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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-26325
May 12, 1997
Dear Shareholders:
A special meeting of shareholders (the "Meeting") of Central Texas Bancorp,
Inc., a Texas corporation ("Central Texas"), will be held at the Texas Center
located at 9th and Washington, Waco, Texas, on Thursday, June 19, 1997 at 3:00
p.m., Central time. At the Meeting, Central Texas' shareholders will consider
and vote to approve, ratify, confirm and adopt an Agreement and Plan of Merger
pursuant to which it is proposed that Central Texas merge (the "Merger") with
and into Compass Texas Acquisition Corp. ("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 Central Texas, Compass Texas and
Compass. We urge you to read these materials carefully.
Your Board of Directors believes that the affiliation of Central Texas with
Compass through the Merger will enable Central Texas to serve its customers and
communities better and to compete more effectively with other financial
institutions. After the Merger, Central Texas' 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 Central Texas' common stock must vote in favor of the
Merger. THE BOARD OF DIRECTORS OF CENTRAL TEXAS 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 Mr.
Rodney G. Kroll at (819) 756-2151.
Very truly yours,
/s/ F. HERMAN COLEMAN
Chairman of the Board
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CENTRAL TEXAS BANCORP, INC.
NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS
Notice is hereby given that a Special Meeting of Shareholders ("Meeting")
of Central Texas Bancorp, Inc., a Texas corporation ("Central Texas"), will be
held at the Texas Center, located at 9th and Washington, Waco, Texas, on
Thursday, June 19, 1997, at 3:00 p.m., Central time, for the following
purposes:
(1) To approve, ratify, confirm and adopt an Agreement and Plan of Merger
dated as of March 14, 1997 ("Merger Agreement"), as amended, providing
for the merger ("Merger") of Central Texas with and into Compass Texas
Acquisition Corp., 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 Central Texas
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 Central Texas has fixed May 6, 1997 as the
record date for the determination of the shareholders entitled to notice of and
to vote at the Meeting and any adjournment thereof. Only the holders of shares
of Central Texas' common stock of record at the close of business on May 6,
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 Central Texas Bancorp, Inc.
/s/ F. HERMAN COLEMAN
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Chairman of the Board
Waco, Texas
May 12, 1997
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CENTRAL TEXAS BANCORP, INC. COMPASS BANCSHARES, INC.
PROXY STATEMENT/PROSPECTUS
Compass Bancshares, Inc., a Delaware corporation ("Compass"), has filed
this Proxy Statement/Prospectus with the Securities and Exchange Commission (the
"Commission") pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), with respect to 1,537,500 shares of Compass $2.00 par value
common stock ("Compass Common Stock") to be issued in the proposed merger (the
"Merger") of Central Texas Bancorp, Inc., a Texas corporation ("Central Texas"),
with and into Compass Texas Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Compass ("Compass Texas").
This Proxy Statement/Prospectus constitutes the proxy statement of Central
Texas relating to the solicitation of proxies for use at the special meeting of
shareholders of Central Texas (the "Meeting") scheduled to be held on
Thursday, June 19, 1997 at 3:00 p.m., Central time, at the offices of
The Texas National Bank of Waco, a national banking association and wholly-owned
subsidiary of Central Texas (the "Bank"), located in the Texas Center at 9th &
Washington Avenue, Waco, Texas, and any adjournments thereof. At the Meeting,
the shareholders of Central Texas will consider and vote upon a proposal to
approve, ratify, confirm and adopt the Agreement and Plan of Merger dated as of
March 14, 1997, as amended, by and between Compass and Central Texas (the
"Merger Agreement") providing for, among other things, the merger of Central
Texas with and into Compass Texas and, in connection therewith, the receipt by
Central Texas shareholders of Compass Common Stock.
As more fully described herein, the Merger Agreement provides for the
holders of Central Texas common stock, par value $10.00 per share ("Central
Texas Common Stock"), at the effective time of the Merger (the "Effective
Time"), to receive aggregate merger consideration of 1,537,500 shares of Compass
Common Stock. Assuming that there will be 400,000 shares of Central Texas Common
Stock issued and outstanding immediately prior to the Effective Time and the
satisfaction of all conditions to closing, each shareholder of Central Texas
(except for shareholders choosing to exercise their dissenters' rights) will be
entitled to receive approximately 3.8438 shares of Compass Common Stock for each
share of Central Texas 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
1,537,500.
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 Central Texas 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 Central Texas Common Stock in the Merger; however, it does not cover resales
of shares of Compass Common Stock upon consummation of the proposed
reorganization, and no person is authorized to use this Proxy
Statement/Prospectus in connection with any such resale. SEE "RESALE OF COMPASS
STOCK."
Compass Common Stock is publicly traded in the over-the-counter market and
quoted on the NASDAQ National Market System. On May 7, 1997, the last
reported sale price per share of Compass Common Stock was $30-1/4. No active
public trading market exists for the Central Texas Common Stock.
THE SECURITIES OF COMPASS BANCSHARES, INC. OFFERED IN CONNECTION WITH THE
MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
All information concerning Compass and Compass Texas has been furnished by
Compass, and all information concerning Central Texas and the Bank has been
furnished by Central Texas.
CENTRAL TEXAS SHAREHOLDERS ARE URGED TO REVIEW AND CAREFULLY
CONSIDER THE RISKS DESCRIBED UNDER "RISK FACTORS".
The date of this Proxy Statement/Prospectus is May 12, 1997 and this
Proxy Statement/Prospectus is first being mailed or delivered to the Central
Texas shareholders on or about May 12, 1997.
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PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
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; Termination Fee............................. 11
Federal Income Tax Consequences........................ 12
Accounting Treatment................................... 12
RISK FACTORS................................................... 13
RECENT DEVELOPMENTS............................................ 14
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; Termination Fee........................... 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
CENTRAL TEXAS 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 CENTRAL TEXAS................................ 46
Services, Employees and Properties..................... 46
Competition............................................ 46
Legal Proceedings...................................... 47
Market Price and Dividends............................. 47
Beneficial Ownership of Central Texas
Common Stock by Central Texas
Management and Principal Shareholders.................. 47
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF CENTRAL TEXAS
BANCORP, INC. ................................................. 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
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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 CENTRAL TEXAS 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 JUNE 6, 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' Proxy Statement dated March 21, 1997, relating to its annual
meeting of shareholders held on April 21, 1997 (File No. 0-6032); and
(iii) 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 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.
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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, Central Texas 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, Central Texas, the Bank or their respective affiliates since the date of
this Proxy Statement/Prospectus.
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PROXY STATEMENT/PROSPECTUS
INTRODUCTION
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by the Board of Directors of Central Texas Bancorp,
Inc., a Texas corporation ("Central Texas"), for use at the special meeting of
Central Texas 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 Central Texas with and
into Compass Texas Acquisition Corp., 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 March 14, 1997, as amended, by and between Compass and
Central Texas (the "Merger Agreement"), pursuant to which Central
Texas 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 Central Texas has fixed May 6, 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, Central Texas had 500,000 shares of common stock, $10.00 par value per
share ("Central Texas Common Stock"), authorized, of which 400,000 shares were
issued and outstanding, and 500,000 shares of preferred stock, $10.00 par value
per share, authorized, none of which were issued or outstanding. As of the
Record Date, the Central Texas Common Stock was held of record by 151 persons or
entities. Each share of Central Texas 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 Central Texas 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 Central Texas Common Stock is required for approval of the
Merger. CENTRAL TEXAS' BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
APPROVAL OF THE MERGER. SEE "SUMMARY--RECORD DATE"; "SUMMARY--SHAREHOLDER VOTES
REQUIRED"; "THE MERGER--GENERAL"; "THE MERGER--OTHER TERMS AND CONDITIONS"; AND
APPENDIX I.
Central Texas has agreed in the Merger Agreement to pay Compass $650,000 in
the event that the Central Texas' shareholders do not approve the Merger.
Furthermore, in the event the Board of Directors of Central Texas violates its
obligations set forth in Section 6.6 of the Merger Agreement (SEE "THE MERGER--
NO SOLICITATION") or withdraws or adversely modifies its recommendation
(including without limitation, the execution of an agreement for the disposition
or merger of Central Texas or The Texas National Bank of Waco, a national
banking association and wholly-owned subsidiary of Central Texas (the "Bank"))
that the Central Texas shareholders vote in favor of the approval and adoption
of the Merger Agreement and the Merger, then Central Texas shall pay to Compass
an aggregate fee of $2,000,000; provided, however, that such fee shall be
reduced dollar for dollar by any fee paid by Central Texas to Compass pursuant
to the preceding sentence and provided that no such amounts shall be owed if
Central Texas exercises its pricing termination option due to a decrease in the
average closing sale price of the Compass Common Stock. SEE "SUMMARY--THE
MERGER"; "THE MERGER--GENERAL"; "THE MERGER--TERMINATION; TERMINATION FEE"; "THE
MERGER--NO SOLICITATION".
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Of the 400,000 shares of Central Texas Common Stock outstanding as of the
Record Date, 201,136 shares, or 50.3%, of the Central Texas Common Stock are
subject to a Shareholders Agreement (the "Central Texas Shareholder Agreement").
The Central Texas Shareholder Agreement includes a voting trust pursuant to
which each party to the Central Texas Shareholder Agreement transferred record
title to their Central Texas Common Stock to F. Herman Coleman, as Trustee (the
"Trustee"), to be held and administered in accordance with the terms of the
Central Texas Shareholder Agreement. Each such party holds a voting trust
certificate to evidence their beneficial interest (the "Beneficial Shares") in
the Central Texas Common Stock subject to the Central Texas Shareholder
Agreement. The Central Texas Shareholder Agreement prohibits the Trustee from
voting the Central Texas Common Stock held by him as Trustee in favor of a
merger without the written consent of the holders of 51% of the
Beneficial Shares. Accordingly, holders of 102,580 Beneficial Shares must
consent to the Merger in order for the Trustee to vote the 201,136 shares (50.3%
of the outstanding shares) of Central Texas Common Stock held in the Trustee's
name in favor of the Merger. The parties to the Central Texas Shareholder
Agreement consist entirely of current and former directors or advisory directors
of Central Texas and the Bank, spouses of such directors, affiliated companies
of such directors, or trusts of which certain directors or their spouses are
beneficiaries. The Central Texas Shareholder Agreement expires by its terms on
December 31, 1997. Pursuant to the Central Texas Shareholder Agreement, all of
the parties thereto have consented to the Merger and authorized the Trustee to
vote the 201,136 shares of Central Texas Common Stock in favor of the Merger.
An additional 10,884 shares of Central Texas Common Stock, comprising
approximately 2.72% of the total shares of Central Texas Common Stock issued and
outstanding as of the Record Date, are owned beneficially by the directors and
executive officers of Central Texas.
The Trustee and the directors and executive officers of Central Texas (and
certain of their spouses) owning or otherwise controlling the right to vote
212,020 shares of Central Texas Common Stock, comprising approximately 53.01% of
the total shares of Central Texas Common Stock issued and outstanding as of the
Record Date, have agreed, pursuant to a Voting Agreement and Irrevocable Proxy
(the "Voting Agreement"), to vote their shares in favor of the Merger. SEE
"SUMMARY--REASONS FOR THE MERGER; RECOMMENDATION OF BOARD OF DIRECTORS";
"SUMMARY--SHAREHOLDER VOTES REQUIRED"; "THE MERGER--GENERAL"; "THE MERGER--
ADDITIONAL AGREEMENTS"; AND "INFORMATION ABOUT CENTRAL TEXAS--BENEFICIAL
OWNERSHIP OF CENTRAL TEXAS COMMON STOCK BY CENTRAL TEXAS MANAGEMENT AND
PRINCIPAL SHAREHOLDERS".
Proxies in the form enclosed are solicited by Central Texas' 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, Central Texas' 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 Central Texas'
Board of Directors pursuant to the discretionary authority conferred by the
proxy. SEE "OTHER MATTERS"; "THE MERGER--DISSENTERS' RIGHTS"; AND APPENDIX II.
A proxy may be revoked at any time prior to its exercise by filing, at
Central Texas' 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 Central Texas, 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 Central Texas Common Stock held of record by such persons, and Central Texas
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
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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 Central
Texas Common Stock held of record by them, and Central Texas 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. Central
Texas' principal executive offices are located in the Texas Center at 9th &
Washington Avenue, Waco, Texas 76701, and its telephone number is (817) 756-
2151.
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SUMMARY
The following is a brief summary of certain information relating to
the Merger contained elsewhere in this Proxy Statement/Prospectus. This
summary is not intended to describe all material information relating to
the Merger and is qualified in its entirety by reference to the more
detailed information and financial statements contained elsewhere in this
Proxy Statement/Prospectus, including the Appendices hereto and the
documents referred to herein or incorporated by reference. All share and
per share information in this Proxy Statement/Prospectus 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
(SEE "RECENT DEVELOPMENTS"). 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, Central Bank of the South, an
Alabama state bank headquartered in Anniston, Alabama, and Compass Bank
("Compass Bank-Florida"), a Florida state member bank headquartered in
Jacksonville, Florida. Compass Bank-Alabama and Compass Bank-Florida
conduct 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 Banks of Texas, Inc. ("Compass Banks of Texas") is a Delaware
corporation and wholly-owned subsidiary of Compass. Compass Banks of 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; River Oaks Trust
Company, a Texas trust company located in Houston, Texas ("River Oaks Trust
Company"); and Compass Texas Management, Inc., a Texas corporation
("Compass Management"). Compass Management provides management services to
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;
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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; and Greater Brazos Valley Bancorp, Inc. and its
subsidiary, Commerce National Bank, located in College Station, Texas. The
Merger is the only announced acquisition which is pending.
On December 31, 1996, Compass and its subsidiaries had consolidated
assets of $11.8 billion, consolidated deposits of $9.2 billion, and total
shareholders' equity of $803 million. Of Compass' $11.8 billion of
consolidated assets, approximately $6.1 billion are held in Alabama, $4.7
billion are held in Texas, and $1.0 billion are held in Florida. SEE
"AVAILABLE INFORMATION"; "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE";
"SELECTED FINANCIAL DATA"; AND "INFORMATION ABOUT COMPASS".
Central Texas and the Bank. The Bank began operations in 1886 and
became a national bank in 1903. Central Texas became a bank holding
company as a result of amendments to the BHC Act in 1970. Until 1981,
Central Texas (previously known as NCB Company of Waco) owned approximately
52% of the outstanding shares of the Bank. In 1981, Central Texas acquired
the remaining outstanding shares of the Bank stock. Central Texas
currently conducts no operations other than serving as a bank holding
company under the BHC Act for the Bank and owning the North Valley Mills
Drive branch facility. Central Texas derives its revenues primarily from
the operations of the Bank in the form of dividends paid from the Bank to
Central Texas and lease rental paid by the Bank and other tenants of the
North Valley Mills Drive facility. Central Texas is subject to regulation
by the Federal Reserve.
The Bank is an independent community bank located in Waco, 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
agricultural, commercial, consumer and real estate loans. The Bank also
offers trust services, safe deposit boxes, a night deposit facility, motor
bank, wire transfers and automated teller machine ("ATM") cards.
The Bank's main office is located in the Texas Center at 9th &
Washington Avenue, Waco, Texas, in a facility owned jointly with Texas Life
Insurance Company. The Bank also has a branch at 1227 North Valley Mills
Drive in a facility owned by Central Texas.
The Bank considers its service area to be the area encompassing
McLennan County. 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.
On December 31, 1996, Central Texas had total assets of $215 million,
total deposits of $194 million, and total shareholders' equity of $18
million. SEE "SELECTED FINANCIAL DATA";
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"INFORMATION ABOUT CENTRAL TEXAS"; "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF CENTRAL TEXAS"; AND
FINANCIAL STATEMENTS OF CENTRAL TEXAS.
THE MERGER
The Merger Agreement provides for the holders of Central Texas common
stock, par value $10.00 per share ("Central Texas Common Stock"), at the
effective time of the Merger (the "Effective Time"), other than dissenting
shareholders, to receive aggregate merger consideration (the "Merger
Consideration") of 1,537,500 shares of Compass Common Stock (as adjusted
due to the exercise of dissenter's rights). Holders of Central Texas
Common Stock shall receive for each share of Central Texas Common Stock
held at the Effective Time a number of shares of Compass Common Stock equal
to the quotient of 1,537,500 shares of Compass Common Stock divided by the
number of shares of Central Texas Common Stock issued and outstanding
immediately prior to the Effective Time (the "Per Share Merger
Consideration"). In the event the average closing sale price of the
Compass Common Stock as reported by the NASDAQ National Market System for
the ten days of trading preceding the tenth business day prior to the
Effective Time (the "Share Determination Market Value") is less than $22.67
per share, Central Texas may either (i) terminate the Agreement (the
"Pricing Termination Option"), or (ii) agree to accept an aggregate of
1,537,500 shares of Compass Common Stock. In the event Central Texas
exercises its Pricing Termination Option, the Merger Agreement shall be
terminated, but Compass shall have the right to reject such termination of
the Agreement by Central Texas (the "Termination Rejection") by agreeing to
issue an aggregate number of shares of Compass Common Stock equal to the
quotient of $34,850,000 divided by the Share Determination Market Value
("New Shares"). In such event, each holder of Central Texas Common Stock
for each share so held shall receive Merger Consideration equal to the
quotient of the New Shares divided by the number of shares of Central Texas
Common Stock outstanding immediately prior to the Effective Time. Any
decision by the Board of Directors of Central Texas regarding whether to
terminate the Merger Agreement will be made in its sole discretion and
could result in either (i) Central Texas shareholders receiving Merger
Consideration with an aggregate market value of less than $34,850,000, (ii)
the termination of the Merger Agreement, or (iii) Compass agreeing to
increase the number of shares of Compass Common Stock constituting the
Merger Consideration. If the Board of Directors of Central Texas elects to
terminate the Merger Agreement, there can be no assurance that Compass will
agree to increase the number of shares of Compass Common Stock and that the
Merger Agreement will not terminate, in which event the Central Texas
shareholders would not receive any Merger Consideration but would retain
their Central Texas Common Stock.
Assuming that there will be 400,000 shares of Central Texas Common
Stock issued and outstanding immediately prior to the Effective Time and
the satisfaction of all conditions to closing, each shareholder of Central
Texas (except for shareholders choosing to exercise their dissenters'
rights) will be entitled to receive approximately 3.8438 shares of Compass
Common Stock for each share of Central Texas 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 1,537,500.
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 directors of the
Surviving Corporation. Compass intends that the Bank's personnel will
remain following the Merger. Compass and Central Texas presently intend
that immediately following the completion of the Merger, the Bank will be
merged with and into Compass Bank-Texas (the
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"Subsequent Merger"), subject to the necessary regulatory approvals.
Thereafter, the separate existence of 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 CENTRAL TEXAS".
The Merger Agreement also provides that the number of shares of
Compass Common Stock to be received by Central Texas 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"; "RECENT
DEVELOPMENTS--STOCK SPLIT"; "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 Central Texas and Compass. Central Texas' Board
of Directors believes that the terms of the Merger are fair to Central
Texas' shareholders. In addition, a fairness opinion has been received
from The Bank Advisory Group, Inc. ("Advisory") 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
In 1996, the Chairman of the Board of Central Texas had discussions
with Compass regarding its interest in acquiring Central Texas. Upon
receipt of a proposal from Compass, the Board of Directors of Central Texas
carefully evaluated the proposal and concluded that the proposed Merger
with Compass was in the best interests of Central Texas' shareholders for a
number of reasons, including, without limitation, the following:
(i) The Board of Directors of Central Texas believes the Merger
Consideration represents a fair price to the shareholders of Central Texas
and that the Compass Common Stock to be received in the Merger will provide
shareholders of Central Texas with a more marketable investment than their
shares in Central Texas.
(ii) The recent earnings and return on equity of Central Texas made
Central Texas an attractive acquisition candidate at this time.
(iii) The financial condition and reputation of Compass were
favorable.
(iv) The ability of the surviving company in the Merger to expand
products, services and its branch network as a result of it being a part of
a larger organization was attractive.
(v) In addition, the Board of Central Texas considered the economic
and competitive prospects of Central Texas as an independent entity as well
as the tax-free nature of the Merger.
For the reasons set forth above, the Central Texas Board of Directors
believes the Merger to be in the best interests of Central Texas'
shareholders. CENTRAL TEXAS' BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT CENTRAL TEXAS SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER and has
authorized consummation thereof subject to approval of the Central Texas
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
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MERGER--OTHER TERMS AND CONDITIONS"; "DESCRIPTION OF COMPASS COMMON AND
PREFERRED STOCK"; "COMPARISON OF RIGHTS OF SHAREHOLDERS OF CENTRAL TEXAS
AND COMPASS"; "INFORMATION ABOUT COMPASS"; AND "INFORMATION ABOUT CENTRAL
TEXAS".
Advisory has delivered an opinion to the Board of Directors of Central
Texas 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 Central Texas Common Stock,
are fair from a financial point of view. For additional information
concerning the matters considered by Advisory 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 ADVISOR" AND APPENDIX III.
THE MEETING
The Meeting will be held on Thursday, June 19, 1997 at 3:00 p.m.,
Central time, at the offices of the Bank located in the Texas Center at 9th
& Washington Avenue in Waco, Texas, for the purpose of approving,
ratifying, confirming and adopting the Merger Agreement.
RECORD DATE
The Record Date has been set by Central Texas' Board of Directors as
the close of business on May 6, 1997. Only holders of Central Texas
Common Stock as of such date will be entitled to vote at the Meeting. SEE
"INTRODUCTION".
SHAREHOLDER VOTES REQUIRED
The Merger must be approved by the affirmative vote of the holders of
at least two-thirds of the shares of the Central Texas Common Stock issued
and outstanding and entitled to vote at the Meeting.
Of the 400,000 shares of Central Texas Common Stock outstanding as of
the Record Date, 201,136 shares, or 50.3%, of the Central Texas Common
Stock are subject to the Central Texas Shareholder Agreement. The Central
Texas Shareholder Agreement includes a voting trust pursuant to which each
party to the Central Texas Shareholder Agreement transferred record title
to their Central Texas Common Stock to F. Herman Coleman, as Trustee, to be
held and administered in accordance with the terms of the Central Texas
Shareholder Agreement. Each such party holds a voting trust certificate to
evidence their beneficial interest in the Central Texas Common Stock
subject to the Central Texas Shareholder Agreement. The Central Texas
Shareholder Agreement prohibits the Trustee from voting the Central Texas
Common Stock held by him as Trustee in favor of a merger without the
written consent of the holders of 51% of the Beneficial Shares.
Accordingly, holders of 102,580 Beneficial Shares must consent to the
Merger in order for the Trustee to vote the 201,136 shares (50.3% of the
outstanding shares) of Central Texas Common Stock held in the Trustee's
name in favor of the Merger. The parties to the Central Texas Shareholder
Agreement consist entirely of current and former directors or advisory
directors of Central Texas and the Bank, spouses of such directors,
affiliated companies of such directors, or trusts of which certain
directors or their spouses are beneficiaries. The Central Texas
Shareholder Agreement expires by its terms on December 31, 1997. Pursuant
to the Central Texas Shareholder Agreement, all of the parties thereto have
consented to the Merger and authorized the Trustee to vote the 201,136
shares of Central Texas Common Stock in favor of the Merger. An additional
10,884 shares of Central Texas Common Stock, comprising approximately 2.72%
of the total shares of Central Texas Common Stock issued and outstanding as
of the Record Date, are owned beneficially by the directors and executive
officers of Central Texas.
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The Trustee and the directors and executive officers of Central Texas
(and certain of their spouses) owning or otherwise controlling the right to
vote 212,020 shares of Central Texas Common Stock, comprising approximately
53.01% of the total shares of Central Texas 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.
Compass Texas has 1,000 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 Central Texas 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 CENTRAL TEXAS AND COMPASS--DISSENTERS' RIGHTS"; AND APPENDIX II.
CONDITIONS TO CONSUMMATION AND REGULATORY APPROVALS; TERMINATION FEE
Consummation of the Merger is subject to approval by the shareholders
of Central Texas, 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
Merger of the Bank into Compass Bank-Texas is subject to approval by the
Federal Deposit Insurance Corporation (the "FDIC") and the Banking
Commissioner of Texas (the "Commissioner"). It is expected that the
Federal Reserve, the FDIC and the Commissioner will issue their respective
approvals of the Merger and the Subsequent Merger.
A formal application under the BHC Act was filed with the Federal
Reserve on April 1, 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.
An application was filed with the FDIC on April 2, 1997. The FDIC
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 Merger under the antitrust laws. No Justice
Department objection or adverse action is anticipated with respect to the
Merger or the Subsequent Merger.
The Texas Banking Act allows out-of-state bank holding companies to
acquire bank holding companies that own or control state or national banks
located within Texas. An application with the Commissioner was filed on
April 2, 1997. SEE "THE MERGER--GOVERNMENTAL APPROVALS".
The respective boards of directors of Compass and Central Texas may
terminate the Merger Agreement as a result of, among other things, the
failure of any of the several conditions to each of their respective
obligations to close, or if the Effective Time does not occur on or before
the expiration of nine months from the date of the Merger Agreement or such
later date agreed to in writing by Compass and Central Texas. SEE "THE
MERGER--OTHER TERMS AND CONDITIONS";
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"THE MERGER--BUSINESS PENDING EFFECTIVE TIME"; "THE MERGER--AMENDMENT;
TERMINATION"; "THE MERGER--GOVERNMENT APPROVALS"; AND APPENDIX I.
Central Texas has agreed in the Merger Agreement to pay Compass
$650,000 in the event that the Central Texas' shareholders do not approve
the Merger. Furthermore, in the event the Board of Directors of Central
Texas violates its obligations set forth in Section 6.6 of the Merger
Agreement (SEE "THE MERGER--NO SOLICITATION") or withdraws or adversely
modifies its recommendation (including without limitation, the execution of
an agreement for the disposition or merger of Central Texas or the Bank)
that the Central Texas shareholders vote in favor of the approval and
adoption of the Merger Agreement and the Merger, then Central Texas shall
pay to Compass an aggregate fee of $2,000,000; provided, however, that such
fee shall be reduced dollar for dollar by any fee paid by Central Texas to
Compass pursuant to the preceding sentence and provided that no such
amounts shall be owed if Central Texas exercises its Pricing Termination
Option.
SEE "THE MERGER--TERMINATION; TERMINATION FEE"; "THE MERGER--NO
SOLICITATION". SEE "THE MERGER--OTHER TERMS AND CONDITIONS"; "THE MERGER--
BUSINESS PENDING EFFECTIVE TIME"; 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 Central Texas 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 Central Texas 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. CENTRAL TEXAS SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISERS AS TO ALL TAX CONSEQUENCES OF THE MERGER AFFECTING THEM. SEE "THE
MERGER--FEDERAL INCOME TAX CONSEQUENCES".
Compass and the shareholders of Central Texas 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 the Merger will qualify for pooling-
of-interests accounting treatment. SEE "THE MERGER--ACCOUNTING TREATMENT".
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RISK FACTORS
Central Texas shareholders currently control Central Texas through their
ability to elect the Board of Directors of Central Texas and vote on various
matters affecting Central Texas. The Merger will transfer control of Central
Texas from Central Texas' shareholders to Compass. As of the Effective Time,
the shareholders of Central Texas will become shareholders of Compass, a multi-
bank holding company. As a result of the Merger, the former shareholders of
Central Texas will no longer have the ability to control or influence the
management policies of Central Texas' 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 CENTRAL TEXAS--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. Central Texas' Articles of Incorporation
and Bylaws do not contain similar restrictions, although under Texas law Central
Texas' shareholders may take action without a meeting only by unanimous written
consent. SEE "COMPARISON OF RIGHTS OF SHAREHOLDERS OF CENTRAL TEXAS AND
COMPASS--CHARTER AND BYLAW PROVISIONS AFFECTING COMPASS COMMON STOCK" AND
"INFORMATION ABOUT COMPASS-RECENT DEVELOPMENTS".
In the event the Share Determination Market Value is less than $22.67 per
share, Central Texas may either (i) terminate the Agreement, or (ii) agree to
accept an aggregate of 1,537,500 shares of Compass Common Stock. In the event
Central Texas exercises its Pricing Termination Option, the Merger Agreement
shall be terminated, but Compass shall have the right to reject such termination
of the Agreement by Central Texas by agreeing to issue an aggregate number of
shares of Compass Common Stock equal to the quotient of $34,850,000 divided by
the Share Determination Market Value. In such event, each holder of Central
Texas Common Stock for each share so held shall receive Merger Consideration
equal to the quotient of the New Shares divided by the number of shares of
Central Texas Common Stock outstanding immediately prior to the Effective Time.
Any decision by the Board of Directors of Central Texas regarding whether to
terminate the Merger Agreement will be made in its sole discretion and could
result in either (i) Central Texas shareholders receiving Merger Consideration
with an aggregate market value of less than $34,850,000, (ii) the termination of
the Merger Agreement, or (iii) Compass agreeing to increase the number of shares
of Compass Common Stock constituting the Merger Consideration. If the Board of
Directors of Central Texas elects to terminate the Merger Agreement, there can
be no assurance that Compass will agree to increase the number of shares of
Compass Common Stock and that the Merger Agreement will not terminate, in which
event the
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Central Texas shareholders would not receive any Merger Consideration but would
retain their Central Texas Common Stock.
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
Central Texas to receive shares of Compass Common Stock with a market value less
than $34,850,000 at the Effective Time of the Merger.
Central Texas has agreed in the Merger Agreement to pay Compass $650,000 in
the event that the Central Texas' shareholders do not approve the Merger.
Furthermore, in the event the Board of Directors of Central Texas violates its
obligations set forth in Section 6.6 of the Merger Agreement (SEE "THE MERGER--
NO SOLICITATION") or withdraws or adversely modifies its recommendation
(including without limitation, the execution of an agreement for the disposition
or merger of Central Texas or the Bank) that the Central Texas shareholders vote
in favor of the approval and adoption of the Merger Agreement and the Merger,
then Central Texas shall pay to Compass an aggregate fee of $2,000,000;
provided, however, that such fee shall be reduced dollar for dollar by any fee
paid by Central Texas to Compass pursuant to the preceding sentence and provided
that no such amounts shall be owed if Central Texas exercises its Pricing
Termination Option. SEE "THE MERGER--TERMINATION; TERMINATION FEE"; "THE
MERGER--NO SOLICITATION". SEE "THE MERGER--OTHER TERMS AND CONDITIONS"; "THE
MERGER--BUSINESS PENDING EFFECTIVE TIME"; AND APPENDIX I.
SEE "SUPERVISION AND REGULATION" for a description of the regulatory
considerations relating to the ownership of Compass Common Stock.
RECENT DEVELOPMENTS
Capital Securities. On January 21, 1997, Compass Trust I, a statutory
business trust formed under the laws of the State of Delaware (the "Series A
Issuer"), issued 100,000 Capital Securities (the "Capital Securities") in a
securities offering pursuant to a registration statement filed with the
Commission thereby raising $100 million. Compass is the owner of all of the
beneficial interests represented by common securities of the Series A Issuer
("Series A Common Securities" and, collectively with the Capital Securities, the
"Series A Securities"). The Series A Issuer exists for the sole purpose of
issuing the Series A Securities and investing the proceeds thereof in Junior
Subordinated Deferrable Interest Debentures, Series A (the "Series A
Subordinated Debentures"), issued by Compass. The Capital Securities have a
preference under certain circumstances with respect to cash distributions and
amounts payable on liquidation, redemption or otherwise over the Series A Common
Securities.
Holders of the Capital Securities are entitled to receive preferential
cumulative cash distributions accruing from the date of original issuance and
payable quarterly in arrears at an annual rate of 8.23% ("Distributions").
Subject to certain exceptions, as described herein, Compass has the right to
defer payment of interest on the Series A Subordinated Debentures at any time or
from time to time for a period not exceeding twenty consecutive quarters with
respect to each deferral period (each, an "Extension Period"), provided that no
Extension Period may extend beyond the stated maturity of the Series A
Subordinated Debentures. If interest payments on the Series A Subordinated
Debentures are so deferred, Distributions on the Capital Securities will also be
deferred and Compass will not be permitted, subject to certain exceptions, to
declare or pay any cash distributions with respect to the Compass Common Stock
or debt securities that rank pari passu with or junior to the Series A
Subordinated Debentures. During an Extension Period, interest on the Series A
Subordinated Debentures will continue to accrue (and the amount of Distributions
to which holders of the Series A Preferred Securities are entitled will
accumulate).
The Series A Subordinated Debentures are unsecured and subordinated to all
Compass senior debt and effectively subordinated to all existing and future
liabilities of Compass' subsidiaries.
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Compass has fully, irrevocably and unconditionally guaranteed all of the
Series A Issuer's obligations under the Capital Securities, including but not
limited to the payment of Distributions and payments on liquidation or
redemption of the Capital Securities.
The Capital Securities are subject to mandatory redemption, in whole or in
part, upon repayment of the Series A Subordinated Debentures at maturity or
their earlier redemption and are redeemable prior to maturity at the option of
Compass in certain circumstances.
Compass has the right at any time to terminate the Series A Issuer and
cause the Series A Subordinated Debentures to be distributed to the holders of
the Capital Securities in liquidation of the Series A Issuer. In the event of
the termination of the Series A Issuer, after satisfaction of liabilities to
creditors of the Series A Issuer as required by applicable law, the holders of
the Capital Securities will be entitled to receive a liquidation amount of
$1,000 per Capital Security plus accumulated and unpaid Distributions thereon to
the date of payment, which may be in the form of a distribution of such amount
in Series A Subordinated Debentures, subject to certain exceptions.
Stock Split. Compass, in a press release dated February 18, 1997,
announced a three-for-two stock split to be effected in the form of a 50% stock
dividend (the "Stock Split"). The Stock Split was completed on April 1, 1997, at
which time the Compass shareholders received one additional share of Compass
Common Stock for each two shares they held as of the March 17, 1997 record date.
The number of shares of Compass Common Stock to be issued in the Merger as
reflected in the Merger Agreement will be increased by the same percentage. As
a result, the shares of Compass Common Stock that Compass will be required to
issue in connection with the Merger will increase from the 1,025,000 shares
referenced in the Merger Agreement to 1,537,500 shares. All share number, per
share and pricing information in this proxy statement/prospectus regarding the
Compass Common Stock has been restated to reflect the Stock Split. SEE "THE
MERGER-GENERAL".
First Quarter Earnings. Compass, in a press release dated April 16, 1997,
reported record earnings of $36.0 million for the quarter ending March 31, 1997,
an 11% increase over the first quarter of 1996. Earnings per share for the
first quarter of 1997 increased 10% to $0.56 as compared to $0.51 for the first
quarter of the previous year. Earnings for both periods exclude gains or losses
on securities transactions, and earnings for the first quarter of 1996 exclude a
nonrecurring gain on the sale of a nonstrategic bank office. Including such
items, net income for the first quarter of 1997 was $36.0 million versus $38.1
million for the first quarter of 1996 and earnings per share were $0.56 versus
$0.60. Return on average assets was 1.23% and return on average shareholders'
equity was 17.34% for the quarter ended March 31, 1997.
Net interest income and operating noninterest income each increased 14%
when compared to the first quarter of 1996. With respect to the balance sheet,
both period-end total assets and earning assets for the first quarter of 1997
increased 12% over first quarter 1996 levels. Specifically, total assets grew
to $12.1 billion from $10.8 billion and earning assets grew to $11.2 billion
from $10.0 billion. Period-end loans increased 16% to $7.9 billion at March 31,
1997 from $6.8 billion at March 31, 1996. Period-end deposits for the first
quarter of 1997 increased 10% to $9.3 billion versus $8.4 billion one year ago,
and shareholders' equity for the same time periods increased 10% to $849 million
from $772 million.
