<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 27, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FIRST CHICAGO NBD CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 6711 38-1984850
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR
ORGANIZATION)
(PRIMARY STANDARD INDUSTRIAL CODE NUMBER)(I.R.S. EMPLOYER
IDENTIFICATION
NUMBER)
ONE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60670
(312) 732-4000
(ADDRESS, INCLUDING ZIP CODE, AND
TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT A. ROSHOLT
FIRST CHICAGO NBD CORPORATION
ONE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60670
(312) 732-3209
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
SHERMAN I. GOLDBERG, ESQ. PATRICK T. DUERR, ESQ.
FIRST CHICAGO NBD CORPORATION HONIGMAN MILLER SCHWARTZ AND COHN
ONE FIRST NATIONAL PLAZA 2290 FIRST NATIONAL BUILDING
CHICAGO, ILLINOIS 60670 DETROIT, MICHIGAN 48226
(312) 732-4000 (313) 256-7800
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective and upon
consummation of the Acquisition described herein.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933 (the "Securities
Act"), check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. [_]
If this form is a post-effective amendment file pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING
REGISTERED REGISTERED SHARE PRICE (3) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common
Stock, par
value
$1.00 per
share..... (1) (2) $25,050,000 $7,390
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</TABLE>
(1) This Registration Statement relates to the maximum number of shares of the
Registrant's common stock that would be issued, or reserved for issuance,
in the transaction described herein and based upon the calculation formula
described herein.
(2) Not applicable.
(3) Computed pursuant to Rule 457(f).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED FEBRUARY 27, 1998
PROSPECTUS
OF
FIRST CHICAGO NBD CORPORATION
UP TO SHARES OF
COMMON STOCK
$1.00 PAR VALUE PER SHARE
---------------
This Prospectus relates to the proposed acquisition (the "Acquisition") by
First Chicago NBD Corporation, a Delaware corporation ("FCN"), of
substantially all of the assets and the assumption of substantially all of the
liabilities of Roney & Co., L.L.C., a Delaware limited liability company
("Roney"), pursuant to an Asset Purchase Agreement (the "Purchase Agreement")
dated as of November 18, 1997 between FCN and Roney. The Purchase Agreement is
included as Appendix I and incorporated herein by reference.
Pursuant to the terms and conditions of the Limited Liability Company
Agreement of Roney dated as of January 1, 1997 (the "Operating Agreement"),
Principals (as defined in the Operating Agreement) holding in excess of 50% of
the outstanding Principal interests held by all such Principals in Roney are
required to approve the Acquisition before Roney may consummate the
Acquisition with FCN. If the Acquisition is consummated, such Principals will
be issued at the closing of the Acquisition (the "Closing") up to an aggregate
of shares of common stock, $1.00 par value per share ("Common Stock"), of
FCN, subject to certain conditions described in this Prospectus. The number of
shares of Common Stock that will be issued by FCN to the Principals will be
determined by dividing $25,050,000 (subject to certain adjustments described
herein) by a number equal to the average closing price of FCN's Common Stock
as reported on the New York Stock Exchange Composite Transaction Tape for the
10 consecutive trading days ending on the fifth trading day prior to the
closing date of the Acquisition. This Prospectus is being furnished to each
Principal who is eligible to receive such shares of Common Stock and
constitutes a prospectus of FCN filed as part of the Registration Statement
(as defined below) with respect to up to shares of Common Stock to be
issued upon consummation of the Acquisition pursuant to the terms of the
Purchase Agreement. For a more complete description of the Purchase Agreement
and the terms and conditions of the Acquisition, see "The Acquisition."
The outstanding shares of Common Stock are, and the shares of Common Stock
offered hereby will be, listed for trading on the New York Stock Exchange (the
"NYSE"). The closing price of FCN Common Stock on the NYSE on , 1998 (the
latest practical date prior to the date of this Prospectus) was $ per
share. There is no public trading market for the membership interests of
Roney.
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NEITHER THE ACQUISITION NOR THE SECURITIES OFFERED HEREBY HAVE BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"),
THE OFFICE OF THE COMPTROLLER OF THE CURRENCY (THE "OCC"), THE BOARD OF
GOVERNORS OF THE FEDERAL RESERVE SYSTEM (THE "FRB"), ANY STATE SECURITIES
COMMISSION, OR ANY OTHER GOVERNMENTAL AGENCY, NOR HAS THE COMMISSION, THE OCC,
THE FRB, ANY STATE SECURITIES COMMISSION OR ANY OTHER AGENCY PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE. THE SHARES OF FCN COMMON STOCK OFFERED HEREBY ARE NOT
SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS
ASSOCIATION AND ARE NOT INSURED BY THE BANK INSURANCE FUND OR THE SAVINGS
ASSOCIATION INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENTAL AGENCY.
---------------
The date of this Prospectus is , 1998
<PAGE>
AVAILABLE INFORMATION
FCN is subject to the informational reporting requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder
(the "Exchange Act"), and, in accordance therewith, files reports, proxy
statements and other information with the Commission. Reports, proxy
statements and other information filed by FCN can be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's Regional Offices
in New York (7 World Trade Center, 13th Floor, New York, New York 10048) and
Chicago (Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60621) and copies of such materials can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. Certain of such reports, proxy statements and
other information are also available from the Commission over the Internet at
http://www.sec.gov. Such reports, proxy statements and other information
relating to FCN also should be available for inspection at the office of the
NYSE, 20 Broad Street, New York, New York, 10005; the Chicago Stock Exchange,
440 South LaSalle Street, Chicago, Illinois, 60605; and the Pacific Stock
Exchange, 301 Pine Street, San Francisco, California, 94104.
FCN has filed with the Commission a registration statement on Form S-4
(together with all amendments, schedules and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended, and
the rules and regulations thereunder (the "Securities Act"), with respect to
the shares of FCN Common Stock to be issued pursuant to and as contemplated by
the Purchase Agreement. This Prospectus does not contain all the information
set forth in the Registration Statement, certain parts of which have been
omitted in accordance with the rules and regulations of the Commission. The
Registration Statement is available for inspection and copying as set forth
above. Statements contained in this Prospectus or in any document incorporated
by reference in this Prospectus as to the contents of any contract or other
document are not necessarily complete (although all material information is
provided), and in each instance reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
All information contained in this Prospectus with respect to FCN and its
subsidiaries has been supplied by FCN, and all information with respect to
Roney and its subsidiaries has been supplied by Roney.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (EXCLUDING EXHIBITS NOT
SPECIFICALLY INCORPORATED BY REFERENCE) ARE AVAILABLE, WITHOUT CHARGE, TO ANY
PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROSPECTUS IS DELIVERED,
UPON THE WRITTEN OR ORAL REQUEST OF SUCH PERSON, TO FIRST CHICAGO NBD
CORPORATION, ONE FIRST NATIONAL PLAZA, MAIL SUITE 0460, CHICAGO, ILLINOIS,
60670; TELEPHONE (312) 732-4812, ATTENTION: INVESTOR RELATIONS. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUESTS SHOULD BE MADE BY
, 1998.
The following documents previously filed by FCN (Commission File No. 1-7127)
with the Commission pursuant to the Exchange Act are incorporated herein by
reference:
(i) FCN's Annual Report of Form 10-K for the fiscal year ended December
31, 1996;
(ii) FCN's Quarterly Reports on Form 10-Q for the quarters ended March
31, 1997, June 30, 1997 and September 30, 1997;
(iii) FCN's Current Reports on Form 8-K dated January 13, 1997, January
15, 1997, February 7, 1997, April 14, 1997, July 14, 1997, October 10,
1997, October 14, 1997, November 14, 1997, January 15, 1998 and February
17, 1998; and
(iv) The description of FCN Common Stock set forth in the registration
statement filed by NBD Bancorp, Inc. ("NBD") pursuant to Section 12 of the
Exchange Act and any amendment or report filed with the Commission for the
purpose of updating such description.
2
<PAGE>
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is deemed
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
---------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE
SECURITIES OFFERED BY THIS PROSPECTUS IN ANY JURISDICTION, TO OR FROM ANY
PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER, SOLICITATION OF
AN OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES PURSUANT TO THIS PROSPECTUS SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF FCN, RONEY OR ANY OF THEIR SUBSIDIARIES, OR IN THE INFORMATION SET
FORTH HEREIN, SINCE THE DATE OF THIS PROSPECTUS.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION.................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE............................... 2
SUMMARY.................................. 5
The Parties to the Acquisition......... 5
The Acquisition........................ 6
Retention Payments..................... 7
Conditions to Closing; Closing Date.... 7
Required Approval of Roney Principals.. 8
Recommendation of the Roney Executive
Committee............................. 8
Opinion of Financial Advisor........... 8
Interests of Certain Roney Principals.. 9
Certain Federal Income Tax
Consequences.......................... 9
Accounting Treatment................... 10
Resale of FCN Common Stock............. 10
Business Pending Consummation.......... 10
Regulatory Approvals................... 10
Dissenters' Rights..................... 11
Termination of the Purchase Agreement.. 11
Material Differences in the Rights of
Stockholders and Members.............. 11
Comparative Unaudited Per Share and Pro
Forma Data............................ 12
Comparative Stock Prices and Dividend
Information........................... 13
Selected Financial Data of First
Chicago NBD Corporation............... 15
Selected Financial Data of Roney & Co.,
L.L.C................................. 16
RONEY & CO., L.L.C. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS..... 17
FCN RECENT DEVELOPMENTS.................. 20
REQUIRED APPROVAL OF RONEY PRINCIPALS.... 24
THE ACQUISITION.......................... 26
General................................ 26
Background and Reasons................. 26
Purchase Price......................... 28
Retention Payments..................... 29
Recommendation of the Roney Executive
Committee............................. 30
Opinion of Financial Advisor........... 30
Interests of Certain Roney Principals.. 33
Certain Federal Income Tax
Consequences.......................... 34
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Accounting Treatment.................. 35
Resale of FCN Common Stock............ 35
Business Pending Consummation......... 36
Regulatory Approvals.................. 37
Dissenters' Rights.................... 37
Conditions to Closing................. 37
Termination of the Purchase Agreement. 38
Management and Operations after the
Acquisition.......................... 39
RONEY................................... 39
History and Business.................. 39
Net Capital Requirements.............. 41
Description of the Membership
Interests in Roney................... 41
FCN..................................... 43
General............................... 43
Supervision and Regulation............ 44
Capital Adequacy...................... 45
FDICIA and FIRREA..................... 45
FDIC Insurance........................ 47
Interstate Banking and Branching...... 47
DESCRIPTION OF FCN CAPITAL STOCK........ 48
MATERIAL DIFFERENCES IN THE RIGHTS OF
FCN STOCKHOLDERS AND RONEY MEMBERS..... 49
General............................... 50
Meetings.............................. 51
Anti-Takeover and Supermajority
Provisions........................... 51
Board of Directors or Managers........ 52
Indemnification....................... 52
Amendment to Organizational Documents. 53
Board Review of Certain Transactions.. 53
RESALE OF FCN COMMON STOCK.............. 53
LEGAL MATTERS........................... 54
EXPERTS................................. 54
APPENDICES
I. Asset Purchase Agreement............. I-1
II. Opinion of Wheat, First Securities,
Inc................................. II-1
III. Certain Financial Information
Relating to Roney.................... III-1
IV. Form of Certification and Consent of
Managing Member..................... IV-1
</TABLE>
4
<PAGE>
SUMMARY
The following is a brief summary of certain information contained elsewhere
or incorporated by reference in this Prospectus. Certain capitalized terms used
in this summary are defined elsewhere in this Prospectus. This summary is not
intended to be a complete description of all material facts regarding FCN,
Roney and the Acquisition, and is qualified in its entirety by, and reference
is made to, the more detailed information contained elsewhere in this
Prospectus, the accompanying appendices and the documents referred to and
incorporated herein be reference.
THE PARTIES TO THE ACQUISITION
First Chicago NBD Corporation ("FCN") is a multi-bank holding company
registered under the Bank Holding Company Act, as amended (the "BHCA"), which
was incorporated under the laws of the State of Delaware in 1972. FCN is the
surviving corporation resulting from the merger, effective December 1, 1995, of
First Chicago Corporation, a Delaware corporation and registered bank holding
company, with and into NBD Bancorp, Inc., a Delaware corporation and registered
bank holding company. FCN's lead bank is The First National Bank of Chicago
("FNBC"). FCN also is the parent corporation of NBD Bank, Detroit, Michigan
("NBD Michigan"), American National Bank and Trust Company of Chicago ("ANB"),
FCC National Bank ("FCCNB"), NBD Bank, N.A., Indianapolis, Indiana ("NBD
Indiana"), NBD Bank (Florida) and several other bank subsidiaries. FCCNB is a
Delaware-based national banking association primarily engaged in the issuance
of VISA and MasterCard credit cards.
Through its banking subsidiaries, FCN provides consumer and corporate banking
products and services. In addition, FCN, directly or indirectly, owns the stock
of various nonbank companies engaged in businesses related to banking and
finance.
In addition to its equity investment in subsidiaries, FCN, directly or
indirectly, raises funds principally to finance the operations of its nonbank
subsidiaries. A substantial portion of FCN's annual income typically has been
derived from dividends from its subsidiaries, and from interest on loans, some
of which are subordinated, to its subsidiaries.
FCN engages primarily in four lines of business--regional banking, which
includes the general consumer market, private banking and investments, small
business banking and middle market banking; corporate banking; corporate
investments; and credit card. Each of these businesses is conducted through
FCN's bank and nonbank subsidiaries. At December 31, 1997, FCN had total assets
of $114.1 billion, deposits of $68.5 billion, and stockholders' equity of $8.0
billion.
Because FCN is a holding company, its rights and the rights of its creditors
to participate in the assets of any subsidiary upon the subsidiary's
liquidation or recapitalization would be subject to the prior claims of such
subsidiary's creditors except to the extent that FCN may itself be a creditor
with recognized claims against the subsidiary.
FCN's executive offices are located at One First National Plaza, Chicago,
Illinois 60670, and the telephone number is (312) 732-4000.
Roney & Co., L.L.C. ("Roney") engages in retail brokerage and investment
banking businesses to individual and institutional investors and to corporate
clients. Roney is a Delaware limited liability company formed in January 1996
as a successor to the retail brokerage and investment banking business founded
in 1925 by William C. Roney. The firm began operating in a partnership form in
1937. In January 1996, the firm's investment banking and securities brokerage
operations were transferred to Roney & Co., L.L.C.
Through Roney and certain wholly-owned subsidiaries, Roney provides
investment services to individual and institutional investors, and investment
banking services to corporate clients. In addition, through certain licensed
5
<PAGE>
subsidiaries, Roney sells insurance products to retail clients, principally
consisting of variable annuities. Roney maintains 28 offices located in
Michigan, Indiana and Ohio.
Roney is a member of the NYSE, the American Stock Exchange, Inc., the Chicago
Stock Exchange, other regional securities exchanges and the National
Association of Securities Dealers, Inc. (the "NASD"). Roney is also a member of
the Securities Investor Protection Corporation ("SIPC").
Roney's principal executive offices are located at One Griswold Avenue,
Detroit Michigan 48226, and its telephone number is (313) 963-6700.
THE ACQUISITION
Pursuant to the terms of the Purchase Agreement, FCN has agreed to purchase
substantially all of the assets, rights and properties of Roney, and has agreed
to assume substantially all of the liabilities, obligations and debts of Roney
(the "Assumed Liabilities"), other than certain limited taxes associated with
the Acquisition. In addition, the members of Roney will be responsible for any
of their personal income or capital gains taxes resulting from the sale of
Roney's business.
The aggregate purchase price, subject to certain adjustments (See "The
Acquisition--Purchase Price" herein), to be paid by FCN for Roney's assets will
be $79.9 million (the "Purchase Price"), plus the assumption of the Assumed
Liabilities. At the Closing, FCN will pay $54.85 million of the Purchase Price
in cash. Approximately $3.6 million of this amount will be paid in cash at the
Closing to the non-Principal members of Roney, referred to in the Operating
Agreement as Class A Members and Investing Members. The remaining $51.25
million of such cash portion will be paid to the Principal members of Roney
based on each Principal's percentage interest in Roney at the time of Closing.
The remaining $25.05 million of the Purchase Price (the "Deferred Payment"),
which will be paid to the Principals in FCN Common Stock issued at the Closing,
will also be apportioned among them based on their percentage interests in
Roney at the time of Closing. (See the following paragraph.) The number of
shares of Common Stock to be issued to the Principals will be based upon the
average closing price of the Common Stock on the NYSE Composite Transaction
Tape on the 10 consecutive trading days ending on the fifth trading day prior
to the date of the Closing.
FCN's obligation to consummate the Acquisition is conditioned upon execution
of three-year employment agreements (the "Employment Agreements") between FCN
or one of its subsidiaries and the existing Principals (other than any such
Principals whose failure to execute such an agreement will not have a material
adverse effect on Roney's business). If the requisite approval of the Roney
Principals is obtained and any Principal elects not to enter into an Employment
Agreement, such Principal so electing not to enter into an Employment Agreement
will receive from Roney only a return of such Principal's capital in Roney,
such Principal will not be entitled to receive any portion of the Purchase
Price, including the FCN Common Stock, and, in accordance with the Operating
Agreement, such Principal's membership interest in Roney will be terminated
prior to the Closing date. Under the terms of the Employment Agreements, if a
Principal voluntarily terminates his or her employment at any time during the
three year period following the Closing, he or she will be liable for damages
to FCN or one of its subsidiaries ("Liquidated Damages") in an amount equal to
(i) the original amount (i.e., value) of Deferred Payment paid to him or her if
such termination takes place on or before the first anniversary of the Closing,
(ii) two-thirds of such amount if such termination takes place after the first
anniversary but on or before the second anniversary of the Closing, and (iii)
one-third of such amount if such termination takes place after the second
anniversary of the Closing but on or before the third anniversary of the
Closing. After the third anniversary of the Closing, such Principal will no
longer be liable for Liquidated Damages (assuming such recipient has not
voluntarily terminated his or her employment prior to such third anniversary).
The Employment Agreements do not contain covenants not to compete or non-
solicitation clauses.
In order to secure his or her potential obligation to pay Liquidated Damages,
upon the execution of his or her Employment Agreement, each recipient of a
Deferred Payment (a "Deferred Payment Recipient") will be required to enter
into a pledge agreement ("Pledge Agreement") with FCN or one of its
subsidiaries pursuant to which such recipient will pledge the FCN Common Stock
received as a Deferred Payment as security for the Liquidated Damages. On each
anniversary of the Closing, so long as no Liquidated Damages are owed by an
applicable Deferred Payment Recipient (i.e., the recipient has not voluntarily
terminated his or her employment
6
<PAGE>
with FCN or one of its subsidiaries (a "Voluntary Quit")), one-third of the
Common Stock originally issued to the Deferred Payment Recipient will be
released from the Pledge Agreement and will be transferred to such recipient.
In the event that a Deferred Payment Recipient Voluntarily Quits prior to the
third anniversary of the Closing, Liquidated Damages will be payable by the
Deferred Payment Recipient in cash. Pursuant to the Pledge Agreement, if a
Deferred Payment Recipient owes Liquidated Damages, FCN or one of its
subsidiaries, upon written notice to the Deferred Payment Recipient, has the
right to take ownership of such number of shares of Common Stock pledged by
such recipient as are necessary (at the then current fair market value for
FCN's Common Stock, as determined in accordance with the Pledge Agreement) to
satisfy any unpaid portion of the Liquidated Damages amount. To the extent that
the fair market value of such pledged Common Stock exceeds the Liquidated
Damages amount, the applicable Deferred Payment Recipient will have the right
to receive such excess amount. To the extent that the fair market value of such
Common Stock is less than the Liquidated Damages amount, the applicable
Deferred Payment Recipient will be obligated to pay to FCN or one of its
subsidiaries such deficiency. So long as the fair market value of the Common
Stock exceeds the Liquidated Damages amount, a Deferred Payment Recipient will
not be obligated to pay any amount of the Liquidated Damages in cash (unless
such recipient so elects in order to retain ownership of the Common Stock). For
purposes of the Pledge Agreement only, the "fair market value" of shares of FCN
Common Stock will be equal to the product of the number of pledged shares
multiplied by the average of the daily closing prices as reported on the NYSE
Composite Transaction Tape for a share of Common Stock for the ten consecutive
trading days before the effective date of the Deferred Payment Recipient's
Voluntary Quit. During the period that any portion of the Common Stock issued
to a Deferred Payment Recipient is pledged pursuant to the Pledge Agreement and
so long as such recipient has not Voluntarily Quit, such recipient will be
entitled to vote the Common Stock so pledged and to receive and retain all cash
and other distributions (other than certain distributions of additional Common
Stock) paid with respect to such Pledged Common Stock. A Deferred Payment
Recipient may substitute different collateral of equal or greater value for the
Common Stock subject to the Pledge Agreement so long as such substitute
collateral is reasonably acceptable to FCN.
RETENTION PAYMENTS
In addition to the Purchase Price described above, concurrent with the
Closing of the Acquisition, FCN will issue shares of restricted Common Stock
with an aggregate fair market value equal to $15.1 million to various financial
consultants and other key employees of Roney ("Retention Payments"). The
restricted Common Stock awards will be issued at the Closing under the First
Chicago NBD Corporation Stock Performance Plan (the "Stock Plan"). The number
of shares of such restricted Common Stock awarded will be based upon the
average of the high and low prices of FCN's Common Stock on the date of
Closing. The restricted Common Stock subject to the awards will vest in equal
annual increments over a three year period following the Closing, and will be
subject to forfeiture in the event of certain terminations of employment. Any
cash dividends payable with respect to such restricted Common Stock will be
paid to the award recipient during the restriction period and any dividends of
Common Stock with respect to such restricted Common Stock will be made to the
recipient subject to restrictions on disposition and transfer similar to the
original award. Unlike the Deferred Payments described above, a recipient of a
restricted Common Stock award will not be subject to any Liquidated Damages by
reason of the restricted Common Stock award.
CONDITIONS TO CLOSING; CLOSING DATE
The obligations of FCN and Roney to consummate the Acquisition and the other
transactions contemplated by the Purchase Agreement are subject, among other
things, to: (i) approval of the Purchase Agreement and the Acquisition by the
requisite vote of the Principals of Roney; (ii) receipt of the regulatory
approvals described in this Prospectus without any conditions, restrictions or
requirements which in the reasonable judgment of FCN would have a material
adverse effect on FCN or the business of Roney; (iii) the Registration
Statement relating to this Prospectus becoming effective under the Securities
Act and no stop order suspending the effectiveness of the Registration
Statement having been issued or threatened by the Commission; (iv) the
obtaining of all permits and other authorizations under state securities laws
necessary to consummate the Acquisition and the issuance of the Common Stock to
be issued as a Deferred Payment; (v) the delivery of certain legal opinions on
behalf of FCN and Roney; and (vi) the delivery of a letter to FCN by the
independent auditors for Roney, in form and substance reasonably satisfactory
to FCN, with respect to Roney's consolidated financial position and results.
7
<PAGE>
Pursuant to the terms of the Operating Agreement of Roney, the approval of
Principals holding in excess of 50% of the outstanding Principal interests held
by all of the Principals is required to permit Roney to consummate the
Acquisition. Roney is soliciting the approval of the Principals to the Purchase
Agreement and the Acquisition in accordance with the terms of the Operating
Agreement and the Delaware Limited Liability Company Act (the "DLLCA"). In the
event that such approval is not obtained, either party may terminate the
Purchase Agreement without further liability to the other. See "Required
Approval of Roney Principals."
FCN's obligation to consummate the Acquisition is also conditioned upon
execution of Employment Agreements by the Principals (other than any such
Principals whose failure to execute such an agreement will not have a material
adverse effect on Roney's business). "--The Acquisition" above.
The Closing date of the Acquisition will be a date mutually agreed upon by
Roney and FCN, which will be at least two business days after the satisfaction
or waiver (subject to applicable law) of the latest to occur of the conditions
to Closing.
REQUIRED APPROVAL OF RONEY PRINCIPALS
Pursuant to the terms of the Operating Agreement, Principals holding in
excess of 50% of the outstanding Principal interests held by all Principals of
Roney are required to approve the Purchase Agreement and the Acquisition before
such transaction may be consummated. In accordance with the Operating Agreement
and the DLLCA, Roney will provide a Certification and Consent of Managing
Member (the "Consent Certificate") to each person that is a Principal as of the
date of this Prospectus by which such Principal may approve, among other
things, the Purchase Agreement and the Acquisition. The form of the Consent
Certificate is attached to this Prospectus as Appendix IV.
Principals who wish to approve the terms of the Purchase Agreement and the
Acquisition and authorize Roney to consummate the Acquisition should execute
and date the Consent Certificate and deliver the same to Roney on or before
, 1998. After such date, once Roney obtains properly executed Consent
Certificates from Principals holding in excess of 50% of the outstanding
Principal interests in Roney and the other conditions to Closing are satisfied,
Roney intends to consummate the Acquisition with FCN. Once a Consent
Certificate is executed and delivered to Roney, it may be revoked at any time
prior to , 1998; after , 1998, any Consent Certificate in Roney's
possession, whether received before or after said date, shall be irrevocable.
RECOMMENDATION OF THE RONEY EXECUTIVE COMMITTEE
The Executive Committee of Roney, which is composed of 10 Principals of
Roney, has unanimously adopted and approved the terms of the Purchase
Agreement. In addition, each person who was a member of the Executive Committee
at the time that Roney entered into the Purchase Agreement with FCN has entered
into a support agreement ("Support Agreement") with FCN pursuant to which such
member has agreed to vote his interest in Roney in favor of the Purchase
Agreement and the Acquisition, to recommend the Purchase Agreement and the
Acquisition as being in the best interests of each of the members of Roney and
to use his reasonable best efforts to solicit and obtain the votes of other
Principals to approve the Purchase Agreement and the Acquisition. Such members
of the Executive Committee own, in the aggregate, approximately 18.86% of the
membership interests of Roney. Each Support Agreement terminates upon
termination of the Purchase Agreement in accordance with its terms. See "The
Acquisition--Background and Reasons--Roney."
OPINION OF FINANCIAL ADVISOR
Roney has retained Wheat First Butcher Singer, Inc. ("Wheat First") to act as
its financial advisor in connection with the Acquisition and to render an
opinion to the Roney Executive Committee as to the fairness, from a financial
point of view, of the terms of the Acquisition, including the amount of the
Purchase Price, to the members of Roney. Wheat First issued a written opinion,
dated as of November 18, 1997, that the Purchase Price was fair, from a
financial point of view, to the members of Roney, including the Principals. The
full text of the Wheat First opinion, which sets forth certain assumptions
made, matters considered and limitations on review
8
<PAGE>
undertaken, is attached as Appendix II to this Prospectus, is incorporated
herein by reference, and should be read in its entirety in connection with this
Prospectus. See "The Acquisition--Opinion of Financial Advisor."
INTERESTS OF CERTAIN RONEY PRINCIPALS
Certain members of Roney's management, including certain members of the
Executive Committee of Roney, may be deemed to have interests in the
Acquisition in addition to their interest as Principals of Roney generally.
These interests include, among other things, provisions in the Purchase
Agreement relating to indemnification and certain other benefits as summarized
below.
Upon consummation of the Acquisition, Robert J. Michelotti, currently
President, Chief Executive Officer and a member of the Executive Committee of
Roney, William C. Roney, III, currently the Chief Operating Officer and a
member of the Executive Committee of Roney, and Mark A. Cleland, currently the
Chief Financial Officer of Roney, will become the Chief Executive Officer,
Chief Operating Officer and Chief Financial Officer, respectively, of a newly-
created Roney & Co. subsidiary of FCN ("New Roney"). In connection with such
appointments, each of the above-named individuals will enter into employment
agreements (the "Executive Employment Agreements") with FCN or a subsidiary of
FCN which will provide for, among other things, that the minimum employment
terms for Messrs. Michelotti, Roney and Cleland will be three years, three
years and one year, respectively, and the base salaries and bonuses for each
such individual for the term of such employment will be at a level similar to
that received by the applicable person from Roney prior to the Acquisition. The
Executive Employment Agreements will contain provisions for Liquidated Damages
similar to the provisions described above with respect to other Principals of
Roney that will enter into Employment Agreements.
As described elsewhere in this Prospectus, concurrent with the Closing of the
Acquisition, certain financial consultants and key employees of Roney
(including Messrs. Michelotti, Roney and Cleland) will receive grants of
restricted Common Stock from FCN (i.e., Retention Payments) as incentive for
such individuals to become and remain employees of New Roney. See "--Retention
Payments" above and "The Acquisition--Retention Payments."
In addition, pursuant to the Purchase Agreement, FCN has agreed for the six
year period following the Closing, to indemnify, defend and hold harmless Roney
and the present and former members, officers, employees and representatives of
Roney (each, an "Indemnified Party") against losses, damages and claims arising
out of, or relating to (i) Roney's business on or before Closing (except with
respect to the allocation or distribution of the Purchase Price and the
Retention Payments), (ii) the transactions contemplated by the Purchase
Agreement (except with respect to the allocation or distribution of the
Purchase Price and the Retention Payments) or (iii) the failure of FCN to
timely pay, perform and discharge the Assumed Liabilities. FCN has also agreed
to indemnify each Indemnified Party to the extent permitted under Delaware
General Corporation Law (the "DGCL"), FCN's Restated Certificate of
Incorporation, as amended (the "FCN Certificate") and the FCN Bylaws (the "FCN
Bylaws") as in effect at the time of such indemnification. See "The
Acquisition--Interests of Certain Roney Principals."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Honigman Miller Schwartz and Cohn, counsel to Roney, has advised that Roney
will recognize a taxable gain on the sale of its assets for Federal income tax
purposes. Each member's share of such gain is expected to approximate the
excess of the total cash and the fair market value of any FCN Common Stock
distributed to such member in liquidation of Roney over the balance of such
member's capital account. Nearly all of such gain is expected to be long term
capital gain, taxable at the current maximum Federal income tax rate of 20%,
except to the extent of a member's share of gain on sale of the headquarters
office building owned by Roney which, to the extent of the member's share of
prior depreciation of the building, will be taxable at the current maximum
Federal income tax rate of 25%.
The Internal Revenue Service (the "IRS") could seek to allocate the purchase
price among Roney's assets differently than the parties have agreed. Moreover,
the IRS could attempt to recharacterize, as compensation for
9
<PAGE>
services to be performed for FCN, some of the amounts characterized by the
parties as purchase price for Roney's assets. In the event of any such
reallocation or recharacterization of any of the purchase price, income or gain
of the members of Roney could be subject to tax at a higher rate than expected
as set forth above.
The foregoing discussion is based on the Internal Revenue Code of 1986, as
amended (the "Code"), and current judicial and administrative interpretations
of the Code, each of which is subject to change. Changes in the Code and
interpretations of it may be applied retroactively. Consequently, there can be
no assurance that the tax effects described in the foregoing discussion will
not be changed in a manner adverse to Roney or its members. For a further
description of the expected Federal income tax consequences to a Principal of
the receipt of the Deferred Payment and the pledge thereof, and the receipt of
Retention Payments by a recipient, see "The Acquisition--Certain Federal Income
Tax Consequences."
THE TAX CONSEQUENCES OF THE ACQUISITION TO A PARTICULAR PRINCIPAL WILL DEPEND
UPON THE PARTICULAR CIRCUMSTANCES OF SUCH PRINCIPAL. ACCORDINGLY, EACH
PRINCIPAL SHOULD CONSULT WITH SUCH PRINCIPAL'S OWN TAX ADVISORS AS TO THE
FEDERAL (AND ANY STATE OR LOCAL) TAX CONSEQUENCES OF THE ACQUISITION UNDER SUCH
PRINCIPAL'S PARTICULAR CIRCUMSTANCES. MOREOVER, NO INFORMATION HAS BEEN
PROVIDED HEREIN AS TO FOREIGN, STATE OR LOCAL LAW, AND EACH PRINCIPAL IS
THEREFORE URGED TO CONSULT SUCH PRINCIPAL'S OWN TAX ADVISORS AS TO THE TAX
CONSEQUENCES OF THE ACQUISITION UNDER SUCH LAWS. SEE "THE ACQUISITION--CERTAIN
FEDERAL INCOME TAX CONSIDERATIONS."
ACCOUNTING TREATMENT
The Acquisition is expected to qualify as a "purchase" for accounting and
financial reporting purposes. See "The Merger--Accounting Treatment."
RESALE OF FCN COMMON STOCK
Subject to the terms and conditions of the Employment Agreements, the
Executive Employment Agreements and the Pledge Agreements discussed above, the
FCN Common Stock to be issued as a Deferred Payment will, upon issuance, be
freely transferable by the holders of such stock under applicable federal
securities laws, except for shares held by members of the Executive Committee
of Roney and any other holders who may be deemed to be "affiliates" (generally
including directors, certain executive officers and 10% or more stockholders)
of FCN. Each member of the Executive Committee of Roney has entered into an
agreement with FCN that such member will not transfer his Common Stock issued
as a Deferred Payment in violation of the Securities Act.
BUSINESS PENDING CONSUMMATION
Pursuant to the terms of the Purchase Agreement, Roney has agreed to conduct
its business in the ordinary and usual course pending consummation of the
Acquisition, and to refrain from taking various actions outside of the ordinary
course of business without FCN's consent. See "The Acquisition--Business
Pending Consummation."
REGULATORY APPROVALS
The Acquisition is subject to the approval of the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") under Section 4 of the
BHCA. A notice has been filed with the Federal Reserve Board requesting such
approval. In addition, the Acquisition is subject to the approval of or notice
to various other federal and state regulatory and self-regulatory authorities,
including the NYSE, the NASD, certain securities exchanges, and certain state
securities or "blue sky" authorities. FCN and Roney have filed or will promptly
file all required applications for regulatory review and approval or notice
with such federal, state and self-regulatory authorities in connection with the
Acquisition. The Acquisition will not proceed until all required regulatory
approvals have been obtained and any statutory waiting periods in respect
thereof have expired. There can be no assurance that such approvals will be
obtained or as to the date of any such approvals. Pursuant to the terms
10
<PAGE>
of the Purchase Agreement, FCN is responsible for paying all fees and costs
associated with obtaining such approvals. See "The Acquisition--Regulatory
Approvals."
DISSENTERS' RIGHTS
No member of Roney, including the Principals that are required to approve the
Acquisition prior to its consummation, will be entitled to exercise any
dissenters' rights or contractual rights of appraisal as a result of the
consummation of the Acquisition.
TERMINATION OF THE PURCHASE AGREEMENT
The Purchase Agreement may be terminated by either FCN or Roney under a
number of circumstances set forth therein, including in the event that (i)
Roney fails to obtain the requisite approval of its Principals to the Purchase
Agreement and the Acquisition, (ii) the Acquisition is not consummated by
September 30, 1998, except if the delay was caused by one of the party's breach
of the Purchase Agreement, or (iii) written notices are received that any
required regulatory approval for the Acquisition will not be approved or has
been denied. FCN may also terminate the Purchase Agreement if the Executive
Committee of Roney fails to recommend the approval of the Acquisition and the
Purchase Agreement to the other Principals, withdraws such recommendation or
modifies such recommendation in a manner adverse in any way to FCN. See "The
Acquisition--Termination of the Purchase Agreement" for a more detailed
description of such circumstances of termination. Except as provided in the
following paragraph, in the event that the Purchase Agreement is terminated by
either party, neither party will have any further liability to the other party.
In the event that the Acquisition does not close because of (i) a breach of
the Purchase Agreement causing a failure to satisfy a condition precedent to
Closing, which breach was caused by the wilful or intentional misconduct of one
of the parties, or (ii) a wilful or intentional failure or refusal to close the
transaction by one of the parties in violation of the Purchase Agreement, the
non-breaching party, as its sole and exclusive remedy, is entitled to terminate
the Purchase Agreement and the breaching party must pay the non-breaching party
a non-performance fee of $1.9 million, plus all reasonable out-of-pocket costs,
expenses, losses and damages incurred by the non-breaching party as a result of
such non-performance (the "Termination Payment"). The Termination Payment will
be payable in cash within five business days after receipt of notice that such
Termination Payment is due and payable. In the event that the failure of a
condition is not caused by the wilful or intentional misconduct, failure or
refusal of the other party, then the non-breaching party may terminate the
Purchase Agreement or close the Acquisition, in either event waiving any right
or claim against the breaching party.
MATERIAL DIFFERENCES IN THE RIGHTS OF STOCKHOLDERS AND MEMBERS
The rights of the members of Roney are currently governed by the DLLCA and
the terms and conditions of the Operating Agreement. Upon consummation of the
Acquisition, the Roney Principals that receive Common Stock as a Deferred
Payment will become FCN stockholders, and their rights will be governed by the
DGCL, the FCN Certificate and the FCN Bylaws. There are certain material
differences between the rights of holders of membership interests in Roney and
holders of FCN Common Stock which arise from differences between the governing
instruments of Roney and FCN and differences in the DLLCA and the DGCL. See
"Roney--Description of the Membership Interests in Roney," "Description of FCN
Capital Stock" and "Material Differences in the Rights of FCN Stockholders and
Roney Members" for a discussion of such differences.
11
<PAGE>
COMPARATIVE UNAUDITED PER SHARE AND PRO FORMA DATA
The unaudited information set forth in the following table reflects certain
comparative per FCN common share or per 1% Roney Principal interest data
related to earnings per share or per Principal interest, cash dividends or
distributions declared per share or per Principal interest and book value per
share or per Principal interest (i) on a historical basis for FCN and Roney;
(ii) on a pro forma combined basis per share of FCN Common Stock assuming
consummation of the Acquisition; and (iii) on an equivalent pro forma combined
basis per Principal interest of Roney assuming consummation of the Acquisition.
For purposes of this analysis only, it is assumed that each Principal interest
represents 1% of the equity interest of Roney.
The information shown below should be read in connection with the
consolidated historical financial statements of FCN and Roney, including the
respective notes thereto, which, in the case of FCN, are incorporated by
reference in this Prospectus and, in the case of Roney, are presented in
Appendix III hereto. The pro forma data is presented for comparative purposes
only and is not necessarily indicative of the combined financial position or
results of operations which would have been realized had the Acquisition been
consummated during the periods or as of the dates for which the pro forma data
is presented.
See "Incorporation of Certain Documents by Reference," "Appendix III--Certain
Financial Information Relating to Roney" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
<S> <C> <C>
FCN COMMON STOCK
Earnings per share--basic:
Historical............................. $ 4.44 $ 3.69
Pro forma(1)........................... 4.43 3.69
Earnings per share--diluted:
Historical............................. $ 4.33 $ 3.63
Pro forma(1)........................... 4.33 3.63
Cash dividends declared per share:
Historical............................. $ 1.48 $ 1.20
Book value per share--end of period:
Historical............................. $ 27.31 $ 26.62
Pro forma(2)........................... 27.37 26.68
RONEY PRINCIPAL INTEREST
Earnings per 1% interest--basic:
Historical(3) ......................... $ 74,770 $ 66,313
Pro forma(4)........................... 13,871 11,554
Earnings per 1% interest--diluted:
Historical(3).......................... $ 74,770 $ 66,313
Pro forma(4)........................... 13,558 11,366
Cash distributions declared per 1%
interest:
Historical(3).......................... $ 69,440 $ 21,000
Pro forma(4)........................... 4,634 3,758
Book value per 1% interest--end of
period:
Historical............................. $248,274 $293,140
Pro forma(4)........................... 85,702 83,542
</TABLE>
- -------
(1) Gives effect to the Acquisition as if it had occurred at the beginning of
the period presented and assumes a $80 per share price of FCN Common Stock.
