EXHIBIT 10.13
INTEGRATED SUPPORT SERVICES AGREEMENT
This Integrated Support Services Agreement (this "Agreement") is entered into
this 31st day of January, 1996, by and among JMC Group, Inc., a Delaware
corporation, James Mitchell & Co., a California corporation, and its
subsidiaries JMC Insurance Services Corporation and JMC Financial Corporation,
each California corporations, and First Tennessee Bank National Association
("FTB"), in its own capacity and as trustee under the Trust Agreement, dated
August 31, 1988, as amended from time to time, by and between James Mitchell &
Co., as trustor and FTB, as trustee of the trust thereby established and First
Tennessee Brokerage, Inc., a Tennessee corporation ("FTBR").
RECITALS
A. In August, 1988, James Mitchell & Co. and FTB entered into a
Services Agreement pursuant to which James Mitchell & Co. and its subsidiaries
agreed to provide certain services to FTB, in its own capacity and as trustee,
and to the Trust (as hereinafter defined).
B. In January, 1994, FTB, James Mitchell & Co. and certain of its
affiliates entered into a series of agreements which expanded the nature of the
parties relationship with each other and restated the terms of the original
Services Agreement.
C. FTB and James Mitchell & Co. and its affiliates have agreed to
terminate the Existing Agreements (as hereinafter defined) pursuant to the
Termination Agreement (as hereinafter defined), dated the date hereof, and enter
into a new arrangement whereby JMC (as hereinafter defined) will provide support
services for FTB's and FTBR's internal annuity and mutual fund sales programs
pursuant to this Agreement. FTB, FTBR and JMCG (as hereinafter defined) have
previously manifested their intent to terminate the Existing Agreements and
enter into the new arrangement by execution and delivery of that certain letter
of understanding, dated December 8, 1995.
AGREEMENT
In consideration of the foregoing, the mutual covenants and undertakings herein
set forth and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
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ARTICLE I
DEFINITIONS
Capitalized terms used in this Agreement shall have the following meanings.
Capitalized terms used herein but not otherwise defined herein shall have the
meanings assigned to those terms in the Termination Agreement.
1.1 "Accumulated Value," as of any month-end, means the total of all amounts
deposited by Participants in the Trust as of that date, plus all accumulated
investment yield thereon less any amounts withdrawn by Participants prior to
that date. Such yields and amounts shall be determined by each Product Provider
in good faith in accordance with the normal accounting practices of such Product
Providers and shall be recorded by JMC.
1.2 "Action(s)" means any and all actions, suits or proceedings.
1.3 "Active Account(s)" means either: (i) for mutual funds, any unique account
registration maintained under a separate Social Security number by a Product
Provider which has a positive share balance at the end of any month; or (ii) for
annuities or insurance, any individual primary policies, excluding those
policies issued for the sole purpose of making an added payment to a previously
issued policy, which has an outstanding premium balance at the end of the month
or was in an active payout phase during the month.
1.4 "Asset Fee Purchase Price" shall have the meaning assigned to that term in
SECTION 5.2 hereof.
1.5 "Change of Control" means (i) any direct or indirect change of more than
40% of the equity ownership of JMC Group, Inc. or JMC (ii) any merger, business
combination or sale of all or substantially all of the assets of or liquidation
of JMC Group, Inc. or JMC or any similar transaction in which the stockholders
of JMC Group, Inc. or JMC, as the case may be, immediately prior to the
transaction do not continue to represent more than 50% of the stockholders of
JMC Group, Inc. or JMC, as the case may be, or its successor after the
transaction, or (iii) any material change in the senior management of JMC Group,
Inc. or JMC which shall include the resignation or termination of the Chief
Executive or Chief Operating Officer thereof.
1.6 "Change of Law" shall have the meaning assigned to that term in SECTION
16.2.3 hereof.
1.7 "Chargeback" shall have the meaning assigned to that term in SECTION 4.7
hereof.
1.8 "Claim(s)" shall have the meaning assigned to that term in SECTION 12.1.1.1
hereof.
1.9 "Clearing Agreement" means that certain Clearing Agreement, dated the date
hereof, by and between JMC Financial Corporation and FTBR.
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1.10 "Competing Financial Institution" shall have the meaning assigned to that
term in SECTION 10.1.1 hereof.
1.11 "Contract Term" shall have the meaning assigned to that term in ARTICLE XV
hereof.
1.12 "Conversion Notice" shall have the meaning assigned to that term in
SECTION 17.8.1 hereof.
1.13 "Current Annuity Block" means the block of business consisting of
insurance and annuity policies sold by JMC or Priority to FTB customers from the
inception of the annuity sales program at FTB in August 1988 through the
Termination Date, together with any and all additional premiums added to such
policies after the Termination Date, which policies are still in force.
1.14 "Current Block" means the block of business consisting of the Current
Annuity Block and the Current Mutual Fund Block.
1.15 "Current Block Annuity Product(s)" means any insurance or annuity policy
which is part of the Current Block. A list of the Current Block Annuity
Products is attached to the Termination Agreement as EXHIBIT A.
1.16 "Current Block Product Provider(s)" means any Product Provider whose
product is a Current Block Annuity Product.
1.17 "Current Mutual Fund Block" means the block of business consisting of all
mutual fund shares sold by Priority to FTB customers from the inception of the
mutual fund sales program at FTB in February 1994 through the Termination Date,
which shares are still outstanding.
1.18 "Customer(s)" shall have the meaning assigned to that term in the Clearing
Agreement.
1.19 "Customer Account(s)" shall have the meaning assigned to that term in the
Clearing Agreement.
1.20 "Customer Complaint(s)" means any complaint (whether written or oral)
received by JMC, any of its subsidiaries or affiliates, or by any officer,
director, agent or employee of any of them or by FTB, any of its subsidiaries or
affiliates, or by any officer, director, agent or employee of any of them from
any person (including state and governmental agencies, departments, divisions or
offices or self-regulatory organizations) with respect to: (i) annuity,
insurance or mutual fund sales or servicing made or provided by JMC or Priority
personnel prior to the Termination Date; (ii) servicing of annuity, insurance
and mutual fund products provided by JMC personnel after the Termination Date
pursuant to this Agreement or the Clearing Agreement; or (iii) the FTB Program.
1.21 "Default" shall mean the occurrence of any one or more of the events
listed in ARTICLE XIV hereof.
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1.22 "Definitive Agreements" means this Agreement, the Termination Agreement
and the Clearing Agreement
1.23 "Designated Person" shall have the meaning assigned to that term in
ARTICLE XIII hereof.
1.24 "Dispute" shall have the meaning assigned to that term in SECTION 18.8.1
hereof.
1.25 "Documentation Guidelines" means the written guidelines prepared by JMC,
FTB and FTBR after consultation with the Product Providers regarding the
documentation which will be required for JMC to process sales of a particular
JMC ISS Product or additions to the Current Annuity Block pursuant to this
Agreement and the Clearing Agreement.
1.26 "Exclusive Territory" shall have the meaning assigned to that term in
SECTION 10.1.1 hereof.
1.27 "Exception Product Provider(s)" means any Product Provider who cannot meet
the Industry Guidelines.
1.28 "Existing Agreements" means the License Agreement, the Services Agreement,
the Mutual Fund Agreement and the Option Agreement.
1.29 "FTBR" means First Tennessee Brokerage, Inc., a Tennessee corporation and
registered broker/dealer and member NASD.
1.30 "FTB" means First Tennessee Bank National Association, a federally-
chartered national bank.
1.31 "FTB Business" means all mutual fund and annuity sales (other than sales
of JMC ISS Products and Current Annuity Block Products) made by FTB Employees,
which FTB or its affiliates, in its sole discretion, subject to SECTION 2.1.2
hereof, requests that JMC process pursuant to this Agreement.
1.32 "FTB Contact" means the single individual identified by FTB or FTBR from
time to time who will handle the resolution of documentation issues as described
in SECTION 3.2.1 hereof.
1.33 "FTB Employees" means all employees and agents of FTB and FTBR or any of
their affiliates, but does not include any employees of FTB's Bond Division.
1.34 "FTB Information" has the meaning assigned to that term in SECTION 8.3
hereof.
1.35 "FTB Parties" means FTB, its subsidiaries (including FTBR), affiliates,
successors and assigns and their respective partners, shareholders, directors,
officers, employees and agents.
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1.36 "FTB Program" means the internal mutual fund and annuity sales programs of
FTB or its affiliates (including the Platform Program) which target customers
with investable assets of less than $250,000, but does not include any sales
program of FTB's Bond Division.
1.37 "Industry Guidelines" shall have the meaning assigned to that term in
SECTION 2.3.2.1 hereof.
1.38 "Industry Product Provider(s)" means any Product Provider who has
represented in writing their ability and willingness to meet the Industry
Guidelines.
1.39 "Initial Term" shall have the meaning assigned to that term in ARTICLE XV
hereof.
1.40 "Integrated Support Services" means the services provided to FTB by JMC
pursuant to this Agreement.
1.41 "ISS Block" means the block of business consisting of JMC ISS Products
sold by FTB Employees. The ISS Block shall not include add-on sales of Current
Annuity Block Products which are part of the Current Annuity Block.
1.42 "JMC" means James Mitchell & Co. and the Subsidiaries.
1.43 "JMC Annuity Product(s)" means any JMC ISS Product or any Current Block
Annuity Product.
1.44 "JMC Annuity Product Provider(s)" means any Product Provider whose product
is a JMC Annuity Product.
1.45 "JMC Business" means all sales of JMC ISS Products and Current Annuity
Block Products by FTB Employees.
1.46 "JMC Financial" means JMC Financial Corporation, a California corporation
and registered broker/dealer and member NASD.
1.47 "JMC Information" has the meaning assigned to that term in SECTION 11.2
hereof.
1.48 "JMC Insurance" means JMC Insurance Services Corporation, a California
corporation and licensed insurance agency.
1.49 "JMC ISS Product(s)" means any annuity or insurance product which JMC
recommends to FTB or FTBR for use in the FTB Program in accordance with SECTION
2.3.1 hereof and which FTB or FTBR decides to offer and sell to its customers,
including any Current Block Annuity Product which JMC recommends to FTB or FTBR
and which FTB or FTBR decides to offer for initial (as opposed to add-on) sales
in the FTB Program.
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1.50 "JMC ISS Product Provider(s)" means any Product Provider whose product is
a JMC ISS Product.
1.51 "JMC Parties" means JMC, its subsidiaries, affiliates, successors and
assigns and their respective partners, shareholders, directors, officers,
employees and agents.
1.52 "JMC Product Provider(s)" means any Product Provider whose product is part
of the Current Block or the ISS Block.
1.53 "JMC-Processed Business" means the JMC Business and the FTB Business.
1.54 "JMCG" means JMC Group, Inc., James Mitchell & Co. and Priority.
1.55 "Letter of Understanding" means that certain letter of understanding,
dated December 8, 1995, by and among JMCG and FTB.
1.56 "License Agreement" means that certain Service Mark License Agreement,
dated January 28, 1994, by and among JMCG and FTB.
