<PAGE>
As filed with the Securities and Exchange Commission on , 1994.
Registration No. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------------
FIRST SECURITY CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 6711 87-6118148
(State or other juris- (Primary Standard Industrial (I.R.S. Employer
diction of incorporation Classification Code Number) Identification No.)
or organization)
79 SOUTH MAIN STREET
SALT LAKE CITY, UTAH 84111
(801) 246-5706
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
----------------------
SCOTT C. ULBRICH
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
FIRST SECURITY CORPORATION
79 SOUTH MAIN STREET
SALT LAKE CITY, UTAH 84111
(801) 246-5706
(Name, address, including zip code, and
telephone number, including area code, of agent for service)
----------------------
Copies To:
A. ROBERT THORUP, ESQ. GUY P. KROESCHE, ESQ.
RAY, QUINNEY & NEBEKER VAN COTT BAGLEY CORNWALL & MCCARTHY
79 SOUTH MAIN STREET 50 SOUTH MAIN STREET
SALT LAKE CITY, UTAH 84111 SALT LAKE CITY, UTAH 84144
(801) 532-1500 (801) 532-3333
----------------------
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after 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 BE PROPOSED PROPOSED AMOUNT OF
OF SECURITIES TO BE REGISTERED OFFERING AGGREGATE REGISTRATION
REGISTERED PRICE PER OFFERING FEE
SHARE PRICE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 842,118(1) shares $28.125(2) $23,684,568.75(2) $8,167.15
($1.25 par value)
- --------------------------------------------------------------------------------
Common Stock
Rights (3) 842,118 rights None None None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<FN>
(1) Represents the maximum number of shares of the Registrant's Common Stock to
be issued in connection with the Merger described herein, based on the
Conversion Ratio.
(2) Estimated pursuant to Rule 457(f)(2) solely for the purpose of calculating
the registration fee based on the market value of the securities to be
received by Registrant as determined on January 27, 1994.
(3) One Right to purchase Junior Series B Preferred Stock of FSC is associated
with each share of Common Stock. The Rights are not transferable
separately from the Common Stock except in limited circumstances.
</TABLE>
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.
This Registration Statement consists of __________ consecutively numbered pages.
The Exhibit Index is on consecutively numbered page __________.
<PAGE>
FIRST SECURITY CORPORATION
CROSS-REFERENCE SHEET
FOR
REGISTRATION STATEMENT ON FORM S-4 AND PROSPECTUS/PROXY STATEMENT
<TABLE>
<S> <C>
1. Forepart of Registration Statement Facing Page and pages RS-2 and RS-3 of
and Outside Front Cover Page of Registration Statement; Outside Front
Prospectus Cover Page of Prospectus/Proxy
Statement
2. Inside Front and Outside Back Cover Available Information; Information
Pages of Prospectus About FSC -- Incorporation of Certain
Documents by Reference; Table of
Contents
3. Risk Factors, Ratio of Earnings to Summary of Prospectus/Proxy Statement;
Fixed Charges and Other Information GLOSSARY; Outside Front Cover Page of
Prospectus/Proxy Statement; Selected
Comparative Financial Data; The
Merger; Information About FSC; Federal
Income Tax Consequences; Information
About COMMUNITY.
4. Terms of the Transaction The Merger; Appendix A
5. PRO FORMA Financial Information Selected Historical, PRO FORMA and
Equivalent PRO FORMA per Share Data;
Selected Comparative Financial Data
6. Material Contacts with the Company The Merger -- Background of and
Being Acquired Reasons for the Merger; The Merger --
Interests of Certain Persons in the
Merger
7. Additional Information Required for Not Applicable
Reoffering by Persons and Parties
Deemed to be Underwriters
8. Interests of Named Experts and Legal Matters
Counsel
9. Disclosure of Commission Position Comparative Rights of Shareholders --
on Indemnification for Securities Directors
Act Liabilities
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10. Information with Respect to S-3 Selected Comparative Financial Data;
Registrants Information About FSC
11. Incorporation of Certain Information About FCS
Information by Reference
12. Information with Respect to S-2 or Not Applicable
S-3 Registrants
13. Incorporation of Certain Not Applicable
Information by Reference
14. Information with Respect to Not Applicable
Registrants Other than S-2 or S-3
Registrants
15. Information with Respect to S-3 Not Applicable
Companies
16. Information with Respect to S-2 or Not Applicable
S-3 Companies
17. Information with Respect to Information about COMMUNITY;
Companies Other than S-2 or S-3 Information about FSB UTAH; Selected
Companies Historical, PRO FORMA and Equivalent
PRO FORMA per Share Data; Selected
Comparative Financial Data
18. Information if Proxies, Consents or Summary of Prospectus/Proxy Statement;
Authorizations are to be The Special Meetings; The Merger;
Solicited of Dissenting Shareholders;
Information about FSC; Information
About COMMUNITY; Information about FSB
UTAH; The Merger -- Interests of
Certain Persons in the Merger
19. Information if Proxies, Consents Not Applicable
or Authorizations Are Not To Be
Solicited in an Exchange Offer
</TABLE>
<PAGE>
PROSPECTUS/PROXY STATEMENT
FIRST SECURITY CORPORATION
FIRST SECURITY BANK OF UTAH COMMUNITY FIRST BANK
- --------------------------------------------------------------------------------
This Prospectus/Proxy Statement is furnished by the Directors of Community
First Bank ("COMMUNITY") and by the Directors of First Security Corporation
("FSC") in connection with the votes sought from the respective shareholders on
the proposed merger of COMMUNITY with and into First Security Bank of Utah ("FSB
UTAH") ("the Merger"), pursuant to an Agreement of Merger dated as of October
22, 1993, at Special Meetings of FSB UTAH's and of COMMUNITY's shareholders to
be held on , 1994, and at any adjournments thereof (the "Special
Meetings"). Upon consummation of the Merger, each outstanding share of
COMMUNITY common stock, $10.00 par value per share ("COMMUNITY Common Stock"),
will be converted into 21.859 shares of FSC Common Stock, $1.25 par value per
share ("FSC Common Stock"), as described in this Prospectus/Proxy Statement.
Shareholders will receive cash in lieu of any fractional shares of FSC Common
Stock otherwise receivable in the Merger. At present, COMMUNITY's Directors
know of no other matters to be presented at the COMMUNITY Special Meeting, and
there will be no other business at FSB UTAH's Special Meeting.
This Prospectus/Proxy Statement also constitutes FSC's Prospectus, filed
with the Securities and Exchange Commission as part of a Registration Statement
on Form S-4 under the Securities Act of 1933, as amended ("Registration
Statement"), with respect to up to 842,118 shares of FSC Common Stock to be
issued in connection with the Merger. COMMUNITY has supplied all the
information contained herein with respect to itself, and FSC has supplied all
the information contained herein with respect to itself and FSB UTAH.
FSC's principal executive offices are located at 79 South Main Street, Salt
Lake City, Utah 84111. FSC's information telephone number with respect to this
transaction is (801) 246-5706.
The principal executive offices of COMMUNITY are located at 180 South State
Street, Clearfield, Utah 84015. Its telephone number is (801) 773-8600.
This Prospectus/Proxy Statement is first being mailed to Shareholders on or
about , 1994.
This Prospectus/Proxy Statement does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby within any
jurisdiction or to any person to whom it is unlawful to make such offer or
solicitation within such jurisdiction.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION AND THE COMMISSION HAS NOT
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
The date of this Prospectus/Proxy Statement is , 1994
<PAGE>
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
GLOSSARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SUMMARY OF PROSPECTUS/PROXY STATEMENT . . . . . . . . . . . . . . . . . . . . 6
THE SPECIAL MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Shares Entitled to Vote; Shareholder Approval . . . . . . . . . . . . . .14
Voting; Solicitation and Revocation of Proxies. . . . . . . . . . . . . .15
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
Background of and Reasons for the Merger. . . . . . . . . . . . . . . . .16
Conversion Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Stock Certificate Exchange. . . . . . . . . . . . . . . . . . . . . . . .19
Interests of Certain Persons in the Merger. . . . . . . . . . . . . . . .21
Conditions to the Merger. . . . . . . . . . . . . . . . . . . . . . . . .22
Regulatory Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . .23
Effective Time and Consummation of the Merger . . . . . . . . . . . . . .24
Conduct of Business Pending the Merger. . . . . . . . . . . . . . . . . .24
No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
Waiver and Amendment; Termination . . . . . . . . . . . . . . . . . . . .26
Resales of FSC Common Stock Received in the Merger. . . . . . . . . . . .26
NASDAQ/NMS Listing. . . . . . . . . . . . . . . . . . . . . . . . . . . .27
Anticipated Accounting Treatment. . . . . . . . . . . . . . . . . . . . .27
Operations of COMMUNITY After the Merger. . . . . . . . . . . . . . . . .28
Effect of the Merger on COMMUNITY's Employee Benefit Plans. . . . . . . .28
Certain Federal Income Tax Considerations . . . . . . . . . . . . . . . .28
Rights of Dissenting COMMUNITY Shareholders . . . . . . . . . . . . . . .30
SELECTED COMPARATIVE AND PRO FORMA FINANCIAL DATA. . . . . . . . . . . . . . .33
--- -----
SELECTED COMPARATIVE HISTORICAL, PRO FORMA AND
--- -----
EQUIVALENT PRO FORMA PER SHARE DATA. . . . . . . . . . . . . . . . . . . . .42
--- -----
COMPARATIVE AND PRO FORMA CAPITALIZATION . . . . . . . . . . . . . . . . . . .43
--- -----
INFORMATION ABOUT FSC. . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Recent Operating Results. . . . . . . . . . . . . . . . . . . . . . . . .44
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
Supervision and Regulation. . . . . . . . . . . . . . . . . . . . . . . .49
Description of FSC's Capital Stock. . . . . . . . . . . . . . . . . . . .58
Historical Prices and Dividends; Stock Ownership. . . . . . . . . . . . .60
(i)
<PAGE>
INFORMATION ABOUT COMMUNITY. . . . . . . . . . . . . . . . . . . . . . . . . .63
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
The Market for COMMUNITY Common Stock . . . . . . . . . . . . . . . . . .63
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64
Regulation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Directors and Executive Officers. . . . . . . . . . . . . . . . . . . . .66
Board of Directors, Committees and Meetings . . . . . . . . . . . . . . .67
Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . .68
Transactions with Management. . . . . . . . . . . . . . . . . . . . . . .68
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . .69
COMMUNITY'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE FIRST NINE MONTHS OF 1993. . . . . . . . . . . . . . . . . . . . . .69
COMMUNITY'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE TWO YEARS ENDED DECEMBER 31, 1992. . . . . . . . . . . . . . . . . .69
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70
Reserve for Loan Losses . . . . . . . . . . . . . . . . . . . . . . . . .70
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
Asset and Liability Management. . . . . . . . . . . . . . . . . . . . . .72
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . .74
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75
Nonperforming Assets. . . . . . . . . . . . . . . . . . . . . . . . . . .76
Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . .77
Net Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . .77
Non-Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . .79
Non-Interest Expense. . . . . . . . . . . . . . . . . . . . . . . . . . .79
Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80
Return on Equity and Assets . . . . . . . . . . . . . . . . . . . . . . .80
Impact of Inflation and Changing Prices . . . . . . . . . . . . . . . . .80
Accounting Rule Change. . . . . . . . . . . . . . . . . . . . . . . . . .81
PRINCIPAL SHAREHOLDERS OF COMMUNITY. . . . . . . . . . . . . . . . . . . . . .81
INFORMATION ABOUT FSB UTAH . . . . . . . . . . . . . . . . . . . . . . . . . .83
APPENDIX A -- AGREEMENT OF MERGER
APPENDIX B -- COMMUNITY'S FINANCIAL STATEMENTS
APPENDIX C -- STATUTES GOVERNING RIGHTS OF DISSENTING COMMUNITY SHAREHOLDERS
(ii)
<PAGE>
-2-
AVAILABLE INFORMATION
FSC is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and in accordance
therewith files periodic reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Copies of such
reports, proxy statements and other information can be obtained, upon payment of
prescribed fees, at the Public Reference Room of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. Such reports, proxy statements and other
information can also be inspected at the Commission's facilities referred to
above and at the Commission's Regional Offices at Suite 1400, 500 West Madison
Street, Chicago, Illinois 60621-2511, and Room 1228, 75 Park Place, New York,
New York 10007. In addition, the FSC Common Stock is included for quotation on
the National Association of Securities Dealers Automated Quotation/National
Market System ("NASDAQ/NMS"), and such reports, proxy statements and other
information concerning FSC should be available for inspection and copying at the
offices of the National Association of Securities Dealers, Inc., 1735 K Street,
N.W., Washington, D.C. 20006.
FSC has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended ("Securities Act"), with respect to the FSC
Common Stock offered hereby. This Prospectus / Proxy Statement does not contain
all the information set forth in the Registration Statement and the exhibits
thereto, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission. For further information, reference is made
to the Registration Statement, including the exhibits thereto.
Statements contained in this Prospectus / Proxy Statement or in any
documents incorporated in this Prospectus / Proxy Statement by reference as to
the contents of any contract or other document referred to herein or therein are
not necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement or such other document, each such statement being qualified in all
respects by such reference. The Registration Statement may be inspected by
anyone without charge at the principal office of the Commission in Washington,
D.C., and copies of all or any part of it may be obtained from the Commission
upon payment of the prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
There are incorporated herein by reference the following documents
filed with the Commission by FSC (File No. 1-6906):
(a) FSC's Annual Report on Form 10-K for the year ended December 31,
1992; and
(b) FSC's Proxy Statement dated March 15, 1993; and
(c) FSC's Quarterly Reports on Form 10-Q for the calendar quarters
ended March 31, 1993, June 30, 1993 and September 30, 1993; and
<PAGE>
-3-
(d) FSC's Current Reports on Form 8-K dated November 19, 1993 and
January 24, 1994; and
(e) Description of FSC Common Stock as included in FSC's Registration
Statement on Form S-3, filed with the Commission on September 13,
1991, Commission File Number 33-42784.
All documents filed by FSC, respectively, with the Commission pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
of this Prospectus / Proxy Statement and prior to the date of the Special
Meetings are incorporated herein by reference, and such documents shall be
deemed to be a part hereof from the date of filing of such documents. Any
statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus / Proxy Statement to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus / Proxy
Statement.
THIS PROSPECTUS / PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS,
OTHER THAN EXHIBITS TO SUCH DOCUMENTS, ARE AVAILABLE WITHOUT CHARGE TO ANY
PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROSPECTUS / PROXY
STATEMENT IS DELIVERED UPON WRITTEN OR ORAL REQUEST DIRECTED, IN THE CASE OF
DOCUMENTS RELATING TO FSC, TO FIRST SECURITY CORPORATION, ATTENTION: SCOTT C.
ULBRICH, EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, SUITE 200,
79 SOUTH MAIN STREET, SALT LAKE CITY, UTAH 84111; TELEPHONE NUMBER
(801) 246-5706. IN ORDER TO ASSURE TIMELY DELIVERY OF SUCH DOCUMENTS PRIOR TO
THE SPECIAL MEETINGS, ANY REQUEST SHOULD BE RECEIVED BY , 1994. COPIES
OF SUCH DOCUMENTS WILL ALSO BE AVAILABLE UPON REQUEST THEREAFTER UNTIL THE
EFFECTIVE TIME (AS DEFINED HEREINAFTER).
No agent or officer of FSC or COMMUNITY, nor any other person, has
been authorized to give any information or to make any representations other
than as contained herein; and, if given or made, such information or
representations should not be relied upon as having been authorized by FSC or
COMMUNITY. Neither the delivery of this Prospectus / Proxy Statement nor any
sale or exchange made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs or operations of FSC or
COMMUNITY since the date of this Prospectus / Proxy Statement, or that the
information herein is correct as of any time subsequent to such date.
<PAGE>
-4-
GLOSSARY
As used in this Prospectus/Proxy Statement, the following are the
meanings for the terms set forth below:
<TABLE>
<CAPTION>
<S> <C>
"BHC ACT" means the Bank Holding Company Act of 1956, as amended.
"BOARD OF GOVERNORS" means Board of Governors of the Federal Reserve System.
"CLOSING" means the closing of the transactions contemplated by
the Merger Agreement.
"CLOSING DATE" means the date upon which Closing occurs.
"CODE" means the Internal Revenue Code of 1986, as amended,
and the rules and regulations thereunder.
"COMMISSION" means Securities & Exchange Commission.
"COMMISSIONER" means the Commissioner of the Department of Financial
Institutions of the State of Utah.
"COMMUNITY" means Community First Bank.
"COMMUNITY COMMON STOCK" means shares of common stock, $10.00 par value per
share, of COMMUNITY.
"COMMUNITY means a holder of record of one ore more shares of
SHAREHOLDER(S)" COMMUNITY Common Stock as of the Record Date,
"CONVERSION RATIO" means the ratio of shares of FSC Common Stock to be
given for each share of COMMUNITY Common Stock as
described in this Prospectus/Proxy Statement. (See
"THE MERGER-Consideration to be Received by
Shareholders.")
"DELAWARE STATUTE" means the Delaware General Corporation Law.
"EFFECTIVE TIME" means the date specified by the Comptroller as the date
as of which the Merger has become effective.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"EXCHANGE AGENT" means First Security Bank of Utah, N.A. or such other
national bank designated by FSC to perform the duties
of exchange agent provided for in the Merger Agreement.
"FDIC" means the Federal Deposit Insurance Corporation.
"FEDERAL RESERVE BOARD" means the Board of Governors of the Federal Reserve
System.
</TABLE>
<PAGE>
-5-
<TABLE>
<CAPTION>
<S> <C>
"FSB UTAH" means First Security Bank of Utah, N.A..
"FSB UTAH COMMON STOCK" means shares of the common stock of FSB Utah, par value
$25.00 per share. FSC currently owns 99.9% of the
issued and outstanding FSB common stock.
"FSB UTAH SHAREHOLDERS" means holders of one or more shares of the common stock
of FSB Utah.
"FSC" means First Security Corporation.
"FSC COMMON STOCK" means shares of common stock, $1.25 par value per
share, of FSC.
"GAAP" means generally accepted accounting principles in the
United States.
"IRS" means Internal Revenue Service.
"MERGER" means the merger of COMMUNITY with and into FSB UTAH
pursuant to the Merger Agreement.
"MERGER AGREEMENT" means the Agreement of Merger dated as of October 22,
1993, by and among FSC, COMMUNITY and FSB UTAH.
"NASDAQ NATIONAL MARKET means the National Market System of the National
SYSTEM" Association of Securities Dealers Automatic Quotation
System.
"RECORD DATE" means the close of business on , 1994.
"REGISTRATION STATEMENT" means the registration statement of FSC on Form S-4
filed with the Securities and Exchange Commission under
the Securities Act with respect to the FSC Common Stock
issuable in connection with the Merger.
"RETIREMENT PLAN" means COMMUNITY's Retirement Plan.
"RIGHT" means the right to acquire a new class of stock of FSC
under certain circumstances involving the acquisition
of certain amounts of FSC shares by a third party. (See
INFORMATION ABOUT FSC--Description to FSC's Capital
Stock")
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"SPECIAL MEETINGS" means the special meetings of COMMUNITY Shareholders
and FSB Utah Shareholders that will be held to consider
and vote upon the Merger Agreement.
"UCA" means the Utah Code, Annotated.
"UTAH BANK ACT" means Chapters 1 and 3 of the Utah Code Annotated
(1953), as amended.
</TABLE>
<PAGE>
-6-
SUMMARY OF PROSPECTUS / PROXY STATEMENT
The following is a summary of certain information contained in this
Prospectus / Proxy Statement or in documents incorporated herein by reference.
This summary is qualified in its entirety by the more detailed information
appearing elsewhere in this Prospectus / Proxy Statement, the Appendices hereto,
and the documents incorporated herein by reference. Shareholders are urged to
read carefully this Prospectus / Proxy Statement and the attached Appendices in
their entirety.
SPECIAL MEETINGS OF SHAREHOLDERS
Special Meetings of the shareholders of COMMUNITY and of FSB UTAH will
be held at 180 South State Street, Clearfield, Utah 84015, for COMMUNITY
Shareholders; and in the Board Room on the 2nd Floor, 79 South Main Street, Salt
Lake City, Utah for FSB UTAH Shareholders, on at local
time. At the Special Meetings, the two groups of shareholders will consider and
vote upon a proposal to approve and adopt the Merger Agreement and the
transactions contemplated thereby and such other matters as may properly be
brought before the meetings. SEE "THE SPECIAL MEETINGS -- General."
RECORD DATE
Only shareholders of record at the close of business on the Record
Date are entitled to notice of, and to vote at, the Special Meetings. SEE "THE
SPECIAL MEETINGS -- Shares Entitled to Vote; COMMUNITY Shareholder Approval."
VOTE REQUIRED
COMMUNITY AND FSB UTAH
The affirmative vote of the holders of two-thirds (2/3) of the
outstanding shares of COMMUNITY Common Stock entitled to vote thereon is
required to approve and adopt the Merger Agreement. A similar vote is required
by FSB UTAH Shareholders. As of the Record Date, the Directors and Executive
Officers of COMMUNITY and their affiliates beneficially owned approximately 60%
of the outstanding shares of COMMUNITY Common Stock. (SEE "INFORMATION ABOUT
COMMUNITY--Stock Ownership By Management.") Certain of COMMUNITY's Directors,
Executive Officers and their affiliates, together with certain other
shareholders, who together hold in the aggregate approximately 60% of the
outstanding shares of COMMUNITY Common Stock have agreed to vote their shares in
favor of the Merger Agreement thus assuring its approval by the Community
Shareholders. FSC owns approximately 99% of the outstanding shares of FSB UTAH
Common Stock, and will vote those shares in favor of the Merger Agreement, thus
assuring its approval by FSB UTAH Shareholders.
<PAGE>
-7-
FSC
The vote of FSC's shareholders is not required to approve the Merger.
THE PARTIES
FIRST SECURITY CORPORATION
FSC is an interstate multi-bank holding company incorporated in
Delaware. At September 30, 1993, FSC had consolidated assets of $8.46 billion
and total shareholders' equity of $710.69 million. The principal assets of FSC
are First Security Bank of Utah, N.A., First Security Bank of Idaho, N.A., and
First National Bank of Albuquerque, N.A., all of which provide a broad range of
banking, fiduciary, financial and other services. FSC also owns First Security
Bank of Wyoming, First Security Bank of Oregon and First Security Bank of
Nevada. Along with these banking organizations, FSC also owns the stock of
various nonbank companies engaged in businesses related to banking and finance,
including securities brokerage, equipment leasing and investment management
subsidiaries. (SEE "INFORMATION ABOUT FSC")
FSC's principal executive offices are located at 79 South Main St.,
Salt Lake City, Utah 84111, and its telephone number is (801) 246-6000.
COMMUNITY FIRST BANK
COMMUNITY is a state chartered bank insured by the FDIC and is not a
member of the Federal Reserve System. It operates five (5) banking offices,
located in and around Davis County, Utah. At September 30, 1993, COMMUNITY had
assets of approximately $77 million and shareholders' equity of approximately
$12.6 million. The principal business of COMMUNITY is to obtain deposits from
the general public and to combine such deposits with other available sources of
funding to make residential and commercial real estate loans; secured and
unsecured commercial, corporate, and business loans; and installment consumer
loans. (SEE "INFORMATION ABOUT COMMUNITY.") COMMUNITY's executive offices are
located at 180 South State Street, Clearfield, Utah 84015, and its telephone
number is (801) 773-8600.
FIRST SECURITY BANK OF UTAH, N.A.
FSB-UTAH, a 99.9% owned subsidiary of FSC, is a national bank insured
by the FDIC and is a member of the Federal Reserve System. It is the largest
bank in Utah with banking offices located throughout the State of Utah.
<PAGE>
-8-
MARKET PRICE DATA AND DIVIDENDS
FSC
The following table sets forth, for the periods indicated, the high
and low closing bid prices per share of the FSC Common Stock as reported on the
NASDAQ/NMS. FSC Common Stock is publicly traded and trades are reported through
the NASDAQ / NMS. The information presented below with respect to FSC Common
Stock NASDAQ/NMS quotations was obtained from the National Association of
Securities Dealers, Inc. and reflects interdealer prices, without retail markup,
markdown or commissions and may not represent actual transactions. All per
share bid prices for the FSC Common Stock are adjusted for the 3-for-2 stock
splits distributed in 1991 and 1992.
<TABLE>
<CAPTION>
FSC
Common Stock (Closing Bid)
--------------------------
High Low
---- ---
<S> <C> <C>
1991 First Quarter $ 13.00 $ 10.00
Second Quarter 16.50 12.45
Third Quarter 17.33 13.67
Fourth Quarter 19.00 16.17
1992 First Quarter 23.33 18.17
Second Quarter 25.25 20.17
Third Quarter 26.25 21.50
Fourth Quarter 27.50 22.00
1993 First Quarter 30.25 25.50
Second Quarter 30.00 25.50
Third Quarter 28.50 26.50
Fourth Quarter 30.00 24.00
</TABLE>
On November 2, 1993, the last trading day before the announcement of
the execution of the Merger Agreement, the last sale price of the FSC Common
Stock as reported on the NASDAQ / NMS was $27.25 per share. On January ,
1994, the closing bid price of FSC Common Stock as reported on the NASDAQ / NMS
was $ per share. FSC has paid cash dividends on its common and preferred
stock without reduction in amount for over 58 consecutive years. Since 1983,
these dividends have been paid quarterly. Currently, FSC pays a quarterly
dividend of $0.26 on shares of FSC Common Stock. Dividends on FSC's $3.15
Cumulative Preferred Stock are paid semi-annually and are current.
COMMUNITY Shareholders are advised to obtain current market quotations
for the FSC Common Stock. No assurance can be given concerning the market price
of the FSC Common Stock before or after the date on which the Merger is
consummated. The market price of the FSC Common Stock will fluctuate between
the date of this Prospectus / Proxy Statement and the date on which the Merger
is consummated and thereafter. Because the Conversion Ratio is fixed and
because the market price of the FSC Common Stock is subject
<PAGE>
-9-
to fluctuation, the value of the shares of FSC Common Stock that Shareholders
will receive in the Merger may increase or decrease prior to and following the
Merger.
On the Record Date, there were approximately _________ shares of FSC Common
Stock issued and outstanding held by ________ holders of record; and on the same
day there were 38,525 shares of COMMUNITY Common Stock issued and outstanding
held by eighty-six (86) shareholders of record.
COMMUNITY
There is no established trading market for COMMUNITY Common Stock, and
accordingly there is no published information with respect to market prices.
Information concerning recent transactions in COMMUNITY Common Stock was
gathered from COMMUNITY's stock records by COMMUNITY management. There can be
no assurance that there were no other trades or transfers during the period from
1991 through 1993 that were not known to COMMUNITY management. To COMMUNITY
management's knowledge, there have been only two sales of COMMUNITY Common
Stock: one in 1989 for 25 shares and another in 1990 for 400 shares. In each
sale transaction, COMMUNITY management understands that the purchase price per
share was between $90.00 and $100.00. Otherwise, transfers of COMMUNITY Common
Stock were without consideration and effected for estate planning and other
similar purposes. These transfers can be summarized, in the aggregate, as
follows:
<TABLE>
<CAPTION>
No. of Shares Year of Transfer
------------- ----------------
<S> <C>
4,960 1989
7,246 1990
6,492 1991
8,180 1992
2,415 1993
</TABLE>
COMMUNITY has paid annual dividends on its common shares every year
since approximately 1935. In 1992, COMMUNITY paid dividends equal to $8.00 per
share. In 1993, COMMUNITY paid dividends equal to $9.00 per share. COMMUNITY
is restricted by the Merger Agreement against the payment of any dividends in
1994 pending closing of the Merger. However, COMMUNITY is allowed to pay up to
$2.50 per share per quarter in the event that the Merger has not closed in time
for COMMUNITY Shareholders to receive dividends on their FSC Common Stock to be
received in the Merger for that quarter. In the event that the Merger has not
closed on or before October 22, 1994, the COMMUNITY Board of Directors may
terminate the Merger Agreement, and thereafter will not be restricted against
the payment of any further dividends in 1994 or thereafter.
(SEE "SELECTED COMPARATIVE HISTORICAL, PRO FORMA, AND EQUIVALENT PRO FORMA
PER SHARE DATA" and "THE MERGER--Conversion Ratio")
<PAGE>
-10-
EFFECT OF THE MERGER; EFFECTIVE TIME; TERMS OF THE MERGER
Pursuant to the Merger Agreement, COMMUNITY will be merged with and
into FSB UTAH which will be the surviving corporation in the Merger. COMMUNITY
Shareholders will become shareholders of FSC. SEE "THE MERGER."
The Effective Time of the Merger will occur when the Comptroller
declares the Merger effective, or at such other time as the parties may agree.
However, in the event that the Merger shall not have occurred on or before
October 22, 1994, the respective Boards of Directors of COMMUNITY, FSB UTAH or
FSC may terminate the Merger Agreement. SEE "THE MERGER -- Effective Time and
Consummation of the Merger."
Upon consummation of the Merger, each issued and outstanding share of
COMMUNITY Common Stock (other than shares held, directly or indirectly by FSC or
COMMUNITY (other than shares held in a fiduciary capacity or in respect of a
debt previously contracted) and shares held by any shareholder properly
exercising dissenters' rights) will, without any action on the part of the
holder thereof, be canceled and converted into the right to receive 21.859
SHARES of FSC Common Stock. However, in the event that, as specified in the
Merger Agreement, there shall have been a significant decline in the price of
the FSC Common Stock, then COMMUNITY shall have the right to terminate this
Agreement without any further obligation or liability to FSC or FSB UTAH. SEE
"THE MERGER -- Conversion Ratio."
Each share of FSC Common Stock will have an attached Right, which
Right is part of a shareholder-rights plan adopted by FSC in 1989. The Rights
give holders the opportunity to purchase additional equity interests in FSC at a
significant discount under certain circumstances. (SEE "INFORMATION ABOUT FSC -
- - Description of FSC's Capital Stock")
(SEE "THE MERGER--Conversion Ratio," "INFORMATION ABOUT FSC --
Description of FSC's Capital Stock -- Common Stock," and "COMPARATIVE RIGHTS OF
SHAREHOLDERS -- Authorized Capital Stock.")
RECOMMENDATION OF THE COMMUNITY BOARD; REASONS FOR THE MERGER
THE COMMUNITY BOARD BELIEVES THAT THE TERMS OF THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO AND IN THE BEST INTERESTS
OF THE COMMUNITY SHAREHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT THE COMMUNITY
SHAREHOLDERS VOTE TO APPROVE THE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
In reaching its determination to enter into the Merger Agreement with
FSC, the COMMUNITY Board considered a number of factors, including, without
limitation, the following: the consideration to be received by the COMMUNITY
Shareholders pursuant to the Merger Agreement; the current and prospective
economic environment and competitive constraints facing financial institutions,
including COMMUNITY; the COMMUNITY Board's evaluation of the risks to
consummation of the Merger; the increased liquidity that the Merger would
provide to COMMUNITY Shareholders; and the COMMUNITY Board's review of possible
<PAGE>
-11-
alternatives to the Merger. (SEE "THE MERGER -- Background of and Reasons For
the Merger.")
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain Executive Officers and Directors of COMMUNITY have certain
interests in the Merger that are in addition to their interests as COMMUNITY
Shareholders generally. These include, among others, provisions in the Merger
Agreement relating to the continuation of certain employee benefits. Richard A.
Hill, Joe S. Jackson, and Bruce G. Jensen, all currently Executive Officers and,
in Mr. Hill's case, a Director and Executive Officer, of COMMUNITY, have agreed
with FSC that they will be paid employees of FSB UTAH for at least three (3)
years following the Effective Time of the Merger. Compensation of these three
COMMUNITY Executive Officers following the Merger will be comparable to the
salaries presently paid by COMMUNITY to these Executive Officers. In addition,
these Executive Officers will be entitled to receive employee benefits available
generally to FSB UTAH employees of the same bank. (SEE "THE MERGER -- Interests
of Certain Persons in the Merger.")
CONDITIONS; REGULATORY APPROVALS
Consummation of the Merger is subject to various conditions,
including, among others, receipt of the two banks' shareholders' approval
solicited hereby, receipt of the necessary regulatory approvals, and receipt of
opinions of counsel regarding certain tax aspects of the Merger. In addition,
as indicated above, COMMUNITY's obligations under the Merger Agreement are
conditioned upon the nonoccurrence of a "significant decline" in the price of
FSC Common Stock. (SEE "THE MERGER -- Conditions to the Merger.")
The regulatory approvals and consents necessary to consummate the
transactions contemplated by the Merger Agreement primarily refer to the
approval of the Comptroller. Applications have been submitted for such
approval. There can be no assurances as to when, if or with what conditions
such approvals will be granted. There also can be no assurance that the U.S.
Department of Justice will not challenge the Merger on antitrust grounds, or if
such a challenge is made, as to the result thereof. (See "THE MERGER --
Regulatory Approvals.")
CONSUMMATION OF THE MERGER
FSC and COMMUNITY intend to consummate the Merger as soon as
practicable after approval of the Merger by the two banks' shareholders, and
after all other conditions have been met or waived. At present, FSC and
COMMUNITY anticipate that all such conditions can be satisfied, and the Closing
can occur before May 16, 1994. (SEE "THE MERGER--Effective Time and
Consummation of the Merger.")
<PAGE>
-12-
NO SOLICITATION
COMMUNITY has agreed in the Merger Agreement that neither it nor any
of its respective officers or directors will initiate, solicit or encourage any
inquiries or the making of any proposal or offer (including without limitation
any proposal or offer to Shareholders) with respect to, or, subject to the
fiduciary duties of its Board of Directors (after consultation with its
counsel), furnish any confidential information relating to or engage in any
negotiations or discussions concerning, any acquisition or purchase of all or
any significant portion of its assets, or of any equity securities of, or any
merger, consolidation or any similar transaction involving, it or COMMUNITY.
COMMUNITY has agreed to immediately cease and cause to be terminated any
existing activities, discussions or negotiations previously conducted with any
parties other than FSC with respect to any of the foregoing, and to notify FSC
immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, COMMUNITY.
ANTICIPATED ACCOUNTING TREATMENT
The Merger is currently intended to be treated as a "purchase" for
accounting purposes. This will mean that the combination of COMMUNITY financial
statements into FSC financial statements will require certain adjustments to
reflect the fair value of COMMUNITY assets, including the booking of "goodwill"
amounts related to the purchase transaction. No restatement of FSC's historical
financial statements will be required by the Merger. (SEE "THE MERGER --
Conditions to the Merger" and " -- Anticipated Accounting Treatment.")
CERTAIN DIFFERENCES IN SHAREHOLDERS' RIGHTS
At the Effective Time, COMMUNITY Shareholders, except shareholders who
may perfect dissenters' rights in accordance with the UCA, automatically will
become shareholders of FSC, and their rights as shareholders of FSC will be
determined by the Delaware Statute and by FSC's Certificate of Incorporation and
Bylaws. The rights of shareholders of COMMUNITY differ from rights of the
shareholders of FSC with respect to certain important matters, including their
rights to call special meetings; the procedure for proposals to approve
amendments to the Articles or Certificates of Incorporation; receipt of
dividends; the required shareholder votes as to certain matters; statutory and
other restrictions on certain business combinations and control share
acquisitions; and the existence of the FSC Rights Plan for the benefit of the
shareholders of FSC. (SEE "COMPARATIVE RIGHTS OF SHAREHOLDERS.")
SHAREHOLDERS' DISSENTERS' RIGHTS
COMMUNITY Shareholders who dissent from the Merger have the right to
demand payment for their shares of COMMUNITY Common Stock and to receive cash,
if the Merger is consummated, equal to the fair value of their shares as
determined by the procedures set out in Sections 16-10a-1302 et seq. of the Utah
Code, as amended. Generally, to preserve dissenter's rights, a COMMUNITY
Shareholder must (i) before the vote at the COMMUNITY Special Meeting, deliver a
written notice of intent to dissent, (ii) NOT vote in favor of the Merger, and
(iii) upon receiving a dissenter's notice from COMMUNITY following the Special
Meeting, file with COMMUNITY a "payment demand" as provided in the dissenter's
notice
<PAGE>
-13-
requesting the payment in cash of the fair value of his COMMUNITY Common Stock,
and (iv) deposit the certificate(s) representing the Shareholder's COMMUNITY
Common Stock as directed in the dissenter's notice from COMMUNITY. FSB UTAH
SHAREHOLDERS ARE PROVIDED NO DISSENTERS' RIGHTS IN CONNECTION WITH THE MERGER.
(SEE "RIGHTS OF DISSENTING SHAREHOLDERS"; A copy of the provisions of the Utah
Code dealing with dissenter's rights is attached as APPENDIX C.)
FEDERAL INCOME TAX CONSIDERATIONS
It is intended that the Merger will be treated as a reorganization
within the meaning of Section 368 (a) of the Internal Revenue Code of 1986, as
amended (the "Code"), and that, accordingly, for federal income tax purposes;
(i) no gain or loss will be recognized by FSC or COMMUNITY as a result of the
Merger; (ii) no gain or loss will be recognized by holders of COMMUNITY Common
Stock upon the receipt of FSC Common Stock in exchange for COMMUNITY Common
Stock pursuant to the Merger, except with respect to cash received in lieu of a
fractional share interest in FSC Common Stock; and (iii) the aggregate adjusted
tax basis of the shares of FSC Common Stock to be received by the holders of
COMMUNITY Common Stock in the Merger will be the same as the aggregate adjusted
tax basis of the shares of COMMUNITY Common Stock surrendered in exchange
therefor (reduced by the amount allocable to fractional share interests for
which cash is received). Consummation of the Merger is conditioned upon receipt
by FSB UTAH, FSC and COMMUNITY of an opinion of Ray, Quinney & Nebeker, counsel
for FSC, dated as of the Effective Time, substantially to such effect. (SEE
"CERTAIN FEDERAL INCOME TAX CONSIDERATIONS.")
SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE TAX
CONSEQUENCES OF THE MERGER IN LIGHT OF THEIR OWN TAX SITUATIONS.
<PAGE>
-14-
THE SPECIAL MEETINGS
GENERAL
Special Meetings of the COMMUNITY Shareholders and of the FSB UTAH
Shareholders will be held at 180 South State Street, Clearfield, Utah 84015,
for COMMUNITY Shareholders; and in the Board Room on the 2nd Floor, 79 South
Main Street, Salt Lake City, Utah for FSB UTAH Shareholders, on
at local time. At the Special Meetings, the two groups of shareholders
will consider and vote upon a proposal to approve and adopt the Merger Agreement
and the transactions contemplated thereby and such other matters as may properly
be brought before the meetings. This Prospectus / Proxy Statement is being
furnished to the COMMUNITY Shareholders and to the FSB UTAH Shareholders in
connection with the solicitation of proxies by the Boards of Directors of these
two merging banks, for use at the Special Meetings, and at any adjournments or
postponements thereof.
At the Special Meetings, the shareholders of the two banks will be
asked to approve and adopt the Merger Agreement, a copy of which is attached as
Appendix A hereto, and which is more fully described herein. The Merger
Agreement provides, among other things, that COMMUNITY will merge (the "Merger")
with and into FSB UTAH and, except as described below, each share of COMMUNITY
Common Stock will be converted into 21.859 shares of FSC Common Stock.
The date on which this Prospectus / Proxy Statement is first being
sent to shareholders of COMMUNITY and FSB UTAH is on or about , 1994.
SHARES ENTITLED TO VOTE; SHAREHOLDER APPROVAL
The Boards of Directors of COMMUNITY and FSB UTAH have fixed ,
1994, as the Record Date for the determination of those shareholders entitled to
notice of and to vote at the Special Meetings. Only shareholders of record at
the close of business on the Record Date will be entitled to notice of and to
vote at the Special Meetings. As of the Record Date, there were 38,525 shares
of COMMUNITY Common Stock outstanding, entitled to vote and held by ninety-three
(93) Shareholders. Over 99% of the outstanding shares of FSB UTAH Common Stock
is held by FSC and will be voted in favor of the Merger at the FSB UTAH Special
Meeting. Each shareholder of record of shares of COMMUNITY Common Stock or FSB
UTAH on the Record Date is entitled to cast one vote per share on the proposal
to approve and adopt the Merger Agreement and any other matter properly
submitted for the vote of shareholders at the respective Special Meetings. The
presence, either in person or by properly executed proxy, of the holders of a
majority of the outstanding shares entitled to vote at the Special Meetings is
necessary to constitute a quorum at the Special Meetings. Shares which are
present in person or by proxy but abstain from voting with respect to one or
more proposals voted upon at the Special Meetings will be included for purposes
of determining a quorum at such meeting.
The approval and adoption of the Merger Agreement by the COMMUNITY
Shareholders will require the affirmative vote of the holders of two-thirds
(2/3) of the
<PAGE>
-15-
Series due outstanding shares of COMMUNITY Common Stock. Under applicable Utah
law, in determining whether the proposal has received the requisite number of
affirmative votes, abstentions and broker non-votes will be counted and will
have the same effect as a vote against the proposal. As described in "THE
MERGER--Conditions to the Merger," approval by the COMMUNITY Shareholders is a
condition to consummation of the Merger. COMMUNITY Shareholders representing
approximately 60% of the outstanding shares of COMMUNITY Common Stock, including
all of the current Directors of COMMUNITY, have agreed or otherwise indicated
their intention to vote their shares of COMMUNITY Common Stock FOR the Merger
Agreement; and such a "yes" vote level very nearly satisfies the COMMUNITY
Shareholder approval condition. (SEE "THE MERGER -- The Voting Agreement.")
Approval and adoption of the Merger Agreement by the shareholders of FSC is
not required under Delaware law.
VOTING; SOLICITATION AND REVOCATION OF PROXIES
All shares of COMMUNITY Common Stock and FSB UTAH Common Stock which
are entitled to vote and are represented at the Special Meetings by properly
executed proxies received prior to or at the meeting, and not revoked, will be
voted at such meetings in accordance with the instructions indicated on such
proxies. If no instructions are indicated, such proxies will be voted FOR
approval and adoption of the Merger Agreement.
If any other matters are properly presented at the Special Meetings
for consideration, including, among other things, consideration of a motion to
adjourn the meeting to another time and/or place (including, without limitation,
for the purpose of soliciting additional proxies), the persons named in the
relevant form of proxy enclosed herewith and acting thereunder will have
discretion to vote on such matters in accordance with their best judgment.
COMMUNITY does not have any knowledge of any matters to be presented at its
Special Meetings other than the proposal to approve the Merger Agreement. There
will be no other business at the FSB UTAH Special Meeting.
Any proxy given pursuant to this solicitation may be revoked by the
shareholder giving it at any time before it is voted. Proxies may be revoked by
(i) filing with the Secretary of COMMUNITY or the Cashier of FSB UTAH,
respectively, at or before the taking of the vote at the respective Special
Meeting, a written notice of revocation bearing a later date than the proxy,
(ii) duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of COMMUNITY or the Cashier of FSB UTAH,
respectively, before the taking of the vote at the respective Special Meetings,
or (iii) attending the respective Special Meeting and voting in person (although
attendance at the meeting will not in and of itself constitute a revocation of a
proxy). Any written notice of revocation or subsequent proxy should be sent so
as to be delivered to the Secretary of COMMUNITY (for COMMUNITY Shareholders) at
180 South State Street, Clearfield, Utah 84015; or to the Cashier of FSB UTAH
(for FSB UTAH Shareholders) at 79 South Main Street, Salt Lake City, Utah 84111,
or hand delivered to the Secretary of COMMUNITY or to the Cashier of FSB UTAH,
respectively, before the vote is taken at the Special Meetings.
<PAGE>
-16-
All expenses of this solicitation, including the cost of preparing and
mailing this Prospectus / Proxy Statement, will be borne by FSC. In addition to
solicitation by use of the mails, proxies may be solicited by the Directors and
Executive Officers of COMMUNITY in person or by telephone, telegram or other
means of communication. Such COMMUNITY agents will not be additionally
compensated, but may be reimbursed for reasonable out-of-pocket expenses in
connection with such solicitation.
COMMUNITY SHAREHOLDERS SHOULD NOT SEND THEIR COMMUNITY STOCK
CERTIFICATES WITH THEIR PROXY CARDS.
THE MERGER
Pursuant to the terms of the Merger Agreement, subject to the
satisfaction or waiver (where permissible) of certain conditions, including,
among other things, the receipt of all necessary regulatory approvals, the
expiration of all waiting periods in respect thereof, and the approval of the
Merger Agreement by the shareholders of COMMUNITY and FSB UTAH, COMMUNITY will
be merged with and into FSB UTAH. As a result of the Merger, the separate
corporate existence of COMMUNITY will cease and COMMUNITY Shareholders will
become shareholders of FSC.
