<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 18, 1998
REGISTRATION NO. 333-47029
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
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. [_]
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>
PROSPECTUS
FIRST CHICAGO NBD CORPORATION
UP TO 385,000 SHARES OF
COMMON STOCK
$1.00 PAR VALUE PER SHARE
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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 dated as of November 18,
1997, as amended (the "Purchase Agreement"), 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 385,000 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 $24,792,100 (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 385,000 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 March 16, 1998
(the latest practical date prior to the date of this Prospectus) was $83 13/16
per share. There is no public trading market for the membership interests of
Roney.
This Prospectus is first being mailed on or about March 20, 1998.
---------------
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 March 20, 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 APRIL
10, 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.
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<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>
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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 Consent Certificate and
Resolutions........................ IV-1
</TABLE>
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<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") provides retail brokerage and investment
banking services 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 $79,642,100 (the "Purchase Price"), plus the assumption of the Assumed
Liabilities. At the Closing, FCN will pay $54,850,000 of the Purchase Price in
cash. Approximately $3.52 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 approximately
$51.33 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 $24,792,100 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 (other than those with Roney's chief executive
officer, chief operating officer and chief financial officer) 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
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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 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 date the Deferred Payment Recipient Voluntarily Quits. 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 $15,357,900 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
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<PAGE>
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. 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 Principal (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
April 3, 1998. Once a Consent Certificate is executed and delivered to Roney,
it may be revoked at any time prior to 5:00 p.m. (Detroit, Michigan time) on
April 17, 1998; after 5:00 p.m. (Detroit, Michigan time) on April 17, 1998, any
Consent Certificate in Roney's possession, whether received before or after
said date, shall be irrevocable. On and after April 18, 1998, 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.
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 Securities, 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 March 18, 1998, 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
8
<PAGE>
Wheat First 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. 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") (or under the certificate of incorporation and bylaws of the
appropriate FCN subsidiary) 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. Substantially 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%.
9
<PAGE>
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 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 Acquisition--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. 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.
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 notices
with such federal, state and self-regulatory authorities in connection with the
Acquisition. The Acquisition will not proceed until all required regulatory
10
<PAGE>
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 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 information, both on a per FCN common share basis and on a per 1%
Roney Principal interest basis, 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 an
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)........................... 13,729 11,435
Earnings per 1% interest--diluted:
Historical(3).......................... $ 74,770 $ 66,313
Pro forma(4)........................... 13,419 11,249
Cash distributions declared per 1%
interest:
Historical(3).......................... $ 69,440 $ 21,000
Pro forma(4)........................... 4,587 3,719
Book value per 1% interest--end of
period:
Historical............................. $248,274 $293,140
Pro forma(4)........................... 84,820 82,682
</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
$24,792,100 of common equity through the issuance of 309,901 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 309,901 depending upon the
average closing price of FCN Common Stock during the pricing period.
(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
3,099.01 shares of FCN Common Stock only. 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. In addition to such shares, each 1%
Principal interest of Roney will receive cash of approximately $513,300.
12
<PAGE>
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 March 16, 1998).......... $ 0.44 $72 1/16 $84 3/8
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 March 16, 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) $761,221
March 16, 1998........... 83 13/16 212,030(3) 761,221
</TABLE>
- -------
(1) The equivalent market value per 1% Principal interest is assumed to be
$761,221 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 $761,221 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.
(3) Represents book value of a Roney 1% Principal interest at February 27,
1998.
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 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 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 April 3, 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
April 3, 1998. Once a Consent Certificate is executed and delivered to Roney,
it may be revoked at any time prior to 5:00 p.m. (Detroit, Michigan time) on
April 17, 1998; after 5:00 p.m. (Detroit, Michigan time) on April 17, 1998 any
Consent Certificate in Roney's possession, whether received before or after
said date, shall be irrevocable. On or after April 18, 1998, 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.
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 March 16, 1998,
the percentage Principal interest in Roney owned by (i) each person who is
known by Roney to beneficially
24
<PAGE>
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 Butcher Singer, Inc.
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
$79,642,100, plus the assumption of the Assumed Liabilities. At the Closing of
the Acquisition, FCN will pay $54,850,000 of the Purchase Price in cash.
Approximately $3.52 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 approximately $51.33 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
$24,792,100 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 Quits 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 Quit prior to
such third anniversary). The Employment Agreements (other than those with
Roney's chief executive officer, chief operating officer, and chief financial
officer) 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 date the Deferred Payment Recipient
Voluntarily Quits. 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 $15,357,900 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. Wheat First
also issued a subsequent written opinion dated March 18, 1998, reconfirming
that the Purchase Price was fair, from a financial point of view, to the
Members of Roney.
The full text of Wheat First's written opinion, dated as of March 18, 1998,
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, dated as of November 18, 1997, 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
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analyses and forecasts for FCN 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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As of March 18, 1998, Wheat First reconfirmed the appropriateness of its
reliance on the analyses used to render the November 18, 1997, opinion by
performing procedures to update certain of such analyses and by reviewing the
assumptions on which such analyses were based and the factors considered in
connection therewith. Wheat First also considered the amendment to the
Purchase Agreement dated as of March 16, 1998.
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 dated as of November 18, 1997, and reconfirmed
March 18, 1998, is based solely upon the information available to Wheat First
and the economic, market and other circumstances as they existed as of such
dates. Events occurring after those dates could materially affect the
assumptions and conclusions contained in Wheat First's opinion. Wheat First
has not undertaken to reaffirm or revise its opinion or otherwise comment on
any events occurring after March 18, 1998. 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 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. 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 also has agreed to indemnify each Indemnified Party to the extent
permitted under the DGCL, FCN's Certificate and the FCN Bylaws (or under the
certificate of incorporation and bylaws of the appropriate FCN subsidiary) 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
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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 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.
Substantially 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 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
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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 (or one of its
subsidiaries), subject to the following limitations. Such amount, plus the
Principal's other "miscellaneous itemized deductions" for the taxable year,
will be deductible only to the extent they exceed 2% of such member's adjusted
gross income for such year. 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
herein, under existing law and the assumptions stated herein. In rendering such
opinion, such counsel has relied upon representations contained in certificates
of officers of Roney and FCN.
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. 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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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)
purchases 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, including
state insurance authorities, will require notice or other types of filings.
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 notices 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 provides retail brokerage and investment banking services 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 firm'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 are 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 his or her interest in Roney to another or to
encumber said interest 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 May 31, 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 May 31, 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, as amended (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 $79,642,100 ("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 $24,792,100 (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 $15,357,900 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>
Description of Schedules and Exhibits to Purchase Agreement not reprinted in
this Prospectus:
Schedule A--List of Members, paid in capital and ownership percentage
Schedule E--List of recipients of restricted shares of Common Stock and dollar
amount of shares to be granted
Schedule I.A--Form of Bill of Sale, Assignment and Assumption Agreement
Schedule II.A--List of Members of Seller and Purchase Price allocation
Exhibit II.A(iii)--List of certain Members of Seller and amount of capital
withdrawn
Exhibit II.B--First Chicago NBD Corporation Stock Performance Plan
Exhibit II.C--Summary of Employment Agreements for certain officers
Exhibit II.D--Summary of Roney & Co. Employment Agreements
Exhibit II.A(iii)--List of Seller Subsidiaries
Exhibit III.A(vi)--Disclosure of required regulatory and other approvals
Exhibit III.A(xii)--Description of litigation and regulatory matters
Exhibit III.A(xiii)--Description of compliance with laws in the conduct of
Seller's business
Exhibit III.A(xiv)--Description of registrations necessary to the conduct of
Seller's business
Exhibit III.A(xv)(1)--Description of material contracts of Seller
Exhibit III.A(xvii)(1)--List of Seller's Employee Benefit Agreements
Exhibit III.A(xvii)(5)--Description of certain payments under Seller's Employee
Benefit Agreements
Exhibit III.A(xix)--List of Seller's insurance policies
Exhibit III.A(xx)--List of Seller's Affiliates
Exhibit III.A(xxiii)--Certain information with respect to Taxes of Seller
Exhibit III.A(xxvii)--Description of Seller proprietary rights
Exhibit III.A(xxviii)--Description of Seller's investment advisor activities
I-21
<PAGE>
APPENDIX II
March 18, 1998
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"), and amended as of March 16, 1998, 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 $24,792,100 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 September 30, 1997, June 30, 1997, and March 31,
1997, and certain information publicly released by FCN for the period
ended December 31, 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 & 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>
APPENDIX IV
CERTIFICATION AND CONSENT OF PRINCIPAL
The undersigned, being a Principal of Roney & Co. L.L.C., a Delaware limited
liability company (the "Company"), hereby certifies as follows:
1. I have been furnished with a Prospectus dated March 20, 1998, which,
among other things, summarizes the terms and conditions of the purchase by
First Chicago NBD Corporation, a Delaware corporation ("FCN"), of the
assets of the Company pursuant to an Asset Purchase Agreement dated as of
November 18, 1997, as amended, by and between FCN and the Company (the
"Purchase Agreement").
2. I have been afforded the opportunity to receive and review a copy of
the Purchase Agreement.
3. I have been afforded access to such other information, and been given
the opportunity to ask such questions of members of the Company's Executive
Committee, as I have deemed necessary or appropriate to evaluate fully and
to my complete satisfaction whether to approve the Purchase Agreement and
the transactions contemplated thereby.
4. I have received and reviewed the Consent in Lieu of Joint Special
Meeting of the Principals, and Members of the Executive Committee, of Roney
& Co. L.L.C. (the "Resolutions"), which, if approved and adopted by
Principals whose percentages exceed 50% of all Principals' percentages,
will authorize the Executive Committee to carry out, and bind the Company
to proceed with, the transactions contemplated in the Purchase Agreement.
By execution of this Certification and Consent, the undersigned approves,
adopts, joins in and votes for the Resolutions and approves, ratifies,
confirms and votes for the Purchase Agreement, the transactions contemplated
in the Purchase Agreement and any 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 undersigned understands and agrees that this
Certification and Consent will become irrevocable and may not be withdrawn,
modified or cancelled after 5:00 p.m., Detroit, Michigan time, on April 17,
1998.
Further, I authorize the Executive Committee, and any person designated by
the Executive Committee, to attach this Certification and Consent to a
separate counterpart of the Resolutions.
In Witness Whereof, the undersigned sets his or her hand this day of
, 1998.
