<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
---- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
---- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------- ------
Commission file number 1-11123
THE JOHN NUVEEN COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 36-3817266
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60606
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 312-917-7700
Securities registered pursuant to Section 12(b) of the Act:
Class A Common Stock, $.01 par value New York Stock Exchange
(Title of Class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
-----
The aggregate market value of the outstanding Common Stock held by
non-affiliates of the Registrant on March 19, 1998 was $228,154,000.
The number of shares of the Registrant's Common Stock outstanding at March
19, 1998, was 31,893,551 consisting of 7,451,813 shares of Class A Common
Stock, $.01 par value, and 24,441,738 shares of Class B Common Stock, $.01 par
value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year
ended December 31, 1997 are incorporated by reference into Parts II and IV of
this report. Portions of Registrant's Proxy Statement relating to the annual
meeting of stockholders to be held May 7, 1998 are incorporated by reference
into Parts I and III of this report.
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PART I
ITEM 1. BUSINESS
GENERAL
The John Nuveen Company (together with its subsidiaries, the "Company")
specializes in the sponsorship, marketing and management of fixed income and
equity investment products, and in municipal and corporate investment banking
services. The Company sponsors investment products ("Investment Products"),
including unit investment trusts ("UITs"), mutual funds and money market funds
("Money Market Funds") (together, "Mutual Funds"), and closed-end funds that
issue common stock traded on stock exchanges in the United States and, in some
cases, also issue preferred stock ("MuniPreferred(R) Stock") ("Exchange-Traded
Funds").
The Company has five subsidiaries including John Nuveen & Co. Incorporated
("Nuveen & Co."), a registered broker and dealer in securities under the
Securities Exchange Act of 1934 and four investment advisory subsidiaries
registered under the Investment Advisers Act of 1940. These include Nuveen
Advisory Corp. ("NAC"), Nuveen Institutional Advisory Corp. ("NIAC"), Nuveen
Asset Management Inc. ("NAM") and Rittenhouse Financial Services, Inc.
("Rittenhouse"). NAC and NIAC provide investment advice to and administer the
business affairs of the Nuveen family of management investment companies. NAM
and Rittenhouse provide investment management services for individuals and
institutional investors, while Rittenhouse also acts as a sub-advisor and
portfolio manager to certain funds advised by NIAC.
The Company's principal businesses consist of sponsoring and providing
investment advisory, administrative and distribution services to the Mutual
Funds and Exchange-Traded Funds (together, "Managed Funds", the "Funds" or
"Nuveen Funds"), providing investment management services for individual and
institutional investment accounts ("Managed Accounts"), sponsoring and
distributing UITs and monitoring their portfolios, underwriting and trading
municipal bonds, and providing other municipal and corporate finance investment
banking services.
The Company is the successor to a business formed in 1898 by Mr. John
Nuveen to serve as an underwriter and trader of municipal bonds. This core
business was augmented in 1961 when the Company developed and introduced its
first tax-free UIT, which is a fixed portfolio of municipal securities selected
and purchased by the Company and deposited in a trust. The Company introduced
its first tax-free Mutual Fund in 1976 (the year in which Congress first
permitted management investment companies investing in municipal securities to
pay dividends that retain their tax-exempt character), its first tax-free Money
Market Fund in 1981, and its first tax-free Exchange-Traded Fund in 1987. The
Company began providing individual managed account services to investors in
early 1995 and sponsored its first taxable equity Mutual Fund during 1996.
The Company expanded its UIT product line in mid 1997 to include UITs in
which the underlying trust assets were comprised of equities, treasury bonds
and corporate bonds.
On January 2, 1997, the Company completed the acquisition of Flagship
Resources Inc. ("Flagship") and its wholly owned subsidiaries, Flagship
Financial Inc., a registered investment adviser under the Investment Advisers
Act of 1940, and Flagship Funds Inc., a registered broker-dealer under the
Securities Exchange Act of 1934. At December 31, 1996, Flagship managed over
$4.2 billion in predominantly tax-exempt, open-end mutual funds and
approximately $400 million in managed accounts for individual investors. Upon
the completion of the acquisition, Flagship Financial Inc. became a wholly
owned subsidiary of the Company and changed its name to Nuveen Asset Management
Inc. NAM now is primarily responsible for providing private investment
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management services to individual and institutional managed accounts with both
balanced portfolios of equity and municipal securities and portfolios invested
exclusively in municipal securities. Flagship Funds Inc. was combined into the
Company's broker/dealer subsidiary.
On August 31, 1997 the Company completed the acquisition of Rittenhouse
Financial Services, a nationally known equity and balanced account manager.
Rittenhouse specializes in managing individual portfolios for high net worth
individuals. Rittenhouse's main products are equity and balanced portfolios
that seek attractive long-term capital appreciation with moderate risk through
investments primarily in quality, large capitalization companies. Rittenhouse
managed approximately $9 billion in assets at the acquisition date. It is
maintained as a separate wholly-owned subsidiary of the Company.
The Company was incorporated in the State of Delaware on March 23, 1992 as
a wholly-owned subsidiary of The St. Paul Companies, Inc. ("St. Paul"). Nuveen
& Co., the predecessor of the Company, had been a wholly-owned subsidiary of
St. Paul since 1974. During 1992, St. Paul sold in a public offering a portion
of its ownership interest in the Company. As of the date of this report, St.
Paul owned approximately 77% of the outstanding voting securities of the
Company.
The following series of tables including Assets Under Management, Gross
Sales of Investment Products, Redemptions, and Investment Advisory Fees,
provide detailed financial data which should be helpful in understanding the
Company's Investment Products businesses and should be referred to while
reading the separate product discussions which follow the tables.
ASSETS UNDER MANAGEMENT
The following table shows net assets managed by the Company at December 31
of each of the past three years including Managed Funds and Managed Accounts.
The Company does not include UITs under surveillance in net assets under
management since the trusts are not actively managed and do not generate on
going advisory fees.
NET ASSETS UNDER MANAGEMENT
(IN MILLIONS)
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Managed Funds
Mutual Funds -Tax-Free...................... $ 9,753 $ 5,434 $ 5,457
Mutual Funds -Taxable....................... 1,132 496 -
Exchange-Traded Funds - Tax-Free ........... 26,117 25,434 25,784
Money Market Funds - Tax-Free .............. 970 1,004 1,113
Managed Accounts.............................. 11,622 823 688
------- ------- -------
Total................................. $49,594 $33,191 $33,042
======= ======= =======
</TABLE>
Mutual Funds - Tax-Free reported in 1997 include $4.2 billion in assets
formerly managed by Flagship prior to its acquisition by the Company on January
2, 1997. Included in Managed Accounts at December 31, 1997 are approximately
$10 billion in assets managed by Rittenhouse.
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GROSS SALES OF INVESTMENT PRODUCTS
The following table summarizes gross sales data for the Company for the past
three years including UITs, Managed Funds and Managed Accounts.
GROSS SALES OF INVESTMENT PRODUCTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
UIT (par value):
Primary UITs - Tax-Free $ 555,743 $ 812,813 $ 943,829
.......................
Primary UITs - Taxable 82,352 - -
.......................
Secondary UITs......... 118,944 150,326 148,859
---------- ----------- -----------
Total................. $ 757,039 $ 963,139 $1,092,688
---------- ----------- -----------
Managed Funds:
Mutual Funds:
Tax-Free.............. $ 600,240 $ 154,159 $ 179,281
Taxable............... 350,377 494,533 -
---------- ----------- -----------
Total................ $ 950,617 $ 648,692 $ 179,281
---------- ----------- -----------
Exchange-Traded Funds.. $ 125,000 $ - $ -
---------- ----------- -----------
Total Managed Funds... $1,075,617 $ 648,692 $ 179,281
---------- ----------- -----------
Managed Accounts....... $1,192,904 $ 134,573 $ 346,010
---------- ----------- -----------
Total Gross Sales...... $3,025,560 $1,746,404 $1,617,979
========== =========== ===========
</TABLE>
Sales of Mutual Funds in 1997 reflect, in part, contributions from the
distribution and sales staff acquired by the Company from Flagship. Sales of
Taxable Mutual Funds in 1996 are exclusively those of the Nuveen Growth and
Income Stock Fund sold through a special offering to current Nuveen and
Flagship fund shareholders and to current Nuveen unit trust holders. Managed
Account sales in 1997 include four months of Rittenhouse activity.
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REDEMPTIONS
The following table summarizes redemptions for Managed Funds and Managed
Accounts for the past three years. Exchange-Traded Funds are traded on the
national securities exchanges and do not continually offer to sell or redeem
their shares and are therefore not included in this table. Redemptions of
Mutual Funds - Tax-Free during 1997 includes redemptions from both Nuveen and
former Flagship fund shareholders. The acquisition of Flagship in 1997
increased the Company's tax-free mutual fund assets under management by
approximately 74%.
<TABLE>
<CAPTION>
REDEMPTIONS
(IN THOUSANDS)
Year Ended December 31,
-------------------------------
1997 1996 1995
----------- -------- --------
<S> <C> <C> <C>
Managed Funds:
Mutual Funds - Tax-Free ....... $1,136,935 $644,071 $577,546
Mutual Funds - Taxable ........ 96,923 5,146 -
----------- -------- --------
Total......................... $1,233,858 $649,217 $577,546
----------- -------- --------
Managed Accounts................ $ 471,578 $ - $ -
----------- -------- --------
Total........................... $1,705,436 $649,217 $577,546
=========== ======== ========
</TABLE>
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INVESTMENT ADVISORY FEES
Management fees earned from assets managed by the Company for each of the
past three years including Mutual Funds, Exchange-Traded Funds and Managed
Accounts, are shown in the following table. UITs sold by the Company do not
generally produce ongoing advisory fees.
INVESTMENT ADVISORY FEES
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
Managed Funds:
Mutual Funds:
Management fees .......................... $ 51,562 $ 26,124 $ 24,809
Less: Reimbursed expenses ............... (5,753) (629) (897)
---------- ----------- -----------
Net management fees ..................... $ 45,809 $ 25,495 $ 23,912
---------- ----------- -----------
Exchange-Traded Funds:
Management fees .......................... $156,392 $155,172 $153,777
---------- ----------- -----------
Money Market Funds:
Management fees .......................... $ 4,317 $ 4,925 $ 5,359
Less: Reimbursed expenses ............... (516) (495) (336)
---------- ----------- -----------
Net management fees ..................... $ 3,801 $ 4,430 $ 5,023
---------- ----------- -----------
Total Managed Funds .................... $206,002 $185,097 $182,712
---------- ----------- -----------
Managed Accounts:
Advisory fees ............................. $ 15,633 $ 748 $ 423
---------- ----------- -----------
Total.................................... $221,635 $185,845 $183,135
========== =========== ===========
</TABLE>
THE NUVEEN MANAGED FUNDS
OVERVIEW
At December 31, 1997, approximately 77% of the Investment Products managed
by the Company were invested in portfolios of tax-exempt municipal bonds.
While the investment objectives of these Funds vary, each has a primary
investment objective to provide as high a level of current interest income
exempt from regular federal (and in some cases, state and local) income tax as
is consistent with preservation of capital. Each municipal bond Mutual Fund has
historically invested substantially all of its assets in a diversified portfolio
of municipal bonds which are rated within the four highest investment grades.
Taxable Mutual Funds include Funds which may invest in equity and other
taxable securities as well as tax-exempt securities. The Nuveen Growth and
Income Stock Fund, first introduced during 1996 seeks to provide over time a
superior return from a diversified portfolio consisting primarily of
under-valued equity securities with market capitalizations of at least $500
million. During 1997, the Company introduced and marketed two new taxable funds
including a balanced municipal bond and stock fund and a balanced stock and
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bond fund. Also early in 1998, the Company began marketing the Nuveen
Rittenhouse Growth Fund. This fund invests in a portfolio of equity securities
of U.S.-based large capitalization companies that have a history of consistent
earnings and dividend growth.
The Mutual Funds continually offer to sell and redeem their shares at
prices based on the daily net asset values of their portfolios. The Mutual
Funds are actively managed and include tax-free insured and uninsured
nationally-diversified and state-specific portfolios, growth and balanced
taxable portfolios, and several Money Market Funds. Money Market Funds are
tax-free Mutual Funds that invest solely in short-term, liquid and relatively
low-risk securities and seek to maintain a stable net asset value of $1 per
share.
The Exchange-Traded Funds invest exclusively in tax-free investment
portfolios which are also actively-managed; these funds, however do not
continually offer to sell and redeem their shares. Rather, daily liquidity is
provided by the ability to trade the shares of these funds on the national
securities exchanges, at a price that may be above or below the share's net
asset value. The Exchange-Traded Funds include insured and uninsured national
and single-state funds. Most of the Exchange-Traded Funds have a "leveraged"
capital structure; these funds issue MuniPreferred Stock that pay dividends at
rates based on short-term tax-free interest rates, while the capital raised by
the sale of the MuniPreferred Stock is invested by the funds in longer-term
municipal securities. So long as the return provided by these longer-term
investments, net of expenses, exceeds the current dividend rate on the
preferred stock, investors in the common stock of leveraged funds realize a
higher rate of return than if the fund were not leveraged. Leverage results,
however, in greater volatility of the net asset value of shares of common stock
of leveraged funds and possibly in their market value as well. In addition,
fluctuations in the preferred stock dividend rate will affect the return to
holders of common stock. To the extent that the dividend rate on the preferred
stock increases (e.g., in the event of a rise in short-term interest rates),
the income to fund dividends for common shareholders will be reduced. If the
preferred stock dividend rate were to exceed the rate of return on the
investment portfolio for an extended period, holders of common stock would
realize a lower rate of dividend return than if the fund were not leveraged.
The Exchange-Traded Funds also include a managed fund containing bonds
with intermediate effective maturity characteristics (the "Select Maturities
Fund"), and the Select Portfolios (the "Portfolios"), a series of investment
portfolios which are managed for stability of income and, unlike the other
Nuveen Exchange-Traded Funds, have a finite life and provide for a liquidating
distribution of assets to investors upon reaching a fixed termination date.
The common shares of most of the Exchange-Traded Funds are listed on the
New York Stock Exchange; the shares of the remaining Funds are listed on the
American Stock Exchange. The common shares of the Exchange-Traded Funds trade
in the open market at a price that is influenced by several factors including
supply and demand, net asset value and yield. Common shares of the
Exchange-Traded Funds may trade at a premium or a discount to net asset value.
During 1997 some Exchange-Traded Fund shares traded at a discount while others
traded at a premium to net asset value. Furthermore, some fund shares traded
at both premiums during certain periods of the year and at discounts during
other periods. The Board of Directors of each Exchange-Traded Fund has
determined that, at least annually, it will consider action that might be taken
to reduce or eliminate any sustained material discount to net asset value at
which such shares may be trading. This action may include the repurchase of
such shares in the open market or in private transactions, the making of a
tender offer for such shares at net asset value, or a proposal to the
shareholders to convert the Fund to an open-end investment company. The
consequence of any
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such action, if taken, could be a reduction in both the aggregate net assets of
the Exchange-Traded Funds and in the management fee paid by such Funds to NAC
or NIAC.
The Nuveen Funds include five Money Market Funds. These funds seek to
maintain a stable net asset value of $1.00 per share. Although under no legal
obligation to do so, in the past some money market fund managers, including the
Company, have voluntarily, and at their own expense, taken action to protect
the value of fund assets when portfolio bond credit or related financial
guarantees have deteriorated. These actions have included, in the case of
several money market fund sponsors, purchasing securities from the fund
portfolio at par, and in the case of the Company, arranging for supplemental
credit and liquidity enhancements in order to preserve the value of the fund's
investment. Although the Company is under no obligation to do so,
circumstances may arise in the future in which the Company may determine to
take similar action; such action could involve substantial expense to the
Company.
The Money Market Funds managed by the Company have obtained commitments
(each, a "Commitment") from MBIA Insurance Corporation ("MBIA") with respect to
certain designated bonds held by the Money Market Funds for which credit
support is furnished by banks ("Approved Banks") approved by MBIA under its
established credit approval standards. Under the terms of a Commitment, if
NAC were to determine that certain adverse circumstances relating to the
financial condition of an Approved Bank had occurred, it could cause MBIA to
issue a "while-in-fund" insurance policy covering the underlying bonds; after
time and subject to further terms and conditions, the adviser could obtain from
MBIA an "insured-to-maturity" insurance policy as to the covered bonds. Each
type of insurance policy would insure timely payment of interest on the bonds
and payment of principal at maturity. Although such insurance would not
guarantee the market value of the bonds or the value of the Money Market Funds'
shares, the Company believes that the ability to obtain insurance for such
bonds under such adverse circumstances would enable the Money Market Funds to
hold or dispose of such bonds at a price at or near their par value.
ADVISORY FEES
NAC and NIAC provide investment management services to the Funds and the
Portfolios, pursuant to investment management agreements, and receive fees
based on each Fund's average daily net assets or on a combination of the
average daily net assets and gross interest income. Institutional Capital
Corporation ("ICAP") performs portfolio management services on behalf of three
of the equity Mutual Funds pursuant to a sub-advisory agreement with NIAC.
Rittenhouse, a wholly-owned subsidiary of the Company, performs portfolio
management services for the Nuveen Rittenhouse Growth Fund pursuant to a
sub-advisory agreement with NIAC.
The Company's management fee schedules currently provide for maximum fees
ranging from .40 of 1% to .50 of 1% of net asset value annually in the case of
the Money Market Funds, .45 of 1% to .55 of 1% in the case of the tax-free
Mutual Funds and .50 of 1% to .85 of 1% in the case of the taxable Mutual
Funds. Maximum fees in the case of the Exchange-Traded Funds currently range
from .50 of 1% to .65 of 1%, except that with respect to the Portfolios, the
investment management agreements provide for annual management fees ranging
from .25 of 1% to .30 of 1%. In each case, the management fee schedules
provide for reductions in the fee rate at greater asset levels.
The Company pays ICAP, the sub-adviser for the Nuveen Growth and Income
Stock Fund and two balanced funds, a portfolio management fee for sub-advisory
services based on the aggregate amounts of assets in all funds they sub-advise
at a maximum rate of .35 of 1% of the average daily equity net assets of the
funds and a maximum fee of .20 of 1% with respect to the average daily balance
of any taxable fixed-income investments in the funds. These rates decline when
specified asset levels are reached.
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INVESTMENT MANAGEMENT AGREEMENTS
Each Fund has entered into an investment management agreement with NAC or
with NIAC (each, an "Adviser"). Although the specific terms of each such
agreement vary, the basic terms of the agreements are similar. Pursuant to the
agreements, the Adviser provides overall management services to each of the
Funds, subject to the supervision of each Fund's Board of Directors and in
accordance with each Fund's fundamental investment objectives and policies.
The investment management agreements are approved by Fund shareholders and
their continuance must be approved annually by the directors of the respective
Funds, including a majority of the directors who are not "interested persons"
of the Adviser, as defined in the Investment Company Act. Amendments to such
agreements typically must be approved by Fund shareholders. Each agreement
may be terminated without penalty by either party upon 60 days written notice,
and terminates automatically upon its assignment (as defined in the Investment
Company Act and the Investment Advisers Act). Such an "assignment" will take
place in the event of a change in control of the Adviser. Under the Investment
Company Act, a change in control of the Adviser would be deemed to occur in the
event of certain changes in the ownership of the Company's voting stock. The
termination of the investment management agreements for any reason could have a
material effect on the Company's business and results of operations.
Each Fund bears all expenses associated with its operation and the
issuance and, in the case of the Money Market and Mutual Funds, redemption of
its securities, except for the compensation of directors and officers of the
Fund who are employed by the Company and/or the Adviser. Some investment
management agreements provide that, to the extent certain enumerated expenses
exceed a specified percentage of a Fund's or a Portfolio's average net assets
for a given year, the Adviser will absorb such excess through a reduction in
the management fee and, if necessary, pay such expenses so that the
year-to-date net expense will not exceed the specified percentage. In
addition, the Company may waive all or a portion of its advisory fee to a Fund,
and reimburse expenses, for competitive reasons. During 1997, the expense
ratios specified under these arrangements ranged from .45% for certain of the
Money Market Funds, to .75% for certain of the tax-free long-term Mutual Funds,
to .975% for long-term tax-free Mutual Funds whose portfolio bonds are insured
by a third party insurer. Expense limits on the taxable mutual funds sponsored
by the Company range from .85% to 1.10% of the funds' average net assets. The
Company reimbursed expenses for Mutual Funds and Money Market Funds including
voluntary waivers aggregating to $6,269,000 during the year ended December 31,
1997. Although the Company expects to continue voluntary waivers in the future
in order for the Company's products to remain competitive in the market, it
does not expect such amounts will have a material effect on the results of its
operations.
PORTFOLIO MANAGEMENT AND RESEARCH
Each Adviser is responsible for the execution of the investment policy of
the various Funds it advises. Investment decisions for each Fund are made by
the portfolio manager responsible for such Fund. The Company has a very low
turnover rate for its portfolio managers, and the majority of the Company's
portfolio managers have devoted most of their professional careers to municipal
securities within the Nuveen organization, including experience in financial
analysis, research and surveillance, institutional and broker-dealer sales,
securities trading, and competitive and negotiated underwriting. To support
these managers, the Company maintains a municipal research department. The
Company's principal method of securities evaluation is through fundamental
research and valuation analysis.
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With respect to certain of the taxable Mutual Funds, the Company has
entered into sub-advisory agreements with ICAP, a Chicago based institutional
money manager, or with Rittenhouse to perform portfolio advisory services. ICAP
employs a value-oriented approach to selecting securities for the investment
portfolios. Investment decisions are made through a team approach, with all of
the ICAP investment professionals contributing to the process. A key element in
the decision making process is a formal investment committee meeting generally
held each business day and attended by all the investment professionals.
Investment recommendations are presented to the committee for decisions. These
meetings also provide for ongoing review of ICAP's investment positions. ICAP
has managed separate private accounts since 1971. Rittenhouse uses a
disciplined stock selection process that screens U.S. exchange listed stocks for
quality, liquidity and sustained growth potential. Only a small percentage of
stocks that pass these screens are purchased for the fund's portfolio.
Rittenhouse has been managing private accounts since 1983.
THE NUVEEN MANAGED ACCOUNTS
In addition to services provided to Mutual Funds, the Company, through its
wholly-owned subsidiaries NAM and Rittenhouse, also provides investment
management services for individuals and institutional accounts which the
Company refers to as Managed Accounts. At December 31, 1997, most of all such
assets under management were managed by Rittenhouse.
Through its Institutional Group, Private Client Group and Broker Sponsored
Group, Rittenhouse provides investment advisory services to individuals,
trusts, estates, charitable organizations, corporations, pension and profit
sharing plans, banks, thrifts and investment companies. Rittenhouse manages
accounts on a discretionary and non-discretionary basis.
Rittenhouse follows a growth stock strategy that centers on identifying
blue chip companies that are financially strong, global leaders and have
demonstrated consistent and predictable growth in earnings and dividends.
Services are provided to Managed Accounts pursuant to management contacts
with each of the individual accounts which may be customized to suit a
particular account. The Company generally receives fees based on the value of
the assets managed on a particular date such as the last calendar day of a
quarter.
UNIT INVESTMENT TRUSTS
OVERVIEW
The Company is a major sponsor of unit investment trusts. Each UIT
consists of a fixed portfolio of securities selected and purchased by the
Company and deposited in a trust. The trustee of the UITs is not affiliated
with the Company. Units of undivided beneficial interest in the portfolio of
securities are sold to investors at a price equal to the per unit market price
of the securities deposited in the trust plus a sales charge. UIT portfolios
are not actively traded; once the initial portfolio is deposited, securities
can be sold only for the purpose of raising cash to pay for units that have
been redeemed or sold pursuant to the Company's monitoring program; the
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proceeds of any securities sales must be distributed to unit holders. No new
securities may be added, and securities may be exchanged or substituted only
under extremely limited circumstances.
The Company created and introduced its first municipal bond UIT in 1961,
and since that date has deposited and sold units of more than 4,685 different
trusts with an aggregate principal value of approximately $37.3 billion. The
Company sponsors nationally diversified and single-state trusts, uninsured
trusts, trusts whose portfolio bonds are insured by a third party insurer, and
trusts of varying average portfolio maturities. At December 31, 1997, the
Company had approximately 3,400 trusts outstanding with an aggregate market
value exceeding $12 billion.
In May of 1997, the Company expanded its trust product line to include
taxable unit investment trusts. The Company presently offers units in series
of an equity trust, corporate debt trust and treasury securities trust. The
currently offered equity trust uses a model developed with the assistance and
expertise of Standard and Poor's that seeks to select a portfolio of common
stocks of companies with the potential for above average capital appreciation
with a moderated level of risk as compared to the S&P 500. The corporate debt
trust invests in a portfolio consisting primarily of investment grade corporate
debt obligations and zero coupon U.S. Treasury Obligations. The treasury
trusts invest a portfolio of U.S. Treasury Obligations that are backed by the
full faith and credit of the United States Government. In addition, these
trusts pass through to unitholders the exemption from state and local income
taxes afforded to direct owners of U.S. Treasury Obligations.
UIT REVENUES
The following table shows the Company's UIT revenues during each of the
last three years:
<TABLE>
<CAPTION>
UIT REVENUES
(IN THOUSANDS)
Year Ended December 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Distribution revenues:
Primary UITs-Tax-free..................... $7,192 $10,740 $12,633
Primary UITs-Taxable...................... 496 - -
Secondary UITs ........................... 1,701 2,010 1,565
-------- -------- --------
Total................................... $9,389 $12,750 $14,198
======== ======== ========
</TABLE>
Units of the Company's UITs are sold to the public with a sales charge.
The Company's UIT revenues include the sales charge, less an applicable
concession to dealers for the placement of UIT units based on the public
offering price of the units sold. For certain equity trusts, the Company
receives a deferred sales charge over the ten month period following the
initial sale date.
The Company realizes profits or incurs losses to the extent that the
market price of securities deposited in a trust exceeds or is less than the
original cost of the securities to the Company. After the date of deposit, the
Company is the holder of all of the units of the particular trust series and
will realize profit or incur loss depending on whether the public offering
price of units increases or decreases before the units are sold. In connection
with the accumulation of bonds for deposit into newly created tax-free UITs,
the Company attempts to manage its exposure to interest rate
10
<PAGE> 12
fluctuations by, among other practices, coordinating inventory levels to the
rate of sale of various types of trusts and hedging through the use of futures
contracts.
MARKET MAKING
The Company maintains a secondary market in units of the UITs that it
sponsors, buying units at a price equal to their redemption value (equal to the
per unit "bid" side market price of the bonds in the trust) and selling them to
other dealers and financial intermediaries at a price equal to the per unit
"bid" side market price of the bonds in the trust plus a sales charge less a
dealer concession. The Company, like any other unitholder, can also tender
units it holds to the UIT trustee for redemption at their redemption value.
MARKETING AND DISTRIBUTION OF INVESTMENT PRODUCTS
DISTRIBUTION
The Company markets its investment products through registered
representatives ("Registered Representatives") associated with unaffiliated
national and regional broker-dealers, commercial banks and thrifts,
broker-dealer affiliates of insurance agencies and independent insurance
dealers, and financial planners, accountants, tax consultants and advisers
associated with registered broker-dealer firms ("Retail Distribution Firms").
The Company's distribution strategy is to maximize the liquidity and
distribution potential of its investment products by maintaining strong
relationships with a broad array of Registered Representatives. The Company
has well-established relationships with Registered Representatives in Retail
Distribution Firms throughout the country. Revenue associated with
relationships at any single Retail Distribution Firm did not account for as
much as 5% of the Company's consolidated revenues in 1997.
The Company currently has relationships with more than 100,000 Registered
Representatives at almost 4,000 Retail Distribution Firms. These Registered
Representatives participate in the Company's marketing programs to different
degrees, depending upon: their interests in distributing investments provided
by the Company; their perception of the relative attractiveness of the Nuveen
Funds and UITs; the profiles of their customers and their clients' needs; and
the conditions prevalent in financial markets. Registered Representatives may
reduce or eliminate involvement in any Nuveen marketing activity at any time,
or may elect to emphasize the investment products of competing sponsors, or the
proprietary products of their own firm. Registered Representatives may receive
compensation incentives to sell their firm's investment products or may choose
to recommend to their customers investment products sponsored by firms other
than the Company based on such considerations as investment performance, types
and amount of distribution compensation, sales assistance and administrative
service payments and level and quality of customer service. In addition, the
ability of Registered Representatives to distribute the Company's Mutual Funds
is subject to the continuation of a selling agreement between their firm and
the Company that is terminable by either party upon 60 days notice and does not
obligate the Retail Distribution Firm to sell any specific amount of Funds.
The Company currently has such selling agreements related to the Mutual Funds
with over 2,000 Retail Distribution Firms.
Shares of the Money Market Funds are sold to the public without sales
charges. However, each Money Market Fund (except the Nuveen Tax-Exempt Money
Market Fund, which is marketed primarily to institutions) has a plan adopted in
accordance with Rule 12b-1 under the Investment Company Act (each, a "Plan")
pursuant to which distributors of the Fund's shares are compensated for costs
associated with distribution and administrative services they perform. For the
year ended
11
<PAGE> 13
December 31, 1997, approximately $620,000 in Plan fees were paid to
distributors of the Money Market Funds. Slightly more than half of such amount
was paid by the Company and the remainder was paid by the Money Market Funds.
All of the long-term Mutual Funds have adopted a Flexible Sales Charge
Program which provides investors with alternative ways of purchasing Fund
shares based upon their individual needs and preferences. Class A shares may
be purchased at a price equal to the Fund's net asset value plus an up-front
sales charge which is calculated as a percentage of the public offering price.
At the maximum sales charge level, approximately 90% to 95% of the sales charge
is typically reallowed as concessions to Retail Distribution Firms. From time
to time, the Company may reallow all of the sales charge to Retail Distribution
Firms or waive the sales charge and advance a sales commission to such Firms in
connection with marketing programs or special promotions. Additionally,
purchases of Class A shares which equal or exceed $1 million may be made
without an up-front sales charge, but are subject to a Contingent Deferred
Sales Charge of 1% for shares redeemed within 18 months. In order to compensate
Retail Distribution Firms for Class A share sales which are $1 million or
greater, the Company advances a 1% sales commission at the time of sale. Class
A shares are also subject to an annual Rule 12b-1 service fee, which is used to
compensate securities dealers for providing ongoing financial advice and other
services. Class B shares may be purchased at a price equal to the Fund's net
asset value without an up-front sales charge. Class B shares are subject to an
annual Rule 12b-1 distribution fee to compensate the Company for costs incurred
in connection with the sale of such shares, an annual Rule 12b-1 service fee
for the ongoing services of securities dealers and a Contingent Deferred Sales
Charge, ranging from 5% to 1%, for shares redeemed within a period of 6 years.
The Company compensates Retail Distribution Firms for sales of Class B shares
at the time of sale at the rate of 4% of the amount of Class B shares sold,
which represents a sales commission plus an advance of the first year's annual
Rule 12b-1 service fee. Class C shares may be purchased without any up-front
sales charges at a price equal to the Fund's net asset value but are subject to
an annual Rule 12b-1 distribution fee designed to compensate securities dealers
over time for the sale of the Fund shares, an annual Rule 12b-1 service fee
used to compensate securities dealers for providing continuing financial advice
and other services and a 1% Contingent Deferred Sales Charge for shares
redeemed within 12 months of purchase. In addition, the Company advances a 1%
sales commission to Retail Distribution Firms at the time of sale and in
return, receives the first year's Rule 12b-1 distribution fee and Rule 12b-1
service fee. Class R shares are available for purchase at a price equal to the
Fund's net asset value only under certain limited circumstances.
Common Shares of the Exchange-Traded Funds are sold to the public in
offerings that are underwritten by a syndication group. During the year ended
December 31, 1997 no such offerings were made. However, one Exchange-Traded
Fund did issue $125 million of MuniPreferred Stock during 1997.
Services are provided to Managed Accounts pursuant to management contacts
with each of the individual accounts which may be customized to suit a
particular account. The Company generally receives fees based on the value of
the assets managed on a particular date such as the last calendar day of a
quarter.
The typical sales charge for Nuveen UITs range from 1.75% to 4.9% of the
public offering price (1.78% to 5.15% of the net amount invested), with reduced
sales charges at various sales breakpoints. At the maximum sales charge level,
the dealer concession ranges from $1.00 to $3.20 per unit (a unit represents
$100 par value of bonds in a fixed-income trust and a $10 par value of bonds in
an equity trust). The sales charges for UITs in the secondary market are
established based on the number of years remaining to maturity for each bond in
the UIT.
The market for the sale of unit investment trusts is relatively
concentrated, with only a few sponsors accounting for a majority of total
sales. Based upon the information available, the Company believes it has been
one of the market share leaders in tax-free unit investment trust sales in each
of the last three years. During 1997, the Company entered the taxable unit
investment trust
12
<PAGE> 14
market and believes that its sales of taxable unit investment trusts accounted
for less than a 5% share of this market based on the information available.
The markets for mutual funds and money market funds are highly competitive,
with many participating sponsors. Based upon the information available, the
Company believes that it had less than a 5% share of the market with respect to
net sales of mutual funds and money market funds in each of the last three
years.
RELATIONS WITH DISTRIBUTORS
The Company employs approximately 170 wholesalers and sales assistants who
are supported by the Company's marketing department. Wholesalers work closely
with individual Registered Representatives to develop their businesses. The
Company's wholesalers regularly visit distributors of the Company's Investment
Products to provide product information, explain new products and discuss ideas
to respond to particular investor concerns. The Company provides individual
Registered Representatives with daily prices, weekly, monthly and quarterly
sales bulletins, monthly product statistical and performance updates, product
education programs and training seminars, and promotional programs coordinated
with its advertising campaigns. In addition, the Company regularly coordinates
its marketing and promotional efforts with individual Registered
Representatives.
ADVERTISING AND PRODUCT PROMOTION
To generate investor and Registered Representative interest and
understanding of its Investment Products, the Company augments its marketing
efforts through magazine and newspaper advertising, targeted direct mail and
telemarketing sales programs and sponsorship of certain sports and civic
activities. For the year ended December 31, 1997, the Company expended $18.9
million on advertising and promotional efforts.
INVESTMENT BANKING
Nuveen & Co. underwrites and distributes municipal and corporate bonds,
trades bonds in the secondary market and serves as remarketing agent for
variable rate bonds. The majority of its underwritings are for governmental
and not-for-profit entities and substantially all of its sales are to
institutional investors including casualty insurance companies, managed
municipal bond funds, sponsors of unit investment trusts (including the
Company), bank portfolios, trust departments and other dealers. The
constituent departments of Investment Banking responsible for these activities
include Municipal Finance, Corporate Finance, Trading and Commitments, and
Institutional Sales. Both Corporate and Municipal Finance furnished
underwriting and/or strategic financial advisory services to health care
corporations. In addition, Investment Banking may, on occasion, act as
financial adviser and/or broker to municipal or other not-for-profit issuers
with respect to transactions in interest rate swaps, forward transactions or
other investment agreements.
The principal sources of revenue of Investment Banking include
underwriting profits and management fees derived from negotiated and
competitive bond underwritings, financial advisory fees, remarketing agent
fees, and profits from other principal transactions including secondary market
trading and furnishing investment securities to investment banking clients
incidental to their bond financing transactions.
Revenues from the underwriting of municipal securities and fees from
financial advisory and remarketing activities are set forth in the following
table for each of the last three years:
13
<PAGE> 15
<TABLE>
<CAPTION>
INVESTMENT BANKING REVENUES
(IN THOUSANDS)
Year Ended December 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Underwriting Revenues........ $ 7,229 $ 5,154 $ 5,489
Merger and Acquisition and Other
Financial Advisory Fees..... 4,206 4,318 3,383
Remarketing Fees............. 1,974 1,626 1,462
-------- -------- --------
Total........................ $13,409 $11,098 $10,334
======== ======== ========
</TABLE>
The Company is remarketing agent with respect to approximately 100 issues
of Variable Rate Demand Obligations ("VRDOs") representing an aggregate
principal value in excess of $1.8 billion. VRDOs are municipal bonds issued
with a longer term (typically 20-30 year) maturity, having variable rates of
interest and options granted to the holders to put the obligations to the
issuers on seven days notice and receive payments of the full principal
amounts. These obligations to pay are secured by letters of credit typically
issued by commercial banks. Periodically the remarketing agents, pursuant to
agreements with the issuers, reset the interest rates at a level that the
remarketing agent anticipates will permit them, as agents, to remarket at par
any VRDOs with respect to which a notice of put has been received. Although
remarketing agents, including the Company, generally are only obligated to use
their best efforts in locating purchasers for the VRDOs, they frequently
purchase VRDOs for resale to other buyers within a few days. During the period
that the Company holds any VRDOs, it has, like any holder, the unconditional
right secured by the letter of credit to put the obligation to the issuer and
receive payment of the full principal amount. During temporary periods of
imbalance between supply and demand for VRDOs, the Company may hold substantial
amounts of such obligations for resale. The Company has come to expect such
imbalances at year-end and, to a lesser extent, at each calendar quarter-end.
INVENTORY POSITIONS
The Company regularly purchases and holds for resale municipal securities
and UIT units. Inventory positions are recorded at market value and unrealized
gains and losses are reported in the Company's operating results. The level of
inventory maintained by the Company will fluctuate daily and is dependent upon
the need to maintain municipal inventory for future UITs, and the need to
maintain UIT inventory to support ongoing sales.
14
<PAGE> 16
The market value of the Company's inventory at December 31 for each of the
last three years and the average daily inventory balances outstanding during
each year are set forth below:
<TABLE>
<CAPTION>
INVENTORY
(IN THOUSANDS)
Average Daily Inventory
Inventory, at market value (par value)
on December 31, for year ended December 31,
------------------------------- -------------------------------
1997 1996 1995 1997 1996 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Nuveen UITs............... $31,926 $39,206 $39,069 $35,253 $43,121 $47,945
========= ========= ========= ========= ========= =========
Municipal securities
Held for:
Deposit in UITs ........ $ 30 $ - $ 1,000 $ 2,776 $ 4,597 $ 6,036
Resale.................. 542 4,553 11,308 2,086 3,202 2,924
--------- --------- --------- --------- --------- ---------
Total Municipal securities $ 572 $ 4,553 $12,308 $ 4,862 $ 7,799 $ 8,960
========= ========= ========= ========= ========= =========
</TABLE>
EMPLOYEES
At December 31, 1997, the Company had 647 full-time employees including
Rittenhouse. Employees are compensated with a combination of salary, cash
bonus and fringe benefits. In addition, the Company has sought to retain its
key and senior employees through competitive compensation arrangements which
include equity based incentive awards.
COMPETITION
The Company is subject to substantial competition in all aspects of its
business. The Registered Representatives that distribute the Company's
Investment Products also distribute numerous competing products, often
including products sponsored by the Retail Distribution Firms where they are
employed. In recent years, competition among securities firms has adversely
affected the profitability associated with the underwriting of municipal
securities. There are relatively few barriers to entry by new investment
management firms. Investment products are sold to the public by broker-dealers,
banks, insurance companies and others, and many competing investment product
sponsors offer a broader array of investment products. Many of these
institutions have substantially greater resources than the Company. The
Company competes with other providers of products primarily on the basis of the
range of products offered, the investment performance of such products, quality
of service, fees charged, the level and type of broker compensation, the manner
in which such products are marketed and distributed, and the services provided
to investors.
15
<PAGE> 17
REGULATION
Nuveen & Co. is registered as a broker-dealer under the Securities
Exchange Act of 1934 and is subject to regulation by the Securities and
Exchange Commission (the "Commission"), the NASD Regulation, Inc., the
Municipal Securities Rulemaking Board and other federal and state agencies and
self-regulatory organizations. Nuveen & Co. is subject to the Commission's
Uniform Net Capital Rule, designed to enforce minimum standards regarding the
general financial condition and liquidity of a broker-dealer. Under certain
circumstances, this rule may limit the ability of the Company to make
withdrawals of capital and receive dividends from Nuveen & Co. Nuveen & Co.'s
regulatory net capital has consistently exceeded such minimum net capital
requirements. At December 31, 1997, Nuveen & Co. had aggregate net capital, as
defined, of approximately $31 million, which exceeded the regulatory minimum by
approximately $28 million. The securities industry is one of the most highly
regulated in the United States, and failure to comply with related laws and
regulations can result in the revocation of broker-dealer licenses, the
imposition of censures or fines and the suspension or expulsion from the
securities business of a firm, its officers or employees.
Each Adviser is registered with the Commission under the Investment
Advisers Act. Each Fund and UIT is registered with the Commission under the
Investment Company Act and each national Fund is qualified for sale (or not
required to be so qualified) in all states in the United States and the
District of Columbia; each single-state Fund is qualified for sale (or not
required to be so qualified) in the state for which it is named and other
designated states. Virtually all aspects of the Company's investment
management business are subject to various federal and state laws and
regulations. These laws and regulations are primarily intended to benefit the
investment product holder and generally grant supervisory agencies and bodies
broad administrative powers, including the power to limit or restrict the
Company from carrying on its investment management business in the event that
it fails to comply with such laws and regulations. In such event, the possible
sanctions which may be imposed include the suspension of individual employees,
limitations on the Company's engaging in the investment management business for
specified periods of time, the revocation of the Advisers' registrations as
investment advisers or other censures and fines.
The Company's officers, directors, and employees may, from time to time,
own securities which are also held by one or more of the Funds. The Company's
internal policies with respect to individual investments require prior
clearance of all transactions in municipal securities, securities of
Exchange-Traded Funds and securities of the Company, and reporting of all
securities transactions, and restrict certain transactions so as to avoid the
possibility of conflicts of interest. Additionally, employees of Rittenhouse
are subject to their own internal policies with respect to the pre-clearance of
the purchase or sale of securities held in adviser accounts.
ITEM 2. PROPERTIES
The Company, which is headquartered in Chicago, conducts its principal
operations through leased offices located there and in other United States
cities. The Company leases approximately 231,000 square feet of office space
across the country. Management believes that the Company's facilities are
adequate to serve its currently anticipated business needs.
16
<PAGE> 18
ITEM 3. LEGAL PROCEEDINGS
As previously reported most recently in the Form 10-Q for the quarter
ending September 30, 1997, a lawsuit brought in June, 1996 by certain
shareholders is currently pending in federal district court for the Northern
District of Illinois against Nuveen & Co., Nuveen Advisory, six Nuveen
investment companies and two of the Funds' former directors seeking unspecified
damages, an injunction and other relief. The suit also seeks certification of
a defendant class consisting of all Nuveen-managed leveraged funds. The
complaint is filed on behalf of a purported class of present and former
shareholders of all Nuveen leveraged investment companies, including the Funds,
which allegedly engaged in certain practices which plaintiffs allege violated
various provisions of the Investment Company Act of 1940 and common law.
Plaintiffs allege among other things, breaches of fiduciary duty and various
misrepresentations and omissions in disclosures in connection with the use and
maintenance of leverage through the issuance and periodic auctioning of
preferred stock and the payment of management and brokerage fees to Nuveen
Advisory and Nuveen & Co. The defendants are vigorously contesting this action
and have filed motions to dismiss the entire action which are pending.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the quarter
ended December 31, 1997.
EXECUTIVE OFFICERS AND OTHER KEY OFFICERS OF THE REGISTRANT
The names, ages and positions of the executive officers and other key
officers of the Company as of December 31, 1997 are set forth below. Executive
officers and other key officers of the Company serve at the discretion of the
Board of Directors. Unless otherwise indicated in the following descriptions,
each of the following executive officers and other key officers have held his
current position with the Company or its predecessor for more than the past
five years.
Executive Officers Age Principal Position
- ------------------ --- ------------------
Timothy R. Schwertfeger 48 Chairman, Chief Executive Officer and Director
Anthony T. Dean 52 President, Chief Operating Officer and Director
John P. Amboian 36 Executive Vice President, Chief Financial
Officer and Secretary
Bruce P. Bedford 57 Executive Vice President
Other Key Officers
- ------------------
Alan G. Berkshire 37 Vice President and General Counsel
O. Walter Renfftlen 58 Vice President and Controller
All executive officers and other key officers of the Company are elected
for a one-year term. There are no family relationships between any of the
Registrant's executive officers, key
17
<PAGE> 19
officers and directors, and there are no arrangements or understandings between
any of these executive officers and/or key officers and any other persons
pursuant to which the executive officer or key officer was selected.
Descriptions of the business experience for the past five years of Messrs.
Schwertfeger, Dean and Amboian appear on page 6 of the Registrant's Proxy
Statement relating to the annual meeting of shareholders to be held on May 7,
1998 (the "1998 Proxy Statement") and are incorporated herein by reference.
Mr. Bedford has been Executive Vice President of the Company since
February 1997; prior thereto Chairman, Chief Executive Officer and Director of
Flagship Resources, Inc., Flagship Funds, Inc., Flagship Financial Inc. and the
Flagship funds from October 1984 until December 1996.
Mr. Berkshire has been Vice President and General Counsel of the Company
since 1997. He joined Nuveen & Co. in September 1997 as Vice President and
General Counsel. Prior thereto he was a Partner at the law firm of Kirkland &
Ellis since October 1992.