1.57 "Mutual Fund Agreement" means that certain Mutual Fund Sales Agreement and
Mutual Fund Sales Agreement Supplement No. 1, each dated January 28, 1994, by
and among JMCG and FTB.
1.58 "NASD" means the National Association of Securities Dealers, Inc.
1.59 "OCC" means the United States Office of the Comptroller of Currency.
1.60 "Option Agreement" means that certain Option Agreement, dated January 28,
1994, by and among JMCG and FTB.
1.61 "Participant(s)" has the meaning assigned to that term in the Trust
Agreement.
1.62 "Performance Standards" means the performance standards set forth on
EXHIBIT A attached hereto.
1.63 "Proceeding(s)" means any cease and desist order, written agreement,
undertaking or memorandum of understanding with, or other order or supervisory
letter from, any Regulator.
1.64 "Product Provider(s)" means the company underwriting or distributing any
insurance, annuity or mutual fund product.
1.65 "Publicity" shall have the meaning assigned to that term in ARTICLE XIII
hereof.
1.66 "Regulator(s)" means the NASD or other regulatory authority having
jurisdiction over the activities of any party hereto.
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1.67 "SEC" means the United States Securities and Exchange Commission.
1.68 "Services Agreement" means that certain Services Agreement and Services
Agreement Supplement No. 1, each dated January 28, 1994, by and among JMCG and
FTB.
1.69 "Set-Up Fees" shall have the meaning assigned to that term in SECTION
4.2.1.1 hereof.
1.70 "Significant Competitor" shall have the meaning assigned to that term in
SECTION 9.2 hereof.
1.71 "Solicitations" shall have the meaning assigned to that term in ARTICLE
XIII hereof.
1.72 "Subsidiaries" means JMC Financial and JMC Insurance.
1.73 "Termination Agreement" means that certain Termination and Transition
Agreement, dated the date hereof, by and among JMCG and FTB.
1.74 "Termination Date" means the effective date of termination of the Existing
Agreements as provided in the Termination Agreement.
1.75 "Total Initial Value" shall have the meaning assigned to that term in
SECTION 4.2.1.1 hereof.
1.76 "Trail Commissions" means all trail commissions payable by JMC Product
Providers, including, without limitation, asset and renewal fees and 12b-1 fees.
1.77 "Transaction Fees" shall have the meaning assigned to that term in SECTION
4.1 hereof.
1.78 "Transition Period" means the period commencing December 8, 1995 and
ending on the Termination Date.
1.79 "Trust" means the trust established by the Trust Agreement.
1.80 "Trust Assets" shall have the meaning assigned to that term in the Trust
Agreement.
1.81 "Trust Agreement" means that certain Trust Agreement, dated August 31,
1988, as amended from time to time, by and between James Mitchell & Co. and FTB.
1.82 "Trustee" means FTB in its capacity as trustee of the Trust.
1.83 "Trustor" means James Mitchell & Co. in its capacity as trustor of the
Trust.
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ARTICLE II
INTEGRATED SUPPORT SERVICES
2.1 INTEGRATED SUPPORT SERVICES.
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2.1.1 JMC will provide the following services to the FTB Program during the
Contract Term:
2.1.1.1 New Business Processing and Revenue Accounting. Processing
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of all JMC Business and all FTB Business. Such processing shall
include revenue accounting for the JMC Business and the FTB Business,
other than revenue accounting for the Current Mutual Fund Block which
accounting is FTBR's responsibility as provided in SECTION 4.3 hereof.
Notwithstanding the foregoing, as regards The Life of Virginia
flexible premium variable deferred annuity sold by JMC and its
affiliates to FTB's customers as the Taxavers Flexible Annuity, JMC
will accept for processing only unsolicited add-ons.
2.1.1.2 Customer Service. Handling customer service requests for
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the Current Block and for customers of the JMC-Processed Business.
2.1.2 FTB and FTBR may elect to have JMC process and service some but not
all of the business FTB and its affiliates conduct with a particular
Product Provider (other than a JMC ISS Product Provider or a Current
Annuity Block Product Provider). In such circumstance, it shall be FTB's
and FTBR's sole and exclusive responsibility to ensure that such business
is conducted in a manner that segregates it from the JMC-Processed Business
and JMC shall have no responsibility for processing or servicing such
business. In the event FTB and FTBR are unable to successfully segregate
the business, FTB and FTBR shall use their best efforts to remedy the
situation, but such failure shall not constitute an Default by FTB or FTBR
hereunder.
2.1.3 All mutual fund and variable annuity sales processed hereunder shall
be processed in accordance with the terms of the Clearing Agreement.
2.1.4 The Integrated Support Services shall be provided by JMC from its
central operations center in San Diego, California.
2.2 PERFORMANCE STANDARDS.
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2.2.1 JMC shall use its best efforts to comply with the Performance
Standards for all JMC ISS Product Providers and any other Product Providers
which contractually agree in writing to abide by the Performance Standards.
2.2.2 With respect to any Product Provider which does not contractually
agree to abide by the Performance Standards, JMC will use reasonable
efforts to comply with the Performance Standards.
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2.2.3 Compliance with the Performance Standards shall be measured from the
time JMC receives documentation which is complete and legible and meets the
Documentation Guidelines.
2.3 PRODUCTS.
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2.3.1 Product Selection. Subject to SECTION 2.3.2 hereof, FTB and FTBR
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shall determine, in their sole discretion, which annuity and mutual fund
products will be offered and sold through the FTB Program. JMC shall be
entitled to present annuity and insurance products for consideration by FTB
and FTBR and such products will be included in the FTB Program based upon
product benefits and customer acceptability in the sole discretion of FTB
and FTBR.
2.3.2 Product Providers.
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2.3.2.1 In order to permit JMC to effectively and efficiently
provide the Integrated Support Services for the consideration outlined
herein, FTB and FTBR will use their best efforts to select Product
Providers which meet the following industry guidelines for the
products selected (the "Industry Guidelines"):
2.3.2.1.1 Capable of instant issue or "app-less" processing.
2.3.2.1.2 Willing to accept contractual changes and surrender
requests at JMC's direction without signed forms or to accept
JMC's universal forms.
2.3.2.1.3 Able and willing to commit to process any complete
request within 72 hours.
2.3.2.1.4 Able and willing to accept account and transaction
data electronically (preferred).
2.3.2.1.5 Permit net commission processing.
2.3.2.1.6 Provide remote account data access and monthly account
value files.
2.3.2.1.7. Have an established service group dedicated to the
bank distribution channels.
2.3.2.2 In the event FTB or FTBR desires to utilize an Exception
Product Provider, JMC will provide the Integrated Support Services for
such Product Provider for the Transaction Fees outlined in SECTION 4.1
hereof if it can perform the Integrated Support Services without
increased cost to JMC. If FTB or FTBR selects an Exception Product
Provider and, JMC experiences increased cost as a result of such
Exception Product Providers inability or unwillingness to meet the
Industry Guidelines, JMC will have the option to increase the fees for
the business processing and/or customer servicing of that Exception
Product Provider's product(s). In such a circumstance, JMC will
notify FTB or FTBR, as the case may be, of the amount of any increased
charges to FTB or FTBR and will provide
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documentation supporting such increases. Any increase in the fees will
be proportional to the increased efforts required by JMC. Beginning
thirty (30) days after JMC's notice, FTB or FTBR shall pay the
increased fees on business processed and accounts serviced for such
Exception Product Provider unless FTB or FTBR, as the case may be, has
provided JMC with prior written notice of its intention not to utilize
the Exception Product Provider in light of such increased charges or
the Exception Product Provider has altered its operations in a manner
which permits JMC to perform the Integrated Support Services without
increased cost to JMC.
2.3.2.3 Within 15 business days after submitting the name of a
Product Provider to JMC in writing, JMC shall notify FTB or FTBR, as
the case may be, whether the Product Provider is an Industry Product
Provider or an Exception Product Provider. If the Product Provider is
an Exception Product Provider, JMC shall provide with such notice, its
best estimate of the increased cost, if any to JMC for performing the
Integrated Support Services. Notwithstanding the foregoing, if at any
time JMC is unable to perform the Integrated Support Services for any
Exception Product Provider without increased cost to it, then JMC will
notify FTB or FTBR, as the case may be, and the foregoing provisions
hereof shall apply.
2.3.2.4 Until December 31, 1996, JMC shall provide the Integrated
Support Services for the Provider Companies listed on Exhibit B hereto
for the Transaction Fees.
2.3.2.5 All JMC ISS Product Providers shall be Industry Product
Providers.
2.3.3 Appointments. In the event FTB or FTBR, as the case may be, elects
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to offer a JMC ISS Product, JMC will facilitate the appointment of FTB
Employees with JMC ISS Product Providers. Prior to such appointment, it
shall be FTB's and FTBR's responsibility to ensure that such sales
personnel are properly licensed and trained. JMC will also facilitate the
appointment of FTB Employees with Current Annuity Block Product Providers
for purposes of add-on sales only.
2.4 SURRENDERS AND RESCISSIONS. JMC shall promptly process all surrender
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requests in accordance with the Performance Standards. In the event FTBR
notifies JMC of the necessity to cancel any mutual fund transaction before the
settlement date or to rescind a variable annuity transaction, JMC shall process
such a request no later than the end of the business day following notification
by FTBR. Such notification shall take the form of a telephone call confirmed by
facsimile. In the event FTBR notifies JMC of the necessity to rescind or cancel
a mutual fund or variable annuity transaction less than one hour prior to the
close of the securities market on the settlement date, JMC will use its best
efforts to accomplish the rescission or cancellation. If as a result of a
cancellation or rescission, a Product Provider charges JMC for any market loss,
FTBR or FTB shall promptly reimburse JMC for such market loss.
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2.5 RECORDKEEPING AGENT FOR THE TRUST. JMC shall maintain on behalf of
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Trustee, a list of all Participants together with the Participant's last known
address and a list of all Trust Assets held by Trustee for the benefit of such
Participants and shall prepare any tax-reporting documents for the Trust.
2.6 CUSTOMER ACCOUNT INFORMATION. With respect to customer account
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information, JMC will provide FTBR with tapes containing customer account
information on a monthly basis. In addition, JMC will have the ability to
provide mutual fund customers who call the central operations center with the
most recent share balance and account value information, if any, which is
available through networking with the mutual fund Product Provider.
2.7 REPORTS. JMC will provide FTBR with various monthly reports as may from
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time to time be agreed upon by JMC and FTBR. Such reports shall include
information concerning JMC's performance as measured against the Performance
Standards, sales production for the FTB Program and individual FTB Employees,
revenue accounting and surrenders. In addition, JMC will notify FTBR promptly
of the results of any audit by any Regulator. JMC will also provide FTBR with
copies of any deficiency letter or other correspondence received from any
Regulator which is related to JMC's business with FTB or FTBR.
2.8 COMPLIANCE WITH LAWS. JMC shall comply with all rules and regulations of
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the NASD, the SEC and any other Regulator which are applicable to the Integrated
Support Services provided to the FTB Program under the Definitive Agreements.
JMC shall cooperate with FTB's and FTBR's efforts to comply with all applicable
rules and regulations of the OCC, the NASD, the SEC and any other Regulator
which are applicable to the FTB Program.
