<PAGE>
As filed with the Securities and Exchange Commission on December 19, 1997.
REGISTRATION NO. 333-_______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
COMPASS BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6711 63-0593897
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NO.)
</TABLE>
15 SOUTH 20TH STREET
BIRMINGHAM, ALABAMA 35223
(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 value 1,800,000 (2) $22,499,000 $6,639
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) This amount is based upon the maximum number of shares anticipated to be
issued pursuant to an Agreement and Plan of Merger dated as of October 10,
1997 between the Registrant and Fidelity Resources Company.
(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, 1997 of the
securities to be received by the Registrant in exchange for the securities
registered hereby.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
COMPASS BANCSHARES, INC.
____________________________________
CROSS REFERENCE SHEET
(Pursuant to Item 501(b) of Regulation S-K
and Item 1 of Part I of Form S-4)
<TABLE>
<CAPTION>
S-4 Item Number and Heading Location of Proxy Statement/Prospectus Heading
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
A. Information About the Transaction
1. Forepart of Registration Statement and Outside Front Forepart of Registration Statement; Outside Front Cover
Cover Page of Prospectus Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Table of Contents; Available Information; Incorporation of
Prospectus Certain Documents by Reference; Introduction
3. Risk Factors, Ratio of Earnings to Fixed Charges and Introduction; Summary; Risk Factors; Selected Financial Data;
Other Information Market Prices; The Merger; Supervision and Regulation;
Index to Financial Statements of Fidelity
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 Fidelity and
Compass; Information About Compass; Appendix I and Appendix
II
5. Pro Forma Financial Information Selected Financial Data
6. Material Contacts with the Company Being Acquired Summary; Recommendation of Board of Directors; The Merger;
Information About Fidelity
7. Additional Information Required for Reoffering by Persons Not Applicable
and Parties Deemed to be Underwriters
8. Interests of Named Experts and Counsel Relationships with Independent Accountants; Experts; Legal
Opinions
9. Disclosure of Commission Position on Indemnification for Indemnification
Securities Act Liabilities
B. Information About the Registrant
10. Information With Respect to S-3 Registrants Available Information; Incorporation of Certain Documents by
Reference; Summary; Selected Financial Data; Market Prices;
Information About Compass
11. Incorporation of Certain Information by Reference Incorporation of Certain Documents by Reference; Information
About Compass
12. Information With Respect to S-2 or S-3 Registrants Not Applicable
13. Incorporation of Certain Information by Reference Not Applicable
14. Information With Respect to Registrants Other Than S-2 or Not Applicable
S-3 Registrants
C. Information About the Company Being Acquired
15. Information With Respect to S-3 Companies Not Applicable
16. Information With Respect to S-2 or S-3 Companies Not Applicable
17. Information With Respect to Companies Other Than S-2 or Introduction; Summary; The Merger; Selected Financial Data;
S-3 Companies Market Prices; Information About Fidelity; Comparison of
Rights of Stockholders of Fidelity and Compass; Index to
Financial Statements of Fidelity
D. Voting and Management Information
18. Information if Proxies, Consents or Authorizations Are to The Proxy Card; Incorporation of Certain Documents by
be Solicited Reference; Introduction; Summary; The Merger; Information
About Compass; Information About Fidelity; Relationships with
Independent Accountants; Experts; Appendix II
19. Information if Proxies, Consents or Authorizations Are Not Applicable
Not to be Solicited, or in an Exchange Offer
</TABLE>
<PAGE>
FIDELITY RESOURCES COMPANY 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 1,800,000 shares of Compass $2.00 par value
common stock ("Compass Common Stock") to be issued in the proposed merger (the
"Merger") of Fidelity Resources Company, a Texas corporation ("Fidelity"), with
and into Compass Banks of Texas, Inc., a Delaware corporation and wholly-owned
subsidiary of Compass ("Compass Texas").
This Proxy Statement/Prospectus constitutes the proxy statement of Fidelity
relating to the solicitation of proxies for use at the special meeting of
shareholders of Fidelity (the "Meeting") scheduled to be held on ________,
January ___, 1998, at ____ p.m., Central Time, at the offices of Fidelity Bank
National Association, a national banking association and indirect subsidiary of
Fidelity, located at 6501 Hillcrest, University Park, Texas (the "Bank"), and
any adjournments thereof. At the Meeting, the shareholders of Fidelity will
consider and vote upon a proposal to approve, ratify, confirm and adopt the
Agreement and Plan of Merger dated as of October 10 , 1997, as amended, by and
between Compass and Fidelity (the "Merger Agreement") providing for, among other
things, the merger of Fidelity with and into Compass Texas and, in connection
therewith, the receipt by Fidelity shareholders of Compass Common Stock.
As more fully described herein, the Merger Agreement provides for the
holders of Fidelity common stock, par value $.10 per share ("Fidelity Common
Stock"), at the effective time of the Merger (the "Effective Time"), to receive
aggregate merger consideration of 1,800,000 shares of Compass Common Stock.
On ______________ ____, 1997 there were 3,066,119 shares of Fidelity Common
Stock issued and outstanding. In addition, certain officers of Fidelity and/or
the Bank hold options to purchase an aggregate of 362,077 shares of Fidelity
Common Stock which Fidelity expects to be exercised prior to the Effective Time.
Assuming that there will be 3,428,196 shares of Fidelity Common Stock issued
and outstanding immediately prior to the Effective Time and the satisfaction of
all conditions to closing, each shareholder of Fidelity (except for shareholders
choosing to exercise their dissenters' rights) will be entitled to receive
approximately .5251 shares of Compass Common Stock for each share of Fidelity
Common Stock held.
Other than reductions due to the payment of cash for fractional shares and
for shares held by dissenting shareholders, in no event will the aggregate
number of shares of Compass Common Stock to be issued in the Merger be less than
1,800,000.
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 Fidelity 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 Fidelity Common Stock in the Merger. Compass Common Stock is publicly traded
in the over-the-counter market and quoted on the NASDAQ National Market System.
On December ___, 1997, the last reported sale price per share of Compass Common
Stock was $_______. No active public trading market exists for Fidelity Common
Stock. SEE "RESALE OF COMPASS 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 concerning Fidelity and its subsidiaries has been
furnished by Fidelity.
FIDELITY SHAREHOLDERS ARE URGED TO REVIEW AND CAREFULLY
CONSIDER THE RISKS DESCRIBED UNDER "RISK FACTORS".
The date of this Proxy Statement/Prospectus is _____________, 1997 and this
Proxy Statement/Prospectus is first being mailed or delivered to Fidelity
shareholders on or about _____________, 1997.
<PAGE>
PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
AVAILABLE INFORMATION 1
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE 1
PROXY STATEMENT/PROSPECTUS 3
INTRODUCTION 3
SUMMARY 6
Parties to the Merger 6
The Merger 8
Reasons for the Merger; Recommendation of
Boards of Directors 9
The Meeting 10
Record Date 10
Shareholder Votes Required 10
Dissenters' Rights 11
Conditions to Consummation and Regulatory Approvals;
Federal Income Tax Consequences 12
Accounting Treatment 12
RISK FACTORS 13
SELECTED FINANCIAL DATA 16
MARKET PRICES 18
THE MERGER 19
General 19
Background and Reasons for the Merger 20
Opinion of Financial Advisor 21
Operations after the Mergers 25
Other Terms and Conditions 25
No Solicitation 27
Additional Agreements 27
Business Pending Effective Time 28
Amendment 28
Termination 28
Exchange of Shares 29
Dissenters' Rights 30
Federal Income Tax Consequences 32
Government Approvals 33
Accounting Treatment 33
SUPERVISION AND REGULATION 34
General 34
Compass, Compass Banks of Texas and
Compass Bancorporation 34
The Subsidiary Banks 36
Other 37
DESCRIPTION OF COMPASS COMMON AND PREFERRED
STOCK 38
Compass Common Stock 38
Dividends 38
Preemptive Rights 39
Voting Rights 39
Liquidation 39
Compass Preferred Stock 39
COMPARISON OF RIGHTS OF SHAREHOLDERS OF
FIDELITY AND COMPASS 40
Charter and Bylaw Provisions Affecting
Compass Stock 40
Certain Differences Between the Corporation Laws of
Texas and Delaware and Corresponding Charter
and Bylaw Provisions 40
Mergers 40
Appraisal Rights 41
Special Meetings 41
Actions Without a Meeting 42
Election of Directors 42
Voting on Other Matters 42
Preemptive Rights 43
Dividends 43
Liquidation Rights 43
Limitation of Liability and Indemnification 43
Removal of Directors 44
Inspection of Books and Records 44
Antitakeover Provisions 45
RESALE OF COMPASS STOCK 45
INFORMATION ABOUT COMPASS 45
Incorporation of Certain Documents by Reference 45
Interests of Certain Persons 46
INFORMATION ABOUT FIDELITY 46
Services, Employees and Properties 46
Competition 46
Legal Proceedings 47
Market Price and Dividends 47
Beneficial Ownership of Fidelity Common Stock
by Fidelity Management and Principal
Shareholders. 47
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF FIDELITY 50
Results of Operations 50
General 50
Net Interest Income 50
Provision for Loan Losses 53
Non-interest Income 53
Non-interest Expense 53
Federal Income Taxes 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 62
RELATIONSHIPS WITH INDEPENDENT ACCOUNTANTS 63
EXPERTS 63
LEGAL OPINIONS 63
INDEMNIFICATION 63
OTHER MATTERS 64
</TABLE>
<PAGE>
AVAILABLE INFORMATION
Compass has filed with the Commission a Registration Statement on Form S-4
(the "Registration Statement") under the Securities Act for the registration of
the Compass Common Stock proposed to be issued and exchanged in the Merger. This
Proxy Statement/Prospectus was filed as a part of the Registration Statement.
This Proxy Statement/Prospectus does not contain all of the information set
forth in the Registration Statement, as certain parts are permitted to be
omitted by the rules and regulations of the Commission. For further information
pertaining to Compass, the Compass Common Stock, and related matters, reference
is made to the Registration Statement, including the exhibits filed as a part
thereof, which may be inspected at, and copies of which may be obtained by mail
from, the Public Reference Branch of the Commission referred to below.
Compass is subject to the information requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, accordingly, files reports,
proxy statements and other information with the Commission. Such reports, proxy
statements and other information can be inspected and copied at the Commission's
public reference rooms located at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and the public reference facilities in the New York Regional Office,
13th Floor, Seven World Trade Center, New York, New York 10048, and the Chicago
Regional Office, Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60621-2511. Copies of such materials can be obtained at
prescribed rates by writing to the Securities and Exchange Commission, Public
Reference Branch, 450 Fifth Street, N.W., Washington, D.C. 20549. Such material
may be accessed electronically by means of the Commission's home page on the
Internet at http://www.sec.gov.
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 FIDELITY 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 DECEMBER ___, 1997.
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, 1996 (File No. 0-6032);
(ii) Compass' Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997 (File No. 0-6032);
(iii) Compass' Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997 (File No. 0-6032);
(iv) Compass' Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 (File No. 0-6032);
(v) Compass' Proxy Statement dated March 21, 1997, relating to its
annual meeting of shareholders held on April 21, 1997 (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).
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
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<PAGE>
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, Fidelity 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, Fidelity, the Bank or their respective affiliates
since the date of this Proxy Statement/Prospectus.
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<PAGE>
PROXY STATEMENT/PROSPECTUS
INTRODUCTION
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Board of Directors of Fidelity Resources
Company, a Texas corporation ("Fidelity"), for use at the special meeting
of Fidelity 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
Fidelity with and into Compass Banks of Texas, Inc., a Delaware corporation
and wholly-owned subsidiary of Compass ("Compass Texas").
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 10, 1997, as amended, by and between
Compass and Fidelity (the "Merger Agreement"), pursuant to which
Fidelity will be merged with and into Compass Texas; and
(2) To consider and transact such other business as may properly come
before the Meeting.
The Board of Directors of Fidelity has fixed _______________, 1997 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, Fidelity had 95,000,000 shares of common stock,
$0.10 par value per share ("Fidelity Common Stock"), authorized, of which
3,066,119 shares were issued and outstanding. As of the Record Date, the
Fidelity Common Stock was held of record by 149 persons or entities.
Certain officers of Fidelity and/or the Bank presently hold options to
purchase up to a total of 362,077 shares of Fidelity Common Stock. Each
share of Fidelity 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 Fidelity 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 Fidelity Common Stock is required for approval of the
Merger. FIDELITY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
APPROVAL OF THE MERGER. SEE "SUMMARY--REASONS FOR THE MERGER;
RECOMMENDATION OF BOARD OF DIRECTORS"; "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 Fidelity and the Bank (and
certain of their spouses or affiliates) owning or otherwise controlling the
right to vote 2,261,223 shares of Fidelity Common Stock, comprising
approximately 73.75% of the total shares of Fidelity Common Stock issued
and outstanding as of the Record Date, have agreed, pursuant to a Voting
Agreement, 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 Fidelity 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 Fidelity
shareholders, subject to the termination rights contained in the Merger
Agreement. SEE "SUMMARY--SHAREHOLDER VOTES REQUIRED"; "THE MERGER--
GENERAL"; "THE MERGER--ADDITIONAL AGREEMENTS"; AND "INFORMATION ABOUT
FIDELITY--BENEFICIAL OWNERSHIP OF FIDELITY COMMON STOCK BY FIDELITY
MANAGEMENT AND PRINCIPAL SHAREHOLDERS".
Proxies in the form enclosed are solicited by Fidelity'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, Fidelity'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 Fidelity's Board of Directors pursuant
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<PAGE>
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
Fidelity'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 Fidelity, 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 Fidelity Common Stock held of record by such persons, and
Fidelity 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
Fidelity Common Stock held of record by them, and Fidelity 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. Fidelity's principal executive offices are located at 6501
Hillcrest, University Park, Texas 75205, and its telephone number is (214)
523-5350.
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<PAGE>
SUMMARY
The following is a brief summary of certain information relating
to the Merger contained elsewhere in this Proxy Statement/Prospectus.
This summary is not intended to describe all material information
relating to the Merger and is qualified in its entirety by reference
to the more detailed information and financial statements contained
elsewhere in this Proxy Statement/Prospectus, including the Appendices
hereto and the documents referred to herein or incorporated by
reference. All share and per share information in this Proxy
Statement/Prospectus for Compass has been adjusted to reflect a three-
for-two stock split of the Compass Common Stock effected on April 1,
1997 for the Compass shareholders of record on March 17, 1997.
Shareholders are urged to read carefully the entire Proxy
Statement/Prospectus and the related documents.
PARTIES TO THE MERGER
Compass. 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-Alabama"), an Alabama
state bank headquartered in Birmingham, Alabama, and Central Bank of
the South, an Alabama state bank headquartered in Anniston, Alabama.
Compass Bank-Alabama conducts a general, full-service commercial and
consumer banking business through 88 banking offices located in 45
communities in Alabama and 34 banking offices in Florida. Compass
Bank-Alabama also is engaged in the investment, trust and equipment
leasing businesses, and other bank operating activities. Central Bank
of the South primarily serves as a controlled disbursement facility
for commercial deposit customers of Compass Bank-Alabama.
Compass Texas is a Delaware corporation and wholly-owned
subsidiary of Compass. Compass Texas and its wholly-owned subsidiary,
Compass Bancorporation of Texas Inc. ("Compass Bancorporation"), are
bank holding companies registered with the Federal Reserve under the
BHC Act. Compass Bancorporation owns Compass Bank ("Compass Bank-
Texas"), a Texas state bank and wholly-owned indirect subsidiary of
Compass headquartered in Houston, Texas; and Compass Texas Management,
Inc., a Texas corporation ("Compass Management"). Compass Management
provides management services to its affiliated Texas banks. These
wholly-owned commercial bank subsidiaries conduct a general, full-
service commercial and consumer banking business through 42 banking
offices in Houston, Texas, 24 banking offices in the Dallas-Ft. Worth
area, 16 banking offices in San Antonio, Texas, 8 banking offices in
Austin, Texas and 8 banking offices in Central and East Texas.
During 1995, Compass acquired Southwest Bankers, Inc., and its
bank subsidiary, The Bank of San Antonio, located in San Antonio,
Texas. In 1996, Compass acquired Flower Mound Bancshares, Inc. and
its bank subsidiary, Security Bank, located in Flower Mound, Texas;
Equitable BankShares, Inc. and its bank subsidiary, Equitable Bank,
located in Dallas, Texas; Post Oak Bank located in Houston, Texas;
Peoples Bancshares, Inc. and its bank subsidiary, The Peoples National
Bank located in Belton, Texas; Royall Financial Corporation and its
bank subsidiary, The Royall National Bank of Palestine, located in
Palestine, Texas; Probank, located in The Woodlands, Texas; the San
Antonio, Texas branches of Coastal Banc ssb; Texas American Bank
located in San Antonio, Texas; and CFB Bancorp, Inc. and its
subsidiary, Community First Bank of Jacksonville, Florida. In 1997,
Compass acquired Horizon Bancorp, Inc. and its subsidiary, Horizon
Bank & Trust, ssb, located in Austin, Texas; Enterprise National Bank
of Jacksonville, located in Jacksonville, Florida; the Crosby, Texas
branch of Bank One, Texas, National Association; Greater Brazos Valley
Bancorp, Inc. and its subsidiary, Commerce National Bank, located in
College Station, Texas; and Central
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<PAGE>
Texas Bancorp, Inc. and its subsidiary, The Texas National Bank of
Waco, located in Waco, Texas. The Merger and the proposed acquisition
of First University Corporation and its subsidiary, West University
Bank, National Association, located in Houston, Texas, and G.S.B.
Investments, Inc. and its subsidiary, Gainesville State Bank, located
in Gainesville, Florida, are the only announced acquisitions which are
pending.
On September 30, 1997, Compass and its subsidiaries had
consolidated assets of $12.9 billion, consolidated deposits of $9.6
billion, and total shareholders' equity of $935 million. SEE
"AVAILABLE INFORMATION"; "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE"; "SELECTED FINANCIAL DATA"; AND "INFORMATION ABOUT
COMPASS".
Fidelity and the Bank. Fidelity was incorporated in 1986 and
Fidelity currently conducts no operations other than serving as a bank
holding company under the BHC Act for the Bank. Fidelity is subject
to regulation by the Federal Reserve.
The Bank was chartered in 1983 as Fidelity National Bank and
adopted its present name in August 1991. The Bank is an independent
community bank headquartered in University Park, Texas. The Bank is a
full service bank offering a variety of services to satisfy the needs
of the consumer and commercial customers in the area. The principal
services offered by the Bank include most types of loans, including
commercial, consumer and real estate loans. The Bank also offers safe
deposit boxes, a night deposit facility, motor bank, wire transfers
and automated teller machine ("ATM") cards.
In June 1996, the Bank acquired certain assets and assumed
certain liabilities of two branches of United Bank and Trust. In
February 1995, the Bank acquired, through a merger transaction, 100%
of the common stock of EastPark Bancshares, Inc. In June 1995, the
Bank purchased certain assets and assumed certain liabilities related
to the Lakewood Branch of Texas Community Bank. In July 1995, the
Bank acquired, through a merger transaction, 100% of the assets and
liabilities of Interstate National Bank.
The Bank's main office is located at 6501 Hillcrest, University
Park, Texas 75205. The Bank has eleven branches in Dallas and one
branch in Duncanville.
The Bank considers its service area to be the area encompassing
the Dallas metropolitan area. The activities in which the Bank
engages are competitive. Each activity engaged in involves
competition with other banks, as well as with nonbanking financial
institutions and nonfinancial enterprises. In addition to competing
with other commercial banks within and outside its service area, the
Bank competes with other financial institutions engaged in the
business of making loans or accepting deposits, such as savings and
loan associations, credit unions, industrial loan associations,
insurance companies, small loan companies, finance companies, mortgage
companies, real estate investment trusts, certain governmental
agencies, credit card organizations and other enterprises. Additional
competition for deposits comes from government and private issuers of
debt obligations and other investment alternatives for depositors,
such as money market funds. The Bank also competes with suppliers of
equipment in furnishing equipment financing and leasing services.
Fidelity Resources Company of Delaware, Inc. ("FRCD") was
incorporated in 1996 as a Delaware corporation. On March 20, 1996,
Fidelity transferred all of the shares owned by it in the Bank to FRCD
in exchange for 100% of the issued and outstanding stock of FRCD.
FRCD conducts no operations other than serving as a bank holding
company under the BHC Act for the Bank. FRCD is subject to regulation
by the Federal Reserve.
On September 30, 1997, Fidelity had total assets of $318 million,
total deposits of $291 million, and total shareholders' equity of
$22.5 million. SEE "SELECTED FINANCIAL DATA"; "INFORMATION ABOUT
FIDELITY"; "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF FIDELITY"; AND FINANCIAL
STATEMENTS OF FIDELITY.
-6-
<PAGE>
THE MERGER
The Merger Agreement provides that each share of Fidelity's
common stock, par value $0.10 per share ("Fidelity Common Stock"),
issued and outstanding immediately prior to the effective time (the
"Effective Time") of the Merger ("Common Shares Outstanding"), other
than dissenting shares, 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") in the form of shares of Compass
Common Stock to the holder of record thereof, without interest
thereon, upon surrender of the certificate representing such share. As
Merger Consideration, Compass agrees to issue, in the aggregate,
1,800,000 shares of Compass Common Stock. In the event that the
average closing sale price of the Compass Common Stock as reported by
the NASDAQ National Market System for the twenty days of trading
preceding the tenth business day prior to the first business day
following the later of (i) the last received regulatory approval from
the Federal Deposit Insurance Corporation (the "FDIC") and the Federal
Reserve Board and the expiration of any applicable waiting period with
respect thereto and (ii) the approval of the Merger by Fidelity's
shareholders (the "Share Determination Market Value") falls below
$34.00 per share, Compass shall agree to issue a number of shares of
Compass Common Stock equal to the quotient of $61,200,000 (the "Target
Price") divided by the Share Determination Market Value. 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
1,800,000, Compass shall either (i) terminate the Merger Agreement
(the "Compass Pricing Termination Option") by written notice to
Fidelity within ten business days after the Share Determination Market
Value is capable of being determined, or (ii) 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 Fidelity of its election pursuant to
the preceding sentence within the specified ten business day period,
the Merger Agreement shall be terminated, but Fidelity shall have the
right to reject such termination of the Merger Agreement by Compass
(the "Fidelity Termination Rejection") by agreeing to accept an
aggregate number of shares of Compass Common Stock equal to 1,800,000.
Any decision by the Board of Directors of Fidelity regarding
whether to exercise its Fidelity Termination Rejection will be made in
its sole discretion and could result in either (i) Fidelity
shareholders receiving Merger Consideration with an aggregate market
value of less than $61,200,000, or (ii) the termination of the Merger
Agreement. If the Board of Directors of Fidelity does not elect to
exercise its Fidelity Termination Rejection Option, the Merger
Agreement will terminate, in which event Fidelity shareholders would
not receive any Merger Consideration but would retain their Fidelity
Common Stock.
On ________________ ___, 1997 there were 3,066,119 shares of
Fidelity Common Stock issued and outstanding. In addition, certain
officers of Fidelity and/or the Bank hold options to purchase an
aggregate of 362,077 shares of Fidelity Common Stock which Fidelity
expects to be exercised prior to the Effective Time.
Assuming that there will be 3,428,196 shares of Fidelity Common
Stock issued and outstanding immediately prior to the Effective Time
and the satisfaction of all conditions to closing, each shareholder of
Fidelity (except for shareholders choosing to exercise their
dissenters' rights) will be entitled to receive approximately .5251
shares of Compass Common Stock for each share of Fidelity Common Stock
held.
Other than reductions due to the payment of cash for fractional
shares and for shares held by dissenting shareholders, in no event
will the aggregate number of shares of Compass Common Stock to be
issued in the Merger be less than 1,800,000.
Compass Texas will be the surviving entity in the Merger (the
"Surviving Corporation"), and the officers and directors of Compass
Texas at the Effective Time will remain as the officers and
-7-
<PAGE>
directors of the Surviving Corporation. Compass intends that the
Bank's personnel will remain following the Merger. Compass and
Fidelity presently intend that immediately following the completion of
the Merger, FRCD will be merged with and into Compass Bancorporation
and the Bank will be merged with and into Compass Bank-Texas (the
"Subsequent Mergers"), subject to the necessary regulatory approvals.
Thereafter, the separate existence of FRCD and the Bank will cease,
and the former branches of the Bank will become branches of Compass
Bank-Texas. SEE "THE MERGER--GENERAL"; AND "INFORMATION ABOUT
FIDELITY".
The Merger Agreement also provides that the number of shares of
Compass Common Stock to be received by Fidelity shareholders in the
Merger will be adjusted to give effect to any stock dividends or
splits, reclassifications, recapitalizations or conversions with
respect to Compass Common Stock when the record date or payment occurs
prior to the Effective Time. SEE "INTRODUCTION"; "SUMMARY--
DISSENTERS' RIGHTS"; "THE MERGER--GENERAL"; "THE MERGER--DISSENTERS'
RIGHTS"; APPENDIX I; AND APPENDIX II.
The Merger Agreement was the result of arm's-length negotiations
between representatives of Fidelity and Compass. Fidelity's Board of
Directors believes that the terms of the Merger are fair to Fidelity's
shareholders. In addition, a fairness opinion has been received from
Keefe, Bruyette & Woods, Inc. ("Keefe Bruyette") with respect to the
fairness, from a financial point of view, of the Merger to its
shareholders. The fairness opinion is attached to this Proxy
Statement/Prospectus as Appendix III. SEE "SUMMARY--REASONS FOR THE
MERGER; RECOMMENDATION OF BOARD OF DIRECTORS"; "THE MERGER--BACKGROUND
AND REASONS FOR THE MERGER"; "THE MERGER--OPINION OF FINANCIAL
ADVISOR"; AND APPENDIX III.
REASONS FOR THE MERGER; RECOMMENDATION OF BOARDS OF DIRECTORS
Consummation of the Merger offers the holders of Fidelity 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 metropolitan area of Texas. Compass
Common Stock is publicly traded and has a history of paying dividends.
Fidelity's Board of Directors anticipates that the Merger and the Bank
Merger will expand the banking products and services offered to
Fidelity's customers and community and will enable Fidelity's
facilities to compete more effectively among banks and non-bank
financial institutions. As part of a much larger holding company,
Fidelity'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.
For the reasons set forth above, the Fidelity Board of Directors
believes the Merger to be in the best interests of Fidelity's
shareholders. FIDELITY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT FIDELITY SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER and has
authorized consummation thereof subject to approval of Fidelity
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
FIDELITY AND COMPASS"; "INFORMATION ABOUT COMPASS"; AND "INFORMATION
ABOUT FIDELITY".
Keefe Bruyette has delivered an opinion to the Board of Directors
of Fidelity to the effect that, based upon and subject to the
qualifications described in such opinion, the terms of the Merger,
including the consideration to be received by the holders of Fidelity
Common Stock, are fair from a financial point of view. For additional
information concerning the matters considered by Keefe Bruyette in
reaching its opinion, the limitations on its review, and the fees
received or to be received by it, see "THE MERGER - OPINION OF
FINANCIAL ADVISORS" AND APPENDIX III.
-8-
<PAGE>
THE MEETING
The Meeting will be held on _________, January ___, 1998 at
_______ p.m., Central time, at the offices of the Bank located at 6501
Hillcrest, University Park, Texas 75205, for the purpose of approving,
ratifying, confirming and adopting the Merger Agreement.
RECORD DATE
The Record Date has been set by Fidelity's Board of Directors as
the close of business on ______________, 1997. Only holders of
Fidelity 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 Fidelity Common Stock
issued and outstanding and entitled to vote at the Meeting.
The directors and executive officers of Fidelity and/or the Bank
(and certain of their spouses or affiliates) owning or otherwise
controlling the right to vote 2,261,223 shares of Fidelity Common
Stock, comprising approximately 73.75% of the total shares of Fidelity
Common Stock issued and outstanding as of the Record Date, have
agreed, pursuant to a Voting Agreement, 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 Fidelity 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 Fidelity shareholders, subject to the
termination rights contained in the Merger Agreement.
Compass Texas has 10,000 shares of common stock, par value $.01
per share, issued and outstanding, all of which are owned and held by
Compass. Subject to the satisfaction or waiver of all of the
conditions to the parties' obligations to effect the Merger, Compass,
as the sole shareholder of Compass Texas, will approve the Merger
Agreement in the manner prescribed by Delaware General Corporation Law
("GCL"). SEE "THE MERGER--GENERAL".
DISSENTERS' RIGHTS
Holders of Fidelity 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 FIDELITY AND COMPASS--DISSENTERS' RIGHTS"; AND
APPENDIX II.
CONDITIONS TO CONSUMMATION AND REGULATORY APPROVALS
Consummation of the Merger is subject to approval by the
shareholders of Fidelity, the receipt of required regulatory approvals
from the Federal Reserve under the BHC Act, and the satisfaction or
waiver of a number of other conditions. In addition, consummation of
the Subsequent Mergers of FRCD into Compass Bancorporation and the
Bank into Compass Bank-Texas is subject to approval by the Federal
Reserve and the Banking Commissioner of Texas (the "Commissioner"). It
is expected that the Federal Reserve and the Commissioner will issue
their respective approvals of the Merger and the Subsequent Mergers.
An application under the BHC Act was filed in respect of the
Merger with the Federal Reserve on November 12, 1997. Once Federal
Reserve approval has been obtained, the Merger cannot be consummated
until the expiration of a 15 day waiting period following such
approval during which the United States Department of Justice (the
"Justice Department"), pursuant to the BHC Act, may bring an action
opposing the Merger.
-9-
<PAGE>
An application was filed with the Federal Reserve in respect of
the Subsequent Mergers on November 12, 1997. The Federal Reserve
approval in respect of the Subsequent Mergers is also subject to a 15
day waiting period during which the Justice Department, pursuant to
the Bank Merger Act, may bring an action opposing the Subsequent
Mergers under the antitrust laws. No Justice Department objection or
adverse action is anticipated with respect to the Merger or the
Subsequent Mergers.
The Texas Finance Code allows out-of-state bank holding companies
to acquire bank holding companies that own or control state or
national banks located within Texas. An application with the
Commissioner was filed on November 12, 1997. SEE "THE MERGER--
GOVERNMENTAL APPROVALS".
The respective boards of directors of Compass and Fidelity may
terminate the Merger Agreement as a result of, among other things,
pricing issues, 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 April 30, 1998 or such later date agreed
to in writing by Compass and Fidelity. SEE "SUMMARY--THE MERGER";
"THE MERGER--GENERAL"; "THE MERGER--OTHER TERMS AND CONDITIONS"; "THE
MERGER--BUSINESS PENDING EFFECTIVE TIME"; "THE MERGER--AMENDMENT;
TERMINATION"; "THE MERGER--GOVERNMENT APPROVALS"; AND APPENDIX I.
FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
("Liddell, Sapp"), counsel to Compass and Compass Texas, based upon
certain representations and assumptions, the Merger, if consummated in
accordance with the Merger Agreement, will qualify as a
"reorganization" under Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code"), and, as a result of such qualification,
no gain or loss will be recognized by holders of Fidelity 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 Fidelity 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. FIDELITY SHAREHOLDERS ARE URGED TO CONSULT THEIR
OWN TAX ADVISERS AS TO ALL TAX CONSEQUENCES OF THE MERGER AFFECTING
THEM. SEE "THE MERGER--FEDERAL INCOME TAX CONSEQUENCES".
Compass and Fidelity expect to receive an opinion from Liddell,
Sapp at the closing of the transaction contemplated by the Merger
Agreement (the "Closing") that the Merger will qualify as a
reorganization under Section 368(a) of the Code in satisfaction of a
condition to consummation of the Merger. SEE "THE MERGER--OTHER TERMS
AND CONDITIONS" AND "LEGAL OPINIONS".
ACCOUNTING TREATMENT
Compass will account for the Merger under the pooling-of-
interests method for financial reporting and all other purposes.
Compass has received a letter from KPMG Peat Marwick LLP, which will
be updated as of the Effective Time, to the effect that, based on
information provided to KPMG Peat Marwick LLP and assuming that the
Merger is consummated in accordance with the terms of the Merger
Agreement, the Merger will qualify for pooling-of-interests accounting
treatment. SEE "THE MERGER--ACCOUNTING TREATMENT".
-10-
<PAGE>
RISK FACTORS
Fidelity shareholders currently control Fidelity through their
ability to elect the Board of Directors of Fidelity and vote on various
matters affecting Fidelity. The Merger will transfer control of Fidelity
from Fidelity's shareholders to Compass. As of the Effective Time, the
shareholders of Fidelity will become shareholders of Compass, a multi-bank
holding company. As a result of the Merger, the former shareholders of
Fidelity will no longer have the ability to control or influence the
management policies of Fidelity'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 FIDELITY--
COMPETITION".
In addition, general economic conditions impact the banking
industry. The credit quality of Compass' loan portfolio necessarily
reflects, among other matters, the general economic conditions in the areas
in which it conducts its business. The continued financial success of
Compass and its subsidiaries depends somewhat on factors which are beyond
Compass' control, including national and local economic conditions, the
supply and demand for investable funds, interest rates and federal, state
and local laws affecting these matters. Any substantial deterioration in
any of the foregoing conditions could have a material adverse effect on
Compass' financial condition and results of operations, which, in all
likelihood, would adversely affect the market price of Compass Common
Stock. SEE "MARKET PRICES".
Compass' Restated Certificate of Incorporation, as amended (the
"Certificate"), and Bylaws contain several provisions which may make
Compass a less attractive target for acquisition by anyone who does not
have the support of Compass' Board of Directors. Such provisions include,
among other things, the requirement of a supermajority vote of shareholders
or directors to approve certain business combinations and other corporate
actions, a minimum price provision, several special procedural rules, a
staggered Board of Directors, and the limitation that shareholder actions
without a meeting may only be taken by unanimous written shareholder
consent. Fidelity's Articles of Incorporation and Bylaws do not contain
similar restrictions, although under Texas law Fidelity's shareholders may
take action without a meeting only by unanimous written consent. SEE
"COMPARISON OF RIGHTS OF SHAREHOLDERS OF FIDELITY AND COMPASS--CHARTER AND
BYLAW PROVISIONS AFFECTING COMPASS COMMON STOCK" AND "INFORMATION ABOUT
COMPASS-RECENT DEVELOPMENTS".
In the event that the Share Determination Market Value falls
below $34.00 per share, Compass shall 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 the Share
Determination Market Value would result in the number of shares of Compass
Common Stock to be issued to be greater than 1,800,000, Compass shall
either (i) exercise its Compass Pricing Termination Option by written
notice to Fidelity within ten business days after the Share Determination
Market Value is capable of being determined, or (ii) 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 Fidelity of its election pursuant to the
preceding sentence withing the specified ten business day period, the
Merger Agreement shall be terminated, but Fidelity shall have the right to
exercise its Fidelity Termination Rejection by agreeing to accept an
aggregate number of shares of Compass Common Stock equal to 1,800,000.
Any decision by the Board of Directors of Fidelity regarding
whether to exercise its Fidelity Termination Rejection will be made in its
sole discretion and could result in either (i) Fidelity shareholders
receiving Merger Consideration with an aggregate market value of less than
$61,200,000, or (ii) the termination of the Merger Agreement. If the Board
of Directors of Fidelity does not elect to exercise its Fidelity
Termination Rejection, the Merger Agreement will terminate, in which event
Fidelity shareholders would not receive any Merger Consideration but would
retain their Fidelity Common Stock.
-11-
<PAGE>
In addition, since the market price of the shares of Compass
Common Stock to be delivered as the Merger Consideration is determined
based on an average of the closing prices of Compass Common Stock as
reported by the NASDAQ National Market System over a period of time, it is
possible for the shareholders of Fidelity to receive shares of Compass
Common Stock with an aggregate market value less than $61,200,000 at the
Effective Time of the Merger.
SEE "SUPERVISION AND REGULATION" for a description of the regulatory
considerations relating to the ownership of Compass Common Stock.
-12-
<PAGE>
SELECTED FINANCIAL DATA
The following table summarizes, where indicated, certain pro forma
financial data for Compass, giving effect to the acquisition of Fidelity
assuming that the Merger had been effective at the beginning of 1992. The
historical data of Fidelity as of and for the years ended December 31,
1996, 1995, 1994, 1993 and 1992 is derived from the audited financial
statements of Fidelity. The historical data of Compass as of and for the
years ended December 31, 1996, 1995, 1994, 1993 and 1992 (i) is derived
from the audited financial statements of Compass, (ii) has been adjusted to
reflect the three-for-two stock split effected on April 1, 1997 (the "Stock
Split") except as noted below, and (iii) has not been restated to give
effect to acquisitions consummated by Compass in 1997 accounted for under
the pooling-of-interest method of accounting due to immateriality. The
historical data of Fidelity and Compass as of and for the nine months ended
September 30, 1997, is derived from the unaudited financial statements of
Fidelity and Compass, respectively. In the opinion of management of Compass
and Fidelity, all adjustments considered necessary for a fair presentation
have been included in the unaudited interim data. The pro forma income
information is not necessarily indicative of the results of operations had
the proposed transaction occurred at the beginning of 1992, nor is it
necessarily indicative of the results of future operations. This
information should be read in conjunction with the historical consolidated
financial statements and the related notes included elsewhere or
incorporated by reference in this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
AS OF AND FOR (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
THE NINE
MONTHS ENDED AS OF AND FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
--------------- -----------------------------------------------------------------
1997 1996 1995 1994 1993 1992
--------------- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
TOTAL ASSETS
Compass $12,912,549 $11,814,212 $10,678,369 $9,639,541 $7,807,964 $7,484,662
Fidelity 317,960 314,321 268,018 129,381 119,148 63,728
TOTAL DEPOSITS
Compass 9,605,101 9,220,599 8,090,818 7,511,470 6,047,131 5,776,902
Fidelity 290,928 290,487 247,290 116,067 109,592 57,668
LONG-TERM DEBT
Compass 1,109,154 701,470 590,044 494,327 333,332 209,404
Fidelity 3,009 1,483 1,787 193 -- 494
TOTAL SHAREHOLDERS'
EQUITY
Compass 934,542 803,062 737,463 637,877 584,995 538,217
Fidelity 22,499 20,795 17,316 12,484 8,961 5,040
NET INTEREST INCOME
Compass 355,269 402,427 368,954 353,208 347,966 334,862
Fidelity 10,914 13,030 11,149 6,623 4,828 3,246
NET INCOME (LOSS) FROM
CONTINUING OPERATIONS
Compass 113,817 128,927 114,225 105,439 97,161 81,215
Fidelity 3,139 3,463 3,548 1,949 3,310 1,740
NET INCOME (LOSS) PER
COMMON SHARE FROM
CONTINUING OPERATIONS
Compass
Historical 1.71 2.13 1.88 1.74 1.58 1.32
Pro Forma 1.71 2.12 1.88 1.72 1.59 1.31
Fidelity
Historical 0.94 0.97 1.02 0.75 1.38 0.89
Pro Forma (1) 0.90 1.11 0.99 0.90 0.83 0.69
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
AS OF AND FOR (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
THE NINE
MONTHS ENDED AS OF AND FOR THE YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
--------------- -----------------------------------------------------------------
1997 1996 1995 1994 1993 1992
--------------- ------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CASH DIVIDENDS PER
COMMON SHARE
Compass
Historical 0.710 0.853 0.747 0.613 0.507 0.445
Pro Forma 0.68 0.80 0.70 0.59 0.49 0.43
Fidelity
Historical -- -- -- -- -- --
Equivalent Pro 0.36 0.42 0.37 0.31 0.25 0.22
Forma(2)
SHAREHOLDERS' EQUITY
(BOOK VALUE) PER
COMMON SHARE
Compass
Historical(3) 14.18 13.21 12.19 10.61 9.74 8.59
Pro Forma 14.13 12.98 11.95 10.35 9.46 8.30
Fidelity
Historical 7.34 6.31 5.25 4.09 3.73 2.49
Equivalent Pro 7.42 6.82 6.27 5.43 4.97 4.36
Forma(2)
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING
Compass
Historical 66,512 60,557 60,770 60,480 60,465 59,976
Pro Forma 68,312 62,357 62,570 62,280 62,265 61,776
Fidelity
Historical 3,349 3,556 3,466 2,597 2,406 1,952
NUMBER OF COMMON
SHARES OUTSTANDING
AT END OF PERIOD
Compass
Historical(3) 65,925 40,525 40,325 40,096 40,050 39,983
Pro Forma 67,725 42,325 42,125 41,986 41,850 41,783
Fidelity
Historical 3,066 3,298 3,298 3,050 2,403 2,008
</TABLE>
____________________
(1) Net income per common share from continuing operations represents
primary earnings per share (i.e., the amount of earnings attributable
to each share of common stock outstanding, including common stock
equivalents).
(2) Fidelity's Equivalent Pro Forma per share amounts are computed by
multiplying Compass' Pro Forma amounts by the exchange ratio of .5251
based on a Share Determination Market Value of $_______, the average
closing sale price of Compass Common Stock as reported by the NASDAQ
National Market System for the twenty days of trading preceding the
tenth business day prior to_________________, 1997.
(3) For comparative purposes, book value per share for 1992-1996 has
been restated to reflect the Stock Split while period-end shares
outstanding has not been restated.
-14-
<PAGE>
MARKET PRICES
Compass Common Stock is traded in the national over-the-counter
securities market. Since July 1984, it has been quoted under the symbol
"CBSS" on the NASDAQ National Market System.
The following table sets forth for the periods indicated the high and low
sales prices for Compass Common Stock reported through the NASDAQ National
Market System published in The Wall Street Journal. The prices shown do
not include retail mark-ups, mark-downs or commissions. All share values
have been rounded to the nearest 1/8 of one dollar and have been adjusted
to reflect the Stock Split.
<TABLE>
<CAPTION>
Compass Common Stock
--------------------
Period High Low
------ -------- --------
<S> <C> <C>
1995
----
First Quarter 18 5/8 14 5/8
Second Quarter 19 1/2 17
Third Quarter 22 19
Fourth Quarter 22 1/4 20 3/8
1996
----
First Quarter 23 1/8 20 1/2
Second Quarter 23 3/4 21 1/2
Third Quarter 23 1/8 20 3/4
Fourth Quarter 26 1/2 23
1997
----
First Quarter 32 1/8 26
Second Quarter 37 1/4 29 1/8
Third Quarter 39 3/4 34 1/2
Fourth Quarter (through
December ___, 1997) ------ ------
</TABLE>
On October 16, 1997, the business day immediately preceding the
announcement of the execution of the Merger Agreement, the last reported
sale price for Compass Common Stock was $39. On December ___, 1997 the
last reported sale price for Compass Common Stock was $_____. There is no
assurance that such transactions or those reflected in the table of actual
high and low sales prices represent all or a representative sample of the
actual transactions which occurred or that the high and low prices shown
reflect the full ranges at which transactions occurred during the period
indicated.
There is no active public trading market for Fidelity Common Stock,
although it is traded infrequently in private transactions about which
Fidelity's management has little reliable information regarding price.
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<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. All shareholders of
Fidelity are urged to read the Merger Agreement in its entirety.
