77Q - ZIF
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") is made as of this 23rd
day of September, 2008, between Western Asset Zenix Income Fund Inc. (the
"Acquired Fund"), a Maryland corporation with its principal place of business
at ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, and Western Asset High Income
Fund II Inc. (the "Acquiring Fund"), a Maryland corporation with its
principal place of business at ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇▇▇.
WHEREAS, each of the Acquired Fund and the Acquiring Fund is a closed-
end management investment company registered pursuant to the Investment
Company Act of 1940, as amended (the "1940 Act");
WHEREAS, it is intended that, for United States federal income tax
purposes (i) the transactions contemplated by this Agreement shall qualify as
a "reorganization" within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), and (ii) that the Agreement
shall constitute a "plan of reorganization" for purposes of the Code;
WHEREAS, the reorganization will consist of the merger of the Acquired
Fund with and into the Acquiring Fund pursuant to the Maryland General
Corporation Law ("MGCL") as provided herein, and upon the terms and
conditions hereinafter set forth in this Agreement;
WHEREAS, the Acquired Fund currently owns securities that are generally
assets of the character in which the Acquiring Fund is permitted to invest;
WHEREAS, the Board of Directors of the Acquiring Fund (the "Acquiring
Fund Board") has determined, with respect to the Acquiring Fund, that the
Merger (as hereinafter defined) is in the best interests of the Acquiring
Fund and its stockholders and that the interests of the existing stockholders
of the Acquiring Fund will not be diluted as a result of this transaction;
WHEREAS, the Board of Directors of the Acquired Fund (the "Acquired
Fund Board") has determined, with respect to the Acquired Fund, that the
Merger (as hereinafter defined) is in the best interests of the Acquired Fund
and its stockholders and that the interests of the existing stockholders of
the Acquired Fund will not be diluted as a result of this transaction;
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto, intending to be
legally bound, agree as follows:
1. BASIC TRANSACTION
1.1 The Merger. On and subject to the terms and conditions of this
Agreement, the Acquired Fund will merge with and into the Acquiring Fund (the
"Merger") at the Effective Date (as defined in paragraph 1.3 below) in
accordance with the MGCL. The Acquiring Fund shall be the surviving
corporation and investment company registered pursuant to the 1940 Act. The
Acquired Fund shall cease to exist as a separate corporation and investment
company.
Each share of Acquired Fund Common Stock (as defined in paragraph
2.2(p)), issued and outstanding immediately prior to the Effective Date will
be converted into an equivalent dollar amount (to the nearest one tenth of
one cent) of full shares of Acquiring Fund Common Stock (as defined in
paragraph 2.1(p)), based on the net asset value per share of each of the
parties at 4:00 p.m. Eastern Time on the Business Day prior to the Effective
Date (the "Valuation Time"). No fractional shares of Acquiring Fund Common
Stock will be issued to the holders of Acquired Fund Common Stock. In lieu
thereof, the Acquiring Fund will purchase all fractional shares of Acquiring
Fund Common Stock at the current net asset value per share of the Acquiring
Fund Common Stock for the account of all holders of fractional interests, and
each such holder will receive such holder"s pro rata share of the proceeds of
such purchase. The Effective Date and the Business Day prior to it must each
be a day on which the New York Stock Exchange is open for trading (a
"Business Day").
In addition, each share of Acquired Fund Preferred Stock (as defined in
paragraph 2.2(p)), issued and outstanding immediately prior to the Effective
Date will be converted into the right to receive $25,000 in cash, plus the
amount of accumulated but unpaid dividends thereon (whether or not earned or
declared), to the Valuation Time, payable to the holder thereof, without
interest (the "Preferred Merger Consideration"), upon surrender of such share
in the manner provided in Article 3.
From and after the Effective Date, the Acquiring Fund shall possess all
of the properties, assets, rights, privileges and powers and shall be subject
to all of the restrictions, liabilities, obligations, disabilities and duties
of the Acquired Fund (other than the investment objectives, policies,
strategies or limitations of the Acquired Fund, whether fundamental or non-
fundamental), all as provided under Maryland law.
1.2 Actions at Closing. At the closing of the transactions
contemplated by this Agreement (the "Closing") on the date thereof (the
"Closing Date"), (i) the Acquired Fund will deliver to the Acquiring Fund the
various certificates and documents referred to in Article 6 below, (ii) the
Acquiring Fund will deliver to the Acquired Fund the various certificates and
documents referred to in Article 5 below, (iii) the Acquired Fund will file
with the State Department of Assessments and Taxation of Maryland (the
"Department") articles of merger (the "Articles of Merger") and make all
other filings or recordings required by Maryland law in connection with the
Merger.
1.3 Effect of Merger. Subject to the requisite approvals of the
stockholders of the Acquired Fund, and to the other terms and conditions
described herein, the Merger shall become effective at such time as the
Articles of Merger are accepted for record by the Department or at such later
time, not to exceed 30 days after such acceptance, as is specified in the
Articles of Merger (the "Effective Date"), and the separate corporate
existence of the Acquired Fund shall cease. As promptly as practicable after
the Merger, the Acquired Fund shall delist the Acquired Fund Common Stock
from the New York Stock Exchange ("NYSE") and its registration under the 1940
Act shall be terminated. Any reporting responsibility of the Acquired Fund
is, and shall remain, the responsibility of the Acquired Fund up to and
including the Effective Date.
2. REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of the Acquiring Fund. The
Acquiring Fund represents and warrants to the Acquired Fund that the
statements contained in this paragraph 2.1 are correct and complete in all
material respects as of the execution of this Agreement on the date hereof.
The Acquiring Fund represents and warrants to, and agrees with, the Acquired
Fund that:
(a) The Acquiring Fund is a corporation duly organized, validly
existing under the laws of the State of Maryland and is in good standing with
the Department, and has the power to own all of its assets and 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 1940 Act as a
diversified, closed-end management investment company (File No. 811-08709)
and such registration has not been revoked or rescinded and is in full force
and effect. The Acquiring Fund has elected and qualified for the special tax
treatment afforded regulated investment companies ("RICs") under Sections
851-855 of the Code at all times since its inception. The Acquiring Fund is
qualified as a foreign corporation in every jurisdiction where required,
except to the extent that failure to so qualify would not have a material
adverse effect on the Acquiring Fund.
(c) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Acquiring Fund
of the transactions contemplated herein, except (i) such as have been
obtained or applied for under the Securities Act of 1933, as amended (the
"1933 Act"), the Securities Exchange Act of 1934, as amended (the "1934
Act"), and the 1940 Act, (ii) such as may be required by state securities
laws and (iii) such as may be required under Maryland law for the acceptance
for record of the Articles of Merger by the Department.
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement by the Acquiring Fund will not result, in
violation of the laws of the State of Maryland or of the charter of the
Acquiring Fund (the "Acquiring Fund Charter") or the Bylaws, as amended (the
"Acquiring Fund Bylaws"), of the Acquiring Fund, or of any material
agreement, indenture, instrument, contract, lease or other undertaking to
which the Acquiring Fund is a party or by which it is bound, and the
execution, delivery and performance of this Agreement by the Acquiring Fund
will not result in the acceleration of any obligation, or the imposition of
any penalty, under any agreement, indenture, instrument, contract, lease,
judgment or decree to which the Acquiring Fund is a party or by which it is
bound.
(e) The Acquired Fund has been furnished with a statement of assets,
liabilities and capital and a schedule of investments of the Acquiring Fund,
each as of April 30, 2008, said financial statements having been examined by
KPMG LLP, independent public accountants. These financial statements are in
accordance with U.S. generally accepted accounting principles applied on a
consistent basis ("GAAP") and present fairly, in all material respects, the
financial position of the Acquiring Fund as of such date in accordance with
GAAP, and there are no known contingent liabilities of the Acquiring Fund
required to be reflected on a balance sheet (including the notes thereto) in
accordance with GAAP as of such date not disclosed therein.
