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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1996
Commission File No. 0-20185
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BHC FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 23-2264646
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Commerce Square
2005 Market Street
Philadelphia, Pennsylvania 19103-3212
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 636-3000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
The number of shares of the Registrant's Common Stock, par value $.001 per
share, outstanding as of March 10, 1997 was 6,330,850. The aggregate market
value of voting stock held by nonaffiliates of the Registrant was $149,891,840
as of March 10, 1997.
Documents Incorporated by Reference
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None.
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PART I
Item 1. Business
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General
THE COMPANY
BHC Financial, Inc. (the "Company"), through its principal business unit,
BHC Securities, Inc. ("BHC"), is a leading national third-party provider of
integrated processing and support services to broker-dealers and financial
institutions ("Clients"). During 1996, BHC processed, on behalf of its Clients,
approximately 2.2 million transactions for over 1.1 million retail brokerage
accounts. To enable its Clients to outsource key securities processing
functions, BHC provides cost effective integrated trade execution, clearing,
margin lending, customer account processing and other customized programs,
reports and services ("Processing and Support Services").
BHC, which is headquartered in Philadelphia, Pennsylvania, was organized in
1983 primarily for the purpose of providing Processing and Support Services to
affiliates of the Company's founding stockholders, all of which were banks or
bank holding companies. Clients that have an employee or officer serving as a
director of the Company are considered related parties for financial reporting
purposes and in 1996 accounted for approximately 13% of the Company's total
revenue.
Through TradeStar Investments, Inc. ("TradeStar"), a regional brokerage
firm headquartered in Houston, Texas, the Company also offers retail brokerage
services at discount commission rates. TradeStar also markets BHC's Processing
and Support Services throughout the United States.
The Company also offers mutual funds, annuities and other life insurance
products as a third party marketer to banks and other financial institutions
through BHCM Inc. ("BHCM"), a licensed insurance agency and registered broker-
dealer headquartered in Houston, Texas. BHCM also acts as an extension of
TradeStar in marketing brokerage services to community banks. F.T. Agency, Inc.
("FT") and Tower Agency, Inc. ("Tower"), are licensed insurance agencies
organized to facilitate the sale of annuities and other life insurance products
offered to customers of Fifth Third Securities, Inc. and Provident Securities
and Investments, Inc., respectively. Fifth Third Securities, Inc. is an
affiliate of a stockholder of the Company.
BHC, TradeStar and BHCM are members of the National Association of
Securities Dealers, Inc. ("NASD"), Securities Investor Protection Corporation
("SIPC") and other regulatory and trade organizations. BHC is a member firm, and
has employees located on the trading floors of the New York Stock Exchange, Inc.
("NYSE") and the Philadelphia Stock Exchange, Inc. and is a member firm of the
American Stock Exchange, Inc. and the Chicago Stock Exchange, Inc. and is a
licensed broker-dealer in all 50 states of the United States, the District of
Columbia and the Commonwealth of Puerto Rico.
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The Company was incorporated as a Delaware corporation in 1983 and its
principal executive offices are located at One Commerce Square, 2005 Market
Street, Philadelphia, Pennsylvania 19103-3212. Its telephone number is
(215) 636-3000.
Unless the context otherwise requires, as used herein, the term the
"Company" includes BHC Financial, Inc. and its subsidiaries.
Nature of the Company's Businesses
The Company's businesses, by their nature, are subject to various risks,
including substantial fluctuations in volume levels of securities transactions
processed, losses from customer defaults, litigation and employee misconduct.
Processing and support service fees and commission revenues are directly
related to transaction volumes. In periods of low volume, profitability is
adversely affected because certain expenses consisting primarily of salaries,
computer hardware and software costs and occupancy expenses remain relatively
fixed. In 1996, such expenses were approximately $35,254,000, or approximately
52% of total expenses including interest expense. Variations in transaction
volume may cause the Company's operating results to fluctuate significantly on a
quarterly basis.
Except for margin debit balances carried by BHC on behalf of Tradestar,
which as of December 31, 1996 totaled $52,290,000, the risk of loss from
customer defaults is generally contractually allocated to the Client for which
BHC is acting pursuant to a Clearing Agreement between BHC and the Client (the
"Clearing Agreement"). There can be no assurance that in all instances BHC will
recover the full amount or any part of such loss. BHC would bear losses arising
out of customer defaults to the extent they could not be collected from the
Client and/or the customer. See Note 11 to the Company's Consolidated Financial
Statements.
BHC, TradeStar and BHCM, like all firms involved in the securities
business, are subject to litigation from time to time in connection with their
activities. See Item 3, Legal Proceedings.
Processing and Support Services
BHC provides a comprehensive range of Processing and Support Services that
support virtually all aspects of a bank or other financial institution's retail
brokerage operation. This "Single Source" solution is provided through an
on-line, real-time computerized brokerage system that integrates a sophisticated
order-matching and accounting system. This system enables BHC to execute and
clear a high volume of transactions and provide a number of ancillary account
administration services, including all transaction accounting, the extension and
maintenance of credit to the Client's customers and the daily administration and
processing of cash sweeps to money market funds and deposit accounts.
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Transaction Execution and Clearing. The execution process begins when the
Client accepts its customers' order for the purchase or sale of securities
and electronically transmits the order to BHC via BHC's computer network
for processing. BHC, in turn, routes the order to the appropriate market
for execution. Approximately 80% of all transactions executed by BHC are
processed automatically through sophisticated order-matching systems which
route the order to the appropriate markets for execution. The balance of
the transactions are executed by BHC personnel. In the execution of some
listed and over-the-counter transactions, BHC receives payment for the
order flow. See Item 3, Management's Discussion and Analysis of Financial
Condition and Results of Operations and Note 10 to the Company's
Consolidated Financial Statements. At the time of execution, a printed
confirmation containing the details of each transaction is automatically
generated and printed at the Client's location and the transaction is
recorded by BHC in the customer's account. This permits the Client to
report the impact of the transaction on the account to the customer
promptly after receipt of the order. Customer accounts are covered by SIPC
for up to $500,000 ($100,000 in cash) and are provided with additional
protection by a domestic insurance carrier of $24,500,000 per account.
BHC clears all of the transactions which it executes for its Clients, as
well as certain transactions which are executed by the Clients. A
transaction is cleared by taking possession of the customer's cash, if
securities are being purchased, or by taking possession of the
certificates, if any, if securities are being sold. BHC delivers the cash
or certificates to the broker for the counterparty to the transaction
generally through a clearing corporation. Cash or certificates received by
BHC for an account are either held in the account or delivered to the
customer. BHC maintains customer securities at several regulatory-approved
depositories.
Through BHC Trading Corp., a specialist unit of the Philadelphia Stock
Exchange, the Company acts as a market maker in approximately 51 exchange
listed companies.
Net Interest. BHC derives interest income primarily from customer margin
loans and securities lending activities.
Margin Loans. Transactions in securities are effected on either a cash
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or margin basis. In margin transactions, BHC extends credit for a
portion of the purchase price, which is collateralized by securities
and cash in the customer's account, and receives income from interest
charged on such extension of credit. The amount of the loan is subject
to the initial margin requirements included in Regulation T of the
Federal Reserve Board and the NYSE margin requirements. BHC's internal
policies generally call for stricter maintenance requirements than the
NYSE requirements. BHC is subject to the risk of a market decline that
could reduce the value of the collateral held in an account below the
customer's indebtedness before the collateral could be sold. Margin
agreements with account holders permit BHC to liquidate securities in
an account with or without prior notice in the event of an
insufficient amount of margin
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collateral. Despite these agreements, BHC may be unable to liquidate
an account holder's securities for various reasons, including the
illiquidity of pledged securities, an undue concentration of certain
securities pledged or a trading halt of pledged securities.
Interest is charged to customer accounts on the amount borrowed to
finance margin transactions at a rate determined by BHC. At December
31, 1996, margin receivables were approximately $461,501,000.
The primary source of funds to finance margin account balances has
been the free credit balances in customer accounts. As of December 31,
1996, customers' credit balances in accounts available to BHC were
approximately $318,300,000. BHC pays interest to certain accounts and
pays a fee to the introducing Clients on most of the funds at a rate
determined periodically by BHC which is below the broker call rate.
Stock Loan Activities. BHC's securities borrowing and lending
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activities involve (i) borrowing securities to cover short sales and
to complete transactions in which customers have failed to deliver
securities by the settlement date; (ii) lending securities to other
brokers and dealers for similar purposes; and (iii) borrowing a
security from one broker-dealer, at an agreed upon rate, and then
simultaneously lending it out to another broker-dealer at a lower
rate. When lending securities, BHC receives cash and generally pays a
rebate (based on the amount of cash deposited) to the counterparty to
the transaction. BHC uses the cash received as collateral for
securities it loans as a source of funding for margin debit balances.
BHC is either an agent or principal in these securities borrowing and
lending transactions and may become liable for losses in the event of
a failure of any other party to honor its contractual obligations.
BHC makes available a security lending service to financial
institutions which gives them the ability to participate in the
securities lending market. This service allows the financial
institution to enhance the yields of the portfolios they manage
without the expense of developing and maintaining an in-house program.
BHC receives a fee for these services based on the amount of
securities out on loan.
Complementary Products and Services
In addition to traditional Processing and Support Services, BHC actively
seeks to expand its array of complementary outsourcing services to new and
existing Clients. Complementary products include:
Processing for Bank and Capital Markets Departments. BHC offers a product
that delivers an integrated brokerage and accounting system to bank capital
market departments typically involved in trading U.S. Government and
municipal securities and bankers acceptances. This
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product enables bank capital markets departments to execute and account for
trades, while at the same time allowing BHC to clear and settle the
transactions and carry the accounts of the departments' customers.
Mutual Fund Processing. BHC makes available to its Clients over 4,000
mutual funds, which include approximately (i) 800 no load funds, 28 of
which are Clients' proprietary funds; (ii) 400 no transaction fee mutual
funds; and (iii) 3,200 load funds of which 247 are Clients' proprietary
funds. BHC's proprietary Mutual Fund Profile and Order Entry Systems
provide extensive marketing and operational support which aids the Clients'
efforts to market mutual funds. In addition, BHC's prospectus mailing
program allows Clients to outsource their prospectus mailing requirements
in connection with mutual fund sales.
Retirement Accounts. BHC makes available a variety of retirement plan
products including self-directed retirement plans ("SDIRA"), Keoghs, SEPs,
SIMPLE Individual Retirement Accounts and 401(k) plans. BHC's retirement
products are designed to integrate an individual's retirement account with
a brokerage account, with BHC providing all associated transaction
accounting, as well as all required tax reporting. BHC's retirement
products allow Clients affiliated with a bank to have the bank act as
trustee and allow Clients to select proprietary money market and mutual
funds and proprietary certificates of deposit as investment options.
Equity Dividend Reinvestment. BHC's equity dividend reinvestment program
allows customers to direct cash dividend payments of $10.00 or more to
purchase additional full and fractional shares of the same security.
Virtually all listed equity securities (common shares) are available. Full
and fractional shares are tracked by our system and displayed in the
customer's brokerage account on-line and are printed on the customer
statement.
BHC Broker's Advantage. BHC Broker's Advantage is a windows-based contact
management and sales system designed for full service brokers to sell and
service customers effectively and efficiently. With this product, a
registered representative can manage appointments, create customer
profiles, open accounts, print applications and submit orders all from a
laptop computer. This product also provides for the ability to manage the
administrative and compliance sides of the sales process more efficiently
and consistently. Approved product lists, marketing communications,
applications and other forms can be created and controlled through the
system's administrative functions.
BHC Broker's Vision. BHC Broker's Vision is a graphical user system that
was designed with the work force of a discount broker in mind. BHC Broker's
Vision displays multiple mainframe brokerage functions on one screen in a
Windows-based format.
Investor's Workbench. Developed by the Company's subsidiary, netVest, Inc.
("netVest"), Investor's Workbench is an on-line trading and portfolio
maintenance system designed for customer direct access using their personal
computers. An Internet version is also available.
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Through this product, customers have the ability to take a more active role
in their trading activities by (i) requesting quotes for stocks, mutual
funds and options on all exchanges; (ii) the placement of orders; and
(iii) the ability to obtain status reports for previously placed orders.
IMA Account. BHC offers an investment management account ("IMA") product
that allows checking privileges on brokerage accounts. The Client may use
its affiliated bank to clear the checks.
Customized Programming. BHC provides its Clients with customized software
programming thereby allowing them to offer a brokerage product that is
unique to their business niche.
Annuity Processing. BHC provides annuity clearing services which allows for
the annuity transaction to appear on a monthly customer statement thereby
enabling the customer to have one source of information for all of his or
her investments.
In addition to these complementary products, the Company also provides
network technology through netVest. netVest provides low cost quote services to
Clients, including PC and telephone inquiry and trading. netVest currently
markets brokerage order entry capability through personal computers and other
brokerage product applications suitable for delivery on the Internet.
Retail Brokerage Business
The Company provides retail brokerage services at discount commission rates
through TradeStar. The TradeStar customer base is a large diversified group that
reaches throughout the United States. In addition, TradeStar provided discount
brokerage services for correspondent banks. See Item 1. Business - The Company -
Third Party Marketing Activities.
All securities transactions for TradeStar's accounts are cleared through
BHC. In 1996, TradeStar's customers accounted for approximately 147,000 trades,
or 7%, of BHC's total transaction volume and approximately 13% of the Company's
total operating income. At December 31, 1996, TradeStar had approximately 51,000
accounts carried by BHC of which 846 were margin accounts with debit balances
totaling approximately $52,290,000.
The products and services offered by TradeStar include such mainstream
investment vehicles as stocks, options, bonds, tax-free investments, mutual
funds, annuities and retirement accounts. TradeStar also offers money market
funds with automatic daily sweeping and check writing privileges. The TradeStar
Express account provides deep discount commission rates, low margin rates and
no-fee SDIRA products for the active investor. In 1996, this service accounted
for approximately 43,561 trades or 29% of the total transactions for TradeStar.
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Third Party Marketing Activities
The Company, through BHCM, provides third party marketing activities
primarily to banks and other financial institutions. Organized as a Delaware
corporation in 1993, BHCM obtained NASD membership in 1994 and is authorized to
engage in a general securities business. In providing third party marketing
services, BHCM carries securities registrations and insurance licenses and
maintains regulatory supervision over the activities of a sales staff whose sole
purpose is to sell or otherwise market mutual fund and insurance products on
behalf of and for the benefit of the financial institution.
TradeStar's direct bank access program, known as Investor Services, which
makes marketing materials and statement inserts available to banks and other
financial institutions to promote BHC's services is now marketed by BHCM. All
customers introduced to BHCM in this way become accounts carried by BHC. On
behalf of BHCM, TradeStar provides administrative and support services as
requested under a Management Agreement with BHCM dated as of December 30, 1996.
As of December 31, 1996, TradeStar Investor Services provided its third party
services to 112 banks and financial institutions.
Dependence on Key Clients
While BHC serves a diversified client base, three Clients, Citicorp
Investment Services, Inc. ("CIS"), USAA Investment Management Company ("USAA")
and PNC Capital Markets ("PNC"), accounted for 14%, 10% and 10%, respectively,
of the Company's total revenues in 1996. For the years ended December 31, 1995
and 1994, revenues generated from CIS and PNC exceeded 10% of total revenues.
Revenues from CIS and PNC were 13% and 11%, respectively, for 1995 and 14% and
11%, respectively, for 1994.
The Company has entered into a written agreement with CIS to continue its
clearing relationship with BHC through June 30, 1998.
Norwest Investment Services, Inc. ("NISI"), which accounted for 7% of the
Company's total revenues in 1996, has given notice of its intention to
internalize its securities processing services as reported in the second quarter
of 1995. NISI has deferred its internalization until the third quarter of 1997.
This deferral is the most recent in a series of decisions by NISI to continue,
for at least a short period of time, their relationship with BHC.
On October 16, 1996, USAA Brokerage Services ("USAA") advised BHC in
writing that it intended to internalize its brokerage operations in the latter
half of 1997. No specific date has been given to BHC by USAA as to its intended
date for internalization, but it is anticipated that this will occur during the
fourth quarter of 1997. See Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
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Clearing Agreements with BHC's Clients are generally terminable without a
substantial penalty upon between 60 days and six months prior notice, however,
several of BHC's Clients have entered into long term contracts. Clearing
Agreements with a majority of BHC's Clients have been in effect for more than
eleven (11) years.
Competition and Risk
The Company's Processing and Support Services, retail brokerage and third
party marketing activities operate in highly competitive markets. Some of the
Company's competitors have greater capital and more resources available to them
than the Company.
BHC encounters intense competition in providing Processing and Support
Services from several highly visible, major securities firms. In many instances,
BHC competes with such firms for the same Clients and market share. BHC believes
that the main competitive factors are price, quality of service, convenience,
product availability and the technology platforms upon which BHC's system and
services are based. While some clearing brokers may charge lower fees for
certain transactions, BHC believes that it competes favorably with such firms.
Like all firms involved in the provision of both securities clearing and
third party marketing services, BHC and BHCM are subject to the risk that a bank
or financial institution (i) may change its marketing approach by internalizing
its activities; or (ii) may seek the services of another clearing firm or third
party marketer whether or not as a result of the recent proliferation of bank
consolidations.
Employees
At December 31, 1996, the Company had 471 full-time employees, none of whom
was represented by a union. The Company believes that its relations with its
employees are good.
Subsequent Event - Merger of the Company
On March 2, 1997, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Fiserv, Inc. ("Fiserv") and its wholly owned
subsidiary, Fiserv Delaware Sub, Inc. ("Fiserv Sub"). Pursuant to the Merger
Agreement, Fiserv Sub will be merged into the Company, and the Company will be
the Surviving Corporation and will become a wholly owned subsidiary of Fiserv
(the "Merger"). At the effective time of the Merger (the "Effective Time"), the
Company will change its name to "Fiserv Clearing, Inc." It is presently
contemplated that the Effective Time will be May 30, 1997 or shortly thereafter.
Fiserv, headquartered in Brookfield, Wisconsin, is an independent provider of
financial data processing systems and related information management services
and products to more than 5,000 banks, credit unions, mortgage firms and savings
institutions worldwide. The common stock of Fiserv is traded on The Nasdaq
National Market tier of the Nasdaq Stock Market(/SM/) under the symbol "FISV."
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Pursuant to the Merger Agreement, each outstanding share of the Company's
Common Stock will be converted into the right to receive such number of shares
of Fiserv Common Stock as shall equal the Conversion Ratio, which is defined as
the quotient of (x) $33.50 divided by (y) an amount equal to the average closing
price of Fiserv Common Stock as reported in The Wall Street Journal for the 20
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trading days ending on the second trading day prior to the Effective Time.
The merger has been approved by the Boards of Directors of both the Company
and Fiserv and is subject to approval by the Company's stockholders as well as
receipt of all required regulatory and other approvals. The obligations of
Fiserv and the Company to consummate the merger are subject to the satisfaction
or waiver (to the extent waivable) of certain conditions set forth in the Merger
Agreement. In the event that Fiserv reasonably determines that the Merger would
be accounted for as a pooling of interests in accordance with generally accepted
accounting principles, then, subject to the other terms and conditions of the
Merger Agreement, the Merger will be consummated. In the event that Fiserv
reasonably determines, that the Merger cannot be accounted for as a pooling of
interests, then, subject to the other terms and conditions of the Merger
Agreement, the Merger will be consummated and will be accounted for as a
purchase, providing that the Merger consideration will be adjusted by modifying
the definition of Conversion Ratio such that $33.50 is replaced with $31.50.
It is anticipated that the merger will be accounted for as a pooling of
interests under Accounting Principles Board Opinion No. 16. Because of the
recent purchases by the Company of its Common Stock, the Company may be
required, among other things, to sell approximately 200,000 shares of its Common
Stock (either through the exercise of outstanding stock options or by a stock
offering to unrelated parties) prior to the Effective Time in order for the
Merger to be accounted for as a pooling of interests. As part of the Merger
Agreement, the Company has agreed to issue and sell such shares after the date
of the special meeting of the stockholders to approve the Merger Agreement, and
prior to the consummation of the Merger, to the extent necessary to satisfy such
condition.
Item 2. Properties
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The Company and BHC occupy office space of approximately 68,150 square feet
at One Commerce Square, 2005 Market Street, Philadelphia, PA 19103-3212 under a
lease with an initial term that expires in September, 2003, with the right to
extend the term for two additional five-year periods. BHCM, TradeStar and its
branch offices occupy office space aggregating approximately 28,150 square feet,
all of which is leased under leases having various terms through 2002.
Item 3. Legal Proceedings
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On January 21, 1994, BHC received notice that a purported holder of a
brokerage account with a BHC client filed a complaint in the Supreme Court of
the State of New York which alleges that BHC received, in violation of New York
statutory and common law, cash payments from market makers in certain securities
(referred to as payment for order flow) in return for BHC's executing customer
orders with such market makers. In the complaint, the plaintiff seeks injunctive
relief and
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damages, a return of cash payments for order flow, in addition to clearing and
execution fees earned by BHC from January 1, 1990, certification of this matter
as a class action, punitive damages, costs and attorneys' fees in an unspecified
amount. Payment for order flow is common practice within the securities
industry. BHC removed this matter to the United States District Court for the
Southern District of New York, and the federal court, on December 18, 1995,
dismissed the complaint for failure to state a claim upon which relief can be
granted. The plaintiff appealed the dismissal and on January 17, 1997 the United
States Court of Appeals for the Second Circuit vacated the final judgment of the
lower court and remanded with instructions to remand the action to state court.
In the opinion of management, the ultimate liability, if any, resulting
from this matter will have no material effect on the Company's consolidated
financial position. The materiality of this matter on the Company's future
operating results depends on the level of future results of operations, as well
as on the timing and amount of the ultimate outcome.
Item 4. Submission of Matters to a Vote of Security Holders
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Not applicable.
Executive Officers of BHC Financial, Inc.
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All executive officers of BHC Financial, Inc. are elected to serve at the
discretion of the Board of Directors. Certain information about BHC Financial,
Inc.'s executive officers, including age, position and business experience
during the past five years follows:
William T. Spane, Jr., 60, has served as a director and Chairman of the Board of
Directors of the Company since March, 1991. He has served as President of the
Company and BHC Securities, Inc. ("BHC") since their inception in 1983 and as
Chief Executive Officer of both entities since 1987. Mr. Spane is also a
director of the Philadelphia Stock Exchange, Comprehensive Software Systems,
Inc. and an allied member of the New York Stock Exchange.
Lawrence E. Donato, 48, has been a director of the Company and BHC since April,
1993. He has served as Chief Financial Officer and Treasurer of the Company
since its inception in 1983 and has served as Executive Vice President and Chief
Operating Officer of BHC since 1993. Mr. Donato presently serves as a member of
the Audit Committee for both The Philadelphia Depository Trust Company and The
Stock Clearing Corporation of Philadelphia and is an allied member of the New
York Stock Exchange and an associate member of the American Stock Exchange.
Robert B. Kaplan, 39, has served as Vice President of BHC since February, 1988
and as Chief Legal and Compliance Officer of BHC since June, 1984. Mr. Kaplan
was elected Secretary of BHC in October, 1985 and Secretary of the Company in
September, 1991. He is also an allied member of the New York Stock Exchange.
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Richard M. Bare, 38, has served as Vice President and Chief Financial Officer of
BHC since January, 1993 and Controller of the Company since May, 1995. Mr. Bare,
who serves as an allied member of the New York Stock Exchange, joined BHC in
1992 as Assistant Vice President and Controller. Prior to his affiliation with
BHC, Mr. Bare served as a manager with the public accounting firm of Coopers &
Lybrand, L.L.P.
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PART II
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Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
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The quarterly price and cash dividend information on the Company's Common
Stock and certain quarterly financial data is set forth below:
Quarterly Financial Data
(In thousands, except per share data amounts)
<TABLE>
<CAPTION>
1996 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
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<S> <C> <C> <C> <C>
Net revenues $20,349 $21,052 $18,747 $21,033
Expenses, excluding interest 12,121 12,673 12,601 13,873
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Earnings before taxes 8,228 8,379 6,146 7,160
Income taxes 3,256 3,389 2,406 2,838
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Net income $ 4,972 $ 4,990 $ 3,740 $ 4,322
======= ======= ======= =======
Per common share:
Weighted average shares
outstanding- 7,104 6,679 6,534 6,435
Earnings $ .70 $ .75 $ .57 $ .67
Dividends declared $ .03 $ .03 $ .03 $ .03
Stock range:
High $ 18.63 $ 14.75 $ 15.13 $ 16.75
Low $ 12.88 $ 12.50 $ 13.00 $ 13.00
1995
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Net revenues $14,823 $16,272 $17,108 $17,521
Expenses, excluding interest 10,149 10,705 11,219 11,266
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Earnings before taxes 4,674 5,567 5,889 6,255
Income taxes 1,772 2,096 2,160 2,420
------- ------- ------- -------
Net income $ 2,902 $ 3,471 $ 3,729 $ 3,835
======= ======= ======= =======
Per common share:
Weighted average shares
outstanding- 7,244 7,207 7,163 7,159
Earnings $ .40 $ .48 $ .52 $ .54
Dividends declared $ .03 $ .03 $ .03 $ .03
Stock range:
High $ 14.25 $ 16.38 $ 20.13 $ 19.50
Low $ 9.06 $ 14.13 $ 15.50 $ 16.25
</TABLE>
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Subject to the terms and conditions of the Merger Agreement, the Company,
from the date of the Merger Agreement through the date and time when the Merger
shall become effective, is prohibited from purchasing any of its capital stock
from any stockholder or paying or declaring any dividends or other distribution
in respect of the Company's capital stock, except for cash dividends equal to
$.03 per outstanding share per quarter. The Company's Board of Directors
rescinded the previously approved stock purchase program. The payment of this
$.03 per outstanding share cash dividend will depend upon the Company's
earnings, financial condition, net capital requirements, cash flow, long range
plans and such other factors as the Board of Directors of the Company may deem
relevant. Moreover, the payment of this cash dividend is restricted by the rules
of the U.S. Securities and Exchange Commission, the NYSE, the NASD and various
state securities laws administrators. These restrictions could limit the ability
of the Company to pay cash dividends in the future. See Item 1. Subsequent
Event - Merger of the Company; and Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources.
The number of stockholders of record was 1,380 on December 31, 1996.
13
<PAGE>
Item 6. Selected Financial Data
-----------------------
The Company's Selected Financial Data is set forth below:
Selected Financial Data
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31,
----------------------
Operating Results 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $ 97,817 $ 81,354 $ 67,376 $ 60,428 $ 51,031
Net revenues $ 81,181 $ 65,724 $ 55,458 $ 52,133 $ 43,355
Income before taxes $ 29,913 $ 22,385 $ 16,753 $ 17,655 $ 13,306
Net income $ 18,024 $ 13,937 $ 10,624 $ 11,012 $ 8,628
Earnings per share:
Primary $ 2.69 $ 1.94 $ 1.40 $ 1.84 $ 2.29
Fully diluted $ 2.69 $ 1.94 $ 1.40 $ 1.60 $ 1.63
Weighted average shares
outstanding:
Primary 6,688 7,193 7,581 5,978 3,778
Fully diluted 6,688 7,193 7,581 7,046 5,563
Cash dividends declared
per common share $ .12 $ .12 $ .08 $ .04 -
Financial Condition
Total assets $ 785,299 $ 634,002 $ 551,921 $ 490,194 $ 393,572
Long-term debt - - $ 583 $ 2,207 $ 19,211
Stockholders' equity $ 93,467 $ 85,308 $ 75,101 $ 68,525 $ 26,639
Stockholders' equity
per common share $ 14.76 $ 12.19 $ 10.43 $ 9.04 $ 6.62(1)
</TABLE>
(1) Assumes conversion of the then outstanding 8% Convertible Debentures due
February 27, 1997 into Common Stock at December 31, 1992.
14
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
General
The Company's principal source of revenue is derived from providing
processing and support services to securities brokerage affiliates of banks,
other financial institutions and broker-dealers. Net revenues principally
include processing and support fees, margin interest, commissions and other
miscellaneous fees which are ancillary to customer securities transactions, less
interest expense.
The major non-interest expenses incurred by the Company relate to
employees' compensation and benefits and other direct costs of processing and
support services, such as floor brokerage and clearing charges, occupancy and
equipment costs and other operating expenses.
Although the Company's business cannot be characterized as seasonal, retail
brokerage activity is typically, but not always, slower in the summer months of
June, July and August. Reduced transaction volume generally results in reduced
levels of processing and support service fees and commission revenues.
Variations in transaction volume may cause the Company's operating results to
fluctuate significantly on a quarter-to-quarter basis.
During 1996 and 1995, business conditions related to the provision of
processing and support services to the securities brokerage affiliates of banks
and other financial institutions were favorably impacted by stable short term
interest rates which helped increase the activity in both the equity and mutual
fund markets.
The financial services industry is currently undergoing increased
consolidation. If any of the banks or other financial institutions processing
brokerage transactions through BHC Securities, Inc. ("BHC") were to consolidate,
such consolidation might result in an increase, decrease or no change in the use
of BHC's processing and support services depending on whether and the extent to
which the surviving consolidated entity continues its relationship with BHC.
From time to time, BHC's Clients may also review the possibility of
internalizing their securities brokerage processing functions.
BHC attempts to mitigate the risk of loss by entering into longer term
contracts with larger Clients, providing superior products and services at "cost
effective" prices and developing software and systems for Clients that meet
their specific needs. BHC markets to prospective Clients on a continuing basis
and added ten new Clients in 1996. BHC lost three clients in 1996.
While BHC recently expanded its marketing plan to target broker-dealers and
investment advisors not affiliated with financial institutions, it continues to
market to large financial institutions and a significant portion of its revenues
are dependent on approximately fifteen large financial institutions. (See also
Note 10 to the Consolidated Financial Statements.) As previously disclosed in
prior filings with the Securities and Exchange Commission, three Clients of BHC
have notified BHC of their intentions to internalize their securities processing
brokerage function. These Clients
15
<PAGE>
accounted for 31% of BHC's 1996 total revenues. It is anticipated that NISI will
terminate its clearing agreement with BHC in the third quarter of 1997, USAA in
the fourth quarter of 1997 and CIS at the end of the second quarter of 1998.
While these events will have an adverse financial impact on the Company, the
amount can not be quantified in advance due to the variable nature of the
securities processing business. BHC will continue to intensify its effort to
broaden its client base and markets and to diversify its security processing
business. It is anticipated that over time, the loss of these clients will be
replaced by new clients and the growth of existing clients. See Item 1. The
Company - Dependence on Key Clients.
Subsequent Event - Merger of the Company
On March 2, 1997, the Company entered into a Merger Agreement with Fiserv,
and its wholly owned subsidiary, Fiserv Sub. Pursuant to the Merger Agreement,
Fiserv Sub will be merged into the Company, and the Company will be the
Surviving Corporation in the Merger and will become a wholly owned subsidiary of
Fiserv. At the Effective Time, the Company will change its name to "Fiserv
Clearing, Inc." It is presently contemplated that the Effective Time will be May
30, 1997 or shortly thereafter. Fiserv, headquartered in Brookfield, Wisconsin,
is an independent provider of financial data processing systems and related
information management services and products to more than 5,000 banks, credit
unions, mortgage firms and savings institutions worldwide. The common stock of
Fiserv is traded on The Nasdaq National Market tier of the Nasdaq Stock MarketSM
under the symbol "FISV."
Pursuant to the Merger Agreement, each outstanding share of the Company's
Common Stock will be converted into the right to receive such number of shares
of Fiserv Common Stock as shall equal the Conversion Ratio, which is defined as
the quotient of (x) $33.50 divided by (y) an amount equal to the average closing
price of Fiserv Common Stock as reported in The Wall Street Journal for the 20
-----------------------
trading days ending on the second trading day prior to the Effective Time.
The Merger has been approved by the Boards of Directors of both the Company
and Fiserv and is subject to approval by the Company's stockholders as well as
receipt of all required regulatory and other approvals. The obligations of
Fiserv and the Company to consummate the Merger are subject to the satisfaction
or waiver (to the extent waivable) of certain conditions set forth in the Merger
Agreement. In the event that Fiserv reasonably determines that the Merger would
be accounted for as a pooling of interests in accordance with generally accepted
accounting principles, then, subject to the others terms and conditions of the
Merger Agreement, the Merger will be consummated. In the event that Fiserv
reasonably determines that the Merger cannot be accounted for as a pooling of
interests, then, subject to the other terms and conditions of the Merger
Agreement, the merger will be consummated and will be accounted for as a
purchase, providing that the merger consideration will be adjusted by modifying
the definition of Conversion Ratio such that $33.50 is replaced with $31.50.
16
<PAGE>
It is anticipated that the Merger will be accounted for as a pooling of
interests under Accounting Principles Board Opinion No. 16. Because of the
recent purchases by the Company of its Common Stock, the Company may be
required, among other things, to sell approximately 200,000 shares of its Common
Stock (either through the exercise of stock options or by a stock offering to
unrelated parties) prior to the Effective Time in order for the Merger to be
accounted for as a pooling of interests. As part of the Merger Agreement, the
Company has agreed to issue and sell such shares after the date of the special
meeting of the stockholders to approve the Merger Agreement, and prior to the
consummation of the Merger, to the extent necessary to satisfy such condition.
Important Factors Regarding Forward Looking Statements
Statements regarding the Company's expectations as to its future operations
and financial condition and certain other information presented in this Annual
Report constitute forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Although the Company believes that its
expectations are based on reasonable assumptions within the bounds of its
knowledge of its business and operations, there can be no assurance that actual
results will not differ materially from its expectations. Factors which could
cause actual results to differ from expectations include a general downturn in
the economy or the stock markets and the related transaction activity,
substantial changes in interest rates, the gain or loss of significant
customers, unforeseen new competition, changes in government policy or
regulation and unforeseen costs and other effects related to legal proceedings.
Results of Operations
The Company's revenues are directly affected by the income derived from its
processing and support services. Such revenues are affected by both the
transaction volume of accounts and the level of, and interest rate charged on,
customer margin debit balances. The information in the table below should be
considered when reading the discussion and analysis of operating results that
follow the table.
<TABLE>
<CAPTION>
Percentage Change
For the Year Ended
December 31,
------------
1996 1995
Year Ended December 31, Compared Compared
1996 1995 1994 to 1995 to 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total transactions (in thousands) 2,239 1,665 1,383 34% 20%
Daily average transactions processed 8,813 6,606 5,487 33% 20%
Number of active accounts at end
of period (in thousands)(1) 1,125 1,075 916 5% 17%
Average margin debit balances
(in millions) $ 379 $ 322 $ 316 18% 2%
Average broker call rate 7.03% 7.58% 5.94%
</TABLE>
(1) Active accounts are generally those that have positions or have had
brokerage processing activity during the previous 18 months.
17
<PAGE>
1996 Compared with 1995
Net revenues for the year ended December 31, 1996 reached $81.2 million
which was $15.5 million, or 24%, greater than the $65.7 million generated for
the year ended December 31, 1995. The increases were the result of increases in
processing and support service fees, net interest income, commissions and other
income.
Processing and support service fees increased to $50.6 million for 1996
from $42.5 million in 1995, a 19% increase. The increase was due to increased
transaction volume of 34% for the period. The financial results of 1996 reflect
the loss of three Clients during the year which was offset by transactions from
new clients signed late in 1995 and throughout 1996. The average revenue per
ticket declined by $2.94, or 12%, in 1996 when compared to 1995. Generally in
periods where daily transaction volumes are increasing, revenue will increase,
while processing and support service revenue per ticket will decline. This is
due to BHC's volume discount program which rewards Clients for high transaction
volumes by reducing the charge per transaction when various volume levels are
achieved. In addition, the Company faces pressure on profit margins as Clients
become larger due to the threat of Clients internalizing their brokerage
processing and support functions and due to general pricing pressure from
increased market competition.
Net interest income (margin interest income and other interest income less
interest expense) increased to $16.6 million in 1996 from $13.7 million in 1995,
a 21% increase. The increase was due to increases in margin and other interest
bearing assets. For 1996 margin interest increased to $28.3 million from $25.6
million in 1995, an 11% increase. Average margin balances outstanding increased
$57 million, or 18%, for 1996 when compared to the same 1995 period. Offsetting
these increases were decreases in the average broker call rate of 55 basis
points for 1996 when compared to the 1995 period. Other interest income
increased to $4.9 million in 1996 from $3.8 million in 1995, a 31% increase, due
to an increase in securities borrowed and other interest bearing assets. A
decrease in the average Federal Funds rate of approximately 50 basis points for
1996 when compared to the same periods last year, led to a decrease in the
Company's rate for borrowing. The decline in rates was offset by the increased
funding needed for the growth in interest bearing assets, resulting in a slight
increase in interest expense.
Commissions on retail sales from TradeStar increased to $9.2 million in
1996 from $6.6 million in 1995, an increase of 40%. This was the result of
transaction volume which was up 37% in 1996 when compared to 1995. Customer
accounts purchased in the third quarter of 1995 represented 70% of the increase
and the remainder of the increase was due to growth in retail activity.
In 1996, other income increased to $4.8 million from $2.9 million in 1995,
a 64% increase. The increases were primarily due to increased quote service fees
from netVest and Banquote and income from investments.
Expenses, excluding interest, increased by 18% in 1996 compared to the same
period in 1995. The increases were primarily related to increases in employees'
compensation and benefits,
18
<PAGE>
communication costs, occupancy and equipment, and other expenses.
Employees' compensation and benefits increased to $23.4 million in 1996
from $20.4 million in 1995, a 15% increase. The increase was primarily due to
the effect of the staff additions related to the acquisition by the Company of
netVest and the acquisition by TradeStar of PNC Securities Corp's Trade$aver, a
discount broker service for correspondent banks and individuals in the third
quarter of 1995, and normal and recurring salary adjustments. Average full time
equivalents increased by 8% in 1996 when compared to 1995, and recurring salary
adjustments increased an average of 4% from 1996 to 1995.
The increase in floor brokerage and clearing expense of $337,000, or 6%,
was a direct result of the increase in transactions processed. Floor brokerage
and clearing represents 12% and 14%, respectively, of processing and support
fees for 1996 and 1995, respectively.
Occupancy and equipment costs increased to $6.8 million in 1996 from $6.0
million in 1995, a 14% increase. This was due in part to increased variable
costs related to the increase in mutual fund processing and increased rent as a
result of the business units acquired in the third quarter of 1995.
Communications expenses increased to $3.8 million in 1996 from $2.8 million
in 1995, a 33% increase. The increase was due in part to the costs associated
with the PC and telephone inquiry, trading and quote services offered through
netVest, which was acquired early in the third quarter of 1995, and increased
costs associated with the Banquote product.
Other operating expenses increased to $11.2 million in 1996 from $8.4
million in 1995, a 33% increase. The primary reason for the increases are
related to systems development initiatives for order entry products that will
continue to be funded through the first quarter of 1997, as well as to travel
and promotion costs and amortization of goodwill on the 1995 acquisitions.
The provision for income taxes increased to $11.9 million and the effective
tax rate was 40% in 1996 compared to a 38% effective tax rate in 1995. The
increase in the effective tax rate was due to a reduction in the percentage of
income derived from state tax-exempt income.
