<PAGE> 1
As filed with the Securities and Exchange Commission on November 3, 1999.
REGISTRATION NO. 333-_______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
COMPASS BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 6711 63-0593897
<S> <C> <C>
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
</TABLE>
15 SOUTH 20TH STREET
BIRMINGHAM, ALABAMA 35223
(205) 933-3000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
--------------------------
JERRY W. POWELL, ESQUIRE
GENERAL COUNSEL
COMPASS BANCSHARES, INC.
15 SOUTH 20TH STREET
BIRMINGHAM, ALABAMA 35233
(205) 933-3960
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
Approximate date of commencement of proposed sale to the public: As
soon as practicable following the effective date of this Registration Statement
--------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=============================== =================== ======================= ======================== =======================
Title of each class Amount to Proposed Proposed Amount of
of securities be maximum offering maximum aggregate registration
to be registered registered (1) price per share offering price (3) fee
- ------------------------------- ------------------- ----------------------- ------------------------ -----------------------
<S> <C> <C> <C> <C>
Common Stock, $2.00 par value 3,333,333 (2) $34,659,593 $9,636
=============================== =================== ======================= ======================== =======================
</TABLE>
(1) This amount is based upon the maximum number of shares anticipated to
be issued pursuant to an Agreement and Plan of Merger dated as of July
23, 1999 between the Registrant and Western Bancshares of Albuquerque,
Inc. The actual number of shares to be issued may vary depending on the
closing sales prices of Compass Bancshares, Inc. common stock over a
specified period.
(2) Not applicable.
(3) Computed in accordance with Rule 457(f) under the Securities Act of
1933, as amended, based on the book value as of October 29, 1999 of the
securities to be received by the Registrant in exchange for the
securities registered hereby.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
WESTERN BANCSHARES OF COMPASS BANCSHARES, INC.
ALBUQUERQUE, INC.
PROXY STATEMENT/PROSPECTUS
This Proxy Statement/Prospectus is being furnished to the holders of common
stock of Western Bancshares of Albuquerque, Inc., a New Mexico corporation
("Western Bancshares"), in connection with the solicitation of proxies by the
Board of Directors to be voted at the Special Meeting of shareholders of Western
Bancshares to be held at ________ local time, on ________ ____________, 1999 at
the corporate offices of Western Bancshares located at 505 Marquette N.W.,
Albuquerque, New Mexico 87102. At the Special Meeting, the holders of Western
Bancshares common stock will consider and vote upon the following proposals:
o the Agreement and Plan of Merger dated as of July 23, 1999, as
amended, by and among Compass Bancshares, Inc., a Delaware
corporation ("Compass"), Compass Western Acquisitions, Inc., a New
Mexico corporation and wholly owned subsidiary of Compass ("Merger
Sub"), and Western Bancshares, providing for, among other things, the
merger of Merger Sub with and into Western Bancshares and, in
connection therewith, the receipt by the holders of Western
Bancshares common stock of Compass common stock; and
o such other business as may properly come before the Special Meeting
or any adjournments thereof.
If the merger is completed, Compass will issue to Western Bancshares'
shareholders an aggregate number of shares of Compass common stock equal to
$80,000,000 divided by the average closing price of Compass common stock as
reported by the Nasdaq National Market System for the twenty days of trading
before the fifth trading day before the effective time of the merger. No matter
the average closing price, Compass will not issue less than 3,000,000 or more
than 3,333,333 shares of its common stock to Western Bancshares' shareholders.
If Compass enters into an agreement to be acquired, Compass will issue 3,333,333
shares of its common stock to Western Bancshares shareholders. For example, if
this average closing price is $25.00, Western Bancshares' shareholders will
receive an aggregate of 3.2 million shares of Compass common stock.
This Proxy Statement/Prospectus also is the prospectus of Compass with
respect to the shares of Compass common stock to be issued in connection with
the merger. Compass common stock is publicly traded in the over-the-counter
market and quoted on the Nasdaq National Market System under the symbol "CBSS."
No active public trading market exists for Western Bancshares common stock.
--------------------------------------
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 9.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS EITHER APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON
THE ACCURACY OR ADEQUACY OF THE DISCLOSURES IN THIS PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------------------------------
NOVEMBER ___, 1999
<PAGE> 3
PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
SUMMARY.............................................1
Parties to the Merger...........................1
The Meeting.....................................1
The Merger......................................2
Additional Agreements...........................5
SELECTED FINANCIAL DATA.............................6
MARKET PRICES.......................................8
RISK FACTORS........................................9
THE WESTERN BANCSHARES SPECIAL MEETING.............10
General........................................10
Matters to be Considered.......................10
Record Date; Shares Entitled to Vote; Quorum...10
Votes Required; Voting and Revocation of
Proxies, Effect of Abstention and
Non-Votes................................10
Solicitation of Proxies........................10
THE MERGER.........................................11
General........................................11
Background and Reasons for the Merger..........12
Financial Advisor Opinion......................13
Operations after the Merger....................16
Other Terms and Conditions.....................16
No Solicitation................................18
Additional Agreements..........................18
Business Pending Effective Time................19
Termination....................................19
Exchange of Shares.............................20
Dissenters' Rights.............................21
Federal Income Tax Consequences................22
Government Approvals...........................24
Accounting Treatment...........................24
SUPERVISION AND REGULATION.........................24
General........................................24
Compass........................................25
The Subsidiary Banks...........................26
Other..........................................27
DESCRIPTION OF COMPASS COMMON AND PREFERRED STOCK..27
Compass Common Stock...........................28
Dividends....................................28
Preemptive Rights............................28
Voting Rights................................28
Liquidation..................................29
Compass Preferred Stock........................29
Compass Series E Preferred Stock...............29
Dividends....................................29
Redemption...................................29
Ranking......................................29
Liquidation Preference.......................29
Conversion...................................29
Voting Rights................................29
Merger.......................................30
Compass Series F Preferred Stock...............30
Dividend.....................................30
Redemption...................................30
Ranking......................................30
Liquidation Preference.......................30
Conversion...................................30
Voting Rights................................31
COMPARISON OF RIGHTS OF............................31
Charter and Bylaw Provisions Affecting Compass
Stock....................................31
Certain Differences Between the Corporation
Laws of New Mexico and Delaware and
Corresponding Charter and Bylaw
Provisions...................................31
Merger.......................................32
Appraisal Rights.............................32
Special Meetings.............................33
Actions Without a Meeting....................33
Election of Directors........................33
Voting on Other Matters......................33
Preemptive Rights............................34
Dividends....................................34
Liquidation Rights...........................34
Limitation of Liability and Indemnification..35
Removal of Directors.........................35
Inspection of Books and Records..............35
Antitakeover Provisions......................36
RESALE OF COMPASS STOCK............................36
INFORMATION ABOUT COMPASS..........................36
Incorporation of Certain Documents by
Reference....................................36
Interests of Certain Persons...................36
INFORMATION ABOUT WESTERN BANCSHARES...............37
Services, Employees and Properties.............37
Competition....................................37
Legal Proceedings..............................38
Market Price and Dividends.....................38
Beneficial Ownership of Western Bancshares
Common Stock by Western Bancshares
Management and Principal Shareholders........38
Employee Stock Ownership Plan..................40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION......................................41
S-Corp Election in 1998........................43
Results of Operations..........................43
Net Income...................................41
Net Interest Income..........................42
Provision for Loan and Lease Losses..........47
Non-Interest Income..........................47
Non-Interest Expense.........................48
Provision for Income Taxes...................49
Liquidity and Capital Resources................50
Changes in Financial Condition.................50
Loan Portfolio...............................50
Investment Portfolio.........................53
Deposits.....................................57
Short-Term Borrowings..........................59
Return on Equity and Assets....................60
Year 2000 Issues...............................60
Market Risk....................................61
Asset Liability Management...................61
Gap Analysis.................................61
Credit Risk..................................63
AVAILABLE INFORMATION..............................63
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....63
RELATIONSHIPS WITH INDEPENDENT ACCOUNTANTS.........64
EXPERTS............................................64
LEGAL OPINION......................................64
INDEMNIFICATION....................................65
OTHER MATTERS......................................65
<PAGE> 4
SUMMARY
The following is a brief summary of information relating to the
Merger that is also contained in other sections of this Proxy
Statement/Prospectus. This summary does not describe all material information
relating to the Merger and is qualified by the more detailed information and
financial statements contained in other sections of this Proxy
Statement/Prospectus, including the Appendices and the documents referred to or
incorporated by reference in this Proxy Statement/Prospectus. You should
carefully read the entire Proxy Statement/Prospectus and the related documents.
PARTIES TO THE MERGER
COMPASS BANCSHARES, INC........... 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 in Alabama, Texas,
Florida and Arizona.
On June 30, 1999, Compass and its
subsidiaries had consolidated assets of
$17.7 billion, consolidated deposits of
$12.6 billion, and total shareholders'
equity of $1.2 billion. SEE "AVAILABLE
INFORMATION"; "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE" AND "SELECTED
FINANCIAL DATA."
In order to effectuate the proposed
transaction between Compass and Western
Bancshares, Compass formed Compass
Western Acquisitions, Inc., a New Mexico
corporation and wholly-owned subsidiary
of Compass ("Merger Sub").
Compass' principal executive offices are
located at 15 South 20th Street,
Birmingham, Alabama 35233, and its
telephone number is 205/933-3000.
WESTERN BANCSHARES OF ALBUQUERQUE,
INC.......................... Western Bancshares is a New Mexico
corporation which was organized in 1982.
It is a bank holding company registered
with the Federal Reserve under the BHC
Act. Western Bancshares is the parent of
Western Bank (the "Bank"), which was
chartered in 1970 as Western State Bank.
The Bank changed its name to Western
Bank in 1974. Substantially all of
Western Bancshares revenues are derived
from the Bank.
On June 30, 1999, Western Bancshares had
total assets of $281.8 million, total
deposits of $233.7 million, and total
shareholders' equity of $32.8 million.
SEE "SELECTED FINANCIAL DATA";
"INFORMATION ABOUT WESTERN BANCSHARES";
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF WESTERN BANCSHARES" AND
FINANCIAL STATEMENTS OF WESTERN
BANCSHARES.
Western Bancshares' principal executive
offices are located at 505 Marquette
N.W., Albuquerque, New Mexico 87102, and
its telephone number is 505/888-9000.
THE MEETING
TIME, DATE AND PLACE OF THE
SPECIAL MEETING.............. The Special Meeting of the shareholders
of Western Bancshares will be held
on ______, ____________, 1999, at ______
local time, at the corporate offices of
Western Bancshares located at 505
Marquette N.W., Albuquerque, New Mexico
87102. SEE "THE WESTERN BANCSHARES
SPECIAL MEETING."
1
<PAGE> 5
PURPOSE........................... The purpose of the Special Meeting is to
consider and vote upon the following
proposals:
(1) the Agreement and Plan of
Merger (the "Merger
Agreement") dated as of July
23, 1999, as amended, by and
among Compass, Merger Sub and
Western Bancshares, providing
for, among other things, the
merger ("Merger") of Merger
Sub with and into Western
Bancshares and, in connection
therewith, the receipt by
holders of Western Bancshares
common stock of shares of
Compass common stock; and
(2) such other business as may
properly come before the
Special Meeting or any
adjournments thereof.
VOTE REQUIRED..................... The favorable vote of the holders of a
majority of the outstanding shares of
Western Bancshares common stock is
required to approve the Merger and the
related Merger Agreement. No approval by
Compass stockholders is required to
approve the Merger. SEE "THE WESTERN
BANCSHARES SPECIAL MEETING."
RECORD DATE; SHARES ENTITLED TO
VOTE......................... Only holders of record of Western
Bancshares common stock at the close of
business on __________, 1999 are entitled
to notice of and to vote at the Special
Meeting. On the record date, there were
134,522 shares of Western Bancshares
common stock outstanding.
SECURITY OWNERSHIP OF
MANAGEMENT................... Certain directors and officers of Western
Bancshares and Western Bank owning or
otherwise controlling the right to vote
68,488.25 shares of Western Bancshares
common stock, which is approximately
50.9% of the total shares of Western
Bancshares common stock issued and
outstanding as of the record date, have
agreed to vote such shares in favor of
the Merger Agreement and the Merger.
Therefore, it is virtually assured that
the Merger Agreement and the Merger will
be approved and adopted at the Special
Meeting, regardless of the vote of the
other shareholders. SEE "SUMMARY--VOTE
REQUIRED"; "THE MERGER--ADDITIONAL
AGREEMENTS" And "INFORMATION ABOUT
WESTERN BANCSHARES--BENEFICIAL OWNERSHIP
OF WESTERn BANCSHARES COMMON STOCK BY
WESTERN BANCSHARES MANAGEMENT AND
PRINCIPAL SHAREHOLDERS."
THE MERGER
EFFECT OF THE MERGER.............. In the Merger, Merger Sub will merge with
and into Western Bancshares with Western
Bancshares continuing as the surviving
entity in the Merger (the "Surviving
Corporation"). The name of the Surviving
Corporation will be "Western Bancshares."
The officers and directors of Merger Sub
immediately prior to the effective time
of the Merger (the "Effective Time")
will be the officers and directors of the
Surviving Corporation. As a result of the
Merger, Western Bancshares shareholders
will receive Compass common stock and
Western Bancshares will become a
wholly-owned subsidiary of Compass . SEE
"THE MERGER--GENERAL."
2
<PAGE> 6
CONVERSION OF WESTERN
BANCSHARES STOCK............. If the Merger is completed, Compass will
issue to Western Bancshares' shareholders
an aggregate number of shares of Compass
common stock equal to $80,000,000
divided by the average closing price of
Compass common stock as reported by the
Nasdaq National Market System for the
twenty days of trading before the fifth
trading day before the Effective Time.
No matter the average closing price,
Compass will not issue less than
3,000,000 or more than 3,333,333 shares
of its common stock. If Compass enters
into an agreement to be acquired prior
to the effective time of the Merger,
Compass will issue 3,333,333 shares of
its common stock to Western Bancshares'
shareholders. For example, if this
average closing price is $25.00, Western
Bancshares' shareholders will receive an
aggregate of 3.2 million shares of
Compass common stock.
WESTERN BANCSHARES' REASONS
FOR THE MERGER............... Western Bancshares' Board of Directors
believes the Merger, among other things,
offers holders of Western Bancshares
common stock the opportunity to acquire
an equity interest in a larger, more
diversified financial institution, the
shares of which are more liquid and
which is not dependent primarily upon
the economic conditions in the state of
New Mexico, in a transaction that is
nontaxable for federal income tax
purposes. SEE "THE MERGER--BACKGROUND
AND REASONS FOR THE MERGER" AND
"--FEDERAL INCOME TAX CONSEQUENCES."
RECOMMENDATION OF THE BOARD
OF DIRECTORS OF WESTERN
BANCSHARES................... The Western Bancshares Board believes the
terms of the Merger are fair to and in
the best interests of Western Bancshares
and its shareholders and has unanimously
approved the Merger Agreement and the
Merger. THE WESTERN BANCSHARES BOARD
UNANIMOUSLY RECOMMENDS THAT THE HOLDERS
OF WESTERN BANCSHARES COMMON STOCK VOTE
FOR THE MERGER AGREEMENT AND THE MERGER.
SEE "THE MERGER--BACKGROUND AND REASONS
FOR THE MERGER."
OPINION OF FINANCIAL ADVISOR...... Western Bancshares has retained Hovde
Financial, Inc. ("Hovde") as its
financial advisor in connection with the
transactions contemplated by the Merger
Agreement and to evaluate the financial
terms of the Merger. Hovde has delivered
an opinion to the Western Bancshares
Board that, as of the date thereof, the
consideration to be received by the
Western Bancshares' shareholders in the
Merger is fair from a financial point of
view. A copy of the opinion of Hovde is
attached to this Proxy
Statement/Prospectus as Appendix III and
is incorporated by reference herein. SEE
"THE MERGER--OPINION OF WESTERN
BANCSHARES' FINANCIAL ADVISOR."
CONDITIONS TO THE MERGER.......... The obligations of Compass and Western
Bancshares to consummate the Merger are
subject to certain conditions, including,
but not limited to: (1) the approval by
the shareholders of Western Bancshares,
(2) the favorable opinion of counsel
to Compass that the Merger will qualify
as a tax-free reorganization, (3) the
favorable opinion of Compass' independent
auditors that the Merger will qualify
for "pooling-of-interests" accounting
treatment, (4) approval of applicable
regulatory authorities, and (5) other
conditions customary for transactions
similar to the Merger. SEE "THE
MERGER--OTHER TERMS AND CONDITIONS."
3
<PAGE> 7
REGULATORY MATTERS................ Consummation of the Merger is also
subject to, and conditioned upon,
receipt of required regulatory approvals
from the Federal Reserve under the BHC
Act, the Director of the Financial
Institutions Division of the Regulation
and Licensing Department of the State of
New Mexico ("State Director") and the
Alabama Superintendent of Banks (the
"Superintendent").
TERMINATION....................... The Merger Agreement may be terminated
under certain circumstances including:
(1) if the Boards of Directors of
Western Bancshares and Compass
mutually agree;
(2) by either Western Bancshares or
Compass if:
- the other party
breaches its
representations or
warranties under the
Merger Agreement and
that breach is not cured
within 10 days;
- the other party fails to
perform its covenants
under the Merger
Agreement; or
- the Merger is not
consummated by April 23,
2000 (except that such
right will not be
available to any party
that has breached the
obligation to consummate
the Merger and has not
cured such breach);
(3) by Compass if:
- Compass' environmental
inspections identify
certain environmental
liabilities or
conditions; or
- Compass' year 2000
investigation of Western
Bancshares and its
subsidiaries results in
adverse findings; or
(4) by Western Bancshares, if, at
any time during the two
business day period following
the fifth day prior to
closing, the value of
Compass' common stock falls
below established limits. SEE
"THE MERGER--TERMINATION."
ANTICIPATED ACCOUNTING
TREATMENT......................... The Merger is intended to qualify as a
"pooling-of-interests" for accounting
and financial reporting purposes. SEE
"THE MERGER--ACCOUNTING TREATMENT."
DISSENTERS' RIGHTS................ Under the provisions of the New Mexico
Business Corporation Act, holders of
Western Bancshares common stock will be
entitled to exercise dissenters' rights
with respect to the Merger. SEE "THE
MERGER--DISSENTERS' RIGHTS" AND APPENDIX
II.
FEDERAL INCOME TAX
CONSEQUENCES...................... As a condition to the consummation of the
Merger, Compass will receive an opinion
of its counsel to the effect that the
Merger will be treated for United States
federal income tax purposes as a
reorganization within the meaning of
Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code").
SEE "THE MERGER--FEDERAL INCOME TAX
CONSEQUENCES."
4
<PAGE> 8
ADDITIONAL AGREEMENTS
EMPLOYMENT AGREEMENTS............. William T. Fietz Employment Agreement
Compass Bank, a subsidiary of Compass
("Compass Bank") and William T. Fietz
entered into an employment agreement as
of July 23, 1999 pursuant to which Mr.
Fietz will serve as Chairman - Compass
Bank Albuquerque for a period of three
years commencing at the Effective Time.
Mr. Fietz shall receive an annual base
salary of $320,000 per year with merit
increases in accordance with Compass
Bank's salary administration program
based upon performance. In addition to
other benefits, Mr. Fietz will be
provided such benefits as are made
generally available to employees of
equal title and base salary on the same
basis as Compass Bank makes such
benefits available to other employees.
The agreement also contains
noncompetition and confidentiality
provisions.
Each of David E. Wintermute, Jason
Shaffer, John D. Stewart and W. Michael
Fietz entered into employment agreements
with Compass Bank executed as of July 23,
1999. The employment agreements are each
for a term of two years commencing at the
Effective Time and each contains
noncompetition and confidentiality
provisions.
POOLING TRANSFER RESTRICTIONS
AGREEMENTS................... The directors, executive officers and
certain principal shareholders of
Western Bancshares have entered into
Pooling Transfer Restrictions Agreements
with Compass and Western Bancshares
pursuant to which they have agreed,
among other things, (1) not to transfer
any of their respective shares of
Western Bancshares common stock within
30 days prior to the Effective Time, (2)
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 Western Bancshares 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 (3)
not otherwise to transfer such Compass
common stock except in compliance with
the applicable provisions of the
Securities Act of 1933, as amended, and
the Exchange Act of 1934, as amended,
and the respective rules and regulations
thereunder.
5
<PAGE> 9
SELECTED FINANCIAL DATA
The following table summarizes, where indicated, certain pro forma
financial data for Compass, giving effect to the acquisition of Western
Bancshares assuming that the Merger had been effective at the beginning of 1994.
The historical data of Western Bancshares as of and for the years ended December
31, 1998, 1997, 1996, 1995, and 1994 is derived from the audited financial
statements of Western Bancshares. The historical data of Compass as of and for
the years ended December 31, 1998, 1997, 1996, 1995, and 1994 is derived from
the audited financial statements of Compass. The historical data of Compass and
Western Bancshares as of and for the six months ended June 30, 1999, is derived
from the unaudited financial statements of Compass and Western Bancshares,
respectively. In the opinion of management of Compass and Western Bancshares,
all adjustments considered necessary for a fair presentation have been included
in the unaudited interim data. The pro forma income information is not
necessarily indicative of the results of operations had the proposed transaction
occurred at the beginning of 1994, 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 SIX MONTHS
ENDED AS OF AND FOR THE YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
----------------- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TOTAL ASSETS
Compass $17,731,328 $17,288,908 $14,900,748 $13,724,190 $12,374,866 $10,944,505
Western Bancshares 280,701 284,929 242,602 236,003 217,915 184,896
TOTAL DEPOSITS
Compass 12,610,602 12,013,446 10,907,162 10,933,002 9,592,063 8,665,378
Western Bancshares 230,584 236,660 203,831 205,265 189,505 159,762
LONG-TERM DEBT
Compass 2,338,890 2,045,980 1,430,253 734,012 623,192 516,822
Western Bancshares 800 800 1,700 2,200 3,400 4,350
TOTAL SHAREHOLDERS'
EQUITY
Compass 1,179,094 1,196,141 1,068,019 952,509 873,479 734,629
Western Bancshares 33,707 31,784 29,207 23,635 20,453 17,241
NET INTEREST INCOME
Compass 312,924 579,387 539,775 487,566 443,901 412,362
Western Bancshares 6,884 12,913 11,816 11,136 10,922 9,660
NET INCOME (LOSS) FROM
CONTINUING OPERATIONS
Compass 106,695 180,880 166,242 146,334 132,567 118,598
Western Bancshares 4,462 6,759 3,934 3,617 3,376 2,316
NET INCOME (LOSS)
PER COMMON SHARE FROM
CONTINUING OPERATIONS (1)
Compass
Historical (3) 0.93 1.60 1.48 1.32 1.20 1.08
Pro forma 0.94 1.62 1.48 1.31 1.20 1.07
Western Bancshares
Historical 33.17 50.25 30.85 28.94 27.01 18.53
Equivalent pro forma (2) 20.96 36.13 33.01 29.21 26.76 23.86
</TABLE>
6
<PAGE> 10
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
AS OF AND FOR
THE SIX MONTHS
ENDED AS OF AND FOR THE YEAR ENDED DECEMBER 31,
JUNE 30, ------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
---------------- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CASH DIVIDENDS PER
COMMON SHARE:
Compass
Historical (3) 0.40 0.70 0.63 0.57 0.50 0.41
Pro forma 0.41 0.72 0.62 0.56 0.49 0.40
Western Bancshares
Historical 16.46 33.96 5.00 2.50 2.00 1.50
Equivalent pro forma (2) 9.12 16.10 13.78 12.38 10.84 8.88
SHAREHOLDERS' EQUITY
(BOOK VALUE) PER COMMON
SHARE:
Compass
Historical (3) 10.28 10.30 9.37 8.37 7.68 6.60
Pro forma 10.30 10.31 9.37 8.36 7.66 6.58
Western Bancshares
Historical 250.57 236.27 217.45 189.08 163.62 137.93
Equivalent pro forma (2) 229.70 229.85 209.04 186.34 170.78 146.69
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING:
Compass
Historical (3) 113,269 111,295 110,163 108,908 109,402 109,005
Pro forma 116,269 114,295 113,163 111,908 112,402 112,005
Western Bancshares
Historical 135 135 128 125 125 125
NUMBER OF COMMON SHARES
OUTSTANDING AT END OF
PERIOD:
Compass
Historical 113,588 75,567 73,757 48,903 48,703 48,473
Pro forma 116,588 77,567 75,757 50,236 50,036 49,806
Western Bancshares
Historical 135 135 135 125 125 125
</TABLE>
- ---------------------
(1) Net income per common share from continuing operations represents basic
earnings per share.
(2) Western Bancshares' Equivalent Pro Forma per share amounts are computed
by multiplying Compass' Pro Forma amounts by the exchange ratio of
22.3012.
(3) For comparative purposes, data has been restated to reflect the Stock
Splits.
7
<PAGE> 11
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.
COMPASS COMMON STOCK
PERIOD HIGH LOW
------ ---- ---
1997
----
First Quarter 21 1/2 17 1/4
Second Quarter 24 7/8 19 1/2
Third Quarter 26 1/2 23
Fourth Quarter 31 1/8 24 3/4
1998
----
First Quarter 35 1/2 27 5/8
Second Quarter 33 1/4 28
Third Quarter 31 5/8 22
Fourth Quarter 26 1/4 19 1/4
1999
----
First Quarter 26 23
Second Quarter 30 1/2 23 5/8
Third Quarter 30 1/8 24 7/8
Fourth Quarter (through 27 1/2 24 7/8
October 29, 1999)
On July 23, 1999, the business day immediately preceding the
announcement of the execution of the Merger Agreement, the last reported sale
price for Compass common stock was $29 5/16. On October 29, 1999, the last
reported sale price for Compass common stock was $26 11/16. 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 Western Bancshares common
stock, which is traded infrequently in private transactions.
8
<PAGE> 12
RISK FACTORS
Western Bancshares' shareholders currently control Western Bancshares
through their ability to elect the Board of Directors of Western Bancshares and
vote on various matters affecting Western Bancshares. The Merger will transfer
control of Western Bancshares from Western Bancshares' shareholders to Compass.
As of the Effective Time, the shareholders of Western Bancshares will become
shareholders of Compass, a multi-bank holding company. As a result of the
Merger, the former shareholders of Western Bancshares will no longer have the
ability to control or influence the management policies of Western Bancshares'
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 WESTERN BANCSHARES--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, (its
"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. Western Bancshares' Articles of
Incorporation, as amended, (its "Articles") and Bylaws do not contain similar
restrictions, although under New Mexico law Western Bancshares' shareholders may
take action without a meeting only by unanimous written consent. SEE "COMPARISON
OF RIGHTS OF SHAREHOLDERS OF WESTERN BANCSHARES AND COMPASS--CHARTER AND BYLAW
PROVISIONS AFFECTING COMPASS 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 Western Bancshares to receive shares of Compass common stock
with an aggregate market value less than $80,000,000 at the Effective Time of
the Merger. However, in no event will the shareholders of Western Bancshares
receive less than 3,000,000 shares of Compass common stock.
SEE "SUPERVISION AND REGULATION" for a description of the regulatory
considerations relating to the ownership of Compass common stock.
9
<PAGE> 13
THE WESTERN BANCSHARES SPECIAL MEETING
GENERAL
Western Bancshares is sending you this Proxy Statement/Prospectus to
provide you with information concerning the Merger Agreement and the Merger and
to solicit your proxy for use at the Special Meeting to be held on __________,
1999 at the time and place set forth in the accompanying notice and at any
adjournments thereof.
MATTERS TO BE CONSIDERED
At the Special Meeting, the shareholders of Western Bancshares will
consider and vote upon a proposal to approve and adopt the Merger Agreement and
the Merger. THE WESTERN BANCSHARES BOARD HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND RECOMMENDS THAT HOLDERS
OF WESTERN BANCSHARES COMMON STOCK VOTE FOR THE MERGER AGREEMENT AND THE MERGER.
SEE "THE MERGER."
RECORD DATE; SHARES ENTITLED TO VOTE; QUORUM
The Western Bancshares Board of Directors has fixed the close of
business on ____________, 1999 as the record date ("Record Date") for
determining holders entitled to notice of and to vote at the Special Meeting. As
of the Record Date, there were 134,522 shares of Western Bancshares common
stock, par value $1.00 per share ("Western Bancshares Common Stock"), issued and
outstanding, each of which entitled its holder to one vote. The presence, either
in person or by proxy, of the holders of a majority of the issued and
outstanding shares of Western Bancshares Common Stock entitled to vote at the
Special Meeting is necessary to constitute a quorum for the transaction of
business at the Special Meeting.
VOTES REQUIRED; VOTING AND REVOCATION OF PROXIES, EFFECT OF ABSTENTION AND
NON-VOTES
Under New Mexico law, the affirmative vote of the holders of a majority
of the outstanding shares of Western Bancshares Common Stock is required for
approval of the Merger and the Merger Agreement. Any shareholder giving a proxy
has the right to revoke it at any time prior to the Special Meeting by signing
another proxy with a later date or giving notice of such revocation to the
Secretary at or prior to the meeting.
Votes cast by proxy or in person at the Special Meeting will be
tabulated by the election inspectors appointed for the meeting and will
determine whether or not a quorum is present. The election inspectors will treat
abstentions as shares that are present and entitled to vote for purposes of
determining the presence of a quorum but as unvoted for purposes of determining
the approval of any matter submitted to the shareholders for a vote. The failure
to submit a proxy or to vote at the Special Meeting will have the same effect as
a vote against the Merger and the Merger Agreement.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO THE SHAREHOLDERS OF WESTERN BANCSHARES. ACCORDINGLY, HOLDERS OF
WESTERN BANCSHARES COMMON STOCK ARE URGED TO READ AND CAREFULLY CONSIDER THE
INFORMATION PRESENTED IN THIS PROXY STATEMENT, AND TO COMPLETE, DATE, SIGN AND
PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
SOLICITATION OF PROXIES
Proxies will be solicited by mail, and may also be solicited
personally, by telephone, facsimile transmission or other means by the
directors, officers and employees of Western Bancshares, 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 material to the beneficial owners
of Western Bancshares Common Stock held of record by such persons, and Western
Bancshares may reimburse such custodians, nominees and fiduciaries for
reasonable out-of-pocket expenses that they incur in that regard. Expenses
incurred in connection with the Merger, including those attributable to the
solicitation of proxies, will be paid by the party to the Merger Agreement
incurring the expense.
10
<PAGE> 14
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 Western Bancshares are urged to read the Merger
Agreement in its entirety.
GENERAL
The Merger Agreement provides for the merger of Merger Sub with and
into Western Bancshares in accordance with the terms and conditions of the
Merger Agreement. Western Bancshares will be the surviving entity in the Merger
and the separate existence of Merger Sub will cease. After the Effective Time,
the officers and directors of Merger Sub will be the officers and directors of
the surviving entity. Compass intends that the Bank's personnel will remain
following the Merger. SEE "SUMMARY--CONDITIONS TO CONSUMMATION AND REGULATORY
APPROVALS"; "THE MERGER--OPERATIONS AFTER THE MERGER"; "THE MERGER--GOVERNMENT
APPROVALS"; AND APPENDIX I.
The Merger Agreement provides that each share of Western Bancshares
Common Stock, issued and outstanding immediately prior to the Effective Time,
other than dissenting shares, shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into and represent the
right to receive the consideration payable as set forth below ("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 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.
As Merger Consideration, Compass shall issue to the holders of the
shares an aggregate number of shares of the common stock of Compass, par value
$2.00 per share ("Compass Common Stock"), which is equal to $80,000,000 divided
by the average closing sale price of the Compass Common Stock as reported by the
Nasdaq National Market System for the twenty days of trading preceding the fifth
trading day prior to the Effective Time ("Share Determination Market Value"). In
the event the Share Determination Market Value would result in the number of
shares of Compass Common Stock to be issued to be less than 3,000,000, Compass
will issue to the holders of the shares of Western Bancshares Common Stock an
aggregate number of shares of Compass Common Stock equal to 3,000,000. In the
event that the Share Determination Market Value would result in the number of
shares of Compass Common Stock to be issued to be greater than 3,333,333,
Compass will issue to the holders of the shares of Western Bancshares Common
Stock an aggregate number of shares of Compass Common Stock equal to 3,333,333
to Western Bancshares' shareholders.
In the event Compass enters into a definitive written agreement to be
acquired (by merger or otherwise) prior to the Effective Time, Compass will
issue to the holders of the shares of Western Bancshares Common Stock an
aggregate number of shares of Compass Common Stock equal to 3,333,333.
Each share of capital stock of Merger Sub issued and outstanding
immediately before the Effective Time shall, by virtue of the Merger and without
any action on the part of the holders thereof, be converted into 134,522 shares
of common stock of the Surviving Corporation.
Assuming that there will be 134,522 shares of Western Bancshares Common
Stock issued and outstanding immediately prior to the Effective Time, a Share
Determination Market Value of $25.00 and the satisfaction of all conditions to
closing, each shareholder of Western Bancshares (except for shareholders
choosing to exercise their dissenters' rights) will be entitled to receive
approximately 23.8 shares of Compass Common Stock for each share of Western
Bancshares Common Stock held.
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.
11
<PAGE> 15
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 a
majority of the outstanding shares of Western Bancshares Common Stock entitled
to vote thereon. Certain directors and executive officers of Western Bancshares
and Western Bank (and certain of their spouses and related interests) owning or
otherwise controlling the right to vote 68,488.25 shares of Western Bancshares
Common Stock, comprising approximately 50.9% of the total shares of Western
Bancshares Common Stock issued and outstanding as of the Record Date, have
agreed, pursuant to a voting agreement ("Voting Agreement"), to vote their
shares in favor of the Merger. Therefore, it is virtually assured that the
Merger will be approved at the Special Meeting, regardless of the vote of the
other shareholders. SEE "INTRODUCTION"; "SUMMARY--SHAREHOLDER VOTES REQUIRED";
"THE MERGER--OTHER TERMS AND CONDITIONS"; AND APPENDIX I.
Merger Sub has 100 shares of common stock, 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 Merger Sub, will approve the Merger Agreement in the
manner prescribed by the New Mexico Business Corporation Act. 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, provided, however, that the
closing of the Merger shall not occur prior to January 13, 2000. At the
Effective Time, by operation of law, holders of Western Bancshares 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 Western Bancshares Common Stock. After the Effective Time, all
certificates for Western Bancshares 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
During the normal course of its business, Western Bancshares has
historically received inquiries regarding its willingness to consider an
acquisition by, or affiliation with, larger financial institutions. Consistent
with its fiduciary obligations to its shareholders, Western Bancshares has
considered such inquiries and evaluated them for the level and form of
consideration proposed, the seriousness and specificity which has been conveyed
to Western Bancshares in terms of consideration, the expected future operation
of Western Bancshares, and other considerations and factors deemed relevant by
Western Bancshares, in formulating its business plan with the intent to provide
maximum value to its shareholders by enhancing its franchise as the pre-eminent
independent bank serving the Albuquerque metropolitan area. The Board of
Directors of Western Bancshares consistently evaluates the cost of providing the
increasingly broad array of financial products and alternative delivery channels
to remain competitive in the marketplace, while continuing to deliver excellent
service to its customers and providing exceptional returns to its shareholders.
As the nature of banking has become increasingly competitive, larger
organizations have demonstrated a willingness to pay a premium for attractive
franchises in high-growth markets such as Albuquerque, New Mexico. As a result,
in January 1999 Western Bancshares was approached by Compass regarding a
potential acquisition, the general parameters of which Western Bancshares' Board
of Directors believed merited consideration.
In considering a possible business combination with Compass, Western
Bancshares' Board of Directors retained Hovde to assist and advise it in
exploring such a transaction. In evaluating whether to affiliate with Compass,
Western Bancshares considered the value of Compass Common Stock; competitive
conditions in the market served by Western Bancshares; Western Bancshares'
ability to provide, on a cost-effective basis, the ever-increasing and
broadening array of financial services products demanded by customers; the fact
that Compass Common Stock is publicly-traded, thereby representing a more liquid
investment than Western Bancshares' Common Stock; the appreciation in the price
of Compass Common Stock over the past ten years and Compass'
12
<PAGE> 16
history of paying dividends. In addition, Western Bancshares believed that
affiliating with Compass, a larger financial institution with significantly
greater resources and expertise, offered expansion opportunities, financial
products and services not otherwise available to Western Bancshares and its
customers, which would better enable Western Bancshares to compete. Western
Bancshares and its Board of Directors determined that Western Bancshares'
competitive position and the value of its stock could best be enhanced through
affiliation with Compass.
Hovde provided Compass with information regarding Western Bancshares
(with the consent of Western Bancshares and pursuant to a confidentiality
agreement), and thereafter preliminary discussions were held with Compass
regarding the potential for a possible transaction.
As a result of these discussions, Western Bancshares and Compass
commenced extensive negotiations in May, 1999.
Following arm's length negotiations between representatives of Compass
and Western Bancshares, Compass and Western Bancshares entered into the Merger
Agreement. The aggregate price to be paid to holders of Western Bancshares
Common Stock resulted from negotiations which considered the historical earnings
and dividends of Compass and Western Bancshares; the potential growth in Western
Bancshares' market and earnings, both as an independent entity and as a part of
a larger organization, such as Compass; Western Bancshares' asset quality, and
the effect of the Merger on the shareholders, customers, and employees of
Western Bancshares. "SEE "SUMMARY--THE MERGER".
Compass has considered expansion opportunities in the Southwestern
United States. Acquiring Western Bancshares will allow Compass to expand its
presence into New Mexico and will also result in some economies of scale.
For the reasons set forth above, the Western Bancshares Board of
Directors unanimously approved the Merger and recommends approval of the
transaction by Western Bancshares' 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 WESTERN BANCSHARES--CAPITAL
RESOURCES, LIQUIDITY AND FINANCIAL CONDITION".
Subject to satisfaction of certain conditions contained in the Merger
Agreement, Western Bancshares' Board of Directors believes the Merger to be fair
and in the best interest of Western Bancshares' shareholders. WESTERN
BANCSHARES' BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE WESTERN
BANCSHARES' SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE
MERGER and has authorized consummation thereof, subject to approval of Western
Bancshares' shareholders, federal and state bank regulators and the satisfaction
of certain other conditions. SEE "SUMMARY--REASONS FOR THE MERGER;
RECOMMENDATION OF BOARD OF DIRECTORS."
FINANCIAL ADVISOR OPINION
The full text of the Fairness Opinion, which sets forth, among other
things, assumptions made, matters considered and qualifications and limitations
on the review undertaken, is attached hereto as Appendix III and is incorporated
herein by reference. Western Bancshares' shareholders are urged to read the
Fairness Opinion in its entirety. The Fairness Opinion, which was directed to
the Western Bancshares' Board of Directors, addresses only the fairness to the
shareholders of Western Bancshares, from a financial point of view, of the
Merger Consideration, and does not constitute a recommendation to any Western
Bancshares shareholder as to how such shareholder should vote with respect to
the Merger. The Fairness Opinion was rendered to Western Bancshares' Board of
Directors for its consideration in determining whether to approve the Merger
Agreement. The following summary of the Fairness Opinion is qualified in its
entirety by reference to the full text of the Fairness Opinion.
No limitations were imposed by Western Bancshares on the scope of
Hovde's investigation or the procedures to be followed by Hovde in rendering the
Fairness Opinion. Hovde did not make any recommendation to Western Bancshares'
Board of Directors as to the form or amount of consideration to be paid by
Compass to Western Bancshares in connection with the Merger, both of which were
determined through arm's-length
13
<PAGE> 17
negotiations between the parties. In arriving at its opinion, Hovde did not
ascribe a specific range of value to Compass or Western Bancshares, but rather
made its determination as to the fairness, from a financial point of view, of
the Merger Consideration, on the basis of the financial and comparative analyses
described below. Hovde was not requested to opine as to, and the Fairness
Opinion does not address, Western Bancshares' underlying business decision to
proceed with or effect the Merger.
During the course of the engagement, Hovde reviewed and analyzed
material bearing upon the financial and operating condition of Compass and
Western Bancshares and material prepared in connection with the Merger,
including the following: the Merger Agreement; certain publicly available
information concerning Compass and Western Bancshares, including, as applicable:
Compass' and Western Bancshares' audited consolidated financial statements for
each of the three years ended December 31, 1998; documents filed with the
Securities and Exchange Commission (the "Commission"), the Federal Deposit
Insurance Corporation, Federal Reserve and other state or other regulatory
agencies, as applicable and/or appropriate, for the aforementioned three year
period and for the quarterly periods ended March 31, 1998 and March 31, 1999,
respectively; as applicable, recent internal reports and/or financial
projections regarding Compass and Western Bancshares; the nature and terms of
recent sale and merger transactions involving banks and bank holding companies
that Hovde considered relevant; and financial and other information provided to
us by the management of Compass and Western Bancshares.
In rendering the Fairness Opinion, Hovde assumed and relied upon the
accuracy and completeness of the financial and other information provided to it
by Western Bancshares or Compass without assuming any responsibility for
independent verification of such information and further relied upon the
assurances of the management of Compass and Western Bancshares that they were
not aware of any facts or circumstances that would make such information,
provided by them, inaccurate or misleading. With respect to financial statements
and/or projections to the extent such were provided by Compass and Western
Bancshares, Hovde assumed that such financial statements and/or projections were
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of the respective management of Compass and Western Bancshares.
Hovde assumed that the Merger will be accounted for using the pooling method of
accounting. In rendering the Fairness Opinion, Hovde did not conduct a physical
inspection of the properties and facilities of Compass or Western Bancshares and
did not make or obtain any evaluations or appraisals of the assets or
liabilities of Compass or Western Bancshares. In addition, Hovde noted that it
is not expert in the evaluation of loan portfolios or allowances for loan, lease
or real estate owned losses, and it assumed that the allowances for loan, lease
and real estate owned losses (as currently stated or as adjusted for in
connection with the Merger or otherwise) provided to it by Western Bancshares
and used by it in its analysis and in rendering its Fairness Opinion were in the
aggregate adequate to cover all such losses. The Fairness Opinion was based upon
market, economic and other conditions as they existed on, and could be evaluated
as of, the date the Fairness Opinion.
The following is a summary of the analyses Hovde performed in rendering
its Fairness Opinion. In connection with the preparation and delivery of the
Fairness Opinion to the Board of Directors of Western Bancshares, Hovde
performed a variety of financial and comparative analyses, as described below.
The preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant methods of financial and comparative analysis and
the application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. Furthermore,
in arriving at its opinion, Hovde did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments as to
the significance and relevance of each analysis and factor. Accordingly, Hovde
believes that its analyses must be considered as a whole and that considering
any portion of such analyses and factors, without considering all analyses and
factors, could create a misleading or incomplete view of the process underlying
its opinion. In its analyses, Hovde made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Hovde. Any estimates contained
in these analyses were not necessarily indicative of actual values or predictive
of future results or values, which may be significantly more or less favorable
than as set forth therein. In addition, analyses relating to the value of
businesses did not purport to be appraisals or to reflect the prices at which
businesses may actually be sold.
Merger Value Analysis. Hovde calculated the price-to-tangible book,
price to earnings multiple, and deposit premium paid, (defined as the merger
value less the tangible book value of Western Bancshares, divided by Western
Bancshares' core deposits), in the Merger using March 31, 1999 financial data
and the closing price for Compass Common Stock for the twenty trading days ended
July 16, 1999. This analysis yielded an aggregate merger value of $81,478,140, a
price-to-tangible book value multiple of 300.82%, a price to last twelve months'
14
<PAGE> 18
earnings multiple of 16.26x (for comparative purposes, Hovde assumed a 34% tax
rate for the three quarters during which Western Bancshares was not a Subchapter
S corporation), and a deposit premium of 30.69%.
Comparable Company Analysis - Compass. Using publicly available
information, Hovde compared the financial performance and stock market valuation
of Compass with the following selected banking institutions with assets between
$10 billion and $30 billion located in the southern and rocky mountain regions
of the United States (the "Comparable Bank Group") deemed relevant by Hovde:
AmSouth Bancorporation (AL), Commerce Bancshares, Inc. (MO), First American
Corp. (TN), First Tennessee National Corp. (TN), Hibernia Corp. (LA), Regions
Financial Corp. (AL), Union Planters Corp. (TN), and Zions Bancorp. (UT).
Indications of such financial performance and stock market valuation included
profitability (median return on average assets and return on average equity for
the latest twelve month period ended June 30, 1999, of 1.24% and 17.83%,
respectively, for Compass and medians of 1.24% and 16.44%, respectively, for the
Comparable Bank Group); the ratio of tangible equity to tangible assets (5.69%
for Compass and a median of 7.06% for the Comparable Bank Group); the ratio of
non-performing assets to total assets (0.36% for Compass and a median of 0.39%
for the Comparable Bank Group); current stock price to earnings for the latest
twelve month period ended June 30, 1999 (15.04 times for Compass and a median of
16.73 times for the Comparable Bank Group); current stock price to tangible book
value as of June 30, 1999 (293.83% for Compass and a median 298.28% for the
Comparable Bank Group).
Because of the inherent differences in the businesses, operations,
financial conditions and prospects of Western Bancshares, Compass and the
companies included in the Comparable Bank Groups, Hovde believed that a purely
quantitative comparable company analysis would not be particularly meaningful in
the context of the Merger. Hovde believed that the appropriate use of a
comparable company analysis in this instance would involve qualitative judgments
concerning the differences between Western Bancshares and the companies included
in the Comparable Bank Group which would affect the trading values of the
comparable companies.
Comparable Transaction Analysis. Using publicly available information,
Hovde reviewed certain terms and financial characteristics, including historical
price-to-earnings ratio, the price-to-book ratio, the price-to-tangible book
ratio, and the deposit premium paid in prior commercial banking institution
merger or acquisition transactions in Arizona, Colorado, Nevada, New Mexico and
Utah announced since January 1, 1998 (the "Comparable Bank Transactions Group").
The median values for these transactions for the price-to-latest-twelve-months-
earnings ratio and price-to-tangible book ratio were 18.8x and 349.9%,
respectively. These compared to the Merger Consideration provided for in the
Merger Agreement of 17.6x and 300.82%, respectively, based on the closing price
of Compass Common Stock for the twenty trading days ended July 16, 1999. The
range of deposit premiums paid in these transactions was from 3.4% to 55.8%,
with an median value of 25.5%, compared to a deposit premium of 30.7% implied in
the Merger Agreement.
Because the reasons for and circumstances surrounding each of the
transactions analyzed were so diverse and because of the inherent differences in
the businesses, operations, financial conditions and prospects of Western
Bancshares, Compass and the companies included in the Comparable Bank
Transactions Group, Hovde believed that a purely quantitative comparable
transaction analysis would not be particularly meaningful in the context of
rendering the fairness opinion. Hovde believed that the appropriate use of a
comparable transaction analysis in this instance would involve qualitative
judgments concerning the differences between the characteristics of these
transactions and the Merger which would affect the acquisition values of the
acquired companies and Western Bancshares.
Pro Forma Merger Analysis. Hovde compared Western Bancshares' estimated
earnings attributable to its common shareholders for 1999 based on various
internal projections for 1999 earnings provided by Western Bancshares. Based
upon the average IBES analyst estimates for Compass for 1999, and without giving
effect to the impact of the Merger on such estimates, Hovde concluded that the
Merger Consideration would result in various levels of accretion to Western
Bancshares' common shareholders, depending upon a variety of assumptions,
including market trends, Western Bancshares' and Compass' operating performance,
capital management strategies, and other variables.
Hovde is a nationally recognized investment banking firm. Hovde, as
part of its investment banking business, is continuously engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, competitive biddings, private placements and valuations for
corporate and other purposes. Pursuant to a letter agreement dated February 8,
1999, between Western Bancshares and Hovde (the "Hovde Agreement"),
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Western Bancshares engaged Hovde to advise it with respect to a potential
business combination (the "Transaction") with Compass and, in the event a
Transaction was consummated with Compass, agreed to pay to Hovde a fee in the
amount of 1.0% of the Purchase Price, as defined in the Hovde Agreement. The
Hovde Agreement also provides for Western Bancshares to provide indemnification
to Hovde and its affiliates against certain liabilities to which it may become
subject to as a result of its services to Western Bancshares under the Hovde
Agreement, including liabilities under securities laws, as well as other
specified conditions.
OPERATIONS AFTER THE MERGER
Compass and Western Bancshares intend that following consummation of
the Merger the Bank will merge with and into Compass Bank ("Subsequent Merger").
Following the Subsequent Merger, the separate existence of the Bank will cease,
and Compass Bank 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 closing 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 Western Bancshares'
shareholders entitled to vote at the Special Meeting;
(iv) The Registration Statement relating to the Compass Common Stock
shall be effective under the Securities Act of 1933, as amended
("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 Western Bancshares 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) Western Bancshares and Compass shall have performed in all
material respects all obligations and agreements and in all
material respects complied with all covenants and conditions
contained in 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 Western Bancshares or its subsidiaries, or Compass;
(viii) The directors of Western Bancshares and its subsidiaries shall
have delivered to Compass an instrument dated the Effective Time
releasing Western Bancshares and its subsidiaries from any and all
claims of such directors (except as to their deposits and accounts
and accrued and deferred compensation, certain rights as to tax
matters and as to rights of indemnification pursuant to the Merger
Agreement, the Articles of Incorporation, Association or Bylaws of
Western Bancshares and its subsidiaries) and shall have
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delivered to Compass their resignations as directors of Western
Bancshares and its subsidiaries;
(ix) The officers of Western Bancshares and its subsidiaries shall
have delivered to Compass an instrument dated the Effective Time
releasing Western Bancshares and its subsidiaries from any and
all claims of such officers (except as to deposits and accounts
and accrued and deferred compensation permitted by their
respective agreements with Western Bancshares or its
subsidiaries, certain rights as to tax matters and to the rights
of indemnification pursuant to the Merger Agreement, the
Articles of Incorporation, Association or Bylaws of Western
Bancshares and its subsidiaries);
(x) Compass and Western Bancshares shall have received the opinions
of counsel to Western Bancshares, Compass and Merger Sub
acceptable to them;
(xi) The holders of no more than 10% of Western Bancshares Common
Stock, or such number that will not disqualify the merger for
pooling-of-interests accounting treatment, 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 its independent public
accountants 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 Western Bancshares indebtedness
shall not exceed $800,000;
(xiv) Compass shall have received from holders of Western Bancshares
Common Stock receiving at least 50% of the total Merger
Consideration a representation that they have no present plan or
intention to sell or otherwise dispose of shares of Western
Bancshares prior to and in connection with the Merger to Western
Bancshares or any party related to Western Bancshares or Compass
and shares of Compass Common Stock received in the Merger to
Compass or any party related to Compass;
(xv) Compass shall have received an opinion of counsel that the
Merger will qualify as a reorganization under Section 368(a) of
the Code; SEE "SUMMARY-FEDERAL INCOME TAX CONSEQUENCES" AND "THE
MERGER-FEDERAL INCOME TAX CONSEQUENCES";
(xvi) Western Bancshares shall have delivered to Compass a schedule of
all transactions in the capital stock (or instruments
exercisable for or convertible into capital stock) of Western
Bancshares of which Western Bancshares has knowledge from and
including the date of the Merger Agreement through the Effective
Time;
(xvii) Compass shall have determined in its reasonable judgment that
certain liabilities and obligations of Western Bancshares do not
have a material adverse effect;
(xviii) Western Bancshares shall have accrued all professional fees
incurred in connection with the Merger in 1999;
(xix) all software, firmware, hardware, equipment, microprocessing
chips and other data processing devices and services (both as a
recipient and as a provider), capabilities and facilities
utilized by, and material to the business operations or
financial condition of, Western Bancshares and its subsidiaries
and Compass shall have been able to record and process all
calendar dates since the date of the Merger Agreement correctly
with four-digit year processing and shall have been able to
communicate with other applicable systems to accept two-digit
year date data in a manner that resolves any ambiguities as to
century in a properly defined manner;
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(xx) all critical third parties of Western Bancshares and its
subsidiaries and Compass are Year 2000 Compliant (as defined in
the Merger Agreement) in all material respects;
(xxi) Western Bancshares shall have provided that there shall not be
any compensation deferred under the deferred compensation
agreements between Western Bancshares or its subsidiaries and
their officers and/or directors after the Effective Time;
(xxii) All warrants, options, rights, convertible debentures or other
securities entitling the holder thereof to acquire Western
Bancshares Common Stock shall have been exercised or converted,
or shall have expired, lapsed or terminated, prior to the
Effective Time;
(xxiii) Western Bancshares and its subsidiaries shall have delivered to
the directors of Western Bancshares and its subsidiaries an
instrument dated the Effective Time releasing such directors
from any and all claims of Western Bancshares 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 Merger
Sub in connection with the transactions contemplated by the
Merger Agreement; and
(xxiv) Compass and Western Bancshares shall have received certificates
of the other as to certain items described above.