The detailed terms of and conditions to the Merger are contained in
the Merger Agreement, a copy of which is attached to this Prospectus / Proxy
Statement as Appendix A and incorporated herein by reference. The description
in this Prospectus / Proxy Statement of the terms of the Merger Agreement is
qualified in its entirety by, and made subject to, the text of the Merger
Agreement. COMMUNITY Shareholders are urged to read the Merger Agreement
carefully.
The COMMUNITY Board believes that the Merger is fair to, and in the
best interests of the COMMUNITY Shareholders. Accordingly, the COMMUNITY Board
has unanimously approved the Merger Agreement and recommends that the COMMUNITY
Shareholders vote FOR the approval and adoption of the Merger Agreement.
FSB UTAH's Directors have also unanimously approved the Merger and
recommend that the FSB UTAH Shareholders vote in favor of the Merger. FSC owns
in excess of 99% of the outstanding shares of FSB UTAH Common Stock, and will
vote those shares in favor of the Merger.
BACKGROUND OF AND REASONS FOR THE MERGER
In the fall of 1993, several bank holding companies contacted certain
members of the Board of Directors of COMMUNITY (the "COMMUNITY Board") to
express an interest in exploring the possibility of engaging in a business
combination. Following these inquiries, two proposals were presented in
writing, for consideration by the Board of Directors of COMMUNITY. Each
proposal contemplated a "stock for stock" merger treated as a tax-free
reorganization. However, the non-FSC proposal also provided an alternative
"stock for stock
<PAGE>
-17-
and cash" acquisition, which would not have been entirely tax-free to
COMMUNITY's Shareholders. FSC's proposal required an acceptance or rejection by
October 15, 1993.
Each proposal was subject to, among other things, additional due
diligence by the interested institutions. FSC's proposal represented the
highest price per share for COMMUNITY Common Stock (based upon the closing price
of FSC Common Stock at that time and the Conversion Ratio). Members of the
COMMUNITY Board determined that FSC's proposal was superior to the other
proposals in terms of both price and the terms and conditions contained in such
proposal. Consequently, at a special meeting of the Board of Directors of
COMMUNITY on October 13, 1993, the COMMUNITY Board of Directors unanimously
accepted, subject to COMMUNITY Shareholders' approval and the negotiation of a
definitive merger agreement, the FSC proposal. COMMUNITY's legal advisors were
directed to begin discussions with FSC regarding the terms of a definitive
agreement. During the next two weeks FSC conducted an extensive due diligence
examination of COMMUNITY and representatives of COMMUNITY and FSC conducted
negotiations regarding the terms of the definitive Merger Agreement, which was
agreed to be dated as of October 22, 1993. On November 1, 1993, the COMMUNITY
Board met and, together with its legal and financial advisors, reviewed the
terms and conditions of the proposed merger. Following such meeting,
negotiations regarding the proposed merger agreement continued. On November 2,
1993, the COMMUNITY Board reviewed and unanimously approved the execution of the
Merger Agreement, which was executed that day.
In reaching its determination to enter into the Merger Agreement, the
COMMUNITY Board considered a number of factors, including, without limitation,
the following:
1. The COMMUNITY Board's familiarity with and review of FSC's
and COMMUNITY's business, operations, financial condition, earnings
and prospects;
2. The COMMUNITY Board's belief that the approximately two-for-
one premium over book value was favorable given the unusually high
equity ratio of COMMUNITY.
3. the expectation that the Merger will generally be a tax-free
transaction to COMMUNITY and to the Shareholders (see "--Certain
Federal Income Tax Consequences");
4. the substantial dividend growth potential to holders of FSC
Common Stock compared to the historical and prospective dividends
payable on the COMMUNITY Common Stock;
5. the demographics of COMMUNITY's shareholder base and their
expressed concerns regarding estate settlement, and, in that
connection, desire for liquidity;
6. the COMMUNITY Board's review of the business, operations,
earnings and financial condition of FSC on a historical, prospective
and PRO FORMA basis, and the enhanced opportunities for growth that
the Merger makes possible;
<PAGE>
-18-
7. a variety of factors affecting and relating to the overall
strategic focus of FSC, including the geographical proximity and
regional similarities of COMMUNITY's Utah market areas to FSC's
existing market areas;
8. the current and prospective economic environment and
competitive constraints facing financial institutions, including
COMMUNITY;
9. the COMMUNITY Board's evaluation of the risks to
consummation of the Merger, including (i) the risks associated with
obtaining all necessary regulatory approvals without the imposition of
terms or conditions which would fail to satisfy the conditions to
consummation of the Merger and (ii) the fact that the shareholder
approval condition would be substantially satisfied because of the
Voting Agreement;
10. the increased liquidity that the Merger would provide to
current COMMUNITY shareholders and the large market capitalization and
trading volume of FSC;
11. the protection afforded to COMMUNITY by the Merger Agreement
in the event of a "significant decline" in the price of FSC Common
Stock relative to the Standard & Poors Regional Bank Index (SEE
"--Conditions to the Merger", below);
12. the COMMUNITY Board's review of the possible alternatives to
the Merger, the range of possible values to the Shareholders of such
alternatives and the timing and likelihood of actually receiving, and
risks and rewards associated with seeking to obtain, those values; and
13. the terms of the Merger Agreement and the other documents
executed in connection with the Merger.
The COMMUNITY Board did not assign any specific or relative weight to these
factors in its consideration.
While the COMMUNITY Board and FSC are optimistic that the expected
benefits from the Merger will accrue to the Shareholders and to FSC's
shareholders, there are risks inherent in a merger transaction, including, among
others, that expected cost savings through the business combination may not be
fully realized or that the change in management policies and programs with
respect to COMMUNITY and its retail operations planned by FSC may not have the
salutary results VIS A VIS the present and future customers of COMMUNITY
expected by the parties to the Merger. Moreover, as a result of the Merger,
Shareholders will change from investors in an almost exclusively Davis County
and Weber County, Utah banking business, and will become investors in a multi-
state and economically diverse banking entity, FSC, with a mix of inherent
investment risks, strengths and benefits flowing from FSC's operations outside
of Utah.
<PAGE>
-19-
CONVERSION RATIO
Upon consummation of the Merger, COMMUNITY will be merged with and
into FSB UTAH and each issued and outstanding share of COMMUNITY Common Stock
(other than shares held, directly or indirectly, by FSC or COMMUNITY (other than
shares held in a fiduciary capacity or in respect of a debt previously
contracted) and shares held by any shareholder properly exercising dissenters'
rights) will become, and be converted into the right to receive, 21.859 shares
of FSC Common Stock. Based on the market value of FSC Common Stock at the time
the Merger Agreement was signed, as compared with the book value of COMMUNITY,
the value of the Merger to COMMUNITY Shareholders as of the date of the Merger
Agreement (on October 22, 1993) was approximately two (2) times the September
30, 1993 book value of COMMUNITY. Because the Conversion Ratio is fixed, and
the market value of FSC Common Stock will fluctuate before and after the Merger,
there can be no assurance as to the value of the consideration to be received by
COMMUNITY Shareholders in the Merger in the future.
The Merger Agreement provides that COMMUNITY will not be obligated to
consummate the Merger if there is "significant decline" in the average closing
price of FSC Common Stock in relation to the Standard & Poors Regional Bank
Index as published from time to time by Standard & Poors Corporation, compared
in the manner set forth in the Merger Agreement. (SEE "-- Conditions to the
Merger", below.)
Each share of FSC Common Stock issued in the Merger will have an
attached Right, which Right is part of a Shareholder Rights Plan adopted by FSC
in 1989. The Rights give holders the opportunity to purchase additional equity
interests in FSC at a significant discount under certain circumstances. (SEE
"INFORMATION ABOUT FSC -- Description of FSC's Capital Stock" and "COMPARATIVE
RIGHTS OF SHAREHOLDERS -- Authorized Capital Stock.")
The Merger Agreement provides that, in the event FSC changes the
number of shares of FSC Common Stock issued and outstanding between the date of
the Merger Agreement and the Effective Time as a result of a stock split, stock
dividend, recapitalization, reclassification or other similar transaction, the
Conversion Ratio will be adjusted proportionately.
STOCK CERTIFICATE EXCHANGE
The Exchange Agent will distribute the shares of FSC Common Stock and
any cash payment for fractional shares, if applicable, to COMMUNITY
Shareholders. At the Effective Time, COMMUNITY Shareholders (other than those
Shareholders who have exercised their dissenters' rights) will cease to have any
rights as COMMUNITY Shareholders, and their sole right will be to receive shares
of FSC Common Stock and cash in lieu of any fractional shares pursuant to the
Merger Agreement. (SEE "THE MERGER -- Conversion Ratio.")
As promptly as practicable after the Effective Time, the Exchange
Agent will mail to all COMMUNITY Shareholders the materials, including a letter
of transmittal, with instructions, to use in exchanging certificates of
COMMUNITY Common Stock for certificates
<PAGE>
-20-
of FSC Common Stock. As soon as practicable after the letter of transmittal is
properly completed and returned to the Exchange Agent, along with the
certificates of COMMUNITY Common Stock, FSC will cause to be issued and mailed
to the COMMUNITY Shareholder surrendering such items, a certificate or
certificates for the number of whole shares of FSC Common Stock to which such
person is entitled as a result of the Merger. The risk of loss of certificates
mailed to the Exchange Agent will be on the tendering COMMUNITY Shareholder. No
fractional shares of FSC Common Stock will be issued in the Merger. Instead,
the Merger Agreement provides that each COMMUNITY Shareholder, who would
otherwise have been entitled to receive a fraction of a share of FSC Common
Stock under the Conversion Ratio will receive, in lieu thereof, cash in an
amount equal to such fractional part of a share of FSC Common Stock multiplied
by the average of the closing bid and asked prices for FSC Common Stock on the
NASDAQ/NMS on the day before the Effective Time. Fractional shares will not be
entitled to dividends, voting rights or any other rights as a shareholder in
respect of any fractional share.
If a certificate for COMMUNITY Common Stock has been lost, stolen or
destroyed, the Exchange Agent will issue the consideration properly payable in
accordance with the Merger Agreement upon receipt of appropriate evidence as to
such loss, theft or destruction, appropriate evidence as to the ownership of
such certificate by the claimant, and appropriate and customary indemnification.
After the Effective Time, there will be no permitted transfers on
COMMUNITY's stock transfer books of shares of COMMUNITY Common Stock issued and
outstanding at the Effective Time. If certificates representing shares of
COMMUNITY Common Stock are presented for transfer after the Effective Time, they
will be returned to the presenter together with a form of letter of transmittal
and exchange instructions.
If any certificate for shares of FSC Common Stock is to be issued in a
name other than that in which the COMMUNITY share certificate surrendered in
exchange therefor is registered, the COMMUNITY certificate so surrendered must
be properly endorsed and otherwise in proper form for transfer, and the person
requesting such exchange must pay FSC any transfer or other taxes required by
reason of the issuance of a certificate for shares of FSC Common Stock in any
name other than that of the registered holder of the certificate surrendered, or
establish to the satisfaction of FSC that such tax has been paid or is not
payable.
Shares of FSC capital stock (including FSC Common Stock) issued and
outstanding immediately prior to the Effective Time will remain issued and
outstanding after the Merger. (SEE "INFORMATION ABOUT FSC--Description of FSC's
Capital Stock.")
Each share of FSC Common Stock issued in connection with the Merger
will be deemed to have been issued at the Effective Time. Accordingly,
COMMUNITY Shareholders who receive FSC Common Stock in the Merger will be
entitled to receive any dividends or other distributions which may be payable to
holders of record of FSC Common Stock as of any date after the Effective Time.
However, no Shareholder will be entitled to receive shares of FSC Common Stock
or cash, and no dividends or other distributions will actually be paid with
respect to any shares of FSC Common Stock, until the certificate or certificates
formerly representing the shares of COMMUNITY Common Stock have been surrendered
in accordance
<PAGE>
-21-
with the procedures described above. At the time such surrender has been
accomplished, a certificate representing the appropriate number of whole shares
of FSC Common Stock will be issued and any fractional share amount or accrued
dividends and other distributions on such shares of FSC Common Stock will be
paid by check, without interest and less taxes, if any, imposed thereon.
COMMUNITY SHAREHOLDERS, OTHER THAN SHAREHOLDERS WHO ELECT TO
EXERCISE THEIR DISSENTERS' RIGHTS, SHOULD NOT SEND IN THEIR
COMMUNITY COMMON STOCK CERTIFICATES UNTIL THEY RECEIVE
WRITTEN INSTRUCTIONS FROM THE EXCHANGE AGENT.
COMMUNITY SHAREHOLDERS WISHING TO DISSENT SHOULD REFER TO
"THE MERGER--Rights of Dissenting COMMUNITY Shareholders"
AND APPENDIX C.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the COMMUNITY Board with respect
to the Merger Agreement, COMMUNITY Shareholders should be aware that certain
Executive Officers and Directors of COMMUNITY have certain interests in the
Merger that are in addition to the interests of the COMMUNITY Shareholders
generally. The COMMUNITY Board was aware of these interests and considered
them, among other matters, in approving the Merger Agreement and the
transactions contemplated thereby.
The Merger Agreement provides that Richard A. Hill, Joe S. Jackson,
and Bruce G. Jensen, all currently Executive Officers or Directors of COMMUNITY,
will agree with FSC that they will act as paid employees of FSB UTAH for at
least three (3) years following the Effective Time of the Merger. Compensation
of these three COMMUNITY Executive Officers following the Merger will be
pursuant to individual contracts negotiated between the officers and FSC. Each
employment contract provides, in substantial part, that Messrs. Hill, Jackson
and Jensen will be employees and serve as officers of FSB UTAH, with rights and
duties commensurate with such positions and each employee's skills, training,
background, and experience. It is contemplated that any such positions will pay
Messrs. Hill, Jackson and Jensen salaries comparable with each such individual's
1994 expected salary from COMMUNITY. In addition, each of Messrs. Hill, Jackson
and Jensen generally shall be entitled to participate in all FSB Utah insurance,
bonus, compensation, and retirement plans, with service (but not benefit
accrual) credit for the years employed by COMMUNITY. Finally, with respect to
Mr. Hill, any position in which he is employed with FSB UTAH shall be within the
Salt Lake City or Ogden metropolitan areas for a period of eighteen (18) months
following commencement of his employment relationship with FSB UTAH.
None of COMMUNITY's Executive Officers or Directors has an agreement
for additional compensation from COMMUNITY, or rights which become effective
upon a change of control, such as the Merger. Certain of the Directors and
Executive Officers of COMMUNITY own shares of COMMUNITY Common Stock. Such
shares will be converted in the Merger on the same terms and conditions as apply
to all other COMMUNITY shareholders. As of the Record Date, COMMUNITY's
Directors and Executive Officers, and
<PAGE>
-22-
their affiliates, beneficially own approximately 40% of all issued and
outstanding shares of COMMUNITY Common Stock. The Directors of COMMUNITY, have
all agreed to vote their shares of COMMUNITY Common Stock in favor of the
Merger.
CONDITIONS TO THE MERGER
The respective obligations of FSC and COMMUNITY to effect the Merger
are subject to the satisfaction of the following conditions at or prior to the
Effective Time: (i) approval of the Merger Agreement and the transactions
contemplated thereby by the affirmative two-thirds (2/3) vote of the COMMUNITY
Shareholders and the FSB UTAH Shareholders; (ii) the approval of the Merger
Agreement and the transactions contemplated thereby by the Comptroller and all
other applicable government regulatory agencies, and the expiration of any
statutory waiting periods (PROVIDED, HOWEVER, that no such consent or approval
shall impose any condition or requirement which any party reasonably believes
will materially restrict or limit the business or activities of FSC or COMMUNITY
or have a Material Adverse Effect on FSC or COMMUNITY); (iii) the Registration
Statement of which this Prospectus/Proxy Statement forms a part shall have
become effective and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the Commission; (iv) FSC and
COMMUNITY shall have received an opinion from legal counsel to FSC to the effect
that the Merger will be treated for federal income tax purposes as a tax-free
reorganization within the meaning of Section 368 of the Code; (v) neither FSC
nor COMMUNITY shall be subject to any order, decree or injunction of a court or
agency of competent jurisdiction or other legal restraint or prohibition which
enjoins or prohibits the consummation of the Merger and (vi) no statute, rule,
regulation, order, injunction or decree shall have been enacted, entered,
promulgated or enforced by any governmental authority which prohibits, restricts
or makes illegal consummation of the Merger.
The obligations of FSC to effect the Merger are further subject to the
satisfaction, or waiver by FSC, of the following conditions: (i) the
representations and warranties of COMMUNITY contained in the Merger Agreement
shall be true and correct in all material respects as of the date of the Merger
Agreement and at the Effective Time (except to the extent they relate to an
earlier date); (ii) COMMUNITY shall have duly performed in all material respects
all obligations required to be performed by it under the Merger Agreement prior
to the Effective Time; (iii) no proceeding initiated by any governmental entity
seeking to enjoin the Merger shall be pending; (iv) FSC shall have received a
satisfactory legal opinion from counsel to COMMUNITY; and (vi) FSC shall be
satisfied with the financial condition of Community within the parameters set
out in the Merger Agreement, including but not limited to the requirement that
COMMUNITY have a net worth at the Effective Time of no less than $12 million and
that the deposits of COMMUNITY shall not be less than $52.5 million.
The obligations of COMMUNITY to effect the Merger are further subject
to the satisfaction, or waiver by COMMUNITY, of the following conditions:
(i) the representations and warranties of FSC contained in the Merger Agreement
shall be true and correct in all material respects as of the date of the Merger
Agreement and at the Effective Time; (ii) FSC shall have duly performed in all
material respects all obligations required to be performed by it under the
Merger Agreement prior to the Effective Time; (iii) there shall not have been a
<PAGE>
-23-
"significant decline" in the average closing price of FSC Common Stock, as
reported on the NASDAQ/NMS for the twenty consecutive trading days ending on the
sixth business day prior to the effective date of the Merger (for this purpose,
"the Average Closing Price"), in relation to the Standard & Poors Regional Bank
Index (the "Index"); a "significant decline" is deemed to have occurred if both
of the following conditions exist: (a) the Average Closing Price is less than
$24.23 per share and (b) the number obtained by dividing the Average Closing
Price by $28.50 is less than the number obtained by dividing the average of the
Index for the twenty consecutive trading days ending on the fifth business day
prior to the Effective Time of the Merger by the Index on the trading day
immediately preceding announcement of the Merger, and subtracting 0.15 from the
quotient; (vi) COMMUNITY shall have received a satisfactory legal opinion from
counsel to FSC; and (vii) FSC shall have entered into employment agreements with
Messrs. Hill, Jackson and Jensen, who are currently executive officers of
COMMUNITY. (This last condition has been satisfied.)
No assurance can be provided as to when, or whether, the regulatory
consents and approvals necessary to consummate the Merger will be obtained (or,
if so obtained, that such consents and approvals will satisfy the conditions to
the Merger) or whether all of the other conditions precedent to the Merger will
be satisfied or waived by the party permitted to do so. (SEE "-- Regulatory
Approvals", below.) If the Merger is not effected on or before October 22,
1994, the Merger Agreement may be terminated, and the Merger abandoned, by a
vote of a majority of the Board of Directors of FSC, FSB UTAH or COMMUNITY,
unless the failure to effect the Merger by such date is due to the breach of the
Merger Agreement by the party seeking to terminate the Merger Agreement.
REGULATORY APPROVALS
The Merger is subject to prior approval by the Comptroller. An
application for such approval has been filed with the Comptroller. The
Comptroller may not approve the Merger (i) if it would result in a monopoly or
be in furtherance of any combination or conspiracy to monopolize or attempt to
monopolize the business of banking in any part of the United States, or (ii) if
its effect in any section of the country may be substantially to lessen
competition or to tend to create a monopoly, or if it would in any other manner
be a restraint of trade, unless such regulatory authority finds that the
anticompetitive effects of the Merger are clearly outweighed by the public
interest and by the probable effects of the transaction in meeting the
convenience and needs of the communities to be served. In addition the
Comptroller may not approve a merger if FSC has failed to provide adequate
assurances that it will make available such information on its operations or
activities and those of its affiliates that the Comptroller deems appropriate to
determine and enforce compliance with federal banking laws and regulations. The
Merger may not be consummated until the thirtieth day following the date of the
Comptroller's approval of the Merger, during which time the United States
Department of Justice may challenge the Merger on antitrust grounds. The
commencement of an antitrust action would stay the effectiveness of the
Comptroller's approval unless a court specifically orders otherwise.
In addition, the Comptroller will take into consideration, among other
factors, the financial and managerial resources and future prospects of the
institutions and the convenience and needs of the communities to be served. The
Comptroller has the authority
<PAGE>
-24-
to deny an application if it concludes that the combined organization would have
an inadequate capital position or if the requirements of the Community
Reinvestment Act of 1977 are not satisfied.
Pursuant to applicable Utah law, the Merger must be approved by the
Commissioner. An application for such approval was filed and the Commissioner
has issued an order approving the Merger.
The Federal Reserve Board also has jurisdiction to review and approve
the Merger. Based on the primary review by the Comptroller, the Federal Reserve
Board has indicated that it will not review or require its approval of the
Merger.
The Merger will not be consummated unless all of the required
regulatory approvals are obtained without the imposition of any condition which
any party reasonably believes will materially restrict or limit the business or
activities of FSC or of COMMUNITY. (SEE "-- Conditions to the Merger," above.)
There can be no assurance that the regulatory authorities described
above will approve the Merger, and if the Merger is approved, there can be no
assurance as to the date of such approvals. There can also be no assurance that
any such approvals will not contain a condition or requirement which causes such
approvals to fail to satisfy the conditions to consummation of the Merger set
forth in the Merger Agreement. There can likewise be no assurance that the
Department of Justice will not challenge the Merger, or if such a challenge is
made, as to the result thereof.
EFFECTIVE TIME AND CONSUMMATION OF THE MERGER
The Effective Time of the Merger will occur upon the final approval of
the Merger by the Comptroller. (SEE "THE MERGER -- Conditions to the Merger" and
"--Regulatory Approvals.")
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, COMMUNITY has agreed that until the
Effective Time it will carry on its respective business in the usual, regular
and ordinary course consistent with prudent banking practices. COMMUNITY has
agreed to use best efforts to (i) preserve its business organization intact,
(ii) keep available to itself and FSC the present services of COMMUNITY's
employees and (iii) preserve for itself and FSC the goodwill of COMMUNITY's
customers and others with whom business relationships exist.
The Merger Agreement also contains certain restrictions on the conduct
of COMMUNITY's business pending consummation of the Merger. In particular, the
Merger Agreement provides that, without the prior written consent of FSC,
COMMUNITY may not, among other things, (i) make, declare or pay any dividend on
any of its capital stock, except for a quarterly dividend not to exceed $2.50
per share in the event that the Merger is not consummated in time for the
COMMUNITY Shareholders to receive FSC's dividend for that
<PAGE>
-25-
quarter (SEE "SELECTED COMPARATIVE AND PRO FORMA FINANCIAL DATA"), (ii) issue or
sell shares of its capital stock, (iii) subject to certain exceptions, enter
into or amend any employment contracts or consulting agreements with, increase
the rate of compensation of, or pay or agree to pay any bonus to any person,
(iv) enter into or modify (except as may be required by law) any employee
benefit plan for its directors, officers and employees, (v) except for certain
COMMUNITY property located in Pleasant View, Utah (which has been sold), dispose
of, or discontinue any portion of its assets, business or properties, or merge
or consolidate with, or acquire all of any substantial portion of, the business
or property of any other entity, (vi) amend its Articles of Incorporation or
Bylaws, (vii) take certain actions with respect to material agreements;
(viii) take any action that would cause the Merger to fail to qualify as a
reorganization within the meaning of Section 368 of the Code; (ix) take any
action that is intended or may reasonably be expected to result in any of its
representations and warranties set forth in the Merger Agreement being or
becoming untrue, or in any of the conditions to the Merger not being satisfied,
or in a violation of any provisions of the Merger Agreement; or agree to do any
of the foregoing.
The Merger Agreement also provides, among other things, that FSC will
not (i) declare or pay any extraordinary or special dividends in respect of any
of its capital stock, (ii) take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set forth in the
Merger Agreement being or becoming untrue, or in any of the conditions to the
Merger not being satisfied, or in a violation of any provision of the Merger
Agreement, (iii) take any action that would cause the Merger to fail to qualify
as a reorganization within the meaning of Section 368 of the Code, or (iv) take
any action that could jeopardize or delay the receipt of any of the regulatory
approvals required to consummate the transactions contemplated by the Merger
Agreement.
NO SOLICITATION
COMMUNITY has agreed in the Merger Agreement that neither it nor any
of its Executive Officers or Directors will initiate, solicit or encourage,
either directly or indirectly, any inquiries or the making of any proposal or
offer (including, without limitation, any proposal or offer to COMMUNITY
Shareholders) with respect to, or, subject to the fiduciary duties of the
COMMUNITY Board (after consultation with its counsel), furnish any confidential
information relating to or engage in any negotiations or discussions concerning,
any acquisition or purchase of all or any significant portion of its assets, or
of any equity securities of, or any merger consolidation or any similar
transaction involving COMMUNITY; COMMUNITY has agreed to immediately cease and
cause to be terminated any existing activities, discussions or negotiations
previously conducted with any parties other than FSC with respect to any of the
foregoing, and to notify FSC immediately if any such inquiries or proposals are
received by, any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with, COMMUNITY.
<PAGE>
-26-
WAIVER AND AMENDMENT; TERMINATION
Prior to the effective date of the Merger, any provision of the Merger
Agreement may be waived, amended or modified by an agreement in writing approved
by the Boards of Directors of FSC and COMMUNITY, provided that after the vote of
the shareholders of COMMUNITY the Merger Agreement may not be amended to alter
the Conversion Ratio or otherwise reduce the amount of the consideration to be
received by the COMMUNITY Shareholders.
The Merger Agreement may be terminated at any time prior to the
effective date of the Merger, either before or after its approval by the holders
of COMMUNITY Common Stock, as follows: (i) by the mutual consent of FSC and
COMMUNITY if the Boards of Directors of each so determines; (ii) by either FSC
or COMMUNITY if any request or application for a required regulatory approval is
denied or withdrawn at the request or recommendation of the governmental entity
which must grant such approval, PROVIDED, HOWEVER, that no party shall have the
right to terminate the Merger Agreement pursuant to the provision described in
this clause (ii) if such denial or request or recommendation for withdrawal is
due to the failure of the party seeking to terminate the Merger Agreement to
perform its obligations under the Merger Agreement or if any government entity
of competent jurisdiction issues a final nonappealable order enjoining or
otherwise prohibiting consummation of any of the transactions contemplated by
the Merger Agreement; (iii) by either FSC or COMMUNITY if its Board of Directors
so determines, in the event that the Merger has not been consummated by October
22, 1994, unless the failure to consummate the Merger is due to a breach of the
Merger Agreement by the party seeking to terminate the Merger Agreement, (iv) by
either FSC or COMMUNITY, if the COMMUNITY Shareholders fail to approve the
Merger Agreement (provided that if COMMUNITY is the terminating party, it is not
in breach of its obligations in the Merger Agreement with respect to the meeting
of COMMUNITY Shareholders called to approve and adopt the Merger Agreement) and
(v) by either FSC or COMMUNITY in the event of (a) a material breach by the
other of any of its representations or warranties contained in the Merger
Agreement, which breach by its nature cannot be cured prior to the Closing, or
(b) a material breach of any of the covenants or agreements contained in the
Merger Agreement by the other which is not cured within thirty (30) days after
written notice of such breach is given to the breaching party.
In the event of the termination of the Merger Agreement by either FSC
or COMMUNITY, neither FSC nor COMMUNITY will have any further obligations except
(i) with respect to certain provisions regarding, among other things, the
confidentiality of certain information and the payment of certain expenses, and
(ii) that no party will be relieved from any liabilities for any default of any
provisions of the Merger Agreement.
RESALES OF FSC COMMON STOCK RECEIVED IN THE MERGER
The shares of FSC Common Stock to be issued in the Merger will be
registered under the Securities Act and will be freely transferable under the
Securities Act, except for shares issued to any shareholder who may be deemed to
be an "affiliate" of COMMUNITY for purposes of Rule 145 under the Securities
Act. Affiliates may not sell their shares of FSC Common Stock acquired in
connection with the Merger except pursuant to an effective
<PAGE>
-27-
registration statement under the Securities Act covering such shares or in
compliance with Rule 145 or another applicable exemption from the registration
requirements of the Securities Act. Persons who may be deemed to be affiliates
of COMMUNITY generally include individuals or entities that control, are
controlled by or are under common control with COMMUNITY, and may include
certain Executive Officers and Directors of COMMUNITY as well as other principal
COMMUNITY Shareholders.
COMMUNITY has agreed in the Merger Agreement to use best efforts to
cause each person who is an "affiliate" (for purposes of Rule 145) of COMMUNITY
to deliver to FSC a written agreement intended to ensure compliance with the
Securities Act.
NASDAQ/NMS LISTING
FSC Common Stock is quoted on the NASDAQ/NMS. FSC has represented to
COMMUNITY that FSC intends to acquire the FSC Shares to be issued to COMMUNITY
Shareholders either in the open market or to utilize shares currently held in
treasury. FSC has agreed to comply with all requirements of the National
Association of Securities Dealers with respect to the shares of FSC Common Stock
to be issued to the COMMUNITY Shareholders in connection with the Merger. The
obligation of COMMUNITY to consummate the Merger is subject to the inclusion of
the acquired or treasury shares of FSC Common Stock to be exchanged in the
Merger for trading over the NASDAQ/NMS. (SEE "-- Conditions to the Merger"
above.)
ANTICIPATED ACCOUNTING TREATMENT
The Merger will be treated as a "purchase" for accounting and
financial reporting purposes. Under this method of accounting, the fair value
of the recorded assets and liabilities of COMMUNITY, and the resulting financial
"goodwill", will be combined with the assets and liabilities of FSB Utah at the
Effective Time. FSC will not restate its past financial statements as a result
of the Merger. Future financial statements of FSC following the Merger will
reflect the combined operations of COMMUNITY and FSB UTAH for the periods
covered by such financial statements.
The unaudited PRO FORMA combined financial information for COMMUNITY
and FSC contained in this Prospectus / Proxy Statement has been prepared using
the purchase accounting method to account for the Merger. (SEE "UNAUDITED PRO
FORMA COMBINED CONDENSED FINANCIAL STATEMENTS.")
OPERATIONS OF COMMUNITY AFTER THE MERGER
Following the Merger, COMMUNITY will cease to exist as a separate
entity, and its assets and operations will become part of FSB UTAH. COMMUNITY's
offices will be operated under the name "First Security Bank of Utah" following
the Merger. Although FSB UTAH presently intends to continue COMMUNITY's scope
of business without substantial modification, FSB UTAH will continue to evaluate
the personnel, business practices and
<PAGE>
-28-
opportunities of COMMUNITY and may make such changes as it deems appropriate
following the Merger. FSC will provide COMMUNITY employees who remain employed
after the Merger with employee benefits on substantially the same basis, and
will apply the same eligibility standards as apply to other employees of FSB
UTAH.
EFFECT OF THE MERGER ON COMMUNITY'S EMPLOYEE BENEFIT PLANS
Pursuant to the Merger Agreement, until the Effective Time of the
Merger, all retirement and health insurance plans maintained by COMMUNITY for
the benefit of employees will remain in effect without substantive change,
except as may be required by applicable law. After the Merger, studies will
continue as to the advantages and disadvantages of continuing the COMMUNITY
Retirement Plan as a separate plan, or rolling it into the plans now offered by
FSC.
The Merger Agreement provides that COMMUNITY employees retained by FSC
after the Effective Time will be eligible to participate in employee benefits
provided by FSC to its current employees. It is anticipated that all COMMUNITY
employees who are employed by FSB UTAH will receive service credit for years
employed by COMMUNITY; Messrs. Hill, Jackson and Jensen, all of whom are current
Executive Officers of COMMUNITY to be employed by FSB UTAH, will receive service
(but not benefit accrual) credit for years employed by COMMUNITY.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
This description of certain federal income tax considerations with respect
to the Merger is included solely for the information of the COMMUNITY
Shareholders. No information is provided with respect to the consequences of
any applicable state, local or foreign tax laws. Applicability of the
alternative minimum tax and other tax consequences of the Merger to a COMMUNITY
Shareholder may depend upon the individual situation of the COMMUNITY
Shareholder. Furthermore, special tax considerations may apply to COMMUNITY
Shareholders who are insurance companies, securities dealers, financial
institutions and foreign persons. Therefore, each COMMUNITY Shareholder is
urged to consult his or her own tax advisor concerning the specific tax
consequences of the Merger to such COMMUNITY Shareholder.
It is intended that the Merger will be treated as a reorganization
within the meaning of Section 368(a) of the Code and that, accordingly, for
federal income tax purposes; (i) no gain or loss will be recognized by FSC or
COMMUNITY as a result of the Merger; (ii) no gain or loss will be recognized by
holders of COMMUNITY Common Stock upon the receipt of FSC Common Stock in
exchange for COMMUNITY Common Stock pursuant to the Merger, except as discussed
below with respect to cash received in lieu of a fractional share interest in
FSC Common Stock; and (iii) the aggregate adjusted tax basis of the shares of
FSC Common Stock received by the holders of COMMUNITY Common Stock pursuant to
the Merger will be the same as the aggregate adjusted tax basis of the shares of
COMMUNITY Common Stock surrendered in exchange therefor (reduced by the amount
allocable to fractional share interests for which cash is received).
<PAGE>
-29-
Consummation of the Merger is conditioned upon receipt by each of FSC
and COMMUNITY of opinion of Ray, Quinney & Nebeker, dated as of the Effective
Time of the Merger, substantially to the effect that, on the basis of facts,
representations and assumptions set forth or referred to in such opinions, the
principal federal income tax consequences of the Merger under current law will
be as set forth above.
FSC and COMMUNITY do not intend to apply for a ruling from the IRS
with respect to the federal income tax consequences of the Merger. Instead,
they intend to rely on the opinion of legal counsel for FSC and FSB UTAH, Ray,
Quinney & Nebeker. An opinion of counsel is not binding upon the IRS or the
courts. The tax opinion will be based upon certain factual assumptions and upon
certain representations and assurances made by COMMUNITY and FSC. The tax
opinion will not address the consequences of the Merger on the COMMUNITY
Shareholders under applicable state or local income tax laws.
One of the requirements for tax-free reorganization treatment is that
shareholders of the acquired corporation acquire a substantial and continuing
interest in the acquiring corporation. The tax opinion will be based on the
assumption that the shareholders of COMMUNITY have no plan or intention at the
time of the Merger to sell or otherwise dispose of an amount of FSC Common Stock
to be received in the Merger that would reduce their aggregate ownership of FSC
Common Stock to a number of shares having in the aggregate a value at the time
of the Merger of less than 50% of the total value of the COMMUNITY Common Stock
outstanding immediately prior to the Merger. For purposes of such
determination, shares of COMMUNITY Common Stock that are exchanged for cash or
other property, or surrendered by dissenters, or exchanged for cash in lieu of
the issuance of fractional shares of FSC Common Stock, will be treated as
outstanding shares of COMMUNITY Common Stock immediately prior to the Merger.
Any cash received by the holders of COMMUNITY Common Stock, whether
pursuant to the exercise of dissenters' rights or in lieu of a fractional share
of FSC Common Stock, will be treated as having been received in redemption of
the shares or fractional share interest so cashed out, and will result in
taxable gain or loss. The amount of such gain or loss will be the difference
between the cash received and the basis of the shares or the fractional share
interest surrendered in exchange therefor. Provided the shares or the
fractional share interest was held as a capital asset at the time of the
redemption, such gain or loss will constitute capital gain or loss, and such
gain or loss will be long term capital gain or loss if the holding period for
such shares or fractional share interest was greater than one year.
COMMUNITY Shareholders who exchange COMMUNITY Common Stock for FSC
Common Stock pursuant to the Merger will receive certain Rights to acquire
additional FSC stock under certain circumstances (SEE "INFORMATION ABOUT FSC--
Description of FSC's Capital Stock--FSC Common Stock"). Based upon the current
ruling position of the IRS, such Rights will not constitute other property the
receipt of which will be taxable to the COMMUNITY Shareholders.
COMMUNITY Shareholders should also be aware that the IRS may examine
transactions taking place before, contemporaneously with, or after a
reorganization to determine whether reorganization treatment is appropriate, or
in some cases to determine whether shareholders will be taxed on other economic
benefits that are included as part of the
<PAGE>
-30-
overall transaction. Thus, loan transactions between parties, compensation
arrangements, noncompete agreements, consulting arrangements and other
transactions could be reviewed by the IRS and determined to constitute taxable
income to specific parties to the Merger or could be a basis for assertion that
reorganization treatment is not appropriate to the Merger. Furthermore, if the
IRS were to establish as to some COMMUNITY Shareholders that part of the FSC
Common Stock received in the Merger is severable from the Merger, resulting in a
proportionally increased equity interest being received in the Merger by other
COMMUNITY Shareholders, the COMMUNITY Shareholders whose equity interests were
deemed to be constructively increased by the Merger may be treated as having
received a taxable stock dividend. Thus, notwithstanding the tax opinion,
COMMUNITY Shareholders should consult with their tax advisors as to the tax
consequences of the Merger.
Under Section 3406 of the Code, COMMUNITY Shareholders may be subject
to "backup withholding" at the rate of 31% on "reportable payments" to be
received by them if they fail to furnish their correct taxpayer identification
numbers or for certain other reasons. FSC will report to these persons and to
the IRS for each calendar year the amount of any reportable payments during that
year and the amount of tax withheld, if any, with respect to those reportable
payments.
The Code also imposes an alternative minimum tax and excise taxes on
certain types of transactions. Applicability of such taxes is usually
controlled, in whole or part, by other matters unrelated to the Merger or by the
unique characteristics of the particular taxpayer. Accordingly, COMMUNITY
Shareholders are encouraged to consult their tax advisors if they are or might
be subject to such taxes.
RIGHTS OF DISSENTING COMMUNITY SHAREHOLDERS
Because FSB UTAH is the surviving bank in the Merger, neither federal
nor state law provides dissenters' rights to FSB UTAH Shareholders who may
object to the Merger.
If the Merger is approved, Sections 16-10a-1302 through 16-10a-1331 of
the Utah Code Annotated provide dissenters' rights to those COMMUNITY
Shareholders who object to the Merger ("Dissenting Shareholder(s)"), pursuant to
which FSC must purchase the shares of Dissenting Shareholders for cash at "fair
value," which may be an appraised value. Dissenters' rights are available to
COMMUNITY Shareholders complying fully with all the applicable provisions of
Sections 16-10a-1302 through 16-10a-1331 of the Utah Code Annotated, copies of
which appear in Appendix C hereto and are incorporated herein by reference. (SEE
"THE MERGERS--Accounting Treatment.")
Dissenter's rights may be exercised only by COMMUNITY Shareholders who
satisfy the requirements of Sections 16-10a-1302 through 16-10a-1331, Utah Code
Annotated. TO PERFECT THE RIGHT TO OBTAIN PAYMENT IN CASH FOR SHARES, EACH
DISSENTING SHAREHOLDER (I) MUST FILE WITH COMMUNITY, BEFORE A VOTE ON THE MERGER
IS TAKEN, WRITTEN NOTICE OF HIS OR HER INTENT TO DEMAND PAYMENT FOR SHARES IF
THE PROPOSED MERGER IS EFFECTUATED, AND (II) MUST NOT VOTE HIS OR HER SHARES IN
FAVOR OF THE MERGER.
<PAGE>
-31-
Special provisions pertain to beneficial owners and nominees who
desire to assert dissenters' rights (Section 16-10a-1303). A record holder may
assert dissenters' rights as to fewer than all shares registered in such
holder's name so long as certain additional actions are taken. Section 16-10a-
1303 should be reviewed carefully to assure compliance with these provisions.
Likewise special provisions govern dissenters' rights with respect to shares
acquired after announcement of the proposed Mergers (Section 16-10a-1327).
Upon approval of the Merger by the COMMUNITY Shareholders, FSB UTAH
shall give a written notice (the "Dissenters' Notice") to each Dissenting
Shareholder who has satisfied the requirements of (i) filing written notice with
COMMUNITY of such Shareholder's intent to seek dissenters' rights and (ii) not
voting in favor of the mergers. The Dissenters' Notice shall be sent no later
than 10 days after consummation of the Merger and shall:
(a) state that the Merger was authorized and give the effective
date or proposed effective date of the Merger;
(b) provide an address at which COMMUNITY or FSB UTAH will
receive payment demands and an address which certificates for certified shares
must be deposited;
(c) supply a form for demanding payment (which form may require
certification with respect to whether beneficial ownership of the shares was
acquired before the date of the first announcement of the proposed merger); and
(d) set a date by which FSB UTAH must receive the payment demand
and by which certificates must be deposited, which date may not be fewer than 30
nor more than 70 days after the date of the Dissenters' Notice.
EACH DISSENTING SHAREHOLDER WHO IS GIVEN A DISSENTER'S NOTICE, HAS
FILED A WRITTEN NOTICE OF INTENT TO DEMAND PAYMENT, AND HAS NOT VOTED HIS OR HER
SHARES IN FAVOR OF THE MERGER, AND WANTS TO FURTHER PERFECT HIS OR HER
DISSENTER'S RIGHTS MUST:
(A) PROVIDE FSB UTAH WITH A WRITTEN DEMAND FOR PAYMENT, WHICH
MAY BE ON THE PAYMENT DEMAND FORM INCLUDED BY FSB UTAH IN THE DISSENTERS'
NOTICE;
(B) DEPOSIT CERTIFICATES FOR HIS OR HER SHARES IN ACCORDANCE
WITH THE TERMS OF THE DISSENTERS' NOTICE; AND
(C) IF REQUESTED BY FSB UTAH, PROVIDE ADEQUATE EVIDENCE OF SUCH
SHAREHOLDER'S BENEFICIAL OWNERSHIP OF THE SHARES OF COMMUNITY COMMON STOCK PRIOR
TO ANNOUNCEMENT OF THE MERGER.
Failure by a Dissenting Shareholder to file a written demand
requesting payment of the fair value of the shares which he or she holds and to
deposit his or her share certificates in accordance with the terms of the
Dissenters' Notice shall TERMINATE the Dissenting Shareholders' rights to
payment and such Dissenting Shareholders shall be bound by the terms of the
Merger.
<PAGE>
-32-
Upon the later of the Effective Time or the date of receipt of each
payment demand, FSB UTAH shall pay to each eligible Dissenting Shareholder the
amount FSB UTAH estimates to be the fair value of the Dissenting Shareholder's
shares, plus interest accrued from the Effective Time until the date of payment.
Fair value shall be determined as of the time immediately before the Effective
Time and will exclude any appreciation or depreciation in anticipation of the
Merger.
Each payment shall be accompanied by:
(a) financial information on COMMUNITY, including (i) an audited
balance sheet as of the end of its most recent fiscal year, or if not available,
a fiscal year ending not more than 16 months before the date of payment; (ii) an
income statement for that year; (iii) a statement of changes in shareholders'
equity for that year and a statement of cash flows for that year, if the
corporation customarily provides such statements to shareholders; and (iv) the
latest available interim financial statement, if any;
(b) a statement of FSB UTAH's estimate of the fair value of the
shares and the amount of interest payable with respect to the shares;
(c) a statement of a Dissenting Shareholder's right in the event
the Dissenting Shareholder does not accept the payment offer made by FSB UTAH;
and
(d) a copy of the Utah law with respect to dissenter's rights.
If a Dissenting Shareholder chooses not to accept the payment offer
made by FSB UTAH, such Dissenting Shareholder may notify FSB UTAH in writing of
his or her own estimate of the fair value of the shares and demand payment of
such estimated value, plus interest (less any payments previously received).
SUCH DEMAND BY A DISSENTING SHAREHOLDER MUST BE MADE WITHIN THIRTY (30) DAYS
AFTER FSB UTAH MADE OR OFFERED PAYMENT OF THE SHARES OR THE DISSENTING
SHAREHOLDER SHALL BE DEEMED TO HAVE ACCEPTED THE FAIR VALUE OF THE SHARES AS
PAID BY FSB UTAH. If a demand for payment remains unresolved, FSB UTAH shall
commence a judicial proceeding in Salt Lake County, Utah, within sixty (60) days
after receiving the demand for payment, seeking a determination of the fair
value of such shares. All Dissenting Shareholders whose demands remain
unresolved must be made parties to the proceeding, and all such Dissenting
Shareholders will be entitled to judgment against FSB UTAH for the amount, if
any, by which the court finds that the fair value of the shares, plus interest,
exceeds the amount paid by FSB UTAH.
