<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER , 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------
FIRST SECURITY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 6711 87-6118148
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
79 SOUTH MAIN STREET
SALT LAKE CITY, UTAH 84111
(801) 246-5976
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
BRAD D. HARDY
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
FIRST SECURITY CORPORATION
79 SOUTH MAIN STREET
SALT LAKE CITY, UTAH 84111
(801) 246-5976
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
A. ROBERT THORUP, ESQ. GREGORY C. SMITH, ESQ.
RAY, QUINNEY & NEBEKER SKADDEN, ARPS, SLATE, MEAGHER &
79 SOUTH MAIN STREET FLOM LLP
SALT LAKE CITY, UTAH 84111 525 UNIVERSITY AVENUE, SUITE 220
(801) 532-1500 PALO ALTO, CALIFORNIA 94301
(FAX) (801) 532-7543 (650) 470-4500
(FAX) (650) 470-4570
</TABLE>
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the Effective Time of this Registration
Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1)(3) PER SHARE(2) PRICE(2) FEE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock ($1.25 par
value)................ 3,961,415 shares $18.00 $71,305,487 $21,035.12
======================================================================================
</TABLE>
(1) The maximum number of shares of Common Stock to be issued in connection
with the Merger described herein.
(2) Calculated pursuant to Rule 457(f)(1) solely for the purpose of the
registration fee based on market value as of December 18, 1998.
(3) One Right to purchase Junior Series B Preferred Stock of First Security is
associated with each share of Common Stock. The Rights are not transferable
separately from the Common Stock except in limited circumstances.
----------------
THIS REGISTRATION STATEMENT IS HEREBY AMENDED ON SUCH DATE OR DATES AS MAY BE
NECESSARY TO DELAY ITS EFFECTIVE TIME UNTIL THE REGISTRANT WILL FILE A FURTHER
AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT WILL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT WILL BECOME EFFECTIVE ON SUCH
DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE>
FIRST SECURITY CORPORATION VAN KASPER & COMPANY
PROSPECTUS INFORMATION STATEMENT AND CONSENT
SOLICITATION
TO THE SHAREHOLDERS OF VAN KASPER & COMPANY:
THE BOARDS OF DIRECTORS OF VAN KASPER & COMPANY AND FIRST SECURITY
CORPORATION HAVE AGREED TO MERGE VAN KASPER ACQUISITION CORPORATION, A SPECIAL
PURPOSE WHOLLY OWNED SUBSIDIARY OF FIRST SECURITY, WITH AND INTO VAN KASPER.
THEREBY VAN KASPER WILL BECOME A WHOLLY OWNED SUBSIDIARY OF FIRST SECURITY.
VAN KASPER AND FIRST SECURITY ARE SENDING YOU THIS PROSPECTUS/INFORMATION
STATEMENT TO PROVIDE YOU WITH IMPORTANT INFORMATION ABOUT THIS MERGER. VAN
KASPER IS ASKING YOU TO SIGN AND RETURN A WRITTEN CONSENT THAT HAS THE EFFECT
OF VOTING YOUR VAN KASPER SHARES IN FAVOR OF THE MERGER.
UPON COMPLETION OF THE MERGER, IN EXCHANGE FOR YOUR SHARES OF VAN KASPER
CAPITAL STOCK AND OPTIONS TO PURCHASE SHARES OF VAN KASPER CAPITAL STOCK, YOU
WILL RECEIVE SHARES OF FIRST SECURITY COMMON STOCK. FIRST SECURITY SHARES TO
BE ISSUED IN THE MERGER WILL BE LISTED ON THE NASDAQ NATIONAL MARKET SYSTEM
UNDER THE SYMBOL "FSCO."
THE NUMBER OF SHARES OF FIRST SECURITY COMMON STOCK THAT YOU WILL RECEIVE IN
THE MERGER WILL BE WITHIN A RANGE BETWEEN 5.26 AND 6.43 SHARES OF FIRST
SECURITY COMMON STOCK FOR EACH SHARE OF VAN KASPER COMMON STOCK OR PREFERRED
STOCK THAT YOU HOLD AT THE TIME OF THE MERGER. IN THIS DOCUMENT, WE USE THE
TERM "EXCHANGE RATIO" TO REFER TO THE NUMBER OF SHARES OF FIRST SECURITY
COMMON STOCK THAT YOU WILL RECEIVE FOR EACH SHARE OF VAN KASPER COMMON STOCK
OR PREFERRED STOCK THAT YOU HOLD AT THE TIME OF THE MERGER. THE EXCHANGE RATIO
IS TIED TO THE MARKET PRICE OF FIRST SECURITY COMMON STOCK AND WILL FLUCTUATE
BETWEEN 5.26 AND 6.43 IF THE MARKET PRICE OF FIRST SECURITY COMMON STOCK
DURING A SPECIFIED PERIOD OF TEN TRADING DAYS IS BETWEEN $18.00 AND $22.00 PER
SHARE. IF THE MARKET PRICE OF FIRST SECURITY COMMON STOCK DURING THE SPECIFIED
PERIOD FALLS BELOW $18.00, THE EXCHANGE RATIO BECOMES FIXED AT 6.43. IF THE
MARKET PRICE RISES ABOVE $22.00, THE EXCHANGE RATIO BECOMES FIXED AT 5.26. YOU
WILL NOT RECEIVE ALL OF THE SHARES OF FIRST SECURITY COMMON STOCK AT THE TIME
OF THE MERGER. FIRST SECURITY WILL ISSUE 75% OF THE SHARES TO BE ISSUED AT THE
TIME OF THE MERGER. THE REMAINING 25% OF THE SHARES TO BE ISSUED WILL BE
WITHHELD AND WILL ONLY BE ISSUED IF VAN KASPER ACHIEVES CERTAIN REVENUE GOALS
OVER THE NEXT THREE TO FOUR YEARS. IF VAN KASPER DOES NOT REACH THESE REVENUE
GOALS, YOU WILL NOT RECEIVE ANY OF THE WITHHELD SHARES.
THE EXCHANGE OF VAN KASPER SHARES FOR FIRST SECURITY SHARES GENERALLY WILL
BE TAX-FREE TO YOU FOR FEDERAL INCOME TAX PURPOSES, BUT THE EXERCISE OF ANY
VAN KASPER OPTIONS YOU HOLD MAY BE A TAXABLE EVENT. IF YOU CHOOSE TO VOTE
AGAINST THE MERGER AND ALSO PERFECT YOUR DISSENTER'S RIGHTS UNDER CALIFORNIA
LAW, YOU WILL RECEIVE THE FAIR VALUE OF YOUR VAN KASPER SHARES IN CASH WHICH
WOULD BE A TAXABLE TRANSACTION FOR YOU.
THE MERGER CANNOT BE COMPLETED UNLESS THE VAN KASPER SHAREHOLDERS APPROVE
THE MERGER AND THE TRANSACTIONS ASSOCIATED WITH IT. THE STRUCTURE OF THE
MERGER DOES NOT REQUIRE THE APPROVAL OF FIRST SECURITY STOCKHOLDERS. THE VAN
KASPER BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER AND THE TRANSACTIONS
ASSOCIATED WITH IT ARE IN YOUR BEST INTERESTS AND RECOMMENDS THAT YOU VOTE TO
APPROVE THE MERGER AND THE TRANSACTIONS ASSOCIATED WITH IT BY COMPLETING THE
ENCLOSED WRITTEN CONSENT.
THIS PROSPECTUS/INFORMATION STATEMENT PROVIDES YOU WITH DETAILED INFORMATION
ABOUT THE MERGER AND THE TRANSACTIONS ASSOCIATED WITH IT. PLEASE SEE "WHERE
YOU CAN FIND MORE INFORMATION" ON PAGE 69 FOR ADDITIONAL INFORMATION ABOUT
FIRST SECURITY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
WE ENCOURAGE YOU TO READ THIS ENTIRE DOCUMENT CAREFULLY. INFORMATION ABOUT
FIRST SECURITY AND VAN KASPER MAY CHANGE FROM THAT CONTAINED IN THIS
PROSPECTUS/INFORMATION STATEMENT. FIRST SECURITY AND VAN KASPER WILL SEND YOU
ADDITIONAL INFORMATION ABOUT THEMSELVES BEFORE THE DATE ON WHICH THE WRITTEN
CONSENTS TAKE EFFECT IF THE NEW INFORMATION WOULD BE MATERIAL TO YOUR DECISION
ON THE MERGER.
-------------------
YOUR VOTE IS VERY IMPORTANT.
ONLY VAN KASPER SHAREHOLDERS WHO HOLD THEIR SHARES AT THE CLOSE OF BUSINESS
ON THE DAY WHEN THE FIRST WRITTEN CONSENT IS GIVEN WILL BE ENTITLED TO CONSENT
TO THE MERGER. YOU CAN GET MORE INFORMATION ABOUT VAN KASPER & COMPANY OR
FIRST SECURITY CORPORATION, AND ABOUT THE MERGER, BY WRITING OR CALLING AS
FOLLOWS:
FIRST SECURITY CORPORATION VAN KASPER & COMPANY
79 SOUTH MAIN STREET, SECOND FLOOR 600 CALIFORNIA STREET, SUITE 1700
SALT LAKE CITY, UTAH 84111 SAN FRANCISCO, CALIFORNIA 94108-2704
ATTENTION: BRAD D. HARDY ATTENTION: JOHN H. CHUNG
(801) 246-5976 (415) 391-5600
FIRST SECURITY SHARES ARE NOT INSURED BANK DEPOSITS. THERE ARE RISKS
INHERENT IN THE OWNERSHIP OF FIRST SECURITY SHARES. SEE "RISK FACTORS" ON PAGE
6 FOR A DISCUSSION OF CERTAIN FACTORS THAT YOU SHOULD CONSIDER IN DETERMINING
HOW TO VOTE ON THE MERGER AND THE TRANSACTIONS ASSOCIATED WITH IT.
NEITHER THE COMMISSION NOR ANY STATE SECURITIES AGENCY HAS APPROVED THE
FIRST SECURITY SHARES OR DETERMINED THAT THIS PROSPECTUS/INFORMATION
STATEMENT IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THIS PROSPECTUS/INFORMATION STATEMENT IS DATED DECEMBER , 1998,
AND FIRST MAILED TO VAN KASPER SHAREHOLDERS ON OR ABOUT JANUARY , 1999.
<PAGE>
YOU SHOULD RELY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS/INFORMATION STATEMENT TO VOTE ON THE MERGER AND THE
TRANSACTIONS ASSOCIATED WITH IT. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU
WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS
PROSPECTUS/INFORMATION STATEMENT. THIS PROSPECTUS/INFORMATION STATEMENT IS
DATED DECEMBER , 1998. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED
IN THIS PROSPECTUS/INFORMATION STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN
SUCH DATE, AND NEITHER THE MAILING OF THIS PROSPECTUS/INFORMATION STATEMENT TO
VAN KASPER SHAREHOLDERS NOR THE ISSUANCE OF FIRST SECURITY COMMON STOCK IN THE
MERGER SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
TABLE OF CONTENTS
<TABLE>
<S> <C>
FORWARD LOOKING STATEMENTS.............................................. (iv)
GLOSSARY................................................................ (v)
QUESTIONS AND ANSWERS ABOUT THE MERGER.................................. (vii)
SUMMARY INFORMATION..................................................... 1
RISK FACTORS............................................................ 6
CAPITALIZATION OF FIRST SECURITY........................................ 8
SELECTED HISTORICAL FINANCIAL DATA FOR FIRST SECURITY AND VAN KASPER.... 8
VAN KASPER MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.............................................. 12
COMPARATIVE PER SHARE DATA.............................................. 16
FIRST SECURITY MARKET PRICE AND DIVIDENDS INFORMATION................... 17
THE VAN KASPER SOLICITATION OF WRITTEN CONSENTS......................... 18
Purpose............................................................... 18
Record Date; Consent Rights........................................... 18
Solicitation of Van Kasper Written Consents........................... 19
Required Consents..................................................... 19
THE MERGER.............................................................. 19
General............................................................... 19
Background of the Merger.............................................. 20
Reasons for the Merger; Recommendation of Van Kasper's Board of
Directors............................................................ 22
Opinion of Van Kasper's Financial Advisor............................. 23
Interests of Certain Persons in the Merger............................ 29
THE MERGER AGREEMENT.................................................... 31
The Merger............................................................ 31
The Effective Time.................................................... 31
Management of Van Kasper Following the Merger......................... 31
Conversion of Shares; Exchange Ratio.................................. 31
Van Kasper Options.................................................... 33
Dissenting Shares..................................................... 34
Exchange of Shares and Certificates................................... 34
Fractional Shares..................................................... 34
Representations and Warranties........................................ 34
Certain Covenants..................................................... 35
Retention Bonus Pool.................................................. 36
Conditions to the Closing............................................. 36
Termination........................................................... 37
Indemnification....................................................... 37
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
Miscellaneous............................................................. 37
Accounting Treatment of the Merger........................................ 38
The Effect of the Merger on Van Kasper Employee Benefit Plans............. 38
Voting Agreements......................................................... 38
Regulatory Approvals...................................................... 38
CERTAIN FEDERAL INCOME TAX CONSEQUENCES..................................... 41
The Merger................................................................ 41
Treatment of First Security and Van Kasper.............................. 41
Exchange of Van Kasper Capital Stock for First Security Common Stock.... 41
Taxation of Option Holders.............................................. 41
Taxation of the Holdback Shares......................................... 42
Cash in Lien of Fractural Shares........................................ 42
Dissenting Van Kasper Shareholders...................................... 42
RIGHTS OF DISSENTING VAN KASPER SHAREHOLDERS................................ 42
RESALE OF FIRST SECURITY SHARES RECEIVED IN THE MERGER...................... 44
INFORMATION ABOUT FIRST SECURITY............................................ 45
General................................................................... 45
Competition............................................................... 45
Regulation................................................................ 46
Description of First Security's Capital Stock............................. 50
INFORMATION ABOUT VAN KASPER................................................ 52
General................................................................... 52
Strategy.................................................................. 52
Retail Distribution....................................................... 53
Corporate Finance......................................................... 54
Capital Markets........................................................... 56
Risk Management Group..................................................... 57
Fixed Income Trading...................................................... 57
Investment Management..................................................... 58
Accounting, Administration and Operations................................. 58
Competition............................................................... 59
Regulation................................................................ 59
Employees................................................................. 59
Legal Proceedings......................................................... 59
Principal Van Kasper Shareholders......................................... 60
COMPARATIVE RIGHTS OF SHAREHOLDERS.......................................... 61
LEGAL MATTERS............................................................... 69
EXPERTS..................................................................... 69
WHERE YOU CAN FIND MORE INFORMATION......................................... 69
Available Additional Information.......................................... 69
Incorporation of Certain Documents by Reference........................... 70
APPENDIX A--AMENDED & RESTATED AGREEMENT AND PLAN OF MERGER
APPENDIX B--VAN KASPER'S AUDITED FINANCIAL STATEMENTS
APPENDIX C--FAIRNESS OPINION OF BERKSHIRE CAPITAL CORPORATION
APPENDIX D--FORM OF VAN KASPER WRITTEN CONSENT
APPENDIX E--CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION LAW
APPENDIX F--FORM OF SHAREHOLDER VOTING AGREEMENT
</TABLE>
(iii)
<PAGE>
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
This document, the documents of First Security incorporated by reference in
this document and other communications to Van Kasper shareholders,
respectively, may contain "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements relate
to expectations concerning matters that are not historical facts. Also, when we
use words such as "believes," "expects," "anticipates," or similar expressions,
we are making forward-looking statements. Although each of First Security and
Van Kasper believes that the expectations reflected in such forward-looking
statements are reasonable, neither can give any assurance that such
expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from such expectations are disclosed
in this document, the documents of First Security incorporated by reference in
this document and other communications to Van Kasper shareholders, including,
without limitation, in conjunction with the forward-looking statements included
under "RISK FACTORS." All forward-looking statements attributable to First
Security are expressly qualified in their entirety by the factors which may
cause actual results to differ materially from expectations described in this
document and in First Security's reports filed with the Securities and Exchange
Commission, including the Annual Report on Form 10-K for the year ended
December 31, 1997 (as restated for the acquisition of California State Bank in
a Current Report on Form 8-K filed on October 1, 1998) and its quarterly
reports on Form 10-Q for the quarters ended June 30, 1998 and September 30,
1998. All forward-looking statements attributable to Van Kasper are expressly
qualified in their entirety by the factors which may cause actual results to
differ materially from expectations described in this document.
(iv)
<PAGE>
GLOSSARY
As used in this Prospectus/Information Statement, the following are the
meanings for the terms set forth below:
<TABLE>
<C> <S>
"BHC ACT" the Bank Holding Company Act of 1956, as amended
"CGCL" the California General Corporation Law
"CODE" the Internal Revenue Code of 1986, as amended, and
the rules and regulations thereunder
"COMPTROLLER" the Office of the Comptroller of the Currency
"DELAWARE STATUTE" the Delaware General Corporation Law
"EFFECTIVE TIME" the first date on which the Merger is legally
effective under both Utah and California law
"EXCHANGE ACT" the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder
"EXCHANGE AGENT" First Chicago Trust Company or any other national
bank designated by First Security to perform the
duties of exchange agent for the Merger
"FDIC" the Federal Deposit Insurance Corporation
"FEDERAL RESERVE BOARD" the Board of Governors of the Federal Reserve System
and the Federal Reserve Bank of San Francisco,
operating under delegated authority, as the context
may require
"FIRST SECURITY" First Security Corporation, a Delaware corporation
"FSCMI" First Security Capital Markets, Inc., the wholly-
owned broker-dealer subsidiary of First Security
with which Van Kasper is planned to be combined
following the Merger if certain regulatory
requirements can be met in the near future. FSCMI
would merge with and into Van Kasper in such event.
"HOLDBACK AMOUNT" the portion of the aggregate Merger Consideration
payable to the Van Kasper shareholders that will be
paid out in the future contingent on Van Kasper
meeting certain earnings targets set out in the
Merger Agreement.
"HOLDBACK SHARES" shares of First Security common stock that will be
withheld at the closing of the Merger and issued to
Van Kasper shareholders on the third and fourth
anniversaries of the closing date if Van Kasper
meets certain earnings targets set out in the Merger
Agreement
"MERGER AGREEMENT" the Amended and Restated Agreement and Plan of
Merger dated as of December 16, 1998 by and among
First Security, FSCMI, VK Acq and Van Kasper
"MERGER CONSIDERATION" for each share of Van Kasper common stock and
preferred stock, the number of shares of First
Security common stock equal to the Exchange Ratio
"NASDAQ NMS" the National Market System of the National
Association of Securities Dealers Automatic
Quotation System
"RECORD DATE" the date on which the first written consent is given
by a Van Kasper shareholder
</TABLE>
(v)
<PAGE>
<TABLE>
<C> <S>
"REGISTRATION STATEMENT" the First Security registration statement on Form
S-4 as filed with the Securities and Exchange
Commission with respect to 3,961,415 shares of
First Security Common Stock for the Merger.
"VAN KASPER" Van Kasper & Company
"VK ACQ" Van Kasper Acquisition Corporation is the wholly
owned special purpose subsidiary of First Security
with which Van Kasper will merge.
"VK DIVISION" the term sometimes used to refer to Van Kasper both
before the proposed Merger between FSCMI and Van
Kasper after it becomes a wholly-owned subsidiary
of First Security, and after the proposed Merger
with FSCMI. In any event, Van Kasper as an
identifiable division within First Security.
"VOTING AGREEMENTS" the Shareholder Voting Agreements dated as of
September 22, 1998 by and between First Security
and certain shareholders of Van Kasper.
</TABLE>
(vi)
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY IS FIRST SECURITY PROPOSING TO ACQUIRE VAN KASPER? HOW WILL I BENEFIT?
A: The combined company's breadth of services, management and operational
experience should enable it to respond more quickly and effectively to
intensifying competition, increasing consolidation and evolving market
demands in the securities industry. Moreover, under the terms of the merger
agreement, you will become a shareholder in First Security, an institution
whose common stock is traded on the NASDAQ stock market. The Van Kasper
board of directors believes that the consideration you will receive in the
Merger may deliver more value to you than could be expected if Van Kasper
had continued as an independent entity. To review the reasons for the Merger
in greater detail, and related uncertainties, see pages 22 through 23.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: In exchange for your Van Kasper shares of common stock or preferred stock
and options to purchase shares of preferred stock, you will receive shares
of First Security common stock. You will receive not less than 5.26 and not
more than 6.43 shares of First Security common stock in exchange for each
share of Van Kasper common stock or preferred stock that you hold prior to
the closing. The exact number of shares you receive will be calculated
according to a formula described in greater detail in this Prospectus/
Information Statement. We refer to this formula as the "Exchange Ratio."
Q. HOW IS THE EXCHANGE RATIO CALCULATED?
A. The Exchange Ratio is calculated according to a relatively complex formula
that takes into account several factors, including:
. the number of shares of Van Kasper stock that are outstanding at closing;
. the number of options to purchase Van Kasper stock;
. the exercise prices of the options to purchase Van Kasper stock; and
. the market price of First Security common stock.
If the market price of First Security common stock is between $18.00 and
$22.00 per share during a specified period of ten trading days, the
Exchange Ratio will be equal to between 5.26 and 6.43.
Q. WHAT HAPPENS IF THE MARKET PRICE OF FIRST SECURITY COMMON STOCK IS LESS THAN
$18.00 OR GREATER THAN $22.00?
A. If the market price of First Security common stock during the specified
period falls below $18.00, the Exchange Ratio becomes fixed at 6.43. If the
market price rises above $22.00, the Exchange Ratio becomes fixed at 5.26.
Q. WILL I RECEIVE ALL OF THE SHARES OF FIRST SECURITY COMMON STOCK AT THE TIME
OF THE MERGER?
A. No. First Security will issue 75% of the shares to be issued at the time of
the Merger. The remaining 25% of the shares to be issued will be withheld
and will only be issued if Van Kasper achieves certain revenue goals over
the next three to four years.
Q. HOW MANY OF THE REMAINING SHARES WILL I RECEIVE AND WHEN WILL I RECEIVE
THEM?
A. At the time of the merger, First Security will withhold 25% of the total
number of shares to be issued. If Van Kasper reaches certain revenue goals,
First Security will issue you one half of the withheld shares (12.5% of the
total shares to be issued) on the third anniversary of the closing, and the
other half of the withheld shares (12.5% of the total shares to be issued)
on the fourth anniversary of the closing. If Van Kasper does not reach its
revenue goals on the third anniversary, but reaches certain aggregate goals
on the fourth anniversary of the closing, First Security will issue you all
of the withheld shares (25% of the total shares to be issued) on the fourth
anniversary of the closing of the merger. If Van Kasper does not reach these
revenue goals, you will not receive any of the withheld shares. Any withheld
shares that are issued on the third or fourth anniversary of the merger will
be issued to the persons who held shares of Van Kasper stock at the time of
the merger. You may not transfer your right to receive the withheld shares.
(vii)
<PAGE>
Q. WHAT WILL HAPPEN TO MY OPTIONS TO PURCHASE VAN KASPER STOCK?
A. First Security will not assume any of your options to purchase Van Kasper
stock. Instead, all options to purchase Van Kasper stock that have been
granted and accelerated prior to the Closing will be converted into shares
of preferred stock of Van Kasper, which, at the closing, will be converted
into First Security common stock.
Q. DO I NEED TO PAY THE EXERCISE PRICE OF MY OPTIONS IN CASH?
A. No. The options will be exercised pursuant to the cashless exercise
procedure described elsewhere in this document (see "THE MERGER--Van Kasper
Options"). You may recognize income and have to pay income taxes as a result
of this cashless exercise procedure, and First Security may be required to
withhold on such income. (see "CERTAIN FEDERAL INCOME TAX CONSEQUENCES--
Taxation of Option Holders.")
Q: WHAT RISKS SHOULD I CONSIDER?
A: You should review "RISK FACTORS" on pages 6 through 7.
Q: WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO ME?
A: The exchange of your shares for First Security shares of common stock
generally will be tax-free, however, the exercise of any Van Kasper options
you hold may be a taxable event to you for Federal income tax purposes. In
addition, you may have to pay taxes on cash received for fractional shares.
If you choose to vote against the Merger by not returning your signed
consent and also perfect your dissenter's rights under California law, you
will receive the fair value of your Van Kasper shares in cash, which would
be a taxable transaction to you. To review the tax consequences to Van
Kasper shareholders in greater detail, see pages 41 through 42.
YOU ARE URGED TO CONSULT YOUR TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES
OF THE MERGER TO YOU.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working towards completing the merger as quickly as possible. In
addition to the approval of Van Kasper shareholders, we must also obtain
regulatory approvals and satisfy other conditions described in the merger
agreement. We hope to complete the merger by early 1999.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering the information contained in this
document, please fill out and sign your consent form. Then mail your signed
consent form in the enclosed return envelope as soon as possible so that
your shares may be counted in the consent solicitation.
Q: WHAT AM I BEING ASKED TO VOTE UPON?
A: You are being asked to approve the merger agreement and the transactions
associated with it. In the merger, Van Kasper would become a wholly-owned
subsidiary of First Security.
VAN KASPER'S BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT YOU VOTE FOR THE MERGER AGREEMENT AND THE TRANSACTIONS
ASSOCIATED WITH IT BY RETURNING THE SIGNED CONSENT FORM.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED CONSENT FORM?
A: You cannot revoke a consent form after Van Kasper receives sufficient
consents to approve the merger with First Security in accordance with
California law. Van Kasper expects to receive sufficient consents to approve
the merger promptly because holders of a significant amount of the
outstanding voting power of Van Kasper stock have agreed to deliver their
consents.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, First Security will send written
instructions to Van Kasper shareholders for exchanging their stock
certificates.
(viii)
<PAGE>
Q: WHO CAN HELP ANSWER FURTHER QUESTIONS?
A: If you would like additional copies of this Prospectus/Information
Statement, or if you have more questions about the merger, you should
contact:
Van Kasper & Company
600 California Street, Suite 1700
San Francisco, California 94108-2704
Attention: John H. Chung
(415) 391-5600
(ix)
<PAGE>
SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. For a more complete
understanding of the merger and for a more complete description of the legal
terms of the merger, you should read carefully this entire document as well as
the additional documents we refer you to. See "WHERE YOU CAN FIND MORE
INFORMATION" (page 69).
THE COMPANIES
FIRST SECURITY
79 South Main Street
Salt Lake City, Utah 84111
(801) 246-6000
First Security is a regional bank holding company headquartered in Salt Lake
City, Utah. It owns and operates five banks, with offices in the seven (7)
Western States of California, Idaho, New Mexico, Nevada, Oregon, Utah and
Wyoming, and several other financial services companies, some having a national
presence. Through its subsidiaries, First Security provides commercial and
agricultural loans, consumer banking, trust services, capital markets advice
and municipal underwriting services, treasury management, investment
management, data processing, leasing and securities brokerage services. At
September 30, 1998, First Security and its subsidiaries had consolidated assets
of $19.9 billion, consolidated deposits of $11.9 billion and shareholders'
equity of $1.6 billion. First Security has paid a regular dividend on its
Common Stock since 1928. (See "INFORMATION ABOUT FIRST SECURITY.")
FSCMI
41 East 1st South
Salt Lake City, Utah 84111
(801) 246-6000
FSCMI is a wholly owned "Section 20" subsidiary of First Security engaged in
a variety of investment management, securities underwriting and brokerage, and
municipal financial advisory activities pursuant to authority granted by the
Federal Reserve Board. FSCMI is registered as a broker dealer with the National
Association of Securities Dealers, Inc. FSCMI also maintains other offices
throughout the First Security market area. The parties intend to merge Van
Kasper and FSCMI if certain regulatory requirements can be met shortly
following the merger. (See "INFORMATION ABOUT FIRST SECURITY.")
VK ACQ
79 South Main Street
Salt Lake City, Utah 84111
(801) 246-6000
VK Acq is a special purpose wholly owned subsidiary of First Security
organized for the sole purpose of merging with Van Kasper resulting in Van
Kasper becoming a wholly owned subsidiary of First Security. (See "INFORMATION
ABOUT FIRST SECURITY.")
VAN KASPER
600 California Street, 17th Floor
San Francisco, California 94108
(415) 954-8314
Van Kasper is a closely held California-based investment-banking firm
established in 1978. Van Kasper provides private brokerage services to
individual and institutional clients; manages, underwrites and distributes
equity securities; publishes proprietary equity research; makes markets in
NASDAQ securities; and provides investment management services. Van Kasper had
total assets of $15.7 million and stockholders' equity of $9.8 million at
September 30, 1998. Van Kasper has a total of eight regional offices in
California and one office in Phoenix, Arizona with its principal executive
office located in San Francisco. (See "INFORMATION ABOUT VAN KASPER.")
OUR REASONS FOR THE MERGER
The Van Kasper Board of Directors has determined that the merger agreement
and the transactions associated with it are in the best interests of the Van
Kasper shareholders. In reaching its decision, the Board of Directors
considered the following factors, among other things:
. The merger would create an organization that will be able to offer a
wider array of services to each company's existing clients by
1
<PAGE>
combining Van Kasper's traditional investment banking, equity
underwriting, retail sale, investment advisory and investment management
services business with First Security's financial services strengths and
strong national corporate capital capabilities.
. The consideration that Van Kasper shareholders will receive in the merger
may deliver more value to them than could be expected if Van Kasper had
continued as an independent entity.
. The combination may strengthen Van Kasper's competitive position in an
environment of increasing consolidation in the securities industry.
To review the reasons for the merger in greater detail, as well as related
uncertainties, see pages 22 through 23.
RECOMMENDATION TO VAN KASPER SHAREHOLDERS
The Van Kasper board of directors believes that the merger is in your best
interests and unanimously recommends that you vote FOR the proposal to approve
the merger agreement and the transactions associated with it by returning the
signed consent form.
SHAREHOLDER VOTES REQUIRED TO APPROVE THE MERGER
The affirmative vote of the holders of a majority of the outstanding shares
of Van Kasper common stock, voting as a separate class and the affirmative vote
of a majority of the outstanding shares of Van Kasper preferred stock, voting
as a separate class are required to approve the merger agreement and the
transactions associated with it. As of December 15, 1998, directors and
executive officers of Van Kasper held approximately 61% of the outstanding
shares of preferred stock, and all of the outstanding shares of common stock.
Your failure to return a signed consent form will have the effect of a vote
against the merger agreement and the transactions associated with it.
Under applicable law, the First Security shareholders are not entitled to
vote on the merger. First Security, as the sole shareholder of VK Acq, has
agreed to vote all of the shares of VK Acq in favor of the merger.
To review information relating to the Van Kasper shareholder votes in greater
detail, see "THE VAN KASPER SOLICITATION OF WRITTEN CONSENTS" on pages 18
through 19.
THE MERGER (PAGE 19)
First Security and Van Kasper have agreed to merge VK Acq with Van Kasper to
make Van Kasper a wholly owned subsidiary of First Security to be called "First
Security Van Kasper, Inc." The merger agreement is attached as Annex A at the
back of this Prospectus/Information Statement. We encourage you to read the
merger agreement as it is the legal document that governs the merger.
WHAT YOU WILL RECEIVE IN THE MERGER
As a result of the merger, Van Kasper shareholders will receive shares of
First Security common stock. The exact number of shares you receive will be
calculated according to a formula described in greater detail in this
Prospectus/ Information Statement. Van Kasper Shareholders will not receive
fractional shares. Instead, they will receive a check in payment for any
fractional shares based on the average market value of First Security common
stock during a specified period prior to the merger.
Do not send in your stock certificates now. When the merger is completed you
will receive written instructions for exchanging your Van Kasper stock
certificates.
STATUS OF VAN KASPER FOLLOWING THE MERGER
If the merger is approved, VK Acq will merge with and into Van Kasper and
will be renamed "First Security Van Kasper, Inc." Van Kasper will become a
wholly-owned subsidiary of First Security. Shareholders of Van Kasper before
the merger will own stock in First Security after the merger.
OWNERSHIP OF FIRST SECURITY FOLLOWING THE MERGER
The shares of First Security common stock issued to Van Kasper shareholders
in the merger will constitute approximately 2% of the outstanding stock of
First Security after the merger, and the current stockholders of First Security
will hold the remaining 98% of the outstanding stock of First Security after
the merger.
2
<PAGE>
CONDITIONS (PAGE 36)
The merger will not be completed unless certain conditions are met, including
the approval of the merger agreement and the transactions associated with it by
Van Kasper shareholders. Certain of the conditions may be waived by the company
entitled to assert the condition.
TERMINATION (PAGE 37)
First Security and Van Kasper may together agree to terminate the merger
agreement without completing the merger whether or not the Van Kasper
shareholders have approved the merger agreement.
The merger agreement may also be terminated by the Board of Directors of
either company in certain other circumstances including:
(1) if the merger is not completed on or before June 30, 1999, except that
neither First Security or Van Kasper may terminate the merger agreement
if its breach of the merger agreement is the reason the merger has not
been completed by that date;
(2) if the approval of the shareholders of Van Kasper is not obtained; and
(3) if the other party has failed to perform certain of its obligations
under the merger agreement.
AMENDMENT, MODIFICATIONS AND WAIVERS (PAGE 38)
After the Van Kasper shareholders have approved the merger agreement, the
Boards of Directors of First Security and Van Kasper may only amend the merger
agreement in certain ways. The Boards may not change the Exchange Ratio, terms
that would change the tax consequences, or methods of accounting for the
merger.
VOTING AGREEMENTS (PAGE 38)
In connection with the merger, certain shareholders of Van Kasper holding in
aggregate approximately % of the Van Kasper shares of preferred stock and all
of the shares of common stock as of the date of mailing of this Prospectus/
Information Statement agreed to vote their shares in favor of the merger
agreement and the transactions associated with it. These voting agreements
terminate upon the completion of the merger or upon termination of the merger
agreement in specified circumstances. A form of the voting agreements is
attached as Appendix F at the back of this Prospectus/ Information Statement.
We encourage you to read this agreement.
REGULATORY APPROVALS (PAGE 38)
First Security is required to make filings with or to obtain approvals from
certain regulatory authorities in connection with the merger. These consents
and approvals include the approval of the Federal Reserve Board under the BHC
Act and notice to the NASD. A notice was filed with the Federal Reserve Board
on November 27, 1998. All other necessary applications and notices have been
filed or are in the process of being filed. First Security cannot predict
whether it will obtain all required regulatory approvals, the timing of such
approvals, whether any approvals will include conditions that would be
detrimental to First Security or whether there will be litigation challenging
the approvals.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES (PAGE 41)
The exchange of Van Kasper common stock for First Security common stock
(other than cash paid for fractional shares) generally will be tax free,
however, the exercise of any Van Kasper options you hold may be a taxable
event, for federal income tax purposes. To review the tax consequences to
shareholders in greater detail, see pages 41 through 42.
Tax matters are very complicated and the tax consequences of the merger to
you will depend on your own circumstances. You are urged to consult your tax
advisors as to the specific tax consequences of the merger to you.
OPINION OF VAN KASPER'S
FINANCIAL ADVISOR (PAGE 23)
In deciding to approve the merger, the Board of Directors of Van Kasper
considered an opinion from Berkshire Capital Corporation, its financial
advisor, as to the fairness as of the date of the opinion, of the aggregate
merger consideration from a financial point of view to the Van Kasper
shareholders. The
3
<PAGE>
opinion, which sets forth the assumptions made, matters considered and the
qualifications and limitations on the review undertaken is attached as Appendix
C to this Prospectus/Information Statement. We encourage you to read this
opinion.
COMPARATIVE RIGHTS OF SHAREHOLDERS (PAGE 61)
Van Kasper is a California corporation, and you as a Van Kasper shareholder
have certain rights under California law. After the merger you will be a First
Security shareholder and will have rights under Delaware law. If the merger is
completed, the rights of former Van Kasper shareholders who become First
Security shareholder will be determined by First Security's certificate of
incorporation and by-laws which differ in certain respects from Van Kasper's
articles of incorporation and by-laws.
RISK FACTORS
The success of the merger is subject to certain risks. A description of these
risks is found at "RISK FACTORS" starting on page 6 of this Prospectus/
Information Statement.
VAN KASPER'S SOLICITATION OF CONSENTS
Van Kasper is asking you for your written consent to the merger. Under
California law, as a Van Kasper shareholder as of the date the first written
consent is given, which is anticipated to be on or about January , 1999, you
are entitled to submit a signed written consent in favor of the merger.
Purpose.
The purpose of the solicitation of the written consents is to approve the
merger. In accordance with Van Kasper's articles of incorporation and
California law, the merger may be approved and adopted without a meeting of Van
Kasper shareholders by the written consent of the shareholders of Van Kasper,
as set forth below. If Van Kasper written consents are obtained from the
holders of a majority of the shares of Van Kasper common stock and preferred
stock, no further action will be required by the Van Kasper shareholders to
approve the merger.
A Van Kasper written consent may be revoked, by written notice to the
secretary of Van Kasper, at any time prior to the time duly executed Van Kasper
written consents have been returned by the holders of a majority of the
outstanding Van Kasper shares.
Votes Required; Record Date.
The "Record Date" for determining shareholders entitled to give or withhold
consent to the merger will be the date on which the first written consent is
given. Approval of the merger requires the approval of the holders, on the
Record Date, of each of (i) a majority of the outstanding shares of Van Kasper
common stock, voting together as a separate class, and (ii) a majority of the
outstanding shares of Van Kasper preferred stock, voting together as a separate
class.
As of December , 1998, the last practicable date prior to mailing of the
Prospectus/Information Statement, directors and executive officers of Van
Kasper and their affiliates were beneficial owners of an aggregate of 280,374
shares of Van Kasper common stock and preferred stock (exclusive of any shares
issuable upon the exercise of stock options or warrants remaining unexercised
as of such date), or approximately 58% of the 476,957 shares of Van Kasper
common stock and preferred stock that were issued and outstanding as of such
date. (See "THE VAN KASPER SOLICITATION OF WRITTEN CONSENTS".)
INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE 29)
In considering the recommendation of the Van Kasper board of directors with
respect to the merger, Van Kasper shareholders should be aware that certain
members of the management of Van Kasper have interests in the merger that are
in addition to the interests of Van Kasper shareholders generally. These
interests arise from, among other things, acceleration and cancellation of
stock options, and payments that First Security will make after the merger to
certain members of management pursuant to employment agreements and bonus
arrangements, and indemnification and insurance arrangements.
NO SOLICITATION OF TRANSACTIONS
Van Kasper has agreed in the merger agreement that neither it nor any of its
agents or employees, directly or indirectly, will initiate, solicit or
encourage any inquiries or the making of any proposal or offer for, furnish any
confidential information relating to, or engage in any
4
<PAGE>
negotiations or discussions concerning, any acquisition or purchase of Van
Kasper by anyone other than First Security.
MANAGEMENT OF VAN KASPER FOLLOWING THE MERGER (PAGE 31)
Following the merger, Van Kasper will continue to exist as a separate legal
entity, but it will be a wholly owned subsidiary of First Security. Following
the merger, Van Kasper will have a management team and board of directors
selected in consultation with First Security. First Security and Van Kasper
have agreed on special management procedures to govern the Van Kasper business
unit for the period immediately following the merger in an attempt to maintain
continuity of Van Kasper management and culture.
It is First Security's intent, several months after the merger, to combine
FSCMI with and into its then Van Kasper subsidiary, with the resulting entity
continuing to be called "First Security Van Kasper, Inc."
DISSENTERS' RIGHTS (PAGE 42)
Van Kasper shareholders who vote against the merger are entitled to
dissenters' rights under California law if they follow the required steps.
Dissenter's rights generally entitle the dissenting shareholders to the fair
market value of their shares of Van Kasper common stock and preferred stock in
cash in a taxable transaction.
5
<PAGE>
RISK FACTORS
In considering whether to consent to the merger agreement and the
transactions associated with it, you should consider carefully the following
matters:
RISKS RELATED TO THE CONTINGENT HOLDBACK SHARES; VAN KASPER REVENUE TARGETS
First Security will not pay all of the aggregate merger consideration at the
closing of the merger. Instead, First Security will withhold 25% of the
aggregate merger consideration, and will pay this portion of the aggregate
merger consideration to you only if Van Kasper as a subsidiary as a division of
a subsidiary of First Security, achieves certain revenue targets. (See "THE
MERGER--Holdback Amount" and "THE MERGER--Regulatory Approvals.") If Van Kasper
does not achieve these revenue targets, you will not receive the shares that
First Security withheld. Many factors may limit the ability of Van Kasper to
achieve these revenue targets.
Such factors include:
. The ability of Van Kasper and First Security to achieve expected business
synergies;
. The ability of First Security and Van Kasper to integrate their
operations, products and technologies;
. The ability of Van Kasper to retain its current customers and to attract
new customers following the Merger;
. The ability of Van Kasper to retain key employees following the merger;
and
. Competition in the financial services industry.
RISKS TO VAN KASPER SHAREHOLDERS RESULTING FROM THE EXCHANGE RATIO
The Exchange Ratio operates such that if the market price of First Security
common stock during a specified ten-trading-day period falls below $18.00 per
share, the value of the shares that you receive at the time of the Merger may
be less than the value of those shares at the time you execute your written
consent.
VOLATILITY OF STOCK PRICES
The market for First Security common stock is potentially volatile. The
trading price of First Security common stock could be subject to wide
fluctuations in response to quarterly variations in operating results,
announcements following acquisitions by First Security or its competitors,
changes in interest rates or prices of First Security's or its competitors'
financial products and services, changes in product mix, changes in revenue and
revenue growth rates for First Security as a whole or for geographic areas or
business units, and other events or factors. Statements or changes in opinions,
ratings or earnings estimates made by brokerage firms or industry analysts
relating to the markets in which First Security does business or relating to
First Security specifically have resulted, and could in the future result, in
an immediate and adverse effect on the market price of First Security common
stock. Statements by financial or industry analysts regarding the impact on
First Security's net income per share resulting from the merger and the extent
to which such analysts expect potential business synergies to affect reported
results in future periods can be expected to contribute to volatility in the
market price of First Security common stock.
In addition, the stock market has from time to time experienced extreme price
and volume fluctuations which have particularly affected the market price for
the securities of many financial services companies and which often have been
unrelated to the operating performance of these companies. For example the Dow
Jones Industrial Average ("DJIA") fell from a high of 9,337.97, its close on
July 17, 1998, to 7,632.53, its close on October 1, 1998, a decline of 18.26%.
Furthermore, the DJIA experienced its second largest one-day decline, a loss of
512.61 on August 31, 1998, and its largest one-day increase, a gain of 380.53
on September 8, 1998. Other market indicators have experienced similar
volatility. Since July 17, 1998, the closing price of a share of First Security
Common Stock has exhibited similar volatility, ranging from a high of $23.94
per share on
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July 14, 1998 to a low of $15.50 per share on August 31, 1998. Market analysts
have attributed the volatility to a number of factors, including economic
conditions in Russia, Asia and Latin America. First Security has negligible
exposure to financial losses from turmoil in such foreign economies. However,
First Security cautions you that such factors, as well as others that First
Security cannot predict, may cause an adverse impact on the trading markets for
equity securities, including shares of First Security common stock.
ATTRACTION AND RETENTION OF EMPLOYEES
The continued growth and success of First Security depends significantly on
the continued service of highly skilled employees and managers. In particular,
First Security's success to date has depended to a significant extent upon a
number of key management employees, the loss of any of whom could have a
material adverse effect on First Security's business and results of operations.
Competition for these employees in today's marketplace, especially in the
financial services industries, is intense. First Security's ability to attract
and retain employees is dependent on a number of factors including its
continued ability to grant stock incentive awards. There can be no assurance
that First Security will be successful in continuing to recruit new personnel
and to retain existing personnel. The loss of one or more key employees or
First Security's inability to maintain existing employees, or to recruit new
employees could have a material adverse impact on First Security. In addition,
First Security may experience increased compensation costs to attract and
retain skilled personnel.
IMPACT OF DATE CHANGES IN 1999 AND 2000
Some of the computer programs used by First Security in its internal
operations rely on time-sensitive software that was written using two digits
rather than four to identify the applicable year. These programs may recognize
a date using "00" as the year 1900 rather than the year 2000. These systems
could also recognize some combinations of "9" as calling for the end of the
operation. The use of 2000 as a leap year may also cause date change-related
malfunctions by computers. These date changes could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities. First Security expects to successfully
implement its year 1999 and 2000 compliance program and does not believe that
the cost of such procedures will have a material effect on its results of
operations or financial condition. There can be no assurance, however, that
there will not be a delay in the completion of these procedures or that the
cost of such procedures will not exceed original estimates, either of which
could have a material adverse effect on future results of operations.
In addition to correcting the business and operating systems used by First
Security in the ordinary course of business as described above, First Security
is engaged in an assessment of its key product and service suppliers and loan
customers to determine their level of Year 2000 compliance. This includes
providers of key utility services such as electric power and telephone
services. There can be no assurance that First Security will not experience
serious disruptions in 2000 as a result of supplier problems and failures
notwithstanding First Security's own systems are compliant.
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of First Security's charter and bylaws could delay or
frustrate the removal of incumbent directors and could make more difficult a
merger, tender offer or proxy contest involving First Security, even if such
events could be beneficial to its shareholders. For example, each share of
First Security common stock has a right attached that entitles the shareholder
to acquire a series of preferred stock under certain circumstances associated
with a potential change in control of First Security, a feature commonly
referred to as a "poison pill". Also the bylaws restrict the ability of a
shareholder to nominate directors or to present matters before a shareholders
meeting. Also the First Security charter contains a supermajority voting
provision commonly known as a "fair price" provision that will make certain
staged take-overs difficult. (See "INFORMATION ABOUT FIRST SECURITY--
Description of First Security's Capital Stock.")
7
<PAGE>
CAPITALIZATION OF FIRST SECURITY
The following table sets forth the unaudited historical capitalization of
First Security as of September 30, 1998.
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
(000S)
<S> <C>
DEBT:
Deposits (1).................................................... $11,943,616
Federal funds purchased and securities sold under agreements to
repurchase..................................................... 3,680,396
Other short-term borrowings..................................... 346,523
Long-term debt (2).............................................. 1,749,478
-----------
Total Debt...................................................... 17,720,013
-----------
STOCKHOLDERS' EQUITY:
Series "A", $3.15 Cumulative Convertible Preferred Stock, (9,361
shares issued)................................................. 491
Common Stock (par value $1.25, authorized 600,000,000 shares,
189,679,263 shares issued) (3)................................. 237,099
Paid-in surplus................................................. 157,164
Retained earnings............................................... 1,190,538
Accumulated other comprehensive income (4)...................... 49,595
Common treasury stock, at cost (1,238,274 shares)............... (24,881)
-----------
Total stockholders' equity...................................... 1,610,006
-----------
Total capitalization............................................ $19,330,019
===========
</TABLE>
NOTES:
(1) Including demand deposits of $2.4 billion and interest-bearing deposits of
$9.5 billion (including $1.3 billion of certificates of deposit over
$100,000).
(2) Being, with respect to First Security, (in thousands), $23,750 of Medium
Term Notes due 1998-2003, $98,962 of 7.875% Senior Notes due 1999, $150,000
of 6.875% Senior Notes due 2006, $75,000 of 7.5% Subordinated Notes due
2002, $125,000 of 7.0% Subordinated Notes due 2005 and $150,000 of 8.41%
Subordinated Capital Income Securities due 2026; and with respect to First
Security's subsidiaries, $1,126,480 of bank notes and Federal Home Loan
Bank borrowings (FHLB borrowings mature in 1998-2000) and $286 of nonbank
debt. First Security's subsidiaries' obligations are direct obligations of
such subsidiaries, and as such constitute claims against such subsidiaries
ranking prior to First Security's equity therein. Does not include
$325,000,000 of Senior Notes due 2003 issued and sold in the fourth quarter
1998 or any other debt issuances that may take place in the fourth quarter
1998.
(3) Shares issued and outstanding excluded 10,130,190 shares reserved for
issuance upon exercise of outstanding stock options, 383,860 shares
reserved for issuance upon exercise of conversion rights of preferred
stock, 912,728 shares reserved for issuance under the dividend reinvestment
and stock purchase plan, 2,025,528 shares reserved for issuance under First
Security's Comprehensive Management Incentive Plan, and 1,449,000 shares
reserved for issuance under First Security's Nonemployee Director Stock
Option Plan.
(4) Accumulated other comprehensive income consists entirely of net unrealized
gains on securities available for sale.
SELECTED HISTORICAL FINANCIAL DATA FOR FIRST SECURITY AND VAN KASPER
The following tables present selected financial data of First Security and
Van Kasper for the periods indicated. The historical financial data as of and
for the five fiscal years were derived from audited financial statements. The
historical financial data as of and for the interim periods ended September 30,
1998 and 1997 were derived from unaudited financial statements. The data
presented below should be read in conjunction with the financial statements,
related notes and other financial information of Van Kasper included elsewhere
in this Prospectus/Information Statement, and of First Security which are
incorporated by reference.
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FIRST SECURITY CORPORATION
CONSOLIDATED SUMMARY FINANCIAL DATA (1)
The following unaudited summary table shows the period end financial
condition and period operating results for First Security for the nine months
ended September 30, 1998 and 1997, and for the five years ended December 31,
1997. These results are historical only and are in no way predictive of future
condition or results of First Security.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------ ---------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Interest Income......... $ 1,051,467 $ 884,413 $ 1,213,378 $ 1,039,391 $ 974,015 $ 801,659 $ 668,086
Interest Expense........ 534,483 424,051 587,439 485,328 469,812 322,035 246,816
Net Interest Income..... 516,984 460,362 625,939 554,063 504,203 479,624 421,270
Provision for Possible
Loan Losses............ 49,062 42,144 63,386 41,300 22,682 1,545 13,004
Noninterest Income...... 341,946 250,282 357,157 306,444 270,638 202,043 171,821
Noninterest Expenses.... 529,599 423,960 588,904 531,219 555,192 455,322 405,806
Income Before Taxes..... 280,269 244,540 330,806 287,988 196,967 224,800 174,281
Applicable Income
Taxes.................. 99,902 87,297 115,532 103,516 72,336 81,098 59,021
Net Income.............. 180,367 157,243 215,274 184,472 124,631 143,702 115,260
PER COMMON SHARE DATA:
Earnings Per Share--
Basic.................. $ 0.96 $ 0.87 $ 1.18 $ 1.03 $ 0.71 $ 0.83 $ 0.70
Earnings Per Share--
Diluted................ 0.93 0.84 1.14 1.00 0.69 0.81 0.68
Cash Dividends
Declared............... 0.39 0.33 0.44 0.38 0.33 0.31 0.26
Book Value per Common
Share.................. 8.54 7.48 7.59 6.72 6.13 5.36 5.16
BALANCE SHEET ITEMS--
PERIOD END:
Loans, Net of Unearned
Income................. $12,926,926 $11,159,090 $11,230,766 $ 9,697,351 $ 8,616,763 $ 8,442,282 $ 6,744,786
Reserve for Possible
Loan Losses............ 169,058 152,951 157,525 142,693 135,011 138,107 138,051
Total Assets............ 19,859,300 17,145,647 18,151,783 15,456,649 13,529,699 12,602,149 10,553,834
Deposits................ 11,943,616 10,923,478 11,417,634 10,103,007 9,202,844 8,442,035 7,796,871
Long-Term Debt.......... 1,749,478 954,463 1,304,463 944,055 720,521 685,426 224,836
Stockholders' Equity.... 1,610,006 1,382,490 1,400,846 1,217,840 1,082,995 937,368 882,258
PROFITABILITY RATIOS:
Return on Average
Assets................. 1.27% 1.35% 1.35% 1.35% 0.98% 1.25% 1.21%
Return on Average
Stockholders' Equity... 16.11 16.59 16.60 16.23 12.02 15.69 13.86
Net Interest Margin, FTE
(2).................... 4.15 4.50 4.47 4.59 4.48 4.69 4.98
Net Interest Spread, FTE
(2).................... 3.52 3.76 3.75 3.85 3.73 4.08 4.35
Operating Expense Ratio
(3).................... 61.11 59.14 59.27 61.18 70.89 66.03 67.55
Productivity Ratio (4).. 3.74 3.65 3.68 3.87 4.37 3.95 4.24
CAPITAL RATIOS:
Stockholders' Equity to
Assets................. 8.11% 8.06% 7.72% 7.88% 8.00% 7.44% 8.36%
Tangible Common Equity
Ratio.................. 6.42 6.62 6.24 6.75 6.95 6.16 8.24
ASSET QUALITY RATIOS:
Reserve for Loan Losses
at End of Period to:
Total Loans............ 1.31% 1.37% 1.40% 1.47% 1.57% 1.64% 2.05%
Nonaccruing and
Renegotiated Loans.... 410.48 401.57 427.17 399.14 547.49 529.08 323.38
Nonperforming Assets at
End of Period to:
Total Loans and Other
Real Estate........... 0.34 0.40 0.40 0.48 0.43 0.42 1.02
Total Assets........... 0.22 0.26 0.25 0.30 0.27 0.28 0.65
Total Equity........... 2.73 3.25 3.20 3.81 3.40 3.81 7.82
Total Equity + Loan
Loss Reserve.......... 2.47 2.92 2.88 3.41 3.03 3.32 6.76
Net Loans Charged Off to
Average Loans.......... 0.44 0.48 0.51 0.41 0.30 0.11 0.21
RATIO OF EARNINGS TO
FIXED CHARGES: (5)
Excluding Interest on
Deposits............... 2.23x 2.46x 2.41x 2.82x 2.23x 3.04x 4.64x
Including Interest on
Deposits............... 1.52x 1.58x 1.56x 1.59x 1.42x 1.70x 1.71x
</TABLE>
NOTES:
(1) Historical data has been restated where appropriate to reflect two separate
3-for-2 common stock splits in the form of 50% stock dividends paid in May
1997 and February 1998 and also for the May 1998 pooling-of-interests
acquisition of California State Bank.
(2) Fully Taxable Equivalent: an adjustment made to interest income to
facilitate comparison of interest income earned on tax-exempt or tax-
favored loans, leases and securities with interest earned subject to full
taxation.
(3) Noninterest expenses/FTE net interest income plus noninterest income.
(4) Noninterest expenses/average assets.
(5) For purposes of computing the consolidated ratio of earnings to combined
fixed charges and preferred stock dividends, earnings represent net income
plus income taxes and fixed charges. Fixed charges, including interest on
deposits, include interest expense, capitalized interest, an amount equal
to the pretax earnings required to meet applicable preferred stock dividend
requirements and the interest factor included in rents.
9
<PAGE>
VAN KASPER & COMPANY
SELECTED FINANCIAL DATA
FIVE YEAR HISTORY
(IN THOUSANDS)
The following unaudited summary table shows the period end financial
condition and period operating results for Van Kasper for the three months
ended September 30, 1998, and for the five years ended June 30, 1998. These
results are historical only and are in no way predictive of future condition or
results of Van Kasper.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30, YEARS ENDED JUNE 30,
-------------- ---------------------------------------
1998 1997 1998 1997 1996 1995 1994
------ ------- ------- ------- ------- ------- -------
(UNAUDITED) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Commissions............ $6,610 $ 7,658 $31,181 $24,161 $23,788 $13,014 $13,469
Trading Income......... 115 550 1,153 2,516 2,283 883 531
Interest............... 291 199 790 574 625 284 209
Corporate
Finance/Underwriting.. 1,864 924 6,487 2,483 3,320 1,472 1,629
Management Fees & Other
Income................ 873 947 6,137 3,264 1,650 1,468 995
------ ------- ------- ------- ------- ------- -------
Total Revenues....... 9,753 10,278 45,748 32,998 31,666 17,121 16,833
------ ------- ------- ------- ------- ------- -------
EXPENSES
Employee Compensation &
Benefits.............. 6,713 6,692 29,950 21,711 21,277 11,307 10,802
Clearing & Brokerage
Charges............... 492 549 2,282 1,960 1,801 1,334 1,297
Communications & Data
Processing............ 617 619 2,681 2,089 1,456 1,064 980
Interest............... 87 124 545 359 198 104 113
Occupancy.............. 752 585 2,744 1,461 1,058 1,133 850
Other Operating
Expenses.............. 920 949 7,085 4,040 2,580 1,650 1,887
------ ------- ------- ------- ------- ------- -------
Total Operating
Expenses............ 9,581 9,518 45,287 31,620 28,370 16,592 15,929
------ ------- ------- ------- ------- ------- -------
Earnings Before Income
Taxes.................. 172 760 461 1,378 3,296 529 904
Provision For Income
Taxes.................. 51 228 140 416 1,250 233 376
------ ------- ------- ------- ------- ------- -------
Net Earnings......... $ 121 $ 532 $ 321 $ 962 $ 2,046 $ 296 $ 528
------ ------- ------- ------- ------- ------- -------
Earnings Per Common
Share.................. $33.61 $147.78 $ 89.17 $267.22 $568.33 $ 82.22 $146.67
====== ======= ======= ======= ======= ======= =======
</TABLE>
10
<PAGE>
VAN KASPER & COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
SEPTEMBER 30, --------------------------------------
1998 1998 1997 1996 1995 1994
------------- ------- ------- ------- ------ ------
ASSETS (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents............. $ 1,001 $ 2,888 $ 318 $ 742 $ 320 $ 156
Short-term investments,
at market value......... -- -- -- -- -- 990
Receivables
Due from clearing
firm.................. 741 -- -- 6,596 -- --
Commissions............ 968 344 1,141 426 1,324 2,029
Employee Advances...... 685 600 357 285 162 194
Income Taxes........... 523 574 604 -- -- --
Other.................. 589 614 659 321 312 287
------- ------- ------- ------- ------ ------
Total Receivables..... 3,506 2,132 2,761 7,628 1,798 2,510
------- ------- ------- ------- ------ ------
Securities owned, at
market value............ 4,831 10,228 11,936 6,016 4,753 1,302
Exchange membership, at
lower of cost or
market.................. -- -- 18 18 18 18
Investments in related
entities................ 119 119 138 131 51 51
Other investments........ 1,841 2,368 665 206 126 106
Secured demand note,
collateralized by
marketable securities... 300 300 -- -- -- --
Furniture, equipment and
leasehold improvements,
at cost, net of
accumulated depreciation
and amortization........ 3,503 3,602 2,033 1,348 898 744
Other assets
Cash surrender value--
life insurance
policies.............. 17 17 17 26 26 26
Prepaid expenses....... 606 402 313 142 74 130
Deferred tax benefit... -- -- 131 184 65 115
------- ------- ------- ------- ------ ------
Total other assets.... 623 419 461 352 165 271
------- ------- ------- ------- ------ ------
Total Assets.......... $15,724 $22,056 $18,330 $16,441 $8,129 $6,148
======= ======= ======= ======= ====== ======
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY
<S> <C> <C> <C> <C> <C> <C>
Accounts payable......... $ 728 $ 2,550 $ 574 $ 1,832 $ 408 $ 372
Accrued liabilities
Payroll and
commissions........... 1,562 3,559 1,092 1,608 1,301 1,026
Income taxes........... -- -- -- 1,017 147 92
Rent................... 613 613 610 606 604 251
Other.................. 288 407 1,625 2,998 180 151
------- ------- ------- ------- ------ ------
Total accrued
liabilities.......... 2,463 4,579 3,327 6,229 2,232 1,520
------- ------- ------- ------- ------ ------
Deferred tax liability... 377 377 -- -- -- --
Deferred credit.......... -- -- 12 24 -- --
Due to clearing firm..... -- 1,672 6,608 -- 1,098 --
Marketable securities
sold short.............. 981 264 536 1,733 300 488
Loans payable............ 1,033 1,081 -- 80 185 291
Capitalized lease
obligation.............. -- -- 12 33 53 76
Liabilities subordinated
to claims of general
creditors pursuant to:
Revolving loan
agreement............. -- 2,000 -- -- -- --
Secured demand note.... 300 300 -- -- -- --
------- ------- ------- ------- ------ ------
Total liabilities..... 5,882 12,823 11,069 9,931 4,276 2,747
------- ------- ------- ------- ------ ------
Commitments and
contingencies........... -- -- -- -- -- --
Stockholders' equity
Preferred stock........ 4,224 4,069 1,983 2,194 1,583 1,606
Common stock........... 18 18 18 18 18 18
Stock subscription
receivable............ (102) (435) -- -- -- (179)
Retained earnings...... 5,702 5,581 5,260 4,298 2,252 1,956
------- ------- ------- ------- ------ ------
9,842 9,233 7,261 6,510 3,853 3,401
------- ------- ------- ------- ------ ------
Total Liabilities and
Stockholders'
Equity............... $15,724 $22,056 $18,330 $16,441 $8,129 $6,148
======= ======= ======= ======= ====== ======
</TABLE>
11
<PAGE>
VAN KASPER MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in connection with Van
Kasper's Consolidated Financial Statements and the notes thereto and other
financial information included elsewhere in this Prospectus/Information
Statement.
