BlackRock MuniYield Michigan Quality Fund, Inc.
File No. 811-07080
Item No. 77Q1(g) (Merger Agreement) -- Attachment
Attached please find an exhibit to Sub-Item 77Q1(g) of Form N-SAR, a copy of
the Agreement and Plan of Reorganization between BlackRock MuniYield Michigan
Quality Fund, Inc. and BlackRock MuniYield Michigan Quality Fund II, Inc.
Exhibit 77Q1(g)
AGREEMENT AND PLAN OF REORGANIZATION
June 17, 2015
In order to consummate the reorganization contemplated herein (the
"Reorganization") and in consideration of the promises and the covenants and
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agreements hereinafter set forth, and intending to be legally bound, BlackRock
MuniYield Michigan Quality Fund II, Inc., a registered non-diversified
closed-end investment company, File No. 811-06501, (the "Target Fund") and
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BlackRock MuniYield Michigan Quality Fund, Inc., a registered non-diversified
closed-end investment company, File No. 811-07080 (the "Acquiring Fund" and
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together with the Target Fund, the "Funds"), each hereby agree as follows:
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1. REPRESENTATIONS AND WARRANTIES OF THE ACQUIRING FUND.
The Acquiring Fund represents and warrants to, and agrees with, the
Target Fund that:
(a) The Acquiring Fund is a corporation duly organized, validly existing
and in good standing in conformity with the laws of the State of Maryland, and
has the power to own all of its assets and to carry out this Agreement. The
Acquiring Fund has all necessary federal, state and local authorizations to
carry on its business as it is now being conducted and to carry out this
Agreement.
(b) The Acquiring Fund is duly registered under the Investment Company
Act of 1940, as amended (the "1940 Act") as a non-diversified, closed-end
management investment company and such registration has not been revoked or
rescinded and is in full force and effect.
(c) The Acquiring Fund has full power and authority to enter into and
perform its obligations under this Agreement subject, in the case of the
consummation of the Reorganization to the approval and adoption of this
Agreement and the issuance of additional Acquiring Fund VRDP Shares in
connection with the Reorganization by the holders of the Acquiring Fund VRDP
Shares (as defined in Section 1(n) herein) ("Acquiring Fund VRDP Holders")
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voting as a separate class, and in the case of the issuance of additional
Acquiring Fund Common Shares (as defined in Section 1(n) herein) in connection
with the Reorganization to the approval of such issuance of additional
Acquiring Fund Common Shares by the common shareholders of the Acquiring Fund
("Acquiring Fund Common Shareholders" and together with the Acquiring Fund VRDP
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Holders, the "Acquiring Fund Shareholders") and the Acquiring Fund VRDP Holders
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voting as a single class, in each case as described in Sections 9(a) and
(b) hereof. The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action of the Acquiring Fund's Board of
Directors, and this Agreement constitutes a valid and binding contract of the
Acquiring Fund enforceable against the Acquiring Fund in accordance with its
terms, subject to the effects of bankruptcy, insolvency, moratorium, fraudulent
conveyance and similar laws relating to or affecting creditors' rights
generally and court decisions with respect thereto.
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(d) The Acquiring Fund has provided or made available (including by
electronic format) to the Target Fund the most recent audited annual financial
statements of the Acquiring Fund, which have been prepared in accordance with
generally accepted accounting principles in the United States of America ("US
--
GAAP") consistently applied and have been audited by Deloitte & Touche LLP,
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each Fund's independent registered public accounting firm, and such statements
fairly present the financial condition and the results of operations of the
Acquiring Fund as of the respective dates indicated and the results of
operations and changes in net assets for the periods indicated, and there are
no liabilities of the Acquiring Fund whether actual or contingent and whether
or not determined or determinable as of such date that are required to be
disclosed but are not disclosed in such statements.
(e) An unaudited statement of assets, capital and liabilities of the
Acquiring Fund and an unaudited schedule of investments of the Acquiring Fund,
each as of the Valuation Time (as defined in Section 3(e) herein) (together,
the "Acquiring Fund Closing Financial Statements"), will be provided or made
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available (including by electronic format) to the Target Fund, at or prior to
the Closing Date (as defined in Section 7(a) herein), for the purpose of
determining the number of Acquiring Fund Shares (as defined in Section 1(n)
herein) to be issued to the Target Fund shareholders (the "Target Fund
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Shareholders") pursuant to Section 3 of this Agreement; the Acquiring Fund
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Closing Financial Statements will fairly present the financial position of the
Acquiring Fund as of the Valuation Time in conformity US GAAP consistently
applied.
(f) There are no material legal, administrative or other proceedings
pending or, to the knowledge of the Acquiring Fund, threatened against it which
assert liability on the part of the Acquiring Fund or which materially affect
its financial condition or its ability to consummate the Reorganization. The
Acquiring Fund is not charged with or, to the best of its knowledge, threatened
with any violation or investigation of any possible violation of any provisions
of any federal, state or local law or regulation or administrative ruling
relating to any aspect of its business.
(g) There are no material contracts outstanding to which the Acquiring
Fund is a party that have not been disclosed in the N-14 Registration Statement
(as defined in Section 1(k) herein) or that will not otherwise be disclosed to
the Target Fund prior to the Valuation Time.
(h) The Acquiring Fund is not obligated under any provision of its
charter or by-laws, each as amended to the date hereof, and is not a party to
any contract or other commitment or obligation, and is not subject to any order
or decree, which would be violated by its execution of or performance under
this Agreement, except insofar as the Funds have mutually agreed to amend such
contract or other commitment or obligation to cure any potential violation as a
condition precedent to the Reorganization.
(i) The Acquiring Fund has no known liabilities of a material amount,
contingent or otherwise, other than those shown on the Acquiring Fund's
Semi-Annual Report for the six months ended January 31, 2015, those incurred
since the date thereof in the ordinary course of its business as an investment
company, and those incurred in connection with the Reorganization. As of the
Valuation Time, the Acquiring Fund will advise the Target Fund of all
3
known liabilities, contingent or otherwise, whether or not incurred in the
ordinary course of business, existing or accrued as of such time, except to the
extent disclosed in the Acquiring Fund Closing Financial Statements or to the
extent already known by the Target Fund.
(j) No consent, approval, authorization or order of any court or
government authority is required for the consummation by the Acquiring Fund of
the Reorganization, except such as may be required under the Securities Act of
1933, as amended (the "1933 Act"), the Securities Exchange Act of 1934, as
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amended (the "1934 Act") and the 1940 Act or state securities laws (which term
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as used herein shall include the laws of the District of Columbia and Puerto
Rico) or the rules of the New York Stock Exchange, each of which will have been
obtained on or prior to the Closing Date.
(k) The registration statement filed by the Acquiring Fund on Form N-14,
which includes the proxy statement for the common shareholders of the Target
Fund and the Acquiring Fund with respect to the transactions contemplated
herein (the "Joint Proxy Statement/Prospectus"), and any supplement or
--------------------------------
amendment thereto or to the documents included or incorporated by reference
therein (collectively, as so amended or supplemented, the "N-14 Registration
-----------------
Statement"), on its effective date, at the time of the shareholder meeting
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called to vote on this Agreement and on the Closing Date, insofar as it relates
to the Acquiring Fund, (i) complied or will comply in all material respects
with the provisions of the 1933 Act, the 1934 Act and the 1940 Act and the
rules and regulations thereunder and (ii) did not or will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein in light of
the circumstances under which they were made, not misleading; and the Joint
Proxy Statement/Prospectus included therein did not or will not contain any
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided, however, that the
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representations and warranties in this subsection only shall apply to
statements in or omissions from the N-14 Registration Statement made in
reliance upon and in conformity with information furnished by the Acquiring
Fund for use in the N-14 Registration Statement.