-15-
<PAGE>
SELECTED FINANCIAL DATA
The following table, except for the lines designated as pro forma,
summarizes certain unaudited consolidated historical financial data of Compass,
and certain unaudited historical financial data of Central Texas. The table also
summarizes, where indicated, certain pro forma financial data for Compass,
giving effect to the acquisition of Central Texas assuming that the Merger had
been effective at the beginning of 1992. The historical data of Central Texas as
of and for the years ended December 31, 1996, 1995, 1994, 1993 and 1992 is
derived from the audited financial statements of Central Texas. 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 (SEE "RECENT DEVELOPMENTS"), 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 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>
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
AS OF AND FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL ASSETS
Compass $11,814,212 $10,678,369 $9,639,541 $7,807,964 $7,484,662
Central Texas 215,064 215,686 188,849 177,023 172,121
TOTAL DEPOSITS
Compass 9,220,599 8,090,818 7,511,470 6,047,131 5,776,902
Central Texas 193,844 195,079 171,018 160,564 156,998
LONG-TERM DEBT
Compass 701,470 590,044 494,327 333,332 209,404
Central Texas 873 924 971 1,011 1,051
TOTAL SHAREHOLDERS' EQUITY
Compass 803,062 737,463 637,877 584,995 538,217
Central Texas 18,109 17,100 14,889 13,593 11,588
NET INTEREST INCOME
Compass 402,427 368,954 353,208 347,966 334,862
Central Texas 8,350 7,806 7,194 7,206 6,726
NET INCOME (LOSS) FROM
CONTINUING OPERATIONS
Compass 128,927 114,225 105,439 97,161 81,215
Central Texas 1,713 2,115 1,992 2,305 1,671
NET INCOME (LOSS) PER
COMMON SHARE FROM
CONTINUING OPERATIONS
Compass
Historical 2.13 1.88 1.74 1.58 1.32
Pro Forma 2.10 1.87 1.73 1.58 1.31
Central Texas
Historical(3) 4.28 5.29 4.98 5.76 4.18
Pro Forma (1) 8.07 7.19 6.65 6.07 5.04
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
AS OF AND FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CASH DIVIDENDS PER
COMMON SHARE
Compass
Historical 0.85 0.75 0.61 0.51 0.45
Pro Forma 0.82 0.69 0.55 0.45 0.36
Central Texas
Historical(3) 1.35 1.10 1.00 0.75 0.25
Equivalent Pro Forma(2) 3.16 2.66 2.13 1.72 1.39
SHAREHOLDERS' EQUITY
(BOOK VALUE) PER
COMMON SHARE
Compass
Historical 13.21 12.19 10.61 9.74 8.59
Pro Forma 13.18 12.17 10.58 9.71 8.56
Central Texas
Historical(3) 45.27 42.75 37.22 33.98 28.97
Equivalent Pro Forma(2) 50.66 46.78 40.67 37.32 32.90
WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING
Compass
Historical 60,557 60,770 60,480 60,465 59,976
Pro Forma 62,095 62,308 62,018 62,003 61,514
Central Texas
Historical(3) 400 400 400 400 400
NUMBER OF COMMON
SHARES OUTSTANDING AT
END OF PERIOD
Compass
Historical 60,788 60,488 60,144 60,075 59,975
Pro Forma 62,326 62,027 61,684 61,615 61,514
Central Texas
Historical (3) 400 400 400 400 400
</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) Central Texas' Equivalent Pro Forma per share amounts are computed by
multiplying Compass' Pro Forma amounts by the exchange ratio of 3.8438
based on a Share Determination Market Value of $30.11, the average closing
sale price of Compass Common Stock as reported by the NASDAQ National
Market System for the ten days of trading preceding the tenth business day
prior to March 14, 1997.
(3) Amounts are adjusted to reflect a two-for-one stock split of the Central
Texas Common Stock effected in December 1995.
-17-
<PAGE>
MARKET PRICES
Compass Common Stock is traded in the national over-the-counter securities
market. Since July 1984, it has been quoted under the symbol "CBSS" on the
NASDAQ National Market System.
The following table sets forth for the periods indicated the high and low
sales prices for Compass Common Stock reported through the NASDAQ National
Market System published in The Wall Street Journal. The prices shown do not
include retail mark-ups, mark-downs or commissions. All share values have been
rounded to the nearest 1/8 of one dollar and have been adjusted to reflect the
Stock Split. SEE "RECENT DEVELOPMENTS-STOCK SPLIT".
Compass Common
Stock
--------------
Period High Low
------ ------ ------
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 20 3/4
Fourth Quarter 26 1/2 23
1997
----
First Quarter 32 1/8 26
Second Quarter
(Through May 7, 1997) 31 3/8 29 1/8
On March 13, 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 $31 7/8. On May 7, 1997 the last reported sale price
for Compass Common Stock was $30 1/4. 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 Central Texas Common Stock,
although it is traded infrequently in private transactions about which Central
Texas' management has little reliable information regarding price.
-18-
<PAGE>
THE MERGER
The following information relating to the Merger is not intended to be a
complete description of all information relating to the Merger and is qualified
in its entirety by reference to more detailed information contained elsewhere in
this Proxy Statement/Prospectus, including the Appendices hereto and the
documents referred to herein or incorporated herein by reference. A copy of the
Merger Agreement is included as Appendix I, and is incorporated herein by
reference. All shareholders of Central Texas are urged to read the Merger
Agreement in its entirety.
GENERAL
The Merger Agreement provides for the merger of Central Texas 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 Central Texas will cease. After the Effective Time, the
officers and directors of Compass Texas will be the officers and directors of
Central Texas. 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 for the holders of Central Texas Common
Stock, at the Effective Time, other than dissenting shareholders, to receive
aggregate merger consideration of 1,537,500 shares of Compass Common Stock (as
adjusted due to the exercise of dissenter's rights). Holders of Central Texas
Common Stock shall receive for each share of Central Texas Common Stock held at
the Effective Time a number of shares of Compass Common Stock equal to the
quotient of 1,537,500 shares of Compass Common Stock divided by the number of
shares of Central Texas Common Stock issued and outstanding immediately prior to
the Effective Time. In the event the Share Determination Market Value is less
than $22.67 per share, Central Texas may either (i) terminate the Agreement, or
(ii) agree to accept an aggregate of 1,537,500 shares of Compass Common Stock.
In the event Central Texas exercises its Pricing Termination Option, the Merger
Agreement shall be terminated, but Compass shall have the right to reject such
termination of the Agreement by Central Texas by agreeing to issue an aggregate
number of shares of Compass Common Stock equal to the quotient of $34,850,000
divided by the Share Determination Market Value. In such event, each holder of
Central Texas Common Stock for each share so held shall receive Merger
Consideration equal to the quotient of the New Shares divided by the number of
shares of Central Texas Common Stock outstanding immediately prior to the
Effective Time. Any decision by the Board of Directors of Central Texas
regarding whether to terminate the Merger Agreement will be made in its sole
discretion and could result in either (i) Central Texas shareholders receiving
Merger Consideration with an aggregate market value of less than $34,850,000,
(ii) the termination of the Merger Agreement, or (iii) Compass agreeing to
increase the number of shares of Compass Common Stock constituting the Merger
Consideration. If the Board of Directors of Central Texas elects to terminate
the Merger Agreement, there can be no assurance that Compass will agree to
increase the number of shares of Compass Common Stock and that the Merger
Agreement will not terminate, in which event the Central Texas shareholders
would not receive any Merger Consideration but would retain their Central Texas
Common Stock. SEE "SUMMARY -- THE MERGER"; AND "RISK FACTORS".
Assuming that there will be 400,000 shares of Central Texas Common Stock
issued and outstanding immediately prior to the Effective Time and the
satisfaction of all conditions to closing, each shareholder of Central Texas
(except for shareholders choosing to exercise their dissenters' rights) will be
entitled to receive approximately 3.8438 shares of Compass Common Stock for each
share of Central Texas 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
1,537,500.
-19-
<PAGE>
Compass will not issue fractional shares of Compass Common Stock, but
instead will pay cash to any shareholder otherwise entitled to receive a
fractional share. Such cash payment shall be based on the 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 Central Texas Common Stock entitled to vote
at the Meeting. SEE "INTRODUCTION"; "SUMMARY--SHAREHOLDER VOTES REQUIRED"; "THE
MERGER--OTHER TERMS AND CONDITIONS"; AND APPENDIX I.
The Trustee and the directors and executive officers of Central Texas (and
certain of their spouses) owning or otherwise controlling the right to vote
212,020 shares of Central Texas Common Stock, comprising approximately 53.01% of
the total shares of Central Texas 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.
Compass Texas has 1,000 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 Central Texas 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 Central Texas Common Stock. After the
Effective Time, all certificates for Central Texas 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 1996, the Chairman of the Board of Central Texas had discussions with
Compass regarding its interest in acquiring Central Texas. Upon receipt of a
proposal from Compass, the Board of Directors of Central Texas carefully
evaluated the proposal and concluded that the proposed Merger with Compass was
in the best interests of Central Texas' shareholders for a number of reasons,
including, without limitation, the following:
(i) The Board of Directors of Central Texas believes the Merger
Consideration represents a fair price to the shareholders of Central Texas and
that the Compass Common Stock to be received in the Merger will provide
shareholders of Central Texas with a more marketable investment than their
shares in Central Texas.
(ii) The recent earnings and return on equity of Central Texas made
Central Texas an attractive acquisition candidate at this time.
(iii) The financial condition and reputation of Compass were favorable.
(iv) The ability of the surviving company in the Merger to expand
products, services and its branch network as a result of it being a part of a
larger organization was attractive.
-20-
<PAGE>
(v) In addition, the Board of Central Texas considered the economic and
competitive prospects of Central Texas as an independent entity as well as the
tax-free nature of the Merger.
For the reasons set forth above, the Central Texas Board of Directors
unanimously approved the Merger and recommends approval of the transaction by
the Central Texas 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 CENTRAL TEXAS--CAPITAL RESOURCES,
LIQUIDITY AND FINANCIAL CONDITION".
Compass and Compass Banks of Texas have considered expansion opportunities
in central Texas in order to enlarge their Texas-based operations to a more
economical size and to expand into additional market areas. Acquiring Central
Texas will result in economies of scale and increase the markets served by
Compass' affiliates. It will also assist Compass' Texas affiliates in providing
the management and organizational flexibility needed to expand in the Texas
market by branching and other acquisitions.
Following arm's length negotiations between representatives of Compass and
Central Texas, Compass and Central Texas entered into the Merger Agreement dated
as of March 14, 1997. The aggregate price to be paid to holders of Central
Texas Common Stock resulted from negotiations which considered the historical
earnings and dividends of Compass and Central Texas, the earnings potential and
deposit base of Central Texas, potential growth in Central Texas' market,
Central Texas' asset quality and the effect of the Merger on the shareholders,
customers and employees of Compass and Central Texas. SEE "SUMMARY--THE
MERGER".
Subject to satisfaction of certain conditions contained in the Merger
Agreement, Central Texas' Board of Directors believes the Merger to be fair and
in the best interest of Central Texas' shareholders. In addition, a fairness
opinion has been received from Advisory with respect to the fairness, from a
financial point of view, of the Merger to its shareholders. CENTRAL TEXAS'
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE CENTRAL TEXAS' SHAREHOLDERS
VOTE FOR APPROVAL OF THE MERGER and has authorized consummation thereof, subject
to approval of the Central Texas 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
Advisory is a recognized investment banking firm regularly engaged in the
valuation of financial institutions and their securities in connection with
mergers and acquisitions, and in valuations for estate, corporate and other
purposes. In February 1997 and prior to execution of the Agreement, Central
Texas engaged Advisory to act as an independent financial advisor to the Central
Texas Board of Directors and common shareholders of Central Texas in connection
with the Merger. Specifically, based on Advisory's reputation and
qualifications in evaluating financial institutions, the Board of Directors of
Central Texas requested that Advisory render advice and analysis in connection
with the Merger, and to provide an opinion with regard to fairness -- from the
perspective of the common shareholders of Central Texas -- of the financial
terms of the Merger.
Advisory has rendered a written opinion ("the Opinion") to the board of
directors of Central Texas to the effect that the terms of the Merger are fair
from a financial point of view to the shareholders of Central Texas as of the
date of the opinion letter. A copy of the Opinion is attached as Appendix III
to this Proxy Statement/Prospectus and should be read in its entirety by the
Central Texas shareholders. Advisory's written Opinion does not constitute an
endorsement of the Merger or a recommendation to any Central Texas shareholder
as to how such shareholder should vote regarding the Merger.
Regarding CENTRAL TEXAS, Advisory based its Opinion upon, among other
things, a review of: (i) audited consolidated financial statements for the
years ended December 31, 1996, 1995 and 1994; (ii) consolidated financial
-21-
<PAGE>
statements, on form FR-Y9C, for the years ended December 31, 1996, 1995, and
1994, as filed with the Federal Reserve System; (iii) parent company only
financial statements, on form FR Y-9LP, for the years ended December 31, 1996,
1995, and 1994, as filed with the Federal Reserve; (iv) reports of condition and
income for the Bank, for the years ended December 31, 1996, 1995, and 1994, as
filed with Federal bank regulatory agencies; (v) the economy in general and, in
particular, the local economies in which the Bank operates; (vi) certain
internal financial analyses and forecasts for the Bank prepared by the
management of the Bank, including projections of future performance; (vii)
certain other summary materials and analyses with respect to the Bank's loan
portfolio, securities portfolio deposit base, fixed assets, and operations
including, but not limited to: (a) schedules of loans and other assets
identified by management as deserving special attention or monitoring given the
characteristics of the loan/asset and the local economy, (b) analyses concerning
the adequacy of the loan loss reserve, (c) schedules of "other real estate
owned," including current carrying values and recent appraisals, and (d)
schedules of securities, detailing book values market values, and lengths to
maturity; and (viii) such other information -- including financial studies,
analyses, investigations, and economic and market criteria -- that Advisory
deemed relevant to its assignment.
Regarding COMPASS, Advisory based its Opinion upon, among other things, a
review of: (i) audited consolidated financial statements, contained in Annual
Reports and Form 10-Ks, for the years ended December 31, 1996, 1995, and 1994;
(ii) quarterly financial statements for Compass, in both "press release" and
quarterly report format, for the 1995 and 1996 calendar quarters; (iii)
consolidated financial statements for Compass, on form FR Y-9C, for the years
ended 1996, 1995, and 1994, as filed with the Federal Reserve; (iv) a press
release issued by Compass, dated February 18, 1997, announcing the declaration
of a three-for-two stock split to Compass shareholders of record as of March 17,
1997; (v) equity research reports regarding Compass prepared by various stock
analysts who cover the financial institutions sector; (vi) the condition of the
commercial banking industry, as indicated in the financial reports filed by all
federally-insured commercial banks with various federal bank regulatory
authorities; (vii) the economy in general and, in particular, the major trade
areas in which Compass and its subsidiaries operate; and (viii) such other
information -- including financial studies, analyses, investigations, and
economic and market criteria -- that Advisory deemed relevant to its assignment.
Additionally, Advisory based its Opinion upon, among other things, a review
of: (i) the Merger Agreement, and any amendments thereto, that sets forth,
among other items, the terms, conditions to closing, pending litigation against
both Central Texas and Compass, and representations and warranties of Central
Texas and Compass with respect to the proposed Merger; (ii) the Proxy
Statement/Prospectus, to which the Opinion is appended that is being furnished
to the shareholders of Central Texas in connection with the proposed Merger;
(iii) the financial terms and price levels for commercial banks with assets
between $100 million and $500 million that were recently acquired in the United
States -- and specifically in Texas -- together with the financial performance
and condition of such banks; (iv) the financial terms and stated price levels of
other banking organizations, the proposed acquisition of which has been publicly
announced by Compass subsequent to January 1, 1995 and prior to the date of
Advisory's Opinion and for which the transaction terms, including price, were
available; (v) the price-to-equity and price-to-earnings multiples of the stocks
of banking organizations based in the United States that have publicly-traded
common stocks, together with the financial performance and conditions of such
banking organizations; and (vi) such other information -- including financial
studies, analyses, investigations, and economic and market criteria -- that
Advisory deemed relevant to its assignment.
Advisory maintains a sizable database of information pertaining to the
prices paid for U.S. banks. The database includes transactions involving
banking organizations in Texas and the Southwest region of the United States,
and provides comparable pricing and financial performance data for banking
organizations acquired in the United State since 1989. Advisory has the
capability of sorting the records to yield transactions involving similar banks.
Similarities might include banks within a specific asset size range, banks that
generate a return on average assets ("ROA") within a specified range, banks that
have an equity-to-assets ratio within a certain range, or banks that sold for a
specific form of consideration (cash or stock). The ability to produce specific
groups of comparable banks facilitates making a valid comparative purchase price
analysis.
-22-
<PAGE>
Advisory considered the transaction values for banking organizations with
total assets between $100 million and $500 million acquired in the United States
- - and specifically in Texas - during 1995 and 1996, irrespective of the form of
consideration. Advisory compared those transaction values, and the
corresponding financial characteristics for the relevant banks, in relation to
the transaction value computed for the Merger. The comparative analysis
revealed that the merger of Central Texas with Compass yields a transaction
value that results in a price-equity index (purchase price as a percent of total
assets) of 21.09 and a price-earnings index (purchase price as a percent of
average assets) of 21.06, versus averages of 17.30 and 17.97, respectively, for
the United States; and averages of 16.30 and 16.79, respectively, for Texas.
The equity ratio for Central Texas (as measured by the equity-to-assets
ratio) as of December 31, 1996 equals 8.42%, a ratio below the average equity
ratio of 9.02% for the United States and 9.96% for Texas. Furthermore, the 1996
ROA for Central Texas equals 0.80%, a ratio below the average ROAs of 1.02% for
the United States and 1.40% for Texas. Accordingly, the analysis suggests that
the transaction value for Central Texas, as measured by the price indices
described above, compares favorably with the average price indices paid during
1995 and 1996 for banks with assets between $100 million and $500 million in
both the United States and Texas alone, irrespective of the form of
consideration. The table set forth below summarizes this comparative analysis,
and highlights the Central Texas transaction.
<TABLE>
<CAPTION>
------------------------------------------
Price Multiple Price Indices
-------------------- --------------------
Equity- Total
Assets to- Price
# of $ (000) Assets ROA ROE $ (000) Equity Earnings Equity Earnings
Banks
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U. S. Transactions 162 $207,296 9.02% 1.02% 11.55% $35,864 1.92x 17.56x 17.30 17.97
Texas Transactions 21 $211,516 9.96% 1.40% 14.46% $34,487 1.64x 11.98x 16.30 16.79
- -----------------------------------------------------------------------------------------------------------------------
Central Texas* 1 $215,064 8.42% 0.80% 9.73% $45,356 2.50x 26.48x 21.09 21.06
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total price for Central Texas based on the issuance of 1,537,500 shares of
shares of Compass Common Stock, and a $29 1/2 market price per share.
Financial data for Central Texas as of December 31, 1996.
In the context of the Merger, Advisory specifically considered the
transaction values for Texas banking organizations with assets between $100
million and $500 million and acquired for stock during 1995 and 1996. Advisory
compared those transaction values, and the corresponding financial
characteristics for the relevant banks, in relation to the transaction value
computed for Central Texas' Merger with Compass. The comparative analysis
reveals that the Merger of Central Texas with Compass yields a transaction value
that results in a price-equity index of 21.09 and a price-earnings index of
21.06, versus averages of 17.98 and 18.89, respectively, for the United States;
and averages of 16.73 and 17.15, respectively, for Texas.
The equity ratio for Central Texas (as measured by the equity-to-assets ratio)
as of December 31, 1996 equals 8.42%, a ratio slightly below the average equity
ratio of 8.58% for the United States and 9.07% for Texas. Furthermore, the 1996
ROA for Central Texas equals 0.84%, a ratio below the average ROAs of 1.04% for
the United States and 1.23% for Texas. Accordingly, the analysis suggests that
the transaction value for Central Texas, as measured by the price indices
described above, compares favorably with the average price indices paid during
1995 and 1996 for banks with assets between $100 million and $500 million in
both the United States and Texas alone, with common stock as the sole form of
consideration. The table set forth below summarizes this comparative analysis,
and highlights the Central Texas transaction.
-23-
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------
PRICE MULTIPLE PRICE INDICES
------------------- ---------------------
EQUITY- TOTAL
# OF ASSETS TO- PRICE
BANKS $ (000) ASSETS ROA ROE $ (000) EQUITY EARNINGS EQUITY EARNINGS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Transactions 98 $213,414 8.58% 1.04% 12.22% $38,366 2.10x 18.25x 17.98 18.89
Texas Transactions 5 $258,634 9.07% 1.23% 13.97% $43,275 1.84x 13.96x 16.73 17.15
- -------------------------------------------------------------------------------------------------------------------
Central Texas* 1 $215,064 8.42% 0.80% 9.73% $45,356 2.50x 26.48x 21.09 21.06
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Total price for Central Texas based on the issuance of 1,537,500 shares of
Compass Common Stock, and a $29 1/2 market price per share. Financial data for
Central Texas as of December 31, 1996.
As previously noted, Advisory also considered the transaction values for
Texas banking organizations with assets below $500 million acquired by Compass
with Compass Common Stock, the announcement of which occurred subsequent to
January 1, 1995 and prior to the date of Advisory's Opinion (the "Compass
transactions in Texas"). Advisory compared those transaction values, and the
corresponding financial characteristics for the relevant banks, in relation to
the transaction value computed for Central Texas' merger with Compass. The
comparative analysis revealed that the merger of Central Texas with Compass
yields a transaction value that results in a price-equity index of 21.09 and a
price-earnings index of 21.06, versus averages of 18.18 and 19.10, respectively,
for the Compass transactions in Texas. The equity ratio for Central Texas as of
December 31, 1996 equals 8.42%, a ratio above the average equity ratio of 7.38%
for the Compass transactions in Texas. However, the 1996 ROA for Central Texas
equals 0.80%, a ratio below the average ROA of 1.17% for the Compass
Transactions in Texas. Notwithstanding the slightly higher equity ratio for
Central Texas in relation to the equity ratio for the Compass transactions in
Texas, the analysis suggests that the transaction value for Central Texas, as
measured by the price indices described above, compares favorably with the
average price indices paid for the Compass transactions in Texas.
Since the form of consideration in Central Texas' merger with Compass
involves the exchange of Compass Common Stock for shares of Central Texas common
stock, Advisory evaluated the financial condition and performance of Compass, as
noted above. Advisory conducted its own independent financial analysis of
Compass based on the above-mentioned information provided to or obtained by
Advisory. Advisory also reviewed and considered financial analyses and earnings
forecasts produced by financial analysts affiliated with various brokerage firms
that cover the financial institutions industry, and Compass in particular. The
intent of this financial analysis is to ascertain the current financial
condition and future earnings prospects of Compass, given that the current
shareholders of Central Texas will have an ownership stake in Compass on a post
transaction basis. Advisory is satisfied with the finding obtained from its
financial analyses regarding the financial condition and earnings prospects of
Compass, and believes that sufficient foundation exists in this regard to
support Advisory's conclusion regarding the financial fairness of the proposed
transaction.
Advisory is of the belief that its review of, among other things, the
aforementioned items, provides a reasonable basis for the issuance of its
Opinion, recognizing that Advisory is issuing an informed professional opinion -
- - not a certification of value. No limitations were imposed on the scope of
Advisory's investigation by either Central Texas or Compass.
Advisory, as part of its line of professional services, specializes in
rendering valuation opinions of banks and bank holding companies in connection
with mergers and acquisitions nationwide. Prior to its retention for this
assignment, Advisory had provided financial advisory services to Central Texas.
The professional fees billed for the prior services are insignificant as
compared to Advisory's annual billings. Advisory has not provided any services
to Compass.
Advisory has relied upon the information provided by the management of
Central Texas and Compass, or otherwise reviewed by Advisory, as being complete
and accurate in all material respects. Advisory has not verified
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through independent inspection or examination the specific assets or liabilities
of Central Texas, Compass or their subsidiary banks. Advisory has assumed that
there has been no material changes in the assets, financial condition, results
of operations, or business prospects of Central Texas and Compass since the date
of the last financial statements made available to Advisory. Advisory met with
the management of Central Texas and conversed with the management of Compass for
the purpose of discussing the relevant information that has been provided to
Advisory.
Based on all factors that Advisory deemed relevant and assuming the
accuracy and completeness of the information and data provided, Advisory
concluded that the provisions of the proposed Merger, as outlined herein, are
fair, from a financial standpoint, to the common shareholders of Central Texas.
For Advisory's services as an independent financial analyst and advisor to
Central Texas in connection with the Merger, Central Texas paid Advisory a
professional fee totaling $22,500. Additionally, Central Texas also has agreed
to reimburse Advisory for reasonable out-of-pocket expenses.
OPERATIONS AFTER THE MERGERS
Compass and Central Texas intend that following consummation of the Merger
the Bank will merge with and into Compass Bank-Texas. Following the Subsequent
Merger, the separate existence of 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 the Central Texas
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 Central Texas 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) Central Texas, 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
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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 Central Texas or its subsidiaries, or Compass;
(viii) The directors of Central Texas and its subsidiaries shall have
delivered to Compass an instrument dated the Effective Time
releasing Central Texas 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 Central Texas and its
subsidiaries and as to other matters identified in the release) and
shall have delivered to Compass their resignations as directors of
Central Texas and its subsidiaries;
(ix) The officers of Central Texas and its subsidiaries shall have
delivered to Compass an instrument dated the Effective Time
releasing Central Texas 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
Central Texas or its subsidiaries, to the rights of indemnification
pursuant to the Articles of Incorporation, Association or Bylaws of
Central Texas and its subsidiaries, and to other matters identified
in the release);
(x) Compass and Central Texas shall have received the opinions of
counsel to Central Texas and Compass acceptable to them as to
certain matters;
(xi) The holders of no more than 5% of the Central Texas 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 Central Texas indebtedness shall not
exceed $2,275,375;
(xiv) Compass shall have received from holders of Central Texas Common
Stock receiving at least 50% of the total Merger Consideration a
representation that they have no plan or intention to sell or
otherwise dispose of shares of Compass Common Stock received
pursuant to the Merger;
(xv) Compass, Central Texas and the shareholders of Central Texas shall
have received an opinion of counsel in the form of Exhibit H to the
Merger Agreement 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) Central Texas shall have delivered to Compass a schedule of all
transactions in the capital stock (or instruments exercisable for
or convertible into capital stock) of Central Texas of which
Central Texas has knowledge from and including the date of the
Merger Agreement through the Effective Time;
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(xvii) Compass shall have reasonably determined that certain liabilities
and obligations of Central Texas 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 Central Texas
Common Stock shall have been exercised or converted, or shall have
expired, lapsed or terminated, prior to the Effective Time;
(xix) Central Texas and its subsidiaries shall have delivered to the
directors of Central Texas and its subsidiaries an instrument dated
the Effective Time releasing such directors from any and all claims
of Central Texas and its subsidiaries (except as to indebtedness or
other contractual liabilities); provided, however, that such
releases shall not release an action against such directors by
Compass or Compass Texas in connection with the transactions
contemplated by the Merger Agreement;
(xx) Central Texas shall have obtained a title policy insuring good and
indefeasible title in Central Texas for Central Texas' location at
900 Washington Avenue, Waco, Texas, from a title company which, to
the best of Central Texas' knowledge, is solvent; and
(xxi) Compass and Central Texas 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
Central Texas has agreed under Section 6.6 of the Merger Agreement (i) not
to solicit, entertain or negotiate with respect to any offer to acquire Central
Texas 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
Central Texas or any of its subsidiaries (an "Acquisition Proposal"), and (iii)
immediately upon receipt of any such unsolicited offer, Central Texas will
communicate to Compass the terms of any proposal or request for information and
the identities of the parties involved. SEE "THE MERGER--TERMINATION;
TERMINATION FEE".
ADDITIONAL AGREEMENTS
Central Texas Shareholder Agreement. Of the 400,000 shares of Central
Texas Common Stock outstanding as of the Record Date, 201,136 shares, or 50.3%,
of the Central Texas Common Stock are subject to the Central Texas Shareholder
Agreement. The Central Texas Shareholder Agreement includes a voting trust
pursuant to which each party to the Central Texas Shareholder Agreement
transferred record title to their Central Texas Common Stock to F. Herman
Coleman, as Trustee, to be held and administered in accordance with the terms of
the Central Texas Shareholder Agreement. Each such party holds a voting trust
certificate to evidence their beneficial interest in the Central Texas Common
Stock subject to the Central Texas Shareholder Agreement. The Central Texas
Shareholder Agreement prohibits the Trustee from voting the Central Texas Common
Stock held by him as Trustee in favor of a merger without the written consent of
the holders of 51% of the Beneficial Shares. Accordingly, holders of 102,580
Beneficial Shares must consent to the Merger in order for the Trustee to vote
the 201,136 shares (50.3% of the outstanding shares) of Central Texas Common
Stock held in the Trustee's name in favor of the Merger. The parties to the
Central Texas Shareholder Agreement consist entirely of current and former
directors or advisory directors of Central Texas and the Bank, spouses of such
directors, affiliated companies of such directors, or trusts of which certain
directors or their spouses are beneficiaries. The Central Texas Shareholder
Agreement expires by its terms on December 31, 1997. Pursuant to the Central
Texas Shareholder Agreement, all of the parties thereto have
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consented to the Merger and authorized the Trustee to vote the 201,136 shares of
Central Texas Common Stock in favor of the Merger.
Voting Agreements. The Trustee and the directors and executive officers of
Central Texas (and certain of their spouses) owning or otherwise controlling the
right to vote 212,020 shares of Central Texas Common Stock, comprising
approximately 53.01% of the total shares of Central Texas 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.
F. Herman Coleman Employment Agreement. F. Herman Coleman and Compass
Texas Management, Inc., an affiliate of Compass, have entered into an employment
agreement whereby Mr. Coleman will act as a senior officer of Compass Bank-Texas
for a period of two years after the Merger. Mr. Coleman's annual base salary
under the employment agreement will be $175,000 with merit increases in
accordance with Compass Bank-Texas policy. In addition, Mr. Coleman shall be
entitled to participate, up to 40% of his annual base salary, in the Compass
executive incentive bonus program and to the use of the automobile currently
furnished to him by Central Texas.
Pooling Transfer Restrictions Agreements. The directors, executive
officers and certain principal shareholders of Central Texas have entered into
Pooling Transfer Restrictions Agreements with Compass and Central Texas pursuant
to which they have agreed, among other things, (i) not to transfer any of their
respective shares of Central Texas 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 Central Texas and Compass,
except for shareholder pledges to secure loans, provided the lender agrees to be
bound by the terms of the Pooling Transfer Restrictions Agreement, and (iii) not
otherwise to transfer such Compass Common Stock except in compliance with the
applicable provisions of the Securities Act and the Exchange Act and the
respective rules and regulations thereunder.
BUSINESS PENDING EFFECTIVE TIME
The Merger Agreement imposes certain limitations on the conduct of Central
Texas' business pending consummation of the Merger. Among other things, Central
Texas 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 the Central Texas shareholders
can be made after the Meeting without the required approval of the Central Texas
shareholders.
TERMINATION; TERMINATION FEE
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 the Central Texas
shareholders, at any time before the Effective Time by:
(i) Mutual written consent duly authorized by the Boards of Directors of
Compass and Central Texas;
(ii) Compass (a) if Compass learns or becomes aware of a state of facts
or breach or inaccuracy of any representation or warranty of Central
Texas which constitutes a material adverse effect, (b) due to
certain unacceptable environmental circumstances pursuant to
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Section 6.10 of the Merger Agreement, (c) if the conditions to the
obligations of Compass and Compass Texas to effect the Merger
contained in the Merger Agreement are not satisfied or waived in
writing by Compass, (d) if the Central Texas Board of Directors
withdraws or modifies in any manner its approval or recommendation
of the Merger Agreement, or resolves to do the same (including
without limitation, the execution of an agreement for the
disposition or merger of Central Texas or the Bank), (e) if Central
Texas breaches its nonsolicitation obligations set forth in Section
6.6 of the Merger Agreement (SEE "THE MERGER--NO SOLICITATION"), or
(f) if the Central Texas shareholders do not approve the Merger
Agreement and the Merger at the shareholders meeting;
(iii) Central Texas (a) pursuant to its Pricing Termination Option or in
the event its obligation to remediate or increase its loan loss
reserve under the Merger Agreement with respect to any environmental
matters exceeds $150,000, or (b) if Central Texas' conditions to
Closing contained in the Merger Agreement are not satisfied or
waived in writing by Central Texas;
(iv) Compass or Central Texas if the Effective Time shall not have
occurred on or before the expiration of nine months from the date of
the Merger Agreement or such later date agreed to in writing by
Compass and Central Texas;
(v) Central Texas if it shall receive any Acquisition Proposal after the
date hereof from a third party or parties and the Central Texas
Board of Directors shall have received a written opinion from
independent legal counsel to the effect that, and the Central Texas
Board of Directors shall determine in good faith in the exercise of
its fiduciary duties that, Central Texas is required to pursue such
Acquisition Proposal; provided, however, that Central Texas may only
terminate the Merger Agreement pursuant to such provision if it
simultaneously with such termination delivers to Compass the
$2,000,000 termination fee provided for in the succeeding paragraph
(SEE "THE MERGER-NO SOLICITATION"); or
(vi) Compass or Central Texas 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.
Central Texas has agreed in the Merger Agreement to pay Compass $650,000 in
the event that the Central Texas' shareholders do not approve the Merger.
Furthermore, in the event the Board of Directors of Central Texas violates its
obligations set forth in Section 6.6 of the Merger Agreement (SEE "THE MERGER--
NO SOLICITATION") or withdraws or adversely modifies its recommendation
(including without limitation, the execution of an agreement for the disposition
or merger of Central Texas or the Bank) that the Central Texas shareholders vote
in favor of the approval and adoption of the Merger Agreement and the Merger,
then Central Texas shall pay to Compass an aggregate fee of $2,000,000;
provided, however, that such fee shall be reduced dollar for dollar by any fee
paid by Central Texas to Compass pursuant to the preceding sentence and provided
that no such amounts shall be owed if Central Texas exercises its Pricing
Termination Option. SEE "THE MERGER--NO SOLICITATION". SEE "THE MERGER--OTHER
TERMS AND CONDITIONS"; "THE MERGER--BUSINESS PENDING EFFECTIVE TIME"; AND
APPENDIX I.
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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 Central
Texas shareholders in lieu of fractional shares of Compass Common Stock.
Promptly after the Effective Time, the Exchange Agent will furnish each
holder of record of Central Texas Common Stock as of the Effective Time with
transmittal materials for use in exchanging certificates representing Central
Texas 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 Central Texas 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 Central Texas 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.
Persons who are entitled to receive Compass Common Stock pursuant to the
Merger will not be entitled to vote such Compass Common Stock or to receive any
dividends thereon until they have properly surrendered their Central Texas
Common Stock certificates in exchange for Compass Common Stock.
Upon the Effective Time of the Merger, former Central Texas shareholders
will cease to have any rights as shareholders of Central Texas, and the Central
Texas 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, Central Texas
shareholders have a statutory right to dissent from the Merger. If the Merger
is approved and consummated, any Central Texas 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 Central Texas
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 Central Texas 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 Central Texas 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.
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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 certificates representing his shares of
Central Texas 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 Central Texas Common Stock duly
endorsed by the Dissenting Shareholder, or (ii) containing Compass' written
estimate of the fair value of the shares of Central Texas 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 Central Texas Common Stock duly endorsed by the
Dissenting Shareholder. In either case, the Dissenting Shareholder shall cease
to have any ownership interest in Central Texas 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 McLennan 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 Central Texas 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 Central Texas
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 Central Texas Common Stock duly endorsed by
the Dissenting Shareholders. Upon payment of the judgment, the Dissenting
Shareholders shall cease to have any interest in Central Texas, Compass or the
Central Texas 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 Central Texas 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 Central Texas Common Stock may withdraw such
demand at any time before payment for his shares or before
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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 CENTRAL TEXAS AND COMPASS--APPRAISAL RIGHTS"; AND APPENDIX II.