On January 21, 1994, BHC received notice that a purported holder of a
brokerage account with a BHC Client filed a complaint in the Supreme Court of
the State of New York which alleges that BHC received, in violation of New York
statutory and common law, cash payments from market makers in certain securities
(referred to as payment for order flow) in return for BHC executing customer
orders with such market makers. In the complaint, the plaintiff seeks injunctive
relief and damages, a return of cash payments for order flow, in addition to
clearing and execution fees earned by BHC from January 1, 1990, certification of
this matter as a class action, punitive damages, costs and attorneys' fees in an
unspecified amount. Payment for order flow is common practice within the
securities industry. BHC removed this matter to the United States District Court
for the Southern District of New York, and the federal court, on December 18,
1995, dismissed the complaint for failure to state a claim upon which relief can
be granted. The plaintiff appealed the dismissal, and on
19
<PAGE>
January 17, 1997 the United States Court of Appeals for the Second Circuit
vacated the final judgment of the Lower Court on jurisdictional grounds and
remanded with instructions to remand the action to State Court.
In the opinion of management, the ultimate liability, if any, resulting
from this matter will have no material effect on the Company's consolidated
financial position. The materiality of this matter on the Company's future
operating results depends on the level of future results of operations, as well
as on the timing and amount of the ultimate outcome.
1995 Compared with 1994
In 1995, net revenues increased $10.3 million, or 19%, over 1994. The
higher net revenues were the result of increases in processing and support
service fees, commissions, net interest and other income. Processing and support
service fees increased $5.3 million, or 14%, due to a 20% increase in
transactions processed. In periods when transaction volumes increase, processing
and support service revenue will increase, while processing and support service
revenue per ticket will decline. This is due to BHC's volume discount program
which rewards Clients for high transaction volumes by reducing the charge per
transaction when certain volume levels are achieved. As a result of an increase
in transactions processed in 1995, average processing and support service
revenues per ticket decreased $1.35, or 5%.
Net interest income of $13.8 million in 1995 increased $2.5 million, or
22%, from the 1994 level of $11.3 million. The growth was principally
attributable to an increase in margin interest income of $5.3 million, or 27%,
which was a result of a $6 million, or 2%, growth in average margin debit
balances. This increase was despite the loss of a single margin account of $30
million in the second quarter of 1995 as a result of management's determination
that the account was unduly concentrated. The positive effect of the increased
average margin balances was further enhanced by the higher interest rate
environment experienced in 1995. The year-to-year increase in the average broker
call rate was 164 basis points. Interest expense in 1995 increased $3.7 million,
or 31%. Increased funding needed for the growth in average margin debit balances
and an increase in the federal funds rate of approximately 170 basis points
resulted in the increase in interest expense.
Commissions on retail trades from customers of TradeStar increased $2.0
million, or 43%, in 1995. This was a result of a 57% increase in transactions
processed. Customer accounts purchased late in the third quarter of 1995
represented 8% of the increase.
In 1995, other income increased $519,000, or 21%. PC and telephone inquiry,
trading, and quote services from netVest and other fees ancillary to the
processing of securities transactions accounted for the increase.
Expenses, excluding interest, increased by 12% in 1995 primarily related to
increases in employees' compensation and benefits, floor brokerage and clearing
and communications costs.
20
<PAGE>
Employees' compensation and benefits increased $3 million, or 17%, in 1995.
Compensation expenses in 1995 include the impact of approximately $450,000, or
3%, related to business units acquired in the third quarter of 1995. An increase
of $550,000, or 3%, in officers incentive bonuses, which are tied to the
company's earnings, was also included in 1995. After adjusting for the number of
employees related to business units acquired, average full time employees
increased 7% while normal and recurring salary adjustments increased an average
of 6%.
The increase in floor brokerage and clearing of $1 million, or 22%, was a
direct result of the 20% increase in transactions processed. Floor brokerage and
clearing represents 14% and 13%, respectively, of processing and support service
fees for 1995 and 1994, respectively.
Communications, occupancy and equipment costs increased $783,000, or 10%,
in 1995. The increase in cost was due to the addition of redundant data and
voice communication lines, increased quote costs related to the Banquote product
and costs associated with the PC and telephone inquiry, trading and quote
services offered through netVest.
Other operating expenses decreased by $192,000, or 2%, in 1995. The primary
reason for the decrease was lower local taxes and product maintenance costs,
offset by higher state franchise taxes, promotional expenses and consulting
programming fees in connection with enhancements to the brokerage processing
system.
The provision for income taxes increased $2.3 million in 1995 due primarily
to higher pre-tax income as compared to 1994. The effective tax rate was 37.7%
in 1995 and 36.6% in 1994. The increase in the effective tax rate is due to a
smaller portion of income derived from state tax-exempt income in 1995.
Liquidity and Capital Resources
At December 31, 1996, 96% of assets consisted of cash, assets readily
convertible into cash or assets collateralized by marketable securities.
Stockholders' equity was $93.5 million at December 31, 1996, up $8.2 million, or
10%, from December 31, 1995, which was due to earnings offset by dividends and
the repurchase of $9.0 million of the Company's Common Stock.
The Company has uncommitted credit arrangements totaling $215 million with
several banks. At December 31, 1996, the Company had outstanding borrowings
under these arrangements of $33.2 million. These demand loans, which are used to
finance receivables in customers' margin accounts, bear interest at the
respective bank's overnight borrowing rate and are collateralized by securities
held in customers' margin accounts and cash equivalents. In the opinion of
management, the Company's existing credit arrangements are adequate to meet the
Company's short-term operating capital needs.
On January 15, 1997, the Company's Board of Directors declared a $.03 per
share dividend payable February 14, 1997 to stockholders of record on February
1, 1997, resulting in a payment of approximately $190,000.
21
<PAGE>
BHC, TradeStar and BHCM are subject to the requirements of the Securities
Exchange Commission. BHC is subject to the requirements of the New York Stock
Exchange, Inc., and TradeStar and BHCM are subject to the requirements of the
National Association of Securities Dealers, Inc., relating to liquidity, minimum
net capital levels and the use of customer funds and securities. BHC, BHCM and,
since the Company acquired it, TradeStar have always operated in excess of the
applicable minimum net capital requirements. See Note 9 to the Consolidated
Financial Statements. In the opinion of management, the Company's existing
capital and lines of credit are sufficient to meet the operating capital needs
for the foreseeable future in light of known and reasonably estimated trends.
Other
The Company licenses its software under a long term licensing agreement.
The software provider is responsible for maintenance of the system including
modifications to enable uninterrupted usage after the year 2000. The software
provider has issued a formal plan for compliance with year 2000 system
enhancements and it is not anticipated that this will result in a material
financial undertaking by the Company to complete.
Effects of Inflation
Because the Company's assets are, to a large extent, liquid in nature, they are
not significantly affected by inflation. However, inflation may result in
increases in the Company's expenses, such as employees' compensation and
benefits, occupancy and equipment costs and communications expense, which may
not be readily recoverable in the price of services offered. To the extent
inflation results in rising interest rates, this may adversely affect
transaction volume, which, in turn, may adversely affect the Company's results
of operations.
22
<PAGE>
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Report of Independent Accountants
To the Stockholders and Board of Directors of BHC Financial, Inc.:
We have audited the accompanying consolidated statements of financial condition
of BHC Financial, Inc. and Subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of BHC Financial, Inc.
and Subsidiaries as of December 31, 1996 and 1995 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
Coopers & Lybrand, L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 14, 1997, except for
note 12 as to which the date is March 3, 1997
23
<PAGE>
Consolidated Statements of Financial Condition December 31,
(In thousands, except par values)
<TABLE>
<CAPTION>
Assets 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 15,288 $ 21,517
Cash and securities segregated under federal regulations 2,411 2,312
Receivable from brokers or dealers and clearing
organizations 227,199 196,321
Receivable from customers 493,635 377,535
Securities owned, at market value 16,988 11,502
Furniture, equipment, capitalized leases
and leasehold improvements, net 4,752 4,714
Intangible assets, net 4,392 4,799
Other assets 20,634 15,302
--------- ---------
Total assets $ 785,299 $ 634,002
========= =========
Liabilities
- ----------------------------------------------------------------------------------------
Short-term bank loans payable $ 33,200 $ 41,900
Payable to brokers or dealers and clearing organizations 230,975 190,810
Payable to customers, including free credit balances of
$318,303 in 1996 and $230,243 in 1995 366,421 270,761
Securities sold, but not yet purchased, at market value 1,554 1,420
Accrued expenses and other liabilities 59,682 43,803
--------- ---------
Total liabilities 691,832 548,694
--------- ---------
Commitments and contingencies
Stockholders' Equity
- ----------------------------------------------------------------------------------------
Preferred stock, par value $.001, authorized
10,000 shares; none outstanding
Nonvoting common stock, par value $.001,
authorized 3,000 shares; none outstanding
Voting common stock, par value $.001, authorized
30,000 shares; issued 7,579 shares in 1996 and 1995 8 8
Additional paid-in capital 39,582 39,582
Retained earnings 69,303 52,091
Treasury stock, at cost - 1,248 shares in 1996
and 582 shares in 1995 (15,426) (6,373)
--------- ---------
Total stockholders' equity 93,467 85,308
--------- ---------
Total liabilities and stockholders' equity $ 785,299 $ 634,002
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
24
<PAGE>
Consolidated Statements of Income Years Ended December 31,
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------------------------
Revenues:
<S> <C> <C> <C>
Processing and support service fees $ 50,561 $ 42,497 $ 37,164
Margin interest 28,301 25,583 20,218
Other interest 4,921 3,769 2,978
Commissions 9,189 6,555 4,585
Other 4,845 2,950 2,431
--------- --------- ---------
Total revenues (includes related
party revenues of $12,862, $16,112,
and $9,563, respectively) 97,817 81,354 67,376
Interest expense (includes related
party expenses of $7,676, $5,747,
and $2,625, respectively) 16,636 15,630 11,918
--------- --------- ---------
Net revenues 81,181 65,724 55,458
--------- --------- ---------
Expenses, excluding interest:
Employees' compensation and benefits 23,406 20,335 17,341
Floor brokerage and clearing 6,092 5,755 4,706
Communications 3,772 2,844 1,946
Occupancy and equipment 6,815 5,979 6,094
Other 11,183 8,426 8,618
--------- --------- ---------
Total expenses, excluding
interest expense 51,268 43,339 38,705
--------- --------- ---------
Income before income taxes 29,913 22,385 16,753
Provision for income taxes 11,889 8,448 6,129
--------- --------- ---------
Net income $ 18,024 $ 13,937 $ 10,624
========= ========= =========
Earnings per share $ 2.69 $ 1.94 $ 1.40
========= ========= =========
Weighted average shares outstanding 6,688 7,193 7,581
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
25
<PAGE>
Consolidated Statements of Stockholders' Equity Years Ended December 31, 1996,
1995 and 1994
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Common Stock Additional Treasury Stock
------------ Paid-In Retained --------------
Shares Amount Capital Earnings Shares Amount Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances
December 31, 1993 7,579 $ 8 $ 39,582 $ 28,935 - - $ 68,525
Dividends ($.08 per share) (608) (608)
Purchase of common
stock for treasury 379 $ (3,440) (3,440)
Net income 10,624 10,624
----- --- -------- -------- ----- --------- --------
Balances
December 31, 1994 7,579 8 39,582 38,951 379 (3,440) 75,101
Dividends ($.12 per share) (780) (780)
Purchase of common
stock for treasury 209 (2,987) (2,987)
Exercise of stock options (17) (6) 54 37
Net income 13,937 13,937
----- --- -------- -------- ----- --------- --------
Balances
December 31, 1995 7,579 8 39,582 52,091 582 (6,373) 85,308
Dividends ($.12 per share) (790) (790)
Purchase of common
stock for treasury 674 (9,125) (9,125)
Exercise of stock options (22) (8) 72 50
Net income 18,024 18,024
----- --- -------- -------- ----- --------- --------
Balances
December 31, 1996 7,579 $ 8 $ 39,582 $ 69,303 1,248 $ (15,426) $ 93,467
===== === ======== ======== ===== ========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
26
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows Years Ended December 31,
(In thousands)
1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 18,024 $ 13,937 $ 10,624
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,212 2,205 2,615
(Increase) decrease in operating assets:
Cash and securities segregated
under federal regulations (99) (124) (73)
Receivable from brokers or dealers
and clearing organizations (30,878) (74,896) (38,255)
Receivable from customers (116,100) (12,010) (24,181)
Securities owned (5,486) (1,887) (1,750)
Other assets (3,882) (3,927) 349
Increase (decrease) in operating liabilities:
Payable to brokers or dealers and
clearing organizations 40,165 18,936 40,387
Payable to customers 95,660 88,325 (20,944)
Securities sold, but not yet purchased 134 (1,285) 1,745
Accrued expenses and other liabilities 15,879 17,081 (2,933)
------- ------- -------
Cash provided by (used in)
operating activities 15,629 46,355 (32,416)
-------- -------- --------
Cash flows from financing activities:
(Payments) proceeds on short-term
bank loans payable, net (8,700) (50,600) 38,520
Principal payments under capital
lease obligations -- (583) (1,168)
Dividends paid (790) (780) (608)
Payments for purchases of
common stock for treasury (9,125) (2,987) (3,440)
Proceeds from issuance of stock options 50 37 --
Payments of notes payable -- -- (456)
-------- -------- --------
Cash (used in) provided by
financing activities (18,565) (54,913) 32,848
-------- -------- --------
Cash flows from investing activities:
Purchases of furniture, equipment and
leasehold improvements (1,843) (1,283) (2,529)
Purchase of exchange seat (1,450) -- --
Cash paid for acquired assets, net -- (3,180) --
Cash used in investing activities (3,293) (4,463) (2,529)
-------- -------- --------
Decrease in cash and cash equivalents (6,229) (13,021) (2,097)
Cash and cash equivalents, beginning of year 21,517 34,538 36,635
-------- -------- --------
Cash and cash equivalents, end of year $ 15,288 $ 21,517 $ 34,538
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
27
<PAGE>
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
(a) General and Basis of Presentation
The consolidated financial statements include the accounts of BHC
Financial, Inc. (the "Parent") and its subsidiaries (collectively, the
"Company"), the most significant of which are BHC Securities, Inc. ("BHC"),
TradeStar Investments, Inc. ("TradeStar"), BHCM Inc. ("BHCM") and netVest, Inc.
("netVest"). All significant intercompany accounts and transactions have been
eliminated in consolidation. The financial statements were prepared in
accordance with generally accepted accounting principles which requires the use
of management's estimates. Actual results may differ from those estimates.
Certain balances have been reclassified to conform with 1996 financial statement
presentations.
On November 12, 1996, the Parent declared a dividend of one preferred share
purchase right (a "Right") for each outstanding share of common stock of the
Parent. The dividend was payable on December 5, 1996 to the stockholders of
record on November 25, 1996. Each Right entitles the registered holder to
purchase from the Parent one one-hundredth of a share of Series A Junior
Participating Preferred Stock, par value $.001 per share, at a price of $64.00
per one one-hundredth of a share of Preferred Stock, set forth in a Rights
Agreement dated as of November 12, 1996. The Rights will not become exercisable
as a result of the Agreement and Plan of Merger entered into between the
Company, Fiserv, Inc. and its wholly owned subsidiary, Fiserv Delaware Sub, Inc.
dated March 2, 1997. See Footnote 12 Subsequent Event - Merger of the Company.
BHC, TradeStar and BHCM are registered broker-dealers in securities under
the Securities Exchange Act of 1934, as amended ("1934 Act"). BHC provides
integrated processing and support services to securities brokerage affiliates of
banks and other financial institutions ("Clients"), some of which are considered
related parties for financial reporting purposes. TradeStar provides discount
retail brokerage services and supports the efforts of BHCM in marketing BHC's
processing and support services to community banks. BHCM, a third party
marketer, sells investment products including fixed and variable annuities and
life insurance. netVest provides telephone and PC inquiry, trading and quote
services.
(b) Securities Transactions
Securities transactions and the related commission and processing fees are
recorded on a settlement-date basis. Recording such transactions on a trade-date
basis would not have resulted in a material difference.
(c) Securities Owned and Securities Sold, But Not Yet Purchased
Securities owned and securities sold, but not yet purchased are valued at
market value. The resulting unrealized gains and losses are reflected in income.
28
<PAGE>
(d) Interest Income and Expense
Interest income and expense are netted in the consolidated statement of
income where BHC acts as both the lender and borrower in a securities
transaction. Gross interest income and expense on such transactions were
$7,367,000 and $6,879,000; $9,331,000 and $9,001,000 and $3,162,000 and
$2,989,000 for 1996, 1995 and 1994, respectively.
(e) Depreciation and Amortization
Furniture, equipment and capitalized lease assets are recorded on a
historical cost basis. Depreciation and amortization is provided on the
straight-line basis over the estimated useful lives of the assets, which is
generally 5 years. Leasehold improvements are amortized over the lesser of the
economic useful life of the improvement or the term of the lease. Intangible
assets are being amortized over eight to fifteen years on a straight line basis.
(f) Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities include book overdrafts. At December
31, 1996 and 1995, book overdrafts, which were subsequently funded as required,
amounted to $22,690,000 and $14,500,000, respectively.
(g) Cash Flow Reporting
For purposes of reporting cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents, excluding cash and securities segregated under federal
regulations and cash and securities on deposit with clearing organizations. Cash
paid for interest was $23,536,000, $25,182,000 and $14,534,000, in 1996, 1995,
and 1994, respectively. Cash paid for income taxes was $10,443,000, $8,068,000
and $7,026,000, in 1996, 1995 and 1994, respectively.
(h) Earnings Per Share
Primary earnings per share is computed based on the weighted average shares
outstanding including the effect of common stock equivalents, if dilutive, for
each of the periods reported.
(i) Income Taxes
The Parent and its subsidiaries file a consolidated Federal income tax
return. Deferred income tax assets and liabilities arise from "temporary
differences" between the tax basis of an asset or liability and its reported
amount in the consolidated financial statements. Deferred tax balances are
determined by applying the current enacted tax rate to future periods for
differences between the financial statement carrying amount and the tax basis of
assets and liabilities.
29
<PAGE>
(j) Fair Value of Financial Instruments
The carrying amounts of the Company's cash, cash equivalents, short-term
bank loans, and receivables from and payables to customers, brokers, dealers and
clearing organizations approximate their fair market values due to their
short-term nature.
2. Cash and Securities Segregated under Federal Regulations
Cash of $1,583,000 and $1,485,000 at December 31, 1996 and 1995,
respectively, and U.S. Government securities with a market value of $828,000 and
$827,000 at December 31, 1996 and 1995, respectively, have been segregated in
special reserve bank accounts for the exclusive benefit of customers pursuant to
Rule 15c3-3 of the 1934 Act.
3. Receivable from and Payable to Brokers or Dealers and Clearing
Organizations
The Company had receivable from and payable to brokers or dealers and
clearing organizations relating to the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C>
Receivable:
Securities failed to deliver $ 10,679 $ 4,076
Securities borrowed 207,173 108,897
Clearing organizations 2,695 1,800
Securities purchased under
agreements to resell 4,850 81,286
Other 1,802 262
------ ------
$ 227,199 $ 196,321
========== =========
Payable:
Securities failed to receive $ 5,923 $ 5,944
Securities loaned 219,530 103,188
Securities sold under agreements to repurchase 4,876 81,273
Clearing organizations, bank capital
markets departments and others 646 405
--- ---
$ 230,975 $ 190,810
========== =========
</TABLE>
Securities failed to deliver and receive represent the contract value of
securities that have not been delivered or received subsequent to settlement
date. Securities borrowed and loaned and securities purchased and sold under
agreements to resell and repurchase represent deposits made to or received from
other broker-dealers relating to these transactions. Payables to bank capital
markets departments represent money owed related to the processing, clearance
and settlement of securities transactions.
30
<PAGE>
4. Receivable from and Payable to Customers
Receivable from and payable to customers represent amounts due on cash and
margin transactions. Securities owned by customers are held as collateral for
those receivables. Such collateral is not reflected in the accompanying
consolidated financial statements.
BHC pays interest on free credit balances in accounts of customers to be
used for reinvestment purposes. During fiscal years 1996, 1995 and 1994, the
interest rates paid on these balances ranged from 4.50% to 4.75%, 4.75% to
5.50%, and 2.75% to 5.00%, respectively. BHC pays interest on these funds at
varying rates. The rate paid at December 31, 1996 ranged from 4.50% to 4.75%.
BHC's clearing agreements with Clients generally provide that credit losses
relating to a Client's customers are generally charged back to the Client.
5. Securities Owned and Securities Sold, But Not Yet Purchased
At December 31, 1996 and 1995, securities owned and securities sold, but
not yet purchased, consist of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------------------
Sold Sold
Not Yet Not Yet
Owned Purchased Owned Purchased
<S> <C> <C> <C> <C>
U.S. Government obligations $ 15,541 $ 604 $ 10,315 $ 1,140
Municipal obligations 248 49 385 30
Corporate obligations 404 43 3 22
Equities and shares of regulated
investment companies 795 858 799 228
--------- ------ --------- ---------
$ 16,988 $1,554 $ 11,502 $ 1,420
========= ====== ========= =========
</TABLE>
The above amounts include securities pledged as deposits to clearing
organizations of $14,251,000 and $8,886,000 at December 31, 1996 and 1995,
respectively.
6. Short-Term Bank Loans
At December 31, 1996 and 1995, BHC had $33,200,000 and $41,900,000,
respectively, of short-term bank loans payable. At December 31, 1996, these
demand loans bear interest at the respective bank's call rate and were
collateralized by customers' margin account securities with a market value of
$75,759,000. Interest expense on these loans for 1996, 1995 and 1994 was
$1,493,000, $2,219,000 and $2,132,000, respectively. The weighted average
interest rate on these loans at December 31, 1996 and 1995 was 6.9% and 5.1%,
respectively. At December 31, 1996, BHC had available uncommitted lines of
credit with banks of $181,800,000.
31
<PAGE>
7. Income Taxes
<TABLE>
<CAPTION>
The provision (benefit) for income taxes consists of (in thousands):
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 10,889 $ 7,992 $ 6,385
State 1,770 675 198
------ ----- -----
12,659 8,667 6,583
------ ----- -----
Deferred:
Federal (649) (210) (361)
State (121) (9) (93)
------ ----- -----
(770) (219) (454)
------ ----- -----
$ 11,889 $ 8,448 $ 6,129
====== ===== =====
</TABLE>
The components of deferred income taxes (benefits) are as follows
(in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Employee benefits $ (158) $ (163) $ (119)
Accrued liabilities (293) (64) (343)
Other, net (319) 8 8
----- ----- -----
$ (770) $ (219) $ (454)
===== ===== =====
</TABLE>
Aggregate deferred tax assets and liabilities amounted to $2,324,000 and
$263,000, respectively, at December 31, 1996. The approximate tax effect
of each type of temporary difference that gives rise to deferred tax assets
and liabilities at December 31, 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
Asset (Liability)
<S> <C>
Employee benefits $ 838
Accrued liabilities 785
Deferred rent 363
Furniture and equipment, net (234)
Other, net 309
---
$2,061
======
</TABLE>
The Company's effective tax rate differs from the U.S. corporate income tax
rate as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
U.S. corporate income tax rate 35.0% 35.0% 34.9%
State taxes, net of federal tax effect 3.6 1.9 .4
Other 1.2 .8 1.3
----- ----- -----
39.8% 37.7% 36.6%
===== ===== =====
</TABLE>
32
<PAGE>
8. Employee Benefit Plans
Defined Contribution Plan
The Company has a defined contribution retirement savings plan (401(k))
which covers all full-time employees of BHC, TradeStar and other affiliates
authorized by the Board of Directors who have attained at least one year of
service and are 21 years of age. Under the plan, as amended, eligible
participating employees may elect to contribute up to 15% of their salaries to a
trust.
The Company contributes an amount equal to 50% of the participant's
contribution to a maximum of 3% of compensation. In addition, the Company
contributes a fully vested 1% of salary for eligible employees ("Additional
Company Contribution"), as defined. One half of the Company's matching portion
and the entire Additional Company Contribution are invested in the common stock
of the Parent. Participants are at all times fully vested in their
contributions, and the Company's contributions become fully vested to the
participants after five years of continued employment. The Company's
contributions to the plan were $374,000, $309,000 and $268,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
Defined Benefit Plans
The Company sponsors a noncontributory defined benefit pension plan
covering substantially all full-time employees of BHC, TradeStar and other
affiliates authorized by the Board of Directors. Plan benefits are generally
based on employees' years of service and compensation. The benefits under this
plan are vested in accordance with a schedule that generally provides for full
vesting after five years of service with the Company. The Company's policy is to
fund at least the minimum required by the Internal Revenue Code and the Employee
Retirement Income Security Act of 1974. Plan assets are invested in shares of
registered investment companies (bond and equity portfolios).
Separate accounts for vested benefits and pension fund assets are not
maintained for BHC and TradeStar. The following table sets forth the funded
status and amounts recognized in the statement of financial condition for the
defined benefit pension plan (in thousands):
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Nonvested $ 214 $ 205
Vested 1,998 1,930
------- --------
Accumulated benefit obligation $ 2,212 $ 2,135
======= ========
Projected benefit obligation $ 4,390 $ 4,024
Plan assets at fair value 3,032 2,567
------- -------
Projected benefit obligation in excess of plan assets (1,358) (1,457)
Unrecognized net gain/(loss) (201) 366
</TABLE>
33
<PAGE>
<TABLE>
<S> <C> <C>
Unrecognized prior service cost, being recognized
over periods from 17.1 to 23.3 years 346 439
------- --------
Pension liability recognized in the statement of
financial condition $(1,213) $ (652)
======= ========
</TABLE>
Net periodic pension cost for the defined benefit pension plan consisted of the
following components (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 589 $ 383 $ 423
Interest cost 284 213 186
Actual return on plan assets (382) (502) 36
Amortization and deferral 194 364 (142)
------ ------ ------
Net periodic pension cost $ 685 $ 458 $ 503
====== ====== ======
</TABLE>
The Company also maintains a supplemental nonqualified unfunded pension
plan for certain officers which is being provided for by charges to earnings of
the Company in an amount that, if this plan were funded, would be sufficient to
meet the projected benefit obligation. The pension cost for this plan is based
on substantially the same actuarial methods and economic assumptions as those
used for the defined benefit pension plan. The Company recognized pension
expense relating to the supplemental plan of $170,000, $123,000 and $116,000 in
1996, 1995 and 1994, respectively. The accrued liability at December 31, 1996
was $645,000.
The actuarial present value of benefits and projected benefit obligation
were determined using a discount rate of 7.5%, 7% and 8% for the years ended
December 31, 1996, 1995 and 1994, respectively. The expected long-term rate of
return on assets was 8% and the rate of compensation increase used to measure
the projected benefit obligation was 6% for 1996, 1995 and 1994.
Stock Option Plan
In January 1993, the Parent's stockholders approved the 1992 stock option
plan ("Option Plan") pursuant to which the Company may grant incentive stock
options and nonqualified stock options for shares of common stock to key
employees of the Company.
The Option Plan is administered by the Parent's Compensation Committee of
the Board of Directors. There are 53,000 options outstanding, which are fully
vested, under this plan and no further options can be granted.
Long-Term Incentive Plan
The Parent's stockholders approved a long-term incentive plan in March
1992, and as amended in May 1995 ("Long-Term Plan"), pursuant to which the
Company may grant incentive stock options, nonqualified stock options, stock
appreciation rights, restricted stock awards, dividend equivalents, performance
awards and other stock-based awards to key employees of the Company.
34
<PAGE>
The Long-Term Plan, as amended, is administered by the Parent's
Compensation Committee, which has the power to select the employees to whom
grants are to be made, designate the type of grant or award to be issued and the
number of shares covered by each grant or award, set the vesting schedule or
other restrictions on the grants or awards, and determine the time at which any
payment is to be made. The Long-Term Plan limits the maximum number of shares of
common stock which may be issued thereunder to 750,000 shares. The Long-Term
Plan further provides that no option, restricted stock, performance share,
performance unit or other stock-based award may be granted or awarded after May
16, 2000, but options granted on or before such date may be exercised after such
date. Under the Long-Term Plan, the exercise price of each option equals the
market price of the Parent's common stock on the date of grant and an option's
maximum term is ten years. Options are granted upon approval of the Board of
Directors and vest after three years. The option's vesting period is accelerated
upon a change in control of the Parent (as defined). As of December 31, 1996,
570,750 options are outstanding under the Long-Term Plan, of which 102,400
vested in 1996, 163,050 vest in 1997, 130,300 vest in 1998, and 175,000 vest in
1999.
Directors' Stock Option Plan
In May, 1995, the Stockholders of the Parent approved the Directors' Stock
Option Plan ("Directors' Plan"). Under the Directors' Plan, the Parent may issue
to members of the Board of Directors of the Parent up to 150,000 non-qualified
options to purchase shares of the Parent's common stock. The Directors' Plan is
administered by the Parent's Compensation Committee of the Board of Directors.
Under the Directors' Plan, the exercise price of each option equals the market
price of the Parent's common stock on the date of grant and an option's maximum
term is ten years. Options are granted upon approval of the Stock Option
Committee of the Board of Directors and vest immediately. At December 31, 1996,
24,000 options are outstanding and fully vested.
A summary of option activity is as follows:
<TABLE>
<CAPTION>
Number Range of Weighted Average
of Shares Exercise Prices Exercise Price
<S> <C> <C> <C>
Outstanding at December 31, 1993 194,000 $6.40 - $27.50 $ 19.887
Granted 181,000 $8.875
Exercised - -
Cancelled (13,750) $27.50
Outstanding at December 31, 1994 361,250 $6.40 - $27.50 $ 14.08
Granted 162,300 $15.375 - $18.125
Exercised (5,750) $6.40
Cancelled (4,600) $8.875 - $27.50
--------
Outstanding at December 31, 1995 513,200 $6.40 - $27.50 $ 15.328
Granted 186,000 $13.188 - $15.875
Exercised (7,750) $6.40 - $8.875
Cancelled (43,700) $8.875 - $27.50
--------
Outstanding at December 31, 1996 647,750 $ 15.485
========
35
</TABLE>
<PAGE>
On January 1, 1996 the Parent adopted Statement of Financial Accounting
Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation".
As permitted by SFAS No. 123, the Parent has chosen to apply APB Opinion No. 25,
"Accounting for Stock Issued to Employees" and related Interpretations in
accounting for its Stock Option and Long-Term Incentive Plans (the "Plans").
Accordingly, no compensation cost has been recognized for options granted under
the Plans. Had compensation cost for the Parent's Plans been determined based on
the fair value at the grant dates for awards under the Plans consistent with the
method of SFAS No. 123, the Parent's net income would have been reduced by
approximately $216,000 and $50,000 in 1996 and 1995, respectively, and the
related impact on earnings per share would have been immaterial. The effects of
applying SFAS No. 123 in this pro forma disclosure are not indicative of future
amounts. SFAS No.123 does not apply to awards prior to 1995, and additional
awards in future years are anticipated. The weighted average fair value of
options granted during the year was $15.851, $17.769 and $8.875 in 1996, 1995
and 1994, respectively. Options exercisable in Parent's Plans were 179,400 and
82,250 at December 31, 1996 and 1995, respectively.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model. The weighted-average assumptions used
for grants in both 1996 and 1995 were a dividend yield of 0.68%, expected
volatility of 40% and expected lives of 4 years for the Long-Term Plan and 1
year for the Directors' Plan. The risk-free interest rates assumed were 5.81%
and 5.54% for the Long-Term Plan and 5.55% and 5.94% for the Directors' Plan for
1996 and 1995, respectively.
9. Net Capital Requirements and Dividend Restrictions
BHC is subject to the SEC's Uniform Net Capital Rule (Rule 15c3-1 under the
1934 Act) which requires the maintenance of minimum net capital. BHC has elected
to use the alternative method, permitted by the rule, which requires that it
maintains minimum net capital, as defined in Rule 15c3-1, equal to the greater
of $250,000 or 2% of aggregate debit balances, as defined in Rule 15c3-3. At
December 31, 1996, BHC had net capital of $56,506,000, or approximately 11% of
aggregate debit balances which was $46,150,000 in excess of its minimum net
capital requirement of $10,356,000 at that date. Additionally, Rule 15c3-1
provides that equity capital may not be withdrawn or cash dividends paid if
resulting net capital would be less than 5% of aggregate debit balances. At
December 31, 1996, BHC had net capital of $30,616,000 in excess of 5% of
aggregate debit balances. See Footnote 12 Subsequent Event - Merger of Company.
10. Commitments and Contingencies
Lease Commitments
The Company leases office space under noncancelable operating leases
expiring through 2003. Rental expense for all operating leases was approximately
$3,886,000, $3,106,000 and $2,789,000 for the years ended December 31, 1996,
1995 and 1994, respectively.
36
<PAGE>
At December 31, 1996, the future minimum lease payments under noncancelable
operating leases were as follows (in thousands):
<TABLE>
<CAPTION>
Year Operating Leases
- ------------------------------------------------
<S> <C>
1997 $ 2,939
1998 2,130
1999 1,778
2000 1,264
2001 1,194
Thereafter 1,940
------
Total minimum lease payments $11,245
======
</TABLE>
Certain long term leases contain escalation clauses.
Employment Agreements
The Parent has employment agreements with key officers which grant these
employees the right to receive up to one to two times their annual salary and
bonus, plus continuation of certain benefits subject to certain maximums under
tax law, if there is a change in control of the Parent (as defined) and a
termination (as defined) of such employees within one year thereafter.
Major Clients
For the year ended December 31, 1996, revenues generated from three Clients
exceeded 10% of total revenues. Revenues from these Clients were 14%, 10% and
10%. For the years ended December 31, 1995 and 1994, revenues generated from two
Clients exceeded 10% of total revenues. Revenues from these Clients were 13% and
11% for 1995 and 14% and 11% for 1994. (See Management's Discussion and Analysis
of Financial Condition and Results of Operations.)
Litigation and Claims
On January 21, 1994, BHC received notice that a purported holder of a brokerage
account with a BHC Client filed a complaint in the Supreme Court of the State of
New York which alleges that BHC received, in violation of New York statutory and
common law, cash payments from market makers in certain securities (referred to
as payment for order flow) in return for BHC executing customer orders with such
market makers. In the complaint, the plaintiff seeks injunctive relief and
damages, a return of cash payments for order flow, in addition to clearing and
execution fees earned by BHC from January 1, 1990, certification of this matter
as a class action, punitive damages, costs and attorneys' fees in an unspecified
amount. Payment for order flow is common practice within the securities
industry. BHC removed this matter to the United States District Court for the
Southern District of New York, and the federal court, on December 18, 1995,
dismissed the complaint for failure to state a claim upon which relief can be
granted. The plaintiff appealed the dismissal and on January 17, 1997 the United
States Court of Appeals
37
<PAGE>
for the Second Circuit vacated the final judgment of the lower court on
jurisdictional grounds and remanded with instructions to remand the action to
state court. In the opinion of management, the ultimate liability, if any,
resulting from this matter will have no material effect on the Company's
consolidated financial position. The materiality of this matter on the Company's
future operating results depends on the level of future results of operations,
as well as on the timing and amount of the ultimate outcome.
11. Financial Instruments with Off-Balance-Sheet Risk and Concentrations of
Credit Risk
In the normal course of business, the Company's activities involve the
execution, settlement and financing of various securities transactions,
including the sale of securities not yet purchased. In the event the customer or
other party to a securities transaction is unable to fulfill its contracted
obligations, the Company may be required to purchase or sell financial
instruments at prevailing market prices in order to satisfy its customer-related
obligations. The Company may incur a loss if the market price of a security sold
but not yet purchased increases subsequent to entering into the transaction.
In accordance with industry practice, the Company records customer
transactions on a settlement-date basis, which is generally three business days
after trade date. The Company is therefore exposed to risk of loss on these
transactions in the event of the customer's inability to meet the terms of their
contracts, in which case the Company may have to purchase or sell the underlying
financial instruments at prevailing market prices. The Company maintains margin
and cash securities accounts for its customers who are principally located
throughout the United States.
The Company pledges eligible customer securities as collateral for bank
loans, securities loaned, securities sold under agreements to repurchase and to
satisfy margin deposits of clearing organizations. In the event a counter-party
to such transaction is unable to return the customer's securities pledged as
collateral, the Company may be exposed to the risk of acquiring the securities
at prevailing market prices.
The Company controls off-balance-sheet risk by monitoring the market value
and marking securities to market on a daily basis and by requiring adjustments
of collateral levels, where appropriate. The Company establishes margin
requirements and overall credit limits for such activities and monitors
compliance with the applicable limits and industry regulations on a daily basis.
The Company has extensive credit policy and review procedures which focus
primarily on: (1) a customer's creditworthiness and financial resources; (2) the
market value of the collateral in a customer's account; (3) the concentration of
the collateral, both in a particular customer's account and in all accounts; (4)
the volatility of the underlying securities and existing market conditions; and
(5) the creditworthiness of the Client that guarantees the performance of its
customers pursuant to its clearing and execution agreement.
12. Subsequent Event - Merger of the Company
On March 2, 1997, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Fiserv, Inc. ("Fiserv") and its wholly owned
subsidiary, Fiserv Delaware Sub, Inc. ("Fiserv Sub"). Pursuant to the Merger
Agreement, Fiserv Sub will be merged into the Company, and the
38
<PAGE>
Company will be the Surviving Corporation and will become a wholly owned
subsidiary of Fiserv (the "Merger"). At the effective time of the Merger (the
"Effective Time"), the Company will change its name to "Fiserv Clearing, Inc."
It is presently contemplated that the Effective Time will be May 30, 1997 or
shortly thereafter.
Pursuant to the Merger Agreement, each outstanding share of the Company's
Common Stock will be converted into the right to receive such number of shares
of Fiserv Common Stock as shall equal the Conversion Ratio, which is defined as
the quotient of (x) $33.50 divided by (y) an amount equal to the average closing
price of Fiserv Common Stock as reported in The Wall Street Journal for the 20
-----------------------
trading days ending on the second trading day prior to the Effective Time.
The Merger has been approved by the Boards of Directors of both the Company
and Fiserv and is subject to approval by the Company's stockholders as well as
receipt of all required regulatory and other approvals. The obligations of
Fiserv and the Company to consummate the Merger are subject to the satisfaction
or waiver (to the extent waivable) of reasonably certain conditions set forth in
the Merger Agreement. In the event that Fiserv reasonably determines that the
Merger would be accounted for as a pooling of interests in accordance with
generally accepted accounting principles, then, subject to the other terms and
conditions of the Merger Agreement, the Merger will be consummated. In the event
that, Fiserv reasonably determines, that the Merger cannot be accounted for as a
pooling of interests, then, subject to the other terms and conditions of the
Merger Agreement, the Merger will be consummated and will be accounted for as a
purchase, providing that the merger consideration will be adjusted by modifying
the definition of Conversion Ratio such that $33.50 is replaced with $31.50. The
Rights referred to in Note No. 1 have not become exercisable as a result of the
Merger Agreement.
