FirstCity Financial Corporation

FirstCity Financial Corporation

FirstCity Financial Corporation Securities Settlement

The lawsuit was settled for additional disclosures in the proxy statement mailed to shareholders. The following is a summary of the proceedings in the lawsuit: ‘1. On December 21, 2012, FirstCity announced that it had entered into an agreement and plan of merger, whereby certain affiliates of Yarde Partners, Inc. (‘Yarde’) would acquire FirstCity in exchange for $10.00 in cash for each share ofFirstCity common stock (the ‘Mer2er’). 2. Shortly thereafter, two separate class actions (the ”Actions’) were filed by two FirstCity shareholders (‘Plaintiffs’): (1) Drayer v. Sartain, eta/., Cause No. 2013-246-5, in the 414th Judicial District Court of McLennan County, Texas (the ‘Drayer Action’); and (2) Perry v. FirstCity Financial Corporation, eta/., Case No. 8259-YCG, in the Court of Chancery of the State of Delaware (the ‘Perry Action’). 3. Plaintiffs alleged that the members of FirstCity’s Board of Directors (the ‘Board’)1 breached their fiduciary duties to members of the Settlement Class in connection with the Merger, and that FirstCity, Yarde, and various affiliates ofVarde (collectively with the Board, the ‘Defendants’) aided and abetted the Board’s breaches. 4. On February 1, 2013, the Company filed a Preliminary Proxy Statement on Schedule 14A (the ‘Preliminary Proxy Statement’) with the United States Securities and Exchange Commission (the ‘SEC.’), in which the Board recommended that FirstCity’s shareholders vote in favor of the Merger. 5. Plaintiffs thereafter filed amended class action complaints in the Actions, asserting additional claims relating to the Merger, including claims that the Preliminary Proxy Statement omitted allegedly material information. Defendants denied, and continue to deny, all such allegations. 6. Plaintiffs in both cases served discovery requests and filed motions seeking limited expedited discovery. 7. Plaintiffs and Defendants (the ‘Parties’) thereafter conferred regarding Plaintiffs’ discovery demands and on March 14,2013, executed a Stipulation and Proposed Order Governing the Production and Exchange of Confidential and Attorneys’ Eyes Only Information (the ‘Confidentiality Order’), which was filed with and entered by the Court hearing the Drayer Action on March 15, 2013. That same day, FirstCity and the Board produced, subject to the Confidentiality Order, certain documents requested by or on behalf of Plaintiffs to assist them in evaluating their claims. 8. Counsel for Plaintiffs reviewed these documents along with other publicly available information with the assistance of a financial expert they had retained. 9. The Parties, through their counsel, thereafter engaged in good faith, arm’s-length negotiations concerning a possible settlement of all claims asserted in the Actions or otherwise relating to the Merger. 10. On April 10, 2013, following extensive, good faith, and arm’s-length negotiations, the Parties entered into a Memorandum of Understanding reflecting the essential terms of a proposed settlement of the Actions (the ‘MQl!.’). Pursuant to the MOU, FirstCity agreed to include various supplemental disclosures (the ‘Supplemental Disclosures’) in the Definitive Proxy Statement that FirstCity filed with SEC on April 17, 2013 and thereafter mailed to FirstCity’s shareholders in connection with the Merger (the ‘Definitive Proxy Statement’). 11. On April22, 2013, the Parties executed a Restated Memorandum of Understanding (the ‘Restated MOU’) adding various recitals to the MOU. Like the MOU, the Restated MOU authorized Plaintiffs to conduct reasonable discovery, in the form of depositions, to confirm the fairness and reasonableness of the Settlement terms (‘Confirmatory Discovery’). 12. Exercising their Confirmatory Discovery rights, on May 16, 2013 in Dallas, Texas, Plaintiffs deposed Mr. William P. Hendry, an independent director of the Company and the Chairman of the Strategic Review Committee of the Company’s Board, the committee that negotiated, subject to ultimate Board approval, the terms of the Merger. On May 31, 2013 in New York, New York, Plaintiffs deposed Mr. Nicholas J. Sheumack, the lead investment banker at Lazard Middle Market LLC (‘Lazard’), the Company’s financial advisor in the Merger. 13. Based on these depositions, the Supplemental Disclosures, their consultations with their expert, and their overall investigation and analysis, Plaintiffs determined that the terms of the Settlement-pursuant to which the Supplemental Disclosures were mailed to the Company’s shareholders in advance of the shareholder vote on the Mergerwere fair, reasonable, and adequate and in the best interests of the shareholders. Plaintiffs concluded that they would finalize the Settlement, and the Parties thereafter negotiated and signed the Stipulation. 14. On July 9, 2014, the Court entered an ‘Order of Preliminary Approval and for Notice and Scheduling of Hearing on Settlement’ (the ‘Preliminary Approval Order’), which, inter alia, preliminarily approved the Settlement as fair, reasonable, and adequate to Plaintiffs and members of the Settlement Class; preliminarily certified the Drayer Action as a class action, solely for purposes of the Settlement; preliminarily appointed Drayer as representative of the Settlement Class, solely for purposes of the Settlement; preliminarily appointed the law firms of Levi & Korsinsky, LLP and The Kendall Law Group as class counsel (together ‘Class Counsel’), solely for purposes of the Settlement; approved the form and content of this ‘Notice of Pendency of Class Action, Proposed Settlement of Class Action, Settlement Hearing, and Right to Appear’ (the ‘Notice’); directed the distribution of this Notice to members of the Settlement Class; and scheduled the Settlement Hearing to consider these matters further. 15. At a special meeting of the Company’s shareholders held on May 17, 2013 (the ‘Special Meeting’), approximately 99.7% of the shares of Company stock represented in person or by proxy at the Special Meeting voted in favor of the Merger. 16. The Merger closed on May 17, 2013.’

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