SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
FIRSTCITY FINANCIAL CORPORATION
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
1) Title of each class of securities to which transaction
applies:
______________________________________________________________
2) Aggregate number of securities to which transaction
applies:______________________________________________________
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
______________________________________________________________
4) Proposed maximum aggregate value of transaction:______________
5) Total Fee Paid:_______________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:_______________________________________
2) Form, Schedule or Registration Statement No.:_________________
3) Filing Party:_________________________________________________
4) Date Filed:___________________________________________________
[FIRSTCITY(R) LOGO]
FINANCIAL CORPORATION
--------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 18, 2003
--------------------
TO THE STOCKHOLDERS OF FIRSTCITY FINANCIAL CORPORATION:
NOTICE IS HEREBY GIVEN THAT the 2003 Annual Meeting of Stockholders
(the "Annual Meeting") of FirstCity Financial Corporation, a Delaware
corporation (the "Company"), will be held at the principal executive offices of
the Company, 6400 Imperial Drive, Waco, Texas 76712, on Tuesday, November 18,
2003, at 9:00 a.m., local time, for the following purposes:
1. To elect 7 directors, each to serve until the 2004 Annual Meeting of
Stockholders and until their successors are elected and qualified;
2. To consider and vote upon a proposal to approve the Company's 2004
Stock Option and Award Plan;
3. To ratify the Board of Directors' appointment of independent public
accountants for the Company and its subsidiaries for fiscal year 2003;
and
4. To transact such other business as may properly come before the Meeting
or any adjournments or postponements thereof.
Only holders of record of the Company's Common Stock outstanding as of the
close of business on October 6, 2003, will be entitled to notice of and to vote
at the Annual Meeting and at any adjournments thereof. A proxy card is enclosed
in the pocket on the front of the envelope in which these materials were mailed
to you. Please complete, sign and date the proxy card and return it promptly in
the enclosed postage-paid return envelope. If you attend the meeting you may, if
you wish, withdraw your proxy and vote in person. The list of stockholders of
the Company may be examined at the offices of the Company located at 6400
Imperial Drive, Waco, Texas 76712.
A copy of the Company's Annual Report on Form 10-K for the year ended
December 31, 2002, is enclosed.
By Order of the Board of Directors,
Waco, Texas Richard J. Vander Woude
October 20, 2003 Secretary
IT IS IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THE ANNUAL MEETING, WHETHER
OR NOT YOU ARE ABLE TO ATTEND PERSONALLY. ACCORDINGLY, PLEASE COMPLETE, SIGN,
DATE AND RETURN PROMPTLY THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
[FIRSTCITY(R) LOGO]
FINANCIAL CORPORATION
PROXY STATEMENT
INTRODUCTION
This Proxy Statement is furnished to stockholders of FirstCity
Financial Corporation, a Delaware corporation ("FirstCity" or the "Company"), in
connection with the solicitation of proxies by the Company's Board of Directors
for use at the 2003 Annual Meeting of Stockholders (the "Annual Meeting"). The
Annual Meeting will be held at the principal executive offices of the Company on
Tuesday, November 18, 2003, at 9:00 a.m., local time. This Proxy Statement and
form of proxy are being mailed to the Company's stockholders on or about October
20, 2003. The Company's principal executive offices are located at 6400 Imperial
Drive, Waco, Texas 76712, and its telephone number is (254) 751-1750.
PURPOSE OF THE ANNUAL MEETING
At the Annual Meeting, the holders of shares of common stock, par value
$.01 per share ("Common Stock"), of the Company will be asked
(1) to elect seven directors to serve on the Board of Directors of the
Company, such directors to serve until the next annual meeting of
stockholders and until their successors shall have been elected and
qualified,
(2) to consider and vote upon a proposal to approve the Company's 2004
Stock Option and Award Plan, and
(3) to ratify the Board of Directors' appointment of KPMG LLP ("KPMG")
as independent certified public accountants for the Company and its
subsidiaries for fiscal year 2003.
RECORD DATE; NUMBER OF SHARES OUTSTANDING
Only holders of record of Common Stock outstanding as of the close of
business on October 6, 2003 (the "Record Date"), are entitled to notice of and
to vote at the Annual Meeting and at any adjournments of the Annual Meeting. As
of the close of business on the Record Date, 11,204,671 shares of Common Stock
were issued and outstanding and entitled to vote at the Annual Meeting. Unless
otherwise indicated, all references herein to percentages of outstanding shares
of Common Stock are based on 11,204,671 shares outstanding. Each share of Common
Stock is entitled to one vote at the Annual Meeting with respect to each matter
to be voted on.
REQUIRED VOTES
Directors will be elected by a plurality of the votes of the shares of
Common Stock present in person or represented by proxy at the Annual Meeting and
entitled to vote on the election of directors (and therefore abstentions and
broker non-votes will have no legal effect on such election). The affirmative
vote of a majority of the shares of Common Stock present in person or
represented by proxy at the Annual Meeting and entitled to vote will be
necessary to approve the Company's 2004 Stock Option and Award Plan and to
ratify the appointment of KPMG as independent certified public accountants (and
therefore abstentions will have the effect of a negative vote on such proposals
and broker non-votes will have no legal effect on the vote). An automated system
administered by the Company's transfer agent will tabulate the votes cast by
proxy prior to the meeting.
All shares of Common Stock represented by properly executed and
unrevoked proxies will be voted at the Annual Meeting in accordance with the
direction on the proxies. IF NO DIRECTION IS INDICATED ON PROPERLY EXECUTED AND
UNREVOKED PROXIES, THE SHARES WILL BE VOTED
- "FOR" THE ELECTION OF THE SEVEN NOMINEES NAMED IN THIS PROXY
AS DIRECTORS,
- "FOR" THE APPROVAL OF THE COMPANY'S 2004 STOCK OPTION AND
AWARD PLAN, AND
- "FOR" THE PROPOSAL TO RATIFY THE APPOINTMENT OF KPMG AS THE
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS FOR THE COMPANY AND
ITS SUBSIDIARIES FOR FISCAL YEAR 2003.
The Company does not know of any matters, other than those described
above, which will come before the Annual Meeting. If any other matters are
properly presented for action at the Annual Meeting, the persons named in the
proxies and acting under these proxies will have discretion to vote on such
matters in accordance with their best judgment.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual
Meeting is a majority of the votes eligible to be cast by holders of shares of
Common Stock issued and outstanding on the Record Date. Shares that are voted
"FOR," "AGAINST" or "ABSTAIN" are treated as being present at the meeting for
purposes of establishing a quorum and are also treated as shares entitled to
vote at the Annual Meeting (the "Votes Cast") with respect to such matter.
While there is no definitive statutory or case law authority in
Delaware as to the proper treatment of abstentions, the Company believes that
abstentions should be counted for purposes of determining both (i) the presence
or absence of a quorum for the transaction of business and (ii) the total number
of Votes Cast with respect to a proposal (other than the election of directors).
In the absence of a controlling precedent to the contrary, the Company intends
to treat abstentions in this manner. Accordingly, abstentions will have the same
effect as a vote against the proposal.
In a 1988 Delaware case, Berlin v. Emerald Partners, the Delaware
Supreme Court held that, while broker non-votes should be counted for purposes
of determining the presence or absence of a quorum for the transaction of
business, broker non-votes should not be counted for purposes of determining the
number of Votes Cast with respect to the particular proposal on which the broker
has expressly not voted. Accordingly, the Company intends to treat broker
non-votes in this manner. Thus, a broker non-vote will not have any effect on
the outcome of the voting on a proposal.
REVOCATION OF PROXY
A record holder of Common Stock who executes and returns a proxy has
the power to revoke it at any time before it is voted. A holder who wishes to
revoke a proxy can do so:
- by executing a later dated proxy relating to the same shares
and by delivering it to the Secretary of the Company prior to
the vote at the Annual Meeting,
- by giving written notice of the revocation to the Secretary of
the Company prior to the vote at the Annual Meeting, or
- by appearing in person at the Annual Meeting and voting in
person the shares to which the proxy relates.
All written notices of revocation and other communications relating to the
revocation of proxies should be addressed as follows: FirstCity Financial
Corporation, 6400 Imperial Drive, P.O. Box 8216, Waco, Texas 76714-8216,
Attention: Secretary, telephone (254) 751-1750.
SHAREHOLDER VOTING AGREEMENT
James R. Hawkins, Chairman of the Board of the Company, James T.
Sartain, President and Chief Executive Officer of the Company, and ATARA I,
LTD., a Texas limited partnership ("ATARA"), are parties to a Shareholder Voting
Agreement (the "Shareholder Voting Agreement"), dated as of June 29, 1995, with
Cargill Financial Services Corporation, a Delaware corporation ("Cargill"). The
sole general partner of ATARA is ATARA Corp., a Texas corporation, the Chairman
of the Board and President of which is Rick R. Hagelstein (a former executive
officer of the Company).
Under the terms of the Shareholder Voting Agreement, Messrs. Hawkins
and Sartain, and ATARA, are required to vote their shares of Common Stock to
elect one designee of Cargill as a director of the Company, and Cargill is
required to vote its shares of Common Stock to elect one or more of the
designees of Messrs. Hawkins and Sartain, and ATARA, as directors of the
Company. With respect to the Board nominees for director named below under the
caption "Proposal I - Election of Directors,"
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(1) Messrs. Hawkins and Sartain, and ATARA, will vote their shares
of Common Stock for the election of Jeffery Leu as a director,
Cargill's designee under the Shareholder Voting Agreement, and
(2) Cargill will vote its shares of Common Stock for the election
of James R. Hawkins and James T. Sartain as directors, the
designees of Messrs. Hawkins and Sartain, and ATARA under the
Shareholder Voting Agreement.
Information pertaining to the number of shares of Common Stock owned on October
6, 2003, by each of Messrs. Hawkins and Sartain, and ATARA and Cargill, is set
forth under the caption "Security Ownership of Certain Beneficial Owners and
Management."
SOLICITATION COSTS
The Company will bear the cost of soliciting its proxies, including the
expenses of distributing its proxy materials. In addition to the use of the
mail, proxies may be solicited by personal interview, telephone or telegram by
directors, officers, employees and agents of the Company, who will receive no
additional compensation for doing so. The Company will reimburse brokers,
custodians, nominees and fiduciaries for reasonable out-of-pocket expenses
incurred by them in forwarding proxy materials to the beneficial owners of
Common Stock held by them as stockholders of record.
ANNUAL REPORT ON FORM 10-K
The Company's Annual Report on Form 10-K for the year ended December
31, 2002, which includes, among other things, the Company's audited consolidated
balance sheets at December 31, 2002 and 2001, and the Company's audited
consolidated statements of operations, stockholders' equity and comprehensive
loss and statements of cash flows for the years ended December 31, 2002, 2001
and 2000, respectively, has been mailed to stockholders of record as of the
Record Date.
ANNUAL MEETING MATTERS
Directors of the Company are elected each year to hold office until the
next annual meeting of stockholders or until their successors are duly elected
and qualified. The Company's Bylaws provide for a minimum of one and a maximum
of twelve directors. The Board has set the number of directors of the Company at
seven. The Board nominated seven persons to stand for election at the Annual
Meeting, and each is currently a director of the Company. The Board of Directors
recommends that such seven nominees, each of which is named below, be elected to
serve as directors.
The Certificate of Designations of the Company's New Preferred Stock,
$0.01 par value ("New Preferred Stock"), provides that if dividends payable on
the New Preferred Stock have been in arrears and unpaid for six quarterly
periods, then the holders of New Preferred Stock shall have the right, voting as
a single class, to elect two additional directors of the Company. To exercise
this right, holders of the New Preferred Stock must follow certain prescribed
actions specified in the Certificate of Designations of the New Preferred Stock.
Since the Company has failed to pay quarterly dividends for six consecutive
quarters on the New Preferred Stock upon failure to pay the dividend for the
fourth quarter of 2000, the holders of the New Preferred Stock are entitled to
exercise their right to elect two additional directors to the Company's Board
until cumulative dividends have been paid in full, upon following the procedures
described in the Certificate of Designations of the New Preferred Stock. To
date, these rights have not been exercised.
Under the Company's Bylaws, nominations of persons for election to the
Board of Directors also may be made at the Annual Meeting by any stockholder of
the Company entitled to vote for the election of directors at the Annual Meeting
who complies with the notice procedures described in this paragraph. Any such
nomination must be made pursuant to notice in writing to the Secretary of the
Company, and must be delivered to or mailed and received at the principal
executive offices of the Company no later than the tenth (10th) day following
the date that the notice of the meeting is mailed or public announcement was
made. Any such notice must set forth
(1) as to each person whom such stockholder proposes to nominate
for election or reelection as a director, all information
relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or as
otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or any successor regulation thereto
(including such person's written consent to being named in the
Proxy Statement as a nominee and to serving as a director if
elected); and
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(2) as to the stockholder giving such notice,
- the name and address, as they appear on the Company's
books, of such stockholder, and
- the class or series and number of shares of stock of
the Company that are held of record, beneficially
owned, and represented by proxy on the date of such
stockholder nomination and on the Record Date by such
stockholder on such dates.
PROPOSAL I - ELECTION OF DIRECTORS
It is intended that the proxies received from holders of Common Stock,
in the absence of contrary instructions, will be voted at the Annual Meeting for
the election of the Board of Directors nominees named below. Although the
Company does not contemplate that any of the nominees will be unable to serve,
decline to serve, or otherwise be unavailable as a nominee at the time of the
Annual Meeting, in such event the proxies will be voted in accordance with the
discretionary authority granted in the proxies for such other candidate or
candidates as may be nominated by the Board of Directors.
James R. Hawkins, Chairman of the Board of the Company, James T.
Sartain, President and Chief Executive Officer of the Company, and ATARA, are
parties to a Shareholder Voting Agreement with Cargill regarding the voting of
their shares of Common Stock in connection with the election of directors. See
"Introduction - Shareholder Voting Agreement."
NOMINEES FOR ELECTION TO BOARD OF DIRECTORS
The following table sets forth certain information concerning the
nominees for election to the Board of Directors of the Company.
Name Age Position
---- --- --------
James R. Hawkins 67 Chairman of the Board
C. Ivan Wilson 76 Vice Chairman of the Board
James T. Sartain 54 President, Chief Executive Officer and Director
Richard E. Bean 59 Director
Dane Fulmer 53 Director
Robert E. Garrison II 61 Director
Jeffery D. Leu 47 Director
Further information concerning the Board nominees for election as
directors at the Annual Meeting, including their business experience during the
past five years, appears below.
James R. Hawkins has been Chairman of the Board since the consummation
of the merger of J-Hawk Corporation ("J-Hawk") and First City Bancorporation of
Texas, Inc. in 1995 (the "Merger"), and was Chairman of the Board and Chief
Executive Officer of J-Hawk from 1976 until the Merger. Mr. Hawkins was also
formerly Chief Executive Officer of FirstCity through January 2001. Mr. Hawkins
is a certified public accountant licensed in the state of Texas.
C. Ivan Wilson has been Vice Chairman of the Board of FirstCity since
the Merger. From February 1998 to June 1998, Mr. Wilson was Chairman, President
and Chief Executive Officer of Mercantile Bank, N.A., Corpus Christi, Texas, a
national banking organization. Mr. Wilson was Chairman of the Board and Chief
Executive Officer of First City Bancorporation of Texas, Inc. ("FCBOT") from
1991 to the Merger. Prior to 1991, Mr. Wilson was the Chief Executive Officer of
FirstCity, Texas-- Corpus Christi, one of FCBOT's banking subsidiaries.
James T. Sartain has been President of FirstCity since the Merger and
Chief Executive Officer since January 2001 and has served as a Director of
FirstCity since the Merger. Prior to January 2001, Mr. Sartain was President and
Chief Operating Officer. From 1988 to the Merger, Mr. Sartain was President and
Chief Operating Officer of J-Hawk.
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Richard E. Bean has been a Director of FirstCity since the Merger and
has been Executive Vice President and Chief Financial Officer of Pearce
Industries, Inc. since 1976, which markets a variety of oil field equipment and
machinery. Mr. Bean has also been a member of the Portfolio Committee of the
FirstCity Liquidating Trust since the Merger. Prior to the Merger, Mr. Bean was
Chairman of the FCBOT's Official Committee of Equity Security Holders. Mr. Bean
is a director of Sanders Morris Harris Group, a publicly owned financial
services firm. Mr. Bean is a certified public accountant licensed in the state
of Texas.