It is a condition to Compass' obligations under the Merger Agreement that
not more than 5% of the outstanding shares of Central Texas 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".
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. Central Texas 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 Central Texas
shareholders who will receive at least 50% of the Compass Common Stock
issued in the Merger stating that they have no present intention to
dispose of the Compass Common Stock received.
In such counsel's opinion, the following federal income tax consequences to
Central Texas shareholders will result from the qualification of the Merger as a
reorganization under Section 368(a) of the Code:
1. A Central Texas shareholder will not recognize any gain or loss upon the
exchange of his or her Central Texas Common Stock solely for Compass
Common Stock.
2. The aggregate tax basis of Compass Common Stock received by a Central
Texas shareholder in the Merger will be the same as the aggregate basis
of the Central Texas 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 Central Texas shareholder surrenders two blocks of
Central Texas 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 Central Texas 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 Central Texas 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
Central Texas shareholder will include the period during which he or she
held the Central Texas Common Stock surrendered
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in exchange therefor, provided that the Central Texas 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 Central Texas shareholder who dissents from the Merger and
receives solely cash in exchange for his or her Central Texas Common
Stock, such cash will be treated as having been received by such
shareholder as a distribution in redemption of his or her stock, subject
to the provisions and limitations of Section 302 of the Code.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED HEREIN FOR
GENERAL INFORMATION ONLY. CENTRAL TEXAS SHAREHOLDERS ARE URGED TO CONSULT WITH
THEIR OWN TAX ADVISORS TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO THEM OF
THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN INCOME
OR OTHER TAX LAWS.
Compass and the shareholders of Central Texas 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
Central Texas, 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 Merger of the Bank into
Compass Bank-Texas is subject to approval by the FDIC and the Commissioner. It
is expected that the Federal Reserve, the FDIC and the Commissioner will issue
their respective approvals of the Merger and the Subsequent Merger. SEE "THE
MERGER--GOVERNMENTAL APPROVALS".
A formal application under the BHC Act was filed with the Federal Reserve
on April 1, 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 filed with the FDIC on April 2, 1997. The FDIC 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
Merger under the antitrust laws. No Justice Department objection or adverse
action is anticipated with respect to the Merger or the Subsequent Merger.
The Texas Banking Act allows out-of-state bank holding companies to acquire
bank holding companies that own or control state or national banks located
within Texas. An application with the Commissioner was filed on April 2, 1997.
SEE "SUMMARY--CONDITIONS TO CONSUMMATION AND REGULATORY APPROVALS";
"TERMINATION"; AND "SUPERVISION AND REGULATION".
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ACCOUNTING TREATMENT
Compass expects to account for the Merger using the "pooling-of-interests"
method of accounting. Compass has received a letter from KPMG Peat Marwick LLP,
which will be updated as of the Effective Time, to the effect that the Merger
will qualify for pooling-of-interests accounting treatment. Under this
accounting method, at the Effective Time, Central Texas' 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 Central Texas and Compass as if the Merger had taken place prior to the
periods covered by such financial statements. SEE "SUMMARY--ACCOUNTING
TREATMENT"; "SELECTED FINANCIAL DATA"; AND "THE MERGER--OTHER TERMS AND
CONDITIONS".
SUPERVISION AND REGULATION
GENERAL
Bank holding companies and banks are regulated extensively under both
federal and state law. Compass, Compass Banks of Texas and Compass
Bancorporation are subject to regulation by the Federal Reserve and their
respective bank subsidiaries (the "Subsidiary Banks") are subject to regulation
by the Federal Reserve and/or the FDIC and the appropriate state banking
departments. The deposits of each of the Subsidiary Banks are insured by the
FDIC, and Compass Bank and Compass Bank-Florida are members of the Federal
Reserve System. Although the various laws and regulations which apply to
Compass and its Subsidiary Banks are intended to insure safe and sound banking
practices, they are mainly intended to benefit depositors and the federal
deposit insurance fund, not the shareholders of Compass. The following
discussion highlights certain laws and regulations affecting Compass and the
Subsidiary Banks and should be read in conjunction with the more detailed
information incorporated by reference herein. SEE "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE".
COMPASS, COMPASS BANKS OF TEXAS AND COMPASS BANCORPORATION
Compass, Compass Banks of Texas and Compass Bancorporation are bank holding
companies within the meaning of the BHC Act and are registered as such with the
Federal Reserve. As bank holding companies, Compass, Compass Banks of Texas and
Compass Bancorporation are required to file with the Federal Reserve an annual
report and such additional information as the Federal Reserve may require
pursuant to the BHC Act. The 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
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company of which such bank is a subsidiary and any other non-bank subsidiary of
such holding company). Banks which are not members of the Federal Reserve are
also subject to these limitations. Further, federal law prohibits a bank holding
company and its subsidiaries from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of property, or the
furnishing of services.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") enacted major regulatory reforms, stronger capital standards for
savings associations and stronger civil and criminal enforcement provisions.
FIRREA allows the acquisition of healthy and failed savings associations by bank
holding companies and imposes no interstate barriers on such bank holding
company acquisitions. With certain qualifications, FIRREA also allows bank
holding companies to merge acquired savings and loans into their existing
commercial bank subsidiaries. FIRREA also provides that a depository institution
insured by the FDIC can be held liable for any loss incurred by, or reasonably
expected to be incurred by, the FDIC after August 9, 1989 in connection with (i)
the default of a commonly controlled FDIC-insured depository institution or (ii)
any assistance provided by the FDIC to a commonly controlled FDIC-insured
depository institution in danger of default.
In December of 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") was enacted. This act recapitalized the Bank Insurance
Fund ("BIF"), of which the Subsidiary Banks are members, substantially revised
statutory provisions, including capital standards, restricted certain powers of
state banks, gave regulators the authority to limit officer and director
compensation and required holding companies to guarantee the capital compliance
of their banks in certain instances. Among other things, FDICIA requires the
federal banking agencies to take "prompt corrective action" with respect to
banks that do not meet minimum capital requirements. FDICIA establishes five
capital tiers: "well capitalized", "adequately capitalized", "undercapitalized",
"significantly undercapitalized" and "critically undercapitalized", as defined
by regulations adopted by the Federal Reserve, the FDIC and the other federal
depository institution regulatory agencies. A depository institution is well
capitalized if it significantly exceeds the minimum level required by regulation
for each relevant capital measure, adequately capitalized if it meets such
measure, undercapitalized if it fails to meet any such measure, significantly
undercapitalized if it is significantly below such measure and critically
undercapitalized if it fails to meet any critical capital level set forth in the
regulations. The critical capital level must be a level of tangible equity
capital equal to not less than 2% of total tangible assets and not more than 65%
of the minimum leverage ratio to be prescribed by regulation (except to the
extent that 2% would be higher than such 65% level). An institution may be
deemed to be in a capitalization category that is lower than is indicated by its
actual capital position if it receives an unsatisfactory examination rating.
If a depository institution fails to meet regulatory capital requirements,
the regulatory agencies can require submission and funding of a capital
restoration plan by the institution, place limits on its activities, require the
raising of additional capital and, ultimately, require the appointment of a
conservator or receiver for the institution. The obligation of a controlling
bank holding company under FDICIA to fund a capital restoration plan is limited
to the lesser of 5% of an undercapitalized subsidiary's assets or the amount
required to meet regulatory capital requirements. If the controlling bank
holding company fails to fulfill its obligations under FDICIA and files (or has
filed against it) a petition under the Federal Bankruptcy Code, the FDIC's claim
may be entitled to a priority in such bankruptcy proceeding over third party
creditors of the bank holding company.
An insured depository institution may not pay management fees to any person
having control of the institution nor may an institution, except under certain
circumstances and with prior regulatory approval, make any capital distribution
(including the payment of dividends) if, after making such payment or
distribution, the institution would be undercapitalized. FDICIA also restricts
the acceptance of brokered deposits by insured depository institutions and
contains a number of consumer banking provisions, including disclosure
requirements and substantive contractual limitations with respect to deposit
accounts.
At December 31, 1996, 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
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not rely upon brokered deposits as a primary source of deposit funding, although
such deposits are sold through the Correspondent and Investment Services
Division of Compass Bank.
FDICIA contains numerous other provisions, including reporting
requirements, termination of the "too big to fail" doctrine except in special
cases, limitations on the FDIC's payment of deposits at foreign branches and
revised regulatory standards for, among other things, real estate lending and
capital adequacy. In addition, FDICIA required the FDIC to establish a system
of risk-based assessments for federal deposit insurance, by which banks that
pose a greater risk of loss to the FDIC (based on their capital levels and the
FDIC's level of supervisory concern) pay a higher insurance assessment.
The 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 $7.1 million based upon $1.1 billion of SAIF deposits, after
certain discounts and exemptions.
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-
Florida is organized under the laws of the State of Florida, is a member of the
Federal Reserve System and is subject to supervision, regulation and examination
by the Florida Department of Banking and Finance and the Federal Reserve.
Compass Bank-Texas is organized under the laws of the State of Texas, and is not
a member of the Federal Reserve System. Compass Bank-Texas is supervised,
regulated and regularly examined by the Texas Department of Banking and the
FDIC. The Subsidiary Banks, as participants in the BIF and the Savings
Association Insurance Fund of the FDIC, are subject to the provisions of the
Federal Deposit Insurance Act and to examination by and regulations of the FDIC.
The Alabama Subsidiary Banks are governed by Alabama laws restricting the
declaration and payment of dividends to 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. Compass Bank-Florida, which is governed by the laws of the State of
Florida, may declare and pay dividends not to exceed the current period's net
profits combined with the net retained profits of the previous two years--after
charging off bad debts, depreciation, and other worthless assets and after
making provision for reasonably anticipated future losses on loans and other
assets--and may, with the approval of the Florida Department of Banking and
Finance, declare and pay dividends from retained net profits which accrued prior
to the preceding two years; provided that, prior to declaring any dividend, the
bank shall carry 20% of its net profits for such preceding period as is covered
by the dividend to its surplus fund until such surplus fund shall at least equal
the amount of the bank's common and preferred stock issued and outstanding. As
members of the Federal Reserve System, Compass Bank-
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Alabama and Compass Bank-Florida are also subject to dividend limitations
imposed by the Federal Reserve that are similar to those applicable to national
banks.
Federal law further provides that no insured depository institution may
make any capital distribution (which would include a cash dividend) if, after
making the distribution, the institution would not satisfy one or more of its
minimum capital requirements. Moreover, the federal bank regulatory agencies
also have the general authority to limit the dividends paid by insured banks if
such payments may be deemed to constitute an unsafe and unsound practice.
Insured banks are prohibited from paying dividends on its capital stock while in
default in the payment of any assessment due to the FDIC except in those cases
where the amount of the assessment is in dispute and the insured bank has
deposited satisfactory security for the payment thereof.
The Community Reinvestment Act of 1977 ("CRA") and the regulations of the
Federal Reserve and the FDIC implementing that act are intended to encourage
regulated financial institutions to help meet the credit needs of their local
community or communities, including low and moderate income neighborhoods,
consistent with the safe and sound operation of such financial institutions.
The CRA and such regulations provide that the appropriate regulatory authority
will assess the records of regulated financial institutions in satisfying their
continuing and affirmative obligations to help meet the credit needs of their
local communities as part of their regulatory examination of the institution.
The results of such examinations are made public and are taken into account upon
the filing of any application to establish a domestic branch, to merge or to
acquire the assets or assume the liabilities of a bank. In the case of a bank
holding company, the CRA performance record of the banks involved in the
transaction are reviewed in connection with the filing of an application to
acquire ownership or control of shares or assets of a bank or to merge with any
other bank holding company. An unsatisfactory record can substantially delay or
block the transaction.
OTHER
Other legislative and regulatory proposals regarding changes in banking,
and the regulation of banks, thrifts and other financial institutions, are being
considered by the executive branch of the Federal government, Congress and
various state governments, including Alabama, Texas and Florida. Certain of
these proposals, if adopted, could significantly change the regulations of banks
and the financial services industry. It cannot be predicted whether any of
these proposals will be adopted or, if adopted, how these proposals will affect
Compass or the Subsidiary Banks.
The Correspondent and Investment Services Division of Compass Bank is
treated as a municipal securities dealer and a government securities dealer for
purposes of the federal securities laws and, therefore, is subject to certain
reporting requirements and regulatory controls by the Commission, the United
States Department of the Treasury and the Federal Reserve. Compass Brokerage,
Inc., a wholly-owned subsidiary of Compass Bank-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. SEE "RECENT
DEVELOPMENTS".
COMPASS COMMON STOCK
Compass is incorporated under the GCL. Compass is authorized to issue
100,000,000 shares of Compass Common Stock, of which 63,904,803 shares were
issued and outstanding on March 31, 1997 after giving effect to the three-for-
two stock split effected on April 1, 1997. SEE "RECENT DEVELOPMENTS". 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 CENTRAL TEXAS 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. Compass Bank-Florida, which is governed by the laws of the
State of Florida, may declare and pay dividends not to exceed the current
period's net profits combined with the net retained profits of the previous two
years--after charging off bad debts, depreciation, and other worthless assets
and after making provision for reasonably anticipated future losses on loans and
other assets--and may, with the approval of the Florida Department of Banking
and Finance, declare and pay dividends from retained net profits which accrued
prior to the preceding two years; provided that, prior to declaring any
dividend, the bank shall carry 20% of its net profits for such preceding period
as is covered by the dividend to its surplus fund until such surplus fund shall
at least equal the amount of the bank's common and preferred stock issued and
outstanding. As members of the Federal Reserve System, Compass Bank-Alabama and
Compass Bank-Florida are also subject to dividend limitations imposed by the
Federal Reserve that are similar to those applicable to national banks. SEE
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE"; "SUMMARY--REASONS FOR THE
MERGER; RECOMMENDATION OF BOARD OF DIRECTORS"; "RISK FACTORS"; "RECENT
DEVELOPMENTS"; "SELECTED
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FINANCIAL DATA"; "MARKET PRICES"; "COMPARISON OF RIGHTS OF SHAREHOLDERS OF
CENTRAL TEXAS 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 Central Texas shareholders' proportionate interest in Compass.
VOTING RIGHTS
The holders of Compass Common Stock are entitled to one vote per share on
all matters presented to shareholders. Holders of Compass Common Stock are not
entitled to cumulate their votes in the election of directors. Cumulative voting
rights, if provided for, entitle shareholders to a number of votes equal to the
product of the number of shares held and the number of directors to be elected
and allow shareholders to distribute such votes among any number of nominees for
director or cast such votes entirely for one director. Cumulative voting rights
tend to enhance the voting power of minority shareholders. SEE "COMPARISON OF
RIGHTS OF SHAREHOLDERS OF CENTRAL TEXAS 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"; "RECENT
DEVELOPMENTS"; AND "COMPARISON OF RIGHTS OF SHAREHOLDERS OF CENTRAL TEXAS AND
COMPASS--DIVIDENDS" AND "--LIQUIDATION RIGHTS".
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COMPARISON OF RIGHTS OF
SHAREHOLDERS OF CENTRAL TEXAS 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 Central Texas' Bylaws that shareholder actions
without a meeting be taken only upon unanimous shareholder consent, Central
Texas' 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 Central Texas, which are available upon request from
Central Texas. SEE "AVAILABLE INFORMATION"; "INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE"; "RISK FACTORS"; AND "INFORMATION ABOUT COMPASS".
In addition to the foregoing differences between Central Texas' and
Compass' charters, as a result of the Merger, Central Texas 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 Central Texas' 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 CENTRAL TEXAS 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 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. Central Texas' Bylaws provide that special meetings of
shareholders may be called by the Chairman of the Board, the President, the
Secretary, the Board of Directors, or the holders of not less than one-tenth of
all of the shares entitled to vote at the meeting. 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). Central Texas' 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. Central Texas' 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 Central Texas 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. Central Texas' 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 Central Texas do not provide for
a different number of shares for
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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
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. Central Texas'
Articles of Incorporation deny preemptive rights and, therefore, Central Texas'
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.
Central Texas' Articles of Incorporation do not contain restrictions as to
the ability of the Central Texas Board of Directors to declare dividends.
SEE "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE"; "SUMMARY--PARTIES TO
THE MERGER"; "SUMMARY--REASONS FOR THE MERGER; RECOMMENDATION OF BOARD OF
DIRECTORS"; "RECENT DEVELOPMENTS"; "SELECTED FINANCIAL DATA"; "MARKET PRICES";
"DESCRIPTION OF COMPASS COMMON AND PREFERRED STOCK"; AND "INFORMATION ABOUT
CENTRAL TEXAS--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. Upon the
liquidation, dissolution or winding up of the affairs of Central Texas, the
shareholders of Central Texas Common Stock are entitled to receive, in
proportion to the number of shares held by them, all the assets that remain
after any preferential amounts have been distributed to the holders of any
preferred stock of Central Texas. Although Central Texas has authorized
preferred stock, it currently has none outstanding. SEE "RECENT DEVELOPMENTS".
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
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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 permitted by Delaware law.
SEE "AVAILABLE INFORMATION"; "INCORPORATION BY REFERENCE OF CERTAIN DOCUMENTS";
AND "INDEMNIFICATION".
Central Texas' Articles of Incorporation provide that Central Texas may
enter into contracts and transact business with any one or more of its
directors, officers or employees, or with any firm or firms of which any one or
more of its directors, officers or employees are members or with any corporation
or association in which any one or more of its directors, officers or employees
are stockholders, directors, officers or employees. Any such contract or
transaction shall not be invalidated or adversely affected by the fact that any
such person has, or may have, interests therein which are, or may be, adverse to
the interest of Central Texas, even though the vote of any director having such
adverse interests shall have been necessary to obligate Central Texas upon any
such contract or transaction. No director, officer or employee having such
adverse interests shall be liable to Central Texas or to any stockholder or
creditor thereof, or to any other person, for any loss or liability incurred by
reason of such contract or transaction; nor shall any director, officer or
employee be accountable to Central Texas, or to any stockholder or creditor
thereof, for any gains realized thereon. However, this limitation of liability
is available only if such contract or transaction was not based upon fraudulent
terms at the time at which it was entered into.
In addition, Central Texas shall indemnify any and all persons who serve,
or who have served, at any time as directors or officers, or who serve, or who
have served, at the request of the Board of Directors of Central Texas as
directors or officers of any other corporation in which Central Texas at such
time owned shares of stock or of which it was a creditor, and their respective
heirs, administrators, successors, and assigns, against any and all expenses,
including amounts paid upon judgments, counsel fees, and amounts paid in
settlement (before or after suit is commenced), actually and necessarily
incurred by such persons in connection with the defense or settlement of any
claim, action, suit, or proceeding in which they, or any of them are made
parties, or a party, or which may be asserted against them or any of them by
reason of being or having been directors or officers, or a director or officer,
of Central Texas, or of such other corporation, except in relation to matters as
to which any such director or officer or former director or officer or person
shall be adjudged in any action, suit, or proceeding to be liable for his own
negligence or misconduct in the performance of his duty. Such indemnification
shall be in addition to any other rights to which those indemnified may be
entitled under any law, bylaw, agreement, vote of stockholders, or otherwise.
REMOVAL OF DIRECTORS
A Texas corporation may provide in its Articles of Incorporation or Bylaws,
and Central Texas' 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.
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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 CENTRAL TEXAS 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 Central Texas 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
Central Texas. 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 Central Texas' Articles of Incorporation and Bylaws, as amended.
RESALE OF COMPASS STOCK
The Compass Common Stock to be issued to holders of Central Texas 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 Central Texas within the meaning of Rule 145 under the Securities Act. The
directors and executive officers of Central Texas, the beneficial owners of 10%
or more of Central Texas Common Stock and certain of their related interests may
be deemed to be affiliates of Central Texas. Such affiliates are not permitted
to transfer any Compass Common Stock except in compliance with the Securities
Act and the rules and regulations thereunder. Such affiliates have delivered to
Compass a written agreement in substantially the form of Exhibit A to the Merger
Agreement providing that each such affiliate will not (i) sell, pledge, transfer
or otherwise dispose of any of such affiliate's Central Texas 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 Central Texas and Compass, except for (a) 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 (b) for transfers to the affiliate upon termination of the Central Texas
Shareholder 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 Central Texas 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 Central
Texas 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".
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<PAGE>
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, 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 Central Texas or the Merger, except as a
director, executive officer or shareholder of Compass or its subsidiaries.
INFORMATION ABOUT CENTRAL TEXAS
The Bank began operations in 1886 and became a national bank in 1903.
Central Texas became a bank holding company as a result of amendments to the BHC
Act in 1970. Until 1981, Central Texas (previously known as NCB Company of
Waco) owned approximately 52% of the outstanding shares of the Bank. In 1981,
Central Texas acquired the remaining outstanding shares of the Bank stock.
Texas became a bank holding company as a result of amendments to the BHC Act in
1970. Until 1981, Central Texas (previously known as NCB Company of Waco) owned
approximately 52% of the outstanding shares of the Bank. In 1981, Central Texas
acquired the remaining outstanding shares of the Bank stock. Central Texas
currently conducts no operations other than serving as a bank holding company
under the BHC Act for the Bank and owning the North Valley Mills Drive branch
facility. Central Texas derives its revenues primarily from the operations of
the Bank in the form of dividends paid from the Bank to Central Texas and lease
rental paid by the Bank and other tenants of the North Valley Mills Drive
facility. Central Texas is subject to regulation by the Federal Reserve.
The Bank is an independent community bank located in Waco, 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 agricultural,
commercial, consumer and real estate loans. The Bank also offers trust
services, safe deposit boxes, a night deposit facility, motor bank, wire
transfers and automated teller machine ("ATM") cards.
SERVICES, EMPLOYEES AND PROPERTIES
On March 31, 1997, the Bank had 24 officers, 18 directors, 63 full-time
employees and ten part-time employees. Directors of the Bank are compensated
for their services. Central Texas had three officers and six directors at that
date. Directors of Central Texas receive no compensation for their services.
The Bank's main office is located in the Texas Center at 9th & Washington
Avenue, Waco, Texas, in a facility owned jointly with Texas Life Insurance
Company. The Bank also has a branch at 1227 North Valley Mills Drive in a
facility owned by Central Texas.
SEE "INFORMATION ABOUT CENTRAL TEXAS--BENEFICIAL OWNERSHIP OF CENTRAL TEXAS
COMMON STOCK BY CENTRAL TEXAS MANAGEMENT AND PRINCIPAL SHAREHOLDERS".
COMPETITION
The Bank considers its service area to be the area encompassing McLennan
County, Texas. 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
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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.
Central Texas 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. Central
Texas 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 Central Texas
competes have capital and resources much larger than those of Central Texas, and
some are not subject to the same regulatory restrictions.
LEGAL PROCEEDINGS
In the normal course of its businesses, Central Texas from time to time is
involved in legal proceedings. Other than such proceedings incidental to its
business, Central Texas' management is not aware of any pending or threatened
legal proceedings which, upon resolution, would have a material adverse effect
upon Central Texas' financial condition or results of operations. The continued
absence of such proceedings is a condition to Compass' obligation to consummate
the Merger. SEE "THE MERGER--OTHER TERMS AND CONDITIONS".
MARKET PRICE AND DIVIDENDS
There is no active public trading market for the Central Texas Common
Stock. As of the Record Date, Central Texas Common Stock was held by 151 holders
of record. Central Texas pays quarterly and special dividends on its common
stock. Central Texas paid dividends of $540,000, $440,000 and $400,000 in 1996,
1995 and 1994, respectively. SEE "SELECTED FINANCIAL DATA"; MARKET PRICES";
"COMPARISON OF RIGHTS OF SHAREHOLDERS OF CENTRAL TEXAS AND COMPASS DIVIDENDS";
AND "INFORMATION ABOUT CENTRAL TEXAS--BENEFICIAL OWNERSHIP OF CENTRAL TEXAS
COMMON STOCK BY CENTRAL TEXAS MANAGEMENT AND PRINCIPAL SHAREHOLDERS".
BENEFICIAL OWNERSHIP OF CENTRAL TEXAS COMMON STOCK BY CENTRAL TEXAS
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 Central Texas Common Stock
known to the Board of Directors of Central Texas, showing the amount and nature
of such beneficial ownership and the names of each director and executive
officer of Central Texas, the number of shares of Central Texas Common Stock
owned beneficially by each director and executive officer and the number of
shares of Central Texas 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.
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<TABLE>
<CAPTION>
Name and Address of Amount and Nature
Beneficial Owner of Beneficial Ownership/(1)/ Percent of Class
-------------------- ---------------------------- -----------------
<S> <C> <C>
A.W. Bailey, Jr. 28,572/(2)/ 7.14%
4900 Ridgeview Drive
Waco, Texas 76710
F. Herman Coleman 207,044/(3)/ 51.76%
3201 Wooded Acres
Waco, Texas 76710
Rondy T. Gray 20,700/(4)/ 5.17%
P. O. Box 6160
Waco, Texas 76706-6160
Rodney G. Kroll 5,518/(5)/ 1.40%
J. Rodney Lee 13,882/(6)/ 3.47%
Tom Salome 13,054/(7)/ 3.26%
Charles B. Turner 2,152 *
All directors and executive officers
as a group (6 persons) /(3)(5)(6)(7)/ 212,020 53.01%
</TABLE>
- ----------------
* Less than 1%.
/(1)/ Unless otherwise indicated, each individual is the record owner of, and
has sole voting and investment power with respect to, all shares of
Central Texas Common Stock of which he or she is the beneficial owner.
Unless otherwise indicated, all percentages are based upon 400,000 shares
of Central Texas Common Stock issued and outstanding.
/(2)/ Includes 15,780 shares owned by Mr. Bailey and 11,992 shares owned by
Bailey Co., Inc., a company owned by Mr. Bailey, all of which are in the
name of F. Herman Coleman, Trustee, pursuant to the terms of the Central
Texas Shareholder Agreement.
/(3)/ Includes 201,136 shares held in Mr. Coleman's name pursuant to the Central
Texas Shareholder Agreement, of which 16,104 shares are owned by Mr.
Coleman and/or his wife, Sandra Mayfield Coleman, 19,900 shares are owned
by Coleman Enterprises, Ltd. over which Mr. Coleman has voting power
(subject to the Central Texas Shareholder Agreement), 984 shares are owned
by the Estate of Jessie Gray Coleman, of which Mr. Coleman is independent
executor and 1,968 shares are owned by the Sandra Mayfield Coleman Trust
over which Mrs. Coleman has voting power (subject to the Central Texas
Shareholder Agreement), and 3,208 shares held by Mrs. Coleman.
/(4)/ Includes 100 shares owned by Mr. Gray and 19,900 shares owned by Bosque
Realty, Ltd., over which Mr. Gray has voting power (subject to the Central
Texas Shareholder Agreement), all of which are in the name of F. Herman
Coleman, Trustee, pursuant to the Central Texas Shareholder Agreement.
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/(5)/ Includes 4,902 shares owned by Mr. Kroll and his wife, Judy Kroll, and 192
shares owned by Mr. Kroll's minor children, all of which are in the name
of F. Herman Coleman, Trustee, pursuant to the Central Texas Shareholder
Agreement.
/(6)/ Includes 13,082 shares owned by Mr. Lee that are in the name of F. Herman
Coleman, Trustee, pursuant to the Central Texas Shareholder Agreement.
This amount does not include 14,262 shares owned by the Naman, Howell,
Smith & Lee, P.C. Employees Profit Sharing Plan & Trust that are in the
name of F. Herman Coleman, Trustee, pursuant to the Central Texas
Shareholder Agreement. Mr. Lee is a shareholder and director of Naman,
Howell, Smith & Lee, P.C., and is a beneficiary in the plan. Mr. Lee is
not an administrator or trustee of the Plan.
/(7)/ Includes 12,254 shares owned by Mr. Salome that are in the name of F.
Herman Coleman, Trustee, pursuant to the Central Texas Shareholder
Agreement.
_______________
The persons listed above will receive the same Merger Consideration
described in "THE MERGER--GENERAL" as the other Central Texas shareholders for
each share of Central Texas Common Stock held at the Effective Time.
Of the 400,000 shares of Central Texas Common Stock outstanding as of the
Record Date, 201,136 shares, or 50.3%, of the Central Texas Common Stock are
subject to the Central Texas Shareholder Agreement. The Central Texas
Shareholder Agreement includes a voting trust pursuant to which each party to
the Central Texas Shareholder Agreement transferred record title to their
Central Texas Common Stock to F. Herman Coleman, as Trustee, to be held and
administered in accordance with the terms of the Central Texas Shareholder
Agreement. Each such party holds a voting trust certificate to evidence their
beneficial interest in the Central Texas Common Stock subject to the Central
Texas Shareholder Agreement. The Central Texas Shareholder Agreement prohibits
the Trustee from voting the Central Texas Common Stock held by him as Trustee in
favor of a merger without the written consent of the holders of 51% of the
Beneficial Shares. Accordingly, holders of 102,580 Beneficial Shares must
consent to the Merger in order for the Trustee to vote the 201,136 shares (50.3%
of the outstanding shares) of Central Texas Common Stock held in the Trustee's
name in favor of the Merger. The parties to the Central Texas Shareholder
Agreement consist entirely of current and former directors or advisory directors
of Central Texas and the Bank, spouses of such directors, affiliated companies
of such directors, or trusts of which certain directors or their spouses are
beneficiaries. The Central Texas Shareholder Agreement expires by its terms on
December 31, 1997. Pursuant to the Central Texas Shareholder Agreement, all of
the parties thereto have consented to the Merger and authorized the Trustee to
vote the 201,136 shares of Central Texas Common Stock in favor of the Merger. An
additional 10,884 shares of Central Texas Common Stock, representing
approximately 2.72% of the total shares of Central Texas Common Stock issued and
outstanding as of the Record Date, are owned beneficially by the directors and
officers of Central Texas. SEE "INTRODUCTION"; "SUMMARY--SHAREHOLDER VOTES
REQUIRED"; AND "THE MERGER--GENERAL".
The Trustee and the directors and executive officers of Central Texas (and
certain of their spouses) owning or otherwise controlling the right to vote
212,020 shares of Central Texas Common Stock, comprising approximately 53.01% of
the total shares of Central Texas 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.
F. Herman Coleman Employment Agreement. F. Herman Coleman and Compass
Texas Management, Inc., an affiliate of Compass, have entered into an employment
agreement whereby Mr. Coleman will act as a senior officer of Compass Bank-Texas
for a period of two years after the Merger. Mr. Coleman's annual base salary
under the employment agreement will be $175,000 with merit increases in
accordance with Compass Bank-Texas policy. In addition, Mr. Coleman shall be
entitled to participate, up to 40% of his annual base salary, in the Compass
executive incentive bonus program and to the use of the automobile currently
furnished to him by Central Texas.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF CENTRAL TEXAS BANCORP, INC.
The following discussion provides certain information regarding the
financial condition and results of operations of Central Texas. This discussion
should be read in conjunction with Central Texas' Consolidated Financial
Statements and Notes to Consolidated Financial Statements presented elsewhere in
this Proxy Statement/Prospectus. SEE "INDEX TO CENTRAL TEXAS CONSOLIDATED
FINANCIAL STATEMENTS".
RESULTS OF OPERATIONS
GENERAL
The earnings of Central Texas depend primarily on Central Texas' net
interest income (i.e., the difference between the income earned on Central
Texas' 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.
Central Texas' 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 Central Texas' operations are affected by
general market, economic and competitive conditions.
Central Texas reported net income of $1,712,861 for the year ended December
31, 1996, a decrease of $402,590 from net income of $2,115,451 for the year
ended December 31, 1995. Pretax income was $2,523,995 for the year ended
December 31, 1996, a $606,860 decrease from the $3,130,855 earned during the
year ended December 31, 1995. Central Texas had net income of $1,991,977 and
pretax income of $2,749,549 for the year ended December 31, 1994. Changes
occurring in the major components of Central Texas' income statement for such
periods are discussed below.
NET INTEREST INCOME
Net interest income is the primary source of income for Central Texas and
represents the amount by which interest generated by earning assets exceed the
cost of funds, primarily interest paid to Central Texas' depositors on interest
bearing accounts. Net interest income was $8,349,745 for the year ended
December 31, 1996, a 6.96% increase from net interest income of $7,806,394 for
the year ended December 31, 1995. Average rates earned on interest bearing
assets increased to 7.58% as of December 31, 1996 from 7.25% as of December 31,
1995. Average loans, net of unearned discount, of $135.9 million for the year
ended December 31, 1996, increased 7.94% over average loans of $125.9 million
for the same period in 1995. Average deposits for the year ended December 31,
1996 were $183.2 million, an increase of 3.1% over average deposits of $177.7
million for the same period in 1995.
Net interest income was $7,806,394 for the year ended December 31, 1995, an
8.52% increase from net interest income of $7,193,698 for 1994. Average loans
of $126 million for year ended December 31, 1995 increased 8.6% over average
loans of $116 million for the same period in 1994. Average interest bearing
deposits for the year ended December 31, 1995 were $137 million, an increase of
12.3% over average interest bearing deposits of $122 million for the same period
in 1994.
These increases were due to increases in the volume of loans to individuals
consisting primarily of indirect automobile loans and student loans.
-50-
<PAGE>
The following table sets forth for the periods indicated an analysis of net
interest income by each major category of interest-earning assets and interest-
bearing liabilities. The rates earned and paid on each major type of asset and
liability account are set forth beside the average level in the account for the
period, and the average yields on all interest-bearing liabilities are also
summarized.
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollars in Thousands)
1996 1995 1994
----------------------------------- --------------------------------- -------------------------------
Average Interest Yield/ Average Interest Yield/ Average Interest Yield/
Balance(2) Inc/Exp Rate Balance(2) Inc/Exp Rate Balance(2) Inc/Exp Rate
------------- ----------- ------- ------------ --------- -------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans (1) $135,952 $11,703 8.61% $125,952 $10,810 8.58% $115,881 $ 9,045 7.81%
Securities-held to maturity
Taxable 6,414 397 6.19% 14,243 535 3.76% 17,007 435 2.56%
Tax exempt (3) 450 24 5.33% 6,671 501 7.51% 6,412 566 8.83%
Securities-available for
sale
Taxable 33,928 2,064 6.08% 18,254 1,464 8.02% 12,115 1,113 9.19%
Tax exempt (3) 4,737 365 7.71% 66 5 7.58% -- -- --
Deposits in other banks 43 3 6.98% 196 16 8.16% 196 16 8.16%
Federal funds sold 6,890 361 5.24% 16,402 958 5.84% 12,692 519 4.09%
------------ ----------- ------- --------- --------- ------- -------- -------- -------
Total interest-earning
assets/interest income/
average yield 188,414 14,917 7.92% 181,784 14,289 7.86% 164,303 11,694 7.12%
Non-interest earning
assets:
Cash and due from banks 10,523 10,102 9,246
Other assets 7,019 6,745 6,389
Allowance for possible
loan losses (628) (679) (769)
------------ --------- --------
TOTAL $205,328 $197,952 $179,169
============ ========= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing
liabilities:'
NOW, money market and
savings $ 53,134 $ 1,395 2.63% $ 54,137 $ 1,585 2.93% $ 55,193 $ 1,334 2.42%
Certificates of deposit 73,600 4,040 5.49% 70,083 3,827 5.46% 57,092 2,371 4.15%
Individual retirement
accounts 14,016 872 6.22% 12,486 784 6.28% 9,884 519 5.25%
Federal funds purchased -- -- -- -- -- -- -- -- --
Capital debentures 1,303 105 8.06% 1,300 101 7.77% 1,300 81 6.23%
Long-term debt 898 72 8.02% 948 77 8.12% 991 74 7.47%
------------ ----------- ------- --------- --------- ------- -------- -------- -------
Total interest bearing
liabilities/interest 142,951 6,484 4.54% 138,954 6,374 4.59% 124,460 4,379 3.52%
expense/ rate
Noninterest bearing demand 42,502 41,034 39,007
deposits
Other liabilities 1,902 1,582 1,280
------------ --------- --------
Total liabilities 187,355 181,570 164,747
Stockholders' equity 17,973 16,382 14,422
------------ --------- --------
TOTAL $205,328 $197,952 $179,169
============ ----------- ========= --------- ======== --------
Net interest income $ 8,433 $ 7,915 $ 7,315
=========== ------- ========= ------- ======== -------
Net yield on interest
earning assets 4.48% 4.35% 4.45%
======= ======== ========
</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.