Dated: _____________________ -----------------------------------------
[Signature]
-----------------------------------------
[Print Name]
Percentage Interest: ____________________
IV-1
<PAGE>
CONSENT IN LIEU OF JOINT SPECIAL MEETING OF THE
PRINCIPALS, AND MEMBERS OF THE
EXECUTIVE COMMITTEE, OF RONEY & CO. L.L.C.
The signatories hereto, being (i) Principals ("Principals") of Roney & Co.
L.L.C., a Delaware limited liability company (the "Company"), who hold more
than 50% of the percentages of all of the Principals of the Company as set
forth on Schedule I to the Limited Liability Company Agreement of the Company
dated January 1, 1997, as amended (the "LLC Agreement"), and (ii) all of the
members of the Company's Executive Committee, take the actions, and adopt the
resolutions, hereinafter set forth.
Whereas, pursuant to a duly-adopted resolution of the Company's Executive
Committee, Robert J. Michelotti, on behalf of the Company, entered into an
Asset Purchase Agreement dated as of November 18, 1997, as amended (the
"Purchase Agreement"), with First Chicago NBD Corporation, a Delaware
corporation ("FCN"), pursuant to which the Company agreed to sell
substantially all its assets to FCN on the terms and conditions set forth in
the Purchase Agreement (the "Transaction"), subject to the requisite approval
of the Company's Principals;
Whereas, the Purchase Agreement calls for the purchase price payable by FCN
for the Company's assets to be distributed to the Company's members in
accordance with Schedule II.A to, and the other provisions of, the Purchase
Agreement;
Whereas, Section 7.01(a) of the LLC Agreement provides that, upon
dissolution of the Company, the affairs of the Company are to be wound up, the
assets of the Company are to be liquidated and the proceeds of liquidation are
to be distributed in the manner therein set forth;
Whereas, Section 1.05 of the LLC Agreement provides that the Company shall
dissolve upon the decision of the Principals;
Whereas, Section 4.01(b) of the LLC Agreement provides that the Principals'
consent to any matter shall be deemed given upon the affirmative vote of
Principals whose percentages exceed 50% of all Principals' percentages;
Whereas, the Purchase Agreement provides that FCN's obligation to close the
Transaction is conditioned upon the execution of employment agreements
described in Section II.D of the Purchase Agreement ("Employment Agreements")
between FCN (or one of its subsidiaries) and Principals of the Company (other
than any such Principals whose failure to enter into Employment Agreements
would not have a material adverse effect, as defined in the Purchase
Agreement);
Whereas, Section 6.03(b) of the LLC Agreement provides that a member of the
Company shall cease to be a member of the Company effective as of the date
specified in written notice so stating from the Executive Committee;
Whereas, Section 6.03(c) to the LLC Agreement provides that, upon
termination of a member's membership in the Company pursuant to Section
6.03(b), such member shall become entitled solely to the balance in such
member's capital account, adjusted for (i) his or her share of the Company's
profit or loss through the month of the effective date of such termination and
(ii) certain other items;
Whereas, Section 6.03(f) of the LLC Agreement provides that a member who
dies shall cease to be a member of the Company effective as of the date of
such member's death;
Whereas, Section 6.03(g) to the LLC Agreement provides that, upon cessation
of a member's membership in the Company by reason of death, such member's
estate or other successor shall become entitled solely to the balance in such
member's capital account, adjusted for (i) his or her share of the Company's
profit or loss through the month of his or her death and (ii) certain other
items;
Whereas, absent an amendment to the LLC Agreement, the estate or other
successor of a Principal who dies before the month of the closing of the
Transaction would not share in the distributable proceeds of the Transaction;
IV-2
<PAGE>
Whereas, Section 8.12(a) of the LLC Agreement provides that the LLC
Agreement may be amended or modified by the Principals, with the written
concurrence of the Executive Committee, by giving notice and a copy of the
amendment or modification to all the other members, provided such amendment or
modification does not increase the liabilities or create new liabilities for
any member without his or her consent; and
Whereas, the signatories hereto deem it to be in the best interests of the
Company and the members of the Company for the Company to (i) sell its assets
to FCN pursuant to the Purchase Agreement and (ii) dissolve and distribute the
net proceeds of such sale to and among the Principals or their estates or
other successors (after distribution to the other members of the amounts
distributable to them pursuant to the LLC Agreement) based on their
percentages of interest in the Company at the time the Transaction closes
(ascribing to the estates or other successors of Principals who die between
November 18, 1997 and the closing of the Transaction, solely for this purpose,
the percentages of interest that such Principals would have had if they had
survived until such closing).
Now, Therefore, the following resolutions are hereby adopted in accordance
with Section 18.404(d) of Delaware Limited Liability Company Act (the "Act"):
Resolved, that the assets of the Company be sold to FCN pursuant to the
Purchase Agreement;
Resolved Further, that the net proceeds of such sale be distributed to and
among the members as set forth in Schedule II.A (modified as set forth below)
to, and otherwise in accordance with, the Purchase Agreement;
Resolved Further, that those Principals who execute the Employment
Agreements shall be permitted to participate in, and share in the
distributable proceeds of, the Transaction pursuant to the terms of the
Purchase Agreement and if any Principal elects not to enter into an Employment
Agreement with FCN or one of its subsidiaries in accordance with the Purchase
Agreement, the Executive Committee is hereby directed to exercise its power
and authority, in accordance with Section 6.03 of the LLC Agreement, to
terminate such Principal's membership and percentage of interest in the
Company, and such Principal's capital shall be returned to him or her (subject
to appropriate adjustments through the date preceding the date of the closing
of the Transaction) in accordance with the LLC Agreement as amended hereby,
and such Principal shall not participate in, or share in the distributable
proceeds of, the Transaction or be a Principal of the Company at the time of
the closing of the Transaction;
Resolved Further, that if the distributable proceeds of such sale and the
liquidation of Roney differ from the aggregate amount shown on Schedule II.A
to the Purchase Agreement (as a result of Section II.A (iii) of the Purchase
Agreement or because there are liabilities of the Company that are not assumed
by FCN or assets of the Company that are not acquired by FCN under the
Purchase Agreement), or if any particular Principal ceases to be entitled to
the share of such proceeds otherwise allocable to him in accordance with
Schedule II.A to the Purchase Agreement by reason of the termination of such
Principal's membership in the Company pursuant to the preceding resolution or
otherwise, then the difference shall be allocated among the Principals, and
shall adjust the distributions to them, pro rata, based on their percentages
of interest in the Company at the time of closing of the Transaction under the
Purchase Agreement;
Resolved Further, that the estate or other successor of any Principal who
dies between November 18, 1997 and the closing of the Transaction shall share
in the distributable proceeds of the sale of Roney's assets pursuant to the
Purchase Agreement, to the same extent that such deceased Principal would have
shared in such distributable proceeds had such Principal survived to the
Closing and entered into and performed an Employment Agreement;
Resolved Further, that (i) the actions of the Executive Committee and each
of its members in entering (or causing the Company to enter) into the Purchase
Agreement and any and all related actions are hereby approved, ratified and
confirmed and (ii) the Executive Committee, its members and each of them shall
be and hereby is authorized and empowered to take any and all further action
as may be necessary or appropriate, in the Executive Committee's discretion,
to (A) effectuate the sale of the Company's assets pursuant to, and otherwise
carry out the terms of, the Purchase Agreement, (B) distribute the proceeds of
such sale, and any other assets of the Company, after payment of or provision
for any debts and obligations of the Company that are not assumed by FCN, to
the members in accordance with the Purchase Agreement, subject to the previous
resolutions, and (C) take any and all other actions that the Executive
Committee determines to be necessary or appropriate to effectuate, carry out
and/or implement the foregoing resolutions;
IV-3
<PAGE>
Resolved Further, that to the extent that any of the actions specified in
the foregoing resolutions would be contrary to or otherwise not authorized by
either the LLC Agreement or (on account of the absence of an enabling
provision in the LLC Agreement) the Act, the LLC Agreement shall be deemed
amended to provide for such action(s), and this Consent shall be deemed, and
shall constitute, an amendment of the LLC Agreement. The Executive Committee
is authorized and directed to give notice and a copy of this Consent to each
member of the Company, whether or not such member is a signatory hereto; and
Resolved Further, that (i) these resolutions may be executed in counterpart,
each of which shall constitute an original, and all of which, taken together,
shall constitute one and the same original, and (ii) each Principal may
signify his or her approval of, and join in, this Consent and foregoing
resolutions by executing (for attachment hereto) a separate Certification and
Consent in the form attached as Exhibit A, and delivering the same to the
Company, and each Principal who does so shall, for all purposes, be a
signatory to this Consent and to the foregoing resolutions.
-----------------------------------------
Member, Executive Committee
IV-4
<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, as
amended, 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 Resolutions and Consent Certificate (included in Part I of
this Registration Statement as Appendix IV to the Prospectus).
99(b) Form of Support Agreement.*
99(c)(1) Form of Employment Agreement (including form of Pledge Agreement as
exhibit thereto).
99(c)(2) Form of Executive Employment Agreement (including form of Executive
Pledge Agreement as exhibit thereto).
99(d) Letter to Roney Principals.
</TABLE>
- -------
* Previously filed.
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 AMENDMENT NO. 1 TO THE 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 18TH DAY OF MARCH, 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 AMENDMENT
NO. 1 TO THE 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
- ---------------------------------- March 18, 1998
(TERENCE E. ADDERLEY)
/s/ James K. Baker* Director
- ---------------------------------- March 18, 1998
(JAMES K. BAKER)
/s/ John H. Byran* Director
- ---------------------------------- March 18, 1998
(JOHN H. BRYAN)
Director
- ----------------------------------
(SIEGFRIED BUSCHMANN)
Director
- ----------------------------------
(JAMES S. CROWN)
/s/ Maureen A. Fay, O.P.* Director
- ---------------------------------- March 18, 1998
(MAUREEN A. FAY, O.P.)
/s/ Charles T. Fisher III* Director
- ---------------------------------- March 18, 1998
(CHARLES T. FISHER III)
/s/ Verne G Istock* Director and
- ---------------------------------- Principal March 18, 1998
(VERNE G. ISTOCK) Executive Officer
/s/ Thomas H. Jeffs II* Director
- ---------------------------------- March 18, 1998
(THOMAS H. JEFFS II)
II-3
<PAGE>
/s/ William G. Lowrie* Director
- ---------------------------------- March 18, 1998
(WILLIAM G. LOWRIE)
/s/ Richard A. Manoogian* Director
- ---------------------------------- March 18, 1998
(RICHARD A. MANOOGIAN)
/s/ William T. McCormick, Jr.* Director
- ---------------------------------- March 18, 1998
(WILLIAM T. MCCORMICK, JR.)