Mr. Renfftlen has been Vice President and Controller of the Company since
inception, and of Nuveen & Co. since he joined the firm in 1975. He has also
served as Vice President and Controller of Nuveen Advisory, each of the Nuveen
Funds, and Nuveen Institutional Advisory since their inception. Mr. Renfftlen
is a Certified Public Accountant.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
18
<PAGE> 20
Information required by this item is contained in footnote 11 on page 27
and 28 of the Registrant's 1997 Annual Report to Shareholders (the "1997 Annual
Report") and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The "Five Year Financial Summary" section on page 30 of the 1997 Annual
Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section on pages 10 through 15 of the 1997 Annual Report
is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data on pages 16 through 28 of
the 1997 Annual Report are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The "Nominees for Directors" subsection and the "Nominees for Class B
Directors" subsection in the "Election of Directors" section on pages 5 through
7 of the 1998 Proxy Statement and the "Compliance with section 16(a) of the
Securities Exchange Act of 1934" subsection of the Beneficial Ownership of
Common Stock" section on pages 4 and 5 of the 1998 Proxy Statement, are
incorporated herein by reference. Information regarding the Registrant's
executive officers is included in this Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
The "Executive Compensation", "Retirement Plans" and "Employment
Agreements" sections on pages 10 through 13, and the "Compensation of
Directors" subsection in the "Election of Directors" section on page 9 of the
Proxy Statement are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
19
<PAGE> 21
The "Beneficial Ownership of the Company's Stock" section on pages 2
through 4 of the 1998 Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company entered into an Employment Agreement with George Connell, who
serves as Chief Investment Officer of the Company's wholly-owned subsidiary,
Rittenhouse Financial Services, Inc., in connection with the acquisition of the
stock of Rittenhouse from Mr. Connell. The term of the Employment Agreement
continues until December 31, 2002 and the Agreement provides for Mr. Connell to
receive from Rittenhouse an annual base salary of $500,000 during the term of
the Agreement and to participate in such insurance programs and other fringe
benefits as are available to senior management employees of Rittenhouse. Mr.
Connell is the owner of 500,000 shares of the Company's Class A Common Stock,
representing 6.8% of the outstanding shares of such class, according to a
Schedule 13G filed by Mr. Connell in February, 1998. These shares were
acquired in open market transactions.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) FILED DOCUMENTS. The following documents are filed as part of this
report:
Page
1. Financial Statements: Number
--------------------- ------
Consolidated Balance Sheets - December 31, 1997 and 1996 *
Consolidated Statements of Income - Years ended
December 31, 1997, 1996 and 1995 *
Consolidated Statement of Changes in Stockholders' Equity -
December 31, 1997, 1996 and 1995 *
Consolidated Statements of Cash Flows - Years ended
December 31, 1997, 1996 and 1995 *
Notes to Consolidated Financial Statements *
----------------------
* Incorporated by reference to the 1997 Annual Report, which,
except as specifically incorporated by reference in this Form 10-K,
shall not be deemed to be filed with the Commission.
2. Financial Statement Schedules: None
All schedules are omitted because they are not required, are not
applicable or the information is otherwise shown in the financial statements or
notes thereto.
20
<PAGE> 22
3. Exhibits:
See Exhibit Index on pages E-1 through E-4 hereof.
The following management contracts and compensatory plans and
arrangements have previously been filed as Exhibits 10.1 through 10.3,
10.6 and 10.7 to the Company's 1992 Form 10-K filed on March 30, 1993
and are incorporated herein by reference:
Nuveen 1992 Special Incentive Plan
Form of Employment Agreement with Executive Officers
Annual Cash Bonus Plan
Excess Benefit Retirement Plan
Deferred Bonus Plan
The following management contracts and compensatory plans and
arrangements have previously been filed as Exhibits 10.4 and 10.5 to the
Company's 1995 Form 10-K filed on March 29, 1996 and are incorporated
herein by reference:
Employees' Profit Sharing Plan
Employees' Retirement Plan
The following management contracts and compensatory plans and
arrangements have previously been filed as Exhibits 10.3(a), 10.4,
10.10(a) and 10.10(b) to the Company's 1996 Form 10-K filed on March 31,
1997 and are incorporated herein by reference:
Nuveen Executive Officer Performance Plan
Amended and Restated Employee Profit Sharing Plan
Management Agreement between Nuveen Investment Trust and NIAC
Investment Sub-Advisory Agreement
(b) REPORTS ON FORM 8-K.
None
21
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 26, 1998.
THE JOHN NUVEEN COMPANY
By /s/ John P. Amboian
-------------------------------
John P. Amboian
Executive Vice President, Chief
Financial Officer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 26, 1998.
Signature Title
--------- -----
*
- -------------------------------------- Chairman, Chief Executive Officer and
Timothy R. Schwertfeger Director (Principal Executive Officer)
*
- -------------------------------------- President, Chief Operating Officer and
Anthony T. Dean Director
*
- -------------------------------------- Director
Willard L. Boyd
*
- -------------------------------------- Director
W. John Driscoll
22
<PAGE> 24
*
- -------------------------------------- Director
Duane R. Kullberg
*
- -------------------------------------- Director
Douglas W. Leatherdale
*
- -------------------------------------- Director
Paul J. Liska
*
- -------------------------------------- Director
Patrick A. Thiele
/s/ O. Walter Renfftlen Vice President and Controller
- -------------------------------------- (Principal Accounting Officer)
O. Walter Renfftlen
*By /s/ John P. Amboian
- ---------------------------
John P. Amboian
As Attorney-in-Fact for each
of the persons indicated
23
<PAGE> 25
EXHIBIT INDEX
to
ANNUAL REPORT ON FORM 10-K
for the
FISCAL YEAR ENDED DECEMBER 31, 1997
Copies of the documents listed below which are identified with an asterisk (*)
have heretofore been filed with the Commission as exhibits to registration
statements or reports filed with the Commission and are incorporated herein by
reference and made a part hereof; the exhibit number and location of each
document so filed and incorporated herein by reference are set forth opposite
each such exhibit. Exhibits not so identified are filed herewith.
<TABLE>
<CAPTION>
Page No. of
Exhibit in
Sequential
Exhibit Exhibit No. Numbering
Designation Exhibit and Location System
- ----------- ------- ------------ -----------
<S> <C> <C> <C>
*3.1 Restated Certificate Exhibit 3.1 to
of Incorporation of Registration
The John Nuveen Statement on Form S-1
Company filed on April 2,
1992, File No.
33-46922 (the "S-1
Registration
Statement")
*3.2 Amended and Restated Exhibit 3.2 to the
By-Laws of The John Company's Form 10-K
Nuveen Company for year ended
December 31, 1993
filed on March 29,
1994 (the "1993 Form
10-K")
*10.1 Nuveen 1992 Special Exhibit 10.1 to
Incentive Plan Company's Form 10-K
for the year ended
December 31, 1992
filed on March 30,
1993 (the "1992 Form
10-K")
*10.1(a) Nuveen 1996 Equity Exhibit 4.2 to
Incentive Award Plan Company's Form S-8
filed on July 10,
1996
10.2(a) Form of Employment --
Agreement with Bruce
P. Bedford
</TABLE>
<PAGE> 26
<TABLE>
<S> <C> <C>
*10.3(a) Executive Officer Exhibit 10.3(a) to the
Performance Plan Company's Form 10-K
for the year ended
December 31, 1996
filed on March 31,
1997 (the "1996
Form 10-K")
*10.4 Amended and Restated Exhibit 10.4 to
Profit Sharing Plan Company's 1996 Form
10-K
*10.5 Amended and Exhibit 10.5 to
Restated Retirement 1994 Form 10-K
Plan
*10.6 Excess Benefit Exhibit 10.6 to the
Retirement Plan S-1 Registration
Statement
*10.7 Deferred Bonus Plan Exhibit 10.7 to the
S-1 Registration
Statement
*10.8(a) Lease dated August Exhibit 10.8 to the
10, 1984 between S-1 Registration
333 Wacker Drive Statement
Venture and John
Nuveen & Co.
Incorporated, as
amended
*10.8(b) Amendment dated Exhibit 10.8(b) to
January 1, 1993 to 1992 Form 10-K
lease between 333
Wacker Drive Venture
and John Nuveen & Co.,
Incorporated
**10.9 Investment Management Exhibit 10.9 to Pre-
Agreements between effective Amendment No.
Nuveen Advisory Corp. 1 and Exhibits 10.9 to
and each Nuveen Fund both the 1992 and 1993
Forms 10-K
</TABLE>
<PAGE> 27
<TABLE>
<S> <C> <C>
**10.10 Investment Managemnt Exhibit 10.10 to
Agreement between Pre-effective
Nuveen Institutional Amendment No. 1 and
Advisory Corp. and Exhibits 10.10 to
each Nuveen Select both the 1992 and
Tax-Free Income 1993 Forms 10-K
Portfolio
*10.10(a) Management Agreeement Exhibit 10.10(a) to
between Nuveen the 1996 Form 10-K
Investment Trust and
Nuveen Institutional
Advisory Corp.
*10.10(b) Investment Sub-Advisory Exhibit 10.10(b) to
Agreement the 1996 Form 10-K
between Nuveen
Institutional Advisory
Corp. and Institutional
Capital Corporation
10.10(c) Management Agreement --
between Nuveen
Investment Trust II and
Nuveen Institutional
Advisory Corp.
10.10(d) Investment Sub-Advisory --
Agreement between
Nuveen Institutional
Advisory Corp. and
Rittenhouse
Financial Services, Inc.
*10.11(a) Joint Venture Advisory Exhibit 10.11(a) to
and Administration 1995 Form 10-K
Agreement dated
September 29, 1995
between Nuveen
Institutional Advisory
Corp. and C.H. Dean &
Associates, Inc.
*10.12 Tax Sharing Exhibit 10.13 to
Agreement between S-1 Registration
The St. Paul Companies Statement
Inc. and John Nuveen &
Co. Incorporated
*10.13 Registration Rights Exhibit 10.13 to
Agreement between 1992 Form 10-K
The John Nuveen
Company and The St.
Paul Companies, Inc.
</TABLE>
<PAGE> 28
<TABLE>
<S> <C> <C>
*10.14 Indemnity Agreement Exhibit 10.14 to
between The St. Paul 1992 Form 10-K
Companies, Inc. and
The John Nuveen Company
10.15 Credit Agreement --
between The John Nuveen
Company and The First
National Bank of Chicago
13 Annual Report to --
Shareholders for the
fiscal year ended
December 31, 1997
21 List of Subsidiaries --
of The John Nuveen
Company
23 Consent of Independent --
Auditor
24.1 Powers of Attorney --
24.2 Certified Copy of --
Resolutions of Board
of Directors
Authorizing Signatures
27 Financial Data Schedule --
</TABLE>
* Previously filed; incorporated herein by reference.
** Previously filed, other than Form of Renewal of Investment Management
Agreement,
which are filed herewith.
<PAGE> 1
EXHIBIT 10.2(a)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the 16th
day of July, 1996, by and between Bruce P. Bedford, an individual (the
"Executive") and The John Nuveen Company ("JNC"), a Delaware corporation.
WHEREAS, JNC is engaged in the business of providing investment management
and advisory services; and
WHEREAS, JNC has entered into an Agreement and Plan of Merger dated as of
the same day hereof (the "Merger Agreement") with certain selling shareholders
of Flagship Resources Inc. ("Flagship") and others including the Executive; and
WHEREAS, the Executive is currently an executive of Flagship and Executive
and JNC wish Executive to become an employee of JNC following the date on which
the merger contemplated by the Merger Agreement is consummated (such date of
consummation being hereinafter referred to as the "Effective Date"); and
WHEREAS, the parties desire to set forth the terms and conditions under
which the Executive shall be employed by JNC and upon which JNC shall
compensate the Executive following the Effective Date.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
promises and agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
JNC and the Executive agree as follows:
ARTICLE I.
EMPLOYMENT
1.1 Office. Subject to terms hereof, JNC shall employ the Executive, and
the Executive shall serve JNC, as Executive Vice President and Director of
Product Management, on and after the Effective Date.
1.2 Responsibilities. The Executive shall serve as Executive Vice
President and Director of Product Management of
<PAGE> 2
JNC, subject to the direction of JNC's Chief Executive Officer. The
Executive's responsibilities will include, among other things, responsibility
for executive oversight of the municipal mutual fund businesses of JNC and
Flagship, participation in integration activities of such businesses,
responsibility for business, product and service planning for the combined
municipal mutual fund business, participation in the long-term planning and
strategic direction of JNC, including serving on JNC's Management Committee,
and presiding as president of the combined municipal mutual funds. The
Executive's responsibilities may be enhanced with Executive's consent, but
shall not be diminished. The Executive shall at all times be under the
supervision, control and direction of JNC, and shall fulfill his
responsibilities hereunder in accordance with, and shall adhere to, such rules,
policies, guidelines and instructions as may be adopted from time to time by
JNC and generally applicable to similarly situated employees of JNC. The
Executive shall be notified of, and shall have a right to express his views in
respect of, any expenditures or policies relating to the Municipal Mutual Fund
and Managed Account Business (as defined in the Merger Agreement) prior to
their being made or implemented by JNC which would reasonably be expected to
materially reduce the amount of Contingent Consideration (as defined in the
Merger Agreement) that is then reasonably expected to be paid pursuant to the
Merger Agreement. The Executive acknowledges that JNC may from time to time
adopt policies restricting investment and other activities of its employees.
JNC has made available to the Executive copies of all documents relating to any
such policy in effect on the date hereof.
1.3 Full-Time Commitment. The Executive hereby accepts such employment
hereunder, and agrees that he will devote his full time during JNC's customary
business hours, and give his best efforts to JNC's business in accordance with
the foregoing section 1.2. During the term of his employment hereunder, the
Executive will not, without the prior written approval of the Chief Executive
Officer, accept employment or compensation from or perform services of any
nature for any business enterprise other than JNC; provided, however, that
nothing in this Agreement shall be deemed to restrict Executive from serving on
the boards of or otherwise providing services to charitable, not for profit
educational, governmental or community organizations and AYCO Advisory,
IAMACARD INC. or Paddington Resources Inc., so long as such activities do not
materially interfere with the Executive's responsibilities hereunder.
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<PAGE> 3
ARTICLE II.
TERM OF EMPLOYMENT
2.1 Term. (a) The employment of the Executive pursuant hereto shall
commence on the Effective Date and remain in effect for a term expiring on the
day before the fifth anniversary of the Effective Date (the "Term") unless
sooner terminated pursuant to the provisions hereof. The term of employment
hereunder may be extended upon the mutual agreement of the parties hereto.
Such employment term in effect at any given time is referred to herein as the
"Term".
(b) "JNC Change of Control Transaction" shall mean any of the following:
(i) the acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of voting securities of JNC where such acquisition causes
such Person to own 20% or more of the combined voting power of the then
outstanding voting securities of JNC entitled to vote generally in the
election of directors (the "Outstanding JNC Voting Securities");
provided, however, that for purposes of this subsection (i), none of the
following acquisitions shall be deemed a JNC Change of Control
Transaction: (A) any acquisition directly from JNC, (B) any acquisition
by JNC, (C) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by JNC or any corporation controlled by
JNC or (D) any acquisition by any corporation pursuant to a transaction
that complies with clauses (A), (B) and (C) of subsection (iii) below;
and provided, further, that if any Person's beneficial ownership of the
Outstanding JNC Voting Securities reaches or exceeds 20% as a result of a
transaction described in clause (A) or (B) above, and such Person
subsequently acquires beneficial ownership of additional voting
securities of JNC, such subsequent acquisition shall be treated as an
acquisition that causes such Person to own 20% or more of the Outstanding
JNC Voting Securities; or
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<PAGE> 4
(ii) individuals who, as of the effective date hereof, constitute
the Board of Directors of JNC (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided, however,
that any individual becoming a director subsequent to the date hereof
whose election, or nomination for election by JNC's shareholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as
a result of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other
than the Board; or
(iii) the approval by the shareholders of JNC of (x) a
reorganization, merger or consolidation or sale, or other disposition of
all or substantially all of the assets of JNC or (y) the acquisition of
assets or stock of another corporation in exchange for voting securities
of JNC (each of (x) and (y), a "Business Combination") or, if
consummation of such Business Combination is subject, at the time of such
approval by shareholders, to the consent of any government or
governmental agency, the obtaining of such consent (either explicitly or
implicitly by consummation); excluding, however, such a Business
Combination pursuant to which (A) all or substantially all of the
individuals and entities who were the beneficial owners of the
Outstanding JNC Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled
to vote generally in the election of directors, as the case may be, of
the corporation resulting from such Business Combination (including,
without limitation, a corporation that as a result of such transaction
owns JNC or all or substantially all of JNC's assets either directly or
through one or more subsidiaries) in substantially the same proportions
as their ownership, immediately prior to such Business Combination of the
Outstanding JNC Voting Securities, (B) no Person (excluding any employee
benefit plan (or related trust) of JNC or such corporation resulting from
such Business Combination) beneficially
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<PAGE> 5
owns, directly or indirectly, (except to the extent that such ownership
existed prior to the Business Combination) an amount of, respectively,
the then outstanding shares of common stock of the corporation resulting
from such Business Combination or the combined voting power of the then
outstanding voting securities of such corporation representing the
greater of (1) 20% thereof or (2) a percentage thereof equal to or
greater than the percentage thereof held after such transaction by the
persons who were the owners of JNC's Class B stock prior to such
transaction; and (C) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination
were members of the Incumbent Board at the time of the execution of the
initial agreement, or of the action of the Board, providing for such
Business Combination; or
(iv) approval by the shareholders of JNC of a complete liquidation
or dissolution of JNC.
Notwithstanding the foregoing, unless a majority of the Incumbent Board
determines otherwise, no JNC Change of Control Transaction shall be deemed to
have occurred hereunder if the JNC Change of Control Transaction results from
actions or events in which the Executive is a participant in a capacity other
than solely as an officer, employee or director of JNC.
ARTICLE III.
COMPENSATION OF EXECUTIVE
3.1 Salary and Bonus. As full compensation for his services hereunder:
(a) JNC will pay to the Executive during the Term, a minimum base
salary ("Base Salary") at an annual rate for each 12 month period equal
to two hundred and fifty thousand dollars ($250,000) or such higher
amount as the Board of Directors of JNC shall determine at any time,
payable in accordance with JNC's payroll policies for similarly situated
executives; and
(b) during the Term, the Executive will be entitled to participate
in JNC's incentive plans as in effect from time to time; provided,
however, that the Executive shall be entitled to a minimum bonus
thereunder of $750,000
-5-
<PAGE> 6
(the first $750,000 of such bonus payable in cash, and any amount in
excess of $750,000 payable, at the sole discretion of the Bonus Committee
or Compensation Committee of JNC, as the case may be, in cash or stock or
other equity securities of JNC at "fair value" at the date of grant as
determined by such committee and in the same proportions as bonuses paid
to similarly situated employees of JNC during the appropriate period)
("Minimum Bonus") for each of the three successive 12-month periods
immediately following the Effective Date ("Bonus Payments"), payable on a
pro rata basis on such dates as bonuses are paid to similarly situated
employees. The Executive shall have the right to participate in JNC's
incentive deferral plan as in effect from time to time to the same extent
as similarly situated employees of JNC. JNC expects that, if the
Executive meets or exceeds his duties hereunder, subject to the review,
determination and sole discretion of the Bonus Committee or Compensation
Committee of JNC, as the case may be (or any successor body), which may
take into account a number of factors, including such factors as overall
JNC performance and performance of the mutual fund business of JNC, the
actual Bonus Payments could exceed $750,000 in each such year and could
be substantially more, up to at least $1,200,000, and with respect to
years subsequent to 1998, that (subject to the sole discretion of the
Bonus Committee or Compensation Committee of JNC, as the case may be, as
set forth above) similar bonus payments would be paid, although JNC is
not obligated to do so.
3.2 Benefits: Other Compensation. The Executive shall be entitled to
such health, life and disability insurance benefits and such profit sharing,
pension, paid vacation and other fringe benefits as are available to, and on
similar terms and conditions as apply to, other senior management employees of
JNC from time to time with vacation time of 20 days per year, and shall be
eligible to take a sabbatical under JNC's sabbatical policy; provided, however,
that the Executive agrees that he will only take such a sabbatical on or after
January 1, 1999 and before December 31, 2000. For purposes of the foregoing,
the Executive shall be entitled to credit for prior service with Flagship and
its subsidiaries, which is generally recognized by Flagship and is rendered
prior to the Effective Date, solely for purposes of determining eligibility and
vesting in respect of such benefits and fringe benefits, but not for benefit
accrual or any other purposes; provided, however, that from and after the
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<PAGE> 7
second anniversary of the Effective Date, the Executive shall be entitled to 8
years credit for service for purposes of eligibility, vesting and benefit
accrual in respect of JNC's defined benefit plans; provided further, however,
that from and after the fourth anniversary of the Effective Date, the Executive
shall be entitled to 16 years credit for service for purposes of eligibility,
vesting and benefit accrual in respect of JNC's defined benefit plans.
3.3 Future Benefit Plans. In addition to benefits under Section 3.2, the
Executive shall also be entitled to participate in such other employee benefit
plans or arrangements offered to senior executives and key management employees
of JNC after the Effective Date, subject to and on a basis consistent with the
terms, conditions and overall administration of such plans and agreements.
3.4 Expenses. During the term of this Agreement, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred
by the Executive in performing services hereunder, provided such expenses are
properly accounted for in accordance with general JNC policy, as in effect from
time to time. In addition, the Executive shall be entitled to receive cash
reimbursement for up to $100,000 of expenses related to relocating to Chicago.
3.5 Support Services. JNC shall provide the Executive with working space
and other services commensurate with Executive's position. The Executive shall
continue to occupy the same office space in Dayton, Ohio at Flagship's current
offices, shall occupy and use offices at JNC headquarters and shall be provided
with support services accorded someone with equivalent executive status.
ARTICLE IV.
TERMINATION
4.1 Discharge for Cause. The Executive may be terminated by JNC from his
employment hereunder for Cause. Discharge for Cause shall mean the termination
of the Executive's employment with JNC if any one or more of the following
events should occur: (a) the conviction of the Executive, by a court of
competent jurisdiction, or entry of a plea of guilty or nolo contendere, of any
crime of moral turpitude (whether or not involving JNC) which constitutes a
felony in the jurisdiction involved, (b) the Executive's
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<PAGE> 8
fraud, embezzlement or intentional misappropriation of any property of JNC or
its Affiliates or any clients of any of them, in each case after written notice
specifying in reasonable detail the nature of the breach, insubordination or
infractions and an opportunity to cure of not less than 30 days having been
given to such Executive within 30 days after such acts come to the attention of
JNC, (c) the commission by the Executive of an act that would cause the
Executive, JNC or any of its Affiliates to be disqualified in any manner under
Section 9 of the 1940 Act, if the Securities and Exchange Commission (the
"Commission") were not to grant an exemptive order under Section 9(c) thereof,
or that would constitute grounds for the Commission to deny, revoke or suspend
registration of JNC or any of its Affiliates as an investment advisor,
broker/dealer or transfer agent, as applicable, with the Commission, in each
case after written notice specifying in reasonable detail the nature of the act
and the aforementioned consequences thereof and an opportunity to cure of not
less than 30 days having been given to such Executive within 30 days after such
act comes to the attention of JNC, (d) if the Executive is an associated person
of a broker-dealer, the commission by Executive of any act that would
constitute grounds for any order by the Commission against Executive pursuant
to Section 15(b)(4) or 15(b)(6) of the Securities Exchange Act of 1934, as
amended, in each case after written notice specifying in reasonable detail the
nature of the act and the aforementioned consequences thereof and an
opportunity to cure of not less than 30 days having been given to such
Executive within 30 days after such act comes to the attention of JNC, (e)
material continued breach of this Agreement by Executive, continued
insubordination or dereliction of duties or more than one material infraction
of regulatory compliance requirements such as JNC's code of ethics, in each
case after written notice specifying in reasonable detail the nature of the
breach, insubordination or infractions and an opportunity to cure of not less
than 30 days having been given to Executive within 30 days after such acts come
to the attention of JNC, (f) continued alcohol or other substance abuse or
addiction that renders Executive incapable of satisfactorily performing his
duties, after written notice and an opportunity to cure in the first such
instance of not less than 30 days (90 days if Executive enters an approved
rehabilitation program within such 30 day period) have been given to such
Executive, or (g) gross negligence or wilful or unlawful misconduct materially
injurious to JNC or its reputation, in each case after written notice
specifying in reasonable detail the nature of the misconduct and an
-8-
<PAGE> 9
opportunity to cure of not less than 30 days having been given to such
Executive within 30 days after such acts come to the attention of JNC.
4.2 Retirement or Resignation. The Executive's employment hereunder shall
automatically terminate upon his Resignation or Retirement during the Term.
Retirement shall mean the Resignation (other than by reference to the term
Retirement used in the definition of "Resignation") of the Executive after
reaching the age of 65. Resignation shall mean the termination of the
Executive's full-time employment with JNC other than by reason of a (i)
Disabling Event (as defined below), (ii) for Good Reason (as defined below),
(iii) Retirement, (iv) termination by JNC without Cause (as defined below), or
(v) termination by JNC for Cause.
4.3 Disabling Event. In the event of a Disabling Event with respect to
the Executive, JNC may terminate the Executives employment hereunder.
Disabling Event shall mean the Executive's death or the Executive's physical or
mental disability, as certified by a physician satisfactory to JNC and the
Executive or his legal representative, which renders such Executive incapable
of performing his material duties and services as an employee of JNC and which
continues for more than six consecutive months or more than twelve months in
total during any twenty-four month period.
4.4 Good Reason. The Executive may terminate his employment hereunder for
Good Reason (as defined below) at any time following the 30th day after the
Executive has notified JNC in writing of the circumstances constituting Good
Reason if JNC has failed within such 30-day period to eliminate (or to take
substantial steps in good faith that are likely to eliminate) the circumstances
constituting such Good Reason. As used herein, the Executive shall have Good
Reason to terminate his employment with JNC in the event of (i) a substantial,
adverse diminution, at a time when JNC would not be entitled to terminate such
Executive's employment hereunder for Cause, of the Executive's title or
responsibilities from those in effect as of the Effective Date; or (ii) a
substantial breach by JNC or any of its Affiliates of any of their respective
material obligations to the Executive under this Agreement with respect to the
Executive (it being agreed for purposes of this clause (ii) that any diminution
in or failure to pay when due, the compensation determined to be payable
hereunder or benefits to be provided to Executive hereunder shall be deemed
"substantial" and "adverse").
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<PAGE> 10
ARTICLE V.
EFFECT OF TERMINATION
5.1 Cause, Resignation, Retirement or Disabling Event. (a) If the
Executive's employment is terminated (i) by JNC for Cause or (ii) by the
Executive by his Resignation, JNC shall pay the Executive the Base Salary
through the date of termination, together with a pro rata portion of the
Minimum Bonus (if any) through the date of termination, in each case to the
extent not previously paid ("Accrued Obligations"), and JNC shall have no
further obligations hereunder.
(b) If the Executive's employment is terminated by JNC by reason of a
Disabling Event, the Executive shall receive all Accrued Obligations and also
become fully vested in his accrued benefits as of the date of termination in
the profit sharing and other pension plans in which he participates, and JNC
shall have no further obligations hereunder.
5.2 Without Cause; Good Reason or Change of Control. If the Executive's
employment is terminated (i) by JNC for any reason other than for Cause, a
Disabling Event or Retirement, (ii) by the Executive for Good Reason, or (iii)
by the Executive for any reason during the 30-day period commencing on the
anniversary of a JNC Change of Control Transaction, the Executive's Base
Salary, Bonus Payments and other benefits provided for in Sections 3.2 and 3.3
hereof shall continue to be paid or provided to the Executive for the remainder
of the Term (the "Severance Period"). The Executive shall also become fully
vested in his accrued benefits as of the date of termination in the profit
sharing and other pension plans in which he participates. The Executive shall
be provided outplacement support services from a reputable outplacement
provider for a period of twelve months.
5.3 Excise Tax Treatment. In the event that the Executive becomes
entitled to any payments or benefits in connection with a Change in Control or
the Executive's termination of employment, whether such payments or benefits
are made or provided pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, any person whose actions result in a
Change in Control or any person affiliated with the Company or such person
(collectively, "Severance Payments"), and if any of such
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<PAGE> 11
Severance Payments would be subject to the excise tax ("Excise Tax") imposed
under section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), the Company shall pay to the Executive an additional amount (the
"Gross-Up Payment") such that the net amount of the Severance Payments and the
Gross-Up Payment retained by the Executive, after deduction of any Excise Tax
on the Severance Payments and any federal, state and local income tax and
Excise Tax upon the payment provided for by this Section 5.3, shall be equal to
the Severance Payments.
ARTICLE VI.
CONFIDENTIAL INFORMATION
6.1 Acknowledgment. The Executive agrees and acknowledges that in the
course of rendering services to JNC and its clients and customers he has had
and shall continue to have access to and has become and shall become acquainted
with confidential information about the professional, business and financial
affairs of JNC and its clients and customers and may have contributed to or may
in the future contribute to such information. The Executive acknowledges that
JNC is engaged in a highly competitive business and that the success of JNC in
the marketplace depends upon its goodwill and reputation. The Executive
recognizes that in order to guard the legitimate interests of JNC it is
necessary to protect all such confidential information, goodwill and reputation
and acknowledges that the restrictions, prohibitions and provisions of this
Article VI (including without limitation the periods of time set forth herein)
are reasonable, fair and equitable in furtherance of the foregoing, and are a
material inducement to JNC to enter into this Agreement. The Executive agrees
not to challenge the enforceability of this Agreement, nor will the Executive
raise any equitable defenses thereto, which the Executive hereby irrevocably
waives.
6.2 Proprietary Information. In the course of his service to JNC the
Executive has had and shall continue to have access to confidential know-how,
business documents and information, marketing data, client lists and trade
secrets regarding JNC, Flagship and their respective Affiliates and software
and other intellectual property developed or applied by JNC, Flagship or their
respective Affiliates, all of which are confidential. Such information shall
hereinafter be called "Proprietary Information" and shall include any and all
items enu-
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<PAGE> 12
merated in the preceding sentence to which the Executive has had or may have
access, whether previously existing, now existing or arising hereafter, whether
or not conceived or developed by others or by the Executive alone or with
others during the period of his service to JNC, and whether or not conceived or
developed during regular working hours; provided, however, that "Proprietary
Information" shall not include (i) any information which is in the public
domain, provided such information is not in the public domain as a consequence
of disclosure by the Executive in violation of this Agreement, (ii) any
information that becomes available to the Executive after he ceases to be an
employee of JNC on a nonconfidential basis from a source other than JNC or any
of its Affiliates and (iii) information of a general nature not pertaining
primarily to JNC, Flagship and their respective Affiliates which would
generally be acquired in similar employment with another company. For purposes
of this Article VI, the term Affiliates of JNC shall mean persons controlling,
controlled by or under common control with JNC.
6.3 Fiduciary Obligations. The Executive agrees and acknowledges that
Proprietary Information is of critical importance to JNC and a violation of
this Article VI would seriously and irreparably impair and damage the business
of JNC. The Executive therefore agrees to keep at all times whether during the
Term or thereafter all Proprietary Information in a fiduciary capacity for the
sole benefit of JNC. Upon termination of the Executive's employment, the
Executive shall turn over and return to JNC all property in the Executive's
possession belonging to JNC and all files and written or electronic information
and data that is, contains or reflects Proprietary Information.
6.4 Non-Disclosure. The Executive shall not at any time, whether during
the Term or thereafter, use or disclose, directly or indirectly (except as
required by law and after consultation with JNC), any Proprietary Information
to any person other than (a) JNC or its Affiliates, (b) authorized employees
thereof with a legitimate need to know related to the business of JNC or any
such Affiliate at the time of such disclosure, or (c) at the direction of JNC,
and in all such cases only in the course of the Executive's service to JNC.
Nothing herein shall prohibit Executive from providing investment
management services with respect to his own personal assets or the personal
assets of members of his immediate family or descendants thereof in accordance
with the
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<PAGE> 13
applicable codes of ethics and personal investment policies of JNC and its
Affiliates in effect from time to time.
6.5 Equitable Remedies. Notwithstanding any other provision of this
Agreement to the contrary, the Executive acknowledges and agrees that the
services to be rendered by the Executive hereunder are of irreplaceable value
and JNC will suffer irreparable injury and damage and will have no adequate
remedy at law and could not be reasonably or adequately compensated in damages
for any breach or threatened or attempted breach by the Executive of the
provisions of this Article VI. Accordingly, the Executive expressly agrees
that JNC shall be entitled, in addition to the other rights or remedies that
may be available to it under this Agreement or at law, to a temporary and/or
permanent order enjoining or restraining the Executive from engaging in any
conduct in violation or threatened violation of the provisions of this Article
VI.
6.6 Competitive Activities. (a) So long as the Executive's Employment
hereunder shall not have been terminated, subject to 6.6(b) and except as
otherwise expressly consented to, approved or otherwise permitted by JNC in
writing, and to the fullest extent permitted under applicable law, the
Executive shall not, directly or indirectly:
(i) own, manage, operate, control or otherwise participate in the
ownership or control of any person, firm, corporation, partnership or
other entity which engages in activities which compete with JNC in the
business of providing investment products and services to clients of JNC
or otherwise compete with JNC in the mutual fund and managed accounts
advisory or broker/dealer businesses, or extend credit to or assist in
arranging credit to establish or conduct any such activity, or permit his
name, reputation or affiliations to be used in connection with any such
business;
(ii) request, induce or attempt to influence any client or customer
of JNC or any Affiliate to limit, curtail or cancel its business with JNC
or any Affiliate or solicit such party for such business; or
(iii) hire any current, future or prospective officer, director,
employee, consultant, agent or representative of JNC or any Affiliate, or
request, induce or attempt to influence any of the foregoing to (A)
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<PAGE> 14
terminate his employment or business relationship with JNC or any
Affiliate or (B) commit any act that, if committed by such Executive,
would constitute a breach of any provision hereof; provided, however,
that other than as provided in sections (i) and (ii), nothing in this
clause (iii) shall restrict or limit Executive from employing or entering
into any business arrangement with any person terminated by JNC other
than for Cause, provided that no such business can be conducted nor any
employment arrangement entered into until after such person is no longer
employed by JNC.
Notwithstanding any provision of this Section 6.6(a) to the contrary, nothing
herein shall prohibit the Executive from providing investment management
services with respect to his own personal assets or the personal assets of
members of his immediate family and descendants thereof in accordance with the
applicable codes of ethics and personal investment policies of JNC and its
Affiliates in effect from time to time. In addition, with respect to the
provisions of Section 6.6(a)(ii) as they apply to the Executive following the
termination of his employment with JNC hereunder, the restrictions contained in
Section 6.6(a)(ii) shall apply to clients and customers of JNC or any Affiliate
in existence at the time of such termination with respect to which, to the
knowledge of Executive, JNC or any Affiliate had either submitted on or prior
to the Executive's date of termination a written response to such client's
request for proposal or had other contacts, whether oral or written, regarding
retention of JNC or such Affiliate as an investment adviser or any potential
clients or customers to whom JNC or an Affiliate has made presentations within
the twelve months prior to cessation of the Executive's employment with JNC.
(b) The provisions of Section 6.6(a)(i), (ii) and (iii) hereof shall
continue in effect for the earlier of seven years after the Effective Date or
two years following the termination of such employment (the "Covenant Period").
The parties hereby agree that, after expiration of the Covenant Period, the
Executive shall not be prohibited pursuant to Section 6.4 hereof from utilizing
his knowledge of the identity of clients in the conduct by such Executive of
the activities described in Section 6.6(a)(i).
(c) The provisions of clauses (i), (ii), and (iii) of Section 6.6(a) and
Section 6.6(b) are separate and distinct commitments independent of each of the
other such clauses.
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<PAGE> 15
EXHIBIT 10.2(a)
ARTICLE VII.
MISCELLANEOUS
7.1 Notices. All notices hereunder, to be effective, shall be in writing
and shall be deemed delivered when delivered by hand, upon confirmation of
receipt by telecopy or when sent by first-class, certified mail, postage and
fees prepaid, as follows:
(a) For notices and communications to JNC:
The John Nuveen Company
333 West Wacker Drive
Chicago, Illinois 60606
Telecopy: (312) 917-7952
Attention: Timothy R. Schwertfeger
With a copy to:
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, Illinois 60606
Telecopy: (312) 917-7952
Attention: James J. Wesolowski
(b) For notices and communications to the Executive:
Bruce P. Bedford
1761 Buttonbush Circle
Palm City, Florida 34990
By notice complying with the foregoing provisions of this Section, each party
shall have the right to change the address for future notices and
communications to such party.
7.2 Modification. As of the Effective Date this Agreement (and the other
agreements and documents referred to herein) shall constitute the entire
agreement between the parties hereto with regard to the subject matter hereof,
superseding all prior understandings and agreements, whether written or oral.
Any amendment or modification shall require the written agreement of the
parties hereto.
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<PAGE> 16
7.3 Assignment. This Agreement and all rights hereunder are personal to
the Executive and may not, unless otherwise specifically permitted herein, be
assigned by him. If the Executive dies, payments hereunder may be made to the
Executive's estate. Notwithstanding anything else in this Agreement to the
contrary, JNC may not assign its rights and obligations under this Agreement
(except by operation of law pursuant to a merger or similar transaction).
7.4 Captions. Captions herein have been inserted solely for convenience
of reference and in no way define, limit or describe the scope or substance of
any provision of this Agreement.
7.5 Severability. The provisions of this Agreement are severable, and the
invalidity of any provision shall not affect the validity of any other
provision. In the event that any provision of this Agreement or the
application thereof is held to be unenforceable because of the duration or
scope thereof, the parties hereto agree that the panel of arbitrators or court
making such determination shall have the power to reduce the duration and scope
of such provision to the extent necessary to make it enforceable, and that the
Agreement in its reduced form shall be valid and enforceable to the full extent
permitted by law.
7.6 Governing Law. This Agreement shall be construed under and governed
by the laws of the State of Illinois (without giving effect to the principles
of conflicts of law thereunder).
7.7 Indemnification. JNC agrees that under its certificate of
incorporation and bylaws the Executive is indemnified to the fullest extent
permitted by Delaware law, subject to the restrictions of the 1940 Act and the
Advisers Act. Any reduction or diminution of such indemnification after the
date hereof other than pursuant to a change in indemnification mandated by
applicable Delaware or federal law shall not reduce the indemnification
provided to the Executive.
7.8 Tax Withholding. Notwithstanding anything else contained herein, all
amounts payable hereunder shall be net of amounts required by law to be
withheld as taxes or otherwise.
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<PAGE> 17
IN WITNESS WHEREOF, the parties hereto, being duly authorized, have duly
executed this Agreement as a binding contract as of the day and year first
above written.
THE JOHN NUVEEN COMPANY
By: /s/ Anthony T. Dean
----------------------
Name: Anthony T. Dean
Title: President
BRUCE P. BEDFORD
/s/ Bruce P. Bedford
--------------------
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<PAGE> 1
EXHIBIT 10.9
FORM OF RENEWAL OF INVESTMENT MANAGEMENT AGREEMENTS
DATED MAY 20, 1997
BETWEEN THE FUNDS LISTED BELOW AND NUVEEN ADVISORY CORP.
Attached is a copy of a Form of Renewal of Investment Management Agreement,
dated May 20, 1997, by and between each of the funds listed below (which were
active as of December 31, 1997) and Nuveen Advisory Corp. Copies of
agreements, identical in nature except for the name of the fund, were entered
into by the following funds:
FUND NAME
---------
Nuveen Premium Income Municipal Fund, Inc.
Nuveen Performance Plus Municipal Fund, Inc.
Nuveen California Performance Plus Municipal Fund, Inc.
Nuveen New York Performance Plus Municipal Fund, Inc.
Nuveen Municipal Advantage Fund, Inc.
Nuveen Municipal Market Opportunity Fund, Inc.
Nuveen California Municipal Market Opportunity Fund, Inc.
Nuveen Investment Quality Municipal Fund, Inc.
Nuveen California Investment Quality Municipal Fund, Inc.
Nuveen New York Investment Quality Municipal Fund, Inc.
Nuveen Insured Quality Municipal Fund, Inc.
Nuveen Florida Investment Quality Municipal Fund, Inc.
Nuveen New Jersey Investment Quality Municipal Fund, Inc.
Nuveen Pennsylvania Investment Quality Municipal Fund
Nuveen Select Quality Municipal Fund, Inc.
Nuveen California Select Quality Municipal Fund, Inc.
Nuveen New York Select Quality Municipal Fund, Inc.
Nuveen Quality Income Municipal Fund, Inc.
Nuveen Insured Municipal Opportunity Fund, Inc.
Nuveen Florida Quality Income Municipal Fund, Inc.
Nuveen Michigan Quality Income Municipal Fund, Inc.
Nuveen Ohio Quality Income Municipal Fund, Inc.
Nuveen Texas Quality Income Municipal Fund
Nuveen California Quality Income Municipal Fund, Inc.
Nuveen New York Quality Income Municipal Fund, Inc.
Nuveen Premier Municipal Income Fund, Inc.
Nuveen Premier Insured Municipal Income Fund, Inc.
Nuveen Premium Income Municipal Fund 2, Inc.
Nuveen Arizona Premium Income Municipal Fund, Inc.
Nuveen Insured California Premium Income Municipal Fund, Inc.
Nuveen Insured Florida Premium Income Municipal Fund
Nuveen Michigan Premium Income Municipal Fund, Inc.
<PAGE> 2
FUND NAME (CON'T)
-----------------
Nuveen Insured New York Premium Income Municipal Fund, Inc.
Nuveen New Jersey Premium Income Municipal Fund, Inc.
Nuveen Premium Income Municipal Fund 4, Inc.
Nuveen Insured California Premium Income Municipal Fund 2, Inc.
Nuveen Maryland Premium Income Municipal Fund
Nuveen Massachusetts Premium Income Municipal Fund
Nuveen Pennsylvania Premium Income Municipal Fund 2
Nuveen Virginia Premium Income Municipal Fund
Nuveen Washington Premium Income Municipal Fund
Nuveen Connecticut Premium Income Municipal Fund
Nuveen Georgia Premium Income Municipal Fund
Nuveen Missouri Premium Income Municipal Fund
Nuveen North Carolina Premium Income Municipal Fund
Nuveen California Premium Income Municipal Fund
Nuveen Insured Premium Income Municipal Fund 2
Nuveen Municipal Value Fund, Inc.
Nuveen California Municipal Value Fund, Inc.
Nuveen New York Municipal Value Fund, Inc.
Nuveen Municipal Income Fund, Inc.
Nuveen Select Maturities Municipal Fund
Pursuant to the instructions to Item 601 of Regulation S-K, the Registrant is
filing only the representative of the Renewal of Investment Management
Agreement by and between each of the above listed funds, as of December 31,
1997, and Nuveen Advisory Corp. Copies of the actual Renewal of Investment
Management Agreements by and between each of the above funds and Nuveen
Advisory Corp. have not been attached.
E-2
<PAGE> 3
RENEWAL OF INVESTMENT MANAGEMENT AGREEMENTS
DATED MAY 20, 1997
BETWEEN THE FUNDS LISTED BELOW AND NUVEEN ADVISORY CORP.
Attached is a copy of a Form of Renewal of Investment Management Agreement,
dated May 20, 1997, by and between each of the funds listed below (which were
active as of December 31, 1997) and Nuveen Advisory Corp. Copies of
agreements, identical in nature except for the name of the fund, were entered
into by the following funds:
FUND NAME
---------
Nuveen Flagship Municipal Trust
Nuveen Tax-Exempt Money Market Fund, Inc.
Nuveen Tax-Free Reserves, Inc.
Nuveen California Tax-Free Fund, Inc.
Nuveen Tax-Free Bond Fund, Inc.
Nuveen Insured Tax-Free Bond Fund, Inc.
Nuveen Tax-Free Money Market Fund, Inc.
Nuveen Flagship Multistate Trust I
Nuveen Flagship Multistate Trust II
Nuveen Flagship Multistate Trust III
Nuveen Flagship Multistate Trust IV
Pursuant to the instructions to Item 601 of Regulation S-K, the Registrant is
filing only the representative of the Renewal of Investment Management
Agreement by and between each of the above listed funds, as of December 31,
1997, and Nuveen Advisory Corp. Copies of the actual Renewal of Investment
Management Agreements by and between each of the above funds and Nuveen
Advisory Corp. have not been attached.
E-3
<PAGE> 4
[NAME OF FUND]
RENEWAL OF INVESTMENT MANAGEMENT AGREEMENT
This Agreement made this 20th day of May, 1997 by and between [Name of Fund]
________________ (the "Fund"), and Nuveen Advisory Corp., a Delaware
corporation (the "Adviser");
WHEREAS, the parties hereto are the contracting parties under that certain
Investment Management Agreement (the "Agreement") pursuant to which the Adviser
furnishes investment management and other services to the Fund; and
WHEREAS, the Agreement terminates August 1, 1997 unless continued in the manner
required by the Investment Company Act of 1940; and
WHEREAS, the Board of Directors, at a meeting called for the purpose of
reviewing the Agreement, have approved the Agreement and its continuance until
August 1, 1998 in the manner required by the Investment Company Act of 1940.
NOW THEREFORE, in consideration of the mutual covenants contained in the
Agreement the parties hereto do hereby continue the Agreement in effect until
August 1, 1998 and ratify and confirm the Agreement in all respects.
[NAME OF FUND]
By:
------------------------------
Vice President
ATTEST:
- -----------------------------------------
Assistant Secretary
NUVEEN ADVISORY CORP.
By:
------------------------------
Vice President
ATTEST:
- -----------------------------------------
Assistant Secretary
E-4
<PAGE> 1
EXHIBIT 10.9(A)
MANAGEMENT AGREEMENT
AGREEMENT made this 1st day of January, 1997 between The Golden Rainbow A
James Advised Mutual Fund, a series of Flagship Admiral Funds Inc., a Maryland
corporation (hereinafter called the "Fund"), and NUVEEN ADVISORY CORP.
(hereinafter called the "Manager").
