Exhibit 4.2 under Form N-14
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this __th day of ____________, 2004, by and between Federated Income
Securities Trust, a Massachusetts business trust, with its principal place of
business at 0000 Xxxxxxxxx Xxxxx, Xxxxxxxxxx, XX, 00000 (the "Trust"), with
respect to Federated Short-Term Income Fund (the "Acquiring Fund"), a series
of the Trust, and Federated Total Return Series, Inc., a Maryland
Corporation, with its principal place of business at 0000 Xxxxxxxxx Xxxxx,
Xxxxxxxxxx, Xxxxxxxxxxxx 00000 (the "Corporation"), with respect to Federated
Limited Duration Fund, a series of the Corporation ("Acquired Fund" and,
collectively with the Acquiring Fund, the "Funds").
This Agreement is intended to be, and is adopted as, a plan of
reorganization within the meaning of Xxxxxxx 000 xx xxx Xxxxxx Xxxxxx
Internal Revenue Code of 1986, as amended (the "Code") and the Treasury
Regulations promulgated thereunder. The reorganization will consist of:
(i) the transfer of all of the assets of the Acquired Fund in exchange for
Institutional Service Shares and Class Y Shares, no par value per share, of
the Acquiring Fund ("Acquiring Fund Shares"); and (ii) the distribution of
Institutional Service Shares and Class Y Shares of the Acquiring Fund to the
holders of the Institutional Service Shares and Institutional Shares of the
Acquired Fund, respectively, and the liquidation of the Acquired Fund as
provided herein, all upon the terms and conditions set forth in this
Agreement (the "Reorganization").
WHEREAS, the Acquiring Fund and the Acquired Fund is a separate series
of the Corporation and the Trust, respectively, and the Corporation and the
Trust are open-end, registered management investment companies and the
Acquired Fund owns securities that generally are assets of the character in
which the Acquiring Fund is permitted to invest;
WHEREAS, the Acquiring Fund and the Acquired Fund are authorized to
issue their shares of capital stock and shares of beneficial interests,
respectively;
WHEREAS, the Directors of the Corporation have determined that the
Reorganization, with respect to the Acquiring Fund, is in the best interests
of the Acquiring Fund and that the interests of the existing shareholders of
the Acquiring Fund will not be diluted as a result of the Reorganization;
WHEREAS, the Trustees of the Trust have determined that the
Reorganization, with respect to the Acquired Fund, is in the best interests
of the Acquired Fund and that the interests of the existing shareholders of
the Acquired Fund will not be diluted as a result of the Reorganization;
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree
as follows:
Article I
TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR ACQUIRING FUND SHARES
AND LIQUIDATION OF THE ACQUIRED FUND
1.1 THE EXCHANGE. Subject to the terms and conditions contained herein and
on the basis of the representations and warranties contained herein, the
Acquired Fund agrees to transfer all of its assets, as set forth in
paragraph 1.2, to the Acquiring Fund. In exchange, the Acquiring Fund
agrees: (i) to deliver to the Acquired Fund the number of full and
fractional Acquiring Fund Shares, determined by (a) multiplying the shares
outstanding of the Acquired Fund by (b) the ratio computed by dividing
(x) the net asset value per share of the Acquired Fund by (y) the net asset
value per share of the corresponding class of Acquiring Fund Shares computed
in the manner and as of the time and date set forth in paragraph 2.2.
Holders of Institutional Service Shares of the Acquired Fund will receive
Institutional Service Shares of the Acquiring Fund, while holders of
Institutional Shares of the Acquired Fund will receive Class Y Shares of the
Acquiring Fund. Such transactions shall take place at the closing on the
Closing Date provided for in paragraph 3.1.
1.2 ASSETS TO BE ACQUIRED. The assets of the Acquired Fund to be acquired
by the Acquiring Fund shall consist of all property, including, without
limitation, all cash, securities, commodities, interests in futures and
dividends or interest receivables, owned by the Acquired Fund and any
deferred or prepaid expenses shown as an asset on the books of the Acquired
Fund on the Closing Date.
The Acquired Fund has provided the Acquiring Fund with its most recent
audited financial statements, which contain a list of all of the Acquired
Fund's assets as of the date of such statements. The Acquired Fund hereby
represents that as of the date of the execution of this Agreement, there have
been no changes in its financial position as reflected in such financial
statements other than those occurring in the ordinary course of business in
connection with the purchase and sale of securities, the issuance and
redemption of Acquired Fund shares and the payment of normal operating
expenses, dividends and capital gains distributions.
1.3 LIABILITIES TO BE DISCHARGED. The Acquired Fund will discharge all of
its liabilities and obligations prior to the Closing Date.