Any condition to the consummation of the Merger may be waived in writing by the
party to the Merger Agreement entitled to the benefit of such condition. SEE
APPENDIX I.
NO SOLICITATION
Western Bancshares has agreed under Section 6.6 of the Merger Agreement
(1) not to solicit, entertain or negotiate with respect to any offer to acquire
Western Bancshares or any of its subsidiaries from any other person, (2) not to
provide any information to any other person in connection with a possible
acquisition of Western Bancshares or any of its subsidiaries, and (3)
immediately upon receipt of any such unsolicited offer, to communicate to
Compass the terms of any proposal or request for information and the identities
of the parties involved. SEE APPENDIX I.
ADDITIONAL AGREEMENTS
Voting Agreement. Certain directors and executive officers of Western
Bancshares and Western Bank (and certain of their spouses and related interests)
owning or otherwise controlling the right to vote 68,488.25 shares of Western
Bancshares Common Stock, comprising approximately 50.9% of the total shares of
Western Bancshares 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. Therefore, it is virtually assured that the Merger will be approved
at the Special Meeting, regardless of the vote of the other shareholders.
William T. Fietz Employment Agreement. Compass Bank and William T.
Fietz entered into an employment agreement as of July 23, 1999 (the "William T.
Fietz Employment Agreement") pursuant to which Mr. Fietz will serve as Chairman
Compass Bank Albuquerque for a period of three years commencing at the Effective
Time. Mr. Fietz shall receive an annual base salary of $320,000 per year with
merit increases in accordance with Compass Bank's salary administration program
based upon performance. Mr. Fietz shall also be able to participate, up to 50%
of his annual base salary, in the Compass Bancshares, Inc. executive incentive
program with the payment for 2000 in the amount of $160,000 being guaranteed. In
addition to other benefits, Mr. Fietz will be provided such benefits as are made
generally available to employees of equal title and base salary on the same
basis as Compass Bank makes such benefits available to other employees. The
William T. Fietz Employment Agreement provides that Mr. Fietz will not disclose
to any other person any confidential information of Compass Bank or its
affiliates or Western Bancshares or the Bank. In addition, for the consideration
of $250,000 per year for seven years beginning upon his termination, Mr. Fietz
will not directly or indirectly compete with Western Bancshares, the Bank,
Compass Bank or its affiliates for a period of seven years after his employment
with Compass Bank is terminated.
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Each of David E. Wintermute, Jason Shaffer, John D. Stewart and W.
Michael Fietz entered into employment agreements with Compass Bank executed as
of July 23, 1999. The employment agreements are each for a term of two years
commencing at the Effective Time and each contains noncompetition and
confidentiality provisions.
Pooling Transfer Restrictions Agreements. The directors, executive
officers and certain principal shareholders of Western Bancshares have entered
into Pooling Transfer Restrictions Agreements with Compass and Western
Bancshares pursuant to which they have agreed, among other things, (1) not to
transfer any of their respective shares of Western Bancshares Common Stock
within 30 days prior to the Effective Time, (2) 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 Western Bancshares 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 (3) not otherwise to transfer such Compass
Common Stock except in compliance with the applicable provisions of the
Securities Act and the Exchange Act of 1934, as amended ("Exchange Act"), and
the respective rules and regulations thereunder.
BUSINESS PENDING EFFECTIVE TIME
The Merger Agreement imposes certain limitations on the conduct of
Western Bancshares' business pending consummation of the Merger. Among other
things, Western Bancshares 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 Special Meeting, by an instrument in writing duly executed by all
the parties thereto. However, no change which reduces the Merger Consideration
or materially and adversely affects the rights of Western Bancshares'
shareholders can be made after the Special Meeting without the required approval
of Western Bancshares' shareholders.
TERMINATION
The Merger Agreement may be terminated and the Merger abandoned,
notwithstanding approval by Western Bancshares' shareholders, at any time before
the Effective Time by:
(i) Mutual written consent duly authorized by the Boards of
Directors of Compass and Western Bancshares;
(ii) Compass (a) if Compass learns or becomes aware of a state of
facts or breach or inaccuracy of any representation or
warranty of Western Bancshares which constitutes a material
adverse effect, (b) if there shall be a breach of Section 6.10
of the Merger Agreement relating to environmental matters, (c)
if there shall be a breach of Section 6.16 of the Merger
Agreement relating to year 2000 matters, or (d) if any of the
conditions to Closing contained in Section 7.1 or 7.2 of the
Merger Agreement are not satisfied or waived in writing by
Compass;
(iii) Western Bancshares (a) if Western Bancshares learns or becomes
aware of a state of facts or breach or inaccuracy of any
representation or warranty of Compass which constitutes a
material adverse effect, (b) if any of the conditions to
Closing contained in Section 7.1 or 7.3 of the Merger
Agreement are not satisfied or waived in writing by Western
Bancshares, or (c) if at any time during the two business day
period following the fifth trading day prior to the closing of
the Merger, both of the following conditions are satisfied:
(1) the Share Determination Market Value is less than $24;
and
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(2) (i) the number obtained by dividing the Share
Determination Market Value by the last reported sale
price per share of Compass Common Stock on July 23,
1999, as reported by Nasdaq National Market System
shall be less than (ii) the number obtained by
dividing the average of the Index Values for the
twenty days of trading preceding the fifth trading
day prior to the Effective Time by the Index Value of
the Nasdaq Index Banks as published by Nasdaq on July
23, 1999 and subtracting 0.15 from the quotient
obtained thereby.
(iv) Compass or Western Bancshares if the Effective Time shall not
have occurred on or before April 23, 2000; or
(v) Compass or Western Bancshares if any court of competent
jurisdiction in the United States or other United States
(federal or state) governmental body shall have issued an
order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action is final and nonappealable. SEE
"SUMMARY--CONDITIONS TO CONSUMMATION AND REGULATORY APPROVALS;
TERMINATION"; "THE MERGER--GENERAL"; "THE MERGER--OTHER TERMS
AND CONDITIONS"; AND APPENDIX I.
EXCHANGE OF SHARES
Prior to the Effective Time, and pursuant to an exchange agreement in
the form attached as Exhibit C 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 Western
Bancshares' shareholders in lieu of fractional shares of Compass Common Stock
and to make appropriate cash payments, if any, to dissenting shareholders.
Promptly after the Effective Time, the Exchange Agent will furnish each
holder of record of Western Bancshares Common Stock as of the Effective Time
with transmittal materials in the form attached as Exhibit K to the Merger
Agreement for use in exchanging certificates representing Western Bancshares
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 Western
Bancshares 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 Western Bancshares Common Stock
otherwise entitled to receive such fractional share. Such cash payment shall be
based on the Share Determination Market Value. SEE "SUMMARY-FEDERAL INCOME TAX
CONSEQUENCES"; "THE MERGER-FEDERAL INCOME TAX CONSEQUENCES"; AND APPENDIX I.
Former shareholders of Western Bancshares shall be entitled to vote
after the Effective Time at any meeting of Compass shareholders the number
shares of Compass Common Stock into which their shares are converted, regardless
of whether such shareholders have exchanged their certificates. Immediately
after the Effective Time, shareholders of Western Bancshares shall be entitled
to dividends with respect to shares of Compass Common Stock received by them in
the Merger, provided that, no dividend will be disbursed with respect to the
shares of Compass Common Stock until the holder's shares of Western Bancshares
Common Stock are surrendered in exchange therefor.
Upon the Effective Time of the Merger, former Western Bancshares'
shareholders will cease to have any rights as shareholders of Western
Bancshares, and Western Bancshares' 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 New Mexico law.
SEE "THE MERGER--DISSENTERS' RIGHTS".
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DISSENTERS' RIGHTS
By following the specific procedures set forth in the New Mexico
Business Corporation Act ("NMBCA"), Western Bancshares' shareholders have a
statutory right to dissent from the Merger. If the Merger is approved and
consummated, any Western Bancshares 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 Western Bancshares
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 NMBCA, 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 holder of Western Bancshares Common Stock electing to exercise his
right of dissent (a "Dissenting Shareholder") shall file with Western
Bancshares, prior to or at the Special Meeting, a written objection to the
Merger. If the Merger is approved by the required vote and the Dissenting
Shareholder has not voted in favor thereof, the Dissenting Shareholder may,
within ten days after the date on which the vote was taken, make written demand
on Western Bancshares for payment of the fair value of the Dissenting
Shareholder's shares. If the Merger is effected, Western Bancshares shall pay to
the Dissenting Shareholder, upon the determination of the fair value, and, in
the case of shares represented by certificates, the surrender of such
certificates, the fair value thereof as of the day prior to the Special Meeting.
Any Dissenting Shareholder failing to make demand within the prescribed ten day
period shall be bound by the terms of the Merger. Any Dissenting Shareholder
making such demand shall thereafter be entitled only to payment and shall not be
entitled to vote or to exercise any other rights of a shareholder.
No such demand may be withdrawn unless Western Bancshares consents
thereto. If, however, the demand is withdrawn upon consent, or if the Merger is
abandoned or rescinded or the shareholders revoke the authority to effect the
Merger, or if no demand or petition for the determination of fair value by a
court has been made or filed within the time provided in the NMBCA, or if a
court of competent jurisdiction determines that the Dissenting Shareholder is
not entitled to the relief provided by the NMBCA, then the right of the
Dissenting Shareholder to be paid the fair value of his shares will cease and
his status as a shareholder will be restored.
Within ten days after the Merger is effected Western Bancshares shall
give written notice thereof to each Dissenting Shareholder who has made demand
as provided in the NMBCA and shall make a written offer to each such Dissenting
Shareholder to pay for such shares at a specified price deemed by Western
Bancshares to be the fair value thereof.
If, within thirty days after the date on which the Merger was effected,
the fair value of such shares is agreed upon between a Dissenting Shareholder
and Western Bancshares, payment therefor shall be made within ninety days after
the date on which the Merger was effected, and, in the case of shares
represented by certificates, upon surrender of the certificates. Upon payment of
the agreed value, the Dissenting Shareholder shall cease to have any interest in
the shares.
If, within the period of thirty days, such Dissenting Shareholder and
Western Bancshares do not so agree, then Western Bancshares, within thirty days
after receipt of written demand from any Dissenting Shareholder given within
sixty days after the date on which the Merger was effected, shall, or at its
election at any time within the period of sixty days may, file a petition in any
court of competent jurisdiction in the county in New Mexico where the registered
office of Western Bancshares is located asking that the fair value of such
shares be determined. If Western Bancshares fails to institute the proceeding as
provided in the NMBCA, any Dissenting Shareholder may do so in the name of
Western Bancshares. All Dissenting Shareholders, wherever residing, shall be
made parties to the proceeding as an action against their shares. A copy of the
petition shall be served on each Dissenting Shareholder who is a resident of New
Mexico and shall be served by registered or certified mail on each Dissenting
Shareholder who is a nonresident. Service on nonresidents shall also be made by
publication as provided by law. All Dissenting Shareholders who are parties to
the proceeding shall be entitled to judgment against Western Bancshares for the
amount of the fair value of their shares. The court may, if it so elects,
appoint one or more persons as appraisers to receive evidence and recommend a
decision on the question of fair value. The judgment shall be payable to the
holders of uncertified shares immediately, but to the holders of shares
represented by certificates only upon the surrender to Western Bancshares of
certificates. Upon payment of the judgment, the Dissenting Shareholder shall
cease to have any interest in such shares.
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The judgment shall include an allowance for interest at such rate as
the court may find to be fair and equitable, in all the circumstances, from the
date on which the vote was taken on the Merger to the date of payment.
The costs and expenses of any such proceeding shall be determined by
the court and shall be assessed against Western Bancshares, but all or any part
of the costs and expenses may be apportioned and assessed as the court deems
equitable against any or all of the Dissenting Shareholders who are parties to
the proceeding to whom Western Bancshares shall have made an offer to pay for
the shares if the court shall find that the action of such Dissenting
Shareholders in failing to accept such offer was not in good faith. Such
expenses shall include reasonable compensation for and reasonable expenses of
the appraisers, but exclude the fees and expenses of counsel for and experts
employed by any party; but if the fair value of the shares as determined
materially exceeds the amount which Western Bancshares offered to pay therefor,
or if no offer was made, the court in its discretion may award to any Dissenting
Shareholder who is a party to the proceeding such sum as the court determines to
be reasonable compensation to any expert employed by the Dissenting Shareholder
in the proceeding, together with reasonable fees of legal counsel.
Upon receiving a demand for payment from any Dissenting Shareholder,
Western Bancshares shall make an appropriate notation thereof in its shareholder
records. Within twenty days after demanding payment for his shares, each holder
of shares represented by certificates demanding payment shall submit the
certificates to Western Bancshares for notation thereon that such demand has
been made. His failure to do so shall, at the option of Western Bancshares,
terminate his rights under the NMBCA unless a court of competent jurisdiction
otherwise directs. If uncertificated shares for which payment has been demanded
or shares represented by a certificate on which notation has been so made is
transferred, any new certificate issued therefor shall bear similar notation,
together with the name of the original dissenting holder of the shares, and a
transferee of the shares acquires by such transfer no rights in Western
Bancshares other than those which the original Dissenting Shareholder had after
making demand for payment of the fair value thereof.
SEE SUMMARY--DISSENTERS' RIGHTS"; "COMPARISON OF RIGHTS OF SHAREHOLDERS
OF WESTERN BANCSHARES AND COMPASS--APPRAISAL RIGHTS"; AND APPENDIX II.
It is a condition to Compass' obligations under the Merger Agreement
that not more than 10%, or such number that will not disqualify the Merger for
pooling-of-interests accounting treatment, of the outstanding shares of Western
Bancshares 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
The following sets forth the opinion of Locke Liddell & Sapp LLP
("Locke Liddell & Sapp"), counsel to Compass, based upon current law, as to
certain federal income tax consequences of the Merger to Compass, Merger Sub,
Western Bancshares and holders of Western Bancshares Common Stock, assuming the
Merger is consummated as contemplated herein.
This discussion is based upon existing provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable U.S. Treasury
regulations promulgated or proposed thereunder, administrative rulings by the
Internal Revenue Service (the "IRS") and judicial authority as of the date
hereof, all of which are subject to change, possibly with retroactive effect.
Any such change could affect the continuing validity of this discussion. This
discussion assumes the holders of Western Bancshares Common Stock hold their
Western Bancshares Common Stock as capital assets within the meaning of Section
1221 of the Code. This discussion is based upon certain assumptions discussed
hereinbelow, including that certain representations will be made by Compass,
Merger Sub, Western Bancshares, certain Western Bancshares shareholders and
others as appropriate. If any of these representations cannot be made or is
inaccurate, the tax consequence of the Merger could differ from those described
herein. This discussion does not address all aspects of income taxation that may
be relevant to any particular holder of Western Bancshares Common Stock in light
of such holder's specific circumstances or to certain
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types of holders subject to special treatment under the U.S. federal income tax
laws (for example, foreign persons, dealers in securities, banks and other
financial institutions, insurance companies, tax-exempt organizations, holders
who acquired Western Bancshares Common Stock pursuant to the exercise of options
or otherwise as compensation or through a tax-qualified retirement plan and
persons holding Western Bancshares Common Stock as part of a straddle or
conversion transaction), and it does not discuss any aspect of state, local,
foreign or other tax law. No ruling has been (or will be) sought from the IRS as
to the anticipated tax consequences of the Merger.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH BELOW IS INCLUDED HEREIN
FOR GENERAL INFORMATION ONLY. HOLDERS OF WESTERN BANCSHARES COMMON STOCK SHOULD
CONSULT THEIR OWN TAX ADVISERS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF
THE MERGER, INCLUDING THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND
FOREIGN INCOME AND OTHER TAX LAWS IN THEIR PARTICULAR CIRCUMSTANCES.
Based upon the foregoing, the Merger will be treated for federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code, Compass, Merger Sub and Western Bancshares will each be a party to the
reorganization within the meaning of Section 368(b) of the Code and,
accordingly, the Merger will result in the following federal income tax
consequences:
1. Compass, Merger Sub and Western Bancshares will not
recognize any gain or loss as a result of the Merger;
2. No gain or loss will be recognized by holders of Western
Bancshares Common Stock who exchange their Western Bancshares
Common Stock solely for Compass Stock;
3. Any cash received by a holder of Western Bancshares Common
Stock in lieu of a fractional share of Compass Common Stock in
the Merger will be treated as received in exchange for such
fractional share and not as a dividend. As a result, a holder
of Western Bancshares Common Stock generally will recognize a
capital gain or loss with respect to the cash payment received
in lieu of a fractional share equal to the difference between
the cash received and the portion of the Western Bancshares
shareholder's basis in Western Bancshares Common Stock
allocable to such fractional share, unless such payment, under
each such Western Bancshares shareholder's particular facts
and circumstances, is deemed to have the effect of a dividend
distribution and not a redemption treated as an exchange under
the principles of Section 302 of the Code. Such gain or loss
will be long-term capital gain or loss to the extent that the
Western Bancshares Common Stock allocable to such fractional
share was held for more than one year as of the Effective Time
of the Merger;
4. Each holder's aggregate tax basis in the Compass Common Stock
received in the Merger will equal his or her aggregate tax
basis in the Western Bancshares Common Stock exchanged
therefore, decreased by the amount of any tax basis allocable
to any fractional share interest for which cash is received;
5. The holding period of the Compass Common Stock received in the
Merger will include the holding period of the Western
Bancshares Common Stock exchanged therefore; and
6. For a Western Bancshares shareholder who dissents from the
Merger and receives solely cash in exchange for his or her
Western Bancshares 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.
In addition to the tax opinions described above, it is a condition to
the consummation of the Merger that Compass receive an opinion at the Effective
Time of the Merger of Locke Liddell & Sapp, that the Merger, pursuant to which
Western Bancshares' shareholders, other than Western Bancshares shareholders who
perfect and exercise dissenters' rights, will receive shares of Compass Stock in
the exchange for their shares of Western Bancshares Common Stock, will be
treated for federal income tax purposes as a reorganization within the meaning
of Section 368(a) of the Code. These opinions will not bind the IRS or the
courts, and there can be no assurance that the IRS or
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the courts will not take a contrary position. The opinions of Locke Liddell &
Sapp will be expressly based and conditioned upon customary limitations set
forth therein and upon the accuracy of certain assumptions and the receipt of
and the truth and accuracy of certain representations made at the Effective Time
of the Merger to such counsel by Compass, Merger Sub, Western Bancshares,
certain Western Bancshares shareholders and others as appropriate. SEE "THE
MERGER -- OTHER TERMS AND CONDITIONS".
GOVERNMENT APPROVALS
Consummation of the Merger is subject to approval by the shareholders
of Western Bancshares, 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 is subject to approval by the Federal Reserve and
Superintendent and notice to the State Director. SEE "THE MERGER--GOVERNMENTAL
APPROVALS".
Applications under the BHC Act and the Bank Merger Act for the Merger
and the Subsequent Merger were filed with the Federal Reserve and the
Superintendent on September 29, 1999. Notice was provided to the State Director
on September 29, 1999. The Merger and the Subsequent 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 and the
Bank Merger Act, may bring an action opposing the Merger and the Subsequent
Merger.
No Justice Department objection or adverse action is anticipated with
respect to the Merger or the Subsequent Merger.
The New Mexico Interstate Bank Acquisition Act allows out-of-state bank
holding companies to acquire bank holding companies that own or control state or
national banks located within New Mexico. SEE "SUMMARY--CONDITIONS TO
CONSUMMATION AND REGULATORY APPROVALS"; "TERMINATION"; AND "SUPERVISION AND
REGULATION".
ACCOUNTING TREATMENT
Compass expects to account for the Merger using the
"pooling-of-interests" method of accounting. Compass has received a letter from
its independent public accountants which will be updated as of the Effective
Time, to the effect that, based on information provided to its independent
public accountants and assuming that the Merger is consummated in accordance
with the terms of the Merger Agreement, the Merger will qualify for
pooling-of-interests accounting treatment. Under this accounting method, at the
Effective Time, Western Bancshares' 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 Western Bancshares 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 is subject to regulation by the Federal Reserve
and its bank subsidiaries (the "Subsidiary Banks") are subject to regulation by
the Federal Reserve and the Federal Deposit Insurance Corporation ("FDIC") and
the appropriate state banking departments. Compass owns Compass Bank , an
Alabama state bank headquartered in Birmingham, Alabama, Central Bank of the
South, an Alabama state bank headquartered in Anniston, Alabama. Compass'
wholly-owned commercial bank subsidiaries conduct a general, full-service
commercial and consumer banking business in Alabama, Texas, Florida and Arizona.
Compass Bank 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. The deposits of each of the Subsidiary Banks are
insured by the FDIC. 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
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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 is a bank holding company within the meaning of the BHC Act and
is registered as such with the Federal Reserve. As a bank holding company,
Compass is required to file with the Federal Reserve an annual report and such
additional information as the Federal Reserve may require pursuant to the BHC
Act. The Federal Reserve may also make examinations of Compass and each of its
subsidiaries. Under the BHC Act, bank holding companies are prohibited, with
certain exceptions, from acquiring direct or indirect ownership or control of
more than 5% of the voting shares of any company engaging in activities other
than banking or managing or controlling banks or furnishing services to or
performing services for their banking subsidiaries. However, the BHC Act
authorizes the Federal Reserve to permit bank holding companies to engage in,
and to acquire or retain shares of companies that engage in, activities which
the Federal Reserve determines to be so closely related to banking or managing
or controlling banks as to be a proper incident thereto.
The BHC Act requires a bank holding company to obtain the prior
approval of the Federal Reserve before it may acquire substantially all of the
assets of any bank or ownership or control of any voting shares of any bank if,
after such acquisition, it would own or control, directly or indirectly, more
than 5% of the voting shares of any such bank. The Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 ("Interstate Act") permits bank
holding companies to acquire banks located in any state without regard to
whether the transaction is prohibited under any state law (except that states
may establish the minimum age of their local banks (up to a maximum of 5 years)
subject to interstate acquisition of out-of-state bank holding companies).
The Federal Reserve Act generally imposes certain limitations on
extensions of credit and other transactions by and between banks which are
members of the Federal Reserve and other affiliates (which includes any holding
company of which such bank is a subsidiary and any other non-bank subsidiary of
such holding company). Further, federal law prohibits a bank holding company and
its subsidiaries from engaging in certain tie-in arrangements in connection with
any extension of credit, lease or sale of property, or the furnishing of
services.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") enacted major regulatory reforms, stronger capital standards for
savings associations and stronger civil and criminal enforcement provisions.
FIRREA allows the acquisition of healthy and failed savings associations by bank
holding companies and imposes no interstate barriers on such bank holding
company acquisitions. With certain qualifications, FIRREA also allows bank
holding companies to merge acquired savings and loans into their existing
commercial bank subsidiaries. FIRREA also provides that a depository institution
insured by the FDIC can be held liable for any loss incurred by, or reasonably
expected to be incurred by, the FDIC after August 9, 1989 in connection with (1)
the default of a commonly controlled FDIC-insured depository institution or (2)
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
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regulation (except to the extent that 2% would be higher than such 65% level).
An institution may be deemed to be in a capitalization category that is lower
than is indicated by its actual capital position if it receives an
unsatisfactory examination rating.
If a depository institution fails to meet regulatory capital
requirements, the regulatory agencies can require submission and funding of a
capital restoration plan by the institution, place limits on its activities,
require the raising of additional capital and, ultimately, require the
appointment of a conservator or receiver for the institution. The obligation of
a controlling bank holding company under FDICIA to fund a capital restoration
plan is limited to the lesser of 5% of an undercapitalized subsidiary's assets
or the amount required to meet regulatory capital requirements. If the
controlling bank holding company fails to fulfill its obligations under FDICIA
and files (or has filed against it) a petition under the Federal Bankruptcy
Code, the FDIC's claim may be entitled to a priority in such bankruptcy
proceeding over third party creditors of the bank holding company.
An insured depository institution may not pay management fees to any
person having control of the institution nor may an institution, except under
certain circumstances and with prior regulatory approval, make any capital
distribution (including the payment of dividends) if, after making such payment
or distribution, the institution would be undercapitalized. FDICIA also
restricts the acceptance of brokered deposits by insured depository institutions
and contains a number of consumer banking provisions, including disclosure
requirements and substantive contractual limitations with respect to deposit
accounts.
At June 30, 1999, the Subsidiary Banks were "well capitalized", and
were not subject to any of the foregoing restrictions, including, without
limitation, those relating to brokered deposits. The Subsidiary Banks do not
rely upon brokered deposits as a primary source of deposit funding, although
such deposits are sold through the Correspondent and Investment Services
Division of Compass Bank.
FDICIA contains numerous other provisions, including reporting
requirements, termination of the "too big to fail" doctrine except in special
cases, limitations on the FDIC's payment of deposits at foreign branches and
revised regulatory standards for, among other things, real estate lending and
capital adequacy. In addition, FDICIA required the FDIC to establish a system of
risk-based assessments for federal deposit insurance, by which banks that pose a
greater risk of loss to the FDIC (based on their capital levels and the FDIC's
level of supervisory concern) pay a higher insurance assessment.
The Deposit Insurance Funds Act of 1996 (the "Fund Act"), which became
effective October 8, 1996, required the FDIC to impose a special assessment on
institutions holding deposits subject to assessment by the Savings Association
Insurance Fund ("SAIF"). Although the Subsidiary Banks are members of BIF, they
hold deposits subject to assessment by SAIF as a result of acquisitions of SAIF
deposits or SAIF-insured institutions. Compass' deposit liability under the
Funds Act was $7.2 million based upon $1.1 billion of SAIF deposits, after
certain discounts and exemptions.
THE SUBSIDIARY BANKS
In general, federal and state banking laws and regulations govern all
areas of the operations of the Subsidiary Banks, including reserves, loans,
mortgages, capital, issuances of securities, payment of dividends and
establishment of branches. Federal and state bank regulatory agencies also have
the general authority to limit the dividends paid by insured banks and bank
holding companies if such payments may be deemed to constitute an unsafe and
unsound practice. Federal and state banking agencies also have authority to
impose penalties, initiate civil and administrative actions and take other steps
intended to prevent banks from engaging in unsafe or unsound practices.
Compass Bank and Central Bank of the South are both organized under the
laws of the State of Alabama. Compass Bank is a member of the Federal Reserve
System. Compass Bank and Central Bank of the South (collectively, the "Alabama
Subsidiary Banks") are supervised, regulated and regularly examined by the
Alabama State Banking Department and Compass Bank is also regulated and examined
by the Federal Reserve. The Subsidiary Banks, as participants in the BIF and the
SAIF of the FDIC, are subject to the provisions of the Federal Deposit Insurance
Act and to examination by and regulations of the FDIC.
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The Subsidiary Banks are governed by Alabama laws restricting the
declaration and payment of dividends to 90% of annual net income until its
surplus funds equal at least 20% of capital stock. Compass Bank has surplus in
excess of this amount. As members of the Federal Reserve System, Compass Bank is
also subject to dividend limitations imposed by the Federal Reserve that are
similar to those applicable to national banks.
Federal law further provides that no insured depository institution may
make any capital distribution (which would include a cash dividend) if, after
making the distribution, the institution would not satisfy one or more of its
minimum capital requirements. Moreover, the federal bank regulatory agencies
also have the general authority to limit the dividends paid by insured banks if
such payments may be deemed to constitute an unsafe and unsound practice.
Insured banks are prohibited from paying dividends on its capital stock while in
default in the payment of any assessment due to the FDIC except in those cases
where the amount of the assessment is in dispute and the insured bank has
deposited satisfactory security for the payment thereof.
The Community Reinvestment Act of 1977 ("CRA") and the regulations of
the Federal Reserve implementing that act are intended to encourage regulated
financial institutions to help meet the credit needs of their local community or
communities, including low and moderate income neighborhoods, consistent with
the safe and sound operation of such financial institutions. The CRA and such
regulations provide that the appropriate regulatory authority will assess the
records of regulated financial institutions in satisfying their continuing and
affirmative obligations to help meet the credit needs of their local communities
as part of their regulatory examination of the institution. The results of such
examinations are made public and are taken into account upon the filing of any
application to establish a domestic branch, to merge or to acquire the assets or
assume the liabilities of a bank. In the case of a bank holding company, the CRA
performance record of the banks involved in the transaction are reviewed in
connection with the filing of an application to acquire ownership or control of
shares or assets of a bank or to merge with any other bank holding company. An
unsatisfactory record can substantially delay or block the transaction.
OTHER
Other legislative and regulatory proposals regarding changes in
banking, and the regulation of banks, thrifts and other financial institutions,
are being considered by the executive branch of the Federal government, Congress
and various state governments, including Alabama, Arizona 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 SEC, the United States
Department of the Treasury and the Federal Reserve. Compass Brokerage, Inc., a
wholly-owned subsidiary of Compass Bank, offers discount brokerage services and
is registered with the SEC and the National Association of Securities Dealers,
Inc. The subsidiary is subject to certain reporting requirements and regulatory
control by these agencies. Compass Bancshares Insurance, Inc., a wholly-owned
subsidiary of Compass Bank, is a licensed insurance agent or broker for various
insurance companies. Such insurance subsidiary and its licensed agents are
subject to reporting and licensing regulations of the Alabama Insurance
Commission and various other states. Albrecht & Associates, Inc., a wholly-owned
subsidiary of Compass Bank, is a financial advisor specializing in the
divestment of oil and gas properties and is subject to examination by the
Superintendent.
References under the heading "SUPERVISION AND REGULATION" to applicable
statutes are brief summaries of portions thereof, do not purport to be complete
and are qualified in their entirety by reference to such statutes.
DESCRIPTION OF COMPASS COMMON AND PREFERRED STOCK
The following summary of the terms and provisions of the Compass Common
Stock and the Compass Preferred Stock ("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.
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COMPASS COMMON STOCK
Compass is incorporated under the Delaware General Corporation Law
("GCL"). Compass is authorized to issue 200,000,000 shares of Compass Common
Stock, of which 113,587,586 shares were issued and outstanding on June 30, 1999.
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 WESTERN BANCSHARES 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 Subsidiary Banks are governed by Alabama laws
restricting the declaration and payment of dividends to 90% of annual net income
until its surplus funds equal at least 20% of capital stock. Compass Bank has
surplus in excess of this amount. As a member of the Federal Reserve System,
Compass Bank is also subject to dividend limitations imposed by the Federal
Reserve that are similar to those applicable to national banks. SEE
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE"; "SUMMARY--REASONS FOR THE
MERGER; RECOMMENDATION OF BOARD OF DIRECTORS"; "RISK FACTORS"; "SELECTED
FINANCIAL DATA"; "MARKET PRICES"; "COMPARISON OF RIGHTS OF SHAREHOLDERS OF
WESTERN BANCSHARES 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 Western Bancshares' 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 WESTERN BANCSHARES AND
COMPASS--ELECTION OF DIRECTORS".
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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. As of June 30, 1999,
460,000 shares of Compass Series E Preferred Stock and no shares of Compass
Series F Preferred Stock were issued and outstanding. SEE "THE MERGER"; "RISK
FACTORS" AND "COMPARISON OF RIGHTS OF SHAREHOLDERS OF WESTERN BANCSHARES AND
COMPASS--DIVIDENDS."
COMPASS SERIES E PREFERRED STOCK
Dividends. Dividends are payable at an annual rate of $2.625
per share, if, when and as declared by the Board. Dividends are not cumulative
and are payable quarterly in arrears on the fifteenth (15th) day of February,
May, August and November in each year. Dividends must be declared, paid or set
aside on Compass Series E Preferred Stock before dividends may be declared, paid
or set aside on Compass Common Stock or any junior stock. Holders of Compass
Series E Preferred Stock will not participate in dividends with the Compass
Common Stock or any junior stock.
Redemption. Compass Series E Preferred Stock is redeemable
upon any dividend payment date commencing November 15, 1999, at the option of
Compass, in whole or in part, at a redemption price of $25.00 per share plus
declared and unpaid dividends for the then-current dividend period up to the
date fixed for redemption.
Ranking. Compass Series E Preferred Stock ranks senior to the
Compass Common Stock and ranks on a parity with Compass' Series F Preferred
Stock with respect to cash dividend rights and rights upon liquidation,
dissolution or winding up. Compass Series E Preferred Stock is subject to the
creation of parity preferred stock and junior stock; provided, however, that no
cumulative parity preferred stock may be created or issued unless approved by
the holders of the Compass Series E Preferred Stock.
Liquidation Preference. Compass Series E Preferred Stock has a
liquidation preference of $25.00 per share plus declared and unpaid dividends
for the current dividend period up to the date fixed for liquidation, before any
distribution to holders of Compass Common Stock or any junior stock. If the
amounts available for distribution with respect to the Compass Series E
Preferred Stock and any other parity preferred stock are not sufficient to
satisfy the full liquidation rights of the Compass Series E Preferred Stock and
such parity preferred stock, then the holders of each series of such stock share
ratably in such distribution of assets in proportion to the full respective
preferential amounts to which they may be entitled. Upon any such liquidation,
but only after each holder of Series E Preferred Stock shall have been paid in
full the stated dividends and amounts payable to which each such holder is
entitled, the remaining assets of Compass may be distributed to the holders of
Compass Common Stock or junior stock.
Conversion. The holders of shares of Compass Series E
Preferred Stock do not have any right to convert such shares into shares of
Compass Common Stock.
Voting Rights. Except as described herein or as otherwise
required by applicable law, holders of Compass Series E Preferred Stock do not
have any voting rights.
So long as any shares of Compass Series E Preferred Stock are
outstanding, Compass may not, without the consent of a majority of the
outstanding shares of Compass Series E Preferred Stock (1) amend, alter or
repeal any of the terms of the Certificate of Designation, Preferences,
Privileges and Voting Powers of the Compass Series E Preferred Stock if such
amendment, authorization or repeal would materially and adversely affect the
rights, preferences, powers or privileges of the Compass Series E Preferred
Stock; or (2) create, authorize or issue,
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or increase the authorized or issued amount of, any class or series of any
equity securities of Compass, or any warrants, options or other rights
convertible or exchangeable into any class or series of any equity securities of
Compass, ranking either prior to, or on parity with, the Compass Series E
Preferred Stock either as to cash dividend rights or rights on liquidation,
winding up or dissolution of Compass; provided, however, that the consent of the
holders of the Compass Series E Preferred Stock is not be required in connection
with the creation, authorization or issuance of parity preferred stock unless
such parity preferred stock has cumulative dividend rights.
If Compass fails to pay quarterly dividends for any four (4)
consecutive or non-consecutive dividend periods, the holders of Compass Series E
Preferred Stock are entitled to elect, voting as a class with any holders of
non-cumulative parity stock which by its terms provides for voting rights
similar to the shares of Compass Series E Preferred Stock, two additional
directors of Compass. The right of holders of shares of Compass Series E
Preferred Stock to elect directors continues until dividends on the shares of
Compass Series E Preferred Stock have been paid in full or declared and set
apart for payment in full for four (4) consecutive dividend periods.
Merger. A consolidation, merger or sale of all or
substantially all of the assets of Compass is not considered a liquidation,
dissolution or winding up of Compass for purposes of liquidation preferences;
provided, however, that if the aggregate amount of cash receivable by holders of
Compass Series E Preferred Stock in exchange for or upon conversion of Compass
Series E Preferred Stock in connection with a cash merger would be less than the
stated liquidation value of the outstanding Compass Series E Preferred Stock,
then such cash merger is considered a liquidation, dissolution or winding up of
Compass.
COMPASS SERIES F PREFERRED STOCK
Dividends. Dividends are payable at an annual rate of $2.28125
per share, if, when and as declared by the Board. Dividends are not cumulative
and are payable quarterly in arrears on the fifteenth (15th) day of each
February, May, August and November. Dividends must be declared, paid or set
aside on Compass Series F Preferred Stock before dividends may be declared, paid
or set aside on Compass Common Stock or any junior stock. Holders of Compass
Series F Preferred Stock will not participate in dividends, if any, declared and
paid on Compass Common Stock or any other junior stock.
Redemption. Thereafter, Compass Series F Preferred Stock is
redeemable in whole or in part, at the option of Compass, on any dividend
payment date upon not less than thirty (30) days' prior written notice, at the
following per share redemption amounts, plus declared and unpaid dividends for
the current dividend period up to the date fixed for redemption, without
interest: $25.75 if the redemption date is within the twelve (12) month period
beginning February 15, 1999; $25.375 if such date is within the twelve (12)
month period beginning February 15, 2000; and $25.00 thereafter.
Ranking. Compass Series F Preferred Stock ranks senior to the
Compass Common Stock and ranks on parity with Compass Series E Preferred Stock,
with respect to both cash dividend rights and rights upon liquidation,
dissolution or winding up. Compass Series F Preferred Stock is subject to the
creation of parity preferred stock and junior stock; provided, however, that no
cumulative parity preferred stock may be created or issued unless approved by
the holders of the Compass Series F Preferred Stock.
Liquidation Preference. In the event of any voluntary or
involuntary liquidation of Compass, holders of Compass Series F Preferred Stock
is entitled to be paid $25.00 per share, plus dividends declared and unpaid for
the current dividend period up to the date fixed for liquidation, before any
distribution to holders of Compass Common Stock or any junior stock. If the
amounts available for distribution with respect to the Compass Series F
Preferred Stock and any other parity preferred stock are not sufficient to
satisfy the full liquidation rights of the Compass Series F Preferred Stock and
such parity preferred stock, then the holders of each series of such stock share
ratably in such distribution of assets in proportion to the full respective
preferential amounts to which they may be entitled. Upon any such liquidation,
but only after each holder of Series F Preferred Stock shall have been paid in
full the stated dividends and amounts payable to which each such holder is
entitled, the remaining assets of Compass may be distributed to the holders of
Compass Common Stock or junior stock.
Conversion. The holders of shares of Compass Series F
Preferred Stock have no right to convert such shares into shares of Compass
Common Stock or any other class of capital stock of Compass.
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<PAGE> 34
Voting Rights. Except as described herein or as otherwise
required by applicable law, holders of Compass Series F Preferred Stock do not
have any voting rights.
So long as any shares of Compass Series F Preferred Stock are
outstanding, Compass may not, without the consent of a majority of the
outstanding shares of Compass Series F Preferred Stock (1) amend, alter or
repeal any of the terms of the Certificate of Designation, Preferences,
Privileges and Voting Powers of the Compass Series F Preferred Stock if such
amendment, authorization or repeal would materially and adversely affect the
rights, preferences, powers or privileges of the Compass Series F Preferred
Stock; or (2) create, authorize or issue, or increase the authorized or issued
amount of, any class or series of any equity securities of Compass, or any
warrants, options or other rights convertible or exchangeable into any class or
series of any equity securities of Compass, ranking either prior to, or on
parity with, the Compass Series F Preferred Stock either as to cash dividend
rights or rights on liquidation, winding up or dissolution of Compass; provided,
however, that the consent of the holders of the Compass Series F Preferred Stock
is not required in connection with the creation, authorization or issuance of
parity preferred stock unless such parity preferred stock has cumulative
dividend rights.
If Compass fails to pay dividends on Compass Series F
Preferred Stock at the stated rate for any four (4) consecutive or
non-consecutive dividend periods, the holders of Compass Series F Preferred
Stock have the right to elect, voting as a class with holders of Compass Series
E Preferred Stock or any other holders of any series of non-cumulative parity
stock which by its terms provides for voting rights with respect to the election
of directors, two additional directors of Compass. The right of holders of
shares of Compass Series F Preferred Stock to elect directors continues until
dividends on the shares of Compass Series F Preferred Stock have been paid in
full or declared and set apart for payment in full for four (4) consecutive
dividend periods.
COMPARISON OF RIGHTS OF
SHAREHOLDERS OF WESTERN BANCSHARES 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.
Western Bancshares' Articles and Bylaws do not contain similar restrictions,
although under New Mexico law Western Bancshares' shareholders may take action
without a meeting only be unanimous written consent.
The foregoing summary is qualified in its entirety by reference to
Compass' Certificate and Bylaws, which are available upon written request from
Compass and which are on file with the Commission, and to the Articles and
Bylaws, of Western Bancshares, which are available upon request from Western
Bancshares. SEE "AVAILABLE INFORMATION"; "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE"; "RISK FACTORS"; AND "INFORMATION ABOUT COMPASS".
In addition to the foregoing differences between Western Bancshares'
and Compass' charters, as a result of the Merger, Western Bancshares'
shareholders, whose rights are governed by the NMBCA, 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 NEW MEXICO AND DELAWARE AND
CORRESPONDING CHARTER AND BYLAW PROVISIONS
Certain differences between the GCL and NMBCA, as well as a description
of the corresponding provisions contained in Compass' and Western Bancshares'
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
NMBCA and the GCL and applicable charter and bylaw provisions.
31
<PAGE> 35
MERGERS
The GCL generally permits a merger to become effective without the
approval of the surviving corporation's shareholders if the certificate of
incorporation of the surviving corporation does 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.
The NMBCA generally permits a merger to become effective without the
approval of the surviving corporation's shareholders if the articles of
incorporation of the surviving corporation do not change following the merger
except as to the name of the corporation, each holder of shares of the surviving
corporation which were outstanding before the merger is to hold the same number
of shares with identical rights after the merger and the number of shares
outstanding after the merger will not exceed by more than 20% the number of
shares outstanding before the merger.
Where shareholder approval is required under New Mexico law, a merger
must be approved by the holders of a majority of the shares entitled to vote
thereon, unless any class of shares is entitled to thereon as a class in which
event the merger shall be approved by the affirmative vote of the holders of a
majority of the shares of each class entitled to vote as a class. 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 WESTERN
BANCSHARES AND COMPASS-CHARTER AND BYLAW PROVISIONS AFFECTING COMPASS STOCK".
APPRAISAL RIGHTS
Shareholders of New Mexico corporations are entitled to exercise
certain dissenters' rights in the event of (1) a sale or exchange of all or
substantially all of the property and assets of the corporation not in the
ordinary course of business, (2) a plan of exchange, (3) an amendment to the
articles of incorporation of the corporation which materially and adversely
affects the rights of shareholder, and (4) with the exceptions discussed below,
a merger or consolidation. Shareholders of a Delaware corporation 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 New Mexico 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 New Mexico law for shareholders
of a surviving New Mexico corporation in a merger if a vote of the shareholders
of such corporation is not necessary to authorize such merger.
No appraisal rights are available under Delaware law, except as
described below, for the holders of any shares of a class or series of stock of
a 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.
Delaware law has a provision which states that shareholders do not have
appraisal rights in connection with a merger where, on the record date fixed to
determine the shareholders entitled to vote on the merger or consolidation, the
stock of the corporation is listed on a national securities exchange, is listed
on the Nasdaq stock market or is held of record by more than 2,000 shareholders,
unless any of the following exceptions concerning consideration paid to the
shareholder for his shares are met. 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 (1) shares of stock
of the corporation surviving or resulting from such merger or consolidation, or
depository receipts in respect thereof, (2) shares of stock of any other
corporation or depository receipts in respect thereof, which at the effective
date of the
32
<PAGE> 36
merger or consolidation will be either listed on a national securities exchange
or held of record by more than 2,000 shareholders, (3) cash in lieu of
fractional shares or fractional depository receipts of a corporation described
in (1) and (2) above, or (4) any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional depositary receipts
described in (1), (2) and (3) above.
SPECIAL MEETINGS
A special meeting of shareholders of a New Mexico corporation may be
called by the board of directors, the holders of not less than one-tenth of all
shares entitled to vote at the meeting, or such other persons as authorized in
the articles or incorporation or bylaws of the corporation. Western Bancshares'
Bylaws provide that special meetings of the shareholders may be called by the
President or by the Board of Directors, and shall be called by the President at
the request of the holders of not less than 10% of all outstanding shares
entitled to vote at the meeting.
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. Compass' Certificate
prohibits shareholders from calling special meetings. SEE "RISK FACTORS".
ACTIONS WITHOUT A MEETING
New Mexico law and Western Bancshares' Bylaws provide that any action
to be taken at a meeting of the shareholders may be taken without a meeting if a
consent in writing is signed by all of the shareholders entitled to vote with
respect to the subject matter thereof.
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 New Mexico law, a corporation's articles of incorporation
may provide that at each election for directors every shareholder entitled to
vote thereon has the right to vote the number of shares owned by him for as many
persons as there are directors to be elected and for whose election he has a
right to vote, or to cumulate his votes. Western Bancshares' Articles prohibit
cumulative voting with respect to 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
New Mexico law provides whenever such law specifies the vote of the
holders of a certain proportion of the shares, or of any class thereof, for the
taking of any action by the shareholders of the corporation, the articles of
incorporation of a New Mexico corporation may require a greater proportion.
Western Bancshares' Articles do not require a greater proportion for any action.
Under New Mexico law, an amendment to a corporation's articles of
incorporation requires the approval of the holders of a majority of the
outstanding shares of the corporation entitled to vote thereon, unless any class
is entitled to vote thereon as a class, in which event the proposed amendment
shall be adopted upon receiving the affirmative vote of the holders of a
majority of each class entitled to vote thereon as a class and of the total
shares entitled to vote thereon. Delaware law provides that amendments to a
corporation's 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 of all, or substantially
all, the property and assets, with or without the goodwill, of a New Mexico
corporation, if not in the usual and regular course of its business, requires
the approval of the holders of at a majority of the shares entitled to vote
33
<PAGE> 37
thereon, unless any class is entitled to vote thereon as a class, in which event
the authorization shall require the affirmative vote of the holders of a
majority of the shares of each class entitled to vote as a class thereon and of
the total shares entitled to vote thereon. A Delaware corporation may sell,
lease or exchange all or substantially all of its property and assets when and
as authorized by the holders of a majority of the outstanding stock of the
corporation entitled to vote thereon, unless the Certificate of Incorporation
requires the vote of a larger portion of the outstanding stock. Compass'
Certificate does not so provide.
Under New Mexico law, the voluntary dissolution of a corporation
requires the approval of the holders of at a majority of the shares entitled to
vote thereon, unless any class is entitled to vote thereon as a class, in which
event the authorization shall require the affirmative vote of the holders of a
majority of the shares of each class entitled to vote as a class thereon and of
the total shares entitled to vote thereon. In addition, the NMBCA provides that
a New Mexico corporation may be voluntarily dissolved by the written consent of
all of its shareholders. 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 New Mexico law, shareholders possess preemptive rights to acquire
authorized but unissued shares of the corporation, unless the corporation's
articles of incorporation provide otherwise. Western Bancshares' Articles deny
preemptive rights and, therefore, Western Bancshares' shareholders do not have
preemptive rights as to newly issued shares. Shareholders of Compass also do not
possess such preemptive rights.
DIVIDENDS
A New Mexico corporation may make distributions, subject to any
restrictions in its articles of incorporation, so long as, after giving effect
thereto, (1) either the corporation would be able to pay its debts as they
become due in the usual course of its business or (2) the corporation's total
assets would not be less than the sum of its total liabilities and the maximum
amount that then would be payable, in any liquidation, in respect of all
outstanding shares having preferential rights. Western Bancshares' Articles do
not impose any restrictions. 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.
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.
SEE "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE";
"SUMMARY--PARTIES TO THE MERGER"; "SUMMARY--REASONS FOR The MERGER;
RECOMMENDATION OF BOARD OF DIRECTORS"; "SELECTED FINANCIAL DATA"; "MARKET
PRICES"; "DESCRIPTION OF COMPASS COMMON AND PREFERRED STOCK"; AND "INFORMATION
ABOUT WESTERN BANCSHARES--MARKET PRICE AND DIVIDENDS".
LIQUIDATION RIGHTS
Generally under New Mexico 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.
The Articles of Incorporation of Western Bancshares do not authorize preferred
stock.
34
<PAGE> 38
LIMITATION OF LIABILITY AND INDEMNIFICATION
Both New Mexico and Delaware corporate law permit a corporation to set
limits on the extent of a director's liability. Both New Mexico and Delaware law
permit a corporation to indemnify its officers, directors, employees and agents
if such person acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation. Indemnification is
not allowed under either New Mexico 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 (1) for breach of a director's duty of loyalty, (2) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (3) unlawful payment of dividend or unlawful stock purchase or
redemption, or (4) 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".
Western Bancshares' Articles of Incorporation provide that the
corporation shall indemnify its directors, officers, agents and employees and
any person who serves at the request of such persons. In the case of a suit by
or in the right of the corporation, Western Bancshares will only indemnify the
named persons if he is successful on the merits or otherwise, or if he acted in
good faith and in a manner he reasonable believed to be in, or not opposed to,
the best interests of the corporation. However, he shall not be indemnified in
respect of any claim as to which he has been adjudged liable for negligence or
misconduct in the performance of his duty to the corporation unless the court
determine that he is entitled to indemnification for expenses.
In the case of a non-derivative action, Western Bancshares will
indemnify the named persons only if he is successful on the merits or otherwise,
or if he acted in good faith and in a manner he reasonable believed to be in, or
not opposed to, the best interests of the corporation and, with respect to any
criminal action, he had no reason to believe his conduct was unlawful.
Western Bancshares may pay in advance any expenses which may become
subject to indemnification if the Board of Directors authorizes the specific
payment and the person receiving the payment undertakes in writing to repay
unless it is ultimately determined that he is entitled to indemnification.
The indemnification provided by Western Bancshares' Articles of
Incorporation is not exclusive of any rights to which a person may be entitled
by law or otherwise. In addition, Western Bancshares may purchase and maintain
insurance on behalf of any person who is a director, officer, agent or officer
of Western Bancshares against any liability incurred by him in any such
position, whether or not Western Bancshares would have power to indemnify him
against such liability.
REMOVAL OF DIRECTORS
New Mexico law provides that a director, or the entire board of
directors, of a New Mexico corporation may be removed, with or without cause, by
a vote of the holders of a majority of the shares then entitled to vote at an
election of directors. A majority of shareholders of a Delaware corporation may
remove a director with or without cause, unless the directors are classified and
elected for staggered terms, in which case, directors may be removed only for
cause. Compass' Certificate of Incorporation provides for a classified board,
and any such removal must be for cause after a supermajority vote (80%) of the
shareholders.
INSPECTION OF BOOKS AND RECORDS
Under New Mexico 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
corporation's relevant books and records for any proper purpose. Under Delaware
law, any shareholder has such a right.
35
<PAGE> 39
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 WESTERN BANCSHARES AND
COMPASS--CHARTER AND BYLAW PROVISIONS AFFECTING COMPASS STOCK". New Mexico has
not enacted similar legislation.
Although certain of the specific differences between the voting and
other rights of Western Bancshares' 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 New Mexico and
Delaware law, or the rights of such persons under the respective charters and
Bylaws of Compass and Western Bancshares. 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 NMBCA and the GCL, and the specific provisions of Compass'
Certificate and Bylaws, and Western Bancshares' Articles of Incorporation and
Bylaws, as amended.
RESALE OF COMPASS STOCK
The Compass Common Stock to be issued to holders of Western Bancshares
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 Western Bancshares within the meaning of Rule 145 under the
Securities Act. The directors and executive officers of Western Bancshares, the
beneficial owners of 10% or more of Western Bancshares Common Stock and certain
of their related interests may be deemed to be affiliates of Western Bancshares.