ARTICLE III
FTB RESPONSIBILITIES
3.1 RESPONSIBILITY FOR THE FTB PROGRAM.
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3.1.1 General. During the Contract Term, FTB and FTBR shall have sole
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responsibility (including financial responsibility) for all sales, sales
management and compliance aspects of the FTB Program, including, without
limitation, the following:
3.1.1.2 Supervision, management and compensation of the annuity,
insurance and mutual fund sales force.
3.1.1.3 All appointment setting, tracking and reporting.
3.1.1.4 All sales support, including product training, promotions,
marketing materials and sales personnel inquiries.
3.1.1.5 All FTB Employee commission accounting.
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3.1.2 Compliance. Without limiting the generality of the foregoing, FTB
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and FTBR alone shall be responsible for performing all compliance functions
for the FTB Program, including, without limitation, acceptance of accounts
and approval of transactions, sales supervision and sales personnel
licensing, registration and training. This shall include, without
limitation, the preparation of all necessary new account and customer
disclosure forms to be used in the FTB Program.
3.1.3 Licensing and Appointment.
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3.1.3.1 FTB or FTBR, as the case may be, shall provide JMC with a
list of the names of each FTB Employee whose sales will be processed
by JMC under this Agreement. This list shall be updated as necessary
to ensure its accuracy at all times. The list shall contain the
following information:
3.1.3.1.1 The states in which each FTB Employee is licensed to
sell annuity, insurance and mutual fund products;
3.1.3.1.2 The FTB Employee's agent number with each Product
Provider; and
3.1.3.1.3 The FTB Employee's identification number with FTB or
FTBR, as the case may be.
JMC shall rely on this list when processing sales transactions and,
other than consulting the list to ensure that the list indicates that the
FTB Employee is appropriately licensed, JMC will not verify any FTB
Employee's authority to make any sale JMC processes.
3.1.3.2 Without limiting the generality of the foregoing, FTB and FTBR
shall be responsible for the appointment of all FTB Employees with all
Product Providers (other than JMC ISS Product Providers and Current Annuity
Block Product Providers).
3.2 RESPONSIBILITY FOR JMC-PROCESSED BUSINESS. During the Contract Term, FTB
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and FTBR shall be responsible for the following relative to the processing of
annuity and mutual fund transactions by JMC pursuant to this Agreement:
3.2.1 Documentation. FTB Employees will be responsible for providing JMC
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with complete and accurate documentation of a sale which meets the
Documentation Guidelines. In the event any documentation is incomplete,
illegible or does not comply with the Documentation Guidelines or in the
event JMC or its employees have any questions concerning the processing of
annuity or mutual fund business submitted to them, JMC shall contact the
FTB Contact no later than the end of the next business day after receipt of
the documentation. FTB and FTBR will provide JMC with an FTB Contact who
will resolve any problems or questions which arise directly with FTB
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Employees no later than the end of the next business day. JMC will use its
best efforts to resolve any discrepancy in documentation over the
telephone; however, documentation which cannot be corrected over the
telephone will be returned immediately to the FTB Contact via facsimile or
in any manner reasonably requested by the FTB Contact at FTB's or FTBR's
expense. Under no circumstances will JMC be responsible for contacting FTB
Employees directly. At its option, JMC may not process any sale until
legible and complete documentation which satisfies the Documentation
Guidelines has been provided by FTB or FTBR to JMC.
3.2.2 Completed Applications. Upon receipt from JMC of an Application
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Delivery List Report, FTB or FTBR, as the case may be, shall promptly
forward all completed applications to the Product Providers.
3.3 DUTIES AS TRUSTEE. FTB, in its capacity as Trustee, shall carry out its
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duties as set forth in the Trust Agreement.
3.4 COMPLIANCE WITH LAWS.
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3.4.1 FTB and FTBR shall comply with all rules and regulations of the OCC,
the SEC and the NASD and any other Regulator which are applicable to the
FTB Program and Trust. In addition, FTB and FTBR shall cooperate with JMC
in JMC's efforts to comply with all applicable rules and regulations of the
NASD, the SEC and any other Regulator.
3.4.2 FTB shall establish and maintain a Statement of Policy as required
by the Interagency Statement on Retail Sales of Nondeposit Investment
Products, dated February 15, 1994, and shall provide a copy of such
Statement of Policy to JMC.
ARTICLE IV
FEES AND OTHER COMPENSATION
4.1 TRANSACTIONS FEES. During the Contract Term, FTB or FTBR, as the case
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may be, will pay JMC the following transaction fees (the "Transaction
Fees") on a monthly basis; provided, however, that regardless of
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transaction volume, FTB or FTBR, as the case may be, shall pay JMC minimum
monthly Transaction Fees of $25,000.
4.1.1 $22 per annuity or insurance deposit or mutual fund order
processed during the month. There will be no charge for the
processing of surrenders, redemptions, or exchanges and after the
initial investment, there will be no charge for processing additional
investments which are part of a systematic investment program offered
by a Product Provider. In addition, annual investments of less than
$5,000 into existing individual retirement accounts (excluding
rollovers and transfers) will be invoiced at $11 per transaction.
Add-on payments of less than $500 to existing mutual fund accounts
will be invoiced at $11.00 per order;
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provided, however, that if the number of such orders exceed 20 per
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month, the fee shall be $22 per transaction thereafter.
4.1.2 $2.08 per month for each Active Account which JMC is servicing
at the end of the month.
4.1.3 JMC will provide FTBR with an invoice for the Transaction Fees
incurred in the previous month no later than the tenth (10th) day of
the following month. Such invoices shall be promptly paid by FTB or
FTBR, as the case may be. All invoices will be accompanied by
information, in form and substance satisfactory to FTBR concerning
accounts opened and closed during the preceding month and active
accounts as of the end of such month.
4.1.4 FTBR shall examine promptly all invoices for Integrated Support
Services and any other reports provided by JMC to FTBR. Any notice of
error shall be accompanied by such documentation as may be necessary
to substantiate FTBR's claimed error. JMC shall promptly investigate
any such claimed error and advise FTBR accordingly.
4.2 TRUST FEES.
-----------
4.2.1 Set-Up Fees. JMC shall pay Trustee Set-Up Fees (as hereinafter
------------
defined) in respect of all additional premiums deposited by existing
Participants into existing Trust accounts with the Trust after the
Termination Date. The Set-Up Fees shall be paid monthly within 10 days
after the month in which the addition to the Participant's account takes
place.
4.2.1.1 Subject to SECTION 4.2.1.2 hereof, the "Set-Up Fee" shall
be 6% of the initial value of additional Trust Assets deposited by any
existing Participant into his or her existing Trust account after the
Termination Date. The monthly payment shall be computed by adding the
initial values of any additional deposits made by existing
Participants into existing Trust accounts during the month (the "Total
Initial Value") and multiplying that amount by 6%.
4.2.1.2 In the event a Participant withdraws assets from his or her
Trust account during the first 12 months after any additional deposit
into his or her Trust account, an adjustment will be made to the Set-
Up Fee payable in the subsequent month. For purposes of calculating
such adjustment, the Total Initial Value for the subsequent month
shall be reduced by (a) one hundred percent (100%) of any amount (in
excess of investment yield on the initial value) withdrawn during the
preceding month from Participants' Trust accounts if such withdrawals
occurred during the first six months after the addition to such Trust
accounts and (b) fifty percent (50%) of any amount (in excess of the
investment yield on the initial value) withdrawn during the preceding
month from the
14
Participants' Trust accounts if such withdrawals occurred after the
sixth but prior to the end of the twelfth month after the addition to
such Trust accounts.
4.2.2 Asset Fees. JMC shall pay Trustee an Asset Fee (as hereinafter
-----------
defined) based on the Accumulated Value of Trust Assets. The Asset Fee
shall be paid monthly within 45 days after the end of each month in which
the Asset Fees are earned. The "Asset Fee" shall be .22% (22 basis points)
for any month ending on or prior to December 31, 1996 and .15% (15 basis
points) thereafter. The monthly payment shall be computed by adding the
Accumulated Value of all Trust Assets at the beginning and end of each
month and dividing this sum by two to obtain the average Accumulated Value
for the month. Such average Accumulated Value shall then be multiplied by
.22% (on or prior to December 31, 1996) or .15% (after December 31, 1996),
as the case may be, with the product divided by twelve.
4.3 CURRENT MUTUAL FUND BLOCK 12B-1 FEES. JMC will be entitled to receive
-------------------------------------
fifty percent (50%) of all Trail Commissions paid by Product Providers in
respect of the Current Mutual Fund Block. Notwithstanding the foregoing, JMC's
share of the Trail Commissions paid on the Current Block of First Funds shall be
12.5 basis points. FTBR shall pay JMC its share of the Trail Commissions paid
by Product Providers in respect of the Current Mutual Fund Block within 10 days
after the end of the quarter in which such Trail Commissions are actually
received by FTBR. Such payment shall be accompanied by documentation, in form
and substance satisfactory to JMC, supporting the amount of such payment.
4.4 FTBR FRONT COMMISSIONS ON JMC ISS PRODUCTS. With respect to all FTBR sales
-------------------------------------------
of JMC ISS Products, JMC shall pay FTBR the front commissions paid by JMC ISS
Product Providers under an integrated support services program for sales of JMC
ISS Products thorough the FTBR Program. JMC shall remit such commissions to
FTBR within 10 days after the end of the month in which such commissions are
actually received by JMC.
4.5 FTBR TRAIL COMMISSIONS ON JMC ISS PRODUCTS. JMC shall pay FTBR fifty
-------------------------------------------
percent (50%) of all Trail Commissions paid by JMC ISS Product Providers in
respect of JMC ISS Products. Such Trail Commissions shall be paid to FTBR on a
monthly basis within 10 days after the end of the month in which such Trail
Commissions are actually received by JMC.
4.6 OUT-OF-POCKET EXPENSES. During the Contract Term, FTB or FTBR shall,
-----------------------
promptly upon presentation to FTBR, reimburse JMC for:
4.6.1 Telephone Invoices. The actual amount of all telephone invoices
-------------------
received by JMC in respect of 800 numbers exclusively dedicated to JMC's
provision of the Integrated Support Services pursuant to this Agreement;
and
4.6.2 Other Expenses. Any other out-of-pocket expenses incurred by JMC at
---------------
FTB's or FTBR's request pursuant to SECTION 3.2.1 hereof.
15
4.7 CHARGEBACKS. In the event that any customer surrenders a JMC ISS Product
------------
or a Current Annuity Block Product during the chargeback period, the Product
Provider will chargeback some or all of the front sales commission paid at the
time the product was sold ("Chargeback"). FTB and FTBR agree that, to the extent
it received or receives all or any portion of any front commission which is
subsequently subject to Chargeback, it will be responsible for its pro rata
share of the Chargeback. To the extent feasible, the Set-Up Fees due FTB
pursuant to SECTION 4.2.1 hereof will be adjusted as provided therein for any
such surrender of a Current Annuity Block Product, but JMC may also deduct FTB's
share of such Chargeback from any Asset Fees due FTB pursuant to SECTION 4.2.2
hereof. JMC may deduct FTBR's share of any Chargeback resulting from the
surrender of a JMC ISS Product from any other compensation due FTBR hereunder.
