.8% and
2.6% as of December 31, 1993, 1992 and 1991, respectively.
Non-Interest Income
Non-interest income, which includes, among other things, service charges and
fees, decreased $128,000 from $949,000 for the nine months ended September 30,
1993 to $821,000 for the nine months ended September 30, 1994. The decrease
was attributable primarily to a reduction in gains on sale of loans as a
result of the rising interest rate environment.
41
<PAGE>
Non-interest income increased 22.8% from $1,080,000 to $1,326,000 for the
years ended December 31, 1992 and 1993, respectively. An increase of $82,000 in
service charges on deposit accounts and an increase of $187,000 in gain on sale
of loans in the secondary market made up the majority of this increase. The
increase in gains on sale of loans was primarily a result of the decreasing
interest rate environment during 1993.
Non-interest income increased $198,000, or 22.4%, from $882,000 for the year
ended December 31, 1991 to $1,080,000 for the year ended December 31, 1992. The
increase was primarily due to $101,000 in gain on sale of loans.
Operating Expenses
Non-interest expenses include expenses which Southwest incurs in the normal
course of operations such as employee compensation and benefits, occupancy
expense, data processing charges, FDIC insurance premiums, communication
expense, professional fees, advertising and supplies and depreciation and
amortization of furniture and equipment. These expenses increased 6.9% from
$3,930,000 for the nine months ended September 30, 1993 to $4,201,000 for the
nine months ended September 30, 1994. The increase in non-interest expense was
the result of increases of $174,000 in other operating expenses and $166,000 in
salaries and benefit expenses. The increase in other operating expenses is
mainly attributable to an increase of $127,000 in legal expense, primarily to
effect the Merger, and an increase of $49,000 in expenses resulting from the
opening of a new branch location at 990 East Basse, San Antonio in December,
1993. The increase in salaries and benefit expenses primarily related to
incentive compensation based on overall performance of Southwest.
Operating expenses for the year 1993 increased $532,000 or 10.6% to
$5,560,000 from $5,028,000 for the year ended 1992. This increase was primarily
a result of an increase of $907,000 in salaries and benefit expenses, offset by
a decrease of $362,000 in occupancy expense. The increase in salaries and
benefits was primarily related to incentive compensation based on mortgage loan
production and on overall performance of Southwest. The decrease in occupancy
expense was due to the purchase of Southwest's downtown location and subsequent
lease income, as well as the purchase of the land, previously under lease, at
the branch located at 7575 Wurzbach Drive in the Medical Center.
Operating expenses for the year ending December 31, 1992, decreased by
$734,000, or 12.7%, from the year ended December 31, 1991, primarily as a
result of a $916,000 in provision for permanent impairment in value of premises
and losses on other real estate during 1991. The provision for impairment in
value of premises was $603,000 and losses on other real estate was $313,000.
The provision for impairment in value of premises was recorded to adjust the
carrying value of parking lots near the 660 North Main location to a current
appraisal. The losses on other real estate consisted of $261,000 in provisions
to adjust the carrying values of other real estate acquired through foreclosure
or the acceptance of a deed in lieu of foreclosure to the lower of cost or
market and $52,000 in losses on the sale of other real estate.
FEDERAL INCOME TAXES
In 1993, Southwest adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (FAS 109). As permitted under the new rules,
prior years' financial statements have not been restated. There was no
cumulative effect of adopting FAS 109 as of January 1, 1993.
Southwest's provision for income taxes was $351,000 and $38,000 for the nine
month periods ended September 30, 1994 and September 30, 1993, respectively. As
of September 30, 1994, Southwest has no net operating loss carryforwards nor
investment and minimum tax credit carryovers for federal income tax purposes.
Southwest has gross deferred tax assets of $610,000 and a valuation allowance
of $205,000 at September 30, 1994. Current federal income taxes for the nine
months ended September 30, 1993 result from the alternative minimum tax.
Southwest recorded a credit to the provision for income taxes of $403,000 for
1993, consisting of $48,000 in current federal income taxes and a credit to the
provision for deferred taxes of $451,000. Current taxes for
42
<PAGE>
1993 result from the alternative minimum tax. The credit to deferred taxes of
$451,000 primarily resulted from a reduction in the valuation allowance on
deferred tax assets of $1,352,000, partially offset by utilization of $873,000
in net operating loss carryforwards.
Southwest's provision for federal income taxes was $687,000 and $0 for 1992
and 1991, respectively. Federal income taxes for 1992 consisted of $35,000 in
current federal income taxes and $652,000 from the tax effect of loss
carryforwards. Southwest recorded an extraordinary gain of $652,000 as a result
of this net operating loss carryforward. Current taxes for 1992 result from the
alternative minimum tax.
CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL CONDITION
Capital Resources
The FDIC has adopted risk-based and leverage capital measures to assist in
the assessment of the capital adequacy of the banks it regulates. 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.
The Bank is a FDIC regulated state-chartered bank and as such its 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
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 items by a
credit conversion factor. Second, in most cases, the credit equivalent amount
is assigned to the appropriate risk category according to designated criteria.
FDIC regulated state-chartered 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
43
<PAGE>
institution's capital base up to a maximum of 100% of the financial
institution's Tier 1 capital. As ofSeptember 30, 1994, the Bank's Tier 1 risk-
based capital ratio was 20.3% and the total risk-based capital ratio was 21.7%.
In addition, the FDIC and the Texas Banking Department have 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 FDIC requires its regulated state 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 FDIC
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. The Texas Banking Department's
capital guidelines call for a minimum equity capital to total asset ratio of
6%.
The Bank's leverage ratio was 10.0% as of September 30, 1994 and 10.2% for
December 31, 1993.
Note Payable
In 1985, Southwest borrowed funds for the purpose of acquiring the Bank. This
loan was refinanced as of October 5, 1993, and is represented by a note payable
in the original amount of $3,621,000, secured by the common stock of BAMC and
the Bank. The note provides for the balance to be paid in quarterly
installments over a seven-year period, and bears interest at a floating rate of
prime plus 1/2%. The loan had a balance of approximately $3,233,000 as of
September 30, 1994.
Liquidity
Southwest'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. Southwest 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. Southwest believes its present position to be
adequate to meet its current and foreseeable liquidity needs.
The liquidity of Southwest is maintained in the form of readily marketable
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,
Southwest'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 portfolio, deposits and anticipated
loan fundings. In addition to the liquidity provided by the foregoing,
Southwest has correspondent relationships with other institutions with
available unsecured lines of credit to purchase overnight funds totalling
$8,000,000 should additional liquidity be needed. These lines are subject to
restrictions such as the financial strength of Southwest and the lenders
ability to facilitate the credit.
On January 1, 1994, Southwest adopted the provisions of FAS 115. The opening
balance of shareholders' equity was increased by $222,000 to reflect the net
unrealized holding gains, net of tax, on securities classified as available for
sale which were previously carried at amortized cost. As of September 30, 1994,
Southwest's available-for-sale portfolio account totalled $13,045,937 out of a
total security portfolio of $66,009,985.
Average non-interest bearing demand deposits were $29,073,000 as of September
30, 1994, an increase of $3,431,000 over the average balance as of September
30, 1993. Average interest bearing deposits were $87,846,000 as of September
30, 1994 compared to $80,742,000 as of September 30, 1993. This increase in
deposits was primarily due to the opening of the Lincoln Heights branch in
December, 1993.
44
<PAGE>
Average non-interest bearing demand deposits were $25,960,000, $22,696,000
and $21,930,000 as of the end of 1993, 1992 and 1991, respectively. Average
interest bearing deposits for such years were $80,757,000, $80,585,000,
$81,804,000, respectively.
Net cash generated by operating activities was $3,446,000, $865,000 and
$1,727,000 as of the end of 1993, 1992 and 1991, respectively. Proceeds from
sales, principal paydowns, and maturities of investment securities were
$9,187,000, $10,129,000 and $10,864,000 for the same periods. Proceeds from
the sale of loans during 1993 and 1992 were $25,666,000 and $20,566,000,
respectively. Sales of loans were immaterial in 1991. Southwest utilized these
funds to originate loans and purchase investment securities. Loans originated,
net of principal collected, were $30,346,000 and $17,384,000 in 1993 and 1992,
respectively. Southwest purchased investment securities of $6,951,000 in 1993,
$16,718,000 in 1992, and $24,945,000 in 1991. Net cash provided by operating
activities was $3,107,000 and $3,240,000 as of the nine months ended September
30, 1994 and 1993, respectively. Proceeds from the sale of loans were
$16,462,000 and $18,333,000 for the same periods. A net increase in demand
deposits and NOW, money market and savings accounts of $12,312,000 was
realized in the nine months ended September 30, 1994 compared to a decrease of
$2,811,000 for same period in 1993. This increase was primarily attributable
to the opening of the Lincoln Heights location in December 1993. Southwest
utilized these funds to originate loans and purchase investment securities.
Loans originated, net of principal collected, were $4,592,000 and $3,483,000
for the nine months ended September 30, 1994 and 1993, respectively. Southwest
purchased investment securities of $29,138,000 and $6,073,000 for the same
periods.
In October 1993, the Company refinanced its outstanding indebtedness with a
note in the amount of $3,621,000. The loan proceeds, together with regular
principal payments, resulted in total repayments of borrowings of $3,947,000
in 1993. In February 1992, the Company issued Series A and Series B Preferred
Stock for $3,655,000, $3,155,000 of which was applied to the outstanding loan.
The issuance of preferred stock, together with regular principal payments,
resulted in total repayments of borrowings of $3,338,000 in 1992.
In September 1993, the Bank purchased a 19.87% minority interest in Bank of
San Antonio/Medical Center for $925,000. Bank of San Antonio/Medical Center
was simultaneously merged with and into the Bank.
Funds utilized for the purchase of bank premises and equipment were
$2,037,000, $2,477,000 and $163,000 during 1993, 1992 and 1991. During 1993,
the Bank capitalized expenditures of $1,210,000 in connection with the
completion of the construction and furnishing of a new location at 990 East
Basse Road, San Antonio, and purchased the land on which its branch at 7575
Wurbach, San Antonio, is located for $524,000. During 1992, Southwest
purchased its main office building located at 660 N. Main, San Antonio for
$2,290,000.
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 a similar interest rate sensitivity
position of the assets and liabilities 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.
45
<PAGE>
The following table shows interest sensitivity gaps for these different
intervals as of September 30, 1994.
<TABLE>
<CAPTION>
ESTIMATED PERIOD OF POTENTIAL REPRICING
--------------------------------------------------------------------
OVER OVER
ONE DAY TO THREE TO SIX SIX MONTHS TO OVER ONE
FLOATING THREE MONTHS MONTHS ONE YEAR YEAR TOTAL
-------- ------------ ------------ ------------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest Sensitive
Assets ("ISA")
Loans
Loans (Fixed Rate).. $ 0 $ 3,748 $ 2,471 $ 2,969 $25,829 $ 35,017
Loans (Floating
Rate).............. 16,721 1,226 1,418 5,363 3,411 28,139
Securities
Securities (Fixed
Rate).............. 0 3,470 462 2,745 31,606 38,283
Securities (Floating
Rate).............. 0 11,086 8,372 8,269 0 27,727
Fed Funds Sold........ 5,300 0 0 0 0 5,300
------- -------- -------- -------- ------- --------
TOTAL Interest
Sensitive Assets. 22,021 19,530 12,723 19,346 60,846 134,466
Interest Sensitive
Liabilities ("ISL")
Interest Bearing
Deposits
NOW Accounts........ 0 18,256 0 0 0 18,256
Savings Accounts.... 0 22,010 0 0 0 22,010
Money Market........ 0 32,189 0 0 0 32,189
Certificates of
Deposits........... 0 10,155 4,314 3,042 5,239 22,750
------- -------- -------- -------- ------- --------
Total Deposits.... 0 82,610 4,314 3,042 5,239 95,205
Note Payable............ 0 3,233 0 0 0 3,233
Securities sold under
agreements to
repurchase............. 0 219 0 0 0 219
------- -------- -------- -------- ------- --------
TOTAL Interest
Sensitive
Liabilities...... 0 86,062 4,314 3,042 5,239 98,657
------- -------- -------- -------- ------- --------
PERIODIC GAP............ $22,021 $(66,532) $ 8,409 $ 16,304 $55,607 $ 35,809
------- -------- -------- -------- ------- --------
CUMULATIVE GAP.......... $22,021 $(44,511) $(36,102) $(19,798) $35,809
======= ======== ======== ======== =======
PERIODIC GAP TO TOTAL
EARNING ASSETS......... 16.38% -49.48% 6.25% 12.12% 41.35%
</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 Southwest's net interest margin. Because of these factors, an interest rate
sensitivity gap report may not provide a complete assessment of Southwest's
exposure to changes in interest rates.
46
<PAGE>
SECURITIES
Set forth below is a distribution of Southwest's securities by contractual
maturity dates at September 30, 1994 (mortgage-backed securities are classified
in the period of final maturity, and securities available for sale are stated
at estimated fair market value):
<TABLE>
<CAPTION>
MATURING
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS TOTAL
---------------- ---------------------------------- -----------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT
-------- ------- --------- ---------------- ------- -------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Held to Maturity:
Treasuries............. $ 0 -- $ 4,078 5.65% $ 0 -- $ 0 -- $ 4,078
Agencies............... 0 -- 10,271 6.13% 2,066 5.14% 0 -- 12,337
Mortgage-backed........ 0 -- 11,472 6.10% 2,894 5.84% 22,184 5.02% 36,550
-------- --------- -------- -------- -------
Total securities held
to maturity........... 0 -- 25,821 6.04% 4,960 5.55% 22,184 5.02% 52,965
Available for sale:
Agencies............... 3,008 8.30% 3,088 8.86% 0 -- 0 -- 6,096
U.S. Treasury.......... 0 -- 985 5.44% 0 -- 0 -- 985
Mortgage-backed........ 0 -- 0 -- 0 -- 5,964 4.75% 5,964
-------- --------- -------- -------- -------
Total securities
available for sale.... $ 3,008 8.30% $ 4,073 8.03% $ 0 -- $ 5,964 4.75% $13,045
-------- --------- -------- -------- -------
Total Securities....... $ 3,008 8.30% $ 29,894 6.31% $ 4,960 5.55% $ 28,148 4.96% $66,010
======== ========= ======== ======== =======
</TABLE>
DEPOSITS
The daily average balances and average rates paid by category of deposits at
the dates shown below are as follows:
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS
ENDED DECEMBER 31,
FOR THE NINE MONTHS -----------------------------
SEPTEMBER 30, 1994 1993 1992
-------------------- -------------- --------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
----------- -------- -------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Demand.............. $ 29,073 -- $ 25,960 -- $ 22,696 --
NOW accounts........ 20,331 1.95% 17,013 1.93% 14,925 2.66%
Money Market........ 29,111 2.97% 26,728 2.65% 28,045 3.46%
Savings............. 22,093 3.07% 20,930 2.98% 14,980 3.87%
Time................ 16,311 1.95% 16,086 3.39% 22,635 4.40%
----------- -------- --------
Total............. $ 116,919 $106,717 $103,281
=========== ======== ========
</TABLE>
The scheduled maturities of certificates of deposit in denominations of
$100,000 or more at September 30, 1994 and December 31, 1993, including public
funds, are shown below:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994 DECEMBER 31, 1993
------------------ -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Due in three months or less................ $3,214 $2,495
Due in over three to six months............ 2,117 1,141
Due in over six to twelve months........... 1,200 1,100
Due in over twelve months.................. 1,478 900
------ ------
Totals................................... $8,009 $5,636
====== ======
</TABLE>
47
<PAGE>
LOANS
The following table classifies Southwest's loans according to type as of the
dates shown:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------
1994 1993 1992
------------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Loans secured by real estate:
Construction and land development............. $ 8,881 $ 7,725 $ 4,521
One-to-four family residential mortgages...... 35,200 33,407 32,833
Commercial.................................... 8,521 8,905 10,938
Other......................................... 1,170 988 384
------- ------- -------
53,772 51,025 48,676
Installment..................................... 2,695 3,333 3,180
Commercial...................................... 7,175 6,573 5,572
Other loans..................................... 35 39 20
------- ------- -------
9,905 9,945 8,772
Less unearned discounts......................... (119) (132) (168)
------- ------- -------
Totals...................................... $63,558 $60,838 $57,280
======= ======= =======
</TABLE>
Total loans increased 6.2% in 1993 from 1992 levels. At September 30, 1994,
total loans decreased from year-end 1993 levels by 4.5%.
As of December 31, 1993, commercial loans totalled $6,573,000, of which
$5,288,000 were due in one year or less, $1,209,000 mature after one year
through five years and $76,000 mature after five years. Of the construction
loans totalled $7,725,000, all of such loans are due in one year or less. The
commercial loans referred to above that are due after one year total
$1,285,000, all of which have predetermined interest rates.
Allowance for Loan Losses and Risk Elements
The provision for loan losses represents a determination by Southwest'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 Southwest's policy to provide for exposure to losses of
specifically identified credits and a general allowance for the remainder of
the loan portfolio, and, while it is also Southwest'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 significant individual loans and of
the portfolio in the aggregate. This review takes into consideration the
judgments of the responsible lending officer, the senior credit officer, the
CEO, 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
examinations of Southwest and the Bank.
In evaluating the allowance for loan losses, management also considers
Southwest's loan loss experience, the amount of past due and nonperforming
loans, current and anticipated economic conditions, and other appropriate
information. The allowance for loan losses also reflects an analysis of the
risks associated with each class of loans.
48
<PAGE>
The allowance for loan losses at September 30, 1994 was $1,147,006, compared
to $1,128,000 at December 31, 1993, and $1,576,000 at December 31, 1992. For
more information relating to the allowance of loan losses and the provision
for loan losses, see Note 4 of the Notes to Consolidated Financial Statements.
Although additional losses may occur, management believes the allowance for
loan losses to be adequate as of the date presented.
<TABLE>
<CAPTION>
AS OF AND FOR THE
AS OF AND FOR THE YEARS ENDED
NINE MONTHS ENDED DECEMBER 31,
TRANSACTIONS IN ALLOWANCE FOR SEPTEMBER 30, ------------------
LOAN LOSSES 1994 1993 1992
----------------------------- ----------------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balance at Beginning of period............... $1,128 $ 1,576 $ 1,545
Charge-offs
Commercial................................. 0 0 32
Real estate--mortgage...................... 15 45 42
Credit card and related plan............... 0 0 71
------ -------- --------
Total charge-offs........................ 15 45 145
Recoveries
Commercial................................. 5 19 83
Real estate--mortgage...................... 0 20 55
Real estate--construction.................. 26 0 0
Installment loans.......................... 3 8 38
------ -------- --------
Total recoveries......................... 34 47 176
------ -------- --------
Net recoveries............................... (19) (2) (31)
Provision charged (credited) to expense...... 0 (450) 0
------ -------- --------
Balance at end of period..................... $1,147 $ 1,128 $ 1,576
====== ======== ========
Net charge-offs (recoveries) as a percentage
of average loans............................ (0.03%) 0.00% (0.05%)
====== ======== ========
</TABLE>
Non-Accrual, Past Due, and Restructured Loans
The following is an analysis of non-performing assets as of the dates shown:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------
1994 1993 1992
------------- ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Loans accounted for on a nonaccrual basis.......... $402 $ 73 $ 152
Accruing loans which are contractually past due 90
days or more as to principal or interest payments. 8 17 8
Troubled debt restructuring........................ 0 0 3
---- ----- ------
Total............................................ $410 $ 90 $ 163
---- ----- ------
Interest income included in net income for period.. $ 14 $ 3 $ 7
Foregone interest on nonaccrual loans.............. $ 13 $ 8 $ 33
</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 of 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, 1994, loans totalling $402,000 or
.6% 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 generally causes an immediate charge against earnings with
respect to that particular loan. Second, it eliminates future interest
earnings with respect to that particular loan. Interest on such loans is not
recognized until all of the principal is collected or until the loan is
returned to a performing status.