1.4 STATE FILINGS. Prior to the Closing Date, the Corporation shall make
any filings with the State of Maryland that may be required under the laws of
the State of Maryland, effective as of the Closing Date.
1.5 LIQUIDATION AND DISTRIBUTION. On or as soon after the Closing Date as
is conveniently practicable: (a) the Acquired Fund will distribute in
complete liquidation of the Acquired Fund, pro rata to its shareholders of
record, determined as of the close of business on the Closing Date (the
"Acquired Fund Shareholders"), all of the Acquiring Fund Shares received by
the Acquired Fund pursuant to paragraph 1.1; and (b) the Acquired Fund will
thereupon proceed to dissolve and terminate as set forth in paragraph 1.9
below. Such distribution will be accomplished by the transfer of Acquiring
Fund Shares credited to the account of the Acquired Fund on the books of the
Acquiring Fund to open accounts on the share records of the Acquiring Fund in
the name of the Acquired Fund Shareholders, and representing the respective
pro rata number of Acquiring Fund Shares due such shareholders. All issued
and outstanding shares of the Acquired Fund (the "Acquired Fund Shares") will
simultaneously be canceled on the books of the Acquired Fund. The Acquiring
Fund shall not issue certificates representing Acquiring Fund Shares in
connection with such transfer. After the Closing Date, the Acquired Fund
shall not conduct any business except in connection with its termination.
1.6 OWNERSHIP OF SHARES. Ownership of Acquiring Fund Shares will be shown
on the books of the Acquiring Fund's transfer agent. Acquiring Fund Shares
will be issued simultaneously to the Acquired Fund, in an amount equal in
value to the aggregate net asset value of the Acquired Fund Shares, to be
distributed to Acquired Fund Shareholders.
1.7 TRANSFER TAXES. Any transfer taxes payable upon the issuance of
Acquiring Fund Shares in a name other than the registered holder of the
Acquired Fund shares on the books of the Acquired Fund as of that time shall,
as a condition of such issuance and transfer, be paid by the person to whom
such Acquiring Fund Shares are to be issued and transferred.
1.8 REPORTING RESPONSIBILITY. Any reporting responsibility of the Acquired
Fund is and shall remain the responsibility of the Acquired Fund.
1.9 TERMINATION. The Acquired Fund shall be terminated promptly following
the Closing Date and the making of all distributions pursuant to
paragraph 1.5.
1.10 BOOKS AND RECORDS. All books and records of the Acquired Fund,
including all books and records required to be maintained under the
Investment Company Act of 1940 (the "1940 Act"), and the rules and
regulations thereunder, shall be available to the Acquiring Fund from and
after the Closing Date and shall be turned over to the Acquiring Fund as soon
as practicable following the Closing Date.
Article II
VALUATION
2.1 VALUATION OF ASSETS. The value of the Acquired Fund's assets to be
acquired by the Acquiring Fund hereunder shall be the value of such assets at
the closing on the Closing Date, using the valuation procedures set forth in
the Trust Instrument and the Acquiring Fund's then current prospectus and
statement of additional information or such other valuation procedures as
shall be mutually agreed upon by the parties.
2.2 VALUATION OF SHARES. The net asset value per share of Acquiring Fund
Shares shall be the net asset value per share computed at the closing on the
Closing Date, using the valuation procedures set forth in the Corporation's
Trust Instrument and the Acquiring Fund's then current prospectus and
statement of additional information, or such other valuation procedures as
shall be mutually agreed upon by the parties.
2.3 SHARES TO BE ISSUED. The number of the Acquiring Fund's shares to be
issued (including fractional shares, if any) in exchange for the Acquired
Fund's assets, shall be determined by (a) multiplying the shares outstanding
of the Acquired Fund by (b) the ratio computed by (x) dividing the net asset
value per share of the Acquired Fund by (y) the net asset value per share of
the Acquiring Fund determined in accordance with paragraph 2.2.
2.4 DETERMINATION OF VALUE. All computations of value shall be made by
Federated Services Company, on behalf of the Acquiring Fund and the Acquired
Fund.
Article III
CLOSING AND CLOSING DATE
3.1 CLOSING DATE. The closing shall occur on or about May 28, 2004, or
such other date(s) as the parties may agree to in writing (the "Closing
Date"). All acts taking place at the closing shall be deemed to take place
at 4:00 p.m. Eastern Time on the Closing Date unless otherwise provided
herein. The closing shall be held at the offices of Federated Services
Company, 0000 Xxxxxxx Xxxxxx, Xxxxxxxxxx, Xxxxxxxxxxxx 00000-0000, or at such
other time and/or place as the parties may agree.
