SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
July 16, 1996
Date of Report (Date of earliest event reported)
The John Nuveen Company
(Exact Name of Registrant as specified in its Charter)
Delaware 1-11123 36-3817266
(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
333 West Wacker Drive, Chicago, Illinois 60606
(Address of Principal Executive Offices) (Zip Code)
(312) 917-7700
(Registrant's telephone number, including area code)<PAGE>
Item 5. Other Events
On July 16, 1996, The John Nuveen Company, a
Delaware corporation ("John Nuveen"), announced that John
Nuveen and Flagship Resources Inc., a Delaware corporation
("Flagship"), had entered into an Agreement and Plan of
Merger (the "Merger Agreement"). Pursuant to the Merger
Agreement and subject to the terms and conditions set forth
therein, among other things, John Nuveen will acquire
Flagship through the merger of Flagship with and into a
wholly owned subsidiary of John Nuveen.
A copy of the Merger Agreement is filed as Exhibit
2.1 hereto and is incorporated herein by reference. A copy
of John Nuveen's press release dated July 16, 1996 announcing
the execution of the Merger Agreement is filed as Exhibit
99.1 hereto and is incorporated herein by reference.
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
(c) Exhibits.
The following exhibits are filed with this report:
2.1 Agreement and Plan of Merger, dated as of July 16,
1996, by and among The John Nuveen Company and
Flagship Resources Inc. and the Shareholders
parties thereto.
99.1 Press Release dated July 16, 1996.<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the
undersigned hereto duly authorized.
THE JOHN NUVEEN COMPANY
Dated: July 22, 1996 By /s/ James J. Wesolowski
James J. Wesolowski
Vice President, General
Counsel and Secretary<PAGE>
EXHIBIT INDEX
2.1 Agreement and Plan of Merger, dated as of July 16, 1996,
by and among The John Nuveen Company and Flagship
Resources Inc. and the Shareholders parties thereto.
99.1 Press Release dated July 16, 1996.
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
BRUCE P. BEDFORD, RICHARD P. DAVIS and JULIE A. BEDFORD,
SUSAN L. BEDFORD, RICHARD P. DAVIS TRUST, NAUTICAL TRUST,
NAUTICAL TRUST II, SUSAN LOGAN BEDFORD 1995 ANNUITY TRUST,
JULIE ANN BEDFORD 1995 ANNUITY TRUST, SUSAN LOGAN BEDFORD
1996 ANNUITY TRUST, JULIE ANN BEDFORD 1996
ANNUITY TRUST, JULIE ANN BEDFORD 1995 TRUST,
SUSAN LOGAN BEDFORD 1995 TRUST, PADDINGTON RESOURCES INC.,
FLAGSHIP RESOURCES INC.,
AND
THE JOHN NUVEEN COMPANY
DATED AS OF JULY 16, 1996
<PAGE>
TABLE OF CONTENTS
Page
Section 1.A Definitions............................... 2
ARTICLE I
THE MERGER
Section 1.1 The Merger................................ 12
Section 1.2 Effective Time of the Merger.............. 12
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1 Certificate of Incorporation of the
Surviving Corporation................... 12
Section 2.2 By-Laws of the Surviving Corporation...... 12
Section 2.3 Directors and Officers of the Surviving
Corporation............................. 12
ARTICLE III
CONVERSION OF SHARES
Section 3.1 Merger Consideration...................... 13
Section 3.2 Closing of Company Transfer Books......... 14
Section 3.3 Closing................................... 14
Section 3.4 Instruments of Transfer; Payment of
Merger Consideration.................... 14
Section 3.5 Post-Closing Adjustment................... 15
Section 3.6 Reservation of Right to Revise
Transaction............................. 17
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND BEDFORD AND DAVIS
Section 4.1 Organization and Related Matters.......... 17
Section 4.2 Authority; No Violation................... 18
Section 4.3 Consents and Approvals.................... 18
Section 4.4 Stock Ownership........................... 19
Section 4.5 Regulatory Documents...................... 20
Section 4.6 Financial Statements...................... 20
Section 4.7 Ineligible Persons........................ 21
Section 4.8 Contracts................................. 22
Section 4.9 Funds..................................... 22
Section 4.10 Investment Company Advisory Agreements.... 25
Section 4.11 No Other Broker........................... 25<PAGE>
Section 4.12 Legal Proceedings......................... 25
Section 4.13 Compliance with Applicable Law............ 25
Section 4.14 Insurance................................. 26
Section 4.15 Labor and Employment Matters.............. 27
Section 4.16 Employee Benefit Plans; ERISA............. 27
Section 4.17 Technology and Intellectual Property...... 29
Section 4.18 Taxes..................................... 30
Section 4.19 No Adverse Change......................... 30
Section 4.20 Real Property............................. 30
Section 4.21 Filing Documents.......................... 30
Section 4.22 Purchase for Investment................... 31
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Section 5.1 Organization and Related Matters.......... 31
Section 5.2 Authority; No Violation................... 31
Section 5.3 Consents and Approvals.................... 32
Section 5.4 Regulatory Documents...................... 32
Section 5.5 Financial Statements...................... 33
Section 5.6 Contracts................................. 34
Section 5.7 Funds..................................... 34
Section 5.8 Investment Company Advisory Agreements.... 35
Section 5.9 Legal Proceedings......................... 35
Section 5.10 Ineligible Persons........................ 35
Section 5.11 No Other Broker........................... 36
Section 5.12 Compliance with Applicable Law............ 36
Section 5.13 Section 15 of the Investment Company
Act..................................... 36
Section 5.14 Information in Proxy Material of the
Funds................................... 37
Section 5.15 Taxes..................................... 37
Section 5.16 Filing Documents.......................... 37
ARTICLE VI
COVENANTS
Section 6.1 Conduct of Business by the Companies...... 37
Section 6.2 Section 15 of the Investment Company Act:
Company Covenants....................... 40
Section 6.3 Non-Investment Company Advisory
Agreement Consents...................... 40
Section 6.4 Maintenance of Records.................... 41
Section 6.5 Section 15 of the Investment
Company Act: Buyer's Covenants......... 41
Section 6.6 Employees, Employee Benefits.............. 42
Section 6.7 Further Assurances........................ 44
Section 6.8 Efforts of Parties to Close............... 45
Section 6.9 Confidentiality and Announcements......... 45
Section 6.10 Access; Certain Communications............ 46<PAGE>
Section 6.11 Regulatory Matters; Third Party Consents.. 47
Section 6.12 Notification of Certain Matters........... 48
Section 6.13 Expenses.................................. 49
Section 6.14 Contingent Merger Consideration........... 49
Section 6.15 Third Party Proposals..................... 49
Section 6.16 Disposition of Share Consideration........ 50
Section 6.17 [Intentionally Omitted]................... 51
Section 6.18 Tax-Free Treatment........................ 51
Section 6.19 Voting of Shares.......................... 51
ARTICLE VII
CONDITIONS TO CONSUMMATION
OF THE MERGER
Section 7.1 Conditions to Buyer's Obligations......... 52
Section 7.2 Conditions to the Company's and the
Shareholders' Obligations............... 53
Section 7.3 Mutual Conditions......................... 54
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Survival of Representations,
Warranties and Covenants................ 55
Section 8.2 Obligations of the Shareholders........... 56
Section 8.3 Obligations of Buyer...................... 56
Section 8.4 Procedure................................. 57
Section 8.5 Survival of Indemnity..................... 59
Section 8.6 Minimum Losses............................ 60
Section 8.7 Maximum Indemnification................... 60
Section 8.8 Subrogation............................... 60
Section 8.9 Adjustments to Indemnification
Obligations............................. 60
Section 8.10 Remedies.................................. 61
ARTICLE IX
TERMINATION
Section 9.1 Termination............................... 61
Section 9.2 Survival After Termination................ 63
ARTICLE X
MISCELLANEOUS
Section 10.1 Amendments; Waiver........................ 63
Section 10.2 Entire Agreement.......................... 63
Section 10.3 Interpretation............................ 63
Section 10.4 Severability.............................. 64<PAGE>
Section 10.5 Notices................................... 64
Section 10.6 Binding Effect; Persons Benefiting;
No Assignment........................... 65
Section 10.7 Counterparts.............................. 65
Section 10.8 Governing Law............................. 65
Section 10.9 Specific Performance...................... 65
Section 10.10 Waiver of Jury Trial and Punitive
Damages................................. 66<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of July 16,
1996, by and among The John Nuveen Company, a Delaware corpora-
tion ("Buyer") and Flagship Resources Inc., a Delaware corpo-
ration (the "Company," and collectively with Flagship Financial
Inc., a Delaware corporation, and Flagship Funds Inc., a Dela-
ware corporation, the "Companies"), Bruce P. Bedford ("Bed-
ford") and Richard P. Davis ("Davis"), individually, and Julie
A. Bedford, Susan L. Bedford, Paddington Resources Inc., Rich-
ard P. Davis Trust, Nautical Trust, Nautical Trust II, Susan
Logan Bedford 1995 Annuity Trust, Julie Ann Bedford 1995
Annuity Trust, Susan Logan Bedford 1996 Annuity Trust, Julie
Ann Bedford 1996 Annuity Trust, Susan Logan Bedford 1995 Trust
and Julie Ann Bedford 1995 Trust being all of the shareholders
of the Company as set forth in Schedule A (together with
Bedford and Davis, the "Shareholders").
WHEREAS, the merger (the "Merger") of the Company
with and into a wholly owned subsidiary of Buyer organized or
to be organized under the laws of Delaware ("Merger Sub") upon
the terms and subject to the conditions set forth herein has
been approved by the Boards of Directors of Buyer and the Com-
pany, and by the Shareholders;
WHEREAS, Shareholders are the owners of the Shares
(defined below) of the Company, which Shares constitute all of
the issued and outstanding shares of the capital stock of the
Company;
WHEREAS, Bedford and Davis, the Chairman and Presi-
dent, respectively, of the Company, each have entered into an
employment agreement with Buyer dated as of the date hereof in
the form attached respectively as Exhibit A-1 and A-2 hereto;
WHEREAS, Buyer and the Company intend that the Merger
qualify as a tax-free reorganization within the meaning of Sec-
tion 368(a)(1) of the Internal Revenue Code of 1986, as amended
(together with the Treasury regulations thereunder, the
"Code"); and
WHEREAS, the Board of Directors of each Fund (as
defined below) has approved a new Investment Company Advisory
Agreement (as defined below) and a new distribution agreement
for such Fund and, in the case of the Funds set forth in
Schedule 6.2(a), has approved the respective transaction set
forth therein, in each case in connection with the Merger and
the transactions contemplated hereby.<PAGE>
NOW, THEREFORE, in consideration of the foregoing and
the respective representations, warranties, covenants and
agreements set forth herein and subject to the conditions and
other terms herein set forth, the parties hereto hereby agree
as follows:
Section 1.A Definitions. For all purposes of this
Agreement (as defined below), the following terms shall have
the respective meanings set forth in this Section 1.A (such
definitions to be equally applicable to both the singular and
plural forms of the terms herein defined):
"Acquisition Proposal" shall have the meaning set
forth in Section 6.15.
"Advisers Act" shall mean the Investment Advisers Act
of 1940, as amended, and the rules and regulations of the SEC
thereunder.
"Affected Employee" shall have the meaning set forth
in Section 6.6(a).
"Affiliate" shall mean any individual, partnership,
corporation, entity or other person that directly, or indi-
rectly through one or more intermediaries, controls or is con-
trolled by, or is under common control with, the person speci-
fied, except that, with respect to Buyer, "Affiliate" shall not
include Buyer's parent company.
"Agreement" shall mean this Agreement among the
Shareholders, the Company, and Buyer as such may hereafter be
amended.
"Applicable Law" shall mean any domestic or foreign
federal, state or local statute, law, ordinance, rule, adminis-
trative interpretation, regulation, order, writ, injunction,
directive, judgment, decree, policy, guideline or other re-
quirement (including those of the NASD) applicable to the
Shareholders, the Companies, Buyer or any of their respective
Affiliates, properties, assets, officers, directors, employees
or agents, as the case may be.
"Base Shares Value" shall mean an amount equal to (i)
$45,000,000.00, minus (ii) if the Closing Funds Asset Amount is
less than the Initial Funds Asset Amount, an amount equal to
the product of (A) .7143 and (B) the Funds Asset Adjustment,
plus (iii) if the Closing Funds Asset Amount is greater than
the Initial Funds Asset Amount, an amount equal to the product
of (A) .7143 and (B) the Funds Asset Adjustment.
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"Bedford" shall have the meaning set forth on the
first page hereof.
"Book Value Adjustment" shall mean the difference
(positive or negative) between the consolidated net book value
of the Company at the close of business on the Closing Date
(which shall reflect (i) a reduction to reflect base salary and
a pro rata portion of the annual bonus for 1996 through and in-
cluding the Closing Date, (ii) a reduction to reflect the
$3,509,021 that may become payable by the Company on behalf of
the Shareholders in respect of Employment Sharing Bonuses under
the Flagship Employment Sharing Agreement or refunded to the
Shareholders, in each case, pursuant to Section 6.6(b) of this
Agreement, and (iii) a reduction to reflect the accrual of all
expenses set forth on Schedule 4.16(i)) and as of December 31,
1995.
"Business Day" shall mean any day that the NYSE is
normally open for trading and that is not a Saturday, a Sunday
or a day on which banks in the State of New York are generally
closed for regular banking business.
"Buyer" has the meaning set forth on the first page
hereof and includes any direct or indirect successor or assign.
"Buyer Balance Sheet" has the meaning set forth in
Section 5.5.
"Buyer Common Stock" shall mean the Class A common
stock, par value $0.01 per share, of Buyer.
"Buyer Financial Statements" has the meaning set
forth in Section 5.5.
"Buyer Material Adverse Effect" shall mean any matter
or matters affecting Buyer or any of its Affiliates that has or
have a material adverse effect on the business, assets, finan-
cial condition, prospects or results of operations of Buyer and
its Subsidiaries taken as a whole or on the ability of the
Buyer to complete the Closing.
"Buyer Pension Plans" shall each have the respective
meanings set forth in Section 6.6(a).
"Buyer Preferred Stock" shall mean the preferred
stock, par value $0.01 per share, of Buyer with the rights,
preferences and limitations set forth in the Certificate of
Designations attached hereto as Exhibit B.
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"Cash Consideration" shall mean an amount in cash
equal to (i) $18,000,000.00, minus (ii) if the Closing Funds
Asset Amount is less than the Initial Funds Asset Amount, an
amount equal to the product of (A) .2857 and (B) the Funds As-
set Adjustment, plus (iii) if the Closing Funds Asset Amount is
greater than the Initial Funds Asset Amount, an amount equal to
the product of (A) .2857 and (B) the Funds Asset Adjustment,
plus (iv) the Book Value Adjustment.
"Closing" shall mean the completion of the trans-
actions contemplated by Section 3.3 of this Agreement and shall
be the same time as the Effective Time.
"Closing Date" shall mean the date of the Closing.
"Closing Price documents" shall have the meaning set
forth in Section 3.5(a).
"Code" shall mean the Internal Revenue Code of 1986,
as amended.
"Company" and "Companies" shall have the meaning set
forth on the first page hereof.
"Company Balance Sheet" has the meaning set forth in
Section 4.6.
"Company Financial Statements" has the meaning set
forth in Section 4.6.
"Company Material Adverse Effect" shall mean any mat-
ter or matters affecting the Companies or any of their Affili-
ates that has or have a material adverse effect on the busi-
ness, assets, financial condition, prospects or results of op-
erations of the Companies and their Subsidiaries taken as a
whole or on the ability of the Company to complete the Closing.
"Company Plan" has the meaning set forth in Section
4.16(a).
"Confidentiality Agreement" shall mean that certain
letter agreement relating to confidential information provided
by the Company to Buyer and its Affiliates.
"Contingent Merger Consideration" has the meaning
specified in Section 3.1(a).
"Contract" has the meaning set forth in Section 4.8.
-4-<PAGE>
"Controlled Group Liability" means any and all lia-
bilities under (i) Title IV of ERISA, (ii) section 302 of
ERISA, (iii) sections 412 and 4971 of the Code, (iv) the con-
tinuation coverage requirements of section 601 et seq. of ERISA
and section 4980B of the Code, and (v) corresponding or similar
provisions of foreign laws or regulations, other than such li-
abilities that arise solely out of, or relate solely to, the
Company Plans.
"Davis" has the meaning set forth on the first page
hereof.
"DGCL" has the meaning set forth in Section 1.1.
"Disagreement" shall have the meaning set forth in
Section 1.1(b).
"Due Diligence Period" shall have the meaning set
forth in Section 6.10(c).
"Due Diligence Review" shall have the meaning set
forth in Section 6.10(c).
"Effective Time" shall mean the effective time of the
Merger contemplated by Section 1.2 of this Agreement and shall
be the same time as the Closing.
"Employment Agreements" shall mean those certain em-
ployment agreements of Bedford and Davis referred to in the
introduction to this Agreement, as the same may be amended from
time to time.
"Encumbrance" shall mean any lien, pledge, security
interest, claim, charge, easement, limitation, commitment, en-
croachment, restriction or encumbrance of any kind or nature
whatsoever.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended, and the rules, regulations
and class exemptions of the Department of Labor thereunder.
"ERISA Affiliate" means any entity, trade or business
that is a member of a group described in Section 414(b), (c),
(m) or (o) of the Code or Section 4001(b)(1) of ERISA that in-
cludes any of the Companies, or that is a member of the same
"controlled group" as any of the Companies pursuant to Section
4001(a)(14) of ERISA.
"Estimated Cash Consideration" shall mean a bona fide
estimate of the Cash Consideration, which estimate shall be
-5-<PAGE>
computed in accordance with the provisions of Section 3.1(a)(i)
and the definitions contained in this Section 1.A, provided
that in computing the Estimated Cash Consideration, the Book
Value Adjustment shall be estimated by the Company, subject to
the reasonable approval of Buyer, as of the close of business
on the Estimation Date rather than as of the close of business
on the Closing Date, which estimate shall be based on the
unaudited consolidated balance sheet of the Company as of the
end of the month last preceding the month in which the
Estimation Date falls, adjusted to reflect changes through and
including the Estimation Date and changes reasonably expected
to occur thereafter through the close of business on the
Closing Date.
"Estimation Date" shall mean the day that is ten
Business Days prior to, and not including, the Closing Date.
"Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended, and the rules and regulations of the SEC
thereunder.
"Flagship Employment Sharing Agreement" shall have
the meaning set forth in Section 6.6(b).