In calculating pro forma earnings per share, no adjustments to the pro
forma amounts have been made to reflect potential revenue enhancements or
expense savings which may result from the Acquisition.
(2) Pro forma book value per share gives effect to the Acquisition as if it had
occurred at the end of the period presented and reflects the addition of
$25.05 million of common equity through the issuance of 313,125 shares of
FCN Common Stock. The actual number of shares of FCN Common Stock to be
issued in the Acquisition may be more or less than 313,125 depending upon
the average closing price of FCN Common Stock during the pricing period.
12
<PAGE>
(3) All earnings figures are presented on a pre-tax basis. 1996 historical
amounts are for the full year period ended September 27, 1996.
(4) Gives effect to the exchange of a 1% Principal interest of Roney for
3,131.25 shares of FCN Common Stock only. In addition to such shares, each
1% Principal interest of Roney will receive cash of $512,500. These pro
forma amounts would decrease if the per share price of FCN Common Stock
used to calculate the Purchase Price exceeds $80 per share.
COMPARATIVE STOCK PRICES AND DIVIDEND INFORMATION
FCN Common Stock is quoted on the NYSE Composite Transaction Tape under the
symbol "FCN". FCN Common Stock is also quoted on the Chicago and Pacific Stock
Exchanges.
The following table sets forth the high and low sales prices for FCN Common
Stock for the periods indicated, as quoted on the NYSE Composite Transaction
Tape, and the quarterly cash dividends per share declared, for the periods
indicated. The stock prices do not include retail mark-ups, mark-downs or
commissions. FCN Common Stock began trading under the symbol "FCN" on December
1, 1995; prior to that date, it traded under the symbol "NBD".
<TABLE>
<CAPTION>
DIVIDENDS
DECLARED
PER SHARE LOW HIGH
--------- ------- ---------
<S> <C> <C> <C>
1998
First Quarter (through February , 1998)........ $ 0.44
1997
First Quarter.................................... $ 0.40 $51 1/2 $63 5/8
Second Quarter................................... 0.40 50 1/2 65 5/8
Third Quarter.................................... 0.40 60 3/4 78 13/16
Fourth Quarter................................... 0.44 67 1/8 85 7/8
------
Year........................................... $ 1.64 50 1/2 85 7/8
======
1996
First Quarter.................................... $ 0.36 $34 3/4 $44 1/4
Second Quarter................................... 0.36 38 5/8 45 1/2
Third Quarter.................................... 0.36 36 5/8 45 1/4
Fourth Quarter................................... 0.40 45 58 7/8
------
Year........................................... $ 1.48 34 3/4 58 7/8
======
</TABLE>
There is no public trading market for the membership interests of Roney.
Roney is organized as a limited liability company. As a result, Roney's
members do not receive dividends on their equity interests, but rather they
receive a return on capital based on their type of ownership interest.
Investing Members and Class A Members receive a fixed rate of return on their
ownership interests plus an additional return based on the profitability of
Roney. The remaining profits of Roney (after deduction of the returns paid to
the Investing Members and Class A Members as described in the preceding
sentence) are distributed to the Principals on a pro rata basis based on their
percentage interest. These profits are generally distributed to Principals four
times during the calendar year. The first three distributions generally are
made on April 10, June 10 and September 10, respectively, of each calendar
year, which dates are five days before the dates on which the Principals must
make estimated tax payments to the IRS. The amount of the first three
distributions is typically 40% of the quarterly profits of Roney and are paid
to the Principals pro rata based on their respective percentage interests in
Roney. These distributions are meant to approximate the tax liability of the
Principals on their share of the profits of Roney for the applicable quarter.
The remaining profits for the calendar year are distributed to the Principals
on December 31 of each year on a pro rata basis based on their respective
percentage interests in Roney. The aggregate distributions of profits to the
Roney Principals for calendar years 1997 and 1996 were $8,789,500 and
$7,561,000, respectively.
13
<PAGE>
The following table sets forth the closing sales price of FCN Common Stock
and the book value of a 1% Principal interest in Roney on November 17, 1997
(the last trading day prior to the public announcement of the proposed
Acquisition) and February , 1998 (the last practicable trading day before the
printing of this Prospectus).
<TABLE>
<CAPTION>
PRO FORMA EQUIVALENT
FCN RONEY 1% PER 1%
COMMON STOCK PRINCIPAL INTEREST PRINCIPAL INTEREST (1)
------------ ------------------ ----------------------
<S> <C> <C> <C>
November 17, 1997........ $71 1/2 $293,140(2) $763,000
February , 1998......... 763,000
</TABLE>
- -------
(1) The equivalent market value per 1% Principal interest is assumed to be
$763,000 based upon the formula specified in the Purchase Agreement for
calculating the Purchase Price. The actual equivalent market value per
interest may be more or less than $763,000 because the Purchase Price, in
part, is calculated based upon the average closing price of FCN Common
Stock over a 10 trading day period ending on the fifth day before the
Closing.
(2) Represents book value of a Roney 1% Principal interest at September 30,
1997.
Principals of Roney are advised to obtain current market quotations for FCN
Common Stock. No assurance can be given as to the market price of FCN Common
Stock at the Closing.
14
<PAGE>
SELECTED FINANCIAL DATA OF FIRST CHICAGO NBD CORPORATION
The following table sets forth certain unaudited selected historical
consolidated financial information for FCN. The information is qualified in its
entirety by the consolidated financial statements and notes thereto of FCN
which are incorporated herein by reference. See "Available Information," and
"Incorporation of Certain Documents by Reference" and "FCN Recent
Developments."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------- ------------------
1996 1995 1994 1993 1992 1997 1996
-------- -------- -------- ------- ------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF INCOME
Net interest income..... $ 3,620 $ 3,208 $ 2,956 $ 2,784 $ 2,692 $ 2,700 $ 2,737
Provision for credit
losses................. 735 510 276 390 653 558 545
Provision for assets
held for accelerated
disposition(1)......... -- -- -- -- 625 -- --
Noninterest income...... 2,548 2,591 2,393 2,769 2,018 2,024 1,866
Merger-related charges.. -- 267 -- -- 76 -- --
FDIC special assessment. 18 -- -- -- -- -- 18
Operating expense....... 3,253 3,268 3,220 3,161 3,084 2,460 2,440
Income before cumulative
effect of changes in
accounting principles.. 1,436 1,150 1,221 1,290 224 1,143 1,059
Net income.............. 1,436 1,150 1,221 1,290 394 1,143 1,059
EARNINGS PER SHARE(2)
Basic
Income before
cumulative effect of
changes in
accounting principles. $ 4.44 $ 3.48 $ 3.65 $ 3.94 $ 0.60 $ 3.69 $ 3.27
Net income............. 4.44 3.48 3.65 3.94 1.17 3.69 3.27
Diluted
Income before
cumulative effect of
changes in
accounting principles. 4.33 3.41 3.58 3.79 $ 0.60 3.63 3.20
Net income............. 4.33 3.41 3.58 3.79 1.17 3.63 3.20
PERIOD-END BALANCES
Total assets............ $104,619 $122,002 $112,763 $93,140 $90,011 $113,306 $106,694
Long-term debt.......... 8,454 8,163 7,246 5,250 4,175 9,906 7,967
Total stockholders'
equity................. 9,007 8,450 7,809 7,499 6,323 8,082 9,087
COMMON SHARE DATA
Dividends declared...... $ 1.48 $ 1.35 $ 1.23 $ 1.08 $ 1.04 $ 1.20 $ 1.08
Book value, period end.. 27.31 25.25 22.60 21.25 18.27 26.62 27.11
Market price, period
end.................... 53 3/4 39 1/2 27 3/8 29 3/4 32 3/4 75 1/4 45 1/4
CAPITAL RATIOS
Common equity-to-assets
ratio.................. 8.2% 6.5% 6.4% 7.2% 6.3% 6.9% 8.1%
Regulatory leverage
ratio(3)(4)(5)......... 9.3 6.9 7.3 7.8 6.6 8.2 8.1
Risk-based
capital(3)(4)(5)
Tier 1 ratio........... 9.2 7.8 8.6 9.0 7.4 8.1 8.4
Total capital ratio.... 13.3 11.8 13.0 13.6 11.3 11.9 12.4
RATIO OF EARNINGS TO
FIXED CHARGES
Excluding interest on
deposits.............. 2.2x 1.8x 2.2x 3.0x 1.3x 2.4x 2.1x
Including interest on
deposits.............. 1.5x 1.4x 1.6x 1.8x 1.1x 1.6x 1.5x
</TABLE>
- -------
(1) Of the total provision, $491 million relates to loans and $134 million
relates to other real estate held for accelerated disposition.
(2) Earnings per share are calculated based on the Financial Accounting
Standard Board's Statement Number 128, "Earnings Per Share."
(3) Net of investment in First Chicago Capital Markets, Inc. ("FCCM"), FCN's
subsidiary engaged in investment banking activities.
(4) Includes trust preferred capital securities.
(5) As a result of recent regulatory change, beginning in October 1997, the
risk-based and regulatory leverage ratio will include the activities of
FCCM. On a pro forma basis, the September 1997 Tier 1, Total Capital and
Regulatory Leverage Ratios would have been 8.1%, 12.0% and 8.0%,
respectively.
15
<PAGE>
SELECTED FINANCIAL DATA OF RONEY & CO., L.L.C.
Set forth below are selected historical consolidated financial and other data
of Roney. This financial data is derived in part from, and should be read in
conjunction with, the Consolidated Financial Statements and Notes to the
Consolidated Financial Statements presented in Appendix III to this Prospectus.
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
YEARS ENDED SEPTEMBER DECEMBER 31,
---------------------------------- -------------
1997 1996 1995 1994 1993 1997 1996
------ ------ ------ ------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARIES
OF INCOME
Interest income.............. $ 11.6 $ 10.8 $ 10.6 $ 7.3 $ 4.9 $ 3.6 $ 2.9
Interest expense............. 8.5 8.0 7.9 5.3 3.6 2.3 2.1
------ ------ ------ ------ ------ ------ ------
Net interest income.......... 3.1 2.8 2.7 2.0 1.3 1.3 .8
Noninterest income........... 86.9 74.8 63.4 62.6 59.2 24.8 19.5
Noninterest expense.......... 82.1 70.1 60.7 58.2 54.2 23.9 19.0
------ ------ ------ ------ ------ ------ ------
Income before income taxes... 7.9 7.5 5.4 6.4 6.3 2.2 1.3
Income taxes................. -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Net income................... $ 7.9 $ 7.5 $ 5.4 $ 6.4 $ 6.3 $ 2.2 $ 1.3
====== ====== ====== ====== ====== ====== ======
CONSOLIDATED PERIOD-END
BALANCE SHEET ITEMS
Assets....................... $180.5 $169.5 $145.8 $147.1 $115.8 $194.6 $162.3
Total Members' equity........ 29.3 26.0 22.6 18.9 17.1 24.8 24.8
</TABLE>
16
<PAGE>
RONEY & CO., L.L.C.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED DECEMBER
31, 1996
General
Roney derives most of its income from securities brokerage and capital
markets activities.
Results of Operations
Revenues were $28.4 million, an increase of $6.0 million, or 26.8%, from
$22.4 million in 1996. The revenue increase reflected continued improvement in
industry revenues and Roney's growth in the number of financial consultants.
Commission revenues rose $1.1 million, from $8.8 million to $9.9 million.
Principal transaction revenues rose $1.9 million, from $6.2 million to $8.1
million. Investment banking fees increased $1.3 million, from $2.7 million to
$4.0 million. Interest revenues increased $0.7 million, from $2.9 million to
$3.6 million, due to rising customer margin loan balances. Other revenues rose
$1.1 million, from $1.8 million to $2.9 million.
Expenses were $26.3 million, an increase of $5.2 million, or 24.6%, from
$21.1 million in 1996. The increase was attributable to higher compensation
expenses resulting from increased revenues and increased technology costs.
Member and employee compensation and benefits rose $3.4 million, from $13.1
million to $16.5 million principally due to an increase in sales compensation
attributable to the commensurate revenue increase. Interest expense increased
$0.2 million, from $2.1 million to $2.3 million, due to rising customer loan
balances. Communications, occupancy and equipment rental rose $0.3 million,
from $2.0 million to $2.3 million due to the increase in financial
consultants. Floor brokerage, exchange and clearance fees rose $0.1 million,
from $0.4 million to $0.5 million due to additional volume. Other operating
expenses increased $1.1 million, from $3.6 million to $4.7 million due to
additional volume and ongoing technology costs.
Net income for the three months ended December 31, 1997 was $2.2 million, an
increase of $0.9 million, or 69.2%, from net income of $1.3 million in 1996.
Capital Resources and Liquidity
Roney's assets consist primarily of cash and assets readily convertible to
cash. Securities inventories are stated at market value and are generally
readily marketable. Customers' margin loans are collateralized by securities
and have floating interest rates. Roney's assets are financed by bank loans,
proceeds from securities lending, subordinated debt, member equity, and
customer, member and other payables.
Roney's receivables from customers increased significantly since December
31, 1996. At that date, receivables from customers were $131.4 million, versus
$165.9 million in December of 1997. Receivables from customers consist
primarily of margin loans collateralized by marketable securities.
Roney maintains a $145 million demand line of credit, collateralized by
securities in customer margin accounts. Borrowings bear interest at a rate
based on the federal funds rate. At December 31, 1997, there were $87.5
million in borrowings outstanding under this line.
Roney is required by regulations of the Commission to meet certain liquidity
and capital standards. At December 31, 1997, Roney had net capital, as defined
in the applicable regulations, of $16.2 million, which exceeded the minimum
net capital requirements of $3.5 million by $12.7 million.
17
<PAGE>
FISCAL YEAR ENDED SEPTEMBER 26, 1997 COMPARED TO FISCAL YEAR ENDED SEPTEMBER
27, 1996
Results of Operations
Revenues in 1997 were $98.5 million, an increase of $12.9 million, or 15.1%,
from $85.6 million in 1996. The revenue increase reflected continued
improvement in industry revenues and Roney's growth in the number of financial
consultants.
Commission revenues rose $4.8 million, from $31.4 million to $36.2 million.
Principal transaction revenues rose $2.5 million, from $26.3 million to $28.8
million. Investment banking and underwriting revenues rose $1.9 million, from
$10.2 million to $12.1 million, principally as a result of increased
underwriting activity. Interest revenues increased $0.8 million, from $10.8
million to $11.6 million, due to rising customer margin loan balances. Other
revenues rose $2.9 million, from $6.8 million to $9.7 million.
Expenses in 1997 were $90.5 million, an increase of $12.4 million, or 15.9%,
from $78.1 million in 1996. The increase was attributable to higher
compensation expenses resulting from increased revenues, costs associated with
significant technology investments and higher operating expenses associated
with an increase in financial consultants.
Member and employee compensation and benefits rose $7.7 million, from $48.6
million to $56.3 million, principally as a result of an increase in sales
compensation attributable to the commensurate revenue increase. Interest
expense increased $0.5 million, from $8.0 million to $8.5 million, due to the
growth in margin loans. Communications, occupancy and equipment rental expense
rose $1.1 million, from $6.7 million to $7.8 million due to the increase in
financial consultants. Floor brokage, exchange and clearance fees rose $0.3
million, from $1.6 million to $1.9 million. Other operating expenses increased
$2.8 million, from $13.3 million to $16.1 million due to additional volume and
costs associated with the enhancement of computer technology for Roney's
financial consultants.
Net income in 1997 was $7.9 million, an increase of $0.4 million, or 5.3%,
from net income of $7.5 million in 1996.
Capital Resources and Liquidity
Roney's assets consist primarily of cash and assets readily convertible to
cash. Securities inventories are stated at market value and are generally
readily marketable. Customers' margin loans are collateralized by securities
and have floating interest rates. Roney's assets are financed by bank loans,
proceeds from securities lending, subordinated debt, member equity, and
customer, member and other payables.
Roney's receivables from customers increased $10.1 million since 1996. At
September 26, 1997, receivables from customers were $142.1 million, versus
$152.2 million on September 27, 1996. Receivables from customers consist
primarily of margin loans collateralized by securities.
Roney maintained a $145 million demand line of credit, collateralized by
securities in customer margin accounts. Borrowings bear interest at a rate
based on the federal funds rate. At September 26, 1997, there were $82.4
million in borrowings outstanding under this line.
Roney is required by regulations of the Commission to meet certain liquidity
and capital standards. At September 26, 1997, Roney had net capital, as
defined in the applicable regulations, of $17.1 million, which exceeded the
minimum net capital requirements of $3.2 million by $13.9 million.
18
<PAGE>
FISCAL YEAR ENDED SEPTEMBER 27, 1996 COMPARED TO FISCAL YEAR ENDED SEPTEMBER
29, 1995
Results of Operations
Revenues in 1996 were $85.6 million, an increase of $11.6 million, or 15.7%,
from $74.0 million in 1995. The revenue increase reflected a general
improvement in industry revenues and Roney's growth in the number of financial
consultants.
Commission revenues rose $5.2 million, from $26.2 million to $31.4 million,
principally because of an increase in over-the-counter equity and insurance
transactions. Principal transaction revenues rose $1.0 million, from $25.3
million to $26.3 million. Investment banking and underwriting revenues rose
$3.4 million, from $6.8 million to $10.2 million due to increased underwriting
activity. Interest and dividend revenues increased $0.2 million, from $10.6
million to $10.8 million. Other revenues rose $1.8 million, from $5.0 million
to $6.8 million.
Expenses in 1996 were $78.1 million, an increase of $9.5 million, or 13.8%
from $68.6 million in 1995. The increase was attributable primarily to higher
compensation expenses resulting from increased revenues.
Member and employee compensation and benefits rose $7.7 million, from $40.9
million to $48.6 million principally due to an increase in sales compensation
attributable to the commensurate revenue increase. Interest expense increased
$0.1 million, from $7.9 million to $8.0 million. Communications, occupancy and
equipment rental expense rose $0.4 million, from $6.3 million to $6.7 million
due to the increase in financial consultants. Floor brokerage, exchange and
clearance fees rose $0.2 million, from $1.4 million to $1.6 million due to
additional volume. Other operating expenses increased $1.3 million, from $12.0
million to $13.3 million due to additional volume and ongoing technology
costs.
Net income in 1996 was $7.5 million, an increase of $2.1 million, or 38.9%,
from net income of $5.4 million in 1995.
Capital Resources and Liquidity
Roney's assets consist primarily of cash and assets readily convertible to
cash. Securities inventories are stated at market value and are generally
readily marketable. Customers' margin loans are collateralized by securities
and have floating interest rates. Roney's assets are financed by bank loans,
subordinated debt, member equity, and customer, member and other payables.
Roney's receivables from customers increased $16.5 million in fiscal year
1996. At September 27, 1996, receivables from customers were $142.1 million,
versus $125.6 million at September 29, 1995. Receivables from customers
consist primarily of margin loans collateralized by securities.
Roney maintained a $118 million demand line of credit, collateralized by
securities in customer margin accounts. Borrowings bear interest at a rate
based on the federal funds rate. At September 27, 1996, there were $91.6
million in borrowings outstanding under this line.
Roney is required by regulations of the Commission to meet certain liquidity
and capital standards. At September 27, 1996, Roney had net capital, as
defined in the applicable regulations, of $17.0 million, which exceeded the
minimum net capital requirements of $3.0 million by $14.0 million.
19
<PAGE>
FCN RECENT DEVELOPMENTS
RECENT FINANCIAL RESULTS
FCN reported record net income and earnings per share for 1997. Earnings
were $1.525 billion, or $4.90 per share of Common Stock, assuming full
dilution, compared with $1.436 billion, or $4.33 per share, for 1996. Return
on common stockholders' equity was 18.6% for 1997, versus 17.0% for 1996.
For the fourth quarter of 1997, net income was $382 million, or a record
$1.28 per share. In the year-ago quarter, earnings were $377 million, or $1.14
per share. Return on equity was 19.5%, compared with 17.2% a year ago.
FCN KEY RATIOS
<TABLE>
<CAPTION>
4TH QTR. 4TH QTR. FULL YEAR FULL YEAR
1997 1996 1997 1996
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Earnings per Common share*................ $1.28 $1.14 $4.90 $4.33
Return on common equity................... 19.5% 17.2% 18.6% 17.0%
Return on assets.......................... 1.38% 1.46% 1.41% 1.28%
Adjusted net interest margin.............. 4.27% 4.64% 4.54% 4.44%
Operating efficiency...................... 54.0% 51.2% 51.9% 52.2%
</TABLE>
- -------
* Diluted earnings per Common Share are calculated based on the Financial
Accounting Standards Board statement number 128, "Earnings Per Share."
Noteworthy factors contributing to the 1997 full year and fourth quarter
results include the following:
. Fee-based income for the year, adjusted for the effects of credit card
securitizations, was $2.138 billion, a 13% increase over 1996. This
reflects strong results in loan syndications, cash management and
deposit products as well as continued growth in credit card fees. For
the fourth quarter, adjusted fee-based income increased 8% from a year
ago.
. Market-driven revenues--trading results and securities gains--were $45
million for the fourth quarter, including a trading loss of $15 million
due to the volatile financial market environment. Mortgage loan and
other asset sales generated gains of $32 million in other market-related
income. In addition, the previously announced sale of ANB Investment
Management and Trust Company to Northern Trust Corporation was completed
in the fourth quarter for a gain of $45 million. In the aggregate,
market-driven revenues for the year were in line with 1996's totals.
. Total expenses for 1997 were $3.332 billion, up 2% from 1996. FCN's
operating efficiency ratio for the year was just under 52%, reflecting
ongoing expense management. Expenses increased in the fourth quarter,
due to accelerated expenditures related to technology and re-engineering
initiatives, including century date compliance, enhancing retail
delivery efficiency and other technology infrastructure projects that
are expected to be completed or implemented in 1998. Certain expenses to
support these initiatives--software, contract programming, consulting
and outside service fees--increased approximately $30 million from the
third quarter to the fourth quarter.
. On a managed receivables basis, the 1997 provision for credit losses was
up substantially from 1996, driven by net charge-offs in the credit card
business. During the last two quarters, the managed credit card charge-
off rate stabilized.
. FCN repurchased 3.8 million shares of Common Stock in the quarter,
virtually completing the 40 million share repurchase program announced
in October, 1996. FCN announced an additional 12 million share
repurchase program in November, 1997.
. FCN announced in November a 10% increase in the quarterly Common Stock
dividend to $0.44 per share, effective with the January 1, 1998,
payment.
. Tier 1 and total risk-based capital ratios were 7.9% and 11.7%,
respectively, at December 31, 1997. Book value per common share was
$26.87.
20
<PAGE>
Net Interest Income
Net interest income on a tax-equivalent basis was $3.667 billion for the
year and $888 million for the fourth quarter. Average loans for 1997 were
$66.3 billion, up 2% from a year ago. For the fourth quarter of 1997, average
loans were $66.9 billion, average managed credit card receivables were $17.4
billion, and average earning assets were $95.0 billion.
Net interest margin on a reported basis was 3.95% for the year. Adjusted for
credit card securitizations and the activities of First Chicago Capital
Markets, Inc. ("FCCM"), the net interest margin was 4.54%, versus 4.44% for
1996.
Noninterest Income
Noninterest income for the year was $2.751 billion, up 8% from 1996. For the
fourth quarter, noninterest income was $727 million.
Market-driven revenue was $45 million for the quarter. Equity securities
gains were $54 million, combined trading losses totaled $15 million, and
investment securities gains equaled $6 million. Other market-related income
from the sale of mortgage loans and other assets totaled $32 million for the
fourth quarter. The gain on the sale of an investment management business was
$45 million.
Adjusted credit card fee revenue was $230 million, compared with $259
million a year ago. Fiduciary and investment management fees were $101 million
for the fourth quarter. Other service charges and commissions were $261
million for the quarter, a 20% increase from the year-ago quarter.
Noninterest Expense
Total noninterest expense for 1997 was $3.332 billion, compared with $3.271
billion in 1996. Noninterest expense was $872 million for the fourth quarter,
compared with $813 million for the year-ago quarter.
Credit Quality
The provision for credit losses was $167 million for the fourth quarter,
down from $190 million in the year-ago quarter and $191 million last quarter.
The allowance for credit losses stood at $1.408 billion at December 31,
1997, representing 453% of total nonperforming loans. Nonperforming assets
declined to $326 million at December 31, 1997, from $345 million at the end of
the third quarter.
Net charge-offs for the fourth quarter totaled $167 million, of which $147
million was related to credit card receivables. The net charge-off rate for
managed credit card receivables was 7.0% for the fourth quarter, up from 6.7%
in the year-ago quarter. The 30-day delinquency ratio for managed credit card
receivables was 4.3% at quarter-end, versus 4.5% a year ago.
21
<PAGE>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
COMPARATIVE SUMMARY
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------------
1997 1996 CHANGE
-------- -------- ------
(DOLLARS IN MILLIONS,
EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Net interest income--tax-equivalent basis........... $ 888 $ 907 - 2%
Provision for credit losses......................... 167 190 -12
Noninterest income.................................. 727 682 + 7
Noninterest expense................................. 872 813 + 7
Net income.......................................... 382 377 + 1
Earnings per share
Basic.............................................. $ 1.30 $ 1.17 +11
Average shares (in millions)....................... 290.3 317.2 - 8
Assuming full dilution............................. $ 1.28 $ 1.14 +12
Average shares (in millions)....................... 295.2 327.3 -10
Average balances
Loans.............................................. $ 66,859 $ 65,494 + 2
Earning assets..................................... 95,009 87,896 + 8
Total assets....................................... 109,976 102,687 + 7
Common stockholders' equity........................ 7,709 8,565 -10
Stockholders' equity............................... 7,951 9,030 -12
Net interest margin
Reported........................................... 3.71% 4.11%
Adjusted........................................... 4.27 4.64
Return on assets.................................... 1.38 1.46
Return on common stockholders' equity............... 19.5 17.2
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 CHANGE
-------- -------- ------
(DOLLARS IN MILLIONS,
EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Net interest income--tax-equivalent basis........... $ 3,667 $ 3,722 - 1%
Provision for credit losses......................... 725 735 - 1
Noninterest income.................................. 2,751 2,548 + 8
Noninterest expense................................. 3,332 3,271 + 2
Net income.......................................... 1,525 1,436 + 6
Earnings per share
Basic.............................................. $ 4.99 $ 4.44 +12
Average shares (in millions)....................... 301.4 316.8 - 5
Assuming full dilution............................. $ 4.90 $ 4.33 +13
Average shares (in millions)....................... 307.0 326.7 - 6
Average balances
Loans.............................................. $ 66,286 $ 64,949 + 2
Earning assets..................................... 92,792 97,274 - 5
Total assets....................................... 108,104 112,565 - 4
Common stockholders' equity........................ 8,097 8,253 - 2
Stockholders' equity............................... 8,407 8,736 - 4
Net interest margin
Reported........................................... 3.95% 3.83%
Adjusted........................................... 4.54 4.44
Return on assets.................................... 1.41 1.28
Return on common stockholders' equity............... 18.6 17.0
<CAPTION>
AT DECEMBER 31,
--------------------------
1997 1996 CHANGE
-------- -------- ------
<S> <C> <C> <C>
Assets.............................................. $114,096 $104,619 + 9%
Loans............................................... 68,724 66,414 + 3
Deposits............................................ 68,489 63,669 + 8
Common stockholders' equity......................... 7,770 8,563 - 9
Stockholders' equity................................ 7,960 9,007 -12
</TABLE>
22
<PAGE>
FIRST CHICAGO NBD CORPORATION AND SUBSIDIARIES
CAPITAL DATA
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
1997 1997 1997 1997 1996
------------ ------------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Common Equity/Assets
Ratio.................. 6.8% 6.9% 7.3% 7.8% 8.2%
Risk-Based Capital
Ratios: (1)(2)(3)......
Tier 1................ 7.9% 8.1% 8.6% 9.1% 9.2%
Total................. 11.7% 11.9% 12.4% 13.1% 13.3%
Regulatory Leverage
Ratio (2)(3)........... 7.8% 8.2% 8.6% 9.2% 9.3%
Book Value of Common
Equity................. $26.87 $26.62 $27.08 $27.20 $27.31
</TABLE>
- -------
(1) 12/31/97 ratios are estimated.
(2) 12/31/97 ratios include activities of First Chicago Capital Markets, Inc.
("FCCM"). For prior periods, ratios were calculated net of the investment
in FCCM.
(3) Includes trust preferred capital securities.
23
<PAGE>
REQUIRED APPROVAL OF RONEY PRINCIPALS
As described elsewhere in this Prospectus, pursuant to the terms of the
Operating Agreement, Principals holding in excess of 50% of the outstanding
Principal interests held by all Principals of Roney are required to approve
the Purchase Agreement and the Acquisition before such transaction may be
consummated with FCN. In accordance with the terms of the Operating Agreement
and the DLLCA, Roney will provide a Consent Certificate to each person that is
a Principal as of the date of this Prospectus. By executing the Consent
Certificate and returning such executed certificate to Roney in accordance
with the instructions set forth on the Consent Certificate, a Principal will
be acknowledging the following: (i) that such Principal has received a copy of
this Prospectus and has been afforded the opportunity to review such
Prospectus; (ii) that such Principal has been afforded access to such other
information, and has been given the opportunity to ask questions of the
members of Roney, as such Principal deems necessary or appropriate to evaluate
fully and to such Principal's complete satisfaction whether to approve the
Purchase Agreement and the transactions contemplated thereby; (iii) that such
Principal has received and reviewed the Consent in Lieu of Joint Special
Meeting of the Principals, and Members of the Executive Committee, of Roney
(the "Resolutions"); and (iv) that such Principal approves, adopts, joins in
and votes for the Resolutions and approves, ratifies, confirms and votes for
the Purchase Agreement, the transactions contemplated thereby and all actions
taken or to be taken by the Executive Committee or any person designated by
the Executive Committee under authority of the Resolutions. THE FORMS OF THE
CONSENT CERTIFICATE AND THE RESOLUTIONS ARE ATTACHED TO THIS PROSPECTUS AS
APPENDIX IV.
This Prospectus is being furnished to each Principal prior to or
concurrently with the solicitation of Consent Certificates from the
Principals. In order that the Acquisition close on a timely basis, Roney will
request that the Consent Certificates be executed and returned to Roney at its
principal offices on or before , 1998. All expenses associated with the
preparation and filing of this Prospectus will be borne by FCN and all
expenses associated with the obtaining of Consent Certificates from the
requisite Principals will be borne by Roney. Members of the Executive
Committee of Roney, and officers and employees of Roney, may solicit Consent
Certificates from Principals either personally or by telephone, telegraph or
other forms of communication. Such persons will receive no additional
compensation for such services. Each person who was a member of the Executive
Committee of Roney at the time that Roney entered into the Purchase Agreement
with FCN has entered into a Support Agreement with FCN pursuant to which such
member has agreed to vote his interest in Roney in favor of the Purchase
Agreement and the Acquisition, to recommend the Purchase Agreement and the
Acquisition as being in the best interests of each of the members of Roney and
to use his reasonable best efforts to solicit and obtain the votes of other
Principals to approve the Purchase Agreement and the Acquisition. See "The
Acquisition--Recommendation of the Roney Executive Committee."
THE RONEY EXECUTIVE COMMITTEE BELIEVES THAT THE ACQUISITION IS FAIR TO, AND
IN THE BEST INTERESTS OF, RONEY AND THE RONEY PRINCIPALS. ACCORDINGLY, THE
RONEY EXECUTIVE COMMITTEE HAS UNANIMOUSLY APPROVED AND ADOPTED THE PURCHASE
AGREEMENT AND RECOMMENDS THAT THE RONEY PRINCIPALS VOTE FOR THE APPROVAL AND
ADOPTION OF THE PURCHASE AGREEMENT AND THE ACQUISITION.
Principals of Roney who wish to approve the terms of the Purchase Agreement
and the Acquisition and authorize Roney to consummate the Acquisition should
execute and date the Consent Certificate and deliver it to Roney on or before
, 1998. After such date, once Roney obtains executed Consent Certificates
from Principals holding in excess of 50% of the outstanding Principal
interests in Roney and the other conditions to Closing are satisfied, Roney
intends to consummate the Acquisition with FCN. Once a Consent Certificate is
executed and delivered to Roney, it may be revoked at any time prior to ,
1998; after , 1998 any Consent Certificate in Roney's possession, whether
received before or after said date shall be irrevocable.
Voting Securities and Certain Holders Thereof. Roney is organized as a
limited liability company under the DLLCA. Pursuant to the terms of the
Operating Agreement, the Principals are designated as the managers of Roney
and have all rights, powers and authority to manage and control Roney and the
property, assets and business of Roney, and to make all decisions affecting
the property, assets and business of Roney. The voting rights of each
Principal are based upon such Principal's percentage interest, which
percentage interest is based on a Principal's capital account (subject to
certain adjustments). The following table sets forth, as of February 26, 1998,
the percentage Principal interest in Roney owned by (i) each person who is
known by Roney to
24
<PAGE>
beneficially own five percent or more of the outstanding Principal interests of
Roney, (ii) each person who serves on Roney's Executive Committee or serves as
an executive officer of Roney, (iii) all members of Roney's Executive Committee
and the other executive officers of Roney as a group.
<TABLE>
<CAPTION>
PERCENT
NAME INTEREST
---- --------
<S> <C>
Walter S. Olsson.............................................. 3.64%
James A. Richter.............................................. 3.17
Thomas A. Baither............................................. 2.32
John C. Avery................................................. 2.16
William C. Roney III.......................................... 1.60
Al J. Paulikas................................................ 1.49
James C. Penman............................................... 1.46
Charles W. Bennett............................................ 1.40
Mark A. Cleland............................................... 1.18
Robert J. Michelotti.......................................... .71
Michael M. Moran.............................................. .51
-----
All Executive Committee members and executive officers
as a group (11 persons)...................................... 19.64%
=====
</TABLE>
25
<PAGE>
THE ACQUISITION
The information contained in this Prospectus concerning the terms of the
Acquisition includes a summary of all material provisions of the Purchase
Agreement, and is qualified in its entirety by reference to the full text of
the Purchase Agreement, which is attached hereto as Appendix I and
incorporated herein by reference. All Roney Principals are urged to read the
Purchase Agreement in its entirety.
GENERAL
Pursuant to the terms of the Purchase Agreement, FCN has agreed to purchase
substantially all of the assets, rights and properties of Roney (not including
the Roney limited liability company entity), and has agreed to assume
substantially all of the liabilities, obligations and debts of Roney, other
than certain limited taxes associated with the Acquisition. In addition, the
members of Roney will be responsible for any of their personal income or
capital gains taxes resulting from the sale of Roney's business.
BACKGROUND AND REASONS
Roney
INTRODUCTION. In the first quarter of 1997, three separate parties (two bank
holding companies and a regional investment banking firm) approached Roney
with unsolicited indications of interest in initiating discussions concerning
a possible business combination. At that time, Roney's Executive Committee met
and decided to pursue these discussions in light of the changing regulatory
and competitive conditions in the securities industry. At Roney's
solicitation, a fourth party, FCN, was added to these discussions. Roney
financial statements and confidentiality agreements were exchanged between the
parties and, while meetings continued with at least one party until mid-May,
Roney had indicated to each of the various parties by that time that it had
decided to remain an independent financial services firm.
In the period from June to September 1997, various members of the Roney
management team had informal conversations with management from the financial
institutions that had expressed interest in a business combination earlier in
the year, during which it was agreed to keep communication channels open.
In September 1997, at a meeting of the Executive Committee of Roney, it was
determined that an outside investment banking firm should be retained to
advise the Executive Committee on alternative courses of action to be
considered in light of ongoing consolidation in the financial services
industry. Discussions were held with two investment banking firms that led to
the signing of an engagement letter with Wheat First. After considering a list
of potential candidates for a possible strategic alliance, discussion were
again initiated with three of the financial institutions previously mentioned.
Each of the three expressed an interest in discussing an acquisition of Roney.
Following an exchange of financial information and other data, a series of
meetings between a team of Roney executives and management teams from the
three institutions were held in early November 1997. After completing these
meetings, the Roney management team conducted further discussions and
negotiations with the interested parties. On November 11, 1997, all of the
members of the Roney Executive Committee voted to approve the sale of Roney to
FCN and Roney entered into the Purchase Agreement with FCN on November 18,
1997.
HISTORIC AND STRATEGIC CONSIDERATIONS. Roney's strategy and intention
historically have been to remain an independent financial services firm. This
notwithstanding, the Roney Executive Committee has closely followed recent
regulatory and competitive changes in the securities industry. The Roney
Executive Committee was interested particularly in the Federal Reserve Board's
recent decisions to allow commercial banks greater access to the securities
industry and the resulting move by commercial banks to enter the securities
business by acquiring brokerage and investment banking firms.
In March 1997, the Federal Reserve Board raised the cap on revenues that
commercial banks may derive from an approved subsidiary engaged in securities
activities from 10 percent to 25 percent of revenues. In April 1997, Bankers
Trust New York Corporation announced the acquisition of Alex Brown
Incorporated. In May, Swiss Bank Corporation announced its acquisition of
Dillon Read & Co. Commercial bank acquisitions of investment banking and
brokerage firms continued with BankAmerica Corporation's announcement in June
1997 of its proposed purchase of Robertson Stephens & Company and NationsBank
Corporation's announcement of its
26
<PAGE>
proposed acquisition of Montgomery Securities. In August, First Union Corp.
announced its proposed merger with the regional investment banking firm of
Wheat First.
In its evaluation of Roney's future as an independent firm, the Roney
Executive Committee concluded that firms that successfully combined the
strengths of commercial banks with those of investment banks could have
significant competitive advantages over independent firms and eventually could
dominate the financial services business. The Roney Executive Committee
believes that the Acquisition provides a unique opportunity for increased
financial strength, as it will leverage the Roney franchise with one of the
largest commercial banking operations in the Midwestern United States. The
Acquisition will combine Roney's retail brokerage network, investment banking,
and equity underwriting with FCN's large base of middle market and private
banking clients, enabling Roney to offer a wider array of services to its
existing customers and to expand its customer base through FCN's network of
customers.
FACTORS CONSIDERED BY THE RONEY EXECUTIVE COMMITTEE. In reaching its
conclusion to approve the Purchase Agreement and the transactions contemplated
thereby, the Roney Executive Committee consulted with Roney management, and
with financial and legal advisors considered a variety of factors, including
the following principal factors:
The complementary nature of Roney's and FCN's respective businesses and
business cultures. The Roney Executive Committee believes that FCN and Roney
share common fundamental values and a strong commitment to serving clients'
best interests. Importantly, the Roney Executive Committee believes that Roney
and FCN serve many complementary markets and that FCN offers a strong platform
of clients and services against which Roney can leverage its existing
business. FCN complements Roney's geographic presence and offers a
recognizable name that Roney hopes will strengthen its reputation. The Roney
Executive Committee believes that the purchase will allow Roney to remain
competitive and to leverage its capabilities with the goal of continuing to
grow its business.