OVERVIEW
Van Kasper & Company ("Van Kasper") is a full-service investment banking
company. Van Kasper commenced operations in October 1978 and currently
transacts its businesses through nine offices located in California and
Arizona. Van Kasper has grown rapidly during the period from fiscal 1994
through fiscal 1998 with revenues in fiscal 1994 of $16.8 million to revenues
in fiscal 1998 of $45.7 million, a compounded annual growth rate of
approximately 28.4%. Van Kasper's fiscal year ends June 30 in each calendar
year.
Van Kasper generates revenues through the execution of securities
transactions for clients' accounts ("Commissions"); from principal transactions
for its own account ("Trading Income"); by providing investment banking
services, including fees generated from the management of public underwritings,
from providing advice regarding mergers and acquisitions, from arranging
private placements of capital and from consulting assignments ("Corporate
Finance and Underwriting Fees"); and through cash and discretionary account
management services and through client service fees ("Management Fee and Other
Income").
Over the past several years, Van Kasper has experienced significant growth in
its business activities and the number of its employees. Average employee
headcount was 219 during fiscal 1998 compared to 176 during fiscal 1997 and 140
during fiscal 1996. The number of employees has increased significantly from
both the increased scope of business activities and the growth of existing
operations. This employee growth has increased fixed expenses associated with
compensation and benefits costs, occupancy and equipment costs and
communications and data processing expenses. Such fixed expenses are expected
to continue to increase in the future. Any failure to effectively manage Van
Kasper's growth through the investment in management personnel, financial and
management systems and controls, and facilities could have an adverse effect on
Van Kasper's results of operations and financial condition.
Commissions are generated when Van Kasper executes securities transactions
for its retail and institutional brokerage customers. Commissions are also
generated when Van Kasper manages underwritings for investment banking clients
as well as when it participates in other syndications. The amount of
Commissions is affected by many factors including, but not limited to,
conditions impacting the securities markets and the number of underwritings Van
Kasper manages.
Another significant component of Van Kasper's revenues is Corporate Finance
and Underwriting Fees earned from underwriting activities and corporate finance
fees earned from advisory services provided to Van Kasper clients. The number
of such available underwriting or advisory transactions is affected by many
factors including, but not limited to, conditions impacting the securities
market and Van Kasper's ability to successfully compete for available
underwriting and advisory assignments. The level of Van Kasper's Corporate
Finance and Underwriting Fees is affected by both the number and the size of
transactions completed. Substantial fluctuations can occur and have occurred in
the amount of such fees earned from period to period, and consequently, fees
earned for any period should not be considered representative of any other
period. In periods of reduced investment banking and other advisory activities,
profitability has been and is likely to be adversely affected.
Management fees associated with Van Kasper's cash management and
discretionary account services are directly related to the total value of
assets under management. As of September 30, 1998, Van Kasper had aggregate
client assets under direct or advisory supervision of more than $2.5 billion.
In June 1998, Van Kasper added its Risk Management Group ("RMG"). RMG generates
revenues by advising its clients in the areas of restricted stock and stock
options liquidity.
12
<PAGE>
Van Kasper's significant expenses are comprised of commissions paid to
registered representatives and salaries and payroll taxes paid to non-
commissioned employees (collectively referred to as "Employee Compensation and
Benefits"). The level of Employee Compensation and Benefits expense has
increased substantially as Van Kasper has grown and added registered
representatives, professionals and administrative staff to support its
increased activities. Other significant costs are associated with
Communications and Data Processing and Occupancy expenses. The major costs
found in Other Operating Expenses include unreimbursed Travel, Meal and
Entertainment, Printing, Equipment Rentals, Postage, Professional Fees, City
and Local Taxes and Account Transfer fees.
Van Kasper accounts for its marketable inventory positions at prevailing
market prices. Such marketable investments are presented in Van Kasper's
balance sheets as Securities Owned, At Market Value; and the value of these
investments totaled $10.2 million at June 30, 1998 and decreased to $4.8
million at September 30, 1998, primarily as a result of management's decision
to reduce inventory exposure. These inventory positions largely consist of
fixed income inventory, principally municipal bond investments. Van Kasper's
Other Investments include principal investments in other companies and the
value of warrants received in corporate finance and underwriting transactions.
Other Investments can fluctuate significantly in value from time to time. In
particular, the value of one large investment position significantly declined
in the quarter ended September 30, 1998.
Van Kasper's business depends to a substantial extent on the overall
securities markets and the sectors of the securities markets represented by
companies in a variety of industries. The securities markets are affected by
general economic and market conditions, including fluctuations in interest
rates, the trading volume of securities, price levels of securities and the
flow of investor funds into and out of the securities markets, and by factors
that apply to particular industries, such as technological advances and changes
in regulatory environments. Substantial fluctuations can occur and have
occurred in Van Kasper's operating results and in the component sources of Van
Kasper's revenues due to these and other factors. In periods of reduced market
activity, profitability has been and is likely to be adversely affected.
Accordingly, net earnings for any period should not be considered
representative of any other period. In this regard, the number of underwriting
and corporate finance transactions declined substantially in recent months,
which has materially and adversely affected the operating results of many
investment banking firms in the securities industry, and, if sustained could
have a material adverse effect on Van Kasper's operating results.
The securities business is intensely competitive. Certain of Van Kasper's
competitors have greater capital, financial and other resources than Van
Kasper. The level of competition for key personnel persists. A primary purpose
of the proposed merger with First Security Corporation is to increase Van
Kasper's working capital, financial and other resources to better position Van
Kasper to meet this competition. In the normal course of business, Van Kasper
has from time to time experienced turnover of research, investment banking and
sales and trading professionals, and the losses of key personnel due to
competition or other factors may occur in the future.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1997 and 1998
Total revenues declined 5.1% from $10.3 million in the first quarter of
fiscal 1998 to $9.8 million in the first quarter of fiscal 1999. Commissions
declined 13.7% from $7.7 million in the first quarter of fiscal 1998 to $6.6
million in the first quarter of fiscal 1999. The decrease in Commissions was
due to poor market conditions despite an increase in the overall number of Van
Kasper's registered representatives. Trading Income decreased 79.1% from
$549,000 to $115,000 due to losses in trading accounts. The decrease was
primarily due to significant market volatility in the first quarter of fiscal
1999. Corporate Finance and Underwriting Fees increased 101.9% from $924,000 in
the first quarter of fiscal 1998 to $1.9 million in the first quarter of fiscal
1999. While Van Kasper managed no underwritings in the first quarter of fiscal
1999 (which also affected Commissions), it closed a number of advisory
transactions. Management Fees and Other Income declined 7.8% from $947,000 in
the first quarter of fiscal 1998 to $873,000 in the first quarter of fiscal
1999. The decrease was primarily due to unrealized losses in Other Investments
somewhat offset by increases in asset management fees and advisory fees from
RMG.
13
<PAGE>
Years Ended June 30, 1996, 1997 and 1998
Total revenues for the periods increased 4.2% from $31.7 million in fiscal
1996 to $33.0 million in fiscal 1997 and by 38.6% to $45.7 million for fiscal
1998. Commissions increased 1.6% in fiscal 1996 from $23.8 million to $24.2
million in fiscal 1997 and by 29% to $31.2 million in fiscal 1998. The
increases were due to favorable market conditions and an increased number of
underwritings coupled with an increase in the number of Van Kasper's registered
representatives. Trading Income increased 10.2% from $2.3 million in fiscal
1996 to $2.5 million in fiscal 1997 and decreased 54.2% to $1.2 million in
fiscal 1998. The increase was due to the increased trading activities while the
decrease was due to narrower margins in the Over-the-Counter business.
Corporate Finance and Underwriting Fees decreased 25.2% from $3.3 million in
fiscal 1996 to $2.5 million in fiscal 1997 and increased 161.3% to $6.5 million
in fiscal 1998. Van Kasper managed fewer offerings in fiscal 1997 than in
fiscal 1996 and more offerings in fiscal 1998 than in fiscal 1997;
additionally, Van Kasper hired more personnel at mid-fiscal 1997 to provide
advisory services. These professionals spent the second half of fiscal 1997
developing and commencing work on transactions which closed in fiscal 1998.
Management Fees and Other Income increased 97.9% from $1.7 million in fiscal
1996 to $3.3 million in fiscal 1997 and by 88.0% to $6.1 million in fiscal
1998. The increases were primarily due to increases in aggregated assets under
management, which increased from roughly $1.3 billion in fiscal 1996 to over
$2.5 billion in fiscal 1998, from advisory fees from RMG and from unrealized
gains in Other Investments.
Employee Compensation and Benefits, while increasing in absolute dollars,
have not increased appreciably as a percentage of Total Revenues over the
periods described. Communications and Data Processing expenses increased 43.5%
from $1.5 million in fiscal 1996 to $2.1 million in fiscal 1997 and another
28.3% to $2.7 million in fiscal 1998, or, as a percentage of revenues, from
4.6% in fiscal 1996 to 6.3% in fiscal 1997 and flat in fiscal 1998 compared to
fiscal 1997. Occupancy increased 38.0% from $1.1 million in fiscal 1996 to
$1.5 million in fiscal 1997 and 87.8% to $2.7 million in fiscal 1998, or, as a
percentage of revenues, from 3.3% in fiscal 1996 to 4.4% in fiscal 1997 and to
6.4% in fiscal 1998. These increases were due to the addition of more personnel
and from expanding Van Kasper's retail network in Sacramento, Newport Beach and
San Diego and from significantly increasing the number of personnel in both its
trading and institutional sales departments. Other Operating Expenses in fiscal
1998 included a charge taken for two clients' failure to settle certain trades
creating unsecured debit balances totaling approximately $2.4 million.
LIQUIDITY AND CAPITAL RESOURCES
Van Kasper has historically satisfied its capital needs with its own capital
resources, consisting primarily of retained earnings and capital raised from
the sale of its preferred stock to employees and borrowings from third parties
in connection with the expansion of its facilities in San Francisco.
Additionally, Van Kasper has access to a $3.75 million subordinated revolving
line of credit from its correspondent clearing firm to be utilized only in
connection with firm commitment underwritings which Van Kasper undertakes from
time to time. Of this facility, $2.0 million was outstanding at June 30, 1998;
the outstanding balance was repaid in July 1998.
In February 1998, two Van Kasper clients failed to settle certain trades
creating unsecured debit balances totaling approximately $2.4 million. Van
Kasper is pursuing, and intends to continue to pursue, the recovery of these
debit balances from the clients and any other responsible parties. Van Kasper
may be unable to recover these amounts.
YEAR 2000
Van Kasper utilizes software and related information technologies that will
be affected by the date changes in the years 1999 and 2000 (generically
referred to as the "Year 2000 Issue"). The Year 2000 Issue exists because many
computer systems and applications currently use two-digit date fields to
designate a year, while other systems read some combinations of "9's" as an
order to end operations. When these date changes take place, certain date-
sensitive systems may not recognize the new dates as valid. This inability to
recognize or
14
<PAGE>
properly treat date change information may result in a systems failure or cause
systems to process critical financial and operational information incorrectly.
The Year 2000 issue affects non-information technologies as well, including
embedded chips in a number of machines and processes that are date sensitive,
and these machines and systems control building operations and communications
equipment, among other applications. Finally, Van Kasper relies on third party
customers and suppliers for the ongoing maintenance and operations of Van
Kasper. These third parties have their own Year 2000 problems, and the failure
of these third party suppliers could have a material adverse impact on Van
Kasper's business.
Van Kasper is reviewing its Year 2000 readiness and is developing contingency
plans for Year 2000 problems. Van Kasper expects that its internal systems will
be substantially Year 2000 compliant on or before March 31, 1999. But, since
there is no uniform definition of "Year 2000 compliant," Van Kasper may
experience a business disruption resulting from a failure in one of its
computer-based systems. Van Kasper believes that such a disruption is likely to
be to be localized and of short duration and would therefor not be likely to
have a material adverse effect on Van Kasper. Van Kasper continues to make
inquiries regarding the Year 2000 readiness of its third party vendors.
However, due to uncertainties associated with the Year 2000 preparation efforts
of third parties, Van Kasper is unable to predict whether a material adverse
effect on its business, results of operations or financial condition may occur
as a result of disruptions associated with Year 2000 problems.
15
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of First
Security and Van Kasper and combined per share data on an unaudited pro forma
basis after giving effect to the Merger on a purchase basis assuming that the
market price for First Security Common Stock is $18.00 per share so
approximately 6.489 shares of First Security Common Stock are issued in
exchange for each Van Kasper Share. This data should be read in conjunction
with the selected historical financial data set forth herein and the historical
financial statements of Van Kasper and the notes thereto that are incorporated
herein by reference. The pro forma information is presented for illustrative
purposes only and is not necessarily indicative of the combined financial
position or results of operations of future periods or the results that
actually would have been realized had the entities been a single entity during
the periods presented.
<TABLE>
<CAPTION>
AS OF AND FOR AS OF AND FOR
THE THE NINE
YEAR ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
FIRST SECURITY HISTORICAL PER COMMON SHARE:
Net income per common share--basic and diluted.... $1.18/$1.14 $0.96/$0.93
Book value........................................ $ 7.59 $ 8.54
<CAPTION>
AS OF AND FOR
AS OF AND FOR THE THREE
THE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
JUNE 30, 1998 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
VAN KASPER HISTORICAL PER COMMON SHARE:
Net income per common share--basic and diluted.... $ 89.17 $ 33.61
Book value........................................ $ 1,555.00 $ 1,588.86
<CAPTION>
AS OF AND FOR AS OF AND FOR
THE THE NINE
YEAR ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------- -------------
(UNAUDITED)
<S> <C> <C>
PRO FORMA COMBINED NET INCOME PER SHARE (1)
Per First Security common share--basic and
diluted.......................................... $1.15/$1.14 $0.94/$0.91
Equivalent per Van Kasper share--basic and
diluted.......................................... $7.46/$7.40 $6.10/$5.90
PRO FORMA COMBINED BOOK VALUE PER SHARE (1)(2)
Per First Security share.......................... $ 7.42 $ 8.36
Equivalent per Van Kasper share................... $ 48.13 $ 54.23
</TABLE>
- --------
(1) The unaudited equivalent Van Kasper pro forma share amounts are calculated
by multiplying the First Security combined pro forma per share amounts by
the Exchange Ratio.
(2) Historical book value per share is computed by dividing shareholders'
equity by the number of shares of common stock outstanding at the end of
each period. Pro forma book value per share is computed by dividing pro
forma shareholders' equity by the pro forma number of shares of common
stock outstanding at the end of each period.
16
<PAGE>
FIRST SECURITY MARKET PRICE AND DIVIDENDS INFORMATION
First Security common stock is quoted through the NASDAQ National Market
under the symbol "FSCO." The following table sets forth the high and low sales
price of First Security common stock. The cash dividends declared per share for
the calendar periods are also indicated. The information presented below for
First Security was obtained from the National Association of Securities
Dealers, Inc. and reflects interdealer prices, without retail markup, markdown
or commissions, and may not represent actual transactions. ALL FIRST SECURITY
NUMBERS OF SHARES AND PER SHARE INFORMATION ARE ADJUSTED FOR A NUMBER OF FIRST
SECURITY STOCK SPLITS TAKING PLACE IN THE PERIOD 1993-1998, THE MOST RECENT
HAVING BEEN PAID ON FEBRUARY 24, 1998.
<TABLE>
<CAPTION>
PRICE OF DIVIDENDS
FIRST DECLARED PER
SECURITY FIRST SECURITY
COMMON STOCK COMMON SHARE
------------- --------------
HIGH LOW
------ ------
<S> <C> <C> <C>
1998
Third Quarter.............................. $23.94 $15.50 $0.13
Second Quarter............................. 24.75 21.00 0.13
First Quarter.............................. 26.17 21.83 0.13
1997
Fourth Quarter............................. $27.92 $19.08 $0.11
Third Quarter.............................. 21.33 17.58 0.11
Second Quarter............................. 19.00 14.45 0.11
First Quarter.............................. 16.56 14.22 0.10
1996
Fourth Quarter............................. $15.17 $12.50 $0.10
Third Quarter.............................. 12.50 10.57 0.09
Second Quarter............................. 12.28 10.17 0.09
First Quarter.............................. 12.33 10.30 0.09
1995
Fourth Quarter............................. $11.26 $ 9.04 $0.08
Third Quarter.............................. 9.85 8.15 0.08
Second Quarter............................. 8.48 6.81 0.08
First Quarter.............................. 7.60 6.52 0.08
1994
Fourth Quarter............................. $ 8.44 $ 6.37 $0.08
Third Quarter.............................. 9.48 8.22 0.08
Second Quarter............................. 9.19 8.08 0.08
First Quarter.............................. 8.59 7.63 0.08
</TABLE>
The closing price of First Security common stock as reported on the NASDAQ
National Market on September 21, 1998, the last trading day prior to the public
announcement of the merger agreement was $18.88 per share. On December ,
1998, the last practicable date prior to mailing this Prospectus/Information
Statement, the closing price for First Security common stock was $ per
share.
First Security has paid cash dividends on its common and preferred stock
without reduction in amount for over 60 consecutive years. Since 1983, these
dividends have been paid quarterly.
Future dividends on First Security common stock will be determined by First
Security's Board of Directors in light of circumstances existing at the time,
including the earnings and financial condition of First Security, and there is
no assurance that dividends will continue to be paid at current levels. No
material restrictions have been imposed on First Security's ability to pay
dividends from its earned surplus by bank regulations or applicable law.
17
<PAGE>
Payment of dividends on the First Security common stock is also subject to
the prior rights of First Security's outstanding preferred stock.
Van Kasper shareholders are advised to obtain current market quotations for
First Security common stock. No assurances can be given concerning the market
price of the First Security common stock before or after the date on which the
Merger is consummated. The market price of First Security common stock will
fluctuate between the date of this Prospectus/Information Statement and the
Closing Date and thereafter. Because the Exchange Ratio is subject to the
adjustment mechanisms described earlier in this Prospectus/Information
Statement, and because the market price of First Security common stock is
subject to fluctuation, the value of the shares of First Security common stock
that Van Kasper shareholders will receive under the merger agreement may
increase or decrease prior to and following the Closing.
THE VAN KASPER SOLICITATION OF WRITTEN CONSENTS
PURPOSE
The purpose of the solicitation of the Van Kasper written consents is to
approve the Merger and consequently to approve and adopt the Merger Agreement.
In accordance with Van Kasper's articles of incorporation and California law,
the Merger may be approved and adopted without a meeting of Van Kasper
shareholders by written consent of at least a majority of the shares of Van
Kasper common stock and preferred stock, voting as separate classes. If a
majority of the Van Kasper common stock and preferred stock, voting as separate
classes, consent to the Merger, no further action will be required by Van
Kasper shareholders to approve the Merger.
THE VAN KASPER BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT, BELIEVES THAT THE TERMS OF THE MERGER AGREEMENT ARE FAIR TO, AND IN
THE BEST INTERESTS OF, VAN KASPER AND ITS SHAREHOLDERS, AND UNANIMOUSLY
RECOMMENDS THAT THE VAN KASPER SHAREHOLDERS VOTE "FOR" THE MERGER BY EXECUTING
AND RETURNING VAN KASPER WRITTEN CONSENTS.
RECORD DATE; CONSENT RIGHTS
The Record Date for determining shareholders entitled to give or withhold
consent to the Merger shall be the date on which the first written consent is
given, which is anticipated to be on or about January , 1999. As of December
, 1998, the last practicable date prior to mailing this
Prospectus/Information Statement, directors and executive officers of Van
Kasper and their affiliates were beneficial owners of an aggregate of 407,370
shares of Van Kasper preferred stock and 3,600 shares of Van Kasper common
stock (exclusive of any shares issuable upon the exercise of stock options or
warrants remaining unexercised as of such date), or approximately 58% of the
709,493 total combined shares of Van Kasper common stock and preferred stock
that were issued and outstanding as of that date. Certain Van Kasper
shareholders, holding in the aggregate approximately % of the Van Kasper
Shares outstanding as of December , 1998, the last practicable date before
the mailing of this Prospectus/ Information Statement, have each entered into a
Voting Agreement with First Security pursuant to which such shareholders have
agreed to vote all of their Van Kasper Shares for approval of the Merger. See
"The Van Kasper Solicitation of Written Consents--Required Consents" and
"Voting Agreements--Van Kasper Shareholders."
Only holders of shares of Van Kasper common stock or preferred stock at the
close of business on the date the first written consent is given, which is
anticipated to be on or about January , 1999, are entitled to submit written
consents. As of December , 1998, the last practicable date prior to mailing
this Prospectus/ Information Statement, there were approximately 86 holders of
record of Van Kasper Shares. There were also 705,893 shares of Van Kasper
Preferred Stock issued and outstanding, each of which is entitled to one vote
on the Merger, and 3,600 shares of Van Kasper Common Stock issued and
outstanding, each of which is entitled to three votes on the Merger.
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A written consent may be revoked, by delivery of written notice to the
Secretary of Van Kasper, at any time prior to the time duly executed Van Kasper
Written Consents have been returned (and not revoked) by the holders of a
majority of the respective outstanding Van Kasper common stock and preferred
stock.
SOLICITATION OF VAN KASPER WRITTEN CONSENTS
Van Kasper written consents are being solicited by and on behalf of the Van
Kasper Board of Directors. Van Kasper will bear all expenses in connection with
such solicitation. In addition to solicitation by use of the mails, Van Kasper
written consents may be solicited by directors, officers and employees of Van
Kasper in person or by telephone, telegram or other means of communication.
Such directors, officers and employees will not be additionally compensated
for, but may be reimbursed for out-of-pocket expenses incurred in connection
with, such solicitation.
REQUIRED CONSENTS
Approval of the Merger requires the approval of the holders on the Record
Date, of each of (i) a majority of the outstanding shares of Van Kasper common
stock, voting as a separate class, and (ii) a majority of the shares of Van
Kasper preferred stock, voting together as a separate class.
As of December 15, 1998, directors and executive officers of Van Kasper and
their affiliates were beneficial owners of an aggregate of (i) 280,374 shares
of Van Kasper Preferred Stock (exclusive of any shares issuable upon the
exercise of stock options or warrants remaining unexercised as of such date),
or approximately 58% of the 476,957 shares of Van Kasper Preferred Stock that
were issued and outstanding as of such date, and (ii) 3,600 shares of Van
Kasper Common Stock 100% of such shares that were authorized, issued and
outstanding as of such date.
Certain shareholders of Van Kasper (including directors and executive
officers of Van Kasper), holding in the aggregate approximately % of the Van
Kasper preferred stock and all of the Van Kasper common stock outstanding as of
December , 1998, the last practicable date prior to mailing this
Prospectus/Information Statement, have each entered into a voting agreement
with First Security pursuant to which each has agreed to vote all shares of Van
Kasper common or preferred stock owned by such shareholder for approval of the
Merger. Execution of the Voting Agreements was required to induce First
Security to enter into the Merger Agreement. See "Voting Agreements--Van Kasper
Shareholders."
VAN KASPER SHAREHOLDERS SHOULD READ AND CAREFULLY CONSIDER THE INFORMATION
PRESENTED IN THIS PROSPECTUS/INFORMATION STATEMENT, AND TO COMPLETE, DATE, SIGN
AND PROMPTLY RETURN THE ENCLOSED VAN KASPER WRITTEN CONSENT IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. FAILURE TO RETURN THE VAN KASPER WRITTEN CONSENT WILL
HAVE THE PRACTICAL EFFECT OF VOTING AGAINST THE MERGER.
THE MERGER
GENERAL
Subject to the terms and conditions of the Merger Agreement, at the Effective
Time, VK Acq will merge with and into Van Kasper and Van Kasper will be the
surviving entity. As a result of the Merger, Van Kasper will become a wholly
owned subsidiary of First Security. Van Kasper will then be called "First
Security-Van Kasper, Inc.," and will have its own board of directors and
officers. As a wholly owned subsidiary of First Security, the new Van Kasper
subsidiary will be controlled by First Security. First Security and Van Kasper
have reached an agreement on procedures for the management of the Van Kasper
business unit within First Security to help preserve Van Kasper's management-
style and culture following the Merger.
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First Security's ultimate plan is to merge its current Section 20 broker-
dealer subsidiary, FSCMI, with and into Van Kasper. The current business of Van
Kasper would be operated as a division of the combined Van Kasper/FSCMI
company, which will be called "First Security Van Kasper, Inc." The merger of
FSCMI with and into Van Kasper will occur several months after the Merger to
assure smooth integration of operations, to obtain NASD approval, and to allow
time to obtain more favorable treatment under the "gross revenue" test applied
by the Federal Reserve Board to section 20 broker-dealer subsidiaries of bank
holding companies. See, "--Regulatory Approvals." This combination of Van
Kasper and FSCMI will not occur until several months following the Merger, and
is not expected to have any direct effect on the Merger, the Van Kasper
shareholders or the Merger Consideration.
BACKGROUND OF THE MERGER
Over the course of the last few years, the securities industry has undergone
significant consolidation. During the months of April and May 1998, Van Kasper
received unsolicited inquiries from several regional commercial banks and a
brokerage firm as to Van Kasper's willingness to engage in exploratory
discussions regarding a possible acquisition of Van Kasper. In response to
these inquiries, on May 22, 1998, Van Kasper retained Berkshire Capital
Corporation ("Berkshire Capital") and South Beach Capital Markets Advisory
Corporation to act as financial advisors to assist Van Kasper in its
consideration of a possible business combination with a third party. Pursuant
to this engagement, Berkshire Capital contacted one savings and loan
association and a number of national or regional commercial banks, including
First Security as well as the three commercial banks that had previously
contacted Van Kasper. Most of these parties expressed an interest in engaging
in exploratory discussions regarding a possible acquisition of Van Kasper.
Additionally, Berkshire Capital contacted several brokerage firms, some of
which expressed an interest in entering into preliminary discussions regarding
a possible acquisition of Van Kasper.
Between late May and mid-June of 1998, Van Kasper executed confidentiality
agreements with many of the aforementioned parties. Thereafter, from mid-June
to early July, Berkshire Capital, on behalf of Van Kasper, distributed copies
of a confidential memorandum describing, in part, the business operations and
financial performance of Van Kasper as of that date.
Subsequently, several of these parties or Van Kasper declined to pursue
further discussions at that time.
During late May and mid-to-late July, a representative of Berkshire Capital
and representatives of Van Kasper, comprised of Mr. F. Van Kasper, Mr. Stephen
Adams and Mr. Bruce Emmeluth, who are members of the Van Kasper board of
directors (the "Board Representatives"), together with other members of Van
Kasper senior management, held exploratory discussions with representatives of
the remaining parties regarding a possible acquisition of Van Kasper.
Additionally, a representative of Berkshire Capital held various telephone
conversations with various representatives of these parties throughout July and
early August.
As a result of the foregoing discussions, Berkshire Capital, on behalf of Van
Kasper, requested in late July that three of these parties, including First
Security, submit non-binding proposals outlining the terms and conditions of an
acquisition of Van Kasper. Two of these parties, including First Security,
submitted proposals to Berkshire Capital in early August. Discussions with the
remaining parties were terminated or suspended at that time.
Between August 4 and August 10, 1998, a representative of Berkshire Capital
held discussions with the Board Representatives and Van Kasper senior
management to review the general terms of the proposals submitted by the two
bidders, including but not limited to, the valuation of Van Kasper, the timing
of a possible transaction, matters related to the management of Van Kasper
within the proposed acquirer's organization, key employee retention issues and
other related matters. Following consideration of the proposals from these two
parties, the Board Representatives on August 10, 1998 elected to proceed with
discussions with First Security and to begin due diligence review.
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On August 12, 1998, Van Kasper retained Skadden, Arps, Slate, Meagher & Flom
LLP ("Skadden, Arps"), which shortly thereafter began conducting a preliminary
legal due diligence review of First Security. From August 12 through 14, 1998
and September 3 through 4, 1998, Van Kasper and First Security, together with
its financial advisor, J.P. Morgan & Co. Incorporated, held due diligence
sessions in San Francisco.
During the period August 17 to September 17, 1998, Skadden, Arps distributed
an initial draft of a merger agreement (the "Original Merger Agreement") to
Ray, Quinney & Nebeker ("Ray, Quinney"), counsel to First Security, and the
parties discussed various issues raised by the draft Original Merger Agreement
and other draft definitive agreements.
On September 18, 1998, the Van Kasper board of directors held a special
meeting to discuss the status of discussions between First Security and Van
Kasper. At that meeting, Skadden, Arps advised the directors on the terms of
the definitive agreements. Berkshire Capital then made a financial presentation
in respect of the proposed Merger and rendered to the Van Kasper board of
directors its oral opinion (which was subsequently confirmed in writing by
delivery of a written opinion dated September 22, 1998) to the effect that, as
of such date and based upon and subject to certain matters stated in such
opinion, the Merger Consideration to be received by Van Kasper shareholders was
fair, from a financial point of view, to such shareholders. See "--Opinion of
Van Kasper's Financial Advisor." The Van Kasper board of directors also
authorized the Board Representatives to continue negotiation of the terms of
the offer from First Security within specified parameters and proceed with the
negotiation of the Original Merger Agreement.
Between September 18 and 20, 1998, representatives of First Security and
Board Representatives, as well as their respective counsels and financial
advisors, negotiated the terms of the Original Merger Agreement. During this
time, representatives of First Security also negotiated the terms of the Voting
Agreements with certain Van Kasper shareholders.
On September 21, 1998, the Van Kasper board of directors held a special
meeting to review the final terms and conditions of the proposed transaction
with First Security. At that meeting, Skadden, Arps advised the Van Kasper
board of directors on, among other things, the final terms of the definitive
agreements and the responsibilities of the Van Kasper board of directors. After
discussion, the Van Kasper board of directors unanimously approved the terms of
the Original Merger Agreement and directed appropriate officers of Van Kasper
to finalize and execute the Original Merger Agreement.
On September 22, 1998, the First Security board of directors reviewed and
approved the final terms and conditions of the transaction. The First Security
board of directors then authorized certain officers of First Security to
finalize and execute the Original Merger Agreement.
The definitive Original Merger Agreement was executed on behalf of First
Security, FSCMI and Van Kasper after the close of the stock market on September
22, 1998 along with the Voting Agreements, and was publicly announced before
the commencement of the business day on September 23, 1998.
Over the course of the following several weeks, the parties together with
their respective legal counsel, after gathering additional information
regarding the operations of Van Kasper and FSCMI, determined to postpone the
combination Van Kasper and FSCMI until several months after the anticipated
closing date of the Merger. The parties determined to take this action to allow
time to obtain more favorable treatment under the "gross revenue" test applied
by the Federal Reserve Board to "Section 20" broker-dealer subsidiaries of bank
holding companies. (See "THE MERGER--Regulatory Approval). The parties held
discussions between November 23, 1998 and December 9, 1998 regarding a change
in the structure of the transaction in which a newly-formed subsidiary of First
Security, VK Acq, would merge with and into Van Kasper, instead of the merger
of Van Kasper with and into FSCMI as reflected in the Original Merger
Agreement.
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On December 9, 1998, Skadden, Arps distributed a revised draft of the Merger
Agreement to Ray, Quinney and from that date through December 15, 1998, the
parties discussed various issues raised by the draft document. On December 16,
1998, the parties reviewed the final terms of the Merger Agreement and executed
the Merger Agreement shortly thereafter.
REASONS FOR THE MERGER; RECOMMENDATION OF VAN KASPER'S BOARD OF DIRECTORS
The Board of Directors of Van Kasper (the "Van Kasper Board") believes that
by joining First Security, and later combining Van Kasper with FSCMI, the
Merger will create an organization well positioned to serve their respective
clients. The Merger will combine Van Kasper's traditional investment banking,
equity underwriting, retail sale, investment advisory and investment management
services businesses with First Security's financial services strengths and
strong national corporate capital capabilities, thereby enabling the post-
Merger First Security to offer a wider array of services to its existing
customers and at the same time expand its customer base in the national market.
All of these effects are also likely to be reflected in the price of First
Security common stock to be held by Van Kasper shareholders.
In reaching its determination, the Van Kasper Board considered a number of
factors. A potential merger with First Security was considered to be
complementary with Van Kasper's long-term objectives and to provide an
opportunity to attain the following potential strategic benefits:
. The Board's belief that the terms of the Merger Agreement are attractive
in that the Merger Agreement allows the Van Kasper shareholders to become
shareholders in First Security, an institution whose stock is traded on
the NASDAQ Stock Market.
. The consideration to be received by the Van Kasper shareholders in the
Merger and the Board's view of the likelihood that the Merger would
deliver value to the Van Kasper shareholders exceeding the value that
could be expected in connection with continued independence.
. The increasing consolidation in the securities industry and the
possibility that the consolidation and the entrance into the industry of
bank holding companies might affect the competitive position of Van
Kasper in the future.
In the course of its deliberations, the Van Kasper Board reviewed with Van
Kasper's management a number of other factors relevant to the Merger. In
particular, the Van Kasper Board considered, among other things:
. The Board's familiarity with and review of First Security's business,
operations, earnings and financial condition and future capital
requirements.
. The presentation by Berkshire Capital delivered to the Van Kasper Board
on September 18, 1998, including without limitation, a comparison of the
proposed terms of the Merger to premiums paid in certain recent retail
brokerage transactions and the price performance of recent acquirers of
securities firms, and Berkshire Capital's opinion that, as of September
18, 1998, the Merger Consideration is fair from a financial point of view
to the Van Kasper shareholders.
. An analysis of the risks of the Exchange Ratio.
. The historical performance of First Security and First Security's
financial performance relative to Van Kasper's financial performance.
. The terms and conditions of the Merger Agreement, including the amount
and form of the consideration, the parties' representations, warranties,
covenants and agreements, the conditions to the respective obligations
set forth in the Merger Agreement.
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The Van Kasper Board also considered certain risks potentially arising in
connection with the Merger, including:
. The risk that the Merger will not be consummated in accordance with the
terms and the conditions of the Merger Agreement.
. The loss of Van Kasper's independence.
. The risk that benefits sought to be achieved by the Merger would not be
achieved.
The foregoing discussion of information and factors considered by the Van
Kasper Board is not intended to be exhaustive, although it is intended to
include the material factors considered. In view of the wide variety of factors
considered in connection with its evaluation of the terms of the Merger, the
Van Kasper Board did not find it practicable to, and did not, quantify or
otherwise attempt to assign relative weight to the specific factors considered
and individual members of the Van Kasper Board may have given different weight
to different factors.
The Board of Directors of Van Kasper has unanimously approved the Merger
Agreement, believes that the terms of the Merger Agreement are fair to, and in
the best interests of, Van Kasper and its shareholders, and unanimously
recommends that holders of Van Kasper shares vote "for" approval of the merger
by executing and returning Van Kasper written consents.
OPINION OF VAN KASPER'S FINANCIAL ADVISOR
Van Kasper retained Berkshire Capital to act as one of its financial advisors
in connection with the Merger and to render an opinion to the Van Kasper Board
as to the fairness of the Merger Consideration to the Van Kasper Shareholders,
from a financial point of view. Berkshire Capital is a nationally recognized
investment banking firm regularly engaged in the valuation of financial
services businesses and their securities in connection with mergers and
acquisitions, and valuations for estate, corporate and other purposes. The Van
Kasper Board selected Berkshire Capital to serve as its financial advisor in
connection with the Merger on the basis of such expertise of the firm.
A representative of Berkshire Capital attended the meetings of the Van Kasper
Board held on September 18, 1998, at which the Van Kasper Board reviewed and
considered the terms of the Merger, and September 21, 1998, at which the Van
Kasper Board approved the Merger Agreement. At the September 18, 1998 meeting,
Berkshire Capital delivered a detailed presentation based on Berkshire
Capital's analysis of the proposed transaction as described in materials
distributed to the Van Kasper Board at the meeting. Berkshire Capital rendered
its oral opinion to the Van Kasper Board that, as of such date, the Merger
Consideration was fair from a financial point of view to Van Kasper
Shareholders. Berkshire Capital reaffirmed its oral opinion on September 21,
1998 and subsequently delivered to the Van Kasper Board a written opinion dated
as of September 22, 1998 confirming its oral opinion. The Van Kasper Board
imposed no limitations on the scope of Berkshire Capital's investigations or
the procedures followed by Berkshire Capital in rendering its opinion.
The full text of Berkshire Capital's written opinion, which sets forth
certain assumptions made, matters considered and limitations on review
undertaken, is attached as Appendix C to this Prospectus/Information Statement,
is incorporated herein by reference and should be read in its entirety in
connection with this Prospectus/Information Statement. The summary of the
opinion of Berkshire Capital set forth in this Prospectus/Information Statement
is qualified in its entirety by reference to the opinion. Berkshire Capital's
opinion is directed only to the fairness of the Merger Consideration, from a
financial point of view, to the Van Kasper shareholders, and was provided to
the Van Kasper Board to assist it in connection with its consideration of the
Merger. Berkshire Capital's opinion does not address the relative merits of the
Merger as compared to any alternative business strategies that might exist for
Van Kasper and does not constitute a recommendation to any Van Kasper
shareholder as to how such shareholder should vote regarding adoption of the
Merger Agreement.
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In arriving at its opinion, Berkshire Capital, among other things: (i)
reviewed certain audited financial statements, internal financial statements
and other financial and operating data concerning Van Kasper prepared by senior
management of Van Kasper; (ii) reviewed certain publicly available financial
statements and other information of First Security; (iii) reviewed certain
other financial and operating data concerning First Security prepared by senior
management of First Security; (iv) analyzed certain financial projections
prepared by senior management of Van Kasper; (v) discussed the past and current
operations and financial condition and the prospects of Van Kasper and First
Security with members of senior management of the respective companies; (vi)
compared certain financial information for Van Kasper and First Security with
similar information for certain other companies the securities of which are
publicly traded; (vii) reviewed the reported prices and trading activity of the
First Security Common Stock; (viii) compared the reported prices and trading
activity of the First Security Common Stock with similar information for the
publicly traded securities of certain other companies; (ix) discussed the
results of regulatory examinations of Van Kasper and First Security with
members of senior management of the respective companies; (x) reviewed
forecasts of the amount and timing of synergies expected to result from the
Merger furnished to Berkshire Capital by senior management of Van Kasper and
First Security; (xi) discussed with members of senior management of Van Kasper
and First Security the strategic objectives of the Merger and their estimates
of the synergies and other benefits of the Merger for the combined company;
(xii) analyzed the pro forma impact of the Merger on the earnings per share,
book value per share and tangible book value per share of First Security;
(xiii) reviewed the financial terms, to the extent publicly available, of
certain other mergers and acquisitions of securities firms which Berkshire
Capital deemed to be relevant; (xiv) participated in discussions among
representatives of Van Kasper and First Security (and certain other parties)
and their financial and legal advisors; (xv) reviewed the Merger Agreement and
certain related documents; and (xvi) performed such other analyses and
considered such other information as Berkshire Capital deemed appropriate.
In connection with its review, Berkshire Capital assumed and relied upon
without independent verification the accuracy and completeness of all of the
information for the purposes of the opinion. In that regard, Berkshire Capital
assumed that the information relating to the prospects of Van Kasper and First
Security, including the financial projections of Van Kasper and the estimated
synergies and other benefits expected to result from the Merger, were
reasonably prepared on a basis reflecting the best currently available
judgments and estimates of senior management of Van Kasper and First Security
and that such financial projections, synergies and benefits will be realized in
the amounts and at the times contemplated thereby. Berkshire Capital did not
examine any individual loan credit files of First Security and assumed, without
independent verification, that the reserve for loan losses for First Security
is in the aggregate adequate to cover all such losses. Berkshire Capital did
not make, nor was it furnished with, any independent valuation or appraisal of
the assets or liabilities of Van Kasper or First Security and Berkshire Capital
did not conduct a physical inspection of the properties or facilities of Van
Kasper or First Security. Berkshire Capital assumed that the Merger would be
consummated substantially in accordance with the terms of the Merger Agreement
and would be accounted for as a purchase accounting transaction under generally
accepted accounting practices.
The following is a summary of the material analyses performed by Berkshire
Capital in connection with its presentation and opinion to the Van Kasper Board
on September 18, 1998. The following summary does not purport to be a complete
description of the analyses underlying the opinion of Berkshire Capital.
Analysis of Comparable Acquisitions. Berkshire Capital reviewed certain
financial data related to selected acquisitions of brokerage firms conducting a
significant retail brokerage business (the "Selected Retail Transactions")
that, in Berkshire Capital's judgment, were deemed comparable for purposes of
this analysis. The Selected Retail Transactions included the following nine
transactions announced in 1997 and 1998 (acquiree/acquiror): Hilliard-Lyons,
Inc./PNC Bank Corp.; Scott & Stringfellow Financial, Inc./BB&T Corporation;
McDonald & Company Investments, Inc./KeyCorp; The Ohio Company/Fifth Third
Bancorp; Wheat First Butcher Singer, Inc./First Union Corporation; Piper
Jaffray Companies Inc./U.S. Bancorp; Roney & Co., L.L.C./First Chicago NBD
Corporation; Oppenheimer Holdings, Inc./Canadian Imperial Bank; and Alex. Brown
Incorporated/Bankers Trust New York Corporation. For reference purposes,
Berkshire Capital
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also reviewed similar data related to selected acquisitions of brokerage firms
conducting a significant institutional brokerage business (the "Selected
Institutional Transactions"). The Selected Institutional Transactions included
the following nine transactions announced in 1997 and 1998 (acquiree/acquiror):
Robertson, Stephens & Company L.L.C./BankBoston Corporation; Bowles Hollowell
Conner & Co./First Union Corporation; Cowen & Company/Societe Generale S.A.;
Wessels, Arnold & Henderson, L.L.C./Dain Rauscher Corporation; Equitable
Securities Corporation/SunTrust Banks, Inc.; Furman Selz L.L.C./ING Groep N.V.;
Montgomery Securities/NationsBank Corporation; Robertson, Stephens & Company
L.L.C./BankAmerica Corporation; and Dillon, Read & Co. Inc./Swiss Bank
Corporation.
Berkshire Capital compared the multiples of latest twelve months ("LTM")
revenues, LTM earnings, forward earnings and book value implied by the
consideration to be received by holders of Van Kasper Shares in the Merger with
corresponding multiples indicated for the Selected Retail Transactions and the
Selected Institutional Transactions. Berkshire Capital also compared certain
financial data for Van Kasper and the acquired firms analyzed. For the purposes
of Van Kasper's LTM earnings in the analyses described herein, Berkshire
Capital used senior management's estimate of net income for the fiscal year
ended June 30, 1998, as adjusted to reflect the estimated pro forma impact of
renegotiation of Van Kasper's clearing contract, renegotiation of rebates paid
on money market fund balances and implementation of certain changes to the
retail payout grid, all of which were expected by senior management to be
concluded in fiscal 1999. Berkshire Capital also adjusted LTM earnings for
certain non-recurring items, including the gain on sale of a seat on the
Pacific Stock Exchange, certain severance and excess compensation expenses, and
a settlement loss.
The indicated price to LTM revenues multiple in the Merger was 1.97x,
compared to a median of 1.24x for the Selected Retail Transactions and 1.14x
for the Selected Institutional Transactions. The indicated price to LTM
earnings multiple in the Merger was 37.7x, compared to a median of 16.8x for
the Selected Retail Transactions and 17.8x for the Selected Institutional
Transactions. The indicated price to forward earnings multiple in the Merger
was 20.3x, compared to a median of 17.4x for the Selected Retail Transactions
and 15.1x for the Selected Institutional Transactions. The indicated price to
book value multiple in the Merger was 9.75x, compared to a median of 2.73x for
the Selected Retail Transactions and 4.10x for the Selected Institutional
Transactions. The estimated present value of employee retention payments as a
percentage of aggregate transaction value in the Merger was 10.0%, compared to
a median of 9.8% for the Selected Retail Transactions and 10.5% for the
Selected Institutional Transactions. Van Kasper's projected ratio of pre-tax
income to total revenues for fiscal 1999 was 13.2%, compared to a median ratio
of LTM pre-tax income to total revenues of 9.8% for the Selected Retail
Transactions and 13.8% for the Selected Institutional Transactions. Van
Kasper's ratio of total revenues to equity was 5.0x, compared to a median of
2.3x for the Selected Retail Transactions and 3.4x for the Selected
Institutional Transactions.
For the Selected Retail Transactions, the price to LTM revenues multiple
ranged from 0.45x to 1.96x; the price to LTM earnings multiple ranged from 7.9x
to 22.7x; the price to forward earnings multiple ranged from 14.8x to 21.6x;
the price to book value multiple ranged from 1.02x to 4.28x; the percentage of
estimated present value of employee retention payments to aggregate transaction
value ranged from 7.4% to 28.0%; the ratio of pre-tax income to total revenues
ranged from 8.0% to 23.1%; and the ratio of total revenues to equity ranged
from 1.6x to 3.5x. For the Selected Institutional Transactions, the price to
LTM revenues multiple ranged from 1.10x to 3.17x; the price to LTM earnings
multiple ranged from 15.4x to 30.6x; the price to forward earnings multiple
ranged from 10.6x to 20.5x; the price to book value multiple ranged from 2.91x
to 12.00x; the percentage of estimated present value of employee retention
payments to aggregate transaction value ranged from 4.3% to 44.8%; the ratio of
pre-tax income to total revenues ranged from 8.0% to 30.0%; and the ratio of
total revenues to equity ranged from 1.8x to 8.0x. Certain of the acquired
companies analyzed were not public companies. As such, selected transactions
could not be used to calculate each of the separate valuation multiples in
instances where certain data was not publicly available.
Pro Forma Merger Analysis. Berkshire Capital analyzed certain potential pro
forma effects of the Merger in calendar years 1999 and 2000, assuming that
certain cost savings and revenue enhancements anticipated by the management of
Van Kasper and First Security to result from the Merger are achieved. Berkshire
Capital
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prepared this analysis assuming, in the first case, that no shares of First
Security Common Stock issued to holders of Van Kasper Shares would be
repurchased in the open market, and in the second case, that shares equal to
the number of shares issued to holders of Van Kasper Shares would be
repurchased. Earnings per share estimates for First Security were based on mean
estimates published by I/B/E/S, a data service that monitors and publishes a
compilation of earnings estimates produced by selected research analysts on
companies of interest to investors. This analysis indicated that (i) if no
shares are repurchased, the Merger would be dilutive to First Security's
estimated earnings per share by 1.3% in 1999 and accretive to First Security's
estimated earnings per share by 0.4% in 2000, and (ii) if all such shares are
repurchased, the Merger would be dilutive to First Security's estimated
earnings per share by 0.4% in 1999 and accretive to First Security's estimated
earnings per share by 1.4% in 2000. Berkshire Capital also estimated the pro
forma effects on the stated book value per share and tangible book value per
share of First Security as of June 30, 1998. If no shares are repurchased, the
Merger would be accretive to stated book value per share by 2.4% and dilutive
to tangible book value per share by 1.2%. If all such shares are repurchased,
the Merger would be dilutive to stated book value per share by 0.1% and
dilutive to tangible book value per share by 5.0%.
Analysis of Revenue Test for Issuance of Deferred Consideration. Berkshire
Capital reviewed the revenue targets set forth in the Merger Agreement which
must be achieved by Van Kasper in order for the Holdback Shares to be issued,
and compared such targets with senior management's projections of revenues for
the four-year period ending with fiscal year 2002. Berkshire Capital also
compared these revenue targets to senior management's projections of pro forma
revenues, which included estimates of revenue enhancements expected to result
from the Merger. Berkshire Capital noted that a differential of approximately
six months exists between senior management's projections, which were prepared
on a fiscal-year basis, and the anticipated anniversary dates of the closing of
the Merger. This analysis indicated that (i) projected cumulative revenues for
the three-year period ending with fiscal year 2001 amounted to 118% of the
three-year revenue target; (ii) projected cumulative pro forma revenues for the
three-year period amounted to 144% of the three-year revenue target; (iii)
projected cumulative revenues for the four-year period ending with fiscal year
2002 amounted to 125% of the four-year revenue target; and (iv) projected
cumulative pro forma revenues for the four-year period amounted to 156% of the
four-year revenue target.
Public Market Valuation. Berkshire Capital estimated the market value of Van
Kasper as a publicly traded company by applying the median price to LTM
earnings ratio, the median price to forward earnings ratio and the median price
to book value ratio of a group of selected publicly traded securities firms
(the "Public Peer Group") to Van Kasper's LTM earnings, forward earnings and
book value, respectively, as adjusted in each case for the estimated pro forma
impact of the capital raised in an initial public offering. The Public Peer
Group included The Advest Group, Inc.; Dain Rauscher Corporation; EVEREN
Capital Corporation; First Albany Companies Inc.; Freedom Securities
Corporation; Interstate/Johnson Lane, Inc.; Morgan Keegan, Inc.; Ragen
MacKenzie Group Incorporated and Stifel Financial Corp. Berkshire Capital
compared selected financial and market statistics and ratios using financial
data for the latest twelve months ended June 30, 1998 (or the end of the most
recent quarterly period available as of September 16, 1998) for Van Kasper and
the Public Peer Group and market data as of September 16, 1998 for the Public
Peer Group. Earnings per share estimates for the companies comprising the
Public Peer Group were based on mean fiscal-year estimates as of September 16,
1998 published by I/B/E/S.
This analysis showed that the Public Peer Group had: (i) a median ratio of
price to LTM earnings of 11.0x; (ii) a median ratio of price to forward
earnings of 10.4x; (iii) a median ratio of price to book value of 1.44x; (iv) a
median three-year revenue growth rate of 12.3%, compared to 36.5% for Van
Kasper; (v) a median ratio of pre-tax earnings to total revenues of 10.5%,
compared to LTM and projected fiscal year 1999 ratios of pre-tax earnings to
total revenues of 9.1% and 13.2%, respectively, for Van Kasper; (vi) a median
ratio of commissions to total revenues of 37.7%, compared to 73.2% for Van
Kasper; (vii) a median ratio of principal transactions to total revenues of
23.3%, compared to 2.7% for Van Kasper; (viii) a median ratio of investment
banking revenue to total revenues of 14.2%, compared to 14.6% for Van Kasper;
(ix) a median ratio of compensation expense to total revenues of 57.1%,
compared to 66.3% for Van Kasper; and (x) a median ratio of total revenues to
average equity of 2.9x, compared to 5.0x for Van Kasper.
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<PAGE>
In preparing the public market valuation, Berkshire Capital assumed that (i)
the underwriting discount in an initial public offering of Van Kasper common
stock would be 7.00%; (ii) other offering expenses would amount to 2.00% of
gross proceeds; (iii) all shares offered to the public would be newly issued
shares; and (iv) the net proceeds would generate an after-tax return of 6.00%.
Berkshire Capital prepared the public market valuation assuming that the
initial public offering would generate gross proceeds ranging between $15.0
million and $25.0 million. In deriving the indicated public market valuation,
Berkshire Capital applied weightings of 60%, 20% and 20% to the Public Peer
Group's median price to forward earnings ratio, price to LTM earnings ratio and
price to book value ratio, respectively, reflecting Berkshire Capital's
judgment as to the relative weights applied to these valuation factors by
investors in common stocks of securities firms. Berkshire Capital also applied
a discount ranging from 0% to 20% due to the likelihood of limited secondary
market trading activity, research coverage and institutional ownership in the
shares of a company with a public float within the range analyzed and a total
valuation falling below the range of market values for the members of the
Public Peer Group. This public market valuation indicated a reference range of
$37.1 million to $53.6 million.
Discounted Dividend Analysis. Berkshire Capital performed a discounted
dividend analysis to determine a range of present values of Van Kasper assuming
Van Kasper continued to operate as a stand-alone entity. This range was
determined by adding (i) the present value of the future stream of dividends
that Van Kasper could produce over the five-year period from fiscal year 1999
to fiscal year 2003 and (ii) the present value of the "terminal value" of Van
Kasper at the end of fiscal year 2003, assuming Van Kasper performed in
accordance with financial forecasts prepared by senior management. The terminal
value at the end of the five-year period was determined by applying a composite
price to LTM earnings multiple, with a 75% weighting, and a composite price to
book value multiple, with a 25% weighting, to Van Kasper's projected fiscal
year 2003 net income and June 30, 2003 stockholders' equity, respectively.
These composite multiples were based on the average of the corresponding
multiples for the Public Peer Group and the Selected Retail Transactions. The
dividend stream and terminal value were discounted to present values using
discount rates ranging from 13.0% to 18.0%, which Berkshire Capital viewed as
the appropriate range of discount rates for a company with Van Kasper's risk
characteristics. This analysis indicated a reference range of $62.5 million to
$77.5 million.
Berkshire Capital also performed a range of sensitivity analyses utilizing
various alternative terminal value multiples and probability-weighted earnings
scenarios. Berkshire Capital applied the composite terminal multiples described
above and price to LTM earnings multiples of 10.0x, 12.0x and 14.0x to four
earnings scenarios, including (i) senior management's projections; (ii) a
scenario assuming projected fiscal year 1999 earnings are achieved and earnings
growth over the next four years mimics the composite earnings growth rate
experienced by certain publicly traded securities firms over the years 1987 to
1991, resulting in a compound annual earnings growth rate of 11.1% between
fiscal year 1999 and fiscal year 2003; (iii) a scenario assuming earnings
growth of 15% from projected fiscal year 1999 results; and (iv) a scenario
assuming earnings growth of 35% from projected fiscal year 1999 results.
Berkshire Capital then constructed various probability scenarios with respect
to each of the four earnings scenarios, ranging from (a) an 80.0% probability
of achieving senior management's forecasts and a 6.7% likelihood of achieving
each of the three alternative forecasts, to (b) a 25.0% probability of
achieving each of the four earnings scenarios. This probability-weighted
analysis indicated a reference range, using discount rates ranging from 13.0%
to 18.0%, of $54.6 million to $74.9 million based on the composite terminal
multiples; a reference range of $41.3 million to $56.4 million based on a 10.0x
terminal earnings multiple; a reference range of $49.3 million to $67.3 million
based on a 12.0x terminal earnings multiple; and a reference range of $57.3
million to $78.2 million based on a 14.0x terminal earnings multiple. Berkshire
Capital noted that the discounted cash flow analysis was included because it is
a widely used valuation methodology, but noted that the results of such
methodology are highly dependent upon numerous assumptions, including earnings
growth rates, terminal values and discount rates.
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<PAGE>
Comparison of Selected Publicly Traded Banking Companies. Berkshire Capital
compared the financial and market performance of First Security based on
various measures of earnings performance, expected earnings growth, operating
efficiency, revenue composition, asset quality and capital adequacy and various
measures of market performance, including price to LTM earnings multiples and
historical stock price performance, to those of a group of selected publicly
traded banks which Berkshire Capital deemed to be relevant. This group (the
"Bank Peer Group") consisted of AmSouth Bancorporation; City National
Corporation; Commerce Bancshares, Inc.; First Tennessee National Corporation;
Huntington Bancshares Incorporated; Regions Financial Corporation; SouthTrust
Corporation; UnionBanCal Corporation; Union Planters Corporation and Zions
Bancorporation. Forward earnings per share estimates and estimated earnings
growth rates for the companies comprising the Bank Peer Group were based on
mean estimates as of September 16, 1998 published by I/B/E/S.
