<PAGE>
Filed Pursuant to Rule 424(b)(5)
Registration No. 333-07897
[Texas American Bank Letterhead]
July 19, 1996
Dear Shareholders:
A special meeting of shareholders (the "Meeting") of Texas American Bank
("Texas American") will be held at 12590 Bandera Road, Helotes, Texas, on
Tuesday, August 20, 1996, at 2:00 p.m., Central time. At the Meeting, Texas
American's shareholders will consider and vote to approve, ratify, confirm and
adopt (i) an Agreement and Plan of Merger pursuant to which it is proposed that
Compass Texas American, Inc. ("Compass Texas"), a Texas corporation and a
wholly-owned subsidiary of Compass Bancshares, Inc. ("Compass"), formed for the
purpose of accomplishing the proposed transaction, will merge (the "Merger")
with and into Texas American and (ii) a Merger Agreement pursuant to which it is
proposed that Texas American will merge (the "Bank Merger") with and into
Compass Bank, a Texas state bank and an indirect wholly owned subsidiary of
Compass. 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 Bank Merger
and provides other information concerning Texas American, Compass Texas and
Compass. We urge you to read these materials carefully.
Your Board of Directors believes that the affiliation of Texas American
with Compass through the Merger and Bank Merger will enable Texas American to
serve its customers and communities better and to compete more effectively with
other financial institutions. After the Merger, Texas American's shareholders
will own publicly traded stock in a much larger, more diversified financial
institution with a history of paying dividends on its common stock.
For the Merger and the Bank Merger to become effective, among other
conditions described in the Proxy Statement/Prospectus, the holders of at least
two-thirds of the outstanding shares of Texas American's common stock must vote
in favor of the Merger and the Bank Merger. THE BOARD OF DIRECTORS OF TEXAS
AMERICAN RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER AND THE BANK 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 AND THE BANK 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
the undersigned or Carlin R. Friar at (210) 695-4000.
Very truly yours,
/s/ Richard E. Lane
---------------------
Chairman of the Board
<PAGE>
TEXAS AMERICAN BANK
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
Notice is hereby given that a Special Meeting of Shareholders ("Meeting")
of Texas American Bank ("Texas American") will be held at 12590 Bandera Road,
Helotes, Texas, on Tuesday, August 20, 1996, at 2:00 p.m., Central time, for the
following purposes:
1. To approve, ratify, confirm and adopt an Agreement and Plan of Merger
dated as of March 13, 1996 ("Merger Agreement"), as amended, providing for the
merger ("Merger") of Compass Texas American, Inc., a Texas corporation and a
wholly-owned subsidiary of Compass Bancshares, Inc., with and into Texas
American. The terms of the Merger Agreement are described in the attached Proxy
Statement/Prospectus, which the Board of Directors of Texas American encourages
each Shareholder to review carefully;
2. To approve, ratify, confirm and adopt a Plan of Merger and
Reorganization dated as of May 31, 1996 ("Bank Merger Agreement"), as amended,
providing for the merger ("Bank Merger") of Texas American with and into Compass
Bank (formerly known as Compass Bank-Houston), a Texas bank and an indirect
wholly-owned subsidiary of Compass Bancshares, Inc.; and
3. To consider and transact such other business as may properly come
before the Meeting or any adjournments thereof.
The Board of Directors of Texas American has fixed July 12, 1996 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 Texas American's common stock of record at the close of business on July 12,
1996, 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 AND THE BANK MERGER. EVEN IF
YOU PLAN TO ATTEND THE MEETING, AND CERTAINLY IF YOU DO NOT, PLEASE COMPLETE,
SIGN AND MAIL THE ENCLOSED PROXY IN THE ENCLOSED RETURN ENVELOPE PROMPTLY. SUCH
PROXY CAN BE REVOKED AT ANY TIME PRIOR TO ITS EXERCISE BY FILING A DULY EXECUTED
PROXY BEARING A LATER DATE, BY FILING A WRITTEN NOTICE OF REVOCATION, OR BY
APPEARING IN PERSON AT THE MEETING AND VOTING BY WRITTEN BALLOT.
By Order of the Board of Directors
of Texas American Bank
/s/ Richard E. Lane
---------------------
Chairman of the Board
Helotes, Texas
July 19, 1996
<PAGE>
TEXAS AMERICAN BANK COMPASS BANCSHARES, INC.
PROXY STATEMENT/PROSPECTUS
Compass Bancshares, Inc., a Delaware corporation ("Compass"), has filed this
Proxy Statement/Prospectus with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), with respect to 325,000 shares of Compass $2.00 par value
common stock ("Compass Common Stock") to be issued in the proposed merger (the
"Merger") of Compass Texas American, Inc. ("Compass Texas"), a Texas corporation
and wholly-owned subsidiary of Compass, with and into Texas American Bank, a
Texas state bank ("Texas American"). Compass and Texas American presently intend
that immediately following the Merger, Texas American will be merged (the "Bank
Merger") with and into Compass Bank, a Texas state bank and an indirect wholly-
owned subsidiary of Compass formerly known as Compass Bank-Houston ("Compass
Bank-Houston"), with Compass Bank-Houston being the surviving entity.
This Proxy/Statement Prospectus constitutes the proxy statement of Texas
American relating to the solicitation of proxies for use at the special meeting
of shareholders of Texas American (the "Meeting") scheduled to be held on
Tuesday, August 20, 1996 at 2:00 p.m., Central time, at 12590 Bandera Road in
Helotes, Texas, and any adjournments thereof. At the Meeting, the shareholders
of Texas American will consider and vote upon a proposal to approve, ratify,
confirm and adopt (i) the Agreement and Plan of Merger dated as of March 13,
1996, by and between Compass and Texas American (the "Merger Agreement")
providing for, among other things, the merger of Compass Texas with and into
Texas American and, in connection therewith, the receipt by Texas American
shareholders of Compass Common Stock and (ii) the Plan of Merger and
Reorganization dated as of May 31, 1996, by and between Texas American and
Compass Bank-Houston (the "Bank Merger Agreement"), providing for the merger of
Texas American with and into Compass Bank-Houston. Approval of the Bank Merger
is not a condition to consummation of the Merger. The failure to approve the
Bank Merger will not affect the consideration to be received by the Texas
American shareholders in the Merger or the timing of the consummation of the
Merger. The shareholders of Texas American are being requested to approve the
Bank Merger to expedite the completion of the Bank Merger so that it may be
consummated immediately after the consummation of the Merger.
The Merger Agreement provides for the holders of Texas American common stock,
par value $5.00 per share ("Texas American Common Stock"), at the effective time
of the Merger (the "Effective Time"), other than dissenting shareholders, to
receive aggregate merger consideration ("Merger Consideration") of 325,000
shares of Compass Common Stock (as adjusted due to the exercise of dissenter's
rights). Holders of Texas American Common Stock shall receive for each share of
Texas American Common Stock held at the Effective Time a number of shares of
Compass Common Stock equal to (i) 325,000 shares of Compass Common Stock to be
issued to the holders of Texas American Common Stock divided by (ii) the number
of shares of Texas American Common Stock outstanding immediately prior to the
Effective Time (the "Per Share Merger Consideration"). In the event the average
closing sale price of the Compass Common Stock as reported by the NASDAQ
National Market System for the 20 days of trading preceding the tenth business
day prior to the first business day following the last received regulatory
approval from the Federal Deposit Insurance Corporation (the "FDIC") and the
Board of Governors of the Federal Reserve System (the "Federal Reserve") and the
expiration of any applicable waiting period with respect thereto (the "Share
Determination Market Value") is less than $29.00 per share, Texas American may
either (i) terminate the Merger Agreement, or (ii) agree to accept an aggregate
of 325,000 shares of Compass Common Stock. In the event Texas American exercises
its option to terminate the Merger Agreement, Compass shall have the right to
reject such termination by agreeing to issue a number of shares of Compass
Common Stock equal to (i) the quotient of (a) 325,000 times the Share
Determination Market Value, plus $10,400,000, divided by (b) 2; and further
divided by (ii) the Share Determination Market Value. Any decision by the Board
of Directors of Texas American regarding whether to terminate the Merger
Agreement will be made in its sole discretion and could result in either (i)
Texas American shareholders receiving Merger Consideration with an aggregate
market value of less than $9,425,000, (ii) the termination of the Merger
Agreement, or (iii) Compass agreeing to increase the number of shares of Compass
Common Stock constituting the Merger Consideration. If the Board of Directors of
Texas American elects to terminate the Merger Agreement, there can be no
assurance that Compass will agree to increase the number of shares of Compass
Common Stock and that the Merger Agreement will not terminate, in which event
the Texas American shareholders would not receive any Merger Consideration but
would retain their Texas American Common Stock.
<PAGE>
On July 12, 1996, there were 206,020 shares of Texas American Common Stock
issued and outstanding.
Assuming that (i) there will be 206,020 shares of Texas American Common Stock
issued and outstanding immediately prior to the Effective Time, and (ii) the
Share Determination Market Value will be $32.95 (the average closing sale
price of the Compass Common Stock as reported by the NASDAQ National Market
System for the 20 days of trading preceding July 16, 1996), Compass will be
required to issue an aggregate of 325,000 shares of Compass Common Stock to the
Texas American shareholders and each shareholder of Texas American (except for
shareholders choosing to exercise their dissenters' rights) will be entitled to
receive approximately 1.5775 shares of Compass Common Stock for each share of
Texas American Common Stock held.
Notwithstanding the foregoing, the Merger Consideration will be reduced by
the number of shares that would otherwise be issued to dissenting shareholders.
Compass will not issue fractional shares of Compass Common Stock, but instead
will pay cash to any shareholder otherwise entitled to receive a fractional
share. Such cash payment shall be based on the Per Share Merger Consideration.
SEE "SUMMARY--THE MERGER"; "SUMMARY--DISSENTERS' RIGHTS"; "THE MERGER--
GENERAL"; "THE MERGER--DISSENTERS' RIGHTS"; APPENDIX I; AND APPENDIX II.
Consummation of the Merger and the Bank Merger is subject to the receipt of
required governmental approvals, the approval of the holders of two-thirds of
the outstanding Texas American Common Stock and certain other conditions, all as
more fully described in this Proxy Statement/Prospectus. SEE "SUMMARY--
SHAREHOLDER VOTES REQUIRED; CONDITIONS TO CONSUMMATION AND REGULATORY APPROVALS;
TERMINATION"; "THE MERGER--OTHER TERMS AND CONDITIONS"; AND APPENDIX I.
This Proxy Statement/Prospectus also constitutes the prospectus of Compass
with respect to the shares of Compass Common Stock to be issued to the holders
of Texas American Common Stock in the Merger; however, it does not cover resales
of shares of Compass Common Stock upon consummation of the proposed
reorganization, and no person is authorized to use this Proxy
Statement/Prospectus in connection with any such resale. SEE "RESALE OF COMPASS
STOCK".
This Proxy Statement/Prospectus is first being mailed or delivered to Texas
American shareholders on or about July 19, 1996.
Compass Common Stock is publicly traded in the over-the-counter market and
quoted on the NASDAQ National Market System. On July 16, 1996, the last reported
sale price per share of Compass Common Stock was $31.50. No active public
trading market exists for the Texas American Common Stock.
THE SECURITIES OF COMPASS BANCSHARES, INC. OFFERED IN CONNECTION WITH THE
MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
All information concerning Compass and Compass Texas has been furnished by
Compass, and all information regarding Texas American has been furnished by
Texas American.
TEXAS AMERICAN SHAREHOLDERS ARE URGED TO REVIEW AND CAREFULLY
CONSIDER THE RISKS DESCRIBED UNDER "RISK FACTORS".
The date of this Proxy Statement/Prospectus is July 19, 1996.
<PAGE>
PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
AVAILABLE INFORMATION.............................................................. 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.................................... 1
INTRODUCTION....................................................................... 3
PARTIES TO THE MERGER.......................................................... 5
THE MERGER..................................................................... 6
REASONS FOR THE MERGER; RECOMMENDATION OF BOARDS OF DIRECTORS.................. 8
RECORD DATE.................................................................... 8
SHAREHOLDER VOTES REQUIRED..................................................... 9
DISSENTERS' RIGHTS............................................................. 9
CONDITIONS TO CONSUMMATION AND REGULATORY APPROVALS; TERMINATION............... 9
ACCOUNTING TREATMENT........................................................... 10
RISK FACTORS....................................................................... 11
RECENT DEVELOPMENTS................................................................ 12
SELECTED FINANCIAL DATA............................................................ 13
MARKET PRICES...................................................................... 15
THE MERGER......................................................................... 16
GENERAL........................................................................ 16
BACKGROUND AND REASONS FOR THE MERGER.......................................... 17
OTHER TERMS AND CONDITIONS..................................................... 18
FEDERAL INCOME TAX CONSEQUENCES................................................ 24
GOVERNMENT APPROVALS........................................................... 25
ACCOUNTING TREATMENT........................................................... 25
SUPERVISION AND REGULATION......................................................... 26
GENERAL........................................................................ 26
COMPASS, COMPASS OF TEXAS AND COMPASS BANCORPORATION........................... 26
THE SUBSIDIARY BANKS........................................................... 28
OTHER.......................................................................... 29
DESCRIPTION OF COMPASS COMMON AND PREFERRED STOCK.................................. 30
COMPASS COMMON STOCK........................................................... 30
DIVIDENDS...................................................................... 30
PREEMPTIVE RIGHTS.............................................................. 31
VOTING RIGHTS.................................................................. 31
LIQUIDATION.................................................................... 31
COMPASS PREFERRED STOCK........................................................ 31
COMPARISON OF RIGHTS OF SHAREHOLDERS OF TEXAS AMERICAN AND COMPASS................. 32
CHARTER AND BY-LAW PROVISIONS AFFECTING COMPASS STOCK.......................... 32
CERTAIN DIFFERENCES BETWEEN THE BANKING LAWS OF TEXAS AND THE CORPORATION
LAWS OF DELAWARE AND CORRESPONDING CHARTER AND BYLAW PROVISIONS............. 32
MERGERS........................................................................ 32
APPRAISAL RIGHTS............................................................... 33
SPECIAL MEETINGS............................................................... 33
ACTIONS WITHOUT A MEETING...................................................... 34
ELECTION OF DIRECTORS.......................................................... 34
VOTING ON OTHER MATTERS........................................................ 34
PREEMPTIVE RIGHTS.............................................................. 35
DIVIDENDS...................................................................... 35
LIQUIDATION RIGHTS............................................................. 35
LIMITATION OF LIABILITY AND INDEMNIFICATION.................................... 36
REMOVAL OF DIRECTORS........................................................... 37
INSPECTION OF BOOKS AND RECORDS................................................ 37
ANTITAKEOVER PROVISIONS........................................................ 37
RESALE OF COMPASS STOCK............................................................ 37
INFORMATION ABOUT COMPASS.......................................................... 38
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE................................ 38
INTERESTS OF CERTAIN PERSONS................................................... 38
INFORMATION ABOUT TEXAS AMERICAN................................................... 38
SERVICES, EMPLOYEES AND PROPERTIES............................................. 38
COMPETITION.................................................................... 38
LEGAL PROCEEDINGS.............................................................. 39
MARKET PRICE AND DIVIDENDS..................................................... 39
BENEFICIAL OWNERSHIP OF TEXAS AMERICAN COMMON STOCK BY TEXAS AMERICAN
MANAGEMENT AND PRINCIPAL SHAREHOLDERS....................................... 39
CERTAIN TRANSACTIONS BETWEEN CERTAIN TEXAS AMERICAN SHAREHOLDERS AND
RICHARD E. LANE............................................................. 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF TEXAS AMERICAN BANK.............................................. 42
GENERAL........................................................................ 42
PROVISION FOR LOAN LOSSES...................................................... 47
NON-INTEREST INCOME............................................................ 47
NON-INTEREST EXPENSE........................................................... 47
FEDERAL INCOME TAXES........................................................... 48
CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL CONDITION........................... 48
CAPITAL RESOURCES.............................................................. 48
LIQUIDITY...................................................................... 49
INTEREST RATE SENSITIVITY...................................................... 50
INVESTMENT SECURITIES.......................................................... 52
DEPOSITS....................................................................... 53
LOANS.......................................................................... 54
ALLOWANCE FOR LOAN LOSSES AND RISK ELEMENTS.................................... 54
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS.................................... 56
RETURN ON EQUITY AND ASSETS.................................................... 57
RELATIONSHIPS WITH INDEPENDENT ACCOUNTANTS......................................... 57
EXPERTS............................................................................ 57
LEGAL OPINIONS..................................................................... 57
INDEMNIFICATION.................................................................... 58
OTHER MATTERS...................................................................... 58
</TABLE>
<PAGE>
AVAILABLE INFORMATION
Compass has filed with the Commission a Registration Statement on Form S-4
(the "Registration Statement") under the Securities Act for the registration of
the Compass Common Stock proposed to be issued and exchanged in the Merger. This
Proxy Statement/Prospectus was filed as a part of the Registration Statement.
This Proxy Statement/Prospectus does not contain all of the information set
forth in the Registration Statement, as certain parts are permitted to be
omitted by the rules and regulations of the Commission. For further information
pertaining to Compass, the Compass Common Stock, and related matters, reference
is made to the Registration Statement, including the exhibits filed as a part
thereof, which may be inspected at, and copies of which may be obtained by mail
from, the Public Reference Branch of the Commission referred to below.
Compass is subject to the information requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, accordingly, files reports,
proxy statements and other information with the Commission. Such reports, proxy
statements and other information can be inspected and copied at the Commission's
public reference rooms located at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and the public reference facilities in the New York Regional Office,
13th Floor, Seven World Trade Center, New York, New York 10048, and the Chicago
Regional Office, Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60621-2511. Copies of such materials can be obtained at
prescribed rates by writing to the Securities and Exchange Commission, Public
Reference Branch, 450 Fifth Street, N.W., Washington, D.C. 20549.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE
NOT INCLUDED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS CONCERNING COMPASS
(OTHER THAN CERTAIN EXHIBITS TO SUCH DOCUMENTS) ARE AVAILABLE TO EACH BENEFICIAL
OWNER OF TEXAS AMERICAN COMMON STOCK, WITHOUT CHARGE AND, 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 AUGUST 10, 1996.
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,
1995 (File No. 0-6032);
(ii) Compass' Proxy Statement dated March 6, 1996, relating to its annual
meeting of shareholders held on April 9, 1996 (File No. 0-6032);
(iii) Compass' Quarterly Report on Form 10-Q for the quarter ended March 31,
1996 (File No. 0-6032);
(iv) 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 are incorporated herein by reference, and shall be deemed a part hereof
from the date of filing of such documents.
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Any statement contained in a document incorporated or deemed to be
incorporated by reference herein, or contained in this Proxy
Statement/Prospectus, shall be deemed to be modified or superseded for purposes
of this Proxy Statement/Prospectus to the extent that a statement contained
herein or in any subsequently filed document which also is deemed to be
incorporated herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed to constitute a part of this Proxy
Statement/Prospectus, except as so modified or superseded.
No person has been authorized to give any information or to make any
representations other than those contained in this Proxy Statement/Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by Compass, Compass Texas, Texas American 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, Compass
Texas, Texas American or their respective affiliates since the date of this
Proxy Statement/Prospectus.
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<PAGE>
PROXY STATEMENT/PROSPECTUS
INTRODUCTION
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Board of Directors of Texas American Bank, a
Texas state bank ("Texas American"), for use at the special meeting of Texas
American shareholders to be held at the time and place set forth in the
foregoing notice and at any adjournments thereof (the "Meeting"). This Proxy
Statement/Prospectus is also a prospectus for the shares of Compass Bancshares,
Inc. ("Compass") $2.00 par value common stock ("Compass Common Stock") to be
issued in connection with the merger (the "Merger") of Compass Texas American,
Inc. ("Compass Texas"), a Texas corporation and wholly-owned subsidiary of
Compass formed for the purpose of effecting the Merger, with and into Texas
American. Compass and Texas American presently intend that immediately following
the Merger, Texas American will be merged (the "Bank Merger") with and into
Compass Bank, a Texas state bank and an indirect wholly-owned subsidiary of
Compass formerly known as Compass Bank-Houston ("Compass Bank-Houston"), with
Compass Bank-Houston being the surviving entity.
The following proposals will be considered and voted upon at the Meeting:
(1) To approve, ratify, confirm and adopt an Agreement and Plan of Merger,
dated as of March 13, 1996 by and between Compass and Texas American, as
amended (the "Merger Agreement"), pursuant to which Compass Texas will be
merged with and into Texas American;
(2) To approve, ratify, confirm and adopt a Plan of Merger and
Reorganization, dated as of May 31, 1996 by and between Texas American
and Compass Bank-Houston, as amended (the "Bank Merger Agreement"),
pursuant to which Texas American will be merged with and into Compass
Bank-Houston; and
(3) To consider and transact such other business as may properly come before
the Meeting.
The Board of Directors of Texas American has fixed July 12, 1996 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, Texas American had 206,020 shares of common stock, $5.00 par value per
share ("Texas American Common Stock"), authorized, all of which shares were
issued and outstanding. As of the Record Date, the Texas American Common Stock
was held of record by 57 persons or entities. Each share of Texas American
Common Stock entitles the holder of record on the Record Date to one vote as to
the Merger and the Bank Merger and 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 Texas American Common Stock entitled to vote at the
Meeting is necessary to constitute a quorum at the Meeting. The affirmative vote
of the holders of at least two-thirds of the outstanding shares of Texas
American Common Stock is required for approval of the Merger and the Bank
Merger. TEXAS AMERICAN'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
APPROVAL OF THE MERGER AND THE BANK MERGER. SEE "SUMMARY--RECORD DATE";
"SUMMARY--SHAREHOLDER VOTES REQUIRED"; "THE MERGER--GENERAL"; "THE MERGER--OTHER
TERMS AND CONDITIONS"; AND APPENDIX I.
Approval of the Bank Merger is not a condition to consummation of the Merger.
The failure to approve the Bank Merger will not affect the consideration to be
received by the Texas American shareholders in the Merger or the timing of the
consummation of the Merger. The shareholders of Texas American are being
requested to approve the Bank Merger to expedite the completion of the Bank
Merger so that it may be consummated immediately after the consummation of the
Merger.
The directors and executive officers of Texas American control, with the
power to vote, an aggregate of 132,956 shares of Texas American Common Stock,
comprising approximately 65% of the total shares of Texas
3
<PAGE>
American Common Stock issued and outstanding as of the Record Date. Officers,
directors and certain shareholders of Texas American owning 183,384 shares of
Texas American Common Stock, comprising approximately 89.01% of the total shares
of Texas American Common Stock issued and outstanding as of the Record Date,
have agreed, pursuant to a Voting Agreement and Irrevocable Proxy (the "Proxy"),
to vote their shares in favor of the Merger and the Bank Merger. AS A RESULT,
BECAUSE SUCH OFFICERS, DIRECTORS AND SHAREHOLDERS HAVE THE POWER TO VOTE OVER
TWO-THIRDS OF THE SHARES OF TEXAS AMERICAN COMMON STOCK ISSUED AND OUTSTANDING
AND ENTITLED TO VOTE AT THE MEETING, THE EFFECT OF THEIR AGREEMENT TO VOTE IN
FAVOR OF THE MERGER AND THE BANK MERGER IS TO ASSURE APPROVAL OF THE MERGER AND
THE BANK MERGER BY THE TEXAS AMERICAN SHAREHOLDERS, SUBJECT TO THE TERMINATION
RIGHTS CONTAINED IN THE MERGER AGREEMENT. SEE "SUMMARY--REASONS FOR THE MERGER;
RECOMMENDATION OF BOARD OF DIRECTORS"; "SUMMARY--SHAREHOLDER VOTES REQUIRED";
"THE MERGER--GENERAL"; "THE MERGER--ADDITIONAL AGREEMENTS"; AND "INFORMATION
ABOUT TEXAS AMERICAN--MANAGEMENT AND PRINCIPAL SHAREHOLDERS".
Proxies in the form enclosed are solicited by Texas American's Board of
Directors. Any such proxy, if received in time for voting and not revoked, will
be voted at the Meeting in accordance with the shareholder's instructions. If no
instructions are given on the proxy, the proxy will be voted in favor of the
Merger. Failure to submit a proxy or to vote at the Meeting will have the same
effect as a vote against the Merger and the Bank Merger. At present, Texas
American'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 the recommendation of
Texas American's Board of Directors pursuant to the discretionary authority
conferred by the proxy. SEE "OTHER MATTERS"; "THE MERGER--DISSENTERS' RIGHTS";
AND APPENDIX II.
A proxy may be revoked at any time prior to its exercise by filing, at Texas
American'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 Texas American, 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 Texas American Common Stock held of record by such persons, and Texas
American 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 Texas
American Common Stock held of record by them, and Texas American will reimburse
them, upon request, for their reasonable expenses incurred 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, and its telephone number is (205) 933-3000. Texas
American's principal executive offices are located at 12590 Bandera Road,
Helotes, Texas 78023, and its telephone number is (210) 695-4000.
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 and
financial statements contained elsewhere in this Proxy Statement/Prospectus,
including the Appendices hereto and the documents referred to herein or
incorporated by reference. Shareholders are urged to read carefully the entire
Proxy Statement/Prospectus and the related documents.
PARTIES TO THE MERGER
Compass is a Delaware corporation which was organized in 1970. It is a bank
holding company registered with the Board of Governors of the Federal Reserve
System (the "Federal Reserve") under the Bank Holding Company Act of 1956, as
amended (the "BHC Act"). Substantially all of Compass' revenues are derived from
its subsidiaries, which are primarily banks located in Alabama, Texas and
Florida.
Compass owns Compass Bank ("Compass Bank"), a state bank headquartered in
Birmingham, Alabama, Central Bank of the South, a state bank headquartered in
Anniston, Alabama and Compass Bank ("Compass Bank-Florida"), a Florida state
member bank headquartered in Jacksonville, Florida. These wholly-owned
commercial and savings bank subsidiaries conduct a general, full-service
commercial and consumer banking business through 88 banking offices located in
46 communities in Alabama and 24 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-Central Texas, a Texas state bank
headquartered in Belton, Texas ("Compass Bank-Central Texas"), River Oaks Trust
Company, a trust company located in Houston, Texas ("River Oaks Trust Company"),
and Compass Texas Management, Inc., a Texas corporation ("Compass Management").
Compass Management provides management services to affiliated banks. These
wholly-owned commercial bank subsidiaries conduct a general, full-service
commercial and consumer banking business through 40 banking offices in Houston,
Texas, 26 banking offices in the Dallas-Ft. Worth area, 10 banking offices in
San Antonio, Texas and 3 banking offices in Central Texas.
During 1995, Compass acquired Southwest Bankers, Inc., and its bank
subsidiary, The Bank of San Antonio, located in San Antonio, Texas. In 1996,
Compass has acquired Flower Mound Bancshares, Inc. and its bank subsidiary,
Security Bank, located in Flower Mound, Texas; Equitable BankShares, Inc. and
its bank subsidiary, Equitable Bank, located in Dallas, Texas; Post Oak Bank
located in Houston, Texas; and Peoples Bancshares, Inc. and its bank subsidiary,
The Peoples National Bank (now known as Compass Bank-Central Texas) located in
Belton, Texas. Announced acquisitions which are pending include the Merger;
Royall Financial Corporation and its bank subsidiary, located in Palestine,
Texas; CFB Bancorp, Inc. and its subsidiary, Community First Bank of
Jacksonville, Florida; ProBank located in The Woodlands, Texas; and the San
Antonio, Texas branches of Coastal Banc ssb.
5
<PAGE>
Compass Texas is a Texas corporation and a wholly-owned subsidiary of
Compass and was formed for the purpose of effecting the Merger and the
acquisition of Texas American Bank.
On March 31, 1996, Compass and its subsidiaries had consolidated assets of
$10.2 billion, consolidated deposits of $7.9 billion, and total shareholders'
equity of $722 million. Of Compass' $10.2 billion of consolidated assets,
approximately $6.0 billion are held in Alabama, $3.6 billion are held in Texas,
and $605 million are held in Florida. SEE "AVAILABLE INFORMATION";
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE"; "SELECTED FINANCIAL DATA";
AND "INFORMATION ABOUT COMPASS".
Texas American, formerly named The Bank of Leon Springs, is a Texas state
chartered nonmember bank organized in June 1985. In June 1989, The Bank of Leon
Springs purchased via a Federal Deposit Insurance Corporation Total Asset
Purchase and Assumption transaction the assets of the failed Helotes State Bank.
In June 1993, The Bank of Leon Springs with its two branches, one in Helotes,
Texas, and the other in Leon Springs, Texas, changed its name to Texas American
Bank. In June 1994 Texas American Bank opened its third branch at 85 N.E. Loop
410 in the City of San Antonio. In August 1995 Texas American received approval
from the Texas Banking Department and from the FDIC to open a fourth branch at
5848 Babcock Road in the City of San Antonio. Texas American currently is
operating the Helotes, Leon Springs and 410 branches, with the Babcock location
on hold pending the merger with Compass. Each branch offers all of Texas
American's services, which include checking accounts, savings accounts,
certificates of deposit, individual retirement accounts, safe deposit services
and personal and commercial loans.
On March 31, 1996, Texas American had total assets of $60.7 million, total
deposits of $55.3 million, and total shareholders' equity of $4.3 million. SEE
"SELECTED FINANCIAL DATA"; "INFORMATION ABOUT TEXAS AMERICAN"; "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
TEXAS AMERICAN"; AND FINANCIAL STATEMENTS OF TEXAS AMERICAN.
THE MERGER
The Merger Agreement provides for the holders of Texas American Common
Stock, at the effective time of the Merger (the "Effective Time"), other than
dissenting shareholders, to receive aggregate merger consideration ("Merger
Consideration") of 325,000 shares of Compass Common Stock (as adjusted due to
the exercise of dissenter's rights). Holders of Texas American Common Stock
shall receive for each share of Texas American Common Stock held at the
Effective Time a number of shares of Compass Common Stock equal to (i) 325,000
shares of Compass Common Stock to be issued to the holders of Texas American
Common Stock divided by (ii) the number of shares of Texas American Common Stock
outstanding immediately prior to the Effective Time (the "Per Share Merger
Consideration"). In the event the average closing sale price of the Compass
Common Stock as reported by the NASDAQ National Market System for the 20 days of
trading preceding the tenth business day prior to the first business day
following the last received regulatory approval from the Federal Deposit
Insurance Corporation (the "FDIC") and the Federal Reserve and the expiration of
any applicable waiting period with respect thereto (the "Share Determination
Market Value") is less than $29.00 per share, Texas American may either (i)
terminate the Merger Agreement, or (ii) agree to accept an aggregate of 325,000
shares of Compass Common Stock. In the event Texas American exercises its option
to terminate the Merger Agreement, Compass shall have the right to reject such
termination by agreeing to
6
<PAGE>
issue a number of shares of Compass Common Stock equal to (i) the quotient of
(a) 325,000 times the Share Determination Market Value, plus $10,400,000,
divided by (b) 2; and further divided by (ii) the Share Determination Market
Value. Any decision by the Board of Directors of Texas American regarding
whether to terminate the Merger Agreement will be made in its sole discretion
and could result in either (i) Texas American shareholders receiving Merger
Consideration with an aggregate market value of less than $9,425,000, (ii) the
termination of the Merger Agreement, or (iii) Compass agreeing to increase the
number of shares of Compass Common Stock constituting the Merger Consideration.
If the Board of Directors of Texas American elects to terminate the Merger
Agreement, there can be no assurance that Compass will agree to increase the
number of shares of Compass Common Stock and that the Merger Agreement will not
terminate, in which event the Texas American shareholders would not receive any
Merger Consideration but would retain their Texas American Common Stock.
On July 12, 1996, there were 206,020 shares of Texas American Common Stock
issued and outstanding.
Assuming that (i) there will be 206,020 shares of Texas American Common
Stock issued and outstanding immediately prior to the Effective Time, and (ii)
the Share Determination Market Value will be $32.95 (the average closing sale
price of the Compass Common Stock as reported by the NASDAQ National Market
System for the 20 days of trading preceding July 16, 1996), Compass will be
required to issue an aggregate of 325,000 shares of Compass Common Stock to the
Texas American shareholders and each shareholder of Texas American (except for
shareholders choosing to exercise their dissenters' rights) will be entitled to
receive approximately 1.5775 shares of Compass Common Stock for each share of
Texas American Common Stock held.
Notwithstanding the foregoing, the Merger Consideration will be reduced by
the number of shares that would otherwise be issued to dissenting shareholders.
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 sale
price for Compass Common Stock as reported by the NASDAQ National Market System
for the 20 trading days immediately preceding the Effective Time.
Texas American will be the surviving entity in the Merger; however, the
officers and directors of Compass Texas will be the officers and directors of
Texas American after the Merger. Compass intends that Texas American's personnel
will remain following the Merger. Compass and Texas American presently intend
that immediately following the completion of the Merger, Texas American will be
merged with and into Compass Bank-Houston, subject to the necessary regulatory
approvals. Thereafter, the separate existence of Texas American will cease, and
the former offices of Texas American will become branches of Compass Bank-
Houston. SEE "THE MERGER--GENERAL"; AND "INFORMATION ABOUT TEXAS AMERICAN".
The Merger Agreement also provides that the number of shares of Compass
Common Stock to be received by Texas American shareholders in the Merger will be
adjusted to give effect to any stock dividends or splits with respect to Compass
Common Stock occurring between the date of execution of the Merger Agreement and
the Effective Time. SEE "INTRODUCTION"; "SUMMARY--DISSENTERS' RIGHTS"; "THE
MERGER--GENERAL"; "THE MERGER--DISSENTERS' RIGHTS"; APPENDIX I; AND APPENDIX II.
7
<PAGE>
The Merger Agreement was the result of arm's-length negotiations between
representatives of Texas American and Compass. Texas American's Board of
Directors believes the terms of the Merger are fair; however, 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. SEE "SUMMARY--REASONS FOR THE MERGER; RECOMMENDATION OF BOARD OF
DIRECTORS"; "THE MERGER--BACKGROUND AND REASONS FOR THE MERGER".
REASONS FOR THE MERGER; RECOMMENDATION OF BOARDS OF DIRECTORS
Consummation of the Merger offers the holders of Texas American Common
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 of Texas. Compass Common Stock
is publicly traded and has a history of paying dividends. Texas American's Board
of Directors anticipates that the Merger and the Bank Merger will expand the
banking products and services offered to Texas American's customers and
community and will enable Texas American's facilities to compete more
effectively among banks and non-bank financial institutions. As part of a much
larger holding company system, Texas American'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 Texas American and Compass. Subject to satisfaction of
certain conditions contained in the Merger Agreement, Texas American's Board of
Directors believes the Merger and the Bank Merger to be in the best interests of
Texas American's shareholders. TEXAS AMERICAN'S BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT TEXAS AMERICAN SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AND
THE BANK MERGER and has authorized consummation thereof subject to approval of
the Texas American shareholders and the satisfaction of certain other
conditions. SEE "INTRODUCTION"; SEE "SUMMARY--PARTIES TO THE MERGER"; "SUMMARY--
THE MERGER"; "THE MERGER--BACKGROUND AND REASONS FOR THE MERGER"; "THE MERGER--
OTHER TERMS AND CONDITIONS"; "DESCRIPTION OF COMPASS COMMON AND PREFERRED
STOCK"; "COMPARISON OF RIGHTS OF SHAREHOLDERS OF TEXAS AMERICAN AND COMPASS";
"INFORMATION ABOUT COMPASS"; AND "INFORMATION ABOUT TEXAS AMERICAN".
THE MEETING
The Meeting will be held on Tuesday, August 20, 1996 at 2:00 P.M., Central
time, at 12590 Bandera Road, in Helotes, Texas for the purposes of (i)
approving, ratifying, confirming and adopting the Merger Agreement; (ii)
approving, ratifying, confirming and adopting the Bank Merger Agreement and
(iii) transacting such other business as may properly come before the Meeting.
RECORD DATE
The Record Date has been set by Texas American's Board of Directors as the
close of business on July 12, 1996. Only holders of Texas American's Common
Stock as of such date will be entitled to vote at the Meeting. SEE
"INTRODUCTION".
8
<PAGE>
SHAREHOLDER VOTES REQUIRED
The Merger and the Bank Merger must be approved by the affirmative vote of
the holders of at least two-thirds of the shares of the Texas American Common
Stock issued and outstanding and entitled to vote at the Meeting.
Approval of the Bank Merger is not a condition to consummation of the
Merger. The failure to approve the Bank Merger will not affect the consideration
to be received by the Texas American shareholders in the Merger or the timing of
the consummation of the Merger. The shareholders of Texas American are being
requested to approve the Bank Merger to expedite the completion of the Bank
Merger so that it may be consummated immediately after the consummation of the
Merger.
The directors and executive officers of Texas American control, with the
power to vote, an aggregate of 132,956 shares of Texas American Common Stock,
comprising approximately 65% of the total shares of Texas American Common Stock
issued and outstanding and entitled to vote at the Meeting. Officers, directors
and certain shareholders of Texas American owning 183,384 shares of Texas
American Common Stock, comprising approximately 89.01% of the total shares of
Texas American Common Stock issued and outstanding as of the Record Date, have
agreed, pursuant to the Proxy, to vote their shares in favor of the Merger and
the Bank Merger. AS A RESULT, BECAUSE SUCH OFFICERS, DIRECTORS AND SHAREHOLDERS
HAVE THE POWER TO VOTE OVER TWO-THIRDS OF THE SHARES OF TEXAS AMERICAN COMMON
STOCK ISSUED AND OUTSTANDING AND ENTITLED TO VOTE AT THE MEETING, THE EFFECT OF
THEIR AGREEMENT TO VOTE IN FAVOR OF THE MERGER IS TO ASSURE APPROVAL OF THE
MERGER AND THE BANK MERGER BY THE TEXAS AMERICAN SHAREHOLDERS, SUBJECT TO THE
TERMINATION RIGHTS CONTAINED IN THE MERGER AGREEMENT.
Compass Texas has 10,000 shares of common stock, par value $0.01 per share,
issued and outstanding, all of which are owned and held by Compass. Subject to
the satisfaction or waiver of all of the conditions to the parties' obligations
to effect the Merger, Compass, as the sole shareholder of Compass Texas, will
approve the Merger Agreement in the manner prescribed by the Texas Business
Corporation Act ("TBCA"). SEE "THE MERGER--GENERAL".
DISSENTERS' RIGHTS
Holders of Texas American Common Stock who timely object to the Merger, and
who otherwise comply with the provisions of the Texas Banking Act ("TBA"), will
be entitled to exercise dissenters' rights. SEE "THE MERGER--DISSENTERS'
RIGHTS"; "COMPARISON OF RIGHTS OF SHAREHOLDERS OF TEXAS AMERICAN AND COMPASS--
DISSENTERS' RIGHTS"; AND APPENDIX II.
