<PAGE>
As filed with the Securities and Exchange Commission on February 14, 1996
Registration No. 333-00707
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
COMPASS BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6711 63-0593897
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
15 SOUTH 20TH STREET
BIRMINGHAM, ALABAMA 35233
(205) 933-3000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
----------------------
JERRY W. POWELL, ESQUIRE
GENERAL COUNSEL
COMPASS BANCSHARES, INC.
15 SOUTH 20TH STREET
BIRMINGHAM, ALABAMA 35233
(205) 933-3960
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------------
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE FOLLOWING THE EFFECTIVE DATE OF THIS
REGISTRATION STATEMENT
-------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
-------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Title of each class Amount to Proposed Proposed Amount of
of securities be maximum offering maximum aggregate registration
to be registered registered (1) price per share offering price (3) fee
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $2.00 par 1,038,000 (2) $11,021,000 $3,801
value
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Based upon the maximum number of shares anticipated to be issued pursuant
to an Agreement and Plan of Merger dated October 13, 1995 between the
Registrant and Equitable BankShares, Inc. The actual number of shares to
be issued will vary depending on the closing sales prices of Compass
Bancshares, Inc. common stock over a specified period.
(2) Not applicable.
(3) Computed in accordance with Rule 457(f) under the Securities Act of 1933,
as amended, based on the book value as of September 30, 1995 of the
securities to be received by the Registrant in exchange for the securities
registered hereby.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
COMPASS BANCSHARES, INC.
____________________________________
CROSS REFERENCE SHEET
(Pursuant to Item 501(b) of Regulation S-K
and Item 1 of Part I of Form S-4)
<TABLE>
<CAPTION>
S-4 Item Number and Heading Location of Proxy Statement/Prospectus Heading
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
A. Information About the Transaction
---------------------------------
1. Forepart of Registration Statement Forepart of Registration Statement; Outside Front Cover Page
and Outside Front Cover Page of of Prospectus
Prospectus
2. Inside Front and Outside Back Cover Table of Contents; Available Information; Incorporation of
Pages of Prospectus Certain Documents by Reference; Introduction
3. Risk Factors, Ratio of Earnings to Introduction; Summary; Risk Factors; Selected Financial Data;
Fixed Charges and Other Information Market Prices; The Merger; Supervision and Regulation; Index
to Financial Statements of Equitable
4. Terms of the Transaction Forepart of Registration Statement; Introduction; Summary; The
Merger; Description of Compass Common and Preferred Stock;
Comparison of Rights of Shareholders of Equitable and Compass;
Information About Compass; Appendix I and Appendix II
5. Pro Forma Financial Information Selected Financial Data
6. Material Contacts with the Company Summary; Recommendation of Board of Directors; The Merger;
Being Acquired Information About Equitable
7. Additional Information Required for Not Applicable
Reoffering by Persons and Parties
Deemed to be Underwriters
8. Interests of Named Experts and Relationships with Independent Accountants; Experts; Legal
Counsel Opinions
9. Disclosure of Commission Position on Indemnification
Indemnification for Securities Act
Liabilities
B. Information About the Registrant
--------------------------------
10. Information With Respect to S-3 Available Information; Incorporation of Certain Documents by
Registrants Reference; Summary; Recent Developments; Selected Financial
Data; Market Prices; Information About Compass
11. Incorporation of Certain Incorporation of Certain Documents by Reference; Information
Information by Reference About Compass
12. Information With Respect to S-2 or Not Applicable
S-3 Registrants
13. Incorporation of Certain Not Applicable
Information by Reference
14. Information With Respect to Not Applicable
Registrants Other Than S-2 or S-3
Registrants
C. Information About the Company Being Acquired
--------------------------------------------
15. Information With Respect to S-3 Not Applicable
Companies
16. Information With Respect to S-2 or Not Applicable
S-3 Companies
17. Information With Respect to Introduction; Summary; The Merger; Selected Financial Data;
Companies Other Than S-2 or S-3 Market Prices; Information About Equitable; Comparison of
Companies Rights of Stockholders of Equitable and Compass; Index to
Financial Statements of Equitable
D. Voting and Management Information
---------------------------------
18. Information if Proxies, Consents or The Proxy Card; Incorporation of Certain Documents by
Authorizations Are to be Solicited Reference; Introduction; Summary; The Merger; Information
About Compass; Information About Equitable; Relationships with
Independent Accountants; Experts; Appendix II
19. Information if Proxies, Consents or Not Applicable
Authorizations Are Not to be Solicited,
or in an Exchange Offer
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
[Equitable BankShares, Inc. Letterhead]
February 14, 1996
Dear Shareholders:
A special meeting of shareholders (the "Meeting") of Equitable BankShares,
Inc. ("Equitable") will be held at 5:00 P.M., Dallas time on March 15, 1996, at
Northwood Club, 6524 Alpha Road in Dallas, Texas. At the Meeting, Equitable's
shareholders will consider and vote to approve, ratify, confirm and adopt an
Agreement and Plan of Merger pursuant to which it is proposed that Equitable
will merge (the "Merger") with and into Compass Equitable Texas, Inc. ("Compass
Texas"), a Delaware corporation and a wholly-owned subsidiary of Compass
Bancshares, Inc. ("Compass"), formed for the purpose of accomplishing the
Merger. The enclosed Notice of Special Meeting of Shareholders outlines the
business to be transacted at the Meeting, and the enclosed Proxy
Statement/Prospectus explains the terms of the proposed Merger and provides
other information concerning Equitable, Compass Texas and Compass. We urge you
to read these materials carefully.
Your Board of Directors believes that the affiliation of Equitable with
Compass through the Merger will enable Equitable to serve its customers and
communities better and to compete more effectively with other financial
institutions. After the Merger, Equitable'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 to become effective, among other conditions described in the
Proxy Statement/Prospectus, the holders of at least two-thirds of the
outstanding shares of Equitable's common stock must vote in favor of the Merger.
THE BOARD OF DIRECTORS OF EQUITABLE RECOMMENDS A VOTE FOR APPROVAL OF THE
---
MERGER.
You are cordially invited to attend the Meeting. Your Board of Directors
cannot stress strongly enough that the vote of every shareholder, regardless of
the number of shares owned, is important. FAILURE TO VOTE BY PROXY OR IN PERSON
AT THE MEETING IS EQUIVALENT TO A VOTE AGAINST THE MERGER. WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING IN PERSON, YOU ARE REQUESTED TO COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. If you
need assistance in completing your Proxy, please call the undersigned or Lesa
Perry at (214) 248-7000.
Very truly yours,
Robert H. Sewell,
Chairman of the Board
<PAGE>
EQUITABLE BANKSHARES, INC.
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
Notice is hereby given that a Special Meeting of Shareholders ("Meeting")
of Equitable BankShares, Inc. ("Equitable") will be held at Northwood Club, 6524
Alpha Road, in Dallas, Texas, on March 15, 1996, at 5:00 P.M., Dallas time, for
the following purposes:
1. To approve, ratify, confirm and adopt an Agreement and Plan of
Merger dated as of October 13, 1995 ("Merger Agreement"), as amended,
providing for the merger ("Merger") of Equitable into Compass Equitable
Texas, Inc., a Delaware corporation and a wholly-owned subsidiary of
Compass Bancshares, Inc., formed for the purpose of accomplishing the
Merger. The terms of the Merger Agreement are described in the attached
Proxy Statement/Prospectus, which the Board of Directors of Equitable
encourages each Shareholder to review carefully; and
2. To consider and transact such other business as may properly come
before the Meeting or any adjournments thereof.
The Board of Directors of Equitable has fixed February 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 Equitable's common stock of record at the close of business on February 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. 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 Equitable BankShares, Inc.
Robert H. Sewell,
Chairman of the Board
Dallas, Texas
February 14, 1996
<PAGE>
EQUITABLE BANKSHARES, INC. 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 the shares of Compass $2.00 par value common
stock ("Compass Common Stock") to be issued in the proposed merger (the
"Merger") of Equitable BankShares, Inc., a Texas corporation ("Equitable"), with
and into Compass Equitable Texas, Inc. ("Compass Texas"), a Delaware corporation
and wholly-owned subsidiary of Compass being formed for the purpose of effecting
the Merger.
This Proxy Statement/Prospectus constitutes the proxy statement of
Equitable relating to the solicitation of proxies for use at the special meeting
of shareholders of Equitable (the "Meeting") scheduled to be held on Friday,
March 15, 1996 at 5:00 P.M., Dallas time, at Northwood Club, 6524 Alpha Road in
Dallas, Texas, and any adjournments thereof. At the Meeting, the shareholders
of Equitable will consider and vote upon a proposal to approve, ratify, confirm
and adopt the Agreement and Plan of Merger dated as of October 13, 1995, by and
between Compass and Equitable (the "Merger Agreement"), as amended, providing
for, among other things, the merger of Equitable with and into Compass Texas
and, in connection therewith, the receipt by Equitable shareholders of Compass
Common Stock.
The Merger Agreement provides for the holders of Equitable common stock,
par value $0.10 per share ("Equitable Common Stock"), at the effective time of
the Merger (the "Effective Time"), other than dissenting shareholders, to
receive aggregate merger consideration (the "Merger Consideration") equal to
that number of shares of Compass Common Stock (as adjusted due to the exercise
of dissenter's rights) which is equal to $31,131,763 (the "Target Price")
divided by the average closing sales price of the Compass Common Stock as
reported by the NASDAQ National Market System for the 20 trading days preceding
the tenth business day prior to the first business day following the later of
(i) the last received regulatory approval from the FDIC and the FRB and the
expiration of any applicable waiting period with respect thereto and (ii) the
approval of the Merger by Equitable's shareholders (the "Share Determination
Market Value"). In the event, however, that the Share Determination Market
Value would result in the number of shares of Compass Common Stock to be issued
being greater than 1,038,000, Compass may either terminate the Merger Agreement
in accordance with its terms or agree to issue a number of shares of Compass
Common Stock equal to the quotient of the Target Price divided by the Share
Determination Market Value. In the event that Compass elects to terminate the
Merger Agreement, Equitable shall have the right (in accordance with the terms
of the Merger Agreement) to reject such termination by agreeing to accept an
aggregate number of shares of Compass Common Stock equal to 1,038,000. Further,
in the event the Share Determination Market Value would result in the number of
shares of Compass Common Stock to be issued being less than 865,000, Compass
will issue to the holders of the shares of Equitable Common Stock an aggregate
number of shares of Compass Common Stock equal to 865,000. Unless Compass
agrees to issue additional shares as described above, Compass is not obligated
to issue more than 1,038,000 shares of Compass Common Stock as the Merger
Consideration. Any decision of the Board of Directors of Equitable regarding
whether to allow the Merger Agreement to terminate will be made in its sole
discretion and could result in either (i) Equitable shareholders receiving
Merger Consideration with an aggregate market value of less than $31,131,763, or
(ii) the termination of the Merger Agreement. If the Board of Directors of
Equitable elects to allow the Merger Agreement to terminate, the Equitable
shareholders would not receive any Merger Consideration but would retain their
Equitable Common Stock.
Holders of Equitable Common Stock shall receive for each share of Equitable
Common Stock held at the Effective Time a number of shares of Compass Common
Stock equal to (i) the aggregate number of shares of Compass Common Stock to be
issued to the holders of Equitable Common Stock as set forth in the preceding
paragraph divided by (ii) the number of shares of Equitable Common Stock
outstanding immediately prior to the Effective Time (the "Per Share Merger
Consideration").
<PAGE>
As of February 12, 1996, there were 1,887,733 shares of Equitable Common
Stock issued and outstanding. In addition, there are presently outstanding
options exercisable for 141,895 shares of Equitable Common Stock (the "Options")
and convertible debt instruments convertible into 79,000 shares of Equitable
Common Stock (the "Debentures"). All of the Option holders have agreed to
exercise their Options prior to the Effective Time pursuant to an Agreement to
Terminate Options executed in connection with the Merger Agreement. Pursuant to
such agreement, any Options not exercised prior to the Effective Time shall
terminate. The terms of the Debentures provide that the unpaid principal amount
of the Debentures shall be convertible into shares of Equitable Common Stock
immediately prior to the Merger at a conversion price of $10 per share.
Assuming all of the Options and Debentures are exercised for or converted into
Equitable Common Stock prior to the Effective Time, there will be 2,108,628
shares of Equitable Common Stock issued and outstanding immediately prior to the
Effective Time.
Assuming that (i) there will be 2,108,628 shares of Equitable Common Stock
issued and outstanding immediately prior to the Effective Time; and (ii) the
Share Determination Market Value will be $31.7125 (the average closing sales
price of Compass Common Stock as reported by the NASDAQ National Market System
for the 20 trading days preceding February 2, 1996), Compass will be required to
issue an aggregate of 981,687 shares of Compass Common Stock to the Equitable
shareholders and each shareholder of Equitable (except for shareholders choosing
to exercise their dissenters' rights) will be entitled to receive approximately
.4656 shares of Compass Common Stock for each share of Equitable Stock held.
Assuming that there will be 2,108,628 shares of Equitable Common Stock issued
and outstanding immediately prior to the Effective Time, the range of shares of
Compass Common Stock per share of Equitable Stock held that Compass will be
required to issue to the Equitable shareholders pursuant to the Merger Agreement
shall be between .4923 and .4102, which corresponds to a Share Determination
Market Value between $29.99 and $35.99.
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 is subject to the receipt of required
governmental approvals, the approval of the holders of two-thirds of the
outstanding Equitable 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 Equitable 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
Equitable shareholders on or about February 14, 1996.
Compass Common Stock is publicly traded in the over-the-counter market and
quoted on the NASDAQ National Market System. On February 1, 1996, the last
reported sale price per share of Compass Common Stock was $32-1/4. No active
public trading market exists for the Equitable 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 Equitable has been furnished by
Equitable.
EQUITABLE SHAREHOLDERS ARE URGED TO REVIEW AND CAREFULLY CONSIDER THE RISKS
DESCRIBED UNDER "RISK FACTORS".
The date of this Proxy Statement/Prospectus is February 14, 1996.
-2-
<PAGE>
PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
AVAILABLE INFORMATION ................................ 4
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE .......................................... 4
INTRODUCTION ......................................... 6
SUMMARY .............................................. 8
PARTIES TO THE MERGER .............................. 8
THE MERGER ......................................... 9
REASONS FOR THE MERGER; RECOMMENDATION OF
BOARDS OF DIRECTORS............................... 11
THE MEETING ........................................ 11
RECORD DATE ........................................ 11
SHAREHOLDER VOTES REQUIRED ......................... 11
DISSENTERS' RIGHTS ................................. 12
FEDERAL INCOME TAX CONSEQUENCES .................... 12
CONDITIONS TO CONSUMMATION AND REGULATORY
APPROVALS; TERMINATION............................ 12
ACCOUNTING TREATMENT ............................. 13
RISK FACTORS ......................................... 14
RECENT DEVELOPMENT.................................... 15
SELECTED FINANCIAL DATA .............................. 16
MARKET PRICES ........................................ 18
THE MERGER ........................................... 19
GENERAL ............................................ 19
BACKGROUND AND REASONS FOR THE MERGER .............. 21
OPERATIONS AFTER THE MERGER ........................ 22
OTHER TERMS AND CONDITIONS ......................... 22
FEDERAL INCOME TAX CONSEQUENCES .................... 28
GOVERNMENT APPROVALS ............................... 29
ACCOUNTING TREATMENT ............................... 30
SUPERVISION AND REGULATION ........................... 30
GENERAL ............................................ 30
COMPASS, COMPASS OF TEXAS AND COMPASS
BANCORPORATION ................................... 30
THE SUBSIDIARY BANKS ............................... 32
OTHER .............................................. 33
DESCRIPTION OF COMPASS COMMON AND PREFERRED STOCK..... 35
COMPASS COMMON STOCK ............................... 35
DIVIDENDS .......................................... 35
PREEMPTIVE RIGHTS .................................. 36
VOTING RIGHTS ...................................... 36
LIQUIDATION ....................................... 36
COMPASS PREFERRED STOCK ............................ 36
COMPARISON OF RIGHTS OF
SHAREHOLDERS OF EQUITABLE AND COMPASS .............. 37
CHARTER AND BY-LAW PROVISIONS AFFECTING COMPASS
STOCK ............................................ 37
CERTAIN DIFFERENCES BETWEEN THE CORPORATION LAWS OF
TEXAS AND DELAWARE AND CORRESPONDING CHARTER AND
BYLAW PROVISIONS ................................. 37
MERGERS ............................................ 37
APPRAISAL RIGHTS ................................... 38
SPECIAL MEETINGS ................................... 38
ACTIONS WITHOUT A MEETING .......................... 39
ELECTION OF DIRECTORS .............................. 39
VOTING ON OTHER MATTERS ............................ 39
PREEMPTIVE RIGHTS .................................. 40
DIVIDENDS .......................................... 40
LIQUIDATION RIGHTS ................................. 40
LIMITATION OF LIABILITY AND
INDEMNIFICATION .................................. 41
REMOVAL OF DIRECTORS ............................... 41
INSPECTION OF BOOKS AND RECORDS .................... 41
ANTITAKEOVER PROVISIONS ............................ 41
RESALE OF COMPASS STOCK .............................. 42
INFORMATION ABOUT COMPASS ............................ 42
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE ....................................... 42
INTERESTS OF CERTAIN PERSONS ....................... 42
INFORMATION ABOUT EQUITABLE .......................... 42
SERVICES, EMPLOYEES AND PROPERTIES ................. 42
COMPETITION ........................................ 43
LEGAL PROCEEDINGS .................................. 43
REGULATORY COMMITMENTS ............................. 43
MARKET PRICE AND DIVIDENDS ......................... 44
BENEFICIAL OWNERSHIP OF EQUITABLE COMMON STOCK
BY EQUITABLE MANAGEMENT AND PRINCIPAL
SHAREHOLDERS ..................................... 44
CERTAIN TRANSACTIONS BETWEEN EQUITABLE AND ITS
DIRECTORS ........................................ 47
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF
EQUITABLE BANKSHARES, INC. ......................... 48
GENERAL ............................................ 48
PROVISION FOR LOAN LOSSES .......................... 53
NONINTEREST INCOME ................................. 53
NONINTEREST EXPENSE ................................ 53
CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL CONDITION . 54
CAPITAL RESOURCES .................................. 54
LIQUIDITY .......................................... 55
INTEREST RATE SENSITIVITY .......................... 56
INVESTMENT SECURITIES .............................. 58
DEPOSITS ........................................... 59
LOANS .............................................. 60
ALLOWANCE FOR LOAN LOSSES AND RISK ELEMENTS ........ 60
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS ........ 62
RETURN ON EQUITY AND ASSETS ........................ 63
RELATIONSHIPS WITH INDEPENDENT ACCOUNTANTS ........... 63
EXPERTS .............................................. 64
LEGAL OPINIONS ....................................... 64
INDEMNIFICATION ...................................... 65
OTHER MATTERS ........................................ 65
-3-
<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 EQUITABLE 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 MARCH 1, 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, 1994 (File No. 0-6032);
(ii) Compass' Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995 (File No. 0-6032);
(iii) Compass' Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995 (File No. 0-6032);
(iv) Compass' Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995 (File No. 0-6032);
(v) Compass' Proxy Statement dated March 1, 1995, relating to its
annual meeting of shareholders held on April 11, 1995 (File No. 0-6032); and
(vi) The description of Compass Common Stock contained in its Proxy
Statement dated April 16, 1982, relating to its Annual Meeting held May 17, 1982
(File No. 0-6032).
-4-
<PAGE>
All documents filed by Compass pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date hereof and prior to the date
of the Meeting are incorporated herein by reference, and shall be deemed a part
hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein, or contained in this Proxy
Statement/Prospectus, shall be deemed to be modified or superseded for purposes
of this Proxy Statement/Prospectus to the extent that a statement contained
herein or in any subsequently filed document which also is deemed to be
incorporated herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed to constitute a part of this Proxy
Statement/Prospectus, except as so modified or superseded.
No person has been authorized to give any information or to make any
representations other than those contained in this Proxy Statement/Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by Compass, Compass Texas, Equitable 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, Equitable or their respective affiliates since the date of this Proxy
Statement/Prospectus.
-5-
<PAGE>
PROXY STATEMENT/PROSPECTUS
INTRODUCTION
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Board of Directors of Equitable BankShares, Inc.,
a Texas corporation ("Equitable"), for use at the special meeting of Equitable
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 Equitable with and into
Compass Equitable Texas, Inc. ("Compass Texas"), a Delaware corporation and
wholly-owned subsidiary of Compass being formed for the purpose of effecting the
Merger.
The following proposals will be considered and voted upon at the
Meeting:
(1) To approve, ratify, confirm and adopt an Agreement and Plan of
Merger, dated as of October 13, 1995, by and between Compass and Equitable, as
amended (the "Merger Agreement"), pursuant to which Equitable will be merged
with and into Compass Texas and become a wholly-owned subsidiary of Compass; and
(2) To consider and transact such other business as may properly come
before the Meeting.
The Board of Directors of Equitable has fixed February 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, Equitable had (i) 4,000,000 shares of common stock, $0.10 par value
per share ("Equitable Common Stock"), authorized, of which 1,887,733 shares were
issued and outstanding. Certain officers of Equitable Bank (the "Bank")
presently hold outstanding stock options to purchase up to a total of 141,895
shares of Equitable Common Stock (the "Options"). In addition, certain officers
and directors of the Bank and shareholders of Equitable presently own
convertible debt instruments convertible into 79,000 shares of Equitable Common
Stock (the "Debentures"). As of the Record Date, the Equitable Common Stock was
held of record by 190 persons or entities. Each share of Equitable Common Stock
entitles the holder of record on the Record Date to one vote as to the 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
Equitable 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 Equitable Common Stock, is
required for approval of the Merger. EQUITABLE'S BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER. SEE "SUMMARY--RECORD DATE";
"SUMMARY--SHAREHOLDER VOTES REQUIRED"; "THE MERGER--GENERAL"; "THE MERGER--OTHER
TERMS AND CONDITIONS"; AND APPENDIX I.
The directors and executive officers of Equitable and the Bank
control, with the power to vote, an aggregate of 1,258,836 shares of Equitable
Common Stock, comprising approximately 66.7% of the total shares of Equitable
Common Stock issued and outstanding as of the Record Date. In addition, certain
directors and executive officers of Equitable and the Bank own Options to
purchase and Debentures convertible into an aggregate of 220,895 shares of
Equitable Common Stock, which Options and Debentures are not expected to be
exercised or converted prior to the Meeting. Officers, directors and certain
shareholders of Equitable owning 1,287,698 shares of Equitable Common Stock,
comprising approximately 68.2% of the total shares of Equitable 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. AS A RESULT, BECAUSE SUCH OFFICERS AND DIRECTORS HAVE THE POWER TO
VOTE OVER TWO-THIRDS OF THE SHARES OF EQUITABLE 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
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THE MERGER BY THE EQUITABLE 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 EQUITABLE--MANAGEMENT AND PRINCIPAL SHAREHOLDERS".
Proxies in the form enclosed are solicited by Equitable's Board of
Directors. Any such proxy, if received in time for voting and not revoked, will
be voted at the Meeting in accordance with the shareholder's instructions. If no
instructions are given on the proxy, the proxy will be voted in favor of the
Merger. Failure to submit a proxy or to vote at the Meeting will have the same
effect as a vote against the Merger. At present, Equitable'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 Equitable'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
Equitable'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 Equitable, 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 Equitable Common Stock held of record by such persons, and Equitable 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 Equitable
Common Stock held of record by them, and Equitable 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.
Equitable's principal executive offices are located at 17218 Preston Road,
Dallas, Texas 75252, and its telephone number is (214) 248-7000.
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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, 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 89 banking offices located in 47 communities in Alabama and
28 banking offices in Florida. Compass Bank also is engaged in the investment,
trust and equipment leasing businesses, and other bank operating activities.
Compass Banks of Texas, Inc., a Delaware corporation ("Compass of Texas"),
is a wholly-owned subsidiary of Compass. Compass of Texas and its wholly-
owned subsidiary, Compass Bancorporation of Texas, Inc., a Delaware
corporation ("Compass Bancorporation"), are bank holding companies registered
with the Federal Reserve under the BHC Act. Compass Bancorporation owns
Compass Bank-Houston in Houston, Texas ("Compass Bank-Houston"), Compass Bank-
Dallas in Dallas, Texas ("Compass Bank-Dallas"), Compass Bank-San Antonio in
San Antonio, Texas ("Compass Bank-San Antonio"), 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 38 banking offices in
Houston, Texas, 21 banking offices in Dallas, Texas and 10 banking offices in
San Antonio, Texas.
During 1995, Compass acquired Southwest Bankers, Inc., and its bank
subsidiary, The Bank of San Antonio, located in San Antonio, Texas, and Flower
Mound Bancshares, Inc. and its bank subsidiary, Security Bank, located in
Flower Mound, Texas. Announced acquisitions which are pending include the
Merger, Peoples Bancshares, Inc. and its bank subsidiary, The Peoples National
Bank, located in Belton, Texas, Post Oak Bank, located in Houston, Texas, and
Royall Financial Corporation and its bank subsidiary, The Royall National Bank
of Palestine, located in Palestine, Texas. In addition, on November 22, 1995,
Compass signed a letter of intent to acquire CFB Bancorp, Inc. and its
subsidiary Community First Bank of Jacksonville, Florida.
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Compass Texas will be a Delaware corporation and a wholly-owned subsidiary
of Compass and is being formed for the purpose of effecting the Merger.
On September 30, 1995, Compass and its subsidiaries had consolidated assets
of $10 billion, consolidated deposits of $7.4 billion, and total shareholders'
equity of $672 million. Of Compass' $10 billion of consolidated assets,
approximately $6 billion are held in Alabama, $3.4 billion are held in Texas,
and $600 million are held in Florida. SEE "AVAILABLE INFORMATION";
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE"; "SELECTED FINANCIAL DATA";
AND "INFORMATION ABOUT COMPASS".
Equitable is a Texas corporation which was organized in 1984. It is a bank
holding company registered with the Federal Reserve under the BHC Act. The
Bank, a wholly-owned subsidiary of Equitable, is a state banking association
organized under the laws of the State of Texas in 1979. The Bank has its
principal office in Dallas, Texas, and has a branch in Fort Worth, Texas at
2016 West Rosedale, and branches in Arlington, Texas at 2205 North Collins and
701 Highlander Boulevard.
On September 30, 1995, Equitable had consolidated total assets of $190
million, consolidated total deposits of $155 million, and total shareholders'
equity of $11 million. SEE "SELECTED FINANCIAL DATA"; "INFORMATION ABOUT
EQUITABLE"; "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF EQUITABLE"; AND FINANCIAL STATEMENTS OF EQUITABLE.
THE MERGER
The Merger Agreement provides for the merger of Equitable with and into
Compass Texas and for the holders of Equitable Common Stock at the effective
time of the Merger (the "Effective Time"), other than dissenting shareholders,
to receive aggregate merger consideration (the "Merger Consideration") equal
to that number of shares of Compass Common Stock (as adjusted due to the
exercise of dissenter's rights) which is equal to $31,131,763 (the "Target
Price") divided by the average closing sales price of the Compass Common Stock
as reported by the NASDAQ National Market System for the 20 trading days
preceding the tenth business day prior to the first business day following the
later of (i) the last received regulatory approval from the FDIC and the FRB
and the expiration of any applicable waiting period with respect thereto and
(ii) the approval of the Merger by Equitable's shareholders (the "Share
Determination Market Value"). In the event, however, that the Share
Determination Market Value would result in the number of shares of Compass
Common Stock to be issued being greater than 1,038,000, Compass may either
terminate the Merger Agreement in accordance with its terms or agree to issue
a number of shares of Compass Common Stock equal to the quotient of the Target
Price divided by the Share Determination Market Value. In the event that
Compass elects to terminate the Merger Agreement, Equitable shall have the
right (in accordance with the terms of the Merger Agreement) to reject such
termination by agreeing to accept an aggregate number of shares of Compass
Common Stock equal to 1,038,000. Further, in the event the Share
Determination Market Value would result in the number of shares of Compass
Common Stock to be issued being less than 865,000, Compass will issue to the
holders of the shares of Equitable Common Stock an aggregate number of shares
of Compass Common Stock equal to 865,000. Unless Compass agrees to issue
additional shares as described above, Compass is not obligated to issue more
than 1,038,000 shares of Compass Common Stock as the Merger Consideration.
Any decision of the Board of Directors of Equitable regarding whether to allow
the Merger Agreement to terminate will be made in its sole discretion and
could result in either (i) Equitable shareholders receiving Merger
Consideration with an aggregate market value of less than $31,131,763, or (ii)
the termination of the Merger Agreement. If the Board of Directors of
Equitable elects to allow the Merger Agreement to terminate, the Equitable
shareholders would not receive any Merger Consideration but would retain their
Equitable Common Stock.
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Holders of Equitable Common Stock shall receive for each share of Equitable
Common Stock held at the Effective Time a number of shares of Compass Common
Stock equal to (i) the aggregate number of shares of Compass Common Stock to
be issued to the holders of Equitable Common Stock as set forth in the
preceding paragraph divided by (ii) the number of shares of Equitable Common
Stock outstanding immediately prior to the Effective Time (the "Per Share
Merger Consideration").
As of the Record Date, there were 1,887,733 shares of Equitable Common
Stock issued and outstanding. In addition, there are presently outstanding
Options exercisable for 141,895 shares of Equitable Common Stock and
Debentures convertible into 79,000 shares of Equitable Common Stock. All of
the Option holders have agreed to exercise their Options prior to the
Effective Time pursuant to an Agreement to Terminate Options executed in
connection with the Merger Agreement. Pursuant to such agreement, any Options
not exercised prior to the Effective Time shall terminate. The terms of the
Debentures provide that the unpaid principal amount of the Debentures shall be
convertible into shares of Equitable Common Stock immediately prior to the
Merger at a conversion price of $10 per share. Assuming all of the Options and
Debentures are exercised for or converted into Equitable Common Stock prior to
the Effective Time, there will be 2,108,628 shares of Equitable Common Stock
issued and outstanding immediately prior to the Effective Time.
Assuming that (i) there will be 2,108,628 shares of Equitable Common Stock
issued and outstanding immediately prior to the Effective Time; and (ii) the
Share Determination Market Value will be $31.7125 (the average closing sales
price of Compass Common Stock as reported by the NASDAQ National Market System
for the 20 trading days preceding February 2, 1996), Compass will be required
to issue an aggregate of 981,687 shares of Compass Common Stock to the
Equitable shareholders and each shareholder of Equitable (except for
shareholders choosing to exercise their dissenters' rights) will be entitled
to receive approximately .4656 shares of Compass Common Stock for each share
of Equitable Stock held. Assuming that there will be 2,108,628 shares of
Equitable Common Stock issued and outstanding immediately prior to the
Effective Time, the range of shares of Compass Common Stock per share of
Equitable Stock held that Compass will be required to issue to the Equitable
shareholders pursuant to the Merger Agreement shall be between .4923 and
.4102, which corresponds to a Share Determination Market Value between $29.99
and $35.99.
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 number of shares of Compass
Common Stock to be received by Equitable shareholders in the Merger will be
adjusted to give effect to any stock splits with respect to Compass Common
Stock occurring between the date of execution of the Merger Agreement and the
Effective Time. SEE "INTRODUCTION"; "SUMMARY--DISSENTERS' RIGHTS"; "THE
MERGER--GENERAL"; "THE MERGER--DISSENTERS' RIGHTS"; APPENDIX I; AND APPENDIX
II.
Compass Texas will be the surviving entity in the Merger and the officers
and directors of Compass Texas will continue to be the officers and directors
of Compass Texas after the Merger. Compass intends that Equitable's personnel
will remain following the Merger and to that effect has entered into a three-
year Employment Agreement with Mr. Robert H. Sewell, Chairman of the Board of
Equitable, which will become effective at the Effective Time. SEE "THE
MERGER--GENERAL"; AND "INFORMATION ABOUT EQUITABLE".
The Merger Agreement was the result of arm's-length negotiations between
representatives of Equitable and Compass. Equitable'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"; AND "THE MERGER--BACKGROUND AND REASONS FOR THE MERGER.
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REASONS FOR THE MERGER; RECOMMENDATION OF BOARDS OF DIRECTORS
Consummation of the Merger offers the holders of Equitable 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
Dallas-Fort Worth metropolitan area of Texas. Compass Common Stock is publicly
traded and has a history of paying dividends. Equitable's Board of Directors
anticipates that the Merger will expand the banking products and services
offered to Equitable's customers and community and will enable Equitable's
facilities to compete more effectively among banks and non-bank financial
institutions. As part of a much larger holding company system, Equitable'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. Equitable's Board of
Directors has concluded unanimously that the proposed Merger is in the best
interest of Equitable and its shareholders. EQUITABLE'S BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT EQUITABLE SHAREHOLDERS VOTE FOR APPROVAL OF THE
MERGER and has authorized consummation thereof subject to approval of the
Equitable 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 EQUITABLE AND COMPASS"; "INFORMATION
ABOUT COMPASS"; AND "INFORMATION ABOUT EQUITABLE".
THE MEETING
The Meeting will be held on Friday, March 15, 1996 at 5:00 P.M., Dallas
time, at Northwood Club, 6524 Alpha Road in Dallas, Texas for the purposes of
(i) approving, ratifying, confirming and adopting the Merger Agreement; and
(ii) transacting such other business as may properly come before the Meeting.
RECORD DATE
The Record Date has been set by Equitable's Board of Directors as the close
of business on February 12, 1996. Only holders of Equitable's Common Stock as
of such date will be entitled to vote at the Meeting. SEE "INTRODUCTION".
SHAREHOLDER VOTES REQUIRED
The Merger must be approved by the affirmative vote of the holders of at
least two-thirds of the shares of the Equitable Common Stock issued and
outstanding and entitled to vote at the Meeting.
The directors and executive officers of Equitable and the Bank control,
with the power to vote, an aggregate of 1,258,836 shares of Equitable Common
Stock, comprising approximately 66.7% of the total shares of Equitable Common
Stock issued and outstanding and entitled to vote at the Meeting. In
addition, certain directors and executive officers of Equitable and the Bank
own Options to purchase and Debentures convertible into an aggregate of
220,895 shares of Equitable Common Stock, which Options and Debentures are not
expected to be exercised or converted prior to the Meeting. Officers,
directors and certain shareholders of Equitable owning 1,287,698 shares of
Equitable Common Stock, comprising approximately 68.2% of the total shares of
Equitable 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.
AS A RESULT, BECAUSE SUCH OFFICERS AND DIRECTORS HAVE THE POWER TO VOTE OVER
TWO-THIRDS OF THE SHARES OF
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EQUITABLE 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 BY THE EQUITABLE SHAREHOLDERS, SUBJECT TO THE
TERMINATION RIGHTS CONTAINED IN THE MERGER AGREEMENT.
Compass Texas will have 10,000 shares of common stock, par value $0.01 per
share, issued and outstanding, all of which will be owned and held by Compass.
Subject to the satisfaction or waiver of all of the conditions to the parties'
obligations to effect the Merger, Compass, as the sole shareholder of Compass
Texas, will approve the Merger Agreement in the manner prescribed by the
General Corporation Law of the State of Delaware ("GCL"). SEE "THE MERGER--
GENERAL".
DISSENTERS' RIGHTS
Holders of Equitable Common Stock who timely object to the Merger, and who
otherwise comply with the provisions of the Texas Business Corporation Act
("TBCA"), will be entitled to exercise dissenters' rights. SEE "THE MERGER--
DISSENTERS' RIGHTS"; "COMPARISON OF RIGHTS OF SHAREHOLDERS OF EQUITABLE AND
COMPASS--DISSENTERS' RIGHTS"; AND APPENDIX II.
CONDITIONS TO CONSUMMATION AND REGULATORY APPROVALS; TERMINATION
Consummation of the Merger is subject to approval of the Merger by the
shareholders of Equitable, receipt or waiver of certain required regulatory
approvals from the Federal Reserve under the BHC Act, the Federal Deposit
Insurance Corporation ("FDIC") and the Banking Commissioner of Texas (the
"Commissioner"), and the satisfaction or waiver of a number of other
conditions. SEE "THE MERGER--OTHER TERMS AND CONDITIONS". Compass Bank has
filed separate applications with the FDIC and the Commissioner to merge the
Bank into Compass Bank-Dallas ("Bank Merger"), although the Bank Merger is not
a condition to consummation of the Merger. Since it is anticipated that the
Bank Merger will occur simultaneously with the Merger, a request for
confirmation that no formal application under the BHC Act is required has been
filed with the Federal Reserve. It is expected that the Federal Reserve, the
FDIC and the Commissioner will issue their respective approvals of the
transaction. SEE "THE MERGER--GOVERNMENTAL APPROVALS".
If the Federal Reserve requires a formal application under the BHC Act,
following Federal Reserve approval, the United States Department of Justice
("Justice Department"), pursuant to the BHC Act, has 15 to 30 days in which to
bring an action opposing the Merger under the antitrust laws, which action
would stay the Merger unless otherwise ordered by an appropriate judicial
authority. The Justice Department has a similar 15 to 30 day period in which
to object to the Merger after FDIC approval. No Justice Department objection
or adverse action is anticipated.
The respective boards of directors of Compass and Equitable 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 June 30, 1996 or such later
date agreed to in writing by Compass and Equitable. SEE "THE MERGER--OTHER
TERMS AND CONDITIONS"; "THE MERGER--BUSINESS PENDING EFFECTIVE TIME"; "THE
MERGER--AMENDMENT; TERMINATION"; "THE MERGER--GOVERNMENT APPROVALS"; AND
APPENDIX I.
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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
Equitable 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 Equitable 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. EQUITABLE 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 requested 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. SEE "THE MERGER--ACCOUNTING TREATMENT".
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RISK FACTORS
Equitable shareholders currently control Equitable through their ability to
elect the Board of Directors and vote on various matters affecting Equitable.
The Merger will transfer control of Equitable from Equitable's shareholders to
Compass, and the former offices of Equitable will eventually become branches of
Compass Bank-Dallas. As of the Effective Time, the shareholders of Equitable
will become shareholders of Compass, a multi-bank holding company. As a result
of the Merger, the former shareholders of Equitable will no longer have the
ability to control or influence the management policies of Equitable'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 EQUITABLE--COMPETITION".
In addition, general economic conditions impact the banking industry. The
credit quality of Compass' loan portfolio necessarily reflects, among other
things, the general economic conditions in the areas in which it conducts its
business. The continued financial success of Compass and its subsidiaries
depends somewhat on factors which are beyond Compass' control, including
national and local economic conditions, the supply and demand for investable
funds, interest rates and federal, state and local laws affecting these matters.