3.2 CUSTODIAN'S CERTIFICATE. State Street Bank and Trust Company, as
custodian for the Acquired Fund (the "Custodian"), shall deliver at the
Closing a certificate of an authorized officer stating that: (a) the
Acquired Fund's portfolio securities, cash, and any other assets have been
delivered in proper form to the Acquiring Fund on the Closing Date; and
(b) all necessary taxes including all applicable federal and state stock
transfer stamps, if any, shall have been paid, or provision for payment shall
have been made, in conjunction with the delivery of portfolio securities by
the Acquired Fund.
3.3 EFFECT OF SUSPENSION IN TRADING. In the event that on the scheduled
Closing Date, either: (a) the NYSE or another primary exchange on which the
portfolio securities of the Acquiring Fund or the Acquired Fund are purchased
or sold, shall be closed to trading or trading on such exchange shall be
restricted; or (b) trading or the reporting of trading on the NYSE or
elsewhere shall be disrupted so that accurate appraisal of the value of the
net assets of the Acquiring Fund or the Acquired Fund is impracticable, the
Closing Date shall be postponed until the first business day after the day
when trading is fully resumed and reporting is restored.
3.4 TRANSFER AGENT'S CERTIFICATE. Federated Services Company, as transfer
agent for the Acquired Fund as of the Closing Date, shall deliver at the
Closing a certificate of an authorized officer stating that its records
contain the names and addresses of Acquired Fund Shareholders, and the number
and percentage ownership of outstanding shares owned by each such shareholder
immediately prior to the Closing. The Acquiring Fund shall issue and deliver
or cause Federated Services Company, its transfer agent, to issue and deliver
a confirmation evidencing Acquiring Fund Shares to be credited on the Closing
Date to the Secretary of the Trust or provide evidence satisfactory to the
Acquired Fund that the Acquiring Fund Shares have been credited to the
Acquired Fund's account on the books of the Acquiring Fund. At the Closing,
each party shall deliver to the other such bills of sale, checks,
assignments, share certificates, receipts and other documents, if any, as
such other party or its counsel may reasonably request.
Article IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS OF THE ACQUIRED FUND. The Trust, on behalf of the
Acquired Fund, represents and warrants to the Corporation, on behalf of the
Acquiring Fund, as follows:
a) The Acquired Fund is a legally designated, separate series of a
voluntary association duly organized, validly existing, and in good
standing under the laws of the Commonwealth of Massachusetts.
b) The Trust is registered as an open-end management investment company
under the 1940 Act, and the Trust's registration with the Securities
and Exchange Commission (the "Commission") as an investment company
under the 1940 Act is in full force and effect.
c) The current prospectus and statement of additional information of the
Acquired Fund conform in all material respects to the applicable
requirements of the Securities Act of 1933 (the "1933 Act") and the
1940 Act, and the rules and regulations thereunder, and do not include
any untrue statement of a material fact or omit to state any material
fact required to be stated or necessary to make the statements therein,
in light of the circumstances under which they were made, not
misleading.
d) The Acquired Fund is not, and the execution, delivery, and performance
of this Agreement (subject to shareholder approval) will not, result in
the violation of any provision of the Trust's Declaration of Trust or
By-Laws 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.
e) The Acquired Fund has no material contracts or other commitments (other
than this Agreement) that will be terminated with liability to it
before the Closing Date, except for liabilities, if any, to be
discharged as provided in paragraph 1.3 hereof.
f) Except as otherwise disclosed in writing to and accepted by the
Acquiring Fund, no litigation, administrative proceeding, or
investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquired Fund or any
of its properties or assets, which, if adversely determined, would
materially and adversely affect its financial condition, the conduct of
its business, or the ability of the Acquired Fund to carry out the
transactions contemplated by this Agreement. The Acquired Fund knows
of no facts that might form the basis for the institution of such
proceedings and is not a party to or subject to the provisions of any
order, decree, or judgment of any court or governmental body that
materially and adversely affects its business or its ability to
consummate the transactions contemplated herein.
g) The financial statements of the Acquired Fund as of September 30, 2003,
and for the fiscal year then ended have been prepared in accordance
with generally accepted accounting principles, and such statements
(copies of which have been furnished to the Acquiring Fund) fairly
reflect the financial condition of the Acquired Fund as of such date,
and there are no known contingent liabilities of the Acquired Fund as
of such date that are not disclosed in such statements.
h) The unaudited financial statements of the Acquired Fund as of March 31,
2003, and for the fiscal year then ended have been prepared in
accordance with generally accepted accounting principles, and such
statements (copies of which have been furnished to the Acquiring Fund)
fairly reflect the financial condition of the Acquired Fund as of March
31, 2003, and there are no known contingent liabilities of the Acquired
Fund as of such date that are not disclosed in such statements.