(3) Presented on a tax equivalent basis.
-51-
<PAGE>
Changes in interest income and interest expense can result from variances
in both volume and rate. Central Texas 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)
Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
-------------------------- ------------------------- -------------------------
Change Change Change
1996 Attributed to 1995 Attributed to 1994 Attributed to
to -------------------------- to ------------------------- to ------------------------
1995 Volume Rate Mix 1994 Volume Rate Mix 1993 Volume Rate Mix
Interest income:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans(1) $ 893 $ (86) $ 987 $ (8) $1,766 $1,030 $ 661 $ 75 $ 160 $ 716 $ (515) $ (41)
Securities-held to maturity
Taxable (138) (89) (59) 10 100 (230) 703 (373) (243) (868) 1,216 (589)
Tax exempt (2) -- 13 (13) -- (542) (531) (184) 173 108 (48) 174 (18)
Securities-available for
sale
Taxable 601 (200) 929 (128) 351 1,570 (506) (713) -- -- -- --
Tax exempt (2) (118) (144) 37 (11) 482 482 -- -- -- -- -- --
Deposits in other banks (16) (16) (16) 16 -- -- -- -- (35) (35) -- --
Federal funds sold (597) 699 (749) (547) 439 (177) 934 (318) 118 (17) 141 (6)
-------- ----- ------ ----- ------ ------ ------ ------- ----- ------ ------ -----
Increase (decrease) in
interest income $ 625 $ 177 $1,116 $(668) $2,596 $2,144 $1,608 $(1,156)$ 108 $ (252) $1,016 $(654)
======== ===== ====== ===== ====== ====== ====== ======= ===== ====== ====== =====
Interest expense:
Savings and transaction
accounts $(190) $ (49) $ (145) $ 4 $ 250 $ (15) $ 268 $ (3) $ (56) $ (65) $ 9 $ --
Time deposits 301 (2) 303 -- 1,721 913 614 194 88 104 (15) (1)
Capital debentures 4 -- 4 -- 20 -- 20 -- 7 -- 7 --
Long-term debt (5) (4) -- -- 3 (4) 7 -- (10) (3) (7) --
-------- ----- ------ ----- ------ ------ ------ ------- ----- ------ ------ -----
Increase (decrease) in
interest expense $ 110 $ (55) $ 161 $ 4 $1,994 $ 894 $ 909 $ 191 $ 29 $ 36 $ (6) $ (1)
======== ===== ====== ===== ====== ====== ====== ======= ===== ====== ====== =======
</TABLE>
(1) Includes nonaccrual loans.
(2) Interest presented on a tax equitable basis.
-52-
<PAGE>
PROVISION FOR LOAN LOSSES
Central Texas' 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.
For the years ended December 31, 1996, 1995 and 1994, Central Texas
recorded provisions for loan losses of $1,212,600, $195,000 and $60,000,
respectively. Management of the Bank elected to increase its provision for loan
losses in the last quarter of 1996 due to, among other things, an increase in
charge-offs and past due and nonaccrual loans in the Bank, particularly consumer
loans, as well as similarly reported national industry trends in credit card and
indirect portfolios. The allowance for loan losses for the years ended December
31, 1996, 1995 and 1994 were $1,246,546, $609,520 and $630,166, respectively.
The allowance for loan losses expressed as a percentage of outstanding loans,
net of unearned interest, was 0.91%, 0.45% and 0.51% for the years ended
December 31, 1996, 1995 and 1994, respectively.
Non-accrual loans increased by approximately $69,000 for the period ending
December 31, 1996. Non-accrual loans decreased approximately $28,000 from 1994
to 1995.
NON-INTEREST INCOME
Non-interest income, which includes all trust department income, as well as
all service charges and fees, decreased 8.31% from $3,199,265 for the year ended
December 31, 1995 to $2,933,405 for the year ended December 31, 1996. The
$265,860 decrease was due to a decrease in credit card income which resulted
from loss of merchant business and discontinuance of the Visa business card
program.
Non-interest income increased 5.99% from $3,018,461 for the year ended
December 31, 1994 to $3,199,265 for the year ended December 31, 1995.
Non-interest income decreased 6.6% from $3,230,524 for the year ended
December 31, 1993 to $3,018,461 for the year ended December 31, 1994.
NON-INTEREST EXPENSE
Non-interest expense include expenses which Central Texas incurs in the
course of operations such as employee compensation and benefits, occupancy
expense and general operating expenses. These expenses decreased 1.74% from
$7,679,804 for the year ended December 31, 1995 to $7,546,555 for the year ended
December 31, 1996. The decrease was mainly attributable to a reduction in the
FDIC insurance assessment expense which decreased approximately $187,000 from
the year ended December 31, 1995 from the same period in 1996.
Operating expenses for the year ending December 31, 1995 increased by
$277,194, or 3.7%, for the year ended December 31, 1994. Comparing years 1994
to 1993, operating expenses increased by $264,053 or 3.7%.
FEDERAL INCOME TAXES
In 1994, Central Texas adopted Statement of Financial Accounting Standards
No 109, "Accounting for Income Taxes" (FAS 109). As permitted under the new
rules, prior years' financial statements have not been restated and there was no
cumulative effect on income.
Central Texas' provision for income taxes was $811,134, $1,015,404 and
$757,572 for the years ended December 31, 1996, 1995 and 1994, respectively. As
of December 31, 1996, Central Texas had no net operating loss carryforwards.
-53-
<PAGE>
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 assets are deducted from a financial institution's capital
for the purpose of calculating the risk-based capital ratio.
Assets and credit equivalent amounts of off-balance sheet items are
assigned to one of four risk categories, according to certain criteria. The
aggregate dollar value of the amount in each category is then multiplied by the
risk weight associated with that category. The resulting weighted values from
each of the risk categories are added together, and this sum is the financial
institution's total risk weighted assets that comprise the denominator of the
risk-based capital ratio. Assets deducted from a bank's capital in determining
the numerator of the risk-based capital ratio are not included as part of the
financial institution's risk weighted assets.
Risk weights for off-balance sheet items are determined by a two-step
process. First, the "credit equivalent amount" of off-balance sheet items is
determined, in most cases by multiplying the off-balance sheet items by a credit
conversion factor. Second, in most cases, the credit equivalent amount is
assigned to the appropriate risk category according to designated criteria.
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 December 31, 1996,
the Bank's Tier 1 risk-based capital ratio was 11.90% and the total risk-based
capital ratio was 13.02%. As of year end 1995, the Bank's Tier 1 capital ratio
was 11.5% and the total risk-based capital ratio was 12.28%.
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
-54-
<PAGE>
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 7.54% for year end 1996 and 7.25% for year
end 1995.
The Federal Reserve has promulgated capital leverage guidelines designed to
supplement the risk-based capital guidelines. Bank holding companies must
maintain a minimum ratio of Core Capital to average total consolidated assets
("Core Capital Ratio") of 3%, although companies with greater risk profiles may
be required to maintain additional Core Capital of at least 100 to 200 basis
points above the 3% minimum. As of December 31, 1996, Central Texas' Core
Capital was $18,033,572, or 8.39% of total consolidated assets.
LIQUIDITY
Central Texas' 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. Central Texas
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. Central Texas believes its present position to
be adequate to meet its current and future liquidity needs.
The liquidity of Central Texas 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, Central Texas' 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, Central Texas has correspondent relationships with other
institutions with available secured lines of credit to purchase overnight funds
totaling $2,200,000 should additional liquidity be needed. These lines are
subject to restrictions such as the financial strength of Central Texas and the
lenders ability to facilitate credit.
Non-interest bearing demand deposits were $52,604,997 for the year ended
December 31, 1996, an increase of $445,596 over the balance of $52,159,401 for
the same period in 1995. Interest-bearing deposits were $141,238,934 for the
year ended December 31, 1996, compared to $142,919,902 for the same period in
1995, a decrease of $1,680,968.
Average non-interest bearing demand deposits were $42,452,988, $41,033,428
and $39,007,806 for the years ended December 31, 1996, 1995 and 1994,
respectively. Average interest bearing deposits for the same years were
$140,749,664, $136,706,025 and $122,169,025, respectively.
Net cash generated by operating activities was $3,600,206, $2,061,319 and
$2,658,932 as of the end of 1996, 1995 and 1994, respectively. Proceeds from
sales, principal paydowns, and maturities of investment securities were
$13,880,314, $8,071,843 and $10,643,809 for the same periods. Proceeds from the
sale of assets during 1996, 1995 and 1994 were $3,791, $211,500 and $0,
respectively. A net decrease in deposit accounts of $1,235,372 was realized
during the year ended December 31, 1996 compared to a net increase of
$24,061,060 for the same period in 1995. The 1995 increase in deposits was
primarily attributable to an increase in time deposits resulting from the
offering of more attractive rates. Central Texas utilized these funds to
originate loans and purchase investment securities. Central Texas purchased
investment securities of $5,997,814 in 1996, $21,022,654 in 1995 and $12,490,117
in 1994.
Funds utilized for the purchase of bank premises and equipment were
$1,021,670, $257,242 and $346,049 during 1996, 1995 and 1994, respectively.
-55-
<PAGE>
INTEREST RATE SENSITIVITY
Interest rate sensitivity refers to the relationship between market
interest rates and net interest income resulting from the repricing of certain
assets and liabilities. Interest rate risk arises when an earning asset matures
or when its rate of interest changes in a time frame different from that of the
supporting interest-bearing liability. One way to reduce the risk of
significant adverse effects on net interest income of market rate fluctuations
is to minimize the difference between rate sensitive assets and liabilities,
referred to as "gap", by maintaining a similar interest rate sensitivity
position if the assets and liabilities within a particular time frame.
Maintaining an equilibrium between rate sensitive assets and liabilities
will reduce some of the risk associated with diverse changes in market rates,
but it will not guarantee a stable net interest spread because yields and rates
may change simultaneously and by different amounts. These changes in market
spreads could materially affect the overall net interest spread even if assets
and liabilities were perfectly matched. If more assets than liabilities reprice
within a given period, an asset sensitive position or "positive gap" is created.
During a positive gap, a decline in market rates will have a negative impact on
net interest income. Alternatively, where more liabilities than assets reprice
in a given period, a liability sensitive position or "negative gap" is created
(rate sensitivity ratio is less than 100%) and a decline in interest rates will
have a positive impact on net interest income.
-56-
<PAGE>
The following table shows interest sensitivity gaps for these different
intervals as of December 31, 1996.
ESTIMATED PERIOD OF POTENTIAL REPRICING
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Over
One Day to Over Six Months
Three Three to Six to One Over One
Floating Months Months Year Year Total
--------- ----------- ------------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
INTEREST SENSITIVE ASSETS
Loans(1)
(Fixed Rate) $ -- $ 9,114 $ 9,231 $14,165 $56,052 $ 88,562
(Floating Rate) 25,767 -- -- -- -- 25,767
Investment Securities (Fixed Rate) -- 2,146 1,974 5,627 8,245 17,992
Investment Securities (Floating Rate) 3,947 2,322 6,765 8,282 1 21,317
Fed Funds Sold 16,105 -- -- -- -- 16,105
---------- -------- -------- ------- -------- --------
TOTAL INTEREST SENSITIVE ASSETS 45,819 13,582 17,970 28,074 64,298 169,743
---------- -------- -------- ------- ------- --------
INTEREST SENSITIVE LIABILITIES
Interest Bearing Deposits
Savings Accounts 5,818 -- -- -- -- 5,818
NOW and Money Market Accounts 45,649 -- -- -- -- 45,649
Time Deposits -- 18,199 15,568 19,274 35,732 88,773
Public Funds -- 1,000 -- -- -- 1,000
Capital Debentures -- -- 1,300 -- -- 1,300
---------- -------- -------- ------- ------- --------
TOTAL INTEREST SENSITIVE LIABILITIES 51,467 19,199 16,868 19,274 35,732 142,540
---------- -------- -------- ------- ------- --------
PERIODIC GAP $(5,648) $ (5,617) $ 1,102 $ 8,800 $28,566 $ 27,203
========== ======== ======== ======= ======= ========
CUMULATIVE GAP $(5,648) $(11,265) $(10,163) $(1,363) $27,203
========== ======== ======== ======= =======
PERIODIC GAP TO TOTAL EARNINGS (2.91)% (2.90)% 0.57% 4.54% 14.73%
ASSETS
</TABLE>
(1) Disclosure of loans categorized by type is excluded due to the information
not being readily accessible.
Varying interest rate environments can create unexpected changes in
prepayment levels of assets and liabilities which are not reflected in the
interest sensitivity analysis. These prepayments may have significant effects on
Central Texas' net interest margin. Because of these factors, an interest
sensitivity gap report may not provide a complete assessment of Central Texas'
exposure to changes in interest rates.
-57-
<PAGE>
INVESTMENT SECURITIES
Set forth is a distribution of Central Texas' investment securities by
contractual maturity dates at December 31, 1996 (mortgage-backed securities are
classified in the period of final maturity):
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
---------------------------------------------------------------------------------------------
MATURING
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS AFTER TEN YEARS TOTAL
------------------ ------------------ ----------------- ------------------- ----------
Amount Yield Amount Yield Amount Yield Amount Yield Amount
--------- ------- --------- ------- -------- ------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities held to
maturity: /(1)/
U.S. Treasury $ -- -- $ -- -- $ -- -- $ -- -- $ --
Government Agency -- -- -- -- 1,000 6.31% -- -- 1,000
Mortgage-backed -- -- -- -- 85 7.79% 3,832 7.02% 3,917
State and Political
Subdivisions-Tax
Exempt -- -- 449 5.33% -- -- -- -- 449
Corporate -- -- 499 5.92% -- -- -- -- 499
------- ------- ------- ------ ------- ------ ------- -------- ---------
Total -- -- 948 5.10% 1,085 6.43% 3,832 7.02% 5,865
------- ------- ------- ------ ------- ------ ------- -------- ---------
Stock in Federal Reserve -- -- -- -- -- -- -- -- 51
Bank
Other Securities -- -- -- -- -- -- -- -- 100
Total Securities held to
maturity $ -- -- $ 948 5.10% $ 1,085 6.43% $ 3,832 7.02% $ 6,016
======= ======= ======= ====== ======= ====== ======= ======== =========
Securities available for
sale: /(1)/
U.S. Treasury $ 5,527 5.34% $ 994 5.66% $ -- -- $ -- -- $ 6,521
Government Agency 503 5.62% 1,986 5.78% -- -- -- -- 2,489
Mortgage-backed -- -- -- -- 796 5.59% 21,139 6.68% 21,935
State and Political
Subdivisions:
Taxable 212 5.56% -- -- -- -- -- -- 212
Tax Exempt 1,855 4.81% 2,290 5.49% 208 5.04% -- -- 4,353
Corporate 502 5.68% -- -- 492 6.73% -- -- 994
------- ------- ------- ------ ------- ------ ------- -------- ---------
Total Securities
available for sale $ 8,599 5.04% $ 5,270 5.14% $ 1,496 5.73% $21,139 6.68% $ 36,504
======= ======= ======= ====== ======= ====== ======= ======== =========
</TABLE>
(1) Yields are presented on a tax-equivalent basis.
-58-
<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 December 31,
---------------------------------------------------------------------
1996 1995 1994
---- ---- ----
Amount Rate Amount Rate Amount Rate
----------- -------- ---------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Non-interest Bearing:
Demand $ 42,502 -- $ 41,034 -- $ 39,007 --
Interest Bearing:
NOW accounts 18,427 2.03% 18,172 2.01% 18,472 2.04%
Money market 28,941 3.03% 30,402 3.54% 31,060 2.64%
Savings 5,765 2.49% 5,563 2.55% 5,661 2.42%
Time 73,600 5.65% 70,083 5.69% 57,092 4.36%
Other 14,016 8.06% 12,486 7.78% 9,884 6.25%
-------- ------ -------- ------ -------- ------
TOTAL $183,252 3.39% $177,740 3.51% $161,176 2.63%
======== ====== ======== ====== ======== ======
</TABLE>
The scheduled maturities of certificates of deposit in denominations of
$100,000 or more at December 31, 1996, including public funds, are shown below:
(Dollars in Thousands)
December 31, 1996
----------------------
Due in three months or less $ 5,558
Due in over three to six
months 4,061
Due in over six to twelve
months 4,254
Due in over twelve months 7,739
-------
Total $21,612
=======
-59-
<PAGE>
LOANS
The following table classifies the Bank's loans according to type as of the
dates shown:
(Dollars in Thousands)
December 31,
-----------------------------------
1996 1995 1994
----------- -------- --------
Installment $ 70,754 $ 64,732 $ 60,169
Commercial, financial and agricultural 16,071 24,014 18,976
Real estate-construction 2,408 3,002 2,439
Real estate-mortgage 29,601 30,612 28,260
Credit Card 4,675 5,208 6,646
Student 17,294 16,206 12,161
Lease Financing 5 7 --
Overdrafts 235 49 146
Other 2,036 -- --
----------- -------- --------
TOTAL 143,079 143,830 128,797
Less allowance for loan loss (1,247) (610) (630)
Less unearned income (6,579) (6,880) (5,759)
----------- -------- --------
TOTAL NET $135,253 $136,340 $122,408
=========== ======== ========
The maturities of loans, net of unearned discount, at December 31, 1996 were as
follows:
(Dollars in Thousands)
Less than 1 year $ 57,151
1-5 years 77,030
5-10 years 2,013
10-15 years 183
15-20 years 58
Over 20 years 65
--------
Total $136,500
========
Total loans net of unearned income and allowance for possible loan losses
decreased 0.8% for the year ended December 31, 1996 from 1995 levels. For the
years ended December 31, 1995, 1994 and 1993, total loans net of unearned income
and allowance for possible loan losses increased 11.4%, 8.1% and 17.1%,
respectively, from prior year levels.
ALLOWANCE FOR LOAN LOSSES AND RISK ELEMENTS
The provision for loan losses represents a determination by Central Texas'
management of the amount necessary to be charged to operating income and
transferred to the allowance for loan losses to maintain a level which it
considers adequate in relation to the risk of future losses inherent in the loan
portfolio. It is Central Texas' policy
-60-
<PAGE>
to provide for exposure to losses of specifically identified credits, and a
general allowance for the remainder of the loan portfolio, and, while it is also
Central Texas' policy to charge off in the current period those loans in which a
loss is deemed to exist, risks of future losses also exist which cannot be
quantified precisely or attributed to particular loans or classes of loans and,
while it is also Central Texas' policy to charge off in the current period those
loans in which a loss is deemed to exist, risks of future losses also exist
which cannot be quantified precisely or attributed to particular loans or
classes of loans.
In assessing the adequacy of its allowance for loan losses, management
relies predominantly on its ongoing review of the loan portfolio, which is
undertaken both to ascertain whether there are probable losses which must be
charged off and to assess the risk characteristics of individually significant
loans and of the portfolio in the aggregate. This review takes into
consideration the judgments of the responsible lending officers, the senior
credit officer, the Chief Executive Officer and the Board of Directors, and also
those of bank regulatory agencies that review the loan portfolio as part of
their regular examination of Central Texas and the Bank.
In evaluating the allowance for loan losses, management also considers
Central Texas' loan loss experience, the amount of past due and non-performing
loans, current and anticipated economic conditions, changes in lending and
collection procedures, changes in loan volumes and quality of the Central Texas'
loan review system.
The allowance for loan losses at December 31, 1996 was $1,246,546, compared to
$609,520 at December 31, 1995 and $630,166 at December 31, 1994. Although
additional losses may occur, management believes the allowance for loan losses
to be adequate as of the date presented.
<TABLE>
<CAPTION>
(Dollars in Thousands)
As of and for the Years
Ended
Transaction in allowance for possible loan losses December 31,
- ------------------------------------------------- -----------------------------------------
1996 1995 1994
---------- --------- ----------
<S> <C> <C> <C>
Balance at Beginning of period $ 610 $ 630 $ 851
Charge-offs
- -----------
Commercial, financial and agricultural 49 24 37
Real estate-construction -- -- --
Real estate-mortgage -- -- --
Installment Loans 564 248 290
Credit card loans 146 94 112
Other 1 9 5
------ ------ -----
Total charge-offs 760 375 444
Recoveries
- ----------
Commercial, financial and agricultural 10 35 26
Real estate-construction
Real estate-mortgage 1 4 2
Installment Loans 150 106 92
Credit card loans 23 15 40
Other -- -- 3
------ ------ -----
Total recoveries 184 160 163
Net charge-offs (recoveries) 576 215 281
Provision charged to expense 1,213 195 60
Transfer to Provision for Loan Loss on
Other Real Estate Owned -- -- --
Balance at end of period $1,247 $ 610 $ 630
====== ====== =====
Net charge-offs (recoveries) as a percentage of
average loans (annualized for 1996) 0.43% 0.16% 0.23%
</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,
---------------------------------------
1996 1995 1994
--------- ---------- -----------
<S> <C> <C> <C>
Loans accounted for on a nonaccrual basis $ 166 $ 97 $ 79
Accruing loans which are contractually past
due 90 days or more as to principal or
interest payments 416 100 90
Troubled debt restructuring -- -- --
-------- ------- -------
Total $ 582 $ 197 $ 169
Interest income included in net income for period $ 4 $ -- $ --
Foregone interest on nonaccrual loans $ 5 $ 10 $ 15
</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
December 31, 1996, loans totaling $165,857 or 0.12% of total net loans
outstanding, were on a non-accrual basis, therefore, no income was being
recognized. As of year end 1995, loans totaling $96,787, or 0.07% 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.
-62-
<PAGE>
RETURN ON EQUITY AND ASSETS
The return on equity and return on assets for the periods shown below are
as follows:
<TABLE>
<CAPTION>
For the Years Ended
December 31,
---------------------
1996 1995 1994
---------------------
<S> <C> <C> <C>
Return on Average Assets 0.84% 1.07% 1.11%
Return on Average Equity 9.53% 12.91% 13.81%
Average Equity to Average Assets Ratio 8.75% 8.28% 8.05%
Dividend Payout Ratio 31.53% 20.80% 20.08%
</TABLE>
RELATIONSHIPS WITH INDEPENDENT ACCOUNTANTS
Compass' Board of Directors appointed KPMG Peat Marwick LLP as independent
auditors for Compass for the year ending December 31, 1997. KPMG Peat Marwick
LLP has served as Compass' independent auditors continuously since 1971.
Central Texas' Board of Directors appointed Pattillo, Brown & Hill, L.L.P.,
as independent auditors for Central Texas for the year ending December 31, 1996.
Pattillo, Brown & Hill, L.L.P. has served as Central Texas' and the Bank's
independent auditors continuously since 1994.
Compass and Central Texas have been advised by KPMG Peat Marwick LLP and
Pattillo, Brown & Hill, L.L.P., that neither KPMG Peat Marwick LLP nor
Pattillo, Brown & Hill, L.L.P. has any direct financial interest or any material
indirect financial interest in Compass, Central Texas, or their affiliates other
than arising from that firm's employment as auditors for Compass and Central
Texas, 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 Central Texas as of and for the
years ended 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 by Pattillo, Brown & Hill,
L.L.P., independent certified public accountants, and 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 December 31, 1996, Mr. Powell was the beneficial owner of an aggregate of
approximately 56,504 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. Naman,
Howell, Smith & Lee, a professional corporation,
-63-
<PAGE>
and Liddell, Sapp are also expected to render legal opinions as to certain
matters acceptable to Central Texas 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 CENTRAL TEXAS AND COMPASS--CERTAIN DIFFERENCES BETWEEN THE
CORPORATION LAWS OF TEXAS AND DELAWARE AND CORRESPONDING CHARTER AND BY-LAW
PROVISIONS--LIMITATION OF LIABILITY AND INDEMNIFICATION".
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Compass, Compass
has been informed that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
OTHER MATTERS
Central Texas' 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 Central Texas'
Board of Directors unless "Authority Withheld" is indicated in the appropriate
box on the proxy. SEE "INTRODUCTION".
-64-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
OF
CENTRAL TEXAS BANCORP, INC.
Page
----
1. Auditors' Reports 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-3
3. Consolidated Statement of Income for the Three Years Ended
December 31, 1996 F-4
4. Consolidated Statement of Changes in Stockholders' Equity for the
Three Years ended December 31, 1996 F-5
5. Consolidated Statement of Cash Flows for the Three Years Ended
December 31, 1996 F-6
6. Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
PATTILLO, BROWN & HILL, L.L.P.
CERTIFIED PUBLIC ACCOUNTANTS
Providing Services Since 1923
AMERICAN PLAZA
200 WEST HIGHWAY 6, SUITE 300
P.O. BOX 20725
WACO, TEXAS 76702-0725
(817) 772-4901
FAX (817) 772-4920
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Central Texas Bancorp, Inc. and Subsidiaries
Waco, Texas
We have audited the consolidated balance sheets of Central Texas Bancorp,
Inc. and Subsidiaries, as of December 31, 1996 and 1995, and the consolidated
statements of income, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance as to 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 Central
Texas Bancorp, Inc. 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.
February 14, 1997
/s/PATTILLO, BROWN & HILL, L.L.P.
[LOGO
A Member of Community Banking Advisory Network, A PENCOR Affiliate APPEARS
HERE]
F-2
<PAGE>
CENTRAL TEXAS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 13,992,953 $ 12,275,380
Interest bearing deposits in other banks - 196,000
Federal funds sold 16,105,000 9,310,000
Investment Securities
Securities held-to-maturity (market value of
$5,958,377 in 1996, and $7,100,242 in 1995 6,016,108 7,123,179
Securities available-for-sale, at fair value 36,504,948 43,481,740
------------ ------------
Total Investment Securities 42,521,056 50,604,919
------------ ------------
Loans 143,078,111 143,828,807
Less allowance for loan loss ( 1,246,546) ( 609,520)
Less unearned income ( 6,578,922) ( 6,879,559)
------------ ------------
Net Loans 135,252,643 136,339,728
------------ ------------
Bank premises and equipment, net 4,588,304 4,009,990
Accrued interest receivable 1,684,570 1,568,898
Other real estate owned - -
Other assets 919,905 1,381,017
------------ ------------
Total Assets $215,064,431 $215,685,932
============ ============
LIABILITIES
Deposits
Non-interest bearing $ 52,604,997 $ 52,159,401
Interest bearing 141,238,934 142,919,902
------------ ------------
Total Deposits 193,843,931 195,079,303
------------ ------------
Accrued interest payable 572,403 614,184
Long-term debt 872,977 924,344
Other liabilities 366,580 667,905
Subordinate debentures 1,300,000 1,300,000
------------ ------------
Total Liabilities 196,955,891 198,585,736
------------ ------------
SHAREHOLDERS' EQUITY
Capital stock, par value $10 per share, authorized
500,000 shares; issued and outstanding, 400,000
shares in 1996, and 400,000 shares in 1995 4,000,000 4,000,000
Additional paid-in capital - -
Retained earnings 14,033,572 12,860,711
Unrealized gain (loss) on available-for-sale securities 74,968 239,485
------------ ------------
Total Shareholders' Equity 18,108,540 17,100,196
------------ ------------
Total Liabilities and Stockholders' Equity $215,064,431 $215,685,932
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-3
<PAGE>
CENTRAL TEXAS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $11,702,972 $10,810,279 $ 9,044,542
----------- ----------- -----------
Interest on Investment Securities
Held-to-Maturity
Taxable 397,048 534,660 435,118
Exempt from federal taxes 18,702 18,702 445,054
----------- ----------- -----------
415,750 553,362 880,172
----------- ----------- -----------
Interest on Investment Securities
Available-for-Sale
Taxable 2,064,478 1,463,961 1,113,117
Exempt from federal taxes 286,617 379,114 -
----------- ----------- -----------
2,351,095 1,843,075 1,113,117
----------- ----------- -----------
Interest on federal funds sold 362,934 958,124 519,337
Interest on deposits in banks 3,413 15,680 15,680
----------- ----------- -----------
Total Interest Income 14,836,164 14,180,520 11,572,848
----------- ----------- -----------
INTEREST EXPENSE
Interest on deposits 6,308,847 6,195,982 4,224,231
Interest on long-term borrowed funds 177,572 178,144 154,919
----------- ----------- -----------
Total Interest Expense 6,486,419 6,374,126 4,379,150
----------- ----------- -----------
Net Interest Income 8,349,745 7,806,394 7,193,698
PROVISION FOR POSSIBLE LOAN LOSSES 1,212,600 195,000 60,000
----------- ----------- -----------
Net Interest Income After Provision
for Possible Loan Losses 7,137,145 7,611,394 7,133,698
----------- ----------- -----------
OTHER INCOME
Trust department income 873,144 850,132 932,356
Service charges and fee income 1,512,573 1,461,368 1,423,267
Security gains (losses) (3,125) 10,430 (6,290)
Credit card income 260,856 444,069 448,871
Texas traveler income 160 185,698 -
Rental income 212,934 174,409 161,684
Other 76,863 73,159 58,573
----------- ----------- -----------
2,933,405 3,199,265 3,018,461
----------- ----------- -----------
OTHER EXPENSE
Salary and employee benefits 3,574,949 3,530,399 3,359,643
Occupancy expense, net 942,368 939,520 915,600
Advertising 179,961 143,899 159,323
Audit and exam fees 181,470 313,389 508,825
Credit card expense 557,799 647,752 608,387
EDP expense 367,090 267,284 247,375
Other 1,742,918 1,837,561 1,603,457
----------- ----------- -----------
7,546,555 7,679,804 7,402,610
----------- ----------- -----------
Net Income Before Federal Income Taxes 2,523,995 3,130,855 2,749,549
FEDERAL INCOME TAX EXPENSE 811,134 1,015,404 757,572
----------- ----------- -----------
Net Income $ 1,712,861 $ 2,115,451 $ 1,991,977
=========== =========== ===========
EARNINGS PER SHARE $4.28 $5.29 $4.98
=========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-4
<PAGE>
CENTRAL TEXAS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Common Stock
------------------------ Securities
Number of Par Retained Valuation
Shares* Value* Earnings* Allowance Total
------------ ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 400,000 $4,000,000 $ 9,593,283 $ - $13,593,283
January 1, 1994, adoption of
Financial Accounting Standards
115, "Accounting for Certain
Investment as Debt and Equity
Securities," net of applicable
deferred income taxes of $33,041,
on securities available-for-sale - - - 64,139 64,139
Change in unrealized gain (loss) on
securities available-for-sales,
net of applicable deferred taxes
of $185,756 - - - ( 360,584) ( 360,584)
Net income - - 1,991,977 - 1,991,977
Cash dividends paid ($1.00 per share) - - ( 400,000) - ( 400,000)
------------ ---------- ----------- ---------- -----------
Balance, December 31, 1994 400,000 4,000,000 11,185,260 ( 296,445) 14,888,815
Change in unrealized gain
(loss) on securities
available for sales, net
of applicable deferred
taxes of $276,085 - - - 535,930 535,930
Net income - - 2,115,451 - 2,115,451
Cash dividends paid
($1.10 per share) - - ( 440,000) - ( 440,000)
------------ ---------- ----------- ---------- -----------
Balance, December 31, 1995 400,000 4,000,000 12,860,711 239,485 17,100,196
Change in unrealized gain
(loss) on securities
available for sales, net
of applicable deferred
taxes of $84,751 - - - ( 164,517) ( 164,517)
Net income - - 1,712,861 - 1,712,861
Cash dividends paid
($1.35 per share) - - ( 540,000) - ( 540,000)
December one for one
stock dividend - - - - -
------------ ---------- ----------- ---------- -----------
Balance, December 31, 1996 400,000 $4,000,000 $14,033,572 $ 74,968 $18,108,540
============ ========== =========== ========== ===========
</TABLE>
* Shares and values for all periods presented have been retroactively
adjusted for a one-for-one stock dividend in December 1995.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-5
<PAGE>
CENTRAL TEXAS BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,712,861 $ 2,115,451 $ 1,991,977
Adjustments to reconcile net income to net cash
provided by operations:
Provision for possible loan losses 1,212,600 195,000 60,000
Depreciation and amortization 584,535 351,684 598,178
Provision for deferred tax expense (benefit) - - 95,542
Loss (gain) on sale of investment securities 3,125 ( 10,430) -
Decrease (increase) in interest receivable
and other assets 345,440 ( 925,944) ( 259,836)
Increase (decrease) in interest payable
and other liabilities ( 258,355) 335,558 173,071
------------ ------------ ------------
Net Cash Provided by Operating Activities 3,600,206 2,061,319 2,658,932
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities available-for-sale ( 5,997,814) (21,022,654) ( 9,483,086)
Purchase of investment securities held-to-maturity - - ( 3,007,031)
Proceeds from maturities of investment securities:
Available-for-sale 11,798,321 5,156,462 5,800,000
Held-to-maturity 1,085,118 1,436,561 4,843,809
Proceeds from sale of investment securities
available-for-sale 996,875 1,478,820 -
Decrease (increase) in federal funds sold ( 6,795,000) 4,816,000 624,000
Increase in loans ( 125,515) (14,126,898) ( 9,192,969)
Purchases of premises and equipment ( 1,021,670) ( 257,242) ( 346,049)
Dispositions of premises and equipment 3,791 152,035 -
Dispositions of other real estate owned - 59,465 -
Other, net - - 3,430
------------ ------------ ------------
Net Cash Used by Investing Activities ( 55,894) (22,307,451) (10,757,896)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in demand and savings accounts ( 1,205,680) 2,496,321 10,877,285
Increase (decrease) in time deposits ( 29,692) 21,564,739 ( 423,078)
Repayment of long-term debt ( 51,367) ( 46,796) ( 39,836)
Cash dividends paid ( 540,000) ( 440,000) ( 400,000)
------------ ------------ ------------
Net Cash Provided by Financing Activities ( 1,826,739) 23,574,264 10,014,371
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 1,717,573 3,328,132 1,915,407
CASH AND DUE FROM BANKS, BEGINNING OF YEAR 12,275,380 8,947,248 7,031,841
------------ ------------ ------------
CASH AND DUE FROM BANKS, END OF YEAR $ 13,992,953 $ 12,275,380 $ 8,947,248
============ ============ ============
SUPPLEMENTAL DISCLOSURES
Interest paid $ 6,528,200 $ 6,141,321 $ 4,319,111
============ ============ ============
Income taxes paid $ 1,086,255 $ 711,820 $ 626,633
============ ============ ============
Change in unrealized (loss) gain in value
of securities available-for-sale $ 249,268 $ 812,015 $( 546,340)
============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-6
<PAGE>
CENTRAL TEXAS BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Central Texas Bancorp, Inc. and
Subsidiaries conform to generally accepted accounting principles and the
general practices within the banking industry. Those policies which
materially affect the determination of financial position, changes in
financial position and results of operations are presented below.
NATURE OF OPERATIONS
Central Texas Bancorp, Inc. provides a variety of financial services to
individuals and corporate customers in the Central Texas area through
its subsidiary, The Texas National Bank of Waco. Primary deposit
products are demand deposit accounts and certificates of deposit. Its
primary lending products are installment loans.