Based on a review of such information for the Bank Peer Group, Berkshire
Capital determined (in each case based on company data as of or for the twelve
months ended March 31, 1998, and closing stock prices as of September 16, 1998)
that: (i) with respect to the ratio of price to LTM earnings per share, the
Bank Peer Group had a median of 17.3x compared to 14.8x for First Security;
(ii) with respect to the estimated growth in earnings per share between 1997
and 1998, the Bank Peer Group had a median of 14.2% compared to 12.8% for First
Security; (iii) with respect to the estimated growth in earnings per share
between 1998 and 1999, the Bank Peer Group had a median of 12.8% compared to
11.4% for First Security; (iv) with respect to the estimated five-year growth
in earnings per share, the Bank Peer Group had a median of 11.3% compared to
11.3% for First Security; (v) with respect to the percentage change in stock
price over the one-year period ending on September 16, 1998, the Bank Peer
Group had a median of 1.9% compared to negative 3.9% for First Security; (vi)
with respect to annualized stock price performance over the five-year period
ending on August 28, 1998, the Bank Peer Group had a median of 23.6% compared
to 20.6% for First Security; (vii) with respect to annualized stock price
performance over the ten-year period ending on August 28, 1998, the Bank Peer
Group had a median of 21.2% compared to 21.1% for First Security; (viii) with
respect to return on average assets, the Bank Peer Group had a median of 1.35%
compared to 1.35% for First Security; (ix) with respect to return on average
equity, the Bank Peer Group had a median of 16.5% compared to 17.2% for First
Security; (x) with respect to efficiency ratio, the Bank Peer Group had a
median of 55.2% compared to 58.8% for First Security; (xi) with respect to the
ratio of fee income to net revenues, the Bank Peer Group had a median of 27.8%
compared to 38.3% for First Security; (xii) with respect to net interest
margin, the Bank Peer Group had a median of 4.38% compared to 4.29% for First
Security; (xiii) with respect to the ratio of nonperforming assets to total
assets, the Bank Peer Group had a median of 0.47% compared to 0.21% for First
Security; (xiv) with respect to the ratio of equity to assets, the Bank Peer
Group had a median of 8.03% compared to 7.73% for First Security; and (xv) with
respect to the ratio of tangible equity to assets, the Bank Peer Group had a
median of 7.19% compared to 6.73% for First Security.
Berkshire Capital's opinion is dated as as of September 22, 1998, and is
necessarily based on market, economic and other conditions as they existed and
could be evaluated on, and on the information made available to it as of, the
date of such opinion. Events occurring after that date could materially affect
the assumptions and conclusions contained in Berkshire Capital's opinion.
Berkshire Capital has not undertaken to reaffirm or revise its opinion or
otherwise comment on any events occurring after that date.
In connection with rendering its opinion, Berkshire Capital performed a
variety of financial analyses. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
partial analysis or summary description. Accordingly, notwithstanding the
separate factors summarized above, Berkshire Capital believes that its analyses
must be considered as a whole and that selecting portions of its analyses and
the factors considered by it, without considering all analyses and factors,
could create an incomplete view of the evaluation process underlying its
opinion. In addition, Berkshire Capital considered the results of all such
analyses and did not assign relative weights to any of the analyses, so that
the ranges of valuations resulting from any particular analysis described above
should not be taken to be Berkshire Capital's view of the actual value of Van
Kasper or First Security.
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<PAGE>
In performing its analyses, Berkshire Capital made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of Van Kasper, First Security or
Berkshire Capital. The analyses performed by Berkshire Capital are not
necessarily indicative of actual values or future results, all of which may be
significantly more or less favorable than that suggested by such analyses. Such
analyses were prepared solely as part of Berkshire Capital's analysis of the
fairness of the Merger Consideration to the holders of Van Kasper Shares from a
financial point of view and were provided to the Van Kasper Board in connection
with the delivery of Berkshire Capital's opinion. With respect to the
comparison of selected companies analyses and the analysis of comparable
acquisitions summarized above, no company or transaction utilized as a
comparison is identical to Van Kasper, First Security or the Merger.
Accordingly, an analysis of comparable companies and comparable business
combinations is not mathematical; rather it necessarily involves complex
considerations and judgments concerning the differences in financial and
operating characteristics of the companies and other factors that could affect
the public trading values or announced transaction values, as the case may be,
of the companies concerned. The analyses do not purport to be appraisals or
reflect the prices at which any securities might trade or the prices at which a
company might be sold at the present time or any time in the future. In
addition, the opinion of Berkshire Capital was just one of the many factors
taken into consideration by the Van Kasper Board in making its determination to
approve the Merger Agreement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Van Kasper Board with respect to
the Merger, the Van Kasper shareholders should be aware that certain members of
the management of Van Kasper have interests in the Merger that are in addition
to the interests of Van Kasper shareholders generally. These interests include
the following:
Messrs. F. Van Kasper, Bruce E. Nollenberger, Bruce P. Emmeluth, D. Jonathan
Merriman, Wayne A. Scott and John H. Chung (the "Management Executives") have
entered into four-year employment agreements (the "Management Employment
Agreements") with FSCMI and First Security which will become effective upon
consummation of the Merger.
Mr. Van Kasper will serve as Executive Vice President of FSCMI, President of
the VK Division and Chairman of the Management Committee of the VK Division.
Messrs. Nollenburger, Emmeluth, Merriman, Scott and Chung will each have the
titles of Senior Managing Director of FSCMI and Executive Vice President of the
VK Division, and will serve in the following capacities with VK Division.
<TABLE>
<C> <S>
Mr. Nollenburger Managing Director of Private Brokerage
Mr. Emmeluth Managing Director of Corporate Finance
Mr. Merriman Managing Director of Equity Capital Markets
Mr. Scott Chief Financial Officer
Mr. Chung General Counsel
</TABLE>
The Management Employment Agreements provide for base salaries and minimum
annual bonuses, as follows: Mr. Van Kasper, $300,000 and $150,000; Mr.
Nollenburger, $200,000 and $125,000; Mr. Emmeluth, $200,000 and $125,000; Mr.
Merriman, $200,000 and $125,000; Mr. Scott, $200,000 and $75,000; and
Mr. Chung, $200,000 and $50,000 respectively. In addition, the Management
Executives will be eligible to receive an annual performance bonus payable from
a performance bonus pool in the aggregate amount of not less than $679,000,
which will be divided among the Management Executives as determined by the
Chairman of the Management Committee of the VK Division (initially, Mr. Van
Kasper) in accordance with the performance incentive compensation plans,
policies and practices established by the Management Committee of the VK
Division.
In the event the Management Executives' employment is terminated by FSCMI
without "cause" or by the Management Executives by reason of a material breach
of the Management Employment Agreements or other
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<PAGE>
"good reason" (each as defined in the Management Employment Agreements), the
Management Executives will be entitled to receive (i) a lump sum amount equal
to the present value of the remaining base salary due through the end of the
four-year employment term (with a minimum of one year) and (ii) a pro rata
annual bonus for the year in which such termination occurs. The Management
Employment Agreements also contain certain non-competition provisions.
Outstanding options and warrants that have not previously vested will
accelerate and become exercisable effective immediately prior to the closing of
the Merger. Of the currently outstanding options and warrants to purchase
113,440 shares of Van Kasper Preferred Stock held by all persons, officers and
directors of Van Kasper currently hold options and warrants to purchase 29,600
of such shares. All such options will be exercised pursuant to the cashless
exercise procedure described in "--Van Kasper Options." Options held by Van
Kasper's executive officers and directors that are subject to acceleration are
as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES RANGE OF
SUBJECT TO EXERCISE PRICES
NAME NON-VESTED OPTIONS ($/SHARE)
---- ------------------ ---------------
<S> <C> <C>
Bruce Nollenburger..................... 5,600 $15.54-19.51
Bruce Emmeluth......................... 5,000 $16.34-18.96
D. Jonathan Merriman................... 19,000 $20.00
</TABLE>
Indemnification and Insurance. Pursuant to the Merger Agreement, First
Security will maintain for a period of three years after the Effective Time,
with respect to claims arising from facts or events which occurred before the
Effective Time, officers' and directors' liability insurance covering the
directors and officers of Van Kasper who were covered (in their capacities as
officers and directors of Van Kasper) as of the date of the Merger Agreement by
Van Kasper's existing officers' and directors' liability insurance policies, on
terms substantially no less advantageous to such officers and directors than
such existing insurance, subject to certain limitations.
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<PAGE>
THE MERGER AGREEMENT
The following is a summary of certain provisions of the Merger Agreement, a
copy of which is attached hereto as Appendix A and incorporated herein by
reference. Such summary is qualified in its entirety by reference to the full
text of the Merger Agreement. Capitalized terms used in this summary but not
otherwise defined in this summary have the respective meanings ascribed to such
terms in the Merger Agreement.
THE MERGER
Subject to the terms and conditions of the Merger Agreement, at the Effective
Time, VK Acq will merge with and into Van Kasper and Van Kasper will be the
surviving entity. As a result of the Merger, Van Kasper will become a wholly
owned subsidiary of First Security. Van Kasper will then be called "First
Security Van Kasper, Inc.," and will have its own board of directors and
officers. As a wholly owned subsidiary of First Security, the new Van Kasper
subsidiary will be controlled by First Security. First Security and Van Kasper
have reached an agreement on procedures for the management of the Van Kasper
business unit within First Security to help preserve Van Kasper's management-
style and culture following the Merger.
THE EFFECTIVE TIME
Promptly after all conditions to the Merger Agreement have been satisfied or
waived, the articles of merger pertaining to the Merger or such other documents
as may be appropriate or necessary to effect the Merger, will be executed and
filed in accordance with the URBCA and the CGCL, as the case may be, and the
Merger will become effective at the Effective Time.
MANAGEMENT OF VAN KASPER FOLLOWING THE MERGER
The Merger Agreement and its ancillary agreements set forth matters related
to the management of Van Kasper following the Merger, including responsibility,
authority and reporting lines for the Van Kasper business unit from and after
the Effective Time. (See "THE MERGER--Interests of Certain Persons in the
Merger.")
CONVERSION OF SHARES; EXCHANGE RATIO
In accordance with the Merger Agreement, as of the Effective Time, each
issued and outstanding share of the Van Kasper common stock and Van Kasper
preferred stock (collectively, herein as the "Van Kasper Shares") will be
converted into the right to receive the Merger Consideration (as defined
below). Each holder of a certificate representing any Van Kasper Shares will
cease to have any rights with respect thereto, except the right to receive,
upon the surrender of any such certificates, the Merger Consideration upon the
terms and subject to the conditions set forth in the Merger Agreement.
CERTAIN DEFINITIONS. The Merger Agreement provides for the conversion of the
Van Kasper Shares into shares of First Security Common Stock under an Exchange
Ratio that is somewhat complex. To understand the details of the Exchange
Ratio, the following definitions are provided:
"Average First Security Share Price" mean the average of the last sales
prices per share of First Security Common Stock on the NASDAQ National
Market for the ten (10) consecutive trading days ending on the trading day
which is five (5) days prior to the Closing Date (such period referred to
herein as the "Closing Calculation Period").
"Cash Exercised Option" means each option or warrant to purchase Van
Kasper Shares exercised between the date of the Merger Agreement and the
Closing, where the exercise price of such option or warrant is paid by the
option or warrant holder to Van Kasper in cash or cash equivalent or by
means of a loan from Van Kasper to such holder.
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"Van Kasper Share Price" means the quotient of (A) the sum of (i) $90
million, (ii) the aggregate exercise price of all Cash Exercised Options,
and (iii) the aggregate exercise price of all options to be exercised
pursuant to the cashless exercise procedure described below, divided by (B)
the sum of, as of the Effective Time, (1) the total number of issued and
outstanding shares of Van Kasper Common Stock, (2) the total number of
issued and outstanding shares of Van Kasper Preferred Stock, and (3) the
total number of Van Kasper Shares subject to all vested Van Kasper Options.
"Exchange Ratio" means (in each case, rounded to the nearest one one-
hundred thousandth of a share and in each case, as adjusted to reflect any
split, combination, dividend or other distribution made prior to the
Effective Time),
(i) if the Average First Security Share Price is greater than or
equal to $22.00, the number determined by dividing Van Kasper Share
Price by $22.00;
(ii) if the Average First Security Share Price is less than or equal
to $18.00, the number determined by dividing Van Kasper Share Price by
$18.00; and
(iii) if the Average First Security Share Price is greater than
$18.00 and less than $22.00, the number determined by dividing the Van
Kasper Share Price by Average First Security Share Price;
"Merger Consideration" for each share of Van Kasper Shares will mean that
number of duly authorized, validly issued, fully paid and nonassessable
shares of First Security Common Stock equal to the Exchange Ratio.
HOLDBACK AMOUNT. Twenty-five percent (25%) of the aggregate Merger
Consideration payable in shares of First Security Common Stock (the "Holdback")
will be withheld at the Closing and issued to the Van Kasper shareholders as of
the Closing Date on the third and fourth anniversaries of the Closing Date as
follows:
(a) If the aggregate of revenues attributable to the operations of the
Van Kasper and accounted for in a manner consistent with past practice (the
"Van Kasper Revenues") for the three-year period beginning on the day
immediately following the Closing Date and ending on the third anniversary
of the Closing Date is equal to or greater than $176,540,000, then 50% of
the Holdback plus an amount in cash equal to the cash dividends, if any,
that would have accrued during such period on such 50% portion of the
Holdback had such shares of First Security Common Stock been issued as of
the Closing Date, will be delivered by First Security as soon as reasonably
practicable following such third anniversary to the holders of record of
Van Kasper Shares as of the Closing Date entitled thereto; and
(b) If the aggregate of Van Kasper Revenues for the four-year period
beginning on the day immediately following the Closing Date and ending on
the fourth anniversary of the Closing Date is equal to or greater than
$241,370,000, then 50% (or 100% if no portion of the Holdback was delivered
pursuant to clause (a) above) of the Holdback plus an amount in cash equal
to the cash dividends, if any, that would have accrued during such period
on such 50% (or 100%, as the case may be) portion of the Holdback had such
shares of First Security Common Stock been issued as of the Closing Date,
will be delivered by First Security as soon as reasonably practicable
following such fourth anniversary to the holders of record of Van Kasper
Shares as of the Closing Date entitled thereto.
Notwithstanding the foregoing, the Holdback will be subject to offset by
any amounts owed by Van Kasper to First Security, VK Acq, or related
persons pursuant to the provisions of the Merger Agreement that relate to
indemnification.
(c) The Exchange Ratio will be appropriately adjusted with respect to the
Holdback Shares so as to ensure that the holders of Van Kasper Shares as of
the Closing Date will realize the effects of transactions relating to First
Security or the First Security Common Stock occurring subsequent to the
Closing Date as if such holders had been issued the First Security Common
Stock on the Closing Date. These events will include, without limitation:
(i) a split or combination of the First Security Common Stock, or payment
of a stock dividend or other stock distribution in First Security Common
Stock; (ii) an issuance to all holders
32
<PAGE>
of First Security Common Stock of rights or warrants to purchase First
Security Common Stock; (iii) a distribution to all holders of First
Security Common Stock of capital stock (other than First Security Common
Stock) or evidences of indebtedness of First Security or of assets
(including securities, but excluding those rights, warrants, dividends and
distributions referred to above); and (iv) distributions of cash (other
than any quarterly cash dividend on the First Security Common Stock).
In the event of (i) a reclassification of the First Security Common Stock or
(ii) a consolidation, merger or combination involving the First Security or a
sale or conveyance to another person of all or substantially all of the
property and assets of First Security, in each case, as a result of which the
holders of First Security Common Stock will be entitled to receive stock, other
securities, other property or assets (including cash) with respect to or in
exchange for such First Security Common Stock, holders of record of Van Kasper
Shares on the Closing Date will be entitled, in such event, to the kind and
amount of shares or stock, other securities or other property or assets
(including cash) which they would have owned or been entitled to receive upon
such reclassification, consolidation, merger, combination, sale or conveyance
had the Holdback Shares been issued prior to such event. Any Holdback Shares
that are issued on the third and fourth anniversaries of the Closing Date will
be issued to the holders of Van Kasper Shares as of the Closing Date. Your
interests in the Holdback Shares will not be represented by any form of
certificate or instrument, will not be assignable or transferable, except by
operation of law, and will not be represented by a separate security with a
separate trading market.
VAN KASPER OPTIONS
Immediately prior to the Effective Time, each then outstanding option or
warrant to purchase Van Kasper Shares (a "Van Kasper Option") issued under each
stock option or warrant plan, program, agreement or arrangement of Van Kasper
(each a "Van Kasper Stock Plan") that has previously vested or will have vested
upon consummation of the Merger (a "Vested Van Kasper Option") will be
exercised pursuant to a cashless exercise procedure whereby each holder of a
Vested Van Kasper Option will be entitled to receive on a net basis that number
of Van Kasper Shares equal to X in the following formula:
X = A(B-C)
------
B
where A equals the number of Van Kasper Shares subject to such Vested Van
Kasper Option, B equals the Van Kasper Share Price and C equals the strike
price of such Vested Van Kasper Option; provided, that X will be rounded, in
the case of any Vested Van Kasper Option other than an "incentive stock option"
(within the meaning of section 422 of the Code), up and, in the case of any
incentive stock option, down to the nearest whole share, as necessary. The
aggregate number of shares so issuable with respect to all Vested Van Kasper
Options will be referred to herein as the "Van Kasper Option Shares." At the
Effective Time, each Van Kasper Option Share will be converted into shares of
First Security Common Stock pursuant to the Merger Agreement for the account of
the holder of such Vested Van Kasper Option.
Prior to the Effective Time, Van Kasper will use its reasonable best efforts
to obtain the consent of each holder of (i) a Van Kasper Option that is not a
Vested Van Kasper Option as of immediately prior to the Effective Time and (ii)
any contingent right to be granted an option or warrant to acquire Van Kasper
Shares that would otherwise remain outstanding pursuant to its terms following
the Effective Time (such Van Kasper Options and contingent rights, "Non-Vested
Options") to the cancellation of such Non-Vested Option.
For a discussion of the Federal income tax consequences relating to the
cashless exercise of Vested Van Kasper Options see "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES--Taxation of Option Holders."
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<PAGE>
DISSENTING SHARES
Dissenting Shares will not be converted into or represent a right to receive
the Merger Consideration. A dissenting Van Kasper Shareholder will be entitled
to only such rights as are granted by the CGCL. (See "RIGHTS OF DISSENTING VAN
KASPER SHAREHOLDERS.")
EXCHANGE OF SHARES AND CERTIFICATES
As of the Effective Time, First Security will deposit with the Exchange Agent
for the benefit of the Van Kasper Shareholders, for exchange through the
Exchange Agent, (i) cash in an amount sufficient to pay cash in lieu of
fractional shares, and (ii) certificates representing the shares of First
Security Common Stock (the "Initial Shares"), other than shares of First
Security Common Stock that will be held back pursuant to the Merger Agreement
(the "Holdback Shares") issuable in exchange for outstanding Van Kasper Shares.
As soon as reasonably practicable after the Effective Time, the Exchange
Agent will mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding Van Kasper
Shares (the "Certificates") whose shares were converted into the right to
receive shares of First Security Common Stock pursuant to the Merger Agreement,
(i) a letter of transmittal (which will specify that delivery will be effected,
and risk of loss and title to the Certificates will pass, only upon delivery of
the Certificates to the Exchange Agent and will be in such form and have such
other provisions as First Security may reasonably specify), and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for certificates representing shares of First Security Common Stock, and cash
in lieu of fractional shares of First Security Common Stock. Upon surrender of
a Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by First Security, together with such letter of
transmittal, duly executed, and such other documents as may reasonably be
required by the Exchange Agent, the holder of such Certificate will be entitled
to receive in exchange therefor (i) a certificate representing that whole
number of Initial Shares which such holder has the right to receive pursuant to
the provisions of this Article III and (ii) cash in lieu of any fractional
number of Initial Shares. In addition, upon the occurrence of a Distribution
Event, the holder of such Certificate will also be entitled to receive in
exchange therefore (i) a certificate representing that whole number of Holdback
Shares which such holder has the right to receive, (ii) cash in lieu of any
fractional number of Holdback Shares and (iii) cash equal to the dividends
payable with respect to such Holdback Shares. Until surrendered each
Certificate will be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Merger Consideration and cash
in lieu of any fractional shares of First Security Common Stock. No interest
will be paid or accrue on any cash payable in lieu of any fractional shares of
First Security Common Stock.
VAN KASPER SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY HAVE
RECEIVED TRANSMITTAL LETTERS. VAN KASPER SHAREHOLDERS SHOULD NOT RETURN SHARE
CERTIFICATES WITH THEIR VAN KASPER WRITTEN CONSENTS.
FRACTIONAL SHARES
No certificates representing fractional shares of First Security Common Stock
will be issued upon the surrender for exchange of Certificates.
Each Van Kasper Shareholder who would otherwise have been entitled to receive
a fraction of a share of First Security Common Stock in connection with the
Merger will receive, in lieu thereof, cash (without interest) in an amount
equal to (A) such fraction multiplied by (B) the Average First Security Share
Price.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various customary representations and
warranties of Van Kasper relating to, among other things: (a) the organization
of Van Kasper and similar corporate matters; (b) Van Kasper's capital
structures; (c) authorization, execution, delivery, performance and
enforceability of the Merger
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Agreement and related agreements; (d) the absence of material violations; (e)
certain consents and approvals; (f) the absence of material defaults; (g) the
absence of material litigation; (h) compliance with law; (i) the accuracy of
Van Kasper's financial statements and the absence of undisclosed liabilities;
(j) the absence of certain changes; (k) matters related to employee benefit
plans and ERISA; (l) matters related to taxes; (m) intellectual property; (n)
contracts; (o) environmental matters; (p) labor laws; (q) Van Kasper's
investment contracts, funds and clients; (r) brokers and finders; (s) insurance
matters; (t) the absence of regulatory agreements; (u) investment securities;
and (v) interest rate risk management instruments.
The Merger Agreement also contains various customary representations and
warranties of First Security, FSCMI and VK Acq relating to, among other things,
(a) corporate organization; (b) capitalization; (c) authority of First Security
and VK Acq to enter into, and the execution, delivery, validity and
enforceability of the Merger Agreement; (d) the absence of certain violations;
(e) the necessity of obtaining governmental consents; (f) the absence of
certain defaults; (g) the absence of material litigation, (h) the accuracy and
completeness of documents filed with the SEC by First Security; (i) the absence
of certain changes; (j) agreements with regulatory agencies; (k) brokers and
finders; and (l) satisfaction of conditions in Section 15(f) of the Investment
Company Act of 1940.
CERTAIN COVENANTS
Pursuant to the Merger Agreement, Van Kasper has made various customary
covenants, including that, during the period from September 22, 1998 until the
Effective Time, it will: (a) conduct its operations and business in the usual
and ordinary course of business; (b) permit First Security to make such
additional investigation of the business and properties of Van Kasper as First
Security deems reasonably necessary or advisable; (c) supplement or amend, if
necessary, the Van Kasper disclosure schedule to the Merger agreement; (d)
refrain from soliciting or attempting to procure offers related to the
acquisition of Van Kasper by a party other than First Security or VK Acq; (e)
use its best efforts to enter into agreements with certain employees;
(f) obtain the consents of its clients with respect to investment contracts
with such clients; and (g) use its reasonable best efforts to obtain such vote
of its shareholders as may be required to prevent any payment from being
treated as an "excess parachute payment" within the meaning of Section 280G of
the Internal Revenue Code.
First Security and VK Acq will: (a) refrain from effecting any purchase or
acquisition of First Security Common Stock during the closing Calculation
Period; (b) establish at the Closing and maintain for a period of four (4)
years following Closing an employee retention pool in the amount of $10
million; (c) provide directors and officers of Van Kasper indemnification
against losses suffered as a result of such persons service as a director or
officer of Van Kasper; (d) prior to the Effective Time, file with the NASDAQ
National Market a notification for listing covering shares issuable in the
Merger; (e) use the Van Kasper logo or name in the business and operations of
Van Kasper as an operating division of First Security; (f) manage the Van
Kasper businesses pursuant to the terms of the Merger Agreement; (g) deliver
the Holdback Shares pursuant to an effective registration statement under the
act; and (g) under certain conditions, file and cause to become effective a
registration statement covering the resale of shares of First Security Common
Stock issuable in the Merger to certain officers of Van Kasper.
Prior to the Closing, First Security, VK Acq and Van Kasper will (a) use
their respective reasonable best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper or
advisable (subject to any applicable laws) to consummate and make effective the
Merger and related transactions; (b) consult with the other parties hereto with
respect to, provide any necessary information with respect to, and provide the
other parties (or their respective counsel) with copies of, all filings made by
such party with any governmental entity or any other information supplied by
such party to a governmental entity; (c) refrain from making any public
announcement concerning the transactions contemplated by the Merger Agreement
without the prior approval of the other parties thereto, and pay such parties'
own expenses related to the Merger.
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RETENTION BONUS POOL
First Security has agreed to cause the Surviving Corporation to establish a
"Retention Pool" in the amount of $10 million, from which payments will be made
in respect of (i) retention bonuses granted from time to time to employees of
the VK Division and (ii) agreements entered into in cancellation of Non-Vested
Options (see "--Van Kasper Options"). The Retention Pool will be managed and
administered at the discretion of the Chairman of the Management Committee of
the VK Division (initially, Mr. F. Van Kasper) for such purposes. Amounts
payable from the Retention Pool will not be subject to offset against Losses
incurred by the First Security Indemnified Parties (see "--Indemnification").
CONDITIONS TO THE CLOSING
CONDITIONS TO THE OBLIGATIONS OF EACH PARTY
The respective obligation of each party to effect the Closing is subject to
the satisfaction or waiver at or prior to the Closing of certain conditions
including: (a) the absence of any governmental prohibition or restriction on
the Closing; (b) the absence of any suit, action, investigation, inquiry or
other proceeding seeking to prevent consummation of the Merger, if such suit
may reasonably succeed; (c) the effectiveness of all required consents and
approvals from any governmental entities, including, without limitation, the
approval by the Federal Reserve Board of the Merger and the ability of First
Security to own and operate Van Kasper under current federal banking regulatory
parameters; (d) the receipt by Van Kasper and First Security of opinions of
their respective counsel, substantially to the effect that the Merger will
constitute a "reorganization" within the meaning of Section 368(a) of the Code;
and (e) the execution of non-competition agreements by certain employees of Van
Kasper.
ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF VAN KASPER
The obligation of Van Kasper to effect the Closing is further subject to the
satisfaction (or waiver by Van Kasper) at or prior to the Closing of certain
conditions including: (a) the correctness of the representations and warranties
of each of First Security and VK Acq contained in the Merger Agreement; (b) the
performance by First Security of each covenant, agreement and condition
required by the Merger Agreement; (c) Van Kasper's receipt of a certificate of
a senior officer of First Security certifying the accuracy of certain
statements set forth in the Merger Agreement; (d) Van Kasper's receipt of an
opinion of Ray, Quinney & Nebeker, counsel to First Security; and (e) Van
Kasper's receipt of such other documents, instruments and certificates as Van
Kasper shall reasonably request from First Security.
CONDITIONS TO THE OBLIGATIONS OF FIRST SECURITY
The obligation of First Security and VK Acq to effect the Closing is further
subject to the satisfaction (or waiver by First Security) at or prior to the
Closing Date of the certain conditions including: (a) the correctness of the
representations and warranties of Van Kasper contained in the Merger Agreement;
(b) the performance by Van Kasper of each covenant, agreement and condition
required by the Merger Agreement; (c) the receipt by First Security of a
certificate of a senior officer of Van Kasper certifying the accuracy of
certain statements set forth in the Merger Agreement; (d) the effectiveness of
all consents or approvals required under any contract of Van Kasper; (e) the
receipt by First Security of an opinion of Skadden, Arps, Slate, Meagher & Flom
LLP, counsel to Van Kasper; (f) the absence of any developments or events
having a material adverse effect on the business of Van Kasper; (g) the
effectiveness of employment agreements between Van Kasper and certain
employees; (h) any approvals required by the 1940 Act; (i) the effectiveness of
and delivery to First Security by Van Kasper of the written consents or
approvals of clients with respect to such clients' investment contracts; (j)
the effectiveness of and delivery to First Security by Van Kasper of all
required consents and/or cancellations with respect to all Non-Vested Options;
and (k) the receipt by First Security of all other documents, instruments and
certificates as First Security shall reasonably request from Van Kasper.
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TERMINATION
The Merger Agreement may be terminated at any time prior to the Closing:
(a) by the mutual written consent of the First Security and Van Kasper;
(b) by either party under certain conditions if the Closing has not taken
place on or before June 30, 1999;
(c) by First Security or Van Kasper upon notice given to the other if any
court or governmental entity of competent jurisdiction will have issued a
final permanent nonappealable order, enjoining or otherwise prohibiting the
Merger;
(d) by either party upon certain breaches by the other party of any
representation, warranty, covenant or agreement set forth in the Merger
Agreement. In the event of the termination of the Merger Agreement, all of
the obligations and liabilities of the parties under the Merger Agreement
shall terminate.
INDEMNIFICATION
Subject to the other provisions of the Merger Agreement, Van Kasper and the
holders of Van Kasper Shares (but only in the event of and to the extent of
payments of the Holdback) shall indemnify, defend and hold harmless First
Security, VK Acq and their respective successive successors, assigns and
Affiliates and the directors, officers, agents and employees of any of them
(collectively, the "First Security Indemnified Parties") from and against any
and all Losses (defined in the Merger Agreement) imposed on, incurred or
suffered by or asserted against any First Security Indemnified Party, directly
or indirectly, to the extent resulting from, arising out of or incurred with
respect to (i) any breach of any representation or warranty of Van Kasper
contained in the Merger Agreement, and (ii) any breach of any covenant prior to
the Closing, of Van Kasper contained in the Merger Agreement.
In general, the provisions for indemnity contained in the Merger Agreement
shall not be effective until the aggregate amount of all such Losses for which
Van Kasper is liable under this Agreement exceeds one million dollars
($1,000,000) (provided that if all such Losses exceed such amount, the First
Security Indemnified Parties shall be entitled to be indemnified for all Losses
for which they have not received indemnification). However, any Losses relating
to the non-compliance of any Van Kasper employee benefit plan with its terms
and applicable law will be subject to indemnification without regard to such
$1,000,000 threshold. In no event shall the aggregate liability of Van Kasper
and the holders of Van Kasper Shares under the Merger Agreement exceed ten
million dollars ($10,000,000).
Any indemnifiable Losses of any First Security Indemnified Party shall, to
the extent that such Losses are incurred or asserted prior to the third year
anniversary of the Closing Date, be offset against the Holdback from the third
anniversary Holdback payment, and to the extent such Losses are incurred after
such third year anniversary, but before the fourth year anniversary of the
Closing Date, be offset against the Holdback from the fourth anniversary
Holdback payment. Such offset shall be the sole source of indemnification of a
Parent Indemnified Party's Losses. If there is any dispute as to the right of
indemnification of any First Security Indemnified Party at the time any portion
of the Holdback is due to be paid, First Security may, in its reasonable
discretion, withhold all or any portion of such portion due up to $10 million
in the aggregate until such time as the dispute has been resolved in accordance
with the provisions of the Merger Agreement.
MISCELLANEOUS
SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND COVENANTS. Subject to certain
exceptions set forth in the Merger Agreement, all of the representations and
warranties and covenants of Van Kasper and First Security contained in the
Merger Agreement shall survive the Closing and shall continue in full force and
effect for a period of two years thereafter, after which such representations
and warranties and covenants shall terminate and have no further force or
effect.
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AMENDMENT, MODIFICATION AND WAIVER. The Merger Agreement may not be amended,
modified or waived except (a) by an instrument or instruments in writing signed
and delivered on behalf of each of the parties to the Merger Agreement and (b)
following the Closing Date, by First Security, VK Acq and Van Kasper.
Capital for its reasonable and necessary out-of-pocket expenses and to
indemnify Berkshire Capital against certain liabilities, including liabilities
under the federal securities laws, in connection with its engagement. Such
obligation, to the extent not then satisfied, will be assumed by First Security
upon consummation of the Merger.
ACCOUNTING TREATMENT OF THE MERGER
First Security expects that the Merger will be accounted for as a "purchase"
in accordance with generally accepted accounting principles whereby the
purchase price will be allocated based on the fair values of the assets
acquired and the liabilities assumed. Any excess of such purchase price over
the amounts so allocated will be allocated to goodwill.
THE EFFECT OF THE MERGER ON VAN KASPER EMPLOYEE BENEFIT PLANS
Until the Effective Time, all retirement and health insurance plans
maintained by Van Kasper for the benefit of employees will remain in effect
without substantive change, except as may be required by applicable law in
connection with the intended termination of these plans as part of the Merger.
On or before the Effective Time, Van Kasper and First Security will determine
whether it is in the best interests of the parties and the employees of Van
Kasper to terminate Van Kasper's 401(k) Plan or to merge such plan into a First
Security benefit plan; provided, however, that no accounts will be permitted to
roll-over to First Security's 401(k) plan without the express written consent
of the trustee and sponsor of First Security's 401(k) plan to such roll-over,
which approval will not be given in any event without receipt of such
documentation from Van Kasper as may be requested by First Security, including,
without limitation, an Internal Revenue Service ruling obtained by Van Kasper
approving the roll-over and ensuring the qualification of the First Security
401(k) plan if it accepts such roll-overs.
As of the Effective Time of the Merger, the current Van Kasper health
insurance plan likely will terminate. Subject to applicable law, all Van Kasper
employees retained after the Merger will be eligible to participate in the
First Security health insurance plan now in effect, in accordance with its
terms.
VOTING AGREEMENTS
Certain Van Kasper shareholders have entered into Voting Agreements with
First Security, the form of which is attached as Appendix F to this
Prospectus/Information Statement. These Voting Agreements bind such Van Kasper
shareholders to vote their shares of Van Kasper Preferred Stock and Common
Stock in favor of the Merger Agreement. The Voting Agreements also place
restrictions on the sale or other transfer of the Van Kasper Preferred Stock
and Common Stock covered by the Voting Agreements. Van Kasper shareholders
owning shares of Van Kasper Preferred Stock, which represents % of the
total outstanding Van Kasper Preferred Stock at December , 1998, the last
practicable date before the mailing of this Prospectus/Information Statement,
and shares of Van Kasper Common Stock , which represents % of the total
outstanding Van Kasper Common Stock at December , 1998, have entered into
Voting Agreements.
REGULATORY APPROVALS
Consummation of the Merger is conditioned on the receipt of all requisite
regulatory approvals, including prior approval of the Federal Reserve Board of
the Merger and of the specific ability of First Security to own and operate Van
Kasper, under current federal banking regulatory parameters.
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The Federal Reserve Board must approve the Merger. First Security filed its
notice on November 27, 1998, and the Federal Reserve Board is reviewing the
Merger Agreement transactions and their effects as of the date of this
Prospectus/Information Statement. First Security does not know of any reason
why the Federal Reserve Board will not approve the transactions contemplated in
the Merger Agreement in a timely fashion, although there can be no assurance
that such approvals will be obtained, and, if obtained, there can be no
assurance as to the date of any such approvals or the absence of any litigation
challenging such approvals.
Section 20 of the Glass-Steagall Act prohibits a member bank of the Federal
Reserve System, such as First Security's subsidiary banks, from being
affiliated with a company that is principally engaged in underwriting and
dealing in securities. The Federal Reserve Board has determined by regulation
that underwriting and dealing in certain "eligible" securities is an activity
closely related to banking and is therefore permissible for bank holding
companies and their subsidiaries. The Federal Reserve Board has also determined
that a securities firm that does not generate more than 25% of its gross
revenue from underwriting and dealing in certain "ineligible" securities is not
deemed for purposes of the Glass-Steagall Act to be "principally engaged" in
securities underwriting and dealing. The approval, if obtained, will be
conditioned upon on-going compliance with various regulatory standards,
including that not more than 25% of "gross revenues" of First Security Van
Kasper, Inc. be derived from underwriting and dealing in "ineligible"
securities, that a national bank is not permitted to underwrite and deal in.
"Ineligible" revenues generally include revenues from underwriting and dealing
in corporate debt and equity securities, most types of municipal revenue bonds
and asset-backed securities. "Eligible" revenues include brokerage and
investment advisory revenues, revenues from underwriting and dealing in U.S.
government and agency securities, municipal general obligation revenues,
insurance agency revenues, and certain other revenues. First Security and Van
Kasper will attempt to generate "eligible" revenues of a combined FSCMI/Van
Kasper, such that "ineligible" revenues do not exceed 25% of total "gross
revenues" of FSCMI/Van Kasper.
First Security, as an acquiring bank holding company, is required to file a
notice with the Federal Reserve Board that describes the proposed Merger and
the proposed activities of Van Kasper as a subsidiary of First Security,
including the effect of First Security's ownership of Van Kasper on competition
among entities that engage in such activities, the identity of the parties
involved in the transaction, a description of the public benefits that may be
expected from the proposal, a description of the terms of the transaction, the
sources of funds for the transaction and other financial and managerial
information. The information included in the notice and other requests for
information will allow the Federal Reserve Board, when considering approval of
the Merger, to take into consideration the financial and managerial resources
and prospects of the existing and combined institutions and the benefits that
may be expected from the Merger. The Federal Reserve will, among other things,
evaluate the adequacy of the capital and management levels of the acquiring
bank holding company both before and following the proposed transaction.
The Federal Reserve Board may deny a request for approval of an acquisition
by a bank holding company if it determines that the transaction would result in
a monopoly or be in furtherance of any combination or conspiracy to monopolize
or to attempt to monopolize a given business activity in any part of the United
States, or if its effect in any section of the country would be substantially
to lessen competition or to tend to create a monopoly, or if it would in any
other manner result in a restraint of trade, unless the Federal Reserve finds
that the anticompetitive effects of a transaction are clearly outweighed by the
probable effects of the transaction in providing benefits to the public.
The U.S. Department of Justice and Federal Trade Commission have received
copies of the application filed with the Federal Reserve Board and will have 30
days within which to challenge the Merger Agreement on antitrust grounds.
Applicable federal law provides for the publication of notice and public
comment on notice applications filed with the Federal Reserve Board. The Merger
may not be consummated until after Federal Reserve Board approval is obtained.
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First Security filed its notice with the Federal Reserve Board on November
27, 1998.
The Merger is also subject to the approval of the NASD, and may require the
approval of or notice to various state regulators.
THERE IS NO ASSURANCE THAT THESE REGULATORY APPROVALS WILL BE RECEIVED TIMELY
OR AT ALL.
AN APPROVAL BY THE FEDERAL RESERVE BOARD REFLECTS ONLY ITS VIEW THAT THE
TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT DO NOT CONTRAVENE APPLICABLE
COMPETITIVE STANDARDS IMPOSED BY LAW, AND THAT SUCH TRANSACTIONS ARE CONSISTENT
WITH REGULATORY POLICIES RELATING TO SAFETY AND SOUNDNESS; AN APPROVAL BY THE
FEDERAL RESERVE BOARD IS NOT AN OPINION BY THE FEDERAL RESERVE BOARD THAT THE
MERGER TRANSACTIONS ARE FAVORABLE TO THE VAN KASPER SHAREHOLDERS FROM A
FINANCIAL POINT OF VIEW OR THAT THE FEDERAL RESERVE BOARD HAS CONSIDERED THE
ADEQUACY OF THE TERMS OF THE TRANSACTIONS; AND AN APPROVAL BY THE FEDERAL
RESERVE BOARD IS NOT AN ENDORSEMENT OR RECOMMENDATION OF THE MERGER AGREEMENT.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE MERGER
The following is a summary of certain Federal income tax consequences of the
Merger to the holders of Van Kasper Capital Stock that exchange such stock for
First Security Common Stock pursuant to the Merger. This summary addresses only
such shareholders who hold First Security Common Stock received in exchange
therefor as a capital asset. This does not address all Federal income tax
considerations that may be relevant to particular shareholders in light of
their individual circumstances or to shareholders that are subject to special
rules, such as financial institutions, tax-exempt organizations, insurance
companies, dealers in securities, foreign shareholders, to shareholders that
hold Van Kasper Capital Stock as part of a straddle, hedging or conversion
transaction, and to shareholders who acquired their Van Kasper Capital Stock
pursuant to the exercise of employee stock options or otherwise as
compensation. The following summary is based upon the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury
Regulations thereunder, judicial decisions and current administrative rulings,
as of the date hereof, all of which are subject to change, possibly on a
retroactive basis. Tax consequences under state, local, foreign, and other laws
are not addressed herein. Each shareholder is advised to consult his or her tax
advisor as to the particular facts and circumstances which may be unique to
such shareholder and also as to any estate, gift, state, local or foreign tax
considerations arising out of the Merger.
No rulings have been or will be requested from the Internal Revenue Service
with respect to any matters discussed herein. There can be no assurances that
future legislation, regulations, administrative rulings or court decisions
would not alter the tax consequences set forth below. The obligation of each of
First Security and Van Kasper to consummate the Merger is conditioned on its
receipt of an opinion from its counsel, Ray, Quinney & Nebeker and Skadden,
Arps, Slate, Meagher & Flom LLP, respectively, based on such facts,
representations, and assumptions as counsel may reasonably deem relevant
(including certain representations regarding the ownership of Van Kasper
stock), to the effect that the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code.
The following summary assumes that the Merger will be consummated as described
in the Amended and Restated Agreement and Plan of Merger and this
Prospectus/Information Statement.
TREATMENT OF FIRST SECURITY AND VAN KASPER. No gain or loss will be
recognized by First Security or Van Kasper as a result of the Merger.
EXCHANGE OF VAN KASPER CAPITAL STOCK FOR FIRST SECURITY COMMON STOCK. Subject
to the discussion of the Taxation of Option Holders and the Taxation of the
Holdback Shares below, (i) a holder of Van Kasper Capital Stock whose shares of
Van Kasper Capital Stock are exchanged in the Merger into First Security Common
Stock will not recognize gain or loss, except to the extent of cash, if any,
received in lieu of fractional shares (see "--Cash in Lieu of Fractional
Shares" below), (ii) The aggregate tax basis of the First Security Common Stock
received by such holder will be equal to the aggregate tax basis of the Van
Kasper Capital Stock exchanged therefor (excluding any portion of the holder's
basis allocated to fractional shares and the Holdback), and (iii) the holding
period of First Security Common Stock received will include the holding period
of the Van Kasper Capital Stock exchanged therefor.
TAXATION OF OPTION HOLDERS. As described in "The Merger--Conversion of
Shares--Exchange Ratio" and "The Merger--Van Kasper Options," (i) immediately
prior to the Effective Time of the Merger, each Vested Van Kasper Option will
be exercised pursuant to a cashless exercise procedure, and (ii) at the
Effective Time of the Merger, the net number of Van Kasper Option Shares
issuable upon such exercise will be converted into First Security Common Stock
pursuant to the Exchange Ratio. In connection with such exercise, each holder
of Vested Van Kasper Options may recognize ordinary income in an amount equal
to the excess of (i) the fair market value of the Van Kasper Option Shares at
the Effective Time over (ii) the strike price of such Vested Van Kasper
Options. Such income will be subject to income tax withholding requirements at
the statutory rates. In addition, to the extent certain shareholder approval
requirements have not been satisfied,
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such income may be subject to the excise tax provisions of Section 280G.
However, Van Kasper believes that it will satisfy such requirements, and the
excise tax provisions of Section 280G will not apply.
TAXATION OF THE HOLDBACK SHARES. Twenty-five percent of the aggregate Merger
Consideration payable in shares of First Security Common Stock (the "Holdback")
will be withheld at the Closing and issued to holders of Van Kasper Capital
Stock on the third and fourth anniversaries of the Closing Date, subject to the
limitations discussed in the Merger Agreement. For Federal income tax purposes
a portion of the Holdback Shares, if any, received by Van Kasper shareholders
generally should be treated as interest. The portion of the Holdback Shares
subject to such treatment generally will be an amount equal to the excess of
(i) the value of such shares on the date received over (ii) the same amount
discounted back to the Effective Time of the Merger, using a discount rate
equal to the Applicable Federal Rate, as determined under the Code, in effect
for the month which includes the Effective Time of the Merger. The interest
income will be subject to Federal income tax at rates applicable to ordinary
income. The tax basis of the Holdback Shares would be increased by the amount,
if any, treated as interest income. Additionally, any amounts received in lieu
of dividends or otherwise with respect to the Holdback Shares should be treated
as an additional amount realized in the Merger, and to the extent a holder of
Van Kasper Capital Stock has realized gain in the Merger, subject to tax at
capital gain rates. Each holder of Van Kasper Capital Stock should consult his
or her tax advisor as to the tax consequences of the receipt of the Holdback
Shares.
CASH IN LIEU OF FRACTIONAL SHARES. A holder of Van Kasper Capital Stock who
receives cash in lieu of fractional shares of First Security Common Stock will
be treated as having received such fractional shares pursuant to the Merger,
and then as having exchanged such fractional shares for cash in a redemption by
First Security. The amount of such gain or loss will be equal to the difference
between the ratable portion of the tax basis of the Van Kasper Capital Stock
exchanged in the Merger that is allocated to such fractional shares and cash
received in lieu thereof. Any such capital gain or loss will constitute long
term capital gain or loss if such Van Kasper Capital Stock has been held by the
holder for more than one year at the time of the consummation of the Merger.
Generally, capital gain on assets held by individuals for more than 12 months
will be subject to tax at a rate not to exceed 20%.
DISSENTING VAN KASPER SHAREHOLDERS. A holder of Van Kasper Capital Stock that
receives solely cash in exchange for such stock in the Merger pursuant to the
exercise of dissenter's rights under the CGCL will recognize capital gain or
loss at the time of the consummation of the Merger equal to the difference
between the tax basis of the Van Kasper Capital Stock surrendered and the
amount of the cash received therefor. Such capital gain or loss will constitute
long-term capital gain or loss if such Van Kasper Capital Stock has been held
for more than one year at the time of the consummation of the Merger.
Generally, capital gain on assets held by individuals for more than 12 months
will be subject to a tax at a rate not to exceed 20%.
THIS FEDERAL INCOME TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY AND MAY
NOT APPLY TO ALL VAN KASPER SHAREHOLDERS. VAN KASPER SHAREHOLDERS ARE URGED TO
CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER.
RIGHTS OF DISSENTING VAN KASPER SHAREHOLDERS
The rights of Van Kasper Shareholders who dissent in connection with the
Merger are governed by specific legal provisions contained in Chapter 13 of the
CGCL. The following summary of the provisions of Chapter 13 of the CGCL is not
intended to be a complete statement of such provisions and is qualified in its
entirety by reference to the full text of Chapter 13 of the CGCL, a copy of
which is attached as Appendix to this Prospectus/Information Statement, and is
incorporated herein by reference.
THE REQUIRED PROCEDURE SET FORTH IN CHAPTER 13 OF THE CGCL MUST BE FOLLOWED
EXACTLY OR ANY DISSENTERS' RIGHTS MAY BE LOST.
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Under Chapter 13 of the CGCL, if the Merger is completed, any Van Kasper
shares as to which dissenters' rights are properly exercised ("Dissenting Van
Kasper Shares") will not be converted into the right to receive shares of First
Security Common Stock pursuant to the Merger Agreement but instead will be
converted into the right to receive in cash the "fair market value" of such
shares, determined as of September 22, 1998, the last trading day before the
first announcement of the proposed Merger, and excluding any appreciation or
depreciation in consequence of the Van Kasper Merger. For Van Kasper Shares to
qualify as Dissenting Van Kasper Shares, the holders of such shares (i) must
not have executed a written consent in respect of such shares for approval of
the Merger Agreement; (ii) must have made a written demand upon Van Kasper for
the purchase of dissenting shares and payment to such shareholder in cash of
their fair market value and (iii) must have submitted stock certificates for
endorsement (as described below).
If the Merger Agreement is approved through the execution of sufficient Van
Kasper consents, Van Kasper will, within ten days after such approval, mail to
any shareholder who may have a right to require Van Kasper to purchase his, her
or its shares for cash as a result of such shareholder's making a demand to
exercise such right in accordance with Chapter 13 of the CGCL (as described
below), a notice that the required shareholder approval of the Merger Agreement
was obtainable (the "Notice of Approval"), accompanied by a copy of Chapter 13
of the CGCL. The Notice of Approval will set forth the price determined by Van
Kasper to represent the "fair market value" of any Dissenting Van Kasper Shares
(which shall constitute an offer by Van Kasper to purchase such Dissenting Van
Kasper Shares at such stated price) and will set forth a brief description of
the procedures to be followed by such shareholders who wish to exercise their
dissenters' rights.
Within 30 days after the date on which the Notice of Approval was mailed,
dissenting Van Kasper Shareholders must make a written demand upon Van Kasper
for the purchase of Dissenting Van Kasper Shares and payment to such
shareholder in cash of their fair market value, which is required by law to
contain a statement concerning the number and class of Van Kasper Shares held
of record by such dissenting shareholder and what the shareholder claims to be
the fair market value of the Dissenting Van Kasper Shares as of the close of
business on September 22, 1998 (the statement of fair market value in such
demand by the dissenting shareholder constitutes an offer by the dissenting
shareholder to sell the Dissenting Van Kasper Shares at such price. Such demand
must be addressed to Van Kasper & Company, in care of Skadden, Arps, Slate,
Meagher & Flom LLP, 525 University Avenue, Suite 220, Palo Alto, California
94301, Attention: Gregory C. Smith, Esq. A dissenting shareholder may not
withdraw his, her, or its dissent or demand for payment unless Van Kasper
consents to such withdrawal.
Within 30 days after the Notice of Approval was mailed, the dissenting Van
Kasper Shareholder also must submit the certificates representing the
Dissenting Van Kasper Shares to Van Kasper at Van Kasper's principal office.
The certificates representing the Dissenting Van Kasper Shares will be stamped
or endorsed with a statement that the shares are Dissenting Van Kasper Shares.
If the price contained in the Notice of Approval is acceptable to the
dissenting Van Kasper Shareholder, such Shareholder may demand the same price.
This would constitute an acceptance of the offer by Van Kasper to purchase the
dissenting Van Kasper Shareholder's stock at the price stated in the Notice of
Approval.
If Van Kasper and a dissenting Van Kasper Shareholder agree upon the price to
be paid for the Dissenting Van Kasper Shares, upon the dissenting Van Kasper
Shareholder's surrender of the certificates representing the dissenting Van
Kasper Shares, such price (together with interest thereon at the legal rate on
judgments from the date of the agreement between Van Kasper and the dissenting
shareholder) is required by law to be paid to the dissenting shareholder within
30 days after such agreement or within 30 days after any statutory or
contractual conditions to the Merger are satisfied, whichever is later, subject
to the surrender of the Van Kasper stock certificates therefor.
If Van Kasper and a dissenting Van Kasper Shareholder disagree as to the
price for such Dissenting Van Kasper Shares or disagree as to whether such Van
Kasper Shares are entitled to be classified as Dissenting Van Kasper Shares,
such holder may, within six months after the Notice of Approval is mailed, file
a complaint in the Superior Court of the proper county requesting the court to
make such determination or, alternatively, may
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intervene in any pending action brought by another dissenting shareholder.
Costs of such an action (including compensation of appraisers) are required to
be assessed as the court considers equitable but must be assessed against Van
Kasper if the appraised value determined by the court exceeds the price offered
by Van Kasper.
The court action to determine the fair market value of the Dissenting Van
Kasper Shares will be suspended if litigation is instituted to test the
sufficiency or regularity of the consents of the Van Kasper Shareholders in
approving the Merger. Furthermore, no Van Kasper Shareholder who is entitled to
assert dissenters' rights under Chapter 13 of the CGCL shall have any right to
attack the validity of the Merger, or to have the Merger set aside or
rescinded, except in an action to test whether the consents required to
authorize or approve the Merger have been legally and validly obtained in favor
of the Merger.
Dissenting Van Kasper Shares may lose their status and the right to demand
payment will terminate, among other reasons, if (i) the Merger is abandoned;
(ii) the shares are transferred before being submitted for endorsement or are
surrendered for conversion into shares of another class; (iii) the dissenting
Van Kasper Shareholder and Van Kasper do not agree upon the status of the
shares as Dissenting Van Kasper Shares or upon the price of such shares and the
dissenting shareholders fails to file suit against Van Kasper or intervene in a
pending action within six months following the date on which the Notice of
Approval was mailed to the shareholder; or (iv) the dissenting shareholder
withdraws his or her demand for the purchase of the Dissenting Van Kasper
Shares with the consent of Van Kasper.
RESALE OF FIRST SECURITY SHARES RECEIVED IN THE MERGER
The shares of First Security Common Stock to be issued to Van Kasper
Shareholders in connection with the Merger will be registered with the
Securities and Exchange Commission under the provisions of the Securities Act
of 1933 (the "Securities Act"). Based on recently enacted federal legislation
preempting such requirements for NASDAQ National Market System securities, no
registration or qualification of such shares will be pursued in any state in
which any Van Kasper Shareholder currently resides.
Resales of the First Security Common Stock received in connection with the
Merger Agreement will need to be in compliance with applicable state securities
laws and regulations, and this compliance will be the responsibility of the
selling or transferring Shareholder. For most Van Kasper Shareholders, the
First Security shares received in the Merger will be freely transferable.
First Security shares received by persons who are deemed to be "affiliates"
of Van Kasper for purposes of Rule 145 under the Securities Act, may be resold
by them only in transactions permitted by such Rule, or as otherwise permitted
under the Securities Act. Rule 145 applies certain of the requirements and
provisions of Rule 144 (applicable to unregistered shares) to registered shares
received by an affiliate of a party to a merger transaction. Rule 144, in turn,
applies certain restrictions on method and amount of securities sales. As a
condition to the Closing on the Merger Agreement, each person who is so
identified is required to deliver to First Security at or prior to Closing a
written agreement satisfactory to counsel for First Security that such person
and his or her "associates" (as defined for purposes of Rule 145) will not
offer to sell or otherwise dispose of any shares of First Security Common Stock
issued to such person or his or her associates pursuant to the Merger Agreement
in violation of the Securities Act or the regulations thereunder.
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INFORMATION ABOUT FIRST SECURITY
GENERAL
First Security is a regional bank holding company headquartered in Salt Lake
City, Utah. It owns and operates five banks, with offices in the seven (7)
Western States of California, Idaho, New Mexico, Nevada, Oregon, Utah and
Wyoming, and several other financial services companies, some having a national
presence. Through its subsidiaries, First Security provides commercial and
agricultural loans, consumer banking, trust services, capital markets advice
and municipal underwriting services, treasury management, investment
management, data processing, leasing and securities brokerage services under
approvals from the Federal Reserve Board. At September 30, 1998, First Security
and its subsidiaries had consolidated assets of $19.9 billion, consolidated
deposits of $11.9 billion and shareholders' equity of $1.6 billion. First
Security has paid a regular dividend on its Common Stock since 1928. Based on
its $19.4 billion in assets at June 30, 1998, the Corporation was the 48th
largest bank holding company in the United States.
First Security maintains its executive offices at 79 South Main Street, Salt
Lake City, Utah 84111, telephone (801) 246-6000.
The principal assets of First Security are all of the capital stock of First
Security Bank, N.A. ("FSBNA") and First Security Bank of New Mexico, N.A.
("FSBNM"), both of which provide a broad range of banking, fiduciary, and other
financial services. Based on assets of approximately $15.0 billion at June 30,
1998, FSBNA was ranked the 52nd largest commercial bank in the United States,
and is the largest bank in the State of Utah and the second largest bank in the
State of Idaho. FSBNA also has offices in Oregon and Wyoming. At September 30,
1998 FSBNA had 243 branches. Based on deposits of $1.1 billion at December 31,
1997, FSBNM was ranked the 3rd largest bank in the State of New Mexico. It
currently has 32 branches.
First Security also owns 100% of the outstanding capital stock of First
Security Bank of Nevada, a Nevada state bank, 100% of the shares of First
Security Bank of Southern New Mexico N.A., a national bank headquartered in Las
Cruces, New Mexico, and 100% of the outstanding shares of California State
Bank, a California state-chartered bank. First Security has announced its
agreement to purchase Marine National Bank, headquartered in Irvine,
California, and thereafter intends to merge California State Bank with and into
Marine National Bank to form a single national bank to be called "First
Security Bank of California, N.A.". (All of First Security's banking
subsidiaries will be referred to hereafter as "the First Security Banks".)
Along with these banking organizations, First Security also directly or
indirectly owns the stock of various nonbank companies engaged in businesses
related to banking and finance, including management and services, securities
brokerage, equipment leasing, insurance and investment management, mutual
funds, and a small business investment company.
In addition to its equity investment in subsidiaries, First Security directly
or indirectly raises funds principally to finance the operations of its nonbank
subsidiaries. A substantial portion of First Security's annual income is
typically derived from dividends directly from its bank and nonbank
subsidiaries, and from interest on loans to First Security's nonbank
subsidiaries.
COMPETITION
As indicated above, as of December 31, 1997, FSBNA was the largest bank in
Utah, the second largest bank in Idaho, the 6th largest bank in Oregon, and the
5th largest bank in Wyoming. As also noted, FSBNM was the third largest bank in
New Mexico (second largest in Albuquerque). In California, Southern New Mexico
and Nevada, First Security's banks are smaller, more localized competitors,
with competition coming from a variety of larger banks and credit unions.
First Security's banks compete with other banking organizations in the states
in which they operate on the basis of price, service and convenience. Other
types of financial institutions, such as savings banks, savings and loan
associations, and credit unions offer a wide range of deposit and loan services
(including commercial
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loans) and, in some instances, fiduciary services. The First Security banks
also compete with brokerage firms and mutual funds, which provide the
substantial equivalent of checking accounts, credit cards and similar devices
that strongly resemble deposit products. Major retailers compete for loans by
offering credit cards and retail installment contracts. It is anticipated that
competition from nonbank organizations will continue to grow.
REGULATION
References in this section to applicable statutes and regulations are brief
summaries only, and do not purport to be complete. The reader should consult
such statutes and regulations themselves for a full understanding of the
details of their operation.
First Security is a bank holding company registered under the BHC Act, and is
subject to supervision and regulation by the Federal Reserve Board. Federal
laws subject bank holding companies to particular restrictions on the types of
activities in which they may engage, and to a range of supervisory requirements
and activities, including regulatory enforcement actions for violation of laws
and policies.