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 already delivered to Compass a written agreement in
substantially the form of Exhibit B to the Merger Agreement providing that each
such affiliate will not (1) sell, pledge, transfer or otherwise dispose of any
of such affiliate's Western Bancshares Common Stock within 30 days prior to the
Effective Time; (2) 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 Western Bancshares and
Compass, except for pledges by such affiliates of all or part of such
affiliate's Compass Common Stock acquired in the Merger, provided the lender
agrees to be bound by the terms of such written agreement; and (3) 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 Western
Bancshares Common Stock that will be entitled to receive at least 50% of the
aggregate Merger Consideration have represented to Compass that they have no
present plan or intention 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 Western Bancshares' shareholders receiving at
least 50% of the aggregate Merger Consideration that they have no plan or
intention to sell or otherwise dispose of the shares of Compass Common Stock
received pursuant to the Merger must remain true as of the Effective Time. SEE
"THE MERGER--OTHER TERMS AND CONDITIONS".
INFORMATION ABOUT COMPASS
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Certain documents filed by and relating to Compass, including Compass'
Annual Report on Form 10-K for the year ended December 31, 1998 and Compass'
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999 and June
30, 1999, 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 Western Bancshares or the Merger, except as a
director, executive officer or shareholder of Compass or its subsidiaries.
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<PAGE> 40
INFORMATION ABOUT WESTERN BANCSHARES
Western Bancshares is a New Mexico corporation organized in 1982 and
currently conducts no operations other than serving as a bank holding company
under the BHC Act for the Bank. Western Bancshares derives its revenues
primarily from the operations of the Bank in the form of dividends paid from the
Bank to Western Bancshares. Western Bancshares is subject to regulation by the
Federal Reserve.
The Bank was chartered in 1970 under the name Western State Bank and
changed its name to Western Bank in 1974. The Bank is an independent community
bank located in Albuquerque, New Mexico. The Bank is a full service bank
offering a variety of services to satisfy the needs of the consumer and
commercial customers in the area. The principal services offered by the Bank
include most types of loans, including commercial, consumer and real estate
loans. The Bank also offers safe deposit boxes, a night deposit facility, motor
bank, wire transfer services and ATM cards.
SERVICES, EMPLOYEES AND PROPERTIES
On October 29, 1999, the Bank had 13 executive officers, 10 directors,
98 full-time employees and 9 part-time employees. Directors of the Bank are paid
$900 per month for their services. Western Bancshares had 2 officers and 5
directors at that date. Directors of Western Bancshares receive $900 per month
for their services.
The Bank's main office is located at 505 Marquette, N.W., Albuquerque,
New Mexico. The Bank has nine full-service branches and one motor bank branch
location.
SEE "INFORMATION ABOUT WESTERN BANCSHARES--BENEFICIAL OWNERSHIP OF
WESTERN BANCSHARES COMMON STOCK BY WESTERN BANCSHARES MANAGEMENT AND PRINCIPAL
SHAREHOLDERS".
COMPETITION
The Bank considers its service area to be the area encompassing
Albuquerque, New Mexico. The activities in which the Bank engages are
competitive. Each activity engaged in by the Bank 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.
Western Bancshares 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. Western Bancshares 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 Western Bancshares competes have capital and resources
much larger than those of Western Bancshares, and some are not subject to the
same regulatory restrictions.
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<PAGE> 41
LEGAL PROCEEDINGS
In the normal course of its businesses, Western Bancshares from time to
time is involved in legal proceedings. Other than such proceedings incidental to
its business, Western Bancshares' management is not aware of any pending or
threatened legal proceedings which, upon resolution, would have a material
adverse effect upon Western Bancshares' financial condition, results of
operations or cash flows. 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 Western Bancshares
Common Stock. As of the Record Date, Western Bancshares Common Stock was held by
63 holders of record. Western Bancshares pays semi-annual dividends on its
common stock. SEE "SELECTED FINANCIAL DATA"; MARKET PRICES"; "COMPARISON OF
RIGHTS OF SHAREHOLDERS OF WESTERN BANCSHARES AND COMPASS DIVIDENDS"; AND
"INFORMATION ABOUT WESTERN BANCSHARES--BENEFICIAL OWNERSHIP OF WESTERN
BANCSHARES COMMON STOCK BY WESTERN BANCSHARES MANAGEMENT AND PRINCIPAL
SHAREHOLDERS".
BENEFICIAL OWNERSHIP OF WESTERN BANCSHARES COMMON STOCK BY WESTERN BANCSHARES
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 Western Bancshares Common
Stock known to the Board of Directors of Western Bancshares, showing the amount
and nature of such beneficial ownership and the names of each director and
executive officer of Western Bancshares, the number of shares of Western
Bancshares Common Stock owned beneficially by each director and executive
officer and the number of shares of Western Bancshares Common Stock owned
beneficially by all directors and executive officers as a GROUP. None of the
shareholders listed herein would own, on a pro forma basis giving effect to the
Merger, more than 1% of the issued and outstanding shares of Compass Common
Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP (1) PERCENT OF CLASS
---------------- --------------------------- ----------------
<S> <C> <C>
William T. Fietz (2) 20,798.05 15.46%
David Wintermute (3) 6,586.57 4.89%
W. Michael Fietz (4) 644.35 0.48%
Garlan Bryan 2,696.00 2.00%
Richard C. Civerolo (5) 6,020.00 4.47%
George A. Dubois (6) 7,632.85 5.67%
Sam Green 2,895.00 2.15%
Steven Jackson (7) 2,986.40 2.22%
Gary Swearingen (8) 2,808.00 2.09%
Donald Weagley (9) 2,809.00 2.09%
Charles W. Williams (10) 8,649.00 6.70%
</TABLE>
38
<PAGE> 42
<TABLE>
<S> <C> <C>
Western Bank ESOP 34,795 25.87%
P.O. Box 26144
Albuquerque, NM 87125
All Directors and Officers 64,892.031 48.24%
as a Group (11 persons)
- ---------------
</TABLE>
(1) Unless otherwise indicated, each individual is the record owner of, and
has sole voting and investment power with respect to, all shares of
Western Bancshares Common Stock of which he or she is the beneficial
owner. Unless otherwise indicated, all percentages are based upon
134,522 shares of Western Bancshares Common Stock issued and
outstanding.
(2) Includes 6,380.908 shares of Western Bancshares Common Stock owned by
the Western Bank Employee Stock Ownership Plan, 1,360.75 shares owned
by Fietz, et al., 366.8 shares owned by Fietz, et al, II and 36.6
shares owned by Fietz, et al, III.
(3) Includes 2,515.420 shares of Western Bancshares Common Stock owned by
the Western Bank Employee Stock Ownership Plan, 1,360.75 shares owned
by Fietz, et al., 366.8 shares owned by Fietz, et al, II and 36.6
shares owned by Fietz, et al, III.
(4) Includes 57.753 shares of Western Bancshares Common Stock owned by
the Western Bank Employee Stock Ownership Plan and 36.6 shares owned by
Fietz, et al III.
(5) Includes 6,020 shares of Western Bancshares Common Stock owned by the
Richard C. Civerolo Trust of which Mr. Civerolo serves as Trustee and
Richard and Mary Civerolo are beneficiaries.
(6) Includes 3,792.7 shares of Western Bancshares Common Stock owned
indirectly by Mr. Dubois through his ownership in the Dubois, Cooksey,
Bishoff Profit Sharing Trust, 1,360.75 shares owned by Fietz, et al.,
366.8 shares owned by Fietz, et al, II and 36.6 shares owned by Fietz,
et al, III.
(7) Includes 366.8 shares owned by Fietz, et al, II and 36.6 shares owned
by Fietz, et al, III.
(8) Includes 2,808 shares of Western Bancshares Common Stock owned by the
Gary and Carol Swearingen Trust of which Mr. and Mrs. Swearingen serve
as trustees and beneficiaries.
(9) Includes 2,809 shares of Western Bancshares Common Stock owned by the
Donald Weagley Trust of which Don and Betty Weagley serve as trustees
and beneficiaries.
(10) Includes 9,015.80 shares of Western Bancshares Common Stock owned by
the Charles W. Williams Trust of which Mr. Williams serves as trustee
and beneficiary and 366.8 shares owned by Fietz, et al, II.
- ----------------
The persons listed above will receive the same Merger Consideration
described in "THE MERGER--GENERAL" as the other Western Bancshares' shareholders
for each share of Western Bancshares Common Stock held at the Effective Time.
William T. Fietz Employment Agreement. Compass Bank and William T.
Fietz entered into the William T. Fietz Employment Agreement pursuant to which
Mr. Fietz will serve as Chairman - Compass Bank Albuquerque for a period of
three years commencing at the Effective Time. Mr. Fietz shall receive an annual
base salary of $320,000 per year with merit increases in accordance with Compass
Bank's salary administration program based upon performance. Mr. Fietz shall
also be able to participate, up to 50% of his annual base salary, in the Compass
Bancshares, Inc. executive incentive program with the payment for calendar year
2000 in the amount of $160,000 being guaranteed. In addition to other benefits,
Mr. Fietz will be provided such benefits as are made generally available to
employees of equal title and base salary on the same basis as Compass Bank makes
such benefits available to other employees. The William T. Fietz Employment
Agreement provides that Mr. Fietz will not disclose to any other person any
confidential information of Compass Bank or its affiliates or Western Bancshares
or
39
<PAGE> 43
the Bank. In addition, for the consideration of $250,000 per year for seven
years beginning upon his termination, Mr. Fietz will not directly or indirectly
compete with Western Bancshares, the Bank, Compass Bank or its affiliates for a
period of seven years after his employment with Compass Bank is terminated.
Each of David E. Wintermute, Jason Shaffer, John D. Stewart and W.
Michael Fietz entered into employment agreements with Compass Bank executed as
of July 23, 1999. The employment agreements are each for a term of two years
commencing at the Effective Time and each contains noncompetition and
confidentiality provisions.
EMPLOYEE STOCK OWNERSHIP PLAN
In 1977, the Bank adopted the Western Bank, Albuquerque, New Mexico,
Employee Stock Ownership Plan (the "Plan"), which has been restated and amended
from time to time, for employees of the Bank. The Plan is a qualified retirement
plan designed to invest primarily in employer securities, and intended to
supplement participants' income upon retirement. An employee is eligible to
participate in the Plan on the January 1 immediately preceding the later of the
dates such employee completes one year of service or attains the age of 21.
Under the Plan, each year the Bank will contribute to the Plan an
amount determined by the Bank in its discretion. William T. Fietz, David E.
Wintermute and Richard M. Davidson hold the office of Trustee. The Trustee will
invest the trust fund primarily in common stock of Western Bancshares. The Bank
contributes cash, and the Trust (as defined in the Plan) uses the cash to
purchase common stock of Western Bancshares. The only source of contributions
under the Plan is the Bank's annual contribution. The Trustee will pay benefits
attributable to the Bank's contributions in common stock or in cash, at the
participant's election.
Under the terms of the Plan, the Trustee votes all shares of stock held
by the Plan in the manner directed by the Bank; however, the Trustee has no
discretionary voting authority with respect to the Plan. The Bank has empowered
William T. Fietz to direct the Trustee as to the manner in which the shares held
by the Trust are to be voted, including but not limited to voting with respect
to the Merger. Notwithstanding the foregoing, a participant in the Plan may
direct the Trustee as to the manner in which the participant's allocable shares
of stock held by the Trust are to be voted with respect to corporate matters
which are to be decided by more than a majority of the outstanding shares voted,
including voting with respect to the Merger.
As of June 30, 1999, there were 34,795 shares of Western Bancshares
Common Stock owned by the Plan which is equal to 25.8657% of the issued and
outstanding stock of Western Bancshares. As of June 30, 1999, approximately
6,381, 2,515 and 58 shares were allocated to each of the accounts of William T.
Fietz, David E. Wintermute and W. Michael Fietz, respectively.
40
<PAGE> 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF WESTERN BANCSHARES
The following discussion provides certain information regarding the
financial condition and results of operations of Western Bancshares. This
discussion should be read in conjunction with Western Bancshares' Consolidated
Financial Statements and Notes to Consolidated Financial Statements presented
elsewhere in this Proxy Statement/Prospectus. SEE "INDEX TO WESTERN BANCSHARES
CONSOLIDATED FINANCIAL STATEMENTS."
S-CORP ELECTION IN 1998
On April 13, 1998, the Company received notice from the Internal
Revenue Service that its election to be treated as an S corporation for federal
income tax purposes was accepted with an effective date of January 1, 1998. As a
result of the S election, the Company removed certain December 31, 1997 deferred
tax assets, net of certain deferred tax liabilities that were no longer
realizable, which is attributable to projected built-in gains on investment
securities. The following table presents select pro forma financial information
assuming Western Bancshares had continuously remained a C-corporation.
<TABLE>
<CAPTION>
June 30, 1999* December 31, 1998 June 30, 1998*
-------------- ----------------- --------------
<S> <C> <C> <C>
Pro forma income tax expense $1,750,821 $2,807,699 $1,602,339
========== ========== ==========
Pro forma net income $2,799,626 $4,518,087 $2,605,015
========== ========== ==========
Pro forma earnings per share** $20.81 $33.59 $19.36
====== ====== ======
</TABLE>
* Calculated for the six months ended.
** Represents basic earnings per share using the weighted average number of
common stock shares outstanding of 134,522
RESULTS OF OPERATIONS
NET INCOME
Western Bancshares, through its Western Bank Subsidiary, derives its
net income from two principal sources: (1) net interest income, which is the
difference between the interest income Western Bancshares earns on
interest-earning assets and the interest expense it pays on interest-bearing
liabilities; and (2) non-interest income from retail banking operations.
Net income for the six months ended June 30, 1999 was $4.5 million, as
compared to $3.8 million for the same period in 1998, an increase of $ .7
million, or 18%. The primary reason for the increase was an increase in
interest-earning assets included in the loan and investment portfolios.
Net income for the year ended December 31, 1998 was $6.8 million,
compared to $3.9 million for the year ended December 31, 1997 and $ 3.6 million
for the year ended December 31, 1996. Net income for 1998 increased dramatically
over 1997 due primarily to the S-Corp Election.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS
130"). SFAS 130 requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS 130 does not require a specific format for the
financial statement in which comprehensive income is reported, but does require
that an amount representing total comprehensive income be reported in that
statement. Management has complied with SFAS 130, which is effective for periods
beginning after December 15, 1997.
41
<PAGE> 45
NET INTEREST INCOME
Net interest income is the amount by which interest earned on
interest-earning assets exceeds the interest paid on interest-bearing
liabilities. Western Bancshares' net interest income is affected by changes in
the amount and the relative proportions (mix) of interest-earning assets and
interest-bearing liabilities, as well as by changes in yields earned on
interest-earning assets and interest rates paid on interest-bearing deposits and
other borrowed funds.
The following table sets forth, for the periods and as of the dates
indicated, information regarding Western Bancshares' average balance sheet.
Ratio, yield and rate information are based on average daily balances during the
six months ended June 30, 1999 and 1998 and the years ended December 31, 1998,
1997 and 1996. Non-accrual loans are included in the average balances for loans
receivable, net, for the periods indicated.
<TABLE>
<CAPTION>
AS OF AND FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------------------------------------------------
1999 1998
------------------------------------ ------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCES INTEREST RATE(1) BALANCES INTEREST RATE(1)
----------- ------------ ----------- ----------- ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans receivable, net $137,490 $6,725 9.86% $131,485 $6,875 10.54%
Investment securities and
other interest-earning
assets 114,339 3,295 5.81% 90,118 2,617 5.86%
-------- ------ -------- -----
Total interest-earning assets 251,829 10,020 8.02% 221,603 9,492 8.64%
Non-interest-earning assets 29,952 25,656
-------- --------
Total assets $281,781 $247,259
======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits $173,179 $3,531 4.11% $156,738 $ 3,527 4.51%
Other borrowings 800 33 8.32% 1,500 66 8.87%
FHLB advances and
repurchase agreements
and other borrowed funds 14,491 259 3.60% 6,568 129 3.96%
-------- ------ -------- -----
Total interest-bearing
liabilities 188,470 3,823 4.11% 164,806 3,722 4.55%
Non-interest-bearing
liabilities 60,473 51,980
-------- --------
Total liabilities 248,943 216,786
Stockholders' equity 32,838 30,473
-------- --------
Total liabilities and
stockholders' equity $281,781 $247,259
======== ========
Net interest income;
interest rate spread $6,197 3.91% $5,770 4.09%
====== ======
Net interest yield on
interest-earning assets 4.96% 5.25%
Net interest margin
of average total assets 4.43% 4.71%
</TABLE>
(1) Calculated on an annualized basis.
42
<PAGE> 46
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------
1998 1997 1996
------------------------------ -------------------------------- --------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCES INTEREST RATE BALANCES INTEREST RATE BALANCES INTEREST RATE
------------------------------ -------------------------------- --------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans receivable, net $131,934 $13,765 10.43% $122,566 $13,008 10.61% $115,829 $12,250 10.58%
Investment securities and
other interest earning
assets 102,008 5,912 5.80% 81,242 4,724 5.81% 78,406 4,529 5.78%
-------- ------- -------- ------ -------- ------
Total interest-earning 233,942 19,677 8.41% 203,808 17,732 8.70% 194,235 16,779 8.64%
assets
Non-interest-earning assets 27,072 24,319 23,379
-------- -------- --------
Total assets $261,014 $228,127 $217,614
======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing
liabilities:
Deposits $162,509 $7,285 4.48% $142,366 $6,595 4.63% $137,122 $6,302 4.60%
Other borrowings 1,280 120 9.38% 1,900 171 9.00% 2,920 279 9.55%
FHLB advances and
repurchase agreements
and other borrowed funds 10,966 484 4.41% 4,532 186 4.10% 2,260 117 5.18%
-------- ------- -------- ------ -------- ------
Total interest-bearing
liabilities 174,755 7,889 4.51% 148,798 6,952 4.67% 142,302 6,698 4.71%
Non-interest-bearing
liabilities 54,928 52,719 52,967
-------- -------- --------
Total liabilities 229,683 201,517 195,269
Stockholders' equity 31,331 26,610 22,345
-------- -------- --------
Total liabilities and
stockholders' equity $261,014 $228,127 $217,614
======== ======== ========
Net interest income;
interest rate spread $11,788 3.90% $10,780 4.03% $10,081 3.93%
======= ======= =======
Net interest yield on
interest-earning assets 5.04% 5.29% 5.19%
Net interest margin
of average total assets 4.52% 4.73% 4.63%
</TABLE>
43
<PAGE> 47
The following table sets forth the changes in net interest income by
volume and rate and the total thereof for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 V. 1998 1998 V. 1997 1997 V. 1996
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE
CHANGE IN CHANGE IN TO CHANGE IN
----------------------------- ------------------------------- --------------------------
Volume Rate Total Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- ----- ------ ---- -----
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net $ 317 $ (467) $ (150) $ 994 $(237) $ 757 $ 721 $ 37 $ 758
Investment securities and
other Interest-earning
assets 707 (29) 678 1,198 (10) 1,188 171 24 195
------ ------- ------- ------ ------ ------ ----- ----- -----
Total interest-earning
assets $1,024 $ (496) $ 528 $2,192 $(247) $1,945 $ 892 $ 61 $ 953
====== ======= ======= ====== ====== ====== ===== ===== =====
Interest-bearing liabilities:
Savings deposits $ 350 $ (346) $ 4 $ 934 $(244) $ 690 $ 250 $ 43 $ 293
Other borrowings (31) (2) (33) (56) 5 (51) (98) (10) (108)
FHLB advances and repurchase
agreements 156 (26) 130 264 34 298 118 (49) 69
------ ------- ------- ------ ------ ------ ----- ----- -----
Total interest-bearing
liabilities $ 475 $ (374) $ 101 $1,142 $(205) $ 937 $ 270 $(16) $ 254
====== ======= ======= ====== ====== ======= ===== ===== =====
Change in net interest income $ 549 $ (122) $ 427 $1,050 $ (42) $1,008 $ 622 $ 77 $ 699
====== ======= ======= ====== ====== ======= ===== ===== =====
</TABLE>
Net interest income before provision for loan and lease losses was $6.2
million for the six months ended June 30, 1999, an increase of $427,000 or 7.4%
over the same period in 1998. This increase is attributable primarily to the
continued growth in the volume of Western Bancshares' interest-earning assets,
largely in the securities portfolio, offset somewhat by negative interest rate
changes in the loan portfolio. Negative interest rates did not significantly
affect the investment portfolio due to a greater emphasis on longer maturity
investments.
Net interest income before provision for loan and lease losses was
$11.8 million for the year ended December 31, 1998, an increase of $1.0 million
or 9.4% over 1997. This increase is attributable primarily to the continued
growth in the volume of Western Bancshares' interest-earning assets, offset
somewhat by negative interest rate changes.
Net interest income before provision for loan and lease losses was
$10.8 million for 1997, a $699,000 or 6.9% increase over 1996. The increase was
due to growth in the volume of Western Bancshares' interest-earning assets in
addition to favorable interest rate changes.
44
<PAGE> 48
TOTAL INTEREST INCOME AND INTEREST EXPENSE. The following table sets
forth interest income and interest expense for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------
1999 1998 1998 1997 1996
-------- -------- ------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest Income:
Interest on loans $ 6,725 $6,875 $13,765 $13,008 $12,250
Interest on investment securities:
U.S. Treasury securities 771 1,184 2,206 2,708 2,733
Federal agency obligations 1,811 409 1,521 144 0
Mortgage-backed securities 0 0 0 0 0
State and municipal obligations 96 86 171 170 225
Other 10 7 14 0 0
Interest on deposits in other banks 0 0 0 0 0
Interest on federal funds sold 607 931 2,000 1,702 1,571
------- ------ ------- ------- -------
Total interest income $10,020 $9,492 $19,677 $17,732 $16,779
======= ====== ======= ======= =======
Interest Expense:
Interest on deposits $ 3,531 $3,527 $ 7,285 $ 6,595 $ 6,302
Interest on FHLB advances and
repurchase agreements and other
borrowed funds 259 129 484 186 117
Interest on Subordinated Debentures 33 66 120 171 279
------- ------ ------- ------- -------
Total interest expense $ 3,823 $3,722 $ 7,889 $ 6,952 $ 6,698
======== ====== ======= ======= =======
Net interest income $ 6,197 $5,770 $11,788 $ 10,780 $10,081
======= ====== ======= ======= =======
Interest rate spread(1)(2) 3.97% 4.09% 3.90% 4.03% 3.93%
Net interest yield(1)(3) 4.96 5.25 5.04 5.29 5.19
Net interest margin(1)(4) 4.43 4.71 4.52 4.73 4.36
</TABLE>
(1) Based on average daily balances.
(2) Interest rate spread has been calculated by subtracting the average
rate of interest-bearing liabilities from the average rate of
interest-earning assets.
(3) Net interest yield has been calculated by dividing net interest income
by average interest-earning assets.
(4) Net interest margin has been calculated by dividing net interest income
by average total assets.
Net interest income for the six months ended June 30, 1999 increased to
$6.2 million from $5.8 million for the same period in 1998, an increase of 7%.
The net increase was primarily due to an increase in total assets, in
particular, the investment portfolio which accounted for an increase in interest
earned on investments, net, of $678,000. Increase in loan and investment volume
of $317,000 and $707,000, respectively, contributed to the increase of 194% in
total interest income, as evidenced by the change in average balances of
interest-earning assets from $221.6 million as of June 30, 1998 to $251.8
million as of June 30, 1999. Changes in interest rates had a modest negative
impact on total interest income of 94%. The average yield on loans receivable,
net, decreased 68 basis points and the average yield on investment securities
and other interest-earning assets decreased 5 basis points, contributing to an
overall decrease of 62 basis points in the average yield on total
interest-earning assets. These changes reflect the generally lower interest
rates attained by Western Bancshares through June of 1999 as compared to 1998 as
well as a lower overall loan to deposit ratio. These changes in market interest
rates slowed interest income growth somewhat when compared to the increase in
total assets
Net interest income for the year ended December 31, 1998 increased to
$11.8 million from $10.8 million in 1997, an increase of 9%. The net increase
was due to a $757,000 increase in interest earned on loans receivable, net, as
well as a $1.2 million increase in interest earned on investment securities and
other interest-earning assets which was offset by a total increase of $937,000
in interest expense. Changes in volume were the dominant cause of these
increases, contributing 113% of the increase in total interest income, based on
a change in average balances of interest-earning assets from $203.8 million in
1997 to $233.9 million in 1998. The increases in volume were
45
<PAGE> 49
primarily the result of Western Bancshares' continued expansion of its loans
receivable, net. Changes in interest rates had a minor negative impact on total
interest income of 13%. The average yield on loans receivable, net, decreased 18
basis points and the average yield on investment securities and other
interest-earning assets decreased 1 basis point, contributing to an overall
decrease of 29 basis points in the average yield on total interest-earning
assets. These changes reflect the generally lower interest rates attainable by
Western Bancshares during 1998 than in 1997.
Total net interest income was $10.8 million in 1997, a $699,000 or 7%
increase from 1996. The increase resulted from an increase of $758,000 in
interest earned on loans receivable, net, plus an increase of $195,000 in
interest-income on investment securities and other interest-earning assets, from
1996 to 1997. Changes in volume were the dominant cause of these increases,
accounting for 94% of the increase in total interest income. Changes in interest
rates had a minor positive impact on total net interest income of 6%. Higher
average balances of interest-earning assets, $203.8 million in 1997 as compared
to $194.2 million in 1996, were caused by strong growth in Western Bancshares'
loans receivable, net. The average yield of loans receivable, net, increased by
3 basis points and the average yield of investment securities and other
interest-earning assets increased by 3 basis points. These higher yields, which
together represent a 6 basis point increase in the average yield on total
interest-earning assets.
Total interest expense was $3.8 million for the six months ended June
30, 1999, as compared to $3.7 million for the same period in 1998, an increase
of $101,000 or 3%. The increase in interest expense was the result of volume
increases in average interest-bearing liabilities, from $164.8 million as of
June 30, 1998 to $188.5 million as of June 30, 1999. The average cost of
interest-bearing liabilities decreased from 4.55% as of June 30, 1998 to 4.11%
as of June 30, 1999. Continued increases in core deposits were the primary
reasons for the decrease in Western Bancshares' cost of funds in addition to the
decrease in subordinated debentures.
Total interest expense was $7.9 million for the year ended December 31,
1998, as compared to $7.0 million for 1997, an increase of $937,000 or 13%. The
increase in interest expense was the result of increases in average
interest-bearing liabilities, from $148.8 million in 1997 to $174.8 million in
1998. The average cost of interest-bearing liabilities decreased from 4.67% in
1997 to 4.51% in 1998. An increase in core deposits was the primary contributor
to the decrease in Western Bancshares' cost of funds in addition to the decrease
in subordinated debentures.
Total interest expense was $7.0 million in 1997, an increase of
$254,000 or 4% from 1996. The increase in interest expense was the result of
increases in average interest-bearing liabilities, from $142.3 million in 1996
to $148.8 million in 1997. The average cost of interest-bearing liabilities
decreased from 4.71% in 1996 to 4.67% in 1997. Increases in core deposits and
the repayment of subordinated debentures were the primary contributors to the
decrease in Western Bancshares' cost of funds.
46
<PAGE> 50
PROVISION FOR LOAN AND LEASE LOSSES
The provision for loan and lease losses is an amount charged to expense
to provide for maintaining the allowance for loan losses inherent in the loan
portfolio. In order to determine the amount of the provision, Western Bancshares
conducts a quarterly review of the loan and lease portfolios. This evaluation
takes into consideration current economic market conditions, loan and lease
portfolio growth, monthly loan and lease losses and recoveries, changes in
non-performing loans and leases, the capability of specific borrowers to repay
specific loan or lease obligations, and current loan collateral values.
The provision for loan and lease losses was $240,000 for the six months
ended June 30, 1999, compared to $185,000 for the same period in 1998. The
provision for loan and lease losses was $460,000 for the year ended December 31,
1998, compared to $145,000 for the year ended December 31, 1997 and $100,000 for
the year ended December 31, 1996. The increases in 1998 were attributable to the
continued growth in Western Bancshares' loan portfolio and the decision by
management to replenish the allowance for loan and lease losses due to the
increase in charge-offs. The increase in 1997 was due primarily to the growth in
Western Bancshares' loan portfolio during such time. Western Bancshares' ratio
of net charge-offs to average loans outstanding was 0.31% as of December 31,
1998, as compared to 0.15% at year-end 1997 and 0.09% at year-end 1996.
Management of Western Bancshares believes that its current allowance for loan
and lease losses is adequate, based upon the current level of nonperforming
assets and loss experience. Management will continue to review Western
Bancshares' loan and lease portfolios to determine the extent, if any, to which
further provisions are necessary in the future.
NON-INTEREST INCOME
Non-interest income consists of service charges on deposit accounts,
rental income, income from the sale of official checks, travelers checks, safe
deposit box income, gains on sales of loans held for sale and gains on
investments available for sale, and other banking product charges not
categorized as interest income.
The following table provides a summary of non-interest income, by
category of income, for the six months ended June 30, 1999 and 1998 and years
ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
PERIOD ENDED JUNE 30, YEAR ENDED DECEMBER 31,
---------------------------- -------------------------------------------
1999 1998 1998 1997 1996
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-Interest Income:
Service fees on deposit accounts $587 $605 $1,191 $1,230 $1,206
Gains on sales of loans held for sale 146 264 441 360 390
Gains on available-for-sale securities 0 0 0 0 71
Other income 159 116 188 145 137
---- ---- ------ ------ ------
Total $892 $985 $1,820 $1,735 $1,804
==== ==== ====== ====== ======
</TABLE>
Total non-interest income was $892,000 for the six months ended June
30, 1999 or 0.63% of average assets on an annualized basis, as compared to
$985,000 or 0.80% of average assets on an annualized basis for the same period
in 1998. The decrease in 1999 was primarily attributable to a decrease in gains
on sales of loans held for sale, which was somewhat offset by an increase in
other income.
Total non-interest income was $1.8 million for the year ended December
31, 1998 or 0.70% of average assets, as compared to $1.7 million or 0.76% of
average assets for the year ended December 31, 1997. The increase in 1998 was
primarily attributable to an increase in gains on sales of loans held for sale,
which was offset by a minor decrease in service fees on deposit accounts.
Total non-interest income for the year ended December 31, 1997 was $1.7
million or 0.76% of average assets. This compares to $1.8 million or 0.83% of
average assets for the same period in 1996. The decrease in 1997 was
predominantly attributable to the decrease in gains on sales of loans held for
sale and a decrease in gains on available-for-sale securities for the year ended
December 31, 1997.
47
<PAGE> 51
NON-INTEREST EXPENSE
The following table provides a summary of non-interest expense, by
category of expense, for the six months ended June 30, 1999 and 1998 and the
years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------- ------------------------
1999 1998 1998 1997 1996
------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-Interest Expense:
Salaries and employee benefits $1,749 $1,706 $3,484 $3,392 $3,228
Loan Loss Provision & Loss Expense 251 195 529 197 130
Rent on Bank Premises 154 147 384 400 422
Data Processing 129 119 373 346 341
Depreciation 120 116 239 191 201
Legal, Accounting, & Examination 84 80 249 337 286
Leasing, Maintenance & Repairs 82 74 209 198 183
Supplies 63 47 175 157 139
Advertising 61 45 148 122 118
Telephone 57 53 138 127 108
Entertainment & Travel 54 51 124 109 115
Dues, Subscriptions, & Donations 31 15 102 107 102
Insurance 9 10 91 86 77
Property Taxes 8 11 33 36 39
Utilities 6 30 70 37 39
Postage & Freight 2 3 93 88 97
Miscellaneous Expenses 366 387 966 911 989
------ ------ ------ ------ ------
Total $3,226 $3,089 $7,407 $6,841 $6,614
====== ====== ====== ====== ======
</TABLE>
Total non-interest expense for the six months ended June 30, 1999 was
$3.2 million or 2.29% of average assets on an annualized basis, compared to $3.1
million or 2.50% of average assets on an annualized basis for the six months
ended June 30, 1998.
Salaries and employee benefits represent the largest component of
non-interest expense. Salaries and employee benefits for the six months ended
June 30, 1999 remained fairly constant at $1.7 million compared to the six
months ended June 30, 1998 experiencing only a slight increase of $43,000. The
increase was primarily due to cost of living and merit based adjustments.
Salaries and benefits as a percentage of average assets were 1.24% on an
annualized basis for the six months ended June 30, 1999, as compared to 1.38% on
an annualized basis for the six months ended June 30, 1998 which indicates an
increase in Western Bancshares' efficiency ratio.
The categories relating to occupancy expense (including rent on bank
premises, utilities, and approximately one half of the leasing, maintenance, and
repairs category) and depreciation for the six months ended June 30, 1999, were
$321,000 or 0.23% of average assets on an annualized basis, compared to $330,000
or 0.27% of average assets on an annualized basis for the six months ended June
30, 1998. The decrease in the aggregate expense is attributable to an electric
bill for back service that was uncharged in 1997 and amounted to $22,000.
Western Bancshares' loan loss provision and loss expense for the six
months ended June 30, 1999 was $251,000, as compared to $195,000 for the six
months ended June 30, 1998. Of this amount, $240,000 and $185,000 for those
respective periods was attributed to the loan loss provision. This increase was
due to the known and inherent losses on loans in the portfolio as well as an
overall increase in loans booked. Western Bancshares had additional operating
loss expense in this category of $11,000 for the six months ended June 30, 1999
and $10,000 for the six months ended June 30, 1998.
Other non-interest expenses of Western Bancshares include, among
others, the cost of FDIC insurance and advertising, supplies, legal, postage,
data processing, check printing and other expenses. These expenses have
generally increased commensurate with the overall growth of the Bank.
48
<PAGE> 52
Total non-interest expense for the year ended December 31, 1998 was
$7.4 million or 2.84% of average assets, compared to $6.8 million or 3.00% of
average assets for the year ended December 31, 1997 and $6.6 million or 3.04% of
average assets for the year ended December 31, 1996.
Salaries and employee benefits for the year ended December 31, 1998
increased to $3.5 million, compared to $3.4 million for the year ended December
31, 1997 and $3.2 million for the year ended December 31, 1996. The increases in
1998 and 1997 were primarily the result of cost of living and merit based salary
adjustments. Western Bancshares opened an additional facility midway through
1997, however, the impact on total salary expense was nominal. The dollar volume
of salaries and benefits grew at a slower rate than average assets in the prior
year, resulting in an increase in the efficiency ratio of Western Bancshares.
Salaries and benefits as a percentage of average assets were 1.33% for the year
ended December 31, 1998, 1.49% for the year ended December 31, 1997, and 1.48%
for the year ended December 31, 1996.
The categories relating to occupancy expense (including rent on bank
premises, utilities, and the allocated portion of the leasing, maintenance, and
repairs category) and depreciation for the year ended December 31, 1998, were
$798,000 or 0.31% of average assets, compared to $727,000 or 0.32% of average
assets for the year ended December 31, 1997 and $753,000 or 0.35% of average
assets for the year ended December 31, 1996. The increase in the aggregate
expense in 1998 is attributable to the electric bill for back service that was
uncharged in 1997 until 1998 and amounted to $22,000 as well as an increase in
depreciation of a new facility opened midway through 1997. The decrease in the
aggregate expenses for 1997 when compared to 1996 was attributable to the
opening a of new banking operation facility in 1997 which resulted in lower rent
expense.
Western Bancshares' loan loss provision and loss expense for the year
ended December 31, 1998 was $529,000, as compared to $197,000 for the year ended
December 31, 1997 and $130,000 for the year ended December 31, 1996.
Data processing expense for the year ended December 31,1998 was
$373,000, as compared to $346,000 for the same period in 1997 and $341,000 in
1996. The increase from 1997 to 1998 was due almost entirely to a $25,000
assessment Western Bancshares was required to pay in order to be involved in
year 2000 testing of electronic data systems ("EDS") computer related systems.
Among other non-interest expenses, legal, accounting, and examination
fees expense for the year ended December 31, 1998 was $249,000, compared to
$337,000 in 1997 and $286,000 in 1996. The significant increase in legal
expenses for 1997 are attributable to the defense of a lawsuit against Western
Bancshares and one of its officers. The lawsuit was settled in 1997 and no
further costs were incurred in 1998. Advertising expense was $148,000 for the
year ended December 31, 1998, compared to $122,000 for the year ended December
31, 1997 and $118,000 for the year ended December 31, 1996. The increase in 1998
was due to additional advertising expenses necessary to promote new locations
and to compete with increased competition. Supplies expense, insurance, postage,
telephone, consulting, business promotion, entertainment and travel, and
charitable contributions expense, as well as other non-interest expenses, have
increased consistently with Western Bancshares' growth and expansion since 1996.
PROVISION FOR INCOME TAXES
Western Bancshares has recorded a net income tax expense of $88,716 for
the six months ending June 30, 1999 and $566,554 in the tax year ending December
31, 1998. In 1998, the expense results from the removal of certain deferred tax
assets, net of certain deferred tax liabilities, that were no longer required to
be recorded due to the S-Corp Election made by Western Bancshares. In 1999, the
expense is the result of the recognition of certain built-in gain items that
existed at the date of the S-Corp Election.
As of December 31, 1997 and 1996, taxable income was $6.7 million and
$6.3 million respectively. The effective tax rate remained virtually constant at
approximately 37%.
49
<PAGE> 53
LIQUIDITY AND CAPITAL RESOURCES
Liquidity defines the ability of Western Bancshares to generate funds
to support asset growth, satisfy other disbursement needs, meet deposit
withdrawals and other funding reductions, maintain reserve requirements, and
otherwise operate on an ongoing basis. The immediate liquidity needs of Western
Bancshares have been met primarily by federal funds sold, short-term
investments, deposits in other banks, and the generally predictable cash flow of
Western Bancshares' assets.
Western Bancshares actively monitors compliance with regulatory capital
requirements, focusing primarily on risk-based capital and core leverage capital
guidelines. The elements of capital adequacy standards include strict
definitions of core capital and total assets which consider risk and include
off-balance sheet items such as commitments to extend credit. Under the
risk-based capital method of capital measurement, the ratio computed is
dependent on the amount and composition of assets recorded on the balance sheet
and the amount and composition of off-balance sheet items, in addition to the
level of capital. Historically, Western Bancshares has increased its core
capital through the retention of earnings through increases in the allowance for
loan and lease losses (up to the maximum allowable amount).
CHANGES IN FINANCIAL CONDITION
LOAN PORTFOLIO
The principal asset of the Bank is its loan portfolio. The following
table summarizes the loan portfolio of the Bank by loan category, based on the
Bank's internal classifications, as of June 30, 1999 and December 31, 1998,
1997, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
--------- --------------------------------------------------------------
1999 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 84,082 $ 86,364 $ 73,852 $ 71,901 $ 61,291 $ 47,699
Real estate and interim 44,887 42,239 46,202 43,421 38,025 39,006
construction
Consumer 8,292 7,107 7,618 7,563 8,353 9,769
Home Mortgage Loans Held for 484 2,253 2,635 3,957 3,760 3,690
Sale
Overdrafts 318 249 201 280 164 194
--------- --------- --------- --------- --------- ---------
Total gross loans 138,063 138,212 130,508 127,122 111,592 100,359
Unearned discount and net
deferred
loan fees (575) (679) (678) (674) (712) (824)
Allowance for loan and lease
losses
(2,825) (2,746) (2,687) (2,684) (2,672) (1,955)
--------- --------- --------- --------- --------- ---------
Total loans, net $ 134,663 $ 134,787 $ 127,143 $ 123,763 $ 108,208 $ 97,579
========= ========= ========= ========= ========= =========
</TABLE>
Mortgage loans held for sale were $484,000 for the period ending June
30, 1999, $2,253,000, for the period ending December 31, 1998, $2,635,000 for
December 31, 1997, $3,957,000 for December 31, 1996, $3,760,000 for December 31,
1995, and $3,690,000 for December 31, 1994.
The following table presents selected loan categories as of June 30,
1999 and December 31, 1998 by repricing either through variable rate loan terms,
maturity, amortization, or expended prepayments. Data are derived from gap
analysis calculations. In calculating the amounts set forth in the table,
amortization flows are based on contractual characteristics of the Bank's loans
and other assets, as well as anticipated prepayment characteristics. Prepayment
rates for mortgages and mortgage-related investments reflect expectations based
on national assumptions, and prepayments on consumer loans reflect the Bank's
historical experience. Decisions on repricing are also dependent on asset
liability management, which is monitored by the Bank.
50
<PAGE> 54
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
-------------------------------------------------- -------------------------------------------------
REPRICES REPRICES
REPRICES BETWEEN REPRICES REPRICES BETWEEN REPRICES
WITHIN 1 AND 5 AFTER WITHIN 1 AND 5 AFTER
1 YEAR YEARS 5 YEARS TOTAL 1 YEAR YEARS 5 YEARS TOTAL
------------ ----------- ------------ ---------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 73,975 $ 8,118 $ 286 $ 82,379 $ 77,366 $ 6,807 $ 294 $ 84,467
Construction 38,664 3,313 1,989 43,966 34,866 4,623 1,907 41,396
Consumer 3,781 4,018 35 7,834 3,665 2,994 13 6,672
Home Mortgage Loan Held
for Sale -- -- 484 484 -- -- 2,252 2,252
------------ ----------- ------------ ---------- ----------- ----------- ----------- -----------
Total $116,420 $ 15,449 $2,794 $134,663 $115,897 $14,424 $4,466 $134,787
============ =========== ============ ========== =========== =========== =========== ===========
Fixed rate loans $ 19,347 $ 15,449 $2,794 $ 37,590 $ 15,732 $14,424 $4,466 $ 34,622
Adjustable rate loans -- -- -- -- -- -- -- --
Variable rate loans 97,073 -- -- 97,073 100,165 -- -- 100,165
------------ ----------- ------------ ---------- ----------- ----------- ----------- -----------
Total $116,420 $ 15,449 $2,794 $134,663 $115,897 $14,424 $4,466 $134,787
============ =========== ============ ========== =========== =========== =========== ===========
</TABLE>
POLICIES AND PROCEDURES RELATING TO THE ACCRUAL OF INTEREST INCOME.
Interest income is accrued as earned on a simple interest basis. Accrual of
interest is discontinued on a loan when management believes, after considering
economic and business conditions which may affect the borrower's ability to
repay and collection efforts, that the borrower's financial condition is such
that collection of interest is doubtful. Loans may be placed in non-accrual
status only if, in management's opinion, the loan is well secured and in the
process of collection. Otherwise, any expected loss related to such loans is
immediately charged to the allowance for loan and lease losses. There were no
commitments to lend additional funds to borrowers whose loans were classified as
non-accrual as of June 30, 1999.
NONPERFORMING ASSETS. Historically, the Bank has employed an aggressive
policy of charging off, or placing into non-accrual status, loans which are more
than 90 days past due. Nonperforming assets consist of certain nonperforming
loans and real estate. Loans are considered to be nonperforming if they are on a
non-accrual basis or are contractually past due 90 days or more. Loans secured
by real property, where the collateral has been foreclosed upon, are classified
on the Bank's financial statements as Other Real Estate Owned. At the time of
foreclosure, the asset securing the loan is valued at fair value if it will be
held and used or at its fair value less cost to sell if it will be sold. If the
outstanding loan amount exceeds the assets valuation, the difference is charged
to the allowance for loan and lease losses. The following table presents the
principal amounts of nonperforming assets as of June 30, 1999 and December 31,
1998, 1997, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -----------------------------------------------------------------
1999 1998 1997 1996 1995 1994
----------- --------- ---------- ---------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Delinquent and non-accruing loans $ 214 $ 378 $ 347 $ 0 $ 30 $ 39
Loans 90 days past due, still accruing 388 0 16 156 309 43
----------- --------- ---------- ---------- ----------- -----------
Total nonperforming loans 602 378 363 156 339 82
Other real estate owned 157 292 294 145 174 420
Other nonperforming assets 15 27 58 21 20 14
----------- --------- ---------- ---------- ----------- -----------
Total nonperforming assets $ 774 $ 697 $ 715 $ 322 $ 533 $ 516
=========== ========= ========== ========== =========== ===========
Nonperforming loans/period-
end total loans 0.44% 0.28% 0.28% 0.13% 0.31% 0.08%
Nonperforming assets/period-
end total assets 0.27% 0.24% 0.30% 0.14% 0.28% 0.28%
</TABLE>
51
<PAGE> 55
SUMMARY OF LOAN AND LEASE LOSS EXPERIENCE. The following table
summarizes the allowance for loan and lease losses for Western Bancshares for
the periods shown:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
------- ----------------------------------------------------
1999 1998 1997 1996 1995 1994
------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period $ 2,746 $ 2,687 $ 2,684 $ 2,673 $ 1,956 $ 1,726
Provision 240 460 145 100 0 519
Charge offs:
Consumer 165 362 128 84 75 311
Home 0 0 0 0 0 0
Commercial 2 54 50 18 49 57
Real estate 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total charge offs $ 167 $ 416 $ 178 $ 102 $ 124 $ 368
======= ======= ======= ======= ======= =======
Recoveries:
Consumer $ 3 $ 14 $ 33 $ 11 $ 834 $ 64
Home 0 0 0 0 0 0
Commercial 4 1 3 2 7 15
Real estate 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total recoveries $ 7 $ 15 $ 36 $ 13 $ 841 $ 79
======= ======= ======= ======= ======= =======
Net charge offs:
Consumer $ 162 $ 348 $ 95 $ 73 ($ 759) $ 247
Home 0 0 0 0 0 0
Commercial 2 53 47 16 42 42
Real estate 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total net charge offs (recoveries) $ 160 $ 401 $ 142 $ 89 ($ 717) $ 289
======= ======= ======= ======= ======= =======
Balance at end of period $ 2,826 $ 2,746 $ 2,687 $ 2,684 $ 2,673 $ 1,956
======= ======= ======= ======= ======= =======
Net charge offs/average loans
outstanding (1) 0.24% 0.30% 0.12% 0.08% (0.66%) 0.30%
Allowance for loan and lease
losses/period-end total loans 2.0 2.0 2.0 2.1 2.4 1.9
Nonperforming loans/period-
end total loans 0.4 0.2 0.2 0.1 0.3 0.0
Allowance for loan and lease
losses/period-end
nonperforming loans 4.69x 7.26 7.40 17.20 7.88 23.84
- -----------------------
(1) Calculations are based on average daily balances.
</TABLE>
The allowance for loan and lease losses is established through a
provision for loan and lease losses charged to expense. Loans are charged
against the allowance for loan and lease losses when management believes that
the collection of loan principal is unlikely. The allowance for loan and lease
losses is maintained at an amount that management believes will be adequate to
absorb possible losses on existing loans and leases that may become
uncollectible, based upon evaluations of the collectability of loans and prior
loan and lease loss experience. The evaluations take into consideration such
factors as changes in the nature and volume of the loan portfolio, management's
intention with respect to identified problem loans, estimated or appraised
collateral values, overall portfolio quality, loan delinquency levels or trends,
review of specific problem loans, and current local or regional economic
conditions which may affect the borrower's ability to repay.
On January 1, 1995, Western Bancshares adopted Financial Accounting
Standard No. 114, as amended by Standard No. 118 (collectively, "FAS 114"). FAS
114, as amended, requires that impaired loans be measured based on the present
value of expected cash flows discounted at the loan's effective interest rate or
measured at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. A loan is impaired when it is
probable that a creditor will
52
<PAGE> 56
be unable to collect all amounts due according to the contractual terms of the
loan agreement. The adoption of FAS 114 did not result in additional provisions
for credit losses as the collateral value of the impaired loans exceeded the
recorded investment.
INVESTMENT PORTFOLIO
The Bank maintains a portfolio of investments for immediate liquidity
purposes, as an intermediate term source of liquidity, and as a strategic
complement to its lending activities. Federal funds, U.S. Treasury securities,
U.S. government agency obligations, and municipal bonds make up most of Western
Bancshares' investments. Western Bancshares generally avoids investing in
derivative products or other investments whose repricing and/or maturity
characteristics are strongly influenced by changes in interest rate
relationships or prepayments.
Financial Accounting Standard No. 115 ("FAS 115") requires that
investments in debt and equity securities be classified as either: (1)
held-to-maturity (debt securities that the Bank has the ability and positive
intent to hold to maturity), (2) trading (debt and equity securities that are
bought and held principally for the purpose of selling in the near term to
generate profits on short-term differences in price), or (3) available-for-sale
(debt and equity securities not classified as either held-to-maturity or
trading). The Bank's available-for-sale portfolio contains securities purchased
to provide the Bank with needed liquidity and to manage interest rate risk,
changes in availability of and yield on alternative investments, and changes in
funding sources and terms.
In 1996, the Bank reviewed and repositioned its investment portfolio.
The strategy was designed to obtain higher performance should interest rates
remain static or decline. This decision was made in conjunction with the Bank's
asset liability management strategy. The duration of the investment portfolio
was extended to 2.6 years as of December 31, 1997 from 2.4 years as of December
31, 1996. The weighted average yield increased slightly to 6.28% as of December
31, 1997 from 6.23% as of December 31, 1996. In 1998, the Bank's asset liability
management strategy was to increase its held-to-maturity portfolio and decrease
available-for-sale securities. The net unrealized holding gain of $433,000 was
recognized as a separate component of stockholder's equity. The securities in
the portfolio were recorded at fair value. The reclassification provided two
distinct advantages (1) it providing liquidity to fund loans and (2) it
increased the book yield of the overall portfolio. As of June 30, 1999, the
investment portfolio had a duration of 5.9 years.