CONDITIONS TO CONSUMMATION AND REGULATORY APPROVALS; TERMINATION
Consummation of the Merger and the Bank Merger is subject to approval of
the Merger and the Bank Merger by the shareholders of Texas American, receipt of
certain required regulatory approvals from the Federal Reserve under the BHC
Act, the FDIC and the Banking Commissioner of Texas (the "Commissioner"), and
the satisfaction or waiver of a number of other conditions. It is expected that
the Federal Reserve, the FDIC and the Commissioner will issue their respective
approvals of the transaction. SEE "THE MERGER--GOVERNMENTAL APPROVALS".
9
<PAGE>
A formal application under the BHC Act was filed with the Federal Reserve
on June 5, 1996 and, as a result, the Merger may not be consummated for a period
of 15 to 30 days after Federal Reserve approval. In addition, the Bank Merger
may not be consummated for a period of 15 to 30 days following FDIC approval.
During either such 15 to 30 day waiting period, the United States Department of
Justice ("Justice Department"), pursuant to the BHC Act, may bring an action
opposing the Merger or the Bank Merger under the antitrust laws, which action
would stay the Merger or the Bank Merger 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 Texas American may
terminate the Merger Agreement as a result of, among other things, the failure
of any of the several conditions to each of their respective obligations to
close, or if the Effective Time does not occur on or before December 31, 1996 or
such later date agreed to in writing by Compass and Texas American. 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"), counsel to Compass and Compass Texas, 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 Texas American
Common 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 Texas American Common Stock in lieu of fractional shares
of Compass Common Stock or upon exercise of their dissenters' rights will be
taxed as 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. TEXAS AMERICAN 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 expects to receive an opinion from Liddell, Sapp at the closing of
the transaction contemplated by the Merger Agreement (the "Closing") that the
Merger will qualify as a reorganization under Section 368(a) of the Code in
satisfaction of a condition to consummation of the Merger. SEE "THE MERGER--
OTHER TERMS AND CONDITIONS" AND "LEGAL OPINIONS".
ACCOUNTING TREATMENT
Compass will account for the Merger under the pooling-of-interests method
for financial reporting and all other purposes. Compass has received a letter
from KPMG Peat Marwick LLP, which will be updated as of the Effective Time, to
the effect that the Merger will qualify for pooling-of-interests accounting
treatment. SEE "THE MERGER--ACCOUNTING TREATMENT".
10
<PAGE>
RISK FACTORS
Texas American shareholders currently control Texas American through
their ability to elect the Board of Directors and vote on various matters
affecting Texas American. The Merger and the Bank Merger will transfer
control of Texas American from Texas American's shareholders to Compass.
As of the Effective Time, the shareholders of Texas American will become
shareholders of Compass, a multi-bank holding company. As a result of the
Merger and the Bank Merger, the former shareholders of Texas American will
no longer have the ability to control or influence the management policies
of Texas American'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 TEXAS AMERICAN--COMPETITION".
In addition, general economic conditions impact the banking industry.
The credit quality of Compass' loan portfolio necessarily reflects, among
other things, the general economic conditions in the areas in which it
conducts its business. The continued financial success of Compass and its
subsidiaries depends somewhat on factors which are beyond Compass' control,
including national and local economic conditions, the supply and demand for
investable funds, interest rates and federal, state and local laws
affecting these matters. Any substantial deterioration in any of the
foregoing conditions could have a material adverse effect on Compass'
financial condition and results of operations, which, in all likelihood,
would adversely affect the market price of Compass Common Stock. SEE
"MARKET PRICES".
Compass' Restated Certificate of Incorporation, as amended (the
"Certificate"), and Bylaws 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. Texas American's Articles of Association and Bylaws do not
contain similar restrictions, although under Texas law Texas American's
shareholders may take action without a meeting only by unanimous written
consent. SEE "COMPARISON OF RIGHTS OF SHAREHOLDERS OF TEXAS AMERICAN AND
COMPASS--CHARTER AND BYLAW PROVISIONS AFFECTING COMPASS COMMON STOCK" AND
"INFORMATION ABOUT COMPASS-RECENT DEVELOPMENTS".
In the event the Share Determination Market Value is less than $29.00
per share, Texas American may either (i) terminate the Merger Agreement, or
(ii) agree to accept an aggregate of 325,000 shares of Compass Common
Stock. In the event Texas American exercises its option to terminate the
Merger Agreement, Compass shall have the right to reject such termination
by agreeing to issue a number of shares of Compass Common Stock equal to
(i) the quotient of (a) 325,000 times the Share Determination Market Value,
plus $10,400,000, divided by (b) 2; and further divided by (ii) the Share
Determination Market Value. Any decision by the Board of Directors of
Texas American regarding whether to terminate the Merger Agreement will be
made in its sole discretion and could result in either (i) Texas American
shareholders receiving Merger Consideration with an aggregate market value
of less than $9,425,000, (ii) the termination of the Merger Agreement, or
(iii) Compass agreeing to increase the number of shares of Compass Common
Stock constituting the Merger Consideration. If the Board of Directors of
Texas American elects to terminate the Merger Agreement, there can be no
assurance that Compass will agree to increase the number of shares of
Compass Common Stock and that the Merger Agreement will not terminate, in
which event the Texas American shareholders would not receive any Merger
Consideration but would retain their Texas American Common Stock.
11
<PAGE>
In addition, since the market price of the shares of Compass Common
Stock to be delivered as the Merger Consideration is determined based on an
average of the closing prices of Compass Common Stock as reported by the
NASDAQ National Market System over a period of time, it is possible for the
shareholders of Texas American to receive shares of Compass Common Stock
with a market value less than $9,425,000 at the Effective Time of the
Merger.
SEE "SUPERVISION AND REGULATION" for a description of the regulatory
considerations relating to the ownership of Compass Common Stock.
RECENT DEVELOPMENTS
Compass, in a press release dated July 16, 1996, reported record net income
per share of $1.71 for the first six months of 1996, an increase of 27% over the
$1.35 for 1995. Net income for the first six months of 1996 was $67.4 million
as compared to $53.3 million for the same period in 1995, also a 27% increase.
Net income per share for the second quarter of 1996 was $.79 as compared to $.72
for the same period for 1995, a 10% increase. Net income for the second quarter
was $30.6 million, an 8% increase over the $28.4 million for the same period of
1995. Return on average assets was 1.16% and return on average shareholders'
equity was 17.41% for the quarter ended June 30, 1996.
Total assets increased 9% to $10.8 billion at June 30, 1996, from $9.9
billion at June 30, 1995. Earning assets grew to $9.9 billion from $9.1 billion,
a 9% increase over the prior year. Period-end loans outstanding increased 9% to
$6.8 billion from $6.3 billion. Deposits increased 19% to $8.7 billion from $7.3
billion and shareholders' equity increased 5% to $701 million at June 30, 1996,
which is adjusted for $48 million in treasury stock, from $667 million at June
30, 1995.
12
<PAGE>
SELECTED FINANCIAL DATA
The following table, except for the lines designated as pro
forma, summarizes certain unaudited consolidated historical financial data
of Compass, and certain unaudited historical financial data of Texas
American. The table also summarizes, where indicated, certain pro forma
financial data for Compass, giving effect to the acquisition of Texas
American assuming that the Merger had been effective at the beginning of
1991. Due to immateriality, the historical data of Compass as of and for
the years ended December 31, 1995, 1994, 1993, 1992, and 1991 has not been
restated to reflect the February 1996 acquisition of Flower Mound
Bancshares, Inc. and the April 1996 acquisition of Equitable BankShares,
Inc., which were accounted for under the pooling-of-interests method of
accounting. The historical data of Texas American and Compass as of and
for the years ended December 31, 1995, 1994, 1993, 1992 and 1991 is derived
from the unaudited financial statements of Texas American and the audited
financial statements of Compass, respectively. The pro forma income
information is not necessarily indicative of the results of operations had
the proposed transaction occurred at the beginning of 1991, 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 THREE (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
MONTHS
ENDED AS OF AND FOR THE YEARS ENDED
MARCH 31, DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TOTAL ASSETS
Compass $10,165,474 $10,262,247 $9,265,137 $7,453,859 $7,210,151 $6,898,873
Texas American 60,730 60,611 50,521 45,856 28,598 28,140
TOTAL DEPOSITS
Compass 7,852,867 7,729,112 7,188,913 5,733,309 5,532,599 5,224,136
Texas American 55,359 55,421 47,305 42,962 26,548 25,635
LONG-TERM DEBT
Compass 609,827 584,852 487,916 328,928 207,730 20,336
Texas American -- -- -- -- -- --
TOTAL SHAREHOLDERS' EQUITY
Compass 721,637 706,668 611,673 561,587 518,269 455,455
Texas American 4,284 4,112 2,986 2,601 1,952 1,441
NET INTEREST INCOME
Compass 91,235 349,655 336,768 334,146 322,774 262,659
Texas American 811 2,976 2,435 1,683 1,167 1,116
NET INCOME (LOSS) FROM
CONTINUING OPERATIONS
Compass 36,043 110,265 101,246 92,679 77,870 63,009
Texas American 218 755 802 656 (5) (277)
NET INCOME (LOSS) PER
COMMON SHARE FROM
CONTINUING OPERATIONS
Compass
Historical 0.93 2.88 2.65 2.39 2.00 1.68
Pro Forma (1) 0.93 2.87 2.65 2.39 1.99 1.66
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
AS OF AND
FOR
THE THREE (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
MONTHS
ENDED AS OF AND FOR THE YEARS ENDED
MARCH 31, DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET INCOME (LOSS) PER
COMMON SHARE FROM
CONTINUING OPERATIONS
Texas American
Historical 1.06 3.67 3.89 3.18 (0.02) (1.34)
Equivalent Pro Forma (2) 1.47 4.53 4.18 3.77 3.14 2.62
CASH DIVIDENDS PER
COMMON SHARE
Compass
Historical 0.32 1.12 0.92 0.76 0.667 0.587
Pro Forma 0.32 1.10 0.88 0.72 0.58 0.51
Texas American
Historical -- -- -- -- -- --
Equivalent Pro Forma (2) 0.50 1.74 1.39 1.14 0.91 0.80
SHAREHOLDERS' EQUITY
(BOOK VALUE) PER COMMON
SHARE
Compass
Historical 18.66 18.52 16.13 14.83 13.10 11.57
Pro Forma 18.62 18.47 16.07 14.77 13.04 11.51
Texas American
Historical 20.80 19.96 14.50 12.63 9.48 7.00
Equivalent Pro Forma (2) 29.37 29.14 25.35 23.30 20.57 18.16
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING
Compass
Historical 38,864 38,340 38,147 38,137 37,811 36,543
Pro Forma 39,189 38,665 38,472 38,462 38,136 36,868
Texas American
Historical 206 206 206 206 206 206
NUMBER OF COMMON
SHARES OUTSTANDING AT END
OF PERIOD
Compass
Historical 38,667 38,152 37,922 37,877 37,810 37,378
Pro Forma 38,992 38,477 38,247 38,202 38,135 37,703
Texas American
Historical 206 206 206 206 206 206
</TABLE>
- --------------------
(1) Net income per common share before extraordinary item represents primary
earnings per share (i.e., the amount of earnings attributable to each share
of common stock outstanding, including common stock equivalents).
(2) Texas American's Equivalent Pro Forma per share amounts are computed by
multiplying Compass' Pro Forma amounts by the exchange ratio.
14
<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.
<TABLE>
<CAPTION>
Compass
Common
Stock
--------------
Period High Low
- ------ ------ ------
1994
- ----
<S> <C> <C>
First Quarter 24 21
Second Quarter 26-3/4 23
Third Quarter 26 23
Fourth Quarter 23-3/4 21
1995
- ----
First Quarter 28 21-1/2
Second Quarter 29-1/4 25-1/2
Third Quarter 33-3/4 28-1/2
Fourth Quarter 33-1/2 30-1/8
1996
- ----
First Quarter 35 30-3/4
Second Quarter 35-5/8 32-1/4
Third Quarter
(through July 16, 33-5/8 31-1/2
1996)
</TABLE>
On March 12, 1996, the business day immediately preceding the
announcement of the execution of the Merger Agreement, the last reported
sale price for Compass Common Stock was $32.50. On July 16, 1996 the
last reported sale price for Compass Common Stock was $31.50. 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 Texas American Common
Stock, although it is traded infrequently in private transactions about
which Texas American's management has little reliable information regarding
price.
15
<PAGE>
THE MERGER
The following information relating to the Merger is not intended to be
a complete description of all information relating to the Merger and is
qualified in its entirety by reference to more detailed information
contained elsewhere in this Proxy Statement/Prospectus, including the
Appendices hereto and the documents referred to herein or incorporated
herein by reference. A copy of the Merger Agreement is included as
Appendix I, and is incorporated herein by reference.
GENERAL
The Merger Agreement provides for the merger of Compass Texas with and
into Texas American in accordance with the terms and conditions of the
Merger Agreement. Texas American will be the surviving entity in the
Merger and the separate existence of Compass Texas will cease. After the
Effective Time, the officers and directors of Compass Texas will be the
officers and directors of Texas American. Compass intends that Texas
American's personnel will remain following the Merger. Compass and Texas
American presently intend that immediately following the completion of the
Merger, Texas American will be merged with and into Compass Bank-Houston,
subject to the necessary regulatory approvals. Thereafter, the separate
existence of Texas American will cease, and the former offices of Texas
American will become branches of Compass Bank-Houston. SEE "SUMMARY--
CONDITIONS TO CONSUMMATION AND REGULATORY APPROVALS"; "THE MERGER--
OPERATIONS AFTER THE MERGER"; "THE MERGER--GOVERNMENT APPROVALS"; AND
APPENDIX I.
The Merger Agreement provides for the holders of Texas American Common
Stock at the Effective Time, other than dissenting shareholders, to receive
Merger Consideration of 325,000 shares of Compass Common Stock (as adjusted
due to the exercise of dissenter's rights). Holders of Texas American
Common Stock shall receive for each share of Texas American Common Stock
held at the Effective Time a number of shares of Compass Common Stock equal
to (i) 325,000 shares of Compass Common Stock to be issued to the holders
of Texas American Common Stock divided by (ii) the number of shares of
Texas American Common Stock outstanding immediately prior to the Effective
Time. In the event the Share Determination Market Value is less than
$29.00 per share, Texas American may either (i) terminate the Merger
Agreement, or (ii) agree to accept an aggregate of 325,000 shares of
Compass Common Stock. In the event Texas American exercises its option to
terminate the Merger Agreement, Compass shall have the right to reject such
termination by agreeing to issue a number of shares of Compass Common Stock
equal to (a) the quotient of (i) 325,000 times the Share Determination
Market Value, plus $10,400,000, divided by (b) 2; and further divided by
(ii) the Share Determination Market Value. Any decision by the Board of
Directors of Texas American regarding whether to terminate the Merger
Agreement will be made in its sole discretion and could result in either
(i) Texas American shareholders receiving Merger Consideration with an
aggregate market value of less than $9,425,000, (ii) the termination of the
Merger Agreement, or (iii) Compass agreeing to increase the number of
shares of Compass Common Stock constituting the Merger Consideration. If
the Board of Directors of Texas American elects to terminate the Merger
Agreement, there can be no assurance that Compass will agree to increase
the number of shares of Compass Common Stock and that the Merger Agreement
will not terminate, in which event the Texas American shareholders would
not receive any Merger Consideration but would retain their Texas American
Common Stock.
On July 12, 1996, there were 206,020 shares of Texas American Common
Stock issued and outstanding.
Assuming that (i) there will be 206,020 shares of Texas American
Common Stock issued and outstanding immediately prior to the Effective
Time, and (ii) the Share Determination Market Value will be $32.95 (the
average closing sale price of the Compass Common Stock as reported by the
NASDAQ National Market System for the 20 days of trading preceding
July 16, 1996), Compass will be required to issue an aggregate of 325,000
shares of Compass Common Stock to the Texas American shareholders and each
shareholder of Texas American (except for shareholders choosing to exercise
their dissenters' rights) will be entitled to receive approximately 1.5775
shares of Compass Common Stock for each share of Texas American Common
Stock held.
16
<PAGE>
Notwithstanding the foregoing, the Merger Consideration will be
reduced by the number of shares that would otherwise be issued to
dissenting shareholders.
Compass will not issue fractional shares of Compass Common Stock, but
instead will pay cash to any shareholder otherwise entitled to receive a
fractional share. Such cash payment shall be based on the Per Share Merger
Consideration.
The Merger Agreement also provides that the Merger Consideration,
consisting of shares of Compass Common Stock, shall be adjusted to give
effect to any stock dividends or splits with respect to Compass Common
Stock occurring between the date of execution of the Merger Agreement and
the Effective Time. SEE "SUMMARY--THE MERGER"; "SUMMARY--DISSENTERS'
RIGHTS"; "THE MERGER--DISSENTERS' RIGHTS"; APPENDIX I; AND APPENDIX II.
The Merger and the Bank Merger must be approved by the affirmative
vote of the holders of two-thirds of the outstanding shares of Texas
American Common Stock entitled to vote at the Meeting. SEE "INTRODUCTION";
"SUMMARY--SHAREHOLDER VOTES REQUIRED"; "THE MERGER--OTHER TERMS AND
CONDITIONS"; AND APPENDIX I.
Officers, directors and certain shareholders of Texas American owning
183,384 shares of Texas American Common Stock, comprising approximately
89.01% of the total shares of Texas American Common Stock issued and
outstanding as of the Record Date, have agreed, pursuant to the Proxy, to
vote their shares in favor of the Merger and the Bank Merger. AS A RESULT,
BECAUSE SUCH OFFICERS, DIRECTORS AND SHAREHOLDERS HAVE THE POWER TO VOTE
OVER TWO-THIRDS OF THE SHARES OF TEXAS AMERICAN COMMON STOCK ISSUED AND
OUTSTANDING AND ENTITLED TO VOTE AT THE MEETING, THE EFFECT OF THEIR
AGREEMENT TO VOTE IN FAVOR OF THE MERGER IS TO ASSURE APPROVAL OF THE
MERGER AND THE BANK MERGER BY THE TEXAS AMERICAN SHAREHOLDERS, SUBJECT TO
THE TERMINATION RIGHTS CONTAINED IN THE MERGER AGREEMENT.
Compass Texas has 10,000 shares of common stock, $0.01 par value per
share, issued and outstanding, all of which is owned and held by Compass.
Subject to the satisfaction or waiver of all of the conditions to the
parties' obligations to effect the Merger, Compass, as sole shareholder of
Compass Texas, will approve the Merger Agreement in the manner prescribed
by the TBCA. SEE "SUMMARY--SHAREHOLDER VOTES REQUIRED".
The Merger will be effective as soon as practicable following the
receipt of all necessary regulatory approvals and the satisfaction of all
conditions to the consummation of the Merger. At the Effective Time, by
operation of law, holders of Texas American Common Stock (other than those
shareholders who perfect their dissenters' rights of appraisal) will become
owners of Compass Common Stock and will no longer be owners of Texas
American Common Stock. After the Effective Time, all certificates for
Texas American Common Stock will represent the right to receive Compass
Common Stock pursuant to the Merger Agreement, but otherwise will be null
and void after such date. SEE "SUMMARY--DISSENTERS' RIGHTS"; "THE MERGER--
DISSENTERS' RIGHTS"; AND APPENDIX II.
BACKGROUND AND REASONS FOR THE MERGER
Negotiations between Compass and Texas American commenced in late
October 1995 in response to a contact made by a representative of Compass
with a representative of Texas American. A letter of intent was executed
on January 5, 1996. In evaluating whether to affiliate with Compass, Texas
American's management considered the value of Texas American Common Stock,
competitive conditions in the market served by Texas American, the
prospects for trading Texas American Common Stock, Texas American'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 Texas American Common Stock, the appreciation in the price
of Compass Common Stock over the past ten years and Compass' history of
paying dividends. In addition, Texas American believed that affiliating
with Compass, a larger financial institution with significantly greater
financial resources and expertise,
17
<PAGE>
offered expansion opportunities, financial products and services not
otherwise available to Texas American and its customers, which would better
enable Texas American to compete. Texas American and its Board of
Directors determined that Texas American'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 OPERATIONS OF TEXAS AMERICAN--CAPITAL
RESOURCES, LIQUIDITY AND FINANCIAL CONDITION".
Compass and Compass of Texas have considered expansion opportunities
in the San Antonio metropolitan area in order to enlarge their Texas-based
operations to a more economical size and to expand into additional market
areas. Acquiring Texas American will result in economies of scale and
increase the markets served by Compass' affiliates. It will also assist
Compass' Texas affiliates in providing the management and organizational
flexibility needed to expand in the Texas market by branching and other
acquisitions.
Following arm's length negotiations between representatives of Compass
and Texas American, Compass and Texas American entered into the Merger
Agreement dated as of March 13, 1996. The aggregate price to be paid to
holders of Texas American Common Stock resulted from negotiations which
considered the historical earnings and dividends of Compass and Texas
American, the earnings potential and deposit base of Texas American,
potential growth in Texas American's market, Texas American's asset quality
and the effect of the Merger and the Bank Merger on the shareholders,
customers and employees of Compass and Texas American. SEE "SUMMARY--THE
MERGER".
Subject to satisfaction of certain conditions contained in the Merger
Agreement, Texas American's Board of Directors believes the Merger to be
fair and in the best interest of Texas American's shareholders. 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 or
the Bank Merger to any party or its shareholders. TEXAS AMERICAN'S BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT TEXAS AMERICAN'S SHAREHOLDERS VOTE
FOR APPROVAL OF THE MERGER AND THE BANK MERGER and has authorized
consummation thereof, subject to approval of Texas American's shareholders,
federal and state bank regulators and the satisfaction of certain other
conditions. SEE "SUMMARY--REASONS FOR THE MERGER; RECOMMENDATION OF BOARD
OF DIRECTORS".
OPERATIONS AFTER THE MERGERS
Compass and Texas American presently intend that immediately following
the completion of the Merger, Texas American will be merged with and into
Compass Bank-Houston, subject to the necessary regulatory approvals.
Thereafter, the separate existence of Texas American will cease, and the
former offices of Texas American will become branches of Compass Bank-
Houston. SEE "SUMMARY--CONDITIONS TO CONSUMMATION AND REGULATORY
APPROVALS; TERMINATION"; "THE MERGER--GENERAL"; AND "THE MERGER--OTHER
TERMS AND CONDITIONS".
OTHER TERMS AND CONDITIONS
The Merger Agreement contains a number of terms, conditions,
representations and covenants which must be satisfied as of the Effective
Time, including, but not limited to, the following:
(i) The receipt of regulatory approvals, which approvals shall not
have imposed any condition or requirement which in the judgment of
Compass would adversely impact the economic or business benefits of
the transactions contemplated by the Merger Agreement or otherwise
would in the judgment of Compass be so burdensome as to render
inadvisable the consummation of the Merger, and the expiration of any
applicable waiting periods with respect thereto. SEE "THE MERGER--
GOVERNMENT APPROVALS";
18
<PAGE>
(ii) The consummation of the Merger will not violate any injunction,
order or decree of any court or governmental body having competent
jurisdiction;
(iii) The approval of the Merger Agreement by Texas American's
shareholders entitled to vote at the Meeting;
(iv) The Registration Statement relating to the Compass Common Stock
shall be effective under the Securities Act and any applicable state
securities or blue sky laws and no stop order suspending the
effectiveness of the Registration Statement shall be in effect and no
proceedings for such purpose, or any proceedings under the Commission
or applicable state securities authorities rules with respect to the
transaction contemplated hereby, shall be pending before or threatened
by the Commission or any applicable state securities or blue sky
authorities;
(v) All representations and warranties of Texas American and Compass
shall be true and correct in all material respects as of the date of
the Merger Agreement and at and as of the Effective Time;
(vi) Texas American, Compass and Compass Texas shall have performed in
all material respects all obligations and agreements and in all
material respects complied with all covenants and conditions contained
in the Merger Agreement to be performed or complied with by them prior
to the Effective Time;
(vii) There shall not have occurred a Material Adverse Effect with
respect to Texas American;
(viii) The directors of Texas American shall have delivered to
Compass an instrument dated the Effective Time releasing Texas
American from any and all claims of such directors (except as to their
deposits and accounts and as to rights of indemnification pursuant to
the Bylaws of Texas American, which rights shall survive the Merger);
(ix) The officers of Texas American shall have delivered to Compass an
instrument dated the Effective Time releasing Texas American from any
and all claims of such officers (except as to deposits and accounts,
as to accrued compensation permitted by their respective agreements
and as to rights of indemnification pursuant to the Bylaws of Texas
American, which rights shall survive the Merger);
(x) Compass and Texas American shall have received the opinions of
counsel to Texas American and Compass acceptable to them as to certain
matters;
(xi) The holders of no more than 5% of the Texas American Common Stock
shall have demanded or be entitled to demand payment of the fair value
of their shares as dissenting shareholders;
(xii) Compass shall have received a letter from KPMG Peat Marwick
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;
(xiii) There shall be no Texas American indebtedness;
(xiv) Compass shall have received from holders of Texas American
Common Stock receiving at least 50% of the total Merger Consideration
a representation that they have no plan or
19
<PAGE>
intention to sell or otherwise dispose of shares of Compass Common
Stock received pursuant to the Merger;
(xv) Compass and the shareholders of Texas American shall have
received an opinion of counsel satisfactory to them that the Merger
will qualify as a reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended;
(xvi) Texas American shall have delivered to Compass a schedule of
all transactions in the capital stock (or instruments exercisable for
or convertible into capital stock) of Texas American of which Texas
American has knowledge from and including the date of the Merger
Agreement through the Effective Time;
(xvii) All warrants, options, rights, convertible debentures or other
securities entitling the holder thereof to acquire Texas American
Common Stock shall have been exercised or converted, or shall have
expired, lapsed or terminated, prior to the Effective Time;
(xviii) Compass shall have received Section 368 certificates and
Proxies within the periods specified for receipt of such certificates
and Proxies as set forth in the Merger Agreement;
(xix) Texas American shall have delivered to the directors of Texas
American an instrument dated the Effective Time releasing such
directors from any and all claims of Texas American (except as to
indebtedness or other contractual liabilities); provided, however,
that such releases shall not release an action against such directors
by Compass or Texas American in connection with the transactions
contemplated by the Merger Agreement; SEE "SUMMARY--FEDERAL INCOME TAX
CONSEQUENCES" AND "THE MERGER--FEDERAL INCOME TAX CONSEQUENCES"; and
(xx) Compass and Texas American shall have received certificates of
the other as to certain items described 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, executive officers and principal shareholders
of Texas American has entered into a Pooling Transfer Restrictions
Agreement with Compass and Texas American pursuant to which they have
agreed, among other things, (i) not to transfer any of their respective
shares of Texas American Common Stock within 30 days prior to the Effective
Time, (ii) not to transfer any shares of Compass Common Stock acquired by
them in the Merger until the publication of financial results covering at
least 30 days of post-Merger combined operations of Texas American 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 otherwise to transfer such Compass Common Stock
except in compliance with the applicable provisions of the Securities Act
and the Exchange Act and the respective rules and regulations thereunder.
Officers, directors and certain shareholders of Texas American owning
183,384 shares of Texas American Common Stock, comprising approximately
89.01% of the total shares of Texas American Common Stock issued and
outstanding as of the Record Date, have agreed, pursuant to the Proxy, to
vote their shares in favor of the Merger and the Bank Merger. AS A RESULT,
BECAUSE SUCH OFFICERS, DIRECTORS AND SHAREHOLDERS HAVE THE POWER
20
<PAGE>
TO VOTE OVER TWO-THIRDS OF THE SHARES OF TEXAS AMERICAN COMMON STOCK ISSUED
AND OUTSTANDING AND ENTITLED TO VOTE AT THE MEETING, THE EFFECT OF THEIR
AGREEMENT TO VOTE IN FAVOR OF THE MERGER IS TO ASSURE APPROVAL OF THE
MERGER AND THE BANK MERGER BY THE TEXAS AMERICAN SHAREHOLDERS, SUBJECT TO
THE TERMINATION RIGHTS CONTAINED IN THE MERGER AGREEMENT.
BUSINESS PENDING EFFECTIVE TIME
The Merger Agreement imposes certain limitations on the conduct of
Texas American's business pending consummation of the Merger. Among other
things, Texas American must conduct its 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 Texas
American's shareholders can be made after the Meeting without the required
approval of Texas American's shareholders.
In addition to termination due to pricing issues (SEE "SUMMARY--THE
MERGER"; AND "THE MERGER--GENERAL"), the Merger Agreement may be terminated
and the Merger abandoned, notwithstanding approval by Texas American
shareholders, at any time before the Effective Time by:
(i) Mutual written consent duly authorized by the Boards of Directors
of Compass and Texas American;
(ii) Compass (a) if Compass learns or becomes aware of a state of
facts or breach or inaccuracy of any representation or warranty of
Texas American which constitutes a Material Adverse Effect, as defined
in the Merger Agreement, (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 and Compass Texas to
effect the Merger contained in the Merger Agreement are not satisfied
or waived in writing by Compass;
(iii) Texas American if Texas American's conditions to Closing
contained in the Merger Agreement are not satisfied or waived in
writing by Texas American;
(iv) Compass or Texas American if the Effective Time shall not have
occurred on or before December 31, 1996, or such later date agreed to
in writing by Compass and Texas American; or
(v) Compass or Texas American 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.
21
<PAGE>
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
Promptly after the Effective Time, the Exchange Agent will furnish
each holder of record of Texas American Common Stock as of the Effective
Time with transmittal materials for use in exchanging certificates
representing Texas American Common 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 good delivery of Texas
American Common 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 Texas American Common Stock
otherwise entitled to receive such fractional share. Such cash payment
shall be based on the Per Share Merger Consideration. 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
Texas American Common Stock certificates in exchange for Compass Common
Stock.
Upon the Effective Time of the Merger, former Texas American
shareholders will cease to have any rights as shareholders of Texas
American, and the Texas American shareholders shall have only 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' RIGHTS".
DISSENTERS' RIGHTS
By following the specific procedures set forth in the TBA, Texas
American shareholders have a statutory right to dissent from the Merger.
If the Merger is approved and consummated, any Texas American 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 Texas American Common Stock rather than receiving
the consideration set forth in the Merger Agreement. The following summary
is not a complete statement of statutory dissenters' rights of appraisal,
and such summary is qualified by reference to the applicable provisions of
the TBA, 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 Texas American 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 dissenter's
rights of appraisal. If the Merger is effected, each shareholder who sent
notice to Texas American 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.
Texas American, as survivor of the Merger, will be liable for
discharging the rights of Dissenting Shareholders and shall, within ten
(10) days of the Effective Time, notify the Dissenting Shareholders in
writing
22
<PAGE>
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 Texas American Common 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 Texas American Common Stock duly endorsed by the Dissenting
Shareholder, or (ii) containing Compass' written estimate of the fair value
of the shares of Texas American Common 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 and surrender
of the relevant certificates of Texas American Common Stock duly endorsed
by the Dissenting Shareholder. In either case, the Dissenting Shareholder
shall cease to have any ownership interest in Texas American or Compass
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 TBA 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 Texas American Common
Stock in question. The appraisers shall determine such value and file a
report with the court. The court shall then in its judgment determine the
fair value of the shares of Texas American Common 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, beginning ninety-one (91) days after the
Effective Time 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 Texas American Common Stock
duly endorsed by the Dissenting Shareholders. Upon payment of the judgment,
the Dissenting Shareholders shall cease to have any interest in Texas
American, Compass or the Stock. All court costs and fees of the appraisers
shall be allotted between the parties in the manner that the court
determines is fair and Texas American.
Any Dissenting Shareholder who has made a written demand on Compass
for payment of the fair value of his Texas American Common 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 to 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 Texas American Common 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
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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 TEXAS
AMERICAN AND COMPASS--APPRAISAL RIGHTS"; AND APPENDIX II.
It is a condition to Compass' obligations under the Merger Agreement
that not more than 5% of the outstanding shares of Texas American Common
Stock shall have been determined to be held by dissenting or potentially
dissenting shareholders. If such condition is not met, Compass will be
entitled to terminate the Merger Agreement. SEE "THE MERGER AGREEMENT--
OTHER TERMS AND CONDITIONS".
SEE "THE MERGER--FEDERAL INCOME TAX CONSEQUENCES" for a description of
the tax consequences of exercising dissenters' rights.
FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Liddell, Sapp, the Merger, if consummated in
accordance with the Merger Agreement, will qualify as a "reorganization"
within the meaning of Section 368(a) of the Code. An opinion of counsel is
not binding on the Internal Revenue Service ("IRS") or the courts.
Liddell, Sapp has relied upon certain assumptions and representations
in issuing its opinion, including the following:
1. The Merger and the subsequent Bank Merger will be respected as
separate transactions for federal income tax purposes. This matter is
discussed in greater detail below.
2. Texas American shareholders will receive only Compass Common
Stock in the Merger and they will not receive or be deemed by the IRS to
receive any cash (other than cash paid in lieu of fractional shares of
Compass Common Stock) or other property which would constitute "boot" for
federal income tax purposes.
3. Compass has received representations from certain historic Texas
American shareholders who will receive at least 50% of the Compass Common
Stock issued in the Merger stating that they have no present intention to
dispose of the Compass Common Stock received.
In such counsel's opinion, the following federal income tax
consequences to Texas American shareholders will result from the
qualification of the Merger as a reorganization under Section 368(a) of the
Code:
1. A Texas American shareholder will not recognize any gain or loss
upon the exchange of his or her Texas American Common Stock solely for
Compass Common Stock.
2. The aggregate tax basis of Compass Common Stock received by a
Texas American shareholder in the Merger will be the same as the aggregate
basis of the Texas American Common 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 Texas American shareholder surrenders two blocks of Texas
American Common 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 or she receives in exchange for each share of
Texas American Common Stock in the first block will have a basis of $1.00,
and the Compass Common Stock which he receives in exchange for each share
of Texas American Common Stock in the second block will have a basis of
$2.00.
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3. The holding period of Compass Common Stock to be received by each
Texas American shareholder will include the period during which he or she
held the Texas American Common Stock surrendered in exchange therefor,
provided that the Texas American Common 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 Texas American shareholder who dissents from the Merger and
receives solely cash in exchange for his or her Texas American Common
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.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN
FOR GENERAL INFORMATION ONLY. TEXAS AMERICAN 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 expects to receive a legal opinion from Liddell, Sapp at the
Closing that the Merger will qualify as a reorganization under Section
368(a) of the Code in satisfaction of a condition to consummation of the
Merger. SEE "THE MERGER--OTHER TERMS AND CONDITIONS".
GOVERNMENT APPROVALS
The Merger is subject to, and conditioned upon, receipt of approval
from the Commissioner and approval of a formal application under the BHC
Act by the Federal Reserve. The Bank Merger will also require the approval
of the FDIC and the Commissioner. Applications to the FDIC and the
Commissioner have been submitted with respect to the Bank Merger which
approvals are expected to be issued timely.
A formal application under the BHC Act was filed with the Federal
Reserve on June 5, 1996, and the Merger may not be consummated for a period
of 15 to 30 days after Federal Reserve approval. In addition, the Bank
Merger may not be consummated for a period of 15 to 30 days following FDIC
approval. During either such 15 to 30 day waiting period, the Justice
Department may object to the Merger on antitrust grounds, which action will
stay the consummation of the transactions unless otherwise ordered by an
appropriate judicial authority. Neither Texas American nor Compass has any
reason to believe that the Justice Department will take any action to stay
the approval of the Merger. Approval of the Bank Merger is not a condition
to consummation of the Merger.
The Texas Banking Act allows out-of-state bank holding companies to
acquire state banks located within Texas. 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. SEE "SUMMARY-
- -CONDITIONS TO CONSUMMATION AND REGULATORY APPROVALS"; "TERMINATION"; AND
"SUPERVISION AND REGULATION".
ACCOUNTING TREATMENT
Compass expects to account for the Merger using the "pooling-of-
interests" method of accounting. Compass has received a letter from KPMG
Peat Marwick LLP, which will be updated as of the Effective Time, to the
effect that the Merger will qualify for pooling-of-interests accounting
treatment. Under this accounting method, at the
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Effective Time, Texas American'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 Texas American 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, Compass of Texas and Compass
Bancorporation are subject to regulation by the Federal Reserve and their
respective bank subsidiaries (the "Subsidiary Banks") are subject to
regulation by 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-Florida 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, COMPASS OF TEXAS AND COMPASS BANCORPORATION
Compass, Compass of Texas and Compass Bancorporation 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, Compass of Texas
and Compass Bancorporation are required to file with the Federal Reserve an
annual report and such additional information as the Federal Reserve may
require pursuant to the BHC Act. The Board may also make examinations of
the 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 of
the assets of any bank or ownership or control of any voting shares of any
bank if, after such acquisition, it would own or control, directly or
indirectly, more than five percent of the voting shares of any such bank.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("Interstate Act") permits 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 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.
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The Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") enacted major regulatory reforms, stronger capital
standards for savings associations and stronger civil and criminal
enforcement provisions. FIRREA allows the acquisition of healthy and
failed savings associations by bank holding companies and imposes no
interstate barriers on such bank holding company acquisitions. With
certain qualifications, FIRREA also allows bank holding companies to merge
acquired savings and loans into their existing commercial bank
subsidiaries. FIRREA also provides that a depository institution insured by
the FDIC can be held liable for any loss incurred by, or reasonably
expected to be incurred by, the FDIC after August 9, 1989 in connection
with (i) the default of a commonly controlled FDIC-insured depository
institution or (ii) any assistance provided by the FDIC to a commonly
controlled FDIC-insured depository institution in danger of default.
In December of 1991, the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") was enacted. This act recapitalized the
Bank Insurance Fund ("BIF"), of which the Subsidiary Banks are members,
substantially revised statutory provisions, including capital standards,
restricted certain powers of state banks, gave regulators the authority to
limit officer and director compensation and required holding companies to
guarantee the capital compliance of their banks in certain instances.
Among other things, FDICIA requires the federal banking agencies to take
"prompt corrective action" with respect to banks that do not meet minimum
capital requirements. FDICIA establishes five capital tiers: "well
capitalized", "adequately capitalized", "undercapitalized", "significantly
undercapitalized" and "critically undercapitalized", as defined by
regulations recently adopted by the Federal Reserve, the FDIC and the other
federal depository institution regulatory agencies. A depository
institution is well capitalized if it significantly exceeds the minimum
level required by regulation for each relevant capital measure, adequately
capitalized if it meets such measure, undercapitalized if it fails to meet
any such measure, significantly undercapitalized if it is significantly
below such measure and critically undercapitalized if it fails to meet any
critical capital level set forth in the regulations. The critical capital
level must be a level of tangible equity capital equal to not less than 2%
of total tangible assets and not more than 65% of the minimum leverage
ratio to be prescribed by regulation (except to the extent that 2% would be
higher than such 65% level). An institution may be deemed to be in a
capitalization category that is lower than is indicated by its actual
capital position if it receives an unsatisfactory examination rating.