i) Since the date of the financial statements referred to in paragraph (h)
above, there have been no material adverse changes in the Acquired
Fund's financial condition, assets, liabilities or business (other than
changes occurring in the ordinary course of business), or any
incurrence by the Acquired Fund of indebtedness maturing more than one
year from the date such indebtedness was incurred, except as otherwise
disclosed to and accepted by the Acquiring Fund. For the purposes of
this paragraph (i), a decline in the net asset value of the Acquired
Fund shall not constitute a material adverse change.
j) All federal and other tax returns and reports of the Acquired Fund
required by law to be filed, have been filed, and all federal and other
taxes shown due on such returns and reports have been paid, or
provision shall have been made for the payment thereof. 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.
k) All issued and outstanding shares of the Acquired Fund are duly and
validly issued and outstanding, fully paid and non-assessable by the
Acquired Fund. All of the issued and outstanding shares of the
Acquired Fund will, at the time of the Closing Date, be held by the
persons and in the amounts set forth in the records of the Acquired
Fund's transfer agent as provided in paragraph 3.4. The Acquired Fund
has no outstanding options, warrants, or other rights to subscribe for
or purchase any of the Acquired Fund shares, and has no outstanding
securities convertible into any of the Acquired Fund shares.
l) At the Closing Date, the Acquired Fund will have good and marketable
title to the Acquired Fund's assets to be transferred to the Acquiring
Fund pursuant to paragraph 1.2, and full right, power, and authority to
sell, assign, transfer, and deliver such assets hereunder, free of any
lien or other encumbrance, except those liens or encumbrances to which
the Acquiring Fund has received notice, and, upon delivery and payment
for such assets, and the filing of any articles, certificates or other
documents under the laws of the Commonwealth of Massachusetts, the
Acquiring Fund will acquire good and marketable title, subject to no
restrictions on the full transfer of such assets, other than such
restrictions as might arise under the 1933 Act, and other than as
disclosed to and accepted by the Acquiring Fund.
m) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of the Acquired
Fund. Subject to approval by the Acquired Fund Shareholders, this
Agreement constitutes a valid and binding obligation of the Acquired
Fund, enforceable in accordance with its terms, subject as to
enforcement, to bankruptcy, insolvency, reorganization, moratorium, and
other laws relating to or affecting creditors' rights and to general
equity principles.
n) The information to be furnished by the Acquired Fund for use in
no-action letters, applications for orders, registration statements,
proxy materials, and other documents that may be necessary in
connection with the transactions contemplated herein shall be accurate
and complete in all material respects and shall comply in all material
respects with federal securities and other laws and regulations.
o) From the effective date of the Registration Statement (as defined in
paragraph 5.7), through the time of the meeting of the Acquired Fund
Shareholders and on the Closing Date, any written information furnished
by the Trust with respect to the Acquired Fund for use in the Proxy
Materials (as defined in paragraph 5.7), or any other materials
provided in connection with the Reorganization, does not and will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated or necessary to make the
statements, in light of the circumstances under which such statements
were made, not misleading.
p) The Acquired Fund has elected to qualify and has qualified as a
"regulated investment company" under the Code (a "RIC"), as of and
since its first taxable year; has been a RIC under the Code at all
times since the end of its first taxable year when it so qualified; and
qualifies and will continue to qualify as a RIC under the Code for its
taxable year ending upon its liquidation.
q) No governmental consents, approvals, authorizations or filings are
required under the 1933 Act, the Securities Exchange Act of 1934 (the
"1934 Act"), the 1940 Act or Massachusetts law for the execution of
this Agreement by the Trust, for itself and on behalf of the Acquired
Fund, except for the effectiveness of the Registration Statement, and
the filing of any articles, certificates or other documents that may be
required under Massachusetts law, and except for such other consents,
approvals, authorizations and filings as have been made or received,
and such consents, approvals, authorizations and filings as may be
required subsequent to the Closing Date, it being understood, however,
that this Agreement and the transactions contemplated herein must be
approved by the shareholders of the Acquired Fund as described in
paragraph 5.2.