The following table provides a summary of investment securities
classified as held-to-maturity as of June 30, 1999, including unrealized gains
and losses:
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED COST GAINS LOSSES MARKET VALUE
-------------------- ---------------- -------------- -----------------
U.S. Treasury securities of U.S.
government corporations and
<S> <C> <C> <C> <C>
agencies $58,572,848 $39,139 $2,241,684 $56,369,303
Obligations of local governments 2,747,617 28,960 4,829 2,771,748
-------------------- ---------------- -------------- -----------------
Total $61,319,465 $68,099 $2,246,513 $59,141,051
==================== ================ ============== =================
</TABLE>
53
<PAGE> 57
The following table provides a summary of investment securities
classified as available-for-sale as of June 30, 1999, and December 31, 1998,
including unrealized gains and losses:
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
---------------------------------------------------- --------------------------------------------------
GROSS GROSS GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES MARKET VALUE COST GAINS LOSSES MARKET VALUE
------------ ------------ ----------- ------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities of
U.S. government
corporations and agencies $25,434,653 $ 192,140 $ 55,856 $25,570,937 $14,963,833 $ 491,638 $ 17,273 $15,438,198
Obligations of local
governments 2,265,646 42,168 0 2,307,814 765,902 27,959 0 793,861
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total debt securities 27,700,299 234,308 55,856 27,878,751 15,729,735 519,597 17,273 16,232,059
Federal Reserve Bank Stock 275,150 0 0 275,150 275,150 0 0 275,150
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total $27,975,449 $ 234,308 $ 55,856 $28,153,901 $16,004,885 $ 519,597 $ 17,273 $16,507,209
=========== =========== =========== =========== =========== =========== =========== ===========
</TABLE>
The following table provides a summary of investment securities
classified as held-to-maturity as of December 31, 1998, including unrealized
gains and losses:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED COST GAINS LOSSES MARKET VALUE
-------------------- --------------- ------------- -----------------
<S> <C> <C> <C> <C>
U.S. Treasury securities of U.S.
government corporations and
agencies $68,560,041 $200,825 $223,182 $68,537,684
Obligations of local governments 2,408,361 58,367 0 2,466,728
-------------------- --------------- ------------- -----------------
Total $70,968,402 $259,192 $223,182 $71,004,412
==================== =============== ============= =================
</TABLE>
The following table provides a summary of investment securities
classified as available-for-sale as of December 31, 1997, including unrealized
gains and losses:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED COST GAINS LOSSES MARKET VALUE
-------------------- --------------- -------------- -----------------
<S> <C> <C> <C> <C>
U.S. Treasury securities of U.S.
government corporations and
agencies $23,948,725 $195,407 $52,894 $24,091,238
Obligations of local governments 769,737 23,680 0 793,417
-------------------- --------------- -------------- -----------------
Total $24,718,462 $219,087 $52,894 $24,884,655
==================== =============== ============== =================
</TABLE>
54
<PAGE> 58
The following table provides a summary of investment securities
classified as held-to-maturity as of December 31, 1997, including unrealized
gains and losses:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED COST GAINS LOSSES MARKET VALUE
-------------------- --------------- -------------- -----------------
<S> <C> <C> <C> <C>
U.S. Treasury securities of U.S.
government corporations and
agencies $25,575,088 $152,290 $0 $25,727,378
Obligations of local governments 2,234,453 42,178 0 2,276,631
-------------------- --------------- -------------- -----------------
Total debt securities $27,809,541 $194,468 $0 $28,004,009
==================== =============== ============== =================
</TABLE>
The following table provides a summary of investment securities
classified as available-for-sale as of December 31, 1996, including unrealized
gains and losses:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED COST GAINS LOSSES MARKET VALUE
-------------------- --------------- -------------- -----------------
<S> <C> <C> <C> <C>
U.S. Treasury securities of U.S.
government corporations and
agencies $19,463,898 $0 $134,031 $19,329,867
Obligations of local governments 723,475 32,204 0 755,679
-------------------- --------------- -------------- -----------------
Total $20,187,373 $32,204 $134,031 $20,085,546
==================== =============== ============== =================
</TABLE>
The following table provides a summary of investment securities
classified as held-to-maturity as of December 31, 1996, including unrealized
gains and losses:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED COST GAINS LOSSES MARKET VALUE
-------------------- --------------- -------------- -----------------
<S> <C> <C> <C> <C>
U.S. Treasury securities of U.S.
government corporations and
agencies $22,407,160 $152,643 $0 $22,559,803
Obligations of local governments 2,759,245 17,052 0 2,776,297
-------------------- --------------- -------------- -----------------
Total $25,166,405 $169,695 $0 $25,336,100
==================== =============== ============== =================
</TABLE>
55
<PAGE> 59
The following schedule reflects the amortized cost, market value and
contractual maturity distribution of the Bank's available-for-sale investment
portfolio and the average yield of such securities as of June 30, 1999 and
December 31, 1998:
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
---------------------------------------------- -----------------------------------------------
AMORTIZED AVERAGE AMORTIZED AVERAGE
COST MARKET VALUE YIELD COST MARKET VALUE YIELD
--------------- --------------- ------------ -------------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
U.S. government securities:
Due within 1 year $ 4,996,887 $ 5,011,874 5.97% $ 3,701,873 $ 3,527,969 5.86%
Due after 1 through 5 years 8,464,617 8,507,500 5.97% 7,491,984 7,747,104 6.29%
Due after 5 through 10 years 2,974,063 2,957,813 5.80% 2,771,095 3,163,125 5.81%
Due after 10 years 0 0 -- 0 0 --
----------- ----------- ----------- -----------
Total $16,435,567 $16,477,187 5.93 $13,964,952 $14,438,198 6.08
=========== =========== =========== ===========
Obligations of U.S.
government agencies:
Due within 1 year $ 0 $ 0 -- $ 0 $ 0 --
Due after 1 through 5 years 1,000,000 998,750 5.68% 998,881 1,000,000 6.14%
Due after 5 through 10 years 7,999,086 8,095,000 6.39 0 0 --
Due after 10 years 0 0 -- 0 0 --
----------- ----------- ----------- -----------
Total $ 8,999,086 $ 9,093,750 6.31 $ 998,881 $ 1,000,000 6.14
=========== =========== =========== ===========
Obligations of states and
political subdivisions: (1)
Due within 1 year $ 1,501,006 $ 1,503,301 5.34% $ 0 $ 0 --
Due after 1 through 5 years 406,162 419,628 8.12 406,811 408,068 8.12
Due after 5 through 10 years 358,478 384,885 8.42 359,091 385,793 8.42
Due after 10 years 0 0 -- 0 0 --
----------- ----------- ----------- -----------
Total $ 2,265,646 $ 2,307,814 8.26 $ 765,902 $ 793,861 8.26
=========== =========== =========== ===========
Totals:
Due within 1 year $ 6,497,893 $ 6,515,175 5.82% $ 3,701,873 $ 3,527,969 5.86%
Due after 1 through 5 years 9,870,779 9,925,878 6.03 8,897,676 9,155,172 6.36
Due after 5 through 10 years 11,331,627 11,437,698 6.30 3,130,186 3,548,918 6.09
Due after 10 years 0 0 -- 0 0 --
----------- ----------- ----------- -----------
Total $27,700,299(2) $27,878,751(2) 6.09 $15,729,735(2) $16,232,059(2) 6.19
=========== =========== =========== ===========
</TABLE>
(1) Municipal bond yields at June 30, 1999 and December 31, 1998 have been
computed on a tax-adjusted basis assuming effective tax rates of 38%
and 36%, respectively.
(2) Does not include Federal Reserve Bank stock of $275,150.
56
<PAGE> 60
The following schedule reflects the amortized cost, market value and
contractual maturity distribution of the Bank's held-to-maturity investment
portfolio and the average yield of such securities as of December 31, 1998:
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
----------------------------------------------- -----------------------------------------------
AMORTIZED AVERAGE AMORTIZED AVERAGE
COST MARKET VALUE YIELD COST MARKET VALUE YIELD
---------------- --------------- ------------ ---------------- ----------------- ----------
<S> <C> <C> <C> <C> <C> <C>
U.S. government securities:
Due within 1 year $ 5,997,287 $ 6,024,386 6.14% $8,990,965 $9,058,130 6.41%
Due after 1 through 5 years 996,399 1,008,440 6.29% 4,992,074 5,087,825 5.77%
Due after 5 through 10 years 0 0 -- 0 0 --
Due after 10 years 0 0 -- 0 0 --
----------- ----------- ----------- -----------
Total $ 6,993,686 $ 7,032,826 6.16% $13,983,039 $14,145,955 6.18%
=========== =========== =========== ===========
Obligations of U.S.
government agencies:
Due within 1 year $ 0 $ 0 -- $ 0 $ 0 --
Due after 1 through 5 years 8,592,906 8,363,022 5.85% 3,497,623 3,493,567 6.07%
Due after 5 through 10 years 42,985,256 40,973,455 6.21% 51,079,379 50,898,162 6.20%
Due after 10 years 0 0 -- 0 0 --
----------- ----------- ----------- -----------
Total $51,578,162 $49,336,477 6.15% $54,577,002 $54,391,729 6.18%
=========== =========== =========== ===========
Obligations of states and
political subdivisions:
Due within 1 year $ 599,307 $ 603,256 7.19% $ 329,911 $ 334,206 8.56%
Due after 1 through 5 years 1,679,829 1,698,939 7.82% 1,545,302 1,585,792 7.72%
Due after 5 through 10 years 468,481 469,553 7.01% 533,148 546,730 7.08%
Due after 10 years 0 0 -- 0 0 --
----------- ----------- ----------- -----------
Total $ 2,747,617 $ 2,771,748 7.55% $ 2,408,361 $ 2,466,728 7.70%
=========== =========== =========== ===========
Totals:
Due within 1 year $ 6,596,594 $ 6,627,642 6.24% $ 9,320,876 $ 9,392,336 6.49%
Due after 1 through 5 years 11,269,134 11,070,401 6.18% 10,034,999 10,167,184 6.17%
Due after 5 through 10 years 43,453,737 41,443,008 6.22% 51,612,527 51,444,892 6.21%
Due after 10 years 0 0 -- 0 0 --
----------- ----------- ----------- -----------
Total $61,319,465 $59,141,051 6.21% $70,968,402 $71,004,412 6.24%
=========== =========== =========== ===========
</TABLE>
DEPOSITS
The Bank's primary liability is its customer deposits. The Bank
emphasizes developing relationships with individuals and business customers in
order to increase its core deposit base. The Bank has numerous deposit products,
including checking accounts, money market accounts, NOW (interest-bearing
checking) accounts, savings accounts, and certificates of deposit, including
individual retirement accounts, designed to meet the individual needs of its
customers. The following table sets forth the distribution of the Bank's
deposits by type as of June 30, 1999 and December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------------
1999 1998 1997 1996
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Demand (non-interest-bearing checking) $ 60,487 $ 61,033 $ 50,525 $ 60,094
NOW (interest-bearing checking) 14,892 16,126 13,447 13,347
Savings and money market 48,391 50,632 36,675 35,042
Time:
Certificates of deposit under $100,000 48,857 53,028 50,826 46,495
Certificates of deposit over $100,000 57,957 55,841 52,358 50,287
-------- -------- -------- --------
Total $230,584 $236,660 $203,831 $205,265
======== ======== ======== ========
</TABLE>
One of the primary components of sound growth and profitability is core
deposit accumulation and retention. Core deposits consist of all deposits except
funds from public entities and certificates of deposit in excess of $100,000. As
of June 30, 1999, the Bank's core deposits were $172.7 million and total
deposits were $230.6 million. Core deposits
57
<PAGE> 61
represented 74.9% of total deposits as of June 30, 1999. As of December 31,
1998, total deposits were $236.7 million. Core deposits represented 76.4% of
total deposits as of December 31, 1998, as compared to 74.3% as of December 31,
1997 and 75.5% as of December 31, 1996. Certificates of deposit in excess of
$100,000 are excluded by definition from core deposits. Because the Bank
believes that such certificates of deposit are less likely to be renewed at
maturity than other deposits, the Bank does not encourage such certificates of
deposit. Certificates of deposit in excess of $100,000, as a percentage of total
deposits, were 25.1% as of June 30, 1999, 23.6% as of December 31, 1998, 25.7%
as of December 31, 1997 and 24.5% as of December 31, 1996.
The following table shows the remaining maturities of total
certificates of deposit and certificates of deposit of $100,000 or more as of
June 30, 1999, and as of December 31, 1998:
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
---------------------------------------- ------------------------------------------
CD'S IN EXCESS OF CD'S IN EXCESS OF
TOTAL CD'S $100,000 TOTAL CD'S $100,000
------------------ -------------------- -------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Up to 3 months $ 32,700 $16,926 $ 35,185 $21,639
3 to 6 months 24,306 13,044 24,151 12,190
6 to 12 months 26,840 15,669 27,830 14,951
Over 12 months 22,968 12,318 21,703 7,061
-------- ------- -------- -------
Total $106,814 $57,957 $108,869 $55,841
======== ======= ======== =======
</TABLE>
58
<PAGE> 62
The average balance of and average rates paid on deposits are presented
below for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
-------------------------------------------------------- ----------------------------
1999 1998 1998
-------------------------- ---------------------------- ----------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE BALANCE BALANCE BALANCE BALANCE BALANCE
-------------------------- ---------------------------- ----------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Demand (non-interest-
bearing checking) $ 58,556 -- $ 50,280 -- $ 53,048 --
NOW (interest-bearing
checking) 21,149 0.83% 18,170 1.20% 19,405 1.12%
Savings and money
market 44,097 3.36% 36,552 3.30% 39,175 3.38%
Time 107,933 5.09% 102,016 5.50% 103,929 5.52%
-------- --------- ---------
Total $231,735 4.46% $ 207,018 4.50% $ 215,557 4.48%
======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1997 1996
-------------------------- --------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE BALANCE BALANCE BALANCE
-------------------------- --------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Demand (non-interest-
bearing checking) $ 50,097 -- $ 49,979 --
NOW (interest-bearing
checking) 14,548 .38% 16,602 1.24%
Savings and money
market 33,129 3.26% 30,740 3.33%
Time 94,689 5.61% 89,780 5.65%
--------- --------
Total $ 192,463 4.63% $187,101 4.60%
========= ========
</TABLE>
SHORT-TERM BORROWINGS
Western Bancshares also employs short-term borrowing for liquidity
purposes. The following table reflects the contractual maturity distribution of
Western Bancshares' short-term borrowings and the weighted average interest rate
thereof as of June 30, 1999 and December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
--------------------------- -----------------------------------------------------------------------------------
1999 1998 1997 1996
--------------------------- -------------------------- --------------------------- ----------------------------
TOTAL TOTAL TOTAL TOTAL
REPURCHASE REPURCHASE REPURCHASE REPURCHASE
AGREEMENTS WEIGHTED AGREEMENTS WEIGHTED AGREEMENTS WEIGHTED AGREEMENTS WEIGHTED
TT&L AVERAGE RATE TT&L AVERAGE RATE TT&L AVERAGE RATE TT&L AVERAGE RATE
-------------- ------------ ------------- ------------ ------------- ------------- -------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Repurchase Agreements $11,075 3.86% $13,149 4.30% $ 3,254 3.77% $ 373 3.79%
TT&L 3,500 4.85% 433 5.44% 2,506 4.99% 1,291 4.78%
------- ------- ------- -------
Total $14,575 4.10 % $13,582 4.34% $ 5,760 4.30% $ 1,664 4.56%
======= ======= ======= ======
</TABLE>
During the first six months of 1999, the Bank's total repurchase
agreements and TT&L obligations were $14.6 million, of which were 11.1 million
in repurchase agreements. During 1998, the Bank's total repurchase and TT&L
obligations were 13.6 million. The increase in 1998 over 1997 and 1996 is
attributable to customer demand for higher yielding investment instruments.
59
<PAGE> 63
RETURN ON EQUITY AND ASSETS
Western Bancshares' return on equity and return on assets for the
periods shown below are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
JUNE 30, -----------------------------------------------
1999(1) 1998 1997 1996
---------------------- ---------------- ------------ ------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Return on Average Assets 3.19% 2.59% 1.72% 1.66%
Return on Average Equity 27.40% 21.57% 14.78% 16.19%
Average Equity to Average Assets Ratio 3.19% 12.01% 11.64% 10.27%
Dividend Payout Ratio 10.09% 13.93% 16.72% 8.64%
- ----------------------
</TABLE>
(1) Annualized for 1999
YEAR 2000 ISSUES
The use of computer programs written using two digits rather than four
to define the applicable year gives rise to what is commonly referred to as the
Year 2000 problem. Any of Western Bancshares' computer programs that employ
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This error could result in system failures or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in other normal business activities.
Western Bancshares has created a Year 2000 Review Team to assess the
impact of the Year 2000 computer program issue on its computer related systems.
Based on a recent assessment, Western Bancshares has determined that minimal
software modifications and capital outlays will be necessary in order to
properly utilize dates beyond December 31, 1999. Western Bancshares believes
that with minor modifications to existing software and/or converting to new
software, the Year 2000 issue can be substantially mitigated. EDS provides all
core application processing for Western Bancshares. However, if such
modifications and/or conversions are not made, or are not completed timely, the
Year 2000 issue could have a material impact on the operations of Western
Bancshares.
Western Bancshares has initiated formal communications with all of its
significant suppliers and large customers to determine the extent to which
Western Bancshares is vulnerable to those third parties' failure to remediate
their own Year 2000 issues. Western Bancshares' total Year 2000 project costs
and estimates to complete include the estimated costs and time associated with
the impact of a third party's Year 2000 issues, and are based on presently
available information. However, there can be no guarantee that the systems of
other companies on which Western Bancshares' systems rely will be timely
converted, or that a failure to convert by another company, or a conversion that
is incompatible with Western Bancshares' systems, would not have material
adverse effect on Western Bancshares. Western Bancshares has determined it has
no material exposure to contingencies related to the Year 2000 issue for
services it provides. Western Bancshares established September 30, 1999 as the
target date to complete the assessment and validation and testing. As of
September 30, 1999, the assessment and validation and testing were complete.
Western Bancshares will utilize both internal and external resources to
reprogram, or replace, and test the software for Year 2000 modifications.
Western Bancshares anticipates the total cost to be under $300,000; any
additional equipment and software to be purchased will be capitalized. Western
Bancshares does not foresee any material effect on the results of operations.
The costs of the project and the date on which Western Bancshares plans to
complete the Year 2000 modifications are based on management's best estimates,
which are derived utilizing numerous assumptions of future events, including the
continued availability of certain resources, third party modification plans and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
60
<PAGE> 64
MARKET RISK
Market risk is the risk of loss arising from adverse changes in market
rates and prices, such as interest rates (interest rate risk). As a financial
institution that engages in transactions involving an array of financial
products, Western Bancshares' primary risk exposure is interest rate risk.
Financial instruments currently offered or held by Western Bancshares that
expose Western Bancshares to market risk include securities, loans, deposits,
and subordinated debentures.
The table below summarizes for the time periods indicated the
contractual and repricing behavior of Western Bancshares' market risk sensitive
instruments:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 THEREAFTER TOTAL FAIR VALUE
------------- ------------- ------------ ------------ ------------- ------------ ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Fixed rate loans $ 15,732 $ 6,374 $ 5,004 $ 1,545 $ 1,501 $ 4,467 $ 34,623 $ 34,757
Average rate 9.76% 10.64% 9.80% 10.10% 9.49% 8.09% 9.83%
Variable rate loans 100,164 100,164
Average rate 9.67%
Fixed rate
investments $12,822 8,448 4,202 1,495 4,788 54,943 86,698 87,512
Average rate 6.25% 5.77% 6.40% 6.01% 6.01% 6.16% 6.12%
LIABILITIES:
Fixed rate deposits $ 87,349 $ 14,785 $ 4,649 $ 909 $ 1,112 $ 65 $ 108,869 $ 109,453
Average rate 4.21% 5.49% 5.55% 5.95% 5.94% 6.96% 4.37%
Variable rate
deposits $ 66,757 -- -- -- -- -- $ 66,757 $ 67,113
Average rate 2.83% -- -- -- -- -- --
Adjustable other
borrowings $ 15,375 -- -- -- -- -- $ 15,375 $ 15,375
Average rate 4.32% -- -- -- -- -- --
</TABLE>
As discussed below, the asset/liability committee of Western
Bancshares ("ALCO") has the overall responsibility for Western Bancshares'
market risk management policies. It also determines market risk limits, subject
to ratification and approval by the Board of Directors. The members of ALCO are
senior division managers and corporate officers who are responsible for interest
rate risk, asset liability management, liquidity and credit policy.
ASSET LIABILITY MANAGEMENT
Asset liability management seeks to control the variability of Western
Bancshares' performance over time as it is influenced by changes in interest
rates. This is accomplished by managing the repricing timing of interest rate
sensitive interest-earning assets and interest-bearing liabilities. An interest
rate sensitive balance sheet item is one that is able to reprice within a
specified time horizon, through maturity or otherwise. Management of Western
Bancshares' balance sheet in this manner controls Western Bancshares' interest
rate risk position, both with respect to income and the market value of Western
Bancshares' portfolio equity (the difference between the market value of Western
Bancshares' assets and the market value of its liabilities). ALCO is responsible
for formulating and monitoring interest rate risk management practices. ALCO
addresses Western Bancshares' cumulative gap calculations and interest rate risk
stress tests on a quarterly basis. Interest rate risk tests are performed via
simulation analysis which simulates a shock test of both rising and falling
interest rate environments.
GAP ANALYSIS
A traditional indicator of interest rate risk is gap analysis. Gap
analysis focuses on the difference (or gap) between available repricing
opportunities for assets and liabilities within defined time periods. If the
dollar amount of interest rate sensitive assets is closely matched with the
dollar amount of interest rate sensitive liabilities in a given period, then
changes in interest income and interest expense over this time frame should be
closely matched also. This close matching will
61
<PAGE> 65
normally result in little change in net interest income should interest rates
change. A mismatched gap position, either positive or negative, will normally
result in imbalanced changes in interest income and interest expense as interest
rates change. This will cause variation in net interest income performance over
time.
Western Bancshares' general objective is to maintain a balance in the
repricing opportunities between its interest rate sensitive assets and interest
rate sensitive liabilities in order to limit its potential interest rate risk.
Western Bancshares will, however, narrow or widen its gap position within
prudent bounds depending on the current interest rate environment, management's
perception of interest rate movements, Western Bancshares' current balance
sheet, and the goals and needs of Western Bancshares' business plan. Western
Bancshares attempts to book a high degree of variable rate assets and
liabilities which will move with the market. In addition, Western Bancshares has
consistently booked assets with floors for declining interest rate environments
to allow for additional insulation to interest rate risk.
The table below summarizes for the time periods indicated the gap
analysis of Western Bancshares' interest rate sensitive interest-earning assets
and interest-bearing liabilities as of June 30, 1999. In calculating the gap
values, amortization flows are based on contractual characteristics of Western
Bancshares' loans and other assets, Western Bancshares has not included in its
calculations any prepayment characteristics or non-maturity deposit balance
repositioning due to interest rate changes.
<TABLE>
<CAPTION>
JUNE 30, 1999
------------------------------------------------------------
UP TO 1 YEAR 1 TO 5 YEARS OVER 5 YEARS TOTAL
------------ ------------ ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Risk sensitive assets:
Loans $ 115,911 $ 18,771 $ 2,749 $ 137,431
Investments 40,814 21,195 54,891 116,900
------------ ------------ ------------ ------------
Total $ 156,725 $ 39,966 $ 57,640 $ 254,331
============ ============ ============ ============
Risk sensitive liabilities:
Interest-bearing demand deposits $ 56,126 $ 0 $ 0 $ 56,126
Time deposits 83,846 22,969 0 106,815
Subordinated Debentures 800 0 0 800
Other borrowings 14,574 0 0 14,574
------------ ------------ ------------ ------------
Total $ 155,346 $ 22,969 $ 0 $ 178,315
============ ============ ============ ============
Periodic gap $ 1,379 $ 16,997 $ 57,640
============ ============ ============
Cumulative gap $ 1,379 $ 18,376 $ 76,016
============ ============ ============
Gap/assets ratio 0.50% 6.20% 21.03%
Cumulative gap/assets ratio 0.50% 6.70% 27.73%
</TABLE>
The positive cumulative gap value indicated for the one year time
horizon means that over this period the assets of Western Bancshares will
reprice more quickly than will Western Bancshares' liabilities. This means that,
in a rising interest rate environment, net interest income can be expected to
increase somewhat and that, in a declining interest rate environment, net
interest income can be expected to decrease somewhat, however, because of the
significant percentage of the asset portfolio booked in the variable loan with
built in interest rate floors, Western Bancshares net interest income will
actually increase more than in a rising interest rate environment. Western
Bancshares has thus positioned itself to benefit to a limited extent from any
fluctuation in interest rates. In the one to five-year period, Western
Bancshares' gap position is slightly more positive. Beyond that, Western
Bancshares' gap position is significantly more positive.
Gap analysis attempts to capture interest rate risk which is
attributable to the mismatching of interest rate sensitive assets and
liabilities. However, varying interest rate environments often create unexpected
changes in interest rate sensitivity, for example, due to changing loan
prepayments, interest rate caps or floors, and other influences. These factors
are not captured very well in most gap analyses and, as a result, a gap report
may not provide a complete assessment of Western Bancshares' interest rate risk.
In response to possible unexpected changes in interest rate sensitivity, Western
Bancshares initiated a program of simulation-based modeling of its net interest
income and market value of portfolio equity. Simulation analysis takes into
account all facets of Western Bancshares' balance sheet and external influences
in calculating estimates of interest rate risk.
62
<PAGE> 66
CREDIT RISK
An additional area of exposure for Western Bancshares is credit risk.
Western Bancshares attempts to minimize credit risk through its underwriting and
credit review policies. The Directors and senior management are responsible for
monitoring credit risk for Western Bancshares as a whole. Western Bancshares
evaluates credit risks and places emphasis on the appropriate pricing of risk.
The objectives of Western Bancshares' risk review policy include obtaining
proper levels of approval of loans, providing credit information that supports
the loan relationship, following prudent and clear underwriting practices, and
rating loans for risk according to Western Bancshares' risk rating policy.
Risk review includes assessments of loan quality, adequacy of loan
documentation, and compliance with bank policy and FDIC and other regulatory
guidelines, verification that loan officers are identifying and reporting
potential problem loans in a timely manner to ensure that adequate corrective
measures can be implemented.
AVAILABLE INFORMATION
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 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. You may obtain information on the operation of the public reference
room by calling the Commission at 1-800-SEC-0330. 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
IMPORTANT BUSINESS AND FINANCIAL INFORMATION ABOUT COMPASS (OTHER THAN CERTAIN
EXHIBITS TO SUCH DOCUMENTS) ARE AVAILABLE TO EACH BENEFICIAL OWNER OF WESTERN
BANCSHARES COMMON STOCK, WITHOUT CHARGE AND, UPON REQUEST, FROM TIMOTHY R.
JOURNY 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 __________________, 1999.
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, 1998 (File No. 0-6032);
(ii) Compass' Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999 (File No. 0-6032);
(iii) Compass' Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999 (File No. 0-6032);
(iv) Compass' Proxy Statement dated March 30, 1999, relating to its
annual meeting of shareholders held on April 26, 1999 (File
No. 0-6032); and
63
<PAGE> 67
(v) 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 Special Meeting are incorporated herein by reference, and shall be deemed
a part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein, or contained in this Proxy
Statement/Prospectus, shall be deemed to be modified or superseded for purposes
of this Proxy Statement/Prospectus to the extent that a statement contained
herein or in any subsequently filed document which also is deemed to be
incorporated herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed to constitute a part of this Proxy
Statement/Prospectus, except as so modified or superseded.
No person has been authorized to give any information or to make any
representations other than those contained in this Proxy Statement/Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by Compass, Compass Bank, Western Bancshares 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
Bank, Western Bancshares or their respective affiliates since the date of this
Proxy Statement/Prospectus.
RELATIONSHIPS WITH INDEPENDENT ACCOUNTANTS
Compass' Board of Directors appointed KPMG Peat Marwick LLP as
independent auditors for Compass for the year ending December 31, 1998. KPMG
Peat Marwick LLP served as Compass' independent auditors continuously since
1971. On August 16, 1999 Compass' Board of Directors appointed Arthur Andersen
LLP as independent auditors for Compass.
Western Bancshares Board of Directors appointed Arthur Andersen LLP as
independent auditors for Western Bancshares for the year ending December 31,
1998. Arthur Andersen LLP has served as Western Bancshares independent auditors
continuously since 1986.
Compass has been advised by Arthur Andersen LLP that Arthur Andersen
LLP has no direct financial interest or any material indirect financial interest
in Compass other than arising from that firm's employment as auditor for
Compass.
Western Bancshares has been advised by Arthur Andersen LLP that Arthur
Andersen LLP has no direct financial interest or any material indirect financial
interest in Western Bancshares other than arising from that firm's employment as
auditor for Western Bancshares.
EXPERTS
The consolidated financial statements of Compass as of December 31,
1998 and 1997 and for each of the years in the three-year period ended December
31, 1998 have been incorporated herein and in the Registration Statement in
reliance upon the report of KPMG Peat Marwick LLP independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The consolidated balance sheets of Western Bancshares as of December
31, 1998 and 1997 and the consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1998, included in this proxy statement/prospectus and elsewhere in the
registration statement have been audited by Arthur
64
<PAGE> 68
Andersen LLP, independent accountants, as indicated in their report with respect
thereto, and are included herein in reliance 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 October 29, 1999, Mr. Powell was the beneficial owner of an aggregate of
approximately _______ shares of Compass Common Stock. Locke 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. Eastham
Johnson Monnheimer & Jontz, P.C. and Locke Liddell & Sapp are also expected to
render legal opinions as to certain matters acceptable to Western Bancshares 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 WESTERN BANCSHARES AND COMPASS--CERTAIN DIFFERENCES BETWEEN THE
CORPORATION LAWS OF ARIZONA AND THE CORPORATION LAWS OF DELAWARE AND
CORRESPONDING CHARTER AND BY-LAW PROVISIONS--LIMITATION OF LIABILITY AND
INDEMNIFICATION."
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling Compass,
Compass has been informed that in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
OTHER MATTERS
Western Bancshares' Board of Directors does not know of any matters to
be presented at the Special Meeting other than those set forth above. If any
other matters are properly brought before the Special Meeting or any adjournment
thereof, the enclosed proxy will be voted in accordance with the recommendations
of Western Bancshares' Board of Directors unless "Authority Withheld" is
indicated in the appropriate box on the proxy.
65
<PAGE> 69
INDEX TO FINANCIAL STATEMENTS
OF
WESTERN BANCSHARES OF ALBUQUERQUE, INC.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Page
----
1. Auditors' Report regarding the December 31, 1998, 1997 and 1996
Consolidated Financial Statements F-1
2. Consolidated Balance Sheets as of December 31, 1998 and 1997 F-2
3. Consolidated Statements of Income for the Years Ended
December 31, 1998, 1997 and 1996 F-3
4. Consolidated Statements of Stockholders' Equity for the
Years ended December 31, 1998, 1997 and 1996 F-4
5. Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996 F-5
6. Notes to Consolidated Financial Statements F-6
7. Consolidated Balance Sheets (unaudited) as of June 30, 1999 and
December 31, 1998 F-21
8. Consolidated Statements of Income (unaudited) for the Three and
Six Months Ended June 30, 1999 and 1998 F-22
9. Consolidated Statements of Stockholders' Equity (unaudited)
for the Six Months Ended June 30, 1999 and 1998 F-23
10. Consolidated Statements of Cash Flows (unaudited) for the Six Months
Ended June 30, 1999 and 1998 F-24
11. Notes to Consolidated Financial Statements (unaudited) F-25
</TABLE>
<PAGE> 70
WESTERN BANCSHARES OF ALBUQUERQUE, INC. AND SUBSIDIARY
------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
DECEMBER 31, 1998, 1997, AND 1996
---------------------------------
TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
------------------------------------------------------
<PAGE> 71
Report of Independent Public Accountants
----------------------------------------
To the Board of Directors and Stockholders of
Western Bancshares of Albuquerque, Inc.:
We have audited the accompanying consolidated balance sheets of WESTERN
BANCSHARES OF ALBUQUERQUE, INC. (a New Mexico corporation) AND SUBSIDIARY as of
December 31, 1998 and 1997, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Western Bancshares of
Albuquerque, Inc. and subsidiary as of December 31, 1998 and 1997, and the
results of their operations and their flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Albuquerque, New Mexico
January 22, 1999 (except with respect
to the matters discussed in Note 15, as to
which the date is July 23, 1999)
F-1
<PAGE> 72
WESTERN BANCSHARES OF ALBUQUERQUE, INC. AND SUBSIDIARY
------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
DECEMBER 31, 1998 AND 1997
--------------------------
<TABLE>
<CAPTION>
1998 1997
---------------------- ---------------------
ASSETS
------
<S> <C> <C>
CASH AND CASH EQUIVALENTS:
Cash and due from banks $ 14,796,099 $ 18,881,732
Federal funds sold 34,075,000 29,450,000
---------------------- ---------------------
Total cash and cash equivalents 48,871,099 48,331,732
---------------------- ---------------------
INVESTMENT SECURITIES:
Available-for-sale 16,507,209 24,884,655
Held-to-maturity 70,968,402 27,809,541
---------------------- ---------------------
Total investment securities 87,475,611 52,694,196
---------------------- ---------------------
LOANS HELD FOR SALE 2,253,517 2,635,285
LOANS, net 132,533,425 124,508,052
BANK PREMISES AND EQUIPMENT, net 4,082,316 4,182,990
ACCRUED INTEREST RECEIVABLE 2,391,868 2,021,437
OTHER REAL ESTATE OWNED 292,354 294,048
GOODWILL, net of accumulated amortization of
$4,031,220 in 1998 and $3,747,127 in 1997 6,968,450 7,252,543
OTHER ASSETS 60,430 681,715
---------------------- ---------------------
$ 284,929,070 $ 242,601,998
====================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Deposits $ 236,660,463 $ 203,831,340
Securities sold under agreements to repurchase 13,149,151 3,253,924
Accrued interest payable 715,591 728,187
Debentures payable 800,000 1,700,000
Accrued expenses and other liabilities 1,820,311 3,881,725
---------------------- ---------------------
Total liabilities 253,145,516 213,395,176
---------------------- ---------------------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; 500,000 shares
authorized; 134,522 shares issued and
outstanding at December 31, 1998 and 1997 134,522 134,522
Additional paid-in capital 10,242,600 10,242,600
Retained earnings 20,973,298 18,782,720
Accumulated other comprehensive income 433,134 97,003
---------------------- ---------------------
31,783,554 29,256,845
Less: Treasury stock, at cost - 50,023
---------------------- ---------------------
Total stockholders' equity 31,783,554 29,206,822
---------------------- ---------------------
$ 284,929,070 $ 242,601,998
====================== =====================
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of the these balance sheets.
F-2
<PAGE> 73
WESTERN BANCSHARES OF ALBUQUERQUE, INC. AND SUBSIDIARY
------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
-----------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- -------------------- --------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 14,880,674 $ 14,042,379 $ 13,304,218
Investment securities:
U.S. Government and Federal agencies 3,726,688 2,852,058 2,732,823
States, municipalities and other 185,113 170,101 225,142
Federal funds sold 2,000,370 1,701,633 1,570,984
-------------------- -------------------- --------------------
20,792,845 18,766,171 17,833,167
-------------------- -------------------- --------------------
INTEREST EXPENSE:
Negotiable order of withdrawal deposits 217,815 200,451 205,947
Money market and savings 1,323,728 1,079,025 1,023,810
Time deposits 5,733,686 5,312,830 5,071,470
Securities sold under agreements to repurchase and other 484,031 186,386 396,397
Debentures payable 120,470 171,177 -
-------------------- -------------------- --------------------
7,879,730 6,949,869 6,697,624
-------------------- -------------------- --------------------
NET INTEREST INCOME BEFORE PROVISION
FOR LOAN LOSSES 12,913,115 11,816,302 11,135,543
PROVISION FOR LOAN LOSSES 460,000 145,000 100,000
-------------------- -------------------- --------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 12,453,115 11,671,302 11,035,543
-------------------- -------------------- --------------------
OTHER OPERATING INCOME:
Service charges and fees 1,191,136 1,230,327 1,205,607
Gains on sales of loans held for sale 440,791 359,553 390,522
Gains on sales of available-for-sale investment securities - - 70,720
Other 188,062 144,856 137,273
-------------------- -------------------- --------------------
1,819,989 1,734,736 1,804,122
-------------------- -------------------- --------------------
OTHER OPERATING EXPENSES:
Salaries and employee benefits 3,484,232 3,392,042 3,227,713
Equipment and data processing 647,378 580,129 601,280
Occupancy, net 545,592 579,317 549,640
Other professional fees 504,230 424,806 435,171
Minority interest in earnings of subsidiary - 266,796 320,485
Legal fees 57,553 177,539 123,542
Other 1,708,333 1,541,684 1,576,953
-------------------- -------------------- --------------------
6,947,318 6,962,313 6,834,784
-------------------- -------------------- --------------------
INCOME BEFORE INCOME TAX EXPENSE 7,325,786 6,443,725 6,004,881
-------------------- -------------------- --------------------
INCOME TAX EXPENSE:
Built in gains and C Corporation tax expense 72,652 2,509,604 2,387,932
Effect of change to Subchapter S Corporation 493,902 - -
-------------------- -------------------- --------------------
566,554 2,509,604 2,387,932
-------------------- -------------------- --------------------
NET INCOME $ 6,759,232 $ 3,934,121 $ 3,616,949
==================== ==================== ====================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 134,522 127,531 125,000
==================== ==================== ====================
BASIC EARNINGS PER SHARE $ 50.25 $ 30.85 $ 28.94
==================== ==================== ====================
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of the these statements.
F-3
<PAGE> 74
WESTERN BANCSHARES OF ALBUQUERQUE, INC. AND SUBSIDIARY
------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
-----------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
Issued and Outstanding Treasury Stock
----------------------------------- -----------------------------------
Shares Par Value Shares Par Value
----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995 125,000 $125,000 - $ -
Comprehensive income:
Net income - - - -
Net change in unrealized gain
on available-for-sale investment
securities, net of taxes of $87,160 - - - -
Total comprehensive income
Dividends, $2.50 per share - - - -
----------------- ---------------- ---------------- -----------------
BALANCE, December 31, 1996 125,000 125,000 - -
Comprehensive income:
Net income - - - -
Net change in unrealized gain
on available-for-sale investment
securities, net of taxes of $108,589 - - - -
Total comprehensive income
Dividends, $1.50 per share - - - -
Issuance of common stock 9,522 9,522 - -
Treasury stock purchase, at cost - - (205) (50,023)
Dividends, $3.50 per share - - - -
----------------- ---------------- ---------------- -----------------
BALANCE, December 31, 1997 134,522 134,522 (205) (50,023)
Comprehensive income:
Net income - - - -
Net change in unrealized gain
on available-for-sale investment
securities - - - -
Total comprehensive income
Sale of treasury stock - - 205 50,023
Distributions, $33.96 per share - - - -
----------------- ---------------- ---------------- -----------------
BALANCE, December 31, 1998 134,522 $134,522 - $ -
================= ================ ================ =================
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Additional Other
Paid-In Retained Comprehensive
Capital Earnings Income Total
---------------- --------------- ------------------ -----------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995 $ 8,059,347 $ 12,201,760 $ 67,042 $20,453,149
Comprehensive income:
Net income - 3,616,949 -
Net change in unrealized gain
on available-for-sale investment
securities, net of taxes of $87,160 - - (122,239)
Total comprehensive income 3,494,710
Dividends, $2.50 per share - (312,500) - (312,500)
---------------- --------------- ------------------ -----------------
BALANCE, December 31, 1996 8,059,347 15,506,209 (55,197) 23,635,359
Comprehensive income:
Net income - 3,934,121 -
Net change in unrealized gain
on available-for-sale investment
securities, net of taxes of $108,589 - - 152,200
Total comprehensive income 4,086,321
Dividends, $1.50 per share - (187,500) - (187,500)
Issuance of common stock 2,183,253 - - 2,192,775
Treasury stock purchase, at cost - - - (50,023)
Dividends, $3.50 per share - (470,110) - (470,110)
---------------- --------------- ------------------ -----------------
BALANCE, December 31, 1997 10,242,600 18,782,720 97,003 29,206,822
Comprehensive income:
Net income - 6,759,232 -
Net change in unrealized gain
on available-for-sale investment
securities - - 336,131
Total comprehensive income 7,095,363
Sale of treasury stock - - - 50,023
Distributions, $33.96 per share - (4,568,654) - (4,568,654)
---------------- --------------- ------------------ -----------------
BALANCE, December 31, 1998 $10,242,600 $ 20,973,298 $ 433,134 $31,783,554
================ =============== ================== =================
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of the these statements.
F-4
<PAGE> 75
WESTERN BANCSHARES OF ALBUQUERQUE, INC. AND SUBSIDIARY
------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
-----------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,759,232 $ 3,934,121 $ 3,616,949
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 460,000 145,000 100,000
Depreciation and amortization 522,909 456,392 458,492
Net discount accretion and premium amortization
on investment securities (23,898) (78,668) (64,632)
Gains on sales of available-for-sale investment securities - - (70,720)
Gains on sales of loans held for sale (440,791) (359,553) 390,522
Net writedowns and recoveries of other real estate owned 13,654 4,591 6,200
Loans held for sale funded (20,092,364) (13,386,992) (12,917,355)
Proceeds from sales of loans held for sale 20,914,923 14,910,545 12,329,833
Minority interest in dividends of subsidiary - (70,916) (141,830)
Changes in assets and liabilities:
Accrued interest receivable (370,431) (151,951) (81,344)
Other assets 729,962 (168,570) 409,657
Accrued interest payable (12,596) (70,416) (101,885)
Accrued expenses and other liabilities (3,128,091) 1,283,317 577,463
------------- ------------- -------------
Net cash provided by operating activities 5,332,509 6,446,900 4,511,350
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
Available-for-sale investment securities (3,272,700) (6,045,718) (20,927,819)
Held-to-maturity investment securities (75,939,112) (13,589,980) (5,281,403)
Bank premises and equipment (138,142) (1,449,557) (870,461)
Proceeds from maturities and calls of:
Available-for-sale investment securities 11,985,206 1,495,312 -
Held-to-maturity investment securities 32,805,220 11,044,829 16,947,712
Proceeds from sale of:
Available-for-sale investment securities - - 10,008,751
Other real estate owned 190,000 - 187,353
Loans funded, net of repayments (8,687,333) (4,689,173) (15,622,823)
Cash paid to minority shareholders of subsidiary for Bank stock - (138,978) -
Minority interest in earnings of subsidiary - 266,796 320,485
------------- ------------- -------------
Net cash used by investing activities (43,056,861) (13,106,469) (15,238,205)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits and savings accounts 27,143,729 (7,835,006) 5,792,032
Net increase in time deposits 5,685,394 6,401,840 9,967,922
Net increase (decrease) in securities sold under agreements to repurchase 9,895,227 2,880,518 (807,932)
Principal repayments on debentures and note payable (900,000) (500,000) (1,200,000)
Sale of treasury stock 50,023 - -
Purchase of treasury stock, at cost - (50,023) -
Cash distributions paid (3,610,654) - -
Cash dividends paid - (343,750) (156,250)
------------- ------------- -------------
Net cash provided by financing activities 38,263,719 553,579 13,595,772
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 539,367 (6,105,990) 2,868,917
CASH AND CASH EQUIVALENTS, beginning of year 48,331,732 54,437,722 51,568,805
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, end of year $ 48,871,099 $ 48,331,732 $ 54,437,722
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest $ 7,892,326 $ 7,023,273 $ 6,799,508
============= ============= =============
Income taxes $ 10,000 $ 2,673,000 $ 2,479,000
============= ============= =============
SIGNIFICANT NON-CASH TRANSACTIONS:
Transfer of loan to other real estate owned $ 201,960 $ - $ 164,482
============= ============= =============
Change in unrealized gain on available-for-sale investment securities,
net of tax effect and minority interest in 1997 $ 336,131 $ 152,200 $ (122,239)
============= ============= =============
Issuance of Bancshares stock for Bank stock $ - $ 2,192,775 $ -
============= ============= =============
Distributions declared, not yet paid $ 958,000 $ - $ -
============= ============= =============
Dividends declared, not yet paid $ - $ 470,110 $ 156,250
============= ============= =============
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of the these statements.
F-5
<PAGE> 76
WESTERN BANCSHARES OF ALBUQUERQUE, INC. AND SUBSIDIARY
------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
(1) ORGANIZATION:
-------------
Western Bancshares of Albuquerque, Inc. (Bancshares) is a one-bank holding
company which owns 100% of Western Bank, Albuquerque, New Mexico (Bank),
(collectively referred to as the Company). The Bank operates from its main
office and seven branch locations in Albuquerque, New Mexico and one branch in
Rio Rancho, New Mexico. The Bank grants commercial, residential, and installment
loans with a concentration of such loans in Albuquerque, New Mexico and
surrounding communities.
Bancshares' capital structure at December 31, 1998 and 1997 consists of 134,522
shares of outstanding common stock at $1 par value.
On July 23, 1999, Bancshares entered into a merger agreement with Compass
Bancshares, Inc. (Compass). The terms of the merger agreement specify that
Bancshares stockholders will collectively receive approximately 3,000,000 to
3,333,333 shares of Compass, based upon the average closing sale price of
Compass stock for a stated period (see Note 15).
During 1997, in anticipation of the change in Bancshares taxable status under
the Internal Revenue Code (IRC) from a C corporation to a Subchapter S
corporation, the remaining minority interest in the Bank was purchased by
Bancshares for $2,192,775 of Bancshares stock, net of treasury stock purchase of
$50,023, and cash consideration of $138,978, (see Note 9).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------------------
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -
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 revenues and expenses during the reporting period. The
principal areas requiring estimates by management are the allowance for loan
losses and the fair value of certain financial instruments. Actual results could
differ from those estimates.
PRINCIPLES OF CONSOLIDATION -
The accompanying consolidated financial statements include the consolidated
totals of the accounts and results of operations of Bancshares and the Bank. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS -
The Company considers all cash, federal funds sold and time deposits with other
banks having maturities of three months or less to be cash and cash equivalents.
The Bank is required by regulations to maintain a certain amount of cash for
liquidity. In addition to cash on hand, an amount of $1,742,000 and $562,000 of
the Bank's deposits with the Federal Reserve Bank are designated as applying to
this reserve requirement at December 31, 1998 and 1997, respectively.
F-6
<PAGE> 77
INVESTMENT SECURITIES -
Investment securities are classified and accounted for as follows:
AVAILABLE-FOR-SALE - Investment securities in U.S. Government and Federal
agencies, states and municipalities and Federal Reserve Bank stock which are
available-for-sale are reported at fair market value. Unrealized holding gains
and losses are reported as a net amount in accumulated other comprehensive
income. Gains and losses on the sale of investment securities available-for-sale
are determined using a method which approximates the specific identification
method. Premiums and discounts are recognized in interest income using a method
which approximates the interest method over the period to maturity.
HELD-TO-MATURITY - Investment securities in U.S. Government and Federal agencies
and states and municipalities for which the Bank has the positive intent and
ability to hold to maturity are reported at cost, adjusted for amortization of
the premiums and accretion of discounts which are recognized in interest income
using a method which approximates the interest method over the period to
maturity.
LOANS HELD FOR SALE -
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate. Net
unrealized gains or losses are recognized through a valuation allowance by
charges to income.
LOANS AND ALLOWANCE FOR LOAN LOSSES -
Loans are stated at their unpaid principal balances, less the allowance for loan
losses and net deferred loan origination fees and unearned discounts.
Unearned discount on installment loans is recognized as income over the terms of
the related loans using a method that approximates a level yield rate of return.
Income on other loans is accrued based upon the principal amounts outstanding.
The Bank discontinues accruing interest on loans when the loan becomes 90 days
or more past due or when management believes that the borrower's financial
condition is such that collection of interest is doubtful. When a loan is placed
on nonaccrual, any uncollected interest accrued in the current year is charged
against income, with prior year accruals charged to the allowance for loan
losses.
Loan origination and commitment fees and associated direct costs are deferred
and recognized as a yield adjustment (interest on loans) over the life of the
related loans and/or commitment period.
Each period the provision for loan losses in the consolidated statements of
income results from the combination of an estimate by management of loan losses
that occurred during the current period and the ongoing adjustment of prior
estimates of losses occurring in prior periods. In addition, certain regulatory
agencies, as part of their examination process, periodically review the Bank's
allowance for loan losses. Such agencies may require the Bank to recognize
changes to the allowance based on its judgment about information available to
them at the time of the examination. Such changes are reflected during the
period identified as an adjustment to the provision.
To serve as a basis for making this provision, the Bank maintains a credit risk
monitoring process that considers several factors including: current economic
conditions affecting the
F-7
<PAGE> 78
Bank's customers, the payment performance of individual loans, portfolio
seasoning, changes in collateral values, and detailed reviews of specific large
loan relationships. For loans deemed to be impaired due to an expectation that
all contractual payments will probably not be received, impairment is measured
by comparing the Bank's recorded investment in the loan to the present value of
expected cash flows discounted at the loan's effective interest rate, the fair
value of the collateral or the loan's observable market price.
The provision for loan losses increases the allowance for loan losses, a
valuation account which is netted against loans on the balance sheet. As the
specific customer and amount of a loan loss is confirmed by gathering additional
information, taking collateral in full or partial settlement of the loan,
bankruptcy of the borrower, etc., the loan is written down, reducing the
allowance for loan losses. If, subsequent to a writedown, the Bank is able to
collect additional amounts from the customer or obtain control of collateral
worth more than earlier estimated, a recovery is recorded, increasing the
allowance for loan losses.
BANK PREMISES AND EQUIPMENT -
Bank premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line and accelerated methods over
the estimated useful lives of the assets which range from 3 to 39 years.
Leasehold improvements are amortized over the estimated lives of the assets or
the life of the lease, whichever is shorter. Maintenance and repairs which do
not extend the useful lives of premises and equipment are charged to expense as
incurred.
OTHER REAL ESTATE OWNED -
Real estate properties acquired through, or in lien of, foreclosure are to be
sold and are initially recorded at fair value of the date of foreclosure
establishing a new cost basis. After foreclosure, valuations are periodically
performed by management and the other real estate owned is carried at the lower
of the carrying amount or fair value, less estimated selling costs. Revenue and
expenses from operations and changes in the valuation allowance are included in
other operating expenses in the accompanying consolidated statements of income.
GOODWILL -
Goodwill, net of accumulated amortization, represents the adjusted excess of
purchase price over fair value of Bank stock acquired by Bancshares during 1982,
which is being amortized using the straight-line method over a period of forty
years, plus the excess of purchase price over fair value of Bank stock acquired
during 1998, which is being amortized using the straight-line method over a
twenty-five year period.
INCOME TAXES -
Effective January 1, 1998, Bancshares changed its taxable status under IRC from
a C corporation to a Subchapter S corporation. As a C corporation, during 1997
Bancshares' and the Bank's earnings were taxed at the corporate level and
Bancshares filed a consolidated income tax return and accounted for taxes on a
separate entity basis in accordance with the tax sharing agreement entered into
by the Bank and Bancshares.
Income taxes of the Bank, determined to be currently payable, were remitted to
Bancshares, and deferred income taxes were recorded to account for temporary
differences in the basis of assets
F-8
<PAGE> 79
and liabilities for tax and financial statement purposes. The resulting deferred
tax liabilities or assets at the end of each period were determined using the
current marginal rate in effect.
As an S corporation, earnings are attributable to Bancshares' stockholders and
are taxed at the stockholder level. Accordingly, subsequent to December 31,
1997, the only current income tax expense recorded is attributable to built-in
gains tax assessed, as defined by the IRC, and the removal of certain deferred
tax assets and liabilities.
Any deferred tax assets or liabilities existing at the election date not
expected to be realized within certain time limits as specified by the IRC were
removed from the books in 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS -
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments as presented in Note 14:
The fair value of financial instruments which have a relatively short
period of time between their origination and their expected realization
were valued using carrying amounts at December 31, 1998 and 1997. These
include cash and cash equivalents, loans held for sale, accrued interest
receivable and payable, debentures payable and securities sold under
agreements to repurchase.
Loans were separated into two groups: (1) floating-rate loans that reprice
when market interest rates change (at least annually) and (2) fixed-rate
loans. Floating-rate loans are valued at current carrying amounts.
Fixed-rate loans were valued by discounting the future cash flows expected
to be received using current interest rates charged on loans with similar
characteristics.
Deposits were separated into two groups: (1) non-interest bearing deposits
and variable-rate deposits (repriceable at least annually) and (2)
fixed-rate deposits. Non-interest bearing deposits and variable-rate
deposits were valued at current carrying amounts; fixed-rate deposits were
valued by discounting future cash flows using current market rates paid on
deposits with similar characteristics.
COMPREHENSIVE INCOME -
In 1998, the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 130, "Reporting Comprehensive Income", which established standards for the
reporting and disclosure of comprehensive net income components in financial
statements. The Bank has chosen to disclose accumulated other comprehensive
income, which encompasses net income and unrealized gains or losses on
available-for-sale investment securities, in the accompanying consolidated
balance sheets and statements of stockholders' equity. Prior years have been
restated to conform to the SFAS 130 requirements.
NET INCOME PER COMMON SHARE -
The Bank has adopted the provisions of the Statement of Financial Accounting
Standards No. 128, Earning Per Share ("SFAS No. 128") effective December 31,
1998. SFAS No. 128 requires the presentation of basic and diluted earnings per
share. Basic earnings per share is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. All prior period earnings per share amounts have been restated
to comply with this pronouncement.
RECLASSIFICATIONS -
F-9
<PAGE> 80
Certain amounts in the 1997 and 1996 consolidated financial statements have been
reclassified to conform to the 1998 presentation.