If a depository institution fails to meet regulatory capital
requirements, the regulatory agencies can require submission and funding of
a capital restoration plan by the institution, place limits on its
activities, require the raising of additional capital and, ultimately,
require the appointment of a conservator or receiver for the institution.
The obligation of a controlling bank holding company under FDICIA to fund a
capital restoration plan is limited 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 December 31, 1995, the Subsidiary Banks were "well capitalized",
and were not subject to any of the foregoing restrictions, including,
without limitation, those relating to brokered deposits. The Subsidiary
Banks do not rely upon brokered deposits as a primary source of deposit
funding, although such deposits are sold through the Correspondent and
Investment Services Division of Compass Bank.
FDICIA contains numerous other provisions, including 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
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required 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) pay a higher insurance assessment.
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 are 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-Florida is organized under the laws of the State of Florida
and is subject to supervision, regulation and examination by the Florida
Department of Banking and Finance. Compass Bank-Houston and Compass Bank-
Central Texas are organized under the laws of the State of Texas, and are
not members of the Federal Reserve System. The Texas banks are supervised,
regulated and regularly examined by the Department and the FDIC. The
Subsidiary Banks, as participants in the BIF and the Savings Association
Insurance Fund of the FDIC, are subject to the provisions of the Federal
Deposit Insurance Act and to examination by and regulations of the FDIC.
The Alabama Subsidiary Banks are governed by Alabama laws restricting
the declaration and payment of dividends to ninety percent (90%) of annual
net income until its surplus funds equal at least twenty percent (20%) of
capital stock. Compass Bank has surplus in excess of this amount. The
Texas Subsidiary Banks, which are governed by the laws of the State of
Texas, are restricted in the declaration and payment of dividends to
undivided profits; that is, the portion of equity capital of a state bank
equal to the balance of its net profits, income, gains and losses since the
date of its formation, less subsequent distributions to shareholders and
transfers to surplus or capital under share dividends or by board
resolution. The Florida Subsidiary Bank, which is 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 twenty percent (20%) 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.
Federal law further provides that no insured depository institution
may make any capital distribution (which would include a cash dividend) if,
after making the distribution, the institution would not satisfy one or
more of its minimum capital requirements. Moreover, the federal bank
regulatory agencies also have the general authority to limit the dividends
paid by insured banks if such payments may be deemed to constitute an
unsafe and unsound practice. Insured banks are prohibited from paying
dividends on its capital stock while in default in the payment of any
assessment due to the FDIC except in those cases where the amount of the
assessment is in dispute and the insured bank has deposited satisfactory
security for the payment thereof.
The Community Reinvestment Act of 1977 ("CRA") and the regulations of
the Federal Reserve and the FDIC implementing that act are intended to
encourage regulated financial institutions to help meet the credit needs
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of their local community or communities, including low and moderate income
neighborhoods, consistent with the safe and sound operation of such
financial institutions. The CRA and such regulations provide that the
appropriate regulatory authority will assess the records of regulated
financial institutions in satisfying their continuing and affirmative
obligations to help meet the credit needs of their local communities as
part of their regulatory examination of the institution. The results of
such examinations are made public and are taken into account upon the
filing of any application to establish a domestic branch, to merge or to
acquire the assets or assume the liabilities of a bank. In the case of a
bank holding company, the CRA performance record of the banks involved in
the transaction are reviewed in connection with the filing of an
application to acquire ownership or control of shares or assets of a bank
or to merge with any other bank holding company. An unsatisfactory record
can substantially delay or block the transaction.
OTHER
Other legislative and regulatory proposals regarding changes in
banking, and the regulation of banks, thrifts and other financial
institutions, are being considered by the executive branch of the Federal
government, Congress and various state governments, including Alabama,
Texas and Florida. Certain of these proposals, if adopted, could
significantly change the regulations of banks and the financial services
industry. It cannot be predicted whether any of these proposals will be
adopted or, if adopted, how these proposals will affect Compass or the
Subsidiary Banks.
The Correspondent and Investment Services Division of Compass Bank is
treated as a municipal securities dealer and a government securities dealer
for purposes of the federal securities laws and, therefore, is subject to
certain reporting requirements and regulatory controls by the Commission,
the United States Department of the Treasury and the Federal Reserve.
Compass Brokerage, Inc., a wholly-owned subsidiary of Compass Bank, is a
discount brokerage service registered with the Commission and the National
Association of Securities Dealers, Inc. The subsidiary is subject to
certain reporting requirements and regulatory control by these agencies.
Compass Bancshares Insurance, Inc., a wholly-owned subsidiary of Compass
Bank, is a licensed insurance agent or broker for various insurance
companies. The insurance subsidiary and its licensed agents are subject to
reporting and licensing regulations of the Alabama Insurance Commission.
References under the heading "SUPERVISION AND REGULATION" to
applicable statutes are brief summaries of portions thereof, do not purport
to be complete and are qualified in their entirety by reference to such
statutes.
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DESCRIPTION OF COMPASS COMMON AND PREFERRED STOCK
The following summary of the terms and provisions of the Compass
Common Stock and the Compass Preferred Stock does not purport to be
complete and is qualified in its entirety by reference to Compass' Restated
Certificate of Incorporation and the Certificates of Amendment thereto,
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 39,631,263 shares were issued and
outstanding on April 30, 1996. Compass' Board of Directors may at any
time, without additional approval of the holders of Compass Common Stock,
issue additional authorized but previously unissued shares of Compass
Common Stock.
DIVIDENDS
Holders of Compass Common Stock are entitled to receive dividends
ratably when, as and if declared by Compass' Board of Directors from assets
legally available therefor, after payment of all dividends on preferred
stock, if any is outstanding. Under Delaware law, Compass may pay
dividends out of surplus or net profits for the fiscal year in which
declared and/or for the preceding fiscal year, even if its surplus accounts
are in a deficit position. Dividends paid by its Subsidiary Banks,
principally Compass Bank, are the primary source of funds available to
Compass for payment of dividends to its shareholders and for other needs.
Compass' Board of Directors intends to maintain its present policy of
paying regular quarterly cash dividends. The declaration and amount of
future dividends will depend on circumstances existing at the time,
including Compass' earnings, financial condition and capital requirements,
as well as regulatory limitations and such other factors as Compass' Board
of Directors deems relevant.
Compass' principal assets and sources of income consist of investments
in its operating subsidiaries, which are separate and distinct legal
entities. Federal and state banking regulations applicable to Compass and
its banking subsidiaries require minimum levels of capital which limit the
amounts available for payment of dividends. The Alabama Subsidiary Banks
are governed by Alabama laws restricting the declaration and payment of
dividends to 90% of annual net income until its surplus funds equal at
least 20% of capital stock. Compass Bank has surplus in excess of this
amount. The Texas Subsidiary Banks, which are governed by the laws of the
State of Texas, are restricted in the declaration and payment of dividends
to undivided profits; that is, the portion of equity capital of a state
bank equal to the balance of its net profits, income, gains and losses
since the date of its formation, less subsequent distributions to
shareholders and transfers to surplus or capital under share dividends or
by board resolution. The Florida Subsidiary Bank, which is 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 twenty percent (20%) 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. SEE "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE"; "SUMMARY--REASONS FOR THE MERGER; RECOMMENDATION OF BOARD OF
DIRECTORS"; "RISK FACTORS"; "SELECTED FINANCIAL DATA"; "MARKET PRICES";
"COMPARISON OF RIGHTS OF SHAREHOLDERS OF TEXAS AMERICAN AND COMPASS--
DIVIDENDS"; AND "INFORMATION ABOUT COMPASS".
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PREEMPTIVE RIGHTS
The holders of Compass Common Stock do not have preemptive rights to
subscribe for a proportionate share of any additional securities issued by
Compass before such securities are offered to others. The absence of
preemptive rights increases Compass' flexibility to issue additional shares
of Compass Common Stock in connection with acquisitions, employee benefit
plans and for other purposes, without affording the holders of Compass
Common Stock a right to subscribe for their proportionate share of those
additional securities. Any further issuance of Compass Common Stock after
the Effective Time may reduce former Texas American shareholders'
proportionate interest in Compass.
VOTING RIGHTS
The holders of Compass Common Stock are entitled to one vote per share
on all matters presented to shareholders. Holders of Compass Common Stock
are not entitled to cumulate their votes in the election of directors.
Cumulative voting rights, if provided for, entitle shareholders to a number
of votes equal to the product of the number of shares held and the number
of directors to be elected and allow shareholders to distribute such votes
among any number of nominees for director or cast such votes entirely for
one director. Cumulative voting rights tend to enhance the voting power of
minority shareholders. SEE "COMPARISON OF RIGHTS OF SHAREHOLDERS OF TEXAS
AMERICAN AND COMPASS--CUMULATIVE VOTING FOR DIRECTORS".
LIQUIDATION
Upon liquidation, dissolution or the winding up of the affairs of
Compass, holders of Compass Common Stock are entitled to receive their pro
rata portion of the remaining assets of Compass after the holders of
Compass preferred stock have been paid in full any sums to which they may
be entitled.
COMPASS PREFERRED STOCK
Compass has authorized 25,000,000 shares of $.10 par value preferred
stock. The preferred stock is issuable in one or more series and Compass'
Board of Directors, subject to certain limitations, is authorized to fix
the number of shares, dividend rate, liquidation prices, redemption,
conversion, voting rights, and other terms. Compass' Board of Directors may
issue preferred stock without approval of the holders of Compass Common
Stock. No shares of preferred stock are outstanding as of the date hereof.
SEE "RISK FACTORS" AND "COMPARISON OF RIGHTS OF SHAREHOLDERS OF TEXAS
AMERICAN AND COMPASS--DIVIDENDS".
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COMPARISON OF RIGHTS OF
SHAREHOLDERS OF TEXAS AMERICAN AND COMPASS
CHARTER AND BY-LAW PROVISIONS AFFECTING COMPASS STOCK
Compass' Certificate and Bylaws 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. Texas American's Articles of Association, as
amended, and Bylaws do not contain similar restrictions, except that the
TBA requires that actions of shareholders without a meeting be by unanimous
written consent, unless the articles of association provide for actions by
holders of the number of shares that would be required for action at a
meeting. Texas American's Articles of Association and By-Laws do not
provide for such shareholder action by less than unanimous consent.
The foregoing summary is qualified in its entirety by reference to
Compass' Certificate and Bylaws, which are available upon written request
from Compass and which are on file with the Commission, and to the Articles
of Association, as amended, and Bylaws of Texas American, which are
available upon request from Texas American. SEE "AVAILABLE INFORMATION";
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE"; "RISK FACTORS"; AND
"INFORMATION ABOUT COMPASS".
In addition to the foregoing differences between Texas American's and
Compass' charters, as a result of the Merger, Texas American shareholders,
whose rights are governed by the TBA, will become shareholders of Compass,
and their rights as shareholders will then be governed primarily by the
GCL.
CERTAIN DIFFERENCES BETWEEN THE BANKING LAWS OF TEXAS AND THE CORPORATION
LAWS OF DELAWARE AND CORRESPONDING CHARTER AND BYLAW PROVISIONS
Certain differences between the Delaware corporation laws and the
Texas banking laws, as well as a description of the corresponding
provisions contained in Compass' and Texas American's respective charter
and By-Laws, as such differences 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 TBA and
the GCL.
MERGERS
Both Texas law and Delaware law generally permit a merger to become
effective without the approval of the surviving bank's or corporation's
shareholders if the articles of association or the articles of
incorporation, as applicable, of the surviving bank or corporation do not
change following the merger, the amount of the surviving bank's or
corporation's common stock to be issued or 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 bank or 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 bank 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
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cases, as described above. SEE "RISK FACTORS" AND "COMPARISON OF RIGHTS OF
SHAREHOLDERS OF TEXAS AMERICAN AND COMPASS--CHARTER AND BYLAW PROVISIONS
AFFECTING COMPASS STOCK".
APPRAISAL RIGHTS
Shareholders of Texas state banks 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
bank (other than in connection with the dissolution of the bank by the
Commissioner or the FDIC) 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 regarding
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 state bank 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 state bank or Delaware corporation to a merger
if that bank or corporation survives the merger and the merger did not
require the vote of the holders of that class or series of such bank's or
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 bank or 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 bank
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, or depository receipts in respect
thereof, (b) shares of stock of any other corporation or depository
receipts in respect thereof, 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 shareholders, (c) cash in lieu of
fractional shares or fractional depository receipts of a corporation
described in (a) and (b) above, or (d) any combination of the shares of
stock, depository receipts and cash in lieu of fractional shares or
fractional depositary receipts described in (a), (b) and (c) above.
SPECIAL MEETINGS
A special meeting of shareholders of a Texas bank 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 association.
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 Bylaws. Texas American's By-
Laws provide that special meetings of shareholders may be called at any
time by the President, the Board of Directors or one or more shareholders
the aggregate of
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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 association 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. Texas American's Articles of
Association, 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, if provided in the Articles of Association,
shareholders of a state bank are entitled to cumulative voting in the
election of directors if they provide the secretary of the bank with
written notice prior to the day of the election of their intent to cumulate
their votes. Absent such provision and such notice, the directors of a
bank 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. Texas American's Articles of
Association, as amended, do not permit cumulative voting. 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 Association requires
the approval of the holders of at least two-thirds of the outstanding
shares of the bank 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 Association. The Articles of Association, as
amended, of Texas American do not so specify. 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 Association) of all, or substantially all, the
property and assets, with or without the goodwill, of a Texas state bank,
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 bank 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 Association require the vote of a different
number, not less than a majority, of the shares outstanding and unless the
Commissioner finds the interests of depositors and creditors are
jeopardized because of insolvency or imminent insolvency and that the sale
is in their best interests and the FDIC approves the transaction and agrees
to provide assistance to the purchaser. Texas American's Articles of
Association, 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,
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<PAGE>
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 voluntary dissolution of a bank requires the
approval of the Commissioner and the holders of at least two-thirds of the
total outstanding shares of the bank, 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 Association. Each outstanding share of a Texas bank is
entitled to vote on dissolution. The Articles of Association, as amended,
of Texas American 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 bank, unless the
bank's Articles of Association provide otherwise. Texas American's
Articles of Association, as amended, do not deny preemptive rights and,
therefore, Texas American's shareholders have preemptive rights as to newly
issued and treasury shares. Shareholders of Compass on the other hand, do
not possess such 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 bank may make
distributions only out of undivided profits, the part of equity capital
equal to the balance of its net profits, income, gains and losses since the
date of its formation, minus subsequent distributions to shareholders and
transfers to surplus or capital under share dividends or appropriate board
resolutions.
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.
Texas American's Articles of Association, as amended, do not contain
restrictions as to the ability of the Texas American Board of Directors to
declare dividends. 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 TEXAS AMERICAN--MARKET PRICE AND DIVIDENDS".
LIQUIDATION RIGHTS
Generally under Texas banking law and Delaware corporate law,
shareholders are entitled to share ratably in the distribution of assets
upon the voluntary dissolution of their bank or corporation. Preferred
shareholders typically do not participate in the distribution of assets of
a dissolved bank or 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.
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<PAGE>
Upon liquidation, dissolution or the winding up of the affairs of
Compass, holders of Compass Common stock are entitled to receive their pro
rata portion of the remaining assets of Compass after the holders of
Compass preferred stock have been paid in full any sums to which they may
be entitled. Compass Preferred Stock has a liquidation value of $100.00
per share, plus accrued and unpaid dividends. Texas American has no
preferred stock and, therefore, upon the voluntary liquidation, dissolution
or winding up of the affairs of Texas American, the shareholders of Texas
American are presently entitled to receive their pro rata portion of the
assets of Texas American available for distribution.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Both Texas banking and Delaware corporate law permit a bank or
corporation to set limits on the extent of a director's liability. Both
Texas banking law and Delaware corporate law permit a bank or 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 bank or corporation. Indemnification
is not allowed under either Texas banking law or Delaware corporate law,
absent a court order to the contrary, if an officer, director, employee or
agent of the bank or corporation is finally adjudged liable to the bank or
corporation.
Under Compass' Certificate of Incorporation, as amended, 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)
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 of Incorporation, as amended, authorizes
indemnification of officers, directors and others to the fullest extent
permitted by Delaware law. SEE "AVAILABLE INFORMATION"; "INCORPORATION BY
REFERENCE OF CERTAIN DOCUMENTS"; AND "INDEMNIFICATION".
Texas American's Articles of Association provide that each director
and officer or former director or officer or any person who may have served
at the request of Texas American as a director or officer of another
corporation in which Texas American owns shares of capital stock or of
which Texas American is a creditor (and their heirs, executors, and
administrators) may be indemnified by Texas American against reasonable
costs and expenses incurred by him in connection with any action, suit, or
proceeding to which he may be made a party by reason of his being or having
been such director or officer, except in relation to any actions, suits, or
proceedings in which he has been adjudged liable because of willful
misfeasance, bad faith, negligence, or reckless disregard of the duties
involved in the conduct of his office, or in the event of a settlement,
each director and officer (and his heirs, executors, and administrators)
may be indemnified by Texas American against payments made, including
reasonable costs and expenses, provided that such indemnity shall be
conditioned upon the prior determination by a resolution of two-thirds of
those members of the Board of Directors of Texas American who are not
involved in the action, suit, or proceeding that the director or officer
has no liability by reason of willful misfeasance, bad faith, negligence,
or reckless disregard of the duties involved in the conduct of his office,
and provided further that if a majority of the members of the Board of
Directors of Texas American are involved in the action, suit, or
proceeding, such determination shall have been made by a written opinion of
independent counsel. Amounts paid in settlement shall not exceed costs,
fees, and expenses which would have been reasonably incurred if the action,
suit, or proceeding had been litigated to a conclusion. Such a
determination by the Board of Directors, or by independent counsel, and the
payments of amounts by Texas American on the basis thereof shall not
prevent a shareholder from challenging such indemnification by appropriate
legal proceedings on the grounds that the person indemnified was liable to
Texas American or its security holders by reason of willful misfeasance,
bad faith, negligence or reckless disregard of the duties involved in the
conduct of his office. The foregoing rights and indemnification shall not
be exclusive of any other rights to which the officers and directors may be
entitled according to law.
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REMOVAL OF DIRECTORS
A Texas bank may provide in its Articles of Association or Bylaws, and
Texas American's Bylaws do provide, 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. 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 of
Incorporation 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 (6) months preceding his demand, or who is the holder of at
least five percent (5%) of all of the outstanding shares of a bank, is
entitled to examine a bank'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 Bylaws limiting a takeover without the support of its Board of
Directors are described in "COMPARISON OF RIGHTS OF SHAREHOLDERS OF TEXAS
AMERICAN AND COMPASS--CHARTER AND BYLAW PROVISIONS AFFECTING COMPASS
STOCK". Texas has not enacted similar legislation.
Although certain of the specific differences between the voting and
other rights of Texas American 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 Bylaws of Compass and Texas American. 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 TBA and the GCL, and the specific
provisions of Compass' Certificate and Bylaws, and Texas American's
Articles of Association, as amended, and Bylaws.
RESALE OF COMPASS STOCK
The Compass Common Stock to be issued to holders of Texas American
Common Stock upon consummation of the Merger will be freely transferable
under the Securities Act, except for shares issued to any person who may be
an "affiliate" of Texas American within the meaning of Rule 145 under the
Securities Act. The directors and executive officers of Texas American,
the beneficial owners of 10% or more of Texas American Common Stock and
certain of their related interests may be deemed to be affiliates of Texas
American. Such affiliates are not permitted to transfer any Compass Common
Stock except in compliance with the Securities Act and the rules and
regulations thereunder. Such affiliates have delivered to Compass a
written agreement in substantially the form of Exhibit A to the Merger
Agreement providing that each such affiliate will not (i) sell, pledge,
transfer or otherwise dispose of any of such affiliate's Texas American
Common Stock within 30 days prior to the Effective Time, (ii) sell, pledge,
transfer or otherwise dispose of any shares of Compass Common Stock until
the publication of financial results covering at least 30 days of post-
Merger combined operations of Texas American and Compass, except for loans
to any such affiliates secured by a pledge of all or part of such Compass
Common Stock, provided the lender agrees to be bound by the terms of such
written agreement, and (iii) agrees not to transfer any Compass Common
Stock except in compliance with the applicable provisions of the Securities
Act and the Exchange Act and the respective rules and regulations
thereunder. SEE "SUMMARY--ACCOUNTING TREATMENT"; "THE MERGER--ACCOUNTING
TREATMENT"; AND APPENDIX I.
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Pursuant to the Merger Agreement, holders of shares of Texas American
Common Stock that will be entitled to receive more than fifty percent (50%)
of the aggregate Merger Consideration have represented to Compass their
intention not to sell or otherwise dispose of the shares of Compass Common
Stock received in the Merger. As a condition to consummation of the
Merger, the representation from Texas American shareholders receiving at
least 50% of the aggregate Merger Consideration that they have no current
plan or present intention to sell or otherwise dispose of the shares of
Compass Common Stock received pursuant to the Merger must remain true as of
the Effective Time. SEE "THE MERGER--OTHER TERMS AND CONDITIONS".
INFORMATION ABOUT COMPASS
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Certain documents filed by and relating to Compass, including Compass'
Annual Report on Form 10-K for the year ended December 31, 1995 are
incorporated herein by reference. SEE "AVAILABLE INFORMATION";
"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 Texas American or the Merger, except as a
director, executive officer or shareholder of Compass or its subsidiaries.
INFORMATION ABOUT TEXAS AMERICAN
SERVICES, EMPLOYEES AND PROPERTIES
Texas American Bank, formerly named The Bank of Leon Springs, is a
Texas state chartered non-member bank organized in June 1985. In June
1989, The Bank of Leon Springs purchased via a Federal Deposit Insurance
Corporation Total Asset Purchase and Assumption transaction the assets of
the failed Helotes State Bank. In June 1993, The Bank of Leon Springs with
its two branches, one in Helotes, Texas, and the other in Leon Springs,
Texas, changed its name to Texas American Bank. In June 1994 Texas
American Bank opened its third branch at 85 N.E. Loop 410 in the City of
San Antonio. In August 1995 Texas American received approval from the
Texas Banking Department and from the FDIC to open a fourth branch at 5848
Babcock Road in the City of San Antonio. Texas American currently is
operating the Helotes, Leon Springs and 410 branches, with the Babcock
location on hold pending the merger with Compass. Each branch offers all
of Texas American's services, which include checking accounts, savings
accounts, certificates of deposit, individual retirement accounts, safe
deposit services and personal and commercial loans.
On May 31, 1996, the Texas American had 29 full time employees and 7
part time employees. Texas American had 12 officers at that date. On May
31, 1996, the Texas American had 7 directors. Outside directors are
compensated for their services.
SEE "INFORMATION ABOUT TEXAS AMERICAN--MANAGEMENT AND PRINCIPAL
SHAREHOLDERS"; "INFORMATION ABOUT TEXAS AMERICAN--COMMITTEES AND MEETINGS
OF THE BOARD OF DIRECTORS"; AND "INFORMATION ABOUT TEXAS AMERICAN--
EXECUTIVE COMPENSATION".
COMPETITION
The banking business is highly competitive. Numerous other commercial
banking facilities, credit union and thrift institutions are located within
Texas American's primary service area, and such financial service providers
compete directly with Texas American with regard to the full range of
commercial banking services.
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Texas American also faces competition from a wide variety of
depository institutions from other geographical areas which compete for
deposits, loans and bank-related services. As deregulation of depository
institutions and financial services continues, competition from nonbank
financial intermediaries such as savings and loan associations, credit
unions, mortgage companies, insurance companies and other financial
institutions may be expected to intensify. Texas American 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 Texas American
competes have capital and resources much larger than those of Texas
American, and some are not subject to the same regulatory restrictions.
LEGAL PROCEEDINGS
In the normal course of their businesses, Texas American from time to
time is involved in legal proceedings. Other than such proceedings
incidental to its business, Texas American's management is not aware of any
pending or threatened legal proceedings which, upon resolution, would have
a material adverse effect upon Texas American'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 CONDITIONS".
MARKET PRICE AND DIVIDENDS
There is no active public trading market for the Texas American Common
Stock. As of May 31, 1996, Texas American Common Stock was held by 54
holders of record. Texas American has never paid a dividend on its common
stock. SEE "MARKET PRICES"; "COMPARISON OF RIGHTS OF SHAREHOLDERS OF TEXAS
AMERICAN AND COMPASS DIVIDENDS"; INFORMATION ABOUT TEXAS AMERICAN--
REGULATORY COMMITMENTS"; AND "INFORMATION ABOUT TEXAS AMERICAN--MANAGEMENT
AND PRINCIPAL SHAREHOLDERS".
BENEFICIAL OWNERSHIP OF TEXAS AMERICAN COMMON STOCK BY TEXAS AMERICAN
MANAGEMENT AND PRINCIPAL SHAREHOLDERS
The following table shows as of May 31, 1996 the number of shares of
Texas American Common Stock, beneficially owned by each director and
executive officer of Texas American, and information for all Texas American
directors and executive officers as a group. The table also sets forth the
name and address for each person known by Texas American to be the
beneficial owner of more than 5% of the outstanding shares of Texas
American Common Stock.
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<TABLE>
<CAPTION>
Names of Directors and Executive Number of Shares of
Officers and Names and Addresses of Stock Percent of Total
5% Shareholders Beneficially Owned (1) Outstanding Shares
- ------------------------------------ ------------------------ ------------------
<S> <C> <C>
Carlin R. Friar 500 *
J. Pat Garrett 16,150 8%
3355 W. Alabama, #730
Houston, TX 77098
Michael L. Garrett 40,386 20%
5307 E. Mockingbird Lane,
Suite. 705
Dallas, TX 75206
Kyle Hultz/1/ 2,142 1%
Charles F. Krause 19,400 9%
1010 Misty Water Lane
San Antonio, TX 78258
Richard E. Lane/2/ 22,652 11%
P. O. Box 682009
San Antonio, TX 78268-2009
Gregory M. Lyssy 2,000 1%
Nick McFadin, Jr. 20,455 10%
220 Elizabeth Ann
San Antonio, TX 78213
Gilbert Rice Meadows/3/ 29,400 14%
807 East Contour Drive
San Antonio, TX 78212
Paul David Thornton 576 *
Gary W. Wolff 15,900 8%
29610 Double Eagle Circle
Fair Oak Ranch, TX 78015
George A. Wolff 15,900 8%
1106 Sisterdale Rd.
Boerne, TX 78006
Directors and Executive Officers as a 132,956 65%
Group (9 persons)/2&3/
</TABLE>
- --------------------
* Less than one percent
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/1/ Mr. Hultz's shares are registered in the name of he and his wife.
/2/ Includes 1,000 shares owned by his wife, as to which Mr. Lane
disclaims beneficial ownership.
/3/ Of the shares shown for Dr. Meadows, 1 share is owned by Dr. Meadows
and 29,399 shares are owned by his wife, as to which Dr. Meadows disclaims
beneficial ownership.
Except as described below in "CERTAIN TRANSACTIONS BETWEEN CERTAIN
TEXAS AMERICAN SHAREHOLDERS AND RICHARD E. LANE," the persons listed above
will receive the same Merger Consideration described in "THE MERGER--
GENERAL" as the other Texas American shareholders for each share of Texas
American Common Stock held at the Effective Time.
The directors and officers of Texas American control, with the power
to vote, an aggregate of 132,956 shares of Texas American Common Stock,
representing approximately 65% of the total shares of Texas American Common
Stock issued and outstanding. SEE "INTRODUCTION"; "SUMMARY--SHAREHOLDER
VOTES REQUIRED"; AND "THE MERGER--GENERAL".
Officers, directors and certain shareholders of Texas American owning
183,384 shares of Texas American Common Stock, comprising approximately
89.01% of the total shares of Texas American Common Stock issued and
outstanding as of the Record Date, have agreed, pursuant to the Proxy, to
vote their shares in favor of the Merger and the Bank Merger. AS A RESULT,
BECAUSE SUCH OFFICERS, DIRECTORS AND SHAREHOLDERS HAVE THE POWER TO VOTE
OVER TWO-THIRDS OF THE SHARES OF TEXAS AMERICAN COMMON STOCK ISSUED AND
OUTSTANDING AND ENTITLED TO VOTE AT THE MEETING, THE EFFECT OF THEIR
AGREEMENT TO VOTE IN FAVOR OF THE MERGER IS TO ASSURE APPROVAL OF THE
MERGER AND THE BANK MERGER BY THE TEXAS AMERICAN SHAREHOLDERS, SUBJECT TO
THE TERMINATION RIGHTS CONTAINED IN THE MERGER AGREEMENT.
CERTAIN TRANSACTIONS BETWEEN CERTAIN TEXAS AMERICAN SHAREHOLDERS AND
RICHARD E. LANE
Richard E. Lane and J. Patrick Garrett, Michael L. Garrett, Charles F.
Krause, Nick McFadin, Jr., Gilbert R. and Jan B. Meadows, Gary W. Wolff and
George A. Wolf (collectively, the "Control Group") entered into a letter
agreement dated as of October 4, 1995, and amended as of April 18, 1996
(the "Agreement"), which provides that upon the sale of Texas American, the
Control Group agrees to pay to Richard E. Lane a commission equal to eight
percent (8%) of the gross sales price minus $156,575 plus an amount to
adjust for certain income tax consequences to Mr. Lane (i.e., ordinary
income tax rather than capital gains tax). Such commission is to be paid
in three equal installments with the first installment payable on the
closing of the sale, and the remaining two installments to be paid on the
first and second anniversary thereof. The consummation of the Merger will
be considered a "sale" for purposes of the Agreement.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF TEXAS AMERICAN BANK
The following discussion provides certain information regarding the
financial condition and results of operations of Texas American. This
discussion should be read in conjunction with Texas American's Financial
Statements and Notes to Financial Statements presented elsewhere in this
Proxy Statement/Prospectus. SEE "INDEX TO TEXAS AMERICAN FINANCIAL
STATEMENTS".
RESULTS OF OPERATIONS
GENERAL
The earnings of Texas American depend primarily on Texas American's
net interest income (i.e., the difference between the income earned on
Texas American'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 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.
Texas American's income is also affected by fees it receives from
other banking services, by its provisions for loan losses and by the level
of its operating expenses. All aspects of Texas American's operations are
affected by general market, economic and competitive conditions.
Texas American reported net income of $217,525 for the three month
period ended March 31, 1996, an increase of $38,288 from net income of
$179,237 for the three month period ended March 31, 1995. Pretax income
was $331,369 for the three months ended March 31, 1996, a $58,672 increase
from the $272,697 earned during the three months ended March 31, 1995.
Texas American had net income of $753,408 for the year ended December 31,
1995, $809,172 for the year ended December 31, 1994 and $655,723 for the
year ended December 31, 1993. Due to net operating loss carryforwards,
Texas American Bank did not incur federal income taxes in 1993. Changes
occurring in the major components of Texas American's income statement for
such periods are discussed below.
NET INTEREST INCOME
Net interest income is the primary source of income for Texas American
and represents the amount by which interest generated by earning assets
exceed the cost of funds, primarily interest paid to Texas American's
depositors on interest bearing accounts. Net interest income was $764,127
for the three months ended March 31, 1996, an 18% increase from net
interest income of $648,189 for the three months ended March 31, 1995.
Average rates earned on interest bearing assets increased to 8.48% as of
March 31, 1996 from 8.02% as of March 31, 1995. Average loans, net of
unearned discount of $38 million for the three months ended March 31, 1996,
increased 27% over average loans of $30 million for the same period in
1995. Average deposits for the three months ended March 31, 1996 were $54
million, an increase of 6% over average deposits of $51 million for the
same period in 1995.
Net interest income was $2,975,890 for the year ended December 31,
1995, a 22% increase from net interest income of $2,435,439 for 1994.
Average loans of $33 million for year ended December 31, 1995 increased 31%
over average loans of $25 million for the same period in 1994. Average
interest bearing deposits for the year ended December 31, 1995 were $39
million, an increase of 18% over average interest bearing deposits of $33
million for the same period in 1994.
42
<PAGE>
For the year ended December 31, 1995, net interest income increased
$581,011, or 26%, over net interest income for the year ended December 31,
1994. Net interest income increased $638,254 in 1994, or 41%, over 1993
net interest income of $1,683,283. These increases were primarily due to
increased interest income on real estate loans.
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.
43
<PAGE>
<TABLE>
<CAPTION>
(Dollars in Thousands)
Three Months Three Months
Ended March 31, Ended March 31,
-------------------------- ---------------------------
1996 1995
-------------------------- ---------------------------
Average Interest Yield/ Average Interest Yield/
Balance Inc/Exp Rate Balance Inc/Exp Rate
------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans(1) $37,680 $ 904 9.63% $29,555 $709 9.72%
Securities-Held to Maturity -- -- 0.00% 4,664 71 5.97%
Securities-Available for Sale 15,414 226 5.86% 12,709 173 5.43%
Federal funds sold 1,550 20 5.24% 2,558 37 5.88%
------- ------ ---- ------- ---- ----
Total interest-bearing assets/interest
income/average yield 54,644 1,150 8.48% 49,486 990 8.02%
Non-interest earning assets:
Cash and due from banks 3,103 3,050
Other assets 2,428 2,344
Allowance for possible loan losses (372) (335)
------- -------
Total $59,803 $54,545
======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest bearing liabilities:
NOW, money market and savings $26,438 187 2.83% $26,843 200 3.01%
Certificates of deposit 14,573 188 5.17% 11,772 141 4.84%
Federal funds purchased 19 -- 5.56% -- -- 0.00%
Repurchase agreements 899 11 4.94% 97 1 5.75%
------- ------ ---- ------- ---- ----
Total interest-bearing liabilities/interest
expense/rate 41,929 386 3.26% 38,712 342 3.57%
Noninterest bearing demand deposits 13,380 12,487
Other liabilities 221 193
------- -------
Total Liabilities 55,530 51,392
Stockholders' equity 4,273 3,153
------- -------
Total $59,803 $51,545
======= ------ ======= ----
Net interest income $ 764 $649
====== ====
Net yield on interest earning assets 5.61% 5.31%
==== ====
</TABLE>
(1) Includes non-accrual loans. See notes to Financial
Statements (Unaudited) of Texas American.
44
<PAGE>
<TABLE>
<CAPTION>
(Dollars in Thousands)
Year Ended December 31,
1995 1994 1993
--------------------------- --------------------------- ---------------------------
Average Interest Yield/ Average Interest Yield/ Average Interest Yield/
Balance Inc/Exp Rate Balance Inc/Exp Rate Balance Inc/Exp Rate
-------- -------- ------ -------- -------- ------ -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans (1) $32,984 $3,224 9.80% $25,103 $2,319 9.24% $16,925 $1,597 9.43%
Securities-Held to Maturity 500 19 6.42% 4,722 288 6.09% 11,318 580 5.12%
Securities-Available for Sale(2) 16,076 932 5.67% 11,019 524 5.20% -- -- --
Due from-time -- -- -- 146 7 4.70% 1,824 74 4.06%
Federal funds sold 2,306 135 5.86% 1,800 76 4.25% 3,230 97 2.99%
------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest-earning
assets/interest income/
average yield 51,776 4,310 8.32% 42,790 3,214 7.55% 33,297 2,348 7.05%
Non-interest earning assets:
Cash and due from banks 3,009 2,506 1,948
Other assets 2,402 2,024 1,877
Allowance for possible loan losses (345) (308) (314)
------- ------- -------
TOTAL $56,842 $47,012 $36,808
======= ======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest bearing liabilities:
NOW, money market and savings $25,033 763 3.20% $23,778 655 2.75% $17,787 488 2.74%
Certificates of deposit 13,572 705 5.20% 9,061 361 3.99% 7,640 292 3.82%
Federal funds purchased 28 2 6.34% 14 1 3.92% 47 2 3.31%
Repurchase agreements 1,170 61 5.22% -- -- -- 240 7 3.05%
------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest bearing liabilities/
interest expense/ rate 39,803 1,531 3.94% 32,853 1,017 3.05% 25,714 788 3.07%
Noninterest bearing demand deposits 13,191 11,196 8,741
Other liabilities 202 153 185
------- ------- -------
Total Liabilities 53,196 44,202 34,640
Stockholders' equity 3,646 2,810 2,168
------- ------- -------
TOTAL $56,842 $47,012 $36,808
======= ------ ======= ------ ======= ------
Net interest income $2,779 $2,197 $1,560
====== ---- ====== ---- ======
Net yield on interest earning
assets 5.33% 5.10% 4.68%
==== ==== ====
</TABLE>
(1) Includes Nonaccrual loans.
(2) 1993 Securities were not classified.
Changes in interest income and interest expense can result from variances in
both volume and rate. Texas American has an asset and liability management
strategy designed to provide a proper balance between rate sensitive assets
and rate sensitive liabilities to attempt to maximize interest margins, and
to provide adequate liquidity for anticipated needs.
45
<PAGE>
The following table sets forth for the periods indicated a summary of the
changes in interest earned and interest paid resulting from changes in
volume and rate.
<TABLE>
<CAPTION>
(Dollars in Thousands)
Three Months Ended Year Ended Year Ended
March 31, 1996 December 31, 1995 December 31, 1994
Change --------------------- Change ---------------------- Change -----------------------
1996 Attributed to 1995 Attributed to 1994 Attributed to
to --------------------- to ---------------------- to -----------------------
1995 Volume Rate Mix 1994 Volume Rate Mix 1993 Volume Rate Mix
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Loans $ 195 $197 $ (7) $ 5 $ 905 $ 719 $ 140 $ 46 $ 722 $ 771 $(32) $ (17)
Securities-Held to Maturity (71) (71) -- -- (269) (257) 15 (27) (292) (337) 109 (64)
Securities-Available for
Sale 53 37 14 2 408 263 52 93 524 524 -- --
Due from-time -- -- -- -- (7) (7) -- -- (67) (68) 11 (10)
Federal funds sold (17) (15) (4) 2 59 30 29 -- (21) (43) 41 (19)
----- ---- ---- --- ------ ----- ----- ---- ----- ----- ---- -----
Increase (decrease) in
interest income $ 160 $148 $ 3 $ 9 $1,096 $ 748 $ 236 $112 $ 866 $ 847 $129 $(110)
===== ==== ==== === ====== ===== ===== ==== ===== ===== ==== =====
Interest expense:
Savings and transaction
accounts $ (13) $ (3) $(12) $ 2 $ 108 $ 35 $ 107 $(34) $ 167 $ 164 -- $ 3
Time deposits 47 33 10 4 344 180 110 54 69 54 13 2
Federal funds purchased -- -- -- -- 1 1 -- -- (1) (1) -- --
Repurchase Agreements 10 11 -- (1) 61 67 -- (6) (7) (7) -- --
----- ---- ---- --- ------ ----- ----- ---- ----- ----- ---- -----
Increase (decrease) in
interest expense $ 44 $ 41 $ (2) $ 5 $ 514 $ 283 $ 217 $ 14 $ 228 $ 210 $ 13 $ 5
===== ==== ==== === ====== ===== ===== ==== ===== ===== ==== =====
</TABLE>
46
<PAGE>
PROVISION FOR LOAN LOSSES
Texas American'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.