/s/ Andrew J. McKenna* Director
- ---------------------------------- March 18, 1998
(ANDREW J. MCKENNA)
/s/ Earl L. Neal* Director
- ---------------------------------- March 18, 1998
(EARL L. NEAL)
/s/ James J. O'Connor* Director
- ---------------------------------- March 18, 1998
(JAMES J. O'CONNOR)
/s/ Thomas E. Reilly, Jr.* Director
- ---------------------------------- March 18, 1998
(THOMAS E. REILLY, JR.)
Director
- ----------------------------------
(JOHN W. ROGERS, JR.)
/s/ Adele Simmons* Director
- ---------------------------------- March 18, 1998
(ADELE SIMMONS)
/s/ Richard L. Thomas* Director
- ---------------------------------- March 18, 1998
(RICHARD L. THOMAS)
/s/ David J. Vitale* Director
- ---------------------------------- March 18, 1998
(DAVID J. VITALE)
/s/ Robert A. Rosholt* Principal
- ---------------------------------- Financial Officer March 18, 1998
(ROBERT A. ROSHOLT)
/s/ William J. Roberts* Principal
- ---------------------------------- Accounting March 18, 1998
(WILLIAM J. ROBERTS) Officer
- -------
* The undersigned, by signing her name hereto, does hereby sign this
Amendment No. 1 to the 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,
as amended, 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 Resolutions and Consent Certificate (included in
Part I of this Registration Statement as Appendix IV to
the Prospectus).
99(b) Form of Support Agreement.*
99(c)(1) Form of Employment Agreement (including form of Pledge
Agreement as exhibit thereto).
99(c)(2) Form of Executive Employment Agreement (including form
of Executive Pledge Agreement as exhibit thereto).
99(d) Letter to Roney Principals.
</TABLE>
- -------
* Previously filed.
<PAGE>
EXHIBIT 8
DIRECT DIAL NUMBER: (319) 258-7800 LANSING, MICHIGAN
EB SITE: http://law.honigman.com
March 18, 1998
First Chicago NBD Corporation
One First National Plaza
Chicago, Illinois 60670
Re: Issuance of Common Stock for Assets of Roney & Co., L.L.C.
Ladies and Gentlemen:
We have represented Roney & Co., L.L.C., a Delaware limited liability
company ("Roney"), in connection with an Asset Purchase Agreement by and between
Roney and First Chicago NBD Corporation, a Delaware corporation ("FCN"), dated
November 18, 1997, as amended (the "Agreement"), pursuant to which FCN will
issue shares of its common stock (the "Shares") as partial consideration for the
acquisition of substantially all of the assets of Roney. You have requested our
opinion regarding the description of certain tax consequences contained in the
prospectus relating to the Shares registered under the Registration Statement on
Form S-4 filed with the Securities and Exchange Commission (file no. 333-47029)
(the "Registration Statement").
Our opinion is based on an examination of the Agreement, the Registration
Statement, and such other documents, instruments, and information as we have
considered necessary. Our opinion is also based upon the Internal Revenue Code
of 1986, as amended, administrative rulings, judicial decisions, Treasury
regulations and other applicable authorities. The statutory provisions,
regulations and interpretations on which our opinion is based are subject to
changes, and such changes could apply retroactively. In addition, there can be
no assurance that positions contrary to those stated in the Registration
Statement under the heading "Certain Federal Income Tax Consequences" may not be
taken by the Internal Revenue Service.
In rendering our opinion, we have relied upon and assumed the accuracy of,
certain representations of fact made by officers of FCN and Roney. We have not
independently investigated or evaluated these representations.
Based on the foregoing, it is our opinion that the statements in the
Registration Statement under the 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.
<PAGE>
First Chicago NBD Corporation
March 18, 1998
Page 2
We express no opinion with respect to the matters addressed in this letter
other than as set forth above.
We consent to the filing of this opinion as an exhibit to, and to the
reference to Honigman Miller Schwartz and Cohn under the caption "Certain
Federal Income Tax Consequences" in, the Registration Statement.
Very truly yours,
HONIGMAN MILLER SCHWARTZ AND COHN
<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,
March 18, 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
March 13, 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: March 18, 1998
<PAGE>
EXHIBIT 99(c)(1)
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between Roney & Co., a Delaware corporation (the
"Company"), and ________________ (the "Employee"), dated as of the ______ day of
____, 1998.
In light of the acquisition (the "Acquisition") by First Chicago NBD
Corporation ("FCN") of the assets and liabilities of Roney & Co., L.L.C.
("Roney"), pursuant to the Asset Purchase Agreement (the "Purchase Agreement")
dated as of November 18, 1997 by and between FCN and Roney, and the transfer of
certain of the Roney assets and liabilities to the Company, the Board of
Directors of the Company (the "Board") has determined that it is in the best
interests of the Company and its shareholder to assure that the Company will
have the continued dedication of the Employee to provide the Company with
continuity of services after the Acquisition. Therefore, in order to accomplish
these objectives, the Board has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date. The "Effective Date" shall mean the Closing Date (as
defined in the Purchase Agreement).
2. Employment Period. Subject to the terms and conditions of this
Agreement, the Company hereby agrees to employ the Employee, and the Employee
hereby agrees to remain in the employ of the Company, for the period commencing
on the Effective Date and ending on third annual anniversary of the Effective
Date (the "Employment Period"); provided, however, that it is understood and
agreed that the Employee is employed by the Company "at will" and
notwithstanding any other provision of this Agreement to the contrary, may be
terminated by the Company at any time with or without cause.
3. Terms of Employment. (a) Position and Duties. During the Employment
Period, the Employee shall perform such services for the Company as are
generally consistent with the authority, duties and responsibilities as are
assigned to the Employee on the Effective Date or which may be assigned to the
Employee thereafter by the Chief Executive Officer of the Company; provided,
however, that (i) any and all such authority, duties and responsibilities shall
be consistent with and similar to those duties which the Employee performed for
Roney immediately prior to the Effective Date unless consented to by the
Employee in such Employee's discretion and (ii) the Employee shall not be
required to regularly work at an office which is located more than 50 miles
outside of the radius of the principal office or offices of Roney at which the
Employee works at the Effective Date without the prior written consent of the
Employee, which consent may be granted or withheld in the Employee's sole
discretion.
(b) Compensation and Employee Benefits. During the Employment Period, the
<PAGE>
Employee shall be entitled to receive compensation, and participate in other
employee plans or arrangements, under the Company's applicable compensation and
benefit plans in effect at the Effective Date or in effect during the Employment
Period, it being understood that FCN shall maintain Roney's compensation and
other employee plans or arrangements existing on the Effective Date for a period
of three years from the Effective Date or such shorter period as may be agreed
upon by FCN and the Board.
4. Termination of Employment. (a) Death or Disability. The Employee's
employment shall terminate automatically upon the Employee's death during the
Employment Period. If the Company determines in good faith that the Disability
of the Employee has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the Employee written
notice in accordance with Section 10(b) of this Agreement of its intention to
terminate the Employee's employment. In such event, the Employee's employment
with the Company shall terminate effective on the 30th day after receipt of
such notice by the Employee (the "Disability Effective Date"), provided that,
within the 30 days after such receipt, the Employee shall not have returned to
full-time performance of the Employee's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Employee from the Employee's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Employee or the Employee's legal representative. If the
Employee's employment is terminated by reason of death or Disability, the Date
of Termination shall be the date of death of the Employee or the Disability
Effective Date, as the case may be.
(b) Other Terminations. The Company reserves the right to terminate the
Employee's employment for any reason during the Employment Period. If the
Employee's employment is terminated by the Company for any reason other than
death or Disability, the Date of Termination shall be the date of termination
specified by the Company.
5. Damages. (a) The Employee acknowledges that the continuity of existing
management, including the Employee, following completion of the Acquisition was
a critical factor in FCN's assessment of the likely benefits to be derived from
the Acquisition and that the willingness of the senior Employees, including the
Employee, to enter into employment agreements such as this was a material
inducement to proceed with the Acquisition. The Employee also acknowledges
that, if the Employee's employment hereunder is terminated prior to the end of
the Employment Period by the Employee voluntarily and not for reasons
attributable either to (i) the Company's failure to comply with the terms of
this Agreement or (ii) such Employee's death or Disability (a "Voluntary Quit"),
the damages to the Company would be material, but that the amount of such
damages would be uncertain and not readily ascertainable.
2
<PAGE>
(b) Accordingly, the Employee agrees that if the Employee Voluntarily Quits
prior to the expiration of the Employment Period, the Employee shall make a cash
payment as and for liquidated damages. If the Voluntary Quit occurs prior to
the first anniversary of the Effective Date, the amount of such cash payment
shall be the amount set forth on Exhibit A hereto; if the Voluntary Quit occurs
on or after the first anniversary, but prior to the second anniversary, of the
Effective Date, the amount of such cash payment shall be the amount set forth on
Exhibit A hereto; and if the Voluntary Quit occurs on or after the second
anniversary of the Effective Date, but prior to the expiration of the Employment
Period, the amount of such cash payment shall be the amount set forth in Exhibit
A.
(c) The Employee acknowledges that the amounts referenced in this Section 5
and set forth in Exhibit A are reasonable in proportion to the probable damages
likely to be sustained by the Company if the Employee Voluntarily Quits prior to
the expiration of the Employment Period, that the amount of actual damages to be
sustained by the Company in the event the Employee Voluntarily Quits is
incapable of precise estimation, that the payment of such cash amounts by the
Employee would not result in severe economic hardship for the Employee and his
family, and that such cash payments are not intended to constitute a penalty or
punitive damages for any purposes.
(d) The Employee's payment obligations under this Section 5 shall be full
recourse obligations and shall be secured by a pledge of the number of the
shares of FCN Common Stock received by the Employee in the Acquisition (pursuant
to Section II.A of the Purchase Agreement) pursuant to a Pledge Agreement, in
substantially the form of Exhibit B hereto (the "Pledge Agreement"), to be
entered into by the Employee and the Company concurrently with the execution and
delivery of this Agreement, provided that the Employee shall have the right to
substitute collateral reasonably acceptable to the Company (the "Collateral")
which shall then be subject to the Pledge Agreement. If the net proceeds of the
disposition of such shares of FCN Common Stock or the Collateral pursuant to the
Pledge Agreement are insufficient to satisfy the Employee's payment obligation
hereunder, the Employee shall be obligated to make up the shortfall out of his
or her other personal assets. If the net proceeds of the disposition of such
shares of FCN Common Stock or the Collateral pursuant to the Pledge Agreement
exceed the amount of the Employee's payment obligation hereunder, the Company
promptly shall pay such excess amount and, if applicable, return any excess
shares or Collateral, to the Employee as soon as is reasonably practicable.