"Fund" shall mean a registered open-end investment
company or series thereof for which one of the Companies, or
where applicable, an Affiliate of Buyer, provides advisory,
subadvisory, distribution or marketing services pursuant to an
Investment Company Advisory Agreement, a distribution agreement
or any other agreement.
"Funds Asset Adjustment" shall mean an amount equal
to:
(x) if the Funds Asset Differential is less than or
equal to seven and one-half percent (7.5%) of the Initial Funds
Asset Amount, then zero; or
(y) if the Funds Asset Differential is greater than
seven and one-half percent (7.5%) of the Initial Funds Asset
Amount, then the product of (I) 0.02 and (II) the amount by
which the Funds Asset Differential is greater than seven and
one-half percent (7.5%) of the Initial Funds Asset Amount.
"Funds Asset Amount" shall mean, as of the time of
determination, an amount equal to the sum of (x) the net assets
of the Funds (other than the Flagship Intermediate U.S.
Government Fund and the Flagship Limited Term U.S. Government
Fund) and (y) the assets in private accounts or wrap program
accounts investing solely in municipal bonds (not including
-6-<PAGE>
balanced accounts that may include municipal bonds) sold
through the broker/dealer channel which are, or have been,
sponsored and/or distributed by the Company.
"Funds Asset Differential" shall mean an amount equal
to (i) if the Funds Asset Amount as of the close of business on
the day prior to the Closing Date (the "Closing Funds Asset
Amount") is less than the Funds Asset Amount as of the close of
business on the day preceding the date hereof (the "Initial
Funds Asset Amount"), the difference, if any, obtained by sub-
tracting (x) the Closing Funds Asset Amount from (y) the Ini-
tial Funds Asset Amount, or (ii) if the Closing Funds Asset
Amount is greater than the Initial Funds Asset Amount, the dif-
ference obtained by subtracting (x) the Initial Funds Asset
Amount from (y) the Closing Funds Asset Amount.
"Fund Contracts" shall have the meaning set forth in
Section 4.9(d).
"Fund Financial Statements" shall have the meaning
set forth in Section 4.9(c).
"GAAP" shall mean generally accepted accounting prin-
ciples as used in the United States of America as in effect at
the time any applicable financial statements were prepared or
any act requiring the application of GAAP was performed.
"Governmental Authority" shall mean any government,
any state or other political subdivision thereof, any entity
exercising executive, legislative, judicial, regulatory or ad-
ministrative functions of or pertaining to government, includ-
ing the SEC or any other government authority, agency, depart-
ment, board, commission or instrumentality of the United
States, any State of the United States or any political subdi-
vision thereof, and any court, tribunal or arbitrator(s) of
competent jurisdiction, and any governmental or non-govern-
mental self-regulatory organization, agency or authority (in-
cluding the NYSE and the National Association of Securities
Dealers, Inc.).
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regula-
tions promulgated thereunder.
"Indemnifiable Claim" shall mean any Loss for which a
party is entitled to indemnification under this Agreement.
"Indemnified Party" shall mean the party entitled to
the benefits of indemnification hereunder.
-7-<PAGE>
"Indemnifying Party" shall mean the party obligated
to provide indemnification hereunder.
"Independent Accounting Firm" shall mean Price Water-
house LLP, or such other reputable accounting firm mutually
agreed to by Buyer and the Company, other than any accounting
firm that has performed services for Buyer, the Company, any
Fund or any of their Affiliates during the past five years.
"Initial Funds Asset Amount" shall have the meaning
set forth in this Section 1.A under the definition of Funds
Asset Differential.
"Initial Merger Consideration" shall have the meaning
set forth in Section 3.1(a).
"Intellectual Property" has the meaning set forth in
Section 4.17(a).
"Investment Company Act" shall mean the Investment
Company Act of 1940, as amended, and the rules and regulations
of the SEC thereunder.
"Investment Company Advisory Agreement" shall mean an
investment advisory agreement entered into by one of the Compa-
nies, or where applicable by one of Buyer's Affiliates, for the
purpose of providing investment advisory or subadvisory ser-
vices to a registered investment company or series thereof.
"IRS" shall mean the Internal Revenue Service.
"Loss" shall mean any and all claims, losses, li-
abilities, costs, penalties, fines and expenses (including rea-
sonable expenses for attorneys, accountants, consultants and
experts), damages, obligations to third parties, expenditures,
proceedings, judgments, awards, settlements or demands that are
imposed upon or otherwise incurred, suffered or sustained by
the relevant party.
"Merger" shall have the meaning set forth on the
first page hereof.
"Merger Consideration" has the meaning specified in
Section 3.1(a).
"Merger Sub" has the meaning set forth on the first
page hereof and includes any direct or indirect successor or
assign.
-8-<PAGE>
"Multiemployer Plan" shall have the meaning set forth
in Section 4.16(a).
"Multiple Employer Plan" shall have the meaning set
forth in Section 4.16(a).
"NASD" shall have the meaning set forth in Section
4.5(a).
"Net book value" shall mean stockholders' equity as
determined in accordance with GAAP.
"Non-Investment Company Advisory Agreement" shall
mean any investment advisory agreement entered into by one of
the Companies for the purpose of providing investment advisory
services to a client other than a registered investment company
or series thereof.
"Non-Third Party Claim" has the meaning set forth in
Section 8.4(e).
"Notice of Disagreement" shall have the meaning set
forth in Section 1.1(b).
"NYSE" means the New York Stock Exchange, Inc.
"Operating Sites" shall mean One Dayton Centre, One
South Main Street, Dayton, Ohio 45402 and any other offices at
which the Companies conduct business set forth in Schedule
1.1(b).
"Permits" has the meaning set forth in Section
4.13(a).
"Person" shall mean any individual, corporation, com-
pany, partnership (limited or general), joint venture, associa-
tion, trust or other entity or similar contractual arrangement
or relationship.
"Qualified Plans" shall have the meaning set forth in
Section 4.16(c).
"Records" shall mean all records and original docu-
ments (and copies thereof) in the Companies' permanent posses-
sion as of the Closing Date (a) which pertain to or are uti-
lized by the Companies to administer, reflect, monitor, evi-
dence or record information respecting the business or conduct
of the Companies, or (b) necessary or appropriate to comply
with any Applicable Law, including records kept or filed in
accordance with any Securities Laws and shall include in the
-9-<PAGE>
case of (a) and (b) above, all such records maintained on elec-
tronic or magnetic media, or in the electronic data base system
of the Companies.
"Regulatory Documents" shall mean, with respect to a
Person, all forms, reports, registration statements, schedules
and other documents filed, or required to be filed since Janu-
ary 1, 1993 by such Person pursuant to the Securities Laws.
"Reports" shall have the meaning set forth in Section
4.9(g).
"Right" shall have the meaning set forth in Section
6.1(ii).
"SEC" shall mean the Securities and Exchange Commis-
sion.
"Securities Act" shall mean the Securities Act of
1933, as amended, and the rules and regulations of the SEC
thereunder.
"Securities" shall mean any security as defined in
the Securities Act.
"Securities Laws" shall mean the Securities Act; the
Exchange Act; the Investment Company Act; the Advisers Act; and
state "blue sky" laws.
"Share Consideration" shall mean a number of shares
of Buyer Preferred Stock equal to the Base Shares Value divided
by $25.00.
"Shareholder Designee" shall mean that Person desig-
nated by the Shareholders prior to the Closing (and notice of
which designation shall be given in writing to Buyer prior to
the Closing) to serve as such for purposes of this Agreement;
provided, however, if no such designation is made or written
notice thereof is not given to Buyer, in each case, prior to
the Closing, then Bedford and Davis shall be deemed to be the
Shareholder Designee for all purposes under this Agreement.
"Shareholders" has the meaning set forth on the first
page hereof.
"Shares" means 200 Class A and 1600 Class B shares of
common stock, par value $0.01, of the Company, which shares
constitute all of the issued and outstanding shares of the Com-
pany's capital stock.
-10-<PAGE>
"Subsidiary" of a Person shall mean an Affiliate of
such Person fifty percent (50%) or more of the voting stock (or
of any other form of general partnership or other voting or
controlling equity interest in the case of a Person that is not
a corporation) of which is beneficially owned by the Person
directly or indirectly through one or more other Persons.
"Subsidiary Shares" shall have the meaning set forth
in Section 4.4(a).
"Supplemental Closing" shall have the meaning set
forth in Section 3.5(d).
"Supplemental Closing Date" shall have the meaning
set forth in Section 3.5(d).
"Surviving Corporation" shall have the meaning set
forth in Section 1.1.
"Tax Return" shall mean any return, report, infor-
mation statement, schedule or other document (including any
related or supporting information and including any Form 1099
or other document or report required to be provided by any of
the Companies to third parties) with respect to Taxes, in-
cluding any document required to be retained or provided to any
governmental authority pursuant to 31 U.S.C. Sections 5311-5328
and regulations promulgated thereunder, relating to the Company
or any consolidated group of which any such entity was a member
at the applicable time, and any amended Tax Returns.
"Taxes" shall mean all federal, provincial, terri-
torial, state, municipal, local, foreign or other taxes, im-
posts, rates, levies, assessments and other charges (and all
interest and penalties thereon), including, without limitation,
all income, excise, franchise, gains, capital, real property,
goods and services, transfer, value added, gross receipts,
windfall profits, severance, ad valorem, personal property,
production, sales, use, license, stamp, documentary stamp,
mortgage recording, employment, payroll, social security, unem-
ployment, disability, estimated or withholding taxes, and all
customs and import duties, and all interest, penalties and
Losses thereon or associated therewith or associated with any
Tax Return.
"Third Party Claim" has the meaning set forth in Sec-
tions 8.4(a).
"Employment Sharing Bonus" shall have the meaning set
forth in Section 6.6(b).
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"Wire Transfer" shall mean a payment in immediately
available funds by wire transfer in lawful money of the United
States of America to such account or to a number of accounts up
to, but not in excess of, fifteen accounts, as shall have been
designated by written notice to the paying party.
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject
to the conditions hereof, at the Effective Time and pursuant to
this Agreement, the Company shall be merged with and into
Merger Sub and the separate corporate existence of the Company
shall thereupon cease, and Merger Sub shall be the surviving
corporation in the Merger (sometimes hereinafter referred to as
the "Surviving Corporation") and all of its rights, privileges,
powers, immunities, purposes and franchises shall continue un-
affected by the Merger. The Merger shall have the effects set
forth in the General Corporation Law of the State of Delaware
(the "DGCL").
Section 1.2 Effective Time of the Merger. The Merger
shall become effective when a properly executed Certificate of
Merger meeting the requirements of Section 251 of the DGCL is
duly filed with the Secretary of State of the State of Delaware
or at such later time as the parties hereto shall have
designated in such filing as the Effective Time of the Merger
(the "Effective Time").
ARTICLE II
THE SURVIVING CORPORATION
Section 2.1 Certificate of Incorporation of the
Surviving Corporation. The Certificate of Incorporation of
Merger Sub in effect as of the Effective Time shall be the Cer-
tificate of Incorporation of the Surviving Corporation after
the Effective Time until duly amended.
Section 2.2 By-Laws of the Surviving Corporation.
The By-Laws of Merger Sub in effect as of the Effective Time
shall be the By-Laws of the Surviving Corporation after the
Effective Time until duly amended.
Section 2.3 Directors and Officers of the Surviving
Corporation. From and after the Effective Time, the officers
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and directors of Merger Sub shall be the officers and direc-
tors, respectively, of the Surviving Corporation, in each case
until their respective successors are duly elected and quali-
fied.
ARTICLE III
CONVERSION OF SHARES
Section 3.1 Merger Consideration. At the Effective
Time, by virtue of the Merger and without any action on the
part of the holder thereof:
(a) Upon the terms and subject to the conditions set
forth in this Agreement, the Class A and Class B Shares,
in the aggregate, of each Shareholder shall be converted
into (i) the right to receive that portion (expressed as a
percentage) of each of the Cash Consideration and the
Share Consideration (together, the "Initial Merger Consid-
eration") set forth opposite such Shareholder's name on
Schedule 3.1(a) hereto (as it may be amended from time to
time prior to Closing to reflect transactions permitted by
Section 6.16) and (ii) the right to receive the contingent
merger consideration ("Contingent Merger Consideration,"
and together with the Initial Merger Consideration, the
"Merger Consideration") at the times and in the amounts
described in Schedule 3.1(b). With respect to both
Initial Merger Consideration and Contingent Merger Consid-
eration, Buyer Common Stock delivered or into which Buyer
Preferred Stock is converted shall be listed on the NYSE
and freely transferable (subject to the provisions of this
Agreement and the requirements of Applicable Law).
(b) Each share of the common stock, par value $.01
per share, of Merger Sub that is issued and outstanding
immediately prior to the Effective Time shall remain out-
standing and shall be unchanged after the Merger and shall
immediately thereafter constitute all of the issued and
outstanding capital stock of the Surviving Corporation.
(c) Following the Effective Time, all issued and
outstanding shares of common stock of Buyer shall continue
to be fully paid and nonassessable shares of common stock
of Buyer. Each certificate of Buyer evidencing ownership
of any such shares shall immediately thereafter continue
to evidence ownership of the same number of shares of com-
mon stock of the Buyer.
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(d) If, between the date of this Agreement and the
Effective Time, the outstanding shares of Buyer Common
Stock shall have been changed into a different number of
shares or a different class by reason of any subdivision
or combination, or stock dividend, split-up or reclassifi-
cation, the number and class of shares of Buyer Preferred
Stock to be issued and delivered in the Merger in exchange
for each outstanding share of Company Common Stock as pro-
vided in this Agreement shall be appropriately adjusted,
if necessary.
Section 3.2 Closing of Company Transfer Books. At
the Effective Time, the stock transfer books of the Company
shall be closed and no transfer of Shares shall thereafter be
made. If, after the Effective Time, certificates representing
Shares are presented to Buyer, they shall be cancelled and ex-
changed for the Merger Consideration.
Section 3.3 Closing. The closing of the transactions
contemplated by this Agreement shall be the same as the
Effective Time (the "Closing") and shall take place at the of-
fices of Buyer, 333 West Wacker Drive, Chicago, Illinois 60606
at 10:00 a.m., local time, on the fifth Business Day after the
conditions set forth in Article VII have been satisfied or
waived or at such other date, time and place as Buyer and the
Company shall agree (the date on which the Closing takes place
being referred to herein as the "Closing Date").
Section 3.4 Instruments of Transfer; Payment of
Merger Consideration. (a) Not less than two nor more than
four Business Days prior to the Closing Date, the Shareholders
shall deliver to Buyer written Wire Transfer instructions.
(b) At the Closing, the Shareholders shall deliver
to Buyer the following:
(1) one or more certificates representing all
of the Shares duly executed in blank or accompanied by
stock powers duly executed in blank, in proper form for
transfer, with all appropriate stock transfer tax stamps
affixed;
(2) a certificate of the Secretary of State of
the State of Delaware as to the good standing of the Com-
pany dated as of a date not earlier than 10 days prior to
the Closing Date, together with a copy of the Certificate
of Incorporation, as amended, of the Company, certified by
the Secretary of State of the State of Delaware; and
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(3) the documents required to be delivered pur-
suant to Section 7.1.
(c) At the Closing, Buyer shall deliver, or shall
cause to be delivered, to each Shareholder the following:
(1) an amount equal to such Shareholder's por-
tion of the Estimated Cash Consideration as set forth op-
posite such Shareholder's name on Schedule 3.1(a) by Wire
Transfer;
(2) the number of shares of Buyer Preferred
Stock equal to such Shareholder's portion of the Share
Consideration as set forth opposite such Shareholder's
name on Schedule 3.1(a); and
(3) the documents required to be delivered pur-
suant to Section 7.2.
Section 3.5 Post-Closing Adjustment. (a) As soon as
reasonably practicable following the Closing Date, and in no
event more than ten Business Days thereafter, Buyer shall pre-
pare and deliver to the Shareholder Designee schedules calcu-
lating the amount of the Book Value Adjustment and setting
forth such calculations in reasonable detail (collectively, the
"Closing Price Documents"). The parties shall consult with one
another and cooperate in the preparation of the Closing Price
Documents in accordance with this Section 3.5, including, with-
out limitation, providing access to such working papers and
information relating to the preparation thereof as reasonably
requested by the other party.
(b) Within ten Business Days after delivery of the
Closing Price Documents to the Shareholder Designee, the Share-
holder Designee may dispute all or any portion of the Closing
Price Documents by giving written notice (a "Notice of Dis-
agreement") to Buyer setting forth in reasonable detail the
basis for any such dispute (any such dispute being hereinafter
called a "Disagreement"). The parties shall promptly commence
good faith negotiations with a view to resolving all such Dis-
agreements. If the Shareholder Designee does not give such a
Notice of a Disagreement within the ten-Business-Day period set
forth herein, the Shareholder Designee and the Shareholders
shall be deemed to have irrevocably accepted such Closing Price
Documents in the form delivered to the Shareholder Designee by
Buyer.
(c) If the Shareholder Designee shall deliver a No-
tice of Disagreement and Buyer shall not dispute all or any
portion of such Notice of Disagreement by giving written notice
-15-<PAGE>
to the Shareholder Designee setting forth in reasonable detail
the basis for such dispute within ten Business Days following
the delivery of such Notice of Disagreement, Buyer shall be
deemed to have irrevocably accepted the Closing Price Documents
as modified in the manner described in the Notice of Disagree-
ment. If Buyer disputes all or any portion of the Notice of
Disagreement within the ten-Business-Day period described in
the previous sentence, and within ten Business Days following
the delivery to the Shareholder Designee of the notice of such
dispute the Shareholder Designee and Buyer do not resolve the
Disagreement (as evidenced by a written agreement among the
parties hereto), such Disagreement shall thereafter be referred
by either Buyer or the Shareholder Designee to an Independent
Accounting Firm for a resolution of such Disagreement in accor-
dance with the terms of this Agreement. The determinations of
such firm with respect to any Disagreement shall be rendered
within ten Business Days after referral of the Disagreement to
such firm, shall be final and binding upon the parties, the
amount so determined shall be used to complete the final Clos-
ing Price Documents and the parties agree that the procedures
set forth in this Section 3.5 shall be the sole and exclusive
remedy with respect to the determination of the Book Value Ad-
justment. Buyer, the Shareholder Designee and the Shareholders
shall use their best efforts to cause the Independent Account-
ing Firm to render its determination within the ten-Business-
Day period described in the previous sentence, and each shall
cooperate with such firm and provide such firm with access to
the books, records, personnel and representatives of it and
such other information as such firm may require in order to
render its determination. All of the fees and expenses of any
Independent Accounting Firm retained pursuant to this paragraph
(c) shall be paid one-half by Buyer and one-half by the Share-
holders.