(l) The proxy statement for the Acquiring Fund VRDP Holders and the
Target Fund VRDP Holders with respect to the transactions contemplated herein,
and any supplement or amendment thereto (the "Preferred Shares Proxy
----------------------
Statement") or to the documents included or incorporated by reference therein,
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at the time of the shareholder meeting called to vote on this Agreement and on
the Closing Date, insofar as it relates to the Acquiring Fund, (i) complied or
will comply in all material respects with the provisions of the 1934 Act and
the 1940 Act and the rules and regulations thereunder and (ii) did not or will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances under which they were made, not
misleading; and did not or will not contain any untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(m) The Acquiring Fund has filed, or intends to file, or has obtained
extensions to file, all federal, state and local tax returns which are required
to be filed by it, and has paid or has obtained extensions to pay, all federal,
state and local taxes shown on said returns to be due
4
and owing and all assessments received by it, up to and including the taxable
year in which the Closing Date occurs. All tax liabilities of the Acquiring
Fund have been adequately provided for on its books, and no tax deficiency or
liability of the Acquiring Fund has been asserted and no question with respect
thereto has been raised by the Internal Revenue Service or by any state or
local tax authority for taxes in excess of those already paid, up to and
including the taxable year in which the Closing Date occurs.
(n) The Acquiring Fund is authorized to issue 200,000,000 shares of
common stock, par value $0.10 per share (the "Acquiring Fund Common Shares")
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and 1,446 shares of preferred stock of Series W-7 Variable Rate Demand
Preferred Shares or any other series of Variable Rate Demand Preferred Shares
("VRDP Shares"), par value $0.10 per share and liquidation preference $100,000
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per share ("Acquiring Fund VRDP Shares" and together with Acquiring Fund Common
--------------------------
Shares, the "Acquiring Fund Shares"). Each outstanding Acquiring Fund Share is
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fully paid and non-assessable and has the voting rights provided by the
Acquiring Fund's charter and applicable law.
(o) The books and records of the Acquiring Fund made available to the
Target Fund and/or its counsel are substantially true and correct and contain
no material misstatements or omissions with respect to the operations of the
Acquiring Fund.
(p) The Acquiring Fund Shares to be issued to the Target Fund
Shareholders pursuant to this Agreement will have been duly authorized and,
when issued and delivered pursuant to this Agreement, will be legally and
validly issued and will be fully paid and nonassessable and will have full
voting rights, except as provided by the Acquiring Fund's charter or applicable
law, and no Acquiring Fund Shareholder will have any preemptive right of
subscription or purchase in respect thereof.
(q) At or prior to the Closing Date, the Acquiring Fund Common Shares to
be transferred to the Target Fund for distribution to the Target Fund
Shareholders on the Closing Date will be duly qualified for offering to the
public in all states of the United States in which the sale of shares of the
Funds presently are qualified, and there will be a sufficient number of such
Acquiring Fund Common Shares registered under the 1933 Act and, as may be
necessary, with each pertinent state securities commission to permit the
transfers contemplated by this Agreement to be consummated.
(r) At or prior to the Closing Date, the Acquiring Fund will have
obtained any and all regulatory, board and shareholder approvals necessary to
issue the Acquiring Fund Shares to the Target Fund Shareholders.
(s) The Acquiring Fund has elected to qualify and has qualified as a
regulated investment company ("RIC") within the meaning of Section 851 of the
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Internal Revenue Code of 1986, as amended (the "Code") for each of its taxable
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years since its inception, and the Acquiring Fund has satisfied the
distribution requirements imposed by Section 852 of the Code to maintain RIC
status for each of its taxable years.
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2. REPRESENTATIONS AND WARRANTIES OF THE TARGET FUND.
The Target Fund represents and warrants to, and agrees with, the
Acquiring Fund that:
(a) The Target Fund is a corporation duly organized, validly existing
and in good standing in conformity with the laws of the State of Maryland, and
has the power to own all of its assets and to carry out this Agreement. The
Target Fund has all necessary federal, state and local authorizations to carry
on its business as it is now being conducted and to carry out this Agreement.
(b) The Target Fund is duly registered under the 1940 Act as a
non-diversified, closed-end management investment company, and such
registration has not been revoked or rescinded and is in full force and effect.
(c) The Target Fund has full power and authority to enter into and
perform its obligations under this Agreement subject, in the case of
consummation of the Reorganization to the approval and adoption of this
Agreement by the Target Fund Shareholders as described in Sections 8(a) hereof.
The execution, delivery and performance of this Agreement have been duly
authorized by all necessary action of the Target Fund's Board of Directors and
this Agreement constitutes a valid and binding contract of the Target Fund
enforceable against the Target Fund in accordance with its terms, subject to
the effects of bankruptcy, insolvency, moratorium, fraudulent conveyance and
similar laws relating to or affecting creditors' rights generally and court
decisions with respect thereto.
(d) The Target Fund has provided or made available (including by
electronic format) to the Acquiring Fund the most recent audited annual
financial statements of the Target Fund which have been prepared in accordance
with US GAAP consistently applied and have been audited by Deloitte & Touche
LLP, and such statements fairly present the financial condition and the results
of operations of the Target Fund as of the respective dates indicated and the
results of operations and changes in net assets for the periods indicated, and
there are no liabilities of the Target Fund whether actual or contingent and
whether or not determined or determinable as of such date that are required to
be disclosed but are not disclosed in such statements.
(e) An unaudited statement of assets, capital and liabilities of the
Target Fund and an unaudited schedule of investments of the Target Fund, each
as of the Valuation Time (together, the "Target Fund Closing Financial
-----------------------------
Statements"), will be provided or made available (including by electronic
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format) to the Acquiring Fund at or prior to the Closing Date, for the purpose
of determining the number of Acquiring Fund Shares to be issued to the Target
Fund Shareholders pursuant to Section 3 of this Agreement; the Target Fund
Closing Financial Statements will fairly present the financial position of the
Target Fund as of the Valuation Time in conformity with US GAAP consistently
applied.
(f) There are no material legal, administrative or other proceedings
pending or, to the knowledge of the Target Fund, threatened against it which
assert liability on the part of the Target Fund or which materially affect its
financial condition or its ability to consummate the Reorganization. The Target
Fund is not charged with or, to the best of its knowledge, threatened
6
with any violation or investigation of any possible violation of any provisions
of any federal, state or local law or regulation or administrative ruling
relating to any aspect of its business.
(g) There are no material contracts outstanding to which the Target Fund
is a party that have not been disclosed in the N-14 Registration Statement or
will not otherwise be disclosed to the Acquiring Fund prior to the Valuation
Time.
(h) The Target Fund is not obligated under any provision of its charter
or by-laws, each as amended to the date hereof, or a party to any contract or
other commitment or obligation, and is not subject to any order or decree,
which would be violated by its execution of or performance under this
Agreement, except insofar as the Funds have mutually agreed to amend such
contract or other commitment or obligation to cure any potential violation as a
condition precedent to the Reorganization.
(i) The Target Fund has no known liabilities of a material amount,
contingent or otherwise, other than those shown on the Target Fund's
Semi-Annual Report for the six months ended January 31, 2015, those incurred
since the date thereof in the ordinary course of its business as an investment
company and those incurred in connection with the Reorganization. As of the
Valuation Time, the Target Fund will advise the Acquiring Fund of all known
liabilities, contingent or otherwise, whether or not incurred in the ordinary
course of business, existing or accrued as of such time, except to the extent
disclosed in the Target Fund Closing Financial Statements or to the extent
already known by the Acquiring Fund.
(j) At both the Valuation Time and the Closing Date, the Target Fund
will have full right, power and authority to sell, assign, transfer and deliver
the Target Fund Investments. As used in this Agreement, the term "Target Fund
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Investments" shall mean (i) the investments of the Target Fund shown on the
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schedule of its investments as of the Valuation Time furnished to the Acquiring
Fund; and (ii) all other assets owned by the Target Fund or liabilities
incurred as of the Valuation Time. At the Closing Date, subject only to the
obligation to deliver the Target Fund Investments as contemplated by this
Agreement, the Target Fund will have good and marketable title to all of the
Target Fund Investments, and the Acquiring Fund will acquire all of the Target
Fund Investments free and clear of any encumbrances, liens or security
interests and without any restrictions upon the transfer thereof (except those
imposed by the federal or state securities laws and those imperfections of
title or encumbrances as do not materially detract from the value or use of the
Target Fund Investments or materially affect title thereto).
(k) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Target Fund of
the Reorganization, except such as may be required under the 1933 Act, the 1934
Act and the 1940 Act or state securities laws (which term as used herein shall
include the laws of the District of Columbia and Puerto Rico) or the rules of
the New York Stock Exchange, each of which will have been obtained on or prior
to the Closing Date.