. ACTIVITIES "CLOSELY RELATED" TO BANKING. The BHC Act prohibits a bank
holding company, with certain limited exceptions, from acquiring direct or
indirect ownership or control of any voting shares of any company which is not
a bank or from engaging in any activities other than those of banking, managing
or controlling banks and certain other subsidiaries, or furnishing services to
or performing services for its subsidiaries. One principal exception to these
prohibitions allows the acquisition of interests in companies whose activities
are found by the Federal Reserve Board, by order or regulation, to be so
closely related to banking, managing, or controlling banks as to be a proper
incident thereto. Some of the activities that have been determined by
regulation to be closely related to banking are making or servicing loans,
performing certain data processing services, acting as an investment or
financial advisor to certain investment trusts and investment companies, and
providing securities brokerage services. Other activities approved by the
Federal Reserve Board include consumer financial counseling, tax planning and
tax preparation, futures and options advisory services, check guaranty
services, collection agency and credit bureau services, and personal property
appraisals. In approving acquisitions by First Security of companies engaged in
banking-related activities, the Federal Reserve Board considers a number of
factors, including the expected benefits to the public, such as greater
convenience and increased competition or gains in efficiency, which are weighed
against the risks of possible adverse effects, such as undue concentration of
resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices. The Federal Reserve Board is also empowered to differentiate
between activities commenced de novo and activities commenced through
acquisition of a going concern.
. SECURITIES ACTIVITIES. The Federal Reserve Board has approved applications
by bank holding companies to engage, through nonbank subsidiaries, in certain
securities-related activities (underwriting of municipal revenue bonds,
commercial paper, consumer-receivable-related securities and one-to-four family
mortgage-backed securities), provided that the affiliates would not be
"principally engaged" in such activities for purposes of Section 20 of the
Glass-Steagall Act. Bank holding companies have been permitted to underwrite
and deal in corporate debt and equity securities through such subsidiaries. In
early 1998, First Security established a Section 20 subsidiary, FSCMI, to
expand its securities business opportunities.
. ANTI-TYING RESTRICTIONS. Bank holding companies and their bank and nonbank
affiliates are prohibited from tying the provision of certain services, such as
extensions of credit, to other services offered by a holding company or its
affiliates.
. ANNUAL REPORTING; EXAMINATIONS. First Security is required to file an
annual report with the Federal Reserve Board, and such additional information
as the Federal Reserve Board may require pursuant to the BHC Act. The Federal
Reserve Board may examine a bank holding company or any of its subsidiaries and
charge the company for the cost of such an examination. First Security also
will be subject to reporting and disclosure requirements under the state and
federal securities laws subsequent to the offering contemplated by these
materials. Section 20 subsidiaries are required to file quarterly reports in
compliance with the gross revenue test.
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. BANK HOLDING COMPANY CAPITAL ADEQUACY REQUIREMENTS. The Federal Reserve
Board monitors the capital adequacy of bank holding companies. The Federal
Reserve Board uses a combination of risk-based guidelines and leverage ratios
to evaluate capital adequacy. The Federal Reserve Board has adopted a system
using internationally consistent risk-based capital adequacy guidelines to
evaluate the capital adequacy of bank holding companies. Under the risk-based
capital guidelines, different categories of assets are assigned different risk
weights, based generally on the perceived credit risk of the asset. These risk
weights are multiplied by corresponding asset balances to determine a "risk-
weighted" asset base. Certain off-balance sheet items, which previously were
not expressly considered in capital adequacy computations, are added to the
risk-weighted asset base by converting them to a balance sheet equivalent and
assigning to them the appropriate risk weight. Total capital is defined as the
sum of "Tier 1" and "Tier 2" capital elements, with "Tier 2" being limited to
100% of "Tier 1." For bank holding companies, "Tier 1" capital includes, with
certain restrictions, common stockholders' equity, perpetual preferred stock
and minority interests in consolidated subsidiaries less certain intangibles.
"Tier 2" capital includes, with certain limitations, certain forms of perpetual
preferred stock, as well as maturing capital instruments and the reserve for
possible loan losses and specified levels of certain intangibles.
In addition to the risk-based capital guidelines, the Federal Reserve Board
has adopted the use of a leverage ratio as an additional tool to evaluate the
capital adequacy of banks and bank holding companies. The leverage ratio is
defined to be a company's "Tier 1" capital divided by its adjusted total
assets. The leverage ratio adopted by the federal banking agencies requires a
3.0% "Tier 1" capital to adjusted total average assets ratio for institutions
with a CAMELS rating of 1. Institutions which are not CAMELS 1 rated will be
expected to maintain a 100 to 200 basis point cushion; i.e., these institutions
will be expected to maintain a leverage ratio of 4.0% to 5.0%, and institutions
planning acquisitions are expected to maintain higher ratios.
The following table sets forth the current regulatory requirements for
capital ratios of bank holding companies as compared with First Security's
capital ratios at September 30, 1998:
<TABLE>
<CAPTION>
TIER 1 TOTAL
CAPITAL TO CAPITAL TO
LEVERAGE RISK-WEIGHTED RISK-WEIGHTED
RATIO(1) ASSETS(2) ASSETS(3)
--------- ------------- -------------
<S> <C> <C> <C>
Regulatory minimum...................... 4.00-5.00% 4.00% 8.00%
First Security at September 30, 1998.... 7.67% 10.19% 12.60%
</TABLE>
- --------
(1) The leverage ratio is defined as the ratio of Tier 1 capital (using final
1992 risk-based capital guidelines to define Tier 1 capital) to average
assets, net of goodwill. Federal Reserve Board Guidelines provide that all
bank holding companies (other than those that meet certain criteria)
maintain a minimum leverage ratio of 3%, plus an additional cushion of 100
to 200 basis points. The guidelines also state that banking organizations
experiencing internal growth or making acquisitions will be expected to
maintain "strong capital positions" substantially above the minimum
supervisory levels without significant reliance on intangible assets.
(2) Bank Shareholders' equity less goodwill (Tier 1 capital) divided by risk-
weighted assets.
(3) Tier 1 capital plus reserve for possible loan losses (limited to 1.25% of
total risk-weighted assets) plus qualified subordinated and convertible
debt (Tier 2 capital) divided by risk-weighted assets.
Bank regulators continue to indicate their desire to raise capital
requirements applicable to banking organizations beyond their current levels.
However management is unable to predict whether and when higher capital
requirements would be imposed and, if so, to what levels and on what schedule.
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<PAGE>
. IMPOSITION OF LIABILITY FOR UNDERCAPITALIZED SUBSIDIARIES. The Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") requires each
federal banking agency to revise implement risk-based capital standards that
take account of interest rate risk, concentration of credit risk and the risks
of non-traditional activities, as well as reflect the actual performance and
expected risk of loss on multi-family mortgages. The law also requires each
federal banking agency to specify, by regulation, the levels at which an
insured institution would be considered "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized" and
"critically undercapitalized." Under the regulations adopted by the banking
agencies, all of First Security's subsidiary banks would be deemed to be "well
capitalized."
FDICIA requires bank regulators to take "prompt corrective action" to resolve
problems associated with insured depository institutions. In the event an
institution becomes "undercapitalized," it must submit a capital restoration
plan. If an institution becomes "significantly undercapitalized" or "critically
undercapitalized," additional and significant limitations are placed on the
institution. The capital restoration plan of an undercapitalized institution
will not be accepted by the regulators unless each company "having control of"
the undercapitalized institution "guarantees" the subsidiary's compliance with
the capital restoration plan until it becomes "adequately capitalized." First
Security has control of all of its subsidiaries for purposes of this statute.
Under FDICIA, the aggregate liability of all companies controlling a
particular institution is limited to the lesser of 5% of the institution's
assets at the time it became undercapitalized or the amount necessary to bring
the institution into compliance with applicable capital standards. FDICIA
grants greater powers to the bank regulators in situations where an institution
becomes "significantly" or "critically" undercapitalized or fails to submit a
capital restoration plan. For example, a bank holding company controlling such
an institution can be required to obtain prior Federal Reserve Board approval
of proposed dividends, or might be required to consent to a merger or to divest
the troubled institution or other affiliates.
Additionally, Federal Reserve Board policy discourages the payment of
dividends by a bank holding company from borrowed funds as well as payments
that would adversely affect capital adequacy. Failure to meet the capital
guidelines may result in the Federal Reserve Board taking appropriate
supervisory or enforcement actions.
The "PROMPT CORRECTIVE ACTION" provisions of FDICIA reflect the same concerns
which gave rise to a position adopted by the Federal Reserve Board known as the
"source of strength doctrine," which is based on the Federal Reserve Board's
Regulation Y. Regulation Y directs bank holding companies to "serve as a source
of financial and managerial strength" to their subsidiary banks, and bars them
from engaging in unsafe and unsound practices.
. ACQUISITIONS BY BANK HOLDING COMPANIES. The BHC Act requires every bank
holding company to obtain the prior approval of the Federal Reserve Board
before it may acquire all or substantially all of the assets of any bank, or
ownership or control of any voting shares of any bank, if after such
acquisition it would own or control, directly or indirectly, more than 5% of
the voting shares of such bank. In approving bank acquisitions by bank holding
companies, the Federal Reserve Board is required to consider the financial and
managerial resources and future prospects of the bank holding company and the
banks concerned, the convenience and needs of the communities to be served, and
various competitive factors. The Attorney General of the United States may,
within 30 days after approval of an acquisition by the Federal Reserve Board,
bring an action challenging such acquisition under the federal antitrust laws,
in which case the effectiveness of such approval is stayed pending a final
ruling by the courts.
. INTERSTATE ACQUISITIONS. Under the federally enacted Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 ("IBBEA"), individual states could
"opt-out" of the federal law that would allow banks on an interstate basis to
engage in interstate branching by merging out-of-state banks with host state
banks after June 1, 1997. In addition, under IBBEA, individual states could
also "opt-in" and allow out-of-state banks to merge with host state banks prior
to June 1, 1997. The host state is allowed under IBBEA to impose certain
nondiscriminatory conditions on the resulting depository institution until June
1, 1997.
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<PAGE>
On September 29, 1994, IBBEA was enacted which has eliminated many of the
current restrictions to interstate banking and branching. The IBBEA permits
full nationwide interstate banking to adequately capitalized and adequately
managed bank holding companies beginning September 29, 1995, without regard to
whether such transaction is expressly prohibited under the laws of any state.
The IBBEA's branching provisions permit full nationwide interstate bank merger
transactions to adequately capitalized and adequately managed banks.
The states that opt out must have enacted a law after September 29, 1994, and
before June 1, 1997, that (i) applies equally to all out-of-state banks and
(ii) expressly prohibits merger transactions with out-of-state banks. Each
state which opted out of allowing interstate bank merger transactions precludes
the Mergers of banks in the opting out state with banks located in other
states. In addition, banks located in states that opted out are not permitted
to have interstate branches. States could also "opt in" to permit interstate
branching earlier than June 1, 1997.
The laws governing interstate banking and interstate bank mergers provide
that transactions, which result in the bank holding company or bank controlling
or holding in excess of ten percent of the total deposits nationwide or thirty
percent of the total deposits statewide, will not be permitted except under
certain specified conditions. However, any state may waive the thirty-percent
provision for such state. In addition, a state may impose a cap of less than
thirty percent of the total amount of deposits held by a bank holding company
or bank provided such cap is not discriminatory to out-of-state bank holding
companies or banks.
. RESTRICTIONS ON TRANSACTIONS WITH AFFILIATES. One set of restrictions is
found in Section 23A of the Federal Reserve Act, which affects loans to and
investments in First Security and any of its subsidiaries. Section 23A imposes
quantitative and qualitative limits on transactions between a bank and any
affiliate, and also requires certain levels of collateral for such loans. It
also limits the amount of advances to third parties, which are collateralized
by the securities or obligations of First Security or its subsidiaries.
Another set of restrictions is found in Section 23B of the Federal Reserve
Act. Among other things, Section 23B requires that certain transactions between
First Security's subsidiary banks and their affiliates must be on terms
substantially the same, or at least as favorable to First Security or its
subsidiaries, as those prevailing at the time for comparable transactions with
or involving other nonaffiliated companies. In the absence of such comparable
transactions, any transaction between First Security and its affiliates must be
on terms and under circumstances, including credit standards, that in good
faith would be offered to or would apply to nonaffiliated companies. First
Security is also subject to certain prohibitions against advertising which
suggests that First Security is responsible for the obligations of its
affiliates.
The restrictions on loans to insiders contained in the Federal Reserve Act
and Regulation O now apply to all insured institutions and their subsidiaries
and holding companies. The aggregate amount of an institution's loans to
insiders is limited to the amount of its unimpaired capital and surplus, unless
the FDIC determines that a lesser amount is appropriate. Insiders are subject
to enforcement actions for knowingly accepting loans in violation of applicable
restrictions. Loans made prior to the enactment of FDICIA are not subject to
the restrictions.
. EXPANDING ENFORCEMENT AUTHORITY. One of the major additional burdens
imposed on the banking industry by FDICIA is the increased ability of banking
regulators to monitor the activities of banks and their holding companies. In
addition, the Federal Reserve Board, Comptroller and FDIC possess extensive
authority to police unsafe or unsound practices and violations of applicable
laws and regulations by depository institutions and their holding companies.
For example, the FDIC may terminate the deposit insurance of any institution
which it determines has engaged in an unsafe or unsound practice. The agencies
can also assess civil money penalties of up to $1 million per day, issue cease
and desist or removal orders, seek injunctions, and publicly disclose such
actions. FDICIA, FIRREA and other laws have expanded the agencies' authority in
recent years, and the agencies have not yet fully tested the limits of their
powers.
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. INSTABILITY OF REGULATORY STRUCTURE. The laws and regulations affecting
banks and bank holding companies are in a state of flux. The rules and the
regulatory agencies in this area have changed significantly over recent years,
and there is reason to expect that similar changes will continue in the future.
It is difficult to predict the outcome of these changes.
DESCRIPTION OF FIRST SECURITY'S CAPITAL STOCK
The following statements are brief summaries of the material provisions
relating to First Security's Preferred Stock and First Security Common Stock
and are qualified in their entirety by the provisions of First Security's
Certificate of Incorporation, which has been filed with the Commission. See
"COMPARATIVE RIGHTS OF SHAREHOLDERS."
PREFERRED STOCK. The Certificate of Incorporation authorizes the issuance of
400,000 shares of preferred stock with no par value ("Preferred Stock"). On
September 30, 1998, there were 9,361 shares of $3.15 Cumulative Convertible
Preferred Stock, Series "A" (the "Series A Preferred Stock") outstanding.
Holders of Series A Preferred Stock have the right to receive semi-annual
dividends at the annual rate of $3.15 per share. Such right is cumulative and
such dividends are payable before dividends may be paid on the First Security
Common Stock. The Series A Preferred Stock is convertible into the First
Security Common Stock at a ratio of 41.00625 shares of First Security Common
Stock for each share of Series A Preferred Stock. This conversion right is
subject to adjustment in certain events to protect against dilution of the
conversion rights attached to the Series A Preferred Stock. In the event of a
liquidation, dissolution or winding up of First Security, the holders of Series
A Preferred Stock are entitled to receive cash value of $52.50 per share plus
unpaid accumulated preferred dividends before any distribution is made to
holders of the First Security Common Stock. First Security may, at the option
of the Board of Directors, redeem the whole or any part of the outstanding
Series A Preferred Stock at the redemption price of $52.50 per share plus
unpaid accumulated preferred dividends.
Holders of First Security's Series A Preferred Stock are entitled to one vote
per share on all matters submitted to a vote of stockholders. Voting for the
election of directors is not cumulative. If at any time four or more semi-
annual dividends on the Series A Preferred Stock are in default, in whole or in
part, the holders of the Series A Preferred Stock as a class will be entitled
to elect four directors and the holders of the First Security Common Stock will
be entitled to elect the remaining directors. Holders of any additional
Preferred Stock hereafter issued may have such full or limited voting rights as
are provided by the Board of Directors.
The Board of Directors of First Security is authorized by the Certificate of
Incorporation to provide, without further shareholder action, for the issuance
of one or more series of preferred stock. The Board of Directors has the power
to fix various terms with respect to each series, including voting powers,
designations, preferences and relative, participating, optional or other
special rights, qualifications, limitations, restrictions and redemption,
conversion or exchangeability provisions. Holders of preferred stock have no
pre-emptive rights. The Series A Preferred Stock is not publicly traded.
COMMON STOCK. First Security is authorized to issue 600,000,000 shares of
First Security Common Stock with a par value of $1.25 per share. As of
September 30, 1998, there were outstanding 188,440,990 (net of Treasury Stock)
shares of First Security Common Stock. At such date, there were 2,025,528
shares reserved for issuance under First Security's Comprehensive Management
Incentive Plan as stock bonuses and other awards; 912,728 shares reserved for
issuance under First Security's Dividend Reinvestment Plan; 383,860 shares
reserved for issuance upon the conversion of First Security's Series A
Preferred Stock, 10,130,190 shares reserved for issuance upon exercise of
outstanding stock options, and 1,499,000 shares reserved for issuance under
First Security's Non-Employee Director Option Plan. Payment of dividends on the
First Security Common Stock is also subject to the prior rights of First
Security's outstanding Series A Preferred Stock.
The holders of First Security Common Stock are entitled to voting rights for
the election of directors and for other purposes, subject to the voting rights
of the holders of Preferred Stock conferred by law and to the specific voting
rights granted to each series of Preferred Stock and to voting rights which may
in the future be granted to subsequently created series of Preferred Stock.
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Holders of First Security Common Stock are entitled to receive dividends when
and if declared by the Board of Directors of First Security out of any funds
legally available therefor, and are entitled upon liquidation, after claims of
creditors and preferences of First Security's Series A Preferred Stock and any
other series of Preferred Stock hereafter authorized, to receive pro rata the
net assets of First Security. First Security Common Stock has no pre-emptive or
conversion rights.
ANTI TAKEOVER DEVICES. As of August 28, 1989, First Security adopted a
Shareholder Rights Agreement (the "Plan") and the Board of Directors of First
Security on that date (a) declared a dividend of one "Right" for each share of
First Security Common Stock held of record as of the close of business on
September 8, 1989, and (b) authorized the issuance of one Right in respect of
each share of First Security Common Stock issued after September 8, 1989 and
prior to the occurrence of certain events described in the Plan, primarily
involving the acquisition of target levels of First Security shares by persons
not then holding such amounts. Each Right entitles the registered holder to
purchase from First Security a unit consisting of one one-thousandth of a share
of Junior Series B Preferred Stock at a purchase price of $13.17 per unit. The
Rights are attached to all shares of First Security Common Stock that were
outstanding on September 8, 1989 or have been issued since that date, and no
separate Rights Certificates have been or will be distributed until the
occurrence of certain events described in the Rights Agreement. Until the
occurrence of such events, no Right may be exercised or traded separately from
the First Security Common Stock. Following separation, the Rights may,
depending upon the occurrence of certain events described in the Rights
Agreement, entitle the holders thereof to either purchase or receive additional
shares of First Security Common Stock. The Rights will expire in 2008, unless
earlier redeemed by First Security, which may be done at $0.01 per Right, in
accordance with the terms of the Plan.
The Plan is designed to protect First Security's stockholders' interests in
the event of an unsolicited attempt to acquire First Security, including a
gradual accumulation of shares in the open market. First Security believes that
the Plan provides protection against a partial or two-tier tender offer that
does not treat all stockholders equally and against other coercive takeover
tactics which could impair First Security's Board of Directors' ability to
represent First Security's stockholders fully. Management believes that the
Rights should also deter any attempt by a controlling stockholder to take
advantage of First Security through self-dealing transactions. The Plan is not
intended to prevent a takeover of First Security. Issuing the Rights has no
dilutive effect, does not affect reported earnings per share, and does not
change the way in which First Security's shares are traded. However, the
exercise of Rights by some but not all of First Security's stockholders would
have a dilutive effect on nonexercising stockholders. Moreover, some may argue
that the Plan has the potential for "entrenching" current management by
allowing current voting stockholders to increase their voting shares, thus
making a tender offer more difficult and costly. Shares of First Security
Common Stock do not have cumulative voting rights.
First Security Common Stock is not subject to redemption by either First
Security or a stockholder, but there is no restriction on the repurchase by
First Security of shares of First Security Common Stock except for certain
regulatory limits.
First Security's Certificate of Incorporation provides that, in general, an
affirmative vote of not less than 80% of the outstanding shares of First
Security Common Stock is required to approve or authorize certain major
corporate transactions involving First Security and holders of more than 10% of
the First Security Common Stock (including certain mergers, substantial
dispositions of assets, liquidation or dissolution, or recapitalization). The
80% vote is not required in some such circumstances, including certain
transactions which have been approved in advance by a majority of the Board of
Directors, or where holders of First Security Common Stock receive a price per
share that satisfies the fairness criteria set forth in the Certificate of
Incorporation.
51
<PAGE>
INFORMATION ABOUT VAN KASPER
GENERAL
Van Kasper & Company a California corporation ("Van Kasper"), is a privately
owned full-service investment banking firm operating in the western United
States. Established in 1978 and headquartered in San Francisco, Van Kasper
provides private brokerage services to its individual and institutional
clients; manages, underwrites and distributes equity securities; provides a
full range of investment banking services; publishes proprietary equity
research; makes markets in over 100 NASDAQ securities; and provides investment
management services.
Van Kasper's mission is two-fold: (i) to provide original investment advice
and superior private brokerage services to retail and institutional investors,
and (ii) to provide innovative investment banking advice to its corporate
finance clientele. Management firmly believes that the experience of its 83
brokers and their strong community ties help differentiate Van Kasper from its
competitors and enable Van Kasper to access and serve its investor clients more
effectively. The resultant long-standing relationships with affluent investors,
in turn, have benefitted Van Kasper's other businesses, particularly by
enhancing its access to and participation in, equity underwriting. As a measure
of its success in fulfilling its mission with investors, assets in retail
client accounts have increased at a compound annual rate of 38% over the past
three years to $2.0 billion as of September 30, 1998.
F. Van Kasper founded Van Kasper in 1978 along with four partners, all of
whom are still active in the business. Their goal was to form an independent
employee-owned company to provide superior investment advice and services to
retail clients and selected institutional investors. Van Kasper has grown
steadily and profitably over the years, becoming one of the leading full
service regional investment banks in the west and one of the few with fully
integrated corporate finance and equity capital markets capabilities. Van
Kasper now employs over 250 people servicing approximately 25,000 retail
accounts and hundreds of prominent institutional investors. Van Kasper original
research has been a consistent trademark, fostering investor client growth and
contributing to the development of a diversified investment banking practice
targeting small- and mid-cap companies.
In recent years, the financial markets have grown in size and complexity,
characterized by a proliferation of investment products and services, frequent
innovations, increased globalization and the perception of increased
volatility. Van Kasper believes that these trends aided by favorable
demographic shifts in the United States will continue for the foreseeable
future and consequently believes that the needs of both investors and issuers
for high quality professional financial advice and services responsive to
client needs, such as those offered by Van Kasper, will continue to increase.
STRATEGY
INCREASE RETAIL DISTRIBUTION. Since 1992, Van Kasper has aggressively
expanded its West Coast presence by opening five new retail offices throughout
California and adding over 45 new retail sales personnel in all of its offices.
Van Kasper is actively seeking to open new, strategically located offices to
serve its core client base, money center, affluent retail investors who seek
personal, quality investment advice.
BRING IN-DEPTH RESEARCH COVERAGE TO INVESTORS. Van Kasper believes that
research coverage of growth companies is crucial to meet the demands of its
investor clients for sophisticated and informed investment advice. Van Kasper
organizes its research activities along defined industry lines. Van Kasper's
strategy is to continue to focus on discovering and servicing companies in
growth industries generally found in the western United States, including
technology, health care, financial services, life style, energy and consumer
industries.
OFFER A COMPLETE RANGE OF SERVICES TO CORPORATE CLIENTS. In recent years, Van
Kasper has enhanced its equity underwriting and convertible debt capabilities
and its merger and acquisition advisory services while adding new product and
services, including private placement/structured finance and a corporate
services group. Over the past eighteen months, Van Kasper increased its
corporate finance personnel from 16 to 27 persons. The Company's strategy is to
continue to expand the range of its investment banking services.
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<PAGE>
ESTABLISH LONG-TERM RELATIONSHIPS WITH GROWTH-ORIENTED COMPANIES. Van
Kasper's strategy is to build relationships with promising companies at an
appropriate stage in their development. Van Kasper often establishes contact
with such companies through its relationships with professionals, such as
attorneys and accountants, or from its research department's knowledge of its
industries. As these companies grow, the company sustains these relationships
through research coverage, equity and convertible debt offerings, institutional
and retail brokerage, NASDAQ market-making and merger, acquisition and
strategic partnering and general corporate services.
RETAIL DISTRIBUTION
Van Kasper's primary line of business is the execution of securities
transactions through its registered representatives. Van Kasper has
traditionally sought to attract and retain brokerage clients by offering a high
level of personal service referred to by Van Kasper as "private brokerage". Van
Kasper's brokers operate from eight regional offices located in prime locations
of all of the major money centers of California.
Regional Office System as of September 30, 1998
<TABLE>
<CAPTION>
LOCATION DATE OPENED BROKERS SUPPORT STAFF
-------- ----------- ------- -------------
<S> <C> <C> <C>
San Francisco........................... 1978 31 17
Walnut Creek............................ 1985 9 5
San Jose................................ 1988 8 7
Los Angeles............................. 1993 12 6
Sacramento.............................. 1996 5 4
Fresno.................................. 1997 5 3
Newport Beach........................... 1997 8 4
San Diego............................... 1997 5 3
--- ---
Total............................... 83 49
=== ===
</TABLE>
Van Kasper has other branch offices besides these regional offices. For
example, during the fourth quarter of 1998, Van Kasper opened a branch office
in Phoenix, Arizona.
Each regional office is supervised by a qualified licensed manager with
direct responsibility for all activities of the branch office. Each office is
capable of providing investment services to clients in listed and NASDAQ
securities, corporate and municipal bonds, corporate underwritings, mutual
funds and tax-sheltered investments. All offices operate utilizing standardized
information technology throughout, so that Van Kasper need only supply a newly
recruited broker with a personal computer and telephone in order for that
broker to become fully operational. Van Kasper continues to evaluate additional
opportunities to expand its retail brokerage business into other money centers
in the Pacific Northwest, the Southwest and the Intermountain region, as well
as to continue selective expansion within its existing regions.
As of September 30, 1998, Van Kasper serviced approximately 25,000 active
retail accounts. Client assets, which aggregated $2.0 billion at that date,
have grown at a 38% compound annual rate over the past three years.
BROKERS. The cornerstone of Van Kasper's franchise is its sales force
comprised of an experienced and productive group of 83 brokers. Van Kasper's
brokers average five years of tenure with it and 15 years of experience in the
securities brokerage industry.
Van Kasper brokers generate significant commission revenue in the course of
their daily business, in addition to serving as a prime distribution and
referral network Van Kasper's other main lines of business: capital markets,
investment banking and investment management. Van Kasper insists that its
brokers adhere to the high standards of integrity and professionalism in
delivering a broad range of services in a personalized, service oriented
manner. Van Kasper believes that this "private brokerage" philosophy has
fostered enduring client relationships, where in many cases the broker
functions as de facto portfolio manager for his or her clients.
53
<PAGE>
Van Kasper has been successful in recruiting and retaining experienced
brokers due to a corporate culture that supports and encourages superior
performance, a performance-based equity incentive compensation plan, access to
advanced technology, and a client service-driven rather than a firm products-
driven environment. Van Kasper generally does not hire inexperienced brokers or
trainees. Throughout its history, Van Kasper has lost very few brokers to rival
institutions while maintaining a successful new broker recruitment effort. Van
Kasper's success in retaining its brokers and attracting experienced brokers
reflects its focus on service, with respect to both clients and employees.
CORPORATE EXECUTIVE SERVICES. Van Kasper has developed an important business
facilitating stock transactions actions for corporate clients and their senior
executives. Such services include execution of Rule 144 and Rule 145 stock
transactions for corporate executives, evaluation and implementation of 401(k)
plans, stock repurchase programs, and ancillary services such as employee
seminars on retirement strategies, key man insurance, qualified and non-
qualified plans and cashless option exercises.
CORPORATE FINANCE
Van Kasper has developed a specialty in serving the corporate finance needs
of small- and mid-cap companies located in the western United States. In
addition to technology companies, Van Kasper has a long-established practice in
"low tech/no tech" industries. The company's depth of experience, intensive
regional coverage, national distribution and reputation for integrity enable it
to provide a broad range of creative, intelligent capital raising and financial
advisory solutions to the challenges faced by its corporate customers,
including:
. Underwritten public offerings;
. Institutional private placements;
. Mergers and acquisitions advisory services; and
. Financial advisory services.
Van Kasper has devoted considerable resources to building its corporate
finance and underwriting businesses over the past five years. These initiatives
have bolstered Van Kasper's firm-wide client-oriented approach and have
resulted in significant repeat business over the years, contributing to a
nearly four-fold increase in corporate finance and underwriting revenues over
the past four years to $6.4 million in fiscal 1998.
Van Kasper has assembled a core group of 22 highly experienced investment
bankers with broad-based industry expertise in the technology, life sciences,
retailing, manufacturing, consumer products, telecommunications, financial
services, construction and oil & gas industries. The sixteen senior bankers
responsible for new business origination and transaction execution, who are
focused on client-centered relationship banking, have on average 15 years of
experience gained at Van Kasper and other major and well-known firms. Thirteen
of the 16 investment bankers above the associate level have advanced degrees
and professional designations.
FIRM COMMITMENT UNDERWRITING. Van Kasper's strategy has been to develop a
disciplined, research-driven equity capital markets function. An important
element of Van Kasper's success is its commitment for three years following a
public equity offering to provide regular research coverage and to make a
market in the security. Securities analysts also provide crucial input prior to
commitment of Van Kasper capital to an equity underwriting. Since January l,
1995, Van Kasper has managed 32 public offerings raising more than $740
million. Over the past 18 months, Van Kasper has lead- or co-managed 13 equity
offerings raising $387 million and one note offering raising $70 million.
54
<PAGE>
LEAD- AND CO-MANAGED OFFERINGS SINCE MARCH 1997
<TABLE>
<CAPTION>
AMOUNT
TYPE OF VKCO OFFERED
OFFER DATE ISSUER DEAL ROLE ($MM)
- ---------- ------ ------- ---- -------
<S> <C> <C> <C> <C>
10/27/98.............. Javelin Systems Follow-on Lead Mgr. 9.l
6/4/98.............. US Liquids Follow-on Lead Mgr. 57.0
5/21/98.............. Flour City International IPO Lead Mgr. 16.0
5/7/98.............. ATG IPO Lead Mgr. 18.6
3/10/98.............. Zindart Follow-on Lead Mgr. 44.0
2/24/98.............. Shoe Pavilion IPO Lead Mgr. 16.1
12/18/97.............. Made2Manage Systems IPO Co-Mgr. 17.4
11/21/97.............. Magnum Hunter Resources Follow-on Co-Mgr. 39.6
9/17/97.............. First Republic Bank Notes Co-Mgr. 70.0
9/11/97.............. Signature Eyewear IPO Co-Mgr. 20.7
8/20/97.............. US Liquids IPO Lead Mg. 16.4
7/30/97.............. Eastern Environment Services Follow-on Co-Mgr. 9l.9
3/26/97.............. Datum Follow-on Co-Mgr. 22.4
3/4/97.............. Zindart IPO Lead Mgr. 17.3
-----
TOTAL............... 456.5
=====
</TABLE>
Van Kasper's strategy is to maintain long-term relationships with its
corporate clients by serving their capital raising needs beyond their initial
public offerings of securities. Van Kasper also seeks to increase its base of
publicly held clients by serving as a manager or co-manager in follow-on
offerings for companies that Van Kasper believes have attractive investment
characteristics, whether or not Van Kasper participated as a manager or co-
manager in the initial public offering of securities for such companies.
INSTITUTIONAL PRIVATE PLACEMENTS. Van Kasper specializes in arranging
financing for middle market companies to support internal growth as well as to
finance acquisition, buyouts and restructurings. Van Kasper's private placement
activities are led by a senior banker with 16 years of experience who has
raised over $1 billion for clients. Since the arrival of the head of private
placements in 1996, Van Kasper has arranged four institutional private
placements that have raised a total of $76.5 million.
INSTITUTIONAL PRIVATE PLACEMENTS SINCE JUNE 1997
<TABLE>
<CAPTION>
PROCEEDS
CLIENT DATE CLOSED ($MM) FINANCING
------ ----------- ----- ---------
<S> <C> <C> <C>
QT Optoelectronics, Inc... July, 1998 $25.0 Acquisition of a Significant competitor.
Jaymark................... June, 1998 8.0 Private placement of senior Subordinated debt.
Consolidated Foundries.... February, 1998 28.5 Recapitalization of the company and acquisition
of Pac Foundries.
Synbiotics................ July, 1997 15.0 Acquisition of Phone Merieux.
</TABLE>
In September 1998, Van Kasper hired three investment bankers to open an
office located in Phoenix, Arizona. These bankers bring substantial experience
in the high-yield debt markets with the ability to provide advice regarding the
placement of 144(A) senior and subordinated debt securities.
MERGERS AND ACQUISITIONS ADVISORY, FINANCIAL ADVISORY. The Corporate Finance
Department's mergers and acquisitions advisory services include exclusive sale
representation, acquisition advisory, management buyouts and corporate
restructurings. Van Kasper also provides fairness opinions and valuation
reports in a variety of settings, including mergers and acquisitions,
recapitalizations and reorganizations, employee stock ownership plans, purchase
price allocation, sale of securities and stock option plans. Over the past
twelve months, Van Kasper has acted as financial advisor in five mergers and
acquisition transactions and six financial advisory engagements.
55
<PAGE>
MERGER, ACQUISITION AND FINANCIAL ADVISORY ASSIGNMENTS SINCE SEPTEMBER 1997
<TABLE>
<CAPTION>
CLIENT TRANSACTION
------ -----------
<C> <S>
Homes America.................... Assisted in the negotiations in the sale of
the company to Champion Enterprises
California Community Bancshares.. Assisted in the negotiations in the sale of
the company to SerraWest Bancorp
Cornish & Carey Residential...... Initiated the transaction and assisted in
the negotiations in the sale of the company
to NRT
Good Catalog Company............. Initiated the transaction and assisted in
the negotiations in the sale of the company
to Reader's Digest
Helm Corp........................ Initiated the transaction and assisted in
the negotiations in the sale of the company
to Comfort Systems USA
Wyatt River Software............. Initiated the transaction and assisted in
the negotiations in the sale of the company
to Rainbow Technologies
Allied Capital Advisers.......... Provided a fairness opinion in connection
with the Merger of five publicly traded
companies to form Allied Capital Advisers
QT Optoelectonics................ Fair market valuation of common shares of
the company
Zindart.......................... Provided a fairness opinion in connection
with the acquisition of Hua Yang Holdings
</TABLE>
CAPITAL MARKETS
EQUITY RESEARCH. Van Kasper is committed to publishing institutional-quality
equity research on unknown and out-of-favor small- and mid-cap companies in the
western United States. The companies that are recommended must exhibit superior
appreciation potential as a result of high returns on assets and equity,
reliable earnings growth that is accelerating, or attractive valuations
relative to fundamental value not currently reflected in the market price.
Van Kasper believes that the quality and depth of its proprietary research
will continue to help it attract and retain highly productive brokers, retail
and institutional investor customers and corporate finance clients. Because Van
Kasper corporate finance transaction flow is highly research-driven, research
analysts also provide critical input into Van Kasper underwriting commitment
decisions.
Van Kasper's philosophy of buying the company rather than the stock by
analyzing its fundamentals and assessing its business prospects has resulted is
superior investment performance. Van Kasper publishes the Van Kasper Review,
highlighting the Research Department's top 15 stocks, twice a year. Since its
initial publication in 1980, the Review's model portfolio has generated a 20.0%
compound annual rate of appreciation, outperforming the Russell 2000, the S&P
500, the Dow Jones Industrial Average and the NASDAQ Composites.
Of the securities analysts in the Research Department, three have CFA
designations, two have Ph.D.'s and one is currently sitting for the CFA Level 3
examination. The securities analysts are available to institutional clients and
retail brokers to offer investment advice and answer questions that may arise
about the companies they follow. Analysts specialize in particular industries,
including technology, life sciences, retailing, manufacturing, consumer
products, telecommunications, financial services, construction and oil & gas.
The Research Department also disseminates research publications on large-cap
stocks from BT Alex, Brown and Credit Suisse First Boston.
The Research Department publishes a large volume of reports, including:
. Company and industry reports and updates;
. Strong Buy List, published monthly;
. Research Universe, published monthly;
. Quarterly Financial Markets Outlook; and
. Van Kasper Review, an economic report including Van Kasper's focus list
of 15 best stock picks, published semi-annually.
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<PAGE>
The research products and services are designed to help investing clients
achieve their financial goals. Van Kasper's Research Department places a high
priority on increasing the efficiency with which information can be
disseminated and acted upon by the Company's investing clients.
INSTITUTIONAL SALES. Over the past two years Van Kasper has built an
institutional sales desk with eight salespeople covering over 250 domestic and
international accounts, including most of the leading institutional buyers of
small- and mid-cap stocks. This institutional placement capability provides
pricing discipline in the distribution of equity offerings lead-managed by Van
Kasper, diversifies public ownership of client issuer securities, and promotes
secondary market liquidity in offerings lead-managed by Van Kasper. The
Institutional Sales Department places between 40% and 60% of all Van Kasper
lead-managed issues.
Van Kasper has participated in close to 500 syndicated equity offerings since
July 1, 1995 that have raised over $25 billion. This represents approximately
one third of the total number of syndicated equity offerings during that
period. Van Kasper has enjoyed a high level of success in forging effective
working relationships with the syndicate desks of all of the major national and
regional investment banking firms, in large part attributable to it own well-
established origination capability and the strong hands of it retail investor
clients.
EQUITY TRADING. Van Kasper's revenue from listed brokerage is derived from
commissions on business transacted on national and regional exchanges, and such
revenue is highly influenced by the volume of business and stock prices. In
such brokerage, Van Kasper acts as agent for customers who wish to buy or sell
listed securities and effects the purchase or sale on the relevant securities
exchange. Van Kasper utilizes independent floor brokers to ensure sufficient
coverage on the floors of these exchanges.
Van Kasper acts as a broker-dealer in NASDAQ securities. As principal, Van
Kasper acts as a market maker in the equity securities of more than 100
companies, for most of which Van Kasper is identified as an investment banker,
as well as companies in which Van Kasper's investor clients may have
substantial and continuing interest. Generally, in making a market Van Kasper
stands ready at any time to buy or sell, for its own account as principal, and
NASDAQ security in which Van Kasper has registered as market maker with the
NASDAQ. Five traders in San Francisco office focus on NASDAQ transactions. All
capital committing authority resides exclusively in San Francisco home office.
SYNDICATE. Van Kasper's underwriting activities for corporate clients are
carried out through the Syndicate Department. This department is charged with
the responsibility of establishing syndicates and selling groups to underwrite
and distribute Van Kasper's own lead-managed underwritings and of accepting or
declining invitations to participate in underwritings managed by other
investment banking houses. The Department is also responsible for merchandising
these underwritings and allocating the securities among Van Kasper's regional
offices.
RISK MANAGEMENT GROUP
In June 1998, Van Kasper hired four professionals specializing in financial
advisory and consulting services in the area of restricted/control stock and
stock options. The Risk Management Group's ("RMG") services include advising
institutional investors with respect to equity derivatives and advising high
net worth individuals on restricted stock/Rule 144 stock sale strategies. RMG
advises clients with respect to the structure of derivatives transactions on an
agency basis only; and derivative transactions which are then executed are
placed with major securities firms and commercial banks.
FIXED INCOME TRADING
Van Kasper also acts as broker in U.S. government, government agency,
corporate and municipal fixed income securities. The Fixed Income Desk is
operated almost exclusively to facilitate retail orders, and does not make
active markets in securities. The overnight inventory positions of the Fixed
Income Desk, consisting of primarily municipal securities, have generally
varied between $5 million and $10 million. The Fixed Income Desk is staffed
with three traders.
57
<PAGE>
INVESTMENT MANAGEMENT
Van Kasper Advisers ("VKA") was founded in 1983 to provide personalized
investment management services for investor clients with substantial assets.
VKA currently manages in excess of $500 million for more than 100 public and
private corporations, financial institutions, pension plans, unions,
endowments, foundations, partnerships and high net worth individuals. VKA's
investment management disciplines include corporate cash management, total
return income portfolios and emerging and balanced growth equity portfolios.
VKA has posted strong growth in assets under management. As of June 30, 1995,
VKA had assets under management of $195 million. With the intervening strong
market, competitive results and the superior ability to attract new clients,
VKA's assets under management have grown over 150% to $500 million as of
September 30, 1998. Virtually all assets under management originated outside
the Van Kasper retail system. VKA has recently been selected as a preferred
investment advisor within the Charles Schwab system.
VKA manages portfolios in five main disciplines ranging from very aggressive
to very conservative. These styles can be blended using multiple portfolios to
create the optional mix of assets to meet each clients' long-term objectives.
The five disciplines are described as:
Emerging growth;
Balanced growth;
Strategic fixed income;
Corporate cash management; and
Financial institution portfolio management.
VKA believes that over time the market of an investment will match its
intrinsic value. In the short run, however, the market value of an investment
may vary significantly from its intrinsic value, as a result of incorrect
valuations or the volatile nature of the marketplace. Security analysis and
appraisal of the clients' investment objectives allow VKA to deliver superior
investment returns by taking advantage of market variances for intrinsic value.
INVESTMENT PERFORMANCE. VKA has posted competitive investment returns in all
three disciplines. The Strategic Fixed Income portfolio has posted strong
results, outperforming the Lehman Treasury Indices over the past three months,
one year and since inception. Similarly, the return of the VKA Balanced
Portfolio has exceeded a 50%/50% blend of the Lehman Intermediate Treasury
Index and the S&P 500 over each measurement period. Although the VKA Emerging
Growth Portfolio has underperformed the Russell 2000 over the past year, the
portfolio has returned 23.3% before fees on an annualized basis since inception
compared to 24.2% for the Russell 2000.
ACCOUNTING, ADMINISTRATION AND OPERATIONS
Van Kasper's accounting, administration and operations personnel are
responsible for financial controls, internal and external financial reporting,
compliance with regulatory and legal requirements, office and personnel
services, Van Kasper's management information and telecommunications systems,
and the processing of Van Kasper's securities transactions. Van Kasper
employees perform most the these functions. With the exception of payroll
processing, which is performed by an outside service bureau, all data
processing functions are performed by Van Kasper management information systems
department.
BT Alex. Brown acts as a clearing broker and depository of Van Kasper. A
portion of Van Kasper expenses, net of certain revenues, are reimbursed by Van
Kasper based on the level of transactions processed on behalf of Van Kasper.
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<PAGE>
COMPETITION
The securities business is intensely competitive. Many of Van Kasper's
competitors have greater capital, financial and other resources that the
company. Van Kasper competes nationwide for growth-oriented institutional
investor clients and regionally for United States underwritings of equity
offerings by emerging growth companies in its areas of focus. In addition to
competition from domestic and foreign firms currently in the securities
business, domestic commercial banks and investment banking boutiques have
recently entered the business. In recent years, large international banks have
attempted to enter the markets served by United States investment banks,
including the markets in which Van Kasper competes. These large international
banks have hired investment banking, research and sales and trading
professionals from Van Kasper and it competitor in the past, and Van Kasper
expects that these and other competitors will continue to try to recruit
professionals away from Van Kasper. The loss of any key professional could
materially and adversely affect Van Kasper's operating results. Van Kasper
expects competition from domestic and international banks to increase as a
result of recent and anticipated legislative and regulatory initiatives in the
United States to remove or relieve certain restrictions on commercial banks.
Van Kasper's focus on growth companies also subject it to direct competition
from a group of specialty securities firms and smaller investment banking
boutiques that specialize in providing services to the emerging growth company
sector.
The principal competitive factors influencing the company's business are its
professional staff, industry expertise, client relationship and its mix of
market and product capabilities.
REGULATION
As an investment bank, Van Kasper is subject to supervision and regulation by
the SEC, which is responsible for carrying out the federal securities laws and
serves as supervisory body over all national securities exchanges and
associations. The regulation of broker-dealers has to a large extent been
delegated by the federal securities laws to self-regulatory organizations
("SROs"). These SROs include all the national securities and commodities
exchanges as well as the NASD. Subject to the approval by the SEC, these SROs
adopt rules that govern the industry and conduct periodic examination of the
operations of Van Kasper. In addition, Van Kasper is subject to regulation
under the laws of the 50 states and certain other jurisdictions in which it is
registered to conduct business.
Broker-dealers are subject to regulations which cover all aspects of the
securities business, including sales methods, trade practices among broker-
dealers, use and safekeeping of customer's funds and securities, capital
structure of securities firms, record-keeping and the conduct of directors,
officers and employees.
As a registered broker-dealer and member of the NASD, Van Kasper is subject
to certain net capital requirements (the "Net Capital Rule") set forth in Rule
15c3-1 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The Net Capital Rule, which specifies minimum capital requirements for
registered broker-dealers, is designed to measure the financial soundness and
liquidity of broker-dealers. Van Kasper's net capital exceeds the capital
requirements mandated by the Exchange Act and the rules of all regulatory
organizations of which it is a member.
EMPLOYEES
As of December 15, 1998, Van Kasper had 235 employees, of which 94 were full-
time registered representatives.
LEGAL PROCEEDINGS
Van Kasper is not a party to any material legal proceedings.
59
<PAGE>
PRINCIPAL VAN KASPER SHAREHOLDERS
Van Kasper is owned 100% by its officers and employees. Van Kasper has
rewarded those employees who espouse its business principles with equity
ownership. As a result, as of December 15, 1998, ownership was spread among 86
officers and employees.
Except as otherwise noted, the following table sets forth certain information
known to Van Kasper with respect to beneficial ownership of the Van Kasper
Shares as of December 15, 1998 by (a) each stockholder known by Van Kasper to
be the beneficial owner of more than five percent, in the aggregate, of the
outstanding shares of Van Kasper Shares, (b) each director and executive
officer of Van Kasper and (c) all executive officers and directors as a group.
The information in the table was obtained from the books and records of Van
Kasper or, where applicable, supplied to Van Kasper by the beneficial owners
below.
Van Kasper knows of no person owning beneficially more than 5% of Van
Kasper's Common Stock or Preferred Stock, except for the following persons who
beneficially owned, as of October 31, 1998, the number of shares of Common
Stock or Preferred Stock set forth opposite each such person's name in the
table below.
<TABLE>
<CAPTION>
COMMON STOCK
-----------------
NUMBER PERCENT
NAME AND ADDRESS OF SHARES OF
OF BENEFICIAL OWNER OWNED CLASS
- ------------------- --------- -------
<S> <C> <C>
F. Van Kasper................................................. 3,600 100%
600 California Street
San Francisco, CA 94111
<CAPTION>
PREFERRED STOCK
-----------------
NUMBER PERCENT
NAME AND ADDRESS OF SHARES OF
OF BENEFICIAL OWNER OWNED CLASS
- ------------------- --------- -------
<S> <C> <C>
F. Van Kasper................................................. 150,351 25.6%
600 California Street
San Francisco, CA 94111
Steven Adams.................................................. 56,087 9.5
600 California Street
San Francisco, CA 94111
John Chung.................................................... 3,400 0.6
Bruce Emmeluth................................................ 28,800 4.9
Hugh Gordon................................................... 20,000 3.4
Joaquin Horton................................................ 25,809 4.4
Jonathan Merriman............................................. 15,000 2.6
Bruce Nollenberg.............................................. 28,835 4.9
Wayne Scott................................................... 8,700 1.5
Dave Sutch.................................................... 21,255 3.6
------- ----
All directors and officers as a group
(10 persons)................................................. 358,237 61.0%
======= ====
</TABLE>
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COMPARATIVE RIGHTS OF SHAREHOLDERS
Upon consummation of the Merger, the Van Kasper Shareholders will become
stockholders of First Security whose rights will (i) cease to be defined and
governed by the CGCL and will be defined and governed by the Delaware Statute
and (ii) cease to be defined and governed by the articles of incorporation and
bylaws of Van Kasper and will be defined and governed by the First Security
Certificate and the First Security Bylaws. Certain provisions of the First
Security Certificate and the First Security Bylaws alter the rights of
shareholders from those that Van Kasper shareholders presently have and also
alter certain powers of management. These provisions are summarized below. This
summary is qualified in its entirety by reference to the First Security
Certificate, the First Security Bylaws, the Restated Articles of Incorporation
of Van Kasper (the "Van Kasper Articles"), the Bylaws of Van Kasper (the "Van
Kasper Bylaws") and applicable law. In addition, First Security could implement
certain other changes by amending the First Security Certificate or the First
Security Bylaws.
CERTAIN DIFFERENCES BETWEEN CALIFORNIA AND DELAWARE CORPORATE LAWS
The Delaware Statute governs the rights of First Security stockholders and
will govern the rights of Van Kasper shareholders who become stockholders of
First Security. The CGCL and the Delaware Statute differ in many respects.
Certain of the significant differences that could materially affect the rights
of Van Kasper shareholders are discussed below.
BOARD OF DIRECTORS
VAN KASPER. The Van Kasper Bylaws provide for the Board of Directors of Van
Kasper to consist of not more than thirteen persons and not less than seven
persons. The Van Kasper Board of Directors has by resolution acted and set the
number at nine. The Van Kasper Board of Directors is not divided into classes
and all directors are elected at each annual meeting.
FIRST SECURITY. The First Security Bylaws provide that its Board of Directors
shall consist of twenty directors, until changed by amendment of the First
Security Bylaws.
MONETARY LIABILITY OF DIRECTORS
The Van Kasper Articles provide for the elimination of personal monetary
liability of directors to the fullest extent permissible under the CGCL. The
First Security Certificate provides for the elimination of personal monetary
liability of directors to the fullest extent permissible under the Delaware
Statute.
VOTING POWER
Upon consummation of the Merger, based upon the capitalization of Van Kasper
on September 22, 1998, Van Kasper shareholders will hold approximately
3,500,000 shares of First Security Common Stock (excluding the approximately
1,100,000 Holdback shares) constituting approximately 2% of First Security's
voting power. Following the Merger, Van Kasper's shareholders will not possess
the same relative voting power in matters put to a vote of stockholders of
First Security as they possessed prior to the Merger.
REMOVAL OF DIRECTORS
VAN KASPER. The Van Kasper Articles do not contain a provision relating to
removal of directors. However, the CGCL and the Van Kasper Bylaws provide that
any director or the entire board of directors may be removed, with or without
cause, with the approval of a majority of the outstanding shares entitled to
vote, provided, that no individual director may be removed (unless the entire
board is removed) if the number of votes cast against such removal would be
sufficient to elect a director under cumulative voting.
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FIRST SECURITY. The First Security Certificate contains no provision with
respect to removal of directors and, thus, removal of directors is governed by
Section 141(k) of the Delaware Statute, which provides that any director or the
entire board of directors may be removed, with or without cause, by the holders
of a majority of the shares then entitled to vote at an election of directors.
AMENDMENT OF THE CORPORATE CHARTER DOCUMENT
VAN KASPER. The Van Kasper Articles are silent with respect to the vote
required to amend the Van Kasper Articles, and therefore the CGCL governs. The
CGCL provides for the vote of a majority of outstanding shares to amend the
articles.
FIRST SECURITY. The Delaware Statute provides that approval of a majority of
the shares entitled to vote thereon is required to amend the First Security
Certificate. However, the First Security Certificate provides for a higher
voting requirement in connection with certain transactions.
SIZE OF THE BOARD OF DIRECTORS
The First Security Bylaws provide for a Board of Directors consisting of
twenty (20) members. Under California law, although changes in the number of
directors or changing from a fixed to a variable board or vice versa may only
be adopted by approval of a majority of the outstanding shares, the Board of
Directors may fix the exact number of directors within a stated range set forth
in the articles of incorporation or bylaws, if the stated range has been
approved by the shareholders. If authorized by the certificate of
incorporation, Delaware law permits the Board of Directors to change the
authorized number of directors by amendment to the bylaws. The First Security
Certificate provides that the number of directors shall be as specified in the
First Security Bylaws and authorizes the Board of Directors to make, alter,
amend or repeal the First Security Bylaws by a majority of the Board of
Directors. As a result, the Board of Directors of First Security could amend
the First Security Bylaws to change the size of the Board of Directors or to
change from a fixed to a variable board or vice versa, in each case without
stockholder approval.
CUMULATIVE VOTING
Generally, under California law, if any shareholder has given notice of his
or her intention to cumulate votes for the election of directors, any other
shareholder of the corporation is also entitled to cumulate his or her votes at
such election. Under Delaware law, cumulative voting in the election of
directors is not mandatory. The First Security Certificate and the First
Security Bylaws do not provide for cumulative voting, and therefore, the
shareholders of Van Kasper will no longer have cumulative voting rights. The
lack of cumulative voting may limit the ability of minority shareholders to
obtain representation on the First Security Board of Directors.
CLASSIFIED BOARD OF DIRECTORS
A classified board is one for which a certain number, but not all, of the
directors are elected on a rotating basis each year. California law does not
permit Van Kasper to provide for a classified Board of Directors. Delaware law
permits, but does not require, a classified board of directors, divided into as
many as three classes with no requirement that the classes be as even in size
as possible. The First Security Certificate and the First Security Bylaws do
not presently provide for a classified board but could, in the future, be
amended to provide for a classified board. A classified board makes changes in
the composition of the board of directors more difficult, and thus a potential
change in control of a corporation a lengthier and more difficult process.
POWER TO CALL SPECIAL MEETINGS OF SHAREHOLDERS
Under California law, a special meeting of shareholders may be called by the
Board of Directors, the chairman of the board, the president, the holders of
shares entitled to cast not less than ten percent of the votes at such meeting
or such additional persons as are authorized by the articles of incorporation
or the bylaws. Under Delaware law, a special meeting of stockholders may be
called by the Board of Directors or by any
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<PAGE>
other person authorized to do so in the certificate of incorporation or the
bylaws. The First Security Bylaws contain a provision granting the right to
call a special meeting of stockholders to the chairman of the board and no
other person.
Thus, former Van Kasper Shareholders, upon becoming First Security
stockholders, will be unable to call a special meeting of stockholders to vote
on a matter that is opposed by the First Security Board of Directors.
SHAREHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS
In the last several years, a number of states (but not California) have
adopted special laws designed to make certain kinds of "unfriendly" corporate
takeovers, or other transactions involving a corporation and one or more of its
significant shareholders, more difficult.
Section 203 of the Delaware Statute ("Section 203") prohibits a Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for three years following the date that such person becomes an
interested stockholder. With certain exceptions, an interested stockholder is a
person or entity who or which owns 15% or more of the corporation's outstanding
voting stock (including any rights to acquire stock pursuant to an option,
warrant, agreement, arrangement or understanding, or upon the exercise of
conversion or exchange rights, and stock with respect to which the person has
voting rights only), or is an affiliate or associate of the corporation and was
the owner of 15% or more of such voting stock at any time within the previous
three years.
For purposes of Section 203, the term "business combination" is defined
broadly to include mergers of the corporation or a subsidiary with or caused by
the interested stockholder; sales or other dispositions to the interested
stockholder (except proportionately with the corporation's other stockholders)
of assets of the corporation or a subsidiary equal to ten percent or more of
the aggregate market value of the corporation's consolidated assets or its
outstanding stock; the issuance or transfer by the corporation or a subsidiary
of stock of the corporation or such subsidiary to the interested stockholder
(except for certain transfers in a conversion or exchange or a pro rata
distribution or certain other transactions, none of which increase the
interested stockholder's proportionate ownership of any class or series of the
corporation's or such subsidiary's stock); or receipt by the interested
stockholder (except proportionately as a stockholder), directly or indirectly,
of any loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation or a subsidiary.
The three-year moratorium imposed on business combinations by Section 203
does not apply if: (i) prior to the date at which such stockholder becomes an
interested stockholder the board of directors approves either the business
combination or the transaction which resulted in the person becoming an
interested shareholder; (ii) the interested stockholder owns 85% of the
corporation's voting stock upon consummation of the transaction which made him
or her an interested stockholder (excluding from the number of shares
outstanding those shares owned by directors who are also officers of the target
corporation and shares held by employee stock plans which do not permit
employees to decide confidentially whether to accept a tender or exchange
offer); or (iii) on or after the date such person becomes an interested
stockholder, the board approves the business combination and it is also
approved at a stockholder meeting by sixty-six and two-thirds percent (66 2/3%)
of the voting stock not owned by the interested stockholder. Section 203 does
not apply if the business combination is proposed prior to the consummation or
abandonment of and subsequent to the earlier of the public announcement or a
20-day notice required under Section 203 of the proposed transaction which (i)
constitutes certain (x) mergers or consolidations, (y) sales or other transfers
of assets having an aggregate market value equal to 50% or more of the
aggregate market value of all of the assets of the corporation determined on a
consolidated basis or the aggregate market value of all the outstanding stock
of the corporation or (z) proposed tender or exchange offers for 50% or more of
the corporation's outstanding voting stock; (ii) is with or by a person who was
either not an interested stockholder during the last three years or who became
an interested stockholder with the approval of the corporation's Board of
Directors; and (iii) is approved or not opposed by a majority of the board
members elected prior to any person becoming an interested stockholder during
the previous three years (or their chosen successors).
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<PAGE>
A Delaware corporation may elect not to be governed by Section 203 by a
provision of its original certificate of incorporation or an amendment thereto
or to the bylaws, which amendment must be approved by a majority of the shares
entitled to vote and may not be further amended by the board of directors. Such
an amendment is not effective until 12 months following its adoption. First
Security has not opted out of Section 203; therefore, Section 203 applies to
First Security.
First Security believes Section 203 will encourage any potential acquirer to
negotiate with First Security's Board of Directors. Section 203 may have the
effect of limiting the ability of a potential acquirer to make a two-tiered bid
for First Security in which all stockholders would not be treated equally.
Section 203 may also discourage certain potential acquirers unwilling to comply
with its provisions.
REMOVAL OF DIRECTORS
Under California law, any director or the entire board of directors may be
removed, with or without cause, with the approval of a majority of the
outstanding shares entitled to vote; however, no individual director may be
removed (unless the entire board is removed) if the number of votes cast
against such removal would be sufficient to elect the director under cumulative
voting. Under Delaware law, a director of a corporation with a classified Board
of Directors may be removed, with or without cause, unless the certificate of
incorporation otherwise provides.