Each COMMUNITY Shareholder who makes demand for payment retains all
the rights of a COMMUNITY Shareholder, except the right to transfer his or her
shares, until the Effective Time and, after the Effective Time, has only the
right to receive payment.
If a Dissenting Shareholder votes against the Merger but otherwise
fails to perfect a dissent or shall have effectively lost his or her right to
appraisal of and payment for the fair value of his or her shares, such
Dissenting Shareholder shall be treated identically to a nondissenting
Shareholder.
<PAGE>
-33-
ANY COMMUNITY SHAREHOLDER CONTEMPLATING THE EXERCISE OF
DISSENTERS' RIGHTS WITH RESPECT TO HIS OR HER SHARES IS
URGED TO REVIEW CAREFULLY THE PROVISIONS OF APPENDIX C
INASMUCH AS DISSENTERS' RIGHTS MAY BE LOST IF THE
REQUIREMENTS OF THE UTAH CODE ARE NOT FULLY AND PRECISELY
SATISFIED.
For a discussion of certain tax consequences in connection with
dissenting, SEE "Certain Federal Income Tax Consequences", above.
SELECTED COMPARATIVE AND PRO FORMA FINANCIAL DATA
The following table presents selected historical and PRO FORMA
combined financial information for FSC and COMMUNITY which has been derived from
year-end consolidated financial statements of FSC, certain of which are
incorporated herein by reference, and of COMMUNITY, certain of which are
included elsewhere in this Prospectus / Proxy Statement; and from the September
30, 1992 and 1993 results of operations of each of FSC and COMMUNITY.
All FSC results have been restated to reflect FSC's pooling-of-
interest acquisitions in 1990 of United Savings Bank and Deseret Bank, but do
not reflect the acquisitions in November 1993 of First National Financial
Corporation (New Mexico) or Continental Bancorporation (Nevada). In addition,
FSC's results were restated to reflect adoption of SFAS No. 109, "Accounting for
Income Taxes" retroactive to 1988. All FSC per share amounts have been adjusted
to reflect the result of the 50% stock dividends effected by FSC in May 1992,
and June 1991, which had the effect of 3-for-2 stock splits. The average
balance sheet data is calculated on an average daily balance basis.
All of this financial information should be read in conjunction with
such financial statements and notes thereto, and the information hereinafter set
forth under the captions "INFORMATION ABOUT FSC" and "INFORMATION ABOUT
COMMUNITY," below which discusses, among other things, first nine months of 1993
financial results.
<PAGE>
-34-
FIRST SECURITY CORPORATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts and ratios)
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
1993 1992 1992 1991 1990 1989 1988
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME:
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income $266,058 $245,637 $329,605 $274,327 $251,333 $233,754 $212,650
Provision for loan losses 6,838 24,981 29,850 45,261 48,605 36,139 25,822
Noninterest income 95,075 81,363 110,806 105,113 89,232 72,643 62,246
Noninterest expenses 230,792 205,006 278,303 245,197 226,518 206,018 203,558
Net income 79,339 63,363 86,463 59,390 45,637 45,269 29,162
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA (A):
- ---------------------------------------------------------------------------------------------------------------------------
Earnings per common share $ 1.97 $ 1.62 $ 2.21 $1.67 $1.35 $1.35 $0.90
Dividends paid per share 0.65 0.49 0.68 0.60 0.57 0.55 0.50
Book value at period end 17.80 16.18 16.56 15.33 14.59 13.81 12.92
Market to book value at period end 157.30% 137.52% 164.55% 123.94% 73.89% 102.17% 85.14%
Dividend payout ratio 32.99% 30.25% 30.77% 36.06% 42.16% 40.76% 55.56%
Price/earnings ratio 10.9x 10.8x 12.3x 10.8x 7.6x 10.0x 12.2x
Common shares outstanding (000) 39,896 38,091 38,296 36,591 32,283 31,836 31,536
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET (A):
- ---------------------------------------------------------------------------------------------------------------------------
Investment securities $1,400,491 $1,292,748 $1,298,162 $1,066,625 $1,053,145 $806,863 $745,563
Loans, net of unearned income 5,202,130 4,797,815 4,814,751 4,595,049 4,421,748 4,033,303 3,837,057
Reserve for loan losses 99,910 94,471 95,608 85,686 68,425 60,298 63,037
Total interest-earning assets 7,026,167 6,467,354 6,500,691 6,084,348 5,735,819 5,098,549 4,773,740
Total assets 7,787,139 7,158,177 7,209,044 6,746,763 6,386,826 5,685,596 5,334,098
Interest-bearing deposits 4,604,137 4,433,571 4,455,285 4,243,518 3,876,871 3,533,773 3,401,864
Short-term borrowings 1,075,785 974,782 948,177 943,230 1,008,139 766,425 597,323
Long-term debt 196,859 95,081 103,659 103,533 142,083 149,780 163,156
Total interest-bearing labilities 5,876,781 5,503,434 5,507,121 5,290,281 5,027,093 4,449,978 4,162,343
Total deposits 5,686,676 5,331,654 5,391,625 5,038,855 4,626,897 4,204,716 4,041,189
Stockholders' equity 676,083 597,813 605,985 506,635 462,065 427,230 399,537
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
END OF PERIOD BALANCE SHEET (A):
- ---------------------------------------------------------------------------------------------------------------------------
Investment securities $1,354,024 $1,381,927 $1,348,923 $1,184,515 $1,020,017 $1,015,057 $768,790
Loans, net of unearned income 5,614,454 4,849,440 4,992,184 4,738,142 4,567,939 4,282,079 3,884,284
Reserve for loan losses 103,615 98,983 98,668 88,511 80,366 66,518 59,029
Total interest-earning assets 7,662,556 6,832,242 6,905,389 6,316,658 5,840,728 5,546,230 4,894,067
Total assets 8,458,800 7,450,747 7,610,278 7,016,691 6,494,269 6,101,324 5,466,846
Interest-bearing deposits 4,684,725 4,455,807 4,535,695 4,365,665 4,118,008 3,635,832 3,438,009
Short-term borrowings 1,267,986 1,005,523 972,829 865,655 774,716 957,703 606,399
Long-term debt 226,506 156,238 127,203 87,516 97,251 144,931 155,179
Total interest-bearing liabilities 6,179,217 5,617,568 5,635,727 5,318,836 4,989,975 4,738,466 4,199,587
Total deposits 5,911,614 5,466,722 5,685,135 5,333,754 5,000,400 4,415,697 4,169,041
Stockholders' equity 710,689 617,100 635,131 561,738 471,882 440,641 408,543
Nonperforming assets 44,389 73,832 64,414 93,562 103,693 85,616 102,625
Accruing loans past due 90 days 6,673 9,205 7,518 10,934 12,947 11,554 18,180
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
SELECTED RATIOS (A):
- ---------------------------------------------------------------------------------------------------------------------------
Return on average assets 1.36% 1.18% 1.20% 0.88% 0.71% 0.80% 0.55%
Return on average stockholders' equity 15.69 14.16 14.27 11.72 9.88 10.60 7.30
Stockholders' equity to assets 8.40 8.28 8.35 8.01 7.27 7.22 7.47
Risk-based capital ratios (B):
Tier 1 (1992 minimum: 4.0%) 11.47 11.19 11.08 10.68 9.62 9.28
Tier 1 + Tier 2 (1992 minimum: 8.0%) 13.96 13.83 13.67 11.90 11.70 11.38
Leverage (1992 minimum: 3.0%) 8.29 8.14 8.20 7.87 7.11 7.22
Reserve for loan losses at period end to:
Total loans 1.85 2.04 1.98 1.87 1.76 1.55 1.52
Nonaccruing and renegotiated loans 355.71 207.21 217.25 132.08 123.19 170.12 119.11
Nonperforming assets at period end to:
Total loans and ORE 0.79 1.51 1.29 1.96 2.25 1.98 2.61
Total assets 0.52 0.99 0.85 1.33 1.60 1.40 1.88
Total equity 6.25 11.96 10.14 16.66 21.97 19.43 25.12
Total equity plus reserve for loan losses 5.45 10.31 8.78 14.39 18.78 16.88 21.95
Net loans charged off to average loans 0.12 0.50 0.48 0.85 0.83 0.72 0.84
Ratio of earnings to fixed charges:
Excluding interest on deposits 4.58x 4.02x 4.20x 2.38x 1.70x 1.78x 1.76x
Including interest on deposits 1.78x 1.52x 1.55x 1.27x 1.18x 1.19x 1.16x
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
(A) Figures have been restated where applicable to reflect 3-for-2 stock splits
in the form of 50% stock dividends paid in May 1992 and June 1991,
and the retroactive adoption of SFAS 109 - "Accounting for Income Taxes".
(B) Risk-based capital ratios were not calculated prior to 1989. Ratios shown
were calculated based on 1992 requirements.
</TABLE>
<PAGE>
-35-
COMMUNITY
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts and ratios)
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
1993 1992 1992 1991 1990 1989 1988
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME:
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income $ 2,749 $2,434 $3,386 $2,870 $2,755 $2,876 $2,721
Provision for loan losses - - 26 110 197 123 123
Noninterest income 550 767 1,002 910 780 571 609
Noninterest expenses 1,640 1,605 2,206 2,261 2,152 2,013 1,995
Net income 1,111 1,092 1,469 950 837 918 914
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA:
- ---------------------------------------------------------------------------------------------------------------------------
Earnings per common share $ 28.84 $ 28.35 $ 38.14 $ 24.66 $ 21.73 $ 23.83 $ 23.73
Dividends paid/declared per share - - 8.00 7.00 6.50 6.00 5.50
Book value at period end 326.62 295.99 297.78 267.64 249.97 234.74 216.91
Dividend payout ratio - - 20.98% 28.39% 29.91% 25.18% 23.18%
Common shares outstanding 38,525 38,525 38,525 38,525 38,525 38,525 38,525
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET:
- ---------------------------------------------------------------------------------------------------------------------------
Investment securities $42,411 $42,074 $42,385 $38,195 $34,648 $28,980 $24,160
Loans, net of unearned income 23,622 22,086 22,256 21,036 19,952 20,028 20,511
Reserve for loan losses 275 288 284 281 260 264 260
Total interest-earning assets 68,677 64,660 66,460 60,461 56,333 51,715 48,029
Total assets 73,880 70,382 71,127 66,822 61,905 57,353 52,960
Interest-bearing deposits 52,008 50,492 50,691 48,125 44,219 40,382 37,093
Short-term borrowings - - - - - - -
Long-term debt - - - - - - -
Total interest-bearing labilities 52,008 50,492 50,691 48,125 44,219 40,382 37,093
Total deposits 62,791 58,811 59,448 56,090 51,678 47,855 44,158
Stockholders' equity 11,993 10,860 10,989 9,970 9,441 8,741 8,082
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
END OF PERIOD BALANCE SHEET:
- ---------------------------------------------------------------------------------------------------------------------------
Investment securities $42,445 $43,500 $43,521 $42,911 $37,022 $33,425 $25,499
Loans, net of unearned income 23,697 22,256 22,877 21,358 20,892 19,649 20,922
Reserve for loan losses 268 282 272 297 272 272 271
Total interest-earning assets 70,542 67,256 66,398 64,269 60,314 54,074 49,920
Total assets 77,164 71,846 73,949 69,877 66,986 60,664 55,708
Interest-bearing deposits 52,506 51,138 52,116 51,059 47,887 42,692 39,396
Short-term borrowings - - - - - - -
Long-term debt - - - - - - -
Total interest-bearing liabilities 52,506 51,138 52,116 51,059 47,887 42,692 39,396
Total deposits 64,050 59,752 62,136 59,122 56,843 50,971 466,30
Stockholders' equity 12,583 11,403 11,472 10,311 9,630 9,043 8,356
Nonperforming assets - - - 165 176 47 129
Accruing loans past due 90 days 206 212 187 195 135 551 439
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
SELECTED RATIOS:
- ---------------------------------------------------------------------------------------------------------------------------
Return on average assets 2.01% 2.07% 2.07% 1.42% 1.35% 1.60% 1.71%
Return on average stockholders' equity 12.35 13.41 13.39 9.42 8.85 10.38 11.12
Stockholders' equity to assets 16.31 15.87 15.51 14.76 14.38 14.91 15.00
Risk-based capital ratios (A):
Tier 1 (1992 minimum: 4.0%) 35.22 36.72 33.92 34.93 34.40
Tier 1 + Tier 2 (1992 minimum: 8.0%) 35.97 37.63 34.72 35.94 35.37
Leverage (1992 minimum: 3.0%) 16.97 16.14 16.07 15.36 15.49
Reserve for loan losses at period end to:
Total loans 1.13 1.27 1.19 1.39 1.30 1.38 1.30
Nonaccruing and renegotiated loans - - - 180.00 154.55 578.72 210.08
Nonperforming assets at period end to:
Total loans and ORE - - - 0.77 0.84 0.24 0.61
Total assets - - - 0.24 0.26 0.08 0.23
Total equity - - - 1.60 1.83 0.52 1.54
Total equity plus reserve for loan losses - - - 1.56 1.78 0.50 1.50
Net loans charged off to average loans 0.02 0.06 0.23 0.40 0.98 0.64 0.60
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
(A) Risk-based capital ratios were not calculated prior to 1990. Ratios shown
were calculated based on 1992 requirements.
</TABLE>
<PAGE>
-36-
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
PRO FORMA COMBINED CONDENSED BALANCE SHEET.
The unaudited Pro Forma Condensed Combined Balance Sheet shown on the next
page presents the combined financial position of FSC and COMMUNITY as of
September 30, 1993 assuming that the Merger had occurred as of September 30,
1993. Such PRO FORMA information is based on historical balance sheet data of
FSC and COMMUNITY as of that date. This PRO FORMA Combined Condensed Balance
Sheet should be read in conjunction with the PRO FORMA Condensed Combined
Statements of Income that follow, and the historical financial statements and
notes thereto of FSC, which are incorporated by reference in this Prospectus /
Proxy Statement, and of COMMUNITY, which appear as Appendix B attached to this
Prospectus / Proxy Statement. The PRO FORMA Combined Condensed Balance Sheet is
presented for informational purposes only. This information is not necessarily
indicative of the combined financial position that would have occurred if the
Merger had been consummated on September 30, 1993 or at the beginning of the
period indicated or which may be obtained in the future.
[THIS SPACE LEFT BLANK INTENTIONALLY]
<PAGE>
-37-
FSC AND COMMUNITY
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(unaudited)
September 30, 1993
<TABLE>
<CAPTION>
PRO FORMA
(DOLLARS IN THOUSANDS) FSC COMMUNITY ADJUSTMENTS TOTAL
<S> <C> <C> <C> <C>
ASSETS: $ 515,164 $4,713 $ 519,877
Cash and due from banks
Interest-bearing deposits in other banks 34,917 34,917
Federal funds sold & securities purchased
under resale agreements 130,578 4,400 134,978
Trading account securities 528,583 528,583
Investment securities 1,354,024 42,445 1,300 1,397,769
---------- ---------- ---------- ----------
Loans, net of unearned income 5,614,454 23,697 5,638,151
Less: Reserve for loan losses 103,615 268 (378) 104,261
---------- ---------- ---------- ----------
Total loans, net of reserve for loan losses 5,510,839 23,429 (378) 5,533,890
---------- ---------- ---------- ----------
Premises and equipment, net 124,481 943 1,777 127,201
Other assets 260,214 1,234 8,297 269,745
---------- ---------- ---------- ----------
TOTAL ASSETS $8,458,800 $ 77,164 10,996 $8,546,960
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
LIABILITIES:
Deposits $5,911,614 $ 64,050 $5,975,664
Short-term borrowings 1,267,986 1,267,986
Other liabilities 342,005 531 342,536
Long-term debt 226,506 226,506
---------- ---------- ---------- ----------
TOTAL LIABILITIES 7,748,111 64,581 7,812,692
---------- ---------- ---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock 711 711
Common stockholders' equity 709,978 12,583 10,996 733,557
---------- ---------- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY 710,689 12,583 10,996 734,268
---------- ---------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' $8,458,800 $ 77,164 10,996 $8,546,960
EQUITY ---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
SEE notes to PRO FORMA condensed combined financial statements.
<PAGE>
-38-
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
The PRO FORMA income statements on the following pages gives effect to the
Merger by combining the results of operations of FSC for the nine months ended
September 30, 1993 and 1992, and the year ended December 31, 1992, with the
results of operations of COMMUNITY for the nine months ended September 30, 1993
and 1992, and the year ended December 31, 1992, assuming that the Merger had
occurred as of January 1, 1992. Income per common share and weighted average
common shares outstanding are based on the Conversion Ratio as specified in the
Merger Agreement. These PRO FORMA Combined Condensed Statements of Income
should be read in conjunction with the PRO FORMA Combined Condensed Balance
Sheet, above, and the historical financial statements and notes thereto of FSC,
which are incorporated by reference in this Prospectus / Proxy Statement, and of
COMMUNITY, which appear as Appendix B to this Prospectus / Proxy Statement. The
PRO FORMA Combined Condensed Statements of Income are presented for
informational purposes only. This information is not necessarily indicative of
the combined results of operations that would have occurred if the Merger had
been consummated on September 30, 1993 or at the beginning of the periods
indicated or which may be obtained in the future. The Merger Agreement provides
that, prior to consummation of the Merger but after all other conditions to
consummation have been satisfied, COMMUNITY will, consistent with GAAP, modify
and change its loan, litigation and real estate valuation policies and practices
(including loan classifications and levels of reserves) so as to be applied
consistently on a mutually satisfactory basis with those of FSC. In connection
with the foregoing, a special review will be conducted jointly by COMMUNITY and
FSC shortly prior to the Effective Time. The data in the financial tables and
statements in this Prospectus / Proxy Statement does not reflect the amounts of
such accruals and reserves because such amounts will depend on the results of
such special review and the financial and economic conditions and other relevant
factors in existence at that time, nor does the table reflect possible
adjustments for restructuring charges and other expenses related to the Merger.
Accordingly, the PRO FORMA combined financial condition and results of
operations of FSC as of the Effective Time may be materially different from that
reflected in the PRO FORMA information below.
[THIS SPACE LEFT BLANK INTENTIONALLY]
<PAGE>
-39-
FSC AND COMMUNITY
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA, UNAUDITED)
<TABLE>
<CAPTION>
PRO-FORMA
FSC COMMUNITY ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $346,619 $2,032 $ 0 $348,651
Interest and dividends on
investment securities 58,158 1,960 60,118
Trading accounting interest 16,260 16,260
Other interest income 2,547 54 2,601
-------- -------- -------- --------
TOTAL INTEREST INCOME 423,584 4,046 427,630
-------- -------- -------- --------
Interest Expense:
Interest on deposits 123,024 1,294 124,318
Interest on short-term borrowings 24,412 3 24,415
Interest on long-term debt 10,090 10,090
-------- -------- -------- --------
TOTAL INTEREST EXPENSE 157,526 1,297 158,823
-------- -------- -------- --------
NET INTEREST INCOME
Provision for loan losses 266,058 2,749 268,807
6,838 6,838
-------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 259,220 2,749 261,969
-------- -------- -------- --------
Noninterest income 95,075 549 95,624
Noninterest expenses 230,792 1,640 550 232,982
-------- -------- -------- --------
INCOME BEFORE INCOME TAX PROVISION 123,503 1,658 (550) 124,611
Provision for income taxes 44,164 547 (193) 44,518
-------- -------- -------- --------
NET INCOME 79,339 1,111 (357) 80,093
Dividend requirement of preferred stock 32 32
-------- -------- -------- --------
NET INCOME APPLICABLE TO COMMON STOCK $ 79,307 $1,111 $ (357) $ 80,061
-------- -------- -------- --------
-------- -------- -------- --------
Earnings per common share:
Assuming no dilution $1.97 $28.84 $1.99
Assuming full dilution $1.97 $28.84 $1.98
-------- -------- -------- --------
-------- -------- -------- --------
Cash Dividends Paid or Accrued Per Share:
Preferred Stock ($3.15 annual rate) $2.36 $0.00 $0.79
Common stock $0.65 $0.00 $0.19
-------- -------- -------- --------
-------- -------- -------- --------
Average common shares outstanding:
Assuming no dilution 40,184 39 (39) 40,184
Assuming full dilution 40,354 39 (39) 40,184
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See notes to pro forma condensed combined financial statements.
<PAGE>
-40-
FSC AND COMMUNITY
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1992
(IN THOUSANDS, EXCEPT PER SHARE DATA, UNAUDITED)
<TABLE>
<CAPTION>
PRO-FORMA
FSC COMMUNITY ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $342,423 $1,857 $ 0 $344,280
Interest and dividends on
investment securities 65,691 2,131 67,822
Trading accounting interest 21,446 21,446
Other interest income 1,899 51 1,950
-------- -------- -------- --------
TOTAL INTEREST INCOME 431,459 4,039 435,498
-------- -------- -------- --------
Interest Expense:
Interest on deposits 153,729 1,601 155,330
Interest on short-term borrowings 26,386 4 26,390
Interest on long-term debt 5,707 5,707
-------- -------- -------- --------
TOTAL INTEREST EXPENSE 185,822 1,605 187,427
-------- -------- -------- --------
NET INTEREST INCOME 245,637 2,434 248,071
Provision for loan losses 24,981 24,981
-------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 220,656 2,434 223,090
-------- -------- -------- --------
Noninterest income 81,363 767 82,130
Noninterest expenses 205,006 1,605 550 207,161
-------- -------- -------- --------
INCOME BEFORE INCOME TAX PROVISION 97,013 1,596 (550) 98,059
Provision for income taxes 33,650 504 (188) 33,966
-------- -------- -------- --------
NET INCOME 63,363 1,092 (362) 64,093
Dividend requirement of preferred stock 37 37
-------- -------- -------- --------
NET INCOME APPLICABLE TO COMMON STOCK $ 63,326 $1,092 $ (362) $ 64,056
-------- -------- -------- --------
-------- -------- -------- --------
Earnings per common share:
Assuming no dilution $1.63 $28.35 $1.65
Assuming full dilution $1.62 $28.35 $1.64
-------- -------- -------- --------
-------- -------- -------- --------
Cash Dividends Paid or Accrued Per Share:
Preferred Stock ($3.15 annual rate) $2.36 $0.00 $2.36
Common stock $0.49 $0.00 $0.49
-------- -------- -------- --------
-------- -------- -------- --------
Average common shares outstanding:
Assuming no dilution 38,863 39 (39) 38,863
Assuming full dilution 39,055 39 (39) 39,055
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See notes to pro forma condensed combined financial statements.
<PAGE>
-41-
FSC AND COMMUNITY
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1992
(IN THOUSANDS, EXCEPT PER SHARE DATA, UNAUDITED)
<TABLE>
<CAPTION>
PRO-FORMA
FSC COMMUNITY ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $453,165 $2,463 $ 0 $455,628
Interest and dividends on
investment securities 85,629 2,923 88,552
Trading accounting interest 27,090 27,090
Other interest income 3,002 68 3,070
-------- -------- -------- --------
TOTAL INTEREST INCOME 568,886 5,454 574,340
-------- -------- -------- --------
Interest Expense:
Interest on deposits 197,974 2,063 200,037
Interest on short-term borrowings 33,068 5 33,073
Interest on long-term debt 8,239 8,239
-------- -------- -------- --------
TOTAL INTEREST EXPENSE 239,281 2,068 241,349
-------- -------- -------- --------
NET INTEREST INCOME 329,605 3,386 332,991
Provision for loan losses 29,850 26 29,876
-------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 299,755 3,360 303,115
-------- -------- -------- --------
Noninterest income 110,806 1,002 111,808
Noninterest expenses 278,303 2,206 733 281,242
-------- -------- -------- --------
INCOME BEFORE INCOME TAX PROVISION 132,258 2,156 (733) 133,681
Provision for income taxes 45,795 687 (249) 46,233
-------- -------- -------- --------
NET INCOME 86,463 1,469 (484) 87,448
Dividend requirement of preferred stock 48 48
-------- -------- -------- --------
NET INCOME APPLICABLE TO COMMON STOCK $ 86,415 $1,469 $ (484) $ 87,400
-------- -------- -------- --------
-------- -------- -------- --------
Earnings per common share:
Assuming no dilution $2.22 $38.14 $2.24
Assuming full dilution $2.21 $38.14 $2.23
-------- -------- -------- --------
-------- -------- -------- --------
Cash Dividends Paid or Accrued Per Share:
Preferred Stock ($3.15 annual rate) $3.15 $0.00 $3.15
Common stock $0.68 $8.00 $0.68
-------- -------- -------- --------
-------- -------- -------- --------
Average common shares outstanding:
Assuming no dilution 38,984 39 (39) 38,984
Assuming full dilution 39,174 39 (39) 39,174
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See notes to pro forma condensed combined financial statements.
<PAGE>
-42-
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. The accompanying unaudited PRO FORMA Condensed Combined Financial
Statements were prepared according to "purchase" accounting rules and contain
all adjustments (consisting of normal recurring accruals) necessary to present
fairly the financial position as of September 30, 1993, and the results of
operations for the nine months in the periods ended September 30, 1993 and 1992,
and the year ended December 31, 1992.
2. The PRO FORMA results of operations for the nine (9) month periods ended
September 30, 1993 are not necessarily indicative of the results to be expected
for the full year, nor are they necessarily indicative of the results that will
occur after the Merger is completed.
3. Financial statements incorporate fair market valuations for balances added,
as well as earnings since the acquisition, from three other financial
institutions acquired by FSC during 1992 and two during 1993.
4. Certain reclassifications of COMMUNITY amounts have been made to conform
with FSC classifications.
5. Information as to preferred and common shares as of September 30, 1993 (in
thousands):
<TABLE>
<S> <C>
FSC Preferred shares outstanding 14
FSC Common shares issued 40,255
FSC Common shares to be
purchased and exchanged
for COMMUNITY shares 842
FSC Common Treasury shares 359
PRO FORMA FSC Common shares,
net of treasury 39,896
</TABLE>
In May 1992 and June 1991, FSC paid 50% stock dividends having the effect of
three-for two stock splits. All share-related amounts in this report have been
restated for these splits.
6. Earnings per share have been calculated based on the following average
number of shares outstanding, as restated for FSC's stock splits and assuming
842,118 shares issued in the Merger for 38,525 outstanding COMMUNITY shares and
purchased on the open market:
<TABLE>
<CAPTION>
(in thousands) NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
1993 1992 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Average shares assuming:
No dilution 40,184 38,853 38,984 33,809 32,261
Full dilution 40,354 39,055 39,174 36,369 35,650
</TABLE>
Per share amounts assuming no dilution are computed after deducting the dividend
requirement of FSC's preferred stock. Per share amounts assuming full dilution
are computed assuming that all of FSC's outstanding preferred stock and 9.50%
convertible subordinated debentures due 2006 (which were all converted in 1991)
are converted into common shares on the basis of 12.15 shares of FSC Common for
each share of preferred and at the debenture's conversion price of $12.56 per
common share, with the elimination of dividends on the preferred stock and of
interest expense net of tax effect on the debentures.
7. Effective January 1, 1993, FSC adopted Statement of Financial Accounting
Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." SFAS 106 requires the Corporation to accrue the estimated
cost of retiree benefit payments during the years the employee provided
services. FSC previously expensed the cost of these benefits, which are
principally health care, as claims were incurred. SFAS 106 allows recognition
of the cumulative effect of the liability in the year of adoption or the
amortization of the obligation over a period of up to twenty years. The
Corporation has elected to recognize this obligation of approximately $3.50
million over a period of twenty years. FSC's cash flows are not affected by
implementation of this Statement, but implementation decreased income before
income tax provision for the nine months ended September 30, 1993 by $629
thousand.
8. In the first quarter of 1993, FSC adopted SFAS 109, "Accounting for Income
Taxes," the effects of which have been applied retroactively. Accordingly,
retained earnings at December 31, 1992 and 1991 were restated as $507.99 million
and $447.10 million, respectively, down from the originally reported $515.58
million and $454.55 million, respectively. SFAS 109 requires the Corporation to
compute deferred income taxes based
<PAGE>
-43-
on the difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.
9. The PRO FORMA adjustments reflected on the PRO FORMA Condensed Combined
Balance Sheet represent estimated increases in COMMUNITY assets and liabilities
to reflect their fair value as of September 30, 1993. The PRO FORMA Condensed
Combined Statements of Income include adjustments to reflect the effects of
amortization of the Fair Value adjustments made to the Balance Sheet as if the
merger had occurred as of the beginning of the periods shown.
[THIS SPACE LEFT INTENTIONALLY BLANK]
<PAGE>
-44-
SELECTED COMPARATIVE HISTORICAL, PRO FORMA
AND EQUIVALENT PRO FORMA PER SHARE DATA
The following table, which shows comparative historical per common share
data for FSC and COMMUNITY (separately and PRO FORMA combined), and equivalent
PRO FORMA per share data for COMMUNITY, should be read in conjunction with the
financial information appearing elsewhere in this Prospectus / Proxy Statement,
attached as Appendix B hereto, or incorporated herein by reference to other
documents. The table assumes that COMMUNITY Shareholders are to receive a total
of up to 842,118 shares of FSC Common Stock. (SEE "THE MERGER -- Conversion
Ratio.") The PRO FORMA data in the tables are presented for comparative
purposes only and are not necessarily indicative of the combined financial
position or results of operations of the combined companies in the future or
what the combined financial position or results of operations would have been
had the acquisition been consummated during the periods shown or as of the date
for which the tables are presented.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
-------------------- --------------------------
FSC and
COMMUNITY
PRO FORMA
FSC COMMUNITY Combined(4) PRO FORMA(5)
--- --------- ----------- ------------
<S> <C> <C> <C> <C>
NET INCOME PER SHARE:(1)
FOR THE YEAR ENDED
December 31, 1992 $2.21 $38.14 $2.19 $47.87
December 31, 1991 1.67 24.66 1.65 36.07
December 31, 1990 1.35 21.73 1.33 29.07
FOR THE NINE MONTHS ENDED
September 30, 1993 1.97 28.84 1.94 42.41
September 30, 1992 1.62 28.35 1.61 35.19
CASH DIVIDENDS PER
SHARE:(2)
FOR THE YEAR ENDED
December 31, 1992 $0.68 $8.00 $0.68 $14.86
December 31, 1991 0.60 7.00 0.60 13.12
December 31, 1990 0.57 6.50 0.57 12.46
FOR THE NINE MONTHS ENDED
September 30, 1993 0.65 0.00 0.65 14.21
September 30, 1992 0.49 0.00 0.49 10.71
BOOK VALUE PER SHARE:(3)
AS OF
December 31, 1992 $16.56 $297.78 $16.78 $366.79
December 31, 1991 15.33 267.64 15.55 339.91
December 31, 1990 14.59 249.97 14.84 324.39
September 30, 1993 17.80 326.62 18.01 393.68
September 30, 1992 16.18 295.99 16.41 358.71
<FN>
- ---------------------
(1) Net Income per common share is based on weighted average shares of FSC
Common Stock outstanding, fully diluted, and after FSC's Preferred Stock
dividends. Adjustments were made to take into account 3-for-2 stock splits
effected by FSC in 1992 and 1991.
(2) PRO FORMA cash dividends represent only historical cash dividends of FSC.
(3) Book value per common share is based on total period-end shareholders'
equity and, for FSC, less preferred equity of $783,000 (at 12/31/92);
$849,000 (at 12/31/91); $926,000 (at 12/31/90); $711,000 (at 9/30/93); and
$801,000 (at 9/30/92).
(4) PRO FORMA combined Net Income per share and Book Value Per Share amounts
reflect adjustments to COMMUNITY historical amounts to conform COMMUNITY
accounting for SFAS 109, "Accounting for Income Taxes" to the accounting
method used by FSC.
(5) PRO FORMA equivalent amounts on this table are computed by multiplying the
PRO FORMA combined amounts by the Conversion Ratio of 21.859.
</TABLE>
<PAGE>
-45-
COMPARATIVE AND PRO FORMA CAPITALIZATION
The following table presents the historical capitalization of both FSC and
COMMUNITY as of September 30, 1993. The information presented is drawn from
unaudited financial reports of the companies. Also shown is the PRO FORMA
capitalization of the combined companies as a result of the Merger:
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
FSC COMMUNITY ADJUSTMENTS COMBINED
--- --------- ----------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Common Equity $ 709,978 $ 12,583 $ 10,996(1) $ 733,577
Preferred Equity 711 none 711
Long Term Debt 226,506 none 226,506
Short Term Debt 1,267,986 none 1,267,986
<FN>
(1) Adjustment of COMMUNITY assets to reflect fair value as of 9/30/93, as
required by purchase accounting rules.
</TABLE>
INFORMATION ABOUT FSC
GENERAL
FSC is a Delaware incorporated multi-bank holding company
headquartered in Salt Lake City, Utah. At September 30, 1993, FSC and its
subsidiaries had total consolidated assets, deposits, and shareholders' equity
of $8.46 billion, $5.91 billion and $711 million, respectively.
FSC maintains its executive offices at 79 South Main Street, Salt Lake
City, Utah 84111, telephone 801-246-6000.
The principal assets of FSC are the capital stock of FSB UTAH
(approximately 99.9% owned), First Security Bank of Idaho, N.A. ("FSBI") (100%
owned), and First Security Bank of New Mexico, N.A. (100% owned), all of which
provide a broad range of banking, fiduciary, financial and other services. (SEE
"--Competition," below)
FSC also owns 99.9% of the outstanding capital stock of First Security
Bank of Wyoming, a Wyoming state bank, and 100% of the outstanding capital stock
of First Security Bank of Oregon, an Oregon savings bank and of First Security
Bank of Nevada, a Nevada-state chartered bank. (All of FSC's banking
subsidiaries will be referred to hereafter as "the Banks".) Nonbank
subsidiaries owned by FSC include a leasing company, a mortgage company, a
securities broker-dealer, an investment adviser, an insurance agency, a credit
life insurance company and a management and services subsidiary. The securities
subsidiaries
<PAGE>
-46-
are subject to regulation and supervision by the Commission and applicable state
securities authorities. The insurance agency and credit life insurance company
are regulated by applicable state insurance regulators.
In addition to its equity investment in its subsidiaries, FSC directly
or indirectly raises funds principally to finance the operations of its nonbank
subsidiaries. A substantial portion of FSC's cash flow is typically derived
from dividends directly from its bank and nonbank subsidiaries, and from
interest on loans to FSC's nonbank subsidiaries.
RECENT OPERATING RESULTS
For the nine months ended September 30, 1993, First Security earned
net income of $79.34 million, up $15.98 million (25.2%) from the $63.36 million
earned in the same period of 1992. This continued the record-setting trend of
1992, which was the most profitable year in the Corporation's 65-year history.
The large gain in net income from the same period last year was due primarily to
growth in interest-earning assets, plus a significant reduction in the provision
for loan losses combined with a lower cost of funds and higher noninterest
income.
Net income for the first nine months of 1993 generated a 1.36% return
on average assets (ROAA) and a 15.69% return on average stockholders' equity
(ROAE). These returns were up from a 1.18% ROAA and a 14.16% ROAE for the year-
ago period, and up from a 1.20% ROAA and a 14.27% ROAE for the entire 1992 year.
Net income per share was $1.97, up $0.35 (21.6%) from one year ago.
Per share data have been restated to reflect three-for-two stock splits made in
the form of 50% stock dividends paid in May 1992 and June 1991.
Total 1992 net income was $86.46 million, up $27.07 million (45.6%)
from the $59.39 million earned in 1991. This increase in net income was driven
by lower funding costs, growth in interest-earning assets, and a lower provision
for loan losses. FSC's ROAA rose to 1.20% for all of 1992, up from 0.88% in
1991, while ROAE increased to 14.27% for 1992, up from 11.72% in 1991.
Fully-diluted net income per share totaled $2.21 for 1992, up from $1.67 in
1991.
Management of FSC appreciates the hard work of its employee team and
the loyalty of its customers in producing the improving and impressive results
over the recent several years. Lower expenses and loan loss provisions
associated with a decreasing level of non-performing loans, coupled with a
beneficial interest rate environment and a stable or increasing customer demand
for its financial products and services within its market areas, has resulted in
increasing income, assets and shareholder equity. Management is aware, however,
that uncertainties inherent in today's highly competitive national and
international financial markets require constant vigilance by managers and a
willingness by shareholders to accept the presence of investment risk.
<PAGE>
-47-
RECENT DEVELOPMENTS
National and global economic uncertainties lead FSC to be conservative
in the management of its reserve for loan losses. Accordingly, the reserve was
increased to $103.62 million or 1.85% of total loans at September 30, 1993,
while on September 30, 1992 the reserve of $98.98 million was equal to 2.04% of
total loans. FSC uses extensive and sophisticated credit monitoring mechanisms,
and the credit quality of assets held by FSC's banking subsidiaries is subject
to periodic review by federal and state bank regulatory agencies. While FSC
believes that its present reserves for loan losses are at appropriate levels in
light of prevailing economic conditions, there can be no assurance that FSC will
not make certain adjustments to its reserves and charge-off policies in response
to changing economic conditions or future changes in regulatory requirements.
Total problem assets, which include nonaccruing and renegotiated
loans, accruing loans past due 90 days or more, and other real estate owned
(ORE) were $51.06 million at September 30, 1993, down $31.98 million (38.5%)
from one year ago. The ratio of the reserve for loan losses to the total of
nonaccruing and renegotiated loans was 355.71% at September 30, 1993 compared
with 207.21% one year ago. Total ORE and other foreclosed assets amounted to
$15.26 million at September 30, 1993, down $10.80 million (41.4%), from one year
ago. Accruing loans past due 90 days or more were $6.67 million at September
30, 1993, down $2.53 million (27.5%) from one year ago. The decrease in total
problem assets reflects FSC's adherence to its credit policies and continuing
gradual strengthening in its market areas.
FSC's ongoing internal loan review process classifies as "potential
problem loans" (under Commission definitions) those loans which cause management
serious doubt as to the ability of the borrowers to comply with the present
repayment terms, but which loans are currently less than 90 days delinquent, are
well-secured and in the process of collection, and thus are not nonperforming
assets. As of September 30, 1993, "potential problem loans" were $19.63
million, down $7.66 million (28.1%) from the $27.29 million identified at
September 30, 1992. "Potential problem loans" and nonperforming assets will
continue to be closely monitored and carefully managed.
In 1991, FSC filed a registration statement with the Commission
covering up to $150,000,000 of new debt instruments to be offered by FSC from
time to time under what is commonly known as a "shelf registration." Under the
registration statement, FSC sold $31,250,000 face amount of Medium-Term Notes
and $75,000,000 face amount of 7.50% Subordinated Notes Due 2002. The proceeds
of these debt issues were used for general corporate purposes, including the
redemption of higher interest rate debt obligations.
In 1992, FSC executed agreements providing for the acquisition of
First Bankshares, Inc. (and its wholly-owned subsidiary, Dixie State Bank)
through First Security Bank of Utah, N.A., and of Benton County Bank by First
Security Bank of Oregon. Dixie State Bank had deposits of approximately $73
million and 5 branches located in Southern Utah. Benton County Bank had
deposits of approximately $32 million and 2 branches located in Corvallis,
Oregon. These acquisitions were closed under pooling-of-interests accounting
transactions during the second quarter of 1993. Based on the market value of
FSC Common Stock at the time as compared with the book values of the acquired
entities, the effective values paid by FSC for First Bankshares, Inc. (as of the
signing of the merger agreement on
<PAGE>
-48-
July 1, 1992) and for Benton County Bank (as of the signing of the merger
agreement on September 30, 1992) were 2.6 and 3.4 times book value,
respectively.
In August 1993, FSC announced the closing of its acquisition of Desert
Southwest Community Bancorp and its wholly-owned subsidiary, Nevada Community
Bank, a one-branch Nevada state chartered bank. Nevada Community Bank had
deposits of approximately $43 million. Based on the market value of FSC Common
Stock at the time as compared with the book values of the acquired entities, the
value of this transaction to shareholders of Desert Southwest Community Bancorp
as of the signing of the merger agreement on January 22, 1993 was approximately
1.8 times the book value of Desert Southwest Community Bancorp.
In October 1993, FSC announced the closing of its acquisition of State
Bank of Green River, a one-branch Wyoming state chartered bank. State Bank had
deposits of approximately $28 million. Based on the market value of FSC Common
Stock at the time as compared with the book value of the acquired entity, the
value of this transaction to shareholders of State Bank as of the signing of the
merger agreement on February 23, 1993 was approximately 1.2 times the book value
of State Bank of Green River.
In November 1993, FSC announced the closing of the acquisition of
Continental Bancorporation and its wholly-owned subsidiaries, Continental
National Bank and Continental Trust Company, a Nevada trust company. Continental
Bancorporation had four (4) branches and deposits of approximately $198 million.
Based on the market value of FSC Common Stock at the time as compared with the
book values of the acquired entities, the value of this transaction to
Continental Bancorporation shareholders as of the signing of the merger
agreement on May 3, 1993 was approximately 2.5 times the book value of
Continental Bancorporation.
Also in November 1993, FSC acquired First National Financial
Corporation and its wholly owned First National Bank in Albuquerque, N.A.. First
National Bank in Albuquerque had 26 branches and deposits of approximately $1.15
billion at June 30, 1993. Based on the market value of FSC Common Stock at the
time as compared with the book value of the acquired entity, the value of this
transaction to shareholders of First National Financial Corporation as of the
signing of the merger agreement on May 18, 1993 was approximately 2.3 times the
book value of First National Financial Corporation.
In late 1993, FSC, subsidiary First Security Bank of Utah, N.A.
acquired the core banking assets and deposits of First Professional Bank, a
subsidiary of Fiscorp, Inc., located in Salt Lake City, Utah. The acquisition
involved deposits of approximately $6 million.
In 1994, FSC will close its acquisition of two branches of Equality
State Bank, Cheyenne, Wyoming, having total deposits of approximately $31
million.
FSC has announced the signing of a letter of intent for it to acquire
Star Valley State Bank of Afton, Wyoming by means of a merger with First
Security Bank of Wyoming, which acquisition is expected to close in the first
half of 1994. Star Valley State Bank had deposits of approximately $55 million
at September 30, 1993.
FSC has also announced a letter of intent for the acquisition of
American BanCorporation, and its subsidiary American Bank of Commerce, by First
Security Bank of
<PAGE>
-49-
Idaho. American Bank of Commerce has four (4) branches with $55.4 million in
deposits at September 30, 1993.
COMPETITION
Based on deposits of approximately $3.18 billion at December 31, 1992,
FSB UTAH was ranked the 135th largest commercial bank in the United States, and
is the largest bank in the State of Utah. It currently has 112 branches. Based
on deposits of nearly $2.26 billion at December 31, 1992, FSBI was ranked the
183rd largest commercial bank in the United States, and the second largest bank
in the State of Idaho. It currently has 83 branches. In Wyoming and Oregon,
FSC's banks are smaller, more localized competitors, with competition coming
from a variety of larger banks and credit unions. First Security Bank of
Oregon, at the last measurement date of March 31, 1993, was the 12th largest
bank in Oregon. First Security Bank of Wyoming is believed by FSC to be the
18th largest bank in Wyoming.
FSC's new subsidiary, First Security Bank of Nevada has a presence in
the Clark County, Nevada market of approximately 1.9% market share in deposits.
FSC's new subsidiary, First Security Bank of New Mexico, is the second
largest bank in the Albuquerque area and the third largest bank in New Mexico.
FSC's banks compete with other banking organizations in the states in
which they operate on the basis of price, service and convenience. Other types
of financial institutions, such as savings banks, savings and loan associations,
and credit unions offer a wide range of deposit and loan services (including
commercial loans) and, in some instances, fiduciary services. FSC's banks also
compete with brokerage firms and mutual funds which provide the substantial
equivalent of checking accounts, credit cards and similar devices which strongly
resemble deposit products. Major retailers compete for loans by offering credit
cards and retail installment contracts. It is anticipated that competition from
nonbank organizations will continue to grow.