(l) The N-14 Registration Statement, on its effective date, at the time
of the Target Fund Shareholders meeting called to vote on this Agreement and on
the Closing Date, insofar as it relates to the Target Fund (i) complied or will
comply in all material respects with
7
the provisions of the 1933 Act, the 1934 Act and the 1940 Act and the rules and
regulations thereunder and (ii) did not or will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances under which they were made, not misleading; and the Joint Proxy
Statement/Prospectus included therein did not or will not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the representations and
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warranties in this subsection shall apply only to statements in or omissions
from the N-14 Registration Statement made in reliance upon and in conformity
with information furnished by the Target Fund for use in the N-14 Registration
Statement.
(m) The Preferred Shares Proxy Statement for the holders of the Target
Fund VRDP Shares (as defined in section 2(o) herein) ("Target Fund VRDP
----------------
Holders") with respect to the transactions contemplated herein, and any
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supplement or amendment thereto or to the documents included or incorporated by
reference therein, at the time of the shareholder meeting called to vote on
this Agreement and on the Closing Date, insofar as it relates to the Target
Fund, (i) complied or will comply in all material respects with the provisions
of the 1934 Act and the 1940 Act and the rules and regulations thereunder and
(ii) did not or will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein in light of the circumstances under which they were
made, not misleading; and did not or will not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(n) The Target Fund has filed, or intends to file, or has obtained
extensions to file, all federal, state and local tax returns which are required
to be filed by it, and has paid or has obtained extensions to pay, all federal,
state and local taxes shown on said returns to be due and owing and all
assessments received by it, up to and including the taxable year in which the
Closing Date occurs. All tax liabilities of the Target Fund have been
adequately provided for on its books, and no tax deficiency or liability of the
Target Fund has been asserted and no question with respect thereto has been
raised by the Internal Revenue Service or by any state or local tax authority
for taxes in excess of those already paid, up to and including the taxable year
in which the Closing Date occurs.
(o) The Target Fund is authorized to issue 200,000,000 shares of common
stock, par value $0.10 per share (the "Target Fund Common Shares") and 873
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shares of preferred stock of Series W-7 Variable Rate Demand Preferred Shares,
par value $0.10 per share and liquidation preference $100,000 per share
("Target Fund VRDP Shares" and together with Target Fund Common Shares, the
-----------------------
"Target Fund Shares"). Each outstanding Target Fund Share is fully paid and
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nonassessable and has the voting rights provided by the Target Fund's charter
and applicable law.
(p) All of the issued and outstanding Target Fund Shares were offered
for sale and sold in conformity with all applicable federal and state
securities laws.
8
(q) The Target Fund will not sell or otherwise dispose of any of the
Acquiring Fund Common Shares to be received in the Reorganization, except in
distribution to Target Fund Shareholders as provided in Section 3 of this
Agreement.
(r) The books and records of the Target Fund made available to the
Acquiring Fund and/or its counsel are substantially true and correct and
contain no material misstatements or omissions with respect to the operations
of the Target Fund.
(s) The Target Fund has elected to qualify and has qualified as a RIC
within the meaning of Section 851 of the Code for each of its taxable years
since its inception, and the Target Fund has satisfied the distribution
requirements imposed by Section 852 of the Code to maintain RIC status for each
of its taxable years.
3. THE REORGANIZATION.
(a) Subject to receiving the requisite approvals of the Target Fund
Shareholders and the Acquiring Fund Shareholders, and to the other terms and
conditions contained herein, and in accordance with the applicable law, the
Target Fund agrees to convey, transfer and deliver to the Acquiring Fund and
the Acquiring Fund agrees to acquire from the Target Fund, on the Closing Date,
all of the Target Fund Investments (including interest accrued as of the
Valuation Time on debt instruments), and assume substantially all of the
liabilities of the Target Fund, in exchange for that number of Acquiring Fund
Shares provided in Section 4 of this Agreement. The existence of the Acquiring
Fund shall continue unaffected and unimpaired by the Reorganization and it
shall be governed by the laws of Maryland.
(b) If the investment adviser determines that the portfolios of the
Target Fund and the Acquiring Fund, when aggregated, would contain investments
exceeding certain percentage limitations imposed upon the Acquiring Fund with
respect to such investments or that the disposition of certain assets is
necessary to ensure that the resulting portfolio will meet the Acquiring Fund's
investment objective, policies and restrictions, as set forth in the Joint
Proxy Statement/Prospectus, a copy of which has been delivered (including by
electronic format) to the Target Fund, the Target Fund, if requested by the
Acquiring Fund, will dispose of a sufficient amount of such investments as may
be necessary to avoid violating such limitations as of the Closing Date.
Notwithstanding the foregoing, nothing herein will require the Target Fund to
dispose of any portion of its assets if, in the reasonable judgment of the
Target Fund's Board of Directors or investment adviser, such disposition would
create more than an insignificant risk that the Reorganization would not be
treated as a "reorganization" described in Section 368(a) of the Code or would
otherwise not be in the best interests of the Target Fund.
(c) Prior to the Closing Date, the Target Fund shall declare a dividend
or dividends which, together with all such previous dividends, shall have the
effect of distributing to its shareholders (i) all of its investment company
taxable income to and including the Closing Date, if any (computed without
regard to any deduction for dividends paid), (ii) all of its net capital gain,
if any, recognized to and including the Closing Date and (iii) the excess of
its interest income excludable from gross income under Section 103(a) of the
Code, if any, over its deductions disallowed under Sections 265 and 171(a)(2)
of the Code for the period to and including the Closing Date. The Acquiring
Fund may pay amounts in respect of such
9
distributions ("UNII Distributions") on behalf of the Target Fund to the Target
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Fund Shareholders entitled to receive such UNII Distributions after the Closing
Date as an agent out of cash or other short-term liquid assets maturing prior
to the payment date of the UNII Distributions acquired from the Target Fund in
the Reorganization, segregated for this purpose and maintained in an amount at
least equal to the remaining payment obligations in respect of the UNII
Distributions.
(d) Pursuant to this Agreement, as soon as practicable, and in no event
more than 48 hours, exclusive of Sundays and holidays, after the Closing Date,
the Target Fund will distribute all Acquiring Fund Shares received by it to its
shareholders in exchange for their Target Fund Shares. Such distributions shall
be accomplished by the opening of shareholder accounts on the share ledger
records of the Acquiring Fund in the names of and in the amounts due to the
Target Fund Shareholders based on their respective holdings in the Target Fund
as of the Valuation Time.
(e) The Valuation Time shall be at the close of business of the New York
Stock Exchange on the business day immediately preceding the Closing Date, or
such earlier or later day and time as may be mutually agreed upon in writing by
the Funds (the "Valuation Time").
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(f) The Target Fund will pay or cause to be paid to the Acquiring Fund
any interest the Target Fund receives on or after the Closing Date with respect
to any of the Target Fund Investments transferred to the Acquiring Fund
hereunder.
(g) Recourse for liabilities assumed from the Target Fund by the
Acquiring Fund in the Reorganization will be limited to the net assets acquired
by the Acquiring Fund. The known liabilities of the Target Fund, as of the
Valuation Time, shall be confirmed to the Acquiring Fund pursuant to
Section 2(i) of this Agreement.
(h) The Target Fund will be terminated as soon as practicable following
the Closing Date by terminating its registration under the 1940 Act and
dissolving under Maryland law and will withdraw its authority to do business in
any state where it is registered.
(i) For U.S. federal income tax purposes, the parties to this Agreement
intend that (i) the Reorganization qualify as a reorganization within the
meaning of Section 368(a) of the Code, (ii) this Agreement constitutes a plan
of reorganization within the meaning of U.S. Treasury Regulations
Section 1.368-2(g), and (iii) the parties to this Agreement will each be a
party to such reorganization within the meaning of Section 368(b) of the Code.
4. ISSUANCE AND VALUATION OF ACQUIRING FUND SHARES IN THE REORGANIZATION.
(a) A number of Acquiring Fund Common Shares with an aggregate net asset
value equal to the value of the assets of the Target Fund acquired in the
Reorganization determined as hereinafter provided, reduced by the amount of
liabilities of the Target Fund assumed by the Acquiring Fund in the
Reorganization, shall be issued by the Acquiring Fund to the Target Fund in
exchange for such assets of the Target Fund, which shall be determined as set
forth below. The value of each Fund's net assets shall be calculated net of the
liquidation
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preference (including accumulated and unpaid dividends) of all outstanding
preferred shares of such Fund.