(f) The Acquired Fund has been furnished with the Acquiring Fund"s
Annual Report to Stockholders for the year ended April 30, 2008.
(g) The Acquiring Fund has full power and authority to enter into and
perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement has been duly authorized by all necessary
action of the Acquiring Fund Board, and, subject to stockholder approval,
this Agreement constitutes a valid and binding contract enforceable 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.
(h) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquiring Fund or any
properties or assets held by it. The Acquiring Fund knows of no facts that
might form the basis for the institution of such proceedings which would
materially and adversely affect its business and is not a party to or subject
to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business or its
ability to consummate the transactions herein contemplated.
(i) There are no material contracts outstanding to which the Acquiring
Fund is a party that have not been disclosed in the Registration Statement
(as defined in paragraph 2.1(n) below) or will not be otherwise disclosed to
the Acquired Fund prior to the Effective Date.
(j) Since April 30, 2008, there has not been any material adverse
change in the Acquiring Fund"s financial condition, assets, liabilities or
business and the Acquiring Fund has no known liabilities of a material
amount, contingent or otherwise, required to be disclosed in a balance sheet
with GAAP other than those shown on the Acquiring Fund"s statements of
assets, liabilities and capital referred to above, those incurred in the
ordinary course of its business as an investment company since April 30,
2008, and those incurred in connection with the Merger. Prior to the
Effective Date, the Acquiring Fund will advise the Acquired Fund in writing
of all known liabilities, contingent or otherwise, whether or not incurred in
the ordinary course of business, existing or accrued. For purposes of this
paragraph 2.1(j), a decline in net asset value per share of the Acquiring
Fund due to declines in market values of securities in the Acquiring Fund"s
portfolio or the discharge of the Acquiring Fund liabilities will not
constitute a material adverse change.
(k) All federal and other tax returns and information reports of the
Acquiring Fund required by law to have been filed shall have been filed and
are or will be correct in all material respects, and all federal and other
taxes shown as due or required to be shown as due on said returns and reports
shall have been paid or provision shall have been made for the payment
thereof, and, to the best of the Acquiring Fund"s knowledge, no such return
is currently under audit and no assessment has been asserted with respect to
such returns. 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 Effective Date occurs.
(l) For each taxable year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification as a RIC and
has elected to be treated as such, has been eligible to and has computed its
federal income tax under Section 852 of the Code, and will have distributed
substantially all of its investment company taxable income and net realized
capital gain (as defined in the Code) that has accrued through the Effective
Date.
(m) The Acquiring Fund has not taken any action and does not know of
any fact or circumstance that could reasonably be expected to prevent the
Merger from qualifying as a reorganization within the meaning of Section
368(a) of the Code.
(n) The registration statement has been filed with the Securities and
Exchange Commission (the "SEC") by the Acquiring Fund on Form N-14 relating
to the Acquiring Fund Common Stock to be issued pursuant to this Agreement,
and any supplement or amendment thereto or to the documents therein (as
amended, the "Registration Statement"), on the effective date of the
Registration Statement, at the time of the stockholders" meeting referred to
in Article 4 of this Agreement and at the Effective Date, insofar as it
relates to the Acquiring Fund (i) shall have 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 not misleading; and the 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 light of
the circumstances under which they were made, not misleading; provided,
however, that the representations and warranties in this paragraph 2.1(n)
shall not apply to statements in, or omissions from, the Registration
Statement made in reliance upon and in conformity with information furnished
by the Acquired Fund for use in the Registration Statement.
(o) All issued and outstanding shares of Acquiring Fund Common Stock
(i) have been offered and sold in compliance in all material respects with
applicable registration requirements of the 1933 Act and state securities
laws, (ii) are, and on the Effective Date will be, duly and validly issued
and outstanding, fully paid and non-assessable, and (iii) will be held at the
time of the Closing by the persons and in the amounts set forth in the
records of the transfer agent. The Acquiring Fund does not have outstanding
any options, warrants or other rights to subscribe for or purchase any shares
of Acquiring Fund Common Stock, nor is there outstanding any security
convertible into, or exchangeable for, any shares of Acquiring Fund Common
Stock.
(p) The Acquiring Fund is authorized to issue 100,000,000 shares of
capital stock, par value $0.001 per share, all of which shares are classified
as Common Stock (the "Acquiring Fund Common Stock"); each outstanding share
of which is fully paid, non-assessable and has full voting rights.
(q) The offer and sale of the shares of Acquiring Fund Common Stock to
be issued pursuant to this Agreement will be in compliance with all
applicable federal and state securities laws.
(r) At or prior to the Effective Date, the Acquiring Fund will have
obtained any and all regulatory, board and stockholder approvals necessary to
issue the shares of Acquiring Fund Common Stock to be issued pursuant to this
Agreement.
(s) The books and records of the Acquiring Fund made available to the
Acquired Fund are substantially true and correct and contain no material
misstatements or omissions with respect to the operations of the Acquiring
Fund.
(t) The Acquiring Fund Board has not adopted a resolution electing to
be subject to the Maryland Business Combination Act or the Maryland Control
Share Acquisition Act.
2.2 Representations and Warranties of the Acquired Fund. The Acquired
Fund represents and warrants to the Acquiring Fund that the statements
contained in this paragraph 2.2 are correct and complete in all material
respects as of the execution of this Agreement on the date hereof. The
Acquired Fund represents and warrants to, and agrees with, the Acquiring Fund
that:
(a) The Acquired Fund is a corporation duly organized, validly existing
under the laws of the State of Maryland and is in good standing with the
Department, and has the power to own all of its assets and to carry on its
business as it is now being conducted and to carry out this Agreement.
(b) The Acquired Fund is duly registered under the 1940 Act as a
closed-end, diversified management investment company (File No. 811-05484),
and such registration has not been revoked or rescinded and is in full force
and effect. The Acquired Fund has elected and qualified for the special tax
treatment afforded RICs under Sections 851-855 of the Code at all times since
its inception. The Acquired Fund is qualified as a foreign corporation in
every jurisdiction where required, except to the extent that failure to so
qualify would not have a material adverse effect on the Acquired Fund.
(c) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Acquired Fund
of the transactions contemplated herein, except (i) such as have been
obtained or applied for under the 1933 Act, the 1934 Act and the 1940 Act,
(ii) such as may be required by state securities laws and (iii) such as may
be required under Maryland law for the acceptance for record of the Articles
of Merger by the Department.
(d) The Acquired Fund is not, and the execution, delivery and
performance of this Agreement by the Acquired Fund will not result, in
violation of the laws of the State of Maryland or of the charter of the
Acquired Fund (the "Acquired Fund Charter") or the Bylaws, as amended (the
"Acquired Fund Bylaws"), of the Acquired Fund, or of any material agreement,
indenture, instrument, contract, lease or other undertaking to which the
Acquired Fund is a party or by which it is bound, and the execution, delivery
and performance of this Agreement by the Acquired Fund will not result in the
acceleration of any obligation, or the imposition of any penalty, under any
agreement, indenture, instrument, contract, lease, judgment or decree to
which the Acquired Fund is a party or by which it is bound.
(e) The Acquiring Fund has been furnished with a statement of assets,
liabilities and capital and a schedule of investments of the Acquired Fund,
each as of March 31, 2008, said financial statements having been examined by
KPMG LLP, independent public accountants. These financial statements are in
accordance with GAAP and present fairly, in all material respects, the
financial position of the Acquired Fund as of such date in accordance with
GAAP, and there are no known contingent liabilities of the Acquired Fund
required to be reflected on a balance sheet (including the notes thereto) in
accordance with GAAP as of such date not disclosed therein.
(f) The Acquiring Fund has been furnished with the Acquired Fund"s
Annual Report to Stockholders for the year ended March 31, 2008.
(g) The Acquired Fund has full power and authority to enter into and
perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement has been duly authorized by all necessary
action of the Acquired Fund Board, and, subject to stockholder approval, this
Agreement constitutes a valid and binding contract enforceable 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.