Any substantial deterioration in any of the foregoing conditions could have a
material adverse effect on Compass' financial condition and results of
operations, which, in all likelihood, would adversely affect the market price of
Compass Common Stock. SEE "MARKET PRICES".
Compass' Restated Certificate of Incorporation, as amended (the
"Certificate"), and By-Laws contain several provisions which may make Compass a
less attractive target for acquisition by anyone who does not have the support
of Compass' Board of Directors. Such provisions include, among other things, the
requirement of a supermajority vote of shareholders or directors to approve
certain business combinations and other corporate actions, a minimum price
provision, several special procedural rules, a staggered Board of Directors, and
the limitation that shareholder actions without a meeting may only be taken by
unanimous written shareholder consent. Equitable's Articles of Association and
By-Laws do not contain similar restrictions, although under Texas law
Equitable's shareholders may take action without a meeting only by unanimous
written consent. SEE "COMPARISON OF RIGHTS OF SHAREHOLDERS OF EQUITABLE AND
COMPASS--CHARTER AND BY-LAW PROVISIONS AFFECTING COMPASS COMMON STOCK"- AND
"INFORMATION ABOUT COMPASS-RECENT DEVELOPMENTS".
In the event the Share Determination Market Value would result in the
number of shares of Compass Common Stock to be issued to be greater than
1,038,000, Compass may either terminate the Merger Agreement in accordance with
its terms or agree to issue a number of shares of Compass Common Stock equal to
the quotient of the Target Price divided by the Share Determination Market
Value. In the event that Compass elects to terminate the Merger Agreement,
Equitable shall have the right (in accordance with the terms of the Merger
Agreement) to reject such termination by agreeing to accept an aggregate number
of shares of Compass Common Stock equal to 1,038,000. Unless Compass agrees to
issue additional shares as described above, Compass is not obligated to issue
more than 1,038,000 shares of Compass Common Stock as the Merger Consideration.
Any decision of the Board of Directors of Equitable regarding whether to allow
the Merger Agreement to terminate will be made in its sole discretion and could
result in either (i) Equitable shareholders receiving Merger Consideration with
an aggregate market value of less than $31,131,763, or (ii) the termination of
the Merger Agreement. If the Board of Directors of Equitable elects to allow
the Merger Agreement to terminate, the Equitable shareholders would not receive
any Merger Consideration but would retain their Equitable Common Stock.
-14-
<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
Equitable to receive shares of Compass Common Stock with a market value less
than $31,131,763 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 released dated January 18, 1996, reported record net
income of $110.3 million for 1995, an increase of 9% over the $101.2 million for
1994. Net income per share for 1995 was $2.88 as compared to $2.65 for the same
period of 1994, a 9% increase. Net income for the fourth quarter of 1995 was
$29.2 million an 8% increase over the $27.0 million for the prior year. Net
income per share for the fourth quarter of 1995 increased 9% to $.76 from $.70
for the fourth quarter of 1994. Return on average assets was 1.17% and return on
average shareholders' equity was 16.98% for the quarter ended December 31, 1995.
Total assets increased 11% to $10.3 billion at December 31, 1995, from
$9.3 billion at December 31, 1994. Earning assets grew to $9.5 billion from $8.5
billion, an 11% increase over the prior year. Period-end loans outstanding
increased 9% to $6.4 billion from $5.8 billion. Deposits increased 8% to $7.7
billion from $7.2 billion and shareholders' equity increased 16% to $707 million
at December 31, 1995.
-15-
<PAGE>
SELECTED FINANCIAL DATA
The following table, except for the lines designated as pro forma,
summarizes certain unaudited consolidated historical financial data of Compass,
and certain unaudited consolidated historical financial data of Equitable. The
table also summarizes, where indicated, certain pro forma financial data for
Compass, giving effect to the acquisition of Equitable assuming that the Merger
had been effective at the beginning of 1990. The historical data of Compass as
of and for the years ended December 31, 1994, 1993, 1992, 1991 and 1990 has been
restated to reflect the April 1995 acquisition of Southwest Bankers, Inc. which
was accounted for under the pooling-of-interests method of accounting. The
historical data of Equitable and Compass as of and for the years ended December
31, 1994, 1993, 1992, 1991, and 1990 is derived from the audited financial
statements of Equitable and 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 1990, 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 (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
FOR THE NINE
MONTHS ENDED AS OF AND FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
-------------- --------------------------------------------------------
1995 1994 1993 1992 1991 1990
------------ --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
TOTAL ASSETS
Compass $9,988,845 $9,265,137 $7,453,859 $7,210,151 $6,898,873 $5,665,928
Equitable 190,011 173,814 158,331 142,644 129,200 121,408
TOTAL DEPOSITS
Compass 7,423,093 7,188,913 5,733,309 5,532,599 5,224,136 4,204,651
Equitable 154,967 142,677 138,014 126,994 116,174 109,658
LONG-TERM DEBT
Compass 659,876 487,916 328,938 207,730 20,336 18,905
Equitable 2,040 2,415 3,040 3,780 3,880 5,487
TOTAL SHAREHOLDERS' EQUITY
Compass 671,935 611,673 561,587 518,269 455,455 365,405
Equitable 11,021 9,690 8,168 6,958 5,701 3,428
NET INTEREST INCOME
Compass 260,663 336,768 334,146 322,774 262,659 203,397
Equitable 6,224 7,068 6,226 6,274 5,538 4,865
NET INCOME BEFORE
EXTRAORDINARY ITEM
Compass 81,082 101,246 92,679 77,870 63,009 49,889
Equitable 1,283 1,438 1,210 907 398 182
NET INCOME PER COMMON
SHARE BEFORE EXTRAORDINARY ITEM
Compass
Historical 2.12 2.65 2.39 2.00 1.68 1.39
Pro Forma(1) 2.10 2.62 2.36 1.98 1.65 1.36
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
AS OF AND (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
FOR THE NINE
MONTHS ENDED AS OF AND FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
-------------- --------------------------------------------------------
1995 1994 1993 1992 1991 1990
------------ --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
NET INCOME PER COMMON SHARE
BEFORE EXTRAORDINARY ITEM
Equitable
Historical 0.61 0.68 0.57 0.44 0.22 0.10
Equivalent Pro Forma (2) 0.99 1.23 1.11 0.93 0.77 0.64
CASH DIVIDENDS PER COMMON SHARE
Compass
Historical 0.84 0.92 0.76 0.667 0.587 0.533
Pro Forma 0.81 0.87 0.70 0.57 0.50 0.45
Equitable
Historical - - - - - -
Equivalent Pro Forma (2) 0.38 0.41 0.33 0.27 0.23 0.21
SHAREHOLDERS' EQUITY (BOOK
VALUE) PER COMMON SHARE
Compass
Historical 17.62 16.13 14.83 13.10 11.57 9.98
Pro Forma 17.46 15.97 14.66 12.94 11.42 9.80
Equitable
Historical 6.33 5.57 4.74 4.04 3.53 2.19
Equivalent Pro Forma (2) 8.20 7.50 6.88 6.07 5.36 4.60
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING
Compass
Historical 38,301 38,147 38,137 37,811 36,543 35,785
Pro Forma 39,291 39,137 39,127 38,801 37,533 36,775
Equitable
Historical 2,118 2,112 2,108 2,053 1,851 1,826
NUMBER OF COMMON SHARES
OUTSTANDING AT END OF PERIOD
Compass
Historical 38,134 37,922 37,877 37,810 37,378 36,628
Pro Forma 39,124 38,912 38,867 38,800 38,368 37,618
Equitable
Historical 1,742 1,741 1,725 1,723 1,616 1,566
- --------------------
</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) Equitable's Equivalent Pro Forma per share amounts are computed by
multiplying Compass' Pro Forma amounts by the exchange ratio. The exchange
ratio was computed assuming the exercise of all Options and the conversion
of all Debentures. The Merger Consideration assumed is based on the
average closing sales price of Compass Common Stock as reported by the
NASDAQ National Market System for the 20 trading days preceding October 16,
1995, the day of the announcement of the execution of the Merger Agreement.
Assuming Merger Consideration of $31.7125 per share, the average closing
sales price of Compass Common Stock as reported by the NASDAQ National
Market System for the 20 trading days preceding February 2, 1996, the
equivalent pro forma amounts presented above would not change.
-17-
<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
- ------ ------ ------
<S> <C> <C>
1994
- ----
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
(through February 33-1/8 30-3/4
1, 1996)
</TABLE>
On October 13, 1995, the business day immediately preceding the
announcement of the execution of the Merger Agreement, the last reported sale
price for Compass Common Stock was $31-1/2. On February 1, 1996 the last
reported sale price for Compass Common Stock was $32-1/4. There is no assurance
at 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 Equitable Common Stock,
although it is traded infrequently in private transactions about which
Equitable's management has little reliable information regarding price.
-18-
<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 Equitable with and into
Compass Texas in accordance with the terms and conditions of the Merger
Agreement. Compass Texas will be the surviving entity in the Merger and the
separate existence of Equitable will cease. The officers and directors of
Compass Texas will continue to be the officers and directors of the surviving
bank after the Merger. Compass intends that Equitable's personnel will remain
following the Merger. Following the Merger, the Bank will merge into Compass
Bank-Dallas and the former Bank locations will become branches of Compass Bank-
Dallas. 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 Equitable Common Stock at
the Effective Time, other than dissenting shareholders, to receive Merger
Consideration equal to that number of shares of Compass Common Stock (as
adjusted due to the exercise of dissenter's rights) which is equal to the Target
Price divided by the Share Determination Market Value. In the event, however,
that the Share Determination Market Value would result in the number of shares
of Compass Common Stock to be issued being greater than 1,038,000, Compass may
either terminate the Merger Agreement in accordance with its terms or agree to
issue a number of shares of Compass Common Stock equal to the quotient of the
Target Price divided by the Share Determination Market Value. In the event that
Compass elects to terminate the Merger Agreement, Equitable shall have the right
(in accordance with the terms of the Merger Agreement) to reject such
termination by agreeing to accept an aggregate number of shares of Compass
Common Stock equal to 1,038,000. Further, in the event the Share Determination
Market Value would result in the number of shares of Compass Common Stock to be
issued being less than 865,000, Compass will issue to the holders of the shares
of Equitable Common Stock an aggregate number of shares of Compass Common Stock
equal to 865,000. Unless Compass agrees to issue additional shares as described
above, Compass is not obligated to issue more than 1,038,000 shares of Compass
Common Stock as the Merger Consideration. Any decision of the Board of
Directors of Equitable regarding whether to allow the Merger Agreement to
terminate will be made in its sole discretion and could result in either (i)
Equitable shareholders receiving Merger Consideration with an aggregate market
value of less than $31,131,763, or (ii) the termination of the Merger Agreement.
If the Board of Directors of Equitable elects to allow the Merger Agreement to
terminate, the Equitable shareholders would not receive any Merger Consideration
but would retain their Equitable Common Stock.
Holders of Equitable Common Stock shall receive for each share of Equitable
Common Stock held at the Effective Time a number of shares of Compass Common
Stock equal to (i) the aggregate number of shares of Compass Common Stock to be
issued to the holders of Equitable Common Stock as set forth in the preceding
paragraph divided by (ii) the number of shares of Equitable Common Stock
outstanding immediately prior to the Effective Time.
As of the Record Date, there were 1,887,733 shares of Equitable Common
Stock issued and outstanding. In addition, there are presently outstanding
Options exercisable for 141,895 shares of Equitable Common Stock and Debentures
convertible into 79,000 shares of Equitable Common Stock. All of the Option
holders have agreed to exercise their Options prior to the Effective Time
pursuant to an Agreement to Terminate Options executed in
-19-
<PAGE>
connection with the Merger Agreement. Pursuant to such agreement, any Options
not execised prior to the Effective Time shall terminate. The terms of the
Debentures provide that the unpaid principal amount of the Debentures shall be
convertible into shares of Equitable Common Stock immediately prior to the
Merger at a conversion price of $10 per share. Assuming all of the Options and
Debentures are exercised for or converted into Equitable Common Stock prior to
the Effective Time, there will be 2,108,628 shares of Equitable Common Stock
issued and outstanding immediately prior to the Effective Time.
Assuming that (i) there will be 2,108,628 shares of Equitable Common Stock
issued and outstanding immediately prior to the Effective Time; and (ii) the
Share Determination Market Value will be $31.7125 (the average closing sales
price of Compass Common Stock as reported by the NASDAQ National Market System
for the 20 trading days preceding February 2, 1996), Compass will be required to
issue an aggregate of 981,687 shares of Compass Common Stock to the Equitable
shareholders and each shareholder of Equitable (except for shareholders choosing
to exercise their dissenters' rights) will be entitled to receive approximately
.4656 shares of Compass Common Stock for each share of Equitable Stock held.
Assuming that there will be 2,108,628 shares of Equitable Common Stock issued
and outstanding immediately prior to the Effective Time, the range of shares of
Compass Common Stock per share of Equitable Stock held that Compass will be
required to issue to the Equitable shareholders pursuant to the Merger Agreement
shall be between .4923 and .4102, which corresponds to a Share Determination
Market Value between $29.99 and $35.99. See "Introduction"; "Summary--The
Merger"; and Appendix I.
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 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 must be approved by the affirmative vote of the holders of two-
thirds of the outstanding shares of Equitable 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 Equitable and the Bank
owning 1,287,698 shares of Equitable Common Stock, comprising approximately
68.2% of the total shares of Equitable 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. AS A RESULT, BECAUSE SUCH OFFICERS AND DIRECTORS HAVE THE
POWER TO VOTE OVER TWO-THIRDS OF THE SHARES OF EQUITABLE 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 BY THE
EQUITABLE SHAREHOLDERS, SUBJECT TO THE TERMINATION RIGHTS CONTAINED IN THE
MERGER AGREEMENT.
-20-
<PAGE>
Compass Texas will have 10,000 shares of common stock, $0.01 par value per
share, issued and outstanding, all of which will be owned and held by Compass.
Subject to the satisfaction or waiver of all of the conditions to the parties'
obligations to effect the Merger, Compass, as sole shareholder of Compass Texas,
will approve the Merger Agreement in the manner prescribed by the GCL. 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 Equitable 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 Equitable Common Stock. After the
Effective Time, all certificates for Equitable 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
Compass and Compass of Texas began analyzing the possible acquisition of
Equitable in June 1995, and contacted Equitable at that time. Representatives
of Equitable and Compass of Texas then commenced discussions concerning a
possible affiliation of the two entities. In evaluating Compass' offer,
Equitable's management considered competitive conditions in the market served by
Equitable, the value of the assets of Equitable, its capital and other
requirements, the current regulatory environment, the prospects for trading
Equitable Common Stock and its future growth prospects in light of the Dallas-
Fort Worth economy. Equitable's management also considered the changing markets
for financial services. In considering whether to affiliate with Compass, a
larger financial institution with significantly greater financial resources and
expertise, Equitable believed that Compass' size offered expansion opportunities
for services not otherwise available to Equitable and its customers, which would
better enable the Bank to compete. In addition, Equitable has confidence in
Compass' management. Equitable and its Board of Directors determined that
Equitable'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 EQUITABLE--CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL CONDITION".
The Board of Directors of Equitable was interested in the prospect of
affiliating with a larger institution which has significantly greater financial
resources and more diversified operations. Holders of Equitable Common Stock
will benefit from receiving common stock in a larger company with a history of
paying dividends on its common stock. Equitable's customers will have access to
a much larger banking network with greater services and higher lending limits.
Compass and Compass of Texas have considered further expansion
opportunities in Dallas and Fort Worth in order to enlarge their Dallas-Fort
Worth operations to a more economical size and to expand into additional market
areas. Acquiring Equitable will result in economies of scale and increase the
market served by Compass' affiliates in the greater Dallas-Fort Worth market. It
will also assist Compass' Texas affiliates in providing the management and
organizational flexibility needed to expand elsewhere in Texas by branching and
other acquisitions.
Following arm's length negotiations between representatives of Compass and
Equitable, Compass and Equitable entered into the Merger Agreement on October
13, 1995. The aggregate price to be paid to holders of Equitable Common Stock
resulted from negotiations which considered the historical earnings and
dividends of Compass and Equitable, the earnings potential and deposit base of
Equitable, potential growth in Equitable's market, Equitable's asset quality and
the effect of the Merger on the shareholders, customers and employees of Compass
and Equitable. SEE "SUMMARY--THE MERGER".
-21-
<PAGE>
Equitable's Board of Directors believes the terms of the Merger to be fair
and in the best interest of Equitable's shareholders. 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. EQUITABLE'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
EQUITABLE'S SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER and has authorized
consummation thereof subject to approval of Equitable's shareholders and the
satisfaction of certain other conditions. SEE "SUMMARY--REASONS FOR THE MERGER;
RECOMMENDATION OF BOARD OF DIRECTORS".
OPERATIONS AFTER THE MERGER
Compass and the Bank presently intend that immediately following the
completion of the Merger, the Bank will be merged with and into Compass Bank-
Dallas, subject to the necessary regulatory approvals. Thereafter, the separate
existence of the Bank will cease, and the former offices of the Bank will become
branches of Compass Bank-Dallas. 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";
(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 Equitable'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 Equitable 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;
-22-
<PAGE>
(vi) Equitable, 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 Equitable or the Bank;
(viii) The directors of Equitable and the Bank shall have delivered to
Compass an instrument dated the Effective Time releasing Equitable
and the Bank from any and all claims of such directors (except as to
their deposits and accounts and as to rights of indemnification
pursuant to the Articles of Incorporation or Association and the
Bylaws of Equitable or the Bank, which rights shall survive the
Merger) and shall have delivered to Compass their resignations as
directors of the Bank;
(ix) The officers of Equitable and the Bank shall have delivered to
Compass an instrument dated the Effective Time releasing Equitable
and the Bank from any and all claims of such officers (except as to
deposits and accounts and as to rights of indemnification pursuant
to the Articles of Incorporation or Association and Bylaws of
Equitable or the Bank, which rights shall survive the Merger);
(x) Compass and Equitable shall have received the opinions of counsel to
Equitable and Compass acceptable to them as to certain matters;
(xi) The holders of no more than 5% of the Equitable 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) The aggregate principal amount of all Equitable indebtedness shall
not exceed $1,250,000;
(xiv) Compass shall have received from holders of Equitable Common 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;
(xv) Compass and Compass Texas 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) The Company shall have delivered to Compass a schedule of all
transactions in the capital stock (or instruments exercisable for or
convertible into capital stock) of the Company of which the Company
has knowledge from and including the date of the Merger Agreement
through the Effective Time;
-23-
<PAGE>
(xvii) Compass shall have determined, in its reasonable judgment, that
certain liabilities and obligations of Equitable and the Bank do
not have a Material Adverse Effect;
(xviii) All warrants, options, rights, convertible debentures or other
securities entitling the holder thereof to acquire Equitable Common
Stock shall have been exercised or converted, or shall have
expired, lapsed or terminated, prior to the Effective Time;
(xix) The Bank and Equitable shall have delivered to the directors and
officers of Equitable and the Bank an instrument dated the
Effective Time releasing such directors and officers from any and
all claims of Equitable and the Bank (except as to indebtedness or
other contractual liabilities); provided, however, that such
releases shall not release an action against such directors and
officers by Compass or Compass Texas 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 Equitable 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
Equitable has entered into a Pooling Transfer Restrictions Agreement with
Compass and Equitable pursuant to which they have agreed, among other things,
(i) not to transfer any of their respective shares of Equitable Common Stock
within 30 days prior 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 Equitable 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 Equitable and the Bank
owning 1,287,698 shares of Equitable Common Stock, comprising approximately
68.2% of the total shares of Equitable 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. AS A RESULT, BECAUSE SUCH OFFICERS AND DIRECTORS HAVE THE
POWER TO VOTE OVER TWO-THIRDS OF THE SHARES OF EQUITABLE 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 BY THE
EQUITABLE 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
Equitable's business pending consummation of the Merger. Among other things,
Equitable must conduct its businesses only in the ordinary course, consistent
with prudent banking practices. SEE "THE MERGER--OTHER TERMS AND CONDITIONS";
AND APPENDIX I.
-24-
<PAGE>
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 Equitable's shareholders can be
made after the Meeting without the required approval of Equitable'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 Equitable shareholders, at any
time before the Effective Time by:
(i) Mutual written consent duly authorized by the Boards of Directors of
Compass and Equitable;
(ii) Compass (a) if Compass learns or becomes aware of a state of facts
or breach or inaccuracy of any representation or warranty of Equitable
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) Equitable if Equitable's conditions to Closing contained in the
Merger Agreement are not satisfied or waived in writing by Equitable;
(iv) Compass or Equitable if the Effective Time shall not have occurred
on or before June 30, 1996, or such later date agreed to in writing by
Compass and Equitable; or
(v) Compass or Equitable if any court of competent jurisdiction in the
United States or other United States (federal or state) governmental body
shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action is final and nonappealable. SEE
"SUMMARY--CONDITIONS TO CONSUMMATION AND REGULATORY APPROVALS;
TERMINATION"; "THE MERGER--GENERAL"; "THE MERGER--OTHER TERMS AND
CONDITIONS"; AND APPENDIX I.
Upon termination of the Merger Agreement, the Merger Agreement shall be
void and have no effect, without any liability on the part of any party or its
directors, officers or shareholders, except that the parties are not relieved of
liability for any breach of the Merger Agreement.
EXCHANGE OF SHARES
Promptly after the Effective Time, the Exchange Agent will furnish each
holder of record of Equitable Common Stock as of the Effective Time with
transmittal materials for use in exchanging certificates representing Equitable
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
Equitable Common Stock certificates for exchange accompanied by the appropriate
transmittal materials.
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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 Equitable 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 Equitable Common
Stock certificates in exchange for Compass Common Stock.
Upon the Effective Time of the Merger, former Equitable shareholders will
cease to have any rights as shareholders of Equitable, and the Equitable
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 TBCA, Equitable
shareholders have a statutory right to dissent from the Merger. If the Merger
is approved and consummated, any Equitable 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 Equitable 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 TBCA, which are reproduced in full in Appendix II
to this Proxy Statement/Prospectus. A shareholder must complete each step in
the precise order prescribed by the statute to perfect his dissenter's rights of
appraisal.
Any shareholder who desires to dissent from the Merger shall file a written
objection to the Merger with Equitable 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 Equitable as described above and
who did not vote in favor of the Merger will be deemed to have dissented from
the Merger ("Dissenting Shareholder"). Failure to vote against the Merger will
not constitute a waiver of the dissenters' rights of appraisal; on the other
hand, a vote in favor of the Merger will constitute such a waiver.
Compass Texas 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 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 Equitable Common Stock to Compass for notation thereon that such
demand has been made.
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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 Equitable
Common Stock duly endorsed by the Dissenting Shareholder, or (ii) containing
Compass' written estimate of the fair value of the shares of Equitable 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 Equitable Common Stock duly
endorsed by the Dissenting Shareholder. In either case, the Dissenting
Shareholder shall cease to have any ownership interest in Equitable, Compass or
the Bank following payment of the agreed value.
If the Dissenting Shareholder and Compass cannot agree on the fair value of
the shares within sixty (60) days after the Effective Time, the Dissenting
Shareholder or Compass may, within sixty (60) days of the expiration of the
initial sixty (60) day period, file a petition in any court of competent
jurisdiction in Dallas County, Texas requesting a finding and determination of
the fair value of the Dissenting Shareholder's shares. If no petition is filed
within the appropriate time period, then all Dissenting Shareholders who have
not reached an agreement with Compass on the value of their shares shall be
bound by the Merger and lose their rights to dissent. After a hearing
concerning the petition, the court shall determine which Dissenting Shareholders
have complied with the provisions of the TBCA and have become entitled to the
valuation of, and payment for, their shares, and shall appoint one or more
qualified appraisers to determine the value of the shares of Equitable 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 Equitable 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 Equitable
Common Stock duly endorsed by the Dissenting Shareholders. Upon payment of the
judgment, the Dissenting Shareholders shall cease to have any interest in
Equitable, 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 equitable.
Any Dissenting Shareholder who has made a written demand on Compass for
payment of the fair value of his Equitable 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 Equitable 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 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 EQUITABLE 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 Equitable Common Stock shall have
been determined to be held by dissenting or potentially
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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 Bank Merger will be respected as separate
transactions for federal income tax purposes. This matter is discussed in
greater detail below.
2. Equitable 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 Equitable
shareholders receiving at least 50% of the Compass Common Stock issued in the
Merger stating that they have no present intention to dispose of the Compass
Common Stock received.
In such counsel's opinion, the following federal income tax consequences to
Equitable shareholders will result from the qualification of the Merger as a
reorganization under Section 368(a) of the Code:
1. An Equitable shareholder will not recognize any gain or loss upon the
exchange of his Equitable Common Stock solely for Compass Common Stock.
2. The aggregate tax basis of Compass Common Stock received by an
Equitable shareholder in the Merger will be the same as the aggregate basis of
the Equitable 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 an Equitable
shareholder surrenders two blocks of Equitable 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 receives in
exchange for each share of Equitable 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 Equitable Common Stock in the second block will have a basis of
$2.00.
3. The holding period of Compass Common Stock to be received by each
Equitable shareholder will include the period during which he held the Equitable
Common Stock surrendered in exchange therefor, provided that the Equitable
Common Stock is held as a capital asset on the date of the exchange.
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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 an Equitable shareholder who dissents from the Merger and receives
solely cash in exchange for his or her Equitable 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 parties presently intend to consummate the Bank Merger immediately
after the Merger. If the independent significance of the Merger and the Bank
Merger were disregarded and the tax consequences of the transaction were
determined by focusing solely upon the Bank Merger, the transaction would not
qualify as a reorganization under Section 368(a) of the Code because it would
not satisfy the continuity of interest requirement. Instead, the exchange by the
Equitable shareholders of the Equitable Common Stock for Compass Common Stock
would be taxable, and Compass, Equitable and the Bank would also recognize gain
or loss on the transaction. Compass has obtained a private letter ruling from
the IRS in connection with an unrelated but similarly structured transaction to
the effect that the consummation of a subsidiary bank merger immediately
following a bank holding company merger will not prevent the subsidiary bank
merger from satisfying the continuity of interest requirement. However, it
should be noted that the above-referenced private letter ruling reports the
holding of the IRS on a particular transaction and may not be relied upon or
cited as precedent by the Equitable shareholders. SEE "SUMMARY--CONDITIONS TO
CONSUMMATION AND REGULATORY APPROVALS; TERMINATION"; AND "SUMMARY--FEDERAL
INCOME TAX CONSEQUENCES".
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR
GENERAL INFORMATION ONLY. EQUITABLE SHAREHOLDERS ARE URGED TO CONSULT WITH
THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM OF
THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN INCOME
OR OTHER TAX LAWS.
Compass and Equitable expect to receive a legal opinion from Liddell, Sapp
at the Closing that the Merger will qualify as a reorganization under Section
368(a) of the Code in satisfaction of a condition to consummation of the Merger.
SEE "THE MERGER--OTHER TERMS AND CONDITIONS".
GOVERNMENT APPROVALS
The Merger is subject to, and conditioned upon, receipt of approval from
the Commissioner and either approval of a formal application under the BHC Act
by the Federal Reserve, or confirmation by the Federal Reserve that a formal
application under the BHC Act is not required. The Bank Merger, if consummated,
will also require the approval of the FDIC and the Commissioner. A request for
confirmation that no formal application under the BHC Act is required has been
submitted to the Federal Reserve, and applications to the FDIC and the
Commissioner have been submitted with respect to the Merger and Bank Merger,
which approvals are expected to be issued timely.
If the Federal Reserve requires a formal application under the BHC Act, the
Merger may not be consummated for a period of 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 Equitable
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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
bank holding companies that own or control state or national 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 requested 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. Under this accounting method, at the
Effective Time, Equitable'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 Equitable 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 Office of
the Comptroller of the Currency ("OCC"), FDIC and/or the appropriate state
banking departments. The deposits of each of the Subsidiary Banks are insured by
the FDIC, and Compass Bank and Compass Bank, N.A., are members of the Federal
Reserve System. Although the various laws and regulations which apply to
Compass and its Subsidiary Banks are intended to insure safe and sound banking
practices, they are mainly intended to benefit depositors and the federal
deposit insurance fund, not the shareholders of Compass. The following
discussion highlights certain laws and regulations affecting Compass and the
Subsidiary Banks and should be read in conjunction with the more detailed
information incorporated by reference herein. SEE "INCORPORATION OF DOCUMENTS
BY REFERENCE".
COMPASS, 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 Company and
each of its subsidiaries. Under the BHC Act, bank holding companies are
prohibited, with certain exceptions, from acquiring direct or indirect ownership
or control of more than five percent of the voting shares of any company
engaging in activities other than banking or managing or controlling banks or
furnishing services to or performing services for their banking subsidiaries.
However, the BHC Act authorizes the Federal Reserve to permit bank holding
companies to engage in, and to acquire or retain shares of companies that
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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.
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.
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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 September 30, 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 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, N.A. is a
national banking association subject to supervision, regulation and examination
by the OCC. Compass Bank-Houston, Compass Bank-Dallas and Compass Bank-San
Antonio, all of which are organized under the laws of the State of Texas, are
state banks that are not members of the Federal Reserve System. The Texas banks
are supervised, regulated and regularly examined by the Department 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.
Compass Bank is governed by Alabama laws restricting the declaration and
payment of dividends to ninety percent (90%) of annual net income until its
surplus funds equal at least twenty percent (20%) of capital stock. Compass Bank
has surplus in excess of this amount. Compass Bank-Houston and Compass Bank-
Dallas, governed
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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. Compass Bank-Florida, governed by the laws of the State of Florida,
may declare and pay dividends not to exceed the current period's net profits
combined with the net retained profits of the previous two years--after charging
off bad debts, depreciation, and other worthless assets and after making
provision for reasonably anticipated future losses on loans and other assets--
and may, with the approval of the Department of Banking and Finance of the State
of Florida, declare and pay dividends from retained net profits which accrued
prior to the preceding two years; provided that, prior to declaring any
dividend, the bank shall carry 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.
The approval of the OCC is required if the total of all dividends declared by a
national bank in any calendar year exceeds the total of the net profits of the
respective bank for that year, plus its retained net profits for the preceding
two years, less any required transfers to surplus.
Federal law further provides that no insured depository institution may
make any capital distribution (which would include a cash dividend) if, after
making the distribution, the institution would not satisfy one or more of its
minimum capital requirements. Moreover, the federal bank regulatory agencies
also have the general authority to limit the dividends paid by insured banks if
such payments may be deemed to constitute an unsafe and unsound practice.
Insured banks are prohibited from paying dividends on its capital stock while in
default in the payment of any assessment due to the FDIC except in those cases
where the amount of the assessment is in dispute and the insured bank has
deposited satisfactory security for the payment thereof.
The Community Reinvestment Act of 1977 ("CRA") and the regulations of the
OCC, the Federal Reserve and the FDIC implementing that act are intended to
encourage regulated financial institutions to help meet the credit needs of
their local community or communities, including low and moderate income
neighborhoods, consistent with the safe and sound operation of such financial
institutions. The CRA and such regulations provide that the appropriate
regulatory authority will assess the records of regulated financial institutions
in satisfying their continuing and affirmative obligations to help meet the
credit needs of their local communities as part of their regulatory examination
of the institution. The results of such examinations are made public and are
taken into account upon the filing of any application to establish a domestic
branch, to merge or to acquire the assets or assume the liabilities of a bank.
In the case of a bank holding company, the CRA performance record of the banks
involved in the transaction are reviewed in connection with the filing of an
application to acquire ownership or control of shares or assets of a bank or to
merge with any other bank holding company. An unsatisfactory record can
substantially delay or block the transaction.
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
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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 38,202,654 shares were issued and outstanding on January
26, 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. Compass Bank is governed by Alabama laws restricting
the declaration and payment of dividends to 90% of annual net income until its
surplus funds equal at least 20% of capital stock. Compass Bank's surplus
exceeded this amount as of September 30, 1995 by $41.2 million. Compass Bank-
Houston, Compass Bank-Dallas and Compass Bank-San Antonio, 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. Compass Bank-Florida, governed by the laws of the State of Florida,
may declare and pay dividends not to exceed the current period's net profits
combined with the net retained profits of the previous two years--after charging
off bad debts, depreciation, and other worthless assets and after making
provision for reasonably anticipated future losses on loans and other assets--
and may, with the approval of the Department of Banking and Finance of the State
of Florida, declare and pay dividends from retained net profits which accrued
prior to the preceding two years; provided that, prior to declaring any
dividend, the bank shall carry 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.
The approval of the OCC is required if the total of all dividends declared by a
national bank in any calendar year exceeds the total of the net profits of the
respective bank for that year, plus its retained net profits for the preceding
two years, less any required transfers to surplus. SEE "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE"; "SUMMARY--REASONS FOR THE MERGER; RECOMMENDATION OF
BOARD OF DIRECTORS"; "RISK FACTORS"; "SELECTED FINANCIAL DATA"; "MARKET PRICES";
"COMPARISON OF RIGHTS OF SHAREHOLDERS OF EQUITABLE 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 Equitable 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 EQUITABLE 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 EQUITABLE AND COMPASS--DIVIDENDS".
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COMPARISON OF RIGHTS OF
SHAREHOLDERS OF EQUITABLE 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.
Equitable's Articles of Incorporation, as amended, and Bylaws do not contain
similar restrictions, except that the TBCA requires that actions of shareholders
without a meeting be by unanimous written consent, unless the Articles of
Incorporation provide for actions by holders of the number of shares that would
be required for action at a meeting. Equitable's Articles of Incorporation 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 Incorporation,
as amended, and Bylaws of Equitable, which are available upon request from
Equitable. SEE "AVAILABLE INFORMATION"; "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE"; "RISK FACTORS"; AND "INFORMATION ABOUT COMPASS".
In addition to the foregoing differences between Equitable's and Compass'
charters, as a result of the Merger, Equitable shareholders, whose rights are
governed by the TBCA, will become shareholders of Compass, and their rights as
shareholders will then be governed primarily by the GCL.
CERTAIN DIFFERENCES BETWEEN THE CORPORATION LAWS OF TEXAS AND DELAWARE AND
CORRESPONDING CHARTER AND BYLAW PROVISIONS
Certain differences between the Delaware and Texas corporation laws, as
well as a description of the corresponding provisions contained in Compass' and
Equitable'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 TBCA and the GCL.
MERGERS
Both Texas law and Delaware law generally permit a merger to become
effective without the approval of the surviving corporation's shareholders if
the articles of incorporation of the surviving corporation do not change
following the merger, the amount of the surviving corporation's common stock to
be issued or delivered under the plan of merger does not exceed twenty percent
(20%) of the total shares of outstanding voting stock immediately prior to the
acquisition, and the board of directors of the surviving corporation adopts a
resolution approving the plan of merger.
Where shareholder approval is required under Texas law, a merger must be
approved by the holders of two-thirds of the outstanding shares of the Texas
corporation entitled to vote thereon, unless there is a class of stock that is
entitled to vote as a class, in which event the merger must be approved by the
holders of two-thirds of the outstanding shares of stock of each class entitled
to vote as a class and by the holders of two-thirds of the outstanding shares
otherwise entitled to vote. Where shareholder approval is required under
Delaware law, a merger can be approved by a majority vote of the outstanding
shares of capital stock of each class entitled to vote thereon. Compass'
Certificate requires supermajority approval by its Board of Directors and
shareholders in certain
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cases, as described above. SEE "RISK FACTORS" AND "COMPARISON OF RIGHTS OF
SHAREHOLDERS OF EQUITABLE AND COMPASS--CHARTER AND BYLAW PROVISIONS AFFECTING
COMPASS STOCK".
APPRAISAL RIGHTS
Shareholders of Texas corporations are entitled to exercise certain
dissenters' rights in the event of a sale, lease, exchange or other disposition
of all, or substantially all, of the property and assets of the corporation,
and, with the exceptions discussed below, a merger or consolidation.
Shareholders of a Delaware corporation shall have rights of appraisal in
connection with certain mergers or consolidations. In addition, a Delaware
corporation may, but is not required to, provide in its certificate of
incorporation that appraisal rights shall be available to shareholders in the
event of an amendment to the certificate of incorporation, the sale of all or
substantially all of the assets of the corporation, or the occurrence of any
merger or consolidation 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 corporation are set forth in
Appendix II. SEE "SUMMARY--DISSENTERS' RIGHTS"; "THE MERGER--DISSENTERS'
APPRAISAL RIGHTS"; AND APPENDIX II.
No appraisal rights are available under either Texas or, except as
described below, Delaware law for the holders of any shares of a class or series
of stock of a Texas or Delaware corporation to a merger if that corporation
survives the merger and the merger did not require the vote of the holders of
that class or series of such corporation's stock; provided, however, that under
Delaware law appraisal rights will be available in any event to shareholders of
a Delaware corporation who are required to accept consideration for their shares
other than the consideration described below.
Both Texas and Delaware law have a provision which states that shareholders
do not have appraisal rights in connection with a merger where, on the record
date fixed to determine the shareholders entitled to vote on the merger or
consolidation, the stock of the corporation is listed on a national securities
exchange or is held of record by more than 2,000 shareholders, unless any of the
following exceptions concerning consideration paid to the shareholder for his
shares are met. Under Texas law, a shareholder will be entitled to dissent and
be paid for his shares if, notwithstanding the above, the shareholder is
required to accept for his shares any consideration other than (a) shares of
stock of a corporation which, immediately after the effective date of the
merger, are listed on a national securities exchange or are held of record by
not less than 2,000 shareholders, and (b) cash in lieu of fractional shares
otherwise entitled to be received. The Delaware statute contains a similar
consideration provision which is somewhat broader. Appraisal rights will be
available to shareholders of a Delaware corporation in the event of a merger or
consolidation if such shareholders are required by the terms of an agreement of
merger or consolidation to accept for their stock anything other than (a) shares
of stock of the corporation surviving or resulting from such merger or
consolidation, 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 corporation may be called by
the holders of shares entitled to cast not less than ten percent (10%) of all
shares entitled to vote at the meeting, unless a different percentage, not to
exceed fifty percent (50%), is provided in the Articles of Incorporation.
Shareholders of Delaware corporations do not have a right to call special
meetings unless such right is conferred upon the shareholders in the
corporation's Certificate of Incorporation or Bylaws. Equitable's Bylaws
provide that special meetings of shareholders may be called at any time by the
President, the Board of Directors or by one or more shareholders,
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the aggregate of whose shares comprise not less than one-tenth of all the shares
entitled to vote at the meeting. Compass' Certificate prohibits shareholders
from calling special meetings.