(e) No liquidated damages shall be payable by the Employee, the Pledge
Agreement shall terminate and the FCN Common Stock or other Collateral held by
the Company shall be returned to the Employee in accordance with the Pledge
Agreement in the event the Employee's employment is terminated
prior to the expiration of the Employment Period for any reason other than if
the Employee Voluntarily Quits.
(f) During the Employment Period, the provisions of this Section 5 and the
Pledge Agreement shall constitute the Company's sole and exclusive remedy if an
Employee Voluntarily Quits.
3
<PAGE>
6. Obligations of the Company upon Termination. (a) Death. If the
Employee's employment is terminated by reason of the Employee's death during the
Employment Period, this Agreement shall terminate without further obligations to
the Employee's legal representatives under this Agreement, other than for
payment of any accrued obligations with respect to the Employee and a release of
the shares of FCN Common Stock or Collateral subject to the Pledge Agreement.
Any such accrued obligations shall be paid to the Employee's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of
Termination.
(b) Disability. If the Employee's employment is terminated by reason of
the Employee's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Employee, other than for payment of
any accrued obligations with respect to the Employee and a release of the shares
of FCN Common Stock or Collateral subject to the Pledge Agreement. Any such
accrued obligations shall be paid to the Employee in a lump sum in cash within
30 days of the Date of Termination.
(c) Other Terminations by the Company. If the Employee's employment is
terminated by the Company during the Employment Period for other than death or
Disability, this Agreement shall terminate without further obligations to the
Employee, other than for payment of any accrued obligations to the Employee and
a release of the shares of FCN Common Stock or Collateral subject to the Pledge
Agreement. Any such accrued obligations shall be paid to the Employee in a lump
sum in cash within 30 days of the Date of Termination.
(d) Set-Off. The Company's obligation to pay any accrued obligations
pursuant to this Section 6 (other than the Company's obligation to release
shares of FCN Common Stock or Collateral subject to the Pledge Agreement as
provided for in this Section 6) is subject to and may be reduced by all rights
of set-off, counterclaim, recoupment, defense or other claim, right or action
which the Company may have against the Employee.
7. Confidential Information. (a) The Employee shall hold in a fiduciary
capacity for the benefit of the Company and its affiliates all secret or
confidential information, knowledge or data (including, without limitation,
customer lists) relating to Roney, the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Employee during the Employee's employment by Roney, the Company or any of
its affiliated companies and which shall not be or become public knowledge
(other than by acts by the Employee or representatives of the Employee in
violation of this Agreement). After termination of the Employee's employment
with the Company, the Employee shall not, without the prior written consent of
the Company or as may otherwise be required by law or legal process, communicate
or divulge any such secret or confidential information, knowledge or data to
anyone other than the Company and those designated by it.
4
<PAGE>
(b) In the event of a breach or threatened breach of this Section 7, the
Employee agrees that the Company shall be entitled to injunctive relief in a
court of appropriate jurisdiction to remedy any such breach or threatened breach
and the Employee acknowledges that damages would be inadequate and insufficient.
(c) Any termination of the Employee's employment or of this Agreement shall
have no effect on the continuing operation of this Section 7.
8. Indemnification. The Company hereby reaffirms its obligation under
Section V.L. of the Purchase Agreement to provide for indemnification of the
Employee on the terms and conditions set forth in said Section V.L.
9. Successors. (a) This Agreement is personal to the Employee and without
the prior written consent of the Company shall not be assignable by the Employee
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Employee's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns. This Agreement may be assigned by the
Company with notice to, but without the consent of, the Employee to an affiliate
of the Company but may not be assigned to any other person without the prior
written consent of the Employee; provided, however, that the Company may not
assign this Agreement to an affiliate unless and until it concurrently assigns
the Pledge Agreement to such affiliate. For purposes of this Section 9, an
affiliate shall be an entity controlling, controlled by, or under common control
with, the Company.
(c) As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of law
or otherwise.
10. Miscellaneous. (a) This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Employee:
------------------
To the Employee named above at the address indicated
for said Employee in the Company's records
5
<PAGE>
If to the Company:
-----------------
Roney & Co.
c/o First Chicago NBD Corporation
One First National Plaza
Chicago, Illinois 60670
Attention: Terence C. Wise
Suite 0035
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee or a representative or authorized agent
of such addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) The Employee's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Employee or the Company may have hereunder shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) From and after the Effective Date, this Agreement shall supersede any
other employment, severance or change of control agreement between the parties
with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Employee has hereunto set the Employee's hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
EMPLOYEE RONEY & CO.
____________________________ By:_______________________________
Name:
Title:
6
<PAGE>
EXHIBIT A
---------
Cash Payment for a Voluntary Quit prior
to first annual anniversary of Effective Date* $__________
Cash Payment for a Voluntary Quit on or after
first annual anniversary of Effective Date and
prior to second annual anniversary of Effective Date* $__________
Cash Payment for a Voluntary Quit on or after second
annual anniversary of Effective Date and prior to
third annual anniversary of Effective Date* $___________
*To the extent that the aggregate amount of the Deferred Payment (as defined in
the Purchase Agreement) payable to the Employee pursuant to Section II.A of the
Purchase Agreement is adjusted pursuant to the Purchase Agreement or as a result
of the termination of another Principal's interest prior to the Effective Date,
the amounts set forth on this Exhibit A for liquidated damages will be adjusted
automatically by the amount of the increase or decrease in the Employee's
Deferred Payment without the need for any action by the Employee or the Company.
(For example, if the Employee's Deferred Payment amount is increased by $30,000,
the liquidated damages amount set forth above will be increased by $30,000 for
the period prior to the first annual anniversary of the Effective Date, will be
increased by $20,000 for the period from and after the first annual anniversary
and prior to the second annual anniversary of the Effective Date, and will be
increased by $10,000 for the period from and after the second annual anniversary
and prior to the third annual anniversary of the Effective Date.)
A-1
<PAGE>
EXHIBIT B
---------
PLEDGE AGREEMENT
----------------
PLEDGE AGREEMENT, dated as of _______________, 199__ (this
"Agreement"), by and between Roney & Co., a Delaware corporation ("Company"),
and _____________________ (the "Pledgor").
RECITALS
A. Employment Agreement. Company and the Pledgor have entered into
an Employment Agreement dated as of the date hereof (the "Employment
Agreement"). (Capitalized terms used herein and not otherwise defined having
the same meanings ascribed to them in the Employment Agreement.)
B. The Pledge. Pursuant to Section 5(d) of the Employment Agreement,
the Pledgor has agreed to secure the Pledgor's contingent payment obligations to
the Company as set forth in Section 5(b) of the Employment Agreement (the
"Liquidated Damages") by pledging to Company the shares (the "Pledged Shares")
of common stock, $1.00 par value, of FCN (the "Common Stock") that were issued
to the Pledgor pursuant to Section II.A of the Purchase Agreement, with the
number of Pledged Shares to be reduced as set forth herein.
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. Pledge. As collateral security for the full and timely payment of
the principal of the Liquidated Damages, the Pledgor hereby delivers, deposits,
pledges, transfers and assigns to Company, in form transferable for delivery,
and creates in Company a security interest in all the Pledged Shares and all
certificates or other instruments or documents evidencing the same now owned by
the Pledgor, and, except as set forth in Section 2(a) hereof, all proceeds
thereof (together with any securities or property to be delivered to the Pledgor
pursuant to Section 2(b) hereof, the "Pledged Securities").
The Pledgor hereby delivers to Company appropriate undated security
transfer powers duly executed in blank for the Pledged Securities set forth
above and will deliver appropriate undated security transfer powers duly
executed in blank for the Pledged Securities to be pledged hereunder from time
to time.
B-1
<PAGE>
2. Administration of Security. The following provisions shall govern
the administration of the Pledged Securities:
(a) So long as no Event of Default has occurred and is continuing (as
used herein, an "Event of Default" shall mean the Employee becoming obligated to
make a cash payment to Company under Section 5(b) of the Employment Agreement
and failing to make such cash payment when the same shall be due), the Pledgor
shall be entitled to vote the Pledged Securities and to receive and retain all
cash, and except as set forth in Section 2(b) below, other distributions thereon
and give consents, waivers and ratifications in respect thereof.
(b) If, while this Agreement is in effect, the Pledgor shall become
entitled to receive or shall receive any certificate representing Common Stock
in respect of any stock split, reverse stock split, stock dividend or any
distribution in connection with any reclassification, increase or reduction of
capital, in each case, with respect to the Pledged Securities, the Pledgor
agrees to accept the same as Company's agent and to hold the same in trust on
behalf of and for the benefit of Company and to deliver the same forthwith to
Company in the exact form received, with the endorsement of the Pledgor when
necessary and/or appropriate undated security transfer powers duly executed in
blank to be held by Company, subject to the terms of this Agreement, as
additional collateral security for the Liquidated Damages.
(c) The Pledgor shall immediately upon request by Company and in
confirmation of the security interest hereby created, execute and deliver to
Company such further instruments, deeds, transfers, assurances and agreements,
in such form and substance as Company shall reasonably request, including any
financing statements and amendments thereto, or any other documents, required
under Delaware law and any other applicable law to protect the security interest
created hereunder.
(d) Subject to any sale or other disposition by Company of the
Pledged Securities pursuant to this Agreement, the Pledged Securities shall be
returned promptly to the Pledgor as set forth below:
(i) upon the first anniversary of the date hereof, one-third of
the number (the "Original Number") of the Pledged Shares set forth in
Recital B of this Agreement (and any additional Pledged Securities
received by or on behalf of the Pledgor in respect of such amount of
such Pledged Shares) shall be returned to the Pledgor (and shall no
longer be considered "Pledged Shares" or "Pledged Securities");
(ii) upon the second anniversary of the date hereof, one-third of
the Original Number of the Pledged Shares (and any additional Pledged
B-2
<PAGE>
Securities received by or on behalf of the Pledgor in respect of such
amount of such Pledged Shares) shall be returned to the Pledgor (and
shall no longer be considered "Pledged Shares" or "Pledged
Securities"); and
(iii) upon the earliest to occur of (A) the death or Disability
of the Employee, (B) the third anniversary of the date hereof, (C)
payment in cash or other satisfaction by the Pledgor of all Liquidated
Damages due pursuant to Section 5(b) of the Employment Agreement and
(D) termination of the Employee's employment for any reason other than
a Voluntary Quit, all remaining Pledged Securities shall be returned
to Pledgor and this Agreement shall terminate.