[THIS SPACE LEFT BLANK INTENTIONALLY]
<PAGE>
-50-
CAPITALIZATION
The following table sets forth the historical capitalization of FSC as
of September 30, 1993 (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
LONG-TERM DEBT
Floating Rate Notes Due 1999 $ 7,910
Medium Term Notes Due 1994-1998 21,250
Subordinated Notes Due 2002 75,000
SUBSIDIARIES: (1)
Advances from Federal Home Loan Bank (2) 120,163
Mortgages Payable and Other Debt 2,183
----------
TOTAL LONG-TERM DEBT 226,506
----------
STOCKHOLDERS' EQUITY
Preferred Stock:
Series "A", $3.15 cumulative convertible 711
FSC Common Stock (par value $1.25,
Authorized 150,000,000 shares,
Issued and Outstanding 40,255,000
shares) 50,319
Paid-in Surplus 99,058
Retained Earnings 566,374
----------
SUB-TOTAL OF COMMON STOCKHOLDERS' EQUITY
(BEFORE TREASURY STOCK) 715,751
Common Treasury Stock at cost
(359,000 shares) (5,773)
----------
TOTAL FSC COMMON STOCKHOLDERS' EQUITY 709,978
----------
TOTAL STOCKHOLDERS' EQUITY 710,689
----------
TOTAL LONG-TERM DEBT AND
STOCKHOLDERS' EQUITY $ 937,195
----------
----------
<FN>
- ---------------------
(1) These obligations are direct obligations of FSC subsidiaries, and as such,
constitute claims against such subsidiaries prior to FSC's equity therein.
(2) These advances mature in 1994 through 1998.
</TABLE>
[THIS SPACE LEFT BLANK INTENTIONALLY]
<PAGE>
-51-
SUPERVISION AND REGULATION
REFERENCES IN THIS SECTION TO APPLICABLE STATUTES AND REGULATIONS ARE
BRIEF SUMMARIES ONLY, AND DO NOT PURPORT TO BE COMPLETE. THE READER SHOULD
CONSULT SUCH STATUTES AND REGULATIONS THEMSELVES FOR A FULL UNDERSTANDING OF THE
DETAILS OF THEIR OPERATION.
FSC is a bank holding company registered under the BHC Act, and is
subject to supervision and regulation by the Federal Reserve Board. Federal
laws subject bank holding companies to particular restrictions on the types of
activities in which they may engage, and to a range of supervisory requirements
and activities, including regulatory enforcement actions for violation of laws
and policies. In addition, Utah law authorizes the state bank regulators to
supervise and regulate under limited circumstances a holding company controlling
a Utah domiciled bank.
- ACTIVITIES "CLOSELY RELATED" TO BANKING. The BHC Act prohibits a
bank holding company, with certain limited exceptions, from acquiring direct or
indirect ownership or control of any voting shares of any company which is not a
bank or from engaging in any activities other than those of banking, managing or
controlling banks and certain other subsidiaries, or furnishing services to or
performing services for its subsidiaries. One principal exception to these
prohibitions allows the acquisition of interests in companies whose activities
are found by the Federal Reserve Board, by order or regulation, to be so closely
related to banking, managing, or controlling banks as to be a proper incident
thereto. Some of the activities that have been determined by regulation to be
closely related to banking are making or servicing loans, performing certain
data processing services, acting as an investment or financial advisor to
certain investment trusts and investment companies, and providing securities
brokerage services. Other activities approved by the Federal Reserve Board
include consumer financial counseling, tax planning and tax preparation, futures
and options advisory services, check guaranty services, collection agency and
credit bureau services, and personal property appraisals. In approving
acquisitions by FSC of companies engaged in banking-related activities, the
Federal Reserve Board considers a number of factors, including the expected
benefits to the public, such as greater convenience and increased competition or
gains in efficiency, which are weighed against the risks of possible adverse
effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest, or unsound banking practices. The Federal
Reserve Board is also empowered to differentiate between activities commenced DE
NOVO and activities commenced through acquisition of a going concern.
- SECURITIES ACTIVITIES. The Federal Reserve Board has approved
applications by bank holding companies to engage, through nonbank subsidiaries,
in certain securities-related activities (underwriting of municipal revenue
bonds, commercial paper, consumer-receivable-related securities and one-to-four
family mortgage-backed securities), provided that the affiliates would not be
"principally engaged" in such activities for purposes of Section 20 of the
Glass-Steagall Act. In very limited situations, holding companies have been
permitted to underwrite and deal in corporate debt and equity securities through
such subsidiaries.
- SAFE AND SOUND BANKING PRACTICES. Bank holding companies are not
permitted to engage in unsafe and unsound banking practices. The Federal
Reserve Board may order a bank holding company to terminate an activity or
control of a nonbank subsidiary if such activity or control constitutes a
significant risk to the financial safety, soundness or stability
<PAGE>
-52-
of a subsidiary bank and is inconsistent with sound banking principles.
Regulation Y also requires a holding company to give the Federal Reserve Board
prior notice of any redemption or repurchase of its own equity securities, if
the consideration to be paid, together with the consideration paid for any
repurchases or redemptions in the preceding year, is equal to 10% or more of the
company's consolidated net worth.
The Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") expanded the Federal Reserve Board's authority to prohibit
activities of bank holding companies and their nonbanking subsidiaries which
represent unsafe and unsound banking practices or which constitute violations of
laws or regulations. Notably, FIRREA increased the amount of civil money
penalties which the Federal Reserve Board can assess for such practices or
violations. The penalties can be as high as $1 million per day. FIRREA also
expanded the scope of individuals and entities against which such penalties may
be assessed.
- ANTI-TYING RESTRICTIONS. Bank holding companies and their bank and
nonbank affiliates are prohibited from tying the provision of certain services,
such as extensions of credit, to other services offered by a holding company or
its affiliates.
- ANNUAL REPORTING; EXAMINATIONS. FSC is required to file an annual
report with the Federal Reserve Board, and such additional information as the
Federal Reserve Board may require pursuant to the BHC Act. The Federal Reserve
Board may examine a bank holding company or any of its subsidiaries, and charge
the company for the cost of such an examination. FSC also will be subject to
reporting and disclosure requirements under the state and federal securities
laws subsequent to the offering contemplated by these materials.
- BANK HOLDING COMPANY CAPITAL ADEQUACY REQUIREMENTS. The Federal
Reserve Board monitors the capital adequacy of bank holding companies. The
Federal Reserve Board uses a combination of risk-based guidelines and leverage
ratios to evaluate capital adequacy. The Federal Reserve Board has adopted a
system using internationally consistent risk-based capital adequacy guidelines
to evaluate the capital adequacy of bank holding companies. Under the risk-
based capital guidelines, different categories of assets are assigned different
risk weights, based generally on the perceived credit risk of the asset. These
risk weights are multiplied by corresponding asset balances to determine a
"risk-weighted" asset base. Certain off-balance sheet items, which previously
were not expressly considered in capital adequacy computations, are added to the
risk-weighted asset base by converting them to a balance sheet equivalent and
assigning to them the appropriate risk weight. Total capital is defined as the
sum of "Tier 1" and "Tier 2" capital elements, with "Tier 2" being limited to
100% of "Tier 1." For bank holding companies, "Tier 1" capital includes, with
certain restrictions, common stockholders' equity, perpetual preferred stock and
minority interests in consolidated subsidiaries less certain intangibles. "Tier
2" capital includes, with certain limitations, certain forms of perpetual
preferred stock, as well as maturing capital instruments and the reserve for
possible loan losses and specified levels of certain intangibles.
In addition to the risk-based capital guidelines, the Federal Reserve
Board has adopted the use of a leverage ratio as an additional tool to evaluate
the capital adequacy of banks and bank holding companies. The leverage ratio is
defined to be a company's "Tier 1" capital divided by its adjusted total assets.
The leverage ratio adopted by the federal banking agencies requires a 3.0% "Tier
1" capital to adjusted total assets ratio for institutions with
<PAGE>
-53-
a CAMEL rating of 1. Institutions which are not CAMEL 1 rated will be expected
to maintain a 100 to 200 basis point cushion; i.e., these institutions will be
expected to maintain a leverage ratio of 4.0% to 5.0%, and institutions planning
acquisitions are expected to maintain higher ratios.
The following table sets forth the current regulatory requirements for
capital ratios of bank holding companies as compared with FSC's capital ratios
at September 30, 1993:
<TABLE>
<CAPTION>
TIER 1 TOTAL
CAPITAL TO CAPITAL TO
LEVERAGE RISK-WEIGHTED RISK-WEIGHTED
RATIO(1) ASSETS(2) ASSETS(3)
-------- ------------- -------------
<S> <C> <C> <C>
REGULATORY MINIMUM 4.00-5.00% 4.00% 8.00%
FSC ACTUAL 8.29% 11.47% 13.96%
<FN>
(1) THE LEVERAGE RATIO IS DEFINED AS THE RATIO OF TIER 1 CAPITAL (USING FINAL
1992 RISK-BASED CAPITAL GUIDELINES TO DEFINE TIER 1 CAPITAL) TO AVERAGE ASSETS,
NET OF GOODWILL. FEDERAL RESERVE BOARD GUIDELINES PROVIDE THAT ALL BANK HOLDING
COMPANIES (OTHER THAN THOSE THAT MEET CERTAIN CRITERIA) MAINTAIN A MINIMUM
LEVERAGE RATIO OF 3%, PLUS AN ADDITIONAL CUSHION OF 100 TO 200 BASIS POINTS. THE
GUIDELINES ALSO STATE THAT BANKING ORGANIZATIONS EXPERIENCING INTERNAL GROWTH OR
MAKING ACQUISITIONS WILL BE EXPECTED TO MAINTAIN "STRONG CAPITAL POSITIONS"
SUBSTANTIALLY ABOVE THE MINIMUM SUPERVISORY LEVELS WITHOUT SIGNIFICANT RELIANCE
ON INTANGIBLE ASSETS.
(2) SHAREHOLDERS' EQUITY LESS GOODWILL (TIER 1 CAPITAL) DIVIDED BY
RISK-WEIGHTED ASSETS.
(3) TIER 1 CAPITAL PLUS RESERVE FOR POSSIBLE LOAN LOSSES (LIMITED TO 1.25% OF
TOTAL RISK-WEIGHTED ASSETS) PLUS QUALIFIED SUBORDINATED AND CONVERTIBLE DEBT
(TIER 2 CAPITAL) DIVIDED BY RISK-WEIGHTED ASSETS.
</TABLE>
Bank regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations beyond their current levels.
However management is unable to predict whether and when higher capital
requirements would be imposed and, if so, at what levels and on what schedule.
- IMPOSITION OF LIABILITY FOR UNDERCAPITALIZED SUBSIDIARIES. The
Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
requires each federal banking agency to revise its risk-based capital standards
within eighteen months of enactment of FDICIA to ensure that those standards
take adequate account of interest rate risk, concentration of credit risk and
the risks of non-traditional activities, as well as reflect the actual
performance and expected risk of loss on multi-family mortgages. The new law
also requires each federal banking agency to specify within nine months after
the date of the enactment of the statute, by regulation, the levels at which an
insured institution would be considered "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized." Under the regulations adopted by the banking
agencies, all of FSC's subsidiary banks would be deemed to be "well
capitalized."
FDICIA requires bank regulators to take "prompt corrective action" to
resolve problems associated with insured depository institutions. In the event
an institution becomes "undercapitalized," it must submit a capital restoration
plan. If an institution becomes "significantly undercapitalized" or "critically
undercapitalized," additional and significant limitations are placed on the
institution. The capital restoration plan of an undercapitalized institution
will not be accepted by the regulators unless each company "having control of"
the undercapitalized institution "guarantees" the subsidiary's compliance with
the capital
<PAGE>
-54-
restoration plan until it becomes "adequately capitalized." FSC has control of
all of its subsidiaries for purposes of this statute.
Under FDICIA, the aggregate liability of all companies controlling a
particular institution is limited to the lesser of 5% of the institution's
assets at the time it became undercapitalized or the amount necessary to bring
the institution into compliance with applicable capital standards. FDICIA
grants greater powers to the bank regulators in situations where an institution
becomes "significantly" or "critically" undercapitalized or fails to submit a
capital restoration plan. For example, a bank holding company controlling such
an institution can be required to obtain prior Federal Reserve Board approval of
proposed dividends, or might be required to consent to a merger or to divest the
troubled institution or other affiliates.
Additionally, Federal Reserve Board policy discourages the payment of
dividends by a bank holding company from borrowed funds as well as payments that
would adversely affect capital adequacy. Failure to meet the capital guidelines
may result in institution by the Federal Reserve Board of appropriate
supervisory or enforcement actions.
The "PROMPT CORRECTIVE ACTION" provisions of FDICIA reflect the same
concerns which gave rise to a position adopted by the Federal Reserve Board
known as the "source of strength doctrine," which is based on the Federal
Reserve Board's Regulation Y. Regulation Y directs bank holding companies to
"serve as a source of financial and managerial strength" to their subsidiary
banks, and bars them from engaging in unsafe and unsound practices.
- AUDIT REPORTS. Beginning January 1, 1994, FDICIA will require
insured institutions with $500 million or more in total assets to submit annual
audit reports prepared by independent auditors to federal and state regulators.
In most cases, the audit report of the institution's holding company can be used
to satisfy this requirement. The annual audit report shall include financial
statements prepared in accordance with generally accepted accounting principles,
statements concerning management's responsibility for the financial statements,
internal controls and compliance with legal requirements designated by the FDIC,
and an attestation by the auditor regarding the statements of management. FDICIA
requires that independent audit committees be formed, consisting of outside
directors only. The committees of institutions with assets of $3 billion or
more must include members with experience in banking or financial management,
must have access to outside counsel, and must not include representatives of
large customers.
- ACQUISITIONS BY BANK HOLDING COMPANIES. The BHC Act requires every
bank holding company to obtain the prior approval of the Federal Reserve Board
before it may acquire all or 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 such bank. In approving bank acquisitions by bank holding companies,
the Federal Reserve Board is required to consider the financial and managerial
resources and future prospects of the bank holding company and the banks
concerned, the convenience and needs of the communities to be served, and
various competitive factors. The Attorney General of the United States may,
within 30 days after approval of an acquisition by the Federal Reserve Board,
bring an action challenging such acquisition under the federal antitrust laws,
in which case the effectiveness of such approval is stayed pending a final
ruling by the courts.
<PAGE>
-55-
- INTERSTATE ACQUISITIONS. The Federal Reserve Board will only allow
the acquisition by a bank holding company of an interest in any bank located in
another state if the statutory laws of the state in which the target bank is
located expressly authorize such acquisition. Utah banking laws permit, in
certain circumstances, out-of-state bank holding companies to acquire certain
existing banks and bank holding companies in Utah.
- MERGERS OF BANKS AND THRIFTS. FDICIA has eased restrictions on
cross-industry mergers. Members of the BIF and the Savings Association
Insurance Fund are generally allowed to merge, assume each other's deposits, and
transfer assets in exchange for an assumption of deposit liabilities. A formula
applies to treat insurance assessments relating to acquired deposits as if they
were still insured through the acquired institution's insurance fund. The
transaction must be approved by the appropriate federal banking regulator. In
considering such approval, the regulators take into account applicable capital
requirements, certain interstate banking restrictions, and other factors.
- BANK REGULATION. Three of FSC's bank subsidiaries are national
banks, which are subject to regulation and supervision by the Comptroller. The
other banks are a state-chartered bank in Wyoming, subject to regulation and
supervision by the State of Wyoming and by the FDIC; a state-chartered savings
bank in Oregon, which is regulated by the State of Oregon and by the FDIC; and a
state-chartered bank in Nevada, subject to regulation and supervision by the
State of Nevada and by the FDIC. Bank regulations on both the federal and state
levels are broad in their scope and materially affect the business of FSC and
its banks.
All of FSC's subsidiary banks are subject to the requirements and
restrictions under federal and state law, including requirements to maintain
reserves against deposits, restrictions on the types and amounts of loans that
may be granted and the interest that may be charged thereon, and limitations on
the types of investments that may be made and the types of services that may be
offered. Various consumer laws and regulations also affect the operations of
the banks. In addition to the impact of regulation, commercial banks are
affected significantly by actions of the Federal Reserve Board as it attempts to
control the money supply and credit availability in order to influence the
economy.
- PERMISSIBLE ACTIVITIES FOR STATE-CHARTERED INSTITUTIONS/EQUIVALENCE
TO NATIONAL BANK POWERS. FDICIA provides that, effective December 19,
1992, no state bank or subsidiary thereof may engage as principal in
any activity not permitted for national banks, unless the institution
complies with applicable capital requirements and the FDIC determines
that the activity poses no significant risk to the insurance fund. In
general, statutory restrictions on the activities of banks are aimed
at protecting the safety and soundness of depository institutions.
Many of the statutory restrictions limit the participation of such
institutions in the securities and insurance product markets. Each of
the state-chartered banking subsidiaries of FSC are in compliance with
the restrictions imposed by FDICIA.
- EQUITY INVESTMENTS. In general, FDICIA prohibits state banks from
directly or indirectly acquiring or retaining any equity investment of
a type, or in an amount, not permitted for national banks. This
prohibition does not apply to (1) investments in majority-owned
subsidiaries; (2) qualified lower-income housing projects; (3) certain
investments in shares listed on a national exchange or shares
<PAGE>
-56-
of a registered investment company; (4) investments in providers of
directors' and officers' liability insurance; and (5) shares of state-
examined institutions engaging only in activities permissible for a
national bank. Other restrictions may apply to such investments.
FDICIA requires the divestiture of impermissible equity investments
held prior to December 19, 1991, as quickly as is prudent, but not
later than December 19, 1996. In addition, during each of the three
years following the enactment of FDICIA, each state bank must reduce
by at least one-third the amount of impermissible publicly traded
shares owned as of December 19, 1991, that exceeds the amount of the
bank's capital. Each of FSC's state-chartered subsidiary banks has
implemented a plan for aligning its investment portfolio with the
requirements of FDICIA, and is presently in compliance with FDICIA's
equity divestiture requirements.
- RESTRICTIONS ON TRANSACTIONS WITH AFFILIATES. One set of
restrictions is found in Section 23A of the Federal Reserve Act, which
affects loans to and investments in FSC and any of its subsidiaries.
Section 23A imposes quantitative and qualitative limits on
transactions between a bank and any affiliate, and also requires
certain levels of collateral for such loans. It also limits the
amount of advances to third parties which are collateralized by the
securities or obligations of FSC or its subsidiaries.
Another set of restrictions is found in Section 23B of the Federal
Reserve Act. Among other things, Section 23B requires that certain
transactions between FSC's subsidiary banks and their affiliates must
be on terms substantially the same, or at least as favorable to FSC or
its subsidiaries, as those prevailing at the time for comparable
transactions with or involving other nonaffiliated companies. In the
absence of such comparable transactions, any transaction between FSC
and its affiliates must be on terms and under circumstances, including
credit standards, that in good faith would be offered to or would
apply to nonaffiliated companies. FSC is also subject to certain
prohibitions against advertising which suggests that FSC is
responsible for the obligations of its affiliates.
The restrictions on loans to insiders contained in the Federal Reserve
Act and Regulation O now apply to all insured institutions and their
subsidiaries and holding companies. The aggregate amount of an
institution's loans to insiders is limited to the amount of its
unimpaired capital and surplus, unless the FDIC determines that a
lesser amount is appropriate. Insiders are subject to enforcement
actions for knowingly accepting loans in violation of applicable
restrictions. Loans made prior to the enactment of FDICIA are not
subject to the restrictions.
- RESTRICTIONS ON SUBSIDIARY BANK DIVIDENDS. The Federal Reserve
Board, the Comptroller and the FDIC have each issued policy statements
to the effect that bank holding companies and member banks, national
banks and state banks should generally only pay dividends out of
current operating earnings. The prior approval of the Comptroller is
required if the total of all dividends declared by the board of
directors of a national bank in any calendar year will exceed the
aggregate of the bank's net profits (as defined by regulatory
authorities) for that year and its retained net profits for the
preceding two years. Similar restrictions govern the other banking
subsidiaries of FSC. In addition, national banks can pay dividends
<PAGE>
-57-
only to the extent that retained net profits exceed "bad debts", which
are generally defined to include the principal amount of loans that
are in arrears as to interest by nine months or more and that are not
secured and that are not in the process of collection. As of
September 30, 1993, FSC's subsidiary banks could have declared
additional dividends to FSC totalling approximately $86.50 million
without regulatory approval or restriction. Federal banking
regulators also may prohibit federally insured banks from paying
dividends if the payment of such dividend would leave the bank
"undercapitalized" as defined in FDICIA and the implementing
regulations, or the payment of dividends would, in light of the
financial condition of such bank, constitute an unsafe or unsound
practice. Applicable Nevada, Wyoming and Oregon law place similar
restrictions on the payment of dividends by banks organized under the
laws of those states.
- BRANCH CLOSING REQUIREMENTS. FDICIA requires FSC 's banks to notify
the FDIC and branch customers 90 days prior to a branch closing,
including a detailed statement regarding the reasons for the closing.
Notice of the closing must be posted at the facility 30 days prior to
the closing.
- TRUTH IN SAVINGS DISCLOSURES. FDICIA subjects FSC's banks to
information requirements concerning advertisements and solicitations
for deposits. The requirements are set forth in Regulation DD which
was published on September 21, 1992 and, with some minor amendments
became effective June 21, 1993. The regulation requires such
advertisements and solicitations to disclose the following: (1)
annual percentage yield and the period for which it is in effect; (2)
minimum balance and initial deposit requirements; (3) a statement that
fees could reduce the yield; and (4) interest penalty for early
withdrawal. Misleading advertisements are prohibited. Schedules of
rates, fees, and other terms must be distributed to customers, and
notice of any changes must be mailed 30 days before they go into
effect. Violations of these restrictions are subject to enforcement
actions by regulators, civil suits by depositors, and could result in
the payment of penalties and attorneys' fees. FDICIA requires
depository institutions to disclose fees, interest rates and other
terms concerning deposit accounts to consumers before they open
accounts. FDICIA requires depository institutions that provide
periodic statements to consumers to include information about fees
imposed, interest earned and the annual percentage yield on those
statements. FDICIA imposes substantive limitations on the methods by
which institutions determine the balance on which interest is
calculated. Rules dealing with advertisements for deposit accounts
are also included in the law.
- EXAMINATIONS. The FDIC periodically examines and evaluates insured
banks. Based upon such an evaluation, the FDIC may revalue the assets
of an insured institution and require that it establish specific
reserves to compensate for the difference between the FDIC-determined
value and the book value of such assets. Effective December 19, 1992
FDICIA requires that these on-site examinations be conducted every 18
months until December 31, 1993, except that certain less-than-
satisfactory institutions must be examined every 12 months.
Thereafter, the examinations are to be conducted every 12 months,
except that certain well capitalized banks may be examined every 18
months. FDICIA authorizes the FDIC to assess the institution for its
costs of conducting the examinations. The rules
<PAGE>
-58-
and regulations of the Comptroller, which regulates FSC's national
banks, and the various state banking authorities regulating FSC's
state-chartered banks, also provide for periodic examinations by those
agencies.
- STANDARDS FOR SAFETY AND SOUNDNESS. As part of FDICIA's efforts to
promote the safety and soundness of depository institutions and their
holding companies, the appropriate federal banking regulators are
required to promulgate by December 1, 1993 regulations specifying
operational and management standards (addressing internal controls,
loan documentation, credit underwriting and interest rate risk) and
asset quality, earnings and stock valuation standards (including a
minimum ratio of market value to book value of the publicly traded
shares of such depository institutions and holding companies). The
Federal Reserve Board issued on April 19, 1993 proposed regulations on
standards for safety and soundness, and is seeking public comment on
this proposal. The impact of these regulations is difficult to
determine until final regulations are issued. The proposed
regulations did not address standards for a minimum ratio of market
value to book value because the Board found that market value is
affected by factors unrelated to safety and soundness.
- REAL ESTATE LENDING EVALUATIONS. FDICIA requires uniform standards
for evaluations by the regulators of loans secured by real estate or
made to finance improvements to real estate that take into
consideration the risk posed to the insurance funds by real estate
loans, the availability of credit, and the need for safe and sound
operation of insured depository institutions. FDICIA also prohibits
the regulators from adversely evaluating a real estate loan or
investment solely on the grounds that the investment involves
commercial, residential or industrial property, unless the safety and
soundness of an institution may be affected.
In order to implement these provisions, on December 31, 1992, the
agencies adopted regulations establishing loan-to-value (LTV) ratio
limitations on real estate lending by insured depository institutions.
The Federal Reserve Board also established loan-to-value ratio
limitations on real estate lending by bank holding companies and their
nonbank subsidiaries. Certain transactions are excluded from the LTV
ratio limitations. Specifically, these limits do not apply to: loans
guaranteed or insured by the U.S. Government or an agency thereof, or
backed by the full faith and credit of a state government; loans
facilitating the sale of real estate acquired by the lending
institution in the ordinary course of collecting a debt previously
contracted; loans where real estate is taken as additional collateral
solely through an abundance of caution by the lender; loans renewed,
refinanced, or restructured by the original lender(s) to the same
borrower(s), without the advancement of new funds; or loans originated
prior to the effective date of the regulation.
- DEPOSIT INSURANCE ASSESSMENTS. FDICIA requires the FDIC to make
effective, no later than January 1, 1994, regulations setting up a
risk-based deposit insurance system. In addition, the FDIC can impose
special assessments to cover the cost of borrowings from the U.S.
Treasury, the Federal Financing Bank, and BIF member banks. The
semiannual assessment must be based on: (1) the probability
<PAGE>
-59-
of a loss to the BIF; (2) the potential magnitude of the loss; and
(3) the revenue and reserve needs of the fund.
On October 1, 1992, the FDIC issued rules revising its assessments
regulations to provide for the transition from the existing flat-rate
system for deposit insurance assessments (or "premiums") to a new,
risk-based assessment system. Under the transitional system for the
six-month period beginning July 1, 1993, and in semiannual periods
thereafter, FDIC-insured depository institutions that are members of
the BIF must pay insurance premiums at rates between 23 and 31 basis
points depending on the bank's capital category and bank regulators'
supervisory category. Institutions assigned to higher-risk
categories--that is, institutions that pose a greater risk of loss to
their respective deposit insurance funds--would pay assessments at
higher rates than would institutions that pose a lower risk. The FDIC
on June 25, 1993 issued final rules which make permanent, with some
technical modifications, the risk based assessment system set forth in
the transitional rules, commencing with the January 1, 1994 assessment
period. The FDIC may consider at a later date expanding the range of
the premiums assessed. As required by FDICIA, the FDIC has
implemented the rules governing assessments of BIF members to enable
BIF to recapitalize to the designated reserve ratio of 1.25% within
fifteen years.
- BROKERED DEPOSIT RESTRICTIONS. FIRREA and FDICIA generally bar
institutions which are not well capitalized from accepting brokered
deposits. The FDIC has issued rules which prohibit undercapitalized
institutions from soliciting or accepting such deposits. Adequately
capitalized institutions would be allowed to solicit such deposits,
but could only accept them if a waiver is obtained from the FDIC.
- REAL ESTATE APPRAISAL REQUIREMENTS. The federal banking agencies
have issued final regulations requiring, after December 31, 1992,
insured institutions to obtain appraisals by certified or licensed
appraisers for transactions having a value over $100,000.
- FIRREA'S IMPACT. FIRREA's primary purpose was to restructure the
statutory and regulatory framework applicable to savings associations,
and establish a mechanism for resolving insolvent thrift institution
cases. Certain provisions of FIRREA, however, affect the bank
subsidiaries of holding companies, including FSC. Among the most
significant of these provisions are those which: (1) clarify the
powers and duties of the FDIC as receiver or conservator of a bank;
(2) enhance the enforcement powers of the federal banking regulators;
(3) establish new reporting requirements under the Home Mortgage
Disclosure Act designed to prevent discriminatory lending practices;
(4) require the federal banking agencies to make public a rating of a
bank's performance under the Community Reinvestment Act; and
(5) prohibit banks from entering into contracts with persons providing
goods, products or services if the performance of such contracts would
adversely affect the bank's safety and soundness. FIRREA's primary
impact on commercial banks has been to increase the enforcement
authority of federal regulators and to expand the scope of potential
targets of enforcement actions.
<PAGE>
-60-
FIRREA also contains a "cross-guarantee" provision which makes
commonly controlled insured depository institutions liable to the FDIC
for any losses incurred in connection with the failure of an
affiliated insured depository institution.
- EXPANDING ENFORCEMENT AUTHORITY. One of the major additional
burdens imposed on the banking industry by FDICIA is the increased ability of
banking regulators to monitor the activities of banks and their holding
companies. In addition, the Federal Reserve Board, Comptroller and FDIC are
possessed of extensive authority to police unsafe or unsound practices and
violations of applicable laws and regulations by depository institutions and
their holding companies. For example, the FDIC may terminate the deposit
insurance of any institution which it determines has engaged in an unsafe or
unsound practice. The agencies can also assess civil money penalties of up to
$1 million per day, issue cease and desist or removal orders, seek injunctions,
and publicly disclose such actions. FDICIA, FIRREA and other laws have expanded
the agencies' authority in recent years, and the agencies have not yet fully
tested the limits of their powers.
- INSTABILITY OF REGULATORY STRUCTURE. The laws and regulations
affecting banks and bank holding companies are in a state of flux. The rules
and the regulatory agencies in this area have changed significantly over recent
years, and there is reason to expect that similar changes will continue in the
future. It is difficult to predict the outcome of these changes.
DESCRIPTION OF FSC'S CAPITAL STOCK
The following statements are brief summaries of the material
provisions relating to FSC's Preferred Stock and FSC Common Stock and are
qualified in their entirety by the provisions of FSC's Certificate of
Incorporation, which has been filed with the Commission.
- PREFERRED STOCK. The Certificate of Incorporation authorizes the
issuance of 400,000 shares of preferred stock with no par value. On September
30, 1993, there were 13,550 shares of $3.15 Cumulative Convertible Preferred
Stock, Series "A" (the "Series A Preferred Stock") outstanding. Holders of
Series A Preferred Stock have the right to receive semi-annual dividends at the
annual rate of $3.15 per share. Such right is cumulative and such dividends are
payable before dividends may be paid on the FSC Common Stock. The Series A
Preferred Stock is convertible into the FSC Common Stock at a ratio of 12.15
shares of FSC Common Stock for each share of Series A Preferred Stock. This
conversion right is subject to adjustment in certain events to protect against
dilution of the conversion rights attached to the Series A Preferred Stock. In
the event of a liquidation, dissolution or winding up of FSC, the holders of
Series A Preferred Stock are entitled to receive cash value of $52.50 per share
plus unpaid accumulated preferred dividends before any distribution is made to
holders of the FSC Common Stock. FSC may, at the option of the Board of
Directors, redeem all or any part of the outstanding Series A Preferred Stock at
the redemption price of $52.50 per share plus unpaid accumulated preferred
dividends.
Holders of FSC's Series A Preferred Stock are entitled to one vote per
share on all matters submitted to a vote of stockholders. Voting for the
election of directors is not cumulative. If at any time four or more
semi-annual dividends on the Series A Preferred Stock are in default, in whole
or in part, the holders of the Series A Preferred Stock as a class will be
entitled to elect four directors and the holders of the FSC Common Stock will be
entitled
<PAGE>
-61-
to elect the remaining directors. Holders of any additional Preferred Stock
hereafter issued may have such full or limited voting rights as are provided by
the Board of Directors.
The Board of Directors of FSC is authorized by the Certificate of
Incorporation to provide, without further shareholder action, for the issuance
of one or more series of preferred stock. The Board of Directors has the power
to fix various terms with respect to each series, including voting powers,
designations, preferences and relative, participating, optional or other special
rights, qualifications, limitations, restrictions and redemption, conversion or
exchangeability provisions. Holders of preferred stock have no pre-emptive
rights. The Series A Preferred Stock is not publicly traded.
- FSC COMMON STOCK. FSC is currently authorized to issue 150,000,000
shares of FSC Common Stock with a par value of $1.25 per share. As of September
30, 1993, there were outstanding 39,896,268 (net of Treasury Stock) shares of
FSC Common Stock. At such date, there were: 416,350 shares reserved for
issuance under FSC's Comprehensive Management Incentive Plan as stock bonuses
and other awards; 370,889 shares reserved for issuance under FSC's Dividend
Reinvestment Plan; 164,633 shares reserved for issuance upon the conversion of
FSC's Series A Preferred Stock, and 2,238,255 shares reserved for issuance upon
exercise of outstanding stock options. Payment of dividends on the FSC Common
Stock is also subject to the prior rights of FSC's outstanding Preferred Stock.
The holders of FSC Common Stock are entitled to voting rights for the
election of directors and for other purposes, subject to the voting rights of
the holders of Preferred Stock conferred by law and to the specific voting
rights granted to each series of Preferred Stock and to voting rights which may
in the future be granted to subsequently created series of Preferred Stock.
Dividends will be determined by FSC's Board of Directors in light of
circumstances existing at the time, including the earnings and financial
condition of FSC, and there is no assurance that dividends will continue to be
paid at current levels. No material restrictions have been imposed on FSC's
ability to pay dividends from its earned surplus by bank regulations or
applicable law. As of December 31, 1992, approximately $369 million could be
applied to dividend payments to its shareholders and certain other payments.
FSC Common Stock has no pre-emptive or conversion rights.
As of August 28, 1989, FSC adopted a Shareholder Rights Agreement (the
"Plan") and the Board of Directors of FSC on that date (a) declared a dividend
of one "Right" for each share of FSC Common Stock held of record as of the close
of business on September 8, 1989, and (b) authorized the issuance of one Right
in respect of each share of FSC Common Stock issued after September 8, 1989 and
prior to the occurrence of certain events described in the Plan, primarily
involving the acquisition of target levels of FSC shares by persons not then
holding such amounts. Each Right entitles the registered holder to purchase
from FSC a unit consisting of one-thousandth of a share of Junior Series B
Preferred Stock at a purchase price of $44.44 per unit. The Rights are attached
to all shares of FSC Common Stock that were outstanding on September 8, 1989 or
have been issued since that date, and no separate Rights Certificates have been
or will be distributed until the occurrence of certain events described in the
Rights Agreement. Until the occurrence of such events, no Right may be
exercised or traded separately from the FSC Common Stock. Following separation,
the Rights
<PAGE>
-62-
may, depending upon the occurrence of certain events described in the Rights
Agreement, entitle the holders thereof to either purchase or receive additional
shares of FSC Common Stock. The Rights will expire at the close of business on
August 28, 1999, unless earlier redeemed by FSC, which may be done at $0.01 per
Right, in accordance with the terms of the Plan.
The Plan is designed to protect FSC's stockholders' interests in the
event of an unsolicited attempt to acquire FSC, including a gradual accumulation
of shares in the open market. FSC believes that the Plan provides protection
against a partial or two-tier tender offer that does not treat all stockholders
equally and against other coercive takeover tactics which could impair FSC's
Board of Directors' ability to represent FSC's stockholders fully. Management
believes that the Rights should also deter any attempt by a controlling
stockholder to take advantage of FSC through self-dealing transactions. The
Plan is not intended to prevent a takeover of FSC. Issuing the Rights has no
dilutive effect, does not affect reported earnings per share, and does not
change the way in which FSC's shares are traded. However, the exercise of
Rights by some but not all of FSC's stockholders would have a dilutive effect on
nonexercising stockholders. Moreover, some may argue that the Plan has the
potential for "entrenching" current management by allowing current voting
stockholders to increase their voting shares, thus making a tender offer more
difficult and costly.
FSC Common Stock is not subject to redemption by FSC, and there is no
restriction on the repurchase by FSC of shares of FSC Common Stock except for
certain regulatory limits.
FSC's Certificate of Incorporation provides that, in general, an
affirmative vote of not less than 80% of the outstanding shares of FSC Common
Stock is required to approve or authorize certain major corporate transactions
involving FSC and holders of more than 15% of the FSC Common Stock (including
certain mergers, substantial dispositions of assets, liquidation or dissolution,
or recapitalization). The 80% vote is not required in some such circumstances,
including certain transactions which have been approved in advance by a majority
of the Board of Directors, or where holders of FSC Common Stock receive a price
per share that satisfies the fairness criteria set forth in the Certificate of
Incorporation.
HISTORICAL PRICES AND DIVIDENDS; STOCK OWNERSHIP
FSC Common Stock is quoted on the NASDAQ / NMS under the symbol
"FSCO".
The following table sets forth by quarter the high and low closing bid
price of FSC Common Stock as reported on the NASDAQ / NMS, and the cash
dividends declared per share for the calendar periods indicated. All stock
prices and dividends per share reported below have been adjusted for the 50%
stock dividends effected by FSC on May 18, 1992 and on June 3, 1991, which had
the effect of 3-for-2 stock splits.
<PAGE>
-63-
<TABLE>
<CAPTION>
CASH DIVIDENDS
DECLARED PER
HIGH LOW SHARE
---- --- --------------
<S> <C> <C> <C>
1993
Fourth Quarter $30.00 $24.00 $0.23
Third Quarter 28.50 26.50 0.23
Second Quarter 30.00 25.50 0.23
First Quarter 30.25 25.50 0.19
1992
Fourth Quarter $27.50 $22.00 $0.19
Third Quarter 26.25 21.50 0.17
Second Quarter 25.25 20.17 0.17
First Quarter 23.33 18.17 0.15
1991
Fourth Quarter $19.00 $16.17 $0.15
Third Quarter 17.33 13.67 0.15
Second Quarter 16.50 12.45 0.15
First Quarter 13.00 10.00 0.14
1990
Fourth Quarter $11.22 $ 8.00 $0.14
Third Quarter 13.22 9.55 0.14
Second Quarter 14.67 13.00 0.14
First Quarter 14.45 13.22 0.14
1989
Fourth Quarter $14.78 $13.67 $0.14
Third Quarter 14.56 12.11 0.14
Second Quarter 13.44 11.67 0.13
First Quarter 11.56 11.00 0.13
</TABLE>
The closing sale price of FSC Common Stock as reported on the
NASDAQ/NMS on November 2, the last trading day prior to the public announcement
of the Merger Agreement was $27.25 per share. On January , 1994, the
closing bid price for FSC Common Stock was $ per share.
As of December 31, 1993, there were 39,896,268 (net of treasury)
shares of FSC Common Stock outstanding and 13,550 shares of Series A preferred
stock issued and outstanding. The approximately 842,118 acquired or treasury
shares of FSC Common Stock
<PAGE>
-64-
to be issued in connection with the Merger will not result in any increase in
the number of shares of FSC Common Stock outstanding.
The Shareholders are advised to obtain current market quotations for
the FSC Common Stock. No assurances can be given concerning the market price of
the FSC Common Stock before or after the date on which the Merger is
consummated. The market price of the FSC Common Stock will fluctuate between
the date of this Prospectus/Proxy Statement and the date on which the Merger is
consummated and thereafter. Because the Conversation Ratio is fixed and because
the market price of the FSC Common Stock is subject to fluctuation, the value of
the shares of FSC Common Stock that holders of COMMUNITY Common Stock will
receive in the Merger may increase or decrease prior to and following the
Merger.
INFORMATION ABOUT COMMUNITY
GENERAL
COMMUNITY is a Utah state-chartered bank whose deposits are insured by
the FDIC. Accordingly, COMMUNITY is primarily regulated by the Commissioner and
by the FDIC. COMMUNITY is not a member of the Federal Reserve System.
The principal business of COMMUNITY is to obtain deposits from the
general public and to combine such deposits with other available sources of
funding to make residential and commercial real estate loans; secured and
unsecured commercial, corporate and business loans; and consumer loans.
COMMUNITY also purchases investment securities, including United States
Government, Federal Agency, and State and Municipal obligations. COMMUNITY
provides a variety of other banking services, including safe deposit boxes,
automated teller machines, night deposit facilities, wire transfers and various
domestic exchange services. COMMUNITY does not provide trust services.
The table below lists the major classifications of COMMUNITY's income
and the percentage contribution of each classification (dollar amounts in
thousands):
<TABLE>
<CAPTION>
1992 1991 1990
----------------- ----------------- -----------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(%) (%) (%)
--- --- ---
<S> <C> <C> <C> <C> <C> <C>
Interest and Fees on
Loans $2,456 38.08 $2,617 39.91 $2,610 40.09
Interest on Investment
Securities 2,924 45.33 2,950 44.99 2,977 45.72
Interest on Federal
Funds Sold 68 1.05 97 1.48 144 2.21
Non-Interest Income 1,002 15.54 893 13.62 780 11.98
------ ------ ------ ------ ------ ------
Total $6,450 100.00 $6,557 100.00 $6,511 100.00
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
</TABLE>
<PAGE>
-65-
COMMUNITY's operations are conducted through its Main Office located
in downtown Clearfield, Utah and its branch locations in Syracuse, Clinton,
Sunset, and Layton, Utah. At December 31, 1992, COMMUNITY had 47 full-time
equivalent employees. None of the employees are represented by labor unions.
THE MARKET FOR COMMUNITY COMMON STOCK
No broker or dealer makes a market in the COMMUNITY Common Stock.
Historically, transactions in COMMUNITY Common Stock have been negotiated
directly between buyers and sellers. Information regarding the stock
transactions presented below reflects trading and transfers in COMMUNITY Common
Stock. COMMUNITY's stock transfer records and other information available to
COMMUNITY management indicate that there have been only two sales of COMMUNITY
Common Stock: one in 1989 for 25 shares and another in 1990 for 400 shares. In
each sale transaction, COMMUNITY management understands that the purchase price
per share was between $90.00 and $100.00. Otherwise, transfers of COMMUNITY
Common Stock were without consideration and effected for estate planning and
other purposes. These transfers can be summarized as follows:
<TABLE>
<CAPTION>
Number
of Shares
Time Period Traded or Transferred
----------- ---------------------
<S> <C>
1989 4,985
1990 7,646
1991 6,492
1992 8,180
1993 2,415
</TABLE>
In 1990, 1991, 1992 and 1993, COMMUNITY declared annual dividends of
$6.50 per share, $7.00 per share, $8.00 per share, and $9.00 per share,
respectively. Depending on the Closing Date, COMMUNITY may declare a dividend
in 1994.
COMPETITION
COMMUNITY competes with commercial banks, savings and loan
associations, and credit unions in attracting deposits and originating loans.
The primary factors in competing for deposits are interest rates, fees, the
range and quality of services offered, the convenience of offices and automated
teller machines, and hours of operation. The primary factors in competing for
loans are interest rates, loan fees, and the quality and range of lending
services offered. Additional competition comes from money market funds,
mortgage banking firms, insurance companies, and other corporate and government
lenders.
COMMUNITY's market area is primarily northern Davis County, although
it also serves small portions of adjacent Weber County. The market shares based
on deposits for all depository institutions in Davis County and Weber County as
of June 30, 1992, which is the most recent information reliably available to the
parties to the Merger, are shown in the following table (dollar amounts in
thousands):
<PAGE>
-66-
<TABLE>
<CAPTION>
INSTITUTION DEPOSITS MARKET SHARE
----------- -------- ------------
<S> <C> <C>
First Security Bank of Utah, N.A. $402,789 30.9%
Community First Bank 57,810 4.4
American General Financial 1,045 0.1
Bank of Utah 108,006 8.3
Bank One of Utah, N.A. 43,576 3.3
Barnes Banking Company 104,454 8.0
First Interstate Bank of Utah, N.A. 32,821 2.5
First National Bank of Layton 49,756 3.8
Great Western Thrift & Loan 9,716 0.7
Key Bank of Utah 249,875 19.1
West One Bank, Utah 46,498 3.6
Zions First National Bank 198,865 15.2
---------- --------
$1,305,211 100.0%
---------- --------
---------- --------
</TABLE>
REGULATION
The information contained in this section summarizes portions of
certain laws and regulations that apply to COMMUNITY. This summary does not
purport to be complete and is qualified in its entirety by reference to the
described statutes and regulations.
COMMUNITY is an Utah state-chartered bank and as such is subject to
supervision and regulation by the Commissioner. Certain requirements and
restrictions are imposed on COMMUNITY by the Commissioner and Utah law,
including restrictions on the nature and amount of loans that it may make and
restrictions relating to investments, facilities and other activities.
Laws passed in the 1980's and early 1990's have, among other things,
served to substantially increase competition between commercial banks and thrift
institutions by reducing or eliminating certain deposit and lending
restrictions; required all depository institutions to maintain reserves with the
Federal Reserve System; required increased Community Reinvestment Act
disclosures; and increased FDIC insurance premiums (now .23% of deposits). The
Federal Deposit Insurance Corporation Improvement Act of 1991 was signed into
law on December 19, 1991, and its provisions are being phased in over a period
of four years. Provisions include "Truth in Savings," which requires uniform
disclosures for interest rates and terms on interest-bearing accounts; a
risk-based insurance assessment for FDIC; uniform regulations on real estate
lending; and a variety of supervisory and accounting reforms. All banks will be
substantially impacted by these new regulatory requirements.
(For additional information about the banking regulatory environment,
SEE "INFORMATION ABOUT FSC -- Supervision and Regulation").