49
<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
FOR THE NINE MONTHS DECEMBER 31,
ENDED SEPTEMBER 30, -------------------
1994 1993 1992
------------------- --------- ---------
<S> <C> <C> <C>
Return on Average Assets................ 1.11% 2.45% 1.60%
Return on Average Equity................ 14.06% 34.36% 30.22%
Equity to Assets Ratio.................. 7.87% 7.12% 5.31%
Dividend Payout Ratio................... 0.00% 0.00% 0.00%
</TABLE>
RELATIONSHIPS WITH INDEPENDENT ACCOUNTANTS
Compass' Board of Directors appointed KPMG Peat Marwick, LLP as independent
auditors for Compass for the year ending December 31, 1994. KPMG Peat Marwick,
LLP has served as Compass' independent auditors continuously since 1971.
Compass, Southwest and the Bank have been advised by KPMG Peat Marwick, LLP
that KPMG Peat Marwick, LLP has no direct financial interest or any material
indirect financial interest in Compass, Southwest, the Bank or their respective
affiliates other than arising from that firm's employment as auditors for
Compass and Southwest, respectively.
EXPERTS
The consolidated financial statements of Compass Bancshares, Inc. and
subsidiaries as of December 31, 1993 and 1992 and for each of the years in the
three-year period ended December 31, 1993 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,
LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of Southwest and its subsidiaries at
December 31, 1993 and 1992, and for each of the three years in the period ended
December 31, 1993, appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
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, 1994, Mr. Powell was the beneficial owner of an
aggregate of approximately 42,907 shares of Compass Common Stock. Liddell, Sapp
has passed upon certain federal income tax consequences of the Merger, and the
receipt by Compass of its opinion as to such federal income tax consequences of
the Merger is a condition to the Closing of the Merger. J. Bruce Bugg has
passed upon certain legal matters in connection with the Merger.
50
<PAGE>
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 SOUTHWEST AND COMPASS--CERTAIN DIFFERENCES BETWEEN THE
CORPORATION LAWS OF TEXAS AND DELAWARE AND CORRESPONDING CHARTER AND BY-LAW
PROVISIONS--LIMITATION OF LIABILITY AND INDEMNIFICATION".
Compass has entered into a Directors and Officers Indemnity Trust with
Wilmington Trust Company, a corporation licensed to act as a trust company in
the State of Delaware, pursuant to which Compass has established a trust to
provide resources for indemnification from claims and for mandatory
reimbursement and advancement of expenses in accordance with Compass' By-Laws
and to the full extent permitted by Delaware corporate law.
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
Southwest'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 Southwest's Board
of Directors unless "Authority Withheld" is indicated in the appropriate box on
the proxy. SEE "INTRODUCTION".
51
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF
SOUTHWEST BANKERS, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheet as of September 30, 1994 (Unaudited)........... F-2
Consolidated Statements of Income for the Nine Months Ended September 30,
1994 and 1993 (Unaudited)................................................ F-3
Consolidated Statements of Cash Flows for the Nine Months Ended September
30, 1994 and 1993 (Unaudited)............................................ F-4
Notes to Unaudited Financial Statements................................... F-5
Report of Independent Auditors on the 1993, 1992 and 1991 Financial
Statements............................................................... F-6
Consolidated Balance Sheets as of December 31, 1993 and 1992.............. F-7
Consolidated Statements of Operations for the Years Ended December 31,
1993, 1992 and 1991...................................................... F-8
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1991, 1992 and 1993......................................... F-9
Consolidated Statements of Cash Flows for the Years Ended December 31,
1993, 1992 and 1991...................................................... F-10
Notes to Consolidated Financial Statements................................ F-11
</TABLE>
F-1
<PAGE>
SOUTHWEST BANKERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1994
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Cash and due from banks......................................... $ 6,224,064
Federal funds sold.............................................. 2,300,000
-------------
Cash and cash equivalents....................................... 8,524,064
Securities-available for sale................................... 13,045,937
Securities-held to maturity..................................... 52,964,048
Loans........................................................... 63,558,000
Less allowance for loan losses................................ 1,147,006
-------------
Net loans....................................................... 62,410,994
Premises and equipment.......................................... 5,030,584
Other real estate............................................... --
Accrued interest receivable..................................... 1,083,120
Deferred federal income taxes................................... 405,263
Other assets.................................................... 984,792
-------------
Total assets.................................................... $ 144,448,802
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Noninterest-bearing......................................... $ 33,223,784
Interest-bearing............................................ 95,205,465
-------------
Total deposits................................................ 128,429,249
Note payable.................................................. 3,232,964
Securities sold under agreements to repurchase................ 219,000
Accrued interest payable...................................... 117,738
Other liabilities............................................. 1,703,096
-------------
Total liabilities............................................... 133,702,047
Shareholders' equity:
Common stock, par value $150 per share; shares authorized--
10,000;
shares issued and outstanding--1,326......................... 198,900
Series "A" cumulative preferred stock, par value $100 per
share; shares
authorized--15,000; shares issued and outstanding--15,000.... 1,500,000
Series "B" non-cumulative preferred stock, par value $100 per
share;
shares authorized--21,550; shares issued and outstanding--
21,550....................................................... 2,155,000
Surplus....................................................... 1,730,408
Retained earnings............................................. 5,265,320
Unrealized losses--securities available for sale, net of tax-
es........................................................... (102,873)
-------------
Total shareholders' equity...................................... 10,746,755
-------------
Total liabilities and shareholders' equity...................... $ 144,448,802
=============
</TABLE>
F-2
<PAGE>
SOUTHWEST BANKERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1994 1993
--------------- ---------------
<S> <C> <C>
Interest income:
Loans, including fees...................... $ 4,399,698 $ 4,463,700
Securities-available for sale-taxable...... 632,181 -
Securities-held to maturity-taxable........ 1,575,098 2,010,785
Federal funds sold......................... 247,433 158,509
--------------- ---------------
Total interest income........................ 6,854,410 6,632,994
Interest expense:
Deposits................................... 1,844,024 1,672,422
Note payable............................... 182,603 223,043
Other...................................... 1,307 --
--------------- ---------------
Total interest expense....................... 2,027,934 1,895,465
--------------- ---------------
Net interest income.......................... 4,826,476 4,737,529
Provision for loan losses.................... -- --
--------------- ---------------
Net interest income after provision for loan
losses...................................... 4,826,476 4,737,529
Noninterest income:
Service charges on deposit accounts........ 463,836 448,830
Other service charges and fees............. 199,782 159,075
Gain on sale of loans...................... 86,969 240,014
Other...................................... 70,312 101,000
--------------- ---------------
Total noninterest income..................... 820,899 948,919
--------------- ---------------
Noninterest expenses:
Salaries, wages, and benefits.............. 2,447,773 2,282,216
Occupancy.................................. 292,286 287,535
Furniture and equipment.................... 124,970 125,519
Minority interest in income of consolidated
subsidiary................................ -- 73,663
Other operating expenses................... 1,335,601 1,161,136
--------------- ---------------
Total noninterest expenses................... 4,200,630 3,930,069
--------------- ---------------
Income before income taxes................... 1,446,745 1,756,379
Federal income taxes:
Current.................................... 252,701 37,999
Deferred................................... 98,305 --
--------------- ---------------
351,006 37,999
--------------- ---------------
Net income................................... $ 1,095,739 $ 1,718,380
=============== ===============
Less: Dividends on preferred stock........... (273,374) (218,355)
--------------- ---------------
Net income attributable to common sharehold-
ers......................................... $ 822,365 $ 1,500,025
=============== ===============
Primary earnings per common share............ $ 620 $ 1,131
=============== ===============
Fully-diluted earnings per common share...... $ 282 $ 442
=============== ===============
</TABLE>
F-3
<PAGE>
SOUTHWEST BANKERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
--------------------------------
1994 1993
--------------- ---------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income................................... $ 1,095,739 $ 1,718,380
Adjustments to reconcile net income to net
cash provided by operating
activities:
Net income attributable to minority inter-
est....................................... -- 73,663
Depreciation and amortization.............. 178,596 157,882
Deferred tax benefit....................... 45,309 --
Amortization of investment securities pre-
miums, net................................ 142,598 127,491
Gain on sale of loans...................... (89,969) (231,877)
Losses on sale of premises................. 10,752 --
Proceeds from sale of loans held for sale.. 16,462,270 18,332,893
Origination of loans held for sale......... (14,450,100) (18,067,900)
Accretion of discounts on installment
loans..................................... (31,965) (56,389)
Increase in accrued interest receivable.... (461,040) (137,256)
Increase (decrease) in accrued interest
payable................................... 15,861 (22,130)
Net change in other assets................. 44,654 751,331
Net change in other liabilities............ 144,700 594,228
--------------- ---------------
Net cash provided by operating activities.... 3,107,405 3,240,316
INVESTING ACTIVITIES
Proceeds from maturities of securities-avail-
able for sale .............................. 823,996 --
Proceeds from maturities of securities-held
to maturity................................. 3,223,018 4,229,914
Purchase of investment securities-available
for sale.................................... (994,219) --
Purchase of investment securities-held to ma-
turity...................................... (28,143,798) (6,072,735)
Net increase in loans........................ (4,591,809) (3,483,452)
Purchases of premises and equipment.......... (162,191) (1,340,787)
Sale of other real estate.................... 49,374 --
Proceeds from sale of premises............... 212,000 --
--------------- ---------------
Net cash used in investing activities........ (29,583,629) (6,667,060)
FINANCING ACTIVITIES
Net increase (decrease) in demand deposits
and NOW, money market, and
savings accounts............................ 12,311,557 (2,811,310)
Net increase (decrease) in certificates of
deposit..................................... 7,826,281 (2,696,952)
Proceeds from securities sold under agree-
ments to repurchase......................... 219,000 --
Purchase of minority interest................ -- (925,382)
Repayment of borrowings...................... (258,638) (196,557)
Payment of dividends on preferred stock...... (273,374) (292,739)
--------------- ---------------
Net cash provided by (used in) financing ac-
tivities.................................... 19,824,826 (6,922,940)
--------------- ---------------
Decrease in cash and cash equivalents........ (6,651,398) (10,349,684)
Cash and cash equivalents at beginning of pe-
riod........................................ 15,175,462 20,757,764
--------------- ---------------
Cash and cash equivalents at end of period... $ 8,524,064 $ 10,408,080
=============== ===============
Supplemental cash flow information:
Income taxes paid.......................... $ 399,000 $ 38,000
</TABLE>
F-4
<PAGE>
SOUTHWEST BANKERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994 AND 1993
UNAUDITED
(1) The accompanying unaudited consolidated financial statements of Southwest
Bankers, Inc. and Subsidiaries (the Company) 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 consolidated financial statements contain all adjustments,
consisting only of normal recurring accruals, necessary to present fairly the
financial position of the Company as of September 30, 1994 and the income and
cash flows for the nine months ended September 30, 1994 and September 30, 1993.
Results for the nine months ended September 30, 1994 is not necessarily
indicative of the results that may be expected for the full year.
(2) In May 1993 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." The Company adopted the provisions of the new
standard for securities held as of or acquired after January 1, 1994. In
accordance with the Statement, prior period financial statements have not been
restated to reflect the change in accounting principle. The opening balance of
shareholders' equity was increased by $222,000 to reflect the net unrealized
holding gains, net of taxes, on securities classified as available for sale
which were previously carried at amortized cost.
(3) The Company and its subsidiaries file federal income tax returns on a
consolidated basis. Each subsidiary provides for income taxes in its financial
statements on substantially a separate-return basis.
As of September 30, 1994, the Company has gross deferred tax assets of
$610,000 and a valuation allowance of $205,000.
The components of the provision for deferred federal income taxes for the
nine months ended September 30, 1994 are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1994
------------------
<S> <C>
Disposal of asset......................................... $121,000
Investment and minimum tax credit carryover............... 108,000
Net operating loss carryforward........................... 73,000
Deferred compensation..................................... (91,000)
Reduction in valuation allowance on deferred tax assets... (127,000)
Other..................................................... 14,000
--------
$ 98,000
========
</TABLE>
(4) At September 30, 1994, the Company had commitments under standby letters
of credit and unfunded loan commitments of approximately $244,000 and
$15,127,000, respectively.
(5) On June 16, 1994, the Company signed a Definitive Agreement to merge with
Compass Bancshares, Inc. (Compass). Compass will exchange 950,000 shares of
common stock for all of the outstanding common and preferred stock of the
Company. Completion of the merger is subject to shareholder and regulatory
approval and is expected to close by March, 1995.
F-5
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Southwest Bankers, Inc.
We have audited the accompanying consolidated balance sheets of Southwest
Bankers, Inc. and Subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Southwest
Bankers, Inc. and Subsidiaries at December 31, 1993 and 1992, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles.
As discussed in Note 9 to the consolidated financial statements, in 1993 the
Company changed its method of accounting for income taxes.
Ernst & Young LLP
San Antonio, Texas
February 9, 1994
F-6
<PAGE>
SOUTHWEST BANKERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1993 1992
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks.............................. $ 6,175,462 $ 8,557,764
Federal funds sold................................... 9,000,000 12,200,000
------------ ------------
Cash and cash equivalents............................ 15,175,462 20,757,764
Investment securities (market value of $41,908,714 in
1993 and $44,425,529 in 1992)....................... 41,217,448 43,636,148
Loans................................................ 60,837,550 57,280,340
Less allowance for loan losses..................... 1,128,129 1,575,734
------------ ------------
Net loans............................................ 59,709,421 55,704,606
Premises and equipment............................... 5,269,741 3,441,733
Other real estate.................................... 49,374
Accrued interest receivable.......................... 622,080 703,275
Deferred federal income taxes........................ 450,572 --
Other assets......................................... 1,025,826 1,417,069
------------ ------------
Total assets......................................... $123,470,550 $125,709,969
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits
Noninterest-bearing.............................. $ 29,437,486 $ 30,901,842
Interest-bearing................................. 78,853,925 81,683,764
------------ ------------
Total deposits..................................... 108,291,411 112,585,606
Note payable....................................... 3,491,602 3,817,477
Accrued interest payable........................... 101,877 145,077
Other liabilities.................................. 1,558,395 992,767
------------ ------------
Total liabilities.................................... 113,443,285 117,540,927
Minority interest.................................... -- 717,715
Shareholders' equity:
Common stock, $150 par value. Authorized 10,000
shares; 1,326 shares issued and outstanding in
1993 and 1992..................................... 198,900 198,900
Series "A" cumulative preferred stock, $100 par
value. Authorized 15,000 shares; 15,000 shares
issued and outstanding in 1993 and 1992........... 1,500,000 1,500,000
Series "B" non-cumulative preferred stock, $100 par
value. Authorized 21,550 shares; 21,550 shares
issued and outstanding in 1993 and 1992........... 2,155,000 2,155,000
Surplus............................................ 1,730,408 1,730,408
Retained earnings.................................. 4,442,957 1,867,019
------------ ------------
Total shareholders' equity........................... 10,027,265 7,451,327
------------ ------------
Total liabilities and shareholders' equity........... $123,470,550 $125,709,969
============ ============
</TABLE>
See accompanying notes.
F-7
<PAGE>
SOUTHWEST BANKERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Loans, including fees..................... $6,003,934 $6,269,662 $7,179,228
Investment securities-taxable............. 2,619,852 2,569,484 2,190,200
Federal funds sold........................ 207,877 311,721 680,082
---------- ---------- ----------
Total interest income...................... 8,831,663 9,150,867 10,049,510
Interest expense:
Deposits.................................. 2,206,367 2,942,676 4,355,623
Note payable.............................. 282,939 338,910 605,510
Other..................................... -- 19,672 21,987
---------- ---------- ----------
Total interest expense..................... 2,489,306 3,301,258 4,983,120
---------- ---------- ----------
Net interest income........................ 6,342,357 5,849,609 5,066,390
Provision (credit) for loan losses (450,000) -- 552,000
---------- ---------- ----------
Net interest income after provision
(credit) for loan losses.................. 6,792,357 5,849,609 4,514,390
Noninterest income:
Service charges on deposit accounts....... 624,968 543,396 533,305
Other service charges and fees............ 217,882 214,269 204,969
Gain on sale of loans..................... 287,962 101,325 --
Other..................................... 194,693 221,118 143,960
---------- ---------- ----------
Total noninterest income................... 1,325,505 1,080,108 882,234
Noninterest expenses:
Salaries, wages, and benefits............. 3,356,674 2,450,028 2,072,937
Occupancy................................. 347,422 708,989 738,692
Furniture and equipment................... 162,301 172,700 239,750
Provisions for permanent impairment in
value of premises and losses on other
real estate.............................. -- -- 916,070
Minority interest in income of
consolidated subsidiary.................. 73,663 92,887 23,738
Other..................................... 1,619,571 1,603,093 1,770,181
---------- ---------- ----------
Total noninterest expenses................. 5,559,631 5,027,697 5,761,368
---------- ---------- ----------
Income (loss) before income taxes and
extraordinary item........................ 2,558,231 1,902,020 (364,744)
Federal income taxes (benefit):
Current................................... 48,000 35,001 --
Deferred.................................. (450,572) -- --
Tax effect of loss carryforward........... -- 651,845 --
---------- ---------- ----------
(402,572) 686,846 --
---------- ---------- ----------
Income (loss) before extraordinary item.... 2,960,803 1,215,174 (364,744)
Extraordinary item--reduction in income
taxes arising from carryforward of prior
years operating losses.................... $ -- $ 651,845 $ --
---------- ---------- ----------
Net income (loss).......................... 2,960,803 1,867,019 (364,744)
Less: Dividends on preferred stock......... (259,385) (125,480) --
---------- ---------- ----------
Net income (loss) attributable to common
shareholders.............................. $2,701,418 $1,741,539 $ (364,744)
========== ========== ==========
Primary earnings (loss) per common share:
Income (loss) before extraordinary item... $ 2,037 $ 820 $ (271)
Extraordinary item........................ -- 490 --
---------- ---------- ----------
Net income (loss).......................... $ 2,037 $ 1,310 $ (271)
========== ========== ==========
Fully diluted earnings (loss) per common
share:
Income (loss) before extraordinary item... $ 760 $ 350 $ (271)
Extraordinary item........................ -- 188 --
---------- ---------- ----------
Net income (loss).......................... $ 760 $ 538 $ (271)
========== ========== ==========
</TABLE>
See accompanying notes.