Dane Fulmer has been a Director of FirstCity since May 1999. Mr. Fulmer
serves as Executive Vice President and director of risk management of John
Taylor Financial Group, a broker/dealer and investment advisory firm that Mr.
Fulmer co-founded in 1995. From July 1991 until August 1996, Mr. Fulmer served
as Executive Vice President of Merchants Investment Center of Fort Smith, a
broker/dealer and investment advisory firm, and as portfolio manager for
Merchants National, the parent company.
Robert E. Garrison II has been a Director of FirstCity since May 1999.
Mr. Garrison is the President, Chief Executive Officer and director of Sanders
Morris Harris Group. Previously, Mr. Garrison served as Executive Vice President
and director of Harris Webb & Garrison and also served as Chairman, Chief
Executive Officer, and director of Pinnacle Management & Trust Co. Mr. Garrison
co-founded both of these companies in 1994. Both Harris Webb & Garrison and
Pinnacle Management & Trust Co. are subsidiaries of Sanders Morris Harris Group.
In addition, Mr. Garrison serves as Chairman of the Board of BioCyte
Therapeutics, a cancer diagnostic and therapeutic company focused on breast,
ovarian, and prostate cancer. Mr. Garrison serves as a director of TeraForce
Technology Corporation, Inc., a public defense electronics company, Somerset
House Publishing, First Capital Bank, and is a member of the Finance Committee
of Memorial Hermann Hospital System. He has over 36 years of experience in the
securities industry. Mr. Garrison is a Chartered Financial Analyst.
Jeffery D. Leu has been a Director of FirstCity since December 2000.
Mr. Leu is President of the Value Investment Group of Cargill, a wholly owned
subsidiary of Cargill Incorporated, which is regarded as one of the world's
largest privately-held corporations. Mr. Leu joined Cargill in 1981 and has held
various management positions in Cargill's financial businesses.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF
THE NOMINEES FOR DIRECTOR NAMED ABOVE.
VOTE REQUIRED FOR ELECTION OF DIRECTORS
Directors will be elected by a plurality of the votes of the shares of
Common Stock present at the Annual Meeting, in person or by proxy, and entitled
to vote on the election of directors (and therefore abstentions and non-votes
will have no legal effect on such election).
EXECUTIVE OFFICERS
The executive officers of the Company, who are elected by the Board of
Directors of the Company and serve at its discretion, are as follows:
Name Age Position
---- --- --------
James R. Hawkins 67 Chairman of the Board
James T. Sartain 54 President and Chief Executive Officer
J. Bryan Baker 42 Senior Vice President and Chief Financial Officer
Terry R. DeWitt 46 Senior Vice President and Co-President of FirstCity Commercial
G. Stephen Fillip 52 Senior Vice President and Co-President of FirstCity Commercial
Joe S. Greak 54 Senior Vice President, Tax Director
James C. Holmes 46 Senior Vice President and Executive Vice President of FirstCity
Commercial
Jim W. Moore 53 President of FirstCity Consumer Lending
Richard J. Vander Woude 48 Senior Vice President, General Counsel and Secretary
The business experience of Messrs. Hawkins and Sartain is set forth
under "Proposal I - Election of Directors."
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J. Bryan Baker has been Senior Vice President and Chief Financial
Officer since June 2000. Previously, Mr. Baker served as Vice President and
Treasurer from August 1999 to June 2000, as Vice President and Controller of
FirstCity from November 1996 to August 1999, and as Vice President and Assistant
Controller from 1995 to November 1996. From 1990 to 1995, Mr. Baker was with
Jaynes, Reitmeier, Boyd & Therrell, P.C., an independent public accounting firm,
involved in both auditing and consulting. From 1988 to 1990, Mr. Baker was
Controller of Heights Bancshares in Harker Heights, Texas. Mr. Baker is a
certified public accountant licensed in the state of Texas.
Terry R. DeWitt has been Senior Vice President responsible for Due
Diligence and Investment Evaluation of FirstCity since the Merger and has served
as Co-President of FirstCity Commercial, a subsidiary of the Company,
("FirstCity Commercial") since October 1999. Mr. DeWitt served as Senior Vice
President responsible for Due Diligence and Investment Evaluation of J-Hawk from
1992 to the Merger. From 1991 to 1992, Mr. DeWitt was Senior Vice President of
the First National Bank of Central Texas, a national banking association, and
from 1989 to 1991, he was President of the First National Bank of Goldthwaite, a
national banking association.
G. Stephen Fillip has been Senior Vice President since the Merger. Mr.
Fillip has served as President of FirstCity Servicing Corporation, a subsidiary
of the Company, since October 1999 and has served as Co-President of FirstCity
Commercial since October 1999. Mr. Fillip was Senior Vice President of J-Hawk
from 1991 to the Merger. From 1989 to 1991, Mr. Fillip was Executive Vice
President and Chief Credit Officer of BancOne, Texas, N.A. (Waco), a national
banking association.
Joe S. Greak has been Senior Vice President and Tax Director of the
Company since the Merger. Mr. Greak was the Tax Manager of FCBOT since 1993.
From 1992 to 1993, Mr. Greak was the Tax Manager of New First City -Houston,
N.A. Prior thereto, he was Senior Vice President and Tax Director of First City,
Texas -- Houston, N.A. Mr. Greak is a certified public accountant licensed in
the state of Texas.
James C. Holmes has been Senior Vice President of FirstCity since the
Merger. Mr. Holmes has served as Executive Vice President of FirstCity
Commercial since October 1999. From the Merger to August 1999 Mr. Holmes served
as Senior Vice President and Treasurer of the Company and held the same
positions with J-Hawk from 1994 to the Merger. From 1988 to 1991, Mr. Holmes was
a Vice President of MBank, Waco, a national banking association.
Jim W. Moore has been a senior officer of FirstCity or its predecessor
since November 1992. Currently, Mr. Moore is President of FirstCity Consumer
Lending Corporation, a subsidiary of the Company, which owns a 31% direct and
indirect interest in Drive Financial Services, LP, where he has served as
Executive Vice President and a member of the Board of Managers since August
2000.
Richard J. Vander Woude has been General Counsel and Senior Vice
President of FirstCity since January 1998 and has served as Secretary since June
2000. Prior thereto, Mr. Vander Woude was a director and shareholder in the law
firm of Vander Woude & Istre, P.C., Waco, Texas from 1992 through 1997. From
1978 to 1992, Mr. Vander Woude was a director and shareholder of Sheehy,
Lovelace & Mayfield, P.C., Waco, Texas.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the Common
Stock owned on October 6, 2003 (the "Measurement Date") by (1) each person who
is known by the Company to be the beneficial owner of more than five percent of
the Common Stock as of such date, (2) each of the Company's directors and
nominees, (3) each of the Named Executive Officers (as defined under "Executive
Compensation" below) and (4) all directors and executive officers of the Company
as a group. Except as otherwise indicated, all shares of the Common Stock shown
in the table are held with sole voting and investment power.
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SHARES
BENEFICIALLY PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED OF CLASS
- ------------------------------------------------------ ------------------ --------
James R. Hawkins...................................... 1,276,904(2)(10) 11.4%
James T. Sartain...................................... 571,047(3)(10) 5.1%
Richard E. Bean....................................... 288,208(4) 2.6%
Dane Fulmer........................................... 63,925(5) *
Robert E. Garrison II................................. 62,825(5) *
Jeffery Leu........................................... 2,500(6) *
C. Ivan Wilson........................................ 32,395(4) *
Terry R. DeWitt....................................... 191,332(7) 1.7%
G. Stephen Fillip..................................... 222,837(7) 2.0%
Jim W. Moore.......................................... 42,207(8) *
Richard J. Vander Woude............................... 36,685(9) *
All directors and executive officers as a group (15
persons)............................................ 3,035,350 26.2%
- ----------
* Less than 1%
(1) The business mailing address of each of such persons (except as
otherwise indicated) is P.O. Box 8216, Waco, Texas 76714-8216.
(2) Includes 250,994 shares of Common Stock held of record by J-Hawk, Ltd.,
the sole general partner of which is Combined Funding, Inc. Mr. Hawkins may
be deemed to beneficially own such shares of Common Stock as a result of
his ownership of 50% of the common stock of Combined Funding, Inc.
(3) Includes 24,800 and 62,500 shares that may be acquired within 60 days
of the Measurement Date upon the exercise of options granted under the
Company's 1995 and 1996 Stock Option and Award Plan.
(4) Includes 6,375 shares that may be acquired within 60 days of the
Measurement Date upon the exercise of options granted under the Company's
1996 Stock Option and Award Plan.
(5) Includes 4,375 shares that may be acquired within 60 days of the
Measurement Date upon the exercise of options granted under the Company's
1996 Stock Option and Award Plan.
(6) Includes 2,500 shares that may be acquired within 60 days of the
Measurement Date upon the exercise of options granted under the Company's
1996 Stock Option and Award Plan. Mr. Leu is an officer of certain
affiliates of Cargill, which, as of the Measurement Date was the record
owner of 221,683 shares of Common Stock. Mr. Leu disclaims beneficial
ownership of such shares. Cargill is party to the Shareholder Voting
Agreement with Messrs. Hawkins and Sartain, and ATARA, regarding the Common
Stock.
(7) Includes 11,500 and 24,950 shares that may be acquired within 60 days
of the Measurement Date upon the exercise of options granted under the
Company's 1995 and 1996 Stock Option and Award Plan, respectively.
(8) Includes 10,200 and 25,850 shares that may be acquired within 60 days
of the Measurement Date upon the exercise of options granted under the
Company's 1995 and 1996 Stock Option and Award Plan, respectively.
(9) Includes 31,250 shares that may be acquired within 60 days of the
Measurement Date upon the exercise of options granted under the Company's
1996 Stock Option and Award Plan.
(10) Messrs. Hawkins and Sartain and ATARA, the sole general partner of
which is ATARA Corp., are parties to a Shareholder Voting Agreement with
Cargill regarding the Common Stock, pursuant to which ATARA and Messrs.
Hawkins and Sartain are required to vote their shares of Common Stock to
elect one designee of Cargill as a director of the Company, and Cargill is
required to vote its shares of Common Stock to elect one or more designees
of ATARA and Messrs. Hawkins and Sartain as directors of the company. Each
of Messrs. Hawkins and Sartain and ATARA disclaims beneficial ownership of
the shares of Common Stock owned by Cargill.
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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10 percent of Common Stock, to
file with the Securities and Exchange Commission certain reports of beneficial
ownership of Common Stock. Based solely on copies of such reports furnished to
the Company and written representations that no other reports were required, the
Company believes that all applicable Section 16(a) filing requirements were
complied with by its directors, officers and 10 percent stockholders during the
last fiscal year.
BOARD OF DIRECTORS AND COMMITTEES
During 2002, the Board of Directors held eight meetings. Each of the
directors attended more than 75% of such meetings.
The Company's Board of Directors has the following five standing
committees: an Executive Committee; an Audit Committee; a Compensation
Committee; an Investment Committee; and a Nominating Committee. Members of these
committees generally are elected annually at the regular meeting of the Board of
Directors immediately following the annual meeting of stockholders. Further
information concerning the Board's standing committees appears below.
Executive Committee. The Executive Committee consists of Messrs.
Hawkins (Chairman) and Sartain. Subject to certain limitations specified by the
Company's Bylaws and the Delaware General Corporation Law, the Executive
Committee is authorized to exercise the powers of the Board of Directors when
the Board is not in session. During 2002, the Executive Committee held no actual
meetings but took several actions by unanimous written consent.
Audit Committee. The Audit Committee consists of Messrs. Bean
(Chairman), Garrison and Wilson, each of whom is an outside director. The Audit
Committee meets with management to consider the adequacy of the internal
controls of the Company and the objectivity of financial reporting. Its primary
function is to assist the Board of Directors in fulfilling its oversight
responsibilities by reviewing
- the financial information to be provided to the stockholders,
potential stockholders, the investment community and others;
- the systems of internal controls established by the management
and the Board of Directors; and
- the audit process.
The Audit Committee also meets with the independent auditors and with
appropriate Company financial personnel about these matters. The functions of
the Audit Committee also include recommending to the Board of Directors which
firm of independent public accountants should be engaged by the Company to
perform the annual audit, reviewing annually the Company's Audit Committee
Charter, approving certain other types of professional service rendered to the
Company by the independent public accountants and considering the possible
effects of such services on the independence of such public accountants. The
independent auditors periodically meet alone with the Audit Committee and always
have unrestricted access to the Audit Committee. During 2002, the Audit
Committee held four meetings. Each of the members of the Audit Committee
attended all such meetings for the period they were members of the committee.
Compensation Committee. The Compensation committee during 2002
consisted of Messrs. David W. MacLennan (Chairman until June 30, 2002 when he
resigned as a director and committee member), Wilson (Chairman after June 30,
2002), Garrison and Leu. After April 29, 2003, the Compensation Committee
consists of Messrs. Wilson (Chairman), Leu and Garrison. The functions of the
Compensation Committee include making recommendations to the Board of Directors
regarding compensation for executive officers of the Company and its
subsidiaries. The Compensation Committee is responsible for all recommendations,
reviews, modifications and approvals with respect to the 1995 Stock Option and
Award Plan, the 1995 Employee Stock Purchase Plan and the 1996 Stock Option and
Award Plan, and will be responsible for such duties with regard to the 2004
Stock Option and Award Plan if such plan is approved by the stockholders at the
Annual Meeting. During 2002, the Compensation Committee held one meeting. Each
of the members of the Compensation Committee attended the meeting.
Investment Committee. The Investment Committee consists of Messrs.
Sartain (Chairman), Garrison, Fulmer, Wilson, Hawkins and Bean. The functions of
the Investment Committee include providing oversight and approval of prospective
investments based on thresholds of risk exposure to the Company's balance sheet.
During 2002, the Investment Committee held no
8
meetings.
Nominating Committee. The Nominating Committee consists of Messrs. Leu
(Chairman) and Fulmer. The functions of the Nominating Committee include
recommending to the Board of Directors those persons it believes should be
nominees for election as directors. In this regard, the Nominating Committee
considers the performance of incumbent directors in determining whether such
directors should be nominated to stand for reelection. During 2002, the
Nominating Committee held one meeting. Each of the members of the Nominating
Committee attended the meeting.
Under the Company's Bylaws, nominations of persons for election to the
Board of Directors also may be made by stockholders as described under the
caption "Annual Meeting Matters."
EQUITY COMPENSATION PLAN INFORMATION
Information about FirstCity's compensation plans at December 31, 2002
was as follows:
NUMBER OF SHARES
TO BE ISSUED WEIGHTED-AVERAGE NUMBER OF SHARES
UPON EXERCISE OF EXERCISE PRICE OF REMAINING AVAILABLE
PLAN CATEGORY OUTSTANDING OPTIONS OUTSTANDING OPTIONS FOR FUTURE ISSUANCE
- ------------- ------------------- ------------------- -------------------
Equity compensation plans approved by 599,250 $ 7.89 109,150
stockholders(a) and (b).....................
Equity compensation plans not approved by
stockholders(b)............................. -- -- --
-------- ------- --------
Total.......................................... 599,250 $ 7.89 109,150
======== ======= ========
- ----------
(a) Consists of the 1995 and 1996 Stock Option and Award Plans.
(b) The table above does not include options under the 1995 Employee Stock
Purchase Plan. The 1995 Employee Stock Purchase Plan included 100,000 shares.
Employees purchased 100,000 shares under the Plan through March 31, 2000. 38,578
shares were over-issued pursuant to the terms of the Plan in 2000, 2001 and 2003
due to an interpretation of the share adjustment provision of the Plan. 1,395
shares of the 38,578 over-issued shares were purchased in 2003. The 1995
Employee Stock Purchase Plan has terminated according to its terms.
DIRECTOR COMPENSATION
Directors of the Company who are not employees of the Company or any of
its subsidiaries receive a retainer of $3,000 per quarter for their services as
directors (from January 1, 2002 through December 31, 2002, each such director
received an aggregate of $12,000 for such director's services as director for
such period). Such directors also receive $1,000 plus expenses for each regular
and special board of directors meeting attended, $1,000 plus expenses for each
meeting of any committee of the board of directors attended, and $500 per each
telephonic meeting. Directors who are employees of the Company do not receive
directors' fees.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning
compensation for services during each of the last three years to (1) the
Company's Chief Executive Officer during 2002, and (2) the Company's other four
most highly compensated executive officers during 2002 serving as such at the
end of 2002 (collectively, the "Named Executive Officers").