<PAGE>
-67-
PROPERTIES
The following table shows information concerning the locations and
adjusted book value of COMMUNITY's offices as of September 30, 1993:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Office/Property Location Net Book Value [1] Owned Date Lease Condition of
or Expires; Property
Leased Lease Terms
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Main Office $612,765.29 Owned n/a Suitable for
180 So. State St. Intended Use;
Clearfield, UT 84015 Average to
Excellent
Condition
- --------------------------------------------------------------------------------
Clinton Office $23,675.54 Owned n/a Suitable for
2097 W. 1800 N. Intended Use;
Clinton, UT 84015 Average to
Excellent
Condition
- --------------------------------------------------------------------------------
Sunset Office $15,570.86 Owned n/a Suitable for
2275 North Main Intended Use;
Sunset, UT 84015 Average to
Excellent
Condition
- --------------------------------------------------------------------------------
Syracuse Office $63,295.67 Owned n/a Suitable for
1975 W. 1700 So. Intended Use;
Syracuse, UT 84075 Average to
Excellent
Condition
- --------------------------------------------------------------------------------
Layton Office $219,022.19 Own 1999, with Suitable for
1275 N. Hill Field Rd. Bld. options to Intended Use;
Layton, UT 84041 Lease extend Average to
Land $28,000 Excellent
(Approx.) Condition
annual lease
payment
- --------------------------------------------------------------------------------
<FN>
[1]Net book value includes land and building (if owned), together with
furniture and equipment.
</TABLE>
Each of the above properties is covered by insurance and, in the
judgment of COMMUNITY's management, are adequately insured. In addition,
COMMUNITY has two surplus properties, which were formerly used as bank premises
and which, pending possible dispositions of the properties, are subject to
short-term leases aggregating $2,200/month in lease payments. The total taxable
value of these properties, as estimated by COMMUNITY's management, is
approximately $230,000.
<PAGE>
-68-
DIRECTORS AND EXECUTIVE OFFICERS
Information relating to COMMUNITY's Directors and Executive Officers is set
forth below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
NAME AND POSITION WITH COMMUNITY PRINCIPAL OCCUPATION DIRECTOR OR
- -------------------------------- AGE DURING LAST FIVE YEARS OFFICER SINCE
--- ---------------------- -------------
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Harold C. Steed 73 Director of Community 1946
Chairman of Board
- --------------------------------------------------------------------------------
O. Wayne Thornock 65 Director of Community 1960
Director
- --------------------------------------------------------------------------------
Richard A. Hill 43 Executive Officer and 1974
President, CEO Director of Community
and Director
- --------------------------------------------------------------------------------
Joe S. Jackson 43 Executive Officer of 1975
Senior Vice President, Cashier Community
Secretary, Security Officer and
Clearfield Office Manager
- --------------------------------------------------------------------------------
Bruce G. Jensen 36 Executive Officer of 1979
Senior Vice President, Community
Senior Lending Officer,
CRA Officer, Compliance
Officer, Branch Administrator
- --------------------------------------------------------------------------------
Haven J. Barlow 71 Insurance and Real Estate 1982
Director Sales
- --------------------------------------------------------------------------------
Morris Hansen 75 Retired Lumber Business 1972
Director
- --------------------------------------------------------------------------------
Robert W. Speirs 56 Plumbing Contractor 1975
Director
- --------------------------------------------------------------------------------
Gerald W. Hess 48 Attorney 1986
Director
- --------------------------------------------------------------------------------
</TABLE>
All Directors of COMMUNITY are elected to serve until the next annual
meeting of Shareholders and until their successors are elected and qualified.
Executive Officers are elected annually by the Board of Directors and serve at
the will of the Board.
BOARD OF DIRECTORS, COMMITTEES AND MEETINGS
The Board of Directors held 12 meetings during 1992 and 14 meetings
during 1993. Each Director attended at least 85% of the meetings of the Board
of Directors.
The Board of Directors has appointed an Audit Committee consisting of
four Directors who are not officers or employees of COMMUNITY. This Committee
presently is comprised of Messrs. Hansen, Speirs, Hess and Barlow. The Audit
Committee reviews the reports of COMMUNITY's accounting firm, Simpson and
Company, and reports the results to
<PAGE>
-69-
COMMUNITY's Board. The Audit Committee has the responsibility to select the
accounting firm contracted with for outside Audits. The Audit Committee met
four times in 1993.
The Board of Directors has appointed an Asset Liability Committee
(ALCO) which has responsibility to review the Bank's Asset Liability Policies
and insure that they are carried out by management. As conditions change the
Asset Liability Committee may amend existing policy and develop new policies.
The ALCO consists of Messrs. Steed, Hill, Hess and Thornock. The ALCO met four
times in 1993.
EXECUTIVE COMPENSATION
The following information is furnished with respect to the President
and CEO, and for any Executive Officer or Director whose total compensation
exceeded $100,000 during each of the three years ended December 31, 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
NAME AND YEAR SALARY BONUS/ RETIRE- RESTRICTED OPTIONS LTIP ALL OTHER
POSITION BOARD MENT STOCK SARS PAYOUTS COMPEN-
FEES BENEFIT/ AWARD SATION
OTHER
ANNUAL
COMPEN-
SATION
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
R. A. Hill 1993 $85,163 $2,700 $5,100 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------
1992 72,985 2,500 5,895 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------
1991 46,380 2,500 3,000 N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------
</TABLE>
No Executive Officers or Directors had total compensation that
exceeded $100,000 during the period from 1991 to 1993.
Salary levels of Senior Officers are determined by the Board of
Directors. There are no salary continuation agreements with any officers of
COMMUNITY.
All Directors of COMMUNITY are elected to serve until the next annual
meeting of Shareholders and until their successors are elected. Officers are
elected annually by the Board of Directors and serve at the will of the Board.
In 1993, Directors who were employees of COMMUNITY were paid $200 per
month and other Directors were paid $250 per month, in each case regardless of
the number of Board meetings attended. No additional fees were paid for
Committee meetings attended.
<PAGE>
-70-
TRANSACTIONS WITH MANAGEMENT
Some of the Directors and Executive officers of COMMUNITY, and
companies with which they are associated, are customers of, and have had banking
transactions with, COMMUNITY. COMMUNITY also has purchased services and
products from some of the companies with which Directors are associated. All
existing loans and commitments to loan included in such transactions were made
in compliance with applicable laws and on the same terms, including interest
rate and collateral, as those prevailing at COMMUNITY at the time for comparable
transactions with other persons, and, in the opinion of management, did not
involve more than the normal risk of collectability or present any other
unfavorable features. As of September 30, 1993, loans outstanding to all
Directors and Executive Officers and their affiliates totaled $29,000 or .2% of
the equity capital of COMMUNITY.
LEGAL PROCEEDINGS
Because COMMUNITY is engaged in the business of furnishing financial
services, including providing credit and collecting secured and unsecured
indebtedness, COMMUNITY generally has pending routine collection litigation. As
of the date of this Prospectus/Proxy Statement, in the opinion of COMMUNITY's
management, any pending or threatened legal proceedings would not have a
material effect on COMMUNITY's results of operations or financial position.
COMMUNITY'S MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE FIRST NINE MONTHS OF 1993
COMMUNITY'S growth was moderate in the first nine months of 1993. At
September 30, 1993, deposits were $4,298,000 higher than September 30, 1992, an
increase of 7.2%. During the same period loans increased $1,441,000 or 6.5%,
investments including federal funds sold increased 4.1%. Bank premises and
fixed assets increased by $169,000 or 21.7%. This was primarily due to the
purchase of new data processing equipment. Total interest income increased by
$7,000 and total interest expense decreased by $308,000 or 19.2%. This resulted
in a net interest income increase of $315,000 or 12.9% compared to the prior
year. Declining interest rates on deposits had a positive effect on the net
interest margin. After factoring in total non-interest income, which was down
$217,000 from September 1992, and total non interest expense, which was up
$35,000 from September 1992, the net income was up $19,000 or 1.7%.
COMMUNITY'S net income of $1,092,000 as of September 30, 1992
translates into an annualized ROA of 2.07% and an annualized ROE of 13.4%.
COMMUNITY's net income of $1,111,000 as of September 30, 1993 translates into an
annualized ROA of 2.01% and an annualized ROE of 12.35%.
<PAGE>
-71-
COMMUNITY'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE TWO YEARS ENDED DECEMBER 31, 1992
The following discussion of the significant changes in COMMUNITY's
financial condition and results of operations should be read in conjunction with
the financial statements and notes included as Appendix B to this
Prospectus/Proxy Statement, and "COMMUNITY'S MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE FIRST NINE
MONTHS OF 1993", above.
SUMMARY
At December 31, 1992, COMMUNITY's total assets were $73,949,000
compared to $69,877,000 at December 31, 1991. Net loans increased from
$21,358,000 at December 31, 1991 to $22,877,000 at December 31, 1992, which
represents an increase of 7.1%.
Total deposits at December 31, 1992 were $62,136,000 compared to
$59,122,000 at December 31, 1991, which represents an increase of 5.1%. Money
market and other savings accounts increased $2,030,000, demand deposits
increased $1,957,000, interest bearing demand deposits increased $883,000, and
total time deposits reflected a decrease of $1,857,000.
Net income increased $519,000 in 1992 to $1,469,000. 1991 income of
$950,000 increased $113,000 from $837,000 in 1990. The following table
summarizes COMMUNITY's significant income and expense categories (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1992 1991
---- ----
<S> <C> <C>
Net Interest Income $3,386 $2,870
Provision for Loan Losses 26 110
Non-Interest Income 1,002 910
Non-Interest Expense 2,206 2,261
Provision for Income Taxes 687 459
------ ------
Net Income $1,469 $ 950
------ ------
------ ------
</TABLE>
RESERVE FOR LOAN LOSSES
COMMUNITY maintains its reserve for loan losses at a level that its
Board of Directors believes is adequate to provide for potential losses in its
loan portfolio. The adequacy is analyzed and reviewed monthly by management and
periodically presented to the Board of Directors for discussion and approval.
<PAGE>
-72-
COMMUNITY maintains a "watch" list, which includes all loans that have
been adversely classified by regulators, as well as those loans about which
management has serious doubts concerning the borrowers' ability to pay in
accordance with the original terms of the loans.
The adequacy of the reserve for loan losses is then determined by
considering these potential losses, the average loan loss rate over the past
five years, current and anticipated economic conditions, changes in the volume
and type of loans granted, and any other factors that management believes may
have an impact on the volume of future losses. A provision for loan losses to
be charged against earnings is determined in order to maintain the appropriate
level in the reserve.
The following table summarizes changes in the loan loss reserve (in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30 DECEMBER 31
----------------- -----------
1993 1992 1992 1991
---- ---- ---- ----
<S> <C> <C> <C> <C>
Beginning Loan Loss
Reserve $272 $297 $297 $272
Provision for Loan
Losses 0 0 26 110
Loans Charged-off (49) (61) (121) (121)
Loan Recoveries 45 46 70 36
---- ---- ---- ----
Ending Loan Loss
Reserve $268 $282 $272 $297
---- ---- ---- ----
---- ---- ---- ----
Reserve as a Percent
of Total Loans 1.13% 1.27% 1.19% 1.39%
Net Charge-offs as a
Percent of Total Loans 0.02 0.07 0.22 0.40
</TABLE>
INVESTMENTS
Particularly in recent years, with deposits increasing more than
loans, investments have become a proportionately larger source of income at
COMMUNITY. Investments increased $610,000 or 1.4% from December 31, 1991 to
December 31, 1992, but decreased $1,076,000 or 2.5% from December 31, 1992 to
September 30, 1993. This decrease resulted from massive paydowns on mortgage
backed securities held as a result of refinancings. The actual extent of the
paydowns was learned only after the fact, requiring the proceeds to temporarily
be placed in short term Federal funds until such time as suitable investments
could be made. COMMUNITY has elected to only hold investments in either
adjustable rate securities or securities with short historical or short
scheduled paydowns. Widespread and ongoing refinancings have substantially
reduced any correlation between originally stated maturities of mortgaged backed
securities and scheduled repayments. The following tables show COMMUNITY's
investment portfolio at September 30, 1993 and each
<PAGE>
-73-
of December 31, 1992 and 1991, and the maturity distribution of the portfolio at
December 31, 1992 (dollar amounts in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1993 BOOK VALUE AT DECEMBER
31
------------------ ----------------------
BOOK MARKET 1992 1991
------ -------- ------ ------
<S> <C> <C> <C> <C>
U.S. Treasury $ 10,130 $ 10,664 $ 13,281 $ 17,337
Securities
Federal Agency 30,741 31,528 28,329 22,105
Securities
Municipal Securities 1,185 1,206 1,407 2,520
Other Securities 389 389 504 949
------- ------- ------- -------
Total Investment $42,445 $43,787 $43,521 $42,911
Securities ------- ------- ------- -------
------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1992
---------------------------------------------------------
MATURITY MATURITY MATURITY MATURITY
ONE YEAR 1 TO 5 5 TO 10 MORE THAN
OR LESS YEARS YEARS 10 YEARS TOTAL
-------- -------- -------- --------- -----
<S> <C> <C> <C> <C> <C>
U.S. Treasury $ 5,000 $ 8,281 $ 0 $ 0 $13,281
Securities
Federal Agency 300 4,094 1,508 22,427 28,329
Securities
Municipal Securities 200 731 476 0 1,407
Other Securities 0 0 0 504 504
------- ------- ------- ------- -------
TOTAL $ 5,500 $13,106 $ 1,984 $22,931 $43,521
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
ASSET AND LIABILITY MANAGEMENT
The difference between the amount of interest-rate sensitive assets
and interest-rate sensitive liabilities is referred to as the interest-rate
sensitivity "GAP" for any given time period. This measurement is sometimes used
as an indicator of risk of declines in net interest margin due to changes in
interest rates. The greater the difference between the aggregate amount of
interest-bearing assets and the aggregate amount of interest-bearing liabilities
in a short time frame, the greater the effect changes in interest rates will
have on the bank's net interest margin.
Volatile interest rates have made managing interest-rate sensitivity
of asset and liability portfolios increasingly important. The stated objective
of COMMUNITY's written asset-liability management policy is profit management.
It is intended to protect bank profits from undue exposure to interest rate
risk.
<PAGE>
-74-
COMMUNITY considers assets and liabilities maturing or repriceable
within three months to be rate sensitive. COMMUNITY also recognizes that NOW
accounts and savings accounts can be repriced within three months. COMMUNITY
expects its rate-sensitive liabilities to exceed its rate-sensitive assets, and
recognizes that a negative GAP would not be unusual.
COMMUNITY attempts to make a substantial portion of its loans
repriceable in one year or less, but recognizes that a mix of fixed rate and
variable rate loans will provide some stability in its net interest income
whether rates are rising or falling.
Variable rate loans repriceable at intervals of one year or less
amounted to 51.5% of total loans at December 31, 1992, and 37.8% of total loans
at December 31, 1991. The following table summarizes COMMUNITY's "GAP position"
as of December 31, 1992 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1992
AMOUNTS MATURING OR REPRICING WITHIN
------------------------------------------------
0-3 4-12 1-5 OVER
MONTHS MONTHS YEARS 5 YEARS TOTAL
------ ------ ----- ------- -----
<S> <C> <C> <C> <C> <C>
Earning Assets:
Investment Securities $12,210 $ 8,098 $10,651 $12,562 $43,521
Federal Funds Sold 0 0 0 0 0
Loans 12,255 1,588 7,438 1,596 22,877
-------- -------- -------- -------- --------
Total Earning Assets $24,465 $ 9,686 $ 18,089 $14,158 $66,398
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Liabilities:
NOW Accounts $17,123 $ 0 $ 0 $ 0 $17,123
Savings Accounts 13,664 0 0 0 13,664
Time Deposits 5,526 6,443 9,360 0 21,329
-------- -------- -------- -------- --------
Total Liabilities $36,313 $ 6,443 $ 9,360 $ 0 $52,116
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
GAP (11,848) 3,143 8,729 14,158 14,282
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
GAP as a Percent of
Earning Assets (17.84)% 4.88% 13.15% 21.32% 21.51%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
<PAGE>
-75-
The following table summarizes COMMUNITY's "GAP position" as of
September 30, 1993 (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1993
AMOUNTS MATURING OR REPRICING WITHIN
------------------------------------------------
0-3 4-12 1-5 OVER
MONTHS MONTHS YEARS 5 YEARS TOTAL
------ ------ ----- ------- -----
<S> <C> <C> <C> <C> <C>
Earning Assets:
Investment Securities $11,591 $ 6,287 $ 8,773 $15,794 $42,445
Federal Funds Sold 4,400 0 0 0 4,400
Loans 12,895 1,846 7,595 1,361 23,697
-------- -------- -------- -------- --------
Total Earning Assets $28,886 $ 8,133 $16,368 $17,155 $70,542
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Liabilities:
NOW Accounts $17,956 $ 0 $ 0 $ 0 $17,956
Savings Accounts 15,059 0 0 0 15,059
Time Deposits 6,257 8,285 4,949 0 19,491
-------- -------- -------- -------- --------
Total Liabilities 39,272 8,285 4,949 0 52,506
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
GAP ($10,386) ($ 152) $11,419 $17,155 $18,036
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
GAP as a Percent of
Earning Assets (14.72)% (0.22)% 16.19% 24.32% 25.57%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Maintaining liquidity at adequate levels is an essential element of
proper funds management for financial institutions. COMMUNITY's primary sources
of liquidity are cash, deposits with other institutions, overnight Federal Funds
sold, investment securities due within one year, and loans maturing within one
year, all of which totaled $39,691,000 at December 31, 1992. COMMUNITY does not
accept brokered deposits. Time deposits of $100,000 or more totaled $3,213,000
at December 31, 1992. There were no repurchase agreements outstanding at
December 31, 1992.
COMMUNITY endeavors to manage its assets and liabilities to provide
sufficient liquidity to meet deposit withdrawal and loan demands of its
customers. COMMUNITY's base of core deposits is quite stable and loans
generally represent approximately 30% of total assets.
COMMUNITY has maintained a stable capital base, with an average
capital ratio of 15.64% in 1992 and 14.92% in 1991. COMMUNITY has determined
that it can pay out approximately 30% of net income in the form of dividends and
retain sufficient earnings to support an annual total asset growth rate of
approximately 8.00% and maintain a capital-to-assets ratio of approximately 15%.
Bank regulatory agencies adopted risk-based minimum capital guidelines
effective December 31, 1990. These guidelines address the differences in risk
profiles of assets and consider off-balance sheet exposure in assessing capital
adequacy. (See "INFORMATION ABOUT FSC -- Supervision and Regulation.")
COMMUNITY's risk-adjusted ratio for Tier One
<PAGE>
-76-
plus Tier Two Capital ("Total Capital Ratio") under these guidelines at December
31, 1992 was 34.72% and at September 30, 1993 was 35.97%. At September 30,
1993, the minimum required Total Capital Ratio was 8.00%.
LOANS
Various national and regional economic conditions affect the volume
and credit quality of loans and investments by COMMUNITY. In view of changing
conditions in the national and regional economies and money markets, federal
deficits, legislative changes, and the effect of actions by monetary and fiscal
authorities, no prediction can be made as to possible future changes in interest
rates, deposit levels or loan demands on the business and earnings of COMMUNITY.
COMMUNITY's net loan portfolio of $22,605,000 represented 30.6% of its
total assets at December 31, 1992, compared to $21,061,000 or 30.1% of total
assets at December 31, 1991. The composition of COMMUNITY's loan portfolio by
type of loan at such dates was as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------
1992 1991
------------------ ------------------
Amount % Amount %
------ --- ------ ---
<S> <C> <C> <C> <C>
Real Estate Loans:
Construction $ 1,766 7.8 $ 1,717 8.1
1-4 Family 5,617 24.8 6,015 28.6
Other 786 3.5 348 1.6
-------- -------- -------- --------
Total Real Estate Loans 8,169 36.1 8,080 38.3
Commercial Loans 5,867 26.0 4,842 23.0
Individual Loans 8,841 39.1 8,436 40.1
-------- -------- -------- --------
Total Loans 22,877 101.2 21,358 101.4
Less:
Reserve for Loan Losses 272 1.2 297 1.4
-------- -------- -------- --------
Net Loans $22,605 100.0 $21,061 100.0
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
In the normal course of business, COMMUNITY enters into financial
instruments which subject COMMUNITY to some risk of disbursing funds at a future
date. These instruments include revolving home equity lines, credit card lines,
unadvanced construction loan commitments, commitments to extend credit and
stand-by letters of credit. Many of these instruments have fixed expiration
dates and do not necessarily represent future cash requirements since they may
expire without being drawn upon. These commitments are summarized in the
following table (in thousands):
<PAGE>
-77-
<TABLE>
<CAPTION>
DECEMBER 31
-----------
1992 1991
---- ----
<S> <C> <C>
Loan Commitments $6,448 $3,924
Standby Letters of
Credit 0 0
</TABLE>
A majority of commercial loans and other real estate loans are to
small businesses or are secured by small business properties. COMMUNITY does
not have any concentrations of loans or commitments with any industry or
geographic area experiencing unusual financial difficulty.
NONPERFORMING ASSETS
Nonperforming assets, which consist of nonaccrual loans and accruing
loans 90 days or more past due, totaled $187,000 at December 31, 1992 and
$360,000 at December 31, 1991.
DEPOSITS
Total deposits increased 5.1% to $62,136,000 at December 31, 1992,
compared to a 4.0% increase at December 31, 1991. Deposits at year end can be
somewhat volatile and average deposits for the year are a much better indicator
of growth trends. Average deposits increased 6.0% in 1992, and 8.5% in 1991,
which COMMUNITY believes indicates the stability of its market area and its
success in attracting new deposits. COMMUNITY does not accept "brokered"
deposits and does not actively solicit deposits from cities, school districts,
or other public bodies. As a result, public deposits average approximately 5%
of total deposits and are not a significant source of funding. The following
table shows average deposits (dollar amounts in thousands) for the years 1992
and 1991:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------
1992 1991
--------------------- ---------------------
AVERAGE AVERAGE AVERAGE AVERAGE
DEPOSITS RATE % DEPOSITS RATE %
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Non-Interest Bearing:
Demand Deposits $ 8,599 $ 7,965
Interest Bearing:
Money Market
Accounts 2,263 3.16 2,041 5.14
Other Savings 10,439 3.83 8,338 5.06
NOW Accounts 16,860 3.11 14,917 4.92
Time Certificates of
Deposit 21,129 5.04 22,829 6.72
-------- --------
Total Deposits $59,290 $56,090
-------- --------
-------- --------
</TABLE>
<PAGE>
-78-
The bulk of COMMUNITY's deposit growth has been in interest-bearing
accounts. Average money market accounts increased 10.9% in 1992 and decreased
2.2% in 1991. Other savings accounts grew 25.2% in 1992 and 4.7% in 1991. NOW
accounts, which are interest-bearing checking accounts, have also grown
steadily, increasing 13.0% in 1992 and 17.5% in 1991. Average time deposits
declined 7.4% in 1992 after increasing 6.3% in 1991.
Historically, COMMUNITY's time deposits are most sensitive to changes
in interest rates, and flow into and out of the bank as investment opportunities
change. COMMUNITY's policy has been to set its rates at a level that will allow
profitable investment of the deposited funds.
The following table shows the maturity distribution of time deposits
as of December 31, 1992 (in thousands):
<TABLE>
<CAPTION>
OVER 3
3 MONTHS THROUGH OVER
OR LESS 12 MONTHS 12 MONTHS TOTAL
-------- --------- --------- -----
<S> <C> <C> <C> <C>
Under $100,000 $5,526 $6,443 $6,146 $18,115
$100,000 or more 2,491 722 0 3,213
------- ------- ------- -------
Total $8,017 $7,165 $6,146 $21,328
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
RESULTS OF OPERATIONS
Net income of $1,469,000 in 1992 represented an increase of 54.6% over
1991. Net income in 1991 increased 13.5% compared to 1990.
Net interest income increased 18.0% to $3,386,000 in 1992 after
increasing 4.2% in 1991. Interest income of $5,448,000 in 1992 represented a
decrease of 3.8% from 1991 after decreasing from 1.2% from 1990 to 1991.
Interest expense declined 26.2% to $2,062,000 in 1992 after decreasing 6.1% in
1991.
Non-interest income increased $108,000 or 12.1% in 1992, compared with
an increase of $127,000 or 16.6% in 1991. Total overhead expense decreased
$56,000 or 2.5% in 1992, compared with an increase of $109,000 or 5.1% in 1991.
NET INTEREST INCOME
Net interest income, the most significant component of earnings,
represents the difference between the interest earned on loan and investment
portfolios and loan fees, and the interest paid on interest-bearing deposits and
borrowings. This interest spread can be affected by economic factors
influencing general interest rates, loan demand, and deposit flows, as well as
the effects of competition for deposits and loans. Nonpayment of loans by
customers and the perceived creditworthiness of a customer can also affect the
interest spread.
<PAGE>
-79-
COMMUNITY'S net interest income increased from $2,755,000 in 1990 to
$2,870,000 in 1991 and increased to $3,386,000 in 1992. The growth of $516,000
in net interest income between 1991 and 1992 was due primarily to control of
interest rates paid on deposit liabilities in a declining rate environment.
Net interest income (tax effected) to average earning assets is
determined by subtracting the interest expense to average earning assets from
interest incomes (tax effected) to average earning assets. The difference
results in the net interest income (tax effected) to average earning assets.
COMMUNITY'S net interest results (or spread) was 3.40% in 1991 and increasing to
4.13% for 1992.
Interest and fees on loans declined $161,000 to $2,456,000 in 1992
when compared to the 1991 total of $2,617,000. The 1991 total represents an
increase of $7,000 compared to year end 1990 which was 2,610,000. While total
loans outstanding increased each year end, from $20,892,000 in 1990 to
$21,358,000 in 1991 and $22,877,000 in 1992, the average yield on loans declined
to 11.04% in 1992 from 12.44% in 1991 and 13.86% in 1990.
Interest expense declined $732,000 at year end 1992 to $2,062,000 when
compared to year-end 1991 which was $2,794,000. Interest Expense at year-end
1991 was down $182,000 compared to year end 1990 which was $2,976,000. Interest
expense to average earning assets declined from 4.54% in 1991 and 3.10% in 1992.
[This Space Left Blank Intentionally]
<PAGE>
-80-
An analysis of net interest income is shown in the following table (in
thousands):
<TABLE>
<CAPTION>
ANALYSIS OF NET INTEREST INCOME
YEAR ENDED DECEMBER 31
----------------------------------------------------------------
1992 1991
------------------------------- -----------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE COST BALANCE EXPENSE COST
------- ------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Loans - net $22,256 $ 2,456 11.04% $21,036 $ 2,617 12.44%
Investments 42,385 2,924 6.90 38,695 2,950 7.62
Federal Funds Sold 1,819 68 3.74 1,775 97 5.46
------- ------- ------ ------- ------- ------
Total Earning Assets $66,460 $ 5,448 8.20% $61,506 $ 5,664 9.21%
------- ------- ------ ------- ------- ------
------- ------- ------ ------- ------- ------
Interest-Bearing Demand $16,860 $ 525 3.11% $14,917 $ 734 4.92%
Savings 12,702 472 3.72 10,379 527 5.08
Time Deposits over $100,000 2,450 113 4.61 3,805 234 6.15
Other Time Deposits 18,679 952 5.10 19,024 1,299 6.83
Borrowed Funds - - - - - -
------- ------- ------ ------- ------- ------
Total Interest-Bearing
Liabilities $50,691 $ 2,062 4.07% $48,125 $ 2,794 5.81%
------- ------- ------ ------- ------- ------
------- ------- ------ ------- ------- ------
Non-Interest-Bearing
Demand Deposits $ 8,599 $ 7,965
------- -------
------- -------
NET INTEREST INCOME $ 3,386 $ 2,870
------- -------
------- -------
NET INTEREST SPREAD 4.13% 3.40%
----- -----
----- -----
INTEREST EXPENSE/
EARNING ASSETS 3.10% 4.54%
----- -----
----- -----
NET INTEREST INCOME/
EARNING ASSETS 5.09% 4.67%
----- -----
----- -----
</TABLE>
NON-INTEREST INCOME
Service charge and fee income is the most significant item of
non-interest income, amounting to $970,000 in 1992, and $862,000 in 1991.
Service charge and fee income represented 97% and 95% of non-interest income
in the years 1992 and 1991, respectively.
NON-INTEREST EXPENSE
Non interest expense was $2,206,000 in 1992 and $2,261,000 in 1991.
This $55,000 decrease represents COMMUNITY's effort to control cost. The
major components of non-interest expense are as follows (in thousands):
<PAGE>
-81
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER PERCENTAGE CHANGE
31
-------------------- -----------------------
1992 1991 1992/1991 1991/1990
---- ---- --------- ---------
<S> <C> <C> <C> <C>
Salaries and Employee Benefits $1,128 $1,135 (0.6) 2.4
Occupancy 382 386 (1.0) 1.6
Data Processing 44 53 (16.9) (23.2)
Advertising 51 58 (12.1) (12.1)
Regulatory Fees & Assessments 156 148 5.4 41.0
Professional Fees 34 35 (2.9) 52.2
Postage and Supplies 133 142 (6.3) 16.4
Other 278 304 (8.6) 9.0
------ ------
Total Non-Interest Expense $2,206 $2,261
------ ------
------ ------
</TABLE>
INCOME TAXES
COMMUNITY recorded a provision for income taxes of $686,000 in
1992, and $458,000 in 1991. The effective tax rates were 31.8%, and 32.5% in
1992 and 1991, respectively. The effective tax rate is affected primarily by
the federal statutory rates, the effect of state taxes, and tax exempt
income.
RETURN ON EQUITY AND ASSETS
The following table shows return on COMMUNITY's average assets,
return on average equity, and various other ratios over the past three years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------
1992 1991
---- ----
<S> <C> <C>
Return on Assets(1) 2.07% 1.42%
Return on Equity(2) 13.39% 9.42%
Dividend Payout Rate(3) 20.98% 28.39%
Equity to Assets Ratio(4) 15.45% 14.92%
<FN>
--------------------------------
(1) Net income divided by average total assets.
(2) Net income divided by average equity.
(3) Dividend declared per share divided by net income per share.
(4) Average equity divided by average assets.
</TABLE>
IMPACT OF INFLATION AND CHANGING PRICES
Virtually all of the assets and liabilities of a financial
institution are monetary in nature and, as a result, interest rates generally
have a more significant impact on a financial institution's performance than
does inflation. However, inflation does affect COMMUNITY's
<PAGE>
-82-
operating expenses. The effects of inflation on premises and equipment, and
non-interest expenses during 1991, 1990 and 1989 have not been significant.
ACCOUNTING RULE CHANGE
Statement of Accounting Standards No. 109, ACCOUNTING FOR INCOME
TAXES, requires that companies change their method of accounting for income
taxes from an income statement approach to a balance sheet method.
COMMUNITY's adjustment is reflected in the 1992 year-end financial
statements. In the opinion of management, the total adjustment of $36,500
was not material to the financial statements taken as a whole and was used to
reduce the provision for income taxes.
PRINCIPAL SHAREHOLDERS OF COMMUNITY
As of the Record Date, the only outstanding equity securities of
COMMUNITY were 38,525 shares of COMMUNITY Common Stock held by ninety-three
(93) Shareholders of record. The following table shows the ownership as of
the Record Date by each person who was known by COMMUNITY to own beneficially
5% or more of the Common Stock, by each Director and by all Directors and
Executive Officers as a group:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL NUMBER OF SHARES PERCENT OF SHARES
OWNER OR IDENTITY OF GROUP BENEFICIALLY OWNED(1) OUTSTANDING(1)(2)
- ------------------------------ --------------------- -----------------
<S> <C> <C>
Harold C. Steed(3) 10,903 28.29%
616 Maple Street
Clearfield, Utah 84015
Haven J. Barlow(4) 3,847 10.01%
522 Elm Street
Layton, Utah 84041
Silver Fox, a Business Trust 2,753 7.15%
c/o Jessilie E. Anderson
377 North Main
Layton, Utah 84041
Carolyn Holt Hess(5) 2,000 5.19%
877 E. 400 N.
Kaysville, Utah 84037
Walter David Steed(6) 2,400 6.23%
501 North Ogden, #6
Hinsdale, Illinois 60521
Dale Rulon Steed 2,400 6.23%
1368 Maple Drive
Logan, Utah 84321
</TABLE>
<PAGE>
-83-
<TABLE>
<S> <C> <C>
Gerald E. Hess 5 .01%
877 East 400 North
Kaysville, Utah 84037
Morris Hansen(6) 215 .06%
2368 South 2000 West
Syracuse, Utah 84075
Richard A. Hill(7) 435 1.13%
849 West 2650 North
Clinton, Utah 84015
Robert W. Speirs 65 .17%
603 East 250 South
Clearfield, Utah 84015
O. Wayne Thornock(8) 878 2.28%
748 East 200 South
Clearfield, Utah 84015
Directors and Executive Officers 16,348 42.43%
as a Group (7 persons)
<FN>
(1) Under the rules of the Securities and Exchange Commission, a person is
deemed to be a beneficial owner of a security if he has or shares the power
to vote or direct the voting of such security or the power to dispose or to
direct the disposition of such security. Accordingly, more than one person
may be deemed to be a beneficial owner of the same securities. A person is
also deemed to be a beneficial owner of any securities of which that person
has the right to acquire beneficial ownership within 60 days. Unless
otherwise indicated by footnote, the named individuals have sole voting and
investment power with respect to the shares held by them.
(2) 38,525 shares outstanding at the Record Date.
(3) 4,747 shares held individually; 6,156 shares held in Harold C. Steed
Family Partnership.
(4) 1,250 shares held in Haven J. Barlow Trust, and 2,597 shares held as
trustee for David B. Barlow.
(5) as trustee for George Harold Hold Living Trust.
(6) 15 shares held individually and 200 shares held as Trustee of Morris
Hanson Trust.
(7) shares held jointly with Joann H. Hill.
(8) 238 shares held individually and 640 shares held jointly with EuVola
Thornock.
</TABLE>
Each of COMMUNITY's Directors and Executive Officers who owns
COMMUNITY Common Stock has agreed to vote all of the shares beneficially
owned by him in favor of the Merger Agreement. The affirmative vote of the
holders of two-thirds of the outstanding shares of COMMUNITY Common Stock is
required to approve the Merger Agreement. See "THE MERGER -- Vote Required
for Approval."
<PAGE>
-84-
INFORMATION ABOUT FSB UTAH
FSB UTAH is a National bank and a wholly-owned subsidiary of FSC.
At September 30, 1993, FSB UTAH had assets of approximately $4.71 billion and
shareholders' equity of approximately $303 million. The principal business
of FSB UTAH is to obtain deposits from the general public and to combine such
deposits with other available sources of funding to make residential and
commercial real estate loans; secured and unsecured commercial, corporate,
and business loans; and installment consumer loans.
COMPARATIVE RIGHTS OF SHAREHOLDERS
The current rights of COMMUNITY Shareholders are governed by the
UCA and the Articles of Incorporation and Bylaws of COMMUNITY. Upon
consummation of the Merger, COMMUNITY Shareholders will become stockholders
of FSC, a Delaware corporation. As stockholders of FSC, their rights will be
governed by the Delaware Statute and by FSC's Certificate of Incorporation
and Bylaws. The UCA and the Articles of Incorporation and Bylaws of
COMMUNITY differ from the Delaware Statute and the Certificate of
Incorporation and Bylaws of FSC in certain respects. Although it is not
practical to compare all such differences, the following is a summary of the
material differences.
AUTHORIZED CAPITAL STOCK
- COMMUNITY. Under COMMUNITY's Articles of Incorporation, the
aggregate number of shares of capital stock which it is authorized to issue
is 40,000 shares of Class A Common Stock, par value $10.00 per share.
- FSC. Under FSC's Certificate of Incorporation, FSC is authorized
to issue 150,000,000 shares of common stock and 400,000 shares of Preferred
Stock. All shares of FSC Common Stock are identical in rights and have one
vote.
FSC Common Stock, when delivered pursuant to the Merger Agreement,
will be duly authorized and validly issued, fully paid and non-assessable,
which status will be supported by an opinion of FSC's counsel.
FSC's Certificate of Incorporation provides that its Board of
Directors can issue Preferred Stock in one or more series and with such terms
and at such times and for such consideration as the FSC Board of Directors
may determine. The authority of the FSC Board of Directors includes the
determination or fixing of the following with respect to shares of any series
thereof: (a) the number of shares and designation or title thereof;
(b) rights as to dividends; (c) whether and upon what terms the shares are to
be redeemable; (d) rights and preferences of the holders upon the
liquidation, dissolution or winding up of FSC; (e) whether the shares are to
be subject to a retirement or sinking fund; (f) whether and upon what terms
the shares are convertible; (g) the voting rights, if any; (h) whether the
issuance of any additional shares of a series shall be subject to
restrictions as to issuance or as to the powers,
<PAGE>
-85-
preferences or rights of any other series; and (i) any other preferences,
privileges, powers or relative rights specified by the Board of Directors.
FSC has designated 18,052 shares of its Preferred Stock as Class A Cumulative
Convertible Preferred Stock, all of the currently outstanding shares of which
have voting rights, and are convertible at the option of the holders into
12.15 shares of FSC Common Stock for each share of Cumulative Convertible
Preferred Stock.
On August 28, 1989, FSC's Directors adopted a Shareholder Rights
Plan under which each FSC shareholder is issued rights to acquire a new class
of junior preferred stock, which rights could also be expanded by the FSC
Board of Directors to allow the purchase of additional shares of FSC under
certain circumstances involving the acquisition of certain amounts of FSC
stock by a third party. (SEE "INFORMATION ABOUT FSC -- Description of FSC's
Capital Stock -- Common Stock.")
DIRECTORS
- NUMBER. COMMUNITY's Bylaws provide for seven (7) directors, who
serve until the next annual meeting of COMMUNITY Shareholders and until their
successors shall have been elected and qualified.
FSC's Bylaws provide that the number of its directors shall be not
less than 6 nor more than 30, with the exact number to be established from
time to time by resolution of the Board of Directors. Currently FSC has 22
directors, who serve for one-year terms. Based upon the number of
outstanding shares of FSC Common Stock, COMMUNITY Shareholders, even if they
all voted for the same candidate, would not have enough shares of FSC Common
Stock to elect a director to serve on the FSC Board.
- REMOVAL. Under the UCA and the Delaware Statute any director or
the entire board of directors may be removed, with or without cause, by the
holders of a majority of the shares entitled to vote at an election of
directors.
- INDEMNIFICATION. The Delaware Statute provides that a director,
employee, officer or agent of a Delaware corporation may be indemnified
against liability (other than in an action by or in the right of the
corporation) and other costs incurred by such person in connection with such
proceeding, provided such person acted in good faith and in a manner such
person reasonably believed to be in, or at least not opposed to, the best
interests of the corporation, and, with respect to any criminal proceeding,
had no reason to believe the conduct was unlawful. For actions or suits
brought by or in the name of the corporation, the Delaware Statutes provide
that a director, employee, officer or agent of a corporation may be
indemnified against expenses incurred by such person in connection with such
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in, or at least not opposed to, the best interests
of the corporation, except that if such person is adjudged to be liable to
the corporation, such person can be indemnified if and only to the extent
that a court determines that despite the adjudication of liability, in view
of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such
<PAGE>
-86-
expenses as the court shall deem proper. The Delaware Statutes provide that,
if such director, employee, officer or agent prevails, indemnification is
mandatory.
The UCA similarly provides that a director, officer, employee or
agent of a Utah corporation may be indemnified against liability (other than
in an action by or in the right of the corporation) and other costs incurred
by such person in connection with such proceeding, if (a) such person acted
in good faith, (b) the person reasonably believed, the case of conduct in the
person's official capacity with the corporation, that the person's conduct
was in the corporation's best interest, and in all other cases, that the
person's conduct was at least not opposed to the best interests of the
corporation, and (c) with respect to any criminal proceeding, had no reason
to believe the conduct was unlawful. However, the UCA also provides that the
corporation may not indemnify a director, officer, employee or agent if the
proceeding is brought by or in the right of the corporation and the person is
found liable to the corporation, or if the person is found to have received
an improper personal benefit.
The UCA provides that if the board of directors reasonably
determines that the person is wholly successful, on the merits or otherwise,
in defense of any action, the person is entitled to indemnification.
FSC's Certificate of Incorporation, as amended, provides for
indemnification of officers and directors to the fullest extent allowed by
applicable law. The Articles of Incorporation and Bylaws of COMMUNITY also
contain provisions which provide for indemnification of such persons to the
fullest extent allowed under applicable law.
- DIRECTOR LIABILITY. The Delaware Statutes allow a corporation to
provide, in its articles or certificate of incorporation a provision which
limits or eliminates the personal liability of a director to the corporation
and its shareholders or stockholders for monetary damages for such person's
conduct as a director, provided that such provision may not so limit a
director's liability (i) for a breach of his or her duty of loyalty to the
corporation or its stockholders; (ii) for acts or omissions not in good faith
or involving intentional misconduct or a knowing violation of law; (iii) for
unlawful payments of dividends, certain stock repurchases or redemptions; or
(iv) for any transaction from which the director derived an improper personal
benefit.
These provisions have the effect of protecting a corporation's
directors against personal monetary liability from breaches of their duty of
care. FSC, with the approval of its stockholders, amended its Certificate of
Incorporation to include such provisions in 1988.
Under the UCA, a corporation, in its articles of incorporation,
bylaws or by resolution, may eliminate or limit the personal liability of a
director to the corporation or its shareholders for monetary damages for any
action taken or any failure to take any action, as a director, except
liability for (a) the amount of a financial benefit received by a director to
which he is not entitled; (b) an intentional infliction of harm on the
corporation or the shareholders; (c) a violation of UCA Section 16-10a-842
(unlawful distributions); or (d) an intentional violation of criminal law.
COMMUNITY, with the approval of its shareholders, adopted a resolution in
1993 to include such a provision.
<PAGE>
-87-
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER
THE SECURITIES ACT MAY BE PERMITTED TO DIRECTORS,
OFFICERS AND CONTROLLING PERSONS OF FSC, FSC 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 FSC OF EXPENSES
INCURRED OR PAID BY A DIRECTOR, OFFICER OR CONTROLLING
PERSON OF THE REGISTRANT IN A SUCCESSFUL DEFENSE OF ANY
ACTION, SUIT OR PROCEEDING) IS ASSERTED BY SUCH DIRECTOR,
OFFICER OR CONTROLLING PERSON IN CONNECTION WITH THE
SECURITIES BEING REGISTERED, FSC 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 OF 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.
SALE OF SHARES
The Delaware Statute and the UCA permit a corporation to accept a
promissory note as payment for stock.
NOTICE OF MEETINGS
Delaware corporations must give not less than ten nor more than 60
days notice of shareholder meetings. Utah corporations also must give not
less than 10 nor more than 60 days notice.
ELECTION OF DIRECTORS
Under the UCA, a candidate for election as a director must receive
a plurality of the votes cast at a meeting at which a quorum is present. The
Delaware Statute also provides that candidates for director are elected by a
plurality vote.
INSPECTION OF BOOKS AND RECORDS
Any shareholder of a Delaware corporation or a Utah corporation is
entitled to inspect the corporation's books and records.
<PAGE>
-88-
REPURCHASE AND REDEMPTION OF SHARES
The UCA permits a corporation to acquire its own shares and
provides, in relevant part, that all shares acquired by a corporation shall
constitute authorized but unissued shares. The Delaware Statute permits a
corporation to redeem or repurchase any of its shares for cash, other
property or a promissory note except when the capital of the corporation is
impaired, or when such repurchase or redemption would impair the capital of
the corporation. Shares repurchased by a Delaware corporation may be held in
the corporation's treasury or canceled and returned to the status of
Authorized but unissued stock.
PAYMENT OF DIVIDENDS TO SHAREHOLDERS
Holders of COMMUNITY Common Stock are entitled to share ratably in
such cash, property or in-kind dividends as may be declared at any regular or
special meeting of the COMMUNITY Board of Directors out of funds legally
available therefor, subject to certain restrictions. Under the UCA,
COMMUNITY may declare dividends on its capital stock if the corporation would
not be rendered insolvent (subject to either of two tests). (COMMUNITY is
and has been under certain restrictions concerning the payment of dividends
in 1993 and 1994. (SEE "INFORMATION ABOUT COMMUNITY -- Regulation and
Regulatory Agreements".)
COMMUNITY is also subject to restrictions on its ability to pay
dividends under applicable banking laws. (SEE "INFORMATION ABOUT FSC --
Supervision and Regulation" for a discussion of applicable banking laws.)
