AGREEMENT AND PLAN OF ACQUISITION
THIS AGREEMENT made as of the 11th 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, 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, 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 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.
6. As 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 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.
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 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.
/s/ A. S. Filean
BY:___________________________________
A. S. Filean
TITLE: Senior Vice President and Secretary
Attest:
/s/ Xxxxxx X. Xxxxxx
By:______________________________
Xxxxxx X. Xxxxxx
Title: Vice President and Assistant Secretary
Principal High Yield Fund, Inc.
/s/ A. S. Filean
BY:___________________________________
A. S. Filean
TITLE: Senior Vice President and Secretary
Attest:
/s/ Xxxxxx X. Xxxxxx
By:______________________________
Xxxxxx X. Xxxxxx
Title: Vice President and Assistant Secretary
Principal Management Corporation
/s/ A. S. Filean
BY:___________________________________
A. S. Filean
TITLE: Senior Vice President and Secretary
Attest:
/s/ Xxxxxx X. Xxxxxx
By:______________________________
Xxxxxx X. Xxxxxx
Title: Vice President and Assistant Secretary