(h) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending (in which service of process has been received) or to its knowledge
threatened against the Acquired Fund or any properties or assets held by it.
The Acquired Fund knows of no facts that might form the basis for the
institution of such proceedings which would materially and adversely affect
its business and is not a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body which materially and
adversely affects its business or its ability to consummate the transactions
herein contemplated.
(i) There are no material contracts outstanding to which the Acquired
Fund is a party that have not been disclosed in the Registration Statement or
will not be otherwise disclosed to the Acquiring Fund prior to the Effective
Date.
(j) Since March 31, 2008, there has not been any material adverse
change in the Acquired Fund"s financial condition, assets, liabilities or
business and the Acquired Fund has no known liabilities of a material amount,
contingent or otherwise, required to be disclosed in a balance sheet in
accordance with GAAP other than those shown on the Acquired Fund"s statements
of assets, liabilities and capital referred to above, those incurred in the
ordinary course of its business as an investment company since March 31,
2008, and those incurred in connection with the Merger. Prior to the
Effective Date, the Acquired Fund will advise the Acquiring Fund in writing
of all known liabilities, contingent or otherwise, whether or not incurred in
the ordinary course of business, existing or accrued. For purposes of this
paragraph 2.2(j), a decline in net asset value per share of the Acquired Fund
due to declines in market values of securities in the Acquired Fund"s
portfolio or the discharge of the Acquired Fund liabilities will not
constitute a material adverse change.
(k) All federal and other tax returns and information reports of the
Acquired Fund required by law to have been filed shall have been filed and
are or will be correct in all material respects, and all federal and other
taxes shown as due or required to be shown as due on said returns and reports
shall have been paid or provision shall have been made for the payment
thereof, and, to the best of the Acquired Fund"s knowledge, no such return is
currently under audit and no assessment has been asserted with respect to
such returns. All tax liabilities of the Acquired Fund have been adequately
provided for on its books, and no tax deficiency or liability of the Acquired
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 Effective Date occurs.
(l) For each taxable year of its operation (including the taxable year
ending on the Effective Date), the Acquired Fund has met the requirements of
Subchapter M of the Code for qualification as a RIC and has elected to be
treated as such, has been eligible to and has computed its federal income tax
under Section 852 of the Code, and will have distributed substantially all of
its investment company taxable income and net realized capital gain (as
defined in the Code) that has accrued through the Effective Date.
(m) The Acquired Fund has not taken any action and does know of any
fact or circumstance that could reasonably be expected to prevent the Merger
from qualifying as a reorganization within the meaning of Section 368(a) of
the Code.
(n) The Registration Statement, on the effective date of the
Registration Statement, at the time of the stockholders" meetings referred to
in Article 4 of this Agreement and at the Effective Date, insofar as it
relates to the Acquired Fund (i) shall have 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 not misleading; and the 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 light of
the circumstances under which they were made, not misleading; provided,
however, that the representations and warranties in this paragraph 2.2(n)
shall only apply to statements in, or omissions from, the Registration
Statement made in reliance upon and in conformity with information furnished
by the Acquiring Fund for use in the Registration Statement.
(o) All issued and outstanding shares of Acquired Fund Common Stock
and Acquired Fund Preferred Stock (i) have been offered and sold in
compliance in all material respects with applicable registration requirements
of the 1933 Act and state securities laws, (ii) are, and on the Effective
Date will be, duly and validly issued and outstanding, fully paid and non-
assessable, and (iii) will be held at the time of the Closing by the persons
and in the amounts set forth in the records of the transfer agent as provided
in paragraph 4.7. The Acquired Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any shares of Acquired
Fund Common Stock and Acquired Fund Preferred Stock, nor is there outstanding
any security convertible into, or exchangeable for, any shares of Acquired
Fund Common Stock and Acquired Fund Preferred Stock.
(p) The Acquired Fund is authorized to issue 250,250,000 shares of
capital stock, par value $0.01 per share, of which 250,000 are classified as
Cumulative Preferred Stock, of which 2,400 shares have been classified as
Auction Rate Cumulative Preferred Stock, with a required liquidation
preference of $25,000 per share plus an amount equal to accumulated but
unpaid dividends thereon (whether or not earned or declared) (the "Acquired
Fund Preferred Stock"), and 250,000,000 are classified as Common Stock (the
"Acquired Fund Common Stock"); each outstanding share of which is fully paid,
nonassessable and has full voting rights.
(q) The books and records of the Acquired Fund made available to the
Acquiring Fund are substantially true and correct and contain no material
misstatements or omissions with respect to the operations of the Acquired
Fund.
(r) The Acquired Fund Board has not adopted a resolution electing to
be subject to the Maryland Business Combination Act or the Maryland Control
Share Acquisition Act.
3. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE ACQUIRED FUND
3.1 Conversion of Acquired Fund Common Stock.
(a) Conversion. Subject to the requisite approval of the stockholders
of the Acquired Fund, and the other terms and conditions contained herein, on
the Effective Date, each share of Acquired Fund Common Stock will be
converted into an equivalent dollar amount (to the nearest one tenth of one
cent) of full shares of Acquiring Fund Common Stock, computed based on the
net asset value per share of each of the parties at the Valuation Time (the
"Common Stock Consideration"). No fractional shares of Acquiring Fund Common
Stock will be issued to the holders of Acquired Fund Common Stock. In lieu
thereof, the Acquiring Fund will purchase all fractional shares of Acquiring
Fund Common Stock at the current net asset value per share of Acquiring Fund
Common Stock for the account of all holders of fractional interests, and each
such holder will receive such holder"s pro rata share of the proceeds of such
purchase (the "Common Cash Consideration" and, together with Common Stock
Consideration, the "Common Merger Consideration").
(b) Computation of Net Asset Value. The net asset value per share of
the Acquired Fund Common Stock and the Acquiring Fund Common Stock shall be
determined as of the Valuation Time, and no formula will be used to adjust
the net asset value per share so determined of either of the parties" common
stock to take into account differences in realized and unrealized gains and
losses. The value of the assets of the Acquired Fund to be transferred to the
Acquiring Fund shall be determined by the Acquiring Fund pursuant to the
principles and procedures consistently utilized by the Acquiring Fund in
valuing its own assets and determining its own liabilities for purposes of
the Merger, which principles and procedures are substantially similar to
those employed by the Acquired Fund when valuing its own assets and
determining its own liabilities. Such valuation and determination shall be
made by the Acquiring Fund in cooperation with the Acquired Fund and shall be
confirmed in writing by the Acquiring Fund to the Acquired Fund. The net
asset value per share of Acquiring Fund Common Stock shall be determined in
accordance with such procedures, and the Acquiring Fund shall certify the
computations involved.
(c) Cancellation of Acquired Fund Common Stock. On the Effective Date,
all shares of the Acquired Fund Common Stock shall cease to be outstanding,
shall automatically be cancelled and shall cease to exist and the holders of
certificates (the "Common Certificates") or book entry shares ("Common Book-
Entry Shares") which, immediately prior to the Effective Date, represented
such shares of the Acquired Fund Common Stock shall cease to have any rights
with respect thereto, except the right to receive, upon surrender of such
Common Certificates or Common Book-Entry Shares in accordance with paragraph
3.3, the Common Merger Consideration.
3.2 Conversion of the Acquired Fund Preferred Stock.
(a) Conversion. Subject to the requisite approval of the stockholders
of the Acquired Fund, and the other terms and conditions contained herein, at
the Effective Date, each share of Acquired Fund Preferred Stock issued and
outstanding immediately prior to the Effective Date will be converted into
the right to receive the Preferred Merger Consideration upon surrender of
each such share in the manner provided in paragraph 3.3.