It is anticipated that the merger will be accounted for as a pooling of
interests under the Accounting Principles Board Opinion No. 16. Because of the
recent purchases by the Company of its Common Stock, the Company may be
required, among other things, to sell approximately 200,000 shares of its Common
Stock (either through the exercise of outstanding stock options or by a stock
offering to unrelated parties) prior to the Effective Time in order for the
Merger to be accounted for as a pooling of interests. As part of the Merger
Agreement, the Company has agreed to issue and sell such shares after the date
of the special meeting of the stockholders to approve the Merger Agreement, and
prior to the consummation of the Merger, to the extent necessary to satisfy such
condition.
Subject to the terms and conditions of the Merger Agreement, the Company,
from the date of the Merger Agreement through the date and time when the Merger
shall become effective, is prohibited from purchasing any of its capital stock
from any stockholder or paying or declaring any dividends or other distribution
in respect of the Company's capital stock, except for cash dividends equal to
$.03 per outstanding share per quarter. The Company's Board of Directors
rescinded the previously approved stock purchase program. The payment of this
$.03 per outstanding share cash dividend will depend upon the Company's
earnings, financial condition, net capital requirements, cash flow, long range
plans and such other factors as the Board of Directors of the Company may deem
relevant. Moreover, the payment of this cash dividend is restricted by the rules
of the U.S. Securities and Exchange Commission, the NYSE, the NASD and various
state securities laws administrators. These restrictions could limit the ability
of the Company to pay cash dividends in the future.
39
<PAGE>
Responsibilities For Financial Statements
The management of the Company is responsible for the financial statements
and other financial information contained in the Company's 1996 Report on Form
10-K. The Company believes that the financial statements have been prepared in
conformity with generally accepted accounting principles appropriate under the
circumstances to reflect, in all material respects, the substance of applicable
events and transactions. In preparing the financial statements, it is necessary
that management make informed estimates and judgments. The other financial
information in this Report is consistent with the financial statements.
The Company maintains a system of internal accounting controls designed to
provide reasonable assurance that financial records are reliable for purposes of
preparing financial statements and that assets are properly accounted for and
safeguarded. The concept of reasonable assurance is based on the recognition
that the cost of the system must be related to the benefits to be derived. The
Company believes its system provides an appropriate balance in this regard. The
Company maintains both compliance and internal audit departments which review
the adequacy and test the application of internal accounting controls.
The financial statements have been audited by Coopers & Lybrand L.L.P.,
independent accountants, for the fiscal years ended December 31, 1996, 1995 and
1994. Their reports express opinions that the Company's financial statements are
fairly stated in conformity with generally accepted accounting principles, and
that their audits were performed in accordance with generally accepted auditing
standards which are designed to obtain reasonable assurance that the financial
statements are free of material misstatement.
The Audit Committee of the Board of Directors of the Company, consisting
solely of outside directors, meets with the independent accountants, compliance
and internal auditors and management to discuss, among other things, their audit
scopes and results. The independent accountants and the internal auditors have
full and free access to the Audit Committee, with or without the presence of
management.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None.
40
<PAGE>
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Certain information with respect to executive officers of BHC Financial,
Inc. is set forth under the caption "Executive Officers of The Company" in Part
I of this Report.
Information with respect to non-employee Directors of the Company is set
forth below:
Robert T. Arnold, 72, is Chairman Emeritus of the Board of Directors of the
Company and BHC. Mr. Arnold served as a director and Chairman of the Board of
Directors of the Company and BHC from April, 1986 until his retirement in March,
1991. Mr. Arnold is retired from his position as Executive Vice President of
Provident National Bank, Philadelphia, Pennsylvania, an affiliate of a
stockholder of the Company, where he had worked in various capacities from 1970
until 1989.
Vincent G. Bell, Jr., 71, has been a director of the Company and BHC since
April, 1993. He has served as President of Verus Corporation, an investment
management company, located in Radnor, Pennsylvania, since 1988. He retired in
1987 as Chief Executive Officer and Chairman of Safeguard Business Systems,
Wayne, Pennsylvania. Mr. Bell is also a trustee of Paoli Memorial Hospital, a
director of Safeguard Scientifics, Inc. and Envirite Corporation and serves as
an adviser to several other companies including Safeguard Business Systems.
Richard L. Bunn, 60, has been a director of the Company and BHC since April,
1993. He served as President of UGI Corporation's Utilities Division, Reading,
Pennsylvania, from 1987 to 1992. Since April, 1992, Mr. Bunn has served as
President, Chief Executive Officer and a director of UGI Utilities, Inc. Mr.
Bunn is also a director of International Approval Services, Inc. and the
American Gas Association and a member of the Board of Trustees of Wilkes
University.
Carroll H. Crouch, Jr., 48, has been a director of the Company and BHC since
1990. He currently serves as Senior Vice President, Director of Investor
Relations, Quality Service and Sales for SouthTrust Corporation, a stockholder
of the Company. He previously served as Chairman of the Board, Chief Executive
Officer and President of SouthTrust Securities, Inc., a registered broker-dealer
located in Birmingham, Alabama, and a wholly-owned subsidiary of SouthTrust
Corporation. He served as Chief Executive Officer and President of SouthTrust
Securities, Inc. until July, 1995.
George L. Denton, Jr., 77, has served as a director of the Company and BHC since
its inception in 1983. Mr. Denton is a retired Executive Vice President of First
Security Corporation, a bank holding company located in Salt Lake City, Utah,
for whom he had worked in various capacities since 1946. Mr. Denton is also a
director of the Achievement Funds.
John W. Saunders, Jr., 62, has been a director of the Company and BHC since
1987. He serves as a director of, and since 1976 has been Senior Vice President
of, USAA Investment Management
41
<PAGE>
Company, a registered broker-dealer located in San Antonio, Texas, and a
stockholder of the Company. Mr. Saunders is also a director of USAA Mutual Fund
Inc. and USAA Tax Exempt Fund Inc. and a trustee of USAA Investment Trust and
USAA State Tax-Free Trust.
Item 11. Executive Compensation
----------------------
Summary of Cash and Certain Other Compensation
The following table sets forth the annual and long-term compensation of
each of the Company's five most highly compensated executive officers for the
years ended December 31, 1994, 1995 and 1996. Generally, officers serve at the
discretion of the Board of Directors of the company that employs them.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------
Awards Payouts
------ -------
Annual Securities
All Other
Compensation(2) Underlying Options LTIP Payouts
---------------
Compensation
Fiscal Year Salary($) Bonus($) (#)(3) ($)(4) ($)(5)
----------- --------- -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
William T. Spane, Jr. 1996 260,010 195,007 21,000 0 4,470
Chairman, President 1995 243,000 182,250 15,000 102,400 4,620
and CEO 1994 225,000 112,500 15,000 102,400 4,620
Lawrence E. Donato 1996 173,340 104,004 15,000 0 3,413
Executive VP and 1995 162,000 97,200 10,000 68,267 4,620
COO 1994 150,000 60,000 10,000 68,267 4,500
BHC Securities, Inc.
Henry H. Clines 1996 133,560 86,814 10,000 0 3,839
President - TradeStar 1995 126,000 81,900 8,000 12,269 3,780
Investments, Inc. 1994 119,253 10,000 7,500 12,269 3,577
Morris L. Miller, Jr. 1996 138,450 55,380 10,000 0 4,153
Senior VP 1995 130,000 52,000 7,000 0 3,900
BHC Securities, Inc. 1994 100,000 30,000 7,000 0 3,577
Charles E. Naddaff(1) 1996 108,500 43,400 5,000 0 1,622
President - 1995 79,200 31,680 4,000 0 0
BHCM Inc. 1994 0 0 0 0 0
</TABLE>
42
<PAGE>
(1) Mr. Naddaff began his employment with the Company on April 3, 1995.
(2) Annual compensation relates to the year in which earned, regardless of
when paid.
(3) The awards for 1996 were made on November 26, 1996, pursuant to the Long
Term Incentive Plan. The awards for 1995 were made on November 29, 1995
pursuant to the Long Term Incentive Plan. The awards for 1994 were made on
December 1, 1994 pursuant to the Long Term Incentive Plan.
(4) This column includes the payment of cash made in connection with the
termination of the Unit Appreciation Plan and the Stock Appreciation
Rights Agreement, both of which had accrued benefits since October, 1986,
in conjunction with the Company's initial public offering of its Common
Stock in April, 1993.
(5) Represents the amount of the Company's matching contributions to its
401(k) Plan.
Stock Grants
The following table sets forth information concerning stock options
granted during the year ended December 31, 1996 to each of the executive
officers named in the Summary Compensation Table. All of the options were
granted on November 26, 1996 under the Company's Long Term Incentive Plan and
are generally not exercisable until November 26, 1999. All options, including
those granted in other years, will fully vest upon a change of control.
OPTIONS GRANTED IN FISCAL YEAR 1996
<TABLE>
<CAPTION>
Potential Realized
Value at Assumed
Number of % of Total Annual Rates of
Securities Option Stock Price
Underlying Granted to Appreciation for
Options Employees Exercise Option Term
Granted During Price Expiration -----------
Name (#) 1996 ($/Sh) Date 5%($) 10%($)
- ---- --- ---- ----- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
William T. Spane, Jr. 21,000 11.7% $15.875 11/25/06 209,658 531,314
Lawrence E. Donato 15,000 8.3% $15.875 11/25/06 149,755 379,421
Henry H. Clines 10,000 5.5% $15.875 11/25/06 99,837 252,948
Morris L. Miller, Jr. 10,000 5.5% $15.875 11/25/06 99,837 252,948
Charles E. Naddaff 5,000 2.7% $15.875 11/25/06 49,918 126,474
</TABLE>
43
<PAGE>
Option Exercises
The following table sets forth information with respect to the exercise of
options during fiscal year 1996 by each of the executive officers named in the
Summary Compensation Table, as well as information concerning unexercised
options held by those same individuals at December 31, 1996:
AGGREGATED OPTIONS EXERCISES DURING FISCAL 1996
AND VALUE OF OPTIONS HELD AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Shares Options at 12/31/96(#) Options at 12/31/96($)(6)
Acquired on Value ---------------------- -------------------------
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
William T. Spane, Jr. 0 0 8,750(1) 15,000(3) 81,812 103,125
9,000(2) 15,000(4) 0 0
21,000(5) 0
Lawrence E. Donato 0 0 7,500(1) 10,000(3) 70,125 68,750
6,400(2) 10,000(4) 0 0
15,000(5) 0
Henry H. Clines 0 0 6,250(1) 7,500(3) 58,437 51,562
5,000(2) 8,000(4) 0 0
10,000(5) 0
Morris L. Miller, Jr. 0 0 7,000(3) 48,125
4,300(2) 7,000(4) 0 0
10,000(5) 0
Charles E. Naddaff 0 0 4,000(4) 0 0
5,000(5) 0 0
</TABLE>
--------------------
(1) Represents options that were awarded pursuant to the 1992 Stock
Option Plan which may be exercised at any time prior to
December 2, 2002 at an exercise price per share of $6.40, provided
the optionee continues to be an employee of the Company.
(2) Represents options that were awarded pursuant to the Long Term
Incentive Plan which may be exercised at any time on or after
December 31, 1996 and prior to December 30, 2003 at
44
<PAGE>
an exercise price per share of $27.50, provided the optionee continues to
be an employee of the Company.
(3) Represents options that were awarded pursuant to the Long Term Incentive
Plan which may be exercised at any time on or after December 1, 1997 and
prior to November 30, 2004 at an exercise price per share of $8.875,
provided the optionee continues to be an employee of the Company.
(4) Represents options that were awarded pursuant to the Long Term Incentive
Plan which may be exercised at any time on or after November 29, 1998 and
prior to November 28, 2005 at an exercise price per share of $18.125,
provided the optionee continues to be an employee of the Company.
(5) Represents options that were awarded pursuant to the Long Term Incentive
Plan which may be exercised at any time on or after November 26, 1999 and
prior to November 25, 2006 at an exercise price per share of $15.875,
provided the optionee continues to be an employee of the Company.
(6) Value of unexercised options is calculated by determining the difference
between the fair market value of the shares of Common Stock underlying the
options on December 31, 1996, $15.75, and the exercise price of the
options. The option's vesting period is accelerated upon a change in
control of the Company (as defined). See Item 1. Subsequent Event - Merger
of the Company.
PENSION PLAN
The Company's Board of Directors has adopted a noncontributory defined
benefit pension plan (the "Defined Benefit Pension Plan") covering substantially
all employees of the Company and its subsidiaries.
The Defined Benefit Pension Plan's benefits are financed exclusively by
contributions made from time to time by the Company and are generally based on
an employee's years of service and compensation. The Defined Benefit Pension
Plan is qualified under Section 401(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), so that benefits under the plan are not taxable to
employees until received by them, and contributions by the Company will be
tax-deductible when made. The benefits under the Defined Benefit Pension Plan
are vested in accordance with a schedule that generally provides for full
vesting after five years of service. An employee who has fewer than five years
of service to his or her credit will have no vested interest in benefits. All
employees of the Company and its subsidiaries are generally eligible for
participation in the Defined Benefit Pension Plan if they have attained the age
of 21 and completed at least one year of service. Distribution of benefits
normally will commence upon the participating employee's reaching age 65 (or, if
earlier, upon the participant's early retirement, death or disability). Payment
of the Defined Benefit Pension Plan's benefits will generally be made monthly
following the participating employees' retirement unless an alternative
equivalent form of benefit is elected. Annual benefits payable under the Defined
Benefit Pension Plan are limited by law. The Company's policy is to fund at
least the minimum
45
<PAGE>
amount required by the Code and the Employee Retirement Income Security Act of
1974. The Defined Benefit Pension Plan is administered by a committee appointed
by the Company's Board of Directors, and its assets are invested in shares of
registered investment companies managed by an affiliate of a stockholder of the
Company.
The Company also maintains a supplemental nonqualified unfunded pension
plan (the "Supplemental Pension Plan") for certain officers of the Company which
is being accounted for by charges to earnings of the Company in an amount that,
if the plan were funded, would be sufficient to meet the projected benefit
obligation. In 1996, such charges were approximately $170,000. The Supplemental
Pension Plan provides participants with pension benefits that would have been
payable under the Defined Benefit Pension Plan but for legal limits. The pension
cost for the Supplemental Pension Plan is based on substantially the same
actuarial methods and economic assumptions as those used for the Defined Benefit
Pension Plan.
The following table reflects the estimated annual benefits in the form of a
single life annuity at age 65 payable under the Defined Benefit Pension Plan and
the Supplemental Pension Plan. The compensation of the executive officers named
in the Summary Compensation Table that is covered by the Defined Benefit Pension
Plan and the Supplemental Pension Plan is substantially equal to the salary and
bonus listed in that table for each such person. Messrs. Spane and Donato each
has 13 years of credited service and each currently accrues benefits under the
Defined Benefit Pension Plan. Messrs. Clines, Miller and Naddaff have 6 years,
3 years, and 2 years respectively, of credited service with only Mr. Clines
accruing benefits under the Defined Benefit Pension Plan.
<TABLE>
<CAPTION>
Credited Service
----------------
Final Average
Compensation 5 10 15 20 25+
- ------------ - -- -- -- ---
<S> <C> <C> <C> <C> <C>
150,000 $ 11,173 $ 22,345 $ 33,518 $ 44,691 $ 55,864
175,000 13,173 26,345 39,518 52,691 65,864
200,000 15,173 30,345 45,518 60,691 75,864
225,000 17,173 34,345 51,518 68,691 85,864
250,000 19,173 38,345 57,518 76,691 95,864
275,000 21,173 42,345 63,518 84,691 105,864
300,000 23,173 46,345 69,518 92,691 115,864
325,000 25,173 50,345 75,518 100,691 125,864
350,000 27,173 54,345 81,518 108,691 135,864
375,000 29,173 58,345 87,518 116,691 145,864
400,000 31,173 62,345 93,518 124,691 155,864
425,000 33,173 66,345 99,518 132,691 165,864
450,000 35,173 70,345 105,518 140,691 175,864
</TABLE>
- -------------------------------
Benefit amounts shown are estimates only.
The estimated annual benefits are not subject to any deduction for Social
Security or other offset amounts.
46
<PAGE>
EMPLOYMENT AGREEMENTS
In July, 1994, the Company entered into Change of Control Employment
Agreements with all executive officers named in the Summary Compensation Table
(other than Charles E. Naddaff) and with several other key officers. These
agreements become effective only in the event of a "Change of Control" of the
Company, which is defined to include the acquisition of 20% or more of the
Company's Common Stock by a person or group, a change in a majority of the
current Board of Directors (other than changes approved by the then existing
Board), or a merger, liquidation, dissolution or sale of all or substantially
all of the assets of the Company. See Item 1. Subsequent Event - Merger of the
Company.
The Change of Control Employment Agreements for Messrs. Spane and Donato
provide that, following a Change of Control, each of them will continue to be
employed in the position he held prior to the Change of Control (with comparable
authority, duties and responsibilities) and will receive comparable compensation
and benefits, until the earlier of the third anniversary of the Change of
Control (and thereafter for successive one-year periods unless notice is given
by either party) or his normal retirement date. If Mr. Spane or Mr. Donato is
terminated during such employment period, other than for "cause", or if Mr.
Spane or Mr. Donato terminated his employment for "good reason" (as defined in
the Agreements), he will be entitled to receive a lump-sum severance payment
equal to twice his then annual base salary plus his most recent bonus. In
addition, he will be entitled to continued employee benefits until the end of
the contractual employment period.
The Change of Control Employment Agreements with Messrs. Clines and Miller
and selected officers are similar, except that the amount of their lump-sum
severance payment will equal the sum of their then current base salary plus
their most recent bonus.
Amounts payable under the Change of Control Employment Agreements will be
reduced to the extent necessary to avoid the imposition of an excise tax under
Sections 280G and 4999 of the Code.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation program is designed to attract,
motivate and retain the management talent needed to strengthen the Company's
position in the financial services industry, as well as to achieve the business
objectives set by the Board.
There are three major components of the Company's executive compensation
program: base salary, short-term incentive awards and long-term incentive
awards. Additionally, executive officers are entitled to participate in various
benefit programs sponsored by the Company for its employees.
Salaries of executive officers are set at levels which the Compensation
Committee of the Board of Directors (the "Compensation Committee") (which
consists of three non-employee directors) believes are competitive with salaries
of executives with similar responsibilities at comparable financial services
companies.
47
<PAGE>
A significant portion of total compensation of the Company's executive
officers is paid in the form of annual cash bonuses pursuant to the Company's
operating subsidiaries' short-term incentive compensation plans. For example, in
fiscal 1996, 43% of the annual cash compensation of William T. Spane, Jr., the
Company's Chief Executive Officer ("CEO"), was paid as an annual bonus under
BHC's short-term incentive compensation plan. This is intended to ensure that a
portion of an individual's compensation is subject to fluctuation each year
based upon corporate and individual performance.
Executive officers are also eligible to receive options to purchase shares of
the Company's Common Stock, restricted stock, performance shares, performance
units and other stock-based awards under the Company's Long Term Incentive Plan.
To date, only options have been granted under the Company's Long Term Incentive
Plan. Stock options are granted with an exercise price equal to the fair market
value of the Company's Common Stock on the date of grant. Such grants are tied
indirectly to long-term corporate performance because their value is dependent
on increases in the market value of the Company's Common Stock during the term
of the option (typically ten years).
The compensation program is structured to recognize each executive's level of
responsibility and to reward exceptional individual and corporate performance.
The program takes into account both annual operating results and the
desirability of providing incentives for future improvement. This includes the
ability to implement the Company's business plans, as well as to react to
unanticipated external factors which can have a significant impact on corporate
performance. Compensation decisions, including the granting of stock options,
for all executive officers, including the CEO, are based on the same criteria.
In carrying out its responsibilities, the Compensation Committee has from
time to time availed itself of independent advice in connection with its
consideration of executive compensation plans. The Compensation Committee also
has available to it surveys of financial services industry compensation.
The Compensation Committee does not believe that any action is currently
necessary to address the $1 million deduction limitation under Section 162(m) of
the Code, but will consider whether any changes to the company's compensation
programs are appropriate, if necessary, in the future.
Base Salary
The Compensation Committee believes base salary is a significant factor in
attracting, motivating and retaining competent and skilled executive officers.
The Compensation Committee determines the salary of the CEO. The Compensation
Committee determines the salary of BHC's executive officers, taking into account
the CEO's recommendations.
Salaries and salary adjustments are based on the responsibilities,
performance and experience of each executive, regular reviews of competitive
positioning (comparing the Company's salary structure
48
<PAGE>
with that of similar companies) and business performance.
Short-Term Awards
The Company's operating subsidiaries have short-term incentive compensation
plans under which a bonus award may be made to eligible officers based upon the
achievement of certain defined objectives. The objectives are set each year by
the Compensation Committee and for 1996 were based upon a combination of
targeted "gross margin" for the year (which is defined as net income after
reduction for compensation paid under the short-term incentive compensation plan
and each other incentive and bonus arrangement, but before income tax divided by
gross revenues) and its targeted pre-tax return on equity. All executive
officers who have been employed by one of the Company's operating subsidiaries
for at least three months as of the end of fiscal year 1996, and such other
employees as the Compensation Committee may designate, are eligible to
participate in such subsidiaries' short-term incentive compensation plan.
The specific bonus amount an executive officer received is dependent on the
achievement of the Company's objectives as well as his or her level of
responsibility and individual performance. Assessments of individual performance
are made annually by the Compensation Committee after receiving the
recommendations of the CEO. Such assessments are based on a number of factors,
including individual and corporate performance, initiative, business judgment
and management skills. Maximum bonuses awarded to various levels of officers
range from 30% to 75% of their annual salaries.
Awards to officers and certain other employees designated by the Compensation
Committee are payable as follows: 65% of the award is payable in cash as soon as
is practicable following the close of the respective operating subsidiaries'
year (but in no event more than two months and 15 days after the end of the
year) and the remaining 35% is payable as soon as is practicable after the close
of the next year (but in no event later than two months and 15 days after the
end of such year). Deferred amounts earn interest at an average rate equal to
the broker call rate less 1% from the date of the first partial payment to the
date of payment of the deferred amount.
If the employment of any officer or employee participating in a short-term
incentive plan is terminated, other than by reason of death or retirement, any
unpaid bonus or portion thereof payable to such participant will be forfeited.
In the event of death or retirement, any unpaid bonus will be paid as soon
thereafter as is practicable to the participant's estate or to the participant,
as the case may be.
Long-Term Incentive Awards
Long-Term incentive awards, made pursuant to the Long-Term Incentive Plan,
are designed to align the interests of executives with those of the stockholders
by reinforcing the importance of building long-term value for the Company's
stockholders.
49
<PAGE>
Stock options were the only long-term incentives granted to executive
officers and key employees in fiscal 1996. The Compensation Committee believes
that the periodic grant of stock options focuses management's attention on long-
term growth in stockholder value and stock price appreciation. The amount of the
grant is dependent upon the recipient's overall employment responsibilities and
whether both individual and corporate objectives for the year have been met. The
180,000 options granted in 1996 to both executive and non-executive officers
pursuant to the Long-Term Incentive Plan have a term of 10 years and were
granted at a price per share of $15.875, which was the fair market value of the
Company's Common Stock on the date of grant, November 26, 1996. The options vest
and may be exercised at any time on or after November 26, 1999 and before
November 25, 2006; provided, however, in the event of death, disability or
retirement after age 55 with at least five years of service, the options will be
fully vested and may be exercised until the expiration of the option term; in
the event of an involuntary termination, the options may be exercised for the
lesser of three months or the balance of the option term; and in the event of
termination of employment for any other reason, the options terminate. All
options, including those granted in other years will fully vest upon a change of
control.
The number of options that the Compensation Committee grants to executive
officers is based on individual performance and level of responsibility, and is
determined by the Compensation Committee after considering the recommendations
of the CEO. Award levels must be sufficient in size so that executives develop
strong incentives to achieve long-term corporate goals.
Mr. Spane's 1996 Compensation
The Compensation Committee's approach in setting Mr. Spane's 1996 annual
compensation was to seek to be generally competitive with others in the
Company's industry and to fit within the Company's overall compensation policy
as discussed above.
Mr. Spane's salary and award of options under the Company's Long-Term
Incentive Plan were based on the Compensation Committee's general evaluation of
Mr. Spane's overall contribution as CEO to the Company. Mr. Spane's bonus was
set by the Compensation Committee under BHC's short-term incentive compensation
plan. The Company's objectives as well as Mr. Spane's level of responsibility,
individual performance, initiative, business judgement and management skills
were taken into consideration by the Compensation Committee in setting Mr.
Spane's bonus. The Compensation Committee believes that Mr. Spane's cash
compensation (salary and bonus) and stock option award under the Long-Term
Incentive Plan were appropriate in relation to the size and business results of
the Company.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock by each person who is known by the
Company to own beneficially more than 5% of the Common Stock, each executive
officer named in the Summary Compensation Table, each of the Company's directors
and each nominee for election as a director, and all directors and executive
50
<PAGE>
officers of the Company as a group.
<TABLE>
<CAPTION>
Shares of Common
----------------
Stock Beneficially Percent
------------------ -------
Name of Beneficial Owner (1) Owned (2) of Class
- ----------------------------- ----------- --------
<S> <C> <C>
Private Capital Management (3) 1,242,450 19.62%
Wellington Management Company, LLP (3) 527,000 8.32%
FMR Corp. (3) 434,900 6.87%
Dimensional Fund Advisors (3) 345,300 5.45%
Jeffrey S. Halis (3) 317,700 5.00%
William T. Spane, Jr. 47,661(4)(5) *
Lawrence E. Donato 36,248(4)(5) *
Henry H. Clines 16,116(4)(5) *
Morris L. Miller, Jr. 6,299(4)(5) *
Charles E. Naddaff 2,045(4) *
Robert T. Arnold 5,250(6) *
Vincent G. Bell, Jr. 6,500(6) *
Richard L. Bunn 7,250(6) *
Carroll H. Crouch, Jr. 4,100(6) *
George L. Denton, Jr. 5,000(6) *
John W. Saunders, Jr. 7,000(6) *
All executive officers and directors
as a group (16 persons) 162,861(4)(5)(6) 2.57%
</TABLE>
- ----------------------
* Less than 1%
(1) All information with respect to beneficial ownership of shares is based
upon filings made by the respective beneficial owners with the Securities
and Exchange Commission (the "SEC") or information provided by such
beneficial owners to the Company. The information with respect to Private
Capital Management is as of October 4, 1996. The information with respect
to Jeffrey S. Halis is as of January 23, 1997. The information with respect
to Wellington Management Company, FMR Corp. and Dimensional Fund Advisors
is as of December 31, 1996. All other information is as of March 10, 1997.
(2) The persons named in the table have sole voting and investment power (or
voting and investment power shared with a spouse) with respect to all
shares of Common Stock shown as beneficially owned by them, subject to the
information contained in note (3) to this table.
(3) Shares beneficially owned by Private Capital Management, Inc. ("PCM"), 3003
Tamiami Trail North, Naples, Florida, 33940, its affiliates and employees
are as follows: PCM, 1,109,150 shares; SPS Partners, L.P. ("SPS"), 131,500
shares; Bruce S. Sherman, 800 shares; and Gregg J. Powers, 1,000 shares.
PCM and Bruce S. Sherman, as President of PCM, have shared
51
<PAGE>
dispositive power with respect to the shares of the Common Stock managed by
PCM and do not have either sole or shared voting power with respect to such
shares of the Common Stock. SPS and Bruce S. Sherman, as Managing General
Partner of SPS, have shared dispositive power with respect to the shares of
the Common Stock beneficially owned by SPS and do not have either sole or
shared voting power with respect to such shares if the Common Stock. Mr.
Sherman and Mr. Powers have sole voting and dispositive power with respect
to the shares of the Common Stock beneficially owned by them in their
individual capacities.
Wellington Management Company, LLP, 75 State Street, Boston, Massachusetts,
02109, holds 527,000 shares with sole dispositive power. Of that amount,
256,000 are held with shared voting power.
FMR Corp. 82 Devonshire Street, Boston, Massachusetts, 02109, holds 434,900
shares and has sole dispositive power to vote or to direct the vote over
134,900 shares. FMR Corp. has sole power to dispose or to direct the
disposition of 434,900 shares.
Dimensional Fund Advisors, 1299 Ocean Avenue, 11th Floor, Santa Monica,
California, 90401, holds 345,300 shares of which all are held with sole
dispositive power and 228,950 are held with sole voting power.
Jeffrey S. Halis, 500 Park Avenue, Fifth Floor, New York, New York, 10022,
serves as a general partner of Halo Capital Partners, L.P. ("Halo"), a
Delaware limited partnership. Halo serves as the sole general partner of
each of Tyndall Partners, L.P. ("TP"), Tyndall Institutional Partners, L.P.
("TIP") and Madison Avenue Partners, L.P. ("MAP), each of which are
Delaware limited partnerships having their principal executive offices
located at 500 Park Avenue, Fifth Floor, New York, New York, 10022. 247,300
shares are owned by TP; 48,600 shares are owned by TIP; 13,800 shares are
owned by MAP; and 8,000 shares are owned individually by Jeffrey S. Halis.
Pursuant to the Agreement of Limited Partnership of each of TP, TIP and
MAP, Jeffrey S. Halis possesses sole voting and investment control over all
securities owned by each of TP, TIP and MAP, respectively. In addition,
Jeffrey S. Halis possesses sole voting power and investment control over
the securities owned by him individually.
(4) Includes shares of Common Stock held under the Company's 401(k) Plan, which
as of December 31, 1996, the last date that quarterly reports were
available, was as follows: Mr. Spane- 1,277.7; Mr. Donato -3,348.7; Mr.
Clines - 1,805; Mr. Miller - 1009.1; Mr. Naddaff - 45.8753; and all
executive officers and directors as a group - 9,054.
(5) Includes options to purchase shares of Common Stock that are currently
exercisable as follows: Mr. Spane - 17,750; Mr. Donato - 13,900;
Mr. Clines - 11,250; Mr. Miller - 4,300; and all executive officers and
directors as a group - 86,900.
(6) Includes the award of 3,000 options on May 16, 1995 and 1,000 options on
May 21, 1996 pursuant to the Directors Stock Option Plan to each
non-employee director of the Company to purchase shares of Common Stock.
52
<PAGE>
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
Certain directors and executive officers maintain margin accounts with the
Company. Such extensions of credit have been made in the ordinary course of the
Company's business and are on the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
non-affiliated persons, and do not involve more than the normal risk of
collectability or present other unfavorable features.
During the 1996 fiscal year, the Company retained the services of Paoli
Travel Services, Inc., of which Richard L. Bunn is a director and Vice
President. The Company purchased approximately $180,000 worth of airline and
train tickets at rates established by the airlines and railroads utilizing Paoli
Travel Services Inc. as agent on which Paoli Travel Services Inc. earned
commissions. The Company believes that the cost of these airline and train
tickets was as favorable to the Company as could have been obtained from a
non-affiliated entity.
On August 16, 1995 Charles E. Naddaff, President of BHCM Inc. entered into a
Promissory Note with BHC in the amount of $135,000. The Promissory Note was
entered into as part of an agreement relating to his employment with BHCM Inc.
whereby Mr. Nadddaff was loaned these funds to purchase a home to be used as his
principal residence. The loan, payable in one lump-sum payment on or before
August 15, 1998 accrued interest quarterly at the broker call rate in effect as
of the last business day of each calendar quarter. The loan was paid-in-full by
Mr. Naddaff on July 31, 1996.
PART IV
-------
Item 14. Exhibits, Financial Statements, Financial Statement Schedules and
-----------------------------------------------------------------
Report of Independent Accountants
- ---------------------------------
(1) Financial Statement Schedules of BHC Financial, Inc. are as follows:
Schedule Number
---------------
S-1 Report of Independent Accountants
S-2 to 5 Schedule I-Condensed Financial Statements of Registrant
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
53
<PAGE>
EXHIBITS
2 Agreement and Plan of Merger among BHC Financial, Inc., Fiserv,
Inc. and Fiserv Delaware Sub, Inc. dated as of March 2, 1997.
3.1 Amended and Restated Certificate of Incorporation of the Registrant
filed with the State of Delaware on February 18, 1993.
(Incorporated by reference to Exhibit 3.1 to the Registrant's Form
S-1 Registration Statement, Reg. No. 33-46492)
3.2 Amended and Restated By-Laws of the Registrant (Incorporated by
reference to Exhibit 3.2 to the Registrant's Form S-1 Registration
Statement, Reg. No. 33-46492)
4.1 Specimen copy of stock certificate for shares of Common Stock of
the Registrant. (Incorporated by reference to Exhibit 4.1 to the
Registrant's Form S-1 Registration Statement, Reg. No. 33-46492)
4.2 Rights Agreement between BHC Financial, Inc. and American Stock
Transfer and Trust Company, as Rights Agent dated November 12,
1996. (Incorporated by reference to Exhibit 4 to the Registrant's
Report on Form 10-Q for the quarter ended September 27, 1996).
4.3 Amendment to Rights Agreement between BHC Financial, Inc. and
American Stock Transfer and Trust Company dated March 2, 1997.
10 Commerce Square Phase I sub-lease by and between International
Business Machines Corporation and BHC Securities, Inc.
(Incorporated by reference to Exhibit 10 to the Registrant's Report
on Form 10-Q for the quarter ended September 24, 1993)
10.1* Change of Control Employment Agreement between BHC Securities, Inc.
and William T. Spane, Jr., President. (Incorporated by reference to
Registrant's Report on Form 10-K for the year ended December 31,
1995)
10.1A* Change of Control Employment Agreement between BHC Financial, Inc.
and Lawrence E. Donato, Executive Vice President and Chief
Operating Officer. (Incorporated by reference to Registrant's
Report on Form 10-K for the year ended December 31, 1995)
10.2* Change of Control Employment Agreement between BHC Financial, Inc.
and Morris L. Miller, Jr., Senior Vice President Client Services.
(Incorporated by reference to Registrant's Report on Form 10-K for
the year ended December 31, 1995)
10.2B* Change of Control Employment between BHC Financial, Inc. and Henry
H.
54
<PAGE>
Clines, President (TradeStar Investments, Inc.) (Incorporated by
reference to Registrant's Report on Form 10-K for the year ended
December 31, 1995)
10.3* BHC Financial, Inc. Long-Term Incentive Plan.
10.4* BHC Securities, Inc. Short-Term Incentive Compensation Plan.
(Incorporated by reference to Exhibit 10.4 to the Registrant's Form
S-1 Registration Statement, Reg. No. 33-46492)
10.5 Form of Clearing Agreement entered into between BHC and Clients.
(Incorporated by reference to Exhibit 10.5 to the Registrant's Form
S-1 Registration Statement, Reg. No. 33-46492)
10.6* Form of Stock Appreciation Right Termination Agreement between BHC
and the holders of outstanding Stock Appreciation Rights.
(Incorporated by reference to Exhibit 10.6 to the Registrant's Form
S-1 Registration Statement, Reg. No. 33-46492)
10.7* Forms of Unit Appreciation Plan Termination Agreement between BHC
and the holders of outstanding Units awarded under the Unit
Appreciation Plan. (Incorporated by reference to Exhibit 10.7 to the
Registrant's Form S-1 Registration Statement, Reg. No. 33-46492)
10.8* Form of Termination Agreement between the Company and certain
stockholders of the Company. (Incorporated by reference to Exhibit
10.8 to the Registrant's Form S-1 Registration Statement, Reg. No.
33-46492)
10.9 Lease Agreement, dated September 26, 1989, between the Registrant
and Tandem Computers Credit Corporation. (Incorporated by reference
to Exhibit 10.9 to the Registrant's Form S-1 Registration Statement,
Reg. No. 33-46492)
10.10 Agreement for Brokerage Processing System, dated November 9, 1983,
between: Securities Industry Software Corp. and Provident National
Bank, as assigned by Provident National Bank to BHC by letter, dated
December 31, 1986, from Provident National Bank to Securities
Industry Software Corp. (Incorporated by reference to Exhibit 10.10
to the Registrant's Form S-1 Registration Statement, Reg. No. 33-
46492)
10.11* BHC Financial, Inc. 1992 Stock Option Plan. (Incorporated by
reference to Exhibit 10.11 to the Registrant's Form S-1 Registration
Statement, Reg. No. 33-46492)
21 Subsidiaries of the Company.
23 Consent of Coopers & Lybrand L.L.P.
55
<PAGE>
27 Financial Data Schedule
(b) The Registrant filed reports on Form 8-K on March 13, 1996 and October 17,
1996.
*Management contract or compensatory plan or arrangement.
56
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BHC FINANCIAL, INC.
By /s/ Lawrence E. Donato
------------------------------------------
Senior Vice President, Chief Financial
Officer and Treasurer
By /s/ Richard M. Bare
------------------------------------------
Controller
Dated: March 10, 1997
Pursuant to the requirements of the Securities Act of 1934, this Report has
been signed below by the following persons on behalf of the Registrant and in
the capacities indicated on March 10, 1997.
Signature Title
--------- -----
/s/ William T. Spane, Jr. Chairman, Chief Executive
- -------------------------------- Officer, President and
William T. Spane, Jr. Director (Principal
executive officer)
/s/ Lawrence E. Donato Senior Vice President, Chief
- -------------------------------- Financial Officer and
Lawrence E. Donato Treasurer (Principal
financial and accounting
officer)
/s/ Robert T. Arnold Director
- --------------------------------
Robert T. Arnold
/s/ Vincent G. Bell, Jr. Director
- --------------------------------
Vincent G. Bell, Jr.
/s/ Richard L. Bunn Director
- --------------------------------
Richard L. Bunn
II-I
<PAGE>
Signature Title
- --------- -----
/s/ Carroll H. Crouch, Jr. Director
- -------------------------------------
Carroll H. Crouch, Jr.
/s/ George L. Denton, Jr. Director
- -------------------------------------
George L. Denton, Jr.
/s/ John W. Saunders, Jr. Director
- -------------------------------------
John W. Saunders, Jr.
II-II
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and
Board of Directors of
BHC Financial, Inc.:
Our report on the consolidated financial statements of BHC Financial, Inc. has
been included in this Form 10-K. In connection with our audits of such financial
statements, we have also audited the related financial statement schedules
listed in the index on page 53 of this Form 10-K.
In our opinion, these financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly, in all
material respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 14, 1997 except for Note 12 of the consolidated financial statements
as to which the date is March 3, 1997
S-1
<PAGE>
Schedule I
BHC FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BHC FINANCIAL, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF FINANCIAL CONDITION
(in thousands)
<TABLE>
<CAPTION>
December 31,
1996 1995
----- -----
ASSETS
------
<S> <C> <C>
Investments in subsidiaries, at equity(a)............... $100,550 $86,375
Receivable from subsidiaries(a)......................... 37 31
Intangible assets, net.................................. 1,460 1,642
Other assets............................................ 112 107
-------- -------
Total assets............................................ $102,159 $88,155
======== =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Income taxes payable.................................... $ 1,334 $ 149
Other liabilities....................................... 1,959 1,142
Payable to subsidiaries(a).............................. 5,399 1,556
------- -------
Total liabilities....................................... 8,692 2,847
Total stockholders' equity.............................. 93,467 85,308
-------- -------
Total liabilities and stockholder's equity.............. $102,159 $88,155
======== =======
</TABLE>
(a) These items have been eliminated in the Company's consolidated financial
statements.