4.8 FAILURE TO PAY.
---------------
4.8.1 If FTB or FTBR fail to make any payment required hereunder within 30
days of its due date, FTBR has not notified JMC in writing of any claimed
error in an unpaid invoice and JMC is not otherwise in Default hereunder
and no event has occurred which with notice or the passage of time or both
would constitute a Default by JMC hereunder, JMC shall have the right to
charge any other account maintained by JMC for FTB or FTBR or any other
assets of FTB or FTBR held by JMC for the net amount due JMC.
4.8.2 If JMC fails to make any payment required hereunder within 30 days
of its due date, JMC has not notified FTB or FTBR in writing of any claimed
error in the amount due FTB or FTBR and FTB and FTBR are not otherwise in
Default hereunder and no event has occurred which with notice or the
passage of time or both would constitute a Default by FTB or FTBR
hereunder, FTB and FTBR shall have the right to charge any other account
maintained by FTB or FTBR for JMC or any other assets of JMC held by FTB
for the net amount due FTB or FTBR.
4.8.3 Nothing in this SECTION 4.8 is intended to authorize JMC, FTB or
FTBR to change any account maintained by JMC, FTB or FTBR for the benefit
of JMC's, FTB's or FTBR's customers.
16
ARTICLE V
ASSET FEE PURCHASE OPTION
5.1 TERM OF THE OPTION. At any time during the Contract Term, FTB may at its
-------------------
option purchase all of the Trail Commissions payable by Product Providers on the
Current Block and the ISS Block by paying JMC the Asset Fee Purchase Price. It
shall be a condition precedent to FTB's obligation to pay JMC the Asset Fee
Purchase Price with respect to any portion of the Trail Commissions that such
Trail Commissions be assignable and that, to the extent the consent of any JMC
Annuity Product Provider is required to effectuate any assignment, such JMC
Annuity Product Provider shall have consented in writing to the assignment of
the trail commissions to FTB. In the event some, but not all, of the JMC
Annuity Product Providers give their consent to such an assignment, the Asset
Fee Purchase Price shall be calculated with reference to only that portion of
the then existing Current Block and ISS Block for which consents have been
obtained or which are assignable without consent. Notwithstanding the
foregoing, FTB may only elect to purchase all of the Trail Commissions payable
on the Current Block and the ISS Block and may not selectively purchase Trail
Commissions from only some of the JMC Product Providers. Only JMC's inability
to obtain any necessary consent from a JMC Annuity Product Provider shall
relieve FTB of its obligation to pay the entire Asset Fee Purchase Price for all
Trail Commissions payable on the Current Block and the ISS Block. Upon receipt
of FTB's payment of the Asset Fee Purchase Price, JMC shall assign to FTB all of
its right, title and interest in and to all Trail Commissions which were
included in the calculation of the Asset Fee Purchase Price and thereafter FTB
shall receive one hundred percent (100%) of such Trail Commissions paid by
Product Providers.
5.2 ASSET FEE PURCHASE PRICE. The "Asset Fee Purchase Price" shall be the sum
-------------------------
of (i) fifty percent (50%) of the present value, discounted at a rate of 9
percent per annum, of all Trail Commissions thereafter payable by Product
Providers on the then existing Current Annuity Block and the then existing ISS
Block using an estimated remaining life of 15 years for such assets and (ii)
fifty percent (50%) of the present value, discounted at the rate of 9 percent
per annum, of all Trail Commissions thereafter payable by mutual fund Product
Providers on the then existing Current Mutual Fund Block using an estimated
remaining life of 5 years for such mutual fund assets. For purposes of the
Current Block of First Funds, "fifty percent (50%) of the Trail Commissions
payable by mutual fund Product Providers" shall mean 12.5 basis points. If the
parties cannot agree on such present value then it will be determined by an
independent actuarial consultant to be chosen by FTB and JMC with the cost of
such consultant to be borne 50% by each; provided, however, that the actuary may
------------------
not vary the above assumptions concerning the 9 percent discount rate or the
remaining life of the assets being valued.
5.3 ASSET FEE PURCHASE OPTION. The Asset Fee Purchase Option may be exercised
--------------------------
by FTB or any of its affiliates which under then applicable law may receive
Trail Commissions from Product Providers, including FTBR.
17
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF JMC
JMC Group, Inc., for itself and JMC, and James Mitchell & Co., for itself and
the Subsidiaries, and each of the Subsidiaries for itself only, represent and
warrant as follows:
6.1 DUE ORGANIZATION. Each of JMC Group, Inc., James Mitchell & Co. and the
-----------------
Subsidiaries is a corporation, duly organized, validly existing and in good
standing under the laws of the state of its incorporation and has all requisite
corporate power and authority to enter into this Agreement and the other
Definitive Agreements to which it is a party, to perform the obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby.
6.2 DUE EXECUTION AND DELIVERY; LEGALLY BINDING. The execution, delivery and
--------------------------------------------
performance of this Agreement and the other Definitive Agreements to which it is
a party by JMC Group, Inc., James Mitchell & Co. and each of the Subsidiaries,
and the consummation by JMC Group, Inc., James Mitchell & Co. and each of the
Subsidiaries of the transactions contemplated hereby and thereby, have been duly
authorized by all necessary corporate action. This Agreement and the other
Definitive Agreements to which it is a party constitute legal, valid and binding
obligations of JMC Group, Inc., James Mitchell & Co. and each of the
Subsidiaries enforceable against JMC Group, Inc., James Mitchell & Co. and each
of the Subsidiaries in accordance with their respective terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and except as the enforcement of certain provisions may be limited by
the application of general equitable principles of law in certain circumstances
(whether such provisions are considered in a proceeding at law or in equity).
6.3 NO VIOLATION. The execution, delivery and performance of this Agreement
-------------
and the other Definitive Agreements to which it is a party and the consummation
of the transactions contemplated hereby and thereby will not result in a breach
of any of the terms or provisions of, or constitute a default under, or conflict
with: (i) any agreement, indenture or other instrument to which JMC Group, Inc.,
James Mitchell & Co. or any Subsidiary is a party or by which it is bound; (ii)
the charter or bylaws of JMC Group, Inc., James Mitchell & Co. or any
Subsidiary; (iii) any judgment, decree, order or award of any court,
governmental body or arbitrator by which JMC Group, Inc., James Mitchell & Co.
or any Subsidiary is bound; or (iv) any law, rule or regulation applicable to
JMC Group, Inc., James Mitchell & Co. or any Subsidiary.
6.4 NO ACTIONS OR PROCEEDINGS.
--------------------------
6.4.1 No Actions are pending or threatened against, affecting or related
to, JMC Group, Inc. or James Mitchell & Co., in equity or otherwise, which
Actions would materially and adversely affect the ability of JMC Group,
Inc. or James Mitchell & Co. to perform its obligations hereunder or under
any of the other Definitive Agreements to which it is a party.
18
6.4.2 No Actions are pending or threatened against, affecting or related
to, the Subsidiaries, in equity or otherwise, which Actions would affect
the ability of either Subsidiary to perform its obligations hereunder or
under any of the other Definitive Agreements to which it is a party.
6.4.3 James Mitchell & Co. is not, directly or indirectly, subject or
party to, or the recipient of, any Proceeding nor has it been advised that
any Regulator is contemplating issuing or requesting any such Proceeding,
which Proceeding would materially and adversely affect the ability of James
Mitchell & Co. to perform its obligations hereunder or under the other
Definitive Agreements to which it is a party.
6.4.4 Neither Subsidiary is, directly or indirectly, subject or party to,
or the recipient of, any Proceeding nor has either of them been advised
that any Regulator is contemplating issuing or requesting any such
Proceeding, which Proceeding would materially and adversely affect its
ability to perform its obligations hereunder or under the other Definitive
Agreements to which it is a party.
6.5 QUALIFICATION. Prior to the Termination Date, James Mitchell & Co. and
--------------
each of the Subsidiaries will be qualified to do business in the States of
Tennessee and Mississippi, to the extent such qualification is required to carry
on its business as provided in the Definitive Agreements to which it is a party,
and in any other jurisdictions where such qualification is required to carry on
its business and to provide the services to the FTB Program as provided in the
Definitive Agreements to which it is a party. James Mitchell & Co. owns 100
percent of the outstanding capital stock of each of the Subsidiaries free and
clear of any and all liens, charges and encumbrances. JMC Group, Inc. owns 100
percent of the outstanding capital stock of James Mitchell & Co.
6.6 LICENSING. James Mitchell & Co. and each of the Subsidiaries have now, or
----------
prior to the Termination Date will have, all licenses, permits and other
governmental permission and authority necessary to perform its obligations under
this Agreement and the other Definitive Agreements to which it is a party.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF FTB AND FTBR
FTB, for itself and FTBR, and FTBR for itself only, represent and warrant as
follows:
7.1 DUE ORGANIZATION.
-------------------
7.1.1 FTB is a national banking association duly organized and validly
existing under the laws of the United States. FTB, in its own capacity and
as Trustee, has all requisite corporate and trust power and authority to
enter into this Agreement and the other Definitive Agreements to which it
is a party, to perform its obligations hereunder and
19
thereunder and to perform the obligations and covenants contemplated hereby
and thereby.
7.1.2 FTBR is a corporation, duly organized, validly existing and in good
standing under the laws of the State of Tennessee and has all requisite
corporate power and authority to enter into this Agreement and the other
Definitive Agreements to which it is a party, to perform the obligations
hereunder and thereunder and to consummate the transactions contemplated
hereby and thereby.
7.2 DUE EXECUTION AND DELIVERY; LEGALLY BINDING. The execution, delivery and
--------------------------------------------
performance of this Agreement and the other Definitive Agreements to which it is
a party by each of FTB, in its own capacity and as Trustee, and FTBR and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action. This Agreement and the other
Definitive Agreements to which it is a party constitute legal, valid and binding
obligations of each of FTB, in its own capacity and as Trustee, and FTBR
enforceable against each of FTB, in both capacities, and FTBR, in accordance
with their respective terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally and except as the enforcement of
certain provisions may be limited by the application of general equitable
principles of law in certain circumstances (whether such provisions are
considered in a proceeding at law or in equity).
7.3 NO VIOLATION. The execution, delivery and performance of this Agreement
-------------
and the other Definitive Agreements to which it is a party and the consummation
of the transactions contemplated hereby and thereby will not result in a breach
of any of the terms or provisions of, or constitute a default under, or conflict
with: (i) any agreement, indenture or other instrument to which FTB or FTBR is a
party or by which it is bound; (ii) the charter or bylaws of FTB or FTBR; (iii)
any judgment, decree, order or award of any court, governmental body or
arbitrator by which FTB or FTBR is bound; or (iv) any law, rule or regulation
applicable to FTB as a national bank or FTBR.
7.4 NO ACTIONS OR PROCEEDINGS.
--------------------------
7.4.1 No Actions are pending or threatened against, affecting or related
to, FTB, in equity or otherwise, which Actions would materially and
adversely affect the ability of FTB to perform its obligations hereunder or
under any of the other Definitive Agreements to which it is a party.