9
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION(1)($)
--------------------------- ---- --------- -------- ---------- ------------------
James T. Sartain,............ 2002 300,014 -- -- 15,190
President and Chief 2001 300,014 -- 50,000 15,190
Executive Officer 2000 300,014 130,000 50,000 16,018
Terry R. DeWitt,............. 2002 250,000 135,000 -- 4,950
Senior Vice President and 2001 250,000 -- 25,000 4,800
Co-President of FirstCity 2000 250,000 80,640 -- 5,040
Commercial Corporation
G. Stephen Fillip,........... 2002 250,000 135,000 -- 5,190
Senior Vice President and 2001 250,000 -- 25,000 5,190
Co-President of FirstCity 2000 250,000 83,400 -- 5,310
Commercial Corporation
Richard J. Vander Woude,..... 2002 275,000 80,000 -- 4,950
Senior Vice President,
General 2001 275,000 -- 25,000 4,950
Counsel and Secretary 2000 270,883 50,000 25,000 5,378
Jim W. Moore................. 2002 337,096 243,750 -- 5,190
Senior Vice President and 2001 250,000 125,000 25,000 5,190
President of FirstCity 2000 206,250 130,000 -- 16,977
Consumer Lending
- ----------
(1) With respect to Messrs. Sartain, DeWitt, Fillip, Vander Woude and
Moore, the total amounts indicated under "All Other Compensation" for
2002 consist of (a) amounts contributed to match a portion of such
employee's contributions under the Company's 401(k) plan ("401(k)
Match"), (b) excess premiums paid on supplemental life insurance
policies ("Supplement Life") and (c) personal use of a business vehicle
("Auto"). The following table details the amounts paid during 2002 for
each of the categories:
401(k) SUPPLEMENT
EXECUTIVE MATCH($) LIFE($) AUTO($) TOTAL($)
- ----------------------------- --------- ----------- --------- --------
James T. Sartain............. 4,500 690 10,000 15,190
Terry R. DeWitt.............. 4,500 450 -- 4,950
G. Stephen Fillip............ 4,500 690 -- 5,190
Richard J. Vander Woude...... 4,500 450 -- 4,950
Jim W. Moore................. 4,500 690 -- 5,190
STOCK OPTION AND PURCHASE PLANS AND 401(K) PLAN
At the Company's annual stockholders' meeting, held on April 24, 1996,
the Company's stockholders approved (1) the 1995 Stock Option and Award Plan,
which provides for the grant of up to 230,000 options to purchase Common Stock
to plan participants, and (2) the 1996 Stock Option and Award Plan, which
provides for the grant to plan participants of up to 500,000 options to purchase
Common Stock. Grants of 206,850 shares of Common Stock have been granted to date
(net of forfeitures and cancellations) under the 1995 Stock Option and Award
Plan. Grants of 435,500 shares of Common Stock have been granted to date (net of
forfeitures and cancellations) under the 1996 Stock Option and Award Plan. The
exercise price for all options granted under the 1995 Stock Option and Award
Plan and under the 1996 Stock Option and Award Plan is equal to or greater than
the fair market value of the underlying Common Stock at the date of grant.
Therefore, the holders of the stock options will benefit from such options only
when, and to the extent, the price of Common Stock increases after the grant of
the option. The performance of individual executive officers and other key
employees is considered by the Compensation Committee in allocating such grants,
taking into account the Company's performance, each individual's contributions
thereto and specific accomplishments in each individual's area of
responsibility. The 1996 Stock Option and Award Plan also provides for the grant
of up to 50,000 performance shares to employees of the Company, to be awarded in
the discretion of the Compensation Committee. The performance measure to be used
for the purposes of granting the performance shares will be the extent to which
performance goals are met, in addition to the factors of total stockholder
return, return on equity, earnings per share and the ratio of operating overhead
to operating revenue.
At the Company's annual stockholders' meeting, held on April 24, 1996,
the Company's stockholders approved the 1995 Employee Stock Purchase Plan, under
which up to 100,000 shares of Common Stock were available for purchase by plan
participants. Through September 30, 2003, participants purchased 138,578 shares
of stock through the 1995 Employee Stock Purchase Plan, including 38,578 shares
over-issued as a result of an interpretation by the administrator of the share
adjustment
10
provision in the plan. The over-issued shares were issued based upon the terms
and provisions of the 1995 Employee Stock Purchase Plan. Each participant in the
1995 Employee Stock Purchase Plan who properly filed a request form was granted
an option ("1995 Employee Stock Purchase Plan Option") to purchase on the last
day of the option period, at a price determined as described below (the "1995
Employee Stock Purchase Plan Option Price"), the number of full shares of Common
Stock which the cash credited to his or her account at that time would purchase
at the 1995 Employee Stock Purchase Plan Option Price. Unless the cash credited
to a participant's account was withdrawn or distributed, his or her 1995
Employee Stock Purchase Plan Option was deemed to have been exercised
automatically on the last day of the Option Period. The 1995 Employee Stock
Purchase Plan Option Price for each option period was eighty-five percent of the
fair market value (as defined in the 1995 Employee Stock Purchase Plan) of the
Common Stock on the last trading day of the Option Period. No fractional shares
were issued or purchased under the 1995 Employee Stock Purchase Plan. Any
accumulated cash balances remaining in a participant's account were held in the
participant's account for the next option period if a valid request form was in
effect for such option period, or otherwise distributed to the participant
without interest. Since the shares were purchased at less than market value,
employees received a benefit from participating in the 1995 Employee Stock
Purchase Plan. The 1995 Employee Stock Purchase Plan terminated pursuant to its
terms as all shares included in the plan have been issued.
Beginning January 1, 1994, the Company initiated a defined contribution
401(k) employee profit sharing plan (the "401(k) Plan") in which the Company
matches employee contributions at a stated percentage of employee contributions
to a defined maximum. The Company contributed approximately $184,000, $152,000
and $263,000 in 2002, 2001 and 2000, respectively, to the 401(k) Plan.
OPTION GRANTS
The Company did not grant any options in 2002 under either the 1995
Stock Option and Award Plan or the 1996 Stock Option and Award Plan.
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth, for the Named Executive Officers, the
number of shares of the Common Stock underlying both exercisable and
non-exercisable stock options held by such persons as of December 31, 2002, and
the year-end values for unexercised "in-the-money" options, which represent the
positive spread between the exercise price of any such options and the year-end
market price of the Common Stock. All such options were granted under the 1995
Stock Option and Award Plan and 1996 Stock Option and Award Plan. No options
were exercised by the officers listed below during 2002.
AGGREGATED 2002 OPTION EXERCISES
AND YEAR-END OPTION VALUES
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT YEAR END AT YEAR END($)(1)
--------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
James T. Sartain............. 87,300 37,500 -- --
Terry R. DeWitt.............. 36,450 6,250 -- --
G. Stephen Fillip............ 36,450 6,250 -- --
Richard J. Vander Woude...... 31,250 18,750 -- --
Jim W. Moore................. 36,050 6,250 -- --
- ----------
(1) Calculated using the aggregate market value (based on December 31, 2002
stock price of $1.37 per share) of the shares of the Common Stock underlying
such options, less the aggregate exercise price payable.
11
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following report concerning the specific factors, criteria and
goals underlying decisions on payments and awards of compensation to each of the
executive officers of the Company for fiscal year 2002 is provided by the
Compensation Committee of the Company's Board of Directors.
General. Recommendations regarding compensation of the Company's
executive officers (other than the compensation of the Chief Executive Officer
and the Chairman of the Board) are made by the Chief Executive Officer to the
Chairman of the Board. The Chairman of the Board makes recommendations regarding
compensation of the Company's executive officers (other than the Chairman of the
Board) to the Compensation Committee. The Compensation Committee reviews the
recommendations of the Chairman of the Board and determines the compensation of
the Chairman of the Board and the other executive officers. The compensation of
the Chief Executive Officer and the other executive officers is subject to the
review, modification and approval of the Board of Directors, except that (1) the
Chief Executive Officer and the Chairman of the Board do not participate in the
preparation of recommendations, or the review, modification or approval thereof,
with respect to their compensation and (2) all such recommendations, reviews,
modifications and approvals with respect to awards under the 1995 and 1996 Stock
Option and Award Plan are made solely by the Compensation Committee.
The Company's compensation program is designed to enable the Company to
attract, motivate and retain high quality senior management by providing a
competitive total compensation opportunity based on performance. Toward this
end, the Company provides for competitive base salaries, annual variable
performance incentives payable in cash for the achievement of financial
performance goals, and long-term, stock-based incentives that strengthen the
mutuality of interests between senior management and the Company's stockholders.
Section 162(m) ("Section 162(m)") of the Internal Revenue Code of 1986,
as amended (the "Code"), provides that no deduction for federal income tax
purposes shall be allowed to a publicly held corporation for applicable employee
remuneration with respect to any covered employee of the corporation to the
extent that the amount of such remuneration for the taxable year with respect to
such employee exceeds $1.0 million. For purposes of this limitation, the term
"covered employee" generally includes the chief executive officer of the
corporation and the four highest compensated officers of the corporation (other
than the chief executive officer), and the term "applicable employee
remuneration" generally means, with respect to any covered employee for the
taxable year, the aggregate amount allowable as a federal income tax deduction
for services performed by such employee (whether or not during the taxable
year); provided, however, that applicable employee remuneration does not
include, among other items, certain remuneration payable solely on account of
the attainment of one or more performance goals ("performance based
compensation"). It is the Company's general intention that the remuneration paid
to its covered employees not exceed the deductibility limitation established by
Section 162(m). Nevertheless, due to the fact that not all remuneration paid to
covered employees may qualify as performance-based compensation, it is possible
that the Company's deduction for remuneration paid to any covered employee
during a taxable year may be limited by Section 162(m).
Salaries. Salaries for the year 2002 for each of the Company's
executive officers, including its Chief Executive Officer, were determined based
upon such officer's level of responsibility, time with the Company, contribution
to the Company and individual performance. The evaluation of these factors was
subjective, and no fixed, relative weights were assigned thereto.
Bonuses. Messrs. DeWitt and Fillip were participants in a bonus plan
during 2002. From 1999 until December 16, 2002, Messrs. DeWitt and Fillip had
employment agreements with FirstCity Commercial which provided for a bonus pool
based on the annual net profits of FirstCity Commercial before taxes and
interest expense on the indebted ness of FirstCity Commercial to the Company
exceeding certain thresholds. The bonus awarded to Mr. Vander Woude was
discretionary and not pursuant to a plan. Mr. Moore participated in a bonus pool
established for executive management of Drive.
Stock Options. The Compensation Committee believes that stock options
are critical in motivating and rewarding the creation of long-term stockholder
value, and the subcommittee has established a policy of awarding stock options
each year based on the continuing progress of the Company as well as on
individual performance. No stock options were granted during 2002.
Compensation of the Chief Executive Officer. The Chairman of the Board
makes recommendations to the Compensation Committee regarding compensation of
the Company's Chief Executive Officer. The Compensation Committee reviews the
recommendation of the Chairman and makes appropriate adjustments regarding the
compensation of the Chief Executive Officer and makes a recommendation to the
Board of Directors, which recommendation is subject to the review, modification
and
12
approval of the members of the Board of Directors, other than the Chief
Executive Officer. Such recommendations, reviews, modifications and approvals
for 2002 were based on the Chief Executive Officer's level of responsibility,
time with the Company, significant contributions to the successful completion of
the Company's recapitalization in December 2002, maintenance of liquidity during
the year to ensure the Company was able to continue to make investments and
involvement in initiatives to strengthen corporate governance and comply with
new regulations.
THE COMPENSATION COMMITTEE
C. Ivan Wilson, Chairman
Robert E. Garrison II
Jeffery Leu
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. MacLennan (Chairman until June 30, 2002), Wilson (Chairman
after June 30, 2002), Leu and Garrison served as members of the Compensation
Committee of the Board of Directors during 2002. Neither of Messrs. MacLennan,
Wilson, Leu and Garrison was an officer or employee of the Company or any of its
subsidiaries during 2002 or any prior year. No interlocking relationship exists
between the members of the Company's Board of Directors, executive officers or
Compensation Committee and the board of directors, executive officers and
compensation committee of any other company, nor has any such interlocking
relationship existed in the past.
AUDIT COMMITTEE REPORT
In this section below, we describe our financial and accounting
management policies and practices.
Composition. The Audit Committee of the Board of Directors is composed
of three independent directors, as defined under Rule 4200(a)(15) of the
National Association of Securities Dealers' listing standards. The Audit
Committee presently consists of Messrs. Bean (Chairman), Garrison and Wilson.
The Board of Directors has adopted a written charter for the Audit Committee.
Responsibilities. The responsibilities of the Audit Committee include
recommending to the Board of Directors an accounting firm to be engaged as the
Company's independent accountants. Management is responsible for the Company's
internal controls and financial reporting process. The independent accountants
are responsible for performing an independent audit of the Company's
consolidated financial statements in accordance with auditing standards
generally accepted in the United States of America and for issuing a report
thereon. The Audit Committee's responsibility is to oversee these processes.
Review with Management and Independent Accountants. In this context,
the Audit Committee has met and held discussions with management and the
independent accountants. Management represented to the Audit Committee that the
Company's audited consolidated financial statements were prepared in accordance
with accounting principles generally accepted in the United States of America,
and the Audit Committee has reviewed and discussed the audited consolidated
financial statements with management and the independent accountants. The Audit
Committee discussed with the independent accountants matters required to be
discussed by Statement on Auditing Standards No. 61, "Communication with Audit
Committees."
The Company's independent accountants also provided to the Audit
Committee the written disclosures required by Independent Standards Board
Standard No. 1, "Independence Discussions with Audit Committees," and the Audit
Committee discussed with the independent accountants, KPMG LLP, that firm's
independence.
Summary. Based upon the Audit Committee's discussions with management
and the independent accountants and the Audit Committee's review of the
representations of management, and the report of the independent accountants to
the Audit Committee, the Audit Committee recommended that the Board of Directors
include the audited consolidated financial statements in the Company's Annual
Report on Form 10-K for the year ended December 31, 2002, as filed with the
Securities and Exchange Commission.
THE AUDIT COMMITTEE
Richard E. Bean (Chairman)
C. Ivan Wilson
Robert E. Garrison II
13
EMPLOYMENT AGREEMENTS
In 1999, FirstCity Commercial entered into employment agreements with
Messrs. Terry R. DeWitt, G. Stephen Fillip and James C. Holmes. These contracts
were terminated in December 2002 and provided for salaries of $250,000, $250,000
and $200,000, respectively. Additionally, these contracts provided for the
establishment of a bonus pool based on the annual net profits of Commercial
before taxes and interest expense on the indebtedness of Commercial to the
Company exceeding certain thresholds. Messrs. DeWitt, Fillip and Holmes
participate in the benefit plans of the Company.
CUMULATIVE TOTAL STOCKHOLDER RETURN
The following performance graph (the "Performance Graph") compares the
cumulative total stockholder return on a share of Common Stock, based on the
market price thereof, with
- the cumulative total return of the CRSP Total Return Index for
the Nasdaq Stock Market (US) (the "Nasdaq Market Index")
prepared for Nasdaq by the Center for Research in Security
Prices ("CRSP") and
- the CRSP Financial Stocks Index (the "Nasdaq Industry Index")
prepared for Nasdaq by CRSP
for the period beginning on December 31, 1997 and ending on December 31, 2002.
Cumulative total stockholder return is based on an annual total return, which
assumes the reinvestment of all dividends for the period shown and assumes that
$100 was invested on December 31, 1996 in each of Common Stock, the Nasdaq
Market Index and the Nasdaq Industry Index. The Company has not declared any
dividends during the period covered by the Performance Graph. The results shown
in the Performance Graph are not necessarily indicative of future performance.