VACANCIES ON BOARD OF DIRECTORS
Under California law, the board may fill any vacancy on the board of
directors other than one created by removal of a director. If the number of
directors in office is less than a quorum, a vacancy may be filled by the
unanimous written consent of the directors then in office, by the affirmative
vote of a majority of the directors at a properly noticed meeting or by a sole
remaining director. The board may fill a vacancy created by removal of a
director only if so authorized by a corporation's articles of incorporation or
by a bylaw approved by a corporation's shareholders. The Van Kasper Bylaws
permit directors to fill vacancies created by removal of a director. The CGCL
further provides that if, after the filling of any vacancy by the directors,
the directors then in office who have been elected by the shareholders are less
than a majority of the directors, then a holder or holders of five percent or
more of the outstanding shares may call a special meeting of shareholders or
cause a court to order such a meeting to elect the entire board.
Under Delaware law, vacancies may be filled by a majority of the directors
then in office (even though less than a quorum) unless otherwise provided in
the certificate of incorporation or bylaws.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
California and Delaware have similar laws respecting indemnification by a
corporation of its officers, directors, employees and other agents. There are
nonetheless certain differences between the laws of the two states respecting
indemnification.
California law permits indemnification of expenses incurred in derivative or
third-party actions, except that with respect to derivative actions (a) no
indemnification may be made when a person is adjudged liable to the corporation
in the performance of that person's duty to the corporation and its
shareholders, unless a court determines such person is entitled to indemnity
for expenses, and then such indemnification may be made only to the extent that
such court shall determine, and (b) no indemnification may be made without
court approval in respect of amounts paid in settling or otherwise disposing of
an action or expenses incurred in defending an action which is settled or
otherwise disposed of without court approval.
Indemnification is permitted by California law only for acts taken by the
person seeking indemnification in good faith and believed to be in the best
interests of the corporation and its shareholders and with respect to a
criminal proceeding, which such person had no reasonable cause to believe his
conduct was unlawful, as
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determined by a majority vote of a quorum of disinterested directors,
independent legal counsel (if a quorum of disinterested directors is not
obtainable), a majority vote of a quorum of the shareholders (excluding shares
owned by the indemnified party), or the court handling the action. Under
California law indemnification is required when the individual has successfully
defended the action on the merits. California corporations may include in their
articles of incorporation a provision which extends the scope of
indemnification through agreements, bylaws or other corporate action beyond
that specifically authorized by the CGCL. The Van Kasper Articles include such
a provision.
Delaware law generally permits indemnification of expenses incurred in the
defense or settlement of a derivative or third-party action, provided there is
a determination by a disinterested quorum of the directors, by independent
legal counsel or by the stockholders that the person seeking indemnification
acted in good faith and in a manner reasonably believed to be in or (in
contrast to California law) not opposed to the best interests of the
corporation and, with respect to a criminal proceeding, which such person had
no reasonable cause to believe his conduct was unlawful. Without court
approval, however, no indemnification may be made in respect of any derivative
action in which such person is adjudged liable to the corporation. Delaware law
requires indemnification of expenses when the individual being indemnified has
successfully defended the action on the merits or otherwise.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE 1933 ACT MAY BE
PERMITTED TO DIRECTORS, OFFICERS AND CONTROLLING PERSONS OF FIRST SECURITY,
FIRST SECURITY HAS BEEN ADVISED THAT IN THE OPINION OF THE SECURITIES AND
EXCHANGE COMMISSION SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED
IN THE 1933 ACT AND IS, THEREFORE, UNENFORCEABLE. IN THE EVENT THAT A CLAIM FOR
INDEMNIFICATION AGAINST SUCH LIABILITIES (OTHER THAN THE PAYMENT BY FIRST
SECURITY OF EXPENSES INCURRED OR PAID BY A DIRECTOR, OFFICER OR CONTROLLING
PERSON OF THE REGISTRANT IN A SUCCESSFUL DEFENSE OF ANY ACTION, SUIT OR
PROCEEDING) IS ASSERTED BY SUCH DIRECTOR, OFFICER OR CONTROLLING PERSON IN
CONNECTION WITH THE SECURITIES BEING REGISTERED, FIRST SECURITY WILL, UNLESS IN
THE OPINION OF ITS COUNSEL THE MATTER HAS BEEN SETTLED BY CONTROLLING
PRECEDENT, SUBMIT TO A COURT OF APPROPRIATE JURISDICTION THE QUESTION OF
WHETHER SUCH INDEMNIFICATION BY IT IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE
1933 ACT AND WILL BE GOVERNED BY THE FINAL ADJUDICATION OF SUCH ISSUE.
LIMITATIONS ON LIABILITY OF OFFICERS AND DIRECTORS
The laws of both California and Delaware permit corporations to adopt a
provision in their articles of incorporation eliminating, with certain
exceptions, the personal liability of a director to the corporation or its
shareholders for monetary damages for breach of the director's fiduciary duty
as a director. The Van Kasper Articles eliminate the liability of directors to
the corporation to the fullest extent permissible under California law.
California law does not permit the elimination of monetary liability where such
liability is based on: (a) intentional misconduct or knowing and culpable
violation of law; (b) acts or omissions that a director believes to be contrary
to the best interests of the corporation or its shareholders, or that involve
the absence of good faith on the part of the director; (c) receipt of an
improper personal benefit; (d) acts or omissions that show reckless disregard
for the director's duty to the corporation or its shareholders, where the
director in the ordinary course of performing a director's duties should have
been aware of a risk of serious injury to the corporation or its shareholders;
(e) acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to the corporation and its
shareholders; (f) interested mergers between the corporation and a director in
which a director has a material financial interest; and (g) liability for
improper distributions, loans or guarantees.
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Under Delaware law, First Security may not eliminate or limit director
monetary liability for (a) breaches of the director's duty of loyalty to the
corporation or its stockholders; (b) acts or omissions not in good faith or
involving intentional misconduct or a knowing violation of law; (c) unlawful
dividends, stock repurchases or redemptions; or (d) mergers from which the
director received an improper personal benefit. Such limitation of liability
provision also may not limit a director's liability for violation of, or
otherwise relieve First Security or its directors from the necessity of
complying with federal or state securities laws, or affect the availability of
non-monetary remedies such as injunctive relief or rescission.
INSPECTION OF SHAREHOLDER INFORMATION
Both California and Delaware law generally provide any stockholder, upon
written demand, the right to inspect and copy the corporation's stockholder
list for a purpose related to such person's interest as a stockholder. In
addition, California law provides persons holding an aggregate of 5% or more of
a corporation's outstanding voting shares an absolute right to inspect and copy
the corporation's shareholder list. Since the Delaware Statute does not provide
a similar absolute right of inspection for specified stockholders, certain Van
Kasper shareholders who become First Security stockholders will no longer have
access to the stockholder list for purposes unrelated to their interest as a
stockholder. This could result in impairment of such stockholder's ability to
coordinate opposition to management proposals, including proposals with respect
to a change in control of First Security.
DIVIDENDS AND REPURCHASES OF SHARES
California law dispenses with the concepts of par value of shares as well as
statutory definitions of capital and surplus. The concepts of par value,
capital and surplus are retained under Delaware law.
Under California law, a corporation may not make any distribution (including
dividends, whether in cash or other property, and repurchases or redemptions of
its shares) unless either the corporation's retained earnings immediately prior
to the proposed distribution equal or exceed the amount of the proposed
distribution or, immediately after giving effect to such distribution, the
corporation's assets (exclusive of goodwill, capitalized research and
development expenses and deferred charges) would be at least equal to 1.25
times its liabilities (not including deferred taxes, deferred income and other
deferred credits), and the corporation's current assets would be at least equal
to its current liabilities (or 1.25 times its current liabilities if the
average earnings before interest and taxes for the preceding two fiscal years
was less than the average interest expense for such years).
Delaware law permits a corporation to declare and pay dividends out of
statutory surplus or, if there is no surplus, out of net profits for the fiscal
year in which the dividend is declared and/or for the preceding fiscal year as
long as the amount of capital of the corporation following the declaration and
payment of the dividend is not less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. In addition, Delaware law generally
provides that a corporation may redeem or repurchase its shares only if such
redemption or repurchase would not impair the capital of the corporation.
SHAREHOLDER VOTING
Both California and Delaware law generally require that a majority of the
stockholders of both acquiring and target corporations approve statutory
mergers. Delaware law does not require a shareholder vote of the surviving
corporation in a merger (unless the corporation provides otherwise in its
certificate of incorporation) if (a) the Merger agreement does not amend the
existing certificate of incorporation, (b) each share of stock of the surviving
corporation outstanding before the Merger is an identical outstanding or
treasury share after the Merger, and (c) the number of shares to be issued by
the surviving corporation in the Merger does not exceed 20% of the shares
outstanding immediately prior to the Merger. California law contains a similar
exception to its voting requirements for reorganizations where shareholders or
the corporation itself, or both, immediately
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prior to the reorganization will own immediately after the reorganization
equity securities constituting more than five-sixths of the voting power
(assuming the conversion of convertible equity securities) of the surviving or
acquiring corporation or its parent entity.
Both California and Delaware law also generally require that a sale of all or
substantially all of the assets of a corporation be approved by a majority of
the voting shares of the corporation transferring such assets.
With certain exceptions, California law also requires that mergers,
reorganizations, and similar mergers be approved by a majority vote of each
class of shares outstanding. In contrast, Delaware law generally does not
require class voting, except for amendments to the certificate of incorporation
that change the number of authorized shares or the par value of shares of a
specific class or that adversely affect such class of shares. Should First
Security authorize and issue shares of a new class of capital stock, the
holders thereof would vote with the holders of the First Security Common Stock
on proposals not adversely affecting either the new class of capital stock or
the First Security Common Stock. In such event the holders of First Security
Common Stock, if in the minority, would be unable to control the outcome of a
vote, and, if in the majority, would be able to control the outcome of such a
vote.
California law also generally requires that holders of nonredeemable common
stock receive nonredeemable common stock in a merger of the corporation where
one of the constituent corporations or its parent owns more than 50 percent of
the voting power of the other constituent corporation unless all of the holders
of such common stock consent to the merger. This provision of California law
may have the effect of making a "cash-out" merger by a majority shareholder
(owning less than 90% of the outstanding shares of each class) more difficult
to accomplish. Although Delaware law does not parallel California law in this
respect, under some circumstances Section 203 does provide similar protection
against coercive two-tiered bids for a corporation in which the stockholders
are not treated equally.
INTERESTED DIRECTOR TRANSACTIONS
Under both California and Delaware law, contracts or transactions between a
corporation and one or more of its directors or between a corporation and any
other entity in which one or more of its directors are directors or have a
financial interest, are not void or voidable because of such interest or
because such director is present at a meeting of the board which authorizes or
approves the contract or transaction, provided that certain conditions, such as
obtaining the required approval and fulfilling the requirements of good faith
and full disclosure, are met. With certain exceptions, the conditions are
similar under California and Delaware law. Under California and Delaware law,
either (a) the shareholders or the board of directors must approve any such
contract or transaction in good faith after full disclosure of the material
facts (and, in the case of board approval other than for a common directorship,
California law requires that the contract or transaction must also be "just and
reasonable" to the corporation), or (b) the contract or transaction must have
been "fair" (in Delaware) or, in the case of a common directorship (in
California), "just and reasonable" as to the corporation at the time it was
approved. California law explicitly places the burden of proof of the just and
reasonable nature of the contract or transaction on the interested director.
Under California law, if shareholder approval is sought, the interested
director is not entitled to vote his shares at a shareholder meeting with
respect to any action regarding such contract or transaction. If board approval
is sought, the contract or transaction must be approved by a majority vote of a
quorum of the directors, without counting the vote of any interested directors
(except that interested directors may be counted for purposes of establishing a
quorum). Under Delaware law, if board approval is sought, the contract or
transaction must be approved by a majority of the disinterested directors (even
though less than a majority of a quorum). Therefore, certain transactions that
the Board of Directors of Van Kasper might not be able to approve because the
number of interested directors prevents the existence of a disinterested quorum
could be approved by a majority of the disinterested directors of First
Security, although less than a majority of a quorum.
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SHAREHOLDER DERIVATIVE LAWSUITS
California law provides that a shareholder bringing a derivative action on
behalf of a corporation need not have been a shareholder at the time of the
transaction in question, provided that certain criteria are met. Under Delaware
law, a person may only bring a derivative action on behalf of the corporation
if the person was a stockholder of the corporation at the time of the
transaction in question or his or her stock thereafter devolved upon him or her
by operation of law. California law also provides that the corporation or the
defendant in a derivative suit may, under certain circumstances, make a motion
to the court for an order requiring the plaintiff shareholder to furnish a
security bond. Delaware does not have a similar bonding requirement.
DISSENTERS' RIGHTS
Under both California and Delaware law, a shareholder of a corporation
participating in certain major corporate transactions may, under varying
circumstances, be entitled to dissenters' or appraisal rights pursuant to which
such shareholder may receive cash in the amount of the fair market value of his
or her shares in lieu of the consideration he or she would otherwise receive in
the transaction. Under Delaware law, such appraisal rights are not available
(a) with respect to the sale, lease or exchange of all or substantially all of
the assets of a corporation, (b) with respect to a merger or consolidation by a
corporation the shares of which are either listed on a national securities
exchange or are held of record by more than 2,000 holders if such stockholders
receive only shares of the surviving corporation or shares of any other
corporation which are either listed on a national securities exchange or held
of record by more than 2,000 holders, plus cash in lieu of fractional shares,
or (c) to stockholders of a corporation surviving a merger if no vote of the
stockholders of the surviving corporation is required to approve the Merger
because the Merger agreement does not amend the existing certificate of
incorporation, each share of the surviving corporation outstanding prior to the
Merger is an identical outstanding or treasury share after the Merger, and the
number of shares to be issued in the Merger does not exceed 20% of the shares
of the surviving corporation outstanding immediately prior to the Merger and if
certain other conditions are met.
THE LIMITATIONS ON THE AVAILABILITY OF DISSENTERS' RIGHTS UNDER CALIFORNIA
LAW ARE DIFFERENT FROM THOSE UNDER DELAWARE LAW. SHAREHOLDERS OF A CALIFORNIA
CORPORATION WHOSE SHARES ARE LISTED ON A NATIONAL SECURITIES EXCHANGE OR ON A
LIST OF OVER-THE-COUNTER MARGIN STOCKS ISSUED BY THE BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM GENERALLY DO NOT HAVE SUCH APPRAISAL RIGHTS UNLESS THE
HOLDERS OF AT LEAST 5% OF THE CLASS OF OUTSTANDING SHARES CLAIM THE RIGHT OR
THE CORPORATION OR ANY LAW RESTRICTS THE TRANSFER OF SUCH SHARES. DISSENTERS'
RIGHTS ARE UNAVAILABLE, HOWEVER, IF THE SHAREHOLDERS OF A CORPORATION OR THE
CORPORATION ITSELF, OR BOTH, IMMEDIATELY AFTER THE REORGANIZATION WILL OWN
EQUITY SECURITIES CONSTITUTING MORE THAN FIVE-SIXTHS OF THE VOTING POWER OF THE
SURVIVING OR ACQUIRING CORPORATION OR ITS PARENT ENTITY. CALIFORNIA LAW DOES
AFFORD DISSENTERS' RIGHTS FOR CERTAIN SALE OF ASSET REORGANIZATIONS. FOR A
FURTHER DISCUSSION OF DISSENTERS' RIGHTS UNDER CALIFORNIA LAW, SEE "DISSENTERS'
RIGHTS OF VAN KASPER SHAREHOLDERS."
DISSOLUTION
Under California law, shareholders holding 50% or more of the total voting
power may authorize a corporation's dissolution, with or without the approval
of the corporation's board of directors. The board may cause the corporation to
dissolve if (a) an order for relief under Chapter 7 of the Federal bankruptcy
law has been entered, (b) no shares have been issued or (c) the corporation has
disposed of all of its assets and has not conducted any business for a period
of five years preceding the adoption of a resolution to dissolve. Under
Delaware law, if the board of directors initiates the dissolution holders of a
majority of the corporation's shares may approve it. If the board of directors
does not approve the proposal to dissolve, the dissolution must be consented to
in writing by all stockholders entitled to vote thereon.
68
<PAGE>
LEGAL MATTERS
Ray, Quinney & Nebeker, P.C will pass upon certain other matters with respect
to the Merger for First Security and VK Acq. As of the Record Date, attorneys
at Ray, Quinney & Nebeker, as a group, were beneficial owners of no more than
4% of the total outstanding First Security common stock and held no shares of
Van Kasper Shares. A shareholder of Ray, Quinney & Nebeker is the daughter of
the Chairman and Chief Executive Officer of First Security. Another shareholder
acts as Assistant Secretary of First Security.
Skadden, Arps, Slate, Meagher, & Flom LLP (Palo Alto, California) will pass
upon certain matters in connection with the Merger for Van Kasper.
EXPERTS
The consolidated financial statements of First Security Corporation
incorporated in this Prospectus/ Information Statement by reference from the
First Security Current Report on Form 8-K dated October 1, 1998, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report (which report expressed an unqualified opinion and included explanatory
language describing the restatement of the financial statements to give effect
to the California State Bank acquisition, which was accounted for as a pooling
of interests), which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements of Van Kasper as of June 30, 1998 and
1997 and for each of the three years in the period ended June 30, 1998 included
in this Prospectus/Information Statement have been audited by Wilson, McCall &
Associates, independent certified public accountants, as stated in their report
appearing in Appendix B, and have been so included in reliance upon such report
given upon the authority of that firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
AVAILABLE ADDITIONAL INFORMATION
First Security is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and in accordance
therewith files periodic reports, proxy statements and other information with
the Securities and Exchange Commission ("Commission"). First Security's recent
filings with the Commission can be inspected and copied at the Public Reference
Facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Office at [1801 California Street,
Suite 4800, Denver, Colorado 80202-2648]. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. Such information may
also be accessed electronically by means of the Commission's home page on the
Internet (http://www.sec.gov.). In addition, the First Security Common Stock is
traded by means of the NASDAQ Stock Market, and such reports, proxy statements
and other information concerning First Security should be available for
inspection and copying at the offices of the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
First Security has filed with the Commission a Registration Statement on Form
S-4 (together with any amendments thereto, the "Registration Statement") under
the Securities Act of 1933, as amended ("Securities Act"), with respect to the
First Security Common Stock offered hereby. This Prospectus/Information
Statement does not contain all the information set forth in the Registration
Statement and the exhibits thereto, certain portions of which have been omitted
as permitted by the rules and regulations of the Commission. For further
information, reference is made to the Registration Statement, including the
exhibits thereto.
69
<PAGE>
Statements contained in this Prospectus/Information Statement or in any
documents incorporated in this Prospectus/Information Statement by reference as
to the contents of any contract or other document referred to herein or therein
are not necessarily complete, and in each instance reference is made to the
copy of such contract or other document filed as an exhibit to the Registration
Statement or such other document, each such statement being qualified in all
respects by such reference. The Registration Statement may be inspected by
anyone without charge at the principal office of the Commission in Washington,
D.C., and copies of all or any part of it may be obtained from the Commission
upon payment of the prescribed fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
There are incorporated herein by reference the following documents filed with
the Commission by First Security (File No. 1-6906):
(a) First Security's Annual Report on Form 10-K for the year ended
December 31, 1997 (as restated for the acquisition of California State Bank
in First Security's Current Report on Form 8-K filed October 1, 1998),
except Items 1, 6, 7 and 8 which are not incorporated by this reference;
and
(b) First Security's Proxy Statement dated March 16, 1998; and
(c) First Security's Quarterly Report on Form 10-Q for the quarters ended
September 30, 1998 and June 30, 1998; and
(d) First Security's Current Reports on Form 8-K dated October 1, 1998 (2
reports); October 15, 1998; November 2, 1998 and November 18, 1998; and
(e) Description of First Security Common Stock as included in First
Security's Registration Statement on Form S-3, filed with the Commission on
September 13, 1991, Commission File Number 33-42784.
All documents filed by First Security, respectively, with the Commission
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent
to the date of this Prospectus/Information Statement and prior to the effective
date of the Van Kasper Written Consents are incorporated herein by reference,
and such documents will be deemed to be a part hereof from the date of filing
of such documents. Any statement contained herein or in a document incorporated
or deemed to be incorporated by reference herein will be deemed to be modified
or superseded for purposes of this Prospectus/Information Statement to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
will not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus/Information Statement.
70
<PAGE>
APPENDIX A
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
<PAGE>
_________________________________________________________
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
by and among
FIRST SECURITY CORPORATION,
FIRST SECURITY CAPITAL MARKETS, INC.,
VAN KASPER ACQUISITION CORPORATION
and
VAN KASPER & COMPANY
December 16, 1998
_________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 Definitions........................................... 2
ARTICLE II
THE MERGER
Section 2.1 The Merger............................................ 12
Section 2.2 Effective Time........................................ 13
Section 2.3 Closing............................................... 13
Section 2.4 Directors and Officers of the
Surviving Corporation................................. 14
Section 2.5 Subsequent Actions.................................... 14
Section 2.6 Shareholders' Meeting................................. 15
Section 2.7 Consent Solicitation, Registration
Statement, Etc........................................ 15
ARTICLE III
CONVERSION OF SECURITIES
Section 3.1 Conversion of Capital Stock........................... 17
Section 3.2 Certain Definitions................................... 18
Section 3.3 Holdback Amount....................................... 19
Section 3.4 Company Options....................................... 21
Section 3.5 Dissenting Shares..................................... 22
Section 3.6 Exchange of Shares and Certificates................... 23
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 4.1 Organization.......................................... 28
Section 4.2 Capitalization........................................ 28
Section 4.3 Corporate Authorization; Validity
of Agreement; Company Action.......................... 29
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 4.4 No Violations......................................... 31
Section 4.5 Governmental Consents................................. 31
Section 4.6 No Default............................................ 32
Section 4.7 Litigation............................................ 32
Section 4.8 Compliance with Law................................... 32
Section 4.9 Financial Statements; No Undisclosed Liabilities...... 33
Section 4.10 Absence of Certain Changes............................ 33
Section 4.11 Employee Benefit Plans; ERISA......................... 34
Section 4.12 Taxes................................................. 36
Section 4.13 Intellectual Property................................. 37
Section 4.14 Contracts............................................. 38
Section 4.15 Environmental Matters................................. 39
Section 4.16 Labor Matters; Compliance with WARN Act............... 39
Section 4.17 Investment Contracts, Funds and Clients............... 40
Section 4.18 Brokers and Finders................................... 42
Section 4.19 Insurance............................................. 42
Section 4.20 Agreements with Regulatory Agencies................... 43
Section 4.21 Investment Securities................................. 43
Section 4.22 Interest Rate Risk Management Instruments............. 43
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PARENT, FSCMI AND ACQUISITION CORP
Section 5.1 Organization.......................................... 44
Section 5.2 Capitalization........................................ 45
Section 5.3 Corporate Authorization; Validity
of Agreement; Parent Action........................... 47
Section 5.4 No Violations......................................... 48
Section 5.5 Governmental Consents................................. 48
Section 5.6 No Default............................................ 49
Section 5.7 Litigation............................................ 49
Section 5.8 SEC Reports and Financial Statements.................. 49
Section 5.9 Absence of Certain Changes............................ 50
Section 5.10 Agreements with Regulatory Agencies................... 50
Section 5.11 Brokers and Finders................................... 50
Section 5.12 Satisfaction of Conditions in
Section 15(f) of the 1940 Act......................... 51
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
ARTICLE VI
GENERAL COVENANTS
Section 6.1 Conduct of Business of the
Company Pending the Closing........................... 51
Section 6.2 Investigation......................................... 54
Section 6.3 Reasonable Best Efforts............................... 55
Section 6.4 No Public Announcement................................ 57
Section 6.5 Expenses.............................................. 57
Section 6.6 Supplements to Disclosure Schedule.................... 57
Section 6.7 Exclusive Merger Agreement............................ 57
Section 6.8 Parent Common Stock Repurchases....................... 58
ARTICLE VII
ADDITIONAL COVENANTS
Section 7.1 Retention Pool........................................ 58
Section 7.2 Employment Agreements................................. 60
Section 7.3 Satisfaction of Conditions in
Section 15(f) of the 1940 Act......................... 60
Section 7.4 Investment Contract Consents
Section 7.5 Directors' and Officers'.............................. 60
Insurance and Indemnification......................... 60
Section 7.6 NASDAQ Listing Application............................ 62
Section 7.7 Affiliate Agreements.................................. 62
Section 7.8 Use of Company Name................................... 63
Section 7.9 Management of the Surviving Corporation............... 63
Section 7.10 Registration of Holdback Shares....................... 66
Section 7.11 Resale Registration................................... 66
Section 7.12 Company Representative................................ 67
Section 7.13 Section 280G.......................................... 67
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
ARTICLE VIII
CONDITIONS TO THE CLOSING
Section 8.1 Conditions to the Obligations of Each Party........... 68
Section 8.2 Additional Conditions to the
Obligations of the Company............................ 69
Section 8.3 Conditions to the Obligations of Parent............... 70
ARTICLE IX
TERMINATION
Section 9.1 Termination........................................... 72
Section 9.2 Effect of Termination........... ..................... 73
ARTICLE X
INDEMNIFICATION
Section 10.1 Indemnification by the Company........................ 73
Section 10.2 Indemnification Procedure............................. 75
Section 10.3 Disputes.............................................. 76
Section 10.4 Time Limit............................................ 76
Section 10.5 Sole Remedy........................................... 76
ARTICLE XI
MISCELLANEOUS
Section 11.1 Survival of Representations and.......................
Warranties and Covenants.............................. 77
Section 11.2 Amendment, Modification and Waiver.................... 77
Section 11.3 Entire Agreement...................................... 77
Section 11.4 Notices............................................... 78
Section 11.5 Governing Law......................................... 79
Section 11.6 Descriptive Headings.................................. 79
Section 11.7 Assignment; Binding Agreement......................... 79
Section 11.8 Third Party Beneficiaries............................. 79
Section 11.9 Specific Performance.................................. 79
Section 11.10 Severability.......................................... 80
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
Section 11.11 Counterparts..................................... 80
Original Merger Agreement Superseded............................ 80
</TABLE>
INDEX TO EXHIBITS
Exhibit A Articles of Incorporation of Surviving Corporation
Exhibit B By-Laws of Surviving Corporation
Exhibit C List of Employees to enter into Employment Agreement
Exhibit D Form of Employment Agreement
Exhibit E Form of Opinion of Ray, Quinney & Nebeker, Counsel to Parent
Exhibit F Form of Opinion of Skadden, Arps, Slate, Meagher & Flom LLP,
Counsel to the Company Exhibit G Form of Affiliates Letter
Exhibit H Form of Voting Agreement
Schedule 2.4 Initial Governance Structure
v
<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER ("Agreement"), dated
as of December 16, 1998, by and among FIRST SECURITY CORPORATION, a Delaware
corporation ("Parent"), FIRST SECURITY CAPITAL MARKETS, INC., a Utah
------
corporation ("FSCMI") VAN KASPER ACQUISITION CORPORATION, a Utah corporation
-----
("Acquisition Corp.") and VAN KASPER & COMPANY, a California corporation (the
----------------
"Company").
-------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, each respective Board of Directors of Parent, FSCMI,
Acquisition Corp. and the Company has approved the merger of Acquisition Corp.
with and into the Company upon the terms and subject to the conditions set forth
in this Agreement (the "Merger"), and each has approved this Agreement, and
------
determined that this Agreement and transactions contemplated hereunder,
including the Merger, are advisable and in the best interests of its respective
shareholders;
WHEREAS, for Federal income tax purposes, it is intended that the
Merger qualify as a reorganization under section 368(a) of the Code;
WHEREAS, the Company, Parent and FSCMI entered into an Agreement and
Plan of Merger dated as of September 22, 1998 (the "Original Merger Agreement"),
-------------------------
providing for the merger of the Company with and into FSCMI;
WHEREAS, the Company, Parent, FSCMI and Acquisition Corp. desire to
amend and restate the Original Merger Agreement as provided herein;
WHEREAS, concurrently with the execution of this Agreement and as an
inducement to Parent and FSCMI to enter into this Agreement, certain
shareholders, officers and directors of the Company (collectively, the
"Significant Shareholders") have, as of September 22, 1998, entered into
------------------------
agreements in substantially the form of Exhibit H hereto (the "Voting
------
Agreements") to vote the shares of Company Capital Stock owned by such persons
to approve the Merger; and
<PAGE>
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement.
NOW THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements and conditions set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to be
legally bound hereby, agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 Definitions. For purposes of this Agreement, the
-----------
following terms shall have the following meanings:
"Acquisition Corp." shall have the meaning set forth in the recitals
hereto.
"Acquisition Corp. Common Stock" shall have the meaning set forth in
Section 5.2(b) hereof.
"Action" shall have the meaning set forth in Section 10.2(a) hereof.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with, such specified Person. For the purposes of this definition, the term
"affiliated" has a meaning correlative to the foregoing.
"Articles of Merger" shall mean the Articles of Merger referred to in
Section 2.2 hereof to be filed with the Division of Corporations and Commercial
Code, Department of Commerce, of the State of Utah.
"Average Parent Share Price" shall have the meaning set forth in
Section 3.2 hereof.
"BHC Act" shall mean the Bank Holding Company Act of 1956, as amended.
2
<PAGE>
"Business Day" means a Monday, Tuesday, Wednesday, Thursday or Friday
on which banking institutions in the State of New York are not authorized or
obligated by Law to close.
"California Merger Agreement" shall mean the Agreement of Merger by
and among Parent, Acquisition Corp. and the Company together with the related
officers' certificates required by 1103 of the CGCL, in the form attached to
this Agreement as Exhibit [__].
"Cash Exercised Option" shall have the meaning set forth in Section
3.2 hereof.
"Certificates" shall have the meaning set forth in Section 3.6(b)
hereof.
"Change in Control" shall have the meaning set forth in Section
7.9(c)(1) hereof.
"CGCL" shall mean the California General Corporation Law.
"Claim" shall have the meaning set forth in Section 10.2(a) hereof.
"Clients" shall have the meaning set forth in Section 4.17(a) hereof.
"Closing" shall have the meaning set forth in Section 2.3 hereof.
"Closing Calculation Period" shall have the meaning set forth in
Section 3.2 hereof.
"Closing Date" shall have the meaning set forth in Section 2.3 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company Capital Stock" shall have the meaning set forth in Section
3.1(b) hereof.
"Company Common Stock" shall have the meaning set forth in Section
3.1(b) hereof.
3
<PAGE>
"Company Disclosure Schedule" shall have the meaning set forth in
Article IV hereof.
"Company Indemnified Party" shall have the meaning set forth in
Section 7.5(a) hereof.
"Company Material Adverse Effect" shall mean any event, change or
effect, individually or in the aggregate with such other events, changes or
effects that is or could reasonably be expected to be materially adverse to (i)
the business, operations, properties (including intangible properties),
condition (financial or otherwise), results of operations, assets, liabilities
or regulatory status of the Company and VKA, taken as a whole, or (ii) the
ability of the Company to consummate any of the transactions or to perform its
obligations under this Agreement or any other agreements executed in connection
herewith, it being understood that none of the following shall be deemed by
itself or by themselves, either alone or in combination, to constitute a Company
Material Adverse Effect: (a) conditions generally affecting the brokerage and
investment banking industries, or companies providing services similar to those
provided by the Company and VKA, taken as a whole, (b) any effect arising out of
or resulting from actions contemplated by the parties in connection with, the
announcement of this Agreement and the transactions contemplated hereby, or (c)
any matter identified in the Company Disclosure Schedule.
"Company Material Agreement" shall have the meaning set forth in
Section 4.4(d) hereof.
"Company Option" shall have the meaning set forth in Section 3.4(a)
hereof.
"Company Option Shares" shall have the meaning set forth in Section
3.4(a) hereof.
"Company Plans" shall have the meaning set forth in Section 4.11(a)
hereof.
"Company Preferred Stock" shall have the meaning set forth in Section
3.1(b) hereof.
"Company Revenues" shall have the meaning set forth in Section 3.3
hereof.
4
<PAGE>
"Company Representative" shall have the meaning set forth in Section
7.12 hereof.
"Company Share Price" shall have the meaning set forth in Section 3.2
hereof.
"Company Stock Plan" shall have the meaning set forth in Section
3.4(a) hereof.
"Confidentiality Agreement" shall have the meaning set forth in
Section 6.2 hereof.
"Contract" means any material agreement, contract, note, bond,
mortgage, franchise, permit, loan, lease, license, guarantee, understanding,
commitment, obligation and other arrangement (written or oral) of any kind
including, without limitation, any investment advisory or subadvisory,
distribution or similar agreement with any Fund, to which the Company or VKA is
a party or by which the assets or properties of the Company or VKA are bound or
affected.
"D&O Insurance" shall have meaning set forth in Section 7.5(d) hereof.
"Defined Benefit Plan" shall mean either a plan described in section
3(35) of ERISA that is subject to Title IV of ERISA or a plan subject to the
minimum funding standards set forth in section 302 of ERISA and section 412 or
4971 of the Code.
"Dissenting Shares" shall mean any shares of Company Capital Stock
outstanding immediately prior to the Effective Time and held by a holder who has
not voted in favor of the Merger or consented thereto in writing, and who has
demanded appraisal for such shares in accordance with section 1300 of the
CGCL, if such section 1300 provides for appraisal rights for such shares of
Company Capital Stock in the Merger.
"Distribution Event" shall mean an event or circumstance that requires
the distribution of all or a part of the Holdback Shares.
"Effective Time" shall have the meaning set forth in Section 2.2
hereof.
5
<PAGE>
"Effective Time" shall mean the date and time at which the Articles of
Merger are duly filed with the Secretary of State of the State of California and
the Division of Corporations and Commercial Code, Department of Commerce, of the
State of Utah, respectively, or such other date or time as is specified in the
Articles of Merger as the date and time the Merger becomes effective.
"Employment Agreement" shall mean an Employment Agreement in the form
attached hereto as Exhibit D.
---------
"Environmental Law" shall mean any and all Laws regulating, relating
to or imposing liability or standards of conduct concerning protection of
human health or the environment, as now or may at any time on or prior to the
Closing Date be in effect.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall have the meaning set forth in Section 4.11(a)
hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agent" shall have the meaning set forth in Section 3.6(a)
hereof.
"Exchange Fund" shall have the meaning set forth in Section 3.6(a)
hereof.
"Exchange Ratio" shall have the meaning set forth in Section 3.2
hereof.
"Federal Funds Rate" shall mean the rate established from time to
time by the Federal Reserve Board.
"Federal Reserve Board" shall have the meaning set forth in Section
6.3(a) hereof.
"Financial Statements" shall have the meaning set forth in Section
4.9(a) hereof.
"FSCMI Common Stock" shall have the meaning set forth in Section
5.2(b) hereof.
6
<PAGE>
"Funds" shall mean the registered investment companies on whose
behalf, as of the date hereof, the Company or VKA acts as investment advisor
and, in the case of open-end funds, principal underwriter.
"GAAP" means generally accepted accounting principles in effect in the
United States of America at the time of determination, and which are
consistently applied.
"Governmental Entity" means any foreign, federal, state or local
court, administrative agency or commission or other governmental authority or
instrumentality.
"Holdback" shall have the meaning set forth in Section 3.3 hereof.
"Holdback Registration Statement" shall have the meaning set forth in
Section 7.10 hereof.
"Holdback Shares" shall have the meaning set forth in Section 3.6(a)
hereof.
"Initial Shares" shall have the meaning set forth in Section 3.6(a)
hereof.
"Indemnitor" shall have the meaning set forth in Section 10.2(a)
hereof.
"Intellectual Property" shall have the meaning set forth in Section
4.13 hereof.
"Investment Advisors Act" shall mean the Investment Advisors Act of
1940, as amended.
"Investment Contracts" shall have the meaning set forth in Section
4.17(a) hereof.
"IRS" means the United States Internal Revenue Service.
"Laws" means all laws, common laws, rules, regulations, ordinances,
codes, statutes, judgments, injunctions, orders, decrees, permits, policies and
other requirements of all Governmental Entities.
7
<PAGE>
"Licenses and Permits" shall mean the governmental authorizations and
licenses of the Company and VKA issued by any Governmental Entity and applicable
to the business of the Company or VKA.
"Lien" means any mortgage, pledge, lien, encumbrance, charge,
adverse claim (whether pending or, to the knowledge of the Person against whom
the adverse claim is being asserted, threatened) or restriction of any kind
affecting title or resulting in an encumbrance against property, real or
personal, tangible or intangible, or a security interest of any kind, including,
without limitation, any conditional sale or other title retention agreement,
any lease in the nature thereof, any third party option or other agreement to
sell, and any filing of or agreement to give any financing statement under the
Uniform Commercial Code (or equivalent statute) of any jurisdiction (other than
a financing statement which is filed or given solely to protect the interest of
a lessor).
"Loss" or "Losses" shall mean any liability, loss, damage, claim,
charge, action, suit, proceeding, investigation, deficiency, Tax, interest,
penalty, cost and expense (including, without limitation, attorneys' fees);
provided, however, that in no event shall "Losses" include lost profits or other
- -------- -------
similar incidental damages or consequential damages.
"Management Committee Chairman" shall have the meaning set forth in
Section 7.1(a) hereof.
"Merger" shall have the meaning set forth in Section 2.1(a) hereof.
"Merger Consideration" shall have the meaning set forth in Section 3.2
hereof.
"Money Market Funds" means Funds that operate as money market funds
pursuant to Rule 2a-7 under the 1940 Act.
"Multiemployer Plan" shall mean a plan described in section 3(37) of
ERISA.
"1940 Act" means the Investment Company Act of 1940, as amended.
8
<PAGE>
"Non-Interested Directors" shall have the meaning set forth in Section
8.3(h) hereof.
"Non-Vested Option" shall have the meaning set forth in Section 3.4(b)
hereof.
"Option Cancellation Agreements" shall have the meaning set forth in
Section 7.1(a) hereof.
"Original Merger Agreement" shall have the meaning specified in the
recitals hereto.
"Parent Common Stock" shall have the meaning set forth in Section
5.2(a) hereof.
"Parent Disclosure Schedule" shall have the meaning set forth in
Article V hereof.
"Parent Indemnified Parties" shall have the meaning set forth in
Section 10.1(a) hereof.
"Parent Material Adverse Effect" shall mean any event, change or
effect, individually or in the aggregate with such other events, changes or
effects that is or could reasonably be expected to be materially adverse to (i)
the business, operations, properties (including intangible properties),
condition (financial or otherwise), results of operations, assets, liabilities
or regulatory status of Parent or any of its Subsidiaries, taken as a whole, or
(ii) the ability of Parent or FSCMI to consummate any of the transactions or to
perform their respective obligations under this Agreement or any other
agreements executed in connection herewith, it being understood that none of the
following shall be deemed by itself or by themselves, either alone of in
combination, to constitute a Parent Material Adverse Effect: (a) conditions
generally affecting the commercial banking industry, or companies providing
services similar to those provided by Parent and its Subsidiaries, taken as a
whole, (b) any effect arising out of or resulting from actions contemplated by
the parties in connection with the announcement of this Agreement and the
transactions contemplated hereby, or (c) any matter identified in the Parent
Disclosure Schedule.
"Parent Preferred Stock" shall have the meaning set forth in Section
5.2(a) hereof.
9
<PAGE>
"Parent SEC Documents" shall have the meaning set forth in Section 5.8
hereof.
"Person" shall mean any syndicate or group which would be deemed to be
a "person" under Section 13(d)(3) of the Exchange Act.
"Registration Statement" shall mean a prospectus of Parent with
respect to Parent Common Stock to be issued in the Merger and to be filed by
Parent with the SEC as part of a registration statement on Form S-4 filed by
Parent for the purpose of registering such shares of Parent Common Stock under
the Securities Act of 1933, as amended and including the solicitation of
consents of holders of Company Capital Stock.
"Regulation Y" shall mean Regulation Y promulgated under the BHC Act.
"Regulatory Agreement" shall have the meaning set forth in Section
4.20 hereof.
"Requisite Governmental Approvals" shall have the meaning set forth in
Section 8.1(d) hereof.
"Resale Registration Statement" shall have the meaning set forth in
Section 7.11 hereof.
"Retention Bonuses" shall have the meaning set forth in Section 7.1(a)
hereof.
"Retention Pool" shall have the meaning set forth in Section 7.1(a)
hereof.
"SAS 49" shall have the meaning set forth in Section 2.7(c) hereof.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Self Regulatory Authority" means the Nasdaq National Market System
and other self-regulatory organizations in the securities and commodities
field, includ-
10
<PAGE>
ing, without limitation, the National Futures Association, and the National
Association of Securities Dealers, Inc.
"Special Meeting" shall have the meaning set forth in Section 2.6(a)
hereof.
"Subsidiary" of any party means (a) a corporation, a majority of the
voting or capital stock of which is, at the time, directly or indirectly owned
by such party and (b) any other Person (other than a corporation) in which such
party, directly or indirectly (i) owns a majority of the equity or other
interest thereof or (ii) has the power to elect or direct the election of a
majority of the members of the governing body of such Person or otherwise has
control over such Person (e.g., as the managing partner of a partnership).
----
"Survival Period" shall have the meaning set forth in Section 11.1
hereof.
"Surviving Corporation" shall mean the successor or surviving
corporation of the Merger.
"Tax" or "Taxes" means all taxes, charges, fees, levies, or other
assessments of any nature whatsoever including, without limitation, any
federal, income, gross receipts, excise, real or personal property, sales,
withholding, social security, retirement, unemployment, occupation, use,
service, net worth, payroll, franchise, transfer and recording taxes, imposed by
any federal, state, local or foreign taxing authority, and shall include all
interest, penalties and additions imposed with respect to such amounts.
"Tax Returns" shall mean any return, report, information return or
other document (including any related or supporting information) filed or
required to be filed with any taxing authority in connection with the
determination, assessment or collection of any Tax or other administration of
any laws, regulations or administrative requirements in relation to any Tax.
"URBCA" shall mean the Utah Revised Business Corporation Act.
11
<PAGE>
"Vested Company Option" shall have the meaning set forth in Section
3.4(a) hereof.
"VKA" shall mean Van Kasper Advisers, Inc., a California corporation
and a wholly-owned subsidiary of the Company.
"VKA Common Stock" shall have the meaning set forth in Section 4.2(b)
hereof.
"VK Division" shall mean (i) the Surviving Corporation, prior to the
consummation of the merger between FSCMI and the Surviving Corporation, and (ii)
a separate division within which the current operations of the Company and VKA
will be conducted from and following consummation of the proposed merger between
FSCMI and Surviving Corporation.
"WARN Act" shall have the meaning set forth in Section 4.16 hereof.
"Warrant" shall have the meaning set forth in Section 4.2(a) hereof.
ARTICLE II
THE MERGER
Section 2.1 The Merger.
----------
(a) Subject to the terms and conditions of this Agreement, at the
Effective Time, the Company and Acquisition Corp. shall consummate a merger
pursuant to which (a) Acquisition Corp. shall be merged with and into the
Company (the "Merger") and the separate corporate existence of Acquisition Corp.
------
shall thereupon cease, (b) the Company shall be the successor or surviving
corporation in the Merger and shall continue to be governed by the laws of the
State of California, and (c) the separate corporate existence of the Company
with all its rights, privileges, immunities, powers and franchises shall
continue unaffected by the Merger, except as set forth in this Section 2.1.
(b) As of the Effective Time of the Merger, the articles of
incorporation of the Surviving
12
<PAGE>
Corporation shall be as set forth in Exhibit A to this Agreement, and such
---------
articles of incorporation shall be the articles of incorporation of Surviving
Corporation until thereafter amended as provided by law and such articles of
incorporation of the Surviving Corporation; provided, however, that Article 1 of
-------- -------
the articles of incorporation of the Surviving Corporation shall be amended to
read as follows: "The name of the corporation is "First Security Van Kasper."
As of the Effective Time of the Merger, the by-laws of the Surviving Corporation
shall be as set forth in Exhibit B to this Agreement, and such by-laws shall be
---------
the by-laws of the Surviving Corporation until thereafter amended as provided
by law and such by-laws of the Surviving Corporation.
Section 2.2 Effective Time. Upon the terms and subject to the
--------------
conditions set forth in Article VIII of this Agreement and the California Merger
Agreement, on the Closing Date, the parties hereto shall file the California
Merger Agreement with the Secretary of State of California, whereupon
Acquisition Corp. shall be merged with and into the Company pursuant to sections
1100 et. seq. of the CGCL. Concurrently with the filing of the California
Merger Agreement with the Secretary of State of the State of California and upon
the terms and subject to the conditions set forth in Article VIII of this
Agreement, the parties hereto shall file the Articles of Merger with the
Division of Corporations and Commercial Code, Department of Commerce of the
State of Utah (the "Division") in accordance with the relevant provisions of the
--------
URBCA. The parties shall make all other filings, recordings or publications
required by the CGCL and the URBCA in connection with the Merger. The Merger
shall become effective at the time specified in the Articles of Merger and the
California Merger Agreement and shall be on the Closing Date or as soon as
practical thereafter.
Section 2.3 Closing. The closing of the Merger (the "Closing") shall
------- -------
take place at 10:00 a.m. on a date to be agreed upon by the parties, and if such
date is not agreed upon by the parties, the Closing shall occur on the second
Business Day after satisfaction or waiver of all of the conditions set forth in
Article VIII (the "Closing Date"), at the offices of Skadden, Arps, Slate,
------------
Meagher & Flom LLP, 4 Embarcadero Center, Suite 3800, San Francisco, California
94111.
13
<PAGE>
Section 2.4 Directors and Officers of the Surviving Corporation.
---------------------------------------------------
(a) Subject to Section 2.4(b) below, the directors and officers
of the Surviving Corporation at the Effective Time shall be the directors and
officers of the Company as of immediately prior to the Effective Time,
respectively, and shall serve in their respective positions until their
successors shall have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the articles of
incorporation and the by-laws of the Surviving Corporation.
(b) The parties hereto agree that, during the 60-day period
immediately following the date of the Original Merger Agreement, the parties
will use their reasonable best efforts to establish a mutually agreeable
governance structure to be implemented at the Effective Time and relating to and
covering the operation of the Company's businesses for a period of no less than
four (4) years from and after the Effective Time. In furtherance of the
foregoing, the parties have set forth on Schedule 2.4 an initial framework for
------------
such post-closing governance structure for purposes of discussion and
negotiation, which framework shall be binding until such time as the definitive
terms of the post-closing governance structure have been mutually agreed to by
the parties.
Section 2.5 Subsequent Actions. If at any time after the Effective
------------------
Time the Surviving Corporation will consider or be advised that any deeds, bills
of sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of either of the Company or Acquisition Corp. acquired or
to be acquired by the Surviving Corporation as a result of, or in connection
with, the Merger or otherwise to carry out this Agreement, the officers and
directors of the Surviving Corporation shall be authorized to execute and
deliver, in the name and on behalf of either the Company or Acquisition Corp.,
all such deeds, bills of sale, instruments of conveyance, assignments and
assurances and to take and do, in the name and on behalf of each of such
corpora-
14
<PAGE>
tions or otherwise, all such other actions and things as may be necessary or
desirable to vest, perfect or confirm any and all right, title and interest in,
to and under such rights, properties or assets in the Surviving Corporation or
otherwise to carry out this Agreement.
Section 2.6 Shareholders' Meeting. If required by applicable law in
---------------------
order to consummate the Merger, the Company, acting through its Board of
Directors, shall, in accordance with applicable law:
(a) duly call, give notice of, convene and hold a special meeting
or schedule an action by written consent of its shareholders (either of such
special meeting or action by written consent, the "Special Meeting") as
----------------
promptly as practicable after the Registration Statement is declared effective
for the purpose of considering and taking action upon the approval of the
Merger and the adoption of this Agreement;
(b) use its reasonable best efforts to solicit from holders of
shares of Company Common Stock and Company Preferred Stock proxies or written
consents in favor of the Merger and shall take all other action necessary or, in
the reasonable opinion of Parent, advisable to secure any vote or consent of
shareholders required under California or Utah law to effect the Merger.
Section 2.7 Consent Solicitation, Registration Statement, Etc.
-------------------------------------------------
(a) Parent shall promptly prepare and file with the SEC under the
Securities Act, a Registration Statement on Form S-4 (the "Registration
------------
Statement") with respect to the shares of Parent Common Stock to be issued in
- ---------
the Merger (including the Holdback Shares) and shall use its best efforts to
have the Registration Statement declared effective by the SEC as promptly as
practicable. The Registration Statement shall also include a solicitation of
proxies or written consents of the shareholders of the Company to the Merger at
the Special Meeting, which solicitation shall also constitute the prospectus
included in the Registration Statement. The Registration Statement shall contain
the recommendation of the Company's Board of Directors that holders of Company
Common Stock and Company Preferred Stock approve and adopt the Merger and the
transactions contemplated
15
<PAGE>
thereunder. Parent shall also take any action required to be taken under state
blue sky or other securities laws in connection with the issuance of shares of
Parent Common Stock in the Merger. The Company shall furnish Parent with all
information and shall take such other action as Parent may reasonably request in
connection with any such action.
(b) Parent shall notify the Company of the receipt of the
comments of the SEC and of any requests by the SEC for amendments or supplements
to the Registration Statement or for additional information, and shall promptly
supply the Company with copies of all correspondence between Parent (or its
representatives) and the SEC (or its staff) with respect thereto. If, at any
time prior to the Special Meeting, any event should occur relating to or
affecting the Company, Parent or FSCMI, or to their respective officers or
directors, which event should be described in an amendment or supplement to the
Registration Statement, the parties shall promptly inform one another and shall
cooperate in promptly preparing, filing and clearing with the SEC and, if
required by applicable securities laws, mailing to the Company's shareholders
such amendment or supplement.
(c) Notwithstanding anything to the contrary in this Agreement,
the Company shall not mail the Registration Statement to the Company's
shareholders unless and until (i) Parent has advised the Company that the
Registration Statement has been declared effective under the Securities Act,
(ii) Parent shall have received a "comfort letter" from Wilson, McCall & Daoro,
the independent auditors of the Company, in the form, scope and content
contemplated by Statement of Auditing Standards No. 49 issued by the American
Institute of Certified Public Accountants, Inc. ("SAS 49"), relating to the
------
financial statements and other financial data with respect to the Company and
VKA included in the Registration Statement and such other matters as may be
reasonably required by Parent, and based upon procedures carried out to a
specified date not earlier than five days prior to the date thereof and (iii)
the Company shall have received a "comfort letter" from Deloitte & Touche, LLP,
the independent auditors of Parent, in the form, scope, and content contemplated
by SAS 49, relating to the financial statements and other financial data with
respect to Parent and its consolidated Subsidiaries in-
16
<PAGE>
cluded or incorporated by reference in the Registration Statement and such other
matters as may be reasonably required by the Company, and based upon procedures
carried out to a specified date not earlier than five days prior to the date
thereof.
ARTICLE III
CONVERSION OF SECURITIES
Section 3.1 Conversion of Capital Stock. In accordance with this
---------------------------
Agreement, as of the Effective Time, by virtue of the Merger and without any
further action on the part of the holders of any shares of Company Capital Stock
or shares of common stock of Acquisition Corp.:
(a) Capital Stock of Acquisition Corp. Each share of the capital
---------------------------------
stock of Acquisition Corp. issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one fully paid and
nonassessable share of common stock of the Surviving Corporation.
(b) Conversion of Company Capital Stock. Each issued and
-----------------------------------
outstanding share of the Common Stock, no par value (the "Company Common
--------------
Stock"), and the Preferred Stock, Series A, no par value (the "Company Preferred
- ----- -----------------
Stock"), of the Company, shall be converted into the right to receive the Merger
- -----
Consideration (as defined in Section 3.2 hereof). The Company Common Stock and
the Company Preferred Stock are referred to collectively herein as the "Company
-------
Capital Stock."
- -------------
(c) As of the Effective Time, all such shares of Company Capital
Stock shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist. If, prior to the Effective Time, Parent should
split or combine the Parent Common Stock, or pay a stock dividend or other stock
distribution in Parent Common Stock, the Exchange Ratio will be appropriately
adjusted to reflect such split, combination, dividend or other distribution.
(d) Subject to the limitations set forth herein, as of the
Effective Time, each certificate theretofore representing shares of Company
Capital Stock, without any action on the part of Parent, the Company or
17
<PAGE>
the holder thereof, shall represent an entitlement to receive the Merger
Consideration. Each holder of a certificate representing any shares of Company
Capital Stock shall cease to have any rights with respect thereto, except the
right to receive, upon the surrender of any such certificates, the Merger
Consideration upon the terms and subject to the conditions set forth herein.
Section 3.2 Certain Definitions.
-------------------
"Average Parent Share Price" shall mean the average of the last sales
--------------------------
prices per share of Parent Common Stock on the Nasdaq National Market for the
ten (10 consecutive trading days ending on the trading day which is five (5)
days prior to the Closing Date (such period referred to herein as the "Closing
-------
Calculation Period").
- ------------------
"Cash Exercised Option" shall mean each option or warrant to purchase
---------------------
Company Capital Stock exercised between the date hereof and the Closing, where
the exercise price of such option or warrant is paid by the option or warrant
holder to the Company in cash or cash equivalent or by means of a loan from the
Company to such holder.
"Company Share Price" shall mean the quotient of (A) the sum of (i)
-------------------
$90 million, (ii) the aggregate exercise price of all Cash Exercised Options,
and (iii) the aggregate exercise price of all options to be exercised pursuant
to the cashless exercise procedure in Section 3.4 hereof, divided by (B) the sum
of, as of the Effective Time, (1) the total number of issued and outstanding
shares of Company Common Stock, (2) the total number of issued and outstanding
shares of Company Preferred Stock, and (3) the total number of shares of
Company Capital Stock subject to all Vested Company Options.
"Exchange Ratio" shall mean (in each case, rounded to the nearest one
--------------
one-hundred thousandth of a share),
(i) if the Average Parent Share Price is greater than or equal to
$22.00, the num-
18
<PAGE>
ber determined by dividing the Company Share Price by $22.00;
(ii) if the Average Parent Share Price is less than or equal to
$18.00, the number determined by dividing the Company Share
Price by $18.00; and
(iii) if the Average Parent Share Price is greater than $18.00 and
less than $22.00,the number determined by dividing the Company
Share Price by Average Parent Share Price;
provided, however, if, prior to the Effective Time, Parent should split or
- -------- -------
combine the Parent Common Stock, or pay a stock dividend or other stock
distribution in Parent Common Stock, then the Exchange Ratio will be
appropriately adjusted to reflect such split, combination, dividend or other
distribution.
"Merger Consideration" for each share of Company Capital Stock shall
--------------------
mean that number of duly authorized, validly issued, fully paid and
nonassessable shares of Parent Common Stock equal to the Exchange Ratio.
Section 3.3 Holdback Amount. Twenty-five percent (25%) of the
---------------
aggregate Merger Consideration payable in shares of Parent Common Stock (the
"Holdback") will be withheld at the Closing and issued to the holders of Company
- ---------
Capital Stock of record as of the Closing Date on the third and fourth
anniversaries of the Closing Date as follows:
(a) If the aggregate of revenues attributable to the operations of the
Company and VKA and accounted for in a manner consistent with past practice (the
"Company Revenues") for the three-year period beginning on the day immediately
----------------
following the Closing Date and ending on the third anniversary of the Closing
Date is equal to or greater than $176,540,000, then 50% of the Holdback plus an
amount in cash equal to the cash dividends, if any, that would have accrued
during such period on such 50% portion of the Holdback had such shares of Parent
Common Stock been issued as of the Closing Date, subject to Section 7.10 hereof,
shall be delivered by Parent as
19
<PAGE>
soon as reasonably practicable following such third anniversary to the holders
of record of Company Capital Stock as of the Closing Date entitled thereto; and
(b) If the aggregate of Company Revenues for the four-year period
beginning on the day immediately following the Closing Date and ending on the
fourth anniversary of the Closing Date is equal to or greater than $241,370,000,
then 50% (or 100% if no portion of the Holdback was delivered pursuant to clause
(a) above) of the Holdback plus an amount in cash equal to the cash dividends,
if any, that would have accrued during such period on such 50% (or 100%, as the
case may be) portion of the Holdback had such shares of Parent Common Stock been
issued as of the Closing Date, subject to Section 7.10 hereof, shall be
delivered by Parent as soon as reasonably practicable following such fourth
anniversary to the holders of record of Company Capital Stock as of the Closing
Date entitled thereto.
Notwithstanding the foregoing, the Holdback shall be subject to offset
(and shall be appropriately adjusted at the time of any such offset for all
purposes hereunder) by any amounts owed to any Parent Indemnified Party pursuant
to the provisions of Article X hereof.
(c) The Exchange Ratio shall be appropriately adjusted with respect to
the Holdback Shares so as to ensure that the holders of Company Capital Stock as
of the Closing Date will realize the effects of transactions relating to Parent
or the Parent Common Stock occurring subsequent to the Closing Date as if such
holders had been issued the Parent Common Stock on the Closing Date. These
events shall include, without limitation: (i) a split or combination of the
Parent Common Stock, or payment of a stock dividend or other stock distribution
in Parent Common Stock; (ii) an issuance to all holders of Parent Common Stock
of rights or warrants to purchase Parent Common Stock; (iii) a distribution to
all holders of Parent Common Stock of capital stock (other than Parent Common
Stock) or evidences of indebtedness of the Parent or of assets (including
securities, but excluding those rights, warrants, dividends and distributions
referred to above); and (iv) distributions of cash (other than any quarterly
cash dividend set forth in Section 3.3(a) or (b)), on the Parent Common Stock;
provided, however, that if a cash distribution to be paid by Parent is in an
- -------- -------
amount that would reasonably be expected to impair the ability of the Merger to
qualify as a reorganization under Section 368(a) of the Code, such distribution
amount shall be paid instead in shares of First Security Common Stock.