(e) Company shall immediately upon request by the Pledgor execute and
deliver to the Pledgor such instruments, deeds, transfers, assurances and
agreements, in form and substance as the Pledgor shall reasonably request,
including the withdrawal or termination of any financing statements and
amendments thereto, or any filing, withdrawal, termination or amendment of any
other documents, required under law to vest in Pledgor possession of any
securities that are required to be returned to the Pledgor in accordance with
Section 2(d) hereof.
(f) In the event the number of Pledged Shares to be returned to the
Pledgor pursuant to Section 2 hereof includes a fractional share, the Company
shall return to Pledgor the number of whole Pledged Shares equal to the next
lowest whole number of Pledged Shares.
3. Remedies in Case of an Event of Default.
(a) If an Event of Default has occurred and is continuing, as its
sole and exclusive remedy hereunder (whether or not the Company exercises such
remedy), Company may take ownership (without payment of any consideration) of
such number of Pledged Securities as are necessary (based upon the Fair Market
Value thereof) to satisfy the unpaid portion of Liquidated Damages due and
payable under Section 5(b) of the Employment Agreement by giving written notice
to the Pledgor (the "Enforcement Notice"). Effective upon the giving of the
Enforcement Notice, and without further action on the part of the parties to
this Agreement, Company (or an affiliate of the Company) shall be deemed to have
taken ownership of such Pledged Securities and to have disposed of such Pledged
Securities for proceeds having a value equal to the Fair Market Value (as
defined below) of such Pledged Securities as of such date. Company shall be
deemed to have applied such proceeds to the payment of any unpaid Liquidated
Damages. Any excess proceeds from the deemed sale of such Pledged Securities
shall be for the Pledgor's account and shall be paid over to the Pledgor in cash
no later than three days after the giving of the Enforcement Notice.
B-3
<PAGE>
(b) The "Fair Market Value" of the Pledged Securities as of any date
for purposes of this Agreement means the product of (i) the number of shares of
Pledged Securities on such date multiplied by (ii) the average of the daily
closing prices for a share of Common Stock for the 10 consecutive trading days
before the date the Employee Voluntarily Quits (the "Average Closing Price").
The closing price for each day will be the average closing price as reported on
the New York Stock Exchange Composite Transaction Tape or, in case no such
reported sale takes place on such day, the average of the reported closing bid
and asked prices regular way, in either case as reported by the New York Stock
Exchange.
(c) Section 3(a) sets forth the exclusive remedies of Company in
respect of the Pledged Securities. Company hereby waives (to the extent that
such remedy arises solely by virtue of the security interest granted hereunder)
any and all other remedies in respect of the collateral that are or may be
available to it as a secured party under Article 9 of the Uniform Commercial
Code. Neither failure nor delay on the part of Company to exercise any right,
remedy, power or privilege provided for in this Section 3 shall operate as a
waiver thereof.
4. Substitute Collateral. The Pledgor may substitute for the Pledged
Securities any collateral of equal or greater value (which, in the case of
Pledged Securities, is the Fair Market Value thereof) reasonably acceptable to
Company (the "Substitute Collateral"). From and after any such substitution,
the Pledged Securities shall be released from this Agreement and the provisions
of this Agreement shall apply to the Substitute Collateral to the same extent
that such provisions would have applied to the Pledged Securities.
5. Pledgor's Obligations Not Affected. The obligations of the
Pledgor under this Agreement shall remain in full force and effect without
regard to, and shall not be impaired or affected by, (a) any subordination,
amendment or modification of or addition or supplement to the Employment
Agreement or any assignment or transfer of any thereof; (b) any exercise or non-
exercise by Company of any right, remedy, power or privilege under or in respect
of this Agreement, the Employment Agreement or any waiver of any such right,
remedy, power or privilege; (c) any waiver, consent, extension, indulgence or
other action or inaction in respect of bankruptcy, insolvency, reorganization,
arrangement, readjustment, composition, liquidation or the like, of Company,
whether or not the Pledgor shall have notice or knowledge of any of the
foregoing; (e) any substitution of collateral pursuant to Section 4 above; or
(f) any other act or omission to act or delay of any kind by the Pledgor,
Company or any other Person or any other circumstance whatsoever which might,
but for the provisions of this clause (f), constitute a legal and equitable
discharge of the Pledgor's obligations hereunder.
6. Attorney-in-Fact. Company (and any affiliate of the Company) is
hereby appointed the attorney-in-fact of the Pledgor for the purpose of carrying
out the provisions
B-4
<PAGE>
of this Agreement and taking any action and executing any instrument that
Company reasonably may deem necessary or advisable to accomplish the purposes
hereof, which appointment as attorney-in-fact is irrevocable as one coupled with
an interest.
7. Termination. Upon the earliest to occur of the events set forth
in Section 2(d)(iii) hereof, this Agreement shall terminate and Company shall
return to the Pledgor the remaining Pledged Securities as provided in such
Section.
8. Notices. All notices or other communications required or
permitted to be given hereunder shall be delivered as provided in the Employment
Agreement.
9. Binding Effect, Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns and nothing herein is intended or shall be construed to
give any other person any right, remedy or claim under, to or in respect of this
Agreement. No transfer, sale, pledge, hypothecation or other disposition of
Pledged Securities by the Pledgor shall be permitted hereunder, and any such
transfer shall be null and void.
10. Miscellaneous. Company and its assigns shall have no obligation
in respect of the Pledged Securities, except to hold and dispose of the same in
accordance with the terms of this Agreement. Neither this Agreement nor any
provision hereof may be amended, modified, waived, discharged or terminated
orally, but only by an instrument in writing signed by the party against which
enforcement of the amendment, modification, waiver, discharge or termination is
sought. The provisions of this Agreement shall be binding upon the successors
and assigns of the Pledgor. The captions in this Agreement are for convenience
of reference only and shall not define or limit the provision hereof. This
Agreement shall be governed by and construed and enforced in accordance with the
laws of the State of Delaware applicable to contracts made and to be performed
entirely within such State. This Agreement may be executed simultaneously in
several counterparts, each of which is an original, but all of which together
shall constitute one instrument.
B-5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered on the date first above written.
RONEY & CO.
By:______________________________
Name:
Title:
PLEDGOR
__________________________________
B-6
<PAGE>
IRREVOCABLE STOCK/BOND POWER
----------------------------
FOR VALUE RECEIVED, the undersigned does (do) hereby sell, assign and transfer
to
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
SOCIAL SECURITY OR TAXPAYER IDENTIFYING NO.
________________________________________________________________________________
(Name of transferee and mailing address including zip code must be clearly
indicated)
____________ shares of the ______________ stock of _______________
IF STOCK, { represented by Certificate No. ___________________________________
COMPLETE standing in the name of the undersigned on the books of said
THIS PORTION Company.
_________________________ bonds of _______________________________
IF BONDS, { in the principal amount of $ _____________, No.___________________
COMPLETE standing in the name of the undersigned on the books of said
THIS PORTION Company.
The undersigned does (do) hereby irrevocably constitute and appoint
__________________________ attorney to transfer the said stock or bond(s), as
the case may be, on the books of said Company, with full power of substitution
in the premises.
Dated ________________
_______________________________________
IMPORTANT - READ CAREFULLY (PERSONS EXECUTING THIS POWER SIGNS HERE)
--------------------------
The signature(s) to this Power must correspond with the name(s)_________________
as written upon the face of the stock certificate(s) or bond(s),
as the case may be, in every particular without alteration or
enlargement or any change whatever and must be guaranteed by____________________
a commercial bank or a trust company having its principal office
or a correspondent in the City of Chicago or by a firm having
membership in the New York or Midwest Stock Exchange.
B-7
<PAGE>
EXHIBIT 99(c)(2)
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
AGREEMENT by and between Roney & Co., a Delaware corporation (the
"Company"), and ________________ (the "Executive"), dated as of the ______ day
of ____, 1998.
In light of the acquisition (the "Acquisition") by First Chicago NBD
Corporation ("FCN") of the assets and liabilities of Roney & Co., L.L.C.
("Roney"), and the transfer of certain of the Roney assets and liabilities to
the Company pursuant to the Asset Purchase Agreement dated as of November 18,
1997 (the "Purchase Agreement") by and between Roney and FCN, the Board of
Directors of the Company (the "Board") has determined that it is in the best
interests of the Company and its shareholders to assure that the Company will
have the continued dedication of the Executive to provide the Company with
continuity of management and services after the Acquisition. Therefore, in order
to accomplish these objectives, the Board has caused the Company to enter into
this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Date. The "Effective Date" shall mean the Closing Date (as
defined in the Purchase Agreement).
2. Employment Period. Subject to the terms and conditions of this
Agreement, the Company hereby agrees to employ the Executive, and the Executive
hereby agrees to remain in the employ of the Company, for the period commencing
on the Effective Date and ending on third annual anniversary of the Effective
Date (the "Employment Period").
3. Terms of Employment. (a) Position and Duties. (i) During the
Employment Period [period ending on the first annual anniversary of the
Effective Date for the cfo], (A) the Executive shall serve as [ceo/coo/cfo] of
the Company, and perform such services for the Company as are generally
consistent with the authority, duties and responsibilities as are assigned to
the Executive on the Effective Date or which may be assigned to the Executive
thereafter by the Chief Executive Officer of the Company [the Board in the case
of the CEO]; provided, however, that any and all such authority, duties and
responsibilities shall be consistent with and similar to those duties which the
Executive performed for Roney immediately prior to the Effective Date unless
consented to by the Executive in such Executive's discretion.
(ii) During the Employment Period, and excluding any periods of vacation
and sick leave to which the Executive is entitled, the Executive agrees to
devote substantially all of his attention and time during normal business hours
to the business and affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive hereunder, to use the
Executive's reasonable best efforts to perform such responsibilities. During the
Employment Period it shall not be a violation of this Agreement for the
Executive to (A) serve on corporate, civic or charitable boards or
<PAGE>
committees, (B) deliver lectures, fulfill speaking engagements or teach at
educational institutions and (C) manage personal investments, so long as such
activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(iii) Notwithstanding anything in this Agreement to the contrary, the
Executive shall not be required to regularly work at an office which is located
more than 50 miles outside of the radius of the current headquarters office of
Roney at the Effective Date without the prior written consent of the Executive,
which consent may be granted or withheld in the Executive's sole discretion.