(b) Cancellation of Acquired Fund Preferred Stock. On the Effective
Date, all shares of the Acquired Fund Preferred Stock shall cease to be
outstanding, shall automatically be cancelled and shall cease to exist and
the holders of certificates (the "Preferred Certificates" and, together with
the Common Certificates, the "Certificates") or book entry shares ("Preferred
Book-Entry Shares" and, together with the Common Book-Entry Shares, the
"Book-Entry Shares") which immediately prior to the Effective Date
represented such shares of the Acquired Fund Preferred Stock shall cease to
have any rights with respect thereto, except the right to receive, upon
surrender of such Preferred Certificates or Preferred Book-Entry Shares in
accordance with paragraph 3.3, the Preferred Merger Consideration.
3.3 Surrender of Shares.
(a) Paying Agent. Prior to the Effective Date, the Acquiring Fund
shall designate American Stock Transfer & Trust Company as paying agent for
the payment of the Common Merger Consideration and Deutsche Bank Trust
Company Americas as paying agent for the payment of the Preferred Merger
Consideration (each a "Paying Agent") as provided in this Article 3. At or
prior to the Closing, the Acquiring Fund shall deposit (or cause to be
deposited) with the Paying Agent, for the benefit of the holders of
Certificates or Book-Entry Shares, cash in an amount sufficient to make all
payments of (i) Common Cash Consideration pursuant to paragraph 3(a)(i) and
(ii) Preferred Merger Consideration pursuant to 3(b)(i) (together, the "Cash
Consideration"). Such funds may be invested by the Paying Agent as directed
by the Acquiring Fund; provided that (a) no such investment or losses thereon
shall affect the Cash Consideration payable to the holders of Acquired Fund
Common Stock and Acquired Fund Preferred Stock, and following any losses, the
Acquiring Fund shall promptly deposit (or cause to be deposited) additional
funds to the Paying Agent for the benefit of the stockholders of the Acquired
Fund in the amount of any such losses and (b) such investments shall be in
short-term obligations of the United States of America with maturities of no
more than 30 days or guaranteed by the United States of America and backed by
the full faith and credit of the United States of America or in commercial
paper obligations rated A-1 or P-1 or better by ▇▇▇▇▇'▇ Investors Service,
Inc. or Standard & Poor's Corporation, respectively. Any interest or income
produced by such investments will be payable to the Acquiring Fund, as the
Acquiring Fund directs.
(b) Payment Procedures.
(i) As promptly as practicable after the Effective Date, the
Acquiring Fund shall cause to be mailed to each record holder, as of the
Effective Date, of a Certificate or a Book-Entry Share a letter of
transmittal (which shall be in customary form and shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon proper delivery of the Certificates to the Paying Agent or, in the
case of Book-Entry Shares, upon adherence to the procedures set forth in the
letter of transmittal) and instructions for use in effecting the surrender of
the Certificates or, in the case of Book-Entry Shares, the surrender of such
shares for payment of the Common Merger Consideration and the Preferred
Merger Consideration, as applicable.
(ii) Upon surrender to the Paying Agent of Common Certificates
or of Common Book-Entry Shares, together with such letter of transmittal,
duly completed and validly executed in accordance with the instructions
thereto, and such other documents as may be required pursuant to such
instructions, the holder of such Common Certificates or Common Book-Entry
Shares shall be entitled to receive in exchange therefor (i) Common Stock
Consideration in the form of separate certificates or share deposit receipts
for Acquiring Fund Common Stock and (ii) cash in an amount equal to the
Common Cash Consideration, for each share formerly represented by such Common
Certificate or Common Book-Entry Shares (less any required withholding taxes)
and such Common Certificate or Common Book-Entry Shares shall then be
canceled. No interest shall be paid or accrued for the benefit of holders of
the Common Certificates or Common Book-Entry Shares on the Common Cash
Consideration.
(iii) Upon surrender to the Paying Agent of a Preferred
Certificate or of Preferred Book-Entry Shares, together with such letter of
transmittal, duly completed and validly executed in accordance with the
instructions thereto, and such other documents as may be required pursuant to
such instructions, the holder of such Preferred Certificate or Preferred
Book-Entry Shares shall be entitled to receive in exchange therefor cash in
an amount equal to the Preferred Merger Consideration for each share formerly
represented by such Preferred Certificate or Preferred Book-Entry Shares
(less any required withholding taxes) and such Preferred Certificate or
Preferred Book-Entry Shares shall then be canceled. No interest shall be
paid or accrued for the benefit of holders of the Preferred Certificate or
Preferred Book-Entry Shares on the Preferred Merger Consideration.
(iv) If payment of the Common Merger Consideration or Preferred
Merger Consideration is to be made to a person other than the person in whose
name the surrendered Certificate or Book-Entry Share is registered, it shall
be a condition of payment that the Certificate or Book-Entry Share so
surrendered shall be properly endorsed or shall be otherwise in proper form
for transfer and that the person requesting such payment shall have paid any
transfer and other taxes required by reason of the payment of the Common
Merger Consideration or Preferred Merger Consideration, as applicable, to a
person other than the registered holder of the Certificate or Book-Entry
Share surrendered or shall have established to the satisfaction of the
Acquiring Fund that such tax either has been paid or is not applicable.
(v) Until surrendered as contemplated by, and in accordance with,
this paragraph 3.3, each Certificate and each Book-Entry Share shall be
deemed at any time after the Effective Date to represent only the right to
receive upon such surrender the applicable Common Merger Consideration or
Preferred Merger Consideration as contemplated by this paragraph 3.
(vi) At any time following the date that is six months after the
Effective Date, the Acquiring Fund shall be entitled to require the Paying
Agent to deliver to it any funds (including any interest received with
respect thereto) which have been deposited with the Paying Agent and which
have not been disbursed to holders of Certificates or Book-Entry Shares and
thereafter such holders shall be entitled to look to the Acquiring Fund
(subject to abandoned property, escheat or other similar laws) only as
general creditors thereof with respect to the Common Merger Consideration or
Preferred Merger Consideration payable (without interest) upon due surrender
of their Certificates or Book-Entry Shares. The Acquiring Fund shall pay all
charges and expenses, including those of the Paying Agent, in connection with
the exchange of Acquired Fund Common Stock for Common Merger Consideration
and Acquired Fund Preferred Stock for Preferred Merger Consideration. None
of the Acquiring Fund, the Acquired Fund or the Paying Agent shall be liable
to any person in respect of any cash delivered to a public official pursuant
to any applicable abandoned property, escheat or similar law. Any Cash
Consideration remaining unclaimed as of a date which is immediately prior to
such time as such amounts would otherwise escheat to or become property of
any governmental entity shall, to the extent permitted by applicable law,
become the property of the Acquiring Fund free and clear of any claims or
interests of any person previously entitled thereto. All cash paid in
accordance with the terms of this Article 3 in respect of Certificates or
Book-Entry Shares that have been surrendered in accordance with the terms of
this Agreement shall be deemed to have been paid in full satisfaction of all
rights pertaining to the shares of Acquired Fund Common Stock and Acquired
Fund Preferred Stock represented thereby.
(vii) After the Effective Date, the stock transfer books of the
Acquired Fund shall be closed and thereafter there shall be no further
registration of transfers of Acquired Fund Common Stock and Acquired Fund
Preferred Stock that were outstanding prior to the Effective Date. After the
Effective Date, Certificates or Book-Entry Shares presented to the Paying
Agent for transfer shall be canceled and exchanged for the Common Merger
Consideration or Preferred Merger Consideration, as applicable, provided for,
and in accordance with the procedures set forth in, this Article 3.
3.4 Withholding Taxes. The Acquiring Fund or the Paying Agent will be
entitled to deduct and withhold from amounts otherwise payable pursuant to
this Agreement to any holder of shares of Acquired Fund Common Stock and
Acquired Fund Preferred Stock such amounts as the Acquiring Fund or the
Paying Agent shall determine in good faith are required to be deducted and
withheld with respect to such payments under the Code and the rules and
Treasury Regulations promulgated thereunder, or any provision of state, local
or foreign Tax law. Any amounts so deducted and withheld will be timely paid
to the applicable Tax authority and will be treated for all purposes of this
Agreement as having been paid to the holder of the shares of Acquired Fund
Common Stock and Acquired Fund Preferred Stock in respect of which such
deduction and withholding was made.