The Acquisition will allow Roney to offer its retail and institutional
clients products and services to which Roney has not previously had access.
Roney's equity capital markets group will have the opportunity to leverage its
capabilities across FCN's large customer base of middle market companies. In
addition, Roney will have the opportunity to introduce FCN's high yield and
other debt products to existing corporate and institutional clients.
Principals' consideration. The Roney Executive Committee carefully evaluated
the consideration to be received by Roney's Principals in the Acquisition. The
presentation Wheat First made to the Roney Executive Committee on November 11,
1997, included, among other things, Wheat First's opinion that from a
financial point of view the Purchase Price is fair to Roney, including the
Roney Principals. See "--Opinion of Financial Advisor." The Roney Executive
Committee also took into account the fact that FCN's Common Stock was trading
at a valuation below its peers, and, at such time, had been given an
outperform rating by certain banking analysts.
Purchase Agreement. Management of Roney discussed with the Roney Executive
Committee the terms and conditions of the Purchase Agreement, including the
amount and form of consideration, the parties' representations, warranties,
covenants and agreements, the indemnifications to be provided and the
conditions to the respective obligations set forth in the Purchase Agreement.
Roney's future as an independent firm. The Roney Executive Committee
carefully considered the advantages and disadvantages of remaining independent
in the current competitive environment. The Roney Executive Committee believes
that rapidly increasing competition in the financial services business will
create pressures on profits and will result in strong competition for top
talent. It most likely will be difficult for an independent firm to remain
competitive in this environment when facing strong, better-capitalized
competitors. These better-capitalized competitors include commercial banks
that generally have much larger market capitalizations than independent
broker-dealer companies. The Roney Executive Committee also considered the
effects of continued uncertainty about the future of an independent Roney
organization. These factors, in turn, also could lead to potentially lower
Roney Principal returns.
Respect for Roney's unique securities expertise. The Roney Executive
Committee considered FCN to be a partner that would respect the unique
securities expertise and dedication of Roney's 700 associates and the
important relationship between a financial consultant and his or her client.
Like Roney, FCN shares Roney's philosophy that the relationship between the
financial consultant and the client is fundamental to the brokerage
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business. FCN and Roney management both offer a firm commitment to serving the
best interests of the client. The Roney Executive Committee believes that the
purchase will allow Roney to maintain its personalized service and
accessibility.
Continued operations in Detroit and retention of key employees. After the
purchase, Roney will continue to be headquartered in Detroit, Michigan, and
its brokerage operations will remain in Roney's current facilities. The Roney
management structure will continue with Robert J. Michelotti, William C. Roney
III and Mark A. Cleland in key leadership positions.
The above discussions of factors considered by the Roney Executive Committee
is not intended to be exhaustive. Because it considered many factors, each
with its own considerations, the Roney Executive Committee did not assign
relative weights to specific factors considered in reaching their conclusions.
Moreover, individual members of the Roney Executive Committee may have
assigned different weights to different factors.
RECOMMENDATION OF THE RONEY EXECUTIVE COMMITTEE. THE RONEY EXECUTIVE COMMITTEE
BELIEVES THAT THE ACQUISITION IS FAIR TO, AND IN THE BEST INTERESTS OF, RONEY
AND THE RONEY PRINCIPALS. ACCORDINGLY, THE RONEY EXECUTIVE COMMITTEE HAS
UNANIMOUSLY APPROVED AND ADOPTED THE PURCHASE AGREEMENT AND RECOMMENDS THAT
THE RONEY PRINCIPALS VOTE FOR THE APPROVAL AND ADOPTION OF THE PURCHASE
AGREEMENT AND THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE ACQUISITION.
FCN
FCN believes that the Acquisition will enhance its ability to provide both
retail and corporate customers with a comprehensive range of financial
services, including traditional consumer banking, trust services, brokerage
services, securities underwriting, financial advisory and sales of non-deposit
products as well as other products and services. The Acquisition will allow
FCN to expand its retail customer base, while providing its existing customers
with access to additional investment and securities products. After
consummation of the Acquisition, FCN intends to build upon Roney's name
recognition and to pursue revenue synergies and cost savings opportunities in
areas including product development, distribution, and back office functions
where they are available and can be achieved in an efficient and productive
manner.
FCN believes that the ongoing trend towards consolidation in the banking and
securities industries increases the importance of being able to provide "one
stop shopping" to its financial services clients and that the Acquisition will
further enhance FCN's ability to effectively compete in this evolving
environment.
PURCHASE PRICE
The aggregate Purchase Price to be paid by FCN for Roney's assets will be
$79.9 million, plus the assumption of the Assumed Liabilities. At the Closing
of the Acquisition, FCN will pay $54.85 million of the Purchase Price in cash.
Approximately $3.6 million of this amount will be paid in cash at the Closing
to the non-Principal members (i.e., the Class A Members and the Investing
Members) of Roney. The remaining $51.25 million of such cash portion will be
paid to the Principal members of Roney based on each Principal's percentage
interest in Roney at the time of Closing. The remaining $25.05 million of the
Purchase Price, which will be paid to the Principals in FCN Common Stock
issued at the Closing, will also be apportioned among them based on their
percentage interests in Roney at the time of Closing. (See the following
paragraph.) The number of shares of Common Stock to be issued to the
Principals will be based upon the average closing price of the Common Stock on
the NYSE Composite Transaction Tape on the 10 consecutive trading days ending
on the fifth trading day prior to the date of the Closing. The aggregate
Purchase Price is subject to adjustment in the event that the equity capital
of Roney at the Closing of the Acquisition is more or less than $24 million
(in which case the Deferred Payment portion of the Purchase Price will be
adjusted up or down on a dollar for dollar basis to reflect such difference).
In addition, FCN has agreed to permit Roney to pay up to $1.5 million of
certain out-of-pocket charges, costs and expenses incurred by Roney in
connection with the Acquisition without any reduction in the Purchase Price to
be paid by FCN.
FCN's obligation to consummate the Acquisition is conditioned upon execution
of three-year Employment Agreements between FCN or one of its subsidiaries and
the existing Principals (other than any such Principals
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whose failure to execute such an agreement will not have a material adverse
effect on Roney's business). Certain members of Roney's management will enter
into Executive Employment Agreements. If the requisite approval of the Roney
Principals is obtained and any Principal elects not to enter into an
Employment Agreement, such Principal so electing not to enter into an
Employment Agreement will receive from Roney only a return of such Principal's
capital in Roney, such Principal will not be entitled to receive any portion
of the Purchase Price, including the FCN Common Stock, and, in accordance with
the Operating Agreement, such Principal's membership interest in Roney will be
terminated prior to the Closing date. Under the terms of each Employment
Agreement or Executive Employment Agreement, if a Deferred Payment Recipient
voluntarily terminates his or her employment at any time during the three year
period following the Closing, such recipient will be liable for Liquidated
Damages in an amount equal to (i) the original amount (i.e., value) of
Deferred Payment paid to such recipient if such termination takes place on or
before the first anniversary of the Closing, (ii) two-thirds of such amount if
such termination takes place after the first anniversary but on or before the
second anniversary of the Closing, and (iii) one-third of such amount if such
termination takes place after the second anniversary of the Closing but on or
before the third anniversary of the Closing. After the third anniversary of
the Closing, a Deferred Payment Recipient will no longer be liable for
Liquidated Damages (assuming such recipient has not voluntarily terminated his
or her employment prior to such third anniversary). The Employment Agreements
do not contain covenants not to compete or non-solicitation clauses.
In order to secure his or her potential obligation to pay Liquidated
Damages, upon the execution of his or her Employment Agreement, each Deferred
Payment Recipient will be required to enter into a Pledge Agreement with FCN
or one of its subsidiaries pursuant to which such recipient will pledge his or
her FCN Common Stock received as a Deferred Payment as security for the
Liquidated Damages. On each anniversary of the Closing, so long as no
Liquidated Damages are owed to FCN by an applicable Deferred Payment Recipient
(i.e., the recipient has not Voluntarily Quit), one-third of the Common Stock
originally issued to the Deferred Payment Recipient will be released from the
Pledge Agreement and will be transferred to such recipient. In the event that
a Deferred Payment Recipient Voluntarily Quits prior to the third anniversary
of the Closing, Liquidated Damages will be payable by the Deferred Payment
Recipient in cash. Pursuant to the Pledge Agreement, if a Deferred Payment
Recipient owes Liquidated Damages, FCN, (or one of its subsidiaries), upon
written notice to the Deferred Payment Recipient, has the right to take
ownership of such number of shares of Common Stock pledged by such recipient
as are necessary (at the then current fair market value for FCN's Common
Stock, as determined in accordance with the Pledge Agreement) to satisfy any
unpaid portion of the Liquidated Damages amount. To the extent that the fair
market value of such pledged Common Stock exceeds the Liquidated Damages
amount, the applicable Deferred Payment Recipient will have the right to
receive such excess amount. To the extent that the fair market value of such
Common Stock is less than the Liquidated Damages amount, the applicable
Deferred Payment Recipient will be obligated to pay to FCN or one of its
subsidiaries such deficiency. So long as the fair market value of the Common
Stock exceeds the Liquidated Damages amount, a Deferred Payment Recipient will
not be obligated to pay any amount of the Liquidated Damages in cash (unless
such recipient so elects in order to retain ownership of the Common Stock).
For purposes of the Pledge Agreement only, the "fair market value" of shares
of FCN Common Stock will be equal to the product of the number of pledged
shares multiplied by the average of the daily closing prices as reported on
the NYSE Composite Transaction Tape for a share of Common Stock for the ten
consecutive trading days before the effective date of the Deferred Payment
Recipient's Voluntary Quit. During the period that any portion of the Common
Stock issued to a Deferred Payment Recipient is pledged pursuant to the Pledge
Agreement and so long as such recipient has not Voluntarily Quit, such
recipient will be entitled to vote the Common Stock so pledged and to receive
and retain all cash and other distributions (other than certain distributions
of additional Common Stock) paid with respect to such Pledged Common Stock. A
Deferred Payment Recipient may substitute different collateral of equal or
greater value for the Common Stock subject to the Pledge Agreement so long as
such substitute collateral is reasonably acceptable to FCN.
RETENTION PAYMENTS
In addition to the Purchase Price described above, concurrent with the
Closing of the Acquisition, FCN will issue shares of restricted Common Stock
with an aggregate fair market value equal to $15.1 million to various
financial consultants and other key employees of Roney as Retention Payments.
The restricted Common Stock subject to the awards will be issued at the
Closing under the Stock Plan. The number of shares of such restricted Common
Stock awarded will be based upon the average of the high and low prices of
FCN's Common Stock on the date of Closing. The restricted Common Stock awards
will vest in equal annual increments over a three year
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period following the Closing, and will be subject to forfeiture in the event
of certain terminations of employment. Any cash dividends payable with respect
to such restricted Common Stock will be paid to the award recipient during the
restriction period and any dividends of Common Stock with respect to such
restricted Common Stock will be made to the recipient subject to restrictions
on disposition and transfer similar to the original award. Unlike the Deferred
Payments described above, a recipient of a restricted Common Stock award will
not be subject to any Liquidated Damages by reason of the restricted Common
Stock award. See "--Certain Federal Income Tax Consequences" for a discussion
of the tax consequences to recipients of Retention Payments.
RECOMMENDATION OF THE RONEY EXECUTIVE COMMITTEE
The Executive Committee of Roney, which is composed of 10 Principals of
Roney, has unanimously adopted and approved the terms of the Purchase
Agreement. In addition, each person who was a member of the Executive
Committee at the time that Roney entered into the Purchase Agreement with FCN
has entered into a Support Agreement with FCN pursuant to which such member
has agreed to vote his membership interest in Roney in favor of the Purchase
Agreement and the Acquisition, to recommend the Purchase Agreement and the
Acquisition as being in the best interests of each of the members of Roney and
to use his reasonable best efforts to solicit and obtain the votes of other
Principals to approve the Purchase Agreement and the Acquisition. Such members
of the Executive Committee own, in the aggregate, approximately 18.86% of the
membership interests of Roney. Each Support Agreement terminates upon
termination of the Purchase Agreement in accordance with its terms.
In reaching its conclusion to adopt and approve the terms of the Purchase
Agreement, the Executive Committee considered the factors set forth under "--
Background and Reasons--Roney."
OPINION OF FINANCIAL ADVISOR
Roney retained Wheat First to act as its financial advisor in connection
with the Acquisition and to render an opinion to the Roney Executive Committee
as to the fairness, from a financial point of view, of the Purchase Price to
the members of Roney, including the Principals. Wheat First is a nationally
recognized investment banking firm regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. The Roney Executive Committee selected Wheat
First to serve as its financial advisor in connection with the Acquisition on
the basis of such firm's expertise. Wheat First issued a written opinion dated
as of November 18, 1997 that the Purchase Price was fair, from a financial
point of view, to the members of Roney, including the Principals.
The full text of Wheat First's written opinion which sets forth certain
assumptions made, matters considered and limitations on review undertaken is
attached as Appendix II to this Prospectus, is incorporated herein by
reference, and should be read in its entirety in connection with this
Prospectus. The summary of the opinion of Wheat First set forth in this
Prospectus is qualified in its entirety by reference to the opinion. Wheat
First's opinion is directed only to the fairness, from a financial point of
view, of the Purchase Price to the members of Roney. Wheat First's opinion was
provided to the Roney Executive Committee to assist it in connection with its
consideration of the Acquisition and does not constitute a recommendation to
any member of Roney as to how such member should vote on the Acquisition.
In arriving at its opinion, Wheat First reviewed certain publicly available
business and financial information relating to Roney and FCN and certain other
information provided to it, including the following: (i) certain internal
financial reports provided by the management of Roney; (ii) FCN's Annual
Reports to Stockholders, Annual Reports on Form 10-K and related financial
information for the three fiscal years ended December 31, 1996; (iii) FCN's
Quarterly Reports on Form 10-Q and related financial information for the
periods ended June 30, 1997 and March 31, 1997, and certain information
released by the management of FCN for the period ended September 30, 1997;
(iv) certain publicly available information with respect to historical market
prices and trading activities for FCN Common Stock and for certain publicly
traded financial institutions which Wheat First deemed relevant; (v) certain
publicly available information with respect to banking and brokerage companies
and the financial terms of certain other mergers and acquisitions which Wheat
First deemed relevant; (vi) the Purchase Agreement; (vii) certain estimates of
the earnings and cost savings projected by Roney and FCN for the combined
company; (viii) other financial information concerning the businesses and
operations of Roney and FCN, including certain audited financial information
and certain financial analyses and forecasts for FCN
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prepared by senior management; and (ix) such financial studies, analyses,
inquiries and other matters as Wheat First deemed necessary. In addition,
Wheat First discussed the business and prospects of each company with members
of senior management of Roney and FCN.
In connection with its review, Wheat First relied upon and assumed the
accuracy and completeness of all of the foregoing information provided to it
or publicly available, including representations and warranties of Roney and
FCN included in the Purchase Agreement, and Wheat First has not assumed any
responsibility for independent verification of such information. Wheat First
relied upon the managements of Roney and FCN as to the reasonableness and
achievability of their financial and operational forecasts and projections,
and the assumptions and bases therefor, provided to Wheat First, and assumed
that such forecasts and projections reflect the best currently available
estimates and judgments of such managements and that such forecasts and
projections will be realized in the amounts and in the time periods currently
estimated by such managements. Wheat First also assumed, without independent
verification, that the aggregate reserves for loan losses, litigation and
other contingencies for Roney and FCN are adequate to cover such losses. Wheat
First did not review any individual credit files of FCN, nor did it make an
independent evaluation or appraisal of the assets or liabilities of Roney or
FCN.
In connection with rendering its opinion, Wheat First performed a variety of
financial analyses. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to partial analysis
or summary description. Moreover, the evaluation of the fairness, from a
financial point of view, of the Purchase Price to the members of Roney was to
some extent a subjective one based on the experience and judgment of Wheat
First and not merely the result of mathematical analysis of financial data.
Accordingly, notwithstanding the separate factors summarized below, Wheat
First believes that its analyses must be considered as a whole and that
selecting portions of its analyses and of the factors considered by it,
without considering all analyses and factors, could create an incomplete view
of the evaluation process underlying its opinion. The ranges of valuations
resulting from any particular analysis described below should not be taken to
be Wheat First's view of the actual value of Roney or FCN.
In performing its analyses, Wheat First made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of Roney or FCN. The analyses
performed by Wheat First are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than
suggested by such analyses. Additionally, analyses relating to the values of
businesses do not purport to be appraisals or to reflect the prices at which
businesses actually may be sold. In rendering its opinion, Wheat First assumed
that, in the course of obtaining the necessary regulatory approvals for the
Acquisition, no conditions will be imposed that will have a material adverse
effect on the contemplated benefits of the Acquisition, on a pro forma basis,
to FCN.
Wheat First's opinion is just one of the many factors taken into
consideration by the Roney Executive Committee in determining to approve the
Purchase Agreement. Wheat First's opinion does not address the relative merits
of the Acquisition as compared to any alternative business strategies that
might exist for Roney, nor does it address the effect of any other business
combination in which Roney might engage.
The following is a summary of the analyses performed by Wheat First in
connection with its opinion dated November 18, 1997:
Comparison of Selected Companies. Wheat First compared the financial
performance and market trading information of FCN to that of a group of
certain bank holding companies (the "Group"). This Group included: Comerica,
Inc.; Fifth Third Bancorp; First of America Bank Corp.; Huntington Bancshares,
Inc.; KeyCorp; Mercantile Bancorp; National City Corp.; Norwest Corp.;
Northern Trust Corp.; Banc One Corp. and U.S. Bancorp.
Based on financial data as of and for the three-month period ended September
30, 1997, FCN had: (i) equity to assets of 7.13% compared to an average of
8.04%, a minimum of 6.31%, and a maximum of 10.24% for the Group; (ii)
nonperforming assets to total assets of 0.30% compared to an average of 0.38%,
a minimum of 0.19%, and a maximum of 0.61% for the Group; (iii) returns on
average assets before extraordinary items of 1.41% compared to an average of
1.47%, a minimum of 1.07%, and a maximum of 2.03% for the Group and (iv)
returns on average
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equity before extraordinary items of 18.82% compared to an average of 18.01%,
a minimum of 13.24%, and a maximum of 21.80% for the Group.
Based on the market values as of November 18, 1997, and financial data as of
September 30, 1997, FCN had: (i) a stock price to book value multiple of
269.1% compared to an average of 350.9%, a minimum of 267.4%, and a maximum of
489.9% for the Group; (ii) a stock price to First Call (as hereinafter
defined) 1997 estimated earnings per share before extraordinary items multiple
of 14.6x compared to an average of 19.2x, a minimum of 15.1x, and a maximum of
26.7x for the Group; (iii) a stock price to First Call 1998 estimated earnings
per share multiple of 13.0x compared to an average of 16.6x, a minimum of
13.2x, and a maximum of 23.2x for the Group; and (iv) an indicated dividend
yield of 2.23% compared to an average of 2.16%, a minimum of 1.20%, and a
maximum of 2.88% for the Group. "First Call" is a data service that monitors
and publishes a compilation of earnings estimates of selected research
analysts regarding companies of interest to institutional investors.
Analysis of Selected Transactions. Wheat First performed an analysis of
consideration paid in eight bank acquisitions of brokerage firms announced
between April 1, 1997 and November 18, 1997 (the "Selected Transactions"). The
consideration in the Selected Transactions was derived by computing the
present value of deferred payments to be made to shareholders using a 15%
discount rate. Using this calculation, multiples of book value and trailing
earnings in the Selected Transactions were compared to the multiples and
premiums implied by the consideration offered by FCN in the Acquisition. The
Selected Transactions included the following pending and/or completed
transactions: Bankers Trust New York Corp. / Alex. Brown Inc.; Swiss Bank
Corporation / Dillon Read & Co., Inc.; BankAmerica Corp. / Robertson Stephens
& Company L.P.; NationsBank Corporation / Montgomery Securities; Canadian
Imperial Bank of Commerce / Oppenheimer & Co., Inc.; First Union Corporation /
Wheat First Butcher Singer, Inc.; ING Bank / Furman Selz LLC; and SunTrust
Banks, Inc. / Equitable Securities.
Based on the market value of FCN Common Stock as of November 18, 1997, and
financial data as of August 31, 1997, the analysis yielded ratios of the
present value (assuming a 15% discount rate) of the consideration to be paid
by FCN to the members of Roney: (i) to trailing earnings of 15.1x compared to
an average of 12.7x, a minimum of 8.3x, and a maximum of 15.9x for the
Selected Transactions; and (ii) to book value of 299.7% compared to an average
of 401.9%, a minimum of 109.4%, and a maximum of 994.6% for the present value
of total consideration paid to partners or shareholders in the Selected
Transactions.
Comparable Public Companies Trading Analysis. Wheat First compared the
multiples to earnings and book value implied by the exchange ratio to the
trading multiples of certain publicly traded regional broker-dealers (the
"Broker Group"). The Broker Group included: A.G. Edwards, Inc.; Advest, Inc.;
Everen Capital Corporation; First Albany Corporation; Interra Financial, Inc.;
Interstate/Johnson Lane, Inc.; Legg Mason, Inc.; McDonald & Company
Investments, Inc.; Morgan Keegan & Co.; Piper Jaffray Companies, Inc.; Raymond
James Financial, Inc.; Scott & Stringfellow Financial, Inc. and Stifel
Financial Corp.
Based on the market value of FCN Common Stock as of November 18, 1997, and
Roney financial data as of August 31, 1997, and based on market values as of
November 18, 1997, quarterly earnings and book value as reported by First Call
for the most recently completed quarter for the Broker Group, the analysis
yielded ratios of the present value of the Purchase Price (i) to book value of
299.7% compared to an average of 227.1%, a minimum of 163.9%, and a maximum of
278.8% for the Broker Group; and (ii) to earnings of 15.1x compared to an
average of 16.5x, a minimum of 12.0x, and a maximum of 36.3x for the Broker
Group.
Discounted Dividends Analysis. Using discounted dividends analysis, Wheat
First estimated the present value of the future stream of dividends that Roney
could produce over the next five years, under various circumstances, assuming
Roney performed in accordance with the earnings forecasts of management. Wheat
First then estimated the terminal values for Roney at the end of the period by
applying multiples ranging from 175% to 325% of projected book value in year
five. The dividend streams and terminal values were then discounted to present
values using different discount rates (ranging from 14% to 16%) chosen to
reflect different assumptions regarding the required rates of return to the
members of Roney. This discounted dividend analysis indicated reference
valuation ranges of between $46 million and $77 million for Roney. These
values compare to the present value of the Purchase Price of $73.9 million
based on the market value of FCN Common Stock on November 18, 1997.
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No company or transaction used as a comparison in the above analysis is
identical to Roney, FCN or the Acquisition. Accordingly, an analysis of the
results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading value of
the companies used for comparison in the above analysis.
The opinion of Wheat First is dated as of November 18, 1997, and is based
solely upon the information available to Wheat First and the economic, market
and other circumstances as they existed as of such date. Events occurring
after that date could materially affect the assumptions and conclusions
contained in Wheat First's opinion. Wheat First has not undertaken to reaffirm
or revise this opinion or otherwise comment on any events occurring after that
date. Pursuant to an engagement letter entered into between Roney and Wheat
First, Roney has agreed to pay Wheat First an aggregate fee of $785,179 for
its services, of which $150,000 was paid upon the execution of the Purchase
Agreement by Roney and FCN, and the remaining $635,179 is payable upon
consummation of the Acquisition.
INTERESTS OF CERTAIN RONEY PRINCIPALS
Certain members of Roney's management, including certain members of the
Executive Committee of Roney, may be deemed to have interest in the
Acquisition in addition to their interest as Principals of Roney generally.
These interests include, among other things, provisions in the Purchase
Agreement relating to indemnification and certain other benefits as summarized
below.
Upon consummation of the Acquisition, Robert J. Michelotti, currently
President, Chief Executive Officer and a member of the Executive Committee of
Roney, William C. Roney, III, currently the Chief Operating Officer and a
member of the Executive Committee of Roney, and Mark A. Cleland, currently the
Chief Financial Officer of Roney, will become the Chief Executive Officer,
Chief Operating Officer and Chief Financial Officer, respectively, of a newly-
created Roney & Co. subsidiary of FCN. In connection with such appointments,
each of the above-named individuals will enter into Executive Employment
Agreements with FCN which will provide for, among other things, that the
employment terms for Messrs. Michelotti, Roney and Cleland will be three
years, three years and one year, respectively, and the base salaries and
bonuses for each such individual will be at a level similar to that received
by the applicable person from Roney prior to the Acquisition. The Executive
Employment Agreements will contain provisions for Liquidated Damages similar
to the provisions described above with respect to other Principals of Roney
that are to receive a Deferred Payment.
As described elsewhere in this Prospectus, concurrent with the Closing of
the Acquisition, certain financial consultants and key employees of Roney
(including Messrs. Michelotti, Roney and Cleland) will receive grants of
restricted Common Stock from FCN as incentive for such individuals to become
and remain employees of New Roney. See "--Retention Payments."
In addition, pursuant to the Purchase Agreement, FCN has agreed for the six
year period following the Closing, to indemnify, defend and hold harmless
Roney and the present and former members, officers, employees and
representatives of Roney (each, an "Indemnified Party") against losses,
damages and claims arising out of, or relating to (i) Roney's business on or
before Closing (except with respect to the allocation or distribution of the
Purchase Price and the Retention Payments), (ii) the transactions contemplated
by the Purchase Agreement (except with respect to the allocation or
distribution of the Purchase Price and the Retention Payments) or (iii) the
failure of FCN to timely pay, perform and discharge the Assumed Liabilities.
FCN has also agreed to indemnify each Indemnified Party to the extent
permitted under the DGCL, FCN's Certificate and the FCN Bylaws as in effect at
the time of such indemnification. See "Material Differences in the Rights of
Stockholders and Roney Members--Indemnification."
Roney and its Principals have had in the past, and the Principals expect to
have in the future, transactions in the ordinary course of business with FCN
and its subsidiaries and with directors and officers of FCN and their
associates. Such transactions, including borrowings and loan commitments, were
or are expected to be on substantially the same terms, including interest rate
and collateral, as applicable, as those prevailing at the time for comparable
transactions with others, and did not involve more than a normal risk of
collectibility and did not present other significant unfavorable features.
Currently, NBD Michigan is the agent bank on a revolving credit agreement
dated as of September 5, 1995, as amended, for Roney which expires on January
29, 1999. Such agreement predates the execution of the Purchase Agreement. The
maximum exposure to NBD Michigan under
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such agreement is $48 million (of a credit line of $120 million). As part of
the Acquisition, FCN will assume certain liabilities of Roney including any
and all amounts owning under this agreement. A failure to consummate the
Acquisition will not have an effect on the terms or tenor of the credit
agreement. In addition, from time to time, Roney has served as an underwriter
for certain securities offerings of FCN. Roney's participation in such
offerings was on substantially the same terms as the other underwriters also
participating in such transactions and was on terms comparable to those
prevailing in the market at such time for similar offerings.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary description of the anticipated material Federal
income tax consequences to Roney and its members of the transactions
contemplated by the Purchase Agreement, based upon the advice of Roney's legal
counsel, Honigman Miller Schwartz and Cohn. Unlike a ruling from the IRS, the
advice of counsel has no binding effect or official status of any kind. In the
absence of a ruling, the IRS is free to challenge any or all of the tax
reporting positions taken by Roney based on such advice, and no assurance can
be given that any of such positions would be sustained by a court if contested
by the IRS.
The following discussion is based on the Code, and current judicial and
administrative interpretations of the Code, each of which is subject to
change. Changes in the Code and interpretations of it may be applied
retroactively. Consequently, there can be no assurance that the tax effects
described in the following discussion will not be changed in a manner adverse
to Roney or its members.
The following discussion is necessarily general, and the impact of the tax
principles described may vary depending upon an individual's particular
circumstances. In addition, it is impractical to set forth all aspects of
federal income tax law which could affect Roney and its members. THEREFORE,
EACH INDIVIDUAL MEMBER OF RONEY IS URGED TO CONSULT HIS OR HER OWN
PROFESSIONAL TAX ADVISOR AS TO THE TAX CONSEQUENCES OF THE SALE OF RONEY'S
ASSETS AND RONEY'S DISTRIBUTION OF THE PROCEEDS AS SET FORTH IN THE PURCHASE
AGREEMENT.
Roney will recognize a taxable gain on the sale of its assets. Each member's
share of such gain is expected to approximate the excess of the total cash and
the fair market value of any FCN Common Stock distributed to such member in
liquidation of Roney over the balance of such member's capital account. Nearly
all of such gain is expected to be long term capital gain, taxable at the
current maximum Federal income tax rate of 20%, except to the extent of a
member's share of gain on sales of the building owned by Roney which, to the
extent of the member's share of prior depreciation of the building, will be
taxable at the current maximum Federal income tax rate of 25%.
The IRS could seek to allocate the purchase price among Roney's assets
differently than the parties have agreed. Moreover, the IRS could attempt to
recharacterize, as compensation for services to be performed for FCN, some of
the amounts characterized by the parties as purchase price for Roney's assets.
In the event of any such reallocation or recharacterization of any of the
purchase price, income or gain of the members of Roney could be subject to tax
at a higher rate than expected as set forth above.
As indicated above, a Principal's share of the Deferred Payment will be
currently taxable to him or her, even though the Common Stock (or, to the
extent permitted, substitute collateral) will have to be pledged by such
Principal pursuant to the Pledge Agreement. As the Common Stock that is
subject to the pledge is released over the three year period, however, the
Principal will recognize no immediate, additional gain by virtue of any
interim appreciation in the Common Stock. Such appreciation will be taxable to
the Principal at such time as he or she sells or otherwise disposes of such
Common Stock. At that time, the taxable gain should be capital gain (provided
that the Principal is not a dealer in such stock) subject to Federal income
tax at a current maximum rate of 20% (if the sale or other disposition occurs
more than 18 months following the Closing) or 28% (if the sale occurs more
than 12 months, but fewer than 18 months, following the Closing).
If a Principal breaches his or her Employment Agreement or Executive
Employment Agreement, as applicable, by Voluntarily Quitting prior to the
third anniversary of the Closing and, as a consequence, FCN (or one of its
subsidiaries) takes ownership of his or her Common Stock and applies the
proceeds against such Principal's liability for Liquidated Damages arising
thereunder, then such member will recognize a gain to the extent of any
appreciation in the value of such Common Stock subsequent to the Closing, and
such gain will be taxable as described in the preceding paragraph. In such
circumstance, the Principal should be able to deduct, as a business loss, the
amount of Liquidated Damages retained by FCN, subject to the following
limitations. Such amount, plus the Principal's other "miscellaneous itemized
deductions" for the taxable year, will be deductible
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only to the extent they exceed 2% of such member's adjusted gross income for
such year. If a Principal's "miscellaneous itemized deductions" (including the
amount of Liquidated Damages retained by FCN) do not exceed 2% of such
Principal's adjusted gross income for such taxable year, such Principal will
not be entitled to take a deduction for the amount of such Liquidated Damages.
To the extent that the deductible amount exceeds the Principal's taxable
income for such taxable year (due to the allowance of other itemized
deductions), he or she will derive no benefit from such deduction, which may
not be carried over to any other year.
Retention Payments will be taxable to recipients as ordinary income because
such payments are considered compensation for services rendered. The timing of
a recipient's inclusion in income of the value of his or her Retention
Payments will depend on whether he or she makes a special election under
Section 83(b) of the Code. Individuals who do not make such an election will
include the Retention Payments in ordinary income as they vest; the amount(s)
so includable will be based on the value(s) of the Retention Payments (i.e.,
the Common Stock which becomes unrestricted) at such time(s). Such value may
be more or less than the value of the Retention Payments at the date of the
Closing. An individual who believes the underlying Common Stock will
appreciate quickly and substantially in value following the Closing might
consider making an election under Section 83(b) of the Code. The effect of
such election would be to cause the value of the individual's Retention
Payment to be includable in ordinary income for the year of the Closing. At
such time as an electing individual's Retention Payment(s) were to vest, he or
she would not include in income any appreciation in the Common Stock's value
after the date of the Closing. Such appreciation would not be realized
(taxable) until a later sale or other disposition of the Common Stock;
moreover, the individual's gain on such sale would be taxable as capital gain,
provided that he or she were not a dealer in such stock. A drawback of making
the Section 83(b) election (in addition to having to pay tax on the current
value of the Common Stock immediately) is that, if the individual were never
to vest in the Common Stock (because his or her employment with FCN were to
terminate prematurely), he or she would be entitled to no deduction or credit
for the tax he or she paid for the year of the Closing. Any individual who
chooses to make a Section 83(b) election must do so by filing a statement with
the IRS (with a copy to FCN) within 30 days of the date of Closing.
Honigman Miller Schwartz and Cohn has provided an opinion that the
statements set forth under this heading "Certain Federal Income Tax
Consequences," to the extent that they constitute matters of federal law or
legal conclusions with respect thereto, are a fair and accurate summary of the
matters addressed therein, under existing law and the assumptions stated
therein. In rendering such opinion, such counsel may require and rely upon
representations contained in certificates of officers of Roney and others.
THE TAX CONSEQUENCES OF THE ACQUISITION TO A PARTICULAR PRINCIPAL WILL
DEPEND UPON THE PARTICULAR CIRCUMSTANCES OF SUCH PRINCIPAL. ACCORDINGLY, EACH
PRINCIPAL SHOULD CONSULT WITH SUCH PRINCIPAL'S OWN TAX ADVISORS AS TO THE
FEDERAL (AND ANY STATE OR LOCAL) TAX CONSEQUENCES OF THE ACQUISITION UNDER
SUCH PRINCIPAL'S PARTICULAR CIRCUMSTANCES. MOREOVER, NO INFORMATION HAS BEEN
PROVIDED HEREIN AS TO FOREIGN, STATE OR LOCAL LAW, AND EACH PRINCIPAL IS
THEREFORE URGED TO CONSULT SUCH PRINCIPAL'S OWN TAX ADVISORS AS TO THE TAX
CONSEQUENCES OF THE ACQUISITION UNDER SUCH LAWS.
ACCOUNTING TREATMENT
The Acquisition will be accounted for as a "purchase" and certain
adjustments will have to be made with respect to the acquired assets and
liabilities of Roney based upon estimated fair market values. The actual
adjustments will be made on the basis of appraisals or evaluations as of the
date of consummation of the Acquisition.
RESALE OF FCN COMMON STOCK
Subject to the terms and conditions of the Employment Agreements, the
Executive Employment Agreements and the Pledge Agreements discussed above, the
FCN Common Stock to be issued as a Deferred Payment will upon issuance be
freely transferable by the holders of such stock under applicable federal
securities laws, except for shares held by members of the Executive Committee
of Roney and any other holders who may be deemed to be "affiliates" (generally
including directors, certain executive officers and 10% or more stockholders)
of FCN. Each member of the Executive Committee of Roney has entered into an
agreement with FCN that such member will not transfer his Common Stock issued
as a Deferred Payment in violation of the Securities Act.
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BUSINESS PENDING CONSUMMATION
Pursuant to the terms of the Purchase Agreement, Roney has agreed to conduct
its business in the ordinary and usual course pending consummation of the
Acquisition, and to refrain from taking various actions outside of the
ordinary course of business, without the prior written consent of FCN, which
consent may not be unreasonably withheld. In particular, Roney has agreed not
to, and to cause each of its subsidiaries not to, do any of the following:
(i) Conduct the business of Roney and its subsidiaries in all material
respects, other than in the ordinary and usual course consistent with past
practice, or fail to use reasonable efforts to preserve their business
organizations and assets and maintain their rights, franchises and existing
relations with clients, customers, suppliers, employees and business
associates, or take any action reasonably likely to have a material adverse
effect on FCN.
(ii) Issue, sell or otherwise permit to become outstanding, or authorize
the creation of, any additional ownership interest in Roney, enter into any
agreement with respect to the foregoing, or permit any ownership interest
in Roney to become subject to issuance.
(iii) Make, declare, pay or set aside for payment any distribution to
Roney's members, except that Roney is permitted to make ordinary and
customary distributions to its members consistent with past practice,
subject to the Purchase Price adjustment provision in the Purchase
Agreement as described elsewhere in this Prospectus. See "--Purchase
Price."
(iv) Enter into, amend, modify or renew any employment, consulting,
severance or similar agreements or arrangements with any officer or
employee of Roney or any of its subsidiaries, or grant any salary or wage
increase or increase any employee benefit plan (including incentive or
bonus payments), except (a) for normal individual increases in compensation
to employees in the ordinary course of business consistent with past
practice, (b) for other changes that are required by applicable law, (c) to
satisfy disclosed contractual obligations existing as of the date of the
Purchase Agreement, or (d) for employee arrangements for, or grants of
awards to, newly hired employees in the ordinary course of business
consistent with past practice.
(v) Enter into, establish, adopt or amend (except (a) as may be required
by applicable law, or (b) to satisfy disclosed contractual obligations
existing as of the date of the Purchase Agreement) any pension, retirement,
stock option, stock purchase, savings, profit sharing, deferred
compensation, consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, plan or arrangement, or any trust agreement
(or similar arrangement) related thereto, in respect of any member,
director, officer or employee of Roney or any of its subsidiaries, or take
any action to accelerate the vesting or exercisability of stock options,
restricted stock or other compensation or benefits payable thereunder.
(vi) Amend its Operating Agreement or its certificate of formation or the
articles of incorporation or by-laws (or similar charter documents) of any
Roney subsidiary.
(vii) Implement or adopt any change in Roney's accounting principles,
practices or methods, other than as may be required by generally accepted
accounting principles.
(viii) Except in the ordinary course of business consistent with past
practice, enter into or terminate any material contract or amend or modify
in any material respect any of its existing material contracts.
(ix) Settle any claim, action or proceeding, except for any claim, action
or proceeding involving solely money damages in an amount, individually not
more than $100,000 and in the aggregate for all such settlements, not more
than $250,000.
(x) Incur material capital expenditures, obligations or liabilities, or
any indebtedness for borrowed money, other than in the ordinary course of
business consistent with past practice.
(xi) Agree, commit to or enter into any agreement to take any of the
actions prohibited under the Purchase Agreement.
(xii) Except (a) as disclosed in the Purchase Agreement by Roney or (b)
sales of securities or other investments or assets in the ordinary course
of business consistent with past practice, sell, transfer, mortgage,
encumber or otherwise dispose of or discontinue any of its assets, business
or properties.
(xiii) Except (a) as disclosed in the Purchase Agreement by Roney or (b)
sales of securities or other investments or assets in the ordinary course
of business consistent with past practice, acquire any assets, business, or
properties of any other entity.
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REGULATORY APPROVALS
General. Consummation of the Acquisition is conditioned upon the receipt of
all approvals of regulatory authorities required for the Acquisition, without
any conditions, restrictions or requirements which FCN reasonably determines
would, following the Closing, have a material adverse effect on FCN or the
business of Roney. Pursuant to the terms of the Purchase Agreement, FCN is
responsible for paying all fees and costs associated with obtaining such
approvals.