In consideration of the mutual promises and agreements herein contained
and other good and valuable consideration, the receipt of which is hereby
acknowledged, it is agreed by and between the parties hereto as follows:
(1) In General
The Manager agrees, all as more fully set forth herein, to act as
Manager of the Fund with respect to the investment of the Fund's assets
including general supervision of the purchase of securities for and the sale of
securities held in the investment portfolio of the Fund; and to furnish
personnel and facilities as shall be required to provide effective corporate
administration of the Fund and its affairs.
(2) Duties and Obligations of the Manager
with Respect to Investments of Assets of Fund
(a) Subject to the succeeding provisions of this paragraph and subject
to the discretion and control of the Fund's Board of Directors, and except as it
may be delegated to a third party, the Manager shall (i) act as investment
adviser to and supervise and manage the investment and reinvestment of the
Fund's assets and in connection therewith have complete discretion in
purchasing and selling securities and other assets for the Fund and in voting,
exercising consents and exercising all other rights appertaining to such
securities and assets on behalf of the Fund, except that the Manager shall be
permitted to delegate any or all of such responsibilities, rights or
<PAGE> 2
duties to one or more subadvisers who shall enter into agreements with the Fund
and the Manager, which agreements shall be approved and ratified by the Board
of Directors and shareholders of the Fund; (ii) supervise continuously the
investment program of the Fund and the composition of its investment portfolio;
(iii) arrange, subject to the provisions of paragraph 4 hereof, for the
purchase of securities and other investments and for the sale of securities and
other assets held in the investment portfolio of the Fund; and (iv) provide
general corporate administration of the Fund.
(b) In the performance of its duties under this Agreement, the Manager
shall at all times conform to, and act in accordance with, any requirements
imposed by (i) the provisions of the Investment Company Act of 1940, and of any
rules or regulations in force thereunder; (ii) any other applicable provision
of law; (iii) the provisions of the Articles of Incorporation and By-Laws of
the Fund as amended from time to time; (iv) any fundamental policies of the
Fund and policies and determinations of the Board of Directors of the Fund; and
(v) the terms of the registration statement of the Fund, as amended from time
to time under the Securities Act of 1933 and the Investment Company Act of
1940.
(c) The Manager will bear all costs and expenses of its officers and
employees and any overhead incurred in connection with its duties hereunder and
shall bear the costs of any salaries or directors fees of any officers or
directors of the Fund who are affiliated persons (as defined in the Investment
Company Act of 1940) of the Manger except that the Board of Directors may
specifically approve reimbursement for the salaries, bonuses, health insurance,
retirement benefits and all similar employment costs for the time spent on Fund
operations of all personnel employed by the Manager who devote substantial time
to investment company operations including a pro rata portion of the costs
attributable to Fund operations.
2
<PAGE> 1
EXHIBIT 10.10
RENEWAL OF INVESTMENT MANAGEMENT AGREEMENTS
DATED MAY 19, 1997
BETWEEN THE FUNDS LISTED BELOW AND NUVEEN INSTITUTIONAL ADVISORY CORP.
Attached is a copy of a Form of Renewal of Investment Management Agreement,
dated May 19, 1997, by and between each of the funds listed below (which were
active as of December 31, 1997) and Nuveen Institutional Advisory Corp. Copies
of agreements, identical in nature except for the name of the fund, were
entered into by the following funds:
FUND NAME
---------
Nuveen Select Tax-Free Income Portfolio
Nuveen Select Tax Free Income Portfolio 2
Nuveen Insured California Select Tax-Free Income Portfolio
Nuveen Insured New York Select Tax-Free Income Portfolio
Nuveen Select Tax-Free Income Portfolio 3
Pursuant to the instructions to Item 601 of Regulation S-K, the Registrant is
filing only the representative of the Renewal of Investment Management
Agreement by and between each of the above listed funds, as of December 31,
1997, and Nuveen Institutional Advisory Corp. Copies of the actual Renewal of
Investment Management Agreements by and between each of the above funds and
Nuveen Institutional Advisory Corp. have not been attached.
<PAGE> 2
[NAME OF FUND]
RENEWAL OF INVESTMENT MANAGEMENT AGREEMENT
This Agreement made this 19th day of May, 1997 by and between [Name of Fund], a
__________________ business trust (the "Fund"), and Nuveen Institutional
Advisory Corp., a Delaware corporation (the "Adviser");
WHEREAS, the parties hereto are the contracting parties under that certain
Investment Management Agreement (the "Agreement") pursuant to which the Adviser
furnishes investment management and other services to the Fund; and
WHEREAS, the Agreement terminates August 1, 1997 unless continued in the manner
required by the Investment Company Act of 1940; and
WHEREAS, the Board of Trustees, at a meeting called for the purpose of
reviewing the Agreement, have approved the Agreement and its continuance until
August 1, 1998 in the manner required by the Investment Company Act of 1940.
NOW THEREFORE, in consideration of the mutual covenants contained in the
Agreement the parties hereto do hereby continue the Agreement in effect until
August 1, 1998 and ratify and confirm the Agreement in all respects.
[NAME OF FUND]
By:
------------------------------
Vice President
ATTEST:
- --------------------------------
Assistant Secretary
NUVEEN INSTITUTIONAL ADVISORY CORP.
By:
------------------------------
Vice President
ATTEST:
- --------------------------------
Assistant Secretary
<PAGE> 1
MANAGEMENT AGREEMENT
BETWEEN
NUVEEN INVESTMENT TRUST II
AND
NUVEEN INSTITUTIONAL ADVISORY CORP.
NUVEEN INVESTMENT TRUST II, a Massachusetts business trust registered
under the Investment Company Act of 1940 ("1940 Act") as an open-end diversified
management series investment company ("Trust"), hereby appoints NUVEEN
INSTITUTIONAL ADVISORY CORP., a Delaware corporation registered under the
Investment Advisers Act of 1940 as an investment adviser, of Chicago, Illinois
("Manager"), to furnish investment advisory and management services and certain
administrative services with respect to the portion of its assets represented by
the shares of beneficial interest issued in the series listed in Schedule A
hereto, as such schedule may be amended from time to time (each such series
hereinafter referred to as "Fund"). Trust and Manager hereby agree that:
1. Investment Management Services. Manager shall manage the
investment operations of Trust and each Fund, subject to the terms of
this Agreement and to the supervision and control of Trust's Board of
Trustees ("Trustees"). Manager agrees to perform, or arrange for the
performance of, the following services with respect to each Fund:
(a) to obtain and evaluate such information relating
to economies, industries, businesses, securities and
commodities markets, and individual securities, commodities
and indices as it may deem necessary or useful in discharging
its responsibilities hereunder;
(b) to formulate and maintain a continuous
investment program in a manner consistent with and subject to
(i) Trust's agreement and declaration of trust and by-laws;
(ii) the Fund's investment objectives, policies, and
restrictions as set forth in written documents furnished by
the Trust to Manager; (iii) all securities, commodities, and
tax laws and regulations applicable to the Fund and Trust; and
(iv) any other written limits or directions furnished by the
Trustees to Manager;
<PAGE> 2
(c) unless otherwise directed by the Trustees, to
determine from time to time securities, commodities, interests
or other investments to be purchased, sold, retained or lent
by the Fund, and to implement those decisions, including the
selection of entities with or through which such purchases,
sales or loans are to be effected;
(d) to use reasonable efforts to manage the Fund so
that it will qualify as a regulated investment company under
subchapter M of the Internal Revenue Code of 1986, as amended;
(e) to make recommendations as to the manner in
which voting rights, rights to consent to Trust or Fund
action, and any other rights pertaining to Trust or the Fund
shall be exercised;
(f) to make available to Trust promptly upon request
all of the Fund's records and ledgers and any reports or
information reasonably requested by the Trust; and
(g) to the extent required by law, to furnish to
regulatory authorities any information or reports relating to
the services provided pursuant to this Agreement.
Except as otherwise instructed from time to time by the
Trustees, with respect to execution of transactions for Trust on behalf
of a Fund, Manager shall place, or arrange for the placement of, all
orders for purchases, sales, or loans with issuers, brokers, dealers or
other counterparts or agents selected by Manager. In connection with
the selection of all such parties for the placement of all such orders,
Manager shall attempt to obtain most favorable execution and price, but
may nevertheless in its sole discretion as a secondary factor, purchase
and sell portfolio securities from and to brokers and dealers who
provide Manager with statistical, research and other information,
analysis, advice, and similar services. In recognition of such services
or brokerage services provided by a broker or dealer, Manager is hereby
authorized to pay such broker or dealer a commission or spread in
excess of that which might be charged by another broker or dealer for
the same transaction if the Manager determines in good faith that the
commission or spread is reasonable in relation to the value of the
services so provided.
Trust hereby authorizes any entity or person associated with
Manager that is a member of a national securities exchange to effect
any transaction on the exchange for the account of a Fund to the extent
permitted by and in accordance with Section 11(a) of the Securities
Exchange Act or 1934 and Rule 11a2-2(T) thereunder. Trust hereby
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<PAGE> 3
consents to the retention by such entity or person of compensation for
such transactions in accordance with Rule 11a-2-2(T)(a)(iv).
Manager may, where it deems to be advisable, aggregate orders
for its other customers together with any securities of the same type
to be sold or purchased for Trust or one or more Funds in order to
obtain best execution or lower brokerage commissions. In such event,
Manager shall allocate the shares so purchased or sold, as well as the
expenses incurred in the transaction, in a manner it considers to be
equitable and fair and consistent with its fiduciary obligations to
Trust, the Funds, and Manager's other customers.
Manager shall for all purposes be deemed to be an independent
contractor and not an agent of Trust and shall, unless otherwise
expressly provided or authorized, have no authority to act for or
represent Trust in any way.
2. Administrative Services. Subject to the terms of this
Agreement and to the supervision and control of the Trustees, Manager
shall provide to the Trust facilities, equipment, statistical and
research data, clerical, accounting and bookkeeping services, internal
auditing and legal services, and personnel to carry out all management
services required for operation of the business and affairs of the
Funds other than those services to be performed by the Trust's
Distributor pursuant to the Distribution Agreement, those services to
be performed by the Trust's Custodian pursuant to the Custody
Agreement, those services to be performed by the Trust's Transfer Agent
pursuant to the Transfer Agency Agreement, those services to be
provided by the Trust's Custodian pursuant to the Accounting Agreement
and those services normally performed by the Trust's counsel and
auditors.
3. Use of Affiliated Companies and Subcontractors. In
connection with the services to be provided by Manager under this
Agreement, Manager may, to the extent it deems appropriate, and subject
to compliance with the requirements of applicable laws and regulations,
make use of (i) its affiliated companies and their directors, trustees,
officers, and employees and (ii) subcontractors selected by Manager,
provided that Manager shall supervise and remain fully responsible for
the services of all such third parties in accordance with and to the
extent provided by this Agreement. All costs and expenses associated
with services provided by any such third parties shall be borne by
Manager or such parties.
4. Expenses Borne by Trust. Except to the extent expressly
assumed by Manager herein or under a separate agreement between Trust
and Manager and except to the extent required by law to be paid by
Manager, Manager shall not be obligated to pay
-3-
<PAGE> 4
any costs or expenses incidental to the organization, operations or
business of the Trust. Without limitation, such costs and expenses
shall include but not be limited to:
(a) all charges of depositories, custodians and
other agencies for the safekeeping and servicing of its cash,
securities, and other property;
(b) all charges for equipment or services used for
obtaining price quotations or for communication between
Manager or Trust and the custodian, transfer agent or any
other agent selected by Trust;
(c) all charges for and accounting services provided
to Trust by Manager, or any other provider of such services;
(d) all charges for services of Trust's independent
auditors and for services to Trust by legal counsel;
(e) all compensation of Trustees, other than those
affiliated with Manager, all expenses incurred in connection
with their services to Trust, and all expenses of meetings of
the Trustees or committees thereof;
(f) all expenses incidental to holding meetings of
holders of units of interest in the Trust ("Shareholders"),
including printing and of supplying each record-date
Shareholder with notice and proxy solicitation material, and
all other proxy solicitation expense;
(g) all expenses of printing of annual or more
frequent revisions of Trust prospectus(es) and of supplying
each then-existing Shareholder with a copy of a revised
prospectus;
(h) all expenses related to preparing and
transmitting certificates representing Trust shares;
(i) all expenses of bond and insurance coverage
required by law or deemed advisable by the Board of Trustees;
(j) all brokers' commissions and other normal
charges incident to the purchase, sale, or lending of
portfolio securities;
-4-
<PAGE> 5
(k) all taxes and governmental fees payable to
Federal, state or other governmental agencies, domestic or
foreign, including all stamp or other transfer taxes;
(l) all expenses of registering and maintaining the
registration of Trust under the 1940 Act and, to the extent no
exemption is available, expenses of registering Trust's shares
under the 1933 Act, of qualifying and maintaining
qualification of Trust and of Trust's shares for sale under
securities laws of various states or other jurisdictions and
of registration and qualification of Trust under all other
laws applicable to Trust or its business activities;
(m) all interest on indebtedness, if any, incurred
by Trust or a Fund; and
(n) all fees, dues and other expenses incurred by
Trust in connection with membership of Trust in any trade
association or other investment company organization.
5. Allocation of Expenses Borne by Trust. Any expenses borne
by Trust that are attributable solely to the organization, operation or
business of a Fund shall be paid solely out of Fund assets. Any expense
borne by Trust which is not solely attributable to a Fund, nor solely
to any other series of shares of Trust, shall be apportioned in such
manner as Manager determines is fair and appropriate, or as otherwise
specified by the Board of Trustees.
6. Expenses Borne by Manager. Manager at its own expense
shall furnish all executive and other personnel, office space, and
office facilities required to render the investment management and
administrative services set forth in this Agreement.
In the event that Manager pays or assumes any expenses of
Trust or a Fund not required to be paid or assumed by Manager under
this Agreement, Manager shall not be obligated hereby to pay or assume
the same or similar expense in the future; provided that nothing
contained herein shall be deemed to relieve Manager of any obligation
to Trust or a Fund under any separate agreement or arrangement between
the parties.
7. Management Fee. For the services rendered, facilities
provided, and charges assumed and paid by Manager hereunder, Trust
shall pay to Manager out of the assets of each Fund fees at the annual
rate for such Fund as set forth in Schedule B to this Agreement. For
each Fund, the management fee shall accrue on each calendar day, and
shall be payable monthly on the first business day of the next
succeeding calendar month.
-5-
<PAGE> 6
The daily fee accrual shall be computed by multiplying the fraction of
one divided by the number of days in the calendar year by the
applicable annual rate of fee, and multiplying this product by the net
assets of the Fund, determined in the manner established by the Board
of Trustees, as of the close of business on the last preceding
business day on which the Fund's net asset value was determined.
8. State Expense Limitation. If for any fiscal year of a
Fund, its aggregate operating expenses ("Aggregate Operating Expenses")
exceed the applicable percentage expense limit imposed under the
securities law and regulations of any state in which Shares of the Fund
are qualified for sale (the "State Expense Limit"), the Manager shall
pay such Fund the amount of such excess. For purposes of this State
Expense Limit, Aggregate Operating Expenses shall (a) include (i) any
fees or expenses reimbursements payable to Manager pursuant to this
Agreement and (ii) to the extent the Fund invests all or a portion of
its assets in another investment company registered under the 1940 Act,
the pro rata portion of that company's operating expenses allocated to
the Fund, and (iii) any compensation payable to Manager pursuant to any
separate agreement relating to the Fund's administration, but (b)
exclude any interest, taxes, brokerage commissions, and other normal
charges incident to the purchase, sale or loan of securities, commodity
interests or other investments held by the Fund, litigation and
indemnification expense, and other extraordinary expenses not incurred
in the ordinary course of business. Except as otherwise agreed to by
the parties or unless otherwise required by the law or regulation of
any state, any reimbursement by Manager to a Fund under this section
shall not exceed the management fee payable to Manager by the Fund
under this Agreement.
Any payment to a Fund by Manager hereunder shall be made
monthly, by annualizing the Aggregate Operating Expenses for each month
as of the last day of the month. An adjustment for payments made during
any fiscal year of the Fund shall be made on or before the last day of
the first month following such fiscal year of the Fund if the Annual
Operating Expenses for such fiscal year (i) do not exceed the State
Expense Limitation or (ii) for such fiscal year there is no applicable
State Expense Limit.
9. Retention of Sub-Adviser. Subject to obtaining the
initial and periodic approvals required under Section 15 of the 1940
Act, Manager may retain one or more sub-advisers at Manager's own cost
and expense for the purpose of furnishing one or more of the services
described in Section 1 hereof with respect to Trust or one or more
Funds. Retention of a sub-adviser shall in no way reduce the
responsibilities or obligations of Manager under this Agreement, and
Manager shall be responsible to Trust and its Funds for all acts or
omissions of any sub-adviser in connection with the performance or
Manager's duties hereunder.
-6-
<PAGE> 7
10. Non-Exclusivity. The services of Manager to Trust
hereunder are not to be deemed exclusive and Manager shall be free to
render similar services to others.
11. Standard of Care. The Manager shall not be liable for any
loss sustained by reason of the purchase, sale or retention of any
security, whether or not such purchase, sale or retention shall have
been based upon the investigation and research made by any other
individual, firm or corporation, if such recommendation shall have been
selected with due care and in good faith, except loss resulting from
willful misfeasance, bad faith, or gross negligence on the part of the
Manager in the performance of its obligations and duties, or by reason
of its reckless disregard of its obligations and duties under this
Agreement.
12. Amendment. This Agreement may not be amended as to Trust
or any Fund without the affirmative votes (a) of a majority of the
Board of Trustees, including a majority of those Trustees who are not
"interested persons" of Trust or of Manager, voting in person at a
meeting called for the purpose of voting on such approval, and (b) of a
"majority of the outstanding shares" of Trust or, with respect to any
amendment affecting an individual Fund, a "majority of the outstanding
shares" of that Fund. The terms "interested persons" and "vote of a
majority of the outstanding shares" shall be construed in accordance
with their respective definitions in the 1940 Act and, with respect to
the latter term, in accordance with Rule 18f-2 under the 1940 Act.
13. Effective Date and Termination. This Agreement shall
become effective as to any Fund as of the effective date for that Fund
specified in Schedule A hereto. This Agreement may be terminated at any
time, without payment of any penalty, as to any Fund by the Board of
Trustees of Trust, or by a vote of a majority of the outstanding shares
of that fund, upon at least sixty (60) days' written notice to Manager.
This Agreement may be terminated by Manager at any time upon at least
sixty (60) days' written notice to Trust. This Agreement shall
terminate automatically in the event of its "assignment" (as defined in
the 1940 Act). Unless terminated as hereinbefore provided, this
Agreement shall continue in effect with respect to any Fund until the
end of the initial term applicable to that Fund specified in Schedule A
and thereafter from year to year only so long as such continuance is
specifically approved with respect to that Fund at least annually (a)
by a majority of those Trustees who are not interested persons of Trust
or of Manager, voting in person at a meeting called for the purpose of
voting on such approval, and (b) by either the Board of Trustees of
Trust or by a "vote of a majority of the outstanding shares" of the
Fund.
14. Ownership of Records; Interparty Reporting. All records
required to be maintained and preserved by Trust pursuant to the
provisions of rules or regulations of
-7-
<PAGE> 8
the Securities and Exchange Commission under Section 31(a) of the 1940
Act or other applicable laws or regulations which are maintained and
preserved by Manager on behalf of Trust and any other records the
parties mutually agree shall be maintained by Manager on behalf of
Trust are the property of Trust and shall be surrendered by Manager
promptly on request by Trust; provided that Manager may at its own
expense make and retain copies of any such records.
Trust shall furnish or otherwise make available to Manager
such copies of the financial statements, proxy statements, reports, and
other information relating to the business and affairs of each
Shareholder in a Fund as Manager may, at any time or from time to time,
reasonably require in order to discharge its obligations under this
Agreement.
Manager shall prepare and furnish to Trust as to each Fund
statistical data and other information in such form and at such
intervals as Trust may reasonably request.
15. Non-Liability of Trustees and Shareholders. Any
obligation of Trust hereunder shall be binding only upon the assets of
Trust (or the applicable Fund thereof) and shall not be binding upon
any Trustee, officer, employee, agent or Shareholder of Trust. Neither
the authorization of any action by the Trustees or Shareholders of
Trust nor the execution of this Agreement on behalf of Trust shall
impose any liability upon any Trustee or any Shareholder.
16. Use of Manager's Name. Trust may use the name "Nuveen
Investment Trust II" and the Fund names listed in Schedule A or any
other name derived from the name "Nuveen" only for so long as this
Agreement or any extension, renewal, or amendment hereof remains in
effect, including any similar agreement with any organization which
shall have succeeded to the business of Manager as investment adviser.
At such time as this Agreement or any extension, renewal or amendment
hereof, or such other similar agreement shall no longer be in effect,
Trust will cease to use any name derived from the name "Nuveen" or
otherwise connected with Manager, or with any organization which shall
have succeeded to Manager's business as investment adviser.
17. References and Headings. In this Agreement and in any
such amendment, references to this Agreement and all expressions such
as "herein," "hereof," and "hereunder'" shall be deemed to refer to
this Agreement as amended or affected by any such amendments. Headings
are placed herein for convenience of reference only and shall not be
taken as a part hereof or control or affect the meaning, construction,
or effect
-8-
<PAGE> 9
of this Agreement. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
Dated: October 31, 1997
NUVEEN INVESTMENT TRUST II
ATTEST BY /s/ GIFFORD R. ZIMMERMAN
-----------------------------------
/s/ KAREN L. HEALY NUVEEN INSTITUTIONAL ADVISORY CORP.
- ----------------------------
ATTEST BY /s/ THOMAS C. SPALDING
-----------------------------------
/s/ LARRY MARTIN
- ----------------------------
-9-
<PAGE> 10
NUVEEN INVESTMENT TRUST II
MANAGEMENT AGREEMENT
SCHEDULE A
The Funds of the Trust currently subject to this Agreement and the
effective date of each are as follows:
FUND EFFECTIVE DATE
Nuveen Rittenhouse Growth Fund November , 1997
<PAGE> 11
NUVEEN INVESTMENT TRUST II
MANAGEMENT AGREEMENT
SCHEDULE B
Compensation pursuant to Section 7 of this Agreement shall be
calculated with respect to each Fund in accordance with the following schedule
applicable to the average daily net assets of the Fund:
NUVEEN RITTENHOUSE GROWTH FUND
<TABLE>
<CAPTION>
AVERAGE DAILY NET ASSET VALUE FUND MANAGEMENT FEE
<S> <C>
For the first $125 million .8500 of 1%
For the next $125 million .8375 of 1%
For the next $250 million .8250 of 1%
For the next $500 million .8125 of 1%
For the next $1 billion .8000 of 1%
For assets over $2 billion .7875 of 1%
</TABLE>
<PAGE> 1
INVESTMENT SUB-ADVISORY AGREEMENT
AGREEMENT MADE THIS 31st day of October 1997 by and between Nuveen
Institutional Advisory Corp., a Delaware corporation and a registered investment
adviser ("Manager"), and Rittenhouse Financial Services, Inc., a Delaware
corporation and a registered investment adviser ("Sub-Adviser").
WHEREAS, Manager is the investment manager for Nuveen Investment Trust
II (the "Fund"), an open-end diversified, management investment company
registered under the Investment Company Act of 1940, as amended ("1940 Act"),
the only outstanding series of which is currently the Nuveen Rittenhouse Growth
Fund (the "Portfolio"); and
WHEREAS, Manager desires to retain Sub-Adviser as its agent to furnish
investment advisory services for the Portfolio, upon the terms and conditions
hereafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. Appointment. Manager hereby appoints Sub-Adviser to provide certain
sub-investment advisory services to the Portfolio for the period and on the
terms set forth in this Agreement. Sub-Adviser accepts such appointments and
agrees to furnish the services herein set forth for the compensation herein
provided.
2. Additional Portfolios. In the event that the Fund establishes one or
more additional portfolios other than the Portfolio with respect to which the
Manager desires to engage the Sub-Adviser to render investment advisory services
hereunder, the Manager shall notify the Sub-Adviser of such desire. If the
Sub-Adviser is willing to render such services, it shall notify the Manager in
writing whereupon such portfolio or portfolios shall become a Portfolio
hereunder.
3. Services to be Performed. Subject always to the supervision of
Fund's Board of Trustees and the Manager, Sub-Adviser will furnish an investment
program in respect of, make investment decisions for, and place all orders for
the purchase and sale of securities for the Portfolio, all on behalf of the
Portfolio. In the performance of its duties, Sub-Adviser will satisfy its
fiduciary duties to the Fund (as set forth in Section 7, below), and will
monitor the Portfolio's investments, and will comply with the provisions of
Fund's Declaration of Trust and By-laws, as amended from time to time, and the
stated investment objectives, policies and restrictions of the Portfolio.
Manager will provide Sub-Adviser with current copies of the Fund's Declaration
of Trust, By-laws, prospectus and any amendments thereto, and any objectives,
policies or limitations not appearing therein as they may be relevant to
Sub-Adviser's performance under this Agreement. Sub-Adviser and Manager will
each make its officers and employees available to the other from time to time at
reasonable times to review investment policies of the Portfolio and to consult
with each other regarding the investment affairs of the Portfolio. Sub-Adviser
will report to the Board of Trustees and to Manager with respect to the
implementation of such program.
<PAGE> 2
Sub-Adviser is authorized to select the brokers or dealers that will
execute the purchases and sales of portfolio securities for the Portfolio, and
is directed to use its best efforts to obtain best execution, which includes
most favorable net results and execution of the Fund's orders, taking into
account all appropriate factors, including price, dealer spread or commission,
size and difficulty of the transaction and research or other services provided.
It is understood that the Sub-Adviser will not be deemed to have acted
unlawfully, or to have breached a fiduciary duty to the Fund or the Portfolio,
or be in breach of any obligation owing to the Fund or the Portfolio under this
Agreement, or otherwise, solely by reason of its having caused the Fund to pay a
member of a securities exchange, a broker or a dealer a commission for effecting
a securities transaction for the Fund in excess of the amount of commission
another member of an exchange, broker or dealer would have charged if the
Sub-Adviser determined in good faith that the commission paid was reasonable in
relation to the brokerage or research services provided by such member, broker
or dealer, viewed in terms of that particular transaction or the Sub-Adviser's
overall responsibilities with respect to its accounts, including the Fund, as to
which it exercises investment discretion. In addition, if in the judgment of the
Sub-Adviser, the Portfolio would be benefited by supplemental services, the
Sub-Adviser is authorized to pay spreads or commissions to brokers or dealers
furnishing such services in excess of spreads or commissions which another
broker or dealer may charge for the same transaction, provided that the
Sub-Adviser determined in good faith that the commission or spread paid was
reasonable in relation to the services provided. The Sub-Adviser will properly
communicate to the officers and trustees of the Fund such information relating
to transactions for any Portfolio as they may reasonably request. In no instance
will portfolio securities be purchased from or sold to the Manager, Sub-Adviser
or any affiliated person of either the Fund, Manager, or Sub-Adviser, except as
may be permitted under the 1940 Act;
Sub-Adviser further agrees that it:
(a) will use the same degree of skill and care in providing such
services as it uses in providing services to fiduciary
accounts for which it has investment responsibilities;
(b) will conform to all applicable Rules and Regulations of the
Securities and Exchange Commission in all material respects
and in addition will conduct its activities under this
Agreement in accordance with any applicable regulations of any
governmental authority pertaining to its investment advisory
activities;
(c) will report regularly to Manager and to the Board of Trustees
and will make appropriate persons available for the purpose of
reviewing with representatives of Manager and the Board of
Trustees on a regular basis at reasonable times the management
of the Portfolios, including, without limitation, review of
the general investment strategies of the Portfolio, the
performance of the Portfolio in relation to standard industry
indices and general conditions affecting the marketplace and
will provide various other reports from time to time as
reasonably requested by Manager; and
2
<PAGE> 3
(d) will prepare such books and records with respect to the
Portfolio's securities transactions as requested by the
Manager and will furnish Manager and Fund's Board of Trustees
such periodic and special reports as the Board or Manager may
reasonably request.
4. Expenses. During the term of this Agreement, Sub-Adviser will pay
all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities (including brokerage commission, if
any) purchased for the Fund.
5. Compensation. For the services provided and the expenses assumed
pursuant to this Agreement, Manager will pay the Sub-Adviser, and the Sub-
Adviser agrees to accept as full compensation therefor, at the end of each
calendar month, a portfolio management fee at the annual rate as set forth
below:
<TABLE>
<CAPTION>
ASSETS RATE OF FEE
<S> <C>
For the first $500 million .35 of 1%
For assets over $500 million .30 of 1%
</TABLE>
For the month and year in which this Agreement becomes effective or terminates,
there shall be an appropriate proration on the basis of the number of days that
the Agreement is in effect during the month and year, respectively.
6. Services to Others. Manager understands, and has advised Fund's
Board of Trustees, that Sub-Adviser now acts, or may in the future act, as an
investment adviser to fiduciary and other managed accounts, and as investment
adviser or sub-investment adviser to other investment companies, provided that
whenever the Portfolio and one or more other investment advisory clients of
Sub-Adviser have available funds for investment, investments suitable and
appropriate for each will be allocated in a manner believed by Sub- Adviser to
be equitable to each. Manager recognizes, and has advised Fund's Board of
Trustees, that in some cases this procedure may adversely affect the size of the
position that the Portfolio may obtain in a particular security. It is further
agreed that, on occasions when the Sub-Adviser deems the purchase or sale of a
security to be in the best interests of the Portfolio as well as other accounts,
it may, to the extent permitted by applicable law, but will not be obligated to,
aggregate the securities to be so sold or purchased for the Portfolio with those
to be sold or purchased for other accounts in order to obtain favorable
execution and lower brokerage commissions. In addition, Manager understands, and
has advised Fund's Board of Trustees, that the persons employed by Sub-Adviser
to assist in Sub-Adviser's duties under this Agreement will not devote their
full such service and nothing contained in this Agreement will be deemed to
limit or restrict the right of Sub-Adviser or any of its affiliates to engage in
and devote time and attention to other businesses or to render services of
whatever kind or nature. It is also agreed that the Sub-Adviser may use any
supplemental research obtained for the benefit of the Fund in providing
investment advice to its other investment advisory accounts or for managing its
own accounts.
3
<PAGE> 4
7. Limitation of Liability. Manager will not take any action against Sub-
Adviser to hold Sub-Adviser liable for any error of judgment or mistake of law
or for any loss suffered by the Fund in connection with the performance of Sub-
Adviser's duties under this Agreement, except for a loss resulting from Sub-
Adviser's willful misfeasance, bad faith, or gross negligence in the performance
of its duties or by reason of its reckless disregard of its obligations and
duties under this Agreement.
8. Term; Termination; Amendment. This Agreement shall become effective
with respect to the Portfolio on the same date as the Management Agreement
between the Fund and the Manager becomes effective, provided that it has been
approved by a vote of a majority of the outstanding voting securities of the
Portfolio in accordance with the requirements of the 1940 Act, and shall remain
in full force until August 1, 1999 unless sooner terminated as hereinafter
provided. This Agreement shall continue in force from year to year thereafter
with respect to a Portfolio, but only as long as such continuance is
specifically approved for that Portfolio at least annually in the manner
required by the 1940 Act and the rules and regulations thereunder; provided,
however, that if the continuation of this Agreement is not approved for a
Portfolio, the Sub-Adviser may continue to serve in such capacity for such
Portfolio in the manner and to the extent permitted by the 1940 Act and the
rules and regulations thereunder.
This Agreement shall automatically terminate in the event of its
assignment and may be terminated at any time without the payment of any penalty
by the Manager on sixty (60) days' written notice to the Sub-Adviser. This
Agreement may also be terminated by the Fund with respect to a Portfolio by
action of the Board of Trustees or by a vote of a majority of the outstanding
voting securities of such Portfolio on sixty (60) days' written notice to the
Sub- Adviser by the Fund.
This Agreement may be terminated with respect to a Portfolio at any
time without the payment of any penalty by the Manager, the Board of Trustees or
by vote of a majority of the outstanding voting securities of such Portfolio in
the event that it shall have been established by a court of competent
jurisdiction that the Sub-Adviser or any officer or director of the Sub-Adviser
has taken any action which results in a breach of the covenants of the
Sub-Adviser set forth herein.
The terms "assignment" and "vote of a majority of the outstanding
voting securities" shall have the meanings set forth in the 1940 Act and the
rules and regulations thereunder.
Termination of this Agreement shall not affect the right of the
Sub-Adviser to receive payments on any unpaid balance of the compensation
described in Section 5 earned prior to such termination. This Agreement shall
automatically terminate in the event the Investment Management Agreement between
the Manager and the Fund is terminated, assigned or not renewed.
4
<PAGE> 5
9. Notice. Any notice under this Agreement shall be in writing,
addressed and delivered or mailed, postage prepaid, to the other party at such
address as such other party may designate for the receipt of such notice.
10. Limitations on Liability. All parties hereto are expressly put on
notice of the Fund's Agreement and Declaration of Trust and all amendments
thereto, all of which are on file with the Secretary of Massachusetts, and the
limitation of shareholder and trustee liability contained therein. The
obligations of the Fund entered in the name or on behalf thereof by any of the
Trustees, representatives or agents are made not individually but only in such
capacities and are not binding upon any of the Trustees, officers, or
shareholders of the Fund individually but are binding upon only the assets and
property of the Fund, and persons dealing with the Fund must look solely to the
assets of the Fund and those assets belonging to the subject Portfolio, for the
enforcement of any claims.
11. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement is held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement will not be affected
thereby. This Agreement will be binding upon and shall inure to the benefit of
the parties hereto and their respective successors.
12. Applicable Law. This Agreement shall be construed in accordance
with applicable federal law and (except as to Section 11 hereof which shall be
construed in accordance with the laws of Massachusetts) the laws of the State of
Illinois.
IN WITNESS WHEREOF, the Manager and the Sub-Adviser have caused this
Agreement to be executed as of the day and year first above written.
NUVEEN INSTITUTIONAL ADVISORY RITTENHOUSE FINANCIAL
CORP., a Delaware corporation SERVICES, INC, a Delaware corporation
By: /s/ GIFFORD R. ZIMMERMAN By: /s/ RICHARD D. HUGHES
------------------------------- ------------------------------
Title: VICE PRESIDENT Title: PRESIDENT
---------------------------- ---------------------------
5
<PAGE> 1
EXECUTION COPY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$200,000,000
CREDIT AGREEMENT
Dated as of August 8, 1997
among
THE JOHN NUVEEN COMPANY,
as Borrower,
THE LENDERS NAMED HEREIN,
THE FIRST NATIONAL BANK OF CHICAGO,
as Agent,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
and
THE CHASE MANHATTAN BANK,
as Co-Agents
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Arranged By
FIRST CHICAGO CAPITAL MARKETS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I DEFINITIONS...................................................... 1
ARTICLE II THE CREDITS...................................................... 13
2.1. Advances......................................................... 13
2.2. Ratable Loans.................................................... 13
2.3. Types of Advances................................................ 13
2.4. Facility Fee; Reductions in Aggregate Commitment................. 14
2.5. Minimum Amount of Each Advance................................... 14
2.6. Optional Principal Payments...................................... 14
2.7. Method of Selecting Types and Interest Periods for New Advances.. 14
2.8. Conversion and Continuation of Outstanding Advances.............. 15
2.9. Changes in Interest Rate, etc.................................... 15
2.10. Rates Applicable After Default................................... 16
2.11. Method of Payment................................................ 16
2.12. Notes; Telephonic Notices........................................ 16
2.13. Interest Payment Dates; Interest and Fee Basis................... 16
2.14. Notification of Advances, Interest Rates, Prepayments and
Commitment Reductions............................................ 17
2.15. Lending Installations............................................ 17
2.16. Non-Receipt of Funds by the Agent................................ 17
2.17. Taxes............................................................ 17
2.18. Agent's Fees..................................................... 18
ARTICLE III CHANGE IN CIRCUMSTANCES.......................................... 19
3.1. Yield Protection................................................. 19
3.2. Changes in Capital Adequacy Regulations.......................... 19
3.3. Availability of Types of Advances................................ 20
3.4. Funding Indemnification.......................................... 20
3.5. Lender Statements; Survival of Indemnity......................... 20
ARTICLE IV CONDITIONS PRECEDENT............................................. 21
4.1. Initial Loans.................................................... 21
4.2. Each Future Advance.............................................. 22
ARTICLE V REPRESENTATIONS AND WARRANTIES................................... 23
5.1. Corporate Existence; Conduct of Business......................... 23
5.2. Authorization and Validity....................................... 23
5.3. Compliance with Laws and Contracts............................... 23
5.4. Governmental Consents............................................ 24
5.5. Financial Statements............................................. 24
5.6. Material Adverse Change.......................................... 24
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
5.7. Taxes........................................................ 24
5.8. Litigation and Contingent Obligations........................ 25
5.9. Subsidiaries................................................. 25
5.10. ERISA........................................................ 25
5.11. Defaults..................................................... 25
5.12. Federal Reserve Regulations.................................. 26
5.13. Investment Company; Public Utility Holding Company........... 26
5.14. Certain Fees................................................. 26
5.15. Ownership of Properties...................................... 26
5.16. Material Agreements.......................................... 26
5.17. Insurance.................................................... 27
5.18. Disclosure................................................... 27
ARTICLE VI COVENANTS.................................................... 27
6.1. Financial Reporting.......................................... 27
6.2. Use of Proceeds.............................................. 29
6.3. Notice of Default............................................ 29
6.4. Conduct of Business.......................................... 29
6.5. Taxes........................................................ 29
6.6. Insurance.................................................... 30
6.7. Compliance with Laws......................................... 30
6.8. Maintenance of Properties.................................... 30
6.9. Inspection................................................... 30
6.10. Ownership of Subsidiaries.................................... 30
6.11. Indebtedness................................................. 30
6.12. Merger....................................................... 31
6.13. Sale of Assets............................................... 31
6.14. Sale of Accounts............................................. 31
6.15. Investments and Purchases.................................... 31
6.16. Contingent Obligations....................................... 32
6.17. Liens........................................................ 32
6.18. Affiliates................................................... 33
6.19. Change in Corporate Structure; Fiscal Year................... 33
6.20. Inconsistent Agreements...................................... 33
6.21. Financial Covenants.......................................... 33
6.21.1. Minimum Net Worth................................... 33
6.21.2. Leverage Ratio...................................... 33
6.22. Nuveen & Co. Net Capital..................................... 34
6.23. ERISA Compliance............................................. 34
ARTICLE VII DEFAULTS..................................................... 34
7.1. Representation or Warranty................................... 34
7.2. Non-Payment.................................................. 34
7.3. Specific Defaults............................................ 34
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
7.4. Other Defaults.......................................... 34
7.5. Cross-Default........................................... 34
7.6. Insolvency; Voluntary Proceedings....................... 35
7.7. Involuntary Proceedings................................. 35
7.8. Judgments............................................... 35
7.9. Change in Control....................................... 35
7.10. SIPC.................................................... 35
7.11. Nuveen & Co............................................. 36
7.12. ERISA................................................... 36
ARTICLE VIII ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES.......... 36
8.1. Acceleration............................................ 36
8.2. Amendments.............................................. 36
8.3. Preservation of Rights.................................. 37
ARTICLE IX GENERAL PROVISIONS...................................... 37
9.1. Survival of Representations............................. 37
9.2. Governmental Regulation................................. 37
9.3. Taxes................................................... 37
9.4. Headings................................................ 38
9.5. Entire Agreement........................................ 38
9.6. Several Obligations; Benefits of this Agreement......... 38
9.7. Expenses; Indemnification............................... 38
9.8. Numbers of Documents.................................... 38
9.9. Accounting.............................................. 38
9.10. Severability of Provisions.............................. 39
9.11. Nonliability of Lenders................................. 39
9.12. CHOICE OF LAW........................................... 39
9.13. CONSENT TO JURISDICTION................................. 39
9.14. WAIVER OF JURY TRIAL.................................... 39
9.15. Disclosure.............................................. 40
9.16. Counterparts............................................ 40
ARTICLE X THE AGENT............................................... 40
10.1. Appointment............................................. 40
10.2. Powers.................................................. 40
10.3. General Immunity........................................ 40
10.4. No Responsibility for Loans, Recitals, etc.............. 40
10.5. Action on Instructions of Lenders....................... 41
10.6. Employment of Agents and Counsel........................ 41
10.7. Reliance on Documents; Counsel.......................... 41
10.8. Agent's Reimbursement and Indemnification............... 41
10.9. Notice of Default....................................... 42
10.10. Rights as a Lender...................................... 42
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
10.11. Lender Credit Decision.................................. 42
10.12. Successor Agent......................................... 42
10.13. Co-Agents............................................... 43
ARTICLE XI SETOFF; RATABLE PAYMENTS................................ 43
11.1. Setoff.................................................. 43
11.2. Ratable Payments........................................ 43
ARTICLE XII BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS....... 43
12.1. Successors and Assigns.................................. 43
12.2. Participations.......................................... 44
12.2.1. Permitted Participants; Effect................. 44
12.2.2. Voting Rights.................................. 44
12.2.3. Benefit of Setoff.............................. 44
12.3. Assignments............................................. 45
12.3.1. Permitted Assignments.......................... 45
12.3.2. Effect; Effective Date......................... 45
12.4 Confidentiality......................................... 45
12.5. Tax Treatment........................................... 46
ARTICLE XIII NOTICES................................................. 46
13.1. Giving Notice........................................... 46
13.2. Change of Address....................................... 47
</TABLE>
iv
<PAGE> 6
EXHIBITS
Exhibit A (Article 1) Revolving Credit Note
Exhibit B (Section 6.1(d)) Compliance Certificate
Exhibit C (Section 12.3.1) Assignment Agreement
SCHEDULES
Schedule 5.9 - Subsidiaries
Schedule 5.10 - ERISA
vii
<PAGE> 7
CREDIT AGREEMENT
This Credit Agreement, dated as of August 8, 1997, is among THE JOHN
NUVEEN COMPANY, a Delaware corporation, the Lenders (as hereinafter defined),
THE FIRST NATIONAL BANK OF CHICAGO, individually and as Agent, and BANK OF
AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION and THE CHASE MANHATTAN BANK,
individually and as Co-Agents.
R E C I T A L S:
A. The Borrower has requested the Lenders to provide a revolving credit
facility to it in the aggregate principal amount of $200,000,000, the proceeds
of which the Borrower will use to repay the First Chicago Demand Loan (as
hereinafter defined) and for the general corporate purposes of the Borrower and
its Subsidiaries, including acquisitions, share repurchases and asset
purchases; and
B. The Lenders are willing to extend such credit facility on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
herein contained, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Borrower, the Lenders and
the Agent hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement:
"Advance" means a borrowing pursuant to Section 2.1 consisting of the
aggregate amount of the several Loans made on the same Borrowing Date by the
Lenders to the Borrower of the same Type and, in the case of Eurodollar
Advances, for the same Interest Period.
"Advisers Act" means the Investment Advisers Act of 1940, as amended.
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person owns 10% or
more of any class of voting securities (or other ownership interests) of the
controlled Person or possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies of the controlled Person,
whether through ownership of stock, by contract or otherwise.
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<PAGE> 8
"Agent" means First Chicago in its capacity as agent for the Lenders
pursuant to Article X, and not in its individual capacity as a Lender, and any
successor Agent appointed pursuant to Article X.
"Aggregate Commitment" means the aggregate of the Commitments of all the
Lenders hereunder. The initial Aggregate Commitment is $200,000,000.
"Agreement" means this Credit Agreement, as it may be amended, modified
or restated and in effect from time to time.
"Agreement Accounting Principles" means generally accepted accounting
principles as in effect from time to time, applied in a manner consistent with
those used in preparing the Financial Statements.
"Alternate Base Rate" means, for any day, a rate of interest per annum
equal to the higher of (a) the Corporate Base Rate for such day, and (b) the
sum of the Federal Funds Effective Rate for such day plus 1/2% per annum.
"Alternate Base Rate Advance" means an Advance which bears interest at the
Alternate Base Rate.
"Alternate Base Rate Loan" means a Loan which bears interest at the
Alternate Base Rate.
"Annual Operating Cash Flow" means, as at any Fiscal Quarter end, EBITDA
for the four consecutive fiscal quarters then ended.
"Applicable Margin" means, subject to the last sentence of this
definition, for any period, the applicable of the following percentages in
effect with respect to such period as the Leverage Ratio of the Borrower shall
fall within the indicated ranges:
<TABLE>
<CAPTION>
Leverage Ratio Applicable Margin
-------------------------- -----------------
Greater than
or Equal to But less than
----------- -------------
<S> <C> <C> <C> <C> <C>
Level I ---- 1.0:1.0 .18%
Level II 1.0:1.0 2.0:1.0 .21%
Level III 2.0:1.0 ------- .24%
</TABLE>
The Leverage Ratio shall be calculated by the Borrower as of the end of each of
its Fiscal Quarters commencing September 30, 1997 and shall be reported to the
Agent pursuant to a certificate executed by the chief financial officer of the
Borrower and delivered in accordance with Section 6.1(d) hereof. The
Applicable Margin shall be adjusted, if necessary, quarterly as of the tenth
day after the earlier of the date of delivery or the required delivery date for
the certificate provided for above; provided, that if such certificate,
together with the financial statements to which such certificate relates, are
not delivered by the tenth day after the required delivery date, then the
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<PAGE> 9
Applicable Margin shall be equal to .24% for the relevant quarter. Until
adjusted as described above after September 30, 1997, the Applicable Margin
shall be equal to .21%; provided that if the Borrower shall deliver a
certificate demonstrating a Leverage Ratio at Level I for the June 30, 1997
Fiscal Quarter, then the Applicable Margin shall be .18% from the date of
delivery of such certificate until adjusted as described above after September
30, 1997. The Applicable Margin in regard to a Eurodollar Loan for any
Interest Period shall be that in effect on the first day of such interest
period and shall not change during such Interest Period.