(b) A number of Acquiring Fund VRDP Shares equal to the number of Target
Fund VRDP Shares outstanding immediately prior to the Closing Date, with the
terms described in the Preferred Shares Proxy Statement, shall be issued by the
Acquiring Fund to the Target Fund. No fractional Acquiring Fund VRDP Shares
will be issued. Each Acquiring Fund VRDP Share issued to the Target Fund in
exchange for a Target Fund VRDP Share will have a liquidation preference of
$100,000 plus any accumulated and unpaid dividends that have accrued on such
Target Fund VRDP Share up to and including the day immediately preceding the
Closing Date. The Target Fund may pay any such accumulated and unpaid dividends
prior to the Closing Date.
(c) The net asset value of the Acquiring Fund and the Target Fund, the
values of their assets, the amounts of their liabilities, and the liquidation
preference (including accumulated and unpaid dividends) of the Target Fund VRDP
Shares and the Acquiring Fund VRDP Shares shall be determined as of the
Valuation Time in accordance with the regular procedures of the investment
adviser, and no formula will be used to adjust the net asset value or
liquidation preference so determined of any Fund to take into account
differences in realized and unrealized gains and losses.
Such valuation and determination shall be made by the Acquiring Fund in
cooperation with the Target Fund and shall be confirmed in writing by the
Acquiring Fund to the Target Fund. The net asset value per share of the
Acquiring Fund Common Shares and the liquidation preference (including
accumulated and unpaid dividends) per share of the Acquiring Fund VRDP Shares
shall be determined in accordance with such procedures and the Acquiring Fund
shall certify the computations involved.
For purposes of determining the net asset value per share of Target Fund
Common Shares and the Acquiring Fund Common Shares, the value of the securities
held by the applicable Fund plus any cash or other assets (including interest
accrued but not yet received) minus all liabilities (including accrued
expenses) and the aggregate liquidation value of the outstanding Target Fund
VRDP Shares or Acquiring Fund VRDP Shares, as the case may be, shall be divided
by the total number of Target Fund Common Shares or Acquiring Fund Common
Shares, as the case may be, outstanding at such time.
(d) The Acquiring Fund shall issue to the Target Fund certificates,
share deposit receipts or book entry interests for the Acquiring Fund Common
Shares registered in the name of the Target Fund. The Target Fund shall then
distribute the Acquiring Fund Common Shares to the holders of Target Fund
Common Shares by redelivering the certificates, share deposit receipts or book
entry interests evidencing ownership of the Acquiring Fund Common Shares to the
transfer agent and registrar for the Acquiring Fund Common Shares, for
distribution to the holders of Target Fund Common Shares on the basis of such
holder's proportionate interest in the aggregate net asset value of the Target
Fund Common Shares. With respect to any Target Fund Shareholders holding
certificates evidencing ownership of Target Fund Common Shares as of the
Closing Date, and subject to the Acquiring Fund being informed thereof in
writing by the Target Fund, the Acquiring Fund will not permit such Target Fund
11
Shareholder to receive new book entry interests of the Acquiring Fund Common
Shares, until notified by the Target Fund or its agent that such shareholder
has surrendered his or her outstanding certificates evidencing ownership of
Target Fund Common Shares or, in the event of lost certificates, posted
adequate bond. The Target Fund, at its own expense, will request its Target
Fund Shareholders to surrender their outstanding certificates evidencing
ownership of Target Fund Common Shares or post adequate bond therefor.
(e) The Acquiring Fund shall issue to the Target Fund VRDP Holders book
entry interests for the Acquiring Fund VRDP Shares registered in the name of
such holders on the basis of each holder's proportionate holdings of the Target
Fund VRDP Shares. In connection with such issuance, the Acquiring Fund shall
amend the Acquiring Fund VRDP Shares' Articles Supplementary Establishing and
Fixing the Rights and Preferences of Variable Rate Demand Preferred Shares (the
"Articles Supplementary"), Notice of Special Rate Period and share
----------------------
certificates representing such VRDP Shares, in each case as of the effective
date of the Reorganization, to reflect the authorization and issuance of
additional Acquiring Fund VRDP Shares in connection with the Reorganization.
(f) No fractional shares of Acquiring Fund Common Shares will be issued
to holders of Target Fund Common Shares unless such shares are held in a
Dividend Reinvestment Plan account. In lieu thereof, the Acquiring Fund's
transfer agent will aggregate all fractional Acquiring Fund Common Shares to be
issued in connection with the Reorganization (other than those issued to a
Dividend Reinvestment Plan account) and sell the resulting full shares on the
New York Stock Exchange at the current market price for Acquiring Fund Common
Shares for the account of all holders of such fractional interests, and each
such holder will receive such holder's PRO RATA share of the proceeds of such
sale upon surrender of such holder's certificates representing Acquiring Fund
Common Shares.
5. PAYMENT OF EXPENSES.
(a) The Target Fund and the Acquiring Fund will bear expenses incurred
in connection with the Reorganization, including but not limited to, costs
related to the preparation and distribution of materials distributed to each
Fund's Board of Directors, expenses incurred in connection with the preparation
of this Agreement, the preparation and filing of any documents required by such
Fund's state of organization, the preparation and filing of the N-14
Registration Statement and the Preferred Shares Proxy Statement with the U.S.
Securities and Exchange Commission ("SEC"), the printing and distribution
---
of the Joint Proxy Statement/Prospectus, the Preferred Shares Proxy Statement
and any other materials required to be distributed to shareholders, the SEC,
state securities commission and secretary of state filing fees and legal and
audit fees in connection with the Reorganization, fees incurred in obtaining
the requisite consents of rating agencies, counterparties or service providers
to the VRDP Shares, legal fees incurred in connection with amending the
transaction documents for the VRDP Shares, which may include the legal fees of
counterparties and service providers to the extent applicable, legal fees
incurred preparing each Fund's board materials, attending each Fund's board
meetings and preparing the minutes, rating agency fees associated with the
ratings of the VRDP Shares in connection with the Reorganization, audit fees
associated with each Fund's financial statements, stock exchange fees, transfer
agency fees, rating agency fees, portfolio transfer taxes (if any) and any
similar expenses incurred in connection with the Reorganization, which will be
borne directly by the
12
respective Fund incurring the expense or allocated among the Funds based upon
any reasonable methodology approved by the Boards of Directors of the Funds,
provided, that the Acquiring Fund's investment adviser may bear all or a
portion of the reorganization expenses of each Fund. Neither the Funds nor the
investment adviser will pay any expenses of shareholders arising out of or in
connection with the Reorganization.
(b) If for any reason the Reorganization is not consummated, no party
shall be liable to any other party for any damages resulting therefrom,
including, without limitation, consequential damages, and each Fund shall be
responsible, on a proportionate total assets basis, for all expenses incurred
in connection with the Reorganization.
6. COVENANTS OF THE FUNDS.
(a) COVENANTS OF EACH FUND.
(i) Each Fund covenants to operate its business as presently
conducted between the date hereof and the Closing Date.
(ii) Each of the Funds agrees that by the Closing Date all of its
U.S. federal and other tax returns and reports required to be filed on or
before such date shall have been filed and all taxes shown as due on said
returns either have been paid or adequate liability reserves have been
provided for the payment of such taxes.
(iii) The intention of the parties is that the transaction
contemplated by this Agreement will qualify as a "reorganization" within the
meaning of Section 368(a) of the Code. Neither the Acquiring Fund nor the
Target Fund shall take any action or cause any action to be taken
(including, without limitation, the filing of any tax return) that is
inconsistent with such treatment or results in the failure of the
transaction to qualify as a reorganization within the meaning of
Section 368(a) of the Code. At or prior to the Closing Date, the Acquiring
Fund and the Target Fund will take such action, or cause such action to be
taken, as is reasonably necessary to enable Skadden, Arps, Slate, Xxxxxxx &
Xxxx LLP ("Skadden"), special counsel
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to the Funds, to render the tax opinion required herein (including, without
limitation, each party's execution of representations reasonably requested
by and addressed to Skadden).