Texas American recorded a $5,000 provision for loan losses for the
three months ended March 31, 1996 and a $6,000 provision for loan losses for the
three months ended March 31, 1995. The allowance for loan losses expressed as a
percentage of outstanding loans net of unearned interest was 1.00% and 1.10% as
of March 31, 1996 and March 31, 1995, respectively.
Texas American recorded a $37,523 provision for loan losses for the
year ended December 31, 1995, a $65,566 provision for loan losses for the year
ended December 31, 1994 and a $49,540 credit for the year ended December 31,
1993. The $49,540 credit for 1993 was the result of improved credit quality of
Texas American's loan portfolio as well as excess accruals in previous years
provisions. Texas American's allowance for loan losses as a percentage of
outstanding loan loans net of unearned interest was 1.05% as of December 31,
1995, 1.22% as of December 31, 1994, and 1.86% as of December 31, 1993.
Non-accrual loans increased by $22,637 for the period ending March 31,
1996. This increase was primarily due to the addition of five loans. For the
years ended December 31, 1995, 1994 and 1993, total non-accrual, past due
greater than 90 days and restructured loans remained fairly consistent with a
$27,413 increase from 1994 to 1995.
NON-INTEREST INCOME
Non-interest income, which includes all service charges and fees,
increased 9% from $114,746 for the three months ended March 31, 1995 to $125,042
for the three months ended March 31, 1996. The $10,296 increase was due to the
increased volume of accounts, which increased by 548 from March 31, 1995 to
March 31, 1996.
Non-interest income increased 2% from $490,163 for the year ended
December 31, 1994 to $497,796 for the year ended December 31, 1995.
Non-interest income decreased 1% from $497,211 for the year ended
December 31, 1993 to $490,163 for the year ended December 31, 1994.
NON-INTEREST EXPENSE
Non-interest expense include expenses which Texas American incurs in
the course of operations such as employee compensation and benefits, occupancy
expense, data processing charges, communication expense, professional fees,
advertising, supplies and depreciation and amortization of furniture and
equipment. These expenses increased 12% from $533,799 for the three months ended
March 31, 1995 to $600,091 for the three months ended March 31, 1996. The
increase was mainly attributable to employee salaries and benefits which
increased $62,280 for the three months ended March 31, 1995 from the same period
in 1996. This increase in salaries and benefits included the addition of a
$33,000 accrual for an employee bonus plan which in prior years was expensed in
the fourth quarter of each such year.
Operating expenses for the year ending December 31, 1995 increased by
$365,409 or 19% for the year ended December 31, 1994. Comparing years 1994 to
1993, operating expenses increased by $341,034 or 22%. These increases are
primarily due to the addition of Texas American's Loop 410 location which opened
the end of 1994.
47
<PAGE>
FEDERAL INCOME TAXES
In 1994, Texas American 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 and
there was no cumulative effect on income.
Texas American's provision for income taxes was $113,844 and $93,460
for the three month periods ended March 31, 1996 and 1995, respectively. As of
March 31, 1996, Texas American has no net operating loss carryforwards.
Texas American's provision for income taxes was $401,999 for year end
1995, $135,519 for the year ended 1994 and $0 for year end 1993. Due to net
operating loss carryforwards, Texas American Bank did not incur federal income
taxes in 1993.
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 institution; (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. The 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
effectiveness of loan and investment policies, and management's ability to
monitor and control financial and operating risks.
Texas American 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 I 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.
48
<PAGE>
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
institutions capital base up to a maximum of 100% of the financial institution's
Tier 1 capital. As of March 31, 1996, Texas American's Tier 1 risk-based capital
ratio was 11.56% and the total risk-based capital ratio was 12.56%. As of year
end 1995, Texas American's Tier 1 capital ratio was 11.51% and the total risk-
based capital ratio was 12.53%.
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 Teir 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 assets of 6%.
Texas American's leverage ratio was 6.7% for year end 1995 and 6.5%
for year end 1994. Currently, for March 1996, the leverage ratio is 7.45%.
LIQUIDITY
Texas American'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. Texas American
accomplishes this through management of the maturities of its interest-earning
assets and interest-bearing liabilities. Liquidity is monitored and overall
interest rate risk is assessed through reports showing both sensitivity ratios
and existing dollar "gap" data. Texas American believes its present position to
be adequate to meet its current and future liquidity needs.
The liquidity of Texas American is maintained in the form of readily
marketable investment securities, demand deposits with commercial banks, vault
cash and federal funds sold. While the minimum liquidity requirement for banks
is determined by federal bank regulatory agencies as a percentage of deposit
liabilities, Texas American'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 findings. In addition to the liquidity provided by
the foregoing, Texas American has correspondent relationships with other
institutions with available secured lines of credit to purchase overnight funds
totalling $4,000,000 should additional liquidity be needed. These lines are
subject to restrictions such as the financial strength of Texas American and the
lenders ability to facilitate credit.
On January 1, 1994, Texas American adopted the provisions of FAS 115.
The opening balance of shareholder's equity was decreased by $110,122 to reflect
the net unrealized holding losses on securities classified as available for sale
which were previously carried at amortized cost. As of March 31, 1996, Texas
American's portfolio totalled $14,369,955 of which all of the securities are
classified as available for sale.
Average non-interest bearing demand deposits were $13,380,000 for the
three months ended March 31, 1996, an increase of $893,000 over the average
balance for the same period in 1995. Average interest bearing deposits were
$41,011,000 for the three months ended March 31, 1996 compared to $38,615,000
for the same period in March 31, 1995.
49
<PAGE>
Average non-interest bearing demand deposits were $13,191,000,
$11,196,000 and $8,741,000 for the years ended December 1995, 1994 and 1993,
respectively. Average interest bearing deposits for the same years were
$38,605,000, $32,839,000 and $25,427,000, respectively.
Net cash generated by operating activities was $733,425, $1,071,116
and $588,562 as of the end of 1995, 1994 and 1993, respectively. Proceeds from
sales, principal paydowns, and maturities of investment securities were
$4,746,820, $1,366,780 and $5,865,842 for the same periods. Proceeds from the
sale of assets during 1995, 1994 and 1993 were $66,037, $33,138 and $33,892,
respectively. Texas American utilized these funds to originate loans and
purchase investment securities. Texas American purchased investment securities
of $3,960,088 in 1996, $2,596,719 in 1994 and $12,233,823 in 1993.
Net cash provided by operating activities was $409,868 for the three
months ended March 31, 1996 and a deficit of $64,799 for the three months ended
March 31, 1995. A net decrease in deposit accounts of ($62,812) was realized
during the three months ended March 31, 1996 compared to an increase of
$5,807,125 for the same period in 1995. The 1995 increase in deposits was
primarily attributable to the development of a significant customer
relationship. For the three months ended March 31, 1996, Texas American utilized
funds to originate loans. For the same period in 1995 funds were utilized to
originate loans and purchase securities totalling $1,195,094.
Funds utilized for the purchase of bank premises and equipment were
$315,048, $304,556 and $178,760 during 1995, 1994 and 1993. In 1995 Texas
American purchased raw land in the amount of $142,863 for the addition of
another branch. Also included in the funds utilized for both 1995 and 1994 was
the opening of Texas American's Loop 410 branch.
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 if 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 diverse 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.
50
<PAGE>
The following table shows interest sensitivity gaps for these
different intervals as of March 31, 1996.
ESTIMATED PERIOD OF POTENTIAL REPRICING
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Over
One Day to Over Six Months
Three Three to Six to One Over One
Floating Months Months Year Year Total
--------- ----------- ------------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INTEREST SENSITIVE ASSETS ("ISA")
Loans/(1)/
(Fixed Rate) -- $ 1,417 $ 1,522 $ 2,271 $19,762 $24,972
(Floating Rate) $ 866 469 2,463 1,729 8,415 13,942
Investment Securities (Fixed Rate) -- 499 498 1,006 5,757 7,760
Investment Securities (Floating Rate) -- 2,797 1,118 2,546 -- 6,461
Fed Funds Sold 3,175 -- -- -- -- 3,175
Time Deposits in Banks -- -- -- -- -- --
-------- -------- -------- -------- ------- -------
TOTAL INTEREST SENSITIVE ASSETS 4,041 5,182 5,601 7,552 33,934 56,310
INTEREST SENSITIVE LIABILITIES ("ISL")
Interest Bearing Deposits 6,682 -- -- -- -- 6,682
Savings Accounts 4,959 -- -- -- -- 4,959
Money Market Checking 14,127 -- -- -- -- 14,127
Certificates of Deposit -- 4,596 3,103 3,058 4,121 14,878
-------- -------- -------- -------- ------- -------
TOTAL DEPOSITS 25,768 4,596 3,103 3,058 4,121 40,646
REPURCHASE AGREEMENTS 876 -- -- -- -- 876
-------- -------- -------- -------- ------- -------
TOTAL INTEREST SENSITIVE LIABILITIES 26,644 4,596 3,103 3,058 4,121 41,522
-------- -------- -------- -------- ------- -------
PERIODIC GAP $(22,603) $ 586 $ 2,498 $ 4,494 $29,813 $14,788
======== ======== ======== ======== ======= =======
CUMULATIVE GAP $(22,603) $(22,017) $(19,519) $(15,025) $14,788
======== ======== ======== ======== =======
PERIODIC GAP TO TOTAL EARNINGS
ASSETS
</TABLE>
/(1)/ Disclosure of loans categorized by type is excluded due to the
information not being readily accessible.
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
Texas American's net interest margin. Because of these factors, an interest
sensitivity gap report may not provide a complete assessment of Texas American's
exposure to changes in interest rates.
51
<PAGE>
INVESTMENT SECURITIES
Set forth is a distribution of Texas American's investment securities by
contractual maturity dates at March 31, 1996 (mortgage-backed securities are
classified in the period of final maturity):
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
------------------------------------------------------------------------------------------------------
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
------ ----- ------ ----- ------ ----- ------ ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities available for
sale: /(1)(2)/
U.S. Treasury $2,003 4.42% $3,008 6.25% -- -- -- -- $ 5,011
Government Agency -- -- 107 8.73% -- -- -- -- 107
Mortgage-backed -- -- 672 6.29% $ 580 6.77% $4,859 6.35% 6,111
Other investments -- -- -- -- 1,969 5.52% 1,023 5.92% 2,992
------ ---- ------ ---- ------ ---- ------ ---- -------
Total Securities
available for sale $2,003 4.42% $3,787 6.32% $2,549 5.81% $3,882 6.27% $14,221
====== ==== ====== ==== ====== ==== ====== ==== =======
</TABLE>
(1) Yields are not presented on a tax-equivalent basis.
(2) Texas American has no securities which are classified as securities
held to maturity.
52
<PAGE>
DEPOSITS
The daily average balances and average rates paid by category of deposit at
the dates shown below are as follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
As of December 31,
As of ------------------------------
March 31, 1996 1995 1994
--------------- ------------- -------------
Amount Rate Amount Rate Amount Rate
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Demand $13,380 -- $13,191 -- $11,196 --
NOW accounts 6,901 1.47% 6,160 1.91% 4,972 1.97%
Money market 14,413 3.42 13,629 3.53 12,343 2.39
Savings 5,124 3.03 5,244 3.15 6,463 3.10
Time 14,573 5.17 13,572 5.12 9,061 3.99
------- ---- ------- ---- ------- ----
TOTAL $54,391 3.67% $51,796 3.77% $44,035 3.13%
======= ==== ======= ==== ======= ====
</TABLE>
The scheduled maturities of certificates of deposit in denominations of
$100,000 or more at March 31, 1996 and December 31, 1995, including public
funds, are shown below:
<TABLE>
<CAPTION>
(Dollars in Thousands)
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Due in three months or less $1,955 $1,135
Due in over three to six
months 1,235 807
Due in over six to twelve
months 716 505
Due in over twelve months 300 250
------ ------
Total $4,206 $2,697
====== ======
</TABLE>
53
<PAGE>
LOANS
The following table classifies Texas American's loans according to type as of
the dates shown:
<TABLE>
<CAPTION>
(Dollars in Thousands)
December 31,
March 31, ----------------------------
1996 1995 1994 1993
--------- ------- ------- -------
<S> <C> <C> <C> <C>
Real estate
Construction and Land Development 6,637 6,535 6,544 2,624
Mortgage Loans 4,101 4,389 3,076 3,366
Other 12,410 10,598 7,442 5,826
Installment 5,665 4,642 3,160 2,261
Commercial 8,867 6,730 4,881 2,848
Less unearned discounts (481) (262) (90) (62)
------ ------ ------ ------
Total 31,199 32,632 25,013 16,863
====== ====== ====== ======
</TABLE>
Disclosure of loan maturity balances is excluded due to the information not
being readily accessible.
Total loans net of unearned income and allowance for possible loan losses
increased 28% in 1995 from 1994 levels. At December 31, 1995, total loans
exceeded year end 1994 levels by 30%. At March 31, 1996, total loans exceeded
year end 1995 loans by 5%.
ALLOWANCE FOR LOAN LOSSES AND RISK ELEMENTS
The provision for loan losses represents a determination by Texas American'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 Texas American'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 Texas American'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 and, while it is also Texas American's
policy to charge off in the current period those loans in which a loss is deemed
to exist, risks of future losses also exist which cannot be quantified precisely
or attributed to particular loans or classes of loans.
In assessing the adequacy of its allowance for loan losses, management relies
predominantly on its ongoing review of the loan portfolio, which is undertaken
both to ascertain whether there are probable losses which must be charged off
and to assess the risk characteristics of individually significant loans and of
the portfolio in the aggregate. This review takes into consideration the
judgments of the responsible lending officers, the senior credit officer, the
Chief Executive Officer and the Board of Directors, and also those of bank
regulatory agencies that review the loan portfolio as part of their regular
examination of Texas American.
In evaluating the allowance for loan losses, management also considers Texas
American's loan loss experience, the amount of past due and non-performing
loans, current and anticipated economic conditions, changes in lending and
collection procedures, changes in loan volumes and quality of the Texas
American's loan review system.
54
<PAGE>
The allowance for loan losses at March 31, 1996 was $377,638, compared to
$367,000 at December 31, 1995 and $338,819 at December 31, 1994. Although
additional losses may occur, management believes the allowance for loan losses
to be adequate as of the date presented.
<TABLE>
<CAPTION>
(Dollars in Thousands)
As of and for
the Three As of and for the Years
Months Ended Ended
Transaction in allowance for possible loan losses March 31, December 31,
- ------------------------------------------------- ------------- -----------------------------------------------
1996 1995 1994 1993
------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Balance at Beginning of period $ 367 $ 339 $ 273 $ 300
Charge-offs
- -----------
Commercial -- -- 5 --
Real estate -- 10 -- --
Installments -- 1 11 1
------- ----- ----- ------
Total charge-offs -- 11 16 1
Recoveries
- ----------
Commercial 5 1 6 19
Real estate -- -- 4 --
Installment loans 1 1 6 5
------- ----- ----- ------
Total recoveries 6 2 16 24
Net charge-offs (recoveries) (6) 9 -- (23)
Provision charged to expense 5 37 66 (50)
Balance at end of period 378 367 339 273
======= ===== ===== ======
Net charge-offs (recoveries) as a percentage of
average loans (annualized for 1996) (0.02)% 0.03% -- (0.14)%
</TABLE>
55
<PAGE>
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The following is an analysis of non-performing assets as of the dates shown:
<TABLE>
<CAPTION>
(Dollars in Thousands)
December 31,
March -----------------------------
1996 1995 1994 1993
----- ------ ------ -----
<S> <C> <C> <C> <C>
Loans accounted for on a nonaccrual basis $ 55 $ 44 $ 31 $ 4
Accruing loans which are contractually past
due 90 days or more as to principal or
interest payments 250 1 -- --
Troubled debt restructuring -- -- -- --
----- ----- ----- -----
Total $ 305 $ 45 $ 31 $ 4
Interest income included in net income for period -- 2 3 --
Foregone interest on nonaccrual loans -- 2 2 1
</TABLE>
The accrual of interest on a loan is discontinued when, in the opinion of
management (based upon such criteria as default in payment, asset deterioration,
decline in cash flow, recurring operating loss, declining sales, bankruptcy and
other financial conditions which could result in default), the borrower's
financial condition is such that the collection of interest is doubtful. As of
March 31, 1996, loans totalling $59,738 or .15% of total net loans outstanding,
were on a non-accrual basis, therefore, no income was being recognized. As of
year end 1995, loans totalling $43,760, or .07% of total net loans outstanding,
were on a non-accrual basis and, therefore, no income was being recognized.
Management believes the risks of these loans to be significant as there may be
some portion of the principal which will become uncollectible.
Placing a loan on non-accrual status has a two-fold impact on net interest
income. First, it causes an immediate charge against earnings 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.
Non-accrual loans increased by $22,638 to $59,738 at March 31, 1996, from
$37,000 at March 31, 1995. The increase was primarily due to the addition of
five loans.
The anticipated amounts of charge-offs by category during the next full year
of operations are as follows:
Commercial $15,000
Real estate-mortgage --
Installment 15,000
Overdrafts $10,000
56
<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 Three For the Years
Months Ended Ended
March 31, December 31,
-------------- ----------------
1996 1995 1994
-------------- ------ ------
<S> <C> <C> <C>
Return on Average Assets * 1.46% 1.33% 1.72%
Return on Average Equity * 20.31% 19.77% 26.59%
Average Equity to Average Assets Ratio 7.18% 6.70% 6.47%
Dividend Payout Ratio -- -- --
</TABLE>
* Annualized for 1995
RELATIONSHIPS WITH INDEPENDENT ACCOUNTANTS
Compass' Board of Directors appointed KPMG Peat Marwick LLP as independent
auditors for Compass for the year ending December 31, 1996. KPMG Peat Marwick
LLP has served as Compass' independent auditors continuously since 1971.
Compass has 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 other than arising from that firm's employment as auditor for Compass.
Texas American's financial statements have not been audited. Texas
American's management has determined that obtaining an audit for purposes of
this Proxy Statement/Prospectus would not be practicable.
EXPERTS
The consolidated financial statements of Compass as of December 31, 1995 and
1994 and for each of the years in the three-year period ended December 31, 1995
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. KPMG Peat Marwick LLP's 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.
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, 1995, Mr. Powell was the beneficial owner of an aggregate of
approximately 51,183 shares of Compass Common Stock. Liddell, Sapp has passed
upon, among other things, certain federal income tax consequences of the Merger,
and the receipt by Compass of its opinion as to such federal income tax
consequences of the Merger is a condition to the Closing of the Merger. Cauthorn
Hale Hornberger Fuller Sheehan & Becker Incorporated and Liddell, Sapp are also
expected to render legal opinions as to certain matters acceptable to Texas
American and Compass, respectively.
57
<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 TEXAS AMERICAN AND COMPASS--CERTAIN DIFFERENCES BETWEEN THE
BANKING LAWS OF TEXAS AND THE CORPORATION LAWS OF DELAWARE AND CORRESPONDING
CHARTER AND BY-LAW PROVISIONS--LIMITATION OF LIABILITY AND INDEMNIFICATION".
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Compass, Compass
has been informed that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
OTHER MATTERS
Texas American'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 Texas American's
Board of Directors unless "Authority Withheld" is indicated in the appropriate
box on the proxy. SEE "INTRODUCTION".
58
<PAGE>
INDEX TO FINANCIAL STATEMENTS
OF
TEXAS AMERICAN BANK
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Balance Sheet (Unaudited) as of December 31, 1995, 1994, and 1993 F-2
2. Statement of Income (Unaudited) for the Three Years Ended
December 31, 1995 F-3
3. Statement of Changes in Stockholders' Equity (Unaudited) for the
Three Years Ended December 31, 1995 F-4
4. Statement of Cash Flows (Unaudited) for the Three Years Ended
December 31, 1995 F-5
5. Notes to Financial Statements (Unaudited) F-6
6. Balance Sheet (Unaudited) as of March 31, 1996 F-16
7. Statement of Income (Unaudited) for the Three Months Ended
March 31, 1996 and 1995 F-17
8. Statement of Changes in Stockholders' Equity (Unaudited) for
the Three Months Ended March 31, 1996 and 1995 F-18
9. Statement of Cash Flows (Unaudited) for the Three Months
Ended March 31, 1996 F-19
10. Notes to Financial Statements (Unaudited) F-20
</TABLE>
F-1
<PAGE>
TEXAS AMERICAN BANK
BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
December 31
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and Cash Equivalents
Cash and due from banks $ 3,520,567 $ 2,197,688 $ 1,417,636
Federal funds sold 2,100,000 1,200,000 4,750,000
----------- ----------- -----------
TOTAL CASH AND CASH EQUIVALENTS 5,620,567 3,397,688 6,167,636
----------- ----------- -----------
Investment Securities
Securities held-to-maturity (market value
of $503,438 in 1995, $4,758,028 in 1994,
and $15,876,681 in 1993) 500,000 5,138,336 15,884,546
Securities available-for-sale,
at fair value 15,634,072 11,264,529 -
----------- ----------- -----------
TOTAL INVESTMENT SECURITIES 16,134,072 16,402,865 15,884,546
----------- ----------- -----------
Loans 36,692,813 28,744,460 22,059,020
Less allowance for loan loss (367,000) (338,819) (273,017)
----------- ----------- -----------
NET LOANS 36,325,813 28,405,641 21,786,003
Bank premises and equipment 1,838,931 1,648,429 1,440,548
Accrued interest receivable 379,937 351,645 243,922
Other real estate owned - 68,058 98,808
Other assets 311,238 246,681 234,191
----------- ----------- -----------
TOTAL ASSETS $60,610,558 $50,521,007 $45,855,654
=========== =========== ===========
LIABILITIES
Deposits
Non-interest bearing $14,684,104 $12,752,177 $10,133,341
Interest bearing 40,737,316 34,552,880 32,828,624
----------- ----------- -----------
TOTAL DEPOSITS 55,421,420 47,305,057 42,961,965
Accrued interest payable 85,980 56,095 39,124
Repurchase agreements 786,082 - -
Other liabilities 205,561 173,712 253,289
----------- ----------- -----------
TOTAL LIABILITIES 56,499,043 47,534,864 43,254,378
----------- ----------- -----------
COMMITMENTS
SHAREHOLDERS' EQUITY
Capital stock, par value $5.00 per share:
Authorized, issued and outstanding
206,020 shares 1,030,100 1,030,100 1,030,100
Additional paid-in capital 2,969,900 2,269,900 1,604,400
Retained earnings (deficit) 165,640 103,465 (33,224)
Unrealized loss on available-for-sale
securities (54,125) (417,322) -
----------- ----------- -----------
TOTAL SHAREHOLDERS' EQUITY 4,111,515 2,986,143 2,601,276
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $60,610,558 $50,521,007 $45,855,654
=========== =========== ===========
</TABLE>
See notes to the financial statements.
F-2
<PAGE>
TEXAS AMERICAN BANK
STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Years Ended December 31
1995 1994 1993
----------- ----------- ------------
<S> <C> <C> <C>
Interest Income:
Loans, including fees $3,420,771 $2,556,645 $1,720,829
Investment securities - taxable 951,035 812,086 580,041
Federal funds sold and deposits in bank 135,251 83,320 170,567
---------- ---------- ----------
TOTAL INTEREST INCOME 4,507,057 3,452,051 2,471,437
Interest expense on deposits 1,468,327 1,016,063 779,288
Interest expense on repurchase agreements 62,840 549 8,864
---------- ---------- ----------
NET INTEREST INCOME 2,975,890 2,435,439 1,683,285
Provision for loan losses 37,523 65,566 (49,540)
---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,938,367 2,369,873 1,732,825
---------- ---------- ----------
Noninterest Income:
Service charges on deposit accounts 375,004 376,927 333,071
Other 122,792 113,236 164,140
---------- ---------- ----------
TOTAL NONINTEREST INCOME 497,796 490,163 497,211
---------- ---------- ----------
Noninterest Expenses:
Salaries, wages and benefits 1,152,633 913,158 697,205
Occupancy and equipment 349,907 254,965 233,154
Data processing expense 117,011 100,394 95,651
Operating expenses 661,205 646,828 548,303
---------- ---------- ----------
TOTAL NONINTEREST EXPENSES 2,280,756 1,915,345 1,574,313
---------- ---------- ----------
INCOME BEFORE FEDERAL INCOME TAXES 1,155,407 944,691 655,723
Federal income taxes 400,215 142,502 -
---------- ---------- ----------
NET INCOME $ 755,192 $ 802,189 $ 655,723
========== ========== ==========
Net income per share $3.67 $3.89 $3.18
========== ========== ==========
</TABLE>
See notes to the financial statements.
F-3
<PAGE>
TEXAS AMERICAN BANK
STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Unrealized
gains/losses
Capital Retained from
Stock Surplus Earnings Investments Total
---------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1993 $1,030,100 $1,604,400 $(682,850) - $1,951,650
Net income for 1993 - - 655,723 - 655,723
Prior Period Adjustment - - (6,097) - (6,097
---------- ---------- --------- ------------ ----------
Balance at December 31, 1993 1,030,100 1,604,400 (33,224) - 2,601,276
Net income for 1994 - - 802,189 - 802,189
Transfer from retained earnings
to surplus - 665,500 (665,500) -
Mark-to-market adjustments on
AFS securities - - - (417,322) (417,322)
---------- ---------- --------- ------------ ----------
Balance at December 31, 1994 1,030,100 2,269,900 103,465 (417,322) 2,986,143
Net income for 1995 - - 755,192 - 755,192
Mark-to-market adjustments on
AFS securities - - - 363,197 363,197
Transfer from retained earnings
to surplus - 700,000 (700,000) - -
Prior Period Adjustment - - 6,983 - 6,983
---------- ---------- --------- ------------ ----------
Balance at December 31, 1995 $1,030,100 $2,969,900 $ 165,640 $ (54,125) $4,111,515
========== ========== ========= ============ ==========
</TABLE>
The board of directors voted to reclassify amounts from retained earnings to
surplus. This allowed the bank to increase its legal lending limit pursuant
to the Texas Banking Act.
See notes to the financial statements.
F-4
<PAGE>
TEXAS AMERICAN BANK
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Years Ended December 31
1995 1994 1993
------------ ------------ -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 755,192 $ 802,189 $ 655,723
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 124,546 86,885 73,619
Provision for loan losses 37,523 65,566 (49,540)
Gain on sale of assets (979) (3,753) (38,033)
Provision for other real estate losses 3,000 8,750 54,741
Amortization of investment premiums
net of discount accretion 32,359 79,315 4,222
Increase in accrued interest receivable (28,292) (107,723) (103,398)
Increase (decrease) in accrued interest
payable 29,885 16,971 (7,686)
Net change in other assets and
liabilities (219,809) 122,916 (1,086)
----------- ----------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 733,425 1,071,116 588,562
----------- ----------- ------------
INVESTING ACTIVITIES
Proceeds from maturities, sales, and
calls on available-for-sale securities 4,745,820 1,066,780 -
Purchases of available-for-sale securities (3,960,088) (1,316,089) -
Proceeds from maturities, sales, and
calls on held-to-maturity securities - 300,000 5,865,842
Purchases of held-to-maturity securities - (1,280,630) (12,233,823)
Net increase in loans (7,957,695) (6,682,799) (9,781,619)
Purchases of premises and equipment (315,048) (304,556) (178,760)
Proceeds from sale of assets 66,037 33,138 33,892
----------- ----------- ------------
NET CASH USED BY INVESTING ACTIVITIES (7,419,974) (8,184,156) (16,294,468)
----------- ----------- ------------
FINANCING ACTIVITIES
Net increase in deposit accounts 8,116,363 4,343,092 16,413,731
Prior period adjustments 6,983 - (6,097)
Increase in repurchase agreements 786,082 - -
----------- ----------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,909,428 4,343,092 16,407,634
----------- ----------- ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,222,879 (2,769,948) 701,728
Cash and cash equivalents at beginning of year 3,397,688 6,167,636 5,465,908
----------- ----------- ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,620,567 $ 3,397,688 $ 6,167,636
=========== =========== ============
Cash paid for:
Interest $ 1,501,282 $ 999,641 $ 795,838
=========== =========== ============
Income taxes $ 573,072 $ 39,152 $ -
=========== =========== ============
</TABLE>
See notes to the financial statements.
F-5
<PAGE>
TEXAS AMERICAN BANK
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE A - ACCOUNTING POLICIES
Non-Cash Activities: At December 31, 1995, 1994 and 1993, non-cash investing
and financing activities consisted of the following:
The bank foreclosed on loans in the amount of $43,720 and $29,646 in 1994
and 1993, respectively.
The bank provided financing on the sales of other real estate in the amount
of $46,125 and $192,880 in 1994 and 1993, respectively.
At December 31, 1995 and 1994, the bank marked-to-market the net unrealized
gains and losses on its available-for-sale investments net of deferred
taxes by $363,197 and $(417,321), respectively.
Statements of Cash Flows: For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, due from banks, and federal funds sold.
Generally, federal funds are purchased and sold for one-day periods.
Investment Securities: Investment securities that management has the ability
and intent to hold to maturity are classified as held-to-maturity and carried at
cost, adjusted for amortization of premium and accretion of discounts using
methods approximating the interest method. Other marketable securities are
classified as available-for-sale and are carried at fair value. Unrealized
gains and losses on securities available-for-sale are recognized as direct
increases or decreases in shareholders' equity, net of deferred income taxes.
Costs of securities sold are recognized using the specific identification
method.
Loans: Interest on commercial, consumer and real estate loans is credited to
operations on a daily basis based upon the principal amount outstanding.
Allowance for Possible Loan Losses: The allowance for possible loan losses is
maintained at a level believed adequate by management to absorb potential losses
in the loan portfolio. Management's determination of the adequacy of the
allowance is based on an evaluation of the portfolio, past loan loss experience,
current economic conditions, volume, growth and composition of the loan
portfolio and other relevant factors. The allowance is increased or decreased
by provisions for loan losses charged to operations.
F-6
<PAGE>
TEXAS AMERICAN BANK
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE A - ACCOUNTING POLICIES--Continued
Bank Premises and Equipment: Bank premises and equipment are stated at cost
less accumulated depreciation based on the estimated useful lives of the assets,
as follows:
Buildings and improvements 10-40 years
Furniture and equipment 5-10 years
Depreciation is computed using both straight-line and declining-balance methods
for both financial reporting and federal income tax purposes. When an asset is
sold, retired, or otherwise disposed of, cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
included in current operations.
Other Real Estate: Other real estate is comprised of real estate acquired
through foreclosure proceedings and debt previously acquired. These properties
are generally carried at the lower of the underlying loan amount or fair market
value based on appraised value. Loan losses arising from the acquisition of
such properties are charged against the allowance for possible loan losses.
Income or loss generated from operation of these properties, any subsequent
valuation adjustment of collateral values and any gain or loss upon disposition
of the properties are included in current operations.
Federal Income Taxes: Deferred federal income taxes are provided when income or
expenses are recognized in different periods for tax and financial reporting
purposes. Such items of income or expense generally relate to loan losses,
foreign currency exchange, accrued litigation, and depreciation.
F-7
<PAGE>
TEXAS AMERICAN BANK
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE B - INVESTMENT SECURITIES
Investment securities held-to-maturity consisted of the following:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1995:
U. S. Government Agency $ 500,000 $ 3,438 $ - $ 503,438
=========== ======= ========== ===========
December 31, 1994:
U. S. Treasury $ 985,514 $ - $ 14,029 $ 971,485
U. S. Government Agency 602,033 2,529 39,297 565,265
Mortgage Backed Securities 1,515,862 - 102,710 1,413,152
Collateralized Mortgage
Obligations 2,034,927 - 226,801 1,808,126
----------- ------- -------- -----------
TOTALS $ 5,138,336 $ 2,529 $382,837 $ 4,758,028
=========== ======= ======== ===========
December 31, 1993:
U. S. Treasury $ 4,051,094 $ 1,588 $ 5,738 $ 4,046,944
U. S. Government Agency 701,948 21,684 - 723,632
Mortgage Backed Securities 8,020,808 62,122 36,434 8,046,496
Collateralized Mortgage
Obligations 3,110,696 2,338 53,425 3,059,609
----------- ------- -------- -----------
TOTALS $15,884,546 $87,732 $ 95,597 $15,876,681
=========== ======= ======== ===========
</TABLE>
Investment securities available-for-sale consisted of the following:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1995:
U. S. Treasury $ 6,005,869 $29,308 $ 14,353 $ 6,020,824
U. S. Government Agencies 101,526 7,286 - 108,812
Mortgage Backed Securities 6,436,746 2,826 44,050 6,395,522
Collateralized Mortgage
Obligations 3,071,939 - 63,025 3,008,914
Other Securities 100,000 - - 100,000
----------- ------- -------- -----------
TOTALS $15,716,080 $39,420 $121,428 $15,634,072
=========== ======= ======== ===========
</TABLE>
F-8
<PAGE>
TEXAS AMERICAN BANK
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE B - INVESTMENT SECURITIES--Continued
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1994:
U. S. Treasury $ 5,048,894 $ - $168,191 $ 4,880,703
Mortgage Backed Securities 5,704,690 - 360,770 5,343,920
Collateralized Mortgage
Obligations 1,043,581 - 103,675 939,906
Other Securities 100,000 - - 100,000
----------- ---------- -------- -----------
TOTALS $11,897,165 $ - $632,636 $11,264,529
=========== ========== ======== ===========
</TABLE>
The amortized cost and market value of securities at December 31, 1995 by
contractual maturities, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Investment securities held-to-maturity:
<TABLE>
<CAPTION>
Amortized Market
Cost Value
----------- -----------
<S> <C> <C>
Due in one year or less $ - $ -
Due in one to five years 500,000 503,438
Due in five to ten years - -
Due after ten years - -
----------- -----------
TOTAL $ 500,000 $ 503,438
=========== ===========
</TABLE>
Investment securities available-for-sale:
<TABLE>
<CAPTION>
Amortized Market
Cost Value
----------- -----------
<S> <C> <C>
Due in one year or less $ 2,510,257 $ 2,502,032
Due in one to five years 3,597,138 3,627,604
Due in five to ten years 2,028,506 1,995,195
Due after ten years 1,143,433 1,113,719
----------- -----------
9,279,334 9,238,550
Mortgage-backed securities 6,436,746 6,395,522
----------- -----------
TOTAL $15,716,080 $15,634,072
=========== ===========
</TABLE>
Investment securities with a market value of $2,600,571, $2,388,001, and
$421,642 at December 31, 1995, 1994 and 1993, respectively, were pledged to
secure public deposits and for other purposes as required or permitted by law.
F-9
<PAGE>
TEXAS AMERICAN BANK
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE C - LOANS
Loans consisted of the following at December 31, 1995, 1994 and 1993, net of
unearned discount of $187,168, $24,220 and $1,509, respectively:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Installment $ 5,811,100 $ 3,534,746 $ 2,891,831
Commercial 8,205,726 5,162,163 4,192,039
Real estate construction loans 6,578,756 6,707,061 3,003,970
Other real estate loans 16,089,451 13,329,139 11,962,740
Other 7,780 11,351 8,440
----------- ----------- -----------
36,692,813 28,744,460 22,059,020
Less allowance for loan loss (367,000) (338,819) (273,017)
----------- ----------- -----------
TOTAL NET $36,325,813 $28,405,641 $21,786,003
=========== =========== ===========
</TABLE>
Nonperforming loans consisted of the following at December 31, 1995, 1994 and
1993:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Non accrual $ 30,527 $ 43,760 $ 35,328
Renegotiated loans - - -
----------- ----------- -----------
TOTALS $ 30,527 $ 43,760 $ 35,328
=========== =========== ===========
</TABLE>
In the ordinary course of business, the Bank makes loans to executive officers
and directors. Loans to these related parties, including companies in which
they are principal owners, were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year $ 972,334 $303,267 $ 38,175
Advances 1,242,329 704,200 440,000
Payments (688,428) (35,133) (174,908)
---------- -------- ---------
BALANCE AT END OF YEAR $1,526,235 $972,334 $ 303,267
========== ======== =========
</TABLE>
F-10
<PAGE>
TEXAS AMERICAN BANK
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE D - ALLOWANCE FOR POSSIBLE LOAN LOSSES
Transactions for the years ended December 31, 1995, 1994 and 1993 in the
allowance for possible loan losses were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year $338,819 $273,017 $300,000
Provision for loan losses 37,523 65,566 (49,540)
Loans charged-off (11,004) (15,588) (910)
Recoveries on loans previously
charged-off 1,662 15,824 23,467
-------- -------- --------
BALANCE AT END OF YEAR $367,000 $338,819 $273,017
======== ======== ========
</TABLE>
NOTE E - BANK PREMISES AND EQUIPMENT
Bank premises and equipment consisted of the following at December 31, 1995,
1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Land $ 601,363 $ 458,500 $ 458,500
Buildings and improvements 975,631 938,952 839,417
Furniture and equipment 837,957 717,343 512,712
Automobiles 14,895 - 19,943
---------- ---------- ----------
2,429,846 2,114,795 1,830,572
Less accumulated depreciation (590,915) (466,366) (390,024)
---------- ---------- ----------
TOTALS $1,838,931 $1,648,429 $1,440,548
========== ========== ==========
</TABLE>
NOTE F - DEPOSITS
Deposits consisted of the following at December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Noninterest-bearing:
Demand accounts $14,684,104 $12,752,177 $10,133,341
----------- ----------- -----------
Interest-bearing:
NOW accounts 6,312,364 5,613,566 4,811,642
Money market 14,407,564 12,095,038 13,809,071
Savings accounts 5,176,903 5,816,251 5,712,798
Certificates of deposit 14,840,485 11,028,025 8,495,113
----------- ----------- -----------
40,737,316 34,552,880 32,828,624
----------- ----------- -----------
TOTALS $55,421,420 $47,305,057 $42,961,965
=========== =========== ===========
</TABLE>
F-11
<PAGE>
TEXAS AMERICAN BANK
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE G - FEDERAL INCOME TAXES
Federal income tax consisted of the following for the years ended December 31,
1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Taxes current $331,448 $ 286,350 $ 19,576
Deferred taxes (credit) relating
to:
Depreciation 14,659 6,637 4,257
Loan losses (12,758) (22,292) 16,844
Other real estate 21,505 (2,975) 120,836
Net operating loss 40,411 40,411 40,411
Adjustment to deferred taxes - (183,000) (186,243)
Other 4,950 17,371 (15,681)
-------- --------- ---------
TOTAL INCOME TAX $400,215 $ 142,502 $ -
======== ========= =========
</TABLE>
Federal income tax for financial reporting purposes differs from the amount
computed by applying the statutory income tax rate of 34% to income before
federal income taxes as follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C>
Tax expense at statutory rate $392,838 $ 321,195 $ 222,946
Add (deduct) effects of:
Adjustment to deferred taxes - (183,000) (186,243)
Other 7,377 4,307 (36,703)
-------- --------- ---------
TOTAL INCOME TAX $400,215 $ 142,502 $ -
======== ========= =========
</TABLE>
NOTE H - COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Bank makes various commitments and incurs
certain contingent liabilities that are not presented in the accompanying
financial statements. The commitments and contingent liabilities include various
guarantees, commitments to extend credit, and standby letters of credit. At
December 31, 1995, 1994 and 1993, the Bank had unfunded loan commitments of
approximately $5,857,413, $7,537,474 and $5,027,671, respectively, and had
standby letters of credit of approximately $351,034, $30,591 and $77,500,
respectively. The Bank does not anticipate any material losses as a result of
the commitments.
