1933 Act File No. 2-10638
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No.
Post-Effective Amendment No. 82 [X]
(Check appropriate box or boxes)
LORD ABBETT AFFILIATED FUND, INC.
(Exact Name of Registrant as Specified in Charter)
(212) 848-1800
(Area Code and Telephone Number)
767 FIFTH AVENUE
NEW YORK, NY 10153
(Address of Principal Executive Offices
Number, Street, City, State, Zip Code)
LAWRENCE H. KAPLAN, VICE PRESIDENT
767 FIFTH AVENUE
NEW YORK, NY 10153
(Name and Address of Agent for Service,
Number, Street, City, State, Zip Code)
Approximate Date of Proposed Public Offering: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE
UNDER THE SECURITIES ACT OF 1933.
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
TITLE OF THE SECURITIES BEING REGISTERED: SHARES OF BENEFICIAL INTEREST
WITH PAR VALUE OF $0.001. NO FILING FEE IS REQUIRED BECAUSE AN INDEFINITE
NUMBER OF SHARES HAVE PREVIOUSLY BEEN REGISTERED PURSUANT TO RULE 24F-2
UNDER THE INVESTMENT COMPANY ACT OF 1940. A RULE 24F-2 NOTICE FOR THE
REGISTRANT'S FISCAL YEAR ENDED OCTOBER 31, 1998 WAS FILED ON JANUARY 29,
1999.
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE ON
SEPTEMBER , 1999, PURSUANT TO RULE 488.
LORD ABBETT AFFILIATED FUND, INC.
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CROSS REFERENCE SHEET
(Pursuant to Rule 481(a) under the Securities Act of 1933)
N-14 ITEM NO. AND CAPTION LOCATION IN PROSPECTUS
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PART A
1. Beginning of Registration Statement and Facing Page of Registration Statement; Front
Outside Front Cover Page of Prospectus Cover Page of Prospectus
2. Beginning and Outside Back Cover Page Table of Contents
of Prospectus
3. Synopsis Information and Risk Factors Summary; Comparisons of Some Important Features
4. Information About the Transaction Summary; Reasons for the Merger; Information
About the Merger
5. Information About the Registrant Prospectus Cover Page; Summary; Comparisons of
Some Important Features; Comparison of
Investment Goals and Policies; Information
About Affiliated Fund; Information About Real
Silk
6. Information About the Company Being Prospectus Cover Page; Summary; Comparisons of
Acquired Some Important Features; Comparison of
Investment Goals and Policies; Information
About Affiliated Fund; Information About Real
Silk
7. Voting Information Prospectus Cover Page; Notice of Special
Shareholders Meeting; Voting Information;
Principal Holders of Shares
8. Interest of Certain Persons and Experts None
9. Additional Information Required for Not Applicable
Reoffering by Persons Deemed to be
Underwriters
PART B
10. Cover Page Cover Page of Statement of Additional
Information
11. Table of Contents Not Applicable
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12. Additional Information About the Incorporation of Documents by Reference in the
Registrant Statement of Additional Information
13. Additional Information About the Incorporation of Documents by Reference in the
Company Being Acquired Statement of Additional Information
14. Financial Information Incorporation of Documents by Reference in the
Statement of Additional Information
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PART C -- OTHER INFORMATION
Part C contains the information required by Items 15-17 as set forth in the
form.
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[REAL SILK INVESTMENTS, INCORPORATED LETTERHEAD]
_____________, 1999
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Real Silk Investments, Incorporated ("Real Silk"), to be held at the offices of
Leagre Chandler & Millard LLP located at 1400 First Indiana Plaza, 135 North
Pennsylvania Street, Indianapolis, Indiana, on ______________, 1999, at ______
__.m., Indianapolis Time.
The purpose of the meeting is to consider and vote upon adoption of the
Agreement and Plan of Merger under which Real Silk will merge into Lord Abbett
Affiliated Fund, Inc. ("Affiliated Fund"). If the proposed merger is
consummated, each share of Real Silk Common Stock (other than any dissenting
shares) will be converted into that number of Affiliated Fund Class A Shares
determined by dividing the net asset value per share of Real Silk Common Stock
by the net asset value per share of Affiliated Fund Class A Shares as of the
close of business on the effective date of the merger, all as described in the
accompanying Prospectus/Proxy Statement.
Your Board of Directors believes that the proposed merger between Real Silk
and Affiliated Fund is in the best interests of Real Silk and its shareholders.
The Board has unanimously approved the proposed merger. Enclosed with this
letter are (i) a Notice of Special Meeting of Shareholders, (ii) a
Prospectus/Proxy Statement, (iii) a proxy card for you to complete, sign, date
and return, and (iv) a postage pre-paid envelope. We encourage you to read the
enclosed materials carefully and in their entirety.
Whether or not you attend the Special Meeting, your Board of Directors
requests that you complete, sign and date the enclosed proxy card and return it
in the enclosed postage pre-paid envelope at your earliest convenience before
the Special Meeting. If you desire, you may cancel your proxy at any time before
it is voted at the Special Meeting.
The Board of Directors recommends that you vote for approval of the
proposed merger by promptly executing and returning the enclosed proxy card.
Very truly yours,
Daniel R. Efroymson,
President
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REAL SILK INVESTMENTS, INCORPORATED
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD _______________, 1999
To the Shareholders of Real Silk Investments, Incorporated:
Notice is hereby given that a Special Meeting of Shareholders of Real Silk
Investments, Incorporated ("Real Silk") has been called by the Board of
Directors to be held on ______________, ______________, 1999, at _____ __.m.,
Indianapolis time, at the offices of Leagre Chandler & Millard LLP located at
1400 First Indiana Plaza, 135 North Pennsylvania Street, Indianapolis, Indiana,
for the following purposes:
1. To consider and vote upon a proposal to approve an Agreement and Plan
of Merger, dated July 8, 1999, between Real Silk and Lord Abbett
Affiliated Fund, Inc. (the "Agreement"), and to approve the
transactions contemplated by the Agreement, including the merger of
Real Silk with and into Lord Abbett Affiliated Fund, Inc.
2. To transact such other business as may properly come before the
meeting or any adjournments.
Shareholders of record as of the close of business on _____________, 1999,
are entitled to notice of and to vote at the Special Meeting or any adjournments
of the Special Meeting.
The merger and related matters are described in the attached
Prospectus/Proxy Statement. A copy of the Agreement is attached as Exhibit A to
the Prospectus/Proxy Statement.
The accompanying Prospectus/Proxy Statement also describes the rights of
and procedures for shareholders under Indiana law to dissent and demand payment
in cash for the fair value of their shares if the merger is approved and
consummated.
Shareholders are requested to execute and return promptly in the
enclosed envelope the accompanying proxy card, which is being solicited by the
Real Silk Board of Directors. This is important to ensure a quorum at the
Special Meeting. Proxies may be revoked at any time before they are exercised by
submitting to Real
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Silk a written notice of revocation or a subsequently executed proxy or by
attending the Special Meeting and voting in person.
By order of the Board
of Directors:
------------------------------
Indianapolis, Indiana
____________________, 1999
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PRELIMINARY COPY
PROSPECTUS AND PROXY STATEMENT
Dated September , 1999
Merger of Real Silk Investments, Incorporated
into
Lord Abbett Affiliated Fund, Inc.
This Prospectus/Proxy Statement solicits proxies to be voted at a Special
Shareholders' Meeting (the "Meeting") of Real Silk Investments, Incorporated
("Real Silk") to approve or disapprove an Agreement and Plan of Merger (the
"Agreement"). If shareholders vote to approve the Agreement, Real Silk will be
merged into Lord Abbett Affiliated Fund, Inc. ("Affiliated Fund") and
shareholders of Real Silk will receive Affiliated Fund Class A Shares.
The Meeting will be held at the offices of Leagre Chandler & Millard LLP
located at 1400 First Indiana Plaza, 135 North Pennsylvania Street,
Indianapolis, Indiana, on [give date] at [give time] Indianapolis time. The
Board of Directors of Real Silk is soliciting these proxies. This
Prospectus/Proxy Statement will first be sent to shareholders on or about [give
date].
If the shareholders vote to approve the Agreement, you will receive Class A
Shares of Affiliated Fund with a net asset value equal to the net asset value of
your shares of Real Silk and Real Silk will cease to exist.
Affiliated Fund's primary investment goal is long-term growth of capital
without excessive fluctuations in market value.
Real Silk's investment goal is long-term growth of capital through
investment in value-oriented equity securities. From January 1, 1989 through
December 31, 1998, Real Silk's investment goals and portfolio management were
influenced by the "built in gains tax" penalty. The built in gains tax penalty
would have applied to any long-term capital gains realized by Real Silk as a
result of the sale of any portfolio securities that it held on January 1, 1989,
the first date on which Real Silk qualified as a regulated investment company,
and would have resulted in Real Silk paying additional taxes on such gains.
This Prospectus/Proxy Statement gives information about the proposed
merger (the "Merger") and Class A Shares of Affiliated Fund that you should know
before
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voting. You should retain it for future reference. You can find additional
information about Affiliated Fund and the Merger in the following documents:
The Prospectus of Affiliated Fund dated March 1, 1999 (the "Affiliated Fund
Prospectus") is attached to and considered a part of this Prospectus/Proxy
Statement.
The Semi-Annual Report to Shareholders of Affiliated Fund dated April 30,
1999 contains financial and performance information for Affiliated Fund and is
attached to and considered a part of this Prospectus/Proxy Statement.
A Statement of Additional Information dated September , 1999 relating to
this Prospectus/Proxy Statement has been filed with the SEC and is incorporated
by reference into this Prospectus/Proxy Statement.
Real Silk's Annual Report to Shareholders dated January 22, 1999 is on file
with the SEC (File No. 811-01788) and is incorporated by reference herein.
Real Silk's Six Months Report to shareholders dated August , 1999 is on
file with the SEC (File No. 811-01788) and is incorporated by reference herein.
You may request a free copy of the Statement of Additional Information
relating to this Prospectus/Proxy Statement or any of the documents referred to
above without charge by calling 800-426-1130 or writing Affiliated Fund at 767
Fifth Avenue, New York, NY 10153 for documents relating to Affiliated Fund or by
writing to Real Silk at 445 N. Pennsylvania Street, Suite 500, Indianapolis, IN
46204, for documents relating to Real Silk.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER U.S. GOVERNMENT
AGENCY. MUTUAL FUND SHARES INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS
OF PRINCIPAL.
2
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Table of Contents
Cover Page
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SUMMARY..................................................................................................5
On What Proposal Am I Being Asked to Vote?......................................................5
How Will the Shareholder Voting Be Handled?.....................................................6
What Are the General Tax Consequences of the Merger?............................................6
PRINCIPAL RISKS OF AFFILIATED FUND.......................................................................7
COMPARISONS OF SOME IMPORTANT FEATURES...................................................................8
Who Manages the Funds?..........................................................................8
What Are the Fees and Expenses of Each Fund and What Might They Be After the Merger?............9
Where Can I Find More Financial Information About the Funds?...................................10
Transfer Agency and Custody Services...........................................................13
Distribution Services..........................................................................13
Rule 12b-1 Plans...............................................................................13
Purchases and Redemptions......................................................................14
Dividends and Distributions....................................................................15
REASONS FOR THE MERGER..................................................................................16
INFORMATION ABOUT THE MERGER............................................................................17
How Will the Merger Be Carried Out?............................................................17
Who Will Pay the Expenses of the Merger?.......................................................17
What Are the Tax Consequences of the Merger?...................................................18
What Should I Know about the Shares of Affiliated Fund and
Real Silk?.....................................................................................19
COMPARISON OF INVESTMENT GOALS AND POLICIES.............................................................20
VOTING INFORMATION......................................................................................24
Who is Entitled to Vote?.......................................................................24
How Many Votes are Necessary to Approve the Agreement?.........................................24
How do I Ensure that My Vote is Accurately Recorded?...........................................24
Can I Revoke my Proxy?.........................................................................24
Are there Dissenters' Rights?..................................................................25
What Other Solicitations will be Made?.........................................................26
What Other Matters will be Voted Upon at the Meeting?..........................................26
3
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VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF.........................................................26
INFORMATION ABOUT AFFILIATED FUND.......................................................................28
INFORMATION ABOUT REAL SILK.............................................................................29
</TABLE>
4
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SUMMARY
This is only a summary of certain information contained in this
Prospectus/Proxy Statement. You should read the more complete information in the
rest of this Prospectus/Proxy Statement, including the Agreement (attached as
Exhibit A), the Prospectus of Affiliated Fund (attached as Exhibit B) and the
Annual Report to Shareholders of Affiliated Fund (attached as Exhibit C).
On What Proposal Am I Being Asked to Vote?
At a meeting held on [insert date], the Board of Directors of Real Silk
approved the Agreement and recommended that shareholders of Real Silk vote to
approve the Agreement. If shareholders of Real Silk vote to approve the
Agreement, it will result in the merger of Real Silk into Affiliated Fund.
Shareholders of Real Silk will then receive Class A Shares of Affiliated Fund
and Real Silk will cease to exist. As a result of the Merger, you will cease to
be a shareholder of Real Silk and will become a shareholder of Affiliated Fund.
This exchange will occur on the closing date of the Merger, which is the
specific date on which the Merger takes place.
Immediately after the closing date of the Merger, Peoples Bank & Trust
Company (the "Exchange Agent") will mail a letter to each Real Silk shareholder
of record with instructions on how to surrender Real Silk shares and receive
Affiliated Fund shares. Upon receipt of Real Silk shares, the Exchange Agent
will deliver to (i) the Real Silk shareholder a certificate for the number of
Class A Shares of Affiliated Fund that the shareholder is entitled to have
immediately and (ii) an escrow agent a certificate, in the name of the Real Silk
shareholder, representing the number of shares subject to an escrow agreement.
The escrow agreement is described below in the "Purchases and Redemptions"
section. This means that you will receive Class A Shares of Affiliated Fund with
a net asset value equal to the net asset value of the shares of Real Silk which
you owned and surrendered to the Exchange Agent.
For the reasons set forth in the "Reasons for the Merger" Section, the
Board of Directors of Real Silk has determined that the Merger is in the best
interest of the shareholders of Real Silk.
The Board of Directors recommends that you vote to approve the Agreement.
How Will the Shareholder Voting Be Handled?
Shareholders who own shares of Real Silk at the close of business on
[insert date] will be entitled to vote at the Meeting, and will be entitled to
one vote for each share that
5
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they hold. To approve the Merger, a majority of the outstanding shares of Real
Silk must be voted in favor of the Agreement.
Please vote by proxy as soon as you receive this Prospectus/Proxy
Statement. You may place your vote by completing and signing the enclosed proxy
card. If you return your signed proxy card(s), your vote will be officially cast
at the Meeting by the persons appointed as proxies.
You can revoke your proxy or change your voting instructions at any time
until the vote is taken at the Meeting. For more details about shareholder
voting, see the "Voting Information" section of this Prospectus/ Proxy
Statement.
What Are the General Tax Consequences of the Merger?
It is expected that shareholders of Real Silk will not recognize any gain
or loss for federal income tax purposes on their receipt of Class A Shares of
Affiliated Fund in exchange for shares of Real Silk as a result of the Merger.
You should, however, consult your tax adviser regarding the effect, if any, of
the Merger in light of your individual circumstances. You also should consult
your tax adviser about state and local tax consequences. For more information
about the tax consequences of the Merger, please see "Information about the
Merger -- What are the Tax Consequences of the Merger?"
How Do the Investment Goals and Policies of the Funds Compare?
The investment goals of Real Silk and Affiliated Fund are similar, but
differ somewhat. Affiliated Fund's investment objective is long-term growth of
capital and income without excessive fluctuation in market value. Real Silk's
investment goal is long-term growth of capital through investment in
value-oriented equity securities. From January 1, 1989 through December 31,
1998, Real Silk's investment goals and portfolio management were influenced by
the built in gains tax penalty that would have applied to any long-term capital
gains realized by Real Silk as a result of the sale of any portfolio securities
that it held on January 1, 1989, the first date on which Real Silk qualified as
a regulated investment company. Accordingly, Real Silk historically has had very
little portfolio turnover. Affiliated Fund has had somewhat greater portfolio
turnover. Affiliated Fund's higher turnover rate means that it may recognize
capital gains more frequently than Real Silk has.
For more information about the investment goals and policies of the funds,
please see "Comparison of Investment Goals and Policies."
6
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PRINCIPAL RISKS OF AFFILIATED FUND
While stocks have historically been a leading choice of long-term
investors, they fluctuate in price. The value of your investment in Affiliated
Fund will go up and down, which means that you could lose money.
Affiliated Fund's performance may sometimes be lower or higher than that of
other types of funds (such as those emphasizing small-company stocks or growth
stocks) because different types of stocks tend to shift in and out of favor
depending on market and economic conditions. While there is the risk that an
investment may never reach what Affiliated Fund thinks is its full value, or may
go down in value, Affiliated Fund's emphasis on large, seasoned-company bargain
stocks could limit its downside risk. This is because bargain stocks in theory
are already underpriced and large, seasoned-company stocks tend to be less
volatile than small company stocks. In the long run, Affiliated Fund may produce
more modest gains than riskier stock funds as a trade-off for this potentially
lower risk.
Because Real Silk generally has invested in securities similar to those in
which Affiliated Fund has invested, the two funds have similar investment risks.
In addition to the risks described for Affiliated Fund, an investment in Real
Silk is also subject to a risk of lack of liquidity and variation in the amount
of discount between the market price per share for Real Silk shares and the net
asset value per share.
7
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COMPARISONS OF SOME IMPORTANT FEATURES
Who Manages the Funds?
The management of the business and affairs of each fund is the
responsibility of each fund's respective board of directors. Real Silk is a
registered, closed-end, management investment company. It was organized in
Illinois on September 20, 1923 and reincorporated as an Indiana corporation on
July 23, 1968. Affiliated Fund is a registered open-end, management investment
company, commonly known as a "mutual fund." Affiliated Fund was organized in
1932 and reincorporated as a Maryland corporation on November 26, 1975.
The officers of Real Silk manage the assets of Real Silk and make its
investment decisions.
Affiliated Fund's investment adviser is Lord, Abbett & Co., 767 Fifth
Avenue, New York, NY 10153-0203. Founded in 1929, Lord Abbett manages one of the
nation's oldest mutual fund complexes, with approximately $32 billion in more
than 40 mutual fund portfolios and other advisory accounts. For more information
about the services Lord Abbett provides to Affiliated Fund, see the Statement of
Additional Information.
Affiliated Fund pays Lord Abbett a monthly fee based on average daily net
assets for each month. For the fiscal year ended October 31, 1998, the fee paid
to Lord Abbett was at an annual rate of .31 of 1%. In addition, Affiliated Fund
pays all expenses not expressly assumed by Lord Abbett.
Lord Abbett uses a team of portfolio managers and analysts acting together
to manage Affiliated Fund's investments. Thomas Hudson Jr., Partner of Lord
Abbett, heads the team, the senior members of which include Robert Morris,
Partner of Lord Abbett, and Eli Salzman, Portfolio Manager. Messrs. Hudson and
Morris have been with Lord Abbett since 1982 and 1991, respectively. Mr. Salzman
joined Lord Abbett in 1997 and previously was a Vice President with Mutual of
America Capital Corp. from 1996 to 1997 and a Vice President with Mitchell
Hutchins Asset Management, Inc. from 1986 to 1996.
8
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What Are the Fees and Expenses of Each Fund and What Might They Be After the
Merger?
FEES AND EXPENSES
Affiliated Fund Expenses
This table describes the fees and expenses that you may pay if you buy
and hold Class A Shares of Affiliated Fund.
Shareholder Fees (Fees paid directly from your investment)
Maximum Sales Charge on Purchases (as a % of offering price) 5.75%(1)
Maximum Deferred Sales Charge (See "Purchases") None
Annual Fund Operating Expenses (Expenses deducted from fund assets)
(as a % of average net assets)(2)
Management Fees (See "Management") 0.31%
Distribution and Service (12b-1) Fees(3) 0.35%
Other Expenses (See "Management") 0.09%
Total Operating Expenses 0.75%
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1. No sales charge will be imposed in connection with the issuance of Class A
Shares in the Merger.
2. The annual operating expenses have been restated from fiscal year amounts
to reflect current fees.
3. Because 12b-1 distribution fees are paid out on an ongoing basis, over time
they will increase the cost of your investment.
Affiliated Fund Expense Examples
This example, like that in other funds' prospectuses, assumes a $10,000
initial investment at maximum sales charge, if any, 5% total return each year
and no changes in expenses. You pay the following expenses over the course of
each period shown, although your actual cost may be higher or lower.
1 Year 3 Years 5 Years 10 Years
$647 $801 $968 $1,454
The example above assumes payment of the maximum sales charge. No sales
charge will be imposed in connection with the issuance of Class A Shares in the
Merger. The example below uses the same assumptions as the example above, except
that it assumes no payment of a sales charge.