(iv) In connection with this covenant, the Funds agree to cooperate
with each other in filing any tax return, amended return or claim for
refund, determining a liability for taxes or a right to a refund of taxes or
participating in or conducting any audit or other proceeding in respect of
taxes. The Acquiring Fund agrees to retain for a period of ten (10) years
following the Closing Date all returns, schedules and work papers and all
material records or other documents relating to tax matters of the Target
Fund for each of such Fund's taxable periods ending on or before the Closing
Date.
(v) The Acquiring Fund VRDP Shares to be transferred to the Target
Fund for distribution to Target Fund VRDP Holders on the Closing Date shall
only be distributed to Target Fund VRDP Holders in accordance with an
available exemption from registration under the 1933 Act, in a manner not
involving any public offering within the meaning of Section 4(2) of the 1933
Act.
13
(vi) Each Fund shall use reasonable efforts to obtain all requisite
consents and approvals necessary to consummate the Reorganization.
(b) COVENANTS OF THE ACQUIRING FUND.
(i) The Acquiring Fund will file the N-14 Registration Statement and
the Preferred Shares Proxy Statement with the SEC and will use its best
efforts to provide that the N-14 Registration Statement becomes effective as
promptly as practicable. Each Fund agrees to cooperate fully with the other,
and each will furnish to the other the information relating to itself to be
set forth in the N-14 Registration Statement and the Preferred Shares Proxy
Statement as required by the 1933 Act, the 1934 Act and the 1940 Act, and
the rules and regulations thereunder and the state securities laws.
(ii) The Acquiring Fund has no plan or intention to sell or otherwise
dispose of the Target Fund Investments, except for dispositions made in the
ordinary course of business.
(iii) Following the consummation of the Reorganization, the Acquiring
Fund will continue its business as a non-diversified, closed-end management
investment company registered under the 1940 Act.
(iv) The Acquiring Fund shall use reasonable efforts to cause the
Acquiring Fund Common Shares to be issued in the Reorganization to be
approved for listing on the New York Stock Exchange prior to the Closing
Date.
(v) The Acquiring Fund agrees to mail to its shareholders of record
entitled to vote at the special meeting of shareholders at which action is
to be considered regarding this Agreement, in sufficient time to comply with
requirements as to notice thereof, the Joint Proxy Statement/Prospectus (but
only to the Acquiring Fund Common Shareholders) and the Preferred Shares
Proxy Statement (but only to the Acquiring Fund VRDP Holders), each of which
complies in all material respects with the applicable provisions of
Section 14(a) of the 1934 Act and Section 20(a) of the 1940 Act, and the
rules and regulations, respectively, thereunder.
(vi) The Acquiring Fund shall use reasonable efforts to cause the
Acquiring Fund VRDP Shares to be issued in connection with the
Reorganization to be rated no lower than the rating assigned to the
Acquiring Fund VRDP Shares immediately prior to the Closing Date by the
rating agencies then rating the Acquiring Fund VRDP Shares.
(vii) The Acquiring Fund shall use reasonable efforts to amend the
following documents to reflect the authorization and issuance of additional
Acquiring Fund VRDP Shares in connection with the Reorganization: (1) the
Articles Supplementary; (2) the Notice of Special Rate Period for the
Acquiring Fund VRDP Shares; (3) share certificates representing Acquiring
Fund VRDP Shares; (4) the VRDP Shares Fee Agreement for the Acquiring Fund
VRDP Shares; (5) the VRDP Shares Purchase Agreement for the Acquiring Fund
VRDP Shares; (6) the VRDP Shares Remarketing Agreement for the Acquiring
Fund VRDP Shares; (7) the VRDP Shares
14
Tender and Paying Agent Agreement for the Acquiring Fund VRDP Shares; and
(8) such other agreements, instruments or documents relating to the
Acquiring Fund VRDP Shares, in each case by the effective date of the
Reorganization and only to the extent necessary or applicable to such
agreement, instrument or document.
(c) COVENANTS OF THE TARGET FUND.
(i) The Target Fund agrees that following the consummation of the
Reorganization, it will dissolve in accordance with the laws of the State of
Maryland and any other applicable law, it will not make any distributions of
any Acquiring Fund Common Shares other than to its shareholders and without
first paying or adequately providing for the payment of all of its
respective liabilities not assumed by the Acquiring Fund, if any, and on and
after the Closing Date it shall not conduct any business except in
connection with its termination.
(ii) The Target Fund undertakes that if the Reorganization is
consummated, it will file an application pursuant to Section 8(f) of the
1940 Act for an order declaring that the Target Fund has ceased to be a
registered investment company.
(iii) The Target Fund agrees to mail to its shareholders of record
entitled to vote at the special meeting of shareholders at which action is
to be considered regarding this Agreement, in sufficient time to comply with
requirements as to notice thereof, the Joint Proxy Statement/Prospectus (but
only to Target Fund Common Shareholders) and the Preferred Shares Proxy
Statement (but only to Target Fund VRDP Holders), each of which complies in
all material respects with the applicable provisions of Section 14(a) of the
1934 Act and Section 20(a) of the 1940 Act, and the rules and regulations,
respectively, thereunder.
(iv) After the Closing Date, the Target Fund shall prepare, or cause
its agents to prepare, any U.S. federal, state or local tax returns required
to be filed by such Target Fund with respect to its final taxable year
ending with its complete liquidation and dissolution and for any prior
periods or taxable years and further shall cause such tax returns to be duly
filed with the appropriate taxing authorities. Notwithstanding the
aforementioned provisions of this subsection, any expenses incurred by the
Target Fund (other than for payment of taxes) in connection with the
preparation and filing of said tax returns after the Closing Date shall be
borne by such Target Fund to the extent such expenses have been accrued by
such Target Fund in the ordinary course without regard to the
Reorganization; any excess expenses shall be paid from a liability reserve
established to provide for the payment of such expenses.
(v) Upon the request of the Acquiring Fund, the Target Fund shall use
reasonable efforts to perform the following actions by the effective date of
the Reorganization or such later time as may be agreed to by the Acquiring
Fund: (a) terminate the VRDP Shares Fee Agreement, VRDP Shares Purchase
Agreement, the VRDP Shares Remarketing Agreement and the Tender and Paying
Agent Agreement and such other agreements, instruments or documents related
to the Target Fund VRDP Shares, (b) withdraw the ratings assigned to Target
Fund VRDP Shares, (c) cancel the
15
share certificates representing Target Fund VRDP Shares, and (d) withdraw or
deregister the Target Fund VRDP Shares from The Depository Trust Company.
7. CLOSING DATE.
(a) The closing of the Reorganization (the "Closing") shall occur prior
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to the opening of the NYSE at the offices of Skadden, Four Times Square, New
York, New York 10036, or at such other time or location as may be mutually
agreed to by the Funds, on the next full business day following the Valuation
Time to occur after the satisfaction or waiver of all of the conditions set
forth in Sections 8 and 9 of this Agreement (other than the conditions that
relate to actions to be taken, or documents to be delivered at the Closing, it
being understood that the occurrence of the Closing shall remain subject to the
satisfaction or waiver of such conditions at Closing), or at such other time
and date as may be mutually agreed to by the Funds (such date, the
"Closing Date").
------------
(b) On the Closing Date, the Target Fund shall deliver its assets that
are to be transferred, together with any other Target Fund Investments, to the
Acquiring Fund, and the Acquiring Fund shall issue the Acquiring Fund Shares as
provided in this Agreement. To the extent that any Target Fund Investments, for
any reason, are not transferable on the Closing Date, the Target Fund shall
cause such Target Fund Investments to be transferred to the Acquiring Fund's
account with its custodian at the earliest practicable date thereafter.
(c) The Target Fund will deliver to the Acquiring Fund on the Closing
Date confirmation or other adequate evidence as to the tax basis of the Target
Fund Investments delivered to the Acquiring Fund hereunder.
(d) As soon as practicable after the close of business on the Closing
Date, the Target Fund shall deliver or make available to (including by
electronic format) the Acquiring Fund a list of the names and addresses of all
of the Target Fund Shareholders of record on the Closing Date and the number of
Target Fund Common Shares owned by each such Target Fund Shareholder, certified
to the best of its knowledge and belief by the transfer agent for the Target
Fund Shares or by the Target Fund's Chief Executive Officer, President, any
Vice President, Chief Financial Officer, Treasurer or any Assistant Treasurer,
or Secretary or any Assistant Secretary.