F-12
<PAGE>
TEXAS AMERICAN BANK
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE H - COMMITMENTS AND CONTINGENCIES--Continued
The bank leases a branch facility and a vehicle under noncancellable, operating
agreements. Future minimum lease payments at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
December 31,
<S> <C>
1996 $ 45,072
1997 39,024
1998 39,024
1999 22,764
--------
$145,884
========
</TABLE>
NOTE I - FAIR VALUE DISCLOSURE
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and Equivalents:
The carrying amount of these short-term instruments is a reasonable estimate
of their fair value.
Investment securities:
Securities held for investment are based on quoted market prices.
Loans:
Fair value for the loan portfolio is estimated using discounted future cash
flows at current rates at which similar loans would be made to borrowers with
similar credit ratings over the same maturities.
Deposits:
Fair value of all deposit liabilities payable on demand or with maturities
less than one year is disclosed at the carrying value. Fair value of fixed
rate certificates of deposit with maturities in excess of one year is estimated
using rates currently offered for deposits of similar remaining maturities.
Commitments and Letters of Credit:
The carrying amount of these off-balance sheet financial instruments is a
reasonable estimate of their fair value based upon aggregate maturities being
less than one year.
F-13
<PAGE>
TEXAS AMERICAN BANK
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE I - FAIR VALUE DISCLOSURE--Continued
The estimated fair value of the financial instruments at December 31, 1995 are
as follows:
<TABLE>
<S> <C>
Financial assets:
Cash and equivalents $ 5,620,567
Investment securities 16,137,510
Loans 33,846,889
Less allowance for loan losses (367,000)
-----------
$55,237,966
===========
Financial liabilities:
Deposits $55,128,586
===========
Unrecognized financial instruments:
Unfunded loan commitments $ 5,857,413
Standby letters of credit 351,034
-----------
$ 6,208,447
===========
</TABLE>
NOTE J - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND
CONCENTRATIONS OF CREDIT RISK
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. These instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amounts recognized in the statements of
financial condition.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instruments for commitments to extend credit and standby
letters of credit is represented by the contractual notional amount of those
instruments (see Note H). The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
F-14
<PAGE>
TEXAS AMERICAN BANK
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1995, 1994 AND 1993
NOTE J - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND
CONCENTRATIONS OF CREDIT RISK--Continued
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount and type of collateral
obtained, if deemed necessary by the Bank upon extension of credit, varies and
is based on management's credit evaluation of the counterparty.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Standby letters of
credit generally have fixed expiration dates or other termination clauses and
may require payment of a fee. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to
customers. The Bank's policy for obtaining collateral, and the nature of such
collateral, is essentially the same as that involved in making commitments to
extend credit.
The bank grants residential, commercial, real estate, and consumer loans to
customers principally located in Bexar County in Texas. Although the loan
portfolio is diversified, a substantial portion of its debtors' ability to honor
their contracts is dependent upon the economic conditions in the area,
especially in the agricultural, real estate, and commercial business sectors.
F-15
<PAGE>
TEXAS AMERICAN BANK
BALANCE SHEET (UNAUDITED)
MARCH 31, 1996
<TABLE>
<S> <C>
ASSETS
Cash and Cash Equivalents
Cash and due from banks $ 2,842,238
Federal funds sold 3,175,000
-----------
TOTAL CASH AND CASH EQUIVALENTS 6,017,238
-----------
Investment securities available-for-sale,
at fair value 14,328,415
Loans 38,461,337
Less allowance for loan loss (377,638)
-----------
NET LOANS 38,083,699
Bank premises and equipment 1,810,237
Accrued interest receivable 331,207
Other assets 158,738
-----------
TOTAL ASSETS $60,729,534
===========
LIABILITIES
Deposits
Non-interest bearing $14,709,102
Interest bearing 40,649,506
-----------
TOTAL DEPOSITS 55,358,608
Accrued interest payable 76,930
Repurchase agreements 876,479
Other liabilities 133,759
-----------
TOTAL LIABILITIES 56,445,776
-----------
COMMITMENTS
SHAREHOLDERS' EQUITY
Capital stock, par value $5.00 per share:
Authorized, issued and outstanding
206,020 shares 1,030,100
Additional paid-in capital 2,969,900
Retained earnings 381,381
Unrealized loss on available-for-sale
securities (97,623)
-----------
TOTAL SHAREHOLDERS' EQUITY 4,283,758
-----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $60,729,534
===========
</TABLE>
See notes to the financial statements.
F-16
<PAGE>
TEXAS AMERICAN BANK
STATEMENT OF INCOME (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1996 and 1995
<TABLE>
<CAPTION>
March 31
1996 1995
---------- ----------
<S> <C> <C>
Interest Income:
Loans, including fees $ 951,752 $ 758,637
Investment securities - taxable 225,633 243,534
Federal funds sold 20,257 37,086
---------- ----------
TOTAL INTEREST INCOME 1,197,642 1,039,257
Interest expense on deposits 374,889 340,134
Interest expense on repurchase agreements 11,336 1,375
---------- ----------
NET INTEREST INCOME 811,417 697,748
Provision for loan losses 5,000 6,000
---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 806,417 691,748
---------- ----------
Noninterest Income:
Service charges on deposit accounts 94,108 86,603
Other 30,934 28,143
---------- ----------
TOTAL NONINTEREST INCOME 125,042 114,746
---------- ----------
Noninterest Expenses:
Salaries, wages and benefits 314,566 252,286
Occupancy and equipment 97,849 77,991
Data processing fees 29,810 29,907
Operating expenses 157,865 171,813
---------- ----------
TOTAL NONINTEREST EXPENSES 600,090 531,997
---------- ----------
INCOME BEFORE FEDERAL INCOME TAXES 331,369 274,497
Federal income taxes 113,844 95,260
---------- ----------
NET INCOME $ 217,525 $ 179,237
========== ==========
Net income per share $1.06 $0.87
========== ==========
</TABLE>
See notes to the financial statements.
F-17
<PAGE>
TEXAS AMERICAN BANK
STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Unrealized
gains/losses
Capital Retained from
Stock Surplus Earnings Investments Total
---------- ---------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $1,030,100 $2,969,900 $165,640 $(54,125) $4,111,515
Net income - - 217,525 - 217,525
Prior period adjustment - - (1,784) - (1,784)
Mark-to-market adjustments on
AFS securities - - - (43,498) (43,498)
---------- ---------- -------- ------------ ----------
Balance at March 31, 1996 $1,030,100 $2,969,900 $381,381 $(97,623) $4,283,758
========== ========== ======== ============ ==========
</TABLE>
See notes to the financial statements.
F-18
<PAGE>
TEXAS AMERICAN BANK
STATEMENT OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
March 31
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 217,525 $ 179,237
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 34,733 28,536
Provision for loan losses 5,000 6,000
Amortization of investment premiums
net of discount accretion 9,824 5,675
Decrease in accrued interest receivable 48,730 13,189
Decrease (increase) in accrued interest
payable (9,050) 4,692
Net change in other assets and liabilities 103,106 (302,128)
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 409,868 (64,799)
----------- -----------
INVESTING ACTIVITIES
Proceeds from maturities, sales, and
calls on available-for-sale securities 1,229,927 125,201
Proceeds from maturities, sales, and
calls on held-to-maturity securities 500,000 -
Net increase in loans (1,762,886) (2,487,531)
Purchases of premises and equipment (6,039) (30,264)
Purchase of available-for-sale securities - (1,956,094)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (38,998) (4,348,688)
----------- -----------
FINANCING ACTIVITIES
Net increase (decrease) in deposit accounts (62,812) 5,807,125
Increase in repurchase agreements 90,397 1,044,052
Prior period adjustment (1,784) 6,983
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 25,801 6,858,160
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 396,671 2,444,673
Cash and cash equivalents at beginning of period 5,620,567 3,397,688
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,017,238 $ 5,842,361
=========== ===========
Cash paid for:
Interest $ 395,275 $ 336,817
=========== ===========
Income taxes $ 35,128 $ 276,752
=========== ===========
</TABLE>
See notes to the financial statements.
F-19
<PAGE>
TEXAS AMERICAN BANK
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1996
NOTE A - ACCOUNTING POLICIES
Non-Cash Activities: At March 31, 1996, non-cash investing and financing
activities consisted of the following:
At March 31, 1996, the bank marked-to-market the net unrealized gains and
losses on its available-for-sale investments net of deferred taxes by
$(43,498), pursuant to SFAS 115.
Statements of Cash Flows: For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, due from banks, and federal funds sold.
Generally, federal funds are purchased and sold for one-day periods.
Investment Securities: Investment securities that management has the ability
and intent to hold to maturity are classified as held-to-maturity and carried
at cost, adjusted for amortization of premium and accretion of discounts using
methods approximating the interest method. Other marketable securities are
classified as available-for-sale and are carried at fair value. Unrealized
gains and losses on securities available-for-sale are recognized as direct
increases or decreases in shareholders' equity, net of deferred income taxes.
Costs of securities sold are recognized using the specific identification
method.
Loans: Interest on commercial, consumer and real estate loans is credited to
operations on a daily basis based upon the principal amount outstanding.
Allowance for Possible Loan Losses: The allowance for possible loan losses is
maintained at a level believed adequate by management to absorb potential
losses in the loan portfolio. Management's determination of the adequacy of
the allowance is based on an evaluation of the portfolio, past loan loss
experience, current economic conditions, volume, growth and composition of the
loan portfolio and other relevant factors. The allowance is increased or
decreased by provisions for loan losses charged to operations.
Bank Premises and Equipment: Bank premises and equipment are stated at cost
less accumulated depreciation based on the estimated useful lives of the
assets, as follows:
Buildings and improvements 10-40 years
Furniture and equipment 5-10 years
Depreciation is computed using both straight-line and declining-balance methods
for both financial reporting and federal income tax purposes. When an asset is
sold, retired, or otherwise disposed of, cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
included in current operations.
F-20
<PAGE>
TEXAS AMERICAN BANK
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1996
NOTE A - ACCOUNTING POLICIES--Continued
Federal Income Taxes: Deferred federal income taxes are provided when income
or expenses are recognized in different periods for tax and financial reporting
purposes. Such items of income or expense generally relate to loan losses,
foreign currency exchange, accrued litigation, and depreciation.
Interim Financial Statements: The unaudited interim financial statements
furnished reflect all adjustments which are, in the opinion of management,
necessary to a fair statement of the results for the interim periods presented.
NOTE B - INVESTMENT SECURITIES
Investment securities available-for-sale consisted of the following:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
March 31, 1996:
U. S. Treasury $ 5,002,159 $24,331 $ 13,052 $ 5,013,438
U. S. Government Agencies 101,390 6,079 - 107,469
Mortgage Backed Securities 6,203,621 - 86,381 6,117,240
Collateralized Mortgage
Obligations 3,069,159 - 78,891 2,990,268
Other Securities 100,000 - - 100,000
----------- ---------- -------- -----------
TOTALS $14,476,329 $30,410 $178,324 $14,328,415
=========== ========== ======== ===========
</TABLE>
The amortized cost and market value of securities at March 31, 1996 by
contractual maturities, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
F-21
<PAGE>
TEXAS AMERICAN BANK
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1996
NOTE B - INVESTMENT SECURITIES--Continued
Investment securities available-for-sale:
<TABLE>
<CAPTION>
Amortized Market
Cost Value
----------- -----------
<S> <C> <C>
Due in one year or less $ 2,013,364 $ 2,003,438
Due in one to five years 3,090,185 3,117,469
Due in five to ten years 2,025,970 1,967,843
Due after ten years 1,143,189 1,122,425
----------- -----------
8,272,708 8,211,175
Mortgage-backed securities 6,203,621 6,117,240
----------- -----------
TOTAL $14,476,329 $14,328,415
=========== ===========
</TABLE>
Investment securities with a fair value of $2,573,437 at March 31, 1996, were
pledged to secure public deposits and for other purposes as required or
permitted by law.
NOTE C - LOANS
Loans consisted of the following at March 31, 1996, net of unearned discount of
$414,938:
<TABLE>
<CAPTION>
<S> <C>
Installment $ 5,478,821
Commercial 9,603,141
Real estate construction loans 6,670,632
Other real estate loans 16,701,227
Other 7,516
-----------
38,461,337
Less allowance for loan loss (377,638)
-----------
TOTAL NET $38,083,699
===========
</TABLE>
Nonperforming loans consisted of the following at March 31, 1996:
Non accrual $ 59,738
Renegotiated loans -
-----------
TOTALS $ 59,738
===========
In the ordinary course of business, the Bank makes loans to executive officers
and directors. Loans to these related parties, including companies in which
they are principal owners, amounted to approximately $1,343,302 at March 31,
1996.
F-22
<PAGE>
TEXAS AMERICAN BANK
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1996
NOTE D - ALLOWANCE FOR POSSIBLE LOAN LOSSES
Transactions for the three months ended March 31, 1996 in the allowance for
possible loan losses were as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance at beginning of period $367,000
Provision for loan losses 5,000
Recoveries on loans previously
charged-off 5,638
--------
BALANCE AT END OF PERIOD $377,638
========
</TABLE>
NOTE E - BANK PREMISES AND EQUIPMENT
Bank premises and equipment consisted of the following at March 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Land $ 601,363
Buildings and improvements 975,630
Furniture and equipment 843,994
Automobiles 14,895
----------
2,435,882
Less accumulated depreciation (625,645)
----------
TOTALS $1,810,237
==========
</TABLE>
NOTE F - DEPOSITS
Deposits consisted of the following at March 31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Noninterest-bearing:
Demand accounts $14,709,102
-----------
Interest-bearing:
NOW accounts 6,682,025
Money market 14,126,750
Savings accounts 4,959,223
Certificates of deposit 14,881,508
-----------
40,649,506
-----------
TOTALS $55,358,608
===========
</TABLE>
F-23
<PAGE>
TEXAS AMERICAN BANK
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1996
NOTE G - FEDERAL INCOME TAXES
Federal income tax consisted of the following for the three months ended March
31, 1996:
<TABLE>
<CAPTION>
<S> <C>
Taxes current $110,693
Deferred taxes (credit) relating to:
Depreciation (3,190)
Loan losses (5,000)
Net operating loss 10,103
Other 1,238
--------
TOTAL INCOME TAX $113,844
========
</TABLE>
Federal income tax for financial reporting purposes differs from the amount
computed by applying the statutory income tax rate of 34% to income before
federal income taxes as follows:
<TABLE>
<CAPTION>
<S> <C>
Tax expense at statutory rate $112,665
Add (deduct) effects of:
Other 1,179
--------
TOTAL INCOME TAX $113,844
========
</TABLE>
NOTE H - COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Bank makes various commitments and incurs
certain contingent liabilities that are not presented in the accompanying
financial statements. The commitments and contingent liabilities include
various guarantees, commitments to extend credit, and standby letters of
credit. At March 31, 1996, the Bank had unfunded loan commitments of
approximately $5,800,906, and had standby letters of credit of approximately
$341,031. The Bank does not anticipate any material losses as a result of the
commitments.
The bank leases a branch facility and a vehicle under noncancellable, operating
agreements. Future minimum lease payments at March 31, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
March 31,
1997 $ 43,560
1998 39,024
1999 39,024
2000 13,008
--------
$134,616
========
</TABLE>
F-24
<PAGE>
TEXAS AMERICAN BANK
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1996
NOTE I - FAIR VALUE DISCLOSURE
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Cash and Equivalents:
The carrying amount of these short-term instruments is a reasonable
estimate of their fair value.
Investment securities:
Securities held for investment are based on quoted market prices.
Loans:
Fair value for the loan portfolio is estimated using discounted future cash
flows at current rates at which similar loans would be made to borrowers
with similar credit ratings over the same maturities.
Deposits:
Fair value of all deposit liabilities payable on demand or with maturities
less than one year is disclosed at the carrying value. Fair value of fixed
rate certificates of deposit with maturities in excess of one year is
estimated using rates currently offered for deposits of similar remaining
maturities.
Commitments and Letters of Credit: The carrying amount of these off-balance
sheet financial instruments is a reasonable estimate of their fair value
based upon aggregate maturities being less than one year.
The estimated fair value of the financial instruments at March 31, 1996 are as
follows:
<TABLE>
<S> <C>
Financial assets:
Cash and equivalents $ 6,017,238
Investment securities 14,328,415
Loans 35,052,360
Less allowance for loan losses (377,638)
-----------
$55,020,375
===========
Financial liabilities:
Deposits $55,064,300
===========
Unrecognized financial instruments:
Unfunded loan commitments $ 5,800,906
Standby letters of credit 341,031
-----------
$ 6,141,937
===========
</TABLE>
F-25
<PAGE>
TEXAS AMERICAN BANK
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1996
NOTE J - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND
CONCENTRATIONS OF CREDIT RISK
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. These instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amounts recognized in the statements of
financial condition.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instruments for commitments to extend credit and standby
letters of credit is represented by the contractual notional amount of those
instruments (see Note H). The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount and type of
collateral obtained, if deemed necessary by the Bank upon extension of credit,
varies and is based on management's credit evaluation of the counterparty.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Standby letters of
credit generally have fixed expiration dates or other termination clauses and
may require payment of a fee. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to
customers. The Bank's policy for obtaining collateral, and the nature of such
collateral, is essentially the same as that involved in making commitments to
extend credit.
The bank grants residential, commercial, real estate, and consumer loans to
customers principally located in Bexar County, Texas. Although the loan
portfolio is diversified, a substantial portion of its debtors' ability to
honor their contracts is dependent upon the economic conditions in the area,
especially in the agricultural, real estate, and commercial business sectors.
F-26
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AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
COMPASS BANCSHARES, INC.
AND
TEXAS AMERICAN BANK
Dated as of March 13, 1996
================================================================================
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TABLE OF CONTENTS
Page
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ARTICLE I. .................................................................................................... 1
THE MERGER ................................................................................................ 1
SECTION 1.1 The Merger ........................................... 1
SECTION 1.2 Effective Time ....................................... 1
SECTION 1.3 Certain Effects of the Merger ........................ 2
SECTION 1.4 Articles of Association and By-Laws .................. 2
SECTION 1.5 Directors and Officers ............................... 2
SECTION 1.6 Conversion of Shares ................................. 2
SECTION 1.7 Shareholders' Meeting ................................ 3
SECTION 1.8 Registration of the Compass Common Stock ............. 4
SECTION 1.9 Closing. ............................................. 4
ARTICLE II...................................................................................................... 4
DISSENTING SHARES; EXCHANGE OF SHARES ...................................................................... 4
SECTION 2.1 Dissenting Shares .................................... 4
SECTION 2.2 Exchange of Shares ................................... 5
ARTICLE III. ................................................................................................... 6
REPRESENTATIONS AND WARRANTIES OF THE BANK ................................................................. 6
SECTION 3.1 Organization and Qualification ....................... 6
SECTION 3.2 Bank Capitalization .................................. 7
SECTION 3.3 Other Securities. .................................... 7
SECTION 3.4 Authority Relative to the Agreement .................. 7
SECTION 3.5 No Violation ......................................... 8
SECTION 3.6 Consents and Approvals ............................... 8
SECTION 3.7 Regulatory Reports ................................... 9
SECTION 3.8 SEC Status; Securities Issuances ..................... 9
SECTION 3.9 Financial Statements ................................. 9
SECTION 3.10 Absence of Certain Changes .......................... 10
SECTION 3.11 Bank Indebtedness ................................... 12
SECTION 3.12 Litigation .......................................... 12
SECTION 3.13 Tax Matters ......................................... 12
SECTION 3.14 Employee Benefit Plans .............................. 13
SECTION 3.15 Employment Matters .................................. 15
SECTION 3.16 Leases, Contracts and Agreements .................... 16
SECTION 3.17 Related Bank Transactions ........................... 16
SECTION 3.18 Compliance with Laws ................................ 17
SECTION 3.19 Insurance ........................................... 17
SECTION 3.20 Loans ............................................... 17
SECTION 3.21 Fiduciary Responsibilities .......................... 17
SECTION 3.22 Patents, Trademarks and Copyrights .................. 18
SECTION 3.23 Environmental Compliance ............................ 18
SECTION 3.24 Regulatory Actions .................................. 19
SECTION 3.25 Title to Properties; Encumbrances ................... 20
SECTION 3.26 Shareholder List .................................... 20
SECTION 3.27 Proxy Statement ..................................... 20
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SECTION 3.28 Dissenting Shareholders.............................. 21
SECTION 3.29 Section 368 Representations.......................... 21
SECTION 3.30 Employee Stock Options............................... 22
SECTION 3.31 Accounting Matters................................... 22
SECTION 3.32 Representations Not Misleading....................... 22
ARTICLE IV..................................................................................................... 23
REPRESENTATIONS AND WARRANTIES OF COMPASS.................................................................. 23
SECTION 4.1 Organization and Authority........................... 23
SECTION 4.2 Authority Relative to Agreement...................... 23
SECTION 4.3 Financial Reports.................................... 24
SECTION 4.4 Capitalization....................................... 25
SECTION 4.5 Consents and Approvals............................... 25
SECTION 4.6 Proxy Statement...................................... 25
SECTION 4.7 Availability of Compass Common Stock................. 26
SECTION 4.8 Representations Not Misleading....................... 26
ARTICLE V...................................................................................................... 26
COVENANTS OF THE BANK...................................................................................... 26
SECTION 5.1 Affirmative Covenants of the Bank.................... 26
SECTION 5.2 Negative Covenants of the Bank....................... 28
ARTICLE VI..................................................................................................... 31
ADDITIONAL AGREEMENTS...................................................................................... 31
SECTION 6.1 Access To, and Information Concerning,
Properties and Records............................... 31
SECTION 6.2 Filing of Regulatory Approvals....................... 31
SECTION 6.3 Miscellaneous Agreements and Consents................ 32
SECTION 6.4 Bank Indebtedness.................................... 32
SECTION 6.5 Best Good Faith Efforts.............................. 32
SECTION 6.6 Exclusivity.......................................... 32
SECTION 6.7 Public Announcement.................................. 32
SECTION 6.8 Employee Benefit Plans............................... 32
SECTION 6.9 Merger of Bank....................................... 34
SECTION 6.10 Environmental Investigation; Right to
Terminate Agreement.................................. 34
SECTION 6.11 Exchange Agreement................................... 37
SECTION 6.12 Employee Bonuses..................................... 37
ARTICLE VII.................................................................................................... 37
CONDITIONS TO CONSUMMATION OF THE MERGER................................................................... 37
SECTION 7.1 Conditions to Each Party's Obligation
to Effect the Merger................................. 37
SECTION 7.2 Conditions to the Obligations of
Compass and Compass Texas to Effect the Merger....... 38
SECTION 7.3 Conditions to the Obligations of
the Bank to Effect the Merger........................ 39
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ARTICLE VIII................................................................................................... 40
TERMINATION; AMENDMENT; WAIVER............................................................................. 40
SECTION 8.1 Termination.......................................... 40
SECTION 8.2 Effect of Termination................................ 41
SECTION 8.3 Amendment............................................ 41
SECTION 8.4 Extension; Waiver.................................... 41
ARTICLE IX..................................................................................................... 42
SURVIVAL................................................................................................... 42
SECTION 9.1 Survival of Representations and Warranties........... 42
ARTICLE X...................................................................................................... 42
MISCELLANEOUS.............................................................................................. 42
SECTION 10.1 Expenses............................................. 42
SECTION 10.2 Brokers and Finders.................................. 42
SECTION 10.3 Entire Agreement; Assignment......................... 42
SECTION 10.4 Further Assurances................................... 42
SECTION 10.5 Enforcement of the Agreement......................... 43
SECTION 10.6 Severability......................................... 43
SECTION 10.7 Notices.............................................. 43
SECTION 10.8 Governing Law........................................ 44
SECTION 10.9 Descriptive Headings................................. 44
SECTION 10.10 Parties in Interest.................................. 44
SECTION 10.11 Counterparts......................................... 44
SECTION 10.12 Incorporation by References.......................... 45
SECTION 10.13 Certain Definitions.................................. 45
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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 Bank
F. Opinion of Counsel for Compass and Compass Texas
G. Compass Texas Representations Certificate
iii
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LIST OF SCHEDULES
Schedule 3.2 Bank Capitalization
Schedule 3.3 List of Equity Ownership
Schedule 3.5 Violations of Law; Conflicts of Interest; Share Litigation;
Termination of Existence
Schedule 3.6 Bank Prior Consents
Schedule 3.7 Regulatory Reports
Schedule 3.10 Absence of Material Changes or Adverse Effects
Schedule 3.12 Bank Legal Proceedings
Schedule 3.13 Tax Liabilities
Schedule 3.14(a) Employee Welfare Benefit Plans
Schedule 3.14(b) Employee Pension Benefit Plans
Schedule 3.14(c) Deferred Compensation, Bonus and Stock Purchase Plans
Schedule 3.14(l) Additional Payments Due Under Deferred Compensation, Bonus,
Employee Welfare Benefit Plans and Employee Pension Benefit
Plans
Schedule 3.15 Employment Contracts and Collective Bargaining Agreements
Schedule 3.16 Leases, Subleases, Contracts and Agreements; Participations;
Default of Contracts; Marketable Title
Schedule 3.17 Related Bank Transactions
Schedule 3.18 Compliance with Laws
Schedule 3.19 Insurance Policies
Schedule 3.20 Loans Exceeding Legal Lending Limit, Troubled Loans
Schedule 3.22 Patents, Trademarks and Copyrights
Schedule 3.23 Environmental Compliance
Schedule 3.24 Regulatory Actions; Agreements
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Schedule 3.25 Title to Properties; Title Policies; Property; Title Companies
Schedule 3.29 Bank Shareholders Disposing of Stock
Schedule 3.30 Stock Option Plans
Schedule 4.2 Compass Prior Consents
Schedule 5.1(d) Insurance Policies to be Maintained
Schedule 5.1(j) List of Accounts and Safe Deposit Boxes
Schedule 5.1(k) List of Liabilities and Obligations of the Bank
Schedule 5.1(o) List of Proxy Holders Voting Affirmatively for the Agreement
v
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("Agreement") dated as of March 13, 1996, by
and among Compass Bancshares, Inc. a Delaware corporation ("Compass"), and Texas
American Bank, a Texas banking association ("Bank").
WHEREAS, Compass desires to affiliate with the Bank, and the Bank desires
to affiliate with Compass in the manner provided in this Agreement;
WHEREAS, Compass and the Bank believe that the Merger (as defined herein)
of the Bank with an existing or to-be-formed subsidiary ("Compass Texas") of
Compass incorporated under the laws of the State of Texas to be added as a party
to this Agreement after the date hereof in the manner provided by, and subject
to the terms and conditions set forth in, this Agreement and all exhibits,
schedules and supplements hereto is desirable and in the best interests of their
respective institutions and shareholders; and
WHEREAS, the respective boards of directors of the Bank 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 Banking Act and the Texas Business
Corporation Act (the "TBCA"), Compass Texas shall be merged with and into the
Bank (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, the Bank shall continue as the surviving bank (the "Surviving Bank")
and the separate corporate existence of Compass Texas shall cease. Compass
shall not be deemed a party to the Merger for the purposes of Sec. 3.301 of the
Texas Banking Act and Article 5.06 of the TBCA.
SECTION 1.2 Effective Time. The Merger shall be consummated by the
filing by the Texas Secretary of State and the Texas Banking Commissioner of
Articles of Merger, in the form required by and executed in accordance with the
relevant provisions of the Texas Banking Act, the TBCA and by the issuance of a
Certificate of Merger by the Secretary of State of Texas and the Texas Banking
Commissioner. (The date of such issuance and filing
<PAGE>
or such other time and date as may be specified in the Articles of Merger shall
be the "Effective Time").
SECTION 1.3 Certain Effects of the Merger. The Merger shall have the
effects set forth in Sec. 3.301 of the Texas Banking Act and Article 5.06 of the
TBCA.
SECTION 1.4 Articles of Association and By-Laws. The Articles of
Association and the By-Laws of the Bank, in each case as in effect at the
Effective Time, shall be the Articles of Association and By-Laws of the
Surviving Bank.
SECTION 1.5 Directors and Officers. The directors and officers of
Compass Texas at the Effective Time shall be the directors and officers of the
Surviving Bank and shall hold office from the Effective Time until their
respective successors are duly elected or appointed and qualified in the manner
provided in the Articles of Association and By-Laws of the Surviving Bank, or as
otherwise provided by law.
SECTION 1.6 Conversion of Shares. (a) Each share of the Bank's common
stock, par value $5.00 per share ("Bank Common Stock"), issued and outstanding
immediately prior to the Effective Time (the Bank Common Stock is sometimes
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 certificate
representing such Share. For the purposes of determining the number of Shares
issued and outstanding, the number of Shares issued and outstanding shall be
increased by the number and class of Shares that may be acquired upon exercise
or conversion of any warrant, option, convertible debenture or other security
entitling the holder thereof to acquire Shares which is in effect or outstanding
prior to the Effective Time.
(b) Each holder of Bank Common Stock shall receive Merger Consideration
equal to the quotient of 325,000 shares of Compass common stock, $2.00 par value
per share ("Compass Common Stock"), divided by the number of Shares of Bank
Common Stock outstanding immediately prior to the Effective Time for each share
of Bank Common Stock so held. In the event the average closing sale price of
the Compass Common Stock as reported by the NASDAQ National Market System for
the 20 days of trading preceding the tenth business day prior to the first
business day following the last received regulatory approval from the FDIC and
the FRB (all as defined in Section 3.5) and the expiration of any applicable
waiting period with respect thereto (the "Share Determination Market Value") is
less than $29.00 per share, the Bank may either (i) terminate this Agreement
(the "Pricing Termination Option") by
2
<PAGE>
written notice to Compass within ten business days after notice by Compass to
the Bank of the Share Determination Market Value of less than $29.00 per share,
or (ii) agree to accept an aggregate of 325,000 shares of Compass Common Stock.
In the event the Bank exercises its Pricing Termination Option pursuant to the
preceding sentence within the specified ten business day period, this Agreement
shall be terminated, but Compass shall have the right to reject such termination
of the Agreement by the Bank (the "Termination Rejection") by agreeing to issue
a number of shares of Compass Common Stock equal to (i) the quotient of (a)
325,000 times the Share Determination Market Value, plus $10,400,000, divided by
(b) 2; and further divided by (ii) the Share Determination Market Value. Such
Termination Rejection shall be exercised by a notice to the Bank within five
business days following the date on which Compass receives notice of the Bank's
exercise of the Pricing Termination Option. In the event Compass fails to notify
the Bank of its exercise of the Termination Rejection within the five business
day period after the receipt of notice from the Bank of its exercise of the
Pricing Termination Option, this Agreement shall be terminated. In the event
the Bank fails to notify Compass of its election to terminate this Agreement
within the initial ten business day period, the Bank shall be deemed to have
agreed to accept an aggregate of 325,000 shares of Compass Common Stock. The
aggregate 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, when the record date
or payment 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 Share Determination Market Value.
SECTION 1.7 Shareholders' Meeting. The Bank, acting through its Board
of Directors, shall, in accordance with applicable law:
(a) duly call, give notice of, convene and hold a meeting (the
"Shareholders' Meeting") of its shareholders as soon as practicable for the
purpose of approving and adopting this Agreement;
(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
3
<PAGE>
the shareholders of the Bank vote in favor of the approval and adoption of this
Agreement; and
(d) use its best efforts (i) to obtain and furnish the information
required to be included by it in the Proxy Statement and cause the Proxy
Statement to be mailed to its shareholders at the earliest 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 Bank shareholders in the Merger.
(b) Within 30 days after the date hereof, the Bank shall enter into and
cause each Bank shareholder who is an "affiliate" (as defined in SEC Rule 405)
of the Bank 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 Bank in
favor of the approval and adoption of this Agreement has been obtained, and the
satisfaction or waiver, if permissible, of the conditions set forth in Article
VII hereof, the Bank and Compass Texas shall execute and deliver the Articles 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 the office of Liddell, Sapp, Zivley, Hill & LaBoon,
L. L. P. in Houston, 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
4
<PAGE>
the fair value of such shares within the time and in the manner provided in Sec.
3.303 of the Texas Banking Act and Article 5.12 of the 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 and the
Texas Banking Act. If any such holder shall have so failed to perfect or shall
have effectively withdrawn or lost such right, such holder's Shares shall
thereupon be deemed to have been converted into and to have become exchangeable
for, at the Effective Time, the right to receive the Merger Consideration
without any interest thereon.
SECTION 2.2 Exchange of Shares.
-------------------
(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
Bank 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 Sec. 3.303 of
the Texas Banking Act and 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, Birmingham, Alabama, an affiliate of Compass. The
Exchange Fund shall not be used for any other purpose, except as provided in
this Agreement.
(b) Promptly after the Effective Time, the Exchange Agent shall mail to
each record holder of an outstanding certificate or certificates which as of the
Effective Time represented Shares (the "Certificates"), a form letter of
transmittal approved by the Bank and Compass (which shall 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
5
<PAGE>
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 Bank 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 Bank shall
be closed and there shall be no transfers on the stock transfer books of the
Bank of the Shares which were outstanding immediately prior to such time of
filing. If, after the Effective Time, Certificates are presented to the
Surviving Bank, they shall be promptly presented to the Exchange Agent and
exchanged as provided in this Article II.
(d) Any portion of the Exchange Fund (including the proceeds of any
investments thereof) that remains unclaimed by the shareholders of the Bank for
six months after the Effective Time shall be paid to Compass, and the holders of
Shares not theretofore presented to the Exchange Agent shall look to Compass
only, and not the Exchange Agent, for the payment of any Merger Consideration in
respect of such shares.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE BANK
The Bank hereby makes the representations and warranties set forth in this
Article III to Compass. The Bank will deliver to Compass the Schedules to this
Agreement referred to in this Article III on or before the fifth day after the
date hereof, which Schedules shall be subject to review and approval by Compass
in its sole discretion within 15 days after the date hereof. The Bank agrees at
the Closing to provide Compass and Compass Texas with supplemental Schedules
reflecting any changes thereto between the date of such Schedules and the date
of the Closing.
SECTION 3.1 Organization and Qualification. The Bank is a Texas banking
association duly organized, validly existing and in
6
<PAGE>
good standing under the laws of the State of Texas and is not a member of the
Federal Reserve System. The Bank has all requisite corporate power and
authority to carry on its business as now being conducted and to own, lease and
operate its properties and assets as now owned, leased or operated. Except as
set forth on Schedule 3.17, the Bank does not own or control any Affiliate (as
defined in Section 3.17) or Subsidiary (as defined in Section 10.13(a)). True
and correct copies of the Articles of Association and Bylaws of the Bank, with
all amendments thereto through the date of this Agreement, have been delivered
by the Bank to Compass. The nature of the business of the Bank and its
activities, as currently conducted, do not require it to be qualified to do
business in any jurisdiction other than the State of Texas.
SECTION 3.2 Bank Capitalization. As of the date hereof, the authorized
capital stock of the Bank consists solely of (a) 206,020 shares of Bank Common
Stock, of which 206,020 shares are issued and outstanding, and none of which are
held in treasury. Except 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 Bank to purchase or otherwise acquire any security of or equity
interest in the Bank. Except 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 Bank to issue any
shares of the Bank, or to the knowledge of the Bank, 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 Texas Banking Act, the TBCA
and applicable banking laws and regulations and all dividends declared prior to
the date hereof have been paid.
SECTION 3.3 Other Securities. Set forth on Schedule 3.3 hereto is a
list of all equity ownership by the Bank for the account of the Bank in any
other person (the "Other Securities"). The Bank owns each Other Security free
and clear of any lien, encumbrance, security interest or charge.
SECTION 3.4 Authority Relative to the Agreement. The Bank has full
corporate power and authority, and, except for the approval by the Bank's
shareholders, no further proceedings on the part of the Bank are necessary, to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby which have been duly and validly authorized by its Board of
Directors. This Agreement has been duly executed and delivered by the Bank and
is a duly authorized, valid, legally binding and enforceable obligation of the
Bank, subject to the effect of bankruptcy, insolvency, reorganization,
moratorium, or other
7
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similar laws relating to creditors' rights generally and general equitable
principles, and subject to such shareholder approvals and such approval of
regulatory agencies and other governmental authorities having authority over the
Bank as may be required by statute or regulation. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby will not conflict with, or result in any violation or breach
of or default under the Articles of Association or By-Laws of the Bank or any
agreement, document or instrument by which the Bank is 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 Bank'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 Bank or (ii) be in
conflict with, result in a breach or termination of any provision of, cause the
acceleration of the maturity of any debt or obligation pursuant to, constitute a
default (or give rise to any right of termination, cancellation or acceleration)
under, or result in the creation of any security interest, lien, charge or other
encumbrance upon any property or assets of the Bank pursuant to, any terms,
conditions or provisions of any note, license, instrument, indenture, mortgage,
deed of trust or other agreement or understanding or any other restriction of
any kind or character, to which the Bank is a party or by which any of its
assets or properties are subject or bound. Except as set forth on Schedule 3.5,
there are no proceedings pending or, to the knowledge of the Bank, threatened,
against the Bank or involving the Shares, at law or in equity or before or by
any foreign, federal, state, municipal or other governmental court, department,
commission, board, bureau, agency, instrumentality or other person which may
result in liability to Compass or Compass Texas upon the consummation of the
transactions contemplated hereby or which would prevent or delay such
consummation. Except as set forth in Schedule 3.5, or as contemplated hereby,
the corporate existence, business organization, assets, licenses, permits,
authorizations and contracts of the Bank will not be terminated or impaired by
reason of the execution, delivery or performance by the Bank of this Agreement
or consummation by the Bank of the transactions contemplated hereby, assuming
the receipt of required shareholder and regulatory approvals.