ACTIONS WITHOUT A MEETING
Under Texas law, the shareholders may act without a meeting if a consent in
writing to such action is signed by all shareholders; provided, however, that
the Articles of Incorporation may provide that the shareholders may take action
without a meeting if a consent in writing to such action is signed by the
shareholders having the minimum number of votes that would be necessary to take
such action at a meeting. Equitable's Articles of Incorporation, as amended, do
not so provide. Delaware law provides that shareholders may take action without
a meeting if a consent in writing to such action is signed by the shareholders
having the minimum number of votes that would be necessary to take such action
at a meeting, unless prohibited in the Certificate of Incorporation. Compass'
Certificate prohibits shareholder action by written consent except where such
action is taken unanimously. SEE "RISK FACTORS".
ELECTION OF DIRECTORS
Pursuant to Texas law, unless otherwise provided in the Articles of
Incorporation, shareholders shall be entitled to cumulative voting in the
election of directors if they provide the secretary of the corporation with
written notice prior to the day of the election of their intent to cumulate
their votes. Absent such notice, the directors of a corporation shall be
elected by a plurality of the votes cast by the holders of shares entitled to
vote in the election of directors at a meeting of shareholders at which a quorum
is present. Equitable's Articles of Incorporation, as amended, prohibit
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 Incorporation requires the
approval of the holders of at least two-thirds of the outstanding shares of the
corporation entitled to vote thereon, and the holders of two-thirds of the
outstanding shares of each class or series entitled to vote thereon as a class,
unless a different number, not less than a majority, is specified in the
Articles of Incorporation. The Articles of Incorporation, as amended, of
Equitable 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 Incorporation) of all, or substantially all, the property and
assets, with or without the goodwill, of a Texas corporation, if not made in the
usual and regular course of its business, requires the approval of the holders
of at least two-thirds of the outstanding shares of the corporation entitled to
vote thereon, and the holders of two-thirds of the outstanding shares of each
class or series entitled to vote thereon as a class, unless the Articles of
Incorporation require the vote of a different number, not less than a majority,
of the shares outstanding. Equitable's Articles of Incorporation, as amended,
do not provide for a different voting requirement or entitle the shares of any
class or series to vote thereon. A Delaware corporation may sell, lease or
exchange all or substantially all of its property and assets when and as
authorized by the holders of a majority of the outstanding stock of the
corporation entitled to vote thereon, unless the Certificate of Incorporation
requires the vote of a larger portion of the outstanding stock. The Certificate
of Incorporation of Compass does not so provide.
Under Texas law, the dissolution of a corporation requires the approval of
the holders of at least two-thirds of the total outstanding shares of the
corporation, and the holders of two-thirds of the outstanding shares of each
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class or series entitled to vote thereon as a class, unless a different amount,
not less than a majority, is specified in the Articles of Incorporation. Each
outstanding share of a Texas corporation is entitled to vote on dissolution. The
Articles of Incorporation, as amended, of Equitable do not provide for a
different number of shares for approval of dissolution or permit the shares of
any class or series to vote thereon. Delaware law requires that dissolution
must be approved by the holders of a majority of the corporation's stock
entitled to vote thereon, unless the Certificate of Incorporation requires the
vote of a larger portion of the outstanding stock. Compass' Certificate does
not provide for approval by more than a majority vote.
PREEMPTIVE RIGHTS
Under Texas law, shareholders possess preemptive rights as to the issuance
of additional or treasury securities by the corporation, unless the
corporation's Articles of Incorporation provide otherwise. Equitable's Articles
of Incorporation, as amended, deny preemptive rights and, therefore, Equitable's
shareholders do not have preemptive rights as to newly issued or 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 not surplus; provided, however, that if the
capital of the corporation has been decreased to an amount less than the
aggregate amount of the capital represented by the issued and outstanding stock
having a preference upon the distribution of assets, no dividends may be
declared out of net profits. A Texas corporation may make distributions only
out of surplus.
Holders of Compass Common Stock are entitled to receive dividends ratably
when, as and if declared by Compass' Board of Directors from assets legally
available therefor, after payment of all dividends on preferred stock, if any is
outstanding.
Equitable's Bylaws provide that, subject to provisions of law and the
provisions of Equitable's Articles of Incorporation, the Equitable Board of
Directors may declare and Equitable may pay dividends on its outstanding shares
in cash, property or its own stock. Equitable's Articles of Incorporation, as
amended, do not contain restrictions as to the ability of the Equitable 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 EQUITABLE--MARKET PRICE AND DIVIDENDS".
LIQUIDATION RIGHTS
Generally under Texas and Delaware law, shareholders are entitled to share
ratably in the distribution of assets upon the dissolution of their corporation.
Preferred shareholders typically do not participate in the distribution of
assets of a dissolved corporation beyond their established contractual
preferences. Once the rights of preferred shareholders have been fully
satisfied, common shareholders are entitled to the distribution of any remaining
assets.
Upon liquidation, dissolution or the winding up of the affairs of Compass,
holders of Compass Common stock are entitled to receive their pro rata portion
of the remaining assets of Compass after the holders of Compass preferred stock
have been paid in full any sums to which they may be entitled. Compass
Preferred Stock has a liquidation value of $100.00 per share, plus accrued and
unpaid dividends. Equitable has no preferred stock and, therefore, upon the
liquidation, dissolution or winding up of the affairs of Equitable, the
shareholders of Equitable are presently entitled to receive their pro rata
portion of the assets of Equitable available for distribution.
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LIMITATION OF LIABILITY AND INDEMNIFICATION
Both Texas and Delaware law permit a corporation to set limits on the
extent of a director's liability. Both Texas and Delaware law permit a
corporation to indemnify its officers, directors, employees and agents if such
person acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation. Indemnification is not
allowed under either Texas or Delaware law, absent a court order to the
contrary, if an officer, director, employee or agent of the corporation is
finally adjudged liable to the corporation.
Under Compass' Certificate and Equitable's Articles of Incorporation, as
amended, a director will not be liable to Compass or Equitable or their
respective shareholders, as the case may be, 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, and (v) with respect to the
directors of Equitable, any act or omission for which the liability of a
director is expressly provided for by statute. Compass' Certificate and
Equitable's Articles of incorporation, as amended, authorize indemnification of
officers, directors and others to the full extent permitted by Delaware law and
Texas law, respectively. SEE "AVAILABLE INFORMATION"; "INCORPORATION BY
REFERENCE OF CERTAIN DOCUMENTS"; AND "INDEMNIFICATION".
REMOVAL OF DIRECTORS
A Texas corporation may provide in its Articles of Incorporation or Bylaws,
and Equitable'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 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 corporation, is entitled to
examine a corporation's relevant books and records for any proper purpose.
Under Delaware law, any shareholder has such a right.
ANTITAKEOVER PROVISIONS
Delaware has enacted antitakeover legislation. Compass has opted out of
such provisions as provided thereby. Certain provisions of Compass' charter and
Bylaws limiting a takeover without the support of its Board of Directors are
described in "COMPARISON OF RIGHTS OF SHAREHOLDERS OF EQUITABLE 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 Equitable 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
Equitable. Nor is the identification of certain specific differences meant to
indicate that other differences do not exist. The foregoing summary is
qualified in its entirety by reference to the particular requirements of the
TBCA and the GCL, and the specific provisions of Compass' Certificate and
Bylaws, and Equitable's Articles of Incorporation, as amended, and Bylaws.
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RESALE OF COMPASS STOCK
The Compass Common Stock to be issued to holders of Equitable 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 Equitable within the meaning of Rule 145 under the Securities Act. The
directors and executive officers of Equitable, the beneficial owners of 10% or
more of Equitable Common Stock and certain of their related interests may be
deemed to be affiliates of Equitable. 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 Equitable 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
Equitable 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.
Pursuant to the Merger Agreement, holders of shares of Equitable
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 Equitable 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, 1994 and its
Quarterly Reports on Form 10-Q for its first quarter ended March 31, 1995, its
second quarter ended June 30, 1995 and its third quarter ended September 30,
1995, are incorporated herein by reference. SEE "AVAILABLE INFORMATION";
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE"; AND "RECENT DEVELOPMENTS."
INTERESTS OF CERTAIN PERSONS
No director or executive officer of Compass has any material direct or
indirect financial interest in Equitable or the Merger, except as a director,
executive officer or shareholder of Compass or its subsidiaries.
INFORMATION ABOUT EQUITABLE
SERVICES, EMPLOYEES AND PROPERTIES
The Bank is a state bank which began business in May of 1979 and is
supervised, regulated and examined by the Texas Department of Banking.
Equitable was established in August of 1984 under the BHC Act to acquire and own
all of the outstanding stock of the Bank. Since its formation in 1984,
Equitable has not engaged in any substantive activities other than those related
to the Bank.
The Bank provides a broad range of products and services to its
customers, most of whom are located in Dallas, Denton, Collin and Tarrant
Counties, Texas. These products and services include checking accounts,
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savings accounts, certificates of deposit, individual retirement accounts,
variable rate money market accounts and numerous loan programs. The Bank
operates three full service branches and offers bank-by-mail services as well as
wire transfers and traveler's and cashier's checks. The deposits of the Bank
are insured by the FDIC to the fullest extent permitted by law.
On November 30, 1995, Equitable and the Bank had 77 full-time
employees, of whom 27 were officers, as well as 12 part-time employees.
Equitable does not have any employees other than its officers. On November 30,
1995, Equitable had 11 directors, of whom 9 were compensated for their services,
and the Bank had 16 directors, of whom 11 were compensated for their services.
The Bank has its principal office in Dallas, Texas, and has a branch
in Fort Worth, Texas at 2016 West Rosedale, and branches in Arlington, Texas at
2205 North Collins and 701 Highlander Boulevard.
SEE "INFORMATION ABOUT EQUITABLE--MANAGEMENT AND PRINCIPAL
SHAREHOLDERS"; "INFORMATION ABOUT EQUITABLE--COMMITTEES AND MEETINGS OF THE
BOARD OF DIRECTORS"; AND "INFORMATION ABOUT EQUITABLE--EXECUTIVE COMPENSATION".
COMPETITION
The banking business is highly competitive. There are numerous other
banking facilities located within the Bank's primary service areas and such
banking facilities compete directly with the Bank with regard to the full range
of commercial banking services. To a certain extent, the Bank also competes for
deposits and loans with branches of savings and loan associations located in and
around the Bank's primary service areas and for loans with credit unions and
finance companies located in or near the Bank's primary service areas.
The Bank also faces competition from a wide variety of depository
institutions from other geographical areas which compete for deposits, loans and
bank-related services. As deregulation of depository institutions and financial
services continues, competition from nonbank financial intermediaries such as
savings and loan associations, credit unions, mortgage companies, insurance
companies and other financial institutions may be expected to intensify. The
Bank and similar institutions have also experienced significant competition for
deposits from money market mutual funds and other money center banks' offerings
of high yielding deposit accounts. Some of the institutions with which the Bank
competes have capital and resources much larger than those of the Bank, and some
are not subject to the same regulatory restrictions.
LEGAL PROCEEDINGS
In the normal course of their businesses, Equitable and the Bank from
time to time are involved in legal proceedings. Other than such proceedings
incidental to their businesses, Equitable's management is not aware of any
pending or threatened legal proceedings which, upon resolution, would have a
material adverse effect upon Equitable'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".
REGULATORY COMMITMENTS
Equitable is subject to a Letter of Commitment with the Federal
Reserve Bank-Dallas ("FRB-Dallas") pursuant to which Equitable committed not to
incur additional indebtedness which would cause its debt-to-equity ratio to
exceed thirty percent without the prior approval of FRB-Dallas.
-43-
<PAGE>
MARKET PRICE AND DIVIDENDS
There is no established trading market for Equitable Common Stock,
which is traded infrequently in private transactions about which Equitable's
management has little reliable information. As of January 19, 1996, there were
190 holders of Equitable Common Stock. Equitable has never declared or paid
dividends. SEE "MARKET PRICES"; "COMPARISON OF RIGHTS OF SHAREHOLDERS OF
EQUITABLE AND COMPASS DIVIDENDS"; INFORMATION ABOUT EQUITABLE--REGULATORY
COMMITMENTS"; AND "INFORMATION ABOUT EQUITABLE--MANAGEMENT AND PRINCIPAL
SHAREHOLDERS".
BENEFICIAL OWNERSHIP OF EQUITABLE COMMON STOCK BY EQUITABLE MANAGEMENT AND
PRINCIPAL SHAREHOLDERS
The following table shows as of January 19, 1996 the number of shares
of Equitable Common Stock, beneficially owned by each director and executive
officer of Equitable, each person known by Equitable to be the beneficial owner
of more than 5% of the outstanding shares of Equitable Common Stock, and
information for all Equitable directors and executive officers as a group. The
table also sets forth the name and address for each person known by Equitable to
be the beneficial owner of more than 5% of the outstanding shares of Equitable
Common Stock.
-44-
<PAGE>
<TABLE>
<CAPTION>
Number of
Names of Directors and Executive Shares of Stock Percent of Total
Officers and Names and Addresses of 5% Beneficially Outstanding
Shareholders Owned Shares
- --------------------------------------- --------------- ----------------
<S> <C> <C>
Anderson, Lee S., M.D. (1) 44,819 2.37%
Antle, Donald L. (2) 40,830 2.16%
Campbell, J. Vernon, The Estate of (3) 10,840 *
Carrel, Robert L.(4) 198,620 10.52%
Route 3 Box 96
Bonham, Texas 75418
Cramm, C. Tate (5) 300 *
Dodson, Derrell C.(6) 29,508 1.56%
Gibbs, Jay 500 *
Goodall, Mike 6,260 *
Grammer, G.W., D.D.S.(7) 46,610 2.46%
Gwin, Susan 10,372 *
Hawkins, Pat C. (8) 42,806 2.25%
Johnson, Clay, III(9) 92,378 4.89%
5220 Ravine
Dallas, Texas 75220
Lightner, James R. 234,560 12.43%
15851 Dallas Parkway, Suite 600
Dallas, Texas 75248
Mikula, Roberta (10) 3,000 *
Rainbolt, Ellen (11) 4,225 *
Rosenberry, William K. (12) 17,963 *
Sewell, Robert H. (13) 183,993 9.21%
17218 Preston Road, Third Floor
Dallas, Texas 75252
Spencer, Wayne (14) 10,000 *
Stuart, Sam 13,260 *
Walthall, David N. 454,283 24.07%
Heritage Media Corporation
13355 Noel Road, Suite 1500
Galleria One
Dallas, Texas 75240
Warrington, Mary Alice 200 *
All Equitable Directors
and Executive Officers
as a Group (22 persons) 1,445,327 70.52%
*Less than 1%
</TABLE>
-45-
<PAGE>
(1) Includes 44,819 shares of Equitable Common Stock owned jointly by Mary
Kathryn Anderson, Mr. Anderson's wife, and Mr. Anderson.
(2) Includes Debentures convertible into 7,500 shares of Equitable Common
Stock.
(3) Vernon Campbell, formerly the President of the South Arlington Branch,
passed away on October 7, 1995. Includes Options to acquire 5,000 shares of
Equitable Common Stock.
(4) Includes 66,226 shares of Equitable Common Stock owned by Allegreto, Ltd.,
a limited partnership, the general partner of which Dr. Carrel is
President.
(5) Owned jointly by Wendy K. Cramm, Mr. Cramm's wife, and Mr. Cramm.
(6) Includes 4,334 shares of Equitable Common Stock owned by Dodson Bateman and
Company and 9,080 shares of Equitable Common Stock owned by Rickenbacker
Dodson Profit Sharing Plan.
(7) Includes Debentures convertible into 10,000 shares of Equitable Common
Stock and 30,622 shares of Equitable Common Stock owned by The Bill
Grammer, D.D.S., Inc. Pension Plan.
(8) Includes Options to acquire and Debentures convertible into, 10,000 and
2,500 shares of Equitable Common Stock, respectively, 1,426 shares of
Equitable Common Stock owned by Cynthia L. Hawkins, Mr. Hawkins' wife, and
3,272 shares of Equitable Common Stock owned by Mr. Hawkins as guardian for
each of his four minor children (818 shares per child).
(9) Includes 13,159 shares of Equitable Common Stock owned by Anne S. Johnson,
Mr. Johnson's wife.
(10) Includes Options to acquire 3,000 shares of Equitable Common Stock.
(11) Includes Options to acquire 3,000 shares of Equitable Common Stock.
(12) Includes 17,963 shares of Equitable Common Stock owned by William K.
Rosenberry Partners, Ltd. over which Mr. Rosenberry has management powers.
(13) Includes 1,624 shares owned by Shoppe Finders. Mr. Sewell's wife, Luann,
owns a 50% partnership interest in Shoppe Finders. Also includes Options
to acquire 110,895 shares of Equitable Common Stock.
(14) Includes Options to acquire 10,000 shares of Equitable Common Stock.
The persons listed above will receive the same Merger Consideration
described in "THE MERGER--GENERAL" as the other Equitable shareholders for each
share of Equitable Common Stock held at the Effective Time.
The directors and officers of Equitable and the Bank control, with the
power to vote, an aggregate of 1,258,836 shares of Equitable Common Stock,
representing approximately 66.7% of the total shares of Equitable Common Stock
issued and outstanding. In addition, seven executive officers of the Bank (or
such officer's personal representative) own stock options exercisable for
141,895 shares of Equitable Common Stock, and 19 directors, executive officers
and/or other persons or entities own Debentures convertible into 79,000 shares
of Equitable Common Stock. It is not expected that the Options will be
exercised prior to the Meeting. SEE "INTRODUCTION"; "SUMMARY--SHAREHOLDER VOTES
REQUIRED"; AND "THE MERGER--GENERAL".
-46-
<PAGE>
Officers, directors and certain shareholders of Equitable and the Bank
owning 1,287,698 shares of Equitable Common Stock, comprising approximately
68.2% of the total shares of Equitable 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. THUS, BECAUSE SUCH OFFICERS AND DIRECTORS HAVE THE POWER TO
VOTE OVER TWO-THIRDS OF THE SHARES OF EQUITABLE 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 BY THE
EQUITABLE SHAREHOLDERS, SUBJECT TO THE TERMINATION RIGHTS CONTAINED IN THE
MERGER AGREEMENT.
CERTAIN TRANSACTIONS BETWEEN EQUITABLE AND ITS DIRECTORS
On June 6, 1985, the Equitable Board of Directors approved granting to
Doyle Lee, formerly a director of Equitable, the right to purchase the Bank's
GlenEagles Country Club membership at book value.
On December 20, 1994, Equitable's Board of Directors approved the
renewal of Mr. Sewell's Employment Contract dated February 1, 1988, which
included a provision for a special bonus of approximately $470,000 upon transfer
of control of Equitable, including a transfer of control as contemplated by the
Merger.
On October 12, 1995, Equitable's Board of Directors agreed, to the
extent it does not interfere with the pooling of interest accounting treatment,
to cause the Bank to grant options to purchase the Bank's Maverick and Ranger
season tickets to Mr. Sewell at a purchase price equal to their current book
value. In addition, on October 12, 1995, Equitable's Board of Directors agreed,
to the extent it does not interfere with the pooling of interest accounting
treatment, to cause the Bank to grant Mr. Sewell or his assigns a one-year
option from the Effective Time to purchase an unused portion of the 3-acre tract
of land occupied by the Fort Worth Branch of the Bank at a purchase price equal
to the real estate's fair market value at the time of exercise, which, although
difficult to estimate prospectively, is anticipated to be between $350,000 and
$700,000.
On October 12, 1995, Equitable's Board of Directors agreed, to the
extent it does not interfere with the pooling of interest accounting treatment,
to cause the Bank to grant Doyle Lee the option to purchase an automobile for a
purchase price equal to its book value.
On October 12, 1995, Equitable's Board of Directors agreed, to the
extent it does not interfere with the pooling of interest accounting treatment,
to cause the Bank to (i) transfer the Bank's Prestonwood Country Club membership
to Wayne Spencer and (ii) grant Jay Gibbs the option to purchase the Bank's
Rolling Hills Country Club membership for a purchase price equal to its book
value.
Robert H. Sewell and Compass Texas Management, Inc., an affiliate of
Compass, have entered into an employment agreement whereby Mr. Sewell will act
as Vice-Chairman of Compass Bank-Dallas for a period of three years. The
Employment Agreement becomes effective at the Effective Time. Mr. Sewell's
annual salary under the Employment Agreement will be $200,000, which is intended
to approximate the compensation he expected to receive under an existing
employment agreement with Equitable.
-47-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF EQUITABLE BANKSHARES, INC.
The following discussion provides certain information regarding the
financial condition and results of operations of Equitable. This discussion
should be read in conjunction with Equitable's Financial Statements and Notes to
Financial Statements presented elsewhere in this Proxy Statement/Prospectus.
SEE "INDEX TO EQUITABLE FINANCIAL STATEMENTS".
RESULTS OF OPERATIONS
GENERAL
The earnings of Equitable depend primarily on Equitable's net interest
income (i.e., the difference between the income earned on Equitable's loans and
investments and the interest paid on its deposits and other borrowed funds).
Among the factors affecting net interest income are the type, volume and quality
of the bank's assets, the type and volume of its deposits and other borrowed
funds, and the relative sensitivity of its interest-earning assets and its
interest-bearing liabilities to changes in market interest rates.
Equitable's income is also affected by fees it receives from other
banking services, by gains and losses on its investments, by its provisions for
loan losses and by the level of its operating expenses. All aspects of
Equitable's operations are affected by general market, economic and competitive
conditions.
Equitable reported net income of $1,283,000 for the nine months ended
September 30, 1995, a 15% increase from net income of $1,112,000 for the nine
months ended September 30, 1994. Equitable had net income of $1,438,000 for the
year ended December 31, 1994, $1,210,000 for the year ended December 31, 1993,
and $907,000 for the year ended December 31, 1992. Changes occurring in the
major components of the Equitable's income statement for such periods are
discussed below.
NET INTEREST INCOME
Net interest income is the primary source of income for Equitable and
represents the amount by which interest and fees generated by earning assets
exceed the cost of funds, primarily interest paid to Equitable's depositors on
interest bearing accounts. Net interest income was $6,224,000 for the nine
months ended September 30, 1995, a 21% increase over net interest income of
$5,123,000 for the nine months ended September 30, 1994. Average rates paid on
interest bearing funds increased from 2.85% as of September 30, 1994 to 3.73% as
of September 30, 1995. Average loans, net of unearned discount, of $88 million
for the nine months ended September 30, 1995 increased 19% over average loans of
$74 million for the similar 1994 period. Average deposits for the nine months
ended September 30, 1995 were $141 million, an increase of 3% over average
deposits of $137 million for the same period in 1994.
For the year ended December 31, 1994, net interest income increased
$842,000 or 14% over the year ended December 31, 1993. Net interest income
decreased $48,000 or 1% in 1993 over 1992 net interest income of $6,274,000.
The increase of $842,000 in 1994 was due primarily to significant improvements
in loan and investment volumes. The decrease of $48,000 in 1993 was due to a
decline in loan and investment yields.
-48-
<PAGE>
The following table sets forth for the periods indicated an analysis
of net interest income by each major category of interest-earning assets and
interest-bearing liabilities. The rates earned and paid on each major type of
asset and liability account are set forth beside the average level in the
account for the period, and the average yields on all interest-earning assets
and the average rate paid on all interest-bearing liabilities are also
summarized.
-49-
<PAGE>
<TABLE>
<CAPTION>
(Dollars in Thousands)
Nine Months Ended September 30,
1995 1994
---------------------------- ----------------------------
Interest Interest
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
--------- --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Loans (1) $ 87,795 $6,519 9.93% $ 73,803 $4,771 8.64%
Investment securities-taxable 53,461 2,314 5.79% 53,795 1,992 4.95%
Investment securities-nontaxable (2) 8,780 311 4.74% 8,105 282 4.66%
Interest earning deposits 2 - 8.01% - - -
Federal funds sold 3,393 150 5.91% 4,781 143 3.99%
-------- ------ ---- -------- ------ ----
Total interest earning assets/
interest income/average yield 153,431 9,294 8.10% 140,484 7,188 6.84%
Noninterest earning assets:
Cash and due from banks 13,225 12,684
Other assets 11,130 9,991
Allowance for loan losses (1,547) (1,428)
-------- --------
TOTAL $176,239 $161,731
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
NOW, money market and savings $ 58,970 $1,116 2.53% $ 59,522 $1,034 2.32%
Certificates of deposit 27,475 1,010 4.92% 22,827 576 3.37%
Other borrowings 23,605 944 5.35% 14,652 455 4.16%
-------- ------ ---- -------- ------ ----
Total interest bearing liabilities/
interest expense/rate 110,050 3,070 3.73% 97,001 2,065 2.85%
Noninterest bearing demand deposits 54,852 55,132
Other liabilities 1,131 923
Total liabilities 166,033 153,056
-------- --------
Stockholders' equity 10,206 8,675
-------- --------
TOTAL $176,239 $161,731
======== ========
------ ------
Net interest income $6,224 $5,123
====== ======
Net yield on interest-earnings assets
(annualized) 5.42% 4.88%
==== ====
</TABLE>
-50-
<PAGE>
<TABLE>
<CAPTION>
(Dollars in Thousands)
YEARS ENDED DECEMBER 31,
1994 1993 1992
--------------------------- -------------------------- --------------------------
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) $ 75,463 $6,647 8.81% $ 69,915 $6,028 8.62% $ 69,216 $6,631 9.58%
Investment securities-taxable 54,713 2,754 5.03% 42,282 2,261 5.35% 38,193 2,559 6.70%
Investment securities-nontaxable (2) 8,261 381 4.61% 4,870 229 4.71% 807 44 5.42%
Interest-bearing deposits - - - - - - - - -
Federal funds sold 3,899 159 4.06% 6,866 223 3.24% 6,707 229 3.42%
--------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest-earning
assets/interest income/
average yield 142,336 9,941 6.98% 123,933 8,741 7.05% 114,923 9,463 8.23%
Non-interest earning assets:
Cash and due from banks 12,410 12,191 10,799
Other assets 10,200 10,238 8,634
Allowance for possible loan losses (1,419) (1,369) (1,261)
-------- -------- --------
TOTAL $163,527 $144,993 $133,095
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing liabilities:
NOW, money market and savings $ 59,726 $1,405 2.35% $ 54,919 $1,290 2.35% $ 52,939 $1,593 3.01%
Certificates of deposit 22,844 807 3.53% 23,678 814 3.44% 27,505 1,243 4.52%
Other borrowings 15,514 661 4.26% 10,138 411 4.06% 6,079 353 5.80%
--------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest bearing
liabilities/interest
expense/ rate 98,084 2,873 2.93% 88,735 2,515 2.83% 86,523 3,189 3.69%
Noninterest bearing demand deposits 55,584 47,810 39,293
Other liabilities 987 851 761
-------- ------- -------
Total Liabilities 154,655 137,396 126,577
Stockholders' equity 8,872 7,597 6,518
-------- ------- -------
TOTAL $163,527 $144,993 $133,095
======== ------ ======== ------ ======== ------
Net interest income $7,068 $6,226 $6,274
====== ---- ====== ---- ====== ----
Net yield on interest earning assets 4.97% 5.02% 5.46%
==== ==== ====
</TABLE>
(1) Includes nonaccrual loans.
(2) Yields have not been computed on a tax-equivalent basis.
Changes in interest income and interest expense can result from
variances in both volume and rate. Equitable 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.
-51-
<PAGE>
The following table sets forth for the periods indicated a summary of
the changes in interest earned and interest paid resulting from changes in
volume and rate.
<TABLE>
<CAPTION>
(Dollars in Thousands)
Nine Months Ended Year Ended Year Ended
September 30, 1995 December 31, 1994 December 31, 1993
---------------------- ---------------------- ---------------------
Change Change Change
1995 Attributed to 1994 Attributed to 1993 Attributed to
to ---------------------- to ---------------------- to ----------------------
1994 Volume Rate Mix 1993 Volume Rate Mix 1992 Volume Rate Mix
Interest Income:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans $1,748 $ 905 $ 709 $134 $ 619 $ 478 $ 131 $ 10 ($604) $ 67 ($664) $ (7)
Investment securities -
taxable 322 (12) 336 (2) 493 665 (133) (39) (297) 274 (516) (55)
Investment securities -
nontaxable 29 24 5 - 152 160 (5) (3) 186 220 (6) (28)
Fed funds sold - - - - - - - - - - - -
Time deposits in other
banks 7 (41) 68 (20) (64) (96) 57 (25) (7) 5 (12) -
------ ----- ------ ---- ------ ------ ----- ---- ----- ----- ------ ----
Increase (decrease) in
interest income $2,106 $ 876 $1,118 $112 $1,200 $1,207 $ 50 $(57) ($722) $ 566 ($1,198) ($90)
Interest expense:
Savings and transaction
accounts $ 82 ($10) $ 93 ($1) $ 115 $ 113 $ 2 - ($303) $ 60 ($350) ($13)
Time deposits 434 117 263 54 (7) (28) 22 (1) (429) (173) (297) 41
Other borrowings 489 278 131 80 250 219 20 11 58 235 (106) (71)
------ ----- ------ ---- ------ ------ ----- ---- ----- ----- ------ ----
Increase (decrease) in
interest expense $1,005 $ 385 $ 487 $133 $ 358 $ 304 $ 44 $ 10 ($674) $ 122 ($753) ($43)
</TABLE>
-52-
<PAGE>
PROVISION FOR LOAN LOSSES
Equitable'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.
Equitable's provision for loan losses was $468,000 for the nine months
ended September 30, 1995, as compared with $63,000 for the same period in 1994.
This increase of $405,000 was primarily due to higher loan losses. Management
determines the amount of the provision for loan losses after considering various
factors, including current and historic levels of net loan losses, changes in
the size and character of the loan portfolio, the existing level of the
allowance, and economic conditions. The allowance for loan losses expressed as a
percentage of outstanding loans net of unearned interest was 1.78% as of both
September 30, 1995 and September 30, 1994.
Equitable's provision for loan losses was $184,000 for the year ended
December 31, 1994, which was $8,000 less than the provision of $192,000 for the
same period in 1993. Equitable's provision for loan losses was $357,000 for the
year ended December 31, 1992. The decrease in provision for loan losses from
1992 to 1993 was primarily the result of improvement in the credit quality of
Equitable's loan portfolio. The allowance for possible loan losses expressed as
a percentage of outstanding loans net of unearned interest was 1.77%, 1.99% and
1.89% as of December 31, 1994, 1993 and 1992, respectively.
NONINTEREST INCOME
Noninterest income, which includes, among other items, service charges
and fees, increased 14% from $2,017,000 for the nine months ended September 30,
1994 to $2,308,000 for the nine months ended September 30, 1995. During this
period, service charge income increased $102,000, gains on SBA loan sales
increased $45,000, and the bank was reimbursed $133,000 by Financial
Supermarkets, Inc. for first year losses in excess of those projected for the
Addison branch.
Noninterest income increased 2% from $2,800,000 to $2,862,000 for the year ended
December 31, 1994, compared to the same period in 1993. This change was
primarily attributable to increases in service charge income and gains on sales
of other real estate owned.
Noninterest income increased 14% for the year ended December 31, 1993,
compared to the year ended December 31, 1992. During 1992 Equitable had a non-
recurring gain on the sale of credit card receivables of $58,000. Service charge
income increased $298,000 due to repricing and improved collection procedures.
Significant increases in other forms of income were mortgage origination fees,
annuity sales income, safe-deposit box rentals and letter of credit fees which
increased $42,000, $43,000, $39,000 and $26,000 respectively.
NONINTEREST EXPENSE
Noninterest expense include expenses which Equitable incurs in the
course of day-to-day operations such as employee compensation and benefits,
occupancy expense, data processing charges, communication expense, professional
fees, advertising and supplies and depreciation and amortization of furniture
and equipment. These expenses increased 13% from $5,485,000 for the nine months
ended September 30, 1994 to $6,211,000 for the nine months ended September 30,
1995. Net noninterest expense as a percentage of average assets for the nine
months ended September 30, 1995 was 2.96% annualized. For the same period of
1994, this ratio was 2.87%. The increase of $435,000 in net expenses was
primarily due to increases in personnel and occupancy costs.
Noninterest expense for the year 1994 increased $458,000 or 6% to
$7,696,000 from $7,238,000 for the year 1993. This increase was primarily a
result of increased personnel and occupancy costs.
-53-
<PAGE>
Noninterest expense for the year 1993 increased by $120,000 or 2% over
1992 noninterest expense. Salaries and employee benefits increased $294,000 and
occupancy of bank premises decreased $30,000, while funiture and equipment, data
processing, and other noninterest expenses declined $144,000 on a combined
basis.
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 quality
and level of earnings, investment or loan portfolio concentrations, the quality
of loans and investments, the effectiveness of loan and investment policies, and
management's ability to monitor and control financial and operating risks.
The Bank is a FDIC regulated state-chartered bank and as such its
qualifying total capital consists of two types of capital components: "core
capital elements" (comprising Tier 1 capital) and "supplementary capital
elements" (comprising Tier 2 capital). Certain assets are deducted from a
financial institution's capital for the purpose of calculating the risk-based
capital ratio.
Assets and credit equivalent amounts of off-balance sheet items are
assigned to one of four risk categories, according to certain criteria. The
aggregate dollar value of the amount in each category is then multiplied by the
risk weight associated with that category. The resulting weighted values from
each of the risk categories are added together, and this sum is the financial
institution's total risk weighted assets that comprise the denominator of the
risk-based capital ratio. Assets deducted from a bank's capital in determining
the numerator of the risk-based capital ratio are not included as part of the
financial institution's risk weighted assets.
Risk weights for off-balance sheet items are determined by a two-step
process. First, the "credit equivalent amount" of off-balance sheet items is
determined, in most cases by multiplying the off-balance sheet items by a credit
conversion factor. Second, in most cases, the credit equivalent amount is
assigned to the appropriate risk category according to designated criteria.
FDIC regulated state-chartered banks are required to maintain a minimum
risk-based capital ratio of total capital (after deductions) to risk weighted
assets of 8%. In general, 50% of this ratio must consist of Tier 1 capital.
Certain restrictions and limitations also apply regarding all calculation of
Tier 1 capital. Tier 2 capital elements that are not used as part of Tier 1
capital generally will qualify for inclusion in a financial institution's
capital base up to a maximum of 100% of the financial institution's Tier 1
capital. As of September 30, 1995, the Bank's Tier 1 risk-based capital ratio
was 12.0% and the total risk-based capital ratio was 13.2%.
-54-
<PAGE>
In addition, the FDIC and the Texas Banking Department have promulgated
capital leverage guidelines designed to supplement the risk-based capital
guidelines. The principal objective of the leverage ratio is to address the
extent to which a financial institution could leverage its equity capital base.
The FDIC requires its regulated state banks to meet a minimum leverage capital
requirement of Tier 1 capital to total assets of not less than 3% for a bank
that is not anticipating or experiencing significant growth and is highly rated
(i.e., a composite rating of 1 on a scale of 1 to 5). Banks that the FDIC
determines are anticipating or experiencing significant growth or that are not
highly rated must meet a minimum leverage ratio of 3% plus an additional cushion
of at least 100 to 200 basis points. The Texas Banking Department's capital
guidelines call for a minimum equity capital to total asset ratio of 6%.
Equitable's leverage ratio was 6.27% as of both September 30, 1995 and
December 31, 1994.
LIQUIDITY
Equitable'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. Equitable accomplishes
this through management of the maturities of its interest-earning assets and
interest-bearing liabilities. Liquidity is monitored daily and overall interest
rate risk is assessed through reports showing both sensitivity ratios and
existing dollar "gap" data. Equitable believes its present position to be
adequate to meet its current and future liquidity needs.
The liquidity of Equitable 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, Equitable's management monitors liquidity requirements as warranted
by interest rate trends, changes in the economy and the scheduled maturity and
interest rate sensitivity of the investment and loan portfolios and deposits. In
addition to the liquidity provided by the foregoing, Equitable has excellent
correspondent relationships with other institutions for the purpose of
purchasing overnight funds should additional liquidity be needed.
In 1994, Equitable established an available-for-sale securities
portfolio in accordance with Banking Circular 228. Securities in this portfolio
are used to meet the asset/liability needs of Equitable, manage Equitable's
interest rate and tax positions and other similar needs. At September 30, 1995
Equitable's available-for-sale portfolio account equalled $9,425,000.
Average noninterest bearing demand deposits were $54,852,000 for the
nine months ended September 30, 1995, a decline of $281,000 over the average
balance for the nine months ended September 30, 1994. Average interest bearing
deposits for the nine months were $86,445,000 in 1995 and $82,349,000 in 1994.
Average noninterest bearing demand deposits were $55,584,000,
$47,810,000 and $39,293,000 in 1994, 1993 and 1992, respectively. Average
interest bearing deposits for such years were $82,570,000, $78,596,000 and
$80,444,000, respectively.
Net cash generated by operating activities was $2,743,000, $2,349,000
and $1,841,000 in 1994, 1993, and 1992, respectively. Proceeds from sales,
principal paydowns, and maturities of investment securities were $24,435,000,
$16,473,000 and $17,185,000 in the same periods. Equitable utilized these funds
to originate loans and purchase investment securities. Loans originated, net of
principal collected, were $11,669,000, $6,567,000 and ($4,525,000) in 1994,
1993, and 1992, respectively. Equitable purchased investment securities of
$33,986,000 in 1994, $24,584,000 in 1993, and $32,395,000 in 1992.
Equitable's deposit customer base consists primarily of individuals and
businesses within its market areas. On September 30, 1995, noninterest bearing
deposits were $62,811,000, deposits in savings and transaction-related accounts
were $60,102,000 and time deposits were $32,054,000.
-55-
<PAGE>
INTEREST RATE SENSITIVITY
Interest rate sensitivity refers to the relationship between market
interest rates and net interest income resulting from the repricing of certain
assets and liabilities. Interest rate risk arises when an earning asset matures
or when its rate of interest changes in a time frame different from that of the
supporting interest-bearing liability. One way to reduce the risk of significant
adverse effects on net interest income of market rate fluctuations is to
minimize the difference between rate sensitive assets and liabilities, referred
to as "gap", by maintaining an interest rate sensitivity position within a
particular time frame.
Maintaining an equilibrium between rate sensitive assets and liabilities
will reduce some of the risk associated with adverse changes in market rates,
but it will not guarantee a stable net interest spread because yields and rates
may change simultaneously and by different amounts. These changes in market
spreads could materially affect the overall net interest spread even if assets
and liabilities were perfectly matched. If more assets than liabilities reprice
within a given period, an asset sensitive position or "positive gap" is created.
During a positive gap, a decline in market rates will have a negative impact on
net interest income. Alternatively, where more liabilities than assets reprice
in a given period, a liability sensitive position or "negative gap" is created
(rate sensitivity ratio is less than 100%) and a decline in interest rates will
have a positive impact on net interest income.