[PERFORMANCE GRAPH]
12/31/97 03/31/98 06/30/98 09/30/98 12/31/98 03/31/99 06/30/99
-------- -------- -------- -------- -------- -------- --------
FirstCity 100.00 99.59 95.47 52.67 42.59 32.72 18.11
Nasdaq Market Index 100.00 117.04 120.25 108.50 140.99 158.09 172.77
Nasdaq Industry Index 100.00 106.03 103.33 85.48 97.15 95.54 106.51
09/30/99 12/31/99 03/31/00 06/30/00 09/29/00 12/29/00 03/30/01
-------- -------- -------- -------- -------- -------- --------
FirstCity 4.94 9.05 7.82 6.17 6.27 5.56 4.12
Nasdaq Market Index 177.01 261.49 293.75 255.46 235.61 157.77 117.74
Nasdaq Industry Index 92.91 96.50 90.54 83.88 98.55 104.24 100.14
06/29/01 09/28/01 12/31/01 03/28/02 06/28/02 09/30/02 12/31/02
-------- -------- -------- -------- -------- -------- --------
FirstCity 4.61 5.76 3.95 3.82 4.25 3.00 4.51
Nasdaq Market Index 138.76 96.28 125.16 118.59 94.52 75.84 86.53
Nasdaq Industry Index 113.15 108.48 114.49 124.60 126.50 114.09 117.82
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company owns equity interests in various purchased asset portfolios
through limited partnerships and limited liability companies ("Acquisition
Partnerships") in which a corporate affiliate of the Company is the sole general
partner or managing member, and the Company and other non-affiliated investors
are limited partners or members. Certain directors and executive officers of the
Company may also serve as directors and/or executive officers of the general
partner or managing member, but
14
receive no additional compensation from or on behalf of such general partner or
managing member for serving in such capacity. The Company provides asset
servicing to such Acquisition Partnerships pursuant to servicing agreements
between the Company and such Acquisition Partnerships.
Under a Right of First Refusal Agreement and Due Diligence
Reimbursement Agreement effective as of January 1, 1998, as amended (the "Right
of First Refusal Agreement") among the Company, FirstCity Servicing Corporation,
Cargill and its wholly owned subsidiary CFSC Capital Corp. II ("CFSC"), if the
Company receives an invitation to bid on or otherwise obtains an opportunity to
acquire interests in loans, receivables, real estate or other assets located in
the United States, Canada, Mexico, Central America or South America in which the
aggregate amount to be bid exceeds $4 million, or $500 thousand for consumer
assets, the Company is required to follow a prescribed notice procedure pursuant
to which CFSC has the option to participate in the proposed purchase by
requiring that such purchase or acquisition be effected through an Acquisition
Partnership formed by the Company and Cargill (or an affiliate). CFSC owns
shares of the common stock of the Company and is a party to the Shareholder
Voting Agreement (see "Shareholder Voting Agreement" at page 2) pursuant to
which it has designated Jeffery Leu as nominee to be a director of the Company.
CFSC and its affiliates are also lenders to the Company and the Acquisition
Partnerships. The Right of First Refusal Agreement does not prohibit the Company
from holding discussions with entities other than CFSC regarding potential joint
purchases of interests in loans, receivables, real estate or other assets,
provided that any such purchase is subject to CFSC's right to participate in the
Company's share of the investment. The Right of First Refusal Agreement further
provides that, subject to certain conditions, CFSC will bear 50% of the due
diligence expenses incurred by the Company in connection with proposed asset
purchases. The Right of First Refusal Agreement is a restatement and extension
of a similar agreement entered into among the Company, certain members of the
Company's management and Cargill in 1992. The Right of First Refusal Agreement
has a termination date of February 1, 2006 and will renew automatically for an
additional year on an annual basis thereafter unless either party gives notice
to the other of its desire to discontinue the arrangement six months prior to
the termination date.
The Company has loans receivable, totaling $15.7 million at June 30,
2003, made to certain Acquisition Partnerships located in Mexico. These loans
are at fixed rates ranging from 19% to 20%, with default provisions allowing for
rates from 23% to 30%. The Company has a loan receivable ($1.4 million at June
30, 2003) from a domestic Acquisition Partnership bearing interest at Prime plus
7%. At June 30, 2003 the Company also has a $4.0 million loan receivable from a
French Acquisition Partnership based on the maximum interest rate (5.57% at June
30, 2003) allowable for deductibility as determined by the taxing authorities of
France. Payments on these notes are dependent upon proceeds from the resolution
of Portfolio Assets held by the Acquisition Partnerships.
During 2002, FirstCity sold all of its equity interest in eight
Acquisition Partnerships to MCS et Associes, S.A ("MCS") and an affiliate of
CFSC. FirstCity owns common stock in MCS and is also a partner with MCS in
various Acquisition Partnerships. MCS is also an investor in the Company's
common stock. Proceeds from the sale were $3.4 million resulting in a gain of
$1.8 million.
FirstCity has a $35 million credit facility with CFSC, which matures in
March 2005. The loan bears interest based on the maximum of 8.5% or LIBOR plus
4.5% and is secured by investments in Acquisition Partnerships. As of December
31, 2002, the outstanding balance was $24.6 million. Jeffery D. Leu, a director
of the Company, is an officer of certain affiliates of Cargill. The Company
believes that the terms of this credit facility are generally as favorable to
the Company as the terms it would receive from an independent third party.
FirstCity has a term loan with CFSC, which matures in October 2003.
This loan bears interest at LIBOR plus 5% and is secured by the stock of Bosque
Asset Corporation and the proceeds to FirstCity from securitization certificates
held by FirstStreet Investment, LLC, an affiliate of the Company. The
outstanding balance as of December 31, 2002 was $2.5 million. The Company
believes that the terms of this loan is generally as favorable to the Company as
the terms it would receive from an independent third party.
The Company leases office space for its principal executive offices in
Waco, Texas from a trust created for the benefit of the children of James R.
Hawkins, the Chairman of the Board of the Company. This lease expires in
December of 2006 and contains an option in favor of the Company pursuant to
which the Company may renew the lease for an additional five-year period, with
escalating lease payments. Rental expense under such lease is $10,000 per month.
The Company believes that the terms of such lease are generally as favorable to
the Company as the terms it would receive from an independent third party.
Park Central Recreation, Inc., a Texas corporation of which James R.
Hawkins is a 50% shareholder, is indebted to
15
FirstStreet Investment, LLC, an affiliate of the Company, under a note dated
March 1, 1996, which has an outstanding principal balance of $2.1 million as of
June 30, 2003. The note is secured by a first lien on real estate in Port
Arthur, Texas, which is operated as a bowling alley. The note bears a fixed
interest rate of 10%, matures on March 1, 2006 and requires annual payments of
$289,500. This note is guaranteed by James R. Hawkins, Chairman of the Company.
During 2002, Terry R. DeWitt, the Co-President of FirstCity Commercial,
had indebtedness with the Company in the amount of $125,000. The principal was
paid off in December 2002. The largest amount of principal outstanding at any
time during 2002 was $125,000. Such indebtedness was unsecured and bore interest
at the rate of 5% annually.
In December 2002, FirstCity acquired the minority interest in FirstCity
Holdings, an affiliate of the Company, held by Terry R. DeWitt, G. Stephen
Fillip and James C. Holmes, each of whom are Senior Vice Presidents of FirstCity
by issuing 400,000 shares of common stock of the Company and a note payable, to
be periodically redeemed by the Company for an aggregate of up to $3.2 million
in accordance with certain cash collections from servicing income from Portfolio
asset acquisitions in Mexico.
In June 2003, MCSFC, Ltd., Central National Bank, James R. Hawkins and
James T. Sartain entered into a Note Purchase Agreement related to a loan in the
amount of $2,710,000 provided by Central National Bank to MCSFC, Ltd, a
subsidiary of the Company. The promissory note evidencing the loan is dated June
26, 2003 and executed by MCSFC, Ltd. payable to the order of Central National
Bank ("Note"). The Note Purchase Agreement obligates Mr. Hawkins and Mr. Sartain
to purchase the Note after thirty days notice upon the default by MCSFC, Ltd.
under the Note for a price equal to the unpaid principal balance plus any unpaid
accrued interest on the Note. Upon repurchase, the Note will be endorsed without
recourse and all collateral securing payment of the Note will be assigned to Mr.
Hawkins and Mr. Sartain.
PROPOSAL II - APPROVAL OF THE 2004 STOCK OPTION AND AWARD PLAN
The Board of Directors of the Company is presenting for stockholder
approval at the Annual Meeting, the Company's 2004 Stock Option and Award Plan.
If approved by stockholders, the 2004 Stock Option and Award Plan will become
effective as of April 1, 2004 (the "2004 Plan Effective Date"). The 2004 Stock
Option and Award Plan is intended to provide the Compensation Committee of the
Company's Board of Directors broad discretion to fashion the terms of awards to
provide eligible participants with such stock-based incentives as such committee
deems appropriate.
The following summary of certain terms of the 2004 Stock Option and
Award Plan is qualified in its entirety by reference to the full text thereof,
which is set forth as Appendix A attached hereto.
ADMINISTRATION
The 2004 Stock Option and Award Plan will be administered by the
Compensation Committee of the Board of Directors (the "Committee"), all the
members of which will be eligible to administer such plan pursuant to Rule 16b-3
promulgated under the Exchange Act and each member will qualify as an "outside
director" under Section 162(m) of the Internal Revenue Code of 1986. Subject to
the limitations set forth in the 2004 Stock Option and Award Plan, such plan
vests broad powers in such committee to administer such plan, including
authority to (1) select the persons to be granted awards thereunder, (2)
determine the size and type of awards granted thereunder, (3) construe and
interpret such plan, (4) establish, amend or waive rules and regulations for the
administration of such plan and (5) determine whether an award, award agreement
or payment of an award should be amended.
NUMBER OF SHARES AVAILABLE
The 2004 Stock Option and Award Plan provides for the grant of up to
300,000 shares of Common Stock. Under certain circumstances, shares subject to
an award that remain unissued upon termination of the award will become
available for additional awards under such plan. In the event of a stock split,
recapitalization or similar event, or a corporate transaction, such as a merger,
consolidation or similar event, the Committee will equitably adjust the
aggregate number of shares subject to such plan and the number, class and price
of shares subject to outstanding awards. As of October 9, 2003, the market value
of the Common Stock was $3.55 per share.
16
AWARDS UNDER THE 2004 STOCK OPTION AND AWARD PLAN
AWARDS AND ELIGIBILITY. The 2004 Stock Option and Award Plan permits the
issuance of the following awards: (1) nonqualified stock options ("2004 Plan
NQSOs") and incentive stock options ("2004 Plan ISOs"), (2) performance shares
and (3) restricted stock. In general, any key employee of the Company or any
subsidiary of the Company, including key employees who are also directors, as
well as any other persons, including consultants, independent contractors or
other service providers, are eligible to receive awards under such plan. Only
employees of the Company are eligible to receive grants of 2004 Plan ISOs,
performance shares or restricted stock under such plan. The Company has 266
employees and 5 directors that are not employees. The number of consultants,
independent contractors and other service providers is difficult to determine
and will vary from time to time.
STOCK OPTIONS. Under the 2004 Stock Option and Award Plan, the Committee has
discretion to determine the number of stock options to be granted thereunder to
any participant, but no participant who is a "covered employee" (" Plan Covered
Employee") (as such term is defined in the regulations promulgated under Section
162(m) of the Code) may be granted stock options to purchase more than 50,000
shares during any one plan year. The Committee may grant 2004 Plan NQSOs, 2004
Plan ISOs or any combination thereof to participants. 2004 Plan ISOs, however,
may only be granted to employees of the Company or its subsidiaries, and may
only be granted if the aggregate fair market value of the Common Stock
underlying 2004 Plan ISOs and other incentive stock options granted under all
incentive stock option plans of the Company that become exercisable for the
first time by a participant during any calendar year is equal to or less than
$100,000. 2004 Plan ISOs granted under the 2004 Stock Option and Award Plan
provide for the purchase of Common Stock at prices not less than 100 percent of
the fair market value thereof on the date such option is granted (or 110 percent
with respect to holders of more than ten percent of the combined voting power of
all classes of stock of the Company). 2004 Plan NQSOs granted under the 2004
Stock Option and Award Plan provide for the purchase of Common Stock at prices
determined by the Committee, but in no event less than 85 percent of the fair
market value thereof on the date such option is granted. No stock option granted
under the 2004 Stock Option and Award Plan is exercisable later than the tenth
anniversary date of its grant (or, as to 2004 Plan ISOs, the fifth anniversary
with respect to holders of more than ten percent of the combined voting power of
all classes of stock of the Company).
Under the 2004 Stock Option and Award Plan, stock options are
exercisable at such times and subject to such restrictions and conditions as the
Committee approves. The option exercise price is payable in cash or, if approved
by the Committee, in shares of Common Stock having a fair market value equal to
the exercise price, or by a combination of any of the above means of payment.
The Committee may also allow cashless exercises or other means of payment
consistent with applicable law. Upon termination of a participant's employment
due to death, disability or retirement, all stock options outstanding will be
exercisable for the shorter of their remaining term or one year after
termination of employment in the case of death, one year after termination of
employment in the case of disability, and three months after termination of
employment in the case of retirement. Upon termination of employment of a
participant other than for any reason set forth above, all stock options held by
such participant which are not vested as of the effective date of such
termination will be forfeited; provided that, the Committee, in its sole
discretion, may immediately vest all or any portion of the stock options of such
participant not vested as of such date. In the case of termination of employment
by the Company without cause, a participant may exercise any vested stock
options for three months following the termination of employment, and in the
case of termination of employment by the Company for cause or voluntary
termination of employment by the participant (other than due to retirement), the
participant's stock options will be forfeited immediately upon such termination.
A holder of stock options may be able to transfer such options, under
certain circumstances, to members of such holder's immediate family (as defined
in the 2004 Stock Option and Award Plan), to one or more trusts for the benefit
of such holder's immediate family or to partnerships in which immediate family
members are the only partners, if such holder's award agreement expressly
permits such transfer and such holder does not receive any consideration in any
form whatsoever for such transfer. Other than the foregoing, stock options are
not transferable by a holder other than by will or applicable laws of descent
and distribution.
PERFORMANCE SHARES. Under the 2004 Stock Option and Award Plan, the Committee
may grant performance shares to employees of the Company or its subsidiaries in
such amounts, and subject to such terms and conditions, as the Committee in its
discretion determines; provided that, no participant who is a 2004 Participant
may be granted more than 50,000 performance shares with respect to any
performance period. Each performance share will have a value equal to the fair
market value of a share of Common Stock on the date the performance share is
earned. The Committee in its discretion will set performance goals to be
achieved over performance periods of not less than two years. The extent to
which the performance goals are met will determine the number of performance
shares earned by participants. The performance measure to be used for purposes
of grants to 2004 Plan
17
Covered Employees is one or more of the following: total shareholder return,
return on equity, earnings per share and ratio of operating overhead to
operating revenue, unless and until the Company's stockholders vote to change
such performance measures.
After the applicable performance period has ended, the Committee will
certify the extent to which the established performance goals have been
achieved, and each holder of performance shares will be entitled to receive
payout on the number of performance shares, if any, earned by such holder over
the performance period. The grantee of a performance share award will receive
payment within seventy-five days following the end of the applicable performance
period, in cash or shares of Common Stock which have, as of the close of the
applicable performance period, an aggregate fair market value equal to the value
of the earned performance shares (or a combination of cash and such shares). If
the employment of a participant is terminated by reason of death, disability or
retirement or by the Company without cause during a performance period, the
participant will receive a prorated payout with respect to the performance
shares earned, which will be determined by the Committee, in its sole
discretion, and will be based upon the length of time the participant held the
performance shares during the applicable performance period and upon achievement
of the established performance goals. Such payment will be made at the same time
as payments are made to participants whose employment did not terminate during
the applicable performance period. If a participant's employment is terminated
for any other reason, all performance shares will be forfeited by the
participant to the Company. Unless otherwise provided by the Committee in an
award agreement, performance shares which are not yet earned may not be sold,
transferred, pledged, assigned or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution.
RESTRICTED STOCK. Under the 2004 Stock Option and Award Plan, the Committee may
from time to time grant restricted stock awards to employees of the Company or
its subsidiaries. Each grant of restricted stock will be evidenced by a written
award agreement between the participant and the Company setting forth the terms
and conditions of the grant, as determined by the Committee, in its discretion,
to be necessary or desirable. Such terms may include a requirement for payment
by the participant to the Company for the restricted stock which is granted,
with respect to which the Committee may establish a purchase price below fair
market value.
Each grant of restricted stock will be subject to restrictions,
determined by the Committee in its discretion, for a period (the "2004 Plan
Restricted Period") of at least one year (unless otherwise provided by the
Committee). Such restrictions may include only the requirement of continued
employment or may include other performance based criteria established by the
Committee. The Committee may, after a grant, in its discretion, shorten the 2004
Plan Restricted Period or waive any condition to the lapse of the restrictions.