(d) Promptly after the Closing Price Documents have
been finally determined in accordance with paragraphs (a), (b)
and (c) of this Section 3.5 (including by means of a deemed
acceptance of such documents by the Shareholders and the Share-
holder Designee or by Buyer as provided in paragraphs (b) and
(c), respectively), but in no event later than five Business
Days following such final determination (the "Supplemental
Closing Date"), the parties hereto shall hold a supplemental
closing (the "Supplemental Closing"), either by telephone or in
person at a mutually convenient location. If the Cash Consid-
eration is greater than the Estimated Cash Consideration, Buyer
shall deliver, or shall cause to be delivered, to each Share-
holder on the Supplemental Closing Date an amount equal to such
Shareholder's portion of the difference as set forth opposite
such Shareholder's name on Schedule 3.1(a) by Wire Transfer.
-16-<PAGE>
If the Cash Consideration is less than the Estimated Cash Con-
sideration, the Shareholders shall deliver to Buyer on the
Supplemental Closing Date an amount equal to such Shareholder's
portion of the difference as set forth opposite such Sharehold-
er's name on Schedule 3.1(a) by Wire Transfer. In any case,
the amount payable at the Supplemental Closing shall be accom-
panied by interest thereon calculated at the Fed Funds Rate for
the period from the Closing Date to the Supplemental Closing
Date.
Section 3.6 Reservation of Right to Revise Transac-
tion. Buyer may at any time change the method of effecting the
acquisition of the Companies by Buyer (including without limi-
tation the provisions of Articles I and II) if and to the ex-
tent it deems such change to be desirable, including without
limitation to provide for a merger of the Company directly into
Buyer, in which Buyer is the surviving corporation, provided,
however, that no such change shall (i) alter or change the
amount or kind of the Merger Consideration or (ii) adversely
affect the tax treatment to the Shareholders as a result of
receiving the Merger Consideration.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND BEDFORD AND DAVIS
The Company, Bedford and Davis jointly and severally
represent and warrant to Buyer as of the date of this Agreement
as follows:
Section 4.1 Organization and Related Matters. Each
of the Companies is a Delaware corporation, duly incorporated,
validly existing and in good standing under the laws of the
State of Delaware. Each of the Companies has the corporate
power and authority to carry on its business as it is now being
conducted and to own, lease and operate all of its properties
and assets. Each of the Companies is duly licensed or quali-
fied to do business in each jurisdiction in which the nature of
the business conducted by it or the character or location of
the properties and assets owned, leased or operated by it makes
such qualification or licensing necessary, except where the
failure to be so qualified or licensed would not have a Company
Material Adverse Effect. The copies of the Certificate of In-
corporation and By-laws and any amendments thereto of each of
the Companies heretofore delivered to Buyer are complete and
correct copies of such instruments as in effect as of the date
of this Agreement.
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Section 4.2 Authority; No Violation. (a) The Com-
pany has full corporate power and authority to execute and de-
liver this Agreement and to consummate the transactions contem-
plated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby
have been duly and validly approved by all requisite corporate
action on the part of the Company and the Shareholders, and no
other corporate proceedings on the part of the Company (includ-
ing without limitation any approval of the Shareholders) are
necessary to approve this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by the Company and the
Shareholders and (assuming the due authorization, execution and
delivery of this Agreement by Buyer) constitutes a valid and
binding obligation of the Company and the Shareholders, en-
forceable against the Company and the Shareholders in accor-
dance with its terms.
(b) Neither the execution and delivery of this
Agreement by the Company or the Shareholders, nor the consum-
mation by the Company or the Shareholders, as the case may be,
of the transactions contemplated hereby to be performed by
them, nor compliance by the Company or the Shareholders with
any of the terms or provisions hereof, will (i) violate any
provision of the Certificate of Incorporation or By-laws of any
of the Companies or (ii) except as set forth in Schedule
4.2(b), and assuming that the consents and approvals referred
to in Sections 6.2 and 6.3 hereof are duly obtained, (x) vio-
late, conflict with or require any notice, filing, consent or
approval under any Applicable Law to which any of the Companies
or any of its Affiliates or any of their properties, contracts
or assets are subject, or (y) violate, conflict with, result in
a breach of any provision of or the loss of any benefit under,
constitute a default (or an event which, with notice or lapse
of time, or both, would constitute a default) under, result in
the termination of or a right of termination or cancellation
under, accelerate or result in a right of acceleration of the
performance required by, result in the creation of any material
Encumbrance upon the Shares or the properties, contracts or as-
sets of the Companies, or require any notice, approval or con-
sent under any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to
which any of the Companies or its Affiliates is a party, or by
which the Companies, any of its Affiliates or any Shareholder,
or any of their respective properties or assets, may be bound
or affected.
Section 4.3 Consents and Approvals. Except for (x)
consents, approvals and notices as are set forth in Sections
6.2 and 6.3 and Schedule 4.3, and (y) the applicable filings
-18-<PAGE>
under the HSR Act, no consents or approvals of or filings or
registrations with any Governmental Authority or third party
are necessary in connection with (i) the execution and delivery
by the Company and the Shareholders of this Agreement and (ii)
the consummation by the Company and the Shareholders of the
transactions contemplated hereby. Neither the Company nor any
of the Shareholders has any reason to believe that any approval
or consent set forth in Sections 6.2 or 6.3, in Schedule 4.3 or
in this Section 4.3 will not be obtained prior to the Closing.
Section 4.4 Stock Ownership. The Shareholders
own beneficially and of record all of the Shares, and the Share-
holders have the full and unrestricted power to sell, assign,
transfer and deliver the Shares to Buyer in accordance with the
terms of this Agreement free and clear of Encumbrances. There
are no shares of capital stock of the Company issued or out-
standing other than the Shares. All of the Shares are duly
authorized, validly issued, fully paid, nonassessable and free
of any pre-emptive rights. Except as set forth in Sched-
ule 4.4, there is no outstanding option, warrant, convertible
or exchangeable security, right, subscription, call, unsatis-
fied pre-emptive right or other agreement or right of any kind
to purchase or otherwise acquire (including, without limita-
tion, by exchange or conversion) from the Company or the Share-
holders any capital stock of the Company, whether issued and
outstanding, authorized but unissued or treasury shares. Ex-
cept as set forth in Schedule 4.4, there are no agreements or
understandings of any kind with respect to the voting of the
Shares. The Company owns beneficially and of record all of the
capital stock of Flagship Financial Inc. and Flagship Funds
Inc. ("Subsidiary Shares"), and the Company has the full and
unrestricted power to sell, assign, transfer and deliver the
Subsidiary Shares free and clear of Encumbrances. There are no
shares of capital stock of Flagship Financial Inc. or Flagship
Funds Inc. issued or outstanding other than the Subsidiary
Shares. All of the Subsidiary Shares are duly authorized, val-
idly issued, fully paid, nonassessable and free of any pre-
emptive rights. There is no outstanding option, warrant, con-
vertible or exchangeable security, right, subscription, call,
unsatisfied pre-emptive right or other agreement or right of
any kind to purchase or otherwise acquire (including, without
limitation, by exchange or conversion) from any of the Compa-
nies or the Shareholders any capital stock of Flagship Finan-
cial Inc. or Flagship Funds Inc., whether issued or outstand-
ing, authorized but unissued or treasury shares. The Company
does not have any Subsidiaries, and does not own, directly or
indirectly, any equity or other ownership interest in any Per-
son, other than Flagship Financial Inc. and Flagship Funds
Inc., except as set forth in Schedule 4.4.
-19-<PAGE>
Section 4.5 Regulatory Documents. (a) Since January
1, 1993, the Companies and their Affiliates have timely filed
all forms, reports, registration statements, schedules and
other documents, together with any amendments required to be
made with respect thereto, that were required to be filed with
any Governmental Authority, including the SEC and the National
Association of Securities Dealers, Inc. ("NASD"), and have paid
all fees and assessments due and payable in connection there-
with. Flagship Financial Inc. is and has been duly registered
as an investment advisor under the Advisers Act and under
applicable state statutes. Schedule 4.5(a) lists the states in
which Flagship Financial Inc. is registered as an investment
advisor. Each such federal and state registration is in full
force and effect. Except as set forth in Schedule 4.5,
Flagship Funds Inc. is and has been duly registered as a
broker-dealer with the SEC and the NASD in all fifty (50)
States under applicable federal and state statutes. Each such
federal and state registration is in full force and effect.
Flagship Funds Inc. is a member in good standing and has all
licenses and authorizations in self regulatory or trade organi-
zations or registered clearing agencies, required to permit the
operation of its business as presently conducted.
(b) As of their respective dates, the Regulatory
Documents of the Companies and their Affiliates complied in all
material respects with the requirements of the Securities Laws,
as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to such Regulatory Documents,
and none of such Regulatory Documents, as of their respective
dates, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not mislead-
ing. The Company has previously delivered or made available to
Buyer a true, correct and complete copy of each such Regulatory
Document filed with the SEC after January 1, 1993 and prior to
the date hereof (including a Form ADV of Flagship Financial
Inc. and Form BD of Flagship Funds Inc. as in effect on the
date hereof) and will deliver to Buyer promptly after the fil-
ing thereof a true, correct and complete copy of each Regula-
tory Document filed by any of the Companies or their Affiliates
with the SEC after the date hereof and prior to the Closing
Date.
Section 4.6 Financial Statements. The Company has
previously delivered to Buyer copies of (a) the audited con-
solidated balance sheets of the Company as of December 31st for
the fiscal years 1994 and 1995, and the related audited state-
ments of income, changes in shareholders' equity and cash flows
for the fiscal years 1994 and 1995, inclusive, in each case
-20-<PAGE>
accompanied by the audit report of Deloitte & Touche LLP, in-
dependent public accountants with respect to the Companies and
(b) the unaudited interim consolidated balance sheets and re-
lated statement of income, changes in shareholders' equity and
cash flows of the Company at or for the period ending March 31,
1996 (collectively, the statements referred to above being re-
ferred to as the "Company Financial Statements" and the balance
sheet as of December 31, 1995 being referred to as the "Company
Balance Sheet"). The balance sheets referred to in the previ-
ous sentence (including the related notes, where applicable)
present fairly the consolidated financial position of the Com-
pany as of the dates thereof, and the other financial state-
ments referred to in this Section 4.6 present fairly (subject,
in the case of the unaudited statements, to recurring audit
adjustments normal in nature and amount) the consolidated re-
sults of its operations and its cash flows for the respective
fiscal periods therein set forth; each of such statements (in-
cluding the related notes, where applicable) comply in all ma-
terial respects with applicable accounting requirements with
respect thereto; and, except as set forth in Schedule 4.6
hereto, each of such statements (including the related notes,
where applicable) has been prepared in accordance with GAAP
consistently applied during the periods involved. Except for
(i) those liabilities that are fully reflected or reserved
against on the Company Balance Sheet and (ii) liabilities
incurred in the ordinary course of business consistent with
past practice since the date of the Company Balance Sheet and
which are not material, individually or in the aggregate, the
Company has no liabilities or obligations of any nature,
whether absolute, accrued, contingent or otherwise and whether
due or to become due, which are or would be required by GAAP to
be shown on its consolidated balance sheet.
Section 4.7 Ineligible Persons. None of the Compa-
nies, nor any "affiliated person" (as defined in the Investment
Company Act) thereof, as applicable, is ineligible pursuant to
Section 9(a) or 9(b) of the Investment Company Act to serve as
an investment adviser (or in any other capacity contemplated by
the Investment Company Act) to a registered investment company.
None of the Companies nor any "associated person" (as defined
in the Advisers Act) thereof, as applicable, is ineligible pur-
suant to Section 203 of the Advisers Act to serve as an invest-
ment adviser or as an associated person to a registered invest-
ment adviser. None of the Companies nor any "associated per-
son" (as defined in the Exchange Act) thereof, as applicable,
is ineligible pursuant to Section 15(b) of the Exchange Act to
serve as a broker-dealer or as an associated person to a regis-
tered broker-dealer.
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Section 4.8 Contracts. Schedule 4.8 sets forth a
complete and accurate list of all written or oral contracts,
agreements, guarantees, leases and executory commitments to
which any of the Companies is a party (excluding policies of
insurance in the ordinary course of business) or by which any
of their properties or assets are bound which: (w) contain ob-
ligations of any of the Companies in excess of $100,000; (x)
which involve payments based on profits or revenues of any of
the Companies; or (y) which are otherwise material to their
businesses, properties or assets, including all Investment Com-
pany Advisory Agreements and distribution agreements (hereinaf-
ter referred to collectively as the "Contracts"). To the Com-
pany's best knowledge, each of the Contracts is in full force
and effect and enforceable in accordance with its terms. Nei-
ther the Shareholders nor any of the Companies has received
written notice of cancellation of or default under or intent to
cancel or call a default under any of the Contracts. To the
Companies' best knowledge, there exists no event or condition
which with or without notice or lapse of time or both would be
a breach or a default on the part of any of the Companies or on
the part of the other party to such Contracts.
Section 4.9 Funds. (a) Schedule 4.9(a) sets forth a
true, complete and correct list, as of the date hereof, of each
Fund for which any of the Companies acts as investment adviser,
subadviser or distributor. Each such Fund that is an entity is
duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization and has the requi-
site corporate, trust or partnership power and authority, and
possesses all rights, licenses, authorizations and approvals,
governmental or otherwise, necessary to entitle it to use its
name, to own, lease or otherwise hold its properties and assets
and to carry on its business as it is now conducted, and is
duly qualified, licensed or registered to do business in each
jurisdiction where it is required to do so under Applicable
Law, except where the failure to have such power, authority or
qualification could not reasonably be expected to have a
Company Material Adverse Effect. Each such Fund is, and at all
times required under the Securities Laws has been, duly regis-
tered with the SEC as an investment company under the Invest-
ment Company Act or is a series thereof. None of such Funds is
in default in the performance, observance or fulfillment of any
of the terms or conditions of its organizational documents
(each as amended to date), true and complete copies of which
have been provided to Buyer, and such documents are in full
force and effect. Since January 1, 1993, none of the Companies
has provided advisory, subadvisory, distribution or marketing
services to or for any closed-end investment company.
-22-<PAGE>
(b) Except as set forth in Schedule 4.9(b), (i) the
shares or units of beneficial interest of each such Fund have
been duly and validly issued and are fully paid and nonassess-
able and the shares or units of beneficial interest of each
such Fund are qualified for public offering and sale in each
jurisdiction where offers are made to the extent required under
Applicable Law; and (ii) each such Fund has been operated since
January 1, 1993 and is currently operating in compliance in all
respects with Applicable Law, except for such instances of non-
compliance which, individually or in the aggregate, have not
had and could not reasonably be expected to have a Company Ma-
terial Adverse Effect.
(c) The Company has delivered to Buyer true, com-
plete and correct copies of such financial statements for each
of the Funds for each of their respective fiscal years ending
in 1993, 1994 and 1995, respectively, as are currently avail-
able, and will deliver to Buyer true, complete and correct cop-
ies of any such financial statements as are not currently
available promptly upon such financial statements becoming
available (the "Fund Financial Statements"). The Fund Finan-
cial Statements have been (or will be) prepared in accordance
with GAAP (except as otherwise disclosed in such Financial
Statements or the notes thereto). The Fund Financial State-
ments present fairly the financial position of each of the
Funds as of the date of each such Fund Financial Statement and
the results of operations and changes in net assets of each of
the Funds during the period covered by each such Fund Financial
Statement.
(d) The Company has delivered to Buyer true, com-
plete and correct copies of the following documents (collec-
tively, the "Fund Contracts"):
(i) all agreements and arrangements for the
distribution of shares of the Funds by which any of the
Funds is bound;
(ii) all custody agreements, transfer agent
agreements and similar agreements or arrangements by which
any of the Funds is bound;
(iii) all administrative service and similar
agreements by which any of the Funds is bound; and
(iv) any other agreements, contracts and commit-
ments that are material to the business or operations of
any of the Funds by which any such Fund is bound.
-23-<PAGE>
Except as listed in Schedule 4.9(d), each Fund Contract is in
full force and effect, except to the extent that any failure to
be so in full force and effect, individually and in the ag-
gregate, has not had and could not reasonably be expected to
have a Company Material Adverse Effect. Except as disclosed in
Schedule 4.9(d), there does not exist under any Fund Contract
any event of default or event or condition that, after notice
or lapse of time or both, would constitute an event of default
thereunder on the part of any of the Companies or, to the best
knowledge of the Companies and the Shareholders, any other
party thereto.
(e) Each of the Funds has issued its shares or in-
terests pursuant to valid and effective registration statements
under the Securities Act and applicable state securities or
"blue sky" laws, which did not contain, at the time of their
effectiveness, any untrue statement of a material fact or omit
to state a material fact required to be stated therein or nec-
essary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading,
and which were, in the event of any subsequent material mis-
statements or omissions, promptly amended or supplemented to
correct any such misstatement or omission.
(f) Except as set forth in Schedule 4.9(f), since
January 1, 1993, none of the Companies has sponsored or par-
ticipated in the distribution by public or private offering of
any interests in any limited partnerships or other entities or
Persons other than the Funds. The offerings and sales of the
interests in the Funds complied with Applicable Law, and the
offering documents with respect to such offerings and sales did
not, as of their respective dates, contain any untrue statement
of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the state-
ments therein, in light of the circumstances under which they
were made, not misleading.
(g) Each of the Funds has filed all prospectuses,
annual information forms, registration statements, proxy state-
ments, financial statements, other forms, reports, sales lit-
erature and advertising, and any other documents required to be
filed with applicable regulatory or other Governmental Authori-
ties, and any amendments thereto (the "Reports"), the failure
to file of which could reasonably be expected to have a mate-
rial adverse effect on such Funds. The Reports (i) have been
prepared in accordance with the requirements of Applicable Law
in all material respects, and (ii) did not at the time they
were filed contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light
-24-<PAGE>
of the circumstances under which they were or are made, not
misleading.
(h) Except as set forth in Schedule 4.9(h), since
January 1, 1991, none of the Funds have been enjoined, indict-
ed, convicted or made the subject of disciplinary proceedings,
consent decrees or administrative orders on account of any vio-
lation of the Securities Laws.
Section 4.10 Investment Company Advisory Agreements.