-56-
<PAGE>
The following table shows interest sensitivity gaps for these different
intervals as of September 30, 1995.
ESTIMATED PERIOD OF POTENTIAL REPRICING
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
One Day to Over Over
Three Three to Six Six to One Over One
Floating Months Months Year Year Total
--------- ----------- ------------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
INTEREST SENSITIVE ASSETS ("ISA")
Loans
Commercial & Real Estate $42,036 $ 6,636 $ 5,052 $ 4,924 $27,028 $ 85,676
Installment - Gross - 1,099 1,055 1,098 2,099 5,351
Investment Securities (Fixed Rate) - 4,035 8,828 2,996 31,517 47,376
Investment Securities (Floating Rate) - 9,639 741 2,076 - 12,456
Fed Funds Sold 13,410 - - - - 13,410
Time Deposits in Banks 1 - - - - 1
------- --------- -------- -------- ------- --------
TOTAL INTEREST SENSITIVE ASSETS $55,447 $ 21,409 $ 15,676 $ 11,094 $60,644 $164,270
INTEREST SENSITIVE LIABILITIES ("ISL")
Interest Bearing Deposits
Savings Accounts - $ 43,504 - - - $ 43,504
Money Market Checking - 16,598 - - - 16,598
Certificates of Deposit - 10,583 $ 5,962 $ 10,496 $ 5,013 32,054
------- --------- -------- -------- ------- --------
TOTAL DEPOSITS - 70,685 $ 5,962 10,496 5,013 92,156
OTHER BORROWED FUNDS 22,705 - - - - 22,705
------- --------- -------- -------- ------- --------
TOTAL INTEREST SENSITIVE LIABILITIES 22,705 70,685 5,962 10,496 5,013 114,861
------- --------- -------- -------- ------- --------
PERIODIC GAP $32,742 $ (49,276) $ 9,714 $ 598 $55,631 $ 49,409
======= ========= ======== ======== ======= ========
CUMULATIVE GAP $32,742 ($16,534) ($6,820) ($6,222) $49,409
======= ========= ======== ======== =======
PERIODIC GAP TO TOTAL EARNINGS ASSETS 19.93% (30.00%) 5.91% 0.36% 33.87%
</TABLE>
Varying interest rate environments can create unexpected changes in
prepayment levels of assets and liabilities which are not reflected in the
interest sensitivity analysis. These prepayments may have significant effects on
Equitable's net interest margin. Because of these factors, an interest
sensitivity gap report may not provide a complete assessment of Equitable's
exposure to changes in interest rates.
-57-
<PAGE>
INVESTMENT SECURITIES
Set forth is a distribution of Equitable's investment securities by
contractual maturity dates at September 30, 1995 (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 held to
maturity: (1)
U.S. Treasury $13,356 4.51% - - - - - - $13,356
Government Agency - - $ 5,755 7.00% $1,000 5.69% $ 1,000 7.43% 7,755
Mortgage-backed 112 8.05% 8,091 6.42% 2,608 6.53% 9,703 6.31% 20,514
State and political 177 4.21% 3,535 4.44% 4,830 4.77% 196 5.10% 8,738
subdivisions
Other bonds - - - - - - 45 7.00% 45
------- ----- ------- ----- ------ ----- ------- ---- -------
Total Securities
held to maturity $13,645 4.54% $17,381 6.21% $8,438 5.42% $10,943 6.39% $50,408
======= ===== ======= ===== ====== ===== ======= ==== =======
Securities available for
sale: (1)
U.S. Treasury - - - - - - - - -
Government Agency - - $ 4,010 4.85% - - $ 1,997 7.00% $ 6,007
Mortgage-backed - - 2,861 7.20% - - - - 2,861
Other investments - - - - - - 557 6.58% 557
------- ----- ------- ----- ------ ----- ------- ---- -------
Total Securities
available for sale - - $ 6,871 5.83% - - $ 2,554 6.91% $ 9,425
======= ===== ======= ===== ====== ===== ======= ==== =======
</TABLE>
- ---------------
(1) Yields are not presented on a tax-equivalent basis.
-58-
<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
September 30, 1995 As of December 31
------------------- ---------------------------------------
1994 1993
------------------- ------------------
Amount Rate Amount Rate Amount Rate
--------- --------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Demand $ 54,852 - $ 55,584 - $ 47,810 -
NOW accounts 16,262 1.96% 17,126 1.86% 15,479 1.92%
Money market 33,206 2.84% 33,110 2.59% 30,509 2.52%
Savings 9,502 2.40% 9,490 2.41% 8,931 2.51%
Time 27,475 4.92% 22,845 3.53% 23,677 3.44%
-------- ---- -------- ---- -------- ----
TOTAL $141,297 2.01% $138,155 1.60% $126,406 1.66%
======== ==== ======== ==== ======== ====
</TABLE>
The scheduled maturities of certificates of deposit in denominations of
$100,000 or more at September 30, 1995 and December 31, 1994, including public
funds, are shown below:
<TABLE>
<CAPTION>
(Dollars in Thousands)
September 30, 1995 December 31, 1994
------------------ -----------------
<S> <C> <C>
Due in three months or less $ 4,417 $ 4,194
Due in over three to six
months 2,310 3,571
Due in over six to twelve
months 5,817 2,146
Due in over twelve months 1,251 203
------- -------
Totals $13,795 $10,114
======= =======
</TABLE>
-59-
<PAGE>
LOANS
The following table classifies Equitable's loans according to type as of
the dates shown:
<TABLE>
<CAPTION>
(Dollars in Thousands)
---------------------------------
September 30, December 31,
------------- -----------------
1995 1994 1993
------------- ------- -------
<S> <C> <C> <C>
Commercial $33,713 $31,892 $23,008
Real estate-construction 10,992 7,623 8,627
Real estate-mortgage 40,747 37,339 28,812
Installment 5,918 7,141 11,210
Other 224 384 1,678
---------- ------- -------
Total $91,594 84,379 73,335
Unearned income (568) (588) (990)
Allowance for possible loan losses (1,624) (1,483) (1,458)
---------- ------- -------
Total $89,402 $82,308 $70,887
========== ======= =======
</TABLE>
Total loans net of unearned income and allowance for possible loan losses
increased 16% in 1994 from 1993 levels. At September 30, 1995, total loans
exceeded year-end 1994 levels by 9%.
Of fixed rate loans aggregating $48,991,000 as of September 30, 1995, loans
totalling $19,864,000 mature within one year, while loans totalling $24,646,000
mature within one to five years. Floating rate loans as of September 30, 1995
totalled $42,036,000. Commercial and real estate loans with a fixed rate and
maturing within one year at September 30, 1995 totalled $16,612,000 while those
with a fixed rate and maturing within one to five years totalled $21,980,000.
Of fixed rate loans aggregating $47,828,000 as of December 31, 1994, loans
totalling $21,466,000 matured within one year, while loans totalling $26,362,000
matured within one to five years. Floating rate loans as of December 31, 1994
totalled $36,551,000. Commercial and real estate loans with a fixed rate and
maturing within one year at December 31, 1994 totalled $16,920,000 while those
with a fixed rate and maturing within one to five years totalled $23,827,000.
ALLOWANCE FOR LOAN LOSSES AND RISK ELEMENTS
The provision for loan losses represents a determination by Equitable'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 Equitable's policy to provide for exposure to losses of
specifically identified credits, and, while it is also Equitable's policy to
charge off in the current period those loans in which a loss is deemed to exist,
risks of future losses also exist which cannot be quantified precisely or
attributed to particular loans or classes of loans.
In assessing the adequacy of its allowance for loan losses, management
relies predominantly on its ongoing review of the loan portfolio, which is
undertaken both to ascertain whether there are probable losses which must be
charged off and to assess the risk characteristics of individually significant
loans and of the portfolio in the aggregate. This review takes into
consideration the judgments of the responsible lending officers, the loan review
-60-
<PAGE>
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
Equitable.
In evaluating the allowance for loan losses, management also considers
Equitable's loan loss experience, the amount of past due and non-performing
loans, current and anticipated economic conditions and other appropriate
information. The allowance for loan losses also reflects an analysis of the
risks associated with each class of loans.
The allowance for loan losses at September 30, 1995 was $1,624,000 compared
to $1,483,000 at December 31, 1994, and $1,458,000 at December 31, 1993. The
large increase in commercial loan charge-offs in 1995 is primarily due to one
loan in the amount of $210,000 for which recovery is unlikely. In addition, a
real estate mortgage loan written down by $108,000 to appraised value in 1995
contributed to the large increase in this category of charge-offs. Forelcosure
is likely regarding this property. For more information in connection with the
allowance for loan losses and the provision for loan losses, see Note 5 of the
Notes to Financial Statements. Although additional losses may occur, management
believes the allowance for loan losses to be adequate as of the dates presented
and at present.
<TABLE>
<CAPTION>
(Dollars in Thousands)
As of and
for the nine As of and for the years
months ended ended
Transaction in allowance for possible loan losses September 30, December 31,
- --------------------------------------------------------- ------------- -----------------------
1995 1994 1993
------------- -------- ---------
<S> <C> <C> <C>
Balance at Beginning of period $1,483 $1,458 $1,258
Charge-offs
- -----------
Commercial 239 11 49
Real estate-construction - 5 -
Real estate-mortgage 126 55 59
Installment loans 11 78 5
Credit card and related plan - - 18
Overdrafts 23 49 -
------ ------ ------
Total charge-offs 399 198 131
Recoveries
- ----------
Commercial 13 19 53
Real estate-construction - - -
Real estate-mortgage 4 6 68
Installment loans 42 8 11
Credit card and related plan 1 3 7
Overdrafts 12 3 -
------ ------ ------
Total recoveries 72 39 139
------ ------ ------
Net charge-offs (recoveries) 327 159 (8)
Provision charged to expense 468 184 192
------ ------ ------
Balance at end of period $1,624 $1,483 $1,458
====== ====== ======
Net charge-offs (recoveries) as a percentage of
average loans (annualized for 1995) 0.50% 0.21% (0.01)%
</TABLE>
-61-
<PAGE>
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
The following is an analysis of non-performing assets as of the dates
shown:
<TABLE>
<CAPTION>
(Dollars in Thousands)
---------------------------------
September 30, December 31,
------------- -----------------
1995 1994 1993
------------- ------- -------
<S> <C> <C> <C>
Loans accounted for on a nonaccrual basis $ 761 $ 420 $ 157
Accruing loans which are contractually past
due 90 days or more as to principal or
interest payments 48 600 33
Troubled debt restructuring - - -
------ ------ ------
Total $ 809 $1,020 $ 190
====== ====== ======
Forgone interest on nonaccrual loans $ 45 $ 24 $ 3
====== ====== ======
</TABLE>
The accrual of interest on a loan is discontinued when, in the opinion of
management (based upon such criteria as default in payment, asset deterioration,
decline in cash flow, recurring operating loss, declining sales, bankruptcy and
other financial conditions which could result in default), the borrower's
financial condition is such that the collection of interest is doubtful. As of
September 30, 1995, loans totalling $761,000, or 1% of total net loans
outstanding, were on a non-accrual basis and, therefore, no income was being
recognized. Management believes the risks in these loans to be significant as
there may be some portion of the principal which will become uncollectible.
Placing a loan on non-accrual status has a two-fold impact on net interest
income. First, it causes an immediate charge against earnings for the interest
which had been accrued but not yet collected on the loan. Second, it eliminates
future interest earnings with respect to that particular loan from the bank's
revenues. Interest on such loans is not recognized until all of the principal
is collected or until the loan is returned to a performing status.
Non-accrual loans increased by $341,000 from $420,000 at December 31, 1994,
to $761,000 at September 30, 1995. Of the $761,000 at September 30, 1995,
$434,000 related to two loans which were not classified as nonaccrual at
December 31, 1994. One loan in the amount of $310,000 is secured by real estate
and is currently under contract to sell. The bank anticipates no additional loss
with respect to this loan. The other loan in the amount of $124,000 was paid off
subsequent to September 30, 1995.
The anticipated amounts of charge-offs by category during the next full
year of operations are as follows:
Commercial $125
Real estate-mortgage 100
Installment 35
Overdrafts 40
----
$300
====
-62-
<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 nine months For the years
ended September 30, ended
December 31,
------------------- ------------------
1995 1994 1993
------------------- ------------------
<S> <C> <C> <C>
Return on Average Assets * 0.97% 0.88% 0.83%
Return on Average Equity * 16.80% 16.20% 15.93%
Average Equity to Average Assets Ratio 5.79% 5.43% 5.24%
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, 1995. KPMG Peat Marwick
LLP has served as Compass' independent auditors continuously since 1971.
Fisk & Robinson served as Equitable's independent auditors for the fiscal
year ending December 31, 1994. KPMG Peat Marwick LLP served as Equitable's
independent auditors for the fiscal years ended December 31, 1992 and 1993. On
September 20, 1994, KPMG Peat Marwick LLP was dismissed as Equitable's auditor
due solely to Equitable's belief that Fisk & Robinson could provide comparable
services on a more economical basis. Neither the audit reports of (i) KPMG Peat
Marwick LLP on Equitable's consolidated financial statements as of and for the
years ended December 31, 1993 and 1992 nor (ii) Fisk & Robinson on Equitable's
consolidated financial statements as of and for the year ended December 31,
1994, contained any adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope or accounting principles.
Equitable's decision to change auditors was approved by its Board of Directors.
In connection with the audits of the two fiscal years ended December 31, 1993,
and the subsequent interim period through September 20, 1994, there were no
disagreements with KPMG Peat Marwick LLP on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedures. In
connection with the audits of the two fiscal years ended December 31, 1993, and
the subsequent interim period through September 20, 1994, KPMG Peat Marwick LLP
did not advise Equitable (i) that Equitable's internal controls necessary for
development of reliable financial statements did not exist, (ii) that it could
not rely on Equitable's management's representations or (iii) that it was
unwilling to be associated with the financial statements prepared by Equitable's
management. In connection with the audits of the two fiscal yeas ended December
31, 1993, and the subsequent interim period through September 20, 1994, KPMG
Peat Marwick LLP did not advise Equitable that: (1) it believed it was either
necessary or advisable to expand significantly the scope of its audit, or that
information had come to KPMG Peat Marwick LLP's attention that if further
investigated may (a) materially impact the fairness or reliability of either; a
previously-issued audit report or the underlying financial statements, or the
financial statements issued or to be issued covering the date of the financial
statements covered by any audit report (including information that may prevent
KPMG Peat Marwick LLP from rendering an
-63-
<PAGE>
unqualified audit report on those financial statements), or (b) cause KPMG Peat
Marwick LLP to be unwilling to rely on Equitable's management's representations
or to be associated with Equitable's financial statements or (2) due to its
dismissal, it did not so expand the scope of its audit or conduct such further
investigation.
In connection with the audits of the two fiscal years ended December 31,
1993, and the subsequent interim period through September 20, 1994, KPMG Peat
Marwick LLP did not advise Equitable that: (1) information had come to KPMG Peat
Marwick LLP's attention that it had concluded materially impacted the fairness
or reliability of either (a) a previously-issued audit report or the underlying
financial statements, or (b) the financial statements issued or to be issused
covering the fiscal period(s) subsequent to the date of the most recent
financial statements covered by an audit report (including infomration that,
unless resolved to KPMG Peat Marwick LLP's satisfaction, would prevent it from
rendering an unqualified audit report on those financial statements), or (2) due
to its dismissal, any issue had not been resolved to its satisfaction prior to
such dismissal.
Compass and Equitable have been advised by KPMG Peat Marwick LLP and Fisk
Robinson that neither KPMG Peat Marwick LLP nor Fisk Robinson has any direct
financial interest or any material indirect financial interest in Compass,
Equitable or the Bank other than arising from that firm's employment as auditor
for Compass or Equitable.
It is expected that representatives of Fisk Robinson will be present at the
Meeting and will be available to respond to appropriate questions of
shareholders and to make a statement if they desire.
EXPERTS
The consolidated financial statements of Compass as of December 31, 1994
and 1993 and for each of the years in the three-year period ended December 31,
1994 have been incorporated herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing. The report of KPMG Peat Marwick LLP
covering the December 31, 1994 and 1993 consolidated financial statements refers
to changes in the methods of accounting for income taxes and certain investment
securities.
The consolidated financial statements of Equitable as of December 31, 1994
and for the one-year period ended December 31, 1994, included in this
Registration Statement have been included herein and in the Registration
Statement in reliance upon the report of Fisk Robinson, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
The consolidated financial statements of Equitable as of December 31, 1993,
and for each of the years in the two-year period ended December 31, 1993, have
been included herein and in the Registration Statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing. The report of KPMG Peat Marwick LLP covering the
December 31, 1993 consolidated financial statements refers to a change in
accounting for income taxes.
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. Smith,
Underwood & Perkins,
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<PAGE>
a Professional Corporation, and Liddell, Sapp are also expected to render legal
opinions as to certain matters acceptable to Equitable and Compass,
respectively.
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 EQUITABLE AND COMPASS--CERTAIN DIFFERENCES BETWEEN THE
CORPORATION LAWS OF TEXAS AND DELAWARE AND CORRESPONDING CHARTER AND BY-LAW
PROVISIONS--LIMITATION OF LIABILITY AND INDEMNIFICATION".
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Compass, Compass
has been informed that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
OTHER MATTERS
Equitable'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 Equitable's Board
of Directors unless "Authority Withheld" is indicated in the appropriate box on
the proxy. SEE "INTRODUCTION".
-65-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
OF
EQUITABLE BANKSHARES, INC.
AND SUBSIDIARY
- -------------------------------------------------------------------------------
Page
----
1. Auditors' Reports regarding the December 31, 1994 and 1993
Consolidated Financial Statements F-3
2. Consolidated Balance Sheet as of December 31, 1994 and 1993 F-5
3. Consolidated Statement of Income for the three years ended
December 31, 1994 F-6
4. Consolidated Statement of Changes in Stockholders' Equity for the
three years ended December 31, 1994 F-7
5. Consolidated Statements of Cash Flows for the three years ended
December 31, 1994 F-8
6. Notes to Consolidated Financial Statements F-10
7. Balance Sheets as of September 30, 1995
and 1994 (Unaudited) F-32
8. Statements of Income for the Nine Months Ended
September 30, 1995 and 1994 (Unaudited) F-33
9. Statements of Cash Flows for the Nine Months Ended
September 30, 1995 and 1994 (Unaudited) F-34
10. Notes to Unaudited Financial Statements F-36
F-1
<PAGE>
EQUITABLE BANKSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1993 AND 1992
(WITH INDEPENDENT AUDITORS' REPORTS THEREON)
F-2
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors
Equitable BankShares, Inc.
We have audited the accompanying consolidated balance sheet of Equitable
BankShares, Inc. and Subsidiary as of December 31, 1994, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Equitable BankShares, Inc. and Subsidiary as of December 31, 1994, the results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
As discussed in note 1 to the consolidated financial statements, the Company
adopted the provisions of the Financial Accounting Standards Board's Statement
of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities", effective January 1, 1994.
Fisk & Robinson, P.C.
March 9, 1995
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Equitable BankShares, Inc.:
We have audited the accompanying consolidated balance sheet of Equitable
BankShares, Inc. and subsidiary as of December 31, 1993, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the years in the two-year period ended December 31, 1993. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
examining on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Equitable
BankShares, Inc. and subsidiary as of December 31, 1993, and the results of
their operations and their cash flows for each of the years in the two-year
period ended December 31, 1993, in conformity with generally accepted accounting
principles.
As discussed in notes 1 and 12 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in 1993 to adopt the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes.''
KPMG Peat Marwick LLP
Dallas, Texas
February 11, 1994
H1995A\17948-1
F-4
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
Consolidated Balance Sheet
December 31, 1994 and 1993
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
1994 1993
--------- --------
<S> <C> <C>
ASSETS
- ------
Cash and due from banks $ 14,939 $ 12,699
Federal funds sold - 8,165
-------- --------
Total cash and cash equivalents 14,939 20,864
-------- --------
Investment securities:
Available for sale (at market value) 6,433 -
Held to maturity (market values of $57,003
and $56,918, respectively) 59,488 56,852
Loans, net 82,308 70,887
Bank premises and equipment, net 6,098 5,119
Accrued interest receivable 1,249 1,090
Other real estate owned, net 409 862
Other assets 2,890 2,657
-------- --------
Total assets $173,814 $158,331
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits:
Noninterest bearing $ 60,753 $ 57,640
Interest bearing 81,924 80,374
-------- --------
Total deposits 142,677 138,014
Federal funds purchased 5,065 -
Securities sold under agreements to repurchase 10,930 6,495
Demand note to U.S. treasury 2,000 2,000
Note payable 1,625 2,250
Subordinated convertible debentures 790 790
Other liabilities 1,037 614
-------- --------
Total liabilities 164,124 150,163
-------- --------
Commitments and contingencies - -
Stockholders' equity:
Common stock; $.10 par value; 4,000,000 shares
authorized; 1,740,628 and 1,724,586 shares
issued and outstanding at December 31, 1994
and 1993, respectively 174 173
Paid-in capital 6,623 6,496
Retained earnings 2,937 1,499
Net unrealized loss on available for sale
securities, net of tax of $22 in 1994 ( 44) -
-------- --------
Total stockholders' equity 9,690 8,168
-------- --------
Total liabilities and stockholders' equity $173,814 $158,331
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
Consolidated Statement of Income
For the Three Years Ended December 31, 1994
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
1994 1993 1992
-------- ------- -------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $6,647 $6,028 $6,631
Federal funds sold 159 223 229
Interest and dividends on investment securities:
Taxable 2,754 2,261 2,559
Nontaxable 381 229 44
------ ------ ------
Total interest income 9,941 8,741 9,463
------ ------ ------
Interest expense:
Deposit accounts, including interest expense
on certificates of deposit of $100,000 and
over of $320, $244, and $355 in 1994, 1993
and 1992, respectively 2,212 2,104 2,836
Short term borrowings 447 167 59
Long term borrowings 214 244 294
------ ------ ------
Total interest expense 2,873 2,515 3,189
------ ------ ------
Net interest income 7,068 6,226 6,274
Provision for possible loan losses 184 192 357
------ ------ ------
Net interest income after provision for
possible loan losses 6,884 6,034 5,917
------ ------ ------
Noninterest income:
Service charges on deposit accounts 2,132 2,091 1,793
(Loss) gain on sales of investment securities ( 2) 3 187
Gain on sale of other real estate owned 32 - -
Other 700 706 470
------ ------ ------
Total noninterest income 2,862 2,800 2,450
------ ------ ------
Noninterest expense:
Salaries and employee benefits 3,725 3,427 3,133
Occupancy of bank premises 802 579 609
Furniture and equipment 547 391 345
Data processing 726 704 810
Other 1,896 2,137 2,221
------ ------ ------
Total noninterest expense 7,696 7,238 7,118
------ ------ ------
Income before income tax expense 2,050 1,596 1,249
Income tax expense 612 386 342
------ ------ ------
Net income $1,438 $1,210 $ 907
====== ====== ======
Primary and fully diluted earnings per
common and common equivalent share (weighted
average shares of 2,112,426, 2,107,734, and
2,053,206, respectively) $.68 $.57 $.44
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
For the Three Years Ended December 31, 1994
(In Thousands, Except Share Amounts)
<TABLE>
<CAPTION>
Common Stock Net
$.10 par value; Unrealized
4,000,000 Loss on
Shares Authorized Retained Available
-------------------- Paid-in Earnings For Sale
Shares Amount Capital (Deficit) Securities Total
---------- ------ ------- -------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1992 1,615,530 $162 $6,157 $( 618) $ - $5,701
Net income - - - 907 - 907
Issuance of common stock 107,693 10 340 - - 350
---------- ------ ------- -------- ---------- ------
Balance January 1, 1993 1,723,223 172 6,497 289 - 6,958
Net income - - - 1,210 - 1,210
Issuance of common stock 1,363 1 ( 1) - - -
---------- ------ ------- -------- ---------- ------
Balance December 31, 1993 1,724,586 173 6,496 1,499 - 8,168
Adoption of SFAS 115 - - - - ( 11) ( 11)
Net income - - - 1,438 - 1,438
Proceeds from sale of stock and
exercise of warrants at $8 per
share 16,042 1 127 - - 128
Change in unrealized loss on
available for sale securities - - - - ( 33) ( 33)
---------- ------ ------- -------- ---------- ------
Balance December 31, 1994 1,740,628 $174 $6,623 $2,937 ( 44) $9,690
========== ====== ======= ======== ========== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
For the Three Years Ended December 31, 1994
(In Thousands)
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,438 $ 1,210 $ 907
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 628 339 287
Provision for possible loan
losses 184 192 357
Net amortization of investment
securities 414 472 240
Loss (gain) on sale of investment
securities 2 ( 3) ( 187)
Amortization of excess cost
over net assets acquired 53 53 53
Writedowns on other real estate
owned 56 209 488
(Gain) loss on sale of other real
estate owned ( 32) 35 35
Increase in other assets ( 422) ( 367) ( 359)
Increase in other liabilities 422 209 20
-------- -------- --------
Net cash provided by operating
activities 2,743 2,349 1,841
-------- -------- --------
Cash flows from investing activities:
Proceeds from sales of securities
available for sale 2,505 1,149 8,562
Purchases of securities available for sale ( 7,430) - -
Proceeds from maturities and paydowns
of securities held to maturity 21,930 15,324 8,623
Purchases of securities held to
maturity (26,556) (24,584) (32,395)
Net loans originated (11,669) ( 6,567) 4,525
Net capital expenditures ( 1,608) ( 646) ( 3,222)
Proceeds from sale of other real
estate owned 494 452 1,132
Proceeds from sales of premises
and equipment - - 23
-------- -------- --------
Net cash used by investing
activities (22,334) (14,872) (12,752)
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
For the Three Years Ended December 31, 1994
(In Thousands)
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in demand deposits, NOW
and savings accounts 4,240 11,827 14,650
Net proceeds from (payments for)
certificates of deposit 423 ( 807) ( 3,829)
Increase in securities sold under
agreements to repurchase 4,435 2,175 1,703
Issuance of common stock 128 - 350
Increase in federal funds purchased 5,065 - -
Proceeds from issuance of note payable
to a bank - 2,500 -
Repayment of note payable to directors
of the Company - ( 2,940) -
Payment on note payable ( 625) ( 300) ( 100)
Increase in demand note to U.S. treasury - 2,000 -
-------- -------- --------
Net cash provided by financing
activities 13,666 14,455 12,774
-------- -------- --------
Net (decrease) increase in cash and cash
equivalents ( 5,925) 1,932 1,863
Cash and cash equivalents at beginning
of year 20,864 18,932 17,069
-------- -------- --------
Cash and cash equivalents at end of year $ 14,939 $ 20,864 $ 18,932
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1994, 1993 and 1992
1. Summary of significant accounting policies
------------------------------------------
The accounting and reporting policies of Equitable BankShares, Inc. (BankShares)
and its subsidiary (collectively referred to as Company) conform to generally
accepted accounting principles and to general practices within the banking
industry. The following is a description of the more significant of those
policies.
Basis of presentation
- ---------------------
The accompanying consolidated financial statements include the accounts of
Equitable BankShares, Inc. (Company) and its wholly-owned subsidiary, Equitable
Bank.
Prior to November 1993, the Company had two wholly-owned subsidiaries, Equitable
Bank, N.A. and Equitable Bank Dallas. In November 1993, the Company merged
Equitable Bank, N.A. with and into Equitable Bank Dallas and formed Equitable
Bank (Bank). All significant intercompany transactions and balances have been
eliminated.
Cash and cash equivalents
- -------------------------
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks, and federal funds sold. Federal funds are normally
sold for one-day periods. The Company normally considers all highly liquid
investments with an initial maturity less than ninety days to be cash
equivalents.
Investment securities
- ---------------------
Effective January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115). In accordance with SFAS 115, the Bank classifies its
investments as either held to maturity, when the Bank has positive intent and
ability to hold securities to maturity, or available for sale. Securities
classified held to maturity are recorded in the financial statements at
amortized cost. Securities classified as available for sale are reported at fair
value, with unrealized gains and losses excluded from earnings and reported as a
separate component of stockholders' equity. As a result of the accounting
change, investment securities and stockholders' equity reflect unrealized losses
of approximately $66,000 and $44,000 (net of tax), respectively at December 31,
1994.
F-10
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
Realized gains and losses for securities classified as available for sale and
held to maturity are reported in earnings in the year of sale.
Prior to adoption of SFAS 115, all investments in securities were classified as
held to maturity and were carried at cost, adjusted for amortization or premiums
and accretion of discounts under methods approximating the interest method over
the remaining period to contractual maturity. In the case that these securities
were sold, gains and losses were computed under the specific identification
method.
Loans and allowance for possible loan losses
- --------------------------------------------
Loans are stated at unpaid principal balances net of participations sold without
recourse, allowance for possible loan losses and unearned income. Unearned
income on installment loans is taken into income over the term of the loan by
the sum-of-the-periodic balances method. The effect of not using the interest
method is insignificant.
Loans on which the accrual of interest has been discontinued are designated as
nonaccrual loans. Accrual of interest on loans is discontinued either when
reasonable doubt exists as to the full, timely collection of interest or
principal or when a loan becomes contractually past due by ninety days or more
with respect to principal or interest. Generally when a loan is placed on
nonaccrual status, all interest previously accrued but not collected is reversed
against current period income. Income on such loans is then recognized to the
extent that cash is received and where the future collection of principal is
probable. Accruals are resumed on loans when they are brought fully current
with respect to interest and principal and when, in the judgment of management,
the loan is estimated to be fully collectible as to both principal and interest.
The allowance for possible loan losses represents provisions for possible loan
losses charged to earnings, less loan charge-offs net of recoveries. Loans are
charged against the allowance for possible loan losses when management believes
that the collectibility of the principal is unlikely. The provision for
possible loan losses charged to earnings is the amount which is necessary to
establish the allowance at a level management believes will be adequate to
absorb possible losses on existing loans that may become uncollectible, based on
evaluations of the collectibility of loans and prior loan loss experience. The
evaluations take into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, review of any specific
problem loans and current economic conditions that may affect the borrowers'
ability to repay.
F-11
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
Management believes that the allowance for possible loan losses is adequate.
While management uses available information to recognize losses on loans, future
provisions for loan losses may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for loan
losses. Such agencies may require the Bank to recognize provisions for loan
losses based on their judgements of information available to them at the time of
their examination.
Fees and costs associated with originating loans
- ------------------------------------------------
Fees and costs associated with originating loans are generally recognized in
income in the period in which fees were received and/or costs were incurred.
Under generally accepted accounting principles, such fees and costs generally
are deferred and recognized over the life of the loan as an adjustment of the
yield. Management believes the effect of not deferring such fees and costs and
amortizing them over the life of the related loans is insignificant.
Bank premises and equipment
- ---------------------------
Bank premises and equipment are stated at cost less accumulated depreciation.
Provisions for depreciation are computed using the straight-line method.
Average useful lives used for depreciation with respect to major classifications
of property are as follows:
Buildings 31.5 years
Leasehold improvements 2 to 10 years
Furniture, fixtures and equipment 2 to 15 years
Automobiles 3 years
Maintenance and repairs are charged to expense; betterments and renewals are
capitalized. Upon retirement or replacement, the cost of the asset and the
related allowance for depreciation are eliminated with the resulting gain or
loss included in the statement of income.
Other real estate owned
- -----------------------
Real estate properties acquired through, or in lieu of, loan foreclosure are to
be sold and are initially recorded at fair value at the date of foreclosure
establishing a new cost basis. After foreclosure, valuations are periodically
performed by management and the real estate is carried at the lower of carrying
amount or fair value less cost to sell. Revenue and expenses from operations
and changes in the valuation allowance are included in loss on foreclosed real
estate.
F-12
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
Federal income taxes
- --------------------
BankShares files a consolidated income tax return with the Bank. Federal income
tax expense or benefit has been allocated on a separate return basis.
Effective January 1, 1993, the Company prospectively adopted the provisions of
SFAS No. 109, "Accounting for Income Taxes". The Company determined that there
was no cumulative effect of that change in the method of accounting for income
taxes in its 1993 statement of income. Under SFAS No. 109, deferred income
taxes are recognized for the tax consequences in future years of differences
between the tax bases of assets and liabilities and their financial reporting
amounts based on enacted tax laws and statutory tax rates applicable to the
periods in which the differences are expected to affect taxable income. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities
are adjusted through the provision for income taxes. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable for the period together
with the change during the period in deferred tax assets and liabilities.
Pursuant to the deferred method under APB Opinion 11, which was applied in prior
years, deferred income taxes were recognized for income and expense items that
were reported in different years for financial reporting purposes and income tax
purposes using the tax rate applicable in the year of calculation. Under the
deferred method, deferred taxes are not adjusted for subsequent changes in tax
rates.
Excess cost over fair value of net assets acquired
- --------------------------------------------------
The excess of cost over fair value of net assets acquired is amortized on a
straight-line basis over 40 years and is included in other assets in the
accompanying consolidated balance sheet, in the approximate amounts of
$1,542,000 and $1,595,000 at December 31, 1994 and 1993, respectively.
Earnings per share
- ------------------
Earnings per common and common equivalent share were computed by dividing net
income by the weighted average number of shares of common stock and common stock
equivalents outstanding during each year presented. The number of common shares
was increased by the number of shares issuable on the exercise of options and
warrants and decreased by the number of shares assumed purchased with proceeds
upon exercise, at the estimated market price of the common stock.
F-13
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
Earnings per common share assuming full dilution were determined on the
assumptions that the subordinated convertible debentures were converted at the
beginning of each period presented. Net earnings were adjusted for the related
interest, net of its tax effect.
Reclassification
- ----------------
Certain prior year amounts have been reclassified to conform with the current
year presentation.
2. Newly Issued Accounting Pronouncements
--------------------------------------
In May 1993, the Financial Accounting Standards Board issued Statement 114 which
was subsequently revised by Statement 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures". These Statements
collectively require creditors to account for impaired loans (as defined in the
Statements) at the net present value of expected future cash flows discounted at
the loan's original effective interest rate, the observable market price, or the
fair value of the collateral of a collateral-dependent loan. These Statements
also provide guidance for income and expense recognition associated with
impaired loans. These Statements are effective for fiscal years beginning after
December 15, 1994. Management does not anticipate a significant impact on the
Company's financial statements as a result of these Statements.
In December 1991, the Financial Accounting Standards Board issued Statement No.
107, "Disclosures about Fair Value of Financial Instruments". This Statement
requires all entities to disclose the fair value of financial instruments, both
assets and liabilities recognized and not recognized in the statement of
financial position, for which it is practicable to estimate fair value. This
Statement was initially effective for financial statements issued for fiscal
years ending after December 15, 1992, except for entities with less than $150
million in total assets in the then current statement of financial position.
For those entities, this Statement is effective for fiscal years ending after
December 15, 1995. Because the Company had total assets of less than $150
million as of the initial effective date, the Company is not required to and has
not elected to present such disclosure requirements until its calendar year-end
1995 financial statements.
3. Statement of cash flows
-----------------------
The Company has chosen to report its cash flows by the indirect method and has
chosen to report on a net basis its cash receipts and cash payments for time
deposits accepted and repayments of those deposits, and loans made to customers
and principal collections on those loans.
F-14
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
Supplemental information on cash flows and non-cash transactions for the three
years ended December 31, 1994 is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Cash transactions:
Interest income received $9,782 $8,603 $9,397
====== ====== ======
Interest expense paid $2,834 $2,555 $3,361
====== ====== ======
Federal income taxes paid $ 505 $ 560 $ 507
====== ====== ======
Noncash transactions:
Other real estate owned acquired in
settlement of loans in excess of
transfers of other real estate
owned to loans $ 65 $ 95 $ 123
====== ====== ======
Net unrealized loss on securities
available for sale $ 66 $ - $ -
====== ======= =======
</TABLE>
4. Investment securities
---------------------
Investment securities, classified in accordance with provisions of SFAS 115, and
their approximate unrealized gains and losses and related estimated fair values
at December 31, 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1994
----------------------------------
Unrealized
Amortized ------------- Fair
Securities Available for Sale Cost Gain Loss Value
- ----------------------------- --------- ---- ------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 5,942 $ - $ 62 $ 5,880
State and political
subdivisions 18 - 4 14
Other 539 - - 539
------- ---- ------ -------
Total available for sale $ 6,499 $ - $ 66 $ 6,433
======= ==== ====== =======
1994
----------------------------------
Unrealized
Amortized ------------- Fair
Securities Held to Maturity Cost Gain Loss Value
- ------------------------------------- --------- ---- ------- --------
U.S. Treasury securities $19,471 $ - $ 484 $18,987
U.S. Government agency
obligations 8,860 - 292 8,568
State and political
subdivisions 8,818 - 603 8,215
Pass-through certificates
guaranteed by FNMA and FHLMC 20,787 10 945 19,852
Privately issued collateralized
mortgage obligations 52 - 1 51
Real estate mortgage investment
conduits guaranteed by FNMA
and FHLMC 1,500 - 170 1,330
------- ---- ------ -------
Total held to maturity $59,488 $10 $2,495 $57,003
======= ==== ====== =======
</TABLE>
F-15
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
The amortized costs, estimated market values, and related unrealized gains and
losses for investment securities at December 31, 1993 are as follows (in
thousands):
<TABLE>
<CAPTION>
1993
--------------------------------------
Unrealized
Amortized ---------- Fair
Cost Gain Loss Value
--------- ---------- ----- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
U.S. Government agency
obligations $36,124 $210 $251 $36,083
State and political
subdivisions 6,978 115 63 7,030
Pass-through certificates
guaranteed by FNMA and FHLMC 13,750 71 16 13,805
------- ---- ---- --------
$56,852 $396 $330 $56,918
======= ==== ==== ========
</TABLE>
In 1994, proceeds from sales of securities available for sale were approximately
$2,505,000. Proceeds from sales of investment securities during 1993 and 1992
were approximately $1,149,000 and $8,562,000, respectively. During the year
ended December 31, 1994, gross gains of $648 and gross losses of $2,734 were
recorded. During the years ended December 31, 1993 and 1992, gross gains of
approximately $3,000 and $187,000, respectively, were realized. There were no
significant losses realized on those sales during 1993 or 1992.
Investment securities with an amortized cost of approximately $2,832,000 and
$2,692,000 were pledged to secure U.S. Treasury deposits, demand note and other
amounts at December 31, 1994 and 1993, respectively. Securities with recorded
values of approximately $29,551,000 and $17,444,000 at December 31, 1994 and
1993, respectively, were pledged as collateral against securities sold under
agreements to repurchase.
