APPENDIX A:
AGREEMENT AND PLAN OF ACQUISITION
THIS AGREEMENT made as of the ______ day of March, 2002 is made by and among
Principal Bond, Inc., a Maryland corporation (hereinafter called "Bond Fund"),
Principal High Yield Fund, Inc., a Maryland corporation (hereinafter called
"High Yield Fund"), and Principal Management Corporation, an Iowa corporation
(hereinafter called "Principal Management").
WITNESSETH:
Whereas the Board of Directors of the Bond Fund and the Board of Directors of
the High Yield Fund, each an open-end management investment company, deem it
advisable that the Bond Fund acquire all of the assets of the High Yield Fund in
exchange for the assumption by the Bond Fund of all of the liabilities of the
High Yield Fund and shares issued by the Bond Fund which are thereafter to be
distributed by the High Yield Fund pro rata to its shareholders in complete
liquidation and termination of the High Yield Fund and in exchange for all of
the High Yield Fund's outstanding shares;
NOW, THEREFORE, in consideration of the mutual promises herein contained, each
of the parties hereto represents and warrants to, and agrees with each of the
other parties as follows:
1.
The Bond Fund hereby represents and warrants to the High Yield Fund that:
(a) The Bond Fund is a corporation with transferable shares duly
organized and validly existing under the laws of Maryland and has full
power to own its properties and assets and to carry on its business as
such business is now being conducted;
(b) The Bond Fund's statement of assets and liabilities as of October
31,2001 and the related statements of operations for the year then
ended, changes in net assets each of the two years in the period then
ended and its financial highlights for each of the five years in the
period then ended, all audited by Ernst & Young LLP as set forth in
their report, have been prepared in accordance with accounting
principles generally accepted in the United States. Such financial
statements fairly present the financial position of the Bond Fund as
of such date and the results of its operations, changes in net assets
and financial highlights for the periods covered thereby;
(c) There are no claims, actions, suits or proceedings pending or, to its
knowledge, threatened against or affecting the Bond Fund or its
properties or business or its right to issue and sell shares, or which
would prevent or hinder consummation of the transactions contemplated
hereby, and it is not charged with, or to the Bond Fund's knowledge,
threatened with, any charge or investigation of any violation of any
provision of any federal, state or local law or any administrative
ruling or regulation relating to any aspect of its business or the
issuance or sale of its shares;
(d) The Bond Fund is not a party to or subject to any judgment or decree
or order entered in any suit or proceeding brought by any governmental
agency or by any other person enjoining it in respect of, or the
effect of which is to prohibit, any business practice or the
acquisition of any property or the conduct of business by it or the
issuance or sale of its shares in any area;
(e) The Bond Fund has filed all tax returns required to be filed, has no
liability for any unpaid taxes and has made a proper election to be
treated as a regulated investment company under Subchapter M of the
Internal Revenue Code of 1986 (the "Code") for each of its taxable
years. The Bond Fund has not committed any action or failed to perform
any necessary action that would render invalid its election to be
treated as a regulated investment company for any of its taxable
years;
(f) The authorization, execution and delivery of this Agreement on behalf
of the Bond Fund does not, and the consummation of the transactions
contemplated hereby will not, violate or conflict with any provision
of the Bond Fund's Articles of Incorporation or Bylaws, or any
provision of, or result in the acceleration of any obligation under,
any mortgage, lien, lease, agreement, instrument, order, arbitration
award, judgment or decree to which it is party or by which it or any
of its assets is bound,
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or violate or conflict with any other material contractual or
statutory restriction of any kind or character to which it is subject;
(g) This Agreement has been duly authorized, executed, and delivered by
the Bond Fund and constitutes a valid and binding agreement of the
Bond Fund and all governmental and other approvals required for the
Bond Fund to carry out the transactions contemplated hereunder have
been or on or prior to the Closing Date (as herein after defined) will
have been obtained;
(h) The Bond Fund is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end, diversified management