F-8
<PAGE>
SOUTHWEST BANKERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES "A" SERIES "B"
COMMON PREFERRED PREFERRED RETAINED
STOCK STOCK STOCK SURPLUS EARNINGS TOTAL
-------- ---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1990................... $201,535 $ -- $ -- $ 8,683,434 $(6,569,836) $ 2,315,133
1991 net loss........... -- -- -- -- (364,744) (364,744)
Transfer from surplus... -- -- -- (6,934,580) 6,934,580 --
-------- ---------- ---------- ----------- ----------- -----------
Balances at December 31,
1991................... 201,535 -- -- 1,748,854 -- 1,950,389
Issuance of Series "A"
preferred stock........ -- 1,500,000 -- -- -- 1,500,000
Issuance of Series "B"
preferred stock........ -- -- 2,155,000 -- -- 2,155,000
Retirement of $.01 par
value common stock..... (21,081) -- -- -- -- (21,081)
Exchange of existing
$.01 par value common
stock for $150 par
value common stock..... 18,446 -- -- (18,446) -- --
1992 net income......... -- -- -- -- 1,867,019 1,867,019
-------- ---------- ---------- ----------- ----------- -----------
Balances at December 31,
1992................... 198,900 1,500,000 2,155,000 1,730,408 1,867,019 7,451,327
Cash dividends paid on
preferred stock:
Series "A" cumulative.. -- -- -- -- (276,229) (276,229)
Series "B" non-
cumulative............ -- -- -- -- (108,636) (108,636)
1993 net income......... -- -- -- -- 2,960,803 2,960,803
-------- ---------- ---------- ----------- ----------- -----------
Balances at December 31,
1993................... $198,900 $1,500,000 $2,155,000 $ 1,730,408 $ 4,442,957 $10,027,265
======== ========== ========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-9
<PAGE>
SOUTHWEST BANKERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).................... $ 2,960,803 $ 1,867,019 $ (364,744)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Net income attributable to minority
interest........................... 73,663 92,887 23,738
Provision (credit) for loan losses.. (450,000) -- 552,000
Provision for permanent impairment
in value of real estate............ -- -- 603,099
Depreciation and amortization....... 209,455 187,164 269,678
Deferred tax benefit................ (450,572) -- --
Amortization of investment
securities premiums, net........... 182,281 169,246 53,437
Provisions for losses on other real
estate............................. -- -- 260,851
Gain on sale of loans............... (287,962) (101,325) --
Net realized gains on securities
transactions....................... -- (1,364) (5,160)
(Gain) loss on sale of equipment.... -- 6,422 (2,110)
(Gain) loss on sale of other real
estate............................. (54,421) 29,290 52,748
Gain on sale of other assets........ -- (21,400) --
Proceeds from sale of loans held for
sale............................... 25,666,226 20,566,125 --
Origination of loans held for sale.. (26,929,264) (20,203,200) --
Accretion of discounts on
installment loans.................. (36,217) (100,044) (201,928)
Decrease in accrued interest
receivable......................... 81,195 31,193 176,839
Decrease in accrued interest
payable............................ (43,200) (192,199) (163,196)
Change in other assets.............. 1,826,244 (516,247) 1,087,721
Change in other liabilities......... 698,026 (948,290) (616,421)
------------ ------------ ------------
Net cash provided by operating
activities.......................... 3,446,257 865,277 1,726,552
INVESTING ACTIVITIES
Proceeds from sales of investment
securities.......................... -- 1,506,000 3,943,000
Proceeds from maturities of
investment securities............... 9,187,289 8,622,693 6,921,238
Purchase of investment securities.... (6,950,870) (16,717,782) (24,944,744)
Net (increase) decrease in loans..... (3,417,198) 2,819,226 10,199,078
Proceeds from sale of other real
estate.............................. 120,000 360,681 740,461
Proceeds from sale of equipment...... -- 22,525 4,860
Proceeds from sale of other assets... -- 45,300 --
Purchase of minority interest........ (925,382) -- --
Purchases of premises and equipment.. (2,037,463) (2,477,259) (163,085)
------------ ------------ ------------
Net cash used in investing
activities.......................... (4,023,624) (5,818,616) (3,299,192)
FINANCING ACTIVITIES
Net increase (decrease) in demand
deposits and NOW, money market, and
savings accounts.................... (1,086,890) 18,747,409 5,832,449
Net decrease in certificates of
deposit............................. (3,207,305) (12,531,695) (11,194,557)
Proceeds from borrowings............. 3,620,920 -- --
Repayment of borrowings.............. (3,946,795) (3,337,523) --
Payment of dividends on preferred
stock............................... (384,865) -- --
Proceeds from issuance of preferred
stock............................... -- 3,655,000 --
Retirement of common stock........... -- (21,081) --
------------ ------------ ------------
Net cash provided by (used in)
financing activities................ (5,004,935) 6,512,110 (5,362,108)
------------ ------------ ------------
Increase (decrease) in cash and cash
equivalents......................... (5,582,302) 1,558,771 (6,934,748)
Cash and cash equivalents at
beginning of year................... 20,757,764 19,198,993 26,133,741
------------ ------------ ------------
Cash and cash equivalents at end of
year................................ $ 15,175,462 $ 20,757,764 $ 19,198,993
============ ============ ============
Supplemental cash flow information:
Interest paid....................... $ 2,532,506 $ 3,493,457 $ 4,819,924
Loan principal reductions resulting
from transfers to other real
estate............................. 16,205 291,621 255,782
Loan originations to facilitate the
sale of real estate................ -- -- 321,000
Income taxes paid................... 48,000 35,000 --
</TABLE>
See accompanying notes.
F-10
<PAGE>
SOUTHWEST BANKERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1992 AND 1991
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Southwest
Bankers, Inc. (Company) and its subsidiary, Bank Asset Management Corporation,
which owns 100% of The Bank of San Antonio (Bank). All significant intercompany
accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
For purposes of reporting cash flow, cash and cash equivalents include cash
and due from banks, interest-bearing deposits in other institutions, and
federal funds sold. Generally, federal funds are sold for one-day periods.
Investment Securities
Investment securities are stated at cost adjusted for amortization of
premiums and accretion of discounts, both computed using the interest method.
All securities are purchased with the intent and ability to hold them until
maturity. When the intent on individual securities changes and securities are
sold, the adjusted cost of the securities is used to compute the gains and
losses.
Loans
Interest on loans is credited to operations based upon the principal amount
outstanding. The accrual of interest income generally is discontinued when a
loan becomes 90 days past due as to principal and interest. When interest
accruals are discontinued, interest accruals are generally charged off.
Management may elect to continue the accrual of interest when the loan is well
secured and in process of collection. Loans held for sale are stated at the
unpaid principal balance, which approximates market value.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level which management
believes is adequate to absorb potential losses in the loan portfolio.
Managements determination of the adequacy of the allowance is based on an
evaluation of the loans, past loan loss experience, current economic
conditions, volume, growth and composition of the portfolio, and other relevant
factors.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions or deductions to the allowance may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the banks' allowances
for loan losses. Such agencies may require the banks to recognize additions to
the allowance based on their judgments of information available to them at the
time of their examination.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using principally the straight-line method. Leasehold
improvements are amortized over the lesser of the lease term or the useful life
of the asset. Estimated useful lives of the assets are as follows:
F-11
<PAGE>
SOUTHWEST BANKERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
<TABLE>
<S> <C>
Buildings.................................................... 40 years
Furniture and equipment...................................... 5 to 7 years
Leasehold improvements....................................... 9 to 10 years
</TABLE>
Other Real Estate
Other real estate is composed of properties acquired through foreclosure
proceedings or acceptance of a deed in lieu of foreclosure. These properties
are recorded at the lower of cost or market value less estimated selling costs.
Write-downs on allowances are provided for subsequent declines in value. Loan
losses arising from the acquisition of such properties are charged against the
allowance for loan losses. Income or loss generated from operation of these
properties, any subsequent adjustment for decreases in real estate values, and
any gain or loss on disposition of the properties are included in current
operations.
Income Taxes
During 1993, the Company adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" (FAS 109). Under FAS 109, the liability
method is used in accounting for income taxes. Under this method, deferred tax
assets and liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse. Prior to 1993, the Company accounted for income taxes
using the deferred method as required by APB No. 11.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
method of presentation.
2. INVESTMENT SECURITIES
The amortized cost and estimated market values of investment securities are
as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1993
U.S. Treasury securities and
obligations of U.S.
government corporations and
agencies..................... $10,134,328 $452,488 $ 2,986 $10,583,830
Mortgage-backed securities.... 31,083,120 292,854 51,090 31,324,884
----------- -------- ------- -----------
$41,217,448 $745,342 $54,076 $41,908,714
=========== ======== ======= ===========
DECEMBER 31, 1992
U.S. Treasury securities and
obligations of U.S.
government corporations and
agencies..................... $13,966,978 $562,149 $19,559 $14,509,568
Mortgage-backed securities.... 29,669,170 291,007 44,216 29,915,961
----------- -------- ------- -----------
$43,636,148 $853,156 $63,775 $44,425,529
=========== ======== ======= ===========
</TABLE>
F-12
<PAGE>
SOUTHWEST BANKERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
2. INVESTMENT SECURITIES (CONTINUED)
The amortized cost and estimated market value of debt securities at December
31, 1993, by contractual maturity, are shown below. Actual maturities will
differ from contractual maturities because certain 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 in one year or less............................. $ 3,006,158 $ 3,113,430
Due after one year through five years............... 4,004,001 4,307,960
Due after five years................................ 3,124,169 3,162,440
Mortgage-backed securities.......................... 31,083,120 31,324,884
----------- -----------
$41,217,448 $41,908,714
=========== ===========
</TABLE>
The mortgage-backed securities are retired through serial payments over
periods up to 30 years and are also subject to differences between scheduled
payments and actual payments because of prepayments of the underlying loans.
Proceeds from sales of investments in debt securities were $1,506,000 in 1992
and $3,943,000 in 1991. Net realized gains were $1,364 in 1992 and $5,160 in
1991. No investment securities were sold in 1993.
At December 31, 1993 and 1992, investment securities with an adjusted cost of
approximately $1,000,000 and $2,000,000, respectively, were pledged to secure
public deposits and for other purposes as required or permitted by law.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," effective for fiscal years beginning after
December 15, 1993. Under the new rules, debt securities that the Company has
both the positive intent and ability to hold to maturity are carried at
amortized cost. Debt securities that a company does not have the positive
intent and ability to hold to maturity and all marketable equity securities are
classified as available-for-sale or trading and carried at fair value.
Unrealized holding gains and losses on securities classified as available-for-
sale are carried as a separate component of shareholders' equity. Unrealized
holding gains and losses on securities classified as trading are reported in
earnings.
Presently, the Company classifies all securities as investment securities and
carries them at amortized cost. The Company will apply the new rules starting
in the first quarter of 1994. Application of the new rules will result in an
estimated increase of $222,000 in shareholders' equity as of January 1, 1994,
representing the recognition in shareholders' equity of unrealized
appreciation, net of taxes, for the Company's investment in debt securities
determined to be available-for-sale, previously carried at amortized cost.
F-13
<PAGE>
SOUTHWEST BANKERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
3. LOANS
Loans consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1993 1992
----------- -----------
<S> <C> <C>
Loans secured by real estate:
Construction and land development................. $ 7,725,144 $ 4,520,908
One-to-four family residential mortgages.......... 33,407,087 32,833,308
Commercial........................................ 8,904,786 10,937,823
Other............................................. 988,052 383,703
----------- -----------
51,025,069 48,675,742
Installment......................................... 3,332,406 3,180,467
Commercial.......................................... 6,573,069 5,572,839
Other loans......................................... 39,283 19,787
----------- -----------
60,969,827 57,448,835
Less unearned discounts............................. 132,277 168,495
----------- -----------
Totals.............................................. $60,837,550 $57,280,340
=========== ===========
</TABLE>
At December 31, 1993 and 1992, the Bank had approximately $2,737,000 and
$1,186,000, respectively, of residential mortgage loans held for sale, which
are included in one-to-four family residential mortgages in the table above.
Additionally, the Bank has sold mortgage loans containing recourse provisions
at the option of the purchasers. Under certain conditions, the purchasers can
require the Bank to repurchase individual loans during a period of up to one
year after their purchase. The Bank was not required to repurchase any loans
during 1993, 1992, and 1991. At December 31, 1993, mortgage loans of
approximately $956,000 are subject to recourse.
Nonperforming assets consist of the following amounts:
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1993 1992
------- --------
<S> <C> <C>
Nonaccrual loans............................................. $73,309 $152,115
Restructured loans........................................... -- 3,102
Other loans past due 90 days or more......................... 16,544 8,476
------- --------
89,853 163,693
Other real estate............................................ -- 49,374
------- --------
Totals....................................................... $89,853 $213,067
======= ========
</TABLE>
The effect of not recognizing interest income on nonaccrual and restructured
loans in accordance with the original terms was approximately $8,000, $33,000,
and $100,000 in 1993, 1992, and 1991, respectively.
In the ordinary course of business, the Bank makes loans to directors and
other related parties. Loans to related parties, including companies in which
they are principal owners, had balances of approximately $316,000 at December
31, 1993 and $151,000 at December 31, 1992.
F-14
<PAGE>
SOUTHWEST BANKERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
3. LOANS (CONTINUED)
In 1993, Statement of Financial Accounting Standards No. 114 (FAS 114),
"Accounting by Creditors for Impairment of a Loan," was issued. This standard
addresses the accounting for impairment of loans by specifying how allowances
for certain loans should be determined and for in-substance foreclosures. FAS
114 is effective for financial statements for fiscal years beginning after
December 15, 1994. The effect of this new pronouncement on the Company's
consolidated financial statements has not been determined.
4. ALLOWANCE FOR LOAN LOSSES
Transactions in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year............. $1,575,734 $1,545,165 $1,596,245
Provision (credit) for loan losses..... (450,000) -- 552,000
Loans charged off...................... (44,962) (145,374) (805,985)
Recoveries on loans charged off........ 47,357 175,943 202,905
---------- ---------- ----------
Net loans recovered (charged off)...... 2,395 30,569 (603,080)
---------- ---------- ----------
Balance at end of year................. $1,128,129 $1,575,734 $1,545,165
========== ========== ==========
</TABLE>
5. PREMISES AND EQUIPMENT
Premises and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1993 1992
---------- ----------
<S> <C> <C>
Land................................................... $2,397,679 $1,373,103
Buildings.............................................. 2,639,182 1,240,000
Furniture and equipment................................ 1,875,015 1,589,193
Leasehold improvements................................. 282,792 958,171
---------- ----------
7,194,668 5,160,467
Less accumulated depreciation.......................... 1,924,927 1,718,734
---------- ----------
Totals................................................. $5,269,741 $3,441,733
========== ==========
</TABLE>
6. OTHER REAL ESTATE
Transactions in other real estate were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------
1993 1992
----------- -----------
<S> <C> <C>
Balance at beginning of year....................... $ 49,374 $ 360,428
Acquired through foreclosure proceedings or
acceptance of a deed in lieu of foreclosure..... 16,205 291,621
Returned to premises for operational use......... -- (212,704)
Sales............................................ (65,579) (389,971)
---------- -----------
Balance at end of year............................. $ -- $ 49,374
========== ===========
</TABLE>
F-15
<PAGE>
SOUTHWEST BANKERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
7. DEPOSITS
The composition of deposits at December 31 is as follows:
<TABLE>
<CAPTION>
1993 1992
------------ ------------
<S> <C> <C>
Demand:
Noninterest-bearing............................. $ 29,437,486 $ 30,901,842
Interest-bearing................................ 20,283,110 16,580,784
------------ ------------
49,720,596 47,482,626
Savings:
Regular......................................... 21,256,373 19,434,348
Money market.................................... 22,390,230 27,537,115
------------ ------------
43,646,603 46,971,463
Certificates of deposit:
Denominations under $100,000.................... 9,288,539 11,132,120
Denominations $100,000 and greater.............. 5,635,673 6,999,397
------------ ------------
14,924,212 18,131,517
------------ ------------
Totals............................................ $108,291,411 $112,585,606
============ ============
</TABLE>
8. NOTE PAYABLE
The Company's note payable was refinanced in 1993. The terms of the
refinanced note provide for the balance to be paid in quarterly installments
over a seven-year period, and has a floating rate of prime plus 1/2%. The note
is collateralized by the common stock of Bank Asset Management Corporation and
the Bank. The note agreement contains certain restrictive provisions, including
maintenance of minimum capital for the bank subsidiary, incurrence of debt, and
payment of dividends. The scheduled annual principal payments of $517,274 are
due each year from 1994 through 1999, with $387,958 due in the year 2000.
9. FEDERAL INCOME TAXES
The Company and its subsidiaries file federal income tax returns on a
consolidated basis. Each subsidiary provides for income taxes in its financial
statements on substantially a separate-return basis.
In 1993, the Company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" (FAS 109). As permitted under the new rules,
prior year financial statements have not been restated. There was no cumulative
effect of adopting FAS 109 as of January 1, 1993.
Deferred taxes reflect the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities include excess book over tax
allowance for loan losses, book compensation expense in excess of the amount
allowed for tax, and book write-downs of property not yet deductible for tax.
As of January 1, 1993, the Company had gross deferred tax assets of $1,637,000
which were fully reserved at that date. As of December 31, 1993, the Company
has gross deferred tax assets of $784,000 and a valuation allowance of
$333,000.
As of December 31, 1993, the Company has net operating loss carryforwards of
$214,000 and investment and minimum tax credit carryovers of $108,000 for
federal income tax purposes. These carryforwards are
F-16
<PAGE>
SOUTHWEST BANKERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
9. FEDERAL INCOME TAXES (CONTINUED)
available to offset future taxable income and, if not utilized, expire in years
2000 through 2006. Current federal income taxes for 1992 and 1993 result from
the alternative minimum tax.
The following is a reconciliation of the difference between income tax
expense (benefit) as reported and the amount computed by applying the statutory
income tax rate to income (loss) before income taxes and extraordinary item
(benefit):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1993 1992 1991
---------- ---------- ---------
<S> <C> <C> <C>
Income (loss) before income taxes and
extraordinary item..................... $2,558,231 $1,902,020 $(364,744)
Statutory rate.......................... 34% 34% 34%
---------- ---------- ---------
Income tax expense (benefit) at the
statutory rate......................... 869,799 646,687 (124,013)
Change in deferred tax valuation
allowance.............................. (431,504) -- --
Alternative minimum tax................. 48,000 35,001 --
Net operating loss carryforward......... (873,240) -- 124,013
Other................................... (15,627) 5,158 --
---------- ---------- ---------
Income tax expense (benefit) as
reported............................... $ (402,572) $ 686,846 $ --
========== ========== =========
</TABLE>
10. LOAN COMMITMENTS AND STANDBY LETTERS OF CREDIT
Loan commitments (unfunded loans and unused lines of credit) are made to
accommodate the financial needs of the Bank's customers. Standby letters of
credit are provided to certain customers and are conditional commitments by the
Bank to guarantee performance of a customer to a third party. Both arrangements
have credit risk essentially the same as that involved in extended loans to
customers and are subject to the Bank's normal credit policies. The customer's
creditworthiness is evaluated on a case-by-case basis and the amount of
collateral obtained, if any, is based on management's credit evaluation of the
customer as well as the circumstances surrounding the credit. At December 31,
1993, unfunded loan commitments totaled $10,807,000 and standby letters of
credit totaled $247,000. The unfunded commitments are primarily for single-
family residential construction loans.
11. LEASES
The Bank leases certain bank premises and equipment under operating leases.
The minimum future annual rentals on all noncancelable operating leases as of
December 31, 1993 are as follows:
<TABLE>
<S> <C>
1994................................................................ $ 79,588
1995................................................................ 65,876
1996................................................................ 4,916
1997................................................................ 4,916
1998................................................................ 3,902
--------
Total............................................................... $159,198
========
</TABLE>
Total lease expense amounted to $100,000, $606,000, and $610,000 for the
years ended December 31, 1993, 1992, and 1991, respectively. This expense
included $348,000 in 1992 and $494,000 in 1991 for a
F-17
<PAGE>
SOUTHWEST BANKERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
11. LEASES (CONTINUED)
building leased from a partnership whose partners are shareholders of the
Company. In late 1992, this lease was terminated when the Bank purchased the
building from an outside third party.