9
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1 Year 3 Years 5 Years 10 Years
$72 $226 $393 $879
These examples are for comparison and are not representations of Affiliated
Fund's actual expenses or returns, either past or present. It is not expected
that Affiliated Fund will have a materially different level of expenses as a
result of the Merger.
Real Silk Expenses
Real Silk does not have an external investment adviser and therefore has no
management fees comparable to those of Affiliated Fund. All investment
management and other functions are performed by Real Silk management and other
employees and it is therefore difficult, if not impossible, to segregate the
management fees from other expenses in a manner similar to that shown above for
Affiliated Fund. For the first six months of 1999, Real Silk's total annualized
expense ratio was 0.78%.
Real Silk Expense Example
This example, like that in other funds' prospectuses, assumes a $10,000
initial investment, including a 5% total return each year and no changes in
expenses. It does not include the costs of the brokerage commission that would
be paid on the purchase of Real Silk shares in the over-the-counter market. You
pay the following expenses over the course of each period shown, although your
actual cost may be higher or lower.
1 Year 3 Years 5 Years 10 Years
$78 $246 $431 $981
This example is for comparison and is not a representation of Real Silk's actual
expenses or returns, either past or present.
Where Can I Find More Financial Information About the Funds?
For Affiliated Fund, per-share income information for the past five fiscal
years is shown immediately below under the heading "Financial Highlights." Also,
the current Semi-Annual Report to Shareholders of Affiliated Fund, which is
attached, includes a discussion of Affiliated Fund's performance during the six
months ended April 30, 1999.
10
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Real Silk's Annual Report and Six Months Report contain more financial
information. These documents are available free of charge upon request (see
"Information about Real Silk").
11
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Financial Highlights
This table describes Affiliated Fund's performance for the fiscal periods
indicated. "Total return" shows how much your investment in Affiliated Fund
would have increased (or decreased) during each period, assuming you had
reinvested all dividends and distributions. These Financial Highlights have been
audited by Deloitte & Touche LLP, Affiliated Fund's independent auditors, in
conjunction with their annual audit of Affiliated Fund's financial statements.
Financial statements for the fiscal year ended October 31, 1998 and the
Independent Auditors' Report thereon appear in the Annual Report to Shareholders
for the fiscal year ended October 31, 1998 and are incorporated by reference
into the Statement of Additional Information, which is available upon request.
Certain information reflects financial results for a single fund share.
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Class A Shares
Year Ended October 31,
- -----------------------------------------------------------------------------------------------------------
Per Share Operating Performance: 1998 1997 1996 1995 1994
- ------------------------------------------ ------------ ------------ ------------- ------------ -----------
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Net asset value, beginning of year $14.84 $13.02 $11.98 $11.03 $11.26
- ------------------------------------------ ------------ ------------ ------------- ------------ -----------
Income from investment operations
- ------------------------------------------ ------------ ------------ ------------- ------------ -----------
Net investment income .24 .30 .30 .32 .31
- ------------------------------------------ ------------ ------------ ------------- ------------ -----------
Net realized and unrealized gain on 1.14 2.85 2.23 1.70 .38
investments
- ------------------------------------------ ------------ ------------ ------------- ------------ -----------
Total from investment operations 1.38 3.15 2.53 2.02 .69
- ------------------------------------------ ------------ ------------ ------------- ------------ -----------
Distributions
- -----------------------------------------------------------------------------------------------------------
Dividends from net investment income (.27) (.30) (.30) (.30) (.32)
- ------------------------------------------ ------------ ------------ ------------- ------------ -----------
Distributions from net realized gain (1.39) (1.03) (1.19) (.77) (.60)
- ------------------------------------------ ------------ ------------ ------------- ------------ -----------
Net asset value, end of year $14.56 $14.84 $13.02 $11.98 $11.03
- ------------------------------------------ ------------ ------------ ------------- ------------ -----------
Total Return (a) 10.27% 25.80% 23.23% 20.46% 6.66%
- ------------------------------------------ ------------ ------------ ------------- ------------ -----------
Ratios to Average Net Assets:
- ------------------------------------------ ------------ ------------ ------------- ------------ -----------
Expenses (b) 0.63% 0.65% 0.66% 0.63% 0.63%
- ------------------------------------------ ------------ ------------ ------------- ------------ -----------
Net investment income 1.64% 2.15% 2.61% 2.90% 2.91%
- ------------------------------------------ ------------ ------------ ------------- ------------ -----------
Year Ended October 31,
- -----------------------------------------------------------------------------------------------------------
Supplemental Data For All Classes: 1998 1997 1996 1995 1994
- ------------------------------------------ ------------ ------------ ------------- ------------ -----------
Net Assets, end of year (000) $8,520,603 $7,697,754 $6,100,665 $4,964,525 $4,229,586
- ------------------------------------------ ------------ ------------ ------------- ------------ -----------
Portfolio turnover rate 56.49% 46.41% 47.06% 53.84% 51.48%
- ------------------------------------------ ------------ ------------ ------------- ------------ -----------
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(a) Total return does not consider the effects of sales loads and assumes the
reinvestment of all distributions.
(b) The ratios for 1998 and 1997 include expenses paid through an expense
offset arrangement.
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Transfer Agency and Custody Services. DST Systems, Inc. is the transfer
agent for Affiliated Fund. Registrar and Transfer Company is the transfer agent
for Real Silk.
The Bank of New York acts as the custodian of the securities and other
assets of Affiliated Fund. The main office of the Bank of New York is 90
Washington Street, New York, NY 10286. Bank One Trust Company, N.A. is the
custodian of the securities and other assets of Real Silk. The main office of
Bank One Trust Company, N.A. is 100 East Broad Street, Columbus, OH 43271-0152.
Distribution Services. Under an underwriting agreement with Affiliated
Fund, Lord Abbett Distributor LLC acts as principal underwriter in a continuous
public offering of Affiliated Fund's shares. Lord Abbett Distributor LLC pays
the expenses of the distribution of Affiliated Fund shares, including
advertising expenses and costs of printing sales materials and prospectuses used
to offer shares to the public.
Real Silk does not offer its shares to the public and has no underwriter.
Rule 12b-1 Plans. Class A shares of Affiliated Fund are subject to a plan
of distribution under SEC Rule 12b-1. Under the 12b-1 Plan, Class A shares
currently bear fees for distribution of up to 0.10% annually and fees for
services of up to 0.25% annually. The distribution fees may be used to pay
authorized institutions to finance any activity that is primarily intended to
result in the sale of shares. Lord Abbett Distributor LLC uses its portion of
the distribution fees for activities that are primarily intended to result in
the sale of shares. For example, it uses its portion for activities such as
printing prospectuses, statements of additional information and reports for
other than existing shareholders; preparing and distributing advertising and
sales material; organizing and conducting sales seminars; paying additional
concessions to authorized institutions; and paying the costs necessary to
provide distribution-related services or personnel, travel, office expenses,
equipment and other allocable overhead. The service fees are paid to authorized
institutions for any activity that is primarily intended to result in personal
service and/or the maintenance of shareholder accounts. Any portion of the
service fees paid to Lord Abbett Distributor LLC will be used to service and
maintain shareholder accounts.
Real Silk does not have a plan of distribution under SEC Rule 12b-1. The
Agreement and Plan of Merger provides that Real Silk shareholders will be
permitted to designate a broker/dealer licensed with the SEC to receive the Rule
12b-1 service fees related to the Affiliated Fund shares. The broker/dealer must
be a party to a selling agreement with Lord Abbett Distributor LLC. If you want
to designate the recipient of the service fees, please have your broker/dealer
contact Lord Abbett Distributor LLC. There is no additional charge to you
whether or not you designate the fees.
13
<PAGE>
Purchases and Redemptions. The maximum front-end sales charge for Class A
shares of Affiliated Fund is 5.75% with reduced charges for purchases of $50,000
or more and no front-end sales charges for purchases of $1 million or more.
Affiliated Fund requires a minimum initial investment of $250. No sales charge
will be imposed on shares issued in the Merger.
You will be permitted to reinvest capital gains distributions and income
distributions from your Affiliated Fund shares in additional shares, without the
imposition of a sales charge. You are not required to reinvest any
distributions, and if you do not make an election, you will receive the
distributions in cash.
Future purchases of Affiliated Fund shares from sources other than the
Merger and the reinvestment of capital gains distributions and income
distributions will be subject to a sales charge determined as stated in the
Affiliated Fund Prospectus. Real Silk shareholders will be entitled to aggregate
the Affiliated Fund shares received in the Merger with any future purchases to
determine the applicable sales charge. The percentage of sales charge imposed
generally decreases as the amount of investment in Affiliated Fund increases.
Please review the Affiliated Fund Prospectus for additional information
concerning sales charges on future purchases.
You may sell (or redeem) your shares at any time, except that sixty-five
percent (65%) of the Affiliated Fund shares received by you in the Merger will
be subject to an escrow agreement. In order to assure that all shareholders are
treated equally, and to assist in the qualification of the Merger as a
"reorganization" (and therefore not be subject to taxation at this time) the
Agreement provides for a one year escrow period. By voting in favor of the
Merger, you will also be voting in favor of the escrow agreement and agreeing to
have sixty-five percent (65%) of the Affiliated Fund shares that you receive
placed in escrow for a period of one (1) year. The thirty-five percent (35%) of
the shares that are not subject to the escrow may be sold (or redeemed) at any
time. However, in order to assure that the Merger will qualify as a
"reorganization" for federal income tax purposes (see "Information About the
Merger -- What are the Tax Consequences of the Merger"), certain Real Silk
shareholders will be asked to sign representation letters that they have no
"plan or intention" to redeem Affiliated Fund shares that they receive in the
Merger.
Peoples Bank & Trust Company, an Indianapolis-based commercial bank, has
agreed to act as the escrow agent. The escrow agent will receive the Affiliated
Fund shares at the closing date and will hold them for a period of one year from
the date the Merger becomes effective. On the one year anniversary of the
closing date, the escrow agent will mail the shares to you and you may sell (or
redeem) them at any time. Subject to the escrow agreement, shares of Affiliated
Fund also may be exchanged for shares of other Lord Abbett Funds, subject to
certain limitations, as provided in the
14
<PAGE>
prospectus of the respective Lord Abbett Fund. Because it is a sale and a
purchase of shares, an exchange is a taxable transaction.
Shares of Affiliated Fund may be redeemed at their net asset value per
share. However, redemptions of Class A shares of Affiliated Fund that were
purchased in amounts of $1 million or more generally are subject to a contingent
deferred sales charge. Affiliated Fund shares acquired by Real Silk shareholders
as a result of the Merger are not subject to a contingent deferred sales charge.
Additional information and specific instructions explaining how to buy, sell,
and exchange shares of Affiliated Fund are outlined in the current Prospectus
under the heading "Opening Your Account."
Real Silk shares are not redeemable; however, the shares may be sold in the
over-the-counter market. Historically, Real Silk shares have traded at a
discount from net asset value per share. In addition, due to the limited number
of shareholders and various other factors, trading in Real Silk shares has been
very limited.
Dividends and Distributions. Affiliated Fund pays its shareholders
dividends from its net investment income, and distributes any net capital gains
that it has realized. Affiliated Fund expects that its dividends from investment
income will be paid quarterly. If a capital gain distribution is declared, it
will be paid annually. Your distributions will be reinvested in Affiliated Fund
unless you instruct the fund to pay them to you in cash. There are no sales
charges on reinvestments.
The tax status of distributions is the same for all shareholders regardless
of how long they have been in the fund or whether distributions are reinvested
or paid in cash. In general, distributions are taxable as follows:
<TABLE>
<CAPTION>
Federal Taxability Of Distributions
Type of distribution Tax rate for taxpayer Tax rate for taxpayer subject to
subject to 15% bracket 28% bracket or above
- -------------------- ---------------------- --------------------
<S> <C> <C>
Income dividends 15% Ordinary Income Rate
Short-term capital gains 15% Ordinary Income Rate
Long-term capital gains 10% 20%
</TABLE>
Except in tax-advantaged accounts, any sale or exchange of fund shares may
be a taxable event. The chart above also can provide a "rule of thumb" guide for
your potential U.S. federal income tax liability when selling or exchanging fund
shares. The second row, "Short-term capital gains," applies to fund shares sold
within 12 months of
15
<PAGE>
purchase. The third row, "Long-term capital gains," applies to shares held for
more than 12 months.
Information concerning the tax treatment of dividends and other
distributions will be mailed to Affiliated Fund shareholders each year.
Affiliated Fund will also provide information annually to its shareholders
regarding the source of dividends and distributions of capital gains. Because
everyone's tax situation is unique, you should consult your tax adviser
regarding the treatment of those distributions under the federal, state and
local tax rules that apply to you as well as the tax consequences of gains or
losses from the redemption or exchange of your shares.
Real Silk's policies regarding distributions of income and capital gains
are somewhat different from those of Affiliated Fund. Like Affiliated Fund, Real
Silk has followed the policy of distributing all of its net investment income,
and has made its distributions quarterly, with the year-end distribution varying
in amounts to assure that Real Silk distributed substantially all of its net
investment income and therefore satisfied the requirements of the Internal
Revenue Code in order to be treated as an investment company. Unlike Affiliated
Fund, Real Silk has not distributed capital gains, but paid the corporate level
tax on those gains and declared a deemed distribution to its shareholders. The
shareholders are then entitled to a tax credit to the extent of the proportional
share of the tax paid. This practice has the general effect of having capital
gains distributions reinvested by Real Silk shareholders and has assisted in the
growth of Real Silk.
REASONS FOR THE MERGER
In early 1998, Real Silk announced that it was undertaking a review of the
potential options available for the future of Real Silk and intended to consider
all alternatives. The Real Silk Board of Directors indicated that the review was
precipitated by a variety of reasons, including primarily the expiration on
December 31, 1998 of the built in gains tax, the size of Real Silk,
opportunities that may be available for Real Silk and health problems of Real
Silk's president.
As a result of the review of alternatives, the Board of Directors
determined that it was in the best interests of shareholders for Real Silk to
enter into a merger that would be tax-free to shareholders. Other significant
reasons for the Merger include: (1) substantially enhanced liquidity of Real
Silk shares following the Merger, (2) elimination of the discount from net asset
value per share at which Real Silk shares have historically traded, (3) the
opportunity to merge into a mutual fund with similar investment objectives and
goals, (4) avoidance of potentially significant future increases in Real Silk's
expense ratios should Real Silk not merge, and (5) enhanced investment choices
for Real Silk shareholders by becoming part of the Lord Abbett Family of Funds,
including fixed income and money market fund options.
16
<PAGE>
INFORMATION ABOUT THE MERGER
This is only a summary of the Agreement. You should read the actual
Agreement. It is attached as Exhibit A.
How Will the Merger Be Carried Out?
If the shareholders of Real Silk approve the Agreement, the Merger will
take place after various conditions are satisfied by Real Silk and Affiliated
Fund, including the delivery of certain documents. Real Silk and Affiliated Fund
will agree on a specific date for the actual Merger to take place. This is
called the closing date. If the shareholders of Real Silk do not approve the
Agreement, the Merger will not take place.
If shareholders of Real Silk do approve the Agreement on [insert date],
after the close of business on the closing date, transfers of shares of Real
Silk will no longer be allowed.
To the extent permitted by law, Real Silk and Affiliated Fund may agree to
amend the Agreement without shareholder approval. They may also agree to
terminate and abandon the Merger any time before or, to the extent permitted by
law, after the approval of Real Silk shareholders.
Before the Merger, Real Silk will sell a sufficient amount of its portfolio
securities to realize approximately $20 million in long-term capital gains. Who
Will Pay the Expenses of the Merger?
Affiliated Fund and Real Silk each will pay its own expenses in connection
with the Merger, except that Real Silk is paying a portion of certain filing
fees incurred by Affiliated Fund. Real Silk's expenses include fees of up to
$1,000,000 that it will pay its investment banker, U.S. Bancorp Piper Jaffray
Inc. In addition, if the Agreement is terminated by Real Silk for certain
reasons, Real Silk will pay Affiliated Fund's expenses, including legal fees, up
to $100,000.
What Are the Tax Consequences of the Merger?
The following is a discussion of the material federal income tax
consequences of the Merger under existing federal income tax law, which is
subject to change, possibly retroactively. This discussion assumes that Real
Silk shareholders hold their shares as a capital asset as of the effective date
of the Merger. This discussion does not discuss all aspects of federal income
taxation that may be relevant to particular Real Silk shareholders in light of
their personal circumstances, such as Real Silk shareholders
17
<PAGE>
whose stock was acquired pursuant to the exercise of an employee stock option or
otherwise as compensation or Real Silk shareholders who are subject to special
treatment under the federal income tax laws (for example, financial
institutions, insurance companies, tax-exempt organizations, broker-dealers and
foreign persons). This discussion also does not address any aspects of state,
local or foreign tax law. No rulings have been or will be sought from the
Internal Revenue Service with respect to any tax matters relating to the Merger.
Each Real Silk shareholder is advised to consult his or her own tax advisors as
to the federal, state, local and foreign income and other tax consequences of
the Merger.
The obligation of Real Silk to consummate the Merger is conditioned upon
the receipt by Real Silk of an opinion from the law firm of Ropes & Gray
substantially to the effect that, on the basis of certain facts, representations
by management of the companies and assumptions set forth in such opinions, the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code and Real Silk shareholders who
receive solely Class A Shares of Affiliated Fund pursuant to the Merger will not
recognize gain or loss for federal income tax purposes as a result of the
consummation of the Merger. The obligation of Affiliated Fund to consummate the
Merger is conditioned upon a number of events, including the receipt by
Affiliated Fund of an opinion from the law firm of Debevoise & Plimpton
substantially to the effect that, on the same basis as described above, the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code.
Assuming that the Merger does qualify for such treatment, the federal
income tax consequences to Real Silk shareholders will be as follows:
(i) In connection with Real Silk's sale of portfolio securities in
anticipation of the Merger (see "How Will the Merger Be Carried
Out?"), all Real Silk shareholders will (a) be deemed to have received
a distribution from Real Silk in an amount equal to their pro rata
share of the resulting realized long-term capital gains, which amount
will be includible in income by Real Silk shareholders as long-term
capital gains, (b) receive a tax credit equal to their pro rata share
of the tax paid by Real Silk on such gains (which tax will be computed
at the highest corporate rate) and (c) increase their tax basis in
their Real Silk shares by the excess of the amount of the deemed
distribution described in clause (a) over the amount of the tax credit
described in clause (b). Each Real Silk shareholder will receive an
IRS information report indicating the shareholder's share of the
amount deemed distributed as capital gains and of the tax credited.
Those reports will also be provided to the IRS as required by law.
18
<PAGE>
(ii) A Real Silk shareholder who receives solely Class A Shares of
Affiliated Fund in exchange for Real Silk shares will not recognize
gain or loss upon such exchange. Accordingly, (a) the aggregate tax
basis of the Class A Shares of Affiliated Fund received by the Real
Silk shareholder will be the same as the aggregate tax basis of the
Real Silk shares surrendered in exchange therefor pursuant to the
Merger and (b) the holding period of the Class A Shares of Affiliated
Fund will include the holding period of the Real Silk shares
surrendered in exchange therefor pursuant to the Merger.
(iii) A Real Silk shareholder who exercises dissenters' rights under the
Indiana Business Corporations Law (see "Voting Information -- Are
There Dissenters' Rights?") and receives cash in exchange for his or
her Real Silk shares will recognize capital gains or loss in an amount
equal to the difference between the amount of cash received and the
aggregate tax basis of the Real Silk shares surrendered. Gain or loss
must be calculated separately for each block of Real Silk shares held
by a Real Silk shareholder.
Each Real Silk shareholder is strongly advised to consult his or her own
tax advisor as to particular facts and circumstances that may be unique to such
shareholder and also as to any estate, gift, state, local or foreign tax
consequences arising out of the Merger.
What Should I Know about the Shares of Affiliated Fund and Real Silk?
Class A shares of Affiliated Fund will be distributed to Real Silk
shareholders. Each share will be fully paid and nonassessable when issued with
no personal liability attaching to the ownership thereof, will have no
preemptive or conversion rights and will be transferable upon the books of
Affiliated Fund, subject to the escrow agreement.
Affiliated Fund does not routinely hold annual meetings of
shareholders.
Real Silk has one class of shares. Real Silk shares have no preemptive
or conversion rights and are transferable on the books of Real Silk without
restriction.
Real Silk routinely holds annual meetings of shareholders, but does not
normally solicit proxies from its shareholders. Real Silk normally provides each
shareholder of record a notice of annual meeting and an information statement
required by the Securities Exchange Act of 1934 and the Investment Company Act
of 1940.
Real Silk shares are traded over-the-counter, although the shares have
historically traded at a significant discount to their net asset value.