Federal Reserve Board. The Acquisition is subject to the approval of the
Federal Reserve Board under Section 4 of the BHCA. Under Section 4 of the BHCA
and related regulations, the Federal Reserve Board must consider whether the
performance of FCN's and Roney's non-banking activities on a combined basis
can reasonably be expected to produce benefits to the public (such as greater
convenience, increased competition and gains in efficiency) that outweigh
possible adverse effects (such as undue concentration of resources, decreased
or unfair competition, conflicts of interest and unsound banking practices).
This consideration includes an evaluation of the financial and managerial
resources of FCN and Roney and the effect of the proposed transaction on such
resources.
Other Requisite Governmental Approvals, Notices and Consents. Approvals also
will be required from certain regulatory authorities in connection with
changes, as a result of the Acquisition, in the ownership of certain
businesses that are controlled by Roney. Certain other governmental
authorities will require notice or other types of filings. These authorities
include certain state insurance authorities and [list others]. Approval also
is required from the NYSE, certain other securities exchanges, the NASD and
may be required from certain other self-regulatory agencies.
Status of Applications, Etc. A notice was filed with the Federal Reserve
Board pursuant to the BHCA on February 13, 1998. The BHCA and the regulations
thereunder provide for the publication of notice and public comment on notice
applications filed with the Federal Reserve Board. The Acquisition may not be
consummated until after Federal Reserve Board approval is obtained. FCN and
Roney have filed or will be filing promptly all required applications for
regulatory review and approval or notice with the various other federal, state
and self-regulatory authorities in connection with the Acquisition.
The Acquisition will not proceed until the requisite regulatory approvals
have been obtained, such approvals are in full force and effect and any
statutory waiting periods in respect thereof have expired. There can be no
assurance that the Acquisition will be approved by the appropriate federal and
state regulators whose approval is required. If such approvals are received,
there can be no assurance as to the date of such approvals or the absence of
any litigation challenging such approvals.
DISSENTERS' RIGHTS
No member of Roney, including the Principals that are required to approve
the Acquisition prior to its consummation, will be entitled to exercise any
dissenters' rights or contractual rights of appraisal as a result of the
consummation of the Acquisition.
CONDITIONS TO CLOSING
The obligations of FCN and Roney to consummate the Acquisition and the other
transactions contemplated by the Purchase Agreement are subject, among other
things, to: (i) approval of the Purchase Agreement and the Acquisition by the
requisite vote of the Principals of Roney; (ii) receipt of the regulatory
approvals described in this Prospectus without any conditions, restrictions or
requirements which in the reasonable judgment of FCN would have a material
adverse effect on FCN or the business of Roney; (iii) the Registration
Statement becoming effective under the Securities Act and no stop order
suspending the effectiveness of the Registration Statement being issued or
threatened by the Commission; and (iv) the obtaining of all permits and other
authorizations under state securities laws necessary to consummate the
Acquisition and the issuance of the Common Stock to be issued as a Deferred
Payment. Pursuant to the terms of the Operating Agreement of Roney, the
approval of Principals holding in excess of 50% of the outstanding Principal
interests held by all of the Principals is required to permit Roney to
consummate the Acquisition. As described herein, Roney intends to solicit the
approval of the Principals to the Purchase Agreement and the Acquisition in
accordance with the terms of the Operating Agreement. In the event that such
approval is not obtained, either party may terminate the Purchase Agreement
without further liability to the other.
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The obligation of Roney to consummate the Acquisition is subject to
fulfillment or written waiver by Roney prior to the Closing of each of the
following conditions: (i) the representations and warranties of FCN set forth
in the Purchase Agreement will be true and correct as of the date of the
Purchase Agreement and as of the Closing as though made on and as of the
Closing; (ii) FCN will have performed in all material respects all obligations
required to be performed by it under the Purchase Agreement at or prior to the
Closing; (iii) the receipt by Roney of a certificate, dated as of the Closing
and signed on behalf of FCN by an executive officer of FCN, to the effect that
the conditions set forth in the preceding clauses (i) and (ii) have been
satisfied; and (iv) the receipt by Roney of an opinion of Sherman I. Goldberg,
Executive Vice President, General Counsel and Secretary of FCN, dated the date
of the Closing, in form and substance reasonably satisfactory to Roney, to the
effect that the Purchase Agreement and all of the rights, liabilities and
benefits are fully enforceable.
In addition, the obligation of FCN to consummate the Acquisition is subject
to fulfillment or written waiver by FCN prior to the Closing of each of the
following conditions: (i) the representations and warranties of Roney set
forth in the Purchase Agreement will be true and correct as of the date of the
Purchase Agreement and as of the Closing as though made on and as of the
Closing; (ii) Roney will have performed in all material respects all
obligations required to be performed by it under the Purchase Agreement at or
prior to the Closing; (iii) the receipt by FCN of a certificate, dated as of
the Closing and signed by an executive officer of Roney, to the effect that
the conditions set forth in the preceding clauses (i) and (ii) have been
satisfied; (iv) the receipt by FCN of an opinion of Honigman Miller Schwartz
and Cohn, counsel to Roney, dated as of the Closing, in form and substance
reasonably satisfactory to FCN, to the effect that (a) the Purchase Agreement
and all of the rights, liabilities and benefits are fully enforceable and (b)
the payment, distribution and allocation of the Purchase Price, including the
Deferred Payments, by Roney to its members in accordance with the terms and
conditions of the Purchase Agreement has been duly authorized by all required
action of Roney and complies in all respects with the applicable provisions of
the Operating Agreement, Roney's certificate of formation and applicable
Delaware law; (v) the receipt by FCN of letters from Roney's independent
auditors, dated the date of or shortly prior to the Closing and in form and
substance reasonably satisfactory to FCN, with respect to Roney's consolidated
financial position and results of operations; and (vi) the execution by each
of the persons receiving a portion of the Deferred Payment of an Employment
Agreement or Executive Employment Agreement (as applicable).
TERMINATION OF THE PURCHASE AGREEMENT
The Purchase Agreement may be terminated under the following circumstances:
(i) By the mutual consent of FCN and Roney.
(ii) By FCN or Roney, in the event of (a) a breach by the other party of
any representation or warranty contained in the Purchase Agreement, which
has a material adverse effect (as defined in the Purchase Agreement), which
breach cannot be or has not been cured within 30 days after the giving of
written notice to the breaching party of such breach, or (b) a breach by
the other party of any of the covenants or agreements contained in the
Purchase Agreement which has a material adverse effect, which breach cannot
be or has not been cured within 30 days after the giving of written notice
to the breaching party of such breach.
(iii) By FCN or Roney, in the event that the Acquisition is not
consummated by September 30, 1998, except that if such delay was caused by
one party's breach of the Purchase Agreement, the breaching party may not
terminate the Purchase Agreement by reason of such delay.
(iv) By FCN or Roney, (a) in the event that Roney fails to obtain the
requisite approval of its Principals to the Purchase Agreement and the
Acquisition, or (b) in the event that written notice is received which
states that any required regulatory approval contemplated by the Purchase
Agreement will not be approved or has been denied.
(v) By FCN if at or prior to the special meeting of the Principals of
Roney to approve the Purchase Agreement and the Acquisition, the Executive
Committee of Roney fails to recommend the Purchase Agreement and the
Acquisition as being in the best interests of each of the members of Roney
or it withdraws such recommendation or modifies or changes such
recommendation in a manner adverse in any respect to FCN.
(vi) By FCN, in the event of a fact, event, circumstance or omission that
would have constituted a breach of a representation or warranty made by
Roney in the Purchase Agreement, except that such representation or
warranty was qualified by the knowledge of Roney, to the extent such fact,
event, circumstance or omission is reasonably likely to have a material
adverse effect on Roney.
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Except as provided in this paragraph, in the event that the Purchase
Agreement is terminated by either party, neither party will have any further
liability to the other party. In the event that the Acquisition does not close
because of (i) a breach of the Purchase Agreement causing a failure to satisfy
a condition precedent to Closing, which breach was caused by the wilful or
intentional misconduct of one of the parties, or (ii) a wilful or intentional
failure or refusal to close the transaction by one of the parties in violation
of the Purchase Agreement, the non-breaching party, as its sole and exclusive
remedy, is entitled to terminate the Purchase Agreement and the breaching
party must pay the non-breaching party a non-performance fee of $1.9 million,
plus all reasonable out-of-pocket costs, expenses, losses and damages incurred
by the non-breaching party as a result of such non-performance. The
Termination Payment will be payable in cash within five business days after
receipt of notice that such Termination Payment is due and payable. In the
event that the failure of a condition is not caused by the wilful or
intentional misconduct, failure or refusal of the other party, then the non-
breaching party may terminate the Purchase Agreement or close the Acquisition,
in either event waiving any right or claim against the breaching party.
MANAGEMENT AND OPERATIONS AFTER THE ACQUISITION
Following the Acquisition, FCN will use Roney's management strengths to
broaden and supplement its own strong management team. As part of this
strategy FCN intends to retain Roney's senior management and intends to
continue to maintain and operate Roney branches in Michigan, Ohio and Indiana
under the Roney name and under the Roney management team. First Chicago NBD
Investment Services, Inc., FCN's retail brokerage subsidiary, also will
continue to operate as a separate legal and business entity.
Immediately following the acquisition, Roney's business will be run by Roney
personnel in existing locations, managed on a day-to-day basis by Roney
Principals and operated as separate Roney lines of business within the FCN
organization. The foregoing notwithstanding, the Roney lines of business which
are engaged in insurance agency, retail brokerage, mutual fund and related
activities will be operated within a new wholly-owned subsidiary of FNBC,
which will retain the Roney name (New Roney), or other appropriate FCN
subsidiaries, as required. The board of directors of New Roney will be
composed of certain senior management representatives of Roney as well as
certain senior management representatives of FCN's existing investment and
brokerage subsidiaries. FCN expects that, over time, New Roney will be
integrated with the existing retail brokerage operations of FCN.
Those Roney lines of business which are engaged in securities underwriting
and dealing activities and merger and acquisition advisory services will be
operated as Roney lines of business within First Chicago Capital Markets, Inc.
("FCCM"). The Roney Principals managing these business lines will report to
current FCCM management.
RONEY
HISTORY AND BUSINESS
Roney engages in retail brokerage and investment banking businesses to
individual and institutional investors and to corporate clients. To support
these services, Roney effects transactions in equity and debt securities as
both agent and principal, provides access to mutual funds and other direct
investments and provides investment advice on selected sectors of the
financial markets through its Research Department. In addition, through
certain licensed subsidiaries, Roney sells insurance products to retail
clients, principally consisting of variable annuities. Roney makes a market in
over 200 over-the-counter ("OTC") securities, consisting principally of
companies located in the Midwest United States.
Roney is a Delaware limited liability company formed in January 1996 as a
successor to the investment banking and securities brokerage business founded
in 1925 by William C. Roney. The firm began operating in a partnership form in
1937 and, in January 1996, the firms's brokerage and investment banking
operations were transferred to Roney & Co., L.L.C.
Retail Brokerage
Roney derives most of its income from its retail brokerage and investment
banking activities. Roney provides brokerage services to individual and
institutional investors and effects transactions in equity and debt
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securities as both agent and principal. In addition, Roney sells shares of
mutual funds, principally "loaded" funds, to individual investors. For the
fiscal year ended September 27, 1997, Roney's revenues from commissions and
principal transactions amounted to $65.0 million. Roney charges commissions on
both exchange and OTC agency transactions for individual clients in accordance
with a schedule of commissions that is revised periodically.
Principal Transactions
In addition to executing trades as agent, Roney regularly acts as a
principal in executing trades in OTC equity securities, municipal bonds and
taxable fixed income securities such as corporate bonds, certificates of
deposit and United States Treasury Bills. Roney carries inventories of these
various securities to facilitate sales to clients and other dealers. When
transactions are executed on a principal basis, Roney receives mark-ups or
mark-downs in lieu of commissions.
Roney makes a market in OTC securities by buying and selling as principal in
approximately 150 common stocks and other securities traded on The Nasdaq
Stock Market or otherwise in the OTC market. A majority of the equity
securities for which Roney makes a market are for companies based in the
Midwestern United States and are in the industry areas followed by Roney
research analysts. Principal transactions with clients are generally effected
at a net price within or equal to the current inter-dealer price, plus or
minus a mark-up or mark-down.
Investment Banking
Investment banking revenues are derived from management of, participation in
and the sale of public offerings of equity and debt securities, as well as
from advisory fees received in connection with mergers and acquisitions,
financial advisory assignments and private placements of securities. Roney had
total investment banking revenues of $12.1 million in fiscal 1997 and $10.2
million in fiscal 1996.
Underwriting. Roney underwrites corporate and municipal securities,
generally as a manager or a co-manager of public offerings of such securities.
Roney has served as lead or co-managing underwriter for a variety of common
and preferred stock, convertible debentures, senior debt, subordinated debt
and other debt securities and rights offerings for a number of companies in
the public market. In addition, Roney has structured a number of equity and
debt private placements.
Roney also participates as a lead or co-managing underwriter in a number of
public offerings of tax-exempt bonds for municipalities and not-for-profit
organizations throughout the Midwestern United States. Most of these offerings
are sold to retail clients, principally located in Michigan.
Mergers and Acquisitions. Roney has represented a number of companies in
merger and acquisition transactions, both on the sell-side and the buy-side of
such transactions. Roney assists clients in identifying, analyzing and
initiating transactions, advising clients on deal structure and assisting in
the negotiations of a proposed transaction.
Financial Advisory Services. Roney provides a wide range of financial
advisory services to companies, principally consisting of fairness opinions,
strategic valuations and general financial advisory projects. Roney provides
fairness opinions for merger and acquisition transactions, stock repurchase
plans and going private transactions. Strategic valuations are generally
conducted for clients for employee stock purchase plans or estate planning
purposes. Finally, Roney undertakes general financial advisory projects for
clients that may include determining the value of a business and suggesting
various transaction options that are available to the company and its
shareholders.
Insurance
Through wholly-owned subsidiaries formed to comply with various state
insurance regulations, Roney engages in the business of selling a wide variety
of insurance products in Michigan, Ohio and Indiana. Although such
subsidiaries are generally qualified to sell a full range of insurance
products, the primary products sold are variable and fixed annuities.
Approximately 80% of Roney's retail financial consultants are licensed to sell
insurance products, and for purposes of such insurance business, Roney's
financial consultants are treated as
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agents of the particular subsidiary that was formed to sell insurance in the
applicable state. Such subsidiaries
sell variable and fixed annuity products and other insurance products offered
by over 20 different insurance companies.
Research
Roney's Research Department develops market information and investment
recommendations primarily with respect to the financial institutions, health
care and automotive supplier industries and selected companies within such
industries. The Research Department employs six analysts and follows
approximately 100 companies. Roney's research activities include review and
analysis of general market conditions, industries and specific companies;
recommendations with respect to industries and companies; provision of
information to retail brokerage and institutional clients; and responses to
inquiries from clients and Roney financial consultants. In addition, Roney
hosts investment conferences with followed companies in which senior officers
from leading companies are invited to share their operational and financial
outlooks with members of the investment community.
NET CAPITAL REQUIREMENTS
As a broker/dealer, Roney is subject to the net capital rules of the
Commission, the NYSE, and elects to compute its net capital requirements in
accordance with the alternative method. Under this method, Roney is required
to maintain minimum net capital, as defined, equal to two percent of aggregate
debit balances arising from customer transactions, as defined. The net capital
rules also provide that equity capital may not be withdrawn or cash dividends
paid if resulting net capital would be less than five percent of aggregate
debits. At September 26, 1997, Roney's net capital of $17.1 million was $13.9
million in excess of the minimum net capital required of $3.2 million.
DESCRIPTION OF THE MEMBERSHIP INTERESTS IN RONEY
General
Roney was formed as a limited liability company under the DLLCA on July 5,
1995 pursuant to a Certificate of Formation filed with the Office of the
Secretary of State of Delaware on such date. Pursuant to the Operating
Agreement, Roney has established three classes of membership interests
referred to as Principals, Investing Members and Class A Members. The rights,
privileges and preferences of such membership interests are governed by the
terms of the Operating Agreement and the provisions of the DLLCA. Set forth
below is a summary of the rights, preferences and privileges of each such type
of membership interest, which summary is qualified in its entirety by
reference to the Operating Agreement and the DLLCA.
Principals
The Principals are designated as the managers of Roney. As such, the full,
exclusive and absolute rights, powers and authority to manage and control
Roney and the property, assets and business of Roney, and to make all
decisions affecting the property, assets and business of Roney is vested in
the Principals. The Principals elect an Executive Committee comprised of at
least nine of the Principals, which Executive Committee is vested with the
power to decide all matters which are not specifically reserved in the
Operating Agreement to the Principals. Among the matters reserved to the
Principals in the Operating Agreement are whether to dissolve Roney, whether
to permit a member to assign or encumber his or her interest in Roney to
another and, with the written concurrence of the Executive Committee, and
subject to limitation, whether (and the manner in which) to amend the
Operating Agreement. The Operating Agreement provides that all matters to be
decided by the Principals are to be decided by the vote of Principals having
percentage interests which exceed 50% of all of the Principals' percentage
interests.
Pursuant to the Operating Agreement, each Principal is required to devote
his or her entire time to Roney business, and is precluded from directly or
indirectly engaging in any other business, except as otherwise expressly
authorized by the Executive Committee. Under Section 303 of the DLLCA but
subject to the following sentence, the debts, obligations and liabilities of
Roney, whether arising in contract, tort or otherwise, are solely the debts,
obligations and liabilities of Roney and no member or manager of Roney is
personally liable for any
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such debt, obligation or liability solely by reason of being a member or
acting as a manager of Roney. Notwithstanding the preceding sentence, each
member of Roney, including the Principals, is personally liable for such
member's actions or omissions which give rise to any claim against or
liability of Roney and is required to indemnify Roney and the other members of
Roney against such liability. Subject to the qualification contained in the
preceding sentence, under the DLLCA, Roney may indemnify and hold harmless any
member or manager or other person from and against any and all claims and
demands whatsoever. Under the Operating Agreement, Roney is required, to the
extent permitted by the Employee Retirement Income Security Act of 1974, to
indemnify employees and members of Roney who serve as members of the
administrative committee of the Roney Income Deferral Plan (the "Plan")
against all liabilities incurred by them in the exercise and performance of
their powers and duties under the Plan, subject to certain limitations set
forth in the Operating Agreement.
As members of Roney, the Principals are entitled to allocations of profit or
loss, and distributions of cash, of Roney. Roney's net profit for any year,
less an amount equal to a variable percentage of the capital contributions of
the Class A Members and the Investing Members (the difference being referred
to as the "net profit balance"), is allocable among the Principals.
Specifically, a percentage of the net profit balance determined by the
Executive Committee, not to exceed 15% (or such lesser percentage as will
leave at least $10,000 to be allocated pursuant to the next sentence), is
allocable among, and distributable to, the Principals as the Executive
Committee may determine. The balance of the net profit balance is allocable
among, and distributable to, the Principals based on their percentages.
Following dissolution of Roney, the proceeds of liquidation of Roney's assets,
after payment of or provision for Roney's debts, is generally distributable
among the members on account of their respective shares of undistributed
profits and to pay them the remaining balances in their capital accounts.
Losses of Roney are allocable first, to the Principals, based on their
percentages, until their capital accounts are reduced to zero, and thereafter
to the other members of Roney. If, at any time, the Principals' aggregate
capital account balance falls below the lesser of (i) $500,000 and (ii) one
percent of the aggregate capital account balances of all members (after taking
into account any special distribution to members who are not Principals), then
the Principals are required to contribute additional capital to eliminate the
shortfall. Moreover, the Operating Agreement requires the Principals to
contribute such additional capital to Roney as the Executive Committee may
request.
For purposes of the foregoing, profits and losses are determined after
deducting certain guaranteed payments for the use of members' (including the
Principals') capital. These guaranteed payments are described under "Class A
and Investing Members" below.
Under the terms of the Operating Agreement, no member of Roney, including
the Principals, the Class A Members and the Investing Members, may assign or
grant a security interest in or otherwise encumber all or any portion of such
member's rights with respect to, or interest in, Roney, or the property,
capital, profits and/or distributions of Roney, or cause another person to be
substituted as a member of Roney in place of the assigning member, without the
prior consent of the Principals. Any purported assignment or security interest
or other encumbrance made in violation of the Operating Agreement is null and
void.
A Principal may be expelled from Roney by the Executive Committee. A
Principal may also withdraw from Roney without the Executive Committee's
consent. In either case, such Principal becomes entitled to payment for his or
her membership interest in an amount equal to his or her capital account, with
certain adjustments. Such payment is generally to be made in cash no less than
six months following notice of withdrawal, with interest from the effective
date of expulsion or withdrawal. There are special provisions for the partial
withdrawal of a Principal who attains the age of 60 or 68.
Class A and Investing Members
The Class A Members and the Investing Members have no rights, powers or
authority to manage or control, and no voice or participation in the
management of, Roney. In addition, subject to certain exceptions for Class A
Members who are also employees or agents of Roney, the Class A Members and the
Investing Members do not have the authority to bind or obligate Roney or incur
an obligation or liability in the name of Roney or on behalf of Roney in any
manner or capacity whatsoever or to act on behalf of Roney in any manner or
capacity whatsoever.
Pursuant to the Operating Agreement, the Class A Members are required to
devote their entire time to Roney business, and are precluded from directly or
indirectly engaging in any other business, except as otherwise
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expressly authorized by the Executive Committee. The liability and
indemnification provisions described above with respect to the Principals also
apply to the Class A Members and the Investing Members.
As members of Roney, the Class A Members and the Investing Members are
entitled to allocations of profit or loss, and distributions of cash, of Roney
as described in this paragraph. With respect to the Investing Members, if the
net profits of Roney for any year (after taking into account the Guaranteed
Payments (as defined below)) equal or exceed $500,000, an amount equal to a
variable percentage of the capital contributions of the Investing Members
(which variable percentage is based on the total net profits of Roney for such
year (after deduction of the Guaranteed Payments) and varies between two
percent and eight percent) is allocable to the Investing Members. With respect
to the Class A Members, if the net profits of Roney (after taking into account
and deducting the Guaranteed Payments and the payments made to the Investing
Members described in the preceding sentence) equal or exceed $250,000, an
amount equal to a variable percentage of the capital contributions of the
Class A Members (which variable percentage is based on the net profits of
Roney for such year (after deduction of the payments to the Investing Members
and the Guaranteed Payments) and varies between two percent and 16%.
Notwithstanding the preceding paragraph, the members of Roney are entitled
to the following guaranteed payments ("Guaranteed Payments") on their
respective capital contributions: the Investing Members are entitled to a
Guaranteed Payment, payable in cash on a quarterly basis, equal to eight
percent of each member's capital contribution, calculated on a per annum
basis; after payment of the Investing Members' Guaranteed Payment, the Class A
Members are entitled to a Guaranteed Payment, payable in cash on a quarterly
basis, equal to six percent of each member's capital contribution, calculated
on a per annum basis; after payment of the Investing Members' and Class A
Members' Guaranteed Payments, the Principals are entitled to a Guaranteed
Payment, payable on a semi-annual basis in the form of an increase in the
applicable member's capital account or, under certain circumstances, in cash,
equal to six percent of each member's capital contribution, calculated on a
per annum basis.
Losses of Roney not allocated to the Principals are allocable to the Class A
Members, based on their percentages, until their capital accounts are reduced
to zero. Thereafter, the balance of any losses are allocable to the Investing
Members, based on their percentages, until their capital accounts are reduced
to zero.
The Class A Members and the Investing Members are subject to the same
provisions with respect to the transferability of their interests and
expulsion and withdrawal from Roney as set forth above for the Principals.
FCN
GENERAL
FCN is a multi-bank holding company registered under the BHCA, which was
incorporated under the laws of the State of Delaware in 1972. FCN is the
surviving corporation resulting from the merger, effective December 1, 1995,
of First Chicago Corporation, a Delaware corporation and registered bank
holding company, with and into NBD, a Delaware corporation and registered bank
holding company. FCN's lead bank is FNBC. FCN also is the parent corporation
of NBD, Michigan, ANB, FCCNB, NBD Bank, Indiana, NBD Bank (Florida) and
several other bank subsidiaries. FCCNB is a Delaware-based national banking
association primarily engaged in the issuance of VISA and MasterCard credit
cards.
Through its banking subsidiaries, FCN provides consumer and corporate
banking products and services. In addition, FCN, directly or indirectly, owns
the stock of various nonbank companies engaged in businesses related to
banking and finance.
In addition to its equity investment in subsidiaries, FCN, directly or
indirectly, raises funds principally to finance the operations of its nonbank
subsidiaries. A substantial portion of FCN's annual income typically has been
derived from dividends from its subsidiaries, and from interest on loans, some
of which are subordinated, to its subsidiaries.
FCN engages primarily in four lines of business--regional banking, which
includes the general consumer market, private banking and investments, small
business banking and middle market banking; corporate banking; corporate
investments; and credit card. Each of these businesses is conducted through
FCN's bank and nonbank subsidiaries.
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Because FCN is a holding company, its rights and the rights of its creditors
to participate in the assets of any subsidiary upon the subsidiary's
liquidation or recapitalization would be subject to the prior claims of such
subsidiary's creditors except to the extent that FCN may itself be a creditor
with recognized claims against the subsidiary.
FCN's executive offices are located at One First National Plaza, Chicago,
Illinois 60670, and the telephone number is (312) 732-4000.
SUPERVISION AND REGULATION
The operations of financial institutions may be affected by legislative
changes and by the policies of various regulatory authorities. In particular,
bank holding companies and their subsidiaries are affected by the credit
policies of the Federal Reserve Board through its regulation of the national
supply of bank credit. Among the instruments of monetary policy used by the
Federal Reserve Board to implement its objectives are open market operations
in U.S. Government securities, changes in the discount rate on bank borrowings
and changes in reserve requirements on bank deposits.
Bank holding companies, banks and financial institutions generally are
highly regulated, with numerous federal and state laws and regulations
governing their activities. As a bank holding company, FCN is subject to
regulation under the BHCA and is subject to examination and supervision by the
Federal Reserve Board. Under the BHCA, FCN is prohibited, with certain
exceptions, from acquiring or retaining direct or indirect ownership or
control of voting shares of any company which is not a bank or bank holding
company, and from engaging in activities other than those of banking or of
managing or controlling banks, other than subsidiary companies and activities
which the Federal Reserve Board determines to be so closely related to the
business of banking as to be a proper incident thereto. The acquisition of
direct or indirect ownership or control of a bank or bank holding company by
FCN is also subject to certain restrictions under the BHCA and applicable
state laws.
FCN is a legal entity separate and distinct from FCN's banking subsidiaries
(the "Banks") and FCN's other affiliates. Investors should be aware of the
various legal limitations on the extent to which the Banks can finance or
otherwise supply funds to FCN or various of its affiliates. In particular, the
Banks are subject to certain restrictions imposed by the laws of the United
States on any extensions of credit to FCN or, with certain exceptions, other
affiliates, on investments in stock or other securities thereof, on the taking
of such securities as collateral for loans, and on the terms of transactions
between the Banks and other subsidiaries. FCN and its subsidiaries, including
the Banks, are also subject to certain restrictions with respect to engaging
in the issuance, flotation, underwriting, public sale or distribution of
securities.
Various federal and state laws govern the operation of the Banks. The
national bank subsidiaries of FCN, including FNBC, ANB, FCCNB and NBD Indiana,
are supervised, examined and regulated by the OCC under the National Bank Act,
as amended. Since national banks are also member of the Federal Reserve System
and their deposits are insured by the Federal Deposit Insurance Corporation
(the "FDIC"), they are also subject to the provisions of the Federal Reserve
Act, as amended, and the Federal Deposit Insurance Act, as amended, and, in
certain respects, to state laws applicable to financial institutions. NBD
Michigan and the other state-chartered bank subsidiaries of FCN are, in
general, subject to the same or similar restrictions and regulations, but with
more extensive regulation and examination by state banking departments, the
Federal Reserve Board for state banks which are member of the Federal Reserve
System, and the FDIC for state banks which are not members of the Federal
Reserve System. In addition, the Banks' operations in other countries are
subject to various restriction imposed by the laws of such countries.
Federal law prohibits FCN and certain of its affiliates from borrowing from
the Banks unless such loans are secured by U.S. Treasury or other specified
obligations. Further, such secured loans and investment by any of the Banks to
FCN or to any other affiliate are limited to 10% of the respective Bank's
capital and surplus, and as to FCN and all such affiliates, to an aggregate
20% of the respective Bank's capital and surplus. Under Federal Reserve Board
policy, FCN is expected to act as a source of financial strength to each Bank
and to commit resources to support such Bank in circumstances where it might
not do so absent such policy. In addition, any capital loans by FCN to any of
the Banks would be subordinate in right of payment to deposits and to certain
other indebtedness of such Bank. As a bank holding company, FCN and its
subsidiaries generally are prohibited from engaging in certain tie-in
arrangements in connection with extensions of credit or providing property or
services.
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Additionally, there are certain federal and state regulatory limitations on
the payment of dividends to FCN by the Banks. Dividend payments by national
banks are limited to the lesser of (i) the level of undivided profits and (ii)
absent regulatory approval, an amount not in excess of net income for the
current year combined with retained net income for the preceding two years. As
of January 1, 1997, the Banks could have declared additional dividends of
approximately $0.9 billion without the approval of banking regulatory
agencies. The payment of dividends by any Bank may also be affected by other
factors, such as the maintenance of adequate capital for such Bank. Bank
regulatory agencies have the authority to prohibit the banking organizations
they supervise from paying dividends if, in the bank regulator's opinion, the
payment of dividends would, in light of the financial condition of such bank,
constitute an unsafe or unsound practice.
CAPITAL ADEQUACY
The Federal Reserve Board has adopted risk-based capital guidelines for bank
holding companies that require bank holding companies to maintain a minimum
ratio of capital to risk-weighted assets (including certain off-balance-sheet
items, such as standby letters of credit) of 8%. At least one-half of total
capital must be composed of common stockholders' equity, minority interest,
noncumulative perpetual preferred stock and a limited amount of cumulative
perpetual preferred stock, less disallowed intangibles and other adjustments
("Tier I capital"). The remainder ("Tier II capital") may consist of
subordinated debt, other preferred stock, certain other instruments and a
limited amount of loan loss reserves. At September 30, 1997 FCN's consolidated
Tier I capital and total capital ratios were 8.1% and 11.9%, respectively.
In addition, the Federal Reserve Board has established minimum leverage
ratio guidelines for bank holding companies. These guidelines provide for a
minimum ratio of Tier I capital to total average assets (the "leverage ratio")
of 3% for bank holding companies that meet certain specified criteria,
including those having the highest regulatory rating. All other bank holding
companies generally are required to maintain a leverage ratio of at least 3%
plus an additional cushion of 100 to 200 basis points. FCN's leverage ratio at
September 30, 1997, was 8.2%. The guidelines also provide that bank holding
companies experiencing internal growth or making acquisitions will be expected
to maintain strong capital positions substantially above the minimum
supervisory levels without significant reliance on intangible assets.
Furthermore, the Federal Reserve Board has indicated that it will consider a
"tangible Tier I capital leverage ratio" (deducting all intangibles) and other
indicia of capital strength in evaluating proposals for expansion or new
activities.
Each of the Banks is subject to similar risk-based and leverage capital
requirements adopted by its applicable federal banking agency. Each of FCN's
banks was in compliance with the applicable minimum capital requirements as of
December 31, 1997. Neither FCN nor any of the Banks has been advised by any
federal banking agency of any specific minimum leverage ratio requirement
applicable to it.
Failure to meet capital requirements could subject a bank to a variety of
enforcement remedies, including the termination of deposit insurance by the
FDIC, and to certain restrictions on its business, which are described below
under "FDICIA and FIRREA."
FDICIA AND FIRREA
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
significantly expanded the regulatory and enforcement powers of federal
banking regulators, in particular the FDIC, and has important consequences for
FCN, the Banks and other depository institutions located in the United States.
A major feature of FDICIA is the comprehensive directions it gives to
federal banking regulators to direct or require the correction of problems at
inadequately capitalized banks promptly, and in a manner that is least costly
to the federal deposit insurance funds. The degree of corrective regulatory
involvement in the operations and management of banks and their holding
companies is, under FDICIA, largely determined by the actual or anticipated
capital positions of the subject institution.
FDICIA established five tiers of capital measurement for regulatory purposes
ranging from "well capitalized" to "critically undercapitalized." Under
regulations adopted by the federal banking agencies, a depository institution
is well capitalized if it significantly exceeds the minimum level required by
regulation for each relevant capital measure, adequately capitalized if it
meets such measure, undercapitalized if it fails to meet
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any such measure, significantly undercapitalized if it is significantly below
such measure and critically undercapitalized if its tangible equity is not
greater than 2% of total tangible assets. A depository institution may be
deemed to be in a capitalization category lower than is indicated by its
actual capital position if it receives an unsatisfactory examination rating.
FDICIA requires banking regulators to take increasingly strong corrective
steps, based on the capital tier of any subject bank, to cause such bank to
achieve and maintain capital adequacy. Even if a bank is adequately
capitalized, however, the banking regulators are authorized to apply
corrective measures if the bank is determined to be in an unsafe or unsound
condition or engaging in an unsafe or unsound activity.
Depending on the level of capital of an insured depository institution, the
banking regulatory agencies' corrective powers can include: requiring a
capital restoration plan; placing limits on asset growth and restrictions on
activities; requiring the institution to reduce total assets; requiring the
institution to issue additional stock (including voting stock) or to be
acquired; placing restrictions on transactions with affiliates; restricting
the interest rate the institution may pay on deposits; ordering a new election
for the institution's board of directors; requiring that certain senior
executives officers or directors be dismissed; prohibiting the institution
from accepting deposits from correspondent banks; requiring the institution to
divest certain subsidiaries; prohibiting the payment of principal or interest
on subordinated debt; prohibiting the institution's parent holding company
from making capital distributions without prior regulatory approval; and,
ultimately, appointing a receiver for the institution.
If the insured depository institution is undercapitalized, the parent
holding company is required to guarantee that the institution will comply with
any capital restoration plan submitted to, and approved by, the appropriate
federal banking agency in an amount equal to the lesser of (i) 5% of the
institution's total assets at the time the institution became undercapitalized
or (ii) the amount which is necessary (or would have been necessary) to bring
the institution into compliance with all applicable capital standards as of
the time the institution fails to comply with the capital restoration plan. If
such parent holding company guarantee is not obtained, the capital restoration
plan may not be accepted by the banking regulators. As a result, such
institution would be subject to the more severe restrictions imposed on
significantly undercapitalized institutions. Further, the failure of such a
depository institution to submit an acceptable capital plan is grounds for the
appointment of a conservator or receiver.
FDICIA also contains a number of other provisions affecting depository
institutions, including additional reporting and independent auditing
requirements, the establishment of safety and soundness standards, the system
of risk-based assessments described below under "FDIC Insurance," a review of
accounting standards, and supplemental disclosures and limits on the ability
of all but well capitalized depository institutions to acquire brokered
deposits.
Since FDICIA was enacted, Congress has enacted the Riegle Community
Development and Regulatory Improvement Act of 1994, the Economic Growth and
Regulatory Paperwork Reduction Act of 1996 and other legislation, which
contain a number of specific provisions easing to some extent the regulatory
burden on banks and bank holding companies, including some FDICIA-imposed
requirements, and which are intended to make the bank regulatory system more
efficient. When required, federal banking regulators are taking actions to
implement these provisions.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), among other things, provides generally that, upon the default of
any bank of a multi-unit holding company, the FDIC may assess an affiliated
insured depository institution for the estimated losses incurred by the FDIC.
Specifically, FIRREA provides that a depository institution insured by the
FDIC can be held liable for any loss incurred by, or reasonably expected to be
incurred by, the FDIC, in connection with (i) the default of a commonly
controlled FDIC-insured depository institution, or (ii) any assistance
provided by the FDIC to a commonly controlled FDIC-insured depository
institution in danger of a default. "Default" is defined generally as the
appointment of a conservator or receiver. "In danger of a default" is defined
generally as the existence of certain conditions indicating that a default is
likely to occur in the absence of regulatory assistance. All of the Banks are
FDIC-insured depository institutions.
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FDIC INSURANCE
The Banks are subject to FDIC deposit insurance assessments. Under the
FDIC's risk-based assessment system, the assessment rate is based on the
classification of a depository institution in one of nine risk assessment
categories. Such classification is based upon the institution's capital level
and upon certain supervisory evaluations of the institution by its primary
regulator. The current assessment rate schedule creates a spread in assessment
rates ranging from 0.27% per annum on the amount of domestic deposits for
banks classified as weakest by the FDIC down to no annual assessment for banks
classified as strongest by the FDIC.
INTERSTATE BANKING AND BRANCHING
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Riegle-Neal Act") significantly revised prior laws applicable to interstate
acquisitions of banks and bank holding companies and the branching powers of
national banks. Prior to the Riegle-Neal Act, the Federal Reserve Board was
not permitted to approve an application to acquire shares of a bank located
outside the state in which the operations of the applicant's bank subsidiaries
were principally conducted unless the acquisition were specifically authorized
by a statute of the acquired bank's state. The Federal Reserve Board is now
authorized to approve an application of an adequately capitalized and
adequately managed bank holding company to acquire control of a bank located
in another state without regard to whether such transaction is prohibited
under the laws of such state. The Federal Reserve Board may not, however,
approve such an application if, following the acquisition, the applicant would
control either (1) more than 10% of all insured depository institution
deposits in the United States or (2) under certain circumstances, 30% or more
of all insured depository institution deposits in any state where either the
applicant or the acquired bank is located. The 30% limited on aggregate
deposits that may be controlled by an applicant can be adjusted by the states
on a non-discriminatory basis.
The Riegle-Neal Act also revises the rules applicable to mergers between
insured banks located in different states. Before passage of the Riegle-Neal
Act, such mergers generally were not authorized. As of June 1, 1997, however,
adequately capitalized and adequately managed insured banks in different
states may merge without regard to whether the merger is authorized under the
law of any state. Under the Riegle-Neal Act, states could prohibit interstate
bank mergers by adopting, prior to June 1, 1997, legislation to "opt out" of
the provision, to be applied on equal terms to all out-of-state banks. The
Riegle-Neal Act provides that an interstate merger involving the acquisition
of a branch (as distinguished from an entire bank) or the de novo
establishment of a national bank branch in another state may be approved only
if the law of the host state expressly permits such action. Generally, an
interstate merger may not be approved if, following the merger, the resulting
bank would control (1) more than 10% of all insured depository institution
deposits in the United States or (2) under certain circumstances, 30% or more
of all insured depository institution deposits in any state where the
resulting bank will be located. The 30% limit on aggregate deposits that may
be controlled by the resulting bank can be adjusted by the states on a non-
discriminatory basis. The laws of the host state regarding community
reinvestment, consumer protection, fair lending and the establishment of
intrastate branches will apply to any out-of-state branch of a national bank
unless preempted by federal law or the OCC determines that application of such
laws would have a discriminatory effect on the national bank.
The Riegle-Neal Act contains a number of other provisions related to banks
and bank holding companies, including: authorization of interstate branching
by foreign banks; additional branch closing notice requirements for interstate
banks proposing to close a branch in a low or moderate income area; amendments
to the Community Reinvestment Act of 1977 to require separate written
evaluations of an insured depository institution for each state in which it
maintains branches; a prohibition on interstate banks maintaining out-of-state
deposit production offices; and authorization for a bank subsidiary of a bank
holding company to receive deposits, renew time deposits, close and service
loans and receive payments on loans as agent for a depository institution
affiliate of such bank.