8. CONDITIONS OF THE TARGET FUND.
The obligations of the Target Fund hereunder shall be subject to the
following conditions:
(a) That this Agreement shall have been approved by the Board of
Directors of the Target Fund and by the affirmative vote of the Target Fund
Common Shareholders and the Target Fund VRDP Holders, voting as a single class,
representing a majority of the outstanding shares entitled to vote on this
Agreement, and by the affirmative vote of the Target Fund VRDP Holders, voting
as a separate class, of either (i) 67% or more of the Target Fund VRDP Shares
present at the Target Fund's shareholder meeting where this Agreement shall be
approved, if the holders of more than 50% of the outstanding Target Fund VRDP
Shares were present or
16
represented by proxy or (ii) more than 50% of the outstanding Target Fund VRDP
Shares, whichever is less.
(b) That the Acquiring Fund shall have delivered (including in
electronic format) to the Target Fund (i) a copy of the resolutions approving
this Agreement and the issuance of additional Acquiring Fund Shares in
connection with the Reorganization adopted by the Board of Directors of the
Acquiring Fund, (ii) a certificate setting forth the vote of the Acquiring Fund
VRDP Holders, voting as a separate class, approving this Agreement and the
issuance of additional Acquiring Fund VRDP Shares in connection with the
Reorganization, and the vote of the Acquiring Fund Common Shareholders and the
Acquiring Fund VRDP Holders, voting as a single class, approving the issuance
of additional Acquiring Fund Common Shares in connection with the
Reorganization, and (iii) a certificate certifying that the Acquiring Fund has
received all requisite consents and approvals necessary to consummate the
Reorganization, each certified by the Acquiring Fund's Secretary.
(c) That the Acquiring Fund shall have provided or made available
(including by electronic format) to the Target Fund the Acquiring Fund Closing
Financial Statements, together with a schedule of the Acquiring Fund's
investments, all as of the Valuation Time, certified on the Acquiring Fund's
behalf by its Chief Executive Officer, President, any Vice President, Chief
Financial Officer, Treasurer or any Assistant Treasurer, and a certificate
signed by the Acquiring Fund's Chief Executive Officer, President, any Vice
President, Chief Financial Officer, Treasurer or any Assistant Treasurer, dated
as of the Closing Date, certifying that as of the Valuation Time and as of the
Closing Date there has been no material adverse change in the financial
position of the Acquiring Fund since the date of the Acquiring Fund's most
recent Annual or Semi-Annual Report, as applicable, other than changes in its
portfolio securities since that date or changes in the market value of its
portfolio securities.
(d) That the Acquiring Fund shall have furnished to the Target Fund a
certificate signed by the Acquiring Fund's Chief Executive Officer, President,
any Vice President, Chief Financial Officer, Treasurer or any Assistant
Treasurer, dated as of the Closing Date, certifying that, as of the Valuation
Time and as of the Closing Date, all representations and warranties of the
Acquiring Fund made in this Agreement are true and correct in all material
respects with the same effect as if made at and as of such dates, and that the
Acquiring Fund has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied at or prior to each of such
dates.
(e) That there shall not be any material litigation pending with respect
to the matters contemplated by this Agreement.
(f) That the Target Fund shall have received the opinion of counsel(s)
to the Acquiring Fund, dated as of the Closing Date, addressed to the Target
Fund, that substantively provides the following:
(i) the Acquiring Fund is validly existing as a corporation and in
good standing under the laws of the State of Maryland;
17
(ii) the Acquiring Fund is registered with the SEC as a closed-end
management investment company under the 1940 Act;
(iii) the Acquiring Fund has the power and authority to execute,
deliver and perform all of its obligations under this Agreement; the
execution and delivery of and the consummation by the Acquiring Fund of the
transactions contemplated under this Agreement have been duly authorized by
all requisite action of the Acquiring Fund; and this Agreement has been duly
executed by the Acquiring Fund;
(iv) the execution, delivery and performance of this Agreement by the
Acquiring Fund do not and will not conflict with, or result in any breach of
or constitute a default under, any provision of the Acquiring Fund's charter
and bylaws or any Maryland statute applicable to the Acquiring Fund;
(v) no approval of any governmental authority of the State of
Maryland having jurisdiction over the Acquiring Fund is required in
connection with the execution and delivery of this Agreement by the
Acquiring Fund or the performance by the Acquiring Fund of its obligations
thereunder;
(vi) this Agreement constitutes the valid and binding obligation of
the Acquiring Fund, enforceable against the Acquiring Fund in accordance
with its terms under the laws of the State of New York;
(vii) neither the execution and delivery by the Acquiring Fund of
this Agreement nor the performance by the Acquiring Fund of its obligations
under this Agreement: (i) constitutes a material violation of, or a default
under, any material contract, agreement, instrument or other document
pertaining to, or material to the business or financial condition of, the
Acquiring Fund; (ii) contravenes any material judgment, order or decree of
courts or other governmental authorities or arbitrators that are material to
the business or financial condition of the Acquiring Fund; or (iii) violates
the 1940 Act or any law, rule or regulation of the State of New York or the
State of Maryland;
(viii) neither the execution and delivery by the Acquiring Fund of
this Agreement nor the performance by the Acquiring Fund of its obligations
under this Agreement requires the consent, approval, licensing or
authorization of, or any filing, recording or registration with, any
governmental authority under the 1940 Act or any law, rule or regulation of
the State of New York or the State of Maryland, except for those consents,
approvals, licenses and authorizations already obtained and those filings,
recordings and registrations already made; and
(ix) the issuance of the Acquiring Fund Shares to be issued in the
manner contemplated by the N-14 Registration Statement and as contemplated
by this Agreement has been duly authorized and, when issued in accordance
with the Agreement at the effective time, the Acquiring Fund Shares will be
validly issued, fully paid and non-assessable.
18
(g) That the Target Fund shall have obtained an opinion from counsel for
the Acquiring Fund, dated as of the Closing Date, addressed to the Target Fund,
that the consummation of the transactions set forth in this Agreement complies
with the requirements of a reorganization as described in Section 368(a) of the
Code.
(h) That all proceedings taken by the Acquiring Fund and its counsel in
connection with the Reorganization and all documents incidental thereto shall
be satisfactory in form and substance to the Target Fund.
(i) That the N-14 Registration Statement shall have become effective
under the 1933 Act, and no stop order suspending such effectiveness shall have
been instituted or, to the knowledge of the Acquiring Fund, be contemplated by
the SEC.
(j) That the liquidity provider for the Target Fund VRDP Shares shall
have consented to this Agreement.
9. CONDITIONS OF THE ACQUIRING FUND.
The obligations of the Acquiring Fund hereunder shall be subject to the
following conditions:
(a) That this Agreement and the issuance of additional Acquiring Fund
VRDP Shares in connection with the Reorganization shall have been approved by
the Board of Directors of the Acquiring Fund and by the affirmative vote of the
Acquiring Fund VRDP Holders, voting as a separate class, of a majority of the
outstanding Acquiring Fund VRDP Shares.
(b) That the issuance of additional Acquiring Fund Common Shares in
connection with the Reorganization shall have been approved by the Board of
Directors of the Acquiring Fund and by the affirmative vote of the Acquiring
Fund Common Shareholders and the Acquiring Fund VRDP Holders, voting as a
single class, of a majority of the votes cast at the Acquiring Fund's
shareholder meeting where such issuance of additional Acquiring Fund Common
Shares shall be approved.
(c) The Target Fund shall have delivered (including in electronic
format) to the Acquiring Fund (i) a copy of the resolutions approving this
Agreement adopted by the Board of Directors of the Target Fund, (ii) a
certificate setting forth the vote of the Target Fund Common Shareholders and
the Target Fund VRDP Holders, voting as a single class, approving this
Agreement, and the vote of the Target Fund VRDP Holders, voting as a separate
class, approving this Agreement, and (iii) a certificate certifying that the
Target Fund has received all requisite consents and approvals necessary to
consummate the Reorganization, each certified by the Target Fund's Secretary.