The Delaware Statute allows a corporation, subject to any
restrictions in its certificate of incorporation, to declare and pay
dividends upon its shares of capital stock either out of its surplus (as
determined under the statute) or, in the event there is no such surplus, out
of its net profits for the fiscal year in which the dividend is declared
and/or the preceding fiscal year. Further restrictions on dividends apply
in the event a corporation has issued shares possessing a preference upon the
distribution of assets. The ability of a Delaware corporation to pay
dividends on, or to make repurchases or redemptions of, its shares is
dependent on the financial status of the corporation standing alone and not
on a consolidated basis. FSC's Certificate of Incorporation grants to the
Board of Directors the power to declare dividends on its Common Stock,
subject to any dividend or sinking fund requirements pertaining to its
Preferred Stock. FSC is also subject to restrictions on its dividend paying
ability under banking laws. (SEE "INFORMATION ABOUT FSC -- Supervision and
Regulation.")
PREEMPTIVE RIGHTS
The UCA provides that shareholders of Utah corporations do not have
a preemptive right to acquire unissued shares, or securities convertible into
such shares, unless such preemptive right is provided in by the corporation's
Articles of Incorporation. COMMUNITY, with the approval of its shareholders,
amended its Articles of Incorporation to deny any preemptive rights. FSC
shareholders do not have preemptive rights.
<PAGE>
-89-
AMENDMENTS TO ARTICLES OR CERTIFICATE OF INCORPORATION
The Delaware Statute permits the board of directors of a Delaware
corporation to adopt a resolution of its own volition setting forth a
proposed amendment to the corporation's certificate of incorporation and
directing that such proposed amendments be submitted to a vote at a meeting
of stockholders.
The UCA similarly permits the board of directors of a Utah
corporation to adopt a resolution proposing changes to the corporation's
articles of incorporation and directing that such proposed amendments be
submitted to a vote at a shareholders meeting.
AMENDMENTS TO BYLAWS
The UCA provides that, unless the power to amend a corporation's
bylaws is reserved to its shareholders by its articles of incorporation, the
bylaws may be amended by the Board of Directors. COMMUNITY has made no such
reservation.
The Delaware Statute provides that stockholders may amend the
bylaws of a corporation, provided that the corporation may, in its articles
of incorporation, also confer such power upon the board of directors. FSC's
Certificate of Incorporation expressly authorizes its Board of Directors to
amend its Bylaws.
SHAREHOLDER APPROVAL OF MERGER AND OTHER BUSINESS COMBINATIONS
Both the Delaware Statute and the UCA generally provide that a
merger, consolidation, sale, lease or exchange of all or substantially all of
its assets may be effected upon a vote of the holders of a majority of a
corporation's outstanding shares. Neither Delaware nor Utah law requires a
stockholder vote of the surviving corporation in a merger if (a) the merger
does not amend the existing certificate of incorporation, (b) each
outstanding share of the surviving corporation before the merger is unchanged
or becomes a treasury share of the surviving corporation, and (c) the number
of shares to be issued by the surviving corporation in the merger does not
exceed 20% of the shares outstanding immediately prior to such issuance.
In February 1988, the Delaware Statute was amended to prohibit
certain business combinations (generally mergers, consolidations and sales of
10% or more of a corporation's assets) between Delaware corporations and
"Interested Stockholders." As defined under the Delaware Statute, Interested
Stockholders are persons who alone, or together with their affiliates,
beneficially own 15% or more of the outstanding stock of a corporation. The
Delaware Statute bars business combinations between an Interested Stockholder
and the corporation for a period of three years after any such person or
group has become an Interested Stockholder. The Delaware Statute contains
exceptions to the prohibition which allows such combinations if, as a result
of the transaction which causes a person to become an Interested Stockholder,
such person owns 85% or more of the outstanding voting stock (with certain
exceptions). Another provision exempts from the coverage of the Delaware
Statute any transaction approved by the corporation's board of directors and
two-thirds of the
<PAGE>
-90-
outstanding voting stock not held by the Interested Stockholder. FSC's
Certificate of Incorporation provides for super-majority voting requirements
in certain cases of non-consensual merger votes. (SEE "INFORMATION ABOUT
FSC.")
The UCA has no provisions similar to the provision described in the
preceding paragraph.
RIGHTS OF DISSENTING SHAREHOLDERS
The UCA provides statutory appraisal rights to shareholders who may
dissent from certain corporate reorganizations such as mergers or sales of
all or substantially all of the institution's assets except that such rights
are not available in cases in which the corporation is to be the surviving
corporation and no vote of its shareholders is required for such transaction.
COMMUNITY Shareholders are entitled to dissent from the Merger. (SEE "THE
MERGER -- Rights of Dissenting Shareholders" and Appendix C.)
The Delaware Statute provides appraisal rights in the case of a
statutory merger, consolidation or sale of substantially all the assets of a
corporation, except that such rights are not available in cases in which the
corporation is to be the surviving corporation and no vote of its
stockholders is required for such transaction or, unless otherwise provided
in the certificate of incorporation, in cases in which the consideration for
such transaction is shares of stock listed on a national securities exchange
or held of record by more than 2,000 stockholders, unless such stockholders
are required by the terms of the merger, consolidation or sale to accept
anything other than shares of stock of the surviving corporation, shares of
stock of another corporation which are all listed or held by such number of
record holders, cash in lieu of fractional shares of such stock, or any
combination thereof. The Certificate of Incorporation of FSC does not
provide for greater appraisal rights than those set forth in the Delaware
Statute.
SPECIAL MEETING OF SHAREHOLDERS
The UCA provides that special meetings of a corporation's
shareholders may be called by the president, the Board of Directors, the
holders of not less than 10% of all shares entitled to vote at the meeting or
by such other person or group designated in the corporation's articles of
incorporation or bylaws. COMMUNITY's Articles of Incorporation and Bylaws do
not give any person other than those specified above the authority to call
special meetings of the shareholders.
Under the Delaware Statute, special meetings of stockholders of a
corporation may be called by the board of directors or by such persons as are
authorized by the corporation's certificate of incorporation or bylaws.
FSC's Bylaws provide that such meetings may also be called by the President,
and shall be called by the President or the Secretary at the written request
of stockholders owning not less than a majority of all shares issued and
outstanding and entitled to vote on any proposal to be submitted to the
meeting.
<PAGE>
-91-
SHAREHOLDER CONSENT TO ACTION WITHOUT A MEETING
Under the UCA and COMMUNITY's Bylaws, any action which may be taken
at any meeting of shareholders may be taken without a meeting and a vote if a
written consent setting forth the action is signed by all of the shareholders
entitled to vote with respect to the subject matter thereof.
The Delaware Statute provides that, unless otherwise provided in
the certificate of incorporation, any action which may be taken at any
meeting of stockholders may be taken without a meeting, prior notice or a
vote, if written consents setting forth the action taken are signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to take such action if the action were taken at a
meeting. FSC's Certificate of Incorporation does not prohibit such actions
by written consent.
LEGAL MATTERS
The legality of the FSC Common Stock offered hereby and certain
other matters with respect to the Merger will be passed upon for FSC by Ray,
Quinney & Nebeker P.C. As of December 31, 1993, attorneys at Ray, Quinney &
Nebeker, as a group, were beneficial owners of nor more than approximately
4.0% of the total outstanding FSC Common Stock, and held no shares of
COMMUNITY Common Stock.
Van Cott Bagley Cornwall & McCarthy will pass upon certain matters
in connection with the Merger for COMMUNITY. As of September 30, 1993,
attorneys at Van Cott, Bagley, Cornwall & McCarthy, as a group, owned no
shares of COMMUNITY Common Stock and no shares of FSC Common Stock.
EXPERTS
The consolidated financial statements as of December 31, 1992 and
1991, and for each of the three years in the period ended December 31, 1992
incorporated in this Prospectus/Proxy Statement by reference from FSC's
Annual Report on Form 10-K have been audited by Deloitte & Touche,
independent certified public accountants, as stated in their report, which is
incorporated herein by reference, and have been so incorporated in reliance
upon such report given upon the authority of that firm as experts in
accounting and auditing.
The financial statements of COMMUNITY as of December 31, 1992 and
for each of the two (2) years in the period ended December 31, 1992 included
in this Prospectus/Proxy Statement have been audited by Simpson & Company,
independent certified public accountants, as stated in their reports
appearing in Appendix B, and have been so included in reliance upon such
report given upon the authority of that firm as experts in accounting and
auditing.
COMMUNITY'S ANNUAL SHAREHOLDER MEETING
If the Merger is not consummated prior to the scheduled date of the
1994 annual meeting of Shareholders, such meeting may be held. Shareholder
proposals submitted for
<PAGE>
-92-
inclusion in the 1994 proxy materials and for consideration at such meeting
(if any) must be received by COMMUNITY on or before March 8, 1994. Proposals
should be sent to COMMUNITY, Attn: Secretary, 180 South State Street,
Clearfield, Utah 84015.
DEADLINE FOR FSC SHAREHOLDER PROPOSALS
Any FSC shareholder who wishes to present a proposal for action at
the April 1995 Annual Meeting of the FSC shareholders, must submit his or her
proposal in writing by Certified Mail -- Return Receipt Requested, to First
Security Corporation, Attention: Secretary of the Corporation, 79 South Main
Street, Salt Lake City, Utah 84111, on or before December 31, 1994.
<PAGE>
APPENDIX A
AGREEMENT OF MERGER
AGREEMENT OF MERGER
This Agreement of Merger, dated as of the 22nd day of October, 1993
("Agreement"), is made and entered into by and among FIRST SECURITY BANK OF
UTAH, N.A. ("FSB"), a national banking association organized under the laws of
the United States, FIRST SECURITY CORPORATION ("FSC"), a Delaware corporation,
and COMMUNITY FIRST BANK, a bank organized under the laws of the State of Utah
("Bank").
R E C I T A L S:
A. FSB is a national banking association duly organized under the
laws of the United States with its head office at Ogden, Utah. FSB is
authorized by its Articles of Association to issue 2,000,000 shares of Common
Stock, $25.00 par value, of which as of September 30, 1993, there were 1,084,002
shares issued and outstanding.
B. FSC is a Delaware corporation, having authorized capital stock of
150,400,000 (150,000,000 shares of Common Stock, par value $1.25, and 400,000
shares of Preferred Stock, of which 18,052 are designated Series A, having no
par value) of which, as of September 30, 1993, there were 39,896,268 (net of
treasury) shares of Common Stock issued and outstanding and 13,550 shares of
Series A preferred stock issued and outstanding. FSC owns approximately 99% of
the issued and outstanding stock of FSB.
C. Bank is a bank organized under the laws of the State of Utah with
its head office located at Clearfield, Utah. Bank is authorized by its Articles
of Incorporation to issue
<PAGE>
40,000 shares of capital stock, $10 par value ("Bank Common Stock"), of which as
of the date of this Agreement, there were 38,525 shares issued and outstanding.
D. FSB and Bank desire to merge Bank with and into FSB upon the terms
and subject to the conditions set forth herein (the "Merger").
E. The Boards of Directors of Bank and FSB and the Executive
Committee of FSC (approved or to be approved by its Board of Directors), each by
resolutions duly adopted pursuant to the authority given by and in accordance
with the laws governing them, have approved this Agreement and authorized the
execution hereof.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the premises, and the mutual
covenants and conditions herein the parties hereto covenant and agree to effect
the merger in accordance with the terms and conditions set forth as follows:
ARTICLE ONE
THE MERGER
1.1 MERGER. Pursuant to the laws of the United States and the State
of Utah and subject to and in accordance with the terms and conditions of this
Agreement of Merger, Bank shall be merged with and into FSB, to form a single
banking corporation, and FSB shall be the surviving bank to be governed by the
laws of the United States. Bank and FSB shall execute any "Articles of
Merger" for filing, as may be consistent with this Agreement and as may be
required by applicable law. The Merger of Bank with and into FSB shall become
effective on such date as the Office of the Comptroller of the Currency under
regulations and procedures governing said office deems the Merger effective.
The time when the Merger shall become effective is herein called the "Effective
Time."
1.2 EFFECT OF MERGER. At the Effective Time, Bank shall be merged
with and into FSB in the manner and with the effect provided by the laws of the
United States (and the State of Utah) and the separate legal existence of Bank
shall cease and thereupon FSB and Bank (hereinafter sometimes referred to as the
"Merging Banks") shall be a single corporation (the "Surviving Bank") subject to
the Articles of Association of FSB. The Surviving Bank shall possess all the
rights, privileges, powers and franchises of a public as well as of a private
nature, and shall be subject to all restrictions, disabilities and duties of the
Merging Banks; and all the rights, privileges, powers and franchises of the
Merging Banks and all property, real, personal and mixed and all debts due to
the Merging Banks on whatever account, as well as for stock subscriptions and
all other things in action or belonging to the Merging Banks shall be vested in
the Surviving Bank; and all property, rights, privileges, powers and franchises,
and all and every other interest shall hereafter effectively be the property of
the Surviving Bank as they were of Bank and all rights of creditors and all
liens upon any property of Bank shall be preserved unimpaired, and all debts,
liabilities
-2-
<PAGE>
and duties of Bank shall thereafter attach to the Surviving Bank, and may be
enforced against it to the same extent as if such debts, liabilities and duties
had been incurred or contracted by it.
The outstanding shares of capital stock of Bank shall be converted on
the basis, terms, and conditions described in Section 1.4. The aggregate amount
of the net assets of the Merging Banks which was available for the payment of
dividends immediately prior to the merger, to the extent the value thereof is
not transferred to stated capital by the issuance of shares or otherwise, shall
continue to be available for the payment of dividends by the Surviving Bank.
1.3 ARTICLES OF ASSOCIATION; BYLAWS; DIRECTORS. The Articles of
Association and Bylaws of FSB in effect immediately prior to the Merger shall
govern the Surviving Bank after the Merger without amendment. The directors and
officers of the Surviving Bank shall be the directors and officers of FSB
holding such positions immediately prior to the Merger.
1.4 CONVERSION OF SHARES. The manner and basis of converting the
shares of the Merging Banks shall be as follows:
1.4.1 BANK COMMON STOCK. Each share of Bank Common Stock which
is outstanding immediately prior to the Effective Time (which shall be not more
than 38,525), other than shares as to which dissenters' rights are perfected,
and all rights in respect thereof, shall be converted, IPSO FACTO, and without
any action on the part of the holder thereof, into the
right to receive 21.859 shares of FSC Common Stock, par value $1.25 (hereinafter
the "Conversion Ratio").
1.4.2 FSB COMMON STOCK. The issued and outstanding stock of FSB
shall be unchanged by the Merger, except that FSB shall issue additional shares
of its stock to FSC equal to the value of the FSC shares issued pursuant to the
Merger to compensate FSC for the FSC shares used to effect the Merger.
1.4.3 SURRENDER OF CERTIFICATES. After the Effective Time, each
holder of shares of Bank Common Stock outstanding immediately prior to the
Effective Time (other than shares as to which dissenters' rights have been
perfected) shall, upon surrender for cancellation of a certificate or
certificates representing such shares to FSC or its agent designated for such
purpose, be entitled to forthwith receive a certificate or certificates
representing the number of shares of FSC Common Stock into which such shares of
Bank Common Stock shall have been converted pursuant to the provisions of this
Article. Until so surrendered, the certificates which prior to the Merger
represented shares of Bank Common Stock, shall be deemed for all corporate
purposes, to evidence ownership of the shares of FSC Common Stock into which
such shares of Bank Common Stock shall have been converted; provided, however,
that no dividends with respect to shares of Bank Common Stock shall be paid
until the holder shall have surrendered certificates therefor, at which time the
holder shall be paid the amount of dividends, if any, without interest which
shall theretofore have become payable with
-3-
<PAGE>
respect to the shares of FSC Common Stock into which such shares shall have been
converted.
If any certificate for shares of FSC Common Stock is to be issued
in a name other than that in which the certificate surrendered in exchange
therefor is registered, it shall be a condition of the issuance thereof that the
certificate so surrendered shall be properly endorsed and otherwise in proper
form for transfer, and that the person requesting such exchange pay to FSC or
its agent designated for such purpose any transfer or other taxes required by
reason of the issuance of a certificate for shares of FSC Common Stock in any
name other than that of the registered holder of the certificate surrendered, or
establish to the satisfaction of FSC or its agent that such tax has been paid or
is not payable.
No fractional shares of FSC Common Stock shall be issued in the
Merger but, in lieu of any such fractional shares, each holder of shares of Bank
Common Stock who would otherwise have been entitled to a fraction of a share of
FSC Common Stock upon surrender of stock certificates as provided in this
Section 1.4.3 will upon such surrender be paid an amount of cash (without
interest) determined by multiplying (a) the FSC Common Stock price determined as
the average of the bid and ask price of FSC Common Stock as quoted on the
NASDAQ, National Market System, at closing on the day preceding the Effective
Time by (b) the fractional share interest in FSC Common Stock to which the
holder would otherwise be entitled.
Within ten (10) business days after the Effective Time, FSB will
send a notice and transmittal form to each Bank shareholder (other than holders
of shares as to which dissenters' rights are perfected), advising such
shareholder of the terms of the exchange effected by the Merger and the
procedure for surrendering to FSC (who may appoint forwarding or exchange
agents) such certificate for exchange into FSC Common Stock.
1.5 SHARES OF DISSENTING HOLDERS. If holders of Bank Common Stock
dissent from the Merger and demand appraisal of their shares, any issued and
outstanding shares of Bank Common Stock held by a dissenting holder shall not be
converted as described in Section 1.4.1, but shall from and after the Effective
Time represent only the right to receive such consideration as may be determined
to be due to such dissenting holder pursuant to Sections 16-10a-1302 ET SEQ.,
Utah Code Annotated; provided, however, that each share of Bank Common Stock
outstanding immediately prior to the Effective Time, and held by a dissenting
holder who shall, after the Effective Time, withdraw his or her demand for
appraisal or lose his or her right of appraisal shall be deemed to be converted,
as of the Effective Time, into FSC Common Stock in accordance with Section 1.4.1
and the certificates representing such Bank Common Stock shall be surrendered in
accordance with Section 1.4.3.
1.6 SUBSEQUENT ACTIONS. If, at any time after the Effective Time,
the Surviving Bank shall consider or be advised that any deeds, bills of sale,
assignments, assurances, or any other actions or things are necessary or
desirable to vest,
-4-
<PAGE>
perfect, or confirm of record or otherwise in the Surviving Bank its right,
title, or interest in, to, or under any of the rights, properties, or assets of
Bank acquired or to be acquired by the Surviving Bank as a result of or in
connection with, the Merger or otherwise to carry out this Agreement, the
officers and directors of the Surviving Bank shall be authorized to execute and
deliver, in the name and on behalf of Bank or otherwise, all such deeds, bills
of sale, assignments, and assurances, and to make and do, in the name and on
behalf of Bank or otherwise, all such other actions and things as may be
necessary or desirable to vest, perfect, or confirm any right, title, and
interest in, to, and under such rights, properties, or assets in the Surviving
Bank or otherwise to carry out this Agreement.
1.7 ANTI-DILUTION ADJUSTMENT. If, between the date of this Agreement
and the Effective Time, the outstanding shares of FSC Common Stock shall have
been changed, without receipt by FSC of consideration for such change, into a
different number of shares or a different class by reason of any
reclassification, recapitalization, split-up, combination, exchange of shares,
or readjustment, or a stock dividend thereon shall be declared with a record
date within said period, adjustments shall be made to the number of shares of
FSC common Stock set forth in subsection 1.4.1 as appropriate.
ARTICLE TWO
COVENANTS OF BANK
2.1 COVENANTS OF BANK. Except as otherwise contemplated hereby,
between the date hereof and the Effective Time (as defined in paragraph 7.2,
below) or the time when this Agreement terminates as provided herein, Bank shall
not, without the prior written authorization of the President of FSB:
2.1.1 CHANGE IN CAPITAL STOCK; ISSUANCE OF SHARES. Make any
change in its authorized capital stock, or issue, agree to issue or permit Bank
to become obligated to issue any shares of its capital stock, or securities
convertible into its capital stock;
2.1.2 OPTIONS, WARRANTS, AND RIGHTS. Grant or issue any
options, warrants or other rights of any kind relating to the purchase of shares
of its capital stock, or securities convertible into its capital stock;
2.1.3 DIVIDENDS. Except for the regular annual dividend of Bank
typically declared during November or December, declare or pay any dividends or
other distributions on any shares of its capital stock; provided, that no such
annual dividend shall exceed $9.00 per share based on 38,525 shares outstanding.
Notwithstanding the preceding sentence: (i) in the event the Merger has not
closed on or before March 8, 1994 (or, if earlier, the record date necessary for
Bank shareholders to share in the first quarterly dividend payable by FSC in
1994), then Bank may
-5-
<PAGE>
declare a quarterly dividend of not to exceed $2.50 per share; (ii) in the event
the Merger has not closed on or before June 10, 1994 (or, if earlier, the record
date necessary for Bank shareholders to share in the second quarterly dividend
payable by FSC in 1994), then Bank may declare a quarterly dividend of not to
exceed $2.50 per share; and (iii) in the event the Merger has not closed on or
before September 9, 1994 (or, if earlier, the record date necessary for Bank
shareholders to share in the third quarterly dividend payable by FSC in 1994),
Bank may declare a quarterly dividend of not to exceed $2.50 per share.
2.1.4 PURCHASE OF SHARES. Purchase or otherwise acquire, or
agree to acquire, any shares of its stock, other than in a fiduciary capacity;
2.1.5 BENEFIT PLANS. Except as required by law, enter into or
amend any pension, retirement, stock option, profit sharing, deferred
compensation, consultant, bonus, group insurance or similar benefit plan in
respect of any of its directors, officers or other employees;
2.1.6 CONDUCT OF BUSINESS. Except as contemplated by this
Agreement, knowingly take or omit to take any action which (i) causes Bank not
to conduct its business in a manner consistent with its normal business
practices (Bank shall use reasonable efforts to manage its deposits, including
rates and mix, its assets, including rates and mix, and its securities
portfolios in a manner consistent with past practices), (ii) has a material and
adverse effect on the financial condition (present or prospective), businesses,
properties, assets or operations of
Bank (the parties hereto recognize that the operation of Bank until the
Effective Time is the responsibility of Bank, and its Board of Directors and
officers; nevertheless, Bank shall keep FSB advised of all material changes in
the financial condition (present or prospective), businesses, properties, assets
or operations of Bank);
2.1.7 ACQUISITIONS AND MERGERS; DIVESTITURE. Acquire or merge
with any other company or acquire any branch or other significant part of the
assets of any other company, or divest any material portion of its assets (on or
off balance sheet), deposits or, except as otherwise directed by or agreed with
FSC or FSB, its business relationships;
2.1.8 LIENS; INDEBTEDNESS; INCREASE IN COMPENSATION, ETC.
Except in the ordinary course of business, mortgage, pledge or subject to a lien
or any other encumbrance any of its assets, dispose of any of its assets, incur
or cancel any indebtedness or claims, purchase or lease any assets having a
purchase price or lease cost of more than $10,000.00 in each case or, in the
aggregate, $50,000, or increase any compensation or benefits payable to its
officers or employees, except cost of living and merit increases in accordance
with past practices;
2.1.9 ACCOUNTING PRACTICES. Except as may be required under
generally accepted accounting principles, change any accounting or reporting
practice.
2.1.10 AMENDMENTS TO ARTICLES OF INCORPORATION, ETC. Amend its
Articles of Incorporation, or make any material amendments to its Bylaws which
would materially and adversely
-6-
<PAGE>
interfere in any manner with the transactions contemplated by this Agreement.
2.2 INVESTIGATION; ACCESS. Bank shall use its best efforts to take
or cause to be taken all action required under this Agreement on its part to be
taken as promptly as practicable so as to permit the consummation of the
transactions contemplated by this Agreement at the earliest possible date and
cooperate fully with FSB to that end, including, without limitation, providing
to FSB, and its agents, employees, accountants and counsel, access to Bank's
books, records, reports, tax returns and facilities and to its employees,
accountants, and counsel; provided, however, that such investigation to be
conducted by FSB shall be performed in such a manner which will not unreasonably
interfere with the normal operations, customers or employee relations of Bank,
and shall be in accordance with reasonable procedures established by the parties
having due regard for the foregoing.
To facilitate the investigations of Bank to be conducted by FSB, Bank
shall deliver to FSB, as soon as reasonably possible, and substantially in the
form attached as Schedule 2.2, (i) a list setting forth all of the classified,
criticized and nonperforming assets of Bank ("Classified Assets") as identified
by the most recent examination by Bank's federal or state bank examiner, and by
Bank's internal credit examination along with an explanation of management's
response for dealing with such assets, (ii) a list of all loans which are more
than thirty (30) days past due ("Past Due Loans"), and (iii) Bank
management's analysis of expected losses to be incurred with respect to the
loans (assets) identified in items (i) and (ii). Further, Bank shall deliver to
FSB, as soon as reasonably possible, Bank's Reports of Examination as conducted
by the Federal Deposit Insurance Corporation and/or the Department of Financial
Institutions of the State of Utah (the "Department") for the last three years.
From execution of this Agreement until Closing, Bank shall deliver to
FSB, again substantially in the form attached as Schedule 2.2, (i) monthly
reports which summarize the loans and lease and the deposit activity of Bank for
the previous month, and (ii) a report detailing any changes to the Classified
Assets or Past Due Loans.
2.3 REGULATORY APPROVALS. Bank shall (i) use its best efforts in
good faith to assist FSB and FSC in obtaining all necessary regulatory approvals
and to take or cause to be taken all other action required under this Agreement
on its part to be taken as promptly as practicable so as to permit the
consummation of the transactions contemplated by this Agreement at the earliest
possible date, and cooperate fully with FSB to that end, and (ii) furnish all
necessary information for inclusion in any applications relating to the
consents, approvals, and permissions of regulatory authorities referred to in
Article SIX. Bank shall have the right to review, prior to submission, all
applications to such regulatory authorities before the filing thereof and to
comment upon the form of such applications and the information contained
therein.
-7-
<PAGE>
2.4 NOTIFICATION OF ACTIONS. Bank covenants and agrees to notify FSB
as soon as reasonably practicable in the event of the breach of any of the
covenants set forth in this Article TWO.
2.5 ENVIRONMENTAL REPORTS. Within five (5) days of the execution of
this Agreement, Bank shall request and, within thirty (30) days of execution of
this Agreement, Bank shall use its best efforts to cause to be prepared, by
firms reasonably acceptable to FSB, Phase I Environmental Reports with respect
to real property owned by Bank, including Bank's branch facilities and assets
held by Bank as other assets, other real estate owned or as insubstance
foreclosure. In the event a Phase I Report indicates that Bank may be a
potentially liable party for remedial action under CERCLA, FRCRA (as such terms
are defined hereinbelow) or comparable federal or state environmental type
statutes, then Bank shall promptly notify FSB of such problem and Bank and FSB
shall determine the appropriate action concerning such property. The cost of
said Phase I Reports shall be borne by Bank. FSB and FSC acknowledge that that
certain office building owned by Bank and located at 36 South Main, Clearfield,
Utah, contains asbestos and that no remedial action shall be required to be
taken or caused to be taken by Bank with respect thereto (the "Property").
2.6 TERMINATION OF PLANS. On or before the Effective Time, Bank and
FSC shall determine whether it is in the best interests of the parties hereto
and the employees of Bank to terminate the Community First Bank Retirement Plan
(as such plan
is described in Section 3.1.16) or to merge such plans into an FSC benefit plan.
FSC will cooperate in such determination to enable the plan participants to
"roll-over" any benefits of said plans into continued tax favorable
arrangements.
ARTICLE THREE
COVENANTS, REPRESENTATIONS AND WARRANTIES OF BANK
3.1 COVENANTS, REPRESENTATIONS AND WARRANTIES OF BANK. Subject to
those matters set forth in Schedules to this Agreement, Bank covenants,
represents and warrants to and agrees with FSB as of the date of this Agreement
and as of the Closing Date (as defined in paragraph 7.1, below) as follows:
3.1.1 ORGANIZATION, CONDUCT OF BUSINESS, ETC. Bank (i) is duly
organized and validly existing and in good standing under the laws of the State
of Utah, (ii) has all requisite power and authority (corporate and other) to own
its properties and conduct its businesses as now being conducted, (iii) is duly
qualified to do business and is in good standing in each jurisdiction in which
the character of the properties owned or leased by it therein or in which the
transaction of its businesses makes such qualification necessary, except where
failure to so qualify would not have a material adverse effect on Bank or its
businesses, operations, properties, assets or condition (financial or
otherwise), and (iv) to the best of Bank's knowledge, is not transacting
business, or operating any properties owned or leased by it, in violation of any
provision of federal or state law or any rule or regulation promulgated
-8-
<PAGE>
thereunder, which violation would have a material adverse effect on Bank or its
respective businesses, operations, properties, assets or condition (financial or
otherwise).
3.1.2 OPTIONS, WARRANTS, ETC. There are no outstanding options,
warrants, calls, units or commitments of any kind relating to the issuance,
sale, purchase or redemption of, or securities convertible into, capital stock
of Bank.
3.1.3 AUTHORIZATION OF CAPITAL STOCK. All of the outstanding
shares of capital stock of Bank have been duly authorized and are validly
issued, fully paid and nonassessable. Bank does not own any equity interest in
any other business organization.
3.1.4 AUTHORIZATION; VALIDITY OF AGREEMENT. To the best of
Bank's knowledge, Bank has the corporate power and corporate authority to
execute and deliver this Agreement. This Agreement has been duly and validly
approved by the Board of Directors of Bank, has been duly executed and delivered
on Bank's behalf, and, subject to approval by the shareholders of Bank and
applicable regulatory authorities, constitutes a valid and binding agreement of
such corporation, enforceable in accordance with its terms.
3.1.5 BANK REPORTS. Since January 1, 1991, Bank has filed all
reports, registrations and statements, together with any amendments required to
be made with respect thereto, that, to the best of Bank's knowledge, were
required to be filed with (i) the Federal Deposit Insurance Corporation (the
"FDIC") or (ii) the Department. (All such reports and statements filed
by Bank with the FDIC and the Department, and other applicable state securities
or banking authorities, are collectively referred to herein as the "Bank
Reports.") As of their respective dates, Bank Reports complied, to the best of
Bank's knowledge, in all material respects with all the statutes, rules and
regulations enforced or promulgated by the regulatory authority with which they
were filed and did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
3.1.6 BANK FINANCIAL STATEMENTS AND TAX RETURNS. Bank's Balance
Sheet as of December 31, 1992 and December 31, 1991, and its Statement of Cash
Flow for the year ended December 31, 1992 and December 31, 1991, and Bank's
Interim Balance Sheet as of June 30, 1993, were prepared, to the best of Bank's
knowledge, in accordance with generally accepted accounting principles
consistently applied and present fairly Bank's financial condition, results of
operations and changes in cash position as of such date, except as set forth in
Schedule 3.1.6. Bank's Call Reports for the years ending December 31, 1992 and
1991 were prepared, to the best of Bank's knowledge, in accordance with
accounting principles governing regulatory reports consistently applied and
present fairly Bank's financial condition as of such dates except as
specifically identified in Schedule 3.1.6. (The 1992 and 1991 Balance Sheets,
the June 30, 1993 Interim Balance Sheet, and the 1992 and 1991 year-end Call
-9-
<PAGE>
Reports, in each case including any footnotes and schedules thereto, are
collectively referred to hereinafter as the "Financial Statements.") During the
period from execution of this Agreement until Closing, Bank will provide FSB
within five (5) business days of their availability, all interim financial
statements relating to Bank and customarily prepared by Bank.
Bank has delivered (or will deliver within five (5) days of
execution of this Agreement) true and correct copies of all federal and state
income tax returns filed for the years ending 1990, 1991 and 1992. Bank has
filed all federal, state and local tax returns and forms (including but not
limited to forms 1099), which, to the best of Bank's knowledge, are required by
law to be filed or delivered as of the date hereof and has paid all taxes which
have become due, and it has timely filed all currency transaction reports
required by the Bank Secrecy Act, as amended; has timely filed all information
returns required by Sections 6041, 6041A, 6042, 6045, 6049, 6050H, and 6050J of
the Internal Revenue Code of 1986, as amended (the "Code"); and has exercised
due diligence in obtaining certified taxpayer identification numbers as required
pursuant to Treasury Regulation 35a.9999. Where payment of such taxes is not
required to be made as of the date hereof, Bank has set up an adequate reserve
or accrual for the payment of all taxes required to be paid in respect of the
periods covered by such returns.
There are not in force (i) any extensions of time with respect to
the dates on which any return was or is due to be
filed by Bank, or (ii) any waivers or agreements by Bank for the extension of
time for the assessment or payment of any tax.
3.1.7 OTHER LIABILITIES; ENVIRONMENTAL MATTERS. Except as and
to the extent stated in the Financial Statements delivered or to be delivered
pursuant to Section 3.1.6 and in Schedule 3.1.7, and except for those
liabilities incurred in the normal course of Bank's business, Bank does not have
any material liabilities or obligations, secured or unsecured (whether accrued,
absolute, contingent or otherwise).
With respect to the real property owned or leased by Bank
(including other real estate, but excluding the Property), to the best actual
knowledge of Bank, neither Bank or any predecessor owner to Bank has stored,
disposed of or arranged for the disposal of any hazardous substance at any
facility, location or site, or permitted others to do so, so as to be or become
a potentially liable party for remedial action or response costs in connection
with such facility, location or site under the Federal Comprehensive Response,
Compensation and Liability Act ("CERCLA"), as amended, the Federal Resource
Conservation and Recovery Act ("FRCRA"), as amended, Federal Water Pollution
Control Act, the Toxic Substances Control Act, any Utah underground storage tank
act and other federal or state environmental law or regulation, and Bank has not
received any notice of any potential claim under any such statutes. To the best
actual knowledge of Bank, the real property owned or leased by Bank, excluding
the Property, has never contained or had located thereon, or been used by
previous owners and/or operators
-10-
<PAGE>
or Bank, for storage of, or construction with asbestos, PCB or other hazardous
substance. For purposes of this Section, "hazardous substance" shall include
all petroleum products as well as any toxic or hazardous material, hazardous
waste or other hazardous or regulated substance defined in or regulated by any
environmental law but shall not include substances used for their intended
purpose in accordance with applicable law for cleaning or maintenance of the
real property and improvements thereon.
3.1.8. LOAN LOSS RESERVES. The Reserve for Possible Loan Losses
and Net Loan Charge-Offs of Bank as established from time to time by Bank are
adequate as determined by the standards applied to Bank by the applicable bank
regulatory agencies and pursuant to generally accepted accounting principles.
3.1.9 TITLE TO PROPERTIES. Except as reflected in the Financial
Statements delivered or to be delivered pursuant to Section 3.1.6, Bank owns,
free and clear of any liens, claims, charges, options, or other encumbrances,
all of the property, real, personal or mixed, reflected in the Financial
Statements of Bank and all property acquired since such date, except such
property sold or otherwise disposed of since such date in the ordinary course of
Bank's business. In Bank's opinion, all such properties which are material to
the business or operations of Bank are in a good state of maintenance and repair
(ordinary wear and tear excepted) and are adequate for their current uses and
purposes. During each of the past three calendar years, Bank and its properties
have been insured for customary risks with
customary limits, deductibles, and exclusions, including but not limited to
Bankers Blanket Bond, and such insurance protection continues in effect as of
the date hereof. Bank has delivered (or shall deliver) to FSB true and correct
copies of all deeds, title insurance policies and surveys it has with respect to
the real property owned by it and copies of all leases with respect to real
property leased by it.
3.1.10 ABSENCE OF DEFAULTS. Except as set forth in Schedule
3.1.10, the execution of this Agreement does not and performance of the
transactions contemplated by this Agreement will not (assuming Bank shareholder
approval and applicable regulatory approval) (a) violate the provisions of the
Articles of Incorporation or Bylaws of Bank, or (b) to the best of Bank's
knowledge, violate the provisions of or place Bank in default under any
agreement, indenture, mortgage, lien, lease, contract, instrument, order,
judgment, decree, ordinance, statute, or regulation to which Bank is subject, to
which any property of Bank is subject, or to which Bank is a party, which
violations or defaults would in the aggregate have a material adverse effect on
the business, operations, properties, assets, or condition (financial or
otherwise) of Bank.
3.1.11 ABSENCE OF MATERIAL ADVERSE CHANGES. Except as
contemplated by this Agreement, since December 31, 1992, there has been no
material adverse change, and no development involving a reasonably foreseeable
prospective material adverse change, in or affecting the financial condition
-11-
<PAGE>
(present or prospective), businesses, properties, assets or operations (present
or prospective) of Bank.
3.1.12 ACTIONS, PROCEEDINGS AND INVESTIGATIONS. Set forth on
Schedule 3.1.12 hereto is a complete and accurate listing of all litigation,
administrative or other proceedings to which Bank is a party, except for such
proceedings in which Bank is seeking to collect on a loan or lease transaction
and no counterclaim or similar claim has been filed against Bank. There are no
actions, proceedings or investigations pending, or to the knowledge of the
executive officers of Bank threatened or contemplated, against or relating to
Bank or any of its properties or assets (and said officers are not aware of any
facts that would give rise to any such claim), which would materially and
adversely affect the financial condition (present or prospective), businesses,
properties, assets or operations (present or prospective) of Bank, or the
ability of Bank to consummate the Merger contemplated hereby.
3.1.13 ABSENCE OF BROKERAGE COMMISSIONS, ETC. All negotiations
relative to this Agreement and the transactions contemplated hereby have been
carried on by Bank or its legal counsel directly with FSC or FSB without the
participation or intervention of any other person, firm or corporation employed
or engaged by or on behalf of Bank in such a manner as to give rise to any valid
claim against Bank for a brokerage commission, finder's fee or like payment.
3.1.14 MATERIAL CONTRACTS. Except for those documents listed on
Schedule 3.1.14 hereto, copies of which
documents have been provided by Bank to FSB, Bank is not a party to any material
contract or agreement, including but not limited to any lease, service contract,
employment agreement or any pension, retirement, stock option, profit sharing,
deferred compensation, consultant, bonus, group insurance or similar plan. To
the best of Bank's knowledge, all of the contracts and agreements of Bank,
including those set forth in Schedule 3.1.14 are valid, binding and in full
force and effect and there is no existing default thereunder.
3.1.15 COMPLIANCE WITH LAWS; DOCUMENTATION.
(a) Except as set forth on Schedule 3.1.15, the conduct by
Bank of its business, to the best of Bank's knowledge, does not violate or
infringe any domestic or foreign laws, statutes, ordinances, rules or
regulations, the enforcement of which, individually or in the aggregate, would
materially and adversely affect the business, operations, properties, assets or
condition (financial or otherwise) of Bank. Except as set forth in Schedule
3.1.15, Bank has complied, to the best of Bank's knowledge, in all material
respects with every local, state or federal law or ordinance, and every
regulation or order issued thereunder, now in effect and applicable to Bank
governing or pertaining to fair housing, anti-redlining, equal credit
opportunity, truth-in-lending, real estate settlement procedures, fair credit
reporting and every other prohibition against unlawful discrimination in
residential lending, or governing consumer credit, including, but not limited
to, the Consumer Credit Protection Act, Truth-in-Lending Law, and in particular
-12-
<PAGE>
Regulation Z promulgated by the Federal Reserve Board, and the Real Estate
Settlement Procedures Act of 1974. Except as set forth in Schedule 3.1.15 and
to the best of Bank's knowledge: (i) all loans, leases, contracts and accounts
receivable (billed and unbilled), security agreements, guarantees and recourse
agreements, of Bank as held in its portfolio, or as sold into the secondary
market, represent and are valid and binding obligations of the respective
parties and debtors, enforceable in accordance with their respective terms,
based on a valid, binding and enforceable contract(s) or commitment(s), each of
which has been executed and delivered in full compliance, in form and substance,
with any and all federal, state or local laws applicable to Bank, including
without limitation the Truth-in-Lending Act, Regulations Z and U of the Federal
Reserve Board, laws and regulations providing for non-discriminatory practices
in the granting of loans or credit, applicable usury laws, laws imposing lending
limits, and each has been administered in full compliance with all applicable
federal, state or local laws or regulations; and (ii) except as set forth on
Schedule 3.1.15, all Uniform Commercial Code filings, or filings of trust deeds,
or of lien or other security interest documentation that are required by any
applicable federal, state or local government laws and regulations to perfect
the security interests referred to in any and all of such documents or other
security agreements have been made, and all security interests under such deeds,
documents or security agreements have been perfected, and all contracts have
been entered into or assumed in full compliance with all applicable material
legal or regulatory requirements.
(b) All loan files of Bank are complete and accurate in all
material respects and have been maintained in accordance with generally accepted
banking practice.
(c) All notices of default, foreclosure proceedings or
repossession proceedings against any real or personal property collateral have
been issued, initiated and conducted by Bank, to the best of Bank's knowledge,
in full formal and substantive compliance with all applicable federal, state or
local laws and regulations, and no loss or impairment of any security interest
suffered or incurred by Bank.
(d) To the best of Bank's knowledge, Bank is not in
violation of any applicable servicer or other requirement of the FHA, VA, FNMA,
GNMA, FHLMC or any private mortgage insurer which insures any loans owned by
Bank or as to which Bank has sold to other investors, the effect of which
violation would materially and adversely affect the business, operations,
properties, assets or condition (financial or other) of Bank, and with respect
to such mortgage loans Bank has not done or failed to do, or caused to be done
or omitted to be done, any act the effect of which act or omission impairs or
invalidates (i) any FHA insurance or commitments of the FHA to insure, (ii) any
VA guarantee or commitment of the VA to guarantee, (iii) any private mortgage
insurance or commitment of any private mortgage insurer to insure, (iv) any
title insurance policy, (v) any hazard insurance policy, or (vi) any flood
insurance policy required by
-13-
<PAGE>
the National Flood Insurance Act of 1968, as amended, to the material detriment
of Bank.
(e) Bank is not engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying any margin stock.
3.1.16 BANK'S EMPLOYEE BENEFITS.
(a) BENEFIT PLANS. All "employee benefit plans" (as
defined at Section 3(3) of the Employee Retirement Income Security Act of 1974
("ERISA")) currently sponsored or maintained by Bank are set forth in Schedule
3.1.16 (hereinafter collectively referred to as the "Benefit Plans"), and, to
the best of Bank's knowledge, such plans are legally valid and binding and in
full force and effect. Such list includes all "employee welfare benefit plans"
(as defined in section 3(1) of ERISA) and all "employee pension benefit plans"
as that term is defined in section 3(2) of ERISA. Except as set forth in
Schedule 3.1.16, Bank represents that it does not presently have, nor does it
sponsor, any other plan, fund or program providing retirement income, deferred
income for periods extending to the termination of employment or beyond,
medical, surgical, or hospital care or benefits, severance benefits, benefits in
the event of sickness, accident, disability, death or unemployment, vacation
benefits, apprenticeship or other training programs, day care centers,
scholarship funds or prepaid legal services.
(b) EMPLOYEE AGREEMENTS. Except as set forth in Schedule
3.1.16, Bank is not presently a party to any
employment contract, compensation or bonus agreement, collective bargaining
agreement, or any incentive, deferred compensation, severance or separation
agreement, policy or arrangement of any kind, covering employees or former
employees of Bank.
(c) LIABILITIES FOR PENSION CONTRIBUTIONS. Except as
disclosed in Schedule 3.1.16, Bank has not maintained nor contributed to a plan
subject to the minimum funding requirements of Section 302 of ERISA. Except for
1993 contributions not to exceed six percent (6%) of each employee's annual
compensation and payments under Bank Directors Deferred Compensation Agreements,
Bank has no liability for contributions to any employee pension benefit plan,
including but not limited to the Community First Bank Retirement Plan. To the
best of Bank's knowledge, there are no material liabilities of Bank (other than
a current contribution) that would be incurred as a result of any termination of
a benefit plan, except as otherwise specified in Schedule 3.1.16.
(d) COMPLIANCE WITH LAWS. Bank and, to the knowledge of
the executive officers of Bank, all persons having fiduciary or other
responsibilities or duties with respect to any Benefit Plan, are, and have since
inception been, in compliance in all material respects with, and each such
Benefit Plan is and has been operated in all material respects in accordance
with its provisions and, to the best of Bank's knowledge, in compliance with
applicable laws, rules and regulations governing such plans, including without
limitation, the rules and regulations promulgated by the Department of Labor and
the Internal Revenue
-14-
<PAGE>
Service under ERISA and the Code and the health care continuation requirements
of federal law.
(e) CLAIMS ADMINISTRATION AND LIABILITIES. To the best of
Bank's knowledge, each Benefit Plan has been administered to date in material
compliance with the requirements of the claims procedure of the Code and ERISA.
To the best of Bank's knowledge, all reports required by any government agency
and disclosures to participants with respect to each Benefit Plan subject to
Section 104 of ERISA have been timely made or filed. Other than as required by
federal law for health continuation benefits ("COBRA"), Bank does not now have
any obligation to former employees to furnish health, or other similar welfare
benefits under any Benefit Plan after retirement or other severance of
employment. No claim arising in connection with the Benefit Plans has been made
or asserted against Bank or the Benefit Plans (other than for benefits as
provided under the terms of the Benefits Plans) and, to the best of Bank's
knowledge, there is no basis for any such claim.