investment company. The Bond Fund is currently in compliance with the
1940 Act and the rules of the Securities and Exchange Commission
promulgated thereunder. Neither the Bond Fund nor its affiliates have
violated Section 9 of the 1940 Act, are currently subject to an
exemptive order of the Securities and Exchange Commission pursuant to
Section 9(c) of the 1940 Act, or are currently subject to any current
or threatened investigation or enforcement action by the Securities
and Exchange Commission or any other federal or state authority which
could result in a violation of Section 9(a) of the 1940 Act;
(i) On the Closing Date, the Bond Fund will own its assets free and clear
of all liens, claims, charges, options and encumbrances;
(j) The Bond Fund will declare to shareholders of record on or prior to
the Closing Date a dividend or dividends which, together with all
previous such dividends, shall have the effect of distributing to its
shareholders all of its income (computed without regard to any
deduction for dividends paid) and all of its net realized capital
gains, if any, as of the Closing Date;
(k) On the Closing Date the shares of the Bond Fund to be delivered to
the High Yield Fund hereunder shall have been registered under the
Securities Act of 1933, as amended (the "1933 Act") and duly
authorized, and, when issued and delivered pursuant to this Agreement,
will be validly issued, fully paid and nonassessable; and the Bond
Fund will comply with all applicable laws in connection with the
issuance of such shares and shall not be subject to a stop-order of
the Securities and Exchange Commission in connection therewith.
2.
The High Yield Fund hereby represents and warrants to the Bond Fund that:
(a) The High Yield Fund is a corporation with transferable shares duly
organized and validly existing under the laws of Maryland and has full
power to own its properties and assets and to carry on its business as
such business is now being conducted;
(b) The High Yield Fund's statement of assets and liabilities as of
October 31, 2001 and the related statements of operations for the year
then ended, changes in net assets for each of the two years in the
period then ended and its financial highlights for each of the five
years in the period then ended, all audited by Ernst & Young LLP as
set forth in their report, have been prepared in accordance with
accounting principles generally accepted in the United States. Such
financial statements fairly present the financial position of the High
Yield Fund as of that date and the results of its operations, changes
in net assets and financial highlights for the periods covered
thereby;
(c) There are no claims, actions, suits or proceedings pending or, to its
knowledge, threatened against or affecting the High Yield Fund or its
properties or business or its tight to issue and sell shares, or which
would prevent or hinder consummation of the transactions contemplated
hereby, and it is not charged with, or to the High Yield Fund's
knowledge, threatened with, any charge or investigation of any
violation of any provision of any federal, state or local law or any
administrative ruling or regulation relating to any aspect of its
business or the issuance or sale of its shares;
(d) The High Yield Fund is not party to or subject to any judgment or
decree or order entered in any suit or proceeding brought by any
governmental agency or by any other persons enjoining it in respect
of,
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or the effect of which is to prohibit, any business practice or the
acquisition of any property or the conduct of business by it or the
issuance or sale of its shares in any area;
(e) The High Yield Fund has filed all tax returns required to be filed,
has no liability for any unpaid taxes and has made a proper election
to be treated as a regulated investment company under Subchapter M of
the Code for each of its taxable years. The High Yield Fund has not
committed any action or failed to perform any necessary action that
would render invalid its election to be treated as a regulated
investment company for any of its taxable years;
(f) The authorization, execution and delivery of this Agreement on behalf
of the High Yield Fund does not, and the consummation of the
transactions contemplated hereby will not, violate or conflict with
any provision of the High Yield Fund's Articles of Incorporation or
Bylaws, or any provision of, or result in the acceleration of any
obligation under, any mortgage, lien, lease, agreement, instrument,
order, arbitration award, judgment or decree to which it is party or
by which it or any of its assets is bound, or violate or conflict with
any other material contractual or statutory restriction of any kind or
character to which it is subject;