"Arranger" means First Chicago Capital Markets, Inc. and its successors.
"Article" means an article of this Agreement unless another document is
specifically referenced.
"Authorized Officer" means any of the chief executive officer, president
or chief financial officer of the Borrower, acting singly.
"Bankruptcy Code" means Title 11, United States Code, sections 1 et seq.,
as the same may be amended from time to time, and any successor thereto or
replacement therefor which may be hereafter enacted.
"Borrower" means The John Nuveen Company, a Delaware corporation, and its
successors and assigns.
"Borrowing Date" means a date on which an Advance is made hereunder.
"Borrowing Notice" is defined in Section 2.7.
"Business Day" means (a) with respect to any borrowing, payment or rate
selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on
which banks generally are open in Chicago and New York for the conduct of
substantially all of their commercial lending activities and on which dealings
in United States dollars are carried on in the London interbank market, and (b)
for all other purposes, a day (other than a Saturday or Sunday) on which banks
generally are open in Chicago for the conduct of substantially all of their
commercial lending activities.
"CFTC" means the Commodities Future Trading Commission and any successor
entity.
"Capitalized Lease" of a Person means any lease of Property by such Person
as lessee which would be capitalized on a balance sheet of such Person prepared
in accordance with Agreement Accounting Principles.
"Capitalized Lease Obligations" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with
Agreement Accounting Principles.
"Change" is defined in Section 3.2.
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<PAGE> 10
"Change in Control" means (a) the acquisition by any Person, or two or
more Persons acting in concert, including without limitation any acquisition
effected by means of any transaction contemplated by Section 6.12, of
beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Exchange Act of 1934) of 30% or more
of the outstanding shares of voting stock of the Borrower, or (b) The St. Paul
Companies, Inc., or a successor acceptable to each of the Lenders, shall cease
to own beneficially and of record, free and clear of all Liens, other
encumbrances, or voting agreements, restrictions or trusts of any kind at least
50.1% of the outstanding shares of capital stock of the Borrower on a fully
diluted basis and shares representing the right to elect a majority of the
directors of the Borrower, or (c) during any period of 25 consecutive calendar
months, commencing on the date of this Agreement, the ceasing of those
individuals (the "Continuing Directors") who (i) were directors of the Borrower
on the first day of each such period or (ii) subsequently became directors of
the Borrower and whose initial election or initial nomination for election
subsequent to that date was approved by a majority of the Continuing Directors
then on the board of directors of the Borrower, to constitute a majority of the
board of directors of the Borrower.
"Co-Agents" mean collectively Bank of America National Trust and Savings
Association and The Chase Manhattan Bank in their capacities as Co-Agents for
the Lenders and not in their individual capacities as Lenders.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"Commitment" means, for each Lender, the obligation of such Lender to make
Loans not exceeding the amount set forth opposite its signature below and as
set forth in any Notice of Assignment relating to any assignment which has
become effective pursuant to Section 12.3.2, as such amount may be modified
from time to time pursuant to the terms hereof.
"Consolidated" or "consolidated", when used in connection with any
calculation, means a calculation to be determined on a consolidated basis for
the Borrower and its Subsidiaries in accordance with Agreement Accounting
Principles.
"Contingent Obligation" of a Person means any agreement, undertaking or
arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes or
is contingently liable upon, the obligation or liability of any other Person,
or agrees to maintain the net worth or working capital or other financial
condition of any other Person, or otherwise assures any creditor of such other
Person against loss, including, without limitation, any comfort letter,
operating agreement or take-or-pay contract or application for a Letter of
Credit.
"Controlled Group" means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with the Borrower or any of its Subsidiaries, are treated as a
single employer under Section 414 of the Code.
"Conversion/Continuation Notice" is defined in Section 2.8.
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<PAGE> 11
"Corporate Base Rate" means a rate per annum equal to the corporate base
rate of interest announced by First Chicago from time to time, changing when
and as said corporate base rate changes. The Corporate Base Rate is a
reference rate and does not necessarily represent the lowest or best rate of
interest actually charged to any customer. First Chicago may make commercial
loans or other loans at rates of interest at, above or below the Corporate Base
Rate.
"Default" means an event described in Article VII.
"Distribution Receivables" means advanced sales commissions reflected on
the consolidated balance sheet of the Borrower and its Subsidiaries in
accordance with Agreement Accounting Principles representing fees, commissions
or other amounts payable by registered investment companies sponsored or
advised by John Nuveen & Co. Incorporated ("Nuveen & Co.") or any Affiliate
thereof relating to the distribution of such investment companies' shares.
"EBITDA" means, for any applicable computation period, the Borrower's and
Subsidiaries' Net Income on a consolidated basis from continuing operations,
plus (a) income and franchise taxes paid or accrued during such period, (b)
interest expenses accrued during such period, and (c) amortization and
depreciation and other non-cash charges deducted in determining Net Income for
such period, all determined and computed in accordance with Agreement
Accounting Principles.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurodollar Advance" means an Advance which bears interest at the LIBOR
Rate.
"Eurodollar Loan" means a Loan which bears interest at the LIBOR Rate.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Facility Fee" is defined in Section 2.4.
"Facility Fee Percentage" means per annum (a) 0.07% for any day on which
Level I status exists, (b) 0.09% for any day on which Level II status exists
and (c) 0.11% for any day on which Level III status exists (as such Levels are
designated in the definition of "Applicable Margin"). The Facility Fee
Percentage shall be adjusted concurrently with any adjustment of the Applicable
Margin. Until so adjusted after the date hereof, the Facility Fee Percentage
shall be equal to 0.09%.
"Facility Termination Date" means August 8, 2000 or any earlier date on
which the Aggregate Commitment is reduced to zero or otherwise terminated
pursuant to the terms hereof.
"Federal Funds Base Rate" means, for any day, an interest rate per annum
equal to the sum of (a) 1/8 of 1%, plus (b) either (i) the rate determined by
the Agent to be the federal funds rate which appears on Dow Jones Markets Page
4833 as of 11:00 a.m. (Chicago time) on such day or (ii) if such rate does not
appear on Dow Jones Markets Page 4833, the rate determined by the Agent to be
the average of the quotations at approximately 11:00 a.m. (Chicago time) on
such day on
5
<PAGE> 12
overnight federal funds transactions received by the Agent from three federal
funds brokers of recognized standing selected by the Agent in its sole
discretion.
"Federal Funds Effective Rate" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day
which is a Business Day, the average of the quotations at approximately 11:00
a.m. (Chicago time) on such day on such transactions received by the Agent from
three Federal funds brokers of recognized standing selected by the Agent in its
sole discretion.
"Federal Funds Rate" means, for any day, the sum of (a) the Applicable
Margin in effect for such day and (b) the Federal Funds Base Rate for such day.
"Federal Funds Rate Advance" means an Advance which bears interest at the
Federal Funds Rate.
"Federal Funds Rate Loan" means a Loan which bears interest at the Federal
Funds Rate.
"Financial Statements" is defined in Section 5.5.
"First Chicago" means The First National Bank of Chicago in its individual
capacity, and its successors.
"First Chicago Demand Loan" means the Indebtedness evidenced by that
certain Master Note of the Borrower dated July 14, 1997 in the maximum
principal amount of $35,000,000 payable to the order of First Chicago (the
"Master Note"), together with the line of credit letter related thereto dated
July 14, 1997 between the Borrower and First Chicago.
"Fiscal Quarter" means one of the four three-month accounting periods
comprising a Fiscal Year.
"Fiscal Year" means the twelve-month accounting period ending December 31
of each year.
"Floating Rate Advance" means an Advance which bears interest at the
Alternate Base Rate or the Federal Funds Rate.
"Floating Rate Loan" means a Loan which bears interest at the Alternate
Base Rate or the Federal Funds Rate.
"Governmental Authority" means any government (foreign or domestic) or any
state or other political subdivision thereof or any governmental body, agency,
authority, department or commission (including without limitation any taxing
authority or political subdivision) or any instrumentality or officer thereof
(including without limitation any court or tribunal and any board of insurance,
6
<PAGE> 13
insurance department or insurance commissioner) exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government and any corporation, partnership or other entity directly or
indirectly owned or controlled by or subject to the control of any of the
foregoing.
"Indebtedness" of a Person means such Person's (a) obligations for
borrowed money, (b) obligations representing the deferred or additional
purchase price of Property or services (other than accounts payable arising in
the ordinary course of such Person's business payable on terms customary in the
trade) as such amounts, if any, become determinable, (c) obligations, whether
or not assumed, secured by Liens or payable out of the proceeds or production
from Property now or hereafter owned or acquired by such Person, (d)
obligations which are evidenced by notes, acceptances, or similar instruments,
(e) Capitalized Lease Obligations, (f) Rate Hedging Obligations, (g) Contingent
Obligations, (h) obligations for which such Person is obligated pursuant to or
in respect of a Letter of Credit and (i) repurchase obligations or liabilities
of such Person with respect to accounts or notes receivable sold by such
Person.
"Interest Period" means, with respect to a Eurodollar Advance, a period of
one, two, three or six months commencing on a Business Day selected by the
Borrower pursuant to this Agreement. Such Interest Period shall end on (but
exclude) the day which corresponds numerically to such date one, two, or three
or six months thereafter; provided, however, that if there is no such
numerically corresponding day in such next, second, or third or sixth
succeeding month, such Interest Period shall end on the last Business Day of
such next, second, or third or sixth succeeding month. If an Interest Period
would otherwise end on a day which is not a Business Day, such Interest Period
shall end on the next succeeding Business Day; provided, however, that if said
next succeeding Business Day falls in a new calendar month, such Interest
Period shall end on the immediately preceding Business Day.
"Investment" of a Person means any loan, advance (other than commission,
travel and similar advances to officers and employees made in the ordinary
course of business), extension of credit (other than accounts receivable
arising in the ordinary course of business on terms customary in the trade),
deposit account or contribution of capital by such Person to any other Person
or any investment in, or purchase or other acquisition of, the stock,
partnership interests, notes, debentures or other securities of any other
Person made by such Person.
"Investment Company Act" means the Investment Company Act of 1940, as
amended.
"LIBOR Base Rate" means, with respect to a Eurodollar Advance for the
relevant Interest Period, the rate at which deposits in U.S. dollars are
offered as shown on screen "LR" of Bloomberg as of 10 a.m. (London time) two
Business Days prior to the first day of such Interest Period; and if no such
offered rate exists, "LIBOR Base Rate" means the rate determined by the Agent
to be the rate at which deposits in U.S. dollars are offered by First Chicago
to first-class banks in the London interbank market at approximately 10 a.m.
(London time) two Business Days prior to the first day of such Interest Period,
in each case in the approximate amount of the relevant Eurodollar Loan and
having a maturity approximately equal to such Interest Period.
7
<PAGE> 14
"LIBOR Rate" means, with respect to a Eurodollar Advance for the relevant
Interest Period, the sum of (a) the quotient of (i) the LIBOR Base Rate
applicable to such Interest Period, divided by (ii) one minus the Reserve
Requirement (expressed as a decimal) applicable to such Interest Period, plus
(b) the Applicable Margin. The LIBOR Rate shall be rounded to the next higher
multiple of 1/16 of 1% if the rate is not such a multiple.
"Lenders" means the lending institutions listed on the signature pages of
this Agreement and their respective successors and assigns.
"Lending Installation" means, with respect to a Lender or the Agent, any
office, branch, subsidiary or affiliate of such Lender or the Agent.
"Letter of Credit" of a Person means a letter of credit or similar
instrument which is issued upon the application of such Person or upon which
such Person is an account party or for which such Person is in any way liable.
"Level" means any of the three ratio ranges applicable to the Leverage
Ratio as set forth in the table contained in the definition of "Applicable
Margin."
"Leverage Ratio" means, as determined as of the end of any Fiscal Quarter,
the ratio of (a) Net Debt at such time to (b) Annual Operating Cash Flow.
"Lien" means any security interest, lien (statutory or other), mortgage,
pledge, hypothecation, assignment, deposit arrangement, encumbrance or
preference, priority or other security agreement or preferential arrangement of
any kind or nature whatsoever (including, without limitation, the interest of a
vendor or lessor under any conditional sale, Capitalized Lease or other title
retention agreement).
"Loan" means, with respect to a Lender, such Lender's portion of any
Advance and "Loans" means, with respect to the Lenders, the aggregate of all
Advances.
"Loan Documents" means this Agreement, the Notes and the other documents
and agreements contemplated hereby and executed by the Borrower in favor of the
Agent or any Lender.
"MSRB" means the Municipal Securities Rulemaking Board or any successor
entity.
"Margin Stock" has the meaning assigned to that term under Regulation U.
"Material Adverse Effect" means a material adverse effect on (a) the
business, Property, condition (financial or other), performance or results of
operations of the Borrower and its Subsidiaries taken as a whole, (b) the
ability of the Borrower to perform its obligations under the Loan Documents, or
(c) the validity or enforceability of any of the Loan Documents or the rights
or remedies of the Agent or the Lenders thereunder.
8
<PAGE> 15
"Multiemployer Plan" means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement to which the Borrower or any
member of the Controlled Group is a party to which more than one employer is
obligated to make contributions.
"NASD" means the National Association of Securities Dealers, Inc.
"NYSE" means the New York Stock Exchange, Inc.
"Net Debt" means the aggregate outstanding principal balance of all
Indebtedness of the Borrower and its Subsidiaries on a consolidated basis
required to be reflected on a balance sheet prepared in accordance with
Agreement Accounting Principles minus short-term Indebtedness of up to
$200,000,000 used to finance temporary Investments in variable rate demand
obligations arising in connection with remarketing activities of the Borrower
and its Subsidiaries.
"Net Income" means, for any computation period, with respect to the
Borrower on a consolidated basis with its Subsidiaries (other than any
Subsidiary which is restricted from declaring or paying dividends or otherwise
advancing funds to its parent whether by contract or otherwise), cumulative net
income earned during such period as determined in accordance with Agreement
Accounting Principles.
"Net Worth" means at any date the consolidated common stockholders' equity
of the Borrower and its consolidated Subsidiaries determined in accordance with
Agreement Accounting Principles.
"Note" means a promissory note in substantially the form of Exhibit A
hereto, with appropriate insertions, duly executed and delivered to the Agent
by the Borrower and payable to the order of a Lender in the amount of its
Commitment, including any amendment, modification, renewal or replacement of
such promissory note.
"Notice of Assignment" is defined in Section 12.3.2.
"Obligations" means all unpaid principal of and accrued and unpaid
interest on the Notes, all accrued and unpaid fees and all expenses,
reimbursements, indemnities and other obligations of the Borrower to the
Lenders or to any Lender, the Agent or any indemnified party hereunder arising
under any of the Loan Documents.
"Participants" is defined in Section 12.2.1.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto.
"Person" means any natural person, corporation, firm, joint venture,
partnership, association, enterprise, limited liability company, trust or other
entity or organization, or any government or political subdivision or any
agency, department or instrumentality thereof.
9
<PAGE> 16
"Plan" means an employee pension benefit plan, as defined in Section 3(2)
of ERISA, as to which the Borrower or any member of the Controlled Group may
have any liability.
"Property" of a Person means any and all property, whether real, personal,
tangible, intangible, or mixed, of such Person, or other assets owned, leased
or operated by such Person.
"pro-rata" means, when used with respect to a Lender, and any described
aggregate or total amount, an amount equal to such Lender's pro-rata share or
portion based on its percentage of the Aggregate Commitment or if the Aggregate
Commitment has been terminated, its percentage of the aggregate principal
amount of outstanding Advances.
"Purchase" means any transaction, or any series of related transactions,
consummated on or after the date of this Agreement, by which the Borrower or
any of its Subsidiaries (a) acquires any ongoing business or all or
substantially all of the assets of any Person or division or line of business
thereof, whether through purchase of assets, merger or otherwise, or (b)
directly or indirectly acquires (in one transaction or as the most recent
transaction in a series of transactions) at least a majority (in number of
votes) of the securities of a corporation which have ordinary voting power for
the election of directors (other than securities having such power only by
reason of the happening of a contingency) or a majority (by percentage or
voting power) of the outstanding partnership interests of a partnership.
"Purchasers" is defined in Section 12.3.1.
"Rate Hedging Obligations" of a Person means any and all obligations of
such Person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (a) any and all
agreements, devices or arrangements designed to protect at least one of the
parties thereto from the fluctuations of interest rates, exchange rates or
forward rates applicable to such party's assets, liabilities or exchange
transactions, including, but not limited to, dollar-denominated or
cross-currency interest rate exchange agreements, forward currency exchange
agreements, interest rate cap or collar protection agreements, forward rate
currency or interest rate options, puts and warrants, and (b) any and all
cancellations, buybacks, reversals, terminations or assignments of any of the
foregoing.
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor thereto or
other regulation or official interpretation of said Board of Governors relating
to reserve requirements applicable to depositary institutions.
"Regulation G" means Regulation G of the Board of Governors of the Federal
Reserve System as from time to time in effect and shall include any successor
or other regulation or official interpretation of said Board of Governors
relating to the extension of credit by Persons other than banks, brokers and
dealers for the purpose of purchasing or carrying margin stocks applicable to
such Persons.
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<PAGE> 17
"Regulation T" means Regulation T of the Board of Governors of the Federal
Reserve System as from time to time in effect and shall include any successor
or other regulation or official interpretation of such Board of Governors
relating to the extension of credit by securities brokers and dealers for the
purpose of purchasing or carrying margin stocks applicable to such Persons.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to
the extension of credit by banks for the purpose of purchasing or carrying
margin stocks applicable to such Persons.
"Regulation X" means Regulation X of the Board of Governors of the Federal
Reserve System as from time to time in effect and shall include any successor
or other regulation or official interpretation of said Board of Governors
relating to the extension of credit by the specified lenders for the purpose of
purchasing or carrying margin stocks applicable to such Persons.
"Reportable Event" means a reportable event as defined in Section 4043 of
ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC has by regulation waived
the requirement of Section 4043(a) of ERISA that it be notified within 30 days
of the occurrence of such event; provided, that a failure to meet the minimum
funding standard of Section 412 of the Code and of Section 302 of ERISA shall
be a Reportable Event regardless of the issuance of any such waiver of the
notice requirement in accordance with either Section 4043(a) of ERISA or
Section 412(d) of the Code.
"Required Lenders" means Lenders in the aggregate having at least 60% of
the Aggregate Commitment or, if the Aggregate Commitment has been terminated,
Lenders in the aggregate holding at least 60% of the aggregate unpaid principal
amount of the outstanding Loans.
"Reserve Requirement" means, with respect to an Interest Period, the
maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on
Eurocurrency liabilities.
"Risk-Based Capital Guidelines" is defined in Section 3.2.
"SEC" means the Securities and Exchange Commission or any successor
entity.
"SIPC" means the Securities Investor Protection Corporation or any
successor entity.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Seed Money" means Investments constituting the initial investment in any
registered investment company sponsored by Nuveen & Co. or any Affiliate
thereof made by Nuveen Advisory Corp. ("Nuveen Advisory"), Nuveen Institutional
Advisory Corp. ("Nuveen Institutional") or any Affiliate thereof pursuant to
Section 14(a) (or any successor provision) of the Investment Company Act,
without regard to any minimum investment requirements under said Section 14(a).
11
<PAGE> 18
"Single Employer Plan" means a Plan subject to Title IV of ERISA
maintained by the Borrower or any member of the Controlled Group for employees
of the Borrower or any member of the Controlled Group, other than a
Multiemployer Plan.
"Subsidiary" of a Person means (a) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or
more of its Subsidiaries or by such Person and one or more of its Subsidiaries,
or (b) any partnership, association, joint venture, limited liability company
or similar business organization more than 50% of the ownership interests
having ordinary voting power of which shall at the time be so owned or
controlled. Unless otherwise expressly provided, all references herein to a
"Subsidiary" shall mean a Subsidiary of the Borrower.
"Substantial Portion" means, with respect to the Property of the Borrower
and its Subsidiaries, Property which (a) represents more than 10% of the
consolidated assets of the Borrower and its Subsidiaries, as would be shown in
the consolidated financial statements of the Borrower and its Subsidiaries as
at the end of the quarter next preceding the date on which such determination
is made, or (b) is responsible for more than 10% of the consolidated net sales
or 20% of the Net Income of the Borrower and its Subsidiaries for the 12-month
period ending as of the end of the quarter next preceding the date of
determination.
"Termination Event" means, with respect to a Plan which is subject to
Title IV of ERISA, (a) a Reportable Event, (b) the withdrawal of the Borrower
or any other member of the Controlled Group from such Plan during a plan year
in which the Borrower or any other member of the Controlled Group was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA or was deemed
such under Section 4068(f) of ERISA, (c) the termination of such Plan, the
filing of a notice of intent to terminate such Plan or the treatment of an
amendment of such Plan as a termination under Section 4041 of ERISA, (d) the
institution by the PBGC of proceedings to terminate such Plan or (e) any event
or condition which might constitute grounds under Section 4042 of ERISA for the
termination of, or appointment of a trustee to administer, such Plan.
"Transferee" is defined in Section 12.4.
"Type" means, with respect to any Advance, its nature as an Alternate Base
Rate Advance, a Federal Funds Rate Advance or a Eurodollar Advance.
"UIT" means a unit investment trust consisting of a portfolio of municipal
bonds or taxable securities.
"Unfunded Liability" means the amount (if any) by which the present value
of all vested and unvested accrued benefits under a Single Employer Plan
exceeds the fair market value of assets allocable to such benefits, all
determined as of the then most recent valuation date for such Plans using PBGC
actuarial assumptions for single employer plan terminations.
"Unmatured Default" means an event which but for the lapse of time or the
giving of notice, or both, would constitute a Default.
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<PAGE> 19
"Wholly-Owned Subsidiary" of a Person means (a) any Subsidiary all of the
outstanding voting securities of which shall at the time be owned or
controlled, directly or indirectly, by such Person or one or more Wholly-Owned
Subsidiaries of such Person, or by such Person and one or more Wholly-Owned
Subsidiaries of such Person, or (b) any partnership, association, joint
venture, limited liability company or similar business organization 100% of the
ownership interests having ordinary voting power of which shall at the time be
so owned or controlled.
The foregoing definitions shall be equally applicable to both the singular
and plural forms of the defined terms.
ARTICLE II
THE CREDITS
2.1. Advances. (a) From and including the date hereof to but excluding
the Facility Termination Date, each Lender severally (and not jointly) agrees,
on the terms and conditions set forth in this Agreement, to make Loans to the
Borrower from time to time in amounts not to exceed in the aggregate at any one
time outstanding the amount of its pro-rata share of the Aggregate Commitment
existing at such time. Subject to the terms of this Agreement, the Borrower
may borrow, repay and reborrow Advances at any time prior to the Facility
Termination Date.
(b) The Borrower hereby agrees that if at any time, as a result of
reductions in the Aggregate Commitment pursuant to Section 2.4 or otherwise,
the aggregate balance of the Loans exceeds the Aggregate Commitment, the
Borrower shall repay immediately its then outstanding Loans in such amount as
may be necessary to eliminate such excess.
(c) The Borrower's obligation to pay the principal of, and interest on,
the Loans shall be evidenced by the Notes. Although the Notes shall be dated
the date of the initial Advance, interest in respect thereof shall be payable
only for the periods during which the Loans evidenced thereby are outstanding
and, although the stated amount of each Note shall be equal to the applicable
Lender's Commitment, each Note shall be enforceable, with respect to the
Borrower's obligation to pay the principal amount thereof, only to the extent
of the unpaid principal amount of the Loan at the time evidenced thereby.
(d) All Advances and all Loans shall mature, and the principal amount
thereof and the unpaid accrued interest thereon shall be due and payable, on
the Facility Termination Date.
2.2. Ratable Loans. Each Advance hereunder shall consist of Loans made
from the several Lenders ratably in proportion to the ratio that their
respective Commitments bear to the Aggregate Commitment.
2.3. Types of Advances. The Advances may be Alternate Base Rate Advances,
Federal Funds Rate Advances or Eurodollar Advances, or a combination thereof,
selected by the Borrower in accordance with Sections 2.7 and 2.8.
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2.4. Facility Fee; Reductions in Aggregate Commitment. (a) The Borrower
agrees to pay to the Agent for the account of each Lender a facility fee ("the
"Facility Fee") in an amount equal to the Facility Fee Percentage times the
daily average Commitment of such Lender (regardless of usage) from the date
hereof to and including the Facility Termination Date, payable quarterly in
arrears on the first Business Day following the end of each calendar quarter
hereafter and on the Facility Termination Date. All accrued Facility Fees
shall be payable on the effective date of any termination of the obligations of
the Lenders to make Loans hereunder.
(b) The Borrower may permanently reduce the Aggregate Commitment in whole,
or in part ratably among the Lenders in a minimum aggregate amount of
$5,000,000 or any integral multiple of $1,000,000 in excess thereof, upon at
least three (3) Business Days' written notice to the Agent, which notice shall
specify the amount of any such reduction; provided, however, that the amount of
the Aggregate Commitment may not be reduced below the aggregate principal
amount of the outstanding Advances.
2.5. Minimum Amount of Each Advance. Each Eurodollar Advance shall be in
the minimum amount of $5,000,000 (and in multiples of $1,000,000 if in excess
thereof), and each Floating Rate Advance shall be in the minimum amount of
$5,000,000 (and in multiples of $1,000,000 if in excess thereof); provided,
however, that (a) any Floating Rate Advance may be in the amount of the unused
Aggregate Commitment and (b) in no event shall more than five (5) Eurodollar
Advances be permitted to be outstanding at any time.
2.6. Optional Principal Payments. The Borrower may from time to time pay,
without penalty or premium, all outstanding Floating Rate Advances, or, in a
minimum aggregate amount of $5,000,000 or any integral multiple of $1,000,000
in excess thereof, any portion of the outstanding Floating Rate Advances upon
two Business Days' prior notice to the Agent. Subject to Section 3.4 and upon
like notice, a Eurodollar Advance may be paid prior to the last day of the
applicable Interest Period in a minimum amount of $5,000,000 or any integral
multiple of $1,000,000 in excess thereof.
2.7. Method of Selecting Types and Interest Periods for New Advances. The
Borrower shall select the Type of Advance and, in the case of each Eurodollar
Advance, the Interest Period applicable to each Advance from time to time. The
Borrower shall give the Agent irrevocable notice (a "Borrowing Notice") not
later than 10:00 a.m. (Chicago time) on the Borrowing Date of each Floating
Rate Advance and at least three (3) Business Days before the Borrowing Date for
each Eurodollar Advance, specifying:
(a) the Borrowing Date of such Advance, which shall be a Business Day;
(b) the aggregate amount of such Advance;
(c) the Type of Advance selected; and
(d) in the case of each Eurodollar Advance, the Interest Period
applicable thereto, which shall end on or prior to the Facility Termination
Date;
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provided, however, that with respect to the initial Advance, the Borrowing
Notice shall be delivered to the Agent not later than 1:00 p.m. (Chicago time)
one Business Day before the date of the initial Advance and shall be for a
Floating Rate Advance. Not later than noon (Chicago time) on each Borrowing
Date, each Lender shall make available its Loan or Loans, in funds immediately
available in Chicago, to the Agent at its address specified pursuant to Article
XIII. The Agent will make the funds so received from the Lenders available to
the Borrower at the Agent's aforesaid address.
2.8. Conversion and Continuation of Outstanding Advances. Floating Rate
Advances shall continue as Floating Rate Advances unless and until such
Floating Rate Advances are repaid or are converted into Eurodollar Advances.
Each Eurodollar Advance shall continue as a Eurodollar Advance until the end of
the then applicable Interest Period therefor, at which time such Eurodollar
Advance shall be automatically converted into an Alternate Base Rate Advance
unless the Borrower shall have given the Agent a Conversion/Continuation Notice
requesting that, at the end of such Interest Period, such Eurodollar Advance
continue as a Eurodollar Advance for the same or another Interest Period.
Subject to the terms of Section 2.5, the Borrower may elect from time to time
to convert all or any part of an Advance of any Type into any other Type or
Types of Advances; provided, however, that any conversion of any Eurodollar
Advance shall be made on, and only on, the last day of the Interest Period
applicable thereto. The Borrower shall give the Agent irrevocable notice (a
"Conversion/Continuation Notice") of each conversion of a Floating Rate Advance
or continuation of a Eurodollar Advance not later than 10:00 a.m. (Chicago
time) on such Business Day in the case of a conversion into a Floating Rate
Advance, or at least three (3) Business Days prior to the date of the requested
conversion or continuation in the case of a conversion into or continuation of
a Eurodollar Advance, specifying:
(a) the requested date of such conversion or continuation, which shall
be a Business Day;
(b) the aggregate amount and Type of the Advance which is to be
converted or continued; and
(c) the amount and Type(s) of Advance(s) into which such Advance is to
be converted or continued and, in the case of a conversion into or continuation
of a Eurodollar Advance, the duration of the Interest Period applicable
thereto, which shall end on or prior to the Facility Termination Date.
2.9. Changes in Interest Rate, etc. Each Floating Rate Advance shall bear
interest at the Floating Rate from and including the date of such Advance or
the date on which such Advance was converted into a Floating Rate Advance to
(but not including) the date on which such Floating Rate Advance is paid or
converted to a Eurodollar Advance. Changes in the rate of interest on that
portion of any Advance maintained as a Floating Rate Advance will take effect
simultaneously with each change in the Alternate Base Rate or the Federal Funds
Rate, as the case may be. Each Eurodollar Advance shall bear interest from and
including the first day of the Interest Period applicable thereto to, but not
including, the last day of such Interest Period at the interest rate determined
as applicable to such Eurodollar Advance. No Interest Period may end after the
Facility Termination Date.
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2.10. Rates Applicable After Default. Notwithstanding anything to the
contrary contained in Section 2.7 or 2.8, no Advance may be made as, converted
into or continued as a Eurodollar Advance (except with the consent of the Agent
and the Required Lenders) when any Default or Unmatured Default has occurred
and is continuing. During the continuance of a Default the Required Lenders
may, at their option, by notice to the Borrower (which notice may be revoked at
the option of the Required Lenders notwithstanding any provision of Section 8.2
requiring unanimous consent of the Lenders to changes in interest rates),
declare that each Eurodollar Advance and Floating Rate Advance shall bear
interest (for the remainder of the applicable Interest Period in the case of
Eurodollar Advances) at a rate per annum equal to the Alternate Base Rate plus
two percent (2%) per annum; provided, however, that such increased rate shall
automatically and without action of any kind by the Lenders become and remain
applicable until revoked by the Required Lenders in the event of a Default
described in Section 7.6 or 7.7.
2.11. Method of Payment. All payments of the Obligations hereunder shall
be made, without setoff, deduction or counterclaim, in immediately available
funds to the Agent at the Agent's address specified pursuant to Article XIII,
or at any other Lending Installation of the Agent specified in writing by the
Agent to the Borrower, by noon (Chicago time) on the date when due and shall be
applied ratably by the Agent among the Lenders. Each payment delivered to the
Agent for the account of any Lender shall be delivered promptly by the Agent to
such Lender in the same type of funds that the Agent received at its address
specified pursuant to Article XIII or at any Lending Installation specified in
a notice received by the Agent from such Lender. The Agent is hereby
authorized to charge the account of the Borrower maintained with First Chicago
for each payment of principal, interest and fees as it becomes due hereunder.
2.12. Notes; Telephonic Notices. Each Lender is hereby authorized to
record the principal amount of each of its Loans and each repayment on its
books and records in accordance with its usual practices; provided, however,
that neither the failure to so record nor any error in such recordation shall
affect the Borrower's obligations under such Note. The Borrower hereby
authorizes the Lenders and the Agent to extend, convert or continue Advances,
effect selections of Types of Advances and to transfer funds based on
telephonic notices made by any Authorized Officer or any person or persons
designated by an Authorized Officer in writing to the Agent which the Agent or
any Lender in good faith believes to be acting on behalf of the Borrower. The
Borrower agrees to deliver promptly to the Agent a written confirmation, if
such confirmation is requested by the Agent or any Lender, of each telephonic
notice signed by an Authorized Officer. If the written confirmation differs in
any material respect from the action taken by the Agent and the Lenders, the
records of the Agent and the Lenders shall govern absent manifest error.
2.13. Interest Payment Dates; Interest and Fee Basis. Interest accrued on
each Floating Rate Advance shall be payable on the first day of each month,
commencing with the first such date to occur after the date hereof, on any date
on which a Floating Rate Advance is prepaid, whether due to acceleration or
otherwise, and at maturity. Interest accrued on each Eurodollar Advance shall
be payable on the last day of its applicable Interest Period, on any date on
which the Eurodollar Advance is prepaid, whether by acceleration or otherwise,
and at maturity. Interest accrued on each Eurodollar Advance having an
Interest Period longer than three months shall also be payable on the last day
of each three-month interval during such Interest Period. Interest on
Eurodollar Advances
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and Facility Fees shall be calculated for actual days elapsed on the basis of
a 360-day year. Interest on Floating Rate Advances shall be calculated for
actual days elapsed on the basis of a 365- or 366-day year, as the case may be.
Interest shall be payable for the day an Advance is made but not for the day of
any payment on the amount paid if payment is received prior to noon (Chicago
time) at the place of payment. If any payment of principal of or interest on
an Advance shall become due on a day which is not a Business Day, such payment
shall be made on the next succeeding Business Day and, in the case of a
principal payment, such extension of time shall be included in computing
interest in connection with such payment.
2.14. Notification of Advances, Interest Rates, Prepayments and Commitment
Reductions. Promptly after receipt thereof, the Agent will notify each Lender
of the contents of each Aggregate Commitment reduction notice, Borrowing
Notice, Conversion/Continuation Notice, and repayment notice received by it
hereunder. The Agent will notify each Lender of the interest rate applicable
to each Eurodollar Advance promptly upon determination of such interest rate
and will give each Lender prompt notice of each change in the Alternate Base
Rate or the Federal Funds Rate.
2.15. Lending Installations. Each Lender may book its Loans at any
Lending Installation selected by such Lender and may change its Lending
Installation from time to time. All terms of this Agreement shall apply to any
such Lending Installation and the Notes shall be deemed held by each Lender for
the benefit of such Lending Installation. Each Lender may, by written or telex
notice to the Agent and the Borrower, designate a Lending Installation through
which Loans will be made by it and for whose account Loan payments are to be
made.
2.16. Non-Receipt of Funds by the Agent. Unless the Borrower or a Lender,
as the case may be, notifies the Agent prior to the date on which it is
scheduled to make payment to the Agent of (a) in the case of a Lender, the
proceeds of a Loan, or (b) in the case of the Borrower, a payment of principal,
interest or fees to the Agent for the account of the Lenders, that it does not
intend to make such payment, the Agent may assume that such payment has been
made. The Agent may, but shall not be obligated to, make the amount of such
payment available to the intended recipient in reliance upon such assumption.
If the Borrower has not in fact made such payment to the Agent, the Lenders
shall, on demand by the Agent, repay to the Agent the amount so made available
together with interest thereon in respect of each day during the period
commencing on the date such amount was so made available by the Agent until the
date the Agent recovers such amount at a rate per annum equal to the Federal
Funds Effective Rate for such day. If any Lender has not in fact made such
payment to the Agent, such Lender or the Borrower shall, on demand by the
Agent, repay to the Agent the amount so made available together with interest
thereon in respect of each day during the period commencing on the date such
amount was so made available by the Agent until the date the Agent recovers
such amount at a rate per annum equal to (a) in the case of payment by a
Lender, the Federal Funds Effective Rate for such day, or (b) in the case of
payment by the Borrower, the interest rate applicable to the relevant Loan.
2.17. Taxes. (a) Any payments made by the Borrower under this Agreement
shall be made free and clear of, and without deduction or withholding for or on
account of, any present or future income, stamp or other taxes, levies,
imposts, duties, charges, fees, deductions or withholdings, now or hereafter
imposed, levied, collected, withheld or assessed by any
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Governmental Authority, excluding net income taxes and franchise taxes or any
other tax based upon net income imposed on the Agent or any Lender by the
jurisdiction in which the Agent or such Lender is incorporated or has its
principal place of business. If any such non-excluded taxes, levies, imposts,
duties, charges, fees, deductions or withholdings ("Non-Excluded Taxes") are
required to be withheld from any amounts payable to the Agent or any Lender
hereunder, the amounts so payable to the Agent or such Lender shall be
increased to the extent necessary to yield to the Agent or such Lender (after
payment of all Non-Excluded Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in or pursuant to this
Agreement; provided, however, that the Borrower shall not be required to
increase any such amounts payable to any Lender that is not organized under the
laws of the U.S. or a state thereof if such Lender fails to comply with the
requirements of paragraph (b) of this Section 2.17. Whenever any Non-Excluded
Taxes are payable by the Borrower, as promptly as practicable thereafter the
Borrower shall send to the Agent for its own account or for the account of such
Lender, as the case may be, a certified copy of an original official receipt
received by the Borrower showing payment thereof. If the Borrower fails to pay
any Non-Excluded Taxes when due to the appropriate taxing authority or fails to
remit to the Agent the required receipts or other required documentary
evidence, the Borrower shall indemnify the Agent and the Lenders for any
incremental taxes, interest or penalties that may become payable by any Agent
or any Lender as a result of any such failure. The agreements in this Section
2.17 shall survive the termination of this Agreement and the payment of all
other amounts payable hereunder.
(b) At least five Business Days prior to the first date on which
interest or fees are payable hereunder for the account of any Lender, each
Lender that is not incorporated under the laws of the United States of America,
or a state thereof, agrees that it will deliver to each of the Borrower and the
Agent two duly completed copies of United States Internal Revenue Service Form
1001 or 4224, certifying in either case that such Lender is entitled to receive
payments under this Agreement and the Notes without deduction or withholding of
any United States federal income taxes. Each Lender which so delivers a Form
1001 or 4224 further undertakes to deliver to each of the Borrower and the
Agent two additional copies of such form (or a successor form) on or before the
date that such form expires (currently, three successive calendar years for
Form 1001 and one calendar year for Form 4224) or becomes obsolete or after the
occurrence of any event requiring a change in the most recent forms so
delivered by it, and such amendments thereto or extensions or renewals thereof
as may be reasonably requested by the Borrower or the Agent, in each case
certifying that such Lender is entitled to receive payments under this
Agreement and the Notes without deduction or withholding of any United States
federal income taxes, unless an event (including, without limitation, any
change in treaty, law or regulation) has occurred prior to the date on which
any such delivery would otherwise be required which renders all such forms
inapplicable or which would prevent such Lender from duly completing and
delivering any such form with respect to it and such Lender advises the
Borrower and the Agent that it is not capable of receiving payments without any
deduction or withholding of United States federal income tax.
2.18. Agent's Fees. The Borrower shall pay to the Agent those fees, in
addition to the Facility Fees referenced in Section 2.4(a), in the amounts and
at the times separately agreed to between the Agent and the Borrower.
ARTICLE III
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CHANGE IN CIRCUMSTANCES
3.1. Yield Protection. If, after the date hereof, the adoption of or any
change in any law or any governmental or quasi-governmental rule, regulation,
policy, guideline or directive (whether or not having the force of law), or any
interpretation thereof, or the compliance of any Lender therewith,
(a) subjects any Lender or any applicable Lending Installation to any
tax, duty, charge or withholding on or from payments due from the Borrower
(excluding taxation of the overall net income of any Lender or applicable
Lending Installation imposed by the jurisdiction in which such Lender or
Lending Installation is incorporated or has its principal place of business),
or changes the basis of taxation of principal, interest or any other payments
to any Lender or Lending Installation in respect of its Loans or other amounts
due it hereunder, or
(b) imposes or increases or deems applicable any reserve, assessment,
insurance charge, special deposit or similar requirement against assets of,
deposits with or for the account of, or credit extended by, any Lender or any
applicable Lending Installation (other than reserves and assessments taken into
account in determining the interest rate applicable to Eurodollar Advances), or
(c) imposes any other condition the result of which is to increase the
cost to any Lender or any applicable Lending Installation of making, funding or
maintaining Loans or reduces any amount receivable by any Lender or any
applicable Lending Installation in connection with any Loans, or requires any
Lender or any applicable Lending Installation to make any payment calculated by
reference to the amount of Loans held, or interest received by it, by an amount
deemed material by such Lender,
then, within 30 days of demand by such Lender, the Borrower shall pay such
Lender that portion of such increased expense incurred or resulting in an
amount received which such Lender determines is attributable to making, funding
and maintaining its Loans and its Commitment; provided that the Borrower shall
not be required to pay any such expense or reimburse for reduced amounts
received more than 180 days prior to the date of demand.
3.2. Changes in Capital Adequacy Regulations. If a Lender determines the
amount of capital required or expected to be maintained by such Lender, any
Lending Installation of such Lender or any corporation controlling such Lender
is increased as a result of a Change, then, within 30 days of demand by such
Lender, the Borrower shall pay such Lender the amount necessary to compensate
for any shortfall in the rate of return on the portion of such increased
capital which such Lender determines is attributable to this Agreement, its
Loans or its obligation to make Loans hereunder (after taking into account such
Lender's policies as to capital adequacy); provided that the Borrower shall not
be required to pay such amount with respect to any shortfall incurred more than
180 days prior to the date of demand. "Change" means (a) any change after the
date of this Agreement in the Risk-Based Capital Guidelines, or (b) any
adoption of or change in any other law, governmental or quasi-governmental
rule, regulation, policy, guideline, interpretation, or directive
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(whether or not having the force of law) after the date of this Agreement which
affects the amount of capital required or expected to be maintained by any
Lender or any Lending Installation or any corporation controlling any Lender.
"Risk-Based Capital Guidelines" means (a) the risk-based capital guidelines in
effect in the United States on the date of this Agreement and (b) the
corresponding capital regulations promulgated by regulatory authorities outside
the United States implementing the July 1988 report of the Basle Committee on
Banking Regulation and Supervisory Practices entitled "International
Convergence of Capital Measurements and Capital Standards" and any amendments
to such regulations adopted prior to the date of this Agreement.
3.3. Availability of Types of Advances. If (a) any Lender determines that
maintenance of its Eurodollar Loans at a suitable Lending Installation would
violate any applicable law, rule, regulation, or directive, whether or not
having the force of law, or (b) the Required Lenders determine that deposits of
a type and maturity appropriate to match fund Eurodollar Advances are not
available or the interest rate applicable to Eurodollar Advances does not
accurately reflect the cost of making or maintaining such Eurodollar Advances,
then (x) in the case of clause (a) above, the Agent shall suspend the
availability of Eurodollar Advances from such Lender and require any (1)
outstanding Eurodollar Loans from affected Lender to be promptly converted into
Alternate Base Rate Loans and (2) future Eurodollar Loans from such Lender to
be funded as Alternate Base Rate Loans for the future Interest Periods until
the conditions described in clause (a) cease to exist, and (y) in the case of
clause (b) above, the Agent shall suspend the availability of Eurodollar
Advances until such unavailability or cost problem ceases to exist and require
that the Eurodollar Advances affected be converted to Alternate Base Rate
Advances on the last day of the applicable Interest Period.
3.4. Funding Indemnification. If any payment of a Eurodollar Advance
occurs on a date which is not the last day of the applicable Interest Period,
whether because of acceleration, prepayment or otherwise, or a Eurodollar
Advance is not made on the date specified by the Borrower for any reason other
than default by the Lenders, the Borrower will indemnify the Agent and each
Lender for any loss or cost (but not lost profits) incurred by it resulting
therefrom, including, without limitation, any loss or cost in liquidating or
employing deposits acquired to fund or maintain the Eurodollar Advance.
3.5. Lender Statements; Survival of Indemnity. To the extent reasonably
possible, each Lender shall designate an alternate Lending Installation with
respect to its Loans to reduce any liability of the Borrower to such Lender
under Sections 2.17, 3.1 and 3.2 or to avoid the unavailability of a Type of
Advance under Section 3.3, so long as such designation is not disadvantageous
to such Lender. Each Lender shall deliver a written statement of such Lender
to the Borrower (with a copy to the Agent) as to the amount due, if any, under
Section 2.17, 3.1, 3.2 or 3.4. Such written statement shall set forth in
reasonable detail the calculations upon which such Lender determined such
amount and shall be presumptively correct and binding on the Borrower in the
absence of manifest error. Determination of amounts payable under such
Sections in connection with a Eurodollar Loan shall be calculated as though
each Lender funded its Eurodollar Loan through the purchase of a deposit of the
type and maturity corresponding to the deposit used as a reference in
determining the Eurodollar Rate applicable to such Loan, whether in fact that
is the case or not. Unless otherwise provided herein, the amount specified in
the written statement of any Lender shall
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be payable on demand after receipt by the Borrower of the written statement.
The obligations of the Borrower under Sections 3.1, 3.2 and 3.4 shall survive
payment of the Obligations and termination of this Agreement.
ARTICLE IV
CONDITIONS PRECEDENT
4.1. Initial Loans. The Lenders shall not be required to make the initial
Advance hereunder unless the Borrower has furnished the following to the Agent
with sufficient copies for the Lenders and the other conditions set forth below
have been satisfied, in each case on or before September 15, 1997:
(a) Charter Documents; Good Standing Certificates. Copies of the
certificate of incorporation of the Borrower, together with all amendments
thereto, certified by the Secretary of State of Delaware, together with a good
standing certificate issued by the Secretary of State of Delaware and the
Secretary of State of Illinois.
(b) By-Laws and Resolutions. Copies, certified by the Secretary or
Assistant Secretary of the Borrower, of its by-laws and of its Board of
Directors' resolutions authorizing the execution, delivery and performance of
the Loan Documents to which the Borrower is a party.