SECTION 3.6 Consents and Approvals. The Bank's Board of Directors (at a
meeting called and duly held) has unanimously resolved to recommend approval and
adoption of this Agreement by
8
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the Bank's shareholders. Except as described in Schedule 3.6 hereto, no prior
consent, approval or authorization of, or declaration, filing or registration
with any person, domestic or foreign, is required of the Bank in connection with
the execution, delivery and performance by the Bank of this Agreement and the
transactions contemplated hereby or the resulting change of control of the Bank,
except the filing of the Articles of Merger under the Texas Banking Act and the
TBCA and such approvals as may be required from the SEC, the FRB, the FDIC and
the Department and holders of Shares under the Texas Banking Act and the TBCA.
SECTION 3.7 Regulatory Reports. Except as set forth on Schedule 3.7,
the Bank has filed all reports, registrations and statements, together with any
amendments required to be made thereto, that are required to be filed with the
FRB, the 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 Bank 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 Exchange Act,
other than anti-fraud provisions of such act.
SECTION 3.9 Financial Statements. The Bank has provided Compass with a
true and complete copy of the unaudited statement of financial position of the
Bank as of December 31, 1995, and the related statements of income,
shareholders' equity and changes in cash flows for the years ended December 31,
1995 and 1994, and the statements of financial position of the Bank as of March
31, June 30 and September 30, 1995 and the related statements of income,
shareholders' equity and changes in cash flows for the three-, six- and nine-
month periods ended March 31, June 30 and September 30, 1995 and 1994 (such
statements of financial position and the related statements of income,
shareholders' equity and changes in cash flows are collectively with the notes
and schedules thereto, referred to herein as the "Financial Statements").
Except as described in the notes to the Financial Statements, the Financial
Statements, including the statement of financial position and the related
statements of income, shareholders' equity and changes in cash flows (including
the related notes thereto) of the Bank, fairly present the financial position of
the Bank as of the dates thereof and the results of operations and changes in
financial position of the Bank for the periods then ended, in conformity with
Generally Accepted Accounting Principles ("GAAP") applied on a basis consistent
with prior periods (subject, in the case of the unaudited 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
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the transactions of the Bank. As of their dates, the Financial Statements
conformed, or will conform when delivered, in all material respects with all
applicable rules and regulations promulgated by the FRB, the Department, and the
FDIC. The Bank does not 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
Bank will provide Compass with the unaudited statements of financial position of
the Bank as of the end of each month hereafter, prepared on a basis consistent
with prior periods and promptly following their availability, the Bank will
provide Compass with its Reports of Condition and Statements of Income for all
periods ending after December 31, 1995. The Bank does not have any off balance
sheet liabilities associated with financial derivative products or potential
liabilities associated with financial derivative products.
SECTION 3.10 Absence of Certain Changes. Except as and to the extent
set forth on Schedule 3.10, since December 31, 1995 (the "Balance Sheet Date")
the Bank has not:
(a) made any amendment to its Articles of Association or Bylaws or changed
the character of its business in any material manner;
(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;
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(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 as set forth on Schedule 3.10 and except for regular salary
increases granted in the ordinary course of business within the Bank's 1995 and
1996 budgets and consistent with prior practices, granted any increase in
compensation or paid or agreed to pay or accrue any bonus, percentage
compensation, service award, severance payment or like benefit to or for the
credit of any director, officer, employee or agent, or entered into any
employment or consulting contract or other agreement with any director, officer
or employee or adopted, amended or terminated any pension, employee welfare,
retirement, stock purchase, stock option, stock appreciation rights,
termination, severance, income protection, golden parachute, savings or profit-
sharing plan (including trust agreements and insurance contracts embodying such
plans), any deferred compensation, or collective bargaining agreement, any group
insurance contract or any other incentive, welfare or employee benefit plan
program or agreement maintained by the Bank, for the directors, employees or
former employees of the Bank ("Employee Benefit Plan");
(i) directly or indirectly declared, set aside or paid any dividend or
made any distribution in respect to its capital stock or redeemed, purchased or
otherwise acquired, or arranged for the redemption, purchase or acquisition of,
any shares of its capital stock or other of its securities;
(j) organized or acquired any capital stock or other equity securities or
acquired any equity or ownership interest in any person (except through
settlement of indebtedness, foreclosure, the exercise of creditors' remedies or
in a fiduciary capacity, the ownership of which does not expose the Bank 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) experienced any material adverse change in relations with customers or
clients of the Bank taken in the aggregate;
(n) except for the transactions contemplated by this Agreement or as
otherwise permitted hereunder, entered into any
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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
(o) agreed, whether in writing or otherwise, to take any action the
performance of which would change the representations contained in this Section
3.10 in the future so that any such representation would not be true in all
material respects as of the Closing.
SECTION 3.11 Bank Indebtedness. The Bank has delivered to Compass true
and complete copies of all loan documents ("Bank Loan Documents") related to
indebtedness of the Bank, other than deposits ("Bank Indebtedness"), and made
available to Compass all material correspondence concerning the status of Bank
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 Bank, threatened against the Bank or
involving any of its 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 Bank will notify
Compass immediately in writing of any Proceedings against the Bank.
SECTION 3.13 Tax Matters. The Bank has duly filed all tax returns
required to be filed by it involving a tax liability or other material potential
detriment for failure to file (the "Filed Returns"). The Bank has paid, or has
established adequate reserves for the payment of, all federal income taxes and
all state and local income taxes and all franchise, property, sales, employment,
foreign or other taxes required to be paid with respect to the periods covered
by the Filed Returns. With respect to the periods for which returns have not
yet been filed, the Bank has established adequate reserves determined in
accordance with GAAP for the payment of all federal income taxes and all state
and local income taxes and all franchise, property, sales, employment, foreign
or other taxes. Except as described in Schedule 3.13, the Bank has no direct or
indirect liability for the payment of federal income taxes, state and local
income taxes, and franchise, property, sales, employment or other taxes in
excess of amounts paid or reserves established. Except as set forth on Schedule
3.13, the Bank has not entered into any tax sharing agreement or other agreement
regarding the allocation of the tax liability of the Bank or similar
arrangement. 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. The Bank has not filed any Internal Revenue Service ("IRS")
Forms 1139 (Application for Tentative Refund). Except as set forth on Schedule
3.13, there are no pending questions raised in writing by
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the IRS or other taxing authority for taxes or assessments of the Bank, nor are
there any outstanding agreements or waivers extending the statutory period of
limitation applicable to any tax return of the Bank for any period. The Bank
has withheld from employee wages and paid over to the proper governmental
authorities all amounts required to be so withheld and paid over. For the
purposes of this Agreement, the term "tax" shall include all federal, state and
local taxes and 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 and programs in which employees of the Bank participate the
following are true and correct:
(a) Schedule 3.14(a) lists each "employee welfare benefit plan" (as
defined in Section 3(1) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) maintained by the Bank or to which the Bank contributes or
is required to contribute, including any multiemployer welfare plan (such
employee welfare benefit plans being hereinafter collectively referred to as the
"Welfare Benefit Plans") and sets forth (i) the amount of any liability of the
Bank for contributions more than thirty days past due with respect to each
Welfare Benefit Plan as of the date hereof and as of the end of any subsequent
month ending prior to the Closing and (ii) the annual cost attributable to each
of the Welfare Benefit Plans; no Welfare Benefit Plan provides for continuing
benefits or coverage for any participant, beneficiary or former employee after
such participant's or former employee's termination of employment except as may
be required by Section 4980B of the Internal Revenue Code of 1986, as amended
(the "Code") and Sections 601-608 of ERISA;
(b) Schedule 3.14(b) lists each "employee pension benefit plan" (as
defined in Section 3(2) of ERISA and not exempted under Section 4(b) or 201 of
ERISA) maintained by the Bank or to which the Bank contributes or is required to
contribute, including any multiemployer plan (as defined in Section 3(37) of
ERISA) (such employee pension benefit plans being hereinafter collectively
referred to as the "Pension Benefit Plans");
(c) Schedule 3.14(c) 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, cafeteria plans, dependant care plans, all unfunded
plans and any other employee benefit plans or programs, agreements, arrangements
or commitments not required under a previous subsection to be listed (other than
normal policies concerning holidays, vacations and salary continuation during
short absences for illness or other reasons) maintained by the Bank (referred to
as "Other Programs");
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(d) All of the Pension Benefit Plans and Welfare Benefit Plans and any
related trust agreements or annuity contracts (or any other funding instruments)
and all Other Programs 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, Welfare Benefit Plans and all Other Programs; 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);
(e) Each Welfare Benefit Plan, each Pension Benefit Plan and each Other
Program 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, Pension Benefit Plan and each Other Program have been timely
filed;
(f) On and after January 1, 1975, neither the Bank nor any plan fiduciary
of any Welfare Benefit Plan or Pension Benefit Plan has engaged in any
transaction in violation of Section 406 of ERISA (for which transaction no
exemption exists under Section 408 of ERISA) or in any "prohibited transaction"
as defined in Section 4975(c)(1) of the Code (for which no exemption exists
under Section 4975(c)(2) or 4975(d) of the Code);
(g) Neither the Bank nor any corporation or other trade or business
controlled by or under common control with the Bank (as determined under
Sections 414(b) and 414(c) of the Code) ("Common Control Entity") is, or has
been within the past five years, a contributing sponsor (as defined in Section
4001(a)(13) of ERISA) of a Pension Benefit Plan subject to the provisions of
Title IV of ERISA, nor has the Bank or a Common Control Entity maintained or
participated in any employee pension benefit plan (defined in Section 3(2) of
ERISA) subject to the provision of Title IV of ERISA. In addition, neither the
Bank nor a Common Control Entity (i) is a party to a collective bargaining
agreement, (ii) has maintained or contributed to, or has participated in or
agreed to participate in, a multiemployer plan (as defined in Section 3(37) of
ERISA), or (iii) has made a complete or partial withdrawal from a multiemployer
plan (as defined in Section 3(37) of ERISA) so as to incur withdrawal liability
as defined in Section 4201 of ERISA (without regard to subsequent reduction or
waiver of such liability under Section 4207 or 4208 of ERISA);
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(h) True and complete copies of each Welfare Benefit Plan, Pension Benefit
Plan and each Other Program, related trust agreements or annuity contracts (or
any other funding instruments), summary plan descriptions, 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, Pension Benefit Plan and Other Program for the two most
recent plan years, have been furnished to Compass;
(i) All Welfare Benefit Plans, Pension Benefit Plans, and Other Programs,
related trust agreements or annuity contracts (or any other funding
instruments), are legally valid and binding and in full force and effect and
there are no promised increases in benefits (whether expressed, implied, oral or
written) under any of these plans nor any obligations, commitments or
understandings to continue any of these plans, (whether expressed, implied, oral
or written) except as required by Section 4980B of the Code and Sections 601-608
of ERISA;
(j) There are no claims pending with respect to, or under, any Pension
Benefit Plan, Welfare Benefit Plan or any Other Program, 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 Other Program, 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 Bank
(including, without limitation, severance, unemployment compensation, golden
parachute (defined in Section 280G of the Code), or otherwise) becoming due to
any employee, director or consultant or (ii) increase any benefits otherwise
payable under any Welfare Benefit Plan, Pension Benefit Plan, or any Other
Program.
SECTION 3.15 Employment Matters. Except as disclosed on Schedule 3.15,
the Bank is not a party to any oral or written contracts or agreements granting
benefits or rights to employees or any collective bargaining agreement or to any
conciliation agreement with the Department of Labor, the Equal Employment
Opportunity Commission or any federal, state or local agency which requires
equal employment opportunities or affirmative action in
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employment. There are no unfair labor practice complaints pending against the
Bank before the National Labor Relations Board and no similar claims pending
before any similar state, local or foreign agency. There is no activity or
proceeding of any labor organization (or representative thereof) or employee
group to organize any employees of the Bank, nor of any strikes, slowdowns, work
stoppages, lockouts, or threats thereof, by or with respect to any such
employees. The Bank is in compliance in all material respects with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, and the Bank is not engaged in any
unfair labor practice.
SECTION 3.16 Leases, Contracts and Agreements. Schedule 3.16 sets forth
an accurate and complete description of all leases, subleases, licenses,
contracts and agreements to which the Bank is a party or by which the Bank is
bound which obligate or may obligate the Bank 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
the Bank in the aggregate for an amount in excess of $25,000 over the entire
term of such related contracts (the "Contracts"). The Bank has delivered to
Compass true and correct copies of all Contracts. For the purposes of this
Agreement, the Contracts shall be deemed not to include loans made by,
repurchase agreements made by, spot foreign exchange transactions of, bankers
acceptances of, agreements with Bank customers for trust services, or deposits
by the Bank, but does include unfunded loan commitments and letters of credit
issued by the Bank where the 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 Bank. 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 Bank under the Contracts are current, there are no
existing defaults by the Bank under the Contracts and no termination, condition
or other event has occurred which (whether with or without notice, lapse of time
or the happening or occurrence of any other event) would constitute a default.
The Bank has a good and marketable leasehold interest in each parcel of real
property leased by it free and clear of all mortgages, pledges, liens,
encumbrances and security interests.
SECTION 3.17 Related Bank Transactions. 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
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among the Bank, whether on its own behalf or in its capacity as trustee or
custodian for the funds of any employee benefit plan (as defined in ERISA), and
any of its Affiliates. The term "Affiliate" as used in this Agreement means,
with respect to any person, any person that, directly or indirectly, controls,
is controlled by, or is under common control with, such person in question. For
the purposes of this definition, "control" (including, with correlative meaning,
the terms "controlled by" and "under common control with") as used with respect
to any person, shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such person,
whether through the ownership of voting securities or by contract or otherwise.
SECTION 3.18 Compliance with Laws. Except as set forth on Schedule
3.18, the Bank is not in material default in respect to or in violation of (i)
any judgment, order, writ, injunction or decree of any court or (ii) any
statute, law, ordinance, rule, order or regulation of any governmental
department, commission, board, bureau, agency or instrumentality, federal, state
or local, including (for purposes of illustration and not limitation) capital
and FRB reserve requirements, capital ratios and loan limitations of the FRB or
the FDIC; and the consummation of the transactions contemplated by this
Agreement will not constitute such a default or violation as to the Bank. The
Bank has all permits, licenses, and franchises from governmental agencies
required to conduct its business as it is now being conducted.
SECTION 3.19 Insurance. The Bank has in effect the insurance coverage
(including fidelity bonds) described in Schedule 3.19 and has had similar
insurance in force for the last 5 years. There have been no claims under such
bonds within the last 5 years and the Bank is not aware of any facts which would
form the basis of a claim under such bonds. The Bank does not have 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 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 problem
loans.
SECTION 3.21 Fiduciary Responsibilities. The Bank has performed in all
material respects all of its duties as a trustee, custodian, guardian or as an
escrow agent in a manner which complies in all material respects with all
applicable laws,
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regulations, orders, agreements, instruments and common law standards.
SECTION 3.22 Patents, Trademarks and Copyrights. Except as set forth in
Schedule 3.22, the Bank does not require the use of any material patent, patent
application, invention, process, trademark (whether registered or unregistered),
trademark application, trade name, service mark, copyright, or any material
trade secret for the business or operations of the Bank. The Bank owns or is
licensed or otherwise has the right to use the items listed in Schedule 3.22.
SECTION 3.23 Environmental Compliance. Except as set forth in Schedule
3.23, to the knowledge of the Bank:
(a) The Bank and any property owned or operated by it is in material
compliance with all applicable Environmental Laws (as defined in Section
10.13(c)) and has obtained and is in compliance with all permits, licenses and
other authorizations (individually a "Permit", and collectively "Permits")
required under any Environmental Law. There is no past or present event,
condition or circumstance that could reasonably be expected to (1) interfere
with the conduct of the business of the Bank in the manner now conducted
relating to such entity's compliance with Environmental Laws, (2) constitute a
material violation of any Environmental Law or (3) have a Material Adverse
Effect upon the Bank;
(b) The Bank does not currently lease, operate, own, or exercise
managerial functions at, nor has formerly leased, operated, owned, or exercised
managerial functions at, any facility or real property that is subject to any
actual, potential, or, to the knowledge of the Bank, threatened Proceeding under
any Environmental Law;
(c) There are no Proceedings pending or, to the knowledge of the Bank,
threatened against the Bank under any Environmental Law or relating to the
release, threatened release, management, treatment, storage, or disposal of, or
exposure to Polluting Substances, and the Bank has not received any notice
(whether from any regulatory body or private person) of any claim under or
violation of, or potential or threatened violation of, any Environmental Law;
(d) There are no actions or Proceedings pending or, to the knowledge of
the Bank, threatened under any Environmental Law involving the release or threat
of release of any Polluting Substances (as defined in Section 10.13(d)) at or on
any property where Polluting Substances generated by the Bank have been
disposed, treated or stored;
(e) There is no Property for which the Bank is or was required to obtain
or have any Permit under an Environmental Law to
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construct, demolish, renovate, occupy, operate, or use such Property or any
portion of it;
(f) The Bank has not generated any Polluting Substances for which it was
required under an Environmental Law to execute any waste disposal manifest or
receipt;
(g) There has been no release of Polluting Substances in or on any
Property in violation of any Environmental Laws or which would require
remediation or any report or notification to any governmental or regulatory
authority;
(h) There are no underground or above ground storage tanks on or under any
Property which are not in material compliance with Environmental Laws and any
Property previously containing such tanks has been remediated in compliance with
all Environmental Laws;
(i) There is no asbestos containing material on any Current Controlled
Property (as defined below) or any Collateral Property (as defined below); and
(j) The Bank has complied in all material respects with the guidelines
issued by the FDIC on February 25, 1993, and any other governmental authority
with jurisdiction over the Bank, that direct banks to implement programs to
reduce the potential for banks to incur liability under, or to assess the
compliance of borrowers or Collateral Property with, Environmental Laws.
(k) For purposes of this Section 3.23 and Section 6.10, "Property"
includes (1) any property (whether real or personal) which the Bank currently or
in the past has leased, operated or owned or managed in any manner including
without limitation any property acquired by foreclosure or deed in lieu thereof
(respectively, "Current Controlled Property" and "Former Controlled Property,"
and collectively "Controlled Property") and (2) property now held as security
for a loan or other indebtedness to the Bank or property currently proposed as
security for loans or other credit the Bank is currently evaluating whether to
extend or has committed to extend a loan ("Collateral Property").
SECTION 3.24 Regulatory Actions. Except as set forth on Schedule 3.24,
there are no actions or proceedings pending or, to the knowledge of the Bank,
threatened against the Bank by or before the FRB, the FDIC, the Environmental
Protection Agency, the Texas Natural Resource Conservation Commission, or any
other nation or government, any state or political subdivision thereof, or any
entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government. Except as set forth on Schedule 3.24,
the Bank is not subject to a formal or informal agreement, memorandum of
understanding, enforcement action with or any type of financial assistance by
any regulatory
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authority having jurisdiction over such entity. The Bank has not taken or
agreed to take any action and does not have knowledge of any fact or
circumstance that would materially impede or delay receipt of any required
regulatory approval. Except as set forth in Schedule 3.24, the Bank has not
received or been made aware of any complaints or inquiries under the Community
Reinvestment Act, the Fair Housing Act, the Equal Credit Opportunity Act or any
other state or federal anti-discrimination fair lending law and, to the
knowledge of the Bank, there is no fact or circumstance that would form the
basis of any such complaint or inquiry.
SECTION 3.25 Title to Properties; Encumbrances. Except as set forth on
Schedule 3.25, the Bank 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 Bank has
a title policy in full force and effect from a title insurance company insuring
good and indefeasible title to all real property owned by the Bank in favor of
the Bank. Set forth on Schedule 3.25 are the names of the title companies who
insure good and indefeasible title to such real property. The Bank has made
available to Compass all of the files and information in the possession of the
Bank concerning such properties, including any title exceptions which might
affect marketable title or value of such property. The Bank holds good and
legal title or good and valid leasehold rights to all assets that are necessary
for it to conduct its business as it is currently being conducted. Except as
set forth on Schedule 3.25, the Bank owns all furniture, equipment, art and
other property used to transact business presently located on its premises.
Except as set forth on Schedule 3.25, no Property has been deed recorded or
otherwise been identified in public records or should have been recorded or so
identified as containing Polluting Substances.
SECTION 3.26 Shareholder List. The Bank has provided to Compass prior
to the date of this Agreement a list of the holders of Shares and the holders of
any outstanding warrant, option, convertible debenture or other security
entitling the holder thereof to acquire Shares as of February 26, 1996
containing the names, addresses and number of Shares or such other securities
held of record, which is accurate in all respects as of such date, and the Bank
will promptly, and in any event prior to the mailing of the Proxy Statement,
advise Compass of any significant changes thereto.
SECTION 3.27 Proxy Statement. None of the information supplied or to be
supplied by the Bank, or, to the knowledge of the
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Bank, any of its 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 Bank; will be false or
misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading,
or, in the case of the Proxy Statement or any amendment thereof or
supplement thereto, at the time of the Shareholders' Meeting, be false
or misleading with respect to any material fact, or omit to state any
material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of any proxy for the
Shareholders' Meeting. All documents that the Bank is responsible for
filing with any regulatory or governmental agency in connection with
the Merger will comply in all material respects with the provisions of
applicable law.
SECTION 3.28 Dissenting Shareholders. The Bank, and its directors, have
no knowledge of any plan or intention on the part of any Bank shareholders to
make written demand for payment of the fair value of such Shares in the manner
provided in Sec. 3.303 of the Texas Banking Act or Article 5.12 of the TBCA.
SECTION 3.29 Section 368 Representations. (a) There is no plan or
intention by any Bank shareholder who is anticipated to receive one percent (1%)
or more of the total Merger Consideration ("1% Shareholder") and, to the
knowledge of the Bank, and its directors, there is no plan or intention by any
of the remaining Bank shareholders, to sell or otherwise dispose of shares of
Compass Common Stock received pursuant to the Merger that would reduce all such
shareholders' holdings to a number of shares having a total fair market value at
the Effective Time of less than fifty percent (50%) of the total fair market
value of all of the Bank's capital stock outstanding immediately prior to the
Effective Time. For purposes of this Section 3.29, shares of the Bank's capital
stock surrendered by dissenting shareholders and shares of the Bank'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 Bank outstanding immediately prior to the Merger.
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(b) The Bank has set forth on Schedule 3.29 all knowledge of the Bank and
its directors about the plans or intentions of any other Bank shareholders to
sell or otherwise dispose of the Compass Common Stock to be received pursuant to
the Merger.
(c) Neither Compass nor Compass Texas will 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 Bank's capital stock in contemplation of the Merger.
Schedule 3.29 sets forth all transactions in the capital stock of the Bank since
December 31, 1994.
(e) The liabilities of the Bank assumed by Compass as a part of the Merger
and the liabilities to which the transferred assets of the Bank are subject were
incurred by the Bank in the ordinary course of its business.
(f) The Bank and its shareholders will pay their own expenses which are
incurred in connection with the Merger.
(g) The Bank has not disposed of any assets (either as a dividend or
otherwise) constituting more than 10% of the fair market value of all of its
assets (ignoring any liabilities) at any time either during the past twelve
months or in contemplation of the Merger.
(h) The Bank is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(i) The Bank is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
SECTION 3.30 Employee Stock Options. Except as set forth on Schedule
3.30, there are no Bank employee stock option plans or provisions in any other
plan, program, or arrangement providing for the issuance or grant of any other
interest in respect of the capital stock of the Bank.
SECTION 3.31 Accounting Matters. Neither the Bank 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 Bank in this Agreement, nor any statement, summary, exhibit or
schedule furnished to Compass or Compass Texas by the Bank under and pursuant
to, or in anticipation
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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 makes the representations and warranties set forth in this
Article IV to the Bank.
SECTION 4.1 Organization and Authority.
--------------------------
(a) Compass is a corporation duly organized, validly existing, and in good
standing under the laws of the State of 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 it
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' Board of Directors. This Agreement has been duly
executed and delivered by Compass and is a duly authorized, valid, legally
binding and enforceable obligation of Compass, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium, or other similar laws
relating to creditors' rights generally and general equitable principles, and
subject to such shareholder approvals and such 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
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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 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
Bank a true and complete copy of (i) the 1994 Annual Report to Shareholders,
which report (the "Compass 1994 Annual Report") includes, among other things,
consolidated balance sheets of Compass and its Subsidiaries as of December 31,
1994 and 1993, the related consolidated statements of income, shareholders'
equity and cash flows for the years ended December 31, 1994, 1993 and 1992 and
(ii) Compass' quarterly reports on Form 10-Q for the quarters ended March 31,
June 30, and September 30, 1995 (the "Quarterly Reports") which reports include
among other things unaudited balance sheets of Compass and its Subsidiaries as
of March 31, June 30, and September 30, 1995 and December 31, 1994, and the
related unaudited consolidated statements of income and cash flows for the
three-, six- and nine-month periods ending March 31 and June 30, September 30,
1995 and 1994. The financial statements contained in the Compass 1994 Annual
Report and such Quarterly Reports have been prepared in conformity with GAAP
applied on a basis consistent with prior periods. The consolidated balance
sheets of Compass and its subsidiaries as of December 31, 1994 and 1993
contained in the Compass 1994 Annual Report fairly present the consolidated
financial condition of Compass and its Subsidiaries as of the dates thereof, and
the related consolidated statements of income, shareholders' equity and cash
flows of Compass and its Subsidiaries
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contained therein fairly present the results of operations and cash flows
thereof for the fiscal years then ended. The unaudited consolidated financial
statements of Compass and its Subsidiaries as of March 31, June 30, and
September 30, 1995 and 1994, contained in Compass' Quarterly Reports, fairly
present the financial condition, the results of the operations and changes in
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 1994 Annual Report or Compass'
Quarterly Reports 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.
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 February 23, 1996, Compass had 38,569,409
shares of common stock, $2.00 per share par value, issued and outstanding. 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 Bank,
except the filing of Articles of Merger under the Texas Banking Act and the
TBCA, 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
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Statement, when first mailed to the shareholders of the Bank; will be
false or misleading with respect to any material fact, or omit to state
any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading,
or, in the case of the Proxy Statement or any amendment thereof or
supplement thereto, at the time of the Shareholders' Meeting, be false
or misleading with respect to any material fact, or omit to state any
material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of any proxy for the
Shareholders' Meeting. All documents that Compass 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 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. Between the date of this Agreement and the Closing, Compass agrees
to give written notice to the Bank upon obtaining knowledge of any event or fact
that would cause any of the representations or warranties of Compass contained
in or referred to in this Agreement to be untrue or misleading in any material
respect.
ARTICLE V.
COVENANTS OF THE BANK
SECTION 5.1 Affirmative Covenants of the Bank. For so long as this
Agreement is in effect, the Bank shall, from the date of this Agreement to the
Closing, except as specifically contemplated by this Agreement:
(a) operate and conduct the businesses of the Bank in the ordinary course
of business and consistent with prudent banking practices;
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(b) preserve intact the Bank's corporate existence, business organization,
assets, licenses, permits, authorizations, and business opportunities;
(c) comply with all material contractual obligations applicable to the
Bank's operations;
(d) maintain all the Bank's properties in good repair, order and
condition, reasonable wear and tear excepted, and maintain the insurance
coverages described in Schedule 5.1(d) (which shall list all Property insured by
such coverages) or obtain comparable insurance coverages from reputable insurers
which, in respect to amounts, types and risks insured, are adequate for the
business conducted by the Bank's and consistent with the existing insurance
coverages;
(e) in good faith and in a timely manner (i) cooperate with Compass and
Compass Texas in satisfying the conditions in this Agreement, (ii) assist
Compass and Compass Texas in obtaining as promptly as possible all consents,
approvals, authorizations and rulings, whether regulatory, corporate or
otherwise, as are necessary for Compass and Compass Texas and the Bank (or any
of them) to carry out and consummate the transactions contemplated by this
Agreement, including all consents, approvals and authorizations required by any
agreement or understanding existing at the Closing between the Bank and any
governmental agency or other third party, (iii) furnish information concerning
the Bank not previously provided to Compass required for inclusion in any
filings or applications that may be necessary in that regard and (iv) 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 the Bank and to the
extent permitted by applicable law, promptly thereafter deliver to Compass
copies of all financial statements and other reports required to be so filed;
(g) comply in all material respects with all applicable laws and
regulations, domestic and foreign;
(h) promptly notify Compass upon obtaining knowledge of any default, event
of default or condition with which the passage of time or giving of notice would
constitute a default or an event of default under the Bank Loan Documents and
promptly notify and provide copies to Compass of any material written
communications concerning the Bank 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
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warranties of the Bank 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 Bank has
accounts or safe deposit boxes, (ii) the name(s) in which such accounts or boxes
are held and (iii) the name of each person authorized to draw thereon or have
access thereto;
(k) deliver to Compass a list (Schedule 5.1(k)), dated as of the Effective
Time, showing all liabilities and obligations of the Bank, except those arising
in the ordinary course of its business, incurred since the Balance Sheet Date,
certified by an officer of the Bank;
(l) promptly notify Compass of any material change or inaccuracies in any
data previously given or made available to Compass or Compass Texas pursuant to
this Agreement;
(m) provide to Compass on or before March 29, 1996 true and correct copies
of statements 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 ("Section 368 Certificates");
(n) deliver to Compass on or before March 29, 1996 an executed Voting
Agreement and Irrevocable Proxy in substantially the form attached hereto as
Exhibit D ("Proxies") whereby the persons listed in Schedule 5.1(o) have agreed
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 have given Compass a proxy to vote such Shares in favor of the
Merger if they should fail to do so; and
(o) provide access, to the extent that the Bank has 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 Bank. Except with the prior
written consent of Compass or as otherwise specifically permitted by this
Agreement, the Bank will not from the date of this Agreement to the Closing:
(a) make any amendment to its articles of association or incorporation or
bylaws;
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(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 as set forth on Schedule 3.10 and except for regular salary
increases granted in the ordinary course of business within the Bank's 1995 and
1996 budgets and consistent with prior practices, 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;
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(j) declare, pay or set aside for payment any dividend or other
distribution or payment in respect of shares of its capital stock;
(k) except through settlement of indebtedness, foreclosure,
the exercise of creditors' remedies or in a fiduciary capacity, acquire the
capital stock or other equity securities or interest of any person;
(l) make any capital expenditure or a series of expenditures of a similar
nature in excess of $25,000 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;
(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 Bank;
(p) issue any certificates of deposit except in the ordinary course of
business and in accordance with prudent banking practices;
(q) make any investments except in the ordinary course of business and in
accordance with prudent banking practices;
(r) modify, amend, waive or extend either the Bank Loan Documents or any
rights under such agreements;
(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;
(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
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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 Bank 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 Bank and its directors under this Agreement or any related
written agreement.
Nothing contained in this Section 5.2 or in Section 5.1 is intended to influence
the general management or overall operations of the Bank in a manner not
permitted by applicable law and the provisions thereof shall automatically be
reduced in compliance therewith.
ARTICLE VI.
ADDITIONAL AGREEMENTS
SECTION 6.1 Access To, and Information Concerning, Properties and Records.
During the pendency of the transactions contemplated hereby, the Bank shall, to
the extent permitted by law, give Compass, its legal counsel, accountants and
other representatives full access, during normal business hours, throughout the
period prior to the Closing, to all of the Bank's properties, books, contracts,
commitments and records, permit Compass to make such inspections (including
without limitation, physical inspection of the surface and subsurface of any
property thereof and any structure thereon) as they may require and furnish to
Compass during such period all such information concerning the Bank and its
affairs as Compass may reasonably request. All information disclosed by the Bank
to Compass which is confidential 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 Bank. In the
event this Agreement is terminated pursuant to the provisions of Article VIII,
upon the written request of the Bank, Compass agrees to return to the Bank all
copies of such confidential information.
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 Surviving Bank
and a Texas banking corporation and indirect wholly-owned subsidiary of Compass
("Compass Bank"). Compass will deliver to the Bank, and the Bank will deliver
to Compass, copies of all non-confidential portions of any such applications.
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SECTION 6.3 Miscellaneous Agreements and Consents. Subject to the terms
and conditions of this Agreement, Compass and the Bank agree to use all
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper, or advisable under applicable
laws and regulations to consummate and make effective, as soon as practicable
after the date hereof, the transactions contemplated by this Agreement. Compass
and the Bank shall use their respective best efforts to obtain or cause to be
obtained consents of all third parties and governmental and regulatory
authorities necessary or desirable for the consummation of the transactions
contemplated herein.
SECTION 6.4 Bank Indebtedness. Prior to the Effective Time, the Bank
shall pay all regularly scheduled payments on all Bank 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 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.
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 on or
before August 31, 1996.
SECTION 6.6 Exclusivity. The Bank shall not solicit, entertain or
negotiate with respect to any offer to acquire the Bank from any other person.
During the term of this Agreement, the Bank shall not provide information to any
other person in connection with a possible acquisition of the Bank. Immediately
upon receipt of any such unsolicited offer, the Bank will communicate 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 Bank and Compass.
SECTION 6.8 Employee Benefit Plans. Compass presently intends that,
after the Merger, Compass and the Bank will not make additional contributions to
the employee benefit plans sponsored by the Bank immediately prior to the
Merger.
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Compass agrees that the employees of the Bank will be entitled to
participate as newly hired employees in the employee benefit plans and programs
maintained for employees of Compass and its affiliates, in accordance with the
respective terms of such plans and programs, and Compass shall take all actions
necessary or appropriate to facilitate coverage of the Bank's employees in such
plans and programs from and after the Effective Time, subject to the following:
(i) Employee Welfare Benefit Plans and Programs: Each employee of the Bank
will be entitled to credit for prior service with the Bank for all purposes
under the employee welfare benefit plans and other employee benefit plans and
programs (other than those described in subparagraph (ii) below and any stock
option plans) sponsored by Compass to the extent the Bank sponsored a similar
type of plan which the Bank employee participated in immediately prior to the
Effective Time. Any preexisting condition exclusion applicable to such plans
and programs shall be waived with respect to any Bank employee. For purposes of
determining each Bank employee's benefit for the year in which the Merger occurs
under the Compass vacation program, any vacation taken by a Bank employee
immediately preceding the Effective Time for the year in which the Merger occurs
will be deducted from the total Compass vacation benefit available to such Bank
employee for such year. Compass agrees that for purposes of determining the
number of vacation days available with respect to each Bank employee for the
year in which the Merger occurs, that the number of vacation days for such year
shall be determined under the Bank vacation policy in effect as of January 1,
1995. Compass further agrees to credit each Bank employee for the year during
which such coverage under the Compass welfare benefit plan begins, with any
deductibles already incurred during such year under the Bank's group health
plan.
(ii) Employee Pension Benefit Plans: Each Bank employee shall be entitled
to credit for past service with the Bank for the purpose of satisfying any
eligibility or vesting periods applicable to the Compass employee pension
benefit plans which are subject to Sections 401(a) and 501(a) of the Code
(including, without limitation, the Compass 401(k)/ESOP Plan). Notwithstanding
the foregoing, Compass shall not grant any prior years of service credit to
employees of the Bank with respect to any defined benefit pension plans
sponsored (or contributed to) by Compass; instead, Bank employees shall be
treated as newly hired employees of Compass as of the date following the
Effective Time for purposes of determining eligibility, vesting and benefit
accruals thereunder.
On or before, but effective as of the Effective Time, the Bank may take
such actions as may be necessary to cause each individual employed by the Bank
immediately prior to the Effective Time to have a fully vested and
nonforfeitable interest in such
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employee's account balance under the 401(k) plan sponsored by the Bank as of the
Effective Time.
SECTION 6.9 Merger of Bank. Compass presently intends to cause the
Surviving Bank to merge into Compass Bank immediately after the Merger, and the
Bank agrees to execute documents and take actions (conditioned on the Merger
being effective) and otherwise 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 Bank has such right, but not the obligation or
responsibility, to inspect any Property, including, without limitation, for the
purpose of conducting asbestos surveys and sampling, and other environmental
assessments and investigations ("Environmental Inspections"). Compass' right to
conduct Environmental Inspections shall include the right to sample and analyze
air, sediment, soil and groundwater of any Property to the same extent that the
Bank has such right. Compass may conduct such Environmental Inspections at any
time but shall complete such inspections on or prior to the 45th day after the
date hereof.
(b) The Bank shall cause to be performed an environmental investigation of
any Property acquired, leased, foreclosed, managed or controlled by the Bank
between the date hereof and the Closing Date, the scope and results of which
shall be acceptable to Compass in its sole discretion.
(c) The Bank shall cause to be performed an environmental investigation of
any Property in which the Bank acquires a security interest between the date
hereof and the Closing Date, the scope and results of which shall be acceptable
to Compass in its sole discretion and the scope and results of which are
equivalent to the policies of Compass with respect to acquiring security
interests on real or personal property.
(d) Compass shall notify the Bank prior to any physical inspections of
Property, and the Bank 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 Bank of the Properties on which it intends to conduct a
secondary investigation on or prior to the 52nd day after the date hereof.
Compass shall notify the Bank of any Properties that, in the sole discretion of
Compass, are not
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acceptable and require remediation on or prior to the 102nd day after the date
hereof.
(e) With respect to any Current Controlled Property that Compass has
notified the Bank is not acceptable and requires remediation, the Bank shall
promptly prepare a remediation plan acceptable to Compass, and obtain approval
of such remediation plan by the Texas Natural Resource Conservation Commission
or any other appropriate governmental authority ("Environmental Regulatory
Authority") on or prior to August 31, 1996 ("Remediation Completion Date").
(f) With respect to any Collateral Property that Compass has notified the
Bank is not acceptable and requires remediation, the Bank agrees promptly to add
to its loan loss reserve the lesser of (a) the written estimate of expenditures
("Remediation Estimate") prepared by the environmental consultant engaged by
Compass to perform the Environmental Inspections, in connection with (i)
additional assessment, remediation, removal and/or monitoring (ii) correction of
any violation of any applicable Environmental Law, and (iii) preparing and
obtaining approval by the appropriate Environmental Regulatory Authority of
remediation plans with respect to Collateral Properties, and (b) the outstanding
balance of the loan or indebtedness secured by such Collateral Property. If the
expenditures set forth in clause (a) above would exceed 80% of the outstanding
balance of such loan or indebtedness, the Bank will increase its loan loss
reserve by the outstanding amount of the loan or indebtness. Notwithstanding
the foregoing, and without limiting any rights of Compass to terminate this
Agreement, the Bank shall not be obligated to incur aggregate expenditures in
excess of $150,000 in connection with additional assessment, remediation or
monitoring of any Property, preparing and obtaining approval by the appropriate
Environmental Regulatory Authority of remediation plans with respect to
Controlled Properties, and in connection with making allocations to the Bank's
loan loss reserve.