(g) This Agreement has been duly authorized, executed, and delivered by
the High Yield Fund and constitutes a valid and binding agreement of
the High Yield Fund, and all governmental and other approvals required
for the High Yield Fund to carry out the transactions contemplated
hereunder have been or on or prior to the Closing Date will have been
obtained;
(h) On the Closing Date the High Yield Fund will own its assets free and
clear of all liens, claims, charges, options, and encumbrances and,
except for the Management Agreement, Investment Service Agreement,
Distribution Agreement, Distribution and Shareholder Servicing
Agreement and the Custodian Agreement with Bank of New York, there
will be no material contracts or agreements (other than this
Agreement) outstanding to which the High Yield Fund is a party or to
which it is subject;
(i) On the Closing Date the High Yield Fund will have full right, power
and authority to sell, assign and deliver the assets to be sold,
assigned, transferred and delivered to the Bond Fund hereunder, and
upon delivery and payment for such assets, the Bond Fund will acquire
good, marketable title thereto free and clear of all liens, claims,
charges, options and encumbrances;
(j) The High Yield Fund will declare to shareholders of record on or
prior to the Closing Date a dividend or dividends which, together with
all previous such dividends, shall have the effect of distributing to
the shareholders all of its income (computed without regard to any
deduction for dividends paid) and all of its net realized capital
gains, if any, as of the Closing; and
(k) The High Yield Fund will, from time to time, as and when requested by
the Bond Fund, execute and deliver or cause to be executed and
delivered all such assignments and other instruments, and will take
and cause to be taken such further action, as the Bond Fund may deem
necessary or desirable in order to vest in and confirm to the Bond
Fund title to and possession of all the assets of the High Yield Fund
to be sold, assigned, transferred and delivered hereunder and
otherwise to carrot the intent and purpose of this Agreement.
3.Based on the respective representations and warranties, subject to the
terms and conditions contained herein, the High Yield Fund agrees to
transfer to the Bond Fund and the Bond Fund agrees to acquire from the
High Yield Fund, all of the assets of the High Yield Fund on the Closing
Date and to assume from the High Yield Fund all of the liabilities of the
High Yield Fund in exchange for the issuance of the number of shares of
the Bond Fund provided in Section 4 which will be subsequently
distributed pro rata to the shareholders of the High Yield Fund in
complete liquidation and termination of the High Yield Fund and in
exchange for all of the High Yield Fund's outstanding shares. The High
Yield Fund shall not issue, sell or transfer any of its shares after the
Closing Date, and only redemption requests received by the High Yield
Fund in proper form prior to the Closing Date shall be fulfilled by the
High Yield Fund. Redemption
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requests received by the High Yield Fund thereafter shall be treated as
requests for redemption of those shares of the Bond Fund allocable to the
shareholder in question as provided in Section 6 of this Agreement.
4.On the Closing Date, the Bond Fund will issue to the High Yield Fund a
number of full and fractional shares of the Bond Fund, taken at their
then net asset value, having an aggregate net asset value equal to the
aggregate value of the net assets of the High Yield Fund. The aggregate
value of the net assets of the High Yield Fund and the Bond Fund shall be
determined in accordance with the then current Prospectus of the Bond
Fund as of closing of the New York Stock Exchange on the Closing Date.
5.The closing of the transactions contemplated in this Agreement (the
"Closing") shall be held at the offices of Principal Management, 000 0xx
Xxxxxx, Xxx Xxxxxx, Xxxx 00000-0000 (or at such other place as the
parties hereto may agree) at 3:00 p.m. Central Daylight Time on July 31,
2002 or on such earlier or later date as the parties hereto may mutually
agree. The date on which the Closing is to be held as provided in this
Agreement shall be known as the "Closing Date."
In the event that on the Closing Date (a) the New York Stock Exchange is
closed for other than customary week-end and holiday closings or (b)
trading on said Exchange is restricted or (c) an emergency exists as a
result of which it is not reasonably practicable for the Bond Fund or the
High Yield Fund to fairly determine the value of its assets, the Closing
Date shall be postponed until the first business day after the day on
which trading shall have been fully resumed.