7.4.2 No Actions are pending or threatened against, affecting or related
to, FTBR, in equity or otherwise, which Actions would affect the ability of
FTBR to perform its obligations hereunder or under any of the other
Definitive Agreements to which it is a party.
7.4.3 FTB is not directly or indirectly, subject or party to, or the
recipient of, any Proceeding nor has it been advised that any Regulator is
contemplating issuing or
20
requesting any such Proceeding, which Proceeding would materially and
adversely affect its ability to perform its obligations hereunder or under
the other Definitive Agreements to which it is a party.
7.4.4 FTBR is not, directly or indirectly, subject or party to, or the
recipient of, any Proceeding nor has it been advised that any Regulator is
contemplating issuing or requesting any such Proceeding, which Proceeding
would materially and adversely affect its ability to perform its
obligations hereunder or under the other Definitive Agreements to which it
is a party.
7.5 QUALIFICATION. FTBR is qualified to do business in the States of Tennessee
--------------
and Mississippi and in any other jurisdictions where such qualification is
required to carry on its business as provided in the Definitive Agreements to
which it is a party. FTB is qualified to do business in the States of Tennessee
and Mississippi, to the extent such qualification is required to carry on its
business as provided in the Definitive Agreements.
7.6 LICENSING. Each of FTB and FTBR has all licenses, permits and other
----------
governmental permission and authority necessary to perform its obligations under
this Agreement and the other Definitive Agreements to which it is a party.
ARTICLE VIII
COVENANTS OF JMC
JMC covenants and agrees as follows:
8.1 ACTIVE ACCOUNT LISTING. Prior to the Termination Date, JMC shall provide
-----------------------
FTBR with a list, in form and substance satisfactory to FTBR, of all Active
Accounts in the Current Block.
8.2 REPRESENTATIVES AND WARRANTIES. JMC Group, Inc. and JMC shall use their
-------------------------------
best efforts to ensure that the representations and warranties in ARTICLE VI
hereof shall remain true and correct in all material respects at all times
during the term of this Agreement. JMC shall provide FTB or FTBR with prompt
written notice in the event that any representation or warranty in ARTICLE VI
hereof becomes untrue in any material respect at any time during the term of
this Agreement; provided, however, that with respect to the representations and
warranties made in SECTIONS 6.4.2 AND 6.4.4, JMC shall provide FTB or FTBR with
prompt written notice in the event any of these representations and warranties
become untrue in any respect at any time during the term of this Agreement.
8.3 CONFIDENTIAL INFORMATION. All of the information JMC receives from FTB,
-------------------------
FTBR or any of their affiliates pursuant to this Agreement shall be confidential
information ("FTB Information") and JMC shall keep all such FTB Information
confidential and treat such FTB Information with the same degree of care that it
treats its own confidential information. Except as required by order of a court
of competent jurisdiction and upon prior notice to FTB or FTBR, as the case may
be, JMC shall not disclose any FTB Information concerning FTB, FTBR or any of
21
their affiliates, the Trust, or any FTB or FTBR customer which FTB Information
was acquired by it in connection with carrying out its duties hereunder or under
the other Definitive Agreements, nor shall JMC utilize such FTB Information in
any manner other than as required to carry out its duties hereunder or
thereunder. The obligations of this provision shall survive the termination or
expiration of this Agreement and the other Definitive Agreements for any reason.
8.4 CUSTOMER SOLICITATION. Except as contemplated by this Agreement, unless
----------------------
JMC first obtains the written consent of FTB, JMC shall not solicit customers of
FTB, FTBR or any of their affiliates for any type of services which FTB, FTBR or
any of their affiliates may currently or hereafter provide during the term of
this Agreement. Upon termination of this Agreement as provided in ARTICLE XVI
hereof, JMC shall not solicit customers of FTB, FTBR or any of their affiliates,
except that it may accept unsolicited add-on payments if it continues servicing
some or all of such customers.
8.5 NET CAPITAL REQUIREMENTS. JMC Financial shall maintain the minimum net
-------------------------
capital required to operate its business in accordance with all applicable rules
and regulations of any Regulator with jurisdiction over JMC Financial.
8.6 FINANCIAL STATEMENTS AND OTHER REPORTS.
--------------------------------------
8.6.1 JMC shall provide FTBR with copies of JMC Group, Inc.'s annual
report to stockholders which shall contain audited financial statements of
JMC Group, Inc. and with copies of quarterly financial statements of JMC
Group, Inc.'s which shall be prepared in accordance with generally accepted
accounting principles. Upon the request of FTB, FTB's Regulators, FTBR or
FTBR's Regulators, JMC shall provide FTB's and FTBR's Regulators with
access to all records, documentation or information maintained by JMC
hereunder.
8.6.2 JMC Financial will furnish to FTBR a copy of its balance sheet for
the current fiscal year and other copies of the executed Forms X-17A-5 Part
II A filed with its self-regulatory organization, or of such successor
forms as may be applicable.
ARTICLE IX
CHANGE OF CONTROL
9.1 COMMUNICATIONS. In the event of a Change of Control, FTB and FTBR shall be
---------------
entitled to review and approve any proposed communication with their customers
concerning the Change of Control and James Mitchell & Co. or its successor in
interest shall continue to process business and service customers in the same
manner as provided herein and in the other Definitive Agreements with no
unreasonable turnover in service personnel assigned to the FTB Program unless
FTB and FTBR consent to modify these requirements.
9.2 SIGNIFICANT COMPETITORS. FTB shall have the right to consent (which
------------------------
consent shall not be unreasonably withheld) to any Change of Control involving
any financial institution which at
22
the time the Change of Control occurs has a 3% or greater share of the retail
banking market in the Exclusive Territory as established by an independent third
party survey (a "Significant Competitor"). In the event JMC is unable to perform
its obligations under SECTION 9.1 hereof or FTB elects not to consent to a
Change of Control involving a Significant Competitor, FTB and FTBR shall be
entitled to terminate this Agreement and the Clearing Agreement on ninety (90)
days notice and will not be required to pay JMC as required in SECTION 17.5
hereof, but such failure or lack of consent shall not constitute a Default by
JMC hereunder.
ARTICLE X
EXCLUSIVITY
10.1 COMPETING FINANCIAL INSTITUTIONS.
---------------------------------
10.1.1 Except as provided in SECTION 10.1.2, neither JMC nor any of its
affiliates shall, during the Initial Term of this Agreement, sell mutual
funds or annuities anywhere within the 21 counties in the State of
Tennessee where FTB has a full service retail banking location (other than
an automated teller machine) as of the date hereof (the "Exclusive
Territory") through a fully-managed, dual employee or integrated support
services arrangement or agreement with a financial institution which has a
full service retail banking location (other than an automated teller
machine) in the Exclusive Territory (a "Competing Financial Institution").
10.1.2 Notwithstanding the foregoing, commencing six months after the date
hereof, but in no event later than August 1, 1996, JMC shall have the
option, at any time, to rescind its obligation under SECTION 10.1.1 hereof
by providing FTB with ninety (90) days prior written notice, which notice
may be given at any time after the earlier of (i) three months after the
date hereof or (ii) April 30, 1996. In such event, FTB and FTBR may elect
one of the following options:
10.1.2.1 FTB and FTBR may terminate this Agreement and the Clearing
Agreement effective at the end of such ninety (90) day period, in
which case, this Agreement and the Clearing Agreement shall be
terminated as provided in SECTIONS 17.3 and 17.4 hereof and FTB and
FTBR shall not be required to pay JMC as required in SECTION 17.5
hereof; or
10.1.2.2 FTB and FTBR may continue this Agreement under the terms and
conditions outlined herein; provided, however, that should FTB and
------------------
FTBR subsequently elect to terminate this Agreement upon ninety (90)
days prior written notice as provided in ARTICLE XVI hereof, FTB and
FTBR shall not be required to pay JMC as required in SECTION 17.5
hereof.
10.2 JMC EMPLOYEES. During the Initial Term of this Agreement, neither JMC nor
--------------
any of its affiliates will solicit for hire or hire any Selected Sales Personnel
or any former employee of
23
JMC's Service Center who accepts an offer of employment with FTB or FTBR unless
such individual has been terminated by FTB or FTBR, as the case may be.
10.3 JMC PRODUCTS. During the Initial Term of this Agreement, JMC will not
-------------
offer for sale in the State of Tennessee through any Competing Financial
Institution or wholesale to a Competing Financial Institution for sale in the
Exclusive Territory any annuity or insurance product (other than a JMC Annuity
Product) which JMC is processing and servicing under this Agreement. For
purposes of this SECTION 10.3 only, "JMC Annuity Products" shall include any
annuity or insurance product issued by any Product Provider with whom JMC has a
written agreement which predates any agreement FTB or FTBR may have with such
Product Provider regardless of whether such product has been sold by JMC, FTB or
FTBR to FTB or FTBR customers at any time. Nothing in this SECTION 10.3 shall
in any way limit JMC's ability to process or service the business of any Product
Provider in connection with an integrated support services program with another
financial institution provided such program does not violate any other provision
of this SECTION 10.3.
ARTICLE XI
COVENANTS OF FTB AND FTBR
FTB and FTBR covenant and agree as follows:
11.1 REPRESENTATIONS AND WARRANTIES. FTB and FTBR shall use their best efforts
-------------------------------
to ensure that the representations and warranties of FTB and FTBR in ARTICLE VII
hereof shall remain true and correct in all material respects at all times
during the term of this Agreement. FTB or FTBR shall provide JMC with prompt
written notice in the event that any representation or warranty in ARTICLE VII
shall become untrue in any material respect during the term of this Agreement;
provided, however, that with respect to the representations and warranties made
in SECTIONS 7.4.2 AND 7.4.4 hereof, FTB or FTBR shall provide JMC with prompt
written notice in the event any of these representations and warranties become
untrue in any respect at any time during the term of this Agreement.
11.2 CONFIDENTIAL INFORMATION. All of the information FTB and FTBR receive from
-------------------------
JMC pursuant to this Agreement (excluding any books and records which FTB and
FTBR receive under SECTION 17.9 hereof) shall be confidential information ("JMC
Information") and FTB and FTBR shall keep all such JMC Information confidential
and treat such JMC Information with the same degree of care that it treats its
own confidential information. Except as required by order of a court of
competent jurisdiction and upon prior notice to JMC, FTB and FTBR shall not
disclose any JMC Information which JMC Information was acquired by it in
connection with carrying out its duties hereunder or under the other Definitive
Agreements, nor shall FTB or FTBR utilize such JMC Information in any manner
other than as required to carry out their duties hereunder or thereunder. The
obligations of this provision shall survive the termination or expiration of
this Agreement and the other Definitive Agreements for any reason.
24
11.3 FINANCIAL STATEMENTS AND OTHER REPORTS. FTBR will furnish to JMC a copy of
--------------------------------------
its balance sheet for the current fiscal year and other copies of the executed
Forms X-17A-5 Part II A filed with its self-regulatory organization, or of such
successor forms as may be applicable.