See notes to condensed financial information
S-2
<PAGE>
BHC FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (Continued)
Schedule I - (Continued)
BHC FINANCIAL, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF INCOME AND
CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues:
Management fees and equipment rental income
from subsidiaries(a)............................. $ 7,510 $ 4,246 $ 2,945
Other Income..................................... 1 19 7
------ ------ ------
Total revenues............................ 7,511 4,265 2,952
------ ------ ------
Expenses:
Interest......................................... -- 7 86
Other expense.................................... 1,639 1,906 2,090
------ ------ ------
Total expenses............................ 1,639 1,913 2,176
------ ------ ------
Income before provision for income taxes and equity
in earnings of subsidiaries........................... 5,872 2,352 776
Provision for income taxes....................... 2,622 1,069 339
------ ------ ------
Income before equity in earnings of subsidiaries...... 3,250 1,283 437
Equity in earnings of subsidiaries.................... 14,774 12,654 10,187
------ ------ ------
Net Income............................................ 18,024 13,937 10,624
Stockholders' equity at beginning of year............. 85,308 75,101 68,525
Dividends paid........................................ (790) (780) (608)
Purchase of Treasury Stock............................ (9,125) (2,987) (3,440)
Exercise of Stock Options............................. 50 37 --
------ ------ ------
Stockholders' equity at end of year................... $93,467 $85,308 $75,101
====== ====== ======
</TABLE>
(a) These items have been eliminated in the Company's consolidated financial
statements.
See notes to condensed financial information
S-3
<PAGE>
BHC FINANCIAL, INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT - (Continued)
Schedule I - (Continued)
BHC FINANCIAL, INC.
(PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $18,024 $13,937 $10,624
Adjustments to reconcile net income to net cash provided by
operating activities:
Undistributed equity in earning so subsidiaries........ (14,774) (12,654) (10,187)
Depreciation and amortization.......................... 183 687 1,247
Change in receivable from subsidiaries................. (6) 103 513
Change in payable to subsidiaries...................... 3,843 1,556 --
Change on other assets................................. (5) 278 (281)
Change in income taxes payable and other liabilities... 2,002 (187) 553
------ ------ ------
Net cash provided by operating activities.............. 9,267 3,720 2,469
------ ------ ------
Cash flows from investing activities:
Investment in subsidiaries............................. 600 422 3,151
------ ------ ------
Net cash provided by (used by) operating activities.... 600 422 3,151
------ ------ ------
Cash flows from financing activities:
Payments for the purchase of Treasury Stock............ (9,125) (2,987) (3,440)
Proceeds from exercise of stock options................ 50 37 --
Dividends paid......................................... (790) (780) (608)
Payments on notes payable.............................. -- -- (456)
Payments on capital leases............................. -- (583) (1,168)
------ ------ ------
Net cash paid provided by (used in) financing activities.... (9,865) (4,313) (5,672)
------ ------ ------
Change in cash and cash equivalents......................... 2 (171) (52)
Balance at beginning of year................................ 47 218 270
------ ------ ------
$ 49 $ 47 $ 218
======= ====== ======
</TABLE>
See notes to condensed financial information
S-4
<PAGE>
Schedule I - (Continued)
BHC FINANCIAL, INC.
CONDENSED FINANCIAL INFORMATION OR REGISTRANT - (Continued)
BHC FINANCIAL, INC.
(Parent Company Only)
NOTES TO CONDENSED FINANCIAL INFORMATION
1. The condensed financial information of BHC Financial, Inc., (Parent company
only-the "Parent") should be read in conjunction with the consolidated
financial statements of BHC Financial, Inc. and Subsidiaries and the notes
thereto which are included in the BHC Financial, Inc. And Subsidiaries
Consolidated Financial Statements which are included.
2. Receivable from and payable to subsidiaries represent amounts due on
intercompany transactions, principally Federal income taxes, management
fees and interest payments.
3. The Parent charged BHC management fees of $6,500,000, $3,000,000 and
$1,200,000 in 1996, 1995, and 1994, respectively. The Parent charged
TradeStar $181,000, $96,000, and $54,000 in management fees for 1996, 1995,
and 1994, respectively. The Parent charged BHC for equipment rental of
$828,000, $1,150,000 and $1,664,000 in 1996, 1995 and 1994, respectively.
4. The Parent received dividends from subsidiaries totaling $600,000,
$422,000 and $3,151,000 in 1996, 1995 and 1994 respectively.
<PAGE>
Exhibit 2
Execution Copy
============================================================
AGREEMENT AND PLAN OF MERGER
among
BHC FINANCIAL, INC.,
FISERV, INC.
and
FISERV DELAWARE SUB, INC.
-----------------------------------------------------
Dated as of March 2, 1997
-----------------------------------------------------
============================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
ARTICLE I
THE MERGER
<S> <C>
1.1. The Merger.............................................................................. 1
1.2. Effective Time.......................................................................... 2
1.3. Organizational Documents, Directors and Officers
of the Surviving Corporation........................................................... 2
1.4. Further Assurances...................................................................... 3
1.5. Conversion of Fiserv Sub Common Stock, Common
Stock and BHC Options.................................................................. 3
1.6. Delivery of the Merger Consideration.................................................... 4
1.7. Exchange of Shares...................................................................... 4
<CAPTION>
ARTICLE II
REPRESENTATIONS AND WARRANTIES
<S> <C>
2.1. Representations and Warranties of BHC Parent......................................... 5
2.1.1. Authorization; No Conflicts; Status of BHC
Group, etc.................................................................. 5
2.1.2. Capitalization............................................................... 7
2.1.3. Financial Information........................................................ 8
2.1.4. Undisclosed Liabilities...................................................... 8
2.1.5. Absence of Changes........................................................... 9
2.1.6. Taxes........................................................................ 11
2.1.7. Properties and Assets........................................................ 15
2.1.8. Contracts.................................................................... 15
2.1.9. Intellectual Property........................................................ 16
2.1.10. Insurance................................................................... 18
2.1.11. Litigation.................................................................. 18
2.1.12. Compliance with Laws and Other
Instruments; Governmental Approvals........................................ 18
2.1.13. Affiliate Transactions...................................................... 20
2.1.14. Government Regulation....................................................... 20
2.1.15. Labor Matters, etc.......................................................... 21
2.1.16. ERISA....................................................................... 21
2.1.17. Brokers, Finders, etc....................................................... 24
2.1.18. Environmental Matters....................................................... 24
2.1.19. Pooling of Interests........................................................ 25
2.1.20. Disclosure.................................................................. 26
2.2. Representations and Warranties of Fiserv and Fiserv Sub.............................. 26
2.2.1. Authorization; No Conflicts; Status of
Fiserv Group, etc........................................................... 26
2.2.2. Capitalization............................................................... 28
2.2.3. Undisclosed Liabilities...................................................... 28
2.2.4. Absence of Adverse Changes or Events......................................... 28
2.2.5. Taxes........................................................................ 29
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
(d) Investment Company; No Bankruptcy..................................... 29
2.2.6. Title to Properties and Absence of Liens.................................... 29
2.2.7. Patents, Licenses and Infringement.......................................... 30
2.2.8. Litigation.................................................................. 30
2.2.9. Compliance with Laws and Other
Instruments; Governmental Approvals........................................ 30
2.2.10. ERISA....................................................................... 31
2.2.11. Brokers, Finders, etc....................................................... 34
2.2.12. Pooling of Interests........................................................ 34
2.2.13. Disclosure.................................................................. 34
2.2.14. Proxy Statement/Prospectus.................................................. 34
3.1. Covenants of BHC Parent.............................................................. 35
3.1.1. Conduct of Business.......................................................... 35
3.1.2. No Solicitation.............................................................. 36
3.1.3. Access and Information....................................................... 37
3.1.4. Subsequent Financial Statements and Filings.................................. 37
3.1.5. Public Announcements......................................................... 38
3.1.6. Further Actions.............................................................. 38
3.1.7. Registration Statement....................................................... 40
3.1.8. Payment of Dividend.......................................................... 40
3.1.9. Offering to BHC Shareholders................................................. 40
3.1.10. Rights Plan.................................................................. 40
3.1.11. Issuance of Additional Shares................................................ 40
3.1.12. Delisting; Transfer Books.................................................... 41
3.2.1. Conduct of Business.......................................................... 41
3.2.2. Fiserv Acquisition Proposal.................................................. 42
3.2.4. Subsequent Financial Statements and Filings.................................. 43
3.2.5. Public Announcements......................................................... 43
3.2.6. Further Actions.............................................................. 43
3.2.7. Tax-Free Reorganization Covenants............................................ 45
3.2.8. Employee Benefit Matters..................................................... 45
3.3. BHC Options and Option Plans......................................................... 46
3.4. Pooling Condition.................................................................... 47
3.5. Nasdaq Requirements.................................................................. 47
3.6. Registration Statement............................................................... 48
ARTICLE IV
<CAPTION>
CONDITIONS PRECEDENT
<S> <C>
4.1. Conditions to Obligations of Each Party.............................................. 48
4.1.1. HSR Act Notification......................................................... 48
4.1.2. No Injunction, etc........................................................... 48
4.1.3. Other Consents............................................................... 49
4.1.4. Approval of Merger Shares for Listing........................................ 49
4.2. Conditions to Obligations of Fiserv and Fiserv Sub................................... 49
4.2.1. Representations, Performance, etc............................................ 49
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
4.2.2. Governmental Approvals....................................................... 49
4.2.3. Opinion of Counsel........................................................... 49
4.2.4. Proceedings.................................................................. 50
4.2.5. FIRPTA Certification......................................................... 50
4.3. Conditions to Obligations of BHC Parent.............................................. 50
4.3.1. Representations, Performance, etc............................................ 50
4.3.2. Governmental Approvals....................................................... 51
4.3.3. Opinions of Counsel.......................................................... 51
4.3.4. Proceedings.................................................................. 51
4.3.5. Tax Opinion.................................................................. 51
4.3.6. Certificates................................................................. 51
ARTICLE V
<CAPTION>
TERMINATION
<S> <C>
5.1. Termination............................................................................. 52
5.2. Effect of Termination................................................................... 53
ARTICLE VI
<CAPTION>
DEFINITIONS, MISCELLANEOUS
<S> <C>
6.1. Definition of Certain Terms............................................................. 53
6.2. Survival of Representations, Warranties and
Covenants............................................................................ 61
6.3. Expenses; Transfer Taxes................................................................ 61
6.4. Severability............................................................................ 62
6.5. Notices................................................................................. 62
6.6 Miscellaneous........................................................................... 63
6.6.1. Headings........................................................................ 63
6.6.2. Entire Agreement................................................................ 63
6.6.3. Counterparts.................................................................... 63
6.6.4. Jurisdictional Matters.......................................................... 64
6.6.5. Binding Effect.................................................................. 64
6.6.6. Assignment...................................................................... 64
6.6.7. No Third Party Beneficiaries.................................................... 64
6.6.8. Waiver of Jury Trial............................................................ 65
6.6.9. Amendment; Waivers.............................................................. 65
</TABLE>
(iii)
<PAGE>
EXHIBITS AND SCHEDULES
Exhibit A -- Form of Certificate of
Incorporation of
the Surviving Corporation
Exhibit B -- Form of By-Laws of the Surviving
Corporation
Exhibit D -- Form of Exchange Agreement
Schedule 2.1.1(b) -- Company Conflicts and Governmental
Approvals
Schedule 2.1.1(c) -- Due Organization
Schedule 2.1.2(b) -- Equity Interests of the BHC Group
Schedule 2.1.2(c) -- Option Holders
Schedule 2.1.2(d) -- Agreements with Respect to Capital
Stock
Schedule 2.1.2(e) -- Other Investments
Schedule 2.1.4 -- Obligations or Liabilities
Schedule 2.1.5 -- Changes Since December 31, 1996
Schedule 2.1.6(a) -- Tax Returns; Payment of Taxes
Schedule 2.1.6(b) -- Tax Extensions
Schedule 2.1.6(c) -- Tax Filing Groups; Tax Filing
Jurisdictions
Schedule 2.1.6(d) -- Tax Audits and Assessments
Schedule 2.1.6(f) -- Tax Sharing Arrangements
Schedule 2.1.6(g) -- Distributions Other than in
Ordinary
Course of Business
Schedule 2.1.6(h) -- Section 481 Adjustments
Schedule 2.1.6(i) -- Real Property in Transfer Tax
Jurisdictions
Schedule 2.1.6(j) -- Affiliated Group Items
Schedule 2.1.6(m) -- Contracts or Plans of Affected by
Change in Control
Schedule 2.1.7 -- Real Property
Schedule 2.1.8(a) -- Contracts
Schedule 2.1.8(b) -- Contract Exceptions
Schedule 2.1.9(a) -- Intellectual Property
Schedule 2.1.9(b) -- Intellectual Property Infringements
Schedule 2.1.10 -- Insurance Policies
Schedule 2.1.11 -- Litigation
Schedule 2.1.12(a) -- Compliance with Laws
Schedule 2.1.12(b) -- Governmental Approvals
Schedule 2.1.13 -- Affiliate Transactions
Schedule 2.1.14(a) -- Regulatory Compliance:
Broker-Dealers
Schedule 2.1.16(a) -- ERISA Plans
Schedule 2.1.16(b) -- Minimum Funding Standards
Schedule 2.1.17 -- Brokers, Finders, etc.
Schedule 2.1.18 -- Environmental Matters
Schedule 2.1.19 -- Pooling
Schedule 2.2.1(b) -- No Conflicts
(iv)
<PAGE>
Schedule 2.2.2(c) -- Agreements with Respect to Capital
Stock
Schedule 2.2.4 -- Undisclosed Liabilities
Schedule 2.2.8 -- Litigation
Schedule 2.2.9(a) -- Compliance with Laws
Schedule 2.2.9(b) -- Governmental Approvals
Schedule 2.2.10(a) -- ERISA Plans
Schedule 3.1.1 -- Conduct of Business
Schedule 3.2.1 -- Conduct of Business
(v)
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER, dated as of March 2, 1997, among
BHC Financial, Inc., a Delaware corporation ("BHC Parent"), Fiserv, Inc., a
----------
Wisconsin corporation ("Fiserv"), and Fiserv Delaware Sub, Inc., a Delaware
------
corporation ("Fiserv Sub") and a wholly owned subsidiary of Fiserv.
----------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, BHC Parent is a Delaware corporation having
authorized capital of 33,000,000 shares of Common Stock, of which 6,330,850
shares are issued and outstanding on the date hereof (capitalized terms used
herein without definition having the meanings specified therefor in Section
6.1);
WHEREAS, Fiserv, Fiserv Sub and BHC Parent desire to have
Fiserv Sub merge with and into BHC Parent (if, but only if, at the time of the
merger, Fiserv Sub is a direct wholly-owned Subsidiary of Fiserv) or another
direct wholly-owned Subsidiary of Fiserv to which this Agreement may be assigned
(in either case, "Fiserv Sub") (the "Merger") on the terms and conditions and
---------- ------
for the consideration described in this Agreement;
WHEREAS, in furtherance of such Merger, the Boards of
Directors of BHC Parent, Fiserv and Fiserv Sub and the shareholder of Fiserv Sub
have approved the Merger upon the terms and subject to the conditions set forth
in this Agreement, and, in the case of BHC Parent, has directed that this
Agreement be submitted to its shareholders for approval;
WHEREAS, BHC Parent, Fiserv and Fiserv Sub desire to make
certain representations, warranties and agreements in connection with the Merger
and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual promises,
covenants, representations and warranties made herein and of the mutual benefits
to be derived therefrom, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1. The Merger. In accordance with and subject to
----------
the terms and provisions of this Agreement and the DGCL, at the Effective Time:
(i) Fiserv Sub shall be merged with and into BHC Parent, the separate existence
of Fiserv Sub shall cease and BHC
<PAGE>
Parent shall be the surviving corporation (the "Surviving Corporation") and
---------------------
shall continue its corporate existence under the laws of Delaware; (ii) all
rights, privileges, immunities, powers, purposes, franchises, properties and
assets of BHC Parent and Fiserv Sub shall vest in the Surviving Corporation;
(iii) all debts, liabilities, obligations, restrictions, disabilities and duties
of BHC Parent and Fiserv Sub shall become the debts, liabilities, obligations,
restrictions, disabilities and duties of the Surviving Corporation; and (iv) the
certificate of incorporation of the Surviving Corporation shall be amended so
that it is substantially the same as the certificate of incorporation of Fiserv
Sub immediately prior to the Effective Time and (v) the name of the Surviving
Corporation shall be changed to "Fiserv Clearing, Inc.". The parties intend that
the Merger will meet the requirements of Section 368(a)(1)(A) and 368(a)(2)(E)
of the Code and the United States Treasury regulations thereunder.
1.2. Effective Time. Upon the terms and subject to the
---------------
conditions of this Agreement, following the satisfaction or waiver of the
conditions set forth in Article IV, BHC Parent shall execute and file a
Certificate of Merger (together with any other documents required by Applicable
Law to effectuate the Merger) with the Secretary of State of the State of
Delaware in accordance with Sections 251 and 103 of the DGCL (the "Certificate
-----------
of Merger"). Prior to such filing, a closing (the "Closing") will be held at the
- --------- -------
offices of Ballard Spahr Andrews & Ingersoll, 1735 Market Street, Philadelphia,
Pennsylvania 19103 (or such other place as the parties may agree) at 10:00 a.m.,
Eastern Standard Time, on the Scheduled Closing Date, for the purpose of
confirming all of the foregoing. The Merger shall become effective
simultaneously with the filing of the Certificate of Merger. The date and time
when the Merger shall become effective is referred to in this Agreement as the
"Effective Time."
1.3. Organizational Documents, Directors and Officers of the
-------------------------------------------------------
Surviving Corporation. (a) Certificate of Incorporation. The Certificate of
- --------------------- ----------------------------
Incorporation of the Surviving Corporation shall be amended so that from and
after the Effective Time, the Certificate of Incorporation of Fiserv Sub in
effect immediately prior to the Effective Time, which shall be in the form
attached hereto as Exhibit A, shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended, altered or repealed as provided
therein or by Applicable Law.
(b) Bylaws. The Bylaws of the Surviving Corporation shall be
------
amended so that from and after the Effective Time, the bylaws of Fiserv Sub in
effect immediately prior to the Effective Time, which shall be in the form
attached hereto as Exhibit B,
2
<PAGE>
shall be the bylaws of the Surviving Corporation until thereafter amended,
altered or repealed as provided therein.
1.4. Further Assurances. If at any time after the Effective
------------------
Time the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments or assurances or any other acts or things are
necessary, desirable or proper (a) 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, privileges, immunities, powers, purposes, franchises,
properties or assets of BHC Parent or Fiserv Sub, or (b) otherwise to carry out
the purposes of this Agreement, the Surviving Corporation and its proper
officers and directors or their designees shall be authorized to solicit in the
name of BHC Parent or Fiserv Sub any third party consents or other documents
required to be delivered by any third party, to execute and deliver, in the name
and on behalf of BHC Parent or Fiserv Sub, all such deeds, bills of sale,
assignments and assurances and do, in the name and on behalf of BHC Parent or
Fiserv Sub, all such other acts and things necessary, desirable or proper to
vest, perfect or confirm its right, title or interest in, to or under any of the
rights, privileges, immunities, powers, purposes, franchises, properties or
assets of BHC Parent or Fiserv Sub and otherwise to carry out the purposes of
this Agreement.
1.5. Conversion of Fiserv Sub Common Stock, Common Stock and
-------------------------------------------------------
BHC Options. (a) Each share of Common Stock of Fiserv Sub outstanding
- -----------
immediately prior to the Merger shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into and become one share
of Common Stock of BHC Parent as the Surviving Corporation in the Merger.
(b) Conversion of the Common Stock. Each share of Common Stock
------------------------------
outstanding immediately prior to the Effective Time (except for any share of
Common Stock then held in the treasury of BHC Parent or by any Subsidiary of BHC
Parent) shall, by virtue of the Merger and without any action on the part of the
holder thereof, be converted into the right to receive a number of shares of
Fiserv Common Stock equal to the Conversion Ratio, subject to the provisions of
Section 3.4(b) ("Merger Consideration"). The "Conversion Ratio" shall equal
-------------------- ----------------
$33.50 divided by the average of the closing prices as reported in the Wall
----
Street Journal of the Fiserv Common Stock as reported on the NASDAQ National
- --------------
Market for the twenty trading day period ending two trading days prior to the
Closing Date.
(c) Shares Held by BHC Parent or a Subsidiary. Each share of
-----------------------------------------
Common Stock that at the Effective Time is held in the treasury of BHC Parent or
by any Subsidiary of BHC Parent shall, by virtue of the Merger and without any
action on the part of BHC
3
<PAGE>
Parent or any such Subsidiary, be cancelled and retired and cease to exist,
without any conversion thereof.
(d) No Rights as Stockholders. The holders of certificates
-------------------------
representing shares of Common Stock shall as of the Effective Time cease to have
any rights as stockholders of BHC Parent, and their sole right shall be the
right to receive their share of the Merger Consideration, as determined and paid
in the manner set forth in this Agreement.
(e) No Fractional Share. Notwithstanding any other provision
-------------------
of this Agreement, no certificates or scrip representing fractional Merger
Shares shall be issued upon the surrender for exchange of certificates
representing Common Stock, and such fractional share interests will not entitle
the owner thereof to vote or to any rights of a shareholder of Fiserv. In lieu
of any fractional share of Merger Shares being issued to any stockholder, such
fractional share will be rounded down to the nearest whole Merger Share and cash
shall be paid to stockholders of BHC Parent in respect of such fractional share
based on the Merger Consideration.
(f) Options. Each BHC Option outstanding at the Effective Time
-------
shall, by virtue of the Merger and without any action on the part of the holder
thereof, be converted as described in, and in accordance with, Section 3.3(a) of
this Agreement.
1.6. Delivery of the Merger Consideration. At the Closing,
------------------------------------
Fiserv shall issue Merger Shares and shall deliver such shares to a bank, trust
company or other Person designated by BHC Parent to act as exchange agent for
the Merger (the "Exchange Agent").
--------------
1.7. Exchange of Shares. (a) Surrender of Certificates. At or
------------------ -------------------------
as soon as practicable after the Effective Time, each holder of an outstanding
certificate or certificates which prior thereto represented outstanding Common
Stock (the "Certificates") shall, upon surrender to the Exchange Agent of such
------------
Certificate or Certificates and acceptance thereof by the Exchange Agent, be
entitled to the Merger Consideration into which the aggregate number of shares
of Common Stock previously represented by such Certificate or Certificates
surrendered shall have been converted pursuant to this Agreement. The Exchange
Agent shall accept such Certificates upon compliance with such reasonable terms
and conditions as the Exchange Agent may impose to effect an orderly exchange
thereof in accordance with normal exchange practices.
4
<PAGE>
(b) Endorsements of Certificates; Transfer Taxes. If
--------------------------------------------
the Merger Consideration is to be delivered to a Person other than the Person in
whose name the Certificate surrendered in exchange therefor is registered, it
shall be a condition to delivery of such Merger Consideration that the
Certificate so surrendered shall be properly endorsed or otherwise in proper
form for transfer and that the Person requesting such Merger Consideration shall
pay any transfer or other Taxes required by reason of the payment to a Person
other than the registered holder of the Certificate surrendered or establish to
the satisfaction of the Exchange Agent and the Surviving Corporation that such
Tax has been paid or is not applicable.
(c) Status of Certificates. Until surrendered in accordance
----------------------
with the provisions of this Section 1.7, from and after the Effective Time, each
Certificate (other than Certificates representing former shares of Common Stock
held in the treasury of the Surviving Corporation or by any Subsidiary of the
Surviving Corporation) shall represent for all purposes only the right to
receive a portion of the Merger Consideration as determined and paid in the
manner set forth in this Agreement.
(d) No Further Transfers. After the Effective Time there shall
--------------------
be no transfers on the stock transfer books of the Surviving Corporation of the
shares of Common Stock that were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to the Surviving
Corporation, they shall be cancelled and exchanged for the Merger Consideration
as provided in Section 1.7(c).
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1. Representations and Warranties of BHC Parent.
--------------------------------------------
BHC Parent represents and warrants to Fiserv and Fiserv Sub as
follows:
2.1.1. Authorization; No Conflicts; Status of BHC Group, etc.
-----------------------------------------------------
(a) Authorization, etc. BHC Parent has all requisite corporate power and
------------------
authority to enter into this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby to be consummated by it. The
execution and delivery of this Agreement, and the consummation of the
transactions contemplated hereby, by BHC Parent have been duly authorized by all
requisite corporate action of BHC Parent, except for the approval of the
shareholders of BHC Parent. This Agreement has been duly executed and delivered
by BHC Parent and constitutes the valid and legally
5
<PAGE>
binding obligation of BHC Parent, enforceable against BHC Parent in accordance
with its terms.
(b) No Conflicts. Except as set forth in Schedule 2.1.1(b),
------------
the execution and delivery of this Agreement by BHC Parent and the consummation
by BHC Parent of the transactions contemplated hereby will not contravene,
result in any violation of, loss of rights or default under, constitute an event
creating rights of acceleration, termination, repayment or cancellation under,
entitle any party to receive any payment or benefit pursuant to, or result in
the creation of any Lien upon any of the properties or assets of any member of
the BHC Group under, (i) any provision of the Organizational Documents of any
member of the BHC Group, (ii) any Applicable Law applicable to any member of the
BHC Group or any of their respective properties or (iii) any BHC Contract,
except for, in the case of this clause (iii), any such contraventions,
violations, losses, defaults, accelerations, terminations, repayments,
cancellations or Liens that, individually or in the aggregate, could not
reasonably be expected to have an Adverse Effect on the BHC Group. Except as set
forth in Schedule 2.1.1(b), no Governmental Approval (other than pursuant to the
HSR Act) or other Consent is required to be obtained or made by any member of
the BHC Group in connection with the execution and delivery of this Agreement by
BHC Parent or the consummation by BHC Parent of the transactions contemplated
hereby.
(c) Due Organization, etc. Schedule 2.1.1(c) sets forth a
---------------------
correct and complete list of each member of the BHC Group, its form and
jurisdiction of organization and each jurisdiction in which such member is
qualified to do business. Each member of the BHC Group is a corporation,
partnership or limited liability company, duly organized, validly existing and
in good standing under the laws of such member's jurisdiction of organization,
with the requisite corporate, partnership or limited liability company power and
authority, as applicable, to carry on its business as now conducted and to own
or lease and to operate its properties as and in the places where such business
is now conducted and such properties are now owned, leased or operated. Each
member of the BHC Group is duly qualified to do business and is in good standing
as a foreign corporation, partnership or limited liability company, as
applicable, in all jurisdictions in which the failure to be so qualified,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect on the BHC Group.
(d) Organizational Documents, etc. BHC Parent has made
-----------------------------
available to Fiserv complete and correct copies of the Organizational Documents,
as in effect on the date hereof, of each member of the BHC Group. Fiserv has
been given the opportunity to inspect the corporate minutes and stock transfer
6
<PAGE>
books of BHC Parent and each direct and indirect Subsidiary of BHC Parent.
2.1.2. Capitalization. (a) BHC Parent. The authorized capital
-------------- ----------
stock of BHC Parent consists of 33,000,000 shares of Common Stock, of which
6,330,850 shares as of the date hereof are issued and outstanding. All of the
outstanding shares of Common Stock have been duly authorized and validly issued
and are fully paid and nonassessable.
(b) Other Members of the BHC Group. Schedule 2.1.2(b) sets
------------------------------
forth a complete and correct description of the authorized stock or other equity
interests of each member of the BHC Group (other than BHC Parent) and the amount
of such stock or other equity interests that are issued and outstanding as of
the date hereof. All of such outstanding shares of stock or other equity
interests of each member of the BHC Group (other than BHC Parent) have been duly
authorized and validly issued and are fully paid and nonassessable, and are
owned beneficially and of record by the member of the BHC Group or other Person
specified on such Schedule 2.1.2(b).
(c) BHC Options. There are 899,750 shares of Common Stock
-----------
reserved for issuance under the BHC Stock Plans (excluding shares of Common
Stock which have been issued as of the date hereof upon exercise of options
issued under the BHC Stock Plans), of which 647,750 shares of Common Stock are
reserved for issuance upon exercise of the BHC Options outstanding on the date
hereof. Schedule 2.1.2(c) sets forth a complete and correct list as of the date
hereof of all holders of BHC Options as of the date hereof (collectively, the
"BHC Option Holders"), the exercise price of each BHC Option outstanding as of
------------------
the date hereof, the number of shares of Common Stock issuable upon exercise of
each such BHC Option, the portion of each such BHC Option that is vested as of
the date hereof and the expiration date of each such Option. Except as set forth
on Schedule 2.1.2(c), BHC Parent has not agreed to, nor does it have any
commitments to, issue or grant or to cause to be issued or granted any options
or other equity awards relating to any shares of Common Stock. At the Effective
Time, all outstanding BHC Options will be fully exercisable in accordance with
the terms of each BHC Option Plan.
(d) Other Agreements with Respect to Common Stock. There are
---------------------------------------------
no preemptive or similar rights on the part of any Person with respect to the
issuance of any shares of Common Stock of BHC Parent or any other member of the
BHC Group. Except (i) for this Agreement, (ii) in respect of the BHC Options and
(iii) as set forth in Schedule 2.1.2(c) or 2.1.2(d), currently there are no
subscriptions, options, warrants or other similar rights, agreements or
commitments of any kind obligating BHC Parent or
7
<PAGE>
any other member of the BHC Group to issue or sell, or to cause to be issued or
sold, or to repurchase or otherwise acquire, any shares of its Common Stock or
any securities convertible into or exchangeable for, or any options, warrants or
other similar rights relating to, any such shares.
(e) Other Investments. Except as set forth in Schedule
-----------------
2.1.2(e) and except for securities of and other interests in members of the BHC
Group, investments in publicly traded securities acquired or held in the
ordinary course of business as trading inventory and cash equivalents, no BHC
Company holds any outstanding securities or other interests in any corporation,
partnership, company, joint venture or other entity.
2.1.3. Financial Information. BHC Parent has delivered to
---------------------
Fiserv the BHC Financial Statements. The BHC Financial Statements have been
prepared in accordance with generally accepted accounting principles in the
United States applied on a consistent basis ("GAAP") throughout the periods
----
presented in the BHC Financial Statements. The consolidated balance sheets of
BHC Parent and its Subsidiaries included in BHC Parent Financial Statements
present fairly in all material respects the financial position of BHC Parent and
its Subsidiaries as at the respective dates thereof; and the consolidated
statements of operations, statements of changes in stockholders' equity and
statements of cash flows of BHC Parent and its Subsidiaries included in BHC
Parent Financial Statements present fairly in all material respects the results
of operations, stockholders' equity and cash flows of BHC Parent and its
Subsidiaries for the respective periods indicated.
2.1.4. Undisclosed Liabilities. Except as set forth on
-----------------------
Schedule 2.1.4, the BHC Group is not subject to any obligation or liability of
any nature, whether absolute, accrued, contingent or otherwise and whether due
or to become due, and, to the knowledge of BHC Parent, there is no existing
condition, situation or set of circumstances which would reasonably be expected
to result in such an obligation or liability, other than (i) obligations and
liabilities contemplated by or in connection with this Agreement or the
transactions contemplated hereby, (ii) as and to the extent disclosed or
reserved against in the audited consolidated balance sheet as at December 31,
1996 included in BHC Parent Financial Statements, (iii) obligations and
liabilities incurred since December 31, 1996 in the ordinary course of business
consistent with past practices and not prohibited by this Agreement and (iv)
obligations and liabilities that could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the BHC Group.
8
<PAGE>
2.1.5. Absence of Changes. Since December 31, 1996 through the date
------------------
hereof, except (i) as set forth in Schedule 2.1.5, (ii) as reflected or reserved
against in the BHC Financial Statements, or (iii) as contemplated by (including,
without limitation, Section 3.1.1) or in connection with this Agreement or the
transactions contemplated hereby, the business of the BHC Group has been
conducted in the ordinary course consistent with past practices and no member of
the BHC Group has:
(a) undergone any change in its business, financial
condition, results of operations or properties (other than changes resulting
solely from general economic or political conditions), that, individually or in
the aggregate, has had or could reasonably be expected to have an Adverse Effect
on the BHC Group ;
(b) in the case of BHC Parent declared, set aside, made or
paid any dividend or other distribution in respect of its common stock or
repurchased, redeemed or otherwise acquired any shares of its common stock,
except in the ordinary course of business consistent with past practices;
(c) issued or sold any shares of its common stock or any
options, warrants or other similar rights, agreements or commitments of any kind
to purchase any such shares or any securities convertible into or exchangeable
for any such shares, except for issuances of Common Stock of BHC Parent pursuant
to the exercise of BHC Options consistent with past practice of the BHC Group;
(d) in the case of any member of the BHC Group, incurred,
assumed, guaranteed (including by way of any agreement to "keep well" or of any
similar arrangement) or prepaid any Indebtedness or amended the terms relating
to any Indebtedness (including, without limitation, capital leases, payments in
respect of the deferred purchase price of property, letters of credit, loan
agreements and other agreements relating to the borrowing of money or extension
of credit) or issued or sold any debt securities, except for any such
incurrence, assumption, guarantee or prepayment of such Indebtedness or
amendments of the terms of such Indebtedness in the ordinary course of business
consistent with past practices in an aggregate amount not exceeding $5,000,000;
(e) sold, transferred, assigned, conveyed, mortgaged,
pledged or otherwise subjected to any Lien any of its properties or assets,
tangible or intangible, except for BHC Permitted Encumbrances or in the ordinary
course of business consistent with past practices;
9
<PAGE>
(f) entered into (i) any agreement or commitment involving
more than $1,000,000 that, pursuant to its terms, is not cancelable without
penalty on 60 days' notice or less or (ii) any other agreement, commitment or
other transaction, other than any agreement, commitment or other transaction
involving an expenditure of not more than $500,000 or series of expenditures in
the aggregate of not more than $1,000,000;
(g) paid (or committed to pay) any bonus or other
incentive compensation to any director, partner, officer or other employee or
granted (or committed to grant) to any director, partner, officer or other
employee any other increase in compensation, except for bonuses payable pursuant
to any plan listed on Schedule 2.1.16(a), base salary or wage increases, in each
case in the ordinary course of business consistent with past practices or
pursuant to the terms of any written agreement or commitment existing at
December 31, 1996;
(h) entered into, adopted or amended (or committed to
enter into, adopt or amend) in any material respect any employment, retention,
change in control, collective bargaining, deferred compensation, retirement,
bonus, profit-sharing, stock option or other equity, pension or welfare plan,
contract or other arrangement with an independent contractor or agreement
maintained for the benefit of any director, partner, officer, or other employee;
(i) suffered any strike or other labor dispute or
controversies, including unresolved grievances, arbitrations or unfair labor
practice charges that has had or could reasonably be expected to have an Adverse
Effect on the BHC Group;
(j) amended its certificate of incorporation or by-laws or
any other Organizational Documents;
(k) granted any rights or licenses under any of its
trademarks or trade names or other BHC Intellectual Property or entered into any
licensing or similar agreements or arrangements other than in the ordinary
course of business consistent with past practices;
(l) made any material changes in its general policies or
practices relating to selling practices, discounts or other material terms of
sale or accounting therefor other than in the ordinary course of business
consistent with past practices;
(m) changed in any material respect its accounting
practices, policies or principles, other than any such changes as may be
required under GAAP or other generally accepted accounting principles of the
applicable jurisdiction;
10
<PAGE>
(n) suffered any damage, destruction or other casualty
loss (whether or not covered by insurance) affecting its properties or assets
which, individually or in the aggregate, could reasonably be expected to have an
Adverse Effect on the BHC Group; or
(o) taken any action or omitted to take any action that
would result in the occurrence of any of the foregoing.
2.1.6. Taxes. (a) Filing of BHC Tax Returns and Payment of Taxes.
----------------------------------------------
Except as set forth on Schedule 2.1.6(a), all material BHC Tax Returns required
to be filed on or before the date hereof have been filed in accordance with
Applicable Law and all material BHC Tax Returns required to be filed on or
before the Closing Date will have been filed by the Closing Date in accordance
with Applicable Law or, in each case, the time for filing such BHC Tax Returns
shall have been validly extended as set forth in Schedule 2.1.6(b). Except for
Taxes set forth on Schedule 2.1.6(a) (which are being contested in good faith
and by appropriate proceedings or which can be paid without interest, addition
to tax or penalty), the following Taxes (collectively, without regard to
materiality "BHC Taxes")) have (or, in the case of Taxes that become due after
the date hereof and on or before the Closing Date, by the Closing Date will
have) been duly paid: (i) all Taxes shown to be due on such BHC Tax Returns and
(ii) all material Taxes due and payable on or before the date hereof and all
material Taxes due and payable on or before the Closing Date that are or may
become payable by any member of the BHC Group or chargeable as a Lien upon the
assets thereof (whether or not shown on any BHC Tax Return). Except as set forth
on Schedule 2.1.6(a), all material BHC Employment and Withholding Taxes required
to be withheld and paid on or before the date hereof, and all material BHC
Employment and Withholding Taxes required to be withheld and paid on or before
the Closing Date, have (or, in the case of such BHC Employment and Withholding
Taxes that are required to be withheld and paid after the date hereof and on or
before the Closing Date, by the Closing Date will have) been duly paid to the
proper Governmental Authority (and in the case of BHC Employment and Withholding
Taxes required to be withheld on or before the Closing Date and paid after the
Closing Date, will be properly set aside in accounts for such purpose).
(b) Extensions, etc. Except as set forth on Schedule
---------------
2.1.6(b), (i) no written agreement or document extending or waiving, or having
the effect of extending or waiving, the period of assessment or collection of
any BHC Taxes or BHC Employment and Withholding Taxes, and no power of attorney
with respect to any such Taxes, has been executed or filed with the IRS or any
other taxing authority which extension, waiver, or power is currently in force;
(ii) no member of the BHC Group has
11
<PAGE>
requested any extension of time within which to file any BHC Tax Return and has
not yet filed such BHC Tax Return; and (iii) there are no requests for rulings
in respect of any BHC Taxes or BHC Employment and Withholding Taxes pending
between any member of the BHC Group and any Governmental Authority.
(c) Tax Filing Groups; Income Tax Jurisdictions. Except as
-------------------------------------------
set forth on Schedule 2.1.6(c), no member of the BHC Group (A) is or has been at
any time a member of any affiliated, consolidated, combined or unitary group for
Tax purposes or (B) has any liability for the Taxes of any person (other than
another member of the BHC Group) under section 1.1502-6 of the United States
Treasury regulations, or any similar provision of state, local or foreign law,
or as a transferee, successor, indemnitor or guarantor, by contract or
otherwise. Set forth on Schedule 2.1.6(c) for each member of the BHC Group are
all countries, states, provinces, cities or other jurisdictions in which Income
Tax is properly payable by a member of the BHC Group (assuming it had a
sufficient tax base for such Income Tax).