GENERAL
The Merger Agreement provides for the merger of Fidelity 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 Fidelity will cease. After the Effective Time,
the officers and directors of Compass Texas will be the officers and
directors of Fidelity. Compass intends that the Bank's personnel will
remain following the Merger. SEE "SUMMARY--CONDITIONS TO CONSUMMATION AND
REGULATORY APPROVALS"; "THE MERGER--OPERATIONS AFTER THE MERGER"; "THE
MERGER--GOVERNMENT APPROVALS"; AND APPENDIX I.
The Merger Agreement provides that each share of Fidelity Common Stock
issued and outstanding immediately prior to the effective time of the
Merger, other than dissenting shares, 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 Merger Consideration in the form of shares
of Compass Common Stock to the holder of record thereof, without interest
thereon, upon surrender of the certificate representing such share. As
Merger Consideration, Compass agrees to issue, in the aggregate, 1,800,000
shares of Compass Common Stock. In the event that the Share Determination
Market Value falls below $34.00 per share, Compass shall 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 the Share Determination Market Value would result in the number of
shares of Compass Common Stock to be issued to be greater than 1,800,000,
Compass shall either (i) exercise its Compass Pricing Termination Option by
written notice to Fidelity within ten business days after the Share
Determination Market Value is capable of being determined, or (ii) 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 Fidelity of its election pursuant to the
preceding sentence withing the specified ten business day period, the
Merger Agreement shall be terminated, but Fidelity shall have the right to
exercise its Fidelity Termination Rejection by agreeing to accept an
aggregate number of shares of Compass Common Stock equal to 1,800,000.
Any decision by the Board of Directors of Fidelity regarding whether
to exercise its Termination Rejection Option will be made in its sole
discretion and could result in either (i) Fidelity shareholders receiving
Merger Consideration with an aggregate market value of less than
$61,200,000, or (ii) the termination of the Merger Agreement. If the Board
of Directors of Fidelity does not elect to exercise its Termination
Rejection Option, the Merger Agreement will terminate, in which event
Fidelity shareholders would not receive any Merger Consideration but would
retain their Fidelity Common Stock.
On December ____, 1997, there were 3,066,119 shares of Fidelity Common
Stock issued and outstanding. In addition, certain officers of Fidelity
and/or the Bank hold options to purchase an aggregate of 362,077 shares of
Fidelity Common Stock which Fidelity expects to be exercised prior to the
Effective Time.
Assuming that there will be 3,428,196 shares of Fidelity Common Stock
issued and outstanding immediately prior to the Effective Time and the
satisfaction of all conditions to closing, each shareholder of Fidelity
(except for shareholders choosing to exercise their dissenters' rights)
will be entitled to receive approximately .5251 shares of Compass Common
Stock for each share of Fidelity Common Stock held.
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<PAGE>
Other than reductions due to the payment of cash for fractional shares
and for shares held by dissenting shareholders, in no event will the
aggregate number of shares of Compass Common Stock to be issued in the
Merger be less than 1,800,000.
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 Share
Determination Market Value.
The Merger Agreement also provides that the Merger Consideration,
consisting of shares of Compass Common Stock, shall be adjusted to give
effect to any stock dividends or splits, reclassifications,
recapitalizations or conversions with respect to Compass Common Stock when
the record date or payment date occurs prior to 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 Fidelity Common Stock entitled to
vote at the Meeting. The directors and executive officers of Fidelity
and/or the Bank (and certain of their spouses or affiliates) owning or
otherwise controlling the right to vote 2,261,223 shares of Fidelity Common
Stock, comprising approximately 73.75% of the total shares of Fidelity
Common Stock issued and outstanding as of the Record Date, have agreed,
pursuant to the Voting Agreement, 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 Fidelity 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 Fidelity shareholders, subject to the termination rights
contained in the Merger Agreement. SEE "INTRODUCTION"; "SUMMARY--
SHAREHOLDER VOTES REQUIRED"; "THE MERGER--OTHER TERMS AND CONDITIONS"; AND
APPENDIX I.
Compass Texas has 10,000 shares of common stock, $.01 par value per
share, issued and outstanding, all of which is owned and held by Compass.
Subject to the satisfaction or waiver of all of the conditions to the
parties' obligations to effect the Merger, Compass, as sole shareholder of
Compass Texas, will approve the Merger Agreement in the manner prescribed
by the 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 Fidelity 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 Fidelity
Common Stock. After the Effective Time, all certificates for Fidelity
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
In evaluating Compass' offer to acquire Fidelity and its subsidiaries,
Fidelity's management considered competitive conditions in the market
served by Fidelity, the value of Fidelity's assets, its capital and other
requirements, the current regulatory environment, Fidelity's future growth
prospects in light of the Dallas economy and the potential market which
Fidelity's shareholders have for their shares of Fidelity Common Stock.
Fidelity's management also considered the changing markets for financial
services, particularly in light of pending legislation which could affect
the services the Bank and its competitors can offer to their customers. In
considering whether to affiliate with Compass, a larger financial
institution with significantly greater financial resources and expertise,
Fidelity believed that Compass' size offered expansion opportunities for
services not otherwise available to Fidelity and its customers, which would
better enable the Bank to compete in what is becoming an exceedingly
competitive market. Fidelity and its Board of Directors determined that
Fidelity'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;
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<PAGE>
RECOMMENDATION OF BOARD OF DIRECTORS"; AND "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF FIDELITY --
CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL CONDITION."
Fidelity's customers will have access to a much larger banking network
with greater services and higher lending limits. Compass and Compass Texas
have considered further expansion opportunities in the Dallas area in order
to enlarge their Dallas area operations. Such expansion will allow both
entities to conduct their operations on a more economical size and to
expand into additional market areas. Acquiring Fidelity will result in
economies of scale and increase the market served by Compass' affiliates in
the greater Dallas market.
In addition, Fidelity's shareholders, in their new capacity as
shareholders of Compass, will benefit not only from receiving common stock
in a larger company with a history of paying dividends on its common stock
but also by owning shares for which there is a readily accessible public
market. Following arm's length negotiations between representatives of
Compass and Fidelity, Compass and Fidelity entered into the Merger
Agreement on October 10, 1997. The aggregate price to be paid to holders of
Fidelity Common Stock resulted from negotiations which considered the
historical earnings and dividends of Compass and Fidelity, the earnings
potential and deposits of Fidelity, potential growth in Fidelity's market,
Fidelity's asset quality and the effect of the Merger on the shareholders,
customers and employees of Compass and Fidelity. Fidelity believes that
the Merger with Compass will provide its shareholders with an opportunity
to achieve a positive yield on their investment. SEE "SUMMARY -- THE
MERGER".
For the reasons set forth above, the Fidelity Board of Directors
unanimously approved the Merger and recommends approval of the transaction
by Fidelity shareholders.
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 FIDELITY--
CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL CONDITION".
Compass and Compass Texas have considered expansion opportunities in
the Dallas metropolitan area in order to enlarge their Dallas-based
operations to a more economical size. Acquiring Fidelity will result in
economies of scale. It will also assist Compass' Texas affiliates in
providing the management and organizational flexibility needed to expand in
the Texas market by branching and other acquisitions.
Following arm's length negotiations between representatives of Compass
and Fidelity, Compass and Fidelity entered into the Merger Agreement dated
as of October 10, 1997. The aggregate price to be paid to holders of
Fidelity Common Stock resulted from negotiations which considered the
historical earnings and dividends of Compass and Fidelity, the earnings
potential and deposit base of Fidelity, potential growth in Fidelity's
market, Fidelity's asset quality and the effect of the Merger on the
shareholders, customers and employees of Compass and Fidelity. SEE
"SUMMARY--THE MERGER".
Subject to satisfaction of certain conditions contained in the Merger
Agreement, Fidelity's Board of Directors believes the Merger to be fair and
in the best interest of Fidelity's shareholders. In addition, a fairness
opinion has been received from Keefe Bruyette with respect to the fairness,
from a financial point of view, of the Merger to its shareholders.
FIDELITY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE FIDELITY'S
SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER and has authorized
consummation thereof, subject to approval of Fidelity shareholders, federal
and state bank regulators and the satisfaction of certain other conditions.
SEE "SUMMARY--REASONS FOR THE MERGER; RECOMMENDATION OF BOARD OF
DIRECTORS"; "THE MERGER--OPINION OF FINANCIAL ADVISOR"; AND APPENDIX III.
OPINION OF FINANCIAL ADVISOR
In the opinion of Keefe Bruyette as of December ___, 1997, and based
upon their review of certain financial and other information, the exchange
ratio in the Merger is fair, from a financial point of view, to Fidelity
shareholders.
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<PAGE>
Keefe Bruyette's opinion was formed after relying on the management of both
Fidelity and Compass as to the reasonableness and achievability of the
financial and operating forecasts and projections provided to Keefe
Bruyette.
OPERATIONS AFTER THE MERGERS
Compass and Fidelity intend that following consummation of the Merger,
FRCD will be merged with and into Compass Bancorporation and the Bank will
merge with and into Compass Bank-Texas. Following the Subsequent Mergers,
the separate existence of FRCD and the Bank will cease, and Compass Bank-
Texas will continue as the surviving entity.
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 Fidelity 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 Fidelity and Compass shall
be true and correct in all material respects as of the date of
the Merger Agreement and at and as of the Effective Time;
(vi) Fidelity, 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 Fidelity or its subsidiaries, or Compass;
(viii) The directors of Fidelity and its subsidiaries shall have
delivered to Compass an instrument dated the Effective Time
releasing Fidelity and its subsidiaries 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, Association or Bylaws of Fidelity and its
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<PAGE>
subsidiaries and as to other matters identified in the release)
and shall have delivered to Compass their resignations as
directors of Fidelity and its subsidiaries;
(ix) The officers of Fidelity and its subsidiaries shall have
delivered to Compass an instrument dated the Effective Time
releasing Fidelity and its subsidiaries from any and all claims
of such officers (except as to deposits and accounts and accrued
compensation permitted by their respective agreements with
Fidelity or its subsidiaries, to the rights of indemnification
pursuant to the Articles of Incorporation, Association or Bylaws
of Fidelity and its subsidiaries, and to other matters
identified in the release);
(x) Compass and Fidelity shall have received the opinions of counsel
to Fidelity and Compass acceptable to them as to certain
matters;
(xi) The holders of no more than 1% of Fidelity 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 amount of all Fidelity indebtedness shall not
exceed $2,650,000;
(xiv) Compass shall have received from holders of Fidelity Common
Stock receiving at least 50% of the total Merger Consideration a
representation that they have no present plan or intention to
sell or otherwise dispose of shares of Compass Common Stock
received pursuant to the Merger;
(xv) Compass and Fidelity shall have received an opinion of counsel
that the Merger will qualify as a reorganization under Section
368(a) of the Code; SEE "SUMMARY-FEDERAL INCOME TAX CONSEQUENCES"
AND "THE MERGER-FEDERAL INCOME TAX CONSEQUENCES";
(xvi)Fidelity shall have delivered to Compass a schedule of all
transactions in the capital stock (or instruments exercisable for
or convertible into capital stock) of Fidelity of which Fidelity
has knowledge from and including the date of the Merger Agreement
through the Effective Time;
(xvii) Compass shall have reasonably determined in its sole judgment
that certain liabilities and obligations of Fidelity 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
Fidelity Common Stock shall have been exercised or converted,
or shall have expired, lapsed or terminated, prior to the
Effective Time;
(xix) Pat S. Bolin shall have entered into a noncompetition
agreement with Compass or one of its affiliates and William
C. Murphy shall have entered into an employment agreement
with Compass or one of its affiliates;
(xx) FRCD shall be the owner, record and otherwise, of 100% of the
capital stock of the Bank;
(xxi) The Split-Dollar Life Insurance Agreements dated April 30,
1993 between the Bank and PSB Family Trust II and William C.
Murphy, respectively, shall have been terminated at no
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<PAGE>
cost to Fidelity and its Subsidiaries and any and all rights
to acceleration of future premium payments and benefits
thereunder shall have been terminated;
(xxii) The Deferred Compensation Agreement between Fidelity and
William C. Murphy shall have been terminated at no cost to
Fidelity and its subsidiaries;
(xxiii) Fidelity and its subsidiaries shall have taken during 1997
such write downs of assets, shall have established such
reserves as are consistent with Compass' accounting methods
for reserving for loan losses and valuing other real estate
owned and shall have established certain other reserves;
(xxiv) Fidelity shall have submitted prior to December 31, 1997, but
no later than the period described in Code Section 401(b) and
the regulations thereunder, all amendments ("ESOP Amendment")
made to the Fidelity Bank National Association Employee Stock
Ownership Plan ("ESOP") since the ESOP's latest determination
letter to the IRS for a determination as to the ESOP
Amendment's compliance with Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")
and the Code;
(xxv) Fidelity shall have complied with ERISA and ESOP
documentation regarding pass through voting;
(xxvi) Fidelity shall obtain the written consent of Texas
Independent Bank ("TIB") to the substitution of Fidelity
Common Stock as collateral under that certain loan agreement
dated December 27, 1996 between TIB and the ESOP and obtain
the release of that certain guaranty dated December 27, 1996
by Fidelity in favor of TIB;
(xxvii) The Executive Salary Continuation Agreement dated April 13,
1992, as amended by an Amendment and Clarification to
Executive Salary Continuation Agreement dated February 3,
1995 between C. Malcolm Holland and the Bank shall have been
terminated at a cost to Fidelity and its Subsidiaries not
exceeding $10,000;
(xxviii) Fidelity shall have filed a final franchise tax return with
the Texas Comptroller of Public Accounts;
(xxix) Fidelity and its subsidiaries shall have delivered to the
directors and officers of Fidelity and its subsidiaries an
instrument dated the Effective Time releasing such directors
and officers from any and all claims of Fidelity and its
Subsidiaries (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; and
(xxx) Compass and Fidelity 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.
NO SOLICITATION
Fidelity has agreed under Section 6.6 of the Merger Agreement (i) not
to solicit, entertain or negotiate with respect to any offer to acquire
Fidelity or any of its subsidiaries from any other person, (ii) not to
provide any information to any other person in connection with a possible
acquisition of Fidelity or any of its subsidiaries, and (iii)
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<PAGE>
immediately upon receipt of any such unsolicited offer, Fidelity will
communicate to Compass the terms of any proposal or request for information
and the identities of the parties involved. SEE APPENDIX I.
ADDITIONAL AGREEMENTS
Voting Agreements. The directors and executive officers of Fidelity
and/or the Bank (and certain of their spouses or affiliates) owning or
otherwise controlling the right to vote 2,261,223 shares of Fidelity Common
Stock, comprising approximately 73.75% of the total shares of Fidelity
Common Stock issued and outstanding as of the Record Date, have agreed,
pursuant to the Voting Agreement, 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 Fidelity 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 Fidelity shareholders, subject to the termination rights
contained in the Merger Agreement.
Pat S. Bolin Noncompetition Agreement. Pat S. Bolin, Compass and
Compass Bank-Texas have entered into a noncompetition agreement whereby Mr.
Bolin, in consideration of the receipt of consideration under the Merger
Agreement, the payment of certain life insurance premiums equal to
approximately $25,000 per year for three years in the aggregate, and other
mutual promises, agrees that for a period of two years following the
Closing, he will not compete with Compass or Compass Bank-Texas. In
addition, the Bank has agreed to sell Mr. Bolin certain artwork for fair
market value, which is expected to be $12,700 in the aggregate.
William C. Murphy Employment Agreement. William C. Murphy and Compass
Management have entered into an employment agreement whereby Mr. Murphy
will act as an executive vice president of Compass Bank-Texas for a period
of three years after the Merger. Mr. Murphy's base salary under the
employment agreement will be $192,579, which is consistent with his current
salary paid by the Bank. Mr. Murphy is also entitled to participate up to
50% of his annual base salary in the Compass executive incentive program
and will receive payment for certain life insurance premiums equal to
approximately $25,000 per year in the aggregate. In addition Mr. Murphy
shall be entitled to such benefits as are made generally available to
employees of equal title and base salary on the same basis as Compass makes
such benefits available to Compass' other employees, including
participation in the Compass retirement plan. In addition, the Bank has
agreed to sell Mr. Murphy an automobile and artwork for fair market value,
which is expected to be $21,500 in the aggregate.
James Murphy Employment Agreement. James Murphy and Compass
Management have entered into an employment agreement whereby Mr. Murphy
will act as a senior vice president of Compass Bank-Texas for a period of
three years after the Merger. Mr. Murphy's base salary under the
employment agreement will be $95,600, which is consistent with his current
salary paid by the Bank. In addition Mr. Murphy shall be entitled to such
benefits as are made generally available to employees of equal title and
base salary on the same basis as Compass makes such benefits available to
Compass' other employees, including participation in the Compass retirement
plan.
C. Malcolm Holland Employment Agreement. C. Malcolm Holland and
Compass Management have entered into an employment agreement whereby Mr.
Holland will act as a senior vice president of Compass Bank-Texas for a
period of three years after the Merger. Mr. Holland's base salary under
the employment agreement will be $142,928, which is consistent with his
current salary paid by the Bank. In addition Mr. Holland shall be entitled
to such benefits as are made generally available to employees of equal
title and base salary on the same basis as Compass makes such benefits
available to Compass' other employees, including participation in the
Compass retirement plan.
Pooling Transfer Restrictions Agreements. The directors, executive
officers and certain principal shareholders of Fidelity have entered into
Pooling Transfer Restrictions Agreements with Compass and Fidelity pursuant
to which they have agreed, among other things, (i) not to transfer any of
their respective shares of Fidelity Common Stock within 30 days prior to
the Effective Time, (ii) not to transfer any shares of Compass Common Stock
acquired by them in the Merger until the publication of financial results
covering at least 30 days of post-Merger combined operations of Fidelity
and Compass, except for shareholder pledges to secure loans, provided the
lender agrees to be bound by the terms of
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<PAGE>
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.
BUSINESS PENDING EFFECTIVE TIME
The Merger Agreement imposes certain limitations on the conduct of
Fidelity's business pending consummation of the Merger. Among other
things, Fidelity must conduct its businesses only in the ordinary course,
consistent with prudent banking practices. SEE "THE MERGER--OTHER TERMS
AND CONDITIONS"; AND APPENDIX I.
AMENDMENT
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
Fidelity shareholders can be made after the Meeting without the required
approval of Fidelity shareholders.
TERMINATION
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 Fidelity
shareholders, at any time before the Effective Time by:
(i) Mutual written consent duly authorized by the Boards of Directors
of Compass and Fidelity;
(ii) Compass (a) if Compass learns or becomes aware of a state of
facts or breach or inaccuracy of any representation or warranty
of Fidelity or the results of any environmental investigation
pursuant to Section 6.10(a) which constitutes a material adverse
effect, (b) if there shall be a breach of Section 6.10(a), (b)
or (c) of the Merger Agreement relating to environmental matters,
or (c) if any of the conditions to closing contained in Section
7.1 or 7.2 of the Merger Agreement are not satisfied or waived in
writing by Compass;
(iii)Fidelity if the conditions to closing contained in Section 7.1
or 7.3 of the Merger Agreement are not satisfied or waived in
writing by Fidelity;
(iv) Compass or Fidelity if the Effective Time shall not have occurred
on or before April 30, 1998 or such later date agreed to in
writing by Compass and Fidelity;
(v) Compass or Fidelity 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.
EXCHANGE OF SHARES
Prior to the Effective Time, and pursuant to an exchange agreement in
the form attached as Exhibit B to the Merger Agreement (the "Exchange Agent
Agreement"), Compass shall deposit or cause to be deposited in trust with
Continental Stock Transfer & Trust Company (the "Exchange Agent"), cash in
an aggregate amount estimated to be sufficient to make cash payments to
Fidelity shareholders in lieu of fractional shares of Compass Common Stock.
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<PAGE>
Promptly after the Effective Time, the Exchange Agent will furnish
each holder of record of Fidelity Common Stock as of the Effective Time
with transmittal materials for use in exchanging certificates representing
Fidelity 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 delivery of Fidelity Common Stock certificates for exchange
accompanied by the appropriate transmittal materials.
Under the terms of the Merger Agreement, Compass will not issue
certificates representing fractional shares of Compass Common Stock, and in
lieu thereof shall pay cash to any holder of Fidelity Common Stock
otherwise entitled to receive such fractional share. Such cash payment
shall be based on the Share Determination Market Value. SEE "SUMMARY-
FEDERAL INCOME TAX CONSEQUENCES"; "THE MERGER-FEDERAL INCOME TAX
CONSEQUENCES"; AND APPENDIX I.
Former shareholders of Fidelity who are entitled to receive Compass
Common Stock pursuant to the Merger will not be entitled to receive any
dividends thereon until they have properly surrendered their Fidelity
Common Stock in exchange for Compass Common Stock.
Upon the Effective Time of the Merger, former Fidelity shareholders
will cease to have any rights as shareholders of Fidelity, and Fidelity
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, Fidelity
shareholders have a statutory right to dissent from the Merger. If the
Merger is approved and consummated, any Fidelity 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 Fidelity 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 Fidelity 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 Fidelity 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, as survivor of the Merger, will be liable for
discharging the rights of Dissenting Shareholders and shall, within 10 days
of the Effective Time, notify the Dissenting Shareholders in writing that
the Merger has been effected. Each Dissenting Shareholder so notified must,
within 10 days of the delivery or mailing of such notice, make a written
demand on Compass Texas 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 10 day period will be bound by the Merger and lose their rights
to dissent. Within 20 days after making a demand, the Dissenting
Shareholder shall submit
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certificates representing his shares of Fidelity Common Stock
to Compass for notation thereon that such demand has been made. Dissenting
Shareholders who fail to submit their certificates within such 20 day
period will be bound by the Merger and lose their rights to dissent.
Within 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 90 days
after the Effective Time upon surrender of the relevant certificates of
Fidelity Common Stock duly endorsed by the Dissenting Shareholder, or (ii)
containing Compass' written estimate of the fair value of the shares of
Fidelity Common Stock together with an offer to pay such amount within 90
days after the Effective Time if Compass receives notice, within 60 days
after the Effective Time, stating that the Dissenting Shareholder agrees to
accept that amount and surrender of the relevant certificates of Fidelity
Common Stock duly endorsed by the Dissenting Shareholder. In either case,
the Dissenting Shareholder shall cease to have any ownership interest in
Fidelity or Compass following payment of the agreed value.
If the Dissenting Shareholder and Compass cannot agree on the fair
value of the shares within 60 days after the Effective Time, the Dissenting
Shareholder or Compass may, within 60 days of the expiration of the initial
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 Fidelity 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 Fidelity
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 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
Fidelity Common Stock duly endorsed by the Dissenting Shareholders. Upon
payment of the judgment, the Dissenting Shareholders shall cease to have
any interest in Fidelity, Compass or Fidelity Common Stock. All court
costs and fees of the appraisers shall be allotted between the parties in
the manner that the court determines is fair.
Any Dissenting Shareholder who has made a written demand on Compass
for payment of the fair value of his Fidelity 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 Fidelity 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 FIDELITY AND COMPASS--APPRAISAL RIGHTS"; AND APPENDIX
II.
It is a condition to Compass' obligations under the Merger Agreement
that not more than 1% of the outstanding shares of Fidelity Common Stock
shall have demanded or be entitled to demand payment of the fair value of
their shares as 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".
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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 those set forth in the Merger Agreement,
the tax opinion and the following:
1. Fidelity shareholders will receive only Compass Common Stock in
the Merger (other than cash paid in lieu of fractional shares of
Compass Common Stock or cash paid to dissenters).
2. Compass has received representations from certain historic Fidelity
shareholders who will receive at least 50% of the Compass Common
Stock issued in the Merger stating that they have no present
intention to dispose of the Compass Common Stock received pursuant
to the Merger.
In such counsel's opinion, the following federal income tax
consequences to Fidelity shareholders will result from the qualification of
the Merger as a reorganization under Section 368(a) of the Code:
1. A Fidelity shareholder will not recognize any gain or loss upon the
exchange of his or her Fidelity Common Stock solely for Compass
Common Stock.
2. The aggregate tax basis of Compass Common Stock received by a
Fidelity shareholder in the Merger will be the same as the
aggregate basis of Fidelity Common Stock surrendered in exchange
therefor. For purposes of allocating this aggregate basis to
individual shares of Compass Common Stock received, the IRS
position is that each separate block of stock surrendered shall be
treated separately. Under this rule, for example, if a Fidelity
shareholder surrenders two blocks of Fidelity Common Stock in the
Merger, having an adjusted basis of $1.00 per share for the first
block and $2.00 per share for the second block, the Compass Common
Stock which he or she receives in exchange for each share of
Fidelity 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 Fidelity 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
Fidelity shareholder will include the period during which he or she
held the Fidelity Common Stock surrendered in exchange therefor,
provided that the Fidelity Common Stock is held as a capital asset
on the date of the exchange.
4. The payment of cash in lieu of fractional shares of Compass Common
Stock will be treated as if the fractional shares were distributed
as part of the exchange and then redeemed by Compass. Such cash
payment will be treated as having been received as a distribution
in full payment in exchange for the stock redeemed as provided in
Section 302 of the Code.
5. For a Fidelity shareholder who dissents from the Merger and
receives solely cash in exchange for his or her Fidelity 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.
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THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN
FOR GENERAL INFORMATION ONLY. FIDELITY 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 Fidelity 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
Consummation of the Merger is subject to approval by the shareholders
of Fidelity, the receipt of required regulatory approvals from the Federal
Reserve under the BHC Act, and the satisfaction or waiver of a number of
other conditions. In addition, consummation of the Subsequent Mergers of
FRCD into Compass Bancorporation and the Bank into Compass Bank-Texas are
subject to approval by the Federal Reserve and the Commissioner. It is
expected that the Federal Reserve and the Commissioner will issue their
respective approvals of the Merger and the Subsequent Mergers. SEE "THE
MERGER--GOVERNMENTAL APPROVALS".
An application under the BHC Act was filed with the Federal Reserve on
November 12, 1997. Once Federal Reserve approval has been obtained, the
Merger cannot be consummated until the expiration of a 15 day waiting
period following such approval during which the Justice Department,
pursuant to the BHC Act, may bring an action opposing the Merger.
An application was also filed with the Federal Reserve on November 12,
1997 with respect to the Subsequent Mergers. The Federal Reserve approval
is also subject to a 15 day waiting period during which the Justice
Department, pursuant to the Bank Merger Act, may bring an action opposing
the Subsequent Mergers under the antitrust laws. No Justice Department
objection or adverse action is anticipated with respect to the Merger or
the Subsequent Mergers.
The Texas Finance Code allows out-of-state bank holding companies to
acquire bank holding companies that own or control state or national banks
located within Texas. An application with the Commissioner was filed on
November 12, 1997. SEE "SUMMARY--CONDITIONS TO CONSUMMATION AND REGULATORY
APPROVALS"; "TERMINATION"; AND "SUPERVISION AND REGULATION".
ACCOUNTING TREATMENT
Compass expects to account for the Merger using the "pooling-of-
interests" method of accounting. Compass has received a letter from KPMG
Peat Marwick LLP, which will be updated as of the Effective Time, to the
effect that, based on information provided to KPMG Peat Marwick LLP and
assuming that the Merger is consummated in accordance with the terms of the
Merger Agreement, the Merger will qualify for pooling-of-interests
accounting treatment. Under this accounting method, at the Effective Time,
Fidelity'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 Fidelity 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
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Bank holding companies and banks are regulated extensively under both
federal and state law. Compass, Compass 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
Federal Reserve and the Federal Deposit Insurance Corporation ("FDIC") and
the appropriate state banking departments. The deposits of each of the
Subsidiary Banks are insured by the FDIC, and Compass Bank - Alabama and
Compass Bank - Texas 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 CERTAIN DOCUMENTS
BY REFERENCE".
COMPASS, COMPASS TEXAS AND COMPASS BANCORPORATION
Compass, Compass 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 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 Federal Reserve may also make
examinations of Compass and each of its subsidiaries. Under the BHC Act,
bank holding companies are prohibited, with certain exceptions, from
acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any company engaging in activities other than banking or
managing or controlling banks or furnishing services to or performing
services for their banking subsidiaries. However, the BHC Act authorizes
the Federal Reserve to permit bank holding companies to engage in, and to
acquire or retain shares of companies that engage in, activities which the
Federal Reserve determines to be so closely related to banking or managing
or controlling banks as to be a proper incident thereto.
The BHC Act requires a bank holding company to obtain the prior
approval of the Federal Reserve before it may acquire substantially all of
the assets of any bank or ownership or control of any voting shares of any
bank if, after such acquisition, it would own or control, directly or
indirectly, more than 5% 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 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). 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
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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 adopted by the Federal
Reserve, the FDIC and the other federal depository institution regulatory
agencies. A depository institution is well capitalized if it significantly
exceeds the minimum level required by regulation for each relevant capital
measure, adequately capitalized if it meets such measure, undercapitalized
if it fails to meet any such measure, significantly undercapitalized if it
is significantly below such measure and critically undercapitalized if it
fails to meet any critical capital level set forth in the regulations. The
critical capital level must be a level of tangible equity capital equal to
not less than 2% of total tangible assets and not more than 65% of the
minimum leverage ratio to be prescribed by regulation (except to the extent
that 2% would be higher than such 65% level). An institution may be deemed
to be in a capitalization category that is lower than is indicated by its
actual capital position if it receives an unsatisfactory examination
rating.
If a depository institution fails to meet regulatory capital
requirements, the regulatory agencies can require submission and funding of
a capital restoration plan by the institution, place limits on its
activities, require the raising of additional capital and, ultimately,
require the appointment of a conservator or receiver for the institution.
The obligation of a controlling bank holding company under FDICIA to fund a
capital restoration plan is limited to the lesser of 5% of an
undercapitalized subsidiary's assets or the amount required to meet
regulatory capital requirements. If the controlling bank holding company
fails to fulfill its obligations under FDICIA and files (or has filed
against it) a petition under the Federal Bankruptcy Code, the FDIC's claim
may be entitled to a priority in such bankruptcy proceeding over third
party creditors of the bank holding company.
An insured depository institution may not pay management fees to any
person having control of the institution nor may an institution, except
under certain circumstances and with prior regulatory approval, make any
capital distribution (including the payment of dividends) if, after making
such payment or distribution, the institution would be undercapitalized.
FDICIA also restricts the acceptance of brokered deposits by insured
depository institutions and contains a number of consumer banking
provisions, including disclosure requirements and substantive contractual
limitations with respect to deposit accounts.
At September 30, 1997, 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 - Alabama.
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 Deposit Insurance Funds of 1996 (the "Fund Act"), which became
effective October 8, 1996, required the FDIC to impose a special assessment
on institutions holding deposits subject to assessment by the Savings
Association Insurance Fund ("SAIF"). Although the Subsidiary Banks are
members of BIF, they hold deposits subject to assessment by SAIF as a
result of acquisitions of SAIF deposits or SAIF-insured institutions.
Compass' deposit liability under the Funds Act was $7.2 million based upon
$1.1 billion of SAIF deposits, after certain discounts and exemptions.
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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-Alabama and Central Bank of the South are both organized
under the laws of the State of Alabama. Compass Bank-Alabama is a member
of the Federal Reserve System. Compass Bank-Alabama and Central Bank of
the South (collectively, the "Alabama Subsidiary Banks") are supervised,
regulated and regularly examined by the Alabama State Banking Department
and Compass Bank-Alabama is also regulated and examined by the Federal
Reserve. Compass Bank-Texas is organized under the laws of the State of
Texas, is a member of the Federal Reserve System, and is supervised,
regulated and regularly examined by the Texas Department of Banking and the
Federal Reserve. The Subsidiary Banks, as participants in the BIF and the
SAIF of the FDIC, are subject to the provisions of the Federal Deposit
Insurance Act and to examination by and regulations of the FDIC.
The Alabama Subsidiary Banks are governed by Alabama laws restricting
the declaration and payment of dividends to 90% of annual net income until
its surplus funds equal at least 20% of capital stock. Compass Bank-
Alabama has surplus in excess of this amount. Compass Bank-Texas which is
governed by the laws of the State of Texas, is 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. As members of the
Federal Reserve System, Compass Bank-Alabama and Compass Bank-Texas are
also subject to dividend limitations imposed by the Federal Reserve that
are similar to those applicable to national banks.
Federal law further provides that no insured depository institution
may make any capital distribution (which would include a cash dividend) if,
after making the distribution, the institution would not satisfy one or
more of its minimum capital requirements. Moreover, the federal bank
regulatory agencies also have the general authority to limit the dividends
paid by insured banks if such payments may be deemed to constitute an
unsafe and unsound practice. Insured banks are prohibited from paying
dividends on its capital stock while in default in the payment of any
assessment due to the FDIC except in those cases where the amount of the
assessment is in dispute and the insured bank has deposited satisfactory
security for the payment thereof.
The Community Reinvestment Act of 1977 ("CRA") and the regulations of
the Federal Reserve 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
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significantly change the regulations of banks and the financial services
industry. It cannot be predicted whether any of these proposals will be
adopted or, if adopted, how these proposals will affect Compass or the
Subsidiary Banks.
The Correspondent and Investment Services Division of Compass Bank is
treated as a municipal securities dealer and a government securities dealer
for purposes of the federal securities laws and, therefore, is subject to
certain reporting requirements and regulatory controls by the Commission,
the United States Department of the Treasury and the Federal Reserve.
Compass Brokerage, Inc., a wholly-owned subsidiary of Compass Bank-Alabama,
offers discount brokerage services and is 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-Alabama, is a licensed insurance agent or broker for various
insurance companies. Such insurance subsidiary and its licensed agents are
subject to reporting and licensing regulations of the Alabama Insurance
Commission and various other states.
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 ("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 GCL. Compass is authorized to issue
100,000,000 shares of Compass Common Stock, of which 65,929,416 shares were
issued and outstanding on October 31, 1997. 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 the GCL, 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 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. SEE "COMPARISON OF THE RIGHTS
OF SHAREHOLDERS OF FIDELITY AND COMPASS--DIVIDENDS"; "SELECTED FINANCIAL
DATA".
Compass' principal assets and sources of income consist of investments
in its operating subsidiaries, which are separate and distinct legal
entities. Federal and state banking regulations applicable to Compass and
its banking subsidiaries require minimum levels of capital which limit the
amounts available for payment of dividends. The Alabama Subsidiary Banks
are governed by Alabama laws restricting the declaration and payment of
dividends to 90% of annual net income until its surplus funds equal at
least 20% of capital stock. Compass Bank-Alabama has surplus in excess of
this amount. Compass Bank-Texas, which is governed by the laws of the
State of Texas, is 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. As members of the Federal Reserve System, Compass
Bank-Alabama and Compass Bank-Texas are also subject to dividend
limitations imposed by the Federal Reserve that are similar to those
applicable to national banks. SEE "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE"; "SUMMARY--REASONS FOR THE MERGER; RECOMMENDATION OF BOARD OF
DIRECTORS"; "RISK FACTORS"; "SELECTED FINANCIAL DATA"; "MARKET PRICES";
"COMPARISON OF RIGHTS OF SHAREHOLDERS OF FIDELITY AND COMPASS--DIVIDENDS";
AND "INFORMATION ABOUT COMPASS".
PREEMPTIVE RIGHTS
The holders of Compass Common Stock do not have preemptive rights to
subscribe for a proportionate share of any additional securities issued by
Compass before such securities are offered to others. The absence of
preemptive rights increases Compass' flexibility to issue additional shares
of Compass Common Stock in connection with acquisitions, employee benefit
plans and for other purposes, without affording the holders of Compass
Common Stock a right to subscribe for their proportionate share of those
additional securities. Any further issuance of Compass Common Stock after
the Effective Time may reduce former Fidelity shareholders' proportionate
interest in Compass.
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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
FIDELITY AND COMPASS--ELECTION OF 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. SEE "RECENT DEVELOPMENTS".
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 FIDELITY
AND COMPASS--DIVIDENDS" AND "--LIQUIDATION RIGHTS".
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COMPARISON OF RIGHTS OF
SHAREHOLDERS OF FIDELITY AND COMPASS
CHARTER AND BYLAW 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. Other than the requirement in Fidelity's
Bylaws that shareholder actions without a meeting be taken only upon
unanimous shareholder consent, Fidelity's Articles of Incorporation and
Bylaws do not contain similar restrictions.
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 and Bylaws, as amended, of Fidelity, which are available
upon request from Fidelity. SEE "AVAILABLE INFORMATION"; "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE"; "RISK FACTORS"; AND "INFORMATION ABOUT
COMPASS".
In addition to the foregoing differences between Fidelity's and
Compass' charters, as a result of the Merger, Fidelity 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 GCL and TBCA, as well as a description
of the corresponding provisions contained in Compass' and Fidelity's
respective charter and Bylaws, 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 and applicable charter and bylaw
provisions.
MERGERS
Both the TBCA and GCL generally permit a merger to become effective
without the approval of the surviving corporation's shareholders if the
articles or certificate of incorporation, as the case may be, 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 20% of the total shares of outstanding
voting stock immediately prior to the acquisition, and the board of
directors of the surviving corporation adopts a resolution approving the
plan of merger.
Where shareholder approval is required under Texas law, a merger must
be approved by the holders of two-thirds of the outstanding shares of the
Texas corporation entitled to vote thereon, unless there is a class of
stock that is entitled to vote as a class, in which event the merger must
be approved by the holders of two-thirds of the outstanding shares of stock
of each class entitled to vote as a class and by the holders of two-thirds
of the outstanding shares otherwise entitled to vote. Where shareholder
approval is required under Delaware law, a merger can be approved by a
majority vote of the outstanding shares of capital stock of each class
entitled to vote thereon. Compass' Certificate requires supermajority
approval by its Board of Directors and shareholders in certain cases, as
described above. SEE "RISK FACTORS" AND "COMPARISON OF RIGHTS OF
SHAREHOLDERS OF FIDELITY AND COMPASS-CHARTER AND BYLAW PROVISIONS AFFECTING
COMPASS STOCK".
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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 rights of a dissenting
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, is listed on the NASDAQ stock market 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 (i) 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 (ii) 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 (i) shares of stock of the
corporation surviving or resulting from such merger or consolidation, or
depository receipts in respect thereof, (ii) 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, (iii) cash in lieu of fractional shares or fractional
depository receipts of a corporation described in (i) and (ii) above, or
(iv) any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depositary receipts described in
(i), (ii) and (iii) 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 10% of all shares
entitled to vote at the meeting, unless a different percentage, not to
exceed 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. Fidelity's Bylaws provide that
special meetings of shareholders may be called by the Chairman of the Board
or the President and shall be called by the President or Secretary at the
request in writing of (i) twenty-five percent of the Board of Directors or
(ii) twenty-five percent of the entire capital stock of Fidelity issued and
outstanding and entitled to vote. Compass' Certificate prohibits
shareholders from calling special meetings. SEE "RISK FACTORS".
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ACTIONS WITHOUT A MEETING
Under Texas law, the shareholders may act without a meeting if a
written consent is signed by all the shareholders entitled to vote on the
matter, unless the Articles of Incorporation require less than unanimous
consent (but not less than the number of votes that would be necessary to
take such action at a meeting). Fidelity's Articles of Incorporation do
not provide for less than unanimous consent when action is taken without a
meeting. Delaware law provides that shareholders may take action without a
meeting if a consent in writing to such action is signed by the
shareholders having the minimum number of votes that would be necessary to
take such action at a meeting, unless prohibited in the Certificate of
Incorporation. Compass' Certificate prohibits shareholder action by
written consent except where such action is taken unanimously. SEE "RISK
FACTORS".
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. Fidelity's Articles of Incorporation prohibit
cumulative voting in the election of directors. 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 of Fidelity 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. Compass' Certificate does not provide for
approval of an amendment of the Certificate 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. Fidelity's Articles of Incorporation do not provide for
a different voting requirement. A Delaware corporation may sell, lease or
exchange all or substantially all of its property and assets when and as
authorized by the holders of a majority of the outstanding stock of the
corporation entitled to vote thereon, unless the Certificate of
Incorporation requires the vote of a larger portion of the outstanding
stock. Compass' Certificate does not so provide.
Under Texas law, the voluntary dissolution of a corporation requires
the approval of the holders of at least two-thirds of the total outstanding
shares of the corporation, and the holders of two-thirds of the outstanding
shares of each class or series entitled to vote thereon as a class, unless
a different amount, not less than a majority, is specified in the Articles
of Incorporation. Each outstanding share of a Texas corporation is
entitled to vote on dissolution. The Articles of Incorporation of Fidelity
do not provide for a different number of shares for approval of
dissolution. Delaware law requires that dissolution must be approved by
the holders of a majority of the corporation's stock entitled to vote
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<PAGE>
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. Fidelity's
Articles of Incorporation deny preemptive rights and, therefore, Fidelity's
shareholders do not have preemptive rights as to newly issued and treasury
shares. Shareholders of Compass also do not possess such preemptive
rights.
DIVIDENDS
A Delaware corporation may pay dividends not only out of surplus (the
excess of net assets over capital) but also out of net profits for the
current or preceding fiscal year if it has no surplus; provided, however,
that if the capital of the corporation has been decreased to an amount less
than the aggregate amount of the capital represented by the issued and
outstanding stock having a preference upon the distribution of assets, no
dividends may be declared out of net profits. A Texas 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. Fidelity's Articles of Incorporation contain
no provision regarding 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
FIDELITY--MARKET PRICE AND DIVIDENDS".
LIQUIDATION RIGHTS
Generally under Texas and Delaware corporate 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. Fidelity's Articles of Incorporation contain no provision
regarding liquidation.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Both Texas and Delaware corporate 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 bank or corporation is finally adjudged liable to the corporation.
Under Compass' Certificate, a director will not be liable to Compass
or its shareholders for monetary damages for any breach of fiduciary duty
as a director, except (i) for breach of a director's duty of loyalty, (ii)
acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) unlawful payment of dividend or
unlawful stock purchase or redemption, or (iv) any transaction from which
the director derived an improper personal benefit. Compass' Certificate
authorizes indemnification of officers, directors and others to the fullest
extent
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<PAGE>
permitted by Delaware law. SEE "AVAILABLE INFORMATION"; "INCORPORATION BY
REFERENCE OF CERTAIN DOCUMENTS"; AND "INDEMNIFICATION".
Fidelity's Articles of Incorporation provide that the liability of
each director of Fidelity to Fidelity and/or its shareholders shall be
limited to the maximum extent permitted by applicable Texas law. Fidelity
shall indemnify to the maximum extent permitted by applicable Texas law any
person who was, is, or is threatened to be made a named defendant or
respondent in any threatened, pending or completed action, suit, or
proceeding, whether civil, criminal, administrative, arbitrative, or
investigative, any appeal in such an action, suit, or proceeding, and any
inquiry or investigation that could lead to such an action, suit or
proceeding by reason of the fact that he, his testator, or intestate, is or
was a director, officer or employee of Fidelity or of any corporation which
he served in such capacity at the request of Fidelity, and shall pay the
reasonable expenses incurred by such director, officer or employee,
including, but not limited to, legal fees and whether or not covered by
insurance. The right to indemnification conferred by Fidelity's Articles
of Incorporation shall not restrict the power of Fidelity to make any other
type of indemnification permitted by law.