0.Xx soon as practicable after the Closing, the High Yield Fund shall (a)
distribute on a pro rata basis to the shareholders of record of the High
Yield Fund at the close of business on the Closing Date the shares of the
Bond Fund received by the High Yield Fund at the Closing in exchange for
all of the High Yield Fund's outstanding shares, and (b) be liquidated
and dissolved in accordance with applicable law and its Articles of
Incorporation.
For purposes of the distribution of shares of the Bond Fund to
shareholders of the High Yield Fund, the Bond Fund shall credit on the
books of the Bond Fund an appropriate number of shares of the Bond Fund
to the account of each shareholder of the High Yield Fund. The Bond Fund
will issue a certificate or certificates only upon request and, in the
case of a shareholder of the High Yield Fund whose shares are represented
by certificates, only upon surrender of such certificates. No
certificates will be issued for fractional shares of the Bond Fund. After
the Closing Date and until surrendered, each outstanding certificate
which, prior to the Closing Date, represented shares of the High Yield
Fund, shall be deemed for all purposes of the Bond Fund's Articles of
Incorporation and Bylaws to evidence the appropriate number of shares of
the Bond Fund to be credited on the books of the Bond Fund in respect of
such shares of the High Yield Fund as provided above.
7.Subsequent to the execution of this Agreement and prior to the Closing
Date, the High Yield Fund shall deliver to the Bond Fund a list setting
forth the assets to be assigned, delivered and transferred to the Bond
Fund, including the securities then owned by the High Yield Fund and the
respective federal income tax bases (on an identified cost basis)
thereof, and the liabilities to be assumed by the Bond Fund pursuant to
this Agreement.
8.All of the High Yield Fund's portfolio securities shall be delivered by
the High Yield Fund's custodian on the Closing Date to the Bond Fund or
its custodian, either endorsed in proper form for transfer in such
condition as to constitute good delivery thereof in accordance with the
practice of brokers or, if such securities are held in a securities
depository within the meaning of Rule 17f-4 under the 1940 Act,
transferred to an account in the name of the Bond Fund or its custodian
with said depository. All cash to be delivered pursuant to this Agreement
shall be transferred from the High Yield Fund's account at its custodian
to the Bond Fund's account at its custodian. If on the Closing Date the
High Yield Fund is unable to make good delivery pursuant to this Section
8 to the Bond Fund's custodian of any of the High Yield Fund's portfolio
securities because such securities have not yet been delivered to the
High Yield Fund's custodian by its brokers or by the transfer agent for
such securities, then the delivery requirement of this
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Section 8 with respect to such securities shall be waived, and the High
Yield Fund shall deliver to the Bond Fund's custodian on or by said
Closing Date with respect to said undelivered securities executed copies
of an agreement of assignment in a form satisfactory to the Bond Fund,
and a due xxxx or due bills in form and substance satisfactory to the
custodian, together with such other documents including brokers'
confirmations, as may be reasonably required by the Bond Fund.
9.
The obligations of the Bond Fund under this Agreement shall be subject to
receipt by the Bond Fund on or prior to the Closing Date of:
(a) Copies of the resolutions adopted by the Board of Directors of the
High Yield Fund and its shareholders authorizing the execution of this
Agreement by the High Yield Fund and the transactions contemplated
hereunder, certified by the Secretary or Assistant Secretary of the
High Yield Fund;
(b) A certificate of the Secretary or Assistant Secretary of the High
Yield Fund as to the signatures and incumbency of its officers who
executed this Agreement on behalf of the High Yield Fund and any other
documents delivered in connection with the transactions contemplated
thereby on behalf of the High Yield Fund;
(c) A certificate of an appropriate officer of the High Yield Fund as to
the fulfillment of all agreements and conditions on its part to be
fulfilled hereunder at or prior to the Closing Date and to the effect
that the representations and warranties of the High Yield Fund are
true and correct in all material respects at and as of the Closing
Date as if made at and as of such date; and
(d) Such other documents, including an opinion of counsel, as the Bond
Fund may reasonably request to show fulfillment of the purposes and
conditions of this Agreement.