Each Investment Company Advisory Agreement subject to Section
15 of the Investment Company Act to which any of the Companies
is a party has been duly approved at all times in compliance in
all material respects with Section 15 of the Investment Company
Act and all other Applicable Laws. Each such Investment
Company Advisory Agreement has been performed by the relevant
Company in accordance with the Investment Company Act and all
other Applicable Laws, except for such failures of performance
which, individually or in the aggregate, are not reasonably
expected to have a Company Material Adverse Effect.
Section 4.11 No Other Broker. Other than Smith
Barney Inc., the fees and expenses of which will be paid by the
Shareholders, no broker, finder or similar intermediary has
acted for or on behalf of, or is entitled to any broker's,
finder's or similar fee or other commission from the Companies
or the Shareholders or any of their Affiliates in connection
with this Agreement or the transactions contemplated hereby.
Section 4.12 Legal Proceedings. There are no legal,
administrative, arbitral or other proceedings, claims, suits,
actions or governmental or regulatory investigations of any
nature that are pending or, to the Company's best knowledge,
threatened against or relating to any of the Companies, the
Funds or any of their respective properties, assets or
businesses or that challenge the validity or propriety of the
transactions contemplated by this Agreement, and there is no
injunction, order, judgment, decree, or regulatory restriction
imposed upon any of the Companies, the Funds or any of their
respective properties, assets or businesses which, individually
or in the aggregate, could reasonably be expected to have (i) a
Company Material Adverse Effect, (ii) a material adverse effect
on the Funds or (iii) a material adverse effect on the parties'
ability to consummate the transactions contemplated by this
Agreement.
Section 4.13 Compliance with Applicable Law. (a)
Except as disclosed in Schedule 4.13(a), each of the Companies
holds, and has at all times held, all licenses, franchises,
permits and authorizations (collectively, "Permits") necessary
-25-<PAGE>
for the lawful ownership and use of its properties and assets
and the conduct of its businesses under and pursuant to every,
and has complied in all material respects with each, and is not
in default in any material respect under any, Applicable Law
relating to any of the Companies or any of its assets, proper-
ties or operations, and the Company does not know of any out-
standing violations of any of the above and has not received
notice asserting any such violation. All Permits are valid and
in good standing and are not subject to any suspension, modifi-
cation or revocation or proceedings related thereto.
(b) Except as disclosed on Schedule 4.13(b), since
January 1, 1993 and except for normal examinations conducted by
any Governmental Authority in the regular course of the busi-
ness of the Companies or the Funds, no Governmental Authority
has initiated any administrative proceeding or, to the best
knowledge of the Company, investigation into or related to the
business or operations of the Companies or the Funds. There is
no unresolved violation, criticism or exception by any Govern-
mental Authority with respect to any report or statement by any
Governmental Authority relating to any examination of the Com-
panies or the Funds.
(c) Each of the Companies has at all times main-
tained records which accurately reflect transactions in reason-
able detail, and accounting controls, policies and procedures
sufficient to ensure that such transactions are recorded in a
manner which permits the preparation of financial statements in
accordance with GAAP and applicable regulatory accounting re-
quirements.
(d) All proxy statements to be prepared for use by
the Funds in connection with the transactions contemplated by
this Agreement (other than any information provided or to be
provided by Buyer in writing relating to Buyer and its Affili-
ates expressly for use in the proxy statements) will be ac-
curate and complete and will not contain any untrue statement
of a material fact, or omit to state any material fact required
to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(e) Each Fund has at all times complied in all
respects with, and has at no time violated in any respect the
provisions of, Section 19 of the Investment Company Act.
Section 4.14 Insurance. All of the Companies' in-
surance policies and bonds are listed in Schedule 4.14. To the
best knowledge of each of the Companies, each such insurance
policy or bond is in full force and effect and the Companies
-26-<PAGE>
have not received notice or any other indication from any in-
surer or agent of any intent to cancel any such insurance
policy or bond.
Section 4.15 Labor and Employment Matters. Except as
set forth in Schedule 4.15, (i) no collective bargaining
agreement or similar agreement with any labor organization, or
work rules or practices agreed to with any labor organization
or employee association, exists which is binding on any of the
Companies, (ii) each of the Companies is, and has at all times
been, in compliance in all material respects with all Appli-
cable Law respecting employment and employment practices, terms
and conditions of employment, wages, hours of work, and occu-
pational safety and health, and is not engaged in any unfair
labor practice, and (iii) there is no labor strike, dispute,
slowdown or stoppage actually pending or threatened against or
affecting any of the Companies.
Section 4.16 Employee Benefit Plans; ERISA. (a)
Schedule 4.16 includes a complete list of all bonus, profit
sharing, compensation, termination, stock option, stock appre-
ciation right, restricted stock, performance unit, pension,
retirement, deferred compensation, employment, severance, ter-
mination pay, welfare and other employee benefit plans, agree-
ments and arrangements, labor agreements, trusts, funds and
other arrangements in effect as of the date hereof for the ben-
efit or welfare of any director, officer, employee or former
employee of the Companies or pursuant to which any of the Com-
panies have any liability, contingent or otherwise (a "Company
Plan"). Each Company Plan is in material compliance with all
applicable laws including ERISA and the Code. No Company Plan
is subject to Title IV of ERISA or Section 302 of ERISA or Sec-
tion 412 or 4971 of the Code. No Company Plan is a multiem-
ployer plan (as defined in Section 4001(a)(3) of ERISA) (a
"Multiemployer Plan") or a plan that has two or more contri-
buting sponsors at least two of whom are not under common con-
trol, within the meaning of Section 4063 of ERISA (a "Multiple
Employer Plan"), nor has any of the Companies or any ERISA Af-
filiate, at any time since September 2, 1974, contributed to or
been obligated to contribute to any Multiemployer Plan or Mul-
tiple Employer Plan.
(b) With respect to each Company Plan, the Company
has delivered or made available to Buyer a true, correct and
complete copy of: (i) each writing constituting a part of such
Company Plan, including without limitation all plan documents,
benefit schedules, trust agreements, and insurance contracts
and other funding vehicles; (ii) the most recent Annual Report
(Form 5500 Series) and accompanying schedule, if any; (iii) the
current summary plan description, if any; (iv) the most recent
-27-<PAGE>
annual financial report, if any; and (v) the most recent deter-
mination letter from the IRS, if any. Except as specifically
provided in this Agreement or the foregoing documents delivered
or made available to Buyer, there are no amendments to any Com-
pany Plan that have been adopted or approved nor has any Com-
pany undertaken to make any such amendments.
(c) Schedule 4.16 identifies each Company Plan that is
intended to be a "qualified plan" within the meaning of Section
401(a) of the Code ("Qualified Plans"). The Internal Revenue
Service has issued a favorable determination letter with re-
spect to each Qualified Plan that has not been revoked, and
there are no existing circumstances nor any events that have
occurred that are likely to adversely affect the qualified sta-
tus of any Qualified Plan or the related trust. No Company
Plan is intended to meet the requirements of Code Section
501(c)(9).
(d) All contributions required to be made to any
Company Plan by applicable law or regulation or by any plan
document or other contractual undertaking, and all premiums due
or payable with respect to insurance policies funding any Com-
pany Plan, for any period through the date hereof have been
timely made or paid in full or, to the extent not required to
be made or paid on or before the date hereof, have been fully
reflected on the Company Financial Statements.
(e) There does not now exist, nor do any circum-
stances exist that could result in, any Controlled Group Lia-
bility that would be a material liability of any of the Com-
panies following the Closing. Without limiting the generality
of the foregoing, none of the Companies nor any ERISA Affiliate
has engaged in any transaction described in Section 4069, 4204
or 4212 of ERISA.
(f) The Companies have no liability for life,
health, medical or other welfare benefits to former employees
or beneficiaries or dependents thereof, except for health con-
tinuation coverage as required by Section 4980B of the Code or
Part 6 of Title I of ERISA and at no expense to the Companies.
(g) Except as provided in this Agreement, neither
the execution and delivery of this Agreement nor the consumma-
tion of the transactions contemplated hereby will (either alone
or in conjunction with any other event) result in, cause the
accelerated vesting or delivery of, or increase the amount or
value of, any payment or benefit to any employee of any Com-
pany. Without limiting the generality of the foregoing, no
amount paid or payable by any Company in connection with the
transactions contemplated hereby (either solely as a result
-28-<PAGE>
thereof or as a result of such transactions in conjunction with
any other event) will be an "excess parachute payment" within
the meaning of Section 280G of the Code.
(h) There are no pending or threatened claims (other
than claims for benefits in the ordinary course), lawsuits or
arbitrations which have been asserted or instituted against the
Company Plans, any fiduciaries thereof with respect to their
duties to the Company Plans or the assets of any of the trusts
under any of the Company Plans which could reasonably be ex-
pected to result in any material liability of any Company to
the Pension Benefit Guaranty Corporation, the Department of
Treasury, the Department of Labor or any multiemployer plan.
(i) Set forth on Schedule 4.16(i) is an accounting
of all obligations, contingent or otherwise, of the Companies
(other than obligations to pay base salary and annual bonuses
in the ordinary course of business consistent with past
practice) owing or payable to, or on behalf of, employees or
former employees of the Companies that are not accrued or
otherwise reflected on the Company Balance Sheet.
Section 4.17 Technology and Intellectual Property.
(a) Attached hereto as Schedule 4.17(a) is a list of all mate-
rial (i) domestic and foreign registered trademarks and service
marks, registered copyrights and patents, (ii) applications for
registration or grant of any of the foregoing, (iii) unreg-
istered trademarks, service marks, trade names, logos and as-
sumed names, and (iv) licenses for any of the foregoing, in
each case, owned by any of the Companies or used in or neces-
sary to conduct the business of any of the Companies. The
items on Schedule 4.17(a), together with all other material
trademarks, service marks, trade names, logos, assumed names,
patents, copyrights, trade secrets, computer software, li-
censes, formulae, customer lists or other databases, designs
and inventions currently used in or necessary to conduct the
business of any of the Companies constitute the "Intellectual
Property."
(b) Except as set forth in Schedule 4.17(b), each of
the Companies has ownership of, or such other rights by li-
cense, lease or other agreement in and to, the Intellectual
Property as necessary to conduct its business as presently con-
ducted. To the best knowledge of the Company, the Companies
have not infringed or violated any trademark, trade name, copy-
right, patent, trade secret right or other proprietary right of
others. None of the Companies has received notice of any claim
respecting any such violation or infringement. The Company has
no reason to believe that upon consummation of the transactions
contemplated hereby Buyer or any of its Affiliates will be in
-29-<PAGE>
any way restricted in the use of any of the Intellectual Prop-
erty under any Applicable Law, contract or otherwise, or that
use of such Intellectual Property by Buyer or any of its Af-
filiates will violate or infringe the rights of any Person, or
subject any of Buyer or its Affiliates to liability of any
kind, under any Applicable Law, contract or otherwise.
Section 4.18 Taxes. Except as set forth in Schedule
4.18, (a) each of the Company and each Fund has (i) filed (or
there has been filed on its behalf) with the appropriate
Governmental Authorities all material Tax Returns required to
have been filed for all periods ending through the date hereof,
which Tax Returns were true, complete and correct in all
material respects, and (ii) duly paid in full or made provision
(or there has been paid or provision has been made on its
behalf) for the payment of all material Taxes shown to be due
on such Tax Returns; (b) there are no liens on any of the
assets of the Company that arose in connection with any failure
to pay any tax, except for liens that would not have a Company
Material Adverse Effect.
Section 4.19 No Adverse Change. Except as provided
on Schedule 4.19 or otherwise disclosed in this Agreement,
since December 31, 1995, (i) each of the Companies has operated
its business only in the ordinary course of business consistent
with past practice; (ii) there has been no material adverse
change in the financial condition, prospects, results of opera-
tions, assets or business of any of the Companies; and (iii)
none of the Companies have taken any action or suffered any
event that if taken or suffered after the date hereof would
violate Section 6.1 of this Agreement.
Section 4.20 Real Property. The assets of the Com-
panies that consist of leasehold interests in real property are
listed in Schedule 4.20, together with annual lease payments
and all Encumbrances thereon. All offices where each of the
Companies presently conducts its business are subject to leases
listed in Schedule 4.20. None of the Companies have any inter-
ests in any real property except for the leases set forth in
Schedule 4.20. The Company has furnished Buyer with true, cor-
rect and complete copies of all leases listed in Schedule 4.20.
To the best knowledge of the Company, all leases listed in
Schedule 4.20 are in full force and effect in accordance with
their respective terms, and there is not any existing default
or event which with notice or lapse of time or both would
become a default under any such lease.
Section 4.21 Filing Documents. None of the informa-
tion regarding the Companies, the Shareholders or any of their
respective Affiliates supplied or to be supplied by the Company
-30-<PAGE>
or any Shareholder included or for inclusion in any documents
to be filed with any Governmental Authority in connection with
the transactions contemplated hereby will, at the respective
times such documents are filed with any Governmental Authority,
contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
Section 4.22 Purchase for Investment. Each of the
Shareholders, with respect to all securities of Buyer to be
acquired by it in the Merger and pursuant to the transactions
contemplated by this Agreement, is acquiring such securities
for investment purposes only and not with a view to, or for
resale in connection with, the distribution or other
disposition thereof or with any present intention of
distributing or reselling any thereof.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Company, Bed-
ford, Davis and the Shareholders as of the date of this Agree-
ment as follows:
Section 5.1 Organization and Related Matters. Buyer
is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware. Buyer
has the corporate power and authority to carry on its business
as it is now being conducted and to own, lease and operate all
of its properties and assets. Buyer is duly licensed or
qualified to do business in each jurisdiction in which the
nature of the business conducted by it or the character or
location of the properties and assets owned, leased or operated
by it makes such qualification or licensing necessary, except
where the failure to be so qualified or licensed would not have
a Buyer Material Adverse Effect. The copies of the
organizational documents and any amendments thereto of Buyer
heretofore delivered to the Company are complete and correct
copies of such instruments as in effect as of the date of this
Agreement.
Section 5.2 Authority; No Violation. (a) Buyer has
full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been
duly and validly approved by all requisite corporate action on
-31-<PAGE>
the part of Buyer, and no other corporate proceedings on the
part of Buyer or its shareholders are necessary to approve this
Agreement and to consummate the transactions contemplated here-
by. This Agreement has been duly and validly executed and de-
livered by Buyer and (assuming the due authorization, execution
and delivery of this Agreement by the Company and the Share-
holders) constitutes a valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms.
(b) Neither the execution and delivery of this
Agreement by Buyer, nor the consummation by Buyer of the trans-
actions contemplated hereby to be performed by it, nor com-
pliance by Buyer with any of the terms or provisions hereof,
will (i) violate any provision of the organizational documents
of Buyer or (ii) except as set forth in Schedule 5.2(b), and
assuming that the consents and approvals referred to in Sec-
tions 6.2 and 6.3 hereof are duly obtained, (x) violate, con-
flict with or require any notice, filing, consent or approval
under any Applicable Law to which Buyer or any of its Affili-
ates or any of its properties, contracts or assets are subject,
or (y) violate, conflict with, result in a breach of any provi-
sion of or the loss of any benefit under, constitute a default
(or an event which, with notice or lapse of time, or both,
would constitute a default) under, result in the termination of
or a right of termination or cancellation under, accelerate or
result in a right of acceleration of the performance required
by, result in the creation of any material Encumbrance upon the
properties, contracts or assets of the Buyer, or require any
notice, approval or consent under any note, bond, mortgage,
indenture, deed of trust, license, lease agreement or other
instrument or obligation to which Buyer or any of its Affil-
iates is a party, or by which Buyer or any of its Affiliates,
or any of its or their properties or assets, may be bound or
affected.
Section 5.3 Consents and Approvals. Except for (x)
consents, approvals and notices as are set forth in Schedule
5.3 and Sections 6.2 and 6.3, and (y) the applicable filings
under the HSR Act, no consents or approvals of or filings or
registrations with any Governmental Authority or any third
party are necessary in connection with (i) the execution and
delivery by Buyer of this Agreement and (ii) the consummation
by Buyer of the transactions as contemplated hereby.
Section 5.4 Regulatory Documents. (a) Since January
1, 1993, Buyer and its Affiliates have timely filed all forms,
reports, registration statements, schedules and other
documents, together with any amendments required to be made
with respect thereto, that were required to be filed with any
-32-<PAGE>
Governmental Authority, including the SEC, and have paid all
fees and assessments due and payable in connection therewith.
(b) As of their respective dates, the Regulatory
Documents of Buyer and its Affiliates complied in all material
respects with the requirements of the Securities Laws, as the
case may be, and the rules and regulations of the SEC promul-
gated thereunder applicable to such Regulatory Documents, and
none of such Regulatory Documents, as of their respective
dates, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not mislead-
ing. Buyer has previously delivered or made available to the
Company a true, correct and complete copy of each such Regu-
latory Document filed with the SEC after January 1, 1993 and
prior to the date hereof (including Annual Reports on Form 10-
K, Quarterly Reports on Form 10-Q, proxy statements, registra-
tion statements under the Securities Act, and Forms ADV and BD
as in effect on the date hereof) and will deliver or make
available to the Company promptly after the filing thereof a
true, correct and complete copy of each Regulatory Document
filed by the Buyer or any of its Affiliates with the SEC after
the date hereof and prior to the Closing Date.
Section 5.5 Financial Statements. Buyer has previ-
ously delivered to the Company copies of (a) the audited con-
solidated balance sheets of Buyer as of December 31st for the
fiscal years 1994 and 1995, and the related audited statements
of income, changes in shareholders' equity and cash flows for
the fiscal years 1994 and 1995, inclusive, in each case accom-
panied by the audit report of KPMG Peat Marwick LLP, indepen-
dent public accountants with respect to Buyer and (b) the unau-
dited interim consolidated balance sheets and related state-
ments of income, changes in shareholders' equity and cash flows
of Buyer at or for the periods ending March 31, 1996 (collec-
tively, the statements referred to above being referred to as
the "Buyer Financial Statements" and the balance sheet as of
December 31, 1995 being referred to as the "Buyer Balance
Sheet"). The balance sheets referred to in the previous sen-
tence (including the related notes, where applicable) present
fairly the consolidated financial position of Buyer as of the
dates thereof, and the other financial statements referred to
in this Section 5.5 present fairly (subject, in the case of the
unaudited statements, to recurring audit adjustments normal in
nature and amount) the consolidated results of its operations
and its cash flows for the respective fiscal periods therein
set forth; each of such statements (including the related
notes, where applicable) comply in all material respects with
applicable accounting requirements with respect thereto; and
-33-<PAGE>
each of such statements (including the related notes, where
applicable) has been prepared in accordance with GAAP consis-
tently applied during the periods involved. Except for (i)
those liabilities that are fully reflected or reserved against
on the Buyer Balance Sheet and (ii) liabilities incurred in the
ordinary course of business consistent with past practice since
the date of the Buyer Balance Sheet and which are not material,
individually or in the aggregate, Buyer has no liabilities or
obligations of any nature, whether absolute, accrued, contin-
gent or otherwise and whether due or to become due, which are
or would be required by GAAP to be shown on its consolidated
balance sheet.