(b) Compensation. (i) Base Salary and Bonus. During the Employment Period
[first year following the Effective Date for the cfo], the Executive shall
receive a minimum annual base salary of [] and an annual cash bonus of [].
(ii) Other Employee Benefits. During the Employment Period, the
Executive shall be entitled to participate in other applicable employee plans or
arrangements under the Company's compensation and benefit plans in effect at the
Effective Date or in effect during the Employment Period, it being understood
that FCN shall maintain Roney's compensation and other employee plans or
arrangements existing on the Effective Date for a period of three years from the
Effective Date or such shorter period as may be agreed upon by FCN and the
Board.
4. Termination of Employment. (a) Death or Disability. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the Disability
of the Executive has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the Executive written
notice in accordance with Section 11(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after receipt of
such notice by the Executive (the "Disability Effective Date"), provided that,
within the 30 days after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative. If the
Executive's employment is terminated by reason of death or Disability, the Date
of Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
2
<PAGE>
(b) Cause. The Company may terminate the Executive's employment during the
Employment Period for Cause. For purposes of the Agreement, "Cause" shall mean:
(i) the continued and willful failure of the Executive to perform
substantially the Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to physical or mental
illness), after (A) a written demand for substantial performance is delivered to
the Executive by the Board [or the Chief Executive Officer of the Company - for
coo and cfo] which specifically identifies the manner in which the Board [or
Chief Executive Officer] believes that the Executive has not substantially
performed the Executive's duties and (B) a reasonable opportunity is provided to
the Executive to cure such failure, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company, or
(iii) conviction of a felony or any other offense involving dishonesty or
breach of trust, or entry of a guilty or nolo contendere plea by the Executive
or participation in a pre-trial diversion with respect thereto, or
(iv) a material breach of the covenants contained in Section 7.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without a good faith belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the [Chief Executive Officer of
the Company - for the COO and CFO] or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-fourths of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board) finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i), (ii), (iii) or (iv) above
(and in the case of conduct described in subparagraph (i) above, such conduct
was not cured within the period provided for in subparagraph (i)(B) above), and
specifying the particulars thereof in detail.
(c) Notice of Termination for Cause. Any termination by the Company for
Cause shall be communicated by Notice of Termination to the other party hereto
given in accordance with Section 11(b) of this Agreement. For purposes of this
Agreement, a "Notice of Termination" means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon, (ii) to the
extent applicable, sets forth in
3
<PAGE>
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated and
(iii) if the Date of Termination is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Company to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Cause shall not waive any right of the Company hereunder or preclude
the Company from asserting such fact or circumstance in enforcing the Company's
rights hereunder.
(d) Certain Dates of Termination. If the Executive's employment is
terminated by the Company for Cause, the Date of Termination shall be the date
of receipt of the Notice of Termination or any later date specified therein
within 30 days of such notice. If the Executive's employment is terminated by
the Company other than for Cause, death or Disability, the Date of Termination
shall be the date on which the Company notifies the Executive of such
termination.
5. Damages. (a) The Executive acknowledges that the continuity of
existing senior management, including the Executive, following completion of the
Acquisition was a critical factor in FCN's assessment of the likely benefits to
be derived from the Acquisition and that the willingness of the senior
Executives, including the Executive, to enter into employment agreements such as
this was a material inducement to proceed with the Acquisition. The Executive
also acknowledges that, if the Executive's employment hereunder is terminated
prior to the end of the Employment Period by the Executive voluntarily and not
for reasons attributable either to (i) the Company's failure to comply with the
terms of this Agreement or (ii) such Executive's death or Disability (a
"Voluntary Quit"), the damages to the Company would be material, but that the
amount of such damages would be uncertain and not readily ascertainable.
(b) Accordingly, the Executive agrees that if the Executive Voluntarily
Quits prior to the expiration of the Employment Period, the Executive shall make
a cash payment as and for liquidated damages. If the Voluntary Quit occurs prior
to the first anniversary of the Effective Date, the amount of such cash payment
shall be the amount set forth on Exhibit A hereto; if the Voluntary Quit occurs
on or after the first anniversary, but prior to the second anniversary, of the
Effective Date, the amount of such cash payment shall be the amount set forth on
Exhibit A hereto; if the Voluntary Quit occurs on or after the second
anniversary of the Effective Date, but prior to the expiration of the Employment
Period, the amount of such cash payment shall be the amount set forth in Exhibit
A.
(c) The Executive acknowledges that the amounts referenced in this Section
5 and set forth in Exhibit A are reasonable in proportion to the probable
damages likely to be sustained by the Company if the Executive Voluntarily Quits
prior to the expiration of the Employment Period, that the amount of actual
damages to be sustained by the Company in the event the Executive Voluntarily
Quits is incapable of precise estimation, that the payment of such cash amounts
by the Executive would not result in severe economic hardship for the Executive
and his family, and that such cash payments are not
4
<PAGE>
intended to constitute a penalty or punitive damages for any purposes.
(d) The Executive's payment obligations under this Section 5 shall be full
recourse obligations and shall be secured by a pledge of the number of the
shares of FCN Common Stock received by the Executive in the Acquisition
(pursuant to Section II.A of the Purchase Agreement) pursuant to an Executive
Pledge Agreement, in substantially the form of Exhibit B hereto (the "Pledge
Agreement"), to be entered into by the Executive and the Company concurrently
with the execution and delivery of this Agreement, provided that the Executive
shall have the right to substitute collateral reasonably acceptable to the
Company (the "Collateral") which shall then be subject to the Pledge Agreement.
If the net proceeds of the disposition of such shares of FCN Common Stock or the
Collateral pursuant to the Pledge Agreement are insufficient to satisfy the
Executive's payment obligation hereunder, the Executive shall be obligated to
make up the shortfall out of his or her other personal assets. If the net
proceeds of the disposition of such shares of FCN Common Stock or the Collateral
pursuant to the Pledge Agreement exceed the amount of the Executive's payment
obligation hereunder, the Company promptly shall pay such excess amount and, if
applicable, return any excess shares or Collateral, to the Executive as soon as
is reasonably practicable.
(e) No liquidated damages shall be payable by the Executive, the Pledge
Agreement shall terminate and the FCN Common Stock or other Collateral held by
the Company shall be returned to the Executive in accordance with the Pledge
Agreement in the event the Executive's employment is terminated prior to the
expiration of the Employment Period for any reason other than if the Executive
Voluntarily Quits.
(f) During the Employment Period, the provisions of this Section 5 and the
Pledge Agreement shall constitute the Company's sole and exclusive remedy if an
Executive Voluntarily Quits.
6. Obligations of the Company upon Termination. (a) Death. If the
Executive's employment is terminated by reason of the Executive's death during
the Employment Period, this Agreement shall terminate without further
obligations to the Executive's legal representatives under this Agreement, other
than for payment of any accrued obligations with respect to the Executive,
payment of a pro rata portion of the Executive's annual cash bonus for the year
of the Executive's death, and a release of the shares of FCN Common Stock or
Collateral subject to the Pledge Agreement. Any such accrued obligations shall
be paid to the Executive's estate or beneficiary, as applicable, in a lump sum
in cash within 30 days of the Date of Termination.
(b) Disability. If the Executive's employment is terminated by reason of
the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of any accrued obligations to the Executive, payment of a pro rata portion of
the Executive's annual cash bonus for the year of the Executive's Disability,
and a release of the shares of FCN Common Stock or Collateral subject to the
Pledge Agreement. Any such accrued obligations shall be paid to the Executive in
a lump sum in cash within 30 days of the Date
5
<PAGE>
of Termination.
(c) Cause or Voluntary Quit. If during the Employment Period the
Executive's employment shall be terminated for Cause or the Executive
Voluntarily Quits, this Agreement, other than the provisions of Sections 7 and
10 which shall survive such termination, shall terminate without further
obligations to the Executive other than the obligation to pay to the Executive
(x) his annual base salary through the Date of Termination, (y) the amount of
any compensation previously deferred by the Executive (such deferred amounts
payable pursuant to the terms of the applicable plan or deferral election) and
(z) any accrued vacation pay, in each case to the extent theretofore unpaid. In
addition, in the case of a termination for Cause, the Company shall transfer to
the Executive the shares of FCN Common Stock and Collateral, if any, subject to
the Pledge Agreement and in the case where the Executive Voluntarily Quits, the
Company shall transfer and/or pay to the Executive any shares of FCN Common
Stock and Collateral held under the Pledge Agreement in excess of the amount of
liquidated damages owing by the Executive.
(d) Terminations Other than Death, Disability, Cause or Voluntary Quit.
If, during the Employment Period, the Executive's employment with the Company
shall be terminated other than by reason of death, Disability or for Cause, or
the Executive shall Voluntarily Quit:
(i) the Company shall pay to the Executive in a lump sum in cash within 30
days after the Date of Termination the aggregate of the following amounts:
A. the Executive's annual base salary through the Date of
Termination to the extent not theretofore paid; and
B. the unpaid amount of the executive's annual base salary and
annual cash bonus from the Date of Termination through the end of the
Employment Period [through the end of the first anniversary of the
Effective Date for the cfo];
(ii) the Company shall pay to the Executive after the Date of Termination
pursuant to the terms of the applicable plan and/or deferral election any
compensation previously deferred (other than pursuant to a qualified plan) by
the Executive (together with any accrued interest or earnings thereon) and any
accrued vacation pay, in each case to the extent not theretofore paid;
(iii) for 30 months after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan, the
Company shall continue benefits to the Executive and/or the Executive's family
at least equal to those which would have been provided to them in accordance
with the Company's welfare benefit plans, if any, if the Executive's employment
had not been terminated; provided, however, that if the Executive becomes
reemployed with another employer and is eligible to receive medical or other
welfare benefits under another employer provided plan, the medical and
6
<PAGE>
other welfare benefits described herein shall be secondary to those provided
under such other plan during such applicable period of eligibility. For
purposes of determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree benefits, if any, pursuant to such plans,
the Executive shall be considered to have remained employed until 30 months
after the Date of Termination and to have retired on the last day of such
period; and
(iv) the Company shall transfer to the Executive the shares of FCN
Common Stock and Collateral, if any, subject to the Pledge Agreement.