10. The obligations of the High Yield Fund under this Agreement shall be
subject to receipt by the High Yield Fund on or prior to the Closing Date
of:
(a) Copies of the resolutions adopted by the Board of Directors of the
Bond Fund authorizing the execution of this Agreement and the
transactions contemplated hereunder, certified by the Secretary or
Assistant Secretary of the Bond Fund;
(b) A certificate of the Secretary or Assistant Secretary of the Bond
Fund as to the signatures and incumbency of its officers who executed
this Agreement on behalf of the Bond Fund and any other documents
delivered in connection with the transactions contemplated thereby on
behalf of the Bond Fund;
(c) A certificate of an appropriate officer of the Bond Fund as to the
fulfillment of all agreements and conditions on its part to be
fulfilled hereunder at or prior to the Closing Date and to the effect
that the representations and warranties of the Bond Fund are true and
correct in all material respects at and as of the Closing Date as if
made at and as of such date; and
(d) Such other documents, including an opinion of counsel, as the High
Yield Fund may reasonably request to show fulfillment of the purposes
and conditions of this Agreement.
11.
The obligations of the parties under this Agreement shall be subject to:
(a) Any required approval, at a meeting duly called for the purpose, of
the holders of the outstanding shares of the High Yield Fund of this
Agreement and the transactions contemplated hereunder; and
(b) The right to abandon and terminate this Agreement, if either party to
this Agreement believes that the consummation of the transactions
contemplated hereunder would not be in the best interests of its
shareholders.
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12. Except as expressly provided otherwise in this Agreement, Principal
Management will pay or cause to be paid all out-of-pocket fees and
expenses incurred by the High Yield Fund or the Bond Fund in connection
with the transactions contemplated under this Agreement, including, but
not limited to, accountants' fees, legal fees, registration fees,
printing expenses, transfer taxes (if any) and the fees of banks and
transfer agents. This obligation shall survive the termination or
expiration of this Agreement regardless of the consummation of the
transactions contemplated hereunder.
13.
This Agreement may be amended by an instrument executed by both the duly
authorized officers of the Bond Fund and the High Yield Fund at any time,
except that after approval by the shareholders of the High Yield Fund no
amendment may be made with respect to the Agreement which in the opinion
of the Board of Directors of the High Yield Fund materially adversely
affects the interests of the shareholders of the High Yield Fund. At any
time either party hereto may by written instrument signed by it (i) waive
any inaccuracies in the representations and warranties made to it
contained herein and (ii) waive compliance with any of the covenants or
conditions made for its benefit contained herein.
14. In addition to the right to terminate this Agreement described in
paragraph 11, this Agreement may be terminated and the plan described in
the Agreement abandoned at any time prior to the Closing Date, whether
before or after action thereon by the shareholders of the High Yield Fund
and notwithstanding favorable action by such shareholders, by mutual
consent of the Board of Directors of the Bond Fund and the Board of
Directors of the High Yield Fund. This Agreement may also be terminated
by action of the Board of Directors of the Bond Fund or the Board of
Directors of the High Yield Fund (the "Terminating Fund"), if:
(a) The plan described in the Agreement shall not have become effective
by October 31, 2002 (hereinafter called the "Final Date") unless such
Final Date shall have been changed by mutual agreement; or
(b) The Bond Fund shall, at the Final Date, have failed to comply with
any of its agreements; or
(c) Prior to the Final Date any one or more of the conditions to the
obligations of the Bond Fund contained in this Agreement shall not be
fulfilled to the reasonable satisfaction of the High Yield Fund and
its counsel or it shall become evident to the High Yield Fund that any
of such conditions are incapable of being fulfilled.