11.4 SUSPENSION OR RESTRICTION OF FTB EMPLOYEES. In the event that FTBR or any
------------------------------------------
registered representative of FTBR shall become subject to suspension or
restriction by the NASD or any other Regulator having jurisdiction over FTBR and
their securities business, FTBR will notify JMC immediately and FTBR authorizes
JMC to take such steps as may be necessary for JMC to maintain compliance with
the rules and regulations to which JMC is subject. FTBR further authorizes JMC,
in such event, to comply with directives or demands made upon JMC by any
Regulator. In the event any FTB Employee (other than a registered
representation of FTBR) who performs services for FTB or FTBR in connection with
the JMC-Processed Business shall become subject to suspension or restriction by
the NASD, OCC or any other Regulator having jurisdiction over FTB or FTBR in
connection with such services, FTB or FTBR, as the case may be, will notify JMC
immediately.
ARTICLE XII
INDEMNIFICATION AND CUSTOMER COMPLAINTS
12.1 INDEMNIFICATION BY JMC GROUP, INC. AND JMC.
-------------------------------------------
12.1.1 Claims Arising Under the Definitive Agreements.
-----------------------------------------------
12.1.1.1 JMC Group, Inc. and JMC hereby agree to defend, indemnify
and hold the FTB Parties harmless from any and all liabilities,
claims, actions, proceedings, suits, damages, losses, penalties,
judgments, costs, expenses, fines, disbursements, and other
obligations of any kind whatsoever (including reasonable attorneys'
fees and other expenses of investigation, defense, litigation and
settlement) (a "Claim") regardless of when made or incurred by the FTB
Parties, whether prior to or after termination of this Agreement and
the other Definitive Agreements, with respect to or arising out of (i)
the failure by JMC Group, Inc. or JMC to perform any of their
respective covenants and agreements hereunder or under the other
Definitive Agreements and (ii) any Customer Complaints with respect to
any servicing made by JMC personnel after the Termination Date
pursuant to this Agreement.
12.1.1.2 Without limiting the generality of the foregoing, JMC Group,
Inc. and JMC hereby agree to defend, indemnify and hold the FTB
Parties harmless from any and all Claims with respect to or arising
out of:
12.1.1.2.1 the negligence or willful misconduct of JMC, or its
employees or agents (other than any FTB Employee) in providing
the services contemplated hereunder;
25
12.1.1.2.2 the loss of cash after actual receipt by JMC or its
employees from FTB or FTBR; or
12.1.1.2.3 any legal challenge by a Regulator or any other
entity or individual that seeks to declare, or which is based,
in whole or in part, on a claim that JMC is without authority to
offer the services contemplated by this Agreement and the
Clearing Agreement, or has violated or will violate any statute,
regulation or other rule of law in connection with the offering
of such services to FTB or FTBR.
12.1.2 Claims Arising Under the Services Agreement and Mutual Fund
-----------------------------------------------------------
Agreement. JMC Group, Inc. and James Mitchell & Co. hereby agree to
----------
indemnify FTB as provided in Section 9.1 through 9.3 of the Services
Agreement and Section 8.1 and 8.2 of the Mutual Fund Agreement with respect
to Claims arising thereunder.
12.1.3 Claims Arising Under the Trust Agreement. Subject to SECTION
-----------------------------------------
12.2.1 hereof, and except for liability arising as a result of FTB's gross
negligence or willful misconduct, James Mitchell & Co. hereby indemnifies
FTB, in its individual capacity and as Trustee, and each officer, director,
employee or agent thereof, against, and none of the foregoing shall have
any liability for, any and all claims, proceedings, losses, liabilities,
suits, judgments, costs, expenses, fines or penalties (regardless of when
the same shall be made or incurred, whether prior to or after the
termination of the Trust Agreement) which may be imposed on, incurred by or
asserted against FTB, in its individual capacity or as Trustee, in any way
relating to the acceptance or administration of the Trust or the action or
inaction of FTB, as Trustee of the Trust to the extent, and only to the
extent that such claims, proceedings, losses, liabilities, suits,
judgments, costs, expenses, fines or penalties arise out of events
occurring or circumstances existing on or prior to the Termination Date.
12.2 INDEMNIFICATION BY FTB AND FTBR.
--------------------------------
12.2.1 FTB and FTBR hereby agree to defend, indemnify and hold the JMC
Parties harmless from any and all Claims regardless of when made or
incurred by the JMC Parties, whether prior to or after termination of this
Agreement and the other Definitive Agreements, with respect to or arising
out of (i) the failure by either FTB or FTBR to perform any of its
covenants and agreements hereunder or under the other Definitive
Agreements, (ii) any actions by the FTB Parties as Agent under the Trust on
or after the Termination Date; (iii) JMC's continuing role as Trustor under
the Trust on and after the Termination Date; and (iv) FTB's and FTBR's
sales of mutual funds, annuities and insurance (including JMC ISS Products
and Current Annuity Block Products) on and after the Termination Date,
including, without limitation, any Customer Complaints with respect to
annuity, insurance or mutual fund sales made by FTB Employees except for
Customer Complaints arising out of the servicing of annuity and mutual fund
products by JMC personnel after the Termination Date pursuant to this
Agreement.
26
12.2.2 Without limiting the generality of the foregoing, FTB and FTBR
hereby agree to defend, indemnify and hold the JMC Parties harmless from
any and all Claims with respect to and arising out of:
12.2.2.1 the negligence or willful misconduct of FTB Employees,
including, without limitation, the unreasonable failure to obtain
relevant information from Customers as required under the Clearing
Agreement;
12.2.2.2 failure to promptly or accurately enter orders with JMC;
12.2.2.3 any legal challenge by a Regulator or any other entity or
individual that seeks to declare, or which is based, in whole or in
part, on a claim that FTB or FTBR is without authority to conduct the
FTB Program, or has violated or will violate any statute, regulation
or other rule of law in connection with the FTB Program;
12.2.2.4 the loss of cash prior to the actual receipt by JMC from FTB
or FTBR; or
12.2.2.5 any errors, misunderstandings, controversies or failure of
any customer to satisfy his or her obligations, unless such losses,
claims, damages, liabilities or expenses, are the result of JMC's
negligence or willful misconduct.
12.3 DEFENSE. In defending the party indemnified pursuant to SECTIONS 12.1.1
--------
and 12.2 hereof, the indemnifying party agrees to (a) accept immediately the
defense of any of the indemnified parties to any action in which any of the
indemnified parties is an object of indemnifiable Claims and (b) disclose
immediately to all parties in any action regarding such Claims that the
indemnifying party is the party responsible for defending and indemnifying the
indemnified party. The indemnifying party agrees to reimburse the indemnified
party for any and all expenses including reasonable attorney's fees and costs
incurred as a result of the filing of any actions arising from any indemnifiable
Claim or as a result of the receipt of settlement demands and other demands
relative to indemnifiable Claims. The indemnified party may participate in, but
may not control, any defense in respect of a Claim; provided, however, that the
indemnified party shall be responsible for all the fees and expenses of any
independent counsel it elects to retain unless it is determined by such
independent counsel that the indemnified party has defenses to the Claim which
are not available to the indemnifying party and a conflict of interest exists
between the indemnifying and the indemnified parties.
12.4 SETTLEMENT. No party shall consent to the entry of any judgment against it
-----------
without the prior consent of the other party. No party shall, without the prior
written consent of the other party, enter into any settlement or compromise
which does not include the giving by the plaintiff or complainant of a release
in form and substance satisfactory to the other party from all its liability
with respect to such Claim.
27
12.5 CUSTOMER COMPLAINTS.
--------------------
12.5.1 JMC's Responsibility. JMC shall have complete and sole
---------------------
responsibility for the resolution of all Customer Complaints related to or
arising out of annuity, insurance or mutual fund sales or servicing made or
provided by JMC personnel prior to the Termination Date and with respect
to: (i) servicing of annuity, insurance and mutual fund products provided
by JMC personnel after the Termination Date pursuant to this Agreement or
(ii) the services performed by JMC Financial pursuant to the Clearing
Agreement. JMC shall make such payments and other compensation to the
complaining persons as JMC shall determine in its sole judgment to be
merited under the circumstances.
12.5.2 FTB's and FTBR's Responsibility. FTB and FTBR shall have complete
--------------------------------
and sole responsibility for the resolution of all Customer Complaints
related to or arising out of annuity, insurance, or mutual fund sales or
servicing made or provided by FTB Employees with the exception of Customer
Complaints with respect to annuity, insurance and mutual fund sales or
servicing made prior to the Termination Date by JMC personnel who are now
FTB Employees. FTB and FTBR shall make such payments and other
compensation to the complaining persons as FTB and FTBR shall determine in
their sole judgment to be merited under the circumstances.
12.5.3 Notwithstanding SECTIONS 12.5.1 and 12.5.2 hereof, with respect to
any Customer Complaint relating to the Current Block or to JMC's servicing
of the JMC-Processed Business, to the extent FTB, FTBR or any FTB Employee
is named in such Customer Complaint or is alleged to have participated in
any manner related to the Customer Complaint, FTB or FTBR, as the case may
be, shall participate in the resolution of the Customer Complaint.
12.5.4 Notification of Customer Complaints.
------------------------------------
12.5.4.1 By JMC. JMC shall:
12.5.4.1.1 Notify FTBR immediately of the receipt of all written
Customer Complaints relating to the Current Block and of the
resolution thereof; and
12.5.4.1.2 Notify FTBR immediately of the receipt of any
material Customer Complaint involving JMC's servicing of annuity
and mutual fund products after the Termination Date pursuant to
this Agreement or the services provided by JMC Financial pursuant
to the Clearing Agreement, and of the resolution thereof. A
material Customer Complaint shall include any written complaint
and two or more oral complaints from the same customer regarding
the same matter.
28
12.5.4.1.3 Notify FTB or FTBR, as the case may be, no later than
the end of the next business day after determining that any
Customer Complaint relates to FTB Employee.
12.5.4.2 By FTB and FTBR. FTB or FTBR shall notify JMC immediately
of the receipt of any Customer Complaint for which JMC is responsible
pursuant to SECTION 12.5.1 hereof or which involves JMC personnel.
12.5.5 Cooperation. JMC, FTB and FTBR will cooperate, and will use their
------------
best efforts to cause any current officer, director, employee or agent of
any of them, to cooperate with the other in the research and investigation
of any Customer Complaint.
12.5.6 Procedures for Customer Complaints on the Current Block. In
--------------------------------------------------------
addition to the foregoing, JMC, FTB, and FTBR will agree on certain policies and
procedures for the handling of Customer Complaints on the Current Block which
will be substantially similar in substance to those contained in FTB's
Compliance Procedures for the Priority Investment Alternatives program as in
effect on the date hereof.
12.6 SURVIVAL. The provisions of this ARTICLE XII shall survive the termination
---------
or expiration of this Agreement for any reason.
ARTICLE XIII
PUBLICITY
JMC, FTB and FTBR shall coordinate and obtain the written consent of the other
party, for all press releases, publicity statements or other public notices
("Publicity") initiated by or on behalf of any one of them relating to this
Agreement and the other Definitive Agreements which Publicity identifies another
party to the Definitive Agreements by name. FTB, FTBR and JMC shall each
designate one person (the "Designated Person") to respond to third parties
soliciting a statement from any one of them concerning another party's rights,
obligations or services under this Agreement or the other Definitive Agreements
(the "Solicitations"). JMC, FTB and FTBR shall each use their reasonable
efforts to direct all such Solicitations to their respective Designated Person.