(3) INVESTMENT SECURITIES:
----------------------
The amortized cost and estimated market values of investment securities are as
follows as of December 31:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
------------------
1998
-----------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Market Value
------------------- ------------------ --------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and Federal
agencies $ 14,963,833 $ 491,638 $ 17,273 $ 15,438,198
States and municipalities 765,902 27,959 - 793,861
Federal Reserve Bank stock 275,150 - - 275,150
------------------- ------------------ --------------------------------------
$ 16,004,885 $ 519,597 $ 17,273 $ 16,507,209
=================== ================== ======================================
</TABLE>
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Market Value
------------------- ------------------ --------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and Federal
agencies $ 23,948,725 $ 195,407 $ 52,894 $ 24,091,238
States and municipalities 769,737 23,680 - 793,417
------------------- ------------------ --------------------------------------
$ 24,718,462 $ 219,087 $ 52,894 $ 24,884,655
=================== ================== ======================================
</TABLE>
<TABLE>
<CAPTION>
HELD-TO-MATURITY
----------------
1998
-----------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Market Value
------------------- ------------------ --------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and Federal
agencies $ 68,560,041 $ 200,825 $ 223,182 $ 68,537,684
States and municipalities 2,408,361 58,367 - 2,466,728
------------------- ------------------ --------------------------------------
$ 70,968,402 $ 259,192 $ 223,182 $ 71,004,412
=================== ================== ======================================
</TABLE>
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Market Value
------------------- ------------------ --------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and Federal
agencies $ 25,575,088 $ 152,290 $ - $ 25,727,378
States and municipalities 2,234,453 42,178 - 2,276,631
------------------- ------------------ --------------------------------------
$ 27,809,541 $ 194,468 $ - $ 28,004,009
=================== ================== ======================================
</TABLE>
The amortized cost and estimated market value of investment securities at
December 31, 1998, by contractual maturity, are shown below. Actual maturities
may differ from contractual
F-10
<PAGE> 81
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
-------------------------------------- --------------------------------------
Amortized Estimated Market Amortized Estimated
Cost Value Cost Market Value
------------------- ------------------ --------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 9,320,876 $ 9,392,336 $ 3,701,873 $ 3,527,969
Due after one year through five
years 10,034,999 10,167,184 8,897,676 9,155,172
Due after five years through ten
years 51,612,527 51,444,892 3,130,186 3,548,918
Federal Reserve Bank stock - - 275,150 275,150
------------------- ------------------ --------------------------------------
$ 70,968,402 $ 71,004,412 $ 16,004,885 $ 16,507,209
=================== ================== ======================================
</TABLE>
There were no sales of available-for-sale investment securities during the years
ended December 31, 1997 and 1998.
Investment securities with financial reporting amounts of approximately
$27,543,000 and $23,850,000 at December 31, 1998 and 1997, respectively, were
pledged to secure public deposits, securities sold under agreements to
repurchase and for other purposes as required or permitted by law.
The Company continues to carry the tax effect related to its unrealized gain on
investment securities available-for-sale securities held before the S
Corporation election in stockholders' equity. Such tax effects, totaling
$69,190, will be recognized in a future income statement when the related
investment securities are sold or the gain reverses with an unfavorable change
in the fair value of the related investment securities.
F-11
<PAGE> 82
<TABLE>
<CAPTION>
(4) LOANS:
------
Loans consist of the following as of December 31:
1998 1997
--------------------------------------
<S> <C> <C>
Commercial $ 86,364,358 $ 73,851,949
Real estate and interim construction 42,239,226 46,202,228
Installment 7,106,531 7,617,881
Overdrafts 248,553 200,748
--------------------------------------
135,958,668 127,872,806
Less-
Allowance for loan losses 2,746,271 2,686,911
Unearned discount 297,993 363,537
Net deferred loan fees 380,979 314,306
--------------------------------------
$ 132,533,425 $ 124,508,052
======================================
</TABLE>
Impaired loans on nonaccrual status as of December 31, 1998 and 1997, totaled
approximately $378,000 and $347,000, respectively. Based on management's
analysis, there were no other impaired loans as of December 31, 1998 and 1997.
Management determined that a valuation allowance for impaired loans is not
required as the collateral value of the impaired loans exceeds the Bank's
recorded investment. Interest earned, but not recorded on nonaccrual loans
during the year ended December 31, 1998 and 1997, totaled approximately $35,600
and $16,000, respectively. There were no impaired loans or loans on which the
accrual of interest has been discontinued or reduced at December 31, 1996.
An analysis of the allowance for loan losses follows for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------------------ --------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $ 2,686,911 $ 2,684,455 $ 2,672,844
Provision for loan losses 460,000 145,000 100,000
Recoveries on loans previously charged off 14,592 36,072 13,876
Loans charged off (415,232) (178,616) (102,265)
------------------ --------------------------------------
Balance, end of year $ 2,746,271 $ 2,686,911 $ 2,684,455
================== ======================================
</TABLE>
F-12
<PAGE> 83
<TABLE>
<CAPTION>
(5) BANK PREMISES AND EQUIPMENT:
----------------------------
Bank premises and equipment consist of the following as of December 31:
1998 1997
-------------- ---------------
<S> <C> <C>
Land $ 1,273,397 $ 1,273,397
Buildings and improvements 3,328,544 3,404,891
Furniture and equipment 3,080,792 2,985,064
Leasehold improvements 313,082 196,453
-------------- ---------------
7,995,815 7,859,805
Less accumulated depreciation and amortization 3,913,499 3,676,815
--------------- ---------------
$ 4,082,316 $ 4,182,990
============== ===============
</TABLE>
<TABLE>
<CAPTION>
(6) DEPOSITS:
---------
Deposits consist of the following as of December 31:
1998 1997
-------------- ---------------
<S> <C> <C>
Demand $ 61,033,128 $ 50,525,078
Negotiable order of withdrawal 16,126,311 13,446,992
Money market 33,354,377 25,675,145
Savings 17,277,305 11,000,177
Time, $100,000 and over 55,841,004 52,357,713
Other time 53,028,338 50,826,235
-------------- ---------------
$ 236,660,463 $ 203,831,340
============== ===============
</TABLE>
At December 31, 1998, the scheduled maturities of time deposits are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
<S> <C>
1999 $ 87,165,482
2000 14,785,022
2001 4,649,250
2002 908,762
2003 and thereafter 1,360,826
--------------
$ 108,869,342
==============
</TABLE>
(7) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE:
-----------------------------------------------
Securities sold under repurchase agreements are arranged with select customers.
These agreements generally mature within one day to three months from the
transaction date. Information concerning securities sold under agreements to
repurchase is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
-------------- ---------------
<S> <C> <C>
Average balance during the year $ 9,757,220 $ 3,031,606
</TABLE>
F-13
<PAGE> 84
<TABLE>
<S> <C> <C>
Average interest rate during the year 4.42% 4.40%
Maximum month-end balance during the year $ 16,623,764 $ 5,858,555
</TABLE>
(8) DEBENTURES PAYABLE:
-------------------
At December 31, 1998 and 1997, outstanding debentures totaled $800,000 and
$1,700,000, respectively. Of the $800,000 outstanding at December 31, 1998,
$400,000 bears interest at the prime rate (7.75% at December 31, 1998) and
$400,000 bears interest at the prime rate plus 0.5% (8.25% at December 31,
1998). Interest is payable monthly. A portion of the debentures mature in
January 1999. The remaining debentures mature in January 2000. Bancshares may
redeem all or part of the debentures at any time before due dates without
penalty or premium.
(9) INCOME TAXES:
-------------
The total income taxes in the accompanying consolidated statements of income are
as follows for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ -------------------
<S> <C> <C> <C>
Current-
Federal $ - $ 2,286,111 $ 2,171,951
State - 256,137 257,834
Deferred-
Federal 513,865 (27,369) (35,095)
State 52,689 (5,275) (6,758)
------------------ ------------------ -------------------
$ 566,554 $ 2,509,604 $ 2,387,932
================== ================== ===================
</TABLE>
Income tax expense differs from the amount computed by applying the statutory
Federal income tax rate of 34% to income before income taxes due to the
following for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ -------------------
<S> <C> <C> <C>
Expected tax expense $ - $ 2,281,577 $ 2,150,625
Increase (decrease) in taxes resulting from-
State income tax and other - 190,545 218,168
Built-in gains 72,652 - -
S Corporation election 493,902 - -
Amortization of goodwill - 90,402 87,672
Interest scaleback - 6,420 7,701
Tax-exempt income - (59,340) (76,234)
------------------ ------------------ -------------------
$ 566,554 $ 2,509,604 $ 2,387,932
================== ================== ===================
</TABLE>
As of December 31, 1998, the Company recorded a net income tax expense of
$566,554. The expense is the result of an expense of removal of certain deferred
tax assets, net of certain deferred tax liabilities, that are no longer required
to be recorded due to the Subchapter S Corporation election made by the Company.
As of December 31, 1998, the Company had remaining deferred tax asset of $5,789.
The remaining deferred tax asset is attributable to projected built-in gains on
investment securities.
F-14
<PAGE> 85
As of December 31, 1997, the Company had deferred tax assets of $731,897 and
deferred tax liabilities of $255,236, resulting in net deferred tax assets of
$476,661, recorded in other assets. As of December 31, 1997, the Company had not
recorded a valuation allowance with respect to the net deferred tax assets
because it was anticipated that the assets were fully realizable.
As of December 31, 1996, the Company had deferred tax assets of $673,496 and
deferred tax liabilities of $229,479, resulting in net deferred tax assets of
$444,017, recorded in other assets. As of December 31, 1996, the Company had not
recorded a valuation allowance with respect to the net deferred tax assets
because it was anticipated that the assets were fully realizable.
(10) COMMITMENTS AND CONTINGENCIES:
------------------------------
LITIGATION -
In the normal course of business, the Company is a party to various lawsuits.
When actions are deemed probable of settlement or loss, estimated provisions for
losses are provided in the consolidated financial statements. In the opinion of
management, as well as the opinion of legal counsel, there are no legal matters
which would be material to the Company's financial position or results of
operations.
LEASES -
The Bank leases land under operating leases on which three of its branch
facilities are located, a portion of the building in which the main branch is
located, and certain other premises. The Bank also leases certain equipment
under operating leases. The leases expire in periods ranging from 2 to 28 years
and some provide for renewal options. Leases, which expire are generally renewed
or replaced by similar leases. Certain leases provide for escalation of the
lease payments.
During 1995, the Bank entered into a lease agreement for the land on which a new
branch is to be constructed. The lease agreement includes an option to purchase
which management intends to exercise as soon as it is available. The purchase
price is dependent upon the timing of the purchase as specified in the
agreement, but provides for a minimum of $15 per square foot up to 31,000 square
feet and $10 per square foot over 31,000 square feet.
Total operating lease expense, included in other operating expenses in the
accompanying consolidated statements of income, totaled approximately $382,000
and $391,000 for 1998 and 1997, respectively.
The Bank has a service agreement with a major data processing provider. Under
the terms of the agreement, the Bank paid the provider approximately $373,000
and $346,000 for 1998 and 1997, respectively. Such expenses are included in
equipment and data processing expenses in the accompanying consolidated
statements of income. Until the termination of the agreement in December 2001,
the monthly payment amount is subject to an annual increase of three percent.
At December 31, 1998, the minimum future operating lease and service agreement
payments are as follows:
Year Ended December 31,
-----------------------
1999 $ 744,340
2000 746,573
F-15
<PAGE> 86
2001 718,042
2002 428,544
2003 426,786
Thereafter 3,089,148
------------
$ 6,153,433
============
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
CREDIT -
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 lines of credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the accompanying consolidated
balance sheets. The contract amounts of those instruments reflect the extent of
involvement the Bank has in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend lines of credit and
standby letters of credit is represented by the contractual or 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. The approximate contract or notional amounts of such instruments
are as follows at December 31, 1998:
Unfunded portion of commitments to extend lines of credit $ 37,355,467
=================
Standby letters of credit $ 3,898,570
=================
Commitments to extend lines of 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 may not
necessarily represent future cash requirements.
Management evaluates each customer's creditworthiness on a case-by-case basis.
The amount of collateral obtained if deemed necessary by the Bank upon extension
of credit is based on management's credit evaluation of the counterparty.
Collateral held varies but may include: accounts receivable; inventory;
property, plant, and equipment; and income-producing commercial properties.
Standby letters of credit are short-term conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support private borrowing arrangements,
including commercial paper, bond financing and similar transactions. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. Generally, collateral is not
required to secure letters of credit.
F-16
<PAGE> 87
(11) RELATED PARTY TRANSACTIONS:
---------------------------
In the normal course of business, the Bank has entered into transactions with
the Bank and Bancshares' directors, significant shareholders and their
affiliates (related parties). Management believes such transactions were made on
substantially the same terms and conditions as those prevailing at the same time
for comparable transactions with other customers and did not involve more than
normal credit risk or present other unfavorable features. The aggregate amount
of loans to such related parties at December 31, 1998 and 1997, approximated
$1,398,000 and $2,289,000, respectively.
During 1996, the Bank purchased a fifty percent interest in a building and land
for $634,354. The remaining interest in the property was purchased by a
partnership considered to be a related party. As part of the transaction, the
Bank signed a lease beginning June 1997, and relocated a branch to the new
building. Estimated lease payments are included in the future operating lease
and service agreement payments in Note 10.
(12) BENEFIT PLANS:
--------------
The Bank supports a qualified Employee Stock Ownership Plan enabling employees
to acquire shares of the Bank's common stock. The Bank makes annual
contributions to an Employee Stock Ownership Trust (Trust) at the discretion of
the Board of Directors. At December 31, 1998, 1997 and 1996, the principal
assets of the Trust were shares of common stock of the Bank and Bancshares.
Contributions to the Trust for the years ended December 31, 1998, 1997 and 1996,
totaled $320,000, $320,000 and $300,000, respectively.
The Bank has deferred compensation agreements with three of its directors
providing for annual payments to each director for 15 years upon their
retirement. The retirement benefits are funded by insurance policies owned by
the Bank. As of December 31, 1998 and 1997, the cash surrender value related to
the insurance polices were $209,460 and $206,741, and the deferred compensation
liability for future retirement benefits under the deferred compensation
agreements were $255,635 and $238,747, respectively.
(13) REGULATORY REQUIREMENTS:
------------------------
The Company is subject to various regulatory capital requirements administered
by federal and state banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Company's consolidated financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, Bancshares and Bank must meet specific capital guidelines that involve
quantitative measures of their assets, liabilities, and certain off-balance
sheet items as calculated under regulatory accounting practices. Bancshares' and
the Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require minimum amounts and ratios to be maintained (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined)
F-17
<PAGE> 88
to average assets (as defined). Management believes, as of December 31, 1998,
that Bancshares and Bank meet all capital adequacy requirements to which they
are subject.
As of December 31, 1998 and 1997, the most recent notification from the primary
regulators categorized Bancshares and the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as
adequately capitalized, certain minimum total risk-based, Tier I risk-based, and
Tier I leverage ratios must be maintained as set forth in the table below. There
are no conditions or events since that notification that management believes
have changed Bancshares or Bank's category.
The consolidated and Bank only actual capital amounts (in thousands) and ratios
are also presented in the following table as of December 31, 1998 and 1997,
respectively.
<TABLE>
<CAPTION>
1998
----------------------------------------------------------------------------
To Be Well
For Capital Capitalized Under
Adequacy Purposes Prompt Corrective
Actual Action Provisions
------------------------- ------------------------ -------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------- ---------- -------------- --------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk-Weighted Assets)
Consolidated $ 26,490 16% $ 13,433 8% N/A N/A
Bank Only $ 27,232 16% $ 13,432 8% $ 16,790 10%
Tier I Capital
(to Risk-Weighted Assets)
Consolidated $ 24,816 15% $ 6,717 4% N/A N/A
Bank Only $ 25,125 15% $ 6,716 4% $ 10,074 6%
Tier I Capital
(to Average Assets)
Consolidated $ 24,816 9% $ 10,738 4% N/A N/A
Bank Only $ 25,125 9% $ 11,017 4% $ 13,771 5%
</TABLE>
<TABLE>
<CAPTION>
1997
----------------------------------------------------------------------------
To Be Well
For Capital Capitalized Under
Adequacy Purposes Prompt Corrective
Actual Action Provisions
------------------------- ------------------------ -------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------- ---------- -------------- --------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk-Weighted Assets)
Consolidated $ 24,189 12% $ 14,303 8% N/A N/A
Bank Only $ 25,255 14% $ 14,302 8% $ 17,877 10%
Tier I Capital
(to Risk-Weighted Assets)
Consolidated $ 21,954 11% $ 7,152 4% N/A N/A
Bank Only $ 23,020 13% $ 7,151 4% $ 10,726 6%
Tier I Capital
(to Average Assets)
Consolidated $ 21,954 10% $ 9,052 4% N/A N/A
Bank Only $ 23,020 10% $ 9,052 4% $ 11,315 5%
</TABLE>
F-18
<PAGE> 89
(14) FAIR VALUES OF FINANCIAL INSTRUMENTS:
-------------------------------------
The estimated fair value of financial instruments are as follows at December 31:
<TABLE>
<CAPTION>
1998 1997
-------------------------------------- ------------------------------------
Carrying Amount Estimated Carrying Amount Estimated
Fair Value Fair Value
----------------- ----------------- ----------------- -----------------
Assets
------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 48,871,099 $ 48,871,099 $ 48,331,732 $ 48,331,732
Investment securities $ 87,475,611 $ 87,511,621 $ 52,694,196 $ 52,888,664
Loans held for sale $ 2,253,517 $ 2,253,517 $ 2,635,285 $ 2,635,285
Loans $ 132,533,425 $ 133,038,933 $ 124,508,052 $ 125,110,491
Accrued interest receivable $ 2,391,868 $ 2,391,868 $ 2,021,437 $ 2,021,437
Liabilities
-----------
Deposits $ 236,660,463 $ 237,599,878 $ 203,831,340 $ 204,242,711
Securities sold under agreements to
repurchase $ 13,149,151 $ 13,149,151 $ 3,253,924 $ 3,253,924
Debentures payable $ 800,000 $ 800,000 $ 1,700,000 $ 1,700,000
Accrued interest payable $ 715,591 $ 715,591 $ 728,187 $ 728,187
</TABLE>
The fair value of off-balance sheet commitments to extend lines of credit and
standby letters of credit have fair values estimated to be equal to the fees
generated to extend such commitments and are not material to the accompanying
consolidated financial statements.
Because no market exists for a significant portion of the financial instruments
and because of the inherent imprecision of estimating fair value discount rates
for financial instruments for which no market exists, management believes that
the fair value information presented in the footnotes to these consolidated
financial statements does not adequately reflect the amount that would be
received if such assets and liabilities were sold.
(15) SUBSEQUENT EVENT:
-----------------
On July 23, 1999, Bancshares and Compass executed an agreement to merge. In
order to effectuate the merger, Compass formed a New Mexico corporation, which
is wholly-owned by Compass. The Compass-owned New Mexico Corporation will be
merged into Bancshares with Bancshares continuing as the surviving entity.
The merger agreement is subject to certain conditions including: the approval of
the stockholders of Bancshares as well as approval of certain regulatory
agencies; the favorable opinion of Compass counsel that the merger will qualify
as a tax-free reorganization; the favorable opinion of Compass' independent
auditors that the merger will qualify for "pooling-of-interests" accounting
treatment; and other conditions as customary for merger transactions of this
type. Management anticipates these conditions will be met during the last
quarter of 1999 with the transaction being consummated soon thereafter.
F-19
<PAGE> 90
WESTERN BANCSHARES OF ALBUQUERQUE, INC. AND SUBSIDIARY
------------------------------------------------------
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------
F-20
<PAGE> 91
WESTERN BANCSHARES OF ALBUQUERQUE, INC. AND SUBSIDIARY
------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
JUNE 30, 1999 AND DECEMBER 31, 1998
-----------------------------------
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
ASSETS (Unaudited)
------
<S> <C> <C>
CASH AND CASH EQUIVALENTS:
Cash and due from banks $ 14,538,971 $ 14,796,099
Federal funds sold 27,671,000 34,075,000
---------------------- ----------------------
Total cash and cash equivalents 42,209,971 48,871,099
---------------------- ----------------------
INVESTMENT SECURITIES:
Available-for-sale 28,153,901 16,507,209
Held-to-maturity 61,319,465 70,968,402
---------------------- ----------------------
Total investment securities 89,473,366 87,475,611
---------------------- ----------------------
LOANS HELD FOR SALE 484,334 2,253,517
LOANS, net 134,178,337 132,533,425
BANK PREMISES AND EQUIPMENT, net 4,517,971 4,082,316
ACCRUED INTEREST RECEIVABLE 2,512,899 2,391,868
GOODWILL, net of accumulated amortization of $4,031,220 in 1998 6,825,815 6,968,450
and 4,173,855 for the period ending 6/30/1999
OTHER REAL ESTATE OWNED 310,167 292,354
OTHER ASSETS 188,358 60,430
---------------------- ----------------------
Total assets $ 280,701,218 $ 284,929,070
====================== ======================
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------
LIABILITIES:
Deposits $ 230,584,386 $ 236,660,463
Securities sold under agreements to repurchase 11,074,752 13,149,151
Accrued interest payable 633,116 715,591
Debentures payable 800,000 800,000
Accrued expenses and other liabilities 3,902,377 1,820,311
---------------------- ----------------------
Total liabilities 246,994,631 253,145,516
---------------------- ----------------------
STOCKHOLDERS' EQUITY:
Common stock, $1 par value;
500,000 shares authorized; 134,522
shares issued and outstanding at
June 30, 1999 and December 31, 1998 134,522 134,522
Additional paid-in capital 10,242,600 10,242,600
Retained earnings 23,220,201 20,973,298
Unrealized gain on available-for-sale securities, net of tax effect 109,264 433,134
---------------------- ----------------------
Total stockholder's equity 33,706,587 31,783,554
---------------------- ----------------------
Total liabilities and stockholders' equity $ 280,701,218 $ 284,929,070
====================== ======================
</TABLE>
The accompanying notes are an integral part of the these unaudited
consolidated financial statements.
F-21
<PAGE> 92
WESTERN BANCSHARES OF ALBUQUERQUE, INC. AND SUBSIDIARY
------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
---------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------- --------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
INTEREST INCOME: (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Loans $3,752,809 $3,898,279 $7,410,940 $7,411,066
Investment securities:
U.S. Government and Federal agencies 1,286,764 825,828 2,591,673 1,599,889
States, municipalities and other 55,107 42,863 95,840 86,339
Federal funds sold 260,901 545,424 607,496 931,098
--------------- --------------- --------------- ---------------
5,355,581 5,312,394 10,705,949 10,028,392
--------------- --------------- --------------- ---------------
INTEREST EXPENSE:
Negotiable order of withdrawal deposits 43,319 57,416 87,550 109,476
Money market and savings 349,970 327,810 718,086 603,062
Time deposits 1,330,139 1,413,672 2,725,358 2,809,920
Securities sold under agreements to repurchase and other 150,488 122,134 258,629 128,523
Debentures payable - - 32,730 65,742
--------------- --------------- --------------- ---------------
1,873,916 1,921,032 3,822,353 3,716,723
--------------- --------------- --------------- ---------------
NET INTEREST INCOME BEFORE PROVISION
FOR LOAN LOSSES 3,481,665 3,391,362 6,883,596 6,311,669
PROVISION FOR LOAN LOSSES 120,000 110,000 240,000 185,000
--------------- --------------- --------------- ---------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 3,361,665 3,281,362 6,643,596 6,126,669
--------------- --------------- --------------- ---------------
OTHER OPERATING INCOME:
Service charges and fees 343,718 332,992 586,906 604,528
Gains on sales of loans held for sale - - 146,444 263,875
Other 2,499 4,715 159,055 116,052
--------------- --------------- --------------- ---------------
346,217 337,707 892,405 984,455
--------------- --------------- --------------- ---------------
OTHER OPERATING EXPENSES:
Salaries and employee benefits 895,240 865,657 1,749,031 1,707,088
Equipment and data processing 160,348 91,343 251,341 227,290
Occupancy, net 86,720 173,576 142,547 188,602
Other professional fees 124,583 128,081 194,044 203,871
Legal fees - - 18,659 18,452
Other 349,299 698,062 629,933 558,466
--------------- --------------- --------------- ---------------
1,616,190 1,956,719 2,985,555 2,903,769
--------------- --------------- --------------- ---------------
INCOME BEFORE INCOME TAX EXPENSE 2,091,692 1,662,350 4,550,446 4,207,355
--------------- --------------- --------------- ---------------
INCOME TAX EXPENSE:
Built in gains and C Corporation tax expense 75,000 - 88,716 -
Effect of change to Subchapter S Corporation - - - 367,873
--------------- --------------- --------------- ---------------
75,000 - 88,716 367,873
--------------- --------------- --------------- ---------------
NET INCOME $2,016,692 $1,662,350 $4,461,730 $3,839,482
=============== =============== =============== ===============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 134,522 134,522 134,522 134,522
=============== =============== =============== ===============
BASIC EARNINGS PER SHARE $ 14.99 $ 12.36 $ 33.17 $ 28.54
=============== =============== =============== ===============
</TABLE>
The accompanying notes are an integral part of the these unaudited
consolidated financial statements.
F-22
<PAGE> 93
WESTERN BANCSHARES OF ALBUQUERQUE, INC. AND SUBSIDIARY
------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
-----------------------------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
Common Stock
Issued and Outstanding Treasury Stock
Shares Par Value Shares Par Value
-------------------- ----------------- -------------------- --------------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1998 134,522 $ 134,522 - $ -
Comprehensive income:
Net income - - - -
Net change in unrealized gain
on available-for-sale investment
securities - - - -
Total comprehensive income
Sale of treasury stock - - - -
Distributions, $16.46 per share - - - -
-------------------- ----------------- -------------------- --------------------
BALANCE, June 30, 1999 134,522 $ 134,522 - $ -
==================== ================= ==================== ====================
BALANCE, December 31, 1997 134,522 $ 134,522 (205) $ (50,023)
Comprehensive income:
Net income - - - -
Net change in unrealized gain
on available-for-sale investment
securities - - - -
Total comprehensive income
Sale of treasury stock - - 205 50,023
Distributions, $16.14 per share - - - -
-------------------- ----------------- -------------------- --------------------
BALANCE, June 30, 1998 134,522 $ 134,522 - $ -
==================== ================= ==================== ====================
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Additional Other
Paid-In Retained Comprehensive
Capital Earnings Income Total
-------------------- --------------------- -------------------- -------------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1998 $ 10,242,600 $ 20,973,298 $ 433,134 $ 31,783,554
Comprehensive income:
Net income - 4,461,730 -
Net change in unrealized gain
on available-for-sale investment
securities - - (323,870)
Total comprehensive income 4,137,860
Sale of treasury stock - - - -
Distributions, $16.46 per share - (2,214,827) - (2,214,827)
-------------------- --------------------- -------------------- -------------------
BALANCE, June 30, 1999 $ 10,242,600 $ 23,220,201 $ 109,264 $ 33,706,587
==================== ===================== ==================== ===================
BALANCE, December 31, 1997 $ 10,242,600 $ 18,782,720 $ 97,003 $ 29,206,822
Comprehensive income:
Net income - 3,839,482 -
Net change in unrealized gain
on available-for-sale investment
securities - - 60,948
Total comprehensive income 3,900,430
Sale of treasury stock - - - 50,023
Distributions, $16.14 per share - (2,171,827) - (2,171,827)
-------------------- --------------------- -------------------- -------------------
BALANCE, June 30, 1998 $ 10,242,600 $ 20,450,375 $ 157,951 $ 30,985,448
==================== ===================== ==================== ===================
</TABLE>
The accompanying notes are an integral part of the these unaudited
consolidated financial statements.
F-23
<PAGE> 94
WESTERN BANCSHARES OF ALBUQUERQUE, INC. AND SUBSIDIARY
------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
-----------------------------------------------
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES: (Unaudited) (Unaudited)
<S> <C> <C>
Net income $ 4,461,730 $ 3,839,482
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 240,000 185,000
Depreciation and amortization 262,428 257,012
Undistributed earnings of subsidiary - -
Net discount accretion and premium amortization
on investment securities (10,689) (35,453)
Gain on sales of loans held for sale 36,134 113,215
Net writedowns and recoveries of other real estate owned (62,335) 1,639
Loans held for sale funded (4,997,746) (10,536,831)
Proceeds from sales of loans held for sale 6,730,796 10,722,087
Changes in assets and liabilities:
Accrued interest receivable (121,031) (292,870)
Other assets (127,929) 185,683
Accrued interest payable (82,475) (32,026)
Accrued expenses and other liabilities 2,082,066 (687,941)
----------------- -----------------
Net cash provided by operating activities 8,410,949 3,718,997
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of:
Available-for-sale investment securities (13,466,829) (2,273,900)
Held-to-maturity investment securities (618,108) (22,309,312)
Bank premises and equipment (555,448) (77,712)
Proceeds from maturities and calls of:
Available-for-sale investment securities 1,500,000 2,000,000
Held-to-maturity investment securities 10,274,000 11,156,263
Proceeds from sale of:
Other real estate owned 173,368 -
Loans funded, net of repayments (2,013,758) (6,019,102)
----------------- -----------------
Net cash used by investing activities (4,706,775) (17,523,763)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits and savings accounts (4,021,288) 17,749,626
Net increase in time deposits (2,054,787) 188,165
Net increase in securities sold under agreements to repurchase (2,074,399) 6,028,211
Principal repayments on debentures payable - (300,000)
Sale of treasury stock - 50,023
Cash distributions paid (2,214,828) (2,171,826)
----------------- -----------------
Net cash (used) provided by financing activities (10,365,302) 21,544,199
----------------- -----------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (6,661,128) 7,739,433
CASH AND CASH EQUIVALENTS, beginning of year 48,871,099 48,331,732
----------------- -----------------
CASH AND CASH EQUIVALENTS, end of year $ 42,209,971 $ 56,071,165
================= =================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR -
Interest $ 3,904,828 $ 3,748,749
================= =================
Income taxes $ 10,000 $ 10,000
================= =================
SIGNIFICANT NON-CASH TRANSACTIONS -
Transfer of loan to other real estate owned $ 128,846 $ 201,960
================= =================
Change in unrealized gain on available-for-sale investment securities $ (323,870) $ 60,948
================= =================
Distributions declared, not yet paid $ - $ -
================= =================
</TABLE>
The accompanying notes are an integral part of the these unaudited
consolidated financial statements.
F-24
<PAGE> 95
WESTERN BANCSHARES OF ALBUQUERQUE, INC. AND SUBSIDIARY
------------------------------------------------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------
JUNE 30, 1999 AND 1998
----------------------
(Unaudited)
(1) ORGANIZATION:
------------
The consolidated financial statements of Compass Bancshares, Inc. (the
"Company") in this report have not been audited. In the opinion of management,
all adjustments necessary to present fairly the financial position and the
results of operations for the interim periods have been made. All such
adjustments are of a normal recurring nature. The results of operations are not
necessarily indicative of the results of operations for the full year or any
other interim periods. These financial statements should be read in conjunction
with the consolidated financial statements of Western Bancshares for the year
ended December 31, 1998.
(2) INVESTMENT SECURITIES:
---------------------
The amortized cost and estimated market values of investment securities are as
follows as of June 30, 1999:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
------------------
June 30, 1999
----------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Market Value
------------------- ------------------ -------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and Federal
agencies $ 25,434,653 $ 192,140 $ 55,856 $ 25,570,937
States and municipalities 2,265,646 42,168 - 2,307,814
Federal Reserve Bank stock 275,150 - - 275,150
------------------- ------------------ -------------------------------------
$ 27,975,499 $ 234,308 $ 55,856 $ 28,153,901
=================== ================== =====================================
</TABLE>
<TABLE>
<CAPTION>
HELD-TO-MATURITY
----------------
June 30, 1999
-----------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Market Value
------------------- ------------------ --------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and Federal
agencies $ 58,572,848 $ 39,139 $ 2,241,684 $ 56,369,303
States and municipalities 2,747,617 28,960 4,829 2,771,748
------------------- ------------------ --------------------------------------
$ 61,319,465 $ 68,099 $ 2,246,513 $ 59,141,051
=================== ================== ======================================
</TABLE>
F-25
<PAGE> 96
(3) LOANS:
-----
Loans consist of the following as of June 30, 1999:
Commercial $ 84,081,831
Real estate and interim construction 44,887,112
Installment 8,291,952
Overdrafts 318,177
-------------------
137,579,072
Less-
Allowance for loan losses 2,825,512
Unearned discount 293,220
Net deferred loan fees 282,003
-------------------
$ 134,178,337
===================
Impaired loans on nonaccrual status as of June 30, 1999 and December 31,1998,
totaled approximately $214,000 and $378,000, respectively. Based on management's
analysis, there were no other impaired loans as of June 30, 1999 and December
31, 1998. Management determined that a valuation allowance for impaired loans is
not required as the collateral value of the impaired loans exceeds the Bank's
recorded investment. Interest earned, but not recorded on nonaccrual loans
during the year ended June 30, 1999 and December 31, 1998, totaled approximately
$17,400 and $35,600, respectively.
An analysis of the allowance for loan losses follows for the years ended June
30:
<TABLE>
<CAPTION>
1999 1998
------------------ -------------------
<S> <C> <C>
Balance, beginning of year $ 2,746,271 $ 2,686,911
Provision for loan losses 240,000 460,000
Recoveries on loans previously charged off 6,519 14,592
Loans charged off (167,278) (415,232)
------------------ -------------------
Balance, end of period $ 2,825,512 $ 2,746,271
================== ===================
</TABLE>
(4) REGULATORY REQUIREMENTS:
-----------------------
The Company is subject to various regulatory capital requirements administered
by federal and state banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Company's consolidated financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, Bancshares and Bank must meet specific capital guidelines that involve
quantitative measures of their assets, liabilities, and certain off-balance
sheet items as calculated under regulatory accounting practices. Bancshares' and
the Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require minimum amounts and ratios to be maintained (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined)
F-26
<PAGE> 97
to average assets (as defined). Management believes, as of June 30, 1999, that
Bancshares and Bank meet all capital adequacy requirements to which they are
subject. As of June 30, 1999 and December 31, 1998, the most recent notification
from the primary regulators categorized Bancshares and the Bank as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as adequately capitalized, certain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios must be maintained as set forth in the
table below. There are no conditions or events since that notification that
management believes have changed Bancshares or Bank's category.
The consolidated and Bank only actual capital amounts (in thousands) and ratios
are also presented in the following table as of June 30, 1999 and December 31,
1998, respectively.
<TABLE>
<CAPTION>
June 30, 1999
----------------------------------------------------------------------------
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
------------------------- ------------------------ -------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------- ---------- -------------- --------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk-Weighted Assets)
Consolidated $ 29,486 19% $ 12,172 8% N/A N/A
Bank Only $ 29,333 18% $ 13,371 8% $ 16,714 10%
Tier I Capital
(to Risk-Weighted Assets)
Consolidated $ 26,771 18% $ 6,086 4% N/A N/A
Bank Only $ 27,125 16% $ 6,685 4% $ 10,028 6%
Tier I Capital
(to Average Assets)
Consolidated $ 26,771 10% $ 11,049 4% N/A N/A
Bank Only $ 27,125 10% $ 10,892 4% $ 13,615 5%
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
----------------------------------------------------------------------------
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
------------------------- ------------------------ -------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------- ---------- -------------- --------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to Risk-Weighted Assets)
Consolidated $ 26,490 16% $ 13,433 8% N/A N/A
Bank Only $ 27,323 16% $ 13,432 8% $ 16,790 10%
Tier I Capital
(to Risk-Weighted Assets)
Consolidated $ 24,816 15% $ 6,717 4% N/A N/A
Bank Only $ 25,125 15% $ 6,716 4% $ 10,074 6%
</TABLE>
F-27
<PAGE> 98
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Tier I Capital
(to Average Assets)
Consolidated $ 24,816 9% $ 10,738 4% N/A N/A
Bank Only $ 25,125 9% $ 11,017 4% $ 13,771 5%
</TABLE>
(5) SUBSEQUENT EVENTS:
-----------------
On July 23, 1999 Western Bancshares entered into an Agreement and Plan of Merger
with Compass Bancshares, Inc. The definitive Agreement calls for the exchange of
shares of Compass Bancshares common stock for all of the outstanding common
stock of Western Bancshares. The transaction, which will be accounted for as a
pooling of interests, is subject to shareholder and regulatory approval.
F-28
<PAGE> 99
================================================================================
APPENDIX I
MERGER AGREEMENT
================================================================================
<PAGE> 100
AMENDMENT TO AGREEMENT AND PLAN OF MERGER
-----------------------------------------
This Amendment to Agreement and Plan of Merger (this "Amendment") dated
as of November 2, 1999 is entered into by and among Compass Bancshares, Inc.
("Compass"), Compass Western Acquisitions, Inc. ("Compass-Western") and Western
Bancshares of Albuquerque, Inc. ("Western").
WHEREAS, Compass and Western entered into an Agreement and Plan of
Merger dated as of July 23, 1999 (the "Merger Agreement");
WHEREAS, the Merger Agreement requires that an existing or new
subsidiary of Compass shall be merged with Western with Western being the
surviving entity;
WHEREAS, Compass-Western is such existing or new subsidiary;
WHEREAS, Section 8.3 of the Merger Agreement requires Compass and
Western to amend the Merger Agreement for the purpose of making Compass-Western
a party thereto; and
WHEREAS, the parties desire to otherwise amend the Merger Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and in the Merger Agreement and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. Capitalized terms used herein and not defined herein shall
have the meanings set forth in the Merger Agreement.
2. Upon execution of this Amendment, Compass-Western shall
become a party to the Merger Agreement, shall be deemed to be Merger Sub as
defined in the Merger Agreement, and shall succeed to the rights and become
subject to the obligations of Merger Sub as provided in the Merger Agreement.
3. Section 7.2(h) of the Merger Agreement is hereby amended in
its entirety to read in full as follows:
(h) Compass shall have received a letter from Arthur Andersen
LLP, dated as of the Effective Time, to the effect that the Merger will
qualify for pooling-of-interests accounting treatment if closed and
consummated in accordance with this Agreement.
4. The execution of this Amendment shall not relieve Compass
of its obligations under the Merger Agreement.
<PAGE> 101
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]
<PAGE> 102
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: Secretary Its: Chief Financial Officer
ATTEST: COMPASS WESTERN ACQUISITIONS, INC.
By:/s/ Daniel B. Graves By:/s/ Garrett R. Hegel
------------------------- ------------------------------
Its: Vice President and Its: President and Treasurer
Assistant Secretary
ATTEST: WESTERN BANCSHARES OF
ALBUQUERQUE, INC.
By:/s/ Dave Wintermute By:/s/ William T. Fietz
------------------------- -------------------------------
Its: Vice President and Secretary Its:Chairman of the Board and
President
<PAGE> 103
================================================================================
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
COMPASS BANCSHARES, INC.
AND
WESTERN BANCSHARES OF ALBUQUERQUE, INC.
Dated as of July 23, 1999
================================================================================
<PAGE> 104
TABLE OF CONTENTS
Page
----
ARTICLE I................................................................1
THE MERGER.............................................................1
SECTION 1.1 The Merger...........................................1
SECTION 1.2 Effective Time.......................................1
SECTION 1.3 Certain Effects of the Merger........................2
SECTION 1.4 Articles of Incorporation and By-Laws................2
SECTION 1.5 Directors and Officers...............................2
SECTION 1.6 Conversion of Shares.................................2
SECTION 1.7 Shareholders' Meeting................................3
SECTION 1.8 Registration of the Compass Common Stock.............4
SECTION 1.9 Tax Consequences.....................................4
SECTION 1.10 Closing. ...........................................4
ARTICLE II...............................................................5
DISSENTING SHARES; EXCHANGE OF SHARES..................................5
SECTION 2.1 Dissenting Shares....................................5
SECTION 2.2 Exchange of Shares...................................5
ARTICLE III..............................................................6
REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........................6
SECTION 3.1 Organization and Qualification.......................7
SECTION 3.2 Company Capitalization...............................7
SECTION 3.3 Subsidiary Capitalization; Other Securities..........7
SECTION 3.4 Authority Relative to the Agreement..................8
SECTION 3.5 No Violation.........................................8
SECTION 3.6 Consents and Approvals...............................9
SECTION 3.7 Regulatory Reports...................................9
SECTION 3.8 SEC Status; Securities Issuances.....................9
SECTION 3.9 Financial Statements.................................9
SECTION 3.10 Absence of Certain Changes..........................10
SECTION 3.11 Company Indebtedness................................12
SECTION 3.12 Litigation..........................................12
SECTION 3.13 Tax Matters.........................................12
SECTION 3.14 Employee Benefit Plans..............................14
SECTION 3.15 Employment Matters..................................16
SECTION 3.16 Leases, Contracts and Agreements....................17
SECTION 3.17 Related Company Transactions........................17
SECTION 3.18 Compliance with Laws................................18
SECTION 3.19 Insurance...........................................18
SECTION 3.20 Loans...............................................18
SECTION 3.21 Fiduciary Responsibilities..........................18
SECTION 3.22 Patents, Trademarks and Copyrights..................18
SECTION 3.23 Environmental Compliance............................19
i
<PAGE> 105
SECTION 3.24 Regulatory Actions..................................20
SECTION 3.25 Title to Properties; Encumbrances...................20
SECTION 3.26 Shareholder List....................................20
SECTION 3.27 Proxy Statement.....................................21
SECTION 3.28 Dissenting Shareholders.............................21
SECTION 3.29 Takeover Laws.......................................21
SECTION 3.30 Employee Stock Options..............................21
SECTION 3.31 Accounting Matters..................................21
SECTION 3.32 Year 2000 Representation............................22
SECTION 3.33 Representations Not Misleading......................22
ARTICLE IV..............................................................22
REPRESENTATIONS AND WARRANTIES OF COMPASS.............................22
SECTION 4.1 Organization and Authority..........................23
SECTION 4.2 Authority Relative to Agreement.....................23
SECTION 4.3 Financial Reports...................................24
SECTION 4.4 Capitalization......................................24
SECTION 4.5 Consents and Approvals..............................25
SECTION 4.6 Proxy Statement.....................................25
SECTION 4.7 Availability of Compass Common Stock................25
SECTION 4.8 Regulatory Approvals................................25
SECTION 4.9 Representations Not Misleading......................25
ARTICLE V...............................................................26
COVENANTS OF THE COMPANY..............................................26
SECTION 5.1 Affirmative Covenants of the Company................26
SECTION 5.2 Negative Covenants of the Company...................28
ARTICLE VI..............................................................30
ADDITIONAL AGREEMENTS.................................................30
SECTION 6.1 Access To, and Information Concerning,
Properties and Records......................30
SECTION 6.2 Filing of Regulatory Approvals......................31
SECTION 6.3 Miscellaneous Agreements and Consents...............31
SECTION 6.4 Company Indebtedness................................31
SECTION 6.5 Best Good Faith Efforts.............................31
SECTION 6.6 Exclusivity.........................................31
SECTION 6.7 Public Announcement.................................32
SECTION 6.8 Employee Benefit Plans..............................32
SECTION 6.9 Merger of Bank......................................33
SECTION 6.10 Environmental Investigation; Right to Terminate
Agreement...................................33
SECTION 6.11 Proxies.............................................35
SECTION 6.12 Exchange Agreement..................................35
SECTION 6.13 Director and Officer Indemnification...............35
SECTION 6.14 Certain Tax Matters.................................36
ii
<PAGE> 106
SECTION 6.15 Dividends...........................................38
SECTION 6.16 Year 2000 Investigation; Right to Terminate
Agreement....................................38
ARTICLE VII..............................................................39
CONDITIONS TO CONSUMMATION OF THE MERGER...............................39
SECTION 7.1 Conditions to Each Party's Obligation to
Effect the Merger............................39
SECTION 7.2 Conditions to the Obligations of Compass
and Merger Sub to Effect the Merger..........39
SECTION 7.3 Conditions to the Obligations of the Company
to Effect the Merger....................42
ARTICLE VIII.............................................................43
TERMINATION; AMENDMENT; WAIVER.........................................43
SECTION 8.1 Termination.........................................43
SECTION 8.2 Effect of Termination...............................44
SECTION 8.3 Amendment...........................................44
SECTION 8.4 Extension; Waiver...................................44
ARTICLE IX...............................................................45
SURVIVAL...............................................................45
SECTION 9.1 Survival of Representations and Warranties..........45
ARTICLE X................................................................45
MISCELLANEOUS..........................................................45
SECTION 10.1 Expenses............................................45
SECTION 10.2 Brokers and Finders.................................45
SECTION 10.3 Entire Agreement; Assignment........................45
SECTION 10.4 Further Assurances..................................45
SECTION 10.5 Enforcement of the Agreement........................46
SECTION 10.6 Severability........................................46
SECTION 10.7 Notices.............................................46
SECTION 10.8 Governing Law.......................................47
SECTION 10.9 Descriptive Headings................................47
SECTION 10.10 Parties in Interest.................................47
SECTION 10.11 Counterparts........................................48
SECTION 10.12 Incorporation by References.........................48
SECTION 10.13 Certain Definitions.................................48
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ATTACHMENTS
EXHIBITS
A. Illustration of Merger Consideration
B. Pooling Transfer Restrictions Agreement
C. Exchange Agent Agreement
D. Pooling of Interest Criteria
E. Voting Agreement and Irrevocable Proxy
F. Opinion of Counsel for the Company and the Bank
G. Opinion of Counsel for Compass and Merger Sub
H. Representations Certificate
I. Release
J. Release
K. Letter of Transmittal
LIST OF SCHEDULES
Schedule 3.2 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
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Schedule 3.14(a) Employee Welfare Benefit Plans
Schedule 3.14(b) Employee Pension Benefit Plans
Schedule 3.14(c) Deferred Compensation, Bonus and Stock Purchase Plans
Schedule 3.14(d) Plan Determination Matters
Schedule 3.14(k) Liability for Taxes
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 3.30 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 Officers Having Knowledge
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("Agreement") dated as of July 23, 1999,
by and between Compass Bancshares, Inc. a Delaware corporation ("Compass"), and
Western Bancshares of Albuquerque, Inc., a New Mexico corporation ("Company").
WHEREAS, Compass desires to affiliate with the Company and its wholly
owned subsidiary, Western Bank, a New Mexico banking corporation (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 propose to merge the Company with an
existing or to-be-formed subsidiary ("Merger Sub") of Compass incorporated under
the laws of the State of New Mexico 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; and
WHEREAS, Compass, Merger Sub and the Company intend the Merger to
qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
thereunder; 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 New Mexico Business Corporation Act (the
"BCA"), Merger Sub shall be merged with and into the Company (the "Merger") as
soon as practicable following the satisfaction or waiver, if permissible, of the
conditions set forth in Article VII hereof. Following the Merger, the Company
shall continue as the surviving corporation (the "Surviving Corporation") and
the separate corporate existence of Merger Sub shall cease. Compass shall not be
deemed a party to the Merger for the purposes of Section 53-14-6 of the BCA or
the General Corporation Law of the State of Delaware ("GCL").
SECTION 1.2 EFFECTIVE TIME. The Merger shall be consummated by the
filing with the New Mexico Public Regulation Commission of Articles of Merger,
in the form required by and executed in accordance with the relevant provisions
of the BCA, and by the issuance of a Certificate of Merger
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by the New Mexico State Public Regulation Commission. (The date specified in the
Articles of Merger shall be the "Effective Time").
SECTION 1.3 CERTAIN EFFECTS OF THE MERGER. The Merger shall have the
effects set forth in Section 53-14-6 of the BCA.
SECTION 1.4 ARTICLES OF INCORPORATION AND BY-LAWS. The Articles of
Incorporation and the Bylaws of the Company, in each case as in effect at the
Effective Time, shall be the Articles of Incorporation and By-Laws of the
Surviving Corporation.
SECTION 1.5 DIRECTORS AND OFFICERS. The directors and officers of
Merger Sub 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 Articles 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 $1.00 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 the
Common Shares Outstanding and certify same to Compass.
(b) Subject to subsections (i), (ii) and (iii) below, in consideration
for the Merger, Compass shall issue to the holders of the Shares an aggregate
number of shares of its common stock, par value $2.00 per share, which is quoted
under the symbol "CBSS" on the NASDAQ National Market System ("Compass Common
Stock"), which is equal to $80,000,000 divided by the average closing sale price
of the Compass Common Stock as reported by the NASDAQ National Market System for
the twenty days of trading preceding the fifth trading day prior to the
Effective Time (the "Share Determination Market Value").
(i) In the event the Share Determination Market Value would
result in the number of shares of Compass Common Stock to be issued to be less
than 3,000,000, Compass will issue to the holders of the shares of Company
Common Stock an aggregate number of shares of Compass Common Stock equal to
3,000,000.
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(ii) In the event that the Share Determination Market Value
would result in the number of shares of Compass Common Stock to be issued to be
greater than 3,333,333, Compass will issue to the holders of the shares of
Company Common Stock an aggregate number of shares of Compass Common Stock equal
to 3,333,333.
(iii) In the event Compass enters into a definitive written
agreement to be acquired (by merger or otherwise) prior to the Effective Time,
Compass will issue to the holders of the shares of Company Common Stock an
aggregate number of shares of Compass Common Stock equal to 3,333,333.
(iv) The ratio of the number of shares of Compass Common Stock
to be exchanged for each Share, respectively, and the share figures set forth in
subsections (i), (ii) and (iii) above shall be adjusted appropriately to reflect
any dividends payable in stock or splits with respect to Compass Common Stock,
where the record date or payment occurs prior to the Effective Time.
(v) 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 will 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.
(vi) Set forth on Exhibit A is an illustration of the Merger
Consideration payable to holders of Company Common Stock. In the event of any
conflict between Exhibit A and the foregoing provisions of this Section 1.6(b),
the foregoing provisions of this Section 1.6(b) shall control.
(c) Each share of capital stock of Merger Sub issued and outstanding
immediately before the Effective Time shall, by virtue of the Merger and without
any action on the part of the holders thereof, be converted into 134,522 shares
of common stock of the Surviving Corporation.
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 the Merger and to approve this Agreement;
(b) require no greater than the minimum vote required by applicable law
or its corporate documents 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 the Merger and this
Agreement; and
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(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
and required to approve the Merger under applicable law or its corporate
documents. 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 and timely pursue the
effectiveness thereof (the "Registration Statement") with the Securities and
Exchange Commission ("SEC") under the Securities Act of 1933, as amended
("Securities Act"), and, as applicable, under state blue sky laws, 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 B attached hereto.
SECTION 1.9 TAX CONSEQUENCES. It is intended by the parties hereto that
the Merger shall constitute a reorganization within the meaning of Section
368(a) of the Code, and the parties hereto hereby adopt this Agreement as a
"plan of reorganization" within the meaning of Sections 1.368-2(g) and
1.368-3(a) of the United States Treasury Regulations.
SECTION 1.10 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 the Merger and this Agreement has been
obtained, and the satisfaction or waiver, if permissible, of the conditions set
forth in Article VII hereof, the Company and Merger Sub shall execute and
deliver the Articles of Merger, as described in Section 1.2, and the parties
hereto shall take all such other and further actions as may be required by law
to make the Merger effective; provided, however, that the parties shall cause
the Effective Time to occur on the first day of a calendar month, and provided,
further, that the Closing shall not occur prior to January 13, 2000, unless
otherwise agreed. Prior to the filing referred to in this Section, a closing
(the "Closing") will be held at the office of Locke Liddell & Sapp LLP in
Houston, Texas (or such other place as the parties may agree) for the purpose of
confirming all of the foregoing.
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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 Section 53-15-4 of the BCA (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 BCA. If any such holder shall have
so failed to perfect or shall have effectively withdrawn or lost such right,
such holder's Shares shall thereupon be deemed to have been converted into and
to have become exchangeable for, at the Effective Time, the right to receive the
Merger Consideration without any interest thereon.
SECTION 2.2 EXCHANGE OF SHARES.