BASIS OF ACCOUNTING
The consolidated financial statements include the accounts of Central
Texas Bancorp, Inc. and its Subsidiary, The Texas National Bank of Waco
(the "Bank"). All significant intercompany balances and transactions
have been eliminated in consolidation.
The Texas National Bank of Waco has a wholly owned subsidiary, TNB
Properties, Inc. The subsidiary was created to manage and operate
certain other real estate owned until disposal. All significant
intercompany balances and transactions have been eliminated in
consolidation.
INVESTMENT IN SECURITIES
Effective January 1, 1994, the Bank adopted Statement of Financial
Accounting Standards ("SFAS") 115, "Accounting for Certain Investments
in Debt and Equity Securities." SFAS 115 requires the Bank to designate
securities as held-to-maturity or available-for-sale at the date of
acquisition or at the date of adoption of SFAS 115. The adoption of
SFAS 115 had no effect on net income.
Debt securities that management has the ability and intent to hold to
maturity are classified as held-to-maturity and carried at cost,
adjusted for amortization of premium and accretion of discounts using
methods approximating the interest method. Other marketable securities
are classified as available-for-sale and are carried at fair value.
Fair value is generally based on quoted market prices or broker or
dealer price quotations. Unrealized gains and losses on securities
available-for-sale are recognized in stockholders' equity as securities
valuation allowance, net of applicable deferred income taxes. Cost of
securities sold is recognized using the specific identification method.
(CONTINUED)
F-7
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Loans are stated at the amount of unpaid principal, reduced by unearned
discount and an allowance for possible loan losses. Unearned discount
on installment loans is recorded as income over the terms of the loans
in decreasing amounts related to declining balances of the loans which
approximates the interest method. Interest on other loans is calculated
by using the simple interest method on daily balances of the principal
amount outstanding.
The allowance for possible loan losses is established through a
provision for loan losses charged to expense. Loans are charged against
the allowance for possible loan losses when management believes that the
collectibility of the principal is unlikely. The allowance is an amount
that management believes will be adequate to absorb possible losses on
existing loans that may become uncollectible, based on evaluations of
the collectibility of loans and prior loan loss experience. The
evaluations take into consideration such factors as changes in the
nature and volume of the loan portfolio, overall portfolio quality,
review of specific problem loans, and current economic conditions that
may affect the borrower's ability to pay. Accrual of interest is
discontinued on a loan when management believes, after considering
economic and business conditions and collection efforts, that the
borrower's financial condition is such that collection of interest is
doubtful.
PREMISES AND EQUIPMENT
Premises and equipment are carried at cost less accumulated depreciation
and amortization. Depreciation, including amortization of capitalized
leases, is computed using various methods over the estimated useful
lives of the assets. Premises and equipment under capital leases and
leasehold improvements are amortized over the shorter of the lease term
or estimated useful life of the asset. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation are
removed from the accounts, and any resulting gain or loss is recorded
for the year. The cost of maintenance and repairs is charged to expense
as incurred; significant renewals and betterments are capitalized.
Deduction is made for retirements resulting from renewals or
betterments.
OTHER REAL ESTATE OWNED
Other real estate owned represents property acquired through foreclosure
or deeded to the Bank in lieu of foreclosure on real estate mortgage
loans on which the borrowers have defaulted as to payment of principal
and interest. Amounts maintained for other real estate owned are
carried at the lower of the cost of acquisition or the asset's fair
market value. Reductions in the balance of other real estate at the
date of acquisition are charged to the reserve for possible loan losses.
Any subsequent write-downs to reflect current fair market value are
charged to other expense.
(CONTINUED)
F-8
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FEDERAL INCOME TAXES
Central Texas Bancorp, Inc. and Subsidiaries file a consolidated federal
income tax return. Accordingly, the Subsidiaries remit current taxes
payable to, and receive current tax benefits from Central Texas Bancorp,
Inc. computed on a separate company basis. Central Texas Bancorp, Inc.
records, as a tax benefit, the difference between total taxes reflected
by the Subsidiaries and the consolidated provision for income taxes.
Income taxes are provided for the tax effects of the transactions
reported in the financial statements and consist of taxes currently due
plus deferred taxes related primarily to differences between the basis
of available-for-sale securities, allowance for loan losses, allowance
for losses on foreclosed real estate, and accumulated depreciation for
financial and income tax reporting. The deferred tax assets and
liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets
and liabilities are recovered or settled.
PROFIT SHARING
Central Texas Bancorp, Inc.'s subsidiary, The Texas National Bank of
Waco, has a profit sharing plan covering all qualified employees.
Profit sharing costs are funded in the year in which they are accrued.
TRUST FEES
Trust fees are recorded on the accrual basis.
OFF BALANCE SHEET FINANCIAL INSTRUMENTS
In the ordinary course of business the subsidiary Bank 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 become
payable.
CASH AND CASH EQUIVALENT
For the purpose of presentation in the Statement of Cash Flows, cash and
cash equivalents are defined as those amounts included in the balance
sheet caption "Cash and Due From Banks."
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
(CONTINUED)
F-9
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
Statement of Financial Accounting Standards No. 107, Disclosures About
Fair Value of Financial Instruments, requires disclosure of fair value
information about financial instruments, whether or not recognized in
the balance sheet, for which it is practicable to estimate that value.
In cases where quoted market prices are not available, fair values are
based on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be
realized in immediate settlement of the instruments. Statement No. 107
excludes certain financial instruments and all nonfinancial instruments
from its disclosure requirements. Accordingly, the aggregate faire
value amounts presented do not represent the underlying value of the
Company.
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
CASH AND CASH INVESTMENTS: The carrying amounts reported in the
statement of financial condition for cash and cash investments
approximate those assets' fair values.
TIME DEPOSITS: Fair values for time deposits are estimated using a
discounted cash flow analysis that applies interest rates currently
being offered on certificates to a schedule of aggregated
contractual maturities on such time deposits.
INVESTMENT SECURITIES: Fair values for investment securities are
based on quoted market prices, where available. If quoted market
prices are not available, fair values are based on quoted market
prices of comparable instruments.
LOANS: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying
amounts. The fair values for other loans (for example, fixed rate
commercial real estate and rental property mortgage loans and
commercial and industrial loans) are estimated using discounted cash
flow analysis, based on interest rates currently being offered for
loans with similar terms to borrower's of similar credit quality.
Loan fair value estimates include judgments regarding future
expected loss experience and risk characteristics. The carrying
amount of accrued interest receivable approximates its fair value.
(CONTINUED)
F-10
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
DEPOSITS: The fair values disclosed for demand deposits (for
example, interest-bearing checking accounts and passbook accounts)
are, by definition, equal to the amount payable on demand at the
reporting date (that is, their carrying amounts). The fair values
for time deposits are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on
time deposits to a schedule of aggregated contractual maturities on
such time deposits. The carrying amount of accrued interest payable
approximates fair value.
SUBORDINATED CAPITAL DEBENTURES AND LONG-TERM DEBT: The carrying
amounts of the subordinated capital debentures and long-term debt
approximate their fair value.
2. INVESTMENT SECURITIES
Investment securities held-to-maturity consisted of the following:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Market
Amortized Cost Gains Losses Value
-------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1996:
Taxable Securities
U.S. Treasury Securities, obligations
of U.S. government corporations and
agencies $1,000,000 $ - $22,400 $ 977,600
Corporate securities 499,275 - 7,170 492,105
Mortgage backed securities 3,916,862 - 25,866 3,890,996
Stock of federal reserve bank 51,000 - - 51,000
Other securities 100,001 - - 100,001
---------- ---------- ------- ----------
5,567,138 - 55,436 5,511,702
---------- ---------- ------- ----------
Tax Exempt Securities
Obligations of states and political
subdivisions 448,970 - 2,295 446,675
---------- ---------- ------- ----------
Totals $6,016,108 $ - $57,731 $5,958,377
========== ========== ======= ==========
December 31, 1995:
Taxable Securities
U.S. Treasury Securities, obligations
of U.S. government corporations
and agencies $1,000,000 $ - $ 4,300 $ 995,700
Corporate securities 499,068 - 2,163 496,905
Mortgage backed securities 5,024,392 35,253 50,588 5,009,057
Stock of federal reserve bank 51,000 - - 51,000
Other securities 100,000 - - 100,000
---------- ---------- ------- ----------
6,674,460 35,253 57,051 6,652,662
---------- ---------- ------- ----------
Tax Exempt Securities
Obligations of states and political
subdivisions 448,719 - 1,139 447,580
---------- ---------- ------- ----------
Totals $7,123,179 $35,253 $58,190 $7,100,242
========== ========== ======= ==========
</TABLE>
(CONTINUED)
F-11
<PAGE>
2. INVESTMENT SECURITIES (Continued)
Investment securities available-for-sale consists of the following:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Market
Amortized Cost Gains Losses Value
-------------- ---------- --------- -----------
<S> <C> <C> <C> <C>
December 31, 1996:
Taxable Securities
U.S. Treasury Securities, obligations
of U.S. government corporations and
agencies $12,555,806 $ - $48,838 $12,506,968
Obligations of states and political
subdivisions 210,000 1,896 - 211,896
Corporate securities 999,897 - 5,537 994,360
Mortgage backed securities 18,358,936 79,595 - 18,438,531
----------- -------- --------- -----------
32,124,639 81,491 54,375 32,151,755
----------- -------- --------- -----------
Tax Exempt Securities
Obligations of states and political
subdivisions 4,266,722 86,471 - 4,353,193
----------- -------- --------- -----------
Totals $36,391,361 $167,962 $54,375 $36,504,948
=========== ======== ========= ===========
December 31, 1995:
Taxable Securities
U.S. Treasury Securities, obligations
of U.S. government corporations
and agencies $15,996,786 $ 69,868 $ - $16,066,654
Obligations of states and political
subdivisions 709,880 2,090 - 711,970
Corporate securities 1,330,579 9,525 - 1,340,104
Mortgage backed securities 19,058,817 97,439 - 19,156,256
----------- -------- --------- -----------
37,096,062 178,922 - 37,274,984
----------- -------- --------- -----------
Tax Exempt Securities
Obligations of state and political
subdivisions 6,022,822 183,934 - 6,206,756
----------- -------- --------- -----------
$43,118,884 $362,856 $ - $43,481,740
=========== ======== ========= ===========
</TABLE>
At December 31, 1996 and 1995, investment securities carried at $16,153,110
and $17,951,207 respectively, were pledged to qualify for fiduciary powers,
to secure public deposits as required by law and for other purposes.
The maturities of investment securities at December 31, 1996, were as
follows:
<TABLE>
<CAPTION>
Held-To-Maturity Available-For-Sale
-------------------------- -----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ - $ - $ 8,562,129 $ 8,599,076
Due after one year through five years 948,245 938,780 5,222,496 5,270,494
Due after five years through ten years 1,084,968 1,064,263 1,496,055 1,496,858
Due after ten years 3,831,894 3,804,333 21,110,681 21,138,520
---------- ---------- ----------- -----------
5,865,107 5,807,376 36,391,361 36,504,948
Stock of Federal Reserve Bank 51,000 51,000 - -
Other securities 100,001 100,001 - -
---------- ---------- ----------- -----------
$6,016,108 $5,958,377 $36,391,361 $36,504,948
========== ========== =========== ===========
</TABLE>
F-12
<PAGE>
3. LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Loans consisted of the following at December 31, 1996 and 1995 (amounts in
thousands):
1996 1995
------------ ------------
Installment $ 70,754 $ 64,732
Commercial, financial and agricultural 16,071 24,014
Real estate - construction 2,408 3,002
Real estate - mortgage 29,601 30,612
Credit card 4,675 5,208
Student 17,294 16,206
Lease financing 5 7
Overdrafts 235 49
Other loans 2,036 -
-------- --------
143,079 143,830
Less allowance for loan loss (1,247) (610)
Unearned income (6,579) (6,880)
-------- --------
$135,253 $136,340
======== ========
At December 31, 1996 and 1995, the Bank had loans to pledge with a carrying
value of $17,294,000 and $18,152,000, respectively, to secure deposits as
required by law.
Loans on which the accrual of interest has been discontinued amounted to
approximately $166,000 and $97,000 at December 31, 1996 and 1995,
respectively. If interest on these loans had been accrued, such income
would have been approximately $5,400 and $9,700 at December 31, 1996 and
1995, respectively.
Certain officers and directors of the Bank and certain corporations and
individuals related to such persons incurred indebtedness, in the form of
loans, as customers. These loans were made on substantially the same
terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other customers and did not involve
more than the normal risk of collectibility. At December 31, 1996 and
1995, outstanding loans to directors of the Bank were $7,665,855 and
$6,875,967, respectively. Officers of the Bank are limited to aggregate
individual borrowings of $10,000 on an unsecured basis without prior Board
approval as directed by Bank policy.
The following sets forth an analysis of the activity with respect to these
related party loans, which exceeded $60,000 in the aggregate, as of the
year ended December 31, 1996:
1996
------------
Balance, beginning of year $ 8,170,486
Advances 1,629,874
Payments (2,165,259)
Other changes -
-----------
Balance at end of year $ 7,635,101
===========
(CONTINUED)
F-13
<PAGE>
3. LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES (Continued)
The scheduled maturities of loans by category at December 31, 1996, are
shown below:
One Year Over One to Over
or Less Five Years Five Years Total
----------- ---------- ---------- -----------
Commercial, financial and
agricultural (1) $13,393,833 $2,348,394 $ 85,700 $15,827,927
Real estate - construction 1,584,143 797,253 26,286 2,407,682
----------- ---------- -------- -----------
Total $14,977,976 $3,145,647 $111,986 $18,235,609
=========== ========== ======== ===========
(1) Table does not include loans in process.
The following table sets forth the total of all loans listed in the above
table which are due after one year, which have predetermined interest rates
and floating or adjustable rates:
Fixed Rate Floating Rate
---------- -------------
Commercial, financial and agricultural $1,966,029 $ 468,065
Real estate - construction 352,100 471,439
---------- ----------
Total $2,318,129 $ 939,504
========== ==========
4. PREMISES AND EQUIPMENT
Premises and equipment consist of:
December 31,
------------------------ Estimated
1996 1995 Useful Life
------------ ---------- -------------
Land $1,100,309 $1,100,309
Bank buildings, premises
and equipment 3,660,086 3,407,776 5 to 50 years
Construction in progress - 25,281
Leasehold improvements 887,616 898,510 5 to 10 years
Furniture and equipment 3,206,104 2,559,765 3 to 10 years
---------- ----------
8,854,115 7,991,641
Less: accumulated depreciation
and amortization 4,265,811 3,981,651
---------- ----------
$4,588,304 $4,009,990
========== ==========
F-14
<PAGE>
5. OPERATING LEASES
The Central Texas Bancorp, Inc.'s subsidiary, The Texas National Bank of
Waco, leases certain equipment and facilities under operating leases that
expire through 1997. The following is a schedule of future minimum rental
payments for the ensuing five year period required under operating leases
that have initial or remaining noncancellable lease terms in excess of one
year:
1997 $ 49,496
1998 5,496
1999 3,664
2000 -
2001 -
2002 and thereafter -
--------
$ 58,656
========
Included in these totals is an operating lease with Central Texas Bancorp,
Inc., for a branch office of the Bank. The lease calls for monthly
payments of $11,000 through April of 1997.
Total rental expenses for operating leases in 1996 and 1995 were $142,197
and $189,432, respectively.
6. PROFIT SHARING PLAN
Central Texas Bancorp, Inc.'s subsidiary, The Texas National Bank of Waco,
has a defined contribution profit sharing plan that covers all employees
except those who have not reached the age of 21. The Board of Directors
may make a discretionary annual contribution up to 10% of the total
compensation of qualified employees. The Bank's discretionary contribution
to the plan amounted to $225,001 and $224,883 for the years 1996 and 1995,
respectively. Benefits to participating employees are limited to the
vested amounts of their individual account balances.
7. COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business there are various outstanding commitments
and contingent liabilities, such as guarantees and commitments to extend
credit, that are not reflected in the financial statements. Management
does not anticipate any losses as a result of these transactions. Unfunded
loan commitments amounting to $43,023,000 and $44,707,000 were outstanding
at December 31, 1996 and 1995, respectively. In addition, standby letters
of credit amounting to $681,653 and $313,870 were outstanding at December
31, 1996 and 1995, respectively.
The Texas National Bank of Waco is a defendant in various legal proceedings
arising in connection with its business. The outcome of these matters is
not determinable at this time.
F-15
<PAGE>
8. RELATED PARTY TRANSACTIONS
A director of the Company and its subsidiary, The Texas National Bank of
Waco, is also a member of a law firm which provides legal services to the
Bank. Legal fees recorded to this firm were $91,278 and $89,860 for 1996
and 1995, respectively. Another director of the Bank is an officer of an
insurance company which provides coverage for The Texas National Bank of
Waco. Premium payments to this company were $85,915 and $107,953 for 1996
and 1995, respectively.
9. FEDERAL INCOME TAXES
Total federal income tax expense has been provided in the statements of
operations for the years ended December 31, 1996, 1995 and 1994, as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Current tax expense $1,009,926 $ 943,629 $ 662,030
Deferred tax expense (benefit) ( 198,792) 71,775 95,542
---------- ---------- ----------
$ 811,134 $1,015,404 $ 757,572
========== ========== ==========
The sources of deferred federal income taxes (benefits) and their tax effects
are as follows:
1996 1995 1994
---------- ---------- ----------
Deduction of bad debts $ (207,711) $ 67,387 $ 75,008
Excess depreciation for tax 8,919 4,388 17,271
Other - - 3,263
---------- ---------- ----------
$( 198,792) $ 71,775 $ 95,542
========== ========== ==========
The following analysis reconciles the statutory federal income tax expense
to such effective tax expense:
1996 1995 1994
---------- ---------- ----------
Federal income tax expense at
statutory federal income tax
rates of 34% $ 858,158 $1,064,491 $ 934,847
Tax exempt interest on
securities ( 109,322) ( 135,067) ( 138,505)
Other 62,298 85,980 ( 38,770)
---------- ---------- ----------
$ 811,134 $1,015,404 $ 757,572
========== ========== ==========
</TABLE>
Deferred tax assets have been provided for the taxable temporary difference
related to unrealized losses on available-for-sale securities. Deferred
tax liabilities have been provided for deductible temporary differences
related to the allowance for loan losses, allowances for losses on
foreclosed real estate and accumulated depreciation. The net deferred tax
liabilities in the accompanying consolidated balance sheets includes the
following components:
(CONTINUED)
F-16
<PAGE>
9. FEDERAL INCOME TAXES (Continued)
1996 1995
--------- ---------
Deferred tax liabilities $ 324 $ 199,116
Deferred tax assets, resulting from
the available-for-sale securities
valuation allowance 38,620 123,371
--------- ---------
Net deferred tax liability $ 38,944 $ 322,487
========= =========
10. TIME DEPOSITS
Time deposits of $100,000 or more totaled approximately $22,611,866 and
$21,558,624 at December 31, 1996 and 1995, respectively. Interest expense
on these deposits was approximately $1,095,250 and $1,041,043 during 1996
and 1995, respectively.
The maturity distribution of time deposits is as follows (in thousands):
1996
---------
Twelve months or less $ 13,874
Over one year through two years 4,149
Over two years through three years 2,079
Over three years through four years 1,510
Over four years through five years -
Over five years -
---------
$ 21,612
=========
11. REGULATORY MATTERS
The Comptroller of the Currency has specified guidelines for evaluating a
bank's capital adequacy. Currently, banks must maintain a minimum leverage
ratio of 3 to 5 percent. The leverage ratio is computed as tier 1 capital
to total assets. At December 31, 1996, the subsidiary bank's leverage
capital was $16,096,876 for a tier 1 capital ratio of 7.54%.
In addition, the subsidiary bank is required to maintain minimum amounts of
capital to total "risk weighted" assets, as defined by the regulators. At
December 31, 1996, the Bank was required to have a minimum ratio of 8.00%.
The Bank's actual ratio at December 31, 1996, was 13.02% with risk based
capital of $17,603,426 and risk based tier 1 of $16,096,876.
12. SUBORDINATED CAPITAL DEBENTURES
During 1990, the subsidiary bank issued Subordinated Capital Debentures
totaling $1,300,000. The debentures are subordinate and junior to the
subsidiary bank's obligations to its depositors, obligations under banker's
acceptances and letter of credit, and its obligations to other creditors,
including the Federal Reserve Bank and the Federal Deposit Insurance
Corporation.
(CONTINUED)
F-17
<PAGE>
12. SUBORDINATED CAPITAL DEBENTURES (Continued)
The debentures bear interest at a floating rate (7.75% at December 31,
1996) adjusted annually and such interest is payable semi-annually on
June 1 and December 1 of each year beginning December 1, 1990. The
debentures mature on June 1, 1998, but may be prepaid prior to the maturity
date with the prior approval of the Office of the Comptroller of the
Currency. These debentures are treated as regulatory capital by the
subsidiary bank's regulators in assessing capital adequacy.
13. LONG-TERM DEBT
The Company has one long-term debt. In 1992 the Company acquired a
building, a portion of which is to be used as branch office of the
subsidiary bank. The Company has an 8% real estate lien note payable in
monthly installments of $10,321 through April of 1997. The Company has a
lump sum payment of $870,606 due in April of 1997. The Company may prepay
the note at any time prior to maturity without penalty. The note has a
demand feature.
14. FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated value of the financial instruments at December 31, 1996, is
as follows:
Financial Assets:
Cash and cash equivalents $ 13,993,000
Federal funds sold 16,105,000
Investment securities 42,463,000
Loans 132,361,000
------------
Less allowance for loan losses (1,247,000)
------------
$203,675,000
============
Financial Liabilities:
Deposits $195,926,000
------------
$195,926,000
============
Unrecognized Financial Instruments:
Unfunded loan commitments $ 43,023,000
Stand-by letters of credit 682,000
------------
$ 43,705,000
============
F-18
<PAGE>
15. CONCENTRATION OF CREDIT RISK
The Bank has deposited with three of its correspondent banks the following
amounts:
December 31, 1996
-----------------
Cash deposits $ 1,184,833
Federal funds sold 16,105,000
These deposits represent a significant concentration of credit risk as
defined in Statement of Financial Accounting Standards No. 105. Credit
risk is defined as the risk that a loss might be incurred because of the
failure of the other party to fulfill its obligations in accordance with
the terms of a contract.
16. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATION OF
CREDIT RISK
The Bank is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and
standby letters of credit. These instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of the amounts
recognized in the statements of financial condition.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instruments for commitments to extend credit
and standby letters of credit is represented by the contractual notional
amount of those instruments. The Bank uses the same credit policies in
making commitments and conditional obligations as it does for on-balance
sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Bank
evaluates each customer's creditworthiness on a case-by-case basis. The
amount and type of collateral obtained, if deemed necessary by the Bank
upon extension of credit, varies and is based on management's credit
evaluation of the counterparty.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Standby letters
of credit generally have fixed expiration dates or other termination
clauses and may require of a fee. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending
loan facilities to customers. The Bank's policy for obtaining collateral,
and the nature of such collateral, is essentially the same as that involved
in making commitments to extend credit.
(CONTINUED)
F-19
<PAGE>
16. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATION OF
CREDIT RISK (Continued)
The Bank grants commercial, real estate, installment, overdraft, and credit
card loans to customers principally located in McLennan County, Texas.
Although the loan portfolio is diversified, a substantial portion of its
debtors' ability to honor their contracts is dependent upon the economic
conditions in the area, especially in the agricultural, real estate, and
commercial business sectors.
17. PARENT ONLY FINANCIAL INFORMATION
BALANCE SHEET
ASSETS
1996 1995
----------- -----------
Cash $ 1,238,443 $ 1,150,422
Investment in subsidiary at equity 16,386,969 15,274,179
Premises and equipment, net 1,287,393 1,366,710
----------- -----------
Total Assets $18,912,805 $17,791,311
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Long-term debt $ 872,977 $ 924,344
Other liabilities 6,256 6,256
----------- -----------
Total Liabilities 879,233 930,600
----------- -----------
STOCKHOLDERS' EQUITY
Common stock - par value $10 per
share; authorized 500,000 shares;
issued and outstanding, 400,000
and 400,000 shares, respectively 4,000,000 4,000,000
Retained earnings 14,033,572 12,860,711
----------- -----------
Total Stockholders' Equity 18,033,572 16,860,711
----------- -----------
Total Liabilities and
Stockholders' Equity $18,912,805 $17,791,311
=========== ===========
STATEMENTS OF INCOME
1996 1995 1994
----------- ----------- -----------
INCOME
Rental income $ 344,934 $ 306,409 $ 293,684
Other 4,747 - -
---------- ----------- -----------
Total Income 349,681 306,409 293,684
---------- ----------- -----------
EXPENSES
Occupancy 280,059 276,808 264,033
Interest 72,486 77,056 73,695
Salary and employee
benefits 41,545 42,905 44,563
Other 36,657 61,032 24,589
---------- ----------- -----------
Total Expenses 430,747 457,801 406,880
---------- ----------- -----------
(LOSS) BEFORE FEDERAL
INCOME TAXES AND EQUITY
IN UNDISTRIBUTED NET
INCOME OF SUBSIDIARIES (81,066) (151,392) (113,196)
FEDERAL INCOME TAX
BENEFIT 9,263 41,657 37,098
---------- ----------- -----------
LOSS BEFORE EQUITY IN
UNDISTRIBUTED NET
INCOME OF SUBSIDIARIES (71,803) (109,735) (76,098)
EQUITY IN NET INCOME
OF SUBSIDIARIES 1,784,664 2,225,186 2,068,075
---------- ----------- -----------
NET INCOME $1,712,861 $ 2,115,451 $ 1,991,977
========== =========== ===========
(CONTINUED)
F-20
<PAGE>
17. PARENT ONLY FINANCIAL INFORMATION (Continued)
STATEMENTS OF CASH FLOWS
1996 1995 1994
----------- ----------- -----------
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income $ 1,712,861 $ 2,115,451 $ 1,991,977
Adjustments to reconcile
net income to net cash
provided by operations
Undistributed earnings
of subsidiary (1,784,664) (2,225,186) (2,068,075)
Depreciation 97,081 99,892 90,383
Amortization of purchase
adjustment 11,880 11,880 11,040
Decrease in other assets - - 94
Increase (decrease) in
other liabilities - (20,160) (4,429)
----------- ----------- -----------
Net Cash Provided by
Operating Activities 37,158 (18,123) 20,990
----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Acquisition of premises
and equipment (17,770) (86,738) (25,030)
Dividends from subsidiaries 660,000 1,600,000 568,700
----------- ----------- -----------
Net Cash Flows from
Investing Activities 642,230 1,513,262 543,670
----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES
Cash dividends paid (540,000) (440,000) (400,000)
Repayment of long-term debt (51,367) (46,796) (39,836)
----------- ----------- -----------
Net Cash Flows from
Financing Activities (591,367) (486,796) (439,836)
----------- ----------- -----------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS 88,021 1,008,343 124,824
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 1,150,422 142,079 17,255
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 1,238,443 $ 1,150,422 $ 142,079
=========== =========== ===========
SUPPLEMENTAL INFORMATION
Interest paid $ 72,486 $ 77,056 $ 73,695
=========== =========== ===========
Federal income tax paid $ 1,086,255 $ 711,820 $ 626,633
=========== =========== ===========
18. SUBSEQUENT EVENTS
Subsequent to the reporting period, the Company entered into a merger
agreement with Compass Bancshares, Inc. Compass Bancshares, Inc. and
Central Texas Bancorp, Inc. entered into a letter of intent dated January
13, 1997, setting forth the general terms of a proposed affiliation of the
Corporation and its subsidiary, The Texas National Bank of Waco with
Compass Bancshares, Inc. and its subsidiary, Compass Bank. A merger
agreement between Compass Bancshares, Inc. and Central Texas Bancorp, Inc.
was signed March 14, 1997. Merger is anticipated to be complete in July
1997.
F-21
<PAGE>
APPENDIX I
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
COMPASS BANCSHARES, INC.
AND
CENTRAL TEXAS BANCORP, INC.
Dated as of March 14, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I.......................................................................... 1
THE MERGER....................................................................... 1
SECTION 1.1 The Merger.................................................... 1
SECTION 1.2 Effective Time................................................ 1
SECTION 1.3 Certain Effects of the Merger................................. 2
SECTION 1.4 Certificate of Incorporation and By-Laws...................... 2
SECTION 1.5 Directors and Officers........................................ 2
SECTION 1.6 Conversion of Shares.......................................... 2
SECTION 1.7 Shareholders' Meeting......................................... 4
SECTION 1.8 Registration of the Compass Common Stock...................... 4
SECTION 1.9 Closing....................................................... 5
ARTICLE II......................................................................... 5
DISSENTING SHARES; EXCHANGE OF SHARES............................................ 5
SECTION 2.1 Dissenting Shares............................................. 5
SECTION 2.2 Exchange of Shares............................................ 5
ARTICLE III........................................................................ 7
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................... 7
SECTION 3.1 Organization and Qualification................................ 7
SECTION 3.2 Company Capitalization........................................ 8
SECTION 3.3 Subsidiary Capitalization;
Other Securities.............................................. 8
SECTION 3.4 Authority Relative to the Agreement........................... 9
SECTION 3.5 No Violation.................................................. 9
SECTION 3.6 Consents and Approvals........................................ 10
SECTION 3.7 Regulatory Reports............................................ 10
SECTION 3.8 SEC Status; Securities Issuances.............................. 10
SECTION 3.9 Financial Statements.......................................... 10
SECTION 3.10 Absence of Certain Changes.................................... 12
SECTION 3.11 Company Indebtedness.......................................... 13
SECTION 3.12 Litigation.................................................... 14
SECTION 3.13 Tax Matters................................................... 14
SECTION 3.14 Employee Benefit Plans........................................ 15
SECTION 3.15 Employment Matters............................................ 17
SECTION 3.16 Leases, Contracts and Agreements.............................. 18
SECTION 3.17 Related Company Transactions.................................. 19
SECTION 3.18 Compliance with Laws.......................................... 19
SECTION 3.19 Insurance..................................................... 19
SECTION 3.20 Loans......................................................... 20
SECTION 3.21 Fiduciary Responsibilities.................................... 20
SECTION 3.22 Patents, Trademarks and Copyrights............................ 20
SECTION 3.23 Environmental Compliance...................................... 20
SECTION 3.24 Regulatory Actions............................................ 22
SECTION 3.25 Title to Properties; Encumbrances............................. 22
SECTION 3.26 Shareholder List.............................................. 23
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 3.27 Proxy Statement............................................... 23
SECTION 3.28 Dissenting Shareholders....................................... 24
SECTION 3.29 Section 368 Representations................................... 24
SECTION 3.30 Employee Stock Options........................................ 25
SECTION 3.31 Accounting Matters............................................ 25
SECTION 3.32 Representations Not Misleading................................ 25
ARTICLE IV......................................................................... 26
REPRESENTATIONS AND WARRANTIES OF COMPASS........................................ 26
SECTION 4.1 Organization and Authority.................................... 26
SECTION 4.2 Authority Relative to Agreement............................... 26
SECTION 4.3 Financial Reports............................................. 27
SECTION 4.4 Capitalization................................................ 28
SECTION 4.5 Consents and Approvals........................................ 29
SECTION 4.6 Proxy Statement............................................... 29
SECTION 4.7 Availability of Compass Common Stock.......................... 29
SECTION 4.8 Representations Not Misleading................................ 29
ARTICLE V.......................................................................... 30
COVENANTS OF THE COMPANY......................................................... 30
SECTION 5.1 Affirmative Covenants of the Company.......................... 30
SECTION 5.2 Negative Covenants of the Company............................. 32
ARTICLE VI......................................................................... 34
ADDITIONAL AGREEMENTS............................................................ 34
SECTION 6.1 Access To, and Information
Concerning, Properties and Records............................ 34
SECTION 6.2 Filing of Regulatory Approvals................................ 35
SECTION 6.3 Miscellaneous Agreements and Consents......................... 35
SECTION 6.4 Company Indebtedness.......................................... 35
SECTION 6.5 Best Good Faith Efforts....................................... 36
SECTION 6.6 Exclusivity................................................... 36
SECTION 6.7 Public Announcement........................................... 36
SECTION 6.8 Employee Benefit Plans........................................ 36
SECTION 6.9 Merger of Bank................................................ 37
SECTION 6.10 Environmental Investigation; Right
to Terminate Agreement........................................ 37
SECTION 6.11 Proxies....................................................... 41
SECTION 6.12 Cooperation on Texas Receipts................................. 42
SECTION 6.13 Exchange Agreement............................................ 42
SECTION 6.14 Director and Officer Insurance
and Indemnification........................................... 42
SECTION 6.15 Dividends..................................................... 42
SECTION 6.16 Rule 144 Considerations....................................... 42
ARTICLE VII........................................................................ 43
CONDITIONS TO CONSUMMATION OF THE MERGER......................................... 43
SECTION 7.1 Conditions to Each Party's Obligation
to Effect the Merger.......................................... 43
SECTION 7.2 Conditions to the Obligations of
Compass and Compass Texas to Effect
the Merger.................................................... 44
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 7.3 Conditions to the Obligations of
the Company to Effect the Merger.............................. 46
ARTICLE VIII....................................................................... 46
TERMINATION; AMENDMENT; WAIVER................................................... 46
SECTION 8.1 Termination................................................... 46
SECTION 8.2 Effect of Termination......................................... 47
SECTION 8.3 Amendment..................................................... 48
SECTION 8.4 Extension; Waiver............................................. 48
ARTICLE IX......................................................................... 48
SURVIVAL......................................................................... 48
SECTION 9.1 Survival of Representations
and Warranties................................................ 48
ARTICLE X.49
MISCELLANEOUS.................................................................... 49
SECTION 10.1 Expenses...................................................... 49
SECTION 10.2 Brokers and Finders........................................... 49
SECTION 10.3 Entire Agreement; Assignment.................................. 50
SECTION 10.4 Further Assurances............................................ 50
SECTION 10.5 Enforcement of the Agreement.................................. 50
SECTION 10.6 Severability.................................................. 50
SECTION 10.7 Notices....................................................... 50
SECTION 10.8 Governing Law................................................. 52
SECTION 10.9 Descriptive Headings.......................................... 52
SECTION 10.10 Parties in Interest........................................... 52
SECTION 10.11 Counterparts.................................................. 52
SECTION 10.12 Incorporation by References................................... 52
SECTION 10.13 Certain Definitions........................................... 52
</TABLE>
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ATTACHMENTS
EXHIBITS
A. Pooling Transfer Restrictions Agreement
B. Exchange Agent Agreement
C. Pooling of Interest Criteria
D. Voting Agreement and Irrevocable Proxy
E. Opinion of Counsel for the Company and the Bank
F. Opinion of Counsel for Compass and Compass Texas
G. Compass Texas Representations Certificate
H. Tax Opinion
I. Employment Agreement
J. Release
K. Release
LIST OF SCHEDULES
Schedule 1.8(b) List of Affiliates Executing Pooling Transfer Restrictions
Agreements
Schedule 3.2 Terms of the Undesignated Preferred Stock; Company
Capitalization
Schedule 3.3 Subsidiary Capitalization; List of Equity Ownership
Schedule 3.5 Violations of Law; Conflicts of Interest; Share Litigation;
Termination of Existence
Schedule 3.6 Company Prior Consents
Schedule 3.7 Regulatory Reports
Schedule 3.10 Absence of Material Changes or Adverse Effects
Schedule 3.12 Company Legal Proceedings
Schedule 3.13 Tax Liabilities
Schedule 3.14(a) Employee Welfare Benefit Plans
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Schedule 3.14(b) Employee Pension Benefit Plans
Schedule 3.14(c) Deferred Compensation, Bonus and Stock Purchase Plans
Schedule 3.14(l) Additional Payments Due Under Deferred Compensation, Bonus,
Employee Welfare Benefit Plans and Employee Pension Benefit
Plans
Schedule 3.15 Employment Contracts and Collective Bargaining Agreements
Schedule 3.16 Leases, Subleases, Contracts and Agreements; Participations;
Default of Contracts; Marketable Title
Schedule 3.17 Related Company Transactions
Schedule 3.18 Compliance with Laws
Schedule 3.19 Insurance Policies
Schedule 3.20 Loans Exceeding Legal Lending Limit, Troubled Loans
Schedule 3.22 Patents, Trademarks and Copyrights
Schedule 3.23 Environmental Compliance
Schedule 3.24 Regulatory Actions; Agreements
Schedule 3.25 Title to Properties; Title Policies; Property
Schedule 3.29(b) Company Shareholders Delivering Certificates
Schedule 3.29(d) Company Shareholders Disposing of Stock
Schedule 3.29(e) Company Liabilities Out of the Ordinary Course of Business
Schedule 3.30 Stock Option Plans
Schedule 4.2 Compass Prior Consents
Schedule 5.1(j) List of Accounts and Safe Deposit Boxes
Schedule 5.1(k) List of Liabilities and Obligations of the Company and the
Bank
Schedule 6.11 List of Proxy Holders Voting Affirmatively for the Agreement
Schedule 10.13(f) List of Officer Capacities
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("Agreement") dated as of March 14, 1997, by
and between Compass Bancshares, Inc. a Delaware corporation ("Compass"), and
Central Texas Bancorp, Inc., a Texas corporation ("Company").