REMOVAL OF DIRECTORS
A Texas corporation may provide in its Articles of Incorporation or
Bylaws, and Fidelity's Bylaws do provide, that a director can be removed
with or without cause by a vote of the holders of not less than a majority
of the shares entitled to vote. A majority of shareholders of a Delaware
corporation may remove a director with or without cause, unless the
directors are classified and elected for staggered terms, in which case,
directors may be removed only for cause. Compass' Certificate of
Incorporation provides for a classified board, and any such removal must be
for cause after a supermajority vote (80%) of the shareholders.
INSPECTION OF BOOKS AND RECORDS
Under Texas law, any person who has been a shareholder of record for
at least six months preceding his demand, or who is the holder of at least
5% of all of the outstanding shares of a corporation, is entitled to
examine a bank's relevant books and records for any proper purpose. Under
Delaware law, any shareholder has such a right.
ANTITAKEOVER PROVISIONS
Delaware has enacted antitakeover legislation. Compass has opted out
of such provisions as provided thereby. Certain provisions of Compass'
charter and Bylaws limiting a takeover without the support of its Board of
Directors are described in "COMPARISON OF RIGHTS OF SHAREHOLDERS OF
FIDELITY 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 Fidelity 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 Fidelity. 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 Fidelity's Articles of
Incorporation and Bylaws, as amended.
RESALE OF COMPASS STOCK
The Compass Common Stock to be issued to holders of Fidelity 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 Fidelity within the meaning of Rule 145 under the Securities
Act. The directors and executive officers of Fidelity, the beneficial
owners of 10% or more of Fidelity Common Stock and certain of their related
interests may be deemed to be affiliates of Fidelity. Such affiliates are
not permitted to transfer any Compass Common Stock except
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<PAGE>
in compliance with the Securities Act and the rules and regulations
thereunder. Such affiliates have already 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 Fidelity 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 Fidelity and Compass, except for pledges by such
affiliates of all or part of such affiliate's Compass Common Stock acquired
in the Merger, provided the lender agrees to be bound by the terms of such
written agreement; and (iii) transfer any Compass Common Stock except in
compliance with Rule 145 promulgated by the Commission under the Securities
Act and any new requirements imposed by the Commission or the Financial
Accounting Standards Board for Compass' accounting of the Merger as a
pooling of interests. SEE "SUMMARY--ACCOUNTING TREATMENT"; "THE MERGER--
ACCOUNTING TREATMENT"; AND APPENDIX I.
Pursuant to the Merger Agreement, holders of shares of Fidelity Common
Stock that will be entitled to receive at least 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 Fidelity 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, 1996 and
Compass' Quarterly Reports on Form 10-Q for the quarters ended March 31,
1997, June 30, 1997, and September 30, 1997, are incorporated herein by
reference. SEE "AVAILABLE INFORMATION"; "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE".
INTERESTS OF CERTAIN PERSONS
No director or executive officer of Compass has any material direct or
indirect financial interest in Fidelity or the Merger, except as a
director, executive officer or shareholder of Compass or its subsidiaries.
INFORMATION ABOUT FIDELITY
Fidelity was incorporated in 1986 and Fidelity currently conducts no
operations other than serving as a bank holding company under the BHC Act
for the Bank. Fidelity is subject to regulation by the Federal Reserve.
The Bank is an independent community bank headquartered in University
Park, Texas. The Bank was chartered in 1983 as Fidelity National Bank and
adopted its present name in August 1991. The Bank is a full service bank
offering a variety of services to satisfy the needs of the consumer and
commercial customers in the area. The principal services offered by the
Bank include most types of loans, including commercial, consumer and real
estate loans. The Bank also offers safe deposit boxes, a night deposit
facility, motor bank, wire transfers and ATM cards.
In June 1996, the Bank acquired certain assets and assumed certain
liabilities of two branches of United Bank and Trust. In February 1995,
the Bank acquired, through a merger transaction, 100% of the common stock
of EastPark Bancshares, Inc. In June 1995, the Bank purchased certain
assets and assumed certain liabilities related to the Lakewood Branch of
Texas Community Bank. In July 1995, the Bank acquired, through a merger
transaction, 100% of the assets and liabilities of Interstate National
Bank.
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<PAGE>
FRCD was incorporated in 1996 as a Delaware corporation. On March 20,
1996, Fidelity transferred all of its shares of the Bank to FRCD in
exchange for 100% of the issued and outstanding stock of FRCD. FRCD
conducts no operations other than serving as a bank holding company under
the BHC Act for the Bank. FRCD is subject to regulation by the Federal
Reserve.
SERVICES, EMPLOYEES AND PROPERTIES
The Bank provides a broad range of products and services to its
customers, most of whom are located in Dallas, Collin and Tarrant Counties,
Texas. These products and services include checking accounts, savings
accounts, certificates of deposit, individual retirement accounts, variable
rate money market accounts and numerous loan programs. The Bank operates
full service branches and offers bank-by-mail services as well as wire
transfers and traveler's checks. The deposits of the Bank are insured by
the FDIC to the fullest extent permitted by law.
On September 30, 1997, the Bank had 22 officers, nine directors, 84
full-time employees and seven part-time employees. Directors of the Bank
are compensated for their services. Fidelity had one officer and three
directors at that date. Directors of Fidelity are compensated for their
services.
The Bank's main office is located at 6501 Hillcrest, University Park,
Texas 75205. The Bank has 11 branches in Dallas and one branch in
Duncanville.
SEE "INFORMATION ABOUT FIDELITY--BENEFICIAL OWNERSHIP OF FIDELITY
COMMON STOCK BY FIDELITY MANAGEMENT AND PRINCIPAL SHAREHOLDERS".
COMPETITION
The Bank considers its service area to be the area encompassing the
Dallas metropolitan area. The activities in which the Bank engages are
competitive. Each activity engaged in involves competition with other
banks, as well as with nonbanking financial institutions and nonfinancial
enterprises. In addition to competing with other commercial banks within
and outside its service area, the Bank competes with other financial
institutions engaged in the business of making loans or accepting deposits,
such as savings and loan associations, credit unions, industrial loan
associations, insurance companies, small loan companies, finance companies,
mortgage companies, real estate investment trusts, certain governmental
agencies, credit card organizations and other enterprises. Additional
competition for deposits comes from government and private issuers of debt
obligations and other investment alternatives for depositors, such as money
market funds. The Bank also competes with suppliers of equipment in
furnishing equipment financing and leasing services.
Fidelity 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. Fidelity and similar
institutions have also experienced significant competition for deposits
from mutual funds and other money center banks' offerings of high yielding
deposit accounts. Some of the institutions with which Fidelity competes
have capital and resources much larger than those of Fidelity, and some are
not subject to the same regulatory restrictions.
LEGAL PROCEEDINGS
In the normal course of its businesses, Fidelity from time to time is
involved in legal proceedings. Other than such proceedings incidental to
its business, Fidelity's management is not aware of any pending or
threatened legal proceedings which, upon resolution, would have a material
adverse effect upon Fidelity'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".
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MARKET PRICE AND DIVIDENDS
There is no active public trading market for the Fidelity Common
Stock. As of the Record Date, Fidelity Common Stock was held by 149
holders of record. Fidelity has never declared or paid dividends. SEE
"SELECTED FINANCIAL DATA"; MARKET PRICES"; "COMPARISON OF RIGHTS OF
SHAREHOLDERS OF FIDELITY AND COMPASS DIVIDENDS"; AND "INFORMATION ABOUT
FIDELITY--BENEFICIAL OWNERSHIP OF FIDELITY COMMON STOCK BY FIDELITY
MANAGEMENT AND PRINCIPAL SHAREHOLDERS".
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<PAGE>
BENEFICIAL OWNERSHIP OF FIDELITY COMMON STOCK BY FIDELITY MANAGEMENT
AND PRINCIPAL SHAREHOLDERS.
The following table sets forth, as of the Record Date, the names and
addresses of each beneficial owner of more than 5% of Fidelity Common Stock
known to the Board of Directors of Fidelity, showing the amount and nature
of such beneficial ownership and the names of each director and executive
officer of Fidelity, the number of shares of Fidelity Common Stock owned
beneficially by each director and executive officer and the number of
shares of Fidelity Common Stock owned beneficially by all directors and
executive officers as a group. None of the shareholders listed herein
would own, on a pro forma basis giving effect to the Merger, more than 1%
of the issued and outstanding shares of Compass Common Stock.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature
Beneficial Owner of Beneficial Ownership/(7)/ Percent of Class
---------------- ---------------------------- -----------------
<S> <C> <C>
Ayres, Warren T. /(1)(2)(3)/ 692,844 22.60%
Eagle Oil & Gas Company
One Parker Square, Suite 510
2525 Kell Boulevard
Wichita Falls, Texas 76308
Bolin, Dan H. /(1)(3)/ 442,016 14.42%
Eagle Oil & Gas Company
One Parker Square, Suite 510
2525 Kell Boulevard
Wichita Falls, Texas 76308
Bolin, D. Phil/(1)/ 442,127 14.42%
Eagle Oil & Gas Company
One Parker Square, Suite 510
2525 Kell Boulevard
Wichita Falls, Texas 76308
Bolin, Pat S. /(1)(4)/ 1,719,768 56.09%
Eagle Oil & Gas Company
8111 Preston Road, Suite 900
Dallas, Texas 75225
Herndon, James E. /(5)/ 28,763 *
23 Glenmeadow Court
Dallas, Texas 75225
Murphy, William C. /(6)/ 479,599 14.39%
Fidelity Resources Company
6501 Hillcrest
University Park, Texas 75205
All Fidelity Directors and 2,228,130 66.85%
Executive Officers as a Group
(3 persons)
*Less than 1%
________________
</TABLE>
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/(1)/Includes all shares of Fidelity Common Stock owned by the
Dan H. Bolin Management Trust (382,016 shares), the Trustees of which
are Warren T. Ayres, D. Phil Bolin and Pat S. Bolin. Dan H. Bolin is
the beneficiary of such Trust.
/(2)/Includes 60,290 shares of Fidelity Common Stock owned by
Mr. Ayres as custodian for his two minor children.
/(3)/Includes 60,000 shares of Fidelity Common Stock owned by
the Dan H. Bolin Family Trust, the Trustee of which is Warren T.
Ayres. Mr. Bolin disclaims beneficial interest in the shares owned
by the Dan H. Bolin Family Trust.
/(4)/Includes 37,773 shares of Fidelity Common Stock owned by
Mr. Bolin as custodian for his two minor children, 160 shares of
Fidelity Common Stock owned by the ESOP and allocated to Mr. Bolin's
account, 39,976 shares of Fidelity Common Stock owned by Eagle Oil &
Gas Company and 52,135 shares of Fidelity Common Stock owned by the
PSB Family Trust II, the Trustee of which is Jane R. Bolin, Mr.
Bolin's wife. Mr. Bolin disclaims beneficial interest in the shares
owned by the PSB Family Trust II.
/(5)/These shares of Fidelity Common Stock are owned jointly by
Marjorie Herndon, Mr. Herndon's wife, and Mr. Herndon.
/(6)/Includes options to acquire 267,077 shares of Fidelity
Common Stock, 47,711 shares of Fidelity Common Stock owned by the
William C. Murphy Money Purchase Pension Plan, 538 shares of Fidelity
Common Stock owned by the ESOP and allocated to Mr. Murphy's
beneficiary account and 130,909 shares of unallocated Fidelity Common
Stock owned by the ESOP over which Mr. Murphy has voting power. SEE
"INFORMATION ABOUT FIDELITY--FIDELITY NATIONAL BANK EMPLOYEE STOCK
OWNERSHIP PLAN".
/(7)/Unless otherwise indicated, each individual is the record
owner of, and has sole voting and investment power with respect to,
all shares of Fidelity Common Stock of which he or she is the
beneficial owner.
_______________
The persons listed above will receive the same Merger Consideration
described in "THE MERGER--GENERAL" as the other Fidelity shareholders for
each share of Fidelity Common Stock held at the Effective Time.
EMPLOYMENT AGREEMENTS
Pat S. Bolin Noncompetition Agreement. Pat S. Bolin, Compass and
Compass Bank-Texas have entered into a noncompetition agreement whereby Mr.
Bolin, in consideration of the receipt of consideration under the Merger
Agreement, the payment of certain life insurance premiums equal to
approximately $25,000 per year for three years in the aggregate, and other
mutual promises, agrees that for a period of two years following the
Closing, he will not compete with Compass or Compass Bank-Texas. In
addition, the Bank has agreed to sell Mr. Bolin certain artwork for fair
market value, which is expected to be $12,700 in the aggregate.
William C. Murphy Employment Agreement. William C. Murphy and Compass
Management have entered into an employment agreement whereby Mr. Murphy
will act as an executive vice president of Compass Bank-Texas for a period
of three years after the Merger. Mr. Murphy's base salary under the
employment agreement will be $192,579, which is consistent with his current
salary paid by the Bank. Mr. Murphy is also entitled to participate up to
50% of his annual base salary in the Compass executive incentive program
and will receive payment for certain life insurance premiums equal to
approximately $25,000 per year in the aggregate. In addition Mr. Murphy
shall be entitled to such benefits as are made generally available to
employees of equal title and base salary on the same basis as Compass makes
such benefits available to Compass' other employees, including
participation in the Compass retirement plan. In
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<PAGE>
addition, the Bank has agreed to sell Mr. Murphy an automobile and artwork
for fair market value, which is expected to be $21,500 in the aggregate.
James Murphy Employment Agreement. James Murphy and Compass
Management have entered into an employment agreement whereby Mr. Murphy
will act as a senior vice president of Compass Bank-Texas for a period of
three years after the Merger. Mr. Murphy's base salary under the
employment agreement will be $95,600, which is consistent with his current
salary paid by the Bank. In addition Mr. Murphy shall be entitled to such
benefits as are made generally available to employees of equal title and
base salary on the same basis as Compass makes such benefits available to
Compass' other employees, including participation in the Compass retirement
plan.
C. Malcolm Holland Employment Agreement. C. Malcolm Holland and
Compass Management have entered into an employment agreement whereby Mr.
Holland will act as a senior vice president of Compass Bank-Texas for a
period of three years after the Merger. Mr. Holland's base salary under
the employment agreement will be $142,928, which is consistent with his
current salary paid by the Bank. In addition Mr. Holland shall be entitled
to such benefits as are made generally available to employees of equal
title and base salary on the same basis as Compass makes such benefits
available to Compass' other employees, including participation in the
Compass retirement plan.
FIDELITY NATIONAL BANK EMPLOYEE STOCK OWNERSHIP PLAN
The Fidelity National Bank Employee Stock Ownership Plan ("ESOP") was
established effective January 1, 1994, to qualify as an Employee Stock
Ownership Plan. The ESOP is a tax-qualified retirement plan designed to
invest primarily in Fidelity Common Stock. The ESOP maintains a Trust to
hold the assets of the ESOP, which are either stock or cash to be used to
purchase stock, and makes contributions of either cash or stock to the
Trust. The ESOP has a salary reduction feature under which each
participant has the opportunity to make voluntary tax deductible
contributions to the ESOP. The Bank may make discretionary matching
contributions based on the amount of a participant's salary reduction
contributions. The contributions are received on behalf of the ESOP Trust
by the ESOP's Trustees who are William C. Murphy and Pat S. Bolin. The
administrative functions of the ESOP are performed by the Bank which is
also the sponsor of the ESOP.
Under the terms of the ESOP, plan participants who are entitled to
receive benefits under the ESOP will receive such benefits in the form of
whole shares of stock unless the Administrator chooses to distribute the
benefits in cash. Additionally, the recipient of a stock distribution from
the ESOP has the right, within fifteen (15) months following the date of
distribution, to require the Trustee to purchase, at the stock's fair
market value, all or any part of the shares of the stock which has been
distributed. In the event a recipient of a distribution of stock from the
Trust decides not to exercise the previously mentioned option, both the
Trustee and the Bank have a right of first refusal to purchase all or any
part of the shares being offered for sale under the same terms and
conditions given by the prospective purchaser before the recipient can sell
the shares to a third party.
Under the terms of the ESOP, the Trustees vote all shares of stock
held by the ESOP in the manner directed by the Bank; however, the Trustees
have no discretionary voting authority with respect to the ESOP. The Bank
has empowered William C. Murphy to direct the Trustees as to the manner in
which the shares held by the Trust are to be voted, including but not
limited to voting with respect to the Merger. Notwithstanding the
foregoing, a participant in the Plan may direct the Trustees as to the
manner in which the participant's allocable shares of stock held by the
Trust are to be voted with respect to corporate matters which are to be
decided by more than a majority of the outstanding shares voted, including
voting with respect to the Merger. On September 30, 1997, there were
150,471 shares of Fidelity stock owned by the ESOP which is equal to 4.39%
of the issued and outstanding stock (including options) of Fidelity.
On December 30, 1994, the ESOP entered into a Letter Loan Agreement
("Loan") with Texas Independent Bank ("TIB") which provided for a $500,000
line of credit to be used by the ESOP to purchase stock of Fidelity. The
Loan is secured by Fidelity stock which was purchased by the ESOP with
proceeds of the Loan. Additionally, Fidelity guaranteed the Loan. The
Loan matures on March 31, 2000. As of September 30, 1997, the ESOP was not
in default
-44-
<PAGE>
under the terms of the Loan and the outstanding principal balance of the
Loan was approximately $241,641. On January 10, 1997, the ESOP borrowed
$350,000 ("Loan No. 2") from TIB to purchase 70,000 shares of Fidelity.
Loan No. 2 matures on March 31, 2000. As of September 30, 1997, the ESOP
was not in default under the terms of Loan No. 2 and the outstanding
principal balance of Loan No. 2 was approximately $323,750. With respect
to Loan No. 2, the principal is payable in monthly installments equal to
the maximum amount advanced under the Loan divided by the remaining
amortized term, which was originally 10 years. Further, the rate of
interest is one-half of one percent in excess of Wall Street Prime.
FIDELITY STOCK OPTION PLAN
In September, 1986, Fidelity adopted and the shareholders approved the
Fidelity Resources Company Stock Option Plan (the "Plan") which was amended
September 1, 1992, for key officers and employees of Fidelity and its
subsidiaries. This Plan is intended to qualify as both an "incentive stock
option plan" under Section 422A of the Internal Revenue Code and as a
nonstatutory stock option plan.
There are 2,000,000 shares of Fidelity's Common Stock reserved for
issuance upon the exercise of the incentive stock options and the
nonstatutory stock options granted under the Plan. Prior to December 31,
1994, 267,077 options were granted under the Plan. During 1995, an
additional 95,000 options were granted under the Plan for a total of
362,077 options granted under the Plan as of December 31, 1995. No
additional options have been granted and no options have been canceled or
exercised. The options were granted at a price equal to the estimated
market value of the stock at the date of the grant and may be exercised on
certain dates between 1995 and 2003 and upon the occurrence of certain
events, including the Merger. The options expire on various dates through
January, 2003. Fidelity expects all of the options to be exercised prior
to the Effective Time.
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Outstanding, beginning of year 362,077 267,077
Granted during the year -- 95,000
Canceled during the year -- --
Exercised during the year -- --
------- -------
Outstanding, end of year
(at prices ranging from
$1.00 to $3.30 per share) 362,077 362,077
======= =======
</TABLE>
-45-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF FIDELITY
The following discussion provides certain information regarding the
financial condition and results of operations of Fidelity. This discussion
should be read in conjunction with Fidelity's Consolidated Financial
Statements and Notes to Consolidated Financial Statements presented
elsewhere in this Proxy Statement/Prospectus. SEE "INDEX TO FIDELITY
CONSOLIDATED FINANCIAL STATEMENTS".
RESULTS OF OPERATIONS
GENERAL
The earnings of Fidelity depend primarily on Fidelity's net interest
income (i.e., the difference between the income earned on Fidelity's loans
and investments and the interest paid on its deposits and other borrowed
funds). Among the factors affecting net interest income are the type and
volume of its deposits and other borrowed funds, and the relative
sensitivity of its interest-earning assets and its interest-bearing
liabilities to changes in market interest rates.
Fidelity's income is also affected by fees it receives from other
banking services, by its provisions for loan losses and by the level of its
operating expenses. All aspects of Fidelity's operations are affected by
general market, economic and competitive conditions.
Fidelity reported net income of $3,139,000 for the nine-month period
ended September 30, 1997, an increase of $580,000 from net income of
$2,559,000 for the nine-month period ended September 30, 1996. Pre-tax
income was $4,704,000 for the nine months ended September 30, 1997, a
$690,000 increase from the $4,014,000 earned during the nine months ended
September 30, 1996.
Fidelity reported net income of $3,463,000 for the year ended December
31, 1996, a decrease of $85,000 from net income of $3,548,000 for the year
ended December 31, 1995. Pretax income was $5,427,000 for the year ended
December 31, 1996, a $41,000 decrease from the $5,468,000 earned during the
year ended December 31, 1995. Fidelity had net income of $1,949,000 and
pretax income of $2,936,000 for the year ended December 31, 1994. Changes
occurring in the major components of Fidelity's income statement for such
periods are discussed below. Increases in income in the year ended
December 31, 1995 occurred as a result of Fidelity's planned mergers in
1995.
NET INTEREST INCOME
Net interest income is the primary source of income for Fidelity and
represents the amount by which interest generated by earning assets exceed
the cost of funds, primarily interest paid to Fidelity's depositors on
interest bearing accounts.
Net interest income was $10,914,000 for the nine months ended
September 30, 1997, a 14.96% increase from net interest income of
$9,494,000 for the nine months ended September 30, 1996. Average rates
earned on interest-bearing assets increased to 8.32% as of September 30,
1997, from 8.21% as of September 30, 1996. Average loans, net of unearned
discounts of $152,179,000 for the nine months ended September 30, 1997,
increased 20.77% over average loans, net of unearned discount of
$126,011,000, for the same period in 1996. Average deposits for the nine
months ended September 30, 1997, were $278,271,000, an increase of 7.52%
over average deposits of $258,808,000 for the same period in 1996.
Net interest income was $13,030,000 for the year ended December 31,
1996, a 16.87% increase from net interest income of $11,149,000 for the
year ended December 31, 1995. Average rates earned on interest bearing
assets decreased to 8.21% as of December 31, 1996 from 9.18% as of December
31, 1995. Average loans, net of unearned discount, of $130,323,000 for the
year ended December 31, 1996, increased 19.70% over average loans
of $108,879,000
-46-
<PAGE>
for the same period in 1995. Average deposits for the year
ended December 31, 1996 were $265,758,000, an increase of 34.52% over
average deposits of $197,562,000 for the same period in 1995.
Net interest income was $11,149,000 for the year ended December 31,
1995, an 68.34% increase from net interest income of $6,623,000 for 1994.
Average loans, net of unearned discount, of $108,879,000 for year ended
December 31, 1995 increased 69.97% over average loans of $64,056,000 for
the same period in 1994. Average deposits for the year ended December 31,
1995 were $197,600,000, an increase of 78.51% over average deposits of
$110,695,000 for the same period in 1994.
These increases were due to increases in the volume of loans as a
result of planned mergers. These increases in net interest income in the
year ended December 31, 1995 were also the result of Fidelity's planned
mergers occurring in 1995.
The following table sets forth for the periods indicated an analysis
of net interest income by each major category of interest-earning assets
and interest-bearing liabilities. The rates earned and paid on each major
type of asset and liability account are set forth beside the average level
in the account for the period, and the average yields on all interest-
bearing liabilities are also summarized.
-47-
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in Thousands)
1996 1995 1994
----------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Average Interest Yield/ Average Interest Yield/ Average Interest Yield/
Balance Inc/Exp Rate Balance Inc/Exp Rate Balance Inc/Exp Rate
(2) (2) (2)
-------- --------- ------- --------- --------- ------- -------- ---------- -------
ASSETS
Interest-earning assets:
Loans (1) $130,323 $13,504 10.36% $108,879 $12,278 11.28% $ 64,056 $7,227 11.28
Securities-held to maturity
Taxable 63,495 4,076 6.42% 31,693 2,139 6.75% 23,264 1,327 5.70%
Securities-available for sale
Taxable 10,023 643 6.42% 8,550 577 6.75% 7,283 416 5.71%
Deposits in other banks 8,073 415 5.14% 5,519 308 5.58% 3,422 149 4.35%
Federal funds sold 42,290 2,233 5.28% 36,298 2,231 6.15% 10,165 403 3.96%
-------- --------- ------- --------- --------- ------- -------- ---------- ------
Total interest-earning
assets/interest income/
average yield 254,204 20,871 8.21% 190,939 17,533 9.18% 108,190 9,522 8.80%
Non-interest earning assets:
Cash and due from banks 18,541 13,341 7,005
Other assets 16,701 12,202 6,357
Allowance for loan losses (526) (528) (396)
-------- -------- --------
TOTAL $288,920 $215,954 $121,156
======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing liabilities:
NOW, money market and
savings $117,104 $ 3,803 3.25% $ 88,774 $ 3,389 3.82% $ 51,884 $1,602 3.09%
Certificates of deposit 66,934 3,544 5.29% 48,513 2,556 5.27% 25,920 1,105 4.26%
Individual retirement accounts 6,954 372 5.35% 5,923 303 5.12% 4,448 192 4.32%
FHLB and other short-term -- -- -- 78 5 6.41% -- -- --
borrowings
Long-term debt 1,370 122 8.91% 1,385 131 9.46% -- -- --
-------- --------- ------- --------- --------- ------- -------- ----------- ------
Total interest bearing
liabilities/interest expense/ rate $192,362 $ 7,841 4.08% $144,673 $ 6,384 4.41% $ 82,252 $2,899 3.52%
Noninterest bearing demand
deposits 74,766 54,352 28,443
Other liabilities 2,797 1,789 315
-------- -------- --------
Total liabilities 269,925 200,814 111,010
Stockholders' equity 18,995 15,140 10,146
-------- -------- --------
TOTAL $288,920 $215,954 $121,156
======== ======== ========
Net interest income $13,030 $11,149 $6,623
======= ======= ======
Net yield on interest earning
assets 5.13% 5.84% 6.12%
===== ===== ====
</TABLE>
(1) Includes Nonaccrual loans.
(2) Average balances are based on the average balances outstanding throughout
the years ended December 31, 1996, 1995 and 1994.
-48-
<PAGE>
<TABLE>
<CAPTION>
Nine Months, September 30
(Dollars in Thousands)
1997 1996
---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
Average Interest Yield/ Average Interest Yield/
Balance Inc/Exp Rate Balance Inc/Exp Rate
ASSETS (2) (2)
-------- --------- ------ --------- -------- ------
Interest-earning assets:
Loans (1) $152,179 $11,300 9.93% $126,011 $ 9,863 10.46%
Securities-held to maturity
Taxable 76,683 3,694 6.42% 62,591 3,005 6.40%
Tax exempt -- -- -- -- -- --
Securities-available for sale
Taxable 18,402 887 6.43% 8,616 414 6.41%
Tax exempt -- -- -- -- -- --
Deposits in other banks 3,882 147 5.06% 6,453 243 5.03%
Federal funds sold 16,072 650 5.41% 44,194 1,743 5.27%
-------- -------- ------ -------- -------- -----
Total interest-earning
assets/interest income/
average yield 267,218 16,678 8.34% 247,865 15,268 8.23%
Non-interest earning assets:
Cash and due from banks 21,419 17,988
Other assets 17,548 16,361
Allowance for loan losses (767) (518)
-------- --------
TOTAL $305,418 $281,696
======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing liabilities:
NOW, money market and savings $122,278 $ 2,859 3.13% $114,596 $ 2,803 3.27%
Certificates of deposit 63,931 2,429 5.08% 65,283 2,594 5.31%
Individual retirement accounts 6,370 253 5.31% 7,035 283 5.37%
FHLB and other short-term 1,385 61 5.89% -- -- --
borrowings
Long-term debt 2,311 162 9.37% 1,416 94 8.87%
--------- -------- ----- -------- ------ ----
Total interest bearing
liabilities/interest expense/ rate 196,275 5,764 3.93% 188,330 5,774 4.10%
Noninterest bearing demand 85,692 71,894
deposits
Other liabilities 2,500 2,914
--------- --------
Total liabilities 284,467 263,138
Stockholders' equity 20,951 18,558
--------- -------
TOTAL $305,418 $281,696
========= ========
Net interest income $10,914 $ 9,494
======= =======
Net yield on interest earning assets 5.46% 5.12%
===== =====
</TABLE>
(1) Includes Nonaccrual loans.
(2) Average balances are based on the average balances outstanding throughout
the nine months ended September 30, 1997 and 1996.
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<PAGE>
Changes in interest income and interest expense can result from
variances in both volume and rate. Fidelity 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.
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
September 30, 1997 December 31, 1996
--------------------------- ----------------------------------
Change Change
1997 Attributed to 1996 Attributed to
to -------------------------- to ---------------------------------
1996 Volume Rate Mix 1995 Volume Rate Mix
Interest income:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans(1) $ 1,437 $ 2,053 $(510) $(106) $1,226 $2,419 $ (996) $(197)
Securities-held to
maturity
Taxable 689 677 10 2 1,937 2,147 (105) (105)
Securities-available for
sale
Taxable 473 470 1 2 66 99 (28) (5)
Deposits in other banks (96) (97) 1 -- 107 143 (24) (11)
Federal funds sold (1,093) (1,109) 43 (27) 2 369 (315) (52)
-------- -------- ----- ------ ------ ------ -------- ------
Increase (decrease) in
interest income $ 1,410 $ 1,994 $(455) $(129) $3,338 $5,176 $(1,468) $(370)
======== ======== ===== ====== ====== ====== ======== ======
Interest expense:
NOW, money market and $ 56 $ 188 $(124) $ (8) $ 414 $1,081 $ (506) $(161)
savings
Time deposits (195) (81) (116) 2 1,057 1,020 28 9
FHLB Borrowings and
other short-term 61 -- -- 61 (5) (5) (5) 5
Long-term debt 68 59 5 4 (9) (1) (8) --
-------- -------- ----- ------ ------ ------ -------- ------
Increase (decrease) in
interest expense $ (10) $ 166 $(235) $ 59 $1,457 $2,095 $ (491) $(147)
======== ======== ===== ====== ====== ====== ======== ======
</TABLE>
<TABLE>
<CAPTION>
Year Ended
December 31, 1996
---------------------------
Change
1995 Attributed to
to --------------------------
1994 Volume Rate Mix
Interest income:
<S> <C> <C> <C> <C>
Loans(1) $5,051 $5,051 $ -- $ --
Securities-held to
maturity
Taxable 812 479 244 89
Securities-available for
sale
Taxable 161 72 76 13
Deposits in other banks 159 91 42 26
Federal funds sold 1,828 1,033 223 572
------ ------- ----- ----
Increase (decrease) in
interest income $8,011 $6,726 $585 $700
====== ====== ===== ====
Interest expense:
NOW, money market and
savings $1,787 $1,139 $379 $269
Time deposits 1,562 1,024 298 240
FHLB Borrowings and
other short-term 5 -- -- 5
Long-term debt 131 131 -- --
------ ------- ----- ----
Increase (decrease) in
interest expense $3,485 $2,294 $677 $514
====== ======= ===== ====
</TABLE>
(1) Includes nonaccrual loans.
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<PAGE>
PROVISION FOR LOAN LOSSES
Fidelity'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.
Fidelity recorded a $356,000 provision for loan losses for the nine
months ended September 30, 1997, and a $4,000 provision for loan losses for
the nine months ended September 30, 1996. During the December, 1996
examination of Fidelity, the OCC concluded that the allowance for loan
losses was adequate to cover the inherent risk in the credit portfolio and
there was no undue degree of risk in credit concentrations. However, the
allowance for loan losses was considered low as a percentage of total loans
when compared to that of Fidelity's peer group as determined by the Uniform
Bank Performance Reports ("UBPR"). Fidelity's peer group had a ratio of
allowance for loan losses to total loans of 1.41% as of September 30, 1996.
Management of the Bank elected to increase its provision for loan losses in
1997 in order to increase the allowance for loan losses as a percentage of
total loans. Fidelity's allowance for loan losses methodology is primarily
determined by Fidelity's historical loss percentage for various loan
categories. Because the Texas economy has been healthy for the past several
years, historical losses are minimal. Fidelity's management decided to
increase the allowance for loan losses to 1% of total loans over the coming
years. The allowance for loan losses expressed as a percentage of
outstanding loans net of unearned interest was .58% and .38% as of
September 30, 1997 and September 30, 1996, respectively.
For the years ended December 31, 1996, 1995 and 1994, Fidelity recorded
provisions for loan losses of $36,000, $66,000 and $105,000, respectively.
The allowance for loan losses for the years ended December 31, 1996, 1995
and 1994 were $581,000, $590,000 and $379,000, respectively. The allowance
for loan losses expressed as a percentage of outstanding loans, net of
unearned interest, was .45%, .54% and .59% for the years ended December 31,
1996, 1995 and 1994, respectively.
Non-accrual loans decreased by $76,000 for the nine-month period ending
September 30, 1997. This decrease was primarily due to aggressive
management of non-performing assets. Non-accrual loans increased by
approximately $262,000 for the period ending December 31, 1996. Non-
accrual loans increased approximately $328,000 from 1994 to 1995.
This increase in the provision for loan losses and for non-accrual loans
was attributable to purchase business combinations completed in 1995.
NON-INTEREST INCOME
Non-interest income, which includes all service charges and fees,
increased 18.93% from $1,749,000 for the nine months ended September 30,
1996 to $2,080,000 for the nine months ending September 30, 1997. The
$331,000 increase was mainly due to the recognition of loan fees of
$188,000 and discounts on paid loans of $99,000.
Non-interest income increased 2.07% to $2,415,000 for the year ended
December 31, 1996 from $2,366,000 for the year ended December 31, 1995.
Non-interest income increased 50.80% from $1,569,000 for the year ended
December 31, 1994 to $2,366,000 for the year ended December 31, 1995. The
$797,000 increase was mainly due to an increase in service charges of
$501,000, loan fees of $69,000 and backroom operational fees of $70,000.
NON-INTEREST EXPENSE
Non-interest expense includes expenses which Fidelity incurs in the course
of operations such as employee compensation and benefits, occupancy expense
and general operating expenses. These expenses increased 9.82% from
$7,218,000 for the nine months ended September 30, 1996 to $7,927,000 for
the nine months ended September 30,
-51-
<PAGE>
1997. The increase was mainly attributable to the purchase of two branch
locations on May 31, 1996, and the opening of two branch locations in the
second quarter of 1996. The September 30, 1996 expenses included four
months of operations for these two branches, compared to nine months of
operations as of September 30, 1997.
Noninterest expenses increased 25.08% from $7,973,000 for the year ended
December 31, 1995 to $9,973,000 for the year ended December 31, 1996. The
increase was mainly attributable to the increased expense associated with
the purchase and opening of four branches in 1996.
Noninterest expenses for the year ending December 31, 1995 increased by
$2,881,000 or 56.58%, for the year ended December 31, 1994. The increase
is attributable to the acquisition of two national banks as well as the
purchase of a branch location.
FEDERAL INCOME TAXES
Fidelity's provision for income taxes was $1,565,000 and $1,455,000 for
the nine-month periods ended September 30, 1997 and 1996, respectively. As
of September 30, 1997, Fidelity had no net operating loss carryforwards.
Fidelity's provision for income taxes was $1,964,000, $1,920,000 $987,000
the years ended December 31, 1996, 1995 and 1994, respectively.
CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL CONDITION
CAPITAL RESOURCES
The OCC has adopted risk-based and leverage capital measures to assist in
the assessment of the capital adequacy of the banks it regulates. The
principal objectives of the risk-based measures are to: (i) make regulatory
capital requirements more sensitive to differences in risk profiles among
financial institution; (ii) factor off-balance sheet exposures into the
assessment of capital adequacy; (iii) minimize disincentives to holding
liquid, low-risk assets; and (iv) achieve greater consistency in the
evaluation of the capital adequacy of financial institutions.
The risk-based capital guidelines include both a definition of capital and
a framework for calculating risk weighted assets by assigning assets and
off-balance sheet items to broad risk categories. The financial
institution's risk-based capital ratio is calculated by dividing its
qualifying capital (the numerator of the ratio) by its risk weighted assets
(the denominator).
The risk-based capital ratio focuses principally on broad categories of
credit risk. The risk-based ratio does not, however, incorporate other
factors that can affect a bank's financial condition. These factors
include overall interest rate exposure, liquidity, funding and market
risks, the effectiveness of loan and investment policies, and management's
ability to monitor and control financial and operating risks.
The Bank is a national 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 nonqualifying 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.
-52-
<PAGE>
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.
National banks are required to maintain a minimum risk-based capital ratio
of total capital (after deductions) to risk weighted assets of 8%. In
general, 50% of this ratio must consist of Tier 1 capital. Certain
restrictions and limitations also apply regarding the calculation of Tier 1
capital. Tier 2 capital elements that are not used as part of Tier 1
capital generally will qualify for inclusion in a financial institutions
capital base up to a maximum of 100% of the financial institution's Tier 1
capital. As of September 30, 1997, the Bank's Tier 1 risk-based capital
ratio was 11.5% and the total risk-based capital ratio was 12.0%. As of
year end 1996, the Bank's Tier 1 capital ratio was 10.8% and the total
risk-based capital ratio was 11.1%.
In addition, the OCC has promulgated capital leverage guidelines designed
to supplement the risk-based capital guidelines. The principal objective of
the leverage ratio is to address the extent to which a financial
institution could leverage its equity capital base. The OCC requires its
regulated national banks to meet a minimum leverage capital requirement of
Tier 1 capital to total assets of not less than 3% for a bank that is not
anticipating or experiencing significant growth and is highly rated (i.e.,
a composite rating of 1 on a scale of 1 to 5). Banks that the OCC
determines are anticipating or experiencing significant growth or that are
not highly rated must meet a minimum leverage ratio of 3% plus an
additional cushion of at least 100 to 200 basis points. The Texas Banking
Department's capital guidelines call for minimum equity capital to total
assets of 6%.
The Bank's leverage ratio was 5.8% for year end 1996 and 5.5% for year end
1995. As of September 30, 1997, the leverage ratio was 6.89%.
The Federal Reserve has also promulgated capital leverage guidelines
designed to supplement the risk-based capital guidelines. Bank holding
companies must maintain a minimum ratio of 3%, although companies with
greater risk profiles may be required to maintain additional capital of at
least 100 to 200 basis points above the 3% minimum. As of September 30,
1997, the Company's leverage ratio was 5.98%. The Company's Tier I risk-
based capital ratio was 9.97% and the total risk-based capital ratio was
10.45% which are above the regulatory minimums of 8% and 10% respectively.
LIQUIDITY
Fidelity'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. Fidelity
accomplishes this through management of the maturities of its interest-
earning assets and interest-bearing liabilities. Liquidity is monitored
and overall interest rate risk is assessed through reports showing both
sensitivity ratios and existing dollar "gap" data. Fidelity believes its
present position to be adequate to meet its current and future liquidity
needs.
The liquidity of Fidelity 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, Fidelity's management monitors liquidity requirements
as warranted by interest rate trends, changes in the economy and the
scheduled maturity and interest rate sensitivity of the investment and loan
portfolio, deposits and anticipated loan findings. In addition to the
liquidity provided by the foregoing, Fidelity has correspondent
relationships with other institutions with available secured lines of
credit to purchase overnight funds totaling $88,600,000 should additional
liquidity be needed. These lines are subject to restrictions such as the
financial strength of Fidelity and the lenders ability to facilitate
credit.
-53-
<PAGE>
Non-interest bearing demand deposits were $94,459,000 at September 30,
1997, an increase of $14,682,000 over the balance of $79,777,000 at
September 30, 1996. Interest-bearing deposits were $196,469,000 at
September 30, 1997, compared to $202,386,000 at September 30, 1996, a
decrease of $5,917,000.
Average non-interest bearing demand deposits were $85,692,000 for the nine
months ended September 30, 1997, an increase of $13,798,000 over the
average balance of $71,894,000 for the same period in 1996. Average
interest-bearing deposits were $192,579,000 for the nine months ended
September 30, 1997, compared to $186,914,000 for the same period in 1996,
an increase of $5,665,000.
Non-interest bearing demand deposits were $93,823,000 for the year ended
December 31, 1996, an increase of $18,019,000 over the balance of
$75,804,000 for the same period in 1995. Interest-bearing deposits were
$196,664,000 for the year ended December 31, 1996, compared to $171,486,000
for the same period in 1995, a decrease of $25,178,000.
Average non-interest bearing demand deposits were $74,766,000, $54,352,000
and $28,443,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. Average interest-bearing deposits for the same years were
$190,992,000, $143,210,000 and $82,252,000, respectively.
Net cash generated by operating activities was $3,654,000 for the nine
months ended September 30, 1997, and $574,000 for the nine months ended
September 30, 1996. Proceeds from sales, principal paydowns and maturities
of investment securities were $45,635,000 and $2,008,000 for the same
periods. A net increase in deposit accounts of $441,000 was realized during
the nine months ended September 30, 1997, compared to a net decrease of
$8,005,000 for the same period in 1996. These changes were primarily
attributable to changes in interest rates offered on time deposits.
Fidelity purchased investment securities of $65,996,000 and $40,742,000 for
the nine months ended September 30, 1997 and 1996.
Net cash generated by operating activities was $1,050,000, $4,180,000 and
$2,504,000 for the years ended 1996, 1995 and 1994, respectively. Proceeds
from sales, principal paydowns, and maturities of investment securities
were $35,796,000, $33,122,000 and $15,492,000 for the same periods.
Proceeds from the sale of other real estate during 1996, 1995 and 1994 were
$163,000, $742,000 and $277,000, respectively. A net increase in deposit
accounts of $319,000, $16,956,000 and $6,475,000 was realized during the
years ended December 31, 1996, 1995 and 1994. The increase in deposits was
primarily attributable to an increase in time deposits resulting from the
offering of more attractive rates. Fidelity utilized these funds to
originate loans and purchase investment securities. Fidelity purchased
investment securities of $62,018,000 in 1996, $31,566,000 in 1995 and
$27,318,000 in 1994.
Funds utilized for the purchase of bank premises and equipment were
$2,271,000, $965,000 and $1,548,000 during 1996, 1995 and 1994,
respectively.
INTEREST RATE SENSITIVITY
Interest rate sensitivity refers to the relationship between market
interest rates and net interest income resulting from the repricing of
certain assets and liabilities. Interest rate risk arises when an earning
asset matures or when its rate of interest changes in a time frame
different from that of the supporting interest-bearing liability. One way
to reduce the risk of significant adverse effects on net interest income of
market rate fluctuations is to minimize the difference between rate
sensitive assets and liabilities, referred to as "gap", by maintaining a
similar interest rate sensitivity position of the assets and liabilities
within a particular time frame.
Maintaining an equilibrium between rate sensitive assets and liabilities
will reduce some of the risk associated with diverse changes in market
rates, but it will not guarantee a stable net interest spread because
yields and rates may change simultaneously and by different amounts. These
changes in market spreads could materially affect the overall net interest
spread even if assets and liabilities were perfectly matched. If more
assets than liabilities reprice within a given period, an asset sensitive
position or "positive gap" is created. During a positive gap, a decline in
market rates
-54-
<PAGE>
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.
-55-
<PAGE>
The following table shows interest sensitivity gaps for these different
intervals as of September 30, 1997.