(a) Compass shall deposit or cause to be deposited in trust with
Continental Stock Transfer and Trust Company, New York, New York (the "Exchange
Agent"), pursuant to an exchange agent agreement in substantially the form
attached hereto as Exhibit C (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"). Compass shall deposit or cause to be deposited in trust with
the Exchange Agent such additional deposits from time to time as may be
necessary to make cash payments in lieu of fractional shares, and to make the
appropriate cash payments to Dissenting Shares, which additional deposits shall
be added to the Exchange Fund. The Exchange Agent shall, pursuant to irrevocable
instructions jointly given by the Company and Compass, promptly make the
payments in lieu of fractional shares out of the Exchange Fund upon surrender of
Shares in accordance with Section 2.2(b). Payments to dissenting shareholders
shall be made as required by Section 53-15-4 of the BCA. The Exchange Fund shall
not be used for any other purpose, except as provided in this Agreement.
(b) No later than ten (10) days after the later to occur of (i) the
Effective Time or (ii) the delivery by the Company of a certified shareholder's
list containing the names and address of shareholders (together with share
positions and certificate numbers), 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
substantially in the form of Exhibit K hereto (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
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executed, the holder of such Certificate shall be entitled to receive in
exchange therefor cash and Compass Common Stock in the amount provided in
Section 1.6, and such Certificate shall forthwith be canceled. Compass shall
provide the Exchange Agent with certificates for Compass Common Stock, as
requested by the Exchange Agent, in the amounts provided in Section 1.6 hereof.
No interest will be paid or accrued on the cash payable upon surrender of the
Certificate and no dividend will be disbursed with respect to the shares of
Compass Common Stock until the holder's Shares are surrendered in exchange
therefor. If payment or delivery of Compass Common Stock is to be made to a
person other than the person in whose name the Certificate surrendered is
registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment and delivery of Compass Common Stock to
a person other than the registered holder of the Certificate surrendered or
establish to the satisfaction of the Surviving Corporation that such tax has
been paid or is not applicable. Until surrendered in accordance with the
provisions of this Section 2.2, each Certificate (other than Certificates
representing Dissenting Shares) shall represent for all purposes the right to
receive the Merger Consideration without any interest thereon.
(c) As of the Effective Time, the stock transfer ledger of the Company
shall be closed and there shall be no transfers on the stock transfer books of
the Company of the Shares which were outstanding immediately prior to such time
of filing. If, after the Effective Time, Certificates are presented to the
Surviving Corporation, they shall be promptly presented to the Exchange Agent
and exchanged as provided in this Article II.
(d) Any portion of the Exchange Fund (including the proceeds of any
investments thereof) that remains unclaimed by the shareholders of the Company
for one year after the Effective Time shall be returned 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.
(e) Holders of Certificates which have become lost or destroyed shall,
upon execution and delivery to the Exchange Agent of an executed lost stock
affidavit and indemnification agreement provided by the Exchange Agent and
completed satisfactorily to the Exchange Agent and Compass, shall be entitled to
receive Merger Consideration represented by such Certificate in the same manner
as if the Certificate had been delivered to the Exchange Agent.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby makes the representations and warranties set forth
in this Article III to Compass. The Company has delivered to Compass the
Schedules to this Agreement referred to in this Article III prior to the date
hereof. The Company agrees at the Closing to provide Compass
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and Merger Sub with supplemental Schedules reflecting any changes thereto
between the date of such Schedules and the date of the Closing.
SECTION 3.1 ORGANIZATION AND QUALIFICATION. The Company is a New
Mexico 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 New Mexico and all laws, rules, and
regulations applicable to bank holding companies. The Bank is a New Mexico
banking corporation, duly organized, validly existing and in good standing under
the laws of New Mexico, 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
and Western Hot Air Balloon, Inc. True and correct copies of the Articles of
Incorporation 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 New Mexico. The
nature of the business of the Company and its Subsidiaries and their respective
activities, as currently conducted, do not require them to be qualified to do
business in any jurisdiction other than the State of New Mexico.
SECTION 3.2 COMPANY CAPITALIZATION. As of the date hereof, the
authorized capital stock of the Company consists solely of 500,000 shares of
Company Common Stock, of which 134,522 shares are issued and outstanding, and
none of which are held in treasury. 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 BCA
and applicable banking laws and regulations and, except as set forth on Schedule
3.2, all dividends and distributions declared prior to the date hereof have been
paid.
SECTION 3.3 SUBSIDIARY CAPITALIZATION; OTHER SECURITIES. All of the
issued and outstanding shares of the capital stock of the Company's Subsidiaries
(i) are duly authorized, validly issued, fully paid and nonassessable, (ii)
except as referred to in Schedule 3.3 are free and clear of any liens, claims,
security interests and encumbrances of any kind, and (iii) except as set forth
on Schedule 3.3 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
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commitments of any kind restricting the transfer of, requiring the issuance or
sale of, or otherwise relating to any of such shares of capital stock to any
person. The Company owns, directly, all of the issued and outstanding capital
stock of 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 and Western
Hot Air Balloon, Inc. (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.
SECTION 3.4 AUTHORITY RELATIVE TO THE AGREEMENT. The Company has full
corporate power and authority, and, except for the approval by the Company's
shareholders, no further proceedings on the part of the Company are necessary,
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby which have been duly and validly authorized by its Board of
Directors. This Agreement has been duly executed and delivered by the Company
and is a duly authorized, valid, legally binding and enforceable obligation of
the Company, subject to the effect of bankruptcy, insolvency, reorganization,
moratorium, or other similar laws relating to creditors' rights generally and
general equitable principles, and subject to such shareholder approvals and such
approval of regulatory agencies and other governmental authorities having
authority over the Company as may be required by statute or regulation or the
Company's Articles of Incorporation or By-laws. 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 Federal Deposit Insurance Corporation ("FDIC"), the
Board of Governors of the Federal Reserve System ("FRB"), the Director of the
Financial Institutions Division of the Regulation and Licensing Department of
the State of New Mexico ("State Director") and the Alabama Superintendent of
Banks ("Superintendent") 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,
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municipal or other governmental court, department, commission, board, bureau,
agency, instrumentality or other person which may result in liability to the
Company upon the consummation of the transactions contemplated hereby or which
would prevent or delay such consummation. Except as set forth in Schedule 3.5,
or as contemplated hereby, the corporate existence, business organization,
assets, licenses, permits, authorizations and contracts of the Company and its
Subsidiaries will not be terminated or impaired by reason of the execution,
delivery or performance by the Company of this Agreement or consummation by the
Company of the transactions contemplated hereby, assuming the receipt of
required shareholder and regulatory approvals.
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 notice, filing or registration with any governmental body or authority or
other person is required of the Company in connection with the execution,
delivery and performance by the Company of this Agreement and the agreements and
transactions contemplated hereby or the resulting change of control of its
Subsidiaries, except the filing of the Articles of Merger under the BCA, and
such approvals as may be required from the SEC, the FRB, the FDIC, the State
Director and the Superintendent and holders of Shares under the BCA.
SECTION 3.7 REGULATORY REPORTS. Except as set forth on Schedule 3.7,
the Company and its Subsidiaries have filed all reports, registrations and
statements, together with any amendments required to be made thereto, that are
required to be filed with the FRB, the State Director, the FDIC, or any other
regulatory authority having jurisdiction over any such persons, other than
plans, reports or information listed on Schedule 3.7.
SECTION 3.8 SEC STATUS; SECURITIES ISSUANCES. The Company is not
subject to the registration provisions of Section 12 of the Exchange Act nor the
rules and regulations of the SEC promulgated under Section 12 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), other than anti-fraud
provisions of such act. All issuances of securities by the Company and its
Subsidiaries have been registered under the Securities Act, the New Mexico
Securities Act of 1986, as amended, the New Mexico Banking Act, and all other
applicable laws or were exempt from any such registration requirements.
SECTION 3.9 FINANCIAL STATEMENTS. The Company has provided Compass
with a true and complete copy of the audited consolidated statement of financial
position of the Company and its Subsidiaries as of December 31, 1998, and the
related consolidated statements of income, shareholders' equity and changes in
cash flows for the years ended December 31, 1998 and 1997, plus consolidating
financial statements of the Company's Subsidiaries, and the unaudited
consolidated statements of financial position of the Company and its
Subsidiaries as of March 31, 1999 and the related consolidated statements of
income, shareholders' equity and changes in cash flows for the three-month
periods ended March 31, 1999 and 1998 (such consolidated statements of financial
position and the related consolidated statements of income, shareholders' equity
and
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changes in cash flows are collectively referred to herein as the "Consolidated
Financial Statements"), plus all consolidating financial statements for its
Subsidiaries (collectively, with the Consolidated Financial Statements and the
notes and schedules thereto, referred to as the "Financial Statements"). Except
as described in the notes to the Consolidated Financial Statements to the
knowledge of the Company, the Consolidated Financial Statements, including the
consolidated statement of financial position and the related consolidated
statements of income, shareholders' equity and changes in cash flows (including
the related notes thereto) of the Company and its Subsidiaries, fairly present
the financial position of the Company and its Subsidiaries as of the dates
thereof and the results of operations and changes in consolidated financial
position of the 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 State Director, and the FDIC. To the knowledge of the Company,
neither the Company nor its Subsidiaries have any liabilities or obligations of
a type which should be included in or reflected on the Financial Statements if
prepared in accordance with GAAP, whether related to tax or non-tax matters,
accrued or contingent, due or not yet due, liquidated or unliquidated, or
otherwise, except as and to the extent disclosed or reflected in the Financial
Statements. The Company will provide Compass with the unaudited consolidated and
unconsolidated statements of financial position of the Company and its
Subsidiaries as of the end of each month hereafter, prepared on a basis
consistent with prior periods and promptly following their availability, the
Company will provide Compass with the Reports of Condition and Statements of
Income ("Call Reports") of its Subsidiaries for all periods ending after March
31, 1999. The Company and its Subsidiaries have no off balance sheet liabilities
associated with financial derivative products or potential liabilities
associated with financial derivative products.
SECTION 3.10 ABSENCE OF CERTAIN CHANGES. Except as and to the extent
set forth on Schedule 3.10, since March 31, 1999 (the "Balance Sheet Date")
neither the Company nor any of its Subsidiaries has:
(a) made any amendment to its Articles of Incorporation 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;
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(d) except as set forth on Schedule 3.10 and except in the ordinary
course of business and consistent with prudent banking practices, incurred,
assumed or become subject to, whether directly or by way of any guarantee or
otherwise, any obligations or liabilities (absolute, accrued, contingent or
otherwise);
(e) permitted or allowed any of its property or assets to be subject to
any mortgage, pledge, lien, security interest, encumbrance, restriction or
charge of any kind (other than statutory liens not yet delinquent) except in the
ordinary course of business and consistent with prudent banking practices;
(f) except in the ordinary course of business and consistent with
prudent banking practices, canceled any debts, waived any claims or rights, or
sold, transferred, or otherwise disposed of any of its properties or assets;
(g) disposed of or permitted to lapse any rights to the use of any
trademark, service mark, trade name or copyright, or disposed of or disclosed to
any person other than its employees or agents, any trade secret not theretofore
a matter of public knowledge;
(h) except for the matters set forth on Schedule 3.10 pertaining to
raises and bonuses for certain officers, and accruals to employee benefit plans
and payment of permitted dividends to shareholders of the Company and except for
regular salary increases granted in the ordinary course of business within the
Company's or its Subsidiaries' 1999 budgets and consistent with prior practices,
granted any increase in compensation or paid or agreed to pay or accrue any
bonus, percentage compensation, service award, severance payment or like benefit
to or for the credit of any director, officer, employee or agent, or entered
into any employment or consulting contract or other agreement with any director,
officer or employee or adopted, amended or terminated any pension, employee
welfare, retirement, stock purchase, stock option, stock appreciation rights,
termination, severance, income protection, golden parachute, savings or
profit-sharing plan (including trust agreements and insurance contracts
embodying such plans), any deferred compensation, or collective bargaining
agreement, any group insurance contract or any other incentive, welfare or
employee benefit plan, program or agreement maintained by the 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);
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(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 except any changes required by changes in GAAP or
regulatory requirements;
(m) except for the transactions contemplated by this Agreement or as
otherwise permitted hereunder, entered into any transaction, or entered into,
modified or amended any contract or commitment, other than in the ordinary
course of business and consistent with prudent banking practices; or
(n) agreed, whether in writing or otherwise, to take any action the
performance of which would change the representations contained in this Section
3.10 in the future so that any such representation would not be true in all
material respects as of the Closing.
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 under notes and debentures of the Company
and its Subsidiaries, other than deposits ("Company Indebtedness"), and made
available to Compass all material correspondence concerning the status of
Company Indebtedness.
SECTION 3.12 LITIGATION. Except as set forth on Schedule 3.12, there
are no actions, suits, claims, investigations, reviews or other proceedings
pending or, to the knowledge of the Company, 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 that they were required to file (the "Filed Returns"). All
such Filed Returns were correct and complete in all material respects. 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.
None of the Company and its Subsidiaries currently is the beneficiary of any
extension of time within which to file any tax return. 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
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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.
There are no liens for any taxes on any assets of the Company or its
Subsidiaries, except for liens for taxes not yet due or for taxes being
contested in good faith and for which adequate reserves have been established in
accordance with GAAP. 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
assessment or deficiency against the Company or its Subsidiaries for any period.
The Company and its Subsidiaries have withheld and paid over all taxes to the
proper governmental authorities all amounts required to be so withheld and paid
over in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder or other third party. The Company and its
Subsidiaries are neither obligated to make any payments nor are they parties to
any agreement that under certain circumstances could obligate them to make any
payments that will not be deductible under Section 280G of the Code. Except as
disclosed in Schedule 3.13, the Company and its Subsidiaries have never agreed
to make, nor is the Company or its Subsidiaries required to make, any adjustment
under Section 481(a) of the Code by reason of a change in the method of
accounting or otherwise. The Company and its Subsidiaries have not, with regard
to any assets held, acquired or to be acquired, filed a consent to the
application of Section 341(f) of the Code. None of the Company and its
Subsidiaries has been a United States real property holding corporation within
the meaning of Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code. None of the Company and its
Subsidiaries (i) has been a member of an affiliated group filing a consolidated
federal income tax return (other than a group the common parent of which was the
Company) or (ii) has any liability for the taxes of any person (other than any
of the Company and its Subsidiaries) under Reg. Section 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor, by
contract, or otherwise. The Company (and any predecessor of the Company) has
been a validly electing S corporation within the meaning of Sections 1361 and
1362 of the Code at all times since January 1, 1998, and the Company will be an
S corporation up to and including the Effective Time. Schedule 3.13 identifies
each Subsidiary that is a "qualified subchapter S subsidiary" within the meaning
of Section 1361(b)(3)(B) of the Code. Each Subsidiary so identified has been a
qualified subchapter S subsidiary at all times since the date shown on such
schedule up to and including the day before the Closing Date. Schedule 3.13 sets
forth the Company"s liability under Section 1374 of the Code if its assets (or
the assets of any qualified subchapter S subsidiary) were sold for their fair
market value as of the Closing Date. Except as stated on Schedule 3.13, neither
the Company nor any qualified subchapter S subsidiary of the Company has, in the
past ten years, (i) acquired assets from any corporation in a transaction in
which the Company's tax basis for the acquired assets was determined, in whole
or in part, by reference
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to the tax basis of the acquired assets (or any other property) in the hands of
the transferror or (ii) acquired the stock of any corporation which is a
qualified subchapter S subsidiary. For the purposes of this Agreement, the term
"tax" shall include all federal, state, local and foreign taxes and related
governmental charges and any interest or penalties payable in connection with
the payment of taxes. Neither the Company nor any of its Subsidiaries has any
reason to believe that any conditions exist that might prevent or impede the
Merger from qualifying as a reorganization within the meaning of Section 368(a)
of the Code.
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 any
entity which is a member of a controlled group or affiliated service group with
the Company or any of its Subsidiaries under ERISA Section 4001 or Section 414
of the Code (such Subsidiaries and entities collectively, "ERISA Affiliates") or
to which the Company or ERISA Affiliates 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 ERISA
Affiliates 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 an ERISA Affiliate or to which the Company
or ERISA Affiliates 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 ERISA
Affiliates (referred to as ("Other Programs");
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(d) All of the Pension Benefit Plans and Welfare Benefit Plans and any
related trust agreements or annuity contracts (or any other funding instruments)
and all Other Programs in all material respects comply currently, and have
complied in the past, both as to form and operation, with the provisions of
ERISA and the Code; 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 has been obtained
as to the qualification under the Code of each such Pension Benefit Plan and,
except as set forth on Schedule 3.14(d), 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 to the
Company's knowledge is likely to result in, the revocation of such
determination);
(e) Each Welfare Benefit Plan, each Pension Benefit Plan and each Other
Program has been administered in compliance with the requirements of the Code,
ERISA and all other applicable laws, and all reports and disclosures required by
ERISA, the Code and any other applicable laws with respect to each Welfare
Benefit Plan, each Pension Benefit Plan and each Other Program have been timely
filed;
(f) To the Company's knowledge, on and after January 1, 1975, neither
the Company, any 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 nor any ERISA Affiliate 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 or any ERISA Affiliate 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
ERISA Affiliate (i) is a party to a collective bargaining agreement, (ii) has
maintained or contributed to, or has participated in or agreed to participate
in, a multiemployer plan (as defined in Section 3(37) of ERISA), or (iii) has
made a complete or partial withdrawal from a multiemployer plan (as defined in
Section 3(37) of ERISA) so as to incur withdrawal liability as defined in
Section 4201 of ERISA (without regard to subsequent reduction or waiver of such
liability under Section 4207 or 4208 of ERISA);
(h) True and complete copies of each Welfare Benefit Plan, each Pension
Benefit Plan and each Other Program, related trust agreements or annuity
contracts (or any other funding instruments), summary plan descriptions, the
most recent determination letter issued by the Internal Revenue Service with
respect to each Pension Benefit Plan, the most recent application for a
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
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Plan, Pension Benefit Plan and Other Program for the three most recent plan
years, as listed on Schedules 3.14(a), (b) and (c) have been furnished to
Compass;
(i) All Welfare Benefit Plans, Pension Benefit Plans, and Other
Programs related trust agreements or annuity contracts (or any other funding
instruments), are legally valid and binding and in full force and effect and
there are no written agreements or, to the Company's knowledge, any oral
agreements, regarding increases in benefits (whether expressed or implied) under
any of these plans nor, to the Company's knowledge, any obligations, commitments
or understandings to continue any of these plans, (whether expressed or implied)
except as required by Section 4980B of the Code and Sections 601-608 of ERISA;
(j) There are no claims pending with respect to, or under, any Pension
Benefit Plan, Welfare Benefit Plan or any Other Program, other than routine
claims for plan benefits, and there is no litigation pending, or to the
Company's knowledge, any disputes or litigation threatened with respect to any
such plans;
(k) Except as set forth on Schedule 3.14(k), no action has been taken,
nor has there been a failure to take any action that would subject the Company
or its Subsidiaries 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 ERISA Affiliate (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 Subsidiary is a party to any oral or written
contracts or agreements granting benefits or rights to employees or any
collective bargaining agreement or to any conciliation agreement with the
Department of Labor, the Equal Employment Opportunity Commission or any federal,
state or local agency which requires equal employment opportunities or
affirmative action in employment. There are no unfair labor practice complaints
pending against the Company or any 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 Subsidiary, nor of any
strikes, slowdowns, work stoppages, lockouts, or, to the Company's knowledge,
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, to the Company's knowledge, neither the
Company nor its Subsidiaries are engaged
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in any unfair labor practice. Compass Bank (as defined in Section 6.9 hereof)
has entered into employment contracts with the individuals identified in Section
6.9 hereof.
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 Subsidiary is a party or by
which the Company or any Subsidiary is bound which obligate or may obligate the
Company or any Subsidiary for an amount in excess of $25,000 per lease,
sublease, license, contract or agreement over the entire term of any such
agreement or any leases, subleases, licenses, contracts and agreements with a
current term of one year or longer (the "Contracts"). The Company has delivered
to Compass true and correct copies of all Contracts. For the purposes of this
Agreement, the Contracts shall be deemed not to include loans made by,
repurchase agreements made by, spot foreign exchange transactions of, bankers
acceptances of, agreements with Bank customers for trust services, or deposits
by the Company or its Subsidiaries, but does include unfunded loan commitments
and letters of credit issued by the Company or its Subsidiaries where the
borrowers' total direct and indirect indebtedness to its Subsidiaries is in
excess of $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 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 on the part of the Company or its
Subsidiaries and, to the Company's knowledge, any other party. 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 imposed by the Company or any Subsidiary
and, to the Company's knowledge, by any other person.
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).
Except as otherwise specifically defined in this Agreement, 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.
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SECTION 3.18 COMPLIANCE WITH LAWS. Except as set forth on Schedule
3.18, neither the Company nor any of its Subsidiaries (i) is in default in
respect to or is in violation of any judgment, order, writ, injunction or decree
of any court or (ii) is in default in respect to or is in violation in any
material respect of 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 FDIC or the State Director; 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 fidelity bonds
within the last 5 years and neither the Company nor its Subsidiaries have
knowledge of any facts which would form the basis of a claim under such bonds.
Neither the Company nor its Subsidiaries have any knowledge that the existing
fidelity coverage would not be renewed by its carrier on substantially the same
terms. The Company has delivered to Compass true and accurate copies of the
policies and declaration pages evidencing such insurance coverage.
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, to the Company's knowledge, no Company Subsidiary has any
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 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.
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SECTION 3.23 ENVIRONMENTAL COMPLIANCE. Except as set forth in
Schedule 3.23:
(a) The Company, its Subsidiaries and any Property owned or
operated by any of them have been and are in compliance with all applicable
Environmental Laws (as defined in Section 10.13(c)). There is no present event,
condition or circumstance, or to the Company's knowledge, any past event,
condition or circumstance that could (1) interfere with the conduct of the
business of the Company or its Subsidiaries in the manner now conducted relating
to such entity's compliance with Environmental Laws, (2) constitute a violation
of, or serve as the basis of liability pursuant to, any Environmental Law or (3)
which could have a Material Adverse Effect upon the Company or any Company
Subsidiary;
(b) The Company, its Subsidiaries, and its Properties have not
been, and are not now subject to any actual or, to the knowledge of the Company
or any Subsidiary, potential or threatened Proceeding pursuant to any
Environmental Law and neither the Company nor any Subsidiary has received any
notice (whether from any regulatory body or private person) of any actual or
alleged violation of, or liability pursuant to, any Environmental Law;
(c) There is no Controlled Property for which the Company or
any Subsidiary is, or to its knowledge was, required to obtain any permit,
license, or other authorization under RCRA, FWPCA, TSCA, CAA, or any state or
local counterparts to any of the foregoing.
(d) Neither the Company nor any Company Subsidiary has
generated any Hazardous Substances for which it was required under an
Environmental Law to execute any hazardous waste disposal manifest;
(e) There are no underground or above ground storage tanks on
or under any Property nor any Hazardous Substances (except for ACM) at, in, on,
under or emanating from any Property in any quantity or concentration exceeding
any standard or limit established pursuant to any Environmental Law;
(f) To the Company's knowledge, there is no asbestos
containing material ("ACM") present in any Controlled Property except
non-friable ACM which can be managed in place in compliance with Environmental
Laws without air monitoring, removal or encapsulation and which is managed under
and in compliance with an operations and maintenance program.
(g) For purposes of this Section 3.23 and Section 6.10,
"Property" includes (1) any property (whether real or personal) which the
Company or any Company Subsidiary currently or in the past has leased, operated
or owned or managed in any manner including without limitation any property
acquired by foreclosure or deed in lieu thereof ("Controlled Property") and (2)
property now held as security for a loan or other indebtedness by the Company or
any Company Subsidiary or property currently proposed as security for loans or
other credit the Company or any Company Subsidiary is currently evaluating
whether to extend or has committed to extend ("Collateral Property"). With
respect to any Collateral Property, the representations of this Section 3.23
shall
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be limited to the knowledge of the Company. With respect to any past conditions,
events, facts or circumstances concerning any Controlled Property which
conditions, events, facts or circumstances existed or occurred prior to the
earliest date of any leasehold interest, operation, ownership or management of
such Controlled Property by the Company or any Company Subsidiary, the
representations of this Section 3.23 shall be limited to the knowledge of the
Company.
SECTION 3.24 REGULATORY ACTIONS. Except as set forth on Schedule
3.24, there are no actions or proceedings pending or, to the knowledge of the
Company and its Subsidiaries, threatened against the Company or its Subsidiaries
by or before the FRB, the FDIC, the State Director, the Environmental Protection
Agency, the New Mexico Environmental Department 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 of business and consistent with
prudent banking practice since the date of the Financial Statements. Except as
set forth on Schedule 3.25, the Company has a title policy in full force and
effect from a title insurance company which, to the best of Company's knowledge,
is solvent, insuring good and indefeasible title to all real property owned by
the Company and 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, without limitation, any title exceptions
shown in such policies 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, no Property has been deed recorded or
otherwise been identified in public records or should have been recorded or so
identified as containing Hazardous 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 as of
December 31, 1998 containing the
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names 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. There are no holders of outstanding warrants,
options, convertible debentures or other securities entitling the holders
thereof to acquire Shares.
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, their respective directors, officers, employees or agents for inclusion
in:
(a) the Proxy Statement; or
(b) any registration statement or other documents to be filed with
the SEC or any regulatory or governmental agency or authority
in connection with the transactions contemplated hereby, at
the respective times such documents are filed, and, with
respect to the Proxy Statement, when first mailed to the
shareholders of Company;
will be false or misleading with respect to any material fact, or omit to state
any material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, or, in the case of
the Proxy Statement or any amendment thereof or supplement thereto, at the time
of the Shareholders' Meeting, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of any
proxy for the Shareholders' Meeting. All documents that the Company or 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 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 Section 53-15-4 of the BCA.
SECTION 3.29 TAKEOVER LAWS. This Agreement and the Merger
contemplated hereby are not subject to the requirements of any "moratorium,"
"control share," "fair price," "affiliate transactions," "business combination"
or other antitakeover laws and regulations of New Mexico.
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 Subsidiary.
SECTION 3.31 ACCOUNTING MATTERS. All information, documents, and
statements provided by the Company to KPMG and/or KPMG Peat Marwick LLP for
purposes of delivery of
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a letter to Compass confirming the availability of pooling of interests
accounting for the Merger were true, correct and complete to the knowledge of
the Company. From and after July 21, 1999 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 D hereto.
SECTION 3.32 YEAR 2000 REPRESENTATION. All software, firmware,
hardware, equipment, microprocessing chips and other data processing devices and
services (both as a recipient and as a provider), capabilities and facilities
utilized by, and material to the business operations or financial condition of,
the Company and its Subsidiaries are or will be able to record and process all
calendar dates (whether before, in or after the year 2000) correctly with
four-digit year processing and will be able to communicate with other applicable
systems to accept two-digit year date data in a manner that resolves any
ambiguities as to century in a properly defined manner (collectively, "Year 2000
Compliant"). The Company and its Subsidiaries have adequately assessed the Year
2000 Compliant status of all vendors, suppliers, service providers, customers
and business partners or venturers ("Critical Third Parties") whose goods,
services or business activities are material to the business operations or
financial condition of the Company or its Subsidiaries. The Company and its
Subsidiaries have developed adequate contingency plans to prevent material loss
to or liability of the Company and its Subsidiaries in the event the Company's
or its Subsidiaries' property or services or any Critical Third Party (or their
respective critical suppliers, vendors, service providers, customers and
business partners and venturers) fails to be Year 2000 Compliant. The Company
has contingency plans for cash availability and liquidity sources.
SECTION 3.33 REPRESENTATIONS NOT MISLEADING. No representation or
warranty by the Company in this Agreement, nor any statement, summary, exhibit
or schedule furnished to Compass or Merger Sub by the Company or its
Subsidiaries under and pursuant to, or in anticipation of this Agreement,
contains or will contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements contained herein or
therein, in light of the circumstances in which they were made, not misleading.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
OF COMPASS
Compass hereby makes the representations and warranties set forth in
this Article IV to the Company.
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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. True and
complete copies of the Certificate of Incorporation and Bylaws of Compass have
been delivered to the Company.
(b Compass is a bank holding company under the Bank Holding Company
Act of 1956, as amended, and in good standing under all laws, rules and
regulations applicable to bank holding companies. Compass is duly qualified or
licensed and in good standing in each jurisdiction which requires such
qualification where it owns or leases properties or conducts business.
SECTION 4.2 AUTHORITY RELATIVE TO AGREEMENT. Compass has full
corporate power and authority and no further corporate proceedings on the part
of Compass are necessary to execute and deliver this Agreement and to consummate
the transactions contemplated hereby, all of which have been duly and validly
authorized by Compass' Board of Directors. This Agreement has been duly executed
and delivered by Compass and is a duly authorized, valid, legally binding and
enforceable obligation of Compass, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium, or other similar laws relating to
creditors' rights generally and general equitable principles, and subject to
such approval of regulatory agencies and other governmental authorities having
authority over Compass as may be required by statute or regulation. Compass is
not in violation of or default under its Certificate of Incorporation or By-Laws
or any agreement, document or instrument under which Compass is obligated or
bound, or any law, order, judgment, injunction, award, decree, statute, rule,
ordinance or regulation applicable to Compass or any of its Subsidiaries, the
violation or breach of which could have a Material Adverse Effect on Compass and
its Subsidiaries taken as a whole. Except as set forth on Schedule 4.2, neither
the execution, delivery nor performance of this Agreement in its entirety, nor
the consummation of all the transactions contemplated hereby, following the
receipt of such approvals as may be required from the SEC, the FRB, the FDIC,
and the State Director 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
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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 1998 Annual Report to Shareholders,
which report (the "Compass 1998 Annual Report") includes, among other things,
consolidated balance sheets of Compass and its Subsidiaries as of December 31,
1998 and 1997, the related consolidated statements of income, shareholders'
equity and cash flows for the years ended December 31, 1998, 1997 and 1996 and
(ii) Compass' quarterly report on Form 10-Q for the quarter ended March 31 (the
"Quarterly Report") which report includes among other things unaudited balance
sheets of Compass and its Subsidiaries as of March 31, 1999 and 1998,
respectively, and the related unaudited consolidated statements of income and
cash flows for the three-month periods ending March 31, 1999 and 1998. The
financial statements contained in the Compass 1998 Annual Report and such
Quarterly Report 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, 1998 and 1997 contained in the Compass 1998
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, 1999 and
1998, contained in Compass' Quarterly Report, 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 1998 Annual Report or Compass' Quarterly Report is
false or misleading with respect to any material fact, or omits to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
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 April 30, 1999, Compass had 113,540,566 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. 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
BCA, and such approvals as may be required from the SEC, the FRB, the State
Director, the Superintendent and the FDIC.
SECTION 4.6 PROXY STATEMENT. None of the information supplied or to be
supplied by Compass, or, to the knowledge of Compass, its directors, officers,
employees or agents for inclusion in:
(a the Proxy Statement; or
(b any registration statement, including the 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 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, affirmative or otherwise, 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 REGULATORY APPROVALS. Compass has no reason to believe
that it will not be able to obtain any and all approvals required from the SEC,
the FRB, the State Director, the Superintendent and the FDIC in a timely
fashion.
SECTION 4.9 REPRESENTATIONS NOT MISLEADING. No representation or
warranty by Compass in this Agreement, nor any 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
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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, which includes for this purpose the matters
referred to in Section 3.10(h), 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 reasonable manner (i) cooperate with Compass
and Merger Sub in satisfying the conditions in this Agreement, (ii) assist
Compass and Merger Sub in obtaining as promptly as possible all consents,
approvals, authorizations and rulings, whether regulatory, corporate or
otherwise, as are necessary for Compass and Merger Sub 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) upon the written request of
Compass, furnish information concerning the Acquired Companies not previously
provided to Compass required for inclusion in any filings or applications that
may be necessary in that regard and (iv) perform all acts and execute and
deliver all documents necessary to cause the transactions contemplated by this
Agreement to be consummated at the earliest date that is reasonably possible;
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(f timely file with the FRB, the State Director, 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 the Company's obtaining knowledge of any event or
fact that would cause any of the representations or warranties of the Company
contained 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
Closing, showing all known liabilities and obligations of the Acquired
Companies, except those arising in the ordinary course of their respective
businesses, incurred since the Balance Sheet Date, certified by an executive
officer of Company;
(l shall comply with ERISA, the Code and the Western Bank,
Albuquerque, New Mexico Employee Stock Ownership Plan and Trust Agreement, as
amended and restated, in connection with the transaction contemplated herein,
including without limitation, requirements regarding pass-through voting;
(m shall continue to have contingency plans for cash availability and
liquidity sources;
(n promptly notify Compass of any material change or inaccuracies in
any data previously given or made available to Compass or Merger Sub pursuant to
this Agreement; and
(o provide access, to the extent that the Company or its Subsidiaries
have the right to provide access, to any or all Controlled Property (as defined
in Section 3.23), upon notice and during normal business hours without causing
undue interruption of normal activities on the premises, 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 (not to be unreasonably withheld) or as otherwise
specifically permitted by this Agreement, the Company will not and will use its
best efforts not to permit the Bank, or any other Subsidiary of the Company, to,
from the date of this Agreement to the Closing:
(a make any amendment to its articles of incorporation or 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' 1999 budgets and consistent with prior practices, grant any
increase in compensation or directors' fees, or pay or agree to pay or accrue
any bonus or like benefit to or for the credit of any director, officer,
employee or other person or enter into any employment, consulting or severance
agreement or other agreement with any director, officer or employee, or adopt,
amend or terminate any Employee Benefit Plan or change or modify the period of
vesting or retirement age for any participant of such a plan;
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(j declare, pay or set aside for payment any dividend or other
distribution or payment in respect of shares of its capital stock, other than
(i) dividends from the Company's Subsidiaries to the Company and (ii) the
payment of dividends and distributions consistent with the Company's 1998
dividend and distribution payments and subject to Section 6.15; provided that
the Company may pay a dividend or distribution based on a calendar month rather
than a calendar quarter to facilitate Closing);
(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 in excess of $25,000 or a series of
capital 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 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;
(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, consistent with the Company's present loan
policy, and in accordance with prudent banking practices;
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(t sell or contract to sell any part of the Company's or its
Subsidiaries' principal business premises;
(u change any fiscal year or the length thereof;
(v knowingly take or agree to take any action that would prevent
Compass from accounting for the business combination to be effected by the
Merger as a pooling of interests, including, without limitation, any action
inconsistent with the provisions of Exhibit D hereto; or
(w prepay in whole or in part the Company Indebtedness; or
(x enter into any agreement, understanding or commitment, written or
oral, with any other person which is in any manner inconsistent with the
obligations of the Company and its directors and 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. 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,
upon reasonable notice, 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 not in the public
domain is confidential and may be disclosed only 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 and after prior notice to the
Company or its counsel. 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. Until the Closing, Compass agrees to provide the Company with
copies of all of the periodic filings filed by Compass after the date hereof
with the SEC pursuant to Section 13(a) of the Exchange Act, including, but not
limited to, all Forms 8-K, Forms 10-Q and Forms 10-K.
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SECTION 6.2 FILING OF REGULATORY APPROVALS. As soon as reasonably
practicable, Compass shall file all notices and applications to the FRB, the
Superintendent and the State Director which Compass deems necessary or
appropriate to complete the transactions contemplated herein, including the
merger of the Bank and Compass Bank ("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, and conditioned on the other party not
being in material default of any of its obligations under this Agreement,
Compass and the Company agree to use all reasonable efforts to take, or cause to
be taken, all actions, and to do, or cause to be done, all things necessary,
proper, or advisable under applicable laws and regulations to consummate and
make effective, as soon as practicable after the date hereof, the transactions
contemplated by this Agreement. Compass and the Company shall use their
respective best efforts to obtain or cause to be obtained consents of all third
parties and governmental and regulatory authorities necessary or desirable for
the consummation of the transactions contemplated herein.
SECTION 6.4 COMPANY INDEBTEDNESS. Prior to the Effective Time, the
Company shall pay all regularly scheduled payments on all Company Indebtedness
and shall cooperate with Compass in taking such actions as are reasonably
appropriate or necessary in connection with the redemption, prepayment,
modification, satisfaction or elimination of any outstanding indebtedness of the
Company or its Subsidiaries with respect to which a consent is required to be
obtained to effectuate the Merger and the transactions contemplated by this
Agreement and has not been so obtained.
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, to prepare and file the Proxy Statement and Registration Statement, and
to satisfy the other conditions to Closing contained herein. Compass agrees to
advise the Company promptly after Compass receives notice thereof, of the time
when the Registration Statement has become effective or any amendment has been
filed, of the issuance of any stop order or the suspension of the qualification
of Compass Common Stock for offering for sale in any jurisdiction, of the
initiation or threat of any proceeding for any such purpose or of any comment
letter from the SEC regarding the Registration Statement.
SECTION 6.6 EXCLUSIVITY. The Company shall not solicit, entertain or
negotiate with respect to any offer to acquire the Company or any of its
Subsidiaries from any other person. During the term of this Agreement, neither
the Company nor any of its Subsidiaries shall provide information to any other
person in connection with a possible acquisition of the Company or any of its
Subsidiaries. Immediately upon receipt of any such unsolicited offer, the
Company will communicate to Compass the terms of any proposal or request for
information and the identity of parties involved.
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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 agreement of
the Company and Compass.
SECTION 6.8 EMPLOYEE BENEFIT PLANS. Compass presently intends that,
after the Effective Time, Compass, the Company and its Subsidiaries will not
make additional contributions to the employee benefit plans that were sponsored
by the Company or an ERISA Affiliate immediately prior to the Effective Time.
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 retained by Compass 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 Subsidiary employee
participated in immediately prior to the Effective Time. To the extent permitted
under Compass' existing insurance contracts, any preexisting condition exclusion
applicable to such plans and programs shall be waived with respect to any such
Company or Subsidiary employee. For purposes of determining each Company or
Subsidiary employee's benefit for the year in which the Merger occurs under the
Compass vacation program, any vacation taken by a Company or 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 March 31, 1999.
(ii) Employee Pension Benefit Plans: Each Company and Subsidiary
employee retained by Compass 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 Subsidiary
employees shall be treated as newly hired employees of Compass as of the date
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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 ERISA Affiliates 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 Effective Time, and the
Company agrees to cause the Bank and its other Subsidiaries to execute documents
and take actions (conditioned on the Merger being effective) and otherwise
cooperate with Compass during the time the Merger transaction is pending in
order to facilitate such merger of the Bank into Compass Bank immediately after
the Closing. Immediately following the Effective Time, William T. Fietz, W.
Michael Fietz, Jason Shaffer, John D. Stewart and David E. Wintermute shall be
appointed officers of Compass Bank in accordance with the employment agreements
executed between Compass Bank and such persons.
SECTION 6.10 ENVIRONMENTAL INVESTIGATION; RIGHT TO TERMINATE
AGREEMENT.
(a Compass and its consultants, agents and representatives,
shall have the right, at the sole cost and expense of Compass, to the same
extent that the Company and its Subsidiaries have such right, but not the
obligation or responsibility, to inspect any Controlled Property, including,
without limitation, for the purpose of conducting asbestos surveys and sampling,
and other environmental assessments and investigations ("Environmental
Inspections"). Compass' right to conduct Environmental Inspections shall include
the right to sample and analyze air, sediment, soil and groundwater of any
Controlled Property to the same extent that the Company or its Subsidiaries have
such right. Compass may conduct such Environmental Inspections, at its sole cost
and expense, subject to Section 6.10(c) below.
(b Using an approach and scope which is equivalent to the
environmental policies of Compass, the Company and its Subsidiaries shall cause
to be performed, and subsequently evaluate the results of, an environmental
investigation of any Property acquired, leased, foreclosed, managed or
controlled by the Company or its Subsidiaries, or in which the Company or its
Subsidiaries acquired or acquires a security interest in connection with a loan
transaction commenced after the date hereof, in each case between the date
hereof and the Closing Date, and the scope and results of which shall be
acceptable to Compass in its sole reasonable discretion.
(c Compass shall notify the Company of any Environmental
Inspections of Controlled 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 Controlled Property upon which it intends to
conduct such physical inspections, the Company and its
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Subsidiaries shall notify the owner of such Controlled Property and use their
best efforts to secure access to such Controlled Property for Compass. Compass
shall notify the Company on or prior to the 102nd day after the date hereof of
any Controlled Properties that, in the sole discretion of Compass, are not
acceptable and require further assessment, remediation, correction, or
monitoring ("Environmental Response").
(d (1) With respect to any Controlled Property that Compass
has notified the Company is not acceptable and requires Environmental Response,
the Company shall promptly cause the preparation of a remediation plan
acceptable to Compass, and use best efforts to obtain approval of such
remediation plan by the New Mexico Environmental Department or any other
appropriate governmental authority ("Environmental Regulatory Authority"), if
approval is necessary, and implement the same on or prior to Closing.
(2) 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 $500,000 in connection
with Environmental Response, preparing and obtaining approval by the appropriate
Environmental Regulatory Authority of remediation plans with respect to
Controlled Properties.
(e) Each party hereto agrees to indemnify and hold harmless
the other party for any claims for damage to the Controlled Property or injury
or death to persons in connection with any Environmental Inspection of the
Controlled 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. 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,
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 which it is required to make by law of such
results to any governmental authority.
(f) Compass shall have the right to terminate this Agreement
in the following circumstances:
(i) the factual substance of any warranties set forth in
Section 3.23 is not true and accurate irrespective of the knowledge or lack of
knowledge of the Company, and losses, damages, Environmental Response costs,
liabilities (INCLUDING WITHOUT LIMITATION STRICT LIABILITIES), fines, penalties,
costs and expenses which might arise therefrom could reasonably be expected to
exceed $500,000.
(ii) if the Environmental Inspection 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 expenditures by the Company or its
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Subsidiaries, in connection with (1) Environmental Response 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
or, (3) any violations of applicable Environmental Laws, which expenditures
individually or in the aggregate may exceed $500,000;
(iii) Compass is not permitted to conduct an Environmental
Inspection of any Controlled Property to the extent it deems appropriate,
consistent with the provisions of Section 6.10(a) and (c); or
(iv) If on or before Closing, for each Controlled Property
identified by Compass as unacceptable and requiring Environmental Response, the
Company does not deliver to Compass written evidence acceptable to Compass that
the Company has used best efforts to develop a remediation plan approved by the
applicable Environmental Regulatory Authority, and implemented the same.
(g) 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.
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 E.
SECTION 6.12 EXCHANGE AGREEMENT. At or immediately after the Closing,
the Company and Compass agree to enter into, and Compass agrees to cause Merger
Sub to enter into, the Exchange Agreement with the Exchange Agent, or if the
Exchange Agent refuses to serve as exchange agent, such other exchange agent as
shall mutually agreed to by the Company and Compass.
SECTION 6.13 DIRECTOR AND OFFICER INDEMNIFICATION. (a) Following the
Effective Time and for a period of six years thereafter, Compass shall
indemnify, defend and hold harmless the present and former directors, officers
and employees of the Company and its Subsidiaries
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against all costs or expenses (including reasonable attorneys' fees), judgments,
fines, losses, claims, damages or liabilities (collectively, "Costs") incurred
in connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of actions or
omissions occurring at or prior to the Effective Time (including, without
limitation, the transactions contemplated by this Agreement) to the fullest
extent that the Company or its Subsidiaries is permitted to indemnify (and
advance expenses to) its directors, officers and employees under the laws of the
State of New Mexico, the Articles of Incorporation and Bylaws of the Company and
its Subsidiaries, and indemnification agreements between the Company and its
Subsidiaries and its directors and officers, as in effect on the date hereof.
The indemnification provisions currently contained in the Articles of
Incorporation and Bylaws and such indemnification agreements of the Company and
its Subsidiaries shall not be amended after the date hereof.
(b) Any determination which must be made as to whether an officer's,
director's or employee's conduct complies with the standards required for
indemnification under the Articles of Incorporation or Bylaws of the Company or
the Bank shall be made by special legal counsel. Such special legal counsel
shall be selected by Compass subject to the reasonable approval of such officer,
director, or employee, shall be paid by Compass or Compass Bank, and shall not
be counsel that provides material services to Compass, Compass Bank, or the
person seeking indemnification.
(c) Compass agrees that the Company and its Subsidiaries may obtain
Atail coverage' or extended reporting period coverage under existing director's
and officer's liability policies or other similar coverage for a period of six
years following the Effective Time; provided, however, that the premium expense
for such coverage shall not exceed $150,000 in the aggregate.
(d) Any officer, director or employee claiming indemnification under
this Section 6.13 shall, promptly upon learning of any claim, action, suit,
proceeding or investigation that may be subject to indemnification, notify
Compass thereof. Failure to notify Compass promptly shall not effect Compass' or
obligations under this Section 6.13 unless and except to the extent Compass or
Compass Bank is actually prejudiced as a result of such failure.
(e) If Compass or any of its successors or assigns shall consolidate
with or merge into any other entity and shall not be the continuing or surviving
entity of such consolidation or merger or shall transfer all or substantially
all of its assets to any entity, then and in each case, proper provision shall
be made so that the successors and assigns of Compass under this Agreement shall
assume the obligations set forth in this Section 6.13.
SECTION 6.14 CERTAIN TAX MATTERS.
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE.
Compass shall prepare or cause to be prepared and file or
cause to be filed all tax returns for the Company and its Subsidiaries for all
periods ending on or prior to the Closing Date which are filed after the Closing
Date. To the extent permitted by applicable law, the shareholders
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of the Company ("Shareholders") shall include any income, gain, loss, deduction
or other tax items for such periods on their respective individual tax returns
in a manner consistent with the Schedule K-1s prepared by Compass for such
periods. Except for any accounting method changes pursuant to applications that
are approved by the IRS and reflected in Schedule 3.13, all tax returns
described in this Section 6.14(a), in the absence of a controlling change in law
or circumstance, shall be prepared on a basis consistent with the elections,
accounting methods, conventions and principles of taxation used for the most
recent taxable periods for which tax returns involving similar tax items have
been filed.
(b) COOPERATION ON TAX MATTERS.
Compass, the Company and the Shareholders shall cooperate
fully, as and to the extent reasonably requested by the other party, in
connection with the filing of tax returns pursuant to this Section 6.14 and any
audit, litigation, or other proceeding with respect to taxes. Such cooperation
shall include the retention and (upon the other party's request) the provision
of records and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. The Company and the Shareholders agree (i) to
retain all books and records with respect to tax matters relevant to the Company
relating to any taxable period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent notified by Compass
or the Shareholders, any extensions thereof) of the respective taxable periods,
and to abide by all record retention agreements entered into with any taxing
authority, and (ii) to give the other party reasonable written notice prior to
transferring, destroying or discarding any such books and records and, if the
other party so requests, the Company or the Shareholders, as the case may be,
shall allow the other party to take possession of such books and records.
Compass, the Company and the Shareholders further agree, upon request, to use
their best efforts to obtain any certificate or other document from any
governmental authority or any other person as may be necessary to mitigate,
reduce or eliminate any tax that could be imposed (including, but not limited
to, with respect to the transactions contemplated hereby).
(c) TAX SHARING AGREEMENTS.
All tax sharing agreements or similar agreements with respect
to or involving the Company and its Subsidiaries shall be terminated as of the
Effective Time, and, after the Effective Time, the Company and its Subsidiaries
shall not be bound thereby or have any liability thereunder, except that the
Shareholders shall be entitled to tax distributions for income that is taxable
to them up to the Effective Time.
(d) CERTAIN TAXES.
All transfer, documentary, sales, use, stamp, registration and
other such taxes and fees (including any penalties and interest) incurred in
connection with this Agreement (including any corporate-level gains tax
triggered by the Merger), shall be paid by the Shareholders when due, and
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the Shareholders will, at their own expense, file all necessary tax returns and
other documentation with respect to all such transfer, documentary, sales, use,
stamp, registration and other taxes and fees, and, if required by applicable
law, Compass will, and will cause its affiliates to, join in the execution of
any such tax returns and other documentation.
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 YEAR 2000 INVESTIGATION; RIGHT TO TERMINATE AGREEMENT.
(a Using an approach and scope which is equivalent to the
Year 2000 risk management policies and procedures for Year 2000 credit exposure
of Compass previously delivered to the Company ("Year 2000 Inspection"), the
Company and its Subsidiaries shall cause to be performed, and subsequently
evaluate the results of, a Year 2000 Inspection of (i) borrowers with individual
or aggregate relationships equaling or exceeding the Applicable Year 2000
Threshold and (ii) municipal issuers of investment securities where the
investment in the securities of any one municipal issuer equals or exceeds
$125,000, in each case between the date hereof and the Closing Date, and the
scope and results of which shall be acceptable to Compass in its sole reasonable
discretion. For purposes of this Section 6.16 the "Applicable Year 2000
Threshold" shall mean $500,000 for commitments in targeted industries in
accordance with Compass policies, $500,000 for borrowers in industries that are
concluded to have high or medium risk profiles in accordance with the Compass
policies, and $1,000,000 for all other commitments.
(b The Company shall provide to Compass on or before
September 30, 1999, its initial assessment of all borrowers and issuers subject
to Year 2000 Inspections.
(c The Company shall use its best efforts to remediate any
borrowers or issuers subject to Section 6.16(a) which are assessed as high risk
as a result of Year 2000 Inspections.
(d) The Company agrees to (i) charge-off in 1999 securities
with respect to issuers, and (ii) add in 1999 to the Company's and its
Subsidiaries' loan loss reserves 110% of the collateral deficit for borrowers,
as to each such issue or loan determined to be high risk and of uncertain
collectibility and are not capable of remediation each as a result of Year 2000
Inspections. The borrowers and the amount of the collateral deficit for any such
borrower shall be determined jointly between the Company and Compass, each party
to be reasonable in its making a determination.
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(e) A Material Adverse Effect shall be deemed to have occurred
in the event the Company and its Subsidiaries do not comply with the provisions
of Section 6.16(a), (b), (c), or (d).
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 reasonable 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.
SECTION 7.2 CONDITIONS TO THE OBLIGATIONS OF COMPASS AND MERGER SUB
TO EFFECT THE MERGER.
The obligations of Compass and Merger Sub to effect the Merger are
subject to the satisfaction or waiver of the following conditions prior to the
Effective Time:
(a) all representations and warranties of the Company shall be true and
correct in all material respects as of the date hereof and at and as of the
Closing, with the same force and effect as though made on and as of the Closing;
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(b) the Company shall have performed in all material respects all
obligations and agreements and in all material respects complied with all
covenants and conditions, contained in this Agreement to be performed or
complied with by it prior to the Effective Time;
(c) there shall not have occurred a Material Adverse Effect with
respect to the Company or its Subsidiaries;
(d) the directors of the Company and its Subsidiaries shall have
delivered to Compass an instrument in the form of Exhibit I 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, accrued
and deferred compensation, their rights under Sections 6.14 and 6.15 to the
extent such persons are holders of Company Common Stock and as to their rights
of indemnification pursuant to Section 6.13 and the Articles of Incorporation 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 I 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 and
deferred compensation permitted by their respective agreements with the Company
or its Subsidiaries, their rights under Sections 6.14 and 6.15 to the extent
such persons are holders of Company Common Stock and as to their rights of
indemnification pursuant to Section 6.13 and the Articles of Incorporation 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 F attached hereto;
(g) the holders of the lesser of no more than (i) 10% of the Shares or
(ii) such number of Shares that shall not disqualify the Merger for
pooling-of-interests accounting treatment, shall have demanded or be entitled to
demand payment of the fair value of their shares as dissenting shareholders;
(h) Compass shall have received a letter from KPMG Peat Marwick, LLP,
dated as of the Effective Time, to the effect that the Merger will qualify for
pooling-of-interests accounting treatment if closed and consummated in
accordance with this Agreement;
(i) the aggregate principal amount of all Company Indebtedness shall
not exceed $800,000;
(j) Compass shall have received from holders of the Company's capital
stock receiving at least 50% of the total Merger Consideration a representation
that they have no present plan or intention to sell or otherwise dispose of (i)
shares of the Company prior to and in connection with the Merger to the Company
or any party related to the Company or Compass and (ii) shares of Compass Common
Stock received in the Merger to Compass or any party related to Compass.