(f) PROHIBITED TRANSACTIONS. Bank has not, nor to the best
of Bank's knowledge, has any fiduciary of any Benefit Plan, engaged in any
transaction in violation of Section 406(a) or (b) of ERISA or Section 4975(c)(1)
of the Code (for which no exemption exists under applicable law or regulations).
The financial information furnished or to be furnished by Bank to FSB or FSC on
any Benefit Plan in accordance with subsection 3.1.16(g)(iv), below, present an
accurate and fair representation of the assets and liabilities of such Benefit
Plan.
(g) COPIES OF RELEVANT DOCUMENTS. Complete and correct
copies of the following documents have been furnished to FSB or will be
furnished to FSB within 20 days following the signing of this Agreement:
(i) The Benefit Plans and related trust agreements;
(ii) The most recent summary plan description of each
Benefit Plan subject to Section 104 of ERISA;
(iii) The most recent IRS determination letter for the
Community First Bank Retirement Plan; and
(iv) Most recent annual reports (on Form 5500
series), if any, required to be filed with respect to each of the
Benefit Plans with the Internal Revenue Service.
3.1.17 REPURCHASE AGREEMENTS. Bank has no government securities
subject to repurchase agreements.
ARTICLE FOUR
COVENANTS, REPRESENTATIONS AND WARRANTIES OF FSC AND FSB
4.1 COVENANTS, REPRESENTATIONS AND WARRANTIES OF FSC AND FSB. FSC
and FSB jointly and severally represent and warrant to and agree with Bank as of
the date of this Agreement and as of the Closing Date as follows:
4.1.1 ORGANIZATION, CONDUCT OF BUSINESS, ETC. FSC and FSB
(i) are each duly organized and validly existing and
-15-
<PAGE>
in good standing under the laws of Delaware (in the case of FSC), or the laws of
the United States (in the case of FSB), (ii) have all requisite power and
authority (corporate and other) to own their respective properties and conduct
their respective businesses as now being conducted, (iii) are each duly
qualified to do business and are in good standing in each jurisdiction in which
the character of the properties owned or leased by them therein or in which the
transaction of their respective businesses makes such qualification necessary,
except when failure to so qualify would not have a material adverse effect on
FSC and its consolidated subsidiaries, and (iv) are not transacting business, or
operating any properties owned or leased by any of them, in violation of any
provision of federal or state law or any rule or regulation promulgated
thereunder, which violation would have a material adverse effect on FSC and its
consolidated subsidiaries (including FSB).
4.1.2 AUTHORIZATION AND VALIDITY OF AGREEMENT. FSC and FSB have
the corporate power and authority to execute and deliver this Agreement. This
Agreement has been duly and validly approved by the Board of Directors of FSB
and the Executive Committee of FSC (and prior to Closing, by the Board of
Directors of FSC), has been duly executed and delivered on their behalf, and
constitutes a valid and binding agreement of each of FSC and FSB, enforceable in
accordance with its terms, subject to approval of the shareholders of FSB and
applicable regulatory authorities.
4.1.3 FSC REPORTS. Since January 1, 1991, FSC and its
consolidated subsidiaries have filed all reports, registrations and statements,
together with any amendments required to be made with respect thereto, that were
required to be filed with (i) the United States Securities and Exchange
Commission (the "SEC") including, but not limited to, Form 10-K, Form 10-Q, Form
8-K and proxy statements, (ii) the Federal Reserve Board, (iii) the Office of
the Comptroller of the Currency ("OCC"), and (iv) the FDIC. All such reports
and statements filed with the SEC, the Federal Reserve Board, the OCC, the FDIC,
and other applicable state securities or banking authorities are collectively
referred to herein as the "FSC Reports." As of their respective dates, the FSC
Reports complied in all material respects with all the statutes, rules and
regulations enforced or promulgated by the regulatory authority with which they
were filed and did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. Within five (5) business days following the execution of
this Agreement, FSC shall provide copies of the most recent FSC Reports to Bank
and its counsel. From execution of this Agreement until the Closing Date, FSC
(and FSB as applicable) shall provide to Bank copies of all filings made by FSC
pursuant to the Securities Act of 1933 and the Securities Exchange Act of 1934
and the Call Reports filed by FSB.
-16-
<PAGE>
4.1.4 FSC FINANCIAL STATEMENTS. FSC's Consolidated Balance
Sheets as of December 31, 1992 and December 31, 1991, and its Consolidated
Statements of Income and Consolidated Statements of Changes in Financial
Position (or Statement of Cash Flow) for the years then ended, and FSC's
unaudited Balance Sheet as of June 30, 1993, heretofore delivered to Bank, were
prepared in accordance with generally accepted accounting principles
consistently applied and present fairly its consolidated financial condition,
results of operations and changes in financial position as of such dates and for
such periods. FSB's Call Reports for the years ending December 31, 1992 and
1991 were prepared in accordance with accounting principles governing regulatory
reports consistently applied and present fairly FSB's financial condition as of
such dates. Except as reflected in the FSC Financial Statements provided by FSC
to Bank and except for those liabilities incurred in the normal course of FSC's
or any of its subsidiaries' respective business, FSC and its consolidated
subsidiaries do not have any material liabilities or obligations, secured or
unsecured (whether accrued, absolute, contingent or otherwise).
4.1.5 ABSENCE OF MATERIAL ADVERSE CHANGES. Since December 31,
1992, there has been no material adverse change in or affecting the financial
condition, businesses, properties or operations of FSC and its consolidated
subsidiaries or of FSB.
4.1.6 ABSENCE OF DEFAULTS UNDER AGREEMENTS. Neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will
conflict with or result in a breach of or constitute a default under any
provision of FSC's or FSB's respective Articles of Incorporation, Articles of
Association, or Bylaws, or any agreement to which FSC or FSB is a party or by
which either of them is bound or to which any of their respective properties is
subject or result in the creation of any liens or encumbrances upon any of their
respective assets, and no consents or waivers thereunder are required to be
obtained in connection with the transactions contemplated hereby, except for the
approval of the OCC, the Department and the Board of Governors of the Federal
Reserve System and of the shareholders of FSB and the shareholders of Bank.
4.1.7 ACTIONS, PROCEEDINGS, AND INVESTIGATIONS. Except as set
forth in FSC's filings with the SEC, there are no actions, proceedings or
investigations pending, or to the best knowledge of the executive officers of
FSC and FSB, threatened or contemplated, against or relating to FSC or any of
its consolidated subsidiaries, or any of their respective properties, which, if
determined adversely, would materially and adversely affect the financial
condition, businesses, properties or operations of FSC and its consolidated
subsidiaries or of FSB, or the ability of FSC and FSB to consummate the Merger
contemplated hereby.
4.1.8 REGULATORY APPROVALS. FSC and FSB shall (i) file, within
ten (10) business days following execution of this Agreement, applications for,
and shall use their best efforts in good faith to obtain, all necessary
regulatory
-17-
<PAGE>
approvals and to take or cause to be taken all other action required under this
Agreement on their part to be taken as promptly as practicable so as to permit
the consummation of the transactions contemplated by this Agreement at the
earliest possible date, and cooperate fully with Bank to that end, and
(ii) furnish all necessary information for inclusion in any applications
relating to the consents, approvals, and permissions of regulatory authorities
referred to in Article SIX. FSB shall pay all filing fees with respect to the
required regulatory approvals.
4.1.9 FSC COMMON STOCK. All of the outstanding Common Stock of
FSC as set forth in the Recitals hereto is duly authorized and validly issued,
fully paid and nonassessable. The Common Stock of FSC to be issued and
delivered pursuant to the Merger, when issued as contemplated hereby, shall be
duly authorized, validly issued, fully paid and nonassessable. Except as set
forth in the consolidated financial statements of FSC (including the footnotes
and schedules thereto), (subject to the adjustment provided below), there are no
outstanding options, warrants, calls, units or commitments of any kind relating
to the issuance, sale, purchase, or redemption of, or securities convertible
into, capital stock of FSC or any of its subsidiaries. (The number of options
(including shares reserved for employee plans) set forth in the consolidated
financial statements (including footnotes and schedules) must be adjusted to
reflect the 50% stock dividend on FSC Common Stock paid May 18, 1992.)
4.1.10 REGISTRATION OF SHARES. FSC will use its best efforts to
cause a Registration Statement on Form S-4 or other appropriate form to be filed
and declared effective and the effectiveness maintained through the Closing Date
under the Securities Act of 1933, as amended (the "1933 Act"), with respect to
the FSC Common Stock which is to be issued in connection with the transactions
contemplated by this Agreement, which Registration Statement, at the time it
becomes effective, and at the Effective Time, shall in all material respects
conform to the requirements of the 1933 Act and the General Rules and
Regulations of the SEC under said Act (the "1933 Rules"), and the FSC Common
Stock to be issued by FSC in connection with the Merger shall be duly qualified
or exempted, as the case may be, under applicable state Blue Sky securities
laws, in those states in which Bank has shareholders reside (as shown on
attached Schedule 4.1.10).
4.1.11 ABSENCE OF BROKERAGE COMMISSIONS, ETC. All negotiations
relative to this Agreement and the transactions contemplated hereby have been
carried on by FSC and FSB or their legal counsel directly with Bank without the
participation or intervention of any other person, firm or corporation employed
or engaged by or on behalf of FSC or FSB in such a manner as to give rise to any
valid claim against FSC or FSB for a brokerage commission, finder's fee or like
payment.
-18-
<PAGE>
ARTICLE FIVE
PROXY STATEMENT; SHAREHOLDER MEETING
5.1 PROXY STATEMENT. FSC shall prepare the Registration Statement,
as provided in Paragraph 4.1.10 above, which Registration Statement will include
a Proxy Statement to be used with respect to providing the shareholders notice
of the shareholder meeting for Bank and FSB. Bank covenants and agrees to
provide to FSC all information reasonably requested by FSC, including accounting
statements and reports, required for the Registration Statement, and represents
and warrants that the information it so provides in writing specifically for use
in the Proxy Statement, will comply in all material respects with the
requirements of the Securities Exchange Act of 1934 (the "1934 Act") and the
applicable rules and regulations promulgated by the SEC under such Act (the
"1934 Rules"), and will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements contained therein not misleading, except that Bank makes no
representation with respect to information furnished by FSC or FSB for inclusion
in the Proxy Statement or otherwise.
FSC and FSB represent and warrant that the Proxy Statement will comply
in all material respects with the requirements of the 1934 Act and the
applicable 1934 Rules, and will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements contained therein not misleading, except that FSC and FSB
make no representation with
respect to information furnished in writing by Bank for inclusion in the Proxy
Statement or otherwise.
5.2 BANK MEETING. This Agreement shall be submitted for approval,
ratification and confirmation by the shareholders of Bank at a meeting thereof
to be called in accordance with the applicable provisions of law and held as
promptly as practicable after the execution of this Agreement. Bank will mail
the Proxy Statement prepared by FSC as part of the Registration Statement to its
shareholders for purposes of the meeting of its shareholders.
5.3 FSB MEETING. This Agreement shall be submitted for approval,
ratification and confirmation by the shareholders of FSB at a meeting thereof to
be called in accordance with the applicable provisions of law and held as
promptly as practicable after the execution of this Agreement. FSB will mail
the Proxy Statement prepared by FSC as part of the Registration Statement to its
shareholders for purposes of the meeting of its shareholders. FSC, as the
holder of in excess of 99% of the issued and outstanding stock of FSB agrees to
vote the FSB shares in favor of the Merger.
-19-
<PAGE>
ARTICLE SIX
CONDITIONS OF CLOSING
6.1 CONDITIONS OF CLOSING.
6.1.1 CONDITIONS OF CLOSING FOR ALL PARTIES. The consummation
of the transactions contemplated by this Agreement is conditioned upon the
following:
6.1.1(a) REGULATORY APPROVAL. All consents, approvals and
permissions and the satisfaction of all of the requirements prescribed by law,
including but not limited to, the consents, approvals and permissions of all
applicable regulatory authorities, which are necessary to the carrying out of
the Merger as described in this Agreement, shall have been procured; provided,
however, the approvals referred to in this subparagraph 6.1.1(a) shall not have
imposed any significant conditions which FSB on the one hand, or Bank, on the
other, reasonably deem to be materially disadvantageous or burdensome.
6.1.1(b) NO INJUNCTION, ETC. There shall not have been
instituted any litigation, regulatory proceeding or other matter which
challenges the legality or effectiveness of the transactions contemplated hereby
or seeks an order, decree or injunction enjoining or prohibiting the
consummation of the Merger in any material respect.
6.1.1(c) SHAREHOLDER APPROVAL. Holders of not less than
sixty-six and 2/3 percent (66-2/3%) of Bank Common Stock and of the FSB Common
Stock outstanding shall have approved and confirmed this Agreement and the
Merger contemplated hereby.
6.1.1(d) REGISTRATION STATEMENT. The Registration
Statement shall have become effective under the 1933 Act and shall not be the
subject of any stop order or proceedings seeking a stop order.
6.1.1(e) TAX MATTERS. Bank and FSB and FSC shall have
received an opinion from legal counsel to FSC to the effect (i) that the Merger
will constitute a nontaxable reorganization in accordance with Sections
368(a)(1)(A) and 368(a)(2)(D) of the Code, and (ii) that any other matters
agreed to by Bank, FSB and FSC will be favorably treated for tax purposes.
6.1.2 CONDITIONS OF CLOSING FOR FSC AND FSB. The obligation of
FSC and FSB, respectively, to consummate the transactions contemplated by this
Agreement is conditioned upon the following (unless waived by FSC or FSB,
respectively):
6.1.2(a) BANK RESOLUTIONS; CORPORATE DOCUMENTS. Bank shall
have delivered to FSB certified copies of resolutions duly adopted by the Board
of Directors of Bank approving this Agreement and the Merger, all as
contemplated hereby, and directing the submission thereof to a vote of the
shareholders of Bank, and certified copies of resolutions duly adopted by the
shareholders of Bank (owning the outstanding shares as required by 6.1.1(c)
above) approving this Agreement and the Merger, all as contemplated hereby.
Bank shall deliver to FSB (i) copies certified by the Department of Commerce,
Division of Corporations and Commercial Code, State of Utah of its Articles of
Incorporation; (ii) copies certified by its Bank
-20-
<PAGE>
Secretary or Assistant Secretary of its Bylaws; and (iii) certificate of good
standing as to Bank, dated as of a recent date to the Closing Date, issued by
the Department of Commerce, Division of Corporation and Commercial Code, State
of Utah.
6.1.2(b) BANK REPRESENTATIONS AND WARRANTIES. Unless
waived in writing by FSB, the representations and warranties of Bank contained
in this Agreement shall be correct on and as of the Closing Date with the same
effect as though made on and as of such date, except for changes which are not,
in the aggregate, material and adverse to the financial condition, businesses,
properties or operations of Bank. Except as otherwise contemplated by this
Agreement, Bank shall have performed in all material respects all of its
obligations and agreements hereunder theretofore to be performed by it,
including but not limited to the covenants set forth in Articles TWO and THREE
hereof. FSB shall have received at the Closing a certificate to the foregoing
effect dated the Closing Date and executed on behalf of Bank by one of its duly
authorized executive officers.
6.1.2(c) OPINION OF BANK COUNSEL. Unless waived in writing
by FSB, FSB shall have received at the Closing from Van Cott, Bagley, Cornwall &
McCarthy, counsel to Bank, a written opinion, dated the Closing Date,
substantially in the form of Schedule 6.1.2(c) hereto.
6.1.2(d) CONDITION OF BANK. FSB shall have determined,
based on an audit and review by its officers,
accountants and legal counsel, conducted as soon as possible after execution of
this Agreement (all of which shall be deemed satisfactory as of October 28,
1993, absent any written objection by FSB to Bank and its counsel on or before
the close of business on October 29, 1993), and updated as of the Closing Date,
that (i) the assets, books, records and operations of Bank are in reasonably
satisfactory condition and will not materially and adversely impact FSB after
consummation of the Merger; (ii) based on the review of the assets, books,
records and operations of Bank by FSB, there are no liabilities (existing,
threatened or contingent) which FSB, in its discretion, determines to be
unacceptable; (iii) based upon the credit review standards of FSB, Bank has
properly graded the loans owned by Bank in its loan portfolio as to other assets
especially mentioned, past due, doubtful and loss loans and that based on FSB's
review, FSB, in good faith, has no reason to believe there is a need to write-
down or charge-off loans which individually or in the aggregate exceed
$50,000.00; (iv) the allowance for loan and lease losses of Bank is adequate in
all material respects as determined by the grading of Bank loans and leases in
accordance with FSB credit review policy and applying the allowance for loan and
lease losses formula of FSB; (v) the net earnings before taxes for the years
ended 1990, 1991 and 1992 are as reported in the Financial Statements delivered
to FSB pursuant to paragraph 3.1.6; and (vi) as of the Closing Date, the net
worth of Bank, calculated in accordance with generally accepted accounting
principles, and after accrual or payment of the expenses incurred by Bank with
-21-
<PAGE>
respect to the Merger, including but not limited to auditor's and attorney's
fees and expenses incurred with respect to termination of employee plans, will
be not less than $12,000,000.
In the event FSB determines, and Bank agrees, that certain loans or
assets should be written down or charged off or that additions to the provision
for loan losses should be made, as contemplated by subparagraphs (ii), (iii) and
(iv) of this Section 6.1.2(d), Bank agrees to take such actions as are
reasonably necessary and appropriate under the circumstances and the net worth
requirement set forth in this paragraph as a condition to closing shall be
determined after taking such actions.
Bank agrees to make such accruals for expenses or charge-offs or
additions to the allowance for loan loss at or prior to the Closing made at the
request, in writing, of FSC and FSB, to conform Bank's accounting reserve
practices and methods (including credit loss practices and methods) to those of
FSB (as such practices and methods are to be applied to Bank from and after the
Closing) and FSB's plan with respect to the conduct of Bank's business following
the Merger; PROVIDED, HOWEVER, (a) if such accruals or charge-offs are not
required by said subparagraphs (ii), (iii) or (iv) of this 6.1.2(d), said
accruals and charge-offs shall not reduce net worth for purposes of satisfaction
of the net worth condition set forth in this paragraph, and (b) such accruals or
charge-offs shall not constitute a breach of any representation or warranty of
Bank set forth in this Agreement; provided further that FSB's practices
and methods shall be disclosed to Bank within thirty (30) days of execution of
the Agreement.
6.1.2(e) ACCOUNTANT'S LETTER. Simpson & Company,
independent certified public accountants for Bank, shall have performed the
procedures set forth in Schedule 6.1.2(e) hereto (1) as of the Effective Date of
the Registration Statement, and (2) as of the month-end most closely preceding
the Closing Date and shall have furnished to FSC and FSB their written report.
6.1.2(f) AFFILIATES LETTER. FSC shall have received a
letter from each person listed on Schedule 6.1.2(f) hereto and each person who,
in the reasonable opinion of Bank is an "affiliate" (as that term is defined in
Rule 405 promulgated by the SEC under the 1933 Act) of Bank in the form attached
hereto as Schedule 6.1.2(f). Such "affiliates" letter shall include covenants
with respect to the sale, transfer or other disposition of the FSC Stock to be
received pursuant to the Merger.
6.1.2(g) DEPOSITS. The deposits of Bank shall not be less
than $52.5 million, and Bank shall have managed its deposits in the ordinary
course of business and consistent with past practices and as required by Section
2.1.6 of this Agreement.
6.1.3 CONDITIONS OF CLOSING FOR BANK. The obligation of Bank to
consummate the transactions contemplated by this Agreement is conditioned upon
the following (unless waived by Bank):
-22-
<PAGE>
6.1.3(a) FSB AND FSC REPRESENTATIONS AND WARRANTIES.
Unless waived in writing by Bank, the representations and warranties of FSB and
FSC contained in this Agreement shall be correct on and as of the Closing Date
with the same effect as though made on and as of such date, except for changes
which are not, in the aggregate, material and adverse to the financial
condition, businesses, properties or operations of FSB or FSC and, except as
otherwise contemplated by this Agreement, FSB and FSC shall have performed in
all material respects all of their obligations and agreements hereunder
theretofore to be performed by them. Bank shall have received at the Closing a
certificate to the foregoing effect dated the Closing Date and executed on
behalf of FSB and FSC, respectively, by one of their duly authorized executive
officers.
6.1.3(b) OPINION OF FSC COUNSEL. Unless waived in writing
by Bank, Bank shall have received at the Closing from Ray, Quinney & Nebeker,
counsel to FSC, a written opinion, dated the Closing Date, substantially in the
form of Schedule 6.1.3(b) attached hereto and by reference made a part hereof.
6.1.3(c) FSC AND FSB RESOLUTIONS. FSC and FSB shall have
delivered to Bank certified copies of resolutions duly adopted by the Board of
Directors (or Executive Committee) of each approving this Agreement and the
Merger contemplated hereby and directing the submission thereof to a vote of the
shareholder of FSB, and certified copies of resolutions duly
adopted by the shareholders of FSB approving the Agreement and the Merger
contemplated hereby.
6.1.3(d) FSC SHARES. Subject to Rules 144 and 145
promulgated under the Securities Act, the FSC Stock to be received pursuant to
the Merger may be sold, transferred or otherwise disposed of, without
restriction, by the holder thereof.
6.1.3(e) EMPLOYMENT/CONSULTING AGREEMENTS. Employment or
consulting agreements for each of Richard A. Hill, Joseph S. Jackson and
Bruce G. Jensen, each for a term of not less than three (3) years, and otherwise
reasonably acceptable to such persons, shall have been agreed to, in substance,
on or before November 5, 1993, and executed on or as of the Closing Date.
6.1.3(f) PRICE OF FSC COMMON STOCK. In the event that
there shall have been a significant decline in the average closing price of FSC
Common Stock as reported on the NASDAQ/NMS for the twenty (20) consecutive
trading days ending on the sixth business day prior to the Closing Date of the
Merger (the "Section 6.1.3(f) Average Closing Price"), relative to the Standard
& Poors Regional Bank Index (the "Index") as published from time to time by
Standard & Poors Corporation, then Bank shall have the right to terminate this
Agreement without any further obligation or liability to FSC or FSB. For
purposes hereof, the following terms have the following meanings:
(1) "Initial Index" shall mean the Index on the
trading day immediately preceding the public announcement of this
Agreement.
-23-
<PAGE>
(2) "Final Index" shall mean the average of the
Index for the twenty (20) consecutive trading days ending on the fifth
business day prior to the Effective Time.
(3) A "significant decline" shall be deemed to
have occurred if each of the following conditions exists:
(A) the Section 6.1.3(f) Average Closing
Price is less than $24.23 per share; and
(B) the number obtained by dividing the
Section 6.1.3(f) Average Closing Price by $28.50 is less than the
number obtained by dividing the Final Index by the Initial Index
and subtracting .15 from the quotient.
In the event that any change occurs in the companies comprising the
Index between the date of determination of the Initial Index and the
date of determination of the Final Index, the Initial Index shall be
recalculated in a manner determined by mutual agreement to be fairly
comparable to the Final Index.
Each party hereto shall notify promptly the other in writing of the
occurrence of any event which will or may result in the failure to satisfy the
conditions specified in Article SIX hereof. Between the date of this Agreement
and the Effective Time, each party hereto will advise the other of the
satisfaction of such conditions as they occur.
ARTICLE SEVEN
CLOSING OF THE MERGER
7.1 CLOSING. Unless this Agreement is earlier terminated in
accordance with Article EIGHT, Bank shall be merged with and into FSB, with FSB
being the surviving entity, as contemplated by this Agreement, at a closing (the
"Closing") to be held at the offices of First Security Corporation, 79 South
Main Street, Salt Lake City, Utah 84111, at 2:00 P.M., local time, anticipated
to be on or before May 16, 1993, or a date (the "Closing Date") otherwise
mutually agreed upon by the parties as soon as practicable after satisfaction of
the conditions precedent set forth in Article SIX and the expiration of the
required waiting period following approval of FSB's application to the OCC
relating to the Merger, but in no event later than 30 days after the expiration
of such period.
7.2 EFFECTIVE TIME OF MERGER. The Merger shall take effect on the
date specified by the OCC under the procedures of such office.
ARTICLE EIGHT
TERMINATION
8.1 TERMINATION. This Agreement may be terminated at any time prior
to the Effective Time:
(a) by mutual consent of the Boards of Directors of FSB and FSC
and the Board of Directors of Bank; or
(b) by the Boards of Directors of FSB and FSC, or the Board of
Directors of Bank, at any time after the expiration
-24-
<PAGE>
of twelve (12) months from the date hereof, if the Merger shall not theretofore
have been consummated by the failure to satisfy the conditions to Closing not
within the control of the electing party; or
(c) by Bank, upon written notice to FSB and FSC at any time if
any representation or warranty of FSB or FSC contained in this Agreement was
materially incorrect when made or becomes materially incorrect on or prior to
the Closing Date, or if FSB or FSC, as applicable, fails to comply with any of
its covenants contained in this Agreement, and the same is not cured within
thirty (30) days after written notice of such inaccuracy or noncompliance;
(d) by FSB and FSC upon written notice to Bank at any time if
any representation or warranty of Bank contained in this Agreement was
materially incorrect when made or becomes materially incorrect on or prior to
the Closing Date, or if Bank fails to comply with any of its covenants contained
in this Agreement, and the same is not cured within thirty (30) days after
written notice of such inaccuracy or noncompliance;
(e) by FSB and FSC, upon written notice to Bank at any time
after the meeting of shareholders of Bank regarding the Merger is held if Bank's
shareholders owning not less than 66-2/3% of the outstanding shares of Bank
Common Stock do not approve the Merger contemplated hereby;
(f) by Bank, FSB or FSC, if such Merger is disapproved by any
governmental authority whose approval is necessary.
8.2 EFFECT OF TERMINATION. In the event of termination and
abandonment hereof pursuant to the provisions of Section 8.1, this Agreement
shall become void and have no force or effect and no party hereto shall have any
liability or obligation hereunder to any other party, except that provisions of
this Agreement relating to confidentiality or payment of expenses and this
Section shall survive the termination. Such termination shall not relieve any
party of liability for any default prior to such termination.
ARTICLE NINE
ADDITIONAL COVENANTS
9.1 COSTS. Except as otherwise specified in this Agreement, each of
the parties to this Agreement shall pay its own charges and costs incurred or to
be incurred in connection with the execution and performance of this Agreement.
In the event of a willful breach of a material representation or covenant
contained herein by either Bank, on the one hand, or FSB, on the other, which
breach either directly or indirectly results or would result in a failure to
consummate the Merger and which breach cannot be cured or is not cured within
thirty (30) days after written notice of such breach is given to the party
committing such breach, the party causing such breach shall be liable to the
other party for actual damages; provided, however, that either party may elect
to forego the receipt of such payment, and pursue its right to the specific
performance or enforcement of the terms and provisions of this Agreement.
-25-
<PAGE>
9.2 INSTRUMENTS OF TRANSFER, ETC. Each of the parties hereto shall
cooperate with the other in every reasonable way in carrying out the
transactions contemplated herein, in delivering instruments to perfect the
conveyances, assignments and transfers contemplated herein, and in delivering
all documents and instruments reasonably deemed necessary or useful by counsel
for any party hereto.
9.3 NOTICES. All notices, requests, consents and demands shall be
given to or made upon the parties at its addresses set forth below, or at such
other address as a party may designate in writing delivered to the other
parties. Unless otherwise agreed in this Agreement, all notices, requests,
consents and demands shall be given or made by personal delivery, by confirmed
air courier, by facsimile transmission ("fax"), or by certified first class
mail, return receipt requested, postage prepaid, to the party or parties
addressed as aforesaid. If sent by confirmed air courier, such notice shall be
deemed to be given upon the earlier to occur of the date upon which it is
actually received by the addressee or the business day upon which delivery is
made at such address as confirmed by the air courier (or if the date of such
confirmed delivery is not a business day, the next succeeding business day). If
given by fax, such notice shall be deemed to be given upon the date it is
actually received by the addressee.
(a) If to FSB and/or FSC, to:
First Security Bank of Utah
79 South Main Street
Salt Lake City, Utah 84111
Attn: L. Scott Nelson
Fax Number: (801) 246-2708
With a copy to:
First Security Corporation
79 South Main Street
Salt Lake City, Utah 84111
Attn: Morgan J. Evans
Fax Number: (801) 359-6928
With a copy to:
Brad D. Hardy, of
Ray, Quinney & Nebeker
400 Deseret Building
79 South Main Street
Salt Lake City, Utah 84111
Fax Number: (801) 532-7543
(b) If to Bank, to:
Community First Bank
180 South State Street
Clearfield, Utah 84015
Attn: Richard A. Hill
Fax Number: (801) 774-7509
With a copy to:
Guy P. Kroesche, Esq.
Van Cott, Bagley, Cornwall & McCarthy
50 South Main Street
Salt Lake City, Utah 84144
Fax Number: (801) 534-0058
9.4 AMENDMENTS. Prior to the Effective Time, any provision of this
Agreement, except for Section 1.4.1 hereof, which establishes the conversion
ratio, may be amended or modified at any time, either before or after its
approval by the shareholders of either party to this Agreement, by an agreement
-26-
<PAGE>
in writing between the parties hereto approved by its Boards of Directors and
executed in the same manner as this Agreement.
9.5 ENTIRE AGREEMENT. This Agreement and all exhibits and schedules
hereto and other documents incorporated or referred to herein, contain the
entire agreement of the parties and there are no representations, inducements or
other provisions other than those expressed in writing. No modification, waiver
or discharge of any provision of or breach of this Agreement shall (i) be
effective unless it is executed in writing by the party effecting such
modification, waiver or discharge, or (ii) affect the right of either party
hereto thereafter to enforce any other provision or to exercise any right or
remedy in the event of a breach by a party hereto, whether or not similar.
9.6 ASSIGNMENT. This Agreement may not be assigned by any party
hereto except with the prior written consent of the other parties.
9.7 COUNTERPARTS. Any number of counterparts of this Agreement may
be signed and delivered and each shall be considered an original and together
they shall constitute one agreement.
9.8 ACQUISITION PROPOSALS. Bank agrees that neither it nor any of
the respective officers and directors of Bank shall, and Bank shall direct and
use its best efforts to cause its employees, agents and representatives
(including, without limitation, any investment banker, attorney or accountant
retained by it) not to, initiate, solicit or encourage, directly or indirectly,
any inquiries or the making of any proposal or
offer (including, without limitation, any proposal or offer to stockholders of
Bank) with respect to a merger, consolidation or similar transaction involving,
or any purchase of all or any significant portion of the assets or any equity
securities of, Bank (any such proposal or offer being hereinafter referred to as
an "Acquisition Proposal") or, except to the extent legally required for the
discharge by the Board of Directors of Bank of its fiduciary duties, after
consultation with counsel, engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any person
relating to an Acquisition Proposal, or otherwise facilitate any effort or
attempt to make or implement an Acquisition Proposal. Bank will immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing. Bank will take the necessary steps to inform the appropriate
individuals or entities referred to in the first sentence of this paragraph 9.8
of the obligations undertaken in this paragraph. Bank will notify FSB
immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with Bank from and after the full and
complete execution of this Agreement.
9.9 PUBLIC STATEMENTS. No party to this Agreement shall issue any
press release or other public statement concerning the transactions contemplated
by this Agreement without first providing the other parties hereto with a
written
-27-
<PAGE>
copy of the text of such release or statement and obtaining the consent of the
other parties respecting such release or statement, which consent will not be
unreasonably withheld. The consent provided for in this Section shall not be
required if the delay necessary to obtain such consent would preclude the timely
issuance of a press release or public statement as required by law. The
provisions of this Section 9.9 shall not be construed as prohibiting the filing
of copies of this Agreement or descriptions of this Agreement with regulatory
agencies as to which regulatory approvals are contemplated by this Agreement.
9.10 CONFIDENTIALITY. Each party shall use all information that it
obtains from the others pursuant to this Agreement solely for the effectuation
of the transactions contemplated by this Agreement or for other purposes
consistent with the intent of this Agreement and shall not use any of such
information for any other purpose, including, without limitation, the
competitive detriment of the other parties. Each party shall maintain as
strictly confidential all information it learns from the others and shall upon
expiration or termination of this Agreement, return promptly to the other
parties all documentation provided by them or made available by third parties.
Each party may disclose such information to its respective affiliates, counsel,
accountants, tax advisors and consultants, provided that each party shall cause
its respective directors, officers, agents, consultants and advisors to agree to
be bound by or act in accordance with the provisions of this Section. This
provision shall not prohibit the use or disclosure of
confidential information pursuant to court order or which has otherwise become
publicly available.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first set forth above.
FIRST SECURITY BANK OF FIRST SECURITY CORPORATION
UTAH, N.A.
FIRST SECURITY BANK OF
UTAH, N.A. DIRECTORS
COMMUNITY FIRST BANK
COMMUNITY FIRST BANK
DIRECTORS
-28-
<PAGE>
APPENDIX B
COMMUNITY'S FINANCIAL STATEMENTS
<PAGE>
To The Board of Directors and Stockholders
of Community First Bank
The accompanying balance sheets of Community First Bank as of September 30, 1993
and 1992, and the related statements of income and cash flows for the nine
months ended September 30, 1993 and 1992 were not audited by us and,
accordingly, we do not express an opinion on them.
Salt Lake City, Utah
January 13, 1994
<PAGE>
COMMUNITY FIRST BANK
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
(in thousands; unaudited) September 30 September 30 Sept/Sept
1993 1992 % Change
---- ---- --------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 4,713 $ 3,010 56.6
Federal funds sold 4,400 1,500 193.3
Investment securities:
U.S. Treasury and U.S. agencies and
corporations 40,871 41,234 -0.9
Obligations of state and political
subdivisions 1,185 1,615 -26.6
Other securities 389 651 -40.2
-------- -------- ------
Total investment securities 42,445 43,500 -2.4
(Market values: $43,787 and $45,190,
respectively)
Loans 23,697 22,256 6.5
Reserve for loan losses (268) (282) -5.0
-------- -------- ------
Total loans, net 23,429 21,974 6.6
-------- -------- ------
Premises and equipment, net 943 774 21.8
Accrued interest receivable 614 490 25.3
Other real estate owned 123 152 -19.1
Other assets 497 446 11.4
-------- -------- ------
TOTAL ASSETS $ 77,164 $ 71,846 7.4
-------- -------- ------
-------- -------- ------
LIABILITIES
Deposits:
Noninterest-bearing $ 11,544 $ 8,614 34.0
Interest-bearing 52,506 51,138 2.7
-------- -------- ------
Total deposits 64,050 59,752 7.2
-------- -------- ------
Other liabilities 531 691 -23.2
-------- -------- ------
TOTAL LIABILITIES 64,581 60,443 6.8
-------- -------- ------
STOCKHOLDERS' EQUITY
Common stock: par value $10; 38,525
shares outstanding 385 385 0.0
Surplus 2,100 2,100 0.0
Retained earnings 10,098 8,918 13.2
-------- -------- ------
TOTAL STOCKHOLDERS' EQUITY 12,583 11,403 10.3
-------- -------- ------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 77,164 $ 71,846 7.4
-------- -------- ------
-------- -------- ------
</TABLE>
See Notes to Condensed Financial Statements
-1-
<PAGE>
COMMUNITY FIRST BANK
CONDENSED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992
<TABLE>
<CAPTION>
(in thousands, except per share data; Nine Months
unaudited) ----------- Sept/Sept
1993 1992 % Change
---- ---- --------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 2,032 $ 1,857 9.4
Interest and dividends on investment
securities:
U.S. Treasury, U.S. Government agencies
and corporations 1,881 2,013 -6.6
Obligations of states and political
subdivisions 74 112 -33.9
Other investment securities 5 6 -16.7
Interest on Federal funds sold 54 51 5.9
-------- -------- ------
Total interest income 4,046 4,039 .2
-------- -------- ------
INTEREST EXPENSE:
Interest on deposits 1,297 1,605 -19.2
-------- -------- ------
Total interest expense 1,297 1,605 -19.2
-------- -------- ------
NET INTEREST INCOME:
Net interest income 2,749 2,434 12.9
Provision for loan losses -0- -0-
-------- -------- ------
Net interest income after
provision for loan losses 2,749 2,434 12.9
-------- -------- ------
NONINTEREST INCOME:
Service charges on deposit accounts 403 424 -5.0
Other service charges, collections,
commissions and fees 41 215 -80.9
Other 106 128 17.2
Investment securities gains (losses) (1) 10 -110.0
-------- -------- ------
Total noninterest income 549 777 -29.3
-------- -------- ------
Total income 3,298 3,211 2.7
-------- -------- ------
NONINTEREST EXPENSES:
Salaries and employee benefits 874 833 4.3
Net occupancy expenses 296 273 8.4
Other 470 499 -5.8
-------- -------- ------
Total noninterest expense 1,640 1,605 2.2
-------- -------- ------
INCOME BEFORE INCOME TAX PROVISION 1,658 1,606 3.2
Provision for income taxes 547 514 6.4
-------- -------- ------
NET INCOME $ 1,111 $ 1,092 1.7
-------- -------- ------
-------- -------- ------
EARNINGS PER COMMON SHARE $ 28.84 $ 28.35 1.7
-------- -------- ------
-------- -------- ------
</TABLE>
See Notes to Condensed Financial Statements
-2-
<PAGE>
COMMUNITY FIRST BANK
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992
<TABLE>
<CAPTION>
(in thousands; unaudited) Nine Months
-----------
1993 1992
---- ----
<S> <C> <C>
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ 1,115 $ 1,292
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale or maturity of
investment securities $ 13,530 $ 15,049
Purchases of investment securities (12,455) (15,628)
Net (increase) in loans (824) (913)
Purchases of premises and equipment (20) (2)
Proceeds from sales of other real estate 87 -0-
(Increase) in other assets (21) (22)
--------- ---------
NET CASH (USED) PROVIDED BY INVESTING
ACTIVITIES 297 (1,516)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 2,161 931
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,161 931
NET CHANGE IN CASH AND CASH EQUIVALENTS 3,573 707
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,540 3,803
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,113 $ 4,510
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 1,269 $ 1,689
Income taxes 645 528
</TABLE>
See Notes to Condensed Financial Statements
-3-
<PAGE>
COMMUNITY FIRST BANK
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1993 AND 1992
1. In the opinion of management, the accompanying unaudited condensed
financial statements contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly the financial position of Community First
Bank as of September 30, 1993, and September 30, 1992, and the results of
operations and cash flows for the nine months in the periods ended September 30,
1993 and 1992.
2. The results of operations for the nine month periods ended September 30,
1993 and 1992 are not necessarily indicative of the results to be expected for
the full year.
3. For purposes of reporting cash flows, cash and cash equivalents included
cash and due from banks, as well as Federal funds sold.
-4-
<PAGE>
COMMUNITY FIRST BANK
CLEARFIELD, UTAH
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1992 AND 1991
TOGETHER WITH INDEPENDENT AUDITORS' REPORT
<PAGE>
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders
of Community First Bank
We have audited the accompanying balance sheets of Community First Bank as of
December 31, 1992 and 1991, and the related statements of income, changes in
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Bank'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
misstate-ment. 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 Community First Bank as of
December 31, 1992 and 1991, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
Salt Lake City, Utah
January 8, 1993
<PAGE>
COMMUNITY FIRST BANK
BALANCE SHEET
DECEMBER 31, 1992 AND 1991
<TABLE>
<CAPTION>
ASSETS
1992 1991
---- ----
<S> <C> <C>
ASSETS
Cash and due from banks $ 5,540,008 $ 3,802,948
Investment securities (Notes 1 and 3) 43,521,174 42,910,981
Federal funds sold -0- -0-
Loans, less reserve for loan losses of $272,038
and $296,794 for 1992 and 1991, respectively
(Notes 1 and 2) 22,605,118 21,061,268
Bank premises and equipment (Notes 1 and 4) 1,096,801 922,978
Other real estate owned 135,942 76,584
Accrued interest receivable 574,043 678,126
Other assets 475,875 424,065
------------ ------------
TOTAL ASSETS $ 73,948,961 $ 69,876,950
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits (Note 5)
Non-interest-bearing $ 10,020,863 $ 8,062,843
Interest-bearing 52,115,544 51,058,955
------------ ------------
62,136,407 59,121,798
Accrued interest payable and other liabilities
(Notes 1 and 7) 340,644 444,508
------------ ------------
Total liabilities 62,477,051 59,566,306
------------ ------------
STOCKHOLDERS' EQUITY
Capital stock, $10 par value, 40,000 shares
authorized, 38,525 shares issued and outstanding 385,250 385,250
Surplus 2,100,000 2,100,000
Undivided profits 8,986,660 7,825,394
------------ ------------
11,471,910 10,310,644
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 73,948,961 $ 69,876,950
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-1-
<PAGE>
COMMUNITY FIRST BANK
STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1992 AND 1991
<TABLE>
<CAPTION>
1992 1991
---- ----
INTEREST INCOME
<S> <C> <C>
Interest on loans $ 2,455,508 $ 2,616,677
Interest on securities
U.S. Treasury securities 1,085,504 1,333,000
U.S. Government agencies 1,396,805 1,145,000
State and Municipal 136,144 192,000
Other 305,817 243,671
Interest on federal funds sold 68,082 97,467
Interest on deposits in banks -0- 35,833
----------- -----------
5,447,860 5,663,648
----------- -----------
INTEREST EXPENSE
Interest on deposits 2,056,709 2,781,809
Other interest 5,491 12,143
----------- -----------
2,062,200 2,793,952
----------- -----------
Net interest income 3,385,660 2,869,696
PROVISION FOR LOAN LOSSES (Note 2) 26,333 110,000
----------- -----------
Net interest income after provision for
loan losses 3,359,327 2,759,696
----------- -----------
OTHER INCOME
Service charges on deposit accounts 558,384 544,665
Other service charges, collections, and fees 411,445 316,916
Other income 22,856 31,746
Securities gains 9,391 16,433
----------- -----------
1,002,076 909,760
----------- -----------
OTHER EXPENSE
Salaries and employee benefits 1,127,547 1,135,408
Occupancy expenses, net 381,929 385,944
Other operating expenses 696,250 739,972
----------- -----------
2,205,726 2,261,324
----------- -----------
Income before income taxes 2,155,677 1,408,132
APPLICABLE INCOME TAXES (Notes 1 and 7) 686,211 458,000
----------- -----------
Net income $ 1,469,466 $ 950,132
----------- -----------
----------- -----------
EARNINGS PER SHARE, based on 38,525 shares
outstanding during the year $ 38.14 $ 24.66
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE>
COMMUNITY FIRST BANK
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1992 AND 1991
<TABLE>
<CAPTION>
Capital Undivided
Stock Surplus Profits
----------------------------------------
<S> <C> <C> <C>
BALANCE, December 31, 1990 $ 385,250 $ 2,100,000 $ 7,144,937
Net income - - 950,132
Dividends paid, $7.00 per share - - (269,675)
----------- ----------- -----------
BALANCE, December 31, 1991 385,250 2,100,000 7,825,394
Net income - - 1,469,466
Dividends paid, $8.00 per share - - (308,200)
----------- ----------- -----------
BALANCE, December 31, 1992 $ 385,250 $ 2,100,000 $ 8,986,660
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
COMMUNITY FIRST BANK
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1992 AND 1991
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1992 1991
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Interest received $ 5,551,943 $ 5,879,507
Fees and other income received 1,010,772 909,760
Interest paid (2,146,674) (2,868,383)
Cash paid to suppliers and employees (2,127,452) (2,130,856)
Income taxes paid (720,426) (414,017)
----------- ----------
Net cash provided by operating activities 1,568,163 1,376,011
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale or maturity of investment
securities 21,189,173 11,696,883
Purchase of investment securities (21,799,366) (17,586,031)
Net (increase) in loans (1,770,221) (587,488)
Recovery of loans previously written off 64,677 36,414
Purchase of bank premises and equipment (282,468) (38,680)
Proceeds from sale of other real estate owned 76,003 -
Increase in other assets (15,310) (379,997)
Proceeds from interest bearing deposits in banks -0- 1,000,000
----------- ----------
Net cash used in investing activities (2,537,512) (5,858,899)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW accounts,
and savings accounts 4,872,081 3,079,837
Net (decrease) in certificates of deposit (1,857,472) (801,144)
(Decrease) in other liabilities -0- (53,573)
Dividends paid (308,200) (269,675)
----------- ----------
Net cash provided by financing activities 2,706,409 1,955,445
----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,737,060 (2,527,443)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,802,948 6,330,391
----------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 5,540,008 $ 3,802,948
----------- ----------
----------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
COMMUNITY FIRST BANK
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1992 AND 1991
(Continued)
RECONCILIATION OF NET INCOME TO CASH PROVIDED BY OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1992 1991
---- ----
<S> <C> <C>
NET INCOME $ 1,469,466 $ 950,132
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Depreciation 99,949 114,656
Provision for loan losses 26,333 110,000
Decrease in interest receivable 104,083 215,859
(Decrease) in interest payable (84,474) (74,431)
Increase in taxes payable 31,132 60,662
Provision (benefit) for deferred taxes (65,347) (16,679)
Increase (decrease) in accrued expenses (21,675) 15,812
Loss on sale or retirement of fixed assets 8,696 -
--------- ---------
Total adjustments 98,697 425,879
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,568,163 $1,376,011
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
COMMUNITY FIRST BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1992 AND 1991
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Community First Bank conform with
generally accepted accounting principles and with general practice within
the banking industry. The following is a summary of the more significant
of such policies.