19
<PAGE>
It is not expected that Affiliated Fund's capitalization will be
materially affected by the Merger.
COMPARISON OF INVESTMENT GOALS AND POLICIES
This section describes key investment policies of Affiliated Fund and Real
Silk. For a complete description of Affiliated Fund's investment policies and
risks, you should read the Affiliated Fund Prospectus, which is attached to this
Prospectus/Proxy Statement as Exhibit B.
Affiliated Fund's investment objective is long-term growth of capital and
income without excessive fluctuations in market value. Typically, in choosing
stocks, the fund looks for companies using a three-step process.
o Quantitative research is performed on a universe of large, seasoned
U.S. and multinational companies to identify those whose stocks appear
to represent the best bargains.
o Fundamental research is conducted to assess a company's operating
environment, resources and strategic plans and to determine its
prospects for exceeding the earnings expectations reflected in its
stock price.
o Business cycle analysis is used to assess the economic and
interest-rate sensitivity of our portfolio. This analysis helps assess
how adding or deleting stocks changes the portfolio's overall
sensitivity to economic activity and interest rates.
Affiliated Fund believes that investors purchase and redeem its shares to
meet long-term financial objectives rather than to try to take advantage of
short-term price fluctuations. If so, their needs are best served by an
investment seeking capital appreciation with less fluctuations in market value
than the Standard & Poor's Composite Index of 500 stocks. For this reason, Lord
Abbett tries to keep Affiliated Fund's assets invested in securities that are
selling at reasonable prices and, therefore, is willing to forego some
opportunities for gains when, in its judgment, they are too risky.
Affiliated Fund generally sells a stock when it appears to no longer be a
bargain, appears less likely to benefit from the current market and economic
environment, shows deteriorating fundamentals or falls short of expectations.
While typically fully invested, at times Affiliated Fund may take a
temporary defensive position by investing some of its assets in short-term debt
securities. This
20
<PAGE>
could have the effect of reducing the benefit from any upswing in the market and
prevent the fund from realizing its investment objective.
Affiliated Fund also uses some investment techniques that are not used by
Real Silk, such as investing in foreign securities and lending of portfolio
securities. These techniques are described in more detail in the Prospectus
attached to this Prospectus/Proxy Statement. You should read the entire
Prospectus.
Real Silk's investment goal is long-term growth of capital through
investment in value-oriented equity securities. From January 1, 1989 through
December 31, 1998, Real Silk's investment goals and portfolio management were
influenced by the built in gains tax penalty that would have been applicable to
any long-term capital gains realized by Real Silk as a result of the sale of any
portfolio securities that it held on January 1, 1989, the first date on which
Real Silk qualified as a regulated investment company.
Real Silk has generally followed the practice of using fundamental research
to identify small, medium and large capitalization U.S. and multinational
corporations that are substantially undervalued by the market. Real Silk's
investment philosophy can best be described as "buying the business." That is,
"Would we want to own this company?" Primary factors considered are: (1) Is the
company in an industry that is growing? (2) Does the company have a niche
position in that industry? and (3) Are there significant barriers to entry into
the industry? In addition, Real Silk evaluates the financial soundness of the
company and the quality of its management before making any investment decision.
Real Silk has then acquired those stocks that it believed represented the
greatest value with the best opportunity for long-term appreciation. Finally,
Real Silk has generally followed the practice of purchasing securities and
holding them for an extended period.
Since Real Silk generally believes its shareholders are interested in
long-term growth of capital, with only a secondary interest in current income,
it has concentrated its portfolio investments in equity securities, with a much
smaller position in debt instruments. Since Real Silk is a closed-end investment
company (it does not redeem its securities), it has less need for liquidity than
might be the case for an open-end fund, which must be able to satisfy
redemptions of its shares.
What Are the Risk Factors Associated with Investments in the Funds?
21
<PAGE>
While stocks have historically been a leading choice of long-term
investors, they fluctuate in price. The value of your investment in Affiliated
Fund will go up and down, which means that you could lose money.
Affiliated Fund's performance may sometimes be lower or higher than that of
other types of funds (such as those emphasizing small-company stocks or growth
stocks) because different types of stocks tend to shift in and out of favor
depending on market and economic conditions. While there is the risk that an
investment may never reach what Affiliated Fund thinks is its full value, or may
go down in value, Affiliated Fund's emphasis on large seasoned company bargain
stocks could limit its downside risk because bargain stocks in theory are
already underpriced and large seasoned company stocks tend to be less volatile
than small company stocks. In the long run, Affiliated Fund may produce more
modest gains than riskier stock funds as a trade-off for this potentially lower
risk.
An investment in Affiliated Fund is not a bank deposit. It is not
FDIC-insured or government-endorsed. It is not a complete investment program.
You could lose money in this fund, but you also have the potential to make
money.
In addition to the risks described for Affiliated Fund, an investment in
Real Silk is also subject to a risk of lack of liquidity and variation in the
amount of discount between the market price per share for Real Silk shares and
the net asset value per share.
Real Silk shares are traded in the over-the-counter market. There has
historically been very limited trading in Real Silk shares. While market makers
normally offer to purchase Real Silk shares at a specific price, that bid
generally is only good for 100 shares. Therefore, if a shareholder desired to
liquidate his or her investment in Real Silk, it would be difficult, if not
impossible, to liquidate a substantial position in a relatively short time
without a substantial discount from even the quoted market price.
Like many closed-end funds, Real Silk shares have historically traded at a
substantial discount from Real Silk's net asset value per share. By way of
example, Real Silk recently had a net asset value per share of approximately
$1007 and the bid price received from the market makers was only $650. In
addition, one market maker had suspended its bid pending outcome of the Merger
that you are being asked to consider.
22
<PAGE>
VOTING INFORMATION
Who is Entitled to Vote?
Shareholders as of the close of business on _____________, 1999 (the
"Record Date"), are entitled to vote at the Special Meeting. Each shareholder is
entitled to one vote for each share of Real Silk Common Stock held on the Record
Date. A total of 164,683 shares were issued and outstanding as of the Record
Date.
How Many Votes are Necessary to Approve the Agreement?
The affirmative vote of a majority of outstanding Real Silk shares entitled
to vote as of the Record Date is required to approve the Agreement and the
Merger. Abstentions and broker non-votes will have the same effect as a vote
against the Agreement and Merger.
A quorum is necessary for the transaction of business at the Special
Meeting. A majority of the outstanding shares, present or represented by proxy,
will constitute a quorum. Properly executed and returned proxies, regardless of
the vote indicated, will be considered to be present for the purpose of
determining the existence of a quorum.
Daniel R. Efroymson, the President of Real Silk, Mary Ann Stein, a Director
of Real Silk and Mr. Efroymson's sister, other members of their families, and
the Moriah Fund, Inc., for which Ms. Stein serves as President, own in the
aggregate 141,706 shares, representing approximately 86.05% of the outstanding
shares. Each of these shareholders is expected to vote in favor of the Agreement
and the Merger.
How do I Ensure that My Vote is Accurately Recorded?
Sign and date the enclosed proxy and return it in the prepaid envelope. If
you return your signed proxy but do not indicate how you wish to vote, your
shares will be voted FOR the Agreement and the Merger.
Can I Revoke my Proxy?
You have the right to revoke your proxy at any time before the meeting by
(1) submitting a written notice of revocation to the Real Silk President or
Secretary or (2) submitting a later-dated proxy. You also may revoke your proxy
by voting in person at the Special Meeting.
23
<PAGE>
Are there Dissenters' Rights?
Real Silk shareholders have dissenters' rights pursuant to Chapter 44 of
the Indiana Business Corporation Law. Chapter 44 provides that Real Silk
shareholders have the right to demand payment in cash for the fair value of
their shares immediately before the effectiveness of the Merger, excluding any
appreciation or depreciation in value in anticipation of the Merger unless a
court determines that such exclusion would be inequitable. To claim this right,
a Real Silk shareholder must:
(1) before the vote is taken, deliver to Real Silk written notice of the
shareholder's intent to demand payment for the shares if the Merger is
effectuated, and
(2) not vote in favor of the Merger in person or by proxy at the Real Silk
Special Meeting.
If the Merger is approved by the Real Silk shareholders, Real Silk will
send a notice of dissenters' rights to those Real Silk shareholders satisfying
the above conditions. The notice will be sent within ten days after shareholder
approval of the Agreement and Merger and will be accompanied by a copy of
Chapter 44. The notice will state the procedures any dissenting Real Silk
shareholders must follow to perfect the exercise of their dissenters' rights in
accordance with Chapter 44.
The right of a Real Silk shareholder to dissenters' rights is contingent
upon the shareholder's strict compliance with the requirements of Chapter 44. To
perfect dissenters' rights, a Real Silk shareholder must deliver a written
demand for payment in accordance with the requirements of Chapter 44 and must
not vote in favor of the Merger.
Real Silk shareholders who execute and return the enclosed proxy but do not
indicate how they are voting on the Agreement and Merger will be deemed to have
voted in favor of the Agreement and Merger and, accordingly, to have waived
their dissenters' rights, unless they revoke the proxy before its being voted.
Upon consummation of the Merger, Real Silk will pay any dissenting Real
Silk shareholder who has complied with all requirements of Chapter 44 Real
Silk's estimate of the fair value of the shares immediately before the Merger,
excluding any appreciation in value in anticipation of the Merger. Management
believes that the fact that Real Silk shares traditionally have traded at a
substantial discount to net asset value is likely to be considered in
determining its estimate of fair value of shares held by any dissenting
shareholders. For a discussion of the federal income tax consequences for
dissenting
24
<PAGE>
Real Silk shareholders, see "Information About the Merger -- What Are the Tax
Consequences of the Merger?"
Dissenting shareholders can object to the fair value established by Real
Silk by stating their estimate of the fair value and demanding payment of the
additional amount claimed as the fair value within 30 days after Real Silk makes
or offers payments for the dissenters' shares. Real Silk can elect to agree to
the dissenters' fair value demand or can commence an action in the Circuit or
Superior Court of Marion County, Indiana, within 60 days after receiving the
demand for payment for a judicial determination of the fair value. The Court can
appoint appraisers to determine the fair value. The costs of the proceeding,
including compensation and expenses of the appraisers, counsel for the parties,
and experts, will be assessed against all parties to the action in such amounts
as the Court finds equitable. Each dissenter made a party to the action will be
entitled to receive the amount, if any, by which the Court finds the fair value
of the dissenters' shares, plus interest, exceeds the amount previously paid by
Real Silk to the dissenters.
What Other Solicitations will be Made?
It is anticipated that solicitations of proxies will be made primarily by
mail, but officers of Real Silk also may solicit proxies by telephone or
personal interview.
What Other Matters will be Voted Upon at the Meeting?
Approval of the Agreement and the Merger are the only items currently
scheduled to be voted upon at the Special Meeting. Real Silk does not anticipate
any other items being submitted to a shareholder vote at the meeting.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
There are issued and outstanding 164,683 shares of $5 Par Value Common
Stock, the only class of voting securities of Real Silk.
25
<PAGE>
The following table sets forth certain information with regard to
persons known to the management of Real Silk to have beneficial ownership of
more than 5% of Real Silk's stock:
<TABLE>
<CAPTION>
Name and Address Amount and Nature Percent
Title of of Beneficial of Beneficial of
Class Owner Ownership Class (1)
- ----- ----- --------- ----------
<S> <C> <C> <C>
$5 Par Value Daniel R. Efroymson 36,530 (2) 22.2
Common Indianapolis, Indiana
$5 Par Value Mary Ann Stein 95,129 (3) 57.8
Common Moriah Fund, Inc.
Washington, D.C.
$5 Par Value Bank One Corporation 48,862 (4) 29.6
Common Chicago, Illinois
$5 Par Value The Northern Trust Corporation 25,645 (5) 15.5
Common Chicago, Illinois
</TABLE>
Note (1): Some of the shares reported in footnotes 2, 3, 4 and 5 are
held in accounts of which more than one reporting person has
beneficial ownership. These shares are reported as
beneficially owned by each such reporting person under the
"shared" categories resulting in the total shares reported
in those categories exceeding the actual number of shares
involved.
Note (2): Management is advised that Daniel R. Efroymson has sole
dispositive and voting power with respect to 5,233 shares
and shared voting and dispositive power with respect to
31,297 shares, according to a Schedule 13-G dated February
16, 1999.
Note (3): Management is advised that Moriah Fund, Inc. and Mary Ann
Stein exercise sole voting power with respect to 77,000
shares and 6,905 shares, respectively; Moriah Fund, Inc. and
Mary Ann Stein exercise sole dispositive power with respect
to 51,333 shares and 6,905 shares, respectively; and that
Mary Ann Stein exercises shared voting and dispositive power
with respect to 11,224 shares, according to a Schedule 13-G
dated February 16, 1999.
Note (4): Management is advised that Bank One Corporation exercises
sole voting and dispositive power with respect to 7,188
shares and shared voting and dispositive power with respect
to 41,674 shares, according to a Schedule 13-G dated
February 1, 1999.
Note (5): Management is advised that The Northern Trust Corporation
exercises shared voting and dispositive power with respect
to 25,645 shares, according to a Schedule 13-G dated July 6,
1999.
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<PAGE>
The following table sets forth certain information as of April 6, 1998,
with respect to the beneficial ownership of the outstanding common stock of Real
Silk Investments, Incorporated, by persons named therein who are Directors, and
by all Directors and Executive Officers as a group as reported by each person.
<TABLE>
<CAPTION>
Percent
Title of Name of Amount and Nature of
Class Beneficial Owner of Beneficial Ownership Class
$5 Par Value
<S> <C> <C> <C>
Common Stock Daniel R. Efroymson 36,530 (1) 22.2
Loralei M. Efroymson 5,068 3.l
Herbert D. Falender l,488 .9
Mary Ann Stein 6,905 4.2
Norman C. Kleifgen, Jr. - -
Terry W. Bowmaster - -
Samuel L. Odle - -
Jeremy D. Efroymson 1,715 1.0
Gideon J. Stein 1,440 .9
Directors and Executive Officers
as a Group (13 in number) 55,973 34.0
</TABLE>
Note (1): The 36,530 shares reported by Daniel R. Efroymson includes
5,068 shares owned by his spouse, Loralei M. Efroymson, and
1,715 shares owned by his adult son, Jeremy D. Efroymson. Of
the 36,530 shares reported, Daniel R. Efroymson has sole
voting and investment power with respect to 5,233 shares and
shared voting and investment power with respect to 31,297
shares.
The following table sets forth certain information as to persons known to
the management of Affiliated Fund to have beneficial ownership or ownership of
record or more than five percent of Affiliated Fund's common stock.
[Insert table]
The amount of shares of Affiliated Fund owned by its officers and
directors, as a group, is less than one percent of the common shares.
INFORMATION ABOUT AFFILIATED FUND
Information about Affiliated Fund is included in the Affiliated Fund
Prospectus, which is attached to and considered a part of this Prospectus/Proxy
Statement. Additional information about Affiliated Fund is included in its
Statement of Additional Information, which has been filed with the SEC and is
incorporated by reference into the Statement of Additional Information relating
to this Prospectus/Proxy Statement. You
27
<PAGE>
may request a free copy of Affiliated Fund's Statement of Additional Information
by calling 800-426-1130 or by writing to Affiliated Fund at 767 Fifth Avenue,
New York, NY 10153. Affiliated Fund's Semi-Annual Report to Shareholders for the
six months ended April 30, 1999 is attached to and considered a part of this
Prospectus/Proxy Statement.
Affiliated Fund files proxy materials, reports and other information with
the SEC in accordance with the informational requirements of the Securities
Exchange Act of 1934 and the Investment Company Act of 1940. These materials can
be inspected and copied at the SEC's Public Reference Room at 450 Fifth Street,
NW, Washington, DC 20549, and at the Regional Offices of the SEC located in New
York City at 7 World Trade Center, Suite 1300, New York, NY 10048 and in Chicago
at 500 West Madison Street, Suite 1400, Chicago, IL 60661. Also, copies of such
material can be obtained from the SEC's Public Reference Section, Washington, DC
20549-6009, at prescribed rates, or from the SEC's Internet site at
http://www.sec.gov.
INFORMATION ABOUT REAL SILK
Information about Real Silk is included in its Annual Report to
Shareholders dated January 22, 1999 and the Six Months Report to shareholders
dated August __, 1999. These reports have been filed with the SEC. You may
request free copies of these reports and other information relating to Real Silk
by writing to Real Silk at 445 N. Pennsylvania Street, Suite 500, Indianapolis,
IN 46204. Reports and other information filed by Real Silk can be inspected and
copied at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington,
DC 20549, and at the Regional Offices of the SEC located in New York City at 7
World Trade Center, Suite 1300, New York, NY 10048 and in Chicago at 500 West
Madison Street, Suite 1400, Chicago, IL 60661. Also, copies of such material can
be obtained from the SEC's Public Reference Section, Washington, DC 20549-6009,
at prescribed rates, or from the SEC's Internet site at http://www.sec.gov.
28
<PAGE>
Exhibits to Prospectus/Proxy Statement
Exhibit
A Form of Agreement and Plan of Merger between Real Silk
Investments, Incorporated and Lord Abbett Affiliated Fund,
Inc.
B Prospectus of Lord Abbett Affiliated Fund, Inc. dated March
1, 1999.
C Semi-Annual Report to Shareholders of Lord Abbett Affiliated
Fund, Inc. dated April 30, 1999.
29
<PAGE>
LORD ABBETT AFFILIATED FUND, INC.
FORM N-14
PART B
STATEMENT OF ADDITIONAL INFORMATION
September __, 1999
This Statement of Additional Information contains material that may be of
interest to investors but that is not included in the Prospectus/Proxy Statement
(the "Prospectus/Proxy Statement") of Lord Abbett Affiliated Fund, Inc.
("Affiliated Fund") dated September __, 1999 relating to the merger of Real Silk
Investments, Inc. ("Real Silk") into Affiliated Fund. Affiliated Fund's
Statement of Additional Information dated March 1, 1999 has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. This
Statement is not a Prospectus/Proxy Statement and is authorized for distribution
only when it accompanies or follows delivery of the Prospectus/Proxy Statement.
This Statement should be read in conjunction with the Prospectus/Proxy
Statement. Investors may obtain a free copy of the Prospectus/Proxy Statement or
Affiliated Fund's Statement of Additional Information by writing Affiliated
Fund, 767 Fifth Avenue, New York, NY 10153 or by calling 800-426-1130.
Independent Accountants and Financial Statements
Deloitte & Touche LLP are the independent accountants for the Affiliated Fund,
providing audit services in connection with the review of various Securities and
Exchange Commission filings for the Affiliated Fund. KPMG LLP are the
independent accountants for Real Silk, providing audit services in connection
with the review of various Securities and Exchange Commission filings for Real
Silk. The following documents are incorporated by reference into this Statement
of Additional Information: (1) the Report of Independent Accountants and
financial statements included in the Affiliated Fund's Semi-Annual Report for
six months ended April 30, 1999 filed electronically on July 12, 1999 (File No.
811-3), and (ii) the Report of Independent Accountants and financial statements
included in Real Silk's Annual Report for the fiscal year ended December 31,
1998, filed electronically on January 22, 1999 (File No. 811-01788). The audited
financial statements for the Affiliated Fund incorporated by reference into the
Prospectus/Proxy Statement and this Statement of Additional Information have
been so included and incorporated in reliance upon the reports of Deloitte &
Touche LLP, given on their authority as experts in auditing and accounting. The
audited financial statements for Real Silk incorporated by reference into the
Prospectus/Proxy Statement and this Statement of Additional Information have
been so included and incorporated in reliance upon the reports of KPMG LLP given
on their authority as experts in auditing and accounting.
<PAGE>
Table of Contents
Page
Independent Accountants and Financial Statements .............................1
General Information and History ..............................................2
Investment Objective and Policies. ...........................................2
Management ...................................................................3
Investment Advisory and Other Services .......................................6
Brokerage Allocation and other Practices .....................................6
Tax Status ...................................................................7
General Information and History
Real Silk has been an investment company registered with the SEC and has
engaged in no other business activities in the last five years. Real Silk has
not changed its name in the last five years.
Investment Objective and Policies
The investment objectives and policies of Real Silk are discussed in the
Prospectus/Proxy Statement under the section entitled "Comparison of Investment
Goals and Policies." The fundamental investment policies of Real Silk are very
general and provide a great deal of latitude to management in making investment
decisions. Real Silk's policies do not restrict its ability to issue senior
securities; make short sales, purchases on margin, and write put and call
options; borrow money; underwrite securities of other issuers; concentrate its
investments in a particular industry or group of industries; buy or sell real
estate and real estate mortgage loans; buy or sell commodities or commodities
contracts, including futures contracts; or make loans. Nevertheless, Real Silk
has limited its investments in the manner discussed in the section of the
Prospectus/Proxy Statement entitled "Comparison of Investment Goals and
Policies." Real Silk does have an available line of credit upon which it can
draw if a cash short fall should ever occur. Real Silk does not use the line of
credit for investment purposes and has not drawn against the line in ____ years.