(e) Set-Off. The Company's obligation to pay any accrued obligations
pursuant to this Section 6 (other than the Company's obligation to release
shares of FCN Common Stock or Collateral subject to the Pledge Agreement as
provided for in this Section 6) is subject to and may be reduced by all rights
of set-off, counterclaim, recoupment, defense or other claim, right or action
which the Company may have against the Executive.
7. Confidential Information. (a) The Executive shall hold in a fiduciary
capacity for the benefit of the Company and its affiliates all secret or
confidential information, knowledge or data (including, without limitation,
customer lists) relating to Roney, the Company or any of its affiliated
companies, and their respective businesses, which shall have been obtained by
the Executive during the Executive's employment by Roney, the Company or any of
its affiliated companies and which shall not be or become public knowledge
(other than by acts by the Executive or representatives of the Executive in
violation of this Agreement). After termination of the Executive's employment
with the Company, the Executive shall not, without the prior written consent of
the Company or as may otherwise be required by law or legal process, communicate
or divulge any such secret or confidential information, knowledge or data to
anyone other than the Company and those designated by it.
(b) In the event of a breach or threatened breach of this Section 7, the
Executive agrees that the Company shall be entitled to injunctive relief in a
court of appropriate jurisdiction to remedy any such breach or threatened breach
and the Executive acknowledges that damages would be inadequate and
insufficient.
(c) Any termination of the Executive's employment or of this Agreement
shall have no effect on the continuing operation of this Section 7.
8. Indemnification. The Company hereby reaffirms its obligation under
Section V.L. of the Purchase Agreement to provide for indemnification of the
Executive on the terms and conditions set forth in said Section V.L.
9. Successors. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns. This Agreement may be assigned by the
Company with notice to, but without the consent of, the Executive to an
affiliate of the
7
<PAGE>
Company but may not be assigned to any other person without the prior written
consent of the Executive; provided, however, that the Company may not assign
this Agreement to an affiliate unless and until it concurrently assigns the
Pledge Agreement to such affiliate. For purposes of this Section 9, an affiliate
shall be an entity controlling, controlled by, or under common control with, the
Company.
(c) As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of law
or otherwise.
10. Non-Solicitation. The Executive acknowledges that the Executive has
and will learn confidential information relating to the customers of the Company
and its affiliated companies. The Executive further acknowledges that the
Company's relationships with its customers are extremely valuable to the Company
and its affiliates, are generally the result of the investment of substantial
time and effort by them, and tend to be near permanent. Therefore, the Executive
agrees that in the event Executive's employment terminates during the Employment
Period for any reason other than (i) as a result of a breach of this Agreement
by the Company or (ii) as a result of the termination of the employment of the
Executive by the Company without Cause, the Executive shall not, for a period of
one year after the occurrence of such termination, for himself, or as the agent
of, on behalf of, or in conjunction with, any person or entity, solicit or
attempt to solicit, whether directly or indirectly: (A) any employee of the
Company or its affiliated companies to terminate such employee's employment
relationship with the Company or its affiliated companies, or (B) any business
of the type provided by the Company or its affiliated companies from any person
or entity that is or was a client, employee, or customer of the Company or its
affiliated companies and had dealt with the Executive or any other employee of
the Company or its affiliated companies under the supervision of the Executive.
11. Miscellaneous. (a) This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
-------------------
To the Executive named above at the address indicated
for said Executive in the Company's records
8
<PAGE>
If to the Company:
-----------------
Roney & Co.
c/o First Chicago NBD Corporation
One First National Plaza
Chicago, Illinois 60670
Attention: Terence C. Wise
Suite 0035
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee or a representative or authorized agent
of such addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder shall not be deemed to be
a waiver of such provision or right or any other provision or right of this
Agreement.
(f) From and after the Effective Date, this Agreement shall supersede any
other employment, severance or change of control agreement between the parties
with respect to the subject matter hereof.
9
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
EXECUTIVE RONEY & CO.
By:
- ----------------------------- -----------------------------
Name:
Title:
10
<PAGE>
EXHIBIT A
---------
Cash Payment for Voluntary Quit prior
to first annual anniversary of Effective Date* $
---------
Cash Payment for Voluntary Quit on or after
first annual anniversary of Effective Date and
prior to second annual anniversary of Effective Date* $
---------
Cash Payment for Voluntary Quit on or after second
annual anniversary of Effective Date and prior to
third annual anniversary of Effective Date* $
---------
*To the extent that the aggregate amount of the Deferred Payment (as defined
in the Purchase Agreement) payable pursuant to Section II.A of the Purchase
Agreement is adjusted pursuant to the Purchase Agreement or as a result of the
termination of another Principal's interest prior to the Effective Date, the
amounts set forth on this Exhibit A for liquidated damages will be adjusted
automatically by the amount of the increase or decrease in the Executive's
Deferred Payment without the need for any action by the Executive or the
Company. (For example, if the Executive's Deferred Payment amount is increased
by $30,000, the liquidated damages amount set forth above will be increased by
$30,000 for the period prior to the first annual anniversary of the Effective
Date, will be increased by $20,000 for the period from and after the first
annual anniversary and prior to the second annual anniversary of the Effective
Date, and will be increased by $10,000 for the period from and after the second
annual anniversary and prior to the third annual anniversary of the Effective
Date.)
A - 1
<PAGE>
EXHIBIT B
---------
EXECUTIVE PLEDGE AGREEMENT
--------------------------
EXECUTIVE PLEDGE AGREEMENT, dated as of _______________, 199__ (this
"Agreement"), by and between Roney & Co., a Delaware corporation ("Company"),
and_________________ (the "Pledgor").
RECITALS
A. Employment Agreement. Company and the Pledgor have entered into
an Executive Employment Agreement dated as of the date hereof (the "Employment
Agreement"). (Capitalized terms used herein and not otherwise defined having the
same meanings ascribed to them in the Employment Agreement.)
B. The Pledge. Pursuant to Section 5(d) of the Employment Agreement,
the Pledgor has agreed to secure the Pledgor's contingent payment obligations to
the Company as set forth in Section 5(b) of the Employment Agreement (the
"Liquidated Damages") by pledging to Company the shares (the "Pledged Shares")
of common stock, $1.00 par value, of FCN (the "Common Stock") that were issued
to the Pledgor pursuant to Section II.A of the Purchase Agreement, with the
number of Pledged Shares to be reduced as set forth herein.
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. Pledge. As collateral security for the full and timely payment of
the principal of the Liquidated Damages, the Pledgor hereby delivers, deposits,
pledges, transfers and assigns to Company, in form transferable for delivery,
and creates in Company a security interest in all the Pledged Shares and all
certificates or other instruments or documents evidencing the same now owned by
the Pledgor, and, except as set forth in Section 2(a) hereof, all proceeds
thereof (together with any securities or property to be delivered to the Pledgor
pursuant to Section 2(b) hereof, the "Pledged Securities").
The Pledgor hereby delivers to Company appropriate undated security
transfer powers duly executed in blank for the Pledged Securities set forth
above and will deliver appropriate undated security transfer powers duly
executed in blank for the Pledged Securities to be pledged hereunder from time
to time.
B - 1
<PAGE>
2. Administration of Security. The following provisions shall govern
the administration of the Pledged Securities:
(a) So long as no Event of Default has occurred and is continuing (as
used herein, an "Event of Default" shall mean the Executive becoming obligated
to make a cash payment to Company under Section 5(b) of the Employment Agreement
and failing to make such cash payment when the same shall be due), the Pledgor
shall be entitled to vote the Pledged Securities and to receive and retain all
cash, and except as set forth in Section 2(b) below, other distributions thereon
and give consents, waivers and ratifications in respect thereof.
(b) If, while this Agreement is in effect, the Pledgor shall become
entitled to receive or shall receive any certificate representing Common Stock
in respect of any stock split, reverse stock split, stock dividend or any
distribution in connection with any reclassification, increase or reduction of
capital, in each case, with respect to the Pledged Securities, the Pledgor
agrees to accept the same as Company's agent and to hold the same in trust on
behalf of and for the benefit of Company and to deliver the same forthwith to
Company in the exact form received, with the endorsement of the Pledgor when
necessary and/or appropriate undated security transfer powers duly executed in
blank to be held by Company, subject to the terms of this Agreement, as
additional collateral security for the Liquidated Damages.
(c) The Pledgor shall immediately upon request by Company and in
confirmation of the security interest hereby created, execute and deliver to
Company such further instruments, deeds, transfers, assurances and agreements,
in such form and substance as Company shall reasonably request, including any
financing statements and amendments thereto, or any other documents, required
under Delaware law and any other applicable law to protect the security interest
created hereunder.
(d) Subject to any sale or other disposition by Company of the
Pledged Securities pursuant to this Agreement, the Pledged Securities shall be
returned promptly to the Pledgor as set forth below:
(i) upon the first anniversary of the date hereof, one-third of
the number (the "Original Number") of the Pledged Shares set forth in
Recital B of this Agreement (and any additional Pledged Securities
received by or on behalf of the Pledgor in respect of such amount of
such Pledged Shares) shall be returned to the Pledgor (and shall no
longer be considered "Pledged Shares" or "Pledged Securities");
(ii) upon the second anniversary of the date hereof, one-third
of the Original Number of the Pledged Shares (and any additional
Pledged Securities received by or on behalf of the Pledgor in respect
of such amount of such Pledged Shares) shall be returned to the
Pledgor (and shall no longer be considered "Pledged Shares" or
"Pledged Securities"); and
B - 2
<PAGE>
(iii) upon the earliest to occur of (A) the death or Disability
of the Executive, (B) the third anniversary of the date hereof, (c)
payment in cash or other satisfaction by the Pledgor of all Liquidated
Damages due pursuant to Section 5(b) of the Employment Agreement and
(D) termination of the Executive's employment for any reason other
than a Voluntary Quit, all remaining Pledged Securities shall be
returned to Pledgor and this Agreement shall terminate.
(e) Company shall immediately upon request by the Pledgor execute and
deliver to the Pledgor such instruments, deeds, transfers, assurances and
agreements, in form and substance as the Pledgor shall reasonably request,
including the withdrawal or termination of any financing statements and
amendments thereto, or any filing, withdrawal, termination or amendment of any
other documents, required under law to vest in Pledgor possession of any
securities that are required to be returned to the Pledgor in accordance with
Section 2(d) hereof.
(f) In the event the number of Pledged Shares to be returned to the
Pledgor pursuant to Section 2 hereof includes a fractional share, the Company
shall return to the Pledgor the number of whole Pledged Shares equal to the next
lowest whole number of Pledges Shares.