12. SHAREHOLDERS' EQUITY
In February 1992, in conjunction with a private placement memorandum, the
Company issued 15,000 shares of Series "A" cumulative preferred stock and
21,550 shares of Series "B" non-cumulative preferred stock. The stock was
purchased primarily by existing shareholders of the Company. Each share of
Series "A" preferred stock is convertible into .065 shares of the Company's
voting common stock and each share of the Series "B" preferred stock is
convertible into .074 shares of the Company's voting common stock. Each share
of preferred stock has a liquidation value of $100 per share plus unpaid
dividends, if any. Dividends on each series of preferred stock are payable at
$10 per share annually. The Series "A" cumulative preferred stock has no
dividends in arrears at December 31, 1993. Under agreements with the Company's
lender and the Federal Reserve Bank of Dallas, there are certain restrictions
as to conversion, transfer, and payment of dividends on the stock.
In 1992, the Company repurchased for cash 210,081 shares of its $.01 par
value common stock. These shares were retired upon repurchase. Also, the
remaining 18,045,400 shares were exchanged for 1,326 shares of $150 par value
common stock. Per share amounts have been adjusted for this exchange.
13. NET INCOME PER COMMON SHARE
The weighted average numbers of shares outstanding used to compute primary
earnings per share were 1,326, 1,329, and 1,344 in 1993, 1992, and 1991,
respectively. The Company's Series "A" and Series "B" preferred stock are
excluded from the primary earnings per share calculations as they do not meet
the definition of common stock equivalents. The weighted average numbers of
shares outstanding used to compute fully diluted earnings per share were 3,896,
3,471, and 1,344 in 1993, 1992, and 1991, respectively. This calculation
assumes full conversion of the Series "A" and Series "B" preferred stock.
14. PURCHASE OF MINORITY INTEREST
In 1993, the Bank purchased the 19.87% minority interest in The Bank of San
Antonio/Medical Center. Concurrent with the purchase, The Bank of San
Antonio/Medical Center was merged into the Bank. The transaction was accounted
for as a purchase. The minority interest was purchased for $925,382, with the
resulting goodwill being amortized to expense over a 15-year period.
F-18
<PAGE>
SOUTHWEST BANKERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
15. CONDENSED PARENT COMPANY FINANCIAL STATEMENTS
Condensed financial information of the Parent Company as of December 31, 1993
and 1992 and for each of the three years in the period ended December 31, 1993
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1993 1992 1991
----------- ---------- ---------
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS
Income:
Dividends from subsidiaries........... $ -- $ 600,000 $ --
----------- ---------- ---------
Total income............................ -- 600,000 --
Expenses: -- -- --
Salaries, wages, and benefits......... 363,351 38,649 --
Interest.............................. 282,939 338,910 605,510
Other................................. 63,308 129,233 21,534
----------- ---------- ---------
Total expenses.......................... 709,598 506,792 627,044
----------- ---------- ---------
Income (loss) before federal income
taxes, extraordinary item, and equity
in undistributed earnings of
subsidiary............................. (709,598) 93,208 (627,044)
Income taxes (benefit).................. (1,211,027) (53,001) (695,029)
----------- ---------- ---------
Income before extraordinary item and
equity in undistributed earnings of
subsidiary............................. 501,429 146,209 67,985
Extraordinary item -- reduction in
income taxes arising from carryforward
of prior years' operating losses....... -- 651,845 --
----------- ---------- ---------
501,429 798,054 67,985
Equity in undistributed net income
(loss) of subsidiary................... 2,459,374 1,068,965 (432,729)
----------- ---------- ---------
Net income (loss)....................... $ 2,960,803 $1,867,019 $(364,744)
=========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------
1993 1992
----------- -----------
<S> <C> <C>
BALANCE SHEETS
ASSETS
Cash................................................ $ 1,026,798 $ 1,248,860
Investments in subsidiary........................... 12,528,536 10,069,162
Deferred income taxes............................... 317,068 --
Other............................................... 983 583
----------- -----------
Total assets........................................ $13,873,385 $11,318,605
=========== ===========
LIABILITIES
Note payable........................................ 3,491,602 3,817,477
Accrued interest payable............................ 622 29,285
Other............................................... 353,896 20,516
----------- -----------
Total liabilities................................... 3,846,120 3,867,278
Shareholders' equity................................ 10,027,265 7,451,327
----------- -----------
Total liabilities and shareholders' equity.......... $13,873,385 $11,318,605
=========== ===========
</TABLE>
F-19
<PAGE>
SOUTHWEST BANKERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1993, 1992 AND 1991
15. CONDENSED PARENT COMPANY FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
1993 1992 1991
----------- ----------- ---------
<S> <C> <C> <C>
STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES
Net income (loss)..................... $ 2,960,803 $ 1,867,019 $(364,744)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Undistributed net (income) losses of
subsidiaries....................... (2,459,374) (1,068,965) 432,729
Deferred tax benefit................ (317,068) -- --
Increase (decrease) in federal
income taxes payable............... (27,170) 63,176 (604,461)
Increase (decrease) in interest
payable............................ (28,663) 28,011 (1,097)
Net change in other liabilities and
assets............................... 360,150 (6,397) 500,991
----------- ----------- ---------
Net cash provided by (used in)
operating activities................. 488,678 882,844 (36,582)
INVESTING ACTIVITIES
Capital contributions to subsidiary... -- (10, 000) --
----------- ----------- ---------
Net cash used by investing activities. -- (10,000) --
FINANCING ACTIVITIES
Proceeds from stock issued............ -- 3,655,000 --
Payment of dividends.................. (384,865) -- --
Retirement of common stock............ -- (21,081) --
Proceeds from borrowings.............. 3,620,920 -- --
Payments on borrowings................ (3,946,795) (3,337,523) --
----------- ----------- ---------
Net cash provided by (used in)
financing activities................. (710,740) 296,396 --
----------- ----------- ---------
Increase (decrease) in cash........... (222,062) 1,169,240 (36,582)
Cash at beginning of year............. 1,248,860 79,620 116,202
----------- ----------- ---------
Cash at end of year................... $ 1,026,798 $ 1,248,860 $ 79,620
=========== =========== =========
</TABLE>
F-20
<PAGE>
APPENDIX I
MERGER AGREEMENT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I
The Merger................................................................ A-1
Section 1.1The Merger.................................................... A-1
Section 1.2Effective Time................................................ A-1
Section 1.3Certain Effects of the Merger................................. A-1
Section 1.4Certificate of Incorporation and By-Laws...................... A-1
Section 1.5Directors and Officers........................................ A-2
Section 1.6Conversion of Shares.......................................... A-2
Section 1.7Shareholders' Meeting......................................... A-3
Section 1.8Registration of the Compass Common Stock...................... A-3
Section 1.9Closing....................................................... A-3
ARTICLE II
Dissenting Shares; Exchange of Shares..................................... A-3
Section 2.1Dissenting Shares............................................. A-3
Section 2.2Exchange of Shares............................................ A-4
ARTICLE III
Representations and Warranties of the Company............................. A-5
Section 3.1Organization and Qualification................................ A-5
Section 3.2Company Capitalization........................................ A-5
Section 3.3Subsidiary Capitalization; Other Securities................... A-6
Section 3.4Authority Relative to the Agreement........................... A-6
Section 3.5No Violation.................................................. A-6
Section 3.6Consents and Approvals........................................ A-6
Section 3.7Regulatory Reports............................................ A-7
Section 3.8SEC Status; Securities Issuances.............................. A-7
Section 3.9Financial Statements.......................................... A-7
Section 3.10Absence of Certain Changes................................... A-7
Section 3.11Company Indebtedness......................................... A-9
Section 3.12Litigation................................................... A-9
Section 3.13Tax Matters.................................................. A-9
Section 3.14Employee Benefit Plans....................................... A-9
Section 3.15Employment Matters........................................... A-11
Section 3.16Leases, Contracts and Agreements............................. A-11
Section 3.17Related Company Transactions................................. A-12
Section 3.18Compliance with Laws......................................... A-12
Section 3.19Insurance.................................................... A-12
Section 3.20Loans........................................................ A-12
Section 3.21Fiduciary Responsibilities................................... A-13
Section 3.22Patents, Trademarks and Copyrights........................... A-13
Section 3.23Environmental Compliance..................................... A-13
Section 3.24Regulatory Actions........................................... A-14
Section 3.25Title to Properties; Encumbrances............................ A-14
Section 3.26Shareholder List............................................. A-14
Section 3.27Proxy Statement.............................................. A-15
Section 3.28Dissenting Shareholders...................................... A-15
Section 3.29Section 368 Representations.................................. A-15
Section 3.30Employee Stock Options....................................... A-16
Section 3.31Accounting Matters........................................... A-16
Section 3.32Representations Not Misleading............................... A-16
ARTICLE IV
Representations and Warranties of Compass................................. A-16
Section 4.1Organization and Authority.................................... A-16
Section 4.2Authority Relative to Agreement............................... A-16
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 4.3Financial Reports............................................ A-17
Section 4.4Capitalization............................................... A-18
Section 4.5Consents and Approvals....................................... A-18
Section 4.6Proxy Statement.............................................. A-18
Section 4.7Availability of Compass Common Stock......................... A-18
Section 4.8Representations Not Misleading............................... A-18
ARTICLE V
Covenants of the Company................................................ A-18
Section 5.1Affirmative Covenants of the Company......................... A-18
Section 5.2Negative Covenants of the Company............................ A-19
ARTICLE VI
Additional Agreements................................................... A-21
Section 6.1Access To, and Information Concerning, Properties and Rec-
ords................................................................... A-21
Section 6.2Filing of Regulatory Approvals............................... A-22
Section 6.3Miscellaneous Agreements and Consents........................ A-22
Section 6.4Company Indebtedness; Equity Bonus Payment................... A-22
Section 6.5Best Good Faith Efforts...................................... A-22
Section 6.6Exclusivity.................................................. A-22
Section 6.7Public Announcement.......................................... A-22
Section 6.8Employee Benefit Plans; Severance............................ A-22
Section 6.9Merger of Bank............................................... A-23
Section 6.10Environmental Investigation; Right to Terminate Agreement... A-23
Section 6.11Proxies..................................................... A-25
Section 6.12Exchange Agreement.......................................... A-25
Section 6.13Amendment of Bylaws......................................... A-25
ARTICLE VII
Conditions to Consummation of the Merger................................ A-25
Section 7.1Conditions to Each Party's Obligation to Effect the Merger... A-25
Section 7.2Conditions to the Obligations of Compass to Effect the Merg-
er..................................................................... A-25
Section 7.3Conditions to the Obligations of the Company to Effect the
Merger................................................................. A-27
ARTICLE VIII
Termination; Amendment; Waiver.......................................... A-27
Section 8.1Termination.................................................. A-27
Section 8.2Effect of Termination........................................ A-28
Section 8.3Amendment.................................................... A-28
Section 8.4Extension; Waiver............................................ A-28
ARTICLE IX
Survival; Indemnification............................................... A-28
Section 9.1Survival of Representations and Warranties................... A-28
ARTICLE X
Miscellaneous........................................................... A-28
Section 10.1Expenses.................................................... A-28
Section 10.2Brokers and Finders......................................... A-28
Section 10.3Entire Agreement; Assignment................................ A-28
Section 10.4Further Assurances.......................................... A-29
Section 10.5Enforcement of the Agreement................................ A-29
Section 10.6Severability................................................ A-29
Section 10.7Notices..................................................... A-29
Section 10.8Governing Law............................................... A-30
Section 10.9Descriptive Headings........................................ A-30
Section 10.10Parties in Interest........................................ A-30
Section 10.11Counterparts............................................... A-30
Section 10.12Incorporation by References................................ A-30
Section 10.13Certain Definitions........................................ A-30
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ATTACHMENTS
EXHIBITS
A.Pooling Transfer Restrictions Agreement
B.Exchange Agent Agreement
C.Pooling of Interest Criteria
D.Voting Agreement and Irrevocable Proxy
E.Opinion of Counsel for the Company and the Bank
F.Opinion of Counsel for Compass
G.Release of Claims
H.Release of Claims
LIST OF SCHEDULES
Schedule 3.2Terms of the Undesignated Preferred Stock; Company Capitaliza-
tion
Schedule 3.3Bank Capitalization; List of Equity Ownership
Schedule 3.4Authority Relative to the Agreement
Schedule 3.5Violations of Law; Conflicts of Interest; Share Litigation;
Termination of Existence
Schedule 3.6Company Prior Consents
Schedule 3.7Regulatory Reports
Schedule 3.10Absence of Material Changes or Adverse Effects
Schedule 3.12Company Legal Proceedings
Schedule 3.13Tax Liabilities
Schedule 3.14(a)Employee Welfare Benefit Plans
Schedule 3.14(b)Employee Pension Benefit Plans
Schedule 3.14(c)Plan Structure Compliance
Schedule 3.14(d)Plan Administration Compliance
Schedule 3.14(f)Deferred Compensation, Bonus and Stock Purchase Plans
Schedule 3.14(g)Title IV Plans
Schedule 3.14(j)Plan Claims or Litigation
Schedule 3.14(l)Additional Payments Due Under Deferred Compensation,
Bonus, Employee Welfare Benefit Plans and Employee
Pension Benefit Plans
Schedule 3.15Employment Contracts and Collective Bargaining Agreements
Schedule 3.16Leases, Subleases, Contracts and Agreements; Participations;
Default of Contracts; Marketable Title
Schedule 3.17Related Company Transactions
Schedule 3.18Compliance with Laws
Schedule 3.19Insurance Policies
Schedule 3.20Loans Exceeding Legal Lending Limit, Troubled Loans
Schedule 3.22Patents, Trademarks and Copyrights
Schedule 3.23Environmental Compliance
Schedule 3.24Regulatory Actions; Agreements
Schedule 3.25Title to Properties; Title Policies; Property
Schedule 3.29Stock Transactions
Schedule 3.30Stock Option Plans
Schedule 4.2Compass Prior Consents
Schedule 5.1(d)Insurance Policies to be Maintained
Schedule 5.1(g)Compliance with Laws Pending Merger
Schedule 5.1(j)List of Accounts and Safe Deposit Boxes
Schedule 5.1(k)List of Liabilities and Obligations of the Company and the
Bank
Schedule 5.2(l)List of Permitted Capital Expenditures
Schedule 6.11List of Proxy Holders Voting Affirmatively for the Agreement
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") dated as of June 16, 1994,
by and among Compass Bancshares, Inc., a Delaware corporation ("Compass"), and
Southwest Bankers, Inc., a Texas corporation ("Company").
WHEREAS, Compass desires to affiliate with the Company and its wholly owned
subsidiaries, Bank Asset Management Corporation, a Delaware corporation
("BAMC"), and The Bank of San Antonio, a Texas state bank (the "Bank"), and the
Company and the Bank desire to affiliate with Compass in the manner provided in
this Agreement;
WHEREAS, Compass and the Company believe that the Merger (as defined herein)
of the Company with and into Compass 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, to effectuate the Merger, Compass and the Company desire to adopt a
plan of reorganization in accordance with the provisions of Section
368(a)(1)(A) of the United States Internal Revenue Code of 1986, as amended
(the "Code"); and
WHEREAS, the respective boards of directors of the Company and Compass have
approved this Agreement and the proposed transactions 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:
ARTICLE I.
The Merger
Section 1.1 The Merger. Upon the terms and subject to the conditions hereof,
and in accordance with the Texas Business Corporation Act (the "TBCA") and the
General Corporation Law of the State of Delaware (the "GCL"), the Company shall
be merged with and into Compass (the "Merger") as soon as practicable following
the satisfaction or waiver, if permissible, of the conditions set forth in
Article VII hereof. Following the Merger, Compass shall continue as the
surviving corporation (the "Surviving Corporation") and the separate corporate
existence of the Company shall cease.
Section 1.2 Effective Time. The Merger shall be consummated by the filing by
the Texas Secretary of State of Articles of Merger, in the form required by and
executed in accordance with the relevant provisions of the TBCA, and by the
filing by the Delaware Secretary of State of a Certificate of Merger in the
form required by and executed in accordance with the relevant provisions of the
GCL and by the issuance of a Certificate of Merger by the Secretary of State of
Texas. (The date of such issuance and filing or such other time and date as may
be specified in the Articles and Certificate of Merger shall be the "Effective
Time").
Section 1.3 Certain Effects of the Merger. The Merger shall have the effects
set forth in Article 5.06 of the TBCA and in the GCL.
Section 1.4 Certificate of Incorporation and By-Laws. The Certificate of
Incorporation and the By-Laws of Compass, in each case as in effect at the
Effective Time, shall be the Certificate of Incorporation and By-Laws of the
Surviving Corporation.
<PAGE>
Section 1.5 Directors and Officers. The directors and officers of Compass at
the Effective Time shall be the directors and officers of the Surviving
Corporation 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 Certificate of Incorporation and By-Laws of the Surviving
Corporation, or as otherwise provided by law.
Section 1.6 Conversion of Shares. (a) Each share of the Company's common
stock, par value $150 per share ("Company Common Stock"), each share of the
Company's Series A Cumulative Convertible Preferred Stock, par value $100 per
share (the "Series A Preferred Stock"), and each share of the Company's Series
B Non-Cumulative Convertible Preferred Stock, par value $100 per share (the
"Series B Preferred Stock") issued and outstanding immediately prior to the
Effective Time (the Series A Preferred Stock and the Series B Preferred Stock
are together called the "Company Preferred Stock" and the Company Common Stock
and the Company 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 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 certificates representing such Shares.
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 entitling the holder
thereof to acquire Shares which is in effect or outstanding prior to the
Effective Time.
(b) The "Exchange Ratio" shall equal (i) the 950,000 shares of Compass Common
Stock to be issued to the holders of the Shares, divided by (ii) the sum of the
number of shares of Company Common Stock outstanding immediately prior to the
Effective Time, plus the number of shares of Company Common Stock into which
the shares of Company Preferred Stock outstanding immediately prior to the
Effective Time are convertible (the sum in this clause (ii) being referred to
as the "Fully Diluted Shares Outstanding"). At the Closing, the Company shall
calculate and certify to Compass and the Exchange Agent the Fully Diluted
Shares Outstanding. Each holder of Series A Preferred Stock shall receive for
each share of Series 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 Company Common Stock into
which each such share of Series A Preferred Stock is convertible. Each holder
of Series B Preferred Stock shall receive for each share of Series 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 Company Common Stock into which each such share of
Series B Preferred Stock is convertible. Each holder of Company Common Stock
shall receive for each share of Company Common Stock held immediately prior to
the Effective Time a number of shares of Compass Common Stock equal to the
Exchange Ratio. In no event, however, shall Compass be obligated to issue any
more than 950,000 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, respectively, shall be adjusted appropriately
to reflect any stock dividends or splits with respect to Compass Common Stock,
where the record date occurs prior to the Effective Time.
(c) 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 average closing price for Compass Common Stock as reported by the
NASDAQ National Market System for the thirty days of trading of Compass Common
Stock immediately 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 (each 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 Company's shareholders.
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Section 1.7 Shareholders' Meeting. The Company, 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 at a mutually agreeable time for the purpose of
approving and adopting this Agreement, but in no event shall the date of the
Shareholders' Meeting (the "Meeting Date") be later than 20 business days after
the receipt of conditional regulatory approvals from the FDIC and the FRB
(exclusive of any applicable waiting periods);
(b) require no greater than the minimum vote required by applicable law of
each class of the Shares in order to approve the Merger;
(c) include in the Proxy Statement (defined in paragraph (d) below) the
unanimous recommendation of its Board of Directors that the shareholders of the
Company vote in favor of the approval and adoption of this Agreement and the
Merger; 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 practicable time following the date
of this Agreement, and (ii) to obtain the approval and adoption of the Merger
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) 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 Company shareholders in the Merger.