The award agreement may, at the discretion of the Committee and subject to any
prescribed terms and conditions, also provide for the lapse of restrictions upon
the occurrence of such specified events as a change in control of the Company or
the termination of a participant's employment by reason of such participant's
death, disability, retirement or discharge without cause.
During the 2004 Plan Restricted Period, the participant will have all
the rights of a Company stockholder, including the right to receive dividends
and vote the shares of restricted stock, with certain exceptions, including the
exception that cash dividends will be paid either in cash or in restricted
stock, as the Committee determines. In addition, the restricted stock may not be
sold, transferred, assigned or encumbered during the 2004 Plan Restricted Period
and unless and until all restrictions have lapsed. All shares of restricted
stock that have not vested will be forfeited unless the participant has remained
a full-time employee of the Company or its subsidiaries until the expiration or
termination of the 2004 Plan Restricted Period and all other applicable
conditions have been satisfied. Unless otherwise provided by the Committee in an
award agreement, no restricted stock may be assigned, encumbered or transferred
except by will or the laws of descent and distribution.
CHANGES IN CONTROL. Under the 2004 Stock Option and Award Plan, upon the
occurrence of a Change in Control (as defined below), (1) all stock options
outstanding thereunder will become fully vested and immediately exercisable; (2)
the target payout attainable under all performance shares outstanding thereunder
will be deemed to have been fully earned for the entire performance period and,
within thirty days of such Change in Control, such performance shares will be
paid out in accordance with the terms thereof (provided that, there will not be
an accelerated payout with respect to performance shares granted less than six
months prior to the effective date of such Change in Control), (3) all
restrictions on restricted stock outstanding thereunder will lapse and such
restricted stock will be delivered to the participant in accordance with the
terms thereof (provided that, there will not be an accelerated delivery with
respect to restricted stock granted less than six months prior to the effective
date of such Change in Control) and (4) the Committee may, in its discretion,
make any other modifications to any awards thereunder as determined by the
Committee to be deemed appropriate before the effective date of such Change in
Control.
Under the 2004 Stock Option and Award Plan, a "Change in Control"
means:
18
(1) an acquisition by any person of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act)
of Common Stock or voting securities of the Company entitled
to vote generally in the election of directors; provided that,
such acquisition would result in such person beneficially
owning twenty-five percent or more of Common Stock or
twenty-five percent or more of the combined voting power of
the Company's voting securities; and provided further that,
immediately prior to such acquisition such person was not a
direct or indirect beneficial owner of twenty-five percent or
more of Common Stock or twenty-five percent or more of the
combined voting power of the Company's voting securities, as
the case may be; or
(2) The approval of the Company's stockholders of a
reorganization, merger, consolidation, complete liquidation or
dissolution of the Company, the sale or disposition of all or
substantially all of the assets of the Company or similar
corporate transaction or, if consummation of such corporate
transaction is subject, at the time of such approval by
stockholders, to the consent of any government or governmental
agency, the obtaining of such consent (either explicitly or
implicitly); or
(3) A change in the composition of the Company's Board of
Directors such that the individuals who, as of the Effective
Date, constitute the Board cease for any reason to constitute
at least a majority of the Board; provided that, any
individual who becomes a member of the Board subsequent to the
Effective Date whose election, or nomination for election by
the Company's stockholders, was approved by at least a
majority of those individuals who are members of the Board and
who were also members of such incumbent Board (or deemed to be
such pursuant to this proviso) shall be considered as though
such individual were a member of such incumbent Board; and
provided further that, any such individual whose initial
assumption of office occurs as a result of either an actual or
threatened election contest (within the meaning of Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents by or
on behalf of a person other than the Board shall not be so
considered as a member of such incumbent Board.
Notwithstanding the foregoing, the following will not constitute a
Change in Control: (a) any acquisition of Common Stock by any subsidiary of the
Company or an employee benefit plan (or related trust) sponsored or maintained
by the Company or an affiliate thereof; or (b) any consummation of a transaction
of the type described in sub paragraph (2) above, following which more that
fifty percent of the common stock then outstanding of the corporation resulting
from such acquisition or transaction and more than fifty percent of the combined
voting power of the voting securities then outstanding of such corporation
entitled to vote generally in the election of directors, is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were beneficial owners of Common Stock and the Company's voting
securities, respectively, immediately prior to such acquisition or transaction
in substantially the same proportions as their ownership, immediately prior to
such acquisition or transaction, of Common Stock and the Company's voting
securities, as the case may be.
AMENDMENT AND TERMINATION
The 2004 Stock Option and Award Plan may be amended, modified or
terminated by the Company's Board of Directors, subject to stockholder approval
if such an amendment would
(a) materially expand the class of participants eligible to
participate in the Plan;
(b) increase the total number of shares (except as allowed in the
event of a stock split, recapitalization or similar event, or
a corporate transaction, such as a merger, consolidation or
similar event) which may be granted under the Plan;
(c) materially increase the benefits to Participants, including
any material change to: (i) permit a repricing (or decrease in
exercise price) of outstanding Awards; (ii) reduce the price
at which shares or options to purchase shares may be offered;
or (iii) extend the duration of the Plan;
(d) expand the types of Awards provided under the Plan; or
(e) amend the Plan in any manner which the Board, in its
discretion, determines should become effective only if
approved by the stockholders.
Unless earlier terminated by the Board of Directors, the 2004 Stock
Option and Award Plan will terminate on the day prior to the tenth anniversary
of the 2004 Plan Effective Date.
SECTION 162(m)
19
At all times when the Committee determines that it is desirable to
satisfy the conditions of Section 162(m) of the Code, all awards granted under
the 2004 Stock Option and Award Plan will comply with such conditions. The
Committee is nevertheless empowered to grant awards that would not constitute
"performance based" compensation under Section 162(m), which may vest based
solely on continued employment rather than any performance based criteria. If
changes are made to Section 162(m) to permit greater flexibility with respect to
any awards available under the 2004 Stock Option and Award Plan, the Committee
may, subject to the restrictions set forth in the preceding paragraph regarding
amendment thereof, make any adjustments it deems appropriate.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of certain federal income tax consequences with
respect to the 2004 Stock Option and Award Plan is not comprehensive and is
based upon laws and regulations currently in effect. Such laws and regulations
are subject to change.
STOCK OPTIONS. There are generally no federal income tax consequences either to
the employee receiving stock options (the "2004 Plan Optionee") or to the
Company upon the grant of a stock option under the 2004 Stock Option and Award
Plan. On exercise of a 2004 Plan ISO, the 2004 Plan Optionee will not recognize
any income and the Company will not be entitled to a deduction for tax purposes,
although such exercise may give rise to a liability for such optionee under the
Alternative Minimum Tax provisions of the Code. Generally, if the 2004 Plan
Optionee disposes of shares acquired upon exercise of a 2004 Plan ISO within two
years of the date of grant or one year of the date of exercise, such optionee
will recognize compensation income and the Company will be entitled to a
deduction for tax purposes in the taxable year in which such disposition
occurred in the amount of the excess of the fair market value of the shares of
Common Stock on the date of exercise over the option exercise price (or the gain
on sale, if less). Otherwise, the Company will not be entitled to any deduction
for tax purposes upon dispositions of such shares, and the entire gain for the
2004 Plan Optionee will be treated as a capital gain. On exercise of a 2004 Plan
NQSO, the amount by which the fair market value of the Common Stock on the date
of exercise exceeds the option exercise price will generally be taxable to the
2004 Plan Optionee as compensation income and will generally be deductible for
tax purposes by the Company. The dispositions of shares of Common Stock acquired
upon exercise of a 2004 Plan NQSO will generally result in a capital gain or
loss for the 2004 Plan Optionee, but will have no tax consequences for the
Company.
PERFORMANCE SHARES. The grant of a performance share award will not result in
income for the grantee or in a tax deduction for the Company. Upon the
settlement of such a right or award, the grantee will recognize ordinary income
equal to the fair market value of any shares of Common Stock and/or any cash
received and the Company will be entitled to a tax deduction in the same amount.
RESTRICTED STOCK. The Company is of the opinion that the participant will
realize compensation income in an amount equal to the fair market value of the
restricted stock (whether received as a grant or as a dividend), less any amount
paid for such restricted stock, at the time when the participant's rights with
respect to such restricted stock are no longer subject to a substantial risk of
forfeiture, unless the participant elected, pursuant to a special election
provided in the Code, to be taxed on the restricted stock at the time it was
granted or received as a dividend, as the case may be. Dividends paid to the
participant during the 2004 Plan Restricted Period will be taxable as
compensation income, rather than as dividend income, unless the election
referred to above was made. The Company is also of the opinion that it will be
entitled to a deduction under the Code in the amount and at the time that
compensation income is realized by the participant. The amount of income
realized by each participant and the amount of the deduction available to the
Company will be affected by any change in the market price of the Common Stock
during the 2004 Plan Restricted Period.
VOTING REQUIREMENTS
Approval of the 2004 Stock Option and Award Plan will require the
affirmative vote of a majority of the shares of Common Stock present, in person
or represented by proxy, and entitled to vote at the Annual Meeting (abstentions
will have the effect of a negative vote on such proposal and broker non-votes
will have no legal effect on the vote).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE 2004
STOCK OPTION AND AWARD PLAN.
20
PROPOSAL III - RATIFICATION AND APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee of the Board of Directors has selected KPMG LLP
("KPMG") to serve as independent certified public accountants for the Company
and its subsidiaries for fiscal year 2003. It is intended that such appointments
be submitted to the stockholders of the Company for ratification at the Annual
Meeting. KPMG has served as the Company's auditors since October 27, 1995 (on
which date KPMG was so appointed by the Board of Directors, which appointment
was recommended by the Board's Audit Committee) and has no investment in the
Company or its subsidiaries.
Although the submission of this matter to the stockholders is not
required by law, the Board of Directors will reconsider its selection of
independent accountants if this appointment is not ratified by the stockholders.
Ratification will require the affirmative vote of the majority of the shares of
Common Stock present at the meeting, in person or represented by proxy and
entitled to vote at the Annual Meeting (abstentions will have the effect of a
negative vote on such proposal and broker non-votes will have no legal effect on
the vote).
It is expected that representatives of KPMG will be present at the
Annual Meeting with an opportunity to make a statement should they desire to do
so and to respond to appropriate questions from stockholders.
THE AUDIT COMMITTEE AND THE BOARD OF DIRECTORS RECOMMEND A VOTE "FOR"
KPMG AS CERTIFIED PUBLIC ACCOUNTANTS FOR THE COMPANY AND ITS SUBSIDIARIES FOR
FISCAL YEAR 2003.
AUDIT AND RELATED FEES
Audit Fees. The aggregate fees billed by KPMG LLP for professional
services for the audit of the Company's annual consolidated financial statements
for the years 2002 and 2001 and the review of the consolidated financial
statements included in the Company's Forms 10-Q for the years 2002 and 2001 were
$245,500 and $210,500, respectively.
Audit Related Fees. The aggregate fees billed by KPMG LLP for
professional services related to the audit of the Company's annual consolidated
financial statements for the years 2002 and 2001 were $317,375 and $380,521,
respectively. These services consisted primarily of audits of the Company's
acquisition partnerships and reviews of certain SEC filings.
Tax Fees. There were no fees billed by KPMG LLP for tax services for
the year 2002. The aggregate fees billed by KPMG LLP for tax services for
2001 were $29,356.
All Other Fees. There were no fees billed by KPMG LLP for other
services for the years 2002 and 2001.
STOCKHOLDERS' PROPOSALS
Pursuant to the Exchange Act, and regulations under the Exchange Act,
individual stockholders have a limited right to propose for inclusion in the
proxy statement a single proposal for action to be taken at an annual meeting of
the stockholders. Proposals intended to be presented at the annual meeting to be
held in 2004 must be received at the Company's principal executive offices no
later than July 17, 2004. Such proposals should be addressed as follows:
FirstCity Financial Corporation, P.O. Box 8216, Waco, Texas 76714, Attention:
Secretary.
Stockholder proposals submitted outside of the Securities and Exchange
Commission's procedures for including such proposals in the Company's proxy must
be mailed or delivered to the attention of the Secretary at the address above
and must, in the case of a proposal with respect to the annual meeting to be
held in 2004, be received by the Company no later than July 17, 2004. The
proposal must comply in all respects with the requirements set forth in the
Company's bylaws, and the Board of Directors may reject any proposal not made in
accordance with these requirements. A copy of these requirements is available
upon request from the Secretary of the Company at the address set forth above.
With respect to nominations of one or more persons for election as
directors, written notice of the stockholder's intent to make such
nomination(s), which notice must comply in all respects with the requirements
therefore set forth in the Company's bylaws, must be mailed or delivered to the
attention of the Secretary at the address above and must be received by the
Company no later than thirty days, and no sooner than sixty days, prior to the
date of the 2004 annual meeting of stockholders or, if such annual meeting is
not publicly announced at least forty days prior to the date of such annual
meeting, no later than the close of business ten days after the date of such
public announcement. The nomination must be made in accordance with the
provisions in the
21
Company's bylaws, and if the presiding officer of the annual meeting determines
that the nomination does not comply with the provisions, he may cause the
nomination to be disregarded. A copy of the nomination provisions is available
upon request from the Secretary of the Company at the address set forth above.
OTHER MATTERS
Management does not presently know of any matters which may be
presented for action at the Annual Meeting other than those set forth herein.
However, if any other matters properly come before the Annual Meeting, it is the
intention of the persons named in the proxies solicited by Management to
exercise their discretionary authority to vote the shares represented by all
effective proxies on such matters in accordance with their best judgment.
By Order of the Board of Directors,
October 20, 2003 Richard J. Vander Woude
Secretary
22
APPENDIX A
FIRSTCITY FINANCIAL CORPORATION
2004 STOCK OPTION AND AWARD PLAN
ARTICLE 1. ESTABLISHMENT, PURPOSE AND DURATION
1.1 Establishment of the Plan. FIRSTCITY FINANCIAL CORPORATION, a
Delaware corporation ("FIRSTCITY") establishes this stock option and award plan
for fiscal year 2004 (hereinafter referred to as "FIRSTCITY FINANCIAL
CORPORATION 2004 Stock Option and Award Plan" (the "Plan"), as set forth in this
document. The Plan permits the grant of Nonqualified Stock Options, Incentive
Stock Options, Performance Shares and Restricted Stock.
Subject to approval by FIRSTCITY's stockholders at their 2003 Annual
Meeting, the Plan shall become effective as of April __, 2004 (the "Effective
Date") and shall remain in effect as provided in Section 1.3.
1.2 Purpose of the Plan. The purpose of the Plan is to secure for
FIRSTCITY and its stockholders the benefits of the incentive inherent in stock
ownership in FIRSTCITY by key employees, directors and other persons who are
largely responsible for its future growth and continued success. The Plan
promotes the success and enhances the value of FIRSTCITY by linking the personal
interests of Participants to those of FIRSTCITY's stockholders, and by providing
Participants with an incentive for outstanding performance.
The Plan is further intended to provide flexibility to FIRSTCITY in its
ability to motivate, attract and retain the services of Participants upon whose
judgment, interest and special effort the successful conduct of its operation
largely depends.
1.3 Duration of the Plan. The Plan shall commence on the Effective
Date and shall remain in effect, subject to the right of the Board of Directors
to amend or terminate the Plan at any time pursuant to Article 16, until the day
prior to the tenth (10th) anniversary of the Effective Date.
1.4 Types Of Options. The Options granted under the Plan are
intended to be either Incentive Stock Options within the meaning of Section 422
of the Internal Revenue Code of 1986, as amended, or options that do not meet
the requirements for Incentive Options ("Nonqualified Stock Options"). FIRSTCITY
makes no warranty, however, as to the qualification of any Option as an
Incentive Option.
ARTICLE 2. DEFINITIONS
Whenever used herein, the following terms shall have the meanings set
forth below and, when the meaning is intended, the initial letter of the word is
capitalized:
(a) "Award" means, individually or collectively, a grant under
this Plan of Nonqualified Stock Options, Incentive Stock Options,
Performance Shares or Restricted Stock.
(b) "Award Agreement" means an agreement entered into by a
Participant and FIRSTCITY, setting forth the terms and provisions
applicable to an Award granted to such Participant hereunder.
(c) "Beneficial Owner" or "Beneficial Ownership" shall have the
meaning ascribed to such term in Rule 13d-3 of the General Rules and
Regulations under the Exchange Act.
(d) "Board" or "Board of Directors" means the Board of Directors
of FIRSTCITY.