WHEREAS, Compass desires to affiliate with the Company and its wholly owned
subsidiary, The Texas National Bank of Waco, a national banking association (the
"Bank"), and the Company and the Bank desire to affiliate with Compass in the
manner provided in this Agreement;
WHEREAS, Compass and the Company believe that the Merger (as defined
herein) of the Company with 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 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 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
<PAGE>
Merger in the form required by and executed in accordance with the relevant
provisions of the GCL and by the issuance of a Certificate of Merger by the
Secretary of State of Texas. (The date of such issuance and filing or such other
time and date as may be specified in the Articles and Certificate of Merger
shall be the "Effective Time").
SECTION 1.3 Certain Effects of the Merger. The Merger shall have the
effects set forth in Article 5.06 of the TBCA and in the GCL.
SECTION 1.4 Certificate of Incorporation and By-Laws. The Certificate of
Incorporation and the By-Laws of Compass Texas, in each case as in effect at the
Effective Time, shall be the Certificate of Incorporation and By-Laws of the
Surviving Corporation.
SECTION 1.5 Directors and Officers. The directors and officers of
Compass Texas at the Effective Time shall be the directors and officers of the
Surviving Corporation and shall hold office from the Effective Time until their
respective successors are duly elected or appointed and qualified in the manner
provided in the Certificate of Incorporation and By-Laws of the Surviving
Corporation, or as otherwise provided by law.
SECTION 1.6 Conversion of Shares. (a) Each share of the Company's
common stock, par value $10.00 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) Each holder of Company Common Stock for each share of Company Common
Stock so held shall receive Merger Consideration equal to the quotient of
1,025,000 shares of Compass common stock, $2.00 par value per share ("Compass
Common Stock"), divided by the Common Shares Outstanding. In the event the
average closing sale price of the Compass Common Stock as reported by the NASDAQ
National Market System for the ten days of trading preceding the tenth business
day prior to the Effective Time (the "Share
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<PAGE>
Determination Market Value") is less than $34.00 per share, the Company, acting
by and through a majority of its Board of Directors, may either (i) terminate
this Agreement (the "Pricing Termination Option") by written notice to Compass
within three business days from the date upon which Compass notifies the Company
of a Share Determination Market Value of less than $34.00 per share, or (ii)
agree to accept an aggregate of 1,025,000 shares of Compass Common Stock.
Compass shall notify the Company of the Share Determination Market Value on or
before the seventh business day preceding the Effective Time. In the event the
Company exercises its Pricing Termination Option pursuant to the preceding
sentence within the specified three business day period, this Agreement shall be
terminated, but Compass shall have the right to reject such termination of the
Agreement by the Company (the "Termination Rejection") by agreeing to issue an
aggregate number of shares of Compass Common Stock equal to the quotient of
$34,850,000 divided by the Share Determination Market Value ("New Shares"). In
such event, each holder of Company Common Stock for each share so held shall
receive Merger Consideration equal to the quotient of the New Shares divided by
the Common Shares Outstanding. Such Termination Rejection shall be exercised by
a notice to the Company within three business days following the date on which
Compass receives notice of the Company's exercise of the Pricing Termination
Option. In the event the Company fails to notify Compass of its election to
terminate this Agreement within the initial three business day period, the
Company shall be deemed to have agreed to accept an aggregate of 1,025,000
shares of Compass Common Stock and each holder of Company Common Stock shall
receive for each share so held the per share Merger Consideration set forth in
the first sentence of this subsection 1.6(b). The aggregate number of shares of
Compass Common Stock to be exchanged for each Share, respectively, shall be
adjusted appropriately to reflect any stock dividends or splits,
reclassification, recapitalization or conversion with respect to Compass Common
Stock, when the record date or payment occurs prior to the Effective Time.
(c) Compass will not issue any certificates for any fractional shares of
Compass Common Stock otherwise issuable pursuant to the Merger. In lieu of
issuing such fractional shares, Compass shall pay cash to any holder of Shares
otherwise entitled to receive such fractional share. Such cash payment shall be
based on the Share Determination Market Value.
(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.
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<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
unanimous recommendation of its Board of Directors that the shareholders of the
Company vote in favor of the approval and adoption of this Agreement unless the
Board of Directors has determined, in good faith after consultation with, and
the receipt of a written opinion from, special outside securities counsel, that
so to recommend at the time of the mailing of the Proxy Statement to the
Company's shareholders will breach the directors' legal duties, including
fiduciary duties, to the Company and the Company's shareholders; 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 unless such efforts would constitute
a breach of the director's legal duties as set forth in Section 1.7(c) above.
The letter to shareholders, notice of meeting, proxy statement and form of proxy
to be distributed to shareholders in connection with the Merger shall be in form
and substance reasonably satisfactory to Compass, and are collectively referred
to herein as the "Proxy Statement."
SECTION 1.8 Registration of the Compass Common Stock.
(a) Compass shall file a registration statement (the "Registration
Statement") with the Securities and Exchange Commission ("SEC") under the
Securities Act of 1933, as amended ("Securities Act"), covering the shares of
Compass Common Stock to be issued to Company shareholders in the Merger.
(b) Within 30 days after the date hereof, the Company shall enter into and
cause each Company shareholder who is an "affiliate" (as defined in SEC Rule
405) of the Company to enter into with Compass a written agreement in
substantially the form of Exhibit A attached hereto. The parties hereto agree
that as of the date
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<PAGE>
hereof the affiliates of the Company for purposes of this Section are identified
on Schedule 1.8(b) hereof.
SECTION 1.9 Closing. Upon the terms and subject to the conditions
hereof, as soon as practicable after the vote of the shareholders of the Company
in favor of the approval and adoption of this Agreement has been obtained, and
the satisfaction or waiver, if permissible, of the conditions set forth in
Article VII hereof, the Company and Compass Texas shall execute and deliver the
Articles of Merger and the Certificate of Merger, as described in Section 1.2,
and the parties hereto shall take all such other and further actions as may be
required by law to make the Merger effective. Prior to the filing referred to
in this Section, a closing (the "Closing") will be held at the office of
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P. in Houston, Texas (or such other
place as the parties may agree) for the purpose of confirming all of the
foregoing.
ARTICLE II.
DISSENTING SHARES; EXCHANGE OF SHARES
SECTION 2.1 Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, Shares which are issued and outstanding immediately
prior to the Effective Time and which are held by shareholders who have not
voted such shares in favor of the Merger and who shall have delivered a written
demand for payment of the fair value of such shares within the time and in the
manner provided in Article 5.12 and Article 5.13 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 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,
5
<PAGE>
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 of Compass Common Stock until the holder's Shares are
surrendered in exchange therefor; provided, however, upon surrender of such
certificate(s) theretofore representing Shares, there shall be paid to the
record holder or holders of the certificate(s) representing Shares the amount,
without interest thereon, of such dividends, if any, which are declared after
the Effective Time and which, prior to the surrender of such Shares, have become
payable with respect to the number of shares of Compass Common Stock represented
thereby. 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
6
<PAGE>
the stock transfer books of the Company of the Shares which were outstanding
immediately prior to such time of filing. If, after the Effective Time,
Certificates are presented to the Surviving Corporation, they shall be promptly
presented to the Exchange Agent and exchanged as provided in this Article II.
(d) Any portion of the Exchange Fund (including the proceeds of any
investments thereof) that remains unclaimed by the shareholders of the Company
for six months after the Effective Time shall be paid to Compass, and the
holders of Shares not theretofore presented to the Exchange Agent shall look to
Compass only, and not the Exchange Agent, for the payment of any Merger
Consideration in respect of such shares.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby makes the representations and warranties set forth in
this Article III to Compass. The Company has delivered to Compass the Schedules
to this Agreement referred to in this Article III and Section 1.8 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 except for changes required
by this Agreement. Disclosure of any information on one Schedule constitutes
disclosure on all Schedules under the terms of this Agreement.
SECTION 3.1 Organization and Qualification. The Company is a Texas
corporation and a bank holding company under the Bank Holding Company Act of
1956, as amended, and is duly organized, validly existing and in good standing
under the laws of the State of Texas and all laws, rules, and regulations
applicable to bank holding companies. The Bank is a national banking
association, duly organized, validly existing and holds a valid certificate to
transact the business of banking under the laws of the United States of America,
and is a member of the Federal Reserve System. 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. Except
as set forth on Schedule 3.17, the Company does not own or control any Affiliate
(as defined in Section 3.17) other than 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 Company's Subsidiaries are
duly qualified or licensed to do business and are in good standing in 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
7
<PAGE>
qualified to do business in any jurisdiction other than the State of Texas.
SECTION 3.2 Company Capitalization. As of the date hereof, the
authorized capital stock of the Company consists solely of (a) 500,000 shares of
Company Common Stock, of which 400,000 shares are issued and outstanding, and
none of which are held in treasury, and (b) 500,000 shares of Preferred Stock,
par value $10.00 per share (the "Undesignated Preferred Stock"), none of which
are outstanding. The terms of the Undesignated Preferred Stock are described in
Schedule 3.2 hereto. Except as set forth on Schedule 3.2, there are no
outstanding subscriptions, options, convertible securities, rights, warrants,
calls, or other agreements or commitments of any kind issued or granted by, or
binding upon, the Company or 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,
except as set forth on Schedule 3.2, 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, except as provided in
the National Bank Act and the Federal Deposit Insurance Act, 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. Except as set forth on Schedule 3.3, the Company owns, directly, all of
the issued and outstanding capital stock of its Subsidiaries. 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.
8
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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 and the appropriate regulatory authorities, 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. The execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby will
not conflict with, or result in any violation or breach of or default under the
respective Articles of Incorporation or Association or By-Laws of the Company or
its Subsidiaries.
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 Office of the Comptroller of the Currency ("OCC"), the Federal
Deposit Insurance Corporation ("FDIC"), the Board of Governors of the Federal
Reserve System ("FRB"), and its Subsidiaries Commissioner of Texas
("Commissioner") 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
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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.
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 OCC, 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,
during the last five years 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
Commissioner, the FDIC, or any other regulatory authority having jurisdiction
over any such persons, other than plans, reports or information listed on
Schedule 3.7.
SECTION 3.8 SEC Status; Securities Issuances. The Company is not
subject to the registration provisions of Section 12 of the Exchange Act nor the
rules and regulations of the SEC promulgated under Section 12 of the Exchange
Act, other than anti-fraud provisions of such act and the provisions of Section
14(e) of such act and the rules promulgated thereunder. 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 balance sheet of the
Company and its Subsidiaries as of December 31, 1995, and the related
consolidated statements of income, stockholders' equity and statements of cash
flows for the years
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ended December 31, 1995 and 1994, and the unaudited consolidated balance sheet
of the Company and its Subsidiaries as of March 31, June 30 and September 30,
1996 and the related unaudited consolidated income statements and changes equity
capital for the three-, six- and nine-month periods ended March 31, June 30 and
September 30, 1996 and 1995, 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,
1996 and the related consolidated statements of income, shareholders' equity and
changes in cash flow for the year ended December 31, 1996 (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") (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 balance sheet and the related consolidated statements
of income, stockholders' equity and statement of 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 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, the Commissioner, 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 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 September 30, 1996. The Company and its Subsidiaries
have no off balance sheet liabilities associated with financial derivative
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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 September 30, 1996 (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;
(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 granted in the ordinary course of business within the Company's or its
Subsidiaries' 1997 budgets and consistent with prior practices, granted any
increase in compensation or paid or agreed to pay or accrue any bonus,
percentage compensation, service award, severance payment or like benefit to or
for the credit of any director, officer, employee or agent, or entered into any
employment or consulting contract or other agreement with any director, officer
or employee or adopted, amended or terminated any pension, employee welfare,
retirement,
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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 with customers or
clients of the Company or its Subsidiaries;
(n) except for the transactions contemplated by this Agreement or as
otherwise permitted hereunder, entered into any transaction, or entered into,
modified or amended any contract or commitment, other than in the ordinary
course of business and consistent with prudent banking practices; or
(o) agreed, whether in writing or otherwise, to take any action the
performance of which would change the representations contained in this Section
3.10 in the future so that any such representation would not be true in all
material respects as of the Closing.
SECTION 3.11 Company Indebtedness. The Company has delivered to Compass
true and complete copies of all loan documents ("Company Loan Documents")
related to indebtedness of the Company
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and its Subsidiaries, other than deposits, trade payables and federal funds
borrowings ("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, commission, board,
bureau, agency, or other instrumentality or person or any board of arbitration
or similar entity ("Proceeding"). The Company will notify Compass immediately
in writing of any Proceedings against the Company or 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, 1990 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 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
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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 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
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other funding instruments) and all Other Programs comply currently in all
material respects, and have complied in the past in all material respects, both
as to form and operation, with the provisions of ERISA, the Code and with all
other applicable laws, rules and regulations governing the establishment and
operation of the Pension Benefit Plans, Welfare Benefit Plans and all Other
Programs; all necessary governmental approvals relating to the establishment of
the Pension Benefit Plans have been obtained; and with respect to each Pension
Benefit Plan that is intended to be tax-qualified under Section 401(a) or 403(a)
of the Code, a favorable determination letter as to the qualification under the
Code of each such Pension Benefit Plan and each material amendment thereto has
been issued by the Internal Revenue Service (and nothing has occurred since the
date of the last such determination letter which resulted in, or is likely to
result in the revocation of such determination);
(e) Each Welfare Benefit Plan, each Pension Benefit Plan and each Other
Program has been administered in compliance in all material respects 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 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
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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
determination letter from the Internal Revenue Service with respect to each
Pension Benefit Plan and Annual Reports on Form 5500 Series filed with any
governmental agency for each Welfare Benefit Plan, Pension Benefit Plan and
Other Program for the two most recent plan years, have been furnished to
Compass, the receipt of which is hereby acknowledged by 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 or under the terms of such plans;
(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
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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. To the knowledge of the Company, 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.
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 or made available 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 $100,000.
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
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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 valid leasehold interest in
each parcel of real property leased by it free and clear of all mortgages,
pledges, liens, encumbrances and security interests.
SECTION 3.17 Related Company Transactions. Except as set forth on
Schedule 3.17, there are no agreements, instruments, commitments, extensions of
credit, tax sharing or allocation agreements or other contractual agreements of
any kind between or among the Company, whether on its own behalf or in its
capacity as trustee or custodian for the funds of any employee benefit plan (as
defined in ERISA), and any of its Affiliates (including 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,
the Company nor any of its Subsidiaries is in material default in respect to or
is in material violation of (i) any judgment, order, writ, injunction or decree
of any court or (ii) any statute, law, ordinance, rule, order or regulation of
any governmental department, commission, board, bureau, agency or
instrumentality, federal, state or local, including (for purposes of
illustration and not limitation) capital and FRB reserve requirements, capital
ratios and loan limitations of the FRB, the OCC, the FDIC or the Commissioner;
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 5 years. Except as set forth
on Schedule 3.19, there have been no claims under such bonds within the last 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
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substantially the same terms unless such failure to renew is based upon any
pending claim.
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;
provided, however, that no representation or warranty is made as to the
collectibility of such loans. The Company's Subsidiaries do not have in their
portfolios any loan exceeding their legal lending limit, and except as disclosed
on Schedule 3.20, the Company's Subsidiaries have no known significant
delinquent, 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 material respects with all applicable laws, regulations, orders,
agreements, instruments and common law standards.
SECTION 3.22 Patents, Trademarks and Copyrights. Except as set forth in
Schedule 3.22, 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, to the knowledge of the Chairman of the Board, President, Cashier, lending
officers or loan servicing officers of the title of senior vice president or
above (or any officer serving in any similar capacity) of the Company and its
Subsidiaries:
(a) The Company, its Subsidiaries and any property owned or operated by
any of them are in compliance in all material respects 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
reasonably be expected to (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 with Environmental Laws, (2) constitute a material violation
of any Environmental Law or (3) have a Material Adverse Effect upon the Company
or any Company Subsidiary;
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(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);
(j) The Company and its Subsidiaries have complied in all material
respects with the guidelines issued by the Comptroller of
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the Currency contained in Section 213.1 of the Comptroller's Handbook for
National Bank Examiners, 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 liability under, or to assess the
compliance of borrowers or Collateral Property with, Environmental Laws; and
(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").
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 OCC, the FDIC, 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 indefeasible 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
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of business and consistent with prudent banking practice since the date of the
Financial Statements. Except as set forth on Schedule 3.25, the Company has a
title policy in full force and effect from a title insurance company which, to
the best of Company's knowledge, is solvent, insuring good and indefeasible
title (subject to the exceptions identified in such title policies) 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 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 for items of personal property
owned by employees having a nominal value. 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 February 5, 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 Company;
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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.
SECTION 3.29 Section 368 Representations. (a) To the knowledge of the
Company and its directors, 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 the holders of Shares representing at least 90% of the
shares held by such Shareholders identified on Schedule 3.29(b) with respect to
each such Shareholder's plan or intention to sell or otherwise dispose of the
Compass Common Stock to be received pursuant to the Merger. The Company 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.
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(c) Neither Compass nor Compass Texas will assume any debts or obligations
of the holders of the Shares as part of the Merger.
(d) Except as set forth on Schedule 3.29, to the knowledge of the Company,
there have not been any sales or redemptions of the Company's capital stock in
contemplation of the Merger. Schedule 3.29 sets forth all transactions in the
capital stock of the Company since December 31, 1995.
(e) Except as set forth on Schedule 3.29, the liabilities of the Company
assumed by Compass as a part of the Merger and the liabilities to which the
transferred assets of the Company are subject were incurred by the Company in
the ordinary course of its business.
(f) The Company and its shareholders will pay their own expenses which are
incurred in connection with the Merger.
(g) The Company has not disposed of any assets (either as a dividend or
otherwise) constituting more than 10% of the fair market value of all of its
assets (ignoring any liabilities) at any time either during the past twelve
months or in contemplation of the Merger.
(h) The Company is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(i) The Company is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
SECTION 3.30 Employee Stock Options. Except as set forth on Schedule
3.30, there are no Company employee stock option plans or provisions in any
other plan, program, or arrangement providing for the issuance or grant of any
other interest in respect of the capital stock of the Company or 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,
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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 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. Compass has
provided to the Company true and correct copies of its Restated Certificate of
Incorporation and Bylaws.
(b) Compass is a bank holding company under its Subsidiaries 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, except for the approvals of the appropriate regulatory
authorities, no further proceedings on the part of Compass are necessary to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby, all of which have been duly and validly authorized by
Compass' Board of Directors. This Agreement has been duly executed and
delivered by Compass and is a duly authorized, valid, legally binding and
enforceable obligation of Compass, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium, or other similar laws relating to
creditors' rights generally and general equitable principles, and subject to
such shareholder approvals and such approval of regulatory agencies and other
governmental authorities having authority over Compass as may be required by
statute or regulation. Compass is not in violation of or default under its
Certificate of Incorporation or By-Laws or any agreement, document or instrument
under which Compass is obligated or bound, or any law, order, judgment,
injunction, award, decree, statute, rule, ordinance or regulation applicable to
Compass or any of its Subsidiaries, the violation or breach of which could have
a Material Adverse Effect on Compass and its Subsidiaries taken as a whole.
Except as set forth on Schedule 4.2, neither the execution,
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delivery nor performance of this Agreement in its entirety, nor the consummation
of all the transactions contemplated hereby, following the receipt of such
approvals as may be required from the SEC, the OCC, the FRB, the FDIC, and the
Commissioner 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 1995 Annual Report to Shareholders,
which report (the "Compass 1995 Annual Report") includes, among other things,
consolidated balance sheets of Compass and its Subsidiaries as of December 31,
1995 and 1994, the related consolidated statements of income, shareholders'
equity and cash flows for the years ended December 31, 1995, 1994 and 1993 and
(ii) Compass' quarterly reports on Form 10-Q for the quarters ended March 31,
June 30 and September 30, 1996, (the "Quarterly Reports") which reports include
among other things unaudited balance sheets of Compass and its Subsidiaries as
of March 31, June 30 and September 30, 1996 and 1995, respectively, and the
related unaudited consolidated statements of income and cash flows for the
three-, six- and nine-month periods ending March 31, June 30 and September 30,
1996 and 1995. The financial statements contained in the Compass 1995 Annual
Report and such Quarterly Reports have been prepared in conformity with GAAP
applied on a basis consistent with prior periods. The consolidated balance
sheets of Compass and its subsidiaries as of December 31,
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1995 and 1994 contained in the Compass 1995 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, June 30 and September 30, 1996 and 1995, 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 1995 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. Until the Effective Time, Compass will
provide to the Company when available copies of its periodic reports filed under
the Securities Act and the Exchange Act. Since January 1, 1991, Compass has
filed all forms, reports and documents required to be filed with the SEC
pursuant to the federal securities laws and the SEC rules and regulations
thereunder (collectively, the "SEC Reports"). The SEC Reports (i) were prepared
in accordance with the requirements of the Securities Act and the Exchange Act,
as the case may be, and all of the rules and interpretive releases promulgated
thereunder and (ii) did not at the time they were filed contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The SEC Reports to
be filed prior to the Effective Time will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
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 December 31, 1996, Compass had 40,524,717
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.
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SECTION 4.5 Consents and Approvals. Compass' Board of Directors (at a
meeting called and duly held) has unanimously approved this Agreement. 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 Articles of Merger under the
TBCA, the filing of the Certificate of Merger under the GCL, and such approvals
as may be required from the SEC, the FRB, the OCC, the Commissioner and the
FDIC.
SECTION 4.6 Proxy Statement. None of the information supplied or to be
supplied by Compass, or, to the best knowledge Compass, any of its directors,
officers, employees or agents for inclusion in:
(a) the Proxy Statement; or
(b) any registration statement or other documents to filed with the SEC or
any regulatory or governmental agency or authority in connection with
the transactions contemplated herein, at the respective times such
documents are filed, and, with respect to the Proxy Statement, when
first mailed to the shareholders of the Company;
will be false or misleading with respect to any material fact, or omit to state
any material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, or, in the case of
the Proxy Statement or any amendment thereof or supplement thereto, at the time
of the Shareholders' Meeting, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the Shareholders' Meeting. All documents that Compass is responsible
for filing with any regulatory or governmental agency in connection with the
Merger will comply in all material respects with the provisions of applicable
law.
SECTION 4.7 Availability of Compass Common Stock. Compass has available
a sufficient number of authorized and unissued shares of Compass Common Stock to
pay the Merger Consideration, and Compass will not take any action during the
term of this Agreement that will cause it not to have a sufficient number of
authorized and unissued shares of Compass Common Stock to pay the Merger
Consideration.
SECTION 4.8 Representations Not Misleading. No representation or
warranty by Compass in this Agreement, nor any
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statement or exhibit furnished to the Company 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 (collectively, the "Acquired Companies") to, from the
date of this Agreement to the Closing, except as specifically contemplated by
this Agreement:
(a) operate and conduct the businesses of the Acquired Companies in the
ordinary course of business and consistent with prudent banking practices;
(b) preserve intact the Acquired Companies' corporate existence, business
organization, assets, licenses, permits, authorizations, and business
opportunities;
(c) comply with all material contractual obligations applicable to the
Acquired Companies' operations;
(d) maintain all the Acquired Companies' properties in good repair, order
and condition, reasonable wear and tear excepted, and maintain the insurance
coverages described in Schedule 3.19 (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
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documents necessary to cause the transactions contemplated by this Agreement to
be consummated at the earliest possible date;
(f) timely file with the FRB, the OCC, the Commissioner, 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;
(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 in
excess of $50,000 alone or in the aggregate, except those arising in the
ordinary course of their respective businesses, incurred since the Balance Sheet
Date, certified by an officer of Company;
(l) promptly notify Compass of any material change or inaccuracies in any
data previously given or made available to Compass or Compass Texas pursuant to
this Agreement; and
(m) provide access, to the extent that the Company or its Subsidiaries
have the right to provide access, to any or all Property (as defined in Section
3.23) so as to enable Compass to physically inspect any structure or components
of any structure on such Property, including without limitation surface and
subsurface testing and analyses.
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SECTION 5.2 Negative Covenants of the Company. Except with the prior
written consent of Compass or as otherwise specifically permitted by this
Agreement, the Company will not and will use its best efforts not to permit the
Bank, or any other Subsidiary of the Company, to, from the date of this
Agreement to the Closing:
(a) make any amendment to its articles of incorporation or association or
bylaws;
(b) make any change in the methods used in allocating and charging costs,
except as may be required by applicable law, regulation or GAAP and after notice
to Compass;
(c) make any change in the number of shares of the capital stock issued
and outstanding, or issue, reserve for issuance, grant, sell or authorize the
issuance of any shares of its capital stock or subscriptions, options, warrants,
calls, rights or commitments of any kind relating to the issuance or sale of or
conversion into shares of its capital stock;
(d) contract to create any obligation or liability (absolute, accrued,
contingent or otherwise) except in the ordinary course of business and
consistent with prudent banking practices;
(e) contract to create any mortgage, pledge, lien, security interest or
encumbrances, restrictions, or charge of any kind (other than statutory liens
for which the obligations secured thereby shall not become delinquent), except
in the ordinary course of business and consistent with prudent banking
practices;
(f) cancel any debts, waive any claims or rights of value or sell,
transfer, or otherwise dispose of any of its material properties or assets,
except in the ordinary course of business and consistent with prudent banking
practices;
(g) sell any real estate owned as of the date of this Agreement or acquired
thereafter, which real estate qualifies as "other real estate owned" under
accounting principles applicable to it, except in the ordinary course of
business and consistent with prudent banking practices and applicable banking
laws and regulations;
(h) dispose of or permit to lapse any rights to the use of any material
trademark, service mark, trade name or copyright, or dispose of or disclose to
any person other than its employees any material trade secret not theretofore a
matter of public knowledge;
(i) except as set forth on Schedule 3.10 and except for regular salary
increases granted in the ordinary course of business within the Company or its
Subsidiaries' 1997 budgets and consistent with prior practices, grant any
increase in compensation or directors' fees, or pay or agree to pay or accrue
any bonus or like
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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 permitted by Section 6.12 and, subject to
Section 6.15, quarterly dividends from the Company to its shareholders
consistent with past practice;
(k) except through settlement of indebtedness, foreclosure,
the exercise of creditors' remedies or in a fiduciary capacity, acquire the
capital stock or other equity securities or interest of any person;
(l) make any capital expenditure or a series of expenditures of a similar
nature in excess of $100,000 in the aggregate;
(m) make any income tax or franchise tax election or settle or compromise
any federal, state, local or foreign income tax or franchise tax liability, or,
except in the ordinary course of business consistent with prudent banking
practices, make any other tax election or settle or compromise any other
federal, state, local or foreign tax liability;
(n) except for negotiations and discussions between the parties hereto
relating to the transactions contemplated by this Agreement or as otherwise
permitted hereunder, enter into any transaction, or enter into, modify or amend
any contract or commitment by which any such transaction, contract, or
commitment would obligate the Company in an amount which would exceed $50,000
alone or in the aggregate 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;
(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;
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(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; or
(w) prepay in whole or in part the Company Indebtedness; or
(x) enter into any agreement, understanding or commitment, written or
oral, with any other person which is in any manner inconsistent with the
obligations of the Company and its directors and 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
SECTION 6.1 Access To, and Information Concerning, Properties and
Records. (a) 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 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
Company to Compass which is confidential and is so identified to Compass as
confidential shall be held confidential by Compass and its representatives,
except to the extent counsel to Compass has advised it such information is
required to or should be disclosed in filings with regulatory agencies or
governmental authorities or in proxy materials delivered to shareholders of the
Company. For purposes of this Section, all information relating to customers of
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the Bank, budgets, personnel, strategic plans, policies and procedures, and
internally generated financial information and analyses shall be considered
confidential without further identification. In the event this Agreement is
terminated pursuant to the provisions of Article VIII, upon the written request
of the Company, Compass agrees to destroy or return to the Company all copies of
such confidential information.
(b) Compass acknowledges to the Company that the Company has, prior to the
date hereof, cooperated in providing Compass access to the books and records of
the Company and its Subsidiaries and has been afforded by the Company the
opportunity to conduct due diligence; however, the foregoing acknowledgement
does not dilute, negate, void, modify, or otherwise affect the representations,
warranties, or obligations of the Company under this Agreement, including
without limitation the obligation to continue to provide access as provided by
subsection (a) above.
SECTION 6.2 Filing of Regulatory Approvals. As soon as reasonably
practicable, Compass shall file all notices and applications to the FRB, the
OCC, the Commissioner 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, ("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. Subject
to the terms and conditions of 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.
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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 (an "Acquisition Proposal"). Immediately upon receipt of any such
unsolicited offer, the Company will communicate to Compass the terms of any
proposal or request for information and the identity of parties involved.
SECTION 6.7 Public Announcement. Subject to written advice of counsel
with respect to legal requirements relating to public disclosure of matters
related to the subject matter of this Agreement, the timing and content of any
announcements, press releases or other public statements concerning the proposal
contained herein will occur upon, and be determined by, the mutual consent of
the Company and Compass.
SECTION 6.8 Employee Benefit Plans. Compass presently intends that,
after the Merger, Compass, 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
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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, 1996.
(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 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.
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.
SECTION 6.9 Merger of Bank. Compass presently intends to cause the Bank
to merge into Compass Bank immediately after the Merger, and the Company agrees
to cause the Bank to execute documents and take actions (conditioned on the
Merger being effective) and otherwise cooperate with Compass during the time the
Merger transaction is pending in order to facilitate such merger of the Bank
into Compass Bank (the "Bank Merger") immediately after the Closing. The Company
acknowledges that Compass is not obligated to merge the Bank into Compass Bank
subsequent to the Merger and that the Bank Merger is within the discretion of
Compass.
SECTION 6.10 Environmental Investigation; Right to Terminate Agreement.
(a) Compass and its consultants, agents and representatives, shall have the
right, at Compass' expense, to the same extent that the Company and its
Subsidiaries have such right, but not the obligation or responsibility, to
inspect any Property, including, without limitation, for the purpose of
conducting
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asbestos surveys and sampling, and other environmental assessments and
investigations ("Environmental Inspections"). Compass' right to conduct
Environmental Inspections shall include the right to sample and analyze air,
sediment, soil and groundwater of any Property to the same extent that the
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, the scope and
results of which shall be acceptable to Compass in its sole discretion and the
scope and results of which are equivalent to the policies of Compass with
respect to acquiring security interests on real or personal property.
(d) Compass shall notify the 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. If, as a result of any such Environmental Inspection, further
investigation ("secondary investigation") including, without limitation, test
borings, soil, water and other sampling is deemed desirable by Compass, Compass
shall notify the Company of the Properties on which it intends to conduct a
secondary investigation on or prior to the 52nd day after the date hereof. The
Company and its Subsidiaries will provide notification to owners of Property on
which Compass intends to conduct secondary investigations and will use their
best efforts to secure access to such property for Compass. Compass shall notify
the Company of any Properties that, in the sole discretion of Compass, are not
acceptable and require remediation on or prior to the 102nd day after the date
hereof.
(e) (1) Subject to the Company's right to issue an Environmental
Termination Notice pursuant to Section 6.10(e)(3) below, with respect to any
Controlled Property that Compass has notified the Company is not acceptable and
requires remediation, the Company shall promptly prepare a remediation plan
acceptable to
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Compass, and obtain approval of such remediation plan by the Texas Natural
Resource Conservation Commission or any other appropriate governmental authority
("Environmental Regulatory Authority") on or prior to the 240th day after the
date hereof ("Remediation Completion Date").
(2) Subject to the Company's right to issue an Environmental
Termination Notice pursuant to Section 6.10(e)(3) below, with respect to any
Collateral Property that Compass has notified the Company is not acceptable and
requires remediation, the Company agrees promptly to, and shall cause the
Company's Subsidiaries to, add to their respective loan loss reserves the lesser
of (a) the written estimate of expenditures ("Remediation Estimate") prepared by
the environmental consultant engaged by Compass to perform the Environmental
Inspections, in connection with (i) additional assessment, remediation, removal
and/or monitoring (ii) correction of any violation of any applicable
Environmental Law, and (iii) preparing and obtaining approval by the appropriate
Environmental Regulatory Authority of remediation plans, or (b) the outstanding
balance of the loan or indebtedness secured by such Collateral Property. If the
expenditures set forth in clause (a) above would exceed 80% of the outstanding
balance of such loan or indebtedness, the Company will, and will cause its
Subsidiaries to, increase their respective loan loss reserves by the outstanding
amount of the loan or indebtedness.
(3) Notwithstanding the foregoing, and without limiting any rights of
Compass to terminate this Agreement, the Company shall not be obligated to incur
aggregate expenditures in excess of $150,000 ("Environmental Cap") in connection
with additional assessment, remediation or monitoring of any Property, preparing
and obtaining approval by the appropriate Environmental Regulatory Authority of
remediation plans with respect to Controlled Properties, and in connection with
making allocations to the Company's and its Subsidiaries' loan loss reserves.
If the Environmental Cap is reasonably anticipated to be exceeded based on the
written estimates of Compass' environmental consultants if the Company were to
continue performing its obligations under Section 6.10 (e)(1) and (2), then the
Company may elect to terminate this Agreement by submitting written notice to
Compass of such intention ("Environmental Termination Notice"). Such
Environmental Termination Notice shall become effective on the date ten (10)
business days after Compass' receipt of the Company's Environmental Termination
Notice, unless Compass responds in writing within such period stating Compass'
election to proceed with the transaction without additional expenditures by the
Company exceeding the Environmental Cap, in which event the Company's
Environmental Termination Notice shall be of no further force and effect. If
the Company issues an Environmental Termination Notice, the Company shall
designate in such notice those Controlled Properties and Collateral Properties
which Compass has notified the Company are
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not acceptable and require remediation under Section 6.10 (e)(1) and (2)
regarding which the Company will take no further action.
(f) 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.