(b) Within 30 days after the date hereof, the Company shall enter into and
cause each Company shareholder who is an "affiliate" (as defined in SEC Rule
405) of the Company to enter into with Compass a written agreement in
substantially the form of Exhibit A attached hereto.
Section 1.9 Closing. Upon the terms and subject to the conditions hereof, as
soon as practicable after the vote of the shareholders of the Company in favor
of the approval and adoption of this Agreement and the satisfaction or waiver,
if permissible, of the conditions set forth in Article VII hereof, but without
the consent of Compass not prior to January 2, 1995, the Company and Compass
shall execute and deliver the Articles of Merger and the Certificate of Merger,
as described in Section 1.2, and the parties hereto shall take all such other
and further actions as may be required by law to make the Merger effective.
Prior to the filing referred to in this Section, a closing (the "Closing") will
be held at a mutually agreeable location in San Antonio, Texas (or such other
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 Article 5.12 of the
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TBCA (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 TBCA. 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.
(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 in substantially the form attached hereto as Exhibit B (the
"Exchange Agreement"), 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 the Company
and Compass, 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 Article 5.12
of the TBCA. Subject to holding sufficient cash to make prompt payments to
holders of 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 and subject to Section 2.1, the
Exchange Agent shall deliver at the Closing or 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 Company and Compass (which shall 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 satisfaction of the Surviving Corporation that such tax has
been paid or is not applicable. Until surrendered in accordance with the
provisions of this Section 2.2, 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 Company shall
be closed and there shall be no transfers on the stock transfer books of the
Company of the Shares which were outstanding immediately prior to such time of
filing. If, after the Effective Time, Certificates are presented to the
Surviving Corporation, they shall be promptly presented to the Exchange Agent
and exchanged as provided in this Article II.
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(d) Any portion of the Exchange Fund (including the proceeds of any
investments thereof) that remains unclaimed by the shareholders of the Company
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 Company
The Company hereby makes the representations and warranties set forth in this
Article III to Compass. The Company 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 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 Company agrees at the Closing to provide Compass with
supplemental Schedules reflecting any changes thereto between the date of such
Schedules and the date of the Closing. Matters described on one Schedule shall
be deemed described on all Schedules to which such matter would be responsive.
Section 3.1 Organization and Qualification. The Company is a Texas
corporation and a bank holding company under the Bank Holding Company Act of
1956, as amended, and is duly organized, validly existing and in good standing
under the laws of the State of Texas and all laws, rules, and regulations
applicable to bank holding companies. BAMC is a Delaware corporation and a bank
holding company under the Bank Holding Company Act of 1956, as amended, and is
duly organized, validly existing in good standing under the laws of the State
of Delaware and all laws, rules and regulations applicable to bank holding
companies. The Bank is a Texas state bank, duly organized, validly existing and
in good standing under the laws of the State of Texas. Each of the Company,
BAMC and 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. Except as set forth on
Schedule 3.17, the Company does not own or control any Affiliate (as defined in
Section 3.17) or Subsidiary (as defined in Section 9.14(a)) other than BAMC and
the Bank. True and correct copies of the Articles of Incorporation or
Association and Bylaws of the Company, BAMC and the Bank, with all amendments
thereto through the date of this Agreement, have been delivered by the Company
to Compass. The Bank is duly qualified or licensed to do business and is in
good standing in the State of Texas. The nature of the business of the Company,
BAMC and the Bank and their respective activities, as currently conducted, do
not require them to be qualified to do business in any jurisdiction other than
the State of Texas.
Section 3.2 Company Capitalization. As of the date hereof, the authorized
capital stock of the Company consists solely of (a) 10,000 shares of Company
Common Stock, of which 1,326 shares are issued and outstanding, and none of
which are held in treasury, (b) 15,000 shares of Series A Preferred Stock, of
which 15,000 shares are issued and outstanding and none of which are held in
treasury, (c) 21,550 shares of Series B Preferred Stock, of which 21,550 shares
are issued and outstanding, and none of which are held in treasury. Except for
Company Preferred Stock or as set forth on Schedule 3.2, 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 Company or its Subsidiaries to purchase or otherwise acquire
any security of or equity interest in the Company or its Subsidiaries. Except
for Company Preferred Stock or as set forth on Schedule 3.2, there are no
outstanding subscriptions, options, rights, warrants, calls, convertible
securities or other agreements or commitments obligating the Company to issue
any shares of the Company, or to the knowledge of the Company, irrevocable
proxies or any agreements restricting the transfer of or otherwise relating to
shares of its capital stock of any class. All of the Shares that have been
issued have been duly authorized, validly issued and are fully paid and non-
assessable, and are free of preemptive rights. There are no restrictions
applicable to the payment of dividends on the Shares except pursuant to the
TBCA and applicable banking laws and regulations, and all dividends declared
prior to the date hereof have been paid, except for regular dividends payable
on the Company Preferred Stock on June 30, 1994.
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Section 3.3 Subsidiary Capitalization; Other Securities. All of the issued
and outstanding shares of the capital stock of the Bank and BAMC (i) are duly
authorized, validly issued, fully paid and nonassessable, and (ii) except as
set forth in Schedule 3.3, are free and clear of any liens, claims, security
interests and encumbrances of any kind. There are no irrevocable proxies with
respect to such shares and there are no outstanding or authorized
subscriptions, options, warrants, calls, rights, or other agreements or
commitments of any kind restricting the transfer of, requiring the issuance or
sale of, or otherwise relating to any of such shares of capital stock to any
person. The Company owns directly all of the issued and outstanding capital
stock of BAMC. BAMC owns directly all of the issued and outstanding capital
stock of the Bank, neither the Company, BAMC, nor the Bank has any equity
ownership interest in any other person other than BAMC or the Bank.
Section 3.4 Authority Relative to the Agreement. The Company has full
corporate power and authority to execute and deliver this Agreement and, except
for the approval by the Company's shareholders, no further proceedings on the
part of the Company are necessary, to consummate the transactions contemplated
hereby which have been duly and validly authorized by its Board of Directors.
This Agreement has been duly executed and delivered by the Company and is a
duly authorized, valid, legally binding and enforceable obligation of the
Company, 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 Company as may be required by statute or regulation. Except
as set forth on Schedule 3.4, 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 Articles of Incorporation or Association or By-Laws of the Company
or its Subsidiaries or any agreement, document or instrument by which the
Company or its Subsidiaries are obligated or bound.
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 Company's shareholders,
the SEC, 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, injunction, award,
decree, rule, statute, ordinance or regulation applicable to the Company or its
Subsidiaries 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 Company or its Subsidiaries 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 Company or its Subsidiaries are a party or by which any
of their 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
Company or its Subsidiaries, threatened, against the Company or its
Subsidiaries 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 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
material contracts of the Company and its Subsidiaries will not be terminated
or impaired by reason of the execution, delivery or performance by the Company
of this Agreement or consummation by the Company of the transactions
contemplated hereby, assuming the receipt of required shareholder and
regulatory approvals.
Section 3.6 Consents and Approvals. The Company's Board of Directors (at a
meeting called and duly held) has unanimously resolved to recommend approval
and adoption of this Agreement by the Company's shareholders. Except the filing
of the Articles of Merger under the TBCA, the Certificate of
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Merger under the GCL, and such approvals as may be required from the SEC, the
FRB, the FDIC and the Department and holders of Shares under the TBCA and
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 Company or its Subsidiaries in
connection with the execution, delivery and performance by the Company of this
Agreement and the transactions contemplated hereby or the resulting change of
control of BAMC and the Bank.
Section 3.7 Regulatory Reports. Except as set forth on Schedule 3.7, the
Company and its Subsidiaries have 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, other
than plans, reports or information listed on Schedule 3.7.
Section 3.8 SEC Status; Securities Issuances. The Company is not subject to
the registration provisions of Section 12 of the Exchange Act nor the rules and
regulations of the SEC promulgated under Section 12 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), other than anti-fraud provisions
of the Exchange Act. All issuances of securities by the Company and the Bank
have been registered under the Securities Act, the Securities Act of the State
of Texas, the Texas Banking Code, and all other applicable laws or were exempt
from any such registration requirements.
Section 3.9 Financial Statements. The Company has provided Compass with a
true and complete copy of (i) the audited consolidated statement of financial
position of the Company and its Subsidiaries as of December 31, 1993, and the
related consolidated statements of income, shareholders' equity and changes in
cash flows for the years ended December 31, 1992 and 1993, and (ii) the
unaudited consolidated statements of financial position of the Company and its
Subsidiaries as of March 31, 1994 and the related consolidated statements of
income and shareholders' equity for the periods ended March 31, 1993 and 1994
(such consolidated statements of financial position and the related
consolidated statements of income, shareholders' equity and, to the extent
contained in the 1993 audited financial statements, changes in cash flows,
together with the notes and schedules thereto, are collectively referred to
herein as the "Financial Statements"). Except as described in the notes to the
Financial Statements, the Financial Statements, including the consolidated
statement of financial position and the related consolidated statements of
income, shareholders' equity and changes in cash flows (including the related
notes thereto) of the Company and its Subsidiaries, present fairly, in all
material respects, the consolidated financial position of the Company and its
Subsidiaries as of the dates thereof and the consolidated results of operations
and, to the extent described in the 1993 audited financial statements, cash
flows of the Company and its Subsidiaries 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
interim financial statements, to normal year-end adjustments and the fact that
they do not contain all of the footnote disclosures required by GAAP), except
as otherwise noted therein, and the accounting records underlying the Financial
Statements accurately and fairly reflect in all material respects the
transactions of the Company and its Subsidiaries. Neither the Company nor its
Subsidiaries have any 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 Company will
provide Compass with the unaudited consolidated and unconsolidated statements
of financial position of the Company and its Subsidiaries as of the end of each
month hereafter, prepared on a basis consistent with prior periods, and
promptly following their availability the Company will provide Compass with the
call reports of the Bank for all periods ending after March 31, 1994.
Section 3.10 Absence of Certain Changes. Except as and to the extent set
forth on Schedule 3.10, since March 31, 1994 (the "Balance Sheet Date") neither
the Company nor any of its Subsidiaries has:
(a) made any amendment to its Articles of Incorporation or Association or
Bylaws or changed the character of its business in any material manner;
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(b) suffered any Material Adverse Effect (as defined in Section
10.13(b));
(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 Company's or the Bank's 1994 budget and consistent with
prior practices and except for bonuses to be paid to the executive officers
of the Bank in respect of their performance in 1994 in an amount not to
exceed $137,000 pursuant to the Bank's incentive plan for such officers,
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 Company or its Subsidiaries, for the directors,
employees or former employees of the Company or its Subsidiaries ("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 shares of its capital stock or other of its
securities, except for dividends paid to the Company by BAMC and to BAMC by
the Bank and except for regular quarterly dividends on the Company
Preferred Stock consistent with past practice;
(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 expose
the Company or its Subsidiaries 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.
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Section 3.11 Company Indebtedness. The Company has delivered to Compass true
and complete copies of all loan documents ("Company Loan Documents") related to
indebtedness of the Company and its Subsidiaries, including BAMC and the Bank,
other than deposits ("Company Indebtedness"), and made available to Compass all
material correspondence concerning the status of Company Indebtedness.
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 Company or its Subsidiaries, threatened against the
Company or any Subsidiary or involving any of their respective properties or
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 Company will notify Compass immediately in
writing of any Proceedings against the Company or any Subsidiary.
Section 3.13 Tax Matters. The Company and its Subsidiaries have duly filed
all tax returns required to be filed by them involving a tax liability or other
material potential detriment for failure to file (the "Filed Returns") with
respect to 1990, 1991 and 1992. The Company will file its 1993 federal income
tax return not later than September 15, 1994, at which time it will become a
Filed Return. The statute of limitations has run with respect to all periods
prior to 1990. The Company and its Subsidiaries have paid, or have 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 Company and its Subsidiaries have 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, the
Company and its Subsidiaries have 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. Except as set forth on Schedule 3.13, the Company has not
entered into any tax sharing agreement or other agreement regarding the
allocation of the tax liability of the Company and its Subsidiaries or similar
arrangement with its Subsidiaries. Set forth on Schedule 3.13 are the dates of
filing of all Filed Returns and any amendments thereto which relate to federal
or state income or franchise taxes. Neither the Company nor any Subsidiary has
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 Company or any Subsidiary, nor are there any outstanding
agreements or waivers extending the statutory period of limitation applicable
to any tax return of the Company or any Subsidiary for any period. The Company
and the Bank have 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 related governmental charges 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 Company or its Subsidiaries 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 Company or its Subsidiaries
or to which the Company or its Subsidiaries contribute or are 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
Company or its Subsidiaries 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 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 Code and Sections 601-608 of ERISA;
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(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 Company or its Subsidiaries or to which the
Company or its Subsidiaries contribute or are 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) Except as disclosed in Schedule 3.14(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
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) Except as disclosed in Schedule 3.14(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 Company, any Subsidiary of
the Company 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 insurance, all nonqualified deferred
compensation arrangements, rabbi trusts, all unfunded plans 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 Company or its
Subsidiaries;
(g) Except as disclosed in Schedule 3.14(g), neither the Company, any
Subsidiary of the Company nor any corporation or other trade or business
controlled by or under common control with the Company (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 Company, its Subsidiaries 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 Company, any Subsidiary of the
Company 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 contracts (or any
other funding instruments), summary plan descriptions,
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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) Except as disclosed in Schedule 3.14(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;
(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(l), 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 Company or its Subsidiaries (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, agreements, arrangements, and
commitments referred to in subsection 3.14(f) of this Section.
Section 3.15 Employment Matters. Except for the Compensation Agreement dated
effective as of January 1, 1992 by and between Stephen M. Dufilho and the
Company (the "January 1, 1992 Compensation Agreement") and the First Amended
and Restated Compensation Agreement dated effective as of October 1, 1993 by
and between Stephen M. Dufilho and the Bank (the "October 1, 1993 Compensation
Agreement"), and except as disclosed on Schedule 3.15, neither the Company nor
any Subsidiary of the Company is 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. There are no unfair labor practice complaints pending
against the Company or its Subsidiaries before the National Labor Relations
Board and no similar claims pending before any similar state, local or foreign
agency. There is no activity or proceeding of any labor organization (or
representative thereof) or employee group to organize any employees of the
Company or its Subsidiaries, nor of any strikes, slowdowns, work stoppages,
lockouts, or threats thereof, by or with respect to any such employees. The
Company and its Subsidiaries are 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 neither the Company nor any
Subsidiary of the Company is 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 Company or its Subsidiaries are a party or by which
the Company or its Subsidiaries are bound which obligate or may obligate the
Company or its Subsidiaries in the aggregate for 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
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the Company or the Bank in the aggregate for an amount in excess of $25,000
over the entire term of such related contracts (the "Contracts"). The Company
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 agreements made by, spot foreign exchange transactions of,
bankers acceptances of, agreements with Bank customers for trust services, or
deposits by the Company or the Bank, but does include unfunded loan commitments
and letters of credit issued by the Company or the Bank where the borrowers'
total direct and indirect 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 Company or its Subsidiaries. All of the Contracts are
legal, valid and binding obligations of the parties 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 Company and its Subsidiaries under the Contracts
are current, there are no existing defaults by the Company or its Subsidiaries
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. Each of the Company
and the Bank has a good and marketable leasehold interest, subject to the terms
of the leases with respect thereto, in each parcel of real property leased by
it free and clear of all mortgages, pledges, liens, encumbrances and security
interests of the Company or the Bank.
Section 3.17 Related Company Transactions. Schedule 3.17 sets forth all
Affiliates and Subsidiaries of the Company, other than BAMC and the Bank.
Except as set forth on Schedule 3.17, there are no agreements, instruments,
commitments, extensions of credit, tax sharing or allocation agreements or
other contractual agreements of any kind between or among the Company, 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
(including BAMC and the Bank). 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,
neither the Company nor any Subsidiary of the Company is (i) in default with
respect to or is in violation of any judgment, order, writ, injunction or
decree of any court or (ii) in material default with respect to or in material
violation of any statute, law, ordinance, rule, order or regulation of any
governmental department, commission, board, bureau, agency or instrumentality,
federal, state or local, and the consummation of the transactions contemplated
by this Agreement will not constitute such a default or violation as to the
Company or its Subsidiaries. The Company and its Subsidiaries have all permits,
licenses, and franchises from governmental agencies required to conduct their
businesses as they are now being conducted.
Section 3.19 Insurance. The Company and its Subsidiaries have in effect the
insurance coverage (including fidelity bonds) described in Schedule 3.19 and
have had adequate insurance in force for the last 5 years. Except as disclosed
in Schedule 3.19, there have been no claims under such bonds within the last 5
years and neither the Company nor any Subsidiary of the Company is aware of any
facts which would form the basis of a claim under such bonds. Neither the
Company nor any Subsidiary of the Company has any 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 the legal, valid and binding obligation of the obligor of each
loan, enforceable in accordance with its terms, subject to the
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effect of bankruptcy, insolvency, reorganization, moratorium, or other similar
laws relating to creditors' rights generally and to general equitable
principles. The Bank does not have in its portfolio any loan exceeding its
legal lending limit, and except as disclosed on Schedule 3.20, the Bank has no
known significant delinquent, substandard, doubtful, loss, nonperforming or
classified loans.
Section 3.21 Fiduciary Responsibilities. The Company and its Subsidiaries
have performed in all material respects all of their respective duties as a
trustee, custodian, guardian or as an escrow agent in a manner which complies
in all 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, neither the Company nor any Subsidiary of the Company requires
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 Company or its Subsidiaries. The Company and its Subsidiaries
own or are licensed or otherwise have the right to use the items listed in
Schedule 3.22.
Section 3.23 Environmental Compliance. Except as set forth in Schedule 3.23,
in the case of Controlled Properties (as defined in Section 6.10), to the
current actual knowledge of the executive officers of the Company and its
Subsidiaries, and in the case of Collateral Properties (as defined in Section
6.10), to the current actual knowledge of the executive officers and commercial
loan officers of the Company and its Subsidiaries:
(a) The Company, its Subsidiaries and any property owned or operated by
them are in compliance with all applicable Environmental Laws (as defined
in Section 10.14(c)) and have obtained and are in compliance with all
permits, licenses and other authorizations required under any Environmental
Law. There is no past or present event, condition or circumstance that is
likely to interfere with the conduct of the business of the Company or its
Subsidiaries in the manner now conducted relating to such entity's
compliance with Environmental Laws or constitute a material violation
thereof or which would have a Material Adverse Effect upon the Company or
its Subsidiaries;
(b) Neither the Company nor any Subsidiary of the Company does now or has
leased, operated, owned, or exercised managerial functions at any
facilities or real property with respect to which such entity, facility or
real property is subject to any actual, potential, or, to the knowledge of
the Company or its Subsidiaries, threatened Proceeding under any
Environmental Law;
(c) There are no actions or Proceedings pending or, to the knowledge of
the Company or its Subsidiaries, threatened against the Company or its
Subsidiaries under any Environmental Law, and neither the Company nor any
Subsidiary of the Company has received any notice (whether from any
regulatory body or private person) of material violation, or potential or
threatened material violation, of any Environmental Law;
(d) There are no actions or Proceedings pending or, to the knowledge of
the Company or its Subsidiaries, 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 Company or Bank or over which the
Company or its Subsidiaries exercised managerial functions, or (ii) at any
property where Polluting Substances generated by the Company or its
Subsidiaries have been disposed;
(e) There is no Property for which the Company or any Subsidiary of the
Company is or was required to obtain any Permit under an Environmental Law
to construct, demolish, renovate, occupy, operate, or use such Property or
any portion of it;
(f) Except as disclosed to Compass, neither the Company nor any
Subsidiary of the Company has generated any Polluting Substances and for
any such Polluting Substances properly executed manifests are on record
with them and any appropriate regulatory agency;
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(g) 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;
(h) Neither any Property nor the Company or any of its Subsidiaries are
subject to investigation or pending or, to the knowledge of the Company or
its Subsidiaries, threatened litigation by federal, state or local
officials or private litigant as a result of any previous on-site
management, treatment, storage, release or disposal of Polluting Substances
or exposure to any Polluting Substances;
(i) There are no underground or above ground storage tanks on or under
any Property which are not in conformity with Environmental Laws and any
Property previously containing such tanks has been remediated in compliance
with all Environmental Laws; and
(j) There is no asbestos containing material on any Property.