The extent to and terms on which full interstate branching and certain other
actions authorized under the Riegle-Neal Act are implemented will depend on
the actions of entities other than FCN and the Banks, including the
legislatures of the various states. Further developments by state and federal
authorities, including legislation, with respect to matters covered by the
Riegle-Neal Act reasonably can be anticipated to occur in the future. In
addition, there may be new, significant banking legislation enacted or
introduced in the current Congress related to bank holding companies and their
powers; the likelihood of passage and effect, if any, of such legislation on
FCN and the Banks cannot be predicted.
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DESCRIPTION OF FCN CAPITAL STOCK
Common Stock. FCN is authorized to issue 750,000,000 shares of FCN Common
Stock. As of December 31, 1997, there were outstanding 289,137,449 shares of
FCN Common Stock.
Holders of FCN's Common Stock are entitled to receive dividends when, as and
if declared by the FCN Board of Directors (the "FCN Board") out of any funds
legally available therefor, and are entitled upon liquidation, after claims of
creditors and preferences of FCN's outstanding preferred stock and any other
series of preferred stock hereafter authorized, to receive pro rata the net
assets of FCN.
The holders of the FCN Common Stock are entitled to one vote for each share
held and are vested with all of the voting power except as the FCN Board has
provided with respect to the outstanding shares of FCN's preferred stock or
may provide, in the future, with respect to any other series of preferred
stock which it may hereafter authorize.
The shares of FCN Common Stock have non-cumulative voting rights, which
means that the holders of more than 50% of the shares of FCN Common Stock
voting for the election of directors can elect 100% of the directors standing
for election at any meeting if they choose to do so and, in such event, the
holders of the remaining shares voting for the election of directors will not
be able to elect any person or persons to the FCN Board at that meeting.
The FCN Certificate contains specific provisions with respect to the
election of directors, which include the provision that the FCN Board is
divided into three classes, each having a number of directors as nearly equal
as possible, and each class being elected for a three-year term, with one
class being elected each year. The FCN Certificate includes specific
provisions with respect to mergers and other business combinations. In
general, these provisions require that, in the case of a proposed merger or
other business combination involving FCN and an Interested Stockholder (as
deemed therein), the approving vote of the holders of at least a majority of
the voting power of all shares of voting stock held by persons who are not
Interested Stockholders or persons affiliated with Interested Stockholders is
required, unless the business combination has been approved by a majority of
directors not affiliated with the Interested Stockholder or unless certain
conditions regarding minimum price and procedural protections are met with
respect to each class of FCN's then outstanding voting stock. The provisions
of the FCN Certificate also require that the FCN Board will not approve a
proposal for a business combination or a tender offer until the FCN Board has
evaluated the proposal in light of its effect on the stockholders and
employees of FCN and the communities served by FCN. These provisions of the
FCN Certificate could be used to make more difficult a change in control of
FCN.
The holders of FCN Common Stock do not have any preemptive rights to
subscribe for additional shares of capital stock of FCN. The holders of FCN
Common Stock have no conversion rights, the FCN Common Stock is not subject to
redemption by either FCN or a stockholder, and there is no restriction on the
purchase by FCN of shares of FCN Common Stock except for certain regulatory
limits.
FCN Common Stock is listed on the New York, Chicago and Pacific Stock
Exchanges. First Chicago Trust Company of New York is the transfer agent,
registrar and dividend disbursing agent for the FCN Common Stock.
Other Capital Stock. The FCN Board has the authority, without further
stockholder action, to issue from time to time a maximum of 10,000,000 shares
of preferred stock, without par value, in one or more series and for such
consideration as may be fixed from time to time by the FCN Board, and to fix
before the issuance of any shares of preferred stock of a particular series,
the designation of such series, the redemption price or prices, if any, and
the terms and conditions of the redemption, the liquidation price, the voting
rights, if any, any sinking fund provisions of the redemption or purchase of
the shares of such series, the terms and conditions upon which the shares are
convertible, if they are convertible, and any other relative rights,
preferences and limitations pertaining to such series.
As of December 31, 1997, there were issued and outstanding: 1,191,000 shares
of FCN's Preferred Stock with Cumulative and Adjustable Dividends, Series B
($100 stated value) (the "Series B Preferred Stock"); and 713,800 shares of
FCN's Preferred Stock with Cumulative and Adjustable Dividends, Series C ($100
stated value) (the
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"Series C Preferred Stock"). In addition, FCN has issued 6,000,000 preferred
share purchase units ("Preferred Purchase Units") which may require the holder
of which to purchase, no later than 2023, FCN's 7 1/2% Cumulative Preferred
Stock (the "7 1/2% Preferred Stock").
The FCN preferred stock ranks prior to the FCN Common Stock, both as to
dividends and upon liquidation, but has no general voting rights except as
described in the next succeeding paragraph. Each series of FCN preferred stock
ranks pari passu with each other series of FCN preferred stock with respect to
dividends and liquidation rights. Dividends on the currently outstanding FCN
preferred stock are cumulative.
Except as set forth herein, or as expressly required by applicable law, the
holders of the FCN preferred stock are not entitled to vote. If the equivalent
of six quarterly dividend payments on any series of FCN preferred stock are in
default, the number of directors of FCN will be increased by two and the
holders of all outstanding series of the FCN preferred stock, voting as a
single class without regard to series, will be entitled to elect such
additional two directors until all dividends in default have been paid or
declared and set aside for payment.
The dividend rate on the Series B Preferred Stock and Series C Preferred
Stock is adjusted quarterly, based on a formula that considers the interest
rates for selected short-and long-term U.S. Treasury securities prevailing at
the time the rate is set.
The Series B Preferred Stock is subject to a minimum and maximum annual
dividend rate of 6.00 percent and 12.00 percent, respectively. The annualized
dividend rate for the quarterly period ended February 28, 1998, is 6.00
percent. Shares of this series are redeemable, at the option of FCN, at their
stated value of $100 per share plus accrued and unpaid dividends. Shares of
this series are not convertible into other securities of FCN.
The Series C Preferred Stock is subject to a minimum and maximum annual
dividend rate of 6.50 percent and 12.50 percent, respectively. The annualized
dividend rate for the quarterly period ended February 28, 1998, is 6.50
percent. Shares of this series are redeemable, at the option of FCN, at their
stated value of $100 per share plus accrued and unpaid dividends. Shares of
this series are not convertible into other securities of FCN.
The shares of the outstanding FCN preferred stock are listed on the NYSE.
First Chicago Trust Company of New York serves as transfer agent, registrar
and dividend disbursing agent for shares of the FCN preferred stock.
In addition, on May 11, 1993, FCN issued 6,000,000 Preferred Purchase Units
each of which consisted of a 30-year subordinated debenture and a purchase
contract requiring the purchase by the holder thereof on May 10, 2023 (or
earlier at FCN's election) of FCN's 7 1/2% Preferred Stock at a purchase price
of $25 per share. FCN may redeem any or all of the Preferred Purchase Units at
any time after May 10, 1998, at par, and, as a result, some or all of the 7
1/2% Preferred Stock may not be issued by FCN. The 7 1/2% Preferred Stock
would rank prior to the FCN Common Stock, but would have no voting rights
except if the Preferred Purchase Units were in default or the FCN Certificate
was proposed to be amended in a manner adverse to the holders of the 7 1/2%
Preferred Stock. The 7 1/2% Preferred Stock would rank pari passu with each
other series of FCN preferred stock with respect to dividends and liquidation
rights. The 7 1/2% Preferred Stock, if issued, would not be convertible into
other securities of FCN. The shares of preferred stock which could be issued
pursuant to the purchase contracts have been reserved by FCN on its stock
records.
MATERIAL DIFFERENCES IN THE RIGHTS OF FCN STOCKHOLDERS AND RONEY MEMBERS
The rights of the members of Roney are currently governed by the DLLCA and
the terms and conditions of the Operating Agreement. Upon consummation of the
Acquisition, the Roney Principals that receive Common Stock as a Deferred
Payment will become FCN stockholders, and their rights will be governed by the
DGCL, the FCN Certificate and the FCN Bylaws. There are certain material
differences between the rights of holders of membership interests in Roney and
holders of FCN Common Stock which arise from differences between the governing
instruments of Roney and FCN and differences in the DLLCA and the DGCL.
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The following is a summary of the material differences between the rights of
holders of membership interests in Roney and those of holders of FCN Common
Stock. This summary does not purport to be a complete discussion of, and is
qualified in its entirety by reference to, the Operating Agreement, the FCN
Certificate, the FCN Bylaws, the DLLCA and the DGCL.
GENERAL
A membership interest in a Delaware limited liability corporation (an "LLC")
has some similarities to a stockholder's interest in a corporation and certain
important differences. An LLC is owned by one or more members; membership
interests may be divided into one or more series having separate rights,
powers or duties. As agreed upon by the members, an LLC may from time to time
distribute profits of the business to members. The Operating Agreement of
Roney specifies the allocation of profit and loss to the members. See "Roney--
Description of the Membership Interests in Roney." A Delaware corporation is
owned by its stockholders; holders of common stock in a corporation are
entitled to receive pro rata any assets distributable to shareholders upon the
liquidation of the corporation, subject to the rights of any preferred
stockholders. A common stockholder is entitled to receive such dividends as
are declared by the corporation's board of directors. See "Description of FCN
Capital Stock" and "Comparative Stock Prices and Dividend Information."
Under the DGCL, the business and affairs of a corporation are managed by the
board of directors of such corporation which is elected by the holders of
voting stock of the corporation. The only class of voting stock of FCN is the
Common Stock, except under certain limited circumstances. Each share of FCN
Common Stock is entitled to one vote. The DGCL also requires that each
corporation have such officers as are stated in the corporation's by-laws or
provided by the board of directors. The DLLCA permits management functions to
be retained by either the members or to be delegated to certain managers who
are not required to be equity holders in the LLC. The DLLCA permits different
voting rights for different classes or groups of members. The Operating
Agreement for Roney only grants voting rights to the Principals of Roney.
A member of an LLC is not generally liable for the debts, obligations and
liabilities of such LLC. Notwithstanding the preceding sentence, each member
of Roney, including the Principals, is personally liable for such member's
actions or omissions which give rise to any claim against or liability of
Roney and is required to indemnify Roney and the other members of Roney
against such liability. Under the DGCL, a stockholder in a Delaware
corporation, such as FCN, is not personally liable for the debts, obligations
or liabilities of such corporation.
The DLLCA provides that a member's complete membership interest may not be
transferred without the unanimous consent of the other members or otherwise in
compliance with the operating agreement of the LLC. The Operating Agreement of
Roney prohibits the transfer of a membership interest without the consent of
Principals holding in excess of 50% of the total Principal interests in Roney.
Except in certain limited circumstances for certain stockholders, no
limitations exist on the transferability of FCN Common Stock.
Under the DLLCA, a member may resign or withdraw at any time or upon certain
events specified in the relevant operating agreement, and if no specification
is made, on not less than six months prior written notice to the LLC and
members and manager. Unless otherwise provided, upon such a withdrawal, a
member is entitled to receive within a reasonable time, the fair value of his
or her interest as of the date of resignation. A Principal may be expelled
from Roney by the Executive Committee. A Principal may also withdraw from
Roney without the Executive Committee's consent. In either case, such
Principal becomes entitled to payment for his or her membership interest in an
amount equal to his or her capital account, with certain adjustments. Such
payment is generally to be made in cash no less than six months following
notice of withdrawal, with interest from the effective date of expulsion or
withdrawal. There are special provisions for the partial withdrawal of a
Principal who attains the age of 60 or 68. A FCN stockholder, on the other
hand, is generally free to sell his or her stock holdings in a public or
private transaction at whatever price the market will bear and thus terminate
his or her stockholder relationship; absent a specific contractual duty, FCN
is under no obligation to repurchase FCN Common Stock from any holder thereof.
In addition to the foregoing general differences between an LLC and a
corporation, a Roney member should consider the specific differences between
the rights of a holder of a Roney membership interest and a common stockholder
of FCN.
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MEETINGS
Special Meetings
The FCN Certificate and Bylaws provide that a special meeting of FCN
stockholders can be called only by action of the FCN Board. Under the
Operating Agreement, a special meeting of the Principals may be scheduled by
the Executive Committee on its own initiative. In addition, a special meeting
will be scheduled by the Executive Committee upon the written request of the
Principals subject to the following: (i) within 15 days after the Executive
Committee's receipt of the written request by the Principals for the special
meeting, the Executive Committee shall mail notices of such special meeting to
the Principals, scheduling such special meeting at least seven, but not more
than 30, days after the mailing of such notices by the Executive Committee;
(ii) the Principals may request the scheduling of a maximum of two special
meetings per year; (iii) the sole item of business which may be addressed at
such special meeting shall be the selection, replacement or composition of the
Executive Committee and/or the Chairman of the Executive Committee, which
selection, replacement or composition may be altered or changed by a vote at
such special meeting of the Principals; and (iv) a Principal must be in
attendance at a special meeting in order to vote at such special meeting.
Action by Written Consent
The FCN Certificate expressly prohibits stockholder action by written
consent and requires that any stockholder action be taken at a duly called
meeting of stockholders. The affirmative vote of at least 80% of the voting
power of FCN is required to amend this provision of the FCN Certificate. Under
the DLLCA, unless otherwise provided in a limited liability company agreement,
on any matter that is to be voted on by the members, the members may take such
action without a meeting, without prior notice and without a vote, if a
consent or consents in writing setting forth the action so taken, shall be
signed by the members having not less than the minimum of votes that would be
necessary to authorize or take such action without a meeting. The Operating
Agreement of Roney does not prohibit the taking of actions by written consent.
Written Notice
The FCN Bylaws require that stockholders be given notice of meetings no less
than 10 and no more than 60 days prior to such meeting. The Roney Operating
Agreement requires that Principals be given notice of annual meetings at least
30 days prior to the date of such meeting and notice of special meetings that
have been scheduled by the Executive Committee at least 15 days prior to the
date of such meeting. Under the Operating Agreement, notices of special
meeting of the Principals scheduled at the request of the Principals must be
provided at least seven days and no more than 30 days prior to such meeting.
Record Date
The FCN Bylaws require that the record date for any meeting of stockholders
be no less than 10 and nor more than 60 days prior to such meeting. Under the
terms of the Operating Agreement, a record date is not required to be set with
respect to an annual or special meeting, however, a person must be a Principal
at the time of the meeting in order to vote on the matters being considered at
the meeting.
ANTI-TAKEOVER AND SUPERMAJORITY PROVISIONS
The DGCL contains an anti-takeover provision that prevents buyers who
acquire 15% or more of a target company's stock from completing a hostile
takeover for three years. A takeover can, however, be completed if the buyer,
while acquiring this 15% interest acquires at least 85% of the outstanding
stock. The 85% excludes shares owned by directors who are also officers and
certain shares held under certain employee stock plans. The takeover can also
be completed if it is approved by the target company's board of directors
prior to the date the buyer became a 15% or more stockholder or after the date
the buyer became a 15% or more stockholder if it is approved by the target
company's board of directors and two-thirds of the shares voting at an annual
or special meeting of stockholders, excluding shares held by the buyer. The
anti-takeover provision applies automatically to Delaware corporations except
those corporations with less than 2,000 stockholders of record or those that
do not have voting stock listed on a national securities exchange or listed
for quotation with a registered national securities association. Any
corporation may decide to "opt out" of the statute at any time, by action of
its stockholders. The FCN Certificate also contains specific provisions with
respect to mergers and other business combinations. See "Description of FCN
Capital Stock."
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The DLLCA does not contain a provision similar to the DGCL regarding anti-
takeover matters. Roney's Operating Agreement, however, contains a general
prohibition against the transfer of membership interests without the prior
consent of the Principals. This provision would preclude a person or entity
from acquiring any of Roney's membership interests without the approval of the
Principals, which would prevent a person or entity from completing a hostile
takeover of Roney.
BOARD OF DIRECTORS OR MANAGERS
The FCN Certificate provides for classification of the FCN Board into three
classes as nearly equal in number as possible, with one class being elected
annually. The classification of directors could be used to make it more
difficult to change the membership of the FCN Board since at least two annual
stockholder meetings would be required to effect a change in the majority of
the directors.
Under the FCN Certificate, FCN's directors may only be removed from office
for cause and only upon the vote of holders of a majority of the voting power
of capital stock of FCN entitled to vote, voting as a single class.
The FCN Certificate contains procedures for nominations by stockholders of
candidates for election as a director. Notices containing prescribed
information on nominations by stockholders of candidates for election as a
director of FCN must be appropriately delivered at least 60 days but not more
than 90 days prior to the anniversary date of the immediately preceding FCN
annual meeting of stockholders.
The Principals are designated as the managers of Roney. As such, the full,
exclusive and absolute rights, powers and authority to manage and control
Roney and the property, assets and business of Roney, and to make all
decisions affecting the property, assets and business of Roney is vested in
the Principals. The Principals elect an Executive Committee comprised of at
least nine of the Principals, which Executive Committee is vested with the
power to decide all matters which are not specifically reserved in the
Operating Agreement to the Principals. Among the matters reserved to the
Principals in the Operating Agreement are whether to dissolve Roney, whether
to permit a member to assign or encumber his or her interest in Roney to
another and, with the written concurrence of the Executive Committee, and
subject to limitation, whether (and the manner in which) to amend the
Operating Agreement. The Operating Agreement provides that all matters to be
decided by the Principals are to be decided by the vote of Principals having
percentage interests which exceed 50% of all of the Principals' percentage
interests.
INDEMNIFICATION
The FCN Certificate provides that a director, officer, employee or agent
(collectively, "Indemnitee") of FCN shall be indemnified by FCN to the fullest
extent authorized by the DGCL against all expenses, liability and loss
reasonably incurred or suffered by such Indemnitee in connection with his or
her activities as a director, officer, employee or agent of FCN or another
corporation, partnership, joint venture, trust or other enterprise, if the
Indemnitee held such position at the request of FCN. Delaware law requires
that an Indemnitee, in order to be indemnified, must have acted in good faith
and in a manner reasonably believed to be not opposed to the best interests of
FCN, and, with respect to any criminal action or proceeding, did not have
reasonable cause to believe that his or her conduct was unlawful.
The FCN Certificate and the DGCL also provide that the indemnification
provisions of such FCN Certificate and the statute are not exclusive of any
other right which a person seeking indemnification may have or later acquire
under any statute, provision of the FCN Certificate and FCN Bylaws, agreement,
vote of stockholders or disinterested directors, or otherwise.
In addition, the FCN Certificate and the DGCL also provide that FCN may
maintain insurance, at its expense, to protect itself and any director,
officer, employee or agent of FCN or another corporation, partnership, joint
venture, trust or other enterprise against any expense, liability or loss,
whether or not FCN has the power to indemnify such person against such
expense, liability or loss under the DGCL.
Although the members of Roney are generally not liable for the debts,
obligations and liabilities of Roney, each member of Roney, including the
Principals, is personally liable for such member's actions or omissions which
give rise to any claim against or liability of Roney and is required to
indemnify Roney and the other members of Roney against such liability. Subject
to the qualification contained in the preceding sentence, under the DLLCA,
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Roney may indemnify and hold harmless any member or manager or other person
from and against any and all claims and demands whatsoever. Under the
Operating Agreement, Roney is required, to the extent permitted by the
Employee Retirement Income Security Act of 1974, to indemnify employees and
members of Roney who serve as members of the administrative committee of the
Roney & Co. Income Deferral Plan (the "Plan") against all liabilities incurred
by them in the exercise and performance of their powers and duties under the
Plan, subject to certain limitations set forth in the Operating Agreement.
AMENDMENT TO ORGANIZATIONAL DOCUMENTS
The FCN Certificate provides that any amendment, alteration or repeal of
Article Twelfth thereof (relating to actions by stockholders), Article
Eleventh thereof (relating to directors) or Article Thirteenth thereof
(relating to business combinations with Interested Stockholders) requires the
affirmative vote of the holders of at least 80% of the voting power of all the
shares of FCN stock entitled to vote generally in the election of directors,
voting together as a single class.
The Operating Agreement provides that it may be amended or modified by the
Principals, with the written concurrence of the Executive Committee, by giving
the other members written notice and a copy of the amendment or modification.
Notwithstanding the foregoing, any amendment to, or modification of, the
Operating Agreement that would increase the liabilities of, or create any new
liabilities on the part of, any member requires the written concurrence of
such member. In addition, the Executive Committee has the right, without the
consent of the other members, to amend or modify the Operating Agreement as
may be necessary or appropriate, in the judgment of the Executive Committee,
with respect to the admission of additional members of Roney that are admitted
in accordance with the applicable provisions of the Operating Agreement.
BOARD REVIEW OF CERTAIN TRANSACTIONS
The FCN Certificate prohibits the FCN Board from approving, adopting or
recommending any proposal to enter into a business combination with Interested
Stockholders or any tender or exchange offer for any capital stock in FCN
until the FCN Board establishes a procedure for evaluating and evaluates and
determines that such proposal or offer complies with all applicable laws and
is in the best interests of FCN and its stockholders. The FCN Certificate
requires that, in making this determination, the FCN Board consider (among
other factors) the adequacy of the consideration to be received by FCN and/or
its stockholders, the business competence of the acquiring person or entity
and the potential social and economic impact of the plan on the communities in
which FCN operates.
In addition, the FCN Certificate provides that the FCN Board may not
approve, adopt or recommend any offer of any person, other than FCN, to make a
tender or exchange offer for any capital stock of FCN in which the fair market
value per share of the consideration to be received by one or more
stockholders is substantially more than the fair market value per share of the
consideration to be received by other stockholders holding shares of the same
class and series, or any tender or exchange offer the consummation of which is
reasonably likely, in the good faith determination of the FCN Board, in one
transaction or a series of transactions, to have that result.
RESALE OF FCN COMMON STOCK
Subject to the terms and conditions of the Employment Agreements, the
Executive Employment Agreements and the Pledge Agreements discussed above, the
FCN Common Stock to be issued as a Deferred Payment will upon issuance be
freely transferable by the holders of such stock under applicable federal
securities laws, except for shares held by members of the Executive Committee
of Roney and any other holders who may be deemed to be "affiliates" (generally
including directors, certain executive officers and 10% or more stockholders)
of FCN. Prior to Closing, each member of the Executive Committee of Roney will
enter into an agreement with FCN that such member will not transfer his Common
Stock issued as a Deferred Payment in violation of the Securities Act.
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LEGAL MATTERS
Certain legal matters in connection with the Acquisition will be passed upon
for Roney by Honigman Miller Schwartz and Cohn. The validity of the FCN Common
Stock being offered hereby is being passed upon for FCN by Sherman I.
Goldberg, Executive Vice President, General Counsel and Secretary of FCN. As
of January 31, 1998, Sherman I. Goldberg was the record and beneficial owner
of 224,760 shares of FCN Common Stock and held options to purchase 170,329
shares of FCN Common Stock.
EXPERTS
The consolidated financial statements of FCN included in the Annual Report
on Form 10-K for the year ended December 31, 1996, incorporated herein by
reference have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are
incorporated herein by reference in reliance upon the authority of said firm
as experts in accounting and auditing in giving said report.
The consolidated financial statements of Roney for the years ended September
26, 1997, September 27, 1996 and September 29, 1995, have been included herein
in this Prospectus in reliance upon the report of Coopers & Lybrand L.L.P.,
independent public accountants (appearing elsewhere herein) and upon the
authority of said firm as experts in accounting and auditing.
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APPENDIX I
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (together with all of the exhibits, schedules
and agreements attached hereto, collectively, this "Agreement") is entered
into as of November 18, 1997 by and between First Chicago NBD Corporation, a
Delaware corporation ("Purchaser"), and Roney & Co., L.L.C., a Delaware
limited liability company ("Seller").
RECITALS
The parties hereby confirm the truth and accuracy of the following Recitals
and incorporate them as an integral part of this Agreement.
A. Seller. Seller is a Delaware limited liability company duly organized and
validly existing in good standing under the laws of the State of Delaware,
with its principal executive offices located in Detroit, Michigan. As of the
date of this Agreement, Seller is capitalized as provided in attached Schedule
A. The members ("Members") of Seller designated as "Principals" in Schedule A
are collectively referred to in this Agreement as the "Principals."
B. Purchaser. Purchaser is a corporation duly organized and validly existing
under the laws of the State of Delaware with its principal executive offices
located in Chicago, Illinois. Purchaser is a registered bank holding company
under the Bank Holding Company Act of 1956, as amended (the "Act").
C. Other Rights. Except as disclosed in attached Schedule A, there are no
securities of Seller, either authorized or issued and Seller shall not issue
or sell any such securities. There are no preemptive rights in respect of
securities of Seller.
D. Approvals. The Board of Directors of Purchaser and Seller's Executive
Committee have approved by requisite vote at a meeting the entering into and
performance of the terms of this Agreement.
E. Retention Program. In connection with the transactions contemplated by
this Agreement, certain financial consultants, other producers and certain of
Seller's key representatives Disclosed (as defined below) to Purchaser ("Key
Producers") will, at the Closing (as defined below), receive shares of
restricted Common Stock of Purchaser ("Common Stock") to be issued under the
First Chicago NBD Corporation Stock Performance Plan (the "Stock Plan") in the
amounts and with the terms set forth on the attached Schedule E. Schedule E
sets forth a list of recipients of restricted shares of Common Stock, the
dollar amount of the shares to be granted, and the vesting schedule, i.e., 1/3
released at the end of year 1, 1/3 at the end of year 2 and 1/3 at the end of
year 3, and the circumstances (consisting of a voluntary resignation or
termination for cause) under which a Key Producer may forfeit the unvested
portion of a restricted Common Stock grant. The number of shares of Common
Stock to be granted to each recipient will equal the dollar amount of the
grant set forth in Schedule E divided by the Fair Market Value (as defined in
the Stock Plan) of the Common Stock on the Closing Date (as defined below).
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, and intending to be legally bound
hereby, the parties agree as follows:
I. PURCHASE OF ASSETS.
A. Seller's Assets. From and after the Closing, Seller shall sell and
Purchaser shall buy all of Seller's right, title and interest (including any
applicable leasehold interest) in and to all of Seller's assets, rights and
claims, including, without limitation, all of Seller's personal property, real
property, intellectual property, intangible property (including the right to
use the name "Roney & Co."), and books and records ("Seller's Assets"),
pursuant to the terms of this Agreement, the bill of sale, assignment and
assumption agreement substantially in the form attached as Schedule I.A.
("Assignment and Assumption Agreement") and a covenant deed in form
satisfactory to Seller and Purchaser, each of which shall be executed at the
Closing. The parties acknowledge that there is personal property of Members,
officers and employees of Seller, which is not, in the aggregate, material to
the business of Seller, located at various premises of Seller that is not
property owned or leased by Seller and does not constitute Seller's Assets.
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B. Liabilities. From and after the Closing, Purchaser shall assume and be
solely responsible and liable for all of Seller's liabilities, obligations and
debts of any nature whatsoever and whensoever arising ("Assumed Liabilities")
pursuant to this Agreement and the Assignment and Assumption Agreement;
provided, however, that Purchaser shall not be liable for any Taxes (as
defined below) of Seller or the Members other than the Michigan Single
Business Tax arising out of the transactions contemplated by this Agreement in
an amount not to exceed $50,000 and Taxes levied on or with respect to the
Transfer of Seller's real property.
C. Closing. Subject to the terms and conditions of this Agreement, the
Closing of the transactions contemplated by this Agreement (the "Closing")
will take place at 10:00 a.m. on a date to be specified by the parties, which
shall be the first Business Day which is at least two (2) Business Days after
the satisfaction or waiver (subject to applicable law) of the latest to occur
of the conditions set forth in Sections VI.A., VI.B. and VI.C. (the "Closing
Date"), at the offices of Purchaser in Detroit, Michigan, unless another time,
date or place is agreed to in writing by the parties hereto. For the purpose
of this Agreement, the term "Business Day" means a day that is not Saturday,
Sunday or holiday on which banks generally are open in the City of Detroit and
the City of Chicago.
D. Dissolution of Seller. As soon as practicable after the Closing, Seller
will be dissolved, liquidated and wound up in accordance with Seller's
Operating Agreement and applicable law.
II. PURCHASE PRICE AND OTHER AGREEMENTS.
A. Purchase Price. The total purchase price payable by Purchaser to Seller
is $79,900,000 ("Purchase Price") allocated to Seller's Members in accordance
with Seller's Operating Agreement as shown on attached Schedule II.A. and
payable as set forth below. The amounts and securities payable pursuant to
Sections A.(i) and B below shall be paid to Seller at Closing and shall be
immediately distributed by Seller to the Members in the amounts set forth in
Schedule II.A.
(i) $54,850,000 in cash at the Closing via wire transfer of immediately
available funds to an account or accounts designated by Seller to be
distributed to the Members in the amounts specified on Exhibit II.A.; and
(ii) An aggregate of $25,050,000 (the "Deferred Payment") payable in
shares of Common Stock of Purchaser ("Common Stock") following completion
of the post-Closing review described in II.A.(iii) below, which upon
issuance will be immediately distributed by Seller to the Principals
identified in Exhibit II.A. For purposes of convenience, Seller may direct
Purchaser to issue the Common Stock in the name of the applicable
Principal. The actual number of shares of Common Stock to be issued in the
name of each Principal shall equal a fraction, the numerator of which is
the value, expressed in dollars and set forth on Exhibit II.A., of the
Common Stock to be issued to the Principal and the denominator of which
equals the average closing price of the Common Stock as reported on the New
York Stock Exchange Composite Transaction Tape for the ten consecutive
trading days ending on the fifth trading day prior to the Closing Date. At
the Closing, the Common Stock to be issued pursuant to this Section
II.A.(ii) shall be registered for sale under the Securities Act of 1933, as
amended (together with the rules and regulations thereunder, the
"Securities Act"), and the Exchange Act of 1934, as amended (together with
the rules and regulations thereunder, the "Exchange Act"), with the
Securities and Exchange Commission ("SEC") and shall be approved for
listing on the New York Stock Exchange (the "NYSE").
(iii) Adjustment. The parties acknowledge that the Purchase Price is
calculated based upon the assumption that on the Closing Date Seller will
have a minimum equity capital of $24,000,000 (the "Minimum"). If, following
a post-Closing review by Coopers & Lybrand, L.L.P. of the financial
statements and books and records of Seller using such agreed upon
procedures as shall be mutually determined by Seller and Purchaser, the
equity capital of Seller, determined in accordance with generally accepted
accounting principles consistently applied ("GAAP"), is less than the
Minimum as of the Closing (the "Deficit"), then the Deferred Payment
portion of the Purchase Price shall be reduced (proportionately among the
Principals) by the amount of the Deficit. If Coopers & Lybrand, L.L.P.
determines that the equity capital is greater than the Minimum (the
"Excess"), then the Deferred Payment portion of the Purchase Price shall be
increased (proportionately among the Principals) by the amount of the
Excess. In determining distributable profits of Seller and Seller's equity
capital, there shall not be charged by Coopers & Lybrand, L.L.P. against
the profits otherwise distributable or the operations of Seller in
determining Seller's distributable profits and
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equity capital at the Closing, nor shall the Purchase Price be reduced
pursuant to this Section II.A.(iii) on account of, the following: (i) any
withdrawal of capital by the Members listed on the attached Exhibit
II.A.(iii) to the extent of the capital amount set forth on Exhibit
II.A.(iii) with respect to each such Member; (ii) any out-of-pocket
charges, costs or expenses which are incurred by Seller at the request of
Purchaser; or (iii) any out-of-pocket charges, costs or expenses, other
than Taxes to be paid by Seller pursuant to Section I.B., which are
otherwise incurred by Seller in connection with the transactions
contemplated by this Agreement, including, without limitation, costs of due
diligence, legal fees and investment banker fees (including, without
limitation, the fees of Wheat, First Securities, Inc. to be paid by Seller
pursuant to Section III.A.(xvi) below), not to exceed $1,500,000 in the
aggregate. In adjusting the amount of the Deferred Payment for any Excess
or Deficit, the value expressed in dollars in the numerator of the fraction
used to calculate the number of shares of Common Stock to be issued
pursuant to Section II.A.(ii) and not the average closing price of the
Common Stock as reported on the New York Stock Exchange Composite
Transaction Tape for the ten consecutive trading days ending on the fifth
trading day prior to the Closing Date, shall be adjusted.
B. Retention Payments. Restricted Common Stock with a Fair Market Value
equal to $15,100,000 on the Closing Date shall be awarded at the Closing under
the Stock Plan (a copy of which is attached hereto as Exhibit II.B.) to the
Key Producers specified in Schedule E.
C. Employment Agreements with Senior Executives. On or prior to the Closing
Date, a subsidiary of Purchaser shall enter into employment agreements with
the senior executives of Seller identified on Exhibit II.C., which employment
agreements shall be in form and substance reasonably satisfactory to the
Purchaser and the senior executives, and shall include the key financial terms
set forth on Exhibit II.C.
D. Employment Agreements with Certain Members. In recognition of the
significant value Purchaser places on certain of the Members and employees of
Seller, each Member of Seller who is not an Investing Member (as set forth on
Schedule A) shall enter into an employment agreement with Purchaser prior to
the Closing which shall be in form and substance reasonably satisfactory to
Seller and Purchaser and shall include the terms set forth on Exhibit II.D.
E. Support Agreements. Contemporaneously with the execution of this
Agreement, each Member of the Executive Committee of Seller has executed an
agreement ("Support Agreement") agreeing to vote his or her Membership
interest of Seller in favor of the transactions described herein, to recommend
such transactions as being in the best interests of the Members and to use his
or her reasonable best efforts to solicit and obtain the votes of Members to
approve the Agreement and the transactions contemplated herein.
F. Integration of Legal Entities. The parties currently intend, immediately
after the Closing, to transfer certain assets and liabilities acquired and
assumed from Seller to a subsidiary of The First National Bank of Chicago
("FNBC") to be called "Roney & Co." ("Newco"), and also to transfer certain
capital markets assets and liabilities acquired and assumed from Seller to a
"Roney & Co." division of First Chicago Capital Markets, Inc. The certificate
of incorporation and bylaws of Newco shall be in a form, including, without
limitation, provisions with respect to the indemnification of officers,
directors and employees of such entity, similar to the standard form used by
FNBC with respect to other of its wholly-owned subsidiaries, a copy of which
form was provided to Seller's counsel prior to the date hereof. The parties
shall cooperate and take all requisite actions, including, without limitation,
executing all required documents, prior to or after the Closing Date to
effectuate these transactions. The parties also agree to cooperate and take
all required or appropriate additional actions prior to or after the Closing
Date to merge or consolidate legal entities to the extent necessary for
regulatory reasons.
G. Allocation of Purchase Price. The Purchase Price to be paid by Purchaser
to Seller shall be allocated in accordance with the agreement of Purchaser and
Seller in accordance with Section 1060(a) of the Code (as defined below) and
the applicable treasury regulations thereunder. The parties agree to file all
Tax returns consistent with such allocation (and in particular to report the
information required by Section 1060(b) of the Code) and shall not make any
inconsistent written statement or take any inconsistent position on any Tax
returns during the course of any Internal Revenue Service or other tax audit,
for any financial or regulatory purpose, in any litigation or investigation or
otherwise. Each party shall promptly notify the other party if it receives
notice that the Internal Revenue Service proposes any allocation different
from the allocation agreed upon in accordance with this Section II.G.
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III. REPRESENTATIONS AND WARRANTIES.
A. Representations and Warranties of Seller. Seller hereby represents and
warrants to Purchaser that to Seller's Knowledge:
(i) Organization, Standing and Authority. It is duly licensed and
qualified to do business and is in good standing in the States of the
United States and foreign jurisdictions where its ownership or leasing of
property or the conduct of its business requires it to be so licensed or
qualified and in which the failure to be duly licensed or qualified,
individually or in the aggregate, is reasonably likely to have a Material
Adverse Effect on Seller. Seller has in effect all federal, state, local,
and foreign governmental authorizations necessary for it to own or lease
its properties and assets and to carry on its business as it is now
conducted, except for such authorizations, the absence of which,
individually or in the aggregate, is not reasonably likely to have a
Material Adverse Effect on Seller. Seller is duly registered, qualified to
do business and in good standing as a broker-dealer with the SEC, and is a
member in good standing of the National Association of Securities Dealers,
Inc. (the "NASD"), the NYSE, the American Stock Exchange, Inc. (the
"AMEX"), the Pacific Stock Exchange (the "PSE"), the Chicago Board of Trade
(the "CBOT"), the Chicago Mercantile Exchange (the "CME") and the Chicago
Stock Exchange (the "CSE").
(ii) Shares. The membership interests of Seller are validly issued and
outstanding, fully paid and nonassessable, and are subject to no, and have
not been issued in violation of any, preemptive or similar rights. There
are no other equity securities of Seller outstanding.
(iii) Seller Subsidiaries. Set forth on Exhibit III.A.(iii) is a list of
all Seller Subsidiaries and all Seller Affiliates (as defined below),
including the states in which such Seller Subsidiaries and Seller
Affiliates are organized, a brief description of such Seller Subsidiaries'
and Seller Affiliates' principal activities, and if any of such Seller
Subsidiaries or Seller Affiliates is not wholly-owned by Seller or a Seller
Subsidiary or Seller Affiliate, the percentage owned by Seller or any
Seller Subsidiary or any Seller Affiliate and the names, addresses and
percentage ownership by any other individual or corporation, partnership,
joint venture, business trust, limited liability corporation or
partnership, association or other organization (each, a "Business Entity").
There are no contracts, commitments, understandings or arrangements by
which any of Seller Subsidiaries is or may be bound to sell or otherwise
issue any shares of its capital stock, and there are no contracts,
commitments, understandings or arrangements relating to the rights of
Seller to vote or to dispose of such shares. All of the Shares of capital
stock of each Seller Subsidiary are validly issued, fully paid and
nonassessable and subject to no preemptive rights and are owned by Seller
or a Seller Subsidiary free and clear of any Liens (as defined below). Each
Seller Subsidiary is duly organized and in good standing under the laws of
the jurisdiction in which it is incorporated or organized, and is duly
qualified to do business and in good standing in each jurisdiction where
its ownership or leasing of property or the conduct of its business
requires it to be so qualified and in which the failure to be duly
qualified is reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect on Seller. Except as Disclosed, Seller does not own
beneficially, directly or indirectly, any equity securities or similar
interests of any Business Entity. The term "Seller Subsidiary" means any
Business Entity in which Seller, directly or indirectly, owns or controls
50% or more of any class of such entity's voting securities. The term
"Seller Affiliate" means any Business Entity which Seller, directly or
indirectly, owns or control 5% or more of any class of such entity's voting
securities.
(iv) Corporate Power. Seller and each of Seller Subsidiaries has the
corporate power and authority to carry on its business as it is now being
conducted and to own or lease all its material properties and assets.
Seller has Disclosed a brief description of each line of business in which
Seller or any Seller Subsidiary is engaged.