(d) That the Target Fund shall have provided or made available
(including by electronic format) to the Acquiring Fund the Target Fund Closing
Financial Statements, together with a schedule of the Target Fund's investments
with their respective dates of acquisition and tax costs, all as of the
Valuation Time, certified on the Target Fund's behalf by its Chief Executive
Officer, President, any Vice President, Chief Financial Officer, Treasurer or
any Assistant Treasurer, and a certificate signed by Target Fund's Chief
Executive Officer, President, any Vice President, Chief Financial Officer,
Treasurer or any
19
Assistant Treasurer, dated as of the Closing Date, certifying that as of the
Valuation Time and as of the Closing Date there has been no material adverse
change in the financial position of the Target Fund since the date of the
Target Fund's most recent Annual Report or Semi-Annual Report, as applicable,
other than changes in the Target Fund Investments since that date or changes in
the market value of the Target Fund Investments.
(e) That the Target Fund shall have furnished to the Acquiring Fund a
certificate signed by the Target Fund's Chief Executive Officer, President, any
Vice President, Chief Financial Officer, Treasurer or any Assistant Treasurer,
dated as of the Closing Date, certifying that as of the Valuation Time and as
of the Closing Date all representations and warranties of the Target Fund made
in this Agreement are true and correct in all material respects with the same
effect as if made at and as of such dates and the Target Fund has complied with
all of the agreements and satisfied all of the conditions on its part to be
performed or satisfied at or prior to such dates.
(f) That there shall not be any material litigation pending with respect
to the matters contemplated by this Agreement.
(g) That the Acquiring Fund shall have received the opinion of
counsel(s) for the Target Fund, dated as of the Closing Date, addressed to the
Acquiring Fund, that substantively provides the following:
(i) the Target Fund is validly existing as a corporation and in good
standing under the laws of the State of Maryland;
(ii) the Target Fund is registered with the SEC as a closed-end
management investment company under the 1940 Act;
(iii) the Target Fund has the power and authority to execute, deliver
and perform all of its obligations under this Agreement; the execution and
delivery of and the consummation by the Target Fund of the transactions
contemplated under this Agreement have been duly authorized by all requisite
action of the Target Fund; and this Agreement has been duly executed by the
Target Fund.
(iv) the execution, delivery and performance of this Agreement by the
Target Fund do not and will not conflict with, or result in any breach of or
constitute a default under, any provision of the Target Fund's charter and
bylaws or any Maryland statute applicable to the Target Fund.
(v) no approval of any governmental authority of the State of
Maryland having jurisdiction over the Target Fund is required in connection
with the execution and delivery of this Agreement by the Target Fund or the
performance by the Target Fund of its obligations thereunder;
20
(vi) this Agreement constitutes the valid and binding obligation of
the Target Fund, enforceable against the Target Fund in accordance with its
terms under the laws of the State of New York;
(vii) neither the execution and delivery by the Target Fund of this
Agreement nor the performance by the Target Fund of its obligations under
this Agreement: (i) constitutes a material violation of, or a default under,
any material contract, agreement, instrument or other document pertaining
to, or material to the business or financial condition of, the Target Fund;
(ii) contravenes any material judgment, order or decree of courts or other
governmental authorities or arbitrators that are material to the business or
financial condition of the Target Fund; or (iii) violates the 1940 Act or
any law, rule or regulation of the State of New York or the State of
Maryland; and
(viii) neither the execution and delivery by the Target Fund of this
Agreement nor the performance by the Target Fund of its obligations under
this Agreement requires the consent, approval, licensing or authorization
of, or any filing, recording or registration with, any governmental
authority under the 1940 Act or any law, rule or regulation of the State of
New York or the State of Maryland, except for those consents, approvals,
licenses and authorizations already obtained and those filings, recordings
and registrations already made.
(h) That the Acquiring Fund shall have obtained an opinion from counsel
for the Target Fund, dated as of the Closing Date, addressed to the Acquiring
Fund, that the consummation of the transactions set forth in this Agreement
complies with the requirements of a reorganization as described in
Section 368(a) of the Code.
(i) That all proceedings taken by the Target Fund and its counsel in
connection with the Reorganization and all documents incidental thereto shall
be satisfactory in form and substance to the Acquiring Fund.
(j) That the N-14 Registration Statement shall have become effective
under the 1933 Act and no stop order suspending such effectiveness shall have
been instituted or, to the knowledge of the Target Fund, be contemplated by the
SEC.
(k) That prior to the Closing Date, the Target Fund shall have declared
a dividend or dividends which, together with all such previous dividends, shall
have the effect of distributing to its shareholders (i) all of its investment
company taxable income to and including the Closing Date, if any (computed
without regard to any deduction for dividends paid), (ii) all of its net
capital gain, if any, recognized to and including the Closing Date and
(iii) the excess of its interest income excludable from gross income under
Section 103(a) of the Code, if any, over its deductions disallowed under
Sections 265 and 171(a)(2) of the Code for the period to and including the
Closing Date. The Acquiring Fund may pay amounts in respect of such UNII
Distributions on behalf of the Target Fund to the Target Fund Shareholders
entitled to receive such UNII Distributions after the Closing Date as an agent
out of cash or other short-term liquid assets maturing prior to the payment
date of the UNII Distributions acquired from the Target
21
Fund in the Reorganization, segregated for this purpose and maintained in an
amount at least equal to the remaining payment obligations in respect of the
UNII Distributions.
(l) That the liquidity provider for the Acquiring Fund VRDP Shares shall
have consented to this Agreement and the issuance of additional Acquiring Fund
VRDP Shares in connection with the Reorganization.
(m) That the liquidity provider, remarketing agent, tender and paying
agent and the rating agencies for the Acquiring Fund VRDP Shares shall have
consented to any amendments to the Articles Supplementary, the notice of
special rate period for the special rate period in effect for the Acquiring
Fund VRDP Shares as of the Closing Date, and the share certificate of the
Acquiring Fund VRDP Shares that are necessary to reflect the issuance of
additional Acquiring Fund VRDP Shares in connection with the Reorganization,
but only to the extent such consent is required under the Related Documents (as
defined in the Articles Supplementary).
10. TERMINATION, POSTPONEMENT AND WAIVERS.
(a) Notwithstanding anything contained in this Agreement to the
contrary, this Agreement may be terminated and the Reorganization abandoned at
any time (whether before or after adoption thereof by the shareholders of the
Target Fund and the Acquiring Fund) prior to the Closing Date, or the Closing
Date may be postponed, (i) by mutual consent of the Boards of Directors of the
Acquiring Fund and the Target Fund; (ii) by the Board of Directors of the
Target Fund if any condition of Target Fund's obligations set forth in
Section 8 of this Agreement has not been fulfilled or waived by such Board of
Directors; and (iii) by the Board of Directors of the Acquiring Fund if any
condition of the Acquiring Fund's obligations set forth in Section 9 of this
Agreement has not been fulfilled or waived by such Board of Directors.
(b) If the transactions contemplated by this Agreement have not been
consummated by December 31, 2016, this Agreement automatically shall terminate
on that date, unless a later date is mutually agreed to by the Boards of
Directors of the Acquiring Fund and the Target Fund.
(c) In the event of termination of this Agreement pursuant to the
provisions hereof, the same shall become void and have no further effect, and
there shall not be any liability on the part of any Fund or its respective
directors, trustees, officers, agents or shareholders in respect of this
Agreement other than with respect to Section 11 and payment by each Fund of its
respective expenses incurred in connection with the Reorganization.
(d) At any time prior to the Closing Date, any of the terms or
conditions of this Agreement may be waived by the Board of Directors of the
Acquiring Fund or the Target Fund (whichever is entitled to the benefit
thereof), if, in the judgment of such Board of Directors after consultation
with its counsel, such action or waiver will not have a material adverse effect
on the benefits intended under this Agreement to the shareholders of their
respective Fund, on behalf of which such action is taken.
(e) The respective representations and warranties contained in Sections
1 and 2 of this Agreement shall expire with, and be terminated by, the
consummation of the
22
Reorganization, and neither the Funds, nor any of their respective officers,
directors, trustees, agents or shareholders shall have any liability with
respect to such representations or warranties after the Closing Date. This
provision shall not protect any officer, director, trustee, agent or
shareholder of either of the Funds against any liability to the entity for
which that officer, director, trustee, agent or shareholder so acts or to its
shareholders, to which that officer, director, trustee, agent or shareholder
otherwise would be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of his or her duties in the conduct of such
office.