4.2 REPRESENTATIONS OF THE ACQUIRING FUND. The Corporation, on behalf of
the Acquiring Fund, represents and warrants to the Trust, on behalf of the
Acquired Fund, as follows:
a) The Acquiring Fund is a legally designated, separate series of a
corporation, duly organized, validly existing and in good standing
under the laws of the State of Maryland.
b) The Corporation is registered as an open-end management investment
company under the 1940 Act, and the Trust's registration with the
Commission as an investment company under the 1940 Act is in full force
and effect.
c) The current prospectus and statement of additional information of the
Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and
regulations thereunder, and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
or necessary to make such statements therein, in light of the
circumstances under which they were made, not misleading.
d) The Acquiring Fund is not, and the execution, delivery and performance
of this Agreement will not, result in a violation of the Corporation's
Articles of Incorporation or By-Laws 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.
e) Except as otherwise disclosed in writing to and accepted by the
Acquired Fund, no litigation, 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 of its properties or assets, which, if adversely determined, would
materially and adversely affect its financial condition, the conduct of
its business or the ability of the Acquiring Fund to carry out the
transactions contemplated by this Agreement. The Acquiring Fund knows
of no facts that might form the basis for the institution of such
proceedings and it is not a party to or subject to the provisions of
any order, decree, or judgment of any court or governmental body that
materially and adversely affects its business or its ability to
consummate the transaction contemplated herein.
f) The financial statements of the Acquiring Fund as of April 30, 2003 and
for the fiscal year then ended have been prepared in accordance with
generally accepted accounting principles, and such statements (copies
of which have been furnished to the Acquired Funds) fairly reflect the
financial condition of the Acquiring Fund as of such date, and there
are no known contingent liabilities of the Acquiring Fund as of such
date that are not disclosed in such statements.
g) The unaudited financial statements of the Acquiring Fund as of October
31, 2003, and for the fiscal year then ended have been prepared in
accordance with generally accepted accounting principles, and such
statements (copies of which have been furnished to the Acquired Fund)
fairly reflect the financial condition of the Acquiring Fund as of such
date, and there are no known contingent liabilities of the Acquiring
Fund as of such date that are not disclosed in such statements.
h) Since the date of the financial statements referred to in paragraph (g)
above, there have been no material adverse changes in the Acquiring
Fund's financial condition, assets, liabilities or business (other than
changes occurring in the ordinary course of business), or any
incurrence by the Acquiring Fund of indebtedness maturing more than one
year from the date such indebtedness was incurred, except as otherwise
disclosed to and accepted by the Acquired Fund. For the purposes of
this paragraph (h), a decline in the net asset value of the Acquiring
Fund shall not constitute a material adverse change.
i) All federal and other tax returns and reports of the Acquiring Fund
required by law to be filed, have been filed. All federal and other
taxes shown due on such returns and reports have been paid or provision
shall have been made for their payment. 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.
j) All issued and outstanding Acquiring Fund Shares are duly and validly
issued and outstanding, fully paid and non-assessable by the Acquiring
Fund. The Acquiring Fund has no outstanding options, warrants, or
other rights to subscribe for or purchase any Acquiring Fund Shares,
and there are no outstanding securities convertible into any Acquiring
Fund Shares.
k) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of the Acquiring
Fund, and this Agreement constitutes a valid and binding obligation of
the Acquiring Fund, enforceable in accordance with its terms, subject
as to enforcement, to bankruptcy, insolvency, reorganization,
moratorium, and other laws relating to or affecting creditors' rights
and to general equity principles.
l) Acquiring Fund Shares to be issued and delivered to the Acquired Fund
for the account of the Acquired Fund Shareholders pursuant to the terms
of this Agreement will, at the Closing Date, have been duly
authorized. When so issued and delivered, such shares will be duly and
validly issued Acquiring Fund Shares, and will be fully paid and
non-assessable.
m) The information to be furnished by the Acquiring Fund for use in
no-action letters, registration statements, proxy materials, and other
documents that may be necessary in connection with the transactions
contemplated herein shall be accurate and complete in all material
respects and shall comply in all material respects with federal
securities and other laws and regulations.
n) From the effective date of the Registration Statement (as defined in
paragraph 5.7), through the time of the meeting of the Acquired Fund
Shareholders and on the Closing Date, any written information furnished
by the Corporation with respect to the Acquiring Fund for use in the
Proxy Materials (as defined in paragraph 5.7), or any other materials
provided in connection with the Reorganization, does not and will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated or necessary to make the
statements, in light of the circumstances under which such statements
were made, not misleading.
o) The Acquiring Fund has elected to qualify and has qualified as a RIC
under the Code as of and since its first taxable year; has been a RIC
under the Code at all times since the end of its first taxable year
when it so qualified; and qualifies and shall continue to qualify as a
RIC under the Code for its current taxable year.
p) No governmental consents, approvals, authorizations or filings are
required under the 1933 Act, the 1934 Act, the 1940 Act or Maryland law
for the execution of this Agreement by the Corporation, for itself and
on behalf of the Acquiring Fund, or the performance of the Agreement by
the Corporation, for itself and on behalf of the Acquiring Fund, except
for the effectiveness of the Registration Statement, and the filing of
any articles, certificates or other documents that may be required
under Maryland law, and such other consents, approvals, authorizations
and filings as have been made or received, and except for such
consents, approvals, authorizations and filings as may be required
subsequent to the Closing Date.
q) The Acquiring Fund agrees to use all reasonable efforts to obtain the
approvals and authorizations required by the 1933 Act, the 1940 Act,
and any state Blue Sky or securities laws as it may deem appropriate in
order to continue its operations after the Closing Date.