(c) Secretary's Certificate. An incumbency certificate, executed by
the Secretary or Assistant Secretary of the Borrower, which shall identify by
name and title and bear the signature of the officers of the Borrower
authorized to sign the Loan Documents and to make borrowings hereunder, upon
which certificate the Agent and the Lenders shall be entitled to rely until
informed of any change in writing by the Borrower.
(d) Officer's Certificate. A certificate, dated the date of this
Agreement, signed by an Authorized Officer of the Borrower, in form and
substance satisfactory to the Agent, to the effect that: (i) on such date (both
before and after giving effect to the making of any Loans hereunder) no Default
or Unmatured Default has occurred and is continuing and (ii) each of the
representations and warranties set forth in Article V of this Agreement is true
and correct on and as of such date.
(e) Legal Opinions. A written opinion of (i) Gardner, Carton &
Douglas, counsel to the Borrower, and (ii) Larry W. Martin, Vice President and
Assistant General Counsel of Nuveen & Co., addressed to the Agent and the
Lenders in form and substance acceptable to the Agent and its counsel.
(f) Notes. Notes payable to the order of each of the Lenders duly
executed by the Borrower.
(g) Loan Documents. Executed originals of this Agreement and each of
the other Loan Documents, which shall be in full force and effect, together
with all schedules, exhibits,
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certificates, instruments, opinions, documents and financial statements
required to be delivered pursuant hereto and thereto.
(h) Financial Statements. Copies of the Financial Statements and the
FOCUS Reports referred to in Section 5.5.
(i) Letter of Direction. Written money transfer instructions with
respect to the initial Advance and, until otherwise instructed, as to future
Advances in form and substance acceptable to the Agent and its counsel
addressed to the Agent and signed by an Authorized Officer, together with such
other related money transfer authorizations as the Agent may have reasonably
requested.
(j) First Chicago Demand Loan. The First Chicago Demand Loan shall be
fully paid on the date of the initial Advance with the proceeds from such
Advance, and the Master Note relating to such Loan shall be surrendered to, and
canceled by, the Borrower.
(k) Payment of Fees. The Borrower shall have paid all accrued and
unpaid fees, costs and expenses to the extent due and payable on or prior to
the execution of this Agreement, including, but not limited to, the fees
referred to in Section 2.18 and, to the extent invoiced, the attorneys' fees,
time charges and disbursements referred to in Section 9.7.
(l) Other. Such other documents as the Agent, any Lender or their
counsel may have reasonably requested.
4.2. Each Future Advance. The Lenders shall not be required to make any
Advance unless on the applicable Borrowing Date:
(a) There exists no Default or Unmatured Default and none would result
from such Advance;
(b) The representations and warranties contained in Article V are true
and correct as of such Borrowing Date (provided that the Borrower may update
Schedule 5.9 from time to time as appropriate); and
(c) A Borrowing Notice shall have been properly submitted.
Each Borrowing Notice with respect to each such Advance shall constitute a
representation and warranty by the Borrower that the conditions contained in
Section 4.2 have been satisfied. Any Lender may require a duly completed
compliance certificate in substantially the form of Exhibit B hereto as a
condition to making an Advance.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
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The Borrower represents and warrants to the Lenders that:
5.1. Corporate Existence; Conduct of Business. Each of the Borrower and
each Subsidiary (a) is a corporation duly incorporated, validly existing and in
good standing under the laws of its respective jurisdiction of incorporation,
(b) is duly qualified and in good standing as a foreign corporation in each
jurisdiction in which its ownership or lease of property or the conduct of its
business requires such qualification, except where failure to be so qualified
will not have a Material Adverse Effect, and (c) possesses all licenses,
registrations and authorizations from and with any Governmental Authority,
self-regulatory organization or securities exchange necessary or material to
the conduct of its business as presently conducted. Nuveen & Co. is (a) a
broker-dealer duly registered under the Exchange Act, (b) a member in good
standing of the NASD, (c) not in arrears in regard to any assessment of the
SIPC, and (d) has received no notice from the SEC, MSRB, NASD or any other
Governmental Authority, self-regulatory organization or securities exchange of
any alleged rule violation or other circumstance which could reasonably be
expected to have a Material Adverse Effect.
5.2. Authorization and Validity. The Borrower has all requisite power and
authority (corporate and otherwise) to execute and deliver each of the Loan
Documents and to perform its obligations thereunder. The execution and
delivery by the Borrower of the Loan Documents and the performance of its
obligations thereunder have been duly authorized by proper corporate
proceedings and the Loan Documents constitute legal, valid and binding
obligations of the Borrower enforceable against the Borrower in accordance with
their terms, except as enforceability may be limited by bankruptcy, insolvency
or similar laws affecting the enforcement of creditors' rights generally or by
general principles of equity limiting the availability of equitable remedies.
5.3. Compliance with Laws and Contracts. The Borrower and its
Subsidiaries have complied in all material respects with all applicable laws,
statutes, and rules, regulations, orders and restrictions of any Governmental
Authority, self-regulatory organization or securities exchange having
jurisdiction over the conduct of their respective businesses or the ownership
of their respective properties (including, without limitation, the Exchange
Act, the Advisers Act, the Investment Company Act and the applicable rules and
regulations of the SEC, NASD, NYSE, MSRB and CFTC), except where the failure to
so comply could not reasonably be expected to have a Material Adverse Effect.
Neither the execution and delivery by the Borrower of the Loan Documents, the
application of the proceeds of the Loans, the consummation of any transaction
contemplated by the Loan Documents, nor compliance with the provisions of the
Loan Documents will, or at the relevant time did, (a) violate any law, rule,
regulation (including Regulations G, T, U and X), order, writ, judgment,
injunction, decree or award binding on the Borrower or any Subsidiary or the
Borrower's or any Subsidiary's charter, articles or certificate of
incorporation or by-laws, (b) violate the provisions of or require the approval
or consent of any party to any indenture, instrument or agreement to which the
Borrower or any Subsidiary is a party or is subject, or by which it, or its
property, is bound, or conflict with or constitute a default thereunder, or
result in the creation or imposition of any Lien (other than Liens permitted by
Section 6.17) in, of or on the property of the Borrower or any Subsidiary
pursuant to the terms of any such indenture, instrument or agreement, or (c)
require the consent or approval of any Person, except for any violation of, or
failure to obtain
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an approval or consent required under, any such indenture, instrument or
agreement that could not have a Material Adverse Effect.
5.4. Governmental Consents. No order, consent, approval, qualification,
license, authorization, or validation of, or filing, recording or registration
with, or exemption by, or other action in respect of, any Governmental
Authority, self-regulatory organization or securities exchange is necessary or
required in connection with the execution, delivery, consummation or
performance of, or the legality, validity, binding effect or enforceability of,
any of the Loan Documents, the application of the proceeds of the Loans, or the
consummation of any other transaction contemplated by the Loan Documents.
Neither the Borrower nor any Subsidiary is in default under or in violation of
any foreign, federal, state or local law, rule, regulation, order, writ,
judgment, injunction, decree or award binding upon or applicable to the
Borrower or such Subsidiary, in each case the consequence of which default or
violation could reasonably be expected to have a Material Adverse Effect.
5.5. Financial Statements. The Borrower has heretofore furnished to each
of the Lenders (a) the December 31, 1996 audited consolidated financial
statements of the Borrower and its Subsidiaries, (b) the March 31, 1997
unaudited consolidated financial statements of the Borrower and its
Subsidiaries, and (c) the December 31, 1996 audited financial statements for
each of Nuveen & Co., Nuveen Advisory and Nuveen Institutional (collectively,
the "Financial Statements"). The Borrower has also heretofore furnished to
each of the Lenders the December 31, 1996, March 31, 1997 and June 30, 1997
quarterly Financial and Operational Combined Uniform Single (FOCUS) Reports of
Nuveen & Co. (the "FOCUS Reports"). Each of the Financial Statements was
prepared in accordance with Agreement Accounting Principles and fairly presents
the consolidated financial condition, results of operations, changes in
stockholders' equity and cash flows of the Borrower and its Subsidiaries (or of
the applicable Subsidiary, as the case may be) at such dates and for the
respective periods then ended (except, in the case of such unaudited
statements, for normal year-end audit adjustments). The FOCUS Reports are
correct and complete in all material respects and conform in all material
respects to Exchange Act requirements and applicable SEC rules and regulations.
5.6. Material Adverse Change. No material adverse change in the business,
Property, condition (financial or otherwise), performance, or results of
operations of the Borrower and its Subsidiaries taken as a whole has occurred
since December 31, 1996.
5.7. Taxes. The Borrower and its Subsidiaries have filed or caused to be
filed on a timely basis and in correct form all United States federal and
applicable state tax returns and all other material tax returns which are
required to be filed and have paid all material taxes due pursuant to said
returns or pursuant to any assessment received by the Borrower or any
Subsidiary, except such taxes, if any, as are being contested in good faith and
as to which adequate reserves have been provided in accordance with Agreement
Accounting Principles. As of the date hereof, the United States income tax
returns of the Borrower on a consolidated basis have been audited by the
Internal Revenue Service through its Fiscal Year ending December 31, 1990 and,
to the Borrower's knowledge, there are no pending audits or investigations
regarding the Borrower's or its Subsidiaries' federal, state or local tax
returns which could reasonably be expected to have a Material Adverse
24
<PAGE> 31
Effect. No tax liens have been filed and no claims are being asserted with
respect to any such taxes which could reasonably be expected to have a Material
Adverse Effect. The charges, accruals and reserves on the books of the
Borrower and its Subsidiaries in respect of any taxes or other governmental
charges are in accordance with Agreement Accounting Principles.
5.8. Litigation and Contingent Obligations. There is no litigation,
arbitration, proceeding, inquiry or investigation by any Governmental
Authority, self-regulatory organization or securities exchange pending or, to
the knowledge of any of the Borrower's officers, threatened against or
affecting the Borrower or any Subsidiary or any of their respective Properties
which could reasonably be expected to have a Material Adverse Effect or to
prevent, enjoin or unduly delay the making of the Loans or the consummation of
the transactions contemplated by this Agreement. Neither the Borrower nor any
Subsidiary has any material contingent obligations not provided for or
disclosed in the Financial Statements.
5.9. Subsidiaries. Schedule 5.9 hereto contains an accurate list of all
of the Borrower's existing Subsidiaries as of the date of this Agreement,
setting forth their respective jurisdictions of incorporation and the
percentage of their capital stock owned by the Borrower or other Subsidiaries.
Except as set forth on Schedule 5.9 and except for Seed Money, as of the date
hereof, the Borrower does not own or hold, directly or indirectly, any capital
stock or equity security of, or any equity or partnership interest in, any
Person other than such Subsidiaries.
5.10. ERISA. Except as disclosed on Schedule 5.10, neither the Borrower
nor any other member of the Controlled Group maintains any Single Employer
Plans, and no Single Employer Plan has any Unfunded Liability. Neither the
Borrower nor any other member of the Controlled Group maintains, or is
obligated to contribute to, any Multiemployer Plan or has incurred, or is
reasonably expected to incur, any withdrawal liability to any Multiemployer
Plan. Each Plan complies in all material respects with all applicable
requirements of law and regulations. Neither the Borrower nor any member of
the Controlled Group has, with respect to any Plan, failed to make any
contribution or pay any amount required under Section 412 of the Code or
Section 302 of ERISA or the terms of such Plan which could reasonably be
expected to be in excess of $5,000,000. There are no pending or, to the
knowledge of the Borrower, threatened claims, actions, investigations or
lawsuits against any Plan, any fiduciary thereof, or the Borrower or any member
of the Controlled Group with respect to a Plan which could reasonably be
expected to have a Material Adverse Effect. Neither the Borrower nor any
member of the Controlled Group has engaged in any prohibited transaction (as
defined in Section 4975 of the Code or Section 406 of ERISA) in connection with
any Plan which would subject such Person to any material liability. Within the
last five years neither the Borrower nor any member of the Controlled Group has
engaged in a transaction which resulted in a Single Employer Plan with an
Unfunded Liability being transferred out of the Controlled Group. No
Termination Event has occurred or is reasonably expected to occur with respect
to any Plan which is subject to Title IV of ERISA.
5.11. Defaults. No Default or Unmatured Default has occurred and is
continuing.
5.12. Federal Reserve Regulations. Neither the Borrower nor any
Subsidiary is engaged, directly or indirectly, principally, or as one of its
important activities, in the business of extending, or arranging for the
extension of, credit for the purpose of purchasing or carrying Margin Stock.
No
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part of the proceeds of any Loan will be used in a manner which would violate,
or result in a violation of, Regulation G, Regulation T, Regulation U or
Regulation X. Neither the making of any Advance hereunder or the use of the
proceeds thereof will violate or be inconsistent with the provisions of
Regulation G, Regulation T, Regulation U or Regulation X. Following the
application of the proceeds of the Loans, less than 25% of the value (as
determined by any reasonable method) of the assets of the Borrower and its
Subsidiaries which are subject to any limitation on sale, pledge, or other
restriction hereunder taken as a whole have been, and will continue to be,
represented by Margin Stock.
5.13. Investment Company; Public Utility Holding Company. Neither the
Borrower nor any Subsidiary is, or after giving effect to any Advance will be,
an "investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended. Neither
the Borrower nor any Subsidiary is subject to regulation under the Public
Utility Holding Company Act of 1935, as amended.
5.14. Certain Fees. No broker's or finder's fee or commission was, is or
will be payable by the Borrower or any Subsidiary with respect to any of the
transactions contemplated by this Agreement. The Borrower hereby agrees to
indemnify the Agent and the Lenders against and agrees that it will hold each
of them harmless from any claim, demand or liability for any broker's or
finder's fees or commissions alleged to have been incurred by the Borrower in
connection with any of the transactions contemplated by this Agreement and any
expenses (including, without limitation, attorneys' fees and time charges of
attorneys for the Agent or any Lender, which attorneys may be employees of the
Agent or any Lender) arising in connection with any such claim, demand or
liability. No other similar fee or commissions will be payable by the Borrower
or any Subsidiary for any other services rendered to the Borrower or any
Subsidiary ancillary to any of the transactions contemplated by this Agreement.
5.15. Ownership of Properties. The Borrower and its Subsidiaries have a
subsisting leasehold interest in, or good and marketable title, free of all
Liens, other than those permitted by Section 6.17, to all of the properties and
assets reflected in the Financial Statements as being owned by it, except for
assets sold, transferred or otherwise disposed of in the ordinary course of
business since the date thereof and such defects of title and Liens as could
not, individually or in the aggregate, have a Material Adverse Effect. To the
knowledge of the Borrower, there are no actual, threatened or alleged defaults
with respect to any leases of real property under which the Borrower or any
Subsidiary is lessee or lessor which could reasonably be expected to have a
Material Adverse Effect.
5.16. Material Agreements. Neither the Borrower nor any Subsidiary is a
party to any agreement or instrument or subject to any charter or other
corporate restriction which could reasonably be expected to have a Material
Adverse Effect or which restricts or imposes conditions upon the ability of any
Subsidiary to (a) pay dividends or make other distributions on its capital
stock, (b) make loans or advances to the Borrower, (c) repay loans or advances
from the Borrower or (d) grant Liens to the Agent to secure the Obligations.
Neither the Borrower nor any Subsidiary is in default in the performance,
observance or fulfillment of any of the obligations, covenants or
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conditions contained in any agreement to which it is a party, which default
could reasonably be expected to have a Material Adverse Effect.
5.17. Insurance. The Borrower and its Subsidiaries maintain with
financially sound and reputable insurance companies insurance on their Property
in such amounts and covering such risks as is consistent with sound business
practice.
5.18. Disclosure. None of the (a) information, exhibits or reports
furnished or to be furnished by the Borrower or any Subsidiary to the Agent or
to any Lender in connection with the negotiation of the Loan Documents, taken
as a whole, or (b) representations or warranties of the Borrower or any
Subsidiary contained in this Agreement, the other Loan Documents or any other
document, certificate or written statement furnished to the Agent or the
Lenders by or on behalf of the Borrower or any Subsidiary pursuant to this
Agreement contained, contains or will contain any untrue statement of a
material fact or omitted, omits or will omit to state a material fact necessary
in order to make the statements contained herein or therein not misleading in
light of the circumstances in which they were made. There is no fact known to
the Borrower (other than matters of a general economic nature) that has had or
could reasonably be expected to have a Material Adverse Effect and that has not
been disclosed herein or in such other documents, certificates and statements
furnished to the Lenders for use in connection with the transactions
contemplated by this Agreement.
ARTICLE VI
COVENANTS
During the term of this Agreement, unless the Required Lenders shall
otherwise consent in writing:
6.1. Financial Reporting. The Borrower will maintain, for itself and each
Subsidiary, a system of accounting established and administered in accordance
with generally accepted accounting principles, consistently applied, and will
furnish to the Lenders:
(a As soon as practicable and in any event within 90 days after the
close of each of its Fiscal Years, an unqualified audit report certified by
independent certified public accountants, acceptable to the Lenders, prepared
in accordance with Agreement Accounting Principles on a consolidated and
consolidating basis (consolidating statements need not be certified by such
accountants) for itself and its Subsidiaries and for Nuveen & Co., and to the
extent available, for Nuveen Advisory, Nuveen Institutional, Nuveen Asset
Management Inc. ("Nuveen Asset Management") and, after the consummation of its
acquisition by the Borrower, Rittenhouse Financial Services Inc.
("Rittenhouse"), including balance sheets as of the end of such period and
related statements of income, and changes in stockholders' equity (to the
extent available for entities other than the Borrower) and cash flows (provided
that so long as the common stock of the Borrower is listed for trading on the
NYSE, the foregoing requirement as to the Borrower's consolidated financial
statements may be satisfied by the delivery of the Borrower's Annual Report to
Stockholders and its
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Annual Report on Form 10-K filed with the SEC containing such information), and
accompanied by (i) any management letter prepared by said accountants and (ii)
a certificate of said accountants that, in the course of the examination
necessary for their certification of the foregoing, they have obtained no
knowledge of any Default or Unmatured Default, or if, in the opinion of such
accountants, any Default or Unmatured Default shall exist, stating the nature
and status thereof.
(b As soon as practicable and in any event within 45 days after the
close of the first three Fiscal Quarters of each of its Fiscal Years, for
itself and its Subsidiaries, and for each of Nuveen & Co., Nuveen Advisory,
Nuveen Institutional, Nuveen Asset Management and, after the consummation of
its acquisition by the Borrower, Rittenhouse, consolidated unaudited balance
sheets as at the close of each such period and consolidated statements of
income, changes in stockholders' equity and cash flows for the period from the
beginning of such Fiscal Year to the end of such quarter, all certified by its
chief financial officer (provided that so long as the common stock of the
Borrower is listed for trading on the NYSE, the foregoing requirement as to the
Borrower's consolidated financial statements may be satisfied by the delivery
of the Borrower's Quarterly Report on Form 10-Q as filed with the SEC
containing such information; and provided further, that the foregoing
requirement as to the quarterly financial statements of Nuveen & Co., Nuveen
Advisory and Nuveen Institutional may be satisfied by the delivery of Form 17-H
of Nuveen & Co. and its Materially Associated Persons for each Fiscal Quarter
(including the fourth Fiscal Quarter) as filed with the SEC containing such
information).
(c As soon as practicable and in any event within 25 days after the
close of each Fiscal Quarter of each of its Fiscal Years, the FOCUS report for
such Fiscal Quarter filed by Nuveen & Co. with the SEC.
(d Together with the financial statements required by clauses (a) and
(b) above, and additionally for purposes of determining the Applicable Margin
within 45 days after the close of the fourth Fiscal Quarter of each Fiscal Year
(which preliminary determination shall be subject to adjustment upon receipt of
audited annual financial statements (or Form 10-K) and shall not be deemed to
constitute a misrepresentation or breach if prepared in good faith and the
audited numbers differ from the unaudited fourth quarter results), a compliance
certificate in substantially the form of Exhibit B hereto signed by its chief
financial officer showing the calculations necessary to determine compliance
with this Agreement and stating that no Default or Unmatured Default exists, or
if any Default or Unmatured Default exists, stating the nature and status
thereof.
(e As soon as possible and in any event within 10 days after any
officer of the Borrower knows that any Termination Event has occurred with
respect to any Plan, a statement, signed by the chief financial officer of the
Borrower, describing said Termination Event and the action which the Borrower
proposes to take with respect thereto.
(f As soon as possible and in any event within 10 days after any
officer of the Borrower learns thereof, notice of the assertion or commencement
of any claim, action, litigation, suit or proceeding against or affecting the
Company or any Subsidiary, including any investigation or proceeding commenced
by the SEC, NASD, MSRB, NYSE or any other Governmental Authority,
self-regulatory organization or securities exchange, which could have a
Material Adverse Effect.
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(g Promptly upon the furnishing thereof to the shareholders of the
Borrower, copies of all financial statements, reports and proxy statements so
furnished.
(h Within 15 days after the filing thereof, copies of all registration
statements and annual, quarterly, monthly or other regular reports which the
Borrower or any of its Subsidiaries files with the Securities and Exchange
Commission.
(i Such other information (including non-financial information) as the
Agent or any Lender may from time to time reasonably request.
6.2. Use of Proceeds. The Borrower will, and will cause each Subsidiary
to, use the proceeds of the Advances to repay the First Chicago Demand Loan and
to meet the general corporate needs of the Borrower and its Subsidiaries. The
Borrower will not, nor will it permit any Subsidiary to, use any of the
proceeds of the Advances to purchase or carry any Margin Stock in violation of
Regulation G, Regulation T, Regulation U or Regulation X, or to finance the
Purchase of any Person which has not been approved and recommended by the board
of directors (or functional equivalent thereof) of such Person.
6.3. Notice of Default. Within 5 days after any officer of the Borrower
has knowledge thereof, the Borrower will give notice in writing to the Lenders
of the occurrence of (a) any Default or Unmatured Default and (b) any other
event or development, financial or other, relating specifically to the Borrower
or any of its Subsidiaries (and not of a general economic or political nature)
which could reasonably be expected to have a Material Adverse Effect.
6.4. Conduct of Business. The Borrower will, and will cause each
Subsidiary to, (a) subject to Section 6.12(c), preserve and maintain its
corporate existence, rights, franchises and privileges in the jurisdiction of
its incorporation, (b) maintain all registrations, licenses, consents,
approvals and authorizations from and with any Governmental Authority,
self-regulatory organization or securities exchange necessary or material to
the conduct of its business, and (c) qualify and remain qualified as a foreign
corporation in each jurisdiction in which its ownership or lease of property or
the conduct of its business requires such qualification, except where failure
to qualify could not have a Material Adverse Effect. The Borrower will not,
and will not permit any of its Subsidiaries to, engage in any material line of
business substantially different from those lines of business carried on by it
on the date hereof (provided that further entry into the financial services
business, as well as service businesses related thereto, will not be prohibited
by this Section 6.4).
6.5. Taxes. The Borrower will, and will cause each Subsidiary to, timely
file complete and correct in all material respects United States federal and
applicable foreign, state and local tax returns required by applicable law and
pay when due all taxes, assessments and governmental charges and levies upon it
or its income, profits or Property, except those which are being contested in
good faith by appropriate proceedings and with respect to which adequate
reserves have been set aside.
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6.6. Insurance. The Borrower will, and will cause each Subsidiary to,
maintain with financially sound and reputable insurance companies insurance in
such amounts and covering such risks as is consistent with sound business
practice, and the Borrower will furnish to the Agent and any Lender upon
request full information as to the insurance carried.
6.7. Compliance with Laws. The Borrower will, and will cause each
Subsidiary to, comply with all laws, statutes (including, without limitation,
the Exchange Act, the Advisers Act and the Investment Company Act), rules,
regulations, orders, writs, judgments, injunctions, decrees or awards to which
it may be subject, the failure to comply with which could reasonably be
expected to have a Material Adverse Effect.
6.8. Maintenance of Properties. The Borrower will, and will cause each
Subsidiary to, do all things necessary to maintain, preserve, protect and keep
all material portions of its Property in good repair, working order and
condition, and make all necessary and proper repairs, renewals and replacements
so that its business carried on in connection therewith may be properly
conducted at all times.
6.9. Inspection. The Borrower will, and will cause each Subsidiary to,
permit the Agent and the Lenders, upon at least two Business Days' notice
(unless a Default or Unmatured Default has occurred and is continuing) and
during normal business hours, by their respective representatives and agents,
to inspect any of the Property, corporate books and financial records of the
Borrower and each Subsidiary, to examine and make copies of the books of
accounts and other financial records of the Borrower and each Subsidiary, and
to discuss the affairs, finances and accounts of the Borrower and each
Subsidiary with, and to be advised as to the same by, their respective
officers. The Borrower will keep or cause to be kept, and cause each
Subsidiary to keep or cause to be kept, appropriate records and books of
account in which complete entries are to be made reflecting its and their
business and financial transactions, such entries to be made in accordance with
Agreement Accounting Principles consistently applied.
6.10. Ownership of Subsidiaries. The Borrower will continue to own
beneficially and of record, free and clear of all Liens and restrictions, 100%
of the outstanding shares of capital stock of Nuveen & Co., Nuveen Advisory,
Nuveen Institutional, Nuveen Asset Management and, after the consummation of
its acquisition by the Borrower, Rittenhouse.
6.11. Indebtedness. The Borrower will not, nor will it permit any
Subsidiary to, create, incur or suffer to exist any Indebtedness, except:
(a The Loans;
(b Short-term Indebtedness used to finance (i) municipal bond and UIT
inventory positions or (ii) temporary investments in variable rate demand
obligations arising in connection with remarketing activities of the Borrower
and its Subsidiaries;
(c Securities sold under agreements to repurchase (to the extent such
obligations constitute Indebtedness) and Rate Hedging Obligations incurred in
the ordinary course of business;
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(d Contingent Obligations permitted by Section 6.16;
(e Contingent pay-out and similar obligations relating to prior
acquisitions by the Borrower and to acquisitions permitted hereunder;
(f Unsecured Indebtedness relating to the financing of Distribution
Receivables in an aggregate principal amount not exceeding the amount of such
Receivables; and
(g Other unsecured Indebtedness not otherwise permitted by this Section
6.11 in an aggregate principal amount not exceeding $10,000,000.
6.12. Merger. The Borrower will not, nor will it permit any Subsidiary
to, merge or consolidate with or into any other Person, except that (a) a
Wholly-Owned Subsidiary may merge into the Borrower or any Wholly-Owned
Subsidiary of the Borrower, (b) the Borrower or any Subsidiary may merge or
consolidate with any other Person so long as the Borrower or such Subsidiary is
the continuing or surviving corporation and, prior to and after giving effect
to such merger or consolidation, no Default or Unmatured Default shall exist,
and (c) any Subsidiary may enter into a merger or consolidation as a means of
effecting a disposition permitted by Section 6.13.
6.13. Sale of Assets. The Borrower will not, nor will it permit any
Subsidiary to, lease, sell, transfer or otherwise dispose of its Property, to
any other Person except for (a) sales of municipal bond and UIT inventories,
variable rate demand obligations (in connection with remarketing activities)
and other marketable securities sold in the ordinary course of business, (b)
Distribution Receivables sold to a third party without recourse to the Borrower
or any of its Subsidiaries in order to effect a securitization of such
Receivables, and (c) leases, sales, transfers or other dispositions of its
Property that, together with all other Property of the Borrower and its
Subsidiaries previously leased, sold or disposed of (other than sales of
municipal bond and UIT inventories, variable rate demand obligations (in
connection with remarketing activities) and other marketable securities sold in
the ordinary course of business) as permitted by this Section 6.13 since the
date hereof, do not constitute a Substantial Portion of the Property of the
Borrower and its Subsidiaries.
6.14. Sale of Accounts. The Borrower will not, nor will it permit any
Subsidiary to, sell or otherwise dispose of any notes receivable or accounts
receivable, with or without recourse, other than in the ordinary course of
business.
6.15. Investments and Purchases. The Borrower will not, nor will it
permit any Subsidiary to, make or suffer to exist any Investments (including,
without limitation, loans and advances to, and other Investments in,
Subsidiaries), or commitments therefor, or to create any Subsidiary or to
become or remain a partner in any partnership or joint venture, or to make any
Purchases, except:
(a Existing Investments in Subsidiaries and other Investments in
existence on the date hereof and described on Schedule 5.9 hereto;
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(b Variable rate demand obligations (in connection with remarketing
activities); securities purchased under agreements to resell; municipal bond
and UIT inventories; and other marketable securities purchased in the ordinary
course of business;
(c Obligations of, or fully guaranteed by, the United States of America;
commercial paper and other short-term notes and securities rated investment
grade by a national securities rating agency; demand deposit accounts
maintained in the ordinary course of business; and certificates of deposit
issued by and time deposits with commercial banks (whether domestic or foreign)
having capital and surplus in excess of $100,000,000;
(d Additional Purchases of or Investments in the stock of Subsidiaries or
the capital stock, assets, obligations or other securities of or interest in
other Persons provided that (i) each such Person shall be (x) incorporated,
organized or otherwise formed under the laws of any state of the United States,
or under the laws of Canada, any member country of the European Economic Union,
Switzerland, Liechtenstein, Japan, Australia or New Zealand, and (y) engaged in
a line of business not substantially different from those lines of business
carried on by the Borrower and its Subsidiaries on the date hereof (which for
this purpose shall be deemed to include the financial services business as well
as service businesses related thereto), (ii) the transaction shall have been
approved and recommended by the board of directors (or functional equivalent
thereof) of such Person, and (iii) no Default or Unmatured Default shall have
occurred and be continuing either immediately before or after giving effect to
such transaction and no Material Adverse Effect would result therefrom; and
(e Seed Money.
6.16. Contingent Obligations. The Borrower will not, nor will it permit
any Subsidiary to, make or suffer to exist any Contingent Obligation
(including, without limitation, any Contingent Obligation with respect to the
obligations of a Subsidiary), except by endorsement of instruments for deposit
or collection in the ordinary course of business.
6.17. Liens. The Borrower will not, nor will it permit any Subsidiary to,
create, incur, or suffer to exist any Lien in, of or on the Property of the
Borrower or any of its Subsidiaries, except:
(a Liens for taxes, assessments or governmental charges or levies on its
Property if the same shall not at the time be delinquent or thereafter can be
paid without penalty, or are being contested in good faith and by appropriate
proceedings and for which adequate reserves in accordance with generally
accepted principles of accounting shall have been set aside on its books;
(b Liens imposed by law, such as carriers', warehousemen's and mechanics'
liens and other similar liens arising in the ordinary course of business which
secure the payment of obligations not more than 60 days past due or which are
being contested in good faith by appropriate proceedings and for which adequate
reserves shall have been set aside on its books;
(c Liens arising out of pledges or deposits under worker's compensation
laws, unemployment insurance, old age pensions, or other social security or
retirement benefits, or similar legislation;
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(d Utility easements, building restrictions and such other encumbrances
or charges against real property as are of a nature generally existing with
respect to properties of a similar character and which do not in any material
way affect the marketability of the same or interfere with the use thereof in
the business of the Borrower or the Subsidiaries; and
(e Liens securing the Indebtedness permitted by Sections 6.11(b) and
6.11(c).
6.18. Affiliates. The Borrower will not, and will not permit any
Subsidiary to, enter into any transaction (including, without limitation, the
purchase or sale of any Property or service) with, or make any payment or
transfer to, any Affiliate except (a) in the ordinary course of business and
pursuant to the reasonable requirements of the Borrower's or such Subsidiary's
business and upon fair and reasonable terms no less favorable to the Borrower
or such Subsidiary than the Borrower or such Subsidiary would obtain in a
comparable arms-length transaction and (b) transactions among the Borrower and
Wholly-Owned Subsidiaries of the Borrower.
6.19. Change in Corporate Structure; Fiscal Year. The Borrower shall not,
nor shall it permit any Subsidiary to, (a) permit any amendment or modification
to be made to its certificate or articles of incorporation or by-laws which is
materially adverse to the interests of the Lenders (provided that the Borrower
shall notify the Agent of any other amendment or modification thereto as soon
as practicable thereafter) or (b) change its Fiscal Year to end on any date
other than December 31 of each year.
6.20. Inconsistent Agreements. The Borrower shall not, nor shall it
permit any Subsidiary to, enter into any indenture, agreement, instrument or
other arrangement which, (a) directly or indirectly prohibits or restrains, or
has the effect of prohibiting or restraining, or imposes materially adverse
conditions upon, the incurrence of the Obligations, the granting of Liens to
secure the Obligations, the amending of the Loan Documents or the ability of
any Subsidiary to (i) pay dividends or make other distributions on its capital
stock, (ii) make loans or advances to the Borrower, or (iii) repay loans or
advances from the Borrower or (b) contains any provision which would be
violated or breached by the making of Advances or by the performance by the
Borrower or any Subsidiary of any of its obligations under any Loan Document.
6.21. Financial Covenants. The Borrower on a consolidated basis with its
Subsidiaries shall:
6.21.1. Minimum Net Worth. At all times after the date hereof maintain a
minimum Net Worth of at least $240,000,000.
6.21.2. Leverage Ratio. Maintain a Leverage Ratio of not more than 2.75
to 1.
6.22. Nuveen & Co. Net Capital. The Borrower shall cause Nuveen & Co. at
all times after the date hereof to maintain a ratio of Net Capital to Aggregate
Debit Items (as such terms are defined pursuant to SEC Rule 15c3-1 under the
Exchange Act) of not less than 5.5%.
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6.23. ERISA Compliance. The Borrower will (a) fulfill, and cause each
member of the Controlled Group to fulfill, its obligations under the minimum
funding standards of ERISA and the Code with respect to each Plan, except where
the failure to do so would not result in any liabilities to members of the
Controlled Group in excess of $5,000,000, (b) comply, and cause each member of
the Controlled Group to comply, with all applicable provisions of ERISA and the
Code with respect to each Plan, except where such failure or noncompliance
individually or in the aggregate would not have a Material Adverse Effect and
(c) not, and not permit any member of the Controlled Group to, (i) seek a
waiver of the minimum funding standards under ERISA, (ii) terminate or withdraw
from any Plan or (iii) take any other action with respect to any Plan which
would reasonably be expected to entitle the PBGC to terminate, impose liability
in respect of, or cause a trustee to be appointed to administer, any Plan,
unless the actions or events described in the foregoing clauses (i), (ii) or
(iii) individually or in the aggregate would not have a Material Adverse
Effect.
ARTICLE VII
DEFAULTS
The occurrence of any one or more of the following events shall constitute
a Default:
7.1. Representation or Warranty. Any representation or warranty made or
deemed made by or on behalf of the Borrower or any of its Subsidiaries to the
Lenders or the Agent under or in connection with this Agreement, any other Loan
Document, any Loan, or any certificate or information delivered in connection
with this Agreement or any other Loan Document shall be false in any material
respect on the date as of which made or deemed made.
7.2. Non-Payment. Nonpayment of (a) any principal of any Note when due,
or (b) any interest upon any Note or any Facility Fee or other fee or
obligations under any of the Loan Documents within three (3) days after the
same becomes due.
7.3. Specific Defaults. The breach by the Borrower of any of the terms or
provisions of Section 6.2, Section 6.3(a), Section 6.4 or Sections 6.10 through
6.17 or Sections 6.19 through 6.23.
7.4. Other Defaults. The breach by the Borrower (other than a breach
which constitutes a Default under Section 7.1, 7.2 or 7.3) of any of the terms
or provisions of this Agreement which is not remedied within thirty (30) days
after written notice from the Agent or any Lender.
7.5. Cross-Default. Failure of the Borrower or any of its Subsidiaries to
pay any Indebtedness aggregating in excess of $10,000,000 when due (other than
contingent pay-out and similar obligations relating to prior acquisitions of
the Borrower and to acquisitions permitted hereunder as to which a good faith
dispute exists and which are being appropriately contested); or the default by
the Borrower or any of its Subsidiaries in the performance of any term,
provision or condition contained in any agreement or agreements under which any
such Indebtedness was created or is governed, or the occurrence of any other
event or existence of any other condition, the effect
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of any of which is to cause, or to permit the holder or holders of such
Indebtedness to cause, such Indebtedness to become due prior to its stated
maturity; or any such Indebtedness of the Borrower or any of its Subsidiaries
shall be declared to be due and payable or required to be prepaid (other than
by a regularly scheduled payment) prior to the stated maturity thereof.
7.6. Insolvency; Voluntary Proceedings. The Borrower or any of its
Subsidiaries shall (a) have an order for relief entered with respect to it
under the Federal bankruptcy laws as now or hereafter in effect, (b) make an
assignment for the benefit of creditors, (c) apply for, seek, consent to, or
acquiesce in, the appointment of a receiver, custodian, trustee, examiner,
liquidator or similar official for it or any Substantial Portion of its
Property, (d) institute any proceeding seeking an order for relief under the
Federal bankruptcy laws as now or hereafter in effect or seeking to adjudicate
it a bankrupt or insolvent, or seeking dissolution, winding up, liquidation,
reorganization, arrangement, adjustment or composition of it or its debts under
any law relating to bankruptcy, insolvency or reorganization or relief of
debtors or fail to file an answer or other pleading denying the material
allegations of any such proceeding filed against it, (e) take any corporate
action to authorize or effect any of the foregoing actions set forth in this
Section 7.6, (f) fail to contest in good faith any appointment or proceeding
described in Section 7.7 or (g) become unable to pay, not pay, or admit in
writing its inability to pay, its debts generally as they become due.
7.7. Involuntary Proceedings. Without the application, approval or
consent of the Borrower or any of its Subsidiaries, a receiver, trustee,
examiner, liquidator or similar official shall be appointed for the Borrower or
any of its Subsidiaries or any Substantial Portion of its Property, or a
proceeding described in Section 7.6(d) shall be instituted against the Borrower
or any of its Subsidiaries and such appointment continues undischarged or such
proceeding continues undismissed or unstayed for a period of sixty consecutive
days.
7.8. Judgments. The Borrower or any of its Subsidiaries shall fail within
thirty days to pay, bond or otherwise discharge any judgment or order for the
payment of money of $25,000,000 or more (or multiple judgments or orders for
the payment of an aggregate amount of $25,000,000 or more), which is not stayed
on appeal or otherwise being appropriately contested in good faith and as to
which no enforcement actions have been commenced.
7.9. Change in Control. Any Change in Control shall occur.
7.10. SIPC. The SEC or any self-regulatory organization has notified the
SIPC pursuant to Section 5(a)(1) of the Securities Investor Protection Act of
1970 (the "SIPC Act") of facts which indicate that the Borrower or Nuveen & Co.
is in or is approaching financial difficulty, or the SIPC shall file an
application for a protective decree with respect to the Borrower or Nuveen &
Co. under Section 5(a)(3) of the SIPC Act.
7.11. Nuveen & Co. The SEC or other Governmental Authority shall revoke
or suspend Nuveen & Co.'s license or authorization under federal or state law
to conduct business as a securities broker-dealer (and such license or
authorization shall not be reinstated within 5 days), or Nuveen & Co. shall be
suspended or expelled from membership in the NASD or any other self-regulatory
organization or securities exchange.
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7.12. ERISA. With respect to any Plan, the Borrower or any Subsidiary
shall (a) incur any "accumulated funding deficiency" (as such term is defined
in Section 302 of ERISA) in excess of $10,000,000, whether or not waived, or
permit any Unfunded Liability to exceed $10,000,000; or (b) permit the
occurrence of any Termination Event which could result in a liability to the
Borrower or any other member of the Controlled Group in excess of $10,000,000.
ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
8.1. Acceleration. If any Default described in Section 7.6 or 7.7 occurs
with respect to the Borrower, the obligations of the Lenders to make Loans
hereunder shall automatically terminate and the Obligations shall immediately
become due and payable without any election or action on the part of the Agent
or any Lender. If any other Default occurs, the Required Lenders (or the Agent
with the consent of the Required Lenders) may terminate or suspend the
obligations of the Lenders to make Loans hereunder, or declare the Obligations
to be due and payable, or both, whereupon the Obligations shall become
immediately due and payable, without presentment, demand, protest or notice of
any kind, all of which the Borrower hereby expressly waives.
If, within ten Business Days after acceleration of the maturity of the
Obligations or termination of the obligations of the Lenders to make Loans
hereunder as a result of any Default (other than any Default as described in
Section 7.6 or 7.7 with respect to the Borrower) and before any judgment or
decree for the payment of the Obligations due shall have been obtained or
entered, the Required Lenders (in their sole discretion) shall so direct, the
Agent shall, by notice to the Borrower, rescind and annul such acceleration
and/or termination.
8.2. Amendments. Subject to the provisions of this Article VIII, the
Required Lenders (or the Agent with the consent in writing of the Required
Lenders) and the Borrower may enter into agreements supplemental hereto for the
purpose of adding or modifying any provisions to the Loan Documents or changing
in any manner the rights of the Lenders or the Borrower hereunder or waiving
any Default hereunder; provided, however, that no such supplemental agreement
shall, without the consent of each Lender:
(a Extend the final maturity of any Loan or Note or reduce the principal
amount thereof, or reduce the rate or extend the time of payment of interest or
fees thereon;
(b Reduce the percentage specified in the definition of Required Lenders;
(c Increase the amount of the Commitment of any Lender hereunder;
(d Extend the Facility Termination Date ;
(e Amend this Section 8.2;
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(f Permit any assignment by the Borrower of its Obligations or its rights
hereunder; or
(g Waive or amend the right to approve a successor to The St. Paul
Companies, Inc. for purposes of clause (b) of the definition of "Change in
Control".
No amendment of any provision of this Agreement relating to the Agent shall be
effective without the written consent of the Agent. The Agent may waive
payment of the fee required under Section 12.3.2 without obtaining the consent
of any other party to this Agreement.
8.3. Preservation of Rights. No delay or omission of the Lenders or the
Agent to exercise any right under the Loan Documents shall impair such right or
be construed to be a waiver of any Default or an acquiescence therein, and the
making of a Loan notwithstanding the existence of a Default or the inability of
the Borrower to satisfy the conditions precedent to such Loan shall not
constitute any waiver or acquiescence. Any single or partial exercise of any
such right shall not preclude other or further exercise thereof or the exercise
of any other right, and no waiver, amendment or other variation of the terms,
conditions or provisions of the Loan Documents whatsoever shall be valid unless
in writing signed by the Lenders required pursuant to Section 8.2, and then
only to the extent in such writing specifically set forth. All remedies
contained in the Loan Documents or by law afforded shall be cumulative and all
shall be available to the Agent and the Lenders until the Obligations have been
paid in full.
ARTICLE IX
GENERAL PROVISIONS
9.1. Survival of Representations. All representations and warranties of
the Borrower contained in this Agreement or of the Borrower or any Subsidiary
contained in any other Loan Document shall survive delivery of the Notes and
the making of the Loans herein contemplated.
9.2. Governmental Regulation. Anything contained in this Agreement to the
contrary notwithstanding, no Lender shall be obligated to extend credit to the
Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulation.
9.3. Taxes. Any stamp, documentary or similar taxes, assessments or
charges payable or ruled payable by any governmental authority in respect of
the Loan Documents (other than in respect of the overall net income of any
Lender) shall be paid by the Borrower, together with interest and penalties, if
any.
9.4. Headings. Section headings in the Loan Documents are for convenience
of reference only, and shall not govern the interpretation of any of the
provisions of the Loan Documents.
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9.5. Entire Agreement. The Loan Documents embody the entire agreement and
understanding among the Borrower, the Agent and the Lenders and supersede all
prior agreements and understandings among the Borrower, the Agent and the
Lenders relating to the subject matter thereof other than the fee letter dated
June 26, 1997 in favor of First Chicago.
9.6. Several Obligations; Benefits of this Agreement. The respective
obligations of the Lenders hereunder are several and not joint and no Lender
shall be the partner or agent of any other (except to the extent to which the
Agent is authorized to act as such). The failure of any Lender to perform any
of its obligations hereunder shall not relieve any other Lender from any of its
obligations hereunder. This Agreement shall not be construed so as to confer
any right or benefit upon any Person other than the parties to this Agreement
and their respective successors and assigns.
9.7. Expenses; Indemnification. The Borrower shall reimburse the Agent
and the Arranger for any reasonable costs, internal charges and out-of-pocket
expenses (including reasonable attorneys' fees and time charges of attorneys
for the Agent and the Arranger, which attorneys may be employees of the Agent
or the Arranger) paid or incurred by the Agent or the Arranger in connection
with the preparation, negotiation, execution, delivery, review, syndication,
amendment, modification, and administration of the Loan Documents. The
Borrower also agrees to reimburse the Agent, the Arranger and the Lenders for
any reasonable costs, internal charges and out-of-pocket expenses (including
reasonable attorneys' fees and time charges of attorneys for the Agent, the
Arranger and the Lenders, which attorneys may be employees of the Agent, the
Arranger or the Lenders) paid or incurred by the Agent, the Arranger or any
Lender in connection with the collection and enforcement of the Loan Documents.
The Borrower further agrees to indemnify the Agent, the Arranger and each
Lender, its directors, officers and employees against all losses, claims,
damages, penalties, judgments, liabilities and expenses (including, without
limitation, all expenses of litigation or preparation therefor whether or not
the Agent, the Arranger or any Lender is a party thereto) which any of them may
pay or incur arising out of or relating to this Agreement or the other Loan
Documents, the transactions contemplated hereby or thereby or the direct or
indirect application or proposed application of the proceeds of any Loan
hereunder, except to the extent that they arise out of the gross negligence or
willful misconduct of the party seeking indemnification. The obligations of
the Borrower under this Section shall survive the termination of this
Agreement.
9.8. Numbers of Documents. All statements, notices, closing documents,
and requests hereunder shall be furnished to the Agent with sufficient
counterparts so that the Agent may furnish one to each of the Lenders.
9.9. Accounting. Except as provided to the contrary herein, all
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with Agreement Accounting
Principles.