20
<PAGE>
In the event of (i) a reclassification of the Parent Common Stock or (ii) a
consolidation, merger or combination involving the Parent or a sale or
conveyance to another Person of all or substantially all of the property and
assets of Parent, in each case, as a result of which the holders of Parent
Common Stock shall be entitled to receive stock, other securities, other
property or assets (including cash) with respect to or in exchange for such
Parent Common Stock, holders of record of the Company Common Stock on the
Closing Date shall be entitled, in the event of a Distribution Event, to the
kind and amount of shares or stock, other securities or other property or assets
(including cash) which they would have owned or been entitled to receive upon
such reclassification, consolidation, merger, combination, sale or conveyance
had the Holdback Shares been issued prior to such event.
Parent shall take no action, or fail to take any action, which would or is
reasonably likely to have the effect of avoiding the adjustment provisions
contemplated hereby.
Section 3.4 Company Options. (a) Immediately prior to the Effective
---------------
Time, each then outstanding option or warrant to purchase Company Capital Stock
(a "Company Option") issued under each stock option or warrant plan, program,
--------------
agreement or arrangement of the Company (each a "Company Stock Plan") that has
------------------
previously vested or shall have vested upon consummation of the Merger (a
"Vested Company Option") shall be exercised pursuant to a cashless exercise
---------------------
procedure whereby each holder of a Vested Company Option shall be entitled to
receive on a net basis that number of shares of Company Capital Stock equal to X
in the following formula:
X = A(B - C)
--------
B
where A equals the number of shares of Company Capital Stock subject to such
Vested Company Option, B equals the Company Share Price and C equals the strike
price of such Vested Company Option; provided, that X shall be rounded, in the
--------
case of any Vested Company Option other than an "incentive stock option" (within
the meaning of section 422 of the Code), up and, in the case of any incentive
stock option, down to the nearest whole share, as neces-
21
<PAGE>
sary. The aggregate number of shares so issuable with respect to all Vested
Company Options shall be referred to herein as the "Company Option Shares." At
---------------------
the Effective Time, each Company Option Share shall be converted into shares of
Parent Common Stock pursuant to Section 3.1 for the account of the holder of
such Vested Company Option. To the extent the consent of any holder of Vested
Company Options is required to accomplish the foregoing, the Company shall use
its reasonable best efforts to obtain such consent.
(b) Prior to the Effective Time, the Company shall use its
reasonable best efforts to obtain the consent of each holder of (i) a Company
Option that is not a Vested Company Option as of immediately prior to the
Effective Time and (ii) any contingent right to be granted an option or warrant
to acquire Company Capital Stock that will remain outstanding pursuant to its
terms following the Effective Time (such Company Options and contingent rights,
"Non-Vested Options") to the cancellation of such Non-Vested Option.
------------------
(c) Section 3.4 of the Company Disclosure Schedule sets forth a
list summarizing all Company Options under all of the Company Stock Plans,
including the term, date of grant, vesting schedule and the exercise price of
each Vested Company Option and Non-Vested Option.
Section 3.5 Dissenting Shares.
-----------------
(a) Notwithstanding any provision of this Agreement to the
contrary, Dissenting Shares shall not be converted into or represent a right to
receive the Merger Consideration pursuant to Sections 3.6 and 3.1 hereof, but
the holder thereof shall be entitled to only such rights as are granted by the
CGCL.
(b) Notwithstanding the provisions of Section 3.1(b) hereof, if
any holder of shares of Company Capital Stock who demands appraisal of such
holder's shares of Company Capital Stock under the CGCL effectively withdraws or
loses (through failure to perfect or otherwise) his right to appraisal, then as
of the Effective Time or the occurrence of such event, whichever later occurs,
such holder's shares of Company Capital Stock shall automatically be converted
into and represent
22
<PAGE>
only the right to receive the Merger Consideration as provided in Section 3.1(b)
hereof, without interest, upon surrender of the certificate or certificates
representing such shares of Company Capital Stock pursuant to Section 3.6
hereof.
(c) The Company shall give Parent (i) prompt notice of any
written demands for appraisal or payment of the fair value of any shares of
Company Capital Stock, withdrawals of such demands, and any other instruments
served on the Company pursuant to the CGCL received by the Company, and (ii) the
opportunity to direct all negotiations and proceedings with respect to demands
for appraisal under the CGCL. Except with the prior written consent of Parent,
the Company shall not voluntarily make any payment with respect to any demands
for appraisal, settle or offer to settle any such demands.
Section 3.6 Exchange of Shares and Certificates.
-----------------------------------
(a) Exchange Agent. As of the Effective Time, Parent shall
--------------
deposit with First Chicago Trust Company of New York or such other bank or trust
company as may be designated by Parent (the "Exchange Agent"), for the benefit
--------------
of the holders of shares of Company Capital Stock, for exchange in accordance
with this Article III, through the Exchange Agent, (i) cash in an amount
sufficient to pay cash in lieu of fractional shares, and (ii) certificates
representing the shares of Parent Common Stock (the "Initial Shares"), other
--------------
than shares of Parent Common Stock that shall be held back pursuant to Section
3.3 hereof (the "Holdback Shares") (such Initial Shares, together with any
---------------
dividends or distributions with respect thereto with a record date after the
Effective Time, being hereinafter referred to as the "Exchange Fund") issuable
-------------
pursuant to Sections 3.1 and 3.4 hereof in exchange for outstanding shares of
Company Capital Stock.
(b) Exchange Procedures; Transfer of Shares. As soon as
---------------------------------------
reasonably practicable after the Effective Time, the Exchange Agent shall mail
to each holder of record of a certificate or certificates which immediately
prior to the Effective Time represented outstanding shares of Company Capital
Stock (the "Certif-
-------
23
<PAGE>
icates") whose shares were converted into the right to receive shares of Parent
- ------
Common Stock pursuant to Section 3.1 or 3.4 hereof, (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
Parent may reasonably specify), and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing shares
of Parent Common Stock, and cash in lieu of fractional shares of Parent Common
Stock. Upon surrender of a Certificate for cancellation to the Exchange Agent or
to such other agent or agents as may be appointed by Parent, together with such
letter of transmittal, duly executed, and such other documents as may reasonably
be required by the Exchange Agent, the holder of such Certificate shall be
entitled to receive in exchange therefor (i) a certificate representing that
whole number of Initial Shares which such holder has the right to receive
pursuant to the provisions of this Article III and (ii) cash in lieu of any
fractional number of Initial Shares as contemplated by this Section 3.6, and the
Certificate so surrendered shall forthwith be canceled. In addition, upon the
occurrence of a Distribution Event, the holder of such Certificate shall also be
entitled to receive in exchange therefore (i) a certificate representing that
whole number of Holdback Shares which such holder has the right to receive
pursuant to the provisions of this Article III, (ii) cash in lieu of any
fractional number of Holdback Shares as contemplated by this Section 3.6 and
(iii) cash equal to the dividends payable with respect to such Holdback Shares
pursuant to Section 3.3 hereof. In the event of a transfer of ownership of
Company Capital Stock which is not registered in the transfer records of the
Company, a certificate representing the proper number of shares of Parent Common
Stock may be issued to a person other than the person in whose name the
Certificate so surrendered is registered, if such Certificate shall be properly
endorsed or otherwise be in proper form for transfer and the person requesting
such payment shall pay any transfer or other taxes required by reason of the
issuance of shares of Parent Common Stock to a person other than the registered
holder of such Certificate or establish to the satisfaction of Parent that such
tax has been paid or is not applicable. Until surrendered as contemplated by
this Section 3.6, each Certificate shall
24
<PAGE>
be deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the Merger Consideration and cash in lieu of any
fractional shares of Parent Common Stock as contemplated by this Section 3.6.
No interest shall be paid or accrue on any cash payable in lieu of any
fractional shares of Parent Common Stock.
(c) Distributions with Respect to Unexchanged Shares. No
------------------------------------------------
dividends or other distributions with respect to Parent Common Stock with a
record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of Parent Common Stock
represented thereby, and no cash payment in lieu of fractional shares shall be
paid to any such holder pursuant to Section 3.6(e) hereof, until the surrender
of such Certificate in accordance with this Article III. Subject to the effect
of applicable laws, following surrender of any such Certificate, there shall be
paid to the holder of the certificate representing whole shares of Parent Common
Stock issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of any cash payable in lieu of a fractional share of
Parent Common Stock to which such holder is entitled pursuant to Section 3.6(e)
and the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Parent
Common Stock, and (ii) at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective Time but prior to
such surrender and a payment date subsequent to such surrender payable with
respect to such whole shares of Parent Common Stock.
(d) No Further Ownership Rights in Company Capital Stock; No
--------------------------------------------------------
Transfer Following the Closing Date. All shares of Parent Common Stock issued
- -----------------------------------
upon the surrender for exchange of Certificates in accordance with the terms of
this Article III (including any cash paid pursuant to Section 3.6(c) or 3.6(e)
hereof) shall be deemed to have been issued (and paid) in full satisfaction of
all rights pertaining to the shares of Company Capital Stock theretofore
represented by such Certificates, subject, however, (i) to the obligation of the
Surviving Corporation to pay any dividends or make any other distributions with
a record date prior to the Effective Time which may have been declared or made
by
25
<PAGE>
the Company, on such shares of Company Capital Stock in accordance with the
terms of this Agreement and which remain unpaid at the Effective Time and (ii)
the obligation of Parent, if applicable, to pay the Merger Consideration subject
to the Holdback as contemplated by Section 3.3, and there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation, of the shares of Company Capital Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or the Exchange Agent
for any reason, they shall be canceled and exchanged as provided in this Article
III, except as otherwise provided by law. There shall be no transfer of any
right or interest in the Holdback Shares of Parent Common Stock following the
Effective Time, except as required by applicable law. The holders of the Company
Common Stock as of the Closing Date shall have no rights common to stockholders
of Parent such as voting and dividend rights, except as specifically set forth
herein. The interest of such holders in the Holdback Shares will not be
represented by any form of certificate or instrument, will not be assignable or
transferable, except by operation of law, and will not be represented by a
separate security with a separate trading market.
(e) Fractional Shares. (i) No certificates representing
-----------------
fractional shares of Parent Common Stock shall be issued upon the surrender for
exchange of Certificates, and such fractional share interests shall not entitle
the owner thereof to vote or to any other rights of a stockholder of Parent.
(ii) Notwithstanding any other provision of this Agreement,
each holder of shares of Company Capital Stock converted pursuant to the Merger
who would otherwise have been entitled to receive a fraction of a share of
Parent Common Stock (after taking into account all Certificates delivered by
such holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to (A) such fraction multiplied by (B) the Average Parent Share
Price.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
----------------------------
which remains undistributed to the holders of the Certificates for six months
after the Effective Time shall be delivered to Parent, upon demand,
26
<PAGE>
and any holders of the Certificates who have not theretofore complied with this
Article III shall thereafter look only to Parent for payment of their claim for
Parent Common Stock, any cash in lieu of fractional shares of Parent Common
Stock and any dividends or distributions with respect to Parent Common Stock.
(g) No Liability. None of Parent, FSCMI, Acquisition Corp., the
------------
Company or the Exchange Agent shall be liable to any person in respect of any
shares of Parent Common Stock (or dividends or distributions with respect
thereto) or cash from the Exchange Fund delivered to a public official pursuant
to any applicable abandoned property, escheat or similar law. If any
Certificates shall not have been surrendered prior to seven years after the
Effective Time, or immediately prior to such earlier date on which any shares of
Parent Common Stock, any cash in lieu of fractional shares of Parent Common
Stock, any cash pursuant to Section 3.3 hereof, or any dividends or
distributions with respect to Parent Common Stock in respect of such Certificate
would otherwise escheat to or become the property of any Governmental Entity,
any such shares, cash, dividends or distributions in respect of such Certificate
shall, to the extent permitted by applicable law, become the property of the
Surviving Corporation free and clear of all claims or interest of any person
previously entitled thereto.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any
---------------------------
cash included in the Exchange Fund, as directed by Parent, on a daily basis. Any
interest and other income resulting from such investments shall be paid to
Parent.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the schedule delivered to Parent prior to the
execution of this Agreement setting forth specific exceptions to the Company's
representations and warranties set forth herein (the "Company Disclosure
------------------
Schedule"), the Company represents and warrants to Parent and Acquisition Corp.
- --------
as set forth below. Each exception set forth in the Company Disclosure Schedule
is identified by reference to, or has been grouped under a heading referring to,
a specific individual
27
<PAGE>
section of this Agreement and, except as otherwise specifically stated with
respect to such exception, relates only to such section. For purposes of this
Article IV, the Company Disclosure Schedule and Section 6.6 hereof, the phrases
"as of the date hereof" and "as of the date of this Agreement" shall mean as of
September 22, 1998.
Section 4.1 Organization. (a) The Company is a corporation, duly
------------
organized, validly existing, duly qualified or licensed to do business and in
good standing under the laws of the State of California and in each jurisdiction
in which the nature of the business conducted by it makes such qualification or
licensing necessary, and has all requisite corporate or other power and
authority and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as now being conducted, except where the
failure to be so organized, existing and in good standing or to have such power,
authority, and governmental approvals would not have a Company Material Adverse
Effect. Except for VKA and for shares or interests held by the Company solely as
a fiduciary for unrelated third parties and shares of mutual funds acquired in
connection with the establishment of such mutual funds, and except for inventory
or investment accounts held or maintained in the usual and ordinary course of
business, the Company does not presently own or control, directly or indirectly,
and has no stock or other interest as owner or principal in, any other
corporation or partnership, joint venture, association or other business venture
or entity and has no other Subsidiary.
(b) VKA is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, and is legally formed
and validly existing and in good standing under the laws of the jurisdiction of
its organization. VKA has all requisite corporate or organizational power and
authority to own, lease and operate its properties and assets and to conduct its
businesses as now conducted. VKA is duly qualified or licensed and is in good
standing to do business in each jurisdiction in which the properties owned,
leased or operated by it or the nature of the businesses conducted by it makes
such qualification necessary, except where the failure to be so qualified or
licensed and in good standing will not have a Company Material Adverse Effect.
True, complete and correct
28
<PAGE>
copies of the articles of incorporation and by-laws, including all amendments
thereto, for VKA have heretofore been delivered to Parent.
Section 4.2 Capitalization. (a) The authorized capital stock of
--------------
the Company consists of 3,600 shares of Company Common Stock and 3,000,000
shares of Company Preferred Stock. As of the date hereof, (i) 3,600 shares of
Company Common Stock are issued and outstanding, (ii) 525,197 shares of Company
Preferred Stock are issued and outstanding as held by 66 legal shareholders,
(iii) 383,936 shares of Company Preferred Stock are reserved for issuance
pursuant to the Company Stock Plans and all other employee benefit plans of the
Company, including 283,136 shares reserved for issuance pursuant to outstanding
awards and 100,800 shares reserved for issuance pursuant to future awards under
the Company 1997 Long-Term Incentive Plan, and (iv) 53,332 shares of Company
Preferred Stock are reserved for issuance upon the exercise of a warrant issued
to F. Van Kasper on June 15, 1998 (the "Warrant"). All of the issued and
outstanding shares of Company Capital Stock are validly issued, fully paid and
nonassessable.
(b) The authorized capital stock of VKA consists of 100,000
shares of common stock, no par value, (the "VKA Common Stock"). As of the date
----------------
hereof, 1,000 shares of VKA Common Stock are issued and outstanding. All of the
issued and outstanding shares of VKA Common Stock are validly issued, fully paid
and non-assessable, all of which are held by the Company.
(c) (i) Other than the Warrant and the Company Options, there is
no outstanding right, subscription, warrant, call, option or other agreement or
arrangement of any kind to purchase or otherwise to receive from the Company or
VKA any of the outstanding authorized but unissued or treasury shares of the
capital stock of the Company or VKA or any other security of the Company or VKA,
(ii) there is no outstanding security of any kind convertible into or
exchangeable for such capital stock, and (iii) there is no voting trust or other
agreement or understanding to which either the Company or VKA is a party or is
bound with respect to the voting of the capital stock of the Company or VKA.
29
<PAGE>
Section 4.3 Corporate Authorization; Validity of Agreement; Company
-------------------------------------------------------
Action. (a) The Company has full corporate power and authority to execute and
- ------
deliver this Agreement and any other agreements executed in connection herewith
to which it is a party and, subject to obtaining any necessary approval of its
shareholders as contemplated by Section 2.6 hereof with respect to the Merger
and the consents required under Section 3.4 hereof to the cashless exercise of
certain Vested Company Options and the cancellation of the Non-Vested Options,
to consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance by the Company of this Agreement and any other
agreements executed in connection herewith to which it is a party, and the
consummation by it of the transactions contemplated hereby and thereby, have
been duly and validly authorized by the Company's board of directors, and
subject only to approval of the Merger by the Company's shareholders and the
filing and recordation of the Articles of Merger pursuant to the CGCL, no other
corporate action on the part of the Company is necessary to authorize the
execution and delivery by the Company of this Agreement and any other agreements
executed in connection herewith and the consummation by it of the transactions
contemplated hereby and thereby. Each of this Agreement and any other agreements
executed in connection herewith to which it is a party have been duly executed
and delivered by the Company and, assuming each of this Agreement and such other
agreements constitute a valid and binding obligation of the other parties hereto
and thereto, constitute a valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except that (i)
such enforcement may be subject to applicable bankruptcy, insolvency or other
similar laws, now or hereafter in effect, affecting creditors' rights generally,
and (ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
(b) The board of directors of the Company has duly and validly
approved and taken all corporate action required to be taken by such board of
directors for the consummation of the transactions contemplated by this
Agreement and the other agreements executed in connection herewith to which it
is a party. The affirma-
30
<PAGE>
tive votes of the holders of a majority of the outstanding shares of Company
Common Stock and the outstanding shares of Company Preferred Stock, the Warrant
and the consents required under Section 3.4 hereof to the cashless exercise of
certain Vested Company Options and the cancellation of the Non-Vested Options
are the only votes of the holders of any class or series of Company Capital
Stock necessary to approve the Merger.
Section 4.4 No Violations. Neither the execution and delivery of
-------------
this Agreement and the agreements, documents and instruments to be executed
and delivered by the Company or in connection herewith, nor the consummation by
the Company of the transactions contemplated hereby and thereby will:
(a) violate, conflict with or result in any breach of any
provision of the articles of incorporation or by-laws (or other similar
governing documents) of the Company or VKA;
(b) require any filing with, or permit, authorization, consent
or approval of, any court, arbitral tribunal, administrative agency or
commission or other governmental or other regulatory authority or agency (a
"Governmental Entity") other than any application seeking approval from the
-------------------
Federal Reserve Board;
(c) subject to compliance with the statutes and regulations
referred to in Section 4.8 hereof applicable to the Company, violate or conflict
with any Laws applicable to the Company or VKA, or by which any of their
properties or assets may be bound; or
(d) result in a violation or breach of, or constitute a default
(or an event which, with notice or lapse of time or both, would constitute a
default) or result in the termination of, or accelerate the performance required
by, or give rise to any right of termination, modification, cancellation or
acceleration or result in the imposition of any Lien or the creation of any
security interest, charge or encumbrance upon any of the assets of the Company
or VKA under any agreement, contract, note, bond, mortgage, franchise, permit,
loan, lease, license, guarantee, understanding, commitment, obligation or other
arrangement (written or oral) of any kind to which the Company or VKA is a party
or by which
31
<PAGE>
the Company or VKA or any of their properties or assets may be bound (each, a
"Company Material Agreement"); excluding from the foregoing clauses (c) and (d)
--------------------------
such violations, conflicts, breaches and defaults which, in the aggregate, would
not have a Company Material Adverse Effect.
Section 4.5 Governmental Consents. No consent, order or
---------------------
authorization of, or registration, declaration or filing with, any Governmental
Entity is required by the Company or VKA in connection with the execution,
delivery and performance of this Agreement and the other agreements, documents
and instruments to be executed and delivered by the Company in connection
herewith or the consummation of the transactions contemplated hereby or
thereby, except as may be required by any Self Regulatory Authority or the
Federal Reserve Board.
Section 4.6 No Default. Neither the Company nor VKA is in default
----------
or violation (and no event has occurred which with notice or the lapse of time
or both would constitute a default or violation) of any term, condition or
provision of: (i) the certificate of incorporation or by-laws of the Company
or VKA, or (ii) any License and Permit which would have a Company Material
Adverse Effect.
Section 4.7 Litigation. There are no claims, suits, actions or
----------
proceedings pending or, to the best knowledge of the Company threatened, nor are
there any investigations or reviews pending or, to the best knowledge of the
Company, threatened, against, relating to or affecting the Company or VKA,
which, if adversely determined, would have a Company Material Adverse Effect.
Section 4.8 Compliance with Law.
-------------------
(a) The Company and VKA have complied in all material respects
with all Laws, and have all Licenses and Permits which are necessary for the
conduct of their businesses and are not in default with respect to any order,
writ, judgment, award, injunction or decree of any Governmental Entity or
arbitral tribunal, applicable to their respective businesses or any of their
respective assets, properties or operations, except for such fail-
32
<PAGE>
ures of compliance, violations and defaults which would not have a Company
Material Adverse Effect.
(b) The Company and VKA are, if so required by the nature of
their business or assets, duly registered with the SEC and the various states as
a broker-dealer and/or an investment advisor. The Company and VKA have made
available to Parent true, complete and correct copies of their respective Form
ADV, Form BD and such other filings as may be required by any Governmental
Entity.
Section 4.9 Financial Statements; No Undisclosed Liabilities.
------------------------------------------------
(a) Set forth in Section 4.9(a) of the Company Disclosure
Schedule are audited consolidated balance sheets of the Company as of the fiscal
years ended June 30, 1996, 1997 and 1998 and the related audited consolidated
statements of operations and cash flows for the fiscal years ended on such date,
accompanied by the reports thereon of Wilson, McCall & Associates (the
"Financial Statements"). The Financial Statements are complete and correct in
--------------------
all material respects and fairly present the financial condition of the Company
and VKA as of such date and the consolidated results of operations and cash
flows for the fiscal years then ended. The Financial Statements have been
prepared in accordance with GAAP consistently applied during the periods
involved, except as otherwise disclosed in the notes to such financial
statements.
(b) There is no liability or obligation of any kind, whether
accrued, absolute, fixed or contingent, of the Company and VKA that is not
disclosed, reflected or reserved against in the Financial Statements, except
such liabilities or obligations incurred in the usual and ordinary course of
business, consistent with past practice, or which, in the aggregate, would not
have a Company Material Adverse Effect. The Financial Statements have been
prepared from the books and records of the Company and VKA.
Section 4.10 Absence of Certain Changes. Since June 30, 1998, (a)
--------------------------
the Company and VKA have conducted their businesses only in the usual and
ordinary course and consistent with past practice, (b) no event
33
<PAGE>
has occurred that, had it occurred subsequent to the date of this Agreement,
would have required the consent or approval of Parent under Section 6.1 hereof
and (c) there has not been any event that would have a Company Material Adverse
Effect.
Section 4.11 Employee Benefit Plans; ERISA.
-----------------------------
(a) Section 4.11(a) of the Company Disclosure Schedule contains
a true, complete and correct list of each deferred compensation and each
incentive compensation, stock purchase, stock option and other equity
compensation plan, program, agreement or arrangement; each severance or
termination pay, medical, surgical, hospitalization, life insurance and other
"welfare" plan, fund or program (within the meaning of section 3(1) of ERISA);
each profit-sharing, stock bonus or other "pension" plan, fund or program
(within the meaning of section 3(2) of ERISA); each employment, termination or
severance agreement; and each other material employee benefit plan, fund,
program, agreement or arrangement, in each case, that is sponsored, maintained
or contributed to or required to be contributed to by the Company or VKA, or by
any trade or business, whether or not incorporated (an "ERISA Affiliate"), that
---------------
together with the Company or VKA would be deemed a "single employer" within the
meaning of section 4001(b) of ERISA or section 414(b),(c),(m) or (o) of the
Code, or to which the Company, VKA or an ERISA Affiliate is a party, whether
written or oral, for the benefit of any employee or former employee of the
Company or VKA (the "Company Plans").
-------------
(b) With respect to each Company Plan, the Company has
heretofore delivered or made available to Parent true, complete and correct
copies of the Company Plan and any amendments thereto (or if the Company Plan is
not a written Company Plan, a description thereof), any related trust or other
funding vehicle and all related documents, including but not limited to, (i) the
actuarial reports for each of the last three years, (ii) summary plan
descriptions whether or not required by ERISA or the Code and (iii) the most
recent determination letter received from the IRS with respect to each Company
Plan intended to qualify under section 401 of the Code. Except as previously
disclosed by the Company to Parent, to the knowledge of the Company, there are
no existing
34
<PAGE>
circumstances nor any events that have occurred that could reasonably be
expected to adversely affect the qualified status of any Company Plan or the
related trust.
(c) Neither the Company nor any ERISA Affiliate has at any time
within the immediately preceding six years sponsored, maintained, contributed
to or had any obligation to make contributions to any Defined Benefit Plan or
Multiemployer Plan. The Company has no liability under Title IV of ERISA.
(d) Each Company Plan has been operated and administered in all
material respects in accordance with its terms and applicable law, including but
not limited to ERISA and the Code. To the knowledge of the Company, no
prohibited transaction has occurred with respect to any Company Plan that could
reasonably be expected to result in a material liability to the Company.
Neither the Company nor any ERISA Affiliate of the Company has engaged in any
transaction described in section 4069(a) or section 4204 or 4212(c) of ERISA.
(e) The Company has no liability for life, health, medical or
other welfare benefits to former employees or beneficiaries or dependents
thereof, except for health continuation coverage as required by Section 4980B of
the Code or Part 6 of Title I of ERISA;
(f) Except as disclosed in Section 4.11(f) of the Company
Disclosure Schedule, neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (either alone or
in conjunction with any other event) result in, cause the accelerated vesting or
delivery of, or increase the amount or value of, any payment or benefit to any
employee, officer or director of the Company or VKA. Without limiting the
generality of the foregoing, no amount paid or payable by the Company or VKA in
connection with the transactions contemplated hereby (either solely as a result
thereof or as a result of such transactions in conjunction with any other event)
will be an "excess parachute payment" within the meaning of section 280G of the
Code.
(g) There are no pending or threatened claims (other than claims
for benefits in the ordinary
35
<PAGE>
course), lawsuits or arbitrations which have been asserted or instituted, and
to Company's knowledge, no set of circumstances exists which may reasonably give
rise to a claim or lawsuit, against the Company Plans, any fiduciaries thereof
with respect to their duties to the Company Plans or the assets of any of the
trusts under any of the Company Plans which could reasonably be expected to
result in any material liability of the Company or VKA to the PBGC, the
Department of Treasury, the Department of Labor, any Company Plan or any
participant in a Company Plan.
Section 4.12 Taxes.
-----
(a) The Company and VKA have duly and timely filed with the
appropriate Governmental Entity all Tax Returns required to be filed by them,
which are true and correct in all material respects and have paid the Taxes
shown to be due thereon;
(b) There are no material Liens for Taxes upon the assets or
properties of the Company or VKA except for statutory liens for Taxes not yet
due;
(c) There are no outstanding waivers or comparable consents
regarding the application of the statute of limitations with respect to any
Taxes or Tax Returns of the Company and VKA;
(d) Neither the Company nor VKA has requested an extension of
time within which to file any Tax Return in respect of any taxable period which
Tax Return has not since been filed;
(e) No federal, state, or local audits or other administrative
proceedings have formally commenced or are presently pending with regard to any
Taxes or Tax Returns of or including the Company or VKA, and no written
notification has been received that such an audit or other proceeding is pending
with respect to any Taxes due from or with respect to the Company or VKA, or any
Tax Return filed by or with respect to the Company or VKA;
(f) Neither the Company nor VKA has changed any method of
accounting, received a ruling from any taxing authority or signed an agreement
with any
36
<PAGE>
taxing authority which would have a Company Material Adverse Effect;
(g) No deficiency for any Tax has been assessed with respect to
the Company or VKA which has not been paid in full or is not currently being
contested in good faith;
(h) Neither the Company nor VKA is a party to any written Tax
sharing agreement, Tax indemnification agreement, closing agreement, or Power of
Attorney;
(i) The reserves for current Taxes reflected in the June 30,
1998 balance sheet have been determined in accordance with generally accepted
accounting principles consistently applied; and
(j) The Company has previously delivered or made available to
Parent true, complete, and correct copies of: (i) all audit reports, letter
rulings, technical advice memoranda relating to United States federal, state,
local and foreign Taxes due from or with respect to the Company or VKA; (ii)
United States federal Tax Returns and those state, local or foreign Tax Returns
filed by the Company and VKA; and (iii) any closing agreements entered into by
the Company or VKA with any taxing authority in each case existing on the date
hereof. The Company will deliver to Parent all materials with respect to the
foregoing for all matters arising after the date hereof.
Section 4.13 Intellectual Property. Section 4.13 of the Company
---------------------
Disclosure Schedule contains a list of all material items of intellectual
property, including all patents, patent rights, trademarks, trademark rights,
trade names, trade name rights, service marks, copyrights, computer software,
databases, licenses and other proprietary rights (collectively, "Intellectual
------------
Property") material to the business or operations of the Company or VKA. The
- --------
Company or VKA owns, or has a valid license to use, such Intellectual Property
which is material to the business or operations of the Company or VKA in the
manner currently used by the Company or VKA. As of the date of this Agreement,
there are no claims pending, or to the knowledge of the Company, threatened,
37
<PAGE>
(i) that the Company or VKA is in violation of any Intellectual Property
rights of a third Person or (ii) that any third Person is in violation of any
Intellectual Property rights of either Company or VKA which, in each such case,
would have a Company Material Adverse Effect.
Section 4.14 Contracts. Section 4.14 of the Company Disclosure
---------
Schedule sets forth, for the Company and VKA, each Contract:
(a) for the lease of (A) personal property from or to third
parties with annual payments exceeding fifty thousand dollars ($50,000)
or with a term exceeding two years or (B) real property;
(b) concerning a partnership or joint venture with any
Person other than the Company or VKA;
(c) under which the Company or VKA has created, incurred,
assumed or guaranteed (or may create, incur, assume or guarantee)
indebtedness in excess of fifty thousand dollars ($50,000) or imposed (or
may impose) a Lien on any of its assets, tangible or intangible;
(d) which contains any material non-compete or exclusivity
provision with respect to any business or geographic area in which business
is conducted with respect to the Company or VKA or which restricts the
conduct of any business by the Company or VKA or any geographic area in
which the Company or VKA may conduct business or which requires exclusive
referrals of any business;
(e) concerning any collective bargaining arrangement or
with any labor union; or employment, severance or change of control
Contract with any director, executive officer, key employee or material
consultant; or any severance or change of control Contract with any other
Person;
(f) requiring payments after the date hereof to or by the
Company or VKA of more than fifty thousand dollars ($50,000) or which is
not
38
<PAGE>
terminable by the Company VKA on less than sixty (60) days notice;
(g) not otherwise disclosed in Section 4.11(a) of the
Company Disclosure Schedule any of the benefits of which will be increased
or the vesting of the benefits of which will be accelerated by the
occurrence of any of the transactions contemplated by this Agreement, or
the value of any of the benefits of which will be calculated on the basis
of any of the transactions contemplated by this Agreement;
(h) under which any shareholder, officer, director,
employee or Affiliate of the Company or VKA, or any member of the immediate
family of any such natural persons, has any material interest; and
(i) not otherwise disclosed in Section 4.14 of the Company
Disclosure Schedule under which there could be a Company Material Adverse
Effect or which was not entered into in the usual and ordinary course of
business.
Section 4.15 Environmental Matters. The Company and VKA: (a) are
---------------------
in compliance in all material respects with all Environmental Laws applicable to
their respective businesses or any of their respective assets, properties or
operations; (b) have not received notice from any Governmental Entity or other
Person alleging that they are not in such compliance or are otherwise liable for
cleanup, response or other costs pursuant to Environmental Laws; and (c) have no
knowledge of any past or present actions, activities or conditions that could
reasonably form the basis of a claim against them for material violation of or
liability under any Environmental Law in each case except for claims for
violations of or liability under an Environmental Law that would not have a
Company Material Adverse Effect.
Section 4.16 Labor Matters; Compliance with WARN Act.
---------------------------------------
(a)(i) the Company and VKA are in compliance in all material
respects with all applicable Laws respecting employment and employment
practices, terms and
39
<PAGE>
conditions of employment, occupational safety and health and wages and hours;
(ii) to the knowledge of the Company, there is no unfair labor practice
complaint or charge against the Company or VKA pending or threatened before the
National Labor Relations Board; (iii) there is no labor strike, dispute,
slowdown or stoppage pending or threatened against or affecting the Company or
VKA and there has been no such job action during the past three years; (iv) no
representation question exists respecting the employees of the Company or VKA,
and there is no current organizing activities among the employees of any such
entity; (v) to the knowledge of the Company, there are no pending or threatened
lawsuits, administrative proceedings or investigations between the Company or
VKA and current or former officers or employees, including without limitation,
any claims for wrongful termination, breach of any express or implied contract
of employment or for violation of equal employment opportunity laws; and (vi)
there is no grievance arising out of any collective bargaining agreement or
other grievance procedure.
(b) Neither the Company nor VKA has any liability for payments
or benefits due as a result of any "plant closing," "mass layoff" or "employment
loss" (as each is defined in the Worker Adjustment and Retraining Notification
Act of 1988 (the "WARN Act")) which has not been satisfied in full; nor has the
--------
Company or VKA been affected by any transaction or engaged in layoffs or
employment terminations sufficient in number to trigger application of any
similar state or local law. None of the employees of the Company or of VKA has
suffered an "employment loss" (as defined in the WARN Act) since July 1, 1998.
(c) There are no written personnel policies, rules or procedures
applicable to employees of the Company or VKA.
Section 4.17 Investment Contracts, Funds and Clients.
---------------------------------------
(a) Section 4.17(a) of the Company Disclosure Schedule sets
forth a list of (i) all of the clients to which the Company and VKA provide
investment management, investment advisory, sub-advisory, administration or
other services on the date hereof pursuant to written advisory agreements (the
"Clients"), including an
-------
40
<PAGE>
indication of whether the asset under management is a mutual fund subject to
regulation under the 1940 Act, (ii) each contract or agreement, and all
amendments thereto, in effect on the date hereof relating to the rendering of
investment advisory or management services, including without limitation all
sub-advisory services or administration services to any Client or other person
(together with any such contract or agreement entered into after the date
hereof, the "Investment Contracts"), (iii) the most recent date on which each
--------------------
Investment Contract with an investment company was renewed or continued and
(iv) the net asset value of each Client's assets under management as of
September 15, 1998. The aggregate amount of assets under management by the
Company and VKA pursuant to Investment Contracts is not less than three hundred
twenty-four million dollars ($324 million). Neither the Company nor VKA provides
investment management, investment advisory, administration or other services
except pursuant to the Investment Contracts. None of the Investment Contracts,
or any other arrangements or understanding relating to the rendering of
investment advisory or management services, including without limitation all
sub-advisory services, securities lending or administration services to any
Client or other Person, contains any undertaking by the Company or VKA to cap,
return or reimburse any or all fees thereunder, or provides for performance-
based fees.
(b) Section 4.17(b) of the Company Disclosure Schedule indicates
each Client of the Company or VKA that is subject to ERISA, and the accounts of
such Clients have been managed in compliance in all material respects with the
applicable requirements of ERISA and all other applicable laws and regulations.
(c) No material controversy or disagreement exists between the
Company and VKA, on the one hand, and any Client(s), on the other as required to
be disclosed in the Company's form ADV, form BD and other filings with any
Governmental Entity or Self Regulatory Authority.
(d) Each of the Company and VKA has adopted a formal code of
ethics and a written policy regarding insider trading and front running, a true,
complete and correct copy of each of which has been provided or supplied to
Parent. Such code and policy
41
<PAGE>
comply in all material respects with section 204A of the Investment Advisors
Act. The policies of the Company and VKA with respect to avoiding conflicts of
interest are as set forth in the most recent Form ADV thereof, as amended, a
true, complete and correct copy of which has been delivered or supplied to
Parent. There have been no violations or allegations of violations of such
policies or the conflict of interest policy of the Company and VKA that have
occurred or been made that have or would be reasonably likely to have a Company
Material Adverse Effect.
(e) Neither the Company nor VKA or other person "associated" (as
defined under the Investment Advisors Act) with any such entity has for a period
not less than five years prior to the date hereof been convicted of any crime or
is or has been subject to any disqualification that would be a basis for denial,
suspension or revocation of registration of an investment advisor under section
203(e) of the Investment Advisors Act or Rule 206(4)-4(b) thereunder and there
is no reasonable basis for, or proceeding or investigation, whether formal or
informal, or whether preliminary or otherwise, that is reasonably likely to
become the basis for, any such disqualification, denial, suspension or
revocation.
(f) No exemptive orders have been obtained, nor are any requests
pending therefor, with respect to the Company or VKA under the Exchange Act, the
Securities Act, the 1940 Act or the Investment Advisors Act.
Section 4.18 Brokers and Finders. Except for the engagement of
-------------------
Berkshire Capital Corporation and South Beach Capital Markets Advisory
Corporation, neither the Company nor VKA has employed any broker, financial
advisor or finder or incurred any liability for any broker, financial advisory
or finders' fees in connection with this Agreement or the transactions
contemplated hereby.
Section 4.19 Insurance. Section 4.19 of the Company Disclosure
---------
Schedule contains a true, complete and correct description of all material
policies of fire, liability, production, negative, completion bond, errors and
omissions, workmen's compensation and other forms of insurance owned or held by
the Company and VKA. All such
42
<PAGE>
policies are in full force and effect, all premiums with respect thereto
covering all periods up to and including the Closing Date have been paid, and no
notice of cancellation or termination has been received with respect to any such
policy. During the last three years neither the Company nor VKA has been refused
any insurance with respect to its assets or operations, nor has its coverage
been limited, by any insurance carrier to which it has applied for any such
insurance or with which it has carried insurance.
Section 4.20 Agreements with Regulatory Agencies. As of the date of
-----------------------------------
this Agreement, neither the Company nor VKA is subject to any cease-and-desist
or other order issued by, or is a party to any written agreement, consent
agreement or memorandum of understanding with, or is a party to any commitment
letter or similar undertaking to, or is subject to any order or directive by, or
is a recipient of any supervisory letter from or has adopted any resolutions at
the request of any Self Regulatory Authority or Governmental Entity that
materially restricts the conduct of its business or that in any material manner
relates to its capital adequacy, its credit policies, its management or its
business (each, whether or not set forth in Section 4.20 of the Company
Disclosure Schedule, a "Regulatory Agreement"), nor has the Company or VKA (i)
--------------------
been advised since July 1, 1995 by any Self Regulatory Authority or Governmental
Entity that it is considering issuing or requesting any such Regulatory
Agreement or (ii) have knowledge of any pending or threatened regulatory
investigation.
Section 4.21 Investment Securities. The Company and VKA have good
---------------------
and marketable title to all securities held by them (except securities sold
under repurchase agreements or held in any fiduciary or agency capacity), free
and clear of any Lien, except to the extent such securities are pledged in the
ordinary course of business consistent with prudent business practices to secure
obligations of the Company or of VKA. Such securities are valued on the books
of the Company in accordance with GAAP.
Section 4.22 Interest Rate Risk Management Instruments. Any
-----------------------------------------
interest rate swaps, caps, floors and option agreements and other interest rate
risk management arrangements, whether entered into for the account of the
43
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Company or VKA or for the account of a customer of any such entity were entered
into in the usual and ordinary course of business and, to the best knowledge of
the Company, in accordance, in all material respects, with prudent business
practice and applicable rules, regulations and policies of any Self Regulatory
Authority and with counterparties believed to be financially responsible at the
time.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PARENT, FSCMI AND ACQUISITION CORP
Except as set forth in the schedule delivered to the Company prior to
the execution of this Agreement setting forth specific exceptions to
representations and warranties of Parent, FSCMI and Acquisition Corp. set forth
herein (the "Parent Disclosure Schedule"), Parent, FSCMI and Acquisition Corp.
--------------------------
represent and warrant to the Company and the holders of Company Capital Stock as
set forth below. Each exception set forth in the Parent Disclosure Schedule is
identified by reference to, or has been grouped under a heading referring to, a
specific individual section of this Agreement and, except as otherwise
specifically stated with respect to such exception, relates only to such
section. For purposes of this Article V and the Parent Disclosure Schedule, the
phrases "as of the date hereof" and "as of the date of this Agreement" shall
mean as of September 22, 1998 except that with respect to the representations
and warranties of Acquisition Corp. such phrase shall mean December [16], 1998.
Section 5.1 Organization. (a) Parent is a corporation, duly
------------
organized, validly existing, duly qualified or licensed to do business and in
good standing under the laws of the state of Delaware and in each jurisdiction
in which the nature of the business conducted by it makes such qualification
or licensing necessary, and has all requisite corporate or other power and
authority and all necessary governmental approvals to own, lease and operate its
properties and to carry on its business as now being conducted, except where the
failure to be so organized, existing and in good standing or to have such power,
authority, and governmental approvals would not have a Parent Material Adverse
Effect. Except
44
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as disclosed in the Parent SEC Documents, except for shares or interests held by
Parent solely as a fiduciary for unrelated third parties and except for
inventory or investment accounts held or maintained in the usual and ordinary
course of business, Parent does not presently own or control, directly or
indirectly, and has no stock or other interest as owner or principal in, any
other corporation or partnership, joint venture, association or other business
venture or entity.
(b) FSCMI is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation. FSCMI has all
requisite corporate or organizational power and authority to own, lease and
operate its properties and assets and to conduct its businesses as now
conducted. FSCMI is duly qualified or licensed and is in good standing to do
business in each jurisdiction in which the properties owned, leased or operated
by it or the nature of the businesses conducted by it makes such qualification
necessary, except where the failure to be so qualified or licensed and in good
standing will not, when taken together with all other such failures by Parent
and its Subsidiaries, have a Parent Material Adverse Effect.
(c) As of the date hereof, Acquisition Corp. is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation. Acquisition Corp. was formed solely for the purpose of engaging
in the transactions contemplated by this Agreement. Acquisition Corp has engaged
in no other business activities and has conducted its operations only as
contemplated by this Agreement. True, complete and correct copies of the
articles of incorporation and by-laws of FSCMI and Acquisition Corp. have
heretofore been delivered to the Company.
Section 5.2 Capitalization. (a) The authorized capital stock of
--------------
Parent consists of 600,000,000 shares of common stock, par value $1.25 (the
"Parent Common Stock") and 400,000 shares of preferred stock, no par value, of
-------------------
Parent (the "Parent Preferred Stock"). As of July 31, 1998, (i) 187,949,260
----------------------
(net of treasury stock) shares of Parent Common Stock are issued and
outstanding, (ii) 18,052 shares of Parent Preferred Stock have been designated
Series A Preferred Stock 9,364 of which shares are issued and outstanding, (iii)
381,948 shares of
45
<PAGE>
Parent Preferred Stock have been designated Junior Series B Preferred Stock,
none of which are issued and outstanding, (iv) 25,562,061 shares of Company
Common Stock are reserved for issuance pursuant to Parent's stock incentive
plans and all other employee benefit plans of Parent including (A) 8,885,769
shares reserved for issuance pursuant to outstanding awards and 11,815,408
shares reserved for issuance pursuant to future awards under the Comprehensive
Management Incentive Plan, (B) 167,625 shares reserved for issuance pursuant to
outstanding awards and 1,519,875 shares reserved for issuance pursuant to future
awards under the Non-Employee Director Stock Option Plan and (C) 546,750 shares
reserved for issuance pursuant to outstanding awards and 2,626,634 Shares
reserved for issuance pursuant to the Employee Stock Purchase Plan. All of the
issued and outstanding shares of Parent Capital Stock are validly issued, fully
paid and nonassessable.
(b) The authorized capital stock of FSCMI consists of 10,000
shares of common stock, par value $.01 per share (the "FSCMI Common Stock"). As
------------------
of the date hereof, 100 shares of FSCMI Common Stock are issued and outstanding.
All of the issued and outstanding shares of FSCMI Common Stock are validly
issued, fully paid and nonassessable, all of which are held, directly or
indirectly by Parent.
(c) The authorized capital stock of Acquisition Corp. consists
of [ ] shares of common stock, par value $.01 per share (the "Acquisition
-----------
Corp. Common Stock"). As of the date hereof, [ ] shares of Acquisition Corp.
- ------------------
Common Stock are issued and outstanding. All of the issued and outstanding
shares of Acquisition Corp. Common Stock are validly issued, fully paid and
nonassessable, all of which are held, directly or indirectly, by Parent.
(d) Except as disclosed in Parent SEC Documents, (i) there is no
outstanding Right to purchase or otherwise to receive from Parent or Acquisition
Corp. any of the outstanding authorized but unissued or treasury shares of the
capital stock or any other security of Parent or Acquisition Corp., (ii) there
is no outstanding security of any kind convertible into or exchangeable for such
capital stock, and (iii) there is no voting trust or other agreement or
understanding to which either Parent
46
<PAGE>
or Acquisition Corp. is a party or is bound with respect to the voting of the
capital stock of Parent or Acquisition Corp.
Section 5.3 Corporate Authorization; Validity of Agreement; Parent
------------------------------------------------------
Action. (a) Each of Parent, FSCMI and Acquisition Corp. has full corporate
- ------
power and authority to execute and deliver this Agreement and any other
agreements executed in connection herewith to which it is a party and, the
consummation by it of the transactions contemplated hereby and thereby. The
execution, delivery and performance by each of Parent, FSCMI and Acquisition
Corp. of this Agreement and any other agreements executed in connection herewith
to which it is a party, and the consummation by them of the transactions
contemplated hereby and thereby, have been duly and validly authorized by the
respective boards of directors of Parent, FSCMI and Acquisition Corp., and no
other corporate action on the part of any of Parent, FSCMI or Acquisition Corp.
is necessary to authorize the execution and delivery by each of Parent, FSCMI
and Acquisition Corp. of this Agreement and any other agreements executed in
connection herewith and the consummation by it of the transactions contemplated
hereby and thereby. Each of this Agreement and any other agreements executed in
connection herewith to which it is a party have been duly executed and delivered
by each of Parent, FSCMI and Acquisition Corp. and, assuming each of this
Agreement and such other agreements constitute a valid and binding obligation of
the other parties hereto and thereto, constitute a valid and binding obligation
of each of Parent, FSCMI and Acquisition Corp. enforceable against each of
Parent, FSCMI and Acquisition Corp. in accordance with its terms, except that
(i) such enforcement may be subject to applicable bankruptcy, insolvency or
other similar laws, now or hereafter in effect, affecting creditors' rights
generally, and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
(b) The respective boards of directors of each of Parent, FSCMI
and Acquisition Corp. has duly and validly approved and taken all corporate
action required to be taken by such board of directors for the consummation of
the transactions contemplated by this Agreement
47
<PAGE>
and the other agreements executed in connection herewith to which it is a party.
No affirmative vote of the holders of the outstanding shares of Parent Capital
Stock or the Acquisition Corp. Common Stock is necessary to approve the Merger.
Section 5.4 No Violations. Neither the execution and delivery of
-------------
this Agreement and the agreements, documents and instruments to be executed
and delivered by Parent, FSCMI and Acquisition Corp. or in connection herewith,
nor the consummation by Parent, FSCMI and Acquisition Corp. of the transactions
contemplated hereby and thereby will:
(a) violate, conflict with or result in any breach of any
provision of the certificate of incorporation or by-laws (or other similar
governing documents) of the Company, FSCMI or Acquisition Corp.;
(b) require any filing with, or permit, authorization, consent or
approval of, any Governmental Entity other than any application seeking approval
from the Federal Reserve Board;
(c) subject to compliance with all statutes and regulations
applicable to Parent, FSCMI and Acquisition Corp., violate or conflict with any
Laws applicable to Parent, FSCMI and Acquisition Corp., or by which any of their
properties or assets may be bound; or
(d) result in a violation or breach of, or constitute a default
(or an event which, with notice or lapse of time or both, would constitute a
default) or result in the termination of, or accelerate the performance required
by, or give rise to any right of termination, modification, cancellation or
acceleration or result in the imposition of any Lien or the creation of any
security interest, charge or encumbrance upon any of the assets of Parent, FSCMI
or Acquisition Corp. under any material agreement to which Parent, FSCMI or
Acquisition Corp. is a party or by which Parent, FSCMI or Acquisition Corp. or
any of their properties or assets may be bound; excluding from the foregoing
clauses (c) and (d) such violations, conflicts, breaches and defaults which, in
the aggregate, would not have a Parent Material Adverse Effect.
48
<PAGE>
Section 5.5 Governmental Consents. No consent, order or
---------------------
authorization of, or registration, declaration or filing with, any Governmental
Entity is required by Parent, FSCMI or Acquisition Corp. in connection with
the execution, delivery and performance of this Agreement and the other
agreements, documents and instruments to be executed and delivered by Parent,
FSCMI and Acquisition Corp. in connection herewith or the consummation of the
transactions contemplated hereby or thereby, except (a) as may be required
pursuant to the BHC Act, and (b) as may be required by any Self Regulatory
Authority or the Federal Reserve Board.
Section 5.6 No Default. None of Parent, FSCMI or Acquisition Corp.
----------
is in default or violation (and no event has occurred which with notice or the
lapse of time or both would constitute a default or violation) of any term,
condition or provision of: (i) the certificate of incorporation or articles
of incorporation, in the case of FSCMI, or by-laws of Parent, FSCMI or
Acquisition Corp.; and (ii) any License and Permit which would have a Parent
Material Adverse Effect.
Section 5.7 Litigation. There are no claims, suits, actions or
----------
proceedings pending or, to the best knowledge of Parent threatened, nor are
there any investigations or reviews pending or, to the best knowledge of
Parent, threatened, against, relating to or affecting Parent, FSCMI or
Acquisition Corp., which, if adversely determined, would have a Parent Material
Adverse Effect, nor is Parent, FSCMI or Acquisition Corp. subject to any
judgment, decree, order, injunction, writ or rule of any Governmental Entity
having, or which, insofar as can be reasonably foreseen, in the future would
have a Parent Material Adverse Effect.
Section 5.8 SEC Reports and Financial Statements. Parent has
------------------------------------
filed with the SEC, and has heretofore made available to the Company, true and
complete copies of all forms, reports, schedules, statements and other documents
required to be filed by it and FSCMI since January 1, 1996 under the Exchange
Act or the Securities Act (as such documents have been amended since the time of
their filing, collectively, the "Parent SEC Documents").
--------------------
As of the date hereof, the Closing Date and as of their respective dates or, if
amended, as of the date of the last such amendment, the Parent SEC Documents,
49
<PAGE>
including, without limitation, any financial statements or schedules included or
incorporated therein (a) do not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements made therein, in light of the circumstances under
which they were made, not misleading, and (b) comply in all material respects
with the applicable requirements of the Exchange Act and the Securities Act, as
the case may be, and the applicable rules and regulations of the SEC
thereunder. The consolidated financial statements included in the Parent SEC
Documents are complete and correct in all Material respects and fairly present
the financial condition of Parent and its consolidated Subsidiaries as of such
date and the consolidated results of operations and cash flows for the fiscal
years then ended. The consolidated financial statements in the Parent SEC
Documents have been prepared in accordance with GAAP consistently applied during
the periods involved, except as otherwise disclosed in the notes to such
financial statements.
Section 5.9 Absence of Certain Changes. Since January 1, 1998 and
--------------------------
except as disclosed in the Parent SEC Documents, (a) Parent, FSCMI and
Acquisition Corp. have conducted their businesses only in the usual and ordinary
course and consistent with past practice, and (b) there has not been any event
that would have a Parent Material Adverse Effect.
Section 5.10 Agreements with Regulatory Agencies. As of the date of
-----------------------------------
this Agreement, except as disclosed in the Parent SEC Documents, none of Parent,
FSCMI or Acquisition Corp. is subject to any cease-and-desist or other order
issued by, or is a party to any Regulatory Agreement nor has Parent, FSCMI or
Acquisition Corp. (i) been advised since July 1, 1995 by any Self Regulatory
Authority or Governmental Entity that it is considering issuing or requesting
any such Regulatory Agreement or (ii) have knowledge of any pending or
threatened regulatory investigation. After the date of this Agreement, no
matters referred to in this Section 5.10 shall have arisen except matters which
would not have a Parent Material Adverse Effect.
Section 5.11 Brokers and Finders. Except for the engagement of J.P.
-------------------
Morgan & Co. Inc. and Securities Consultants, Inc., none of Parent, FSCMI or
Acquisition
50
<PAGE>
Corp. has employed any broker, financial advisor or finder or incurred any
liability for any broker, financial advisory or finders' fees in connection
with this Agreement or the transactions contemplated hereby.
Section 5.12 Satisfaction of Conditions in Section 15(f) of the 1940
-------------------------------------------------------
Act. None of Parent, FSCMI or Acquisition Corp. (nor any Affiliate of Parent,
- ---
FSCMI or Acquisition Corp. which will act as advisor to the Funds upon the
consummation of the Merger) has any express or implied understanding,
arrangement or intention to impose an unfair burden on any of the Funds as a
result of the transactions contemplated herein.
ARTICLE VI
GENERAL COVENANTS
Section 6.1 Conduct of Business of the Company Pending the Closing.
------------------------------------------------------
During the period from the date hereof to the Closing Date, without the prior
written consent of Parent or as expressly contemplated by the Agreement, the
Company shall, and shall cause VKA to, conduct its operations and business in
the usual and ordinary course of business and consistent with past practice and
use its reasonable best efforts to preserve intact its goodwill, keep available
the services of its present officers and key employees, and preserve the
goodwill and business relationships with clients, customers and others having
business relationships with it. Without limiting the generality of the
foregoing, and except as otherwise specifically permitted by this Agreement,
during the period from the date hereof to the Closing Date, the Company will
not, and will cause VKA not to:
(a) amend or propose to amend the articles of incorporation and
by-laws of the Company or VKA (other than the September 18, 1998 amendment to
the articles of incorporation of the Company);
(b) set aside or pay any dividend or other distribution (whether
in cash or property or any combination thereof) in respect of its capital stock
or membership, equity or other interest, or issue or authorize or propose the
issuance of any other securities in
51
<PAGE>
respect of, in lieu of or in substitution for its capital stock or membership,
equity or other interest;
(c) issue or authorize or propose the issuance of, sell, pledge
or dispose of, grant or otherwise create, or agree to issue or authorize or
propose the issuance, sale, pledge or disposition of, grant or otherwise create
any additional shares of capital stock of, or other interest in, the Company or
VKA, or any options, warrants or rights of any kind to acquire any shares of
capital stock of, or any membership, equity or other interest in, the Company or
VKA, or any debt or equity securities convertible into or exchangeable for any
shares of capital stock of, or equity or other interests in, the Company or
VKA;
(d) make any capital expenditure or acquire any property or
assets, other than as provided for in the Company's capital expenditure budget
previously provided to Parent, expenditures in connection with the Company's
year 2000 compliance efforts or in the usual and ordinary course of business and
consistent with past practice; provided, however, that expenditures for year
-------- -------
2000 compliance shall not exceed $250,000, in the aggregate, without the prior
consent of Parent;
(e) permit or allow any of its property or assets (real,
personal or mixed, tangible or intangible) to be subjected to any Liens, except
for Liens for current Taxes not yet due or incurred in the ordinary course of
business;
(f) write-off as uncollectible any notes or accounts, funds or
trust receivables, except for immaterial write-downs and write-offs in the usual
and ordinary course of business and consistent with past practice;
(g) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial portion
of the assets of, or by any other manner, any business or any Person;
(h) in a single transaction or series of related transactions,
sell (including by sale-leaseback), lease, license, pledge or dispose of any
assets (real,
52
<PAGE>
personal or mixed, tangible or intangible) or interests therein except in the
usual and ordinary course of business and consistent with past practice and
which, individually or in the aggregate, have a fair market value not in excess
of one-hundred thousand dollars ($100,000);
(i) incur or assume any long-term liabilities or, except in the
usual and ordinary course of business and consistent with past practice, incur
or assume any short-term liabilities; assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
the obligations (absolute, accrued, contingent or otherwise) of any Person,
except in the usual and ordinary course of business and consistent with past
practice; or make any loans, advances or capital contributions to, or
investments in, any Person other than VKA, except in the usual and ordinary
course of business and consistent with past practice;
(j) redeem, purchase, acquire or offer to purchase or acquire
any shares of its capital stock or any membership, equity or other interest
(including any security convertible or exchangeable into any such shares or
interests), as the case may be, other than transactions between the Company and
VKA;
(k) grant any increase in the compensation or benefits of any
officer (including any such grant or increase pursuant to any bonus, stock,
incentive, pension, profit sharing or other plan or commitment), except for
increases in the ordinary course of business consistent with past and/or
industry practice or as required by contractual obligation in effect as of the
date hereof and except as provided in Sections 7.1, 7.2 and 3.4 hereof;
(l) adopt, enter into or amend, or become obligated under, any
employment, severance, bonus, profit sharing, incentive, compensation, stock
option, pension, retirement, deferred compensation, health care, employment or
other employee benefit plan, agreement, trust, fund or arrangement for the
benefit or welfare of any employee or retiree, except (i) as required to comply
with changes in applicable Law occurring after the date hereof; or (ii) in the
usual and ordinary course of business and consistent with past practice; or
(iii) as
53
<PAGE>
provided in Sections 7.1 and 7.2 hereof with respect to the Retention Pool and
Employment Agreements, respectively; or (iv) with respect to the cashless
exercise of Vested Company Options and the cancellation of Non-Vested Options as
provided in Section 3.4 hereof;
(m) take any action that would, or is reasonably likely to,
result in any of its representations and warranties set forth in this Agreement
becoming untrue in any material respect, or result in any of the conditions to
the consummation of the Merger set forth in Article VIII hereof not being
satisfied;
(n) cancel any debts or settle, compromise or waive any
material claim, dispute or right;
(o) prepay its expenses, indebtedness or other obligations,
except in the usual and ordinary course of business and consistent with past
practice;
(p) enter into or amend any Contract, or engage in any
transaction, in each case which is not in the usual and ordinary course of
business and consistent with past practice;
(q) make any change in any method of Tax or financial accounting
or accounting practice other than as required by the Financial Accounting
Standards Board, or make or change any election for federal income tax purposes;
(r) waive or extend the statute of limitations in respect of
Taxes or amend any Tax Return in any respect; or
(s) enter into any Contract or commitment to do any of the
things described in clauses (a) through (r) above.
Section 6.2 Investigation.