Article V
COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 OPERATION IN ORDINARY COURSE. Subject to paragraph 8.5, the Acquiring
Fund and the Acquired Fund will each operate its respective business in the
ordinary course between the date of this Agreement and the Closing Date, it
being understood that such ordinary course of business will include customary
dividends and shareholder purchases and redemptions.
5.2 APPROVAL OF SHAREHOLDERS. The Trust will call a special meeting of the
Selling Fund Shareholders to consider and act upon this Agreement and to take
all other appropriate action necessary to obtain approval of the transactions
contemplated herein.
5.3 INVESTMENT REPRESENTATION. The Acquired Fund covenants that the
Acquiring Fund Shares to be issued pursuant to this Agreement are not being
acquired for the purpose of making any distribution, other than in connection
with the Reorganization and in accordance with the terms of this Agreement.
5.4 ADDITIONAL INFORMATION. The Acquired Fund will assist the Acquiring
Fund in obtaining such information as the Acquiring Fund reasonably requests
concerning the beneficial ownership of the Acquired Fund's shares.
5.5 FURTHER ACTION. Subject to the provisions of this Agreement, the
Acquiring Fund and the Acquired Fund will each take or cause to be taken, all
action, and do or cause to be done, all things reasonably necessary, proper
or advisable to consummate and make effective the transactions contemplated
by this Agreement, including any actions required to be taken after the
Closing Date.
5.6 STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable, but in
any case within sixty days after the Closing Date, the Acquired Fund shall
furnish the Acquiring Fund, in such form as is reasonably satisfactory to the
Acquiring Fund, a statement of the earnings and profits of the Acquired Fund
for federal income tax purposes that will be carried over by the Acquiring
Fund as a result of Section 381 of the Code, and which will be certified by
the Trust's Treasurer.
5.7 PREPARATION OF REGISTRATION STATEMENT AND SCHEDULE 14A PROXY
STATEMENT. The Corporation will prepare and file with the Commission a
registration statement on Form N-14 relating to the Acquiring Fund Shares to
be issued to shareholders of the Acquired Fund (the "Registration
Statement"). The Registration Statement on Form N-14 shall include a proxy
statement and a prospectus of the Acquiring Fund relating to the transaction
contemplated by this Agreement. The Registration Statement shall be in
compliance with the 1933 Act, the 1934 Act and the 1940 Act, as applicable.
Each party will provide the other party with the materials and information
necessary to prepare the registration statement on Form N-14 (the "Proxy
Materials"), for inclusion therein, in connection with the meeting of the
Acquired Fund's Shareholders to consider the approval of this Agreement and
the transactions contemplated herein.
5.8 The Acquired Fund shall have declared and paid a dividend or dividends
which, together with all previous such dividends, shall have the effect of
distributing to its shareholders all of the Acquired Fund's investment
company taxable income (computed without regard to any deduction for
dividends paid), if any, plus the excess, if any, of its interest income
excludible from gross income under Section 103(a) of the Code over its
deductions disallowed under Sections 265 and 171(a)(2) of the Code for all
taxable periods or years ending on or before the Closing Date, and all of its
net capital gains realized (after reduction for any capital loss carry
forward), if any, in all taxable periods or years ending on or before the
Closing Date.
Article VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by
the Acquiring Fund of all the obligations to be performed by the Acquiring
Fund pursuant to this Agreement on or before the Closing Date, and, in
addition, subject to the following conditions:
6.1 All representations, covenants, and warranties of the Acquiring Fund
contained in this Agreement shall be true and correct in all material
respects as of the date hereof and as of the Closing Date, with the same
force and effect as if made on and as of the Closing Date. The Acquiring
Fund shall have delivered to the Acquired Fund a certificate executed in the
Acquiring Fund's name by the Corporation's President or Vice President and
its Treasurer or Assistant Treasurer, in form and substance satisfactory to
the Acquired Fund and dated as of the Closing Date, to such effect and as to
such other matters as the Acquired Fund shall reasonably request.