9.10. Severability of Provisions. Any provision in any Loan Document that
is held to be inoperative, unenforceable, or invalid in any jurisdiction shall,
as to that jurisdiction, be inoperative, unenforceable, or invalid without
affecting the remaining provisions in that jurisdiction or the operation,
enforceability, or validity of that provision in any other jurisdiction, and to
this end the provisions of all Loan Documents are declared to be severable.
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9.11. Nonliability of Lenders. The relationship between the Borrower and
the Lenders and the Agent shall be solely that of borrower and lender. Neither
the Agent nor any Lender shall have any fiduciary responsibilities to the
Borrower. Neither the Agent nor any Lender undertakes any responsibility to
the Borrower to review or inform the Borrower of any matter in connection with
any phase of the Borrower's business or operations. The Borrower shall rely
entirely upon its own judgment with respect to its business, and any review,
inspection or supervision of, or information supplied to the Borrower by the
Agent or the Lenders is for the protection of the Agent and the Lenders and
neither the Borrower nor any other Person is entitled to rely thereon.
9.12. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A
CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS, WITHOUT REGARD TO CONFLICT OF LAWS PROVISIONS, OF THE STATE
OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
9.13. CONSENT TO JURISDICTION. EACH PARTY HEREBY IRREVOCABLY SUBMITS TO
THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE
COURT SITTING IN CHICAGO IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO ANY LOAN DOCUMENTS AND EACH PARTY HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS
IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO
THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR
THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT
OF THE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE
COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER
AGAINST THE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY LENDER
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF,
RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A
COURT IN CHICAGO, ILLINOIS; PROVIDED, THAT SUCH PROCEEDINGS MAY BE BROUGHT IN
OTHER COURTS IF JURISDICTION MAY NOT BE OBTAINED IN A COURT IN CHICAGO,
ILLINOIS.
9.14. WAIVER OF JURY TRIAL. THE BORROWER, THE AGENT AND EACH LENDER
HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY
WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE
RELATIONSHIP ESTABLISHED THEREUNDER.
9.15. Disclosure. Each Lender hereby (a) acknowledges and agrees that
First Chicago and/or its Affiliates from time to time may hold other
investments in, make other loans to or have other relationships with the
Borrower, including, without limitation, in connection with any interest
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rate hedging instruments or agreements or swap transactions, and (b) waives any
liability of First Chicago or such Affiliate to such Lender arising out of or
resulting from such investments, loans or relationships which would not exist
but for First Chicago's status as Agent hereunder.
9.16. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement, and
any of the parties hereto may execute this Agreement by signing any such
counterpart. This Agreement shall be effective when it has been executed by
the Borrower, the Agent and the Lenders and each party has notified the Agent
that it has taken such action.
ARTICLE X
THE AGENT
10.1. Appointment. First Chicago is hereby appointed Agent hereunder and
under each other Loan Document, and each of the Lenders authorizes the Agent to
act as the agent of such Lender. The Agent agrees to act as such upon the
express conditions contained in this Article X. The Agent shall not have a
fiduciary relationship in respect of the Borrower or any Lender by reason of
this Agreement, any Loan Document or any transaction contemplated hereby or
thereby.
10.2. Powers. The Agent shall have and may exercise such powers under the
Loan Documents as are specifically delegated to the Agent by the terms of each
thereof, together with such powers as are reasonably incidental thereto. The
Agent shall have no implied duties to the Lenders, or any obligation to the
Lenders to take any action thereunder, except any action specifically provided
by the Loan Documents to be taken by the Agent.
10.3. General Immunity. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Borrower or any Lender for
any action taken or omitted to be taken by it or them hereunder or under any
other Loan Document or in connection herewith or therewith except for its or
their own gross negligence or willful misconduct.
10.4. No Responsibility for Loans, Recitals, etc. Neither the Agent nor
any of its directors, officers, agents or employees shall be responsible for or
have any duty to ascertain, inquire into, or verify (a) any statement, warranty
or representation made in connection with any Loan Document or any borrowing
hereunder, (b) the performance or observance of any of the covenants or
agreements of any obligor under any Loan Document, including, without
limitation, any agreement by an obligor to furnish information directly to each
Lender, (c) the satisfaction of any condition specified in Article IV, except
receipt of items required to be delivered to the Agent and not waived at
closing, or (d) the validity, effectiveness, sufficiency, enforceability or
genuineness of any Loan Document or any other instrument or writing furnished
in connection therewith. The Agent shall have no duty to disclose to the
Lenders information that is not required to be furnished by the Borrower to the
Agent at such time, but is voluntarily furnished by the Borrower to the Agent
(either in its capacity as Agent or in its individual capacity).
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10.5. Action on Instructions of Lenders. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder and under
any other Loan Document in accordance with written instructions signed by the
Required Lenders (or, to the extent required by Section 8.2, all Lenders), and
such instructions and any action taken or failure to act pursuant thereto shall
be binding on all of the Lenders and on all holders of Notes. The Agent shall
be fully justified in failing or refusing to take any action hereunder and
under any other Loan Document unless it shall first be indemnified to its
satisfaction by the Lenders pro rata against any and all liability, cost and
expense that it may incur by reason of taking or continuing to take any such
action.
10.6. Employment of Agents and Counsel. The Agent may execute any of its
duties as Agent hereunder and under any other Loan Document by or through
employees, agents and attorneys-in-fact and shall not be answerable to the
Lenders, except as to money or securities received by it or its authorized
agents, for the default or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. The Agent shall be entitled to advice of
counsel concerning all matters pertaining to the agency hereby created and its
duties hereunder and under any other Loan Document.
10.7. Reliance on Documents; Counsel. The Agent shall be entitled to rely
upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and, in respect to
legal matters, upon the opinion of counsel selected by the Agent, which counsel
may be employees of the Agent.
10.8. Agent's Reimbursement and Indemnification. The Lenders agree to
reimburse and indemnify the Agent ratably in proportion to their respective
Commitments (or, if the Commitments have been terminated, in proportion to
their Commitments immediately prior to such termination) (a) for any amounts
not reimbursed by the Borrower for which the Agent is entitled to reimbursement
by the Borrower under the Loan Documents, (b) for any other expenses incurred
by the Agent on behalf of the Lenders, in connection with the preparation,
execution, delivery, administration and enforcement of the Loan Documents, and
(c) for any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind and nature
whatsoever which may be imposed on, incurred by or asserted against the Agent
in any way relating to or arising out of the Loan Documents or any other
document delivered in connection therewith or the transactions contemplated
thereby, or the enforcement of any of the terms thereof or of any such other
documents; provided, that no Lender shall be liable for any of the foregoing to
the extent they arise from the gross negligence or willful misconduct of the
Agent. The obligations of the Lenders under this Section 10.8 shall survive
payment of the Obligations and termination of this Agreement.
10.9. Notice of Default. The Agent shall not be deemed to have knowledge
or notice of the occurrence of any Default or Unmatured Default hereunder
unless the Agent has received written notice from a Lender or the Borrower
referring to this Agreement describing such Default or Unmatured Default and
stating that such notice is a "notice of default". In the event that the Agent
receives such a notice, the Agent shall give prompt notice thereof to the
Lenders.
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10.10. Rights as a Lender. In the event the Agent is a Lender, the Agent
shall have the same rights and powers hereunder and under any other Loan
Document as any Lender and may exercise the same as though it were not the
Agent, and the term "Lender" or "Lenders" shall, at any time when the Agent is
a Lender, unless the context otherwise indicates, include the Agent in its
individual capacity. The Agent may accept deposits from, lend money to, and
generally engage in any kind of trust, debt, equity or other transaction, in
addition to those contemplated by this Agreement or any other Loan Document,
with the Borrower or any of its Subsidiaries in which the Borrower or such
Subsidiary is not restricted hereby from engaging with any other Person.
10.11. Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and based
on the financial statements prepared by the Borrower and such other documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and the other Loan Documents. Each
Lender also acknowledges that it will, independently and without reliance upon
the Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under this Agreement and the other Loan
Documents.
10.12. Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Lenders and the Borrower, such resignation to be
effective upon the appointment of a successor Agent or, if no successor Agent
has been appointed, forty-five days after the retiring Agent gives notice of
its intention to resign. Upon any such resignation, the Required Lenders shall
have the right to appoint, on behalf of the Lenders, a successor Agent. If no
successor Agent shall have been so appointed by the Required Lenders and shall
have accepted such appointment within thirty days after the resigning Agent's
giving notice of its intention to resign, then the resigning Agent may appoint,
on behalf of the Borrower and the Lenders, a successor Agent. The appointment
of any successor Agent shall be subject to the prior approval of the Borrower,
which approval shall not be unreasonably withheld. If the Agent has resigned
and no successor Agent has been appointed, the Lenders may perform all the
duties of the Agent hereunder and the Borrower shall make all payments in
respect of the Obligations to the applicable Lender and for all other purposes
shall deal directly with the Lenders. No successor Agent shall be deemed to be
appointed hereunder until such successor Agent has accepted the appointment.
Any such successor Agent shall be a commercial bank having capital and retained
earnings of at least $50,000,000. Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the resigning Agent. Upon the effectiveness of the resignation of the
Agent, the resigning Agent shall be discharged from its duties and obligations
hereunder and under the Loan Documents. After the effectiveness of the
resignation of an Agent, the provisions of this Article X shall continue in
effect for its benefit in respect of any actions taken or omitted to be taken
by it while it was acting as the Agent hereunder and under the other Loan
Documents.
10.13. Co-Agents. There shall be no rights, obligations or liabilities
afforded to or imposed upon the Co-Agents by virtue of their status as such.
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ARTICLE XI
SETOFF; RATABLE PAYMENTS
11.1. Setoff. In addition to, and without limitation of, any rights of
the Lenders under applicable law, if the Borrower becomes insolvent, however
evidenced, or any Default occurs, any and all deposits (including all account
balances, whether provisional or final and whether or not collected or
available) and any other Indebtedness at any time held or owing by any Lender
to or for the credit or account of the Borrower may be offset and applied
toward the payment of the Obligations owing to such Lender, whether or not the
Obligations, or any part hereof, shall then be due.
11.2. Ratable Payments. If any Lender, whether by setoff or otherwise,
has payment made to it upon its Loans (other than payments received pursuant to
Section 3.1, 3.2 or 3.4) in a greater proportion than its pro-rata share of
such Loans, such Lender agrees, promptly upon demand, to purchase a portion of
the Loans held by the other Lenders so that after such purchase each Lender
will hold its ratable proportion of Loans. If any Lender, whether in
connection with setoff or amounts which might be subject to setoff or
otherwise, receives collateral or other protection for its Obligations or such
amounts which may be subject to setoff, such Lender agrees, promptly upon
demand, to take such action necessary such that all Lenders share in the
benefits of such collateral ratably in proportion to their Loans. In case any
such payment is disturbed by legal process, or otherwise, appropriate further
adjustments shall be made. If an amount to be setoff is to be applied to
Indebtedness of the Borrower to a Lender, other than Indebtedness evidenced by
any of the Notes held by such Lender, such amount shall be applied ratably to
such other Indebtedness and to the Indebtedness evidenced by such Notes.
ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
12.1. Successors and Assigns. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower and
the Lenders and their respective successors and assigns, except that (a) the
Borrower shall not have the right to assign its rights or obligations under the
Loan Documents, and (b) any assignment by any Lender must be made in compliance
with Section 12.3. Notwithstanding clause (b) of this Section, any Lender may
at any time, without the consent of the Borrower or the Agent, assign all or
any portion of its rights under this Agreement and its Notes to a Federal
Reserve Bank; provided, however, that no such assignment to a Federal Reserve
Bank shall release the transferor Lender from its obligations hereunder. The
Agent may treat the payee of any Note as the owner thereof for all purposes
hereof unless and until such payee complies with Section 12.3 in the case of an
assignment thereof or, in the case of any other transfer, a written notice of
the transfer is filed with the Agent. Any assignee or transferee of a Note
agrees by acceptance thereof to be bound by all the terms and provisions of the
Loan Documents. Any request, authority or consent of any Person, who at the
time of making such request or giving such authority or consent is the holder
of any Note, shall be conclusive and binding on any
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<PAGE> 50
subsequent holder, transferee or assignee of such Note or of any Note
or Notes issued in exchange therefor.
12.2. Participations.
12.2.1. Permitted Participants; Effect. Any Lender may, in the ordinary
course of its business and in accordance with applicable law, at any time sell
to one or more banks or other entities ("Participants") participating interests
in any Loan owing to such Lender, any Note held by such Lender, any Commitment
of such Lender or any other interest of such Lender under the Loan Documents.
In the event of any such sale by a Lender of participating interests to a
Participant, such Lender's obligations under the Loan Documents shall remain
unchanged, such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, such Lender shall remain the
holder of any such Note for all purposes under the Loan Documents, all amounts
payable by the Borrower under this Agreement shall be determined as if such
Lender had not sold such participating interests, and the Borrower and the
Agent shall continue to deal solely and directly with such Lender in connection
with such Lender's rights and obligations under the Loan Documents.
Participants shall be entitled to the benefits of the cost protection
provisions contained in Sections 2.17, 3.1, 3.2, 3.4 and 9.7 to the same extent
as if they were Lenders, provided that the Borrower shall not be required to
reimburse Participants pursuant to such provisions in an amount in excess of
the amount that would have been payable thereunder to such Lender had such
Lender not sold such participation.
12.2.2. Voting Rights. Each Lender shall retain the sole right to
approve, without the consent of any Participant, any amendment, modification or
waiver of any provision of the Loan Documents other than any amendment,
modification or waiver which effects any of the modifications referenced in
clauses (a) through (f) of Section 8.2.
12.2.3. Benefit of Setoff. The Borrower agrees that each Participant
shall be deemed to have the right of setoff provided in Section 11.1 in respect
of its participating interest in amounts owing under the Loan Documents to the
same extent as if the amount of its participating interest were owing directly
to it as a Lender under the Loan Documents; provided, that each Lender shall
retain the right of setoff provided in Section 11.1 with respect to the amount
of participating interests sold to each Participant. The Lenders agree to
share with each Participant, and each Participant, by exercising the right of
setoff provided in Section 11.1, agrees to share with each Lender, any amount
received pursuant to the exercise of its right of setoff, such amounts to be
shared in accordance with Section 11.2 as if each Participant were a Lender.
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<PAGE> 51
12.3. Assignments.
12.3.1. Permitted Assignments. Any Lender may, in the ordinary course of
its business and in accordance with applicable law, at any time assign to one
or more banks or other entities ("Purchasers") all or any part of its rights
and obligations under the Loan Documents; provided, however, that in the case
of an assignment to an entity which is not a Lender or an Affiliate of a
Lender, such assignment shall be in a minimum amount of $10,000,000. Such
assignment shall be substantially in the form of Exhibit C hereto or in such
other form as may be agreed to by the parties thereto. The consent of the
Agent and, so long as no Default is continuing, the Borrower shall be required
prior to an assignment becoming effective with respect to a Purchaser which is
not a Lender or an Affiliate thereof. Such consent shall not be unreasonably
withheld.
12.3.2. Effect; Effective Date. Upon (a) delivery to the Agent of a
notice of assignment, substantially in the form attached as Exhibit I to
Exhibit C hereto (a "Notice of Assignment"), together with any consents
required by Section 12.3.1, and (b) payment by the transferor Lender or
Purchaser of a $3,500 fee to the Agent for processing such assignment, such
assignment shall become effective on the effective date specified in such
Notice of Assignment. On and after the effective date of such assignment, (a)
such Purchaser shall for all purposes be a Lender party to this Agreement and
any other Loan Document executed by the Lenders and shall have all the rights
and obligations of a Lender under the Loan Documents, to the same extent as if
it were an original party hereto, and (b) the transferor Lender shall be
released with respect to the percentage of the Aggregate Commitment and Loans
assigned to such Purchaser without any further consent or action by the
Borrower, the Lenders or the Agent. Upon the consummation of any assignment to
a Purchaser pursuant to this Section 12.3.2, the transferor Lender, the Agent
and the Borrower shall make appropriate arrangements so that replacement Notes
are issued to such transferor Lender and new Notes or, as appropriate,
replacement Notes, are issued to such Purchaser, in each case in principal
amounts reflecting their Commitment, as adjusted pursuant to such assignment.
12.4 Confidentiality. (a) Each Lender agrees with the Borrower that all
information concerning the Borrower and its Subsidiaries that is furnished or
has previously been furnished to such Lender by or on behalf of the Borrower
(herein collectively referred to as the "Confidential Information") in
connection with this Agreement or any other Loan Document, will be held and
treated by such Lender in confidence and will not, except as hereinafter
provided, without the prior consent of the Borrower, be disclosed by such
Lender, in whole or in part, or be used by such Lender other than in connection
with this Agreement or the other Loan Documents. Each Lender further agrees to
disclose Confidential Information only to its Affiliates, and their respective
directors, officers, employees, advisors, agents or representatives
(collectively, "Related Persons") who need to know the Confidential Information
for purposes of this Agreement or the other Loan Documents and who agree to
keep such information confidential and to be bound by the terms of the
agreement contained in this Section 12.4 to the same extent as if they were
Lenders.
(b) Notwithstanding the foregoing, the following will not constitute
"Confidential Information" for purposes of the agreement contained in this
Section 12.4:
(i) information which was or becomes generally
available to the public other than as a result of a
disclosure by any Lender or Related Persons; and
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<PAGE> 52
(ii) information which was or becomes available
on a nonconfidential basis from a source other than
the Borrower who, insofar as is known to any Lender,
is not prohibited from transmitting the information by
a contractual, legal or fiduciary obligation to the
Borrower.
(c) Further, each Lender may disclose Confidential Information:
(i) to any Governmental Authority (or any
self-regulatory organization) to which such Lender is
or becomes subject, or in connection with an
examination of such Lender by such Governmental
Authority (or self-regulatory organization);
(ii) pursuant to subpoena or other legal process;
(iii) to any Person and in any proceeding
necessary in such Lender's reasonable judgment to
protect the interest of such Lender in connection with
any claim or dispute involving such Lender; and
(iv) to any Participant or Purchaser or any other
Person acquiring an interest in the Loan Documents by
operation of law (each a "Transferee") and any
prospective Transferee if such Transferee has executed
an Assignment Agreement or a participation agreement
or other agreement containing a confidentiality
agreement substantially in the form of the agreement
contained in this Section 12.4.
12.5. Tax Treatment. If any interest in any Loan Document is transferred
to any Transferee which is organized under the laws of any jurisdiction other
than the United States or any State thereof, the transferor Lender shall cause
such Transferee, concurrently with the effectiveness of such transfer, to
comply with the provisions of Section 2.17.
ARTICLE XIII
NOTICES
13.1. Giving Notice. Except as otherwise permitted by Section 2.12 with
respect to borrowing notices, all notices and other communications provided to
any party hereto under this Agreement or any other Loan Document shall be in
writing, by facsimile, first class U.S. mail or overnight courier and addressed
or delivered to such party at its address set forth below its signature hereto
or at such other address as may be designated by such party in a notice to the
other parties. Any notice, if mailed and properly addressed with first class
postage prepaid, return receipt requested, shall be deemed given three (3)
Business Days after deposit in the U.S. mail; any notice, if transmitted by
facsimile, shall be deemed given when transmitted; and any notice given by
overnight courier shall be deemed given when received by the addressee.
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13.2. Change of Address. The Borrower, the Agent and any Lender may each
change the address for service of notice upon it by a notice in writing to the
other parties hereto.
[signature pages to follow]
47
<PAGE> 54
IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have executed
this Agreement as of the date first above written.
THE JOHN NUVEEN COMPANY
By:
-------------------------------------
Title:
----------------------------------
Address: 333 West Wacker Drive
Chicago, Illinois 60606
Attn: Mr. John P. Amboian
Telecopy: (312) 917-7795
Telephone: (312) 917-8027
Commitments
- -----------
Revolving Credit THE FIRST NATIONAL BANK OF CHICAGO,
Commitment $50,000,000 Individually and as Agent
By:
-------------------------------------
Title:
----------------------------------
Lending Office for Floating Rate and
Eurodollar Loans:
One First National Plaza
Suite 0159, 16th Floor
Chicago, Illinois 60670
Attn: Mr. William J. Graham
Telecopy: (312) 732-3214
Telephone: (312) 732-3537
Address for Notices:
One First National Plaza
Suite 0085, 16th Floor
Chicago, Illinois 60670
Attn: Mr. J. Dirk Vos
Telecopy: (312) 732-4033
Telephone: (312) 732-5566
48
<PAGE> 55
Revolving Credit BANK OF AMERICA NATIONAL TRUST AND
Commitment $50,000,000 SAVINGS ASSOCIATION,
Individually and as Co-Agent
By:
-------------------------------------
Title:
----------------------------------
Lending Office for Floating Rate and
Eurodollar Loans, and Address for Notices:
231 South LaSalle Street
Chicago, Illinois 60697
Attn: Mr. John Hayes
Telecopy: (312) 987-0889
Telephone: (312) 828-1632
Revolving Credit THE CHASE MANHATTAN BANK,
Commitment $50,000,000 Individually and as Co-Agent
By:
-------------------------------------
Title:
----------------------------------
Lending Office for Floating Rate and
Eurodollar Loans, and Address for Notices:
Broker/Dealer Division
One Chase Manhattan Plaza, 21st Floor
New York, NY 10081
Attn: Ms. Therese C. Bechet
Telecopy: (212) 552-1118
Telephone: (212) 552-7785
49
<PAGE> 56
Revolving Credit CITICORP USA, INC.
Commitment $25,000,000
By:
-------------------------------------
Title:
----------------------------------
Lending Office for Floating Rate and
Eurodollar Loans, and Address for Notices:
399 Park Ave., 12th Floor
New York, NY 10043
Attn: Mr. David A. Dodge
Telecopy: (212) 371-6309
Telephone: (212) 559-6842
Revolving Credit HARRIS TRUST & SAVINGS BANK
Commitment $25,000,000
By:
-------------------------------------
Title:
----------------------------------
Lending Office for Floating Rate and
Eurodollar Loans, and Address for Notices:
111 West Monroe
Chicago, Illinois 60690
Attn: Mr. Scott M. Ferris
Telecopy: (312) 765-8201
Telephone: (312) 461-2665
Aggregate Initial
Revolving Credit
Commitment $200,000,000
50
<PAGE> 57
EXHIBIT A
REVOLVING CREDIT NOTE
$_______________ Dated: ________, 1997
FOR VALUE RECEIVED, THE JOHN NUVEEN COMPANY (the "Borrower") HEREBY
PROMISES TO PAY to the order of__________________________________________
(the "Lender") the principal sum of_____________________ United States
Dollars ($__________) or, if less, the aggregate unpaid principal amount of the
Loans made by the Lender to the Borrower pursuant to Section 2.1 of the Credit
Agreement (as hereinafter defined), on or before the Facility Termination Date;
together, in each case, with interest on any and all principal amounts
remaining unpaid hereunder from time to time. Interest upon the unpaid
principal amount hereof shall accrue at the rates, shall be calculated in the
manner and shall be payable on the dates set forth in the Credit Agreement.
After maturity, whether by acceleration or otherwise, accrued interest shall be
payable upon demand. Both principal and interest shall be payable in
accordance with the Credit Agreement to The First National Bank of Chicago, as
Agent (the "Agent") on behalf of the Lender, at its main office in Chicago,
Illinois in immediately available funds. The Loans made by the Lender to the
Borrower pursuant to the Credit Agreement and all payments on account of
principal hereof shall be recorded by the Lender on its books and records in
accordance with its usual practices; provided, however, that the failure to so
record shall not affect the Borrower's obligations under this Revolving Credit
Note.
This Revolving Credit Note is a Note referred to in, and is entitled to
the benefits of, the Credit Agreement dated as of August 8, 1997 by and among
the Borrower, the financial institutions signatory thereto (including the
Lender) and the Agent (as amended, modified or supplemented from time to time,
the "Credit Agreement") and the other Loan Documents. Capitalized terms used
but not otherwise defined herein shall have the respective meanings ascribed
thereto in the Credit Agreement. The Credit Agreement, among other things,
contains provisions for acceleration of the maturity hereof upon the happening
of certain stated events and also for prepayments on account of principal
hereof prior to the maturity hereof upon the terms and conditions therein
specified.
The Borrower hereby waives presentment, demand, protest or notice of any
kind in connection with this Revolving Credit Note.
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THIS REVOLVING CREDIT NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE INTERNAL LAWS, WITHOUT REGARD TO CONFLICT OF LAWS
PROVISIONS, OF THE STATE OF ILLINOIS BUT GIVING EFFECT TO FEDERAL LAWS
APPLICABLE TO NATIONAL BANKS.
THE JOHN NUVEEN COMPANY
By:
-------------------------------------
Title:
----------------------------------
A-2
<PAGE> 59
EXHIBIT B
COMPLIANCE CERTIFICATE
I,__________________ certify that I am the____________________ of THE JOHN
NUVEEN COMPANY (the "Borrower"), and that as such I am authorized to execute
this Compliance Certificate on behalf of the Borrower, and DO HEREBY FURTHER
CERTIFY on behalf of the Borrower that:
1. I have reviewed the terms of that certain Credit Agreement dated as of
August 8, 1997 among the Borrower, the financial institutions named therein
(the "Lenders") and The First National Bank of Chicago, as agent (the "Agent")
(as amended, supplemented or modified from time to time, the "Credit
Agreement") and I have made, or have caused to be made by employees or agents
under my supervision, a detailed review of the transactions and conditions of
the Borrower and its Subsidiaries (as this and other capitalized terms not
defined herein are defined in the Credit Agreement) during the accounting
period covered by the attached financial statements;
2. The examinations described in paragraph 1 did not disclose, and I have
no knowledge of, the existence of any condition or event which constitutes a
Default or Unmatured Default during or at the end of the accounting period
covered by the attached financial statements or as of the date of this
Compliance Certificate, except as set forth below; and
3. Schedule I attached hereto sets forth financial data and computations
evidencing compliance with the covenants set forth in Sections 6.13, 6.21.1,
6.21.2 and 6.22 of the Credit Agreement, all of which data and computations are
true, complete and correct.
Described below are the exceptions, if any, to paragraph 2 by listing, in
detail, the nature of the condition or event, the period during which it has
existed and the action which the Borrower has taken, is taking, or proposes to
take with respect to each such condition or event:
B-1
<PAGE> 60
The foregoing certifications, together with the computations set forth in
Schedule I hereto and the financial statements delivered with this Compliance
Certificate in support hereof, are made and delivered this ______ day of
______________, 19__.
THE JOHN NUVEEN COMPANY
By:
----------------------------------
Title:
-------------------------------
B-2
<PAGE> 61
SCHEDULE I
SECTION 6.13 -- SALE OF ASSETS
Asset Dispositions for period from August 8, 1997 to date of determination:
1. Permitted asset dispositions:
10% of consolidated total assets of the Borrower and its Subsidiaries as
of the last day of preceding Fiscal Quarter* $_________
2. Actual asset dispositions for such period $_________
*Note: must also demonstrate (to the extent calculable) that total
asset dispositions for such period do not involve Property which is
responsible for more than 10% of the consolidated net sales or 20% of
the Net Income of the Borrower and its Subsidiaries for the 12-month
period ending as of the last day of the Fiscal Quarter next preceding
the date of determination.
SECTION 6.21.1 -- MINIMUM NET WORTH
I Required Net Worth: $240,000,000
II Actual Net Worth: $__________
SECTION 6.21.2 -- LEVERAGE RATIO
I Maximum Leverage Ratio 2.75 to 1
II Actual Leverage Ratio:
1. Consolidated Indebtedness of the Borrower and its
Subsidiaries $____________
2. Short-term Indebtedness used to finance temporary
Investments in VRDOs $____________
3. Amount obtained by subtracting (b) from (a) $____________
4. Annual Operating Cash Flow (preceding four Fiscal
Quarters) $____________
5. Ratio of (c) to (d) _____ to 1
SECTION 6.22 -- NUVEEN & CO. NET CAPITAL RATIO
I Minimum Net Capital Ratio 5.5%
B-3
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II Actual Net Capital Ratio
(a) Net Capital $____________
(b) Aggregate Debit Items $____________
(c) Ratio of (a) to (b) ____%
B-4
<PAGE> 63
EXHIBIT C
FORM OF
ASSIGNMENT AGREEMENT
This Assignment Agreement (this "Assignment Agreement") between
_______________________________ (the "Assignor") and _________ (the "Assignee")
is dated as of ___________________, 19__. The parties hereto agree as follows:
2.1. PRELIMINARY STATEMENT. The Assignor is a party to a Credit Agreement
(which, as it may be amended, supplemented, modified, renewed or extended from
time to time is herein called the "Credit Agreement") described in Item 1 of
Schedule 1 attached hereto. Capitalized terms used but not otherwise defined
herein shall have the meanings ascribed thereto in the Credit Agreement.
2.2. ASSIGNMENT AND ASSUMPTION. The Assignor hereby sells and assigns to
the Assignee, and the Assignee hereby purchases and assumes from the Assignor,
an interest in and to the Assignor's rights and obligations under the Credit
Agreement such that after giving effect to such assignment the Assignee shall
have purchased pursuant to this Assignment Agreement the percentage interest
specified in Item 3 of Schedule 1 of all outstanding rights and obligations
under the Credit Agreement relating to the Loans and the other Loan Documents.
The aggregate Commitment (or Loans, if the applicable Commitment has been
terminated) purchased by the Assignee hereunder is set forth in Item 4 of
Schedule 1.
2.3. EFFECTIVE DATE. The effective date of this Assignment Agreement (the
"Effective Date") shall be the later of the date specified in Item 5 of
Schedule 1 or two Business Days (or such shorter period agreed to by the Agent)
after a Notice of Assignment substantially in the form of Exhibit I attached
hereto has been delivered to the Agent. Such Notice of Assignment must include
any consents required to be delivered to the Agent pursuant to Section 12.3.1
of the Credit Agreement. In no event will the Effective Date occur if the
payments required to be made by the Assignee to the Assignor on the Effective
Date under Section 4 hereof are not made on the proposed Effective Date. The
Assignor will notify the Assignee of the proposed Effective Date no later than
the Business Day prior to the proposed Effective Date. As of the Effective
Date, (a) the Assignee shall have the rights and obligations of a Lender under
the Loan Documents with respect to the rights and obligations assigned to the
Assignee hereunder, and (b) the Assignor shall relinquish its rights and be
released from its corresponding obligations under the Loan Documents with
respect to the rights and obligations assigned to the Assignee hereunder.
C-2
<PAGE> 64
2.4. PAYMENT OBLIGATIONS. On and after the Effective Date, the Assignee
shall be entitled to receive from the Agent all payments of principal, interest
and fees with respect to the interest assigned hereby. The Assignee shall
advance funds directly to the Agent with respect to all Loans and reimbursement
payments made on or after the Effective Date with respect to the interest
assigned hereby. [In consideration for the sale and assignment of Loans
hereunder, (a) the Assignee shall pay the Assignor, on the Effective Date, an
amount equal to the principal amount of the portion of all Floating Rate Loans
assigned to the Assignee hereunder, and (b) with respect to each Eurodollar
Loan made by the Assignor and assigned to the Assignee hereunder which is
outstanding on the Effective Date, (i) on the last day of the Interest Period
therefor, (ii) on such earlier date agreed to by the Assignor and the Assignee,
or (iii) on the date on which any such Eurodollar Loan either becomes due (by
acceleration or otherwise) or is prepaid (the date as described in the
foregoing clauses (i), (ii) or (iii) being hereinafter referred to as the
"Payment Date"), the Assignee shall pay the Assignor an amount equal to the
principal amount of the portion of such Eurodollar Loan assigned to the
Assignee which is outstanding on the Payment Date. If the Assignor and the
Assignee agree that the Payment Date for such Eurodollar Loan shall be the
Effective Date, they shall agree to the interest rate applicable to the portion
of such Loan assigned hereunder for the period from the Effective Date to the
end of the existing Interest Period applicable to such Eurodollar Loan (the
"Agreed Interest Rate") and any interest received by the Assignee in excess of
the Agreed Interest Rate shall be remitted to the Assignor. In the event
interest for the period from the Effective Date to but not including the
Payment Date is not paid by the Borrower with respect to any Eurodollar Loan
sold by the Assignor to the Assignee hereunder, the Assignee shall pay to the
Assignor interest for such period on the portion of such Eurodollar Loan sold
by the Assignor to the Assignee hereunder at the applicable rate provided by
the Credit Agreement. In the event a prepayment of any Eurodollar Loan which
is existing on the Payment Date and assigned by the Assignor to the Assignee
hereunder occurs after the Payment Date but before the end of the Interest
Period applicable to such Eurodollar Loan, the Assignee shall remit to the
Assignor the excess of the prepayment penalty paid with respect to the portion
of such Eurodollar Loan assigned to the Assignee hereunder over the amount
which would have been paid if such prepayment penalty was calculated based on
the Agreed Interest Rate. The Assignee will also promptly remit to the
Assignor (x) any principal payments received from the Agent with respect to
Eurodollar Loans prior to the Payment Date, and (y) any amounts of interest on
Loans and fees received from the Agent which relate to the portion of the Loans
assigned to the Assignee hereunder for periods prior to the Effective Date, in
the case of Floating Rate Loans, or the Payment Date, in the case of Eurodollar
Loans, and not previously paid by the Assignee to the Assignor.] In the event
that either party hereto receives any payment to which the other party hereto
is entitled under this Assignment Agreement, then the party receiving such
amount shall promptly remit it to the other party hereto.
* Each Assignor may insert its standard payment provisions in lieu of the
payment terms included in this Exhibit.
2.5. REPRESENTATIONS OF THE ASSIGNOR; LIMITATIONS ON THE ASSIGNOR'S
LIABILITY. The Assignor represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim created by the Assignor. It is
understood and agreed that the assignment and assumption hereunder are made
without recourse to the Assignor and that the Assignor makes no
C-3
<PAGE> 65
other representation or warranty of any kind to the Assignee. Neither
the Assignor nor any of its officers, directors, employees, agents or attorneys
shall be responsible for (a) the due execution, legality, validity,
enforceability, genuineness, sufficiency or collectibility of any Loan
Document, including, without limitation, documents granting the Assignor and
the other Lenders a security interest in assets of any Borrower or any
guarantor, (b) any representation, warranty or statement made in or in
connection with any of the Loan Documents, (c) the financial condition or
creditworthiness of any Borrower or any guarantor, (d) the performance of or
compliance with any of the terms or provisions of any of the Loan Documents,
(e) inspecting any of the Property, books or records of any Borrower, (f) the
validity, enforceability, perfection, priority, condition, value or sufficiency
of any collateral securing or purporting to secure the Loans, or (g) any
mistake, error of judgment, or action taken or omitted to be taken in
connection with the Loans or the Loan Documents.
2.6. REPRESENTATIONS OF THE ASSIGNEE. The Assignee (a) confirms that it
has received a copy of the Credit Agreement, together with copies of the
financial statements requested by the Assignee and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Assignment Agreement, (b) agrees that it will,
independently and without reliance upon the Agent, the Assignor or any other
Lender and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under the Loan Documents, (c) appoints and authorizes the Agent to take
such action as agent on its behalf and to exercise such powers under the Loan
Documents as are delegated to the Agent by the terms thereof, together with
such powers as are reasonably incidental thereto, (d) agrees that it will
perform in accordance with their terms all of the obligations which by the
terms of the Loan Documents are required to be performed by it as a Lender, (e)
agrees that its payment instructions and notice instructions are as set forth
in the attachment to Schedule 1, (f) confirms that none of the funds, monies,
assets or other consideration being used to make the purchase and assumption
hereunder are "plan assets" as defined under ERISA and that its rights,
benefits and interests in and under the Loan Documents will not be "plan
assets" under ERISA, [and (g) attaches the forms prescribed by the Internal
Revenue Service of the United States certifying that the Assignee is entitled
to receive payments under the Loan Documents without deduction or withholding
of any United States federal income taxes].*
* to be inserted if the Assignee is not incorporated under the laws of the
United States, or a state thereof.
2.7. INDEMNITY. The Assignee agrees to indemnify and hold the Assignor
harmless against any and all losses, costs and expenses (including, without
limitation, reasonable attorneys' fees) and liabilities incurred by the
Assignor in connection with or arising in any manner from the Assignee's
non-performance of the obligations assumed under this Assignment Agreement.
The obligations of the Assignee under this Section 7 shall survive the payment
of all amounts hereunder and the termination of this Agreement.
2.8. SUBSEQUENT ASSIGNMENTS. After the Effective Date, the Assignee shall
have the right pursuant to and in accordance with Section 12.3 of the Credit
Agreement to assign the rights which are assigned to the Assignee hereunder to
any entity or person; provided, that (a) any such
C-4
<PAGE> 66
subsequent assignment does not violate any of the terms and conditions of the
Loan Documents or any law, rule, regulation, order, writ, judgment, injunction
or decree and that any consent required under the terms of the Loan Documents
has been obtained, and (b) unless the prior written consent of the Assignor is
obtained, the Assignee is not thereby released from its obligations to the
Assignor hereunder, if any remain unsatisfied, including, without limitation,
its obligations under Sections 4, 6 and 7 hereof.
2.9. REDUCTIONS OF AGGREGATE COMMITMENT. If any reduction in the
Aggregate Commitment occurs between the date of this Assignment Agreement and
the Effective Date, the percentage interest specified in Item 3 of Schedule 1
shall remain the same, but the dollar amount purchased shall be recalculated
based on the reduced Aggregate Commitment.
2.10. ENTIRE AGREEMENT. This Assignment Agreement and the attached Notice
of Assignment embody the entire agreement and understanding between the parties
hereto and supersede all prior agreements and understandings between the
parties hereto relating to the subject matter hereof.
2.11. GOVERNING LAW. THIS ASSIGNMENT AGREEMENT SHALL BE GOVERNED BY THE
INTERNAL LAWS, WITHOUT REGARD TO CONFLICT OF LAWS PROVISIONS, OF THE STATE OF
ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
2.12. NOTICES. Notices shall be given under this Assignment Agreement in
the manner set forth in the Credit Agreement. For the purpose hereof, the
addresses of the parties hereto (until notice of a change is delivered) shall
be the address set forth in the attachment to Schedule 1.
C-5
<PAGE> 67
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
Agreement by their duly authorized officers as of the date first above written.
[NAME OF ASSIGNOR]
By:
-------------------------------------
Title:
----------------------------------
----------------------------------
----------------------------------
[NAME OF ASSIGNOR]
By:
-------------------------------------
Title:
----------------------------------
----------------------------------
----------------------------------
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<PAGE> 68
SCHEDULE 1
TO ASSIGNMENT AGREEMENT
I Description and Date of Credit Agreement:
That certain Credit Agreement dated as of August 8,
1997 among The John Nuveen Company, the financial
institutions named therein and The First National Bank
of Chicago, as agent.
II Date of Assignment Agreement: ______________, 19
III Amounts (As of Date of Item 2 above):
1 Total of Commitments (Loans)*
under Credit Agreement $_____________
2 Assignee's percentage of the
(Loans)* Commitments purchased
under the Assignment Agreement** _________%
IV Assignee's aggregate (Loan amount)*
Commitment amount purchased hereunder: $_____________
V Proposed Effective Date: _____________
Accepted and Agreed:
[NAME OF ASSIGNOR] [NAME OF ASSIGNEE]
By: By:
---------------------------------- -----------------------------------
Title: Title:
------------------------------- --------------------------------
* If a Commitment has been terminated, insert outstanding Loans in place of
Commitment
** Percentage taken to 10 decimal places
C-7
<PAGE> 69
ATTACHMENT TO SCHEDULE 1 TO ASSIGNMENT AGREEMENT
Attach Assignor's Administrative Information Sheet, which must
include notice address for the Assignor and the Assignee
C-8
<PAGE> 70
EXHIBIT I
TO ASSIGNMENT AGREEMENT
NOTICE OF ASSIGNMENT
______________ __, 19__
To: The John Nuveen Company
333 West Wacker Drive
Chicago, Illinois 60606
The First National Bank of Chicago
One First National Plaza
Chicago, IL 60670
From: [NAME OF ASSIGNOR] (the "Assignor")
[NAME OF ASSIGNEE] (the "Assignee")
0.1. We refer to the Credit Agreement (the "Credit Agreement") described
in Item 1 of Schedule 1 attached hereto. Capitalized terms used herein and not
otherwise defined herein or in such consent shall have the meanings attributed
to them in the Credit Agreement.
0.2. This Notice of Assignment (this "Notice") is given and delivered to
the Borrower and the Agent pursuant to Section 12.3.2 of the Credit Agreement.
0.3. The Assignor and the Assignee have entered into an Assignment
Agreement, dated as of___________________, 19 (the "Assignment"), pursuant to
which, among other things, the Assignor has sold, assigned, delegated and
transferred to the Assignee, and the Assignee has purchased, accepted and
assumed from the Assignor the percentage interest specified in Item 3 of
Schedule 1 of all outstandings, rights and obligations under the Credit
Agreement relating to the facilities listed in Item 3 of Schedule 1, including,
without limitation, such interest in the Assignor's Commitment (if applicable)
and the Loans owing to the Assignor relating to such facilities. The
effective date of the Assignment (the "Effective Date") shall be the later of
the date specified in Item 5 of Schedule 1 or two Business Days (or such
shorter period as agreed to by the Agent) after this Notice of Assignment and
any consents and fees required by Sections 12.3.1 and 12.3.2 of the Credit
Agreement have been delivered to the Agent; provided, that the Effective Date
shall not occur if any condition precedent agreed to by the Assignor and the
Assignee has not been satisfied.
0.4. The Assignor and the Assignee hereby give to the Borrower and the
Agent notice of the assignment and delegation referred to herein. The Assignor
will confer with the Agent before the date specified in Item 5 of Schedule 1 to
determine if the Assignment Agreement will become effective on such date
pursuant to Section 3 hereof and will confer with the Agent to determine the
C-9
<PAGE> 71
Effective Date pursuant to Section 3 hereof if it occurs thereafter. The
Assignor shall notify the Agent if the Assignment does not become effective on
any proposed Effective Date as a result of the failure to satisfy the
conditions precedent agreed to by the Assignor and the Assignee. At the
request of the Agent, the Assignor will give the Agent written confirmation of
the satisfaction of the conditions precedent.
0.5. The Assignor or the Assignee shall pay to the Agent on or before the
Effective Date the processing fee of $3,500 required by Section 12.3.2 of the
Credit Agreement.
0.6. If Notes are outstanding on the Effective Date, the Assignor and the
Assignee request and direct that the Agent prepare and cause the Borrower to
execute and deliver new Notes or, as appropriate, replacement Notes, to the
Assignor and the Assignee. The Assignor and, if applicable, the Assignee each
agree to deliver to the Agent the original Notes received by it from the
Borrower upon its receipt of new Notes in the appropriate amount.
0.7. The Assignee advises the Agent that notice and payment instructions
are set forth in the attachment to Schedule 1.
0.8. Each party consenting to the Assignment in the space indicated below
hereby releases the Assignor from any obligations to it which have been
assigned to the Assignee. The Assignee hereby represents and warrants that
none of the funds, monies, assets or other consideration being used to make the
purchase pursuant to the Assignment are "plan assets" as defined under ERISA
and that its rights, benefits and interests in and under the Loan Documents
will not be "plan assets" under ERISA.
0.9. The Assignee authorizes the Agent to act as its agent under the Loan
Documents in accordance with the terms thereof. The Assignee acknowledges that
the Agent has no duty to supply information with respect to the Borrower or the
Loan Documents to the Assignee until the Assignee becomes a party to the Credit
Agreement.
[NAME OF ASSIGNOR] [NAME OF ASSIGNEE]
By: By:
---------------------------------- -----------------------------------
Title: Title:
------------------------------- --------------------------------
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<PAGE> 72
ACKNOWLEDGED AND CONSENTED TO ACKNOWLEDGED AND CONSENTED
BY THE FIRST NATIONAL BANK OF TO BY THE JOHN NUVEEN COMPANY
CHICAGO, as Agent
By: By:
---------------------------------- -----------------------------------
Title: Title:
------------------------------- --------------------------------
[Attach photocopy of Schedule 1 to Assignment]
C-11
<PAGE> 1
THE JOHN NUVEEN COMPANY
97 Annual Report 1997
Helping investors sustain the wealth of a lifetime
<PAGE> 2
100th Year
Since our founding in 1898, The John Nuveen Company has been synonymous with
investments that withstand the test of time. Starting as an investment bank
specializing in municipal securities, Nuveen played an important role in
developing the market that has become the primary source of capital for the
growth and improvement of our country's cities, counties and states.
Today, we offer a broad range of equity and fixed-income investments
designed for investors whose portfolios are the principal source of their
ongoing financial security, as well as a wide array of municipal and corporate
investment banking services.
Nuveen funds and trusts are offered through registered advisers working
for independent broker-dealers, banks, insurance companies, accounting firms
and financial planning specialists.
The John Nuveen Company is listed on the New York Stock Exchange and
trades under the symbol "JNC."
<PAGE> 3
EXHIBIT 13
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
in millions except per share data
YEAR ENDED DECEMBER 31 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Assets Under Management $49,594 $33,191 $33,042 $30,047 $32,948
Revenues $ 269 $ 232 $ 236 $ 220 $ 245
Net Income $ 74 $ 73 $ 71 $ 58 $ 70
Earnings per Share (diluted) $ 2.13 $ 1.98 $ 1.87 $ 1.52 $ 1.76
Cash Flow per Share (diluted) $ 2.57 $ 2.11 $ 2.00 $ 1.62 $ 1.82
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 4
[PHOTO TO COME]
Timothy R. Schwertfeger
Chairman and
Chief Executive Officer
Anthony T. Dean
President and
Chief Operating Officer
- --------------------------------------------------------------------------------
1898
NOVEMBER 7, 1898 JOHN NUVEEN SR. FOUNDS AN INVESTMENT BANKING
COMPANY SPECIALIZING IN THE UNDERWRITING AND DISTRIBUTION OF MUNICIPAL BONDS.