3.5 Lost, Stolen or Destroyed Certificates. In the event any
Certificate has been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the person claiming such Certificate to be lost,
stolen or destroyed and, if required by the Acquiring Fund, the posting by
such person of a bond in customary amount and upon such terms as the
Acquiring Fund may determine are necessary as indemnity against any claim
that may be made against it with respect to such Certificate, the Paying
Agent will issue in exchange for such lost, stolen or destroyed Certificate
the Common Merger Consideration or Preferred Merger Consideration, as
applicable, pursuant to this Agreement.
4. COVENANTS
4.1 Operations in the Normal Course. Each party covenants to operate
its business in the ordinary course between the date hereof and the Effective
Date, it being understood that such ordinary course of business will include
(i) the declaration and payment of customary dividends and other
distributions and (ii) in the case of the Acquired Fund, preparing for its
deregistration, except that the distribution of dividends pursuant to
paragraph 6.6 of this Agreement shall not be deemed to constitute a breach of
the provisions of this paragraph 4.1.
4.2 Stockholders" Meetings.
(a) The Acquired Fund shall hold a meeting of its stockholders for the
purpose of considering the Merger as described herein, which meeting has been
called for September 5, 2008, and any adjournments or postponements thereof.
(b) The Acquired Fund has mailed to each of its stockholders of record
entitled to vote at the meeting of stockholders at which action is to be
considered regarding the Merger, in sufficient time to comply with
requirements as to notice thereof, a combined Proxy Statement and Prospectus
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.
4.3 Articles of Merger. The parties agree that, as soon as
practicable after satisfaction of all conditions to the Merger, they will
jointly file executed Articles of Merger with the Department and make all
other filings or recordings required by Maryland law in connection with the
Merger.
4.4 Regulatory Filings.
(a) The Acquired Fund undertakes that, if the Merger is consummated,
it will file, or cause its agents to file, an application pursuant to Section
8(f) of the 1940 Act for an order declaring that the Acquired Fund has ceased
to be a registered investment company.
(b) The Acquiring Fund has filed the Registration Statement with the
SEC, which has become effective. The Acquired Fund agrees to cooperate fully
with the Acquiring Fund, and has furnished to the Acquiring Fund the
information relating to itself to be set forth in the Registration Statement
as required by the 1933 Act, the 1934 Act, the 1940 Act, and the rules and
regulations thereunder and the state securities or blue sky laws.
4.5 Preservation of Assets. The Acquiring Fund agrees that it has no
plan or intention to sell or otherwise dispose of the assets of the Acquired
Fund to be acquired in the Merger, except for dispositions made in the
ordinary course of business.
4.6 Tax Matters. Each of the parties agrees that by the Effective
Date all of its 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. In connection with this
covenant, the parties 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 Effective Date all returns,
schedules and work papers and all material records or other documents
relating to tax matters of the Acquired Fund for its final taxable year and
for all prior taxable periods. Any information obtained under this paragraph
4.6 shall be kept confidential except as otherwise may be necessary in
connection with the filing of returns or claims for refund or in conducting
an audit or other proceeding. After the Effective Date, the Acquiring Fund
shall prepare, or cause its agents to prepare, any federal, state or local
tax returns, including any Forms 1099, required to be filed and provided to
required persons by the Acquired Fund with respect to its final taxable years
ending with the Effective Date and for any prior periods or taxable years for
which the due date for such return has not passed as of the Effective Date
and further shall cause such tax returns and Forms 1099 to be duly filed with
the appropriate taxing authorities and provided to required persons.
Notwithstanding the aforementioned provisions of this paragraph 4.6, any
expenses incurred by the Acquiring Fund (other than for payment of taxes) in
excess of any accrual for such expenses by the Acquired Fund in connection
with the preparation and filing of said tax returns and Forms 1099 after the
Effective Date shall be borne by the Acquiring Fund.
4.7 Stockholder List. Prior to the Effective Date, the Acquired Fund
shall have made arrangements with its transfer agent to deliver to the
Acquiring Fund a list of the names and addresses of all of the holders of
record of Acquired Fund Common Stock and Acquired Fund Preferred Stock on the
Effective Date and the respective number of shares of Acquired Fund Common
Stock or Acquired Fund Preferred Stock owned by each such stockholder,
certified by the Acquired Fund"s transfer agent or President to the best of
their knowledge and belief. The Acquiring Fund and the Acquired Fund will (i)
use all reasonable best efforts to cause the Merger to constitute a
reorganization under Section 368(a) of the Code and (ii) shall execute and
deliver officer"s certificates containing appropriate representations at such
time or times as may be reasonably requested by counsel, including the
effective date of the Registration Statement and the Closing Date, for
purposes of rendering opinions with respect to the tax treatment of the
Merger.
4.8 Delisting, Termination of Registration as an Investment Company.
The Acquired Fund agrees that the (i) delisting of the shares of the Acquired
Fund with the NYSE and (ii) termination of its registration as a RIC will be
effected in accordance with applicable law as soon as practicable following
the Effective Date.
5. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the
transactions provided for herein shall be subject, at the Acquired Fund"s
election, to the following conditions:
5.1 Certificates and Statements by the Acquiring Fund.
(a) The Acquiring Fund shall have furnished a statement of assets,
liabilities and capital, together with a schedule of investments with their
respective dates of acquisition and tax costs, certified on its behalf by its
President (or any Vice President) and its Treasurer, and a certificate
executed by both such officers, dated the Effective Date, certifying that
there has been no material adverse change in its financial position since
April 30, 2008, other than changes in its portfolio securities since that
date or changes in the market value of its portfolio securities.
(b) The Acquiring Fund shall have furnished to the Acquired Fund a
certificate signed by its President (or any Vice President), dated the
Effective Date, certifying that as of the Effective Date, all representations
and warranties made by the Acquiring Fund in this Agreement are true and
correct in all material respects as if made at and as of such date and 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 such
dates.
(c) The Acquiring Fund shall have delivered to the Acquired Fund a
letter from KPMG LLP, dated the Effective Date, stating that such firm has
performed a limited review of the federal, state and local income tax returns
for the period ended April 30, 2008, and that based on such limited review,
nothing came to their attention which caused them to believe that such
returns did not properly reflect, in all material respects, the federal,
state and local income taxes of the Acquiring Fund for the period covered
thereby; and that for the period from April 30, 2008 to and including the
Effective Date, such firm has performed a limited review to ascertain the
amount of such applicable federal, state and local taxes, and has determined
that either such amount has been paid or reserves established for payment of
such taxes, this review to be based on unaudited financial data; and that
based on such limited review, nothing has come to their attention which
caused them to believe that the taxes paid or reserves set aside for payment
of such taxes were not adequate in all material respects for the satisfaction
of federal, state and local taxes for the period from April 30, 2008, to and
including the Effective Date or that the Acquiring Fund would not continue to
qualify as a RIC for federal income tax purposes.
5.2 Absence of Litigation. There shall be no material litigation
pending with respect to the matters contemplated by this Agreement.