(d) Copies of BHC Tax Returns; Audits; etc. BHC Parent has
--------------------------------------
(or by the Closing Date will have) made available to Fiserv complete and
accurate copies of all BHC Tax Returns as filed and, if applicable, as amended,
with respect to all open Tax periods that have been filed or will be required to
be filed (after giving effect to all valid extensions of time for filing) on or
before the Closing Date. Except as set forth on Schedule 2.1.6(d), (i) no BHC
Taxes or BHC Employment and Withholding Taxes have been asserted in writing by
any Governmental Authority to be due in respect of any open Tax period, (ii) no
revenue agent's report or written assessment for Taxes has been issued by any
Governmental Authority in the course of any audit with respect to BHC Taxes or
BHC Employment and Withholding Taxes for any open Tax period, (iii) no issue has
been raised by any Governmental Authority in writing (in a writing that has been
received by any member of the BHC Group) in the course of any audit that has not
been completed with respect to BHC Taxes or BHC Employment and Withholding Taxes
and (iv) to the knowledge of BHC Parent, no such assertion, assessment or issue
has been raised or is being contemplated by any Governmental Authority at the
date hereof. Except as set forth on Schedule 2.1.6(d), all BHC Tax Returns filed
with respect to Tax years of each member of the BHC Group through the Tax year
ended December 31, 1992, have been closed or are BHC Tax Returns with respect to
which the applicable period for assessment under Applicable Law, after giving
effect to extensions or waivers, has expired. The IRS is conducting an audit of
the BHC Tax Return with respect to United States federal income Taxes for 1994.
Except as set forth on Schedule 2.1.6(d), there is no judicial or administrative
claim, audit, action, suit, proceeding or, to the knowledge of BHC Parent,
investigation now pending or threatened
12
<PAGE>
against or with respect to any member of the BHC Group in respect of any BHC
Tax, BHC Employment and Withholding Tax or any Tax Asset of any member of the
BHC Group. Except as set forth on Schedule 2.1.6(d), there is no reasonable
basis for any deficiency, claim or adjustment of additional BHC Taxes or BHC
Employment and Withholding Taxes of which BHC Parent is aware. Except as set
forth on Schedule 2.1.6(d), there are no Liens for Taxes upon any assets of any
of the members of the BHC Group except Liens for current Taxes (i) not yet due
or (ii) being contested in good faith and by appropriate proceedings and for
which adequate reserves have been established on the BHC Financial Statements.
(e) Section 1445(a) of the Code. Neither Fiserv Sub nor
---------------------------
Fiserv will be required to deduct and withhold any amount pursuant to Section
1445(a) of the Code upon the payment of the Merger Consideration pursuant to
this Agreement.
(f) Tax Sharing Agreements. Except as set forth on
----------------------
Schedule 2.1.6(f), no member of the BHC Group is a party to or bound by or has
any contractual obligation to pay any amounts under any Tax sharing agreement or
arrangement.
(g) "Substantially All" Requirement. Except as set forth
on Schedule 2.1.6(g), BHC Parent has made no distributions to stockholders of
BHC Parent, other than regular, normal dividends paid in the ordinary course of
business. Following the Merger, the Surviving Corporation will hold at least 90
percent of the fair market value of BHC Parent's net assets and at least 70
percent of the fair market value of BHC Parent's gross assets and at least 90
percent of the fair market value of Fiserv Sub's net assets and at least 70
percent of the fair market value of Fiserv Sub's gross assets held immediately
prior to the Merger. For purposes of this representation, the assets of BHC
Parent shall be valued immediately prior to the Effective Time, and any assets
used by BHC Parent or Fiserv Sub to pay transaction expenses, to pay cash or
other property to any stockholder of BHC Parent or Fiserv Sub in connection with
the Merger, to pay cash or other property to redeem any stock of BHC Parent or
Fiserv Sub, or to pay prior to the Effective Time any dividend other than a
regular, normal dividend in the ordinary course of business, and any amounts set
forth on Schedule 2.1.6(g), shall be treated as assets held by BHC Parent or
Fiserv Sub, respectively, immediately prior to the Effective Time.
(h) Section 481 Adjustment. Except as set forth on
----------------------
Schedule 2.1.6(h), no member of the BHC Group is or will be required to include
any adjustment in taxable income for any Post-Closing Tax Period under section
481(c) of the Code (or any similar provision of the Tax laws of any
jurisdiction) as a result of a change in method of accounting for a Pre-Closing
Tax
13
<PAGE>
Period or pursuant to the provisions of any agreement entered into with any
Governmental Authority on or before the Closing Date with regard to the Tax
liability of any member of the BHC Group for any Pre-Closing Tax Period.
(i) Real Property. Except as set forth on Schedule
-------------
2.1.6(i), no member of the BHC Group owns any interest in real property in any
jurisdiction in which a Tax is imposed on the transfer of a controlling interest
in an entity that owns any interest in real property or on a transfer of an
interest in real property in a reverse triangular merger for stock of the parent
of the non-surviving company and cash.
(j) Affiliated Group Items. Except as set forth on
----------------------
Schedule 2.1.6(j), no member of the BHC Group will have immediately prior to the
Effective Time (i) any excess loss account within the meaning of section 1.1502-
19 of the United States Treasury regulations; (ii) any deferred gain or loss
arising from deferred intercompany transactions entered into while any member of
the BHC Group was a member of the affiliated group of which BHC Parent is the
common parent as described under section 1.1502-13 of the United States Treasury
regulations (as in effect before the adoption of Treasury Decision 8597); (iii)
any deferred gain or loss with respect to stock or obligations of any other
member of the affiliated group of which BHC Parent is the common parent as
described under section 1.1502-14 (as in effect before the adoption of Treasury
Decision 8597) of the United States Treasury regulations and any intercompany
items of gain or loss that have not been taken into account as described under
section 1.1502-13 of the United States Treasury regulations (as adopted by
Treasury Decision 8597); and (iv) any similar item under any similar provision
of state or local law.
(k) No Investment Company; No Bankruptcy. BHC Parent is
------------------------------------
not an investment company as defined in sections 368(a)(2)(F) (iii) and (iv) of
the Code. BHC Parent is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of section 368(a)(3)(A) of the Code.
(l) Other Matters. Except as set forth on Schedule
-------------
2.1.6(m), none of the members of the BHC Group is a party to any agreement,
contract or arrangement or has adopted any plan that could result in the payment
of any amount or the vesting of any options upon a change of control of BHC
Parent. BHC Parent is not a "consenting corporation" within the meaning of
Section 341(f) of the Code. None of the assets of any member of the BHC Group is
required to be treated as being owned by another person pursuant to the "safe
harbor" leasing provisions of Section 168(f)(8) of the Code, as in effect prior
to the repeal of said leasing provisions, or treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Code. No member of
14
<PAGE>
the BHC Group has made or been required to make an election under Section 338 of
the Code for any Taxable year beginning after December 31, 1992.
(m) Corporation as Defined. Each member of the BHC Group
----------------------
is a "corporation" within the meaning of Section 7701(a)(3) of the Code.
2.1.7. Properties and Assets. Schedule 2.1.7 sets forth a complete
---------------------
and correct list, as of the date hereof, of all real property leased by any
member of the BHC Group, including the names of each of the parties to such
lease and the location of the applicable property. None of the members of the
BHC Group owns any real property. Each member of the BHC Group has valid title
to all material personal property owned by it, and valid leasehold interests in
all real and material personal property leased by it, in each case free and
clear of all Liens, except (i) Liens specified in Schedule 2.1.7 or reflected in
the BHC Financial Statements, (ii) Liens for Taxes not yet delinquent or which
are being contested in good faith by appropriate proceedings if adequate
reserves with respect thereto are maintained on its books in accordance with
GAAP, (iii) statutory Liens incurred in the ordinary course of business
consistent with past practices that have not had and could not reasonably be
expected to have a Material Adverse Effect on the BHC Group and (iv) Liens which
do not materially detract from the value or materially interfere with the use of
the properties affected thereby (the exceptions described in the foregoing
clauses (i), (ii), (iii) and (iv) being referred to collectively as "BHC
---
Permitted Encumbrances"). Schedule 2.1.7 sets forth a list of each material real
- ----------------------
property lease under which any member of the BHC Group is a lessee as to which
the consummation by BHC Parent of the transactions contemplated hereby would
result in a violation of, loss of rights or default under or constitute an event
creating rights of acceleration, termination or cancellation under such lease.
2.1.8. Contracts. (a) Schedule of Contracts, etc. Schedule 2.1.8(a)
--------- --------------------------
sets forth a correct and complete list, as of the date hereof, of all BHC
Contracts. The term "BHC Contracts" means all agreements, contracts, licenses
and commitments, including material oral agreements, of the following types to
which any member of the BHC Group is a party or by which any member of the BHC
Group or its respective properties is bound and which is currently in effect, as
amended, supplemented, waived or otherwise modified as of the date hereof: (i)
material contracts for the performance of clearing services; (ii) employment,
retention, material independent contractor arrangements, change in control and
collective bargaining agreements, if any, with any directors, officers, other
employees, or trade unions, of any member of the BHC Group; (iii) mortgages,
indentures, security
15
<PAGE>
agreements relating to indebtedness for borrowed money, letters of credit,
promissory notes, loan agreements and other material agreements, guarantees and
instruments relating to the borrowing of money or extension of credit; (iv)
material licenses and other similar material agreements involving Intellectual
Property rights; (v) material joint venture, partnership and similar agreements;
(vi) material stock purchase agreements (other than any such agreements pursuant
to which BHC Parent issued Common Stock to any Person), material asset purchase
agreements and other material acquisition or divestiture agreements; (vii)
personal property leases providing for annual rentals of $2,000,000 or more;
(viii) agreements, contracts and commitments for the purchase or sale of
supplies, services, equipment or other assets that provide for annual payments
by the BHC Group of $500,000 or more; (ix) any other agreements, contracts,
licenses or commitments that are material to the business, financial condition,
results of operations or properties of the BHC Group, taken as a whole; and (x)
any guaranty (including by way of any agreement to "keep well" or any similar
arrangements) of any of the foregoing. No member of the BHC Group has made any
loan which is secured by a mortgage or services any mortgages or otherwise is
engaged in mortgage banking activities. BHC Parent has made available to Fiserv
for inspection complete and correct copies of all BHC Contracts, including a
description of any material oral agreements.
(b) No Defaults, etc. Except as set forth in Schedule
----------------
2.1.8(b), excluding any failure to obtain Consents with respect to the BHC
Contracts listed in Schedule 2.1.1(b) and further excluding those matters which
could not, individually or in the aggregate, reasonably be expected to have an
Adverse Effect on the BHC Group, (i) each BHC Contract is in full force and
effect in all material respects, and (ii) there does not exist under any
material BHC Contract any material event of default, or any event or condition
that, after notice or lapse of time or both, would constitute a material event
of default, on the part of any member of the BHC Group or, to the knowledge of
BHC Parent, on the part of any other party to any material BHC Contract. Except
as disclosed in Schedule 2.1.8(b), no member of the BHC Group is subject to any
contract, agreement, license or commitment materially restricting or limiting
the type or scope of business or operations that it may conduct now or
immediately after the Effective Time.
2.1.9. Intellectual Property. (a) Schedule of Intellectual Property.
--------------------- ---------------------------------
Schedule 2.1.9(a) sets forth a correct and complete list of all of the material
trade or service marks and all other material Intellectual Property (other than
off-the-shelf software programs that have not been customized for use by any
member of the BHC Group) used in the business and operations of the BHC Group as
of the date hereof (the "BHC Intellectual
----------------
16
<PAGE>
Property") and sets forth the owner and nature of the interest of the BHC Group
- --------
therein. All of the material Intellectual Property owned by any member of the
BHC Group and used in connection with the business is owned free and clear of
any Liens, except as set forth on Schedule 2.1.9(a). Except as set forth in
Schedule 2.1.9(a), the BHC Group has the legal right to use BHC Intellectual
Property in connection with the business as currently conducted by the BHC Group
and, except as set forth on Schedule 2.1.1(b), immediately after the Effective
Time, the Surviving Corporation or its Subsidiaries will have such right to the
same extent and on the same terms as the BHC Group was entitled to use BHC
Intellectual Property immediately prior to the Effective Time.
(b) No Infringement, etc. The business and operations of
--------------------
the BHC Group as currently conducted do not infringe or otherwise conflict with
any rights of any Person in respect of any Intellectual Property, except (i) as
disclosed in writing to Fiserv on or prior to the date hereof or (ii) to the
extent that any infringement or conflict could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the BHC
Group. None of the BHC Intellectual Property owned by any member of the BHC
Group is being materially infringed, nor is the BHC Intellectual Property being
materially used or available for use by any Person other than a member of the
BHC Group, except as set forth in Schedule 2.1.9(a) or (b). No BHC Intellectual
Property owned by any member of the BHC Group is subject to any outstanding
judgment, injunction, order, decree or agreement restricting the use thereof by
any member of the BHC Group with respect to its business or restricting the
licensing thereof by such member to any Person. Except as set forth on Schedule
2.1.9(b), no member of the BHC Group has entered into any agreement to indemnify
any other Person against any charge of infringement of BHC Intellectual
Property, other than pursuant to any such agreements entered into in connection
with the use of commercially available information systems applications. Except
as disclosed in Schedule 2.1.9(a) or (b), the material Intellectual Property
owned by any member of the BHC Group has been duly registered with, filed in or
issued by, as the case may be, the United States Patent and Trademark Office,
the United States Copyright Office or other filing offices, domestic or foreign,
to the extent necessary or desirable to ensure full protection under any
Applicable Law, and such registrations, filings, issuances and other actions
remain in full force and effect. Except as set forth in Schedule 2.1.9(b) or to
the extent disclosed in writing on or prior to the date hereof, each member of
the BHC Group has taken all reasonably necessary actions to ensure full
protection of the material Intellectual Property (including maintaining the
secrecy of all confidential Intellectual Property and, to the extent legally
required or customary to protect such Intellectual Property (other than
17
<PAGE>
software), all necessary and appropriate standards of quality control) under any
Applicable Law.
2.1.10. Insurance. Schedule 2.1.10 sets forth a correct and complete
---------
list of all material insurance policies and fidelity bonds maintained on the
date hereof by or for the benefit of the members of the BHC Group. BHC Parent
has made available to Fiserv complete and correct copies of all such policies
and bonds, together with all riders and amendments thereto as of the date
hereof. As of the date hereof, such policies and bonds are in full force and
effect, and all premiums due thereon have been paid. The members of the BHC
Group have complied in all material respects with the terms and provisions of
such policies and bonds. Except as set forth on Schedule 2.1.10, there is no
claim in excess of $100,000 by any member of the BHC Group pending as of the
date hereof under any of such policies or bonds as to which coverage has been
questioned, denied or disputed by the underwriters of such policies or bonds.
Such policies and bonds (or other policies and bonds providing substantially
similar insurance coverage) have been in effect since December 31, 1996 and are
of the type and in amounts customarily carried by Persons conducting businesses
similar to the businesses of the BHC Group. If so requested by Fiserv, the BHC
Companies will have their insurance broker(s) notify the underwriters of such
policies and bonds of the transactions contemplated by this Agreement and advise
such insurance broker(s) to maintain all such policies and bonds in accordance
with their terms until further notice.
2.1.11. Litigation. Except as set forth in Schedule 2.1.11, there is
----------
no judicial or administrative action, suit, investigation, inquiry or proceeding
pending or, to the knowledge of BHC Parent, threatened, or any reasonable basis
therefor, that (a) individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect on the BHC Group or result in any
liability on the part of the BHC Group in an amount in excess of $1,000,000
individually or $3,000,000 in the aggregate or (b) questions the validity of
this Agreement or of any action taken or to be taken by any member of the BHC
Group or any stockholder of BHC Parent in connection with this Agreement or the
transactions contemplated thereby.
2.1.12. Compliance with Laws and Other Instruments; Governmental
--------------------------------------------------------
Approvals.
- ---------
(a) Compliance with Laws, etc. Except as disclosed in
-------------------------
Schedule 2.1.12(a), no member of the BHC Group is in material violation of or
material default under, or has at any time since December 31, 1996 materially
violated or been in material default under, (i) any Applicable Law applicable to
it or any of its properties or business or (ii) any provision of its
18
<PAGE>
Organizational Documents. Schedule 2.1.12(a) sets forth a correct and complete
list of all consent decrees or other similar agreements entered into by any
member of the BHC Group with any Governmental Authority currently in effect. No
Governmental Authority has instituted, implemented, taken or threatened to take
any other action the effect of which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on the BHC Group.
Except as set forth on Schedule 2.1.12(a), all members of the BHC Group that are
required to be licensed by the insurance department of any jurisdiction are duly
licensed in such jurisdiction. No member of the BHC Group has received written
notice of any pending suit, proceeding or investigation concerning the failure
of any such member to obtain any insurance license, or concerning the
cancellation, suspension, revocation, limitation or nonrenewal of any insurance
license.
(b) Governmental Approvals. Except as disclosed in
----------------------
Schedule 2.1.12(b), all material Governmental Approvals necessary for the
conduct of the business and operations of each member of the BHC Group have been
duly obtained and are in full force and effect. There are no proceedings pending
or, to the knowledge of BHC Parent, threatened that would reasonably be expected
to result in the revocation, cancellation or suspension, or any materially
adverse modification, of any such Governmental Approval, and except with respect
to Governmental Approvals set forth on Schedule 2.1.1(b), the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby will not result in any such revocation, cancellation, suspension or
modification.
(c) Filings. Since December 31, 1994, each member of the
-------
BHC Group has filed all material registrations, reports, statements, notices and
other material filings required to be filed with the Commission, and any other
Governmental Authority by such member of the BHC Group, to the extent
applicable, including all required amendments or supplements to any of the
above, except to the extent that failure to file could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on the
BHC Group (the "BHC Filings"). The BHC Filings complied in all material
respects, where applicable, with the requirements of the Securities Act, the
Exchange Act and any other Governmental Authority. As of their respective dates,
each of the BHC Filings constituting prospectuses, annual reports on Form 10-K
and proxy statements did not contain any untrue statement of a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. BHC
Parent has made available to Fiserv complete and correct copies of (i) all BHC
Filings made within the past two years (including but not limited to all filings
on Form BD), (ii)
19
<PAGE>
all audit reports received by any member of the BHC Group from the Commission or
any other Governmental Authority and all written responses thereto made by any
such member during the past two years, (iii) copies of all inspection reports
provided to any member of the BHC Group by the Commission, any state regulatory
authority or any other Governmental Authority during the past two years and (iv)
all correspondence relating to any inquiry or investigation provided to any BHC
Group by the Commission, any state regulatory authority or any other
Governmental Authority during the past two years.
2.1.13. Affiliate Transactions. Schedule 2.1.13 sets forth a correct
----------------------
and complete list of all agreements, arrangements or other commitments, other
than brokerage accounts, in effect as of December 31, 1996 between any member of
the BHC Group, on the one hand, and any officer, director or shareholder of any
member of the BHC Group on the other hand, other than compensation or benefit
agreements, arrangements and commitments set forth on Schedule 2.1.16. Since
December 31, 1996, except as set forth in Schedule 2.1.13, no member of the BHC
Group has entered into any agreement, arrangement or other commitment or
transaction with any officer, director or shareholder of any member of the BHC
Group.
2.1.14. Government Regulation.
---------------------
(a) Broker-Dealers. Each of BHC Securities, Inc., BHCM
--------------
Inc. TradeStar Investments, Inc. and BHC Trading Corp. (collectively, the "BHC
---
Registered Broker-Dealers") is, and at all times required by the Exchange Act
- -------------------------
during the past five years (or such shorter period as such entity has been in
existence) has been, a broker-dealer duly registered under the Exchange Act and,
to the extent required, the Municipal Securities Rulemaking Board. Each BHC
Registered Broker-Dealer is, other than BHC Trading Corp., a member firm in good
standing of the NASD. BHC Trading Corp. is a member firm in good standing of the
Philadelphia Stock Exchange. Except for any BHC Registered Broker-Dealer set
forth on Schedule 2.1.14(a), each of the BHC Registered Broker-Dealers is, and
at all times required by Applicable Law (other than the Exchange Act) during the
past two years has been, duly registered, licensed or qualified as a broker-
dealer in each state where the conduct of its business required such
registration, licensing or qualification, except for any such failure to be so
registered, licensed or qualified that could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the BHC
Group. Each such United States federal and state registration, license or
qualification, as of the date hereof, is listed in Schedule 2.1.14(a) and is in
full force and effect. Except for any BHC Registered Broker-Dealer set forth on
Schedule 2.1.14(a), no member of the BHC Group other than the BHC Registered
Broker-
20
<PAGE>
Dealers is or has been during the past three years required to be registered,
licensed or qualified as a broker-dealer under the Exchange Act, or subject to
any material liability or disability by reason of any failure to be so
registered, licensed or qualified, except for any such failure that could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the BHC Group.
(b) Trust Companies. No member of the BHC Group is or has
---------------
been during the past two years required to be registered, licensed or qualified
as a trust company under any Applicable Law, or subject to any material
liability or disability by reason of any failure to be so registered, licensed
or qualified, except for any such failure that could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the BHC
Group.
(c) Other Entities. The members of the BHC Group and each
--------------
of their officers or employees which are or who are required to be registered as
a registered representative, an investment advisor representative, insurance
agent or a sales person with the Commission, or an equivalent person with the
securities or insurance commission of any other Governmental Authority, are duly
registered as such and such registration is in full force and effect, except
where the failure to be so registered or to have such registration in full force
and effect could not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect on the BHC Group.
2.1.15. Labor Matters, etc. No member of the BHC Group is a party to
------------------
or bound by any collective bargaining or other labor agreement. Each member of
the BHC Group is currently in compliance with and for the past four years has
materially complied with all applicable provisions of United States federal,
state and local laws pertaining to the employment or termination of employment
of their respective employees, except for any failures to comply that,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect on the BHC Group.
2.1.16. ERISA. (a) Schedule of Plans, etc. Schedule 2.1.16(a) sets
----- ----------------------
forth a correct and complete list of each written "employee benefit plan,"
within the meaning of section 3(3) of ERISA, and each written bonus, incentive
or deferred compensation, stock option or other equity, worker's compensation,
retention, change in control or other employee or retiree compensation or
benefit plan, program or arrangement that is maintained by any member of the BHC
Group or any ERISA Affiliate thereof or to which any member of the BHC Group or
any such ERISA Affiliate contributes or is obligated to contribute or under
which any member of the BHC Group may otherwise have any
21
<PAGE>
material liability (collectively, the "BHC Plans"). BHC Parent has made
---------
available to Fiserv correct and complete copies of all written BHC Plans, all
related trusts or other funding agreements, and amendments to the BHC Plans, the
most recent IRS Form 5500 filed in respect of any such BHC Plan and any material
employee communications with respect to any and all BHC Plans (including, but
not limited to, summary plan descriptions and summaries of material
modifications), and the most recent actuarial valuation prepared for any BHC
Plan. Except as disclosed on Schedule 2.1.16(a), each BHC Plan intended to be
qualified under section 401(a) of the Code has received a favorable
determination letter from the IRS as to its qualification under the Code and, to
the knowledge of BHC Parent, (x) no amendment has been made to any such BHC Plan
since the date of its most recent determination letter that would reasonably be
expected to result in the disqualification of such BHC Plan and (y) no other
event has occurred with respect to any such BHC Plan which would reasonably be
expected to adversely affect the qualification of such BHC Plan.
(b) No Minimum BHC Funding Standards, etc. Except as
-------------------------------------
disclosed on Schedule 2.1.16(b), no BHC Plan is subject to the minimum funding
standards of Section 302 of ERISA or section 412 of the Code. No BHC Plan is a
multi-employer plan (as defined in section 3(37) of ERISA) or a multiple
employer plan and no BHC Plan is maintained in connection with any trust
described in Section 501(c)(9) of the Code. No material liability has been
incurred pursuant to the provisions of Title I or IV of ERISA by any member of
the BHC Group or any ERISA Affiliate thereof and no condition or event exists or
has occurred which would reasonably be expected to result in any such material
liability to any such Person.
(c) Operation of the BHC Plans, etc. Each of the BHC Plans
-------------------------------
has been operated and administered in compliance with its terms and all
Applicable Law, including but not limited to ERISA and the Code, except for any
failures to comply that, individually or in the aggregate, could not reasonably
be expected to result in material liability of any member of the BHC Group.
There are no material claims pending or, to the knowledge of BHC Parent,
threatened by or on behalf of any employee of any member of the BHC Group
involving any BHC Plan or its assets (other than routine claims for benefits
under the terms of any such BHC Plan). All contributions required to have been
made to any plan subject to Title IV of ERISA by any member of the BHC Group or
any ERISA Affiliate thereof pursuant to Applicable Law (including, without
limitation, ERISA and the Code) have been made within the time required by such
Applicable Law.
22
<PAGE>
(d) No Prohibited Transactions. Neither any member of the
--------------------------
BHC Group nor any ERISA Affiliate has any liability with respect to any
transaction including an BHC Plan in violation of section 406 of ERISA or any
"prohibited transaction," as defined in section 4975(c)(1) of the Code, for
which no exemption exists under section 408 of ERISA or section 4975(c)(2) or
(d) of the Code, except for any such liability that, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect on
the BHC Group. Neither any member of the BHC Group nor any ERISA Affiliate has
participated in a violation of Part 4 of Title I, Subtitle B of ERISA by any
plan fiduciary of any BHC Plan and has any unpaid civil liability under section
502(1) of ERISA, except for any such violation or liability that, individually
or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect on the BHC Group. There are no suits, investigations or other proceedings
pending or threatened in writing by any Governmental Authority of or against any
BHC Plan, the trustee of any assets held thereunder or BHC Parent, relating to
the BHC Plans.
(e) Market Value, etc. The market value of assets under
-----------------
each BHC Plan that is a BHC Pension Plan, as hereinafter defined, is not
materially less than the present value of all benefit liabilities within the
meaning of section 4001(a)(16) of ERISA, as determined in accordance with
Pension Benefit Guaranty Corporation ("PBGC") methods, factors and assumptions
----
applicable to a pension plan terminating on the last day of the plan year
immediately preceding the date of this Agreement. For purposes of this Section
2.1.16 "BHC Pension Plan" shall mean a funded employee pension benefit plan, as
----------------
defined in section 3(2) of ERISA, established or maintained by any member of the
BHC Group or any ERISA Affiliate that is not an individual account plan within
the meaning of section 3(34) of ERISA.
(f) Reportable Event. No BHC Plan that is a BHC Pension
----------------
Plan has been the subject of a Reportable Event as to which notices would be
required to be filed with the PBGC.
(g) No Increase in Expense. There has been no amendment
----------------------
to, written interpretation or announcement (whether or not written) or change in
employee participating or coverage under, any BHC Plan that would increase
materially the expense of maintaining such BHC Plan above the level of expense
incurred in respect of such BHC Plan for the most recent year.
(h) No Liability, etc. No liability has been incurred by
-----------------
BHC Parent or an ERISA Affiliate for any tax, penalty or other liability with
respect to any BHC Plan.
23
<PAGE>
(i) Required Contributions. BHC has made all required
----------------------
contributions under each BHC Plan that is a BHC Pension Plan on a timely basis
or, if not due yet, adequate accruals therefor have been provided for in the
financial statements. No BHC Plan that is a BHC Pension Plan has incurred any
"accumulated funding deficiency" within the meaning of section 302 of ERISA or
section 412 of the Code and no BHC Plan that is a BHC Pension Plan has provided
for or received a waiver of the minimum funding standards imposed by section 412
of the Code.
(j) No Termination. There has been no termination or partial
--------------
termination, as defined in section 411(d) of the Code and the regulations
thereunder, of any BHC Plan that is a BHC Pension Plan.
(k) Welfare Plans. The Welfare Plans that are group health
-------------
plans (as defined for the purposes of section 4980B of the Code and Part 6 of
Subtitle B of title I of ERISA and all regulations thereunder ("COBRA")) have
complied with the requirements of COBRA to provide healthcare continuation
coverage, to qualified beneficiaries who have elected, or may elect to have,
such coverage, except for any violation that, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect on the BHC
Group. The BHC Group, or its agents who administer any of the Welfare Plans,
have complied with the notification and written notice requirements of COBRA,
except for any violation that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on the BHC Group.
2.1.17. Brokers, Finders, etc. All negotiations relating to
---------------------
this Agreement and the transactions contemplated hereby have been carried on
without the participation of any Person acting on behalf of BHC Parent in such
manner as to give rise to any valid claim against any member of the BHC Group or
Fiserv Sub for any brokerage or finder's commission, fee or similar
compensation, other than as set forth in Schedule 2.1.17, and by Alex. Brown &
Sons, Inc. whose fee for services provided in respect of this Agreement and the
transactions contemplated hereby shall be paid by BHC Parent.
2.1.18. Environmental Matters. Except as set forth in
---------------------
Schedule 2.1.18, and except for those matters which could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect on
the BHC Group:
(a) The BHC Group and the BHC Facilities are and have been in
compliance with all Environmental Laws;
24
<PAGE>
(b) No events, facts or conditions will prevent, hinder or
limit continued compliance by the BHC Group and the BHC Facilities with
applicable Environmental Laws, and no material expenditures or commitments by
the BHC Group are planned or necessary by the BHC Group to maintain continued
compliance by the BHC Group and the BHC Facilities as of the date of this
Agreement or beyond the Closing Date;
(c) The BHC Group has obtained all material permits, licenses
and authorizations required pursuant to applicable Environmental Laws to carry
on its business as now conducted; all such permits are in full force and effect
and are not subject to any appeals or to any unsatisfied conditions which are
required to be satisfied by the Closing Date; and no such permits are subject to
any pending or threatened modification, suspension, revocation, rescission or
cancellation;
(d) The BHC Group is not liable under any applicable
Environmental Law with respect to the release, threatened release, or presence
of any Hazardous Substance;
(e) No Hazardous Substance which may require response or
corrective action or remediation under any Environmental Law is present at,
threatening, or emanating from any property presently owned or operated by the
BHC Group, or was present at or emanating from any other property when
previously owned or operated by the BHC Group;
(f) The BHC Group is not subject to any pending or threatened
claim, nor obliged to comply with any judgment, order, ruling, settlement, or
agreement arising under any Environmental Law;
(g) The BHC Group has not received any notice that it is a
potentially liable party, that it is required to provide information, or that it
or any of the BHC Facilities is subject to an investigation in connection with
any applicable Environmental Law; and
(h) The BHC Group has not entered into any negotiations or
agreements either relating to any response or corrective action or remediation
relating to liabilities or potential liabilities arising under any Environmental
Law or providing any indemnification or renouncing indemnification claims for
any liabilities arising under any Environmental Law.
2.1.19. Pooling of Interests. To the best of BHC Parent's
--------------------
knowledge, after due consultation with its accountants, except as set forth on
Schedule 2.1.19, there is no fact, event or condition on the date hereof that
could reasonably be expected
25
<PAGE>
to prevent the Pooling Condition from being satisfied under the terms and
conditions of the Agreement.
2.1.20. Disclosure. There is no fact, event or condition
----------
known to BHC Parent that since December 31, 1996 through the date hereof, has
had, or in the future may have (so far as it can now reasonably foresee),
individually or in the aggregate, without regard to the transactions
contemplated by this Agreement, a Material Adverse Effect on the BHC Group that
has not been disclosed in writing to Fiserv on the date hereof by or on behalf
of BHC Parent specifically for use in connection with the transactions
contemplated by this Agreement. At the date hereof, to the best of BHC's
knowledge, the transaction contemplated by this Agreement will not have a
Material Adverse Effect on BHC Parent or any member of the BHC Group.
2.1.21. Proxy Statement/Prospectus. On the date on which the
--------------------------
Proxy Statement/Prospectus is mailed to the holders of Common Stock, on the date
the stockholders meeting of BHC Parent is held and on the Closing Date, such
Proxy Statement/Prospectus will comply in all material respects with the
requirements of the Securities Act, the rules and regulations of the Commission
thereunder and all other applicable requirements and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances under which they were made; provided, however, that
the foregoing representation and warranty shall not apply to information
concerning Fiserv Group furnished by Fiserv or any member of the Fiserv Group in
writing expressly for use in the Proxy Statement/Prospectus.
2.2. Representations and Warranties of Fiserv and Fiserv Sub.
--------------------------------------------------------
Fiserv and Fiserv Sub represent and warrant to BHC Parent as
follows:
2.2.1. Authorization; No Conflicts; Status of Fiserv Group,
---------------------------------------------------
etc. (a) Authorization, etc. Each of Fiserv and Fiserv Sub has all requisite
- --- ------------------
corporate power and authority to enter into this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby to
be consummated by it. The execution and delivery of this Agreement, and the
consummation of the transactions contemplated hereby, by Fiserv and Fiserv Sub
have been duly authorized by all requisite corporate action of Fiserv and Fiserv
Sub. This Agreement has been duly executed and delivered by each of Fiserv and
Fiserv Sub and constitutes the valid and legally binding obligation of Fiserv
and Fiserv Sub, enforceable against each of them in accordance with its terms.
26
<PAGE>
(b) No Conflicts. Except as set forth in Schedule 2.2.1(b),
------------
the execution and delivery of this Agreement by Fiserv and Fiserv Sub and the
consummation of the transactions contemplated hereby will not contravene, result
in any violation of, loss of rights or default under, constitute an event
creating rights of acceleration, termination, repayment or cancellation under,
entitle any party to receive any payment or benefit pursuant to, or result in
the creation of any Lien upon any of the properties or assets of any member of
the Fiserv Group under, (i) any provision of the Organizational Documents of any
member of the Fiserv Group, (ii) any Applicable Law applicable to any member of
the Fiserv Group or any of their respective properties or (iii) any Fiserv
Contract, except for, in the case of this clause (iii), any such contraventions,
violations, losses, defaults, accelerations, terminations, repayments,
cancellations or Liens that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on the Fiserv Group.
Except as set forth in Schedule 2.2.1(b), no Governmental Approval (other than
pursuant to the HSR Act) or other Consent is required to be obtained or made by
any member of the Fiserv Group in connection with the execution and delivery of
this Agreement by Fiserv or the consummation by Fiserv of the transactions
contemplated hereby.
(c) Due Organization, etc. Each member of the Fiserv Group
---------------------
is a corporation, partnership, limited liability company, trust or trust company
duly organized, validly existing and in good standing under the laws of such
member's jurisdiction of organization, with the requisite corporate,
partnership, company, trust or trust company power and authority, as applicable,
to carry on its business as now conducted and to own or lease and to operate its
properties as and in the places where such business is now conducted and such
properties are now owned, leased or operated. Each member of the Fiserv Group is
duly qualified to do business and is in good standing as a foreign corporation,
partnership, limited liability company, trust or trust company, as applicable,
in all jurisdictions in which the failure to be so qualified, individually or in
the aggregate, could reasonably be expected to have a Material Adverse Effect on
the Fiserv Group.
(d) Organizational Documents, etc. Fiserv has made available
-----------------------------
to BHC Parent a copy of Exhibit 21 to its Form 10-K for its fiscal year ended
December 31, 1996. Fiserv has made available to BHC Parent complete and correct
copies of the Organizational Documents, as in effect on the date hereof, of each
member of the Fiserv Group. BHC Parent has been given the opportunity to inspect
the corporate minutes and stock transfer books of Fiserv, and each other direct
and indirect Subsidiary of Fiserv.
27
<PAGE>
2.2.2. Capitalization. (a) Fiserv. The authorized capital
-------------- ------
stock of Fiserv consists of 25,000,000 shares of preferred stock of which no
shares are issued and outstanding; and 150,000,000 Fiserv Shares of which
45,385,519 shares as of the date hereof are issued and outstanding. All such
outstanding Fiserv Shares have been duly authorized and validly issued and are
fully paid and nonassessable.
(b) Fiserv Sub. The authorized capital stock of Fiserv Sub
----------
consists of 7,500 shares of Common Stock, par value $1.00 per share, all of
which shares have been validly issued and are outstanding, fully paid and
nonassessable.
(c) Other Agreements with Respect to Capital Stock. There
----------------------------------------------
are no preemptive or similar rights on the part of any Person with respect to
the issuance of any shares of capital stock of Fiserv or any other member of the
Fiserv Group. Except (i) for this Agreement, (ii) in respect of the Fiserv
Employee Options and (iii) as set forth in Schedule 2.2.2(c) currently there are
no subscriptions, options, warrants or other similar rights, agreements or
commitments of any kind obligating Fiserv or any other member of the Fiserv
Group to issue or sell, or to cause to be issued or sold, or to repurchase or
otherwise acquire, any shares of its capital stock or any securities convertible
into or exchangeable for, or any options, warrants or other similar rights
relating to, any such shares.
2.2.3. Undisclosed Liabilities. The Fiserv Group is not
-----------------------
subject to any obligation or liability of any nature, whether absolute, accrued,
contingent or otherwise and whether due or to become due, and, to the knowledge
of Fiserv, there is no existing condition, situation or set of circumstances
which would reasonably be expected to result in such an obligation or liability,
other than (i) obligations and liabilities contemplated by or in connection with
this Agreement or the transactions contemplated hereby, (ii) as and to the
extent disclosed or reserved against in the audited consolidated balance sheet
as at December 31, 1996 included in Fiserv Financial Statements, (iii)
obligations and liabilities incurred since December 31, 1996 in the ordinary
course of business consistent with past practices and not prohibited by this
Agreement and (iv) obligations and liabilities that could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect on
the Fiserv Group.
2.2.4. Absence of Adverse Changes or Events. Since
------------------------------------
December 31, 1996, Fiserv and its Subsidiaries, taken as a whole, have conducted
business in all material respects only in the ordinary course. Since December
31, 1996, there have not been any changes in the business, assets, operations or
financial condition of Fiserv or any of its Subsidiaries which in the
28
<PAGE>
aggregate have had, or would reasonably be expected to have, a Material Adverse
Effect on the business, assets, operations or financial condition of Fiserv and
its Subsidiaries taken as a whole, nor has Fiserv declared, set aside or made
payment of any dividend or distribution of assets to its stockholders.
2.2.5. Taxes. (a) Filings and Payments. All material
----- --------------------
Fiserv Tax Returns required to date with respect to the operations of Fiserv and
its Subsidiaries have been duly filed; Taxes shown to be due and payable on such
returns have been paid when due and there are no pending assessments, asserted
deficiencies or claims for additional material Taxes which have not been paid;
there are no material deficiencies which representatives of the IRS have
proposed to Fiserv or have advised Fiserv are expected to be included in an
audit report; and no material special charges, penalties or fines have been
asserted in writing against Fiserv or any of its Subsidiaries with respect to
payment or failure to pay any material Taxes. Fiserv has been audited by the IRS
through December 31, 1992. The reserve or accrual for Taxes shown in the
December 31, 1996 balance sheet of Fiserv is sufficient for payment of all
unpaid Taxes of Fiserv and its Subsidiaries through such date.
(b) No Intention to Reacquire Shares. As of the date
--------------------------------
hereof, Fiserv has no plan or intention to reacquire any Fiserv Shares issued in
the Merger.
(c) Corporation. Each of Fiserv and Fiserv Sub is a
-----------
"corporation" within the meaning of section 7701(a)(3) of the Code.
(d) Investment Company; No Bankruptcy. Neither
---------------------------------
Fiserv nor Fiserv Sub is an investment company within the meaning of
Sections 368(a)(2)(F)(iii) and (iv) of the Code. Fiserv Sub is not under the
jurisdiction of a court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
2.2.6. Title to Properties and Absence of Liens. Fiserv and
----------------------------------------
its Subsidiaries had good and marketable title to all material properties and
assets, real and personal, reflected in the Fiserv Financial Statements, free
and clear of all security interests, liens, claims, encumbrances and charges,
except (i) liens for current taxes not yet due and payable, (ii) liens,
encumbrances and claims disclosed, and (iii) such imperfections of title,
easements and encumbrances, if any, as are not material in character, amount or
extent and do not materially detract from the value, or materially interfere
with the use, of the properties subject thereto or affected thereby or otherwise
materially impair business operations being conducted thereon. All material
leases pursuant to which Fiserv or any of its
29
<PAGE>
Subsidiaries leases real property are valid and effective in accordance with
their respective terms in all material respects, and there is no default under
any such lease which could result in a forfeiture or termination thereof.