(e) "Cause" means: (i) willful or negligent misconduct on the part
of a Participant that is detrimental to FIRSTCITY; or (ii) the
indictment of a Participant for the commission of a felony. The
existence of "Cause" under either (i) or (ii) shall be determined by
the Committee. Notwithstanding the foregoing, if the Participant has
entered into an employment agreement that is binding as of the date of
employment termination, and if such employment agreement
23
defines "Cause" and/or provides a means of determining whether "Cause"
exists, such definition of "Cause" and the means of determining its
existence shall apply to the Participant for purposes hereof.
(f) "Change in Control" shall be deemed to have occurred upon:
(i) An acquisition by any Person of Beneficial Ownership
of the Shares then outstanding ("FIRSTCITY Common Stock
Outstanding") or the voting securities of FIRSTCITY then
outstanding entitled to vote generally in the election of
directors "(FIRSTCITY Voting Securities Outstanding");
provided such acquisition of Beneficial Ownership would result
in the Person's beneficially owning (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) twenty-five
percent (25%) or more of FIRSTCITY Common Stock Outstanding or
twenty-five percent (25%) or more of the combined voting power
of FIRSTCITY Voting Securities Outstanding; and provided
further, that immediately prior to such acquisition such
Person was not a direct or indirect Beneficial Owner of
twenty-five percent (25%) or more of FIRSTCITY Common Stock
Outstanding or twenty-five percent (25%) or more of the
combined voting power of FIRSTCITY Voting Securities
Outstanding, as the case may be; excluding, however, any
acquisition of shares of common stock of FIRSTCITY by, or
consummation of a Corporate Transaction with, any Subsidiary
or any employee benefit plan (or related trust) sponsored or
maintained by FIRSTCITY or an affiliate; or
(ii) The approval of the stockholders of FIRSTCITY of a
reorganization, merger consolidation, complete liquidation or
dissolution of FIRSTCITY, the sale or disposition of all or
substantially all of the assets of FIRSTCITY or similar
corporate transaction (in each case referred to in this
Section 2(f) as a "Corporate Transaction") or, if consummation
of such Corporate Transaction is subject, at the time of such
approval by stockholders, to the consent of any government or
governmental agency, the obtaining of such consent (either
explicitly or implicitly);or
(iii) A change in the composition of the Board such that
the individuals who, as of the Effective Date, constitute the
Board (such Board shall be hereinafter referred to as the
"Incumbent Board") cease for any reason to constitute at least
a majority of the Board, provided, however, for purposes of
this Section 2(f), that any individual who becomes a member of
the Board subsequent to the Effective Date whose election, or
nomination for election by FIRSTCITY's stockholders, was
approved by individuals who are members of the Board (i) who
constituted at least a majority of the members of the Board
who elected or nominated for election such individual to be a
member of the Board (such nominating members of the Board
being the independent directors of the Board or the
nominations committee comprised solely of independent
directors) and (ii) who were also members of the Incumbent
Board (or deemed to be such pursuant to this proviso) shall be
considered as though such individual were a member of the
Incumbent Board: but, provided, further, that any such
individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as
such terms are used in Rule 14a-12(c) of Regulation 14A
promulgated under the Exchange Act, including any successor to
such rule) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the
Board shall not be so considered as a member of the Incumbent
Board.
Notwithstanding the provisions set forth in subparagraph (ii) of this
Section 2(f), the following shall not constitute a Change in Control
for purposes hereof: any acquisition of shares of common stock of
FIRSTCITY, or consummation of a Corporate Transaction, following which
more than fifty percent (50%) of the shares of common stock then
outstanding of the corporation resulting from such acquisition or
Corporate Transaction and more than fifty percent (50%) of the combined
voting power of the voting securities then outstanding of such
corporation entitled to vote generally in the election of directors, is
then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were Beneficial
Owners of FIRSTCITY Common Stock Outstanding and FIRSTCITY Voting
Securities Outstanding, respectively, immediately prior to such
acquisition or Corporate Transaction in substantially the same
proportions as their ownership, immediately prior to such acquisition
or Corporate Transaction, of FIRSTCITY Common Stock Outstanding and
FIRSTCITY Voting Securities Outstanding, as the case may be.
(g) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(h) "Committee" means the committee appointed by the Board to
administer the Plan with respect to grants of Awards, as specified in
Article 3.
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(i) "Corporation" means any entity that (i) is defined as a
corporation under Code Section 7701 and (ii) is FIRSTCITY or is in an
unbroken chain of corporations (other than FIRSTCITY) beginning with
FIRSTCITY, if each of the corporations other than the last corporation
in the unbroken chain owns stock possessing a majority of the total
combined voting power of all classes of stock in one of the other
corporations in the chain. For purposes of clause (ii) hereof, an
entity shall be treated as a "corporation" if it satisfies the
definition of a corporation under Section 7701 of the Code.
(j) "Director" means any individual who is a member of the Board
of Directors.
(k) "Disability" shall have the meaning ascribed to such term in
the FIRSTCITY long-term disability plan covering the Participant, or in
the absence of such plan, a meaning consistent with Section 22(e)(3) of
the Code.
(l) "Employee" means any full-time, salaried employee of FIRSTCITY
or one of FIRSTCITY's Subsidiaries.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time; or any successor act thereto.
(n) "Fair Market Value" shall be determined as follows:
(i) On the relevant date, if the Shares are traded on a
national or regional securities exchange or on The Nasdaq
Stock Market ("Nasdaq") and closing sale prices for the Shares
are customarily quoted, on the basis of the closing sale price
on the principal securities exchange on which the Shares may
then be traded or, if there is no such sale on the relevant
date, then on the immediately preceding day on which a sale
was reported;
(ii) On the relevant date, if the Shares are not listed on
any securities exchange or traded on Nasdaq, but nevertheless
are publicly traded and reported on a regular, active public
market without closing sale prices for the Shares being
customarily quoted, on the basis of the mean between the
closing bid and asked quotations in such over-the-counter
market as reported by such regular, active public market on
that date, or, if there is not such quoted bid and market
prices on the relevant date, then the mean between the closing
bid and asked quotations in the over-the-counter market as
reported by such regular, active public market on the
immediately preceding day such bid and asked prices were
quoted. For purposes of the foregoing, a market in which
trading is sporadic and the ask quotations generally exceed
the bid quotations by more than 15% shall not be deemed to be
a "regular, active public market;" and
(iii) If, on the relevant date, the Shares are not publicly
traded as described in (i) or (ii), on the basis of the good
faith determination of the Committee.
(o) "Final Award" means the actual award earned during a
performance period by a Participant, as determined by the Committee at
the end of the performance period pursuant to Article 7.
(p) "Incentive Payment Date" means the seventy-fifth (75th) day
following the last day of the performance period during which the Final
Award under Article 7 was earned, or such earlier date upon which Final
Awards are paid to Participants.
(q) "Incentive Stock Option" or "ISO" means an option to purchase
Shares, granted under Article 6 which is designated as an Incentive
Stock Option and is intended to meet the requirements of Section 422 of
the Code.
(r) "Insider" shall mean a Person who is, on the relevant date, a
director, officer or beneficial owner of ten percent (10%) or more of
any class of FIRSTCITY's equity securities that is registered pursuant
to Section 12 of the Exchange Act, all as defined under Section 16 of
the Exchange Act.
(s) "Nonqualified Stock Option" or "NQSO" means an option to
purchase Shares granted under Article 6 which is not intended to meet
the requirements of Code Section 422.
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(t) "Option" means an Incentive Stock Option or a Nonqualified
Stock Option.
(u) "Option Price" means the price at which a Share may be
purchased by a Participant pursuant to an Option, as determined by the
Committee.
(v) "Participant" means an Employee, director or other person who
has been granted an Award which is outstanding.
(w) "Performance Share" means a unit of measurement under an Award
of shares granted to a Participant, as described in Article 7.
(x) "Person" shall have the meaning ascribed to such term in
Section 3(a)(9) of the Exchange Act and used in Section 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d) thereof.
(y) "Plan Year" shall mean, for purposes of Article 7, FIRSTCITY's
fiscal year which coincides with each calendar year during the term
hereof.
(z) "Retirement" shall have the meaning ascribed to such term in
the FIRSTCITY FINANCIAL CORPORATION Employees Profit Sharing and
Retirement Plan.
(aa) "Restricted Stock" means an Award of restricted Shares granted
in accordance with the terms of Article 8 and the other provisions
hereof.
(ab) "Shares" means the shares of common stock of FIRSTCITY, par
value $0.01 per share.
(ac) "Subsidiary" means (i) any corporation in an unbroken chain of
corporations beginning with FIRSTCITY, if each of the corporations
other than the last corporation in the unbroken chain owns stock
possessing a majority of the total combined voting power of all classes
of stock in one of the other corporations in the chain, (ii) any
limited partnership, if FIRSTCITY or any corporation described in item
(i) above owns, directly or indirectly, a majority of the general
partnership interest and a majority of the limited partnership
interests entitled to vote on the removal and replacement of the
general partner, and (iii) any partnership or limited liability
company, if the partners or members thereof are composed only of
FIRSTCITY, any corporation listed in item (i) above or any limited
partnership listed in item (ii) above. "Subsidiaries" means more than
one of any such corporations, limited partnerships, partnerships or
limited liability companies.
ARTICLE 3. ADMINISTRATION
3.1 The Committee. The Plan shall be administered by the
Compensation Committee of the Board, or by any other Committee appointed by the
Board so long as the Compensation Committee or such other Committee consists of
not less than two (2) Directors who meet the "non-employee director"
requirements of Rule 16b-3 or any successor thereto under the Exchange Act and
each of whom qualifies as an "outside director" under Section 162(m) of the Code
or any successor thereto under the Code. The members of the Committee shall be
appointed from time to time by, and shall serve at the discretion of, the Board
of Directors.
3.2 Authority of the Committee. Subject to the provisions hereof,
the Committee shall have full power to select the Employees and other Persons
who are responsible for the future growth and success of FIRSTCITY, who may
include, without limitation, consultants, independent contractors, directors or
other providers of services to FIRSTCITY, who shall participate herein (who may
change from year to year); determine the size and types of Awards, determine the
terms and conditions of Awards in a manner consistent herewith (including
vesting provisions and the duration of the Awards); construe and interpret the
Plan and any agreement or instrument entered into hereunder; establish, amend or
waive rules and regulations for the Plan's administration; and (subject to the
provisions of Article 16) amend the terms and conditions of any outstanding
Award to the extent such terms and conditions are within the discretion of the
Committee as provided herein, including to establish different terms and
conditions relating to the effect of the termination of employment or other
service to FIRSTCITY. Further, the Committee shall make all other determinations
which may be necessary or advisable for the administration hereof.
26
3.3 Decisions Binding. All determinations and decisions made by
the Committee pursuant to the provisions hereof and all related orders and
resolutions of the Board shall be final, conclusive and binding on all Persons,
including FIRSTCITY, the stockholders, Employees, Participants and their estates
and beneficiaries.
ARTICLE 4. AUTHORIZED SHARES
4.1 Number of Shares. Subject to adjustment as provided in Section
4.3, the total number of Shares available for grant of Awards shall be an
aggregate of 300,000 Shares. These Shares may, in the discretion of FIRSTCITY,
be either authorized but unissued Shares or Shares held as treasury shares,
including Shares purchased by FIRSTCITY.
The following rules shall apply for purposes of the determination of the number
of Shares available for grant hereunder:
(a) The grant of an Option or Restricted Stock shall reduce the
Shares available for grant hereunder by the number of Shares subject to
such Award, regardless of vesting status of the Shares subject to such
Award; and
(b) In connection with the grant of Performance Shares, the
Committee shall in each case determine the appropriate number of Shares
to reduce from the Shares available for grant hereunder.
4.2 Lapsed Awards. If any Award is canceled, terminates, expires
or lapses for any reason, any Shares subject to such Award shall again be
available for grant of an Award.
4.3 Adjustment in Authorized Shares. In the event of any change in
corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of FIRSTCITY, any reorganization (whether or
not such reorganization comes within the definition of such term in Code Section
368) or any partial or complete liquidation of FIRSTCITY, such adjustment shall
be made in the number and class of Shares which may be delivered hereunder, and
in the number and class of and/or price of Shares subject to outstanding Awards,
as may be determined to be appropriate and equitable by the Committee, in its
sole discretion, to prevent dilution or enlargement of rights; provided,
however, that the number of Shares subject to any Award shall always be a whole
number and the Committee shall make such adjustments as are necessary to insure
Awards of whole Shares.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
Any key Employee of FIRSTCITY, or of any Subsidiary, including any such
Employee who is also a director of FIRSTCITY, or of any Subsidiary, or any other
Person, including directors, consultants, independent contractors or other
service providers, whose judgment, initiative and efforts contribute or may be
expected to contribute materially to the successful performance of FIRSTCITY or
any Subsidiary shall be eligible to receive an Award. In determining the
Employees and other Persons to whom an Award shall be granted and the number of
Shares which may be granted pursuant to that Award, the Committee shall take
into account the duties of the respective Persons, their present and potential
contributions to the success of FIRSTCITY or any Subsidiary, and such other
factors as the Committee shall deem relevant in connection with accomplishing
the purposes hereof; provided that only Employees of a Corporation shall be
eligible to receive Incentive Stock Options.
ARTICLE 6. STOCK OPTIONS
6.1 Grant of Options. Subject to the terms and provisions hereof,
Options may be granted to Employees or other Persons at any time and from time
to time as shall be determined by the Committee. The Committee shall have
discretion in determining the number of Shares subject to Options granted to
each Participant; provided, however, that in the case of any ISO, only an
Employee may receive such grant and the aggregate Fair Market Value (determined
at the time such Option is granted) of the Shares to which ISOs are exercisable
for the first time by the Optionee during any calendar year (hereunder and under
all other Incentive Stock Option Plans of FIRSTCITY and any Subsidiary) shall
not exceed $100,000. The Committee may grant a Participant ISOs, NQSOs or a
combination thereof, and may vary such Awards among Participants.
The maximum number of Options that a Participant can be granted
hereunder during any twelve month period is 50,000.
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6.2 Award Agreement. Each Option grant shall be evidenced by an
Award Agreement that shall specify the Option Price, the duration of the Option,
the number of Shares to which the Option pertains and such other provisions as
the Committee shall determine. The Award Agreement shall further specify whether
the Award is intended to be an ISO or an NQSO. Any portion of an Option that is
not designated as an ISO or otherwise fails or is not qualified to be treated as
an ISO (even if designated as an ISO) shall be a NQSO.
6.3 Option Price. The Option Price for each grant of an ISO shall
be not less than one hundred percent (100%) of the Fair Market Value of a Share
on the date the ISO is granted. In no event, however, shall any Participant, who
at the time he would otherwise be granted an Option owns (within the meaning of
Section 424(d) of the Code) stock of FIRSTCITY possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of FIRSTCITY be
eligible to receive an ISO at an Option Price less than one hundred ten percent
(110%) of the Fair Market Value of a Share on the date the ISO is granted. The
price at which each Share covered by each NQSO shall be purchased by an Optionee
shall be established by the Committee, but in no event shall such price be less
than eight-five percent (85%) of the Fair Market Value of a Share on the date
the Option is granted.
6.4 Duration of Options. Each Option shall expire at such time as
the Committee shall determine at the time of grant; provided, however, that no
Option shall be exercisable later than the tenth (10th) anniversary date of its
grant; provided, further, however, that any ISO granted to any Participant who
at such time owns (within the meaning of Section 424(d) of the Code) stock of
FIRSTCITY possessing more than ten percent (10%) of the total combined voting
power of all classes of stock in FIRSTCITY, shall be exercisable not later than
the fifth (5th) anniversary date of its grant.
6.5 Exercise of Options. Options shall be exercisable at such
times and be subject to such restrictions and conditions as the Committee shall
in each instance approve, which need not be the same for each grant or for each
Participant. Each Option shall be exercisable for such number of Shares and at
such time or times, including periodic installments, as may be determined by the
Committee at the time of the grant. Except as otherwise provided in the Award
Agreement and Article 12, the right to purchase Shares that are exercisable in
periodic installments shall be cumulative so that when the right to purchase any
Shares has accrued, such Shares or any part thereof may be purchased at any time
thereafter until the expiration or termination of the Option.