(f) If any order or orders of the SEC with respect to this Agreement
shall be issued prior to the Closing Date and shall impose any terms or
conditions which are determined by action of the Board of Directors of the
Acquiring Fund and the Target Fund to be acceptable, such terms and conditions
shall be binding as if a part of this Agreement without further vote or
approval of the Target Fund Shareholders and the Acquiring Fund Shareholders
unless such terms and conditions shall result in a change in the method of
computing the number of Acquiring Fund Shares to be issued to the Target Fund
Shareholders, in which event, unless such terms and conditions shall have been
included in the proxy solicitation materials furnished to the Target Fund
Shareholders prior to the meeting at which the Reorganization shall have been
approved, this Agreement shall not be consummated and shall terminate unless
the Target Fund promptly shall call a special meeting of the Target Fund
Shareholders at which such conditions so imposed shall be submitted for
approval.
11. INDEMNIFICATION.
(a) Each party (an "Indemnitor") shall indemnify and hold the other and
----------
its officers, directors, trustees, agents and persons controlled by or
controlling any of them (each an "Indemnified Party") harmless from and against
-----------------
any and all losses, damages, liabilities, claims, demands, judgments,
settlements, deficiencies, taxes, assessments, charges, costs and expenses of
any nature whatsoever (including reasonable attorneys' fees) including amounts
paid in satisfaction of judgments, in compromise or as fines and penalties, and
counsel fees reasonably incurred by such Indemnified Party in connection with
the defense or disposition of any claim, action, suit or other proceeding,
whether civil or criminal, before any court or administrative or investigative
body in which such Indemnified Party may be or may have been involved as a
party or otherwise or with which such Indemnified Party may be or may have been
threatened (collectively, the "Losses") arising out of or related to any claim
------
of a breach of any representation, warranty or covenant made herein by the
Indemnitor; provided, however, that no Indemnified Party shall be indemnified
-------- --------
hereunder against any Losses arising directly from such Indemnified Party's
(i) willful misfeasance, (ii) bad faith, (iii) gross negligence or
(iv) reckless disregard of the duties involved in the conduct of such
Indemnified Party's position.
(b) The Indemnified Party shall use its best efforts to minimize any
liabilities, damages, deficiencies, claims, judgments, assessments, costs and
expenses in respect of which indemnity may be sought hereunder. The Indemnified
Party shall give written notice to Indemnitor within the earlier of ten
(10) days of receipt of written notice to the Indemnified Party or thirty
(30) days from discovery by the Indemnified Party of any matters which may give
rise to a claim for indemnification or reimbursement under this Agreement. The
failure to give such notice shall not affect the right of the Indemnified Party
to indemnity hereunder unless such failure has materially and adversely
affected the rights of the Indemnitor. At any time after ten
23
(10) days from the giving of such notice, the Indemnified Party may, at its
option, resist, settle or otherwise compromise, or pay such claim unless it
shall have received notice from the Indemnitor that the Indemnitor intends, at
the Indemnitor's sole cost and expense, to assume the defense of any such
matter, in which case the Indemnified Party shall have the right, at no cost or
expense to the Indemnitor, to participate in such defense. If the Indemnitor
does not assume the defense of such matter, and in any event until the
Indemnitor states in writing that it will assume the defense, the Indemnitor
shall pay all costs of the Indemnified Party arising out of the defense until
the defense is assumed; provided, however, that the Indemnified Party shall
-------- --------
consult with the Indemnitor and obtain indemnitor's prior written consent to
any payment or settlement of any such claim. The Indemnitor shall keep the
Indemnified Party fully apprised at all times as to the status of the defense.
If the Indemnitor does not assume the defense, the Indemnified Party shall keep
the Indemnitor apprised at all times as to the status of the defense. Following
indemnification as provided for hereunder, the Indemnitor shall be subrogated
to all rights of the Indemnified Party with respect to all third parties, firms
or corporations relating to the matter for which indemnification has been made.
12. OTHER MATTERS.
(a) All covenants, agreements, representations and warranties made under
this Agreement and any certificates delivered pursuant to this Agreement shall
be deemed to have been material and relied upon by each of the parties,
notwithstanding any investigation made by them or on their behalf.
(b) All notices hereunder shall be sufficiently given for all purposes
hereunder if in writing and delivered personally or sent by registered mail or
certified mail, postage prepaid. Notice to the Target Fund shall be addressed
to BlackRock MuniYield Michigan Quality Fund II, Inc. c/o BlackRock Advisors,
LLC, 00 Xxxx 00xx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, Attention: Xxxxx Xxx,
Secretary of the Target Fund, or at such other address as the Target Fund may
designate by written notice to the Acquiring Fund. Notice to the Acquiring Fund
shall be addressed to BlackRock MuniYield Michigan Quality Fund, Inc. c/o
BlackRock Advisors, LLC, 00 Xxxx 00xx Xxxxxx Xxx Xxxx, Xxx Xxxx 00000,
Attention: Xxxxx Xxx, Secretary of the Acquiring Fund, or at such other address
and to the attention of such other person as the Acquiring Fund may designate
by written notice to the Target Fund. Any notice shall be deemed to have been
served or given as of the date such notice is delivered personally or mailed.
(c) This Agreement supersedes all previous correspondence and oral
communications between the Funds regarding the Reorganization, constitutes the
only understanding with respect to the Reorganization, may not be changed
except by a letter of agreement signed by each Fund and shall be governed by
and construed in accordance with the laws of the State of New York applicable
to agreements made and to be performed in said state.
(d) This Agreement may be amended or modified by the parties hereto
prior to the Closing Date, by action taken or authorized by their respective
Boards of Directors at any time before or after adoption of this Agreement and
approval of the Reorganization by the Target Fund Shareholders or the Acquiring
Fund Shareholders, but, after any such adoption and approval, no amendment or
modification shall be made which by law requires further approval
24
by such shareholders without such further approval. This Agreement may not be
amended or modified except by an instrument in writing signed on behalf of each
of the Funds.
(e) This Agreement is not intended to confer upon any person other than
the parties hereto (or their respective successors and assigns) any rights,
remedies, obligations or liabilities hereunder. If any provision of this
Agreement shall be held or made invalid by statute rule, regulation, decision
of a tribunal or otherwise, the remainder of this Agreement shall not be
affected thereby and, to such extent, the provisions of this Agreement shall be
deemed severable provided that this Agreement shall be deemed modified to give
effect to the fullest extent permitted under applicable law to the intentions
of the party as reflected by this Agreement prior to the invalidity of such
provision.
(f) It is expressly agreed that the obligations of the Funds hereunder
shall not be binding upon any of their respective directors, trustees,
shareholders, nominees, officers, agents, or employees personally, but shall
bind only the property of the respective Fund. The execution and delivery of
this Agreement has been authorized by the Boards of Directors of the Acquiring
Fund and the Target Fund and signed by an authorized officer of each of the
Acquiring Fund and the Target Fund, acting as such, and neither such
authorization by such Board of Directors nor such execution and delivery by
such officer shall be deemed to have been made by any of them individually or
to impose any liability on any of them personally, but shall bind only the
trust property of each Fund.
(g) This Agreement may be executed in any number of counterparts, each
of which, when executed and delivered, shall be deemed to be an original but
all such counterparts together shall constitute but one instrument.
[Remainder of Page Intentionally Left Blank]
25
IN WITNESS WHEREOF, the parties have hereunto caused this Agreement to
be executed and delivered by their duly authorized officers as of the day and
year first written above.
BLACKROCK MUNIYIELD MICHIGAN QUALITY
FUND, INC.
By: /s/ Xxxx X. Xxxxxxxxx
------------------------------------
Name: Xxxx X. Xxxxxxxxx
Title: President and Chief
Executive Officer
BLACKROCK MUNIYIELD MICHIGAN QUALITY
FUND II, INC.
By: /s/ Xxxx X. Xxxxxxxxx
------------------------------------
Name: Xxxx X. Xxxxxxxxx
Title: President and Chief
Executive Officer
26