2.2.7. Patents, Licenses and Infringement. Since December 31,
----------------------------------
1994, neither Fiserv nor any of its Subsidiaries has received any claim alleging
invalidity of any important patent, trademark or tradename owned by any of such
Persons or infringement of any patent, trademark or tradename held by another.
Fiserv is not aware of any facts which it believes would render invalid any
important patent, trademark or tradename owned by it or any of its Subsidiaries.
2.2.8. Litigation. Except as disclosed in the Fiserv
----------
Financial Statements or as set forth in Schedule 2.2.8, there is no judicial or
administrative action, suit, investigation, inquiry or proceeding pending or, to
the knowledge of Fiserv, threatened, or any reasonable basis therefor, that (a)
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect on the Fiserv or result in any liability on the part of
the Fiserv in an amount in excess of $1,000,000 individually or (b) questions
the validity of this Agreement or of any action taken or to be taken by any
member of the Fiserv or any stockholder of Fiserv in connection with this
Agreement or the transactions contemplated thereby.
2.2.9. Compliance with Laws and Other Instruments;
------------------------------------------
Governmental Approvals. (a) Compliance with Laws, etc. Except as disclosed in
- ---------------------- -------------------------
Schedule 2.2.9(a), no member of the Fiserv Group is in material violation of or
material default under, or has at any time since December 31, 1996 materially
violated or been in material default under, (i) any Applicable Law applicable to
it or any of its properties or business or (ii) any provision of its
Organizational Documents. Schedule 2.2.9(a) sets forth a correct and complete
list of all consent decrees or other similar agreements entered into by any
member of the Fiserv Group with any Governmental Authority currently in effect.
No Governmental Authority has instituted, implemented, taken or threatened to
take any other action the effect of which, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect on the Fiserv
Group.
(b) Governmental Approvals. Except as disclosed in Schedule
----------------------
2.2.9(b), all material Governmental Approvals necessary for the conduct of the
business and operations of each member of the Fiserv Group have been duly
obtained and are in full force and effect. There are no proceedings pending or,
to the knowledge of Fiserv, threatened that would reasonably be expected to
result in the revocation, cancellation or suspension, or any materially adverse
modification, of any such Governmental
30
<PAGE>
Approval, and except with respect to Governmental Approvals set forth on
Schedule 2.2.9(b), the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not result in any such
revocation, cancellation, suspension or modification.
(c) Filings. Since December 31, 1994, each member of the
-------
Fiserv Group has filed all material registrations, reports, statements, notices
and other material filings required to be filed with the Commission and any
other Governmental Authority by such member of the Fiserv Group, to the extent
applicable, including all required amendments or supplements to any of the above
(the "Fiserv Filings"), except to the extent that failure to file could not,
--------------
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on the Fiserv Group. The Fiserv Filings complied in all material
respects, where applicable, with the requirements of the Securities Act, the
Exchange Act and any other Governmental Authority. As of their respective dates,
each of the Fiserv Filings constituting prospectuses, annual reports on Form
10-K and proxy statements did not contain any untrue statement of a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. Fiserv
has made available to BHC Parent complete and correct copies of all Fiserv
Filings made within the past two years (including but not limited to all filings
on Form 10-K, 10-Q, and 8-K).
(d) Fiserv Financial Statements. The Fiserv Financial
---------------------------
Statements included in the Fiserv Filings have been prepared in accordance with
generally accepted accounting principles in the United States applied on a
consistent basis ("GAAP") throughout the periods presented in the Fiserv
----
Financial Statements. The consolidated balance sheets of Fiserv and its
Subsidiaries included in Fiserv Financial Statements present fairly in and all
material respects the financial position of Fiserv and its Subsidiaries as at
the respective dates thereof; and the consolidated statements of operations,
statements of changes in stockholders' equity and statements of cash flows of
Fiserv and its Subsidiaries included in Fiserv Financial Statements present
fairly in all material respects the results of operations, stockholders' equity
and cash flows of Fiserv and its Subsidiaries for the respective periods
indicated.
2.2.10. ERISA. (a) Schedule of Plans, etc. Schedule
----- ----------------------
2.2.10(a) sets forth a correct and complete list of each Fiserv Plan maintained
by Fiserv and for which an IRS Form 5500 was required to be filed within the
last twelve months (collectively, the "Fiserv Core Plans"). Fiserv has made
available to BHC Parent correct and complete copies of all written Fiserv Core
Plans, all related trusts or other funding agreements and the
31
<PAGE>
most recent IRS Form 5500 filed in respect of any such Fiserv Core Plan. Except
as disclosed on Schedule 2.2.10(a), each Fiserv Plan intended to be qualified
under section 401(a) of the Code has received a favorable determination letter
from the IRS as to its qualification under the Code and, to the knowledge of
Fiserv, (x) no amendment has been made to any such Fiserv Plan since the date of
its most recent determination letter that would reasonably be expected to result
in the disqualification of such Fiserv Plan and (y) no other event has occurred
with respect to any such Fiserv Plan which would reasonably be expected to
adversely affect the qualification of such Fiserv Plan.
(b) No Minimum Fiserv Funding Standards, etc. Except as
----------------------------------------
disclosed on Schedule 2.2.10(b), no Fiserv Plan is subject to the minimum
funding standards of section 302 of ERISA or section 412 of the Code. No Fiserv
Plan is a multiemployer plan (as defined in section 3(37) of ERISA) or a
multiple employer plan and, except as disclosed on Schedule 2.2.10(b), no Fiserv
Plan is maintained in connection with any trust described in section 501(c)(9)
of the Code. No material liability has been incurred pursuant to the provisions
of Title I or IV of ERISA by any member of the Fiserv Group or any ERISA
Affiliate thereof and no condition or event exists or has occurred which would
reasonably be expected to result in any such material liability to any such
Person.
(c) Operation of the Fiserv Plans, etc. Each of the Fiserv
----------------------------------
Plans has been operated and administered in compliance with its terms and all
Applicable Law, including but not limited to ERISA and the Code, except for any
failures to comply that, individually or in the aggregate, would not reasonably
be expected to result in material liability of any member of the Fiserv Group.
There are no material claims pending or, to the knowledge of Fiserv, threatened
by or on behalf of any employee of any member of the Fiserv Group involving any
such Fiserv Plan or its assets (other than routine claims for benefits under the
terms of any such Fiserv Plan). All contributions required to have been made to
any plan subject to Title IV of ERISA by any member of the Fiserv Group or any
ERISA Affiliate thereof pursuant to Applicable Law (including, without
limitation, ERISA and the Code) have been made within the time required by such
Applicable Law.
(d) No Prohibited Transactions. Neither any member of the
--------------------------
Fiserv Group nor any ERISA Affiliate has any liability with respect to any
transaction including a Fiserv Plan in violation of section 406 of ERISA or any
"prohibited transaction," as defined in section 4975(c)(1) of the Code, for
which no exemption exists under section 408 of ERISA or section 4975(c)(2) or
(d) of the Code, except for any such liability that, individually or in the
aggregate, could not reasonably be expected to have a
32
<PAGE>
Material Adverse Effect on the Fiserv Group. Neither any member of the Fiserv
Group nor any ERISA Affiliate has participated in violation of Part 4 of Title
I, Subtitle B of ERISA by any plan fiduciary of any Fiserv Plan and has any
unpaid civil liability under section 502(1) of ERISA, except for any such
violation or liability that, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect on the Fiserv Group.
There are no suits, investigations or other proceedings pending or threatened in
writing by any Governmental Authority of or against any Fiserv Plan, the trustee
of any assets held thereunder or Fiserv, relating to the Fiserv Plans.
(e) Market Value, etc. The market value of assets under each
-----------------
Fiserv Plan that is a Fiserv Pension Plan, as hereinafter defined, is not
materially less than the present value of all benefit liabilities within the
meaning of section 4001(a)(16) of ERISA, as determined in accordance with PBGC
methods, factors and assumptions applicable to a pension plan terminating on the
last day of the plan year immediately preceding the date of this Agreement. For
purposes of this Section 2.2.10 "Fiserv Pension Plan" shall mean a funded
-------------------
employee pension benefit plan, as defined in section 3(2) of ERISA, established
or maintained by any member of the Fiserv Group or any ERISA Affiliate that is
not an individual account plan within the meaning of section 3(34) of ERISA.
(f) Reportable Event. No Fiserv Plan that is a Fiserv
----------------
Pension Plan has been the subject of a Reportable Event as to which notices
would be required to be filed with the PBGC.
(g) No Increase in Expense. Except for the increase in the
----------------------
match and the employer payment of administration expenses in the Fiserv, Inc.
401(K) Plan, there has been no amendment to, written interpretation or
announcement (whether or not written) or change in employee participating or
coverage under, any Fiserv Plan that would increase materially the expense of
maintaining such Fiserv Plan above the level of expense incurred in respect of
such Fiserv Plan for the most recent year.
(h) No Liability, etc. No liability has been incurred by
-----------------
Fiserv or an ERISA Affiliate for any tax, penalty or other liability with
respect to any Fiserv Plan.
(i) Required Contributions. Fiserv has made all required
----------------------
contributions under each Fiserv Plan that is a Fiserv Pension Plan on a timely
basis or, if not due yet, adequate accruals therefor have been provided for in
the financial statements. No Fiserv Plan that is a Fiserv Pension Plan has
incurred any "accumulated funding deficiency" within the meaning of section 302
of ERISA or section 412 of the Code and no Fiserv Plan that is a Fiserv Pension
Plan has provided for or received a
33
<PAGE>
waiver of the minimum funding standards imposed by section 412 of the Code.
(j) No Termination. There has been no termination or
--------------
partial termination, as defined in section 411(d) of the Code and the
regulations thereunder, of any Fiserv Plan that is a Fiserv Pension Plan.
(k) Welfare Plans. The Welfare Plans that are group health
-------------
plans as defined in COBRA have complied with the requirements of COBRA to
provide healthcare continuation coverage, to qualified beneficiaries who have
elected, or may elect to have, such coverage, except for any violation that,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect on the Fiserv Group. The Fiserv Group, or its agents who
administer any of the Welfare Plans, have complied with the notification and
written notice requirements of COBRA, except for any violation that,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect on the Fiserv Group.
2.2.11. Brokers, Finders, etc. All negotiations relating to
---------------------
this Agreement and the transactions contemplated hereby have been carried on
without the participation of any Person acting on behalf of Fiserv in such
manner as to give rise to any valid claim against any member of the Fiserv Group
or Fiserv Sub for any brokerage or finder's commission, fee or similar
compensation.
2.2.12. Pooling of Interests. Except as disclosed on
--------------------
Schedule 2.1.19, to the best of Fiserv's knowledge, after due consultation with
its accountants, there is no fact, event or condition on the date hereof that
could reasonably be expected to prevent the Pooling Condition from being
satisfied under the terms and conditions of the Agreement.
2.2.13. Disclosure. There is no fact, event or condition
----------
known to Fiserv or Fiserv Sub that since December 31, 1996 through the date
hereof has had, or in the future may have (so far as it can now reasonably
foresee), a Material Adverse Effect on the Fiserv Group that has not been
disclosed in writing to BHC Parent on the date hereof by or on behalf of Fiserv
specifically for use in connection with the transactions contemplated by this
Agreement. At the date hereof, to the best of Fiserv's knowledge, the
transaction contemplated by this Agreement will not have a Material Adverse
Effect on BHC Parent or any member of the BHC Group.
2.2.14. Proxy Statement/Prospectus. On the date on which
--------------------------
Fiserv files its Registration Statement with the Commission, on the date of
effectiveness thereof, on the date on
34
<PAGE>
which the Proxy Statement/Prospectus is mailed to the holders of Common Stock,
on the date the stockholders meeting of BHC Parent is held and on the Closing
Date, such Registration Statement and the Proxy Statement/Prospectus will comply
in all material respects with the requirements of the Securities Act, the rules
and regulations of the Commission thereunder and all other applicable
requirements, and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances under which
they were made; provided, however, that the foregoing representation and
-------- -------
warranty shall not apply to information concerning BHC Parent furnished by BHC
Parent in writing expressly for use in such registration statement or in the
Proxy Statement/Prospectus.
ARTICLE III
COVENANTS
3.1. Covenants of BHC Parent.
-----------------------
3.1.1. Conduct of Business. From the date hereof to the
-------------------
Effective Time, except as contemplated by or in connection with this Agreement
or the transactions contemplated hereby, as described on Schedule 3.1.1 or as
consented to by Fiserv, any request for such consent to be considered by Fiserv
in good faith, BHC Parent will, and will cause each member of the BHC Group to:
(a) carry on its business in the ordinary course consistent
with past practices, and use all reasonable best efforts (to the extent
consistent with good business judgment) to preserve intact its present business
organization, keep available the services of its executive officers and key
employees, and preserve its relationships with customers, clients, suppliers and
others having material business dealings with it;
(b) not amend its certificate of incorporation or by-laws or
other Organization Document;
(c) not merge or consolidate with, or agree to merge or
consolidate with, or purchase substantially all of the assets of, or otherwise
acquire any business or any corporation, partnership, association or other
business organization or division thereof;
35
<PAGE>
(d) not engage in any transaction with Fiserv Sub, Fiserv or
any of their respective Affiliates that would be a violation of Applicable Law;
(e) not take any action or omit to take any action, which
action or omission would result in a breach or inaccuracy of any of the
representations and warranties set forth in Section 2.1.5. at, or as of any time
prior to, the Effective Time;
(f) not sell any assets outside the ordinary course of
business consistent with past practices;
(g) not purchase any BHC Capital Stock from any shareholder
of BHC Parent or pay or declare any dividends or other distribution in respect
of the BHC Capital Stock, except for cash dividends permitted under
Section 3.1.8;
(h) not enter into any agreements, contracts or commitments
for capital expenditures other than in the ordinary course of business
consistent with past practices or that provide for in the case of any single
agreement or related agreements annual payments by the BHC Group of $2,000,000
or more;
(i) not agree or commit to do any of the foregoing referred
to in clauses (a) - (h); and
(j) promptly advise Fiserv of any fact, condition, occurrence
or change known to BHC Parent that is reasonably expected to have a Material
Adverse Effect on the BHC Group or cause a breach of this Section 3.1.1.
3.1.2. No Solicitation. Except as contemplated hereby, BHC
---------------
Parent agrees not to (and shall use reasonable efforts to cause the officers,
directors, and employees and any investment banker, attorney, accountant, or
other agent retained by it not to) solicit, directly or indirectly, any proposal
or offer to acquire all or any significant part of its business and properties
or its capital stock, whether by merger, purchase of assets, tender offer or
otherwise (a "BHC Acquisition Proposal") or provide any non-public information
------------------------
concerning the respective company to any third party in connection with a BHC
Acquisition Proposal. Notwithstanding the foregoing, BHC Parent may furnish
information or cause information to be furnished to, and may participate in
discussions and negotiations directly or through its respective representatives
and enter into an agreement relating to a BHC Acquisition Proposal with, any
third party (including parties with whom or its respective representatives have
had discussions on any basis on or prior to the date hereof) who makes an
unsolicited proposal or offer to it, if the BHC Board determines in good faith,
after consultation with outside counsel, that the failure to consider such
proposal or offer
36
<PAGE>
could reasonably be deemed to cause its directors to breach their fiduciary
duties under applicable law. In addition, nothing contained in this Agreement
shall prohibit BHC directors from (a) issuing a press release or otherwise
publicly disclosing the terms of any Acquisition Proposal, (b) taking and
disclosing to its stockholders any position, and making related filings with the
SEC, as required by Rules 14e-2 and 14d-9 under the Exchange Act with respect to
any tender offer or (c) taking any action and making any disclosure to its
stockholders which the BHC Board determines in good faith, after consultation
with outside counsel, would likely be required to be taken or made under
applicable law (including, without limitation, laws relating to the fiduciary
duties of directors). In the event BHC Parent receives a BHC Acquisition
Proposal, it shall promptly inform the other party as to the receipt of such BHC
Acquisition Proposal, unless the BHC Board determines, after consultation with
outside counsel, that giving such notice could reasonably be deemed to cause its
directors to breach their fiduciary duties under applicable law.
3.1.3. Access and Information. From the date hereof to the
----------------------
Effective Time, BHC Parent will, and will cause each member of the BHC Group to,
give to Fiserv and Fiserv's accountants, counsel and other representatives
reasonable access during normal business hours to each such member of the BHC
Group and respective offices, properties, books, contracts, commitments, reports
and records relating to each member the BHC Group, and to furnish them or
provide them access to all such documents, financial data, records and
information with respect to the properties and businesses of each member the BHC
Group as Fiserv shall from time to time reasonably request, provided that the
--------
foregoing shall be under the general coordination of BHC Parent and shall be
subject to the Confidentiality Agreement. In addition, from the date hereof to
the Effective Time BHC Parent will, and will cause each member of the BHC Group
to, permit Fiserv and Fiserv's accountants, counsel and other representatives
reasonable access to such personnel of the BHC Group during normal business
hours as may be necessary to or reasonably requested by Fiserv in its review of
the properties of the BHC Group, the business affairs of the BHC Group and the
above-mentioned documents and records, provided that BHC Parent shall have the
right to have its representatives participate in such discussions with personnel
of the BHC Group and such discussions shall be subject to the Confidentiality
Agreement.
3.1.4. Subsequent Financial Statements and Filings.
-------------------------------------------
(a) Commission Filings. From the date hereof to the Effective Time, BHC Parent
------------------
will cause the members of the BHC Group to make available to Fiserv, promptly
after the same become available, copies of all materials filed with the
Commission including the
37
<PAGE>
financial statements of the BHC Registered Brokers as the same are filed with
the Commission.
(b) Governmental Authority Filings. From the date hereof to
------------------------------
the Effective Time, BHC Parent will file, or cause to be filed, with the
Commission or other relevant Governmental Authority, and promptly thereafter
make available to Fiserv, copies of each registration, report, statement, notice
or other filing required to be filed by any member of the BHC Group with the
Commission or any other Governmental Authority under the Exchange Act, the
Securities Act or any other Applicable Law. All such registrations, reports,
statements, notices or other filings shall comply in all material respects with
Applicable Law.
(c) Inspections and Investigations. From the date hereof to
------------------------------
the Effective Time, BHC Parent will cause the members of the BHC Group to make
available to Fiserv, promptly after the same become available, (i) copies of all
inspection reports provided to any member of the BHC Group by the Commission,
the NYSE or NASD, authority or any state regulatory authority or any
self-regulatory agency and (ii) all correspondence and other documents relating
to any inquiry or investigation provided to any member of the BHC Group by the
Commission, the NYSE or NASD or any other state regulatory authority or any
after self-regulatory agency.
(d) Tax Returns. From the date hereof to the Effective Time,
-----------
each member of the BHC Group shall duly and timely file all material BHC Tax
Returns required to be filed on or before the Closing Date (including any valid
extensions of time to file). Such BHC Tax Returns shall be prepared on a basis
consistent with the prior tax returns and shall not make, amend or terminate any
election by such member without Fiserv's prior consent. Each member of the BHC
Group shall make available to Fiserv a copy of each such BHC Tax Return.
3.1.5. Public Announcements. From the date hereof to the
--------------------
Effective Time, except as required by Applicable Law, BHC Parent shall not, and
shall not permit any member of the BHC Group to, make any public announcement in
respect of this Agreement or the transactions contemplated hereby without the
prior consent of Fiserv.
3.1.6. Further Actions. (a) Generally. From the date here-
--------------- ---------
of to the Effective Time, BHC Parent will, and will cause each member of the BHC
Group to, use its 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 to consummate and make effective the transactions contemplated hereby.
38
<PAGE>
(b) Filings, etc. From the date hereof to the Effective Time,
------------
BHC Parent will, as promptly as practicable, file or supply, or cause to be
filed or supplied, all applications, notifications and information required to
be filed or supplied by or on behalf of BHC Parent or any member of the BHC
Group pursuant to Applicable Law in connection with this Agreement, the Merger
or the consummation of the other transactions contemplated hereby, including but
not limited to filings pursuant to the HSR Act. From the date hereof to the
Effective Time, BHC Parent, as promptly as practicable, will make, or cause to
be made, all such other filings and submissions under any Applicable Law
applicable to BHC Parent or any member of the BHC Group and give such reasonable
undertakings, as may be required for BHC Parent to consummate the Merger and the
other transactions contemplated hereby.
(c) Consents. BHC Parent, as promptly as practicable, will use
--------
its reasonable best efforts to obtain, or cause to be obtained, the Consents
listed on Schedule 2.1.1(b), including without limitation the approval of its
shareholders to the consummation of the transactions contemplated hereby.
(d) Other Actions. BHC Parent will use, and cause each member
-------------
of the BHC Group to use, its reasonable best efforts to take, or cause to be
taken, all other actions necessary, proper or advisable in order for them to
fulfill their obligations in respect of this Agreement and the transactions
contemplated hereby. BHC Parent will, and will cause each member of the BHC
Group to, coordinate and cooperate with Fiserv in exchanging such information
and supplying such reasonable assistance as may be reasonably requested by
Fiserv in connection with the filings and other actions contemplated by
Section 3.2.6.
(e) Notice of Certain Events. From the date hereof to
------------------------
the Effective Time, BHC Parent shall promptly notify Fiserv of:
(i) any fact, condition, event or occurrence known to BHC
Parent that will or reasonably may be expected to result in the failure
of any of the conditions contained in Sections 4.1 and 4.2 to be
satisfied;
(ii) any notice or other communication from any Person alleging
that the consent of such Person is or may be required in connection
with the transactions contemplated by this Agreement;
(iii) any notice or other communication from any
Governmental Authority in connection with the transactions
contemplated by this Agreement; and
39
<PAGE>
(iv) any actions, suits, claims, investigations or proceedings
commenced or, to the knowledge of BHC Parent, threatened against,
relating to or involving or otherwise affecting any member of the BHC
Group which, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant to Section 2.1.11 or which
relate to the transactions contemplated by this Agreement.
3.1.7. Registration Statement. At all times up to the
----------------------
Effective Time, BHC Parent will, and will cause the members of the BHC Group to,
(a) give such assistance to Fiserv and its advisors as they may reasonably
require in connection with the preparation of the Registration Statement (and
any accompanying documents and any matters ancillary thereto) in order to comply
with the law and with the requirements of the Commission, the NASD, Nasdaq and
any other Governmental Authority, as applicable; (b) inform Fiserv or its
advisors in writing promptly if, to the knowledge of BHC Parent, the
Registration Statement contains any untrue statement solely with regard to the
BHC Group (not including, in any event, combined financial information for
Fiserv and BHC Parent) of a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading and (c) inform Fiserv or its advisors in
writing promptly if it becomes aware of any matter with regard to the BHC Group
the existence of which might require a supplement to the Registration Statement.
3.1.8. Payment of Dividend. Prior to the Effective Time,
-------------------
BHC Parent may declare and pay to its shareholders dividends equal to $.03 per
outstanding share per quarter.
3.1.9. Offering to BHC Shareholders. BHC Parent shall use
----------------------------
reasonable best efforts to comply with the Securities Act or exemptions
available thereunder and all other Applicable Law in connection with the
offering of the Merger Shares to the BHC shareholders.
3.1.10. Rights Plan. BHC Parent will take such actions as may
-----------
be necessary or appropriate to redeem the rights issued pursuant to the Rights
Agreement dated November 12, 1996 between BHC Parent and American Stock Transfer
& Trust Co. (the "Rights Agreement") prior to the consummation of the
transactions contemplated hereby so that such rights do not become exercisable
and are not separately distributed as a result of the transactions contemplated
hereby.
3.1.11. Issuance of Additional Shares. After BHC receives
-----------------------------
shareholder approval and prior to the Effective Time, BHC Parent shall issue and
sell in a registered public offering, registered block trade or private
placement (the "Offering"), as
40
<PAGE>
designated by Fiserv, such number of shares as may be necessary to fulfill the
Pooling Condition. The Offering shall be at a price per share reasonably
acceptable to Fiserv and shall be accomplished on terms and conditions customary
for a registered public offering, registered block trade or private placement,
as the case may be, and shall be co-managed or co-agented, as the case may be,
by underwriters or agents chosen by BHC Parent and Fiserv. For purposes of the
immediately preceding sentence, a price at the market within the meaning of
published accounting industry positions on pooling shall be considered to be
reasonably acceptable to Fiserv. Such shares shall be treated for all purposes
as issued and outstanding shares at the Effective Time. BHC Parent shall not
enter into any written agreement (other than this Agreement) obligating it to
complete the Offering and the Offering shall not be completed, if so requested
by Fiserv prior to BHC Parent's execution and delivery of any such written
agreement.
3.1.12. Delisting; Transfer Books. BHC parent will take all
-------------------------
necessary steps to delist the BHC Common Stock on the NASDAQ National Market,
effective as of the Closing Date, in accordance with the rules of the NASDAQ
National Market, and BHC Parent shall instruct its transfer agent for the BHC
Common Stock to deliver, as of such date, the BHC Parent stock transfer records
and related materials to a transfer agent for the Fiserv Shares.
3.2. Covenants of Fiserv and Fiserv Sub.
----------------------------------
3.2.1. Conduct of Business. From the date hereof to the
-------------------
Effective Time, except as contemplated by or in connection with this Agreement
or the transactions contemplated hereby, as described on Schedule 3.2.1 or as
consented to by BHC Parent, any request for such consent to be considered by BHC
Parent in good faith, Fiserv will, and will cause each member of the Fiserv
Group to:
(a) carry on its business in the ordinary course consistent
with past practices, and use all reasonable best efforts (to the extent
consistent with good business judgment) to preserve intact its present business
organization, keep available the services of its executive officers and key
employees, and preserve its relationships with customers, clients, suppliers and
others having material business dealings with it;
(b) not amend its certificate of incorporation or by-
laws or other Organizational Document;
(c) not merge or consolidate with, or agree to merge or
consolidate with, or purchase substantially all of the assets of, or otherwise
acquire any business or any corporation,
41
<PAGE>
partnership, association or other business organization or division thereof;
(d) not engage in any transaction with BHC Parent or
its Affiliates that would be a violation of Applicable Law;
(e) not take any action or omit to take any action, which
action or omission would have a Material Adverse Effect on the Fiserv Group;
(f) not pay or declare any dividends or other distribution nor
effect a stock split or stock combination in respect of the Fiserv Shares,
except ordinary dividends consistent with past practices;
(g) not agree or commit to do any of the foregoing
referred to in clauses (a)-(f); and
(h) promptly advise BHC Parent of any fact, condition,
occurrence or change known to Fiserv that is reasonably expected to have a
Material Adverse Effect on the Fiserv Group or cause a breach of this Section
3.2.1.
3.2.2. Fiserv Acquisition Proposal. In the event Fiserv
---------------------------
receives a Fiserv Acquisition Proposal, it shall promptly so notify BHC Parent,
unless the Fiserv Board of Directors determines, after consultation with outside
counsel, that giving such notice could reasonably be deemed to cause its
directors to breach their fiduciary duty under applicable law. In the event
Fiserv enters into a definitive agreement regarding a Fiserv Acquisition
Proposal, the Conversion Ratio provided for under Section 1.5 shall be adjusted
so that the 20 business day period used in such calculation shall be the 20
business days ending 10 days prior to the announcement of the definitive Fiserv
Acquisition Proposal. As used herein, "Fiserv Acquisition Proposal" shall mean
---------------------------
any proposal or offer to acquire all or any significant part of Fiserv's
business and properties or its capital stock, whether by merger, purchase of
assets, tender offer or otherwise.
3.2.3. Access and Information. From the date hereof to the
----------------------
Effective Time, Fiserv will, and will cause each member of the Fiserv Group to,
give to BHC Parent and BHC Parent's accountants, counsel and other
representatives reasonable access during normal business hours to each such
member of the Fiserv Group respective offices, properties, books, contracts,
commitments, reports and records relating to each member the Fiserv Group, and
to furnish them or provide them access to all such documents, financial data,
records and information with respect to the properties and businesses of each
member the Fiserv Group as BHC Parent shall from time to time reasonably
42
<PAGE>
request, provided that the foregoing shall be under the general coordination of
--------
Fiserv and shall be subject to the Confidentiality Agreement. In addition, from
the date hereof to the Effective Time Fiserv will, and will cause each member of
the Fiserv Group to, permit BHC Parent and BHC Parent's accountants, counsel and
other representatives reasonable access to such personnel of the Fiserv Group
during normal business hours as may be necessary to or reasonably requested by
BHC Parent in its review of the properties of the Fiserv Group, the business
affairs of the Fiserv Group and the above-mentioned documents and records,
provided that Fiserv shall have the right to have its representatives
- --------
participate in such discussions with personnel of the Fiserv Group and such
discussions shall be subject to the Confidentiality Agreement.
3.2.4. Subsequent Financial Statements and Filings. (a)
-------------------------------------------
Filings with a Government Authority. From the date hereof to the Effective Time,
- -----------------------------------
Fiserv will file, or cause to be filed, with the Commission, or other relevant
Governmental Authority, and promptly thereafter make available to BHC Parent,
copies of each registration, report, statement, notice or other filing required
to be filed by any member of the Fiserv Group with the Commission, or any other
Governmental Authority, or any other Applicable Law. All such registrations,
reports, statements, notices or other filings shall comply in all material
respects with Applicable Law.
(b) Commission Correspondence. From the date hereof to the
-------------------------
Effective Time, Fiserv will cause the members of the Fiserv Group to make
available to BHC Parent, promptly after the same become available, copies of all
correspondence and other documents relating to any inquiry or investigation
provided to any member of the Fiserv Group by the Commission.
3.2.5. Public Announcements. From the date hereof to the
--------------------
Effective Time, except as required by Applicable Law, Fiserv shall not, and
shall not permit any member of the Fiserv Group to, make any public announcement
in respect of this Agreement or the transactions contemplated hereby without the
prior consent of BHC Parent.
3.2.6. Further Actions. (a) Generally. From the
--------------- ---------
date hereof to the Effective Time, Fiserv will, and will cause each member of
the Fiserv Group to, use its 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 to consummate and make effective the transactions contemplated
hereby.
43
<PAGE>
(b) Filings, etc. From the date hereof to the Effective Time,
------------
Fiserv will, as promptly as practicable, file or supply, or cause to be filed or
supplied, all applications, notifications and information required to be filed
or supplied by or on behalf of Fiserv or any member of the Fiserv Group pursuant
to Applicable Law in connection with this Agreement, the Merger or the
consummation of the other transactions contemplated hereby, including but not
limited to filings pursuant to the HSR Act. From the date hereof to the
Effective Time, Fiserv, as promptly as practicable, will make, or cause to be
made, all such other filings and submissions under any Applicable Law applicable
to Fiserv or any member of the Fiserv Group and give such reasonable
undertakings, as may be required for Fiserv to consummate the Merger and the
other transactions contemplated hereby.
(c) Consents. Fiserv, as promptly as practicable, will use
--------
its reasonable best efforts to obtain, or cause to be obtained, the Consents
listed on Schedule 2.2.1(b);
(d) Other Actions. Fiserv will use, and cause each member of
-------------
the Fiserv Group to use, its reasonable best efforts to take, or cause to be
taken, all other actions necessary, proper or advisable in order for them to
fulfill their obligations in respect of this Agreement and the transactions
contemplated hereby. Fiserv will, and will cause each member of the Fiserv Group
to, coordinate and cooperate with BHC Parent in exchanging such information and
supplying such reasonable assistance as may be reasonably requested by BHC
Parent in connection with the filings and other actions contemplated by Section
3.1.6.
(e) Notice of Certain Events. From the date hereof to the
------------------------
Effective Time, Fiserv shall promptly notify BHC Parent of:
(i) any fact, condition, event or occurrence known to Fiserv
that will or reasonably may be expected to result in the failure of any
of the conditions contained in Sections 4.1 and 4.3 to be satisfied;
(ii) any notice or other communication from any Person alleging
that the consent of such Person is or may be required in connection
with the transactions contemplated by this Agreement;
(iii) any notice or other communication from any Governmental
Authority in connection with the transactions contemplated by this
Agreement; and
(iv) any actions, suits, claims, investigations or proceedings
commenced or, to the knowledge of Fiserv, threatened against, relating
to or involving or otherwise
44
<PAGE>
affecting any member of the Fiserv Group which, if pending on the date
of this Agreement, would have been required to have been disclosed
pursuant to Section 2.2.8 or which relate to the transactions
contemplated by this Agreement.
3.2.7. Tax-Free Reorganization Covenants. (a) Following the
---------------------------------
Merger, the Surviving Corporation will, and Fiserv will cause the Surviving
Corporation to, continue the historic business of BHC Parent or use a
significant portion of BHC Parent's business assets in a business.
(b) Following the Merger, the Surviving Corporation will not
issue, and Fiserv will not cause the Surviving Corporation to issue, additional
shares of stock of the Surviving Corporation that would result in Fiserv losing
"control" (within the meaning of Section 368(c) of the Code) of the Surviving
Corporation.
(c) Fiserv has no plan or intention to reacquire any of its
Common Stock issued in the Merger.
(d) Fiserv has no plan or intention to liquidate the Surviving
Corporation; to merge the Surviving Corporation with and into another
corporation; to sell or otherwise dispose of the stock of the Surviving
Corporation or to cause the Surviving Corporation to sell or otherwise dispose
of any of the assets of Fiserv Sub acquired in the Merger, except for
dispositions made in the ordinary course of business or transfers described in
Section 368(a)(2)(C) of the Code.
3.2.8. Employee Benefit Matters. Fiserv and Fiserv Sub
------------------------
agree: (i) for the period beginning at the Effective Time and ending
December 31, 1999 (the "Transition Period"), to maintain, as permitted by
-----------------
applicable law (including, but not limited to, the minimum coverage requirements
of section 410(b) of the Code, as applied to qualified retirement plans), for
the benefit of the current employees of BHC Parent and its Subsidiaries who
continue employment with Fiserv or its Subsidiaries after the Effective Time and
their respective eligible dependents and beneficiaries ("BHC Employees") the BHC
-------------
Plans in effect as of the date of this Agreement as set forth in Schedule
2.1.16(a) or to provide benefits under such employee benefit plans as may be
adopted from time to time by the Surviving Corporation or its successor that, in
the aggregate, are substantially comparable to the benefits offered to current
employees of BHC Parent and its Subsidiaries under the BHC Plans; (ii) to waive
any limitations regarding pre-existing conditions under any new health benefit
plan maintained by the Fiserv Group (and/or any of its affiliates) for the
benefit of BHC Employees currently covered or eligible to be covered under
existing health benefit plans or in which BHC Employees participate during the
45
<PAGE>
Transition Period; (iii) for all purposes under all benefit plans and policies
(except Fiserv's sabbatical plan), to treat all service by BHC Employees with
the BHC Group or its Subsidiaries before the Effective Time as service with
Fiserv and its Subsidiaries; and (iv) to give effect, in determining any
deductible and maximum out-of-pocket limitations with respect to welfare benefit
plans maintained by Fiserv (and/or any of its Affiliates) in which BHC Employees
participate during the Transition Period, to claims incurred and amounts paid
by, and amounts reimbursed to, BHC Employees with respect to similar plans
maintained by the BHC Group or its Subsidiaries for their benefit immediately
prior to the Effective Time. Fiserv agrees that from and after the Effective
Time and until all the liabilities for benefits and expenses have been fully
satisfied, Fiserv and/or its Subsidiaries will continue to maintain and
administer each of the BHC Group's plans and the trusts maintained as part
thereof in accordance with their respective terms and provisions.
3.3. BHC Options and Option Plans. (a) Conversion of Options.
---------------------------- ---------------------
As soon as practicable following the date of this Agreement, the Board of
Directors of BHC Parent or, to extent of its authority, any committee thereof
administering the BHC Option Plans, shall take all actions necessary or
appropriate to cause each BHC Option outstanding at the Effective Time, to be
converted, effective at the Effective Time and subject to the consummation of
the Merger, into an option to purchase, on the same terms and conditions
(including exercise rights and restrictions) as were applicable to such BHC
Option at the Effective Time, subject to Section 2.1.2(c), a number of Fiserv
Shares (with any fractional Fiserv Share being disregarded) equal to the product
determined by multiplying the number of shares of Common Stock subject to such
BHC Option by the Conversion Ratio, at an exercise price per share (rounded
upward to the nearest full cent) equal to the quotient determined by dividing
the exercise price of such BHC Option by the Conversion Ratio, subject to the
provisions of Section 3.4(b). Such Merger Shares are hereafter referred to as
the "Option Conversion Shares".
------------------------
(b) Notice to Holders. As soon as practicable after the
-----------------
Closing Date and in any event within five (5) days thereafter, BHC Parent and
Fiserv shall jointly deliver a notice to each BHC Option Holder setting forth
(i) the number of Option Conversion Shares (and the price per share) that may be
purchased by such holder upon the exercise of any BHC Options held by such BHC
Option Holder after consummation of the Merger, and (ii) confirming that each
BHC Option, as converted, shall continue to be subject to the terms and
conditions, including without limitation, the terms and conditions relating to
exercisability, as in effect with respect to such BHC Option at the Effective
Time.
46
<PAGE>
(c) BHC Option Plans. Prior to the Effective Time, but
----------------
effective as of the Effective Time, Fiserv shall take all actions necessary or
appropriate to assume the BHC Option Plans and to reserve for issuance
thereunder the number of Merger Shares covered by the BHC Options at the
Effective Time.
(d) Form S-8. As soon as practicable following the Effective
--------
Time, and in any event within ten (10) days of the Closing Date, Fiserv shall
file a Registration Statement on Form S-8 to register the Fiserv Shares issuable
upon the exercise of the BHC Options, as converted.
3.4. Pooling Condition. (a) Pooling. Each of Fiserv and
----------------- -------
BHC Parent hereby covenant and agree, together with their respective
independent accountants, to take all steps reasonably necessary (including,
without limitation, the provisions of Section 3.1.11) in order to obtain
declaration of effectiveness of a registration statement on Form S-4 under the
Securities Act containing pro-forma financial statements that account for the
Merger as a pooling of interests in accordance with generally accepted
accounting principles. In the event Fiserv reasonably determines, based on the
written advice of Fiserv auditors, the consummation of the Merger in accordance
with the provisions of Section 1.5 would be accounted for as a pooling of
interests in accordance with generally accepted accounting principles (such
favorable determination is sometimes referred to herein as the "Pooling
-------
Condition"), then, subject to the other terms and conditions of this Agreement,
- ---------
the Merger shall be consummated.
(b) Pooling Condition Not Satisfied. If, based on the written
-------------------------------
advice of Fiserv's independent auditors, Fiserv reasonably determines that the
Pooling Condition will not be satisfied, then, subject to the other terms and
conditions of this Agreement, the Merger shall be consummated, provided however,
that the Merger Consideration shall be adjusted by modifying the definition of
Conversion Ratio such that "$33.50" is replaced with "$31.50."