Section 5.6 Contracts. To Buyer's best knowledge,
each agreement that is material to its business is in full
force and effect and enforceable in accordance with its terms.
Buyer has not received written notice of cancellation of or
default under or intent to cancel or call a default under any
of the Contracts. To Buyer's best knowledge, there exists no
event or condition which with or without notice or lapse of
time or both would be a breach or a default on the part of
Buyer or on the part of the other party to such agreements.
Section 5.7 Funds. (a) Each Fund for which Buyer or
any of its Affiliates acts as investment adviser or distributor
that is an entity is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its or-
ganization and has the requisite corporate, trust or partner-
ship power and authority, and possesses all rights, licences,
authorizations and approvals, governmental or otherwise, neces-
sary to entitle it to use its name, to own, lease or otherwise
hold its properties and assets and to carry on its business as
it is now conducted, and is duly qualified, licensed or regis-
tered to do business in each jurisdiction where it is required
to do so under Applicable Law, except where the failure to have
such power, authority or qualification could not reasonably be
expected to have a Buyer Material Adverse Effect. Each such
Fund is, and at all times as required under the Securities Laws
has been, duly registered with the SEC as an investment company
under the Investment Company Act or is a series thereof. None
of such Funds is in default in the performance, observance or
fulfillment of any of the terms or conditions of its organiza-
tional documents (each as amended to date), and such documents
are in full force and effect.
(b) Except as set forth in Schedule 5.7(b), (i) the
shares or units of beneficial interest of each such Fund have
been duly and validly issued and are fully paid and nonassess-
able and the shares or units of beneficial interest of each
such Fund are qualified for public offering and sale in each
-34-<PAGE>
jurisdiction where offers are made to the extent required under
Applicable Law; and (ii) each such Fund has been operated since
January 1, 1993 and is currently operating in compliance in all
respects with Applicable Law, except for such instances of non-
compliance which, individually or in the aggregate, have not
had and could not reasonably be expected to have a Buyer Mate-
rial Adverse Effect.
Section 5.8 Investment Company Advisory Agreements.
Each Investment Company Advisory Agreement subject to Section
15 of the Investment Company Act to which Buyer or any of its
Affiliates is a party has been duly approved at all times in
compliance in all material respects with Section 15 of the
Investment Company Act and all other Applicable Laws. Each
such Investment Company Advisory Agreement has been performed
by the Buyer or a relevant Affiliate in accordance with the
Investment Company Act and all other Applicable Laws, except
for such failures of performance which, individually or in the
aggregate, are not reasonably expected to have a Buyer Material
Adverse Effect.
Section 5.9 Legal Proceedings. There are no legal,
administrative, arbitral or other proceedings, claims, actions,
suits or governmental or regulatory investigations of any na-
ture that are pending or, to Buyer's best knowledge, threatened
against or relating to Buyer or any of its Affiliates or its or
their properties, assets or businesses or that challenge the
validity or propriety of the transactions contemplated by this
Agreement, and there is no injunction, order, judgment, decree,
or regulatory restriction imposed upon Buyer or any of its Af-
filiates or its or their properties, assets or businesses
which, individually or in the aggregate, could reasonably be
expected to have (i) a Buyer Material Adverse Effect or (ii) a
material adverse effect on the parties' ability to consummate
the transactions contemplated by this Agreement.
Section 5.10 Ineligible Persons. Neither Buyer nor
any "affiliated person" (as defined in the Investment Company
Act) thereof, as applicable, is ineligible pursuant to Section
9(a) or 9(b) of the Investment Company Act to serve as an
investment adviser (or in any other capacity contemplated by
the Investment Company Act) to a registered investment company.
Neither Buyer nor any "associated person" (as defined in the
Advisers Act) thereof, as applicable, is ineligible pursuant to
Section 203 of the Advisers Act to serve as an investment ad-
viser or as an associated person to a registered investment
adviser. Neither Buyer nor any "associated person" (as defined
in the Exchange Act) thereof, as applicable, is ineligible pur-
suant to Section 15(b) of the Exchange Act to serve as a
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broker-dealer or as an associated person to a registered
broker-dealer.
Section 5.11 No Other Broker. No broker, finder or
similar intermediary has acted for or on behalf of, or is
entitled to any broker's, finder's or similar fee or other com-
mission from Buyer or any of its Affiliates in connection with
this Agreement or the transactions contemplated hereby.
Section 5.12 Compliance with Applicable Law. (a)
Except as disclosed in Schedule 5.12(a), Buyer and its Affili-
ates hold, and at all times have held, all Permits necessary
for the lawful ownership and use of their properties and assets
and the conduct of their businesses under and pursuant to ev-
ery, and have complied in all material respects with each, and
are not in default in any material respect under any, Appli-
cable Law relating to Buyer or any of its assets, properties or
operations, and Buyer does not know of any outstanding viola-
tions of any of the above and has not received notice asserting
any such violation. All such Permits are valid and in good
standing and are not subject to any suspension, modification or
revocation or proceedings related thereto.
(b) Except as disclosed on Schedule 5.12(b), since
January 1, 1993 and except for normal examinations conducted by
any Governmental Authority in the regular course of the busi-
ness of Buyer or any of its Affiliates, no Governmental Author-
ity has initiated any administrative proceeding or, to the best
knowledge of Buyer, investigation into or related to the busi-
ness or operations of Buyer or any of its Affiliates. There is
no unresolved violation, criticism or exception by any Govern-
mental Authority with respect to any report or statement by any
Governmental Authority relating to any examination of Buyer or
any of its Affiliates.
(c) Buyer and each of its Affiliates have at all
times maintained records which accurately reflect transactions
in reasonable detail, and accounting controls, policies and
procedures sufficient to ensure that such transactions are
recorded in a manner which permits the preparation of financial
statements in accordance with GAAP and applicable regulatory
accounting requirements.
Section 5.13 Section 15 of the Investment Company
Act. Neither Buyer nor any of its Affiliates has any express
or implied understanding or arrangement which would impose an
unfair burden on any of the Funds or would in any way violate
Section 15(f) of the Investment Company Act as a result of the
transactions contemplated hereby.
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Section 5.14 Information in Proxy Materials of the
Funds. The information or data relating to Buyer and its Af-
filiates in the proxy materials to be furnished to shareholders
of the Funds for the purpose of approving new Investment Com-
pany Advisory Agreements with Buyer to take effect immediately
after the assignment at the Closing of the then existing In-
vestment Company Advisory Agreements will not contain, at the
times such proxy materials are furnished to the shareholders or
at the times of the meetings thereof, any untrue statement of a
material fact, or omit to state any material fact required to
make the statements therein, in light of the circumstances
under which they were made, not misleading.
Section 5.15 Taxes. Buyer has (i) filed (or there
has been filed on its behalf) with the appropriate Governmental
Authorities all material Tax Returns required to have been
filed for all periods ending through the date hereof, which Tax
Returns were true, correct and complete in material respects
and (ii) duly paid in full or made provision in accordance with
GAAP (or there has been paid or provision has been made on its
behalf) for the payment of all material Taxes shown to be due
on such Tax Returns.
Section 5.16 Filing Documents. None of the informa-
tion regarding the Buyer or any of its Affiliates supplied or
to be supplied by the Buyer included or for inclusion in any
other documents to be filed with any Governmental Authority in
connection with the transactions contemplated hereby will, at
the respective times such documents are filed with any
Governmental Authority, contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading.
ARTICLE VI
COVENANTS
Section 6.1 Conduct of Business by the Companies.
During the period from the date of this Agreement and continu-
ing through the Closing Date, except as expressly contemplated
or permitted by this Agreement or with the prior written con-
sent of Buyer, each of the Companies shall (a) carry on its
business in the ordinary course consistent with prudent busi-
ness practice; (b) make all reasonable efforts to preserve its
present business organization and relationships; (c) make all
reasonable efforts to keep available the present services of
its employees; and (d) make all reasonable efforts to preserve
-37-<PAGE>
its rights, franchises, goodwill and relations with its custom-
ers and others with whom it conducts business. Without limit-
ing the generality of the foregoing, except as expressly per-
mitted by this Agreement or consented to in writing by Buyer,
none of the Companies shall, directly or indirectly:
(i) amend, or agree to amend its Certificate of
Incorporation or By-laws (or comparable instruments), or
merge with or into or consolidate with, or agree to
merge with or into or consolidate with, any other Per-
son, subdivide or in any way reclassify any shares of
its capital stock, or change or agree to change in any
manner the rights of its outstanding capital stock;
(ii) issue or sell or purchase, or issue any op-
tion, warrant, convertible or exchangeable security,
right, subscription, call, unsatisfied pre-emptive right
or other agreement or right of any kind to purchase or
otherwise acquire (including, without limitation, by
exchange or conversion) (each a "Right"), or enter into
any contracts, agreements or arrangements to issue or
sell, any shares of its capital stock;
(iii) incur any indebtedness for borrowed money or
guarantee the indebtedness of other Persons, except in
the ordinary course of business consistent with past
practice;
(iv) waive, or agree to waive, any right of mate-
rial value to its business;
(v) make, or agree to make, any material change in
its accounting methods or practices for Tax or account-
ing purposes or make, or agree to make, any material
change in depreciation or amortization policies or rates
adopted by it for Tax or accounting purposes;
(vi) materially change, or agree to materially
change, any of its business policies or practices that
relate to its business, including, without limitation,
fee structure, fee waivers, expense reimbursement,
interest rate management, security selection, sales and
marketing, personnel, budget or product development
policies;
(vii) make any loan or advance to any of the Share-
holders or its Affiliates, officers, directors, employ-
ees, consultants, agents or other representatives (other
than travel advances made in the ordinary course of
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business), or make any other loan or advance otherwise
than in the ordinary course of business;
(viii) sell, offer to sell, abandon or make any other
disposition of any of its assets, except in the ordinary
course of business; grant or suffer, or agree to grant
or suffer, any Encumbrance on any of its material
assets;
(ix) except as set forth in Schedule 6.1(ix) and
except in the ordinary course of business or in amounts
less than $100,000 in the aggregate, incur or assume, or
agree to incur or assume, any liability or obligation
(whether or not currently due and payable) relating to
its business or any of its assets;
(x) make any material change in its overall in-
vestment strategy or mix of products;
(xi) enter into, or agree to enter into, any con-
tact, agreement or arrangement with any of its Affili-
ates;
(xii) declare dividends or declare or make any other
distributions of any kind payable to Shareholders in the
aggregate greater than cash on hand on the date hereof
plus or minus the consolidated net income or net loss of
the Company from the date hereof through the Closing
Date, or make any direct or indirect redemption, retire-
ment, purchase or other acquisition of any shares of its
capital stock or Rights;
(xiii) create, renew, amend, terminate or cancel, or
take any other action that may result in the creation,
renewal, amendment, termination or cancellation of, any
lease or Contract, except in the ordinary course of
business and as could not, in the aggregate, reasonably
be expected to have a Company Material Adverse Effect;
enter into or amend, or agree to enter into or amend,
(x) any agreement pursuant to which it agrees to indem-
nify any party on behalf of its business or pursuant to
which it agrees to refrain from competing with any party
with respect to its business or (y) any investment advi-
sory, sub-advisory, management, distribution, marketing,
custody or other services agreement relating to the
Funds;
(xiv) take any action impairing its rights under any
Contract other than in the ordinary course of business;
-39-<PAGE>
(xv) adopt, amend, renew or terminate any Company
Plan or any other employee program, agreement, arrange-
ment or policy between any of the Companies and one or
more of its employees, other than in the ordinary course
of business;
(xvi) commit any act or omission which constitutes a
breach or default under any Contract or material license
to which it is a party or by which it or any of its pro-
perties or assets is bound the effect of which, in the
aggregate, could reasonably be expected to have a Com-
pany Material Adverse Effect;
(xvii) enter into any new line of business;
(xviii) acquire or agree to acquire in any manner,
including by way of merger, consolidation, purchase of
an equity interest or assets, any business or any corpo-
ration, partnership, association or other business orga-
nization or division thereof;
(xix) except as set forth in Schedule 6.1(xix),
materially increase the salary or wages of any Company
employees; or
(xx) agree (by contract or otherwise) to do any of
the foregoing.
Section 6.2 Section 15 of the Investment Company Act:
Company Covenants. (a) The Company will use its best efforts
to obtain, as promptly as practicable, the approval of the
shareholders of each Fund, pursuant to the provisions of
Section 15 of the Investment Company Act applicable thereto, of
a new Investment Company Advisory Agreement for such Fund
identical in all respects to that in effect immediately prior
to the Closing, except that such new Investment Advisory
Agreement shall be effective immediately after the Closing and
shall have an initial term of two years, and, in the case of
the Funds set forth in Schedule 6.2(a), of the respective
transactions set forth in Schedule 6.2(a).
(b) The Company shall use its best efforts to as-
sure, prior to the Closing Date, the satisfaction of the con-
ditions set forth in Section 15(f) of the Investment Company
Act with respect to each Fund.
Section 6.3 Non-Investment Company Advisory Agreement
Consents. As soon as reasonably practicable, the Company shall
inform investment advisory clients that are parties to Non-
Investment Company Advisory Agreements of the transactions
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contemplated by this Agreement. The written consent of each
such client to the deemed assignment to Buyer of its Non-
Investment Company Advisory Agreement shall be requested and
the Companies shall use their reasonable best efforts to obtain
such consent, or in the case of agreements which prohibit as-
signment or state by their terms that they terminate upon as-
signment, use their reasonable best efforts to enter into new
agreements with Flagship Financial Inc. effective upon Closing.
Buyer agrees that, except in the case of Non-Investment Company
Advisory Agreements which prohibit assignment or state by their
terms that they terminate upon assignment, consent for any Non-
Investment Company Advisory Agreement may be obtained by re-
questing written consent as aforesaid and informing such client
of: (a) the intention to complete the Merger, which will result
in a deemed assignment of such Non-Investment Company Advisory
Agreement to Buyer; (b) Flagship Financial Inc.'s intention to
continue the advisory services, pursuant to the existing Non-
Investment Company Advisory Agreement with such client after
the Closing if such client does not terminate such agreement
prior to the Closing; and (c) that the consent of such client
will be implied if such client continues to accept such advi-
sory services for at least 30 days after receipt of such notice
without termination.
Section 6.4 Maintenance of Records. (a) Through the
Closing Date, the Companies will maintain the Records in the
same manner and with the same care that the Records have been
maintained prior to the execution of this Agreement. From and
after the Closing Date, each party to this Agreement shall
permit the other parties reasonable access to any applicable
Records in its possession reasonably necessary in connection
with any claim, action, litigation or other proceeding involv-
ing the party requesting access to such Records or in connec-
tion with any legal obligation owed by such party to any
Governmental Authority or any present or former client of the
Companies.
(b) For a period of not less than six years after
the Closing Date, neither Buyer nor any of its Affiliates shall
dispose of or destroy any Records, and thereafter none of the
above persons shall dispose of or destroy any such Records
without first offering to turn over possession thereof (at the
Shareholders' expense) by written notice to the Shareholder
Designee, at least 30 days prior to the proposed date of such
disposition or destruction.
Section 6.5. Section 15 of the Investment Company Act:
Buyer's Covenants. Buyer agrees to use its best efforts to
assure compliance with the conditions of Section 15(f) of the
Investment Company Act with respect to the Funds. Without
-41-<PAGE>
limiting the foregoing, Buyer agrees that: (a) for a period of
not less than three years after the Closing Date, Buyer shall
assure that no more than 25% of the members of the Board of
Directors of any Fund shall be "interested persons" (as defined
in the Investment Company Act) of Buyer (or such other entity
which acts as adviser or subadviser to the Funds), or of the
predecessor investment adviser of the Funds; and (b) neither
Buyer nor any Affiliate (including any parent company of Buyer)
of Buyer (or any entity which will act as adviser to the
Funds), for a period of not less than two years after the Clos-
ing Date, shall have any express or implied understanding, ar-
rangement or intention to impose an unfair burden on any of the
Funds as a result of the transactions contemplated herein.
Section 6.6 Employees, Employee Benefits.
(a) Effective as of the Closing Date, the individu-
als who are employed by the Companies immediately prior to the
Closing (the "Affected Employees") shall be eligible to par-
ticipate in John Nuveen & Co. Incorporated Employees' Profit
Sharing Plan and John Nuveen & Co. Incorporated Employees'
Retirement Plan (collectively, the "Buyer Pension Plans"), sub-
ject to the eligibility requirements thereof. The Buyer will,
or will cause the Companies to, give Affected Employees full
credit for purposes of eligibility and vesting but not benefit
accrual, under the Pension Plans for such Affected Employees'
service with the Companies or any Subsidiary of the Companies
to the same extent recognized by the Companies immediately pri-
or to the Closing Date. The Affected Employees shall continue
to be eligible to participate in the Buyer Pension Plans on the
same basis as similarly situated employees of the Buyer who are
not Affected Employees. Effective no later than the Closing
Date, the Affected Employees shall cease to accrue benefits
under the Company's T. Rowe Price 401(k) Plan. Effective as of
the Closing Date, the Affected Employees shall be eligible to
participate in the John Nuveen & Co. Incorporated Employees'
Profit Sharing Plan, subject to the terms and conditions
thereof and to this Section 6.6(a).