F-16
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
The amortized cost and estimated market value of debt securities at December 31,
1994, by contractual maturity, are shown below (in thousands). Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
1994
---------------------------------------
Available for Sale Held to Maturity
------------------ -------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ------- --------- --------
<S> <C> <C> <C> <C>
Due in one year or less $3,981 $3,948 $ 9,035 $ 8,870
Due after one year through
five years 1,960 1,931 19,812 19,220
Due after five years through
ten years 18 14 6,850 6,317
Due after ten years - - 1,452 1,362
------ ------ ------- -------
5,959 5,893 37,149 35,769
Pass-through certificates
guaranteed by FNMA and FHLMC - - 20,787 19,852
Privately issued collateralized
mortgage obligations - - 52 52
Real estate mortgage investment
conduits guaranteed by FNMA
and FHLMC - - 1,500 1,330
Other 540 540 - -
------ ------ ------- -------
Total $6,499 $6,433 $59,488 $57,003
====== ====== ======= =======
</TABLE>
5. Loans and allowance for possible loan losses
--------------------------------------------
Loans and allowance for possible loan losses at December 31, 1994 and 1993
consist of the following (in thousands):
<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Commercial and industrial $ 31,892 $ 23,008
Real estate - construction and
development 7,623 8,627
Real estate - mortgage 37,339 28,812
Installment loans 7,141 11,210
Other 384 1,678
-------- --------
Total loans 84,379 73,335
Unearned income ( 588) ( 990)
Allowance for possible loan losses ( 1,483) ( 1,458)
-------- --------
Net loans $ 82,308 $ 70,887
======== ========
</TABLE>
F-17
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
The Bank extends commercial and consumer credit primarily to customers in the
state of Texas. At December 31, 1994, and 1993 substantially all of the Bank's
loans were collateralized with real estate, inventory, accounts receivable,
equipment, marketable securities and/or other assets. Although the Bank has a
diversified loan portfolio, its debtors' ability to honor their contracts is
substantially dependent upon the general economic conditions of the region.
Loans on which the accrual of interest has been discontinued at December 31,
1994, 1993 and 1992 amounted to approximately $420,000, $157,000 and $56,000,
respectively. If interest had been accrued on these loans, such income would
have been approximately $24,000, $3,000 and $3,000, during 1994, 1993 and 1992,
respectively.
At December 31, 1994, 1993 and 1992, loans on which the Bank was accruing
interest that were contractually delinquent ninety days and over amounted to
approximately $600,000, $33,000 and $18,000, respectively.
An analysis of the allowance for possible loan losses for the three years ended
December 31, 1994 is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of the year $1,458 $1,258 $1,247
Provision for possible loan losses 184 192 357
Loans charged to the allowance ( 198) ( 131) ( 492)
Recoveries on loans previously
charged-off 39 139 146
------ ------ ------
Balance at the end of the year $1,483 $1,458 $1,258
====== ====== ======
</TABLE>
6. Bank premises and equipment
---------------------------
Bank premises and equipment at December 31, 1994 and 1993 consist of the
following (in thousands):
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Land $1,745 $1,059
Buildings 3,582 3,438
Leasehold improvements 560 430
Furniture, fixtures and equipment 2,795 2,167
Construction in progress 16 -
Automobiles 15 60
------ ------
8,713 7,154
Less accumulated depreciation 2,615 2,035
------ ------
$6,098 $5,119
====== ======
</TABLE>
F-18
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
7. Other real estate owned
-----------------------
Other real estate owned at December 31, 1994 and 1993 consisted of foreclosed
properties in the amounts of $409,000 and $862,000, respectively.
An analysis of the allowance for possible losses on other real estate for the
three years ended December 31, 1994 is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
----- -------- --------
<S> <C> <C> <C>
Balance at beginning of period $ - $ 486 $ 296
Provision charged to earnings - 197 357
Write-downs charged to the allowance - ( 683) -
Disposition of properties - - ( 167)
----- ------ ------
Balance at end of period $ $ - $ 486
===== ======= ======
</TABLE>
8. Deposits
--------
Deposits at December 31, 1994 and 1993 are summarized as follows (in thousands
except percentages):
<TABLE>
<CAPTION>
1994 1993
------------------ ------------------
Amount Percent Amount Percent
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Noninterest bearing
demand accounts $ 60,753 42.6% $ 57,640 41.7%
Interest bearing
demand accounts 17,034 12.0 17,813 12.9
Passbook savings
accounts 9,767 6.8 9,136 6.6
Limited access money
market accounts 31,423 22.0 30,145 21.9
Certificates of deposit,
less than $100,000 13,586 9.5 15,416 11.2
Certificates of deposit,
$100,000 and greater 10,114 7.1 7,864 5.7
-------- ----- -------- -----
$142,677 100.0% $138,014 100.0%
======== ===== ======== =====
</TABLE>
Included in deposits at December 31, 1994 and 1993 were public fund deposits of
approximately $557,000 and $665,000, respectively.
F-19
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
9. Securities sold under agreements to repurchase
----------------------------------------------
Securities sold under agreements to repurchase consist entirely of transactions
with bank customers. These agreements are collateralized primarily by U.S.
Treasury securities and U.S. Government agency obligations with estimated market
values totalling approximately $28,916,000 and $17,444,000 for 1994 and 1993,
respectively. These agreements mature daily.
Information relating to securities sold under agreements to repurchase is
presented below (in thousands, except percentages):
<TABLE>
<CAPTION>
Maximum Outstanding
---------------------------------------------
End of year Weighted average
-------------- ---------------- at Any
Balance Rate Balance Rate Month-End
-------- ---- --------- ----- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1994:
Securities sold under
agreements to
repurchase $10,930 3.10% $10,640 3.34% $17,045
======== ==== ========= ===== =========
Year ended December 31,
1993:
Securities sold under
agreements to
repurchase $ 6,495 2.25% $ 5,517 2.42% $ 7,795
======== ==== ======== ==== ========
</TABLE>
10. Note payable
------------
Note payable at December 31, 1994 and 1993 consists of the following (in
thousands):
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Note payable to a bank bearing
interest at a floating rate
(9.25% and 7% at December 31,
1994 and 1993, respectively),
payable in quarterly installments
of $125,000 plus interest, matured
June 1994 and subsequently renewed
to mature June 30, 1996. $1,625 $2,250
------ -------
$1,625 $2,250
====== =======
</TABLE>
The note payable is secured by the Bank's common stock. Additionally, certain
directors have guaranteed the note.
F-20
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
The note is subject to a loan agreement which contains various restrictive
covenants including reporting requirements and maintenance of certain financial
ratios. At December 31, 1994, management believes that the Company was in
substantial compliance with the various loan covenants.
11. Subordinated convertible debentures
-----------------------------------
At December 31, 1994 and 1993, the Company had outstanding subordinated
convertible debentures of $790,001 maturing December 31, 1996, with a floating
prime interest rate, with a minimum interest floor of 5% and a maximum interest
ceiling of 11%, payable semiannually. The interest rate at December 31, 1994
and 1993 was 8.50% and 6.0%, respectively. These debentures are convertible
twice annually until maturity into shares of common stock at a conversion price
of $10 per share. No debentures were converted during 1994.
12. Income taxes
------------
Income tax expense (benefit) for the three years ended December 31, 1994
consists of the following (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
----- -------- --------
<S> <C> <C> <C>
Current $ 547 $ 662 $ 462
Deferred expense (benefit) 65 ( 276) ( 120)
----- ------ ------
$ 612 $ 386 $ 342
===== ====== ======
</TABLE>
As discussed in note 1, the Company adopted SFAS No. 109 as of January 1, 1993.
The cumulative effect of this accounting change as of January 1, 1993 was not
material. Prior years' consolidated financial statements have not been restated
to apply the provisions of SFAS No. 109. The consolidated federal income tax
expense for the years presented differs from "expected" consolidated federal
income tax for these years, computed by applying the statutory U.S. federal
corporate tax rate of 34% to income before income tax expense as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C> <C>
Computed "expected" income tax expense $ 697 $ 543 $ 425
Increase (decrease) resulting from:
Tax exempt interest ( 116) ( 63) ( 14)
Amortization of excess cost over fair
value of net assets acquired 18 18 18
State income tax expense (benefit) net
of federal income tax expense (benefit) 13 16 ( 60)
Meals and entertainment 11 14 -
Changes in the beginning of the year
valuation allowance for deferred tax
assets allocated to income tax expense ( 20) (102) -
Other 9 ( 40) ( 27)
------ ------ -------
$ 612 $ 386 $ 342
====== ====== =======
</TABLE>
F-21
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
Significant components of deferred income tax expense (benefit) for the years
ended December 31, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1994 1993
-------- ---------
<S> <C> <C>
Deferred tax expense (benefit)
(exclusive of the effects of the
component described below) $ 85 $( 174)
Decrease in the beginning of the year
balance of the valuation allowance
for deferred tax assets ( 20) ( 102)
----- --------
$ 65 $( 276)
===== =======
</TABLE>
For the year ended December 31, 1992, deferred tax benefit of $119,549 resulted
from timing differences in the recognition of income and expense for income tax
and financial reporting purposes. The sources and tax effects of those timing
differences are presented below:
<TABLE>
<S> <C>
Provision for loan losses $ 4
Depreciation 17
Other real estate and other assets 102
Net discount accretion on investment securities ( 3)
----
$ 120
=====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the recorded amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets as of December 31, 1994 and
1993 are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
----- -----
<S> <C> <C>
Deferred tax assets:
Loan loss reserve for book in
excess of tax $ 316 $ 253
Other real estate basis for book
in excess of tax 151 389
Unrealized loss on securities
available for sale 23 -
</TABLE>
F-22
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Bank premises and equipment basis
for book in excess of tax 16 97
Other 15 35
------ ------
Total deferred tax liabilities 31 132
------ ------
Net deferred tax asset before
valuation allowance 505 567
Valuation allowance ( 360) ( 380)
------ ------
Net deferred tax asset $ 145 $ 187
====== ======
</TABLE>
Included in other liabilities in the accompanying consolidated balance sheet at
December 31, 1994 and 1993 are current federal income taxes payable of
approximately $355,000 and $313,000, respectively. Included in other assets at
December 31, 1994 and 1993 are net deferred tax assets of approximately $145,000
and $187,000, respectively.
13. Employee benefits
-----------------
The Company has an employee savings plan which includes both a profit sharing
plan and a deferred 401(k) plan for its employees. The 401(k) plan allows
substantially all employees after one year of service to contribute (subject to
IRS regulations) up to 10% of their pre-tax earnings through salary reductions.
Under terms of both plans, the Company, at the discretion of the Board of
Directors, may make contributions. Contributions of $16,910, $15,687 and
$12,345 were made to the 401(k) plan for the years ended December 31, 1994,
1993, and 1992, respectively. In addition, contributions of approximately
$55,000, $41,500 and $46,000 were made to the profit sharing plan for the years
ended December 31, 1994, 1993, and 1992, respectively.
14. Stock options and warrants
--------------------------
The Company has a nonqualified stock option plan which represents
options to be granted to certain officers to purchase common stock at fair value
(and for 10% or greater shareholders at no less than 110% of such fair market
value) as determined by the Board of Directors on the date the options are
granted. Options may be exercised one year after grant and have an exercise
period of ten years.
F-23
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
The following table summarizes activity concerning the Company's nonqualified
stock option plan:
<TABLE>
<CAPTION>
Number of Option Price
Shares Per Share
---------- -------------
<S> <C> <C>
January 1, 1993 197,750 $3.00 - $3.51
Granted - -
Canceled ( 7,750) $3.00 - $3.51
-------
December 31, 1993 190,000 $3.00 - $3.51
Granted -
Canceled -
-------
December 31, 1994 190,000 $3.00 - $3.51
=======
</TABLE>
Effective January 24, 1992, all stock options that had previously been granted
to all company and subsidiary banks' officers were adjusted to $3.51 per share
or their option price, whichever was less.
At December 31, 1994, 167,178 shares were exercisable.
The Company has previously issued warrants to two of the Company's directors for
the purchase of 100,000 shares of the Company's common stock at $2 per share.
The warrants expire in 1996.
During 1989, the Company issued units comprised of 643,252 shares of common
stock and 321,626 common stock warrants. Each warrant entitles the holder to
purchase one share of the Company's common stock at a price of $8.00 per share.
During 1994, warrants were exercised to purchase 16,042 shares of common stock.
15. Commitments and contingencies
-----------------------------
The Company leases certain premises and equipment under noncancellable operating
lease agreements. These agreements have remaining terms ranging from 1 to 5
years, with certain agreements containing renewal options subsequent to the
initial terms. Rent expense under the Company's operating lease agreements
amounted to $273,474, $221,708 and $368,677 for the years ended December 31,
1994, 1993, and 1992, respectively.
F-24
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
Future minimum lease payments under noncancellable operating leases for each of
the next five years and thereafter at December 31, 1994 is as follows (in
thousands):
1995 $183
1996 136
1997 82
1998 44
1999 12
Thereafter -
--------
$ 457
========
During 1994, the Bank entered into contracts for two branch facilities to be
constructed in Tarrant County. One branch facility will be owned by the Bank.
The Bank will operate the second branch facility under a noncancellable
operating lease agreement which expires in 2004. The construction of either
branch facilities was not completed at December 31, 1994.
The Bank is lessor in various leases involving space in a building owned and
partially occupied by the Bank. The lease terms of the remaining noncancellable
portions of those leases vary from one month to one year and nine months.
Future minimum rentals to be received under these noncancellable leases at
December 31, 1994 are as follows (in thousands):
1995 $ 59
1996 12
--------
$ 71
========
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. Those instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of the amount recognized in the balance sheet.
The contract amounts of these instruments reflect the extent of involvement the
Bank has in particular classes of financial instruments.
F-25
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit is represented by the contractual amount of these instruments.
The Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments. At December 31, 1994
and 1993, the approximate amounts of financial instruments whose contract
amounts represent credit risk were as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $20,156 $10,742
Standby letters of credit 1,798 1,609
------- --------
$21,954 $12,351
======= ========
</TABLE>
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, is based on
management's credit evaluation of the counterparty. Collateral held varies but
may include accounts receivable, inventory, property, plant and equipment and
income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
The Company and the Bank are involved in certain legal actions arising from
normal business activities. Management believes that the outcome of such
proceedings will not materially affect the financial position or results of
operations of the Company or the Bank.
The Company or the Bank does not anticipate any material losses as a result of
the commitments and contingent liabilities.
F-26
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
16. Related party transactions
--------------------------
In the ordinary course of business, the Bank has and expects to continue to have
transactions, including borrowings, with its directors and their affiliates. In
the opinion of management, such transactions are on the same terms, including
interest rates and collateral requirements, as those prevailing at the time for
comparable transactions with unaffiliated persons. The aggregate amount of such
loans was approximately $1,629,000 and $2,150,000 at December 31, 1994 and 1993,
respectively. During 1994, repayments of loans totaled approximately $720,000
and new loans funded totalled approximately $1,594,000.
17. Stockholders' equity
--------------------
Under banking law, there are legal restrictions limiting the amount of dividends
the Bank can declare. Approval of the regulatory authorities is required if the
effect of dividends declared would cause the regulatory capital of the Bank to
fall below specified minimum levels.
The regulatory authorities may prohibit the declaration of any dividends if they
determine that certain circumstances exist in the Bank, including those relating
to the financial condition of the Bank, such that payment of dividends would be
considered an unsafe and unsound practice. The Bank is also required to
maintain minimum amounts of capital to total "risk weighted" assets, as defined
by the banking regulators. At December 31, 1994, the FDIC required the Bank to
have a minimum total capital to risk based assets ratio of 8%. The Texas
Department of Banking requires a minimum equity capital ratio of 6%. At
December 31, 1994, the Bank's actual total capital to risk based assets and
equity capital ratios were 12.2% and 6.3%, respectively.
F-27
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
18. Supplementary income and expense information
--------------------------------------------
The following amounts are included in other noninterest income and noninterest
expense in the accompanying consolidated statement of income for the years ended
December 31, 1994, 1993, and 1992 (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Noninterest income
------------------
Miscellaneous fees $ 458 $ 480 $ 378
All other 242 226 92
------ ------ ------
$ 700 $ 706 $ 470
====== ====== ======
Noninterest expense
-------------------
FDIC assessment $ 269 $ 277 $ 260
Professional services 252 385 555
Printing and supplies 211 189 171
Postage and delivery 174 223 214
Contract services 148 115 162
Insurance 53 62 155
Loan and other asset expense 44 372 656
All other 745 514 48
------ ------ ------
$1,896 $2,137 $2,221
====== ====== ======
</TABLE>
19. Condensed financial statements of Equitable BankShares, Inc. (Parent)
---------------------------------------------------------------------
Presented below are the condensed statement of income, balance sheet, and
statement of cash flows for Equitable BankShares, Inc., the Parent Company.
F-28
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
Equitable BankShares, Inc.
Statement of Income
(in thousands)
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Revenue:
Equity in undistributed earnings of
subsidiary banks $1,148 $ 200 $1,250
Dividends from subsidiary banks 500 1,400 -
------ ------ ------
Total equity in earnings of subsidiary banks 1,648 1,600 1,250
Interest from subsidiary banks - 2 8
Other - 94 254
------ ------ ------
Total revenue 1,648 1,696 1,512
------ ------ ------
Expenses:
Interest 214 244 294
Amortization 53 53 53
Salaries and employee benefits - 269 346
Other 24 93 62
------ ------ ------
Total expenses 291 659 755
------ ------ ------
Income before income taxes 1,357 1,037 757
Income tax benefit 81 173 150
------ ------ ------
Net income $1,438 $1,210 $ 907
====== ====== ======
</TABLE>
Equitable BankShares, Inc.
Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Assets:
Non-interest bearing deposits with
subsidiary banks $ 5 $ 179
Investments in subsidiary banks 10,796 9,692
Intangible assets, net 1,542 1,595
Other assets 169 180
------- -------
Total assets $12,512 $11,646
======= =======
Liabilities and stockholders' equity:
Long-term debt $ 1,625 $ 2,250
Subordinated convertible debentures 790 790
Other liabilities 407 438
------- -------
Total liabilities 2,822 3,478
Total stockholders' equity 9,690 8,168
------- -------
Total liabilities and stockholders'
equity $12,512 $11,646
======= =======
</TABLE>
F-29
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
Equitable BankShares, Inc.
Statement of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,438 $ 1,210 $ 907
Adjustments to reconcile cash provided
by operating activities:
Equity in undistributed earnings of
bank subsidiaries ( 1,148) ( 200) ( 1,250)
Amortization expense 53 53 53
(Decrease) increase due to changes
in other balance sheet amounts ( 21) ( 146) 300
-------- -------- --------
Net cash provided by operating
activities 322 917 10
-------- -------- --------
Cash flows from investing activities:
Capital to subsidiary banks - ( 200) ( 200)
-------- -------- --------
Net cash used in investing
activities - ( 200) ( 200)
-------- -------- --------
Cash flows from financing activities:
Long-term debt:
Proceeds - 2,500 -
Payments ( 625) ( 300) ( 100)
Repayment of note payable to directors
of the company - ( 2,940) -
Issuance of common stock 129 - 350
-------- -------- --------
Net cash (used) provided by
financing activities ( 496) ( 740) 250
-------- -------- --------
Net (decrease) increase in cash and cash
equivalents ( 174) ( 23) 60
Cash and cash equivalents, beginning of year 179 202 142
-------- -------- --------
Cash and cash equivalents, end of year $ 5 $ 179 $ 202
======== ======== ========
</TABLE>
F-30
<PAGE>
EQUITABLE BANKSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
F-31
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
Consolidated Balance Sheet
September 30, 1995 and 1994 (unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
- ------
Cash and due from banks $ 15,812 $ 11,831
Federal funds sold 13,410 5,960
-------- --------
Total cash and cash equivalents 29,222 17,791
-------- --------
Investment securities:
Available for sale (at market value) 9,425 7,433
Held to maturity (market values of $50,311
and $58,519, respectively) 50,408 59,809
Loans, net 89,402 76,801
Bank premises and equipment, net 6,921 6,350
Accrued interest receivable 1,161 1,051
Other real estate owned, net 522 604
Other assets 2,950 3,033
-------- --------
Total assets $190,011 $172,872
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits:
Noninterest bearing $ 62,811 $ 62,653
Interest bearing 92,156 81,439
-------- --------
Total deposits 154,967 144,092
Securities sold under agreements to repurchase 18,665 13,715
Demand note to U.S. treasury 2,000 2,000
Note payable 1,250 1,750
Subordinated convertible debentures 790 790
Other liabilities 1,318 1,265
-------- --------
Total liabilities 178,990 163,612
-------- --------
Commitments and contingencies - -
Stockholders' equity:
Common stock; $.10 par value, 4,000,000 shares
authorized; 1,741,628 and 1,724,586 shares
issued and outstanding at September 30, 1995
and 1994, respectively 174 173
Paid-in capital 6,631 6,496
Retained earnings 4,220 2,611
Unrealized loss on available for
sale securities ( 4) ( 20)
-------- --------
Total stockholders' equity 11,021 9,260
-------- --------
Total liabilities and stockholders' equity $190,011 $172,872
======== ========
</TABLE>
See accompanying select notes.
F-32
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
Consolidated Statement of Income
For the Nine Months Ended September 30, 1995 and 1994 (unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
1995 1994
------------ -------
<S> <C> <C>
Interest income:
Interest and fees on loans $6,519 $4,771
Federal funds sold 150 143
Interest and dividends on investment securities:
Taxable 2,314 1,992
Nontaxable 311 282
------ ------
Total interest income 9,294 7,188
------ ------
Interest expense:
Deposit accounts including interest expense
on certificates of deposit of $100,000 and
over of $430 and $221 in 1995 and 1994,
respectively 2,126 1,610
Short term borrowings 782 298
Long term borrowings 162 157
------ ------
Total interest expense 3,070 2,065
------ ------
Net interest income 6,224 5,123
Provision for possible loan losses 468 63
------ ------
Net interest income after provision for possible
loan losses 5,756 5,060
------ ------
Noninterest income:
Service charges on deposit accounts 1,686 1,584
(Loss) gain on sales of investment securities ( 19) 1
Other 641 432
------ ------
Total noninterest income 2,308 2,017
------ ------
Noninterest expense:
Salaries and employee benefits 3,003 2,792
Occupancy of bank premises 684 539
Furniture and equipment 488 343
Data processing 570 525
Other 1,466 1,286
------ ------
Total noninterest expense 6,211 5,485
------ ------
Income before income tax expense 1,853 1,592
Income tax expense 570 480
------ ------
Net income $1,283 $1,112
====== ======
Earnings per common and common equivalent share $ .61 $ .53
====== ======
Earnings per common share assuming full dilution $ .60 $ .52
====== ======
</TABLE>
See accompanying select notes.
F-33
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
For the Nine Months Ended September 30, 1995 and 1994 (unaudited)
(In Thousands)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $1,283 $1,112
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 510 348
Provision for possible loan
losses 468 63
Net amortization of investment
securities 167 352
(Gain) loss on sale of investment
securities ( 19) -
Amortization of excess cost
over net assets acquired 41 41
Loss (gain) on sale of other real
estate owned 7 ( 113)
(Gain) loss on sale of bank
premises and equipment ( 34) -
Increase in other assets ( 35) ( 368)
Increase in other liabilities 281 651
------ ------
Net cash provided by
operating activities 2,669 2,086
</TABLE>
See accompanying select notes.
F-34
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows
(Continued)
For the Nine Months Ended September 30, 1995 and 1994 (unaudited)
(In Thousands)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from investing activities:
Proceeds from sales of securities
available for sale 6,249 1,508
Purchases of securities available
for sale (9,070) ( 7,410)
Proceeds from maturities and paydowns
of securities held to maturity 8,823 16,499
Purchases of securities held to
maturity - (21,369)
Net loans originated (7,754) ( 6,322)
Net capital expenditures (1,459) ( 1,588)
Proceeds from sale of other real
estate owned 72 716
Proceeds from sale of bank premises
and equipment 160 9
-------- ---------
Net cash used by investing
activities (2,979) (17,957)
-------- ---------
Cash flows from financing activities:
Net increase in demand deposits, NOW
and savings accounts 3,936 6,755
Net proceeds from (payments for)
certificates of deposit 8,354 ( 677)
Increase in securities sold under
agreements to repurchase 7,735 7,220
Issuance of common stock 8 -
Decrease in federal funds purchased (5,065) -
Payment on note payable ( 375) ( 500)
-------- ---------
Net cash provided by financing
activities 14,593 12,798
-------- ---------
Net increase (decrease) in cash and cash
equivalents 14,283 (3,073)
-------- ---------
Cash and cash equivalents at beginning
of period 14,939 20,864
-------- ---------
Cash and cash equivalents at end
of period $ 29,222 $ 17,791
======== =========
</TABLE>
See accompanying select notes.
F-35
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
Select Notes to Consolidated Financial Statements
September 30, 1995 and 1994 (unaudited)
1. Basis of presentation
---------------------
The accompanying unaudited interim financial statements as of and for the nine
month periods ended September 30, 1995 and 1994, respectively, reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for such periods presented. Management has determined
that all such adjustments are of a normal recurring nature.
2. Statement of cash flows
-----------------------
The Company has chosen to report its cash flows by the indirect method and has
chosen to report on a net basis its cash receipts and cash payments for time
deposits accepted and repayments of those deposits, and loans made to customers
and principal collections on those loans.
Supplemental information on cash flows and non-cash transactions for the nine
months ended September 30, 1995 and 1994 (unaudited) is as follows (in
thousands):
1995 1994
---- ----
[S] [C] [C]
Cash transactions:
Interest income received $ 9,382 $ 7,229
============ ============
Interest expense paid $ 3,158 $ 2,095
============ ============
Federal income taxes paid $ 540 $ 355
============ ============
Noncash transactions:
Net acquisitions of other real
estate owned $ 345 $ 192
============ ============
Net unrealized loss on securities
available for sale $ 61 $ 30
============ ============
F-36
<PAGE>
EQUITABLE BANKSHARES, INC. AND SUBSIDIARY
3. Impairment of loans
-------------------
Impairment of loans having a recorded investment of approximately $761,000 at
September 30, 1995 has been recognized in conformity with FASB Statement No.
114, as amended by FASB Statement No. 118. The average recorded investment in
impaired loans during the nine months ended September 30, 1995 approximated its
recorded value. The total allowance for loan losses related to these loans
amounted to approximately $71,000 at September 30, 1995. There was no
significant interest income on impaired loans recognized for the nine months
ended September 30, 1995.
F-37
<PAGE>
========================
APPENDIX I
MERGER AGREEMENT
========================
<PAGE>
===============================================================================
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
COMPASS BANCSHARES, INC.
AND
EQUITABLE BANKSHARES, INC.
Dated as of October 13, 1995
===============================================================================
<PAGE>
TABLE OF CONTENTS
Page
- ---------
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 Certificate of Incorporation 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 COMPANY .................. 6
SECTION 3.1 Organization and Qualification .................. 6
SECTION 3.2 Company Capitalization ......................... 6
SECTION 3.3 Bank Capitalization; Other Securities ........... 7
SECTION 3.4 Authority Relative to the Agreement ............. 7
SECTION 3.5 No Violation .................................... 7
SECTION 3.6 Consents and Approvals ......................... 8
SECTION 3.7 Regulatory Reports .............................. 8
SECTION 3.8 SEC Status; Securities Issuances ................ 8
SECTION 3.9 Financial Statements ........................... 9
SECTION 3.10 Absence of Certain Changes ...................... 9
SECTION 3.11 Company Indebtedness ........................... 11
SECTION 3.12 Litigation ..................................... 11
SECTION 3.13 Tax Matters .................................... 11
SECTION 3.14 Employee Benefit Plans .......................... 12
SECTION 3.15 Employment Matters ............................. 14
SECTION 3.16 Leases, Contracts and Agreements ................ 15
SECTION 3.17 Related Company Transactions .................. 15
SECTION 3.18 Compliance with Laws .......................... 16
SECTION 3.19 Insurance ...................................... 16
i
<PAGE>
SECTION 3.20 Loans .................................... 16
SECTION 3.21 Fiduciary Responsibilities ............... 16
SECTION 3.22 Patents, Trademarks and Copyrights ....... 16
SECTION 3.23 Environmental Compliance ................. 17
SECTION 3.24 Regulatory Actions ....................... 18
SECTION 3.25 Title to Properties; Encumbrances ........ 19
SECTION 3.26 Shareholder List ......................... 19
SECTION 3.27 Proxy Statement ......................... 19
SECTION 3.28 Dissenting Shareholders ................. 20
SECTION 3.29 Section 368 Representations ............. 20
SECTION 3.30 Employee Stock Options .................. 21
SECTION 3.31 Accounting Matters ...................... 21
SECTION 3.32 Representations Not Misleading .......... 21
ARTICLE IV. ................................................ 21
REPRESENTATIONS AND WARRANTIES OF COMPASS ................ 21
SECTION 4.1 Organization and Authority ............... 21
SECTION 4.2 Authority Relative to Agreement .......... 22
SECTION 4.3 Financial Reports ........................ 22
SECTION 4.4 Capitalization ........................... 23
SECTION 4.5 Consents and Approvals ................... 23
SECTION 4.6 Proxy Statement .......................... 23
SECTION 4.7 Availability of Compass Common Stock ..... 24
SECTION 4.8 Representations Not Misleading ........... 24
ARTICLE V. .................................................. 24
COVENANTS OF THE COMPANY ................................. 24
SECTION 5.1 Affirmative Covenants of the Company ....... 24
SECTION 5.2 Negative Covenants of the Company .......... 26
ARTICLE VI. ................................................. 29
ADDITIONAL AGREEMENTS ..................................... 29
SECTION 6.1 Access To, and Information Concerning,
Properties and Records ..................... 29
SECTION 6.2 Filing of Regulatory Approvals ............. 29
SECTION 6.3 Miscellaneous Agreements and Consents ...... 29
SECTION 6.4 Company Indebtedness ....................... 29
SECTION 6.5 Best Good Faith Efforts .................... 30
SECTION 6.6 Exclusivity ................................ 30
SECTION 6.7 Public Announcement ........................ 30
SECTION 6.8 Employee Benefit Plans ..................... 30
SECTION 6.9 Merger of Bank ............................. 30
ii
<PAGE>
SECTION 6.10 Environmental Investigation; Right to
Terminate Agreement ........................... 30
SECTION 6.11 Cooperation on Texas Receipts ................. 33
SECTION 6.12 Exchange Agent Agreement ...................... 33
SECTION 6.13 Employment Agreement .......................... 33
SECTION 6.14 Exercise of Convertible Securities ............ 34
SECTION 6.15 Employee Bonuses .............................. 34
ARTICLE VII. .................................................... 34
CONDITIONS TO CONSUMMATION OF THE MERGER ...................... 34
SECTION 7.1 Conditions to Each Party's Obligation
to Effect the Merger .......................... 34
SECTION 7.2 Conditions to the Obligations of Compass and
Compass Texas to Effect the Merger ............ 34
SECTION 7.3 Conditions to the Obligations of the Company
to Effect the Merger .......................... 36
ARTICLE VIII. ................................................... 37
TERMINATION; AMENDMENT; WAIVER ................................ 37
SECTION 8.1 Termination ................................... 37
SECTION 8.2 Special Compass Rights of Termination ......... 37
SECTION 8.3 Effect of Termination ......................... 38
SECTION 8.4 Amendment ..................................... 38
SECTION 8.5 Extension; Waiver ............................. 38
ARTICLE IX. ..................................................... 38
SURVIVAL ...................................................... 38
SECTION 9.1 Survival of Representations and
Warranties .................................... 38
ARTICLE X. ...................................................... 38
MISCELLANEOUS ................................................ 38
SECTION 10.1 Expenses ..................................... 38
SECTION 10.2 Brokers and Finders .......................... 39
SECTION 10.3 Entire Agreement; Assignment .................. 39
SECTION 10.4 Further Assurances ............................ 39
SECTION 10.5 Enforcement of the Agreement .................. 39
SECTION 10.6 Severability .................................. 39
SECTION 10.7 Notices ....................................... 39
SECTION 10.8 Governing Law ................................. 41
SECTION 10.9 Descriptive Headings .......................... 41
SECTION 10.10 Parties in Interest ........................... 41
SECTION 10.11 Counterparts ................................. 41
SECTION 10.12 Incorporation by References ................... 41
iii
<PAGE>
SECTION 10.13 Certain Definitions..................... 42
SECTION 10.14 Business Days........................... 43
ATTACHMENTS
EXHIBITS
A. Pooling Transfer Restrictions Agreement
B. Exchange Agent Agreement
C. Voting Agreement and Irrevocable Proxy
D. Pooling of Interest Criteria
E. Agreement to Terminate Options
F. Opinion of Counsel for the Company and the Bank
G. Opinion of Counsel for Compass and Compass Texas
LIST OF SCHEDULES
Schedule 3.2 Terms of the Undesignated Preferred Stock; Company
Capitalization
Schedule 3.3 Bank Capitalization; List of Equity Ownership
Schedule 3.5 Violations of Law; Conflicts of Interest; Share
Litigation; Termination of Existence
Schedule 3.6 Company Prior Consents
Schedule 3.7 Regulatory Reports
Schedule 3.10 Absence of Material Changes or Adverse Effects
Schedule 3.12 Company Legal Proceedings
Schedule 3.13 Tax Liabilities
Schedule 3.14(a) Employee Welfare Benefit Plans
Schedule 3.14(b) Employee Pension Benefit Plans
Schedule 3.14(f) Deferred Compensation, Bonus and Stock Purchase Plans
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 Company Transactions
Schedule 3.18 Compliance with Laws
Schedule 3.19 Insurance Policies
Schedule 3.20 Loans Exceeding Legal Lending Limit, Troubled Loans
Schedule 3.22 Patents, Trademarks and Copyrights
Schedule 3.23 Environmental Compliance
Schedule 3.24 Regulatory Actions; Agreements
Schedule 3.25 Title to Properties; Title Policies; Property
iv
<PAGE>
Schedule 3.29 Company 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(g) Compliance with Laws Pending Merger
Schedule 5.1(j) List of Accounts and Safe Deposit Boxes
Schedule 5.1(k) List of Liabilities and Obligations of the Company and the Bank
Schedule 5.1(n) List of Proxy Holders Voting Affirmatively for the Agreement
Schedule 10.13 List of Officer Capacities
v
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("Agreement") dated as of October 13,
1995, by and among Compass Bancshares, Inc. a Delaware corporation ("Compass"),
and Equitable BankShares, Inc., a Texas corporation ("Company").
WHEREAS, Compass desires to affiliate with the Company and its wholly
owned subsidiary, Equitable Bank, a Texas banking association (the "Bank"), and
the Company and the Bank desire to affiliate with Compass in the manner provided
in this Agreement;
WHEREAS, Compass and the Company believe that the Merger (as defined
herein) of the Company with and into a new subsidiary of Compass to be formed
and 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 Company and Compass
have approved or will be asked to approve this Agreement and the proposed
transactions substantially on the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties, intending
to be legally bound, hereby agree as follows:
ARTICLE I.
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions
----------
hereof, and in accordance with the Texas Business Corporation Act (the "TBCA")
and the General Corporation Law of the State of Delaware (the "GCL"), the
Company shall be merged with and into a Delaware corporation to be formed after
the date hereof, all of the capital stock of which will be owned by Compass
(such corporation being hereinafter referred to as "Compass Texas") (the
"Merger") as soon as practicable following the satisfaction or waiver, if
permissible, of the conditions set forth in Article VII hereof. Following the
Merger, Compass Texas shall continue as the surviving corporation (the
"Surviving Corporation") and the separate corporate existence of the Company
shall cease. Compass shall not be deemed a party to the Merger for the purposes
of Article 5.06 of the TBCA or the GCL.
SECTION 1.2 Effective Time. The Merger shall be consummated by the
--------------
filing by the Texas Secretary of State of Articles of Merger, in the form
required by and executed in accordance with the relevant provisions of the TBCA,
and by the filing by the Delaware Secretary of State of a Certificate of Merger
in the form required by and executed in accordance with the relevant provisions
of the GCL and by the issuance of a Certificate of Merger by the Secretary of
State of Texas. (The date of such issuance and filing or such other time and
date as may be specified in the Articles and Certificate of Merger shall be the
"Effective Time").
<PAGE>
SECTION 1.3 Certain Effects of the Merger. The Merger shall have
-----------------------------
the effects set forth in Article 5.06 of the TBCA and in the GCL.
SECTION 1.4 Certificate of Incorporation and By-Laws. The
----------------------------------------
Certificate of Incorporation and the By-Laws of Compass Texas, in each case as
in effect at the Effective Time, shall be the Certificate of Incorporation and
By-Laws of the Surviving Corporation.
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 Corporation and shall hold office from the Effective Time until their
respective successors are duly elected or appointed and qualified in the manner
provided in the Certificate of Incorporation and By-Laws of the Surviving
Corporation, or as otherwise provided by law.
SECTION 1.6 Conversion of Shares. (a) Each share of the Company's
--------------------
common stock, par value $0.10 per share ("Company Common Stock"), issued and
outstanding immediately prior to the Effective Time (the Company 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) (i) Subject to Subsections (ii) and (iii) below, in consideration
for the Merger, Compass will issue to the holders of the Shares an aggregate
number of shares of its common stock, par value $2.00 per share which is quoted
under the symbol "CBSS" on the NASDAQ National Market System ("Compass Common
Stock"), which is equal to $31,131,763 (the "Target Price") divided by the
average closing sale price of the Compass Common Stock as reported by the NASDAQ
National Market System for the 20 days of trading preceding the tenth business
day prior to the first business day following the later of (y) 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 and (z)
the approval of the Merger by the Company's shareholders (the "Share
Determination Market Value").
(ii) In the event that the Share Determination Market Value would
result in the number of shares of Compass Common Stock to be issued to be
greater than 1,038,000, Compass shall either (y) terminate this Agreement (the
"Compass Pricing Termination Option") by written notice
2
<PAGE>
to the Company within ten business days after the Share Determination Market
Value is capable of being determined, or (z) agree to issue a number of shares
of Compass Common Stock equal to the quotient of the Target Price divided by the
Share Determination Market Value. In the event that Compass exercises its
Compass Pricing Termination Option or in the event Compass fails to notify the
Company of its election pursuant to the preceding sentence within the specified
ten business day period, this Agreement shall be terminated, but the Company
shall have the right to reject such termination of the Agreement by Compass (the
"Company Termination Rejection") by agreeing to accept an aggregate number of
shares of Compass Common Stock equal to 1,038,000. Such Company Termination
Rejection shall be exercised by a notice to Compass within five business days
following the earlier of (y) the date on which the Company receives notice of
Compass' exercise of the Compass Pricing Termination Option or (z) the
expiration of the specified ten business day period. In the event that the
Company fails to notify Compass of its exercise of the Company Termination
Rejection within the five business day period after the earlier of (y) the
receipt of notice from Compass of its exercise of the Compass Pricing
Termination Option or (z) the expiration of the initial ten business day period,
this Agreement shall be terminated.