The Designated Person shall limit his or her comments to such Solicitation to
factual statements concerning any other party to the Definitive Agreement and
will promptly notify the other party concerning such Solicitation. Except as
specified above, this ARTICLE XIII is not intended to otherwise limit FTB, FTBR
or its affiliates, officers or employees in making statements or initiating
Publicity concerning the FTB Program.
29
ARTICLE XIV
DEFAULT
Any one of the following events shall constitute a Default hereunder:
14.1 NON-PAYMENT. Failure to pay when due any amount required to be paid under
------------
this Agreement or any of the other Definitive Agreements, if such failure to pay
remains uncured for a period of thirty (30) days after written notice is given
by the other party or parties hereto.
14.2 REPRESENTATIONS AND WARRANTIES. The representations or warranties made by
-------------------------------
any party herein or in the Clearing Agreement or in any statement or certificate
at any time given in writing pursuant hereto shall be or become untrue in any
material respect which materially and adversely affects such party's ability to
perform its obligations hereunder or under any of the other Definitive
Agreements. Notwithstanding the foregoing, if any representation or warranty
shall become untrue due to a Change of Law, such event shall not constitute a
Default hereunder.
14.3 COVENANTS. Any party hereto shall fail to perform, or comply with, any
----------
other term or condition contained in this Agreement or the other Definitive
Agreements (other than the covenant contained in SECTION 8.5 hereto which
requires JMC Financial to maintain certain minimum net capital), including,
without limitation, the Performance Standards, and such failure shall have not
been remedied or waived within sixty (60) days after written notice thereof is
given by the other party or parties hereto.
14.4 NET CAPITAL. JMC Financial shall fail to maintain the minimum net capital
------------
required under SECTION 8.5 hereof and such failure shall have not been remedied
or waived within fifteen (15) business days.
14.5 INSOLVENCY OF JMC.
------------------
14.5.1 Involuntary. The entry of a decree or order by a court of
------------
competent jurisdiction for relief in respect of JMC Group, Inc., James
Mitchell & Co. or any Subsidiary under Title II of the United States Code
or any other applicable federal or state bankruptcy, insolvency or other
similar law, or the appointment of a receiver, liquidator, assignee,
trustee, sequestrator or other similar official for JMC Group, Inc., James
Mitchell & Co. or any Subsidiary or of any substantial part of the property
of any of them or the imposition of an order to wind up or liquidate the
affairs of any of them and the continuance of any such decree or order
unstayed and in effect for a period of thirty (30) consecutive days.
14.5.2 Voluntary. The filing by JMC Group, Inc., James Mitchell & Co. or
----------
any Subsidiary under Title 11 of the United States Code or any other
applicable federal or state bankruptcy, insolvency or other similar law of
a petition for relief, or the consent by any of them to the filing of such
a petition, or the making by any of them of an assignment for the benefit
of creditors, or the admission by any of them in writing of their
30
inability to pay their debts generally as they become due or the taking of
corporate action by any of them in furtherance of any such action.
14.6 INSOLVENCY OF FTB OR FTBR.
--------------------------
14.6.1 FTB. The declaration by the Comptroller of the Currency, the
----
Federal Deposit Insurance Corporation or any other Regulator with
jurisdiction over FTB, of the insolvency of FTB.
14.6.2 FTBR.
-----
14.6.2.1 Involuntary. The entry of a decree or order by a court of
------------
competent jurisdiction for relief in respect of FTBR under Title II of
the United States Code or any other applicable federal or state
bankruptcy, insolvency or other similar law, or the appointment of a
receiver, liquidator, assignee, trustee, sequestrator or other similar
official for FTBR or of any substantial part of its property or the
imposition of an order to wind up or liquidate the affairs of FTBR and
the continuance of any such decree or order unstayed and in effect for
a period of thirty (30) consecutive days.
14.6.2.2 Voluntary. The filing by FTBR under Title 11 of the United
----------
States Code or any other applicable federal or state bankruptcy,
insolvency or other similar law of a petition for relief, or the
consent by FTBR to the filing of such a petition, or the making by
FTBR of an assignment for the benefit of creditors, or the admission
by FTBR in writing of its inability to pay its debts generally as they
become due or the taking of corporate action by FTBR in furtherance of
any such action.
ARTICLE XV
TERM OF AGREEMENT
The term of this Agreement (the "Contract Term") shall commence on the
Termination Date and shall run for an initial period of no more than twenty-four
(24) months until December 31, 1997 (the "Initial Term"). The Contract Term
will automatically renew for an additional year on December 31 of each
succeeding year unless FTB and FTBR or JMC shall give the other party ninety
(90) days prior written notice of its intention to terminate this Agreement
effective at the end of that calendar year.
ARTICLE XVI
TERMINATION OF AGREEMENT
16.1 GENERAL. This Agreement and the Clearing Agreement are intended to run
--------
concurrently with one another and to terminate at the same time. Either party
may terminate this Agreement
31
and the Clearing Agreement for any reason at any time (including during the
Initial Term) by giving ninety (90) days prior written notice to the other.
16.2 OTHER TERMINATIONS. This Agreement and the Clearing Agreement may also be
-------------------
terminated:
16.2.1 At any time by mutual consent of the parties;
16.2.2 In the event of a Default hereunder, by the non-defaulting party at
any time upon written notice; or
16.2.3 At any time, by FTB and FTBR, if any Regulator with jurisdiction
over FTB or FTBR shall issue any written interpretation, policy statement,
ruling, order or judgment which, in the judgment of FTB, FTBR, or FTB's or
FTBR's counsel would make the FTB Program or the performance of any of
FTB's or FTBR's obligations under this Agreement or the Clearing Agreement
unlawful or in violation of such interpretation, policy statement, ruling,
order or judgment (a "Change of Law").
ARTICLE XVII
EFFECTS OF TERMINATION
Termination of this Agreement and the Clearing Agreement shall have the
following effects upon the parties depending on the circumstances:
17.1 DEFAULT BY JMC. In the event this Agreement and the Clearing Agreement are
---------------
terminated by FTB and FTBR because of a Default by JMC, FTB and FTBR shall be
entitled to receive all Trail Commissions paid thereafter by Product Providers
on the then existing Current Block and the then existing ISS Block and JMC shall
assign to FTB or FTBR all of its right, title and interest in and to such Trail
Commissions, subject to the written consent of the Product Providers, or
otherwise pay all such Trail Commissions to FTB or FTBR.
17.2 DEFAULT BY FTB OR FTBR. In the event this Agreement and the Clearing
-----------------------
Agreement are terminated by JMC because of a Default by FTB or FTBR, JMC shall
be entitled to receive all Trail Commissions paid thereafter by Product
Providers on the then existing Current Block and the then existing ISS Block.
17.3 OTHER TERMINATIONS. Subject to SECTION 17.6 hereof, in the event this
-------------------
Agreement and the Clearing Agreement are terminated for any reason other than a
Default of a party, then FTB and FTBR may elect one of the following two
alternatives.
17.3.1 FTB and FTBR may retain JMC as servicing agent for the Current
Block, the ISS Block and any other then existing block of JMC-Processed
Business in which case:
32
17.3.1.1 FTB or FTBR shall pay JMC a monthly servicing fee of $2.08
per month for each Active Account (or such higher rate as shall have
been determined pursuant to the provisions of SECTION 2.3.2 hereof)
which JMC is servicing at the end of the month and will promptly
reimburse JMC for the actual amount of all telephone invoices received
by JMC in respect of 800 numbers exclusively dedicated to JMC's
servicing of these accounts; and
17.3.1.2 Unless FTB or FTBR has previously elected to purchase the
Current Block and the ISS Block pursuant to ARTICLE V hereof, JMC
shall be entitled to retain fifty percent (50%) of all Trail
Commissions paid by Product Providers on the then existing Current
Block and the then existing ISS Block. For purposes of the Current
Block of First Funds, "fifty percent (50%) of the 12b-1 fees paid by
Product Providers" shall mean 12.5 basis points. It is understood and
agreed by FTB, FTBR and JMC that all Trail Commissions payable on the
Current Block and the ISS Block will be paid directly to JMC and JMC
will, in turn, promptly pay FTB or FTBR fifty percent (50%) of all
amounts so received.
17.3.2 Subject to SECTION 17.4 hereof, FTB, FTBR or their designee shall
act as servicing agent in which case, unless FTB or FTBR has previously
elected to purchase the Current Block and the ISS Block pursuant to ARTICLE
V hereof, FTB or FTBR shall promptly pay JMC the Asset Fee Purchase Price
in the manner and subject to the terms and conditions set forth in SECTION
5.1 hereof. Upon receipt of payment of the Asset Fee Purchase Price, JMC
shall assign to FTB or FTBR all of its right, title and interest in and to
all Trail Commissions which were included in the calculation of the Asset
Fee Purchase Price and thereafter FTB or FTBR, as the case may be, shall
receive one hundred percent (100%) of such Trail Commissions paid by
Product Providers.
17.4 FTB SERVICING. Notwithstanding SECTION 17.3 hereof, if FTB or FTBR desires
--------------
to service the business of a particular JMC Product Provider and JMC is unable
to obtain the consent of such JMC Product Provider to the assignment of Trail
Commissions to FTB or FTBR as provided in SECTION 5.1 hereof, FTB or FTBR shall
be entitled to service the business of such JMC Product Provider and retain
fifty percent (50%) of all Trail Commissions paid by such JMC Product Provider
in respect of the Current Annuity Block and the then existing ISS Block, if and
------
only if:
- --------
17.4.1 FTB, FTBR or their designee (which shall be a third party
administrator not affiliated with any insurance company) is able and
willing to commit to use its best efforts to comply with the Performance
Standards; and
17.4.2 FTB, FTBR or their designee (which shall be a third party
administrator not affiliated with any insurance company) does in fact use
its best efforts to comply with the Performance Standards.
In the event FTB, FTBR or their qualified designee fails to use its best
efforts to comply with the Performance Standards and such failure is not
remedied or waived within sixty (60)
33
days after written notice thereof is given to FTB or FTBR, as the case may be,
by JMC, then JMC shall promptly resume servicing of the business for such JMC
Product Provider(s) and FTB or FTBR shall pay JMC the servicing fees outlined in
SECTION 17.3.1.1 hereof.
17.5 EARLY TERMINATION. Notwithstanding the foregoing, and except as provided
------------------
in SECTIONS 9.2, 10.1.2 and 17.6 hereof, in the event FTB and FTBR elect to
terminate this Agreement or the Clearing Agreement prior to December 31, 1997
for any reason other than JMC's Default, FTB or FTBR shall pay JMC a termination
fee equal to $25,000 times the number of unpaid months remaining in the Initial
Term.
17.6 CHANGE OF LAW. In the event of a Change of Law, the following alternatives
--------------
apply.