ESTIMATED PERIOD OF POTENTIAL REPRICING
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Over
One Day to Over Six Months
Three Three to Six to One Over One
Floating Months Months Year Year Total
--------- ----------- ------------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
INTEREST SENSITIVE ASSETS
Loans(1) (2)
(Fixed Rate) $10,487 $ 8,526 $ 10,044 $ 69,640 $ 98,697
(Floating Rate) 60,259 60,259
Investment Securities
(Fixed Rate) 26,318 8,402 4,683 41,230 80,633
(Floating Rate) 13,203 13,203
Due from Bank 5,646 99 5,745
Fed Funds Sold 18,640 18,640
-------- ------ --------- ------- ------- -------
TOTAL INTEREST SENSITIVE ASSETS 73,462 61,091 16,928 14,826 110,870 277,177
-------- ------ --------- ------- ------- -------
INTEREST SENSITIVE LIABILITIES
Interest Bearing Deposits --
Savings Accounts (3) 475 495 991 3,982 5,943
NOW 4,957 5,162 10,329 41,515 61,963
Money Market Deposits 10,535 10,331 20,656 20,451 61,973
Time Deposits 28,639 12,606 16,384 8,898 66,527
Repurchase Agreements 2,000 2,000
Long-term debt 2,444 2,444
-------- ------ --------- ------- ------- -------
TOTAL INTEREST SENSITIVE LIABILITIES 2,444 46,606 28,594 48,360 74,846 200,850
-------- ------ --------- ------- ------- -------
PERIODIC GAP 71,018 $14,485 $(11,666) $(33,534) $ 36,024 $ 76,327
======== ====== ========= ======== ======== ========
CUMULATIVE GAP 71,018 $85,503 $ 73,837 $ 40,303 $ 76,327
======== ======= ========= ======== ========
PERIODIC GAP TO TOTAL EARNINGS
ASSETS 25.62% 5.23% -4.21% -12.10% 13.00%
</TABLE>
(1) Disclosure of loans categorized by type is excluded due to the
information not being readily accessible.
(2) Loans is reported gross of unearned income totaling $504,000 and
allowance for Loan Losses of $882,000.
(3) The cash flow assumptions applicable to non-maturity deposits are
based upon a selection of uniform decay rates across gap buckets which
complies with the maximum constraint for extending the treatment of
such deposits under provisions of the policy statements used by the
banking agencies in establishing a supervisory framework for measuring
and assessing a bank's interest rate risk exposure.
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 Fidelity's net interest margin. Because of these factors, an
interest sensitivity gap report may not provide a complete assessment of
Fidelity's exposure to changes in interest rates.
-56-
<PAGE>
INVESTMENT SECURITIES
Set forth is a distribution of Fidelity's investment securities by
contractual maturity dates at September 30, 1997 (mortgage-backed
securities are classified in the period of contractual maturity):
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
------------------------------------------------------------------------------------------
MATURING
WITHIN ONE AFTER ONE BUT AFTER FIVE BUT
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:
U.S. Treasury 1,234 4.99% -- -- -- -- -- -- 1,234
Government Agency 1,000 5.91% 28,724 6.36% 4,009 6.90% 3,000 7.07% 36,733
Mortgage-backed 1,752 4.86% 13,164 6.55% 2,507 7.15% 17,894 6.88% 35,317
----- ----- ------- ------ ------- ----- --------- ------ -------
Total Securities held to
maturity 3,986 5.16% $41,888 6.42% $6,516 6.99% $20,894 6.90% $73,284
===== ===== ======= ====== ======= ===== ========= ===== =======
Securities available for
sale:
U.S. Treasury $6,695 5.23% -- -- -- -- -- -- $ 6,695
Government Agency -- -- 2,000 6.82% -- -- -- -- 2,000
Mortgage-backed -- -- -- -- -- -- 10,357 6.51% 10,357
----- ----- ------- ------ ------- ----- --------- ------ -------
6,695 5.23% 2,000 6.82% 10,357 6.51% 19,052
Stock in Federal Reserve -- -- -- -- -- -- 437 6.00% 437
Other Securities -- -- -- -- -- -- 1,063 6.02% 1,063
----- ----- ------- ------ ------- ------ --------- ------ -------
1,500 6.01% 1,500
Total Securities
available for sale $6,695 5.23% $ 2,000 6.82% -- -- $11,857 6.44% $20,552
====== ===== ======= ====== ======= ====== ========= ====== =======
</TABLE>
-57-
<PAGE>
DEPOSITS
The 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, 1997 As of December 31
------------------------ ------------------------------------------
1996 1995
Amount Rate Amount Rate Amount Rate
-------- ---- -------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Non-interest Bearing:
Demand $ 85,692 -- $ 74,766 -- $ 54,352 --
Interest Bearing:
NOW accounts 59,186 3.03% 53,830 3.21% 39,355 3.78%
Money market 55,762 3.36% 55,103 3.48% 42,055 4.08%
Savings 7,330 1.96% 8,171 1.93% 7,364 2.53%
Time 70,301 5.09% 73,888 5.30% 54,436 5.25%
Other -- -- -- -- -- --
---------- --------- ---------
$ $278,271 $ 265,758 $ 197,562
========== ========= =========
TOTAL
</TABLE>
The scheduled maturities of certificates of deposit in denominations of
$100,000 or more at September 30, 1997, and December 31, 1996, including
public funds, are shown below:
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Due in three months or less $16,105 $13,348
Due in over three to six months 4,419 5,817
Due in over six to twelve months 5,798 10,703
Due in over twelve months 2,482 2,284
----------------- ----------------
Total $28,804 $32,152
================ ================
</TABLE>
-58-
<PAGE>
LOANS
The following table classifies the Bank's loans according to type as
of the dates shown:
<TABLE>
<CAPTION>
(Dollars in Thousands)
September 30, December 31,
1997 1996 1995 1994 1993 1992
------------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 15,767 $ 9,135 $ 3,987 $ 2,053 $ 2,490 $ 226
Real estate-construction
Real estate-mortgage 94,491 84,334 74,462 54,502 47,086 31,068
Commercial & Industrial 39,611 38,464 30,807 9,487 8,802 4,570
Loans to Individuals
Credit Card 519 562 638 -- -- --
Other 8,527 11,041 11,738 4,148 6,978 7,970
Overdrafts 41 31 29 19 24 163
TOTAL 158,956 143,566 121,661 70,209 65,380 43,997
Less allowance for loan losses 882 581 590 379 428 398
Less unearned income 504 580 875 467 831 1,257
------------- -------- -------- ------- ------- --------
TOTAL NET $157,570 $142,405 $120,196 $69,363 $64,121 $42,342
============= ======== ======== ======= ======= ========
</TABLE>
The maturities of commercial and industrial and real estate construction
loans, net of unearned discount, at September 30, 1997, were as follows:
(Dollars in Thousands)
<TABLE>
<CAPTION>
Commercial Real Estate
& Industrial Construction Total
------------ ------------ ------
<S> <C> <C> <C>
Less than 1 year 16,195 3,795 19,990
1-5 years 19,329 8,323 27,652
5-15 years 4,087 2,187 6,274
Over 15 years -- 1,462 1,462
------------ ------------ ------
39,611 15,767 55,378
</TABLE>
ALLOWANCE FOR LOAN LOSSES AND RISK ELEMENTS ALLOWANCE FOR LOAN LOSSES
AND RISK ELEMENTS
The provision for loan losses represents a determination by Fidelity's
management of the amount necessary to be charged to operating income and
credited 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 Fidelity's policy to provide for exposure to losses
for specifically identified credits, and a general allowance for the
remainder of the loan portfolio. While it is also Fidelity'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.
-59-
<PAGE>
In assessing the adequacy of its allowance for loan losses, management
relies predominantly on its ongoing review of the loan portfolio, which is
undertaken both to ascertain whether there are probable losses which must
be charged off and to assess the risk characteristics of individually
significant loans and of the portfolio in the aggregate. This review takes
into consideration the judgments of the responsible lending officers, the
senior credit officer, the Chief Executive Officer and the Board of
Directors, and also those of bank regulatory agencies that review the loan
portfolio as part of their regular examination of Fidelity and the Bank.
In evaluating the allowance for loan losses, management also considers
Fidelity's loan loss experience, the amount of past due and non-performing
loans, current and anticipated economic conditions, changes in
underwriting, lending and collection procedures, and changes in loan
volumes.
The allowance for loan losses at September 30, 1997 was $882,000, compared
to $581,000 at December 31, 1996, $590,000 at December 31, 1995, and
$379,000 at December 31, 1994. Although additional losses may occur,
management believes the allowance for loan losses to be adequate as of the
date presented. As shown in the table below, management determined that at
September 30, 1997, approximately 11.34 percent of the allowance for loan
losses was related to commercial, financial and agricultural loans, 7.25
percent was associated with real estate loans and .11 percent was related
to consumer installment loans. Approximately 81.30 percent of the allowance
remained unallocated to any specific category.
<TABLE>
<CAPTION>
Period Ended September 30, For the Years Ending December 31,
------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1996 1995
- -------------------------------------------------------------------------------------------------------------------------
Percent of Percent of Percent of Percent of
Amount Total Amount Total Amount Total Amount Total
- --------------------------------------------------------------------------------------------------------------------------
Commercial, financial and
agricultural $100 11.34% $ 17 3.15% $ 34 5.78% $ 45 7.54%
Real estate-construction -- --% 5 0.84% 8 1.44% -- --%
Real estate-mortgage
Residential 34 3.85% 51 9.33% 45 7.77% 65 11.00%
Commercial 30 3.40% 49 8.98% 47 8.07% 56 7.75%
Consumer 1 0.11% 11 2.06% 9 1.53% 21 3.58%
Unallocated 717 81.30% 414 75.64% 438 75.42% 414 70.13%
---- ------- ---- ------- ---- ------- ---- -------
$882 100.00% $547 100.00% $581 100.00% $590 100.00%
==== ======= ==== ======= ==== ======= ==== =======
</TABLE>
<TABLE>
<CAPTION>
For the Years Ending December 31,
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1994 1993 1992
-------------------------------------------------------------------
Percent of Percent of Percent of
Amount Total Amount Total Amount Total
-------------------------------------------------------------------
Commercial, financial and
agricultural $ 9 2.27% $ -- -- -- --
Real estate-construction -- --% -- -- -- --
Real estate-mortgage
Residential 50 13.13% 168 39.25% 156 39.20%
Commercial 37 9.72% 85 19.86% 97 24.37%
Consumer 2 0.62% 23 5.37% 9 2.26%
Unallocated 281 74.26% 152 35.51% 136 34.17%
---- ------- ---- ------- ---- -------
$379 100.00% $428 100.00% $398 100.00%
==== ======= ==== ======= ==== =======
</TABLE>
-60-
<PAGE>
The following table reflects the charge-offs and recoveries in the
allowance for Loan and Lease Account for the years ended December 31, 1996,
1995, 1994, 1993, and 1992 and for the periods ended September 30, 1997 and
1996.
<TABLE>
<CAPTION>
(Dollars in Thousands)
As of and for the
Nine Months Ended As of and for the Years
September 30, Ended December 31,
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Balance at Beginning of period $ 581 $ 590 $ 379 $ 428 $ 398 $ 570
Charge-offs
Commercial, financial and agricultural -- 167 84 33 66 82
Real estate-construction -- -- -- -- -- --
Real estate-mortgage 1 7 72 171 37 264
Loans to individuals 80 21 4 22 21 12
Credit card loans 4 18 7 -- -- --
Other -- -- -- -- -- --
---- ----- ----- ----- ----- -----
Total charge-offs 85 213 167 226 124 358
Recoveries
Commercial, financial and agricultural 4 139 60 70 79 76
Real estate-construction -- -- -- -- -- --
Real estate-mortgage -- 29 -- -- 2 15
Loans to individuals 26 -- -- 2 4 3
Credit card loans -- -- -- -- -- --
Other -- -- -- -- -- --
---- ----- ----- ----- ----- -----
Total recoveries 30 168 60 72 85 94
Net charge-offs (recoveries) 55 45 107 154 39 264
Provision charged to expense 356 36 66 105 69 92
Additions due to acquisitions -- -- 252 -- -- --
---- ----- ----- ----- ----- -----
Balance at end of period $ 882 $ 581 $ 590 $ 379 $ 428 $ 398
==== ===== ===== ===== ===== =====
Net charge-offs (recoveries) as a
percentage of
average loans (annualized) 0.04 % 0.03% 0.09% 0.24% 0.06% 0.62%
</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)
December 31,
September 30,
1997 1996 1995 1994 1993 1992
------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Loans accounted for on a nonaccrual basis $ 85 $ 161 $ 423 $ 95 $ 261 $ 237
Accruing loans which are contractually past
due 90 days or more as to principal or
interest payments 553 125 5 2 2 173
Troubled debt restructuring -- -- -- -- -- --
----- ----- ----- ----- ----- -----
Total $ 638 $ 286 $ 428 $ 97 $ 263 $ 410
===== ===== ===== ===== ===== =====
Interest income included in net income 16 2 5 1 2 1
for period
Foregone interest on nonaccrual loans 3 6 41 7 6 11
</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, 1997, loans totaling $85,000 or
.05% of total net loans outstanding, were on a non-accrual basis,
therefore, no income was being recognized. As of year end 1996, loans
totaling $161,000 or .11% of total net loans outstanding, were on a non-
accrual basis and, therefore, no income was being recognized. The increase
was primarily due to increases in installment and commercial loans which
became classified as nonaccrual. Management believes the risks of these
loans to be significant as there may be some portion of the principal which
will become uncollectible.
Placing a loan on non-accrual status has a two-fold impact on net interest
income. First, it causes an immediate charge against earnings with respect
to that particular loan. Second, it eliminates future interest earnings
with respect to that particular loan. Interest on such loans is not
recognized until all of the principal is collected or until the loan is
returned to a performing status.
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 For the Years Ended
Months Ended December 31,
September 30,
-------------- -----------------------
1997/1/ 1996 1995 1994
-------------- -----------------------
<S> <C> <C> <C> <C>
Return on Average Assets 1.37% 1.20% 1.64% 1.61%
Return on Average Equity 19.98% 18.23% 23.43% 19.21%
Average Equity to Average 6.86% 6.57% 7.01% 8.37%
Assets Ratio
Dividend Payout Ratio -- -- -- --
</TABLE>
- --------------
/1/ Annualized for 1997
-62-
<PAGE>
RELATIONSHIPS WITH INDEPENDENT ACCOUNTANTS
Compass' Board of Directors appointed KPMG Peat Marwick llp as independent
auditors for Compass for the year ending December 31, 1997. KPMG Peat Marwick
llp has served as Compass' independent auditors continuously since 1971.
Fidelity's Board of Directors appointed Fisk & Robinson, P.C. as independent
auditors for Fidelity for the year ending December 31, 1997. Fisk & Robinson,
P.C. has served as Fidelity's and the Bank's independent auditors continuously
since 1988.
Compass and Fidelity have been advised by KPMG Peat Marwick llp and Fisk &
Robinson, P.C. that neither KPMG Peat Marwick llp nor Fisk & Robinson, P.C.
has any direct financial interest or any material indirect financial interest in
Compass, Fidelity or their affiliates other than arising from that firm's
employment as auditors for Compass and Fidelity, respectively.
EXPERTS
The consolidated financial statements of Compass as of December 31, 1996 and
1995 and for each of the years in the three-year period ended December 31, 1996
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 in the Registration Statement, and upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Fidelity as of December 31, 1996 and
1995 and for each of the years in the three-year period ended December 31, 1996,
have been included herein and in the Registration Statement in reliance upon the
report of Fisk & Robinson, P.C., independent certified public accountants, given
upon the authority of said firm as experts in accounting and auditing.
LEGAL OPINIONS
Jerry W. Powell, Esquire, General Counsel, Secretary and an employee of
Compass, has rendered an opinion concerning the validity of the securities being
offered pursuant to this Proxy Statement/Prospectus and certain other matters.
As of September 30, 1997, Mr. Powell was the beneficial owner of an aggregate of
approximately _________ 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 and Liddell, Sapp are also expected to render legal opinions
as to certain matters acceptable to Fidelity and Compass, respectively.
INDEMNIFICATION
Compass' Bylaws 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 FIDELITY 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.
-63-
<PAGE>
OTHER MATTERS
Fidelity'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 Fidelity's Board of Directors
unless "Authority Withheld" is indicated in the appropriate box on the proxy.
SEE " INTRODUCTION".
-64-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
OF
FIDELITY RESOURCES COMPANY
Page
----
1. Auditors' Report regarding the December 31, 1996, 1995 and 1994
Consolidated Financial Statements F-2
2. Consolidated Balance Sheet as of December 31, 1996 and 1995 F-4
3. Consolidated Statement of Income for the Three Years Ended
December 31, 1996 F-5
4. Consolidated Statement of Changes in Stockholders' Equity for the
Three Years ended December 31, 1996 F-6
5. Consolidated Statement of Cash Flows for the Three Years Ended
December 31, 1996 F-7
6. Notes to Consolidated Financial Statements F-8
7. Consolidated Balance Sheet (unaudited) as of September 30, 1997 F-33
8. Consolidated Statement of Income (unaudited) for the Nine Months
Ended September 30, 1997 and 1996 F-34
9. Consolidated Statement of Changes in Stockholders' Equity (unaudited) F-35
for the Nine Months Ended September 30, 1997 and 1996
10. Consolidated Statement of Cash Flows (unaudited) for the Nine Months
Ended September 30, 1997 and 1996 F-36
11. Notes to Consolidated Financial Statements (unaudited) F-37
F-1
<PAGE>
FIDELITY RESOURCES COMPANY
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(With Independent Auditors' Report Thereon)
F-2
<PAGE>
[LOGO OF FISK ROBINSON APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Fidelity Resources Company
We have audited the accompanying consolidated balance sheet of Fidelity
Resources Company and Subsidiaries (together referred to as Company) as of
December 31, 1996 and 1995, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. 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
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Fidelity Resources
Company and Subsidiaries as of December 31, 1996 and 1995, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 5 to the financial statements, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan", which was subsequently revised by
Statement No. 118, effective January 1, 1995.
/s/ FISK & ROBINSON P.C.
------------------------
March 7, 1997
F-3
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
Consolidated Balance Sheet
December 31, 1996 and 1995
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
ASSETS 1996 1995
- ------ --------- ---------
<S> <C> <C>
Cash and due from banks $ 27,484 $ 19,990
Interest bearing deposits in other banks 16,750 7,134
Federal funds sold 36,350 58,885
--------- ---------
Total cash and cash equivalents 80,584 86,009
Securities available for sale (at market value) 14,481 7,011
Securities held to maturity (market values of $58,612 and $40,219
at December 31, 1996 and 1995, respectively) 58,762 39,914
Loans, net of allowance for loan losses and unearned income of
$1,161 and $1,465 at December 31, 1996 and 1995, respectively 142,405 120,196
Bank premises and equipment, net 10,262 7,657
Other real estate owned, net 460 569
Goodwill 4,511 4,001
Other assets 2,856 2,661
--------- ---------
Total assets $ 314,321 $ 268,018
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits:
Noninterest bearing $ 93,823 $ 75,804
Interest bearing 196,664 171,486
--------- ---------
Total deposits 290,487 247,290
Other liabilities 1,503 1,582
Notes payable 1,483 1,787
Minority interest in subsidiary 53 43
Commitments and contingencies - -
--------- ---------
Total liabilities 293,526 250,702
Stockholders' equity:
Preferred stock, $1.00 par value; 5,000,000 shares authorized,
none issued and outstanding - -
Common stock, $.10 par value; 95,000,000 shares authorized,
3,297,782 issued and outstanding at December 31, 1996 and 1995 330 330
Paid-in capital 9,831 9,831
Retained earnings 10,916 7,453
Obligation under ESOP (264) (287)
Unrealized depreciation on securities available for sale, net of tax
of $10 and $6 at December 31, 1996 and 1995, respectively (18) (11)
--------- ---------
Total stockholders' equity 20,795 17,316
--------- ---------
Total liabilities and stockholders' equity $ 314,321 $ 268,018
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
Consolidated Statement of Income
For the Three Years Ended December 31, 1996
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 13,504 $ 12,278 $ 7,227
Interest on deposits in other banks 415 308 149
Interest on federal funds sold 2,233 2,231 403
Interest and dividends on investment securities:
Taxable 4,714 2,714 1,743
Nontaxable 5 2 -
----------- ----------- -----------
Total interest income 20,871 17,533 9,522
Interest expense on deposit accounts (including
interest expense on certificates of deposit
of $100,000 and over of $1,704, $991 and
$473 in 1996, 1995 and 1994, respectively) 7,719 6,248 2,899
Interest expense on notes payable and other borrowings 122 136 -
----------- ----------- -----------
Total interest expense 7,841 6,384 2,899
----------- ----------- -----------
Net interest income 13,030 11,149 6,623
Provision for possible loan losses 36 66 105
----------- ----------- -----------
Net interest income after provision for
possible loan losses 12,994 11,083 6,518
----------- ----------- -----------
Noninterest income:
Service charges on deposit account 1,450 1,194 694
Other 965 1,172 875
----------- ----------- -----------
Total noninterest income 2,415 2,366 1,569
----------- ----------- -----------
Noninterest expense:
Salaries and employee benefits 4,767 3,746 2,277
Occupancy of bank premises 1,344 987 607
Furniture and equipment expense 710 522 342
Other 3,152 2,718 1,866
----------- ----------- -----------
Total noninterest expense 9,973 7,973 5,092
----------- ----------- -----------
Income before income tax expense and
minority interest in income of subsidiary 5,436 5,476 2,995
Minority interest in income of subsidiary (9) (8) (59)
----------- ----------- -----------
Income before income tax expense 5,427 5,468 2,936
Income tax expense 1,964 1,920 987
----------- ----------- -----------
Net income 3,463 3,548 1,949
Preferred stock dividends - (26) -
----------- -----------
Net income available to common shareholders $ 3,463 $ 3,522 $ 1,949
=========== =========== ===========
Weighted average common and common equivalent
shares outstanding 3,556,280 3,466,068 2,597,468
=========== =========== ===========
Primary and fully diluted earnings per common
and common equivalent share $ .97 $ 1.02 $ .75
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the Three Years Ended December 31, 1996
(In Thousands)
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
(Depreciation)on
Preferred Common Paid-In Retained Obligation Securities
Stock Stock Capital Earnings of ESOP Available Total
------ ------- ------- -------- ---------- For Sale -----
--------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1994 $ 41 $240 $ 6,698 $ 1,982 $ - $ - $ 8,961
Effect of adoption of SFAS 115, "Accounting
for Certain Investments in Debt and Equity
Securities", on January 1, 1994 - - - - - 38 38
Sale of stock - 60 1,740 - - - 1,800
Issuance of stock in exchange for stock of
subsidiary held by related parties - 5 193 - - - 198
Obligation of ESOP - - - - (193) - (193)
Net income - - - 1,949 - - 1,949
Net changes in unrealized depreciation on
securities available for sale - - - - - (269) (269)
------ ---- ------- ------- ----- ----- --------
Balance December 31, 1994 41 305 8,631 3,931 (193) (231) 12,484
Retirement of preferred stock (41) - - - - - (41)
Sale of stock - 23 1,127 - - - 1,150
Issuance of stock in exchange for stock of
subsidiary held by related parties - 2 73 - - - 75
Obligation of ESOP - - - - (94) - (94)
Net income - - - 3,548 - - 3,548
Net changes in unrealized depreciation on
securities available for sale - - - - - 220 220
Cash dividends on preferred stock - - - (26) - - (26)
------ ---- ------- ------- ----- ----- --------
Balance December 31, 1995 - 330 9,831 7,453 (287) (11) 17,316
Obligation of ESOP - - - - 23 - 23
Net income - - - 3,463 - - 3,463
Net changes in unrealized depreciation on
securities available for sale - - - - - (7) (7)
------ ---- ------- ------- ----- ----- --------
Balance December 31, 1996 $ - $330 $ 9,831 $10,916 $(264) $ (18) $ 20,795
====== ==== ======= ======= ===== ===== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the Three Years Ended December 31, 1996
(In Thousands)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities, net of effect
of purchase transactions as discussed in Notes
2 and 3:
Net income $ 3,463 $ 3,548 $ 1,949
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and accretion 228 (452) (649)
Provision for possible loan losses 36 66 105
Provision for deferred federal income tax 19 381 934
expense
Loss on sale of available for sale securities - 10 25
Loss (gain) on sale of other real estate 8 (54) 26
Net change in other assets and other (2,704) 681 (114)
liabilities
-------- -------- --------
Net cash provided by operating activities 1,050 4,180 2,504
-------- -------- --------
Cash flows from investing activities:
Proceeds from sales or maturities of available
for sale securities 4,846 15,950 7,373
Proceeds from sales or maturities of held to
maturity securities 30,950 17,172 8,119
Purchase of available for sale securities (12,316) (317) (4,032)
Purchase of held to maturity securities (49,702) (31,249) (23,286)
Net loans collected (originated or acquired) (2,155) 11,359 (4,745)
Proceeds from acquisition of banks 24,051 43,591 -
Payments to stockholders of acquired banks
and other acquisition costs (79) (12,189) -
Purchase of premises and equipment (2,271) (965) (1,548)
Proceeds from sale of other real estate owned 163 742 277
-------- -------- --------
Net cash (used) provided by investing (6,513) 44,094 (17,842)
activities
-------- -------- --------
Cash flows from financing activities:
Net increase in demand deposits, NOW and
savings accounts 9,780 19,794 6,050
Net maturities of certificates of deposit (9,461) (2,838) 425
Net (payments) proceeds from note payable (281) 1,500 -
Proceeds from sale of capital stock - 1,150 1,800
Retirement of preferred stock - (41) -
Cash dividends on preferred stock - (26) -
-------- -------- --------
Net cash provided by financing activities 38 19,539 8,275
-------- -------- --------
Net (decrease) increase in cash and cash equivalents (5,425) 67,813 (7,063)
Cash and cash equivalents at beginning of year 86,009 18,196 25,259
-------- -------- --------
Cash and cash equivalents at end of year $ 80,584 $ 86,009 $ 18,196
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------
The following is a summary of the significant accounting policies used by
Fidelity Resources Company and Subsidiaries (together referred to as Company) in
the preparation of its consolidated financial statements. These accounting
policies conform to generally accepted accounting principles and practices
generally followed within the banking industry. A description of the more
significant of these policies follows.
Organization
- ------------
On December 31, 1986, Fidelity Resources Company (Resources) acquired 95.61% of
the outstanding stock of Fidelity Bank, National Association (Bank). In
subsequent years, Resources acquired an additional 3.49% of the outstanding
stock of the Bank. During 1995, Resources acquired an additional 0.66% of the
outstanding stock of the Bank for a total ownership of 99.76%. On March 20,
1996, Fidelity Resources Company of Delaware, Inc. (Delaware) was formed.
Resources acquired 100% of the outstanding stock of Delaware in exchange for its
99.76% of the outstanding stock of the Bank. The accompanying consolidated
financial statements include the accounts of Resources, Delaware and the Bank.
All significant intercompany accounts and transactions have been eliminated.
Business
- --------
The Company provides a full range of banking services to individual and
corporate customers and is subject to competition from other local financial
institutions. Resources, Delaware and the Bank are also subject to the
regulations of certain federal agencies and undergo periodic examinations by
those regulatory authorities.
Use of Estimates
- ----------------
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period. Actual results could
differ significantly from those estimates.
F-8
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
Material estimates that are particularly susceptible to significant change in
the near-term relate to the determination of the allowance for loan losses and
valuation of other real estate owned. In connection with the determination of
the allowance for loan losses and valuation of other real estate owned,
management normally obtains independent appraisals for significant properties.
A significant portion of the Company's loans are secured by real estate in local
markets. In addition, other real estate owned is located in this same market.
Accordingly, the ultimate collectibility of a substantial portion of the
Company's loan portfolio and the recovery of the carrying amount of other real
estate owned are susceptible to changes in local market conditions.
The allowance for loan losses and losses on other real estate owned are
adequate. While management uses available information to recognize losses on
loans and other real estate owned, future provisions for losses on loans and
other real estate owned may be necessary based on changes in local economic
conditions. In addition, the Office of the Comptroller of the Currency (OCC),
as an integral part of its examination process, periodically reviews the Bank's
allowance for loan losses and losses on other real estate owned. The OCC may
require the Bank to record additional provisions for losses based on its
judgments about information available at the time of its examination.
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. Highly liquid investments with an initial
maturity less than ninety days are normally considered to be cash equivalents.
Securities Held to Maturity
- ---------------------------
Bonds, notes, and debentures for which the Company has the positive intent and
ability to hold to maturity are reported at cost, adjusted for premiums and
discounts that are recognized in interest income using the interest method over
the period to maturity.
Securities Available for Sale
- -----------------------------
Available for sale securities consist of bonds, notes, debentures, and certain
equity securities not classified as trading securities nor as held to maturity
securities.
Unrealized holding gains and losses, net of tax, on available for sale
securities, if any, are reported as a net amount in a separate component of
stockholders' equity until realized.
Gains and losses on the sale of available for sale securities are determined
using the specific identification method.
F-9
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
Declines in the fair value of individual held to maturity and available for sale
securities below their cost that are other than temporary, if any, would result
in write-downs of the individual securities to their fair value. The related
write-downs, if any, would be included in earnings as realized losses.
Premiums and discounts are recognized in interest income using the interest
method over the period to maturity.
Loans
- -----
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or pay-off are reported at their outstanding principal
balance adjusted for any charge-offs, the allowance for loan losses, and any
deferred fees or costs on originated loans.
Beginning in 1995, fees associated with originating loans to the extent they
exceed loan origination costs generally have been deferred and recognized over
the life of the related loans as an adjustment of the yield. For the year ended
December 31, 1994 fees and cost associated with originating loans were
recognized in the period in which the fees were received and costs were
incurred. For the year ended December 31, 1994, management believes that not
deferring all such fees and costs and amortizing them over the life of the
related loans does not materially affect the financial position or results of
operations of the Company.
Impaired loans, as defined by Statement of Financial Accounting Standards (SFAS)
114 and as amended by SFAS 118, are accounted for at the net present value of
expected future cash flows, discounted at the loan's effective interest rate,
the observable market price of the loan or at the fair value of the collateral
if the loan is collateral dependent.
The accrual of interest on impaired loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due. When
interest accrual is discontinued, all unpaid accrued interest is reversed.
Interest income is subsequently recognized only to the extent cash payments are
received.
In connection with the Total Asset Purchase and Assumption Acquisition of 1989
and the purchased loan pools discussed in note 5 of the financial statements,
for certain loans whose collection is probable and the amounts and timing of
collections are estimable, the Company amortizes the difference between the
acquisition amount and the estimated and probable future cash collections to
income over the life of the loan using the interest method. The amounts
amortized in 1996, 1995 and 1994 were approximately $410,000, $551,000 and
$754,000, respectively, and are included with interest income on loans in the
accompanying statement of income. In addition, certain acquired loans have been
recovered in amounts exceeding their recorded values. In 1996, 1995 and 1994,
the excess collections were approximately $394,000, $593,000 and $499,000,
respectively, and are included in other noninterest income in the accompanying
statement of income.
F-10
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
The allowance for loan losses is increased by charges to income and decreased by
charge-offs (net of recoveries). Management's periodic evaluation of the
adequacy of the allowance is based on the Company's past loan loss experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay, the estimated value of any underlying
collateral, and current economic conditions.
Bank Premises and Equipment
- ---------------------------
Bank premises and equipment are stated at cost less accumulated depreciation.
Provisions for depreciation and amortization are computed using the straight-
line method. Average useful lives used for depreciation and amortization with
respect to major classifications of property are as follows:
Buildings 25 to 30 years
Leasehold improvements Term of the lease
Furniture and equipment 5 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 accumulated 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 other noninterest
expense.
Federal Income Taxes
- --------------------
Resources and its subsidiaries file a consolidated federal income tax return.
Income taxes are allocated on a separate return basis.
Deferred tax assets and liabilities are reflected at currently enacted income
tax rates applicable to the period in which the deferred tax assets and
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
F-11
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
Employee Benefit Plans
- ----------------------
The Company has certain employee benefit plans which cover substantially all
employees. Contributions to the benefit plans are at the direction of the Board
of Directors and the amounts are determined by the Board of Directors.
Intangible Assets
- -----------------
Goodwill represents the excess of cost over assignable market values of tangible
assets of acquired banks or branches and is being amortized to expense over a
period of fifteen years on a straight line basis. Amortization expense charged
to operations for 1996, 1995 and 1994 was approximately $313,000, $223,000 and
$38,000, respectively.
Financial Instruments
- ---------------------
In the ordinary course of business the Company has entered into off-balance
sheet financial instruments consisting of commitments to extend credit,
commitments under credit card arrangements, commercial letters of credit, and
standby letters of credit. Such financial instruments are recorded in the
financial statements when they are funded or related fees are incurred or
received.
Fair Values of Financial Instruments
- ------------------------------------
The following methods and assumptions were used by the Company in estimating
fair values of financial instruments as disclosed herein:
Cash and short term instruments
The carrying amounts of cash and short term instruments approximate their fair
value.
Available for sale and held to maturity securities
Fair values for securities excluding restricted equity securities, are based
on quoted market prices. The carrying values of restricted equity securities
approximate fair values.
F-12
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
Loans
For variable-rate loans that reprice frequently and have no significant change
in credit risk, fair values are based on carrying values. Fair values for
certain mortgage loans (for example, one-to-four family residential), credit
card loans, and other consumer loans are based on quoted market prices of
similar loans sold in conjunction with securitization transactions, adjusted
for differences in loan characteristics. Fair values for commercial real
estate and commercial loans are estimated using discounted cash flow analyses,
using interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. Fair values for impaired loans are
estimated using discounted cash flow analyses or underlying collateral values,
where applicable.
Deposit liabilities
The fair values disclosed for demand deposits are, by definition, equal to the
amount payable on demand at the reporting date (that is, their carrying
amounts). The carrying amounts of variable-rate, fixed term money market
accounts and certificates of deposit (CD's) approximate their fair values at
the reporting date. Fair values for fixed-rate CD's are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated expected monthly
maturities on time deposits.
Notes payable
The carrying amounts of notes payable approximate their fair value.
Off-balance sheet instruments
Fair values for off-balance sheet lending commitments are based on fees
currently charged to enter into similar agreements taking into account the
remaining terms of the agreements and the counterparties' credit standings.
Earnings Per Share
- ------------------
Earnings per common and common equivalent share were computed by dividing net
income available to common shareholders 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 decreased by the number of shares
assumed purchased with proceeds upon exercise, at the estimated market price of
the common stock (book value).
F-13
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
Reclassification
- ----------------
Certain amounts previously reported have been reclassified to conform to the
current format.
2. ACQUISITIONS
------------
In May 1996, the Bank acquired certain assets and assumed certain liabilities of
two branches of United Bank and Trust. In February 1995, the Bank acquired,
through a merger transaction, 100% of the common stock of EastPark Bancshares,
Inc. In June 1995, the Bank purchased certain assets and assumed certain
liabilities related to the Lakewood Branch of Texas Community Bank. In July
1995, the Bank acquired, through a merger transaction, 100% of the assets and
liabilities of Interstate National Bank. The transactions have been accounted
for by the purchase method of accounting. The results of operations of the
acquired entities or branches are included in the accompanying financial
statements since the dates of acquisition.
F-14
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
A summary of the estimated market values of assets acquired and liabilities
assumed, prepared in accordance with Accounting Principles Board Opinion No. 16,
is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------ ------
Assets
- ------
<S> <C> <C>
Cash $ 256 $ 24,636
Federal funds sold 23,795 18,955
Securities - 13,854
Loans, net 19,449 61,231
Bank premises and equipment 1,196 3,071
Other 263 1,648
---------- ----------
Total assets 44,959 123,395
Liabilities
- -----------
Deposits 42,878 114,267
Other liabilities 2,790 620
---------- ----------
Total liabilities 45,668 114,887
---------- ----------
Other acquisition costs:
Payments to stockholders of acquired banks - 10,796
Other 79 1,393
---------- ----------
79 12,189
---------- ----------
Goodwill $ 788 $ 3,681
========== ==========
</TABLE>
Goodwill of approximately $788,000 and $3,681,000 for 1996 and 1995,
respectively, has been recorded in the accompanying consolidated balance sheet
and is being amortized to expense over a period of fifteen years on a straight
line basis.
F-15
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
3. STATEMENT OF CASH FLOWS
-----------------------
The Company reports on a net basis its cash receipts and cash payments for time
deposits accepted and repayments of those deposits, loans made to customers and
principal collections on those loans, and interest bearing deposits in other
banks.
The Company uses the indirect method to present cash flows from operating
activities. Supplemental information on cash flows and non-cash transactions
for the years ended December 31, 1996, 1995 and 1994 is as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Cash transactions:
Interest income received $ 20,717 $ 17,066 $ 9,310
======== ========= =======
Interest expense paid $ 7,643 $ 6,094 $ 2,870
======== ========= =======
Federal income taxes paid $ 2,112 $ 1,435 $ 50
======== ========= =======
Noncash transactions:
Net acquisition of other real estate owned $ 163 $ 177 $ 652
======== ========= =======
Change in unrealized appreciation
(depreciation) on available for sale
securities $ 12 $ 337 ($ 353)
======== ========= =======
Issuance of common stock in exchange for
stock of subsidiary held by related parties $ - $ 75 $ 198
======== ========= =======
Increase (decrease) in obligation of ESOP ($ 23) $ 94 $ 193
======== ========= =======
Transactions in connection with acquisitions,
as more fully discussed in Note 2:
Market value of tangible assets acquired
net of cash and cash equivalents $ 20,908 $ 98,759 $ -
Cash and cash equivalents 24,051 24,636 -
-------- --------- -------
Total tangible assets 44,959 123,395 -
-------- --------- -------
Liabilities assumed 45,668 114,887 -
Other acquisition costs 79 12,189 -
-------- --------- -------
Total acquisition costs 45,747 127,076 -
-------- ---------
Excess of cost over assignable market
values of tangible assets $ 788 $ 3,681 $ -
======== ========= =======
</TABLE>
F-16
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
4. INVESTMENT SECURITIES
---------------------
Debt and equity securities have been classified in the accompanying consolidated
balance sheet according to management's intent. The carrying amount of
securities and their approximate fair values at December 31, 1996 and 1995 are
as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Securities Available for Sale
- -----------------------------
December 31, 1996:
U.S. treasury securities $ 7,837 $ - $ 1 $ 7,836
Mortgage-backed securities
guaranteed by FNMA, FHLMC
and FHLB 5,305 13 40 5,278
Other 1,367 - - 1,367
-------- ------ ------ --------
Total available for sale $ 14,509 $ 13 $ 41 $ 14,481
======== ====== ====== ========
December 31, 1995:
U.S. government agency obligations $ 525 $ 36 $ - $ 561
Mortgage-backed securities
guaranteed by FNMA, FHLMC
and FHLB 5,572 31 83 5,520
Other 930 - - 930
-------- ------ ------ --------
Total available for sale $ 7,027 $ 67 $ 83 $ 7,011
======== ====== ====== ========
Securities Held to Maturity
- ---------------------------
December 31, 1996:
U.S. treasury securities $ 990 $ 1 $ - $ 991
U.S. government agency obligations 27,733 16 192 27,557
Mortgage-backed securities
guaranteed by FNMA, FHLMA
and FHLB 30,039 173 148 30,064
-------- ------ ------ --------
Total held to maturity $ 58,762 $ 190 $ 340 $ 58,612
======== ====== ====== ========
December 31, 1995:
U.S. treasury securities $ 2,474 $ 3 $ - $ 2,477
U.S. government agency obligations 9,992 46 - 10,038
Mortgage-backed securities
guaranteed by FNMA, FHLMA
and FHLB 27,448 383 27 27,704
-------- ------ ------ --------
Total held to maturity $ 39,914 $ 332 $ 27 $ 40,219
======== ====== ====== ========
</TABLE>
F-17
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
The scheduled maturities of securities available for sale and held to maturity
at December 31, 1996 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>
Available for Sale Held to Maturity
Amortized Market Amortized Market
Cost Value Cost Value
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Due in one year or less $ 7,837 $ 7,836 $ 5,990 $ 5,991
Due from one year to five years - - 12,724 12,685
Due from five years to ten years - - 4,009 3,967
Due after ten years - - 6,000 5,905
-------- -------- -------- --------
7,937 7,836 28,723 28,548
Mortgage-backed securities 5,305 5,278 30,039 30,064
Other 1,367 1,367 - -
-------- -------- -------- --------
Total $ 14,509 $ 14,481 $ 58,762 $ 58,612
======== ======== ======== ========
</TABLE>
Proceeds from sales of available for sale securities were approximately
$3,409,000, 13,134,000 and $3,359,000 during 1996, 1995 and 1994, respectively.
Losses of approximately $10,000 and $25,000 were recognized on these sales in
1995 and 1994, respectively. There were no gains or losses recognized during
1996.
No held to maturity securities were sold in 1996 or 1995. Proceeds from the
sale of one security designated as held to maturity in 1994 were approximately
$991,000. The date of sale was near maturity date and, therefore, market
interest rates had no significant effect on the security's fair value.
Securities with an amortized cost of approximately $8,826,000 and $2,474,000
were pledged to secure public fund deposits as required by law at December 31,
1996 and 1995, respectively.
F-18
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
5. LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
--------------------------------------------
Loans at December 31, 1996 and 1995 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Commercial and industrial $ 38,464 $ 30,807
Real estate - construction and development 9,135 3,987
Real estate - mortgage 84,334 74,462
Installment 3,387 5,160
Other 8,246 7,245
-------------- --------------
Total loans 143,566 121,661
Unearned income (580) (875)
Allowance for possible loan losses (581) (590)
-------------- --------------
Net loans $ 142,405 $ 120,196
============== ==============
</TABLE>
Included in loans in the accompanying balance sheet at December 31, 1996 and
1995 were approximately $24,671,000 and $32,754,000, respectively, of loan pools
purchased primarily from the Federal Deposit Insurance Corporation and the
Resolution Trust Corporation. Unamortized acquisition discounts applicable to
these loans totaled approximately $2,754,000 and $4,005,000 at December 31, 1996
and 1995, respectively. The loans are primarily collateralized by automobiles
and residential mortgages.
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 became effective for fiscal years beginning
after December 15, 1994.
F-19
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
Impairment of loans having recorded investments of approximately $161,000 and
$423,000 at December 31, 1996 and 1995, respectively, has been recognized in
conformity with SFAS 114 as amended by SFAS 118. The average recorded
investment in impaired loans during 1996 and 1995 was approximately $340,000 and
$177,000, respectively. The total allowance for loan losses related to these
loans was $31,000 and $25,000 at December 31, 1996 and 1995, respectively. No
interest income on impaired loans was recognized for cash payments received in
1996 or 1995.
Loans contractually delinquent 90 days or more which continued to accrue
interest totaled approximately $125,000 and $5,000 at December 31, 1996 and
1995, respectively.