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(k) Compass shall have received an opinion of counsel satisfactory to
it on the basis of certain facts, representations, and opinions set forth in
such opinion to the effect that the Merger will qualify as a reorganization
under Section 368(a) of the Code. In rendering such opinion, such counsel may
require and rely upon and may incorporate by reference representations and
covenants, including those contained in certificates of officers and/or
directors of Compass, Merger Sub, the Company and others;
(l) the Company shall have delivered to Compass a schedule of all
transactions in the capital stock (or instruments exercisable for or convertible
into capital stock) of the Company of which the Company has knowledge from and
including the date of this Agreement through the Effective Time;
(m) Compass shall have determined, in its reasonable judgment, that the
liabilities and obligations set forth on Schedule 5.1(k) do not have a Material
Adverse Effect;
(n) the Company shall have accrued all professional fees incurred in
connection with this transaction in 1999;
(o) all software, firmware, hardware, equipment, microprocessing chips
and other data processing devices and services (both as a recipient and as a
provider), capabilities and facilities utilized by, and material to the business
operations or financial condition of, the Company and its Subsidiaries shall
have been able to record and process all calendar dates since the date of this
Agreement correctly with four-digit year processing and shall have been able to
communicate with other applicable systems to accept two-digit year date data in
a manner that resolves any ambiguities as to century in a properly defined
manner;
(p) all Critical Third Parties of the Company and its Subsidiaries are
Year 2000 Compliant in all material respects;
(q) the Company shall have provided that there shall not be any
compensation deferred under the deferred compensation agreements between the
Company or its Subsidiaries and their officers and/or directors after the
Effective Time;
(r) 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; and
(s) 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), (n), (o), (p) and (r).
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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 Merger Sub 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 or its Subsidiaries;
(d) the Company shall have received the opinion of counsel to Compass
and Merger Sub acceptable to it, as to the matters set forth on Exhibit G
attached hereto;
(e) all software, firmware, hardware, equipment, microprocessing chips
and other data processing devices and services (both as a recipient and as a
provider), capabilities and facilities utilized by, and material to the business
operations or financial condition of, Compass and its Subsidiaries shall have
been able to record and process all calendar dates since the date of this
Agreement correctly with four-digit year processing and shall have been able to
communicate with other applicable systems to accept two-digit year date data in
a manner that resolves any ambiguities as to century in a properly defined
manner;
(f) all Critical Third Parties of Compass and its Subsidiaries are Year
2000 Compliant in all material respects;
(g) the Company and its Subsidiaries shall have delivered to the
directors of the Company and its Subsidiaries an instrument in the form of
Exhibit J 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 Merger
Sub in connection with the transactions contemplated by this Agreement; and
(h) the Company shall have received certificates dated the Closing,
executed by an appropriate officers of Compass and Merger Sub, respectively,
certifying, in such detail as the Company may reasonably request, to the effect
described in Sections 7.3(a), (b), (c), (e) and (f).
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ARTICLE VIII.
TERMINATION; AMENDMENT; WAIVER
SECTION 8.1 TERMINATION. This Agreement may be terminated and the
Merger contemplated hereby may be abandoned at any time notwithstanding approval
thereof by the shareholders of the Company, but prior to the Effective Time:
(a) by mutual written consent duly authorized by the Boards of
Directors of Compass and the Company;
(b) by Compass (i) if Compass learns or becomes aware of a state of
facts or breach or inaccuracy of any representation or warranty of the Company
contained in Article III which constitutes a Material Adverse Effect; provided,
however, that in the event of a material breach or inaccuracy in any
representation or warranty of the Company contained in Article III that can be
cured, the Company shall have 10 days after the giving of written notice of such
breach to cure such breach, (ii) pursuant to Section 6.10, (iii) pursuant to
Section 6.16, or (iv) if any of the conditions to Closing contained in Section
7.1 or 7.2 are not satisfied or waived in writing by Compass;
(c) by the Company (i) if the Company learns or becomes aware of a
state of facts or breach or inaccuracy of any representation or warranty
contained in Article IV which constitutes a Material Adverse Effect; provided,
however, that in the event of a material breach or inaccuracy in any
representation or warranty of Compass contained in Article IV that can be cured,
Compass shall have 10 days after the giving of written notice of such breach to
cure such breach, 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,
except that a party that has breached the obligation to consummate the Closing
and has failed to cure such breach may not terminate under this subsection (d).
(e) by Compass or the Company if any court of competent jurisdiction in
the United States or other United States (federal or state) governmental body
shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have been final and nonappealable; or
(f) by the Company at any time during the two business day period
following the fifth trading day prior to the Closing, if both of the following
conditions are satisfied:
(1) the Share Determination Market Value is less than $24; and
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(2) (i) the number obtained by dividing the Share
Determination Market Value by the Starting Price shall be less than (ii) the
number obtained by dividing the Average Index Value by the Index Value on the
Starting Date and subtracting 0.15 from the quotient in this clause 2(ii).
For purposes of this Section 8.1(f), the following terms shall
have the meanings indicated:
"Average Index Value" means the average of the Index Values
for the twenty days of trading preceding the fifth trading day prior to the
Effective Time.
"Index Value" on a given date means the Index Value of the
NASDAQ Index Banks as published by NASDAQ.
"Starting Date" means July 23, 1999.
"Starting Price" shall mean the last reported sale price per
share of Compass Common Stock on the Starting Date, as reported by
NASDAQ/National Market System.
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 damages arising
out of the willful breach by such party of any provision of this Agreement.
SECTION 8.3 AMENDMENT. (a) To the extent permitted by applicable
law, this Agreement may be amended by action taken by or on behalf of the Board
of Directors of the Company, Compass and, if required, Merger Sub 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 Merger Sub 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, Merger Sub shall deliver to the Company a
certificate in substantially the form of Exhibit H 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
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<PAGE> 154
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.
ARTICLE X.
MISCELLANEOUS
SECTION 10.1 EXPENSES. All costs and expenses incurred in connection
with the transactions contemplated by this Agreement, including without
limitation, attorneys' fees, accountants' fees, other professional fees and
costs related to expenses of officers and directors of the Company and its
Subsidiaries, shall be paid by the party incurring such costs and expenses. Each
party hereto hereby agrees to and shall indemnify the other parties hereto
against any liability arising from any such fee or payment incurred by such
party.
SECTION 10.2 BROKERS AND FINDERS. Other than Hovde Financial, Inc.
which has been engaged by the Company, 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, Merger Sub, the Company or
its Subsidiaries for financial advisory fees, brokerage or commission fees,
finder's fees or other like payment in connection with the consummation of the
transactions contemplated hereby.
SECTION 10.3 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement (a)
constitutes the entire agreement among the parties with respect to the subject
matter hereof and supersedes all other prior agreements and understandings, both
written and oral, among the parties or any of them with respect to the subject
matter hereof, and (b) shall not be assigned by operation of law or otherwise,
provided that Compass may assign its rights and obligations or those of Merger
Sub to any direct or indirect, wholly-owned, subsidiary of Compass, but no such
assignment shall relieve Compass of its obligations hereunder if such assignee
does not perform such obligations.
SECTION 10.4 FURTHER ASSURANCES. From time to time as and when
requested by Compass or its successors or assigns, the Company, the officers
and directors of the Company, or its Subsidiaries, shall execute and deliver
such further agreements, documents, deeds, certificates
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<PAGE> 155
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 mail (postage prepaid, return receipt requested) to the respective
parties as follows:
if to Compass or Merger Sub:
Charles E. McMahen
Vice Chairman
Compass Bank
24 Greenway Plaza
Houston, Texas 77046
Telecopy No.: (713) 993-8535
and
Daniel B. Graves
Associate General Counsel
Compass Bancshares, Inc.
15 South 20th Street
Birmingham, Alabama 35233
Telecopy No.: (205) 933-3043
with a copy to:
46
<PAGE> 156
Annette L. Tripp
Locke Liddell & Sapp LLP
3400 Chase Tower, 600 Travis
Houston, Texas 77002
Telecopy No.: (713) 223-3717
if to the Company:
William T. Fietz
Chairman and Chief Executive Officer
Western Bancshares of Albuquerque, Inc.
505 Marquette, N.W.
Albuquerque, New Mexico 87102
Telecopy No.: (505) 888-9021
with a copy to:
Donald B. Monnheimer
Eastham Johnson Monnheimer & Jontz, P.C.
500 Marquette, N. W., Suite 1200
Albuquerque, New Mexico 87103
Telecopy No.: (505) 764-5480
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 New Mexico, 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,
except the Bank, the Merger Sub and Compass Bank, any rights or remedies of any
nature whatsoever under or by reason of this Agreement.
47
<PAGE> 157
SECTION 10.11 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
SECTION 10.12 INCORPORATION BY REFERENCES. Any and all schedules,
exhibits, annexes, statements, reports, certificates or other documents or
instruments referred to herein or attached hereto are incorporated herein by
reference hereto as though fully set forth at the point referred to in the
Agreement.
SECTION 10.13 CERTAIN DEFINITIONS.
(a) "Subsidiary" or "Subsidiaries" shall mean, when used with reference
to an entity, any corporation, a majority of the outstanding voting securities
of which are owned directly or indirectly by such entity or any partnership,
joint venture or other enterprise in which any entity has, directly or
indirectly, any equity interest.
(b) "Material Adverse Effect" shall mean any circumstance, event or
series of events or circumstances (i) that is material and adverse 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), or (ii) that would materially impair
the ability of Compass or the Company to perform its obligations under this
Agreement, or (iii) that would otherwise materially impede the completion of the
Merger. However, "Material Adverse Effect" does not include the effect of (i)
changes in laws of general applicability, including, but not limited to banking
laws, or interpretations of such laws by courts or regulators, or other changes
affecting depository institutions generally, (ii) modifications of valuation
policies and practices in connection with the Merger or any restructuring
charges in connection with the Merger in accordance with GAAP, (iii) changes in
GAAP or regulatory accounting requirements applicable to banks or bank holding
companies generally, (iv) actions or omissions of the Company or its
Subsidiaries taken with the prior consent of Compass or actions or omissions of
Compass taken with the prior consent of the Company, in contemplation of the
transactions contemplated hereby, (iv) professional fees incurred in connection
with the Merger, or (v) changes resulting from or relating to general business
or economic conditions or resulting from or relating to conditions generally
affecting the banking industry.
(c) "Environmental Laws" shall mean all federal, state and local laws,
ordinances, rules, common law, 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, or exposure to, Hazardous 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
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<PAGE> 158
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, as amended ("FWPCA"), Clean Air Act, and any and all regulations
promulgated pursuant to any of the foregoing, as amended.
(d) "Hazardous Substances" shall mean those substances included within
the statutory or regulatory definitions, listings or descriptions of
"pollutant," "hazardous material," "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 New Mexico establish a meaning for "hazardous
substance," "hazardous waste," "hazardous material," "solid waste," "pollutant,"
"contaminant," "regulated substance," or "toxic waste," which is broader than
that specified in any of CERCLA, SARA, RCRA, HSWA, HMTA, TSCA, OSHA or any other
Environmental Law such broader meaning shall apply.
(e) "Release" shall mean any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping,
disposing, discarding or abandoning.
(f) "Knowledge" or "known" -- An individual shall be deemed to have
"knowledge" of or to have "known" a particular fact or other matter if (i) such
individual is actually aware of such fact or other matter, or (ii) a prudent
individual could be expected to discover or otherwise become aware of such fact
or other matter in the normal course of performing his duties. 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 in the capacities of the
officers set forth on Schedule 10.13(f) (or in any similar capacity) of the
corporation, bank or any subsidiary thereof, has, or at any time had, knowledge
of such fact or other matter.
[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/ Jerry W. Powell By /s/ Garrett R. Hegel
Its General Counsel and Secretary Its Chief Financial Officer
ATTEST: WESTERN BANCSHARES OF
ALBUQUERQUE, INC.
By /s/ David E. Wintermute By /s/ William T. Fietz
Its Vice President Its Chairman and Chief
Financial Officer
<PAGE> 160
EXHIBIT A
Illustration of Merger Consideration
------------------------------------
Current Anticipated Deal Price: $80,000,000
- --------------------------------------------------------------------------------
Share Determination Market Value ("SDVM") Shares Issued (c)
- --------------------------------------------------------------------------------
31.000 and above 3,000,000
30.000 3,000,000
29.000 3,000,000
28.000 3,000,000
27.000 3,000,000
26.688 3,000,000
26.670(a) 3,000,000
26.625 3,004,695
26.563 3,011,708
26.500 3,018,868
26.438 3,025,947
26.375 3,033,175
26.313 3,040,322
26.250 3,047,619
26.188 3,054,834
26.125 3,062,201
26.063 3,069,485
26.000 3,076,923
25.688 3,114,295
25.625 3,121,951
25.563 3,129,523
25.500 3,137,255
25.438 3,144,901
25.375 3,152,709
25.313 3,160,431
25.250 3,168,317
25.188 3,176,116
25.125 3,184,080
25.063 3,191,562
25.000 3,200,000
24.938 3,207,956
24.875 3,216,080
24.813 3,224,116
24.750 3,232,323
24.688 3,240,441
24.625 3,248,731
24.563 3,256,931
24.500 3,265,306
24.438 3,273,590
24.375 3,282,051
24.313 3,290,420
24.250 3,298,969
24.188 3,307,425
24.125 3,316,062
24.063 3,324,606
24.000(b) 3,333,333
23.000 3,333,333
22.000 3,333,333
21.00 and below 3,333,333
(a) At any SDVM $26.67 and above per share, Compass would issue 3,000,000
shares of Common Stock.
(b) At any SDVM $24.00 and below per share Compass would issue 3,333,333
shares of Common Stock.
(c) If Compass enters into a written definitive agreement to be acquired prior
to the date of consummation of the merger, then Compass would issue
3,333,333 shares of Common Stock.
<PAGE> 161
EXHIBIT B
POOLING TRANSFER RESTRICTIONS AGREEMENT
---------------------------------------
This Pooling Transfer Restrictions Agreement (this "Agreement") is
executed and delivered this ____ day of _________, 1999 by and between Compass
Bancshares, Inc. ("Compass"), Western Bancshares of Albuquerque, 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 _________, 1999 ("Merger Agreement") pursuant to which the Company
will be merged with an existing or to-be-formed subsidiary of Compass (the
"Merger") after satisfaction of the conditions set forth in the Merger
Agreement, and
WHEREAS, under the terms of the Merger Agreement the Company has agreed
to enter into this Agreement and to cause the Shareholder and each other
shareholder affiliate (as defined in SEC Rule 405) of the Company to 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 $1.00
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 for pledges by the Shareholder of all or
part of such Shareholder's Compass Common Stock acquired in the Merger to secure
loans, provided the lender accepts any pledge of such Compass Common Stock
subject to the terms of this Agreement. The Shareholder further agrees that he
will not sell, pledge, transfer or otherwise dispose of any shares of the
Compass Common Stock to be acquired by him in the Merger except in a manner
which is consistent with any additional requirements for Compass' accounting for
the Merger as a pooling of interests, including without limitation any new
requirements imposed by the applicable provisions of the Securities Act of 1933,
the Securities Exchange Act of 1934, and the respective rules and regulations
thereunder.
2. The Shareholder further acknowledges and agrees that he will be
subject to Rule 145 promulgated by the Securities and Exchange Commission under
the Securities Act, and agrees not to transfer any Compass Common Stock received
by him in the Merger except in compliance with the applicable provisions of the
Securities Act, the Exchange Act, and the respective rules and regulations
thereunder.
<PAGE> 162
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 _______ __, 1999 which restricts
any sale or other transfer of such shares prior to the earlier to occur
of (i) public release by Compass Bancshares, Inc. of 30 days of
post-merger combined operations of Western Bancshares, Inc. and Compass
Bancshares, Inc., or (ii) [insert due date of next Quarterly Report on
Form 10-Q or Annual Report on Form 10-K that will contain required
financial results.] The issuer will furnish to the record holder of
this certificate, without charge, upon written request to the issuer at
its principal place of business, a copy of the Pooling Transfer
Restrictions Agreement.
Compass agrees to instruct its transfer agent to remove the restrictive legend
from any certificates evidencing shares subject hereto promptly following the
expiration of the transfer restrictions described in the first two sentences of
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 shareholder 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> 163
IN WITNESS WHEREOF, the undersigned set his hand effective as of the
day first written above.
COMPASS BANCSHARES, INC.
By:_______________________________________
Name:_____________________________________
Title:____________________________________
WESTERN BANCSHARES OF ALBUQUERQUE, INC.
By:_______________________________________
Name:_____________________________________
Title:____________________________________
__________________________________________
Signature of Shareholder
__________________________________________
Printed Name of Shareholder
3
<PAGE> 164
EXHIBIT C
EXCHANGE AGENT AGREEMENT
------------------------
This Exchange Agent Agreement, dated as of _____, 1999, is made and
entered into by and among Compass Bancshares, Inc., a Delaware corporation
("Compass"), _____________________, a Delaware corporation ("Merger Sub"),
Western Bancshares of Albuquerque, Inc., a New Mexico 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 ________, 1999
("Merger Agreement") among Compass, Merger Sub and the Company, the Company
shall, at the Effective Time, be merged with Merger Sub. The name of the
surviving corporation shall be ____________________ ("Surviving Corporation").
After the Effective Time, the outstanding shares of the Common Stock,
par value $1.00 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, and Compass has agreed, 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:
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.
<PAGE> 165
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, no later than ten (10) days after the later to occur of (i) the
Effective Time or (ii) the delivery by the Company of a certified
shareholder's list containing the names and address of shareholders
(together with share positions and certificate numbers), mail to the
holders of record of Company Common Stock, by first class United States
mail, postage prepaid, copies of Letters of Transmittal, including
Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 in substantially the form attached hereto as
EXHIBIT A ("Letters of Transmittal"), and return envelopes to the
Exchange Agent, at the earliest practicable time following the
Effective Time. A form of Stock Assignment, Power of Attorney and Lost
Stock Certificate Affidavit will be provided to the Exchange Agent for
use by shareholders if necessary.
(B) ACCEPTANCE OF CERTIFICATES.
(i) The Exchange Agent will examine the Letters of
Transmittal, Certificates and other documents and instruments delivered
to the Exchange Agent by or on behalf of holders tendering Company
Common Stock and shall determine whether (i) the Letters of Transmittal
have been completed and executed properly, and are accompanied by
proper evidence of authority, (ii) Certificates corresponding to the
names of the registered holders, Certificate numbers and the number of
shares represented thereby with the information set forth in the
Company's shareholder and other records and which appear to be in
negotiable, good delivery form, properly endorsed or accompanied by
stock powers with transfer tax stamps or evidence of payment or
exemption from transfer taxes affixed (where required), and (iii)
signatures are guaranteed (where required), all in accordance with the
terms and conditions of the Merger Agreement and the Letters of
Transmittal. The Exchange Agent shall accept the executed Letters of
Transmittal accompanied by Certificates which are surrendered in
accordance with the provisions of the Merger Agreement. Such
Certificates and Letters of Transmittal shall only be accepted by the
Exchange Agent and eligible for payment hereunder if they have been
properly executed and completed in accordance with the instructions
contained in the Letters of Transmittal and, subject to the following
sentence, if the person or persons surrendering such Certificates and
Letters of Transmittal appear as a holder of record of the number of
shares surrendered on the list of shareholders ("Shareholder List")
supplied and certified to the Exchange Agent by the Company attached as
EXHIBIT B hereto. In the event the Exchange Agent shall have any
questions as to whether a Certificate and Letters of Transmittal have
been properly executed and completed or
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<PAGE> 166
whether the Certificates have been surrendered by the holder of record
thereof, the Exchange Agent shall promptly refer such questions to
Compass for resolution by Compass and the Exchange Agent shall be able
to rely on the written instructions and decisions of any officer of
Compass. Determination of all questions as to the proper completion or
execution of the Letters of Transmittal or as to the proper form for
transfer of the Certificates for Company Common Stock shall be made by
Compass together with its attorneys, and such other persons as Compass
shall designate, and such determinations shall be final and binding;
provided, however, that the rejection by Compass of any Letters of
Transmittal or Certificates deemed by Compass to be ineffective to
transfer the Certificates shall not affect the right of any shareholder
in or to his respective share of the Merger Consideration;
(ii) If any defect or irregularity appears to exist in
connection with a purported tender, the Exchange Agent will notify
promptly the persons by whom the tender was made and will return all
documents delivered in connection therewith or take such action as is
necessary or advisable to cause such defect or irregularity to be
cured;
(iii) Tenders may be made only as set forth in the Letters of
Transmittal;
(iv) Letters of Transmittal, and facsimiles thereof submitted
to the Exchange Agent, shall be marked by the Exchange Agent's
designated officers to show the date and time of receipt and their
review and acceptance thereof;
(v) From time to time as requested by Compass, the Exchange
Agent shall provide Compass with a list of shareholders who have
properly tendered their Company Common Stock. In addition, the Exchange
Agent shall inform Compass in writing of the number of shares of
Company Common Stock which have been properly tendered and the number
which have been improperly tendered to the Exchange Agent during the
week then ended and on a cumulative basis through that day. The
Exchange Agent shall provide Compass such other information concerning
the Company Common Stock as it may reasonably request. Such
communications should be sent to:
Compass Bancshares, Inc.
15 South 20th Street
Birmingham, Alabama 35233
Attn: Daniel B. Graves
Telephone No. (205) 933-3880
(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.
3
<PAGE> 167
(d) COMPASS COMMON STOCK. Merger Sub 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 Merger Sub and the Company as follows:
(i) COMPANY COMMON STOCK. Each holder of Company
Common Stock shall receive Merger Consideration equal to
______ shares of Compass Common Stock for each share of
Company Common Stock held immediately prior to the Effective
Time.
(ii) FRACTIONAL SHARES. For each fractional share
of Compass Common Stock which would be delivered upon the
surrender of Company Common Stock, each holder of Stock shall
receive cash in an amount equal to the product of such
fraction and $_____.
As soon as practicable after acceptance of properly executed
Certificates and accompanying Letters of Transmittal in accordance with
the terms of paragraph 3(b) hereof, the Exchange Agent shall issue and
mail certificates representing shares of Compass Common Stock to the
shareholder surrendering such certificates. The Exchange Agent shall
promptly make the payments in lieu of fractional shares out of the
Exchange Fund upon surrender of the Certificates.
(e) OTHER DUTIES OF EXCHANGE AGENT.
(i) The Exchange Agent shall have no obligation to make
payment for surrendered Certificates unless Compass shall have issued sufficient
Compass Common Stock or caused such stock to be issued and shall have deposited
or caused to be deposited in the Exchange Fund sufficient cash with which to pay
all amounts due and payable for such shares.
(ii) The Exchange Agent shall be regarded as having made no
representations or warranties as to the validity, sufficiency, value or
genuineness of any Certificates or the 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)
4
<PAGE> 168
and the written advice and opinion of such attorneys shall constitute
full and complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and in
accordance with such advice or opinion.
(v) The Exchange Agent shall take all other actions which it
or Compass deems necessary or appropriate under the terms of the Merger
Agreement, the Letters of Transmittal and under the customs and
practices normally applied to transactions of this type and appropriate
to the proper transfer of the Company Common Stock and the proper
maintenance of the Company's and Compass' shareholder books and
records. Following payment in accordance with the terms hereof, the
Exchange Agent shall forward to Compass all documents received by it in
connection with tenders of Certificates (including Letters of
Transmittal, telegrams, facsimile transmissions or letters representing
tenders made without concurrent deposit of certificates) and the
tendered Certificates prominently marked "CANCELED" 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 New Mexico 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 Compass or 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.
5
<PAGE> 169
8. UNCLAIMED FUNDS. Any moneys or certificates deposited hereunder
which shall remain unclaimed by the holders of shares of Company Common Stock
for a period of six (6) months following the Effective Time shall, upon written
request of the Surviving Corporation, be returned to Compass, plus interest
earned on the cash portion thereof and the shareholders of Certificates not
theretofore presented to and accepted by the Exchange Agent shall look to
Compass only, and not the Exchange Agent, for the payment of any Merger
Consideration in respect of such Certificates.
9. INVESTMENT OF EXCHANGE FUND. The Exchange Agent shall deposit
portions of the Exchange Fund only as directed or consented to in writing by the
Surviving Corporation.
10. AMENDMENT. Except as otherwise expressly provided herein, neither
this Agreement nor any provision hereof may be amended, modified, waived,
discharged or terminated except in a writing signed by all of the parties hereto
prior to the Effective Time or by Compass and the Exchange Agent after the
Effective Time; provided, however, that no amendment shall be made if such
modification shall reduce the amount of or eliminate the opportunity of any
shareholder to receive his share of the Merger Consideration contemplated by the
Merger Agreement.
11. SECTION HEADINGS. The section headings used herein are for
convenience of reference only and shall not define or limit the provisions of
this Agreement.
12. GOVERNING LAW. THIS AGREEMENT AND THE APPOINTMENT OF THE EXCHANGE
AGENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK 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
2 Broadway, 19th Floor
New York, New York 10004
Attn: Steven G. Nelson
Chairman of the Board
6
<PAGE> 170
If to the Company prior
to the Effective Time:
Western Bancshares of Albuquerque, Inc.
505 Marquette, N.W.
Albuquerque, New Mexico 87102
Attn.: William T. Fietz
Chairman and Chief Executive Officer
If to Merger Sub 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]
7
<PAGE> 171
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:_________________________________
WESTERN BANCSHARES OF ALBUQUERQUE, INC.
By:_________________________________
CONTINENTAL STOCK TRANSFER & TRUST
COMPANY
By:_________________________________
-------------------------------
By:_________________________________
Exhibit A - Form of Letters of Transmittal
Exhibit B - Shareholder List
<PAGE> 172
EXHIBIT D
POOLING OF INTEREST CRITERIA
----------------------------
ATTRIBUTES OF COMBINING ENTERPRISES
- -----------------------------------
(a) Autonomy Condition. Each of the combining enterprises is autonomous and
has not been a subsidiary or division of another enterprise within two
years before the plan of combination is initiated.
(b) Independence Condition. Each of the combining enterprises is
independent of the other combining enterprises.
MANNER OF COMBINING INTERESTS
- -----------------------------
(c) One-Year Rule. The combination is effected in a single transaction or
is completed in accordance with a specific plan within one year after
the plan is initiated.
(d) Common-Stock-for-Common-Stock-Condition. An enterprise offers and
issues only common stock with rights identical to those of the majority
of its outstanding voting common stock in exchange for substantially
all of the voting common stock interest of another enterprise at the
date the plan of combination is consummated.
(e) Change-in-Equity-Interests Condition. None of the combining enterprises
changes the equity interest of the voting common stock in contemplation
of effecting the combination either within two years before the plan of
combination is initiated or between the dates the combination is
initiated and consummated; changes in contemplation of effecting the
combination may include distributions to stockholders and additional
issuances, exchanges, and retirements of securities.
(f) Treasury-Stock Condition. Each of the combining enterprises reacquires
shares of voting common stock only for purposes other than business
combinations, and no enterprise reacquires more than a normal number of
shares between the dates the plan of combination is initiated and
consummated.
(g) Proportionate-Interest Condition. The ratio of the interest 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> 173
(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> 174
EXHIBIT E
VOTING AGREEMENT AND IRREVOCABLE PROXY
--------------------------------------
This Voting Agreement and Irrevocable Proxy (this "Agreement")
dated as of July __, 1999 is executed by and among Western Bancshares of
Albuquerque, Inc., a New Mexico 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 are contemporaneously
executing that certain Agreement and Plan of Merger dated as of July ___, 1999
(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 undersigned 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/her 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, 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, 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
Compass and the Company may make, in the event such Shareholder does
<PAGE> 175
not vote in favor of the authorization and approval of the Merger, 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, 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 and registration 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 Section 53-11-34B of the New
Mexico Business Corporation Act. The Shareholders and the Company acknowledge
that the performance of this Agreement is intended to benefit Compass.
6. The irrevocable proxy granted pursuant hereto shall
continue in effect until the earlier to occur of (i) the termination of the
Merger Agreement, as it may be amended or extended from time to time, or (ii)
the consummation of the Merger. In no event shall this Agreement apply to shares
of common stock, par value $2.00 per share, of Compass to be received by the
Shareholders upon consummation of the Merger.
7. The vote of the Proxy Holder shall control in any conflict
between its vote of the Shares and a vote by the Shareholders of the Shares and
the Company agrees to recognize the vote of the Proxy Holder instead of the vote
of the Shareholders in the event the Shareholders do not vote in favor of the
approval of the Merger, the Merger Agreement and the other agreements and
transactions contemplated thereby 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.
2
<PAGE> 176
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 New Mexico.
[SIGNATURE PAGES FOLLOW]
3
<PAGE> 177
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date above written.
WESTERN BANCSHARES OF ALBUQUERQUE, INC.
By:________________________________________
Name:______________________________________
Title:_____________________________________
Address:
___________________________________________
___________________________________________
Attention:_________________________________
COMPASS BANCSHARES, INC.
By: _______________________________________
Name: _____________________________________
Title:_____________________________________
Address:
15 South 20th Street
Birmingham, Alabama 35233
Attention: Mr. Daniel B. Graves
Associate General Counsel
4
<PAGE> 178
SHAREHOLDERS:
___________________________________________
___________________________________________
Address: _________________________________
_________________________________
_________ shares of Common Stock
Pledgee: _______________________________
Address: _______________________________
_______________________________
Loan No.: _______________________________
5
<PAGE> 179
EXHIBIT F
OPINIONS REQUIRED FROM COUNSEL
TO THE COMPANY AND THE BANK
---------------------------
(i) the Company and its Subsidiaries, other than the Bank, are New
Mexico corporations and bank holding companies under the Bank Holding Company
Act of 1956, as amended, and are duly organized, validly existing and in good
standing under the laws of the State of New Mexico. The Bank is a New Mexico
banking corporation, duly organized, validly existing and in good standing under
the laws of New Mexico. The Company and its Subsidiaries have all requisite
corporate power and authority to carry on their business as we know them to be
conducted and to own, lease and operate their properties and assets as now
owned, leased or operated. The Company and its Subsidiaries are duly qualified
and in good standing in New Mexico;
(ii) the Company has all requisite power and authority to execute and
deliver the Agreement and any other agreements contemplated by the Agreement
(collectively, the "Other Agreements") and to consummate the transactions
contemplated thereby; all acts (corporate or otherwise) and other proceedings
required to be taken by or on the part of the Company to execute and deliver the
Agreement and the Other Agreements and to consummate the transactions
contemplated therein have been duly and validly taken; and the Agreement and the
Other Agreements have been duly executed and delivered by, and constitute the
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms, subject to the effect of (a) any applicable
bankruptcy, insolvency, reorganization or other law relating to or affecting
creditors' rights generally and (b) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law);
(iii) the authorized capital stock of the Company consists solely of
500,000 shares of Company Common Stock (as defined in the Agreement) of which
134,522 shares are issued and outstanding (none of which are held in the
treasury); the Company is the record holder of all of the issued and outstanding
capital stock of the Company's Subsidiaries; 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 Company's Subsidiaries is validly fully paid and
nonassessable; and to the best of our knowledge, none of such stock was issued
in violation of the preemptive rights of any person;
(iv) to the best of our knowledge and except as set forth on Schedule
3.2 to the Agreement, there are no outstanding subscriptions, options, rights,
warrants, calls, convertible securities, irrevocable proxies, or other
agreements or commitments obligating the Company or its Subsidiaries to issue
any shares of, restricting the transfer of, or otherwise relating to shares of
their respective capital stock of any class;
(v) the execution and delivery by the Company of the Agreement does not
and the consummation of the transactions contemplated thereby will not
contravene or violate any provision of or constitute a default under (a) the
articles of incorporation or bylaws of the Company or its
<PAGE> 180
Subsidiaries, (b) to the best of our knowledge and except as disclosed in the
Agreement, any note, license, instrument, mortgage, deed of trust, or other
agreement or understanding, permit, authorization or contract, order,
arbitration award, judgment or decree, or any other restriction of any kind or
character known to us to which the Company or any of its Subsidiaries is a party
or by which the Company or any of its Subsidiaries or any of their respective
assets or properties is bound, and (c) to the best of our knowledge and except
as disclosed in the Agreement, any law, regulation, rule, administrative
regulation or decree of any court or any governmental agency or body whether
domestic or foreign applicable to the Company or any of its Subsidiaries, or
their respective assets or properties;
(vi) except as disclosed in the Agreement and except for such consents,
approvals, authorizations, actions or filings as have already been obtained by
Compass or Merger Sub, no consent, approval, authorization, action or filing
with any court, governmental agency or public body is required in connection
with the execution, delivery and performance by the Company of the Agreement;
(vii) except as set forth in Schedule 3.12 to the Agreement, to the
best of our knowledge, neither the Company nor any of its Subsidiaries is a
party to any Proceeding (as defined in the Agreement), nor to the best of our
knowledge, is any Proceeding threatened against or affecting the Company or any
of its Subsidiaries, which by the terms of the Agreement would required to be
set forth in Schedule 3.12;
(viii) to the best of our knowledge and except as set forth on Schedule
3.18 to the Agreement, neither the Company nor any of its Subsidiaries is in
material default under any law or regulation, or under any order of any court,
commission, board, bureau, agency or instrumentality wherever located; and
(ix) upon consummation of the transactions contemplated by the
Agreement in accordance with its terms and upon filing of the Articles of Merger
relating to the Merger by the Secretary of New Mexico State Public Regulation
Commission, the Merger will have been legally consummated in accordance with the
laws of the State of New Mexico with the consequences specified in Section
53-14-6 of the New Mexico Business Corporation Act.
<PAGE> 181
EXHIBIT G
OPINIONS REQUIRED FROM COUNSEL
TO COMPASS AND MERGER SUB
-------------------------
(i) Compass and Merger Sub are each corporations duly organized,
validly existing and in good standing under the laws of the State of Delaware
and New Mexico, and Compass is a bank holding company under the Bank Holding
Company Act of 1956, as amended. Compass and Merger Sub 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 Merger Sub are duly qualified and in good standing in the respective
states where such qualification is required;
(ii) Compass and Merger Sub each have all requisite power and authority
to execute and deliver the Agreement and to consummate the transactions
contemplated thereby; all acts (corporate or otherwise) and other proceedings
required to be taken by or on the part of Compass and Merger Sub (or either of
them) to execute and deliver the Agreement and to consummate the transactions
contemplated therein have been duly and validly taken; and the Agreement has
been duly executed and delivered by, and constitutes the valid and binding
obligation of each of Compass and Merger Sub enforceable against Compass and
Merger Sub in accordance with its terms, subject to the effect of (a) any
applicable bankruptcy, insolvency, reorganization or other law relating to or
affecting creditors' rights generally and (b) general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law);
(iii) the shares of Compass Common Stock to be issued pursuant to the
Agreement are validly issued, fully paid and nonassessable; and, to the best of
our knowledge and except as contemplated by the Agreement, the shares of Compass
Common Stock issued pursuant to the Agreement are not subject to any agreements
or understandings to which Compass is a party with respect to the voting or
transfer of such shares, are not subject to any agreements or understandings
among any other parties with respect to the voting or transfer of such shares,
and have not been issued in violation of the preemptive rights of any person;
(iv) the execution and delivery by Compass and Merger Sub 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 Merger Sub, (b) to
the best of our knowledge and except as disclosed in the Agreement, any note,
license, instrument, mortgage, deed of trust, or other agreement or
understanding, permit, authorization or contract, order, arbitration award,
judgment of decree, or any other restriction of any kind known to us to which
Compass or Merger Sub is a party or by which Compass or Merger Sub 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
<PAGE> 182
regulation or decree of any court or any governmental agency or body applicable
to Compass or Merger Sub 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 Merger Sub of the Agreement;
(vi) to the best of our knowledge, neither Compass nor Merger Sub is in
violation of or default under the respective Certificates of Incorporation or
Bylaws of Compass or Merger Sub or any agreement, document or instrument under
which Compass or Merger Sub is obligated or bound, or any law, order, judgment,
or regulation applicable to Compass or Merger Sub 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.
<PAGE> 183
EXHIBIT H
REPRESENTATIONS CERTIFICATE
---------------------------
____________ ("Merger Sub") 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 July
___, 1999 by and between Compass Bancshares, Inc. and Western Bancshares of
Albuquerque, Inc. (the "Agreement").
1. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of New Mexico, 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. Merger Sub has full corporate power and authority and no further
corporate proceedings on the part of Merger Sub are necessary to execute and
deliver the Amendment to Agreement and Plan of Merger dated ___________, 1999
("Amendment") and to consummate the transactions contemplated thereby, all of
which have been duly and validly authorized by Merger Sub's Board of Directors.
The Amendment has been duly executed and delivered by Merger Sub and is a duly
authorized, valid, legally binding and enforceable obligation of Merger Sub,
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
Merger Sub as may be required by statute or regulation. Except as set forth on
the Schedule attached hereto, neither the execution, delivery nor performance of
the Amendment in its entirety, nor the consummation of all the transactions
contemplated thereby, following the receipt of such approvals as may be required
from the SEC, the FRB, the FDIC, and the Department will (i) violate (with or
without the giving of notice or passage of time), any law, order, writ,
judgment, injunction, award, decree, rule, statute, ordinance or regulation
applicable to Merger Sub.
3. No representation or warranty by Merger Sub 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, Merger Sub has executed this Certificate
this _____ day of ____________, 1999.
______________________________________
By:___________________________________
Name:_________________________________
Title:________________________________
<PAGE> 184
EXHIBIT I
RELEASE OF CLAIMS
-----------------
THIS RELEASE OF CLAIMS ("Release") dated the __ day of ______, 1999, is
executed and delivered by the person executing below to Western Bancshares of
Albuquerque, Inc., a New Mexico corporation (the "Company"), and Western Bank, a
New Mexico banking corporation (the "Bank").
WHEREAS, Compass Bancshares, Inc. ("Compass") is to acquire the Company
pursuant to that certain Agreement and Plan of Merger dated as of _____________,
1999, by and between Compass and the Company, as amended (the "Agreement"),
whereby the Company will be merged (the "Merger") 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 and deferred
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) rights under Section 6.14 and 6.15 of the Agreement to the extent
undersigned is a holder of shares of Company common stock, par value $1.00 per
share, at the effective time of the Merger; and (iv) as to rights of
indemnification pursuant to Section 6.13 of the Agreement the Articles of
Incorporation or Bylaws of the Company and its Subsidiaries.
Section 2. SUCCESSORS. This Release shall be binding upon the
undersigned and his or her heirs, devisees, administrators, executors, personal
representatives, successors and assigns and shall inure to the benefit of the
Company and its Subsidiaries and their respective successors and assigns.
<PAGE> 185
Section 3. GOVERNING LAW. This Release shall be governed by and
construed in accordance with the laws of the State of New Mexico, without giving
effect to New Mexico 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 NEW MEXICO section
section
COUNTY OF BERNALILLO section
This instrument was acknowledged before me on __________________, 1999
by _________________.
___________________________________
Notary Public in and for the
State of New Mexico
___________________________________
Notary's Name Typed or Printed
My Commission Expires:_____________
EXHIBIT A
---------
2
<PAGE> 186
EXHIBIT J
RELEASE OF CLAIMS
-----------------
THIS RELEASE OF CLAIMS ("Release") dated the ___ day of ____, 1999, is
executed and delivered by Western Bancshares of Albuquerque, Inc., a New Mexico
corporation (the "Company"), Western Bank, a New Mexico Banking Corporation, 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 ______________, 1999 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 and assigns and shall inure
to the benefit of the Directors and their respective heirs, devisees,
administrators, executors, successors and assigns.
<PAGE> 187
Section 3. GOVERNING LAW. This Release shall be governed by and
construed in accordance with the laws of the State of New Mexico, without giving
effect to New Mexico 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.
WESTERN BANCSHARES OF ALBUQUERQUE, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
WESTERN BANK
By:__________________________________
Name:________________________________
Title:_______________________________
_____________________________________
By:__________________________________
Name:________________________________
Title:_______________________________
<PAGE> 188
STATE OF NEW MEXICO section
section
COUNTY OF BERNALILLO section
This instrument was acknowledged before me on __________________, 1999
by ____________________, the ______________ of Western Bancshares of
Albuquerque, Inc., a New Mexico corporation.
______________________________________
Notary Public in and for the
State of New Mexico
______________________________________
Notary's Name Typed or Printed
My Commission Expires:________________
STATE OF NEW MEXICO section
section
COUNTY OF BERNALILLO section
This instrument was acknowledged before me on __________________, 1999
by ____________________, the __________________ of Western Bank.
_______________________________________
Notary Public in and for the
State of New Mexico
_______________________________________
Notary's Name Typed or Printed
My Commission Expires:_________________
STATE OF NEW MEXICO section
<PAGE> 189
section
COUNTY OF BERNALILLO section
This instrument was acknowledged before me on ______, 1999 by
___________________, the __________________ of ___________________, a
______________ corporation.
______________________________________
Notary Public in and for the
State of New Mexico
______________________________________
Notary's Name Typed or Printed
My Commission Expires:_________________
<PAGE> 190
EXHIBIT A
---------
Directors
<PAGE> 191
EXHIBIT K
LETTER OF TRANSMITTAL
For Shares of Common Stock of Western Bancshares of Albuquerque, Inc.
Delivered Pursuant to the Agreement and Plan of Merger dated as
of ________, 1999
By Mail or Overnight Delivery Continental Stock Transfer & Trust Company
Service to the Exchange Agent: 2 Broadway, 19th Floor
New York, New York 10004
Attention: Reorganization Department
DESCRIPTION OF SHARES SURRENDERED
---------------------------------
Gentlemen:
I, as the registered holder of the below described Shares of Western
Bancshares of Albuquerque, Inc. ("Company") hereby surrender to Compass
Bancshares, Inc. ("Compass"), such Shares pursuant to the Agreement and Plan of
Merger dated as of __________, 1999, as amended ("Merger Agreement"), by and
between Compass, ______________________________ ("Merger Sub"), and the Company
in exchange for ____ shares of Compass Common Stock for each Share so
surrendered. I hereby acknowledge receipt of the Proxy Statement
dated__________, 1999, which described the merger ("Merger") provided by the
Merger Agreement.
I represent and warrant to Compass and Merger Sub that I am the true
and lawful owner of the Shares, and have full capacity, power and authority to
exchange the Shares, free and clear of all liens, restrictions and encumbrances
of any kind whatsoever, and the Shares will not be subject to any adverse claim.
I understand that Continental Stock Transfer & Trust Company, as Exchange Agent
for this exchange, may require additional documentation, and I agree, upon
request, to execute and deliver any additional documents or instruments deemed
by the Exchange Agent or Compass reasonably necessary to complete the exchange
of the Shares.
<TABLE>
<CAPTION>
=============================================================== =========================================================
Name, Address and Social Security Number of Registered Holders Certificate(s) Surrendered
(correct if wrong)
- --------------------------------------------------------------- ---------------------------------------------------------
<S> <C> <C>
Certificate Number(s) Total Number of Shares
Represented
by Certificate(s)
_____________________ ____________________
_____________________ ____________________
_____________________ ____________________
Total Shares ____________________
=============================================================== =========================================================
</TABLE>
INSTRUCTIONS REGARDING ISSUANCE OF SHARES
If you wish to have the shares of Compass Common Stock to be issued
pursuant to the Merger Agreement in the name and at the address set forth above,
please sign and date this letter in the space below
<TABLE>
<CAPTION>
<S> <C>
SIGNATURES _________________________ Date____________________
_________________________ Date____________________
Printed Name(s) _________________________ TIN or SSN# _______________________
_________________________
Capacity (Full Title)______________________
Address ________________________
(Include Zip Code) ________________________ Area Code and Telephone No. ______________________
</TABLE>
- --------------------------------------------------------------------------------
NEW CERTIFICATES TO BE ISSUED IN A DIFFERENT NAME OR TO A DIFFERENT ADDRESS
If you are entitled to receive shares of Compass Common Stock and wish
to have certificates representing Compass Common Stock issued in a name or to an
address other than the name or address shown on your Company stock certificates,
please indicate the name and address of your assignee below ( You will be
required to pay any transfer or other taxes required by reason of the payment
and delivery of Compass Common Stock to such other person.) (Assignees must
execute the Substitute W-9 enclosed):
Name and Address of Assignee
----------------------------
Name:________________________________ Taxpayer I.D. No. or
(Type or print full name) Social Security No.:_________________
Address:________________________________________________________________________
City, State, Zip Code:__________________________________________________________
================================================================================
GUARANTEE OF SIGNATURES (SEE INSTRUCTION 1.)
AUTHORIZED SIGNATURE ____________________________ Date______________, 199__
Printed Name ____________________________
<PAGE> 192
Title _________________________ PLACE MEDALLION GUARANTY IN SPACE BELOW
Name of Firm _________________________
Address _________________________
_________________________ Area Code and Telephone No.
___________________________
================================================================================
================================================================================
PLEASE COMPLETE SUBSTITUTE FORM W-9. IT IS THE LAST FORM IN THIS PACKAGE
================================================================================
LETTER OF TRANSMITTAL INSTRUCTIONS
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; SIGNATURES;
SIGNATURE GUARANTEES. Please send all certificates for Shares to the Exchange
Agent (the "Exchange Agent"), with the Letter of Transmittal, or a facsimile
thereof, fully completed and signed by you, the registered holder(s). Compass
retains the right to require that a signature on the Letter of Transmittal and
the Share certificates be guaranteed by a participant in a Securities Transfer
Association recognized signature program. If Compass wishes to have your
signature guaranteed, you will be notified by separate letter.
If certificates are registered in the name of a person other
than you, the certificate(s) must be duly endorsed or accompanied by stock
powers signed by the registered holder and the Letter of Transmittal. If the
Letter of Transmittal is executed by an officer on behalf of a corporation or by
an executor, administrator, trustee, guardian, attorney, agent or other person
acting in a fiduciary or representative capacity, the Exchange Agent reserves
the right to require that proper documentary evidence of the authority of the
person executing the Letter of Transmittal. If your Shares are registered in
different names on several certificates, it will be necessary to complete, sign
and submit as many separate Letters of Transmittal as there are different
registrations of certificates. If the tendered certificates are owned of record
by two or more joint owners, each of you must sign the Letter of Transmittal.
Questions regarding evidence of authority, requests for assistance or additional
copies of the Letter of Transmittal may be referred to the Reorganization
Department of the Exchange Agent, at (212) 509-4000, extension 535.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES, THE LETTER OF TRANSMITTAL
AND ANY OTHER REQUIRED DOCUMENTS IS AT YOUR OPTION AND RISK. IF DELIVERY IS BY
MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS
STRONGLY RECOMMENDED.
2. ISSUANCE OF COMPASS COMMON STOCK AND PAYMENT FOR FRACTIONAL SHARES.
You will receive the Compass Common Stock for your Shares only after receipt and
acceptance by the Exchange Agent and Compass of all of the certificates
representing your Shares, a properly completed and executed Letter of
Transmittal, and any other required documents and upon processing of the
documents by the Exchange Agent. In lieu of issuing fractional shares, Compass
will pay to any Company shareholder entitled to receive a fractional share of
Compass Common Stock, a cash payment based on a price of $_____ per share.
3. TRANSFERS. If the certificate(s) representing the Shares transmitted
hereby are registered in your name and the Letter of Transmittal is properly
signed by you, no endorsements of certificates or separate stock powers are
required. In all other cases, the certificate(s) representing the Shares
transmitted hereby must be endorsed or accompanied by appropriate stock powers,
in either case signed exactly as the name(s) of the registered holder(s) appear
on the certificate(s), and if required, signature(s) on such certificate(s) or
stock power(s) must be guaranteed by an Eligible Institution.
4. IRREGULARITIES. All questions as to the validity, form, eligibility,
acceptance of and delivery of Shares and the issuance of Compass Common Stock
and the payment of cash in lieu of fractional shares will be determined by
Compass, which determination shall be final and binding. Compass reserves the
absolute right to reject any or all tenders determined by Compass not to be in
appropriate form or which would, in the opinion of Compass' counsel, be
unlawful. Compass also reserves the absolute right in its sole discretion, to
waive any of the conditions hereof, or any defect in any tender with respect to
any particular Shares of any particular shareholder, and Compass'
interpretations of the terms and conditions of the Merger Agreement and these
instructions shall be final and binding. The Exchange Agent and Compass shall
not be obligated to give notice of defects or irregularities in tenders, nor
shall they incur any liability for failure to give any such notice. Tenders will
be deemed not to have been made until all defects and irregularities have been
cured or waived.
5. LOST CERTIFICATES. If your share certificates are lost, contact the
Exchange Agent in writing for further instructions.
IMPORTANT TAX INFORMATION
Under the Federal income tax law, you are to provide Compass (as payer)
with a correct taxpayer identification number on Substitute Form W-9 below. As
the record owner of the Shares, you are required to give Compass your Social
Security Number or Employer Identification Number. If the Shares are in more
than one name or are not in the name of the actual owners, consult the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 for additional guidelines on which number to report. If Compass is not
provided with the correct taxpayer identification number, you may be subject to
a $50 penalty imposed by the Internal Revenue Service. In addition, all payments
that are made to you with respect to Shares (including any cash payable to you
under the Merger Agreement in lieu of fractional shares) may be subject to
backup withholding in which event Compass will be required to withhold 31% of
any payments made to the shareholder.
Exempt shareholders should complete the Substitute Form W-9 below and
so indicate their exempt status by writing "exempt" across the face of the
Substitute Form W-9. In order for a foreign individual to qualify as an exempt
recipient, that shareholder must submit a statement, signed under penalties of
perjury, attesting to that individual's exempt status. Such statements can be
obtained from the Exchange Agent. See the enclosed Guidelines for Certification
of Taxpayer Identification Number on Substitute Form W-9 for additional
information.
<PAGE> 193
COMPASS BANCSHARES, INC.
SUBSTITUTE FORM W-9
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
Taxpayer Identification Number
PART 1 - PLEASE PROVIDE YOUR TAXPAYER IDENTIFICATION ------------------
NUMBER IN THE BOX AT RIGHT AND CERTIFY BY
SIGNING AND DATING BELOW ------------------
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.
The Internal Revenue Service does not require your consent to any provision of
this document other than the certifications required to avoid backup
withholding.
SIGNATURE: ____________________________ DATE:_________________________________
PRINTED NAME:___________________________ ADDRESS:______________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU. PLEASE REVIEW THE
ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER
ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
- --------------------------------------------------------------------------------
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.---Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------- ----------------------------------------------------------
GIVE THE SOCIAL GIVE THE EMPLOYER
FOR THIS TYPE OF ACCOUNT: SECURITY NUMBER FOR THIS TYPE OF ACCOUNT: IDENTIFICATION
OF ---- 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 itself
individuals (1) 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 is 11. Religious, charitable, or The organization
account) the only contributor, the educational organization
</TABLE>
<PAGE> 194
<TABLE>
<CAPTION>
<S> <C> <C> <C>
minor(1) account
12. Partnership account held in The partnership
the name of the business
6. Account in the name of The ward, minor, or 13. Association, club, or other The organization
guardian or committee for a incompetent person (3) tax-exempt organization
designated ward, minor, or
incompetent person
7. a The usual revocable savings The grantor-trustee(1) 14. A broker or registered The broker or nominee
trust account (grantor is nominee
also trustee)
b So-called trust account that The actual owner(1) 15. Account with the The public entity
is not a legal or valid trust Department of Agriculture
under State law in the name of a public
entity (such as a State or
8. Sole proprietorship account The owner(4) local government, school
district, or prison) that
receives agricultural
program payments
- ------------------------------------------------------------------- ----------------------------------------------------------
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension trust.
Note: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- - A corporation.
- - A financial institution.
- - An organization exempt from tax under section 501(a), or an individual
retirement plan.
- - The United States or any agency or instrumentality thereof.
- - A State, the District of Columbia, a possession of the United
States, or any subdivision or instrumentality thereof.
- - A foreign government, a political subdivision of a foreign
government, or any agency or instrumentality thereof.
- - An international organization or any agency, or instrumentality
thereof.
- - A registered dealer in securities or commodities registered in the
U.S. or a possession of the U.S.
- - A real estate investment trust.
- - A common trust fund operated by a bank under section 584(a).