5.3 Legal Opinion. The Acquired Fund shall have received an opinion
of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, as counsel to the Acquiring Fund, in form
and substance reasonably satisfactory to the Acquired Fund and dated the
Effective Date, to the effect that:
(i) the Acquiring Fund is a corporation duly organized, validly
existing under the law of the State of Maryland and in good standing with the
Department;
(ii) the Acquiring Fund has the corporate power to carry on its
business as a closed-end investment company registered under the 1940 Act;
(iii) the Agreement has been duly authorized, executed and delivered by
the Acquiring Fund, and, assuming due authorization, execution and delivery
of the Agreement by the Acquired Fund, constitutes a valid and legally
binding obligation of the Acquiring Fund enforceable in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws pertaining to the enforcement of
creditors" rights generally and by equitable principles;
(iv) to such counsel"s knowledge, no consent, approval, authorization
or order of any United States federal or Maryland or New York state court or
governmental authority is required for the consummation by the Acquiring Fund
of the Merger, except such as may be required under the 1933 Act, the 1934
Act, the 1940 Act and the published rules and regulations of the SEC
thereunder and under Maryland law, New York law and such as may be required
under state securities or blue sky laws;
(v) the Registration Statement has become effective under the 1933 Act
and the Proxy Statement and Prospectus was filed on July 28, 2008 pursuant to
Rule 497(c) of the rules and regulations of the SEC under the 1933 Act and,
to such counsel"s knowledge, no stop order suspending the effectiveness of
the Registration Statement has been issued or proceeding for that purpose has
been instituted or threatened by the SEC;
(vi) to such counsel"s knowledge, there are no legal or governmental
proceedings or contracts to which the Acquiring Fund is a party or by which
it is bound required to be described in the Registration Statement which are
not described therein or, if required to be filed, filed as required;
(vii) the execution and delivery of this Agreement does not, and the
consummation of the Merger will not, violate any material provision of the
Acquiring Fund Charter, the Acquiring Fund Bylaws, as amended, or any
agreement set forth in a schedule to the opinion, which the Acquiring Fund
has advised such counsel are all material contracts to which the Acquiring
Fund is a party or by which the Acquiring Fund is bound, except insofar as
the parties have agreed to amend such provision as a condition precedent to
the Merger; and
(viii) to such counsel"s knowledge, no material suit, action or legal
or administrative proceeding is pending or threatened against the Acquiring
Fund.
In giving the opinion set forth above, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP may
state that it is relying on certificates of officers of the Acquiring Fund
with regard to matters of fact and certain certificates and written
statements of governmental officials with respect to the good standing of the
Acquiring Fund and on the opinion of DLA Piper US LLP as to matters of
Maryland law.
5.4 Auditors" Consent and Certification. The Acquired Fund shall have
received from KPMG LLP a letter to the effect that (i) they are independent
public accountants with respect to the Acquiring Fund within the meaning of
the 1933 Act and the applicable published rules and regulations thereunder;
and (ii) in their opinion, the financial statements and supplementary
information of the Acquiring Fund incorporated by reference in the
Registration Statement and reported on by them comply as to form in all
material respects with the applicable accounting requirements of the 1933 Act
and the published rules and regulations thereunder.
5.5 Regulatory Orders. The Acquiring Fund shall have received from
any relevant state securities administrator such order or orders as are
reasonably necessary or desirable under the 1933 Act, the 1934 Act, the 1940
Act, and any applicable state securities or blue sky laws in connection with
the transactions contemplated hereby, and that all such orders shall be in
full force and effect.
5.6 Satisfaction of the Acquired Fund. All proceedings taken by the
Acquiring Fund and its counsel in connection with the Merger and all
documents incidental thereto shall be satisfactory in form and substance to
the Acquired Fund.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to consummate the transactions
provided for herein shall be subject, at the Acquiring Fund"s election, to
the following conditions:
6.1 Certificates and Statements by the Acquired Fund.
(a) The Acquired Fund shall have furnished a statement of assets,
liabilities and capital, together with a schedule of investments with their
respective dates of acquisition and tax costs, certified on its behalf by its
President (or any Vice President) and its Treasurer, and a certificate
executed by both such officers, dated the Effective Date, certifying that
there has been no material adverse change in its financial position since
March 31, 2008, other than changes in its portfolio securities since that
date or changes in the market value of its portfolio securities.
(b) The Acquired Fund shall have furnished to the Acquiring Fund a
certificate signed by its President (or any Vice President), dated the
Effective Date, certifying that as of the Effective Dates, all
representations and warranties made by the Acquired Fund in this Agreement
are true and correct in all material respects as if made at and as of such
date and that the Acquired 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 date.
(c) The Acquired Fund shall have delivered to the Acquiring Fund a
letter from KPMG LLP, dated the Effective Date, stating that such firm has
performed a limited review of the federal, state and local income tax returns
for the period ended March 31, 2008, and that based on such limited review,
nothing came to their attention which caused them to believe that such
returns did not properly reflect, in all material respects, the federal,
state and local income taxes of the Acquired Fund for the period covered
thereby; and that for the period from March 31, 2008, to and including the
Effective Date and for any taxable year ending upon the Effective Date, such
firm has performed a limited review to ascertain the amount of such
applicable federal, state and local taxes, and has determined that either
such amount has been paid or reserves have been established for payment of
such taxes, this review to be based on unaudited financial data; and that
based on such limited review, nothing has come to their attention which
caused them to believe that the taxes paid or reserves set aside for payment
of such taxes were not adequate in all material respects for the satisfaction
of federal, state and local taxes for the period from March 31, 2008, to and
including the Effective Date and for any taxable year ending upon the
Effective Date or that the Acquired Fund would not continue to qualify as a
RIC for federal income tax purposes.
6.2 Absence of Litigation. There shall be no material litigation
pending with respect to the matters contemplated by this Agreement.
6.3 Legal Opinion. The Acquiring Fund shall have received an opinion
of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, as counsel to the Acquired Fund, in form
and substance reasonably satisfactory to the Acquiring Fund and dated the
Effective Date, to the effect that:
(i) the Acquired Fund is a corporation duly organized, validly existing
under the law of the State of Maryland and in good standing with the
Department;
(ii) the Acquired Fund has the corporate power to carry on its business
as a closed-end investment company registered under the 1940 Act;
(iii) the Agreement has been duly authorized, executed and delivered by
the Acquired Fund, and, assuming due authorization, execution and delivery of
the Agreement by the Acquiring Fund, constitutes a valid and legally binding
obligation of the Acquired Fund enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws pertaining to the enforcement of
creditors" rights generally and by equitable principles;
(iv) to such counsel"s knowledge, no consent, approval, authorization
or order of any United States federal or Maryland or New York state court or
governmental authority is required for the consummation by the Acquired Fund
of the Merger, except such as may be required under the 1933 Act, the 1934
Act, the 1940 Act and the published rules and regulations of the SEC
thereunder and under Maryland law, New York law and such as may be required
under state securities or blue sky laws;
(v) to such counsel"s knowledge, there are no legal or governmental
proceedings or contracts to which the Acquired Fund is a party or by which it
is bound required to be described in the Registration Statement which are not
described therein or, if required to be filed, filed as required;
(vi) the execution and delivery of this Agreement does not, and the
consummation of the Merger will not, violate any material provision of the
Acquired Fund Charter, the Acquired Fund Bylaws, as amended, or any agreement
set forth in a schedule to the opinion, which the Acquired Fund has advised
such counsel are all material contracts to which the Acquired Fund is a party
or by which it is bound, except insofar as the parties have agreed to amend
such provision as a condition precedent to the Merger; and
(vii) to such counsel"s knowledge, no material suit, action or legal or
administrative proceeding is pending or threatened against the Acquired Fund.
In giving the opinion set forth above, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP may
state that it is relying on certificates of officers of the Acquired Fund
with regard to matters of fact and certain certificates and written
statements of governmental officials with respect to the good standing of the
Acquired Fund and on the opinion of DLA Piper US LLP, as to matters of
Maryland law.
6.4 Auditor"s Consent and Certification. The Acquiring Fund shall
have received from KPMG LLP a letter to the effect that (i) they are
independent public accountants with respect to the Acquired Fund within the
meaning of the 1933 Act and the applicable published rules and regulations
thereunder; and (ii) in their opinion, the financial statements and
supplementary information of the Acquired Fund included or incorporated by
reference in the Registration Statement and reported on by them comply as to
form in all material respects with the applicable accounting requirements of
the 1933 Act and the published rules and regulations thereunder.