An analysis of the allowance for possible loan losses for the years ended
December 31, 1996, 1995 and 1994 is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Balance at the beginning of the year $ 590 $ 379 $ 428
Provision charged to earnings 36 66 105
Loans charged to the allowance account (213) (167) (226)
Recoveries on loans previously charged-off 168 60 72
Additions due to acquisitions - 252 -
------ ------ ------
Balance at the end of the year $ 581 $ 590 $ 379
====== ====== ======
</TABLE>
6. BANK PREMISES AND EQUIPMENT
---------------------------
Bank premises and equipment at December 31, 1996 and 1995 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Land $ 3,368 $ 3,368
Buildings 3,408 2,258
Leasehold improvements 2,997 1,995
Furniture and equipment 3,893 2,591
Automobile 43 43
-------------- --------------
13,709 10,255
Less accumulated depreciation 3,447 2,598
-------------- --------------
$ 10,262 $ 7,657
============== ==============
</TABLE>
F-20
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
7. OTHER REAL ESTATE OWNED
-----------------------
Other real estate owned at December 31, 1996, 1995 and 1994 consisted of
foreclosed properties in the approximate amounts of $460,000, $569,000 and
$1,169,000, respectively.
For the three years ended December 31, 1996, management believed that the
carrying values of other real estate owned properties approximated their related
fair market values. Therefore, no allowance for possible losses on other real
estate was considered necessary.
8. DEPOSITS
--------
Deposits at December 31, 1996 and 1995 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
Amount Percent Amount Percent
--------------- ----------- --------------- ---------
<S> <C> <C> <C> <C>
Noninterest bearing demand
accounts $ 93,823 32.3% $ 75,804 30.7%
Interest bearing demand
accounts 115,334 39.7 97,797 39.5
Savings accounts 7,683 2.6 8,765 3.5
Certificates of deposit, less
than $100,000 41,495 14.3 42,707 17.3
Certificates of deposit,
$100,000 and greater 32,152 11.1 22,217 9.0
--------------- ----------- --------------- ---------
$ 290,487 100.0% $ 247,290 100.0%
=============== =========== =============== =========
</TABLE>
The weighted average interest rates on interest bearing deposits at December 31,
1996 and 1995 was approximately 3.3% and 3.7%, respectively.
F-21
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
9. NOTES PAYABLE
-------------
On January 24, 1995 the Company entered into a loan agreement in the amount of
$1,500,000 with an unaffiliated commercial bank. The outstanding balance of the
note was approximately $1,219,000 and $1,500,000 as of December 31, 1996 and
1995, respectively. The note bears interest at prime plus 1/2% and is payable
in nineteen quarterly installments of unpaid interest beginning July 15, 1995
and sixteen quarterly principal payments of $93,750 beginning April 15, 1996,
with all unpaid interest and principal due at maturity on January 17, 2000. The
loan is collateralized by the common stock of Resources and 99.76% of the
capital stock of the Bank.
In December 1994, the Company's Employee Stock Ownership Plan (Plan) entered
into a $500,000 loan agreement with an unaffiliated commercial bank. The
outstanding balance of the note was approximately $264,000, $287,000 and
$193,000 as of December 31, 1996, 1995 and 1994, respectively. The terms of the
agreement require the proceeds be used for the sole purpose of purchasing the
common stock of Fidelity Bank, National Association and/or Fidelity Resources
Company. The note bears interest at prime plus 1/2% and is payable in 63
consecutive monthly installments of unpaid interest beginning on January 31,
1995 and 59 equal consecutive principal payments of $2,479 (based on a ten year
payback beginning April 30, 1995), with all unpaid interest and principal due at
maturity on March 31, 2000.
The Plan has purchased, with the ESOP loan proceeds, 30,828 common shares of
Resources and 22,314 shares of the Bank's capital stock which was exchanged for
49,643 common shares of Resources. Collateral on the loan includes stock
purchased by the Plan as well as a cross pledge by Resources of 99.76% of the
capital stock of the Bank.
The scheduled maturities of the amounts borrowed as of December 31, 1996 are as
follows (in thousands):
Year Amount
---- ------
1997 $ 405
1998 405
1999 405
2000 268
2001 -
Thereafter -
------
$1,483
======
F-22
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
On January 10, 1997 the Plan borrowed an additional $350,000 under the ESOP loan
agreement and purchased 70,000 additional shares of Resources common stock.
Also on January 10, 1997, the Company borrowed an additional $1,150,000 and
purchased approximately 232,000 shares of Resources common stock which was
subsequently retired.
10. INCOME TAXES
------------
The provision for income tax expense for the years ended December 31, 1996, 1995
and 1994 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- ----
<S> <C> <C> <C>
Federal income tax expense:
Current tax expense $ 1,945 $ 1,539 $ 53
Deferred expense 19 381 934
------- ------- ------
Income tax expense $ 1,964 $ 1,920 $ 987
======= ======= ======
</TABLE>
The consolidated federal income tax expense for the years presented differs from
"expected" consolidated federal income tax expense for these years, computed by
applying the statutory U.S. federal corporate tax rate of 34% to income before
income tax expense, as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- ------
<S> <C> <C> <C>
Computed "expected" income tax expense $ 1,845 $ 1,859 $ 1,018
Increase (decrease) resulting from:
Nondeductible goodwill amortization 48 44 -
Other 71 17 (31)
------- ------- -------
$ 1,964 $ 1,920 $ 987
======= ======= =======
</TABLE>
F-23
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
Significant components of deferred income tax expense (benefit) for the years
ended December 31, 1996, 1995 and 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- ------
<S> <C> <C> <C>
Utilization of net operating loss and alternative
minimum tax credit carryovers $ - $ 373 $ 1,015
Provision for possible loan losses for books
less than (in excess of) tax bad debt deduction 3 101 (38)
Other real estate owned losses for books in
excess of tax (6) (4) (53)
Bank premises and equipment deductions
for books in excess of tax (15) (111) (1)
Other 37 22 11
------ ------ -------
$ 19 $ 381 $ 934
====== ====== =======
</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 return purposes. Significant
components of the Company's deferred tax assets and liabilities as of December
31, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Deferred tax assets:
Other real estate owned basis for tax in
excess of book $ 107 $ 101
Net unrealized loss on securities available
for sale 10 6
Bank premises and equipment basis for
tax in excess of book 55 40
Other 18 59
-------------- --------------
Total deferred tax assets 190 206
-------------- --------------
Deferred tax liabilities:
Book provision for loan losses less than
tax bad debt deduction 537 534
Other 31 35
-------------- --------------
Total deferred tax liabilities 568 569
-------------- --------------
Net deferred tax liability $ (378) $ (363)
============== ==============
</TABLE>
F-24
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
11. EMPLOYEE BENEFIT PLAN
---------------------
Effective January 1, 1994, the Company adopted an Employee Stock Ownership Plan
(Plan) covering substantially all employees that meet certain age and service
requirements. Contributions to the Plan are made at the discretion of the Board
of Directors, but may not be less than the amount required to enable the Plan to
discharge its current obligations. The Company made contributions of
approximately $67,000, $53,000 and $0 to the Plan during 1996, 1995 and 1994,
respectively.
12. INCENTIVE STOCK OPTIONS
-----------------------
The Company has granted options to purchase shares of the Company's common stock
to certain key employees of the Bank. The options were granted at a price equal
to the estimated market value of the stock at the date of the grant and may be
exercised on certain dates between 1995 and 2003. The options expire on various
dates through January 2003.
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ---------------- ----------------
<S> <C> <C> <C>
Outstanding, beginning of year 362,077 267,077 267,077
Granted during the year - 95,000 -
Canceled during the year - - -
Exercised during the year - - -
---------------- ---------------- ----------------
Outstanding, end of year (at prices ranging
from $1.00 to $3.30 per share) 362,077 362,077 267,077
================ ================ ================
Eligible, end of year for exercise currently 35,000 35,000 -
================ ================ ================
</TABLE>
13. PREFERRED STOCK
---------------
Effective February 20, 1995, Resources redeemed all of the 40,872 issued and
outstanding shares of preferred stock for $1.00 per share plus accrued unpaid
dividends.
14. FINANCIAL INSTRUMENTS
---------------------
The Company 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 and
to reduce its own exposure to fluctuations in interest rates. 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 consolidated balance sheet.
F-25
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
The Company'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 Company uses the same credit policies in making commitments
and conditional obligations as it does for on-balance sheet instruments. At
December 31, 1996 and 1995, the approximate amounts of these financial
instruments were as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit $ 26,426 $ 14,935
Credit card arrangements 1,478 1,386
Standby letters of credit 1,305 610
------------ ------------
$ 29,209 $ 16,931
============ ============
</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 Company evaluates each customer's
credit worthiness on a case-by-case basis. The amount of collateral obtained if
deemed necessary by the Company upon extension of credit is based on
managements' credit evaluation of the counterparty. Collateral held varies but
may include accounts receivable, inventory, property, single and family
residences, plant and equipment and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Company 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.
Although the maximum exposure to loss is the amount of such commitments,
management currently anticipates no material losses from these activities.
F-26
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
15. FINANCIAL INSTRUMENTS
---------------------
The estimated fair values of the Company's financial instruments at December 31,
1996 were as follows (in thousands):
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
------------ ------------
<S> <C> <C>
Financial Assets:
- ----------------
Cash, due from banks and interest bearing
deposits in other banks $ 44,234 $ 44,234
Federal funds sold 36,350 36,350
Investment securities 73,243 73,093
Loans, net 142,405 143,545
Financial Liabilities:
- ---------------------
Deposits $ 290,487 $ 290,887
Notes payable 1,483 1,483
Unrecognized Financial Instruments:
- ----------------------------------
Commitments $ - $ -
Standby letters and financial guarantees - -
</TABLE>
16. COMMITMENTS AND CONTINGENCIES
-----------------------------
The following is a schedule of future minimum rental payments required under
operating leases which have remaining noncancellable lease terms in excess of
one year as of December 31, 1996 (in thousands):
Year Amount
---- ------
1997 $ 834
1998 588
1999 537
2000 515
2001 437
Thereafter 1,068
------
$3,979
======
F-27
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
Rental expense for 1996, 1995 and 1994 was approximately $761,000, $582,000 and
$379,000, respectively. The above total minimum future rental payments have not
been reduced by approximately $93,000 of sublease rentals to be received in the
future under noncancellable subleases associated with two of the operating
leases. Rental income for 1996, 1995 and 1994 was approximately $105,000,
$95,000 and $79,000, respectively.
The Company is involved in certain legal actions arising from normal business
activities. Management anticipates that the outcome of such proceedings will
not materially affect the financial position or results of operations of the
Company.
17. RELATED PARTY TRANSACTIONS
--------------------------
In the ordinary course of business, the Company has and expects to continue to
have transactions, including borrowings, with its officers, directors and their
affiliates. 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 amounts of such loans
were approximately $1,918,000 and $1,476,000 at December 31, 1996 and 1995,
respectively. During 1996, approximately $1,188,000 of new loans were made and
repayments totaled approximately $746,000.
18. CONCENTRATIONS OF CREDIT
------------------------
The Company's loans, commitments and standby letters of credit have generally
been granted to customers in the Company's market area. Except for the acquired
loans, as discussed in note 5, the loan customers are normally depositors of the
Company. The concentrations of credit by type of loan are also set forth in
note 5. Standby letters of credit are granted primarily to commercial
borrowers. At December 31, 1996, the Company had federal funds sold aggregating
$36,350,000 to seven nonrelated commercial banks. At December 31, 1995, the
Company had federal funds sold aggregating $58,885,000 to three nonrelated
commercial banks.
F-28
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
19. REGULATORY MATTERS
------------------
Under federal banking law, there are legal restrictions limiting the amount of
dividends the Bank can declare. Approval of the OCC is required if dividends
declared exceed the net profits for that year combined with the retained net
profits for the two preceding years. The calculation of the amount available
for payment of dividends, under this formula, is based on the Bank's net profits
determined in accordance with regulatory accounting principles, reduced by the
amount of dividends declared. At January 1, 1997, the cumulative retained net
profits for the years ended 1996 and 1995 normally available for distribution by
the Bank as dividends would be approximately $7,329,000. However, these net
profits are subject to regulatory capital requirements and other factors that
substantially limit their distribution.
The Company and the Bank are subject to various regulatory capital requirements
administered by federal and state banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and the Bank must meet specific capital guidelines that involve
quantitative measures of assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. The capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk weighted assets (as defined), and of Tier I capital (as
defined) to average assets (as defined). As of December 31, 1996, the Company
and the Bank meet all capital adequacy requirements to which they are subject.
As of December 31, 1996, the most recent notification from the OCC categorized
the Bank as "well capitalized" under the regulatory framework for prompt
corrective action. To be categorized as "well capitalized" the Bank must
maintain minimum total risk based, Tier I risk based, and Tier I leverage ratios
as set forth in the table. There are no conditions or events since that date
that have changed the institution's category.
F-29
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
A comparison of the Bank's actual capital (Bank only) amounts and ratios to
required capital amounts and ratios is presented in the following table (dollars
in thousands).
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Adequacy Purposes Action Provisions
Actual ------------------ ------------------
----------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------ -------- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996:
Total capital (to risk weighted
assets) $ 18,186 11.1% $ 13,083 8.0% $ 16,354 10.0%
Tier I capital (to risk weighted
assets) 17,605 10.8 6,541 4.0 9,812 6.0
Tier I capital (to average assets) 17,605 5.8 12,238 4.0 15,248 5.0
December 31, 1995:
Total capital (to risk weighted
assets) $ 15,081 10.3% $ 11,721 8.0% $ 14,651 10.0%
Tier I capital (to risk weighted
assets) 14,491 9.9 5,860 4.0 8,791 6.0
Tier I capital (to average assets) 14,491 5.5 10,569 4.0 13,211 5.0
</TABLE>
A comparison of the Company's consolidated capital amounts and ratios to
required capital amounts and ratios is presented in the following table (dollars
in thousands):
<TABLE>
<CAPTION>
For Capital
Adequacy Purposes
Actual ------------------
---------------
Amount Ratio Amount Ratio
------ ------- -------- ------
<S> <C> <C> <C> <C>
December 31, 1996:
Total capital (to risk weighted assets) $ 16,355 10.4% $ 13,085 8.0%
Tier I capital (to risk weighted assets) 16,936 10.0 6,543 4.0
Tier I capital (to average assets) 16,936 5.3 12,239 4.0
December 31, 1995:
Total capital (to risk weighted assets) $ 13,959 10.2% $ 10,921 8.0%
Tier I capital (to risk weighted assets) 13,369 9.8 5,461 4.0
Tier I capital (to average assets) 13,369 4.4 12,064 4.0
</TABLE>
F-30
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
20. SUPPLEMENTARY INCOME AND EXPENSE INFORMATION
--------------------------------------------
The following amounts are included in other noninterest income and noninterest
expense in the accompanying consolidated statements of income for the three
years ended December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Noninterest income
- ------------------
Recognition of discounts on paid
FDIC/RTC loans $ 403 $ 426 $ 130
Other fee income 555 746 745
All other 7 - -
------- ------- -------
$ 965 $ 1,172 $ 875
======= ======= =======
Noninterest expense
- -------------------
Data processing $ 590 $ 506 $ 339
Business development 418 194 128
Legal and professional 400 294 289
Communications 377 280 204
Amortization of intangible assets 322 230 43
Taxes 179 292 156
Supplies 173 191 91
FDIC insurance 2 190 223
All other 691 541 393
------- ------- -------
$ 3,152 $ 2,718 $ 1,866
======= ======= =======
</TABLE>
F-31
<PAGE>
FIDELITY RESOURCES COMPANY
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
F-32
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
Consolidated Balance Sheet
September 30, 1997 and 1996 (Unaudited)
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
ASSETS 1997 1996
- ------ ---- ----
<S> <C> <C>
Cash and due from banks $ 24,991 $ 20,963
Interest bearing deposits in other banks 5,745 7,362
Federal funds sold 18,640 30,610
-------- --------
Total cash and cash equivalents 49,376 58,935
Securities available for sale (at market value) 20,552 10,461
Securities held to maturity (market values of $74,978 and $74,566
at September 30, 1997 and 1996, respectively) 73,284 75,255
Loans, net of allowance for loan losses and unearned income of
$1,386 and $970 at September 30, 1997 and 1996, respectively 157,570 143,322
Bank premises and equipment, net 9,656 10,368
Other real estate owned, net 408 526
Goodwill 4,293 4,543
Other assets 2,821 2,606
-------- --------
Total assets $317,960 $306,016
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits:
Noninterest bearing $ 92,522 $ 79,777
Interest bearing 196,406 202,386
-------- --------
Total deposits 288,928 282,163
Repurchase agreements 2,000 -
Other liabilities 1,464 1,584
Notes payable 3,009 2,345
Minority interest in subsidiary 60 50
Commitments and contingencies - -
-------- --------
Total liabilities 295,461 286,142
Stockholders' equity:
Preferred stock, $1.00 par value; 5,000,000 shares authorized,
none issued and outstanding - -
Common stock, $.10 par value; 95,000,000 shares authorized, 3,066,119
and 3,297,782 issued and outstanding at September 30, 1997 and 1996,
respectively 307 330
Paid-in capital 9,495 9,831
Retained earnings 13,256 10,011
Obligation under ESOP (565) (271)
Unrealized appreciation (depreciation) on securities available for sale,
net of tax of $4 and $15 at September 30, 1997 and 1996, respectively 6 (27)
-------- --------
Total stockholders' equity 22,499 19,874
-------- --------
Total liabilities and stockholders' equity $317,960 $306,016
======== ========
</TABLE>
See accompanying selected notes.
F-33
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
Consolidated Statement of Income
For the Nine Months Ended September 30, 1997 and 1996 (Unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Interest income:
Interest and fees on loans $ 11,300 $ 9,863
Interest on deposits in other banks 147 243
Interest on federal funds sold 650 1,743
Interest and dividends on investment securities:
Taxable 4,581 3,419
Nontaxable - -
--------- ---------
Total interest income 16,678 15,268
Interest expense on deposit accounts (including interest expense on
certificates of deposit of $100,000 and over of $1,158 and $1,390
in 1997 and 1996, respectively) 5,541 5,680
Interest expense on notes payable and other borrowings 223 94
--------- ---------
Total interest expense 5,764 5,774
--------- ---------
Net interest income 10,914 9,494
Provision for possible loan losses 356 4
--------- ---------
Net interest income after provision for possible loan losses 10,558 9,490
--------- ---------
Noninterest income:
Service charges on deposit account 1,099 1,071
Other 981 678
--------- ---------
Total noninterest income 2,080 1,749
--------- ---------
Noninterest expense:
Salaries and employee benefits 3,902 3,348
Occupancy of bank premises 1,659 1,499
Other 2,366 2,371
--------- ---------
Total noninterest expense 7,927 7,218
--------- ---------
Income before income tax expense and minority interest in income
of subsidiary 4,711 4,021
Minority interest in income of subsidiary (7) (7)
--------- ---------
Income before income tax expense 4,704 4,014
Income tax expense 1,565 1,455
--------- ---------
Net income $ 3,139 $ 2,559
========= =========
Weighted average common and common equivalent shares outstanding 3,348,898 3,553,709
========= =========
Primary and fully diluted earnings per common and common equivalent share $ .94 $ .72
========= =========
</TABLE>
See accompanying selected notes.
F-34
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholders' Equity
For the Nine Months Ended September 30, 1997 and 1996 (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Preferred Common Paid-In Retained
Stock Stock Capital Earnings
--------- ------ ------- --------
<S> <C> <C> <C> <C>
Balance January 1, 1996 $ - $330 $9,831 $ 7,453
Obligation of ESOP - - - -
Net income - - - 2,559
Net changes in unrealized depreciation on
securities available for sale - - - -
---- ---- ------ -------
Balance September 30, 1996 $ - $330 $9,831 $10,011
==== ==== ====== =======
Balance January 1, 1997 $ - $330 $9,831 $10,916
Repurchase of stock - (23) (356) (799)
Obligation of ESOP - - - -
Net income - - - 3,139
Net changes in unrealized depreciation on
securities available for sale - - - -
---- ---- ------ -------
Balance September 30, 1997 $ - $307 $9,495 $13,256
==== ==== ====== =======
</TABLE>
<TABLE>
<CAPTION>
Net Unrealized
Appreciation
(Depreciation) on
Obligation Securities Available
of ESOP For Sale Total
---------- -------- -----
<S> <C> <C> <C>
Balance January 1, 1996 $(287) $(11) $17,316
Obligation of ESOP 16 - 16
Net income - - 2,559
Net changes in unrealized depreciation on
securities available for sale - (16) (16)
----- ---- -------
Balance September 30, 1996 $(271) $(27) $19,874
===== ==== =======
Balance January 1, 1997 $(264) $(18) $20,795
Repurchase of stock - - (1,158)
Obligation of ESOP (301) - (301)
Net income - - 3,139
Net changes in unrealized depreciation on
securities available for sale - 24 24
----- ---- -------
Balance September 30, 1997 $(565) $ 6 $22,499
===== ==== =======
</TABLE>
See accompanying selected notes.
F-35
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
Consolidated Statement of Cash Flows
For the Nine Months Ended September 30, 1997 and 1996 (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities, net of effect of purchase transactions:
Net Income $ 3,139 $ 2,559
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation, amortization and accretion 192 458
Provision for loan losses 356 4
Loss (gain) on sale of other real estate (17) 8
Net change in other assets and other liabilities (16) (2,455)
-------- --------
Net cash provided by operating activities 3,654 574
-------- --------
Cash flows from investing activities:
Proceeds from sales or maturities of available for sale securities 10,672 --
Proceeds from sales or maturities of held to maturity securities 34,963 2,008
Purchase of available for sale securities (14,965) (3,466)
Purchase of held to maturity securities (51,031) (37,276)
Net loans collected (originated or acquired) (14,955) (3,492)
Proceeds from acquisition of banks -- 24,051
Payments to stockholders of acquired banks and other acquisition costs -- (79)
Purchase of premises and equipment (106) (2,126)
Proceeds from sale or other real estate owned 52 163
-------- --------
Net cash used by investing activities (35,370) (20,217)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in demand deposits, NOW and savings accounts 636 (20,753)
Net increase in (maturities of) certificates of deposit (195) 12,748
Net proceeds from note payable 1,225 574
Payment to repurchase capital stock (1,158) --
-------- --------
Net cash provided (used) by financing activities 508 7,431
-------- --------
Net decrease in cash and cash equivalents (31,208) (27,074)
Cash and cash equivalents at beginning of period 80,584 86,009
-------- --------
Cash and cash equivalents at end of period $ 49,376 $ 58,935
======== ========
</TABLE>
See accompanying selected notes.
F-36
<PAGE>
FIDELITY RESOURCES COMPANY AND SUBSIDIARIES
Selected Notes to Consolidated Financial Statements
September 30, 1997 and 1996 (Unaudited)
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited interim financial statements as of and for the nine
month periods ended September 30, 1997 and 1996, 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 to 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, 1997 and 1996 (unaudited) is as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash transactions:
Interest income received $16,800 $14,705
======= =======
Interest expense paid $ 5,581 $ 5,830
======= =======
Federal income taxes paid $ 2,301 $ 1,518
======= =======
Noncash transactions:
Net acquisitions of other real estate owned $ -- $ 128
======= =======
Net unrealized loss of securities available
for sale $ 7 $ 27
======= =======
</TABLE>
F-37
<PAGE>
APPENDIX I
MERGER AGREEMENT
<PAGE>
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
-----------------------------------------
This Amendment to Agreement and Plan of Merger (this "Amendment") dated as
of October 30, 1997 is entered into by and among Compass Bancshares, Inc.
("Compass"), Compass Banks of Texas, Inc. ("CBOT") and Fidelity Resources
Company (the "Company").
WHEREAS, Compass and the Company entered into an Agreement and Plan of
Merger dated as of October 10, 1997 (the "Merger Agreement");
WHEREAS, the Merger Agreement requires that an existing or new subsidiary
of Compass shall be merged with the Company, with the existing or new subsidiary
being the surviving entity;
WHEREAS, CBOT is such existing or new subsidiary;
WHEREAS, Section 8.3 of the Merger Agreement requires Compass and the
Company to amend the Merger Agreement for the purpose of making CBOT a party
thereto; and
WHEREAS, the parties desire to otherwise amend the Merger Agreement;
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, CBOT 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.
4. The execution of this Amendment shall not relieve Compass of its
obligations under the Merger Agreement.
5. Except as herein provided, the terms of the Merger Agreement
shall remain in full force and effect.
6. 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.
<PAGE>
[SIGNATURE PAGE FOLLOWS]
2
<PAGE>
IN WITNESS WHEREOF the parties have executed this Amendment as of the date
first written above.
ATTEST: COMPASS BANCSHARES, INC.
By: /s/ Daniel B. Graves By: /s/ Garrett R. Hegel
------------------------------ -----------------------------------
Its: Assistant Secretary Its: Treasurer
ATTEST: COMPASS BANKS OF TEXAS, INC.
By: /s/ Daniel B. Graves By: /s/ Garrett R. Hegel
------------------------------ ------------------------------------
Its: Assistant Secretary Its: Treasurer
ATTEST: FIDELITY RESOURCES COMPANY
By: /s/ Virginia L. Anderson By: /s/ William C. Murphy
------------------------------ -------------------------------------
Its: Secretary Its: President
3
<PAGE>
AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger ("Agreement") dated as of October 10, 1997, by
and among Compass Bancshares, Inc. a Delaware Corporation ("Compass"), and
Fidelity Resources Company, a Texas Corporation (the "Company").
Whereas, the Company is a registered bank holding company under the Bank
Holding Company Act ("BHCA") which controls Fidelity Bank National Association
(the "Bank"), a national banking association;
Whereas, the Company owns all of the issued and outstanding capital stock
of Fidelity Resources Company of Delaware ("FRCD"), a registered bank holding
company under the BHCA;
Whereas FRCD owns all except 3,531 common shares of the issued and
outstanding capital stock of Bank (the "Minority Shares");
Whereas, Compass desires to affiliate with the Company, FRCD, and the Bank
and the Company, FRCD 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 an existing or to be formed subsidiary
("Compass Texas") of Compass incorporated under the laws of the State of
Delaware to be added as a party to this Agreement after the date hereof in the
manner provided by, and subject to the terms and conditions set forth in, this
Agreement and all exhibits, schedules and supplements hereto is desirable and in
the best interests of their respective institutions and shareholders; and
Whereas, the respective boards of directors of the 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 Compass Texas (the "Merger") as soon as
practicable following the satisfaction or waiver, if permissible, of
<PAGE>
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").
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 Bylaws. The Certificate of
Incorporation and the Bylaws of Compass Texas, in each case as in effect at the
Effective Time, shall be the Certificate of Incorporation and Bylaws 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 Bylaws 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" or "Shares"),
issued and outstanding immediately prior to the Effective Time ("Common Shares
Outstanding"), 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. At the Closing the Company shall calculate and
certify to Compass the Common Shares Outstanding.
(b) (i) Subject to Subsections (ii) and (iii) below, in consideration for
the Merger, Compass will issue to the holders of the Shares, in the aggregate,
1,800,000 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").
2
<PAGE>
(ii) In the event that the average closing sale price of the Compass Common
Stock as reported by the NASDAQ National Market System for the twenty (20) days
of trading preceding the tenth (10th) 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")
falls below $34.00 per share, Compass shall agree to issue a number of shares of
Compass Common Stock equal to the quotient of $61,200,000 (the "Target Price")
divided by the Share Determination Value.
(iii) 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 1,800,000, Compass shall either (y) terminate this Agreement (the
"Compass Pricing Termination Option") by written notice to the Company within
ten (10) 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 1,800,000. Such Company Termination
Rejection shall be exercised by a notice to Compass within five (5) 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 (10) business day period. In the event that the
Company fails to notify Compass of its exercise of the Company Termination
Rejection within the five (5) 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 (1) business day
period, this Agreement shall be terminated.
(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 (i), (ii), (iii) and the dollar amount per share set forth in
Subsection (ii) 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.
(d) Each share of capital stock of Compass Texas issued and outstanding
immediately before the Effective Time shall not be converted or exchanged by
virtue of the Merger and shall remain outstanding as one share of capital stock
of the Surviving Corporation.
3
<PAGE>
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;
(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 thirty (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, but no earlier than January 1, 1998, 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 Houston, Texas (or such other place as the parties may agree) for the
purpose of confirming all of the foregoing.
4
<PAGE>
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 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
Continental Stock Transfer & Trust Company, New York, New York (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. The Exchange Fund shall
not be used for any other purpose, except as provided in this Agreement.
(b) Promptly after the Effective Time, the Exchange Agent shall mail to
each record holder of an outstanding certificate or certificates which as of the
Effective Time represented Shares (the "Certificates"), a form letter of
transmittal approved by the 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
5
<PAGE>
of Compass Common Stock until the holder's Shares are surrendered in exchange
therefor. If payment or delivery of Compass Common Stock is to be made to a
person other than the person in whose name the Certificate surrendered is
registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment and delivery of Compass Common Stock to
a person other than the registered holder of the Certificate surrendered or
establish to the satisfaction of the Surviving Corporation that such tax has
been paid or is not applicable. Until surrendered in accordance with the
provisions of this Section 2.2., each Certificate (other than Certificates
representing Dissenting Shares) shall represent for all purposes the right to
receive the Merger Consideration without any interest thereon.
(c) After the Effective Time, the stock transfer ledger of the Company
shall be closed and there shall be no transfers on the stock transfer books of
the Company of the Shares which were outstanding immediately prior to such time
of filing. If, after the Effective Time, Certificates are presented to the
Surviving Corporation, they shall be promptly presented to the Exchange Agent
and exchanged as provided in this Article II.
(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 (6) 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 has delivered to Compass the Schedules
to this Agreement referred to in this Article III prior to 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 FRCD is a Delaware Corporation and both the Company and FRCD are
bank holding companies under the Bank Holding Company Act of 1956, as amended,
and are duly organized, validly existing and in good standing under the laws of
the State of Texas, the State of Delaware, respectively, and all laws, rules and
regulations applicable to bank holding companies. The Company and FRCD are
subject to the supervision of the Board of Governors of the Federal Reserve
System (the "FRB"). The Bank is a national banking association, duly organized,
validly existing and in good standing under the laws of the United States. Each
of the Company and its Subsidiaries (as defined in Section 10.13.(a)) 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.
6
<PAGE>
The Company does not own or control any Affiliate (as defined in Section 3.17.)
other than FRCD and the Bank. True and correct copies of the Articles of
Incorporation or Association and Bylaws of the Company and its Subsidiaries,
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 under the State of Texas. The nature of the
business of the Company and its Subsidiaries 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 and the State of Delaware.
Section 3.2. Company Capitalization. As of the date hereof, the
authorized capital stock of the Company consists solely of 95,000,000 shares of
Company Common Stock, of which 3,066,119 shares are issued and outstanding
362,077 shares of which are subject to options, and none of which are held in
treasury. Except as set forth in Schedule 3.2., there are no outstanding
subscriptions, options, convertible securities, rights, warrants, calls, or
other agreements or commitments of any kind issued or granted by, or binding
upon, the Company or its Subsidiaries to purchase or otherwise acquire any
security of or equity interest in the Company or its Subsidiaries. Except 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. Subsidiary Capitalization; Other Securities. All of the
issued and outstanding shares of the capital stock of the Company's Subsidiaries
(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, through FRCD indirectly 99.763% 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 its Subsidiaries for the account
of the Company or its Subsidiaries in any other person other than the Bank (the
"Other Securities"). The Company or its Subsidiaries own each Other Security
free and clear of any lien, encumbrance, security interest or charge. The Other
Securities represent less than five percent of the outstanding equity securities
of each such person.
The authorized capital stock of FRCD consists solely of 10,000 shares of
FRCD common stock, $0.01 par value, of which 1,000 shares are issued and
outstanding. All 1,000 shares are owned by the Company and there are no options
or other agreements related to any security or equity interest in FRCD.
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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 in 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 Bylaws of the Company or
its Subsidiaries or any agreement, document or instrument by which the Company,
FRCD or the Bank is obligated or bound.
Section 3.5. No Violation. Except as set forth on Schedule 3.5., neither
the execution, delivery nor performance of this Agreement in its entirety, nor
the consummation of all of the transactions contemplated hereby, following the
receipt of such approvals as may be required from the Company's shareholders,
the SEC, the Federal Deposit Insurance Corporation ("FDIC"), the FRB, Banking
Commissioner of Texas ("Commissioner") or the Office of the Comptroller of the
Currency ("OCC") will (i) violate (with or without the giving of notice or the
passage of time), any law, order, writ, judgment, injunction, award, decree,
rule, statute, ordinance or regulation applicable to the Company or its
Subsidiaries or (ii) be in conflict with, result in a breach or termination of
any provision of, cause the acceleration of the maturity of any debt or
obligation pursuant to, constitute a default (or give rise to any right of
termination, cancellation or acceleration) under, or result in the creation of
any security interest, lien, charge or other encumbrance upon any property or
assets of the Company or its Subsidiaries pursuant to, any terms, conditions or
provisions of any note, license, instrument, indenture, mortgage, deed of trust
or other agreement or understanding or any other restriction of any kind or
character, to which the Company or its Subsidiaries 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 its Subsidiaries, threatened, against the Company, its Subsidiaries
or involving the Shares, at law or in equity or before or by any foreign,
federal, state, municipal or other governmental court, department, commission,
board, bureau, agency, instrumentality or other person which may result in
liability to Compass 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 its Subsidiaries will not be terminated or impaired
by reason of the execution, delivery or performance by the Company of this
Agreement or consummation by the Company of the transactions contemplated
hereby, assuming the receipt of required shareholder and regulatory approvals.
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Section 3.6. Consents and Approvals. The Company's Board of Directors
(at a meeting called and duly held) has unanimously determined that the Merger
is fair to the Company's shareholders and has unanimously 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 its
Subsidiaries, 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 Commissioner and holders of Shares under the
TBCA.
Section 3.7. Regulatory Reports. Except as set forth on Schedule 3.7.,
the Company and its Subsidiaries have filed all reports, registrations and
statements, together with any amendments required to be made thereto, that are
required to be filed with the FRB, the OCC, the FDIC, or any other regulatory
authority having jurisdiction over any such persons.
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 its Subsidiaries have been registered under the Securities
Act, the Securities Act of the State of Texas, the National Bank Act, 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 its Subsidiaries as of December 31, 1996, and the
related consolidated statements of income, shareholders' equity and changes in
cash flows for the years ended December 31, 1996 and 1995, plus consolidating
financial statements of the Company's Subsidiaries, and the consolidated
statements of financial position of the Company and its Subsidiaries as of March
31 and June 30 1997 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, 1997 and 1996, and promptly following their
availability the Company will provide Compass with the Company's audited
consolidated statement of financial position of the Company and its Subsidiaries
as of December 31, 1997 and the related consolidated statements of income,
shareholders' equity and changes in cash flow for the year ended December 31,
1997 (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 its Subsidiaries
(collectively, with the Consolidated Financial Statements and the notes and
schedules thereto, referred to as the "Financial Statements"). Except as
described in the notes to the Consolidated 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 its Subsidiaries, fairly present the financial
position of the Company and its Subsidiaries as of the dates thereof and the
results of operations and changes in consolidated financial position of the
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Company and its Subsidiaries for the periods then ended, in conformity with
Generally Accepted Accounting Principles ("GAAP") applied on a basis consistent
with prior periods (subject, in the case of the unaudited interim financial
statements, to normal year-end adjustments and the fact that they do not contain
all of the footnote disclosures required by GAAP), except as otherwise noted
therein, and the accounting records underlying the Consolidated Financial
Statements accurately and fairly reflect in all material respects the
transactions of the Company and its Subsidiaries. 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 OCC and the FDIC. Neither the Company nor its Subsidiaries have
any liabilities or obligations of a type which should be included in or
reflected on the Financial Statements if prepared in accordance with GAAP,
whether related to tax or non-tax matters, accrued or contingent, due or not yet
due, liquidated or unliquidated, or otherwise, except as and to the extent
disclosed or reflected in the Financial Statements. The Company will provide
Compass with the unaudited consolidated and unconsolidated statements of
financial position of the Company and its Subsidiaries as of the end of each
month hereafter, prepared on a basis consistent with prior periods and promptly
following their availability, the Company will provide Compass with the Reports
of Condition and Statements of Income ("Call Reports") of its Subsidiaries for
all periods ending after June 30, 1997. The Company and its Subsidiaries 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 August 31, 1997 (the "Balance Sheet Date") neither
the Company nor any of its Subsidiaries has:
(a) Made any amendment to its Articles of Incorporation or Association or
Bylaws or changed the character of its business in any material manner;
(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;
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(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 1997/1998 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,
program or agreement maintained by the Company or its Subsidiaries, for the
directors, employees or former employees of the Company or its Subsidiaries
("Employee Benefit Plan");
(i) Directly or indirectly declared, set aside or paid any dividend or
made any distribution in respect to its capital stock or redeemed, purchased or
otherwise acquired, or arranged for the redemption, purchase or acquisition of,
any shares of its capital stock or other of its securities, except for dividends
paid to the Company by its Subsidiaries;
(j) Organized or acquired any capital stock or other equity securities or
acquired any equity or ownership interest in any person (except through
settlement of indebtedness, foreclosure, the exercise of creditors' remedies or
in a fiduciary capacity, the ownership of which does not expose the Company or
its Subsidiaries to any liability from the business, operations or liabilities
of such person);
(k) Issued, reserved for issuance, granted, sold or authorized the
issuance of any shares of its capital stock or subscriptions, options, warrants,
calls, rights or commitments of any kind relating to the issuance or sale of or
conversion into shares of its capital stock;
(l) Made any or acquiesced with any change in any accounting methods,
principles or practices;
(m) Experienced any material adverse change in relations, in the
aggregate, with customers or clients of the Company or its Subsidiaries;
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(n) Except for the transactions contemplated by this Agreement or as
otherwise permitted hereunder, entered into any transactions, 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, other than deposits
("Company Indebtedness"), and made available to Compass all material
correspondence concerning the status of Company Indebtedness.
Section 3.12. Litigation. Except as set forth on Schedule 3.12., there
are no actions, suits, claims, investigations, reviews or other proceedings
pending or, to the knowledge of the Company or its Subsidiaries, threatened
against the Company or any of its Subsidiaries 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,
commissions, board, bureau, agency, or other instrumentality or person or any
board of arbitration or similar entity ("Proceeding"). The Company will notify
Compass immediately in writing of any Proceedings against the Company or its
Subsidiaries.
Section 3.13. Tax Matters. The Company and its Subsidiaries have duly
filed all tax returns required to be filed by them involving a tax liability or
other material potential detriment for failure to file (the "Filed Returns").
The Company and its Subsidiaries have paid, or have established adequate
reserves for the payment of, all federal income taxes and all state and local
income taxes and all franchise, property, sales, employment, foreign or other
taxes required to be paid with respect to the periods covered by the Filed
Returns. With respect to the periods for which returns have not yet been filed,
the Company and its Subsidiaries have established adequate reserves determined
in accordance with GAAP for the payment of all federal income taxes and all
state and local income taxes and all franchise, property, sales, employment,
foreign or other taxes. Except as described in Schedule 3.13., the Company and
its Subsidiaries have no direct or indirect liability for the payment of federal
income taxes, state and local income taxes, and franchise, property, sales,
employment or other taxes in excess of amounts paid or reserves established.
Except as set forth on Schedule 3.13., the Company has not entered into any tax
sharing agreement or other agreement regarding the allocation of the tax
liability of the Company or the Bank or similar arrangement with its other
Subsidiaries. Set forth on Schedule 3.13. are the dates of filing of all Filed
Returns for all fiscal years since and including January 1, 1991 and any
amendments thereto which relate to federal or state income or franchise taxes.
Neither the Company nor its Subsidiaries 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 its
Subsidiaries, nor are there any outstanding
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agreements or waivers extending the statutory period of limitation applicable to
any tax return of the Company or its Subsidiaries for any period. The Company
and its Subsidiaries 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 and programs in which employees of the Company or its Subsidiaries
participate the following are true and correct:
(a) Schedule 3.14.(a) lists each "employee welfare benefit plan" (as
defined in Section 3(1) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) maintained by the Company or its Subsidiaries or to which
the Company or its Subsidiaries contribute or are required to contribute,
including any multiemployer welfare plan (such employee welfare benefit plans
being hereinafter collectively referred to as the "Welfare Benefit Plans") and
sets forth (i) the amount of any liability of the Company or its Subsidiaries
for contributions more than thirty (30) days past due with respect to each
Welfare Benefit Plan as of the date hereof and as of the end of any subsequent
month ending prior to the Closing and (ii) the annual cost attributable to each
of the Welfare Benefit Plans; no Welfare Benefit Plan provides for continuing
benefits or coverage for any participant, beneficiary or former employee after
such participant's or former employee's termination of employment except as may
be required by Section 4980B of the Code and Sections 601-608 of ERISA;
(b) Schedule 3.14.(b) lists each "employee pension benefit plan" (as
defined in Section 3(2) of ERISA and not exempted under Section 4(b) or 201 of
ERISA) maintained by the Company or its Subsidiaries or to which the Company or
its Subsidiaries contribute or are required to contribute, including any
multiemployer plan (as defined in Section 3(37) of ERISA) (such employee pension
benefit plans being hereinafter collectively referred to as the "Pension Benefit
Plans");
(c) Schedule 3.14.(c) lists each deferred compensation plan, bonus plan,
stock option plan, employee stock purchase plan, restricted stock, excess
benefit plan, incentive compensation, stock bonus, cash bonus, severance pay,
golden parachute, life insurance, all nonqualified deferred compensation
arrangements, rabbi trusts, cafeteria plans, dependent care plans, all unfunded
plans and any other employee benefit plans or programs, agreements, arrangements
or commitments not required under a previous subsection to be listed (other than
normal policies concerning holidays, vacations and salary continuation during
short absences for illness or other reasons) maintained by the Company or its
Subsidiaries (referred to as ("Other Programs");
(d) All of the Pension Benefit Plans and Welfare Benefit Plans and any
related trust agreements or annuity contracts (or any other funding instruments)
and all Other Programs comply currently, and have complied in the past, both as
to form and operation, with the provisions of
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ERISA, the Code and with all other applicable laws, rules and regulations
governing the establishment and operation of the Pension Benefit Plans, Welfare
Benefit Plans and all Other Programs; all necessary governmental approvals
relating to the establishment of the Pension Benefit Plans have been obtained;
and, except as set forth on Schedule 3.14.(d), 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, without limitation,
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;
(e) Each Welfare Benefit Plan, each Pension Benefit Plan and each Other
Program has been administered in compliance with the requirements of the Code,
ERISA and all other applicable laws, and all reports and disclosures required by
ERISA, the Code and any other applicable laws with respect to each Welfare
Benefit Plan, each Pension Benefit Plan and each Other Program have been timely
filed;
(f) On and after January 1, 1975, neither the Company, any Company
Subsidiary nor any plan fiduciary of any Welfare Benefit Plan or Pension Benefit
Plan has engaged in any transaction in violation of Section 406 of ERISA (for
which transaction no exemption exists under Section 408 of ERISA) or in any
"prohibited transaction" as defined in Section 4975(c)(1) of the Code (for which
no exemption exists under Section 4975(c)(2) or 4975(d) of the Code);
(g) Neither the Company, its Subsidiaries 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 (5) 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, any Company
Subsidiary 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 any Company
Subsidiary 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, each Pension
Benefit Plan and each Other Program, related trust agreements or annuity
contracts (or any other funding instruments), summary plan descriptions, the
most recent determination letter issued by the Internal Revenue Service with
respect to each Pension Benefit Plan, the most recent application for a
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determination letter from the Internal Revenue Service with respect to each
Pension Benefit Plan and Annual Reports on Form 5500 Series filed with any
governmental agency for each Welfare Benefit Plan, Pension Benefit Plan and
Other Program for the two (2) most recent plan years, have been furnished to
Compass;
(i) All Welfare Benefit Plans, Pension Benefit Plans, and Other Programs
related trust agreements or annuity contracts (or any other funding
instruments), are legally valid and binding and in full force and effect and
there are no promised increases in benefits (whether expressed, implied, oral or
written) under any of these plans nor any obligations, commitments or
understandings to continue any of these plans, (whether expressed, implied, oral
or written) except as required by Section 4980B of the Code and Sections 601-608
of ERISA;
(j) There are no claims pending with respect to, or under, any Pension
Benefit Plan, Welfare Benefit Plan or any Other Program, other than routine
claims for plan benefits, and there are no disputes or litigation pending or
threatened with respect to any such plans;
(k) No action has been taken, nor has there been a failure to take any
action that would subject any person or entity to any liability for any income,
excise or other tax or penalty in connection with any Pension Benefit Plan,
Welfare Benefit Plan or any Other Program, other than for income taxes due with
respect to benefits paid; and
(l) Except as otherwise set forth in Schedule 3.14.(l), neither the
execution and delivery of this Agreement nor the consummation of the transaction
contemplated hereby will (i) result in any payment to be made by the Company or
any Company Subsidiary (including, without limitation, severance, unemployment
compensation, golden parachute (defined in Section 280G of the Code), or
otherwise) becoming due to any employee, director or consultant, or (ii)
increase any benefits otherwise payable under any Welfare Benefit Plan, Pension
Benefit Plan, or any Other Program.