2
<PAGE>
Management
The following table sets forth the name, age, position with Real Silk and
principal occupation during the most recent five years for each of the members
of the Board of Directors and the executive officers of Real Silk.
Robert L. Beal, 57, Director since 1998
Partner, The Beal Companies, LLP, a real estate developer and appraiser
(1976 to present).
Terry W. Bowmaster, 53, Director since 1993
Controller, Yavapay College, Prescott, Arizona (1998 to present);
Independent investor (1997 to 1998); Managing Associate, Oxford Financial
Advisors Corporation (1997); Senior Vice President for Finance and
Administration, Butler University (1992 to 1997).
William A. Carter, 67, Director since 1998
Self-employed business consultant (1991 to present); Retired Partner of
Ernst & Young.
Daniel R. Efroymson*, 57, Director since 1983
President and Treasurer of Company (1989 to present); First Vice President
of Moriah Fund, Inc. (1993 to 1998); Vice President of Moriah Fund, Inc.
(1986 to 1993); Secretary and Treasurer of Moriah Fund, Inc. (1985 to
1998); Managing partner, SEE Investors; Director of Lincoln National
Corporation; and Director of NBD Bank, N.A. Indiana and its predecessor,
Indiana National Bank (1985 to 1998).
Loralei M. Efroymson*, 57, Director since 1989
Vice President of Company (1989 to present); Second Vice President of
Moriah Fund, Inc. (1993 to 1998); Assistant Vice President of Moriah Fund,
Inc. (1989 to 1993); Partner, SEE Investors.
Herbert D. Falender*, 83, Director since 1969
Retired, President of Falender Iron & Metal Corporation.
Peter Z. Grossman, Ph.D., 51, Director since 1998
Clarence Efroymson Chair and Associate Professor of Economics, Butler
University (1994 to present); Visiting Assistant Professor of Economics,
Washington University, St. Louis, Missouri (1993 to 1994).
Norman C. Kleifgen, Jr., 62, Director since 1987
Senior Vice President Indiana Capital Management (1999 to Present); First
Vice president, NBD Bank, N.A. (1994 to 1999); First Vice President and
Trust Officer of NBD Bank, N.A. (1994); Vice president and Trust Officer of
NBD Bank, N.A. and its predecessor, Indiana National Bank (1982 to 1994);.
Samuel J. Odle, 50, Director since 1995
3
<PAGE>
Chief Operating Officer - Clinical Services - Clarian Health Partners, Inc.
(1997 to present); Senior Vice President/Chief Operating Officer -
Methodist/IU/Riley Hospitals (1996 to 1997); Chief Operating Officer -
Clinical Services, Methodist Hospital of Indiana, Inc. (1994 to 1996);
Senior Vice President, Hospital Operations, Methodist Hospital of Indiana,
Inc. (1986 to 1994).
Eli J. Segal, 56, Director since 1998
President and Chief Executive Officer, The Welfare to Work Partnership
(1997 to present); Director of Federal National Mortgage Association;
Director of Tower Air; Assistant to the President of the United States
(1993 to 1996); Director and Chief Executive Officer, Corporation for
National Service (1993 to 19954); Chief Financial Officer of Presidential
Transition (1992); Chief of Staff, Clinton for President (1992); President,
B & P Publishing Co. (1991 to 1993); President, Bits & Pieces, Inc. (1984
to 1993).
Gideon J. Stein*, 22, Director since 1998
Partner, Monkey Rock Interactive, LLC (1997 to present); Executive Vice
President, Movie Magazine, LLC (1997 to present); Partner, I.F. Holdings,
LLC (1997 to present); Chief Executive Officer and Partner, Axxis Magazine,
Inc. (1994 to 1997).
Mary Ann Stein*, 54, Director since 1994
President of Moriah Fund, Inc. (1989 to present).
The following are Executive Officers of Real Silk:
Daniel R. Efroymson*
President, Treasurer and Director
Loralei M. Efroymson*
Vice President and Director
Jeremy D. Efroymson*, 38
Vice President of Company (1997 to present); Attorney, Arthur and
Efroymson, Attorneys at Law (1997 to present); President and Secretary,
Blue Diamond Computers, Inc. (1997); Law Clerk, Ortiz and Associates
(1996); Law Clerk, William A. Karnezis and Associates (1994 to 1995);
Associate, Prudential Insurance (1995).
- ---------------------
* Daniel R. Efroymson, Loralei M. Efroymson, Mary Ann Stein, Gideon J. Stein,
and Jeremy D. Efroymson are "interested persons" because they are
directors, officers or family members of directors or officers of Real
Silk, and Mary Ann Stein is also the president and a director of, Moriah
Fund, Inc., which holds more than 5% of the outstanding shares of the
Company.
Loralei M. Efroymson is the spouse of Daniel R. Efroymson. Mary Ann Stein
is the sister of Daniel R. Efroymson. Herbert D. Falender is the uncle of
Daniel R. Efroymson and Mary Ann Stein. Gideon J. Stein is the son of Mary
Ann Stein, the nephew of Daniel R. Efroymson and Loralei M. Efroymson, and
the cousin of Jeremy
4
<PAGE>
D. Efroymson. Jeremy D. Efroymson is the son of Daniel Efroymson and
Loralei M. Efroymson, the nephew of Mary Ann Stein, and the cousin of
Gideon J. Stein.
The following table sets forth the compensation for each of the directors
of Real Silk and for each executive officer of Real Silk with compensation in
excess of $60,000 for the year ended December 31, 1998.
<TABLE>
<CAPTION>
Name of Person Aggregate Pension or Estimated Total
Position Compensation Retirement Annual Benefits Compensation
from Benefits Accrued Upon Retirement From
Real Silk as Part of Fund (3) Real Silk
Expenses (2)
- ---------------------------------------- ------------------ ------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Robert L Beal
Director $1,400 N/A N/A $1,400
- ---------------------------------------- ------------------ ------------------- ------------------ ------------------
Terry W. Bowmaster
Director $3,700 N/A N/A $3,700
- ---------------------------------------- ------------------ ------------------- ------------------ ------------------
William A. Carter
Director $2,300 N/A N/A $2,300
- ---------------------------------------- ------------------ ------------------- ------------------ ------------------
Daniel R. Efroymson (4)
President, Treasurer and Director $60,001 $3,000 See Note 3 $63,001
- ---------------------------------------- ------------------ ------------------- ------------------ ------------------
Loralei M. Efroymson (4)
Vice President and Director See Note 1 $1,250 See Note 3 See Note 1
- ---------------------------------------- ------------------ ------------------- ------------------ ------------------
Jeremy D. Efroymson
Vice President See Note 1 N/A N/A See Note 1
- ---------------------------------------- ------------------ ------------------- ------------------ ------------------
Herbert D. Falender
Director $4,000 N/A N/A $4,000
- ---------------------------------------- ------------------ ------------------- ------------------ ------------------
Peter Z. Grossman
Director $2,000 N/A N/A $2,000
- ---------------------------------------- ------------------ ------------------- ------------------ ------------------
Norman C. Kleifgen, Jr.
Director $4,000 N/A N/A $4,000
- ---------------------------------------- ------------------ ------------------- ------------------ ------------------
Samuel L. Odle
Director $3,400 N/A N/A $3,400
- ---------------------------------------- ------------------ ------------------- ------------------ ------------------
Eli J. Segal
Director $1,400 N/A N/A $1,400
- ---------------------------------------- ------------------ ------------------- ------------------ ------------------
Gideon J. Stein
Director $2,600 N/A N/A $2,600
- ---------------------------------------- ------------------ ------------------- ------------------ ------------------
Mary Ann Stein
Director $3,700 N/A N/A $3,700
- ---------------------------------------- ------------------ ------------------- ------------------ ------------------
All Directors and Executive Officers
(13 persons) $130,766 $4,250 See Note 3 $135,106
- ---------------------------------------- ------------------ ------------------- ------------------ ------------------
</TABLE>
5
<PAGE>
Note(1): The officer of Real Silk does not receive compensation in excess
of $60,000 per year; accordingly, the officer's compensation is
therefore not separately disclosed.
Note (2): Pursuant to Real Silk's Defined Contribution Retirement Plan, an
aggregate total of $4,250 was paid to the Trustee of the Plan for the
calendar year 1998, on behalf of all Executive Officers. That sum is
not included in the Aggregate Compensation from Real Silk column but
is included in the Total Compensation From Real Silk column for all
Directors and Executive Officers. Directors who are not officers are
not eligible for the Plan.
Note (3): As a defined contribution plan, estimated annual benefits are not
readily calculable.
Note (4): Director of Real Silk who is also an officer and therefore does
not receive compensation in capacity of a director.
Investment Advisory and Other Services
Real Silk does not have an external investment advisor. All investment and
related decisions are made by the officers, directors and employees of Real
Silk. No services are supplied by or performed by an outside investment advisor.
Bank One Trust Company, N.A., 100 East Broad Street, Columbus, OH.,
43271-0152 is the sole custodian for Real Silk. Bank One Trust Company, N.A.
maintains custody of Real Silk's portfolio securities and provides no other
services to Real Silk.
KPMG, 135 N. Pennsylvania Street, Indianapolis, IN., 46204 is the
independent accountants to Real Silk. KPMG provides normal auditing and
accounting services and assists in the preparation and filing of applicable tax
returns and other required tax related documents. KPMG provides no other
services to Real Silk.
Brokerage Allocation and other Practices
Purchases and sales of securities are effected through broker-dealers, all
of which are independent of, and not affiliated with, Real Silk. Commissions are
negotiated on the basis of information available regarding prevailing applicable
commissions rates. The aggregate amount of commissions paid for the years ended
December 31, 1998,1997 and 1996 are $1,400, $2,800 and $1,980 respectively.
In selecting broker-dealers to effectuate trades, Real Silk considers a
number of factors, including primarily the accuracy, timeliness and
effectiveness of execution of trades and the reasonableness of commission rates
and mark-ups in light of information available concerning applicable commission
rates from other broker-dealers. Real Silk also uses a variety of broker-dealers
in executing trades. Other than execution of trades, the only service received
from broker-dealers is the receipt of research reports and recommendations. The
research reports and recommendation are of the type which are generally
available to the broker/dealer's clients. In the event Real Silk determines to
purchase or sell securities which were recommended by, or the subject of
research from, a particular broker/dealer, Real Silk will seek to execute the
trade
6
<PAGE>
through that broker/dealer, so long as applicable commission rates are
competitive with those available elsewhere. Real Silk receives no additional
services, information or advice from broker-dealers and no one has authority to
pay commissions in excess of that which another broker might charge other than
as described above. Real Silk has no agreement or understanding with respect to
allocation of brokerage transactions or commissions and has acquired no
securities of brokerage firms or their parent corporations during the most
recent fiscal year.
Tax Status
Real Silk is qualified as a regulated investment company and is qualified
under Subchapter M of the Internal Revenue of 1986, as amended.
7
<PAGE>
PART C. OTHER INFORMATION
Item 15. Indemnification
Registrant is incorporated under the laws of the State of Maryland and
is subject to Section 2-418 of the Corporations and Associations
Article of the Annotated Code of the State of Maryland controlling the
indemnification of the directors and officers. Since Registrant has
its executive offices in the State of New York, and is qualified as a
foreign corporation doing business in such State, the persons covered
by the foregoing statute may also be entitled to and subject to the
limitations of the indemnification provisions of Section 721-726 of
the New York Business Corporation Law.
The general effect of these statutes is to protect officers, directors
and employees of Registrant against legal liability and expenses
incurred by reason of their positions with the Registrant. The
statutes provide for indemnification for liability for proceedings not
brought on behalf of the corporation and for those brought on behalf
of the corporation, and in each case place conditions under which
indemnification will be permitted, including requirements that the
officer, director or employee acted in good faith. Under certain
conditions, payment of expenses in advance of final disposition may be
permitted. The By-laws of Registrant, without limiting the authority
of Registrant to indemnify any of its officers, employees or agents to
the extent consistent with applicable law, make the indemnification of
its directors mandatory subject only to the conditions and limitations
imposed by the above- mentioned Section 2-418 of Maryland law and by
the provisions of Section 17(h) of the Investment Company Act of 1940
as interpreted and required to be implemented by SEC Release No.
IC-11330 of September 4, 1980.
In referring in its By-laws to, and making indemnification of
directors subject to the conditions and limitations of, both Section
2-418 of the Maryland law and Section 17(h) of the Investment Company
Act of 1940, Registrant intends that conditions and limitations on the
extent of the indemnification of directors imposed by the provisions
of either Section 2-418 or Section 17(h) shall apply and that any
inconsistency between the two will be resolved by applying the
provisions of said Section 17(h) if the condition or limitation
imposed by Section 17(h) is the more stringent. In referring in its
By-laws to SEC Release No. IC-11330 as the source for interpretation
and implementation of said Section 17(h), Registrant understands that
it would be required under its By-laws to use reasonable and fair
means in determining whether indemnification of a director should be
made and undertakes to use either (1) a final decision on the merits
by a court or other body before whom the proceeding was brought that
the person to be indemnified ("indemnitee") was not liable to
Registrant or to its security holders by reason of willful
malfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office ("disabling conduct") or
(2) in the absence of such a decision, a reasonable determination,
based upon a review of the facts, that the indemnitee was not liable
by reason of such disabling conduct, by (a) the vote of a majority of
a quorum of directors who are neither "interested persons" (as defined
in the 1940 Act) of Registrant nor parties to the proceeding, or (b)
an independent legal counsel in a written opinion. Also, Registrant
will make advances of attorneys' fees or other expenses incurred by a
director in his defense only if (in addition to his undertaking to
repay the advance if he is not ultimately entitled to indemnification)
(1) the indemnitee provides a security for his undertaking, (2)
Registrant shall be insured against losses arising by reason of any
lawful advances, or (3) a majority of a quorum of the non-interested,
non-party directors of Registrant, or an independent legal counsel in
a written opinion, shall determine, based on a review of readily
available facts, that there is reason to believe that the indemnitee
ultimately will be found entitled to indemnification.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities
<PAGE>
(other than the payment by the Registrant of expense incurred or paid
by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of
such issue.
In addition, Registrant maintains a directors' and officers' errors
and omissions liability insurance policy protecting directors and
officers against liability for breach of duty, negligent act, error or
omission committed in their capacity as directors or officers. The
policy contains certain exclusions, among which is exclusion from
coverage for active or deliberate dishonest or fraudulent acts and
exclusion for fines or penalties imposed by law or other matters
deemed uninsurable.
Item 16. Exhibits
(1) Articles of Incorporation, Articles Supplementary. Incorporated
by reference to Post-Effective Amendment No. 73 to the
Registration Statement on Form N-1A filed on March 2, 1998.
(2) By-Laws. Incorporated by reference to Post-Effective Amendment
No. 76 to the Registration Statement on Form N-1A filed on
December 18, 1998.
(3) Voting Trust Agreement affecting more than 5 percent of any class
of the registrant. Not applicable.
(4) Agreement of Acquisition, Reorganization, or Merger. Filed
herewith.
(5) Specimens of security being registered. Filed herewith.
(6) Investment Advisory Contracts, Management Agreement. Incorporated
by reference to Post-Effective Amendment No. 8 to the
Registration Statement on Form N-1A of Lord Abbett Equity Fund,
Inc. (File No. 811-6033).
(7) Underwriting Contracts. Incorporated by reference.
(8) Bonus or Profit Sharing Contracts. Incorporated by reference to
Post-Effective Amendment No. 6 to the Registration Statement on
Form N-1A of Lord Abbett Securities Trust (File No. 811-7538).
(9) Custodian Agreements. Incorporated by reference.
(10) Rule 12b-1 Plan. Incorporated by reference to Post-Effective
Amendment No. 40 to the Registration Statement on Form N-1A of
Lord Abbett Bond-Debenture Fund, Inc. (File No. 811-2145).
(11) Consent to Legal Opinion. Filed herewith.
(12) Consent of Independent Auditors. Incorporated by reference to
Post-Effective Amendment No. 81 to the Registration Statement on
Form N-1A filed on April 30, 1999.
(13) Other Contracts. Not applicable.
(14) Other Opinions. Not applicable.
(15) Omitted Financial Statements. Incorporated by reference.
(16) Power of Attorney. Incorporated by reference to Post-Effective
Amendment No. 79 to the Registration
Statement on Form N-1A filed on April 30, 1999.
OTHER EXHIBITS:
---------------
(17) Financial Data Schedule. Incorporated by reference to
Post-Effective Amendment No. 81 to the Registration Statement on
Form N-1A filed on April 30, 1999.
(18) Rule 18f-3 Plan. Incorporated by reference to Post-Effective
Amendment No. 40 to the Registration Statement on Form N-1A of
Lord Abbett Bond-Debenture Fund, Inc. (File No. 811-2145).
1
<PAGE>
Item 17. Undertakings
(1) The undersigned registrant agrees that prior to any public
reoffering of the securities registered through the use of a
prospectus which is a part of this registration statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145(C) of the Securities Act, the reoffering
prospectus will contain the information called for by the
applicable registration form for the reofferings by persons who
may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The undersigned registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as a part of an
amendment to the registration statement and will not be used
until the amendment is effective, and that, in determining any
liability under the 1933 Act, each post-effective amendment shall
be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time
shall be deemed to be the initial bona fide offering of them.
2
<PAGE>
SIGNATURES
----------
As required by the Securities Act of 1933, this registration statement has
been signed on behalf of the registrant, in the City of New York, and State of
New York, on the __th day of _____ ,1999.
LORD ABBETT AFFILIATED FUND, INC.
---------------------------------
Registrant
BY:
Lawrence H. Kaplan
Vice President
3
<PAGE>
As required by the Securities Act of 1933, this registration statement has
been signed by the following persons in the capacities and on the dates
indicated.
Signatures Title Date
- ---------- ----- ----
Chairman, President
/s/Robert S. Dow* and Director/Trustee , 1999
- ------------------------------- --------------------- ----------------
Robert S. Dow
/s/ E. Thayer Bigelow* Director/Trustee , 1999
- ------------------------------- --------------------- ----------------
E. Thayer Bigelow
/s/William H. T. Bush* Director/Trustee , 1999
- ------------------------------- --------------------- ----------------
William H. T. Bush
/s/Robert B. Calhoun, Jr*. Director/Trustee , 1999
- ------------------------------- --------------------- ----------------
Robert B. Calhoun, Jr.
/s/Stewart S. Dixon* Director/Trustee , 1999
- ------------------------------- --------------------- ----------------
Stewart S. Dixon
/s/John C. Jansing* Director/Trustee , 1999
- ------------------------------- --------------------- ----------------
John C. Jansing
/s/C. Alan MacDonald* Director/Trustee , 1999
- ------------------------------- --------------------- ----------------
C. Alan MacDonald
/s/Hansel B. Millican, Jr*. Director/Trustee , 1999
- ------------------------------- --------------------- ----------------
Hansel B. Millican, Jr.
/s/Thomas J. Neff* Director/Trustee , 1999
- ------------------------------- --------------------- ----------------
Thomas J. Neff
*BY:
Lawrence H. Kaplan
Attorney-in-Fact
4
<PAGE>
AGREEMENT AND PLAN OF MERGER
BETWEEN
REAL SILK INVESTMENTS, INCORPORATED
AND
LORD ABBETT AFFILIATED FUND, INC.