(k) For purposes of this Section 3.23 and Section 6.10, "Property"
includes any property (whether real or personal) which the Company or its
Subsidiaries currently or in the past have leased, operated or owned or
managed in any manner 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 Company or its Subsidiaries. For purposes
of this Section 3.23, "current actual knowledge" means actual awareness,
and does not mean that a special investigation or inquiry has been made by
the person to whose knowledge reference is made.
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 Company or
its Subsidiaries, threatened against the Company or its Subsidiaries by or
before the FRB, 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, neither the Company nor
any Subsidiary of the Company is subject to a formal or informal agreement,
memorandum of understanding, enforcement action with or any type of financial
assistance by any regulatory authority having jurisdiction over such entity.
Neither the Company nor any Subsidiary of the Company has taken or agreed to
take any action or has knowledge of any fact or circumstance that would
materially impede or delay receipt of any required regulatory approval.
Section 3.25 Title to Properties; Encumbrances. Except as set forth on
Schedule 3.25, each of the Company and its Subsidiaries has unencumbered, good,
legal, and marketable title to all its properties and assets, real and
personal, including, without limitation, all the properties and assets
reflected in the Financial Statements except for those properties and assets
disposed of for fair market value 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, the Company has a title
policy in full force and effect from a title insurance company which, to the
best of Company's knowledge, is solvent, insuring good and indefeasible title
to all real property owned by the Company or its Subsidiaries in favor of the
Company or its Subsidiaries, whichever is applicable. The Company has made
available to Compass all of the files and information in the possession of the
Company and its Subsidiaries concerning such properties, including any title
exceptions which might affect marketable title or value of such property. The
Company and its Subsidiaries each hold good and legal title or good and valid
leasehold rights to all assets that are necessary for them to conduct their
respective businesses as they are currently being conducted. Except as set
forth on Schedule 3.25, the Company and its Subsidiaries own all furniture,
equipment, art and other property used to transact business presently located
on their premises.
Section 3.26 Shareholder List. The Company has provided to Compass prior to
the date of this Agreement a list of the holders of Shares and the holders of
any outstanding warrant, option, convertible debenture or other security entity
the holder thereof to acquire Shares as of March 31, 1994 containing the names,
addresses and number of Shares or such other securities held of record, which
is accurate in all
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respects as of such date, and the Company 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 by the Company or its Subsidiaries, or, to the knowledge of the
Company or its Subsidiaries, any of their respective directors, officers,
employees or agents for inclusion in:
(a) the Proxy Statement; or
(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 Company;
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 Company or its
Subsidiaries are responsible for filing with any regulatory or governmental
agency in connection with the Merger will comply in all material respects with
the provisions of applicable law.
Section 3.28 Dissenting Shareholders. The Company and its Subsidiaries, and
their respective directors, have no knowledge of any plan or intention on the
part of any Company shareholders to make written demand for payment of the fair
value of such Shares in the manner provided in Article 5.12 of the TBCA.
Section 3.29 Section 368 Representations. (a) Based on a review by officers
of the Company of certificates to such officers, there is no plan or intention
by any Company shareholder who is anticipated to receive one percent (1%) or
more of the total Merger Consideration ("1% Shareholder") and, to the knowledge
of the Company, BAMC, the Bank, and their respective directors, there is no
plan or intention by any of the remaining Company 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 Effective Time of less than fifty
percent (50%) of the total fair market value of all of the Company's capital
stock outstanding immediately prior to the Effective Time. For purposes of this
Section 3.29, shares of the Company's capital stock surrendered by dissenting
shareholders and shares of the Company's capital stock 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 capital stock
of the Company outstanding immediately prior to the Merger.
(b) Within 30 days after the date hereof, the Company shall provide to
Compass true and correct copies of statements 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, and has set forth
on Schedule 3.29 all knowledge of the Company and its Subsidiaries and their
respective directors about the plans or intentions of any other Company
shareholders to sell or otherwise dispose of the Compass Common Stock to be
received pursuant to the Merger.
(c) Compass will not assume any debts or obligations of the holders of the
Shares as part of the Merger.
(d) Except as set forth on Schedule 3.29, there have not been any sales or
redemptions of the Company's capital stock in contemplation of the Merger.
Schedule 3.29 sets forth all transactions in the capital stock of the Company
since March 31, 1993.
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(e) The liabilities of the Company assumed by Compass as a part of the Merger
and the liabilities to which the transferred assets of the Company are subject
were incurred by the Company in the ordinary course of its business.
(f) The Company and its shareholders will pay their own expenses which are
incurred in connection with the Merger.
(g) The Company 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 Company is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(i) The Company 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.
Section 3.30 Employee Stock Options. Except as set forth on Schedule 3.30,
there are no Company 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 Company or its Subsidiaries.
Section 3.31 Accounting Matters. Neither the Company nor any 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 C hereto.
Section 3.32 Representations Not Misleading. No representation or warranty by
the Company in this Agreement, nor any statement, summary, exhibit or schedule
furnished to Compass by the Company or its Subsidiaries 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 IV.
Representations and Warranties of Compass
Compass hereby jointly and severally makes the representations and warranties
set forth in this Article IV to the Company.
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 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) Compass is a bank holding company under the Bank Holding Company Act of
1956, as amended, and in good standing under all laws, rules and regulations
applicable to bank holding companies. Compass is duly qualified or licensed and
in good standing in each jurisdiction which requires such qualification where
each owns or leases properties or conducts business.
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's Board of Directors. This Agreement has been duly
executed and delivered by Compass and is
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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 approval of regulatory
agencies and other governmental authorities having authority over Compass as
may be required by statute or regulation. Compass is not in violation of or
default under its Certificate of Incorporation or By-Laws or any agreement,
document or instrument under which Compass is obligated or bound, or any law,
order, judgment, injunction, award, decree, statute, rule, ordinance or
regulation applicable to Compass or any of its Subsidiaries, the violation or
breach of which could have a Material Adverse Effect on Compass and its
Subsidiaries taken as a whole. 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 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 (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 Compass 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 is a party or by
which any of its assets or properties are bound. 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 Company or 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 will not be terminated or impaired by reason of the
execution, delivery or performance by Compass of this Agreement or consummation
by Compass of the transactions contemplated hereby, assuming receipt of the
required regulatory approvals.
Section 4.3 Financial Reports. Compass has previously furnished the Company a
true and complete copy of (i) the 1993 Annual Report to Shareholders, which
report (the "Compass 1993 Annual Report") includes, among other things,
consolidated statements of financial position of Compass and its Subsidiaries
as at December 31, 1993 and 1992, the related consolidated statements of
income, shareholders' equity and cash flows for the two years then ended and
(ii) Compass's quarterly report on Form 10-Q for the quarter ended March 31,
1994 (the "Quarterly Report") which report includes among other things
consolidated statements of financial position of Compass and its Subsidiaries
as at March 31, 1994 and 1993, respectively, and the related consolidated
statements of income and cash flows for the three month periods ending March
31, 1994 and 1993. The financial statements contained in the Compass 1993
Annual Report and such Quarterly Report have been prepared in conformity with
GAAP applied on a basis consistent with prior periods. The consolidated
statements of financial position of Compass and its subsidiaries as at December
31, 1993 and 1992 contained in the Compass 1993 Annual Report fairly present
the consolidated financial condition of Compass and its Subsidiaries as at the
dates thereof, and the related consolidated statements of income, shareholders'
equity and cash flows of Compass and its Subsidiaries contained therein fairly
present the results of operations and cash flows thereof for the fiscal years
then ended. The consolidated financial statements of Compass and its
Subsidiaries as at March 31, 1994 and 1993, contained in the Quarterly Report,
fairly present the financial condition, the results of the operations and cash
flows thereof as at 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 1993 Annual Report or the Quarterly
Report is false or misleading with respect to any material fact, or omits 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.
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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 March 31, 1994, Compass had 36,446,278 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 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.
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 in connection with the
execution, delivery and performance by Compass of this Agreement and the
transactions contemplated hereby or the resulting change in control of the
Company and the Bank, except the filing of Articles of Merger under the TBCA,
the filing of the Certificate of Merger under the GCL, and such approvals as
may be required from the SEC, the FRB, the Department and the FDIC.
Section 4.6 Proxy Statement. None of the information supplied or to be
supplied by Compass, or, to the best knowledge of Compass, any of its
directors, officers, employees or agents for inclusion in:
(a) the Proxy Statement; or
(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 the Company;
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 is responsible
for filing with any regulatory or governmental agency in connection with the
Merger will comply in all material respects with the provisions of applicable
law.
Section 4.7 Availability of Compass Common Stock. Compass has available a
sufficient number of authorized and unissued shares 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 4.8 Representations Not Misleading. No representation or warranty by
Compass in this Agreement, nor any statement or exhibit furnished to the
Company or 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 Company
Section 5.1 Affirmative Covenants of the Company. For so long as this
Agreement is in effect, the Company shall, and shall use its best efforts to
cause its Subsidiaries, including BAMC and the Bank (collectively, the
"Acquired Companies") to, from the date of this Agreement to the Closing,
except as specifically contemplated by this Agreement:
(a) operate and conduct the businesses of the Acquired Companies in the
ordinary course of business and consistent with prudent banking practices;
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(b) preserve intact the Acquired Companies' corporate existence, business
organization, assets, licenses, permits, authorizations, and business
opportunities;
(c) comply with all material contractual obligations applicable to the
Acquired Companies' operations;
(d) maintain all the Acquired Companies' 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
coverages and all Property insured by such coverages) or obtain comparable
insurance coverages from reputable insurers which, in respect to amounts,
types and risks insured, are adequate for the business conducted by the
Acquired Companies and consistent with the existing insurance coverages;
(e) in good faith and in a timely manner (i) cooperate with Compass in
satisfying the conditions in this Agreement, (ii) assist Compass in
obtaining as promptly as possible all consents, approvals, authorizations
and rulings, whether regulatory, corporate or otherwise, as are necessary
for Compass and the Company (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 Company and any governmental agency or
other third party, (iii) furnish information concerning the Acquired
Companies not previously provided to Compass required for inclusion in any
filings or applications that may be necessary in that regard and (iv)
perform all acts and execute and deliver all documents necessary to cause
the transactions contemplated by this Agreement to be consummated at the
earliest possible date;
(f) timely file with the FRB, the Department, and the FDIC, all financial
statements and other reports required to be so filed by any of the Acquired
Companies 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;
(h) promptly notify Compass upon obtaining knowledge of any additional
default, event of default or condition with which the passage of time or
giving of notice would constitute an additional default or event of default
under the Company Loan Documents and promptly notify and provide copies to
Compass of any material written communications concerning the Company Loan
Documents;
(i) between the date of this Agreement and Closing, 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 Company contained in
or referred to in this Agreement to be untrue or misleading in any material
respect;
(j) deliver to Compass a list (Schedule 5.1(j)), dated as of the
Effective Time, showing (i) the name of each bank or institution where the
Company and its Subsidiaries have 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;
(k) deliver to Compass a list (Schedule 5.1(k)), dated as of the
Effective Time, showing all liabilities and obligations of Company and its
Subsidiaries, except those arising in the ordinary course of their
respective businesses, incurred since the Balance Sheet Date, certified by
an officer of Company;
(l) promptly notify Compass of any material change or inaccuracies in any
data previously given or made available to Compass or pursuant to this
Agreement;
(m) provide access, to the extent that the Company or its Subsidiaries
have the right to provide access, to any or all Property (as defined in
Section 3.23) so as to enable Compass to physically inspect any structure
or components of any structure on such Property, including without
limitation surface and subsurface testing and analyses.
Section 5.2 Negative Covenants of the Company. Except with the prior written
consent of Compass or as otherwise specifically permitted by this Agreement,
the Company will not and will use its best efforts
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not to permit BAMC or the Bank, or any other Subsidiary of the Company, to,
from the date of this Agreement to the Closing:
(a) except as provided in Section 6.13, make any amendment to its
articles of incorporation or 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) 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 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 for regular salary increases granted in the ordinary course of
business within the Company's or the Bank's 1994 budget and consistent with
prior practices, except for bonuses to be paid to the executive officers of
the Bank in respect of their performance in 1994 in an amount not to exceed
$137,000 pursuant to the Bank's incentive plan for such officers, and
except for the Equity Bonus payable by the Company to Stephen M. Dufilho
under the January 1, 1992 Compensation Agreement in the agreed amount of
$1,007,018 ("Equity Bonus"), grant any increase in compensation or
directors' fees, 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 of such a plan;
(j) declare, pay or set aside for payment any dividend or other
distribution or payment in respect of shares of its capital stock, except
for dividends from the Bank to BAMC and from BAMC to the Company and except
for regular quarterly dividends on the Company Preferred Stock consistent
with prior practice.
(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) except as set forth on Schedule 5.2(l), make any capital expenditures
exceeding $50,000 in the aggregate;
(m) 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.
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(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 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
Company or its Subsidiaries;
(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, amend, waive or extend either the Company Loan Documents or
any rights under such agreements, without the consent of Compass;
(s) 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;
(t) sell or contract to sell any part of the Bank premises without the
approval of the terms and conditions of such sale by Compass;
(u) change any fiscal year or the length thereof;
(v) 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 C hereto; or
(w) prepay in whole or in part the Company Indebtedness; or
(x) enter into any agreement, understanding or commitment, written or
oral, with any other person which is in any manner inconsistent with the
obligations of the Company and its directors and 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 Company or the Bank in a manner not
permitted by applicable law and the provisions thereof shall automatically
be reduced in compliance therewith.
ARTICLE VI.
Additional Agreements
Section 6.1 Access To, and Information Concerning, Properties and
Records. During the pendency of the transactions contemplated hereby, the
Company shall, to the extent permitted by law, give Compass, its legal counsel,
accountants and other representatives reasonable access, during normal business
hours, throughout the period prior to the Closing, to all of the Company's,
BAMC's and 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 they may require and furnish to Compass
during such period all such information concerning the Company and its
Subsidiaries and their affairs as Compass may reasonably request. All
information disclosed by the Company to Compass which is confidential and is so
identified to Compass as 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 Company. In the event this Agreement is terminated
pursuant to the provisions of Article VIII, upon the written request of the
Company, Compass agrees to return to the Company all copies of such
confidential information.
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Section 6.2 Filing of Regulatory Approvals. As soon as reasonably
practicable, Compass shall file all notices and applications to the FRB, the
Department and the FDIC which Compass deems necessary or appropriate to
complete the transactions contemplated herein, including the merger of the Bank
and Compass Bank-Houston, a Texas state bank and indirect wholly-owned
subsidiary of Compass ("Compass Bank"). Compass will deliver to the Company,
and the Company will deliver to Compass, copies of all non-confidential
portions of any such applications.
Section 6.3 Miscellaneous Agreements and Consents. Subject to the terms and
conditions of this Agreement, Compass and the Company 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 Company 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 Company Indebtedness; Equity Bonus Payment. Prior to the
Effective Time, the Company shall pay all regularly scheduled payments on all
Company Indebtedness and shall cooperate with Compass in taking such actions as
are reasonably appropriate or necessary in connection with the redemption,
prepayment, modification, satisfaction or elimination of any outstanding
indebtedness of the Company or the Bank with respect to which a consent is
required to be obtained to effectuate the Merger and the transactions
contemplated by this Agreement and has not been so obtained. Compass agrees to
pay any outstanding Company Indebtedness immediately after the Closing. Compass
acknowledges that the Company shall pay the Equity Bonus to Stephen M. Dufilho
contingent upon and concurrent with the Closing.
Section 6.5 Best Good Faith Efforts. All parties hereto agree that the
parties will use their 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 Company shall
not solicit, entertain or negotiate with respect to any offer to acquire the
Company or any of its Subsidiaries from any other person. During the term of
this Agreement, neither the Company nor any of its Subsidiaries shall provide
information to any other person in connection with a possible acquisition of
the Company or any of its Subsidiaries. Immediately upon receipt of any such
unsolicited offer, the Company will communicate to Compass 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 the
proposal contained herein will occur upon, and be determined by, the mutual
consent of the Company and Compass.
Section 6.8 Employee Benefit Plans; Severance. 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 Company and the Bank will be entitled to participate as new
employees in the employee welfare and pension benefit plans maintained for
employees of Compass Bank and its Affiliates, in accordance with their
respective terms. For a period of one year after the Closing, Compass agrees to
provide severance benefits to the employees of the Company or its Subsidiaries
whose employment is terminated by Compass or its affiliates without cause. The
severance benefit shall equal one week's pay for each full year of service by
the terminated employee, and such severance pay shall be paid bi-monthly
through the regular payroll process in order to maintain the terminated
employee's status as an employee for certain benefit purposes during that time
period. The severance benefit shall be in lieu of and not in addition to any
other payment that may be payable by Compass or its affiliates to such
terminated employee.
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Section 6.9 Merger of Bank. Compass presently intends to cause the Bank to
merge into Compass Bank immediately after the Merger, and the Company agrees to
cause the Bank to execute documents and take actions (conditioned on the Merger
being effective) and otherwise cooperate with Compass during the time the
Merger transaction is pending in order to facilitate such merger of the 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 to the same extent that the Company or any of its Subsidiaries
has such right, but not the obligation or responsibility, to inspect the
Property to the extent that the Company or any of its Subsidiaries 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 time and shall complete such inspections
on or prior to the forty-fifth day after the date hereof. Compass shall notify
the Company prior to any physical inspections of Property, and the Company may
place reasonable restrictions on the time of such inspections. 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 Company
of the Properties on which it intends to conduct a secondary investigation on
or prior to the fifty-second day after the date hereof. Compass shall notify
the Company of any Properties that are not acceptable and require remediation
on or prior to the 102nd day after the date hereof.
With respect to any Property which is owned, operated or leased by the
Company or any of its Subsidiaries or over which the Company or any of its
Subsidiaries has managerial control, including without limitation the Company's
and its Subsidiaries' premises and other real estate owned ("Controlled
Property"), that Compass has notified the Company is not acceptable and
requires remediation, the Company 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") on or prior to the 240th day
after the date hereof. Promptly following the preparation of any such
remediation plan and its approval by the appropriate Environmental Regulatory
Authority, the Company shall perform the remediation contemplated by any such
plan. In the event that the Company 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 Company refuses or fails to
conduct remediation in accordance with any such approved plan on or prior to
the 240th day after the date hereof, or the applicable Environmental Regulatory
Authority disapproves of the results of any such remediation conducted by the
Company, Compass shall have the right to terminate this Agreement pursuant to
written notice to the Company on or prior to the tenth business day after the
date the Company advises Compass in writing that, as applicable, the Company
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 Company but the applicable Environmental
Regulatory Authority does not approve the results of the remediation, or that
the Company 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 Company is not acceptable and requires
remediation, the Company 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
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
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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 Company 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 ten business days after the date of receiving such
written notice from the Company. 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 Company 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 Company within ten business days after receipt from
the Company of any Remediation Estimate for a particular Collateral Property.