Section 3.15. Employment Matters. Except as disclosed on Schedule 3.15.,
neither the Company nor any Company Subsidiary 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 any Company Subsidiary 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 any Company Subsidiary, nor of any strikes, slowdowns, work
stoppages, lockouts, or threats thereof, by or with respect to any such
employees. The Company and its Subsidiaries are in compliance in all material
respects with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, and neither
the Company nor its Subsidiaries are engaged in any unfair labor practice.
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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 any Company Subsidiary is a
party or by which the Company or any Company Subsidiary is bound which obligate
or may obligate the Company or any Company Subsidiary 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 any of its Subsidiaries 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 its Subsidiaries, but does
include unfunded loan commitments and letters of credit issued by the Company or
its Subsidiaries where the borrowers' total direct and indirect indebtedness to
its Subsidiaries 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 its Subsidiaries. All of the Contracts are legal, valid and binding
obligations of the parties to the Contracts enforceable in accordance with their
terms, subject to the effect of bankruptcy, insolvency, reorganization,
moratorium, or other similar laws relating to creditors' rights generally and to
general equitable principles, and are in full force and effect. Except as
described in Schedule 3.16., all rent and other payments by the Company and its
Subsidiaries under the Contracts are current, there are no existing defaults by
the Company or its Subsidiaries under the Contracts and no termination,
condition or other event has occurred which (whether with or without notice,
lapse of time or the happening or occurrence of any other event) would
constitute a default. The Company and each of its Subsidiaries has a good and
marketable leasehold interest in each parcel of real property leased by it
subject to the terms of the leases.
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 its Subsidiaries). The
term "Affiliate" as used in this Agreement means, with respect to any person,
any person that, directly or indirectly, controls, is controlled by, or is under
common control with, such person in question. For the purposes of this
definition, "control" (including, with correlative meaning, the terms
"controlled by" and "under common control with") as used with respect to any
person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such person,
whether through the ownership of voting securities or by contract or otherwise.
Section 3.18. Compliance with Laws. Except as set forth on Schedule
3.18., neither the Company nor any of its Subsidiaries 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
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reserve requirements, capital ratios and loan limitations of the FRB, the OCC 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 any of its
Subsidiaries. The Company and its Subsidiaries have all permits, licenses, and
franchises from governmental agencies required to conduct their businesses as
they are now being conducted.
Section 3.19. Insurance. The Company and its Subsidiaries have in effect
the insurance coverage (including fidelity bonds) described in Schedule 3.19.
and have had similar insurance in force for the last five (5) years. Except as
listed on Schedule 3.19., there have been no claims under such bonds within the
last five (5) years and neither the Company nor its Subsidiaries is aware of any
facts which would form the basis of a claim under such bonds. Neither the
Company nor its Subsidiaries 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 Company's Subsidiaries do not have in their portfolios any loan exceeding
their legal lending limit (net of participations sold contemporaneously and on
the same day), and except as disclosed on Schedule 3.20., the Company's
Subsidiaries have no known delinquent greater than thirty (30) days,
substandard, doubtful, loss, nonperforming or problem loans.
Section 3.21. Fiduciary Responsibilities. The Company and its
Subsidiaries have performed in all material respects all of their respective
duties as a trustee, custodian, guardian or as an escrow agent in a manner which
complies in all respects with all applicable laws, regulations, orders,
agreements, instruments and common law standards.
Section 3.22. Patents, Trademarks and Copyrights. Except as set forth in
Schedule 3.22., neither the Company nor its Subsidiaries 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 its Subsidiaries. The Company and its Subsidiaries own or are
licensed or otherwise have the right to use the items listed in Schedule 3.22.
Section 3.23. Environmental Compliance. Except as set forth in
Schedule 3.23.:
(a) The Company, its Subsidiaries and any property owned or operated by
any of them are in compliance with all applicable Environmental Laws (as defined
in Section 10.13.(c)) and have obtained and are in compliance with all permits,
licenses and other authorizations (individually a "Permit," and collectively,
"Permits") required under any Environmental Law. There is no past or present
event, condition or circumstance that could (1) interfere with the conduct of
the business of the Company or its Subsidiaries in the manner now conducted
relating to such entity's compliance
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with Environmental Laws, (2) constitute a violation of any Environmental Law or
(3) which could have a Material Adverse Effect upon the Company or any Company
Subsidiary;
(b) Neither the Company nor any Subsidiary currently leases, operates,
owns, or exercises managerial functions at nor has formerly leased, operated,
owned, or exercised managerial functions at any facility or real property that
is subject to any actual, potential, or, to the knowledge of the Company or any
Company Subsidiary, threatened Proceeding under any Environmental Law;
(c) There are no Proceedings pending or, to the knowledge of the Company
or any Company Subsidiary, threatened against the Company or any Company
Subsidiary under any Environmental Law, or relating to the release, threatened
release, management, treatment, storage or disposal of, or exposure to Polluting
Substances (as defined in Section 10.13.(d)), and neither the Company nor any
Company Subsidiary has received any notice (whether from any regulatory body or
private person) of any claim under, or 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 any Company Subsidiary, threatened under any Environmental Law
involving the release or threat of release of any Polluting Substances at, on or
under any property where Polluting Substances generated by the Company or any
Company Subsidiary have been disposed, treated or stored;
(e) There is no Property for which the Company or any Company Subsidiary
is or was required to obtain any Permit under an Environmental Law to construct,
demolish, renovate, occupy, operate, or use such Property or any portion of it;
(f) Neither the Company nor any Company Subsidiary has generated any
Polluting Substances for which it was required under an Environmental Law to
execute any waste disposal manifest or receipt;
(g) There has been no release of Polluting Substances at or under any
Property in violation of any Environmental Laws or which would require any
remediation or report or notification to any governmental or regulatory
authority;
(h) There are no underground or above ground storage tanks on or under any
Property which are not in compliance with Environmental Laws and any Property
previously containing such tanks has been remediated for any releases in
compliance with all Environmental Laws;
(i) There is no asbestos containing material present in any Controlled
Property (as defined below) or any Collateral Property (as defined below); and
(j) The Company and its Subsidiaries have fully complied with the
guidelines issued by the OCC, and any other governmental authority with
jurisdiction over the Company and its Subsidiaries, that directs banks to
implement programs to reduce the potential for banks to incur
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liability under, or to assess the compliance of borrowers or Collateral Property
with, Environmental Laws;
(k) For purposes of this Section 3.23. and Section 6.10., "Property"
includes (1) any property (whether real or personal) which the Company or any
Company Subsidiary 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 ("Controlled Property") and (2) property now
held as security for a loan or other indebtedness by the Company or any Company
Subsidiary or property currently proposed as security for loans or other credit
the Company or any Company Subsidiary is currently evaluating whether to extend
or has committed to extend ("Collateral Property"). With respect to any
Collateral Property, the representations of this Section 3.23. shall be limited
to the Knowledge of the Company.
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 its Subsidiaries, threatened against the Company or its Subsidiaries by or
before the FRB, the FDIC, the OCC, the Commissioner, 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 Company nor any of its Subsidiaries are subject to a formal
or informal agreement, memorandum of understanding, enforcement action with or
any type of financial assistance by any regulatory authority having jurisdiction
over such entity. Neither the Company nor any of its Subsidiaries have 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 its Subsidiaries 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 its Subsidiaries, there is no fact or circumstance
that would form the basis of any such complaint or inquiry.
Section 3.25. Title to Properties; Encumbrances. Except as set forth on
Schedule 3.25., the Company and each of its Subsidiaries has unencumbered, good,
legal, and marketable title to all its properties and assets, real and personal,
including, without limitation, all the properties and assets reflected in the
Financial Statements except for those properties and assets disposed of for fair
market value in the ordinary course of business and consistent with prudent
banking practice since the date of the Financial Statements. Except as set
forth on Schedule 3.25., the Company has a title policy in full force and effect
from a title insurance company which, to the best of the Company's knowledge, is
solvent, insuring good and indefeasible title to all real property owned by the
Company and its Subsidiaries in favor of the Company or its Subsidiaries,
whichever is applicable. The Company has made available to Compass all of the
files and information in the possession of the Company or its Subsidiaries
concerning such properties, including any title exceptions which might affect
indefeasible title or value of such property. The Company and its Subsidiaries
each
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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 1, 1997
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 its Subsidiaries, or, to the knowledge of the Company
or its Subsidiaries, any of their respective directors, officers, employees or
agents for inclusion in:
(a) The Proxy Statement; or
(b) Any registration statement or other documents to be filed with the
SEC or any regulatory or governmental agency or authority in connection
with the transactions contemplated hereby, at the respective times such
documents are filed, and, with respect to the Proxy Statement, when first
mailed to the shareholders of 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 the Company or any of
its Subsidiaries 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 its Subsidiaries,
and their respective directors, have no knowledge of any plan or intention on
the part of any Company shareholders to make written demand for payment of the
fair value of such Shares in the manner provided in Article 5.12 of the TBCA.
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Section 3.29. Section 368 Representations. (a) There is no plan or
intention by any Company shareholder who is anticipated to receive one percent
(1%) or more of the total Merger Consideration ("1% Shareholder") and, to the
knowledge of the Company, its Subsidiaries, 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 provided to Compass true and correct copies of
statements received from each 1% Shareholder with respect to his plan or
intention to sell or otherwise dispose of the Compass Common Stock to be
received pursuant to the Merger, and has set forth on Schedule 3.29. all
knowledge of the Company and its Subsidiaries and their respective directors
about the plans or intentions of any other Company shareholders to sell or
otherwise dispose of the Compass Common Stock to be received pursuant to the
Merger.
(c) Neither Compass nor Compass Texas will assume any debts or obligations
of the holders of the Shares as part of the Merger.
(d) Schedule 3.29. sets forth all transactions in the capital stock of the
Company since September 1, 1995. None of the transactions set forth on Schedule
3.29. were in contemplation of the Merger.
(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 ten percent (10%) of the fair market value of
all of its assets (ignoring any liabilities) at any time either during the past
twelve (12) 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.
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Section 3.30. Employee Stock Options. Except as set forth on Schedule
3.2., 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 any Company
Subsidiary.
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 its
Subsidiaries under and pursuant to, or in anticipation of this Agreement,
contains or will contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements contained herein or
therein, in light of the circumstances in which they were made, 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.
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' Board of
Directors. This Agreement has been duly executed and delivered by Compass and
is a duly
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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,
the Commissioner and the OCC will (i) violate (with or without the giving of
notice or passage of time), any law, order, writ, judgment, injunction, award,
decree, rule, statute, ordinance or regulation applicable to Compass, or (ii) be
in conflict with, result in a breach or termination of any provision of, cause
the acceleration of the maturity of any debt or obligation pursuant to,
constitute a default (or give rise to any right of termination, cancellation or
acceleration) under, or result in the creation of any security interest, lien,
charge or other encumbrance upon any property or assets of Compass pursuant to,
any terms, conditions or provisions of any note, license, instrument, indenture,
mortgage, deed of trust or other agreement or understanding or any other
restriction of any kind or character, to which Compass is a party or by which
any of its assets or properties are bound. Except as set forth on Schedule 4.2.,
there are no proceedings pending or, to the knowledge of Compass, threatened,
against Compass, at law or in equity or before any foreign, federal, state,
municipal or other governmental court, department, commission, board, bureau,
agency, instrumentality or other person which may result in liability to the
Company or its Subsidiaries 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 1996 Annual Report to Shareholders,
which report (the "Compass 1996 Annual Report") includes, among other things,
consolidated balance sheets of Compass and its Subsidiaries as of December 31,
1996 and 1995, the related consolidated statements of income, shareholders'
equity and cash flows for the years ended December 31, 1996, 1995 and 1994 and
(ii) Compass' quarterly reports on Form 10-Q for the quarters ended March 31 and
June 30, (the "Quarterly Reports") which reports include among other things
unaudited balance sheets of Compass and its Subsidiaries as of March 31 and June
30, 1997 and 1996, respectively, and the related unaudited consolidated
statements of income and cash flows for the three- and six-month periods ending
March 31 and June 30, 1997 and 1996. The financial statements contained in the
Compass 1996 Annual Report and such Quarterly Reports have been prepared in
conformity with GAAP
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applied on a basis consistent with prior periods. The consolidated balance
sheets of Compass and its subsidiaries as of December 31, 1996 and 1995
contained in the Compass 1996 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 unaudited consolidated financial statements of Compass and its Subsidiaries
as of March 31 and June 30, 1997 and 1996, contained in Compass' Quarterly
Reports, fairly present the financial condition, the results of the operations
and changes in cash flows thereof as of such dates and for the periods
indicated. For the purposes of this Agreement, all financial statements referred
to in this Section 4.3. shall be deemed to include any notes to such financial
statements. Compass has made all filings required to be made in compliance with
the Exchange Act. None of the information contained in the Compass 1996 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 July 31, 1997, Compass had 64,325,082 shares of
common stock, $2.00 per share par value, issued and outstanding. None of the
shares of Compass Common Stock to be issued pursuant to this Agreement will be
subject to any lien, charge, encumbrance, claim, rights of others, mortgage,
pledge or security interest, and none will be subject to any agreements or
understandings among any persons with respect to the voting or transfer of such
shares of Compass Common Stock except as contemplated hereby.
Section 4.5. Consents and Approvals. No prior consent, approval or
authorization of, or declaration, filing or registration with any person,
domestic or foreign, is required of or by Compass in connection with the
execution, delivery and performance by Compass of this Agreement and the
transactions contemplated hereby or the resulting change in control of the
Company and its Subsidiaries, 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 Commissioner and the FDIC.
Section 4.6. Proxy Statement. None of the information supplied or to be
supplied by Compass, or, to the 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 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
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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, summary, exhibit or
schedule 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, in light of the circumstances in which
they were made, not misleading.
ARTICLE V.
COVENANTS OF THE COMPANY
Section 5.1. Affirmative Covenants of the Company. For so long as this
Agreement is in effect, the Company shall, and shall use its best efforts to
cause its Subsidiaries, including 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;
25
(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, and the FDIC, all financial
statements and other reports required to be so filed by any of the Acquired
Companies and to the extent permitted by applicable law, promptly thereafter
deliver to Compass copies of all financial statements and other reports required
to be so filed;
(g) Comply in all material respects with all applicable laws and
regulations, domestic and foreign;
(h) Promptly notify Compass upon obtaining knowledge of any 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
Acquired Companies 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;
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(k) Deliver to Compass a list (Schedule 5.1.(k)), dated as of the Effective
Time, showing all liabilities and obligations of the Acquired Companies, except
those arising in the ordinary course of their respective businesses, incurred
since the Balance Sheet Date, certified by an officer of the Company;
(l) Prior to the record date for the Shareholder Meeting, FRCD shall
purchase the Minority Shares at a cost to the Acquired Companies not exceeding
$200,000 in the aggregate;
(m) Shall establish in 1997 a reserve for litigation expenses equal to
$700,000;
(n) Shall accrue in 1997 fees and expenses of Keefe, Bruyette & Woods Inc.;
(o) Terminate the Split-Dollar Life Insurance Agreements dated April 30,
1993 between the Bank and PSB Family Trust II and William C. Murphy,
respectively, at no cost to the Acquired Companies and cause to be terminated
any and all rights to acceleration of future premium payments or other benefits
under such agreements within three (3) days of the date hereof;
(p) Terminate the Deferred Compensation Agreement between the Company and
William C. Murphy at no cost to the Acquired Companies;
(q) In 1997 take such write downs of assets and establish such reserves on
its books as are consistent with Compass' accounting methods for reserving for
loan losses and valuing other real estate owned;
(r) 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;
(s) Prior to December 31, 1997, but no later than the period described in
Code Section 401(b) and the regulations thereunder, submit all amendments ("ESOP
Amendment") made to the Fidelity Bank National Association Employee Stock
Ownership Plan ("ESOP") since the ESOP's latest determination letter to the IRS
for a determination as to the ESOP Amendment's compliance with ERISA and the
Code;
(t) Shall comply with ERISA and ESOP document regarding pass-through
voting;
(u) Shall obtain the consent of Texas Independent Bank ("TIB") to the
substitution of Compass Common Stock as collateral under that certain loan
agreement dated December 27, 1996 between TIB and the ESOP and obtain the
release of that certain guaranty dated December 27, 1996 by the Company in favor
of TIB;
(v) Terminate the Executive Salary Continuation Agreement dated April 13,
1992, as amended by an Amendment and Clarification to Executive Salary
Continuation Agreement dated
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February 3, 1995 between C. Malcolm Holland and the Bank ("Holland Agreement")
at a cost to the Acquired Companies not exceeding $10,000; and
(w) Provide access, to the extent that the Company or its Subsidiaries
have the right to provide access, to any or all Property (as defined in Section
3.23.) so as to enable Compass, at its 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 consent 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 or Certificate 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. Notwithstanding anything in this
Agreement to the contrary, the outstanding stock options of the Company may be
exercised and the Company may issue Company common stock in connection therewith
and otherwise perform its obligations thereunder;
(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;
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(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 1997/1998 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 other agreement with any director, officer or employee, or adopt,
amend or terminate any Employee Benefit Plan or change or modify the period of
vesting or retirement age for any participant of such a plan;
(j) Declare, pay or set aside for payment any dividend or other
distribution or payment in respect of shares of its capital stock, except for
dividends from the Bank to the Company in accordance with Section 6.12.;
(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 expenditures 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/or the settlement of all litigation items
listed on Schedule 3.12. and 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 any of its Subsidiaries;
(p) Issue any certificates of deposit except in the ordinary course of
business and in accordance with prudent banking practices;
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(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 Company's or its
Subsidiaries' premises;
(u) Change any fiscal year or the length thereof;
(v) Take or agree to take any action that would prevent Compass from
accounting for the business combination to be effected by the Merger as a
pooling of interests, including, without limitation, any action inconsistent
with the provisions of Exhibit C hereto;
(w) Renew, modify, amend or extend any lease for premises occupied by the
Company or its Subsidiaries;
(x) Prepay in whole or in part the Company Indebtedness; or
(y) 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 its Subsidiaries 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 its Subsidiaries in a manner not permitted
by applicable law and the provisions thereof shall automatically be reduced in
compliance therewith.
ARTICLE VI.
ADDITIONAL AGREEMENTS AND COVENANTS OF THE PARTIES
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 its
Subsidiaries' 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 of any
property thereof and any structure thereon) as they may require and furnish to
Compass during such period all such information concerning the Company and its
Subsidiaries and their affairs as Compass may reasonably request. All
information disclosed by the
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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
Commissioner, the OCC and the FDIC which Compass deems necessary or appropriate
to complete the transactions contemplated herein, including the merger of the
Bank and Compass Bank, Houston, 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.
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 its Subsidiaries 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 (other than indebtedness of the ESOP)
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 any of its
Subsidiaries from any other person. During the term of this Agreement, neither
the Company nor any of its Subsidiaries shall provide information to any other
person in connection with a possible acquisition of the Company or any of its
Subsidiaries. Immediately upon receipt of any such unsolicited offer, the
Company will communicate to Compass the terms of any proposal or request for
information and the identity of
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parties involved. Subject to the receipt of a written opinion of counsel to the
effect that the Company has a duty to disclose the terms of an unsolicited offer
to its shareholders, the Company may disclose to its shareholders the terms of
any such unsolicited offer.
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. (a) Compass presently intends
that, after the Merger, Compass, the Company and its Subsidiaries will not make
additional contributions to the employee benefit plans that were sponsored by
the Company or its Subsidiaries immediately prior to the Merger. Compass agrees
that the employees of the Company and its Subsidiaries who are retained as
employees of Compass or Compass Bank will be entitled to participate as newly
hired employees in the employee benefit plans and programs maintained for
employees of Compass and its affiliates, in accordance with the respective terms
of such plans and programs, and Compass shall take all actions necessary or
appropriate to facilitate coverage of the Company's and its Subsidiaries'
employees in such plans and programs from and after the Effective Time, subject
to the following:
(i) Employee Welfare Benefit Plans and Programs: Each employee of the
Company and its Subsidiaries will be entitled to credit for prior service with
the Company and its Subsidiaries for all purposes under the employee welfare
benefit plans and other employee benefit plans and programs (other than those
described in subparagraph (ii) below and any stock option plans) sponsored by
Compass to the extent the Company or any of its Subsidiaries sponsored a similar
type of plan which the Company or Company Subsidiary employee participated in
immediately prior to the Effective Time. Any preexisting condition exclusion
applicable to such plans and programs shall be waived with respect to any
Company or Company Subsidiary employee. For purposes of determining each
Company or Company Subsidiary employee's benefit for the year in which the
Merger occurs under the Compass vacation program, any vacation taken by a
Company or Company Subsidiary employee preceding the Effective Time for the year
in which the Merger occurs will be deducted from the total Compass vacation
benefit available to such employee for such year. Compass agrees that for
purposes of determining the number of vacation days available with respect to
each Company employee for the year in which the Merger occurs, that the number
of vacation days for such year shall be determined under the Company or its
Subsidiaries vacation policies in effect as of January 1, 1997.
(ii) Employee Pension Benefit Plans: Each Company and Company Subsidiary
employee shall be entitled to credit for past service with the Company and its
Subsidiaries for the purpose of satisfying any eligibility or vesting periods
applicable to the Compass employee pension benefit plans which are subject to
Sections 401(a) and 501(a) of the Code (including, without limitation, the
Compass 401(k)/ESOP Plan). Notwithstanding the foregoing, Compass shall not
grant any prior years of service credit to employees of the Company and its
Subsidiaries with respect to any defined
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benefit pension plans sponsored (or contributed to) by Compass; instead, Company
and Company Subsidiary employees shall be treated as newly hired employees of
Compass as of the date following the Effective Time for purposes of determining
eligibility, vesting and benefit accruals thereunder.
(b) On or before, but effective as of the Effective Time, the Company and
its Subsidiaries may take such actions as may be necessary to cause each
individual employed by the Company and its Subsidiaries immediately prior to the
Effective Time to have a fully vested and nonforfeitable interest in such
employee's account balance under the 401(k) plan sponsored by the Company as of
the Effective Time.
(c) Compass shall terminate the ESOP as soon as practicable after the
Effective Time.
Section 6.9. Merger of Bank. Compass presently intends to cause the Bank
to merge into Compass Bank and FRCD to merge into Compass Bancorporation of
Texas, Inc., an indirect wholly-owned subsidiary of Compass, immediately after
the Merger, and the Company agrees to cause its Subsidiaries 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 mergers of its Subsidiaries immediately
after the Closing.
Section 6.10. Environmental Matters. (a) The Company and its Subsidiaries
shall cause to be performed an environmental investigation of the Property at
6501 Hillcrest Avenue, Dallas, Texas ("Hillcrest"), using an environmental
consulting firm and scope of work approved in advance by Compass, and upon which
Compass may rely, the purpose of which shall be to determine whether Polluting
Substances exist at, under, or are emanating from Hillcrest associated with the
former use of Hillcrest as an automobile service or fueling facility. The
findings of such environmental investigation shall be approved by Compass in its
sole discretion. If the results of such investigation reveal the existence of
Polluting Substances at concentrations which exceed action levels established by
the Texas Natural Resource Conservation Commission ("TNRCC"), the Company and
its Subsidiaries shall report such findings to the TNRCC and shall commence and
diligently pursue to resolution the investigation and remediation of such
Polluting Substances in compliance with applicable Environmental Laws and in a
manner satisfactory to Compass in its sole discretion, and upon which Compass
may rely, and in all events so as to maintain eligibility for reimbursement of
all expenses from the Petroleum Storage Tank Remediation Fund administered by
the TNRCC.
The Company and its Subsidiaries shall provide written evidence acceptable
to Compass in its sole discretion demonstrating that only clean select fill,
without Polluting Substances, was used to fill the Property at 2209 West
Northwest Highway (at Stemmons), Dallas, Texas ("Stemmons").
Compass and its consultants, agents and representatives, shall have the
right to the same extent that the Company and its Subsidiaries have such right,
but not the obligation or responsibility, to inspect any Property referred to in
subsection (b) and (c) below and Hillcrest and Stemmons (a "6.10(a) Property"),
including, without limitation, for the purpose of conducting asbestos surveys
and sampling, and other environmental assessments and investigations
("Environmental
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Inspections") for any matter first known by Compass between the date hereof and
the Closing Date. Compass' right to conduct such Environmental Inspections shall
include the right to sample and analyze air, sediment, soil and groundwater of
any affected 6.10(a) Property to the same extent that the Company or its
Subsidiaries have such right. Compass may conduct such Environmental Inspections
at any time subject to Section 6.10(d) below.
(b) The Company and its Subsidiaries shall cause to be performed by an
environmental consulting firm acceptable to Compass an environmental
investigation of any Property acquired, leased, foreclosed, managed or
controlled by the Company or its Subsidiaries between the date hereof and the
Closing Date, the scope and results of which shall be acceptable to Compass in
its sole discretion.
(c) The Company and its Subsidiaries shall cause to be performed by an
environmental consulting firm acceptable to Compass an environmental
investigation of any Property in which the Company or its Subsidiaries acquires
a security interest between the date hereof and the Closing Date, scope and
results of which are equivalent to the policies of Compass with respect to
acquiring security interests on real or personal property and the compliance
with which shall be acceptable to Compass in its sole discretion.
(d) Compass shall notify the Company of any physical inspections of
Property which it intends to conduct, and the Company may place reasonable
restrictions on the time of such inspections. Upon Compass' notification to the
Company of the Property upon which it intends to conduct such physical
inspections, the Company and its Subsidiaries shall notify the owner of such
Property and use their best efforts to secure access to such Property for
Compass.
(e) Each party hereto agrees to indemnify and hold harmless the other party
for any claims for damage to the Property or injury or death to persons in
connection with any Environmental Inspection or secondary investigation of the
Property to the extent such damage, injury or death is directly attributable to
the negligent actions or negligent omissions of such indemnifying party.
Compass shall have no liability or responsibility of any nature whatsoever for
the results, conclusions or other findings related to any Environmental
Inspection, secondary investigation or other environmental survey. If this
Agreement is terminated, then except as otherwise required by law, Compass shall
have no obligation to make any reports to any governmental authority of the
results of any Environmental Inspection, secondary investigation or other
environmental survey, but such reporting shall remain the responsibility of and
within the discretion of the Company. Compass shall have no liability to the
Company or its Subsidiaries for making any report of such results to any
governmental authority.
(f) 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 all other environmental inspections and surveys. The Company also
agrees that all engineers and consultants who prepared or furnished such reports
may
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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 in such a manner which will entitle Compass to rely upon such
reports and make all other data available to Compass and its consultants, agents
and representatives. At the written request of the Company, Compass agrees to
provide the Company with a copy of all environmental reports prepared by its
consultants as a result of the Environmental Inspections.
Section 6.11. Proxies. The Company acknowledges that the persons listed
in Schedule 6.11. 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, pursuant to a
Voting Agreement and Irrevocable Proxy in substantially the form attached hereto
as Exhibit D.
Section 6.12. 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 receipts, including dividends from its
Subsidiaries, for purposes of Texas franchise taxes after the date of
incorporation of Compass Texas.
Section 6.13. Exchange Agreement. Immediately prior to the Effective
Time, the Company and Compass agree to enter into, and Compass agrees to cause
Compass Texas to enter into, the Exchange Agreement with the Exchange Agent, or
if the Exchange Agent refuses to serve as exchange agent, such other exchange
agent as shall mutually agreed to by the Company and Compass.
Section 6.14. Director and Officer Indemnification. With respect to
the indemnification of directors and officers, Compass agrees as follows:
(a) Compass shall ensure that all rights to indemnification and all
limitations of liability existing in favor of any person who is now, or has been
at any time prior to the date hereof, or who becomes prior to the Effective Time
of the Merger, a director or officer of the Company, FRCD or the Bank (an
"Indemnified Party") and, collectively, the "Indemnified Parties") in the
Company's Articles of Incorporation or Bylaws or in the Certificate or Articles
of Incorporation or Association and Bylaws of any Company Subsidiary, as
applicable in the particular case and as in effect on the date hereof, shall,
with respect to claims arising from (A) facts or events that occurred before the
Effective Time of the Merger, or (B) this Agreement or any of the transactions
contemplated by this Agreement, whether in any case asserted or arising before
or after the Effective Time of the Merger, survive the Merger and shall continue
in full force and effect for a period of four (4) years from the Effective Time;
provided, however, that all rights to indemnification and limitations of
liability shall continue in full force and effect subsequent to such four (4)
year period for any claim for which Compass has been sued prior to the
expiration of such four (4) year period. Nothing contained in this Section
6.14.(a) shall be deemed to preclude the liquidation, consolidation or merger of
the Company
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or any Company Subsidiary, in which case all of such rights to indemnification
and limitations on liability shall be deemed to survive and continue as
contractual rights notwithstanding any such liquidation or consolidation or
merger; provided, however, that in the event of liquidation or sale of
substantially all of the assets of the Company, Compass shall guarantee, to the
extent of the net asset value of the Company or any Company Subsidiary as of the
Effective Date of the Merger, the indemnification obligations of the Company or
any Company Subsidiary to the extent of indemnification obligations of the
Company and the Company Subsidiaries described above. Notwithstanding anything
to the contrary contained in this Section 6.14.(a), nothing contained herein
shall require Compass to indemnify any person who was a director or officer of
the Company or any Company Subsidiary to a greater extent than the Company or
any Company Subsidiary is, as of the date of this Agreement, required to
indemnify any such person.
(b) Any Indemnified Party wishing to claim indemnification under Section
6.14.(a), upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify Compass thereof, but the failure to so
notify shall not relieve Compass of any liability it may have to such
Indemnified Party. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time of the
Merger), (A) Compass shall have the right to assume the defense thereof and
Compass shall not be liable to any Indemnified Party for any legal expenses of
other counsel or any other expenses subsequently incurred by such Indemnified
Party in connection with the defense thereof, except that if Compass elects not
to assume such defense or counsel for the Indemnified Party advises that there
are issues which raise conflicts of interest between Compass and the Indemnified
Party, the Indemnified Party may retain counsel satisfactory to them, and
Compass shall pay the reasonable fees and expenses of such counsel for the
Indemnified Party promptly as statements therefor are received; provided,
however that Compass shall be obligated pursuant to this Subsection (b) to pay
for only one firm of counsel for all Indemnified Parties in any jurisdiction
unless the use of one counsel for all Indemnified Parties would present such
counsel with a conflict of interest and (B) such Indemnified Party shall
cooperate in the defense of any such matter.
(c) If Compass or any of its successors or assigns (A) shall consolidate
with or merge into any other corporation or entity and shall not be the
continuing or surviving corporation or entity of such consolidation or merger or
(B) shall transfer all or substantially all of its properties and assets to any
individual, corporation or other entity, then and in each such case, proper
provision shall be made so that the successors and assigns of Compass shall
assume the obligations set forth in this Section 6.14.
(d) The provisions of this Section 6.14. are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party and his or her heirs and
representatives and shall survive the Effective Time.
(e) The indemnification and limitations of liability provisions currently
contained in the Articles and Certificate of Incorporation or Association and
Bylaws of the Company and its Subsidiaries shall not be amended after the date
hereof.
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Section 6.15. Exercise of Convertible Securities. The Company shall use
its best efforts to cause each holder of outstanding warrants, options, rights,
convertible debentures 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 6.16. Pooling of Interests. Neither Compass nor any of its
Subsidiaries shall take any action which with respect to Compass would
disqualify the Merger as a "pooling of interests" for accounting purposes.
Section 6.17. 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 1998 bonus plan of the Bank so long as
such plan is substantially equivalent to the 1997 bonus plan of the Bank 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;
(c) The approval of this Agreement by the Company's shareholders entitled
to vote at the Shareholders' Meeting; and
(d) A registration statement covering the Compass Common Stock to be
issued in the Merger shall be effective under the Securities Act and any
applicable state securities or "blue sky" acts and no stop order suspending the
effectiveness of such registration statement shall be in effect and no
proceedings for such purpose, or any proceedings under the SEC or applicable
state securities authorities rules with respect to the transactions contemplated
hereby, shall be pending before or threatened by the SEC or any applicable state
securities or blue sky authorities.
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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 its Subsidiaries;
(d) The directors of the Company and its Subsidiaries shall have delivered
to Compass an instrument in the form of Exhibit J attached hereto dated the
Effective Time releasing the Company and its Subsidiaries from any and all
claims of such directors (except as to their deposits and accounts, and as to
their rights of indemnification pursuant to the Articles of Incorporation,
Association or Bylaws of the Company and the Bank which rights shall survive the
Merger) and shall have delivered to Compass their resignations as directors of
the Company and its Subsidiaries;
(e) The officers of the Company and its Subsidiaries shall have delivered
to Compass an instrument in the form of Exhibit J attached hereto dated the
Effective Time releasing the Company and its Subsidiaries from any and all
claims of such officers (except as to deposits and accounts and as to their
rights of indemnification pursuant to the Articles of Incorporation, Association
or Bylaws of the Company and 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 E attached hereto;
(g) The holders of no more than one percent (1%) 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, 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 this Agreement;
(i) The aggregate principal amount of all Company Indebtedness shall not
exceed $2,650,000.00;
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(j) Compass shall have received from holders of the Company's capital
stock receiving at least fifty percent (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 and substantially in the form attached hereto as Exhibit H,
that the Merger will qualify as a reorganization under Section 368(a) of the
Code;
(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) Pat S. Bolin shall have entered into a noncompetition agreement with
Compass or one of its Affiliates, in the form of Exhibit L-1 attached hereto and
William C. Murphy shall have entered into an employment agreement with Compass
or one of its Affiliates, in the form of Exhibit L-2 attached hereto within
three (3) days of the date hereof;
(p) FRCD shall be the owner, record and otherwise, of 100% of the capital
stock of the Bank;
(q) The Split-Dollar Life Insurance Agreements dated April 30, 1993 between
the Bank and PSB Family Trust II and William C. Murphy, respectively, shall have
been terminated at no cost to the Acquired Companies and any and all rights to
acceleration of future premium payments and benefits thereunder shall have been
terminated within three (3) days of the date hereof;
(r) The Deferred Compensation Agreement between the Company and William C.
Murphy shall have been terminated at no cost to the Acquired Companies;
(s) The Company and its Subsidiaries shall have taken during 1997 such
write downs of assets and shall have established such reserves as are consistent
with Compass' accounting methods for reserving for loan losses and valuing other
real estate owned;
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(t) The Company and its Subsidiaries shall have established in 1997 a
reserve for litigation expenses equal to $700,000;
(u) The Company shall have accrued in 1997 fees and expenses of Keefe,
Bruyette & Woods Inc.;
(v) The Company shall have submitted prior to December 31, 1997, but no
later than the period described in Code Section 401(b) and the regulations
thereunder, the ESOP Amendment to the IRS for a determination as to the ESOP
Amendment's compliance with ERISA and the Code;
(w) The Company shall have complied with ERISA and ESOP document regarding
pass-through voting;
(x) The Company shall obtain the written consent of TIB to the
substitution of Compass Common Stock as collateral under that certain loan
agreement dated December 27, 1996 between TIB and the ESOP and obtain the
release of that certain guaranty dated December 27, 1996 by the Company in favor
of TIB;
(y) The Holland Agreement shall have been terminated at a cost to the
Acquired Companies not exceeding $10,000;
(z) The Company shall have filed a final franchise tax return with the
Texas Comptroller of Public Accounts; and
(aa) Compass shall have received certificates dated the Closing executed by
the President of the Company and by the Presidents of its Subsidiaries, and the
Secretary or Cashier of the Company and its Subsidiaries, respectively,
certifying in such reasonable detail as Compass may reasonably request, to the
effect described in Sections 7.2.(a), (b), (c), (g), (i), (n), (q), (r), (s),
(t), (u), (w), (x), (y) and (z).
Section 7.3. Conditions to the Obligations of the Company to Effect the
Merger. The obligations of the Company to effect the Merger are subject to the
satisfaction or waiver of the following conditions prior to the Effective Time:
(a) All representations and warranties of Compass 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;
40
<PAGE>
(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 F
attached hereto;
(d) The Company and its Subsidiaries shall have delivered to the directors
and officers of the Company and its Subsidiaries an instrument dated the
Effective Time and in the form of Exhibit K attached hereto releasing such
directors and officers from any and all claims of the Company and its
Subsidiaries (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;
(e) The Company shall have received an opinion of counsel to Compass and
Compass Texas in substantially the form of Exhibit H that the Merger will
qualify as a reorganization under Section 368(a) of the Code; and
(f) The Company shall have received certificates dated the Closing,
executed by appropriate officers of Compass and 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 VII
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 or the results of any investigation
pursuant to the provision of Section 6.10(a) which constitute a Material Adverse
Effect, (ii) if there shall be a breach of Section 6.10(a), (b) or (c); or (iii)
if any of the conditions to Closing contained in Section 7.1. or 7.2. are not
satisfied or waived in writing by Compass;
(c) By the Company if the conditions to Closing contained in Section 7.1.
or 7.3. are not satisfied or waived in writing by the Company;
(d) By Compass or the Company if the Effective Time shall not have
occurred on or before April 30, 1998 or such later date agreed to in writing by
Compass and the Company; or
41
<PAGE>
(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. Effect of Termination. In the event of the termination and
abandonment of this Agreement pursuant to Section 8.1. hereof, this Agreement
shall forthwith become void and have no effect, without any liability on the
part of any party or its directors, officers or shareholders, other than the
provisions of this Sections 6.10., 8.2, 9.1, 10.1 and 10.8. Nothing contained
in this Section 8.2. shall relieve any party from liability for any breach of
this Agreement.
Section 8.3. Amendment. (a) To the extent permitted by applicable law,
this Agreement may be amended by action taken by or on behalf of the Board of
Directors of the 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. As a condition to the Company's
entry into such an amendment, Compass Texas shall deliver to the Company a
certificate in substantially the form of Exhibit G attached hereto.
Section 8.4. Extension; Waiver. At any time prior to the Effective Time,
the parties may jointly (i) extend the time of the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document, certificate or writing delivered pursuant hereto, or (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of any party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
42
<PAGE>
ARTICLE IX.
SURVIVAL
Section 9.1. Survival of Representations and Warranties. The parties
hereto agree that all of their respective representations and warranties
contained in this Agreement shall not survive after the Effective Time.
ARTICLE X.
MISCELLANEOUS
Section 10.1. Expenses. All costs and expenses incurred in connection
with the transactions contemplated by this Agreement, including without
limitation, attorney's fees, accountant's fees, other professional fees and
costs related to expenses of officers and directors of the Company and its
Subsidiaries, 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 incurred by the Company and
its Subsidiaries shall not (exclusive of broker's fees which are set forth in
Schedule 10.1.) exceed $75,000. Each party hereto hereby agrees to and shall
indemnify the other parties hereto against any liability arising from any such
fee or payment incurred by such party.
Section 10.2. Brokers and Finders. Except as same applies to the
Company's broker Keefe, Bruyette & Woods Inc. of New York, New York, 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 its Subsidiaries 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 its Subsidiaries, 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
43
<PAGE>
necessary to vest or perfect in or to confirm of record or otherwise the
Company's or its Subsidiaries' title to and possession of, all of their
respective property, interests, assets, rights, privileges, immunities, powers,
franchises and authority, as shall be reasonably necessary or advisable to carry
out the purposes of and effect the transactions contemplated by this Agreement.
Section 10.5. Enforcement of the Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof, this being in addition to
any other remedy to which they are entitled at law or in equity.
Section 10.6. Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect.
Section 10.7. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered if in person, by cable, telegram or telex or by
telecopy, or five business days after mailing if delivered by registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties as follows:
if to Compass or Compass Texas:
D. Paul Jones, Jr.
Chairman and Chief Executive Officer
Compass Bancshares, Inc.
15 South 20th Street
Birmingham, Alabama 35233
Telecopy No.: (205) 933-3043
Charles E. McMahen
Chairman and Chief Executive Officer
Compass Banks of Texas, Inc.
24 Greenway Plaza
Houston, Texas 77046
Telecopy No.: (713) 993-8500
with copies to:
Daniel B. Graves
Associate General Counsel
44
<PAGE>
Compass Bancshares, Inc.
15 South 20th Street
Birmingham, Alabama 35233
Telecopy No.: (205) 933-3043
and
Annette L. Tripp
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
3400 Texas Commerce Tower, 600 Travis
Houston, Texas 77002
Telecopy No.: (713) 223-3717
if to the Company:
William C. Murphy
Fidelity Resources Company
6501 Hillcrest
University Park, Texas 75205
Telecopy No. (214) 520-8025
with a copy to:
William J. Underwood, Jr.
Smith, Underwood & Perkins, P.C.
Two Lincoln Centre
5420 LBJ Freeway, Suite 600
Dallas, Texas 75240
Telecopy No.: (972) 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 a part of or to
affect the meaning or interpretation of this Agreement.
45
<PAGE>
Section 10.10. Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
Section 10.11. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
Section 10.12. Incorporation by References. Any and all schedules,
exhibits, annexes, statements, reports, certificates or other documents or
instruments referred to herein or attached hereto are incorporated herein by
reference hereto as though fully set forth at the point referred to in the
Agreement.
Section 10.13 Certain Definitions.