(g) Each party hereto agrees to indemnify and hold harmless the other party
for any claims for damage to the Property or injury or death to persons in
connection with any Environmental Inspection or secondary investigation of the
Property to the extent such damage, injury or death is directly or indirectly
attributable to the negligent actions or negligent omissions of such
indemnifying party. 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 Bank. Compass
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shall have no liability to the Bank or its Subsidiaries for making any report of
such results to any governmental authority.
(h) Compass shall have the right to terminate this Agreement in the
following circumstances:
(i) the Bank's breach of any representation or warranty set forth in
Section 3.23,
(ii) the factual substance of any warranties set forth in Section 3.23
is not true and accurate irrespective of the knowledge or lack of knowledge of
the Bank;
(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) if the Environmental Inspection, secondary investigation or other
environmental survey identifies any past or present event, condition or
circumstance that, based on the estimates of the environmental professionals
referred to in this Section 6.10, may currently or in the future require (a)
expenditures by the Bank, in connection with (1) remediation or monitoring of
any Controlled Property (including without limitation eventual removal of
asbestos-containing material), (2) preparing and obtaining approval by the
appropriate Environmental Regulatory Authority of remediation plans with respect
to Controlled Properties, (3) any violations of applicable Environmental Laws,
or (b) additions to loan loss reserve pursuant to Section 6.10(f), which
expenditures or additions to loan loss reserve individually or in the aggregate
may exceed $150,000;
(v) Compass is not permitted to conduct an Environmental Inspection or
secondary investigation of any Property to the extent it deems appropriate;
(vi) If on or before the Remediation Completion Date,
a) for each Controlled Property identified by Compass as
unacceptable and requiring remediation, the Bank does not deliver to Compass
written evidence acceptable to Compass that the Bank has developed a remediation
plan approved by the applicable Environmental Regulatory Authority,
b) for each Collateral Property identified by Compass as
unacceptable and requiring remediation, the Bank does not provide evidence
acceptable to Compass that the Bank increased its loan loss reserve in
accordance with Section 6.10(f).
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(h) The Bank agrees to make available to Compass and its consultants,
agents and representatives all documents and other material relating to
environmental conditions of the Property including, without limitation, the
results of other environmental inspections and surveys. The Bank also agrees
that all engineers and consultants who prepared or furnished such reports may
discuss such reports and information with Compass and shall be entitled to
certify the same in favor of Compass and its consultants, agents and
representatives and make all other data available to Compass and its
consultants, agents and representatives. At the written request of the Bank,
Compass agrees to provide the Bank with a copy of all environmental reports
prepared by its consultants as a result of the Environmental Inspections.
SECTION 6.11 Exchange Agreement. Immediately prior to the Effective
Time, the Bank and Compass agree to enter into, and Compass agrees to cause
Compass to enter into, the Exchange Agreement with the Exchange Agent, or if the
Exchange Agent refuses to serve as exchange agent, such other exchange agent as
shall mutually agreed to by the Bank and Compass.
SECTION 6.12 Employee Bonuses. Unless paid by the Bank on or prior to
the Effective Time, Compass agrees to cause to be paid to the employees of the
Bank, the 1996 bonuses, if any, due such employees under the Bank's 1996 bonus
plan calculated consistent with past practices and pro rated through the
Effective Time.
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 which approvals shall not have
imposed any condition or requirement which in the judgment of Compass would
adversely impact the economic or business benefits of the transactions
contemplated by this Agreement or otherwise would in the judgment of Compass be
so burdensome as to render inadvisable the consummation of the Merger, 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 Bank'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
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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 and Compass Texas
to Effect the Merger.
The obligations of Compass and Compass Texas to effect the Merger are
subject to the satisfaction or waiver of the following conditions prior to the
Effective Time:
(a) all representations and warranties of the Bank shall be true and
correct in all material respects as of the date hereof and at and as of the
Closing, with the same force and effect as though made on and as of the Closing;
(b) the Bank shall have performed in all material respects all obligations
and agreements and in all material respects complied with all covenants and
conditions, contained in this Agreement to be performed or complied with by it
prior to the Effective Time;
(c) there shall not have occurred a Material Adverse Effect with respect
to the Bank;
(d) the directors of the Bank shall have delivered to Compass an
instrument dated the Effective Time releasing the Bank from any and all claims
of such directors (except as to their deposits and accounts, and as to rights of
indemnification pursuant the Bylaws of the Bank) and shall have delivered to
Compass their resignations as directors of the Bank;
(e) the officers of the Bank shall have delivered to Compass an instrument
dated the Effective Time releasing the Bank from any and all claims of such
officers (except as to deposits and accounts, accrued compensation permitted by
their respective agreements and rights of indemnification pursuant to the Bylaws
of the Bank);
(f) Compass shall have received the opinions of counsel to the Bank
acceptable to it as to the matters set forth on Exhibit D 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;
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(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) there shall be no Bank Indebtedness;
(j) Compass shall have received from holders of the Bank'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
Code;
(l) The Bank shall have delivered to Compass a schedule of all
transactions in the capital stock (or instruments exercisable for or convertible
into capital stock) of the Bank of which the Bank has knowledge from and
including the date of this Agreement through the Effective Time;
(m) All warrants, options, rights, convertible debentures or other
securities entitling the holder thereof to acquire Shares shall have been
exercised or converted, or shall have expired, lapsed or terminated, prior to
the Effective Time;
(n) Compass shall have received the Section 368 Certificates and the
Proxies by March 29, 1996; and
(o) Compass shall have received certificates dated the Closing executed by
the Chairman of the Board of the Bank, and the Secretary or Cashier of the Bank
certifying in such reasonable detail as Compass may reasonably request, to the
effect described in Sections 7.2(a), (b), (c), (g) and (i).
SECTION 7.3 Conditions to the Obligations of the Bank to Effect the
Merger. The obligations of the Bank to effect the Merger are subject to the
satisfaction or waiver of the following conditions prior to the Effective Time:
(a) all representations and warranties of Compass 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 and Compass Texas 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
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<PAGE>
(c) the Bank shall have received the opinion of counsel to Compass and
Compass Texas acceptable to it, as to the matters set forth on Exhibit E
attached hereto;
(d) The Bank shall have delivered to the directors of the Bank an
instrument dated the Effective Time releasing such directors from any and all
claims of the Bank (except as to indebtedness or other contractual liabilities);
provided, however, that such releases shall not release an action against such
directors by Compass or the Surviving Bank in connection with the transactions
contemplated by this Agreement;
(e) the shareholders of the Bank shall have received an opinion of counsel
satisfactory to Compass that the Merger will qualify as a reorganization under
Section 368(a) of the Code; and
(f) the Bank shall have received certificates dated the Closing, executed
by an appropriate officer of Compass and by an appropriate officer of Compass
Texas, respectively, certifying, in such detail as the Bank 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 Bank, but prior to the Effective Time:
(a) by mutual written consent duly authorized by the Boards of Directors
of Compass and the Bank;
(b) by Compass (i) if Compass learns or becomes aware of a state of facts
or breach or inaccuracy of any representation or warranty of the Bank contained
in Article III which constitutes a Material Adverse Effect, (ii) pursuant to
Section 6.10, (iii) if the Schedules to this Agreement are not accepted by
Compass, (iv) if Compass shall not have received the Section 368 Certificates
and the Proxies by March 29, 1996, or (v) if any of the conditions to Closing
contained in Section 7.1 or 7.2 are not satisfied or waived in writing by
Compass;
(c) by the Bank if the conditions to Closing contained in Section 7.1 or
7.3 are not satisfied or waived in writing by the Bank;
(d) by Compass or the Bank 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 Bank;
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<PAGE>
(e) by Compass or the Bank pursuant to Section 1.6(b); or
(f) by Compass or the Bank if any court of competent jurisdiction in the
United States or other United States (federal or state) governmental body shall
have issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the Merger and such order, decree, ruling or
other action shall have been final and nonappealable.
SECTION 8.2 Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 8.1 hereof, this Agreement
shall forthwith become void and have no effect, without any liability on the
part of any party or its directors, officers or shareholders, other than the
provisions of this Section 8.2 and Section 10.1. Nothing contained in this
Section 8.2 shall relieve any party from liability for any breach of this
Agreement.
SECTION 8.3 Amendment. (a) To the extent permitted by applicable law,
this Agreement may be amended by action taken by or on behalf of the Board of
Directors of the Bank, Compass and, if required, Compass Texas at any time
before or after adoption of this Agreement by the shareholders of the Bank but,
after any submission of this Agreement to such shareholders for approval, no
amendment shall be made which reduces the Merger Consideration or which
materially and adversely affects the rights of the Bank's shareholders hereunder
without any required approval of such shareholders. This Agreement may not be
amended except by an instrument in writing signed on behalf of all the parties.
(b) The parties hereto hereby agree to enter into an amendment of this
Agreement for the purpose of adding Compass Texas as a party hereto, which
amendment shall be made prior to any submission of this Agreement to
shareholders of the Bank for their approval. As a condition to the Bank's entry
into such an amendment, Compass shall deliver to the Bank a certificate in
substantially the form of Exhibit G attached hereto.
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.
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ARTICLE IX.
SURVIVAL
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, including
without limitation, attorneys' fees, accountants' fees, other professional fees
and costs related to expenses of officers and directors of the Bank, shall be
paid by the party incurring such costs and expenses. 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 10.2 Brokers and Finders. All negotiations on behalf of
Compass and the Bank relating to this Agreement and the transactions
contemplated by this Agreement have been carried on by the parties hereto and
their respective agents directly without the intervention of any other person in
such manner as to give rise to any claim against Compass, Compass Texas, or the
Bank for financial advisory fees, brokerage or commission fees, finder's fees or
other like payment in connection with the consummation of the transactions
contemplated hereby.
SECTION 10.3 Entire Agreement; Assignment. This Agreement (a)
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes all other prior agreements and understandings, both
written and oral, among the parties or any of them with respect to the subject
matter hereof, and (b) shall not be assigned by operation of law or otherwise,
provided that Compass may assign its rights and obligations or those of Compass
Texas 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.
SECTION 10.4 Further Assurances. From time to time as and when
requested by Compass or its successors or assigns, the Bank, the officers and
directors of the Bank, shall execute and deliver such further agreements,
documents, deeds, certificates and other instruments and shall take or cause to
be taken such other actions, including those as shall be necessary to vest or
perfect in or to confirm of record or otherwise the Bank's title to and
possession of, all of its property, interests, assets, rights, privileges,
immunities, powers, franchises and authority, as shall be
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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 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 or Compass Texas:
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:
Daniel B. Graves
Associate General Counsel
Compass Bancshares, Inc.
15 South 20th Street
Birmingham, Alabama 35233
Telecopy No.: (205) 933-3043
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and
Annette L. Tripp
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
3400 Texas Commerce Tower, 600 Travis
Houston, Texas 77002
Telecopy No.: (713) 223-3717
if to the Bank:
Richard E. Lane
Texas American Bank
85 N. E. Loop 410, Suite 120
San Antonio, Texas 78216
P.O. Box 682009
San Antonio, Texas 78268-2009
Telecopy No.: (210) 442-2408
with a copy to:
T. Drew Cauthorn
Cauthorn, Hale, Hornberger, Fuller, Sheehan & Becker
One Riverwalk Place, Suite 620
700 North St. Mary's
San Antonio, Texas 78705
Telecopy No.: (210) 271-1740
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.
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.
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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 Bank (or when the
reference is to Compass, to Compass and its Subsidiaries, taken as a whole).
(c) "Environmental Laws" shall mean all federal, state and local laws,
ordinances, rules, regulations, guidance documents, directives, and decisions,
interpretations and orders of courts or administrative agencies or authorities,
relating to the release, threatened release, recycling, processing, use,
handling, transportation treatment, storage, disposal, remediation, removal,
inspection or monitoring of Polluting Substances or protection of human health
or safety or the environment (including, without limitation, wildlife, 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 1986, as amended ("SARA"), the Resource Conservation and
Recovery Act of 1976, as amended ("RCRA"), Hazardous and Solid Waste Amendments
of 1984, as amended ("HSWA"), the Hazardous Materials Transportation Act, as
amended ("HMTA"), the Toxic Substances Control Act ("TSCA"), Occupational Safety
and Health Act ("OSHA"), Federal Water Pollution Control Act, Clean Air Act, and
any and all regulations promulgated pursuant to any of the foregoing.
(d) "Polluting Substances" shall mean those substances included within the
statutory or regulatory definitions, listings or descriptions of "pollutant,"
"contaminant," "toxic waste," "hazardous substance," "hazardous waste," "solid
waste," or "regulated substance" pursuant to CERCLA, SARA, RCRA, HSWA, HMTA,
TSCA, OSHA, and/or any other Environmental Laws, as amended, and shall include,
without limitation, any material, waste or substance which is or contains
explosives, radioactive materials, oil or any fraction thereof, asbestos, or
formaldehyde. To the extent that the laws or regulations of the State of Texas
establish a meaning for "hazardous substance," "hazardous waste," "hazardous
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materials," "solid waste," or "toxic waste," 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) "Release" shall mean any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, disposing,
discarding or abandoning.
(f) "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 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 Bank is 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 Bank.
[SIGNATURE PAGE FOLLOWS]
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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/ Daniel B. Graves By /s/ D. Paul Jones
----------------------- - -----------------
Its Assistant Secretary Its Chairman and Chief Executive Officer
ATTEST: TEXAS AMERICAN BANK
By /s/ Carlin Friar By /s/ Richard E. Lane
---------------------- ---------------------
Its Secretary Its Presdient/CEO
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EXHIBIT A
POOLING TRANSFER RESTRICTIONS AGREEMENT
---------------------------------------
This Pooling Transfer Restrictions Agreement (this "Agreement") is executed
and delivered this ____ day of March, 1996 by and among Compass Bancshares, Inc.
("Compass"), Texas American Bank (the "Bank"), and the undersigned shareholder
of the Bank (the "Shareholder").
WHEREAS, Compass and the Bank entered into an Agreement and Plan of Merger
dated March 13, 1996 ("Merger Agreement") pursuant to which the Bank will be
merged with an existing or to-be-formed subsidiary of Compass (the "Merger"),
and
WHEREAS, Compass has required as a condition to entering into the Merger
Agreement that the Bank and the Shareholder and each other affiliate of the Bank
deliver to Compass an agreement in substantially the form hereof,
NOW, THEREFORE, in consideration of Compass' agreement to enter into the
Merger Agreement and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned, intending to be
legally bound, hereby agree as follows:
1. The Shareholder agrees that he will not sell, pledge, transfer or
otherwise dispose of any shares of the Bank's common stock, par value $5.00 per
share ("Bank Common Stock"), within 30 days prior to the Effective Time (as
defined in the Merger Agreement). The Shareholder further agrees that until the
publication of financial results covering at least 30 days of post-Merger
combined operations of the Bank and Compass, he will not sell, pledge, transfer
or otherwise dispose of any shares of the Compass Common Stock to be acquired by
him in the Merger, except for pledges by the Shareholder of all or part of such
Shareholder's Compass Common Stock acquired in the Merger to secure loans,
provided the lender accepts any pledge of such Compass Common Stock subject to
the terms of this Agreement. The Shareholder further agrees that he will not
sell, pledge, transfer or otherwise dispose of any shares of the Compass Common
Stock to be acquired by him in the Merger except in a manner which is consistent
with any additional requirements for Compass' accounting for the Merger as a
pooling of interests, including without limitation any new requirements imposed
by the applicable provisions of the Securities Act of 1933, the Securities
Exchange Act of 1934, and the respective rules and regulations thereunder.
2. The Shareholder further acknowledges and agrees that he will be subject
to Rule 145 promulgated by the Securities and Exchange Commission under the
Securities Act, and agrees not to transfer any Compass Common Stock received by
him in the Merger except in compliance with the applicable provisions of the
<PAGE>
Securities Act, the Exchange Act, and the respective rules and regulations
thereunder.
3. The Shareholder agrees that the shares of Compass Common Stock to be
issued to him in the merger will bear a restrictive transfer legend in
substantially the following form:
The shares represented by this certificate are subject to a Pooling
Transfer Restrictions Agreement dated _______ __, 1996 which restricts any
sale or other transfer of such shares prior to [insert due date of filing
of next Quarterly Report on Form 10-Q or Annual Report on Form 10-K that
will contain required combined financial results]. The issuer will furnish
to the record holder of this certificate, without charge, upon written
request to the issuer at its principal place of business, a copy of the
Pooling Transfer Restrictions Agreement.
Compass agrees to instruct its transfer agent to remove the restrictive legend
from any certificates evidencing shares subject hereto promptly following the
expiration of the transfer restrictions described in Section 1.
4. The Bank agrees and the Shareholder acknowledges and agrees that the
Bank will not permit the transfer of any shares of Bank Common Stock by the
Shareholder or any other Bank affiliate within 30 days prior to the Effective
Time.
5. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
2
<PAGE>
IN WITNESS WHEREOF, the undersigned set his hand effective as of the day
first written above.
COMPASS BANCSHARES, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
TEXAS AMERICAN BANK
By:__________________________________
Name:________________________________
Title:_______________________________
_____________________________________
Signature of Shareholder
_____________________________________
Printed Name of Shareholder
Pooling Transfer Restrictions Agreement
H1995A\13720-4
3
<PAGE>
EXHIBIT B
EXCHANGE AGENT AGREEMENT
------------------------
This Exchange Agent Agreement, dated as of ___________, 1996, is made and
entered into by and among Compass Bancshares, Inc., a Delaware corporation
("Compass"), ________________________, a Texas corporation ("Compass Texas"),
Texas American Bank, a Texas banking association ("Bank"), and River Oaks Trust
Company, a Texas trust company ("Exchange Agent").
PREAMBLE:
Pursuant to the Agreement and Plan of Merger dated as of March 13, 1996
("Merger Agreement") among Compass, Compass Texas and the Bank, Compass Texas
shall, at the Effective Time, be merged into the Bank. The name of the
surviving bank shall be Texas American Bank ("Surviving Bank").
After the Effective Time, the outstanding shares of the Common Stock, par
value $5.00 per share (including for this purpose any shares of Common Stock
which can be acquired upon the exercise of any warrant, option, right,
convertible debt instrument or other security pursuant to which shares of Common
Stock may be obtained (collectively, "Derivative Securities")), of the Bank
("Bank Common Stock") shall solely represent, in the aggregate, the right to
payment by Compass of total Merger Consideration of ____________ shares of
Compass common stock, par value $2.00 per share ("Compass Common Stock") (or
cash in lieu of fractional shares), subject to the rights of qualified
dissenting shareholders of the Bank.
The Bank has requested Compass to designate the Exchange Agent in
connection with the exchange (the "Exchange") of shares of Bank Common Stock for
shares of Compass Common Stock, subject to the terms and conditions hereof and
of the Merger Agreement. The Exchange Agent will receive Bank Common Stock
delivered for exchange pursuant to the terms of the Merger Agreement, and will
process such certificates representing Bank Common Stock ("Certificates") and
related documents. Compass desires that the Exchange Agent act in such capacity.
NOW THEREFORE, in consideration of the premises and of the mutual
agreements and covenants contained herein, and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties,
intending to be legally bound, hereby agree as follows:
1. Appointment of Exchange Agent. River Oaks Trust Company is hereby
appointed as the Exchange Agent for payment of the Merger
<PAGE>
Consideration to shareholders of the Bank. Such appointment shall be in
accordance with the terms and conditions set forth herein.
2. Closing of Stock Transfer Books. At the Effective Time, the Bank's stock
transfer books will be closed and no transfers shall be permitted.
3. Duties of Exchange Agent. The Exchange Agent is authorized and directed
to perform the following functions contemplated by the Merger Agreement and the
Letters of Transmittal (defined below):
(a) Distribution of Letters of Transmittal. The Exchange Agent shall
mail to the holders of record of Bank Common Stock, by first class United
States mail, postage prepaid, copies of Letters of Transmittal, including
Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 in substantially the form attached hereto as Exhibit A
("Letters of Transmittal"), and return envelopes to the Exchange Agent, at
the earliest practicable time following the Effective Time. A form of Stock
Assignment, Power of Attorney and Lost Stock Certificate Affidavit will be
provided to the Exchange Agent for use by shareholders if necessary.
(b) Acceptance of Certificates.
--------------------------
(i) The Exchange Agent will examine the Letters of Transmittal,
Certificates and other documents and instruments delivered to the Exchange
Agent by or on behalf of holders tendering Bank Common Stock and shall
determine whether (i) the Letters of Transmittal have been completed and
executed properly, and are accompanied by proper evidence of authority,
(ii) Certificates corresponding to the names of the registered holders,
Certificate numbers and the number of shares represented thereby with the
information set forth in the Bank's shareholder and other records and which
appear to be in negotiable, good delivery form, properly endorsed or
accompanied by stock powers with transfer tax stamps or evidence of payment
or exemption from transfer taxes affixed (where required), and (iii)
signatures are guaranteed (where required), all in accordance with the
terms and conditions of the Merger Agreement and the Letters of
Transmittal. The Exchange Agent shall accept Certificates which are
surrendered in accordance with the provisions of the Merger Agreement and
accompanied by the executed Letters of Transmittal. Such Certificates and
Letters of Transmittal shall only be accepted by the Exchange Agent and
eligible for payment hereunder if they have been properly executed and
completed in accordance with the instructions contained in the Letters of
Transmittal
2
<PAGE>
and if the person or persons surrendering such Certificates and Letters
of Transmittal appears as a shareholder of record of the number of shares
surrendered on the list of shareholders supplied and certified to the
Exchange Agent by the Bank ("Shareholder List") attached as Exhibit B
hereto. In the event the Exchange Agent shall have any questions as to
whether a Certificate and Letters of Transmittal have been properly
executed and completed or whether the Certificates have been surrendered
by the holder of record thereof, the Exchange Agent shall promptly refer
such questions to Compass for resolution by Compass and the Exchange
Agent shall be able to rely on the written instructions and decisions of
any officer of Compass. Determination of all questions as to the proper
completion or execution of the Letters of Transmittal or as to the proper
form for transfer of the Certificates for Bank Common Stock shall be made
by Compass together with its attorneys, and such other persons as Compass
shall designate, and such determinations shall be final and binding;
provided, however, that the rejection by Compass of any Letters of
Transmittal or Certificates deemed by Compass to be ineffective to
transfer the Certificates shall not affect the right of any shareholder
in or to his respective share of the Merger Consideration;
(ii) If any defect or irregularity appears to exist in connection
with a purported tender, the Exchange Agent will notify promptly the
persons by whom the tender was made and will return all documents
delivered in connection therewith or take such action as is necessary or
advisable to cause such defect or irregularity to be cured;
(iii) Tenders may be made only as set forth in the Letters of
Transmittal;
(iv) Letters of Transmittal, and facsimiles thereof submitted to the
Exchange Agent, shall be marked by the Exchange Agent's designated
officers to show the date and time of receipt and their review and
acceptance thereof;
(iv) At the close of business each Friday, the Exchange Agent shall
provide Compass and First National Bank of Boston, Compass' transfer
agent and registrar ("Transfer Agent") with a list of shareholders who
have properly tendered their Bank Common Stock. In addition, the Exchange
Agent shall inform Compass in writing of the number of shares of Bank
Common Stock which have been properly tendered and the number which have
been improperly tendered to the Exchange Agent during the week then ended
and on a cumulative basis through that day.
3
<PAGE>
The Exchange Agent shall provide Compass such other information concerning
the Bank Common Stock as it may reasonably request. Such communications
should be sent to:
Compass Bancshares, Inc.
701 South 20th Street
Birmingham, Alabama 35233
Attn: Michael A. Bean
Telephone No. (205) 558-5740
With a copy to: First National Bank of Boston
Post Office Box 1865
Boston, Massachusetts 02105
Attn: Caroline Rees, Shareholder
Services Officer
Telephone No. (617) 575-2571
(c) Exchange Fund. In order to provide for payment of the Merger
Consideration in accordance with the terms of the Merger Agreement,
Compass, from time to time prior to or after the Effective Time, shall
deposit or cause to be deposited with the Exchange Agent cash in an amount
sufficient to make payments in lieu of fractional shares (the "Exchange
Fund"). This Exchange Fund shall not be used for any purpose except as
provided by this Agreement.
(d) Compass Common Stock. Compass Texas and the Bank shall jointly
advise the Exchange Agent as to the number of shares of Compass Common
Stock to be distributed to each shareholder which shall be calculated by
Compass Texas and the Bank as follows:
(i) Bank Common Stock. Each holder of Bank Common Stock shall receive
Merger Consideration equal to ___________ shares of Compass Common Stock
for each share of Bank Common Stock held immediately prior to the Effective
Time.
(ii) Fractional Shares. For each fractional share of Compass Common
Stock which would be delivered upon the surrender of Bank Common Stock,
each holder of Stock shall receive cash in an amount equal to the product
of such fraction and $_______________.
As soon as practicable after acceptance of properly executed
Certificates and accompanying Letters of Transmittal in accordance with the
terms of paragraph 3(b) hereof, the Exchange Agent shall instruct and
Compass shall cause the Transfer Agent to issue and mail certificates
4
<PAGE>
representing shares of Compass Common Stock to the shareholder surrendering
such certificates. The Exchange Agent shall promptly make the payments in
lieu of fractional shares out of the Exchange Fund upon surrender of the
Certificates.
(e) Other Duties of Exchange Agent.
------------------------------
(i) The Exchange Agent shall have no obligation to make payment for
surrendered Certificates unless Compass shall have issued sufficient
Compass Common Stock or caused such stock to be issued and shall have
deposited or caused to be deposited in the Exchange Fund sufficient cash
with which to pay all amounts due and payable for such shares.
(ii) The Exchange Agent shall be regarded as having made no
representations or warranties as to the validity, sufficiency, value or
genuineness of any Certificates or the shares of Bank Common Stock
represented thereby, and the Exchange Agent shall not be deemed to have
made any representations as to the value of such shares.
(iii) The Exchange Agent may rely on and shall be protected in acting
upon the written instructions of any officer of Compass or the Surviving
Bank with respect to any matter relating to its actions or duties
hereunder; and the Exchange Agent shall be entitled to request further
instructions from Compass or the Surviving Bank, as appropriate, and to act
in accordance therewith.
(iv) The Exchange Agent may consult attorneys satisfactory to the
Exchange Agent (including, without limitation, attorneys for Compass or the
Surviving Bank) and the written advice and opinion of such attorneys shall
constitute full and complete authorization and protection in respect of any
action taken, suffered or omitted by it hereunder in good faith and in
accordance with such advice or opinion.
(v) The Exchange Agent shall take all other actions which it or Compass
deems necessary or appropriate under the terms of the Merger Agreement, the
Letters of Transmittal and under the customs and practices normally applied
to transactions of this type and appropriate to the proper transfer of the
Bank Common Stock and the proper maintenance of the Bank's and Compass'
shareholder books and records. Following
5
<PAGE>
payment in accordance with the terms hereof, the Exchange Agent shall
forward to Compass all documents received by it in connection with tenders
of Certificates (including Letters of Transmittal, telegrams, facsimile
transmissions or letters representing tenders made without concurrent
deposit of certificates) and the tendered Certificates prominently marked
"CANCELLED" on the front thereof, via Federal Express or other means
acceptable to Compass.
4. Alteration of Instructions. The Exchange Agent shall follow and act
upon any written amendments, modifications or supplements to these instructions
and upon any further instructions from Compass or the Surviving Bank in
connection with the Merger Agreement or any of the transactions contemplated
thereby.
5. Indemnification of Exchange Agent. Compass and the Surviving Bank
covenant and agree to indemnify the Exchange Agent and hold it harmless against
any loss, liability or expense it may incur in the absence of negligence or bad
faith on the part of the Exchange Agent arising out of or in connection with the
administration of its duties hereunder, including but not limited to legal fees
and other costs and expenses of defending or preparing to defend against any
claim or liabilities in connection with this Agreement.
6. Compensation for Services. Compass shall compensate the Exchange
Agent for its services hereunder.
7. Payment of Amounts Due Dissenting Shareholders. In the event that
qualified dissenting shareholders of the Bank exercise the rights afforded them
under the Texas Banking Act and the Texas Business Corporation Act, such
shareholders may be entitled to payment of an amount other than the Merger
Consideration. Any payment for shares other than the Merger Consideration will
be paid only upon the written instructions of the Surviving Bank. The Exchange
Agent may request and shall be provided additional funds from the Surviving Bank
in order to make any required payment to dissenting shareholders, and the
Exchange Agent shall return to Compass any Merger Consideration which would have
otherwise been payable to such persons. The Exchange Agent shall rely on the
instructions of the Surviving Bank as to all matters covered by this paragraph,
including, without limitation, the time and amount of payment to dissenting
shareholders.
8. Unclaimed Funds. Any moneys or certificates deposited hereunder which
shall remain unclaimed by the holders of shares of Company Common Stock for a
period of six (6) months following the
6
<PAGE>
Effective Time shall, upon written request of the Surviving Bank, be returned to
Compass, plus interest earned on the cash portion thereof and the shareholders
of Certificates not theretofore presented to and accepted by the Exchange Agent
shall look to Compass only, and not the Exchange Agent, for the payment of any
Merger Consideration in respect of such Certificates.
9. Investment of Exchange Fund. At the direction of the Surviving Bank,
the Exchange Agent shall invest portions of the Exchange Fund and remit earnings
thereon monthly to the Surviving Bank, provided that all such investments shall
be in The Starburst Government Money Market Fund (the "Fund"), managed by
Compass Bank, an Alabama banking corporation and an affiliate of Compass, or if
for any reason the Fund is not available to the Exchange Agent as an investment
alternative, as otherwise directed by the Surviving Bank.
10. Amendment. Except as otherwise expressly provided herein, neither
this Agreement nor any provision hereof may be amended, modified, waived,
discharged or terminated except in a writing signed by all of the parties hereto
prior to the Effective Time or by Compass and the Exchange Agent after the
Effective Time; provided, however, that no amendment shall be made if such
modification shall reduce the amount of or eliminate the opportunity of any
shareholder to receive his share of the Merger Consideration contemplated by the
Merger Agreement.
11. Section Headings. The section headings used herein are for
convenience of reference only and shall not define or limit the provisions of
this Agreement.
12. GOVERNING LAW. THIS AGREEMENT AND THE APPOINTMENT OF THE EXCHANGE
AGENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF TEXAS AND SHALL INURE TO THE BENEFIT OF AND BE BINDING UPON THE SUCCESSORS
AND ASSIGNS OF THE PARTIES HERETO.
13. Notices. Notices under this Agreement shall be deemed given if made
in writing and sent via prepaid first-class United States mail, or by nationally
recognized overnight courier, to:
If to Compass:
Compass Bancshares, Inc.
15 South 20th Street
Birmingham, Alabama 35233
Attn: Daniel B. Graves
Associate General Counsel
7
<PAGE>
If to the Exchange Agent:
River Oaks Trust Company
6990 Portwest, Suite 170
Houston, Texas 77024
Attn: Stephen K. Brownlow
Vice President and Trust Officer
If to the Company prior
to the Effective Time:
Texas American Bank
85 N.E. Loop 410, Suite 120
San Antonio, Texas 78216
P.O. Box 682009
San Antonio, Texas 78268-2009
Attn: Richard E. Lane
If to Compass Texas or, following
the Effective Time, the
Surviving Bank:
_________________________
c/o Compass Bancshares, Inc.
15 South 20th Street
Birmingham, Alabama 35233
Attn: Daniel B. Graves
14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15. Conflict. In the event the terms of this Agreement conflict with the
terms and provisions of the Merger Agreement, the terms and provisions of the
Merger Agreement shall be controlling.
16. Defined Terms. Capitalized terms not defined herein have the meanings
ascribed to them in the Merger Agreement.
[SIGNATURE PAGE FOLLOWS]
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized appointed officers on the date first written
above.
COMPASS BANCSHARES, INC.
By: _______________________________
Name:______________________________
Title:_____________________________
___________________________________
By: _______________________________
Name:______________________________
Title: ____________________________
___________________________________
TEXAS AMERICAN BANK
By: _______________________________
Name:______________________________
Title: ____________________________
___________________________________
RIVER OAKS TRUST COMPANY
By: _______________________________
Name:______________________________
Title: ____________________________
Exhibit A - Form of Letters of Transmittal
Exhibit B - Shareholder List
H1995A/13718-4
9
<PAGE>
EXHIBIT "A"
LETTER OF TRANSMITTAL
For Shares of Common Stock of
TEXAS AMERICAN BANK
Delivered Pursuant to the Agreement and Plan of Merger
dated as of March 13, 1996
By Mail or Overnight Delivery Service:
River Oaks Trust Company
6990 Portwest, Suite 170
Houston, Texas 77024
Attention: Mr. Stephen K. Brownlow
DO NOT HAND DELIVER
DESCRIPTION OF SHARES SURRENDERED
---------------------------------
Based on its stock transfer records, Texas American Bank (the "Bank") has
listed below your name, address and the certificate numbers representing your
shares of Common Stock, par value $5.00 per share ("Shares"), of the Bank. If
any of the listed information appears to be incorrect, please notify Mr. Stephen
K. Brownlow at (713) 867-1101 at once.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Name, Address and Social Security
Number of Registered Holders Certificate(s) Surrendered
- ------------------------------------------------------------------------
Total Number of
Certificate Shares Represented
Number(s) by Certificate(s)
_______________________________ ______________ ____________________
Name ______________ ____________________
______________ ____________________
<S> <C> <C>
_______________________________
_______________________________
Address
_______________________________ Total Shares _________________
Social Security Number
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
</TABLE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
<PAGE>
Gentlemen:
I, as the registered holder of the above described Shares of the Bank,
hereby tender to Compass Bancshares, Inc. ("Compass"), such Shares pursuant to
the Agreement and Plan of Merger dated as of March 13, 1996, as amended ("the
Merger Agreement"), by and between Compass, _______________ ("Compass Texas"),
and the Bank. I hereby acknowledge receipt of the Proxy Statement dated
_______________, 1996, which described the merger ("Merger") provided by the
Merger Agreement.
I represent and warrant to Compass and Compass Texas that I am the true and
lawful owner of the Shares, and have full capacity, power and authority to
exchange the Shares, free and clear of all liens, restrictions and encumbrances
of any kind whatsoever, and the Shares will not be subject to any adverse claim.
I understand that River Oaks Trust Company, as Exchange Agent for this exchange,
may require additional documentation, and I agree, upon request, to execute and
deliver any additional documents or instruments deemed by the Exchange Agent or
Compass reasonably necessary to complete the exchange of the Shares.
The authority conferred in this Letter of Transmittal shall not be affected
by, and shall survive, my death or incapacity, and any obligation I may have
hereunder shall be binding upon my successors, assigns, heirs, executors,
administrators, trustees in bankruptcy and personal and legal representatives.
I acknowledge that the tender of my Shares is irrevocable.
INSTRUCTIONS REGARDING ISSUANCE OF SHARES
If you wish to have the shares of Compass Common Stock to be issued
pursuant to the Merger Agreement in the name and at the address set forth above,
please sign and date this letter on page 3. If you wish to have the shares of
Compass Common Stock to be issued pursuant to the Merger Agreement in a name or
to an address other than the name and address specified above, please complete
the following section. You will be required to pay any transfer or other taxes
required by reason of the payment and delivery of Compass Common Stock to such
other person.
NEW CERTIFICATES TO BE ISSUED
IN A DIFFERENT NAME OR TO A DIFFERENT ADDRESS
If you are entitled to receive shares of Compass Common Stock and wish to
have certificates representing Compass Common Stock issued in a name or to an
address other than the name or address shown on your Bank stock certificates,
please indicate the name and address of your assignee below:
Name and Address of Assignee
----------------------------
Name:______________________________________ Taxpayer I.D. No. or
(Type or print full name) Social Security No.:_______________
Address:________________________________________________________________________
City, State, Zip Code:__________________________________________________________
2
<PAGE>
PLEASE SIGN AND DATE BELOW AS INDICATED
THEN PLEASE COMPLETE SUBSTITUTE FORM W-9
Signatures _____________________________
_____________________________
Dated _________________________, 1996
Name(s) _____________________________________________________________
(Please Print)
Capacity _______________________________
(Full Title)
Address ________________________________
________________________________
(Include Zip Code)
Area Code and Telephone Number _____________________________
Tax Identification or Social Security Number _____________________________
_______________________________________________________________________________
GUARANTEE OF SIGNATURES
(Must be signed by registered holder(s) as name(s) appear on the certificate(s)
or by person(s) authorized to become registered holder(s) by certificate(s) and
documents transmitted. If signing is by an officer or a corporation, or by an
attorney, executor, administrator, trustee, guardian, agent or other person
acting in a fiduciary or representative capacity, please set forth full title.
See Instruction 1.)
- -----------------
Authorized Signature ______________________________
Name ______________________________
(Please Print)
Title ______________________________
Name of Firm ______________________________
Address ______________________________
______________________________
(Include Zip Code)
Area Code and Telephone Number __________________
Dated ____________________________, 1996
_______________________________________________________________________________
PLEASE COMPLETE SUBSTITUTE FORM W-9
IT IS THE LAST FORM IN THIS PACKAGE
_______________________________________________________________________________
3
<PAGE>
DO NOT WRITE IN SPACE BELOW
Date Received:_________________________ By:_______________________
Date:____________________, 1996
<TABLE>
<CAPTION>
======================================================================================
Bank Compass No. of
Shares Shares Accepted Stock Certificate Fractional Cash Check
Surrendered for Exchange Certificate Nos. No. issued Shares Paid No.
______________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
======================================================================================
</TABLE>
Accepted by:__________________ Checked By:____________________
Date:______________________, 1996
4
<PAGE>
LETTER OF TRANSMITTAL
INSTRUCTIONS
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; SIGNATURE GUARANTEES.
Please send all certificates for Shares to River Oaks Trust Company, as Exchange
Agent (the "Exchange Agent"), with the Letter of Transmittal, or a facsimile
thereof, fully completed and signed by you, the registered holder(s). Compass
retains the right to require that a signature on the Letter of Transmittal and
the Share certificates be guaranteed by an Eligible Institution. An Eligible
Institution is a member of a registered national securities exchange or of the
National Association of Securities Dealers, Inc. (the "NASD") or a commercial
bank or trust company having an office, branch or agency located in the United
States. If Compass wishes to have your signature guaranteed by an Eligible
Institution, you will be notified by separate letter.