Notwithstanding the foregoing, and without limiting any rights of Compass, the
Company shall not be obligated to incur aggregate expenditures in excess of
$200,000 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) The Company and its Subsidiaries agree to indemnify and hold harmless
Compass for any claims for damage to the Property or injury or death to persons
directly or indirectly attributable to the actions or omissions (other than
negligent actions or omissions) of Compass or its agents in performing any
Environmental Inspection or secondary investigation of the Property. With
respect only to any investigation, Compass agrees to indemnify and hold
harmless the Company and its Subsidiaries for any claims for damage to the
Property or injury or death to persons directly attributable to the negligent
actions of Compass or its agents in performing any secondary investigation,
except to the extent caused in whole or in part by the negligence of the
Company or its Subsidiaries. Compass shall have no 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. If this Agreement is terminated, then except as otherwise required by
law, Compass 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 responsibility of and within the discretion of the Company or its
Subsidiaries, as the case may be. Compass shall have no liability to the
Company or its Subsidiaries for making any report of such results to any
governmental authority.
(c) Compass shall have the right to terminate this Agreement in the following
circumstances: (i) the Company's material breach of any representation or
warranty 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 in any
material respect irrespective of the knowledge or lack of knowledge of the
Company or its Subsidiaries; (iii) the results of such Environmental
Inspection, secondary investigation or other environmental survey are
disapproved by Compass because the Environmental Inspection, secondary
investigation or other environmental survey identifies material violations or
potential material violations of Environmental Laws; (iv) the Environmental
Inspection, secondary investigation or other environmental survey identifies
any past or present event, condition or circumstance that would or potentially
would require remedial or cleanup action or have a Material Adverse Effect upon
the Company or its Subsidiaries; (v) the presence of any underground or above
ground storage tank in, on or under any Property which is not registered
properly with appropriate governmental authorities and otherwise entitled to
applicable governmental remediation funds or which has resulted in a release of
any Polluting Substances or which otherwise is in material violation of an
Environmental Law; (vi) the presence of any asbestos containing material in, on
or under any Property, the removal of which would constitute a Material Adverse
Effect; or (vii) Compass is not permitted to conduct an Environmental
Inspection or secondary investigation of any Property to the extent it deems
appropriate.
(d) The Company 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
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limitation, the results of other environmental inspections and surveys. The
Company 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 Company with a copy of all environmental reports prepared by its
consultants as a result of the Environmental Inspections.
Section 6.11 Proxies. The Company acknowledges that J. Bruce Bugg, Jr., James
W. Gorman, Jr. and Three Lee Investments, Ltd., a Texas limited partnership,
and/or other shareholders who hold at least two-thirds of each class of Company
capital stock have agreed, subject to the closing price of one share of Compass
Common Stock, as quoted on the NASDAQ National Market System, on the trading
day immediately prior to the Meeting Date, not being less than $23.25 per
share, that they will vote the Shares owned by them in favor of this Agreement
and the transactions contemplated hereby, subject to required regulatory
approvals, and that they will retain the right to vote such Shares during the
term of this Agreement, and such shareholders have agreed within thirty days
after the date hereof to provide 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 D.
Section 6.12 Exchange Agreement. Immediately prior to the Effective Time, the
Company 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 Company and
Compass.
Section 6.13 Amendment of Bylaws. The Company agrees to amend its Bylaws to
delete section 7.09 thereof or to eliminate its application to the Merger.
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 the Company's shareholders entitled to
vote at the Shareholders' Meeting; and
(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.
Section 7.2 Conditions to the Obligations of Compass to Effect the Merger.
The obligations of Compass 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 Company 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;
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(b) the Company 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 prior to the Effective Time;
(c) there shall not have occurred a Material Adverse Effect with respect
to the Company or its Subsidiaries;
(d) concurrent with the delivery of the release described in Section
7.3(d), the directors and officers of the Company, BAMC and the Bank shall
have delivered to Compass an instrument in the form of Exhibit G attached
hereto dated the Effective Time and shall have delivered to Compass their
resignations as directors of the Company, BAMC and the Bank;
(e) concurrent with the delivery of the release described in Section
7.3(d), the officers of the Company and the Bank shall have delivered to
Compass an instrument in the form of Exhibit G attached hereto, dated the
Effective Time;
(f) Compass shall have received the opinions of counsel to the Company
reasonably acceptable to it as to the matters set forth on Exhibit E
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) the aggregate principal amount of all Company Indebtedness shall not
exceed $3,362,000;
(j) Compass shall have received from holders of the Company's capital
stock receiving at least 50% of the total Merger Consideration a
representation that they have no plan or intention to sell or otherwise
dispose of shares of Compass Common Stock received pursuant to the Merger;
(k) Compass shall have received an opinion of counsel satisfactory to it
that the Merger will qualify as a reorganization under Section 368(a) of
the Internal Revenue Code of 1986, as amended;
(l) The Company 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 Company of which the Company has
knowledge from and including the date of this Agreement through the
Effective Time;
(m) Compass shall have determined, in its sole judgment, that the
liabilities and obligations set forth on Schedule 5.1(k) do not have a
Material Adverse Effect;
(n) Compass shall have received certificates dated the Closing executed
by the Chairman of the Board of the Company and by the Chairman of the
Board of the Bank, and the Secretary or Cashier of the Company and the
Bank, respectively, certifying in such reasonable detail as Compass may
reasonably request, to the effect described in Sections 7.2(a), (b), (c),
(g) and (i);
(p) The January 1, 1992 Compensation Agreement shall have been amended in
a manner satisfactory to Compass with respect to the Equity Bonus payable
to Stephen M. Dufilho, and such amendment shall have been approved by the
Company's shareholders in a manner satisfying the requirements of Section
280G of the Code and applicable Treasury Regulations so as to cause the
Equity Bonus not to constitute an "excess parachute payment";
(q) the Management Agreement between the Bank and BAMC, Inc. shall have
been terminated with no liability to the Bank;
(r) within 30 days after the date hereof, Compass shall have received a
letter from KPMG Peat Marwick to the effect that at the time of the
consummation of the Merger, the Merger will be accounted for by Compass as
a pooling-of-interests transaction;
(s) the land and improvements owned by the Bank located at 123-125 San
Pedro, San Antonio, Texas shall be sold in 1994 for a net sales price of
not less than the book value of such property as of March 31, 1994, as
reflected in the Bank's financial statements; and
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(t) if the Bank's commercial loan account number 26625 shall not have
been paid off in full in 1994, such loan shall have been sold in 1994 to
BAMC, Inc., a Texas corporation, for a net sales price of not less than the
March 31, 1994 book value of such loan, as reflected on the Bank's
financial statements, plus accrued and unpaid interest, unless a sale to
BAMC, Inc. would cause the Merger not to be eligible for pooling-of-
interests accounting treatment, in which case this condition 7.2(t) shall
be deemed waived.
Section 7.3 Conditions to the Obligations of the Company to Effect the
Merger. The obligations of the Company 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 or in
the certificate described in Section 8.3 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;
(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
either of them prior to the Effective Time; and
(c) the Company shall have received the opinion of counsel to Compass
reasonably acceptable to it, as to the matters set forth on Exhibit F
attached hereto;
(d) concurrent with the delivery of the releases described in Sections
7.2(d) and 7.2(e), the Company, BAMC and the Bank shall have delivered to
the directors of the Company, BAMC and the Bank an instrument in the form
of Exhibit H attached hereto dated the Effective Time; and
(e) the shareholders of the Company shall have received an opinion of
counsel to Compass satisfactory to the Company and its counsel that the
Merger will qualify as a reorganization under Section 368(a) of the
Internal Revenue Code of 1986, as amended; and
(f) the Company shall have received certificates dated the Closing
executed by appropriate officers of Compass certifying, in such detail as
the Company may reasonably request, to the effect described in Sections
7.3(a) and (b).
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 notwithstanding approval
thereof by the shareholders of the Company, but prior to the Effective Time:
(a) by mutual written consent duly authorized by the Boards of Directors
of Compass and the Company;
(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 Company
contained in Article III which constitutes a Material Adverse Effect, (ii)
pursuant to Section 6.10, or (iii) 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 Company if the conditions to Closing contained in Section 7.1
or 7.3 are not satisfied or waived in writing by the Company;
(d) by Compass or the Company if the Effective Time shall not have
occurred on or before the expiration of nine months from the date of this
Agreement or such later date agreed to in writing by Compass and the
Company; or
(e) by Compass or the Company 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.
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<PAGE>
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, other than the
provisions of this Section 8.2 and Section 9.1. 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 Company and Compass at any time before or after adoption of
this Agreement by the shareholders of the Company 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 Company's shareholders hereunder without any 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. 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.
ARTICLE IX.
Survival; Indemnification
Section 9.1 Survival of Representations and Warranties. The parties hereto
agree that all of their respective representations and warranties contained in
this Agreement shall not survive after the Effective Time.
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 without the consent
of Compass, which consent shall not be unreasonably withheld, all such costs
and expenses incurred by the Company shall not exceed $72,000.
Section 10.2 Brokers and Finders. All negotiations on behalf of Compass and
the Company 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, the Company, BAMC 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, and each party hereto hereby agrees to and shall indemnify
the other parties hereto against any liability arising from any such fee or
payment incurred by such party.
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, and (b) shall not be assigned by operation of law or otherwise,
provided that Compass may assign its rights and obligations to any direct or
indirect, wholly-owned, subsidiary of Compass, but no such assignment shall
relieve Compass of its obligations hereunder if such assignee does not perform
such obligations.
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<PAGE>
Section 10.4 Further Assurances. From time to time as and when requested by
Compass or its successors or assigns, the Company, BAMC and the Bank, and the
officers and directors of the Company, BAMC and 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 Company'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.
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. 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
with copies to:
Jerry W. Powell
General Counsel
Compass Bancshares, Inc.
15 South 20th Street
Birmingham, Alabama 35233
Telecopy No: (205) 933-3043
and
Gene G. Lewis
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
3300 Texas Commerce Tower
Houston, Texas 77002
(713) 223-3717
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<PAGE>
if to the Company:
Stephen M. Dufilho
Southwest Bankers, Inc.
660 No. Main Avenue
San Antonio, Texas 78205
Telecopy No: (210) 224-2792
with a copy to:
J. Bruce Bugg, Jr.
J. Bruce Bugg, Jr., P.C.
100 West Houston Street, Suite 1660
San Antonio, Texas 78205
Telecopy No: (210) 224-6491
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 the GCL governs aspects of the Merger.
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.
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.
(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 Company, BAMC
and 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
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<PAGE>
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.
(d) "Polluting Substances" shall mean (a) asbestos, (b) urea formaldehyde
foam insulation, (c) oil and gasoline products or wastes, and (d) 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) a prudent individual
could be expected to discover or otherwise become aware of such fact or other
matter in the course of conducting a reasonably comprehensive investigation
concerning the truth or existence 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 serving, or who has at any time
served, as a director or executive officer (or in any similar capacity) of the
corporation or bank, has, or at any time had, knowledge of such fact or other
matter. The Company, BAMC and the Bank are understood to have undertaken a
separate investigation in connection with the transactions contemplated hereby
to determine the existence or absence of facts or other matters in the
statement qualified as "known" by, or the "knowledge" of, the Company, BAMC or
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: /s/ Jerry W. Powell By: /s/ D. Paul Jones, Jr.
------------------------------- --------------------------------
SECRETARY ITS: CHAIRMAN AND CHIEF
EXECUTIVE OFFICER
ATTEST: SOUTHWEST BANKERS, INC.
By: /s/ J. Bruce Bugg, Jr. By: /s/ Stephen M. Dufilho
------------------------------- ----------------------------------
SECRETARY ITS: CHAIRMAN AND CHIEF
EXECUTIVE OFFICER
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<PAGE>
APPENDIX
FIRST AMENDMENT TO THE AGREEMENT AND PLAN OF REORGANIZATION
BY AND BETWEEN
COMPASS BANCSHARES, INC. AND SOUTHWEST BANKERS, INC.
This First Amendment to the Agreement and Plan of Reorganization by and
between Compass Bancshares, Inc. and Southwest Bankers, Inc., dated as of June
16, 1994 (the "Agreement"), is entered into as of July 22, 1994 (the "First
Amendment"), by and between Compass Bancshares, Inc., a Delaware corporation
("Compass"), and Southwest Bankers, Inc., a Texas corporation (the "Company").
WHEREAS, Compass and the Company each desire that the Agreement be amended to
provide, as additional conditions to the obligations of Compass to consummate
the transactions contemplated by the Agreement, that certain stock transfer
restriction agreements between the Company and its common and preferred
stockholders shall be terminated, or the contemplated Merger permitted
thereunder and that shareholders of the Company, directly or indirectly, shall
cause funds to be deposited into The Bank of San Antonio, a Texas state bank
and a wholly owned subsidiary of the Company (the "Bank"), sufficient to cause
certain levels of interest income to the Bank during the fiscal years ending
December 31, 1994, and December 31, 1995.
NOW THEREFORE, in consideration of the premises and the agreements set forth
herein and in the Agreement and for 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:
1. Section 7.2(u) and (v). Conditions to the Obligations of Compass to Effect
the Merger. Section 7.2 of the Agreement is hereby amended to add the following
additional paragraphs:
(u) on or before October 1, 1994, all necessary consents shall have been
obtained and all other actions necessary shall have been taken to allow the
shareholders of the Company to consummate the Merger as a "permitted
transfer" or to terminate the Stock Transfer Restriction Agreement, dated
effective as of December 31, 1990, by and among the Company and the common
stockholders of the Company set forth therein and the Preferred Stock
Transfer Restriction Agreement, dated effective as of February 27, 1992, by
and among the Company and the preferred stockholders of the Company.
(v) shareholders of the Company, directly or indirectly, shall cause
funds to be deposited into the Bank in such amount of deposits, bearing
such rates of interest, or without interest, that result in interest income
to the Bank for the fiscal years of the Bank ending December 31, 1994, and
December 31, 1995, attributable solely to those deposits, of $120,000 and
$240,000, respectively. Such deposits shall not be subject to withdrawal
until after such time that such income in such years attributable to such
deposits has been realized.
2. Section 7.2(n). Conditions to the Obligations of Compass to Effect the
Merger. Section 7.2(n) of the Agreement is hereby amended in its entirety to
provide as follows:
(n) Compass shall have received certificates dated the Closing executed
by the Chairman of the Board of the Company and by the Chairman of the
Board of the Bank, and the Secretary or Cashier of the Company and the
Bank, respectively, certifying in such reasonable detail as Compass may
reasonably request, to the effect described in Sections 7.2(a), (b), (c),
(g), (i), (u) and (v).
2. Except as provided herein, the terms of the Agreement shall remain in full
force and effect.
3. This First Amendment may be executed by the parties hereto in several
counterparts and all such counterparts, when so executed and delivered shall
constitute but one and the same agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this First Amendment as of the
date first above written.
ATTEST: COMPASS BANCSHARES, INC.
By: /s/ Daniel B. Graves By: /s/ Garrett R. Hegel
--------------------------------- ---------------------------------
Its: Assistant Secretary Its: Chief Financial Officer
ATTEST: SOUTHWEST BANKERS, INC.
By: /s/ Steven Q. Lee By: /s/ Stephen M. Dufilho
--------------------------------- ---------------------------------
Its: Secretary Its: Chairman & CEO
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<PAGE>
SECOND AMENDMENT TO THE AGREEMENT AND
PLAN OF REORGANIZATION
BY AND BETWEEN
COMPASS BANCSHARES, INC. AND SOUTHWEST BANKERS, INC.
This Second Amendment to the Agreement and Plan of Reorganization by and
between Compass Bancshares, Inc. and Southwest Bankers, Inc., dated as of June
16, 1994, as amended by the First Amendment to the Agreement and Plan of
Reorganization by and between Compass Bancshares, Inc. and Southwest Bankers,
Inc. dated as of July 22, 1994, (the "Agreement"), is entered into as of the
5th day of October, 1994 (the "Second Amendment"), by and between Compass
Bancshares, Inc., a Delaware corporation ("Compass"), and Southwest Bankers,
Inc., a Texas corporation (the "Company").
WHEREAS, Compass and the Company each desire that the Agreement be amended to
provide, an additional condition to the obligations of the Company to
consummate the transactions contemplated by the Agreement;
NOW THEREFORE, in consideration of the premises and the agreements set forth
herein and in the Agreement and for 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:
1. Section 7.2(t). Conditions to the Obligations of Compass to Effect the
Merger. Section 7.2(t) of the Agreement is hereby amended in its entirety to
provide as follows:
"(t) if the Bank's commercial loan account number 26625 shall not have
been paid off in full in 1994, such loan shall have been sold in 1994 to an
entity to be owned by the Shareholders of the Company, for a net sales
price of not less than the March 31, 1994 book value of such loan, as
reflected on the Bank's financial statements, plus accrued and unpaid
interest, unless a sale to such entity to be owned by the Shareholders of
the Company would cause the Merger not to be eligible for pooling-of-
interests accounting treatment, in which case this condition 7.2(t) shall
be deemed waived."
2. Section 7.3(f). Conditions to the Obligations of the Company to Effect the
Merger. Section 7.3(f) of the Agreement is hereby amended in its entirety to
provide as follows:
"(f) the Company shall have received certificates dated the Closing
executed by appropriate officers of Compass certifying, in such detail as
the Company may reasonably request, to the effect described in Sections
7.3(a) and (b); and"
3. Section 7.3(g). Conditions to the Obligations of the Company to Effect the
Merger. Section 7.3 of the Agreement is hereby amended to add the following
additional paragraph:
"(g) there shall not have occurred a Material Adverse Effect with respect
to Compass from and after the Meeting Date of the Shareholders' Meeting."
4. Except as provided herein, the terms of the Agreement shall remain in full
force and effect.
5. This Second Amendment may be executed by the parties hereto in several
counterparts and all such counterparts, when so executed and delivered shall
constitute but one and the same agreement.
IN WITNESS WHEREOF, the parties have executed this Second Amendment as of the
date first above written.
ATTEST: COMPASS BANCSHARES, INC.
By: /s/ Daniel B. Graves By: /s/ Garrett R. Hegel
-------------------------------- ---------------------------------
Its: Assistant Secretary Its: Chief Financial Officer
ATTEST: SOUTHWEST BANKERS, INC.
By: /s/ Steven Q. Lee By: /s/ Stephen M. Dufilho
-------------------------------- ---------------------------------
Its: Secretary Its: Chairman of the Board, Chief
Executive Officer & President
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<PAGE>
THIRD AMENDMENT TO THE AGREEMENT AND PLAN OF REORGANIZATION BY AND BETWEEN
COMPASS BANCSHARES, INC., AND SOUTHWEST BANKERS, INC.
This Third Amendment to the Agreement and Plan of Reorganization by and
between Compass Bancshares, Inc., and Southwest Bankers, Inc., dated June 16,
1994 (the "Agreement"), is entered into as of December 30, 1994 (the "Third
Amendment"), by and between Compass Bancshares, Inc., a Delaware corporation
("Compass"), and Southwest Bankers, Inc., a Texas corporation (the "Company").
WHEREAS, Compass and Southwest each desires that the Agreement be amended to
provide for an extension of the time by which the condition set forth in
Section 7.2(t) of the Agreement, as amended in the Second Amendment, dated as
of October 5, 1994, to the Agreement, must be satisfied;
NOW, THEREFORE, in consideration of the premises and the agreements set forth
herein and in the Agreement and for 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:
1. Section 7.2(t). Conditions to the Obligations of Compass to Effect the
Merger. Section 7.2(t) of the Agreement is hereby amended in its entirety to
provide as follows:
(t) if the Bank's commercial loan account number 26625 shall not have
been paid off in full prior to the Effective Time, such loan shall have
been sold prior to the Effective Time to an entity to be owned by the
Shareholders of the Company, for a net sales price of not less than the
March 31, 1994, book value of such loan, as reflected on the Bank's
financial statements, plus accrued and unpaid interest, unless a sale to
such entity to be owned by the Shareholders of the Company would cause the
Merger not to be eligible for pooling-of-interests accounting treatment, in
which case this condition 7.2(t) shall be deemed waived.