(a) "Subsidiary" or "Subsidiaries" 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
circumstance, event or series of events with respect to the financial condition,
assets, liabilities (absolute, accrued, contingent or otherwise), reserves,
business or results of operations of the Company and its Subsidiaries 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 all federal, state and local laws,
ordinances, rules, regulations, guidance documents, directives, and decisions,
interpretations and orders of courts or administrative agencies or authorities,
relating to the release, threatened release, recycling, processing, use,
handling, transportation treatment, storage, disposal, remediation, removal,
inspection or monitoring of Polluting Substances or protection of human health
or safety or the environment (including, without limitation, wildlife, air,
surface water, ground water, land surface, and subsurface strata), including,
without limitation, the Comprehensive Environmental Response Compensation and
Liability Act of 1980, as amended ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986, as amended ("SARA"), the Resource Conservation and
Recovery Act of 1976, as amended ("RCRA"), Hazardous and Solid Waste Amendments
of 1984, as amended ("HSWA"), the Hazardous Materials Transportation Act, as
amended ("HMTA"), the Toxic Substances Control Act ("TSCA"), Occupational Safety
and Health Act ("OSHA"), Federal Water Pollution Control Act, Clean Air Act, and
any and all regulations promulgated pursuant to any of the foregoing.
46
<PAGE>
(d) "Polluting Substances" shall mean those substances included within the
statutory or regulatory definitions, listings or descriptions of "pollutant,"
"contaminant," "toxic waste," "hazardous substance," "hazardous waste," "solid
waste," or "regulated substance" pursuant to CERCLA, SARA, RCRA, HSWA, HMTA,
TSCA, OSHA, and/or any other Environmental Laws, as amended, and shall include,
without limitation, any material, waste or substance which is or contains
explosives, radioactive materials, oil or any fraction thereof, asbestos, or
formaldehyde. To the extent that the laws or regulations of the State of Texas
establish a meaning for "hazardous substance," "hazardous waste," "hazardous
materials," "solid waste," or "toxic waste," which is broader than that
specified in any of CERCLA, SARA, RCRA, HSWA, HMTA, TSCA, OSHA or other
Environmental Laws such broader meaning shall apply.
(e) "Release" shall mean any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, disposing,
discarding or abandoning.
(f) "Knowledge" or "known" -- An individual shall be deemed to have
"knowledge" of or to have "known" a particular fact or other matter if (i) such
individual is actually aware of such fact or other matter, or (ii) a prudent
individual could be expected to discover or otherwise become aware of such fact
or other matter in the course of conducting a reasonably comprehensive
investigation concerning the truth or existence of such fact or other matter. A
corporation or bank shall be deemed to have "knowledge" of or to have "known" a
particular fact or other matter if any individual who is serving as a director
or officer (or in any similar capacity) of the corporation or bank, has, or at
any time had, knowledge of such fact or other matter. Non-officer directors may
rely on the representations of officers.
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]
47
<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.
Compass Bancshares, Inc.
By /s/ Garret R. Hegel
------------------------------
Its: Chief Financial Officer
Attest:
/s/ Daniel B. Graves
-----------------------------
Its: Assistant Secretary
Fidelity Resources Company
By /s/ William C. Murphy
-----------------------------
Its: President
Attest:
/s/ Pat S. Bolin
- -----------------------
Its: Chairman
H1995A/173556-10
<PAGE>
EXHIBIT A
POOLING TRANSFER RESTRICTIONS AGREEMENT
This Pooling Transfer Restrictions Agreement (this "Agreement") is executed
and delivered this ____ day of _________, 1997 by and between Compass
Bancshares, Inc. ("Compass"), Fidelity Resources Company (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 _________, 1997 ("Merger Agreement") pursuant to which the Company
will be merged with an existing or to-be-formed subsidiary of Compass (the
"Merger"), and
WHEREAS, Compass has required as a condition to entering into the Merger
Agreement that the 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 a pooling of interests, including without limitation any new
requirements imposed by the applicable provisions of the Securities Act of 1933,
the Securities Exchange Act of 1934, and the respective rules and regulations
thereunder.
2. The Shareholder further acknowledges and agrees that he will be
subject to Rule 145 promulgated by the Securities and Exchange Commission under
the Securities Act, and agrees not to transfer any Compass Common Stock received
by him in the Merger except in compliance with the applicable provisions of the
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:
<PAGE>
The shares represented by this certificate are subject to a Pooling
Transfer Restrictions Agreement dated _______ __, 1997 which restricts any
sale or other transfer of such shares prior to the earlier to occur of (i)
the public release by Compass Bancshares, Inc. of 30 days of post-merger
combined operations of Fidelity Resources Company and Compass Bancshares,
Inc. or (ii) [insert due date of next Quarterly Report on Form 10-Q that
will contain required 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.
5. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
2
<PAGE>
IN WITNESS WHEREOF, the undersigned set his hand effective as of the day first
written above.
COMPASS BANCSHARES, INC.
By:__________________________________________
Name:________________________________________
Title:_______________________________________
FIDELITY RESOURCES COMPANY
By:__________________________________________
Name:________________________________________
Title:_______________________________________
_____________________________________________
Signature of Shareholder
_____________________________________
Printed Name of Shareholder
3
<PAGE>
EXHIBIT B
EXCHANGE AGENT AGREEMENT
This Exchange Agent Agreement, dated as of _____, 1997, is made and entered
into by and among Compass Bancshares, Inc., a Delaware corporation ("Compass"),
_____________________, a Delaware corporation ("Compass Texas"), Fidelity
Resources Company, a Texas corporation ("Company"), and Continental Stock
Transfer & Trust Company, a New York banking corporation ("Exchange Agent").
PREAMBLE:
Pursuant to the Agreement and Plan of Merger dated as of ________, 1997
("Merger Agreement") among Compass, Compass Texas and the Company, the Company
shall, at the Effective Time, be merged with Compass Texas. The name of the
surviving corporation shall be Compass Texas Acquisition Corp. ("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.
NOW THEREFORE, in consideration of the premises and of the mutual
agreements and covenants contained herein, and other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties,
intending to be legally bound, hereby agree as follows:
<PAGE>
1. Appointment of Exchange Agent. Continental Stock Transfer & 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,
(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 the executed Letters of
Transmittal accompanied by Certificates which are surrendered in accordance
with the provisions of the Merger Agreement. 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, subject to the following sentence, if the person or persons
surrendering such Certificates and Letters of Transmittal appear as a
holder of record of the number of shares surrendered on the list of
shareholders
-2-
<PAGE>
("Shareholder List") supplied and certified to the Exchange Agent by the
Company 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;
(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) From time to time as requested by Compass, the Exchange Agent
shall provide Compass 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
-3-
<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.
(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
-4-
<PAGE>
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 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.
4. Alteration of Instructions. The Exchange Agent shall follow and act
upon any written amendments, modifications or supplements to these instructions
and upon any further instructions from Compass or the Surviving Corporation in
connection with the Merger Agreement or any of the transactions contemplated
thereby.
5. 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.
-5-
<PAGE>
6. Compensation for Services. Compass shall compensate the Exchange
Agent for its services hereunder.
7. Payment of Amounts Due Dissenting Shareholders. In the event that
qualified dissenting shareholders of the 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 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.
8. Unclaimed Funds. Any moneys or certificates deposited hereunder which
shall remain unclaimed by the holders of shares of Company Common Stock for a
period of six (6) months following the 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.
9. Investment of Exchange Fund. The Exchange Agent shall deposit
portions of the Exchange Fund only as directed or consented to in writing by the
Surviving Corporation.
10. Amendment. Except as otherwise expressly provided herein, neither
this Agreement nor any provision hereof may be amended, modified, waived,
discharged or terminated except in a writing signed by all of the parties hereto
prior to the Effective Time or by Compass and the Exchange Agent after the
Effective Time; provided, however, that no amendment shall be made if such
modification shall reduce the amount of or eliminate the opportunity of any
shareholder to receive his share of the Merger Consideration contemplated by the
Merger Agreement.
11. Section Headings. The section headings used herein are for convenience
of reference only and shall not define or limit the provisions of this
Agreement.
12. GOVERNING LAW. THIS AGREEMENT AND THE APPOINTMENT OF THE EXCHANGE
AGENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF TEXAS AND SHALL INURE TO THE BENEFIT OF AND BE BINDING UPON THE SUCCESSORS
AND ASSIGNS OF THE PARTIES HERETO.
-6-
<PAGE>
13. Notices. Notices under this Agreement shall be deemed given if made
in writing and sent via prepaid first-class United States mail, or by nationally
recognized overnight courier, to:
If to Compass:
Compass Bancshares, Inc.
15 South 20th Street
Birmingham, Alabama 35233
Attn: Daniel B. Graves
Associate General Counsel
If to the Exchange Agent:
Continental Stock Transfer & Trust Company
2 Broadway, 19th Floor
New York, New York 10004
Attn: Steven G. Nelson
Chairman of the Board
If to the Company prior
to the Effective Time:
Fidelity Resources Company
6501 Hillcrest
University Park, Texas 75201
Attn.: William C. Murphy
President
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: Daniel B. Graves
-7-
<PAGE>
14. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15. Conflict. In the event the terms of this Agreement conflict with the
terms and provisions of the Merger Agreement, the terms and provisions of the
Merger Agreement shall be controlling.
16. Defined Terms. Capitalized terms not defined herein have the meanings
ascribed to them in the Merger Agreement.
[SIGNATURE PAGE FOLLOWS]
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized appointed officers on the date first written
above.
COMPASS BANCSHARES, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
FIDELITY RESOURCES COMPANY
By:
-----------------------------
Name:
---------------------------
Title:
-------------------------
CONTINENTAL STOCK TRANSFER & TRUST
COMPANY
By:
-----------------------------
Name:
---------------------------
Title:
-------------------------
_______________________________
By:
-----------------------------
Name:
---------------------------
Title:
-------------------------
Exhibit A - Form of Letters of Transmittal
Exhibit B - Shareholder List
-9-
<PAGE>
LETTER OF TRANSMITTAL
For Shares of Common Stock of Fidelity Resources Company
Delivered Pursuant to the Agreement and Plan of Merger dated
as of ________, 1997
By Mail or Overnight Delivery Service
to the Exchange Agent: Continental Stock Transfer & Trust Company
2 Broadway, 19th Floor
New York, New York 10004
Attention: Reorganization Department
DESCRIPTION OF SHARES SURRENDERED
Gentlemen:
I, as the registered holder of the below described Shares of Fidelity
Resources Company ("Company") hereby surrender to Compass Bancshares, Inc.
("Compass"), such Shares pursuant to the Agreement and Plan of Merger dated as
of ______________, as amended ("Merger Agreement"), by and between Compass,
______________________________. ("Compass Texas"), and the Company in exchange
for ____ shares of Compass Common Stock for each Share so surrendered. I hereby
acknowledge receipt of the Proxy Statement dated__________, 199__, which
described the merger ("Merger") provided by the Merger Agreement.
I represent and warrant to Compass 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 Continental Stock Transfer & 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.
<TABLE>
<CAPTION>
================================================================================================================
Name, Address and Social Security Number of Registered Holders Certificate(s) Surrendered
(correct if wrong)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Certificate Number(s) Total Number of Shares
Represented
by Certificate(s)
____________________ ____________________
____________________ ____________________
____________________ ____________________
Total Shares ____________________
================================================================================================================
</TABLE>
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 in the space below
SIGNATURES _________________________________ Date______________________
_________________________________ Date______________________
Printed Name(s)_________________________________ TIN or SSN#_______________
_________________________________
Capacity (Full Title)___________________________
Address ____________________________
(Include Zip Code) ____________________________ Area Code and Telephone
No. _______________________
================================================================================
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 ( 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.) (Assignees must
execute the Substitute W-9 enclosed):
Name and Address of Assignee
Name:______________________________________ Taxpayer I.D. No. or
(Type or print full name) Social Security No.:_____________
Address:_______________________________________________________________________
City, State, Zip Code:_________________________________________________________
================================================================================
GUARANTEE OF SIGNATURES (See Instruction 1.)
-----------------
Authorized Signature__________________________ Date_____________________, 1997
Printed Name __________________________
Title __________________________ PLACE MEDALLION GUARANTY IN
Name of Firm __________________________ SPACE BELOW
Address __________________________
Area Code and
Telephone No.________________
================================================================================
<PAGE>
_______________________________________________________________________________
PLEASE COMPLETE SUBSTITUTE FORM W-9. IT IS THE LAST FORM IN THIS PACKAGE
_______________________________________________________________________________
LETTER OF TRANSMITTAL INSTRUCTIONS
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; SIGNATURES;
SIGNATURE GUARANTEES. Please send all certificates for Shares to the 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 a participant in a Securities Transfer
Association recognized signature program. If Compass wishes to have your
signature guaranteed, 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 your Shares are registered in
different names on several certificates, it will be necessary to complete, sign
and submit as many separate Letters of Transmittal as there are different
registrations of certificates. If the tendered certificates are owned of
record by two or more joint owners, each of you must sign the Letter of
Transmittal. Questions regarding evidence of authority, requests for
assistance or additional copies of the Letter of Transmittal may be referred to
the Reorganization Department of the Exchange Agent, at (212) 509-4000,
extension 535.
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 AND PAYMENT FOR FRACTIONAL SHARES. 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. 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.
3. TRANSFERS. 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.
4. 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.
5. LOST CERTIFICATES. If your share certificates are lost, contact the
Exchange Agent in writing for further instructions.
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. 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. 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 in which event Compass will be required to withhold 31% of
any payments made to the shareholder.
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.
<PAGE>
COMPASS BANCSHARES, INC.
SUBSTITUTE FORM W-9
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
Taxpayer Identification Number
<TABLE>
<CAPTION>
<S> <C> <C>
PART 1 - PLEASE PROVIDE YOUR TAXPAYER IDENTIFICATION [ ]
NUMBER IN THE BOX AT RIGHT AND CERTIFY BY Social Security Number or
SIGNING AND DATING BELOW Employer Identification
Number
PART 2 - CHECK THE FOLLOWING BOX IF YOU ARE NOT SUBJECT TO BACKUP WITHHOLDING UNDER THE [ ]
PROVISIONS OF SECTION 3406(A)(1)(C) OF THE INTERNAL REVENUE CODE BECAUSE (1) YOU HAVE NOT
BEEN NOTIFIED THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF FAILURE TO REPORT
ALL INTEREST OR DIVIDENDS OR (2) THE INTERNAL REVENUE SERVICE HAS NOTIFIED YOU THAT YOU
ARE NO LONGER SUBJECT TO BACKUP WITHHOLDING.
PART 3 - Check the following box if you are awaiting a Taxpayer Identification Number. [ ]
</TABLE>
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.
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.
SIGNATURE: _______________________________________
DATE:_______________________________________
PRINTED NAME:_____________________________________
ADDRESS:_____________________________________
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.
______________________________________________________________________________
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.--
- -Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-
0000. Employer identification numbers have nine digits separated by only one
hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
- ----------------------------------------------- -----------------------------------------------------------
GIVE THE SOCIAL GIVE THE EMPLOYER
SECURITY NUMBER IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: OF ---- FOR THIS TYPE OF ACCOUNT: NUMBER OF ----
- ----------------------------------------------- -----------------------------------------------------------
<S> <C> <C> <C>
1. An individual's account The individual 9. A valid trust, estate, or The legal entity (Do not
pension trust furnish the identifying number
2. Two or more The actual owner of the of the personal representative
individuals (joint account or, if combined or trustee unless the legal
account) funds, any one of the entity itself is not
individuals (1) designated in the account
title.) (5)
3. Husband and wife (joint The actual owner of the
account) account or, if joint funds,
either person(1)
4. Custodian account of a The minor(2) 10. Corporate account The corporation
minor (Uniform Gift to
Minors Act)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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 incompetent person (3) tax-exempt organization
for a designated ward,
minor, or incompetent
person
7. a The usual revocable The grantor-trustee(1) 14. A broker or registered The broker or nominee
savings trust account nominee
(grantor is also
trustee)
b So-called trust The actual owner(1) 15. Account with the The public entity
account that is Department of Agriculture
not a legal or in the name of a public
valid trust entity (such as a State or
under State law local government, school
district, or prison) that
8. Sole proprietorship The owner(4) receives agricultural
account 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.
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.
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
<PAGE>
EXHIBIT C
POOLING OF INTEREST CRITERIA
----------------------------
ATTRIBUTES OF COMBINING ENTERPRISES
- -----------------------------------
(a) Autonomy Condition. Each of the combining enterprises is autonomous and
has not been a subsidiary or division of another enterprise within two
years before the plan of combination is initiated.
(b) Independence Condition. Each of the combining enterprises is independent
of the other combining enterprises.
MANNER OF COMBINING INTERESTS
- -----------------------------
(c) One-Year Rule. The combination is effected in a single transaction or is
completed in accordance with a specific plan within one year after the
plan is initiated.
(d) Common-Stock-for-Common-Stock-Condition. An enterprise offers and issues
only common stock with rights identical to those of the majority of its
outstanding voting common stock in exchange for substantially all of the
voting common stock interest of another enterprise at the date the plan of
combination is consummated.
(e) Change-in-Equity-Interests Condition. None of the combining enterprises
changes the equity interest of the voting common stock in contemplation of
effecting the combination either within two years before the plan of
combination is initiated or between the dates the combination is initiated
and consummated; changes in contemplation of effecting the combination may
include distributions to stockholders and additional issuances, exchanges,
and retirements of securities.
(f) Treasury-Stock Condition. Each of the combining enterprises reacquires
shares of voting common stock only for purposes other than business
combinations, and no enterprise reacquires more than a normal number of
shares between the dates the plan of combination is initiated and
consummated.
(g) Proportionate-Interest Condition. The ratio of the interest of an
individual common stockholder to those of other common stockholders in a
combining enterprise remains the same as a result of the exchange of stock
to effect the combination.
(h) Voting-Rights Condition. The voting rights to which the common stock
ownership interests in the resulting combined enterprise are entitled are
exercisable by the stockholders; the stockholders are neither deprived of
nor restricted in exercising those rights for a period.
<PAGE>
(i) Contingency Condition. The combination is resolved at the date the plan is
consummated and no provisions of the plan relating to the issue of
securities or other consideration are pending.
ABSENCE OF PLANNED TRANSACTIONS
- -------------------------------
(j) The combined enterprise does not agree directly or indirectly to retire or
reacquire all or part of the common stock issued to effect the combination.
(k) The combined enterprise does not enter into other financial arrangements
for the benefit of the former stockholders of a combining enterprise, such
as a guaranty of loans secured by stock issued in the combination, that in
effect negates the exchange of equity securities.
(l) The combined enterprise does not intend or plan to dispose of a significant
part of the assets of the combining enterprises within two years after the
combination other than disposals in the ordinary course of business of the
formerly separate enterprise and to eliminate duplicate facilities or
excess capacity.
-2-
<PAGE>
EXHIBIT D
VOTING AGREEMENT AND IRREVOCABLE PROXY
This Voting Agreement and Irrevocable Proxy (this "Agreement") dated
as of ________ __, 1997 is executed by and among Fidelity Resources Company, 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 as of _______ ___, 1997 (the "Merger Agreement")
whereby the Company will merge with an existing or to-be-formed wholly-owned
subsidiary of Compass (the "Merger"); and
WHEREAS, Section 6.11 of the Merger Agreement requires that the
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.
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
<PAGE>
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 or increase the liabilities or
responsibilities of 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 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.
2
<PAGE>
10. This Agreement, together with the Merger Agreement and the
agreements contemplated thereby, embody the entire agreement and understanding
of the parties hereto in respect to the subject matter contained herein. This
Agreement supersedes all prior agreements and understandings among the parties
with respect to such subject matter contained herein.
11. All notices, requests, demands and other communications required
or permitted hereby shall be in writing and shall be deemed to have been duly
given if delivered by hand or mail, certified or registered mail (return receipt
requested) with postage prepaid to the addresses of the parties hereto set forth
on below their signature on the signature pages hereof or to such other address
as any party may have furnished to the others in writing in accordance herewith.
12. This Agreement and the relations among the parties hereto arising
from this Agreement shall be governed by and construed in accordance with the
laws of the State of Texas.
[SIGNATURE PAGES FOLLOW]
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
above written.
FIDELITY RESOURCES COMPANY
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Address:
-----------------------------------
-----------------------------------
Attention:
-------------------------
COMPASS BANCSHARES, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Address:
15 South 20th Street
Birmingham, Alabama 35233
Attention: Mr. Daniel B. Graves
Associate General Counsel
4
<PAGE>
SHAREHOLDERS:
___________________________________
___________________________________
Address: _________________________
_________________________
____________ shares of Common Stock
Pledgee: _________________________
Address: _________________________
_________________________
Loan No.: _________________________
5
<PAGE>
EXHIBIT E
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. FRCD is a
Delaware corporation and a bank holding company under the Bank Holding Company
Act of 1956, as amended, and is duly organized, validly existing and in good
standing under the laws of the State of Delaware. The Bank is a national banking
association, duly organized, validly existing and in good standing under the
laws of the United States of America. Each of the Company and its Subsidiaries
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
95,000,000 shares of Company Common Stock (as defined in the Agreement) of which
_________ 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 FRCD; FRCD 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 FRCD and the Bank are 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 its Subsidiaries to issue
any shares of, restricting the transfer of, or otherwise relating to shares of
their respective capital stock of any class;
<PAGE>
(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 its
Subsidiaries, (b) to the best of our knowledge and except as disclosed in the
Agreement, any note, license, instrument, mortgage, deed of trust, or other
agreement or understanding, permit, authorization or contract, order,
arbitration award, judgment or decree, or any other restriction of any kind or
character known to us to which the Company or its Subsidiaries is a party or by
which the Company or its Subsidiaries 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 its Subsidiaries, 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 any of its Subsidiaries 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 any of its
Subsidiaries, which by the terms of the Agreement would required to be set forth
in Schedule 3.12;
(viii) to the best of our knowledge and except as set forth on Schedule
3.18 to the Agreement, neither the Company nor any of its Subsidiaries 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 F
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 of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law);
(iii) the shares of Compass Common Stock to be issued pursuant to the
Agreement are validly issued, fully paid and nonassessable; and, to the best of
our knowledge and except as contemplated by the Agreement, the shares of Compass
Common Stock issued pursuant to the Agreement are not subject to any agreements
or understandings to which Compass is a party with respect to the voting or
transfer of such shares, are not subject to any agreements or understandings
among any other parties with respect to the voting or transfer of such shares,
and have not been issued in violation of the preemptive rights of any person;
(iv) the execution and delivery by Compass and Compass Texas of the
Agreement does not and the consummation of the transactions contemplated thereby
will not contravene or violate any provision of or constitute a default under
(a) the certificate 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,
<PAGE>
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>
EXHIBIT G
---------
COMPASS TEXAS REPRESENTATIONS CERTIFICATE
____________ ("Compass Texas") hereby represents and warrants to the
Company as follows. Capitalized terms not otherwise defined herein shall have
the meanings ascribed to them in the Agreement and Plan of Merger dated
_________________, 1997 by and between Compass Bancshares, Inc. and Fidelity
Resources Company (the "Agreement").
1. Compass Texas is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and has all requisite
corporate power and authority to conduct its business as now conducted, to own,
lease and operate its properties and assets, as now owned, leased or operated
and to enter into and carry out its obligations under the Agreement.
2. Compass Texas has full corporate power and authority and no further
corporate proceedings on the part of Compass Texas are necessary to execute and
deliver the Amendment to Agreement and Plan of Merger dated ___________, 199_
("Amendment") and to consummate the transactions contemplated thereby, all of
which have been duly and validly authorized by Compass Texas' Board of
Directors. The Amendment has been duly executed and delivered by Compass Texas
and is a duly authorized, valid, legally binding and enforceable obligation of
Compass Texas, subject to the effect of bankruptcy, insolvency, reorganization,
moratorium, or other similar laws relating to creditors' rights generally and
general equitable principles, and subject to such shareholder approvals and such
approval of regulatory agencies and other governmental authorities having
authority over Compass Texas as may be required by statute or regulation.
Except as set forth on the Schedule attached hereto, neither the execution,
delivery nor performance of the Amendment in its entirety, nor the consummation
of all the transactions contemplated thereby, following the receipt of such
approvals as may be required from the SEC, the OCC, the FRB, the FDIC, and the
Department will (i) violate (with or without the giving of notice or passage of
time), any law, order, writ, judgment, injunction, award, decree, rule, statute,
ordinance or regulation applicable to Compass Texas.
3. No representation or warranty by Compass Texas in the Amendment, nor
any statement or exhibit furnished to the Company or the Bank under and pursuant
to, or in anticipation of the Amendment, contains or will contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements contained herein or therein not misleading.
IN WITNESS WHEREOF, Compass Texas has executed this Certificate this
_____ day of ____________, 199_.
_____________________________________
By:__________________________________
Name:________________________________
Title:_______________________________
Compass Texas Representations Certificate
<PAGE>
EXHIBIT H
______, 1998
Compass Bancshares, Inc.
15 South 20th Street
Birmingham, Alabama 35233
Fidelity Resources Company
6501 Hillcrest
University Park, Texas 75201
Gentlemen:
You have requested our opinion as to the likely federal income tax
consequences of the proposed merger (the "Merger") of Fidelity Resources Company
(the "Company") with and into a wholly-owned first-tier subsidiary ("Sub") of
Compass Bancshares, Inc. ("Compass") pursuant to the Agreement and Plan of
Merger dated ____________, 1997 by and among Compass, Sub, and the Company (the
"Merger Agreement"), with the shareholders of the Company receiving solely
Compass voting common stock.
In issuing the opinion set forth in this letter, we have relied upon (1)
the Merger Agreement, (2) the facts, representations, information and
documentation set forth in the Registration Statement on Form S-4 of Company
filed with the Securities and Exchange Commission in connection with the Merger
(the "Registration Statement"), and (3) the representations and assumptions
below:
a. In the Merger, Sub will acquire "substantially all" of the
historic assets of the Company, Fidelity Resources Company of
Delaware ("FRCD"), and Fidelity Bank National Association
("Bank"), and after the Merger, Compass or its subsidiaries will
continue to hold such assets to carry on the historic businesses
of the Company, FRCD and the Bank. Thereafter, FRCD will merge
with Compass Bancorporation of Texas, Inc. ("Bancorp") and the
Bank will merge with Compass Bank (collectively, the "Bank
Merger"). Bancorp and Compass Bank are indirect wholly-owned
subsidiaries of Compass.
b. Each shareholder and entity participating in the Merger will pay
its own expenses incurred in connection with the Merger.
<PAGE>
Compass Bancshares, Inc.
Fidelity Resources Company
___________, 1998
Page 2
c. The adjusted tax basis and fair market value of the assets
acquired in the Merger exceeds the sum of the liabilities assumed
by Sub as part of the Merger and the amount of the liabilities to
which the transferred assets are subject.
The opinion set forth in this letter is predicated upon the facts and
representations set forth in the Merger Agreement, the Registration Statement
and this letter. Any change in such facts may adversely affect our opinion.
Furthermore, as explained below, our opinion is based upon the existing
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
current applicable regulations promulgated under the Code, current published
administrative positions of the Internal Revenue Service such as revenue rulings
and revenue procedures, and existing judicial decisions as of the date hereof,
all of which are subject to change either prospectively or retroactively. Any
change in such authorities may adversely affect our opinion. We assume no
obligation to update our opinion subsequent to the date of the consummation of
the Merger for any deletions or additions to or modifications of any law
applicable to the Merger.
Based on our review of the Merger Agreement, the Registration Statement and
the information and assumptions set forth herein, and assuming that the
transactions described therein are completed as described, our opinion as to
federal income tax consequences of the Merger is as follows.
1. Provided that the Merger qualifies as a statutory merger under the laws of
the state of Texas, the Merger will constitute a reorganization within the
meaning of Section 368 of the Code.
2. Compass, Sub and the Company will each be a "party to a reorganization"
within the meaning of Section 368(b) of the Code.
3. Neither Compass nor the Company will recognize any gain or loss as a result
of the Merger.
4. Pursuant to Section 354(a)(1) of the Code, no gain or loss will be
recognized by Company shareholders who exchange all of their Company common
stock for shares of Compass voting common stock whether or not Compass
proceeds with the Bank Merger after the Merger.
5. Pursuant to Revenue Ruling 66-365, 1966-2 C.B. 116, and Revenue Procedure
77-41, 1977-2 C.B. 574, if a cash payment is received by a shareholder of
the Company in lieu of a fractional share interest of Compass voting stock,
the cash payment will be treated as received by the shareholder as a
distribution in redemption of that fractional share interest and will be
treated as a distribution in full payment in exchange for the fractional
share
<PAGE>
Compass Bancshares, Inc.
Fidelity Resources Company
___________, 1998
Page 2
redeemed subject to the provisions and limitations of Section 302 of the
Code and considering the application of Section 318 of the Code. Similar
treatment will apply to any dissenting shareholders who receive cash.
We express no opinion with regard to the federal income tax consequences of
the Merger not addressed expressly by the above opinions. In addition, we
express no opinion as to any state, local or foreign tax consequences with
respect to the Merger.
This opinion is being furnished only to you in connection with the Merger
and solely for your benefit in connection therewith and may not be used or
relied upon for any other purpose and may not be circulated, quoted or otherwise
referred to for any other purpose without our express written consent.
The shareholders of the Company should consult with a qualified tax advisor
with respect to any reporting requirements which may be applicable, or to any
tax considerations other than those expressly mentioned herein.
Very truly yours,
<PAGE>
EXHIBIT I
RELEASE OF CLAIMS
-----------------
THIS RELEASE OF CLAIMS ("Release") dated the __ day of ______, 1998, is
executed and delivered by the person executing below to Fidelity Resources
Company, a Texas corporation (the "Company"), and __________, a ___________
(collectively, the "Subsidiaries").
WHEREAS, Compass Bancshares, Inc. ("Compass") is to acquire the Company
pursuant to that certain Agreement and Plan of Merger dated as of September 25,
1997, by and between Compass and the Company, as amended (the "Agreement"),
whereby the Company will be merged with a wholly-owned subsidiary of Compass;
and
WHEREAS, Compass has required as a condition to such acquisition that the
undersigned execute and deliver this Release to confirm the absence of any
claims by the undersigned against the Company or its subsidiaries
("Subsidiaries");
NOW, THEREFORE, in consideration of the premises contained herein and ten
dollars and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the undersigned hereby agrees as follows:
Section 1. Release. The undersigned hereby RELEASES and FOREVER
DISCHARGES the Company and its Subsidiaries from all manners of action, causes
of action, suits, debts, sums of money, accounts, reckonings, bonds, bills,
specialties, covenants, contracts, controversies, agreements, premises,
variances, trespasses, damages, judgments, executions, claims and demands
whatsoever in law or in equity which the undersigned ever had, now has, or
hereafter can, shall or may have against the Company or its Subsidiaries, in
respect of any and all agreements and obligations incurred on or prior to the
date hereof, or in respect of any event occurring or circumstances existing on
or prior to the date hereof; provided, however, that the Company and its
Subsidiaries shall not be released from any of their respective obligations or
liabilities to the undersigned (i) in respect of accrued compensation permitted
by any written agreement with the Company or its Subsidiaries which is attached
hereto as Exhibit A or which has been scheduled and made part of the Agreement;
(ii) in connection with any indebtedness or contractual obligation or liability
to the undersigned existing on the date hereof; and (iii) as to rights of
indemnification pursuant to the Articles of Incorporation or Association of the
Company and its Subsidiaries.
Section 2. Successors. This Release shall be binding upon the undersigned
and his or her heirs, devisees, administrators, executors, personal
representatives, successors and assigns and shall inure to the benefit of the
Company and its Subsidiaries and their respective successors and assigns.
Section 3. Governing Law. This Release shall be governed by and construed
in accordance with the laws of the State of Texas, without giving effect to
Texas principles of conflicts of law.
<PAGE>
Section 4. Counterparts. This Release may be executed in several
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one and the same instrument.
Section 5. Modification. This Release may be modified only by a written
instrument executed by the undersigned and the Company and its Subsidiaries.
IN WITNESS WHEREOF, the undersigned has executed this Release effective as
of the date first above written.
---------------------------------------
Signature
---------------------------------------
Printed Name
STATE OF TEXAS (S)
(S)
COUNTY OF HARRIS (S)
This instrument was acknowledged before me on ________, 1998 by
____________________.
---------------------------------------
Notary Public in and for the
State of Texas
---------------------------------------
Notary's Name Typed or Printed
My Commission Expires:_________________
2
<PAGE>
EXHIBIT A
---------
3
<PAGE>
EXHIBIT K
RELEASE OF CLAIMS
-----------------
THIS RELEASE OF CLAIMS ("Release") dated the ___ day of ____, 1998, is
executed and delivered by Fidelity Resources Company, a Texas corporation (the
"Company"), Fidelity Bank National Association, a national bank and Fidelity
Resources Company of Delaware, a Delaware corporation (collectively, the
"Subsidiaries").
WHEREAS, the persons listed on Exhibit A attached hereto and made a part
hereof constitute the duly elected directors ("Directors") of the Company and
the Subsidiaries on the date hereof;
WHEREAS, Compass Bancshares, Inc., a Delaware corporation ("Compass"), is
to acquire the Company pursuant to that certain Agreement and Plan of Merger
dated as of ______________, 1997 by and between Compass and the Company, as
amended ("Agreement"), whereby the Company will be merged with a wholly-owned
subsidiary of Compass; and
WHEREAS, the Company has required as a condition to such acquisition that
the Directors be released of any claims by the Company or its Subsidiaries
against the Directors;
NOW, THEREFORE, in consideration of the premises contained herein and ten
dollars and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Company and its Subsidiaries hereby agree
as follows:
Section 1. Release. The Company and the Subsidiaries hereby RELEASE and
FOREVER DISCHARGE the Directors from all manners of action, causes of action,
suits, debts, sums of money, accounts, reckonings, bonds, bills, specialties,
covenants, contracts, controversies, agreements, premises, variances,
trespasses, damages, judgments, executions, claims and demands whatsoever in law
or in equity which the Company or the Subsidiaries ever had, now have, or
hereafter can, shall or may have against the Directors, in respect of any and
all agreements and obligations incurred on or prior to the date hereof, or in
respect of any event occurring or circumstances existing on or prior to the date
hereof; provided, however, that no Director shall be released from (i) any
action arising from intentional fraud, deceit or wilful misconduct in connection
with the transactions contemplated by the Agreement or otherwise, or (ii) his or
her obligations or liabilities to the Company or the Subsidiaries in connection
with any indebtedness or any contractual obligation or liability of such
Director to the Company or the Subsidiaries existing on the date hereof.
<PAGE>
Section 2. Successors. This Release shall be binding upon the Company,
and the Subsidiaries and their respective successors and assigns and shall inure
to the benefit of the Directors and their respective heirs, devisees,
administrators, executors, successors and assigns.
Section 3. Governing Law. This Release shall be governed by and construed
in accordance with the laws of the State of Texas, without giving effect to
Texas principles of conflicts of law.
Section 4. Counterparts. This Release may be executed in several
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one and the same instrument.
Section 5. Modification. This Release may be modified as to any Director
only by a written instrument executed by the undersigned and such Director.
IN WITNESS WHEREOF, the Company and the Subsidiaries have executed this
Release effective as of the date first above written.
FIDELITY RESOURCES COMPANY
By: _____________________________________
Name: ___________________________________
Title: __________________________________
FIDELITY BANK NATIONAL ASSOCIATION
By: _____________________________________
Name: ___________________________________
Title: __________________________________
FIDELITY RESOURCES COMPANY
OF DELAWARE
By: _____________________________________
Name: ___________________________________
Title: __________________________________
2
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was acknowledged before me on ________, 1998 by
____________________, the ______________ of Fidelity Resources Company.
_________________________________________
Notary Public in and for the
State of Texas
_________________________________________
Notary's Name Typed or Printed
My Commission Expires: __________________
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was acknowledged before me on ______, 1998 by
___________________, the __________________ of Fidelity Bank National
Association, a national bank.
_________________________________________
Notary Public in and for the
State of Texas
_________________________________________
Notary's Name Typed or Printed
My Commission Expires: __________________
3
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
This instrument was acknowledged before me on ________, 1998 by
____________________, the ______________ of Fidelity Resources Company of
Delaware.
_________________________________________
Notary Public in and for the
State of Texas
_________________________________________
Notary's Name Typed or Printed
My Commission Expires: __________________
4
<PAGE>
EXHIBIT A
---------
Directors
<PAGE>
EXHIBIT L-1
NONCOMPETITION AGREEMENT
------------------------
NONCOMPETITION AGREEMENT, dated October 10, 1997 by and among Compass
Bancshares, Inc., a Delaware corporation ("Compass"), Compass Bank, a Texas
banking corporation ("Compass Bank") and Pat S. Bolin ("Bolin").
WHEREAS, pursuant to the Agreement and Plan of Merger, dated as of October
10, 1997 (the "Merger Agreement"), between Compass and Fidelity Resources
Company, a Texas corporation (the "Company"), such parties have agreed to the
Merger as defined therein;
WHEREAS, Bolin is director and 40% shareholder of the Company and a
director of Fidelity Bank National Association (the "Bank");
WHEREAS, the Merger Agreement requires, as a condition to the closing, that
Bolin execute and deliver this agreement to Compass; and
WHEREAS, Bolin acknowledges that the restrictions against competition and
the other agreements set forth in this Agreement have constituted a substantial
inducement to Compass to enter into the Merger Agreement, and that none of such
restrictions or agreements set forth in the Agreement will be unduly burdensome
on Bolin.
NOW, THEREFORE, in consideration of the receipt of consideration under the
Merger Agreement, the payment of certain life insurance premiums, and of the
mutual promises set forth in this Agreement, the parties hereto agree as
follows:
1. Definitions. Terms used but not defined in this Agreement shall have
the meanings ascribed to them in the Merger Agreement.
2. Noncompetition.
(a) Noncompetition. Bolin agrees that for a period of two (2) years
following the Closing, he will not, directly or indirectly, for his own benefit
or the benefit of others, as a partner, stockholder, consultant, agent, joint
venturer, investor, lender, employee, or in any other capacity whatsoever, alone
or in association with others (i) own, manage, operate, control or participate
in the ownership, management, operation, or control of or work for or permit the
use of his name by, or be connected in any manner with, any business activity of
a kind which is traditionally carried on by commercial banks, including lending,
depository or trust activities, but excluding data processing, insurance,
premium finance, investment banking, merchant banking or brokerage activities
("Banking Business") in Dallas County, Texas ("Dallas") which at the time is
conducted by
<PAGE>
Compass, Compass Bank or any affiliate of Compass in Dallas, except that this
prohibition shall not apply to the ownership of up to 5 percent of the equity of
any other publicly traded entity, or (ii) solicit to do Banking Business with or
accept Banking Business from any person (natural or otherwise), or (iii) solicit
for employment or hire any person currently employed as an officer or member of
middle management by Compass, Compass Bank or any former employee of the Company
and/or the Bank. Bolin further agrees that, for a period of two (2) years
following the Closing, he will not, directly or indirectly, in any capacity
whatsoever, own, manage, operate, control or participate in the ownership,
management, operation or control of, or work for or permit the use of his name
by, or be connected in any manner with, any business activity in Dallas that
operates under or uses or identifies itself with the name "Fidelity Bank," or a
name substantially similar thereto.
(b) Restrictions Reasonable. The restrictions against competition set
forth above are considered by the parties to be reasonable for the purposes of
protecting the value intended to be received by Compass in connection with the
transactions contemplated by the Merger Agreement. If any such restriction is
found by any court of competent jurisdiction to be unenforceable because it
extends for too long a period of time or over too broad a range of activities or
over too large a geographic area, such restriction shall be interpreted and
reformed to extend only over the maximum period of time, range of activities or
geographic area as to which it may be enforceable.
(c) Specific Performance. Bolin acknowledges that Compass would be
irreparably harmed and that monetary damages would not provide an adequate
remedy in the event of a breach of the provisions of this Section 2.
Accordingly, Bolin agrees that Compass and Compass Bank shall be entitled to
injunctive relief, in addition to any other remedies available to Compass and
Compass Bank, and that Compass and Compass Bank shall be entitled to receive
reimbursement for their reasonable attorney's fees and disbursements incurred in
enforcing any such provision. The prevailing party in any litigation under this
Agreement shall be entitled to its reasonable attorney's fees and expenses.
3. Life Insurance Premiums. During the three (3) year period following the
Closing and thereafter during such period as Bolin serves as an advisory
director of Compass Bank, Compass or Compass Bank shall cause to be paid the
annual premiums as they become due on that certain Life Insurance Policy Number
6,050,014 issued by Connecticut Mutual Life Insurance Company.
4. Miscellaneous.
(a) Entire Agreement. This Agreement contains every obligation and
understanding between the parties relating to the subject matter hereof and
merges all prior discussions, negotiations and agreements, if any, between them,
and none of the parties shall be bound byany conditions, definitions,
understanding, warranties or representations other than as expressly provided or
referred to herein.
(b) Governing Law This Agreement has been entered into and shall, be
construed and
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<PAGE>
enforced in accordance with the laws of the State of Texas without reference to
the choice of law principles thereof.
(c) Waiver and Amendment. Any representation, warranty, covenant, term or
condition of this Agreement which may be legally waived, may be waived, or the
time of performance thereof extended, at any time by the party hereto entitled
to the benefit thereof, and any term, condition or covenant hereof (including,
without limitation, the period during which any condition is to be satisfied or
any obligation performed) may be amended by the parties hereto at any time. Any
such waiver, extension or amendment shall be evidenced by an instrument in
writing executed by Bolin and by Compass (by its Chairman, and Chief Executive
Officer or any Vice President or other person, who has been authorized by its
Board of Directors to execute waivers, extensions or amendments on its behalf).
No waiver by any party hereto whether express or implied, of its rights under
any provision of this Agreement shall constitute a waiver of such party's rights
under such provisions at any other time or a waiver of such party's rights under
any other provision of this Agreement. No failure by any party hereto to take
any action against any breach of this Agreement or default by another party
shall constitute a waiver of the former party's right to enforce any provision
of this Agreement or to take action against such breach or default or any
subsequent breach or default by such other party.
(d) Assignment. This Agreement shall inure to the benefit of Compass,
Compass Bank and their successors and assigns.
(e) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered if delivered in person, by cable, telegram or telex or
by telecopy; five business days after mailing, if delivered by registered or
certified mail (postage prepaid, return receipt requested); and two business
days after sending if delivered by overnight courier; to the respective parties
as follows (or at such other address as a party may specify by notice to the
others):
If to Bolin, to:
Mr. Pat S. Bolin
8111 Preston Road #900
Dallas, Texas 75225
If to Compass and Compass Bank, to:
Compass Bancshares, Inc.
15 South 20th Street
Birmingham, Alabama 35233
Attention: Jerry W. Powell
General Counsel
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<PAGE>
(f) Severability. In the event that any one or more of the provisions
contained in this Agreement shall be declared invalid, void or unenforceable,
the remainder of the provisions of this Agreement shall remain in full force
and effect, and such invalid, void or unenforceable provision shall be
interpreted as closely as possible to the manner in which it was written.
(g) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(h) Section Headings. The section headings in this Agreement are for the
convenience of reference only and shall not be deemed to alter or affect any
provision hereof.
IN WITNESS WHEREOF, each of the parties hereto have duly executed this
Agreement as of the date set forth above.
-----------------------------------
Pat S. Bolin, as an individual
ATTEST COMPASS BANCSHARES, INC.