(v) Corporate Authority. Subject to any necessary receipt of approval by
its Members, this Agreement and its execution and the transactions
contemplated hereby have been authorized by all necessary corporate action
of Seller. This Agreement and the agreements contemplated hereby to which
Seller is a party are or will be at their respective date or dates of
execution valid and binding agreements of Seller enforceable in accordance
with their respective terms, subject as to enforcement to bankruptcy,
insolvency and other similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles.
(vi) No Defaults. Subject to the approval by the holders of at least a
majority of the Principals' interests in Seller, the required Regulatory
Approvals Disclosed in Exhibit III.A.(vi), the Disclosed required
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filings under federal and state securities and insurance laws and the
approvals of the NYSE and any other applicable exchange of this Agreement
and the other transactions contemplated hereby, and except as set forth on
Exhibit III.A.(vi), the execution, delivery and performance of this
Agreement and the consummation by Seller of the transactions contemplated
hereby, does not and will not (1) constitute a breach or violation of, or a
default under, or cause or allow the acceleration or creation of a Lien
(with or without the giving of notice, passage of time or both) pursuant to
any law, rule or regulation or any judgment, decree, order, governmental or
non-governmental permit or license, or agreement, indenture or instrument
of it or of any of Seller Subsidiaries or to which Seller or any of Seller
Subsidiaries or its or their properties is bound, which breach, violation,
default or Lien is reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect on Seller, (2) constitute a breach or
violation of, or a default under, its Operating Agreement or its
Certificate of Formation, or (3) require any consent or approval under any
such law, rule, regulation, judgment, decree, order, governmental or non-
governmental permit or license or the consent or approval of any other
party to any such agreement, indenture or instrument, other than the
approval of any landlord under any lease that Seller or a Seller Subsidiary
is a party or any such consent or approval, which if not obtained, would
not be reasonably likely, individually or in the aggregate, to have a
Material Adverse Effect on Seller.
(vii) Seller Reports. Seller has timely filed all material reports,
registrations, statements and other filings, together with any amendments
required to be made with respect thereto, and has paid all fees and
assessments which are due and payable in connection therewith, that were
required to be filed or paid (as the case may be) since December 31, 1995
with (1) the SEC and the Commodities Futures Trading Commission (the
"CFTC"), (2) any applicable federal, state, local or foreign governmental
or regulatory agencies or authorities and (3) the NASD, the NYSE, the AMEX,
the PSE, the CSE, the CME, the CBOT, the Municipal Securities Rulemaking
Board (the "MSRB") or any other non-governmental self-regulatory agency,
commission or authority (each, a "Self-Regulatory Body"), including without
limitation, all reports, registrations, statements and filings required
under the Investment Company Act of 1940 (together with the rules and
regulations thereunder, the "Investment Company Act"), the Investment
Advisers Act of 1940 (together with the rules and regulations thereunder,
the "Investment Advisers Act"), the Exchange Act, the Securities Act or any
applicable state securities or "blue sky" laws (all such reports and
statements, including the financial statements, exhibits and schedules
thereto, being collectively referred to herein as "Seller Reports"). As of
their respective dates (and without giving effect to any amendments or
modifications filed after the date of this Agreement with respect to Seller
Reports filed before the date of this Agreement), each of Seller Reports
complied in all material respects with the statutes, rules, regulations and
orders enforced or promulgated by the Regulatory Authority with which they
were filed and did not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(viii) Financial Statements.
(1) Seller has delivered to Purchaser copies of the audited
consolidated balance sheets and the related consolidated statements of
income, consolidated statements of changes in owners' equity and
consolidated statements of cash flows (including the related notes and
schedules thereto and reports of independent auditors) of Seller and
Seller Subsidiaries as of and for the three fiscal years ended September
27, 1996, and the unaudited consolidated balance sheets and the related
consolidated statements of income, consolidated statements of changes in
owners' equity and consolidated statements of cash flows (including the
related notes and schedules thereto) of Seller and Seller Subsidiaries
as of and for the fiscal year ended September 26, 1997 (collectively,
"Seller Financial Statements").
(2) (a) Seller Financial Statements (as of the dates thereof and for
the periods covered thereby) are and will be in accordance with the
books and records of Seller in all material respects, which books and
records are complete and accurate in all materials respects, and did not
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 made therein, in the light of the circumstances under
which they were made, not misleading; and (b) each of the balance sheets
in or incorporated by reference into Seller Financial Statements
(including the related notes and schedules thereto) fairly presents and
will fairly present the financial position of the entity or entities to
which it relates as of its date and each of the statements of income and
changes in owners' equity and cash flows or equivalent statements in
Seller
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Financial Statements (including any related notes and schedules thereto)
fairly presents and will fairly present the results of operations, the
changes in owners' equity and subordinated debt and the changes in cash
flows, as the case may be, of the entity or entities to which it relates
for the periods set forth therein, in each case in accordance with GAAP
consistently applied during the periods involved.
(ix) Absence of Undisclosed Liabilities. Except as disclosed in Seller
Financial Statements prior to the date hereof, none of Seller or Seller
Subsidiaries has any obligation or liability (contingent or otherwise),
including liabilities under Environmental Laws (as hereinafter defined),
that, individually or in the aggregate, is reasonably likely to have a
Material Adverse Effect on Seller.
(x) Absence of Certain Changes. Since September 26, 1997, the business of
Seller and Seller Subsidiaries has been conducted in the ordinary and usual
course consistent with past practice, and there has not been:
(1) any event, occurrence, development or state of circumstances or
facts which, individually or in the aggregate, has had or could
reasonably be expected to constitute or result in a Material Adverse
Effect on Seller; or
(2) except as Disclosed, any event, occurrence, development or state
of circumstances or facts which would result in a violation of the
representations, warranties or covenants set forth in Article III of
this Agreement had such events, occurrences, developments or state of
circumstances or facts occurred after the date hereof.
(xi) Properties; Securities. Except as specifically reserved against or
otherwise disclosed in Seller Financial Statements (including the related
notes and schedules thereto) and except for those properties and assets
that have been sold or otherwise disposed of in the ordinary course of
business, and except as Disclosed, Seller and Seller Subsidiaries have good
and marketable title (subject to liens, rights, easements and/or
restrictions of record), free and clear of all liens, encumbrances,
charges, security interests, restrictions (including restrictions on voting
rights or rights of disposition), defaults or equities of any character or
claims or third party rights of whatever nature (collectively "Liens"), to
all of the properties and assets, tangible and intangible, reflected in
Seller Financial Statements as being owned by Seller or Seller Subsidiaries
as of the dates thereof, other than those Liens that, individually or in
the aggregate, are not reasonably likely to have a Material Adverse Effect
on Seller. Seller and Seller Subsidiaries do not, directly or indirectly,
control any real property not used in the ordinary course of their
business, except as Disclosed. All buildings and all fixtures, equipment,
and other property and assets which are held under leases or subleases by
any of Seller or Seller Subsidiaries are held under valid leases or
subleases enforceable in accordance with their respective terms. Each of
Seller and Seller Subsidiaries has good and marketable title to all
securities held by it (except securities sold under repurchase agreements
or held in any fiduciary or agency capacity), free and clear of any Lien,
except to the extent such securities are pledged in the ordinary course of
business consistent with prudent business practices to secure obligations
of each of Seller or any of Seller Subsidiaries. Such securities are valued
on the books of Seller or Seller Subsidiaries in accordance with GAAP.
(xii) Litigation; Regulatory Action. Except as provided in Exhibit
III.A.(xii),
(1) no litigation, proceeding, controversy, investigation or inquiry
("Litigation") before or by any court, arbitrator, mediator or
Regulatory Authority (as hereinafter defined) is pending against Seller
or Seller Subsidiaries or their Members, officers and employees which,
individually or in the aggregate, is reasonably likely to have a
Material Adverse Effect on Seller, and, to the best of Seller's
knowledge, no such Litigation has been threatened;
(2) neither Seller nor any of Seller Subsidiaries or their Members,
officers, employees or properties is a party to or is subject to any
order, decree, agreement, memorandum of understanding or similar
arrangement with, or a commitment letter or similar submission to, any
federal, state or municipal governmental agency or authority or Self-
Regulatory Body (the "Regulatory Authorities") charged with the
supervision or regulation of broker-dealers, securities underwriting or
trading, stock exchanges, commodities exchanges, investment companies,
investment advisers or insurance agents and brokers (including, without
limitation, the SEC, the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board"), the CFTC, the MSRB, the NYSE, the
NASD, the AMEX, the CME, the PSE, the CSE, the CBOT and the Federal
Trade Commission) or the supervision or regulation of Seller or any of
Seller Subsidiaries; and
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(3) neither Seller nor any of Seller Subsidiaries has been advised by
any such Regulatory Authority that such Regulatory Authority is
contemplating issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order, decree,
agreement, memorandum of understanding, commitment letter or similar
submission. Disclosed in Exhibit III.A.(xii) is a true and complete
list, as of the date hereof, of all Litigation pending or threatened
against Seller, Seller Subsidiaries, and their Members, officers and
employees which, individually or in the aggregate, is reasonably likely
to have a Material Adverse Effect on Seller, including Litigation
arising out of any state of facts relating to the sale of investment
products by Seller, Seller Subsidiaries or any employees thereof
(including, without limitation, equity or debt securities, mutual funds,
insurance contracts, annuities, partnership and limited partnership
interests, interests in real estate, investment banking services,
securities underwritings in which Seller or any Seller Subsidiary was a
manager, co-manager, syndicate member or distributor, Derivatives
Contracts (as hereinafter defined) or structured notes).
(xiii) Compliance with Laws. Except as provided in Exhibit III.A.(xiii),
each of Seller and Seller Subsidiaries and their respective officers and
employees:
(1) in the conduct of its business (including, without limitation, its
municipal securities and NASDAQ market-making activities), is in
compliance with all applicable federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders or
decrees applicable thereto or to the employees conducting such
businesses, and the rules of all Self-Regulatory Bodies applicable
thereto;
(2) has all permits, licenses, authorizations, orders and approvals
of, and has made all filings, applications and registrations with, and
has paid all necessary fees and assessments currently due and payable
to, all Regulatory Authorities that are required in order to permit them
to own and operate their businesses as presently conducted and that are
material to the business of Seller and Seller Subsidiaries, taken as a
whole; all such permits, licenses, certificates of authority, orders and
approvals are in full force and effect and, to its knowledge, no
suspension or cancellation of any of them is threatened or reasonably
likely; and all such filings, applications and registrations are
current;
(3) has received no notification or communication from any Regulatory
Authority (a) asserting that any of them is not in compliance with any
of the statutes, rules, regulations, or ordinances which such Regulatory
Authority enforces, or has otherwise engaged in any unlawful business
practice which, as a result of such noncompliance in any such instance,
individually or in the aggregate, is reasonably likely to have a
Material Adverse Effect on Seller, (b) threatening to revoke any
license, franchise, permit, seat on any stock or commodities exchange,
or governmental authorization which revocation, individually or in the
aggregate, is reasonably likely to have a Material Adverse Effect on
Seller, (c) requiring any of them (including any of Seller's or Seller
Subsidiary's directors or controlling persons) to enter into a cease and
desist order, agreement, or memorandum of understanding (or requiring
the board of directors thereof to adopt any resolution or policy) or (d)
restricting or disqualifying the activities of Seller or any of Seller
Subsidiaries (except for restrictions generally imposed by rule,
regulation or administrative policy on broker-dealers generally);
(4) is not aware of any pending or threatened investigation, review or
disciplinary proceedings by any Regulatory Authority against Seller, any
Seller Subsidiary or any officer, director or employee thereof;
(5) is not, nor is any Affiliate of any of them, subject to a
"statutory disability" as defined in Section 3(a)(39) of the Exchange
Act.
(xiv) Registrations. Except as provided in Exhibit III.A.(xiv), neither
Seller nor any of Seller Subsidiaries or Seller Affiliates is subject to
regulation under the Investment Company Act or the Investment Advisors Act.
Seller and Seller Subsidiaries and each of their employees which are or who
are required to obtain any necessary license to conduct its business as it
is currently conducted, or to be registered as a broker/dealer, a
registered representative, an insurance agent or a sales person with the
SEC, the securities commission of any state or foreign jurisdiction or any
Self-Regulatory Body have obtained such necessary licenses and are duly
registered as such and such registrations and licenses are in full force
and effect, except for such instances of noncompliance which, individually
or in the aggregate, would not have a Material Adverse Effect on Seller.
All federal, state and foreign registration requirements have been complied
with in all material respects and such registrations as currently filed,
and all periodic reports required to be filed with respect thereto, are
accurate and complete in all material respects.
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(xv) Material Contracts.
(1) Except as provided in Exhibit III.A.(xv)(1), none of Seller or
Seller Subsidiaries are in default under any contract, agreement,
commitment, arrangement, lease, insurance policy, or other instrument to
which it is a party, by which its respective assets, business, or
operations may be bound or affected, or under which it is or its
respective assets, business, or operations receives benefits (each, a
"Contract"), which default, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect on Seller, and there
has not occurred any event that, with the lapse of time or the giving of
notice or both, would constitute such a default. Neither Seller nor any
Seller Subsidiary is subject to or bound by any exclusive dealing
arrangement or other contract or arrangement containing covenants which
limit the ability of Seller or any Seller Subsidiary or any Seller
Affiliate to compete in any line of business or with any person or which
involve any restriction on geographical area in which, or method by
which, Seller or any Seller Subsidiary or any Seller Affiliate may carry
on its business (other than as may be required by law or any applicable
Regulatory Authority). True and complete copies of all such Contracts
and all amendments thereto have been supplied or will be supplied prior
to the Closing to Purchaser. There are no Contracts between any Seller
Affiliate, on the one hand, and Seller or any Seller Subsidiary, on the
other hand.
(2) Contracts with Clients.
(a) Each of Seller and Seller Subsidiaries is in compliance with
the terms of each Contract with any customer to whom Seller or any
Seller Subsidiary provides services under any Contract (a "Client"),
and each such Contract is in full force and effect with respect to
the applicable Client.
(b) No Client is (i) an employee benefit plan subject to Title 1 of
ERISA (as hereinafter defined), or Section 4975 of the Code, or (ii)
an entity whose assets are treated as assets of such a plan under
ERISA or applicable regulations.
(c) Each extension of credit by Seller or any of Seller
Subsidiaries to any client (i) is in full compliance with Regulation
T of the Federal Reserve Board or any substantially similar
regulation of any Regulatory Authority, (ii) is fully secured, and
(iii) Seller or Seller Subsidiary, as the case may be, has a first
priority perfected security interest in the collateral securing such
extension.
(xvi) No Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by it directly with
the other parties hereto and no action has been taken by it that would give
rise to any valid claim against any party hereto for a brokerage
commission, finder's fee or other like payment, except for Seller's
arrangements with Wheat, First Securities, Inc. which will be the sole
responsibility of Seller, subject to the provisions of Section II.A.(iii).
(xvii) Employee Benefit Agreements.
(1) Exhibit III.A.(xvii)(1) is a complete list of all bonus, deferred
compensation, pension, retirement, profit-sharing, thrift, savings,
employee stock ownership, stock bonus, stock purchase, restricted stock
and stock option plans, all employment or severance contracts and plans,
all medical, dental, health and life insurance plans, all other employee
benefit plans, contracts or arrangements and any applicable "change of
control" or similar provisions in any plan, contract or arrangement
maintained or contributed to by it or any of Seller Subsidiaries for the
benefit of employees, former employees, directors, former directors or
their beneficiaries (the "Compensation and Benefit Agreements"). True
and complete copies of all Compensation and Benefit Agreements,
including, but not limited to, any trust instruments and/or insurance
contracts, if any, forming a part thereof, and all amendments thereto
have been supplied or will be supplied prior to the Closing to
Purchaser. There is no pending or threatened Litigation relating to the
Compensation and Benefit Agreements.
(2) All "employee benefit plans" within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), other than "multiemployer plans" within the meaning of
Section 3(37) of ERISA ("Multiemployer Agreements"), covering employees
or former employees of it and Seller Subsidiaries (the "ERISA
Agreements"), to the extent subject to ERISA, are operated and
administered in all material respects in compliance with ERISA. Except
as provided in Exhibit III.A.(xvii)(1) each ERISA Agreement which is an
"employee pension benefit plan" within the meaning of Section 3(2) of
ERISA ("Pension Agreement") and which is intended to be qualified, under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), has received a favorable determination letter from the Internal
Revenue Service with respect to "TRA" (as defined in
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Section 1 of Internal Revenue Service Revenue Procedure 93-39), and it
is not aware of any circumstances reasonably likely to result in the
revocation or denial of any such favorable determination letter or the
inability to receive such a favorable determination letter. There is no
pending or, to its knowledge, threatened litigation relating to the
ERISA Agreements. Neither it nor any of Seller Subsidiaries has engaged
in a transaction with respect to any ERISA Agreement that would subject
it or any of Seller Subsidiaries to a tax or penalty imposed by either
Section 4975 of the Code or Section 502(i) of ERISA in an amount which
would be material.
(3) Neither Seller nor any of Seller Subsidiaries presently
contributes to a Multiemployer Agreement, nor have they contributed to
such a plan within the past five calendar years, and neither Seller nor
any Seller Subsidiaries maintains any Pension Agreement which is subject
to Title IV of ERISA, Section 412 of the Code or Section 301 of ERISA.
(4) Neither it nor any of Seller Subsidiaries has any obligations for
retiree health and life benefits under any plan, except as Disclosed in
Exhibit III.A.(xvii)(1). There are no restrictions on the rights of it
or any of Seller Subsidiaries to amend or terminate any such plan
without incurring any liability thereunder.
(5) Except as provided in Exhibit III.A.(xvii)(5), neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (a) result in any payment
(including, without limitation, severance, unemployment compensation,
golden parachute or otherwise) becoming due to any director, Member or
any employee of it or any of Seller Subsidiaries under any Compensation
and Benefit Agreement or otherwise from it or any of Seller
Subsidiaries, (b) increase any benefits otherwise payable under any
Compensation and Benefit Agreement, (c) result in any acceleration of
the time of payment or vesting of any such benefit, or (d) result in the
imposition to the recipient of any excise tax pursuant to Section 4999
of the Code.
(xviii) Labor Relations. Each of Seller and Seller Subsidiaries is in
compliance with all currently applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and
hours, including, without limitation, the Immigration Reform and Control
Act, the Worker Adjustment and Retraining Notification Act, any such laws
respecting employment discrimination, disability rights or benefits, equal
opportunity, plant closure issues, affirmative action, workers'
compensation, employee benefits, severance payments, labor relations,
employee leave issues, wage and hour standards, occupational safety and
health requirements and unemployment insurance and related matters except
to the extent that non-compliance with any such laws would not be
reasonably likely to have a Material Adverse Effect on Seller. None of
Seller nor any of Seller Subsidiaries is engaged in any unfair labor
practice and there is no unfair labor practice complaint pending or
threatened against any of Seller or Seller Subsidiaries before the National
Labor Relations Board. Neither it nor any of Seller Subsidiaries is a party
to, or is bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization, nor is
it or any of Seller Subsidiaries the subject of a proceeding asserting that
it or any such Seller Subsidiary has committed an unfair labor practice
(within the meaning of the National Labor Relations Act) or seeking to
compel it or such subsidiary to bargain with any labor organization as to
wages and conditions of employment, nor is there any strike or other labor
dispute involving it or any of Seller Subsidiaries, pending or, to the best
of its knowledge, threatened, nor is it aware of any activity involving its
or any of Seller Subsidiaries' employees seeking to certify a collective
bargaining unit or engaging in any other organization activity.
(xix) Insurance. Seller and Seller Subsidiaries are insured with
reputable insurers against such risks and in such amounts as the management
of Seller reasonably has determined to be prudent in accordance with
industry practices. All of the insurance policies, binders, or bonds
maintained by Seller or Seller Subsidiaries are in full force and effect;
Seller and Seller Subsidiaries are not in default thereunder, and all
claims thereunder have been filed in due and timely fashion. Exhibit
III.A.(xix) sets forth a list of all insurance policies maintained by or
for the benefit of Seller or Seller Subsidiaries or their directors,
officers, employees, Members or agents.
(xx) Affiliates. Except as set forth in Exhibit III.A.(xx), there is no
person who, as of the date of this Agreement, may be deemed to be an
"affiliate" of Seller (each, an "Affiliate") as that term is used in Rule
145 under the Securities Act.
(xxi) No Further Action. It has taken all action so that the entering
into of this Agreement, and the consummation of the transactions
contemplated hereby (including without limitation the purchase of Seller's
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Assets) or any other action or combination of actions, or any other
transactions, contemplated hereby do not and will not (1) require a vote of
Members (other than the affirmative vote of the Majority of the Members to
approve the Agreement and the transactions contemplated hereby), or (2)
result in the grant of any rights to any person under Seller's Operating
Agreement or its Certificate of Formation or any articles of incorporation
or by-laws or similar charter documents of any Seller Subsidiary or under
any agreement to which Seller or any of Seller Subsidiaries is a party, or
(3) restrict, delay or impair in any way the ability of Purchaser to
exercise the rights granted hereunder.
(xxii) Environmental Matters. Seller and Seller Subsidiaries have
obtained and maintained in effect all material licenses, permits and other
authorizations required under all applicable laws, regulations and other
requirements of governmental or regulatory authorities relating to
pollution or to the protection of the environment ("Environmental Laws")
and is in compliance in all material respects with all Environmental Laws
and with all such licenses, permits and authorizations. It has not received
notice of liability to any person, governmental entity or Business Entity
under the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. (S) 9601 et seq. or any other Environmental Laws with
respect to real property owned or leased by Seller or Seller Subsidiaries.
(xxiii) Taxes. Except as set forth on Exhibit III.A.(xxiii),
(1) all reports and returns with respect to Taxes (as defined below)
and tax related information reporting requirements that are required to
be filed by or with respect to it or Seller Subsidiaries (collectively,
"Seller Tax Returns"), have been duly filed, or requests for extensions
have been timely filed and have not expired, and such Seller Tax Returns
were true, complete and accurate in all material respects,
(2) all taxes (which shall mean federal, state, including, without
limitation, the Michigan Single Business tax, local or foreign income,
gross receipts, windfall profits, severance, property, production,
sales, use, license, excise, franchise, employment, premium, recording,
documentary, documentary stamps, real estate transfer, transfer, back-up
withholding or similar taxes, together with any interest, additions, or
penalties with respect thereto, imposed on the income, properties or
operations of it or Seller Subsidiaries, together with any interest in
respect of such additions or penalties, collectively the "Taxes") shown
to be due on Seller Tax Returns have been paid in full or have been
adequately reserved against on the books of Seller or Seller
Subsidiaries,
(3) Neither Seller nor any Seller Subsidiary has waived any statute of
limitations in respect of Taxes or agreed to any extension of time for
the assessment of any Tax,
(4) all Taxes due with respect to completed and settled examinations
have been paid in full,
(5) no issues have been raised by the relevant taxing authority in
connection with the examination of any of Seller Tax Returns which are
reasonably likely, individually or in the aggregate, to result in a
determination that would have a Material Adverse Effect on Seller,
except as reserved against in Seller Financial Statements prior to the
date of this Agreement,
(6) no waivers of statutes of limitations have been given by or
requested with respect to any Taxes of Seller or Seller Subsidiaries,
and
(7) none of Seller, Seller Subsidiaries, Purchaser or any direct or
indirect subsidiary of Purchaser, as a consequence of Seller's actions
prior to the Closing, will be obligated to make a payment to an
individual that would be a "parachute payment" as such term is defined
in Section 280G of the Code without regard to whether such payment is to
be performed in the future.
(xxiv) Accuracy of Information. The statements with respect to Seller and
Seller Subsidiaries contained in this Agreement, the Schedules and Exhibits
and any other written documents executed and delivered by or on behalf of
it pursuant to the terms of this Agreement are true and correct in all
material respects, and such statements and documents do not omit any
material fact necessary to make the statements contained therein, in light
of the circumstances under which they were made, not misleading.
(xxv) Accounting Controls. Each of Seller and Seller Subsidiaries has
devised and maintained systems of internal accounting controls sufficient
to provide reasonable assurances, in the judgment of the Executive
Committee of Seller, that (1) all material transactions are executed in
accordance with management's general or specific authorization; (2) all
material transactions are recorded as necessary to permit the preparation
of financial statements in conformity with GAAP consistently applied with
respect to broker-dealers or any
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other criteria applicable to such statements, (3) access to the material
property and assets of Seller and Seller Subsidiaries is permitted only in
accordance with management's general or specific authorization; and (4) the
recorded accountability for items is compared with the actual levels at
reasonable intervals and appropriate action is taken with respect to any
differences.
(xxvi) Derivatives. All exchange-traded or over-the-counter swap,
forward, future, option, cap, floor or collar financial contract or any
other similar arrangement, whether entered into for Seller's account, or
for the account of one or more of the Seller Subsidiaries or their
customers, were entered into (1) in accordance with prudent business
practices and all applicable laws, rules, regulations and regulatory
policies and (2) with counterparties believed to be financially responsible
at the time; and each of them constitutes the valid and legally binding
obligation of Seller or the applicable Seller Subsidiary, enforceable in
accordance with its terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws of general applicability relating to or affecting
creditors' rights or by general equity principles), and are in full force
and effect. Neither Seller nor any Seller Subsidiary is in breach of any of
its obligations under any such agreements and arrangements. The Seller
Financial Statements disclose the value of such agreements and arrangements
on a marked-to-market basis in accordance with GAAP and, since September
26, 1997, there has not been a change in such value that, individually or
in the aggregate, has resulted in a Material Adverse Effect on Seller.
(xxvii) Proprietary Rights. Seller and Seller Subsidiaries have the right
to use the names, service-marks, trademarks and other intellectual property
material to the conduct of their business, which are provided for on
Exhibit III.A.(xxvii); and in the case of such names, service-marks and
trademarks, in each state of the United States, such right of use is free
and clear of any Liens, and no other person has the right to use such
names, service-marks or trademarks in any such state.
(xxviii) Investment Advisory Activities. Except as provided in Exhibit
III.A.(xxviii), none of Seller or any Seller Subsidiary is or has been
during the past five years an "investment adviser" within the meaning of
the Investment Advisers Act, required to be registered, licensed or
qualified as an investment advisor under the Investment Advisers 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 to be
so registered, licensed or qualified that could not, individually or in the
aggregate, reasonably be likely to have a Material Adverse Effect on
Seller.
(xxix) Distribution of Purchase Price. The payment, distribution and
allocation of the Purchase Price, including the Deferred Payments, by
Seller to the Members in accordance with the terms and provisions of this
Agreement, including, without limitation, Article II hereof, has been duly
authorized by all required action of Seller and complies in all respects
with the applicable provisions of the Operating Agreement and Certificate
of Formation of Seller and applicable Delaware law.
B. Purchaser Representations and Warranties. Purchaser hereby, represents
and warrants to Seller that to its Knowledge:
(i) Corporate Authority. Subject to the required Regulatory Approvals,
this Agreement has been authorized by all necessary corporate action of it
and is a valid and binding agreement of it enforceable against it in
accordance with its terms, subject as to enforcement to bankruptcy,
insolvency and other similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles.
(ii) No Defaults. Subject to the required filings with, notices to and
approval of the Federal Reserve Board, the Office of the Comptroller of the
Currency and any required filings under federal and state securities,
banking and insurance laws, and the required filings with, notices to and
approvals of the NYSE, the NASD and the other applicable securities
exchanges or Self-Regulatory Bodies, the purchase of Seller's Assets and
the other transactions contemplated hereby by Seller, does not and will not
(1) constitute a breach or violation of, or a default under, any law, rule
or regulation or any judgment, decree, order, governmental permit or
license, or agreement, indenture or instrument of it or of any of its
subsidiaries or to which it or any of its subsidiaries or properties is
subject or bound, which breach, violation or default is reasonably likely
to have a Material Adverse Effect on Purchaser, (2) constitute a breach or
violation of, or a default under, its Articles of Incorporation, Charter or
Bylaws, or (3) require any consent or approval under any such law, rule,
regulation, judgment, decree, order, governmental permit or license, or the
consent or approval of any other party to any such agreement, indenture or
instrument other than such consent or
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approval, which if not obtained, would not be reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on
Purchaser.
(iii) Financial Reports. Its Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, and all other documents filed or to be filed
subsequent to December 31, 1996, under Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act, in the form filed with the SEC (in each such case, the
"Financial Reports"), did not and will not as of their respective dates
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 made
therein, in light of the circumstances under which they were made, not
misleading; and each of the balance sheets in or incorporated by reference
into the Financial Reports (including the related notes and schedules
thereto) fairly presents and will fairly present the financial position of
the entity or entities to which it relates as of its date and each of the
statements of income and changes in stockholders' equity and cash flows or
equivalent statements in the Purchaser Financial Reports (including any
related notes and schedules thereto) fairly presents and will fairly
present the results of operations, changes in stockholders' equity and
changes in cash flows, as the case may be, of the entity or entities to
which it relates for the periods set forth therein, in each case in
accordance with GAAP consistently applied to banks and bank holding
companies during the periods involved, except as may be noted therein,
subject to normal and recurring year-end audit adjustments in the case of
unaudited statements.
(iv) No Events. No events have occurred, or circumstances have arisen,
since September 30, 1997, which, individually or in the aggregate, have had
or are reasonably likely to have a Material Adverse Effect on Purchaser.
(v) No Brokers. All negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on by it directly with
the other parties hereto and no action has been taken by it that would give
rise to any valid claim against any party hereto for a brokerage
commission, finder's fee or other like payment.
(vi) No Knowledge. It knows of no reason why the regulatory approvals
referred to in Section V.J. should not be obtained without the imposition
of any condition of the type referred to in Section VI.A.(ii).
(vii) Organization, Standing and Authority. It is duly licensed and
qualified to do business and is in good standing in the States of the
United States and foreign jurisdictions where the failure to be duly
licensed or qualified, individually or in the aggregate, is reasonably
likely to have a Material Adverse Effect on Purchaser. Purchaser and its
subsidiaries have in effect all federal, state, local and foreign
governmental authorizations necessary for them to own or lease their
properties and assets and to carry on their respective business as now
conducted, the absence of which, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect on Purchaser.
(viii) Corporate Power. Purchaser has the corporate power and authority
to carry on its business as now being conducted and to own or lease all its
properties and assets, except where the failure to do so is not reasonably
likely to have a Material Adverse Effect on Purchaser.
(ix) Accuracy of Information. The statements with respect to Purchaser
contained in this Agreement, the Schedules and any other written documents
executed and delivered by or on behalf of Purchaser pursuant to the terms
of this Agreement are true and correct in all material respects, and such
statements and documents do not omit any material fact necessary to make
the statements contained therein, in light of the circumstances under which
they were made, not misleading.
(x) Litigation; Regulatory Action. Neither Purchaser nor any of its
subsidiaries is a party to any Litigation before any court, arbitrator,
mediator or Regulatory Authority which, individually or in the aggregate,
is reasonably likely to have a Material Adverse Effect on Purchaser and, to
the best of its knowledge, no such Litigation has been threatened; and
neither it nor any of its subsidiaries or any of its or their material
properties or their officers, directors or controlling persons is a party
to or is the subject of any order, decree, agreement, memorandum of
understanding or similar arrangement with, or a commitment letter or
similar submission to, any Regulatory Authorities, which is reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect
on Purchaser and neither it nor any of its subsidiaries has been advised by
any Regulatory Authorities that any such authority is contemplating issuing
or requesting (or is considering the appropriateness of issuing or
requesting) any such order, decree, agreement, memorandum of understanding,
commitment letter or similar submission.
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IV. ACTIONS BETWEEN SIGNING AND CLOSING.
A. Forbearances of Seller. From the date of the execution of this Agreement
until the Closing, except as expressly contemplated by this Agreement or as
Disclosed, without the prior written consent of Purchaser, which consent shall
not be unreasonably withheld, Seller will not, and will cause each of the
Seller Subsidiaries not to:
(i) Ordinary Course. Conduct the business of Seller and Seller's
Subsidiaries in all material respects, other than in the ordinary and usual
course consistent with past practice or fail to use reasonable efforts to
preserve their business organizations and assets and maintain their rights,
franchises and existing relations with clients, customers, suppliers,
employees and business associates, or take any action reasonably likely to
have a Material Adverse Effect on Seller.
(ii) Additional Ownership. (a) Issue, sell or otherwise permit to become
outstanding, or authorize the creation of, any additional ownership
interests in Seller, (b) enter into any agreement with respect to the
foregoing, or (c) permit any ownership interests in Seller to become
subject to issuance.
(iii) Dividends, Etc. Make, declare, pay or set aside for payment any
distribution to its Members, except Seller shall be permitted to make
ordinary and customary distributions to its Members consistent with past
practice, subject to the adjustment provisions contained in Section
II.A.(iii).
(iv) Compensation; Employment Agreements, Etc. Enter into amend, modify
or renew any employment, consulting, severance or similar agreements or
arrangements with any officer or employee of Seller or any Seller
Subsidiary, or grant any salary or wage increase or increase any employee
benefit (including incentive or bonus payments), except, (a) for normal
individual increases in compensation to employees in the ordinary course of
business consistent with past practice, (b) for other changes that are
required by applicable law, (c) to satisfy Disclosed contractual
obligations existing as of the date hereof, or (d) for employment
arrangements for, or grants of awards to newly hired employees in the
ordinary course of business consistent with past practice.
(v) Benefit Agreements. Enter into, establish, adopt or amend (except (a)
as may be required by applicable law, or (b) to satisfy Disclosed
contractual obligations existing as of the date hereof) any pension,
retirement, stock option, stock purchase, savings, profit sharing, deferred
compensation, consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, plan or arrangement, or any trust agreement
(or similar arrangement) related thereto, in respect of any Member,
director, officer or employee of Seller or any Seller Subsidiary, or take
any action to accelerate the vesting or exercisability of stock options,
restricted stock or other compensation or benefits payable thereunder.
(vi) Governing Documents. Amend Seller's Operating Agreement or its
Certificate of Formation or the articles of incorporation or by-laws (or
similar charter documents) of any Seller Subsidiary.
(vii) Accounting Methods. Implement or adopt any change in its accounting
principles, practices or methods, other than as may be required by GAAP.
(viii) Contracts. Except in the ordinary course of business consistent
with past practice, enter into or terminate any material contract or amend
or modify in any material respect any of its existing material contracts.
(ix) Claims. Settle any claim, action or proceeding, except for any
claim, action or proceeding involving solely money damages in an amount,
individually not more than $100,000 and in the aggregate for all such
settlements, not more than $250,000.
(x) Indebtedness. Incur material capital expenditures, obligations or
liabilities, or any indebtedness for borrowed money, other than in the
ordinary course of business consistent with past practice.
(xi) Commitments. Agree, commit to or enter into any agreement to take
any of the actions referred to in this Section.
(xii) Dispositions. Except (i) as Disclosed or (ii) sales of securities
or other investments or assets in the ordinary course of business
consistent with past practice, sell, transfer, mortgage, encumber or
otherwise dispose of or discontinue any of its assets, business or
properties.
(xiii) Acquisitions. Except (i) as Disclosed or (ii) the purchase of
securities or other investments or assets in the ordinary course of
business consistent with past practice, acquire any assets, business, or
properties of any other entity.
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V. COVENANTS.
Seller hereby covenants to Purchaser, and Purchaser hereby covenants to
Seller, as applicable, that:
A. Efforts. Subject to the terms and conditions of this Agreement, it shall
use its reasonable best efforts in good faith to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, proper or
desirable, or advisable under applicable laws, so as to permit consummation of
the purchase and Sale of Seller's Assets.
B. Registration Statement. Purchaser and Seller shall cooperate and prepare
a registration statement on Form S-4 (the "Registration Statement") to be
filed by Purchaser with the SEC (it being understood that Purchaser shall use
its reasonable best efforts to file the Registration Statement or preliminary
proxy statement with the SEC within 45 days of the date hereof). Purchaser
shall use its reasonable best efforts to cause the Registration Statement to
be declared effective by the SEC as soon as practicable after the initial
filing thereof. Purchaser shall use its reasonable best efforts to take all
other actions and make all filings necessary or desirable with the SEC or any
other federal or state Regulatory Authority in order to permit Purchaser to
issue the Common Stock to Seller and the Principals.
C. Compliance With Securities Laws. When the Registration Statement or any
post-effective amendment or supplement thereto shall become effective, and at
all time subsequent to such effectiveness, such Registration Statement and all
amendments or supplements thereto, with respect to all information set forth
therein furnished or to be furnished by or on behalf of Seller relating to
Seller or the Seller Subsidiaries and by or on behalf of Purchaser relating to
Purchaser or its subsidiaries, (1) will comply in all material respects with
the provisions of the Securities Act and the Exchange Act and any other
applicable statutory or regulatory requirements, and (2) 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 contained therein not
misleading; in no event shall any party hereto be liable for any untrue
statement of material fact or omission to state a material fact in the
Registration Statement, made in reliance upon, and in conformity with, written
information concerning another party furnished by or on behalf of such other
party specifically for use in the Registration Statement.
D. Registration Statement Effectiveness. Purchaser will advise Seller,
promptly after Purchaser receives notice thereof, of the time when the
Registration Statement has become effective or any supplement or amendment has
been filed (after providing drafts in advance to Seller and its counsel for
review and comment), of the issuance of any stop order or the suspension of
the qualification of the Common Stock for offering or sale in any
jurisdiction, of the initiation or threat of any proceeding for any such
purpose, or of any request by the SEC for the amendment or supplement of the
Registration Statement or for additional information.
E. Special Meeting. Seller shall call a special meeting (the "Special
Meeting") of its Principals to be held as soon as practicable after the date
hereof for purposes of voting upon approval of this Agreement and the
transactions contemplated hereby and Seller covenants that the Executive
Committee of Seller will unanimously recommend the Agreement and the
transactions contemplated hereby as being in the best interests of the
Principals and will use their reasonable best efforts to solicit and obtain
the votes of Principals to approve the Agreement and the transactions
contemplated hereby.
F. Press Releases. Seller will not, without the prior approval of Purchaser
(which approval shall not be unreasonably withheld or delayed), and Purchaser
will not, without the prior approval of Seller (which approval shall not be
unreasonably withheld or delayed), issue any press release or written
statement for general circulation relating to the transactions contemplated
hereby, except as otherwise required by law.
G. Acquisition Proposals. In the case of Seller, it shall not, and it shall
cause the Seller Subsidiaries not to, solicit or encourage inquires or
proposals with respect to, or furnish any non-public information relating to
or participate in any negotiations or discussions concerning, any acquisitions
or purchase of all or a substantial portion of the assets of, or a substantial
equity interest in, Seller or any of the Seller Subsidiaries or any merger or
other business combination with Seller or any of the Seller Subsidiaries other
than as contemplated by this Agreement. It shall instruct its and the Seller
Subsidiaries' officers, directors, Members, agents, advisors and Affiliates to
refrain from taking any action that would violate or conflict with any of the
foregoing; and it shall notify Purchaser immediately if any such inquiries or
proposals are received by, or any such negotiations or discussions are sought
to be initiated with, Seller or any of the Seller Subsidiaries.
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H. Blue-Sky Filings. In the case of Purchaser, it shall use its reasonable
best efforts to obtain all necessary state securities laws or "blue-sky"
permits and approvals; provided, that Purchaser shall not be required by
virtue thereof to submit to the general jurisdiction in any state.