Article VII
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 its election, to the performance by
the Acquired Fund of all the obligations to be performed by the Acquired Fund
pursuant to this Agreement, on or before the Closing Date and, in addition,
shall be subject to the following conditions:
7.1 All representations, covenants, and warranties of the Acquired Fund
contained in this Agreement shall be true and correct in all material
respects as of the date hereof and as of the Closing Date, with the same
force and effect as if made on and as of such Closing Date. The Acquired
Fund shall have delivered to the Acquiring Fund on such Closing Date a
certificate executed in the Acquired Fund's name by the Trust's President or
Vice President and the Treasurer or Assistant Treasurer, in form and
substance satisfactory to the Acquiring Fund and dated as of such Closing
Date, to such effect and as to such other matters as the Acquiring Fund shall
reasonably request.
7.2 The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets and liabilities, together with a list
of the Acquired Fund's portfolio securities showing the tax costs of such
securities by lot and the holding periods of such securities, as of the
Closing Date, certified by the Treasurer of the Trust.
Article VIII
FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
ACQUIRING FUND AND ACQUIRED FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund, the
other party to this Agreement shall, at its option, not be required to
consummate the transactions contemplated by this Agreement:
8.1 This Agreement and the transactions contemplated herein, with respect
to the Acquired Fund, shall have been approved by the requisite vote of the
holders of the outstanding shares of the Acquired Fund in accordance with
applicable law and the provisions of the Trust's Declaration of Trust and
By-Laws. Certified copies of the resolutions evidencing such approval shall
have been delivered to the Acquiring Fund. Notwithstanding anything herein
to the contrary, neither the Acquiring Fund nor the Acquired Fund may waive
the conditions set forth in this paragraph 8.1.
8.2 On the Closing Date, the Commission shall not have issued an
unfavorable report under Section 25(b) of the 1940 Act, or instituted any
proceeding seeking to enjoin the consummation of the transactions
contemplated by this Agreement under Section 25(c) of the 1940 Act.
Furthermore, no action, suit or other proceeding shall be threatened or
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with
this Agreement or the transactions contemplated herein.
8.3 All required consents of other parties and all other consents, orders,
and permits of federal, state and local regulatory authorities (including
those of the Commission and of State securities authorities, including any
necessary "no-action" positions and exemptive orders from such federal and
state authorities) to permit consummation of the transactions contemplated
herein 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 waive any such conditions for
itself.
8.4 The Registration Statement shall have become effective under the 1933
Act, and no stop orders suspending the effectiveness thereof shall have been
issued. To the best knowledge of the parties to this Agreement, no
investigation or proceeding for that purpose shall have been instituted or be
pending, threatened or contemplated under the 0000 Xxx.
8.5 The parties shall have received an opinion of Xxxxxxxxx Xxxxxxx Xxxxx &
Xxxxxxxx LLP substantially to the effect that for federal income tax purposes:
a) The transfer of all of the Acquired Fund's assets to the Acquiring Fund
solely in exchange for Acquiring Fund Shares (followed by the
distribution of Acquiring Fund Shares to the Acquired Fund Shareholders
in dissolution and liquidation of the Acquired Fund) will constitute a
"reorganization" within the meaning of Section 368(a) of the Code, and
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.
b) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund solely in exchange for
Acquiring Fund Shares.
c) No gain or loss will be recognized by the Acquired Fund upon the
transfer of the Acquired Fund's assets to the Acquiring Fund solely in
exchange for Acquiring Fund Shares or upon the distribution (whether
actual or constructive) of Acquiring Fund Shares to Acquired Fund
Shareholders in exchange for their Selling Fund Shares.
d) No gain or loss will be recognized by any Acquired Fund Shareholder
upon the exchange of its Acquired Fund Shares for Acquiring Fund Shares.
e) The aggregate tax basis of the Acquiring Fund Shares received by each
Acquired Fund Shareholder pursuant to the Reorganization will be the
same as the aggregate tax basis of the Acquired Fund Shares held by it
immediately prior to the Reorganization. The holding period of
Acquiring Fund Shares received by each Acquired Fund Shareholder will
include the period during which the Acquired Fund Shares exchanged
therefor were held by such shareholder, provided the Acquired Fund
Shares are held as capital assets at the time of the Reorganization.
f) The tax basis of the Acquired Fund's assets acquired by the Acquiring
Fund will be the same as the tax basis of such assets to the Acquired
Fund immediately prior to the Reorganization. The holding period of
the assets of the Acquired Fund in the hands of the Acquiring Fund will
include the period during which those assets were held by the Acquired
Fund.