If certificates are registered in the name of a person other than you,
the certificate(s) must be duly endorsed or accompanied by stock powers signed
by the registered holder and the Letter of Transmittal. If the Letter of
Transmittal is executed by an officer on behalf of a corporation or by an
executor, administrator, trustee, guardian, attorney, agent or other person
acting in a fiduciary or representative capacity, the Exchange Agent reserves
the right to require that proper documentary evidence of the authority of the
person executing the Letter of Transmittal. If the tendered certificates are
owned of record by two or more joint owners, each of you must sign the Letter of
Transmittal. Questions regarding such evidence of authority may be referred to
Mr. Stephen K. Brownlow, a representative of the Exchange Agent, at (713) 867-
1101.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES, THE LETTER OF TRANSMITTAL AND
ANY OTHER REQUIRED DOCUMENTS IS AT YOUR OPTION AND RISK. IF DELIVERY IS BY
MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
STRONGLY RECOMMENDED.
2. ISSUANCE OF COMPASS COMMON STOCK. You will receive the Compass
Common Stock for your Shares only after receipt and acceptance by the Exchange
Agent and Compass of all of the certificates representing your Shares, a
properly completed and executed Letter of Transmittal, and any other required
documents and upon processing of the documents by the Exchange Agent.
3. PAYMENT FOR FRACTIONAL SHARES. As provided in Section 1.6(c) of
the Merger Agreement, Compass will not issue any certificates of Compass Common
Stock for fractional shares. In lieu of issuing fractional shares, Compass will
pay to any Bank shareholder entitled to receive a fractional share of Compass
Common Stock, a cash payment based on a price of $_______ per share.
4. NO CONDITIONAL TENDERS; WAIVER OF NOTICE. No alternative,
conditional, irregular or contingent deliveries of Shares will be accepted. By
execution of the Letter of Transmittal or any manually signed facsimile thereof,
you waive any rights to receive any notice of the acceptance of your Shares for
exchange.
5. SIGNATURES ON LETTER OF TRANSMITTAL. In order for the Letter of
Transmittal to be properly signed by you, the signature must correspond exactly
with the name(s) as written on the face of the certificate(s).
If the Shares tendered hereby are owned of record by two or more joint
owners, all of you must sign the Letter of Transmittal.
If your Shares are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of certificates.
If the certificate(s) representing the Shares transmitted hereby are
registered in your name and the Letter of Transmittal is properly signed by you,
no endorsements of certificates or separate stock powers are
5
<PAGE>
required. In all other cases, the certificate(s) representing the Shares
transmitted hereby must be endorsed or accompanied by appropriate stock powers,
in either case signed exactly as the name(s) of the registered holder(s) appear
on the certificate(s), and if required, signature(s) on such certificate(s) or
stock power(s) must be guaranteed by an Eligible Institution.
If the Letter of Transmittal or any certificate or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of corporation or other acting in a fiduciary or representative
capacity, such person should so indicate when signing, and the Exchange Agent
reserves the right to require proper evidence of their authority to so act.
6. IRREGULARITIES. All questions as to the validity, form,
eligibility, acceptance of and delivery of Shares and the issuance of Compass
Common Stock and the payment of cash in lieu of fractional shares will be
determined by Compass, which determination shall be final and binding. Compass
reserves the absolute right to reject any or all tenders determined by Compass
not to be in appropriate form or which would, in the opinion of Compass'
counsel, be unlawful. Compass also reserves the absolute right in its sole
discretion, to waive any of the conditions hereof, or any defect in any tender
with respect to any particular Shares of any particular shareholder, and
Compass' interpretations of the terms and conditions of the Merger Agreement and
these instructions shall be final and binding. The Exchange Agent and Compass
shall not be obligated to give notice of defects or irregularities in tenders,
nor shall they incur any liability for failure to give any such notice. Tenders
will be deemed not to have been made until all defects and irregularities have
been cured or waived.
7. 31% BACKUP WITHHOLDING. Under the Federal income tax law, you
must provide Compass with a correct taxpayer identification number ("TIN")
unless an exemption applies. If the correct TIN is not provided, a $50 penalty
may be imposed upon you by the Internal Revenue Service and you will be subject
to backup withholding of 31% of the payments to be received by you.
8. REQUEST FOR ASSISTANCE OF ADDITIONAL COPIES. Questions and
requests for assistance or additional copies of the Letter of Transmittal may be
directed to the Exchange Agent at the address set forth at the top of page 1.
IMPORTANT TAX INFORMATION
Under the Federal income tax law, you are to provide Compass (as
payer) with a correct taxpayer identification number on Substitute Form W-9
below. If Compass is not provided with the correct taxpayer identification
number, you may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, all payments that are made to you with respect to Shares
(including any cash payable to you under the Merger Agreement in lieu of
fractional shares) may be subject to backup withholding.
Exempt shareholders (including among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. Nonetheless, exempt shareholders should complete the
Substitute Form W-9 below and so indicate their exempt status by writing
"exempt" across the face of the Substitute Form W-9. In order for a foreign
individual to qualify as an exempt recipient, that shareholder must submit a
statement, signed under penalties of perjury, attesting to that individual's
exempt status. Such statements can be obtained from the Exchange Agent. See
the enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional information.
If backup withholding applies, Compass is required to withhold 31% of
any payments made to the shareholder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be obtained.
6
<PAGE>
Purpose of Substitute Form W-9
To prevent backup withholding on payments that are made to you with
respect to shares of Compass Common Stock acquired as a result of the Merger or
with respect to cash payments, if any, receivable in lieu of fractional shares
pursuant to the Merger Agreement, you are required to notify Compass of your
correct taxpayer identification number by completing the form below certifying
that the taxpayer identification number provided on Substitute Form W-9 is
correct (or that you are awaiting a taxpayer identification number).
What Number to Give
As the record owner of the Shares, you are required to give Compass
your Social Security Number or Employer Identification Number. If the Shares
are in more than one name or are not in the name of the actual owners, consult
the enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional guidelines on which number to report.
7
<PAGE>
SUBSTITUTE FORM W-9
Department of the Treasury
Internal Revenue Service
Taxpayer Identification Number
PART 1 - PLEASE PROVIDE YOUR TAXPAYER
IDENTIFICATION NUMBER IN THE BOX AT _________________________
RIGHT AND CERTIFY BY SIGNING AND |_______________________|
DATING BELOW Social Security Number or
Employer Identification
Number
PART 2 - Check the following box if you are NOT subject to backup
withholding under the provisions of Section 3406(a)(1)(C) [____]
of the Internal Revenue Code because (1) you have not been
notified that you are subject to backup withholding as a
result of failure to report all interest or dividends or (2) the
Internal Revenue Service has notified you that you are no longer
subject to backup withholding.
PART 3 - Check the following box if you are awaiting a Taxpayer [____]
Identification Number.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
By checking the box in Part 3, I certify under penalties of perjury that a
taxpayer identification number has not been issued to me, and either (a) I have
mailed or delivered an application to receive a taxpayer identification number
to the appropriate Internal Revenue Service Center or Social Security
Administration Office, or (b) I intend to mail or deliver an application in the
near future. I understand that if I do not provide a taxpayer identification
number within sixty (60) days, 31% of all reportable payments made to me
thereafter will be withheld until I provide a number.
CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT THE INFORMATION
PROVIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE.
Signature: ___________________________ Date:__________________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU. PLEASE REVIEW THE ENCLOSED GUIDELINES
FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM
W-9 FOR ADDITIONAL DETAILS.
________________________________________________________________________________
8
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.--
- -Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e. 00-0000000. The table below will help determine the number
to give the payer.
<TABLE>
<CAPTION>
GIVE THE SOCIAL SECURITY NUMBER GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: OF ---- FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER
OF ----
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. An individual's account The individual 9. A valid trust, estate, or The legal entity (Do not
pension trust furnish the identifying
2. Two or more individuals (joint The actual owner of the number of the personal
account) account or, if combined representative or trustee
funds, any one of the unless the legal entity
individuals (1) itself is not designated in
the account title.) (5)
3. Husband and wife (joint The actual owner of the
account) account or, if joint funds,
either person(1)
4. Custodian account of a minor The minor(2) 10. Corporate account The corporation
(Uniform Gift to Minors Act)
5. Adult and minor (joint The adult or, if the minor 11. Religious, charitable, or The organization
account) is the only contributor, the educational organization
minor(1) account
12. Partnership account held in The partnership
the name of the business
6. Account in the name of The ward, minor, or 13. Association, club, or other The organization
guardian or committee for a incompetent person (3) tax-exempt organization
designated ward, minor, or
incompetent person
7. a The usual revocable savings The grantor-trustee(1) 14. A broker or registered The broker or nominee
trust account (grantor is nominee
also trustee)
b So-called trust account The actual owner(1) 15. Account with the The public entity
that is not a legal or valid Department of Agriculture
trust under State law in the name of a public
entity (such as a State or
The owner(4) local government, school
district, or prison) that
8. Sole proprietorship account receives agricultural
program payments
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
Note: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
9
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section
501(a), or an individual retirement plan.
. The United States or any agency or instrumentality
thereof.
. A State, the District of Columbia, a possession of
the United States, or any subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a
foreign government, or any agency or instrumentality thereof.
. An international organization or any agency, or
instrumentality thereof.
. A registered dealer in securities or commodities
registered in the U.S. or a possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under
section 584(a).
. An exempt charitable remainder trust, or a non-
exempt trust described in section 4947(a)(1).
. An entity registered at all times under the
Investment Company Act of 1940.
. A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to
withholding under section 1441.
. Payments to partnerships not engaged in a trade or
business in the U.S. and which have at least one nonresident partner.
. Payments of patronage dividends where the amount
received is not paid in money.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
. Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid in
the course of the payer's trade or business and you have not provided your
correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-
interest dividends under section 852).
. Payments described in section 6049(b)(5) to
nonresident aliens.
. Payments on tax-free covenant bonds under section
1451.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER. WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage
dividends, that are not subject to information reporting are also not subject to
backup withholding. For details, see the regulations under sections 6041,
6041A(a), 6045 and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend, interest
or other payments to give taxpayer identification numbers to payers who must
report the payments to the IRS. The IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1993, payers must generally
withhold 31% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an under-
payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDINGS.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE
H1995A/13717-2
10
<PAGE>
EXHIBIT C
POOLING OF INTEREST CRITERIA
----------------------------
ATTRIBUTES OF COMBINING ENTERPRISES
(a) AUTONOMY CONDITION. Each of the combining enterprises is autonomous and
has not been a subsidiary or division of another enterprise within two
years before the plan of combination is initiated.
(b) INDEPENDENCE CONDITION. Each of the combining enterprises is independent
of the other combining enterprises.
MANNER OF COMBINING INTERESTS
(c) ONE-YEAR RULE. The combination is effected in a single transaction or is
completed in accordance with a specific plan within one year after the plan
is initiated.
(d) COMMON-STOCK-FOR-COMMON-STOCK-CONDITION. An enterprise offers and issues
only common stock with rights identical to those of the majority of its
outstanding voting common stock in exchange for substantially all of the
voting common stock interest of another enterprise at the date the plan of
combination is consummated.
(e) CHANGE-IN-EQUITY-INTERESTS CONDITION. None of the combining enterprises
changes the equity interest of the voting common stock in contemplation of
effecting the combination either within two years before the plan of
combination is initiated or between the dates the combination is initiated
and consummated; changes in contemplation of effecting the combination may
include distributions to stockholders and additional issuances, exchanges,
and retirements of securities.
(f) TREASURY-STOCK CONDITION. Each of the combining enterprises reacquires
shares of voting common stock only for purposes other than business
combinations, and no enterprise reacquires more than a normal number of
shares between the dates the plan of combination is initiated and
consummated.
(g) PROPORTIONATE-INTEREST CONDITION. The ratio of the interest of an
individual common stockholder to those of other common stockholders in a
combining enterprise remains the same as a result of the exchange of stock
to effect the combination.
(h) VOTING-RIGHTS CONDITION. The voting rights to which the common stock
ownership interests in the resulting combined enterprise are entitled are
exercisable by the stockholders; the stockholders are neither deprived of
nor restricted in exercising those rights for a period.
<PAGE>
(i) CONTINGENCY CONDITION. The combination is resolved at the date the plan is
consummated and no provisions of the plan relating to the issue of
securities or other consideration are pending.
ABSENCE OF PLANNED TRANSACTIONS
(j) The combined enterprise does not agree directly or indirectly to retire or
reacquire all or part of the common stock issued to effect the combination.
(k) The combined enterprise does not enter into other financial arrangements
for the benefit of the former stockholders of a combining enterprise, such
as a guaranty of loans secured by stock issued in the combination, that in
effect negates the exchange of equity securities.
(l) The combined enterprise does not intend or plan to dispose of a significant
part of the assets of the combining enterprises within two years after the
combination other than disposals in the ordinary course of business of the
formerly separate enterprise and to eliminate duplicate facilities or
excess capacity.
2
<PAGE>
EXHIBIT D
VOTING AGREEMENT AND IRREVOCABLE PROXY
--------------------------------------
This Voting Agreement and Irrevocable Proxy (this "Agreement") dated as of
March 13, 1996 is executed by and among Texas American Bank, a Texas banking
assocation (the "Bank"), Compass Bancshares, Inc., a Delaware corporation
("Compass"), and the other persons who are signatories hereto (referred to
herein individually as a "Shareholder" and collectively as the "Shareholders").
WHEREAS, the Bank and Compass have executed that certain Agreement and Plan
of Merger dated March 13, 1996 (the "Merger Agreement") whereby the Bank will
merge with an existing or to-be-formed wholly-owned subsidiary of Compass (the
"Merger"); and
WHEREAS, Section 6.11 of the Merger Agreement requires that the Bank
deliver to Compass the irrevocable proxies of the Shareholders; and
WHEREAS, Compass and the Bank are relying on the irrevocable proxies in
incurring expense in reviewing the Bank's business, in preparing a proxy
statement, in proceeding with the filing of applications for regulatory
approvals, and in undertaking other actions necessary for the consummation of
the Merger;
NOW THEREFORE, the parties hereto agree as follows:
1. Each of the Shareholders hereby represents and warrants to Compass and
the Bank that they are the registered holders of and have the exclusive right to
vote the shares of capital stock ("Stock") of the Bank set forth below his name
on the signature pages hereto. Each Shareholder hereby agrees to vote at the
shareholders' meeting referred to in Section 1.7 of the Merger Agreement (the
"Meeting") the shares of Stock set forth below his name on the signature pages
hereto and all other shares of Stock such Shareholder owns of record as of the
date of the Meeting and to direct the vote of all shares of Stock which the
Shareholders own beneficially and have the power and authority to direct the
voting thereof as of the date of the Meeting (the "Shares") in favor of approval
of the Merger Agreement, and the other agreements and transactions contemplated
thereby.
2. In order better to effect the provisions of Section 1, each Shareholder
hereby revokes any previously executed proxies and hereby constitutes and
appoints Compass (the "Proxy Holder"), with full power of substitution, his true
and lawful proxy and attorney-in-fact to vote at the Meeting all of such
Shareholder's Shares in favor of the authorization and approval of the Merger
Agreement and the other agreements and transactions contemplated thereby, with
such modifications to the Merger Agreement and the other agreements and
transactions contemplated
<PAGE>
thereby as the parties thereto may make, in the event such Shareholder does not
vote in favor of the authorization and approval of the Merger Agreement and the
other agreements and transactions contemplated thereby; provided, however, that
this proxy shall not apply with respect to any vote on the Merger Agreement, and
the other agreements and transactions contemplated thereby, if the Merger
Agreement shall have been modified so as to reduce the amount of consideration
to be received by the Shareholders under the Merger Agreement in its present
form.
3. Each Shareholder hereby covenants and agrees that until this Agreement
is terminated in accordance with its terms, each Shareholder will not, and will
not agree to, without the consent of Compass, directly or indirectly, sell,
transfer, assign, pledge, hypothecate, cause to be redeemed or otherwise dispose
of any of the Shares or grant any proxy or interest in or with respect to any
such Shares or deposit such shares into a voting trust or enter into another
voting agreement or arrangement with respect to such Shares except as
contemplated by this Agreement, unless the Shareholder causes the transferee of
such Shares to deliver to Compass an amendment to this Agreement whereby such
transferee or other holder becomes bound by the terms of this Agreement.
4. This proxy shall be limited strictly to the power to vote the Shares in
the manner set forth in Section 2 and shall not extend to any other matters.
5. The Shareholders acknowledge that Compass and the Bank are relying on
this Agreement in incurring expense in reviewing the Bank's business, in
preparing a proxy statement, in proceeding with the filing of applications for
regulatory approvals, and in undertaking other actions necessary for the
consummation of the Merger and that the proxy granted hereby is coupled with an
interest and is irrevocable to the full extent permitted by applicable law,
including Article 2.29C of the Texas Business Corporation Act. The Shareholders
and the Bank acknowledge that the performance of this Agreement is intended to
benefit Compass.
6. The irrevocable proxy granted pursuant hereto shall continue in effect
until the earlier to occur of (i) the termination of the Merger Agreement, as it
may be amended or extended from time to time, or (ii) the consummation of the
Merger. In no event shall this Agreement apply to shares of common stock, par
value $2.00 per share, of Compass to be received by the Shareholders upon
consummation of the Merger.
7. The vote of the Proxy Holder shall control in any conflict between its
vote of the Shares and a vote by the Shareholders of the Shares and the Bank
agrees to recognize the vote of the Proxy Holder instead of the vote of the
Shareholders in
2
<PAGE>
the event the Shareholders do not vote in favor of the approval of the Merger
Agreement as set forth in Section 1 hereof.
8. This Agreement may not be modified, amended, altered or supplemented
with respect to a particular Shareholder except upon the execution and delivery
of a written agreement executed by the Bank, Compass and the Shareholder.
9. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
10. This Agreement, together with the Merger Agreement and the agreements
contemplated thereby, embody the entire agreement and understanding of the
parties hereto in respect to the subject matter contained herein. This
Agreement supersedes all prior agreements and understandings among the parties
with respect to such subject matter contained herein.
11. All notices, requests, demands and other communications required or
permitted hereby shall be in writing and shall be deemed to have been duly given
if delivered by hand or mail, certified or registered mail (return receipt
requested) with postage prepaid to the addresses of the parties hereto set forth
on below their signature on the signature pages hereof or to such other address
as any party may have furnished to the others in writing in accordance herewith.
12. This Agreement and the relations among the parties hereto arising from
this Agreement shall be governed by and construed in accordance with the laws of
the State of Texas.
[SIGNATURE PAGES FOLLOW]
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
above written.
TEXAS AMERICAN BANK
By:________________________________
Name:______________________________
Title:_____________________________
Address:
85 N. E. Loop 410, Suite 120
San Antonio, Texas 78216
P.O. Box 682009
San Antonio, Texas 78268-2009
Attention: Mr. Richard E. Lane
COMPASS BANCSHARES, INC.
By: _______________________________
Name: _____________________________
Title: ____________________________
Address:
15 South 20th Street
Birmingham, Alabama 35233
Attention: Mr. Daniel B. Graves
Associate General Counsel
4
<PAGE>
SHAREHOLDERS:
___________________________________
___________________________________
Address: _________________________
_________________________
____________ shares of Common Stock
Pledgee: _________________________
Address: _________________________
_________________________
Loan No.: ________________________
<PAGE>
EXHIBIT E
OPINIONS REQUIRED FROM COUNSEL
TO THE BANK
-----------
(i) the Bank is a Texas banking association, duly organized, validly
existing and in good standing under the laws of the State of Texas. The Bank
has all requisite corporate power and authority to carry on its business as we
know it to be conducted and to own, lease and operate its properties and assets
as now owned, leased or operated.
(ii) the Bank has all requisite power and authority to execute and deliver
the Agreement and any other agreements contemplated by the Agreement
(collectively, the "Other Agreements") and to consummate the transactions
contemplated thereby; all acts (corporate or otherwise) and other proceedings
required to be taken by or on the part of the Bank to execute and deliver the
Agreement and the Other Agreements and to consummate the transactions
contemplated therein have been duly and validly taken; and the Agreement and the
Other Agreements have been duly executed and delivered by, and constitute the
valid and binding obligations of the Bank enforceable against the Bank in
accordance with their terms, subject to the effect of (a) any applicable
bankruptcy, insolvency, reorganization or other law relating to or affecting
creditors' rights generally and (b) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law);
(iii) the authorized capital stock of the Bank consists solely of 206,020
shares of Bank Common Stock (as defined in the Agreement) of which 206,020
shares are issued and outstanding (none of which are held in the treasury); all
of the outstanding shares of the Bank Common Stock are validly issued, fully
paid and nonassessable; and to the best of our knowledge, none of such stock was
issued in violation of the preemptive rights of any person;
(iv) to the best of our knowledge and except as set forth on Schedule 3.2 to
the Agreement, there are no outstanding subscriptions, options, rights,
warrants, calls, convertible securities, irrevocable proxies, or other
agreements or commitments obligating the Bank to issue any shares of,
restricting the transfer of, or otherwise relating to shares of its capital
stock of any class;
(v) the execution and delivery by the Bank of the Agreement does not and the
consummation of the transactions contemplated thereby will not contravene or
violate any provision of or constitute a default under (a) the articles of
association or bylaws of the Bank, (b) to the best of our knowledge and except
as disclosed in the Agreement, any note, license, instrument, mortgage, deed of
trust, or other agreement or understanding, permit, authorization or contract,
order, arbitration award, judgment or decree, or any other restriction of any
kind or
<PAGE>
character known to us to which the Bank is a party or by which the Bank or any
of its assets or properties is bound, and (c) to the best of our knowledge and
except as disclosed in the Agreement, any law, regulation, rule, administrative
regulation or decree of any court or any governmental agency or body whether
domestic or foreign applicable to the Bank, or its assets or properties;
(vi) except as disclosed in the Agreement and except for such consents,
approvals, authorizations, actions or filings as have already been obtained by
Compass or Compass Texas, no consent, approval, authorization, action or filing
with any court, governmental agency or public body is required in connection
with the execution, delivery and performance by the Bank of the Agreement;
(vii) except as set forth in Schedule 3.12 to the Agreement, to the best of
our knowledge, the Bank is not a party to any Proceeding (as defined in the
Agreement), nor to the best of our knowledge, is any Proceeding threatened
against or affecting the Bank, which by the terms of the Agreement would
required to be set forth in Schedule 3.12;
(viii) to the best of our knowledge and except as set forth on Schedule 3.18
to the Agreement, the Bank is not in material default under any law or
regulation, or under any order of any court, commission, board, bureau, agency
or instrumentality wherever located; and
(ix) upon consummation of the transactions contemplated by the Agreement in
accordance with its terms and upon filing of the Articles of Merger relating to
the Merger by the Secretary of State of Texas and the Texas Banking Commissioner
the Merger will have been legally consummated in accordance with the laws of the
State of Texas with the consequences specified in Sec. 3.301 of the Texas
Banking Act and Article 5.06 of the Texas Business Corporation Act.
2
<PAGE>
EXHIBIT F
OPINIONS REQUIRED FROM COUNSEL
TO COMPASS AND COMPASS TEXAS
----------------------------
(i) Compass is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and Compass is a bank holding
company under the Bank Holding Company Act of 1956, as amended. Compass Texas
is a corporation organized, validly existing and in good standing under the laws
of the State of Texas. Compass and Compass Texas have all requisite corporate
power and authority to carry on their business as now being conducted and to
own, lease and operate their properties as now owned, leased or operated.
Compass and Compass Texas are duly qualified and in good standing in the
respective states where such qualification is required.
(ii) Compass and Compass Texas each have all requisite power and authority
to execute and deliver the Agreement and to consummate the transactions
contemplated thereby; all acts (corporate or otherwise) and other proceedings
required to be taken by or on the part of Compass and Compass Texas (or either
of them) to execute and deliver the Agreement and to consummate the transactions
contemplated therein have been duly and validly taken; and the Agreement has
been duly executed and delivered by, and constitutes the valid and binding
obligation of each of Compass and Compass Texas enforceable against Compass and
Compass Texas in accordance with its terms, subject to the effect of (a) any
applicable bankruptcy, insolvency, reorganization or other law relating to or
affecting creditors' rights generally and (b) general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law);
(iii) the shares of Compass Common Stock to be issued pursuant to the
Agreement are validly issued, fully paid and nonassessable; and, to the best of
our knowledge and except as contemplated by the Agreement, the shares of Compass
Common Stock issued pursuant to the Agreement are not subject to any agreements
or understandings to which Compass is a party with respect to the voting or
transfer of such shares, are not subject to any agreements or understandings
among any other parties with respect to the voting or transfer of such shares,
and have not been issued in violation of the preemptive rights of any person;
(iv) the execution and delivery by Compass and Compass Texas of the
Agreement does not and the consummation of the transactions contemplated thereby
will not contravene or violate any provision of or constitute a default under
(a) the certificate or articles of incorporation or bylaws of Compass or Compass
Texas, (b) to the best of our knowledge and except as disclosed in the
Agreement, any note, license, instrument, mortgage, deed of trust, or other
agreement or understanding, permit, authorization or contract, order,
arbitration award, judgment of decree, or any
<PAGE>
other restriction of any kind known to us to which Compass or Compass Texas is a
party or by which Compass or Compass Texas or any of their assets or properties
is bound, the breach or violation of which could have a material adverse effect
on Compass and its Subsidiaries taken as a whole, and (c) to the best of our
knowledge and except as disclosed in the Agreement, any law, regulation, rule,
administrative regulation or decree of any court or any governmental agency or
body applicable to Compass or Compass Texas or their respective assets or
properties;
(v) except as disclosed in the Agreement and except for such consents,
approvals, authorizations, actions or filings as have already been obtained, no
consent, approval, authorization, action or filing with any court, governmental
agency or public body is required in connection with the execution, delivery and
performance by Compass and Compass Texas of the Agreement;
(vi) to the best of our knowledge, neither Compass nor Compass Texas is in
violation of or default under the respective certificate or articles of
incorporation or Bylaws of Compass or Compass Texas or any agreement, document
or instrument under which Compass or Compass Texas is obligated or bound, or any
law, order, judgment, or regulation applicable to Compass or Compass Texas or
any of their Subsidiaries, the violation of which could have a material adverse
effect on Compass and its Subsidiaries taken as a whole; and
(vii) the shares of Compass Common Stock to be issued pursuant to the
Agreement have been registered under the Securities Act of 1933, as amended.
2
<PAGE>
EXHIBIT G
---------
COMPASS TEXAS REPRESENTATIONS CERTIFICATE
____________ ("Compass Texas") hereby represents and warrants to the
Company as follows. Capitalized terms not otherwise defined herein shall have
the meanings ascribed to them in the Agreement and Plan of Merger dated March
13, 1996 by and between Compass Bancshares, Inc. and Texas American Bank (the
"Agreement").
1. Compass Texas is a corporation duly organized, validly existing and in
good standing under the laws of the State of Texas, 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 the Agreement.
2. Compass Texas has full corporate power and authority and no further
corporate proceedings on the part of Compass Texas are necessary to execute and
deliver the Amendment to Agreement and Plan of Merger dated March 13, 1996
("Amendment") and to consummate the transactions contemplated thereby, all of
which have been duly and validly authorized by Compass Texas' Board of
Directors. The Amendment has been duly executed and delivered by Compass Texas
and is a duly authorized, valid, legally binding and enforceable obligation of
Compass Texas, 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 Compass Texas as may be required by statute or regulation.
Except as set forth on the Schedule attached hereto, neither the execution,
delivery nor performance of the Amendment in its entirety, nor the consummation
of all the transactions contemplated thereby, 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 Texas.
3. No representation or warranty by Compass Texas in the Amendment, nor
any statement or exhibit furnished to the Company or the Bank under and pursuant
to, or in anticipation of the Amendment, 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.
<PAGE>
IN WITNESS WHEREOF, Compass Texas has executed this Certificate this _____
day of ____________, 1996.
_____________________________________
By:__________________________________
Name:________________________________
Title:_______________________________
<PAGE>
March 28, 1996
Mr. Richard E. Lane
Texas American Bank
85 N.E. Loop 410, Suite 120
San Antonio, Texas 78216
Re: First Amendment to Agreement and Plan of Merger by and between Compass
Bancshares, Inc. and Texas American Bank, dated as of March 13, 1996 (the
"Agreement")
Dear Mr. Lane:
This will confirm our agreement to amend the second sentence of the
introductory clause of Article III of the Agreement entitled "Representations
and Warranties of the Bank" to replace the words "within 15 days after the date
hereof" with the words "within 23 days after the date hereof."
If you are agreeable to the amendment to this Agreement as set forth
herein, please evidence your agreement by executing in the space provided below
and returning an executed original of this letter to the undersigned.
Very truly yours,
COMPASS BANCSHARES, INC.
By: /s/ Daniel B. Graves
----------------------
Name: Daniel B. Graves
------------------
Title: Assistant Secretary
--------------------
ACCEPTED and AGREED this
28th day of March, 1996
TEXAS AMERICAN BANK
By:/s/Richard E. Lane
------------------
Name: Richard E. Lane
-----------------
Title: President/CEO
--------------
<PAGE>
April 5, 1996
Mr. Richard E. Lane
Texas American Bank
85 N.E. Loop 410, Suite 120
San Antonio, Texas 78216
Re: Second Amendment to Agreement and Plan of Merger by and between
Compass Bancshares, Inc. and Texas American Bank dated as of March 13,
1996
Dear Mr. Lane:
This will confirm our agreement to amend the Agreement as follows:
1. The second sentence of the introductory clause of Article III of the
Agreement entitled "Representations and Warranties of the Bank" is amended to
replace the words "within 23 days after the date hereof" with the words "within
30 days after the date hereof."
2. Section 6.10(a) is amended to replace the words "45th day" with the
words "75th day".
3. Section 6.10(d) is amended to replace the words "52nd day" with the
words "82nd day".
4. Section 6.10(d) is amended to replace the words "102nd day" with the
words "132nd day".
If you are agreeable to the amendment to this Agreement as set forth
herein, please evidence your agreement by executing in the space provided below
and returning an unexecuted original of this letter to the undersigned.
Very truly yours,
COMPASS BANCSHARES, INC.
By: /s/ Daniel B. Graves
--------------------
Name: Daniel B. Graves
------------------
Title: Assistant General Counsel and Assistant
----------------------------------------
Secretary
---------
90
<PAGE>
Mr. Richard E. Lane
April 5, 1996
Page 2
ACCEPTED AND AGREED this
5th day of April, 1996
TEXAS AMERICAN BANK
By: /s/ Richard E. Lane
--------------------
Name: Richard E. Lane
------------------
Title: President/CEO
-------------
91
<PAGE>
April 12, 1996
Mr. Richard E. Lane
Texas American Bank
85 N.E. Loop 410, Suite 120
San Antonio, Texas 78216
Re: Third Amendment to Agreement and Plan of Merger by and between Compass
Bancshares, Inc. and Texas American Bank, dated as of March 13, 1996 (the
"Agreement")
Dear Mr. Lane:
This will confirm our agreement to amend the Agreement as follows:
1. The second sentence of the introductory clause of Article III of the
Agreement entitled "Representations and Warranties of the Bank" is amended to
replace the words "within 30 days after the date hereof" with the words "within
37 days after the date hereof."
2. Section 6.10(a) is amended to replace the words "75th day" with the
words "82nd day".
3. Section 6.10(d) is amended to replace the words "82nd day" with the
words "89th day".
4. Section 6.10(d) is amended to replace the words "132nd day" with the
words "139th day".
If you are agreeable to the amendment to this Agreement as set forth
herein, please evidence your agreement by executing in the space provided below
and returning an executed original of this letter to the undersigned.
Very truly yours,
COMPASS BANCSHARES, INC.
By: /s/ Daniel B. Graves
----------------------
Name: Daniel B. Graves
------------------
Title: Associate General Counsel and Assistant
----------------------------------------
Secretary
---------
92
<PAGE>
Mr. Richard E. Lane
April 12, 1996
Page 2
ACCEPTED and AGREED this
11th day of April, 1996
TEXAS AMERICAN BANK
By: /s/ Richard E. Lane
-------------------
Name: Richard E. Lane
-----------------
Title: President/CEO
--------------
93
<PAGE>
April 19, 1996
Mr. Richard E. Lane
Texas American Bank
85 N.E. Loop 410, Suite 120
San Antonio, Texas 78216
Re: Fourth Amendment to Agreement and Plan of Merger by and between
Compass Bancshares, Inc. and Texas American Bank, dated as of
March 13, 1996 (the "Agreement")
Dear Mr. Lane:
This will confirm our agreement to amend the Agreement as follows:
1. The second sentence of the introductory clause of Article III of the
Agreement entitled "Representations and Warranties of the Bank" is amended to
replace the words "within 37 days after the date hereof" with the words "within
44 days after the date hereof."
2. Section 6.10(a) is amended to replace the words "82nd day" with the
words "89th day".
3. Section 6.10(d) is amended to replace the words "89th day" with the
words "96th day".
4. Section 6.10(d) is amended to replace the words "139th day" with the
words "146th day".
If you are agreeable to the amendment to this Agreement as set forth
herein, please evidence your agreement by executing in the space provided below
and returning an executed original of this letter to the undersigned.
Very truly yours,
COMPASS BANCSHARES, INC.
By: /s/ Jerry W. Powell
---------------------------------
Name: Jerry W. Powell
---------------------------------
Title: General Counsel and Secretary
---------------------------------
<PAGE>
Mr. Richard E. Lane
April 19, 1996
Page 2
ACCEPTED and AGREED this
19th day of April, 1996
TEXAS AMERICAN BANK
By: /s/ Richard E. Lane
-------------------
Name: Richard E. Lane
-------------------
Title: President/CEO
-------------------
<PAGE>
FIFTH AMENDMENT TO AGREEMENT AND PLAN OF MERGER
-----------------------------------------------
This Fifth Amendment to Agreement and Plan of Merger (this "Amendment")
dated as of July 1, 1996 is entered into by and among Compass Bancshares, Inc.
("Compass"), Compass Texas American, Inc. ("Compass Texas American") and Texas
American Bank (the "Bank").
WHEREAS, Compass and the Bank entered into an Agreement and Plan of Merger
dated as of March 13, 1996, as amended (the "Merger Agreement");
WHEREAS, the Merger Agreement requires Compass to form a new subsidiary
which shall be merged with and into the Bank, with the Bank being the surviving
entity;
WHEREAS, Compass Texas American is such new subsidiary; and
WHEREAS, Section 8.3 of the Merger Agreement requires Compass and the Bank
to amend the Merger Agreement for the purpose of making Compass Texas American a
party thereto;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and in the Merger Agreement and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. Capitalized terms used herein and not defined herein shall have the
meanings set forth in the Merger Agreement.
2. Upon execution of this Amendment, Compass Texas American shall become a
party to the Merger Agreement, shall be deemed to be Compass Texas as defined in
the Merger Agreement, and shall succeed to the rights and become subject to the
obligations of Compass Texas as provided in the Merger Agreement.
3. The execution of this Amendment shall not relieve Compass of its
obligations under the Merger Agreement.
4. Except as herein provided, the terms of the Merger Agreement shall
remain in full force and effect.
5. This Amendment may be executed in several counterparts, and by the
parties on separate counterparts, and all such counterparts, when so executed
and delivered, shall constitute but one and the same agreement.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF the parties have executed this Amendment as of the date
first written above.
ATTEST: COMPASS BANCSHARES, INC.
By:/s/ Daniel B. Graves By:/s/ D. Paul Jones, Jr.
------------------------ -----------------------------------------
Its: Assistant Secretary Its: Chairman and Chief Executive Officer
ATTEST: COMPASS TEXAS AMERICAN, INC.
By:/s/ Daniel B. Graves By:/s/ D. Paul Jones, Jr.
------------------------ -----------------------------------------
Its: Assistant Secretary Its: Chairman and Chief Executive Officer
ATTEST: TEXAS AMERICAN BANK
By:/s/ Daniel B. Graves By:/s/ Richard E. Lane
------------------------ ------------------------------------------
Its: Assistant Secretary Its: President and Chief Executive Officer
<PAGE>
PROVISIONS OF THE TEXAS BANKING ACT AND
TEXAS BUSINESS CORPORATION ACT
RELATING TO
RIGHTS OF DISSENTING STOCKHOLDERS
TEXAS BANKING ACT
- -----------------
SEC. 3.303. RIGHTS OF DISSENTERS TO MERGER.
A shareholder, participant, or participant transferee may dissent from the
merger to the extent and by following the procedure provided by the Texas
Business Corporation Act or any rules adopted under this Act.
TEXAS BUSINESS CORPORATION ACT
- ------------------------------
ART. 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 a 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 by 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 merger or the
plan of exchange to accept for his shares any consideration other than (a)
shares of a 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 in lieu of fractional shares otherwise entitled to be
received.
ART. 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:
Appendix II
-1-
<PAGE>
(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.
(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.
Appendix II
-2-
<PAGE>
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.
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 dissent 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 a 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.
Appendix II
-3-
<PAGE>
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.
Art. 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 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.
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 or 5.16, the court shall determine that such shareholder is not entitled to
the relief provided by those 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.
Appendix II
-4-
<PAGE>
PROXY TEXAS AMERICAN BANK PROXY
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
August 20, 1996
The undersigned hereby appoints Richard E. Lane and Carlin R. Friar,
and each of them, with or without the other, proxies, with full power of
substitution, to vote all shares of common stock that the undersigned is
entitled to vote at the Special Meeting of the Shareholders of Texas American
Bank to be held at 12590 Bandera Road, Helotes, Texas, on Tuesday, August 20,
1996, at 2:00 P.M., Central time, and at all adjournments thereof as follows:
(1) Approval, ratification, confirmation and adoption of the Agreement
and Plan of Merger, dated as of March 13, 1996, by and between Compass
Bancshares, Inc. and Texas American Bank, as amended.
[_] For [_] Against [_] Abstain
(2) Approval, ratification, confirmation and adoption of the Plan of
Merger and Reorganization, dated as of May 31, 1996, by and between Texas
American Bank and Compass Bank (formerly known as Compass Bank-Houston), as
amended.
[_] For [_] Against [_] Abstain
(3) In their discretion, upon any other business which may properly
come before said meeting.
This Proxy will be voted as you specify above. If no specification is
made, the Proxy will be voted FOR proposals (1) and (2) above. Receipt of the
Notice of Special Meeting and the Proxy Statement/Prospectus dated July 19, 1996
is hereby acknowledged.
THIS PROXY IS SOLICITED BY THE TEXAS AMERICAN BANK BOARD OF DIRECTORS.
PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE PROXY CARD USING
THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
Please sign your name, exactly as it appears below. Joint owners must each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as it appears hereon. If held by a corporation, please
sign in full corporate name by the president or other authorized officer. If
held by a partnership, please sign in the partnership's name by an authorized
partner of officer.
Dated ____________________________________ , 1996
__________________________________________________
Signature
___________________________________________________
Signature, if held jointly, or office or title held