JULY 8, 1999
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ARTICLE 1 - DEFINITIONS..................................................................................2
Section 1.1 - Affiliated Fund Comfort Letter or Buyer Comfort Letter...................2
Section 1.2 - Affiliated Fund Disclosure Schedule......................................2
Section 1.3 - Affiliated Fund Public Report............................................2
Section 1.4 - Affiliated Fund Shares or Buyer Shares...................................2
Section 1.5 - Affiliated Person........................................................2
Section 1.6 - Buyer....................................................................2
Section 1.7 - Buyer-owned Share........................................................2
Section 1.8 - Certificate of Merger....................................................2
Section 1.9 - Closing..................................................................2
Section 1.10 - Closing Date............................................................2
Section 1.11 - Code....................................................................2
Section 1.12 - Confidential Information................................................2
Section 1.13 - Conversion Ratio........................................................2
Section 1.14 - Definitive Real Silk Proxy Materials....................................3
Section 1.15 - Disinterested Director..................................................3
Section 1.16 - Dissenting Share........................................................3
Section 1.17 - Effective Time..........................................................3
Section 1.18 - Escrow Account..........................................................3
Section 1.19 - Escrow Agent............................................................3
Section 1.20 - Escrow Agreement........................................................3
Section 1.21 - Escrowed Affiliated Fund Shares.........................................3
Section 1.22 - Exchange Agent..........................................................3
Section 1.23 - Fairness Opinion........................................................3
Section 1.24 - GAAP....................................................................3
Section 1.25 - Hart-Scott-Rodino Act...................................................3
Section 1.26 - Indiana Business Corporation Law or BCL.................................3
Section 1.27 - IRS.....................................................................3
Section 1.28 - Joint Disclosure Document...............................................3
Section 1.29 - Knowledge...............................................................3
Section 1.30 - Merger..................................................................3
Section 1.31 - Merger Consideration....................................................4
Section 1.32 - Most Recent Semi-Annual Statement.......................................4
Section 1.33 - Most Recent Annual Statement............................................4
Section 1.34 - 1940 Act................................................................4
Section 1.35 - Ordinary Course of Business.............................................4
Section 1.36 - Party...................................................................4
Section 1.37 - Person..................................................................4
Section 1.38 - Prospectus..............................................................4
Section 1.39 - Real Silk or Target.....................................................4
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Section 1.40 - Real Silk Comfort Letter................................................4
Section 1.41 - Real Silk Disclosure Schedule...........................................4
Section 1.42 - Real Silk Public Report.................................................4
Section 1.43 - Real Silk Share or Target Share.........................................4
Section 1.44 - Real Silk Stockholder or Target Stockholder.............................4
Section 1.45 - Real Silk Third Party Acquisition Event.................................4
Section 1.46 - Registration Statement..................................................5
Section 1.47 - Requisite Real Silk Stockholder Approval................................5
Section 1.48 - Rule 12b-1..............................................................5
Section 1.49 - SEC.....................................................................5
Section 1.50 - Securities Act..........................................................5
Section 1.51 - Securities Exchange Act.................................................5
Section 1.52 - Security Interest.......................................................5
Section 1.53 - Special Real Silk Meeting or Special Target Meeting.....................5
Section 1.54 - Subsidiary..............................................................5
Section 1.55 - Superior Company Acquisition Transaction................................5
Section 1.56 - Surviving Corporation...................................................5
Section 1.57 - Takeover Proposal.......................................................5
Section 1.58 - Tax or Taxes............................................................5
Section 1.59 - Tax Returns.............................................................6
ARTICLE 2 - BASIC TRANSACTION............................................................................6
Section 2.1 - The Merger..............................................................6
Section 2.2 - The Closing.............................................................6
Section 2.3 - Actions at the Closing..................................................6
Section 2.4 - Effect of Merger........................................................6
Section 2.5 - Real Silk Stockholders' Escrow Agreement................................8
Section 2.6 - Escrow Account Expenses.................................................9
Section 2.7 - Procedure for Payment...................................................9
Section 2.8 - Closing of Transfer Records............................................10
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF REAL SILK.................................................10
Section 3.1 - Organization, Qualification, and Corporate Power.......................10
Section 3.2 - Articles of Incorporation, By-laws, etc................................10
Section 3.3 - Capitalization.........................................................10
Section 3.4 - Authorization of Transaction...........................................11
Section 3.5 - Noncontravention.......................................................11
Section 3.6 - Filings with the SEC...................................................11
Section 3.7 - IRS Forms Provided to Stockholders.....................................12
Section 3.8 - Financial Statements...................................................12
Section 3.9 - Events Subsequent to Most Recent Annual Statement......................12
Section 3.10 - Undisclosed Liabilities................................................12
Section 3.11 - Brokers' Fees.........................................................12
Section 3.12 - Regulated Investment Company Status...................................12
Section 3.13 - Acquired Asset Basis..................................................12
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Section 3.14 - Continuity of Business Enterprise.....................................12
Section 3.15 - Taxes.................................................................13
Section 3.16 - Disclosure............................................................13
Section 3.17 - No Litigation.........................................................13
Section 3.18 - Liquidation Basis of Accounting.......................................13
Section 3.19 - Entry Into Escrow Agreement............................................14
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF AFFILIATED FUND...........................................14
Section 4.1 - Organization...........................................................14
Section 4.2 - Capitalization.........................................................14
Section 4.3 - Authorization of Transaction...........................................14
Section 4.4 - Noncontravention.......................................................14
Section 4.5 - Filings with the SEC...................................................15
Section 4.6 - Brokers' Fees..........................................................15
Section 4.7 - Regulated Investment Company Status....................................15
Section 4.8 - Continuity of Business Enterprise......................................15
Section 4.9 - Disclosure.............................................................15
ARTICLE 5 - COVENANTS...................................................................................16
Section 5.1 - General................................................................16
Section 5.2 - Notices and Consents...................................................16
Section 5.3 - Regulatory Matters and Approvals.......................................16
Section 5.4 - Fairness Opinion and Comfort Letters...................................17
Section 5.5 - Operation of Business..................................................17
Section 5.6 - Full Access............................................................20
Section 5.7 - Notice of Developments.................................................20
Section 5.8 - Exclusivity............................................................20
Section 5.9 - Right of First Refusal.................................................21
Section 5.10 - Certain Fees..........................................................21
Section 5.11 - Insurance and Indemnification.........................................22
Section 5.12 - Tax Matters...........................................................22
ARTICLE 6 - CONDITIONS TO OBLIGATION OF AFFILIATED FUND AND REAL SILK TO CLOSE..........................23
Section 6.1 - Obligations of Affiliated Fund.........................................23
Section 6.2 - Conditions to Obligation of Real Silk..................................25
ARTICLE 7 - TERMINATION.................................................................................26
Section 7.1 - Termination of Agreement...............................................26
Section 7.2 - Effect of Termination..................................................27
ARTICLE 8 - EVENTS FOLLOWING THE CLOSING................................................................27
ARTICLE 9 - MISCELLANEOUS...............................................................................28
Section 9.1 - Survival...............................................................28
Section 9.2 - Transfer Taxes.........................................................28
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Section 9.3 - Press Releases and Public Announcements................................28
Section 9.4 - No Third Party Beneficiaries...........................................28
Section 9.5 - Entire Agreement.......................................................28
Section 9.6 - Succession and Assignment..............................................28
Section 9.7 - Counterparts...........................................................28
Section 9.8 - Headings...............................................................29
Section 9.9 - Notices................................................................29
Section 9.10 - Governing Law.........................................................30
Section 9.11 - Jurisdiction, Venue...................................................30
Section 9.12 - Waiver of Jury Trial..................................................30
Section 9.13 - Amendments and Waivers................................................30
Section 9.14 - Severability..........................................................30
Section 9.15 - Expenses..............................................................30
Section 9.16 - Construction..........................................................30
Section 9.17 - Incorporation of Exhibits and Schedules...............................31
SCHEDULES
Schedule 3 - Final Real Silk Disclosure Schedule
Schedule 3.10 - Undisclosed Liabilities
Schedule 4 - Final Affiliated Fund Disclosure Schedule
Schedule 5.5.13 - Schedule Of Securities To Be Sold
</TABLE>
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is entered into on July
8, 1999, by and between Lord Abbett Affiliated Fund, Inc., a Maryland
corporation ("Affiliated Fund" or "Buyer"), and Real Silk Investments,
Incorporated, an Indiana corporation ("Real Silk" or "Target"). Affiliated Fund
and Real Silk are referred to collectively herein as the "Parties".
This Agreement is intended to be and is adopted as a "plan of
reorganization," pursuant to which Real Silk will merge with and into Affiliated
Fund in a transaction intended to qualify as a reorganization within the meaning
of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code"). Real Silk Stockholders, other than those who dissent from the merger
and demand dissenters' rights as described in Section 2.4.7 of this Agreement,
will receive shares of Class A common stock of Affiliated Fund in exchange for
their shares of common stock of Real Silk, all upon the terms and conditions
hereinafter set forth in this Agreement.
Whereas, Real Silk is registered under the Investment Company Act of 1940,
as amended (the "1940 Act") as a closed-end, diversified, management investment
company and Affiliated Fund is registered under the 1940 Act as an open-end
diversified, management investment company and Real Silk and Affiliated Fund
each own securities which generally are of the same type and would be permitted
investments of either Party;
Whereas, Affiliated Fund is authorized to issue additional shares of Class
A common stock, including those intended to be issued pursuant to this
Agreement;
Whereas, the Board of Directors of Affiliated Fund, including a majority of
the Disinterested Directors, has determined that the merger of Real Silk with
and into Affiliated Fund in exchange for Affiliated Fund Shares is in the best
interests of Affiliated Fund shareholders and that the interests of Affiliated
Fund Stockholders would not be diluted as a result of this transaction;
Whereas, the Board of Directors of Real Silk, including a majority of the
Disinterested Directors, has determined that the merger of Real Silk with and
into Affiliated Fund in exchange for Affiliated Fund Shares is in the best
interests of Real Silk Stockholders, that the interests of Real Silk
Stockholders would not be diluted as a result of this transaction, and that,
subsequent to the consummation of the transaction contemplated by this
Agreement, Real Silk would cease to exist.
Now Therefore, for and in consideration of the mutual covenants and
agreement hereinafter set forth, the Parties agree as follows:
AGREEMENT AND PLAN OF MERGER PAGE 1
<PAGE>
ARTICLE 1 - DEFINITIONS
Capitalized terms used in this Agreement shall have the meanings set forth
in this Article, unless otherwise defined.
Section 1.1 - "Affiliated Fund Comfort Letter or Buyer Comfort Letter" has
the meaning set forth in Section 5.4 below.
Section 1.2 - "Affiliated Fund Disclosure Schedule" has the meaning set
forth in the preamble to Article 4 below.
Section 1.3 - "Affiliated Fund Public Report" has the meaning set forth in
Section 4.5 below.
Section 1.4 - "Affiliated Fund Shares or Buyer Shares" means any share of
the Class A common stock, $.001 par value per share, of Affiliated Fund.
Section 1.5 - "Affiliated Person" has the meaning set forth in Section
2(a)(3) of the 1940 Act.
Section 1.6 - "Buyer" has the meaning set forth in the preface above.
Section 1.7 - "Buyer-owned Share" means any Real Silk Share that Affiliated
Fund owns beneficially.
Section 1.8 - "Certificate of Merger" has the meaning set forth in Section
2.3 below.
Section 1.9 - "Closing" has the meaning set forth in Section 2.2 below.
Section 1.10 - "Closing Date" has the meaning set forth in Section 2.2
below.
Section 1.11 - "Code" has the meaning set forth in the preface above.
Section 1.12 - "Confidential Information" means any information concerning
the businesses and affairs of Real Silk. The term "Confidential Information"
shall not include information which: (i) is already generally available to the
public at the time of disclosure or subsequent to the time of disclosure and
through no fault of Affiliated Fund, becomes generally available to the public,
or (ii) becomes available from a third party not known by Affiliated Fund to be
bound by a confidentiality undertaking, or (iii) is required to be disclosed by
applicable law.
Section 1.13 - "Conversion Ratio" has the meaning set forth in Section
2.4.5 below.
Section 1.14 - "Definitive Real Silk Proxy Materials" means the definitive
proxy materials or information statement relating to the Special Real Silk
Meeting.
AGREEMENT AND PLAN OF MERGER PAGE 2
<PAGE>
Section 1.15 - "Disinterested Director" means a director who is not an
interested person as defined in Section 2(a)(19) of the 1940 Act and the rules
adopted thereunder by the SEC.
Section 1.16 - "Dissenting Share" means any Real Silk Share which any
stockholder who or which has exercised dissenter's rights under the Indiana
Business Corporation Law holds of record.
Section 1.17 - "Effective Time" has the meaning set forth in Section 2.4.1
below.
Section 1.18 - "Escrow Account" has the meaning set forth in Section 2.5
below.
Section 1.19 - "Escrow Agent" has the meaning set forth in Section 2.5
below.
Section 1.20 - "Escrow Agreement" has the meaning set forth in Section 2.5
below.
Section 1.21 - "Escrowed Affiliated Fund Shares" has the meaning set forth
in Section 2.5 below.
Section 1.22 - "Exchange Agent" has the meaning set forth in Section 2.7.1
below.
Section 1.23 - "Fairness Opinion" has the meaning set forth in Section 5.4
below.
Section 1.24 - "GAAP" means United States generally accepted accounting
principles as in effect from time to time.
Section 1.25 - "Hart-Scott-Rodino Act" means the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
Section 1.26 - "Indiana Business Corporation Law" or "BCL" means the
Business Corporation Law of the State of Indiana, as amended.
Section 1.27 - "IRS" means the Internal Revenue Service.
Section 1.28 - "Joint Disclosure Document" means the disclosure document
combining the Prospectus, the Definitive Real Silk Proxy Materials, including
all information filed with the SEC on Form N-14.
Section 1.29 - "Knowledge" means actual knowledge.
Section 1.30 - "Merger" has the meaning set forth in Section 2.1 below.
Section 1.31 - "Merger Consideration" has the meaning set forth in Section
2.4.5.
Section 1.32 - "Most Recent Semi-Annual Statement" has the meaning set
forth in Section 3.8 below.
AGREEMENT AND PLAN OF MERGER PAGE 3
<PAGE>
Section 1.33 - "Most Recent Annual Statement" has the meaning set forth in
Section 3.8 below
Section 1.34 - "1940 Act" has the meaning set forth in the preface above.
Section 1.35 - "Ordinary Course of Business" means the ordinary course of
business consistent with past custom and practice (including with respect to
quantity and frequency).
Section 1.36 - "Party" has the meaning set forth in the preface above.
Section 1.37 - "Person" means an individual, a partnership, a corporation,
an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
Section 1.38 - "Prospectus" means Part A of the effective registration on
Form N-14 of the Affiliated Fund Shares filed with the SEC under the Securities
Act.
Section 1.39 - "Real Silk or Target" has the meaning set forth in the
preface above.
Section 1.40 - "Real Silk Comfort Letter" has the meaning set forth in
Section 5.4 below.
Section 1.41 - "Real Silk Disclosure Schedule" has the meaning set forth in
the preamble to Article 3 below.
Section 1.42 - "Real Silk Public Report" has the meaning set forth in
Section 3.6 below.
Section 1.43 - "Real Silk Share or Target Share" means any share of the
Common Stock, $5.00 par value per share, of Real Silk.
Section 1.44 - "Real Silk Stockholder or Target Stockholder" means any
Person who or which holds any Real Silk Shares.
Section 1.45 - "Real Silk Third Party Acquisition Event" has the meaning
set forth in Section 5.10 below.
Section 1.46 - "Registration Statement" means the registration statement on
Form N-14 filed with the SEC by Affiliated Fund under the Securities Act and the
1940 Act in connection with the Merger. 1.47 - "Requisite Real Silk Stockholder
Approval" means the affirmative vote of the holders of a majority of the Real
Silk Shares in favor of this Agreement and the Merger.
Section 1.48 - "Rule 12b-1" means Rule 12b-1 promulgated under the 1940 Act
by the SEC.
AGREEMENT AND PLAN OF MERGER PAGE 4
<PAGE>
Section 1.49 - "SEC" means the United States Securities and Exchange
Commission.
Section 1.50 - "Securities Act" means the Securities Act of 1933, as
amended.
Section 1.51 - "Securities Exchange Act" means the Securities Exchange Act
of 1934, as amended.
Section 1.52 - "Security Interest" means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a) mechanic's,
materialmen's, and similar liens, (b) liens for taxes not yet due and payable or
for taxes that the taxpayer is contesting in good faith through appropriate
proceedings, (c) purchase money liens and liens securing rental payments under
capital lease arrangements, and (d) other liens arising in the Ordinary Course
of Business and not incurred in connection with the borrowing of money.
Section 1.53 - "Special Real Silk Meeting or Special Target Meeting" has
the meaning set forth in Section 5.3.2 below.
Section 1.54 - "Subsidiary" means any corporation with respect to which a
specified Person (or a Subsidiary thereof) owns a majority of the common stock
or has the power to vote or direct the voting of sufficient securities to elect
a majority of the directors.
Section 1.55 - "Superior Company Acquisition Transaction" has the meaning
set forth in Section 5.10.
Section 1.56 - "Surviving Corporation" has the meaning set forth in Section
2.1 below.
Section 1.57 - "Takeover Proposal" has the meaning set forth in Section 5.8
below.
Section 1.58 - "Tax or Taxes" means all federal, state, local and foreign
taxes and other government assessments of a similar nature (whether imposed
directly or through withholding), including excise taxes and any interest,
additions to tax or penalties applicable to taxes.
Section 1.59 - "Tax Returns" means all federal, state, local and foreign
tax returns, declarations, statements, reports, schedules, forms and information
returns relating to taxes, and any amendment to any of the foregoing.
ARTICLE 2 - BASIC TRANSACTION
Section 2.1 - The Merger. On and subject to the terms and conditions of
this Agreement, Real Silk shall merge with and into Affiliated Fund (the
"Merger") at the Effective Time. Affiliated Fund shall be the corporation
surviving the Merger (the "Surviving Corporation") and the separate existence of
Real Silk shall cease.
AGREEMENT AND PLAN OF MERGER PAGE 5
<PAGE>
Section 2.2 - The Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place in Jersey City, New Jersey at a
location to be determined, commencing at 9:00 a.m. local time on the second
business day following the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(other than conditions with respect to actions the respective Parties will take
at the Closing) or such other date as the Parties may mutually determine (the
"Closing Date").
Section 2.3 - Actions at the Closing. At the Closing, (i) Real Silk shall
deliver to Affiliated Fund the various certificates, instruments, and documents
referred to in Section 6.1 below, (ii) Affiliated Fund shall deliver to Real
Silk the various certificates, instruments, and documents referred to in Section
6.2 below, (iii) Affiliated Fund and Real Silk shall file with the Secretary of
State of the State of Maryland a Certificate of Merger in form and substance
sufficient to comply with the provisions of applicable Maryland law (the
"Maryland Certificate of Merger"), (iv) Real Silk and Affiliated Fund shall file
with the Secretary of State of the State of Indiana a Certificate of Merger in
form and substance sufficient to comply with the provisions of applicable
Indiana law (the "Indiana Certificate of Merger") and (v) the Buyer shall
deliver to the Exchange Agent in the manner provided below in Section 2.7 the
certificates evidencing the Affiliated Fund Shares issued in the Merger.
Section 2.4 - Effect of Merger.
Section 2.4.1 The Merger shall become effective at the time (the
"Effective Time") the Buyer and the Target file the Certificate of Merger
with the Secretary of State of the State of Maryland. The Merger shall have
the effect set forth in the Maryland General Corporation Law. The Surviving
Corporation may, at any time after the Effective Time, take any action
(including executing and delivering any document) in the name and on behalf
of either the Buyer or the Target in order to carry out and effectuate the
transactions contemplated by this Agreement.
Section 2.4.2 The Certificate of Incorporation of the Buyer in effect
at and as of the Effective Time shall remain the Certificate of
Incorporation of the Surviving Corporation immediately after the Effective
Time without any modification or amendment in the Merger.
Section 2.4.3 The By-laws of the Buyer in effect at and as of the
Effective Time shall remain the By-laws of the Surviving Corporation
immediately after the Effective Time without any modification or amendment
in the Merger.
Section 2.4.4 The directors and officers of the Buyer in office at and
as of the Effective Time shall remain the directors and officers of the
Surviving Corporation (retaining their respective positions and terms of
office) immediately after the Effective Time, each to hold office in
accordance with the Certificate of Incorporation and the By-laws of
Affiliated Fund.
Section 2.4.5 At and as of the Effective Time, each Real Silk Share
(other than any Dissenting Share) shall be converted into the right to
receive the number of whole
AGREEMENT AND PLAN OF MERGER PAGE 6
<PAGE>
and fractional Affiliated Fund Shares determined by the net asset value per
share of each Real Silk Share divided by the net asset value per share of
each Affiliated Fund Share as of the close of business immediately
following the Effective Time. The ratio so determined shall be referred to
herein as the "Conversion Ratio" and the number of Affiliated Fund Shares
received by the Real Silk Stockholders shall be referred to herein as the
"Merger Consideration." Each Dissenting Share shall be converted into the
right to receive payment from the Surviving Corporation with respect
thereto in accordance with the provisions of the Indiana Business
Corporation Law. The Conversion Ratio shall be subject to equitable
adjustment in the event of any stock split, stock dividend, reverse stock
split, or other change in the number of Real Silk Shares outstanding. No
Real Silk Share shall be deemed to be outstanding or to have any rights
after the Effective Time other than those set forth in this Section 2.4.5.
Section 2.4.6 The net asset value per share for both the Affiliated
Fund Shares and the Real Silk Shares shall be determined in accordance with
the provisions of the 1940 Act and the rules and regulations adopted
thereunder by the SEC and shall be determined in accordance with its normal
valuation policies and procedures as utilized in its Ordinary Course of
Business and, in the case of Affiliated Fund, as set forth in its
Prospectus.