- - An exempt charitable remainder trust, or a non-exempt trust
described in section 4947(a)(1).
- - An entity registered at all times under the Investment Company Act of 1940.
- - A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject
to backup withholding include the following:
- - Payments to nonresident aliens subject to withholding under
section 1441.
- - Payments to partnerships not engaged in a trade or business in the
U.S. and which have at least one nonresident partner.
- - Payments of patronage dividends where the amount received is not
paid in money.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Payments of interest not generally subject to backup withholding
include the following:
- - Payments of interest on obligations issued by individuals. Note:
You may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- - Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
- - Payments described in section 6049(b)(5) to nonresident aliens.
- - Payments on tax-free covenant bonds under section 1451.
- - Payments made by certain foreign organizations.
- - Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER. WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045 and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Beginning January 1, 1993,
payers must generally withhold 31% of taxable interest, dividend, and
certain other payments to a payee who does not furnish a taxpayer
identification number to a payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS.--If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDINGS.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE
<PAGE> 195
================================================================================
APPENDIX II
DISSENTER'S RIGHTS OF APPRAISAL
================================================================================
<PAGE> 196
PROVISIONS OF NEW MEXICO BUSINESS CORPORATION ACT
RELATING TO RIGHTS OF DISSENTING SHAREHOLDERS
53-15-3 RIGHT OF SHAREHOLDERS TO DISSENT AND OBTAIN PAYMENT FOR SHARES.
A. Any shareholder of a corporation may dissent from, and obtain payment for the
shareholder's shares in the event of, any of the following corporate actions:
(1) any plan of merger or consolidation to which the corporation is a
party, except as provided in Sub-section C of this section;
(2) any sale or exchange of all or substantially all of the property
and assets of the corporation not made in the usual and regular course of its
business, including a sale in dissolution, but not including a sale pursuant to
an order of a court having jurisdiction in the premises or a sale for cash on
terms requiring that all or substantially all of the net proceeds of sale be
distributed to the shareholders in accordance with their respective interests
within one year after the date of sale;
(3) any plan of exchange to which the corporation is a party as the
corporation the shares of which are to be acquired;
(4) any amendment of the articles of incorporation which materially and
adversely affects the rights appurtenant to the shares of the dissenting
shareholder in that it:
(a) alters or abolishes a preferential right of such
shares;
(b) creates, alters or abolishes a right in respect of
the redemption of such shares, including a provision
respecting a sinking fund for the redemption or
repurchase of such shares;
(c) alters or abolishes an existing preemptive right of
the holder of such shares to acquire shares or other
securities; or
(d) excludes or limits the right of the holder of such
shares to vote on any matter, or to cumulate his
votes, except as such right may be limited by
dilution through the issuance of shares or other
securities with similar voting rights; or
(5) any other corporate action taken pursuant to a shareholder vote
with respect to which the articles of incorporation, the bylaws or a resolution
of the board of directors directs that dissenting shareholders shall have a
right to obtain payment for their shares.
B. (1) A record holder of shares may assert dissenters' rights as to less
than all of the shares registered in his name only if the holder dissents with
respect to all the shares beneficially owned by any one person and discloses the
name and address of the person or persons on whose behalf the holder dissents.
In that event, his rights shall be determined as if the shares as to which he
has dissented and his other shares were registered in the names of different
shareholders.
(2) A beneficial owner of shares who is not the record holder may
assert dissenters' rights with respect to shares held on his behalf, and shall
be treated as a dissenting shareholder under the terms of this section and
Section 53-15-4 NMSA 1978 if he submits to the corporation at the time of or
before the assertion of these rights a written consent of the record holder.
C. The right to obtain payment under this section shall not apply to the
shareholders of the surviving corporation in a merger if a vote of the
shareholders of such corporation is not necessary to authorize such merger.
<PAGE> 197
D. A shareholder of a corporation who has a right under this section to obtain
payment for his shares shall have no right at law or in equity to attack the
validity of the corporate action that gives rise to his right to obtain payment,
nor to have the action set aside or rescinded, except when the corporate action
is unlawful or fraudulent with regard to the complaining shareholder or to the
corporation.
53-15-4 RIGHTS OF DISSENTING SHAREHOLDERS
A. Any shareholder electing to exercise his right of dissent shall file with the
corporation, prior to or at the meeting of shareholders at which the proposed
corporate action is submitted to a vote, a written objection to the proposed
corporate action. If the proposed corporate action is approved by the required
vote and the shareholder has not voted in favor thereof, the shareholder may,
within ten days after the date on which the vote was taken or if a corporation
is to be merged without a vote of its shareholders into another corporation, any
of its shareholders may, within twenty-five days after the plan of the merger
has been mailed to the shareholders, make written demand on the corporation, or,
in the case of a merger or consolidation, on the surviving or new corporation,
domestic or foreign, for payment of the fair value of the shareholder's shares,
and, if the proposed corporate action is effected, Western Bancshares shall pay
to the Dissenting Shareholders, upon the determination of the fair value, by
agreement or judgment as provided herein, and, in the case of shares represented
by certificates, the surrender of such certificates, the fair value thereof as
of the day prior to the date on which the vote was taken approving the proposed
corporate action, excluding any appreciation or depreciation in anticipation of
the corporate action. Any shareholder failing to make demand within the
prescribed ten day or twenty-five day period shall be bound by the terms of the
proposed corporate action. Any shareholder making such demand shall thereafter
be entitled only to payment as in this section provided and shall not be
entitled to vote or to exercise any other rights of a shareholder.
B. No such demand may be withdrawn unless the corporation consents thereto. If,
however, the demand is withdrawn upon consent, or if the proposed corporate
action is abandoned or rescinded or the shareholders revoke the authority to
effect the action, or if, in the case of a merger, on the date of the filing of
the articles of merger the surviving corporation is the owner of all the
outstanding shares of the other corporations, domestic and foreign, that are
parties to the merger, or if no demand or petition for the determination of fair
value by a court has been made or filed within the time provided in this
section, or if a court of competent jurisdiction determines that the shareholder
is not entitled to the relief provided by this section, then the right of the
shareholder to be paid the fair value of his shares ceases and his status as a
shareholder shall be restored, without prejudice, to any corporate proceedings
which may have been taken during the interim.
C. Within ten days after such corporate action is effected, the corporation, or,
in the case of a merger or consolidation, the surviving or new corporation,
domestic or foreign, shall give written notice thereof to each dissenting
shareholder who has made demand as provided in this section and shall make a
written offer to each such shareholder to pay for such shares at a specified
price deemed by the corporation to be the fair value thereof. The notice and
offer shall be accompanied by a balance sheet of the corporation, the shares of
which the dissenting shareholder holds, as of the latest available date and not
more than twelve months prior to the making of the offer, and a profit and loss
statement of the corporation for the twelve months' period ended on the date of
the balance sheet.
D. If within thirty days after the date on which such corporate action was
effected the fair value of such shares is agreed upon between any such
dissenting shareholder and the corporation, payment therefor shall be made
within ninety days after the date on which the corporate action was effected,
and, in the case of shares represented by certificates, upon surrender of the
certificates. Upon payment of the agreed value, the dissenting shareholder shall
cease to have any interest in the shares.
E. If, within the period of thirty days, a dissenting shareholder and the
corporation do not so agree, then the corporation, within thirty days after
receipt of written demand from any dissenting shareholder, given within sixty
days after the date on which such corporate action was effected, shall, or at
its election at any time within the period
<PAGE> 198
of sixty days may, file a petition in any court of competent jurisdiction in the
county in this state where the registered office of the corporation is located
praying that the fair value of such shares be found and determined. If, in the
case of a merger or consolidation, the surviving or new corporation is a foreign
corporation with a registered office in this state, the petition shall be filed
in the county where the registered office of the domestic corporation was last
located. If the corporation fails to institute the proceeding as provided in
this section, any dissenting shareholder may do so in the name of the
corporation. All dissenting shareholders, wherever residing, shall be made
parties to the proceeding as an action against their shares quasi in rem. A copy
of the petition shall be served on each dissenting shareholder who is a resident
of this state and shall be served by registered or certified mail on each
dissenting shareholder who is a nonresident. Service on nonresidents shall also
be made by publication as provided by law. The jurisdiction of the court shall
be plenary and exclusive. All shareholders who are parties to the proceeding
shall be entitled to judgment against the corporation for the amount of the fair
value of their shares. The court may, if it so elects, appoint one or more
persons as appraisers to receive evidence and recommend a decision on the
question of fair value. The appraisers shall have such power and authority as
specified in the order of their appointment or on amendment thereof. The
judgment shall be payable to the holders of uncertified shares immediately, but
to the holders of shares represented by certificates only upon and concurrently
with the surrender to the corporation of certificates. Upon payment of the
judgment, the dissenting shareholder shall cease to have any interest in such
shares.
F. The judgment shall include an allowance for interest at such rate as the
court may find to be fair and equitable, in all the circumstances, from the date
on which the vote was taken on the proposed corporate action to the date of
payment.
G. The costs and expenses of any such proceeding shall be determined by the
court and shall be assessed against the corporation, but all or any part of the
costs and expenses may be apportioned and assessed as the court deems equitable
against any or all of the dissenting shareholders who are parties to the
proceeding to whom the corporation shall have made an offer to pay for the
shares if the court shall find that the action of such shareholders in failing
to accept such offer was arbitrary or vexatious or not in good faith. Such
expenses shall include reasonable compensation for and reasonable expenses of
the appraisers, but exclude the fees and expenses of counsel for and experts
employed by any party; but if the fair value of the shares as determined
materially exceeds the amount which the corporation offered to pay therefor, or
if no offer was made, the court in its discretion may award to any shareholder
who is a party to the proceeding such sum as the court determines to be
reasonable compensation to any expert employed by the shareholder in the
proceeding, together with reasonable fees of legal counsel.
H. Upon receiving a demand for payment from any dissenting shareholder, the
corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty days after demanding payment for his shares, each holder
of shares represented by certificates demanding payment shall submit the
certificates to the corporation for notation thereon that such demand has been
made. His failure to do so shall, at the option of the corporation, terminate
his rights under this section unless a court of competent jurisdiction, for good
and sufficient cause shown, otherwise directs. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made is transferred, any new certificate issued therefor
shall bear similar notation, together with the name of the original dissenting
holder of the shares, and a transferee of the shares acquires 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.
I. Shares acquired by a corporation pursuant to payment of the agreed value
therefor or to payment of the judgment entered therefor, as in this section
provided, may be held and disposed of by the corporation as in the case of other
treasury shares, except that, in the case of a merger or consolidation, they may
be held and disposed of as the plan of merger or consolidation may otherwise
provide. (Last amended by Ch. 304, L. `83, eff.6-17-83.)
<PAGE> 199
================================================================================
APPENDIX III
OPINION OF FINANCIAL ADVISOR
================================================================================
<PAGE> 200
[HOVDE FINANCIAL LETTERHEAD]
July 23, 1999
Board of Directors
Western Bancshares of Albuquerque, Inc.
505 Marquette, N.W.
Albuquerque, NM 87102
Members of the Board:
We have reviewed the Agreement and Plan of Merger dated as of July 23,
1999 (the "Merger Agreement"), as well as documents incorporated by reference
therein, by and between Compass Bancshares, Inc. ("Compass") and Western
Bancshares of Albuquerque, Inc. (the "Company"), pursuant to which, among other
things, a newly formed New Mexico-chartered banking organization, and a
wholly-owned subsidiary of Compass will be merged with and into the Company
("the Merger"). As is set forth in the Merger Agreement, Compass will issue to
the Company's shareholders an aggregate number of shares of common stock of
Compass ("Compass Common Stock") equal to $80,000,000. Notwithstanding the
average closing price, Compass will not issue less than 3,000,000 shares or more
than 3,333,333 shares of Compass Common Stock in exchange for all of the issued
and outstanding shares of the Company's common stock ("Company Common Stock").
Hovde Financial, Inc. ("Hovde") specializes in providing investment
banking and financial advisory services to commercial bank and thrift
institutions. Our principals are experienced in the independent valuation of
securities in connection with negotiated underwritings, subscription and
community offerings, private placements, merger and acquisition transactions and
recapitalizations. Pursuant to a Consulting Agreement dated February 8, 1999,
between the Company and Hovde, Hovde was engaged to assist the Company in
evaluating inquiries regarding a potential sale or merger of the Company with
another financial institution. Therefore, we are familiar with the Company,
having acted as its financial advisor in connection with the proposed merger,
and having participated in the negotiations leading to the Merger Agreement.
During the course of our engagement, we reviewed and analyzed material
bearing upon the financial and operating conditions of the Company and Compass,
and material prepared in connection with the proposed Merger, including the
following: the Merger Agreement; certain publicly available information
concerning the Company and Compass, including consolidated financial statements
for each of the three years ended December 31, 1998, respectively; the results
of operations for the Company and Compass for the quarters ended March 31, 1998
and March 31, 1999; the nature and terms of recent sale and merger transactions
involving banks and bank holding companies that we consider relevant; historical
and current market data for the common stock of Compass; and financial and other
information provided to us by the management of the Company and Compass.
In addition, we have met and/or discussed with members of the senior
management of Compass and the Company for the purpose of reviewing the future
prospects of both companies. We also took into account our assessment of general
economic, market and financial conditions and our experience in other similar
transactions as well as our overall knowledge of the banking industry and our
general experience in securities valuations.
In rendering this opinion, we have assumed, without independent
verification, the accuracy and completeness of the financial and other
information and representations contained in the materials provided to us by the
Company and Compass, and in the discussions with the managements of each of the
foregoing entities.
<PAGE> 201
Based on the foregoing and our experience as investment bankers, we are
of the opinion that, as of the date hereof, the aggregate number of shares of
Compass Common Stock to be received in exchange for all of the Company Common
Stock (the "Exchange Ratio"), as described in the Merger Agreement, is fair to
the Company's shareholders, from a financial point of view.
Sincerely,
/s/ Hovde Financial, Inc.
HOVDE FINANCIAL, INC.
<PAGE> 202
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20:
Section 17 of Article V of Compass' Bylaws provides in part as follows:
Without limitation, the Corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact
that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as
a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding to the full extent permitted by the
General Corporation Law of Delaware, upon such determination having
been made as to his good faith and conduct as is required by said
General Corporation Law. Expenses incurred in defending a civil or
criminal action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding to
the extent, if any, authorized by the Board of Directors in accordance
with the provisions of said General Corporation Law, officer, employee
or agent to repay such amount unless it shall ultimately be determined
that he is entitled to be indemnified by the Corporation.
Under Section 145 of the Delaware General Corporation Law (the "GCL"),
directors, advisory directors and officers of a Delaware corporation are
entitled to indemnification permitted by the statute as provided in such
corporation's certificate of incorporation, by-laws, resolutions and other
proper action.
In addition, Article 8 of Compass' Restated Certificate of
Incorporation, as amended, provides:
No director shall be personally liable to the Corporation or
its stockholders for monetary damages for any breach of fiduciary duty
of such director, except (i) for breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) pursuant to Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from
which the director derived an improper personal benefit. No amendment
to or repeal of this Article 8 shall apply to or have any effect on the
liability or alleged liability of any director of the Corporation for
or with respect to any acts or omissions of such director occurring
prior to such amendment or repeal.
This provision is identical to, and is authorized by, Section 102(b)(7) of the
GCL.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of Compass
pursuant to the foregoing provisions, or otherwise, Compass has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by Compass of expenses incurred or paid by a director, officer or
controlling person of Compass in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, Compass will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
ITEM 21: EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
An index to Exhibits appears at pages II-4 through II-6 hereof.
II-1
<PAGE> 203
ITEM 22: UNDERTAKINGS.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The Registrant undertakes that every prospectus (i) that is filed
pursuant to the immediately preceding paragraph or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE> 204
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Birmingham,
State of Alabama, on November 3, 1999.
COMPASS BANCSHARES, INC.
By: *
-------------------------------------
D. Paul Jones, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* Director, Chairman and Chief November 3, 1999
- --------------------------------
D. Paul Jones, Jr. Executive Officer
* Chief Financial Officer November 3, 1999
- --------------------------------
Garrett R. Hegel (Principal Financial Officer)
* Chief Accounting Officer November 3, 1999
- --------------------------------
Timothy R. Journy
* Director November 3, 1999
- --------------------------------
Charles W. Daniel
* Director November 3, 1999
- --------------------------------
W. Eugene Davenport
* Director November 3, 1999
- --------------------------------
Marshall Durbin, Jr.
* Director November 3, 1999
- --------------------------------
Tranum Fitzpatrick
* Director November 3, 1999
- --------------------------------
Carl J. Gessler, Jr., M.D.
* Director November 3, 1999
- --------------------------------
John S. Stein
* Director November 3, 1999
- --------------------------------
Robert J. Wright
*By: /s/ Daniel B. Graves
---------------------------
Daniel B. Graves,
Attorney-in-fact
</TABLE>
II-3
<PAGE> 205
<TABLE>
<CAPTION>
NDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
-------------- -----------------------
<S> <C> <C>
2 Agreement and Plan of Merger dated as of July 23, 1999 by and between
Compass Bancshares, Inc. and Western Bancshares of Albuquerque, Inc., as
amended, (included as Appendix I to the Proxy Statement/Prospectus in
Part I of this Registration Statement)
*3(a) Restated Certificate of Incorporation of the Registrant dated May 17,
1982 (Filed with the December 31, 1982 Form 10-K of the Registrant and
incorporated herein by reference) (File No. 0-6032)
*3(b) Certificate of Amendment dated May 20, 1986 to Restated Certificate of
Incorporation of the Registrant (filed as Exhibit 4(b) to Registration
Statement on Form S-8, Registration No. 33-39095, and incorporated
herein by reference) (File No. 0-6032)
*3(c) Certificate of Amendment dated May 15, 1987 to Restated Certificate of
Incorporation of the Registrant (filed as Exhibit 3.1.2 to
Post-Effective Amendment No. 1 to Registration Statement on Form S-4,
Registration No. 33-10797 and incorporated herein by reference) (File
No. 0-6032)
*3(d) Certificate of Amendment dated November 8, 1993 to Restated
Certificate of Incorporation of the Registrant (filed as Exhibit 3(d)
to Registration Statement on Form S-4 Registration No. 33-51919 and
incorporated herein by reference) (File No. 0-6032)
*3(e) Certificate of Amendment, dated September 19, 1997, to the Restated
Certificate of Incorporation of the Registrant (filed as Exhibit 3.5
to Registration Statement on Form S-4 Registration No. 33-55899, and
incorporated herein by reference) (File No. 0-6032)
*3(f) Certificate of Amendment, dated June 2, 1998, to Restated Certificate
of Incorporation of the Registrant (filed as Exhibit 4.6 to
Registration Statement on Form S-3 Registration No. 333-60725 and
incorporated herein by reference) (File No. 0-6032)
*3(g) Bylaws of the Registrant (Amended and Restated as of March 15, 1982)
(Filed with the December 31, 1982 10-K of the Registrant and
incorporated herein by reference) (File No. 0-6032)
5 Opinion and consent of Jerry W. Powell, Esquire, as to the legality of
the securities being registered
8 Opinion and consent of Locke Liddell & Sapp LLP, regarding certain tax
matters
*10(a) Compass Bancshares, Inc., 1982 Long Term Incentive Plan (incorporated by
reference to Exhibit 1 to the Company's Registration Statement on
Form S-8 filed July 15, 1983, with the Commission)
II-4
</TABLE>
<PAGE> 206
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
-------------- -----------------------
<S> <C> <C>
*10(b) Compass Bancshares, Inc. 1989 Long Term Incentive Plan (filed as
Exhibit 28 to Registration Statement on Form S-8 Registration (No.
39095 and incorporated herein by reference) (File No. 0-6032)
*10(c) Compass Bancshares, Inc. 1996 Long Term Incentive Plan (filed as
Exhibit 4(g) to Registration Statement on Form S-8 Registration No.
333-15117 filed October 30, 1996, with the Commission and incorporated
herein by reference) (File No. 0-6032)
*10(d) Employment Agreement dated December 14, 1994, between Compass
Bancshares, Inc. and D. Paul Jones, Jr. (filed as Exhibit 10(d) to the
December 31, 1994 Form 10-K of the Registrant and incorporated herein
by reference) (File No. 0-6032)
*10(e) Employment Agreement dated December 14, 1994, between Compass
Bancshares, Inc. and Jerry W. Powell (filed as Exhibit 10(e) to the
December 31, 1994 Form 10-K of the Registrant and incorporated herein
by reference) (File No. 0-6032)
*10(f) Employment Agreement dated December 14, 1994, between Compass
Bancshares, Inc. and Garrett R. Hegel (filed as Exhibit 10(f) to the
December 31, 1994 Form 10-K of the Registrant and incorporated herein
by reference) (File No.0-6032)
*10(g) Employment Agreement dated December 14, 1994, between Compass
Bancshares, Inc. and Byrd Williams (filed as Exhibit 10(g) to the
December 31, 1994 Form 10-K of the Registrant and incorporated herein
by reference) (File No. 0-6032)
*10(h) Employment Agreement dated December 14, 1994, between Compass
Bancshares, Inc. and Charles E. McMahen (filed as Exhibit 10(h) to the
December 31, 1994 Form 10-K of the Registrant and incorporated herein
by reference) (File No. 0-6032)
*10(i) Employment Agreement dated December 14, 1994, between Compass
Bancshares, Inc. and G. Ray Stone (filed as Exhibit 10(i) to the
Registration Statement on Form S-4 Registration No. 333-15373 filed
November 1, 1996 with the Commission and incorporated herein by
reference) (File No. 0-6032)
*10(j) Compass Bancshares, Inc., Employee Stock Ownership Benefit Restoration
Plan, dated as of May 1, 1997 (filed as Exhibit 10(j) to the December 31,
1997 Form 10-K of the Registrant and incorporated herein by
reference)(File No. 0-6032)
*10(k) Compass Bancshares, Inc., Supplemental Retirement Plan, dated
as of May 1, 1997 (filed as Exhibit 10(k) to the December 31, 1997 Form
10-K of the Registrant and incorporated herein by reference) (File No.
0-6032)
II-5
</TABLE>
<PAGE> 207
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS
-------------- -----------------------
<S> <C> <C>
*10(l) Deferred Compensation Plan for Compass Bancshares, Inc., dated as
of February 1, 1996 (filed as Exhibit 10(l) to the December 31,
1997 Form 10-K of the Registrant and incorporated herein by
reference)(File No. 0-6032)
*13(a) The Registrant's Annual Report to Shareholders and Annual Report on
Form 10-K for the fiscal year ended December 31, 1997 (File No. 0-6032)
*13(b) The Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 (File No. 0-6032)
*13(c) The Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998 (File No. 0-6032)
21 List of Subsidiaries of Compass Bancshares, Inc.
23(a) Consent of KPMG Peat Marwick LLP, Independent Certified Public
Accountants--Compass Bancshares, Inc.
23(b) Consent of Arthur Andersen LLP, Independent Certified Public
Accountants--Western Bancshares of Albuquerque, Inc.
23(c) Consent of Locke Liddell & Sapp LLP (included in the opinion in
Exhibit 8(a))
24(a) Power of Attorney
24(b) Compass Board of Directors Resolutions
99(a) Notice of Special Meeting of Shareholders of Western Bancshares
99(b) Form of Proxy for Special Meeting of Shareholders of Western Bancshares
99(c) Chairman's Letter to Western Bancshares Shareholders
</TABLE>
- --------------------------
* Incorporated by reference
II-6
<PAGE> 1
================================================================================
EXHIBIT 5
OPINION AND CONSENT OF
JERRY W. POWELL, ESQUIRE
================================================================================
<PAGE> 2
November 2, 1999
Board of Directors
Compass Bancshares, Inc.
15 South 20th Street
Birmingham, Alabama 35233
Re: Compass Bancshares, Inc. -- Registration of 3,333,333 Shares of
Common Stock, $2.00 Per Share Par Value, on Securities and
Exchange Commission Form S-4
Dear Sirs:
In connection with the registration under the Securities Act of 1933,
as amended, of 3,333,333 shares of common stock, $2.00 per share par value (the
"Company Stock") of Compass Bancshares, Inc., a Delaware corporation (the
"Company"), for issuance and sale in the manner described in the Company's
registration statement on Form S-4 filed with the Securities and Exchange
Commission, to which this opinion is an exhibit (the "Registration Statement"),
I, as General Counsel to the Company, have examined such corporate records,
certificates and other documents as I have considered necessary or appropriate
for the purposes of this opinion.
On the basis of the foregoing, I am of the opinion that the shares of
the Company Stock offered pursuant to the Registration Statement have been duly
and validly authorized and are duly and validly issued, fully paid and
nonassessable.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Yours very truly,
/s/ Jerry W. Powell
Jerry W. Powell
<PAGE> 1
================================================================================
EXHIBIT 8
OPINION AND CONSENT OF
LOCKE LIDDELL & SAPP LLP
REGARDING TAX MATTERS
================================================================================
<PAGE> 2
November 3, 1999
Compass Bancshares, Inc.
15 South 20th Street
Birmingham, Alabama 35233
Gentlemen:
We have acted as counsel to Compass Bancshares, Inc., a Delaware
corporation ("Compass"), in connection with (i) the planned merger (the "Merger
") of Compass Western Acquisitions, Inc., a New Mexico corporation ("Compass
Western") and a wholly-owned first-tier subsidiary of Compass, with and into
Western Bancshares of Albuquerque, Inc., a New Mexico corporation ("Western
Bancshares"), pursuant to an Agreement and Plan of Merger, dated as of July 23,
1999, as amended, by and among Compass, Compass Western and Western Bancshares
(the "Merger Agreement"), pursuant to which the shareholders of Western
Bancshares will receive solely Compass Common Stock in exchange for their
Western Bancshares Common Stock, and (ii) the Registration Statement on Form S-4
of Compass, to which this opinion letter is filed as an exhibit (the
"Registration Statement"). All capitalized terms, unless otherwise specified,
have the meaning assigned to them in the Merger Agreement.
For purposes of the opinion set forth below, we have reviewed and
relied upon (i) the Merger Agreement, (ii) the Proxy Statement/Prospectus
included in the Registration Statement (the "Proxy Statement/Prospectus") and
(iii) such other documents, records and instruments as we have deemed necessary
or appropriate in order to enable us to render our opinion. Our opinion is based
and conditioned upon certain statements and representations that will be made by
Compass, Compass Western, Western Bancshares, certain shareholders of Western
Bancshares and others as appropriate in connection with the Merger, which we
will neither investigate nor verify. We have assumed that all such statements
and representations will be true, correct, complete and not breached, and that
no actions that are or would be inconsistent with such statements and
representations have been or will be taken. We have also assumed that all
representations made "to the knowledge of" any person or entity will be true,
correct and complete as if made without such qualification.
In addition, we have assumed that (i) the Merger will be consummated in
accordance with the Merger Agreement (including satisfaction of all covenants
and conditions to the obligations of the parties without amendment or waiver
thereof), (ii) the Merger will qualify as a
<PAGE> 3
merger under the applicable laws of the State of New Mexico and (iii) the Merger
Agreement and all of the documents and instruments referred to therein are valid
and binding in accordance with their terms. Any inaccuracy in, or breach of, any
of the aforementioned statements, representations and assumptions could
adversely affect our opinion.
Our opinion is based upon existing provisions of the Code, Treasury
Regulations promulgated or proposed thereunder, and interpretations thereof by
the Internal Revenue Service ("IRS") and the courts, all of which are subject to
change with prospective or retroactive effect, and our opinion could be
adversely affected or rendered obsolete by any such change.
Based upon and subject to the foregoing as well as the limitations set
forth below, it is our opinion that the statements contained in numbered
paragraphs 1 through 6 of the section of the Proxy Statement/Prospectus entitled
"The Merger -- Federal Income Tax Consequences", insofar as such statements
constitute legal conclusions or summaries of legal matters, are accurate.
Except as set forth above, we express no opinion as to the tax
consequences to any party, whether federal, state, local or foreign, of the
Merger or of any transactions related to the Merger or contemplated by the
Merger Agreement. Furthermore, our opinion is based on current federal income
tax law and administrative practice, and we do not undertake to advise you as to
any changes after the Effective Time of the Merger in federal income tax law or
administrative practice that may affect our opinion.
This opinion is for use in connection with the Registration Statement.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the captions "The Merger
- -- Federal Income Tax Consequences" and "The Merger -- Other Terms and
Conditions" in the Registration Statement and the Proxy Statement/Prospectus
which is a part thereof. In giving this consent, we do not thereby admit that we
are within the category of persons whose consent is required under Section 7 of
the Securities Act and the rules and regulations thereunder.
Very truly yours,
/s/ Locke Liddell & Sapp LLP
<PAGE> 1
================================================================================
EXHIBIT 21
LIST OF SUBSIDIARIES OF
COMPASS BANCSHARES, INC.
================================================================================
<PAGE> 2
LIST OF SUBSIDIARIES OF
COMPASS BANCSHARES, INC.
Name of Subsidiary Place of Incorporation
- ------------------ ----------------------
Arizona Bank & Trust Arizona
Arizona Financial Products, Inc. Arizona
Arizona Kachina Holdings, Inc. Arizona
Compass Bank Alabama
Compass Bancshares Insurance, Inc. Alabama
Compass Brokerage, Inc. Alabama
Compass Capital Markets, Inc. Alabama
Compass Multistate Services Corporation Alabama
Compass Fiduciary Services, Ltd., Inc. Alabama
Compass Financial Corporation Alabama
Central Bank of the South Alabama
Compass Securities, Inc. Alabama
Central Land Holding Corporation Alabama
Compass Investments, Inc. Alabama
Compass Underwriters, Inc. Alabama
Compass Mortgage Corporation Delaware
Compass Texas Acquisition Corp. Delaware
River Oaks Trust Corporation Texas
River Oaks Bank Building, Inc. Texas
River Oaks Securities, Inc. Texas
P.I. Holdings No. 1, Inc. Texas
P.I. Console, Inc. Texas
P.I. Holdings No. 2, Inc. Texas
Tucson Athletic Club Arizona
<PAGE> 1
================================================================================
EXHIBIT 23(a)
CONSENT OF
KPMG PEAT MARWICK LLP
================================================================================
<PAGE> 2
ACCOUNTANTS' CONSENT
The Board of Directors
Compass Bancshares, Inc.
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Birmingham, Alabama
November 1, 1999
<PAGE> 1
================================================================================
EXHIBIT 23(b)
CONSENT OF
ARTHUR ANDERSEN LLP
================================================================================
<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS
Western Bancshares of Albuquerque, Inc.
As independent public accountants, we hereby consent to the use of our report
dated January 22, 1999 (except with respect to the matters discussed in Note 15,
as to which the date is July 23, 1999) on the consolidated financial statements
of Western Bancshares of Albuquerque, Inc. and subsidiary (and to all references
to our Firm) included in or made a part of the Registration Statement on Form
S-4 filed by Compass Bancshares, Inc.
/s/ Arthur Andersen LLP
Albuquerque, New Mexico
October 25, 1999
<PAGE> 1
================================================================================
EXHIBIT 24(a)
POWER OF ATTORNEY
================================================================================
<PAGE> 2
POWER OF ATTORNEY
WHEREAS, Compass Bancshares, Inc. (the "Company") has agreed to file a
registration statement and amendments thereto under the Securities Act of 1933,
as amended, with respect to the issuance and sale of shares of common stock of
the Company in connection with the acquisition by the Company of Western
Bancshares, Inc., Albuquerque, New Mexico;
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, that the Company and
the undersigned directors and officers of said Company, individually as a
director and/or as an officer of the Company, hereby make, constitute and
appoint each of D. Paul Jones, Jr., Garrett R. Hegel, Jerry W. Powell, and
Daniel B. Graves their true and lawful attorney-in-fact for each of them and in
each of their names, places and steads to sign and cause to be filed with the
Securities and Exchange Commission said registration statement and any
appropriate amendments thereto, to be accompanied by prospectuses and any
appropriately amended prospectuses and any necessary exhibits.
The Company hereby authorizes said persons or any one of them to
execute said registration statement and amendments thereto on its behalf as
attorney-in-fact for it and its authorized officers, and to file the same as
aforesaid.
The undersigned directors and officers of the Company hereby authorize
said persons or any one of them to sign said registration statements on their
behalf as attorney-in-fact and to amend, or remedy any deficiencies with respect
to, said registration statements by appropriate amendment or amendments and to
file the same as aforesaid.
DONE as of this the 18th day of October, 1999.
COMPASS BANCSHARES, INC.
By: /s/ D. Paul Jones, Jr.
-------------------------------------
D. Paul Jones, Jr.
Its Chairman and Chief Executive
Officer
/s/ D. Paul Jones, Jr.
------------------------------------------
D. Paul Jones, Jr.
/s/ Garrett R. Hegel
------------------------------------------
Garrett R. Hegel
/s/ Timothy R. Journy
------------------------------------------
Timothy R. Journy
/s/ Charles W. Daniel
------------------------------------------
Charles W. Daniel
/s/ W. Eugene Davenport
------------------------------------------
W. Eugene Davenport
<PAGE> 3
/s/ Marshall Durbin, Jr.
------------------------------------------
Marshall Durbin, Jr.
/s/ Tranum Fitzpatrick
------------------------------------------
Tranum Fitzpatrick
/s/ Carl J. Gessler, Jr.
------------------------------------------
Carl J. Gessler, Jr.
/s/ John S. Stein
------------------------------------------
John S. Stein
/s/ Robert J. Wright
------------------------------------------
Robert J. Wright
<PAGE> 1
-----------------------------
EXHIBIT 24(b)
COMPASS BOARD OF DIRECTOR
RESOLUTIONS
-----------------------------
<PAGE> 2
CERTIFICATE OF THE SECRETARY REGARDING
RESOLUTIONS OF THE BOARD OF DIRECTORS
OF COMPASS BANCSHARES, INC., RELATING TO
PROPOSED ACQUISITION OF WESTERN BANCSHARES, INC.,
AND ITS SUBSIDIARY, WESTERN BANK,
ALBUQUERQUE, NEW MEXICO
I, the undersigned Secretary of Compass Bancshares, Inc., a Delaware
corporation, and the custodian of the minutes book and other records of the
Board of Directors of said Corporation, do hereby certify that the following
resolutions were adopted by the Board of Directors of said Corporation in a
meeting, duly called and held on April 26, 1999:
RESOLVED, that the Board of Directors of Compass Bancshares,
Inc., a Delaware corporation (the "Corporation"), has determined that
it is desirable and in the best interests of the Corporation and its
stockholders to acquire (the "Western Acquisition") Western Bancshares,
Inc. (the "Company") and its subsidiary, Western Bank (the "Bank"), the
principal offices of which are located in Albuquerque, New Mexico, in
accordance with the basic terms of such transaction as described to
this Board by the Chairman and Chief Executive Officer, the Chief
Financial Officer, and/or the General Counsel and Secretary of the
Corporation at the meeting at which these resolutions were adopted; and
further
RESOLVED, that the proper officers of the Corporation, in
consultation with counsel, are authorized, empowered, and directed to
negotiate the terms and conditions of a definitive agreement and plan
or plans of merger, as well as any amendments or supplements thereto,
among the Corporation, the Company, the Bank, and any subsidiary banks
or subsidiary corporations of the Corporation now in existence or to be
formed for the purposes of effectuating the acquisition by the
Corporation of the Company and the Bank (referred to collectively
herein as the "Agreement"), and to execute, attest, and deliver the
Agreement in such form as they, in their sole discretion, shall
approve, such approval to be conclusively evidenced by their execution,
attestation, and delivery of the Agreement; and further
RESOLVED, that all negotiations and any other actions taken
and things done heretofore by the officers of the Corporation with
respect to the execution, attestation, and delivery of written
agreements in principle or definitive agreements relating to the
acquisition of the Company and the Bank are hereby ratified and
approved; and further
RESOLVED, that the organization of one or more corporations as
a subsidiary or subsidiaries of the Corporation or as a subsidiary or
subsidiaries of an existing affiliate of the Corporation for the
purpose of effectuating the Western Acquisition is hereby authorized,
approved, and ratified in the event that it shall be determined or has
been determined by the officers of the Corporation, after consultation
with counsel, that such organization of a subsidiary is necessary or
appropriate for the effectuation of the acquisition of the Company and
the Bank; and further
RESOLVED, that to the extent that the approval of the
Corporation as the sole stockholder of any of its subsidiaries is
required in connection with the Western Acquisition, the Corporation
hereby waives any and all notice of a meeting or meetings of
stockholders of any such subsidiary or subsidiaries for the purposes of
approving the Western Acquisition or the Agreement, and the Board of
Directors of the Corporation hereby approves, authorizes, and ratifies
the Western Acquisition and the Agreement as the stockholder of its
subsidiaries now existing or to be organized, it being the intent of
the Board of Directors of the Corporation that the approval by the
Corporation set forth in this resolution shall constitute any and all
approval
1
<PAGE> 3
required by law for the approval of the Western Acquisition or the
Agreement by the Corporation as a stockholder; and further
RESOLVED, that the Corporation's and the Corporation's
subsidiaries' officers are authorized, empowered, and directed to
prepare, or cause to be prepared, and to execute, attest, and file all
applications, or requests for waiver of application requirements, which
they shall deem necessary or appropriate with the Board of Governors of
the Federal Reserve System, the Federal Deposit Insurance Corporation,
the Office of Thrift Supervision, the Office of the Comptroller of the
Currency, the Florida Department of Banking and Finance, and any other
appropriate bank and bank holding company regulatory authorities with
respect to the Western Acquisition; and further
RESOLVED, that, in the event that the Agreement shall
contemplate that the Corporation shall issue as consideration in
connection with the Western Acquisition shares of its common stock or
other securities of the Corporation, the proper officers of the
Corporation, in consultation with counsel, are authorized and directed
to prepare, execute, attest, and file a Registration Statement on Form
S-4 or other appropriate form for the registration of securities (the
"Registration Statement") with the United States Securities and
Exchange Commission (the "Commission") relating to the Western
Acquisition and the proposed issuance of securities of the Corporation
as consideration in such transaction; and further
RESOLVED, that the proper officers of the Corporation are
authorized, empowered, and directed for and on behalf of the
Corporation to do any and all acts and things necessary or appropriate
in connection with such filing of the Registration Statement, including
the execution, attestation, and filing of any amendments or supplements
thereto, to effectuate the registration of securities of the
Corporation to be issued in the Western Acquisition and the
continuation of the effectiveness of the Registration Statement; and
further
RESOLVED, that each officer or director who may be required to
execute the Registration Statement or any amendment or supplement to
the Registration Statement (whether on behalf of the Corporation or as
an officer or director thereof) is hereby authorized to constitute and
appoint D. Paul Jones, Jr., Garrett R. Hegel, Jerry W. Powell, and
Daniel B. Graves, and each of them acting singularly, his true and
lawful attorney-in-fact and agent, with full power of substitution for
him and in his name, place, and stead, in any and all capacities, to
sign the Registration Statement and any and all amendments and
supplements thereto; and further
RESOLVED, that the proper officers of the Corporation are
authorized in the name and on behalf of the Corporation to take any and
all action that they deem necessary or appropriate in order to effect
the registration, qualification, or exemption from registration or
qualification of securities of the Corporation included in the
Registration Statement for issue, offer, sale, or trade under the "blue
sky" or securities laws of any of the states of the United States of
America or the securities laws of any jurisdiction or foreign country
where such action may be advisable or necessary, to effect the
registration of securities of the Corporation to issued in connection
with the Western Acquisition, to execute, acknowledge, verify, deliver,
file or cause to be published any application, surety bonds, reports,
irrevocable consents to service of process, appointment of attorneys
for service of process, and any other documents or instruments that may
be required under such laws, and to take any and all further action
that they may deem necessary or advisable in order to maintain any such
registration, qualification, or exemption for so long as they deem
necessary as required by law; and further
RESOLVED, that the Corporation hereby consents to service of
process in any state or jurisdiction in which such consent is required
under the blue sky laws as a precondition to the offer and sale of
securities of the Corporation to be issued in the Western Acquisition,
and that
2
<PAGE> 4
Jerry W. Powell, General Counsel and Secretary of the Corporation, is
hereby designated as agent for service of process in connection with
the Registration Statement and any consent to service of process that
may be required by the blue sky laws of any jurisdiction as a
precondition to the offer and sale of such securities; and further
RESOLVED, that the appropriate officers of the Corporation are
hereby authorized, empowered, and directed to do any and all other or
further acts, and to prepare, or cause to be prepared, and to execute,
attest, and deliver all other or further instruments, certificates,
applications, reports, and documents, including without limitation
obtaining any necessary or appropriate regulatory approvals, all on
behalf of the Corporation as they, in their discretion, may deem
necessary or appropriate to effectuate the purposes of these
resolutions, and that all acts and things undertaken and completed
heretofore by the proper officers of the Corporation in connection with
the Western Acquisition as contemplated by these resolutions are hereby
approved, ratified, and confirmed.
I further certify that the foregoing resolutions have not been
modified, amended, or rescinded and that said resolutions are in full force and
effect as of the date of this certificate.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of the
Corporation this the 26th day of April, 1999
/s/ Jerry W. Powell
-------------------------------------
Jerry W. Powell
Secretary
Compass Bancshares, Inc.
[Corporate Seal]
<PAGE> 1
================================================================================
EXHIBIT 99(a)
NOTICE OF SPECIAL
MEETING OF SHAREHOLDERS
OF WESTERN BANCSHARES
================================================================================
<PAGE> 2
WESTERN BANCSHARES OF ALBUQUERQUE, INC.
505 MARQUETTE N.W.
ALBUQUERQUE, NEW MEXICO 87102
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON _____________, 1999
To the Shareholders of Western Bancshares of Albuquerque, Inc.:
A Special Meeting of the holders of common stock of Western Bancshares of
Albuquerque, Inc., a New Mexico corporation ("Western Bancshares"), will be held
at ______ local time, on ______________ at the corporate offices of Western
Bancshares located at 505 Marquette N.W., Albuquerque, New Mexico 87102. At the
Special Meeting, the holders of Western Bancshares common stock will consider
and vote upon:
1. A proposal to approve and adopt the Agreement and Plan of Merger (the
"Merger Agreement") dated as of July 23, 1999, as amended, by and
among Compass Bancshares, Inc., a Delaware corporation ("Compass"),
Compass Western Acquisitions, Inc., a New Mexico corporation and
wholly owned subsidiary of Compass ("Merger Sub"), and Western
Bancshares, providing for, among other things, the merger ("Merger")
of Merger Sub with and into Western Bancshares and, in connection
therewith, the receipt by the holders of Western Bancshares common
stock of shares of Compass common stock; and
2. Such other business as may properly come before the Special Meeting or
any adjournments thereof.
The Board of Directors of Western Bancshares has fixed the close of
business on __________, 1999 as the record date for determining which
shareholders are entitled to notice of, and to vote at, the Special Meeting or
any adjournments thereof. Complete lists of such shareholders will be available
for examination at the offices of Western Bancshares during normal business
hours by any holder of Western Bancshares common stock, for any purpose relevant
to the Special Meeting, for a period of ten days prior to the Special Meeting.
THE BOARD OF DIRECTORS OF WESTERN BANCSHARES UNANIMOUSLY RECOMMENDS THAT
YOU VOTE "FOR" THE APPROVAL AND ADOPTION OF THE MERGER AND THE RELATED MERGER
AGREEMENT. The affirmative vote of the holders of a majority of the outstanding
shares of Western Bancshares common stock entitled to vote thereon is required
to approve the Merger and the related Merger Agreement. If you fail to vote, the
effect will be a vote against the Merger and the Merger Agreement.
Holders of Western Bancshares common stock, even if they expect to be
present at the Special Meeting, are requested to sign, vote and date the
enclosed proxy and return it promptly in the enclosed envelope. Any shareholder
giving a proxy has the power to revoke it at any time prior to the Special
Meeting. Shareholders who are present at the Special Meeting may withdraw their
proxies and vote in person.
By order of the Board of Directors,
David E. Wintermute
Corporate Secretary
Albuquerque, New Mexico
_______________, 1999
<PAGE> 1
================================================================================
EXHIBIT 99(b)
FORM OF PROXY
================================================================================
<PAGE> 2
PROXY WESTERN BANCSHARES OF ALBUQUERQUE, INC. PROXY
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
________________, 1999
The undersigned hereby appoints William T. Fietz proxy, 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 Western
Bancshares of Albuquerque, Inc., to be held on _________, _________, 1999, at
___________ A.M. local time at the offices of Western Bancshares located at 505
Marquette N.W., Albuquerque, New Mexico, and at all adjournments thereof as
follows:
(1) Approval and adoption of the Agreement and Plan of Merger,
dated as of July 23, 1999, as amended, by and among Compass
Bancshares, Inc., Compass Western Acquisitions, Inc. and
Western Bancshares of Albuquerque, 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 _______
__, 1999 is hereby acknowledged.
THIS PROXY IS SOLICITED BY THE WESTERN BANCSHARES 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 , 1999
----------------------------------
---------------------------------------
Signature
---------------------------------------
Signature, if held jointly, or office
or title held
<PAGE> 3
WESTERN BANCSHARES OF ALBUQUERQUE
505 MARQUETTE, N.W.
ALBUQUERQUE, NEW MEXICO 87102
November 12, 1999
Dear ESOP Participant:
As an employee of Western Bank ("Bank"), I am sure you have heard by
now of a proposed merger (the "Merger") between the Bank's holding company,
Western Bancshares of Albuquerque, Inc. ("Western") and Compass Western
Acquisitions, Inc. ("Compass Bank"). Compass Bank is a wholly-owned subsidiary
of Compass Bancshares, Inc. ("Compass").
Before the Merger can be accomplished, it must be approved by the
shareholders of Western. As a Participant in the Western Bank Employee Stock
Ownership Plan (the "ESOP"), you are entitled to direct the Trustees of the Plan
as to the manner in which the shares of Western Common Stock ("Company Stock")
allocated to your ESOP Company Stock Account are to be voted with respect to the
Merger. You may only direct the Trustee to vote all the Company Stock allocated
to your ESOP Company Stock Account on each issue as a block. The Trustees are
then required to vote the shares of Company Stock which are allocated to your
Company Stock Account in proportion to the results of the votes cast on the
issue by all of the Participants or Beneficiaries, the effect of which is to
vote your allocated ESOP Company Stock as you directed. A copy of the Proxy
Statement/Prospectus setting forth the salient facts concerning the Merger has
been enclosed for your perusal.
The Board of Directors of Western believes that the affiliation of
Western with Compass through the Merger will enable the Bank to serve its
customers and communities better and to compete more effectively with other
financial institutions. For the Merger to become effective, among other
conditions, the holders of at least a majority of the outstanding shares of
Western's common stock must vote in favor of the Merger. THE BOARD OF DIRECTORS
OF WESTERN RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER.
The enclosed Statement will direct the Trustees as to how to vote the
shares allocated to your ESOP Company Stock Account. YOU ARE REQUESTED TO
COMPLETE, DATE AND SIGN THE ENCLOSED STATEMENT AND RETURN IT PRIOR TO THE
MEETING IN THE ENCLOSED ENVELOPE. If you need assistance in completing your
Statement, please call Richard M. Davidson at (505) 888-9119.
IF THE ENCLOSED STATEMENT IS NOT TIMELY RECEIVED IN ORDER TO INSTRUCT THE
TRUSTEES HOW TO VOTE YOUR SHARE, THE TRUSTEES WILL EXERCISE YOUR VOTE IN FAVOR
OF THE MERGER.
Sincerely,
Western Bank,
Plan Administrator
<PAGE> 4
STATEMENT IN CONNECTION WITH
WESTERN BANK
EMPLOYEE STOCK OWNERSHIP PLAN
The undersigned hereby directs William T. Fietz, David E. Wintermute
and Richard M. Davidson, Trustees of the Western Bank Employee Stock Ownership
Plan (the "ESOP"), with or without the other, with full power of substitution,
to vote all shares of Company Stock that the undersigned is allocated within the
Company Stock Account of the ESOP ("Stock") as follows:
Approval, ratification, confirmation and adoption of the Agreement and
Plan of Merger, dated as of July 23, 1999, as amended, by and between
Compass Bancshares, Inc., Compass Western Acquisitions, Inc. and
Western Bancshares of Albuquerque, Inc.
_______ For ______Against
The Stock will be voted as you specify above. If no specification is
made, the Stock will be voted FOR the proposal above.
THIS STATEMENT IS SOLICITED BY WESTERN BANK IN ITS CAPACITY AS PLAN
ADMINISTRATOR FOR THE ESOP.
PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN THIS STATEMENT USING
THE ENCLOSED ENVELOPE. NO POSTAGE REQUIRED IF MAILED IN THE UNITED STATES.
Please sign your name exactly as it appears below.
------------------------------------
(Printed Name)
------------------------------------
(Signature)
<PAGE> 1
================================================================================
EXHIBIT 99(c)
CHAIRMAN'S LETTER
TO WESTERN BANCSHARES
================================================================================
<PAGE> 2
WESTERN BANCSHARES OF ALBUQUERQUE, INC.
SPECIAL MEETING OF SHAREHOLDERS
MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT
The Board of Directors of Western Bancshares of Albuquerque, Inc. ("Western
Bancshares") has approved a merger of Compass Western Acquisitions, Inc., a
wholly owned subsidiary of Compass Bancshares ("Compass"), with and into Western
Bancshares. The Board of Directors of Western Bancshares has determined that the
merger is in the best interests of Western Bancshares and its shareholders and
has adopted a resolution approving the merger and related merger agreement dated
as of July 23, 1999.
If the merger is completed, Compass will issue to Western Bancshares'
shareholders an aggregate number of shares of Compass common stock equal to
$80,000,000 divided by the average closing price of Compass common stock as
reported by the Nasdaq National Market System for the twenty days of trading
before the fifth trading day before the effective time of the merger. No matter
the average closing price, Compass will not issue less than 3,000,000 or more
than 3,333,333 shares of its common stock to Western Bancshares' shareholders.
In addition, if Compass enters into an agreement to be acquired prior to the
effective time of the merger, Compass will issue 3,333,333 shares of its common
stock to Western Bancshares' shareholders. For example, if this average closing
price is $25.00, Western Bancshares' shareholders will receive an aggregate of
3.2 million shares of Compass common stock.
This Proxy Statement/Prospectus provides you with detailed information about the
proposed merger. In addition, you may obtain information about Compass from
documents filed with the Securities and Exchange Commission. We encourage you to
read this entire document carefully before you decide how you wish to vote.
Western Bancshares' Board of Directors has called a special meeting of
shareholders to vote on the proposed merger and the related merger agreement.
The affirmative vote of the holders of a majority of the outstanding shares of
Western Bancshares common stock is required to approve and adopt the merger and
the related merger agreement. Shareholders of Compass are not required to
approve the merger.
The date, time and place of the special meeting are as follows:
_______________, 1999
____ A.M.
505 Marquette N.W.
Albuquerque, New Mexico 87102
Whether or not you plan to attend the special meeting, please complete and mail
the enclosed proxy card. If you sign, date and mail your proxy card without
indicating how you wish to vote, your proxy will be counted as a vote in favor
of the merger and the related merger agreement. If you fail to return your card,
the effect will be a vote against the foregoing matters. YOUR VOTE IS VERY
IMPORTANT.
On behalf of the Board of Directors, I thank you for your support and urge you
to vote "for" approval and adoption of the merger and the related merger
agreement.
Very truly yours,
William T. Fietz
Chairman of the Board
- --------------------------------------------------------------------------------
THE SHARES OF COMPASS COMMON STOCK OFFERED BY THIS PROXY STATEMENT/PROSPECTUS
ARE NOT SAVINGS ACCOUNTS OR BANK DEPOSITS, ARE NOT OBLIGATIONS OF OR GUARANTEED
BY ANY BANKING OR NON-BANKING AFFILIATE OF COMPASS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAVE APPROVED OR DISAPPROVED THE COMPASS COMMON STOCK TO BE ISSUED IN
THE MERGER OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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This Proxy Statement/Prospectus is dated ____________, 1999
and is being first mailed to shareholders on or about ______________, 1999.