3.5. Nasdaq Requirements. Fiserv shall provide timely notice
-------------------
to Nasdaq of its intent to issue additional shares of Fiserv Common Stock to
holders of BHC Parent Common Stock pursuant to the Merger and upon the exercise
of options to purchase shares of Fiserv Common Stock granted under the BHC
Option Plans, and will comply in full with any and all requirements of Nasdaq's
National Market System applicable to the issuance of such shares or the trading
of such shares subsequent to the Merger.
47
<PAGE>
3.6. Registration Statement. As soon as practicable after the
----------------------
execution of this Agreement, Fiserv shall file with the Commission the
Registration Statement to register the shares of Fiserv Common Stock to be
issued pursuant to the Merger and the resale thereof by persons who may be
deemed to be underwriters under Rule 145 of the Securities Act, shall use its
reasonable best efforts to have the Commission declare the Registration
Statement effective as soon as practicable and shall maintain the effectiveness
of the Registration Statement for a period of two (2) years following the
Effective Date.
ARTICLE IV
CONDITIONS PRECEDENT
4.1. Conditions to Obligations of Each Party. The obligations
---------------------------------------
of BHC Parent, Fiserv and Fiserv Sub to effect the Merger and to consummate the
other transactions contemplated hereby shall be subject to the fulfillment at or
prior to the Effective Time of the following conditions:
4.1.1. HSR Act Notification. In respect of the notifications
--------------------
of Fiserv and Fiserv Sub on the one hand and BHC Parent on the other hand
pursuant to the HSR Act, the applicable waiting period and any extensions
thereof shall have expired or been terminated.
4.1.2. No Injunction, etc. Consummation of the transactions
------------------
contemplated hereby shall not have been restrained, enjoined or otherwise
prohibited by any Applicable Law, including any order, injunction, decree or
judgment of any court or other Governmental Authority, and no action or
proceeding brought by any Governmental Authority shall be pending at the
Effective Time before any court or other Governmental Authority to restrain,
enjoin or otherwise prevent the consummation of the transactions contemplated
hereby, and there shall not have been promulgated, entered, issued or determined
by any court or other Governmental Authority to be applicable to this Agreement
any Applicable Law making illegal the consummation of the transactions
contemplated hereby and no proceeding brought by any Governmental Authority with
respect to the application of any such Applicable Law shall be pending. Prior to
the date on which BHC Parent mails the Registration Statement to its
stockholders, the Commission shall have declared the Registration statement
effective, and as of the dates of the BHC Parent stockholders meeting and the
Closing Date, no stop order shall have been entered and no proceedings under
Sections 8(d) or 8(e) of the Securities Act shall have been initiated by the
Commission.
48
<PAGE>
4.1.3. Other Consents. The Consent of the shareholders of
--------------
BHC Parent to authorize the Merger shall have been received. Copies of all
such Consents shall have been delivered to Fiserv and to BHC Parent.
4.1.4. Approval of Merger Shares for Listing. The Merger
-------------------------------------
Shares shall have been approved for listing on Nasdaq upon notice of issuance.
4.2. Conditions to Obligations of Fiserv and Fiserv Sub. The
--------------------------------------------------
obligations of Fiserv and Fiserv Sub to effect the Merger and to consummate the
other transactions contemplated hereby shall be subject to the fulfillment (or
waiver by Fiserv Sub) at or prior to the Effective Time of the following
additional conditions, which BHC Parent agrees to use its reasonable best
efforts to cause to be fulfilled:
4.2.1. Representations, Performance, etc. The representations
---------------------------------
and warranties set forth in Section 2.1 shall have been true and correct in all
materials aspects at and as of the date hereof, and shall be true and correct in
all material respects at and as of the Effective Time as though made at and as
of the Effective Time, provided that the accuracy of any representation or
--------
warranty that by its terms speaks only as of the date hereof or another date
prior to the Effective Time shall be determined solely as of the date hereof or
such other date, as the case may be. BHC Parent and its Affiliates shall have
duly performed and complied in all material respects with all agreements and
conditions required by this Agreement to be performed or complied with by it
prior to or at the Effective Time. BHC Parent shall have delivered to Fiserv and
Fiserv Sub a certificate, dated the Effective Time and signed by the President
or a Vice President of BHC Parent, to the effect set forth above in this Section
4.2.1, provided, however, that such certificate may include, as an attachment
-----------------
thereto, supplemental disclosure schedules that may modify, supplement or amend
the Schedules attached hereto in order to reflect changes or developments since
the date hereof made in the ordinary course of business of the BHC Group
provided, further, that no such supplemental disclosure schedule shall set forth
- -----------------
any change or development that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect on the BHC Group.
4.2.2. Governmental Approvals. BHC Parent or a member of
----------------------
the BHC Group shall have obtained all required Governmental Approvals. Copies
of all Governmental Approvals shall have been delivered to Fiserv.
4.2.3. Opinion of Counsel. Fiserv and Fiserv Sub shall have
------------------
received a favorable opinion, in each case addressed to each of them and dated
the Closing Date, from Ballard Spahr
49
<PAGE>
Andrews & Ingersoll, special counsel to BHC Parent in form and substance
reasonably satisfactory to counsel to Fiserv and Fiserv Sub.
4.2.4. Proceedings. All corporate and other proceedings of BHC
-----------
Parent and the BHC Group that are required in connection with the transactions
contemplated by this Agreement, and all documents and instruments incident to
such proceedings, shall be reasonably satisfactory to Fiserv Sub and its special
counsel, and Fiserv Sub and such counsel shall have received all such documents
and instruments, or copies thereof, certified if requested, as may be reasonably
requested.
4.2.5. FIRPTA Certification. Fiserv and Fiserv Sub shall have
--------------------
received (a) a certification from BHC Parent, dated no more than thirty (30)
days prior to the Closing Date and signed by a responsible corporate officer of
BHC Parent, that BHC Parent is not, and has not been at any time during the five
years preceding the date of such certification, a United States real property
holding company, as defined in section 897(c)(2) of the Code, and (b) proof
reasonably satisfactory to Fiserv and Fiserv Sub that BHC Parent has provided
notice of such certification to the IRS in accordance with the provisions of
Treasury regulations section 1.897-2(h)(2).
4.3. Conditions to Obligations of BHC Parent. The obligation
---------------------------------------
of BHC Parent to effect the Merger and to consummate the other transactions
contemplated hereby shall be subject to the fulfillment (or waiver by BHC
Parent), at or prior to the Effective Time, of the following additional
conditions, which each of Fiserv and Fiserv Sub agrees to use its reasonable
best efforts to cause to be fulfilled:
4.3.1. Representations, Performance, etc. The representations
---------------------------------
and warranties set forth in Section 2.2 shall have been true and correct in all
material respects at and as of the date hereof, and shall be true and correct in
all material respects at and as of the Effective Time as though made at and as
of the Effective Time, provided that the accuracy of any representation or
--------
warranty that by its terms speaks only as of the date hereof or another date
prior to the Effective Time shall be determined solely as of the date hereof or
such other date, as the case may be. Fiserv, Fiserv Sub and their respective
Affiliates shall have duly performed and complied in all material respects with
all agreements and conditions required by this Agreement to be performed or
complied with by them prior to or at the Effective Time. Fiserv and Fiserv Sub
shall have delivered to BHC Parent a certificate or certificates, dated the
Effective Time and signed by the President or a Vice President of each of them,
to the effect set forth above in this Section 4.3.1, provided, however, that
-----------------
such certificate may include, as an
50
<PAGE>
attachment thereto, supplemental disclosure schedules that may modify,
supplement or amend the Schedules attached hereto in order to reflect changes or
developments since the date hereof made in the ordinary course of business of
the Fiserv Group provided, further, that no such supplemental disclosure
-----------------
schedule shall set forth any change or development that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect on the
Fiserv Group.
4.3.2. Governmental Approvals. Fiserv or a member of the
----------------------
Fiserv Group shall have obtained all required Governmental Approvals. Copies
of all such Governmental Approvals shall have been delivered to BHC Parent.
4.3.3. Opinions of Counsel. BHC Parent shall have received a
-------------------
favorable opinion, addressed to it and dated the Closing Date, from Charles W.
Sprague, general counsel of Fiserv and Fiserv Sub and in form and substance
reasonably satisfactory to counsel to BHC Parent.
4.3.4. Proceedings. All corporate and other proceedings of
-----------
Fiserv Sub and the Fiserv Group that are required in connection with the
transactions contemplated by this Agreement, and all documents and instruments
incident to such proceedings, shall be reasonably satisfactory to BHC Parent and
its special counsel, and BHC Parent and such counsel shall have received all
such documents and instruments, or copies thereof, certified if requested, as
may be reasonably requested.
4.3.5. Tax Opinion. BHC Parent shall have received from
-----------
Ballard Spahr Andrews & Ingersoll an opinion substantially to the effect that,
on the basis of facts, representations and assumptions referenced in such
opinion that are reasonably consistent with the state of facts existing at the
Effective Time, the Merger will be treated for United States federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code,
and that no gain or loss will be required to be recognized by a shareholder of
BHC Parent to the extent such shareholder receives Merger Shares in exchange for
shares of Common Stock. In rendering such opinion, counsel may request and rely
upon representations contained in certificates of officers of BHC Parent,
Fiserv, Fiserv Sub, and holders of 5% of the Common Stock and others, and BHC
Parent, Fiserv and Fiserv Sub shall use their best efforts to make available
such truthful certificates.
4.3.6. Certificates. BHC Parent shall have received from
------------
each holder of 5% or more of the Common Stock a certificate to the effect that
such holder has no plan or intention to sell, exchange or otherwise dispose of
the Fiserv Shares it receives in the Merger.
51
<PAGE>
ARTICLE V
TERMINATION
5.1. Termination. This Agreement may be terminated at any
-----------
time prior to the Effective Time:
(a) by the written agreement of Fiserv Sub and BHC
Parent;
(b) by BHC Parent, on the one hand, or Fiserv Sub, on the
other hand, by written notice to the other after 5:00 p.m., Eastern
Standard Time, six months from the Closing Date if the Effective Time
shall not have occurred by such date (unless the failure of the
Effective Time to occur shall be due to any material breach of this
Agreement by the party seeking to terminate), unless such date is
extended by the mutual written consent of BHC Parent and Fiserv Sub;
(c) by either BHC Parent or Fiserv, if (i) the BHC Board shall
withdraw or modify in a manner adverse to Fiserv its approval or
recommendation of the Merger or (ii) any person or group of persons
shall have made a BHC Acquisition Proposal that the BHC Board
determines in good faith, after consultation with outside counsel
that the failure to accept such BHC Acquisition Proposal could
reasonably be deemed to cause the members of the BHC Board to breach
their fiduciary duties under applicable law;
(d) by BHC Parent, if there has been a material breach on the
part of Fiserv or Fiserv Sub of the covenants of Fiserv and Fiserv
Sub set forth herein, or any material failure on the part of Fiserv,
Fiserv Sub or any of their respective Affiliates to perform its
obligations hereunder (provided that the terminating party shall have
performed and complied with, in all material respects, all agreements
and covenants required by this Agreement to have been performed or
complied with by such terminating party) prior to such time, such
that, in any such case, any of the conditions to the effectiveness of
the Merger set forth in Section 4.1 or 4.3 could not be satisfied on
or prior to the termination date contemplated by Section 5.1(b); or
(e) by the Fiserv, if there has been a material breach on the
part of BHC Parent of its covenants set forth herein or any material
failure on the part of BHC Parent or any of its Affiliates to perform
its obligations hereunder (provided that the terminating party shall
--------
have performed and complied with, in all material respects, all
agreements and covenants required by this Agreement to have been
52
<PAGE>
performed or complied with by such terminating party) prior to such
time, such that, in any such case, any of the conditions to the
effectiveness of the Merger set forth in Sections 4.1 or 4.2 could
not be satisfied on or prior to the termination date contemplated by
Section 5.1(b).
5.2. Effect of Termination. In the event of the termination of
---------------------
this Agreement pursuant to Section 5.1, this Agreement shall become void and
have no effect, without any liability to any Person in respect hereof or of the
transactions contemplated hereby on the part of any party hereto, or any of its
directors, officers, employees, agents, consultants, representatives, advisors,
stockholders or Affiliates, except for any liability resulting from any party's
wilful and intentional breach of this Agreement and except that the provisions
of Article VI shall survive any such termination. The foregoing sentence shall
not be construed to limit any party's obligations under Section 6.3.
ARTICLE VI
DEFINITIONS, MISCELLANEOUS
6.1. Definition of Certain Terms. The terms defined in this
---------------------------
Section 6.1, whenever used in this Agreement (including in the Schedules but not
including the Exhibits except as specified therein) shall have the respective
meanings indicated below for all purposes of this Agreement. All references
herein to a Section, Article or Schedule are to a Section, Article or Schedule
of or to this Agreement, unless otherwise indicated.
Adverse Effect: any change in, or effect on, or series
--------------
of changes in, or effects on, the business of the affected entity as
currently conducted that would result in the incurrence of damages
or liability of the sum of $500,000 or more.
Affiliate: of a Person means a Person that directly, or
---------
indirectly through one or more intermediaries, Controls, is
Controlled by, or is under common Control with, the first Person,
including but not limited to a Subsidiary of the first Person, a
Person of which the first Person is a Subsidiary, or another
Subsidiary of a Person of which the first Person is also a
Subsidiary. "Control" (including the terms "Controlled by" and "under
-------
common Control with") means the possession, directly or indirectly,
of the power to direct or cause the direction of the management
policies of a Person, whether through the ownership of voting
securities, by contract, as trustee or executor, or otherwise.
53
<PAGE>
Agreement: this Agreement and Plan of Merger, including the
---------
Schedules and Exhibits hereto.
Applicable Law: all applicable provisions of all (i) statutes,
--------------
laws, rules, administrative codes, regulations or ordinances of any
Governmental Authority, (ii) Governmental Approvals and (iii) orders,
decisions, injunctions, judgments, awards and decrees of any
Governmental Authority.
BHC Acquisition Proposal: as defined in Section 3.1.2.
------------------------
BHC Client: any client to which BHC Parent or any of its
----------
Subsidiaries or Affiliates provides clearing services on the date
hereof or on the Closing Date, as the case may be.
BHC Contract: as defined in Section 2.1.8(a).
------------
BHC Employees: as defined in Section 3.2.18.
-------------
BHC Employment and Withholding Taxes: any federal, state,
------------------------------------
local, foreign or other employment, unemployment insurance, social
security, disability, workers' compensation, payroll, health care, or
other similar tax, duty or other governmental charge or assessment or
deficiencies thereof and all Taxes required to be withheld by or on
behalf of each member of the BHC Group in connection with amounts
paid or owing to any employee, independent contractor, creditor or
other party (including, but not limited to, all interest, additions
to tax and penalties thereon, and additions thereto, and whether or
not such item or amount is disputed).
BHC Facilities: any property presently or previously
--------------
operated by any member of the BHC Group.
BHC Filings: as defined in Section 2.1.12(c).
-----------
BHC Financial Statements: the BHC Parent Financial
------------------------
Statements.
BHC Group: BHC Parent and BHC Parent's direct and indirect
---------
Subsidiaries.
BHC Intellectual Property: as defined in Section 2.1.9(a).
-------------------------
BHC Option: each option, warrant or similar right to purchase
----------
shares of BHC Capital Stock, whether or not vested, granted to any
Person pursuant to any BHC Option Plan or otherwise.
54
<PAGE>
BHC Option Holder: as defined in Section 2.1.2(c).
-----------------
BHC Option Plans: collectively, the Long Term Incentive Plan,
----------------
Directors' Stock Option Plan, 1992 Stock Option Plan, and each other stock
option plan, agreement, commitment or arrangement maintained or entered
into by any member of the BHC Group for the benefit of any current or
former officer, director or other employee, of any member of the BHC Group,
and any and all amendments thereto.
BHC Parent: as defined in the introductory paragraph
----------
of this Agreement.
BHC Parent Financial Statements: the consolidated financial
-------------------------------
statements of BHC Parent and its Subsidiaries as at and for the years ended
December 31, 1996 and 1995, including in each case a balance sheet, a
statement of operations, a statement of changes in stockholders' equity and
a statement of cash flows, together with an audit report thereon by Coopers
and Lybrand, LLP, dated February 14, 1997.
BHC Pension Plan: as defined in section 2.1.16(e).
----------------
BHC Permitted Encumbrances: as defined in Section 2.1.7.
--------------------------
BHC Plans: as defined in Section 2.1.16(a).
---------
BHC Registered Broker-Dealers: as defined in Section 2.1.14(a).
-----------------------------
BHC Tax Return: any return, report, declaration, form, claim for
--------------
refund or information statement relating to Taxes, including any schedule
or attachment thereto, and including any amendment thereof, required to be
filed by or on behalf of any member of the BHC Group.
BHC Taxes: as defined in Section 2.1.6(a).
---------
Business Day: a day other than a Saturday, Sunday or other day on
------------
which commercial banks in New York, New York are authorized or required by
law to close.
Certificate of Merger: as defined in Section 1.2.
---------------------
Certificates: as defined in Section 1.8(a).
------------
Closing: as defined in Section 1.2.
-------
Closing Date: the date of the Closing.
------------
55
<PAGE>
COBRA: as defined in section 2.1.10(k).
-----
Code: the United States Internal Revenue Code of 1986, as amended.
----
Commission: the Securities and Exchange Commission.
----------
Common Stock: the Common Stock, par value $.001 per share, of BHC
------------
Parent.
Confidentiality Agreement: that certain letter agreement, dated as
-------------------------
of October, 1996, relating to confidential information exchanged between
the Fiserv Group and the BHC Group.
Consent: any consent, approval, authorization, waiver, permit,
-------
license, grant, exemption or order of, or registration, declaration or
filing with, any Person, including but not limited to any Governmental
Authority.
Conversion Ratio: As defined in Section 1.5.
----------------
DGCL: the General Corporation Law of the State of Delaware, as in
----
effect from time to time.
Effective Time: as defined in Section 1.2.
--------------
Environmental Law: all federal, state, local and foreign statutes,
-----------------
ordinances, regulations, orders, directives, decrees and other requirements
of law and obligations arising under common law, concerning pollution or
protection of public health or the environment.
ERISA: the Employee Retirement Income Security Act of 1974, as
-----
amended.
ERISA Affiliate: as to any Person, any other Person which, together
---------------
with such Person, is or has been within the preceding six years treated as
a single employer under section 414(b), (c), (m) or (o) of the Code.
Exchange Act: the Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations of the Commission promulgated thereunder.
Exchange Agent: as defined in Section 1.6.
--------------
Fiserv: as defined in the introductory paragraph of this Agreement.
------
56
<PAGE>
Fiserv Acquisition Proposal: as defined in Section 3.2.2.
---------------------------
Fiserv Common Stock: the Common Stock of Fiserv, par value $.01 per
-------------------
share.
Fiserv Core Plan: as defined in Section 2.2.10.
----------------
Fiserv Employee Options: each option, warrant or similar right to
-----------------------
purchase shares of Fiserv Shares, whether or not vested, granted to any
Person pursuant to any Fiserv Option Plan or otherwise.
Fiserv Filings: as defined in Section 2.2.9(c).
--------------
Fiserv Financial Statements: the consolidated balance sheet of
---------------------------
Fiserv and its Subsidiaries as at December 31, 1996 and 1995, and the
related statements of profit and loss, total recognized gains and losses
and cash flows for the years then ended, together with an audit report
thereon by Deloitte & Touche LLP dated January 31, 1997.
Fiserv Group: Fiserv and Fiserv's direct and indirect Subsidiaries.
------------
Fiserv Pension Plan: as defined in section 2.2.10(e).
-------------------
Fiserv Plan: each written "employee benefit plan," within the
-----------
meaning of section 3(3) of ERISA, and each written bonus, incentive or
deferred compensation, stock option or other equity, workers' compensation,
retention, change in control or other employee or retiree compensation or
benefit plan, program or arrangement that is maintained by any member of
the Fiserv Group or any ERISA Affiliate thereof or to which any member of
the Fiserv Group or any such ERISA Affiliate contributes or is obligated to
contribute or under which any member of the Fiserv Group may otherwise have
any material liability.
Fiserv Shares: the shares of common stock, $.01 par value, of
-------------
Fiserv.
Fiserv Sub: as defined in the second recital of this Agreement.
----------
Fiserv Tax Return: any return, report, declaration, form, claim for
-----------------
refund or information statement relating to Taxes, including any schedule
or attachment thereto, and including any amendment thereof, required to be
filed by or on behalf of any Fiserv Company.
57
<PAGE>
GAAP: as defined in Section 2.1.3.
----
Governmental Approval: any Consent of, with or to any Governmental
---------------------
Authority.
Governmental Authority: any nation or government, any state or other
----------------------
political subdivision thereof, including, without limitation, (i) any
governmental agency, department, commission or instrumentality of the
United States, or any State of the United States, or (ii) any stock
exchange or self-regulatory agency or authority.
Hazardous Substances: "hazardous substances" under any Environmental
--------------------
Law, "pollutants", "contaminants", or "regulated substances" under any
Environmental Law, or any other substance considered toxic, hazardous, or a
potential threat to public health or the environment, the presence of which
might result in a party incurring liability under any Environmental Law.
HSR Act: the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
-------
as amended, and the rules and regulations thereunder.
Income Tax: any federal, state, local or foreign, net or gross
----------
income, receipts, alternative, minimum, accumulated earnings, personal
holding company, franchise, capital stock, net worth, capital, profits or
windfall profits Tax or other similar Tax, estimated Tax, duty or other
governmental charge or assessment or deficiencies thereof (including, but
not limited to, any liability therefor as a member of a consolidated,
combined, affiliated or unitary group, as a transferee (including under
section 6901 of the Code) or pursuant to a tax sharing or tax allocation
agreement, all interest, additions to tax and penalties thereon and
additions thereto and whether or not such item or amount is disputed).
Indebtedness: as applied to any Person, obligations relating to
------------
capital leases, payments in respect of the deferred purchase price of
property, letters of credit, loan agreements and other agreements relating
to the borrowing of money or extension of credit.
Intellectual Property: United States and foreign trademarks, service
---------------------
marks, trade names, trade dress, domain names, copyrights, and similar
rights, including registrations and applications to register or renew the
registration of any of the foregoing; United States and foreign letters
patent and patent applications; and inventions, processes, designs,
formulae, trade secrets,
58
<PAGE>
know-how, confidential information, computer software, data and
documentation and all similar intellectual property rights.
IRS: the United States Internal Revenue Service.
---
Knowledge of BHC Parent: the actual knowledge, after due inquiry, of
-----------------------
William T. Spane, Jr., Lawrence E. Donato, Robert B. Kaplan and Richard N.
Bare.
Knowledge of Fiserv: the actual knowledge, after due inquiry, of
-------------------
George D. Dalton, Leslie M. Muma, Kenneth R. Jensen and Charles W. Sprague.
Lien: any mortgage, pledge, hypothecation, security interest,
----
encumbrance, title retention agreement, lien, charge or other similar
restriction.
Material Adverse Effect: with respect to any Person or Persons, a
-----------------------
materially adverse effect on the business, financial condition, prospects,
results of operations or properties of such Person or Persons, taken as a
whole in the event that there is more than one such Person, provided that a
loss or threatened loss of a BHC Client shall be deemed not to be a
material adverse effect. Any reference in this Agreement to "Material
Adverse Effect on the Fiserv Group" shall mean a Material Adverse Effect on
the Fiserv Group, taken as a whole and any reference in this Agreement to
"Material Adverse Effect on the BHC Group" shall mean a Material Adverse
Effect on the BHC Group, taken as a whole.
Merger: as defined in the second recital of this Agreement.
------
Merger Consideration: as defined in Section 1.5.
--------------------
Merger Shares: newly issued shares of Fiserv Common Stock that are
-------------
pari passu in all respects with Fiserv Shares outstanding as of the date
hereof.
NASD: National Association of Securities Dealers, Inc.
----
NYSE: New York Stock Exchange.
----
Offering: as defined in Section 3.1.11.
--------
Option Conversion Shares: as defined in section 3.3(a).
------------------------
59
<PAGE>
Organizational Documents: as to any Person, if a corporation, its
------------------------
articles or certificate of incorporation or memorandum and articles of
association, as the case may be, and bylaws; if a partnership, its
partnership agreement; and if some other entity, its constituent documents.
PBGC: Pension Benefit Guaranty Corporation.
----
Person: any natural person or any firm, partnership, limited
------
liability partnership, association, corporation, limited liability company,
trust, business trust, Governmental Authority or other entity.
Pooling Condition: as defined in Section 3.4(a).
-----------------
Proxy Statement/Prospectus: the Proxy Statement/Prospectus forming a
--------------------------
part of the Registration Statement.
Reference Date: December 31, 1996.
--------------
Registration Statement: the Registration Statement on Form S-4 of
----------------------
Fiserv to be filed with the Commission in respect of the issuance of shares
of Fiserv pursuant to this Agreement.
Scheduled Closing Date: May 30, 1997 or such other date as the
----------------------
parties may designate jointly in writing, but not later than September 30,
1997.
Securities Act: the Securities Act of 1933, as amended.
--------------
Subsidiary: each corporation or other Person in which a Person owns
----------
or controls, directly or indirectly, capital stock or other equity
interests representing more than 50% of the outstanding voting stock or
other equity interests.
Surviving Corporation: as defined in Section 1.1.
---------------------
Tax: any federal, state, local or foreign net or gross income,
---
alternative, minimum, accumulated earnings, personal holding company,
franchise, doing business, capital stock, net worth, capital, profits,
windfall profits, gross receipts, value added, sales, use, excise, custom,
transfer, registration, stamp, premium, real property, personal property,
ad valorem, intangibles, rent, occupancy, license, occupational,
employment, unemployment, social security, disability, workers'
compensation, payroll, withholding,
60
<PAGE>
estimated or other similar tax, duty or other governmental charge of any
kind whatsoever (including, but not limited to, any liability therefor as a
member of a consolidated, combined, affiliated or unitary group, as a
transferee (including under section 6901 of the Code) or pursuant to a tax
sharing or tax allocation agreement, all interest, additions to tax and
penalties thereon and additions thereto, and whether or not any such item
or amount is disputed).
Tax Asset: any net operating loss, net capital loss, investment tax
---------
credit, foreign tax credit, charitable deduction or any other credit or tax
attribute that could reduce Taxes through carryovers or carrybacks to other
taxable years (including, without limitation, deductions and credits
related to alternative minimum Taxes).
Transition Period: as defined in section 3.2.8.
-----------------
6.2. Survival of Representations, Warranties and Covenants. The
-----------------------------------------------------
representations and warranties, and covenants and other obligations to be
performed prior to or at the Effective Time, contained in this Agreement or in
any certificate delivered in connection herewith shall survive the execution and
delivery of this Agreement but shall not survive the Effective Time, and any and
all breaches of such representations and warranties and covenants and other
obligations shall be deemed to be waived as of the Effective Time, except that
the covenant of Fiserv and Fiserv Sub contained in Section 3.2.7 shall survive
until the fifth anniversary of the Effective Time and the covenant of Fiserv and
Fiserv Sub contained in Section 3.2.8 shall survive until December 31, 1999.
6.3. Expenses; Transfer Taxes. (a) Whether or not the transactions
------------------------
contemplated by this Agreement shall be consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby (including, without limitation, fees and disbursements of counsel,
financial advisors and accountants) shall be borne by the party which incurs
such cost or expense; provided, that if this Agreement is terminated pursuant to
--------
Section 5.1(d) or 5.1(e), such party shall pay the costs and expenses incurred
by the other party in connection with this Agreement; and provided, further,
-------- -------
that all costs and expenses related to the preparation, printing, filing and
mailing (as applicable) of the Proxy Statement/Prospectus and all SEC filing
fees incurred in connection with the Proxy Statement/Prospectus shall be borne
equally by BHC Parent, on the one hand, and Fiserv, on the other hand.
61
<PAGE>
(b) Notwithstanding the foregoing, provided that Fiserv shall not
be in breach of its obligations under this Agreement, if (i) BHC Parent shall
have terminated this Agreement pursuant to Section 5.1(c) and (ii) within six
months of any such termination, BHC Parent shall have entered into, or shall
have publicly announced its intention to enter into, an agreement or an
agreement in principle with respect to any BHC Acquisition Proposal, then BHC
Parent agrees that it will pay Fiserv a termination fee of $2,000,000 in
addition to the amount otherwise payable pursuant to the second provision
contained in Section 6.3(a) above.
6.4. Severability. If any provision of this Agreement is
------------
inoperative or unenforceable for any reason, such circumstances shall not have
the effect of rendering the provision in question inoperative or unenforceable
in any other case or circumstance, or of rendering any other provision or
provisions herein contained invalid, inoperative, or unenforceable to any extent
whatsoever. The invalidity of any one or more phrases, sentences, clauses,
Sections or subsections of this Agreement shall not affect the remaining
portions of this Agreement.
6.5. Notices. All notices, requests, demands waivers, and other
-------
communications made in connection with this Agreement shall be in writing and
shall be (a) mailed by first-class, registered or certified mail, return receipt
requested, postage prepaid, (b) transmitted by hand delivery or reputable
overnight delivery service or (c) sent by telecopy or telegram, addressed as
follows:
(i) if to Fiserv or Fiserv Sub, to:
Fiserv, Inc.
255 Fiserv Drive
Brookfield, WI 53045
Attention: Kenneth R. Jensen
Senior Executive Vice President and
Chief Financial Officer
With a copy to:
Charles W. Sprague
Fiserv, Inc.
255 Fiserv Drive
Brookfield, WI 53045
62
<PAGE>
(ii) if to BHC Parent, to:
BHC Financial, Inc.
One Commerce Square
2500 Market Street, 12th Floor
Philadelphia, PA 19103
Attention: William T. Spane, Jr.
--------- President
With a copy to:
Ballard Spahr Andrews & Ingersoll
1735 Market Street, 51st Floor
Philadelphia, PA 19103
Attention:
---------
William H. Rheiner, Esquire
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
All such notices, requests, demands, waivers and other communications
shall be deemed to have been received (w) if by personal delivery on the day of
such delivery, (x) if by first-class, registered or certified mail, on the fifth
Business Day after the mailing thereof, (y) if by reputable overnight delivery
service, on the day delivered, (z) if by telecopy or telegram, on the day on
which such telecopy or telegram was sent, provided that a copy is also sent that
day by a reputable overnight delivery service.
6.6 Miscellaneous.
-------------
6.6.1. Headings. The headings contained in this Agreement are for
--------
convenience of reference only and shall not affect the meaning or interpretation
of this Agreement.
6.6.2. Entire Agreement. This Agreement, including the Schedules and
----------------
Exhibits, constitutes the entire agreement, and supersede all prior agreements
and understandings, both written and oral, between the parties with respect to
the subject matter hereof.
6.6.3. Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
63
<PAGE>
6.6.4. Jurisdictional Matters. (a) Governing Law. THIS AGREEMENT
---------------------- -------------
SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING AS TO VALIDITY, INTERPRETATION AND
EFFECT, BY THE INTERNAL LAWS OF THE STATE OF DELAWARE.
(b) Jurisdiction. FISERV, FISERV SUB AND BHC PARENT HEREBY
------------
IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF DELAWARE
AND THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA LOCATED IN THE STATE,
CITY AND COUNTY OF DELAWARE SOLELY IN RESPECT OF THE INTERPRETATION AND
ENFORCEMENT OF THE PROVISIONS OF THIS AGREEMENT AND OF THE DOCUMENTS REFERRED TO
IN THIS AGREEMENT, AND HEREBY WAIVE, AND AGREE NOT TO ASSERT, AS A DEFENSE IN
ANY ACTION, SUIT OR PROCEEDING FOR THE INTERPRETATION OR ENFORCEMENT HEREOF OR
OF ANY SUCH DOCUMENT, (A) THAT IT IS NOT SUBJECT THERETO OR THAT SUCH ACTION,
SUIT OR PROCEEDING MAY NOT BE BROUGHT OR IS NOT MAINTAINABLE IN SAID COURTS, (B)
THAT THE VENUE THEREOF MAY NOT BE APPROPRIATE OR (C) THAT THE INTERNAL LAWS OF
THE STATE OF DELAWARE DO NOT GOVERN THE VALIDITY, INTERPRETATION OR EFFECT OF
THIS AGREEMENT, AND THE PARTIES HERETO IRREVOCABLY AGREE THAT ALL DISPUTES WITH
RESPECT TO SUCH ACTION OR PROCEEDING SHALL BE HEARD AND DETERMINED IN SUCH A
STATE OR FEDERAL COURT. FISERV, FISERV SUB AND BHC PARENT HEREBY CONSENT TO AND
GRANT ANY SUCH COURT JURISDICTION OVER THE PERSON OF SUCH PARTIES AND OVER THE
SUBJECT MATTER OF ANY SUCH DISPUTE AND AGREE THAT MAILING OF PROCESS OR OTHER
PAPERS IN CONNECTION WITH ANY SUCH ACTION OR PROCEEDING IN THE MANNER PROVIDED
IN SECTION 6.5, OR IN SUCH OTHER MANNER AS MAY BE PERMITTED BY LAW, SHALL BE
VALID AND SUFFICIENT SERVICE THEREOF.
(c) Agent. Fiserv hereby appoints Corporation Service Company,
-----
Wilmington, Delaware as its agent for service of legal process in connection
with any matter described in this Section 6.6.4.
6.6.5. Binding Effect. This Agreement shall be binding upon and
--------------
inure to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns.
6.6.6. Assignment. This Agreement shall not be assignable by any
----------
party hereto without the prior written consent of the other parties hereto,
provided, however, that Fiserv Sub may, with the consent of BHC Parent (which
- -------- -------
consent may not be unreasonably withheld or delayed), assign its rights and
obligations under this Agreement to a direct wholly-owned United States
Subsidiary of Fiserv.
6.6.7. No Third Party Beneficiaries. Nothing in this Agreement
----------------------------
shall confer any rights upon any person or entity other than the parties hereto
and their respective heirs, successors and permitted assigns.
64
<PAGE>
6.6.8. Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES
--------------------
THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF
ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT, OR THE BREACH, TERMINATION OR VALIDITY OF THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (B) IT UNDERSTANDS
AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) IT MAKES THIS WAIVER
VOLUNTARILY AND (D) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 6.6.8.
6.6.9. Amendment; Waivers. No amendment, modification or discharge
------------------
of this Agreement, and no waiver hereunder, shall be valid or binding unless set
forth in writing and duly executed by the party against whom enforcement of the
amendment, modification, discharge or waiver is sought. Any such waiver shall
constitute a waiver only with respect to the specific matter described in such
writing and shall in no way impair the rights of the party granting such waiver
in any other respect or at any other time. Neither the waiver by any of the
parties hereto of a breach of or a default under any of the provisions of this
Agreement, nor the failure by any of the parties, on one or more occasions, to
enforce any of the provisions of this Agreement or to exercise any right or
privilege hereunder, shall be construed as a waiver of any other breach or
default of a similar nature, or as a waiver of any of such provisions, rights or
privileges hereunder.
[Remainder of page intentionally left blank.]
65
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
BHC FINANCIAL, INC.
By: /s/ William T. Spane, Jr.
---------------------------------------
Name: William T. Spane, Jr.
Title: Chairman Chief Executive Officer and
President
FISERV INC.
By: /s/ Leslie M. Muma
---------------------------------------
Name: Leslie M. Muma
Title: Vice Chairman, President
FISERV DELAWARE SUB, INC.
By: /s/ Leslie M. Muma
---------------------------------------
Name: Leslie M. Muma
Title: Vice Chairman, President
66
<PAGE>
Exhibit 4.3
AMENDMENT TO RIGHTS AGREEMENT
BETWEEN
BHC FINANCIAL, INC.
AND
AMERICAN STOCK TRANSFER AND TRUST COMPANY
DATED NOVEMBER 12, 1996
The Rights Agreement entered into between BHC Financial, Inc. and American Stock
Transfer and Trust Company and dated November 12, 1996 (the "Plan") is hereby
amended by adding the following paragraph as a final paragraph to the Plan:
Notwithstanding the foregoing, Fiserv, Inc. shall not be deemed to be an
Acquiring Person and no Stock Acquisition Date or Distribution Date shall
be deemed to have occurred and the Rights shall not be exercisable pursuant
to Sections 7(a), 11(a)(ii), 13(a) or otherwise hereunder solely by reason
of the execution and delivery of that certain Agreement and Plan of Merger
among BHC Financial, Inc., Fiserv, Inc. and Fiserv Delaware Sub, Inc. dated
as of March 2, 1997, as the same may be amended from time to time, and the
consummation of the transactions contemplated thereby.
Dated: March 2, 1997
BHC FINANCIAL, INC.
By: /s/ William T. Spane, Jr.
------------------------------------
William T. Spane, Jr.
President and Chief Executive Officer
AMERICAN STOCK TRANSFER AND TRUST COMPANY
By: /s/ H. J. Lemmer
-----------------------------------
Herbert J. Lemmer
Vice President
<PAGE>
Exhibit 10
BHC FINANCIAL, INC.
LONG TERM INCENTIVE PLAN
ARTICLE I
Purpose
The purpose of this Long Term Incentive Plan (the "Plan") is
to enable BHC Financial, Inc. to offer key employees of the Company and
Designated Subsidiaries (defined below) performance-based stock incentives and
other equity interests in the Company and other incentive awards, in order to
attract, retain, and reward such key employees, and strengthening the mutuality
of interests between key employees and the Company's shareholders.
ARTICLE II
Definitions
For purposes of this Plan, the following terms shall have the
following meanings:
"Award" shall mean any award under this Plan of any Stock
Option, Reload Option, Restricted Stock, Performance Shares, Performance Units
or Other Stock-Based Award.
"Board" shall mean the Board of Directors of the
Company.
"Change of Control" means:
(a) The acquisition, other than from the Company, by any
person, entity or "group" (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Exchange Act, excluding, for this purpose, the Company, its subsidiaries, or
any employee benefit plan of the Company or its subsidiaries which acquires
beneficial ownership of voting securities of the Company) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of either the then outstanding shares of Common Stock or the
combined voting power of the Company's then outstanding voting securities
entitled to vote generally in the election of directors; or
(b) Individuals who, as of July 20, 1994 constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board, provided that any
<PAGE>
person becoming a director subsequent to such date whose election, or nomination
for election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board (other than an
election or nomination of an individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of the directors of the Company, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) shall be, for purposes
hereof, considered as though such person were a member of the Incumbent Board;
or
(c) Approval by the stockholders of the Company of (i) a
reorganization, merger or consolidation, in each case, with respect to which
persons who were the stockholders of the Company immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter own more
than 50% of the combined voting power entitled to vote generally in the election
of directors of the reorganized, merged or consolidated company's then
outstanding voting securities, or (ii) a liquidation or dissolution of the
Company or the sale of all or substantially all of the assets of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Committee" shall mean a committee of the Board consisting of
two or more Directors, each of whom is a Disinterested Person.
"Common Stock" means the Common Stock, $.001 par value
per share, of the Company.
"Company" means BHC Financial, Inc., and any successor
thereto.
"Designated Subsidiary" shall mean a subsidiary of the Company
as designated from time to time by the Board, 80 percent or more of the voting
capital stock of which is owned, directly or indirectly, by the Company.