Section 2.4.7 If any holders of Real Silk Shares dissent from the
Merger and demand dissenters' rights under the BCL, any issued and
outstanding shares of Real Silk held by such dissenting holders shall not
be converted as described in Section 2.4.5 but shall from and after the
Effective Time represent only the right to receive such consideration as
may be determined to be due to such dissenting holders pursuant to the BCL;
provided, however, that each Real Silk Share outstanding immediately prior
to the Effective Time and held by a dissenting holder who shall, after the
Effective Time, withdraw his demand for dissenters' rights or lose his
right to exercise dissenters' rights shall have only such rights as
provided under the BCL. Real Silk shall give prompt notice to Affiliated
Fund of any dissent by Real Silk Stockholders that satisfies the
requirements of the BCL to dissent from the Merger and grants to Affiliated
Fund the right to negotiate with the dissenting stockholders. Real Silk
further agrees it shall not enter into a settlement agreement with the
dissenting stockholders without the advance written agreement of Affiliated
Fund.
Section 2.4.8 No formula or other adjustment shall be used to adjust
the net asset value of the Real Silk Shares or the Affiliated Fund Shares
to take into account differences in realized and unrealized gain and
losses; provided, however, that Real Silk shall follow a liquidation
accounting basis, including proper liquidation basis of accounting for all
accruals, assets, liabilities and business liquidation costs.
Section 2.4.9 The issuance of the Affiliated Fund Shares as the Merger
Consideration shall not be subject to any front-end sales charges,
contingent or otherwise, and shall be issued at net asset value per share.
The Real Silk Stockholders receiving the Affiliated Fund Shares shall be
entitled to designate a broker/dealer licensed with the SEC to receive the
Rule 12b-1 service fees applicable to the Affiliated Fund Shares; provided
that, the broker must have or become a party to, a selling agreement with
Lord Abbett Distributor,
AGREEMENT AND PLAN OF MERGER PAGE 7
<PAGE>
LLC. In the event a Real Silk Stockholder fails to designate a broker to
receive the Rule 12b-1 service fees, the fees shall be treated in a manner
identical to any other Affiliated Fund shareholder failing to designate a
broker. In addition to the Affiliated Fund Shares acquired by the Real Silk
Stockholders in connection with the Merger as Merger Consideration, Real
Silk Stockholders shall be entitled to purchase additional Affiliated Fund
Shares after the Closing Date at the sales charge determined in accordance
with the terms of the current Prospectus for Affiliated Fund. Real Silk
Stockholders shall be entitled to have capital gains distributions and
income distributions reinvested at net asset value per share and without
imposition of a deferred sales charge or redemption fee of any type, under
the terms and conditions generally applicable to holders of Affiliated Fund
Shares, in accordance with the current Prospectus for Affiliated Fund.
Section 2.5 - Real Silk Stockholders' Escrow Agreement. At the Effective
Time, in order to assist in the qualification of the Merger as a
"reorganization" within the meaning of Section 368(a) of the Code, the Real Silk
Stockholders will have determined to have placed into an escrow account (the
"Escrow Account") an aggregate of sixty-five percent (65%) of the total number
of Affiliated Fund Shares issued as the Merger Consideration (the "Escrowed
Affiliated Fund Shares"). The Escrow Account shall be with either a federal or
state chartered commercial bank, which shall serve as the escrow agent (the
"Escrow Agent") pursuant to a written escrow agreement (the "Escrow Agreement").
The Escrowed Affiliated Fund Shares shall be held in the Escrow Account for a
period of one year from the Closing Date and shall not be subject to sale,
transfer or redemption prior to the expiration of such period. The number of
Escrowed Affiliated Fund Shares, both whole and fractional, shall be determined
on a pro rata basis for each Real Silk Stockholder. The Escrowed Affiliated Fund
Shares shall be the property of, and issued in the name of, the Real Silk
Stockholders, who shall be entitled to dividends and other distributions in
respect of those shares and shall be entitled to vote the Escrowed Affiliated
Fund Shares on the same terms and conditions that other Affiliated Fund
stockholders vote their shares as set forth in Affiliated Fund's Articles of
Incorporation, as amended. The Escrow Agreement shall provide that the escrow
will terminate on the first anniversary of the Closing and the Escrow Agent
shall deliver to the Real Silk Stockholders the Escrowed Affiliated Fund Shares
as promptly as possible following the termination of the Escrow Agreement. All
distributions, of whatever kind, with respect to the Escrowed Affiliated Fund
Shares, whether paid in cash or reinvested in additional shares, shall not be
subject to the Escrow Agreement and shall be paid directly to the Real Silk
Stockholders or appropriately reflected on the records of Affiliated Fund and
the applicable shareholder statements.
Section 2.6 - Escrow Account Expenses. Real Silk shall pay all charges and
expenses of the Escrow Agent or, to the extent such charges and expenses remain
unpaid as of the Closing Date, such charges and expenses shall be taken into
account as a liability for purposes of computing the net asset value of the Real
Silk Shares pursuant to Section 2.4.6 of this Agreement.
Section 2.7 - Procedure for Payment.
Section 2.7.1 Immediately after the Effective Time, (A) the Buyer
shall furnish to Peoples Bank & Trust Company, a commercial bank organized
under the laws of the State of Indiana (the "Exchange Agent") stock
certificates which in the aggregate represent that
AGREEMENT AND PLAN OF MERGER PAGE 8
<PAGE>
number of Buyer Shares equal to the product of (i) the Conversion Ratio
times (ii) the number of outstanding Target Shares (other than any
Dissenting Shares and Buyer-owned Shares) and (B) the Buyer shall cause the
Exchange Agent to mail a letter of transmittal (with instructions for its
use) in form and substance mutually agreeable to the Parties to this
Agreement, to each record holder of outstanding Target Shares for the
holder to use in surrendering the certificates which represented his, her
or its Target Shares. Upon delivery to the Exchange Agent of the Target
Shares in accordance with the terms in the letter of transmittal, the
Target Shares shall be exchanged for: (i) a certificate representing the
number of Buyer Shares to which Real Silk Stockholder is entitled to have
immediate possession, which the Exchange Agent shall deliver to the Real
Silk Stockholder, and (ii) a certificate, in the name of the Real Silk
Stockholder representing the number of Buyer Shares subject to the Escrow
Agreement, which the Exchange Agent shall deliver to the Escrow Agent.
Section 2.7.2 The Buyer shall not pay any dividend or make any
distribution on Buyer Shares (with a record date at or after the Effective
Time) to any record holder of outstanding Target Shares until the holder
surrenders for exchange the certificates which represented Target Shares.
The Buyer instead shall pay the dividend or make the distribution to the
Exchange Agent in trust for the benefit of the holder pending surrender and
exchange. The Buyer may cause the Exchange Agent to invest any cash the
Exchange Agent receives from the Buyer as a dividend or distribution in one
or more of the permitted investments set forth in the agreement between the
Buyer and the Exchange Agent; provided, however, that the terms and
conditions of the investments shall be such as to permit the Exchange Agent
to make prompt payments of cash to the holders of outstanding Target Shares
as necessary.
Section 2.7.3 The Buyer may cause the Exchange Agent to return any
Buyer Shares and dividends and distributions thereon remaining unclaimed
180 days after the Effective Time, and thereafter each remaining record
holder of outstanding Target Shares shall be entitled to look to the Buyer
(subject to abandoned property, escheat, and other similar laws) as a
general creditor thereof with respect to the Buyer Shares and dividends and
distributions thereon to which he, she or it is entitled upon surrender of
his, her or its certificates.
Section 2.7.4 The Buyer shall pay all charges and expenses of the
Exchange Agent.
Section 2.8 - Closing of Transfer Records. After the close of business on
the Closing Date, transfers of Real Silk Shares outstanding prior to the
Effective Time shall not be made on the stock transfer books of Real Silk, and
Real Silk Shares shall be deemed to be shares of Affiliated Fund. No Real Silk
employee shall be authorized to effect any transfer of Real Silk Shares after
the Effective Time.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF REAL SILK
Real Silk represents and warrants to Affiliated Fund that the
statements contained in this Article 3 are correct and complete as of the date
of this Agreement and shall be, in all material respects, correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Article 3), except as
AGREEMENT AND PLAN OF MERGER PAGE 9
<PAGE>
set forth in the disclosure schedule attached as Schedule 3 to this Agreement
(the "Real Silk Disclosure Schedule"). The Real Silk Disclosure Schedule shall
be arranged in paragraphs corresponding to the numbered sections contained in
this Article 3.
Section 3.1 - Organization, Qualification, and Corporate Power. Real Silk
is a corporation duly organized and existing under the laws of the State of
Indiana. Real Silk is duly authorized to conduct business and is in good
standing under the laws of each jurisdiction where such qualification is
required, except where the lack of such qualification would not have a material
adverse effect on the financial condition of Real Silk taken as a whole or on
the ability of the Parties to consummate the transactions contemplated by this
Agreement. Real Silk has full corporate power and authority to carry on the
businesses in which it is engaged and to own and use the properties owned and
used by it. Real Silk is not required to file Tax Returns in jurisdictions other
than its jurisdiction of incorporation.
Section 3.2 - Articles of Incorporation, By-laws, etc. Real Silk has
provided true, correct and complete copies of its Articles of Incorporation,
By-laws, corporate minutes and stock transfer book to Affiliated Fund.
Section 3.3 - Capitalization. The entire authorized capital stock of Real
Silk consists of 300,000 shares of common stock with a par value of $5.00 per
share, of which 164,683 shares are issued and outstanding and 135,317 shares are
authorized and unissued. All of the issued and outstanding Target Shares have
been duly authorized and are validly issued, fully paid, and nonassessable.
There are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts or
commitments that could require Real Silk to issue, sell, or otherwise cause to
become outstanding any of its capital stock. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or similar
rights with respect to the Target.
Section 3.4 - Authorization of Transaction. Real Silk has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder; provided, however, that
Real Silk shall not consummate the Merger unless and until it receives the
Requisite Target Stockholder Approval and certain regulatory approval or passage
or early termination of applicable waiting periods in accordance with Section
3.5 of this Agreement. This Agreement constitutes the valid and legally binding
obligation of Real Silk, enforceable in accordance with its terms and
conditions.
Section 3.5 - Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
shall (i) violate any statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government, governmental
agency, or court to which Real Silk is subject or any provision of the Articles
of Incorporation or By-laws of Real Silk, or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument or other
arrangement to which Real Silk is a party or by which it is bound or to which
any of its assets are subject (or result in the imposition of any Security
Interest upon any of its
AGREEMENT AND PLAN OF MERGER PAGE 10
<PAGE>
assets), except where the violation, conflict, breach, default, acceleration,
termination, modification, cancellation, failure to give notice, or Security
Interest would not have a material adverse effect on the financial condition of
Real Silk taken as a whole or on the ability of the Parties to consummate the
transactions contemplated by this Agreement. Other than in connection with the
provisions of the Hart-Scott-Rodino Act, the Indiana Business Corporation Law,
the Securities Exchange Act, the Securities Act, the 1940 Act, the Code and the
Treasury Regulations thereunder, and the state securities laws, Real Silk does
not need to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement.
Section 3.6 - Filings with the SEC. Real Silk has made, for the most recent
three (3) years, all filings with the SEC that it has been required to make
under the Securities Act, the Securities Exchange Act and the 1940 Act
(collectively the "Real Silk Public Reports"). Each of the Real Silk Public
Reports complies with the Securities Act, the Securities Exchange Act and the
1940 Act in all material respects. None of the Real Silk Public Reports, as of
their respective dates, contained any untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. Real Silk has delivered to the Buyer a correct and complete copy of
each Real Silk Public Report (together with all exhibits and schedules thereto
and as amended to date).
Section 3.7 - IRS Forms Provided to Stockholders. Real Silk has provided to
its stockholders, for each of the three most recent years, all Tax Returns
required to be so provided by applicable law.
Section 3.8 - Financial Statements. Real Silk has filed Semi-Annual Reports
on Form NSAR for the period ended June 30, 1998 (the "Most Recent Semi-Annual
Statement"), and an Annual Report on Form NSAR for the fiscal year ended
December 31, 1998 (the "Most Recent Annual Statement"). The financial statements
included in or incorporated by reference into these Public Reports (including
the related notes and schedules) have been prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered thereby, and
present fairly the financial condition of Real Silk as of the indicated dates
and the results of operations of Real Silk, for the indicated periods, and are
correct and complete in all respects, and are consistent with the books and
records of Real Silk.
Section 3.9 - Events Subsequent to Most Recent Annual Statement. Since the
Most Recent Annual Statement, there has not been any material adverse change in
the financial condition, business or affairs of Real Silk, taken as a whole.
Section 3.10 - Undisclosed Liabilities. Other than as specified in Schedule
3.10 attached to this Agreement, Real Silk has no liability (whether known or
unknown, whether asserted or unasserted, whether absolute or contingent, whether
accrued or unaccrued, whether liquidated or unliquidated, and whether due or to
become due), including any liability for Taxes, except for (i) liabilities set
forth on the face of the balance sheet dated as of the Most Recent Annual
Statement (including the notes attached thereto) and (ii) liabilities which have
arisen after the Most Recent Annual Statement in the Ordinary Course of Business
(none of which results from, arises out of,
AGREEMENT AND PLAN OF MERGER PAGE 11
<PAGE>
relates to, is in the nature of, or was caused by any breach of contract, breach
of warranty, tort, infringement, or violation of law).
Section 3.11 - Brokers' Fees. Real Silk has no liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement other than U.S. Bancorp Piper
Jaffray, Inc.
Section 3.12 - Regulated Investment Company Status. Real Silk qualified and
has elected to be treated as a regulated investment company, within the meaning
of Section 851 of the Code, as of January 1, 1989, and since that time Real Silk
has continuously qualified as a regulated investment company and shall continue
to do so until the Closing Date.
Section 3.13 - Acquired Asset Basis. Real Silk does not hold, and will not
hold as of the Closing Date, any asset formerly held by a "C Corporation" that
would, if sold, be subject to a corporate-level tax as provided in IRS Notice
88-19.
Section 3.14 - Continuity of Business Enterprise. Real Silk owns, and as of
the Closing Date, will own (after taking into account the sale of portfolio
securities required by Section 5.5.13 of this Agreement) at least fifty percent
(50%) of its historic business assets. Specifically, as of the Effective Time,
Real Silk will continue to hold portfolio securities that it owned on April 30,
1999, equal in value to at least fifty percent (50%) of the value of the total
amount of portfolio securities that it held on April 30, 1999. For purposes of
the preceding sentence, the term "value" shall mean fair market value as of
April 30, 1999. Real Silk operates, and as of the Closing Date will operate, its
historic business as an investment company which seeks long-term growth of
capital and income, without excessive fluctuations in market value, through
investments, including securities of large companies.
Section 3.15 - Taxes. Real Silk has filed with the appropriate governmental
authorities all income Tax Returns and all other Tax Returns required to be
filed by it and paid in full all Taxes required to be paid by it for all periods
or portions thereof. No federal, state, local or foreign audits or other
administrative proceedings or judicial proceedings are presently pending with
regard to any Taxes or Tax Returns of Real Silk. No Tax deficiencies have been
asserted or threatened against Real Silk by any taxing authority that have not
been resolved and fully paid. The Real Silk Disclosure Schedule list all states,
cities or other jurisdictions in which Real Silk (i) is currently subject to any
obligation to file Tax Returns or (ii) has filed a Tax Return within the last
three (3) years. Real Silk has no Knowledge of any investigation pending,
threatened or likely to be commenced by any taxing authority for any
jurisdiction where Real Silk does not file Tax Returns that may lead to an
assertion by such taxing authority that Real Silk is or may be subject to Tax in
such jurisdiction. The applicable statue of limitations for the assessment of
federal income taxes has expired for all periods through and including the year
ended December 31, 1994.
Section 3.16 - Disclosure. The Definitive Real Silk Proxy Materials shall
comply with the Securities Exchange Act and the 1940 Act in all material
respects. The Definitive Real Silk Proxy Materials shall not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements made therein, in the light of the circumstances under
AGREEMENT AND PLAN OF MERGER PAGE 12
<PAGE>
which they shall be made, not misleading; provided, however, that Real Silk
makes no representation or warranty with respect to any information that
Affiliated Fund shall supply specifically for use in the Definitive Real Silk
Proxy Materials. None of the information that Real Silk shall supply
specifically for use in the Registration Statement, the Prospectus, or the
Definitive Real Silk Proxy Materials will contain any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements made therein, in the light of the circumstances under which they will
be made, not misleading.
Section 3.17 - No Litigation. No litigation, injunction or governmental
proceedings are threatened or pending which, if determined adversely to Real
Silk, would affect the validity of the Merger or materially affect the net asset
value of Real Silk.
Section 3.18 - Liquidation Basis of Accounting. In preparing the balance
sheet required for the Closing, Real Silk has applied the liquidation basis of
accounting with respect to all assets, accruals and other liabilities necessary
to liquidate its business.
Section 3.19 - Entry Into Escrow Agreement. At or prior to the Closing of
the Merger, Real Silk shall have negotiated and entered into an Escrow Agreement
to establish the Escrow Account as specified in Section 2.5 of this Agreement.
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES OF AFFILIATED FUND
Affiliated Fund represents and warrants to Real Silk that the statements
contained in this Article 4 are correct and complete as of the date of this
Agreement and shall be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted for the date of this
Agreement throughout this Article 4), except as set forth in the disclosure
schedule attached as Schedule 4 to this Agreement (the "Affiliated Fund
Disclosure Schedule"). The Affiliated Fund Disclosure Schedule shall be arranged
in paragraphs corresponding to the numbered sections contained in this Article
4.
Section 4.1 - Organization. Affiliated Fund is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Maryland.
Section 4.2 - Capitalization. The entire authorized capital stock of
Affiliated Fund consists of 1,500,000,000 shares of which 1,150,000,000 are
designated as Class A shares. As of date of this Agreement, Affiliated Fund has,
and as of the Effective Time shall have, sufficient authorized but unissued
Class A shares to consummate the Merger. All of the Affiliated Fund Shares to be
issued in the Merger have been duly authorized and, upon consummation of the
Merger, shall be validly issued, fully and nonassessable.
Section 4.3 - Authorization of Transaction. Affiliated Fund has full power
and authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder, provided,
however, that Affiliated Fund shall not consummate the Merger unless and until
it receives certain regulatory approval or passage or early termination of
applicable waiting periods in accordance with Section 4.4 of this Agreement.
This Agreement constitutes the
AGREEMENT AND PLAN OF MERGER PAGE 13
<PAGE>
valid and legally binding obligation of the Buyer, enforceable in accordance
with its terms and conditions.
Section 4.4 - Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
shall (i) violate any, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government, governmental
agency, or court to which the Buyer is subject or any provision of the charter
or By-laws of Affiliated Fund, or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any agreement, contract, lease, license, instrument or other arrangement
to which the Buyer is a party or by which it is bound or to which any of its
assets is subject, except where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation, or failure to give notice
would not have a material adverse effect on the ability of the Parties to
consummate the transactions contemplated by this Agreement. Other than in
connection with the provisions of the Hart-Scott-Rodino Act, the Maryland
General Corporation Law, the Securities Exchange Act, the Securities Act, the
1940 Act, the Code and the Treasury Regulations thereunder, and the state
securities laws, Affiliated Fund does not need to give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any government
or governmental agency in order for the Parties to consummate the transactions
contemplated by this Agreement, except where the failure to give notice, to
file, or to obtain any authorization, consent, or approval would not have a
material adverse effect on the ability of the Parties to consummate the
transactions contemplated by this Agreement.
Section 4.5 - Filings with the SEC. Affiliated Fund has made, for the most
recent three (3) years, all filings with the SEC that it has been required to
make under the Securities Act, the Securities Exchange Act and the 1940 Act
(collectively the "Affiliated Fund Public Reports"). Each of the Affiliated Fund
Public Reports complies with the Securities Act, the Securities Exchange Act and
the 1940 Act in all material respects. None of the Affiliated Fund Public
Reports, as of their respective dates, contained any untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. Affiliated Fund has delivered to Real Silk a correct and
complete copy of each Affiliated Fund Public Report which Real Silk has
requested (together with all exhibits and schedules thereto and as amended to
date).
Section 4.6 - Brokers' Fees. Affiliated Fund does not have any liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which Real Silk
could become liable or obligated.
Section 4.7 - Regulated Investment Company Status. Affiliated Fund
qualified and elected to be treated as a regulated investment company, within
the meaning of Section 851 of the Code, as of a date prior to January 1, 1989,
and since such election, has continuously qualified as a regulated investment
company and shall continue to do so until the Closing Date.
Section 4.8 - Continuity of Business Enterprise. Affiliated Fund intends to
use at least fifty percent (50%) of the historic business assets of Real Silk in
its business. Specifically, Affiliated
AGREEMENT AND PLAN OF MERGER PAGE 14
<PAGE>
Fund plans to hold indefinitely portfolio securities that Real Silk owned on
April 30, 1999, equal in value to at least fifty percent (50%) of the value of
the total amount of portfolio securities that Real Silk held on April 30, 1999.