By:_____________________________ By:________________________________
Its:____________________________ Its:_______________________________
ATTEST COMPASS BANK
By:_____________________________ By:________________________________
Its:____________________________ Its:_______________________________
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<PAGE>
EXHIBIT L-2
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, is made and entered into as of October 10, 1997, effective
as of the date set forth hereinafter, by and between Compass Texas Management,
Inc., a Texas corporation ("Compass"), and William C. Murphy ("Employee").
WHEREAS, Employee has been an employee of Fidelity Resources Company,
Fidelity Resources Company of Delaware and Fidelity Bank National Association
(jointly herein called the "Company") which will be acquired ("Merger") by
Compass Bancshares, Inc. and its affiliates pursuant to an Agreement and Plan of
Merger dated as of October 10, 1997 ("Merger Agreement"), and Employee
acknowledges that (i) the Company has been engaged for a number of years in the
business of banking, lending, deposit taking, and related banking and trust
services (the "Business") in the Dallas, Texas Primary Metropolitan Statistical
Area ("Dallas PMSA"); (ii) Employee is one of a limited number of persons
instrumental in the development of the Business of the Company; (iii) Employee's
work for the Company has given him and will continue to give him access to trade
secrets and confidential information concerning the Business and the
relationships between the Company and its customers; (iv) Employee's employment
with Compass will give him access to trade secrets and confidential information
concerning the business and customer relationships of Compass and its
affiliates; (v) the agreements and covenants contained in this Agreement are
essential to protect the Business and goodwill of the Company being acquired by
Compass Bancshares, Inc. and the business and goodwill of Compass and its
affiliates, and (vi) that Compass would not employ Employee except for such
covenants and agreements.
NOW, THEREFORE, in consideration of the agreements herein contained, the
receipt and sufficiency of which are hereby acknowledged, Compass and Employee
hereby agree, effective as of the date of the consummation of the Merger, as
follows:
1. Employment. Commencing on the effective date of the Merger and for a
period of three years thereafter ("Term"), Compass agrees to employ Employee and
Employee agrees to act as an Executive Vice President of Compass Bank, an
affiliate of Compass (the "Bank"). Employee hereby accepts such employment on
the terms and conditions set forth in this Agreement.
2. Position and Responsibilities. Employee will be engaged by the Bank
in said capacity and will provide such services and be domiciled in the Dallas
PMSA (unless Employee otherwise agrees) as may be determined by the Chief
Executive Officer of Compass and the Bank Board of Directors in accordance and
compliance with the rules and regulations of Compass and the Bank as adopted
orally or in writing by the Board of Directors of Compass and to carry out
orders, directions, and policies announced to Employee by Compass or the Bank
unless such orders, directions or policies violate applicable laws and
regulations. During the Term, Employee shall devote his full business time and
efforts to the performance of his duties hereunder. It is, however, understood
and agreed that the preceding sentence shall not prohibit Employee from spending
a reasonable amount of time managing his personal investments and discharging
his civic responsibilities as long as such activities do not interfere with the
discharge of his duties hereunder. During the Term, Employee
<PAGE>
will not serve as an officer or director of any business enterprise (other than
the Bank) without the prior approval of the Chief Executive Officer of Compass.
3. Compensation. (a) Compass shall pay Employee (or cause to be paid by
the Bank) for all services and agreements of Employee pursuant to this
Agreement, and any other duties assigned to him by Compass, an annual base
salary of $192,579 per year with merit increases in accordance with Compass
Bank's salary administration program based upon performance, which shall be
payable in accordance with Compass' customary payroll practices with respect to
time and manner of payment. Compass shall also pay Employee a car allowance in
accordance with the Bank's policies in effect from time to time. Employee shall
also be entitled to participate, up to 50% of Employee's base annual salary, in
the Compass Bancshares, Inc. executive incentive program.
(b) If Employee's employment under this Agreement is terminated by
Compass for other than death or "good cause", as defined in Section 6 hereof,
Compass will pay (or cause to be paid) the compensation provided by this
Agreement for the remainder of the Term. In the event of the termination of
Employee's employment under this Agreement because of Employee's disability, as
defined in Section 6 hereof, any payments of disability benefits to Employee
under any disability insurance policy or disability benefit plan covering
Employee maintained by Compass or its affiliates, as it may exist from time to
time, shall be treated as payments by Compass toward satisfaction of its
obligations under this Agreement. Such payments shall be paid in accordance
with Compass' customary payroll practices with respect to the time and manner of
payment. Payments received under medical insurance policies are not counted
toward this obligation. If Employee, dies, resigns or is terminated for "good
cause", Compass shall have no further obligation to Employee under this
Agreement or otherwise.
4. Benefits.
(a) During the Term, Compass shall provide Employee such benefits as
are made generally available to employees of equal title and base salary on the
same basis as Compass makes such benefits available to Compass' other employees,
including participation in the Compass Bancshares, Inc. retirement plan.
(b) Compass shall also reimburse Employee for expenses related to the
use of one car phone used for business purposes and for monthly membership dues
in one country club.
(c) During the Term, Compass shall pay the annual premiums as they
become due on that certain Life Insurance Policy Number 6031596 issued by
Connecticut Mutual Life Insurance Company.
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<PAGE>
5. Confidentiality; Nonsolicitation; Noncompetition.
(a) Employee recognizes and acknowledges that he has and will have access
to confidential information of a special and unique value concerning Compass and
its affiliates which may include, without limitation, books and records relating
to operations, customer names and addresses, customer service requirements,
customer financial statements and other financial, business and personal
information relating to Compass and its affiliates, their customers, markets,
officers and employees, cost of providing service and equipment, operating and
maintenance costs, and pricing criteria. Employee also recognizes that a
portion of the business of Compass and its affiliates is dependent upon trade
secrets, including techniques, methods, systems, processes, data and other
confidential information. The protection of these trade secrets and
confidential information against unauthorized disclosure or use is of critical
importance to Compass. Employee therefore agrees that, without prior written
authorization from the Chief Executive Officer of Compass, he will not at any
time, either while employed by Compass or the Bank or afterwards, make any
independent use of, or disclose to any other person, any trade secrets or
confidential information of Compass or its affiliates or the Company. The
agreements contained in this Section 5(a) shall survive the termination of this
Agreement.
(b) All records, files, memoranda, reports, price lists, customer
lists, documents, and other information (together with all copies thereof) which
relate to Compass, its affiliates, or the Company, and which Employee, either
prior to or during the Term, has obtained or obtains, uses, prepares, or comes
in contact with shall remain the sole property of Compass and its affiliates.
Upon the termination of Employee's employment by Compass, or upon the prior
demand of Compass, all such materials and all copies thereof shall be returned
to the Company (or its successors by merger) immediately.
(c) To support the agreements contained in Section 5(a) hereof, from
the date hereof and for a period of one (1) year after Employee's employment
with Compass or the Bank is terminated for any reason (other than by reason of a
breach of this Agreement by Compass), Employee, on behalf of himself and his
present and future affiliates and employers (other than the Company or its
successors by merger), agrees not to and shall not directly or indirectly (i)
hire, employ or engage any past, present or future employee of Compass, its
affiliates or the Company, without the prior written permission of the Chief
Executive Officer of Compass, (ii) compete for or solicit banking, lending,
deposit taking or any other banking or trust services business for or on behalf
of any bank or other financial institution with a place of business in the
Dallas PMSA, or own, operate, participate in, undertake any employment with or
have any interest in any bank or other financial institution with a place of
business in the Dallas PMSA, except owning publicly traded stock for investment
purposes only in which Employee owns less than 5% (iii) compete for or solicit
banking, lending, deposit taking or any other banking or trust services business
from any customer of the Company (or its successors by merger), or (iv) use in
any competition, solicitation or marketing effort any proprietary list of or
other information concerning customers of the Company, Compass or its affiliates
developed by the Company, Compass or its affiliates.
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<PAGE>
(d) In the event of a breach or threatened breach by Employee of the
provisions of this Section 5, Compass shall be entitled to temporary or
permanent injunctions and other appropriate relief restraining Employee from
using or disclosing, in whole or in part, trade secrets and confidential
information or violating the other provisions hereof. Employee hereby waives
any requirement that Compass post any bond in connection with obtaining any such
relief. Nothing herein shall be construed as prohibiting Compass from pursuing
any other remedies available to it.
6. Termination of Employment. Employee's employment with Compass shall
be terminated upon the occurrence of any one or more of the following events:
(a) Compass gives written notice of termination for good cause to
Employee. For the purposes of this Agreement, "good cause" shall include,
without limitation, a willful and material violation of applicable banking laws
and regulations; dishonesty; theft; fraud; embezzlement; the commission of a
felony or a crime involving moral turpitude; violation of Compass' or the Bank's
drug and alcohol policy; conduct disloyal to Compass or its affiliates; willful
disregard of lawful instructions of the officers or directors of Compass or its
affiliates relating to a material matter; or any other breach of this or any
other agreement between Employee and Compass.
(b) Death.
(c) The disability of Employee. For purposes of this Agreement,
"disability" shall mean a mental or physical condition resulting from an injury
or illness which shall render Employee incapable of performing the essential
functions of his position with reasonable accommodations from Compass.
(d) Resignation of Employee who agrees to provide not less than 60
days prior written notice of his resignation to Compass.
7. Notices. Any notice required or desired to be given under this
Agreement shall be deemed given if in writing mailed or delivered as follows:
If to Employee:
William C. Murphy
6501 Hillcrest
University Park, Texas 75205
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<PAGE>
If to Compass:
Charles E. McMahen
Compass Texas Management, Inc.
24 Greenway Plaza
Suite 1401
Houston, Texas 77046
8. Entire Agreement. This Agreement contains the entire agreement of the
parties regarding the employment of Employee by Compass and supersedes any prior
agreement, arrangement or understanding, whether oral or written, between
Compass and Employee concerning Employee's employment hereunder.
9. Choice of Law. This Agreement shall be governed by, and enforced
according to, the laws of the State of Texas. The invalidity of any provision
shall be automatically reformed to the extent permitted by applicable law and
shall not affect the enforceability of the remaining provisions hereof.
10. Assignment. This Agreement is for the personal service of Employee
and may not be assigned by Employee but may be assigned by Compass to any
affiliate or successor in interest to Compass' business. In the event Compass
makes such an assignment, Employee shall continue to perform, on behalf of such
affiliate or successor, the services required of Employee by this Agreement and
the provisions of this Agreement shall be binding upon, and inure to the benefit
of, such successor or affiliate. This Agreement shall be binding upon and inure
to the benefit of Employee, his heirs, representatives and estate.
11. Modification; Termination. This Agreement may be modified only by
written agreement signed by Employee and by a duly authorized officer of
Compass. The failure to insist upon compliance with any provision hereof shall
not be deemed a waiver of such provision or any other provision hereof. This
Agreement shall terminate if the Merger Agreement shall be terminated, provided
however, Employee agrees that if this Agreement is terminated he will keep
confidential any confidential information received from Compass or its
affiliates prior to such termination.
12. Counterparts. This Agreement may be executed in several identical
counterparts, and by the parties hereto on separate counterparts, and each
counterpart, when so executed and delivered, shall constitute an original
instrument, and all such separate counterparts shall constitute but one and the
same instrument.
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<PAGE>
IN WITNESS WHEREOF, this Agreement is executed by the parties as of
the day and year first above written, but shall not become effective until the
consummation of the Merger.
COMPASS TEXAS MANAGEMENT, INC.
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
___________________________________________
William C. Murphy
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<PAGE>
APPENDIX II
DISSENTERS' RIGHTS OF APPRAISAL
<PAGE>
PROVISIONS OF THE TEXAS BUSINESS CORPORATION ACT
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 if special authorization of
the shareholders is required by this Act and the shareholders hold shares of a
class or series that was entitled to vote thereon as a class or otherwise;
(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 or series,
shares of which are on the record date fixed to determine the shareholders
entitled to vote on the plan of merger or plan of exchange:
(a) listed on a national securities exchange;
(b) listed on the Nasdaq Stock Market (or successor quotation
system) or designated as a national market security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or successor
entity; or
(c) held of record by not less than 2,000 holders;
(2) the shareholder is not required by the terms of the plan of merger
or plan of exchange to accept for the shareholder's shares any consideration
that is different than the consideration (other than cash in lieu of fractional
shares that the shareholder would otherwise be entitled to receive) to be
provided to any other holder of shares of the same class or series of shares
held by such shareholder; and
(3) the shareholder is not required by the terms of the plan of merger
or the plan of exchange to accept for the shareholder's shares any consideration
other than:
(a) shares of a domestic or foreign corporation that, immediately
after the effective time of the merger or exchange, will be part of a class or
series, shares of which are:
(i) listed, or authorized for listing upon official notice
of issuance, on a national securities exchange;
(ii) approved for quotation as a national market security on
an interdealer quotation system by the National Association of Securities
Dealers, Inc., or successor entity; or
(iii) held of record by not less than 2,000 holders;
<PAGE>
(b) cash in lieu of fractional shares otherwise entitled to be
received; or
(c) any combination of the securities and cash described in
Subdivisions (a) and (b) of this subsection.
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
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
<PAGE>
other entity, as the case may be, payment for the shares shall be made within
ninety (90) days after the date on which the action was effected and, in the
case of shares represented by certificates, upon surrender of the certificates
duly endorsed. Upon payment of the agreed value, the shareholder shall cease to
have any interest in the shares or in the corporation.
B. If, within the period of sixty (60) days after the date on which the
corporate action was effected, the shareholder and the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, do
not so agree, then the shareholder or the corporation (foreign or domestic) or
other entity may, within sixty (60) days after the expiration of the sixty (60)
day period, file a petition in any court of competent jurisdiction in the county
in which the principal office of the domestic corporation is located, asking for
a finding and determination of the fair value of the shareholder's shares. Upon
the filing of any such petition by the shareholder, service of a copy thereof
shall be made upon the corporation (foreign or domestic) or other entity, which
shall, within ten (10) days after service, file in the office of the clerk of
the court in which the petition was filed a list containing the names and
addresses of all shareholders of the domestic corporation who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the corporation (foreign or domestic) or other
entity. If the petition shall be filed by the corporation (foreign or domestic)
or other entity, the petition shall be accompanied by such a list. The clerk of
the court shall give notice of the time and place fixed for the hearing of the
petition by registered mail to the corporation (foreign or domestic) or other
entity and to the shareholders named on the list at the addresses therein
stated. The forms of the notices by mail shall be approved by the court. All
shareholders thus notified and the corporation (foreign or domestic) or other
entity shall thereafter be bound by the final judgment of the court.
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.
<PAGE>
G. In the absence of fraud in the transaction, the remedy provided by
this Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the value
of his shares or money damages to the shareholder with respect to the action.
If the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, complies with the requirements of this Article, any
shareholder who fails to comply with the requirements of this Article shall not
be entitled to bring suit for the recovery of the value of his shares or money
damages to the shareholder with respect to the action.
ART. 5.13. PROVISIONS AFFECTING REMEDIES OF DISSENTING SHAREHOLDERS
A. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act shall not thereafter be entitled to
vote or exercise any other rights of a shareholder except the right to receive
payment for his shares pursuant to the provisions of those articles and the
right to maintain an appropriate action to obtain relief on the ground that the
corporate action would be or was fraudulent, and the respective shares for which
payment has been demanded shall not thereafter be considered outstanding for the
purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder,
the corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholder's rights under Articles
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made shall be transferred, any new certificate issued
therefor shall bear similar notation together with the name of the original
dissenting holder of such shares and a transferee of such shares shall acquire
by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making demand for payment of the fair
value thereof.
C. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act may withdraw such demand at any
time before payment for his shares or before any petition has been filed
pursuant to Article 5.12 or 5.16 of this Act asking for a finding and
determination of the fair value of such shares, but no such demand may be
withdrawn after such payment has been made or, unless the corporation shall
consent thereto, after any such petition has been filed. If, however, such
demand shall be withdrawn as hereinbefore provided, or if pursuant to Section B
of this Article the corporation shall terminate the shareholder's rights under
Article 5.12 or 5.16 of this Act, as the case may be, or if no petition asking
for a finding and determination of fair value of such shares by a court shall
have been filed within the time provided in Article 5.12 or 5.16 of this Act, as
the case may be, or if after the hearing of a petition filed pursuant to Article
5.12 or 5.16, the court shall determine that such shareholder is not entitled to
the relief provided by those articles, then, in any such case, such shareholder
and all persons claiming under him shall be conclusively presumed to have
approved and ratified the corporate action from which he dissented and shall be
bound thereby, the right of such shareholder to be paid the fair value of his
shares shall cease, and his status as a shareholder shall be restored without
prejudice to any corporate proceedings which may have been taken during the
interim, and such shareholder shall be entitled to receive any dividends or
other distributions made to shareholders in the interim.
<PAGE>
APPENDIX III
OPINION OF FINANCIAL ADVISOR
<PAGE>
KEEFE, BRUYETTE & WOODS, INC.
November 25, 1997
Board of Directors
Fidelity Resources Company
6501 Hillcrest
University Park, Texas 75205
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the shareholders of Fidelity Resources
Company ("Fidelity") of the exchange ratio in the proposed merger (the "Merger")
of Fidelity with and into Compass Bancshares, Inc. ("Compass"), pursuant to the
Agreement and Plan of Merger dated as of October 10, 1997 between Fidelity and
Compass (the "Agreement"). Under the terms of the Merger, the outstanding
shares of common stock of Fidelity will be exchanged for 1,800,000 shares of
common stock of Compass (the "Exchange Ratio"). Keefe, Bruyette & Woods, Inc.
("KBW") was informed by Fidelity, and assumed for purposes of its opinion, that
the Merger would be accounted for as a pooling-of-interests under generally
accepted accounting principles.
KBW as part of its investment banking business is continually engaged in
the valuation of banking businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. As specialists in the
securities of banking companies we have experience in, and knowledge of, the
valuation of banking enterprises. In the ordinary course of our business as a
broker-dealer, we may, from time to time, purchase securities from, and sell
securities to, Compass and as a market maker in securities, we may from time to
time have a long or short position in, and buy or sell, debt or equity
securities of Compass for our own account and for the accounts of our customers.
To the extent we have any such position as of the date of this opinion it has
been disclosed to Fidelity. We have acted as a financial advisor to the Board of
Directors of Fidelity in rendering this fairness opinion and will receive a fee
from Fidelity for our services.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Registration Statement on Form S-4, Annual Reports to
Stockholders of Fidelity and Compass for the three years ended December 31,
1996; certain interim reports to stockholders and Quarterly Reports on Form 10-Q
of Fidelity and Compass, and certain internal financial analyses and forecasts
for Fidelity and Compass prepared by management. We also have held discussions
with members of the senior management of Fidelity and Compass regarding the past
and current business operations, regulatory relationships, financial condition
and future prospects of their respective companies. In addition, we have
compared certain financial and stock market information for Fidelity and Compass
with similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the banking industry and performed such other studies and
analyses as we considered appropriate.
In conducting our review and arriving at our opinion, we have relied upon
and assumed the accuracy and completeness of all the financial and other
information provided to us or publicly available and we have not assumed any
responsibility for independently verifying any of such information. We have
relied upon the management of Fidelity and Compass as to the reasonableness and
achievability of the financial and operating forecasts and projections (and the
assumptions and bases therefor) provided to us, and we have assumed that such
forecasts and projections reflect the best currently available estimates and
judgments of Compass and that such forecasts and projections will be realized in
the amounts and in the time periods currently estimated by such management. We
have also assumed that the aggregate allowances for loan losses for Fidelity and
Compass are adequate to cover such losses. In rendering our
<PAGE>
opinion, we have not made or obtained any evaluations or appraisals of the
property of Fidelity or Compass, nor have we examined any individual credit
files.
We have considered such financial and other factors as we have deemed
appropriate under the circumstances, including among others the following: (i)
the historical and current financial position and results of operations of
Fidelity and Compass; (ii) the assets and liabilities of Fidelity and Compass;
and (iii) the nature and terms of certain other merger transactions involving
banks and bank holding companies. We have also taken into account our
assessment of general economic, market and financial conditions and our
experience in other transactions, as well as our experience in securities
valuation and our knowledge of the banking industry generally. Our opinion is
necessarily based upon conditions as they exist and can be evaluated on the date
hereof and the information made available to us through the date hereof.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the exchange ratio in the Merger is fair, from a financial point of
view, to the common shareholders of Fidelity.
Very truly yours,
KEEFE, BRUYETTE & WOODS, INC.
2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20:
- -------
Section 17 of Article V of Compass' Bylaws 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 Securities 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 Securities
Act and will be governed by the final adjudication of such issue.
Item 21: Exhibits and Financial Statement Schedules.
- ------- -------------------------------------------
An index to Exhibits appears at pages II-5 through II-7 hereof.
<PAGE>
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Birmingham, State of
Alabama, on December 18, 1997.
COMPASS BANCSHARES, INC.
By: *
-----------------------------
D. Paul Jones, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* Director, Chairman and Chief December 18, 1997
- --------------------------- Executive Officer
D. Paul Jones, Jr.
* Chief Financial Officer December 18, 1997
- ---------------------------
Garrett R. Hegel
* Chief Accounting Officer December 18, 1997
- --------------------------- and Controller
Michael A. Bean
* Director December 18, 1997
- ---------------------------
Charles W. Daniel
* Director December 18, 1997
- ---------------------------
W. Eugene Davenport
* Director December 18, 1997
- ---------------------------
Jack C. Demetree, Jr.
* Director December 18, 1997
- ---------------------------
Marshall Durbin, Jr.
* Director December 18, 1997
- ---------------------------
Tranum Fitzpatrick
* Director December 18, 1997
- ---------------------------
George W. Hansberry, M.D.
* Director December 18, 1997
- ---------------------------
John S. Stein
* Director December 18, 1997
- ---------------------------
Robert J. Wright
*By: /s/ Daniel B. Graves
-----------------------
Daniel B. Graves,
Attorney-in-fact
</TABLE>
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
- -------------- -----------------------
2 Agreement and Plan of Merger by and between Compass
Bancshares, Inc. and Fidelity Resources Company, dated as of
October 10, 1997, 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, 1997, 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 July 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) Compass Bancshares, Inc. 1996 Long Term Incentive Plan (filed
as Exhibit 4(g) to Registration Statement on Form S-8
Registration No. 333-15117 filed October 30, 1996, with the
Commission and incorporated herein by reference) (File No.
0-6032)
<PAGE>
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
- -------------- -----------------------
*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)
*10(i) Employment Agreement dated December 14, 1994, between Compass
Bancshares, Inc. and G. Ray Stone (filed as Exhibit 10(i) to
the Registration Statement on Form S-4 Registration No. 333-
15373 filed November 1, 1996 with the Commission 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,
1996 (File No. 0-6032)
*13(b) The Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997 (File No. 0-6032)
*13(c) The Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997 (File No. 0-6032)
*13(d) The Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997 (File No. 0-6032)
21 List of Subsidiaries of Compass Bancshares, Inc.
23(a) Consent of KPMG Peat Marwick LLP, Independent Certified
Public Accountants--Compass Bancshares, Inc.
23(b) Consent of Fisk & Robinson, P.C., Independent Certified
Public Accountants--Fidelity Resources Company
23(c) Consent of Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
(included in the opinion in Exhibit 8)
<PAGE>
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
- -------------- -----------------------
24(a) Power of Attorney
24(b) Compass Board of Directors Resolutions
99(a) Notice of Special Meeting of Shareholders of Fidelity
99(b) Form of Proxy for Special Meeting of Shareholders of Fidelity
99(c) Chairman's Letter to Fidelity Shareholders
__________________________
* Incorporated by reference
<PAGE>
EXHIBIT 5
OPINION AND CONSENT OF
JERRY W. POWELL, ESQUIRE
<PAGE>
EXHIBIT 5
December 18, 1997
Board of Directors
Compass Bancshares, Inc.
15 South 20th Street
Birmingham, Alabama 35233
Re: Compass Bancshares, Inc. -- Registration of 1,800,000 Shares of Common
Stock, $2.00 Per Share Par Value, on Securities and Exchange
Commission Form S-4
Gentlemen:
In connection with the registration under the Securities Act of 1933, as
amended, of 1,800,000 shares of common stock, $2.00 per share par value (the
"Company Stock") of Compass Bancshares, Inc., a Delaware corporation (the
"Company"), for issuance and sale in the manner described in the Company's
registration statement on Form S-4 filed with the Securities and Exchange
Commission, to which this opinion is an exhibit (the "Registration Statement"),
I, as General Counsel to the Company, have examined such corporate records,
certificates and other documents as I have considered necessary or appropriate
for the purposes of this opinion.
On the basis of the foregoing, I am of the opinion that the shares of the
Company Stock offered pursuant to the Registration Statement have been duly and
validly authorized and are, or when issued in accordance with appropriate
corporate proceedings and the terms of the respective governing documents will
be, duly and validly issued, fully paid and nonassessable.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Yours very truly,
/s/ Jerry W. Powell
----------------------------
Jerry W. Powell
General Counsel
<PAGE>
EXHIBIT 8
OPINION AND CONSENT OF
LIDDELL, SAPP, ZIVLEY,
HILL & LABOON, L.L.P.
REGARDING TAX MATTERS
<PAGE>
EXHIBIT 8
December 18, 1997
Compass Bancshares, Inc.
15 South 20th Street
Birmingham, Alabama 35233
Gentlemen:
You have requested our opinion with respect to the disclosures relating to
the material federal income tax consequences generally applicable to the receipt
by shareholders of Fidelity Resources Company, a Texas corporation ("Fidelity"),
of shares of common stock, $2.00 par value per share ("Compass Common Stock"),
of Compass Bancshares, Inc., a Delaware corporation ("Compass"), in connection
with the proposed merger (the "Merger") of Fidelity with and into Compass Banks
of Texas, Inc. ("Compass Texas"), a Delaware corporation and wholly-owned
subsidiary of Compass, as described in the Proxy Statement /Prospectus relating
to the Merger (the "Proxy Statement/Prospectus") forming a part of the
Registration Statement on Form S-4 (the "Registration Statement") being filed
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Act").
It is our opinion that the discussions and legal conclusions set forth in
the Proxy Statement/Prospectus under the heading "Summary-Federal Income Tax
Consequences" and "The Merger-Federal Income Tax Consequences" are accurate and
complete in all material respects and constitute our opinion of the material tax
consequences to shareholders of Fidelity receiving Compass Common Stock in the
Merger.
Our opinion is based and conditioned upon the initial and continuing
accuracy of the facts and the factual matters assumed as set forth in the Proxy
Statement/Prospectus. Our opinion is also based upon existing provisions of the
Internal Revenue Code of 1986, as amended, regulations promulgated or proposed
thereunder and interpretations thereof by the Internal Revenue Service and the
courts, all of which are subject to change with prospective or retroactive
effect, and our opinion could be adversely affected or rendered obsolete by any
such change.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the use of our name in the Proxy Statement/Prospectus
under the captions "Summary-Federal Income Tax Consequences", "The Merger-
Federal Income Tax Consequences" and "Legal Opinions". In giving this consent,
we do not thereby admit that we are within the category of persons whose consent
is required under Section 7 of the Act and the rules and regulations thereunder.
Very truly yours,
Liddell, Sapp, Zivley, Hill & LaBoon, LLP
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES OF
COMPASS BANCSHARES, INC.
<PAGE>
LIST OF SUBSIDIARIES OF
COMPASS BANCSHARES, INC.
Name of Subsidiary Place of Incorporation
- ------------------ ----------------------
Compass Bank Alabama
Compass Bancshares Insurance, Inc. Alabama
Compass Brokerage, Inc. Alabama
Compass Capital Markets, Inc. Alabama
Compass Multistate Services Alabama
Corporation
Compass Fiduciary Services, Ltd., Inc. Alabama
Compass Financial Corporation Alabama
Central Bank of the South Alabama
Compass Securities, Inc. Alabama
Central Land Holding Corporation Alabama
Compass Investments, Inc. Alabama
Compass Underwriters, Inc. Alabama
Compass Banks of Texas, Inc. Delaware
Compass Bancorporation of Texas, Inc. Delaware
Compass Mortgage Corporation Delaware
Compass Texas Acquisition Corp. Delaware
Compass Texas Management, Inc. Texas
River Oaks Trust Corporation Texas
Compass Bank Texas
River Oaks Bank Building, Inc. Texas
River Oaks Securities, Inc. Texas
P.I. Holdings No. 1, Inc. Texas
P.I. Console, Inc. Texas
P.I. Holdings No. 2, Inc. Texas
<PAGE>
EXHIBIT 23(a)
CONSENT OF
KPMG PEAT MARWICK LLP
<PAGE>
ACCOUNTANTS' CONSENT
The 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
December 19, 1997
<PAGE>
EXHIBIT 23(b)
CONSENT OF FISK & ROBINSON, P.C.
<PAGE>
ACCOUNTANTS' CONSENT
The 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.
FISK & ROBINSON, P.C.
Dallas, Texas
December 16, 1997
<PAGE>
EXHIBIT 24(a)
POWER OF ATTORNEY
<PAGE>
POWER OF ATTORNEY
WHEREAS, Compass Bancshares, Inc. (the "Company") has agreed to file a
registration statement and amendments thereto under the Securities Act of 1933,
as amended, with respect to the issuance and sale of shares of common stock of
the Company in connection with the acquisition by the Company of Fidelity
Resources Company, Dallas, Texas.
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, that the Company and the
undersigned directors and officers of said Company, individually as a director
and/or as an officer of the Company, hereby make, constitute and appoint each of
D. Paul Jones, Jr., Garrett R. Hegel, Jerry W. Powell, and Daniel B. Graves
their true and lawful attorney-in-fact for each of them and in each of their
names, places and steads to sign and cause to be filed with the Securities and
Exchange Commission said registration statement and any appropriate amendments
thereto, to be accompanied by prospectuses and any appropriately amended
prospectuses and any necessary exhibits.
The Company hereby authorizes said persons or any one of them to execute
said registration statement and amendments thereto on its behalf as attorney-in-
fact for it and its authorized officers, and to file the same as aforesaid.
The undersigned directors and officers of the Company hereby authorize said
persons or any one of them to sign said registration statements on their behalf
as attorney-in-fact and to amend, or remedy any deficiencies with respect to,
said registration statements by appropriate amendment or amendments and to file
the same as aforesaid.
DONE as of this the 3rd day of November, 1997.
COMPASS BANCSHARES, INC.
By: /s/ D. Paul Jones, Jr.
--------------------------------
D. Paul Jones, Jr.
Its Chairman and Chief Executive
Officer
/s/ D. Paul Jones, Jr.
--------------------------------------
D. Paul Jones, Jr.
/s/ Garrett R. Hegel
--------------------------------------
Garrett R. Hegel
/s/ Michael A. Bean
--------------------------------------
Michael A. Bean
/s/ Charles W. Daniel
--------------------------------------
Charles W. Daniel
/s/ W. Eugene Davenport
--------------------------------------
W. Eugene Davenport
/s/ Jack C. Demetree, Jr.
--------------------------------------
Jack C. Demetree, Jr.
<PAGE>
/s/ Marshall Durbin, Jr.
--------------------------------------
Marshall Durbin, Jr.
/s/ Tranum Fitzpatrick
--------------------------------------
Tranum Fitzpatrick
/s/ George W. Hansberry, M.D.
--------------------------------------
George W. Hansberry, M.D.
/s/ John S. Stein
--------------------------------------
John S. Stein
/s/ Robert J. Wright
--------------------------------------
Robert J. Wright
<PAGE>
EXHIBIT 24(b)
COMPASS BOARD OF DIRECTOR
RESOLUTIONS
<PAGE>
CERTIFICATE OF THE ASSISTANT SECRETARY REGARDING
RESOLUTIONS OF THE BOARD OF DIRECTORS
OF COMPASS BANCSHARES, INC., RELATING TO
PROPOSED ACQUISITION OF FIDELITY RESOURCES COMPANY,
AND ITS SUBSIDIARIES, FIDELITY RESOURCES COMPANY OF DELAWARE
AND FIDELITY BANK, NATIONAL ASSOCIATION,
DALLAS, TEXAS
I, the undersigned Secretary of Compass Bancshares, Inc., a Delaware
corporation, and the custodian of the minutes book and other records of the
Board of Directors of said Corporation, do hereby certify that the following
resolutions were adopted by the Board of Directors of said Corporation in a
meeting, duly called and held on November 3, 1997:
RESOLVED, that the Board of Directors of Compass Bancshares, Inc., a
Delaware corporation (the "Corporation"), has determined that it is
desirable and in the best interests of the Corporation and its stockholders
to acquire (the "Fidelity Acquisition") Fidelity Resources Company (the
"Company") and its subsidiaries, Fidelity Resources Company of Delaware and
Fidelity Bank, National Association (such subsidiaries being referred to
collectively herein as the "Bank"), the principal offices of which are
located in Dallas, Texas, in accordance with the basic terms of such
transaction as described to this Board by the Chairman and Chief Executive
Officer, the Chief Financial Officer, and/or the General Counsel and
Secretary of the Corporation at the meeting at which these resolutions were
adopted; and further
RESOLVED, that the negotiation, execution, attestation, and delivery
of the Agreement and Plan of Merger, dated as of October 10, 1997, between
the Corporation and the Company by the officers of the Corporation are
hereby ratified, approved, and authorized, and the proper officers of the
Corporation are empowered, and directed to negotiate the terms and
conditions of any amendments or supplements thereto, among the Corporation,
the Company, the Bank, and any subsidiary banks or subsidiary corporations
of the Corporation now in existence or to be formed for the purposes of
effectuating the Fidelity Acquisition by the Corporation of the company and
the Bank (referred to collectively herein as the "Agreement"), and to
execute, attest, and deliver any such amendments or supplements in such
form as they, in their sole discretion, shall approve, such approval to be
conclusively evidenced by their execution, attestation, and delivery of the
Agreement; and further
RESOLVED, that any actions taken and things done heretofore by the
officers of the Corporation with respect to the negotiation, execution,
attestation, and delivery of written agreements in principle or definitive
agreements relating to the acquisition of the Company and the Bank are
hereby ratified and approved; and further
RESOLVED, that the organization of one or more corporations as a
subsidiary or subsidiaries of the Corporation or as a subsidiary or
subsidiaries of an existing affiliate of the Corporation for the purpose of
effectuating the Fidelity Acquisition is hereby authorized, approved, and
ratified in the event that it shall be determined or has been determined by
the officers of the Corporation, after consultation with counsel, that such
organization of a subsidiary is necessary or appropriate for the
effectuation of the acquisition of the Company and the Bank; and further
RESOLVED, that to the extent that the approval of the Corporation as
the sole stockholder of any of its subsidiaries is required in connection
with the Fidelity Acquisition, the Corporation hereby waives any and all
notice of a meeting or meetings of stockholders of any such subsidiary or
subsidiaries for the purposes of approving the Fidelity Acquisition or the
Agreement, and the Board of Directors of the Corporation hereby approves,
authorizes, and ratifies the Fidelity Acquisition and the Agreement as the
stockholder of its subsidiaries now existing or to be organized, it being
the intent of the Board of Directors of the Corporation that the approval
by the Corporation set forth in
<PAGE>
this resolution shall constitute any and all approval required by law for
the approval of the Fidelity Acquisition or the Agreement by the
Corporation as a stockholder; and further
RESOLVED, that the Corporation's and the Corporation's subsidiaries'
officers are authorized, empowered, and directed to prepare, or cause to be
prepared, and to execute, attest, and file all applications, or requests
for waiver of application requirements, which they shall deem necessary or
appropriate with the Board of Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation, the Office of Thrift Supervision,
the Office of the Comptroller of the Currency, the Texas Department of
Banking, and any other appropriate bank and bank holding company regulatory
authorities with respect to the Fidelity Acquisition; and further
RESOLVED, that the proper officers of the Corporation, in consultation
with counsel, are authorized and directed to prepare, execute, attest, and
file a Registration Statement on Form S-4 or other appropriate form for the
registration of securities (the "Registration Statement") with the United
States Securities and Exchange Commission (the "Commission") relating to
the Fidelity Acquisition and the proposed issuance of securities of the
Corporation as consideration in such transaction; and further
RESOLVED, that the proper officers of the Corporation are authorized,
empowered, and directed for and on behalf of the Corporation to do any and
all acts and things necessary or appropriate in connection with such filing
of the Registration Statement, including the execution, attestation, and
filing of any amendments or supplements thereto, to effectuate the
registration of securities of the Corporation to be issued in the Fidelity
Acquisition and the continuation of the effectiveness of the Registration
Statement; and further
RESOLVED, that each officer or director who may be required to execute
the Registration Statement or any amendment or supplement to the
Registration Statement (whether on behalf of the Corporation or as an
officer or director thereof) is hereby authorized to constitute and appoint
D. Paul Jones, Jr., Garrett R. Hegel, Jerry W. Powell, and Daniel B.
Graves, and each of them acting singularly, his true and lawful attorney-
in-fact and agent, with full power of substitution for him and in his name,
place, and stead, in any and all capacities, to sign the Registration
Statement and any and all amendments and supplements thereto; and further
RESOLVED, that the proper officers of the Corporation are authorized
in the name and on behalf of the Corporation to take any and all action
that they deem necessary or appropriate in order to effect the
registration, qualification, or exemption from registration or
qualification of securities of the Corporation included in the Registration
Statement for issue, offer, sale, or trade under the "blue sky" or
securities laws of any of the states of the United States of America or the
securities laws of any jurisdiction or foreign country where such action
may be advisable or necessary, to effect the registration of securities of
the Corporation to issued in connection with the Fidelity Acquisition, to
execute, acknowledge, verify, deliver, file or cause to be published any
application, surety bonds, reports, irrevocable consents to service of
process, appointment of attorneys for service of process, and any other
documents or instruments that may be required under such laws, and to take
any and all further action that they may deem necessary or advisable in
order to maintain any such registration, qualification, or exemption for so
long as they deem necessary as required by law; and further
RESOLVED, that the Corporation hereby consents to service of process
in any state or jurisdiction in which such consent is required under the
blue sky laws as a precondition to the offer and sale of securities of the
Corporation to be issued in the Fidelity Acquisition, and that Jerry W.
Powell, General Counsel and Secretary of the Corporation, is hereby
designated as agent for service of process in connection with the
Registration Statement and any consent to service of process that may be
required by the blue sky laws of any jurisdiction as a precondition to the
offer and sale of such securities; and further
<PAGE>
RESOLVED, that the appropriate officers of the Corporation are hereby
authorized, empowered, and directed to do any and all other or further
acts, and to prepare, or cause to be prepared, and to execute, attest, and
deliver all other or further instruments, certificates, applications,
reports, and documents, including without limitation obtaining any
necessary or appropriate regulatory approvals, all on behalf of the
Corporation as they, in their discretion, may deem necessary or appropriate
to effectuate the purposes of these resolutions, and that all acts and
things undertaken and completed heretofore by the proper officers of the
Corporation in connection with the Fidelity Acquisition as contemplated by
these resolutions are hereby approved, ratified, and confirmed.
I further certify that the foregoing resolutions have not been modified,
amended, or rescinded and that said resolutions are in full force and effect as
of the date of this certificate.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of the
Corporation this the 13th day of November, 1997.
/s/ Daniel B. Graves
---------------------
Daniel B. Graves
Assistant Secretary
Compass Bancshares, Inc.
<PAGE>
EXHIBIT 99(a)
NOTICE OF SPECIAL
MEETING OF SHAREHOLDERS
OF FIDELITY
<PAGE>
FIDELITY RESOURCES COMPANY
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
Notice is hereby given that a Special Meeting of Shareholders ("Meeting")
of Fidelity Resources Company, a Texas corporation ("Fidelity"), will be held at
the offices of Fidelity Bank National Association, a national banking
association and indirect subsidiary of Fidelity, located at 6501 Hillcrest,
University Park Texas, on ________, January ____, 1998, at _____ p.m., Central
time, for the following purposes:
(1) To approve, ratify, confirm and adopt an Agreement and Plan of Merger
dated as of October 10, 1997 ("Merger Agreement"), as amended,
providing for the merger ("Merger") of Fidelity with and into Compass
Banks of Texas, Inc., a Delaware corporation and a wholly-owned
subsidiary of Compass Bancshares, Inc., a Delaware corporation. The
terms of the Merger Agreement are described in the attached Proxy
Statement/Prospectus, which the Board of Directors of Fidelity
encourages each shareholder to review carefully; and
(2) To consider and transact such other business as may properly come
before the Meeting and any adjournments thereof.
The Board of Directors of Fidelity has fixed ___________, 1997 as the
record date for the determination of the shareholders entitled to notice of and
to vote at the Meeting and any adjournments thereof. Only the holders of shares
of Fidelity's common stock of record at the close of business on _____________,
1997 are entitled to notice of, and to vote at, the Meeting and 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 Fidelity Resources Company
President
University Park, Texas
____________, 1997
<PAGE>
EXHIBIT 99(b)
FORM OF PROXY
<PAGE>
PROXY FIDELITY RESOURCES COMPANY PROXY
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
JANUARY ___, 1998
The undersigned hereby appoints William C. Murphy and Pat S. Bolin,
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 Fidelity Resources Company, to be held at the
offices of Fidelity Bank National Association, a national banking association
and indirect subsidiary of Fidelity, located at 6501 Hillcrest, University Park,
Texas, on _____________, January ___, 1998 at _____ p.m., Central time, and at
all adjournments thereof as follows:
(1) Approval, ratification, confirmation and adoption of the Agreement and
Plan of Merger, dated as of October 10, 1997, as amended, by and
between Compass Bancshares, Inc. and Fidelity Resources Company.
[_] For [_] Against [_] Abstain
(2) In their discretion, upon any other business which may properly come
before said meeting.
[_] Authority Withheld
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 of Shareholders and the Proxy Statement/Prospectus dated
____________, 1997 is hereby acknowledged.
THIS PROXY IS SOLICITED BY THE FIDELITY RESOURCES COMPANY 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 or
officer.
Dated , 199
------------------------ --
-------------------------------------
Signature
-------------------------------------
Signature, if held jointly, or office or title held
<PAGE>
EXHIBIT 99(c)
PRESIDENT'S LETTER
TO FIDELITY SHAREHOLDERS
<PAGE>
________________, 1997
Dear Shareholders:
A special meeting of shareholders (the "Meeting") of Fidelity Resources
Company, a Texas corporation ("Fidelity"), will be held at the offices of
Fidelity Bank National Association, a national banking association and indirect
subsidiary of Fidelity, located at 6501 Hillcrest, University Park, Texas, on
January ____, 1998, at _____ p.m., Central time. At the Meeting, Fidelity'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 Fidelity
merge (the "Merger") with and into Compass Banks of Texas, Inc. ("Compass
Texas"), a Delaware corporation and a wholly-owned subsidiary of Compass
Bancshares, Inc., a Delaware corporation ("Compass"). The enclosed Notice of
Special Meeting of Shareholders outlines the business to be transacted at the
Meeting, and the enclosed Proxy Statement/Prospectus explains the terms of the
proposed Merger and provides other information concerning Fidelity, Compass
Texas and Compass. We urge you to read these materials carefully.
Your Board of Directors believes that the affiliation of Fidelity with
Compass through the Merger will enable Fidelity to serve its customers and
communities better and to compete more effectively with other financial
institutions. After the Merger, Fidelity'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 Fidelity's common stock must vote in favor of the Merger.
THE BOARD OF DIRECTORS OF FIDELITY 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
___________________________________________________ at __________________.
Very truly yours,
President