3. Remedies in Case of an Event of Default.
(a) If an Event of Default has occurred and is continuing, as its
sole and exclusive remedy hereunder (whether or not the Company exercises such
remedy), Company may take ownership (without payment of any consideration) of
such number of Pledged Securities as are necessary (based upon the Fair Market
Value thereof) to satisfy the unpaid portion of Liquidated Damages due and
payable under Section 5(b) of the Employment Agreement by giving written notice
to the Pledgor (the "Enforcement Notice"). Effective upon the giving of the
Enforcement Notice, and without further action on the part of the parties to
this Agreement, Company (or an affiliate of the Company) shall be deemed to have
taken ownership of such Pledged Securities and to have disposed of such Pledged
Securities for proceeds having a value equal to the Fair Market Value (as
defined below) of such Pledged Securities as of such date. Company shall be
deemed to have applied such proceeds to the payment of any unpaid Liquidated
Damages. Any excess proceeds from the deemed sale of such Pledged Securities
shall be for the Pledgor's account and shall be paid over to the Pledgor in cash
no later than three days after the giving of the Enforcement Notice.
(b) The "Fair Market Value" of the Pledged Securities as of any date
for purposes of this Agreement means the product of (i) the number of shares of
Pledged Securities on such date multiplied by (ii) the average of the daily
closing prices for a share of Common Stock for the 10 consecutive trading days
before the date the Executive Voluntarily Quits (the "Average Closing Price").
The closing price for each day will be the average closing price as reported on
the New York Stock Exchange Composite
B - 3
<PAGE>
Transaction Tape or, in case no such reported sale takes place on such day, the
average of the reported closing bid and asked prices regular way, in either case
as reported by the New York Stock Exchange.
(c) Section 3(a) sets forth the exclusive remedies of Company in
respect of the Pledged Securities. Company hereby waives (to the extent that
such remedy arises solely by virtue of the security interest granted hereunder)
any and all other remedies in respect of the collateral that are or may be
available to it as a secured party under Article 9 of the Uniform Commercial
Code. Neither failure nor delay on the part of Company to exercise any right,
remedy, power or privilege provided for in this Section 3 shall operate as a
waiver thereof.
4. Substitute Collateral. The Pledgor may substitute for the Pledged
Securities any collateral of equal or greater value (which, in the case of
Pledged Securities, is the Fair Market Value thereof) reasonably acceptable to
Company (the "Substitute Collateral"). From and after any such substitution, the
Pledged Securities shall be released from this Agreement and the provisions of
this Agreement shall apply to the Substitute Collateral to the same extent that
such provisions would have applied to the Pledged Securities.
5. Pledgor's Obligations Not Affected. The obligations of the
Pledgor under this Agreement shall remain in full force and effect without
regard to, and shall not be impaired or affected by, (a) any subordination,
amendment or modification of or addition or supplement to the Employment
Agreement or any assignment or transfer of any thereof; (b) any exercise or non-
exercise by Company of any right, remedy, power or privilege under or in respect
of this Agreement, the Employment Agreement or any waiver of any such right,
remedy, power or privilege; (c) any waiver, consent, extension, indulgence or
other action or inaction in respect of bankruptcy, insolvency, reorganization,
arrangement, readjustment, composition, liquidation or the like, of Company,
whether or not the Pledgor shall have notice or knowledge of any of the
foregoing; (e) any substitution of collateral pursuant to Section 4 above; or
(f) any other act or omission to act or delay of any kind by the Pledgor,
Company or any other Person or any other circumstance whatsoever which might,
but for the provisions of this clause (f), constitute a legal and equitable
discharge of the Pledgor's obligations hereunder.
6. Attorney-in-Fact. Company (and any affiliate of the Company) is
hereby appointed the attorney-in-fact of the Pledgor for the purpose of carrying
out the provisions of this Agreement and taking any action and executing any
instrument that Company reasonably may deem necessary or advisable to accomplish
the purposes hereof, which appointment as attorney-in-fact is irrevocable as one
coupled with an interest.
7. Termination. Upon the earliest to occur of the events set forth
in Section 2(d)(iii) hereof, this Agreement shall terminate and Company shall
return to the Pledgor the remaining Pledged Securities as provided in such
Section.
B - 4
<PAGE>
8. Notices. All notices or other communications required or
permitted to be given hereunder shall be delivered as provided in the Employment
Agreement.
9. Binding Effect, Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns and nothing herein is intended or shall be construed to
give any other person any right, remedy or claim under, to or in respect of this
Agreement. No transfer, sale, pledge, hypothecation or other disposition of
Pledged Securities by the Pledgor shall be permitted hereunder, and any such
transfer shall be null and void.
10. Miscellaneous. Company and its assigns shall have no obligation
in respect of the Pledged Securities, except to hold and dispose of the same in
accordance with the terms of this Agreement. Neither this Agreement nor any
provision hereof may be amended, modified, waived, discharged or terminated
orally, but only by an instrument in writing signed by the party against which
enforcement of the amendment, modification, waiver, discharge or termination is
sought. The provisions of this Agreement shall be binding upon the successors
and assigns of the Pledgor. The captions in this Agreement are for convenience
of reference only and shall not define or limit the provision hereof. This
Agreement shall be governed by and construed and enforced in accordance with the
laws of the State of Delaware applicable to contracts made and to be performed
entirely within such State. This Agreement may be executed simultaneously in
several counterparts, each of which is an original, but all of which together
shall constitute one instrument.
B - 5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered on the date first above written.
RONEY & CO.
By:
-------------------------------------
Name:
Title:
PLEDGOR
----------------------------------------
B - 6
<PAGE>
IRREVOCABLE STOCK/BOND POWER
----------------------------
FOR VALUE RECEIVED, the undersigned does (do) hereby sell, assign and transfer
to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SOCIAL SECURITY OR TAXPAYER IDENTIFYING NO.
- --------------------------------------------------------------------------------
(Name of transferee and mailing address including zip code must be clearly
indicated)
____________ shares of the ____________ stock of ______
IF STOCK, { represented by Certificate No. _______________________________
COMPLETE standing in the name of the undersigned on the books of said
THIS PORTION Company.
____________________________ bonds of ________________________
IF BONDS, { in the principal amount of $___________________, No.__________
COMPLETE standing in the name of the undersigned on the books of said
THIS PORTION Company.
The undersigned does (do) hereby irrevocably constitute and
appoint _________________________ attorney to transfer the said stock or
bond(s), as the case may be, on the books of said Company, with full power of
substitution in the premises.
Dated
-------------
---------------------------------------
IMPORTANT - READ CAREFULLY (PERSONS EXECUTING THIS POWER SIGNS HERE)
The signature(s) to this Power must correspond with the name(s)
----------------
as written upon the face of the stock certificate(s) or bond(s),
as the case may be, in every particular without alteration or
enlargement or any change whatever and must be guaranteed by ----------------
a commercial bank or a trust company having its principal office
or a correspondent in the City of Chicago or by a firm having
membership in the New York or Midwest Stock Exchange.
B - 7
<PAGE>
Exhibit 99(d)
RONEY & CO., L.L.C.
One Griswold Avenue
Detroit, Michigan 48226
Dear Principal:
You are being asked to approve the terms of a transaction (the
"Acquisition") pursuant to which Roney & Co., L.L.C. ("Roney") will sell
substantially all of its assets to First Chicago NBD Corporation ("FCN") for an
aggregate purchase price of $79,642,100, plus the assumption of substantially
all of the liabilities of Roney.
On November 18, 1997, Roney entered into an Asset Purchase Agreement (as
amended, the "Purchase Agreement"), with FCN pursuant to which FCN agreed to
purchase substantially all of the assets, and assume substantially all of the
liabilities, of Roney. Under the terms of Roney's 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 Delaware
Limited Liability Company Act, Roney is providing to each Principal a
Certification and Consent of Principal ("Consent Certificate") for the purpose
of obtaining each Principal's consent to the Purchase Agreement and the
Acquisition. By executing and returning the executed Consent Certificate to
Roney, a Principal will be acknowledging, among other things, the following:
(i) that such Principal has received a copy of the Prospectus which is included
with this letter 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 the Executive Committee 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 other actions taken or to be taken by the Executive Committee of Roney or
any person designated by the Executive Committee under authority of the
Resolutions. In addition, by executing the Consent Certificate, a Principal will
be approving all amendments to the Operating Agreement necessary to permit the
actions specified in the Resolutions.
As mentioned above, enclosed with this letter is a copy of a Prospectus
that describes the material terms of the Purchase Agreement and the Acquisition,
and provides additional information concerning Roney, FCN and the Common Stock
of FCN that will be received by the Principals in partial consideration of the
purchase price for Roney's assets. You should review the Prospectus carefully
before executing and returning the Consent Certificate to Roney.
<PAGE>
Also enclosed with this letter are two copies of an employment agreement
and a pledge agreement and one copy of an irrevocable stock power that you will
be required to execute and deliver to an FCN subsidiary in order to participate
in the Acquisition and to receive your allocable portion of the purchase price.
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 and, in accordance with Roney's
Operating Agreement, such Principal's membership interest in Roney will be
terminated prior to such closing of the Acquisition. In order to facilitate the
logistics of the closing of the Acquisition, Roney asks that you execute and
return each copy of the employment agreement, the pledge agreement and the
irrevocable stock power to Roney along with the Consent Certificate. The
employment agreement, the pledge agreement and the irrevocable stock power will
be held by Roney until the closing of the Acquisition. At the closing of the
Acquisition, the FCN subsidiary will date and countersign the copies of the
employment agreement and the pledge agreement thereby making them effective and
binding on both parties. If Roney does not obtain the requisite consent of its
Principals, or if for any other reason the Acquisition does not close, the
copies of the employment agreement, the pledge agreement and the irrevocable
stock power will not be delivered to FCN and will not become effective.
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 execute copies of the employment agreement,
pledge agreement and irrevocable stock power included in this package, and
deliver these documents to Roney on or before April 3, 1998 to the attention of
Mark Cleland. Once a Consent Certificate is executed and delivered to Roney, it
may be revoked at any time prior to 5:00 p.m., Detroit, Michigan time, on April
17, 1998; on and after 5:00 p.m., Detroit, Michigan time, on April 17, 1998 any
Consent Certificate in Roney's possession, whether received before or after said
date, shall be irrevocable. On and after April 18, 1998, 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 the closing
are satisfied, Roney intends to consummate the Acquisition with FCN.
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.
By order of the Executive Committee of Roney