(g) Compass shall have the right to terminate this Agreement in the
following circumstances:
(i) the Company's material breach of any representation or warranty
set forth in Section 3.23,
(ii) the factual substance of any warranties set forth in Section
3.23 is not true and accurate in all material respects irrespective of the
knowledge or lack of knowledge of the Company;
(iii) the results of such Environmental Inspection, secondary
investigation or other environmental survey are unacceptable to Compass because
the Environmental Inspection, secondary investigation or other environmental
survey identifies violations or potential violations of Environmental Laws;
(iv) if the Environmental Inspection, secondary investigation or
other environmental survey identifies any past or present event, condition or
circumstance that, based on the estimates of the environmental professionals
referred to in this Section 6.10, may currently or in the future require,
without consideration of whether the Company has issued or has the right to
issue an Environmental Termination Notice under Section 6.10(e)(3), (a)
expenditures by the Company or its Subsidiaries, in connection with (1)
investigation, remediation or monitoring of any Controlled Property (including
without limitation eventual removal of asbestos-containing material), (2)
preparing and obtaining approval by the appropriate Environmental Regulatory
Authority of remediation plans with respect to Controlled Properties, (3) any
violations of applicable Environmental Laws, or (b) additions to
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loan loss reserve pursuant to Section 6.10(e), which expenditures or additions
to loan loss reserve individually or in the aggregate may exceed $150,000;
(v) Compass is not permitted to conduct an Environmental Inspection or
secondary investigation of any Property to the extent it deems appropriate;
(vi) If on or before the Remediation Completion Date,
a) for each Controlled Property identified by Compass as unacceptable
and requiring remediation, and which is not the subject of an Environmental
Termination Notice, the Company does not deliver to Compass written evidence
acceptable to Compass that the Company has developed a remediation plan approved
by the applicable Environmental Regulatory Authority,
b) for each Collateral Property identified by Compass as unacceptable
and requiring remediation, and which is not the subject of an Environmental
Termination Notice, the Company does not provide evidence acceptable to Compass
that the Company and its Subsidiaries increased their respective loan loss
reserves in accordance with Section 6.10(e).
(h) 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 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. Compass shall keep
confidential the reports, surveys and results relating to and of the
Environmental Inspections, unless otherwise required by law.
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. Compass and the Company agree that the execution of a voting
agreement by a
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shareholder who is also a director of the Company shall not prevent such
director from voting in his capacity as a director in such a manner which is
consistent with his fiduciary duties.
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 Insurance and Indemnification. Compass
agrees to permit the Company to obtain an extended reporting period (otherwise
known as "tail coverage") under the Company's existing director's and officer's
liability policy; provided, however, that the premium expense for such extended
reporting period shall not exceed $70,000. Compass agrees that all rights to
indemnification that the directors and officers of the Company and the Bank have
pursuant to the Articles of Incorporation or Association (and their respective
Bylaws as of the date of this Agreement) of the Company and the Bank shall
survive the Merger and shall continue in full force and effect. Nothing
contained in this Section 6.14 shall require Compass to indemnify any person who
was a director or officer of the Company or the Bank to a greater extent than
the Company or the Bank is, as of the date of this Agreement, required to
indemnify any such person. The indemnification provisions currently contained
in the Articles of Incorporation and Bylaws of the Company and the Bank shall
not be amended after the date hereof.
SECTION 6.15 Dividends. After the date of this Agreement, the Company
shall coordinate with Compass the payment of dividends with respect to Compass
Common Stock and Company Common Stock and the record dates and payment dates
relating thereto, it being the intention of the parties hereto that holders of
Compass Common Stock and Company Common Stock shall not receive two dividends as
a result of the parties entering into this Agreement for any single calendar
quarter with respect to their shares of Company Common Stock or any shares of
Compass Common Stock that any such holder receives in exchange for such shares
of Company Common Stock in the Merger.
SECTION 6.16 Rule 144 Considerations. During the three year period
following the Effective Time, Compass shall (a) satisfy the
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current public information requirements set forth in paragraph (c) of Rule 144
under the Securities Act (or any rule or regulation which may be substituted for
or in replace, and which is substantially similar to, such paragraph), (b) upon
request by an affiliate identified on Schedule 1.8(b) who receives Compass
Common Stock in the Merger, make promptly available to such affiliate any and
all information relating to Compass and its outstanding securities as such
affiliate may require in consummating a sale pursuant to Rule 144 under the
Securities Act (or any rule or regulation which may be substituted for or
replace, and which is substantially similar to, Rule 144); and (c) file such
reports and take such action as may be necessary on its part to permit such
affiliate to sell the Compass Common Stock received in the Merger under Rule 144
(or any rule or regulation which may be substituted for or replace, and which is
substantially similar to, Rule 144).
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 7.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligations of each party to effect the Merger are subject to the
satisfaction or waiver of the following conditions prior to the Effective Time:
(a) the receipt of regulatory approvals which approvals shall not have
imposed any condition or requirement which in the judgment of Compass would
adversely impact the economic or business benefits of the transactions
contemplated by this Agreement or otherwise would in the judgment of Compass be
so burdensome as to render inadvisable the consummation of the Merger, and the
expiration of any applicable waiting period with respect thereto;
(b) the Closing will not violate any injunction, order or decree of any
court or governmental body having competent jurisdiction;
(c) the approval of the Merger by the 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 (after consideration of all supplemental Schedules for events occurring
after the date hereof), 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) 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 accrued
compensation permitted by their respective agreements with the Company or its
Subsidiaries and as to their rights of indemnification pursuant to the Articles
of Incorporation, Association or Bylaws of the Company and the Bank);
(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 5% of the Shares shall have demanded or be
entitled to demand payment of the fair value of their shares as dissenting
shareholders;
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(h) Compass shall have received a letter from KPMG Peat Marwick, dated as
of the Effective Time, to the effect that the Merger will qualify for pooling-
of-interests accounting treatment if closed and consummated in accordance with
this Agreement;
(i) the aggregate principal amount of all Company Indebtedness shall not
exceed $2,275,375;
(j) Compass shall have received from holders of the Company's capital
stock receiving at least 50% of the total Merger Consideration a representation
that they have no plan or intention to sell or otherwise dispose of shares of
Compass Common Stock received pursuant to the Merger.
(k) Compass shall have received an opinion of its counsel substantially in
the form of Exhibit H attached hereto 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 reasonably determined 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) F. Herman Coleman shall have entered into an employment agreement with
Compass or one of its Affiliates, in the form of Exhibit I attached hereto;
(p) the Company shall have obtained a title policy insuring good and
indefeasible title in the Company for the Company's location at 900 Washington
Avenue, Waco, Texas from a title company which, to the best of the Company's
knowledge, is solvent; and
(q) Compass shall have received certificates dated the Closing executed by
the Chairman of the Board of the Company and by the Chairman of the Board of 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) and (n).
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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; and
(c) there shall not have occurred a Material Adverse Effect with respect
to Compass;
(d) the Company shall have received the opinion of counsel to Compass and
Compass Texas in substantially the form of Exhibit F attached hereto;
(e) the Company and its shareholders shall have received an opinion of
counsel of Compass in substantially the form of Exhibit H that the Merger will
qualify as a reorganization under Section 368(a) of the Code.
(f) the Company and its Subsidiaries shall have delivered to the directors
of the Company and its Subsidiaries an instrument in the form of Exhibit K
attached hereto dated the Effective Time releasing such directors 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 by Compass or Compass Texas in
connection with the transactions contemplated by this Agreement; and
(g) the Company shall have received certificates dated the Closing,
executed by an 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), (b) and (c).
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:
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(a) by mutual written consent duly authorized by the Boards of Directors
of Compass and the Company;
(b) by Compass (i) if Compass learns or becomes aware of a state of facts
or breach or inaccuracy of any representation or warranty of the Company
contained in Article III which constitutes a Material Adverse Effect, (ii)
pursuant to Section 6.10, (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, (iv) if
the Board of Directors of the Company shall have withdrawn or modified in any
manner its approval or recommendation of this Agreement, or shall have resolved
to do the same (including without limitation, the execution of an agreement for
the disposition or merger of the Company or the Bank); (v) if there shall have
been a breach of Section 6.6; or (vi) if the shareholders of the Company do not
approve this Agreement and the Merger at the Shareholder's Meeting;
(c) by the Company (i) pursuant to Sections 1.6 or 6.10, or (ii) if the
conditions to Closing contained in Section 7.1 or 7.3 are not satisfied or
waived in writing by the Company;
(d) by Compass or the Company if the Effective Time shall not have
occurred on or before the expiration of nine months from the date of this
Agreement or such later date agreed to in writing by Compass and the Company;
(e) by the Company if it shall receive any Acquisition Proposal after the
date hereof from a third party or parties and the Board of Directors of the
Company shall have received a written opinion from independent legal counsel to
the effect that, and the Board of Directors shall have determined in good faith
in the exercise of its fiduciary duties that, the Company is required to pursue
such Acquisition Proposal; provided, however that the Company may only terminate
this Agreement pursuant to this clause if it simultaneously with such
termination delivers to Compass the termination fee provided for in Section
10.1(c) hereof; or
(f) 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. If this Agreement is terminated by
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Compass pursuant to Sections 8.1(b)(iv), 8.1(b)(v), 8.1(b)(vi), or 8.1(e), then
the Company shall pay to Compass the fees set forth in Sections 10.1(b) and
10.1(c) in cash at the time of the termination.
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 (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document, certificate or writing delivered pursuant hereto, or (iii) waive
compliance with any of the agreements or conditions contained herein. Any
agreement on the part of any party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE IX.
SURVIVAL
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. This
Section shall not limit any covenant or agreement of the parties contained in
Sections 1.6, 2.1, 2.2, 6.14 and 6.16 of this Agreement which by its terms
contemplates performance after the Effective Time.
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ARTICLE X.
MISCELLANEOUS
SECTION 10.1 Expenses.
(a) All costs and expenses incurred in connection with the
transactions contemplated by this Agreement, including without limitation,
attorneys' fees, accountants' fees, other professional fees and costs related to
expenses of officers and directors of the Company and 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
exceed $100,000, excluding the cost of (i) the directors' and officers' tail
coverage under Section 6.14, (ii) the title policy under Section 7.2(p), and
(iii) litigation resulting from the execution of this Agreement. 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;
(b) In recognition of the significant expenditure of management time
and resources and substantial out-of-pocket expenses incurred by Compass and its
Affiliates in connection with the negotiation of this Agreement and the
investigation of the transactions contemplated hereby, and in light of the
difficulty in calculating the value of such management time, resources and other
expenses, the Company agrees to pay Compass $650,000 in the event that the
Company's shareholders do not approve the Merger;
(c) In the event that the Board of Directors of the Company violates
its obligations under Section 6.6 or withdraws or adversely modifies its
recommendation (including without limitation, the execution of an agreement for
the disposition or merger of the Company or the Bank) that the Company's
shareholders vote in favor of the approval and adoption of this Agreement and
the Merger, then the Company shall pay to Compass a fee of $2,000,000; provided,
however, that the fee required to be paid under this section (c) shall be
reduced dollar for dollar by any fee paid by the Company to Compass under
section (b) and provided that no amounts shall be owed pursuant to Section
10.1(b) or (c) if the Company exercises it Pricing Termination Option.
SECTION 10.2 Brokers and Finders. All negotiations on behalf of Compass
and the Company relating to this Agreement and the transactions contemplated by
this Agreement have been carried on by the parties hereto and their respective
agents directly without the intervention of any other person in such manner as
to give rise to any claim against Compass, Compass Texas, the Company or its
Subsidiaries for financial advisory fees, brokerage or
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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 (i) relieve Compass of its obligations hereunder if such
assignee does not perform such obligations, or (ii) relieve Compass of its
obligations to issue Compass Common Stock as the Merger Consideration.
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 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
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mail (postage prepaid, return receipt requested) to the respective parties as
follows:
if to Compass or Compass Texas:
D. Paul Jones, Jr.
Chairman and Chief Executive Officer
Compass Bancshares, Inc.
15 South 20th Street
Birmingham, Alabama 35233
Telecopy No.: (205) 933-3043
Charles E. McMahen
Chairman and Chief Executive Officer
Compass Banks of Texas, Inc.
24 Greenway Plaza
Houston, Texas 72046
Telecopy No.: (713) 993-8500
with copies to:
Daniel B. Graves
Associate General Counsel
Compass Bancshares, Inc.
15 South 20th Street
Birmingham, Alabama 35233
Telecopy No.: (205) 933-3043
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:
F. Herman Coleman
Chairman and Chief Executive Officer
Central Texas Bancorp, Inc.
900 Washington Avenue
Waco, Texas 76701
P. O. Box 2299
Waco, Texas 76703-2299
Telecopy: (817) 752-0707
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with a copy to:
J. Rodney Lee
Naman, Howell, Smith & Lee
Texas Center
9th and Washington
Waco, Texas 76701
P. O. Box 1470
Waco, Texas 76703-1470
Telecopy: (817) 754-6331
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
SECTION 10.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas, regardless of the
laws that might otherwise govern under applicable principles of conflicts of
laws thereof, except to the extent that the GCL governs aspects of the Merger.
SECTION 10.9 Descriptive Headings. The descriptive headings are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
SECTION 10.10 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
SECTION 10.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 10.12 Incorporation by References. Any and all schedules,
exhibits, annexes, statements, reports, certificates or other documents or
instruments referred to herein or attached hereto are incorporated herein by
reference hereto as though fully set forth at the point referred to in the
Agreement.
SECTION 10.13 Certain Definitions.
(a) "Subsidiary" 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.
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(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.
(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
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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. Except as otherwise provided in Section
3.23, a corporation or bank shall be deemed to have "knowledge" of or to have
"known" a particular fact or other matter if any individual who is serving, or
who has at any time served, in the officer capacities set forth on Schedule
10.13(f) hereof (or in any similar capacity) of the corporation or bank, has, or
at any time had, knowledge of such fact or other matter. The Company is
understood to have undertaken an investigation in connection with the
transactions contemplated hereby to determine the existence or absence of facts
or other matters in the statement qualified as "known" by, or the "knowledge"
of, the Company or its Subsidiaries.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
day and year first above written.
ATTEST: COMPASS BANCSHARES, INC.
By /s/ Daniel B. Graves By /s/Garrett R. Hegel
---------------------- -------------------
Its: Assistant Secretary Its: Chief Financial Officer
ATTEST: CENTRAL TEXAS BANCORP, INC.
By /s/Suzan Farr By /s/ F. Herman Coleman
--------------------- ---------------------
Its: Secretary Its: Chairman and Chief Executive
Officer
55
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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"), Central Texas Bancorp, Inc. (the "Company"), and
the undersigned shareholder of the Company (the "Shareholder").
WHEREAS, Compass and the Company entered into an Agreement and Plan of
Merger dated _________, 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 $10.00
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 (i) 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; and (ii) for transfers to him upon
termination of that certain Shareholders Agreement dated as of July 21, 1988, as
amended by that certain First Amendment to Shareholders Agreement dated November
10, 1992 between F. Herman Coleman, Trustee and certain shareholders of the
Company. 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 Rule 145
promulgated by the Securities and Exchange Commission ("SEC") under the
Securities Act of 1933, as amended ("Securities Act") and any new requirements
imposed by the SEC or the Financial Accounting Standard's Board for Compass'
accounting for the Merger as a pooling of interests. Compass shall notify the
Shareholder of any new requirements so imposed.
<PAGE>
2. The Shareholder further acknowledges and agrees that he will be
subject to Rule 145 promulgated by the SEC 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 or pursuant to
exemptions therefrom.
3. The Shareholder agrees that the shares of Compass Common Stock to be
issued to him in the Merger will bear a restrictive transfer legend in
substantially the following form:
The shares represented by this certificate are subject to a Pooling
Transfer Restrictions Agreement dated _______ __, 1997 which restricts any
sale or other transfer of such shares prior to the public release by
Compass Bancshares, Inc. of 30 days of post-merger combined operations of
Central Texas Bancorp, Inc. and Compass Bancshares, Inc. 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:_______________________________
CENTRAL TEXAS BANCORP, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
_____________________________________
Signature of Shareholder
_____________________________________
Printed Name of Shareholder
3
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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"), Central Texas
Bancorp, Inc., 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 _________________ ("Surviving Corporation").
After the Effective Time, the outstanding shares of the Common Stock, par
value $10.00 per share (including for this purpose any shares of Common Stock
which can be acquired upon the exercise of any warrant, option, right,
convertible debt instrument or other security pursuant to which shares of Common
Stock may be obtained (collectively, "Derivative Securities")), of the 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
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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 ("Shareholder List")
supplied and certified to the Exchange Agent by the Company attached as
Exhibit B hereto. In the event the holder does not appear as a record
holder of the Certificate, the holder shall provide evidence of his or her
ownership of the shares represented by the Certificate which evidence is
satisfactory to the Exchange Agent and Compass. 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;
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<PAGE>
(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
(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)
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<PAGE>
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; provided, this paragraph does not limit Compass' obligation to
issue Compass Common Stock pursuant to the Merger Agreement.
(ii) The Exchange Agent shall be regarded as having made no
representations or warranties as to the validity, sufficiency, value
or genuineness of any Certificates or the shares of Company Common
Stock represented thereby, and the Exchange Agent shall not be deemed
to have made any representations as to the value of such shares.
(iii) The Exchange Agent may rely on and shall be protected in
acting upon the written instructions of any officer of Compass or the
Surviving Corporation with respect to any matter relating to its
actions or duties hereunder; and the Exchange Agent shall be entitled
to request further instructions from Compass or the Surviving
Corporation, as appropriate, and to act in accordance therewith.
(iv) The Exchange Agent may consult attorneys satisfactory to
the Exchange Agent (including, without limitation, attorneys for
Compass or the Surviving Corporation) and the written advice and
opinion of such attorneys shall constitute full and complete
authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in accordance with such
advice or opinion.
(v) The Exchange Agent shall take all other actions which it or
Compass deems necessary or appropriate under the terms of the Merger
Agreement, the Letters of Transmittal and under the customs and
practices normally applied to transactions of this type and
appropriate to the proper transfer of the Company Common Stock and the
proper
-5-
<PAGE>
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.
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
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<PAGE>
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.
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
-7-
<PAGE>
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:
Central Texas Bancorp, Inc.
900 Washington Avenue
Waco, Texas 76701-1266
Attn: F. Herman Coleman
Chairman and Chief Executive Officer
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
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:_____________________________
CENTRAL TEXAS BANCORP, INC.
By: _______________________________
Name: _____________________________
Title:_____________________________
CONTINENTAL STOCK TRANSFER & TRUST
COMPANY
By: _______________________________
Name: _____________________________
Title:_____________________________
COMPASS BANK
By: _______________________________
Name: _____________________________
Title:_____________________________
Exhibit A - Form of Letters of Transmittal
Exhibit B - Shareholder List
-9-
<PAGE>
EXHIBIT "A"
LETTER OF TRANSMITTAL
For Shares of Common Stock of
CENTRAL TEXAS BANCORP, INC.
Delivered Pursuant to the Agreement and Plan of Merger
dated as of ___________, 1997
By Mail or Overnight Delivery Service:
Continental Stock Transfer & Trust Company
2 Broadway, 19th Floor
New York, New York 10004
Attention: _______________________
DO NOT HAND DELIVER
DESCRIPTION OF SHARES SURRENDERED
Based on its stock transfer records, Central Texas Bancorp, Inc. (the
"Company") has listed below your name, address and the certificate numbers
representing your shares of Common Stock, par value $100.00 per share
("Shares"), of the Company. If any of the listed information appears to be
incorrect, please notify _______________________ at (___) ___-____ at once.
================================================================================
Name, Address and Social Security
Number of Registered Holders Certificate(s) Surrendered
- --------------------------------------------------------------------------------
Total Number of
Certificate Shares Represented
Number(s) by Certificate(s)
_______________________________ ______________ ____________________
Name ______________ ____________________
______________ ____________________
_______________________________
_______________________________
Address
_______________________________ Total Shares _________________
Social Security Number
========================================================================
<PAGE>
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Gentlemen:
I, as the registered holder of the above described Shares of the Company,
hereby tender to Compass Bancshares, Inc. ("Compass"), such Shares pursuant to
the Agreement and Plan of Merger dated as of ___________, 1997, as amended ("the
Merger Agreement"), by and between Compass, _______________________. ("Compass
Texas"), and the Company. I hereby acknowledge receipt of the Proxy Statement
dated _________1997, 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 Compass Bank, as Exchange Agent for this exchange, may require
additional documentation, and I agree, upon request, to execute and deliver any
additional documents or instruments deemed by the Exchange Agent or Compass
reasonably necessary to complete the exchange of the Shares.
The authority conferred in this Letter of Transmittal shall not be affected
by, and shall survive, my death or incapacity, and any obligation I may have
hereunder shall be binding upon my successors, assigns, heirs, executors,
administrators, trustees in bankruptcy and personal and legal representatives.
I acknowledge that the tender of my Shares is irrevocable.
INSTRUCTIONS REGARDING ISSUANCE OF SHARES
If you wish to have the shares of Compass Common Stock to be issued
pursuant to the Merger Agreement in the name and at the address set forth above,
please sign and date this letter on page 3. If you wish to have the shares of
Compass Common Stock to be issued pursuant to the Merger Agreement in a name or
to an address other than the name and address specified above, please complete
the following section. You will be required to pay any transfer or other taxes
required by reason of the payment and delivery of Compass Common Stock to such
other person.
NEW CERTIFICATES TO BE ISSUED
IN A DIFFERENT NAME OR TO A DIFFERENT ADDRESS
If you are entitled to receive shares of Compass Common Stock and wish to
have certificates representing Compass Common Stock issued in a name or to an
address other than the name or address shown on your Company stock certificates,
please indicate the name and address of your assignee below:
Name and Address of Assignee
----------------------------
Name:______________________________________ Taxpayer I.D. No. or
(Type or print full name) Social Security No.:______________
Address:________________________________________________________________________
City, State, Zip Code:__________________________________________________________
<PAGE>
PLEASE SIGN AND DATE BELOW AS INDICATED
THEN PLEASE COMPLETE SUBSTITUTE FORM W-9
Signatures _________________________________
_________________________________
Dated _________________________, 1997
Name(s) _____________________________________________________________
(Please Print)
Capacity _________________________________
(Full Title)
Address _________________________________
_________________________________
(Include Zip Code)
Area Code and Telephone Number _____________________________
Tax Identification or Social Security Number _____________________________
================================================================================
GUARANTEE OF SIGNATURES
(Must be signed by registered holder(s) as name(s) appear on the certificate(s)
or by person(s) authorized to become registered holder(s) by certificate(s) and
documents transmitted. If signing is by an officer or a corporation, or by an
attorney, executor, administrator, trustee, guardian, agent or other person
acting in a fiduciary or representative capacity, please set forth full title.
See Instruction 1.)
Authorized Signature __________________________________
Name __________________________________
(Please Print)
Title __________________________________
Name of Firm __________________________________
Address __________________________________
__________________________________
(Include Zip Code)
Area Code and Telephone Number __________________
Dated ____________________________, 1997
================================================================================
PLEASE COMPLETE SUBSTITUTE FORM W-9
IT IS THE LAST FORM IN THIS PACKAGE
================================================================================
-3-
<PAGE>
DO NOT WRITE IN SPACE BELOW
<TABLE>
<CAPTION>
<S> <C> <C>
Date Received:____________________ By:___________________ Date:________________, 1997
======================================================================================
Company Compass No. of
Shares Shares Accepted Stock Certificate Fractional Cash Check
Surrendered for Exchange Certificate Nos. No. issued Shares Paid No.
======================================================================================
Accepted by:_________________ Checked By:__________________ Date:______________, 1997
</TABLE>
-4-
<PAGE>
LETTER OF TRANSMITTAL
INSTRUCTIONS
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; SIGNATURE
GUARANTEES. Please send all certificates for Shares to Compass Bank, as
Exchange Agent (the "Exchange Agent"), with the Letter of Transmittal, or a
facsimile thereof, fully completed and signed by you, the registered holder(s).
Compass retains the right to require that a signature on the Letter of
Transmittal and the Share certificates be guaranteed by an Eligible Institution.
An Eligible Institution is a member of a registered national securities exchange
or of the National Association of Securities Dealers, Inc. (the "NASD") or a
commercial bank or trust company having an office, branch or agency located in
the United States. If Compass wishes to have your signature guaranteed by an
Eligible Institution, you will be notified by separate letter.
If certificates are registered in the name of a person other than you,
the certificate(s) must be duly endorsed or accompanied by stock powers signed
by the registered holder and the Letter of Transmittal. If the Letter of
Transmittal is executed by an officer on behalf of a corporation or by an
executor, administrator, trustee, guardian, attorney, agent or other person
acting in a fiduciary or representative capacity, the Exchange Agent reserves
the right to require that proper documentary evidence of the authority of the
person executing the Letter of Transmittal. If the tendered certificates are
owned of record by two or more joint owners, each of you must sign the Letter of
Transmittal. Questions regarding such evidence of authority may be referred to
____________________, a representative of the Exchange Agent, at (___) ___-____.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES, THE LETTER OF TRANSMITTAL AND
ANY OTHER REQUIRED DOCUMENTS IS AT YOUR OPTION AND RISK. IF DELIVERY IS BY
MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
STRONGLY RECOMMENDED.
2. ISSUANCE OF COMPASS COMMON STOCK. You will receive the Compass Common
Stock for your Shares only after receipt and acceptance by the Exchange Agent
and Compass of all of the certificates representing your Shares, a properly
completed and executed Letter of Transmittal, and any other required documents
and upon processing of the documents by the Exchange Agent.
3. PAYMENT FOR FRACTIONAL SHARES. As provided in Section 1.6(c) of the
Merger Agreement, Compass will not issue any certificates of Compass Common
Stock for fractional shares. In lieu of issuing fractional shares, Compass will
pay to any Company shareholder entitled to receive a fractional share of Compass
Common Stock, a cash payment based on a price of $______ per share.
4. NO CONDITIONAL TENDERS; WAIVER OF NOTICE. No alternative,
conditional, irregular or contingent deliveries of Shares will be accepted. By
execution of the Letter of Transmittal or any manually signed facsimile thereof,
you waive any rights to receive any notice of the acceptance of your Shares for
exchange.
5. SIGNATURES ON LETTER OF TRANSMITTAL. In order for the Letter of
Transmittal to be properly signed by you, the signature must correspond exactly
with the name(s) as written on the face of the certificate(s).
If the Shares tendered hereby are owned of record by two or more joint
owners, all of you must sign the Letter of Transmittal.
If your Shares are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of certificates.
If the certificate(s) representing the Shares transmitted hereby are
registered in your name and the
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<PAGE>
Letter of Transmittal is properly signed by you, no endorsements of certificates
or separate stock powers are required. In all other cases, the certificate(s)
representing the Shares transmitted hereby must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear on the certificate(s), and if required, signature(s)
on such certificate(s) or stock power(s) must be guaranteed by an Eligible
Institution.
If the Letter of Transmittal or any certificate or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of corporation or other acting in a fiduciary or representative
capacity, such person should so indicate when signing, and the Exchange Agent
reserves the right to require proper evidence of their authority to so act.
6. IRREGULARITIES. All questions as to the validity, form, eligibility,
acceptance of and delivery of Shares and the issuance of Compass Common Stock
and the payment of cash in lieu of fractional shares will be determined by
Compass, which determination shall be final and binding. Compass reserves the
absolute right to reject any or all tenders determined by Compass not to be in
appropriate form or which would, in the opinion of Compass' counsel, be
unlawful. Compass also reserves the absolute right in its sole discretion, to
waive any of the conditions hereof, or any defect in any tender with respect to
any particular Shares of any particular shareholder, and Compass'
interpretations of the terms and conditions of the Merger Agreement and these
instructions shall be final and binding. The Exchange Agent and Compass shall
not be obligated to give notice of defects or irregularities in tenders, nor
shall they incur any liability for failure to give any such notice. Tenders
will be deemed not to have been made until all defects and irregularities have
been cured or waived.
7. 31% BACKUP WITHHOLDING. Under the Federal income tax law, you must
provide Compass with a correct taxpayer identification number ("TIN") unless an
exemption applies. If the correct TIN is not provided, a $50 penalty may be
imposed upon you by the Internal Revenue Service and you will be subject to
backup withholding of 31% of the payments to be received by you.
8. REQUEST FOR ASSISTANCE OF ADDITIONAL COPIES. Questions and requests
for assistance or additional copies of the Letter of Transmittal may be directed
to the Exchange Agent at the address set forth at the top of page 1.
IMPORTANT TAX INFORMATION
Under the Federal income tax law, you are to provide Compass (as payer)
with a correct taxpayer identification number on Substitute Form W-9 below. If
Compass is not provided with the correct taxpayer identification number, you may
be subject to a $50 penalty imposed by the Internal Revenue Service. In
addition, all payments that are made to you with respect to Shares (including
any cash payable to you under the Merger Agreement in lieu of fractional shares)
may be subject to backup withholding.
Exempt shareholders (including among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. Nonetheless, exempt shareholders should complete the Substitute
Form W-9 below and so indicate their exempt status by writing "exempt" across
the face of the Substitute Form W-9. In order for a foreign individual to
qualify as an exempt recipient, that shareholder must submit a statement, signed
under penalties of perjury, attesting to that individual's exempt status. Such
statements can be obtained from the Exchange Agent. See the enclosed Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional information.
If backup withholding applies, Compass is required to withhold 31% of any
payments made to the shareholder. Backup withholding is not an additional tax.
Rather, the tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be obtained.
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<PAGE>
Purpose of Substitute Form W-9
To prevent backup withholding on payments that are made to you with respect
to shares of Compass Common Stock acquired as a result of the Merger or with
respect to cash payments, if any, receivable in lieu of fractional shares
pursuant to the Merger Agreement, you are required to notify Compass of your
correct taxpayer identification number by completing the form below certifying
that the taxpayer identification number provided on Substitute Form W-9 is
correct (or that you are awaiting a taxpayer identification number).
What Number to Give
As the record owner of the Shares, you are required to give Compass
your Social Security Number or Employer Identification Number. If the Shares
are in more than one name or are not in the name of the actual owners, consult
the enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional guidelines on which number to report.
-7-
<PAGE>
SUBSTITUTE FORM W-9
Department of the Treasury
Internal Revenue Service
Taxpayer Identification Number
PART 1 - PLEASE PROVIDE YOUR TAXPAYER IDENTIFICATION [ ]
NUMBER IN THE BOX AT RIGHT AND CERTIFY BY Social Security
SIGNING AND DATING BELOW Number or Employer
Identification Number
PART 2 - Check the following box if you are NOT subject
to backup withholding under the provisions of [ ]
Section 3406(a)(1)(C) of the Internal Revenue
Code because (1) you have not been notified that
you are subject to backup withholding as a result
of failure to report all interest or dividends or
(2) the Internal Revenue Service has notified you
that you are no longer subject to backup withholding.
PART 3 - Check the following box if you are awaiting a [ ]
Taxpayer Identification Number.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
By checking the box in Part 3, I certify under penalties of perjury that a
taxpayer identification number has not been issued to me, and either (a) I have
mailed or delivered an application to receive a taxpayer identification number
to the appropriate Internal Revenue Service Center or Social Security
Administration Office, or (b) I intend to mail or deliver an application in the
near future. I understand that if I do not provide a taxpayer identification
number within sixty (60) days, 31% of all reportable payments made to me
thereafter will be withheld until I provide a number.
CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT THE INFORMATION
PROVIDED ON THIS FORM IS TRUE, CORRECT AND COMPLETE.
Signature: ______________________________ Date:_______________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU. PLEASE REVIEW THE ENCLOSED GUIDELINES
FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
FOR ADDITIONAL DETAILS.
________________________________________________________________________________
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<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.--
Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
============================================================ ==================================================================
GIVE THE SOCIAL GIVE THE EMPLOYER
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
2. Two or more individuals (joint The actual owner of the number of the personal
account) account or, if combined representative or trustee
funds, any one of the unless the legal entity
individuals (1) itself is not designated
in the account title.) (5)
3. Husband and wife (joint The actual owner of the
account) account or, if joint funds,
either person(1)
4. Custodian account of a minor The minor(2) 10. Corporate account The corporation
(Uniform Gift to Minors Act)
5. Adult and minor (joint The adult or, if the minor 11. Religious, charitable, or The organization
account) is the only contributor, the educational organization
minor(1) account
12. Partnership account held The partnership
in the name of the business
6. Account in the name of The ward, minor, or 13. Association, club, or The organization
guardian or committee for a incompetent person (3) other tax-exempt organization
designated ward, minor, or
incompetent person
7. a The usual revocable savings The grantor-trustee(1) 14. A broker or registered The broker or nominee
trust account (grantor is nominee
also trustee)
b So-called trust account The actual owner(1) 15. Account with the The public entity
that is not a legal or Department of Agriculture
valid trust under State in the name of a public
Law entity (such as a State or
local government, school
district, or prison) that
8. Sole proprietorship account The owner(4) receives agricultural
program payments
============================================================ ==================================================================
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
Note: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
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<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a), or an individual
retirement plan.
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
. An international organization or any agency, or instrumentality thereof.
. A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a).
. An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
. An entity registered at all times under the Investment Company Act of 1940.
. A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid
in the course of the payer's trade or business and you have not provided
your correct taxpayer identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
. Payments described in section 6049(b)(5) to nonresident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER. WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045 and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend, interest
or other payments to give taxpayer identification numbers to payers who must
report the payments to the IRS. The IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1993, payers must generally
withhold 31% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an under-
payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDINGS.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE
-10-
<PAGE>
EXHIBIT C
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
(Individual Shareholder)
This Voting Agreement and Irrevocable Proxy (this "Agreement") dated
as of ________ __, 1997 is executed by and among Central Texas Bancorp, Inc., a
Texas corporation (the "Company"), Compass Bancshares, Inc., a Delaware
corporation ("Compass"), and the other persons who are signatories hereto
(referred to herein individually as a "Shareholder" and collectively as the
"Shareholders").
WHEREAS, the Company and Compass have executed that certain Agreement
and Plan of Merger dated 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
<PAGE>
contemplated thereby, with such modifications to the Merger Agreement and the
other agreements and transactions contemplated thereby as the parties thereto
may make, in the event such Shareholder does not vote in favor of the
authorization and approval of the Merger Agreement and the other agreements and
transactions contemplated thereby; provided, however, that this proxy shall not
apply with respect to any vote on the Merger Agreement, and the other agreements
and transactions contemplated thereby, if the Merger Agreement shall have been
modified so as to reduce the amount of consideration to be received by the
Shareholders under the Merger Agreement in its present form.
3. Each Shareholder hereby covenants and agrees that until this
Agreement is terminated in accordance with its terms, each Shareholder will not,
and will not agree to, without the consent of Compass, directly or indirectly,
sell, transfer, assign, pledge, hypothecate, cause to be redeemed or otherwise
dispose of any of the Shares or grant any proxy or interest in or with respect
to any such Shares or deposit such shares into a voting trust or enter into
another voting agreement or arrangement with respect to such Shares except as
contemplated by this Agreement, unless the Shareholder causes the transferee of
such Shares to deliver to Compass an amendment to this Agreement whereby such
transferee or other holder becomes bound by the terms of this Agreement.
4. This proxy shall be limited strictly to the power to vote the
Shares in the manner set forth in Section 2 and shall not extend to any other
matters.
5. The Shareholders acknowledge that Compass and the Company are
relying on this Agreement in incurring expense in reviewing the Company's
business, in preparing a proxy statement, in proceeding with the filing of
applications for regulatory approvals, and in undertaking other actions
necessary for the consummation of the Merger and that the proxy granted hereby
is coupled with an interest and is irrevocable to the full extent 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 first
business day after the Meeting or any adjournment thereof. 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
2
<PAGE>
Shareholders of the Shares and the Company agrees to recognize the vote of the
Proxy Holder instead of the vote of the Shareholders in the event the
Shareholders do not vote in favor of the approval of the Merger Agreement as set
forth in Section 1 hereof.
8. This Agreement may not be modified, amended, altered or
supplemented with respect to a particular Shareholder except upon the execution
and delivery of a written agreement executed by the Company, Compass and the
Shareholder.
9. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
10. This Agreement, together with the Merger Agreement and the
agreements contemplated thereby, embody the entire agreement and understanding
of the parties hereto in respect to the subject matter contained herein. This
Agreement supersedes all prior agreements and understandings among the parties
with respect to such subject matter contained herein.