I. Inspection of Records. Purchaser and Seller shall each afford to the
other and to the other's accountants, counsel and other representatives (and
their subsidiaries) reasonable access during normal business hours during the
period prior to the Closing Date to all of their respective properties, books,
contracts, commitments and records, including, without limitation, all
attorneys' responses to auditors' requests for information, and accountants'
work papers, developed by either of them or their respective subsidiaries or
their respective accountants or attorneys, and will permit each other and
their respective representatives to discuss such information directly with
each other's officers, directors, Members, employees, attorneys and
accountants. Purchaser and Seller shall each use their best efforts to furnish
to the other all other information concerning its business, properties and
personnel as such other party may reasonably request. Any failure to comply
with this covenant shall be disregarded if promptly corrected without material
adverse consequences to the other party. The availability or actual delivery
of information shall not affect the representations, warranties, covenants and
agreements of the party providing such information that are contained in this
Agreement or in any certificates or other documents delivered pursuant hereto.
J. Regulatory Applications. In the case of Purchaser, subject to the
cooperation of Seller,
(i) it shall use its reasonable best efforts to prepare and submit
applications to the appropriate Regulatory Authorities for approval of the
Purchase of Assets within 30 days of the date hereof, and
(ii) promptly make all other appropriate filings to secure all other
approvals, consents and rulings which are necessary for the consummation of
the Purchase of Assets by Purchaser. Purchaser will provide copies of the
public portions of such applications and responses to Seller and its
counsel prior to submitting such applications and responses to the
applicable Regulatory Authorities. In the case of Seller, it agrees, upon
request, to furnish Purchaser with information concerning itself, Seller
subsidiaries, and their officers and Members and such other matters as may
be necessary or advisable in connection with any filing, notice or
application made by or on behalf of Purchaser or any of its subsidiaries in
connection with the Purchase of Assets.
K. Current Information.
(i) Communication. Between the date of the execution of this Agreement
and the Closing Date, each of Seller and Purchaser shall cause its
representatives to confer on a regular and frequent basis with
representatives of the other.
(ii) Litigation. Seller and Purchaser shall promptly notify each other of
the institution or the settlement of material Litigation relating to them.
(iii) Changes. Each party shall (a) promptly notify the other of any
event or condition that might reasonably be expected to cause any of such
party's representations or warranties set forth herein not to be true and
correct as of the Closing Date or prevent such party from fulfilling its
obligations hereunder and (b) notify the other party immediately of any
denial of any application filed by such party with any Regulatory Authority
with respect to this Agreement, and in each case shall keep the other party
informed with respect thereto.
L. Indemnification/Liability Coverage/Non-Survival. From and at all times
after the Closing and with respect to any claims made hereunder through the
sixth anniversary of the Closing Date, Purchaser shall indemnify, defend and
hold harmless Seller (to the extent any Claim (as defined below) results or
could reasonably be expected to result in a Claim being asserted against any
Member of Seller) and the present and former officers, employees,
representatives and Members of Seller and Seller Subsidiaries (each as
"Indemnified Party") against all losses, damages, claims, duties and
liabilities (collectively, "Claims") arising out of, or relating to, in whole
or in part, (1) any fact, event or circumstance relating to Seller's or Seller
Subsidiaries' business which fact, event or circumstance arose or existed on
or before the Closing Date (except with respect to the allocation and
distribution of the Purchase Price and the Retention Payments specified in
Section II.B. to the Members upon payment or issuance in full of such amounts
by Purchaser in accordance with the terms of this Agreement), whether or not
any such Claim is asserted before or after the Closing or matured into a Claim
or was asserted before or after the Closing, (2) the transactions contemplated
by this Agreement (except with
I-15
<PAGE>
respect to the allocation and distribution of the Purchase Price and the
Retention Payments specified in Section II.B. to the Members upon payment or
issuance in full of such amounts by Purchaser in accordance with the terms of
this Agreement), whether accruing or being asserted before or after the
Closing and (3) the failure of Purchaser to timely pay, perform and discharge
the Assumed Liabilities. Purchaser also shall, from and at all times after the
Closing, indemnify, defend and hold harmless each Indemnified Party against
all Claims arising out of, or relating to, the business of Purchaser and its
subsidiaries after the Closing to the extent such Indemnified Party is
permitted to be indemnified by Purchaser and its subsidiaries under the
Delaware General Corporation Law and the certificate of incorporation and
bylaws of Purchaser or the applicable subsidiary as in effect at the time of
such indemnification, including provisions relating to the advancing of
expenses incurred in the defense of any litigation. Notwithstanding anything
in this Section V.L. to the contrary, nothing contained in this Section V.L.
shall limit in any way Purchaser's obligation to assume and be solely
responsible and liable for the Assumed Liabilities as provided in Section I.B.
above. Any Indemnified Party wishing to claim indemnification under this
Section, upon learning of such claim, action, suit, proceeding or
investigation, shall promptly notify Purchaser thereof; provided, that the
failure so to notify shall not affect the obligations of Purchaser under this
Section (unless such failure materially increases Purchaser's liability under
this Section). In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Closing), (1) Purchaser
shall have the right to assume the defense thereof, if it so elects, and
Purchaser shall pay all reasonable fees and expenses of counsel for the
Indemnified Parties promptly as statements therefor are received; provided,
however, that Purchaser shall be obligated pursuant to this subsection to pay
only one firm of counsel for all Indemnified Parties in any jurisdiction for
any single action, suit or proceeding or any group of actions, suits or
proceedings arising out of a common body of facts, (2) the Indemnified Parties
will cooperate in the defense of any such matter, and (3) Purchaser shall not
be liable for any settlement effected without its prior written consent. The
rights of each Indemnified Party hereunder shall be in addition to any other
rights such Indemnified Party may have under the Operating Agreement and the
Certificate of Formation.
M. Non-Survival. The representations, warranties and covenants of Seller
shall not survive the Closing, other than the covenant of Seller in Section
I.D. to dissolve after the Closing, and Purchaser and its subsidiaries and
Affiliates shall not have any right or claim against Seller or any of the
Indemnified Parties former or present on account of transactions contemplated
by this Agreement.
N. Employee Benefit Plans. Purchaser shall maintain Seller's ERISA
Agreements and all other employee compensation plans or arrangements existing
on the date hereof for a period of three years from the Closing Date or such
shorter period as may be agreed upon by Purchaser and the Board of Newco.
O. Affiliates. Seller shall use its reasonable best efforts to cause each
person who is an "affiliate" (for purposes of Rule 145 under the Securities
Act) of Seller to deliver to Purchaser as soon as practical after the date of
this Agreement, and prior to the date of the Special Meeting, a written
agreement, in form and substance reasonably satisfactory to Purchaser,
providing that such person will not sell, pledge, transfer or otherwise
dispose of any shares of Common Stock to be received by such "affiliate" under
the Agreement except in compliance with the applicable provisions of the
Securities Act and the rules and regulations thereunder.
VI. CONDITIONS TO CLOSING OF PURCHASE OF ASSETS.
A. Conditions to Each Party's Obligation to Close the Purchase of
Assets. The respective obligation of each of Purchaser and Seller to
consummate the purchase of Seller's Assets is subject to the fulfillment or
written waiver by Purchaser and Seller prior to the Closing of each of the
following conditions:
(i) Approvals. The Agreement and the Purchase of Assets shall have been
duly adopted by the requisite vote of Seller's Principals.
(ii) Regulatory Approvals. All Regulatory Approvals required to
consummate the transactions contemplated hereby, shall have been obtained
and shall remain in full force and effect and all statutory waiting periods
in respect thereof shall have expired and no such approvals shall contain
any conditions, restrictions or requirements which in the reasonable
judgment of Purchaser would, following the Closing, have a Material Adverse
Effect on Purchaser or the business of Seller.
(iii) No Injunction. No Regulatory Authority of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute,
rule, regulation, judgment, decree, injunction or other order
I-16
<PAGE>
(whether temporary, preliminary or permanent) which is in effect and
prohibits consummation of the transactions contemplated by this Agreement.
(iv) Registration Statement. The Registration Statement shall have become
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued or
threatened by the SEC.
(v) Blue Sky Approvals. All permits and other authorizations under state
securities laws necessary to consummate the transactions contemplated
hereby and to issue the shares of Common Stock to be issued as the Deferred
Payment shall have been received and be in full force and effect.
B. Conditions to Obligation of Seller. The obligation of Seller to
consummate the purchase of Assets is also subject to the fulfillment or
written waiver by Seller prior to the Closing of each of the following
conditions:
(i) Representations and Warranties. The representations and warranties of
Purchaser set forth in this Agreement shall be true and correct as of the
date of this Agreement and as of the Closing as though made on and as of
the Closing. Such representations and warranties shall be deemed to be true
and correct if the failure or failures of such representations and
warranties to be so true and correct are not reasonably likely to
constitute or give rise to, individually or in the aggregate, a Material
Adverse Effect on Purchaser, and Seller shall have received a certificate,
dated the Closing Date, signed on behalf of Purchaser by an executive
officer of Purchaser to such effect.
(ii) Performance of Obligations of Purchaser. Purchaser shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing, and Seller shall
have received a certificate, dated the Closing Date, signed on behalf of
Purchaser by an executive officer of Purchaser to such effect.
(iii) Opinion of Purchaser's Counsel. Seller shall have received an
opinion of Sherman I. Goldberg, Executive Vice President, Secretary and
General Counsel of Purchaser, dated the Closing Date and in form and
substance reasonably satisfactory to Seller, to the effect that, on the
basis of facts, representations and assumptions set forth in such opinion,
this Agreement and all of the rights, liabilities and benefits are fully
enforceable.
C. Conditions to Obligations of Purchaser. The obligations of Purchaser to
consummate the purchase of Seller's Assets is also subject to the fulfillment
or written waiver by Purchaser prior to the Closing of each of the following
conditions:
(i) Representations and Warranties. The representations and warranties of
Seller set forth in this Agreement shall be true and correct as of the date
of this Agreement and as of the Closing as though made on and as of the
Closing. Such representations and warranties shall be deemed to be true and
correct if the failure or failures of such representations and warranties
to be so true and correct are not reasonably likely to constitute or give
rise to, individually or in the aggregate, a Material Adverse Effect on
Seller, and Purchaser shall have received a certificate, dated the Closing
Date, signed on behalf of Seller by an executive officer of Seller to such
effect.
(ii) Performance of Obligations of Seller. Seller shall have performed in
all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing, and Purchaser shall have
received a certificate, dated the Closing Date, signed on behalf of Seller
by an executive officer of Seller to such effect.
(iii) Opinion of Seller's Counsel. Purchaser shall have received an
opinion of Honigman Miller Schwartz and Cohn, dated the Closing Date and in
form and substance reasonably satisfactory to Purchaser, to the effect
that, on the basis of facts, representations and assumptions set forth in
such opinion, (a) this Agreement and all of the rights, liabilities and
benefits are fully enforceable and (b) the payment, distribution and
allocation of the Purchase Price, including the Deferred Payments, by
Seller to the Members in accordance with the terms and provisions of this
Agreement, including, without limitation, Article II hereof, has been duly
authorized by all required action of Seller and complies in all respects
with the applicable provisions of the Operating Agreement and Certificates
of Formation of Seller and applicable Delaware law.
(iv) Accountants' Letters. Coopers & Lybrand, L.L.P. independent auditors
for Seller, shall have delivered to Purchaser letters, dated the date of or
shortly prior to the Closing Date, in form and substance reasonably
satisfactory to Purchaser, with respect to Seller's consolidated financial
position and results of
I-17
<PAGE>
operations, which letters shall be based upon "agreed upon procedures"
undertaken by such firm in accordance with the Statements on Auditing
Standards No. 76.
(v) Employment Agreements. The employment agreements identified in
Section II.C. shall have been executed by the Members identified on Exhibit
II.C. and be in full force and effect, and the employment agreements
identified in Section II.D. shall have been executed by all of the
Principals receiving Deferred Payments identified on Exhibit II.A. and be
in full force and effect.
VII. TERMINATION.
This Agreement may be terminated prior to the Closing Date:
A. Mutual Consent. By the mutual consent of Purchaser and Seller.
B. Breach. By Seller or Purchaser, in the event of, (i) a breach by the
other party of any representation or warranty contained herein, which has a
Material Adverse Effect, which breach cannot be or has not been cured within
30 days after the giving of written notice to the breaching party of such
breach, or (ii) a breach by the other party of any of the covenants or
agreements contained herein which has a Material Adverse Effect, which breach
cannot be or has not been cured within 30 days after the giving of written
notice to the breaching party of such breach.
C. Delay. By Purchaser or Seller, in the event that the purchase of Seller's
Assets is not consummated by September 30, 1998, except if such delay was
caused by one of the party's breach(s) of this Agreement.
D. No Principal or Regulatory Approval. By Seller or Purchaser, (i) in the
event that Seller's Principal approval of this Agreement and the transactions
contemplated hereby is not approved at the Special Meeting, including any
adjournments thereof, or (ii) in the event that written notice is received
which states that any required regulatory approval contemplated by this
Agreement will not be approved or has been denied.
E. Failure to Recommend. By Purchaser if at or prior to the Special Meeting
of the Members to approve this Agreement and the transactions contemplated
hereby, the Executive Committee of Seller shall have failed to make its
recommendation as described in Section V.E., or it shall have withdrawn such
recommendation or modified or changed such recommendation in a manner adverse
in any respect to Purchaser.
F. Material Adverse Effect. By Purchaser, in the event of a fact, event,
circumstance or omission that would have constituted a breach of a
representation or warranty made by Seller in this Agreement, except that such
representation or warranty was qualified by Seller's Knowledge, to the extent
such fact, event, circumstance or omission is reasonably likely to have a
Material Adverse Effect on Seller.
G. Termination Fee. In the event that the purchase of Seller's Assets does
not Close, (a) because of a breach of this Agreement causing a failure to
satisfy a condition precedent to the Closing, which breach was caused by the
wilful or intentional misconduct of one of the parties, or (b) because of a
wilful or intentional failure or refusal to Close by one of the parties in
violation of this Agreement, as its sole and exclusive remedy, the non-
breaching party shall be entitled to terminate this Agreement and the
breaching party shall pay the non-breaching party a non-performance fee of
$1.90 million in immediately available funds within five Business Days after
the receipt of notice from the non-breaching party that said non-performance
fee is due and payable, plus all reasonable out-of-pocket costs, expenses,
losses and damages incurred by the non-breaching party ("Termination Payment")
as a result of such non-performance, it being understood that NEITHER PARTY
SHALL BE LIABLE HEREUNDER FOR ANY INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES.
If the failure of condition is not caused by the willful or intentional
misconduct, failure or refusal of either party, then the non-breaching party
may, as its sole and exclusive remedy, terminate this Agreement or Close,
waiving, in either event, any right or claim against the breaching party.
VIII. OTHER MATTERS.
A. Waiver; Amendment. Prior to the Closing Date, any provision of this
Agreement may be (i) waived in writing by the party benefitting by the
provision, or (ii) amended or modified at any time (including the structure of
the transactions contemplated hereby) by an agreement in writing among the
parties hereto approved by the Purchaser and the Executive Committee of Seller
and executed in the same manner as this Agreement.
I-18
<PAGE>
B. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to constitute an original. This Agreement shall
become effective when one counterpart has been signed by each party hereto.
C. Governing Law. This Agreement shall be construed and interpreted in
accordance with the laws of the State of Delaware without regard to conflicts
of law principles thereof, except to the extent that the federal laws of the
United States apply.
D. Expenses. Each party hereto will bear all expenses incurred by it in
connection with this Agreement and the transactions contemplated hereby.
E. Confidentiality. Except as otherwise provided in Section V.F., each of
the parties hereto and their respective agents, attorneys and accountants will
maintain the confidentiality of all information provided in connection
herewith which has not been publicly disclosed.
F. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
If to Purchaser:First Chicago NBD Corporation
One First National Plaza, Mail Suite 0035
Chicago, IL 60670
Telecopy Number: (312) 732-3201
Attention: Terence C. Wise
Copy to:First Chicago NBD Corporation
One First National Plaza, Mail Suite 0292
Chicago, IL 60670
Telecopy Number: (312) 732-9753/3596
Attention: Daniel P. Cooney
If to Selleror Roney & Co.:One Griswold
8th Floor
Detroit MI 48226
Telecopy Number: (313) 963-8975
Attention: William C. Roney, III
Copy to:Honigman Miller Schwartz and Cohn
2290 First National Building
Detroit MI 48226
Telecopy Number: (313) 962-0176
Attention: Patrick T. Duerr, Esq.
G. Definitions. Any term defined anywhere in this Agreement shall have the
meaning ascribed to it for the purposes of this Agreement (unless expressly
noted to the contrary). In addition:
(i) the term "Material Adverse Effect", when applied to a party, shall
mean an event, occurrence or circumstance (including, without limitation,
any breach of a representation or warranty contained herein by such party)
which (a) has a material adverse effect on the financial condition, results
of operation, or business of such party and its subsidiaries, taken as a
whole, or (b) materially impairs any party's ability to timely perform its
obligations under this Agreement or the consummation of any of the
transactions contemplated hereby; provided, that a Material Adverse Effect
with respect to a party shall not include events or conditions generally
affecting the securities or banking industry, as applicable, or effects
resulting from general economic conditions (including changes in interest
rates), changes in accounting practices or changes to statutes, regulations
or regulatory policies, that do not have a materially more adverse effect
on such party than that experienced by similarly situated financial
services companies;
I-19
<PAGE>
(ii) the term "Disclosed" by a party shall mean information set forth in
any Exhibit or Schedule to this Agreement; and
(iii) the term "Knowledge" of a party shall mean the actual knowledge of
the executive management of the subject party.
H. Entire Understanding; Third Party Beneficiaries. This Agreement and all
schedules hereto represents the entire understanding of the parties hereto
with reference to the transactions contemplated hereby and supersede any and
all oral or written agreements heretofore made. Nothing in this Agreement,
express or implied, is intended to confer upon any person, other than the
parties hereto and their respective successors, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except that
the provisions of Sections II.A., II.B., V.L., V.M. and V.N. are intended to
benefit (a) the former Members of Seller who are employed by Purchaser and (b)
the Indemnified Party ("Third Party Beneficiaries"). No amendment,
modification or change to Sections II.A., II.B., V.L., V.M. or V.N. of this
Agreement shall be made without the prior written approval of the Third Party
Beneficiaries. The Third Party Beneficiaries may make claims in their own
names against Purchaser for any breach hereunder of such Sections.
I. Headings. The headings contained in this Agreement are for reference
purposes only and are not part of this Agreement.
J. Interpretation; Effect. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of, or
Exhibit or Schedule to, this Agreement unless otherwise indicated. No
provision of this Agreement shall be construed to require Seller, Purchaser or
any of their respective Subsidiaries, affiliates or directors to take any
action which would violate applicable law (whether statutory or common law),
rule or regulation.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
FIRST CHICAGO NBD CORPORATION,a Delaware
corporation
/s/ Terence C. Wise
By: _____________________________________
Senior Vice President
Its: ____________________________________
"Purchaser"
RONEY & CO., L.L.C.,
a Delaware limited liability company
/s/ Robert J. Michelotti
By: _____________________________________
Chief Executive Officer
Its: ____________________________________
"Seller"
I-20
<PAGE>
APPENDIX II
November 18, 1997
Executive Committee
Roney & Co., L.L.C.
One Griswold
Detroit, Michigan 48226
Members of the Committee:
Roney & Co., L.L.C. ("Roney") and First Chicago NBD Corporation ("FCN") have
entered into an Asset Purchase Agreement, dated as of November 18, 1997 (the
"Agreement"), pursuant to which Roney will be dissolved and FCN will purchase
substantially all of the assets and assume substantially all of the
liabilities of Roney (the "Acquisition"). Upon consummation of the
Acquisition, the Members of Roney will receive, in aggregate, $54,850,000 in
cash at closing and $25,050,000 payable in FCN Common Stock (collectively, the
"Acquisition Consideration").
Wheat, First Securities, Inc. ("Wheat First") as part of its investment
banking business, is regularly engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate
and other purposes. In the ordinary course of our business as a broker-dealer,
we may, from time to time, have a long or short position in, and buy or sell,
debt or equity securities of FCN for our own account or for the accounts of
our customers.
You have asked us whether, in our opinion, the Acquisition Consideration is
fair, from a financial point of view, to the Members of Roney.
In arriving at the opinion set forth below, we have conducted discussions
with members of senior management of Roney and FCN concerning their businesses
and prospects and have reviewed certain publicly available business and
financial information and certain other information prepared or provided to us
in connection with the Acquisition, including, among other things, the
following:
(1) Certain internal financial reports provided by the management of Roney;
(2) FCN's Annual Reports to Shareholders, Annual Reports on Form 10-K and
related financial information for the three fiscal years ended December
31, 1996;
(3) FCN's Quarterly Reports on Form 10-Q and related financial information
for the periods ended June 30, 1997, and March 31, 1997, and certain
information released by the management of FCN for the period ended
September 30, 1997;
(4) Certain publicly available information with respect to historical
market prices and trading activities for FCN Common Stock and for
certain publicly traded financial institutions which Wheat First deemed
relevant;
(5) Certain publicly available information with respect to banking and
brokerage companies and the financial terms of certain other mergers
and acquisitions which Wheat First deemed relevant;
(6) The Acquisition Agreement;
(7) Certain estimates of the earnings and cost savings projected by Roney
and FCN for the combined company;
(8) Other financial information concerning the businesses and operations of
Roney and FCN, including certain audited financial information and
certain financial analyses and forecasts for FCN prepared by senior
management in connection with its previously announced acquisitions;
and
(9) Such financial studies, analyses, inquiries and other matters as Wheat
First deemed necessary.
In preparing our opinion, we have relied on and assumed the accuracy and
completeness of all information provided to us or publicly available,
including the representations and warranties of Roney and FCN included in the
Agreement, and we have not assumed any responsibility for independent
verification of such information. We
II-1
<PAGE>
have relied upon the managements of Roney and FCN as to the reasonableness and
achievability of their financial and operational forecasts and projections,
including the estimates of cost savings and revenue enhancements expected to
result from the Acquisition, and the assumptions and bases therefor, provided
to us, and, with your consent, we have assumed that such forecasts and
projections reflect the best currently available estimates and judgments of
such managements, and that such forecasts and projections will be realized in
the amounts and in the time periods currently estimated by such managements. We
also assumed, without independent verification, that the aggregate allowances
for loan losses and other contingencies for Roney and FCN are adequate to cover
such losses. Wheat First did not review any individual credit files of FCN, nor
did it make an independent evaluation or appraisal of the assets or liabilities
of Roney or FCN. We also assumed that, in the course of obtaining the necessary
regulatory approvals for the Acquisition, no conditions will be imposed that
will have a material adverse effect on the contemplated benefits of the
Acquisition, on a pro forma basis, to FCN.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on the date hereof and the information made
available to us through the date hereof. Events occurring after that date could
materially affect the assumptions and conclusions contained in our opinion. We
have not undertaken to reaffirm or revise this opinion or otherwise comment on
any events occurring after the date hereof. Wheat First's opinion is directed
to the Executive Committee of Roney and relates only to the fairness, from a
financial point of view, of the Acquisition Consideration to the Members of
Roney and does not address any other aspect of the Acquisition or constitute a
recommendation to any Member of Roney as to how such Member should vote with
respect to the Acquisition. Wheat First's opinion does not address the relative
merits of the Acquisition as compared to any alternative business strategies
that might exist for Roney, nor does it address the effect of any other
business combination in which Roney might engage.
It is understood that this opinion may be included in its entirety in the
Prospectus relating to the FCN Common Stock to be issued to the Members of
Roney. This opinion may not, however, be summarized, excerpted from or
otherwise publicly referred to without our prior written consent.
On the basis of and subject to the foregoing, we are of the opinion that as
of the date hereof the Acquisition Consideration is fair, from a financial
point of view, to the Members of Roney.
Very truly yours,
/s/ Wheat, First Securities, Inc.
Wheat, First Securities, Inc.
II-2
<PAGE>
APPENDIX III
CERTAIN FINANCIAL INFORMATION CONCERNING RONEY
<TABLE>
<S> <C>
Certain Financial Information for the Three Months Ended December 31,
1997 and 1996
Consolidated Statements of Financial Condition....................... III-2
Consolidated Statements of Income.................................... III-3
Consolidated Statements of Changes in Subordinated Debt.............. III-4
Consolidated Statements of Changes in Members' Equity................ III-5
Consolidated Statements of Cash Flow................................. III-6
Independent Auditors' Report (including related financial statements)
Years ended September 26, 1997 and September 27, 1996................ III-7
Years ended September 27, 1996 and September 29, 1995................ III-19
</TABLE>
III-1
<PAGE>
RONEY & CO. L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
ASSETS 1997 1996
------ ------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash................................................. $ 1,532,622 $ 1,520,954
Receivables:
Customers.......................................... 165,819,246 131,432,519
Brokers and dealers................................ 2,131,059 2,981,443
Members............................................ 3,527,681 2,960,996
Other.............................................. 3,062,465 3,234,087
Trading securities owned, at market ................. 10,174,973 12,466,501
Property and Equipment, net.......................... 2,912,053 2,682,667
Other assets......................................... 5,445,494 5,012,352
------------ ------------
$194,605,593 $162,291,519
============ ============
<CAPTION>
LIABILITIES AND MEMBERS' EQUITY
-------------------------------
<S> <C> <C>
Short-term debt...................................... $ 87,500,555 $ 70,200,000
Payable to customers................................. 42,077,303 40,360,095
Payable to brokers and dealers....................... 6,431,922 1,592,665
Trading securities sold but not yet purchased, at
market.............................................. 487,517 905,737
Accounts payable, accrued expenses and other
liabilities......................................... 8,563,009 5,977,135
Payable to members................................... 22,763,143 16,428,487
------------ ------------
167,822,894 135,464,119
Subordinated debt.................................... 2,000,000 2,000,000
Members' equity...................................... 24,782,699 24,827,400
------------ ------------
26,782,699 26,827,400
------------ ------------
$194,605,593 $162,291,519
============ ============
</TABLE>
Note: The interim unaudited consolidated statements of financial condition and
the related consolidated statements of income, changes in subordinated debt,
changes in members' equity and cash flows included herein on page III-2
through III-6 reflect, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary to a fair
presentation of such financial statements.
III-2
<PAGE>
RONEY & CO. L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
-----------------------
DECEMBER DECEMBER
31, 1997 31, 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues:
Commissions........................................... $ 9,912,284 $ 8,843,712
Principal transactions................................ 8,093,000 6,225,854
Investment banking and underwriting................... 3,982,369 2,718,571
Interest:
Customer margin accounts............................ 3,468,162 2,747,803
Other............................................... 88,445 101,229
Other................................................. 2,867,253 1,765,813
----------- -----------
28,411,513 22,402,982
----------- -----------
Expenses:
Member and employee compensation and benefits......... 16,457,801 13,092,999
Interest.............................................. 2,310,298 2,068,873
Communications, occupancy and equipment rental........ 2,291,469 1,956,009
Floor brokerage, exchange and clearance fees.......... 473,002 408,051
Other operating expenses.............................. 4,720,779 3,590,038
----------- -----------
26,253,349 21,115,970
----------- -----------
Net income.......................................... $ 2,158,164 $ 1,287,012
=========== ===========
</TABLE>
Note: The interim unaudited consolidated statements of financial condition and
the related consolidated statements of income, changes in subordinated debt,
changes in members' equity and cash flows included herein on page III-2
through III-6 reflect, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary to a fair
presentation of such financial statements.
III-3
<PAGE>
RONEY & CO. L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SUBORDINATED DEBT
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
-------------------------
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Balance, beginning and end of period.................. $2,000,000 $2,000,000
========== ==========
</TABLE>
Note: The interim unaudited consolidated statements of financial condition and
the related consolidated statements of income, changes in subordinated debt,
changes in members' equity and cash flows included herein on page III-2
through III-6 reflect, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary to a fair
presentation of such financial statements.
III-4
<PAGE>
RONEY & CO. L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
--------------------------
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Balance, beginning of period........................ $29,314,041 $25,965,143
Net income.......................................... 2,158,164 1,287,012
Equity contributions from members................... -- 2,789,100
Equity withdrawals by members....................... -- (50,000)
Income distributions to members..................... (6,689,506) (5,163,855)
----------- -----------
Balance, end of period.............................. $24,782,699 $24,827,400
=========== ===========
</TABLE>
Note: The interim unaudited consolidated statements of financial condition and
the related consolidated statements of income, changes in subordinated debt,
changes in members' equity and cash flows included herein on page III-2
through III-6 reflect, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary to a fair
presentation of such financial statements.
III-5
<PAGE>
RONEY & CO. L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED
--------------------------
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 2,158,164 $ 1,287,012
Noncash items included in net income,
depreciation and amortization................... 565,488 384,693
(Increase) decrease in receivables:
Customers...................................... (13,582,999) 10,658,799
Brokers and dealers............................ 2,083,542 1,975,753
Members........................................ (699,767) 17,993
Other.......................................... (230,085) (1,145,651)
(Increase) decrease in:
Trading securities owned....................... (1,816,150) (3,861,000)
Other assets................................... 33,745 (287,252)
Increase (decrease) in operating payables:
Customers...................................... 6,705,026 9,588,961
Brokers and dealers............................ (2,567,655) 1,020,722
Accounts payable, accrued expense and other
liabilities................................... (480,686) (2,353,349)
Increase (decrease) in:
Trading securities sold but not yet purchased.. (161,337) 428,840
Payable to members............................. 9,996,015 6,686,360
------------ ------------
Net cash provided by (used in) operating
activities.................................... 2,003,301 24,401,881
------------ ------------
Cash flows from financing activities:
Increase (decrease) in short-term debt, net...... 5,100,000 (21,400,000)
Changes in members' equity, net.................. (6,689,506) (2,424,755)
------------ ------------
Net cash provided by (used in) financing
activities.................................... (1,589,506) (23,824,755)
------------ ------------
Cash flows from investing activities, purchase of
property and equipment............................ (91,210) (148,882)
------------ ------------
Net increase (decrease) in cash.................... 322,585 428,244
Cash, beginning of period.......................... 1,210,037 1,092,710
------------ ------------
Cash, end of period................................ $ 1,532,622 $ 1,520,954
============ ============
Supplemental disclosure of cash flow information,
cash paid during the year for interest............ $ 2,989,124 $ 2,693,676
============ ============
</TABLE>
Note: The interim unaudited consolidated statements of financial condition and
the related consolidated statements of income, changes in subordinated debt,
changes in members' equity and cash flows included herein on page III-2
through III-6 reflect, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary to a fair
presentation of such financial statements.
III-6
<PAGE>
RONEY & CO. L.L.C. AND SUBSIDIARIES
REPORT ON AUDITS OF CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 26, 1997 AND SEPTEMBER 27, 1996
III-7
<PAGE>
RONEY & CO. L.L.C. AND SUBSIDIARIES
CONTENTS
<TABLE>
<CAPTION>
PAGES
-------
<S> <C>
Financial Statements:
Report of Independent Accountants..................................... III-9
Consolidated Statements of Financial Condition........................ III-10
Consolidated Statements of Income..................................... III-11
Consolidated Statements of Changes in Subordinated Debt............... III-12
Consolidated Statements of Changes in Members' Equity................. III-13
Consolidated Statements of Cash Flows................................. III-14
Notes to Consolidated Financial Statements............................ III-15-
III-18
</TABLE>
III-8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of Roney & Co. L.L.C.:
We have audited the accompanying consolidated statements of financial
condition of Roney & Co. L.L.C. (a Delaware limited liability company) and
Subsidiaries (the "Company") as of September 26, 1997 and September 27, 1996,
and the related consolidated statements of income, changes in subordinated
debt, changes in members' equity, and cash flows for the fiscal years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Roney & Co.
L.L.C. and Subsidiaries as of September 26, 1997 and September 27, 1996, and
the consolidated results of their operations and their cash flows for the
fiscal years then ended in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
Detroit, Michigan
November 18, 1997
III-9
<PAGE>
RONEY & CO. L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
SEPTEMBER 26, SEPTEMBER 27,
ASSETS 1997 1996
------ ------------- -------------
<S> <C> <C>
Cash............................................... $ 1,210,037 $ 1,092,710
Receivables:
Customers (Note 2)............................... 152,236,247 142,091,318
Brokers and dealers (Note 3)..................... 4,214,601 4,957,196
Members.......................................... 2,827,914 2,978,989
Other............................................ 2,832,380 2,088,436
Trading securities owned, at market (Note 4)....... 8,358,823 8,605,501
Property and equipment, net (Note 5)............... 3,086,331 2,758,478
Other assets....................................... 5,779,239 4,885,100
------------ ------------
$180,545,572 $169,457,728
============ ============
<CAPTION>
LIABILITIES AND MEMBERS' EQUITY
-------------------------------
<S> <C> <C>
Short-term debt (Note 6)........................... $ 82,400,000 $ 91,600,000
Payable to customers (Note 2)...................... 35,372,277 30,771,134
Payable to brokers and dealers (Note 3)............ 8,999,577 571,943
Trading securities sold but not yet purchased, at
market (Note 4)................................... 648,854 476,897
Accounts payable, accrued expenses and other
liabilities....................................... 9,043,695 8,330,484
Payable to members................................. 12,767,128 9,742,127
------------ ------------
149,231,531 141,492,585
Subordinated debt (Note 7)......................... 2,000,000 2,000,000
Members' equity.................................... 29,314,041 25,965,143
------------ ------------
31,314,041 27,965,143
------------ ------------
$180,545,572 $169,457,728
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
III-10
<PAGE>
RONEY & CO. L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
---------------------------
SEPTEMBER 26, SEPTEMBER 27,
1997 1996
------------- -------------
<S> <C> <C>
Revenues:
Commissions....................................... $36,240,187 $31,426,749
Principal transactions............................ 28,791,465 26,338,219
Investment banking and underwriting............... 12,109,792 10,223,399
Interest:
Customer margin accounts........................ 11,250,722 10,466,865
Other........................................... 385,076 334,336
Other............................................. 9,686,417 6,768,896
----------- -----------
98,463,659 85,558,464
----------- -----------
Expenses:
Member and employee compensation and benefits..... 56,254,664 48,553,809
Interest.......................................... 8,469,309 7,971,904
Communications, occupancy and equipment rental.... 7,842,271 6,725,798
Floor brokerage, exchange and clearance fees...... 1,925,554 1,557,102
Other operating expenses.......................... 16,053,514 13,272,828
----------- -----------
90,545,312 78,081,441
----------- -----------
Net income...................................... $ 7,918,347 $ 7,477,023
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
III-11
<PAGE>
RONEY & CO. L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SUBORDINATED DEBT
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
---------------------------
SEPTEMBER 26, SEPTEMBER 27,
1997 1996
------------- -------------
<S> <C> <C>
Balance, beginning and end of year.................. $2,000,000 $2,000,000
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
III-12
<PAGE>
RONEY & CO. L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
---------------------------
SEPTEMBER 26, SEPTEMBER 27,
1997 1996
------------- -------------
<S> <C> <C>
Balance, beginning of year.......................... $25,965,143 $22,648,545
Net income.......................................... 7,918,347 7,477,023
Equity contributions from members................... 3,892,400 4,460,323
Equity withdrawals by members....................... (1,198,000) (1,676,725)
Income distributions to members..................... (7,263,849) (6,944,023)
----------- -----------
Balance, end of year................................ $29,314,041 $25,965,143
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
III-13
<PAGE>
RONEY & CO. L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
----------------------------
SEPTEMBER 26, SEPTEMBER 27,
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 7,918,347 $ 7,477,023
Noncash items included in net income,
depreciation and amortization................... 2,054,916 1,432,095
(Increase) decrease in receivables:
Customers...................................... (10,144,929) (16,513,850)
Brokers and dealers............................ 742,595 (3,667,455)
Members........................................ 151,075 (1,022,903)
Other.......................................... (743,944) (729,183)
(Increase) decrease in:
Trading securities owned....................... 246,678 (1,422,930)
Other assets................................... (2,139,239) (2,452,077)
Increase (decrease) in operating payables:
Customers...................................... 4,601,143 (2,893,934)
Brokers and dealers............................ 8,427,634 88,272
Accounts payable, accrued expense and other
liabilities................................... 713,211 1,226,531
Increase (decrease) in:
Trading securities sold but not yet purchased.. 171,957 22,931
Payable to members............................. 3,025,001 1,966,490
------------ ------------
Net cash provided by (used in) operating
activities.................................... 15,024,445 (16,488,990)
------------ ------------
Cash flows from financing activities:
Decrease in short-term debt, net................. (9,200,000) 20,200,000
Repayment of bonds............................... -- (250,000)
Changes in members' equity, net.................. (4,569,449) (4,135,425)
------------ ------------
Net cash provided by (used in) financing
activities.................................... (13,769,449) 15,814,575
------------ ------------
Cash flows from investing activities, purchase of
property and equipment............................ (1,137,669) (604,805)
------------ ------------
Net increase (decrease) in cash.................... 117,327 (1,279,220)
Cash, beginning of year............................ 1,092,710 2,371,930
------------ ------------
Cash, end of year.................................. $ 1,210,037 $ 1,092,710
============ ============
Supplemental disclosure of cash flow information,
cash paid during the year for interest............ $ 8,470,059 $ 7,845,656
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
III-14
<PAGE>
RONEY & CO. L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Principles of Consolidation: Effective January 26, 1996, Wm. C. Roney &
Co., which operated under the name Roney & Co., converted from a Michigan
limited partnership to a Delaware limited liability company and adopted the
name Roney & Co. L.L.C. The assets and liabilities of Wm. C. Roney & Co. were
recorded in the accounts of Roney & Co. L.L.C. at their respective historical
amounts in a manner similar to a pooling of interests.
The consolidated financial statements include the accounts of Roney & Co.
L.L.C. (the "Company") and its wholly owned subsidiaries. All material
intercompany balances and transactions have been eliminated.
The Company is a securities broker-dealer with 28 branch offices in
Michigan, Ohio and Indiana and is a member firm of the New York Stock
Exchange, Inc. ("NYSE") and other securities exchanges.
b. Other Accounting Policies: Trading securities owned and trading
securities sold but not yet purchased are stated at market value. Unrealized
gains and losses on securities are recognized in net income.
Securities transactions are recorded on a settlement-date basis, generally
the third business day following the transaction date. Commission income and
related expenses for transactions executed, but not yet settled, were not
material.
Investment banking and underwriting revenues include gains, losses and fees,
net of syndicate expenses, arising from securities offerings in which the
Company acts as an underwriter or agent. Investment banking and underwriting
revenues also include fees earned from providing merger and acquisition and
financial restructuring advisory services.
Property and equipment are recorded at cost. Building and improvements are
depreciated using the straight-line method over 15 years. Furniture and
equipment are depreciated using accelerated methods over five to seven years.
Leasehold improvements are amortized, using the straight-line method, over the
lesser of the estimated useful life of the improvement or the remaining life
of the lease.
Securities owned and securities sold but not yet purchased are recorded at
market value. The fair value of all other financial assets and liabilities
(consisting primarily of receivable from and due to brokers-dealers, clearing
organizations and customers, and subordinated debt) are considered to
approximate the recorded value due to the short-term nature of the financial
instruments and repricing policies followed by the Company.