6.5 Satisfaction of the Acquiring Fund. All proceedings taken by the
Acquired Fund and its counsel in connection with the Merger and all documents
incidental thereto shall be satisfactory in form and substance to the
Acquiring Fund.
6.6 Dividends. Prior to the Effective Date, the Acquired Fund shall
have declared and paid a dividend or dividends which, together with all such
previous dividends, shall have the effect of distributing to its stockholders
substantially all of its net investment income that has accrued through the
Effective Date, if any, and substantially all of its net capital gain, if
any, realized through the Effective Date.
6.7. Custodian"s Certificate. The Acquired Fund"s custodian shall have
delivered to the Acquiring Fund a certificate identifying all of the assets
of the Acquired Fund held or maintained by such custodian as of the Valuation
Time.
6.8 Books and Records. The Acquired Fund"s transfer agent shall have
provided to the Acquiring Fund (i) the originals or true copies of all of the
records of the Acquired Fund in the possession of such transfer agent as of
the Effective Date, (ii) a certificate setting forth the number of shares of
Acquired Fund Common Stock and Acquired Fund Preferred Stock outstanding as
of the Valuation Time, and (iii) the name and address of each holder of
record of any shares and the number of shares held of record by each such
stockholder.
7. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIRING FUND AND
ACQUIRED FUND
If any of the conditions set forth below have not been satisfied on or
before the Closing Date with respect to the Acquired Fund or the Acquiring
Fund, the other party to this Agreement shall be entitled, at its option, to
refuse to consummate the transactions contemplated by this Agreement:
7.1 Approval of Merger. The Merger shall have been approved by (i)
the affirmative vote of a majority of all of the votes entitled to be cast on
the matter, voting together, (ii) the affirmative vote of a majority of the
outstanding shares of Acquired Fund Common Stock, voting as a separate class
and (iii) the affirmative vote of a majority of the outstanding shares of
Acquired Fund Preferred Stock, voting as a separate class; the Acquiring Fund
shall have delivered to the Acquired Fund a copy of the resolutions approving
this Agreement pursuant to this Agreement adopted by the Acquiring Fund
Board, certified by its secretary; and the Acquired Fund shall have delivered
to the Acquiring Fund a copy of the resolutions approving this Agreement
adopted by the Acquired Fund Board and the Acquiring Fund"s stockholders,
certified by its secretary.
7.2 Regulatory Filings.
(a) Any applicable waiting period under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇
Antitrust Improvements Act of 1976, as amended, relating to the transactions
contemplated hereby shall have expired or been terminated.
(b) The SEC shall not have issued an unfavorable advisory report under
Section 25(b) of the 1940 Act, nor instituted or threatened to institute any
proceeding seeking to enjoin consummation of the Merger under Section 25(c)
of the 1940 Act; no other legal, administrative or other proceeding shall be
instituted or threatened which would materially affect the financial
condition of the Acquired Fund or would prohibit the Merger.
(c) On the Closing Date, no court or governmental agency of competent
jurisdiction shall have issued any order that remains in effect and that
restrains or enjoins the Acquired Fund or the Acquiring Fund from completing
the transactions contemplated by this Agreement.
7.3 Consents. All consents of other parties and all other consents,
orders and permits of federal, state and local regulatory authorities deemed
necessary by the Acquiring Fund or the Acquired Fund to permit consummation,
in all material respects, of the transactions contemplated hereby shall have
been obtained, except where failure to obtain any such consent, order or
permit would not involve a risk of a material adverse effect on the assets or
properties of the Acquiring Fund or the Acquired Fund, provided that either
party hereto may for itself waive any of such conditions.
7.4 Registration Statement. The Registration Statement shall have
become effective under the 1933 Act and no stop orders suspending the
effectiveness thereof shall have been issued and, to the best knowledge of
the parties hereto, no investigation or proceeding for that purpose shall
have been instituted or be pending.
7.5 Tax Opinion. The parties shall have received the opinion of
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, dated the Closing Date, substantially to the
effect that, based upon certain facts, assumptions and representations made
by the Acquired Fund, the Acquiring Fund and their respective authorized
officers:
(i) the Merger as provided in this Agreement will constitute a
reorganization within the meaning of Section 368(a)(1) of the Code and that
the Acquiring Fund and the Acquired Fund will each be a "party to a
reorganization" within the meaning of Section 368(b) of the Code;
(ii) except for consequences regularly attributable to a termination
of the Acquired Fund"s taxable year, no gain or loss will be recognized to
the Acquired Fund as a result of the Merger or upon the conversion of shares
of Acquired Fund Common Stock to shares of Acquiring Fund Common Stock or the
conversion of shares of Acquired Fund Preferred Stock into the right to
receive the Preferred Merger Consideration;
(iii) no gain or loss will be recognized to the Acquiring Fund as a
result of the Merger or upon the conversion of shares of Acquired Fund Common
Stock to shares of Acquiring Fund Common Stock or the conversion of shares of
Acquired Fund Preferred Stock into the Preferred Merger Consideration;
(iv) no gain or loss will be recognized to the holders of the Acquired
Fund Common Stock upon the conversion of their shares of Acquired Fund Common
Stock to shares of Acquiring Fund Common Stock, except to the extent such
holders are paid cash in lieu of fractional shares of Acquiring Fund Common
Stock in the Merger;
(v) the tax basis of the Acquired Fund assets in the hands of the
Acquiring Fund will be the same as the tax basis of such assets in the hands
of the Acquired Fund immediately prior to the consummation of the Merger;
(vi) immediately after the Merger, the aggregate tax basis of the
Acquiring Fund Common Stock received by each holder of Acquired Fund Common
Stock in the Merger (including that of fractional share interests purchased
by the Acquiring Fund) will be equal to the aggregate tax basis of the shares
of Acquired Fund Common Stock owned by such stockholder immediately prior to
the Merger;
(vii) a stockholder"s holding period for Acquiring Fund Common Stock
(including that of fractional share interests purchased by the Acquiring
Fund) will be determined by including the period for which he or she held
shares of Acquired Fund Common Stock converted pursuant to the Merger,
provided that such shares of Acquired Fund Common Stock were held as capital
assets;
(viii) the Acquiring Fund"s holding period with respect to the
Acquired Fund"s assets transferred will include the period for which such
assets were held by the Acquired Fund; and
(ix) the payment of cash to the holders of Acquired Fund Common Stock
in lieu of fractional shares of Acquiring Fund Common Stock will be treated
as though such fractional shares were distributed as part of the Merger and
then redeemed by the Acquiring Fund with the result that the holder of
Acquired Fund Common Stock will generally have a capital gain or loss to the
extent the cash distribution differs from such stockholder"s basis allocable
to the fractional shares of Acquiring Fund Common Stock.
The delivery of such opinion is conditioned upon the receipt by ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP of representations it shall request of the Acquiring
Fund and the Acquired Fund. Notwithstanding anything herein to the contrary,
neither the Acquiring Fund nor the Acquired Fund may waive the condition set
forth in this paragraph 7.5.
7.6 Assets and Liabilities. The assets and liabilities of the
Acquired Fund to be transferred to the Acquiring Fund shall not include any
assets or liabilities which the Acquiring Fund, by reason of limitations in
its Registration Statement or the Acquiring Fund Charter, may not properly
acquire or assume. The Acquiring Fund does not anticipate that there will be
any such assets or liabilities but the Acquiring Fund will notify the
Acquired Fund if any do exist and will reimburse the Acquired Fund for any
reasonable transaction costs incurred by the Acquired Fund for the
liquidation of such assets and liabilities.