For purposes of the preceding sentence, the term "value" shall mea market value
as of April 30, 1999. Following the Merger, Affiliated Fund will continue the
historic business of Real Silk as an investment company which seeks long-term
growth of capital and income, without excessive fluctuations in market value,
through investments, including securities of large companies.
Section 4.9 - Disclosure. The Registration Statement, the Prospectus, and
the Definitive Real Silk Proxy Materials shall comply with the Securities Act,
the Securities Exchange Act and the 1940 Act in all material respects. The
Registration Statement, the Prospectus, and the Definitive Real Silk Proxy
Materials shall not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made therein, in
the light of the circumstances under which they will be made, not misleading;
provided, however, that Affiliated Fund makes no representation or warranty with
respect to any information that Real Silk shall supply specifically for use in
the Registration Statement, the Prospectus, and the Definitive Real Silk Proxy
Materials. None of the information that Affiliated Fund shall supply
specifically for use in the Definitive Real Silk Proxy Materials will contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they will be made, not misleading.
ARTICLE 5 - COVENANTS
The Parties agree as follows with respect to the period from and after
the execution of this Agreement.
Section 5.1 - General. Each of the Parties shall use its best efforts to
take all actions and to do all things necessary in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in Article 6
below).
Section 5.2 - Notices and Consents. Real Silk shall give any notices to
third parties, and shall use its best efforts to obtain any third party
consents, that Affiliated Fund reasonably may request in connection with the
matters referred to in Section 3.5 above.
Section 5.3 - Regulatory Matters and Approvals. Each of the Parties shall
give any notices to, make any filings with, and use its best efforts to obtain
any authorizations, consents, and approvals of governments and governmental
agencies in connection with the matters referred to in Section 3.5 and Section
4.4 above. Without limiting the generality of the foregoing:
Section 5.3.1 Affiliated Fund shall file with the SEC a Registration
Statement on Form N-14 (the "Registration Statement") under the Securities
Act, the Securities Exchange Act and the 1940 Act in connection with the
Affiliated Fund Shares to be issued as the Merger Consideration and for use
in connection with the Special Real Silk Meeting. Real Silk shall cooperate
with Affiliated Fund in connection with the preparation of the
AGREEMENT AND PLAN OF MERGER PAGE 15
<PAGE>
Registration Statement and shall furnish to Affiliated Fund the information
relating to Real Silk required by applicable law to be set forth in the
Registration Statement. The Registration Statement and Real Silk Proxy
Materials are hereinafter collectively referred to as the Joint Disclosure
Document. The Parties shall each use their best efforts to respond to the
comments of the SEC thereon and shall make any further filings (including
amendments and supplements) in connection therewith that may be necessary,
proper, or advisable. The Parties shall cooperate to the fullest extent
possible and Affiliated Fund shall provide Real Silk, and Real Silk shall
provide Affiliated Fund, whatever additional information and assistance in
connection with the foregoing filings that the filing Party may request.
Affiliated Fund shall take all actions that may be necessary under state
securities laws in connection with the offering and issuance of the
Affiliated Fund Shares.
Section 5.3.2 Real Silk shall call a special meeting of its
stockholders (the "Special Real Silk Meeting") as soon as reasonably
practicable in order that the Real Silk Stockholders may consider and vote
upon the adoption of this Agreement and the approval of the Merger in
accordance with the Indiana Business Corporation Law. Real Silk shall mail
the Joint Disclosure Document on Form N-14 to the Real Silk Stockholders as
soon as reasonably practicable. The Joint Disclosure Document shall contain
the affirmative recommendations of the respective boards of directors of
the Parties in favor of the adoption of this Agreement and the approval of
the Merger; provided, however, that no director or officer of either Party
shall be required to violate any fiduciary duty or other requirement
imposed by law in connection therewith.
Section 5.3.3 Each of the Parties shall file any notification and
report forms and related material that it may be required to file with the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice under the Hart-Scott-Rodino Act, shall use its best
efforts to obtain an early termination of the applicable waiting period,
and shall make any further filings pursuant thereto that may be necessary.
Section 5.4 - Fairness Opinion and Comfort Letters. Real Silk shall deliver
to Affiliated Fund on or before the date the Joint Disclosure Document on Form
N-14 is mailed to the Real Silk Stockholders (i) an opinion of U.S. Bancorp
Piper Jaffray, Inc. as to the fairness of the Merger to the Real Silk
Stockholders from a financial point of view (the "Fairness Opinion") and (ii) a
letter of KPMG Peat Marwick stating their conclusions as to the accuracy of
certain information derived from the financial records of Real Silk and
contained in the Joint Disclosure Document (the "Real Silk Comfort Letter"). The
Real Silk Comfort Letter shall be reasonably satisfactory to Affiliated Fund in
form and substance. Affiliated Fund shall deliver to Real Silk, on or before the
date the Joint Disclosure Document is mailed to the Real Silk Stockholders, a
letter of Deloitte & Touche LLP stating their conclusions as to the accuracy of
certain information derived from the financial records of Affiliated Fund
contained in the Joint Disclosure Document (the "Affiliated Fund Comfort
Letter"). The Affiliated Fund Comfort Letter shall be reasonably satisfactory to
Real Silk in form and substance.
Section 5.5 - Operation of Business. Real Silk shall not engage in any
practice, take any action, or enter into any transaction outside the Ordinary
Course of Business other than such actions
AGREEMENT AND PLAN OF MERGER PAGE 16
<PAGE>
as are necessary and contemplated by the terms of this Agreement. Without
limiting the generality of the foregoing:
Section 5.5.1 Real Silk shall not authorize or effect any change in
its Articles of Incorporation or By-laws;
Section 5.5.2 Real Silk shall not grant any options, warrants, or
other rights to purchase or obtain any of its shares or issue, sell, or
otherwise dispose of any of Real Silk Shares;
Section 5.5.3 Real Silk shall not declare, set aside, or pay any
dividend or distribution with respect to its capital stock (whether in cash
or in kind), or redeem, repurchase, or otherwise acquire any of its capital
stock other than as specified in Sections 5.5.12 through and including
Section 5.5.16 of this Agreement;
Section 5.5.4 Real Silk shall not issue any note, bond, or other debt
security or create, incur, assume, or guarantee any indebtedness for
borrowed money or capitalized lease obligation outside the Ordinary Course
of Business;
Section 5.5.5 Real Silk shall not impose any Security Interest upon
any of its assets;
Section 5.5.6 Real Silk shall not make any capital investment in, make
any loan to, or acquire the securities or assets of any other Person
without the prior written consent of Affiliated Fund;
Section 5.5.7 Real Silk shall not make any change in employment terms
for any of its directors, officers, and employees other than in accordance
with the terms of this Agreement;
Section 5.5.8 Real Silk will not amend any Tax Returns previously
filed or settle any audit or other proceeding with respect to Taxes,
without the prior written consent of Affiliated Fund, which consent shall
not be unreasonably withheld;
Section 5.5.9 Real Silk shall not commit to take any of the actions
restricted in Section 5.5.1 through and including Section 5.5.8;
Section 5.5.10 Except with respect to any contingent liability for
indemnification as specified in Schedule 3.10 to this Agreement, at or
prior to the Effective Time, Real Silk shall have terminated, and satisfied
in full, either by payment in full or by creation of an appropriate
reserve, all obligations under any lease, agreement or contract of any form
whatsoever, to which it is a party;
Section 5.5.11 At or prior to the Effective Time, Real Silk shall have
disposed of all of its assets, other than portfolio securities or other
assets specified in writing by Affiliated
AGREEMENT AND PLAN OF MERGER PAGE 17
<PAGE>
Fund and shall have satisfied or appropriately reserved for all liabilities
associated therewith;
Section 5.5.12 On or before the Closing, Real Silk shall have declared
and paid a dividend or dividends which, together with all previous
dividends or distributions, shall have the effect of distributing to its
stockholders all of its undistributed personal holding company income,
within the meaning of Section 541 of the Code, for the taxable year
beginning on January 1, 1999 and ending on the Closing Date;
Section 5.5.13 On or before the Closing, Real Silk shall have sold the
portfolio securities specified in Schedule 5.5.13, or such other portfolio
securities as are mutually agreeable to the Parties. It is intended by the
Parties, that as a result of such sales, Real Silk will recognize net long
term capital gains for Federal income tax purposes therefrom in the sum of
approximately twenty million dollars ($20,000,000). The Parties hereby
agree that if all of the portfolio securities specified in Schedule 5.5.13
are sold, and Real Silk has recognized net long term capital gains of at
least nineteen million dollars ($19,000,000), no additional sales shall be
necessary. The Parties further agree that if Real Silk shall have sold
fewer than all of the portfolio securities specified in Schedule 5.5.13 and
shall have recognized net long term capital gains in excess of twenty-one
million dollars ($21,000,000) no additional sales shall be necessary.
Section 5.5.14 Real Silk shall pay to the appropriate taxing
authority, on or before the Closing Date, all Taxes required to be paid by
Real Silk with respect to the sale of portfolio securities pursuant to
Section 5.5.13, or adequate provision for the payment of all such Taxes
shall have been made on the books and records of Real Silk as of the
Closing Date (and the amount of all such Taxes not yet paid shall be taken
into account as a liability for purposes of computing the net asset value
of the Real Silk Shares for purposes of Section 2.4.6 of this Agreement).
In addition, Real Silk shall be responsible for and shall have, prior to
the time of the Closing, made provision for, the distribution of all Tax
information reports and designations required by law to be provided to Real
Silk Stockholders relating to the dividends (if any) and distributions (if
any), paid by Real Silk prior to the Closing, including any amount deemed
to be distributed to Real Silk Stockholders pursuant to Section
852(b)(3)(D) of the Code with respect to the sale of portfolio securities
pursuant to Section 5.5.13 of this Agreement, all in accordance with past
practice of Real Silk. Further, Real Silk shall be responsible for and
shall have, prior to the time of the Closing, made provision for,
preparation and filing of all Tax Returns required to be filed by or with
respect to Real Silk for all tax periods ending on or before the Closing
Date, including but not limited to, Form 1120- RIC, Form 1099, and Form
2438, required to be filed with the IRS and applicable state tax filings,
if any. All such Tax Returns shall be prepared in a manner consistent with
past practice of Real Silk, shall be subject to pre-filing review by
Affiliated Fund and shall be reasonably acceptable, in form and substance,
to Affiliated Fund.
Section 5.5.15 Real Silk will declare to Real Silk Stockholders of
record on or prior to the Closing Date a distribution which, together with
all previous distributions or amounts deemed distributed pursuant to
Section 852(b)(3)(D) of the Code, shall have the effect of
AGREEMENT AND PLAN OF MERGER PAGE 18
<PAGE>
distributing all of Real Silk's net realized capital gain (after reduction
for any capital loss carryover) for the taxable year ending December 31,
1998. In addition, Real Silk shall take all steps necessary to cause all of
Real Silk's net realized capital gain (after reduction for any capital loss
carryover) for the short taxable year beginning on January 1, 1999 and
ending on the Closing Date, including any amounts referred to in Section
5.5.13, to have been deemed distributed to Real Silk Stockholders of record
on the Closing Date pursuant to Section 852(b)(3)(D) of the Code, including
designation of such amount in a written notice mailed to such Real Silk
Stockholders before the 60th day after the Closing Date.
Section 5.5.16 Real Silk will declare to Real Silk Stockholders of
record on or prior to the Closing Date a dividend or dividends which
together with all previous such dividends shall have the effect of
distributing (a) all of the excess of (i) Real Silk's investment income
excludable from gross income under Section 103(a) of the Code over (ii)
Real Silk's deductions disallowed under Sections 265 and 171(a)(2) of the
Code and (b) all of Real Silk's investment company taxable income (as
defined in Code Section 852) (computed in each case without regard to any
deduction for dividends paid), in each case for both the taxable year
ending December 31, 1998 and the short taxable year beginning on January 1,
1999 and ending on the Closing Date. Such dividends will be made to ensure
continued qualification of Real Silk as a regulated investment company for
tax purposes and, together with the steps taken in Section 5.5.15, to
eliminate fund-level tax.
Section 5.6 - Full Access. Real Silk shall permit representatives of
Affiliated Fund to have full access at all reasonable times, and in a manner so
as not to interfere with the normal business operations of Real Silk, to all
premises, properties, personnel, books, records (including tax records),
contracts, and documents of or pertaining to Real Silk. Affiliated Fund shall
treat and hold as such any Confidential Information it receives from Real Silk
in the course of the reviews contemplated by this Section 5.6, shall not use any
of the Confidential Information except in connection with this Agreement, and,
if this Agreement is terminated for any reason whatsoever, agrees to return to
Real Silk all tangible embodiments (and all copies) thereof which are in its
possession.
Section 5.7 - Notice of Developments. Each Party shall give prompt written
notice to the other of any material adverse development causing a breach of any
of its own representations and warranties in Article 3 and Article 4 above. No
disclosure by any Party pursuant to this Section 5.7, however, shall be deemed
to amend or supplement the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
Section 5.8 - Exclusivity. From and after the date hereof, Real Silk shall
not, and shall use its best efforts to cause its officers, directors, employees,
attorneys, financial advisors, agents or other representatives not to, directly
or indirectly, solicit, initiate or encourage (including by way of furnishing
information) any takeover proposal or offer from any person, or engage in or
continue discussions or negotiations relating thereto; provided, however, that
Real Silk may furnish information concerning itself and its business, properties
or assets to any third party which makes a Takeover Proposal (as hereinafter
defined) if the Board of Directors of Real Silk concludes in good faith on the
basis of the written advice of its outside counsel that the failure to take such
action would violate the fiduciary obligations of the Board to Real Silk
Stockholders under applicable law.
AGREEMENT AND PLAN OF MERGER PAGE 19
<PAGE>
Real Silk shall promptly (but in no case later than 24 hours of its receipt)
notify Affiliated Fund of any Takeover Proposal, including the material terms
and conditions thereof (provided that it need not disclose the identity of the
person or group making such Takeover Proposal).
As used in this Agreement, "Takeover Proposal" shall mean any unsolicited
proposal or offer, or any unsolicited expression of interest by any third
party relating to Real Silk's willingness or ability to receive or discuss
a proposal or offer for a tender or exchange offer, a merger, consolidation
or other business combination or other extraordinary transaction involving
Real Silk or any unsolicited proposal to acquire in any manner a
substantial equity interest in, or a substantial portion of the assets of
Real Silk.
Section 5.9 - Right of First Refusal. Affiliated Fund shall have the right,
but not the obligation, for a period of five (5) business days following notice
to Affiliated Fund by Real Silk of the receipt of a bona fide Takeover Proposal,
to revise the terms of its offer contained in this Agreement in such a manner as
to be equal, or superior, to the Takeover Proposal. In the event that Affiliated
Fund's revised offer is equal or superior to the Takeover Proposal, Affiliated
Fund shall be given preference in selection as the party with which Real Silk
will consummate a transaction.
Section 5.10 - Certain Fees. Without prejudice to any other rights
Affiliated Fund may have, Real Silk shall pay Affiliated Fund a fee equal to
Affiliated Fund's expenses, including attorney's fees, in an amount not to
exceed an aggregate total of $100,000, in cash, by certified check or wire
transfer within two business days of any of the following events:
(a) this Agreement is terminated by Real Silk and within twelve months
after such a termination a Superior Company Acquisition Transaction (as
hereinafter defined) occurs;
(b) this Agreement is terminated by Affiliated Fund following the
occurrence of a Real Silk Third Party Acquisition Event (as hereinafter
defined) and the Board of Directors of Real Silk: (i) shall have
recommended to Real Silk Stockholders any Takeover Proposal or shall have
resolved to do so; or (ii) a tender offer or exchange offer for 30% or more
of the outstanding shares of common stock of Real Silk is commenced, and,
after ten (10) business days, the Board of Directors of Real Silk fails to
recommend against acceptance of such tender offer or exchange offer by Real
Silk Stockholders (including by taking no position with respect to the
acceptance of such tender offer or exchange offer).
A "Real Silk Third Party Acquisition Event" means any of the following
events: (A) any Person other than Affiliated Fund or its Affiliates,
acquires or becomes the beneficial owner of 30% or more of the outstanding
Real Silk Shares; (B) any new group is formed which, at the time of
formation, beneficially owns 30% or more of the outstanding Real Silk
Shares (other than a group which includes or may reasonably be deemed to
include Affiliated Fund or any of its Affiliates); (C) Real Silk enters
into, or announces that it proposes to enter into, an agreement, including,
without limitation, an agreement in principle, providing for a merger or
other business combination involving Real Silk or the acquisition of a
substantial interest in, or a substantial portion of the assets, business
or operations of, Real Silk (other than the transactions contemplated by
this Agreement); (D) any Person (other than Affiliated
AGREEMENT AND PLAN OF MERGER PAGE 20
<PAGE>
Fund or its Affiliates) is granted any option or right, conditional or
otherwise, to acquire or otherwise become the beneficial owner of Real Silk
Shares which, together with all shares beneficially owned by such Person,
results or would result in such Person being the beneficial owner of 30% or
more of the outstanding Real Silk Shares; or (E) there is a public
announcement with respect to a plan or intention by Real Silk and any
Person, other than Affiliated Fund, to effect any of the foregoing
transactions. For purposes of this Section, the terms "group" and "
beneficial owner" shall be defined by reference to Section 13(d) of the
Exchange Act.
A "Superior Company Acquisition Transaction" means the event referred to in
clause (C) of Real Silk Third Party Acquisition Event provided that the
financial and other terms of the transaction referred to therein are, when
considered in the aggregate, more favorable to Real Silk"s Stockholders
than the financial and other terms of the transactions contemplated by this
Agreement.
Section 5.11 - Insurance and Indemnification.
Section 5.11.1 Real Silk currently has in place and shall continue to
provide, at its cost, to each individual who served as a director or
officer of Real Silk at any time prior to the Effective Time with liability
insurance for a period of thirty-six (36) months after the Effective Time,
no less favorable in coverage and amount than any applicable insurance in
effect immediately prior to the Effective Time. Following the Effective
Time, Buyer shall not and shall not attempt to, in any manner, reduce or
terminate the coverage and amount of liability insurance under the Real
Silk directors and officers policy.
Section 5.11.2 Affiliated Fund, as the Surviving Corporation in the Merger,
will observe any indemnification provisions now existing in the Articles of
Incorporation or By-laws of Real Silk for the benefit of any individual who
served as a director or officer of Real Silk at any time prior to the Effective
Time, but only to the extent that there is any recovery which exceeds the
recovery under the Real Silk directors and officer insurance policy.
Section 5.12 - Tax Matters. Real Silk and Affiliated Fund shall each
reasonably cooperate in connection with obtaining the opinions of tax counsel
described in Sections 6.1.11 and 6.2.8 including, without limitation, providing
to counsel such representations as are reasonably required by counsel to enable
them to render such opinions. Real Silk shall deliver to Affiliated Fund and
such counsel prior to the Closing Date representations and warranties, in form
and substance acceptable to Affiliated Fund and its counsel, signed by
beneficial owners of, in the aggregate, at least seventy-five percent (75%) of
the issued and outstanding Real Silk Shares, dated as of the Closing Date,
stating that such beneficial owners, individually and on behalf of the entities
which they control, have no plan or intention to cause Affiliated Fund to redeem
or repurchase the Affiliated Fund Shares issued to them as Merger Consideration.
Such representations and warranties may acknowledge that such beneficial owners
retain the right to cause Affiliated Fund to redeem or repurchase such
Affiliated Fund Shares subject (with respect to the Escrowed Affiliated Fund
Shares) to the restrictions described in Section 2.5, but must represent that
any such redemption or
AGREEMENT AND PLAN OF MERGER PAGE 21
<PAGE>
repurchase will be based upon the stockholder"s personal circumstances or market
conditions at the time of the redemption or repurchase and will not be
precipitated by the Merger.
Section 5.12.1 Affiliated Fund and Real Silk intend the Merger to
qualify as a reorganization under Section 368(a)(1)(A) of the Code; each
party and its affiliates shall use all reasonable efforts to cause the
Merger to so qualify; neither party nor any affiliate shall take any action
that would reasonably be expected to cause the Merger not to so qualify;
and the Parties will take the position for all purposes that the Merger so
qualifies.
ARTICLE 6 - CONDITIONS TO OBLIGATION OF AFFILIATED FUND AND REAL SILK TO CLOSE
Section 6.1 - Obligations of Affiliated Fund. The obligation of Affiliated
Fund to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
Section 6.1.1 This Agreement and the Merger shall have received the
Requisite Real Silk Stockholder Approval;
Section 6.1.2 Real Silk shall have procured all of the third party
consents specified in Section 5.3 above;
Section 6.1.3 The representations and warranties set forth in Article
3 above shall be true and correct in all material respects at and as of the
Closing Date and no event shall have occurred which has had, or is
reasonably likely to have, a material adverse affect on Real Silk.