-------------
(a) Subject to the terms and conditions set forth in that
certain Confidentiality Agreement between the Company and Parent, dated July 24,
1998 (the "Confidentiality Agreement"), Parent may make or cause to be made such
-------------------------
additional investigation of the business and properties of the Company and VKA
and their respective
54
<PAGE>
financial and legal conditions as Parent deems reasonably necessary or advisable
to further familiarize themselves therewith. The Company shall, and the Company
shall cause VKA to, permit Parent and its accountants, counsel and other
representatives to have, during the period from the date hereof to the Closing
Date, reasonable access to the premises, customers, books and records of the
Company and VKA relating to the business of any of them (including such books
and records as relate to any of their Taxes), for all periods prior to or as of
the Closing Date, during normal business hours and upon reasonable notice. The
Company shall, and the Company shall cause VKA to, furnish Parent with such
financial and operating data and other information with respect to the business
and properties of any of them as Parent from time to time may reasonably
request. Any information regarding the Company and VKA heretofore obtained from
any such party by Parent or its representatives, or hereafter obtained from any
such party, shall be subject to the terms of the Confidentiality Agreement and
such information shall be held by Parent and its representatives in accordance
with the terms of the Confidentiality Agreement.
(b) No investigation pursuant to this Section 6.2 shall affect
any representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto.
Section 6.3 Reasonable Best Efforts.
-----------------------
(a) Prior to the Closing, upon the terms and subject to the
conditions of this Agreement, Parent, FSCMI and the Company agree to use their
respective reasonable best efforts to take, or cause to be taken, all actions,
and to do, or cause to be done, all things necessary, proper or advisable
(subject to any applicable laws) to consummate and make effective the Merger and
the other transactions contemplated hereunder as promptly as practicable
including, but not limited to (i) the preparation and filing of all forms,
registrations and notices required to be filed to consummate the Merger and the
other transactions contemplated hereunder and the taking of such actions as are
necessary to obtain any requisite approvals, consents, orders, exemptions or
waivers by any third party or Governmental Entity including, without limitation,
the Board of Governors of the Federal Reserve System (the "Federal Reserve
---------------
Board"), and (ii) the satis-
55
<PAGE>
faction of the other parties' conditions to Closing. In addition, no party
hereto shall take any action after the date hereof that would reasonably be
expected to materially delay the obtaining of, or result in not obtaining, any
permission, approval or consent from any Governmental Entity necessary to be
obtained prior to Closing.
(b) Prior to the Closing, each party shall promptly consult with
the other parties hereto with respect to, provide any necessary information with
respect to, and provide the other parties (or their respective counsel) with
copies of, all filings made by such party with any Governmental Entity or any
other information supplied by such party to a Governmental Entity in connection
with this Agreement, the Merger and the other transactions contemplated
hereunder. Each party hereto shall promptly inform the other of any
communication from any Governmental Entity regarding this Agreement and the
transactions contemplated hereunder. If any party hereto or Affiliate thereof
receives a request for additional information or documentary material from any
such Governmental Entity with respect to this Agreement and the transactions
contemplated hereunder, then such party shall endeavor in good faith to make, or
cause to be made, as soon as reasonably practicable and after consultation with
the other parties, an appropriate response in compliance with such request. To
the extent that transfers, amendments or modifications of permits (including
environmental permits) are required as a result of the execution of this
Agreement or consummation of any of the transactions contemplated hereunder, the
Company shall use its reasonable best efforts to effect such transfers,
amendments or modifications.
(c) Parent shall file within seventy-five (75) days of the date
hereof an application or notice seeking the approval of the Federal Reserve
Board for the Merger under Section 4(c)(8) of the BHC Act and under Regulation
Y, including, without limitation, Tier 2 securities underwriting and dealing
powers for Parent and the Surviving Corporation.
(d) Notwithstanding the foregoing, nothing in this Agreement
shall be deemed to require Parent or FSCMI to commence any litigation against
any entity in order to facilitate the consummation of any of the transactions
contemplated hereunder or to defend against any
56
<PAGE>
litigation brought by any third party or Governmental Entity seeking to prevent
the consummation of any of the transactions contemplated hereunder.
Section 6.4 No Public Announcement. No party hereto shall make any
----------------------
public announcement concerning the transactions contemplated by this Agreement
without the prior approval of the other parties hereto, except as such
announcement may be required by Law or the rules and regulations of a Self-
Regulatory Authority, in which case the party required to make the announcement
shall use all reasonable efforts to provide the other parties with reasonable
time under the circumstances to comment on such announcement in advance of such
announcement. Notwithstanding the foregoing, the Company acknowledges that
after the execution of this Agreement, Parent will make public disclosure of the
transactions contemplated by this Agreement (after giving the Company the
opportunity to review and comment on such disclosure in advance of its release).
Section 6.5 Expenses. Whether or not the transactions contemplated
--------
hereby are consummated, all costs and expenses incurred in connection with this
Agreement and the consummation of the transactions contemplated hereunder
shall be paid by the party incurring such expenses.
Section 6.6 Supplements to Disclosure Schedule. From time to time
----------------------------------
prior to the Closing, the Company shall promptly supplement or amend the Company
Disclosure Schedule with respect to any matter, condition or occurrence
hereafter arising which, if existing or occurring at the date of this Agreement,
would have been required to be set forth or described in the respective
disclosure schedule; provided that any supplement or amendment shall not be
--------
deemed to cure any breach of any representation or warranty made in this
Agreement and shall not affect the representations or warranties or be
considered for purposes of determining satisfaction of the conditions set
forth in Article VIII or for purposes of the provisions of Articles IX or X.
Section 6.7 Exclusive Merger Agreement. The Company covenants and
--------------------------
agrees that, between the date hereof and the Effective Time, it will not, and it
will use its reasonable best efforts to not permit any of its
57
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officers or directors, affiliates, representatives or agents to, either directly
or indirectly, solicit or attempt to procure offers relating to the merger or
acquisition of the Company or all or substantially all of its assets or business
(by share purchase or otherwise) with or by any entity not a party to this
Agreement, or to discuss or negotiate or enter into any agreements relating to
the merger or acquisition of the Company with or by any such third party.
Section 6.8 Parent Common Stock Repurchases. During the Closing
-------------------------------
Calculation Period, Parent shall not, directly or indirectly, effect any
repurchase or otherwise acquire any shares of the Parent Common Stock.
ARTICLE VII
ADDITIONAL COVENANTS
Section 7.1 Retention Pool. Parent shall cause the Surviving
--------------
Corporation to, and the Surviving Corporation shall, establish at the Closing
and maintain for a period of four years following the Closing (or, if earlier,
until the balance thereof shall have been reduced to zero) a separate cash
account in the amount of $10 million (the "Retention Pool") from which the
--------------
Surviving Corporation shall make payments with respect to (i) obligations
incurred under agreements ("Option Cancellation Agreements") entered into by
------------------------------
the Company pursuant to Section 3.4(b) hereof with holders of Non-Vested
Options in connection with the cancellation of such options and (ii) retention
bonuses ("Retention Bonuses") granted from time to time to employees of VK
-----------------
Division with respect to periods following the Closing. At the time such
payments in respect of Retention Bonuses and Option Cancellation Agreements are
made, the principal balance of the Retention Pool account shall be debited in
the amount of such payments, and at all times while such principal balance is
greater than zero, such balance shall be credited with interest at Parent's
Federal Funds Rate. The Retention Pool shall be managed and administered by
the chairman of the management committee of the VK Division (together with his
successors and his and their designees, the "Management Committee Chairman") in
-----------------------------
a manner consistent with ordinary and customary business practices, but (except
as provided below) otherwise in the sole and absolute discretion of the
Management Com-
58
<PAGE>
mittee Chairman, for the purposes stated above. The Management Committee
Chairman shall timely disclose to FSCMI the amount and recipient of each such
award. Without limiting the generality of the foregoing, the Management
Committee Chairman shall have the right to (i) enter into Option Cancellation
Agreements on behalf of the Company, (ii) determine those employees who shall
receive Retention Bonus awards and (iii) determine the amount to be paid to each
holder of Non-Vested Options in connection with such Option Cancellation
Agreements and the amount of each Retention Bonus award and the timing and any
conditions for payment thereof; provided, however, that in no event shall more
-------- -------
than $2.5 million be paid from the Retention Pool prior to the first
anniversary of the Closing; provided, further, that in no event shall the
-------- -------
Management Committee Chairman have the authority to bind the Company, the
Surviving Corporation, FSCMI or Parent to make payments from the Retention Pool
in excess of $10 million in the aggregate, as adjusted for credited interest as
provided above (which amount shall not include or be reduced by the amount of
any additional compensation arrangements approved by the Surviving Corporation,
FSCMI and/or Parent in the ordinary course of business); and provided, further,
-------- -------
that the Retention Pool shall be managed so as to constitute an "unfunded"
arrangement for purposes of ERISA and the Code. Subject to the foregoing, the
obligations incurred under the Option Cancellation Agreements and Retention
Bonus awards shall be the obligation of and shall promptly upon becoming due be
paid by the Surviving Corporation from the Retention Pool to the holders of Non-
Vested Options and the recipients of Retention Bonus awards, which obligations
shall be unconditionally guaranteed by Parent. Notwithstanding anything in this
Agreement to the contrary, the parties hereto acknowledge and agree that the
rights and benefits of this Section 7.1 are expressly intended to be conferred
upon the Management Committee Chairman, who shall have the right to specific
enforcement of the obligations of the Surviving Corporation, FSCMI and Parent
hereunder, and the rights and obligations set forth in this Section 7.1 shall
survive the Closing until satisfied in full. The Surviving Corporation, FSCMI
and Parent shall promptly reimburse the Management Committee Chairman on an as-
incurred basis for any and all fees, costs and other expenses, including
attorneys' fees, incurred in enforcing the provisions of this Section 7.1. The
obligations of the Surviving
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Corporation, FSCMI and Parent under this Section 7.1 shall in no event be
subject to offset against any indemnifiable Losses under Article X.
Section 7.2 Employment Agreements. The Company agrees to, and to
---------------------
cause VKA to, use their respective reasonable best efforts to cause each of
the persons listed on Exhibit C hereto to enter into an Employment Agreement
prior to the Closing.
Section 7.3 Satisfaction of Conditions in Section 15(f) of the 1940
-------------------------------------------------------
Act. Parent agrees to use its commercially reasonable efforts to assure
- ---
compliance with the conditions of Section 15(f) of the 1940 Act. Parent agrees
that for a period of not less than three years after the Closing Date, Parent
shall use its commercially reasonable efforts to ensure that no more than 25% of
the members of the Board of Directors of any Fund shall be "interested persons"
(as defined in the 1940 Act) of Parent (or such other entity which acts as
advisor to the Funds) or of the predecessor investment advisor of such Fund.
Section 7.4 Investment Contract Consents. The Company shall, and
----------------------------
shall cause VKA to, use their reasonable best efforts to obtain written consents
or approvals of Clients, in form and substance reasonably acceptable to Parent,
or new Investment Contracts, substantially in the form of the existing
Investment Contract with such Client, with respect to Investment Contracts
relating to assets under management by the Company or VKA.
Section 7.5 Directors' and Officers' Insurance and Indemnification.
------------------------------------------------------
(a) From and after the Effective Time, Parent shall, or shall
cause the Surviving Corporation to, to the fullest extent permitted under the
Company's articles of incorporation, by-laws or indemnification agreements in
effect on the date hereof and under applicable law, including provisions
relating to advancement of expenses incurred in the defense of any action or
suit, indemnify, defend and hold harmless all persons who are now, or have been
at any time prior to the date hereof, or who became prior to the Effective Time,
an officer, director, employee or agent (each, a "Company
-------
60
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Indemnified Party") of the Company or VKA against all Losses, to the extent that
- -----------------
any claim for such Loss is based on, or arises out of (i) the fact that such
person is or was a director, officer, employee or agent of the Company or VKA or
is or was serving at the request of the Company or VKA as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, or (ii) this Agreement, or any of the transactions
contemplated hereby or thereby, in each case to the extent that any claim for
such Loss pertains to any matter or fact arising, existing, or occurring prior
to or at the Effective Time, regardless of whether such Loss arises or is
claimed prior to, at or after the Effective Time. Without limiting the
foregoing, in the event that any claim for such loss is brought against a
Company Indemnified Party as a result of such party's service as an officer,
director, employee or agent of Company or VKA (whether arising before or after
the Effective Time), the Company Indemnified Party may retain counsel
satisfactory to them, and Parent (or, prior to the Effective Time, the Company)
shall advance the fees and expenses of such counsel for the Company Indemnified
Party in accordance with the by-laws of FSCMI in effect on the date hereof.
(b) Parent and the Company agree that from the Effective Time
Parent shall provide each Company Indemnified Party with protection identical to
that provided to officers and directors of Parent and FSCMI from time to time.
(c) In the event that the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger, or (ii) transfers or conveys all or substantially all
of its properties and assets to any person, then, and in each such case, Parent
shall use its reasonable best efforts to cause the successors and assigns of the
Surviving Corporation to succeed to the obligations set forth in this Section
7.5.
(d) Parent or the Surviving Corporation shall maintain the
Company's existing officers' and directors' liability insurance policy ("D&O
---
Insurance") for a period of not less than three years after the Effective Date
- ---------
with respect to matters occurring prior to
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the Effective Time; provided, (i) that Parent may substitute therefor policies
--------
of substantially similar coverage and amounts containing terms no less
advantageous in the aggregate to such former directors or officers and (ii) if
the existing D&O Insurance expires or is canceled during such period, Parent or
the Surviving Corporation will use reasonable efforts to obtain substantially
similar D&O Insurance to the extent available; provided, further, that if the
-------- -------
aggregate annual premiums for such insurance at any time during such period
shall exceed 150% of the per annum rate of premium currently paid by the Company
for such insurance on the date of this Agreement, then Parent or the Surviving
Corporation shall provide the maximum coverage that shall then be available at
an annual premium equal to 150% of such rate.
(e) The indemnification obligations of Parent and Surviving
Corporation under this Section 7.5 shall not extend to any Losses incurred by
those persons and as a result of those occurrences specifically set forth in
Section 7.5 of the Company Disclosure Schedule.
Section 7.6 NASDAQ Listing Application. Prior to the Effective
--------------------------
Time, Parent will file with the Nasdaq National Market a notification for
listing of shares covering the shares of Parent Common Stock issuable in the
Merger.
Section 7.7 Affiliate Agreements. The Company has, concurrently
--------------------
with the execution of this Agreement, delivered to Parent a list setting forth
the names of all persons who are expected to be, at the effective time of the
consents pursuant to the Consent Solicitation, in the Company's reasonable
judgment, "affiliates" of the Company for purposes of Rule 145 under the
Securities Act. The Company shall use its reasonable best efforts to cause each
person who is identified as an "affiliate" in the list furnished pursuant to
this Section 7.7 to execute a written agreement as soon as practicable after the
date hereof, substantially in the form of Exhibit G hereto.
---------
Section 7.8 Use of Company Name. Parent and FSCMI and Surviving
-------------------
Corporation agree that commencing at the Effective Time, Parent and FSCMI shall
use the Company's logo or the name "Van Kasper" by itself or in connection with
any other word, symbol, mark or phrase or
62
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any derivative thereof or any logo, trademark, trade name, service mark,
corporate symbol or logo in which the Company or VKA has any interest, in
connection with the conduct of the business and operations of the VK Division,
including, without limitation, signs, purchase orders, invoices, brochures,
labels, letterheads and other materials. The Parent and FSCMI and Surviving
Corporation may do so in connection with the use of the name of Parent or FSCMI
or Surviving Corporation or their affiliates.
Section 7.9 Management of the Surviving Corporation. (a) Until
---------------------------------------
the fourth anniversary of the Closing Date, neither Parent nor FSCMI shall:
(1) following the merger of FSCMI with and into Surviving
Corporation, fail to maintain the VK Division as an independent business
unit of FSCMI; prior to the merger of FSCMI with and into Surviving
Corporation, fail to maintain Surviving Corporation as a separate legal
entity;
(2) transfer operations from the VK Division or sell a portion of
such operations or assets to any third party;
(3) take any action intended to or reasonably likely to materially
and adversely affect the VK Division's ability to market and sell its
services including, without limitation, to realize the revenue thresholds
contemplated by the Holdback;
(4) terminate employees or refuse to hire new employees of VK
Division except in the ordinary course and consistent with past practice;
(5) fail to maintain separate books and records for the operations
of the VK Division;
(6) fail to provide that all de novo investment banking or retail
-- ----
brokerage operations of FSCMI will be conducted through the VK Division and
included in the revenues thereof, or
(7) cause relocation of either of Company's San Francisco or Los
Angeles executive offices, to a city other than where they are currently
located;
63
<PAGE>
unless formally consented to by the majority vote of the Management Committee of
the VK Division.
(b) In the event that Parent and/or FSCMI shall violate any of the
agreements set forth in Section 7.9(a) hereof, all amounts payable pursuant to
the Holdback shall immediately accelerate and be then payable to the holders of
record, as of the Closing Date, of the Company Capital Stock.
(c) In the event that prior to the fourth anniversary of the Closing
Date:
(1) a "Change in Control" shall be deemed to have occurred as defined
as (A) there is a report filed by any Person, other than Parent, any
Subsidiary of Parent, or any employee benefit plan of Parent or any such
Subsidiary, on Schedule 13D or 14D-1 pursuant to the Exchange Act,
disclosing that such Person has become the "beneficial owner" (as defined
under the Exchange Act), directly or indirectly, through a purchase or
other acquisition transaction or series of transactions (other than a
merger or consolidation involving Parent or the Surviving Corporation), of
shares of capital stock of Parent or the Surviving Corporation which
entitle such Person to exercise in excess of 50% of the total voting power
of all shares of capital stock of Parent or the Surviving Corporation
entitled to vote generally in the election of directors; or (B) there
occurs any consolidation of Parent or Surviving Corporation with, or merger
of Parent or Surviving Corporation into, any other Person, any merger of
another Person into Parent or Surviving Corporation, or any sale or
transfer of all or substantially all of the assets of Parent, the Surviving
Corporation or the VK Division, directly or indirectly, to another Person
(other than (i) any such transaction pursuant to which the holders of the
Parent Common Stock immediately prior to such transaction have, directly or
indirectly, shares of capital stock of the continuing or surviving
corporation immediately after such transaction which entitle such holders
to exercise in excess of 50% of the total voting power of all shares of
capital stock of the continuing or surviving corporation entitled to vote
generally in the election of directors and (ii) any merger (1)
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<PAGE>
which does not result in any reclassification, conversion, exchange or
cancellation of outstanding shares of the Parent Common Stock or FSCMI
common stock or (2) which is effected solely to change the jurisdiction of
incorporation of Parent and results in a reclassification, conversion or
exchange of outstanding shares of the Parent Common Stock or FSCMI common
stock solely into shares of common stock),
(2) Parent or any of its Affiliates shall have executed a definitive
agreement for the acquisition of any entity engaged in investment banking
or retail brokerage operations pursuant to which the operations of the
acquired investment banking and/or retail brokerage entity will not be
merged into and made a part of and subject to the management committee of
the VK Division unless approved by a majority vote of the management
committee of the VK Division,
(3) Parent shall have executed a definitive agreement for the sale,
transfer or other disposition (for cash or shares of stock or otherwise)
of all or substantially all of the assets or business of the VK Division,
or
(4) Parent shall have executed a definitive agreement to sell,
transfer or otherwise dispose of (for cash or shares of stock or
otherwise), by merger or consolidation with, any business or any
corporation, partnership, joint venture, association or other business
organization or division thereof, or by any other manner, all or
substantially all of the assets or business, or capital stock of FSCMI or
the VK Division, then
all amounts payable pursuant to the Holdback shall immediately accelerate and be
then payable to the holders of record, as of the Closing Date, of the Company
Capital Stock.
Section 7.10 Registration of Holdback Shares. Parent will deliver,
-------------------------------
pursuant to an effective registration statement under the Securities Act (the
"Holdback Registration Statement(s)") if required by applicable law, to the
----------------------------------
holders of record of Company Capital Stock as of the Closing Date, on each of
the third and fourth
65
<PAGE>
anniversaries of the Closing Date, or at such other time as any Holdback amount
may become due and payable pursuant to Section 7.9 hereof, the Holdback Shares
due and payable at such time. Parent shall take all such action as may be
necessary to comply with applicable state blue sky or securities laws in
connection with the foregoing. Notwithstanding the foregoing, if Parent
reasonably believes that the amounts payable by it pursuant to Section 3.3(a) or
3.3(b) will not be due and payable on either the third or fourth anniversary of
the Closing Date, as the case may be, the Company may delay the filing of a
Holdback Registration Statement until the earliest time as it may reasonably
determine whether or not any Holdback amount shall be due and payable on the
respective anniversary of the Closing Date, provided, however, that in the event
-------- -------
that any Holdback amount becomes due and payable following the time that the
Parent has delayed the filing of a Holdback Registration Statement, Parent shall
immediately use its best efforts to cause the Holdback Registration Statement to
become effective as soon as is practicable after the time that the Holdback
amount becomes due and payable.
Section 7.11 Resale Registration. In the event that the SEC shall
-------------------
determine that any of the shares of Parent Common Stock that Parent issues in
the Merger to any party to the Voting Agreements, dated as of the date hereof
between Parent and the significant Shareholders, have been issued in an exempt
transaction within the meaning of the Securities Act, rather than in a public
sale pursuant to the Registration Statement, Parent shall immediately use its
best efforts to cause to become effective, as soon as is practicable following
such determination by the SEC, a registration statement under the Securities Act
covering the resale of any such shares (the "Resale Registration Statement").
-----------------------------
Any Resale Registration Statement shall remain effective until the earliest of
(i) the time that all of the shares of Parent Common Stock covered by the Resale
Registration Statement have been resold, or (ii) 360 days following the
effectiveness of the Resale Registration Statement.
Section 7.12 Company Representative. (a) For purposes of Section
----------------------
11.2 hereof, F. Van Kasper shall act as the representative on behalf of all of
the holders of shares of Company Capital Stock as of the Closing Date (the
"Company Representative") subject to the provisions
----------------------
66
<PAGE>
of Section 7.12(b) below. In the event that the Company Representative shall die
or resign or otherwise terminate or decline to accept his authority hereunder,
his successor shall be any holder of the Company Capital Stock and shall be
elected by the vote or written consent of a majority in interest of the holders
of record of the Company Capital Stock as of the Closing Date. The Company
Representative shall keep the holders of the Company Common Stock reasonably
informed of his decision of a material nature. Subject to the provisions of
Section 7.12(b) below, (i) the Company Representative is authorized to take any
action deemed by the Company Representative appropriate or necessary to carry
out the provisions of, and to determine the rights of the holders of the
Company Capital Stock under Articles II, III, VI, VII, VIII and X, and is
designated as the agent of, and authorized to act on behalf of, the holders of
the Company Capital Stock for all purposes, including without limitation, to
accept a service of process upon the holders of Company Capital Stock, and (ii)
all decisions of the Company Representative shall be binding upon the holders of
Company Capital Stock.
(b) Any holder of Company Capital Stock may, upon written notice to
both Parent and the Company Representative, which notice shall provide an
address for receipt of notices for such holder of Company Capital Stock,
terminate the authority and agency of the Company Representative as provided
herein (except for purposes of Article X). Thereafter, such holder of Company
Capital Stock shall have the right to act independently.
(c) The Company Representative shall not be liable to any of the
holders of Company Capital Stock for any error of judgment, act done or omitted
by him in good faith, or mistake of fact or law unless caused by his own gross
negligence or willful misconduct.
Section 7.13 Section 280G. The Company agrees to seek and use its
------------
reasonable best efforts to obtain, prior to the Closing, such vote of its
stockholders as may be required under applicable regulations so that no
payment received by any person from the Company shall be treated thereunder as
an "excess parachute payment" within the meaning of Section 280G of the Code.
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ARTICLE VIII
CONDITIONS TO THE CLOSING
Section 8.1 Conditions to the Obligations of Each Party. The
-------------------------------------------
respective obligation of each party to effect the Closing is subject to the
satisfaction or waiver at or prior to the Closing of the following conditions:
(a) Any waiting period applicable to the consummation of the
Closing under the HSR Act shall have terminated or expired;
(b) No statute, rule, regulation, order, decree or injunction
shall have been enacted, entered, promulgated or enforced by any court or
Governmental Entity which prohibits or restricts the consummation of the
Closing;
(c) There shall not be any suit, action, investigation, inquiry
or other proceeding instituted or pending by or before any Governmental Entity,
or instituted or pending by any non-governmental third party, which seeks to
enjoin or otherwise prevent consummation of the transactions contemplated by
this Agreement and with respect to which there is a reasonable probability of
success for such Governmental Entity or non-governmental third party;
(d) All consents and approvals legally required from
Governmental Entities, for the consummation of the Closing and the transactions
contemplated hereby (the "Requisite Governmental Approvals") shall have been
--------------------------------
obtained and be in effect on the Closing Date, except those for which failure to
obtain such consents and approvals would not have a Parent Material Adverse
Effect or a Company Material Adverse Effect. Requisite Governmental Approvals
shall include, without limitation, approval of the Federal Reserve Board of the
Merger and of Tier 2 securities underwriting and dealing powers for Parent and
the Surviving Corporation, pursuant to Section 4(c)(8) of the BHC Act;
(e) The Company shall have received an opinion of Skadden, Arps,
Slate, Meagher & Flom LLP, counsel to the Company, and Parent shall have
received an
68
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opinion of Ray, Quinney & Nebeker, special counsel to Parent, in each case dated
the Closing Date and substantially to the effect that, for United States
federal income tax purposes, the Merger will constitute a "reorganization"
within the meaning of Section 368(a) of the Code. In rendering such opinions,
such counsel may require and rely upon representations contained in certificates
of officers of the Company, Parent and others, and the parties agree to provide
such counsel with such certificates as such counsel may reasonably request in
connection with rendering its opinion; and
(f) The Company shall have entered into non-competition
agreements with such employees of the Company as shall be mutually and
reasonably agreed upon by the Company and Parent in form reasonably acceptable
to the Company and Parent.
Section 8.2 Additional Conditions to the Obligations of the Company.
-------------------------------------------------------
The obligation of the Company to effect the Closing is further subject to the
satisfaction (or waiver by the Company) at or prior to the Closing of the
following conditions:
(a) The representations and warranties of each of Parent, FSCMI
and Acquisition Corp. contained in this Agreement shall be true and correct at
the date hereof and as of the Closing Date as though made at and as of the
Closing Date, except: (i) to the extent they expressly refer to an earlier time,
in which case they shall be true and correct as of such time; and (ii) for
representations and warranties not containing any materiality qualifier, in
which case such representations and warranties shall be true and correct in all
material respects;
(b) Parent shall have duly performed and complied in all
material respects with each covenant, agreement and condition required by this
Agreement required to be performed by it at or prior to the Closing Date
pursuant to the terms hereof;
(c) The Company shall have received a certificate of a senior
officer of Parent certifying the accuracy of the statements set forth in
Sections 8.2(a) and (b) hereof;
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(d) The Company shall have received from Ray, Quinney & Nebeker,
counsel to Parent, an opinion substantially in the form attached hereto as
Exhibit E and otherwise reasonably satisfactory in form and substance to the
- ---------
Company, addressed to the Company and dated as of the Closing Date; and
(e) The Company shall have received such other documents,
instruments and certificates as the Company shall reasonably request from
Parent.
Section 8.3 Conditions to the Obligations of Parent. The obligation
---------------------------------------
of Parent and Acquisition Corp. to effect the Closing is further subject to the
satisfaction (or waiver by Parent) at or prior to the Closing Date of the
following conditions:
(a) The representations and warranties of the Company contained
in this Agreement shall be true and correct at the date hereof and as of the
Closing Date as though made at and as of the Closing Date, except: (i) to the
extent they expressly refer to an earlier time, in which case they shall be true
and correct as of such time; and (ii) for representations and warranties not
containing any materiality qualifier, in which case such representations and
warranties shall be true and correct in all material respects;
(b) The Company shall have duly performed and complied in all
material respects with each covenant, agreement and condition required by this
Agreement required to be performed by it at or prior to the Closing Date
pursuant to the terms hereof;
(c) Parent shall have received a certificate of a senior officer
of the Company certifying the accuracy of the statements set forth in Sections
8.3(a) and (b) hereof;
(d) The Company shall have obtained the consent or approval of
each Person whose consent or approval shall be required in connection with the
transactions contemplated hereby under any Contract, except those for which
failure to obtain such consents and approvals would not, individually or in the
aggregate, have a Company Material Adverse Effect;
70
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(e) Parent shall have received from Skadden, Arps, Slate,
Meagher & Flom LLP, counsel to the Company, an opinion substantially in the form
attached hereto as Exhibit F and otherwise reasonably satisfactory in form and
---------
substance to Parent, addressed to Parent and dated as of the Closing Date;
(f) There shall have been no developments or events that have
had or could reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect;
(g) Each of the Employment Agreements shall have been entered
into and shall be in full force and effect as of the Closing Date and each
employee who is a signatory to an Employment Agreement shall not have terminated
such employee's employment with the Company, other than due to death or
disability;
(h) In accordance with Section 15 of the 1940 Act, the
respective Boards of Directors of the Money Market Funds (subject to the
approval of the shareholders of the Money Market Funds) and the non-Money Market
Funds, including in each case a majority of directors who are not "interested
persons" (as such term is defined in the 1940 Act) or parties to the investment
advisory contracts of such Funds (the "Non-Interested Directors") shall have
------------------------
approved new investment advisory contracts with Parent, FSCMI or a wholly-owned
Subsidiary of Parent upon terms identical with those of each such Fund; and the
Board of Directors, including a majority of the Non-Interested Directors, of
each of the Funds shall have approved new underwriting, distribution or dealer
contracts, if any, with Parent pursuant to Section 15 of the 1940 Act and any
other requirements applicable thereto contained in the 1940 Act;
(i) The Company shall have obtained and delivered to Parent the
written consents or approvals of Clients, in form and substance reasonably
acceptable to Parent or new Investment Contracts, substantially in the form of
the existing Investment Contract with such Client, with respect to Investment
Contracts relating to assets under management by the Company or VKA, and such
consents, approvals or contracts shall be in full force or effect;
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(j) The Company shall have obtained and delivered to Parent all
consents of the holders of Non-Vested Options and any consents required under
Section 3.4(a) hereof to cancellation of all such options; and
(k) Parent shall have received such other documents, instruments
and certificates as Parent shall reasonably request from the Company.
ARTICLE IX
TERMINATION
Section 9.1 Termination. This Agreement may be terminated at any
-----------
time prior to the Closing:
(a) by the mutual written consent of the Parent and the Company;
(b) (i) by Parent upon notice given to the Company if the
Closing has not taken place on or before June 30, 1999; provided, however, that
-------- -------
the failure of the Closing to occur on or before such date is not the result of
the breach of any covenant, agreement, representation or warranty hereunder of
Parent or (ii) by the Company upon written notice given to Parent if the Closing
has not taken place on or before June 30, 1999; provided, further, that the
-------- -------
failure of the Closing to occur on or before such date is not the result of the
breach of the covenant, agreement, representation or warranty hereunder of the
Company;
(c) by Parent, on the one hand, or the Company, on the other
hand, upon notice given to the other if any court or Governmental Entity of
competent jurisdiction will have issued a final permanent nonappealable order,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement;
(d) by Parent, upon a breach of any representation, warranty,
covenant or agreement on the part of the Company set forth in this Agreement, or
if any representation or warranty of the Company shall have become untrue, in
either case such that the conditions set forth in Section 8.3(a) or (b) hereof
would not be satisfied as of the time of such breach or as of the time
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such representation or warranty shall have become untrue, after affording the
Company a 30-day period after notice in which to cure such breach; or
(e) by the Company, upon a breach of any representation,
warranty, covenant or agreement on the part of Parent set forth in this
Agreement, or if any representation or warranty of the Purchaser shall have
become untrue, in either case such that the conditions set forth in Section
8.2(a) or (b) hereof would not be satisfied as of the time of such breach or as
of the time such representation or warranty shall have become untrue, after
affording Parent a 30-day period after notice in which to cure such breach.
Section 9.2 Effect of Termination. In the event of the termination
---------------------
of this Agreement as provided in Section 9.1 hereof, all of the obligations and
liabilities of the parties under this Agreement shall terminate; provided,
--------
however, that (i) nothing in this Section 9.2 shall relieve any party from any
- -------
liability for any willful breach of this Agreement, and (ii) the obligations
of the parties to this Agreement under Section 6.4 hereof shall survive any such
termination.
ARTICLE X
INDEMNIFICATION
Section 10.1 Indemnification by the Company.
------------------------------
(a) Subject to the other provisions of this Article X, the
Company and the holders of Company Capital Stock (but only in the event of and
to the extent of payments of the Holdback) shall indemnify, defend and hold
harmless Parent, FSCMI, Acquisition Corp. and their respective successive
successors, assigns and Affiliates and the directors, officers, agents and
employees of any of them (collectively, the "Parent Indemnified Parties") from
--------------------------
and against any and all Losses imposed on, incurred or suffered by or asserted
against any Parent Indemnified Party, directly or indirectly, to the extent
resulting from, arising out of or incurred with respect to (i) any breach of any
representation or warranty of the Company or VKA contained in this Agreement,
and (ii) any breach
73
<PAGE>
of any covenant prior to the Closing, of the Company contained in this
Agreement.
(b) The provisions for indemnity contained in Section 10.1(a)
hereof shall not be effective until the aggregate amount of all such Losses for
which the Company is liable under this Agreement exceeds one million dollars
($1,000,000) (provided that if all such Losses exceed such amount, the Parent
Indemnified Parties shall be entitled to be indemnified for all Losses for which
they have not received indemnification). In no event shall the aggregate
liability of the Company and the holders of the Company Capital Stock under this
Agreement exceed ten million dollars ($10,000,000).
(c) The sole source for indemnification of a Parent Indemnified
Party's Losses under this Agreement shall be pursuant to Section 10.1(d)
hereof, and the Company and the holders of the Company Capital Stock shall not
otherwise be liable to a Parent Indemnified Party for any Losses in respect of
the breach of any representation or warranty or covenant hereunder or in
connection with the transactions contemplated hereby.
(d) Any indemnifiable Losses of any Parent Indemnified Party
shall, to the extent that such Losses are incurred or asserted prior to the
third year anniversary of the Closing Date, be offset against the Holdback from
the third anniversary Holdback payment, and to the extent such Losses are
incurred after such third year anniversary, but before the fourth year
anniversary of the Closing Date, be offset against the Holdback from the fourth
anniversary Holdback payment. If there is any dispute as to the right of
indemnification of any Parent Indemnified Party hereunder at the time any
portion of the Holdback is due to be paid hereunder, Parent may, in its
reasonable discretion, withhold all or any portion of such portion due up to $10
million in the aggregate until such time as the dispute has been resolved in
accordance with Section 10.3 hereof.
(e) Notwithstanding any other provision of this Agreement to the
contrary and notwithstanding disclosure of the following matters on the Company
Disclosure Schedule, the Parent Indemnified Parties shall be entitled to
indemnification under this Article X for any and all Losses (including without
limitation taxes,
74
<PAGE>
penalties and interest, accounting, legal and other consultants' fees and costs,
and any costs or liabilities incurred with respect to individual participants in
any Company Plans) resulting from, arising out of or incurred with respect to
any failure by Company, VKA or any ERISA Affiliate, or their respective agents
on their behalf, to obtain a determination letter with respect to the Company's
401(k) plan or otherwise to fully comply and to cause each Company Plan to
comply in all material respects with the terms of any such Company Plan and
applicable law, including but not limited to ERISA and the Code.
Section 10.2 Indemnification Procedure.
-------------------------
(a) Promptly after receipt by a Parent Indemnified Party of
notice (a "Claim") of the assertion of any claim or the commencement of any
-----
action, claim, suit, arbitration, inquiry, subpoena, discovery requests,
proceeding or investigation by or before any Governmental Entity (an "Action")
------
against it in respect to which indemnity or reimbursement may be sought against
an indemnitor hereunder (an "Indemnitor"), such Parent Indemnified Party shall
----------
notify the Company Representative in writing of the Claim stating, in reasonable
particularity, the nature of the Claim and the basis for assertion of such
Claim, but the failure to so notify the Company Representative shall not relieve
any Indemnitor of any liability it may have to such Parent Indemnified Party
hereunder except to the extent such failure shall have materially prejudiced the
Indemnitor in defending such Claim;
(b) The Company Representative shall be entitled to participate
in and, to the extent the Company Representative elects by written notice to
such Parent Indemnified Party within 30 days after receipt by the Company
Representative of notice of such Claim, to assume the defense of such Claim on
behalf of any Indemnitor, at the expense of any such Indemnitor, with counsel
chosen by the Company Representative and reasonably satisfactory to such Parent
Indemnified Party. Notwithstanding that the Company Representative shall have
elected by such written notice to assume the defense of any Claim on behalf of
any Indemnitor, such Parent Indemnified Party shall have the right to
participate in the investigation
75
<PAGE>
and defense thereof with separate counsel chosen by such Parent Indemnified
Party, but in such event the fees and expenses of such counsel shall be paid by
such Parent Indemnified Party; and
(c) No Parent Indemnified Party shall settle any Claim without
the prior written consent of the Company Representative; nor shall the Company
Representative settle any Claim without obtaining a general release from the
party making the Claim for all Parent Indemnified Parties as a condition of
such settlement without any restrictions, limitations or liabilities placed on
any of the Parent Indemnified Parties as a result thereof.
Section 10.3 Disputes. If there is any dispute as to the right of
--------
indemnification and defense hereunder, the disputing party shall give the other
party written notice of such dispute, specifying in detail the basis of the
dispute, not later than twenty (20) Business Days after receipt of a demand for
indemnification. If the dispute cannot be resolved amicably, any party may
institute suit against the other party in the United States District Court
located in San Francisco, California, to resolve the matter. All parties hereby
waive the right to a jury trial in any such lawsuit.
Section 10.4 Time Limit. If there is no dispute as to the right
----------
to indemnification with respect to any such demand within such twenty (20)
Business Day period, time being of the essence, or upon resolution of any such
dispute by the parties or by a court, the Parent Indemnified Party entitled to
indemnification shall be promptly paid the amount owed to it pursuant to this
Article X.
Section 10.5 Sole Remedy. Parent acknowledges and agrees that after
-----------
the Closing that Parent's sole and exclusive remedy with respect to any and all
claims relating to the subject matter of this Agreement shall be pursuant to the
indemnification provisions set forth in Article X hereof.
76
<PAGE>
ARTICLE XI
MISCELLANEOUS
Section 11.1 Survival of Representations and Warranties and
----------------------------------------------
Covenants. All of the representations and warranties and covenants of the
- ---------
Company and Parent contained herein shall survive the Closing and shall continue
in full force and effect for a period of two years thereafter, after which such
representations and warranties and covenants shall terminate and have no further
force or effect other than the representations and warranties set forth in
Section 4.12 hereof which shall survive until the expiration of the relevant
statutes of limitation. The period during which any such representation or
warranty or covenant survives is the "Survival Period" for such representation,
---------------
warranty or covenant. Notwithstanding the foregoing, (i) any representation,
warranty or covenant that would otherwise terminate shall survive with respect
to Losses asserted in any Action of which written notice, stating, in reasonable
particularity, the nature of the Claim and the basis for assertion of such
Claim, is given pursuant to this Agreement prior to the end of the applicable
Survival Period, until such Action is finally resolved and any related Losses
are paid, (ii) the covenants and agreements set forth in Section 2.4 hereof
shall survive the Closing until terminated by its terms, (iii) the covenants and
agreements set forth in Sections 7.1, 7.8 and 7.9 hereof shall survive the
Closing for a period of four years thereafter, (iv) the covenants and
agreements set forth in Article III and Sections 6.5, 7.3, 7.5, 7.10, 7.11 and
7.12 hereof shall survive the Closing indefinitely.
Section 11.2 Amendment, Modification and Waiver. This Agreement may
----------------------------------
not be amended, modified or waived except (a) by an instrument or instruments in
writing signed and delivered on behalf of each of the parties hereto and (b)
following the Closing Date, by Parent, FSCMI and either (i) the Company
Representative or (ii) by written consent of a majority of the holders of record
of Company Capital Stock as of Closing Date.
Section 11.3 Entire Agreement. This Agreement (together with the
----------------
schedules, exhibits and other agreements, documents and instruments delivered
pursuant hereto) constitutes the entire agreement among the par-
77
<PAGE>
ties with respect to the subject matter hereof and supersedes all other prior
agreements and understandings, both written and oral, among the parties or any
of them with respect to the subject matter hereof.
Section 11.4 Notices. All notices, requests, claims, demands and
-------
other communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in person, by
telecopy (which is confirmed), or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties as follows:
if to the Company:
Van Kasper & Company
600 California Street, Suite 1700
San Francisco, California 94111
Attention: John H. Chung, Esq.
Telecopy No.: (415) 391-5600
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
4 Embarcadero Center, Suite 3800
San Francisco, California 94111
Attention: Gregory C. Smith
Telecopy No.: (415) 984-2698
if to the Parent:
First Security Corporation
79 South Main Street, Suite 200
Salt Lake City, Utah 84111
Attention: Brad D. Hardy, Esq.
Telecopy No.: (801) 359-6928
with a copy to:
Ray, Quinney & Nebeker
79 South Main Street, Suite 400
Salt Lake City, Utah 84111
Attention: Sylvia I. Ianucci, Esq.
Telecopy No.: (801) 532-7543
or to such other address as the person to whom notice is given may have
previously furnished to the others in
78
<PAGE>
writing in the manner set forth above. In no event shall the provision of
notice pursuant to this Section 11.4 constitute notice for service of process.
Section 11.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF
LAWS THEREOF.
Section 11.6 Descriptive Headings. The descriptive headings herein
--------------------
are inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
Section 11.7 Assignment; Binding Agreement. Neither this Agreement
-----------------------------
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties hereto; provided, however, that the
-------- -------
Parent may assign or delegate either this Agreement or any of its rights,
interests and obligations hereunder to any direct or indirect wholly owned
Subsidiary of Parent, but in such event Parent shall remain liable for the
performance of all of its obligations hereunder. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors and permitted assigns.
Section 11.8 Third Party Beneficiaries. Nothing in this Agreement,
-------------------------
express or implied, is intended to or shall confer upon any Person other than
the parties hereto and the holders of the Company Capital Stock as of the
Closing Date any rights, benefits or remedies of any nature whatsoever under or
by reason of this Agreement except for such rights conferred upon selected
individuals pursuant to Section 7.1 hereof.
Section 11.9 Specific Performance. The parties recognize and agree
--------------------
that if for any reason any of the provisions of this Agreement are not performed
in accordance with their specific terms or are otherwise breached, immediate and
irreparable harm or injury would be caused for which money damages would not be
an adequate remedy. Accordingly, each party agrees that, in
79
<PAGE>
addition to any other available remedies (including those set forth under
Article X hereof), each other party shall be entitled to an injunction
restraining any violation or threatened violation of the provisions of this
Agreement. In the event that any action should be brought in equity to enforce
the provisions of the Agreement, no party will allege, and each party hereby
waives the defense, that there is an adequate remedy at law.
Section 11.10 Severability. Any term or provision of this Agreement
------------
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining
terms and provisions of this Agreement or affecting the validity or
enforceability of any of the terms or provisions of this Agreement in any other
jurisdiction. If any provision of this Agreement is so broad as to be
unenforceable, the provision shall be interpreted to be only so broad as is
enforceable.
Section 11.11 Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
Section 11.12 Original Merger Agreement Superseded. Pursuant to
------------------------------------
Section 11.2 of the Original Merger Agreement, the parties hereto hereby amend
and restate the Original Merger Agreement to read in its entirety as set forth
in this Agreement, such that as of the date hereof the Original Merger Agreement
is entirely replaced and superseded by this Agreement.
80
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officer thereunto duly authorized, all as of
the day and year first above written.
FIRST SECURITY CORPORATION
By:_____________________________
Name:
Title:
FIRST SECURITY CAPITAL MARKETS, INC.
By:_____________________________
Name:
Title:
VAN KASPER ACQUISITION CORPORATION
By:_____________________________
Name:
Title:
VAN KASPER & COMPANY
By:_____________________________
Name:
Title:
81
<PAGE>
APPENDIX B
VAN KASPER'S AUDITED FINANCIAL STATEMENTS
<PAGE>
APPENDIX B
VAN KASPER FINANCIAL STATEMENTS
VAN KASPER & COMPANY AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT............................................... F-2
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS.............................................. F-3
CONSOLIDATED STATEMENTS OF EARNINGS...................................... F-5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY.......................... F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS.................................... F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................... F-8
</TABLE>
<PAGE>
[LETTERHEAD OF WILSON, MCCALL & ASSOCIATES]
INDEPENDENT AUDITORS' REPORT
We have audited the consolidated balance sheets of Van Kasper & Company and
Subsidiary, as of June 30, 1996, 1997 and 1998, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Van Kasper
& Company and Subsidiary as of June 30, 1996, 1997 and 1998, and the results of
their operations and cash flows for the years then ended in conformity with
generally accepted accounting principles.
Wilson, McCall & Associates
San Francisco, California
August 21, 1998
F-2
<PAGE>
VAN KASPER & COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------- SEPTEMBER
1996 1997 1998 30, 1998
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash and cash equivalents..... $ 741,880 $ 317,677 $ 2,888,033 $ 1,000,973
Receivables
Due from clearing firm...... 6,595,790 -- -- 740,945
Commissions................. 425,736 1,140,735 343,449 967,641
Employee advances........... 284,937 356,950 600,280 685,251
Income taxes................ -- 604,000 574,000 523,000
Other....................... 321,299 658,987 614,331 589,486
----------- ----------- ----------- -----------
Total receivables......... 7,627,762 2,760,672 2,132,060 3,506,323
----------- ----------- ----------- -----------
Securities owned, at market
value........................ 6,015,681 11,936,265 10,228,101 4,831,036
Exchange membership........... 17,700 17,700 -- --
Investments in related
entities..................... 131,531 137,614 119,112 119,304
Other investments............. 205,657 665,321 2,368,080 1,840,313
Secured demand note,
collateralized by marketable
securities................... -- -- 300,000 300,000
Furniture, equipment and
leasehold improvements, at
cost, net of accumulated
depreciation and
amortization................. 1,348,475 2,033,392 3,602,218 3,503,282
Other assets
Cash surrender value--life
insurance policies......... 26,087 16,801 16,801 16,801
Prepaid expenses............ 142,160 312,834 401,563 605,732
Deferred tax benefit........ 183,621 131,621 -- --
----------- ----------- ----------- -----------
Total other assets........ 351,868 461,256 418,364 622,533
----------- ----------- ----------- -----------
$16,440,554 $18,329,897 $22,055,968 $15,723,764
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
VAN KASPER & COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------- SEPTEMBER
1996 1997 1998 30, 1998
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Accounts payable............ $ 1,832,130 $ 574,396 $ 2,550,222 $ 727,591
Accrued liabilities
Payroll and commissions... 1,607,656 1,091,773 3,559,381 1,562,135
Income taxes.............. 1,017,475 -- -- --
Rent...................... 606,441 609,486 612,531 613,292
Other..................... 2,997,923 1,625,458 406,871 287,348
----------- ----------- ----------- -----------
Total accrued
liabilities............ 6,229,495 3,326,717 4,578,783 2,462,775
----------- ----------- ----------- -----------
Deferred tax liability...... -- -- 377,379 377,379
Deferred credit............. 24,000 12,000 -- --
Due to clearing firm........ -- 6,607,952 1,671,503 --
Marketable securities sold
short...................... 1,732,671 536,233 264,531 981,036
Bank loan payable........... 79,400 -- 1,081,077 1,033,383
Capitalized lease
obligation................. 32,756 11,800 -- --
Liabilities subordinated to
claims of general creditors
pursuant to:
Revolving loan
agreement.............. -- -- 2,000,000 --
Secured demand note..... -- -- 300,000 300,000
----------- ----------- ----------- -----------
Total liabilities....... 9,930,452 11,069,098 12,823,495 5,882,164
----------- ----------- ----------- -----------
Commitments and
contingencies.............. -- -- -- --
Stockholders' equity
Preferred stock........... 2,194,148 1,983,107 4,069,448 4,223,883
Common stock.............. 18,000 18,000 18,000 18,000
Stock subscription
receivable............... -- -- (435,414) (102,190)
Retained earnings......... 4,297,954 5,259,692 5,580,439 5,701,907
----------- ----------- ----------- -----------
6,510,102 7,260,799 9,232,473 9,841,600
----------- ----------- ----------- -----------
$16,440,554 $18,329,897 $22,055,968 $15,723,764
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
VAN KASPER & COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
FOR THE YEAR ENDED JUNE 30, SEPTEMBER 30,
----------------------------------- ----------------------
1996 1997 1998 1997 1998
----------- ----------- ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating revenues:
Commissions........... $23,787,833 $24,160,958 $31,181,182 $ 7,658,306 $6,609,405
Trading income........ 2,283,188 2,515,819 1,152,707 549,352 115,105
Interest.............. 625,653 573,800 790,290 199,269 290,939
Corporate finance and
underwriting......... 3,319,620 2,482,942 6,487,472 923,609 1,864,486
Management and other
income............... 1,650,137 3,264,748 6,136,620 947,274 873,173
----------- ----------- ----------- ----------- ----------
Total operating
revenues........... 31,666,431 32,998,267 45,748,271 10,277,810 9,753,108
----------- ----------- ----------- ----------- ----------
Operating expenses:
Employee compensation
and benefits......... 21,276,654 21,711,463 29,950,199 6,692,411 6,712,718
Clearing and brokerage
charges.............. 1,801,335 1,959,621 2,281,812 549,158 492,258
Communications and
data processing...... 1,456,448 2,089,594 2,680,513 618,583 616,648
Interest.............. 197,561 359,314 545,635 123,752 86,543
Occupancy............. 1,058,315 1,460,766 2,743,640 584,802 752,264
Other operating
expenses............. 2,580,410 4,039,771 7,085,125 949,612 920,209
----------- ----------- ----------- ----------- ----------
Total operating
expenses........... 28,370,723 31,620,529 45,286,924 9,518,318 9,580,640
----------- ----------- ----------- ----------- ----------
Earnings before
income taxes....... 3,295,708 1,377,738 461,347 759,492 172,468
Provision for income
taxes.................. 1,249,515 416,000 140,600 227,850 51,000
----------- ----------- ----------- ----------- ----------
Net Earnings........ $ 2,046,193 $ 961,738 $ 320,747 $ 531,642 $ 121,468
=========== =========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
VAN KASPER & COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK STOCK TOTAL
--------------------- -------------- SUBSCRIPTION RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT RECEIVABLE EARNINGS EQUITY
--------- ---------- ------ ------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance--June 30, 1995.. 179,710 $1,583,487 1,800 $18,000 $ 0 $2,251,761 $3,853,248
Issuance of preferred
stock.................. 25,062 633,016 -- -- -- -- 633,016
Redemption of preferred
stock.................. (1,156) (22,355) -- -- -- -- (22,355)
Net earnings............ -- -- -- -- -- 2,046,193 2,046,193
--------- ---------- ----- ------- --------- ---------- ----------
Balance--June 30, 1996.. 203,616 $2,194,148 1,800 $18,000 $ 0 $4,297,954 $6,510,102
Issuance of preferred
stock.................. 19,496 681,075 -- -- -- -- 681,075
Redemption of preferred
stock.................. (27,143) (892,116) -- -- -- -- (892,116)
Net earnings............ -- -- -- -- -- 961,738 961,738
--------- ---------- ----- ------- --------- ---------- ----------
Balance--June 30, 1997.. 195,969 1,983,107 1,800 18,000 -- 5,259,692 7,260,799
Issuance of preferred
stock.................. 3,025 95,400 -- -- -- -- 95,400
Redemption of preferred
stock.................. (100) (3,025) -- -- -- -- (3,025)
--------- ---------- ----- ------- --------- ---------- ----------
Balance prior to stock
split.................. 198,894 2,075,482 1,800 18,000 -- 5,259,692 7,353,174
Stock split............. 198,894 -- 1,800 -- -- -- 0
Issuance of preferred
stock.................. 158,230 2,452,380 -- -- (435,414) -- 2,016,966
Redemption of preferred
stock.................. (27,320) (458,414) -- -- -- -- (458,414)
Net earnings............ -- -- -- -- -- 320,747 320,747
--------- ---------- ----- ------- --------- ---------- ----------
Balance--June 30, 1998.. 528,698 $4,069,448 3,600 $18,000 $(435,414) $5,580,439 $9,232,473
Proceeds from issuance
of preferred stock..... 14,233 298,217 -- -- 333,224 -- 631,441
Redemption of preferred
stock.................. (9,734) (143,782) -- -- -- -- (143,782)
Net earnings............ -- -- -- -- -- 121,468 121,468
--------- ---------- ----- ------- --------- ---------- ----------
Balance--September 30,
1998 (Unaudited)....... 533,197 $4,223,883 3,600 $18,000 $(102,190) $5,701,907 $9,841,600
========= ========== ===== ======= ========= ========== ==========
Shares authorized to be
issued................. 3,000,000 3,600
========= =====
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
VAN KASPER & COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEAR ENDED JUNE 30, ENDED SEPTEMBER 30,
---------------------------------------- -------------------------
1996 1997 1998 1997 1998
------------ ------------ ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from (to)
operating activities:
Commissions received.. $ 23,773,744 $ 23,999,913 $ 31,226,485 $ 7,678,088 $ 6,350,704
Interest received..... 625,653 573,800 573,800 199,269 290,939
Cash received from
other operating
activities........... 621,937 13,392,761 8,912,689 2,516,219 6,844,575
Payments to suppliers,
brokers, and
employees............ (23,450,207) (33,609,745) (40,755,023) (9,213,969) (13,534,055)
Payments of interest.. (197,561) (359,314) (545,635) (123,752) (86,543)
(Payments) refund of
income taxes......... (464,000) (1,938,070) 398,400 -- --
------------ ------------ ------------ ----------- ------------
Net cash provided by
(used in) operating
activities.......... 909,566 2,059,345 (189,284) 1,055,855 (134,380)
------------ ------------ ------------ ----------- ------------
Cash flows from (to)
investing activities:
Additions to
furniture, equipment
and leasehold
improvements......... (797,547) (1,233,736) (2,293,360) (722,570) (96,515)
Proceeds from sale of
equipment............ -- 10,531 -- -- --
Proceeds from sale of
exchange membership.. -- -- 499,700 -- --
Increase in
investments.......... (167,774) (343,192) (266,317) -- (11,158)
Proceeds from
investments.......... -- -- 166,340 -- --
Loans and advances to
employees--net....... (5,605) (255,222) (274,227) 143,262 (84,972)
Payments from(to)
affiliated
companies............ (8,883) (56,729) -- -- --
------------ ------------ ------------ ----------- ------------
Net cash used in
investing
activities.......... (979,809) (1,878,348) (2,167,864) (579,308) (192,645)
------------ ------------ ------------ ----------- ------------
Cash flows from (to)
financing activities:
Repayment of notes
payable.............. (105,600) (79,400) -- -- --
Proceeds received from
bank loan payable--
net.................. -- -- 1,081,077 -- (47,694)
Repayment of capital
lease obligation..... (12,845) (28,799) (11,800) -- --
Proceeds received from
subordinated debt.... 2,250,000 -- 2,000,000 -- (2,000,000)
Repayment of
subordinated debt.... (2,250,000) -- -- -- --
Proceeds from issuance
of preferred stock... 633,016 400,115 2,112,366 111,900 631,441
Redemption of
preferred stock...... (22,355) (897,116) (254,139) (3,025) (143,782)
------------ ------------ ------------ ----------- ------------
Net cash provided by
(used in) financing
activities.......... 492,216 (605,200) 4,927,504 108,875 (1,560,035)
------------ ------------ ------------ ----------- ------------
Net Increase
(Decrease) In Cash
and Cash
Equivalents......... 421,973 (424,203) 2,570,356 585,422 (1,887,060)
Cash and cash
equivalents--beginning
of period............. 319,907 741,880 317,677 317,677 2,888,033
------------ ------------ ------------ ----------- ------------
Cash and cash
equivalents--end of
period................ $ 741,880 $ 317,677 $ 2,888,033 $ 903,099 $ 1,000,973
============ ============ ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
VAN KASPER & COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1997 AND 1998
NOTE A--DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Van Kasper & Company (Van Kasper), a California corporation, was incorporated
in 1978 to engage in the securities brokerage and investment banking business.
Van Kasper has a fully disclosed clearing agreement with BTAlex Brown. As a
result, Van Kasper does not hold funds or securities for or owe money to
customers and does not carry accounts of or for customers. Van Kasper is
therefore exempted from the provisions of the Securities and Exchange
Commission Rule 15c3-3.
1. Principles of Consolidation
The consolidated financial statements include the accounts of Van Kasper and
its wholly-owned subsidiary, Van Kasper Advisers (VKA). VKA commenced
operations in 1983 and performs investment advisory and management services for
third parties. All material intercompany balances and transactions are
eliminated in consolidation.
2. Securities Transactions and Investments
Securities transactions (and related commission revenues and expenses) are
recorded by Van Kasper on a settlement date basis, generally the third business
day after the trade date, which does not materially differ from recording these
transactions on a trade date basis.
3. Cash and Cash Equivalents
For purposes of the statements of cash flows, Van Kasper considers its
investment in a money market fund to be a cash equivalent.
Van Kasper maintains bank accounts in various financial institutions in
Northern California. The balances are insured by the Federal Deposit Insurance
Corporation up to $100,000. At June 30, 1996, 1997 and 1998, Van Kasper had
cash balances in excess of the insured amounts.
4. Furniture, Equipment and Leasehold Improvements
Depreciation on furniture and equipment is provided on the double declining
balance method over the estimated useful lives of the assets. Leasehold
improvements are amortized using the straight line method over the estimated
useful lives of the improvements.
5. Statements of Cash Flows
Securities owned and marketable securities sold short are held principally
for resale to customers and are considered to be operating activities for
purposes of the consolidated statements of cash flows due to their temporary
nature.
