The proxy battle at Compass Bancshares was to move - temporarily, at least - from the newspapers to the courtroom today, with lawyers for both sides facing off before a federal judge.
Judge Sam C. Pointer Jr. of the federal district court of northern Alabama ruled last week that attorneys representing dissident director Harry B. Brock Jr. be allowed to present arguments that Compass had filed "false and misleading" information in recent proxy materials sent to shareholders. These allegations will be disputed by attorneys representing the management of Alabama's fourth largest bank.
"We did this to try to get the election on a level playing field," said Mr. Brock, referring to the bank's annual meeting, now scheduled for April 11. Compass shareholders will vote that day on nominees to fill three seats on the bank's 12-man board.
Mr. Brock, who founded Compass in 1963, has nominated his own slate of directors in opposition to those proposed by management. He has said he plans to put the bank up for sale if he wins control of the board.
Since Mr. Brock launched his proxy challenge on Jan. 27, he and Compass management have each fired off numerous letters and statements to the bank's shareholders. The criticisms and allegations traded back and forth in these letters have generated extensive newspaper coverage within Alabama.
Mr. Brock took the fight to the federal courtroom on March 17 by filing a motion for a preliminary injunction against the bank. The motion asserts that Compass violated various Securities and Exchange Commission rules having to do with notification of shareholders in its solicitation of proxy votes for the April 11 meeting.
Mr. Brock's arguments received support last week from the SEC itself, which forced the bank to send a letter, dated March 20, to 1,400 of its 20,000 shareholders. The clarification letter lets shareholders know that they can change their vote if they've already sent in a proxy card.
The agency criticized Compass management for not informing shareholders in its March 1 proxy statement that Mr. Brock had proposed an alternate slate of directors.
Compass did acknowledge Mr. Brock's nominees in a subsequent March 9 "fight letter" to shareholders.
Sending out the new letter was clearly a setback for Compass. In a March 14 letter to an SEC official, Compass counsel Jerry W. Powell wrote, "Disregarding previously executed proxies will impose a significant burden on Compass" because of the confusion it might cause shareholders.
By asking the court also to compel the bank to submit a new and corrected proxy statement to shareholders, Mr. Brock's lawsuit has the potential to delay the shareholders meeting, which would allow him more time to gather proxy cards.
Compass attorneys attempted unsuccessfully last week to quash Mr. Brock's motion.
Compass spokeswoman Ellen Laden said the bank was "still proceeding" with plans for the April 11 meeting. She said the company was "very pleased" that Judge Pointer had agreed to hear the case "sooner rather than later."
To prepare for the March 28 hearing, Judge Pointer allowed attorneys from both sides to conduct expedited discovery to gather documents and take depositions from the principal antagonists: Mr. Brock and Compass chairman and CEO D. Paul Jones Jr.
A revelation that emerged from Friday's depositions is that Mr. Brock surreptitiously taped his telephone conversations with reporters, analysts, investors, and Compass employees. Mr. Brock turned over to Compass attorneys some 30 tapes he had made of these conversations.
One issue likely to be contested in today's hearing is whether Compass received a true buyout offer from First Union Corp. last fall. Charlotte- based First Union, at Mr. Brock's solicitation, offered to buy Compass, which has $9.1 billion of assets, for $30.71 a share, or $1.14 billion.
Mr. Brock has argued that Compass' directors had an obligation to examine the First Union offer seriously, rather than summarily rejecting it as they did. Compass management has said "the board never had an offer to accept or reject."