Section 6.1.4 Real Silk shall have performed and complied with all of
its covenants hereunder in all material respects through the Closing;
Section 6.1.5 No action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction or before any arbitrator
wherein an unfavorable injunction, judgment, order, decree, ruling, or
charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, (C)
affect adversely the right of the Surviving Corporation to own the former
assets, and to operate the former businesses of, Real Silk;
Section 6.1.6 The Registration Statement/Proxy Materials on Form N-14
shall have become effective under the Securities Act;
Section 6.1.7 Affiliated Fund shall have received from Real Silk a
balance sheet, prepared in accordance with GAAP and in accordance with
liquidation accounting, and audited by independent auditors to Real Silk,
dated as of a date as close to the Closing Date as is reasonably
practicable;
AGREEMENT AND PLAN OF MERGER PAGE 22
<PAGE>
Section 6.1.8 Affiliated Fund, or the independent auditors to
Affiliated Fund, shall have the opportunity to confirm, or shall have
confirmed, ownership of all portfolio securities listed by Real Silk in its
specification of portfolio securities owned, and such verification shall
include all portfolio securities, including all liabilities related
thereto, utilized by Real Silk in the calculation of its net asset value
for determination of the Conversion Ratio; Section
6.1.9 All applicable waiting periods (and any extensions thereof)
under the Hart-Scott-Rodino Act shall have expired or otherwise been
terminated and the Parties shall have received all other authorizations,
consents, and approvals of governments and governmental agencies referred
to in Section 3.5 and Section 4.4 above;
Section 6.1.10 Real Silk shall have delivered to Affiliated Fund (for
payment to Lord Abbett & Co., its investment adviser) the sum of Fifteen
Thousand and 00/100 Dollars ($15,000) in readily available funds. Such
payment shall be contingent on the occurrence of the Closing and is in
partial reimbursement of the filing fee required to be paid in connection
with the Hart-Scott-Rodino Act filing.
Section 6.1.11 Affiliated Fund shall have received from Leagre
Chandler & Millard LLP, counsel to Real Silk, an opinion of counsel,
addressed to Affiliated Fund and dated as of the Closing Date, in form and
substance acceptable to Affiliated Fund, expressing such opinions and
subject to such conditions and qualifications as are ordinary and customary
in transactions similar to those anticipated by this Agreement;
Section 6.1.12 Affiliated Fund shall have received from Debevoise &
Plimpton, counsel to Affiliated Fund, an opinion of counsel, addressed to
Affiliated Fund and dated as of the Closing Date, in form and substance
acceptable to Affiliated Fund, to the effect that the Merger will
constitute a reorganization pursuant to Code ss. 368(a)(1)(A), subject to
such conditions and qualifications as are ordinary and customary in such
opinions of counsel;
Section 6.1.13 Affiliated Fund shall have received the resignations,
effective as of the Closing, of each director, officer and employee of Real
Silk, or Real Silk shall have terminated each employee, other than those
whom Affiliated Fund shall have specified in writing at least five (5)
business days prior to the Closing, and Real Silk shall have satisfied or
appropriately reserved for all liabilities relating thereto; and
Section 6.1.14 All actions to be taken by Real Silk in connection with
the consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect
the transactions contemplated hereby shall be reasonably satisfactory in
form and substance to Affiliated Fund.
Section 6.1.15 Real Silk shall have delivered to Affiliated Fund an
officer's certificate to the effect that each of the conditions specified
above in Sections 6.1.1 through and including Section 6.1.5 is satisfied in
all material respects;
AGREEMENT AND PLAN OF MERGER PAGE 23
<PAGE>
Section 6.1.16 Real Silk shall have delivered to Affiliated Fund an
officer's certificate stating the true and correct number of shares of
capital stock of Real Silk outstanding as of the Effective Time.
Section 6.1.17 Real Silk shall have delivered to Affiliated Fund a
fully executed and effective Escrow Agreement in accordance with the
provisions of Section 2.5 of this Agreement.
Affiliated Fund may waive any condition specified in this Section 6.1
if it executes a writing so stating at or prior to the Closing.
Section 6.2 - Conditions to Obligation of Real Silk. The obligation of Real
Silk to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
Section 6.2.1 The Registration Statement/Proxy Materials on Form N-14
shall have become effective under the Securities Act;
Section 6.2.2 The representations and warranties set forth in Article
4 above shall be true and correct in all material respects at and as of the
Closing Date;
Section 6.2.3 Affiliated Fund shall have performed and complied with
all of its covenants hereunder in all material respects through the
Closing;
Section 6.2.4 No action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction or before any arbitrator
wherein an unfavorable injunction, judgment, order, decree, ruling, or
charge would (A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation, (C)
affect adversely the right of the Surviving Corporation to own the former
assets, and to operate the former businesses of Real Silk;
Section 6.2.5 This Agreement and the Merger shall have received the
Requisite Real Silk Stockholder Approval;
Section 6.2.6 All applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have expired or otherwise
been terminated and the Parties shall have received all other
authorizations, consents, and approvals of governments and governmental
agencies referred to in Section 3.5 and Section 4.4 above;
Section 6.2.7 Real Silk shall have received from Debevoise & Plimpton,
counsel to Affiliated Fund, an opinion of counsel, addressed to Real Silk
and dated as of the Closing Date, in form and substance acceptable to Real
Silk, expressing such opinions and subject
AGREEMENT AND PLAN OF MERGER PAGE 24
<PAGE>
to such conditions and qualifications as are ordinary and customary in
transactions similar to those anticipated by this Agreement;
Section 6.2.8 Real Silk shall have received from Ropes & Gray, tax
counsel to Real Silk, an opinion in form and substance acceptable to Real
Silk, and addressed to Real Silk, and dated as of the Closing Date, to the
effect that the Merger will constitute a reorganization pursuant to Code
ss.368(a)(1)(A) and that Real Silk Stockholders who receive solely
Affiliated Fund Shares pursuant to the Merger will not recognize income or
gain for federal income tax purposes as a result of the consummation of the
Merger;
Section 6.2.9 All actions to be taken by Affiliated Fund in connection
with consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to effect
the transactions contemplated hereby shall be reasonably satisfactory in
form and substance to Real Silk;
Section 6.2.10 Affiliated Fund shall have delivered to Real Silk a
certificate to the effect that each of the conditions specified above in
Sections 6.2.2 through and including Section 6.2.4 is satisfied in all
material respects.
Real Silk may waive any condition specified in this Section 6.2 if it
executes a writing so stating at or prior to the Closing.
ARTICLE 7 - TERMINATION
Section 7.1 - Termination of Agreement. Either of the Parties may terminate
this Agreement with the prior authorization of its board of directors (whether
before or after shareholder approval) as provided below:
Section 7.1.1 The Parties may terminate this Agreement by mutual
written consent at any time prior to the Effective Time;
Section 7.1.2 Affiliated Fund may terminate this Agreement by giving
written notice to Real Silk at any time prior to the Effective Time (A) in
the event Real Silk has breached any representation, warranty, or covenant
contained in this Agreement in any material respect, Affiliated Fund has
notified Real Silk of the breach, and the breach has continued without cure
for a period of 30 days after the notice of breach or (B) if the Closing
shall not have occurred on or before December 31, 1999, by reason of the
failure of any condition precedent under Section 6.1 hereof (unless the
failure results primarily from Affiliated Fund breaching any
representation, warranty, or covenant contained in this Agreement);
Section 7.1.3 Real Silk may terminate this Agreement by giving written
notice to Affiliated Fund at any time prior to the Effective Time (A) in
the event Affiliated Fund has breached any representation, warranty, or
covenant contained in this Agreement in any material respect, Real Silk has
notified Affiliated Fund of the breach, and the breach has continued
without cure for a period of 30 days after the notice of breach or (B) if
the Closing
AGREEMENT AND PLAN OF MERGER PAGE 25
<PAGE>
shall not have occurred on or before December 31,1999, by reason of the
failure of any condition precedent under Section 6.2 hereof (unless the
failure results primarily from Real Silk breaching any representation,
warranty, or covenant contained in this Agreement);
Section 7.1.4 Any Party may terminate this Agreement by giving written
notice to the other Party at any time prior to the Effective Time in the
event the Fairness Opinion is withdrawn;
Section 7.1.5 Any Party may terminate this Agreement by giving written
notice to the other Party at any time after the Special Real Silk Meeting
in the event this Agreement and the Merger fail to receive the Requisite
Real Silk Stockholders Approval;
Section 7.1.6 Any Party may terminate this Agreement by giving written
notice to the other Party at any time prior to the Effective Time in the
event a court of competent jurisdiction issues an order restraining,
enjoining or otherwise prohibiting the Merger and (i) such order is a final
order not subject to appeal; or (ii) the Party that is not terminating this
Agreement (the "Non-Terminating Party") has provided written notice to the
terminating Party that the Non-Terminating Party does not intend to appeal
the order restraining, enjoining or otherwise prohibiting the Merger.
Section 7.2 - Effect of Termination. If any Party terminates this Agreement
pursuant to Section 7.1 above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party
(except for any liability of any Party then in breach); provided, however, that
the confidentiality provisions contained in Section 5.6 above shall survive any
such termination.
ARTICLE 8 - EVENTS FOLLOWING THE CLOSING
Following the Effective Time, Real Silk shall make all required regulatory
filings, including but not limited to, an application for an order pursuant to
Section 8(f) of the 1940 Act requesting an order stating that it has ceased to
be an investment company. Real Silk shall have contracted for, or made
arrangements to bear the cost of, any and all such filings.
ARTICLE 9 - MISCELLANEOUS
Section 9.1 - Survival. None of the representations, warranties, and
covenants of the Parties (other than the provisions in Section 2 above
concerning issuance of Affiliated Fund Shares, the provisions in Section 5.11.1
and 5.11.2 above concerning insurance and indemnification, and the provisions in
Section 4.8 above concerning certain requirements for a tax-free reorganization)
shall survive the Effective Time.
Section 9.2 - Transfer Taxes. Any transfer taxes imposed in connection with
the Merger shall be borne by Real Silk and, to the extent such transfer taxes
remain unpaid as of the Closing Date, shall be taken into account as a liability
for purposes of computing the net asset value of the Real Silk Shares pursuant
to Section 2.4.6 of this Agreement.
AGREEMENT AND PLAN OF MERGER PAGE 26
<PAGE>
Section 9.3 - Press Releases and Public Announcements. No Party shall issue
any press release or make any public announcement relating to the subject matter
of this Agreement without the prior written approval of the other Party;
provided, however, that any Party may make any public disclosure it believes in
good faith is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities, in which case the disclosing Party
shall use its best efforts to advise other Party prior to making the disclosure.
Section 9.4 - No Third Party Beneficiaries. This Agreement shall not confer
any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns; provided, however, that (i) the
provisions in Section 2 above concerning issuance of Affiliated Fund Shares and
the provisions in Section 5.12 above concerning certain requirements for a
tax-free reorganization are intended for the benefit of the Real Silk
Stockholders and (ii) the provisions in Section 5 and Section 5.11.2 above
concerning insurance and indemnification are intended for the benefit of the
individuals specified therein and their respective legal representatives.
Section 9.5 - Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement between the Parties and
supersedes any prior understandings, agreements, or representations by or
between the Parties, written or oral, to the extent they related in any way to
the subject matter hereof.
Section 9.6 - Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of the other Party.
Section 9.7 - Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
Section 9.8 - Headings. The section headings contained in this Agreement
are for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 9.9 - Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given two business
days after it is sent if it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to Real Silk: Real Silk Investments Incorporated
Attn: Daniel R. Efroymson, President
Suite 500
445 N. Pennsylvania Street
Indianapolis, IN 46204
Telecopy: (317) 632-5104
AGREEMENT AND PLAN OF MERGER PAGE 27
<PAGE>
Copy to: Jeffrey B. Bailey
Leagre Chandler & Millard LLP
1400 1st Indiana Building
135 N. Pennsylvania Street
Indianapolis, IN 46204
Telecopy: (317) 808-3100
If to the Buyer: Lord Abbett Affiliated Fund, Inc.
Attn: Paul A. Hilstad, Vice President and Secretary
767 Fifth Avenue
New York, NY 10153-0203
Telecopy: (212) 935-9233
Copy to: Matthew A. Chambers
Debevoise & Plimpton
555 13th Street N.W.
Washington, D.C. 20004
Telecopy: (202) 383-8118
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
Section 9.10 - Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Indiana without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Indiana or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Indiana.
Section 9.11 - Jurisdiction, Venue. The Parties hereby irrevocably consent
to the jurisdiction of the courts of the State of Indiana and the Federal courts
in the Southern District of Indiana in respect of the interpretation and
enforcement of the provisions of this Agreement and of the documents referred to
herein, and in respect of the transaction contemplated hereby and thereby. The
Parties further agree that the exclusive venue for the initiation of any action
in respect of this Agreement be in the state or Federal courts located in Marion
County in the City of Indianapolis, Indiana.
Section 9.12 - Waiver of Jury Trial. The Parties hereby irrevocably and
unconditionally waive any right to a trial by jury in respect of any litigation
directly or indirectly arising out of, or relating to, this Agreement or the
transactions contemplated hereby.
AGREEMENT AND PLAN OF MERGER PAGE 28
<PAGE>
Section 9.13 - Amendments and Waivers. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors; provided, however,
that any amendment effected subsequent to shareholder approval shall be subject
to the restrictions contained in the Indiana Business Corporation Law. No
amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by both Parties. No waiver by any Party of any
default, misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way, or waive any rights arising by virtue of any prior or
subsequent such occurrence.
Section 9.14 - Severability. 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.
Section 9.15 - Expenses. Each of the Parties shall bear its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby except as provided in Section
5.10 and Section 6.1.10 of this Agreement.
Section 9.16 - Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
Section 9.17 - Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date first above written.
LORD ABBETT AFFILIATED FUND, INC. REAL SILK INVESTMENTS, INCORPORATED
By: By:
------------------------------------ ------------------------------
Robert S. Dow Daniel R. Efroymson
Chairman of the Board of Directors President
AGREEMENT AND PLAN OF MERGER PAGE 29
<PAGE>
44474.9
AGREEMENT AND PLAN OF MERGER PAGE 30
<PAGE>
SCHEDULE 3
FINAL REAL SILK DISCLOSURE SCHEDULE
<PAGE>
SCHEDULE 3.10
UNDISCLOSED LIABILITIES
Potential indemnification liability in favor of U.S. Bancorp Piper Jaffray,
Inc.("Piper Jaffray") pursuant to the Letter Agreement for investment banking
services between Real Silk Investments, Incorporated and Piper Jaffray dated
October 5, 1998 and accepted by Real Silk on October 6, 1998.
<PAGE>
SCHEDULE 4
FINAL AFFILIATED FUND DISCLOSURE SCHEDULE
<PAGE>
SCHEDULE 5.5.13
SCHEDULE OF SECURITIES TO BE SOLD
Number
Symbol Security Name of Shares
- --------------------------------------------------------------------------------
1. ADPT ADAPTEC INC. 20,000
- --------------------------------------------------------------------------------
2. AFG AMERICAN FINANCIAL GROUP 33,902
- --------------------------------------------------------------------------------
3. BCC BOISE CASCADE CORP. 6,666
- --------------------------------------------------------------------------------
4. BFI BROWNING FERRIS INDUSTRIES 16,000
- --------------------------------------------------------------------------------
5. CD CEDANT CORPORATION 10,000
- --------------------------------------------------------------------------------
6. RDN CMAC INVESTMENT CORP 8,000
- --------------------------------------------------------------------------------
7. COP CONSOLIDATED PRODUCTS, INC. 57,826
- --------------------------------------------------------------------------------
8. DIIG DII GROUP, INC. 20,000
- --------------------------------------------------------------------------------
9. DNB DUN & BRADSTREET CORP. 8,800
- --------------------------------------------------------------------------------
10. LLY ELI LILLY & CO 16,000
- --------------------------------------------------------------------------------
11. FACO FIRST ALLIANCE CORP. 17,250
- --------------------------------------------------------------------------------
12. GFD GUILFORD MILLS, INC. 19,687
- --------------------------------------------------------------------------------
13. HAN HANSON PLC 3,634
- --------------------------------------------------------------------------------
14. HWP HEWLETT PACKARD CO. 16,000
- --------------------------------------------------------------------------------
15. RX IMS HEALTH INC. 17,600
- --------------------------------------------------------------------------------
16. KMG KERR MC GEE CORP. 18,000
- --------------------------------------------------------------------------------
17. MI MARSHALL INDUSTRIES 36,000
- --------------------------------------------------------------------------------
18. MSX MASCOTECH, INC. 96,000
- --------------------------------------------------------------------------------
19. MRK MERCK & CO 18,000
- --------------------------------------------------------------------------------
20. MSFT MICROSOFT CORP 24,000
- --------------------------------------------------------------------------------
21. MZ MILACRON, INC. 36,000
- --------------------------------------------------------------------------------
22. MCH MILLENNIUM CHEMICALS 2,076
- --------------------------------------------------------------------------------
23. MOT MOTOROLA INC. 7,000
- --------------------------------------------------------------------------------
24. MYL MYLAN LABORATORIES 24,000
- --------------------------------------------------------------------------------
<PAGE>
Number
Symbol Security Name of Shares
- --------------------------------------------------------------------------------
25. NETA NETWORK ASSOCS. INC. 10,000
- --------------------------------------------------------------------------------
26. NEM NEWMONT MINING 54,916
- --------------------------------------------------------------------------------
27. NMR NIELSEN MEDIA RESEARCH 2,933
- --------------------------------------------------------------------------------
28. NWNG NW NATURAL GAS 23,400
- --------------------------------------------------------------------------------
29. OXY OCCIDENTAL PETROLEUM 9,570
- --------------------------------------------------------------------------------
30. OCN OCWEN FINANCIAL CORP 27,000
- --------------------------------------------------------------------------------
31. OCAS OHIO CASUALTY CORP 16,000
- --------------------------------------------------------------------------------
32. PVA PENN VIRGINIA CORP. 80,000
- --------------------------------------------------------------------------------
33. RHD R.H. DONNELLEY 1,760
- --------------------------------------------------------------------------------
34. RLR RELIASTAR FINANCIAL 42,078
- --------------------------------------------------------------------------------
35. RLM REYNOLDS METALS CORP 8,344
- --------------------------------------------------------------------------------
36. SIAL SIGMA-ALDRICH CORP 10,000
- --------------------------------------------------------------------------------
37. TXU TEXAS UTILITIES CO. 5,160
- --------------------------------------------------------------------------------
38. TRW TRW, INC 32,000
- --------------------------------------------------------------------------------
39. UPR UNION PACIFIC RESOURCES 29,118
- --------------------------------------------------------------------------------
40. USI US INDUSTRIES INC. 2,179
- --------------------------------------------------------------------------------
41. VSH VISHAY INTERTECHNOLOGY INC 36,580
- --------------------------------------------------------------------------------
42. WNC WABASH NATIONAL CORP 10,000
- --------------------------------------------------------------------------------
TOTAL COMMON SHARES 923,555
- --------------------------------------------------------------------------------
43. SCDUXLG CO VALUE FUND 12,000
- --------------------------------------------------------------------------------
TOTAL 935,555
- --------------------------------------------------------------------------------
<PAGE>
PROXY REAL SILK INVESTMENTS, INCORPORATED
445 N. Pennsylvania Street, Indianapolis, Indiana
Special Meeting of Shareholders - October , 1999
Proxy Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Daniel R. Efroymson, Loralei M
Efroymson, Lorretta A. Cox and Jeremy D.Efroymson or any of them, with powers of
substitution, as proxies to represent and vote all shares of stock which the
undersigned would be entitled to vote at the Special Meeting of Shareholders of
Real Silk Investments, Incorporated to be held on October , 1999, and at any
adjournment thereof, with all of the powers the undersigned would possess if
personally present, as follows:
1. ADOPTION AND APPROVAL OF THE AGREEMENT AND PLAN OF MERGER
FOR AGAINST ABSTAIN
2. In their discretion, on such other matters as may properly come before
the meeting.
This proxy will be voted as directed, or if no direction is indicated,
will be voted FOR Proposal Number 1.
<TABLE>
<S> <C>
Dated:_________, 1999 Please sign exactly as your name appears hereon.
Address correction requested.
-----------------------------------------------
(Signature of Shareholder)
-----------------------------------------------
(Signature of Shareholder)
PLEASE SIGN AND RETURN THIS PROXY
PROMPTLY. Joint owners should each sign
personally. Administrators, trustees,
guardians, attorneys or others signing
in a representative capacity should
indicate the capacity in which they
sign.
</TABLE>