6. Trading and Clearing Activities and Related Risks
In the normal course of business, Van Kasper's customer and correspondent
clearance activities involve the execution, settlement, and financing of
various customer securities transactions. These activities may expose Van
Kasper to off-balance sheet risk in the event the customer or other broker is
unable to fulfill its contracted obligations and Van Kasper has to purchase or
sell the financial instrument underlying the contract at a loss.
F-8
<PAGE>
VAN KASPER & COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Van Kasper's customer securities activities are transacted on either a cash
or margin basis. In margin transactions, Van Kasper extends credit to its
customers, subject to various regulatory and internal margin requirements,
collateralized by cash and securities in the customers' accounts. In connection
with these activities, Van Kasper executes and clears customer transactions
involving the sale of securities not yet purchased, substantially all of which
are transacted on a margin basis subject to individual exchange regulations.
Such transactions may expose Van Kasper to significant off-balance sheet risk
in the event margin requirements are not sufficient to fully cover losses that
customers may incur. In the event the customer fails to satisfy its
obligations, Van Kasper may be required to purchase or sell financial
instruments at prevailing market prices to fulfill the customer's obligations.
Van Kasper seeks to control the risks associated with its customer activities
by requiring customers to maintain margin collateral in compliance with various
regulatory and internal guidelines. Required margin levels are monitored daily
and, pursuant to such guidelines, the customer may be required to deposit
additional collateral, or to reduce positions, when necessary.
7. Estimates and Assumptions
Management uses estimates and assumptions in preparing financial statements.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses.
8. Reclassifications
Certain reclassifications have been made to the prior year financial
statements to conform with the current year presentation.
9. Unaudited Interim Financial Information
The interim financial information for the three month periods ended September
30, 1997 and 1998 has been prepared from the unaudited financial records of Van
Kasper & Company and Subsidiary and in the opinion of management reflects all
adjustments necessary for a fair presentation of the financial position and
results of operations and cash flows for the applicable interim periods.
NOTE B--INVESTMENT IN RELATED ENTITIES
Investment in related entities consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
V.K. Ventures................................. $ 50,769 $ 50,769 $ 50,769
Redwood Securities Group, Inc................. 80,762 86,845 68,343
-------- -------- --------
$131,531 $137,614 $119,112
======== ======== ========
</TABLE>
V.K. Ventures
Van Kasper is a limited partner in VK Ventures (the Partnership), a limited
partnership formed in 1984. This investment is carried at cost. VK Ventures is
an investment partnership whose principal assets are non-marketable securities.
Any gain resulting from increases in the asset values of the Partnership will
be recognized when the assets are sold and the Partnership is liquidated.
F-9
<PAGE>
VAN KASPER & COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Redwood Securities Group, Inc.
Van Kasper holds a 24.5% interest in the voting common stock of Redwood
Securities Group, Inc. (RSG) for $24,500. RSG was formed to operate as an
introducing broker and to clear transactions on a secondary basis through Van
Kasper with BTAlex Brown on a fully disclosed basis. In addition, Van Kasper
has a secured demand note collateral agreement with RSG in the principal amount
of $44,250 maturing on March 31, 2000.
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Initial investment--RSG......................... $24,500 $24,500 $24,500
Treasury note and cash held as collateral on
secured demand note agreement.................. 56,262 62,345 43,843
------- ------- -------
Total investment--RSG......................... $80,762 $86,845 $68,343
======= ======= =======
</TABLE>
NOTE C--OTHER INVESTMENTS
Other investments consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------------
1996 1997 1998
-------- -------- ----------
<S> <C> <C> <C>
Marketable securities....................... $ -- $ -- $1,153,742
Non-marketable securities................... 59,657 356,242 449,338
Investment funds............................ 146,000 309,079 155,000
Warrants.................................... -- -- 610,000
-------- -------- ----------
$205,657 $665,321 $2,368,080
======== ======== ==========
</TABLE>
Marketable securities are subject to trading restrictions and are carried at
quoted market values less appropriate provisions for market fluctuations. Non-
marketable securities consist of various investments in non-publicly held
corporations or other non-marketable securities. They are being carried at the
lower of cost or estimated fair market value. Warrants are carried at the
quoted market value of the underlying securities in excess of the exercise
price less appropriate provisions for market fluctuations.
During the year ended June 30, 1998, Van Kasper recorded unrealized gains of
the following:
<TABLE>
<S> <C>
Increase to marketable securities.............................. $1,030,000
Warrants held.................................................. 610,000
----------
$1,640,000
==========
</TABLE>
NOTE D--FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Furniture and equipment................ $2,048,411 $3,066,054 $3,772,180
Leasehold improvements................. 180,056 378,606 1,773,998
---------- ---------- ----------
2,228,467 3,444,660 5,546,178
Less accumulated depreciation and
amortization.......................... 879,992 1,411,268 1,943,960
---------- ---------- ----------
$1,348,475 $2,033,392 $3,602,218
========== ========== ==========
</TABLE>
F-10
<PAGE>
VAN KASPER & COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE E--EXCHANGE MEMBERSHIP
Van Kasper sold its seat on the Pacific Stock Exchange ("PSE") during the
fiscal year ended June 30, 1998. Proceeds realized on the sale totaled
$499,700, representing a gain of $482,000 over Van Kasper's adjusted basis of
$17,700. The gain is included in other income.
NOTE F--SECURED DEMAND NOTE RECEIVABLE
A secured demand note receivable is due from a stockholder of Van Kasper. The
note, in the amount of $300,000, matures in April 2001.
The note was issued pursuant to and is subject to the terms and conditions of
a certain Secured Demand Note Collateral Agreement for Equity Capital (the
"Agreement") executed simultaneously with the note and approved by the National
Association of Securities Dealers, Inc. ("NASD").
Under the terms of the Agreement, the note must, at all times, be
collateralized by cash, cash equivalents, or marketable securities of
Collateral Value (as defined in the Agreement) greater than the face amount of
the note. The note is due on demand at the option of Van Kasper whenever net
capital, as defined in the Agreement, falls below a specified amount or
whenever the market value of the collateral falls below the face amount of the
note.
In consideration for the note receivable, Van Kasper has issued a 10 percent
subordinated note payable and agreed to return the note and related collateral
to the stockholder on the respective due date and to pay interest computed at
10 percent per annum on the face amount of the note, payable annually.
Revocation of the subordination agreement may not be made without prior written
approval of the NASD. The note may only be prepaid at the option of the maker
of the note with the prior written approval of the NASD. In the event that the
note is paid in cash or through sale of collateral prior to the due date, Van
Kasper is obligated to issue its subordinated note payable to the maker of the
note. All obligations to return the collateral, the note and the related
interest are subordinated to the rights and claims of all other present and
future creditors of Van Kasper arising prior to the date such obligations
become due. Further, the maturity of such obligation is suspended indefinitely
if, in satisfying its obligation, Van Kasper would cause its net capital, as
defined by the Agreement, to fall below the levels specified in the Agreement
as modified from time to time by NASD regulation.
During the term of the Agreement, Van Kasper has the right to pledge or
rehypothecate any or all of the marketable securities pledged as collateral to
secure other indebtedness of Van Kasper. Except in the event of liquidation of
the collateral to satisfy the demand note, all increases and decreases in the
market value of the collateral and all income derived from the collateral are
for the benefit of the maker of the note.
NOTE G--REVOLVING SUBORDINATED LOAN AGREEMENT
Van Kasper entered into a revolving subordinated loan agreement with its
correspondent clearing house, BTAlex Brown, effective July 31, 1997 and
expiring July 31, 1998. The agreement permits Van Kasper to draw up to
$3,750,000 on a line of credit for the sole purpose of participating in one or
more "firm commitment" underwritings. In accordance with the agreement, all
borrowings and subsequent repayments are subordinated to the rights and claims
of all other creditors of Van Kasper. Per the terms of the agreement, each
advance will have a stated maturity date of at least twelve months from the
date of advance, but not to exceed the maturity date of the underlying
agreement.
This agreement has been approved by the NASD. In accordance with the
agreement, payment of any or all advances prior to the scheduled maturity date
may be made by Van Kasper only with the prior written approval
F-11
<PAGE>
VAN KASPER & COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of the NASD and may not occur if said payment would result in the Van Kasper's
non-compliance with certain aggregate indebtedness and net capital rules, as
outlined in the agreement.
At June 30, 1998, the balance outstanding under the agreement amounted to
$2,000,000. The loan was repaid on July 31, 1998 with approval of the NASD.
NOTE H--BANK LOAN PAYABLE
Van Kasper has financed certain leasehold improvements through a commercial
loan agreement with a bank. As of June 30, 1998, the balance of the note is
$1,081,077. The note bears interest at the bank's index rate, which
approximates prime, and is payable in seventy-four equal installments of
principal plus interest. As of June 30, 1998, the bank's index is approximately
8.50% with required monthly payments of approximately $23,969 (principal and
interest). The note is secured by substantially all assets of Van Kasper and
matures in January, 2004. In addition, the note is subject to the maintenance
of certain financial and operating covenants.
The loan matures as follows:
<TABLE>
<S> <C>
Year ending June 30,
1999......................................................... $ 190,800
2000......................................................... 190,800
2001......................................................... 190,800
2002......................................................... 190,800
2003......................................................... 190,800
Thereafter................................................... 127,077
----------
$1,081,077
==========
</TABLE>
NOTE I--EMPLOYEE BENEFIT PLANS
Employee Profit Sharing Plan
Van Kasper has a contributory employee profit sharing plan for eligible
employees. Contributions to the plan are discretionary and are determined by
the Board of Directors. All contributions must be made from the net earnings or
retained earnings of Van Kasper. There were no contributions made to the plan
for the years ended June 30, 1996, 1997 and 1998.
401(k) Plan
Van Kasper has a 401(k) Plan for the benefit of its employees. The plan
provides for matching contributions by Van Kasper at an amount determined by
Van Kasper's Board of Directors. The matching contributions made by Van Kasper
were $29,500, $11,800 and $10,650 for the years ended June 30, 1996, 1997 and
1998, respectively.
F-12
<PAGE>
VAN KASPER & COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE J--PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------------------
1996 1997 1998
---------- -------- ---------
<S> <C> <C> <C>
Currently Payable (Refundable)
Federal................................ $1,063,763 $255,000 $(370,000)
State.................................. 294,692 109,000 1,600
Deferred................................. (108,940) 52,000 509,000
---------- -------- ---------
$1,249,515 $416,000 $ 140,600
========== ======== =========
</TABLE>
Deferred income taxes arise primarily from the following items:
. Certain accruals which are not currently deductible for tax purposes.
. Unrealized appreciation recorded on firm investments.
. Unrealized appreciation on warrants held.
. The difference between financial and tax basis of accounting for security
transactions.
Deferred income taxes consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------------------
1996 1997 1998
--------- --------- --------
<S> <C> <C> <C>
Deferred tax liabilities
Federal................................ $ 31,300 $ -- $599,675
State.................................. -- -- 163,662
Deferred tax assets
Federal................................ (214,921) (131,621) (274,543)
State.................................. (21,683) (21,204) (111,415)
Valuation allowance...................... 21,683 21,204 --
--------- --------- --------
Net Deferred Tax Liability (Asset)... $(183,621) $(131,621) $377,379
========= ========= ========
</TABLE>
Deferred income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts and the tax
basis of existing assets and liabilities. The effect on deferred taxes of a
change in tax rates is recognized in income in the period that includes the
enactment date.
A reconciliation of the income tax provision to the amount computed by
applying the federal statutory income tax rate to net earnings follows:
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
----------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate.................................. 34% 34% 34%
State income tax provision, net of federal tax benefit.. 6 6 6
Nontaxable income, net of nondeductible expenses........ (2) (21) (10)
Alternative minimum tax................................. -- 11 --
--- --- ---
Financial statement rate................................ 38% 30% 30%
=== === ===
</TABLE>
F-13
<PAGE>
VAN KASPER & COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE K--PREFERRED STOCK
The preferred stock is subject to a Preferred Stock Restriction Agreement
which limits transferability.
NOTE L--STOCK OPTIONS AND WARRANTS
Van Kasper has granted stock options to certain employees to purchase
preferred stock. The exercise prices of the preferred stock options were
determined by the Board of Directors at the time the options were granted.
Preferred stock options outstanding at June 30, 1998 are as follows:
<TABLE>
<CAPTION>
EXERCISE PRICES
---------------------
GRANT OPTIONS TO 10% TO
DATE EXPIRATION DATES OUTSTANDING SHAREHOLDERS OTHERS
----- ---------------- ----------- ------------ ------
<S> <C> <C> <C> <C>
October 1996 October 23, 1999-2001 74,034 $18.1940 $16.5400
October 1997 June 30, 2000 43,000 $20.1905 $18.3550
</TABLE>
The above options were issued pursuant to the Van Kasper & Company 1996 Long-
Term Incentive Plan. In addition, certain employees have been granted
nonqualified stock options to purchase 193,506 shares of preferred stock at
various exercise prices and expiration dates in accordance with provisions
contained in their employment terms. The options may be exercised in whole or
in part at any time or from time to time from the eligible date to the
expiration date. The preferred stock, when and if issued, will be subject to
the Preferred Stock Restriction Agreement.
Preferred stock options exercised were 25,062, 41,067 and 3,167 for the years
ended June 30, 1996, 1997 and 1998, respectively.
During the year ended June 30, 1998, Van Kasper granted a warrant to purchase
53,332 shares of preferred stock to its Chief Executive Officer. The strike
price is $18 per share and the warrant expires on June 15, 2003.
As of September 22, 1998, the date of the Agreement and Plan of Merger (note
O), there were 281,936 options and warrants outstanding.
NOTE M--RELATED PARTY TRANSACTIONS
Van Kasper provides management services to VK Ventures, a limited partnership
(note B), whose general partner is a principal stockholder of Van Kasper.
Management fees of $39,653, $44,620 and $10,523 were charged for the years
ended June 30, 1996, 1997 and 1998, respectively.
NOTE N--COMMITMENTS AND CONTINGENCIES
Leases
In addition to its principal premises located in San Francisco, Van Kasper
maintains offices throughout the state of California. In accordance with
Statement 13 of the Financial Accounting Standards Board (FASB), Van Kasper
accounts for scheduled rent increases on a straight-line basis over the life of
the lease. As of June 30, 1998 Van Kasper has recorded a deferred rent expense
liability of $612,531 related to contractual rent increases.
Under the terms of one space lease agreement, Van Kasper is required to
maintain a letter of credit in favor of the landlord. The current letter in the
amount of $636,000 matures in September, 1998 and is renewable annually. As of
June 30, 1998, there were no draws on the letter of credit.
F-14
<PAGE>
VAN KASPER & COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Rent expense charged to operations consists of the following:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
--------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Rent paid.............................. $1,055,270 $1,457,721 $2,740,595
Rent accrued........................... 3,045 3,045 3,045
---------- ---------- ----------
$1,058,315 $1,460,766 $2,743,640
========== ========== ==========
</TABLE>
The minimum future rental payments under the existing space lease agreements
are as follows:
<TABLE>
<S> <C>
Year ending June 30,
1999........................................................ $ 2,204,462
2000........................................................ 2,330,211
2001........................................................ 2,204,332
2002........................................................ 2,056,567
2003........................................................ 1,851,135
Thereafter.................................................. 2,800,640
-----------
Total minimum lease payments.................................. $13,447,347
===========
</TABLE>
Litigation
In the normal course of business, Van Kasper is involved in various legal
actions. It is the opinion of management that the resolution of all litigation
will not, in the aggregate, have any material adverse effect upon Van Kasper's
consolidated financial position.
NOTE O--SUBSEQUENT EVENT
On September 22, 1998, Van Kasper executed an Agreement and Plan of Merger
with First Security Corporation FSCO and First Security Capital Markets, Inc.
FSCMI.
Under the agreement, the shareholders of Van Kasper will exchange their
shares for shares of FSCO. The transaction will be subject to, among other
things, approval of various regulatory agencies and from Van Kasper's
shareholders.
F-15
<PAGE>
VAN KASPER & COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE P--STATEMENTS OF CASH FLOWS
Reconciliation of net earnings to net cash provided by (used in) operating
activities is as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
FOR THE YEAR ENDED JUNE 30, ENDED SEPTEMBER 30,
------------------------------------- ------------------------
1996 1997 1998 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash provided by (used
in) operating
activities:
Net earnings............ $ 2,046,193 $ 961,738 $ 320,747 $ 531,642 $ 121,468
Adjustments to reconcile
net earnings to net
cash provided by (used
in) operating
activities:
Depreciation and
amortization........... 346,599 533,972 649,606 136,200 195,450
Unrealized gain on other
investments............ 7,797 (122,555) (1,640,000) 6,320 538,926
Cost basis of
investments disposed... -- -- (84,743) -- --
Gain recognized on sale
of exchange
membership............. -- -- (482,000) -- --
Net book value of
equipment removed...... -- 4,316 74,928 -- --
Changes in operating
assets and liabilities:
Decrease (increase) in
commissions
receivable............. (5,697,227) 5,880,791 797,287 540,513 (1,189,488)
Decrease (increase) in
employee advances...... (117,118) 183,209 66,360 -- --
Decrease (increase) in
deferred tax benefit... (118,084) 52,000 509,000 -- --
Decrease (increase) in
other receivables...... 19 (280,959) 44,656 (452,249) 24,845
Decrease (increase) in
securities owned....... (1,263,150) (5,920,584) 1,708,164 1,638,521 5,396,873
Increase in prepaid
expenses............... (76,208) (162,831) (88,729) (55,091) (204,169)
Decrease in cash
surrender value--life
insurance policy....... -- 9,286 -- -- --
Increase (decrease) in
accounts payable....... 1,424,575 (1,257,734) 1,975,826 521,333 (1,822,630)
Increase (decrease) in
accrued payroll and
commissions............ 306,283 (515,883) 2,467,607 269,975 (1,997,245)
Increase (decrease) in
accrued income taxes... 870,431 (1,621,475) 30,000 227,850 51,000
Increase in accrued
rent................... 3,044 3,045 3,045 761 761
Increase (decrease) in
other accrued
liabilities............ 2,817,587 (1,372,465) (1,218,587) (689,582) (119,523)
Increase (decrease) in
marketable securities
sold short............. 1,432,639 (1,196,438) (271,702) 225,071 716,505
Increase (decrease) in
deferred credit........ 24,000 (12,000) (12,000) (3,000) --
Increase (decrease) in
due to clearing firm... (1,097,814) 6,607,952 (4,936,449) (1,842,409) (1,847,153)
Increase (decrease) in
preferred stock........ -- 285,960 (102,300) -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) operating
activities............. $ 909,566 $ 2,059,345 $ (189,284) $ 1,055,855 $ (134,380)
=========== =========== =========== =========== ===========
</TABLE>
F-16
<PAGE>
VAN KASPER & COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Non-cash transactions for the year ended June 30, 1998:
Redemption of preferred stock not requiring the use of cash--$105,000.
Secured demand note and related subordinated debt--$300,000.
NOTE Q--NET CAPITAL REQUIREMENTS
Van Kasper is subject to the Securities and Exchange Commission Uniform Net
Capital Rule (SEC rule 15c3-1), which requires the maintenance of minimum net
capital and requires that the ratio of aggregate indebtedness to net capital,
both as defined, shall not exceed 15 to 1. At June 30, 1998, Van Kasper had net
capital of $2,888,767, which was $2,384,423 in excess of its required net
capital of $504,344. Van Kasper's net capital ratio was 2.62 to 1.
VKA is not subject to the Securities and Exchange Commission's net capital
rule; however, it is subject to the net capital rule (Rule 260.237.1) of the
California Corporations Code and Corporate Securities Rule. At June 30, 1998,
the wholly-owned subsidiary was in compliance with the net capital rule.
F-17
<PAGE>
APPENDIX C
FAIRNESS OPINION OF BERKSHIRE CAPITAL CORPORATION
<PAGE>
Berkshire Capital Corporation
399 Park Avenue . 28th Floor . New York, New York 10022
Tel.: (212) 207-1000 . Fax: (212) 207-1019
September 22, 1998
Board of Directors
Van Kasper & Company
600 California Street, Suite 1700
San Francisco, California 94108
Members of the Board:
You have requested our opinion as to the fairness, from a financial
point of view, to the holders of the outstanding shares of common stock, no par
value, and preferred stock, Series A, no par value (collectively, the "Company
Capital Stock") of Van Kasper & Company (the "Company") of the consideration
to be received by such holders in the proposed merger (the "Merger") of the
Company with and into First Security Capital Markets, Inc. ("FSCMI"), a wholly
owned subsidiary of First Security Corporation ("First Security"), pursuant
to an agreement and plan of merger dated as of September 22, 1998 between the
Company, First Security and FSCMI (the "Merger Agreement").
Under the terms of the Merger Agreement, the Company Capital Stock will
be converted into the right to receive a certain number of shares of common
stock, par value $1.25, of First Security (the "First Security Common Stock")
equal to $90 million (the "Merger Consideration"), subject to adjustment in
certain circumstances pursuant to a certain formula set forth in the Merger
Agreement. Furthermore, the Merger Agreement provides that the holders of
Company Capital Stock will receive 75% of the Merger Consideration on the date
on which the transaction is completed (the "Closing Date"), 12.5% of the
Merger Consideration on the third anniversary of the Closing Date, and 12.5%
of the Merger Consideration on the fourth anniversary of the Closing Date,
with such shares of First Security Common Stock to be received on the third
and fourth anniversaries of the Closing Date referred to as the "Contingent
Shares". The terms and conditions of the Merger, including the amount of
revenues which must be achieved over certain specified time periods in order
for the Contingent Shares to be issued, are more fully set forth in the Merger
Agreement.
Berkshire Capital Corporation, as a customary part of its investment
banking business, is regularly engaged in the valuation of financial services
businesses and their securities in connection with mergers and acquisitions,
and valuations for estate, corporate and other purposes. We are familiar with
the Company, having acted as financial advisor to the Board of Directors of the
Company in connection with the transaction described above.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain audited financial statements, internal
financial statements and other financial and operating data
concerning the Company prepared by senior management of the
Company;
(ii) reviewed certain publicly available financial statements and
other information of First Security;
<PAGE>
Board of Directors
Van Kasper & Company
Page 2
(iii) reviewed certain other financial and operating data concerning
First Security prepared by senior management of First Security;
(iv) analyzed certain financial projections prepared by senior
management of the Company;
(v) discussed the past and current operations and financial
condition and the prospects of the Company and First Security
with members of senior management of the respective companies;
(vi) compared certain financial information for the Company and
First Security with similar information for certain other
companies the securities of which are publicly traded;
(vii) reviewed the reported prices and trading activity of the First
Security Common Stock;
(viii) compared the reported prices and trading activity of the First
Security Common Stock with similar information for the publicly
traded securities of certain other companies;
(ix) discussed the results of regulatory examinations of the Company
and First Security with members of senior management of the
respective companies;
(x) reviewed forecasts of the amount and timing of synergies
expected to result from the Merger furnished to us by senior
management of the Company and First Security;
(xi) discussed with members of senior management of the Company and
First Security the strategic objectives of the Merger and their
estimates of the synergies and other benefits of the Merger for
the combined company;
(xii) analyzed the pro forma impact of the Merger on the earnings per
share, book value per share and tangible book value per share
of First Security;
(xiii) reviewed the financial terms, to the extent publicly
available, of certain other mergers and acquisitions of
securities firms which we deemed to be relevant;
(xiv) participated in discussions among representatives of the
Company and First Security (and certain other parties) and
their financial and legal advisors;
(xv) reviewed the Merger Agreement and certain related documents;
and
(xvi) performed such other analyses and considered such other
information as we deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of all of the information reviewed by us for the
purposes of this opinion. In that regard, we have assumed that the information
relating to the prospects of the Company and First Security, including the
financial projections of the Company and the estimates synergies and other
benefits expected to result from the Merger, were reasonably prepared on a basis
reflecting the best currently available judgments and estimates of senior
management of the Company and First Security and that such financial
projections, synergies and benefits will be realized in that amounts and at the
times
<PAGE>
Board of Directors
Van Kasper & Company
Page 3
contemplated thereby. We have not examined any individual loan credit files of
First Security and we have assumed, without independent verification, that the
reserve for loan losses for First Security is in the aggregate adequate to
cover all such losses. We have not made, or been furnished with, any
independent valuation or appraisal of the assets or liabilities of the Company
or First Security and we have not conducted a physical inspection of the
properties or facilities of the Company or First Security. We have assumed
that the Merger will be consummated substantially in accordance with the terms
of the Merger Agreement and will be accounted for as a purchase accounting
transaction under generally accepted accounting practices. Our opinion is
necessarily based on market, economic and other conditions as they exist and
can be evaluated on, and on the information made available to us as of, the
date hereof.
As financial advisor to the Board of Directors of the Company in
connection with the transaction described above, we will receive a fee for our
services, a significant portion of which is contingent upon the consummation of
the Merger. In addition, the Company has agreed to indemnify us for certain
liabilities arising out of our engagement.
It is understood that this letter is for the information of the Board of
Directors of the Company in the context of considering the transaction and may
not be used for any other purpose without our prior written consent, except
that this opinion may be included in its entirety in any filing made by First
Security with the Securities and Exchange Commission with respect to the
Merger. In addition, we express no opinion and make no recommendation as to
how the holders of the Company Capital Stock should vote at the stockholders'
meeting held in connection with the Merger.
Based upon and subject to the foregoing, we are of the opinion that as
of the date hereof the Merger Consideration is fair, from a financial point of
view, to the holders of the Company Capital Stock.
Very truly yours,
BERKSHIRE CAPITAL CORPORATION
By: /s/ Caleb W. Burchenal
-----------------------
Caleb W. Burchenal
Managing Director
<PAGE>
APPENDIX D
FORM OF VAN KASPER WRITTEN CONSENT
<PAGE>
APPENDIX D
ACTION BY WRITTEN CONSENT
OF SHAREHOLDERS OF
VAN KASPER & COMPANY
The undersigned shareholder (the "Shareholder"), being the holder of shares
of Common Stock or Preferred Stock, Series A, of Van Kasper & Company, a
California corporation (the "Company"), does hereby adopt the following
resolutions by this written consent (the "Written Consent"), pursuant to Section
603 of the California Corporations Code and the By-laws of the Company:
WHEREAS, the Board of Directors of the Company has approved an Amended and
Restated Agreement and Plan of Merger (the "Merger Agreement"), dated as of
December 16, 1998, among the Company, First Security Corporation, a Delaware
corporation ("First Security"), First Security Capital Markets, Inc., a Utah
corporation, and Van Kasper Acquisition Corporation ("Acquisition Corp.")., a
Utah corporation and wholly-owned subsidiary of First Security, pursuant to
which Acquisition Corp. will merge with and into the Company, and pursuant to
which the Company will continue as the surviving company (the "Merger");
WHEREAS, the Shareholder has received and reviewed the Consent
Solicitation/Prospectus regarding the Merger and the Merger Agreement that has
been provided to the Shareholder concurrently with this form of Written Consent;
NOW, THEREFORE, BE IT RESOLVED, that the Shareholder hereby consents to the
approval and adoption of the Merger Agreement and the Merger;
FURTHER RESOLVED, that the officers of the Company, or any of them, are
hereby authorized and directed to take any and all actions and do any and all
things on behalf of the Company as may be deemed to be necessary or advisable to
effectuate the transactions contemplated by the foregoing resolution, including
filing reports or applications with any government agency as may be required by
any state or federal law; and
FURTHER RESOLVED, that any and all actions heretofore taken by the officers
of the Company within the terms of the foregoing resolutions are hereby
ratified, approved and confirmed, and declared to be the valid and binding acts
and deeds of the Company, and that the officers of the Company be and they
hereby are authorized, directed and empowered to do all such other acts and
things and to execute and deliver all such certificates or other documents and
to take such other action as they deem necessary or desirable to carry out the
purposes and intent of the above resolutions.
SHAREHOLDER: NUMBERS OF SHARES HELD:
________________________________ ______________________________________
(Signature) Shares of Common Stock
________________________________ ______________________________________
(Other Signature, if required) Shares of Preferred Stock, Series A
________________________________
(Please Print or Type Name)
________________________________
(Date)
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.
<PAGE>
APPENDIX E
CHAPTER 13 OF THE CALIFORNIA GENERAL CORPORATION LAW
<PAGE>
APPENDIX E
CGCL EXTRACTS CONCERNING DISSENTERS' RIGHTS OF VAN KASPER SHAREHOLDERS
CHAPTER 13
OF THE
CALIFORNIA GENERAL CORPORATION LAW
SECTION 1300. SHAREHOLDER IN SHORT-FORM MERGER; PURCHASE AT FAIR MARKET
VALUE; "DISSENTING SHARES"; "DISSENTING SHAREHOLDER"
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to
vote on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as
defined in subdivision (b). The fair market value shall be determined as of the
day before the first announcement of the terms of the proposed reorganization
or short-form merger, excluding any appreciation or depreciation in consequence
of the proposed action, but adjusted for any stock split, reverse stock split,
or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by
the Commissioner of Corporations under subdivision (o) of Section 25100 or
(B) listed on the list of OTC margin stocks issued by the Board of
Governors of the Federal Reserve System, and the notice of meeting of
shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for
payment are filed with respect to 5 percent or more of the outstanding
shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by written consent
rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder
of dissenting shares and includes a transferee of record.
SECTION 1301. NOTICE TO HOLDER OF DISSENTING SHARES OF REORGANIZATION
APPROVAL; DEMAND FOR PURCHASE OF SHARES; CONTENTS OF DEMAND
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to
1
<PAGE>
purchase their shares for cash, such corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its outstanding
shares (Section 152) within 10 days after the date of such approval,
accompanied by a copy of Sections 1300, 1302, 1303, 1304 and this section, a
statement of the price determined by the corporation to represent the fair
market value of the dissenting shares, and a brief description of the procedure
to be followed if the shareholder desires to exercise the shareholder's right
under such sections. The statement of price constitutes an offer by the
corporation to purchase at the price stated any dissenting shares as defined in
subdivision (b) of Section 1300, unless they lose their status as dissenting
shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance
with paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market
value constitutes an offer by the shareholder to sell the shares at such price.
SECTION 1302. STAMPING OR ENDORSING DISSENTING SHARES
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110
was mailed to the shareholder, the shareholder shall submit to the corporation
at its principal office or at the office of any transfer agent thereof, (a) if
the shares are certificated securities, the shareholder's certificates
representing any shares which the shareholder demands that the corporation
purchase, to be stamped or endorsed with a statement that the shares are
dissenting shares or to be exchanged for certificates of appropriate
denomination so stamped or endorsed or (b) if the shares are uncertificated
securities, written notice of the number of shares which the shareholder
demands that the corporation purchase. Upon subsequent transfers of the
dissenting shares on the books of the corporation, the new certificates,
initial transaction statement, and other written statements issued therefor
shall bear a like statement, together with the name of the original dissenting
holder of the shares.
SECTION 1303. DISSENTING SHAREHOLDER ENTITLED TO AGREED PRICE WITH INTEREST
THEREON; WHEN PRICE TO BE PAID
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the
fair market value of any dissenting shares as between the corporation and the
holders thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount
thereof has been agreed or within 30 days after any statutory or contractual
conditions to the reorganization are satisfied, whichever is later, and in the
case of certificated securities, subject to surrender of the certificates
therefor, unless provided otherwise by agreement.
2
<PAGE>
SECTION 1304. ACTION BY DISSENTERS TO DETERMINE WHETHER SHARES ARE
DISSENTING SHARES OR FAIR MARKET VALUE OF DISSENTING SHARES OR BOTH;
JOINDER OF SHAREHOLDERS; CONSOLIDATION OF ACTIONS; DETERMINATION OF ISSUES;
APPOINTMENT OF APPRAISERS
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SECTION 1305. DUTY AND REPORT OF APPRAISERS; COURT'S CONFIRMATION OF
REPORT; DETERMINATION OF FAIR MARKET VALUE BY COURT; JUDGMENT, AND PAYMENT;
APPEAL; COSTS OF ACTION
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed
by the court, the appraisers, or a majority of them, shall make and file a
report in the office of the clerk of the court. Thereupon, on the motion of any
party, the report shall be submitted to the court and considered on such
evidence as the court considers relevant. If the court finds the report
reasonable, the court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time
as may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which
any dissenting shareholder who is a party, or who has intervened, is entitled
to require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for
the shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision(a) of Section
1301).
SECTION 1306. PREVENTION OF PAYMENT TO HOLDERS OF DISSENTING SHARES OF FAIR
MARKET VALUE; EFFECT
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
3
<PAGE>
SECTION 1307. DISPOSITION OF DIVIDENDS UPON DISSENTING SHARES
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
SECTION 1308. RIGHTS AND PRIVILEGES OF DISSENTING SHARES; WITHDRAWAL OF
DEMAND FOR PAYMENT
1308. Except as expressly limited in this chapter, holders of dissenting
shares continue to have all the rights and privileges incident to their shares,
until the fair market value of their shares is agreed upon or determined. A
dissenting shareholder may not withdraw a demand for payment unless the
corporation consents thereto.
SECTION 1309. WHEN DISSENTING SHARES LOSE THEIR STATUS
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
SECTION 1310. SUSPENSION OF PROCEEDINGS FOR COMPENSATION OR VALUATION
PENDING LITIGATION
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing are organization, any proceedings
under Sections 1304 and 1305 shall be suspended until final determination of
such litigation.
SECTION 1311. SHARES TO WHICH CHAPTER INAPPLICABLE
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of are organization or merger.
SECTION 1312. ATTACK ON VALIDITY OF REORGANIZATION OR SHORT-FORM MERGER;
RIGHTS OF SHAREHOLDERS; BURDEN OF PROOF
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
4
<PAGE>
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-
form merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand
payment of cash for the shareholder's shares pursuant to this chapter. The
court in any action attacking the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded shall not restrain or enjoin the consummation of the transaction
except upon 10 days' prior notice to the corporation and upon a determination
by the court that clearly no other remedy will adequately protect the
complaining shareholder or the class of shareholders of which such shareholder
Is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
5
<PAGE>
APPENDIX F
FORM OF SHAREHOLDER VOTING AGREEMENT
<PAGE>
SHAREHOLDER VOTING AGREEMENT
This SHAREHOLDER VOTING AGREEMENT (this "Agreement"), dated as of September
22, 1998, is by and among First Security Corporation, a Delaware corporation
("FSC"), and each of the persons executing this Agreement as shareholders of Van
Kasper & Company, a California corporation (each such person being referred to
as the "Shareholder" and all such persons being referred to collectively as the
"Shareholders").
The Shareholders own outstanding shares of capital stock, no par value
("Shares") and/or stock options ("Options") of Van Kasper & Company (the
"Company"). Each Shareholder desires to induce (i) FSC and each other
Shareholder to enter into this Agreement and (ii) FSC to enter into an Agreement
and Plan of Merger (the "Merger Agreement") with the Company which provides for
the acquisition of the Company by FSC pursuant to the merger of the Company with
and into FSCMI, a wholly-owned subsidiary of FSC (the "Merger"), upon the terms
and subject to the conditions set forth in the Merger Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Sale of Shares.
--------------
1.1 Except as provided in Section 1.2 hereof, each Shareholder
severally agrees that such Shareholder will not, except with the prior written
consent of FSC, sell, transfer or otherwise dispose of, or enter into any
contract, option, or other arrangement or understanding with respect to the
sale, transfer or other disposition of, or grant a proxy to vote, any Shares or
Options now owned or hereafter acquired by such Shareholder, other than to or in
favor of FSC or an affiliate of FSC, or pursuant to or in favor of the Merger
Agreement.
1.2 Notwithstanding anything in Section 1.1 to the contrary, each
Shareholder may: (i) donate Shares to any bona fide tax-exempt charitable
organization; provided that such charitable organization shall first agree in
writing to be bound by all of the terms and subject to all of the conditions of
this Agreement, (ii) transfer Shares by gift to a member of such Shareholder's
family; provided that such family member shall first agree in writing to be
bound by all of the terms and subject to all of the conditions of this
Agreement, or (iii) transfer Shares from a shared right to the sole right of
that Shareholder.
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2. Voting.
------
Each Shareholder severally agrees to vote all of the Shares, including Shares
into which one or more Options have been converted, over which such Shareholder
has the power to vote in favor of adoption and approval of the Merger Agreement
and the transactions contemplated thereby, provided, however, that no
-------- -------
Shareholder shall be required to vote the Shares in a way that would frustrate
the ability of the Company to terminate the Merger Agreement in accordance with
the provisions of Section 9.1 thereof.
3. No Solicitation.
---------------
Each Shareholder will not solicit, initiate or encourage any "Acquisition
Proposal" (as defined below) or furnish any information to, or cooperate with,
any person, corporation, firm, or other entity with respect to an Acquisition
Proposal. As used herein, "Acquisition Proposal" means a proposal for a merger
or other business combination involving the Company or for the acquisition of a
substantial equity interest in, or a substantial portion of the assets of, the
Company, other than as provided under the Merger Agreement.
4. Limitation of Obligations; Termination.
--------------------------------------
Notwithstanding any term or condition of this Agreement, Shareholder shall not
be required to take any action which would, in the reasonable opinion of
Shareholder's legal counsel, violate the duties imposed by law on Shareholder.
The obligations of the parties under this Agreement shall terminate upon the
earliest of (i) the termination of the Merger Agreement, (ii) the mutual written
consent of the parties hereto, or (iii) the consummation of the Merger.
5. Representations and Warranties of the Shareholders.
--------------------------------------------------
Each Shareholder severally represents and warrants, subject to the provisions
of Section 1.2 and Section 4 hereof, that such Shareholder has the full right
and authority to enter into this Agreement and that this Agreement has been duly
and validly executed and delivered by such Shareholder and constitutes a valid
and binding obligation of such Shareholder enforceable against such Shareholder
in accordance with its terms. Each Shareholder further agrees to cause his/her
spouse, if any, to execute the spousal consent attached hereto.
6. Survival.
--------
All rights and authority granted herein by each Shareholder shall survive the
death or incapacity of such Shareholder. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
personal representatives, successors and assigns. FSC may, without the consent
of any (but with notice to each) of the Shareholders, assign its rights
hereunder only to any directly or indirectly wholly-owned subsidiary of FSC.
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7. Notices.
-------
Any notice required or permitted under this Agreement shall be given in
writing and shall be deemed effectively given upon personal delivery, confirmed
telex or facsimile transmission, or upon the third business day after deposit
with the United States Post Office, by registered or certified mail, postage
prepaid, addressed as follows:
To FSC:
------
First Security Corporation
79 South Main Street, Suite 200
Salt Lake City, Utah 84111
Attention: Brad D. Hardy, Esq.
Executive Vice President and General Counsel
Telecopy No.: (801) 359-6928
With a copy to:
--------------
Sylvia I. Iannucci, Esq.
Ray, Quinney & Nebeker
79 South Main Street, Suite 400
Salt Lake City, Utah 84145-0385
Telecopy No.: (801) 532-7543
To any Shareholder:
------------------
At the addresses set forth at the end of this Agreement.
With a copy to:
--------------
Van Kasper & Company
600 California Street, Suite 1200
San Francisco, California 94108-2704
Attn: John H. Chung, Esq.
Senior Vice President and General Counsel
Telecopy No.: (415) 954-0622
And a copy to:
-------------
Gregory C. Smith, Esq.
Skadden, Arps, Slate, Meagher & Flom, L.L.P.
Four Embarcadero Center, Suite 3800
San Francisco, California 94111
Telecopy No.: (415) 984-2698
3
<PAGE>
8. Several Obligations.
-------------------
All of the obligations of the Shareholders under this Agreement shall be
several and not joint and execution of this Agreement by each Shareholder shall
not be deemed to be evidence for any purpose that they are acting as a group or
in concert.
9. Execution and Counterparts.
--------------------------
This Agreement may be executed by facsimile and in one or more counterparts,
each of which shall be deemed an original and all of which together shall
constitute a single agreement. This Agreement shall be deemed fully executed
and binding when all of the parties hereto have executed this Agreement, at
which time this Agreement shall have the same force and effect as if all
signatures appeared on one and the same original.
10. Incorporation of Recitals.
-------------------------
All of the above recitals are and shall be considered and deemed to be
incorporated in and made an integral part of this Agreement.
IN WITNESS WHEREOF, FSC and each Shareholder have caused this Agreement to be
executed as of the date first above written.
FIRST SECURITY CORPORATION
By
---------------------------------------
Brad D. Hardy, Executive Vice President
ADDRESSES: THE SHAREHOLDERS
- -------------------------- ----------------------------------------
- -------------------------- (Signature)
- -------------------------- ----------------------------------------
(Printed or typed)
4
<PAGE>
- -------------------------- ----------------------------------------
- -------------------------- (Signature)
- -------------------------- ----------------------------------------
(Printed or typed)
- -------------------------- ----------------------------------------
- -------------------------- (Signature)
- -------------------------- ----------------------------------------
(Printed or typed)
- -------------------------- ----------------------------------------
- -------------------------- (Signature)
- -------------------------- ----------------------------------------
(Printed or typed)
- -------------------------- ----------------------------------------
- -------------------------- (Signature)
- -------------------------- ----------------------------------------
(Printed or typed)
- -------------------------- ----------------------------------------
- -------------------------- (Signature)
- -------------------------- ----------------------------------------
(Printed or typed)
5
<PAGE>
SPOUSAL CONSENT
I am the spouse of ______________________________, the Shareholder in
the above Agreement. I understand that I may consult independent legal counsel
as to the effect of this Agreement and the consequences of my execution of this
Agreement and, to the extent I felt it necessary, I have discussed it with legal
counsel. I hereby confirm the Agreement and agree that it shall bind my
interest in the Shares and/or Options, if any.
-------------------------------------------
(Shareholder's Spouse's Name)
SPOUSAL CONSENT
I am the spouse of ______________________________, the Shareholder in
the above Agreement. I understand that I may consult independent legal counsel
as to the effect of this Agreement and the consequences of my execution of this
Agreement and, to the extent I felt it necessary, I have discussed it with legal
counsel. I hereby confirm the Agreement and agree that it shall bind my
interest in the Shares and/or Options, if any.
-------------------------------------------
(Shareholder's Spouse's Name)
SPOUSAL CONSENT
I am the spouse of ______________________________, the Shareholder in
the above Agreement. I understand that I may consult independent legal counsel
as to the effect of this Agreement and the consequences of my execution of this
Agreement and, to the extent I felt it necessary, I have discussed it with legal
counsel. I hereby confirm the Agreement and agree that it shall bind my
interest in the Shares and/or Options, if any.
-------------------------------------------
(Shareholder's Spouse's Name)
6
<PAGE>
SPOUSAL CONSENT
I am the spouse of ______________________________, the Shareholder in
the above Agreement. I understand that I may consult independent legal counsel
as to the effect of this Agreement and the consequences of my execution of this
Agreement and, to the extent I felt it necessary, I have discussed it with legal
counsel. I hereby confirm the Agreement and agree that it shall bind my
interest in the Shares and/or Options, if any.
-------------------------------------------
(Shareholder's Spouse's Name)
SPOUSAL CONSENT
I am the spouse of ______________________________, the Shareholder in
the above Agreement. I understand that I may consult independent legal counsel
as to the effect of this Agreement and the consequences of my execution of this
Agreement and, to the extent I felt it necessary, I have discussed it with legal
counsel. I hereby confirm the Agreement and agree that it shall bind my
interest in the Shares and/or Options, if any.
-------------------------------------------
(Shareholder's Spouse's Name)
SPOUSAL CONSENT
I am the spouse of ______________________________, the Shareholder in
the above Agreement. I understand that I may consult independent legal counsel
as to the effect of this Agreement and the consequences of my execution of this
Agreement and, to the extent I felt it necessary, I have discussed it with legal
counsel. I hereby confirm the Agreement and agree that it shall bind my
interest in the Shares and/or Options, if any.
-------------------------------------------
(Shareholder's Spouse's Name)
7
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of Delaware contains detailed
provisions on indemnification of directors and officers of a Delaware
corporation against expenses, judgments, fines and amounts paid in settlement,
actually and reasonably incurred in connection with litigation.
The Certificate of Incorporation of First Security Corporation provides for
indemnification of directors and officers to the full extent permitted or
allowed by the laws of the State of Delaware, as such laws exist or may
hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the registrant to provide broader
indemnification rights than permitted or allowed by Section 145). The
registrant also insures its officers and directors to the full extent permitted
by Section 145.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The Registration Statement includes the following Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S> <C>
2(1). Amended and Restated Agreement and Plan of Reorganization
dated as of December 16, 1998, by and among First Security
Corporation, First Security Capital Markets, Inc., Van
Kasper Acquisition Corporation, and Van Kasper & Company,
Inc. excluding exhibits thereto (included as Appendix A to
the Prospectus/Information Statement).
2(2). Form of Shareholder Voting Agreement (included as Appendix
F to the Prospectus/
Information Statement).
3(1). Certificate of Incorporation, as amended (Exhibit 3.1 to
First Security's Registration Statement on Form S-4, Reg
#333-30045, filed July 24, 1990, incorporated by
reference).
3(2). Bylaws of First Security, as amended Jan. 26, 1998
(Exhibit 3.2 to First Security's Annual Report on Form 10-
K for the year ended Dec. 31, 1997, incorporated by
reference).
4(1). No instruments defining the rights of holders of long-term
debt of First Security and its subsidiaries have been
included as exhibits because the total amount of
indebtedness authorized under any such instrument does not
exceed 10% of the total assets of First Security and its
subsidiaries on a consolidated basis.
4(2). Rights Agreement between First Security and First Security
Bank, N.A., dated Aug. 28, 1990, which includes: Exhibit
A, the form of Rights Certificate and the form of Election
of Exercise; Exhibit B, the form of Certificate of
Designation of First Security's Junior Series B Preferred
Stock, no par value per share; and Exhibit C, the Summary
of Rights (Exhibit 4 to First Security's Current Report on
Form 8-K, dated Aug. 28, 1990, filed Sept. 1, 1990,
incorporated by reference) and as amended and extended in
1998 (see Exhibit 4 to First Security's Current Report of
Form 8-K, dated November 2, 1998, incorporated by
reference).
4(3). Amendment Agreement between First Security and First
Security Bank, N.A., dated Sept. 26, 1990, amending the
Rights Agreement between the same parties dated Aug. 28,
1990, (Exhibit 1 to First Security's Amendment #1 on Form
8-A, dated Oct. 10, 1990, filed Oct. 16, 1990, amending
First Security's Report on Form 8-K, dated Aug. 28, 1990,
filed Sept. 1, 1990, incorporated by reference).
4(4). Amendments to Rights Plan, filed in Registrant's Current
Report on Form 8-K dated November 11, 1998 (incorporated
by reference).
5. Opinion of Ray, Quinney & Nebeker as to the legality of
the shares being registered.
8(1)+. Opinion of Ray, Quinney & Nebeker re: Tax Matters.
8(2)+. Opinion of Skadden, Arps, Slate, Meagher & Flom LLP re:
Tax Matters.
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S> <C>
10(1). Amended and Restated First Security Comprehensive
Management Incentive Plan (Exhibit 10.1 to First
Security's Annual Report on Form 10-K for the year ended
Dec. 31, 1994, incorporated by reference).
10(2). Employment Agreement between First Security and Spencer F.
Eccles, dated Oct. 16, 1996 (Exhibit 10.3 to First
Security's Registration Statement on Form S-4, Reg #333-
21759, filed Feb. 13, 1997, incorporated by reference).
10(3). Employment Agreement between First Security and Morgan J.
Evans, dated Oct. 16, 1996 (Exhibit 10.4 to First
Security's Registration Statement on Form S-4, Reg #333-
21759, filed Feb. 13, 1997, incorporated by reference).
10(4). Employment Agreement between First Security and Michael P.
Caughlin, dated Oct. 16, 1996 (Exhibit 10.9 to First
Security's Registration Statement on Form S-4, Reg #333-
21759, filed Feb. 13, 1997, incorporated by reference).
10(5). Employment Agreement between First Security and Brad D.
Hardy, dated Oct. 16, 1996 (Exhibit 10.8 to First
Security's Registration Statement on Form S-4, Reg #333-
21759, filed Feb. 13, 1997, incorporated by reference).
10(6). Employment Agreement between First Security and Mark D.
Howell, dated Oct. 16, 1996 (Exhibit 10.10 to First
Security's Registration Statement on Form S-4, Reg #333-
21759, filed Feb. 13, 1997, incorporated by reference).
10(7). Employment Agreement between First Security and J. Patrick
McMurray, dated Oct. 16, 1996 (Exhibit 10.6 to First
Security's Registration Statement on Form S-4, Reg #333-
21759, filed Feb. 13, 1997, incorporated by reference).
10(8). Employment Agreement between First Security and L. Scott
Nelson, dated Oct. 16, 1996 (Exhibit 10.5 to First
Security's Registration Statement on Form S-4, Reg #333-
21759, filed Feb. 13, 1997, incorporated by reference).
10(9). Employment Agreement between First Security and Scott C.
Ulbrich, dated Oct. 16, 1996 (Exhibit 10.7 to First
Security's Registration Statement on Form S-4, Reg #333-
21759, filed Feb. 13, 1997, incorporated by reference).
10(10). The form of First Security's Deferred Compensation Plan
Deferral Election--01/01/95-12/31/95 (Exhibit 10.10 to
First Security's Annual Report on Form 10-K for the year
ended Dec. 31, 1994, incorporated by reference).
13(1). First Security's Annual Report on Form 10-K for the year
ended December 31, 1997 (as amended and restated to give
effect to the California State Bank acquisition, which was
accounted for as a pooling of interests, as set forth in
the Current Report on Form 8-K, dated October 1, 1998)
hereby incorporated by reference [File No. 1-6906].
21. FSC's Subsidiaries (Exhibit 21 to FSC's Annual Report on
Form 10-K for the year ended December 31, 1997 (as amended
and restated to give effect to the California State Bank
acquisition, which was accounted for as a pooling of
interests, as set forth in the Current Report on Form 8-K,
dated October 1, 1998), and incorporated by reference).
23(1). Consent of Deloitte & Touche LLP for FSC.
23(2). Consent of Wilson, McCall & Associates for Van Kasper.
23(3). Consent of Ray, Quinney & Nebeker (filed as part of
Exhibit 5 and Exhibit 8(1)).
24. Power of Attorney (included in signature pages of original
filing of Registration Statement).
99(1). Consent of Berkshire Capital Corporation.
99(2). Form of Van Kasper Shareholder Written Consent (Included
as Appendix D to the Prospectus/Information Statement).
</TABLE>
- --------------
+ To be filed by amendment
II-2
<PAGE>
ITEM 22. UNDERTAKINGS.
First Security hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, as amended (the "1933 Act"), each
filing of First Security's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934, as amended (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934, as amended), that is
incorporated by reference in the registration statement will be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time will be deemed to be the initial bona
fide offering thereof.
First Security hereby undertakes that, prior to any public reoffering of the
securities registered hereunder through use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition
to the information called for by the other items of the applicable form.
THE UNDERTAKING AS TO INDEMNIFICATION OF OFFICERS AND DIRECTORS REQUIRED TO
BE DISCLOSED BY ITEM 512(i) OF REGULATION S-K IS FOUND IN "COMPARATIVE RIGHTS
OF SHAREHOLDERS--DIRECTORS LIABILITY" IN THE PROSPECTUS/INFORMATION STATEMENT.
First Security hereby undertakes that every prospectus (i) that is filed
pursuant to the paragraph immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the 1933 Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective; and that, for purposes of determining any liability
under the 1933 Act, each such post-effective amendment will be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time will be deemed to be the initial bona
fide offering thereof.
First Security hereby undertakes to respond to requests for information that
is incorporated by reference into the prospectus pursuant to Items 10(b), 11 or
13 of this Form, within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to the
Effective Time of the registration statement through the date of responding to
the request.
First Security hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired, that was not the subject of and included in the registration
statement when it became effective.
First Security hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the Effective Time of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
II-3
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment will be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time will be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, FIRST SECURITY
CORPORATION HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN SALT LAKE CITY, UTAH,
ON THE 21ST DAY OF DECEMBER , 1998.
FIRST SECURITY CORPORATION
By: /s/ Morgan J. Evans
-----------------------------------
Morgan J. Evans
President and Chief Operating
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE OR DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Spencer F. Eccles Chairman and Chief Executive December 21, 1998
____________________________________ Officer, Director
Spencer F. Eccles
/s/ Morgan J. Evans President and Chief December 21, 1998
____________________________________ Operating Officer, Director
Morgan J. Evans
/s/ Brad D. Hardy Executive Vice President, December 21, 1998
____________________________________ General Counsel and Chief
Brad D. Hardy Financial Officer
(Principal Financial and
Accounting Officer)
/s/ James C. Beardall Director December 21, 1998
____________________________________
James C. Beardall
/s/ Rodney H. Brady Director December 21, 1998
____________________________________
Rodney H. Brady
/s/ James E. Bruce Director December 21, 1998
____________________________________
James E. Bruce
/s/ Thomas D. Dee II Director December 21, 1998
____________________________________
Thomas D. Dee II
/s/ Dr. David P. Gardner Director December 21, 1998
____________________________________
Dr. David P. Gardner
/s/ Robert H. Garff Director December 21, 1998
____________________________________
Robert H. Garff
/s/ Jay Dee Harris Director December 21, 1998
____________________________________
Jay Dee Harris
/s/ Robert T. Heiner Director December 21, 1998
____________________________________
Robert T. Heiner
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Karen H. Huntsman Director December 21, 1998
____________________________________
Karen H. Huntsman
/s/ G. Frank Joklik Director December 21, 1998
____________________________________
G. Frank Joklik
/s/ B. Z. Kastler Director December 21, 1998
____________________________________
B. Z. Kastler
/s/ Dr. J. Bernard Machen Director December 21, 1998
____________________________________
Dr. J. Bernard Machen
/s/ Joseph G. Maloof Director December 21, 1998
____________________________________
Joseph G. Maloof
/s/ Michele Papen-Daniel, Ph.D. Director December 21, 1998
____________________________________
Michele Papen-Daniel, Ph.D.
/s/ Scott S. Parker Director December 21, 1998
____________________________________
Scott S. Parker
/s/ James L. Sorenson Director December 21, 1998
____________________________________
James L. Sorenson
/s/ Harold J. Steele Director December 21, 998
____________________________________
Harold J. Steele
/s/ James R. Wilson Director December 21, 1998
____________________________________
James R. Wilson
</TABLE>
II-6
<PAGE>
EXHIBIT 5
OPINION OF RAY, QUINNEY & NEBEKER AS TO
THE LEGALITY OF THE SHARES BEING REGISTERED.
December , 1998
First Security Corporation Van Kasper & Company, Inc.
Attn: Morgan J. Evans, President Attn: F. Van Kasper, President
79 South Main Street 600 California Street, Suite 1200
Salt Lake City, Utah 84111 San Francisco, California 94108-8314
Re: Registration and Issuance of First Security Corporation Common
Stock to Shareholders of Van Kasper & Company, Inc.
Dear Messrs. Evans and Van Kasper:
This Firm has acted as counsel to First Security Corporation, a Delaware
corporation ("the Company"), in connection with its registration of
shares of its common stock, par value $1.25 ("the Shares") for use in the Merger
(as defined in the Prospectus/Information Statement included in the Company's
Registration Statement on Form S-4 as filed with the Securities and Exchange
Commission on December 18, 1998.)
In connection with this representation, we have examined the originals, or
copies identified to our satisfaction, of such minutes, agreements, corporate
records and filings and other documents necessary to our opinion contained in
this letter. We have also relied as to certain matters of fact upon
representations made to us by officers and agents of the Company and of Van
Kasper. Based upon and in reliance on the foregoing, it is our opinion that:
1. The Company has been duly incorporated and is validly existing and in
good standing as a corporation under the laws of the State of Delaware; and
has full corporate power and authority to own its properties and conduct
its business as described in the Prospectus/Information Statement referred
to above.
2. When issued and distributed to the Shareholders of Van Kasper & Company,
Inc. under the terms of the Merger Agreement, the Shares will be duly and
validly issued and will be fully paid and nonassessable.
<PAGE>
Morgan Evans
F. Van Kasper
December , 1998
Page 2
3. The shareholders of the Company have no pre-emptive rights to acquire
additional shares of First Security Common Stock in respect of the Shares.
We hereby consent to the use of our name in the Prospectus/Information
Statement and therein being disclosed as counsel to the Company in this matter.
Very truly yours,
RAY, QUINNEY & NEBEKER
By: /s/ A. R. Thorup
-----------------------------------
A. Robert Thorup, a Shareholder and
Director of the Firm
<PAGE>
EXHIBIT 23(1)
CONSENT OF DELOITTE & TOUCHE LLP
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
First Security Corporation on Form S-4 of our report dated February 20, 1998,
May 20, 1998 as to Note 20, which report expressed an unqualified opinion and
included explanatory language describing the restatement of the financial
statements to give effect to the California State Bank acquisition, which was
accounted for as a pooling of interests appearing in the Current Report on Form
8-K dated October 1, 1998 of First Security Corporation and to the reference to
us under the heading "Experts" in the Prospectus/Proxy Statement, which is part
of this Registration Statement.
DELOITTE & TOUCHE LLP
Salt Lake City, Utah
December 21, 1998
<PAGE>
EXHIBIT 23(2)
CONSENT OF WILSON, MCCALL & ASSOCIATES
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of our
report, dated August 21, 1998 relating to the consolidated financial
statements of Van Kasper & Company, Inc. and subsidiaries. We also consent to
the reference of our Firm under the caption "Experts" in the
Prospectus/Information Statement.
WILSON, MCCALL & ASSOCIATES
December 21, 1998
<PAGE>
EXHIBIT 99(1)
CONSENT OF BERKSHIRE CAPITAL
First Security Corporation
79 South Main Street
Salt Lake City, Utah 84111
Gentlemen:
We hereby consent to the inclusion of the Fairness Opinion of Berkshire
Capital Corporation in the Form S-4 Registration Statement of First Security
Corporation in connection with the acquisition of Van Kasper & Company, Inc.
We also consent to the references made in the such Form S-4 Registration
Statement to Berkshire Capital Corporation.
In giving such consent, we do not admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder, nor do we hereby admit that we are experts with respect
to any part of such Registration Statement within the meaning of the term
"experts" as used in the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
Sincerely,
December 21, 1998
/s/ Berkshire Capital Corporation