Income tax expense has not been provided for company income in the
accompanying consolidated financial statements because such income is not
taxable to the Company, but is includable in the individual tax returns of the
members.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. RECEIVABLE FROM AND PAYABLE TO CUSTOMERS:
The amounts receivable from and payable to customers represent balances
resulting from cash and margin transactions. Securities owned by customers and
held as collateral for these receivables are not reflected in the consolidated
financial statements. Substantially all customer receivables and payables bear
interest at rates related to the Company's brokers' call loan rate.
III-15
<PAGE>
RONEY & CO. L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. RECEIVABLE FROM AND PAYABLE TO BROKER-DEALERS AND CLEARING ORGANIZATIONS:
Amounts receivable from and payable to broker-dealers and clearing
organizations at September 26, 1997 and September 27, 1996, consist of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 26, SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 27,
1997 1997 1996 1996
RECEIVABLE PAYABLE RECEIVABLE PAYABLE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Securities for failed-
to-deliver/receive..... $ 292,435 $2,234,241 $1,875,499 $239,353
Deposits for securities
borrowed/loaned........ 2,630,079 4,653,896 331,883 --
Receivable from/payable
to clearing
organizations.......... 1,292,087 2,111,440 2,749,814 332,590
---------- ---------- ---------- --------
$4,214,601 $8,999,577 $4,957,196 $571,943
========== ========== ========== ========
</TABLE>
4. TRADING SECURITIES:
Trading securities owned and trading securities sold but not yet purchased
are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 26, SEPTEMBER 27,
1997 1996
------------- -------------
<S> <C> <C>
Owned:
Certificates of deposit........................ $ 55,506 $ 39,762
United States government obligations........... 448,542 396,172
Corporate debt and equity securities........... 4,351,419 5,122,536
State and municipal securities................. 3,503,356 3,047,031
---------- ----------
$8,358,823 $8,605,501
========== ==========
Sold but not yet purchased:
Corporate debt and equity securities........... $ 604,792 $ 464,012
State and municipal securities................. 44,062 12,885
---------- ----------
$ 648,854 $ 476,897
========== ==========
</TABLE>
5. PROPERTY AND EQUIPMENT:
The major classes of property and equipment are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 26, SEPTEMBER 27,
1997 1996
------------- -------------
<S> <C> <C>
Land...................... $ 450,000 $ 450,000
Building and improvements. 3,346,222 3,242,008
Furniture, equipment and
leasehold improvements... 4,598,515 3,942,121
---------- ----------
8,394,737 7,634,129
Less accumulated
depreciation........... 5,308,406 4,875,651
---------- ----------
$3,086,331 $2,758,478
========== ==========
</TABLE>
III-16
<PAGE>
RONEY & CO. L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. SHORT-TERM DEBT:
Short-term debt represents borrowings from banks under two demand lines of
credit totaling $145 million. The borrowings bear interest at the banks'
brokers' call loan rate (6.32 and 6.625 percent at September 26, 1997).
Marketable securities in member accounts with an approximate value of $896,444
and securities carried in customer margin accounts with an approximate value
of $143,873,826 collateralize the outstanding borrowings.
7. SUBORDINATED DEBT:
The Company has a $2 million debt agreement which is subordinated to the
claims of general creditors. The debt is payable in quarterly installments of
$100,000, which commence in October 1998 and will mature in 2003. The Company
is required to maintain certain minimum levels of net capital, as defined in
the agreement. Interest on the debt is charged at 1 1/2 percent over prime.
The interest rate at September 26, 1997 was 10 percent.
The subordinated debt agreement has been approved by the NYSE. This approval
allows the subordinated debt to be included in net capital under the
Securities and Exchange Commission's Uniform Net Capital Rule.
8. COMMITMENTS AND CONTINGENT LIABILITIES:
The Company leases certain office facilities and equipment under
noncancelable operating leases. Certain of these leases provide for renewal
options. Minimum rental commitments are as follows:
<TABLE>
<S> <C>
Fiscal year:
1998......................................................... $3,035,691
1999......................................................... 2,562,105
2000......................................................... 1,885,309
2001......................................................... 1,285,911
2002......................................................... 847,093
2003 and thereafter.......................................... 292,713
----------
$9,908,822
==========
</TABLE>
Total rental expense amounted to $2,838,878 and $2,398,817 during 1997 and
1996, respectively.
In the normal course of business, the Company enters into when-issued and
underwriting commitments. Transactions relating to such underwriting
commitments, which were open at September 26, 1997 and subsequently settled,
had no material effect on the consolidated financial statements.
The Company has been named as a defendant in various legal actions which
allege certain violations of federal and state securities laws and other
actions relating to its securities business. Although the ultimate outcome of
these legal actions cannot be ascertained at this time, management of the
Company, after consultation with outside legal counsel and other
considerations, believes that the results of these matters will not have a
material effect upon the Company's consolidated financial statements.
9. MEMBERS' EQUITY:
Members' equity as of September 26, 1997 and September 27, 1996 consists of
the following:
<TABLE>
<CAPTION>
SEPTEMBER 26, SEPTEMBER 27,
1997 1996
------------- -------------
<S> <C> <C>
Non-managing members.......................... $ 3,600,400 $ 4,085,300
Managing members.............................. 25,713,641 21,879,843
----------- -----------
$29,314,041 $25,965,143
=========== ===========
</TABLE>
III-17
<PAGE>
RONEY & CO. L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Non-managing members, defined as investing and Class A members by the
limited liability company agreement, have certain preferential rights related
to the allocation and distribution of net profits but do not participate in
Company management. Managing members, defined as principals by the limited
liability company agreement, have all rights, powers and authority to manage
and control the Company's property, assets and business and are allocated the
balance of net profits after allocation to the non-managing members.
10. SAVINGS PLAN:
The Company has a qualified retirement plan designed to qualify under
Section 401 of the Internal Revenue Code (the "Plan"). The Plan allows the
employees and members of the Company to defer a portion of their eligible
compensation on a pre-tax basis subject to certain maximum amounts.
Contributions by the Company are discretionary and determined by the Company's
management. The Company contributed approximately $108,000 and $127,000 to the
401(k) Plan for the years ended September 26, 1997 and September 27, 1996,
respectively.
11. NET CAPITAL REQUIREMENTS:
The Company is subject to the Securities and Exchange Commission's Uniform
Net Capital Rule (Rule 15c3-1) which requires the maintenance of minimum net
capital. The Company has elected to use the alternative method permitted by
the Rule, which requires that the Company maintain minimum net capital equal
to the greater of $1,000,000 or two percent of aggregate debit balances
arising from customer transactions. The New York Stock Exchange, Inc. may
require a member firm to reduce its business if this ratio is less than four
percent and may prohibit a firm from expanding its business if this ratio is
less than five percent. At September 26, 1997, the Company's net capital of
$17,133,213 was 10.45 percent of aggregate debit balances and $13,854,315 in
excess of required net capital.
12. OFF-BALANCE-SHEET RISK:
In the normal course of business, the Company's customer activities involve
the execution, settlement and financing of various customer securities and
option transactions, including the sale of securities not yet purchased
("short sales") and the writing of option contracts. The Company also enters
into agreements to loan securities to and borrow securities from other broker-
dealers. In the event that a customer or broker-dealer fails to satisfy the
contractual obligations with respect to such transactions, the Company may be
required to purchase or sell financial instruments at prevailing market prices
or fund margin requirements using letters of credit in order to satisfy its
broker-dealer or customer-related obligations. A similar risk also relates to
the Company's security short sales for its own account. Although such
activities may expose the Company to off-balance-sheet risk, management seeks
to control this risk by marking to market securities on a daily basis, by
monitoring customer collateral levels daily and by requiring customers to
deposit additional collateral or to reduce positions in the event that market
exposure exceeds a predetermined level of risk.
13. SUBSEQUENT EVENT:
On November 18, 1997, an agreement was signed to sell the assets and
liabilities of the Company to First Chicago NBD Corporation. The acquisition
is subject to regulatory approval and is anticipated to be completed by March
1998.
III-18
<PAGE>
RONEY & CO. L.L.C. AND SUBSIDIARIES
REPORT ON AUDITS OF CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 27, 1996
AND SEPTEMBER 29, 1995
III-19
<PAGE>
RONEY & CO. L.L.C. AND SUBSIDIARIES
CONTENTS
<TABLE>
<CAPTION>
PAGES
-------
<S> <C>
Financial Statements:
Independent Accountants' Report....................................... III-21
Consolidated Statements of Financial Condition........................ III-22
Consolidated Statements of Income..................................... III-23
Consolidated Statements of Changes in Subordinated Debt............... III-24
Consolidated Statements of Changes in Members' Equity................. III-25
Consolidated Statements of Cash Flows................................. III-26
Notes to Consolidated Financial Statements............................ III-27-
III-30
</TABLE>
III-20
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Members of Roney & Co. L.L.C.:
We have audited the accompanying consolidated statements of financial
condition of Roney & Co. L.L.C. (a Delaware limited liability company) and
Subsidiaries (the "Company") as of September 27, 1996 and September 29, 1995,
and the related consolidated statements of income, changes in subordinated
debt, changes in members' equity, and cash flows for the fiscal years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Roney & Co.
L.L.C. and Subsidiaries as of September 27, 1996 and September 29, 1995, and
the consolidated results of their operations and their cash flows for the
fiscal years then ended in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
Detroit, Michigan
November 15, 1996
III-21
<PAGE>
RONEY & CO. L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
<TABLE>
<CAPTION>
SEPTEMBER SEPTEMBER
ASSETS 27, 1996 29, 1995
------ ------------ ------------
<S> <C> <C>
Cash................................................. $ 1,092,710 $ 2,371,930
Receivables:
Customers (Note 2)................................. 142,091,318 125,577,468
Brokers and dealers................................ 4,957,196 1,289,741
Members............................................ 2,978,989 1,956,086
Other.............................................. 2,088,436 1,359,253
Trading securities owned, at market (Note 3)......... 8,605,501 7,182,571
Property and equipment, net (Note 4)................. 2,758,478 2,914,102
Other assets......................................... 4,885,100 3,104,689
------------ ------------
$169,457,728 $145,755,840
============ ============
<CAPTION>
LIABILITIES AND MEMBERS' EQUITY
-------------------------------
<S> <C> <C>
Short-term debt (Note 5)............................. $ 91,600,000 $ 71,400,000
Payable to customers (Note 2)........................ 30,771,134 33,665,068
Payable to brokers and dealers....................... 571,943 483,671
Trading securities sold but not yet purchased, at
market (Note 3)..................................... 476,897 453,966
Accounts payable, accrued expenses and other
liabilities......................................... 8,330,484 7,078,953
Payable to members................................... 9,742,127 7,775,637
Bonds payable........................................ 250,000
------------ ------------
141,492,585 121,107,295
Subordinated debt (Note 6)........................... 2,000,000 2,000,000
Members' equity...................................... 25,965,143 22,648,545
------------ ------------
27,965,143 24,648,545
------------ ------------
$169,457,728 $145,755,840
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
III-22
<PAGE>
RONEY & SONS CO. L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
---------------------------
SEPTEMBER 27, SEPTEMBER 29,
1996 1995
------------- -------------
<S> <C> <C>
Revenues:
Commissions....................................... $31,426,749 $26,234,130
Principal transactions............................ 26,338,219 25,301,325
Investment banking and underwriting............... 10,223,399 6,821,261
Interest:
Customer margin accounts........................ 10,466,865 10,321,672
Other........................................... 334,336 320,780
Other............................................. 6,768,896 5,008,990
----------- -----------
85,558,464 74,008,158
----------- -----------
Expenses:
Member and employee compensation and benefits..... 48,553,809 40,917,832
Interest.......................................... 7,971,904 7,938,284
Communications, occupancy and equipment rental.... 6,725,798 6,260,289
Floor brokerage, exchange and clearance fees...... 1,557,102 1,439,184
Other operating expenses.......................... 13,272,828 12,029,124
----------- -----------
78,081,441 68,584,713
----------- -----------
Net income...................................... $ 7,477,023 $ 5,423,445
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
III-23
<PAGE>
RONEY & CO. L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SUBORDINATED DEBT
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
---------------------------
SEPTEMBER 27, SEPTEMBER 29,
1996 1995
------------- -------------
<S> <C> <C>
Balance, beginning of year.......................... $2,000,000 $2,000,000
Additions........................................... -- 2,000,000
Payments............................................ -- (2,000,000)
---------- ----------
Balance, end of year................................ $2,000,000 $2,000,000
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
III-24
<PAGE>
RONEY & CO. L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
---------------------------
SEPTEMBER 27, SEPTEMBER 29,
1996 1995
------------- -------------
<S> <C> <C>
Balance, beginning of year.......................... $22,648,545 $18,881,197
Net income.......................................... 7,477,023 5,423,445
Equity contributions from members................... 4,460,323 3,031,014
Equity withdrawals by members....................... (1,676,725) (562,182)
Income distributions to members..................... (6,944,023) (4,124,929)
----------- -----------
Balance, end of year................................ $25,965,143 $22,648,545
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
III-25
<PAGE>
RONEY & CO. L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
----------------------------
SEPTEMBER 27, SEPTEMBER 29,
1996 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 7,477,023 $ 5,423,445
Noncash items included in net income,
depreciation and amortization................... 1,432,095 1,220,344
(Increase) decrease in receivables:
Customers...................................... (16,513,850) (2,455,305)
Brokers and dealers............................ (3,667,455) 2,796,251
Members........................................ (1,022,903) (154,434)
Other.......................................... (729,183) (742,479)
(Increase) decrease in:
Trading securities owned....................... (1,422,930) 22,691
Other assets................................... (2,452,077) (1,175,268)
Increase (decrease) in operating payables:
Customers...................................... (2,893,934) (5,553,271)
Brokers and dealers............................ 88,272 (824,768)
Accounts payable, accrued expense and other
liabilities................................... 1,226,531 476,759
Increase (decrease) in:
Trading securities sold but not yet purchased.. 22,931 127,709
Payable to members............................. 1,966,490 (87,975)
------------ -----------
Net cash used for operating activities....... (16,488,990) (926,301)
------------ -----------
Cash flows from financing activities:
Increase in short-term debt, net................. 20,200,000 1,000,000
Proceeds from issuance of subordinated debt...... -- 2,000,000
Repayments of subordinated debt.................. -- (2,000,000)
Repayment of bonds............................... (250,000) (225,000)
Changes in members' equity, net.................. (4,135,425) (1,656,097)
------------ -----------
Net cash provided by (used in) financing
activities.................................. 15,814,575 (881,097)
------------ -----------
Cash flows from investing activities, purchase of
property and equipment............................ (604,805) (669,172)
------------ -----------
Net (decrease) in cash............................. (1,279,220) (2,476,570)
Cash, beginning of year............................ 2,371,930 4,848,500
------------ -----------
Cash, end of year.................................. $ 1,092,710 $ 2,371,930
============ ===========
Supplemental disclosure of cash flow information,
cash paid during the year for interest............ $ 7,845,656 $ 7,881,610
============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
III-26
<PAGE>
RONEY & CO. L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Principles of Consolidation: Effective January 26, 1996, Wm. C. Roney &
Co., which operated under the name Roney & Co., converted from a Michigan
limited partnership to a Delaware limited liability company and adopted the
name Roney & Co. L.L.C. The assets and liabilities of Wm. C. Roney & Co. were
recorded in the accounts of Roney & Co. L.L.C. at their respective historical
amounts in a manner similar to a pooling of interests.
The consolidated financial statements include the accounts of Roney & Co.
L.L.C. (the "Company") and its wholly owned subsidiaries. All material
intercompany balances and transactions have been eliminated.
The Company is a securities broker-dealer with 27 branch offices in
Michigan, Ohio and Indiana and is a member firm of the New York Stock
Exchange, Inc. ("NYSE") and other securities exchanges.
b. Other Accounting Policies: Trading securities owned and trading
securities sold but not yet purchased are stated at market value. Unrealized
gains and losses on securities are recognized in net income.
Securities transactions are recorded on a settlement-date basis, generally
the third business day following the transaction date. Commission income and
related expenses for transactions executed, but not yet settled, were not
material.
Investment banking and underwriting revenues include gains, losses and fees,
net of syndicate expenses, arising from securities offerings in which the
Company acts as an underwriter or agent. Investment banking and underwriting
revenues also include fees earned from providing merger and acquisition and
financial restructuring advisory services.
Property and equipment are recorded at cost. Building and improvements are
depreciated using the straight-line method over 15 years. Furniture and
equipment are depreciated using accelerated methods over five to seven years.
Leasehold improvements are amortized, using the straight-line method, over the
lesser of the estimated useful life of the improvement or the remaining life
of the lease.
Income tax expense has not been provided for company income in the
accompanying consolidated financial statements because such income is not
taxable to the Company, but is includable in the individual tax returns of the
members.
The preparation of financial statements in conformity with general accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. RECEIVABLE FROM AND PAYABLE TO CUSTOMERS:
The amounts receivable from and payable to customers represent balances
resulting from cash and margin transactions. Securities owned by customers and
held as collateral for these receivables are not reflected in the consolidated
financial statements. Substantially all customer receivables and payables bear
interest at rates related to the Company's brokers' call loan rate.
III-27
<PAGE>
RONEY & CO. L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. TRADING SECURITIES:
Trading securities owned and trading securities sold but not yet purchased
are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 29,
1996 1995
------------- -------------
<S> <C> <C>
Owned:
Certificates of deposit..................... $ 39,762 $ 111,469
United States government obligations........ 396,172 402,106
Corporate debt and equity securities........ 5,122,536 3,402,340
State and municipal securities.............. 3,047,031 3,266,656
---------- ----------
$8,605,501 $7,182,571
========== ==========
Sold but not yet purchased:
Corporate debt and equity securities........ $ 464,012 $ 443,950
State and municipal securities.............. 12,885 10,016
---------- ----------
$ 476,897 $ 453,966
========== ==========
</TABLE>
4. PROPERTY AND EQUIPMENT:
The major classes of property and equipment are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 29,
1996 1995
------------- -------------
<S> <C> <C>
Land......................................... $ 450,000 $ 450,000
Building and improvements.................... 3,242,008 3,242,008
Furniture, equipment and leasehold
improvements................................ 3,942,121 4,113,819
---------- ----------
7,634,129 7,805,827
Less accumulated depreciation.............. 4,875,651 4,891,725
---------- ----------
$2,758,478 $2,914,102
========== ==========
</TABLE>
5. SHORT-TERM DEBT:
Short-term debt represents borrowings from banks under two demand lines of
credit totaling $118 million. The borrowings bear interest at the banks'
brokers' call loan rate (6.3125 and 6.2 percent at September 27, 1996).
Marketable securities in member accounts with an approximate value of
$1,456,092 and securities carried in customer margin accounts with an
approximate value of $142,177,349 collateralize the outstanding borrowings.
6. SUBORDINATED DEBT:
The Company has a $2 million debt agreement which is subordinated to the
claims of general creditors. The debt is payable in quarterly installments of
$100,000, which commenced in 1997 and will mature in 2002. Such quarterly
installments and maturity will be extended annually if no written action is
taken by either the Company or the lender by a specified date. The Company is
required to maintain certain minimum levels of net capital, as defined in the
agreement. Interest on the debt is charged at 1 1/2 percent over prime. The
interest rate at September 27, 1996 was 9.75 percent.
The subordinated debt agreement has been approved by the NYSE. This approval
allows the subordinated debt to be included in net capital under the
Securities and Exchange Commission's Uniform Net Capital Rule.
III-28
<PAGE>
RONEY & CO. L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. COMMITMENTS AND CONTINGENT LIABILITIES:
The Company leases certain office facilities and equipment under
noncancelable operating leases. Certain of these leases provide for renewal
options. Minimum rental commitments are as follows:
<TABLE>
<S> <C>
Fiscal year:
1997........................................................ $ 2,633,236
1998........................................................ 2,311,696
1999........................................................ 1,903,908
2000........................................................ 1,361,052
2001........................................................ 1,011,948
2002 and thereafter......................................... 916,114
-----------
$10,137,954
===========
</TABLE>
Total rental expense amounted to $2,398,817 and $2,117,502 during 1996 and
1995, respectively.
In the normal course of business, the Company enters into when-issued and
underwriting commitments. Transactions relating to such underwriting
commitments, which were open at September 27, 1996 and subsequently settled,
had no material effect on the consolidated financial statements.
The Company has been named as a defendant in various legal actions which
allege certain violations of federal and state securities laws and other
actions relating to its securities business. Although the ultimate outcome of
these legal actions cannot be ascertained at this time, management of the
Company, after consultation with outside legal counsel and other
considerations, believes that the results of these matters will not have a
material effect upon the Company's consolidated financial statements.
8. MEMBERS' EQUITY:
Members' equity as of September 27, 1996 and September 29, 1995 consists of
the following:
<TABLE>
<CAPTION>
SEPTEMBER SEPTEMBER
27, 1996 29, 1995
----------- -----------
<S> <C> <C>
Investing members................................. $ 4,085,300 $ 4,016,385
Managing members.................................. 21,879,843 18,632,160
----------- -----------
$25,965,143 $22,648,545
=========== ===========
</TABLE>
Investing members, as defined by the limited liability company agreement,
have certain preferential rights related to the allocation and distribution of
net profits but do not participate in company management. Managing members
have all rights, powers and authority to manage and control the Company's
property, assets and business and are allocated the balance of net profits
after allocation to the investing members.
9. NET CAPITAL REQUIREMENTS:
The Company is subject to the Securities and Exchange Commission's Uniform
Net Capital Rule (Rule 15c3-1) which requires the maintenance of minimum net
capital. The Company has elected to use the alternative method permitted by
the Rule, which requires that the Company maintain minimum net capital equal
to the greater of $1,000,000 or two percent of aggregate debit balances
arising from customer transactions. The New York Stock Exchange, Inc. may
require a member firm to reduce its business if this ratio is less than four
percent and may prohibit a firm from expanding its business if this ratio is
less than five percent. At September 27, 1996, the Company's net capital of
$16,986,327 was 11.29 percent of aggregate debit balances and $13,974,518 in
excess of required net capital.
III-29
<PAGE>
RONEY & CO. L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
10. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS:
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of fair value information about financial instruments, for
which it is practicable to estimate the value, whether or not recognized in
the Statements of Financial Condition. As a registered broker-dealer,
securities owned and securities sold but not yet purchased are already
recorded at market value. The fair value of all other financial assets and
liabilities (consisting primarily of receivable from and due to brokers-
dealers, clearing organizations and customers, and subordinated debt) are
considered to approximate the recorded value due to the short-term nature of
the financial instruments and repricing policies followed by the Company.
11. OFF-BALANCE-SHEET RISK:
In the normal course of business, the Company's customer activities involve
the execution, settlement and financing of various customer securities and
option transactions, including the sale of securities not yet purchased
("short sales") and the writing of option contracts. In the event that a
customer fails to satisfy the contractual obligations with respect to such
transactions, the Company may be required to purchase or sell financial
instruments at prevailing market prices or fund margin requirements using
letters of credit in order to satisfy its customer-related obligations. A
similar risk also relates to the Company's security short sales for its own
account. Although such activities may expose the Company to off-balance-sheet
risk, management seeks to control this risk by marking to market securities on
a daily basis, by monitoring customer collateral levels daily and by requiring
customers to deposit additional collateral or to reduce positions in the event
that market exposure exceeds a predetermined level of risk.
III-30
<PAGE>
PART II.
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Eighth of the Registrant's Restated Certificate of Incorporation, as
amended, provides for indemnification of directors and officers. The provision
provides that any person shall be indemnified and reimbursed by the Registrant
for expenses and liabilities imposed upon the person in connection with any
action, suit or proceeding, civil or criminal, or threat thereof, in which the
person may be involved by reason of the person being or having been a director,
officer, employee or agent of the Registrant, or of any corporation or
organization which the person served in any capacity at the request of the
Registrant, if the person acted in good faith and in a manner the person
reasonably believed to be in or not opposed to the best interests of the
Registrant and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the person's conduct was unlawful; provided,
however, that no indemnification shall be made in respect of any matter as to
which such person have been adjudged to be liable for negligence or misconduct
in the performance of the person's duty to the Registrant unless the Court of
Chancery of Delaware or the court in which such action or suit was brought
shall determine upon application that such person is fairly and reasonably
entitled to indemnity.
The directors and officers of the Registrant are covered by an insurance
policy, indemnifying them against certain civil liabilities, including
liabilities under the federal securities laws, which might be incurred by them
in such capacity.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers or persons controlling the Registrant pursuant to the foregoing
provisions, the Registrant has been informed that in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) This Registration Statement includes the following Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
2 Asset Purchase Agreement, dated as of November 18, 1997, between
Roney & Co., L.L.C. and First Chicago NBD Corporation (included in
Part I of this Registration Statement as Appendix I to the
Prospectus).
3(a) Restated Certificate of Incorporation of the Registrant
(incorporated by reference herein to Exhibit 3(A) to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1995).
3(b) By-laws of the Registrant (incorporated by reference herein to
Exhibit 4(h)) to the Registrant's Registration Statement on Form S-
3 (File No. 333-36587).
5 Opinion of Counsel to the Registrant as to the legality of the
securities being issued.
8 Opinion of Honigman Miller Schwartz and Cohn as to federal income
tax matters.*
23(a) Consent of Arthur Andersen LLP.
23(b) Consent of Coopers & Lybrand L.L.P.
23(c) Consent of Counsel to the Registrant (included in Exhibit 5 hereof).
23(d) Consent of Honigman Miller Schwartz and Cohn (included in Exhibit 8
hereof).*
23(e) Consent of Wheat First Securities, Inc.
24 Powers of Attorney.
99(a) Form of Certification and Consent of Principals for Roney & Co.,
L.L.C. (included in Part I of this Registration Statement as
Appendix IV to the Prospectus).*
99(b) Form of Support Agreement.
99(c) Form of Employment Agreement (including form of Pledge Agreement as
exhibit thereto).*
</TABLE>
- -------
* To be filed by amendment.
II-1
<PAGE>
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii)
to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and (iii) to include any material
information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employer benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(5) That prior to any public reoffering of the securities registered
hereunder though use of a prospectus which is a part of a Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the Registrant undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(6) That every prospectus (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933 and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part
of an amendment to the Registration Statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(7) That, insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the Registrant's
indemnification provisions, or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
CHICAGO, ILLINOIS, ON THE 27TH DAY OF FEBRUARY, 1998.
FIRST CHICAGO NBD CORPORATION
/s/ M. Eileen Kennedy
By: _____________________________________
M. Eileen Kennedy
Attorney-in-fact
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Terence E. Adderley* Director February 27,
- ---------------------------------- 1998
(TERENCE E. ADDERLEY)
/s/ James K. Baker* Director February 27,
- ---------------------------------- 1998
(JAMES K. BAKER)
/s/ John H. Byran* Director February 27,
- ---------------------------------- 1998
(JOHN H. BRYAN)
Director
- ----------------------------------
(SIEGFRIED BUSCHMANN)
Director
- ----------------------------------
(JAMES S. CROWN)
/s/ Maureen A. Fay, O.P.* Director February 27,
- ---------------------------------- 1998
(MAUREEN A. FAY, O.P.)
/s/ Charles T. Fisher III* Director February 27,
- ---------------------------------- 1998
(CHARLES T. FISHER III)
/s/ Verne G Istock* Director and February 27,
- ---------------------------------- Principal 1998
(VERNE G. ISTOCK) Executive Officer
/s/ Thomas H. Jeffs II* Director February 27,
- ---------------------------------- 1998
(THOMAS H. JEFFS II)
II-3
<PAGE>
/s/ William G. Lowrie* Director February 27,
- ---------------------------------- 1998
(WILLIAM G. LOWRIE)
/s/ Richard A. Manoogian* Director February 27,
- ---------------------------------- 1998
(RICHARD A. MANOOGIAN)
/s/ William T. McCormick, Jr.* Director February 27,
- ---------------------------------- 1998
(WILLIAM T. MCCORMICK, JR.)
/s/ Andrew J. McKenna* Director February 27,
- ---------------------------------- 1998
(ANDREW J. MCKENNA)
/s/ Earl L. Neal* Director February 27,
- ---------------------------------- 1998
(EARL L. NEAL)
/s/ James J. O'Connor* Director February 27,
- ---------------------------------- 1998
(JAMES J. O'CONNOR)
/s/ Thomas E. Reilly, Jr.* Director February 27,
- ---------------------------------- 1998
(THOMAS E. REILLY, JR.)
Director
- ----------------------------------
(JOHN W. ROGERS, JR.)
/s/ Adele Simmons* Director February 27,
- ---------------------------------- 1998
(ADELE SIMMONS)
/s/ Richard L. Thomas* Director February 27,
- ---------------------------------- 1998
(RICHARD L. THOMAS)
/s/ David J. Vitale* Director February 27,
- ---------------------------------- 1998
(DAVID J. VITALE)
/s/ Robert A. Rosholt* Principal February 27,
- ---------------------------------- Financial Officer 1998
(ROBERT A. ROSHOLT)
/s/ William J. Roberts* Principal February 27,
- ---------------------------------- Accounting 1998
(WILLIAM J. ROBERTS) Officer
- -------
* The undersigned, by signing her name hereto, does hereby sign this
Registration Statement on Form S-4 on behalf of each of the above-
indicated directors and officers of the Registrant pursuant to a power of
attorney signed by such directors and officers.
/s/ M. Eileen Kennedy
_________________________________________
M. Eileen Kennedy Attorney-in-Fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION OF EXHIBITS NUMBER
------- ----------------------- ----------
<C> <S> <C>
2 Asset Purchase Agreement, dated as of November 18, 1997,
between Roney & Co., L.L.C. and First Chicago NBD
Corporation (included in Part I of this Registration
Statement as Appendix I to the Prospectus).
3(a) Restated Certificate of Incorporation of the Registrant
(incorporated by reference herein to Exhibit 3(A) to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995).
3(b) By-laws of the Registrant (incorporated by reference
herein to Exhibit 4(h)) to the Registrant's Registration
Statement on Form S-3 (File No. 333-36587).
5 Opinion of Counsel to the Registrant as to the legality
of the securities being issued.
8 Opinion of Honigman Miller Schwartz and Cohn as to
federal income tax matters.*
23(a) Consent of Arthur Andersen LLP.
23(b) Consent of Coopers & Lybrand L.L.P.
23(c) Consent of Counsel to the Registrant (included in Exhibit
5 hereof).
23(d) Consent of Honigman Miller Schwartz and Cohn (included in
Exhibit 8 hereof).*
23(e) Consent of Wheat First Securities, Inc.
24 Powers of Attorney.
99(a) Form of Certification and Consent of Principals for Roney
& Co., L.L.C. (included in Part I of this Registration
Statement as Appendix IV to the Prospectus).*
99(b) Form of Support Agreement.
99(c) Form of Employment Agreement (including form of Pledge
Agreement as exhibit thereto).*
</TABLE>
- -------
* To be filed by amendment.
<PAGE>
Exhibits 5 and 23(c)
February 27, 1998
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: First Chicago NBD Corporation
Form S-4 Registration Statement
-------------------------------
Ladies and Gentlemen:
Reference is made to the Registration Statement on Form S-4 of First
Chicago NBD Corporation, a Delaware corporation (the "Company"), concurrently
being filed with the Securities and Exchange Commission (the "Registration
Statement") pursuant to which the Company's common stock, $1 par value per share
(the "Common Stock"), will be issued, or reserved for issuance, pursuant to the
terms of the Asset Purchase Agreement dated as of November 18, 1997 (the
"Agreement"), by and between the Company and Roney & Co., L.L.C.
I have examined originals or copies, certified or otherwise identified to
my satisfaction, of such corporate records, certificates of public officials,
and other documents as I have deemed necessary or relevant as a basis for my
opinion set forth herein.
On the basis of the foregoing, it is my opinion that the shares of Common
Stock offered as set forth in the Registration Statement (including the
Prospectus constituting a part thereof), when issued in accordance with their
respective terms and the terms of the Agreement, will be legally issued, fully
paid and nonassessable.
I am a member of the Bar of the State of Illinois, and I do not express any
opinion herein concerning any law other than the law of the State of Illinois,
the federal laws of the United States and the Delaware General Corporation Law.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of my name whenever it appears in such
Registration Statement, including the applicable Prospectus constituting a part
thereof, as originally filed or as subsequently amended.
Very truly yours,
/s/ Sherman I. Goldberg
Sherman I. Goldberg
Executive Vice President,
General Counsel and Secretary
<PAGE>
Exhibit 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To First Chicago NBD Corporation:
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement of our report dated January 15,
1997, on the consolidated financial statements of First Chicago NBD Corporation
included in the Form 10-K for the year ended December 31, 1996 and to the
reference to our Firm under the caption "Experts" included in this Registration
Statement.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
February 26, 1998
<PAGE>
Exhibit 23(b)
Consent of Independent Accountants
----------------------------------
We consent to the inclusion in this registration statement on Form S-4 of First
Chicago NBD Corporation of our reports dated November 18, 1997 and November 15,
1996, on our audits of the consolidated financial statements of Roney & Co.
L.L.C. and Subsidiaries. We also consent to reference to our firm under the
caption "Experts".
Coopers & Lybrand L.L.P.
Detroit, Michigan
February 26, 1998
<PAGE>
Exhibit 23(e)
CONSENT OF FINANCIAL ADVISOR
We hereby consent to the use in this Registration Statement on Form S-4 of
our letter to the Executive Committee of Roney & Co. included as Appendix II to
the Prospectus that is a part of this Registration Statement, and to the
references to such letters and to our firm in such Prospectus. In giving such
consent we do not thereby admit that we come within the category of persons
whose consent is required under Section 7 of the Securities Act of 1933 or the
rules and regulations of the Securities and Exchange Commission thereunder.
/s/ WHEAT FIRST SECURITIES, INC.
WHEAT FIRST SECURITIES, INC.
Richmond, Virginia
Date: February 24, 1998
<PAGE>
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Verne G. Istock, Thomas H. Jeffs II, David J.
Vitale, Sherman I. Goldberg, Robert A. Rosholt and M. Eileen Kennedy, jointly
and severally, his attorney-in-fact, each with power of substitution, for him in
any and all capacities to sign a Registration Statement on Form S-4 relating to
common stock of First Chicago NBD Corporation (the "Corporation") to be issued
in connection with the acquisition of Roney & Co., pursuant to resolutions
adopted by the Board of Directors of the Corporation on November 14, 1997, and
any amendments thereto (including any post-effective amendments) and any
subsequent registration statement filed by the Corporation pursuant to Rule
462(b) of the Securities Act of 1933, and to file the same, with exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Signature Title
--------- -----
/s/ Terence E. Adderley
- ---------------------------------- Director
Terence E. Adderley
/s/ James K. Baker
- ---------------------------------- Director
James K. Baker
/s/ John H. Bryan
- ---------------------------------- Director
John H. Bryan
- ---------------------------------- Director
Siegfried Buschmann
- ---------------------------------- Director
James S. Crown
/s/ Maureen A. Fay, O. P.
- ---------------------------------- Director
Maureen A. Fay, O. P.
/s/ Charles T. Fisher III
- ---------------------------------- Director
Charles T. Fisher III
/s/ Verne G. Istock
- ---------------------------------- Director and Principal Executive Officer
Verne G. Istock
/s/ Thomas H. Jeffs II
- ---------------------------------- Director
Thomas H. Jeffs II
/s/ William G. Lowrie
- ---------------------------------- Director
William G. Lowrie
/s/ Richard A. Manoogian
- ---------------------------------- Director
Richard A. Manoogian
/s/ Scott P. Marks, Jr.
- ---------------------------------- Director
Scott P. Marks, Jr.
/s/ Andrew J. McKenna
- ---------------------------------- Director
Andrew J. McKenna
/s/ William T. McCormick, Jr.
- ---------------------------------- Director
William T. McCormick, Jr.
<PAGE>
/s/ Earl L. Neal
- ---------------------------------- Director
Earl L. Neal
/s/ James J. O'Connor
- ---------------------------------- Director
James J. O'Connor
/s/ Thomas E. Reilly, Jr..
- ---------------------------------- Director
Thomas E. Reilly, Jr.
/s/ Adele Simmons
- ---------------------------------- Director
Adele Simmons
/s/ Richard L. Thomas
- ----------------------------------- Director
Richard L. Thomas
/s/ David J. Vitale
- ---------------------------------- Director
David J. Vitale
/s/ William J. Roberts
- ---------------------------------- Principal Accounting Officer
William J. Roberts
/s/ Robert A. Rosholt
- ---------------------------------- Principal Financial Officer
Robert A. Rosholt
Dated: December 12, 1997
<PAGE>
Exhibit 99(b)
November 18, 1997
First Chicago NBD Corporation
One First National Plaza
Chicago, Illinois 60670
Ladies and Gentlemen:
The undersigned understands that Roney and Co., L.L.C. ("Seller"), has entered
into an Asset Purchase Agreement ("Agreement") with First Chicago NBD
Corporation ("Purchaser") providing for, among other things, the purchase (the
"Purchase") by Purchaser of the assets and the assumption by Purchaser of the
liabilities of Seller. This letter agreement is being executed by me in my
capacity as a Member of the Seller and its Executive Committee.
As a condition and inducement to your willingness to enter into the Agreement:
No Solicitation. I will not directly or indirectly solicit, initiate, or
encourage any inquiries or proposals from, discuss or negotiate with, or provide
any non-public information to, any person relating to any sale of Seller, or any
of its assets or liabilities (other than in the ordinary course of Seller's
business), or any of its business, or any business combination or similar
transaction involving Seller ("Alternative Transaction").
Voting. I agree that I will vote all Membership interests in the Seller
beneficially owned by me at any meeting of Members of Seller called to consider
and vote on the Agreement and the Purchase in favor of the Agreement and the
Purchase, and I will vote against, and not consent to, any Alternative
Transaction or any action to nullify or prevent the Agreement or the Purchase at
any meeting of Members of Seller called to consider and vote on any Alternative
Transaction or any such action.
Recommendation. I agree to recommend approval of the Agreement and the Purchase
as being in the best interests of the Members and to use my reasonable best
efforts to solicit and obtain the votes of the Members to approve the Agreement
and the Purchase.
Termination. This letter agreement shall terminate upon the termination of the
Agreement in accordance with its terms.
Miscellaneous. This letter agreement shall bind and benefit the respective
parties' successors, assigns, executors, trustees and heirs. Damages are
inadequate for breach by me of any term of this agreement and Purchaser shall be
entitled to preliminary and permanent injunctive relief to enforce this letter
agreement. This letter agreement shall be governed by and construed under the
laws of the State of Delaware (without giving effect to the choice of law
provisions thereof). Any term hereof which is invalid or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such invalidity or unenforceability without affecting the remaining terms or
their validity or enforceability
<PAGE>
in any other jurisdiction. If any provision of this letter agreement is so broad
as to be unenforceable, such provision shall be interpreted to be only so broad
as is enforceable.
This letter agreement may be executed in any number of counterparts, each of
which shall be deemed an original and all of such counterparts together shall
constitute one and the same instrument.
Very truly yours,
Confirmed and accepted
as of the date first above written:
FIRST CHICAGO NBD CORPORATION
By:
---------------------------
Name:
---------------------------
Title:
---------------------------