"Disability" shall mean Total Disability as defined in the
Company's long term disability plan.
"Disinterested Person" shall have the meaning set forth in
rule 16b-3(d)(3) as promulgated by the Securities and Exchange Commission under
the Exchange Act, or any successor definition adopted by the Commission.
"Exchange Act" means the Securities Exchange Act of
1934, as amended.
2
<PAGE>
"Fair Market Value" for purposes of this Plan, unless
otherwise required by any applicable provision of the Code or any regulations
issued thereunder, shall mean, as of any date, the mean between the high and low
sales prices of a share of Common Stock as reported for exchange, quoted on an
automated quotation system sponsored by a national securities association.
"Incentive Stock Option" shall mean any Stock Option awarded
under this Plan intended to be and designated as an "Incentive Stock Option"
within the meaning of section 422 of the Code.
"Non-Qualified Stock Option" shall mean any Stock Option
awarded under this Plan that is not an Incentive Stock Option.
"Other Stock-Based Award" shall mean an Award under Article XI
of this Plan that is valued in whole or in part by reference to, or is payable
in or otherwise based on, Common Stock.
"Participant" shall mean an employee to whom an Award has been
made pursuant to this Plan.
"Performance Cycle" shall have the meaning set forth in
Section 9.1.
"Performance Period" shall have the meaning set forth
in Section 8.1.
"Performance Share" shall mean an Award made pursuant to
Article VIII of this Plan of the right to receive Common Stock or cash of an
equivalent value at the end of a specified Performance Period.
"Performance Unit" shall mean an Award of the right to receive
a fixed dollar amount equal to the increase in the price of Common Stock over a
specified base amount, payable in cash or Common Stock or a combination of both,
pursuant to Article IX of the Plan.
"Plan" shall mean BHC Financial, Inc. Long Term
Incentive Plan, as set forth herein.
"Reload Option" shall have the meaning set forth in
Section 6.5.
"Restricted Stock" shall mean an Award of shares of Common
Stock under this Plan that is subject to restrictions under Article VII.
3
<PAGE>
"Restriction Period" shall have the meaning set forth
in Section 7.3(a).
"Retirement" shall mean termination of employment by an
employee who is at least 55 years of age after at least 5 years of employment by
the Company and/or a Designated Subsidiary.
"Stock Option" or "Option" shall mean any option to purchase
shares of Common Stock (including Restricted Stock and Performance Shares, if
the Committee so determines) granted pursuant to Article VI.
"Ten Percent Shareholder" means a person who at the time of
grant owns, either directly or within the meaning of the attribution rules
contained in section 425(d) of the Code, stock possessing more than 10% of the
total combined voting power of all classes of stock of his or her employer
corporation or of its parent or subsidiary corporations, as defined respectively
in sections 425(e) and (f) of the Code, but only to the extent that the employer
corporation is the Company or a Designated Subsidiary.
"Termination of employment" shall mean a termination of
service for reasons other than a military or personal leave of absence granted
by the Company.
"Withholding Election" shall have the meaning set forth
in Section 13.4.
ARTICLE III
Administration
3.1 The Committee. The Plan shall be administered and
-------------
interpreted by the Committee.
3.2 Grant of Awards. The Committee shall have the
---------------
authority:
(a) to grant, pursuant to the terms of this Plan, to
officers and other key employees eligible under Article V, (1) Stock Options,
(2) Restricted Stock, (3) Performance Shares, (4) Performance Units, and (5)
Other Stock-Based Awards;
(b) to select the officers and other key employees of
the Company to whom Stock Options, Restricted Stock, Performance Shares,
Performance Units and Other Stock-Based Awards may from time to time be granted
hereunder;
4
<PAGE>
(c) to determine whether and to what extent Incentive
Stock Options, Non-Qualified Stock Options, Restricted Stock, Performance
Shares, Performance Units and Other Stock- Based Awards, or any combination
thereof, are to be granted hereunder to one or more eligible employees;
(d) to determine the number of shares of Common Stock
to be covered by each such Award granted hereunder;
(e) to determine the terms and conditions, not
inconsistent with the terms of this Plan, of any Award granted hereunder
(including, but not limited to, the share price, any restriction or limitation,
any vesting schedule or acceleration thereof, or any forfeiture restrictions or
waiver thereof, regarding any Stock Option or other Award and the shares of
Common Stock relating thereto, based on such factors as the Committee shall
determine, in its sole discretion);
(f) to determine whether, to what extent and under
what circumstances grants of Options and other Awards under this Plan are to
operate on a tandem basis and/or in conjunction with or apart from other cash
awards made by the Company outside of this Plan;
(g) to determine whether and under what circumstances
a Stock Option may be settled in cash, stock, and/or Restricted Stock under
Section 6.4(k); and
(h) to determine whether, to what extent and under
what circumstances Common Stock and other amounts payable with respect to an
Award under this Plan shall be deferred either automatically or at the election
of the Participant.
3.3 Guidelines. Subject to Article XI hereof, the Committee
----------
shall have the authority to adopt, alter and repeal such administrative rules,
guidelines and practices governing this Plan as it shall, from time to time,
deem advisable; to interpret the terms and provisions of this Plan and any Award
issued under this Plan (and any agreements relating thereto); and to otherwise
supervise the administration of this Plan. The Committee may correct any defect,
supply any omission or reconcile any inconsistency in this Plan or in any Award
granted in the manner and to the extent it shall deem necessary to carry this
Plan into effect.
3.4 Decisions Final. Any decision, interpretation or other
---------------
action made or taken in good faith by the Committee arising out of or in
connection with the Plan shall be final, binding and conclusive on the Company
and all employees and their respective heirs, executors, administrators,
successors and assigns.
5
<PAGE>
ARTICLE IV
Share Limitation
4.1 Shares. The maximum aggregate number of shares of
------
Common Stock which may be issued under this Plan shall not exceed 750,000
shares, subject to any increase or decrease pursuant to Section 4.2. The shares
issued under the Plan may be either authorized and unissued Common Stock or
issued Common Stock reacquired by the Company. If any Option granted under this
Plan shall expire, terminate or be cancelled for any reason without having been
exercised in full, the number of unpurchased shares shall again be available for
the purposes of the Plan; provided, however, that if such expired, terminated or
cancelled Option shall have been issued in conjunction with another Award, none
of such unpurchased shares shall again become available for purposes of this
Plan to the extent that the related Award granted under this Plan is exercised.
If an Option is exercised using Common Stock already owned by the Participant
exercising the Option, the number of shares that shall be treated as issued
under the Plan shall be (a) the number of shares issued minus (b) the number of
shares exchanged in satisfaction of the Option Price, and the number of shares
so exchanged shall be added to the total number of shares of Common Stock
available under the Plan. Further, if any shares of Common Stock granted
hereunder are forfeited or such Award otherwise terminates without the delivery
of such shares upon the lapse of restrictions, the shares subject to such grant,
to the extent of such forfeiture or termination, shall again be available under
this Plan.
4.2 Changes. In the event of any merger, reorganization,
-------
consolidation, recapitalization, dividend (other than a dividend or its
equivalent which is credited to a Plan Participant or a regular cash dividend),
stock split, or other change in corporate structure affecting the Common Stock,
a corresponding substitution or adjustment shall be made in the maximum
aggregate number of shares which may be issued under this Plan, in the number
and option price of shares subject to outstanding Options granted under this
Plan, and in the number of shares subject to other outstanding Awards (including
but not limited to Awards of Restricted Stock, Performance Shares, Performance
Units and Other Stock-Based Awards) granted under this Plan, as may be
determined to be appropriate by the Committee, in its sole discretion, provided
that the number of shares subject to any Award shall always be a whole number.
6
<PAGE>
ARTICLE V
Eligibility
5.1 Senior officers, senior management, and key employees
of the Company and its Designated Subsidiaries are eligible to be granted
Options and other Awards under this Plan. Eligibility under this Plan shall be
determined by the Committee.
ARTICLE VI
Stock Options
6.1 Options. Stock Options may be granted alone or in
-------
addition to other Awards granted under this Plan. Each Stock Option granted
under this Plan shall be either an Incentive Stock Option or a Non-Qualified
Stock Option.
6.2 Grants. The Committee shall have the authority to grant
------
to any Participant one or more Incentive Stock Options, Non-Qualified Stock
Options, or both types of Stock Options. To the extent that any Stock Option is
not an Incentive Stock Option (whether because of its provisions, the time or
manner of its exercise, designation of the Stock Option as other than an
Incentive Stock Option, or otherwise), such Stock Option or the portion thereof
which is not an Incentive Stock Option shall constitute a separate Non-Qualified
Stock Option.
6.3 Incentive Stock Options. Anything in the Plan to the
-----------------------
contrary notwithstanding, no term of this Plan relating to Incentive Stock
Options shall be interpreted, amended or altered, nor shall any discretion or
authority granted under the Plan be so exercised, so as to disqualify the Plan
under section 422 of the Code, or, without the consent of the Participants
affected, to disqualify any Incentive Stock Option under such section 422.
6.4 Terms of Options. Options granted under this Plan shall
----------------
be subject to the following terms and conditions and shall be in such form and
contain such additional terms and conditions, not inconsistent with the terms of
this Plan, as the Committee shall deem desirable:
(a) Option Price. The option price per share of
------------
Common Stock purchasable under a Stock Option shall be determined by the
Committee at the time of grant; provided, however, that if the Stock Option is
intended to be an Incentive Stock Option the option price per share shall not be
less than 100% of the Fair Market Value of the Common Stock at grant, and
provided further
7
<PAGE>
that with respect to any Stock Options that are intended to be Incentive Stock
Options granted to a Ten Percent Shareholder, the option price per share shall
not be less than 110% of the Fair Market Value at the time of grant.
(b) Option Term. The term of each Stock Option shall
-----------
be fixed by the Committee; provided, however, that no Option shall be
exercisable more than ten years after the date the Option is granted.
(c) Exercisability. Stock Options shall be
--------------
exercisable at such time or times and subject to such terms and conditions as
shall be determined by the Committee at grant; provided, however, that, except
as provided in Subsections (f) and (g) and Article III, unless otherwise
determined by the Committee, the Committee may waive any installment exercise
provisions at any time at or after grant in whole or in part, based on such
factors as the Committee shall determine, in its sole discretion.
(d) Method of Exercise. Subject to whatever
------------------
installment exercise and waiting period provisions apply under Subsection (c),
Stock Options may be exercised in whole or in part at any time during the option
term, by giving written notice of exercise to the Company specifying the number
of shares to be purchased. Such notice shall be accompanied by payment in full
of the purchase price in such form as the Committee may accept. If and to the
extent determined by the Committee in its sole discretion at or after grant,
payment in full or in part may also be made in the form of Common Stock duly
owned by the Participant (and for which the Participant has good title free and
clear of any liens and encumbrances) or Restricted Stock, or by reduction in the
number of shares issuable upon such exercise based, in each case, on the Fair
Market Value of the Stock on the last trading date preceding payment as
determined by the Committee (without regard to any forfeiture restrictions
applicable to Restricted Stock). No shares of Stock shall be issued until
payment, as provided herein, therefor has been made. A Participant shall
generally have the rights to dividends or other rights of a shareholder with
respect to shares subject to the Option when the optionee has given written
notice of exercise, has paid for such shares as provided herein, and, if
requested, has given the representation described in Section 14.1.
Notwithstanding the foregoing, if payment in full or in part has been made in
the form of Restricted Stock, an equivalent number of shares of Common Stock
issued on exercise of the Option shall be subject to the same restrictions and
conditions, and during the remainder of the Restriction Period, applicable to
the shares of Restricted Stock surrendered therefor.
8
<PAGE>
(e) Non-Transferability of Options. No Stock Option
------------------------------
shall be transferable by the Participant otherwise than by will or by the laws
of descent and distribution, to the extent consistent with the terms of the Plan
and the Option, and all Stock Options shall be exercisable, during the
Participant's lifetime, only by the Participant.
(f) Termination by Death. Subject to Subsection (j),
--------------------
if a Participant's employment by the Company or a Designated Subsidiary
terminates by reason of death, any Stock Option held by such Participant, unless
otherwise determined by the Committee at grant, shall be fully vested and may
thereafter be exercised by the legal representative of the Participant's estate,
until the expiration of the option term of such Stock Option, or such other
period as the Committee may specify at grant.
(g) Termination by Reason of Disability. Subject to
-----------------------------------
Subsection (j), if a Participant's employment by the Company or a Designated
Subsidiary terminates by reason of Disability, any Stock Option held by such
Participant, unless otherwise determined by the Committee at grant, shall be
fully vested and may thereafter be exercised by the Participant until the
expiration of the stated term of such Stock Option, or such other period as the
Committee may specify at grant; provided, however, that, if the Participant dies
before the Stock Option is exercised, any unexercised Stock Option held by such
Participant shall thereafter be exercisable by the legal representative of the
Participant's estate to the extent to which it was exercisable at the time of
death until the expiration of the option term of such Stock Option, or such
other period as the Committee may specify at grant. In the event of termination
of employment by reason of Disability, if an Incentive Stock Option is exercised
after the expiration of the exercise periods that apply for purposes of section
422 of the Code, such Stock Option will thereafter be treated as a Non-Qualified
Stock Option.
(h) Termination by Reason of Retirement. Subject to
-----------------------------------
Subsection (j), if a Participant's employment by the Company or a Designated
Subsidiary terminates by reason of Retirement, any Stock Option held by such
Participant, unless otherwise determined by the Committee at grant, shall be
fully vested and may thereafter be exercised by the Participant until the
expiration of the option term of such Stock Option, or such other period as the
Committee may specify at grant; provided, however, that, if the Participant dies
after retirement but before the Option is exercised, any unexercised Stock
Option held by such Participant shall thereafter be exercisable by the legal
representative of the Participant's estate, to the extent to which it was
exercisable at the time of death, until the expiration of the option term of
such Stock Option, or such other
9
<PAGE>
period as the Committee shall specify at grant. In the event of termination of
employment by reason of Retirement, if an Incentive Stock Option is exercised
after the expiration of the exercise periods that apply for purposes of Section
422 of the Code, such Stock Option will thereafter be treated as a Non-
Qualified Stock Option.
(i) Other Termination. Unless otherwise determined
-----------------
by the Committee at or after grant, if a Participant's employment by the Company
terminates for any reason other than death, Disability or Retirement, the Stock
Option shall thereupon terminate, except that such Stock Option may be exercised
for the lesser of three months or the balance of such Stock Option's term if the
Participant is involuntarily terminated by the Company without cause.
(j) Incentive Stock Option Limitations.
----------------------------------
(1) To the extent that the aggregate Fair Market
Value (determined as of the time of grant) of the Common Stock with respect to
which Incentive Stock Options are exercisable for the first time by the
Participant during any calendar year under the Plan and/or any other stock
option plan of the Company or any subsidiary or parent corporation (within the
meaning of section 425 of the Code) exceeds $100,000, such Options shall be
treated as Options which are not Incentive Stock Options.
(2) Should any of the foregoing provisions not be
necessary in order for the Stock Options to qualify as Incentive Stock Options,
or should any additional provisions be required, the Committee may amend the
Plan accordingly, without the necessity of obtaining the approval of the
shareholders of the Company.
(k) Buyout and Settlement Provisions. The Committee
--------------------------------
may at any time offer to buy out an Option previously granted, based on such
terms and conditions as the Committee shall establish and communicate to the
Participant at the time that such offer is made. In addition, if the Option
agreement so provides or is amended after grant and prior to exercise to so
provide (with the Participant's consent), the Committee may require that all or
part of the shares to be issued with respect to the spread value of an exercised
Option take the form of Performance Shares or Restricted Stock, which shall be
valued on the date of exercise on the basis of the Fair Market Value of such
Performance Shares or Restricted Stock determined without regard to the deferral
limitations and/or forfeiture restrictions involved.
10
<PAGE>
6.5 Reload Options. Without in any way limiting the
--------------
authority of the Committee to make grants hereunder, and in order to induce
officers and other key employees to retain ownership of shares in the Company,
the Committee shall have the authority (but not an obligation) to include within
any option agreement a provision entitling the optionee to a further option (a
"Reload Option") in the event the optionee exercises the option evidenced by the
option agreement, in whole or in part, by surrendering other shares of the
Company in accordance with this Plan and the terms and conditions of the option
agreement. Any such Reload Option shall be for a number of shares equal to the
number of surrendered shares, shall become exercisable in the event the
purchased shares are held for a minimum period of time established by the
Committee, and shall be subject to such other terms and conditions as the
Committee may determine.
6.6 Rights as Shareholders. Unless otherwise determined by
----------------------
the Committee, a Participant shall not have any right as a shareholder with
respect to any shares subject to his Options until the issuance of stock
certificates to him or her for such shares.
ARTICLE VII
Restricted Stock
7.1 Awards of Restricted Stock. Shares of Restricted Stock
--------------------------
may be issued either alone or in addition to other Awards granted under the
Plan. The Committee shall determine the eligible persons to whom, and the time
or times at which, grants of Restricted Stock will be made, the number of shares
to be awarded, the price (if any) to be paid by the recipient (subject to
Section 7.2), the time or times within which such Awards may be subject to
forfeiture, the vesting schedule and rights to acceleration thereof, and all
other terms and conditions of the Awards. The Committee may condition the grant
of Restricted Stock upon the attainment of specified performance goals or such
other factors as the Committee may determine, in its sole discretion. The
provisions of Restricted Stock awards need not be the same with respect to each
Participant, and such Awards to individual Participants need not be the same in
subsequent years.
7.2 Awards and Certificates. The prospective Participant
-----------------------
selected to receive a Restricted Stock Award shall not have any rights with
respect to such Award, unless and until such Participant has executed an
agreement evidencing the Award and has delivered a fully executed copy thereof
to the Company, and has otherwise complied with the applicable terms and
11
<PAGE>
conditions of such Award. Further, such Award shall be subject to the following
conditions:
(a) Purchase Price. The purchase price for shares of
--------------
Restricted Stock shall be determined by the Committee.
(b) Acceptance. Awards of Restricted Stock must be
----------
accepted within a period of 60 days (or such shorter period as the Committee may
specify at grant) after the Award date, by executing a Restricted Stock Award
agreement and by paying whatever price (if any) the Committee has designated
hereunder.
(c) Legend. Each Participant receiving a Restricted Stock
------
Award shall be issued a stock certificate in respect of such shares of
Restricted Stock. Such certificate shall be registered in the name of such
Participant, and shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such Award.
(d) Custody. The Committee may require that the stock
-------
certificates evidencing such shares be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition of any
Restricted Stock Award, the Participant shall have delivered a duly signed stock
power, endorsed in blank, relating to the Stock covered by such Award.
7.3 Restrictions and Conditions. The shares of Restricted Stock
---------------------------
awarded pursuant to this Plan shall be subject to the following restrictions and
conditions:
(a) Restriction Period. Subject to the provisions of this
------------------
Plan and the Award agreement, during a period set by the Committee commencing
with the date of such Award (the "Restriction Period"), the Participant shall
not be permitted to sell, transfer, pledge or assign shares of Restricted Stock
awarded under this Plan. Within these limits, the Committee, in its sole
discretion, may provide for the lapse of such restrictions in installments and
may accelerate or waive such restrictions in whole or in part, based on service,
performance and/or such other factors or criteria as the Committee may determine
in its sole discretion.
(b) Rights as Shareholder. Except as provided in this
---------------------
Subsection (b) and Subsection (a) above, the Participant shall have, with
respect to the shares of Restricted Stock, the rights of a holder of shares of
Common Stock of the Company including the right to receive any dividends and
exercise the voting rights of the stock, as determined by the Committee. The
Committee, in its sole discretion, as determined at the time of Award, may
permit or require the payment of dividends to be deferred.
12
<PAGE>
(c) Termination of Employment. Subject to the applicable
-------------------------
provisions of the Award agreement and this Article VII, upon termination of a
Participant's employment with the Company for any reason during the Restriction
Period, including disability, retirement or death, all Restricted Shares still
subject to restriction will vest or be forfeited in accordance with the terms
and conditions established by the Committee at or after grant.
(d) Hardship. In the event of hardship or other special
--------
circumstances of a Participant whose employment with the Company or a Designated
Subsidiary is involuntarily terminated (other than for cause), the Committee
may, in its sole discretion, waive in whole or in part any or all remaining
restrictions with respect to such Participant's shares of Restricted Stock,
based on such factors as the Committee may deem appropriate.
(e) Lapse of Restrictions. If and when the Restriction
---------------------
Period expires without a prior forfeiture of the Restricted Stock subject to
such Restriction Period, the certificates for such shares shall be delivered to
the Participant. All legends shall be removed from said certificates at the time
of delivery to the Participant.
ARTICLE VIII
Performance Shares
8.1 Award of Performance Shares.
---------------------------
(a) Performance Shares may be awarded either alone or in
addition to other Awards granted under this Plan. The Committee shall determine
the eligible persons to whom and the time or times at which Performance Shares
shall be awarded, the number of Performance Shares to be awarded to any person,
the duration of the period (the "Performance Period") during which, and the
conditions under which, receipt of the Shares will be deferred, and the other
terms and conditions of the Award in addition to those set forth in Section 8.2.
(b) The Committee may condition the grant of Performance
Shares upon the attainment of specified performance goals or such other factors
or criteria as the Committee shall determine, in its sole discretion.
(c) The provisions of Performance Share Awards need not be
the same with respect to each Participant, and such
13
<PAGE>
Awards to individual Participants need not be the same in subsequent years.
8.2 Terms and Conditions. Performance Shares awarded pursuant to
--------------------
this Article VIII shall be subject to the following terms and conditions:
(a) Non-Transferability. Subject to the provisions of this
-------------------
Plan and the Award agreement referred to in Subsection (f) below, Performance
Share Awards may not be sold, assigned, transferred, pledged or otherwise
encumbered during the Performance Period. At the expiration of the Performance
Period, share certificates or cash of an equivalent value (as the Committee may
determine in its sole discretion) shall be delivered to the Participant, or the
Participant's legal representative, in a number equal to the shares covered by
the Performance Share Award.
(b) Rights as Shareholder. Except as provided in this
---------------------
Subsection (b) and Subsection (a) above, the Participant shall have, with
respect to the shares of stock covered by a Performance Share Award, the rights
of a holder of shares of Common Stock of the Company including the right to
receive any dividends and exercise the voting rights of the stock, as determined
by the Committee. The Committee, in its sole discretion, as determined at the
time of Award, may permit or require the payment of dividends to be deferred.
(c) Termination of Employment. Subject to the provisions
-------------------------
of the Award agreement and this Article VIII, upon termination of a
Participant's employment with the Company for any reason during the Performance
Period for a given Award, any Performance Shares previously awarded to the
Participant which are not vested will vest or be forfeited in accordance with
the terms and conditions established by the Committee at or after grant.
(d) Accelerated Vesting. Based on service, performance
-------------------
and/or such other factors or criteria as the Committee may determine, the
Committee may, at or after grant, accelerate the vesting of all or any part of
any Performance Share Award and/or waive the deferral limitations for all or any
part of such Award.
(e) Hardship. In the event of hardship or other special
--------
circumstances of a Participant whose employment with the Company or a Designated
Subsidiary is involuntarily terminated other than for cause, the Committee may,
in its sole discretion, based on such factors as the Committee may deem
appropriate, waive in whole or in part any or all of the remaining deferral
limitations imposed hereunder with respect to any or all of the
14
<PAGE>
Participant's Performance Shares, based on such factors as the Committee deems
appropriate.
(f) Agreement. Each Award shall be confirmed by, and
---------
subject to the terms of, a Performance Share agreement executed by the Company
and the Participant.
ARTICLE IX
Performance Units
9.1 Award of Performance Units.
--------------------------
(a) Performance Units may be awarded either alone or in
addition to other Awards granted under this Plan. The Committee shall determine
the eligible persons to whom and the time or times at which Performance Units
shall be awarded, the number of Performance Units to be awarded to any person,
the duration of the period (the "Performance Cycle") during which, and the
conditions under which, a Participant's right to Performance Units will be
vested, the ability of Participants to defer the receipt of payment of such
Units, and the other terms and conditions of the Award in addition to those set
forth in Section 9.2.
(b) The Committee may condition the vesting of Performance
Units upon the attainment of specified performance goals or such other factors
or criteria as the Committee shall determine, in its sole discretion.
(c) The provisions of Performance Unit Awards need not be
the same with respect to each Participant, and such Awards to individual
Participants need not be the same in subsequent years.
9.2 Terms and Conditions. The Performance Units awarded pursuant
--------------------
to this Article IX shall be subject to the following terms and conditions:
(a) Non-Transferability. Subject to the provisions of this
-------------------
Plan and the Award agreement referred to in Subsection (g) below, Performance
Unit Awards may not be sold, assigned, transferred, pledged or otherwise
encumbered.
(b) Vesting. At the expiration of the Performance Cycle,
-------
the Committee shall determine the extent to which the performance goals have
been achieved, and the percentage of the Performance Units of each Participant
that have vested.
15
<PAGE>
(c) Payment. Subject to the provisions of this Plan and
-------
the Award agreement referred to in Subsection (g) below, the vested Performance
Units shall be paid to the Participant or the Participant's legal representative
as soon as practicable after the end of a Performance Cycle. Payment may be made
in cash, shares of Common Stock or a combination of both, as determined by the
Committee, in its sole discretion.
(d) Termination of Employment. Subject to the provisions
-------------------------
of the Award agreement and this Article IX, upon termination of a Participant's
employment with the Company for any reason during the Performance Cycle for a
given Award, the Performance Units in question will vest or be forfeited in
accordance with the terms and conditions established by the Committee at or
after grant.
(e) Accelerated Vesting. Based on service, performance
-------------------
and/or such other factors or criteria as the Committee may determine, the
Committee may, at or after grant, accelerate the vesting of all or any part of
any Performance Unit Award and/or waive the deferral limitations for all or any
part of such Award.
(f) Hardship. In the event of hardship or other special
--------
circumstances of a Participant whose employment with the Company or a Designated
Subsidiary is involuntarily terminated (other than for cause), the Committee
may, in its sole discretion, based on such factors as the Committee may deem
appropriate, waive in whole or in part any or all of the remaining deferral
limitations imposed hereunder with respect to any or all of the Participant's
Performance Units, based on such factors as the Committee deems appropriate.
(g) Agreement. Each Award shall be confirmed by, and
---------
subject to the terms of, a Performance Unit agreement executed by the Company
and the Participant.
ARTICLE X
Other Stock-Based Awards
10.1 Other Awards. Other Awards of Common Stock and other Awards
------------
that are valued in whole or in part by reference to, or are payable in or
otherwise based on, Common Stock ("Other Stock-Based Awards"), including,
without limitation, Awards valued by reference to subsidiary performance, may be
granted either alone or in addition to or in tandem with Stock Options,
Restricted Stock, Performance Shares or Performance Units. Subject to the
provisions of this Plan, the Committee shall have
16
<PAGE>
authority to determine the persons to whom and the time or times at which such
Awards shall be made, the number of shares of Common Stock to be awarded
pursuant to such Awards, and all other conditions of the Awards. The Committee
may also provide for the grant of Common Stock under such Awards upon the
completion of a specified performance period. The provisions of Other Stock-
Based Awards need not be the same with respect to each Participant and such
Awards to individual Participants need not be the same in subsequent years.
10.2 Terms and Conditions. Other Stock-Based Awards made pursuant
--------------------
to this Article X shall be subject to the following terms and conditions:
(a) Non-Transferability. Subject to the provisions of this
-------------------
Plan and the Award agreement referred to in Subsection (e) below, shares of
Common Stock subject to Awards made under this Article X may not be sold,
assigned, transferred, pledged or otherwise encumbered prior to the date on
which the shares are issued, or, if later, the date on which any applicable
restriction, performance or deferral period lapses.
(b) Dividends. Unless otherwise determined by the
---------
Committee at the time of Award, subject to the provisions of this Plan and the
Award agreement, the recipient of an Award under this Article X shall be
entitled to receive, currently or on a deferred basis, dividends or dividend
equivalents with respect to the number of shares of Common Stock covered by the
Award, as determined at the time of the Award by the Committee, in its sole
discretion.
(c) Vesting. Any Award under this Article X and any Common
-------
Stock covered by any such Award shall vest or be forfeited to the extent so
provided in the Award agreement, as determined by the Committee, in its sole
discretion.
(d) Waiver of Limitation. In the event of the
--------------------
Participant's Retirement, Disability or death, or in cases of special
circumstances, the Committee may, in its sole discretion, waive in whole or in
part any or all of the limitations imposed hereunder (if any) with respect to
any or all of an Award under this Article X.
(e) Agreement. Each Award under this Article X shall be
---------
confirmed by, and subject to the terms of an agreement or other instrument
executed by the Company and the Participant.
(f) Price. Common Stock issued on a bonus basis under this
-----
Article X may be issued for no cash consideration; Common Stock purchased
pursuant to a purchase right awarded under this Article X shall be priced as
determined by the Committee.
17
<PAGE>
ARTICLE XI
Termination or Amendment of the Plan
11.1 Termination or Amendment.
------------------------
(a) The Board may at any time amend, discontinue or
terminate this Plan or any part thereof (including any amendment deemed
necessary to ensure that the Company may comply with any regulatory requirement
referred to in Article XIII); provided, however, that, unless otherwise required
by law, the rights of a Participant with respect to Options or other Awards
granted prior to such amendment, discontinuance or termination, may not be
impaired without the consent of such Participant and, provided further, without
the approval of the Company's stockholders, no amendment may be made which would
(i) increase the aggregate number of shares of Common Stock that may be issued
under this Plan (except by operation of Section 4.2); (ii) change the definition
of employees eligible to receive Stock Awards under this Plan; (iii) decrease
the option price of any Stock Option to less than 100% of the Fair Market Value
on the date of grant for a Stock Option intended to be an Incentive Stock
Option; or (iv) extend the maximum option period under Section 6.4 of the Plan.
(b) The Committee may amend the terms of any Stock Option
or other Award theretofore granted, prospectively or retroactively, but, subject
to Article IV above, no such amendment or other action by the Committee shall
impair the rights of any holder without the holder's consent. The Committee may
also substitute new Stock Options for previously granted Stock Options having
higher option exercise prices.
ARTICLE XII
Unfunded Plan
12.1 Unfunded Status of Plan. This Plan is intended to constitute
-----------------------
an "unfunded" plan for incentive and deferred compensation. With respect to any
payment not yet made to a Participant by the Company, nothing contained herein
shall give any such Participant any rights that are greater than those of a
general creditor of the Company.
18
<PAGE>
ARTICLE XIII
General Provisions
13.1 Legend. The Committee may require each person purchasing
------
shares pursuant to a Stock Option or other Award under the Plan to represent to
and agree with the Company in writing that the Participant is acquiring the
shares without a view to distribution thereof. In addition to any legend
required by this Plan, the certificates for such shares may include any legend
which the Committee deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Common Stock delivered under the Plan
shall be subject to such stock transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations and other requirements
of the Securities and Exchange Commission, any stock exchange upon which the
Stock is then listed, any applicable Federal or state securities law, and any
applicable corporate law, and the Committee may cause a legend or legends to be
put on any such certificates to make appropriate reference to such restrictions.
13.2 Other Plans. Nothing contained in this Plan shall prevent the
-----------
Board from adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases.
13.3 No Right to Employment. Neither this Plan nor the grant of
----------------------
any Option or other Award hereunder shall give any Participant or other employee
any right with respect to continuance of employment by the Company or any
subsidiary, nor shall there be a limitation in any way on the right of the
Company or any subsidiary by which an employee is employed to terminate his
employment at any time.
13.4 Withholding of Taxes. The Company shall have the right to
--------------------
deduct from any payment to be made pursuant to this Plan, or to otherwise
require, prior to the issuance or delivery of any shares of Common Stock or the
payment of any cash hereunder, payment by the Participant of any Federal, state
or local taxes required by law to be withheld. The Committee may permit any such
withholding obligation to be satisfied by reducing the number of shares of
Common Stock otherwise deliverable. A person required to file reports under
section 16(a) of the Securities Act of 1933 with respect to securities of the
Company may elect to have a sufficient number of shares of Common Stock withheld
to fulfill such tax obligations (hereinafter a "Withholding Election") only if
the election
19
<PAGE>
complies with the following conditions: (a) the Withholding Election shall be
subject to the disapproval of the Committee and (b) the Withholding Election is
made (i) during the period beginning on the third business day following the
date of release for publication of the quarterly or annual summary statements of
sales and earnings of the Company and ending on the twelfth business day
following such date, (ii) six months before the Stock Award becomes taxable, or
(iii) during any other period in which a Withholding Election may be made under
the provisions of rule 16b-3 promulgated pursuant to the Act. Any fraction of a
share of Common Stock required to satisfy such tax obligations shall be
disregarded and the amount due shall be paid instead in cash to the Participant.
13.5 No Assignment of Benefits. No Option, Award or other benefit
-------------------------
payable under this Plan shall, except as otherwise specifically required by law,
be subject in any manner to anticipation, alienation, attachment, sale,
transfer, assignment, pledge, encumbrance or charge, and any attempt to
anticipate, alienate, attach, sell, transfer, assign, pledge, encumber or charge
any such benefit shall be void, and any such benefit shall not in any manner be
liable for or subject to the debts, contracts, liabilities, engagements or torts
of any person who shall be entitled to such benefit, nor shall it be subject to
attachment or legal process for or against such person.
13.6 Listing and Other Conditions.
----------------------------
(a) As long as the Common Stock is listed on national
securities exchange or system sponsored by a national securities association,
the issue of any shares of Common Stock pursuant to an Option or other Award
shall be conditioned upon such shares being listed on such exchange or system.
The Company shall have no obligation to issue such shares unless and until such
shares are so listed, and the right to exercise any Option or other Award with
respect to such shares shall be suspended until such listing has been effected.
(b) If at any time counsel to the Company shall be of the
opinion that any sale or delivery of shares of Common Stock pursuant to an
Option or other Award is or may in the circumstances be unlawful or result in
the imposition of excise taxes under the statutes, rules or regulations of any
applicable jurisdiction, the Company shall have no obligation to make such sale
or delivery, or to make any application or to effect or to maintain any
qualification or registration under the Securities Act of 1933, as amended, or
otherwise with respect to shares of Common Stock or Awards, and the right to
exercise any Option or other Award shall be suspended until, in the opinion of
said counsel, such sale or delivery shall be lawful.
20
<PAGE>
(c) Upon termination of any period of suspension under
this Section 13.6, any Award affected by such suspension which shall not then
have expired or terminated shall be reinstated as to all shares available before
such suspension and as to shares which would otherwise have become available
during the period of such suspension, but no such suspension shall extend the
term of any Option.
13.7 Governing Law. This Plan and actions taken in connection
-------------
herewith shall be governed and construed in accordance with the laws of the
State of Delaware (regardless of the law that might otherwise govern under
applicable Delaware principles of conflict of laws).
13.8 Construction. Wherever any words are used in this Plan in the
------------
masculine gender they shall be construed as though they were also used in the
feminine gender in all cases where they would so apply, and wherever any words
are used herein in the singular form they shall be construed as though they were
also used in the plural form in all cases where they would so apply.
13.9 Indemnification. Each member of the Committee or director of
---------------
the Company shall be indemnified and held harmless by the Company against and
with respect to all damages, losses, obligations, liabilities, liens,
deficiencies, costs and expenses, including without limitation, reasonable
attorney's fees and other costs incident to any suit, action, investigation,
claim or proceedings to which he may be a party by reason of his performance of
administrative functions and duties under the Plan. The foregoing right to
indemnification shall be in addition to such other rights as the Committee
member or other person may enjoy as a matter of law or by reason of insurance
coverage of any kind. Rights granted hereunder shall be in addition to and not
in lieu of any rights to indemnification to which the Committee member or other
person may be entitled pursuant to the by-laws of the Company.
13.10 Other Benefits. No Award payment under this Plan shall be
--------------
deemed compensation for purposes of computing benefits under any retirement plan
of the Company or its subsidiaries nor affect any benefits under any other
benefit plan now or subsequently in effect under which the availability or
amount of benefits is related to the level of compensation.
13.11 Costs. The Company shall bear all expenses incurred in
-----
administering this Plan, including expenses of issuing Common Stock pursuant to
any Awards hereunder.
13.12 Change of Control. In the event of a Change of Control, all
-----------------
outstanding Stock Options shall immediately become
21
<PAGE>
fully exercisable and all other outstanding Awards shall immediately cease to be
subject to forfeiture or deferral limitations, and upon payment by the
Participant of the option or purchase price, if any, stock certificates
representing the Common Stock covered thereby shall be issued and registered in
the name of and delivered to the Participant, or other payment therefor made, as
soon as practicable.
ARTICLE XIV
Effective Date of Plan
The Plan shall be effective as of the later of (a) approval by the
shareholders of the Company or (b) the date on which shares of the Company's
stock are listed on a national securities exchange or system.
ARTICLE XV
Termination of Plan
No Option, Restricted Stock, Performance Share, Performance Unit or
Other Stock-Based Award shall be offered, sold, issued or otherwise made
available after May 16, 2000. Options granted on or before such date shall be
exercisable after such date.
22
<PAGE>
EXHIBIT 21
BHC FINANCIAL, INC AND SUBSIDIARIES
SUBSIDIARIES OF REGISTRANT
Jurisdiction
of Incorporation or
Name of Subsidiary Organization
------------------ -------------------
BHC Securities, Inc. Delaware
TradeStar Investments, Inc. Delaware
BHCM Inc. Delaware
netVest, Inc. Delaware
BHC Trading Corp Delaware
BHC Investments, Inc. Delaware
BHCM Insurance Agency, Inc. Delaware
F.T. Agency, Inc. Ohio
Tower Agency, Inc. Ohio
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
BHC Financial, Inc. on Form S-8 (Reg. No. 33-76932, 33-76934, 33-76936, 33-
78270, 333-15317, 333-15319) of our report date February 14, 1997, except for
Note 12, as to which the date is March 3, 1997, on our audits of the
consolidated financial statements and financial statements schedules of BHC
Financial, Inc. as of December 31, 1996 and 1995, and for the years ended
December 31, 1996, 1995 and 1994, which report is included in this Annual Report
on Form 10-K.
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 12, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BHC
FINANCIAL'S 1996 FORM 10-K AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH AUDITED CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 15,288
<RECEIVABLES> 508,811
<SECURITIES-RESALE> 4,850
<SECURITIES-BORROWED> 207,173
<INSTRUMENTS-OWNED> 16,988
<PP&E> 4,752
<TOTAL-ASSETS> 785,299
<SHORT-TERM> 33,200
<PAYABLES> 372,990
<REPOS-SOLD> 4,876
<SECURITIES-LOANED> 219,530
<INSTRUMENTS-SOLD> 1,554
<LONG-TERM> 0
0
0
<COMMON> 8
<OTHER-SE> 93,459
<TOTAL-LIABILITY-AND-EQUITY> 785,299
<TRADING-REVENUE> 0
<INTEREST-DIVIDENDS> 33,222
<COMMISSIONS> 9,189
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 55,406
<INTEREST-EXPENSE> 16,636
<COMPENSATION> 23,406
<INCOME-PRETAX> 29,913
<INCOME-PRE-EXTRAORDINARY> 29,913
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,024
<EPS-PRIMARY> 2.69
<EPS-DILUTED> 2.69
</TABLE>