2. Except as provided herein, the terms of the Agreement shall remain in full
force and effect.
3. This Third Amendment may be executed by the parties hereto in several
counterparts and all such counterparts, when so executed and delivered shall
constitute but one and the same agreement.
IN WITNESS WHEREOF, the parties have executed this Third Amendment as of the
date first above written.
ATTEST: COMPASS BANCSHARES, INC.
By: /s/ Daniel B. Graves By: /s/ Jerry W. Powell
-------------------------------- ---------------------------------
Its: Assistant Secretary Its: General Counsel and Secretary
ATTEST: SOUTHWEST BANKERS, INC.
By: /s/ J. Bruce Bugg, Jr. By: /s/ Stephen M. Dufilho
-------------------------------- ---------------------------------
Its: Assistant Secretary Its: Chairman
A-35
<PAGE>
APPENDIX II
DISSENTERS' RIGHTS OF APPRAISAL
<PAGE>
APPENDIX II
PROVISIONS OF THE TEXAS BUSINESS CORPORATION ACT
RELATING TO
RIGHTS OF DISSENTING STOCKHOLDERS
(ARTICLES 5.11 - 5.13)
ARTICLE 5.11. RIGHTS OF DISSENTING SHAREHOLDERS IN THE EVENT OF CERTAIN
CORPORATE ACTIONS
A. Any shareholder of a domestic corporation shall have the right to dissent
from any of the following corporate actions:
(1) Any plan of merger to which the corporation is party if shareholder
approval is required by Article 5.03 or 5.16 of this Act and the
shareholder holds shares of a class or series that was entitled to vote
thereon as a class or otherwise;
(2) Any sale, lease, exchange or other disposition (not including any
pledge, mortgage, deed of trust or trust indenture unless otherwise
provided in the articles of incorporation) of all, or substantially all,
the property and assets, with or without good will, of a corporation
requiring the special authorization of the shareholders as provided by this
Act;
(3) Any plan of exchange pursuant to Article 5.02 of this Act in which
the shares of the corporation of the class or series held be the
shareholder are to be acquired.
B. Notwithstanding the provisions of Section A of this Article, a
shareholder shall not have the right to dissent from any plan of merger in
which there is a single surviving or new domestic or foreign corporation, or
from any plan of exchange, if (1) the shares held by the shareholder are part
of a class shares of which are listed on a national securities exchange, or
are held of record by not less than 2,000 holders, on the record date fixed to
determine the shareholders entitled to vote on the plan of merger or the plan
of exchange, and (2) the shareholder is not required by the terms of the plan
of merge or the plan of exchange to accept for his shares any consideration
other than (a) shares of corporation that, immediately after the effective
time of the merger or exchange, will be part of a class or series of shares of
which are (i) listed, or authorized for listing upon official notice of
issuance, on a national securities exchange, or (ii) held of record by not
less than 2,000 holders, and (b) cash is lieu of fractional shares otherwise
entitled to be received.
ARTICLE 5.12. PROCEDURE FOR DISSENT BY SHAREHOLDERS AS TO SAID CORPORATE
ACTIONS
A. Any shareholder of any domestic corporation who has the right to dissent
from any of the corporate actions referred to in Article 5.11 of this Act may
exercise that right to dissent only by complying with the following
procedures:
(1)(a) With respect to proposed corporate action that is submitted to a
vote of shareholders at a meeting, the shareholder shall file with the
corporation, prior to the meeting, a written objection to the action,
setting out that the shareholder's right to dissent will be exercised if
the action is effective and giving the shareholder's address, to which
notice thereof shall be delivered or mailed in that event. If the action is
effected and the shareholder shall not have voted in favor of the action,
the corporation, in the case of action other than a merger, or the
surviving or new corporation (foreign or domestic) or other entity that is
liable to discharge the shareholder's right of dissent, in the case of a
merger, shall, within ten (10) days after the action is effected, deliver
or mail to the shareholder written notice that the action has been
effected, and the shareholder may, within ten (10) days from the delivery
or mailing of the notice, make written demand on the existing, surviving,
or new corporation (foreign or domestic) or other entity, as the case may
be, for payment of the fair value of the shareholder's shares. The fair
value of the shares shall be the value thereof as of the day immediately
preceding the meeting, excluding any appreciation or depreciation in
anticipation of the proposed action. The demand shall state the number and
class of the shares owned by the shareholder and the fair value of the
shares as estimated by the shareholder. Any shareholder failing to make
demand within the ten (10) day period shall be bound by the action.
1
<PAGE>
(b) With respect to proposed corporate action that is approved pursuant
to Section A of Article 9.10 of this Act, the corporation, in the case of
action other than a merger, and the surviving or new corporation (foreign
or domestic) or other entity that is liable to discharge the shareholder's
right of dissent, in the case of a merger, shall, within ten (10) days
after the date the action is effected, mail to each shareholder of record
as of the effective date of the action notice of the fact and date of the
action and that the shareholder may exercise the shareholder's right to
dissent from the action. The notice shall be accompanied by a copy of this
Article and any articles or documents filed by the corporation with the
Secretary of State to effect the action. If the shareholder shall not have
consented to the taking of the action, the shareholder may, within twenty
(20) days after the mailing of the notice, make written demand on the
existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, for payment of the fair value of the
shareholder's shares. The fair value of the shares shall be the value
thereof as of the date the written consent authorizing the action was
delivered to the corporation pursuant to Section A of Article 9.10 of this
Act, excluding any appreciation or depreciation in anticipation of the
action. The demand shall state the number and class of shares owned by the
dissenting shareholder and the fair value of the shares as estimated by the
shareholder. Any shareholder failing to make demand within the twenty (20)
day period shall be bound by the action.
(2) Within twenty (20) days after receipt by the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be,
of a demand for payment made by a dissenting shareholder in accordance with
Subsection (1) of this Section, the corporation (foreign or domestic) or
other entity shall deliver or mail to the shareholder a written notice that
shall either set out that the corporation (foreign or domestic) or other
entity accepts the amount claimed in the demand and agrees to pay that
amount within ninety (90) days after the date on which the action was
effected, and, in the case of shares represented by certificates, upon the
surrender of the certificates duly endorsed, or shall contain an estimate
by the corporation (foreign or domestic) or other entity of the fair value
of the shares, together with an offer to pay the amount of that estimate
within ninety (90) days after the date on which the action was effected,
upon receipt of notice within sixty (60) days after that date from the
shareholder that the shareholder agrees to accept that amount and, in the
case of shares represented by Certificates, upon the surrender of the
certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the corporate
action was effected, the value of the shares is agreed upon between the
shareholder and the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, payment for the shares shall
be made within ninety (90) days after the date on which the action was
effected and, in the case of shares represented by certificates, upon
surrender of the certificates duly endorsed. Upon payment of the agreed
value, the shareholder shall cease to have any interest in the shares or in
the corporation.
B. If, within the period of sixty (60) days after the date on which the
corporate action was effected, the shareholder and the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, do
not so agree, then the shareholder or the corporation (foreign or domestic) or
other entity may, within sixty (60) days after the expiration of the sixty (60)
day period, file a petition in any court of competent jurisdiction in the
county in which the principal office of the domestic corporation is located,
asking for a finding and determination of the fair value of the shareholder's
shares. Upon the filing of any such petition by the shareholder, service of a
copy thereof shall be made upon the corporation (foreign or domestic) or other
entity, which shall, within ten (10) days after service, file in the office of
the clerk of the court in which the petition was filed a list containing the
names and addresses of all shareholders of the domestic corporation who have
demanded payment for their shares and with whom agreements as to the value of
their shares have not been reached by the corporation (foreign or domestic) or
other entity. If the petition shall be filed by the corporation (foreign or
domestic) or other entity, the petition shall be accompanied by such a list.
The clerk of the court shall give notice of the time and place fixed for the
hearing of the petition by registered mail to the corporation (foreign or
domestic) or other entity and to the shareholders named on the list at the
addresses therein stated. The forms of the notices by mail shall be approved by
the court. All shareholders thus notified and the corporation (foreign or
domestic) or other entity shall thereafter be bound by the final judgment of
the court.
2
<PAGE>
C. After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
appoint one or more qualified appraisers to determine that value. The
appraisers shall have power to examine any of the books and records of the
corporation the shares of which they are charged with the duty of valuing, and
they shall make a determination of the fair value of the shares upon such
investigation as to them may seem proper. The appraisers shall also afford a
reasonable opportunity to the parties interested to submit to them pertinent
evidence as to the value of the shares. The appraisers shall also have such
power and authority as may be conferred on Masters in Chancery by the Rules of
Civil Procedure or by the order of their appointment.
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
judgment determine the fair value of the shares of the shareholders entitled to
payment for their shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic) or other entity,
together with interest thereon, beginning 91 days after the date on which the
applicable corporate action from which the shareholder elected to dissented was
effected to the date of such judgment, to the shareholders entitled to payment.
The judgment shall be payable to the holders of uncertificated shares
immediately but to the holders of shares represented by certificates only upon,
and simultaneously with, the surrender to the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, of duly
endorsed certificates for those shares. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in those shares or in
the corporation. The court shall allow the appraisers a reasonable fee as court
costs, and all court costs, shall be allotted between the parties in the manner
that the court determines to be fair and equitable.
E. Shares acquired by the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, pursuant to the payment of the
agreed value of the shares or pursuant to payment of the judgment entered for
the value of the shares, as in this Article provided, shall, in the case of a
merger, be treated as provided in the plan of merger and, in all other cases,
may be held and disposed of by the corporation as in the case of other treasury
shares.
F. The provisions of this Article shall not apply to a merger if, on the date
of the filing of the articles of merger, the surviving corporation is the owner
of all the outstanding shares of the other corporations, domestic or foreign,
that are parties to the merger.
G. In the absence of fraud in the transaction, the remedy provided by this
Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the value
of his shares or money damages to the shareholder with respect to the action.
If the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, complies with the requirements of this Article, any
shareholder who fails to comply with the requirements of this Article shall not
be entitled to bring suit for the recovery of the value of his shares or money
damages to the shareholder with respect to the action.
ARTICLE 5.13. PROVISIONS AFFECTING REMEDIES OF DISSENTING SHAREHOLDERS
A. Any shareholder who has demanded payment for his shares in accordance with
either Article 5.12 or 5.16 of this Act shall not thereafter be entitled to
vote or exercise any other rights of a shareholder except the right to receive
payment for his shares pursuant to the provisions of said those articles and
the right to maintain an appropriate action to obtain relief on the ground that
the corporate action would be or was fraudulent, and the respective shares for
which payment has been demanded shall not thereafter be considered outstanding
for the purposes of any subsequent vote of shareholders.
3
<PAGE>
B. Upon receiving a demand for payment from any dissenting shareholder, the
corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholder's rights under Articles
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made shall be transferred, any new certificate issued
therefor shall bear similar notation together with the name of the original
dissenting holder of such shares and a transferee of such shares shall acquire
by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making demand for payment of the fair
value thereof.
C. Any shareholder who has demanded payment for his shares in accordance with
either Article 5.12 or 5.16 of this Act may withdraw such demand at any time
before payment for his shares or before any petition has been filed pursuant to
Article 5.12 or 5.16 of this Act asking for a finding and determination of the
fair value of such shares, but no such demand may be withdrawn after such
payment has been made or, unless the corporation shall consent thereto, after
any such petition has been filed. If, however, such demand shall be withdrawn
as hereinbefore provided, or if pursuant to Section B of this Article the
corporation shall terminate the shareholder's rights under Article 5.12 or 5.16
of this Act, as the case may be, or if no petition asking for a finding and
determination of fair value of such shares by a court shall have been filed
within the time provided in Article 5.12 or 5.16 of this Act, as the case may
be, or if after the hearing of a petition filed pursuant to Article 5.12, the
court shall determine that such shareholder is not entitled to the relief
provided by these articles, then, in any such case, such shareholder and all
persons claiming under him shall be conclusively presumed to have approved and
ratified the corporate action from which he dissented and shall be bound
thereby, the right of such shareholder to be paid the fair value of his shares
shall cease, and his status as a shareholder shall be restored without
prejudice to any corporate proceedings which may have been taken during the
interim, and such shareholder shall be entitled to receive any dividends or
other distributions made to shareholders in the interim.
4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20: INDEMNIFICATION OF DIRECTORS AND OFFICERS.
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, upon
receipt of any undertaking by or on behalf of the director, 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
directors as a 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).
COMPASS HAS ENTERED INTO A DIRECTORS AND OFFICERS INDEMNITY TRUST WITH
WILMINGTON TRUST COMPANY, A CORPORATION LICENSED TO ACT AS A TRUST COMPANY IN
THE STATE OF DELAWARE, PURSUANT TO WHICH COMPASS HAS ESTABLISHED A TRUST TO
PROVIDE RESOURCES FOR INDEMNIFICATION FROM CLAIMS AND FOR MANDATORY
REIMBURSEMENT AND ADVANCEMENT OF EXPENSES IN ACCORDANCE WITH COMPASS' BY-LAWS
AND TO THE FULL EXTENT PERMITTED BY DELAWARE CORPORATE LAW.
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 an
employee benefit plan'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 POST-EFFECTIVE AMENDMENT NO. 1 TO THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF BIRMINGHAM, STATE OF ALABAMA, ON FEBRUARY 3, 1995.
Compass Bancshares, Inc.
By: /s/ D. Paul Jones, Jr.
---------------------------------
D. PAUL JONES, JR. CHAIRMAN, CHIEF
EXECUTIVE OFFICER AND TREASURER
POWER OF ATTORNEY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS POST-
EFFECTIVE AMENDMENT NO. 1 TO THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
* Director, Chairman, February 3, 1995
- ------------------------------------- Chief Executive
D. PAUL JONES, JR. Officer and
Treasurer
* Chief Financial February 3, 1995
- ------------------------------------- Officer
GARRETT R. HEGEL
* Chief Accounting February 3, 1995
- ------------------------------------- Officer
MICHAEL A. BEAN
* Director February 3, 1995
- -------------------------------------
HARRY B. BROCK, JR.
* Director February 3, 1995
- -------------------------------------
STANLEY M. BROCK
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
* Director February 3, 1995
- -------------------------------------
CHARLES W. DANIEL
* Director February 3, 1995
- -------------------------------------
W. EUGENE DAVENPORT
* Director February 3, 1995
- -------------------------------------
GARRY NEIL DRUMMOND, SR.
Director February , 1995
- -------------------------------------
MARSHALL DURBIN, JR.
* Director February 3, 1995
- -------------------------------------
TRANUM FITZPATRICK
Director
- ------------------------------------- February , 1995
G. W. "RED" LEACH, JR.
* Director February 3, 1995
- -------------------------------------
GOODWIN L. MYRICK
* Director February 3, 1995
- -------------------------------------
JOHN S. STEIN
*By /s/ Daniel B. Graves
- -------------------------------------
DANIEL B. GRAVES, ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBER NUMBERED PAGE
-------------- -------------
<C> <S> <C>
*2.1 Agreement and Plan of Merger by and between
Compass Bancshares, Inc., and Southwest
Bankers, Inc., dated as of June 16, 1994
(included as Appendix I to the Proxy
Statement/Prospectus in Part I of this
Registration Statement)
*3.1 Restated Certificate of Incorporation of
Compass Bancshares, Inc., dated May 17, 1982
(filed with the December 31, 1982 Form 10-K of
Compass Bancshares, Inc. and incorporated
herein by reference) (File No. 0-6032)
*3.2 Certificate of Amendment, dated May 20, 1986,
to Restated Certificate of Incorporation of
Compass Bancshares, Inc. (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)
*3.3 Certificate of Amendment, dated May 15, 1987,
to Restated Certificate of Incorporation of
Compass Bancshares, Inc. (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)
*3.4 Certificate of Amendment, dated November 8,
1993, to the Restated Certificate of
Incorporation of Compass Bancshares, Inc.
(filed as Exhibit 3(d) to Registration
Statement on Form S-4, Registration No. 33-
51919, and incorporated herein by reference)
(File No. 0-6032)
3.5(1) Certificate of Amendment, dated September 19,
1994, to the Restated Certificate of
Incorporation of Compass Bancshares, Inc.
*3.6 Bylaws of Compass Bancshares, Inc. (Amended and
Restated as of March 15, 1982) (filed with the
December 31, 1982 Form 10-K of Compass
Bancshares, Inc. and incorporated herein by
reference) (File No.
0-6032)
5.1(1) Opinion and consent of Jerry W. Powell,
Esquire, as to the legality of the securities
being registered
8.1(1) Opinion and consent of Liddell, Sapp, Zivley,
Hill & LaBoon, L.L.P., regarding tax matters
*10.1 Compass Bancshares, Inc. 1989 Long Term
Incentive Plan (filed as Exhibit 28 to
Registration Statement on Form S-8,
Registration No. 39095, and incorporated
herein by reference) (File No. 0-6032)
*10.2 Supplemental Retirement Agreement dated as of
March 18, 1991, between Compass Bank and Harry
B. Brock, Jr. (filed as Exhibit 10 to the
December 31, 1991 Form 10-K of Central
Bancshares of the South, Inc. and incorporated
herein by reference.) (File No. 0-6032)
*13.1 Compass Bancshares, Inc. Annual Report to
Shareholders and Annual Report on Form 10-K
for the fiscal year ended December 31, 1993
(File No. 0-6032)
*13.2 Compass Bancshares, Inc. Quarterly Report on
Form 10-Q for the quarter ended March 31, 1993
(File No. 0-6032)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBER NUMBERED PAGE
-------------- -------------
<C> <S> <C>
*13.3 Compass Bancshares, Inc., quarterly report on
Form 10-Q for the quarter ended June 30, 1994
(File No. 0-6032)
22.1(1) List of subsidiaries of Compass Bancshares,
Inc.
23.1 Consent of KPMG Peat Marwick, LLP
23.2 Consent of Ernst & Young LLP
23.3(1) Consent of Jerry W. Powell, Esquire (included
in the opinion in Exhibit 5.1)
23.4(1) Consent of Liddell, Sapp, Zivley, Hill &
LaBoon, L.L.P. (included in the opinion in
Exhibit 8.1)
99.1(1) Form of Proxy
99.2(1) Form of Pooling Transfer Restrictions Agreement
99.3(1) Form of Voting Agreement and Irrevocable Proxy
</TABLE>
- --------
*Incorporated by reference
(1)Previously filed
II-6
<PAGE>
Consent of Independent Certified Public Accountants
The Board of Directors
Compass Bancshares, Inc.
We consent to the use of our reports incorporated herein by reference. Our
report refers to changes in the method of accounting for income taxes and in the
method of accounting for certain investments in debt and equity securities.
KPMG Peat Marwick LLP
Birmingham, Alabama
February 2, 1995
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 9, 1994, with respect to the consolidated
financial statements of Southwest Bankers, Inc. and Subsidiaries included in the
Post-Effective Amendment No.1 to the Proxy Statement filed by Compass
Bancshares, Inc. which is made a part of the Registration Statement (Form S-4)
and Prospectus of Compass Bancshares, Inc. for the registration of 950,000
shares of its $2.00 common stock.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
San Antonio, Texas
January 31, 1995