Such opinion shall be based on customary assumptions and such
representations as Xxxxxxxxx Xxxxxxx Xxxxx & Xxxxxxxx LLP may
reasonably request, and the Acquired Fund and Acquiring Fund will
cooperate to make and certify the accuracy of such representations.
The foregoing opinion may state that no opinion is expressed as to the
effect of the Reorganization on the Acquiring Fund, the Acquired Fund
or any Acquired Fund Shareholder with respect to any asset as to which
unrealized gain or loss is required to be reorganized for federal
income tax purposes at the end of a taxable year (or on the termination
or transfer thereof) under a xxxx-to-market system of accounting.
Notwithstanding anything herein to the contrary, neither the Acquiring
Fund nor the Acquired Fund may waive the conditions set forth in this
paragraph 8.5.
Article IX
EXPENSES
9.1 Federated Investment Management Company or its affiliates will pay all
expenses associated with Acquiring Fund's and Acquired Fund's participation
in the Reorganization. Reorganization expenses include, without limitation:
(a) expenses associated with the preparation and filing of the Proxy
Materials; (b) postage; (c) printing; (d) accounting fees; (e) legal fees
incurred by each Fund; (f) solicitation costs of the transaction; and
(g) other related administrative or operational costs.
Article X
ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Corporation, on behalf of the Acquiring Fund, and the Trust, on
behalf of the Acquired Fund, agree that neither party has made to the other
party any representation, warranty and/or covenant not set forth herein, and
that this Agreement constitutes the entire agreement between the parties.
10.2 Except as specified in the next sentence set forth in this paragraph
10.2, the representations, warranties, and covenants contained in this
Agreement or in any document delivered pursuant to or in connection with this
Agreement, shall not survive the consummation of the transactions
contemplated hereunder. The covenants to be performed after the Closing
Date, shall continue in effect beyond the consummation of the transactions
contemplated hereunder.
Article XI
TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the
Corporation and the Trust. In addition, either the Corporation or the Trust
may at its option terminate this Agreement at or before the Closing Date due
to:
a) a breach by the other of any representation, warranty, or agreement
contained herein to be performed at or before the Closing Date, if not
cured within 30 days;
b) a condition herein expressed to be precedent to the obligations of the
terminating party that has not been met and it reasonably appears that
it will not or cannot be met; or
c) a determination by a party's Board of Trustees, as appropriate, that
the consummation of the transactions contemplated herein is not in the
best interest of the Trust or the Corporation, respectively, and notice
given to the other party hereto.
11.2 In the event of any such termination, in the absence of willful
default, there shall be no liability for damages on the part of either the
Acquiring Fund, the Acquired Fund, the Corporation, the Trust, or their
respective Trustees or officers, to the other party or its Trustees or
officers.
Article XII
AMENDMENTS
12.1 This Agreement may be amended, modified, or supplemented in such manner
as may be mutually agreed upon in writing by the officers of the Trust and
the Corporation as specifically authorized by their respective Board of
Trustees or Board of Directors, as the case may be; provided, however, that
following the meeting of the Acquired Fund Shareholders called by the
Acquired Fund pursuant to paragraph 5.2 of this Agreement, no such amendment
may have the effect of changing the provisions for determining the number of
Acquiring Fund Shares to be issued to the Acquired Fund Shareholders under
this Agreement to the detriment of such shareholders without their further
approval.
Article XIII
HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
LIMITATION OF LIABILITY
13.1 The Article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
13.2 This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
13.3 This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
13.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but, except as provided
in this paragraph, 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.
13.5 It is expressly agreed that the obligations of the Acquired Fund
hereunder shall not be binding upon any of the Trustees, shareholders,
nominees, officers, agents, or employees of the Trust personally, but shall
bind only the trust property of the Acquired Fund, as provided in the
Declaration of Trust of the Trust. The execution and delivery of this
Agreement have been authorized by the Trustees of the Trust on behalf of the
Acquired Fund and signed by authorized officers of the Trust, acting as
such. Neither the authorization by such Trustees nor the execution and
delivery by such officers shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but shall
bind only the trust property of the Acquired Fund as provided in the Trust's
Declaration of Trust.
13.6 IN WITNESS WHEREOF, the parties have duly executed this Agreement, all
as of the date first written above.
FEDERATED TOTAL RETURN SERIES, INC.
on behalf of its portfolio,
Federated Limited Duration Fund
/s/ Xxxx X. XxXxxxxxx
Xxxx X. XxXxxxxxx, Secretary
FEDERATED INCOME SECURITIES TRUST
on behalf of its portfolio,
Federated Short-Term Income Fund
/s/ J. Xxxxxxxxxxx Xxxxxxx
J. Xxxxxxxxxxx Xxxxxxx, President