(iii) In the event the Share Determination Market Value would result
in the number of shares of Compass Common Stock to be issued to be less than
865,000, Compass will issue to the holders of the shares of Company Common Stock
and the Company will accept an aggregate number of shares of Compass Common
Stock equal to 865,000.
(iv) The ratio of the number of shares of Compass Common Stock to be
exchanged for each Share, respectively, and the share figures set forth in
subsections (ii) and (iii) above shall be adjusted appropriately to reflect any
stock dividends or splits with respect to Compass Common Stock, where the record
date or payment occurs prior to the Effective Time.
(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 Company, acting through its
---------------------
Board of Directors, shall, in accordance with applicable law:
(a) duly call, give notice of, convene and hold a meeting (the
"Shareholders' Meeting") of its shareholders 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;
3
<PAGE>
(c) include in the Proxy Statement (defined in paragraph (d) below)
the recommendation of its Board of Directors that the shareholders of the
Company 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, as soon as practicable after the date hereof,
a registration statement (the "Registration Statement") with the Securities and
Exchange Commission ("SEC") under the Securities Act of 1933 ("Securities Act")
covering the shares of Compass Common Stock to be issued to Company shareholders
in the Merger.
(b) Within 30 days after the date hereof, the Company shall enter
into and cause each Company shareholder who is an "affiliate" (as defined in SEC
Rule 405) of the Company to enter into with Compass a written agreement in
substantially the form of Exhibit A attached hereto.
SECTION 1.9 Closing. Upon the terms and subject to the conditions
-------
hereof, as soon as practicable after the vote of the shareholders of the Company
in favor of the approval and adoption of this Agreement has been obtained, and
the satisfaction or waiver, if permissible, of the conditions set forth in
Article VII hereof, the Company and Compass Texas shall execute and deliver the
Articles of Merger and the Certificate of Merger, as described in Section 1.2,
and the parties hereto shall take all such other and further actions as may be
required by law to make the Merger effective. Prior to the filing referred to
in this Section, a closing (the "Closing") will be held at the office of
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. in Dallas, Texas (or such other
place as the parties may agree) for the purpose of confirming all of the
foregoing.
ARTICLE II.
DISSENTING SHARES; EXCHANGE OF SHARES
SECTION 2.1 Dissenting Shares. Notwithstanding anything in this
-----------------
Agreement to the contrary, Shares which are issued and outstanding immediately
prior to the Effective Time and which are held by shareholders who have not
voted such shares in favor of the Merger and who shall have delivered a written
demand for payment of the fair value of such shares within the time and in the
manner provided in Article 5.12 of the TBCA (the "Dissenting Shares") shall not
be converted into or be exchangeable for the right to receive the Merger
Consideration provided in
4
<PAGE>
Section 1.6 of this Agreement, unless and until such holder shall have failed to
perfect or shall have effectively withdrawn or lost his right to appraisal and
payment under the TBCA. If any such holder shall have so failed to perfect or
shall have effectively withdrawn or lost such right, such holder's Shares shall
thereupon be deemed to have been converted into and to have become exchangeable
for, at the Effective Time, the right to receive the Merger Consideration
without any interest thereon.
SECTION 2.2 Exchange of Shares.
------------------
(a) Compass shall deposit or cause to be deposited in trust with
River Oaks Trust Company, Houston, Texas (the "Exchange Agent"), pursuant to an
exchange agent agreement in substantially the form attached hereto as Exhibit B
(the "Exchange Agreement"), prior to the Effective Time cash in an aggregate
amount estimated to be sufficient to make the cash payments in lieu of
fractional shares of Compass Common Stock pursuant to Section 1.6 hereof and to
make the appropriate cash payments, if any, to holders of Dissenting Shares
(such amounts being hereinafter referred to as the "Exchange Fund"). The
Exchange Agent shall, pursuant to irrevocable instructions jointly given by the
Company and Compass, promptly make the payments in lieu of fractional shares out
of the Exchange Fund upon surrender of Shares in accordance with Section 2.2(b).
Payments to dissenting shareholders shall be made as required by Article 5.12 of
the TBCA. Subject to holding sufficient cash to make prompt payments to holders
of Shares, the Exchange Agent shall invest the Exchange Fund in The Starburst
Government Money Market Fund, managed by Compass Bank, 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 and subject to Section 2.3, 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 Company and
Compass (which shall specify that delivery shall be effected, and risk of loss
and title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent) and instructions for use in effecting the
surrender of the Certificates for payment therefor. Upon surrender to the
Exchange Agent of a Certificate, together with such letter of transmittal duly
executed, the holder of such Certificate shall be entitled to receive in
exchange therefor cash and Compass Common Stock in the amount provided in
Section 1.6, and such Certificate shall forthwith be canceled. Compass shall
provide the Exchange Agent with certificates for Compass Common Stock, as
requested by the Exchange Agent, in the amounts provided in Section 1.6 hereof.
No interest will be paid or accrued on the cash payable upon surrender of the
Certificate and no dividend will be disbursed with respect to the shares of
Compass Common Stock until the holder's Shares are surrendered in exchange
therefor. If payment or delivery of Compass Common Stock is to be made to a
person other than the person in whose name the Certificate surrendered is
registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment and delivery of Compass Common Stock to
a person other than the registered holder of the Certificate surrendered or
establish to the satisfaction of the Surviving Corporation
5
<PAGE>
that such tax has been paid or is not applicable. Until surrendered in
accordance with the provisions of this Section 2.2, each Certificate (other than
Certificates representing Dissenting Shares) shall represent for all purposes
the right to receive the Merger Consideration without any interest thereon.
(c) After the Effective Time, the stock transfer ledger of the Company
shall be closed and there shall be no transfers on the stock transfer books of
the Company of the Shares which were outstanding immediately prior to such time
of filing. If, after the Effective Time, Certificates are presented to the
Surviving Corporation, they shall be promptly presented to the Exchange Agent
and exchanged as provided in this Article II.
(d) Any portion of the Exchange Fund (including the proceeds of any
investments thereof) that remains unclaimed by the shareholders of the Company
for six months after the Effective Time shall be paid to Compass, and the
holders of Shares not theretofore presented to the Exchange Agent shall look to
Compass only, and not the Exchange Agent, for the payment of any Merger
Consideration in respect of such shares.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby makes the representations and warranties set forth
in this Article III to Compass. The Company will deliver to Compass the
Schedules to this Agreement referred to in this Article III on or before the
15th day after the date hereof which Schedules shall be subject to review and
approval by Compass in its sole discretion within 30 days after the date hereof.
The Company 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 Company is a Texas
------------------------------
corporation and a bank holding company under the Bank Holding Company Act of
1956, as amended, and is duly organized, validly existing and in good standing
under the laws of the State of Texas and all laws, rules, and regulations
applicable to bank holding companies. The Bank is a Texas banking association,
duly organized, validly existing and in good standing under the laws of the
State of Texas, and is not a member of the Federal Reserve System. Each of the
Company and the Bank has all requisite corporate power and authority to carry on
its business as now being conducted and to own, lease and operate its properties
and assets as now owned, leased or operated. Except as set forth on Schedule
3.17, the Company does not own or control any Affiliate (as defined in Section
3.17) or Subsidiary (as defined in Section 10.13(a)) other than the Bank. True
and correct copies of the Articles of Incorporation or Association and Bylaws of
the Company and the Bank, with all amendments thereto through the date of this
Agreement, have been delivered by the Company to Compass. The Bank is duly
qualified or licensed to do business and is in good standing in the State of
Texas. The nature of the business of the Company and the Bank and their
respective activities, as currently conducted, do not require them to be
qualified to do business in any jurisdiction other than the State of Texas.
6
<PAGE>
SECTION 3.2 Company Capitalization. As of the date hereof, the
----------------------
authorized capital stock of the Company consists solely of (a) 4,000,000 shares
of Company Common Stock, of which 1,741,628 shares are issued and outstanding,
188,000 shares of which are subject to options, 100,000 shares of which are
subject to warrants, 79,000 shares of which are subject to convertible debt
instruments, 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 Company or the Bank to purchase
or otherwise acquire any security of or equity interest in the Company or 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 Company to issue any shares of the
Company, or to the knowledge of the Company, irrevocable proxies or any
agreements restricting the transfer of or otherwise relating to shares of its
capital stock of any class. All of the Shares that have been issued have been
duly authorized, validly issued and are fully paid and non-assessable, and are
free of preemptive rights. There are no restrictions applicable to the payment
of dividends on the Shares except pursuant to the TBCA and applicable banking
laws and regulations and all dividends declared prior to the date hereof have
been paid.
SECTION 3.3 Bank Capitalization; Other Securities. All of the
-------------------------------------
issued and outstanding shares of the capital stock of the Bank (i) are duly
authorized, validly issued, fully paid and nonassessable, (ii) except as
referred to in Schedule 3.3 are free and clear of any liens, claims, security
interests and encumbrances of any kind, and (iii) there are no irrevocable
proxies with respect to such shares and there are no outstanding or authorized
subscriptions, options, warrants, calls, rights, or other agreements or
commitments of any kind restricting the transfer of, requiring the issuance or
sale of, or otherwise relating to any of such shares of capital stock to any
person. The Company owns, directly, all of the issued and outstanding capital
stock of the Bank. Set forth on Schedule 3.3 hereto is a list of all equity
ownership by the Company or the Bank for the account of the Company or the Bank
in any other person other than the Bank (the "Other Securities"). The Company or
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 Company has
-----------------------------------
full corporate power and authority, and, except for the approval by the
Company's shareholders, no further proceedings on the part of the Company 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 Company and is a duly authorized, valid, legally binding and enforceable
obligation of the Company, subject to the effect of bankruptcy, insolvency,
reorganization, moratorium, or other similar laws relating to creditors' rights
generally and general equitable principles, and subject to such shareholder
approvals and such approval of regulatory agencies and other governmental
authorities having authority over the Company as may be required by statute or
regulation. Except as set forth on Schedule 3.4, the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby will not conflict with, or result in any violation or breach
of or default under the respective Articles of Incorporation or Association or
By-Laws of the Company or the Bank or any agreement, document or instrument by
which the Company or the Bank is obligated or bound.
7
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SECTION 3.5 No Violation. Except as set forth on Schedule 3.5,
------------
neither the execution, delivery nor performance of this Agreement in its
entirety, nor the consummation of all of the transactions contemplated hereby,
following the receipt of such approvals as may be required from the Company's
shareholders, the SEC, the Federal Deposit Insurance Corporation ("FDIC"), the
Board of Governors of the Federal Reserve System ("FRB"), and the Texas
Department of Banking ("Department") will (i) violate (with or without the
giving of notice or the passage of time), any law, order, writ, judgment,
injunction, award, decree, rule, statute, ordinance or regulation applicable to
the Company or 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 Company or 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 Company or the Bank is a party or by which any of their
assets or properties are subject or bound. Except as set forth on Schedule 3.5,
there are no proceedings pending or, to the knowledge of the Company or the
Bank, threatened, against the Company, 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 Company and the
Bank will not be terminated or impaired by reason of the execution, delivery or
performance by the Company of this Agreement or consummation by the Company of
the transactions contemplated hereby, assuming the receipt of required
shareholder and regulatory approvals.
SECTION 3.6 Consents and Approvals. The Company's Board of
----------------------
Directors (at a meeting to be called and duly held) has determined that the
Merger is fair to the Company's shareholders and has resolved to recommend
approval and adoption of this Agreement by the Company'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 Company in connection with the execution, delivery and
performance by the Company of this Agreement and the transactions contemplated
hereby or the resulting change of control of the Bank, except the filing of the
Articles of Merger under the TBCA, the Certificate of Merger under the GCL, and
such approvals as may be required from the SEC, the FRB, the FDIC and the
Department and holders of Shares under the TBCA.
SECTION 3.7 Regulatory Reports. Except as set forth on Schedule
------------------
3.7, the Company and the Bank have filed all reports, registrations and
statements, together with any amendments required to be made thereto, that are
required to be filed with the FRB, the 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.
8
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SECTION 3.8 SEC Status; Securities Issuances. The Company is not
--------------------------------
subject to the registration provisions of Section 12 of the Exchange Act nor the
rules and regulations of the SEC promulgated under Section 12 of the Exchange
Act, other than anti-fraud provisions of such act. All issuances of securities
by the Company and the Bank have been registered under the Securities Act, the
Securities Act of the State of Texas, the Texas Banking Code, the Texas Banking
Act, and all other applicable laws or were exempt from any such registration
requirements.
SECTION 3.9 Financial Statements. The Company has provided Compass
--------------------
with a true and complete copy of the audited consolidated statement of financial
position of the Company and the Bank as of December 31, 1994, and the related
consolidated statements of income, shareholders' equity and changes in cash
flows for the years ended December 31, 1994 and 1993, plus consolidating
financial statements of the Bank, and the consolidated statements of financial
position of the Company and the Bank as of March 31 and June 30, 1995 and the
related consolidated statements of income, shareholders' equity and changes in
cash flows for the three- and six-month periods ended March 31 and June 30, 1995
and 1994, (such consolidated statements of financial position and the related
consolidated statements of income, shareholders' equity and changes in cash
flows are collectively referred to herein as the "Consolidated Financial
Statements"), plus all consolidating financial statements for the Bank
(collectively, with the Consolidated Financial Statements and the notes and
schedules thereto, referred to as the "Financial Statements"). The Consolidated
Financial Statements, including the consolidated statement of financial position
and the related consolidated statements of income, shareholders' equity and
changes in cash flows (including the related notes thereto) of the Company and
the Bank, fairly present the financial position of the Company and the Bank as
of the dates thereof and the results of operations and changes in consolidated
financial position of the Company and 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 Consolidated
Financial Statements accurately and fairly reflect in all material respects the
transactions of the Company and the Bank. As of their dates, the Consolidated
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. Neither the Company nor the Bank have any liabilities
or obligations of a type which should be included in or reflected on the
Financial Statements if prepared in accordance with GAAP, whether related to tax
or non-tax matters, accrued or contingent, due or not yet due, liquidated or
unliquidated, or otherwise, except as and to the extent disclosed or reflected
in the Financial Statements. The Company will provide Compass with the
unaudited consolidated and unconsolidated statements of financial position of
the Company and the Bank as of the end of each month hereafter, prepared on a
basis consistent with prior periods and promptly following their availability,
the Company will provide Compass with the Reports of Condition and Statements of
9
<PAGE>
Income ("Call Reports") of the Bank for all periods ending after June 30, 1995.
The Company and the Bank have no 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 June 30, 1995 (the "Balance Sheet
Date") neither the Company nor the Bank has:
(a) made any amendment to its Articles of Incorporation or
Association or Bylaws or changed the character of its business in any material
manner;
(b) suffered any
Material Adverse Effect (as defined in Section 10.13(b));
(c) entered into any agreement, commitment or transaction except in
the ordinary course of business and consistent with prudent banking practices;
(d) except in the ordinary course of business and consistent with
prudent banking practices, incurred, assumed or become subject to, whether
directly or by way of any guarantee or otherwise, any obligations or liabilities
(absolute, accrued, contingent or otherwise);
(e) permitted or allowed any of its property or assets to be subject
to any mortgage, pledge, lien, security interest, encumbrance, restriction or
charge of any kind (other than statutory liens not yet delinquent) except in the
ordinary course of business and consistent with prudent banking practices;
(f) except in the ordinary course of business and consistent with
prudent banking practices, canceled any debts, waived any claims or rights, or
sold, transferred, or otherwise disposed of any of its properties or assets;
(g) disposed of or permitted to lapse any rights to the use of any
trademark, service mark, trade name or copyright, or disposed of or disclosed to
any person other than its employees or agents, any trade secret not theretofore
a matter of public knowledge;
(h) except as set forth on Schedule 3.10 and except for regular
salary increases and bonuses granted in the ordinary course of business within
the Company's or the Bank's 1995 budget and consistent with prior practices,
granted any increase in compensation or paid or agreed to pay or accrue any
bonus, percentage compensation, service award, severance payment or like benefit
to or for the credit of any director, officer, employee or agent, or entered
into any employment or consulting contract or other agreement with any director,
officer or employee or adopted, amended or terminated any pension, employee
welfare, retirement, stock purchase, stock option, stock appreciation rights,
termination, severance, income protection, golden parachute, savings or profit-
sharing plan (including trust agreements and insurance contracts embodying such
plans), any deferred compensation, or collective bargaining agreement, any group
insurance contract or any other incentive, welfare or employee benefit plan or
agreement maintained by the
10
<PAGE>
Company or the Bank, for the directors, employees or former employees of the
Company or 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, except for
dividends paid to the Company by the Bank;
(j) organized or acquired any capital stock or other equity
securities or acquired any equity or ownership interest in any person (except
through settlement of indebtedness, foreclosure, the exercise of creditors'
remedies or in a fiduciary capacity, the ownership of which does not expose the
Company or 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 Company or
the Bank;
(n) except for the transactions contemplated by this Agreement or as
otherwise permitted hereunder, entered into any transaction, or entered into,
modified or amended any contract or commitment, other than in the ordinary
course of business and consistent with prudent banking practices; or
(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 Company Indebtedness. The Company has delivered to
--------------------
Compass true and complete copies of all loan documents ("Company Loan
Documents") related to indebtedness of the Company and its subsidiaries,
including the Bank, other than deposits ("Company Indebtedness"), and made
available to Compass all material correspondence concerning the status of
Company Indebtedness.
SECTION 3.12 Litigation. Except as set forth on Schedule 3.12,
----------
there are no actions, suits, claims, investigations, reviews or other
proceedings pending or, to the knowledge of the Company or the Bank, threatened
against the Company or the Bank or involving any of their respective properties
or assets, at law or in equity or before or by any foreign, federal, state,
municipal, or other governmental court, department, commission, board, bureau,
agency, or other
11
<PAGE>
instrumentality or person or any board of arbitration or similar entity
("Proceeding"). The Company will notify Compass immediately in writing of any
Proceedings against the Company or the Bank.
SECTION 3.13 Tax Matters. The Company and the Bank have duly filed
-----------
all tax returns required to be filed by them involving a tax liability or other
material potential detriment for failure to file (the "Filed Returns"). The
Company and the Bank have paid, or have established adequate reserves for the
payment of, all federal income taxes and all state and local income taxes and
all franchise, property, sales, employment, foreign or other taxes required to
be paid with respect to the periods covered by the Filed Returns. With respect
to the periods for which returns have not yet been filed, the Company and the
Bank have established adequate reserves determined in accordance with GAAP for
the payment of all federal income taxes and all state and local income taxes and
all franchise, property, sales, employment, foreign or other taxes. Except as
described in Schedule 3.13, the Company and the Bank have no direct or indirect
liability for the payment of federal income taxes, state and local income taxes,
and franchise, property, sales, employment or other taxes in excess of amounts
paid or reserves established. Except as set forth on Schedule 3.13, the Company
has not entered into any tax sharing agreement or other agreement regarding the
allocation of the tax liability of the Company or the Bank or similar
arrangement with its Subsidiaries. Set forth on Schedule 3.13 are the dates of
filing of all Filed Returns and any amendments thereto which relate to federal
or state income or franchise taxes. Neither the Company nor the Bank have filed
any Internal Revenue Service ("IRS") Forms 1139 (Application for Tentative
Refund). Except as set forth on Schedule 3.13, there are no pending questions
raised in writing by the IRS or other taxing authority for taxes or assessments
of the Company or the Bank, nor are there any outstanding agreements or waivers
extending the statutory period of limitation applicable to any tax return of the
Company or the Bank for any period. The Company and the Bank have withheld from
employee wages and paid over to the proper governmental authorities all amounts
required to be so withheld and paid over. For the purposes of this Agreement,
the term "tax" shall include all federal, state and local taxes and related
governmental charges and any interest or penalties payable in connection with
the payment of taxes.
SECTION 3.14 Employee Benefit Plans. With respect to all Employee
----------------------
Benefit Plans in which employees of the Company or 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 Company or the Bank or to which the
Company or 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 Company or 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;
12
<PAGE>
(b) Schedule 3.14(b) lists each "employee pension benefit plan" (as
defined in Section 3(2) of ERISA and not exempted under Section 4(b) or 201 of
ERISA) maintained by the Company or the Bank or to which the Company or the Bank
contributes or is required to contribute, including any multiemployer plan (as
defined in Section 3(37) of ERISA) (such employee pension benefit plans being
hereinafter collectively referred to as the "Pension Benefit Plans");
(c) All of the Pension Benefit Plans and Welfare Benefit Plans and
any related trust agreements or annuity contracts (or any other funding
instruments) comply currently, and have complied in the past, both as to form
and operation, with the provisions of ERISA, the Code and with all other
applicable laws, rules and regulations governing the establishment and operation
of the Pension Benefit Plans and Welfare Benefit Plans; all necessary
governmental approvals relating to the establishment of the Pension Benefit
Plans have been obtained; and with respect to each Pension Benefit Plan that is
intended to be tax-qualified under Section 401(a) or 403(a) of the Code, a
favorable determination letter as to the qualification under the Code of each
such Pension Benefit Plan and each material amendment thereto has been issued by
the Internal Revenue Service (and nothing has occurred since the date of the
last such determination letter which resulted in, or is likely to result in the
revocation of such determination), including amendments which may be required by
the Tax Reform Act of 1986, the Omnibus Budget Reconciliation Acts of 1986 and
1987, the Technical and Miscellaneous Revenue Act of 1988, the Revenue
Reconciliation Act of 1989 and the Omnibus Budget Reconciliation Act of 1990;
(d) Each Welfare Benefit Plan and each Pension Benefit Plan has been
administered in compliance with the requirements of the Code, ERISA and all
other applicable laws, and all reports and disclosures required by ERISA, the
Code and any other applicable laws with respect to each Welfare Benefit Plan and
each Pension Benefit Plan have been timely filed;
(e) On and after January 1, 1975, neither the Company, the Bank nor
any plan fiduciary of any Welfare Benefit Plan or Pension Benefit Plan has
engaged in any transaction in violation of Section 406 of ERISA (for which
transaction no exemption exists under Section 408 of ERISA) or in any
"prohibited transaction" as defined in Section 4975(c)(1) of the Code (for which
no exemption exists under Section 4975(c)(2) or 4975(d) of the Code);
(f) Schedule 3.14(f) lists each deferred compensation plan, bonus
plan, stock option plan, employee stock purchase plan, restricted stock, excess
benefit plan, incentive compensation, stock bonus, cash bonus, severance pay,
golden parachute, life insurance, all nonqualified deferred compensation
arrangements, rabbi trusts, all unfunded plans and any other employee benefit
plan, agreement, arrangement or commitment not required under a previous
subsection to be listed (other than normal policies concerning holidays,
vacations and salary continuation during short absences for illness or other
reasons) maintained by the Company or the Bank;
13
<PAGE>
(g) Neither the Company, the Bank nor any corporation or other trade
or business controlled by or under common control with the Company (as
determined under Sections 414(b) and 414(c) of the Code) ("Common Control
Entity") is, or has been within the past five years, a contributing sponsor (as
defined in Section 4001(a)(13) of ERISA) of a Pension Benefit Plan subject to
the provisions of Title IV of ERISA, nor has the Company, 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 Company, nor the Bank nor a Common Control
Entity (i) is a party to a collective bargaining agreement, (ii) has maintained
or contributed to, or has participated in or agreed to participate in, a
multiemployer plan (as defined in Section 3(37) of ERISA), or (iii) has made a
complete or partial withdrawal from a multiemployer plan (as defined in Section
3(37) of ERISA) so as to incur withdrawal liability as defined in Section 4201
of ERISA (without regard to subsequent reduction or waiver of such liability
under Section 4207 or 4208 of ERISA);
(h) True and complete copies of each Welfare Benefit Plan and each
Pension Benefit Plan, related trust agreements or annuity contracts (or any
other funding instruments), summary plan descriptions, each plan, agreement,
arrangement, and commitment referred to in subsection 3.14(f) of this Section,
the most recent determination letter issued by the Internal Revenue Service with
respect to each Pension Benefit Plan, the most recent application for a
determination letter from the Internal Revenue Service with respect to each
Pension Benefit Plan and Annual Reports on Form 5500 Series filed with any
governmental agency for each Welfare Benefit Plan and each Pension Benefit Plan
for the two most recent plan years, have been furnished to Compass;
(i) All Welfare Benefit Plans, Pension Benefit Plans, related trust
agreements or annuity contracts (or any other funding instruments), and all
plans, agreements, arrangements and commitments referred to in subsection
3.14(f) of this Section are legally valid and binding and in full force and
effect and there are no promised increases in benefits (whether expressed,
implied, oral or written) under any of these plans nor any obligations,
commitments or understandings to continue any of these plans, (whether
expressed, implied, oral or written) except as required by Section 4980B of the
Code and Sections 601-608 of ERISA;
(j) There are no claims pending with respect to, or under, any
Pension Benefit Plan, Welfare Benefit Plan or any plan, agreement, arrangement
or commitment described in subsection 3.14(f), other than routine claims for
plan benefits, and there are no disputes or litigation pending or threatened
with respect to any such plans;
(k) No action has been taken, nor has there been a failure to take
any action that would subject any person or entity to any liability for any
income, excise or other tax or penalty in connection with any Pension Benefit
Plan, Welfare Benefit Plan or any plan, agreement, arrangement or commitment
described in subsection 3.14(f), other than for income taxes due with respect to
benefits paid; and
(l) Except as otherwise set forth in Schedule 3.14(l), neither the
execution and delivery of this Agreement nor the consummation of the transaction
contemplated hereby will (i) result in
14
<PAGE>
any payment to be made by the Company or the Bank (including, without
limitation, severance, unemployment compensation, golden parachute (defined in
Section 280G of the Code), or otherwise) becoming due to any employee, or (ii)
increase any benefits otherwise payable under any Welfare Benefit Plan, Pension
Benefit Plan, or any plan, agreements, arrangements, and commitments referred to
in subsection 3.14(f) of this Section.
SECTION 3.15 Employment Matters. Except as disclosed on Schedule
------------------
3.15, neither the Company nor the Bank is a party to any oral or written
contracts or agreements granting benefits or rights to employees or any
collective bargaining agreement or to any conciliation agreement with the
Department of Labor, the Equal Employment Opportunity Commission or any federal,
state or local agency which requires equal employment opportunities or
affirmative action in employment. There are no unfair labor practice complaints
pending against the Company or 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
Company or the Bank, nor of any strikes, slowdowns, work stoppages, lockouts, or
threats thereof, by or with respect to any such employees. The Company and the
Bank are in compliance in all material respects with all applicable laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, and neither the Company nor the Bank is engaged
in any unfair labor practice.
SECTION 3.16 Leases, Contracts and Agreements. Schedule 3.16 sets
--------------------------------
forth an accurate and complete description of all leases, subleases, licenses,
contracts and agreements to which the Company or the Bank is a party or by which
the Company or the Bank is bound which obligate or may obligate the Company or
the Bank in the aggregate for an amount in excess of $50,000 over the entire
term of any such agreement or related contracts of a similar nature which in the
aggregate obligate or may obligate the Company or the Bank in the aggregate for
an amount in excess of $50,000 over the entire term of such related contracts
(the "Contracts"). The Company has delivered to Compass true and correct copies
of all Contracts. For the purposes of this Agreement, the Contracts shall be
deemed not to include loans made by, repurchase agreements made by, spot foreign
exchange transactions of, bankers acceptances of, agreements with Bank customers
for trust services, or deposits by the Company or the Bank, but does include
unfunded loan commitments and letters of credit issued by the Company or the
Bank where the borrowers' total direct and indirect indebtedness to the Bank is
in excess of $50,000. Except as set forth in Schedule 3.16, no participations
or loans have been sold which have buy back, recourse or guaranty provisions
which create contingent or direct liabilities of the Company or 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 Company and the Bank under the Contracts are current,
there are no existing defaults by the Company or 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. Each of
15
<PAGE>
the Company and 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 Company 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 among the Company, whether on its own behalf or in its
capacity as trustee or custodian for the funds of any employee benefit plan (as
defined in ERISA), and any of its Affiliates (including the Bank). The term
"Affiliate" as used in this Agreement means, with respect to any person, any
person that, directly or indirectly, controls, is controlled by, or is under
common control with, such person in question. For the purposes of this
definition, "control" (including, with correlative meaning, the terms
"controlled by" and "under common control with") as used with respect to any
person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such person,
whether through the ownership of voting securities or by contract or otherwise.
SECTION 3.18 Compliance with Laws. Except as set forth on Schedule
--------------------
3.18, neither the Company nor the Bank is in default in respect to or is 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 Company or
the Bank. The Company and the Bank have all permits, licenses, and franchises
from governmental agencies required to conduct their businesses as they are now
being conducted.
SECTION 3.19 Insurance. The Company and the Bank have in effect the
---------
insurance coverage (including fidelity bonds) described in Schedule 3.19 and
have had similar insurance in force for the last 5 years. There have been no
claims under such bonds within the last 5 years and neither the Company nor the
Bank is aware of any facts which would form the basis of a claim under such
bonds. Neither the Company nor the Bank has any reason to believe that the
existing fidelity coverage would not be renewed by its carrier on substantially
the same terms.
SECTION 3.20 Loans. Each loan reflected as an asset in the
-----
Financial Statements is the legal, valid and binding obligation of the obligor
of each loan, enforceable in accordance with its terms, subject to the 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.
16
<PAGE>
SECTION 3.21 Fiduciary Responsibilities. The Company and the Bank
--------------------------
have performed in all material respects all of their respective duties as a
trustee, custodian, guardian or as an escrow agent in a manner which complies in
all respects with all applicable laws, regulations, orders, agreements,
instruments and common law standards.
SECTION 3.22 Patents, Trademarks and Copyrights. Except as set
----------------------------------
forth in Schedule 3.22, neither the Company nor the Bank 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
Company or the Bank. The Company and the Bank own or are licensed or otherwise
have the right to use the items listed in Schedule 3.22.
SECTION 3.23 Environmental Compliance. Except as set forth in
------------------------
Schedule 3.23:
(a) To the knowledge of the Company and the Bank, the Company, the
Bank and any property owned or operated by them are in compliance with all
applicable Environmental Laws (as defined in Section 10.14(c)) and have obtained
and are in compliance with all permits, licenses and other authorizations
required under any Environmental Law. To the knowledge of the Company and the
Bank, there is no past or present event, condition or circumstance that is
likely to interfere with the conduct of the business of the Company or the Bank
in the manner now conducted relating to such entity's compliance with
Environmental Laws or constitute a violation thereof or which would have a
Material Adverse Effect upon the Company or the Bank;
(b) Neither the Company nor any Subsidiary does now or has leased,
operated, owned, or exercised managerial functions at any facilities or real
property with respect to which such entity, facility or real property is subject
to any actual, potential, or, to the knowledge of the Company or the Bank,
threatened Proceeding under any Environmental Law;
(c) There are no actions or Proceedings pending or, to the knowledge
of the Company or the Bank, threatened against the Company or the Bank under any
Environmental Law, and neither the Company nor the Bank has received any notice
(whether from any regulatory body or private person) of violation, or potential
or threatened violation, of any Environmental Law;
(d) There are no actions or Proceedings pending or, to the knowledge
of the Company or the Bank, threatened under any Environmental Law involving the
release or threat of release of any Polluting Substances (as defined in Section
10.14(d)) at or on (i) any Property currently or in the past owned, operated, or
leased by the Company or Bank or over which the Company or the Bank exercised
managerial functions, or (ii) at any property where Polluting Substances
generated by the Company or the Bank have been disposed;
(e) There is no Property for which the Company or the Bank is or was
required to obtain any Permit under an Environmental Law to construct, demolish,
renovate, occupy, operate, or use such Property or any portion of it;
17
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(f) Except as disclosed to Compass, neither the Bank nor the Company
has generated any Polluting Substances and for any such Polluting Substances
properly executed manifests are on record with them and any appropriate
regulatory agency;
(g) To the knowledge of the Company and the Bank, there has been no
release of Polluting Substances in violation of any Environmental Laws, which
would require any report or notification to any governmental or regulatory
authority, in or on any Property;
(h) Neither any Property nor the Bank nor the Company is subject to
investigation or pending or, to the knowledge of the Company or the Bank,
threatened litigation by federal, state or local officials or private litigant
as a result of any previous on-site management, treatment, storage, release or
disposal of Polluting Substances or exposure to any Polluting Substances;
(i) There are no underground or above ground storage tanks on or
under any Property other than Property now held as security for a loan or other
indebtedness owed to the Company or the Bank, and to the knowledge of the
Company and the Bank, there are no underground or above-ground storage tanks on
any Property now held as security for a loan or other indebtedness owed to the
Company or the Bank, which are not in conformity with Environmental Laws and any
Property previously containing such tanks has been remediated in compliance with
all Environmental Laws;
(j) There is no asbestos containing material on any Property other
than Property now held as security for a loan or other indebtedness owned to the
Company or the Bank and, to the knowledge of the Company and the Bank, there is
no asbestos-containing material on any Property now held as security for a loan
or other indebtedness owed to the Company or the Bank; and
(k) The Company and the Bank have fully complied with the guidelines
issued by the Federal Deposit Insurance Corporation on February 25, 1993 that
require banks to investigate and regularly review the hazardous waste conditions
of property held by such bank as security with respect to any Property securing
any loan.
(l) For purposes of this Section 3.23 and Section 6.10, "Property"
includes any property (whether real or personal) which the Company or 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 and property now held as security for a loan or other indebtedness
by the Company or the Bank.
SECTION 3.24 Regulatory Actions. Except as set forth on Schedule
------------------
3.24, there are no actions or proceedings pending or, to the knowledge of the
Company and the Bank, threatened against the Company or 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, neither the Bank nor the
Company is subject to a formal or informal
18
<PAGE>
agreement, memorandum of understanding, enforcement action with or any type of
financial assistance by any regulatory authority having jurisdiction over such
entity. Neither the Company nor the Bank has taken or agreed to take any action
or has knowledge of any fact or circumstance that would materially impede or
delay receipt of any required regulatory approval. Except as set forth in
Schedule 3.24, the Company and the Bank have 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 Company and
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, each of the Company and 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 Company has a title policy in full force and effect
from a title insurance company which, to the best of Company's knowledge, is
solvent, insuring good and indefeasible title to all real property owned by the
Company and the Bank in favor of the Company or the Bank, whichever is
applicable. The Company will make available to Compass all of the files and
information in the possession of the Company or the Bank concerning such
properties, including any title exceptions which might affect marketable title
or value of such property. The Company and the Bank each hold good and legal
title or good and valid leasehold rights to all assets that are necessary for
them to conduct their respective businesses as they are currently being
conducted. Except as set forth on Schedule 3.25, the Company 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 Company has provided to Compass
----------------
prior to the date of this Agreement a list of the holders of Shares and the
holders of any outstanding warrant, option, convertible debenture or other
security entitling the holder thereof to acquire Shares as of September 27, 1995
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
Company will promptly, and in any event prior to the mailing of the Proxy
Statement, advise Compass of any significant changes thereto.
SECTION 3.27 Proxy Statement. None of the information supplied or
---------------
to be supplied by the Company or the Bank, or, to the knowledge of the Company
or the Bank, any of their respective directors, officers, employees or agents
for inclusion in:
(a) the Proxy Statement; or
19
<PAGE>
(b) any registration statement or other documents to be filed with
the SEC or any regulatory or governmental agency or authority in connection with
the transactions contemplated hereby, at the respective times such documents are
filed, and, with respect to the Proxy Statement, when first mailed to the
shareholders of Company;
will be false or misleading with respect to any material fact, or omit to state
any material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, or, in the case of
the Proxy Statement or any amendment thereof or supplement thereto, at the time
of the Shareholders' Meeting, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the Shareholders' Meeting. All documents that the Company or 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 Company and the Bank, and
-----------------------
their respective directors, have no knowledge of any plan or intention on the
part of any Company shareholders to make written demand for payment of the fair
value of such Shares in the manner provided in Article 5.12 of the TBCA.
SECTION 3.29 Section 368 Representations. (a) There is no plan or
---------------------------
intention by any Company shareholder who is anticipated to receive two percent
(2%) or more of the total Merger Consideration ("2% Shareholder") and, to the
knowledge of the Company, the Bank, and their respective directors, there is no
plan or intention by any of the remaining Company shareholders, to sell or
otherwise dispose of shares of Compass Common Stock received pursuant to the
Merger that would reduce all such shareholders' holdings to a number of shares
having a total fair market value at the Effective Time of less than fifty
percent (50%) of the total fair market value of all of the Company's capital
stock outstanding immediately prior to the Effective Time. For purposes of this
Section 3.29, shares of the Company's capital stock surrendered by dissenting
shareholders and shares of the Company's capital stock sold, redeemed or
otherwise disposed of prior or subsequent to and as a part of the overall
transaction contemplated by the Merger will be considered to be capital stock of
the Company outstanding immediately prior to the Merger.
(b) The Company has set forth on Schedule 3.29 all knowledge of the
Company and the Bank and their respective directors about the plans or
intentions of any other Company shareholders to sell or otherwise dispose of the
Compass Common Stock to be received pursuant to the Merger.
(c) Neither Compass nor Compass Texas will assume any debts or
obligations of the holders of the Shares as part of the Merger.
20
<PAGE>
(d) Except as set forth on Schedule 3.29, there have not been any
sales or redemptions of the Company's capital stock in contemplation of the
Merger. Schedule 3.29 sets forth all transactions in the capital stock of the
Company since December 31, 1994.
(e) The liabilities of the Company assumed by Compass as a part of the
Merger and the liabilities to which the transferred assets of the Company are
subject were incurred by the Company in the ordinary course of its business.
(f) The Company and
its shareholders will pay their own expenses which are incurred in connection
with the Merger.
(g) The Company has not disposed of any assets (either as a dividend
or otherwise) constituting more than 10% of the fair market value of all of its
assets (ignoring any liabilities) at any time either during the past twelve
months or in contemplation of the Merger.
(h) The Company is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(i) The Company is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
SECTION 3.30 Employee Stock Options. Except as set forth on
----------------------
Schedule 3.30, there are no Company employee stock option plans or provisions in
any other plan, program, or arrangement providing for the issuance or grant of
any other interest in respect of the capital stock of the Company or the Bank.
SECTION 3.31 Accounting Matters. Neither the Company nor any of its
------------------
affiliates has taken or agreed to take any action that would prevent Compass
from accounting for the business combination to be effected by the Merger as a
pooling of interests, including, without limitation, any action inconsistent
with the provisions of Exhibit C hereto.