15.
This Agreement shall bind and inure to the benefit of the parties hereto
and is not intended to confer upon any other person any rights or
remedies hereunder.
16.
The parties hereto represent and warrant that they have not employed any
broker, finder or intermediary in connection with this transaction who
might be entitled to a finder's fee or other similar fee or commission.
17.
All prior or contemporaneous agreements and representations are hereby
merged into this Agreement, which constitutes the entire contract between
the parties hereto.
18.
This Agreement shall be governed by and construed in accordance with the
laws of the State of Iowa.
19.
This Agreement maybe executed in one or more counterparts, all of which
shall be considered one and the same agreement, and shall become
effective when one or more of the counterparts has been signed by all
parties hereto.
20.
Principal Management shall indemnify, defend and hold harmless the Bond
Fund, its officers, directors, employees and agents against all losses,
claims, demands, liabilities and expenses, including reasonable legal and
other expenses incurred in defending claims or liabilities, whether or
not resulting in any liability to the Bond Fund, its officers, directors,
employees or agents, arising out of (1) breach by the High Yield Fund of
any warranty made by the High Yield Fund herein or (2) any untrue
statement or alleged untrue
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statement of a material fact contained in any prospectus or registration
statement for the High Yield Fund, as filed with the SEC or any state, or
any amendment or supplement thereto, or in any information provided by
the High Yield Fund included in any registration statement filed by the
Bond Fund with the SEC or any state or any amendment or supplement
thereto; or which shall arise out of or be based upon any omission or
alleged omission to state therein a material fact required to be stated
in any such prospectus, registration statement or application necessary
to make the statements therein not misleading. This indemnity provision
shall survive the termination of this Agreement.
21.
The Bond Fund shall indemnify, defend and hold harmless the High Yield
Fund, its officers, trustees, employees and agents against all losses,
claims, demands, liabilities and expenses, including reasonable legal and
other expenses incurred in defending claims or liabilities, whether or
not resulting in any liability to the High Yield Fund, its officers,
trustees, employees or agents, arising out of any untrue statement or
alleged untrue statement of a material fact contained in any prospectus
or registration statement for the Bond Fund, as filed with the SEC or any
state, or any amendment or supplement thereto, or any application
prepared by or on behalf of the Bond Fund and filed with any state
regulatory agency in order to register or qualify shares of the Bond Fund
under the securities laws thereof; or which shall arise out of or be
based upon any omission or alleged omission to state therein a material
fact required to be stated in any such prospectus, registration statement
or application necessary to make the statements therein not misleading;
provided, however, the Bond Fund shall not be required to indemnify the
High Yield Fund, its officers, trustees, employees and agents against any
loss, claim, demand, liability or expense arising out of any information
provided by the Bond Fund with the SEC or any state, or any amendment or
supplement thereto. This indemnity provision shall survive the
termination of this Agreement.
22. The execution of this Agreement has been authorized by the Board of
Directors of the Bond Fund and by the Board of Directors of the High
Yield Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
and attested by their officers thereunto duly authorized, as of the date first
written above.
PRINCIPAL BOND FUND, INC.
BY:
___________________________________
A. S. Filean
Attest:
TITLE:
......
Senior Vice President and Secretary
By:_______________________________________...
Xxxxxx X. Xxxxxx
Title: Vice President and Assistant Secretary
PRINCIPAL HIGH YIELD FUND, INC.
BY:
___________________________________
A. S. Filean
Attest: TITLE:
Senior Vice President and Secretary
By:_______________________________________...
Xxxxxx X. Xxxxxx
Title: Vice President and Assistant Secretary
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PRINCIPAL MANAGEMENT CORPORATION
BY:
__________________________________
A. S. Filean
Attest: TITLE:
Senior Vice President and Secretary
By:_______________________________________...
Xxxxxx X. Xxxxxx
Title: Vice President and Assistant Secretary
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