(b) Prior to the Closing Date, and subject to
obtaining the shareholder approval described in Section 6.6(g),
the Company shall enter into a Flagship Employment Sharing
Agreement with each of its employees (substantially in the form
attached hereto as Exhibit C, a "Flagship Employment Sharing
Agreement") which shall remain in effect for a period of two
years following the Closing Date. The Buyer acknowledges that
the Employment Sharing Agreements shall be binding obligations
of the Buyer and the Company after the Closing Date; provided,
however, that the parties hereto agree that, subject to the
following proviso, the Shareholders shall pay, and shall
-42-<PAGE>
indemnify, defend and hold harmless Buyer and the Companies
from and against, any and all "Employment Sharing Bonuses"
(which represent the value created by such employees prior to
Closing) payable thereunder; provided further, however, that
Buyer and the Companies shall be obligated thereunder to pay
one-half of the excess of the aggregate amount of Employment
Sharing Bonuses paid under such agreements over $2,500,000, but
in no event shall the Buyer and the Companies be obligated to
pay more than $500,000 in the aggregate as Employment Sharing
Bonuses under such agreements and any Employment Sharing
Bonuses in excess thereof shall be paid by the Shareholders;
provided further, however, that, in exchange for the reduction
to the Book Value Adjustment set forth in the definition
thereof contained herein, Buyer agrees to pay on behalf of the
Shareholders a total of $3,509,021 in aggregate amount of
Employment Sharing Bonuses payable by the Shareholders pursuant
to this Section 6.6(b) and to provide the Shareholder Designee
an annual accounting of all such payments made on the
Shareholders' behalf, any disputes with respect to which the
parties hereto agree shall be submitted to the Independent
Accounting Firm for final and binding resolution; provided
further, however, that as of the close of business on the
second anniversary of the Closing Date, Buyer shall cease to
have any obligation to pay Employment Sharing Bonuses pursuant
to the immediately preceding proviso on behalf of the
Shareholders and, within five Business Days following such
date, shall deliver, or cause to be delivered, to each
Shareholder an amount equal to such Shareholder's portion (as
set forth opposite such Shareholder's name on Schedule 3.1(a))
of the difference between $3,509,021 and the aggregate amount
of Employment Sharing Bonuses paid by Buyer on behalf of the
Shareholders pursuant to such proviso.
(c) With respect to any employee benefit plans or
arrangements (other than the Buyer Pension Plans) maintained on
or after the Closing Date by the Buyer, the Companies or any
Subsidiary of the Buyer (collectively, "Buyer Welfare Plans"),
Buyer will, or will cause the Companies to, give Affected
Employees full credit for purposes of eligibility, vesting and
determination of the level of benefits under the Buyer Welfare
Plans for such Affected Employees' service with the Companies
or any Subsidiary of the Companies to the same extent recog-
nized by the Companies immediately prior to the Closing Date.
Buyer will, or will cause the Companies to, use reasonable
efforts to cause the relevant providers and insurers to waive
all limitations as to preexisting conditions exclusions and
waiting periods with respect to participation and coverage
requirements applicable to the Affected Employees under any
Buyer Welfare Plans in which such employees may be eligible to
participate after the Closing Date, other than limitations or
-43-<PAGE>
waiting periods that are already in effect with respect to such
employees and that have not been satisfied as of the Closing
Date under any welfare plan maintained for the Affected
Employees immediately prior to the Closing Date.
(d) Buyer will, or will cause the Companies to, (i)
make available to Affected Employees by no later than January
1, 1997, an option to receive medical coverage pursuant to a
Health Maintenance Organization; (ii) give consideration to
establishing an employee assistance program substantially
similar to the Company's employee assistance program as in
effect as of the Closing Date, and (iii) give consideration to
establishing an education assistance program substantially
similar to the Company's educational assistance program as in
effect as of the Closing Date.
(e) The annual bonus of the Affected Employees with
respect to the period of such Affected Employee's employment
with the Companies prior to January 1, 1997 shall be determined
and paid in a manner consistent with past practice; provided,
however, that the Buyer and the Companies shall pay in early
1997 that portion of the 1996 annual bonus to which any
Affected Employee is entitled that bears the same relationship
to the total such bonus as the number of days in 1996 after the
Closing Date bears to 365, and the annual bonuses in excess
thereof shall be paid by the Shareholders (representing the
value created by such employees prior to Closing).
(f) Any paid leave days (including vacation days,
sick days and floating holidays) accrued by any Affected
Employee in 1996 in excess of the paid leave days used by such
Affected Employee in 1996, may be carried over to June 30,
1997. Any Affected Employee whose employment terminates for
any reason in 1996 or 1997 shall be entitled to payment for any
unused paid leave days (including, if applicable, days carried
over from 1996 which have not expired).
(g) The Company shall use its best efforts to ob-
tain, prior to the Closing Date, approval by the Company's
stockholders with respect to any payments which, in the absence
of such approval, would constitute "parachute payments" within
the meaning of Section 280G of the Code and to provide adequate
disclosure regarding such payments in accordance with Section
280G(b)(5)(B)(ii) of the Code.
Section 6.7 Further Assurances. Each party to this
Agreement shall execute such documents and other papers and
perform such further acts as may be reasonably required to car-
ry out the provisions hereof and the transactions contemplated
-44-<PAGE>
hereby, together with other consolidation activities (includ-
ing, without limitation, consolidation of Flagship Financial
Inc. and Flagship Funds Inc. with subsidiaries of Buyer). For
a reasonable period of time after the Closing Date upon the
request of Buyer, the Companies, its Affiliates and the Share-
holders shall promptly execute and deliver such further instru-
ments of assignment, transfer, conveyance, endorsement, direc-
tion or authorization and other documents as Buyer may
reasonably request to effectuate the purposes of this Agree-
ment.
Section 6.8 Efforts of Parties to Close. During the
period from the date of this Agreement through the Closing
Date, each party hereto shall use its reasonable best efforts
to fulfill or obtain the fulfillment of the conditions prece-
dent to the consummation of the transactions contemplated here-
by, including the execution and delivery of any documents, cer-
tificates, instruments or other papers that are reasonably
required for the consummation of the transactions contemplated
hereby. During the period from the date of this Agreement and
continuing through the Closing, except as required by Appli-
cable Law or with the prior written consent of the other par-
ties to this Agreement, no party to this Agreement shall take
any action which, or fail to take any action the failure of
which to be taken, would, or could reasonably be expected to,
(a) result in any of the representations and warranties set
forth in this Agreement on the part of the party taking or
failing to take such action being or becoming untrue in any
material respect; (b) result in any conditions to the Closing
set forth in Article VII not being satisfied; (c) result in a
material violation of any provision of this Agreement; or (d)
adversely affect or materially delay the receipt of any of the
requisite regulatory approvals.
Section 6.9 Confidentiality and Announcements. (a)
The parties agree to be bound by and comply with the provisions
set forth in the Confidentiality Agreement, the provisions of
which are hereby incorporated herein by reference.
(b) Other than as required by law upon prior notice
to the other parties or with the prior consent of the other
parties, neither the Shareholders, the Companies, nor Buyer
shall, and each of the foregoing shall cause each of its
Affiliates, employees, directors, partners and agents, includ-
ing accountants, lenders, counsel and investment bankers not
to, disclose to any Person (i) the fact of execution and deliv-
ery hereof or any of the contents hereof or of the Employment
Agreements (other than the Merger Consideration or Contingent
Merger Consideration, disclosure of which is governed exclu-
sively by clause (ii) below) or (ii) the Merger Consideration
-45-<PAGE>
or Contingent Merger Consideration without the prior written
consent of Bedford and Davis, which may be withheld in their
sole discretion.
(c) Subject to Section 6.11(a) and (b), the parties
to this Agreement shall agree with each other as to the form
and substance of any press release related to this Agreement or
the transactions contemplated hereby and shall consult each
other as to the form and substance of other public disclosures
related hereto and thereto.
Section 6.10 Access; Certain Communications. Between
the date of this Agreement and the Closing Date, subject to any
Applicable Laws relating to the exchange of information,
(a) The Companies shall afford to Buyer and its au-
thorized agents and representatives complete access, upon rea-
sonable notice and during normal business hours, to all con-
tracts, documents and information of or relating to the assets,
liabilities, business, operations, personnel and other aspects
of the business of the Companies. The Companies shall cause
their personnel, attorneys and accountants to provide assis-
tance to Buyer in Buyer's investigation of matters relating to
the purchase of the Shares, including allowing Buyer and its
authorized agents and representatives access to the Operating
Sites and data processing facilities; provided, however, that
Buyer's investigation shall be conducted in a manner which does
not unreasonably interfere with the Companies' normal opera-
tions, customers, and employee relations.
(b) Buyer shall afford to the Company and its autho-
rized agents and representatives complete access, upon reason-
able notice and during normal business hours, to all contracts,
documents and information of or relating to the assets, li-
abilities, business, operations, personnel and other aspects of
the business of the Buyer, but in each case only to the extent
relevant, in the reasonable judgment of Buyer, to the transac-
tions contemplated hereby. The Buyer shall cause their per-
sonnel, attorneys and accountants to provide assistance to the
Company in the Company's investigation of matters relating to
the Merger, including allowing the Company and its authorized
agents and representatives access to the operating sites and
data processing facilities; provided, however, that the Com-
pany's investigation shall be conducted in a manner which does
not unreasonably interfere with Buyer's normal operations, cus-
tomers, and employee relations.
(c) Promptly following the date of this Agreement,
Buyer shall complete its review of the Companies and their
-46-<PAGE>
respective operations, business affairs, prospects and finan-
cial conditions, including, without limitation, those matters
which are the subject of Seller's representations and warran-
ties (the "Due Diligence Review"). Buyer shall conclude such
review by not later than ten (10) business days after the date
of this Agreement (the "Due Diligence Period"). Each party
hereto shall promptly advise the other parties of any situa-
tion, event, circumstance or other matter which could result in
the termination of this Agreement pursuant to Section 9.1 here-
of, or, if applicable, of the absence of any situation, event,
circumstance or other matter. Notwithstanding anything herein
or implied to the contrary, the Due Diligence Review shall not
limit, restrict or preclude, or be construed to limit, restrict
or preclude, Buyer, at any time or from time to time there-
after, from conducting such further reviews or from exercising
any rights available to it hereunder as a result of the exist-
ence or occurrence prior to the Due Diligence Period of any
event or condition which was not detected in the Due Diligence
Review and which would constitute a breach of any representa-
tion, warranty or agreement under this Agreement.
Section 6.11 Regulatory Matters; Third Party Con-
sents. (a) The parties to this Agreement shall cooperate with
each other and use their reasonable best efforts promptly to
prepare and file all necessary documentation, to effect all
applications, notices, petitions and filings, and to obtain as
promptly as practicable all permits, consents, approvals, waiv-
ers and authorizations of all third parties and Governmental
Authorities which are necessary or advisable to consummate the
transactions contemplated by this Agreement. If any required
consent of or waiver by any third party (excluding any Govern-
mental Authority) is not obtained prior to the Closing, or if
the assignment of any Contract would be ineffective or would
adversely affect any material rights or benefits thereunder so
that Buyer would not in fact receive all such rights and bene-
fits, the parties hereto, each without cost, expense or lia-
bility to the other (except as provided in Article VIII here-
of), shall cooperate in good faith to seek, if possible, an
alternative arrangement to achieve the economic results in-
tended. The parties to this Agreement will have the right to
review in advance, and will consult with the other on, in each
case subject to Applicable Laws relating to the exchange of
information, all the information relating to Buyer, the Compa-
nies or the Shareholders, as the case may be, which appear in
any filing made with, or written materials submitted to, any
third party or any Governmental Authority in connection with
the transactions contemplated by this Agreement; provided, how-
ever, that nothing contained herein shall be deemed to provide
any party to this Agreement with a right to review any informa-
tion provided to any Governmental Authority on a confidential
-47-<PAGE>
basis in connection with the transactions contemplated hereby.
The parties to this Agreement agree that they will consult with
each other with respect to the obtaining of all permits, con-
sents, approvals and authorizations of all third parties and
Governmental Authorities necessary or advisable to consummate
the transactions contemplated by this Agreement and each party
will keep the others apprised of the status of matters relating
to completion of the transactions contemplated herein. The
party responsible for a filing as set forth above shall prompt-
ly deliver to the other parties hereto evidence of the filing
of all applications, filings, registrations and notifications
relating thereto (except for any confidential portions there-
of), and any supplement, amendment or item of additional in-
formation in connection therewith (except for any confidential
portions thereof). The party responsible for a filing shall
also promptly deliver to the other parties hereto a copy of
each material notice, order, opinion and other item of corre-
spondence received by such filing party from any Governmental
Authority in respect of any such application (except for any
confidential portions thereof). In exercising the foregoing
rights and obligations, Buyer, the Companies and the Sharehold-
ers shall each act reasonably and as promptly as practicable.
(b) Each party to this Agreement shall, upon
request, furnish each other with all information concerning
themselves, directors, officers and stockholders and such other
matters as may be reasonably necessary or advisable in connec-
tion with any statement, filing, notice or application made by
or on behalf of Buyer, the Companies or the Shareholders to any
Governmental Authority in connection with the transactions con-
templated by this Agreement (except to the extent that such
information would be, or relates to information that would be,
filed under a claim of confidentiality).
(c) The parties to this Agreement shall promptly
advise each other upon receiving any communication from any
Governmental Authority whose consent or approval is required
for consummation of the transactions contemplated by this
Agreement which causes such party to believe that there is a
reasonable likelihood that any requisite regulatory approval
will not be obtained or that the receipt of any such approval
will be materially delayed.
Section 6.12 Notification of Certain Matters. (a)
Each party to this Agreement shall give prompt notice to the
other parties of (i) the occurrence, or failure to occur, of
any event or existence of any condition that has caused or
could reasonably be expected to cause any of its representa-
tions or warranties contained in this Agreement to be untrue or
inaccurate in any material respect at any time after the date
-48-<PAGE>
of this Agreement, up to and including the Closing Date, and
(ii) any failure on its part to comply with or satisfy, in any
material respect, any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement. In con-
nection with the Closing, the Companies and Buyer will promptly
supplement or amend the various Schedules to this Agreement to
reflect any matter which, if existing, occurring or known at
the date of this Agreement, would have been required to be set
forth or described in such Schedules or which is necessary to
correct any information in such Schedules which was or has been
rendered inaccurate thereby. No such supplement or amendment
to the Schedules shall have any effect for the purpose of de-
termining satisfaction of the conditions set forth in Article
VII hereof, or the compliance by any party hereto with its cov-
enants and agreements set forth herein, or for purposes of de-
termining any party's indemnification obligations pursuant to
Article VIII hereof.
(b) During the period from the date of this Agree-
ment to the Closing Date, the Company will, upon request, cause
one or more of its designated representatives to periodically
confer with representatives of Buyer and to report the general
status of the ongoing operations of the Companies. The Company
will promptly notify Buyer of any material change in the con-
duct of its business or in the operation of the properties of
the Companies and of any governmental complaints, investiga-
tions or hearings (or communications indicating that the same
may be contemplated), or the institution or the threat of sig-
nificant litigation involving the Companies, and will keep
Buyer fully informed of such events.
Section 6.13 Expenses. Except as otherwise expressly
provided herein, Buyer, on the one hand, and the Companies and
the Shareholders, on the other hand, shall each bear their
respective direct and indirect expenses incurred in connection
with the negotiation and preparation of this Agreement and the
consummation of the transactions contemplated hereby. The
Buyer and the Company shall share equally all the costs and
expenses of preparing, printing and mailing the proxy state-
ments and related solicitation expenses for the approvals con-
templated by Section 6.2.
Section 6.14 Contingent Merger Consideration. Buyer
shall pay the Contingent Merger Consideration as set forth in
Schedule 3.1(b).
Section 6.15 Third Party Proposals. Neither the
Company, any of its Subsidiaries, Bedford, Davis, the Share-
holders nor any of their respective Affiliates shall directly
or indirectly solicit, encourage or facilitate inquiries or
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proposals, or enter into any definitive agreement, with respect
to, or initiate or participate in any negotiations or
discussions with any Person concerning, any acquisition or
purchase of all or a substantial portion of the assets of, or
of any equity interest in, the Company or any of its
Subsidiaries or any merger or business combination with the
Company or any of its Subsidiaries other than as contemplated
by this Agreement (each, an "Acquisition Proposal") or furnish
any information to any such Person. The Company, Bedford,
Davis, the Shareholders and any of their respective Affiliates
and agents shall notify Buyer immediately if any Acquisition
Proposal (including the terms thereof) is received by, any such
information is requested from, or any such negotiations or dis-
cussions are sought to be initiated with, any of the Company,
its Subsidiaries, Bedford, Davis, the Shareholders or any of
their respective Affiliates. The Company, Bedford, Davis and
each of the Shareholders shall, and shall cause their
respective Affiliates, officers, directors, employees,
representatives and advisors to, immediately cease or cause to
be terminated any existing activities, including discussions or
negotiations with any parties, conducted prior to the date
hereof with respect to any Acquisition Proposal and shall seek
to have all materials distributed to such Persons by the Com-
pany, Bedford, Davis, any Shareholder or any of their
respective Affiliates or advisors returned to the Company
promptly. None of the Company, Bedford, Davis, the Sharehold-
ers or any of their respective Affiliates shall amend, modify,
waive or terminate, or otherwise release any Person from, any
standstill, confidentiality or similar agreement or arrangement
currently in effect. The Company, Bedford, Davis and the
Shareholders shall cause their respective officers, directors,
agents, advisors and Affiliates to comply with the provisions
of this Section 6.15.
Section 6.16 Disposition of Share Consideration.
Each certificate representing shares of Buyer Common Stock is-
sued to a Shareholder upon conversion of Buyer Preferred Stock
or delivered to a Shareholder as Contingent Merger
Consideration shall bear a legend to the effect that such
shares may not be transferred, sold or otherwise disposed of
unless the holder thereof shall have given written notice to
Buyer of such transfer, sale or disposition, provided that each
Shareholder may transfer Buyer Preferred Stock or such Buyer
Common Stock to any successor or assign reasonably acceptable
to Buyer, including with respect to a Shareholder that is a
trust to a trust or other persons the sole beneficiaries of
which and holders of all ownership interests in which are those
persons who are the beneficiaries of, grantors of or holders of
all ownership interests in such Shareholder. Upon transfer,
sale or other disposition of any such shares of Buyer Common
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Stock in compliance herewith, new certificates therefor of like
tenor not bearing such legend shall be issued by Buyer in
exchange for the outstanding certificates representing such
shares at the request of the then holder thereof or the
disposing Shareholder.
Section 6.17 [Intentionally Omitted]
Section 6.18 Tax-Free Treatment. From and after the
Closing, none of the parties shall take any action that would
cause the Merger not to constitute a tax-free "reorganization"
under Section 368(a)(1) of the Code.