NUVEEN'S FIRST UNDERWRITING, DATED DECEMBER 26, 1898, WAS A $7000 ISSUE FOR
THE BEMIDJI, MINNESOTA WATERWORKS.
1900'S
NUVEEN BROADENS ITS UNDERWRITING BUSINESS AND BECOMES PARTICULARLY KNOWN FOR
ITS WORK IN CALIFORNIA AND FLORIDA.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
<PAGE> 5
DEAR SHAREHOLDERS
WE ARE VERY PLEASED TO REPORT THAT 1997 WAS another excellent year for the
Company.
We especially are gratified that our strong performance this past year was
achieved during a period in which industry-wide sales of municipal bond
products - our historical base - remained in net redemptions for most of the
year, and at a time when we are making substantial long-term investments to
broaden our business. Our investments reflect the substantial growth in the
retail investment management industry that we expect to last well into the
next century.
CONTINUED STRATEGIC EVOLUTION
The results for the year can be traced to the ongoing implementation since
early 1996 of our new strategic focus. More than ever before, Nuveen is now
clearly positioned to provide financial advisers with the products, tools and
services to help accomplished investors sustain the financial security and
quality of life they have created for themselves and their families.
While it is gratifying that we already are seeing positive results from
this strategy, we know we're just at the beginning of what will be a
multi-year, multi-stage process. This transformation is designed to be a series
of deliberate and well-planned steps that produce meaningful progress over time.
By carefully evolving our strategic focus, we are leveraging the Nuveen
brand name and the valuable relationships we enjoy with financial advisers and
investors. In particular, we are developing products and services that benefit
what soon will become the fastest growing group of investors in the country -
those between 55 and 64 years old. Over the next 15 years, this age group is
expected to grow as much as four times as fast as the overall U.S. population.
As investors move into this stage of life, they will naturally become more
committed to preserving their financial security.
- --------------------------------------------------------------------------------
1936
NUVEEN PIONEERS THE HIGHLY SUCCESSFUL MISSISSIPPI MOTOR-FUEL TAX-REVENUE BOND
FINANCING-ONE OF THE NATION'S FIRST REVENUE FINANCINGS.
1940'S
NUVEEN BEGINS UNDERWRITING TAX-EXEMPT HOSPITAL REVENUE BONDS WHICH DEVELOP INTO
ONE OF THE NATION'S PREMIER SOURCES OF HEALTH CARE FINANCING.
1950'S
NUVEEN IS INSTRUMENTAL IN THE FINANCING OF THE U.S. STATE HIGHWAY SYSTEM.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3
<PAGE> 6
GROWTH OF 55-64 AGE SEGMENT
[CHART]
<TABLE>
<CAPTION>
55-64 Total
----- -----
<S> <C> <C>
1960 6.86 9.03
1965 9.29 7.53
1970 9.41 5.40
1975 7.30 5.60
1980 8.52 5.50
1985 1.75 4.71
1990 -4.70 4.80
1995 0.18 5.35
2000 13.3 4.52
2005 23.55 4.13
2010 19.18 4.10
</TABLE>
- - Growth of 55-64 Segment
- - Growth of Total U.S. Population
Nuveen already enjoys strong name recognition and a reputation among
financial advisers and investors for quality investments that moderate risk.
Enlarging our target market to include investors in an important transitional
stage prior to retirement is a natural expansion of the services that we
provide to financial advisers and their clients. At the same time, we will
maintain our long-standing commitment to serving those near or in retirement
and preserving the traditional values and investment philosophy that are at the
core of our business.
During 1997, we introduced several new products and services that meet the
needs of risk-sensitive investors for a balance among continued asset growth,
dependable income and capital preservation. These offerings now incorporate
value-oriented equities, blue chip growth stocks, corporate debt, government
securities and municipal bonds in a variety of funds, trusts and individual
account management programs. Importantly, all of our investments are managed
with a strong orientation toward risk moderation and tax reduction.
A TEAM OF PREMIER INVESTMENT ADVISERS
A key element of our strategy is to provide advisers and investors with access
to expert, seasoned investment managers for each different asset class and type
of investment we offer. During 1997 we made significant additions to this team
of premier investment advisers, including:
Flagship Resources - Nuveen completed its purchase of this mutual fund and
individual account manager early in 1997. By combining with Flagship, we
broadened our array of quality state-specific municipal bond funds and added
intermediate- and limited-term national municipal funds.
Rittenhouse Financial Services - In September, we were pleased to welcome
Rittenhouse Financial Services to our team. Primarily through financial
advisers, Rittenhouse
- --------------------------------------------------------------------------------
1961
NUVEEN INTRODUCES MUNICIPAL BOND UNIT INVESTMENT TRUSTS, THE FIRST TAX-FREE
PACKAGED INVESTMENT PRODUCT OFFERING INDIVIDUAL INVESTORS THE SAME MARKET
EXPERTISE, PROFESSIONAL SELECTION AND DIVERSITY AS MUCH LARGER INSTITUTIONAL
INVESTORS.
1971
NUVEEN UNDERWRITES THE NATION'S FIRST INSURED MUNICIPAL BOND ISSUE WITH AMBAC
FOR AN ALASKA FINANCING.
1976
NUVEEN INTRODUCES ITS FIRST MUNICIPAL BOND OPEN-END MUTUAL FUND, EXPANDING INTO
ITS SECOND MAJOR PACKAGED PRODUCT LINE, FOLLOWED FOUR YEARS LATER BY ITS FIRST
TAX-FREE MONEY MARKET FUND.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4
<PAGE> 7
DIVERSIFYING ASSETS UNDER MANAGEMENT
[CHART]
<TABLE>
<CAPTION>
--------------------------------------------------
DIVERSIFYING ASSETS UNDER MANAGEMENT
--------------------------------------------------
($ in Billions) 1996 1997
<S> <C> <C>
Product Mix
Managed Accounts $ 1 $12
Mutual Funds $ 7 $12
Exchange-Traded Funds $25.5 $26
Unit Trusts $13.5 $12
----- ---
$47 $62
Managed Funds and Accounts
Equities and Taxable
Fixed Income $ .5 $40
Municipals $32.5 $10
----- ---
$33 $50
</TABLE>
now manages approximately $10 billion in equity and balanced accounts for
individual investors and institutions. Based in Radnor, PA, a Philadelphia
suburb, Rittenhouse follows a time-tested growth stock strategy that centers on
identifying blue chip companies that are financially strong, global industry
leaders and have demonstrated consistent and predictable growth in earnings and
dividends. This approach provides an attractive way to participate in the
growth potential of the equity markets with reduced risk. Rittenhouse employs a
low turnover style that matches Nuveen's long-standing tax-efficient investment
philosophy.
Early in 1998, we introduced the Nuveen Rittenhouse Growth Fund, the first
mutual fund providing advisers and investors with direct access to Rittenhouse
management. Rittenhouse has achieved an excellent record of strong
performance with moderated risk since its founding almost 20 years ago. Their
model equity portfolio, using the same management style that is employed by our
new growth fund, achieved a total return of more than 36% in 1997, compared
with 33% for the S&P 500 and 28% for the Lipper Growth Fund Index.
In addition to these new partners, our other premier investment advisers
continued to perform well in 1997:
Institutional Capital Corporation - During the first six months of 1997 we
completed the introductory offering of the Nuveen Growth and Income Stock Fund
and made the initial offerings of the Nuveen Balanced Stock and Bond Fund and
the Nuveen Balanced Municipal and Stock Fund. These funds are sub-advised by
Institutional Capital, one of the best core value managers in the industry. All
three funds have performed very well, providing attractive returns with less
day-to-day price fluctuation than the overall market. The Growth and Income
Stock Fund achieved a total return of 27.5% in 1997, compared with 26.6% for
the Morningstar
- --------------------------------------------------------------------------------
1987
THE NUVEEN MUNICIPAL VALUE FUND [NUV] IS THE INDUSTRY'S FIRST INVESTMENT-GRADE,
EXCHANGE-TRADED MUNICIPAL BOND FUND. NUV'S INITIAL
PUBLIC OFFERING OF MORE THAN 150 MILLION SHARES [$1.5 BILLION IN ASSETS] BREAKS
THE NEW YORK STOCK EXCHANGE'S IPO RECORD.
1989-93
NUVEEN'S EXCHANGE-TRADED FUND FRANCHISE DEVELOPS INTO A FAMILY OF MORE THAN 75
NATIONAL AND STATE, INSURED AND UNINSURED, AND LEVERAGED AND UNLEVERAGED
FUNDS-CULMINATING IN NUVEEN BECOMING THE MOST LISTED COMPANY NAME ON THE NEW
YORK STOCK EXCHANGE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5
<PAGE> 8
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NEW BUSINESS AND PRODUCTS CREATE MOMENTUM
Average Weekly Sales Managed Accounts Mutual Funds Unit Trusts and Other
Gross Sales in millions Gross Sales in millions Gross Sales in millions Gross Sales in millions
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1Q96 $22 $31 $43 $215
4Q97 $86 $653 $220 $246
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
- - Equities and Taxable Fixed Income
- - Municipals
Large-Cap Value Category and 27% for the Lipper Growth and Income Fund
Index. Total assets for the three funds now stand at more than $1 billion in
just their first year.
Nuveen Advisory Corporation - Our core municipal bond management team now
manages more than $35 billion in exchange-traded funds and municipal bond
mutual funds. Nuveen Advisory's prudent, value investing style continues to
provide attractive returns and stable tax-free dividends with moderated risk.
A FIRM-WIDE COMMITMENT
The same strategy of expanding our target markets and providing a more
comprehensive array of products and services to our clients is driving the
development of other areas of our firm as well. In our investment banking
division, we are organizing to build upon the relationships we've developed
over the years to offer institutional asset management services.
Our research department also is evolving to offer perspectives on
financial planning, taxes and investment strategies, and to provide tools to
help advisers and their clients manage their money in a tax efficient and risk
sensitive manner. In customer service, we continue to make significant
commitments to expanding our capabilities. In 1998 we will combine the
transfer agency and shareholder servicing operations of all of our funds and
trusts with Chase Manhattan Bank.
CREATING VALUE FOR SHAREHOLDERS
As we manage our way through this evolution, we are balancing long-term
investments in our business with a commitment to generating current value for
shareholders
- --------------------------------------------------------------------------------
1995
NUVEEN INTRODUCES NUVEEN ASSET MANAGEMENT [NAM], OFFERING INDIVIDUALLY MANAGED
PORTFOLIOS OF MUNICIPAL BONDS AND BALANCED MUNICIPAL BOND-EQUITY ACCOUNTS FOR
INDIVIDUALS.
1996
NUVEEN OFFERS ITS FIRST FAMILY OF EQUITY FUNDS IN AFFILIATION WITH
CHICAGO-BASED INSTITUTIONAL CAPITAL CORPORATION. ALSO, NUVEEN ANNOUNCES PLANS
TO ACQUIRE DAYTON-BASED FLAGSHIP RESOURCES, INC., AND MERGE FLAGSHIP'S TAX-FREE
OPEN-END FUNDS WITH NUVEEN'S FAMILY OF FUNDS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6
<PAGE> 9
NUVEEN PRODUCTS SALES TRENDS
<TABLE>
<CAPTION>
- -----------------------------------------------------------
NUVEEN PRODUCTS SALES TREND
in millions
- -----------------------------------------------------------
1994 1995 1996 1997
<S> <C> <C> <C> <C>
1Q 406,554 367,028 288,825 492,465
2Q 362,323 421,094 311,267 606,739
3Q 343,389 369,456 315,552 808,023
4Q 385,704 157,043 746,304 1,118,335
- -----------------------------------------------------------
</TABLE>
of The John Nuveen Company. Last year, our pre-tax return on equity equaled
45%, a sign of continued healthy margins and careful expense control. Our
after-tax return on equity was 27% - better than our 25% average over the past
25 years.
We're gratified to see that the market is beginning to recognize the value
of our strategy, and our ability to maintain strong performance even as we
invest in our future. In 1997, our own stock provided a total return of more
than 35%, outpacing the S&P 500.
The year just past provides a good example of our balancing the use of
capital between growth initiatives and returns to shareholders. During 1997,
we made two significant acquisitions, and at the same time, raised our
quarterly dividend and continued significant share repurchases.
PREPARED FOR OUR SECOND CENTURY
In 1998 we will complete our 100th year of operations. As we cross this
threshold into our second century, we are convinced that, as our business
evolves, our core values - high-quality products and services tailored to the
special needs of our customers, thorough research, disciplined investment
management, strong cost control and balanced deployment of capital - will
remain paramount and be the cornerstones of our continued success.
We look forward to the coming years with enthusiasm and confidence.
/s/ Timothy R. Schwertfeger /s/ Anthony T. Dean
Timothy R. Schwertfeger Anthony T. Dean
Chairman President
and Chief Executive Officer and Chief Operating Officer
- --------------------------------------------------------------------------------
1997
NUVEEN ACQUIRES RITTENHOUSE FINANCIAL SERVICES, INC. WHICH HAS APPROXIMATELY $9
BILLION IN INDIVIDUALLY MANAGED EQUITY AND BALANCED ACCOUNTS OFFERED THROUGH
FINANCIAL ADVISORS.
1998
NUVEEN AND RITTENHOUSE INTRODUCE THE NUVEEN RITTENHOUSE GROWTH FUND.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7
<PAGE> 10
- --------------------------------------------------------------------------------
FINANCIAL REVIEW
- --------------------------------------------------------------------------------
CONTENTS
10 Management's Discussion and Analysis
16 Consolidated Balance Sheets
17 Consolidated Statements of Income
18 Consolidated Statements of Changes in Stockholders' Equity
19 Consolidated Statements of Cash Flows
20 Notes to Consolidated Financial Statements
29 Report of Independent Auditors
30 Five Year Financial Summary
- --------------------------------------------------------------------------------
8
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - DECEMBER 31, 1997
DESCRIPTION OF THE BUSINESS
The Company's principal businesses are asset management and related research
and surveillance; the development, marketing, and distribution of investment
products and services; and municipal and corporate investment banking services.
The Company markets its investment products, including mutual funds, unit
trusts, and managed accounts, through a network of registered representatives
associated with unaffiliated firms including broker-dealers, commercial
banks, affiliates of insurance providers, financial planners, accountants,
consultants and investment advisers.
The Company's primary business activities generate three principal sources
of revenue: (1) ongoing advisory fees earned on assets under management,
including mutual funds and individually managed accounts; (2) transaction
based revenue earned upon the distribution of mutual fund and unit trust
products; and, (3) investment banking revenues, consisting of underwriting and
other advisory fees.
The profitability of each of these lines of business, and the volume of
sales of the Company's products, are directly affected by many variables,
including investor preferences for equity, fixed-income or other investments,
current and expected changes in interest rate levels, the rate of inflation,
changes or expected changes in income tax rates and laws, and municipal bond
new issue supply.
Assets under management include equities, taxable fixed income and
municipal securities. Municipal assets represented 76.5% of assets under
management in managed funds and accounts at December 31, 1997 compared with
98.5% at December 31, 1996.
MARKET OVERVIEW
The U.S. economy continued to grow at a steady pace throughout 1997 with few
signs of inflationary pressure. Although unemployment fell to its lowest level
in almost 25 years and wage pressure was beginning to surface, worker
productivity also increased preventing higher wages from translating into
increases in consumer prices. After a 25 basis point increase in the Federal
Funds rate early in the second quarter, the Federal Reserve Board did not take
any further tightening action during 1997. Interest rates finished the year at
their lowest levels in almost four years. The U.S. equity markets again fared
well during 1997, with the S&P 500 Index increasing 33% for the year, the third
consecutive year the Index rose more than 20%.
During most of 1997, significant cash continued to flow into equity mutual
funds. In the latter half of the year, as investors began moving to more
conservative investments in response to increased volatility in the equity
markets, bond funds also began to attract investor interest. Municipal bond
funds reported net redemptions industry wide during the early part of the year,
but posted sufficient inflows for the last half of the year to conclude the
entire year with positive net flows when taking into account reinvestments and
exchanges.
Municipal bond new issue volume, which is comprised of new-money
financings, refunding transactions, and issues that have an element of both
new-money and refunding, increased to $220 billion in 1997 compared with $185
billion in 1996 and $160 billion in 1995.
RECENT EVENTS
- - During 1997, the Company accelerated its ongoing program to broaden the
range of investment products and services it offers to investors. On August
31, 1997 the Company acquired all of the outstanding stock of Rittenhouse
Financial Services, Inc. (Rittenhouse), a nationally-known equity and
balanced account manager, for $145 million in cash. Rittenhouse specializes
in managing individual portfolios offered through financial advisers to high
net worth individuals. Rittenhouse also provides investment services to
institutional clients. Rittenhouse's primary products are equity and balanced
portfolios that seek to provide attractive long-term capital appreciation
with moderate risk through common stock investments in quality,
large-capitalization companies and investment-grade quality intermediate
bonds. At December 31, 1997, Rittenhouse had approximately
9
<PAGE> 12
$10 billion in assets under management. In January 1998, the Company
introduced a growth equity mutual fund, which is subadvised by Rittenhouse.
- - On January 2, 1997, the Company completed the acquisition of Flagship
Resources Inc. (Flagship), a municipal mutual fund sponsor and asset manager.
The Company's total cost of this acquisition was $72 million, including cash
and preferred stock valued at $63 million paid to the former Flagship
principals. Additional payments in cash and common stock, which are contingent
on the future growth in the Company's municipal mutual funds, could amount to
as much as $20 million over a four year period. Contingent consideration for
1997 amounted to approximately $1.0 million which was paid during the first
quarter of 1998. At December 31, 1996, Flagship had more than $4.6 billion in
assets under management including $4.2 billion in mutual fund products and
$400 million in individual managed accounts. With the merging of Flagship and
the Company's municipal mutual fund businesses, the Company has expanded the
range of municipal investments offered to investors and strengthened its
mutual fund sales capabilities. As a result of the merger, the Company
now offers municipal bond mutual funds and exchange-traded funds or unit
trusts in 28 states, in addition to national funds and trusts.
- - These two acquisitions have been accounted for using the purchase method of
accounting, resulting in the recording of approximately $200 million of
goodwill for financial reporting purposes which will be amortized against
earnings over approximately 30 years. The results of Rittenhouse and Flagship
are included in the Company's results of operations since their respective
acquisition dates.
- - The Company expanded its unit trust product offerings in May 1997 with the
launch of taxable unit trusts including branded equity, U.S. Treasury and
corporate unit trusts.
The following table compares key operating information of the Company for
the respective twelve month periods:
NUVEEN OPERATING STATISTICS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
IN MILLIONS, EXCEPT PER SHARE AMOUNTS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
DECEMBER 31, 1997 1996 1995
Gross revenues $ 268.9 $ 232.5 $ 236.2
Operating expenses 146.7 115.0 122.4
Pretax operating income 122.2 117.5 113.8
Net income 74.2 72.5 70.6
Basic earnings per share(1) 2.23 2.03 1.91
Diluted earnings per share(1) 2.13 1.98 1.87
Operating cash flow per share(2) 2.57 2.11 2.00
Dividends per share 0.88 0.78 0.68
Redeemable preferred stock(3) 45 -- --
Common stockholders' equity(3) 273.1 271.9 322.9
Gross sales of investment products 3,026 1,747 1,618
Assets under management(3) 49,594 33,191 33,042
</TABLE>
(1) Compared in accordance with Statement of Financial Accounting Standards No.
128 Earnings Per Share which became effective December 15, 1997.
(2) Operating cash flow (net income plus amoritization and depreciation) on a
per-share basis is calculated under the same method used for diluted
earnings per share and is presented as an additional measurement of
operating performance, not as a substitute for earnings per share.
(3) At period end.
SUMMARY OF OPERATING RESULTS
- - Gross revenues for the year ended December 31, 1997 increased 16% from the
prior year due primarily to the addition of the Rittenhouse and Flagship
businesses. An increase in investment banking activity, higher positioning
profits, and the benefits of a restructuring of the Company's existing
institutional managed account business also aided in the increase in gross
revenues for the year. These increases were partially offset by a decline in
interest income earned on short-term investments as the Company deployed its
capital and a decline in the sales of municipal unit trust products.
- - Operating expenses in 1997 increased over the prior year primarily due to
goodwill amortization and the incremental personnel and operating expenses
resulting from the acquisitions of Flagship and Rittenhouse, amortization of
the costs associated with the launch of the growth and income fund products in
late 1996 and early 1997, and an increase in advertising and promotional costs
in 1997 over 1996.
10
<PAGE> 13
The following discussion and analysis contains important information that
should be helpful in evaluating the Company's results of operations and
financial condition, and should be read in conjunction with the consolidated
financial statements and related notes.
RESULTS OF OPERATIONS
Total advisory fee income earned during any fiscal year is directly related to
the market value of the assets managed by the Company. Advisory fee income will
increase with a rise in the level of assets under management, which occurs with
the sale of fund shares, deposits into individually managed accounts, the
acquisition of assets under management from other advisory companies, or
through increases in the value of portfolio investments. Assets under
management may also increase as a result of reinvestment of distributions from
trusts sponsored by the Company into shares of the mutual funds. Fee income
will decline when managed assets decline, as would occur when the values of
fund portfolio investments decrease or when mutual fund redemptions or managed
account withdrawals exceed sales.
Investment advisory fee income, net of subadvisory fees and expense
reimbursements, from assets managed by the Company is shown in the following
table:
NUVEEN MANAGED FUNDS AND ACCOUNTS
INVESTMENT ADVISORY FEES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
IN THOUSANDS
- --------------------------------------------------------------------------------
DECEMBER 31, 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Managed Funds:
Mutual funds $ 45,809 $ 25,495 $ 23,912
Exchange-Traded Products 156,392 155,172 153,777
Money Market Funds 3,801 4,430 5,023
Managed Accounts(1) 15,633 748 423
- --------------------------------------------------------------------------------
Total $221,635 $185,845 $183,135
- --------------------------------------------------------------------------------
</TABLE>
(1) For the 1997 period, includes four months of advisory fee income earned
on assets managed by Rittenhouse and twelve months of income earned from
former Flagship accounts.
The following table summarizes net assets under management:
NUVEEN MANAGED FUNDS AND ACCOUNTS
NET ASSETS UNDER MANAGEMENT(1)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
IN MILLIONS
- --------------------------------------------------------------------------------
DECEMBER 31, 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Managed Funds:
Mutual Funds $ 10,885 $ 5,930 $ 5,457
Exchange-Traded Products 26,117 25,434 25,784
Money Market Funds 970 1,004 1,113
Managed Accounts(1) 11,622 823 688
- --------------------------------------------------------------------------------
Total $ 49,594 $ 33,191 $ 33,042
- --------------------------------------------------------------------------------
</TABLE>
(1) Excludes the unit trust assets under surveillance.
Total advisory fees for the year ended December 31, 1997 increased over the
comparable periods in 1996 and 1995 as a result of the higher levels of average
assets under management relating principally to the Flagship and Rittenhouse
acquisitions. Mutual fund assets under management at December 31, 1997
increased 84% from December 31, 1996. This increase reflects the acquisition of
$4.2 billion of assets from Flagship, the introduction of the growth and income
fund products in late 1996 and early 1997, sales of fund shares over the
period, and appreciation in the underlying value of the portfolio investments.
This increase was partially offset by share redemptions in municipal mutual
funds. Managed account assets under management at December 31, 1997 increased
primarily due to the acquisition of approximately $9 billion in managed account
assets from Rittenhouse. The modest increase in fees earned on exchange-traded
funds principally reflects the impact of the movement of interest rates on the
value of the investment portfolios. Average money market net assets under
management continued to decrease due to relatively low short-term interest
rates, a strong equity market and strong competition from sponsors of competing
money market products.
11
<PAGE> 14
Gross sales of investment products for the years ending December 31, 1997,
1996 and 1995 are shown below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
IN MILLIONS
- --------------------------------------------------------------------------------
DECEMBER 31, 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Unit trusts $ 757 $ 963 $1,093
Mutual Funds 951 649 179
Exchange-traded funds 125 -- --
Managed accounts(1) 1,193 135 346
- --------------------------------------------------------------------------------
Total $3,026 $1,747 $1,618
- --------------------------------------------------------------------------------
</TABLE>
(1) For the 1997 period, includes four months of sales of Rittenhouse accounts.
The introduction of the Company's growth and income fund family of products
together with integration of the Flagship mutual funds and the Flagship
distribution organization contributed significantly to an increase in the
Company's sales and distribution revenue from mutual funds for 1997 as compared
with 1996 and 1995. However, the increase in sales of the municipal mutual
funds were mostly offset by redemptions during the year as demand for municipal
products remained relatively flat, continuing a trend since 1994. This trend is
primarily due to competition from strong equity markets. Likewise, sales of
municipal unit trusts declined in 1997 resulting in $3.4 million less in
distribution revenues in 1997 compared with 1996.
Sales of exchange-traded funds were the result of the issuance of $125
million in preferred stock in one of the Company's funds.
Sales of managed accounts increased during 1997 as compared with the same
periods of 1996 and 1995 as Rittenhouse's managed account business was added to
the Company's for the last four months of 1997 together with a full year of
Flagship account sales. Sales of managed accounts do not impact the Company's
underwriting and distribution revenue as there are no transaction-based
revenues associated with these products.
The Company records positioning profits or losses from changes in the
market value of investment company products and securities held temporarily.
The Company hedged these holdings against fluctuations in interest rates using
financial futures. During 1997, the Company recognized net positioning gains of
$3.5 million compared with losses of $0.2 million recognized during 1996 and
gains of $5.0 million recognized in 1995.
Investment banking revenues include both new issue underwriting profits
and fee income earned from various financial advisory activities. Consistent
with the industry, investment banking revenues increased 21% in 1997 from $11.1
million to $13.4 million due to an increase in both negotiated underwritings
and financial advisory activity during the period when compared with 1996.
Investment banking revenues increased 7% from 1995 to 1996 due to an increase
in financial advisory activity, partially offset by a decrease in underwriting
revenues.
Interest revenue declined 43% or $8.0 million when comparing the twelve
month period ended December 31, 1997 with the same period of the prior year as
cash balances were deployed in 1997 for the acquisitions of Flagship and
Rittenhouse, for repurchases of a portion of the Company's outstanding common
shares, and as a result of costs associated with the growth and income fund
offerings. Interest income and dividends remained relatively flat when
comparing the twelve month periods ended December 31, 1996 and December 31,
1995.
Compensation and related benefits at December 31, 1997 increased 8% from
December 31, 1996. Although the Company recognized an increase in salary
expense with the addition of approximately 60 former Flagship employees for the
full year and the addition of approximately 80 Rittenhouse employees for the
last four months of 1997, the increase was partially offset by a reduction in
incentive compensation expense and savings from integrating certain operating
and administrative areas of Nuveen and Flagship. The Company's incentive
compensation programs include both cash and equity incentive awards. In
addition to the Company's annual incentive program, the Company has introduced
a long-term incentive and retention program at Rittenhouse, which is tied to
growth in the subsidiary's operating cash flow.
Advertising and promotional expenditures increased during 1997 when
compared with 1996 and 1995 primarily as a result of an advertising and
promotional campaign
12
<PAGE> 15
in the first and second quarters of 1997 to support the launch of the new
equity-based growth and income mutual fund products and increased production of
prospectuses and other marketing materials needed to support a growing number
of products.
During December 1996 and the first five months of 1997, the Company
offered shares of the Company's growth and income fund family on a load-waived
basis. During this period, the Company paid and deferred recognition of
commissions and other direct related costs of $17.5 million on approximately
$600 million of fund share sales. The Company is amortizing these costs over
the lesser of three years or the period during which the shares of the fund
upon which the commissions were paid remain outstanding. Amortization expense
recorded during 1997 amounted to $6.6 million.
Goodwill amortization of $4.0 million was recorded during 1997 which
relates to the acquisition of Flagship on January 2, 1997 and Rittenhouse on
August 31, 1997. The Company expects to amortize goodwill over approximately 30
years for both acquisitions.
Interest and other operating expenses increased for the twelve month
period ended December 31, 1997 compared with the same period of the prior year
due to the addition of the Flagship operations for the full twelve months of
1997 and Rittenhouse operations for the four month period ended December 31,
1997.
CAPITAL RESOURCES, LIQUIDITY
AND FINANCIAL CONDITION
The Company's principal businesses are not capital intensive and, historically,
the Company has met its liquidity requirements through cash flow generated by
the Company's operations. The Company's broker/dealer subsidiary occasionally
utilizes available, uncommitted lines of credit, which exceed $400 million, to
satisfy additional periodic, short-term liquidity requirements generally for
the purpose of carrying variable rate demand obligations (VRDOs). Additionally,
in early August, the Company entered into a $200 million committed, three-year
revolving credit facility with a group of banks to ensure an ongoing liquidity
source for general corporate purposes including acquisitions.
On August 31, 1997, the Company acquired Rittenhouse, a nationally-known
equity and balanced account manager, for a cash purchase price of $145 million.
To finance the transaction the Company used $95 million of cash on hand and,
for the remainder, utilized the aforementioned committed credit line. As of
year end, the outstanding balance of indebtedness under this borrowing
facility was $15 million.
The Company completed the acquisition of Flagship on January 2, 1997. The
Company's total cost of this acquisition was $72 million including cash and
preferred stock valued at $63 million paid to the former Flagship principals.
Additional payments in cash and common stock, which are contingent on the
significant future growth in the Company's municipal mutual funds, could amount
to as much as $20 million over a four year period. Contingent consideration for
1997 amounted to approximately $1.0 million which was paid during the first
quarter of 1998. The $18 million cash portion of the purchase price was
financed with cash on hand.
At December 31, 1997, the Company held in its treasury 6,817,805 shares of
common stock acquired in open market transactions and in transactions with its
Class B shareholder, The St. Paul Companies, Inc., as part of ongoing stock
repurchase programs. During February 1997, the Board of Directors authorized
the purchase of 3.5 million shares to be prorated between Class A and Class B
shares, based on the total number of shares outstanding. During 1997, the
Company repurchased a total of 1,803,933 of its outstanding common shares,
comprised of 419,514 Class A shares and 1,384,419 Class B shares, which
automatically converted to Class A after repurchase.
The Company is remarketing agent for various issuers of VRDOs with an
aggregate principal value in excess of $1.8 billion at December 31, 1997.
Although remarketing agents, including the Company, are only generally
obligated to use their best efforts in locating purchasers for the VRDOs,
13
<PAGE> 16
they frequently repurchase VRDOs for resale to other buyers within a few days.
During temporary periods of imbalance between supply and demand for VRDOs, the
Company may hold larger than average balances of such obligations for resale.
Substantially all VRDOs for which the Company is remarketing agent are secured
by letters of credit obtained by the issuer from top-rated third-party
providers, including major commercial banks and insurance companies. At
December 31, 1997, and December 31, 1996, the Company held $98 million and $100
million, respectively, of VRDOs, which are classified in its consolidated
balance sheets as "Temporary Investments Arising from Remarketing Obligations".
The Company's average daily inventory of VRDOs was $32 million during 1997 and
$18 million during 1996.
To minimize interest rate risk on fixed-income unit trust inventories and
securities held by the Company, the Company entered into futures contracts
during 1997 and expects to continue to do so. Additionally, the Company's
investment banking group will, on occasion, act as financial adviser, broker,
or underwriter to municipal or other not-for-profit issuers with respect to
transactions such as interest rate swaps and forward delivery transactions.
John Nuveen & Co. Incorporated, the Company's wholly owned broker/dealer
subsidiary, is subject to the Securities and Exchange Commission Rule 15c3-1,
the "Uniform Net Capital Rule", which requires the maintenance of minimum net
capital and requires that the ratio of aggregate indebtedness to net capital,
as these terms are defined, shall not exceed 15 to 1. At December 31, 1997, its
net capital ratio was 1.47 to 1 and its net capital was $30.7 million which is
$27.7 million in excess of the required net capital of $3.0 million.
Management believes that cash provided from operations and borrowings
available under its uncommitted and committed credit facilities will provide
the Company with sufficient liquidity to meet its operating needs for the
foreseeable future.
OTHER MATTERS
YEAR 2000
Like many other organizations around the world, the Company could be adversely
affected if the computer systems used by the Company or by the Company's service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The Company has taken steps that it believes adequately address the
Year 2000 Problem with respect to the computer systems it uses. The Company also
has obtained assurances that reasonable efforts are being taken by its service
providers to address this issue.
INFLATION
The Company's assets are, to a large extent, liquid in nature and therefore not
significantly affected by inflation. However, inflation may result in increases
in the Company's expenses, such as employee compensation, advertising and
promotional costs, and office occupancy costs. To the extent inflation, or the
expectation thereof, results in rising interest rates or has other adverse
effects upon the securities markets and on the value of financial instruments,
it may adversely affect the Company's financial condition and results of
operations. A substantial decline in the value of fixed income investments could
adversely affect the net asset value of funds managed by the Company, which in
turn would result in a decline in investment advisory fee income.
14
<PAGE> 17
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1997 1996
- -------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash $ 8,771 $ 6,348
Securities purchased under agreements to resell -- 72,000
Temporary investments arising from remarketing obligations 97,705 99,835
Management and distribution fees receivable 27,169 20,767
Other receivables 13,548 14,795
Securities owned (trading account), at market value:
Nuveen tax-exempt unit trusts 31,926 39,206
Tax-exempt bonds and notes 572 4,553
Deferred income tax asset, net 7,096 9,778
Furniture, equipment and leasehold improvements, at cost less accumulated depreciation
and amortization of $24,665 and $19,363, respectively 14,788 14,073
Other investments 55,339 52,094
Goodwill, at cost less accumulated amortization of $3,956 209,300 --
Prepaid expenses and other assets 26,018 21,802
- -------------------------------------------------------------------------------------------------------------------
$492,232 $355,251
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable $ 15,000 $ --
Secured short-term bank loans supporting remarketing obligations 69,500 --
Accrued compensation and other expenses 42,111 47,789
Deferred compensation 27,414 23,414
Other liabilities 20,087 12,154
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 174,112 83,357
- -------------------------------------------------------------------------------------------------------------------
Redeemable preferred stock, at redemption value;
5,000,000 shares authorized, 1,800,000 shares issued 45,000 --
- -------------------------------------------------------------------------------------------------------------------
Common stockholders' equity:
Class A common stock, $.01 par value; 150,000,000 shares authorized,
issued 14,212,618 shares and 12,828,199 shares, respectively 142 128
Class B common stock, $.01 par value; 40,000,000 shares authorized,
issued 24,441,738 shares and 25,826,157 shares, respectively 245 259
Additional paid-in capital 52,963 50,649
Retained earnings 403,635 363,715
Unamortized cost of restricted stock awards (185) (705)
- -------------------------------------------------------------------------------------------------------------------
456,800 414,046
Less common stock held in treasury, at cost (6,871,805 and 5,535,122 shares, respectively) (183,680) (142,152)
- -------------------------------------------------------------------------------------------------------------------
Total common stockholders' equity 273,120 271,894
- -------------------------------------------------------------------------------------------------------------------
$492,232 $355,251
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE> 18
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE DATA
- --------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997 1996 1995
- --------------------------------------------------------------------------------------
Revenues:
<S> <C> <C> <C>
Investment advisory fees from assets under management $221,635 $185,845 $183,135
Underwriting and distribution of investment products 12,671 14,566 15,339
Positioning profits (losses) 3,491 (191) 4,981
Investment banking 13,409 11,098 10,334
Interest 10,627 18,640 19,445
Other 7,094 2,494 2,973
- --------------------------------------------------------------------------------------
Total revenues 268,927 232,452 236,207
- --------------------------------------------------------------------------------------
Expenses:
Compensation and benefits 77,274 71,683 80,366
Advertising and promotional costs 18,853 12,641 12,677
Occupancy and equipment costs 12,647 11,948 11,668
Amortization of goodwill and deferred offering costs 10,865 -- --
Travel and entertainment 7,132 4,627 4,446
Interest 3,686 2,325 2,641
Other operating expenses 16,300 11,726 10,639
- --------------------------------------------------------------------------------------
Total expenses 146,757 114,950 122,437
- --------------------------------------------------------------------------------------
Income before taxes 122,170 117,502 113,770
- --------------------------------------------------------------------------------------
Income taxes:
Current 44,697 41,833 47,777
Deferred 3,293 3,140 (4,627)
- --------------------------------------------------------------------------------------
Total income taxes 47,990 44,973 43,150
- --------------------------------------------------------------------------------------
Net income $ 74,180 $ 72,529 $ 70,620
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Average common and common equivalent shares outstanding:
Basic 32,275 35,656 36,939
Diluted 34,902 36,702 37,702
- --------------------------------------------------------------------------------------
Earnings per common share:
Basic $ 2.23 $ 2.03 $ 1.91
Diluted $ 2.13 $ 1.98 $ 1.87
- --------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE> 19
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
IN THOUSANDS
- -----------------------------------------------------------------------------------------------------------
Unmoritized
Class A Class B Additional Cost of
Common Common Paid-In Retained Restricted Treasury
Stock Stock Capital Earnings Stock Awards Stock Total
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1994 $101 $286 $49,873 $274,606 $(6,615) $ (32,319) $285,932
Net income -- -- -- 70,620 -- -- 70,620
Cash dividends paid -- -- -- (25,116) -- -- (25,116)
Issuance of restricted
stock awards -- -- -- 36 (719) 683 --
Amortization of restricted
stock awards -- -- -- -- 5,723 -- 5,723
Purchase of treasury stock -- -- -- -- -- (16,182) (16,182)
Exercise of stock options -- -- -- (441) -- 2,071 1,630
Other -- -- 249 -- -- -- 249
- -----------------------------------------------------------------------------------------------------------
Balance at
December 31, 1995 101 286 50,122 319,705 (1,611) (45,747) 322,856
Net income -- -- -- 72,529 -- -- 72,529
Cash dividends paid -- -- -- (27,579) -- -- (27,579)
Issuance of restricted
stock awards -- -- -- 55 (750) 695 --
Amortization of restricted
stock awards -- -- -- -- 1,656 -- 1,656
Purchase of treasury stock 27 (27) -- -- -- (101,074) (101,074)
Exercise of stock options -- -- -- (995) -- 3,974 2,979
Other -- -- 527 -- -- -- 527
- -----------------------------------------------------------------------------------------------------------
Balance at
December 31, 1996 128 259 50,649 363,715 (705) (142,152) 271,894
Net income -- -- -- 74,180 -- -- 74,180
Cash dividends paid -- -- -- (30,589) -- -- (30,589)
Issuance of restricted
stocks awards -- -- 62 -- -- 1,342 1,404
Amortization of restricted
stock awards -- -- -- -- 520 -- 520
Purchase of treasury stock 14 (14) -- -- -- (54,775) (54,775)
Exercise of stock options -- -- (62) (3,671) -- 11,905 8,172
Other -- -- 2,314 -- -- -- 2,314
- -----------------------------------------------------------------------------------------------------------
Balance at
December 31, 1997 $142 $245 $52,963 $403,635 $ (185) $(183,680) $273,120
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE> 20
CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 74,180 $ 72,529 $ 70,620
Adjustments to reconcile net income to net cash
provided from (used for) operating activities:
Deferred income taxes 3,293 3,140 (4,627)
Depreciation and amortization 4,555 5,052 4,598
Amortization of goodwill 3,956 -- --
Net (increase) decrease:
Accrued investment advisory fees (563) (1,134) 1,321
Accrued interest receivable (139) 1,281 (1,291)
Accounts receivable, other 18,349 (4,401) 1,635
Net increase (decrease):
Current taxes payable (9,745) (4,395) 4,414
Accrued compensation and other expenses (10,138) 33,299 (1,064)
Net change in receivables and payables from/to brokers,
dealers, customers and other assets/other liabilities (4,934) (10,489) (1,156)
Amortization of restricted stock awards 520 1,656 5,723
Net (increase) decrease in assets:
Temporary investments arising from remarketing obligations 2,130 98,450 (104,740)
U.S. government securities (escrow accounts) -- 1,385 (1,385)
Securities owned (trading account) 11,261 7,617 3,109
Net increase (decrease) in liabilities:
Secured short-term bank loans 69,500 -- --
Securities sold under agreements to repurchase -- (25,000) 25,000
Security purchase obligations (2,227) (4,947) (7,465)
Deferred compensation 3,834 598 3,513
Other (657) -- --
- -----------------------------------------------------------------------------------------------------------------
Net cash provided from (used for) operating activities 163,175 174,641 (1,795)
- -----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Notes Payable:
Proceeds from revolving credity facility 76,000 -- --
Repayment of loans (61,000) -- --
Dividends paid (30,026) (27,579) (25,116)
Proceeds from stock options exercised 8,172 3,080 1,528
Acquisition of treasury stock (54,775) (101,800) (16,355)
- -----------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (61,629) (126,299) (39,943)
- -----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Payments for purchases of other companies,
net of cash received (165,369) -- --
Purchase of U.S. Treasury securities (1,004) (103,422) (126,854)
Proceeds from maturity of U.S. Treasury securities -- 163,965 69,513
Purchases of office furniture and equipment (3,194) (2,787) (3,321)
Net (increase) decrease in other investments (1,556) (43,786) (341)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided from (used for) investing activities (171,123) 13,970 (61,003)
- -----------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (69,577) 62,312 (102,741)
Cash and cash equivalents:
Beginning of year 78,348 16,036 118,777
- -----------------------------------------------------------------------------------------------------------------
End of year $ 8,771 $ 78,348 $ 16,036
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
General Information and Basis of Presentation
The consolidated financial statements include the accounts of The John Nuveen
Company (the "Company" or "Nuveen") and its wholly owned subsidiaries. All
material intercompany accounts and transactions have been eliminated in
consolidation. Certain amounts in the prior year financial statements have
been reclassified to correspond to the 1997 presentation. These
reclassifications had no effect on net income or retained earnings as
previously reported for those years. The Company's majority shareholder is The
St. Paul Companies.
John Nuveen & Co. Incorporated ("Nuveen & Co."), trades, underwrites and
markets municipal bonds, and is sponsor/ underwriter of the Nuveen unit trusts
(a series of unit investment trusts) and Nuveen open-end and exchange-traded
(closed-end) management investment companies (funds). The Company has four
advisor subsidiaries which are registered under the Investment Advisers Act of
1940, Nuveen Advisory Corp. ("NAC"), Nuveen Institutional Advisory Corp.
("NIAC"), Nuveen Asset Management ("NAM") and Rittenhouse Financial Services
("Rittenhouse"). NAC and NIAC provide investment advice to and administer the
business affairs of the Nuveen family of management investment companies. NAM
and Rittenhouse provide investment management services for individuals and
institutional investors.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements and
related notes to financial statements. Changes in such estimates may affect
amounts reported in future periods.
Securities Purchased Under Agreements to Resell
Securities purchased under agreements to resell are treated as collateralized
financing transactions and are carried at the amounts at which such securities
will be subsequently resold, including accrued interest. The Company's exposure
to credit risks associated with the nonperformance of counterparties in
fulfilling these contractual obligations can be directly impacted by market
fluctuations that may impair the counterparties' ability to satisfy their
obligations. It is the Company's policy to take possession of the securities
underlying the agreements to resell or enter into tri-party agreements which
include segregation of the collateral by an independent third party for the
benefit of the Company. The Company monitors the value of these securities
daily and, if necessary, obtains additional collateral to assure that the
agreements are fully secured.
The Company utilizes resale agreements to invest capital not required to
fund daily operations. The level of such investments will fluctuate on a daily
basis as the Company commits capital to carry temporary investments in VRDOs
and inventory positions and to finance new issue municipal underwritings. Such
agreements typically mature on the day following the day in which the Company
enters into such agreements. Since these agreements are highly liquid
investments, readily convertible to cash, and mature in less than three months,
the Company includes these amounts in cash equivalents for cash flow purposes.
Temporary Investments Arising from
Remarketing Obligations
The Company is remarketing agent for various issuers of variable rate demand
obligations (VRDOs) with an aggregate principal value in excess of $1.8 billion
at December 31, 1997. Although remarketing agents, including the Company, are
only generally obligated to use their best efforts in locating purchasers for
the VRDOs, they frequently purchase VRDOs for resale to other buyers within a
few days. During temporary periods of imbalance between supply and demand for
VRDOs, the Company may hold substantial amounts of such obligations for resale.
The Company has come to expect such imbalances at year end and, to a lesser
extent, at each calendar quarter end. Substantially all VRDOs for which the
Company is remarketing agent are secured by letters of credit obtained by the
issuer from highly rated third party providers including major commercial banks
and insurance companies. At December 31, 1997 and 1996, the Company held VRDOs
with a cost and market value of $97.7 million and $99.8 million, respectively.
In comparison, the Company's average daily temporary investment in VRDOs was
$32.3 million during 1997 and $17.9 million during 1996.
Secured Short-Term Bank Loans
The Company meets its short-term financing needs arising from its VRDO
remarketing activities by obtaining bank loans that are collateralized by
securities owned by the Company including VRDO's.
19
<PAGE> 22
Securities Transactions
Securities transactions entered into by the Company's broker dealer subsidiary
are recorded on a settlement date basis, which is generally three business days
after the trade date. Securities owned (trading accounts) are valued at market
value and realized and unrealized gains and losses are reflected in income.
Profits and losses are accrued on unsettled securities transactions based on
trade dates and, to the extent determinable, on underwriting commitments,
purchase and sale commitments of when-issued securities, and delayed delivery
contracts.
Furniture, Equipment and Leasehold Improvements
Furniture and equipment, primarily computer equipment, are depreciated on a
straight-line basis over estimated useful lives ranging from three to ten
years. Leasehold improvements are amortized over the lesser of the economic
useful life of the improvement or the remaining term of the lease.