6.6 Payment. Options shall be exercised by the delivery of a
written notice of exercise to FIRSTCITY, setting forth the number of Shares with
respect to which the Option is to be exercised, accompanied by full payment for
the Shares. The Option Price upon exercise of any Option shall be payable to
FIRSTCITY in full either: (a) in cash, or (b) if approved by the Committee, by
tendering previously acquired Shares having an aggregate Fair Market Value at
the time of exercise equal to the total Option Price (provided that the Shares
which are tendered must have been held by the Participant for at least six (6)
months prior to their tender to satisfy the Option Price), or (c) by a
combination of (a) and (b). The Committee also may allow cashless exercises as
permitted under Federal Reserve Board's Regulation T, subject to applicable
securities law restrictions or by any other means which the Committee determines
to be consistent with the Plan's purpose and applicable law.
As soon as practicable after receipt of a written notification of
exercise and full payment, FIRSTCITY shall deliver to the Participant, in the
Participant's name, Share certificates in an appropriate amount based upon the
number of Shares purchased under the Options(s).
6.7 Termination of Employment Due to Death, Disability or
Retirement. Unless otherwise provided by the Committee in an Award Agreement,
the following rules shall apply in the event of the Participant's termination of
employment due to death, Disability, or Retirement. With respect to a
Participant who is a non-employee Director of FIRSTCITY or is otherwise not an
Employee, the following references to employment shall be deemed to be
references to service as a Director or in such other capacity as is determined
by the Committee:
(a) if any Participant shall die while in the employ of FIRSTCITY
or a Subsidiary or during either the one (1) year or three (3) month
period, whichever is applicable, specified in clauses (b) and (c)
below, any Option granted hereunder, unless otherwise specified by the
Committee in the Option, shall be exercisable for any or all of such
number of Shares that are vested and exercisable by such Participant at
the time of death, by the legal representative of such Participant or
by such person who acquired such Option by bequest or inheritance or by
reason of the death of such Participant, at any time up to and
including one (1) year after the date of death;
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(b) if the employment of any Participant shall terminate by reason
of such Participant's Disability, any Option granted hereunder shall be
exercisable for any or all of such number of Shares that are vested and
exercisable by such Participant at the effective date of termination of
employment by reason of Disability, at any time up to and including on
(1) year;
(c) if the employment of any Participant shall terminate (i) by
reason of the Participant's Retirement, (ii) by the Participant for
"good reason" (only if such Participant is party to a written
employment agreement with FIRSTCITY or any Subsidiary which expressly
provides for termination by the Participant for "good reason," and such
Participant validly terminates his or her employment ("Termination For
Good Reason")), or (iii) by the employer other than for Cause (as
defined herein) such Option, unless otherwise specified by the
Committee in the Option, shall be exercisable for any or all of the
such number of Shares that are vested and exercisable by such
Participant at the effective date of termination of employment, at any
time up to and including three (3) months after the effective date of
such termination of employment; and
(d) if the employment of any Participant shall terminate by any
reason other than that provided for in clauses (a), (b) or (c) above,
such Option, unless otherwise specified by the Committee in such Option
shall, to the extent not theretofore exercised, become immediately null
and void.
None of the events described in clauses (a), (b) or (c) above shall
extend the period of exercisability of the Option beyond the expiration date
thereof.
When the employment of a Participant shall terminate for any reason,
all Options held by the Participant which are not vested as of the effective
date of the termination of employment shall be forfeited to FIRSTCITY (and shall
once again become available for grant hereunder). However, the Committee, in its
sole discretion, shall have the right to immediately vest all or a portion of
such Options, subject to such terms as the Committee, in its sole discretion,
deems appropriate.
6.8 Limited Transferability. A Participant may transfer an Option
to members of his or her Immediate Family, to one or more trusts for the benefit
of such Immediate Family members, or to one or more partnerships where such
Immediate Family members are the only partners, if (i) the Award Agreement
evidencing such Option expressly provides that the Option may be transferred and
(ii) the Participant does not receive any consideration in any form whatsoever
for said transfer. Any Options so transferred shall continue to be subject to
the same terms and conditions in the hands of the transferee as were applicable
to said Option immediately prior the transfer thereof. Any reference in any such
Award Agreement to the employment by or performance of services for FIRSTCITY by
the Participant shall continue to refer to the employment of or performance by
the transferring Participant. For purposes hereof, "Immediate Family" shall mean
the Participant and the Participant's spouse, and their respective ancestors and
descendants. Any Option that is granted pursuant to any Award Agreement that did
not initially expressly allow the transfer of said Option and that has not been
amended to expressly permit such transfer, shall not be transferable by the
Participant otherwise than by will or by the laws of descent and distribution
and such Option thus shall be exercisable during the Participant's lifetime only
by the Participant.
ARTICLE 7. PERFORMANCE SHARES
7.1 Grant of Performance Shares. Subject to the terms hereof,
Performance Shares may be granted to eligible Participants at any time and from
time to time for no consideration, as shall be determined by the Committee. The
Committee shall have complete discretion in determining the number of
Performance Shares granted to each Participant; provided, however, that unless
and until FIRSTCITY's stockholders vote to change the maximum number of
Performance Shares that may be earned by any one Participant (subject to the
terms of Article 13,) none of the Participants may earn more than 50,000
Performance Shares with respect to any performance period.
7.2 Value of Performance Shares. Each Performance Share shall have
a value equal to the Fair Market Value of a Share on the date the Performance
Share is earned. The Committee shall set performance goals in its discretion
which, depending on the extent to which they are met, will determine the number
of Performance Shares that will be earned by the eligible Participants. The time
period during which the performance goals must be met shall be called a
"performance period." Performance periods shall, in all cases, equal or exceed
two (2) years in length. The performance goals shall be established at the
beginning of the performance period (or within such time period as is permitted
by Code Section 162(m)).
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Unless and until FIRSTCITY's stockholders vote to change the general
performance measures (subject to the terms of Article 13), the attainment of
which shall determine the number of Performance Shares earned hereunder, the
Committee will use one or more of the following performance measures for
purposes of grants to Participants: Total shareholder return, return on equity,
earnings per share and ratio of operating overhead to operating revenue. Each
Plan Year, the Committee, in its sole discretion, may select among the
performance measures specified in this Section 7.2 and set the relative weights
to be given to such performance measures.
7.3 Earning of Performance Shares. After the applicable
performance period has ended, the Committee shall certify the extent to which
the established performance goals have been achieved. Subsequently, each holder
of Performance Shares shall be entitled to receive payout on the number of
Performance Shares earned by the Participant over the performance period, to be
determined as a function of the extent to which the corresponding performance
goals have been achieved. The Committee shall have no discretion to increase the
amount of a Final Award otherwise payable to a Participant under this Article 7.
7.4 Form and Timing of Payment of Performance Shares. Payment of
earned Performance Shares shall be made, in a single lump sum, promptly but in
no event later than the Incentive Payment Date. The Committee, in its sole
discretion, may pay earned Performance Shares in the form of cash or in Shares
(or in a combination thereof) which have, as of the close of the applicable
performance period, an aggregate Fair Market Value equal to the value of the
earned Performance Shares.
7.5 Termination of Employment Due to Death, Disability or
Retirement or at the Request of FIRSTCITY Without Cause. In the event the
employment of a Participant is terminated by reason of death, Disability or
Retirement or by FIRSTCITY without Cause during a performance period, the
Participant shall receive a prorated payout with respect to the Performance
Shares. With respect to a Participant who is a non-employee Director of
FIRSTCITY or is otherwise not an Employee, the foregoing reference to employment
shall be deemed to be a reference to service as a Director or in such other
capacity as is determined by the Committee. The prorated payout shall be
determined by the Committee, in its sole discretion, and shall be based upon the
length of time that the Participant held the Performance Shares during the
performance period, and shall further be adjusted based on the achievement of
the established performance goals at the time of his termination.
Payment of earned Performance Shares shall be made at the same time
payments are made to Participants who did not terminate employment during the
applicable performance period.
7.6 Termination of Employment for Other Reasons. In the event that
a Participant's employment terminates for any reason other than those reasons
set forth in Section 7.5, all Performance Shares shall be forfeited by the
Participant to FIRSTCITY.
7.7 Nontransferability. Unless the Committee provides otherwise in
the Award Agreement, Performance Shares which are not yet earned may not be
sold, transferred, pledged, assigned or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution. Further, an
eligible Participant's Performance Share rights hereunder shall be exercisable
during the Participants' lifetime only by the Participant or the Participant's
legal representative.
ARTICLE 8. RESTRICTED STOCK
8.1 Grants. The Committee may from time to time in its discretion
grant Restricted Stock to Participants and may determine the number of Shares of
Restricted Stock to be granted and the terms and conditions of, and the amount
of payment, if any, to be made by the Participant for, such Restricted Stock. A
grant of Restricted Stock may require the Participant to pay for such Shares of
Restricted Stock, but the Committee may establish a price below Fair Market
Value at which the Participant can purchase the Shares of Restricted Stock. Each
grant of Restricted Stock will be evidenced by an Award Agreement containing
terms and conditions not inconsistent herewith as the Committee shall determine
to be appropriate in its sole discretion. Such Restricted Stock shall be granted
subject to the restrictions prescribed pursuant hereto and the Award Agreement.
8.2 Restricted Period; Lapse of Restrictions. At the time a grant
of Restricted Stock is made, the Committee shall establish a period or periods
of time (the "Restricted Period") applicable to such grant which, unless the
Committee otherwise provides, shall not be less than one (1) year. Subject to
the other provisions of this Article 8 and the terms of the Award Agreement, at
the end of the Restricted Period all restrictions shall lapse and the Restricted
Stock shall vest in the Participant. At the time a grant is made, the Committee
may, in its discretion, prescribe conditions for the incremental lapse of
restrictions during the Restricted Period and for the lapse or termination of
restrictions upon the occurrence of other conditions in addition to or, other
30
than, the expiration of the Restricted Period with respect to all or any portion
of the Restricted Stock. Such conditions may, but need not, include without
limitation, (a) death, Disability or Retirement of the Participant to whom
Restricted Stock is granted, (b) the occurrence of a Change in Control or (c)
the attainment of certain performance goals. The Committee may also, in its
discretion, shorten or terminate the Restricted Period, or waive any conditions
for the lapse or termination of restrictions with respect to all or any portion
of the Restricted Stock at any time after the date the grant is made.
8.3 Rights of Holder; Limitations Thereon. Upon a grant of
Restricted Stock, a stock certificate (or certificates) representing the number
of Shares of Restricted Stock granted to the Participant shall be registered in
the Participant's account. Following such registration, the Participant shall
have rights and privileges of a stockholder as to such Restricted Stock,
including the right to receive dividends and to vote such Restricted Stock,
except that the right to receive cash dividends shall be the right to receive
such dividends either in cash currently or by payment in Restricted Stock, as
the Committee shall determine, and except further that, the following
restrictions shall apply:
(a) The Participant shall not be entitled to delivery of a
certificate until the expiration or termination of the Restricted
Period for the Shares represented by such certificate and the
satisfaction of any and all other conditions prescribed by the
Committee;
(b) None of the Shares of Restricted Stock may be sold,
transferred, assigned, pledged, or otherwise encumbered or disposed of
during the Restricted Period and until the satisfaction of any and all
other conditions prescribed by the Committee; and
(c) All of the Shares of Restricted Stock that have not vested
shall be forfeited and all rights of the Participant to such Restricted
Stock shall terminate without further obligation on the part of
FIRSTCITY unless the Participant has remained a full-time employee of
FIRSTCITY or any of its Subsidiaries until the expiration or
termination of the Restricted Period and the satisfaction of any and
all other conditions prescribed by the Committee applicable to such
Restricted Stock. Upon forfeiture of any Shares of Restricted Stock,
such forfeited Shares shall be transferred to FIRSTCITY without further
action by the Participant, and shall, in accordance with Section 4.2,
again be available for grant hereunder.
With respect to any Shares received as a result of adjustments under
Section 4.3 and any Shares received with respect to cash dividends declared on
Restricted Stock, the Participant shall have the same rights and privileges,
and be subject to the same restrictions, as are set forth in this Article 8.
8.4 Delivery of Unrestricted Shares. Upon the expiration or
termination of the Restricted Period for any Shares of Restricted Stock and the
satisfaction of any and all other conditions prescribed by the Committee, the
restrictions applicable to such Restricted Stock (including, without limitation,
the restrictions specified in Section 8.5) shall lapse and a stock certificate
for the number of Shares of Restricted Stock with respect to which the
restrictions have lapsed shall be delivered, free of all such restrictions
except any that may be imposed by law, to the holder of the Restricted Stock.
FIRSTCITY shall not be required to deliver any fractional Share but will pay, in
lieu thereof, the Fair Market Value (determined as of the date the restrictions
lapse) of such fractional share to the holder thereof. Prior to or concurrently
with the delivery of a certificate for Restricted Stock, the holder shall be
required to pay an amount necessary to satisfy any applicable federal, state and
local tax requirements as set out in Article 14.
8.5 Nonassignability of Restricted Stock. Unless the Committee
provides otherwise in the Award Agreement, no grant of, nor any right or
interest of a Participant in or to any Restricted Stock, or in any instrument
evidencing any grant hereunder, may be assigned, encumbered or transferred
except, in the event of the death of a Participant, by will or by the laws of
descent and distribution.
ARTICLE 9. BENEFICIARY DESIGNATION
Each Participant hereunder may, from time to time, name any beneficiary
or beneficiaries (who may be named contingently or successively) to whom any
benefit hereunder is to be paid in case of his death before he receives any or
all of such benefit. Each designation shall revoke all prior designations by the
same Participant, shall be in a form prescribed by FIRSTCITY and shall be
effective only when filed by the Participant, in writing, with FIRSTCITY during
the Participant's lifetime. In the absence of any such designation, benefits
remaining unpaid at the Participant's death shall be paid to the Participant's
estate.
31
The Committee may require that the spouse of a married Participant
domiciled in a community property jurisdiction join in any designation of
beneficiary or beneficiaries other than the spouse.
ARTICLE 10. DEFERRALS
The Committee may permit a Participant to defer to another plan or
program a portion or all of the payment of cash or the delivery of Shares that
would otherwise be due to such Participant by virtue of the exercise of an
Option, the satisfaction of any requirements or goals with respect to
Performance Shares or the vesting of Restricted Stock. If any such deferral
election is permitted, the Committee shall, in its sole discretion, establish
rules and procedures for such payment deferrals.
ARTICLE 11. RIGHTS OF EMPLOYEES
11.1 Employment. Nothing herein shall interfere with or limit in
any way the right of FIRSTCITY or a Subsidiary to terminate any Participant's
employment or engagement by FIRSTCITY or a Subsidiary at any time, nor confer
upon any Participant any right to continue in the employ or service of FIRSTCITY
or a Subsidiary. For purpose hereof, transfer of employment of a Participant
between FIRSTCITY and any one of its Subsidiaries (or between Subsidiaries)
shall not be deemed a termination of employment.
11.2 Participation. No Employee shall have the right to be selected
to receive an Award, or, having been so selected, to be selected to receive a
future Award.
ARTICLE 12. CHANGE IN CONTROL
Upon the occurrence of a Change in Control, except as provided in the
Award Agreement or unless otherwise specifically prohibited by the terms of
Article 20:
(a) Any and all Options granted hereunder shall become fully
vested and immediately exercisable;
(b) The target payout opportunity attainable under all outstanding
Performance Shares shall be deemed to have been fully earned for the
entire performance period(s) as of the effective date of the Change in
Control, and all earned Performance Shares shall be paid out in
accordance with Section 7.4 to Participants within thirty (30) days
following the effective date of the Change in Control; provided,
however, that there shall not be an accelerated payout with respect to
Performance Shares which were granted less than six (6) months prior to
the effective date of the Change in Control;
(c) All restrictions on a grant of Restricted Stock shall lapse
and such Restricted Stock shall be delivered to the Participant in
accordance with Section 8.4; provided, however, that there shall not be
an accelerated delivery with respect to Restricted Stock which was
granted less than six (6) months prior to the effective date of the
Change in Control; and
(d) Subject to Article 16, the Committee shall have the authority
to make any modifications to the Awards as determined by the Committee
to be appropriate before the effective date of the Change of Control.
ARTICLE 13. RECAPITALIZATION, MERGER AND CONSOLIDATION
13.1 No Effect on FIRSTCITY's Authority. The existence of this Plan
and Awards granted hereunder shall not affect in any way the right or power of
FIRSTCITY or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations, or other changes in FIRSTCITY's capital
structure and its business, or any merger or consolidation of FIRSTCITY, or any
issuance of bonds, debentures, preferred or preference stocks ranking prior to
or otherwise affecting the Shares or the rights thereof (or any rights, options,
or warrants to purchase same), or the dissolution or liquidation of FIRSTCITY,
or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or otherwise.