Section 6.19 Voting of Shares. During the period
from the date of this Agreement and continuing through the
Closing Date, and except as otherwise provided herein, each
Shareholder shall not (a) deposit its Shares into a voting
trust or enter into a voting agreement or arrangement with
respect to such Shares or grant any proxy with respect thereto
or (b) enter into any contract, option or other arrangement or
undertaking with respect to the direct or indirect acquisition
or sale, assignment, pledge, transfer or other disposition of
any of its Shares; provided, however, that each Shareholder
that is a trust may transfer its Shares to a trust the sole
beneficiaries of and holders of all ownership interests in are
those persons who are the beneficiaries of and holders of all
ownership interests in such Shareholder if such transferee
trust executes a supplement hereto agreeing to be bound by all
of the terms and conditions of this Agreement to the same
extent as each Shareholder. Each Shareholder, by this
Agreement, with respect to those Shares that it owns, does
hereby constitute and appoint Buyer, or any nominee of Buyer,
with full power of substitution, during and for the period from
the date of this Agreement and continuing through the earlier
of the Closing Date or the date of termination of this
Agreement pursuant to Section 9.1, as its true and lawful
attorney and proxy, for and in its name, place and stead, to
vote each of such Shares as its proxy, at every annual, special
or adjourned meeting of the shareholders of the Company
(including the right to sign its name (as shareholder) to any
consent, certificate or other document relating to the Company
that the law of the State of Delaware may permit or require)
(i) in favor of the approval of the Merger and approval and
adoption of this Agreement and the transactions contemplated
hereby, (ii) against any Acquisition Proposal or any action or
agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement
of any of the Companies or Shareholders hereunder or that would
result in any of the conditions set forth in Sections 7.2 or
7.3 not being fulfilled, and (iii) in favor of any other matter
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relating to consummation of the transactions contemplated by
this Agreement. Each Shareholder hereby agrees and
acknowledges that the proxy granted pursuant to the preceding
sentence shall be irrevocable and that such proxy is coupled
with an interest for all purposes, including for purposes of
Section 212 of the DGCL.
ARTICLE VII
CONDITIONS TO CONSUMMATION
OF THE MERGER
Section 7.1 Conditions to Buyer's Obligations. The
obligations of Buyer to effect the Merger shall be subject to
the following conditions, any of which may be waived in writing
by Buyer:
(a) The representations and warranties of the Com-
pany, Bedford and Davis set forth in this Agreement shall
be true and correct in all material respects as of the
date of this Agreement and (except to the extent such rep-
resentations and warranties speak as of an earlier date)
as of the Closing Date as though made on and as of the
Closing Date; provided, however, that for purposes of
determining the satisfaction of the condition contained in
this Section 7.1(a), no effect shall be given to any ex-
ception in such representations and warranties relating to
knowledge, materiality, or a Company Material Adverse Ef-
fect, and such representations and warranties shall be
deemed to be true and correct in all material respects
only if the failure or failures of such representations
and warranties to be so true and correct without regard to
knowledge, materiality and Company Material Adverse Effect
exceptions do not represent in the aggregate a Company
Material Adverse Effect;
(b) The Company and the Shareholders shall have per-
formed and complied in all material respects with all
agreements, covenants, obligations and conditions required
by this Agreement to be performed or complied with by them
at or prior to the Closing Date;
(c) The Company shall have delivered to Buyer a cer-
tificate, dated as of the Closing Date, signed on behalf
of the Company by its Chief Executive Officer and Chief
Financial Officer confirming the satisfaction of the con-
ditions contained in paragraphs (a) and (b) of this Sec-
tion 7.1;
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(d) Buyer shall have received the opinion of the
Company's counsel, dated as of the Closing Date, substan-
tially in the form attached hereto as Exhibit 7.1(d);
(e) Neither Bedford nor Davis shall have breached or
terminated his Employment Agreement;
(f) Since December 31, 1995, no event has occurred
which has had or could reasonably be expected to have,
individually or in the aggregate with any other event
occurring after such date, a Company Material Adverse Ef-
fect (including, without limitation, suspension or
termination of, or notice or reasonable likelihood of
suspension or termination of, the distribution
relationships between any of the Companies and the parties
set forth in Schedule 7.1(f)); and
(g) Buyer shall have received an opinion of
Wachtell, Lipton, Rosen & Katz, counsel to Buyer, in the
form and in substance reasonably satisfactory to Buyer,
substantially to the effect that for United States federal
income tax purposes the Merger will constitute a reorgani-
zation within the meaning of Section 368(a) of the Code.
Section 7.2 Conditions to the Company's and the
Shareholders' Obligations. The obligation of the Company or
the Shareholders to effect the Merger shall be subject to the
following conditions, which may be waived in writing by the
Company:
(a) The representations and warranties of Buyer set
forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and
(except to the extent such representations and warranties
speak as of an earlier date) as of the Closing Date as
though made on and as of the Closing Date; provided, how-
ever, that for purposes of determining the satisfaction of
the condition contained in this Section 7.2(a), no effect
shall be given to any exception in such representations
and warranties relating to knowledge, materiality, or a
Buyer Material Adverse Effect, and such representations
and warranties shall be deemed to be true and correct in
all material respects only if the failure or failures of
such representations and warranties to be so true and cor-
rect without regard to knowledge, materiality, and Buyer
Material Adverse Effect exceptions do not represent in the
aggregate a Buyer Material Adverse Effect;
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(b) Buyer shall have performed and complied in all
material respects with all agreements, covenants, obliga-
tions and conditions required by this Agreement to be per-
formed or complied with by it at or prior to the Closing
Date;
(c) Buyer shall have delivered to the Company and
Shareholders a certificate, dated as of the Closing Date,
signed on behalf of Buyer by its Chief Executive Officer
and Chief Financial Officer confirming the satisfaction of
the conditions contained in paragraphs (a) and (b) of this
Section 7.2;
(d) The Company and the Shareholders shall have
received the opinion of counsel to Buyer, dated the Clos-
ing Date, substantially in the form attached hereto as
Exhibit 7.2(d);
(e) Neither Employment Agreement shall have been
breached or terminated by Buyer;
(f) The Company shall have received the opinion of
Skadden, Arps, Slate, Meagher & Flom, counsel to the Com-
pany, in the form and in substance reasonably satisfactory
to the Company, substantially to the effect that the (i)
Merger will constitute a reorganization for United States
federal income tax purposes within the meaning of Section
368(a) of the Code, (ii) the Buyer and the Company will
each be a party to the reorganization within the meaning
of Section 368(b) of the Code, (iii) no gain or loss will
be recognized by the Buyer, Merger Sub or the Company
pursuant to the Merger, (iv) no gain or loss will be
recognized by the Shareholders to the extent their Shares
are exchanged solely for Buyer Preferred Stock. In
rendering such opinion, Skadden, Arps, Slate, Meagher &
Flom may require and rely upon representations contained
in certificates of officers of the Buyer, the Company and
others; and
(g) Since December 31, 1995, no event has occurred
which has had or could reasonably be expected to have,
individually or in the aggregate with any other event
occurring after such date, a Buyer Material Adverse
Effect.
Section 7.3 Mutual Conditions. The obligations of
each party to this Agreement to effect the Merger shall be sub-
ject to the following conditions, any of which may be waived in
writing by both the Company and the Shareholders, on the one
hand, and Buyer, on the other hand:
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(a) No order, injunction or decree issued by any
court or agency of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of
the transactions contemplated by this Agreement shall be
in effect. No proceeding initiated by any Governmental
Authority seeking an injunction shall be pending. No
statute, rule, regulation, order, injunction or decree
shall have been enacted, entered, promulgated or enforced
by any Governmental Authority which prohibits, restricts
or makes illegal consummation of the transactions contem-
plated hereby;
(b) All consents, waivers, authorizations and ap-
provals required from all Governmental Authorities to con-
summate the transactions contemplated hereby shall have
been obtained and shall remain in full force and effect
and all statutory waiting periods in respect thereof shall
have expired;
(c) In respect of the notifications of the parties
hereto pursuant to the HSR Act, the applicable waiting
period and any extensions thereof shall have expired or
terminated; and
(d) The Boards of Directors and shareholders of the
Funds for which any of the Companies provides investment
advisory services that represent at least 92.5% of the
assets of all such Funds at the Effective Time shall have
approved new Investment Company Advisory Agreements; and
the Boards of Directors of such Funds shall have approved
new distribution agreements pursuant to the provisions of
Section 6.2; and investment advisory clients other than
such Funds shall have consented or been deemed to have
consented to the deemed assignment of their respective
Non-Investment Advisory Agreements or shall have entered
into new Non-Investment Advisory Agreements with respect
to an aggregate of at least 92.5% of assets for which any
of the Companies provides investment advisory services
other than the Funds.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Survival of Representations, Warranties
and Covenants. All representations and warranties of the par-
ties contained in this Agreement, including any schedules made
a part hereof, and any covenants or other agreements the per-
formance of which is specified to occur on or prior to the
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Closing or the Closing Date, shall survive the Merger hereunder
for a period of thirty months following the Closing Date; pro-
vided, however, that the representations and warranties of the
parties contained in Sections 4.13(e), 4.18 and 5.15 shall sur-
vive the Merger hereunder for a period from the Closing Date
until the expiration of the applicable statutory period of
limitations. Any covenant or other agreement herein any por-
tion of the performance of which may or is specified to occur
after the Closing shall survive the Merger hereunder indefi-
nitely or for such lesser period of time as may be specified
therein.
Section 8.2 Obligations of the Shareholders. From
and after the Closing Date, the Shareholders hereby agree,
jointly and severally, to indemnify, defend and hold harmless
Buyer and its respective employees, officers, partners and
other Affiliates from and against any and all Losses which any
of them may suffer, incur or sustain arising out of, attribut-
able to, or resulting from: (a) any inaccuracy in or breach of
any of the representations or warranties of the Company, Bedford
or Davis and made in this Agreement (it being agreed that sole-
ly for purposes of establishing whether any matter is indemni-
fiable pursuant to this clause (a), the accuracy of the repre-
sentations and warranties made by the Company or Bedford or
Davis shall be determined without giving effect to the qual-
ifications to such representations and warranties concerning
knowledge, material, or Company Material Adverse Effect); and
(b) any breach or nonperformance of any of the covenants or
other agreements made by the Company, Bedford, Davis or any
Shareholder in or pursuant to this Agreement. In addition and
notwithstanding any provision to the contrary contained in this
Agreement, the Shareholders shall be jointly and severally
liable for, shall pay and shall indemnify and hold the Buyer
and its Affiliates harmless against, (i) all Taxes of any kind
of the Companies or the Shareholders for any taxable year or
taxable period ending on or before the Closing Date, (ii) any
inaccuracy in or breach of any of the representations or war-
ranties set forth in Sections 4.13(e) and 4.18 and (iii) any
breach or nonperformance of any of the covenants or other
agreements set forth in Section 6.18; which indemnification
obligation, in the case of clauses (i) through (iii), shall
survive the Merger hereunder for a period from the Closing Date
until the expiration of the applicable statutory period of
limitations.
Section 8.3 Obligations of Buyer. From and after the
Closing Date, Buyer hereby agrees to indemnify, defend and hold
harmless the Company, Bedford, Davis and the Shareholders and
their respective employees, officers, directors, partners and
other Affiliates from and against any and all Losses which any
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of them may suffer, incur, or sustain arising out of, at-
tributable to, or resulting from: (a) any inaccuracy in or
breach of any of the representations and warranties of Buyer
made in this Agreement (it being agreed that solely for pur-
poses of establishing whether any matter is indemnifiable pur-
suant to this clause (a), the accuracy of the representations
and warranties made by Buyer shall be determined without giving
effect to the qualifications to such representations and war-
ranties concerning knowledge, materiality, or Buyer Material
Adverse Effect); and (b) any breach or nonperformance of any of
the covenants or other agreements made by Buyer in or pursuant
to this Agreement. In addition and notwithstanding any provi-
sion to the contrary contained in this Agreement, Buyer shall
be liable for, shall pay and shall indemnify and hold the
Shareholders harmless against (i) all Taxes of any kind of the
Companies or the Shareholders for any taxable year or taxable
period ending after the Closing Date, (ii) any inaccuracy in or
breach of any of the representations or warranties set forth in
Section 5.15 and (iii) any breach or nonperformance of any of
the covenants or other agreements set forth in Section 6.18,
which indemnification obligations shall survive the Merger
hereunder for a period from the Closing Date until the expira-
tion of the applicable statutory period of limitations.
Section 8.4 Procedure. (a) Notice of Third Party
Claims. Any Indemnified Party seeking indemnification for any
Loss or potential Loss arising from a claim asserted by a third
party against the Indemnified Party (a "Third Party Claim")
shall give written notice to the Indemnifying Party specifying
in detail the source of the Loss or potential Loss under Sec-
tion 8.2 or 8.3, as the case may be. Written notice to the
Indemnifying Party of the existence of a Third Party Claim
shall be given by the Indemnified Party promptly after notice
of the potential claim; provided, however, that the Indemnified
Party shall not be foreclosed from seeking indemnification pur-
suant to this Article VIII by any failure to provide such
prompt notice of the existence of a Third Party Claim to the
Indemnifying Party except and only to the extent that the
Indemnifying Party actually incurs an incremental out-of-pocket
expense or otherwise has been materially damaged or prejudiced
as a result of such delay.
(b) Defense. Except as otherwise provided herein,
the Indemnifying Party may elect to compromise or defend, at
such Indemnifying Party's own expense and by such Indemnifying
Party's own counsel (which counsel shall be reasonably satis-
factory to the Indemnified Party), any Third Party Claim. If
the Indemnifying Party elects to compromise or defend such
Third Party Claim, it shall, within 30 days after receiving
notice of the Third Party Claim (10 days if the Indemnifying
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Party states in such notice that prompt action is required),
notify the Indemnified Party of its intent to do so, and the
Indemnified Party shall cooperate, at the expense of the Indem-
nifying Party, in the compromise of, or defense against, such
Third Party Claim. If the Indemnifying Party elects not to
compromise or defend against the Third Party Claim, or fails to
notify the Indemnified Party of its election to do so as herein
provided, or otherwise abandons the defense of such Third Party
Claim, (i) the Indemnified Party may pay (without prejudice of
any of its rights as against the Indemnifying Party), compro-
mise or defend such Third Party Claim (until such defense is
assumed by the Indemnifying Party) and (ii) the costs and ex-
penses of the Indemnified Party incurred in connection there-
with shall be indemnifiable by the Indemnifying Party pursuant
to the terms of this Agreement. Notwithstanding anything to
the contrary contained herein, in connection with any Third
Party Claim in which the Indemnified Party shall reasonably
conclude, based upon advice of its outside legal counsel, that
(x) there is a conflict of interest between the Indemnifying
Party and the Indemnified Party in the conduct of the defense
of such Third Party Claim or (y) there are specific defenses
available to the Indemnified Party which are different from or
additional to those available to the Indemnifying Party and
which could be materially adverse to the Indemnifying Party,
then the Indemnified Party shall have the right to assume and
direct the defense of such Third Party Claim. In such an
event, the Indemnifying Party shall pay the reasonable fees and
disbursements of counsel of the Indemnifying Party and one
counsel to all the Indemnified Parties. Notwithstanding the
foregoing, neither the Indemnifying Party nor the Indemnified
Party may settle or compromise any claim (however, if the sole
settlement relief payable to a third party in respect of such
Third Party Claim is monetary damages that are paid in full by
the Indemnifying Party, the Indemnifying Party may settle such
claim without the consent of the Indemnified Party) over the
objection of the other; provided, however, that consent to
settlement or compromise shall not be unreasonably withheld by
the Indemnified Party. In any event, except as otherwise pro-
vided herein, the Indemnified Party and the Indemnifying Party
may each participate, at its own expense, in the defense of
such Third Party Claim. If the Indemnifying Party chooses to
defend any claim, the Indemnified Party shall make available to
the Indemnifying Party any personnel or any books, records or
other documents within its control that are reasonably neces-
sary or appropriate for such defense, subject to the receipt of
appropriate confidentiality agreements.
(c) Settlement. If a settlement offer solely for
money damages is made by a third party claimant, and the Indem-
nifying Party notifies the Indemnified Party in writing of the
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Indemnifying Party's willingness to accept the settlement offer
and pay the amount called for by such offer, and the Indemni-
fied Party declines to accept such offer, the Indemnified Party
may continue to contest such claim, free of any participation
by the Indemnifying Party, and the amount of any ultimate lia-
bility with respect to such Indemnifiable Claim that the
Indemnifying Party has an obligation to pay hereunder shall be
limited to the lesser of (A) the amount of the settlement offer
that the Indemnified Party declined to accept plus the costs
and expenses of the Indemnified Party prior to the date the
Indemnifying Party notifies the Indemnified Party of the Indem-
nifying Party's willingness to settle or compromise such Third
Party Claim and (B) the aggregate Losses of the Indemnified
Party with respect to such claim.
(d) Miscellaneous. The procedures set forth in Sec-
tion 8.4(a)-(c) above shall apply solely with respect to Third
Party Claims and shall not be deemed to apply to, or otherwise
affect or limit, an Indemnified Party's rights under this
Agreement with respect to any claim other than a Third Party
Claim.
(e) Notice of Non-Third Party Claims. Any Indemni-
fied Party seeking indemnification for any Loss or potential
Loss arising from a claim asserted by any party to this Agree-
ment against the Indemnifying Party (a "Non-Third Party Claim")
shall give written notice to the Indemnifying Party specifying
in detail the source of the Loss or potential Loss under Sec-
tion 8.2 or 8.3, as the case may be. Written notice to the
Indemnifying Party of the existence of a Non-Third Party Claim
shall be given by the Indemnified Party promptly after the In-
demnified Party becomes aware of the potential claim; provided,
however, that the Indemnified Party shall not be foreclosed
from seeking indemnification pursuant to this Article VIII by
any failure to provide such prompt notice of the existence of a
Non-Third Party Claim to the Indemnifying Party except and only
to the extent that the Indemnifying Party actually incurs an
incremental out-of-pocket expense or otherwise has been materi-
ally damaged or prejudiced as a result of such.
Section 8.5 Survival of Indemnity. Any matter as to
which a claim has been asserted by formal notice pursuant to
Section 8.4 and within the time limitation applicable by reason
of Section 8.1 that is pending or unresolved at the end of any
applicable limitation period under this Article VIII or Appli-
cable Law shall continue to be covered by this Article VIII
notwithstanding any applicable statute of limitations (which
the parties hereby waive) or the expiration dates set forth in
Section 8.1 until such matter is finally terminated or other-
wise resolved by the parties under this Agreement or by a court
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of competent jurisdiction and any amounts payable hereunder are
finally determined and paid.
Section 8.6 Minimum Losses. Except for Taxes subject
to indemnification pursuant to Section 8.2, except for Losses
arising out of, attributable to or resulting from any inac-
curacy in or breach of any of the representations or warranties
set forth in Sections 4.13(e) and 4.18 and except for Losses
arising out of, attributable to or resulting from any failure
by Buyer or any of its Affiliates to comply with Section 6.5,
no party shall have any right to obtain indemnification under
this Agreement until aggregate Losses of such party and its
Affiliates (for purposes of this section Shareholders, Bedford
and Davis shall be deemed to be Affiliates) and the successors
and assigns of such party and its Affiliates exceed $3,000,000,
after which time only the aggregate amount of such Losses in
excess of $3,000,000 shall be recoverable in accordance with
the terms hereof.