Other Investments
Other investments consist primarily of convertible preferred stock in a
privately held institutional equity manager and investments in certain Company
sponsored mutual funds. The preferred stock investment is carried at cost and
is not readily marketable. Consequently, fair value cannot be readily
ascertained.
Goodwill
Goodwill, representing the excess of the cost over the net tangible and
intangible assets of acquired businesses, is stated at cost and is amortized,
on a straight-line basis, over the estimated future periods to be benefited.
The Company periodically assesses the recoverability of the cost of its
goodwill based on a review of undiscounted cash flows of the related acquired
operations.
Prepaid Expenses and Other Assets
Prepaid expenses and other assets consists primarily of deferred commissions
and other directly related costs associated with the sale of the Nuveen Growth
and Income Stock Fund in late 1996 and early 1997. Such costs are being
amortized on a straight-line basis over the lesser of three years or the period
during which the shares of the fund upon which the commissions were paid remain
outstanding.
Derivative Financial Instruments
Although not prohibited from doing so, the Company does not use derivative
financial instruments to speculate on the direction of interest rates. However,
to minimize interest rate risk on the municipal bond and unit trust inventory
held by the Company, the Company has entered into futures contracts and expects
to continue to do so in the future. Additionally, the Company's investment
banking group, on occasion, acts as financial adviser, broker, or underwriter
to municipal or other not-for-profit issuers with respect to transactions in
interest rate swaps and forward delivery transactions. Derivative financial
instruments owned by the Company are valued at market value and realized and
unrealized gains and losses are reflected in income.
Equity Incentive Plans
The Company accounts for restricted stock and options issued under its equity
incentive plans using the accounting methods prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25) and its related Interpretations.
Advertising and Promotional Costs
Advertising and promotional costs include amounts related to the marketing and
distribution of specific products offered by the Company as well as expenses
associated with promoting the Company brand name and image. The Company's
policy is to expense such costs as incurred.
Supplemental Cash Flow Information
The Company paid interest of $2.3 million in 1997, $1.6 million in 1996, and
$1.4 million in 1995. This compares with interest expense reported in the
Company's Consolidated Statements of Income of $3.7 million, $2.3 million and
$2.6 million for the respective reporting years.
2. EARNINGS PER SHARE
In 1997, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings Per Share." This statement replaced the
previous calculation of primary and fully diluted earnings per share (EPS)
with basic and diluted EPS. Basic EPS excludes the dilutive effects of options
and convertible securities. Diluted EPS is similar to the previously reported
fully diluted EPS.
The following table sets forth a reconciliation of net income and common
shares used in the basic and diluted earnings per share computations (EPS) for
the three years ended December 31, 1997:
20
<PAGE> 23
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
In thousands, Per-Share
except per share data Net Income Shares Amount
- -------------------------------------------------------------------
1995:
<S> <C> <C> <C>
Basic EPS $70,620 36,939 $1.91
Dilutive effect of employee
stock options -- 763
Diluted EPS $70,620 37,702 $1.87
- -------------------------------------------------------------------
1996:
Basic EPS $72,529 35,656 $2.03
Dilutive effect of:
Deferred stock -- 137
Employee stock options -- 909
Diluted EPS $72,529 36,702 $1.98
- -------------------------------------------------------------------
1997:
Net income $74,180
Less: Preferred stock dividends (2,250)
Basic EPS $71,930 32,275 $2.23
Dilutive effect of:
Contingent common stock -- 5
Deferred stock -- 178
Employee stock options -- 795
Assumed conversion of
preferred stock 2,250 1,650
Diluted EPS $74,180 34,903 $2.13
- -------------------------------------------------------------------
</TABLE>
Options to purchase 102,500 and 1,128,000 shares of the Company's common stock
were outstanding at December 31, 1997 and 1996, respectively, but were not
included in the computation of diluted earnings per share because the options'
respective weighted average exercise prices of $37.59 and $30.00 per share were
greater than the average market price of the Company's common shares during the
applicable year.
3. ACQUISITIONS OF FLAGSHIP AND RITTENHOUSE
On January 2, 1997, the Company completed the acquisition of Flagship
Resources, Inc. and its two wholly-owned subsidiaries, Flagship Financial Inc.,
a registered investment adviser under the Investment Advisors Act of 1940 and
Flagship Funds Inc., a registered broker/dealer under the Securities Exchange
Act of 1934 (together "Flagship"). Flagship's principal businesses included
providing investment management services to the Flagship family of
predominantly state municipal bond funds and managed accounts and the
underwriting and distribution of new municipal mutual fund and managed account
products. At December 31, 1996, Flagship had over $4.6 billion in assets under
management including $4.2 billion of mutual funds and $400 million of managed
accounts. In connection with its integration program, the Company changed the
name of Flagship Financial Inc. to Nuveen Asset Management and consolidated its
retail and institutional managed account operations into this company. Also as
part of the integration program, Flagship Funds Inc. was combined into the
Company's broker/dealer subsidiary.
The total cost of the Flagship acquisition was $72 million, including $63
million ($45 million of preferred stock and $18 million cash) paid to the
former Flagship shareholders. The Company recorded goodwill of approximately
$70 million related to the transaction which is being amortized over 30 years.
In addition to the initial purchase price, the Company has agreed to make
additional payments of cash and common stock, up to $20 million over a four
year period, which are contingent upon future growth in the Company's municipal
mutual funds. Contingent consideration for 1997 amounted to approximately $1.0
million.
On July 15, 1997, the Company entered into an agreement to acquire
Rittenhouse Financial Services, Inc. (Rittenhouse), a nationally known equity
and balanced account manager, for $145 million in cash. Rittenhouse, a
registered investment adviser under the Investment Advisors Act of 1940,
specializes in managing individual portfolios for high net worth individuals
and institutions. Rittenhouse's main products are equity and balanced
portfolios that seek attractive long-term capital appreciation with moderate
risk through investments in quality, large-capitalization companies.
Rittenhouse currently has approximately $10 billion in assets under management.
The transaction closed on August 31, 1997.
Goodwill, the excess of the purchase price over the fair value of the
assets acquired, approximating $143 million, is being amortized over an
estimated period of 30 years subject to completion of an independent appraisal.
Each of the acquisitions was accounted for using the purchase method of
accounting. The operating results of the consolidated businesses as reported in
the accompanying Consolidated Statements of Income include that of the acquired
businesses from each respective acquisition date through December 31, 1997. The
following table provides pro forma gross revenue, net income and earnings per
share data as if each acquisition had taken place on January 1, 1996:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
IN THOUSANDS, EXCEPT PER SHARE DATA
- -------------------------------------------------------------------
DECEMBER 31, 1997 1996
- -------------------------------------------------------------------
<S> <C> <C>
Gross revenue $289,000 $283,200
Net income $ 75,200 $ 74,200
Earnings per share:
Basic $ 2.26 $ 2.02
Diluted $ 2.16 $ 1.94
- -------------------------------------------------------------------
</TABLE>
21
<PAGE> 24
These unaudited pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations which
actually would have resulted had the combinations been in effect on January 1,
1996 or of future results of operations of the consolidated entity.
4. INCOME TAXES
The provision for income taxes is different from that which would be computed
by applying the statutory federal income tax rate to income before taxes. The
principal reasons for these differences are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate applied
to income before taxes 35.0% 35.0% 35.0%
State and local income taxes,
net of federal income
tax benefit 4.6 4.2 4.1
Tax-exempt interest income,
net of disallowed
interest expense (.9) (1.0) (1.4)
Other, net .6 .1 .2
- -------------------------------------------------------------------
Effective tax rate 39.3% 38.3% 37.9%
- -------------------------------------------------------------------
</TABLE>
The tax effect of significant items that gives rise to the net deferred tax
asset recorded on the Company's consolidated balance sheets are shown in the
following table:
<TABLE>
<CAPTION>
IN THOUSANDS
- ---------------------------------------------------------------------------------------
DECEMBER 31, 1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Gross deferred tax asset:
Deferred compensation $11,830 $11,043
Accrued postretirement
benefit obligation 2,794 2,482
Unfunded accrued pension cost
(nonqualified plan) 467 --
Book amortization in excess of tax amortization 1,634 1,367
Other 735 624
- ---------------------------------------------------------------------------------------
Gross deferred tax asset 17,460 15,516
- ---------------------------------------------------------------------------------------
Gross deferred tax liability:
Deferred commissions and fund offering costs 7,822 4,840
Goodwill amortization 675 --
Tax depreciation in excess of book depreciation-- 197
Prepaid pension costs (qualified plan) 690 511
Unrealized gain 1,119 --
Other 58 190
- ---------------------------------------------------------------------------------------
Gross deferred tax liability 10,364 5,738
- ---------------------------------------------------------------------------------------
Net deferred tax asset $ 7,096 $ 9,778
- ---------------------------------------------------------------------------------------
</TABLE>
The future realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary
differences become deductible. Management believes it is more likely than not
the Company will realize the benefits of these future tax deductions.
Not included in income tax expense for 1997, 1996 and 1995, are income
tax benefits of $2,308,000, $527,000 and $249,000, respectively, attributable to
the vesting of restricted stock and the exercise of stock options. Such amounts
are reported in the consolidated statements of changes in stockholders' equity.
Federal and state income taxes paid for the years ending December 31,
1997, 1996 and 1995, amounting to $41,557,000, $46,664,000 and $43,375,000,
respectively, include required payments on estimated taxable income and final
payments of prior year taxes required to be paid upon filing the final federal
and state tax returns, reduced by refunds received.
5. NOTES PAYABLE
On August 8, 1997, the Company entered into a $200 million revolving credit
facility with a group of banks that extends through August 2000. Proceeds from
borrowings under the facility are to be used for general corporate purposes
including acquisitions, share repurchases and asset purchases. The rate of
interest payable under the agreement is, at the Company's option, a function of
one of various floating rate indices. The agreement requires the Company to pay
a facility fee at an annual rate of .09% of the maximum amount available under
the credit line. Borrowings under the agreement are unsecured. During 1997, the
weighted average interest rate relating to amounts borrowed under the credit
facility was 6.06%. At December 31, 1997, there were $15 million in borrowings
outstanding under this facility.
6. COMMITMENTS AND CONTINGENCIES
Rent expense for office space and equipment was $7,293,000, $5,919,000 and
$6,085,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
Minimum rental commitments for office space and equipment, including estimated
escalation for insurance, taxes, and maintenance for the years 1998 through
2003, the last year for which there is a commitment, are as follows:
<TABLE>
<CAPTION>
IN THOUSANDS
-------------------------------
Year Commitment
-------------------------------
<S> <C>
1998 $7,075
1999 7,083
2000 7,005
2001 1,911
2002 1,392
Thereafter 695
-------------------------------
</TABLE>
22
<PAGE> 25
The Company and its subsidiaries are named as defendants in certain legal
actions having arisen in the ordinary course of business. In the opinion of
management, based on current knowledge and after discussions with legal counsel,
the outcome of such litigation will not have a material adverse effect on the
Company's financial condition, results of operations or liquidity.
7. EMPLOYEE RETIREMENT AND INCENTIVE COMPENSATION PROGRAM
The Company has a noncontributory retirement plan covering most employees,
including employees of certain of its subsidiaries. Pension benefits are based
on years of service and the employee's average compensation during the highest
consecutive five years of the employee's last ten years of employment. The
Company's funding policy is to contribute annually at least the minimum amount
that can be deducted for federal income tax purposes.
The following table sets forth the components of the net pension expense
(benefit) as reflected in the consolidated statements of income:
<TABLE>
<CAPTION>
IN THOUSANDS
- --------------------------------------------------------------
DECEMBER 31, 1997 1996 1995
- --------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits
earned during the year $ 917 $ 845 $ 750
Interest cost on projected
benefit obligation 984 1,019 960
Actual return on plan assets (4,460) (2,250) (3,626)
Net amortization 2,132 214 1,889
- --------------------------------------------------------------
Net pension expense (benefit) $ (427) $ (172) $ (27)
- --------------------------------------------------------------
</TABLE>
The following table summarizes the funded status at December 31, 1997 and 1996.
Prepaid pension cost is recorded in prepaid expenses and other assets on the
consolidated balance sheets.
<TABLE>
<CAPTION>
IN THOUSANDS
- --------------------------------------------------------------------------------
DECEMBER 31, 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Plan assets at fair value, primarily common
stocks, U.S. government obligations and
corporate bonds $24,662 $20,786
- --------------------------------------------------------------------------------
Actuarial present value of benefits for services
rendered to date:
Accumulated benefits based on salaries paid
to date:
Vested 10,834 9,698
Nonvested 659 535
- --------------------------------------------------------------------------------
Accumulated benefit obligation 11,493 10,233
Additional benefits based on estimated
future salary levels 3,627 2,502
- --------------------------------------------------------------------------------
Projected benefit obligation 15,120 12,735
- --------------------------------------------------------------------------------
Plan assets in excess of projected
benefit obligation 9,542 8,051
Unrecognized net asset at
January 1, 1987, being recognized over 15 years (1,147) (1,438)
Unrecognized net gain from past experience (6,580) (5,213)
Unrecognized prior service cost (156) (168)
- --------------------------------------------------------------------------------
Prepaid pension cost $ 1,659 $1,232
- --------------------------------------------------------------------------------
</TABLE>
The funded status is determined using assumptions at the end of the year.
Pension cost is determined using assumptions at the beginning of the year.
Assumptions as of December 31 used to determine projected benefit obligations
and pension costs are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
DECEMBER 31, 1997 1996 1995
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7-1/2% 7-3/4% 7-1/4%
Rate of increase in compensation 5-1/2% 5-1/2% 5-1/2%
Expected rate of return on plan assets 9% 8-1/2% 8%
- ---------------------------------------------------------------------
</TABLE>
The Company also maintains a noncontributory pension plan for certain employees
whose pension benefits exceed the Section 415 limitations of the Internal
Revenue Code. Pension benefits for this plan follow the vesting provisions
of the funded plan. Funding is not made under this plan until benefits are paid.
23
<PAGE> 26
The following table sets forth the components of net pension expense for the
unfunded plan as reflected in the consolidated statements of income:
<TABLE>
<CAPTION>
IN THOUSANDS
- -------------------------------------------------------------
DECEMBER 31, 1997 1996 1995
- -------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits
earned during the year $ 90 $ 26 $ 26
Interest cost on projected
benefit obligation 171 122 230
Net amortization 144 90 78
- -------------------------------------------------------------
Net pension expense $405 $238 $334
- -------------------------------------------------------------
</TABLE>
The following table reconciles the accumulated benefit obligation of the
unfunded plan at December 31, with the amounts included in accrued compensation
and other expenses in the Company's consolidated balance sheets:
<TABLE>
<CAPTION>
IN THOUSANDS
- -----------------------------------------------------------------------
DECEMBER 31, 1997 1996
- -----------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefits
for services rendered to date:
Accumulated benefits
based on salaries paid to date:
Vested $1,359 $ 437
Nonvested 131 --
- -----------------------------------------------------------------------
1,490 437
Additional benefits
based on estimated future salary levels 1,071 40
- -----------------------------------------------------------------------
Projected benefit obligation 2,561 477
Unrecognized net gain (loss) from past experience (740) (12)
Unrecognized prior service cost (270) (270)
Unrecognized net obligation
at January 1, 1987, being
recognized over 15 years (429) (541)
- -----------------------------------------------------------------------
Unfunded plan accrued (prepaid) pension cost $1,122 $ (346)
- -----------------------------------------------------------------------
</TABLE>
During 1996, the Company paid $3,769,000 in lump sum benefit payments to
retiring executives under the plan and recorded an additional $231,000 in net
pension expense related to the settlement of these unfunded obligations.
The discount rate and rate of increase in future compensation levels used
in determining the actuarial present value of the projected benefit obligations
were the same rates as disclosed under the funded pension plan.
The Company has a profit sharing plan that covers most employees,
including employees of certain of its subsidiaries. Amounts determinable under
the plan are contributed in part to a profit sharing trust qualified under the
Internal Revenue Code with the remainder paid as cash bonuses, equity awards
and matching 401K employee contributions.
The Company has a nonqualified deferred compensation program whereby
certain key employees can elect to defer receipt of all or a portion of their
cash bonus until retirement, termination, death or disability. The deferred
compensation liabilities incur interest expense at the prime rate.
8. POSTRETIREMENT BENEFITS
OTHER THAN PENSION
The Company currently maintains plans providing certain life insurance and
health care benefits for retired employees and their eligible dependents. A
portion of the cost of these benefits is shared by the Company and the retiree.
The following table sets forth the components of the net postretirement
benefit expense as reflected in the consolidated statements of income:
<TABLE>
<CAPTION>
IN THOUSANDS
- ----------------------------------------------------------------------
DECEMBER 31, 1997 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during
the year $303 $339 $246
Interest cost on accumulated benefit
obligation 324 344 335
Net amortization (74) (2) (19)
- ----------------------------------------------------------------------
Net postretirement benefit expense $553 $681 $562
- ----------------------------------------------------------------------
</TABLE>
The following table reconciles the accumulated postretirement benefit obligation
with amounts included in accrued compensation and other expenses in the
Company's consolidated balance sheets:
<TABLE>
<CAPTION>
IN THOUSANDS
- -----------------------------------------------------------------
DECEMBER 31, 1997 1996
- -----------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees eligible for benefits $1,260 $1,367
Fully eligible active plan participants 795 935
Other active plan participants 2,962 2,746
- -----------------------------------------------------------------
Accumulated postretirement benefit obligation 5,017 5,048
Unrecognized net gain 1,697 926
- -----------------------------------------------------------------
Accrued postretirement benefit cost $6,714 $5,974
- -----------------------------------------------------------------
</TABLE>
The annual assumed rate of increase in the per capita cost of covered medical
benefits for pre-65 participants is 11.0% for 1997 and is assumed to decrease to
6.0% by 2002 and remain at that level thereafter. The annual assumed rate for
post-65 participants is 8.0% for 1997 and is assumed to decrease to 6.0% by
1999 and remain at that level thereafter.
Increasing the assumed health care cost trend rates by one percentage
point in each year would result in an increase in the Accumulated
Postretirement Benefit Obligation (APBO) as of December 31, 1997, of $888,000
and an increase in the aggregate of the service cost and interest cost for the
period ended December 31, 1997, of $138,000. A discount rate of 7.50% was used
to determine the APBO.
24
<PAGE> 27
9. EQUITY INCENTIVE PLANS
The Company maintains two stock-based compensation programs, the Nuveen 1992
Special Incentive Plan (1992 Plan) and the Nuveen 1996 Equity Incentive Plan
(1996 Plan). The 1992 Plan was developed in connection with the Company's
public offering of stock and authorized the issuance of an aggregate of
5,980,000 shares of Class A common stock for the grant of equity awards,
including up to 2,340,000 shares of restricted common stock and deferred units.
Under the 1996 Plan, the Company has reserved for award an aggregate of
3,800,000 shares of Class A common stock. Under both plans, options may be
awarded at exercise prices not less than 100% of the fair market value of the
stock on the grant date, and maximum option terms may not exceed ten years.
In 1995, the Company awarded 30,000 shares of restricted stock, with a
vesting schedule ranging from one to four and one-half years, on terms
substantially identical to the terms of the 1992 Plan. The Company further
awarded 190,000 restricted shares of stock (including 160,000 shares deferred
at the election of the recipients) in February 1996 with a fair value of $25
per share and a three year cliff vesting period, pursuant to the 1996 Plan.
During 1997, the Company awarded an additional 90,500 shares of restricted
stock (of which 33,500 shares were deferred at the election of the recipients)
with three year cliff vesting periods and with a weighted average fair value of
$27.49 per share. All awards are subject to restrictions on transferability, a
risk of forfeiture, and certain other terms and conditions. The value of such
awards is reported as compensation expense over the shorter of the period
beginning on the date of grant and ending on the last vesting date, or the
period in which the related services are rendered. Recorded compensation cost
for these awards was $2.4 million, $5.8 million and $7.3 million for 1997, 1996
and 1995, respectively.
The Company also awarded certain employees options to purchase the
Company's Class A common stock at exercise prices equal to or greater than the
market price of the stock on the day the options were awarded. Options awarded
in 1992, under the 1992 Plan, vested fully on July 1, 1996 and remain
exercisable through May 27, 2002. During 1995, the Company awarded options for
50,000 shares of Class A common stock under the 1992 Plan. These options vest in
quarterly installments through October 1, 1999 and remain exercisable through
May 27, 2002. Options awarded during 1996 and 1997, pursuant to the 1996 Plan,
are generally subject to three and four year cliff vesting and expire after ten
years. In addition, the Company awarded options for 423,000 shares of common
stock in January 1998 to employees for services provided during 1997. In
accordance with APB 25, no compensation expense has been recognized for any of
the stock options awarded. There are 1,240,760 shares available for future
equity awards as of December 31, 1997.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," (SFAS 123) encourages, but does not require, the use
of a fair value based method of accounting for stock-based compensation plans
under which the fair value of stock options is determined on the date of grant
and is amortized to expense over the lesser of the options' vesting period or
the related employee service period. While the Company has elected to account
for its stock-based compensation plans in accordance with APB 25, SFAS 123
requires disclosure of pro forma information regarding net income and earnings
per share as if the provisions of the Statement had been applied and the Company
accounted for its employee stock option awards under the fair value method of
the Statement. Accordingly, if the Company's compensation cost for employee
stock options awarded had been determined in this manner, the Company's 1997 net
income would have been reduced by $3.3 million, or $.10 per basic and diluted
earnings per share. Furthermore, the Company's 1996 and 1995 net income would
have been reduced by $1.5 million and $23,000, respectively, translating into a
reduction of $.04 per 1996 basic and diluted earnings per share and a reduction
of less than $.01 per 1995 basic and diluted earnings per share. The fair value
of stock option awards was estimated at the date of grant using a Black-Scholes
option pricing model with the following assumptions for 1997, 1996, and 1995,
respectively; weighted-average risk-free interest rates of 6.4%, 6.0% and 5.9%;
dividend yields of 3.00%, 3.06% and 3.06%; weighted-average expected option
lives of 5.8, 7.8 and 7 years; and volatility factor of the expected market
price of the Company's common stock of 20% for all three years. SFAS 123 only
applies to those equity instruments awarded in fiscal years that begin after
December 15, 1994. Consequently, the pro forma information and weighted
average option fair values do
25
<PAGE> 28
not include the effects of options awarded in 1992 under the 1992 Plan, and
accordingly may not be representative of the compensation cost to be expected
in future years.
A summary of the Company's stock option activity for the years ended
December 31, 1997, 1996 and 1995 is presented in the following table and
narrative:
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PRICE DATA
- -------------------------------------------------------------
Weighted
Average
Exercise
Shares Price
- -------------------------------------------------------------
<S> <C> <C>
Options outstanding at
December 31, 1994 3,222 $18.00
Awarded 50 24.00
Exercised (91) 18.00
Forfeited (15) 18.00
- -------------------------------------------------------------
Options outstanding at
December 31, 1995 3,166 18.09
Awarded 1,464 28.85
Exercised (165) 18.00
Forfeited (4) 18.00
- -------------------------------------------------------------
Options outstanding at
December 31, 1996 4,461 21.63
Awarded 485 29.43
Exercised (453) 18.04
Forfeited (136) 27.58
- -------------------------------------------------------------
Options outstanding at
December 31, 1997 4,357 $22.69
- -------------------------------------------------------------
Options exercisable at:
December 31, 1995 2,643 $18.01
December 31, 1996 2,964 $18.03
December 31, 1997 2,524 $18.07
- -------------------------------------------------------------
</TABLE>
The options awarded during 1997 and 1996, with exercise prices equal
to the market price of the stock on the date of grant, have weighted average
exercise prices of $27.25 and $25.00 and weighted average fair values of $6.20
and $5.69 per share, respectively. The options awarded during 1997 and 1996,
with exercise prices in excess of the stock's grant date market value, have
weighted average exercise prices of $37.59 and $30.00 and weighted average fair
values of $5.68 and $4.55 per share, respectively. The grant date fair value of
options awarded during 1995 is $5.65 per share. Exercise prices for options
outstanding as of December 31, 1997 ranged from $18 to $39.15 per share. The
weighted average remaining contractual life of those options is 6.08 years.
10. REDEEMABLE PREFERRED STOCK
On January 2, 1997, in connection with its acquisition of Flagship Resources,
Inc., the Company issued 1.8 million shares of 5% Cumulative Convertible
Preferred Stock to former Flagship shareholders with a redemption value of
$45,000,000. Shares of preferred stock are convertible into approximately 1.65
million shares of the Company's Class A Common Stock on or after January 2,
1999 and are redeemable at the option of the Company at any time on or after
January 2, 2001 but not later than January 2, 2007. Dividends on preferred
stock are paid quarterly.
11. COMMON STOCK
A summary of common stock activity for the three year period ended December 31,
1997 follows:
<TABLE>
<CAPTION>
IN THOUSANDS
- -----------------------------------------------------------
DECEMBER 31, 1997 1996 1995
- -----------------------------------------------------------
<S> <C> <C> <C>
Shares outstanding at
beginning of year 33,119 36,676 37,223
Shares issued under stock options
and other incentive plans 506 196 120
Shares acquired (1,842) (3,753) (667)
- -----------------------------------------------------------
Shares outstanding at end of year 31,783 33,119 36,676
- -----------------------------------------------------------
</TABLE>
Included in the 1997 program was the repurchase of 1.4 million
Class B shares which upon repurchase converted to Class A shares.
As of December 31, 1997, the Company is authorized to repurchase 1.7
million shares of Class A and Class B common stock pursuant to an ongoing stock
repurchase program authorized by the Board of Directors.
12. NET CAPITAL REQUIREMENT
Nuveen & Co. is subject to the Securities and Exchange Commission Rule 15c3-1,
the "Uniform Net Capital Rule," which requires the maintenance of minimum net
capital and requires that the ratio of aggregate indebtedness to net capital,
as these terms are defined, shall not exceed 15 to 1. At December 31, 1997, the
Company's net capital ratio was 1.47 to 1 and its net capital was $30,715,820
which is $27,699,439 in excess of the required net capital of $3,016,381.
26
<PAGE> 29
13. QUARTERLY RESULTS (UNAUDITED)
The following tables set forth selected quarterly financial information for
each quarter in the two year period ending December 31, 1997:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
IN THOUSANDS, EXCEPT PER SHARE DATA 1997
- -----------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $62,584 $61,846 $67,813 $76,684
Net income 17,802 17,742 18,569 20,068
Per common share:
Net income .52 .54 .57 .61
Cash dividends .21 .21 .23 .23
Stock price range:
High 31-3/8 31-1/2 35-1/8 37-3/4
Low 26-3/8 28-5/8 30-7/16 34-7/8
- -----------------------------------------------------------------------
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE DATA 1996
- -----------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $57,059 $55,714 $58,614 $60,960
Net income 17,005 17,150 18,497 19,877
Per common share:
Net income .45 .46 .50 .57
Cash dividends .18 .18 .21 .21
Stock price range:
High 25-5/8 25-3/4 27-1/8 28-1/2
Low 23-7/8 23-7/8 23-7/8 26-1/4
- -----------------------------------------------------------------------
</TABLE>
The John Nuveen Company Class A common stock, representing approximately
23% of the Company's issued and outstanding common stock at December 31, 1997,
is listed on the New York Stock Exchange under the symbol "JNC." Trading of the
Company's Class A common stock began on May 20, 1992. At December 31, 1997,
there were approximately 3,345 shareholders of record. There are no
restrictions on the Company's present ability to pay dividends on its common
stock.
27
<PAGE> 30
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDERS
THE JOHN NUVEEN COMPANY:
We have audited the accompanying consolidated balance sheets of The John
Nuveen Company (the Company) and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of income, changes in common
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1997. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The John
Nuveen Company and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
- -------------------------
KPMG Peat Marwick LLP
Chicago, Illinois
January 20, 1998
28
<PAGE> 31
FIVE YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
IN THOUSANDS, UNLESS OTHERWISE INDICATED
- --------------------------------------------------------------------------------------
DECEMBER 31, 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Investment advisory fees from
assets under management $221,635 $185,845 $183,135 $181,918 $176,105
Underwriting and distribution of
investment products 12,671 14,566 15,339 18,149 27,698
Positioning profits (losses) 3,491 (191) 4,981 (8,237) 5,381
Investment banking 13,409 11,098 10,334 11,793 19,937
Interest 10,627 18,640 19,445 13,686 12,434
Other 7,094 2,494 2,973 2,992 3,679
- --------------------------------------------------------------------------------------
Total revenues 268,927 232,452 236,207 220,301 245,234
- --------------------------------------------------------------------------------------
Expenses:
Compensation and benefits 77,274 71,683 80,366 83,079 84,665
Advertising and promotional costs 18,853 12,641 12,677 16,151 24,360
All other 50,630 30,626 29,394 26,436 24,546
- --------------------------------------------------------------------------------------
Total expenses 146,757 114,950 122,437 125,666 133,571
- --------------------------------------------------------------------------------------
Income before taxes 122,170 117,502 113,770 94,635 111,663
Income taxes 47,990 44,973 43,150 36,424 41,219
- --------------------------------------------------------------------------------------
Net income $ 74,180 $ 72,529 $ 70,620 $ 58,211 $ 70,444
- --------------------------------------------------------------------------------------
Earnings per common share:
Basic $ 2.23 $ 2.03 $ 1.91 $ 1.54 $ 1.83
Diluted $ 2.13 $ 1.98 $ 1.87 $ 1.52 $ 1.76
Return on beginning equity 27.3% 22.5% 24.7% 21.2% 33.3%
Total dividends per share $ .88 $ .78 $ .68 $ .64 $ .56
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Total assets $492,232 $355,251 $402,512 $348,847 $410,641
Total liabilities 174,112 83,357 79,656 62,915 135,441
- --------------------------------------------------------------------------------------
Redeemable preferred stock $ 45,000 -- -- -- --
Common stockholders' equity $273,120 $271,894 $322,856 $285,932 $275,200
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
NUVEEN MANAGED FUNDS AND ACCOUNTS
(IN MILLIONS):
Net Assets Under Management
Managed funds:
Mutual funds $ 10,885 $ 5,930 $ 5,457 $ 4,731 $ 4,962
Exchange-traded funds 26,117 25,434 25,784 23,731 25,805
Money market funds 970 1,004 1,113 1,242 1,954
Managed accounts 11,622 823 688 343 227
- --------------------------------------------------------------------------------------
Total $ 49,594 $ 33,191 $ 33,042 $ 30,047 $ 32,948
- --------------------------------------------------------------------------------------
Nuveen managed fund sales:
Mutual funds(1) $ 355 $ 554 $ 236 $ 285 $ 1,039
Exchange-traded funds and portfolios 191 38 19 470 3,962
Money market funds(1) (35) (109) (129) (713) (680)
Managed accounts 721 138 346 116 78
- --------------------------------------------------------------------------------------
Total $ 1,232 $ 621 $ 472 $ 158 $ 4,399
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
NUVEEN UNIT INVESTMENT
TRUSTS (IN MILLIONS):
Market value outstanding $ 12,176 $ 13,571 $ 15,517 $ 16,793 $ 20,019
Total sales (par value) $ 757 $ 963 $ 1,093 $ 1,235 $ 1,433
- --------------------------------------------------------------------------------------
</TABLE>
(1)Sales and dividend reinvestments less redemptions.
29
<PAGE> 32
THE JOHN NUVEEN COMPANY
BOARD OF DIRECTORS
Timothy R. Schwertfeger
Chairman and
Chief Executive Officer
Anthony T. Dean
President and
Chief Operating Officer
Willard L. Boyd
President Emeritus
Field Museum of Natural History
W. John Driscoll
Chairman/Retired
Rock Island Company
Duane R. Kullberg
Managing Partner/Chief
Executive Officer/Retired
Andersen Worldwide
Douglas W. Leatherdale
Chairman and
Chief Executive Officer
The St. Paul Companies
Paul J. Liska
Executive Vice President and
Chief Financial Officer
The St. Paul Companies
Patrick A. Thiele
President and Chief Executive Officer
Worldwide Insurance Operations
The St. Paul Companies
EXECUTIVE OFFICERS
Timothy R. Schwertfeger
Chairman and
Chief Executive Officer
Anthony T. Dean
President and
Chief Operating Officer
John P. Amboian
Executive Vice President,
Chief Financial Officer and
Secretary
Bruce P. Bedford
Executive Vice President
30
<PAGE> 33
SHAREHOLDER INFORMATION
Headquarters
The John Nuveen Company
333 West Wacker Drive
Chicago, IL 60606
312-917-7700
Transfer Agent and Registrar
The Bank of New York
Shareholder Relations
Church Street Station
P.O. Box 11258
New York, NY 10286-1258
1-800-524-4458
Stock Exchange Listing
New York Stock Exchange
trading symbol: JNC
Form 10-K
The annual report to the
Securities and Exchange
Commission on Form 10-K
for the fiscal year ended
December 31, 1997
will be provided upon
written request to:
Jeffrey Kratz
Investor Relations
John Nuveen & Co. Incorporated
333 West Wacker Drive
Chicago, IL 60606
ANNUAL MEETING
The annual shareholder's meeting for The John Nuveen Company will be Thursday,
May 7, 1998 at 10:30 am at The Northern Trust Company, 50 South LaSalle Street,
Chicago, IL.
31
<PAGE> 1
EXHIBIT 21
ORGANIZATIONAL CHART
The St.
Paul
Companies
St. Paul Fire and
Marine Insurance Company
23% 77%
Public Shareholders The John Nuveen 100% Rittenhouse
Company Financial
Services, Inc.
100% 100% 20%*
Nuveen/Flagship John Nuveen & Co. Institutional
Acquisition Incorporated Capital
Corporation Corporation
100% 100% 100%
Nuveen Asset Nuveen Advisory Corp. Nuveen
Management Inc. Institutional
Advisory Corp.
*Will be 20% in 2002
<PAGE> 1
EXHIBIT 23
Independent Auditors' Consent
The Board of Directors
The John Nuveen Company:
We consent to incorporation by reference in the registration statement (No.
33-46922) on Form S-8 of The John Nuveen Company of our report dated January
20, 1998, relating to the consolidated balance sheets of The John Nuveen
Company as of December 31, 1997 and 1996, and the related consolidated
statements of income, changes in common stockholders' equity, and cash flows
and for each of the years in the three-year period ended December 31, 1997,
which report is incorporated by reference in the December 31, 1997 annual
report on Form 10-K of The John Nuveen Company.
/s/ KPMG Peat Marwick LLP
Chicago, Illinois
March 27, 1998
<PAGE> 1
EXHIBIT 24.1
THE JOHN NUVEEN COMPANY
-----------------------
POWER OF ATTORNEY
-----------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of The John
Nuveen Company, hereby constitutes and appoints JOHN P. AMBOIAN and ALAN G.
BERSHIRE, and each of them (with full power to each of them to act alone) his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and on his behalf and in his name, place and stead,
in any and all capacities, to execute any such annual, periodic or special
report pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, including any and all amendments thereto, with all exhibits thereto,
and any and all other documents in connection therewith, and to file the same
with the Securities and Exchange Commission and any regulatory authority,
federal or state, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned director of The John Nuveen Company has
hereunto set his hand this 19th day of March, 1998.
/s/ Timothy R. Schwertfeger
---------------------------------
Timothy R. Schwertfeger
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 19th day of March, 1998, personally appeared before me, a Notary Public
in and for said County and State, the person named above who is known to me to
be the person whose name and signature is affixed to the foregoing Power of
Attorney and who acknowledged the same to be his voluntary act and deed for the
intent and purposes therein set forth.
(SEAL) /s/ Robin D. Freeman
---------------------------------
Notary Public
My Commission Expires: October 31, 1999
<PAGE> 2
THE JOHN NUVEEN COMPANY
-----------------------
POWER OF ATTORNEY
-----------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of The John
Nuveen Company, hereby constitutes and appoints JOHN P. AMBOIAN and ALAN G.
BERKSHIRE, and each of them (with full power to each of them to act alone) his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and on his behalf and in his name, place and stead,
in any and all capacities, to execute any such annual, periodic or special
report pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, including any and all amendments thereto, with all exhibits thereto,
and any and all other documents in connection therewith, and to file the same
with the Securities and Exchange Commission and any regulatory authority,
federal or state, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned director of The John Nuveen Company has
hereunto set his hand this 10th day of March, 1998.
/s/ Anthony T. Dean
--------------------------------
Anthony T. Dean
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 10th day of March, 1998, personally appeared before me, a Notary Public
in and for said County and State, the person named above who is known to me to
be the person whose name and signature is affixed to the foregoing Power of
Attorney and who acknowledged the same to be his voluntary act and deed for the
intent and purposes therein set forth.
(SEAL) /s/ Robin D. Freeman
--------------------------------
Notary Public
My Commission Expires: October 31, 1999
<PAGE> 3
THE JOHN NUVEEN COMPANY
-----------------------
POWER OF ATTORNEY
-----------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of The John
Nuveen Company, hereby constitutes and appoints JOHN P. AMBOIAN and ALAN G.
BERKSHIRE, and each of them (with full power to each of them to act alone) his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and on his behalf and in his name, place and stead,
in any and all capacities, to execute any such annual, periodic or special
report pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, including any and all amendments thereto, with all exhibits thereto,
and any and all other documents in connection therewith, and to file the same
with the Securities and Exchange Commission and any regulatory authority,
federal or state, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned director of The John Nuveen Company has
hereunto set his hand this 10th day of March, 1998.
/s/ Willard L. Boyd
--------------------------------
Willard L. Boyd
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 10th day of March, 1998, personally appeared before me, a Notary
Public in and for said County and State, the person named above who is known to
me to be the person whose name and signature is affixed to the foregoing Power
of Attorney and who acknowledged the same to be his voluntary act and deed for
the intent and purposes therein set forth.
(SEAL) /s/ Robin D. Freeman
--------------------------------
My Commission Expires: October 31, 1999 Notary Public
<PAGE> 4
THE JOHN NUVEEN COMPANY
-----------------------
POWER OF ATTORNEY
-----------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of The John
Nuveen Company, hereby constitutes and appoints JOHN P. AMBOIAN and ALAN G.
BERKSHIRE, and each of them (with full power to each of them to act alone) his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and on his behalf and in his name, place and stead,
in any and all capacities, to execute any such annual, periodic or special
report pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, including any and all amendments thereto, with all exhibits thereto,
and any and all other documents in connection therewith, and to file the same
with the Securities and Exchange Commission and any regulatory authority,
federal or state, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned director of The John Nuveen Company has
hereunto set his hand this 20th day of March, 1998.
/s/ W. John Driscoll
--------------------------------
W. John Driscoll
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 20th day of March, 1998, personally appeared before me, a Notary
Public in and for said County and State, the person named above who is known to
me to be the person whose name and signature is affixed to the foregoing Power
of Attorney and who acknowledged the same to be his voluntary act and deed for
the intent and purposes therein set forth.
(SEAL) /s/Robin D. Freeman
--------------------------------
Notary Public
My Commission Expires October 31, 1999
<PAGE> 5
THE JOHN NUVEEN COMPANY
-----------------------
POWER OF ATTORNEY
-----------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of The John
Nuveen Company, hereby constitutes and appoints JOHN P. AMBOIAN and ALAN G.
BERKSHIRE, and each of them (with full power to each of them to act alone) his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and on his behalf and in his name, place and stead,
in any and all capacities, to execute any such annual, periodic or special
report pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, including any and all amendments thereto, with all exhibits thereto,
and any and all other documents in connection therewith, and to file the same
with the Securities and Exchange Commission and any regulatory authority,
federal or state, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned director of The John Nuveen Company has
hereunto set his hand this 10th day of March, 1998.
/s/ Duane R. Kullberg
--------------------------------
Duane R. Kullberg
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 10th day of March, 1998, personally appeared before me, a Notary Public
in and for said County and State, the person named above who is known to me to
be the person whose name and signature is affixed to the foregoing Power of
Attorney and who acknowledged the same to be his voluntary act and deed for the
intent and purposes therein set forth.
(SEAL) /s/ Robin D. Freeman
--------------------------------
Notary Public
My Commission Expires: October 31, 1999
<PAGE> 6
THE JOHN NUVEEN COMPANY
-----------------------
POWER OF ATTORNEY
-----------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of The John
Nuveen Company, hereby constitutes and appoints JOHN P. AMBOIAN and ALAN G.
BERKSHIRE, and each of them (with full power to each of them to act alone) his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and on his behalf and in his name, place and stead,
in any and all capacities, to execute any such annual, periodic or special
report pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, including any and all amendments thereto, with all exhibits thereto,
and any and all other documents in connection therewith, and to file the same
with the Securities and Exchange Commission and any regulatory authority,
federal or state, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned director of The John Nuveen Company has
hereunto set his hand this 20th day of March, 1998.
/s/ Douglas W. Leatherdale
--------------------------------
Douglas W. Leatherdale
STATE OF MINNESOTA )
) SS
COUNTY OF HENNEPIN )
On this 20th day of March, 1998, personally appeared before me, a Notary
Public in and for said County and State, the person named above who is known to
me to be the person whose name and signature is affixed to the foregoing Power
of Attorney and who acknowledged the same to be his voluntary act and deed for
the intent and purposes therein set forth.
(SEAL) /s/ Mary E. Waltz
--------------------------------
Notary Public
My Commission Expires: January 31, 2000
<PAGE> 7
THE JOHN NUVEEN COMPANY
-----------------------
POWER OF ATTORNEY
-----------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of The John
Nuveen Company, hereby constitutes and appoints JOHN P. AMBOIAN and ALAN G.
BERKSHIRE, and each of them (with full power to each of them to act alone) his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and on his behalf and in his name, place and stead,
in any and all capacities, to execute any such annual, periodic or special
report pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, including any and all amendments thereto, with all exhibits thereto,
and any and all other documents in connection therewith, and to file the same
with the Securities and Exchange Commission and any regulatory authority,
federal or state, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned director of The John Nuveen Company has
hereunto set his hand this 20th day of March, 1998.
/s/ Paul J. Liska
--------------------------------
Paul J. Liska
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 20th day of March, 1998, personally appeared before me, a Notary
Public in and for said County and State, the person named above who is known to
me to be the person whose name and signature is affixed to the foregoing Power
of Attorney and who acknowledged the same to be his voluntary act and deed for
the intent and purposes therein set forth.
(SEAL) /s/ Robin D. Freeman
--------------------------------
Notary Public
My Commission Expires: October 31, 1999
<PAGE> 8
THE JOHN NUVEEN COMPANY
-----------------------
POWER OF ATTORNEY
-----------------------
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of The John
Nuveen Company, hereby constitutes and appoints JOHN P. AMBOIAN and ALAN G.
BERKSHIRE, and each of them (with full power to each of them to act alone) his
true and lawful attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and on his behalf and in his name, place and stead,
in any and all capacities, to execute any such annual, periodic or special
report pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, including any and all amendments thereto, with all exhibits thereto,
and any and all other documents in connection therewith, and to file the same
with the Securities and Exchange Commission and any regulatory authority,
federal or state, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises in order to
effectuate the same, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned director of The John Nuveen Company has
hereunto set his hand this 10th day of March, 1998.
/s/ Patrick A. Thiele
--------------------------------
Patrick A. Thiele
STATE OF ILLINOIS )
) SS
COUNTY OF COOK )
On this 10th day of March, 1998, personally appeared before me, a Notary
Public in and for said County and State, the person named above who is known to
me to be the person whose name and signature is affixed to the foregoing Power
of Attorney and who acknowledged the same to be his voluntary act and deed for
the intent and purposes therein set forth.
(SEAL) /s/ Robin D. Freeman
--------------------------------
Notary Public
My Commission Expires: October 31, 1999
<PAGE> 1
EXHIBIT 24.2
CERTIFIED COPY OF RESOLUTION
The undersigned, John P. Amboian, Secretary of The John Nuveen Company, a
Delaware corporation (the "Company"), does hereby certify:
1. That he is the duly elected, qualified and acting Secretary of the
Company, and has custody of the corporate records and is a proper officer to
make this certification.
2. That at a meeting of the Board of Directors of the Company duly called,
convened and held on February 9, 1998, at which a quorum was present and voted
throughout, the following resolution was duly adopted by said board and said
resolution has not been amended, altered or repealed and remains in full force
and effect on the date hereof:
RESOLVED, that each member of the Board of Directors and any officer of
the Company who may be required to execute any such annual, periodic or special
report, or any amendment or amendments thereto, be, and each of them hereby is,
authorized to execute a power of attorney appointing John P. Amboian and Alan
G. Berkshire, and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him on his
behalf and in his name, place and stead, in any and all capacities, to sign
the report and any and all amendments thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, and ratifying and confirming all that said attorneys-in-fact and agents
or any of them, or their or his substitute or substitutes, may lawfully do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has caused this certificate to be executed
and the seal of the Company to be hereunto appended this 26th day of March,
1998.
(SEAL)
/s/ John P. Amboian
--------------------------
John P. Amboian, Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JOHN
NUVEEN COMPANY'S FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 8,771
<SECURITIES> 130,203
<RECEIVABLES> 40,717
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 186,787
<PP&E> 39,453
<DEPRECIATION> (24,665)
<TOTAL-ASSETS> 492,232
<CURRENT-LIABILITIES> 84,500
<BONDS> 0
0
45,000
<COMMON> 142
<OTHER-SE> 272,978
<TOTAL-LIABILITY-AND-EQUITY> 492,232
<SALES> 0
<TOTAL-REVENUES> 268,927
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 143,071
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,686
<INCOME-PRETAX> 122,170
<INCOME-TAX> 47,990
<INCOME-CONTINUING> 74,180
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,180
<EPS-PRIMARY> 2.23
<EPS-DILUTED> 2.13
</TABLE>