13.2 Conversion of Awards Where FIRSTCITY Survives. Subject to any
required action by the stockholders, if FIRSTCITY shall be the surviving or
resulting corporation in any merger, consolidation or share exchange, any Award
granted hereunder shall pertain to and apply to the securities or rights
(including cash, property, or assets) to which a holder of the number
32
of Shares subject to the Award would have been entitled.
13.3 Exchange or Cancellation of Awards Where FIRSTCITY Does Not
Survive. In the event of any merger, consolidation or share exchange pursuant to
which FIRSTCITY is not the surviving or resulting corporation, there shall be
substituted for each Share subject to the unexercised portions of outstanding
Awards, that number of shares of each class of stock or other securities or that
amount of cash, property, or assets of the surviving, resulting or consolidated
company which were distributed or distributable to the stockholders of FIRSTCITY
in respect to each Share held by them, such outstanding Awards to be thereafter
exercisable for such stock, securities, cash, or property in accordance with
their terms.
Notwithstanding the foregoing, however, all Awards may be canceled by
FIRSTCITY, in its sole discretion, as of the effective date of any such
reorganization, merger, consolidation, or share exchange, or of any proposed
sale of all or substantially all of the assets of FIRSTCITY, or of any
dissolution or liquidation of FIRSTCITY, by either:
(a) giving notice to each Participant or his personal
representative of its intention to cancel such Awards and permitting
the purchase during the thirty (30) day period next preceding such
effective date of any or all of the Shares subject to such outstanding
Awards, including in the Board's discretion some or all of the Shares
as to which such Awards would not otherwise be vested and exercisable;
or
(b) paying the Participant an amount equal to a reasonable
estimate of the difference between the net amount per Share payable in
such transaction or as a result of such transaction, and the exercise
price per Share of such Award (hereinafter the "Spread"), multiplied by
the number of Shares subject to the Award. In cases where the Shares
constitute, or would after exercise, constitute Restricted Stock,
FIRSTCITY, in its discretion may include some or all of those Shares in
the calculation of the amount payable hereunder. In estimating the
Spread, appropriate adjustments to give effect to the existence of the
Awards shall be made, such as deeming the Awards to have been
exercised, with FIRSTCITY receiving the exercise price payable
thereunder, and treating the Shares receivable upon exercise of the
Awards as being outstanding in determining the net amount per Share. In
cases where the proposed transaction consists of the acquisition of
assets of FIRSTCITY, the net amount per Share shall be calculated on
the basis of the net amount receivable with respect to Shares upon a
distribution and liquidation by FIRSTCITY after giving effect to
expenses and charges, including but not limited to taxes, payable by
FIRSTCITY before such liquidation could be completed.
(c) An Award that by its terms would be fully vested or
exercisable upon such a reorganization, merger, consolidation, share
exchange, proposed sale of all or substantially all of the assets of
FIRSTCITY or dissolution or liquidation of FIRSTCITY will be considered
vested or exercisable for purposes of Section 13.3(a) hereof.
ARTICLE 14. LIQUIDATION OR DISSOLUTION
Subject to Section 13.3 hereof, in case FIRSTCITY shall, at any time
while any Award under this Plan shall be in force and remain unexpired, (i) sell
all or substantially all of its property, or (ii) dissolve, liquidate, or wind
up its affairs, then each Participant shall be entitled to receive, in lieu of
each Share which such Participant would have been entitled to receive under the
Award, the same kind and amount of any securities or assets as may be issuable,
distributable, or payable upon any such sale, dissolution, liquidation, or
winding up with respect to each Share. If FIRSTCITY shall, at any time prior to
the expiration of any Award, make any partial distribution of its assets, in the
nature of a partial liquidation, whether payable in cash or in kind (but
excluding the distribution of a cash dividend payable out of earned surplus and
designated as such) then in such event the exercise price per Share then in
effect with respect to each Award shall be reduced, on the payment date of such
distribution, in proportion to the percentage reduction in the tangible book
value of the Shares (determined in accordance with generally accepted accounting
principles) resulting by reason of such distribution.
ARTICLE 15. AWARDS IN SUBSTITUTION FOR AWARDS GRANTED BY OTHER
ENTITIES
Awards may be granted under the Plan from time to time in substitution
for similar instruments held by employees or directors of a corporation,
partnership, or limited liability company who become or are about to become
Employees or Outside Directors of FIRSTCITY or any Subsidiary as a result of a
merger or consolidation of the employing entity with FIRSTCITY or any
Subsidiary, the acquisition by FIRSTCITY or any Subsidiary of equity of the
employing entity, or any other similar transaction pursuant to which FIRSTCITY
or any Subsidiary becomes the successor employer. The terms and conditions of
the substitute Awards so granted may vary from the terms and conditions set
forth in this Plan to such extent as the Committee at the
33
time of grant may deem appropriate to conform, in whole or in part, to the
provisions of the Awards in substitution for which they are granted.
ARTICLE 16. AMENDMENT, MODIFICATION AND TERMINATION
16.1 Amendment, Modification and Termination. The Board may, at any
time and from time to time, alter, amend, suspend or terminate the Plan in whole
or in part; provided that, unless approved by the holders of a majority of the
total number of Shares of FIRSTCITY represented and voted at a meeting at which
a quorum is present, no amendment shall be made hereto if such amendment would
(a) materially expand the class of participants eligible to participate in the
Plan; (b) increase the total number of Shares (except as provided in Section
4.3) which may be granted hereunder, as provided in Section 4.1; (c) materially
increase the benefits to Participants, including any material change to: (i)
permit a repricing (or decrease in exercise price) of outstanding Awards; (ii)
reduce the price at which Shares or Options to purchase Shares may be offered;
or (iii) extend the duration of the Plan; (d) expand the types of Awards
provided under the Plan; or (e) amend the Plan in any manner which the Board, in
its discretion, determines should become effective only if approved by the
stockholders even though such stockholder approval is not expressly required
hereby or by law. No amendment which requires stockholder approval in order for
the Plan to continue to comply with Rule 16b-3 under the Exchange Act, including
any successor to such rule, shall be effective unless such amendment shall be
approved by the requisite vote of stockholders.
16.2 Awards Previously Granted. No termination, amendment or
modification hereof shall adversely affect in any material way any Award
previously granted hereunder without the written consent of the Participant
holding such Award. The Committee, with the written consent of the Participant
holding such Award, shall have the authority to cancel Awards outstanding and
grant replacement Awards therefor.
16.3 Compliance With Code Section 162(m). At all times when the
Committee determines that compliance with Code Section 162(m) is desired, all
Awards shall comply with requirements of Code Section 162(m). In addition, in
the event that changes are made to Code Section 162(m) to permit greater
flexibility with respect to any Award or Awards, the Committee may, subject to
this Article 16, make any adjustments it deems appropriate.
ARTICLE 17. WITHHOLDING
FIRSTCITY may require an Employee exercising a Nonqualified Stock
Option granted hereunder, or disposing of Shares acquired pursuant to the
exercise of an Incentive Stock Option in a disqualifying disposition (within the
meaning of Section 421(b) of the Code), to reimburse the entity which employs
such Employee for any taxes required by any governmental regulatory authority to
be withheld or otherwise deducted and paid by such entity in respect of the
issuance or disposition of such Shares. In lieu thereof, the entity which
employs such Employee shall have the right to withhold the amount of such taxes
from any other sums due or to become due from such entity to the Employee upon
such terms and conditions as the Committee shall prescribe. The entity that
employs such Employee may, in its discretion, hold the stock certificate to
which such Employee is entitled upon the exercise of an Option as security for
the payment of such withholding tax liability, until cash sufficient to pay that
liability has been accumulated. In addition, at any time that an entity becomes
subject to a withholding obligation under applicable law with respect to the
exercise of a Nonqualified Stock Option (the "Tax Date"), except as set forth
below, a holder of a Nonqualified Stock Option may elect to satisfy, in whole or
in part, the holder's related personal tax liabilities (an "Election") by (a)
directing the entity to withhold from Shares issuable in the related exercises
either a specified value (in either case not in excess of the related personal
tax liabilities), (b) tendering Shares previously issued pursuant to the
exercise of an Option or other shares of FIRSTCITY's Common Stock owned by the
holder or (c) combining any or all of the foregoing Elections in any fashion. An
Election shall be irrevocable. The withheld Shares and other shares of Common
Stock tendered in payment shall be valued at their Fair Market Value on the Tax
Date. The Committee may disapprove of any Election, suspend or terminate the
right to make Elections or provide that the right to make Elections shall not
apply to particular Shares or exercises. The Committee may impose any additional
conditions or restrictions on the right to make an Election as it shall deem
appropriate. In addition, the entity shall be authorized, without the prior
written consent of the Employee, to effect any such withholding upon exercise of
a Nonqualified Stock Option by retention of Shares issuable upon such exercise
having a Fair Market Value equal to the amount to be withheld; provided,
however, that the entity shall not be authorized to effect such withholding
without the prior written consent of the Employee if such withholding would
subject such Employee to liability under Section 16(b) of the Exchange Act. The
Committee may prescribe such rules as it determines with respect to Employees
subject to the reporting requirements of Section 16(a) of the Exchange Act to
effect such tax withholding in compliance with the rules established by the
Securities and Exchange Commission
34
(the "Commission") under Section 16 of the Exchange Act and the positions of the
staff of the Commission thereunder expressed in no-action letters exempting such
tax withholding from liability under Section 16(b) of the Exchange Act.
ARTICLE 18. INDEMNIFICATION
Each person who is or shall have been a member of the Committee, or the
Board, shall be indemnified and held harmless by FIRSTCITY against and from any
loss, cost, liability or expense that may be imposed upon or reasonably incurred
by him in connection with or resulting from any claim, action, suit or
proceeding to which he may be a party or in which he may be involved by reason
of any action taken or failure to act hereunder and against and from any and all
amounts paid by him in settlement thereof, with FIRSTCITY's approval, or paid by
him in satisfaction of any judgment in any such action, suit or proceeding
against him, provided he shall give FIRSTCITY an opportunity, at its own
expense, to handle and defend the same before he undertakes to handle and defend
it on his own behalf. The foregoing right of indemnification shall be in
addition to any other rights of indemnification to which such persons may be
entitled under FIRSTCITY's Certificate of Incorporation or Bylaws, as a matter
of law, or otherwise, or any power that FIRSTCITY may have to indemnify them or
hold them harmless.
ARTICLE 19. SUCCESSORS
All obligations of FIRSTCITY hereunder, with respect to Awards, shall
be binding on any successor to FIRSTCITY, whether the existence of such
successor is the result of a direct or indirect purchase, merger, consolidation
or otherwise, of all or substantially all of the business and/or assets of
FIRSTCITY.
ARTICLE 20. LEGAL CONSTRUCTION
20.1 Investment Intent. FIRSTCITY may require that there be
presented to and filed with it by any Participant under the Plan, such evidence
as it may deem necessary to establish that the Awards granted or the Shares to
be purchased or transferred are being acquired for investment and not with a
view to their distribution.
20.2 Gender and Number. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
20.3 Severability. In the event any provision hereof shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts hereof, and the Plan shall be construed and enforced as if
the illegal or invalid provision had not been included.
20.4 Requirements of Law. The granting of Awards and the issuance
of Shares under the Plan shall be subject to all applicable laws, rules and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
20.5 Regulatory Approvals and Listing. FIRSTCITY shall not be
required to issue any certificate or certificates for Shares hereunder prior (i)
to obtaining any approval from any governmental agency which FIRSTCITY shall, in
its discretion, determine to be necessary or advisable, (ii) the admission of
such Shares to listing on any national securities exchange or Nasdaq on which
FIRSTCITY's Shares may be listed or quoted and (iii) the completion of any
registration or other qualification of such Shares under any state or federal
law or ruling or regulations of any governmental body which FIRSTCITY shall, in
its sole discretion, determine to be necessary or advisable.
Notwithstanding any other provision set forth herein, if required by
the then-current Section 16 of the Exchange Act, any "derivative security" or
"equity security" offered pursuant hereto to any insider may not be sold or
transferred for at least six (6) months after the date of grant of such Award.
The terms "equity security" and "derivative security" shall have the meanings
ascribed to them in the then current Rule 16a-1 under the Exchange Act.
20.6 Securities Law Compliance. With respect to Insiders,
transactions hereunder are intended to comply with all applicable conditions of
Rule 16b-3 or its successors under the Exchange Act. To the extent any
provisions hereof or action by the Committee fails to so comply, it shall be
deemed null and void, to the extent permitted by law and deemed advisable by the
Committee.
35
20.7 Governing Law. To the extent not preempted by federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Delaware.
36
IN WITNESS WHEREOF, FIRSTCITY has caused this instrument to be executed
as of the ___ day of April, 2004 by its __________ pursuant to prior action
taken by the Board and its stockholders.
FIRSTCITY FINANCIAL CORPORATION
By: ___________________________
Name: _________________________
Title: ________________________
Attest:
____________________________________
Secretary
37
ANNUAL MEETING OF STOCKHOLDERS OF
FIRSTCITY FINANCIAL CORPORATION
NOVEMBER 18, 2003
PROOF#1
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
o Please detach along perforated line and mail in the envelope provided. o
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS AND
"FOR" PROPOSALS 2 THROUGH 4. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [X}
- --------------------------------------------------------------------------------
<Table>
<Caption>
FOR AGAINST ABSTAIN
1. To elect 7 Directors, each to serve until the 2004 Annual 2. To consider and vote upon a proposal [ ] [ ] [ ]
Meeting of Stockholders and until their successors are to approve the Company's 2004 Stock
elected and qualified; Option and Award Plan.
NOMINEES: 3. To ratify the Board of Directors' [ ] [ ] [ ]
[ ] FOR ALL NOMINEES [ ] James R. Hawkins appointment of independent public
[ ] C. Ivan Wilson accountants for the Company and its
[ ] WITHHOLD AUTHORITY FOR ALL NOMINEES [ ] James T. Sartain subsidiaries for fiscal year 2003;
[ ] Richard E. Bean and
[ ] FOR ALL EXCEPT [ ] Dane Fulmer
(See instructions below) [ ] Robert E. Garrison II 4. To transact such other business as [ ] [ ] [ ]
[ ] Jeffery D. Leu may properly come before the Meeting
or any adjournments or postponements
thereof.
Please complete, sign, date and return promptly the enclosed
proxy in the envelope provided.
</Table>
INSTRUCTION: To withhold authority to vote for any
individual nominee(s), mark "FOR ALL EXCEPT" and fill in the
circle next to each nominee you wish to withhold, as shown
here: [X]
To change the address on your account, please check the box
at right and indicate your new address in the address space
above. Please note that changes to the registered name(s) on
the account may not be submitted via this method. [ ]
<Table>
Signature of Stockholder Date: Signature of Stockholder Date:
---------------- ---------------- ------------------- -------------
NOTE: Please sign exactly as your name or names appear on this Proxy. When shares are held jointly, each holder should sign.
When signing as executor, administrator, attorney, trustee or guardian, please give full title as such. If the signer is a
corporation, please sign full corporate name by duly authorized officer, giving full title as such. If signer is a partnership,
please sign in partnership name by authorized person.
</Table>
FIRSTCITY FINANCIAL CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD NOVEMBER 18, 2003
The undersigned hereby appoints James T. Sartain and Richard J. VanderWoude,
jointly and severally, as proxies, with full power of substitution and with
discretionary authority, to vote all shares of Common Stock that the undersigned
is entitled to vote at the Annual Meeting of Stockholders of FirstCity Financial
Corporation (the "Company") to be held on Tuesday, November 18, 2003, at 9:00
a.m., local time, at the principal executive offices of the Company, 6400
Imperial Drive, Waco, Texas 76712, or at any adjournment thereof, hereby
revoking any proxy heretofore given.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO DIRECTION IS INDICATED, THE SHARES WILL BE VOTED "FOR" THE ELECTION OF THE
NOMINEES NAMED HEREIN AS DIRECTORS, "FOR" THE APPROVAL OF THE COMPANY'S 2004
STOCK OPTION AND AWARD PLAN, AND "FOR" THE PROPOSAL TO RATIFY THE APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE COMPANY AND ITS SUBSIDIARIES FOR FISCAL
YEAR 2003.
(Continued and to be signed on reverse side.)