11. All notices, requests, demands and other communications required
or permitted hereby shall be in writing and shall be deemed to have been duly
given if delivered by hand or mail, certified or registered mail (return receipt
requested) with postage prepaid to the addresses of the parties hereto set forth
on below their signature on the signature pages hereof or to such 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.
CENTRAL TEXAS BANCORP, INC.
By:________________________________
Name:______________________________
Title:_____________________________
Address:
900 Washington Avenue
Waco, Texas 76701-1255
Attention: F. Herman Coleman
Chairman and Chief
Executive Officer
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 D
VOTING AGREEMENT AND IRREVOCABLE PROXY
(Shareholder Agreement)
This Voting Agreement and Irrevocable Proxy (this "Agreement") dated
as of ________ __, 1997 is executed by and among Central Texas Bancorp, Inc., a
Texas corporation (the "Company"), Compass Bancshares, Inc., a Delaware
corporation ("Compass"), and F. Herman Coleman as Trustee ("Trustee") under that
certain Shareholders Agreement dated as of July 21, 1988, as amended by that
certain First Amendment to Shareholder Agreement dated November 10, 1992 (as
amended, the "Shareholders Agreement") between the Trustee and certain
shareholders of the Company with respect to 201,136 shares the outstanding
common stock of the Company ("Stock");
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 proxy of the Trustee for the Stock;
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. The Trustee represents and warrants to Compass and the Company
that he has been designated, and currently serves, as trustee under the
Shareholders Agreement. The Trustee hereby represents and warrants to Compass
and the Company that he has the exclusive right to vote the shares of the Stock
subject to the terms, provisions and conditions of the Shareholders Agreement.
The Trustee hereby agrees to vote the Stock at the shareholders' meeting
referred to in Section 1.7 of the Merger Agreement (the "Meeting") in favor of
approval of the Merger Agreement and the other agreements and transactions
contemplated thereby. The Trustee has received written consent from all of the
parties to the Shareholders Agreement in order for the Trustee to vote the Stock
in favor of the Merger and the other agreements and transactions contemplated
thereby. The Trustee hereby agrees that he will not voluntarily take any action
or fail to take any action which could result in (i) the release of any shares
of Stock from the Shareholders Agreement, or (ii) the termination or amendment
of the
<PAGE>
Shareholders Agreement with respect to some or all of the Stock prior to
the Meeting or any adjournment thereof in a manner that would prevent the Stock
from being voted for the Merger Agreement as set forth herein. This Agreement
shall not be affected by any resignation or removal of the Trustee after the
date hereof, or by any amendment or termination of the Shareholders Agreement.
2. In order better to effect the provisions of Section 1, the
Trustee 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 the
Stock 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 the Trustee does not vote
in favor of the authorization and approval of the Merger Agreement and the other
agreements and transactions contemplated thereby; provided, however, that this
proxy shall not apply with respect to any vote on the Merger Agreement, and the
other agreements and transactions contemplated thereby, if the Merger Agreement
shall have been modified so as to reduce the amount of consideration to be
received by the shareholders of the Company under the Merger Agreement in its
present form.
3. This proxy shall be limited strictly to the power to vote the
Stock in the manner set forth in Section 2 and shall not extend to any other
matters.
4. The Trustee acknowledges 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 Trustee and
the Company acknowledge that the performance of this Agreement is intended to
benefit Compass.
5. 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 first
business day after the Meeting or any adjournment thereof. 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 of the Company upon consummation of
the Merger.
2
<PAGE>
6. The vote of the Proxy Holder shall control in any conflict
between its vote of the Shares and a vote by the Trustee of the Shares and the
Company agrees to recognize the vote of the Proxy Holder instead of the vote of
the Trustee in the event the Trustee does not vote in favor of the approval of
the Merger Agreement as set forth in Section 1 hereof.
7. This Agreement may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by the Company, Compass and the Trustee.
8. 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.
9. 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.
10. 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.
11. 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.
CENTRAL TEXAS BANCORP, INC.
By:________________________________
Name:______________________________
Title:_____________________________
Address:
900 Washington Avenue
Waco, Texas 76701-1255
Attention: F. Herman Coleman
Chairman and Chief
Executive Officer
COMPASS BANCSHARES, INC.
By: _______________________________
Name: _____________________________
Title: ____________________________
Address:
15 South 20th Street
Birmingham, Alabama 35233
Attention: Mr. Daniel B. Graves
Associate General Counsel
4
<PAGE>
TRUSTEE:
___________________________________
F. Herman Coleman
Address: 900 Washington Avenue
Waco, Texas 76701-1255
____________ 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. The
Bank is a national banking association, duly organized, validly existing and
holds a valid certificate to transact the business of banking under the laws of
the United States of America. Each of the Company and the Bank has all requisite
corporate power and authority to carry on its business as we know it to be
conducted and to own, lease and operate its properties and assets as now owned,
leased or operated. Each of the Company and the Bank is authorized to do
business and in good standing in Texas;
(ii) the Company has all requisite corporate 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 corporate acts and other corporate
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
500,000 shares of Company Common Stock (as defined in the Agreement) of which
400,000 shares are issued and outstanding (none of which are held in the
treasury) and 500,000 shares of Undesignated Preferred Stock, none of which are
outstanding; the Company is the record holder of all of the issued and
outstanding capital stock of the Bank; all of the outstanding shares of the
Company Common Stock are validly issued, fully paid and nonassessable and all of
the capital stock of the Bank is validly fully paid and, except as provided in
the National Bank Act and the Federal Deposit Insurance Act, 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 in the
Schedules to the Agreement, there are no outstanding subscriptions, options,
rights, warrants, calls, convertible
<PAGE>
securities, irrevocable proxies, or other agreements or commitments to which the
Company or the Bank is a party obligating the Company or the Bank to issue any
shares of, restricting the transfer of, or otherwise relating to shares of their
respective capital stock of any class;
(v) the execution and delivery by the Company of the Agreement does
not and the consummation of the transactions contemplated thereby will not
contravene or violate any provision of or constitute a default, the violation of
which could have material adverse effect taken as a whole, under (a) the
articles of incorporation or association or bylaws of the Company or the Bank,
(b) to the best of our knowledge and except as disclosed in the Agreement and
Schedules, 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 the Bank is a party or by which
the Company or the Bank or any of their respective assets or properties is
bound, and (c) to the best of our knowledge and except as disclosed in the
Agreement and Schedules, any law, regulation, rule, administrative regulation or
decree of any court or any governmental agency or body whether domestic or
foreign applicable to the Company or the Bank, or their respective assets or
properties;
(vi) except as disclosed in the Agreement and Schedules 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 the Schedules to the Agreement, to the best
of our knowledge, neither the Company nor the Bank is a party to any material
Proceeding (as defined in the Agreement), nor to the best of our knowledge, is
any Proceeding threatened against or affecting the Company or the Bank, which by
the terms of the Agreement would be required to be set forth in the Schedules;
and
(viii) to the best of our knowledge and except as set forth in the
Schedules to the Agreement, neither the Company nor the Bank is in material
default under any law or regulation, or under any order of any court,
commission, board, bureau, agency or instrumentality wherever located.
Notwithstanding anything contained herein to the contrary, no opinion is
expressed with regard to the enforceability of Section 10.1(c) of the Agreement
or any other provision of the Agreement to the extent such other provision may
be affected by the enforceability of Section 10.1(c).
-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 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
Compass and Compass Texas (or either of them) to execute and deliver the
Agreement and the Other Agreements and to consummate the transactions
contemplated therein have been duly and validly taken; and the Agreement and the
Other Agreements have been duly executed and delivered by, and constitute the
valid and binding obligation of each of Compass and Compass Texas enforceable
against Compass and Compass Texas 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 shares of Compass Common Stock to be issued pursuant to the
Agreement are authorized under the Certificate of Incorporation of Compass,
validly issued, fully paid and nonassessable and will not be issued in violation
of the preemptive rights of any person; 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 and are not subject to any agreements or understandings
among any other parties with respect to the voting or transfer of such shares;
(iv) the execution and delivery by Compass and 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
<PAGE>
agreement or understanding, permit, authorization or contract, order,
arbitration award, judgment of decree, or any other restriction of any kind
known to us to which Compass or Compass Texas is a party or by which Compass or
Compass Texas or any of their assets or properties is bound, the breach or
violation of which could have a material adverse effect on Compass and its
Subsidiaries taken as a whole, and (c) to the best of our knowledge and except
as disclosed in the Agreement, any law, regulation, rule, administrative
regulation or decree of any court or any governmental agency or body applicable
to Compass or Compass Texas or their respective assets or properties;
(v) except as disclosed in the Agreement and except for such consents,
approvals, authorizations, actions or filings as have already been obtained, no
consent, approval, authorization, action or filing with any court, governmental
agency or public body is required in connection with the execution, delivery and
performance by Compass and Compass Texas of the Agreement;
(vi) to the best of our knowledge, neither Compass nor Compass Texas is
in violation of or default under the respective Certificates of Incorporation or
Bylaws of Compass or Compass Texas or any agreement, document or instrument
under which Compass or Compass Texas is obligated or bound, or any law, order,
judgment, or regulation applicable to Compass or Compass Texas or any of their
Subsidiaries, the violation of which could have a material adverse effect on
Compass and its Subsidiaries taken as a whole; and
(vii) the shares of Compass Common Stock to be issued pursuant to the
Agreement have been registered under the Securities Act of 1933, as amended.
-2-
<PAGE>
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 Central
Texas Bancorp, Inc. (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 ___________, 1997
("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 ____________, 1997.
_____________________________________
By:__________________________________
Its:________________________________
<PAGE>
EXHIBIT H
___________, 1997
Compass Bancshares, Inc.
15 South 20th Street
Birmingham, Alabama 35233
Shareholders of Central Texas Bancorp, Inc.
c/o Central Texas Bancorp, Inc.
900 Washington Avenue
Waco, Texas 76701-1255
Gentlemen:
You have requested our opinion as to the likely federal income tax
consequences of the proposed merger (the "Merger") of Central Texas Bancorp,
Inc. (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 and the Texas National Bank of Waco ("Bank"),
and after the Merger, Compass or its subsidiaries will continue to
hold such assets to carry on the historic businesses of the Company
and the Bank.
(b) Each shareholder and entity participating in the Merger will pay
its own expenses incurred in connection with the Merger.
(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.
<PAGE>
Compass Bancshares, Inc.
Shareholders of Central Texas Bancorp, Inc.
_____________, 1997
Page 2
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 redeemed subject to the provisions and limitations of Section 302 of
the Code and considering the application of Section 318 of the Code.
<PAGE>
Compass Bancshares, Inc.
Shareholders of Central Texas Bancorp, Inc.
_____________, 1997
Page 3
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
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is made and entered into as of __________, 1997, effective
as of the date set forth hereinafter, by and between Compass Texas Management,
Inc., a Texas corporation ("Compass"), and F. Herman Coleman ("Employee").
WHEREAS, Employee has been an employee of Central Texas Bancorp, Inc. and
Texas National Bank of Waco (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 ______________, 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 McLennan County,
Texas areas; (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 two years thereafter ("Term"), Compass agrees to employ Employee and
Employee agrees to act as a senior officer 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 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. Employee shall provide such
<PAGE>
services to Compass and the Bank in McLennan County, Texas. 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, including Employee's service to:
(a) Center for Occupational Research and Development as a member of the
Board of Directors;
(b) Waco Industrial Foundation as a member of the Board of Directors;
(c) Huaco Industrial Foundation as the President and member of the Board
of Directors; and
(d) Various family owned and controlled corporations as an officer and
member of the Board of Directors.
During the Term, Employee will not serve as an officer or director of any
business enterprise (other than the Bank or with respect to the entities listed
above) 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 $175,000 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. Employee shall also be entitled to participate, up
to 40% of Employee's base annual salary, in the Compass Bancshares, Inc.
executive incentive program. Compass shall also continue to furnish to Employee
the automobile currently furnished to Employee by the Company.
(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
-2-
<PAGE>
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. 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.
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 year after Employee's employment with
Compass or the Bank is terminated for
-3-
<PAGE>
any reason, 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 McLennan County, Texas, 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 McLennan County,
Texas, 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.
(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
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<PAGE>
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:
F. Herman Coleman
P.O. Box 2299
Waco, Texas 76703
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
-5-
<PAGE>
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.
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: ____________________________
___________________________________
F. Herman Coleman
-6-
<PAGE>
EXHIBIT J
RELEASE OF CLAIMS
THIS RELEASE OF CLAIMS ("Release") dated the __ day of ______, 1997, is
executed and delivered by the person executing below to Central Texas Bancorp,
Inc., a Texas corporation (the "Company"), and The Texas National Bank of Waco,
a national bank (the "Bank").
WHEREAS, Compass Bancshares, Inc. ("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 (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, including the
Bank ("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; (iii) as to rights of
indemnification pursuant to the Articles of Incorporation or Association or
Bylaws of the Company and its Subsidiaries; and (iv) reflected on Exhibit B
hereto.
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.
<PAGE>
Section 3. Governing Law. This Release shall be governed by and construed
in accordance with the laws of the State of Texas, without giving effect to
Texas principles of conflicts of law.
Section 4. Counterparts. This Release may be executed in several
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one and the same instrument.
Section 5. Modification. This Release may be modified 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 MCLENNAN (S)
This instrument was acknowledged before me on ________, 1997 by
____________________.
______________________________
Notary Public in and for the
State of Texas
______________________________
Notary's Name Typed or Printed
My Commission Expires: ______________________
2
<PAGE>
EXHIBIT K
RELEASE OF CLAIMS
THIS RELEASE OF CLAIMS ("Release") dated the ___ day of ____, 1997, is
executed and delivered by Central Texas Bancorp, Inc., a Texas corporation (the
"Company"), The Texas National Bank of Waco, a national bank and
___________________, a _______________ 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.
Section 2. Successors. This Release shall be binding upon the Company,
and the Subsidiaries and their respective successors
<PAGE>
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.
CENTRAL TEXAS BANCORP, INC.
By: ______________________________
Name: ____________________________
Title: ___________________________
THE TEXAS NATIONAL BANK OF WACO
By: ______________________________
Name: ____________________________
Title: ___________________________
[_________________________________]
By: ______________________________
Name: ____________________________
Title: ___________________________
2
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF MCLENNAN (S)
This instrument was acknowledged before me on ________, 1997 by
____________________, the ______________ of Central Texas Bancorp, Inc.
___________________________________
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 MCLENNAN (S)
This instrument was acknowledged before me on ______, 1997 by
___________________, the __________________ of The Texas National Bank of Waco,
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 ________ (S)
This instrument was acknowledged before me on ________, 199_ by
____________________, the ______________ of ___________________.
___________________________________
Notary Public in and for the
State of Texas
___________________________________
Notary's Name Typed or Printed
My Commission Expires: ____________
4
<PAGE>
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
-----------------------------------------------
This First Amendment to Agreement and Plan of Merger (this "Amendment")
dated as of April 28, 1997 is entered into by and among Compass Bancshares, Inc.
("Compass"), Compass Texas Acquisition Corp. ("CTAC") and Central Texas Bancorp,
Inc. (the "Company").
WHEREAS, Compass and the Company entered into an Agreement and Plan of
Merger dated as of March 14, 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, CTAC 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 CTAC a party
thereto; and
WHEREAS, the parties also desire to clarify Section 1.6(b) of the Merger
Agreement relating to adjustments for certain activities of Compass with regard
to shares of its outstanding common stock;
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, CTAC shall become a party to
the Merger Agreement, shall be deemed to be Compass Texas as defined in the
Merger Agreement, and shall succeed to the rights and become subject to the
obligations of Compass Texas as provided in the Merger Agreement.
3. The last sentence of Section 1.6(b) of the Merger Agreement is
hereby amended in its entirety to read as follows:
The aggregate number of shares of Compass Common Stock to be
exchanged for each Share and the $34.00 figure referenced above,
respectively, shall be adjusted appropriately to reflect any
stock dividends or splits, reclassification, recapitalization or
conversion with respect to Compass
<PAGE>
Common Stock, when the record date or payment occurs prior to the
Effective Time.
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.
[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 Chief Financial Officer
ATTEST: COMPASS TEXAS ACQUISITION CORP.
By: /s/ - Daniel B. Graves By: /s/ - Garrett R. Hegel
--------------------------------- ----------------------------------
Its Assistant Secretary Its Vice President and Treasurer
ATTEST: CENTRAL TEXAS BANCORP, INC.
By: /s/ - Rodney G. Kroll By: /s/ - F. Herman Coleman
--------------------------------- ----------------------------------
Its President Its Chairman
3
<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 requiring the special
authorization of the shareholders as provided by this Act;
(3) Any plan of exchange pursuant to Article 5.02 of this Act in which
the shares of the corporation of the class or series held by the shareholder are
to be acquired.
B. Notwithstanding the provisions of Section A of this Article, a
shareholder shall not have the right to dissent from any plan of merger in which
there is a single surviving or new domestic or foreign corporation, or from any
plan of exchange, if (1) the shares held by the shareholder are part of a class
shares of which are listed on a national securities exchange, or are held of
record by not less than 2,000 holders, on the record date fixed to determine the
shareholders entitled to vote on the plan of merger or the plan of exchange, and
(2) the shareholder is not required by the terms of the plan of merger or the
plan of exchange to accept for his shares any consideration other than (a)
shares of a corporation that, immediately after the effective time of the merger
or exchange, will be part of a class or series of shares of which are (i)
listed, or authorized for listing upon official notice of issuance, on a
national securities exchange, or (ii) held of record by not less than 2,000
holders, and (b) cash in lieu of fractional shares otherwise entitled to be
received.
ART. 5.12. PROCEDURE FOR DISSENT BY SHAREHOLDERS AS TO SAID CORPORATE ACTIONS
A. Any shareholder of any domestic corporation who has the right to
dissent from any of the corporate actions referred to in Article 5.11 of this
Act may exercise that right to dissent only by complying with the following
procedures:
(1) (a) With respect to proposed corporate action that is submitted to a
vote of shareholders at a meeting, the shareholder shall file with the
corporation, prior to the meeting, a written objection to the action, setting
out that the shareholder's right to dissent will be exercised if the action is
effective and giving the shareholder's address, to which notice thereof shall be
delivered or mailed in that event. If the action is effected and the
shareholder shall not have voted in favor of the action, the corporation, in the
case of action other than a merger, or the surviving or new corporation (foreign
or domestic) or other entity that is liable to discharge the shareholder's right
of dissent, in the case of a merger, shall, within ten (10) days after the
action is effected, deliver or mail to the shareholder written notice that the
action has been effected, and the shareholder may, within ten (10) days from the
delivery or mailing of the notice, make written demand on the existing,
surviving, or new corporation (foreign or domestic) or other entity, as the case
may be, for payment of the fair value of the shareholder's shares. The fair
value of the shares shall be the value thereof as of the day immediately
preceding the meeting, excluding any appreciation or depreciation in
anticipation of the proposed action. The demand shall state the number and
class of the shares owned by the
Appendix II
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<PAGE>
shareholder and the fair value of the shares as estimated by the shareholder.
Any shareholder failing to make demand within the ten (10) day period shall be
bound by the action.
(b) With respect to proposed corporate action that is approved
pursuant to Section A of Article 9.10 of this Act, the corporation, in the case
of action other than a merger, and the surviving or new corporation (foreign or
domestic) or other entity that is liable to discharge the shareholder's right of
dissent, in the case of a merger, shall, within ten (10) days after the date the
action is effected, mail to each shareholder of record as of the effective date
of the action notice of the fact and date of the action and that the shareholder
may exercise the shareholder's right to dissent from the action. The notice
shall be accompanied by a copy of this Article and any articles or documents
filed by the corporation with the Secretary of State to effect the action. If
the shareholder shall not have consented to the taking of the action, the
shareholder may, within twenty (20) days after the mailing of the notice, make
written demand on the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, for payment of the fair value of
the shareholder's shares. The fair value of the shares shall be the value
thereof as of the date the written consent authorizing the action was delivered
to the corporation pursuant to Section A of Article 9.10 of this Act, excluding
any appreciation or depreciation in anticipation of the action. The demand
shall state the number and class of shares owned by the dissenting shareholder
and the fair value of the shares as estimated by the shareholder. Any
shareholder failing to make demand within the twenty (20) day period shall be
bound by the action.
(2) Within twenty (20) days after receipt by the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, of a
demand for payment made by a dissenting shareholder in accordance with
Subsection (1) of this Section, the corporation (foreign or domestic) or other
entity shall deliver or mail to the shareholder a written notice that shall
either set out that the corporation (foreign or domestic) or other entity
accepts the amount claimed in the demand and agrees to pay that amount within
ninety (90) days after the date on which the action was effected, and, in the
case of shares represented by certificates, upon the surrender of the
certificates duly endorsed, or shall contain an estimate by the corporation
(foreign or domestic) or other entity of the fair value of the shares, together
with an offer to pay the amount of that estimate within ninety (90) days after
the date on which the action was effected, upon receipt of notice within sixty
(60) days after that date from the shareholder that the shareholder agrees to
accept that amount and, in the case of shares represented by certificates, upon
the surrender of the certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the corporate action
was effected, the value of the shares is agreed upon between the shareholder and
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, payment for the shares shall be made within ninety
(90) days after the date on which the action was effected and, in the case of
shares represented by certificates, upon surrender of the certificates duly
endorsed. Upon payment of the agreed value, the shareholder shall cease to have
any interest in the shares or in the corporation.
B. If, within the period of sixty (60) days after the date on which the
corporate action was effected, the shareholder and the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, do
not so agree, then the shareholder or the corporation (foreign or domestic) or
other entity may, within sixty (60) days after the expiration of the sixty (60)
day period, file a petition in any court of competent jurisdiction in the county
in which the principal office of the domestic corporation is located, asking for
a finding and determination of the fair value of the shareholder's shares. Upon
the filing of any such petition by the shareholder, service of a copy thereof
shall be made upon the corporation (foreign or domestic) or other entity, which
shall, within ten (10) days after service, file in the office of the clerk of
the court in which the petition was filed a list containing the names and
addresses of all shareholders of the domestic corporation who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the corporation (foreign or domestic) or other
entity. If the petition shall be filed by the corporation (foreign or domestic)
or other entity, the petition shall be 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
Appendix II
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<PAGE>
the list at the addresses therein stated. The forms of the notices by mail shall
be approved by the court. All shareholders thus notified and the corporation
(foreign or domestic) or other entity shall thereafter be bound by the final
judgment of the court.
C. After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
appoint one or more qualified appraisers to determine that value. The
appraisers shall have power to examine any of the books and records of the
corporation the shares of which they are charged with the duty of valuing, and
they shall make a determination of the fair value of the shares upon such
investigation as to them may seem proper. The appraisers shall also afford a
reasonable opportunity to the parties interested to submit to them pertinent
evidence as to the value of the shares. The appraisers shall also have such
power and authority as may be conferred on Masters in Chancery by the Rules of
Civil Procedure or by the order of their appointment.
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
judgment determine the fair value of the shares of the shareholders entitled to
payment for their shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic) or other entity,
together with interest thereon, beginning 91 days after the date on which the
applicable corporate action from which the shareholder elected to dissent was
effected to the date of such judgment, to the shareholders entitled to payment.
The judgment shall be payable to the holders of uncertificated shares
immediately but to the holders of shares represented by certificates only upon,
and simultaneously with, the surrender to the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, of duly
endorsed certificates for those shares. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in those shares or in
the corporation. The court shall allow the appraisers a reasonable fee as court
costs, and all court costs shall be allotted between the parties in the manner
that the court determines to be fair and equitable.
E. Shares acquired by the existing, surviving, or new corporation
(foreign or domestic) or other entity, as the case may be, pursuant to the
payment of the agreed value of the shares or pursuant to payment of the judgment
entered for the value of the shares, as in this Article provided, shall, in the
case of a merger, be treated as provided in the plan of merger and, in all other
cases, may be held and disposed of by the corporation as in the case of other
treasury shares.
F. The provisions of this Article shall not apply to a merger if, on the
date of the filing of the articles of a merger, the surviving corporation is the
owner of all the outstanding shares of the other corporations, domestic or
foreign, that are parties to the merger.
G. In the absence of fraud in the transaction, the remedy provided by
this Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the value
of his shares or money damages to the shareholder with respect to the action.
If the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, complies with the requirements of this Article, any
shareholder who fails to comply with the requirements of this Article shall not
be entitled to bring suit for the recovery of the value of his shares or money
damages to the shareholder with respect to the action.
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
Appendix II
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<PAGE>
for which payment has been demanded shall not thereafter be considered
outstanding for the purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder,
the corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholder's rights under Articles
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made shall be transferred, any new certificate issued
therefor shall bear similar notation together with the name of the original
dissenting holder of such shares and a transferee of such shares shall acquire
by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making demand for payment of the fair
value thereof.
C. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act may withdraw such demand at any
time before payment for his shares or before any petition has been filed
pursuant to Article 5.12 or 5.16 of this Act asking for a finding and
determination of the fair value of such shares, but no such demand may be
withdrawn after such payment has been made or, unless the corporation shall
consent thereto, after any such petition has been filed. If, however, such
demand shall be withdrawn as hereinbefore provided, or if pursuant to Section B
of this Article the corporation shall terminate the shareholder's rights under
Article 5.12 or 5.16 of this Act, as the case may be, or if no petition asking
for a finding and determination of fair value of such shares by a court shall
have been filed within the time provided in Article 5.12 or 5.16 of this Act, as
the case may be, or if after the hearing of a petition filed pursuant to Article
5.12 or 5.16, the court shall determine that such shareholder is not entitled to
the relief provided by those articles, then, in any such case, such shareholder
and all persons claiming under him shall be conclusively presumed to have
approved and ratified the corporate action from which he dissented and shall be
bound thereby, the right of such shareholder to be paid the fair value of his
shares shall cease, and his status as a shareholder shall be restored without
prejudice to any corporate proceedings which may have been taken during the
interim, and such shareholder shall be entitled to receive any dividends or
other distributions made to shareholders in the interim.
Appendix II
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APPENDIX III
[LETTERHEAD OF THE BANK ADVISORY GROUP, INC.]
May 12, 1997
Board of Directors
Central Texas Bancorp, Inc.
Waco, Texas
Gentlemen:
You have requested that The Bank Advisory Group, Inc. act as an independent
financial analyst and advisor to the common shareholders of Central Texas
Bancorp, Inc., a Texas corporation ("Central Texas"), and its wholly-owned bank
subsidiary, The Texas National Bank of Waco ("TNB"). Specifically, we have been
asked to render advice and analysis in connection with the proposed merger (the
"Merger") of Central Texas with and into Compass Banks of Texas, Inc., a wholly-
owned subsidiary of Compass Bancshares, Inc., Birmingham, Alabama ("Compass").
In our role as an independent financial analyst, you have requested our opinion
with regard to the fairness -- from the perspective of the common shareholders
of Central Texas -- of the financial terms of the proposed merger pursuant to
the provisions of the Agreement and Plan of Merger (the "Agreement") dated March
14, 1997.
In conjunction with our review of the Agreement, our understanding is that
Compass proposes to consummate the Merger pursuant to the following financial
terms:
. Holders of Central Texas common stock at the effective time of the
Merger (the "Effective Time"), other than the shares any holders who
have duly exercised and perfected their dissenters' rights, shall
receive for each share of Central Texas common stock a number of shares
of Compass common stock equal to (i) the quotient of 1,025,000 shares of
Compass common stock divided by (ii) the number of shares of Central
Texas common stock outstanding immediately prior to the Effective Time.
. In the event the average closing sale price of Compass common stock as
reported by the NASDAQ National Market System for the five (5) days of
trading preceding the fifth business day prior to the Effective Time
(the "Share Determination Market Value") is less than $34.00 per share,
Central Texas may terminate the Agreement unless Compass were to elect
to increase the aggregate number of shares of Compass common stock to be
issued in excess of 1,025,000 shares in accordance with the formula set
forth in the Agreement.
. No fractional shares of Compass common stock will be issued and, in lieu
thereof, holders of shares of Central Texas common stock who would
otherwise be entitled to a fractional share interest will be paid an
amount in cash. Such cash payment shall be based on the Share
Determination Market Value.
. The aggregate number of shares of Compass common stock to be exchanged
for each share of Central Texas common stock shall be adjusted
appropriately to reflect any stock dividends or splits with respect to
Compass common stock when the record date of the stock dividend or split
occurs prior to the Effective Time. Given that Compass has declared a
three-for-two stock split to shareholders of record as of March 17,
1997, such action dictates that the aggregate number of shares of
Compass common stock to be issued in connection with the Merger will be
adjusted upward from 1,025,000 to 1,537,500; and, the $34 per share
"floor" for the Share Determination Market Value shall be adjusted
downward accordingly to reflect the three-for-two stock split.
<PAGE>
Board of Directors
Central Texas Bancorp, Inc.
May 12, 1997
Page 2
The Bank Advisory Group, Inc., as part of its line of professional services,
specializes in rendering valuation opinions of banks and bank holding companies
in connection with mergers and acquisitions nationwide. Prior to our retention
for this assignment, The Bank Advisory Group provided financial advisory
services to Central Texas and TNB; however, the revenues derived from the
delivery of such services are insignificant when compared to The Bank Advisory
Group's total gross revenues. The Bank Advisory Group has not provided any
services to Compass Bancshares, Inc.
In connection with this opinion and with respect to CENTRAL TEXAS we have
reviewed, among other things:
1. Audited consolidated financial statements for Central Texas for the years
ended December 31, 1996, 1995, and 1994;
2. Consolidated financial statements for Central Texas, on form F.R. Y-9C, for
the years ended December 31, 1996, 1995, and 1994, as filed with the
Federal Reserve System;
3. Parent company only financial statements for Central Texas, on form F.R. Y-
9LP, for the years ended December 31, 1996, 1995, and 1994, as filed with
the Federal Reserve System;
4. Reports of Condition and Income for TNB for the years ended December 31,
1996, 1995, and 1994, as filed with Federal bank regulatory agencies;
5. The economy in general and, in particular, the local economies in which TNB
operates;
6. Certain internal financial analyses and forecasts for TNB prepared by the
management of TNB, including projections of future performance;
7. Certain other summary materials and analyses with respect to TNB's loan
portfolio, securities portfolio, deposit base, fixed assets, and operations
including, but not limited to: (i) schedules of loans and other assets
identified by management as deserving special attention or monitoring given
the characteristics of the loan/asset and the local economy, (ii) analyses
concerning the adequacy of the loan loss reserve, (iii) schedules of "other
real estate owned," including current carrying values and recent
appraisals, and (iv) schedules of securities, detailing book values, market
values, and lengths to maturity; and,
8. Such other information -- including financial studies, analyses,
investigations, and economic and market criteria -- that we deem relevant
to this assignment.
In connection with this opinion and with respect to COMPASS, we have reviewed,
among other things:
1. Audited consolidated financial statements for Compass, in Annual Report
Form and Form 10-K, for the years ended December 31, 1996, 1995 and 1994;
2. Quarterly financial statements for Compass, in both "press release" and
quarterly report format, for the 1996 and 1995 calendar quarters;
3. Consolidated financial statements for Compass, on form F.R. Y-9C, for the
years ended 1996, 1995, and 1994, as filed with the Federal Reserve System;
<PAGE>
Board of Directors
Central Texas Bancorp, Inc.
May 12, 1997
Page 3
4. Press Release from Compass, dated February 18, 1997, announcing the
declaration of a three-for-two stock split to Compass shareholders of
record as of March 17, 1997;
5. Equity research reports regarding Compass prepared by various analysts
who cover the financial institutions sector;
6. The condition of the commercial banking industry, as indicated in
financial reports filed with various Federal bank regulatory authorities
by all federally-insured commercial banks;
7. The economy in general and, in particular, the major trade areas in
which Compass and its subsidiaries operate; and
8. Such other information -- including financial studies, analyses,
investigations, and economic and market criteria -- that we deem
relevant to this assignment.
In connection with this opinion and with respect to the proposed Merger, we have
reviewed, among other things:
1. The Agreement, and any amendments thereto, that sets forth, among other
items, the terms, conditions to closing, pending litigation against both
Central Texas and Compass, and representations and warranties of Central
Texas and Compass with respect to the proposed Merger;
2. The Proxy Statement-Prospectus, to which this opinion is appended, that
is being furnished to the shareholders of Central Texas in connection
with the proposed Merger;
3. The financial terms and price levels for commercial banks with assets
between $100 million and $500 million recently acquired in the United
States -- and specifically in Texas -- together with the financial
performance and condition of such banks;
4. The financial terms and stated price levels of other Texas banking
organizations with assets below $500 million acquired by Compass with
Compass Common Stock, the announcement of which occurred subsequent to
January 1, 1995 and prior to the date of this Opinion, and for which the
transaction terms, including price, were disclosed;
5. The price-to-equity and price-to-earnings multiples of banking
organizations based in the United States that have publicly-traded
common stock, together with the financial performance and condition of
such banking organizations, compared with the price-to-equity and price-
to-earnings multiples for Compass common stock; and
6. Such other information -- including financial studies, analyses,
investigations, and economic and market criteria -- that we deem
relevant to this assignment.
Based on our experience, we believe our review of, among other things, the
aforementioned items provides a reasonable basis for our opinion, recognizing
that we are expressing an informed professional opinion--not a certification of
value.
<PAGE>
Board of Directors
Central Texas Bancorp, Inc.
May 12, 1997
Page 4
We have relied upon the information provided by the management of Central Texas
and Compass, or otherwise reviewed by us, as being complete and accurate in all
material respects. Furthermore, we have not verified through independent
inspection or examination the specific assets or liabilities of Central Texas
and Compass or their subsidiary banks. We have also assumed that there has been
no material change in the assets, financial condition, results of operations, or
business prospects of Central Texas and Compass since the date of the last
financial statements made available to us. We have met with the management of
Central Texas for the purpose of discussing the relevant information that has
been provided to us.
Based on all factors that we deem relevant and assuming the accuracy and
completeness of the information and data provided to us, we conclude that the
terms of the proposed Merger, as outlined herein, are fair, from a financial
standpoint, to the common shareholders of Central Texas Bancorp, Inc.
This opinion is available for disclosure to the shareholders of Central Texas.
Accordingly, we hereby consent to the inclusion of our opinion as an appendix to
the Proxy Statement/Prospectus relating to the proposed Merger, and to the
reference of our firm in the Proxy Statement/Prospectus.
Respectfully submitted,
THE BANK ADVISORY GROUP, INC.
By /s/ ROBERT L. WATTS
........................................
<PAGE>
PROXY CENTRAL TEXAS BANCORP, INC. PROXY
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
JUNE 19, 1997
The undersigned hereby appoints A. W. Bailey, Jr. and Donal S. Sharp, and
each of them, with or without the other, proxies, with full power of
substitution, to vote all shares of common stock that the undersigned is
entitled to vote at the Special Meeting of the Shareholders of Central Texas
Bancorp, Inc. to be held at the Texas Center, located at 9th and Washington,
Waco, Texas, on Thursday, June 19, 1997 at 3:00 p.m., Central time, and at all
adjournments thereof as follows:
(1) Approval, ratification, confirmation and adoption of the Agreement and
Plan of Merger, dated as of March 14, 1997, as amended, by and between
Compass Bancshares, Inc. and Central Texas Bancorp, Inc.
[ ] 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 May 12,
1997 is hereby acknowledged.
THIS PROXY IS SOLICITED BY THE CENTRAL TEXAS BANCORP, INC. BOARD OF
DIRECTORS.
PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE PROXY CARD USING THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
Please sign your name exactly as it appears below. Joint owners must each sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as it appears hereon. If held by a corporation, please sign in
full corporate name by the president or other authorized officer. If held by a
partnership, please sign in the partnership's name by an authorized partner or
officer.
Dated________________________________________, 1997
___________________________________________________
Signature
___________________________________________________
Signature, if held jointly, or office or title held