SECTION 3.32 Representations Not Misleading. No representation or
------------------------------
warranty by the Company in this Agreement, nor any statement, summary, exhibit
or schedule furnished to Compass or Compass Texas by the Company or the Bank
under and pursuant to, or in anticipation of this Agreement, contains or will
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements contained herein or therein not misleading.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF COMPASS
Compass hereby makes the representations and warranties set forth in
this Article IV to the Company.
21
<PAGE>
SECTION 4.1 Organization and Authority.
--------------------------
(a) Compass is and will cause Compass Texas to be prior to the
Effective Time 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, other than approval by Compass' Board of
Directors and will be duly and validly authorized by Compass Texas' 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 Board of Director and
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 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 Compass Texas, 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,
22
<PAGE>
federal, state, municipal or
other governmental court, department, commission, board, bureau, agency,
instrumentality or other person which may result in liability to the Company or
the Bank on the consummation of the transactions contemplated hereby or which
would prevent or delay such consummation. Except as set forth in Schedule 4.2,
or as contemplated hereby, the corporate existence, business, organization,
assets, licenses, permits, authorizations and contracts of Compass will not be
terminated or impaired by reason of the execution, delivery or performance by
Compass of this Agreement or consummation by Compass of the transactions
contemplated hereby, assuming receipt of the required regulatory approvals.
SECTION 4.3 Financial Reports. Compass has previously furnished the
-----------------
Company a true and complete copy of (i) the 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 then ended December 31, 1994, 1993 and 1992
and (ii) Compass' quarterly reports on Form 10-Q for the quarters ended March 31
and June 30, 1995 (the "Quarterly Reports") which reports include among other
things consolidated balance sheets of Compass and its Subsidiaries as of March
31 and June 30, 1995 and December 31, 1994 and the related consolidated
statements of income and cash flows for the three- and six-month periods ending
March 31 and June 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 contained therein fairly present
the results of operations and cash flows thereof for the fiscal years then
ended. The consolidated financial statements of Compass and its Subsidiaries as
of March 31 and June 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 the date of this Agreement, Compass has
38,119,669 shares of common stock, $2.00 per share par value, issued and
outstanding as of October 11, 1995. 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.
23
<PAGE>
SECTION 4.5 Consents and Approvals. No prior consent, approval or
----------------------
authorization of, or declaration, filing or registration with any person,
domestic or foreign, is required of or by Compass in connection with the
execution, delivery and performance by Compass of this Agreement and the
transactions contemplated hereby or the resulting change in control of the
Company and the Bank, except the filing of Articles of Merger under the TBCA,
the filing of the Certificate of Merger under the GCL, and such approvals as may
be required from the SEC, the FRB, the Department and the FDIC.
SECTION 4.6 Proxy Statement. None of the information supplied or to
---------------
be supplied by Compass, or, to the best knowledge of Compass, any of its
directors, officers, employees or agents for inclusion in:
(a) the Proxy Statement; or
(b) any registration statement or other documents to filed with the
SEC or any regulatory or governmental agency or authority in
connection with the transactions contemplated herein, at the
respective times such documents are filed, and, with respect to
the Proxy Statement, when first mailed to the shareholders of the
Company;
will be false or misleading with respect to any material fact, or omit to state
any material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, or, in the case of
the Proxy Statement or any amendment thereof or supplement thereto, at the time
of the Shareholders' Meeting, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the Shareholders' Meeting. All documents that Compass is responsible
for filing with any regulatory or governmental agency in connection with the
Merger will comply in all material respects with the provisions of applicable
law.
SECTION 4.7 Availability of Compass Common Stock. Compass has
------------------------------------
available a sufficient number of authorized and unissued shares of Compass
Common Stock to pay the Merger Consideration, and Compass will not take any
action during the term of this Agreement that will cause it not to have a
sufficient number of authorized and unissued shares of Compass Common Stock to
pay the Merger Consideration.
SECTION 4.8 Representations Not Misleading. No representation or
------------------------------
warranty by Compass in this Agreement, nor any statement or exhibit furnished to
the Company or the Bank under and pursuant to, or in anticipation of this
Agreement, contains or will contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements contained herein
or therein not misleading.
24
<PAGE>
ARTICLE V.
COVENANTS OF THE COMPANY
SECTION 5.1 Affirmative Covenants of the Company. For so long as
------------------------------------
this Agreement is in effect, the Company shall, and shall use its best efforts
to cause its Subsidiaries, including the Bank (collectively, the "Acquired
Companies") to, from the date of this Agreement to the Closing, except as
specifically contemplated by this Agreement:
(a) operate and conduct the businesses of the Acquired Companies in
the ordinary course of business and consistent with prudent banking practices;
(b) preserve intact the Acquired Companies' corporate existence,
business organization, assets, licenses, permits, authorizations, and business
opportunities;
(c) comply with all material contractual obligations applicable to the
Acquired Companies' operations;
(d) maintain all the Acquired Companies' properties in good repair,
order and condition, reasonable wear and tear excepted, and maintain the
insurance coverages described in Schedule 5.1(d) (which shall list all Property
insured by such coverages) or obtain comparable insurance coverages from
reputable insurers which, in respect to amounts, types and risks insured, are
adequate for the business conducted by the Acquired Companies and consistent
with the existing insurance coverages;
(e) in good faith and in a timely manner (i) cooperate with Compass
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 Company (or
any of them) to carry out and consummate the transactions contemplated by this
Agreement, including all consents, approvals and authorizations required by any
agreement or understanding existing at the Closing between the Company and any
governmental agency or other third party, (iii) furnish information concerning
the Acquired Companies not previously provided to Compass required for inclusion
in any filings or applications that may be necessary in that regard and (iv)
perform all acts and execute and deliver all documents necessary to cause the
transactions contemplated by this Agreement to be consummated at the earliest
possible date;
(f) timely file with the FRB, the OCC, the Department, and the FDIC,
all financial statements and other reports required to be so filed by any of the
Acquired Companies and to the extent permitted by applicable law, promptly
thereafter deliver to Compass copies of all financial statements and other
reports required to be so filed;
(g) comply in all material respects with all applicable laws and
regulations, domestic and foreign;
25
<PAGE>
(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 Company Loan
Documents and promptly notify and provide copies to Compass of any material
written communications concerning the Company Loan Documents;
(i) between the date of this Agreement and Closing, promptly give
written notice to Compass upon obtaining knowledge of any event or fact that
would cause any of the representations or warranties of the Company contained in
or referred to in this Agreement to be untrue or misleading in any material
respect;
(j) deliver to Compass a list (Schedule 5.1(j)), dated as of the
Effective Time, showing (i) the name of each bank or institution where the
Company and the Bank have accounts or safe deposit boxes, (ii) the name(s) in
which such accounts or boxes are held and (iii) the name of each person
authorized to draw thereon or have access thereto;
(k) deliver to Compass a list (Schedule 5.1(k)), dated as of the
Effective Time, showing all liabilities and obligations of Company and the Bank,
except those arising in the ordinary course of their respective businesses,
incurred since the Balance Sheet Date, certified by an officer of Company;
(l) promptly notify Compass of any material change or inaccuracies in
any data previously given or made available to Compass or Compass Texas pursuant
to this Agreement;
(m) provide to Compass on or before October 18, 1995 true and correct
copies of statements received from each 2% 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 October 20, 1995 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(n) 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;
(o) will deliver to Compass on or before October 20, 1995 an executed
agreement in the form of Exhibit E attached hereto whereby each holder of
Convertible Securities (as defined in Section 6.14) shall convert the
Convertible Securities at the Effective Time if not previously converted
("Convertible Securities Agreement"); and
(p) provide access, to the extent that the Company or the Bank have
the right to provide access, to any or all Property (as defined in Section 3.23)
so as to enable Compass, at its
26
<PAGE>
sole expense, to physically inspect any structure or components of any structure
on such Property, including without limitation surface and subsurface testing
and analyses.
SECTION 5.2 Negative Covenants of the Company. Except with the
---------------------------------
prior written consent of Compass (which will not be unreasonably withheld) or as
otherwise specifically permitted by this Agreement, the Company will not and
will use its best efforts not to permit the Bank, or any other Subsidiary of the
Company, to, from the date of this Agreement to the Closing:
(a) make any amendment to its articles of incorporation or association
or bylaws;
(b) make any change in the methods used in allocating and charging
costs, except as may be required by applicable law, regulation or GAAP and after
notice to Compass;
(c) make any change in the number of shares of the capital stock
issued and outstanding, or issue, reserve for issuance, grant, sell or authorize
the issuance of any shares of its capital stock or subscriptions, options,
warrants, calls, rights or commitments of any kind relating to the issuance or
sale of or conversion into shares of its capital stock;
(d) contract to create any obligation or liability (absolute,
accrued, contingent or otherwise) except in the ordinary course of business and
consistent with prudent banking practices;
(e) contract to create any mortgage, pledge, lien, security interest
or encumbrances, restrictions, or charge of any kind (other than statutory liens
for which the obligations secured thereby shall not become delinquent), except
in the ordinary course of business and consistent with prudent banking
practices;
(f) cancel any debts, waive any claims or rights of value or sell,
transfer, or otherwise dispose of any of its material properties or assets,
except in the ordinary course of business and consistent with prudent banking
practices;
(g) sell any real estate owned as of the date of this Agreement or
acquired thereafter, which real estate qualifies as "other real estate owned"
under accounting principles applicable to it, except in the ordinary course of
business and consistent with prudent banking practices and applicable banking
laws and regulations;
(h) dispose of or permit to lapse any rights to the use of any
material trademark, service mark, trade name or copyright, or dispose of or
disclose to any person other than its employees any material trade secret not
theretofore a matter of public knowledge;
(i) except as set forth on Schedule 3.10 and except for regular
salary increases and bonuses granted in the ordinary course of business within
the Company or the Bank's 1995 budget 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
27
<PAGE>
other agreement with any director, officer or employee, or adopt, amend or
terminate any Employee Benefit Plan or change or modify the period of vesting or
retirement age for any participant of such a plan;
(j) declare, pay or set aside for payment any dividend or other
distribution or payment in respect of shares of its capital stock, except for
dividends from the Company to the Bank permitted by Section 6.11;
(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 $50,000 in the aggregate;
(m) make any income tax or franchise tax election or settle or
compromise any federal, state, local or foreign income tax or franchise tax
liability, or, except in the ordinary
course of business consistent with prudent banking practices, make any other tax
election or settle or compromise any other federal, state, local or foreign tax
liability;
(n) except for negotiations and discussions between the parties
hereto relating to the transactions contemplated by this Agreement or as
otherwise permitted hereunder, enter into any transaction, or enter into, modify
or amend any contract or commitment other than in the ordinary course of
business and consistent with prudent banking practices;
(o) except as contemplated by this Agreement, adopt a plan of
complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization, or other reorganization or business combination
of the Company or 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 Company 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;
28
<PAGE>
(u) change any fiscal year or the length thereof;
(v) take or agree to take any action that would prevent Compass from
accounting for the business combination to be effected by the Merger as a
pooling of interests, including, without limitation, any action inconsistent
with the provisions of Exhibit D hereto; or
(w) prepay in whole or in part the Company Indebtedness; or
(x) enter into any agreement, understanding or commitment, written or
oral, with any other person which is in any manner inconsistent with the
obligations of the Company and its directors and the Bank under this Agreement
or any related written agreement. Nothing contained in this Section 5.2 or in
Section 5.1 is intended to influence the general management or overall
operations of the Company or the Bank in a manner not permitted by applicable
law and the provisions thereof shall automatically be reduced in compliance
therewith.
ARTICLE VI.
ADDITIONAL AGREEMENTS
SECTION 6.1 Access To, and Information Concerning, Properties and
-----------------------------------------------------
Records. During the pendency of the transactions contemplated hereby, the
- -------
Company shall, to the extent permitted by law, give Compass, its legal counsel,
accountants and other representatives full access, during normal business hours,
throughout the period prior to the Closing, to all of the Company's and the
Bank's properties, books, contracts, commitments and records, permit Compass to
make such inspections (including without limitation with regard to such
properties physical inspection of the surface and subsurface thereof and any
structure thereon) as they may require and furnish to Compass during such period
all such information concerning the Company and the Bank and their affairs as
Compass may reasonably request. All information disclosed by the Company to
Compass shall be held confidential by Compass and its representatives, except to
the extent counsel to Compass has advised it such information is required to or
should be disclosed in filings with regulatory agencies or governmental
authorities or in proxy materials delivered to shareholders of the Company or
was already public information when provided to Compass. In the event this
Agreement is terminated pursuant to the provisions of Article VIII, Compass
agrees to destroy or return to the Company 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 Bank and
Compass Bank-Dallas, Dallas, Texas, a Texas banking corporation and indirect
wholly-owned subsidiary of Compass ("Compass Bank"). Compass will deliver to
the Company, and the Company will deliver to Compass, copies of all non-
confidential portions of any such applications.
29
<PAGE>
SECTION 6.3 Miscellaneous Agreements and Consents. Subject to the
-------------------------------------
terms and conditions of this Agreement, Compass and the Company agree to use all
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, all things necessary, proper, or advisable under applicable
laws and regulations to consummate and make effective, as soon as practicable
after the date hereof, the transactions contemplated by this Agreement. Compass
and the Company shall use their respective best efforts to obtain or cause to be
obtained consents of all third parties and governmental and regulatory
authorities necessary or desirable for the consummation of the transactions
contemplated herein.
SECTION 6.4 Company Indebtedness. Prior to the Effective Time, the
--------------------
Company shall pay all regularly scheduled payments on all Company Indebtedness
and shall cooperate with Compass in taking such actions as are reasonably
appropriate or necessary in connection with the redemption, prepayment,
modification, satisfaction or elimination of any outstanding indebtedness of the
Company or the Bank with respect to which a consent is required to be obtained
to effectuate the Merger and the transactions contemplated by this Agreement and
has not been so obtained. Compass agrees to pay or cause to be paid any
outstanding Company Indebtedness immediately after the Effective Time.
SECTION 6.5 Best Good Faith Efforts. All parties hereto agree that
-----------------------
the parties will use their best good faith efforts to secure all regulatory
approvals necessary to consummate the Merger and other transactions provided
herein and to satisfy the other conditions to Closing contained herein.
SECTION 6.6 Exclusivity. The Company shall not solicit, entertain
-----------
or negotiate with respect to any offer to acquire the Company or the Bank from
any other person. During the term of this Agreement, neither the Company nor
the Bank shall provide information to any other person in connection with a
possible acquisition of the Company or the Bank. Immediately upon receipt of
any such unsolicited offer, the Company will communicate to Compass the terms of
any proposal or request for information and the identity of parties involved.
SECTION 6.7 Public Announcement. Subject to written advice of
-------------------
counsel with respect to legal requirements relating to public disclosure of
matters related to the subject matter of this Agreement, the timing and content
of any announcements, press releases or other public statements concerning the
proposal contained herein will occur upon, and be determined by, the mutual
consent of the Company and Compass.
SECTION 6.8 Employee Benefit Plans. Compass presently intends that,
----------------------
after the Merger, Compass Texas and the Bank will not make additional
contributions to the Employee Benefit Plans. However, Compass agrees that the
employees of the Company and the Bank will be entitled to participate as new
employees in the employee welfare (including without limitations, group medical)
and pension benefit plans maintained for employees of Compass Bank and its
Affiliates, in accordance with their respective terms. Compass further agrees
that employees of the Company and the Bank will be entitled to credit for prior
service with the Company and the Bank for all purposes of accruing employee
benefits, including, calculating vacation benefits and sick time.
Notwithstanding the foregoing, employees of the Company and the Bank will not
30
<PAGE>
receive any credit for prior service with the Company or the Bank with respect
to the employee stock ownership plan, 401(k) plan, retirement plan or any other
defined ownership plan or defined benefit plan now or hereafter maintained by
Compass for the benefit of any of the employees of Compass and its Affiliates.
SECTION 6.9 Merger of Bank. Compass presently intends to cause the
--------------
Bank to merge into Compass Bank immediately after the Merger, and the Company
agrees to cause the Bank to execute documents and take actions (conditioned on
the Merger being effective) and otherwise cooperate with Compass during the time
the Merger transaction is pending in order to facilitate such merger of the Bank
into Compass Bank immediately after the Closing.
SECTION 6.10 Environmental Investigation; Right to Terminate
-----------------------------------------------
Agreement. (a) Compass and its consultants, agents and representatives, shall
- ---------
have the right to the same extent that the Company or the Bank has such right,
but not the obligation or responsibility, to inspect at its sole expense the
Property to the extent that the Company and the Bank have the right to permit
Compass and its consultants, agents and representatives to inspect the Property,
including, without limitation, conducting asbestos surveys and sampling,
environmental assessments and investigations, and other environmental surveys
and analyses including soil and ground sampling ("Environmental Inspections") at
any time and shall complete such inspections on or prior to the 75th day after
the date hereof. Compass shall notify the Company prior to any physical
inspections of Property, and the Company may place reasonable restrictions on
the time of such inspections. If, as a result of any such Environmental
Inspection, further investigation ("secondary investigation") including, without
limitation, test borings, soil, water and other sampling is deemed desirable by
Compass, Compass shall notify the Company of the Properties on which it intends
to conduct a secondary investigation on or prior to the 82nd day after the date
hereof. Compass shall notify the Company of any Properties that are not
acceptable and require remediation on or prior to the 132nd day after the date
hereof. With respect to any Property which is owned, operated or leased by the
Company or the Bank or over which the Company or the Bank has managerial
control, including without limitation the Company's and the Bank's premises and
other real estate owned ("Controlled Property"), that Compass has notified the
Company is not acceptable and requires remediation, the Company shall promptly
prepare a remediation plan acceptable to Compass and obtain approval of such
remediation plan by the Texas Natural Resource Conservation Commission or any
other appropriate governmental authority ("Environmental Regulatory Authority")
on or prior to the 270th day after the date hereof. Promptly following the
preparation of any such remediation plan and its approval by the appropriate
Environmental Regulatory Authority, the Company shall perform the remediation
contemplated by any such plan. In the event that the Company is unable to obtain
the approval of any such remediation plan within the time period described
above, any such remediation plan is not reasonably acceptable to Compass, the
Company refuses or fails to conduct remediation in accordance with any such
approved plan on or prior to the 270th day after the date hereof, or the
applicable Environmental Regulatory Authority disapproves of the results of any
such remediation conducted by the Company, Compass shall have the right to
terminate this Agreement pursuant to written notice to the Company on or prior
to the 10th business day after the date the Company advises Compass in writing
that, as applicable, the Company has been unable to obtain timely
31
<PAGE>
approval of any remediation plan, that any such approved remediation plan has
been obtained, that any such Controlled Property has been remediated by the
Company, but the applicable Environmental Regulatory Authority does not approve
the results of the remediation, or that the Company does not intend to remediate
or has not timely remediated.
With respect to any Property other than a Controlled Property
("Collateral Property") that Compass has notified the Company is not acceptable
and requires remediation, the Company agrees promptly to request the person
("Third Party Owner") who owns, operates, leases or otherwise exercises
managerial control over any such Collateral Property to remediate such
Collateral Property pursuant to a remediation plan and approved by the
appropriate Environmental Regulatory Authority on or prior to the 270th day
after the date hereof. If the Third Party Owner's approved remediation plan is
not acceptable to Compass, Compass shall have the right to terminate this
Agreement within five business days after receiving notice and a copy of the
approved remediation plan. In the event that the Third Party Owner remediates
the Collateral Property, but the applicable Environmental Regulatory Authority
does not approve the results of the remediation, or obtains the approval by the
appropriate Environmental Regulatory Authority of a remediation plan but is
unable to complete the remediation within the time period described above, the
Company shall so advise Compass in writing of such Third Party Owner's attempted
remediation or approved but unperformed remediation plan, and Compass shall have
the right to terminate this Agreement within ten business days after the date of
receiving such written notice from the Company. If a Third Party Owner refuses
or fails to conduct any remediation or obtain any approved remediation plan with
respect to any Collateral Property, the Company agrees to obtain a written
estimate ("Remediation Estimate") from an environmental professional acceptable
to Compass of all costs of remediating any such Collateral Property (including
the costs of preparing a remediation plan acceptable to Compass and approved by
the appropriate Environmental Regulatory Authority. A remediation plan prepared
by the Third Party Owner and acceptable to Compass may be the basis of the
Remediation Estimate. Compass shall have the right to terminate this Agreement
by written notice to the Company within ten business days after receipt from the
Company of any Remediation Estimate of a particular Collateral Property.
Notwithstanding the foregoing, and without limiting any rights of Compass to
terminate this Agreement, the Company shall not be obligated to incur aggregate
expenditures in excess of $150,000 in connection with preparing and obtaining
approval by the appropriate Environmental Regulatory Authority of remediation
plans with respect to Controlled Properties and in connection with obtaining
Remediation Estimates in connection with Collateral Properties.
(b) The Company and the Bank agree to indemnify and hold harmless
Compass for any claims for damage to the Property or injury or death to persons
directly or indirectly attributable to the actions or omissions (other than
negligent actions or omissions) of Compass or its agents in performing any
Environmental Inspection or secondary investigation of the Property. With
respect only to any secondary investigation, Compass agrees to indemnify and
hold harmless the Company and the Bank for any claims for damage to the Property
or injury or death to persons directly attributable to the negligent actions of
Compass or its agents in performing any secondary investigation, except to the
extent caused in whole or in part by the negligence of the Company or the Bank.
Compass shall have no liability or responsibility of any nature whatsoever for
the
32
<PAGE>
results, conclusions or other findings related to any Environmental Inspection,
secondary investigation or other environmental survey. If this Agreement is
terminated, then except as otherwise required by law, Compass shall have no
obligation to make any reports to any governmental authority of the results of
any Environmental Inspection, secondary investigation or other environmental
survey, but such reporting shall remain the responsibility of and within the
discretion of the Company or the Bank, as the case may be and Compass shall
provide the Company with copies of all reports and/or results, conclusions or
other findings of the environmental professional which were prepared in
connection with the Environmental Inspection, secondary investigation or other
environmental survey of the Property. Compass shall have no liability to the
Company or its Subsidiaries for making any report of such results to any
governmental authority where such report is required by law or court or agency
order.
(c) Compass shall have the right to terminate this Agreement in the
following circumstances: (i) the Company'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 in all material respects
irrespective of the knowledge or lack of knowledge of the Company or 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
violations or potential 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 would or
potentially would require remedial or cleanup action or have a Material Adverse
Effect upon the Company or the Bank; (v) the presence of any underground or
above ground storage tank in, on or under any Property which is not registered
properly with appropriate governmental authorities and otherwise entitled to
applicable governmental remediation funds or which has resulted in a release of
any Polluting Substances or which otherwise is in violation of an Environmental
Law; (vi) the presence of any asbestos containing material in, on or under any
Property, the removal of which would constitute a Material Adverse Effect; or
(vii) Compass is not permitted to conduct an Environmental Inspection or
secondary investigation of any Property to the extent it deems appropriate.
(d) The Company agrees to make available to Compass and its
consultants, agents and representatives all documents and other material
relating to environmental conditions of the Property including, without
limitation, the results of other environmental inspections and surveys. The
Company also agrees that all engineers and consultants who prepared or furnished
such reports may discuss such reports and information with Compass and shall be
entitled to certify the same in favor of Compass and its consultants, agents and
representatives and make all other data available to Compass and its
consultants, agents and representatives. Compass agrees to provide the Company
with a copy of all environmental reports prepared by its consultants as a result
of the Environmental Inspections.
SECTION 6.11 Cooperation on Texas Receipts. The Company and Compass
-----------------------------
agree to cooperate in good faith and to use their best efforts, and the Company
agrees to take action reasonably requested by Compass, so as to cause the
Company not to have any Texas gross
33
<PAGE>
receipts, including dividends from the Bank, for purposes of Texas franchise
taxes after the date of incorporation of Compass Texas.
SECTION 6.12 Exchange Agent Agreement. Immediately prior to the
------------------------
Effective Time, the Company and Compass agree to enter into, and Compass agrees
to cause Compass to enter into, the Exchange Agent Agreement with the Exchange
Agent, or if the Exchange Agent refuses to serve as exchange agent, such other
exchange agent as shall mutually agreed to by the Company and Compass.
SECTION 6.13 Employment Agreement. Compass Texas Management, Inc.,
--------------------
on the one hand, and Robert H. Sewell ("Sewell"), on the other hand, have
executed and delivered an employment agreement pursuant to which, subject to
consummation of the transactions contemplated by this Agreement, Compass Texas
Management, Inc. has agreed to employ such person and such person has agreed not
to solicit the employees or customers of Compass or Compass Bank, and to keep
confidential certain information about Compass, Compass Bank, the Company and
the Bank. Sewell on the one hand, and the Bank, on the other hand, have
executed and delivered a termination agreement to the Employment Agreement dated
February 1, 1988 between Sewell and the Company.
SECTION 6.14 Exercise of Convertible Securities. The Company shall
----------------------------------
use its best efforts to cause each holder of outstanding warrants, options,
rights or other securities entitling the holder thereof to acquire Shares
(collectively, the "Convertible Securities") to exercise or convert such
Convertible Securities in full prior to the Effective Time.
SECTION 6.15 Employee Bonuses. Unless paid by the Bank prior to the
----------------
Effective Time, Compass agrees to cause to be paid to the employees of the Bank
the bonuses allocable to them under the 1996 bonus plan of the Bank so long as
such plan is substantially equivalent to the 1995 bonus plan and so long as such
bonuses are capable of being prorated.
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;
34
<PAGE>
(c) the approval of this Agreement by Compass' Board of Directors on
or before November 20, 1995;
(d) the approval of the Merger by the Company's shareholders entitled
to vote at the Shareholders' Meeting; and
(e) a registration statement covering the Compass Common Stock to be
issued in the Merger shall be effective under the Securities Act and any
applicable state securities or "blue sky" acts and no stop order suspending the
effectiveness of such registration statement shall be in effect and no
proceedings for such purpose, or any proceedings under the SEC or applicable
state securities authorities rules with respect to the transactions contemplated
hereby, shall be pending before or threatened by the SEC or any applicable state
securities or blue sky authorities.
SECTION 7.2 Conditions to the Obligations of Compass 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 Company shall be true
and correct in all material respects as of the date hereof and at and as of the
Closing, with the same force and effect as though made on and as of the Closing;
(b) the Company shall have performed in all material respects all
obligations and agreements and in all material respects complied with all
covenants and conditions, contained in this Agreement to be performed or
complied with by it prior to the Effective Time;
(c) there shall not have occurred a Material Adverse Effect with
respect to the Company or the Bank;
(d) the directors of the Company and the Bank shall have delivered to
Compass an instrument dated the Effective Time releasing the Company and the
Bank from any and all claims of such directors (except as to their deposits and
accounts and as to rights of indemnification pursuant to the Articles of
Incorporation or Association and the Bylaws of the Company or the Bank, which
rights shall survive the Merger) and shall have delivered to Compass their
resignations as directors of the Bank;
(e) the officers of the Company and the Bank shall have delivered to
Compass an instrument dated the Effective Time releasing the Company and the
Bank from any and all claims of such officers (except as to deposits and
accounts and as to rights of indemnification pursuant to the Articles of
Incorporation or Association and Bylaws of the Company or the Bank, which rights
shall survive the Merger);
(f) Compass shall have received the opinions of counsel to the
Company acceptable to it as to the matters set forth on Exhibit F attached
hereto;
35
<PAGE>
(g) the holders of no more than 5% of the Shares shall have demanded
or be entitled to demand payment of the fair value of their shares as dissenting
shareholders;
(h) Compass shall have received a letter from KPMG Peat Marwick,
dated as of the Effective Time, to the effect that the Merger will qualify for
pooling-of-interests accounting treatment if closed and consummated in
accordance with this Agreement;
(i) the aggregate principal amount of all Company Indebtedness shall
not exceed $1,250,000;
(j) Compass shall have received from holders of the Company's capital
stock receiving at least 50% of the total Merger Consideration a representation
that they have no plan or intention to sell or otherwise dispose of shares of
Compass Common Stock received pursuant to the Merger;
(k) Compass and Compass Texas 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;
(l) The Company shall have delivered to Compass a schedule of all
transactions in the capital stock (or instruments exercisable for or convertible
into capital stock) of the Company of which the Company has knowledge from and
including the date of this Agreement through the Effective Time;
(m) Compass shall have determined, in its reasonable judgment, that
the liabilities and obligations set forth on Schedule 5.1(k) do not have a
Material Adverse Effect;
(n) 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;
(o) Compass shall have received the Section 368 Certificates, the
Proxies and the Convertible Securities Agreements within the time periods
specified for receipt of such Section 368 Certificates, Proxies and Convertible
Securities Agreements as specified by Sections 5.1(m), (n) and (o); and
(p) Compass shall have received certificates dated the Closing
executed by the Chairman of the Board of the Company and by the Chairman of the
Board of the Bank, and the Secretary or Cashier of the Company and the Bank,
respectively, certifying in such reasonable detail as Compass may reasonably
request, to the effect described in Sections 7.2(a), (b), (c), (g) and (i).
SECTION 7.3 Conditions to the Obligations of the Company to Effect
------------------------------------------------------
the Merger. The obligations of the Company to effect the Merger are subject to
- ----------
the satisfaction or waiver of the following conditions prior to the Effective
Time:
36
<PAGE>
(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
(c) the Company shall have received the opinion of counsel to Compass
and Compass Texas acceptable to it, as to the matters set forth on Exhibit G
attached hereto;
(d) The Bank and the Company shall have delivered to the directors
and officers of the Company and the Bank an instrument dated the Effective Time
releasing such directors and officers from any and all claims of the Company and
the Bank (except as to indebtedness or other contractual liabilities); provided,
however, that such releases shall not release an action against such directors
and officers by Compass or Compass Texas in connection with the transactions
contemplated by this Agreement; and
(e) the Company 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 Company may
reasonably request, to the effect described in Sections 7.3(a) and (b).
ARTICLE VIII.
TERMINATION; AMENDMENT; WAIVER
SECTION 8.1 Termination. This Agreement may be terminated and the
-----------
Merger contemplated hereby may be abandoned at any time notwithstanding approval
thereof by the shareholders of the Company, but prior to the Effective Time:
(a) by mutual written consent duly authorized by the Boards of
Directors of Compass and the Company;
(b) by Compass (i) if Compass learns or becomes aware of a state of
facts or breach or inaccuracy of any representation or warranty of the Company
contained in Article III which constitutes a Material Adverse Effect, (ii)
pursuant to Sections 6.10 and 8.2, (iii) if the Schedules to the Agreement are
not accepted by Compass, (iv) if Compass shall not have received the Section 368
Certificates, the Proxies and the Convertible Securities Agreements within the
time periods specified for receipt of such Section 368 Certificates, Proxies and
Convertible Securities Agreements as specified by Section 5.1(m), (n) and (o),
or (iv) if any of the conditions to Closing contained in Section 7.1 or 7.2 are
not satisfied or waived in writing by Compass;
(c) by the Company if the conditions to Closing contained in Section
7.1 or 7.3 are not satisfied or waived in writing by the Company;
37
<PAGE>
(d) by Compass or the Company if the Effective Time shall not have
occurred on or before June 30, 1996 or such later date agreed to in writing by
Compass and the Company; or
(e) by Compass or the Company if any court of competent jurisdiction
in the United States or other United States (federal or state) governmental body
shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have been final and nonappealable.
SECTION 8.2 Special Compass Rights of Termination. For $100.00, the
-------------------------------------
execution and delivery of this Agreement and for other good and valuable
consideration the receipt and sufficiency of which is hereby acknowledged by the
Company, and in recognition of the fact that, as of the date hereof, Compass has
not had an opportunity to perform any due diligence review of the Company and
the Bank, in addition to the termination rights set forth in Section 8.1,
Compass shall have the right to terminate this Agreement in its sole, absolute
and unfettered discretion for any reason or for no reason on or before 6:00
p.m., Birmingham, Alabama time, on the 30th day after the date hereof by the
delivery of written notice to the Company in accordance with Section 10.7.
Nothing in this Section 8.2 shall be construed to limit the right of Compass to
continue its due diligence review through the Closing.
SECTION 8.3 Effect of Termination. In the event of the termination
---------------------
and abandonment of this Agreement pursuant to Section 8.1 and Section 8.2
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 8.3 and Section 9.1.
Nothing contained in this Section 8.3 shall relieve any party from liability for
any breach of this Agreement.
SECTION 8.4 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 Company, Compass and, if required, Compass Texas at any time
before or after adoption of this Agreement by the shareholders of the Company
but, after any submission of this Agreement to such shareholders for approval,
no amendment shall be made which reduces the Merger Consideration or which
materially and adversely affects the rights of the Company's shareholders
hereunder without any required approval of such shareholders. This Agreement
may not be amended except by an instrument in writing signed on behalf of all
the parties.
(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 Company for their approval.
SECTION 8.5 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
38
<PAGE>
of any party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party.
ARTICLE IX.
SURVIVAL
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 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 Company and the
Bank, shall be paid by the party incurring such costs and expenses; provided,
however, without the consent of Compass, which consent shall not be unreasonably
withheld, all such costs and expenses paid or accrued as of the Effective Time
by the Company and the Bank shall not exceed $60,000.
SECTION 10.2 Brokers and Finders. All negotiations on behalf of
-------------------
Compass and the Company relating to this Agreement and the transactions
contemplated by this Agreement have been carried on by the parties hereto and
their respective agents directly without the intervention of any other person in
such manner as to give rise to any claim against Compass, Compass Texas, the
Company 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 Company, the officers and
directors of the Company, or the Bank, shall execute and deliver such further
agreements, documents, deeds, certificates and other instruments and shall take
or cause to be taken such other actions, including those as shall be necessary
to vest or perfect in or to confirm of record or otherwise the Company's title
to and possession of, all of its property, interests, assets, rights,
privileges, immunities, powers,
39
<PAGE>
franchises and authority, as shall be reasonably necessary or advisable to carry
out the purposes of and effect the transactions contemplated by this Agreement.
SECTION 10.5 Enforcement of the Agreement. The parties hereto agree
----------------------------
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof, this being in
addition to any other remedy to which they are entitled at law or in equity.
SECTION 10.6 Severability. The invalidity or unenforceability of
------------
any provision of this Agreement shall not affect the validity or enforceability
of any other provisions of this Agreement, which shall remain in full force and
effect.
SECTION 10.7 Notices. All notices, requests, claims, demands and
-------
other communications hereunder shall be in writing and shall be deemed to have
been duly given when delivered if 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.
701 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.
701 South 20th Street
Birmingham, Alabama 35233
Telecopy No.: (205) 933-3043
40
<PAGE>
and
Gene G. Lewis
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
3300 Texas Commerce Tower, 600 Travis
Houston, Texas 77002
Telecopy No.: (713) 223-3717
if to the Company:
Robert H. Sewell
Equitable BankShares, Inc.
17218 Preston Road
Dallas, Texas 75380
Telecopy No.: (214) 735-3505
with a copy to:
William J. Underwood, Jr.
Smith, Underwood & Perkins
600 Two Lincoln Centre
5420 LBJ Freeway
Dallas, Texas 75240
Telecopy No. (214) 661-5691
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
SECTION 10.8 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Texas, regardless of the
laws that might otherwise govern under applicable principles of conflicts of
laws thereof, except to the extent that the GCL governs aspects of the Merger.
SECTION 10.9 Descriptive Headings. The descriptive headings are inserted
--------------------
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
SECTION 10.10 Parties in Interest. This Agreement shall be binding
-------------------
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
41
<PAGE>
SECTION 10.11 Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
SECTION 10.12 Incorporation by References. Any and all schedules,
---------------------------
exhibits, annexes, statements, reports, certificates or other documents or
instruments referred to herein or attached hereto are incorporated herein by
reference hereto as though fully set forth at the point referred to in the
Agreement.
SECTION 10.13 Certain Definitions.
-------------------
(a) "Subsidiary" shall mean, when used with reference to an entity, any
corporation, a majority of the outstanding voting securities of which are owned
directly or indirectly by such entity or any partnership, joint venture or other
enterprise in which any entity has, directly or indirectly, any equity interest.
(b) "Material Adverse Effect" shall mean any material adverse change in
the financial condition, assets, liabilities (absolute, accrued, contingent or
otherwise), reserves, business or results of operations of the Company and the
Bank taken as a whole (or when the reference is to Compass, to Compass and its
Subsidiaries, taken as a whole).
(c) "Environmental Laws" shall mean laws, including, without limitation,
federal, state or local laws, ordinances, rules, regulations, interpretations
and orders of courts or administrative agencies or authorities relating to
pollution or protection of the environment (including, without limitation,
ambient air, surface water, ground water, land surface, and subsurface strata),
including, without limitation, the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1987, as amended ("SARA"), the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"), Hazardous and Solid
Waste Amendments of 1984, as amended ("HSWA"), the Hazardous Materials
Transportation Act, as amended ("HMTA"), the Toxic Substance Control Act
("TSCA"), National Emissions Standard for Hazardous Pollutants ("NESHAP"),
Occupational Safety and Health Act ("OSHA"), Federal Water Pollution Control
Act, Clean Air Act, and other laws relating to pollution or protection of the
environment, or to the manufacture, processing, distribution, use, treatment,
handling, storage, disposal or transportation of Polluting Substances.
(d) "Polluting Substances" shall mean (a) asbestos, (b) urea formaldehyde
foam insulation, (c) oil and gasoline products or wastes, and (d) all
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes and shall include, without limitation, any flammable
explosives, radioactive materials, oil, hazardous materials, hazardous or solid
wastes, hazardous or toxic substances or regulated materials defined in CERCLA,
SARA, RCRA, HSWA, HMTA, TSCA, OSHA, NESHAP and/or any other Environmental Laws,
as amended, and in the regulations adopted and publications promulgated thereto;
provided to the extent that the laws of the State of Texas establish a meaning
for "hazardous substance," "hazardous waste," "hazardous materials," "solid
waste," or "toxic substance," which is broader than that specified in any of
42
<PAGE>
CERCLA, SARA, RCRA, HSWA, HMTA, TSCA, OSHA or other Environmental Laws such
broader meaning shall apply.
(e) "Knowledge" or "known" -- An individual shall be deemed to have
"knowledge" of or to have "known" a particular fact or other matter if (i) such
individual is actually aware of such fact or other matter, or (ii) a prudent
individual could be expected to discover or otherwise become aware of such fact
or other matter in the course of conducting a reasonably comprehensive
investigation concerning the truth or existence of such fact or other matter.
Non-officer directors have a right to rely on the investigation of officers. 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 in the officer capacities set forth on
Schedule 10.13 (or in any similar capacity) of the corporation or bank, has
knowledge of such fact or other matter. The Company and the Bank are understood
to have undertaken a separate investigation in connection with the transactions
contemplated hereby to determine the existence or absence of facts or other
matters in the statement qualified as "known" by, or the "knowledge" of, the
Company or the Bank.