INVESTMENT SECURITIES
Investment securities are stated at cost adjusted for amortization of
premiums which are recognized as adjustments to interest income. Discounts
are not accreted, but have no material effect on the financial statements.
Gains or losses on disposition are based on the net proceeds and the
adjusted carrying amount of the securities sold, using the specific
identification method.
LOANS AND RESERVE FOR LOAN LOSSES
Loan are stated at the amount of unpaid principal reduced by a reserve for
loan losses. Interest on loans is generally calculated by using the simple
interest method on daily balances of the principal amount outstanding. The
reserve for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the reserve for loan losses
when management believes that the collection of the principal is unlikely.
The reserve is an amount that management believes will be adequate to
absorb possible losses on existing loans that may become uncollectible,
based on evaluations of the collectibility of loans and prior loan loss
experience. The evaluations take into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions
that may affect the borrower's ability to pay. Accrual of interest is
discontinued on a loan that is over 90 days past due unless the loan is
well secured and in the process of collection. No loans are on nonaccrual
status at December 31, 1992.
BANK PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation included in the operating expenses is computed on the
straight-line and sum-of-the-years digits methods over the estimated useful
lives of the related assets.
OTHER REAL ESTATE OWNED
Real estate acquired by foreclosure is carried at the lower of the recorded
investment in the property or its fair value. Prior to foreclosure, the
value of the underlying loan is written down to the fair market value of
the real estate to be acquired by a charge to the reserve for loan losses,
if necessary. Operating expenses of such properties, net of related
income, and gains and losses on their disposition are included in other
income and expenses.
-6-
<PAGE>
INCOME TAXES
The provision for income taxes is based on income and expense reported for
financial statement purposes, although portions of such income and expense
are deferred for income tax purposes. Deferred taxes relate principally to
depreciation and loan loss deductions.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks, and federal funds sold. Generally,
federal funds are sold for one to three-day periods.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
In the ordinary course of business the Bank has entered into
off-balance-sheet financial instruments consisting of commitments to extend
credit, commitments under credit card arrangements, commercial letters of
credit and standby letters of credit. Such financial instruments are
recorded in the financial statements when they become payable.
RECLASSIFICATIONS
Certain reclassifications to the 1991 amounts have been made to conform to
the 1992 classifications.
2. LOANS
Major classifications of loans are as follows:
<TABLE>
<CAPTION>
December 31,
------------
1992 1991
---- ----
<S> <C> <C>
Commercial $ 8,806,963 $ 7,261,572
Construction and miscellaneous 1,114,221 1,042,368
Mortgage 3,296,506 3,315,931
Installment 8,669,341 8,744,809
Credit card 990,125 993,382
------------ ------------
22,877,156 21,358,062
Reserve for loan losses (272,038) (296,794)
------------ ------------
Loans, net $ 22,605,118 $ 21,061,268
------------ ------------
------------ ------------
</TABLE>
Changes in the reserve for loan losses were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Balance, beginning of year $ 296,794 $ 271,770
Provision charged to operations 26,333 110,000
Loans charged off (120,769) (121,390)
Recoveries 69,680 36,414
------------ ------------
Balance, end of year $ 272,038 $ 296,794
------------ ------------
------------ ------------
</TABLE>
Loans on which the accrual of interest has been discontinued or reduced
amounted to $ -0- and $165,304 at December 31, 1992 and 1991 respectively.
-7-
<PAGE>
3. INVESTMENT SECURITIES
The amortized cost and estimated market values of investments in debt
securities at December 31, 1992 are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 13,281 $ 512 $ (6) $ 13,787
Obligations of US govern-
ment corporations and
agencies 28,329 682 (120) 28,891
Obligations of states and
political subdivisions 1,407 48 -0- 1,455
Mortgage-backed securities 406 28 (3) 431
Other securities 98 -0- -0- 98
-------- -------- -------- --------
TOTALS $ 43,521 $ 1,270 $ (129) $ 44,662
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The amortized cost and estimated market value of debt securities at
December 31, 1992, by contractual maturity, are shown below (in thousands).
Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
--------- ---------
<S> <C> <C>
Due in one year or less $ 5,500 $ 5,635
Due after one year through five years 13,106 13,581
Due after five years through ten years 1,984 2,034
Due after ten years 22,427 22,883
-------- --------
43,017 44,133
Mortgage-backed securities 406 431
-------- --------
Total debt securities $ 43,423 $ 44,564
-------- --------
-------- --------
</TABLE>
Securities, carried at approximately $350,000 at December 31, 1992 and
$300,000 at December 31, 1991, were pledged to secure public deposits and
for other purposes required or permitted by law.
-8-
<PAGE>
4. BANK PREMISES AND EQUIPMENT
Bank premises and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31,
1992 1991
------------ ------------
<S> <C> <C>
Building and improvements $ 1,650,047 $ 1,650,047
Furniture, fixtures and equipment 775,181 788,547
Data processing & communication
equipment 871,945 591,346
----------- ------------
3,297,173 3,029,940
Less accumulated depreciation (2,200,372) (2,106,962)
------------ -----------
$ 1,096,801 $ 922,978
------------ ------------
------------ ------------
</TABLE>
Depreciation and amortization expense amounted to $99,949 in 1992 and
$114,656 in 1991.
5. DEPOSITS
Major classifications of deposits are as follows:
<TABLE>
<CAPTION>
December 31,
------------
1992 1991
------------ ------------
<S> <C> <C>
Demand $ 10,020,863 $ 8,062,843
------------ ------------
NOW and MMDA 19,068,694 18,628,405
Savings 11,718,788 9,245,016
Time Deposits 21,328,061 23,185,534
----------- ------------
52,115,543 51,058,955
----------- -----------
$ 62,136,406 $ 59,121,798
------------ -------------
------------ -------------
</TABLE>
6. CONTINGENT LIABILITIES
Standby letters of credit and other commitments to lend totaled $6,448,000
at December 31, 1992.
7. INCOME TAXES
Income taxes as shown in the statements of income are as follows:
<TABLE>
<CAPTION>
December 31,
------------
1992 1991
------------ -----------
<S> <C> <C>
Currently payable $ 751,558 $ 474,679
Deferred income taxes
realized (65,347) (16,679)
------------ -----------
$ 686,211 $ 458,000
------------ -----------
------------ -----------
</TABLE>
-9-
<PAGE>
7. INCOME TAXES (Continued)
Deferred income tax assets of $36,500 at December 31, 1992 are included in
other assets and deferred income tax liabilities of $22,500 and $51,347 at
December 31, 1992 and 1991, respectively, are included in other
liabilities. The Bank has implemented the provisions of Statement of
Financial Accounting Standards No. 109, Accounting For Income Taxes, in
1992. The effect of this implementation has been to reduce the provision
for income taxes in 1992 by $36,500.
Interest income on securities exempt from federal income taxes totaled
$127,983 and $192,000 for 1992 and 1991, respectively. Accordingly, the
tax provision is less than that obtained by using the statutory federal
corporate income tax rate.
8. LEASE COMMITMENT
The Bank occupies a portion of its facilities under a long-term agreement.
Future minimum rental payments required under this operating lease as of
December 31, 1992 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1993 $ 28,124
1994 28,124
1995 28,124
1996 28,124
1997 28,124
Thereafter 56,248
----------
$ 196,868
----------
----------
</TABLE>
9. RELATED PARTY TRANSACTIONS
Loans are made in the normal course of business to various officers and
directors of the bank. The terms of these loans, including interest rates
and collateral, are similar to those prevailing for comparable non-related
party transactions and do not involve more than a normal risk of
collectibility. As of December 31, 1992, such loans totaled approximately
$66,000.
-10-
<PAGE>
APPENDIX C
STATUTES GOVERNING RIGHTS OF DISSENTING COMMUNITY SHAREHOLDERS
<PAGE>
SECTION 215A. MERGER OF NATIONAL BANKS OR STATE BANKS INTO NATIONAL BANKS
(A) APPROVAL OF COMPTROLLER, BOARD AND SHAREHOLDERS; MERGER
AGREEMENT; NOTICE; CAPITAL STOCK; LIABILITY OF RECEIVING
ASSOCIATION
One or more national banking associations or one or more State banks,
with the approval of the Comptroller, under an agreement not inconsistent with
this subchapter, may merge into a national banking association located within
the same State, under the charter of the receiving association. The merger
agreement shall--
(1) be agreed upon in writing by a majority of the board of
directors of each association or State bank participating in the plan
of merger;
(2) be ratified and confirmed by the affirmative vote of the
shareholders of each such association or State bank owning at least
two-thirds of its capital stock outstanding, or by a greater
proportion of such capital stock in the case of a State bank if the
laws of the State where it is organized so require, at the meeting to
be held on the call of the directors, after publishing notice of the
time, place, and object of the meeting for four consecutive weeks in a
newspaper of general circulation published in the place where the
association or State bank is located, or, if there is no such
newspaper, then in the newspaper of general circulation published
nearest thereto, and after sending such notice to each shareholder of
record by certified or registered mail at least ten days prior to the
meeting, except to those shareholders who specifically waive notice,
but any additional notice shall be given to the shareholders of such
State bank which may be required by the laws of the State where it is
organized. Publication of notice may be waived, in cases where the
Comptroller determines that an emergency exists justifying such
waiver, by unanimous action of the shareholders of the association or
State banks;
(3) specify the amount of the capital stock of the receiving
association, which shall not be less than that required under existing
law for the organization of a national bank in the place in which it
is located and which will be outstanding upon completion of the
merger, the amount of stock (if any) to be allocated, and cash (if
any) to be paid, to the shareholders of the association or State bank
being merged into the receiving association; and
(4) provide that the receiving association shall be liable for
all liabilities of the association or State bank being merged into the
receiving association.
(B) DISSENTING SHAREHOLDERS
If a merger shall be voted for at the called meetings by the necessary
majorities of the shareholders of each association or State bank participating
in the plan of merger, and thereafter the merger shall be approved by the
Comptroller, any shareholders of any association or State bank to be merged into
the receiving association who has voted against such merger at the meeting of
the association or bank of which he is a
<PAGE>
stockholder, or has given notice in writing at or prior to such meeting to the
presiding officer that he dissents from the plan of merger, shall be entitled to
receive the value of the shares so held by him when such merger shall be
approved by the Comptroller upon written request made to the receiving
association at any time before thirty days after the date of consummation of the
merger, accompanied by the surrender of his stock certificates.
(C) VALUATION OF SHARES
The value of the shares of any dissenting shareholder shall be
ascertained, as of the effective date of the merger, by an appraisal made by a
committee of three persons, composed of (1) one selected by the vote of the
holders of the majority of the stock, the owners of which are entitled to
payment in cash; (2) one selected by the directors of the receiving association;
and (3) one selected by the two so selected. The valuation agreed upon by any
two of the three appraisers shall govern. If the value so fixed shall not be
satisfactory to any dissenting shareholder who has requested payment, that
shareholder may, within five days after being notified of the appraised value of
his shares, appeal to the Comptroller, who shall cause a reappraisal to be made
which shall be final and binding as to the value of the shares of the appellant.
(D) APPLICATION TO SHAREHOLDERS OF MERGING ASSOCIATIONS; APPRAISAL BY
COMPTROLLER; EXPENSES OF RECEIVING ASSOCIATION; SALE AND RESALE
OF SHARES; STATE APPRAISAL AND MERGER LAW
If, within ninety days from the date of consummation of the merger,
for any reason one or more of the appraisers is not selected as herein provided,
or the appraisers fail to determine the value of such shares, the Comptroller
shall upon written request of any interested party cause an appraisal to be made
which shall be final and binding on all parties. The expenses of the
Comptroller in making the reappraisal or the appraisal, as the case may be,
shall be paid by the receiving association.
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of Delaware contains
detailed provisions on indemnification of directors and officers of a
Delaware corporation against expenses, judgments, fines and amounts paid in
settlement, actually and reasonably incurred in connection with litigation.
The Certificate of Incorporation of First Security Corporation
provides for indemnification of directors and officers to the full extent
permitted or allowed by the laws of the State of Delaware, as such laws exist
or may hereafter be amended (but, in the case of any such amendment, only to
the extent that such amendment permits the registrant to provide broader
indemnification rights than permitted or allowed by Section 145). The
registrant also insures its officers and directors to the full extent
permitted by Section 145.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS. The Registration Statement includes the following
Exhibits:
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
2. Agreement of Merger, dated as of October 22, 1993, by and among
First Security Corporation ("FSC"), First Security Bank of Utah
("FSB UTAH"), and Community First Bank ("COMMUNITY").
(Included as Appendix A to the Prospectus/Proxy Statement.
3(1). Certificate of Incorporation, as amended, of FSC (Exhibit 2 to
FSC's Registration Statement on Form S-7, Registration Number
2-61892, as filed on June 16, 1978 and Exhibit 3(1) to FSC's
Registration Statement on Form S-4, Registration Number
33-30045, as filed on July 24, 1989, hereby incorporated herein
by reference).
3(2). Bylaws of FSC, as amended (Exhibit 2 to FSC's Registration
Statement on Form S-7, Registration Number 2-61892, as filed on
June 16, 1978, and Exhibit 3(2) to FSC's Registration Statement
on Form S-4, Registration Number 33-30045, as filed on July 24,
1989, hereby incorporated herein by reference).
4(1). No instruments defining the Rights of holders of long-term debt
of FSC and its subsidiaries have been included as exhibits
because the total amount of indebtedness authorized under any
such instrument does not exceed 10% of the total assets of FSC
and its subsidiaries on a consolidated basis. FSC hereby agrees
to furnish supplementally to the Commission, upon request, a
copy of any omitted long-term debt instrument.
<PAGE>
4(2). Rights Agreement dated as of August 28, 1989, between First
Security Corporation and First Security Bank of Utah, N.A.,
which includes the form of Rights Certificate (together with the
Form of Election of Exercise) as Exhibit A; the form of
Certificate of Designation of the series of Junior Series B
Preferred Stock, no par value per share, of FSC as Exhibit B;
and the Summary of Rights as Exhibit C. (Filed as Exhibit 4 to
FSC's Current Report on Form 8-K dated August 28, 1989, as filed
with the Commission on September 1, 1989, [File No. 1-6906] and
hereby incorporated herein by this reference.)
4(3). Amendment Agreement dated as of September 26, 1989, by and
between First Security Corporation and First Security Bank of
Utah, N.A., amending the Rights Agreement dated as of August 28,
1989, between the same parties. (Filed as Exhibit 1 to
Amendment No. 1 on Form 8, dated October 10, 1989, as filed with
the Commission on October 16, 1989, amending FSC's Current
Report on Form 8-K dated August 28, 1989, as filed with the
Commission on September 1, 1989, [File No. 1-6906] and hereby
incorporated herein by this reference.)
5. Opinion of Ray, Quinney & Nebeker as to the legality of the
shares being registered.
8. Opinion of Ray, Quinney & Nebeker re: Tax Matters.
10(1). First Security Corporation Comprehensive Management Incentive
Plan (Exhibit A to Prospectus in Registration Statement No.
33-21556 on Form S-8 filed April 29, 1988, hereby incorporated
by reference).
10(2). First Security Corporation Supplemental Executive Retirement
Plan. (Exhibit to FSC's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1989, hereby incorporated by reference.
[File No. 1-6906])
10(3). Employment Agreement between First Security Corporation and
Spencer F. Eccles. (Exhibit to FSC's Quarterly Report on Form
10-Q for the quarter ended September 30, 1991, hereby
incorporated by reference. [File No. 1-6906])
10(4). Employment Agreement between First Security Corporation and
Morgan J. Evans, as amended. (Exhibit to FSC's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1991, hereby
incorporated by reference. [File No. 1-6906])
10(5). Employment Agreement between First Security Corporation and L.
Scott Nelson. (Exhibit to FSC's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1991, hereby incorporated by
reference. [File No. 1-6906])
10(6). Employment Agreement between First Security Corporation and T.
Eugene King. (Exhibit to FSC's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1991, hereby incorporated by
reference. [File No. 1-6906])
<PAGE>
10(7). Employment Agreement between First Security Corporation and J.
Patrick McMurray (Exhibit to FSC's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1991, hereby incorporated by
reference. [File No. 1-6906])
10(8). Employment Agreement between First Security Corporation and
Scott C. Ulbrich (Exhibit to FSC's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1992, hereby incorporated by
reference. [File No. 1-6906])
13(1). FSC's Annual Report on Form 10-K for the year ended December 31,
1992, hereby incorporated by reference [File No. 1-6906].
13(2). FSC's Quarterly Report on Form 10-Q for Quarter ended September
30, 1993, hereby incorporated by reference [File No. 1-6906].
22. FSC's Subsidiaries (included in FSC's Annual 10-K Report for the
year ended December 31, 1992 [File No. 1-6906], and incorporated
by reference).
23(1). Consent of Deloitte & Touche.
23(2). Consent of Simpson & Company
23(3). Consent of Ray, Quinney & Nebeker (filed as part of Exhibit 5
and Exhibit 8).
25. Power of Attorney (included in signature pages of original
filing of Registration Statement).
28. Form of Proxy for COMMUNITY Special Meetings.
<PAGE>
ITEM 22. UNDERTAKINGS.
FSC hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, as amended (the "1933 Act"), each
filing of FSC's annual report pursuant to Section 13(a) or Section 15(d) of
the Securities Exchange Act of 1934, as amended (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, as amended), 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.
FSC hereby undertakes 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), 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 UNDERTAKING AS TO INDEMNIFICATION OF OFFICERS AND DIRECTORS
REQUIRED TO BE DISCLOSED BY ITEM 512(i) OF REGULATION S-K IS FOUND IN
"COMPARATIVE RIGHTS OF SHAREHOLDERS--DIRECTORS--DIRECTOR LIABILITY" IN THE
PROSPECTUS / PROXY STATEMENT.
FSC hereby undertakes that every prospectus (i) that is filed
pursuant to the paragraph immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the 1933 Act 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 1933 Act, 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.
FSC hereby undertakes to respond to requests for information that
is incorporated by reference into the prospectus pursuant to Items 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.
FSC hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired, that was not the subject of and included in the registration
statement when it became effective.
<PAGE>
FSC hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement.
Provided, however, that paragraphs (1)(i) and (1)(ii), above, do not apply if
the registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to section 13
or section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement.
(2) That, for the purpose 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.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(4) If the registrant is a foreign private issuer, to file a post-
effective amendment to the registration statement to include
any financial statements required by 3-19 of Regulation S-X at
the start of any delayed offering or throughout a continuous
offering.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, First
Security Corporation has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Salt Lake
City, Utah, on the 24th day of January, 1994.
FIRST SECURITY CORPORATION
By: /s/ Morgan J. Evans
-------------------
Morgan J. Evans
President and Chief Operating Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints A. Robert Thorup, Esq. and Brad D. Hardy, Esq. and each of them, his
true and lawful attorney-in-fact and agent, with full powers of substitution,
for him and in his name, place and stead, in any and all capacities, to sign
and to file any and all amendments, including pre- and/or post-effective
amendments to this Registration Statement, with the Securities and Exchange
Commission, granting to said attorney-in-fact full power and authority to
perform any other act on behalf of the undersigned required to be done in
connection therewith.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons
in the capacities and on the date or dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Spencer F. Eccles
- -------------------------- Chairman and Chief
Spencer F. Eccles Executive Officer, Director January 24, 1994
/s/ Morgan J. Evans
- -------------------------- President and Chief
Morgan J. Evans Operating Officer, Director January 24, 1994
<PAGE>
/s/ Scott C. Ulbrich
- --------------------------
Scott C. Ulbrich Executive Vice President and
Chief Financial Officer January 24, 1994
(Principal Financial and
Accounting Officer)
/s/ Marvin J. Ashton
- --------------------------
Marvin J. Ashton Director January 24, 1994
/s/ James C. Beardall
- --------------------------
James C. Beardall Director January 24, 1994
/s/ Rodney H. Brady
- --------------------------
Rodney H. Brady Director January 24, 1994
/s/ James E. Bruce
- --------------------------
James E. Bruce Director January 24, 1994
/s/ Thomas D. Dee
- --------------------------
Thomas D. Dee II Director January 24, 1994
/s/ Dr. David P. Gardner
- --------------------------
Dr. David P. Gardner Director January 24, 1994
/s/ Kendall D. Garff
- --------------------------
Kendall D. Garff Director January 24, 1994
/s/ U. Edwin Garrison
- --------------------------
U. Edwin Garrison Director January 24, 1994
/s/ David B. Haight
- --------------------------
David B. Haight Director January 24, 1994
<PAGE>
/s/ Jay Dee Harris
- --------------------------
Jay Dee Harris Director January 24, 1994
/s/ Robert T. Heiner
- --------------------------
Robert T. Heiner Director January 24, 1994
/s/ Howard W. Hunter
- --------------------------
Howard W. Hunter Director January 24, 1994
/s/ Karen H. Huntsman
- --------------------------
Karen H. Huntsman Director January 24, 1994
/s/ G. Frank Joklik
- --------------------------
G. Frank Joklik Director January 24, 1994
/s/ B.Z. Kastler
- --------------------------
B. Z. Kastler Director January 24, 1994
/s/ Scott S. Parker
- --------------------------
Scott S. Parker Director January 24, 1994
/s/ Dr. Arthur K. Smith
- --------------------------
Dr. Arthur K. Smith Director January 24, 1994
/s/ James L. Sorenson
- --------------------------
James L. Sorenson Director January 24, 1994
/s/ Harold J. Steele
- --------------------------
Harold J. Steele Director January 24, 1994
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description of Exhibit Page No.
- ------- ---------------------- ----------
<S> <C> <C>
2 Agreement of Merger, dated as of October 22, 1993,
by and among First Security Corporation, First
Security Bank of Utah, and Community First Bank
3(1) Certificate of Incorporation, as amended of FSC ***
Exhibit 3(1) to FSC's Registration Statement on Form
S-4, Registration Number 33-30045, as filed on
July 24, 1989, hereby incorporated herein by
reference).
3(2) Bylaws of FSC, as amended (Exhibit 2 to FSC's ***
Registration Statement on Form S-7, Registration
No. 2-61892, as filed on June 16, 1978, and
Exhibit 3(2) to FSC's Registration Statement on
Form S-4, Registration No. 33-30045, as filed on
July 24, 1989, hereby incorporated herein by
reference).
4(1) No instruments defining the Rights of holders of ***
long-term debt of FSC and its subsidiaries have been
included as exhibits because the total amount of
indebtedness authorized under any such instrument
does not exceed 10% of the total assets of FSC and
its subsidiaries on a consolidated basis. FSC hereby
agrees to furnish supplementally to the Commission,
upon request, a copy of any omitted long-term debt
instrument.
4(2) Rights Agreement dated as of August 28, 1989, ***
between First Security Corporation and First Security
Bank of Utah, N.A., which includes the form of
Rights Certificate (together with the Form of Election
of Exercise) as Exhibit A; the form of Certificate of
Designation of the series of Junior Series B Preferred
Stock, no par value per share, of FSC as Exhibit B;
and the Summary of Rights as Exhibit C. (Filed as
Exhibit 4 to FSC's Current Report on Form 8-K dated
August 28, 1989, as filed with the Commission on
September 1, 1989, [File No. 1-6906] and hereby
incorporated herein by this reference.)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
4(3) Amendment Agreement dated as of September 26, ***
1989, by and between First Security Corporation and
First Security Bank of Utah, N.A., amending the
Rights Agreement dated as of August 28, 1989,
between the same parties. (Filed as Exhibit 1 to
Amendment No. 1 on Form 8, dated October 10,
1989, as filed with the Commission on October 16,
1989, amending FSC's Current Report on Form 8-K
dated August 28, 1989, as filed with the
Commission on September 1, 1989, [File
No. 1-6906] and hereby incorporated herein by this
reference.)
5 Opinion of Ray, Quinney & Nebeker as to the legality ---
of the shares being registered.
8 Opinion of Ray, Quinney & Nebeker re: Tax Matters. ---
10(1) First Security Comprehensive Management Incentive ***
Plan (Exhibit A to Prospectus in Registration
Statement No. 33-21556 on Form S-8 filed April 29,
1988, hereby incorporated by reference).
10(2) First Security Corporation Supplemental Executive ***
Retirement Plan. (Exhibit to FSC's Quarterly Report
on Form 10-Q dated May 12, 1989, hereby
incorporated by reference. [File No. 1-6906])
10(3). Employment Agreement between First Security ***
Corporation and Spencer F. Eccles. (Exhibit to FSC's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1991, hereby incorporated by
reference. [File No. 1-6906])
10(4). Employment Agreement between First Security ***
Corporation and Morgan J. Evans, as amended.
(Exhibit to FSC's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1991, hereby
incorporated by reference. [File No. 1-6906])
10(5). Employment Agreement between First Security ***
Corporation and L. Scott Nelson. (Exhibit to FSC's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1991, hereby incorporated by
reference. [File No. 1-6906])
10(6). Employment Agreement between First Security ***
Corporation and T. Eugene King. (Exhibit to FSC's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1991, hereby incorporated by
reference. [File No. 1-6906])
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
10(7). Employment Agreement between First Security ***
Corporation and J. Patrick McMurray. (Exhibit to
FSC's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1991, hereby incorporated by
reference. [File No. 1-6906])
10(8). Employment Agreement between First Security ***
Corporation and Scott C. Ulbrich. (Exhibit to FSC's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1992, hereby incorporated by
reference. [File No. 1-6906])
13(1). FSC's Annual Report on Form 10-K for year ended ***
December 31, 1992 (incorporated by reference) [File
No. 1-6906].
13(2). FSC's Quarterly Report on Form 10-Q for Quarter
ended September 30, 1993, hereby incorporated by
reference. [File No. 1-6906].
22. FSC's Subsidiaries (included in FSC's Annual Report ***
on Form 10-K for the year ended December 31, 1992
[File No. 1-6906], and incorporated by
reference therefrom).
23(1). Consent of Deloitte & Touche. ---
23(2) Consent of Simpson & Company ---
23(3) Consent of Ray, Quinney & Nebeker (filed as part ***
of Exhibit 5 and Exhibit 8).
25 Power of Attorney (included in signature pages of ***
original filing of Registration Statement).
28 Form of Notice and Proxy Card for COMMUNITY ---
Special Meetings.
<FN>
- -----------------------
***Incorporated by reference.
</TABLE>
<PAGE>
EXHIBIT 5
OPINION OF RAY, QUINNEY & NEBEKER AS TO
THE LEGALITY OF THE SHARES BEING REGISTERED.
<PAGE>
February 4, 1994
First Security Corporation Community First Bank
Attn: Morgan J. Evans, President Attn: Richard A. Hill, President
79 South Main Street 180 South State Street
Salt Lake City, Utah 84111 Clearfield, Utah 84015
Re: REGISTRATION AND ISSUANCE OF FIRST SECURITY CORPORATION
COMMON STOCK TO SHAREHOLDERS OF COMMUNITY FIRST BANK
Dear Messrs. Evans and Hill:
This Firm has acted as counsel to First Security Corporation, a
Delaware corporation ("the Company), in connection with its registration of
842,118 shares of its common stock, par value $1.25 ("the Shares") for use in
the Merger (as defined in the Prospectus/Proxy Statement included in the
Company's Registration Statement on Form S-4 as filed with the Securities and
Exchange Commission on February , 1994.
In connection with this representation, we have examined the
originals, or copies identified to our satisfaction, of such minutes,
agreements, corporate records and filings and other documents necessary to our
opinion contained in this letter. We have also relied as to certain matters of
fact upon representations made to us by officers and agents of the Company
<PAGE>
Morgan J. Evans
Richard A. Hill
February 4, 1994
Page 2
and of Community First Bank. Based upon and in reliance on the foregoing, it is
our opinion that:
1. The Company has been duly incorporated and is validly existing and
in good standing as a corporation under the laws of the State of
Delaware; and has full corporate power and authority to own its
properties and conduct its business as described in the
Prospectus/Proxy Statement referred to above.
2. When issued and distributed to the Shareholders of Community First
Bank under the terms of the Merger Agreement, the Shares will be duly
and validly issued and will be fully paid and nonassessable.
3. The shareholders of the Company have no pre-emptive rights to acquire
additional shares of First Security Common Stock in respect of the Shares.
We hereby consent to the use of our name in the Prospectus/Proxy
Statement and therein being disclosed as counsel to the Company in this matter.
Very truly yours,
RAY, QUINNEY & NEBEKER
A. Robert Thorup
<PAGE>
EXHIBIT 8
OPINION OF RAY, QUINNEY & NEBEKER RE: TAX MATTERS.
<PAGE>
February___, 1993
Gentlemen:
We have acted as counsel to First Security Corporation, a Delaware
corporation ("FSC") in connection with the negotiation, preparation and
execution of the Agreement of Merger dated as of _________________ (the
"Agreement") by and among FSC, First Security Bank of Utah, N.A. ("FSBU") and
Community First Bank ("Community"). The Agreement provides for the merger of
Community with and into FSBU (the "Merger"). This opinion is delivered to you
pursuant to Section 6.1.1(e) of the Agreement. Unless otherwise defined herein,
capitalized terms shall have the meanings given them in the Agreement. Further,
all references to the Code are to the Internal Revenue Code of 1986, as amended.
This opinion letter is governed by, and shall be interpreted in accordance
with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law
(1991). As a consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord, and this opinion letter should be
read in conjunction therewith. The law covered by the opinions expressed herein
is limited to the Federal income tax laws of the United States.
In connection with this opinion, we have reviewed such documents and given
consideration to such matters of law and fact (in accordance with the principles
set forth in the Accord) as we have deemed appropriate, in our professional
judgment, to render our opinion. In particular, we have reviewed a signed copy
of the Agreement, together with all
<PAGE>
February 8, 1994
Page 2
exhibits thereto, and the Registration Statement on Form S-4 filed by First
Security Corporation with the Securities and Exchange Commission in connection
with the Merger (the "Registration Statement"). In addition, we expressly rely
upon the representations and facts set forth in the Agreement, the Registration
Statement, and in certificates of responsible officers of FSC and Community
concerning matters within the respective areas of responsibility of such
officers, dated ________________, 1994, and ________________, 1994, respectively
(the "Certificates"). If any of the representations and facts set forth in the
Agreement, the Registration Statement or the Certificates are not true and
accurate, both on the date of this letter and at the effective date of the
Merger, then we express no opinion. Further, our opinion assumes that the
Merger will occur fully in accordance with the terms and provisions of the
Agreement and the Registration Statement. If it does not, then we express no
opinion.
Based on the foregoing, and subject to the qualifications and exceptions
heretofore and hereafter set forth, it is our opinion that for Federal income
tax purposes, more likely than not:
1. The Merger as outlined in the Agreement will constitute a
reorganization within the meaning of Code Sections 368(a)(1)(A).
2. Community and FSBU will each be "a party to the reorganization,"
within the meaning of Code Section 368(b), with respect to the Merger.
3. No gain or loss will be recognized by Community on the transfer of
substantially all of its assets, subject to all of its liabilities, to
FSBU.
4. No gain or loss will be recognized by FSBU upon the acquisition by
FSBU of substantially all of the assets of Community, in exchange for FSC
Common Stock and the assumption by FSBU of the liabilities of Community.
5. No gain or loss will be recognized by the holders of Community
Common Stock who exchange such stock for FSC Common Stock pursuant to the
Merger (with the possible exception of gain recognized upon the receipt of
FSC Rights).
6. Any cash received by the holders of Community Common Stock,
whether pursuant to the exercise of dissenters' rights or in lieu of a
fractional share of FSC Common Stock, will be treated as having been
received in redemption of the shares so cashed out and will result in
taxable gain or loss. The amount of such gain or loss will be the
difference between the cash
<PAGE>
February 8, 1994
Page 3
received and the basis of the shares or the fractional share interest
surrendered in exchange therefor. Provided the shares or the
fractional share interest was held as a capital asset at the time of
redemption, such gain or loss will constitute capital gain or loss.
7. The basis of FSC Common Stock received by the holders of Community
Common Stock in the Merger will be the same as the basis of the Community
Common Stock surrendered in exchange therefor, after appropriate reduction
for the basis of fractional shares for which cash is received.
8. The basis of Community's assets acquired by FSC will be the same
as the basis of those assets in the hands of Community immediately before
the exchange.
9. The holding period of the FSC Common Stock received by the holders
of Community Common Stock pursuant to the Merger will include the holding
period of the Community Common Stock surrendered in exchange therefor,
provided that the Community Common Stock surrendered was held as a capital
asset at the time of the exchange.
10. The holding period of Community's assets in the hands of FSBU
will include the period during which such assets were held by Community.
The opinions set forth above are predicated upon and are limited by the
assumptions set forth herein and are further subject to the qualifications,
assumptions, exceptions, and limitations set forth below:
(a) The opinions are subject to the General Qualifications of the Accord,
to the extent applicable.
(b) The opinions and conclusions set forth herein are based upon the
Federal income tax laws of the United States, including the Code, Treasury
Regulations and judicial and administrative interpretations thereof, as they
exist on the date of this letter. There can be no assurance that the legal
authorities upon which our opinion is based will not be modified, revoked,
supplemented or otherwise changed. To the extent of any such changes, our
opinion is not applicable. Furthermore, we undertake no obligation to reexamine
or in any way revise our opinion in the light of any such changes.
(c) The opinions set forth herein are limited to those Federal income tax
consequences of the Merger which are specifically addressed in the ten numbered
<PAGE>
February 8, 1994
Page 4
paragraphs above. In particular, no opinion is expressed with respect to the
tax consequences of the Merger under Code Sections 55 through 59 and the
Regulations thereunder (providing for alternative minimum tax). We also express
no opinion or conclusion with regard to state or local income tax consequences.
(d) In rendering the opinions set forth above, we have relied on
representations in the Certificates to the effect that, to the best knowledge of
the management of Community, the holders of Community Common Stock have no plan
or intention to sell, exchange or otherwise dispose of an amount of shares of
FSC Common Stock to be received in the Merger that would reduce their aggregate
ownership of FSC Common Stock to a number of shares having in the aggregate a
value as of the effective date of the Merger of less than fifty percent (50%) of
the total value of all Common Stock of Community outstanding immediately prior
to the Merger. For purposes of this assumption, Community Common Stock
exchanged for cash or other property, exchanged for cash in lieu of fractional
shares of FSC Common Stock, or surrendered by dissenters will be treated as
Community Common Stock outstanding immediately prior to the Merger.
(e) In rendering the opinions set forth above, we have considered the
effect on the Merger of the fact that each whole share of FSC Common Stock to be
issued pursuant to the Merger will include an attached Right, as established by
the FSC Shareholder Rights Agreement. Inasmuch as such Rights are not currently
tradeable apart from the underlying FSC Common Stock and are redeemable at FSC's
option for only $0.01 each, and inasmuch as the likelihood that such Rights will
ever become separately tradeable or ever be redeemed is highly speculative and
uncertain, we have assumed that the value of such Rights does not exceed $0.01
per Right. In view of a prior position taken by the IRS with respect to
attached stock rights, it is possible that the IRS may treat the Rights attached
to FSC Common Stock as taxable "boot" to the holders of Community Common Stock
who receive such Rights along with FSC Common Stock in exchange for Community
Common Stock. Nevertheless, we have assumed that the value of the attached
Right is such that if it is treated as taxable boot, the amount thereof will be
insignificant in relation to the value of FSC Common Stock to be received in the
Merger, and therefore its presence will not disqualify the Merger.
(f) The opinions set forth herein are given only as of the date hereof.
We undertake no obligation to advise you of changes of law or fact that occur
after the date of this opinion letter.
(g) The opinions set forth herein are given solely to the persons to whom
they are addressed and are given solely in connection with the Merger and shall
not be deemed binding for any other purpose, and you shall not have the right to
rely thereon for any other purpose.
<PAGE>
February 8, 1994
Page 5
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to us under the heading "Federal
Income Tax Consequences" in the Prospectus/Proxy Statement, which is a part of
the Registration Statement. In so consenting, we do not thereby admit that we
are within the category of persons whose consent is required under Section 7 of
the Securities Act.
Very truly yours,
RAY, QUINNEY & NEBEKER
<PAGE>
EXHIBIT 23(1)
CONSENT OF DELOITTE & TOUCHE.
<PAGE>
DELOITTE & TOUCHE
[LOGO]
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of First Security Corporation on Form S-4 of our report dated February 26,
1993, incorporated by reference in the Annual Report on Form 10-K of First
Security Corporation for the year ended December 31, 1992, and to the
reference to us under the heading "Experts" in the Prospectus, which is part
of this Registration Statement.
/s/ Deloitte & Touche
January 28, 1994
[DELOITTE INTERNATIONAL LOGO]
<PAGE>
EXHIBIT 23(2)
CONSENT OF SIMPSON & COMPANY
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 8, 1993, accompanying the audited
financial statements of Community First Bank for the years ended December 31,
1992 and 1991 and to the use of our report dated January 13, 1994
accompanying the unaudited condensed financial statements as of September 30,
1993 and 1992, included in the Proxy Statement of Community First Bank which
is made a part of the Prospectus and Registration Statement (Form S-4) of
First Security Corporation for the registration of shares of its common
stock.
Simpson & Company
January 17, 1994
<PAGE>
EXHIBIT 28
FORM OF NOTICE AND PROXY CARD FOR COMMUNITY SPECIAL MEETINGS.
<PAGE>
_________________, 1994
Dear Shareholder:
You are cordially invited to attend a special meeting ("Special
Meeting") of the shareholders of Community First Bank ("COMMUNITY") to be
held at COMMUNITY's main banking office located at 180 South State Street,
Clearfield, Utah on , 1994, at 7:00 p.m., Mountain Time. At that
Special Meeting, you will be asked to consider and vote on an Agreement of
Merger dated as of October 22, 1993 ("Merger Agreement"), pursuant to which
COMMUNITY will be acquired by First Security Corporation ("FSC") by means of
a merger ("Merger") of COMMUNITY with and into First Security Bank of Utah
("FSB UTAH").
The Merger Agreement provides for the conversion and exchange of
all outstanding shares of COMMUNITY common stock into 842,118 shares of FSC
common stock. Based upon the market price of FSC Common Stock on January ,
1994, the Merger will result in a value of $_____ for each share of COMMUNITY
common stock. This is approximately times the book value of each
COMMUNITY share at December 31, 1993.
In addition to describing the terms and conditions of the Merger
Agreement, the enclosed Prospectus/Proxy Statement sets forth information,
including financial data, about COMMUNITY and FSC. The complete text of the
Merger Agreement appears as Appendix A to the Prospectus/Proxy Statement.
Please carefully review all of these materials and consider the information
contained in them. Your vote on the Merger is important. APPROVAL OF THE
MERGER AGREEMENT REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF TWO-THIRDS
OF THE OUTSTANDING SHARES OF COMMUNITY COMMON STOCK.
YOUR BOARD OF DIRECTORS BELIEVES THE MERGER IS IN THE BEST
INTERESTS OF COMMUNITY'S SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT.
Regardless of the size of your holdings, it is important that your
shares be voted at the Special Meetings. Whether or not you plan to attend
the Special Meetings, please complete, sign, date, and mail, as soon as
possible, the enclosed proxy in the postage-paid envelope provided. We
appreciate the continued support of our shareholders and look forward to
seeing you at the Special Meeting.
Sincerely,
Richard A. Hill
President and Chief Executive Officer
<PAGE>
Community First Bank
180 South State Street
Clearfield, Utah 84015
-------------------
NOTICE OF Special Meetings OF SHAREHOLDERS
TO BE HELD ON , 1994
-------------------
Notice is hereby given that a Special Meetings of Shareholders (the
"Special Meetings") of Community First Bank ("COMMUNITY") will be held at
COMMUNITY's main banking office located at 180 South State Street,
Clearfield, Utah, on , 1994 at 7:00 p.m., Mountain Time.
The Special Meetings is for the following purposes:
(1) The approval of an Agreement of Merger dated as of October 22,
1993, ("Merger Agreement"), pursuant to which COMMUNITY will be acquired
by First Security Corporation ("FSC") by means of a merger ("Merger") of
COMMUNITY with and into First Security Bank of Utah ("FSB UTAH"), as
more fully described in the accompanying Prospectus/Proxy Statement.
Upon consummation of the Merger, each outstanding share of COMMUNITY
common stock will be converted into shares of FSC Common Stock and cash
for fractional shares, as more fully described in the accompanying
Prospectus/ Proxy Statement.
(2) To consider and vote upon any other matters that may lawfully
come before the Special Meetings.
COMMUNITY has fixed the close of business on , 1994 as
the record date for the Special Meetings. Only Shareholders of record on
such date are entitled to notice of and to vote at the Special Meetings and
any adjournments thereof.
The affirmative vote of two-thirds of COMMUNITY common stock is
required to approve the Merger Agreement. A copy of the provisions of Utah
law that establish the rights of Shareholders to dissent from such approval
is included in the Prospectus/Proxy Statement as Appendix C.
Please sign and date the enclosed form of proxy, which is solicited
by the Board of Directors, and mail it promptly in the enclosed envelope.
The proxy may be revoked in the manner described in the Prospectus/Proxy
Statement at any time before it is voted at the Special Meetings.
By Order of the Board of Directors
Richard A. Hill
President and Chief Executive Officer
Clearfield, Utah
_____________________, 1994
----------------------------------------------------------------------
----------------------------------------------------------------------
IMPORTANT: APPROVAL OF THE MERGER AGREEMENT REQUIRES THE
AFFIRMATIVE VOTE OF THE HOLDERS OF TWO-THIRDS OF THE
OUTSTANDING SHARES OF Community First Bank. IN ORDER TO ENSURE
THAT THE REQUISITE VOTE IS OBTAINED, AND IN ORDER TO ENSURE
A QUORUM, WE URGE YOU TO SIGN, DATE AND RETURN THE ENCLOSED
PROXY. AN ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR
CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN THE
UNITED STATES. VOTING BY PROXY WILL NOT AFFECT YOUR RIGHT
TO VOTE IN PERSON AT THE Special Meetings IF YOU SO DESIRE.
----------------------------------------------------------------------
----------------------------------------------------------------------
<PAGE>
COMMUNITY FIRST BANK
180 South State Street
Clearfield, Utah 84015
P R O X Y
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Harold C. Steed and Richard A. Hill, and
each of them, with full power of substitution, to vote as designated below,
all shares of Community First Bank common stock owned of record by the
undersigned at the Special Meeting of Shareholders of Community First Bank to
be held on , 1994 at P.M. (Mountain Time) at Community's
Main Office at 180 South State Street, Clearfield, Utah, or at any
adjournment thereof, on the proposal to merge Community First Bank with and
into First Security Bank of Utah, and on all other matters that may properly
come before the Special Meeting. (Each Shareholder of Record should have
received a Prospectus/Proxy Statement with this Proxy Designation and
Instruction Card describing the proposed Merger.)
IN THE ABSENCE OF DIRECTIONS TO THE CONTRARY, THE DESIGNATED PROXIES WILL
VOTE FOR THE PROPOSED MERGERS.
---
On the proposal to merge Community First Bank with and into First
Security Bank of Utah
For Against Abstain
--- ------- -------
/ / / / / /
(THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE MERGER)
---
DATE OF
THIS PROXY
DESIGNATION
AND INSTRUCTION:________________, 1994 ________________________________
Signature
________________________________
Print Name
________________________________
Joint Tenant (if any)
________________________________
Print Name
(When signing as a Trustee, Executor Corporate Office, or
General Partner, please give FULL TITLE on the "joint tenant" line.)
THIS PROXY DESIGNATION AND INSTRUCTION MAY BE REVOKED BY A MORE RECENTLY
DATED PROXY DESIGNATION AND INSTRUCTION, OR BY WRITTEN NOTICE
TO THE SECRETARY OF COMMUNITY FIRST BANK PRIOR TO THE
SPECIAL MEETING, OR BY APPEARING AT THE SPECIAL
MEETING AND VOTING IN PERSON