Section 8.7 Maximum Indemnification. Except for
Taxes subject to indemnification pursuant to Section 8.2,
except for Losses arising out of, attributable to or resulting
from any inaccuracy in or breach of any of the representations
or warranties set forth in Sections 4.13(e) and 4.18 and except
for Losses arising out of, attributable to or resulting from
any failure by Buyer or any of its Affiliates to comply with
Section 6.5, no party shall have any right to obtain an
indemnification payment under this Agreement to the extent
amounts received by such party and its Affiliates and the suc-
cessors and assigns of such party and its Affiliates as indem-
nification payments hereunder exceed $40,000,000.
Section 8.8 Subrogation. Any Indemnifying Party
shall be subrogated to any right of action which the Indemni-
fied Party may have against any other person with respect to
any matter giving rise to a claim for indemnification hereun-
der.
Section 8.9 Adjustments to Indemnification Obliga-
tions. (a) All indemnity payments made under this Article
VIII shall be treated as adjustments to the Merger
Consideration. All computations of indemnity payments due
under this Article VIII shall reflect the actual present cash
cost of the obligation with respect to which the indemnity
payment relates. If any Indemnified Party receives a Tax
deduction, Tax credit or other Tax benefit ("Tax Benefit") by
virtue of having paid or accrued an amount for which an
indemnity payment is provided, the amount of such Tax Benefit
will be refunded to the Party making such indemnity payment
when, as and if such Indemnified Party realizes a cash Tax
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savings from such Tax Benefit. If for any reason an
Indemnified Party has any Tax imposed on it on account of its
receipt of an indemnity payment including payments pursuant to
this sentence ("Additional Indemnity Taxes"), such indemnity
payment shall be "grossed-up" for the Additional Indemnity
Taxes so that the net payments received by the Indemnified
Party will be equal to the amount of the indemnity payment such
Indemnified Party would have received had no such Additional
Indemnity Taxes been imposed.
(b) The amount which any Indemnifying Party is or
may be required to pay any Indemnified Party pursuant to this
Article VIII shall be reduced (including without limitation,
retroactively) by any insurance proceeds or other amounts actu-
ally recovered by or on behalf of such Indemnified Party in
reduction of the related Loss. If an Indemnified Party shall
have received the payment required by this Agreement from an
Indemnifying Party in respect of a Loss and shall subsequently
actually receive insurance proceeds or other amounts in respect
of such Loss, then such Indemnified Party shall pay to such
Indemnifying Party a sum equal to the amount of such insurance
proceeds or other amounts actually received (net of any ex-
penses in obtaining the same).
Section 8.10 Remedies. This Article VIII shall not
restrict the ability of any party to seek specific performance
of this Agreement or any provision hereof or any other form of
equitable or legal relief against any breach by any other party
hereto. Nothing in this Article VIII shall limit the remedies
available to an Indemnified Party to enforce its right to in-
demnification.
ARTICLE IX
TERMINATION
Section 9.1 Termination. (a) This Agreement may be
terminated prior to the Closing as follows:
(i) by written consent of the Company and
Buyer;
(ii) by the Company or Buyer if a condition to
the terminating party's obligation to close set forth in
Section 7.3 (or 7.1 or 7.2, as the respective case may be)
cannot be satisfied prior to the date set forth in Section
9.1(a)(iv) below unless caused by the breach of any cov-
enant or agreement under this Agreement (x) by any of the
Company, Bedford, Davis or any of the Shareholders, in the
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case of a termination by the Company, or (y) by Buyer, in
the case of termination by Buyer;
(iii) by the Company or Buyer (provided that the
terminating party is not then in material breach of any
representation, warranty, covenant or other agreement con-
tained herein) if there shall have been a material breach
of any of the covenants or agreements or any of the repre-
sentations or warranties set forth in this Agreement on
the part of the Company, Bedford, Davis or any of the
Shareholders, in the case of a termination by Buyer, or on
the part of Buyer, in the case of a termination by the
Company, which breach is not cured within thirty (30) days
following written notice given by the terminating party to
the party committing such breach, or which breach, by its
nature, cannot be cured prior to the Closing;
(iv) by Buyer or the Company or the Sharehold-
ers, if the Closing has not occurred on or before December
31, 1996; and
(v) by Buyer in the event that (i) Buyer's Due
Diligence Review of the Companies discloses matters the
impact of which affects the Companies, taken as a whole,
which Buyer in the good faith exercise of its reasonable
judgment believes either (A) to be inconsistent in any
material and adverse respect with any of the representa-
tions or warranties of the Company, or (B) (x) to be of
such significance as to be expected to have a Company
Material Adverse Effect, or (y) to deviate materially and
adversely from the Company Financial Statements, (ii)
Buyer notifies Seller of such matters within 3 business
days of the expiration of the Due Diligence Period, and
(iii) such matters (A) are not capable of being cured or
(B) have not been cured within 30 days after written
notice thereof to the Company by Buyer.
Notwithstanding Section 9.1(a)(ii)-(iv) hereof, a
party who is or whose Affiliate is in material breach of any of
its obligations or representations and warranties hereunder
shall not have the right to terminate this Agreement pursuant
to Section 9.1(a)(ii)-(iv).
(b) The termination of this Agreement shall be
effectuated by the delivery by the party terminating this
Agreement to each other party of a written notice of such ter-
mination. If this Agreement so terminates, it shall become
null and void and have no further force or effect, except as
provided in Section 9.2.
-62-<PAGE>
Section 9.2 Survival After Termination. If this
Agreement is terminated in accordance with Section 9.1 hereof
and the transactions contemplated hereby are not consummated,
this Agreement shall become void and of no further force and
effect, without any liability on the part of any party hereto,
except for the provisions of Sections 6.9 and 6.13. Notwith-
standing the foregoing, nothing in this Section 9.2 shall
relieve any party to this Agreement of liability for a material
breach of any provision of this Agreement or any agreement made
as of the date hereof or subsequent thereto pursuant to this
Agreement.
ARTICLE X
MISCELLANEOUS
Section 10.1 Amendments; Waiver. This Agreement may
not be amended, altered or modified except by written
instrument executed by all the parties hereto. Any agreement
on the part of any party to waive (i) any inaccuracies in the
representations and warranties contained herein by any other
party or in any document, certificate or writing delivered pur-
suant hereto by any other party, or (ii) compliance with any of
the agreements, covenants or conditions contained herein, shall
be valid only if set forth in an instrument in writing signed
on behalf of such party. No such waiver shall constitute a
waiver of, or estoppel with respect to, any subsequent or other
inaccuracy, breach or failure to strictly comply with the pro-
visions of this Agreement.
Section 10.2 Entire Agreement. This Agreement (in-
cluding Schedules, certificates, lists and documents referred
to herein, and any documents executed by the parties simulta-
neously herewith or pursuant thereto) constitutes the entire
agreement of the parties hereto, except as provided herein, and
supersedes all prior agreements and understandings, written and
oral, among the parties with respect to the subject matter
hereof.
Section 10.3 Interpretation. When a reference is made
in this Agreement to Sections, Exhibits or Schedules, such
reference shall be to a Section of or Exhibit or Schedule to
this Agreement unless otherwise indicated. The table of con-
tents and headings contained in this Agreement are for refer-
ence purposes only and shall not affect in any way the meaning
or interpretation of this Agreement. Whenever the words "in-
clude," "includes" or "including" are used in this Agreement,
they shall be deemed to be followed by the words "without limi-
tation." The phrases "the date of this Agreement," "the date
-63-<PAGE>
hereof" and terms of similar import, unless the context other-
wise requires, shall be deemed to refer to the date set forth
in the first paragraph of this Agreement.
Section 10.4 Severability. Any term or provision of
this Agreement which is invalid or unenforceable in any ju-
risdiction shall, as to that jurisdiction, be ineffective to
the extent of such invalidity or unenforceability without ren-
dering invalid or unenforceable the remaining terms and provi-
sions of this Agreement or affecting the validity or enforce-
ability of any of the terms or provisions of this Agreement in
any other jurisdiction. If any provision of this Agreement is
so broad as to be unenforceable, the provision shall be inter-
preted to be only so broad as is enforceable.
Section 10.5 Notices. All notices and other com-
munications hereunder shall be in writing and shall be deemed
given if (a) delivered in person, (b) transmitted by telecopy
(with written confirmation), (c) mailed by certified or regis-
tered mail (return receipt requested) or (d) delivered by an
express courier (with written confirmation) to the parties at
the following addresses (or at such other address for a party
as shall be specified by like notice):
If to Bedford, Davis or the other Shareholders, the
addresses set forth in Schedule 10.5.
If to the Company:
Flagship Financial Inc.
One Dayton Centre, One South Main Street
Dayton, Ohio 45402
Telecopy:
Attention: Bruce P. Bedford
Richard P. Davis
With a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Telecopy: (212) 735-2000
Attention: Philip H. Harris, Esq.
If to Buyer:
-64-<PAGE>
The John Nuveen Company
333 West Wacker Drive
Chicago, Illinois 60606
Telecopy: (312) 917-7952
Attention: Timothy R. Schwertfeger
With copies to:
The John Nuveen Company
333 West Wacker Drive
Chicago, Illinois 60606
Telecopy: (312) 917-7952
Attention: James J. Wesolowski
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Telecopy: (212) 403-2000
Attention: John C. Coates IV
Section 10.6 Binding Effect; Persons Benefiting; No
Assignment. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective succes-
sors and assigns. Nothing in this Agreement is intended or
shall be construed to confer upon any entity or person other
than the parties hereto and their respective successors and
permitted assigns any right, remedy or claim under or by reason
of their Agreement or any part hereof. This Agreement may not
be assigned by any of the parties hereto without the prior
written consent of each of the other parties hereto.
Section 10.7 Counterparts. This Agreement may be
executed in two or more counterparts, each of which shall be
deemed an original, but all of which taken together shall con-
stitute one and the same agreement, it being understood that
all of the parties need not sign the same counterpart.
Section 10.8 Governing Law. THIS AGREEMENT, THE LEGAL
RELATIONS BETWEEN THE PARTIES AND THE ADJUDICATION AND THE
ENFORCEMENT THEREOF, SHALL BE GOVERNED BY AND INTERPRETED AND
CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE
OF DELAWARE, WITHOUT REGARD TO APPLICABLE CHOICE OF LAW
PROVISIONS THEREOF.
Section 10.9 Specific Performance. The Company, the
Shareholders and Buyer each acknowledge that, in view of the
uniqueness of its business and the transactions contemplated by
this Agreement, each party would not have an adequate remedy at
-65-<PAGE>
law for money damages in the event that the covenants to be
performed after the Closing Date have not been performed in
accordance with their terms, and therefore agree that the other
parties shall be entitled to specific enforcement of the terms
hereof in addition to indemnification hereunder and any other
equitable remedy to which such parties may be entitled.
Section 10.10 WAIVER OF JURY TRIAL AND PUNITIVE
DAMAGES. AFTER THE CLOSING DATE, THE PARTIES TO THIS AGREEMENT
AGREE TO WAIVE ANY RIGHT TO A JURY TRIAL AS TO ALL DISPUTES AND
ANY RIGHT TO SEEK PUNITIVE DAMAGES.
-66-<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be executed as of the date first above writ-
ten.
FLAGSHIP RESOURCES INC.
By: /s/ Richard P. Davis
Name: Richard P. Davis
Title: President
BRUCE P. BEDFORD
/s/ Bruce P. Bedford
Name: Bruce P. Bedford
Title: Chairman
RICHARD P. DAVIS
/s/ Richard P. Davis
Name: Richard P. Davis
Title:
JULIE A. BEDFORD
/s/ Julie A. Bedford
SUSAN L. BEDFORD
/s/ Susan L. Bedford
RICHARD P. DAVIS TRUST
By: /s/ Richard P. Davis
Name: Richard P. Davis
Title: Trustee
-67-<PAGE>
NAUTICAL TRUST
By: /s/ Susan P. Davis
Name: Susan P. Davis
Title: Trustee
NAUTICAL TRUST II
By: /s/ Susan P. Davis
Name: Susan P. Davis
Title: Trustee
SUSAN LOGAN BEDFORD 1995
ANNUITY TRUST
By: /s/ Thomas A. Pennington
Name: Thomas A. Pennington
Title: Trustee
JULIE ANN BEDFORD 1995
ANNUITY TRUST
By: /s/ Susan L. Bedford
Name: Susan L. Bedford
Title: Trustee
JULIE ANN BEDFORD 1996
ANNUITY TRUST
By: /s/ Susan L. Bedford
Name: Susan L. Bedford
Title: Trustee
-68-<PAGE>
SUSAN LOGAN BEDFORD 1996
ANNUITY TRUST
By: /s/ Thomas A. Pennington
Name: Thomas A. Pennington
Title: Trustee
JULIE ANN BEDFORD 1995 TRUST
By: /s/ Susan L. Bedford
Name: Susan L. Bedford
Title: Trustee
SUSAN LOGAN BEDFORD 1995 TRUST
By: /s/ Thomas A. Pennington
Name: Thomas A. Pennington
Title: Trustee
PADDINGTON RESOURCES INC.
By: /s/ Bruce P. Bedford
Name: Bruce P. Bedford
Title: Chairman, President
THE JOHN NUVEEN COMPANY
By: /s/ Anthony T. Dean
Name: Anthony T. Dean
Title: President
-69-
EXHIBIT 99.1
FOR IMMEDIATE RELEASE CONTACT: Ed Dunn/Nuveen
ATTN: Business/Financial Editors (312) 917-7763
Kimberly Jackson/Flagship
(513) 461-0332
NUVEEN TO ACQUIRE FLAGSHIP RESOURCES, INC.
Flagship to Merge Its Mutual Fund Business with Nuveen
CHICAGO, July 16, 1996 -- The John Nuveen Company and
Flagship Resources Inc. announced today that they have entered
into an agreement for Nuveen to acquire Flagship and for the
two firms to merge their tax-exempt mutual fund businesses.
Nuveen manages more than $47 billion in assets, including
$31 billion in funds and $16 billion in unit trusts. Flagship,
located in Dayton, Ohio, manages about $4.4 billion in assets,
mainly in its 27 tax-exempt mutual funds.
Commenting on the merger, Nuveen Chairman Timothy R.
Schwertfeger said: "For nearly a century, Nuveen has been
dedicated to serving the investment needs of conservative
investors and their financial advisers. The addition of
Flagship widens the range of municipal investments we can offer
to these investors to meet their needs for asset preservation
and tax-free income. After the merger, the combined firms will
have state-specific mutual funds, exchange-traded funds, or
unit trusts in 28 states. In addition, intermediate term and
limited term funds will be available nationally and in selected
states. This means more options for designing portfolios to
match individual preferences."<PAGE>
Flagship Chairman Bruce Bedford noted that "Flagship
has decided to merge with Nuveen after careful analysis of
potential strategic partners in the mutual fund industry. We
have been very successful and by joining Nuveen we can reach a
new level of growth at a time of ever increasing competition."
Mr. Bedford went on to note that "Nuveen has a name
that is trusted and respected. It brings financial strength, a
first rate research department, and a history of excellent
management. Nuveen has recognized our focus on service and the
effectiveness of our employees, so by joining Nuveen we can
provide for the ongoing growth of the funds and continuing high
quality services for the financial advisers and investors we
serve."
All of the stock of Flagship will be exchanged for
cash and preferred stock that can be converted into
1.65 million shares of Nuveen common stock. The total price of
the transaction is $63 million. In addition, contingent
payments which are entirely dependent on significant growth
from the combined mutual funds could amount to $20 million over
four years. The transaction, which will close by year end, has
been approved by the Board of Directors of the Flagship funds
and is contingent upon the approval of the Flagship mutual fund
shareholders.
In addition to the merger of the two businesses,
Nuveen and Flagship are also proposing to merge their funds in<PAGE>
eight states where both currently offer tax-exempt mutual
funds. "Our aim is to add to the level of tax-free income for
fund investors by increasing the efficiency of our funds,
wherever possible," added Mr. Schwertfeger.
In May of this year, Nuveen announced its intention
to introduce conservatively managed equity funds in affiliation
with Chicago-based Institutional Capital Corporation (ICAP).
The introduction of an all-stock fund, a taxable balanced fund,
and a balanced municipal and stock fund is slated for later in
the year.
Commenting further on these actions, Mr. Schwertfeger
said that: "The addition of Flagship complements our
previously announced affiliation with ICAP. Our aim is to
serve a broader range of the investment needs of conservative
investors. These investors, and their advisers, need equity
and fixed-income choices from which they can construct a
portfolio that balances asset preservation, income and growth.
Our new funds extend our offerings into equity products while
Flagship broadens our menu of municipal offerings. In
addition, Flagship's exclusive focus on the distribution of
mutual funds, and the expertise this brings, will help us build
our entire mutual fund line of business."
"Nuveen and Flagship share a similar view of research
and portfolio management, emphasizing a conservative, value-
oriented approach," added Mr. Bedford. "This shared investment<PAGE>
philosophy was very important in our decision. Investors can
be assured of the same basic investment style. In addition,
they will have the opportunity to select from a wider mix of
funds and will benefit from the combined strengths of the two
firms."
Separately, Nuveen also announced today a program to
purchase up to 3.5 million of its outstanding common shares, as
well as a 17 percent increase in the quarterly dividend from
$0.18 to $0.21 per common share.
Nuveen, founded in 1898, is headquartered in Chicago
with offices in 12 other locations. Nuveen specializes in
investment products and services for conservative investors and
their financial advisers, as well as providing municipal and
corporate investment banking services. Since 1961, Nuveen has
sponsored more than $61 billion in tax-free funds and trusts
for more than 1,200,000 investors. The John Nuveen Company is
listed on The New York Stock Exchange and trades under the
symbol "JNC."<PAGE>
Flagship is a specialist in the management of fixed-
income portfolios, with an expertise in municipal bonds,
distributed through broker/dealers. Started in 1970 as the
money management division of the Mead Corporation, Flagship was
acquired in a management buyout in 1984 by Bruce Bedford and
Richard Davis, now Chairman and President, respectively.
Flagship currently manages approximately $4.4 billion in assets
in 31 mutual funds for over 100,000 investors. Flagship, which
was advised by Smith Barney on the transaction, is
headquartered in Dayton, Ohio.
####