17.6.1 If the Change of Law negatively impacts FTB's or FTBR's ability to
conduct the FTB Program or to perform its obligations hereunder or under
the Clearing Agreement in a limited way, but does not dictate that FTB and
FTBR entirely cease all activities under the FTB Program, then FTB and FTBR
shall continue this Agreement under the terms and conditions outlined
herein; provided, however that the minimum monthly Transaction Fees
-------- -------
provided in SECTION 4.1 hereof shall be reduced proportionately by the same
amount as the anticipated reduction in annual production for the revised
scope of the FTB Program. The amount of such anticipated reduction shall
be based solely upon actual production volumes for the immediately
preceding 6 months. If FTB or FTBR subsequently elect to terminate this
Agreement, the early termination payment required under SECTION 17.5 shall
be based on the amount of the reduced monthly minimum Transaction Fees
calculated in accordance with this SECTION 17.6.1.
17.6.2 If the Change of Law dictates that FTB and FTBR entirely cease all
activities under the FTB Program, then FTB and FTBR shall promptly notify
JMC and this Agreement and the Clearing Agreement shall automatically
terminate in accordance with SECTION 17.3 and 17.4 hereof and, FTB and FTBR
shall not be required to pay JMC as required in SECTION 17.5 hereof. Until
such time as FTB or FTBR notify JMC in writing which of the alternatives
provided in SECTION 17.3 hereof it desires, JMC shall continue to act as
servicing agent as provided in SECTION 17.3.1 hereof.
17.7 TRANSACTIONS FEES. In the event this Agreement it terminated for any
------------------
reason, on the effective date of termination, FTB or FTBR shall pay JMC all
Transaction Fees earned by JMC pursuant to SECTION 4.1 hereof for Integrated
Support Services performed by JMC prior to and including the effective date of
termination.
17.8 CONVERSION OF ACTIVE ACCOUNTS. In the event this Agreement is terminated
------------------------------
for any reason and JMC does not continue to service the Active Accounts after
such termination, it shall be FTB's or FTBR's responsibility to:
17.8.1 Mutual Funds and Variable Annuities. With respect to all mutual
------------------------------------
fund and variable annuity accounts, arrange for the conversion of the
Customer Accounts to another clearing broker which may be FTBR or one of
its affiliates. FTBR will give JMC notice (the
34
"Conversion Notice") of (i) the name of the broker which will assume
responsibility for clearing services for Customers and FTBR, (ii) the date
on which such broker will commence providing such services, (iii) FTBR's
undertaking, in form and substance satisfactory to JMC, that FTBR's
agreement with such broker provides that such broker will accept on
conversion all Customer Accounts then maintained by JMC and (iv) the name
of an individual with that organization whom JMC can contact to coordinate
the conversion. The Conversion Notice shall accompany FTB's and FTBR's
notice of termination given pursuant to ARTICLE XVI hereof. If FTBR fails
to give the Conversion Notice to JMC, JMC may give to Customers such notice
as JMC deems appropriate of the termination of this Agreement and may make
such arrangements as JMC deems appropriate for transfer or delivery of
Customer Accounts. FTB and FTBR shall reimburse JMC for all costs incurred
in making the conversion unless this Agreement has been terminated by JMC
under SECTION 16.1 hereof or FTB and FTBR terminate this Agreement under
SECTION 16.2.2 hereof.
17.8.2 Fixed Annuities and Other Insurance Products. With respect to all
---------------------------------------------
fixed annuity and other insurance accounts, arrange for the conversion of
such accounts to another servicing agent which may be FTBR or one of its
affiliates. The Conversion Notice shall contain (i) the name of the
servicing agent which will assume responsibility for servicing these
accounts for FTB or FTBR, (ii) the date on which such servicing agent will
commence providing such services, (iii) FTB's or FTBR's undertaking, in
form and substance satisfactory to JMC, that FTB's or FTBR's agreement with
such servicing agent provides that such servicing agent will accept on
conversion all accounts then maintained by JMC and (iv) the name of an
individual with that organization whom JMC can contact to coordinate the
conversion. The Conversion Notice shall accompany FTB's and FTBR's notice
of termination given pursuant to ARTICLE XVI hereof. If FTB or FTBR fail
to give the Conversion Notice to JMC, JMC may give to customers such notice
as JMC deems appropriate of the termination of this Agreement and may make
such arrangements as JMC deems appropriate for transfer or delivery of such
accounts. FTB and FTBR shall reimburse JMC for all costs incurred in
making the conversion unless this Agreement has been terminated by JMC
under SECTION 16.1 hereof or FTB and FTBR terminate this Agreement under
SECTION 16.2.2 hereof.
17.9 FTB INFORMATION. Upon termination or expiration of this Agreement for any
----------------
reason, FTB and FTBR shall be entitled to the following:
17.9.1 The right to all books and records concerning its customers except
to the extent JMC needs to retain such books and records and in its
capacity and only for the purpose of acting as servicing agent or as are
required by law; and
17.9.2 The return of all FTB Information received or under the control of
JMC except to the extent JMC needs to retain such FTB Information and in
its capacity and only for the purpose of acting as servicing agent or as
are required by law.
17.10 JMC EMPLOYEES. Notwithstanding any other provision of this Agreement, if
--------------
this Agreement is terminated for any reason other than upon the Default of JMC,
then FTB and
35
FTBR shall not solicit or retain the services of any employee of JMC for a
period of 90 days after the effective date of termination.
ARTICLE XVIII
MISCELLANEOUS
18.1 NOTICES. All notices, requests, demands and other communications hereunder
--------
shall be in writing and shall be deemed given, if delivered personally or sent
by telecopy with receipt confirmed, on the day given or, if mailed by certified
or registered mail, postage prepaid, return receipt requested, three days after
placement in the United States mail properly addressed to the addressees below:
If to JMC:
9710 Scranton Road, Suite 100
San Diego, CA 92121
Attn: Brian Finneran, President
Telecopy number: (619) 450-9102
If to FTB or FTBR:
4990 Poplar Avenue
Memphis, TN 381117
Attn: Paul Mann
President
Telecopy number: (901) 537-2627
With a Copy To:
Dan Overbey
Vice President, Retail Sales Manager
First Tennessee Bank National Association
165 Madison Ave.
Memphis, TN 38103
Telecopy number: (901) 523-4145
18.2 GOVERNING LAW. This Agreement (including the Exhibits attached hereto),
--------------
shall be governed by, and construed and enforced in accordance with, the laws of
the State of Tennessee without regard to principles of conflicts of law and the
forum for any legal action or proceeding hereunder shall be the State of
Tennessee.
18.3 INTEGRATION. This Agreement and the other Definitive Agreements contain
------------
the entire agreement between the parties hereto with respect to the transactions
contemplated hereby and thereby and supersede all previous oral and written
agreements, commitments and understandings and all contemporaneous oral
negotiations, commitments, writings and
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understandings relating to the activities contemplated hereunder and thereunder.
This Agreement may not be modified, amended, altered or supplemented except upon
the execution and delivery of a written agreement executed by the parties
hereto.
18.4 HEADINGS. The headings contained in this Agreement are for reference
---------
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
18.5 ILLEGALITY. Any provision of this Agreement which is invalid, illegal or
-----------
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity, illegality or unenforceability, without
affecting in any way the remaining provisions hereof in such jurisdiction or
rendering any other provision of this Agreement invalid, illegal or
unenforceable in any other jurisdiction.
18.6 ATTORNEY'S FEES. Except as provided in SECTION 18.8 hereof, in the event
----------------
any legal action or proceeding is brought to enforce the terms of this
Agreement, the prevailing parties shall be entitled to reimbursement from the
other parties for all reasonable legal fees and court costs incurred with
respect to such action or proceeding.
18.7 APPLICABLE REGULATIONS. Notwithstanding any other provisions of this
-----------------------
Agreement, the ability of FTB, FTBR and JMC to perform their mutual duties and
fulfill their mutual responsibilities hereunder shall at all times be subject to
any applicable state and federal laws and regulations.
18.8 ALTERNATIVE DISPUTE RESOLUTION.
-------------------------------
18.8.1 In the event of any dispute, claim or controversy which in any way
relates to, results from, or arises out of this Agreement or the Clearing
Agreement, any amendment or breach hereof or thereof, or any resulting
transactions ("Dispute"), if the Dispute cannot be settled through
negotiation, the parties hereto agree to first try in good faith to settle
the Dispute by mediation under the Commercial Mediation Rules of the
American Arbitration Association, before resorting to arbitration, as
mandated below. Regardless of the outcome of such mediation, each party
shall bear its own costs, attorneys' fees and share of mediation fees.
18.8.2 Thereafter, any remaining Dispute shall be decided by neutral
binding arbitration in accordance with the rules of the NASD and not by
court action. Judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof; provided, however, that
no arbitrator(s) shall be permitted to award punitive damages in such
arbitration proceeding. Regardless of the outcome of such arbitration, each
party shall bear its own costs, attorneys' fees and share of arbitration
fees.
18.9 EXPENSES. JMC, FTB and FTBR shall pay all expenses associated with the
---------
performance of their obligations hereunder.
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18.10 NO JOINT VENTURE. In accordance with the limitations set forth herein,
-----------------
this Agreement does not create the relationship of a joint venture, partnership
or agency among the parties.
18.11 COUNTERPARTS. This Agreement may be executed by the parties hereto in
-------------
separate counterparts, each of which when so executed and delivered shall be an
original, but all of such counterparts shall together constitute one instrument.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
signed as of the date first written above.
FIRST TENNESSEE BANK NATIONAL FIRST TENNESSEE BROKERAGE,
ASSOCIATION INC.
By: /s/Paul Harless By: /s/ Paul Mann
--------------- -------------
Its: Sr. Vice President Its: President
------------------ ---------
JAMES MITCHELL & CO. JMC INSURANCE SERVICES
CORPORATION
By: /s/Brian J. Finneran By: /s/Brian J. Finneran
-------------------- --------------------
Its: President Its: President
--------- ---------
JMC FINANCIAL CORPORATION JMC GROUP, INC.
By: /s/Brian J. Finneran By: /s/Brian J. Finneran
-------------------- --------------------
Its: President Its: President
--------- ---------
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EXHIBIT A
PERFORMANCE STANDARDS
---------------------
All service requests shall be completed or directed to the appropriate Product
Provider no later than the end of the business day following receipt of all
necessary information and documentation. The telephone shall be answered within
3 rings 95% of the time.
Subject to Section 2.2 of this Agreement, the following elapsed service
standards from time of initiation by the customer to completion by JMC will be
met 95% of the time:
Fixed Variable Mutual Life
Annuity Annuity Funds Products
Policy Issue 30 days 30 days N/A 60 days*
Contract or Account Changes 21 days 21 days 7 days 21 days
Confirmations 7 days 7 days 1 day 7 days
Surrenders/Liquidations 21 days 7 days 1 day 21 days
Annuitizations 60 days 60 days N/A N/A
Death Claims 90 days 90 days N/A 90 days
Service times may vary based upon underwriting considerations such as medical
examinations, attending physician statement requirements, etc.
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EXHIBIT B
PROVIDER COMPANIES
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Aetna Life Insurance & Annuity Company
ITT Hartford Life Insurance Company
Nationwide Life Insurance Company
Great Northern Insured Annuity Corporation (GNA)
Providian
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