8. INDEMNIFICATION
8.1 The Acquiring Fund. The Acquiring Fund, out of its assets and
property, agrees to indemnify and hold harmless the Acquired Fund and the
members of the Acquired Fund Board and its officers from and against any and
all losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which the Acquired Fund and those board members and
officers may become subject, insofar as such loss, claim, damage, liability
or expense (or actions with respect thereto) arises out of or is based on (a)
any breach by the Acquiring Fund of any of its representations, warranties,
covenants or agreements set forth in this Agreement or (b) any act, error,
omission, neglect, misstatement, materially misleading statement, breach of
duty or other act wrongfully done or attempted to be committed by the
Acquiring Fund or the members of the Acquiring Fund Board or its officers
prior to the Closing Date, provided that such indemnification by the
Acquiring Fund is not (i) in violation of any applicable law or (ii)
otherwise prohibited as a result of any applicable order or decree issued by
any governing regulatory authority or court of competent jurisdiction.
8.2 The Acquired Fund. The Acquired Fund, out of its assets and
property, agrees to indemnify and hold harmless the Acquiring Fund and the
members of the Acquiring Fund Board and its officers from and against any and
all losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which the Acquiring Fund and those board members and
officers may become subject, insofar as such loss, claim, damage, liability
or expense (or actions with respect thereto) arises out of or is based on (a)
any breach by the Acquired Fund of any of its representations, warranties,
covenants or agreements set forth in this Agreement or (b) any act, error,
omission, neglect, misstatement, materially misleading statement, breach of
duty or other act wrongfully done or attempted to be committed by the
Acquired Fund or the members of the Acquired Fund Board or its officers prior
to the Closing Date, provided that such indemnification by the Acquired Fund
is not (i) in violation of any applicable law or (ii) otherwise prohibited as
a result of any applicable order or decree issued by any governing regulatory
authority or court of competent jurisdiction.
9. BROKER FEES AND EXPENSES
9.1 No Broker Fees. The Acquiring Fund and the Acquired Fund
represent and warrant to each other that there are no brokers or finders
entitled to receive any payments in connection with the transactions provided
for herein.
9.2 Payment of Expenses. ▇▇▇▇ ▇▇▇▇▇ Partners Fund Advisor, LLC agrees
to bear all expenses incurred in connection with the Merger. Such expenses
shall include, but not be limited to, all costs related to the preparation
and distribution of the Registration Statement, proxy solicitation expenses,
SEC registration fees, and NYSE listing fees. Neither of the Acquiring Fund
and the Acquired Fund owes any broker"s or finder"s fees in connection with
the transactions provided for herein.
10. COOPERATION FOLLOWING EFFECTIVE DATE
In case at any time after the Effective Date any further action is
necessary to carry out the purposes of this Agreement, each of the parties
will take such further action (including the execution and delivery of such
further instruments and documents) as the other party may reasonably request,
all at the sole cost and expense of the requesting party (unless the
requesting party is entitled to indemnification as described below). The
Acquired Fund acknowledges and agrees that from and after the Effective Date,
the Acquiring Fund shall be entitled to possession of all documents, books,
records, agreements and financial data of any sort pertaining to the Acquired
Fund.
11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1 Entire Agreement. The Acquiring Fund and the Acquired Fund agree
that neither party has made any representation, warranty or covenant not set
forth herein and that this Agreement constitutes the entire agreement between
the parties.
11.2 Survival of Warranties. The covenants to be performed after the
Closing by both the Acquiring Fund and the Acquired Fund, and the obligations
of the Acquiring Fund in Article 8, shall survive the Closing. All other
representations, warranties and covenants contained in this Agreement or in
any document delivered pursuant hereto or in connection herewith shall not
survive the consummation of the transactions contemplated hereunder and shall
terminate on the Closing.
12. TERMINATION AND WAIVERS
12.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Closing Date by resolution of either the Acquiring Fund Board or the Acquired
Fund Board, if circumstances should develop that, in the opinion of that
board, make proceeding with the Agreement inadvisable with respect to the
Acquiring Fund or the Acquired Fund, respectively. Any such termination
resolution to be effective shall be promptly communicated to the other party
and, in any event, prior to the Closing Date. In the event of termination of
this Agreement pursuant to the provisions hereof, the Agreement shall become
void and have no further effect, and there shall not be any liability
hereunder on the part of either of the parties or their respective board
members or officers, except for any such material breach or intentional
misrepresentation, as to each of which all remedies at law or in equity of
the party adversely affected shall survive.
12.2 Waiver. At any time prior to the Effective Date, any of the terms
or conditions of this Agreement may be waived by either the Acquired Fund
Board or the Acquiring Fund Board (whichever is entitled to the benefit
thereof), if, in the judgment of such board after consultation with its
counsel, such action or waiver will not have a material adverse effect on the
benefits intended in this Agreement to the stockholders of their respective
fund, on behalf of which such action is taken.
13. TRANSFER RESTRICTION
Pursuant to Rule 145 under the 1933 Act, and in connection with
the issuance of any shares to any person who at the time of the Merger is, to
its knowledge, an affiliate of a party to the Merger pursuant to Rule 145(c),
the Acquiring Fund will cause to be affixed upon the certificate(s) issued to
such person (if any) a legend as follows:
THESE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFER UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO
WESTERN ASSET HIGH INCOME FUND II, INC. (OR ITS STATUTORY SUCCESSOR) UNLESS
(I) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE
SECURITIES ACT OF 1933 OR (II) IN THE OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE FUND, SUCH REGISTRATION IS NOT REQUIRED.
and, further, that stop transfer instructions will be issued to the Acquiring
Fund"s transfer agent with respect to such shares. The Acquired Fund will
provide the Acquiring Fund on the Effective Date with the name of any
Acquired Fund Stockholder who is to the knowledge of the Acquired Fund an
affiliate of it on such date.
14. MATERIAL PROVISIONS
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.
15. AMENDMENTS
This Agreement may be amended, modified or supplemented in such
manner as may be deemed necessary or advisable by the authorized officers of
the Acquired Fund and the Acquiring Fund; provided, however, that following
the meeting of the Acquired Fund stockholders called by the Acquired Fund
pursuant to paragraph 4.2 of this Agreement, no such amendment may have the
effect of changing the provisions for determining the number of shares of
Acquiring Fund Common Stock to be issued to the holders of Acquired Fund
Common Stock or the amount of Preferred Merger Consideration payable to the
holders of Acquired Fund Preferred Stock under this Agreement to the
detriment of such stockholders without their further approval.
16. NOTICES
Any notice, report, statement or demand required or permitted by
any provisions of this Agreement shall be in writing and shall be given by
facsimile, electronic delivery (i.e., e-mail), personal service or prepaid or
certified mail addressed to the Acquiring Entity or the Acquired Entity, at
its address set forth in the preamble to this Agreement, in each case to the
attention of its President.
17. ENFORCEABILITY; HEADINGS; COUNTERPARTS; GOVERNING LAW;
SEVERABILITY; ASSIGNMENT; LIMITATION OF LIABILITY
17.1 Enforceability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision
in any other situation or in any other jurisdiction.
17.2 Headings. The Article headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
17.3 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original.
17.4 Governing Law. This Agreement shall be governed by and construed
and interpreted in accordance with the internal laws of the State of New
York.
17.5 Successors and Assigns. This Agreement shall bind and inure to
the benefit of the parties hereto and their respective successors and
assigns, but no assignment or transfer hereof or of any rights or obligations
hereunder shall be made by any party without the written consent of the other
party. Nothing herein expressed or implied is intended or shall be construed
to confer upon or give any person, firm or corporation, other than the
parties hereto and their respective successors and assigns, any rights or
remedies under or by reason of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized officer.
WESTERN ASSET ZENIX INCOME FUND INC.
By:
Name: R. ▇▇▇ ▇▇▇▇▇▇
Title: President, Chairman and Chief
Executive Officer
WESTERN ASSET HIGH INCOME FUND II INC.
By:
Name: R. ▇▇▇ ▇▇▇▇▇▇
Title: President, Chairman and Chief
Executive Officer
(With respect to paragraph 9.2 only)
▇▇▇▇ ▇▇▇▇▇ PARTNERS FUND ADVISOR, LLC
By:
Name: R. ▇▇▇ ▇▇▇▇▇▇
Title: President
1
082221-0279-11239-NY02.2658877