SECTION 10.14 Business Days. In the event a date for performance of an
-------------
obligation under this Agreement falls on a day which is a Saturday, Sunday or a
day which the Federal Reserve Bank of Dallas has designated as a holiday, such
notice may be delivered on the first business day thereafter.
[SIGNATURE PAGE FOLLOWS]
43
<PAGE>
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, Jr.
------------------------------- ------------------------
Assistant Secretary Chairman and Chief Executive Officer
ATTEST: EQUITABLE BANKSHARES, INC.
By: /s/ Lesa Perry By: /s/ Robert H. Sewell
------------------------------- ----------------------
Secretary Chairman
Agreement and Plan of Merger
592524.06
44
<PAGE>
EXHIBIT A
POOLING TRANSFER RESTRICTIONS AGREEMENT
---------------------------------------
This Pooling Transfer Restrictions Agreement (this "Agreement") is executed
and delivered this ____ day of October, 1995 by and between Compass Bancshares,
Inc. ("Compass"), Equitable BankShares, Inc. (the "Company"), and the
undersigned shareholder of the Company (the "Shareholder").
WHEREAS, Compass and the Company entered into an Agreement and Plan of
Merger dated October 13, 1995 ("Merger Agreement") pursuant to which the Company
will be merged with and into a subsidiary of Compass to be formed (the
"Merger"), and
WHEREAS, Compass has required as a condition to entering into the Merger
Agreement that the Company and the Shareholder and each other affiliate of the
Company 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 Company's common stock, par value $0.10
per share ("Company 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 Company 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
<PAGE>
a pooling of interests imposed by statute, regulation, policy or procedures,
pronouncements or other similar requirements established or otherwise imposed by
persons other than Compass, 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
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 October __, 1995 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 Company agrees and the Shareholder acknowledges and agrees that the
Company will not permit the transfer of any shares of Company Common Stock by
the Shareholder or any other Company affiliate within 30 days prior to the
Effective Time.
[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: _______________________________
EQUITABLE BANKSHARES, INC.
By: __________________________________
Name: ________________________________
Title: _______________________________
_____________________________________
Signature of Shareholder
_____________________________________
Printed Name of Shareholder
Pooling Transfer Restrictions Agreement
592434.04
3
<PAGE>
EXHIBIT B
EXCHANGE AGENT AGREEMENT
------------------------
This Exchange Agent Agreement, dated as of ___________, 199 , is made and
entered into by and among Compass Bancshares, Inc., a Delaware corporation
("Compass"), ________________________, a Delaware corporation ("Compass
Texas"), Equitable BankShares, Inc., a Texas corporation ("Company"), and River
Oaks Trust Company, a Texas trust company ("Exchange Agent").
PREAMBLE:
Pursuant to the Agreement and Plan of Merger dated as of October 13, 1995
("Merger Agreement") among Compass, Compass Texas and the Company, as amended,
the Company shall, at the Effective Time, be merged into Compass Texas. The
name of the surviving corporation shall be __________________ ("Surviving
Corporation").
After the Effective Time, the outstanding shares of the Common Stock, par
value $0.10 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 Company
("Company 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 Company.
The Company has requested Compass to designate the Exchange Agent in
connection with the exchange (the "Exchange") of shares of Company 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 Company Common
Stock delivered for exchange pursuant to the terms of the Merger Agreement, and
will process such certificates representing Company Common Stock
("Certificates") and related documents. Compass desires that the Exchange Agent
act in such capacity.
<PAGE>
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 Consideration to
shareholders of the Company. 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 Company'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 Company 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 Company 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,
2
<PAGE>
(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 Company's shareholder and other records and
which appear to be in negotiable, good delivery form, properly endorsed or
accompanied by stock powers with transfer tax stamps or evidence of payment
or exemption from transfer taxes affixed (where required), and (iii)
signatures are guaranteed (where required), all in accordance with the
terms and conditions of the Merger Agreement and the Letters of
Transmittal. The Exchange Agent shall accept Certificates which are
surrendered in accordance with the provisions of the Merger Agreement and
accompanied by the executed Letters of Transmittal. Such Certificates and
Letters of Transmittal shall only be accepted by the Exchange Agent and
eligible for payment hereunder if they have been properly executed and
completed in accordance with the instructions contained in the Letters of
Transmittal and if the person or persons surrendering such Certificates 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 Company ("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 Company 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;
3
<PAGE>
(ii) If any defect or irregularity appears to exist in connection with a
purported tender, the Exchange Agent will notify promptly the persons by
whom the tender was made and will return all documents delivered in
connection therewith or take such action as is necessary or advisable to
cause such defect or irregularity to be cured;
(iii) Tenders may be made only as set forth in the Letters of
Transmittal;
(iv) Letters of Transmittal, and facsimiles thereof submitted to the
Exchange Agent, shall be marked by the Exchange Agent's designated officers
to show the date and time of receipt and their review and acceptance
thereof;
(v) At the close of business each Friday, the Exchange Agent shall
provide Compass and First National Bank of Boston, Compass' transfer agent
and registrar ("Transfer Agent") with a list of shareholders who have
properly tendered their Company Common Stock. In addition, the Exchange
Agent shall inform Compass in writing of the number of shares of Company
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. The Exchange Agent shall
provide Compass such other information concerning the Company 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
4
<PAGE>
(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 Company 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 Company as follows:
(i) Company Common Stock. Each holder of Company Common Stock shall
--------------------
receive Merger Consideration equal to ___________ shares of Compass Common Stock
for each share of Company 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 Company 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 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.
------------------------------
5
<PAGE>
(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 Company 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
Corporation 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 Corporation, 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 Corporation) 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 Company
6
<PAGE>
Common Stock and the proper maintenance of the Company's and Compass'
shareholder books and records. Following payment in accordance with the
terms hereof, the Exchange Agent shall forward to Compass all documents
received by it in connection with tenders of Certificates (including
Letters of Transmittal, telegrams, facsimile transmissions or letters
representing tenders made without concurrent deposit of certificates) and
the tendered Certificates prominently marked "CANCELLED" on the front
thereof, via Federal Express or other means acceptable to Compass.
5. Alteration of Instructions. The Exchange Agent shall follow
--------------------------
and act upon any written amendments, modifications or supplements to these
instructions and upon any further instructions from Compass or the Surviving
Corporation in connection with the Merger Agreement or any of the transactions
contemplated thereby.
6. Indemnification of Exchange Agent. Compass and the Surviving
---------------------------------
Corporation covenant and agree to indemnify the Exchange Agent and hold it
harmless against any loss, liability or expense it may incur in the absence of
negligence or bad faith on the part of the Exchange Agent arising out of or in
connection with the administration of its duties hereunder, including but not
limited to legal fees and other costs and expenses of defending or preparing to
defend against any claim or liabilities in connection with this Agreement.
7. Compensation for Services. Compass shall compensate the
-------------------------
Exchange Agent for its services hereunder.
8. Payment of Amounts Due Dissenting Shareholders. In the event
----------------------------------------------
that qualified dissenting shareholders of the Company exercise the rights
afforded them under 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 Corporation. The Exchange Agent may
request and shall be provided additional funds from the Surviving Corporation in
order to make any required payment to
7
<PAGE>
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 Corporation
as to all matters covered by this paragraph, including, without limitation, the
time and amount of payment to dissenting shareholders.
9. Unclaimed Funds. Any moneys or certificates deposited
---------------
hereunder which shall remain unclaimed by the holders of shares of Company
Common Stock for a period of six (6) months following the Effective Time shall,
upon written request of the Surviving Corporation, 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.
10. Investment of Exchange Fund. At the direction of the Surviving
---------------------------
Corporation, the Exchange Agent shall invest portions of the Exchange Fund and
remit earnings thereon monthly to the Surviving Corporation, 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 Corporation.
11. Amendment. Except as otherwise expressly provided herein,
---------
neither this Agreement nor any provision hereof may be amended, modified,
waived, discharged or terminated except in a writing signed by all of the
parties hereto prior to the Effective Time or by Compass and the Exchange Agent
after the Effective Time; provided, however, that no amendment shall be made if
such modification shall reduce the amount of or eliminate the opportunity of any
shareholder to receive his share of the Merger Consideration contemplated by the
Merger Agreement.
12. Section Headings. The section headings used herein are for
----------------
convenience of reference only and shall not define or limit the provisions of
this Agreement.
8
<PAGE>
13. GOVERNING LAW. THIS AGREEMENT AND THE APPOINTMENT OF THE
-------------
EXCHANGE AGENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF TEXAS AND SHALL INURE TO THE BENEFIT OF AND BE BINDING UPON THE
SUCCESSORS AND ASSIGNS OF THE PARTIES HERETO.
14. Notices. Notices under this Agreement shall be deemed given if
-------
made in writing and sent via prepaid first-class United States mail, or by
nationally recognized overnight courier, to:
9
<PAGE>
If to Compass:
Compass Bancshares, Inc.
15 South 20th Street
Birmingham, Alabama 35233
Attn: Daniel B. Graves
Associate General Counsel
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:
Equitable BankShares, Inc.
17218 Preston Road
Dallas, Texas 75380
Attn: Robert H. Hewell
If to Compass Texas or, following
the Effective Time, the
Surviving Corporation:
------------------------------
c/o Compass Bancshares, Inc.
15 South 20th Street
Birmingham, Alabama 35233
Attn: Jerry W. Powell
15. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10
<PAGE>
16. Conflict. In the event the terms of this Agreement conflict
--------
with the terms and provisions of the Merger Agreement, the terms and provisions
of the Merger Agreement shall be controlling.
17. Defined Terms. Capitalized terms not defined herein have the
-------------
meanings ascribed to them in the Merger Agreement.
[SIGNATURE PAGE FOLLOWS]
11
<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:
------------------------------
EQUITABLE BANKSHARES, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
12
<PAGE>
RIVER OAKS TRUST COMPANY
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Exhibit A - Form of Letters of Transmittal
Exhibit B - Shareholder List
13
<PAGE>
EXHIBIT "A"
LETTER OF TRANSMITTAL
For Shares of Common Stock of
EQUITABLE BANKSHARES, INC.
Delivered Pursuant to the Agreement and Plan of Merger
dated as of October 13, 1995
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, Equitable BankShares, Inc. (the
"Company") has listed below your name, address and the certificate numbers
representing your shares of Common Stock, par value $0.10 per share ("Shares"),
of the Company. If any of the listed information appears to be incorrect,
please notify Mr. Stephen K. Brownlow at (713) 867-1101 at once.
===============================================================================
Name, Address and Social Security
Number of Registered Holders Certificate(s) Surrendered
- -------------------------------------------------------------------------------
Total Number of
Certificate Shares Represented
Number(s) by Certificate(s)
_________________________ __________________ _________________
Name
__________________ _________________
__________________ _________________
_________________________
_________________________
Address
_________________________ Total Shares _________________
Social Security Number
===============================================================================
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Gentlemen:
I, as the registered holder of the above described Shares of the Company,
hereby tender to Compass Bancshares, Inc. ("Compass"), such Shares pursuant to
the Agreement and Plan of Merger dated as of October 13, 1995, as amended ("the
Merger Agreement"), by and between Compass, _______________ ("Compass Texas"),
and the Company. I hereby acknowledge receipt of the Proxy Statement dated
_______________, 1995, 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 Company 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:
---------------------------------------------------------
<PAGE>
PLEASE SIGN AND DATE BELOW AS INDICATED
THEN PLEASE COMPLETE SUBSTITUTE FORM W-9
Signatures
-----------------------------
Dated , 1995
----------------------------
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 , 1995
----------------------------------
===============================================================================
PLEASE COMPLETE SUBSTITUTE FORM W-9
IT IS THE LAST FORM IN THIS PACKAGE
================================================================================
-3-
<PAGE>
DO NOT WRITE IN SPACE BELOW
<TABLE>
Date Received: By: Date: , 1995
----------------------- ------------------------- ---------------------
===========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Company Compass No. of
Shares Share Accepted Stock Certificate Fractional Cash Check
Surrendered for Exchange Certificate Nos. No. issued Shares Paid No.
- ----------------------------------------------------------------------------------------------------------
===========================================================================================================
Accepted by: Checked By: Date: , 1995
------------------ -------------------- ----------------------
</TABLE>
-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 Company 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.
-5-
<PAGE>
If the certificate(s) representing the Shares transmitted hereby are
registered in your name and the Letter of Transmittal is properly signed by you,
no endorsements of certificates or separate stock powers are required.
In all other cases, the certificate(s) representing the Shares transmitted
hereby must be endorsed or accompanied by appropriate stock powers, in either
case signed exactly as the name(s) of the registered holder(s) appear on the
certificate(s), and if required, signature(s) on such certificate(s) or stock
power(s) must be guaranteed by an Eligible Institution.
If the Letter of Transmittal or any certificate or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of corporation or other acting in a fiduciary or representative
capacity, such person should so indicate when signing, and the Exchange Agent
reserves the right to require proper evidence of their authority to so act.
6. IRREGULARITIES. All questions as to the validity, form, eligibility,
acceptance of and delivery of Shares and the issuance of Compass Common Stock
and the payment of cash in lieu of fractional shares will be determined by
Compass, which determination shall be final and binding. Compass reserves the
absolute right to reject any or all tenders determined by Compass not to be in
appropriate form or which would, in the opinion of Compass' 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 addresses set forth at the top of page 1.
IMPORTANT TAX INFORMATION
Under the Federal income tax law, you are to provide Compass (as
payer) with a correct taxpayer identification number on Substitute Form W-9
below. If Compass is not provided with the correct taxpayer identification
number, you may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, all payments that are made to you with respect to Shares
(including any cash payable to you under the Merger Agreement in lieu of
fractional shares) may be subject to backup withholding.
Exempt shareholders (including among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. Nonetheless, exempt shareholders should complete the
Substitute Form W-9 below and so indicate their exempt status by writing
"exempt" across the face of the Substitute Form W-9. In order for a foreign
individual to qualify as an exempt recipient, that shareholder must submit a
statement, signed under penalties of perjury, attesting to that individual's
exempt status. Such statements can be obtained from the Exchange Agent. See
the enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional information.
If backup withholding applies, Compass is required to withhold 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>
<S> <C> <C> <C>
GIVE THE SOCIAL GIVE THE
FOR THIS TYPE OF ACCOUNT: SECURITY NUMBER FOR THIS TYPE OF ACCOUNT: EMPLOYER
OF ---- IDENTIFICATION
NUMBER OF ----
- -------------------------------------------------------------------- -------------------------------------------------------
1. An individual's account The individual 9. A valid trust, estate, The legal entity (Do
or pension trust not furnish the
identifying number of
the personal
representative or
trustee unless the
legal entity itself is
not designated in the
account title.) (5)
2. Two or more individuals (joint The actual owner of the account or,
account) if combined funds, any one of the
individuals (1)
3. Husband and wife (joint account) The actual owner of the 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 that The actual owner(1) 15. Account with the The public entity
is not a legal or valid trust Department of Agriculture
under State law in the name of a public
entity (such as a State or
8. Sole proprietorship account The owner(4) local government, school
district, or prison) that
receives agricultural
program payments
- ----------------------------------------------------------------------- ----------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
Note: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<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
-10-
<PAGE>
EXHIBIT C
VOTING AGREEMENT AND IRREVOCABLE PROXY
--------------------------------------
This Voting Agreement and Irrevocable Proxy (this "Agreement") dated as of
October ___, 1995 is executed by and among Equitable BankShares, Inc., a Texas
corporation (the "Company"), 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 Company and Compass have executed that certain Agreement and
Plan of Merger dated October 13, 1995 (the "Merger Agreement") whereby the
Company will be merged into a wholly-owned subsidiary of Compass to be formed
(the "Merger"); and
WHEREAS, Section 6.11 of the Merger Agreement requires that the Company
deliver to Compass the irrevocable proxies of the Shareholders; and
WHEREAS, Compass and the Company are relying on the irrevocable proxies in
incurring expense in reviewing the Company'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 Company that they are the registered holders of and have the exclusive right
to vote the shares of capital stock ("Stock") of the Company 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.
<PAGE>
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 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 Company are relying on
this Agreement in incurring expense in reviewing the Company'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
2
<PAGE>
permitted by applicable law, including Article 2.29C of the Texas Business
Corporation Act. The Shareholders and the Company 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 Company
agrees to recognize the vote of the Proxy Holder instead of the vote of the
Shareholders in 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 Company, 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
3
<PAGE>
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]
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
above written.
EQUITABLE BANKSHARES, INC.
By:
------------------------------
Name:
---------------------------
Title:
---------------------------
Address:
17218 Preston Road
Dallas, Texas 75380
Attention: Mr. Robert H. Sewell
COMPASS BANCSHARES, INC.
By:
------------------------------
Name:
---------------------------
Title:
---------------------------
Address:
15 South 20th Street
Birmingham, Alabama 35233
Attention: Mr. Daniel B. Graves
Associate General Counsel
5
<PAGE>
SHAREHOLDERS:
------------------------------
------------------------------
Address:
-------------------------
-------------------------
shares of Common Stock
----------
Pledgee:
------------------------
Address:
-------------------------
-------------------------
Loan No.:
------------------------
6
<PAGE>
EXHIBIT D
POOLING OF INTEREST CRITERIA
----------------------------
ATTRIBUTES OF COMBINING ENTERPRISES
(a) AUTONOMY CONDITION. Each of the combining enterprises is autonomous and has
not been a subsidiary or division of another enterprise within two years
before the plan of combination is initiated.
(b) INDEPENDENCE CONDITION. Each of the combining enterprises is independent of
the other combining enterprises.
MANNER OF COMBINING INTERESTS
(c) ONE-YEAR RULE. The combination is effected in a single transaction or is
completed in accordance with a specific plan within one year after the plan
is initiated.
(d) COMMON-STOCK-FOR-COMMON-STOCK-CONDITION. An enterprise offers and issues
only common stock with rights identical to those of the majority of its
outstanding voting common stock in exchange for substantially all of the
voting common stock interest of another enterprise at the date the plan of
combination is consummated.
(e) CHANGE-IN-EQUITY-INTERESTS CONDITION. None of the combining enterprises
changes the equity interest of the voting common stock in contemplation of
effecting the combination either within two years before the plan of
combination is initiated or between the dates the combination is initiated
and consummated; changes in contemplation of effecting the combination may
include distributions to stockholders and additional issuances, exchanges,
and retirements of securities.
(f) TREASURY-STOCK CONDITION. Each of the combining enterprises reacquires
shares of voting common stock only for purposes other than business
combinations, and no enterprise reacquires more than a normal number of
shares between the dates the plan of combination is initiated and
consummated.
(g) PROPORTIONATE-INTEREST CONDITION. The ratio of the interest
<PAGE>
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.
(i) CONTINGENCY CONDITION. The combination is resolved at the date the plan is
consummated and no provisions of the plan relating to the issue of
securities or other consideration are pending.
ABSENCE OF PLANNED TRANSACTIONS
(j) The combined enterprise does not agree directly or indirectly to retire or
reacquire all or part of the common stock issued to effect the combination.
(k) The combined enterprise does not enter into other financial arrangements for
the benefit of the former stockholders of a combining enterprise, such as a
guaranty of loans secured by stock issued in the combination, that in effect
negates the exchange of equity securities.
(l) The combined enterprise does not intend or plan to dispose of a significant
part of the assets of the combining enterprises within two years after the
combination other than disposals in the ordinary course of business of the
formerly separate enterprise and to eliminate duplicate facilities or excess
capacity.
-2-
<PAGE>
EXHIBIT E
AGREEMENT TO TERMINATE OPTIONS
------------------------------
This Agreement to Terminate Options (this "Agreement") is entered into as
of this ______ day of October, 1995 by and among Compass Bancshares, Inc.
("Compass"), Equitable BankShares, Inc. (the "Company") and the undersigned
holder (the "Holder") of warrants, options, or rights to purchase shares of the
Company common stock, par value $0.10 per share ("Common Stock") or stock
appreciation rights in connection with such shares.
WHEREAS, Compass and the Company entered into an Agreement and Plan of
Merger dated October 13, 1995 ("Merger Agreement") pursuant to which the Company
will be merged ("Merger") with and into a subsidiary of Compass to be formed
("Compass Texas"), and
WHEREAS, Compass has required as a condition to entering into the Merger
Agreement that the undersigned and each other holder of warrants, options or
rights to acquire Common Stock deliver to Compass and the Company an agreement
in substantially the form hereof,
NOW, THEREFORE, in consideration of Compass' agreement to enter into the
Merger Agreement and the mutual covenants hereinafter set forth, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. Options, Warrants or Rights to Purchase. (a) The Holder hereby agrees
---------------------------------------
that all rights to purchase shares of Common Stock he may have under that
certain Stock Option dated _____________ and any other agreement or instrument
(collectively, the "Option") shall terminate at the Effective Time (as defined
in the Merger Agreement). Notwithstanding anything to the contrary in the
Option, after the Effective Time the Option shall be null and void and
unenforceable against Compass, the Company or Compass Texas and shall be deemed
to be lapsed, terminated and expired for all purposes. Upon the request of the
Company or Compass, the Holder agrees to surrender to Compass Texas the Option
and any certificate or other evidence of the Holder's rights to purchase Common
Stock of the Company.
<PAGE>
(b) The Company hereby agrees that the Option may be exercised prior to the
Effective Time contingent upon the consummation of the Merger pursuant to the
Merger Agreement, but such exercise shall in all other respects be in compliance
with the requirements of the Option. In the event of a contingent exercise of
the Option, the Company agrees to hold in trust any exercise price tendered to
the Company as consideration for the shares to be purchased pursuant to such
contingent exercise of the Option. At the Effective Time the Company shall apply
such exercise price held in trust to the payment of the exercise price for the
shares of Common Stock purchased pursuant to the exercise of the Option. In the
event that the Merger Agreement is terminated, the Company shall promptly return
to the Holder, without interest, the exercise price previously tendered to the
Company by the Holder.
2. This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas. This Agreement may not be amended or modified
except in a writing executed by all of the parties hereto.
IN WITNESS WHEREOF, the undersigned set their hands effective as of the day
first written above.
COMPASS BANCSHARES, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
EQUITABLE BANKSHARES, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
-------------------------------------
Signature of Holder
-------------------------------------
Printed Name of Holder
2
<PAGE>
EXHIBIT F
OPINIONS REQUIRED FROM COUNSEL
TO THE COMPANY AND THE BANK
---------------------------
(i) the Company is a Texas corporation and a bank holding company under
the Bank Holding Company Act of 1956, as amended, and is duly organized, validly
existing and in good standing under the laws of the State of Texas. The Bank is
a Texas banking association, duly organized, validly existing and in good
standing under the laws of the State of Texas. Each of the Company and 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. Each of the Company and the Bank is duly
qualified and in good standing in Texas.
(ii) the Company 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 Company 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 Company enforceable against the Company 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 Company consists solely of
4,000,000 shares of Company Common Stock (as defined in the Agreement) of which
2,108,628 shares are issued and outstanding (none of which are held in the
treasury); the Company is the record holder of all of the issued and outstanding
capital stock of the Bank; all of the outstanding shares of the Company Common
Stock are validly issued, fully paid and nonassessable and all of the capital
stock of the Bank is validly 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 Company or the Bank to issue any shares
of, restricting the transfer of, or otherwise relating to shares of their
respective capital stock of any class;
(v) the execution and delivery by the Company 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 incorporation or association or bylaws of the Company or 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,
<PAGE>
authorization or contract, order, arbitration award, judgment or decree, or any
other restriction of any kind or character known to us to which the Company or
the Bank is a party or by which the Company or the Bank or any of their
respective 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 Company or the Bank, or their
respective 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 Company of the Agreement;
(vii) except as set forth in Schedule 3.12 to the Agreement, to the best of
our knowledge, neither the Company nor the Bank is 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 Company or the Bank, which by the terms of
the Agreement would required to be set forth in Section 3.12;
(viii) to the best of our knowledge and except as set forth on Schedule 3.18
to the Agreement, neither the Company nor the Bank is 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 upon filing by the Secretary
of State of Delaware of a Certificate of Merger the Merger will have been
legally consummated in accordance with the laws of the States of Texas and
Delaware with the consequences specified in Article 5.06 of the Texas Business
Corporation Act and Section 259 of the GCL.
-2-
<PAGE>
EXHIBIT G
OPINIONS REQUIRED FROM COUNSEL
TO COMPASS AND COMPASS TEXAS
----------------------------
(i) Compass and Compass Texas are each corporations 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 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 or 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
<PAGE>
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 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 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 Certificates 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>
October 25, 1995
Via Facsimile and Federal Express
Mr. Daniel B. Graves
Compass Bancshares, Inc.
15 South 20th Street
Birmingham, Alabama 35233
Re: Amendment of Agreement and Plan of Merger by and between Compass
Bancshares, Inc. and Equitable BankShares, Inc. dated as of October 13,
1995 (the "Agreement")
Dear Mr. Graves:
In order for Equitable BankShares, Inc. (the "Company") to fulfill a
special request of Compass Bancshares, Inc. ("Compass"), it has been determined
that additional time is required to prepare and deliver to Compass the Schedules
required by the referenced Agreement. Accordingly, the Company proposes to
amend the second sentence of the introductory clause of Article III entitled
"Representations and Warranties of the Company" to replace the words "15th day"
with the words "20th day." If you are agreeable to the amendment to the
Agreement as set forth herein, please evidence your agreement by executing in
the space provided below and returning the executed duplicate original of this
letter to the undersigned.
Very truly yours,
EQUITABLE BANKSHARES, INC.
By: /s/ Robert H. Sewell
------------------------
Chairman
Accepted and Agreed this day of October, 1995
---
COMPASS BANCSHARES, INC.
By: /s/ Daniel B. Graves
------------------------------
Associate General Counsel and
Assistant Secretary
<PAGE>
November 13, 1995
Mr. Robert H. Sewell
Equitable BankShares, Inc.
17218 Preston Road
Dallas, Texas 75380
RE: Second Amendment to Agreement and Plan of Merger by and between Compass
Bancshares, Inc. and Equitable BankShares, Inc. dated as of October 13,
1995 (the "Agreement")
Dear Mr. Sewell:
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 Company" to replace the words "within 30 days after the
date hereof" with the words "by November 14, 1995." This letter also confirms
our agreement to amend Section 8.2 of the Agreement to replace the words "on the
30th day after the date hereof" with the words "on November 14, 1995."
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
--------------------------------
Associate General Counsel and
Assistant Secretary
ACCEPTED AND AGREED this the 13th day of
November, 1995.
EQUITABLE BANKSHARES, INC.
By: /s/ Robert H. Sewell
-----------------------
Chairman
<PAGE>
THIRD AMENDMENT TO AGREEMENT AND PLAN OF MERGER
-----------------------------------------------
This Third Amendment to Agreement and Plan of Merger (this
"Amendment") dated as of January 24, 1996 is entered into by and among Compass
Bancshares, Inc. ("Compass"), Compass Equitable Texas, Inc. ("Compass
Equitable") and Equitable BankShares, Inc. (the "Company").
WHEREAS, Compass and the Company entered into an Agreement and Plan of
Merger dated as of October 13, 1995 (the "Merger Agreement");
WHEREAS, the Merger Agreement was amended by that certain First
Amendment dated as of October 25, 1995 and by that certain Second Amendment
dated as of November 13, 1995 each between Compass and the Company;
WHEREAS, the Merger Agreement requires Compass to form a new
subsidiary into which the Company shall be merged, with Compass Equitable
surviving;
WHEREAS, Compass Equitable is such new subsidiary; and
WHEREAS, Section 8.4 of the Merger Agreement requires Compass and the
Company to amend the Merger Agreement for the purpose of making Compass
Equitable 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 Equitable 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.
<PAGE>
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.
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/ Garrett R. Hegel
------------------------ ----------------------------
Assistant Secretary Chief Financial Officer
ATTEST: COMPASS EQUITABLE TEXAS, INC.
By: /s/ Daniel B. Graves By: /s/ Garrett R. Hegel
------------------------ -----------------------------
Assistant Secretary Vice President and Treasurer
ATTEST: EQUITABLE BANKSHARES, INC.
By: /s/ Lesa Perry By: /s/ Robert H. Sewell
------------------------ -----------------------------
Secretary Chairman
2
<PAGE>
=================================
APPENDIX II
DISSENTERS' RIGHTS OF APPRAISAL
=================================
<PAGE>
PROVISIONS OF THE TEXAS BUSINESS CORPORATION
RELATING TO
RIGHTS OF DISSENTING STOCKHOLDERS
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:
(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
-1-
<PAGE>
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.
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
-2-
<PAGE>
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.
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.
-3-
<PAGE>
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.
-4-
<PAGE>
LOGO
PROXY EQUITABLE BANKSHARES, INC. PROXY
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
MARCH 15, 1996
The undersigned hereby appoints Robert Sewell, Lesa Perry and Charles Cox,
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 Equitable
BankShares, Inc. to be held at Northwood Club, 6524 Alpha Road, in Dallas,
Texas, on Friday, March 15, 1996 at 5:00 p.m. Dallas time, and at all
adjournments thereof as follows:
(1) Approval, ratification, confirmation and adoption of the Agreement and
Plan of Merger, dated as of October 13, 1995, by and between Compass
Bancshares, Inc. and Equitable BankShares, Inc., as amended.
[_] FOR [_] AGAINST [_] ABSTAIN
(2) In their discretion, upon any other business which may properly come
before said meeting.
This Proxy will be voted as you specify above. If no specification is made,
the Proxy will be voted FOR proposal (1) above. Receipt of the Notice of
Special Meeting and the Proxy Statement/Prospectus dated February 14, 1996 is
hereby acknowledged.
<PAGE>
LOGO
THIS PROXY IS SOLICITED BY THE EQUITABLE BANKSHARES, INC. 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
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20:
- -------
Section 17 of Article V of Compass' By-Laws provides in part as follows:
Without limitation, the Corporation shall indemnify any person who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was a
director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding to the full extent
permitted by the General Corporation Law of Delaware, upon such
determination having been made as to his good faith and conduct as is
required by said General Corporation Law. Expenses incurred in defending a
civil or criminal action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding to the extent, if any, authorized by the Board of Directors in
accordance with the provisions of said General Corporation Law, officer,
employee or agent to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the Corporation.
Under Section 145 of the Delaware General Corporation Law (the "GCL"),
directors, advisory directors and officers of a Delaware corporation are
entitled to indemnification permitted by the statute as provided in such
corporation's certificate of incorporation, by-laws, resolutions and other
proper action.
In addition, Article 8 of Compass' Restated Certificate of Incorporation,
as amended, provides:
No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty of such
director, except (i) for breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of
law, (iii) pursuant to Section 174 of the Delaware General Corporation Law,
or (iv) for any transaction from which the director derived an improper
personal benefit. No amendment to or repeal of this Article 8 shall apply
to or have any effect on the liability or alleged liability of any director
of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment or repeal.
This provision is identical to, and is authorized by, 1986 amendments to the
GCL, Section 102(b)(7).
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Compass
pursuant to the foregoing provisions, or otherwise, Compass has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by Compass of expenses incurred or paid by a director, officer or
controlling person of Compass in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, Compass will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-1
<PAGE>
Item 21: Exhibits and Financial Statement Schedules.
- ------- -------------------------------------------
An index to Exhibits appears at pages II-5 through II-6 hereof.
Item 22: Undertakings.
- ------- ------------
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed pursuant
to the immediately preceding paragraph or (ii) that purports to meet the
requirements of section 10(a)(3) of the Securities Act of 1933 and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Birmingham, State of Alabama, on February 14, 1996.
COMPASS BANCSHARES, INC.
By: *
-------------------------------------
D. Paul Jones, Jr.
Chairman, Chief Executive Officer
and Treasurer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
II-3
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
* Director, Chairman, February 14, 1996
- ------------------------------------ Chief Executive
D. Paul Jones, Jr. Officer and Treasurer
* Chief Financial February 14, 1996
- ------------------------------------ Officer
Garrett R. Hegel
* Chief Accounting February 14, 1996
- ------------------------------------ Officer
Michael A. Bean
- ------------------------------------
Harry B. Brock, Jr. Director February __, 1996
- ------------------------------------
Stanley M. Brock Director February __, 1996
- ------------------------------------
Charles M. Daniel Director February __, 1996
*
- ------------------------------------ Director February 14, 1996
William Eugene Davenport
- ------------------------------------ Director February __, 1996
Garry Neil Drummond, Sr.
* Director February 14, 1996
- ------------------------------------
Marshall Durbin, Jr.
* Director February 14, 1996
- ------------------------------------
Tranum Fitzpatrick
* Director February 14, 1996
- ------------------------------------
George W. Hansberry
* Director February 14, 1996
- ------------------------------------
Goodwin L. Myrick
* Director February 14, 1996
- ------------------------------------
John S. Stein
*By /s/ Daniel B. Graves
---------------------------------
Daniel B. Graves, Attorney-in-fact
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------
<S> <C>
2 Agreement and Plan of Merger by and between Compass Bancshares, Inc.
and Equitable BankShares, Inc., dated as of October 13, 1995, as amended
(included as Appendix I to the Proxy Statement/Prospectus in Part I of this
Registration Statement)
*3(a) Restated Certificate of Incorporation of the Registrant dated May 17, 1982
(Filed with the December 31, 1982 Form 10-K of the Registrant and
incorporated herein by reference) (File No. 0-6032)
*3(b) Certificate of Amendment dated May 20, 1986 to Restated Certificate of
Incorporation of the Registrant (filed as Exhibit 4(b) to Registration
Statement on Form S-8, Registration No. 33-39095, and incorporated
herein by reference) (File No. 0-6032)
*3(c) Certificate of Amendment dated May 15, 1987 to Restated Certificate of
Incorporation of the Registrant (filed as Exhibit 3.1.2 to Post-Effective
Amendment No. 1 to Registration Statement on Form S-4, Registration
No. 33-10797 and incorporated herein by reference) (File No. 0-6032)
*3(d) Certificate of Amendment dated November 8, 1993 to Restated Certificate
of Incorporation of the Registrant (filed as Exhibit 3(d) to Registration
Statement on Form S-4 Registration No. 33-51919 and incorporated herein
by reference) (File No. 0-6032)
*3(e) Certificate of Amendment, dated September 19, 1994, to the Restated
Certificate of Incorporation of the Registrant (filed as Exhibit 3.5 to
Registration Statement on Form S-4 Registration No. 33-55899, and
incorporated herein by reference) (File No. 0-6032)
*3(f) Bylaws of the Registrant (Amended and Restated as of March 15, 1982)
(Filed with the December 31, 1982 10-K of the Registrant and
incorporated herein by reference) (File No. 0-6032)
**5 Opinion and consent of Jerry W. Powell, Esquire, as to the legality of the
securities being registered
**8 Opinion and consent of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.,
regarding tax matters
*10(a) Compass Bancshares, Inc., 1982 Long Term Incentive Plan (incorporated
by reference to Exhibit 1 to the Company's Registration Statement on
Form S-8 filed June 15, 1983, with the Commission).
*10(b) Compass Bancshares, Inc. 1989 Long Term Incentive Plan (filed as
Exhibit 28 to Registration Statement on Form S-8 Registration No. 39095
and incorporated herein by reference) (File No. 0-6032)
*10(c) Supplemental Retirement Agreement dated as of March 18, 1991, between
the Registrant and Harry B. Brock, Jr. (filed as Exhibit 10 to the
December 31, 1991 Form 10-K of the Registrant and incorporated herein
by reference) (File No. 0-6032)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------
<S> <C>
*10(d) Employment Agreement dated December 14, 1994, between Compass
Bancshares, Inc. and D. Paul Jones, Jr. (filed as Exhibit 10(d) to the
December 31, 1994 Form 10-K of the Registrant and incorporated herein
by reference) (File No. 0-6032)
*10(e) Employment Agreement dated December 14, 1994, between Compass
Bancshares, Inc. and Jerry W. Powell (filed as Exhibit 10(e) to the
December 31, 1994 Form 10-K of the Registrant and incorporated herein
by reference) (File No. 0-6032)
*10(f) Employment Agreement dated December 14, 1994, between Compass
Bancshares, Inc. and Garrett R. Hegel (filed as Exhibit 10(f) to the
December 31, 1994 Form 10-K of the Registrant and incorporated herein
by reference) (File No. 0-6032)
*10(g) Employment Agreement dated December 14, 1994, between Compass
Bancshares, Inc. and Byrd Williams (filed as Exhibit 10(g) to the
December 31, 1994 Form 10-K of the Registrant and incorporated herein
by reference) (File No. 0-6032)
*10(h) Employment Agreement dated December 14, 1994, between Compass
Bancshares, Inc. and Charles E. McMahen (filed as Exhibit 10(h) to the
December 31, 1994 Form 10-K of the Registrant and incorporated herein
by reference) (File No. 0-6032)
*13(a) The Registrant's Annual Report to Shareholders and Annual Report on
Form 10-K for the fiscal year ended December 31, 1994 (File No. 0-6032)
*13(b) The Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995 (File No. 06032)
*13(c) The Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995 (File No. 06032)
*13(d) The Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995 (File No. 06032)
**16 Letter from KPMG Peat Marwick LLP to the Commission regarding
change in Equitable's certifying accountants
**21 List of Subsidiaries of Compass Bancshares, Inc.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------
<S> <C>
23(a) Consent of KPMG Peat Marwick LLP,
Independent Certified Public Accountants--Compass Bancshares, Inc.
23(b) Consent of Fisk Robinson, Independent Certified Public Accountants--
Equitable BankShares, Inc.
23(c) Consent of KPMG Peat Marwick LLP, Independent Certified Public
Accountants--Equitable BankShares, Inc.
**23(d) Consent of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. (included in the
opinion in Exhibit 8)
**24(a) Power of Attorney
**24(b) Compass Board of Directors Resolutions
**99(a) Notice of Special Meeting of Shareholders of Equitable
99(b) Form of Proxy for Special Meeting of Shareholders of Equitable
**99(c) President's letter to Equitable Shareholders
</TABLE>
___________________________
*Incorporated by reference
**Previously filed
II-7
<PAGE>
ACCOUNTANT'S CONSENT
Board of Directors
Compass Bancshares, Inc.
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the Prospectus.
KPMG PEAT MARWICK LLP
Birmingham, Alabama
February 12, 1996
<PAGE>
ACCOUNTANT'S CONSENT
Board of Directors
Equitable BankShares, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus.
FISK & ROBINSON, P.C.
Dallas, Texas
February 12, 1996
<PAGE>
INDEPENDENT AUDITOR'S CONSENT
The Board of Directors
Equitable BankShares, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Prospectus. Our report refers to a
change in accounting for income taxes in 1993.
KPMG PEAT MARWICK LLP
Dallas, Texas
February 12, 1996
