AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Plan"), is
made as of this 6th day of May, 2009, by and between Franklin
Custodian Funds, a statutory trust created under the laws of the
State of Delaware ("Acquiring Trust"), with its principal place
of business at Xxx Xxxxxxxx Xxxxxxx, Xxx Xxxxx, XX 00000-0000, on
behalf of its series, Franklin Growth Fund ("Acquiring Fund"),
and Franklin Capital Growth Fund, a statutory trust created under
the laws of the State of Delaware with its principal place of
business at Xxx Xxxxxxxx Xxxxxxx, Xxx Xxxxx, XX 00000-0000
("Target Fund").
PLAN OF REORGANIZATION
The reorganization (hereinafter referred to as the
"Reorganization") will consist of (i) the acquisition by Acquiring
Trust, on behalf of Acquiring Fund, of substantially all of the
property, assets and goodwill of Target Fund in exchange solely
for full and fractional Class A, Class B, Class C, Class R, and
Advisor Class shares of beneficial interest, with no par value,
of Acquiring Fund ("Acquiring Fund Shares"); (ii) the
distribution of Acquiring Fund Shares to the holders of Class A,
Class B, Class C, Class R, and Advisor Class shares of beneficial
interest of Target Fund (the "Target Fund Shares") according to
their respective interests in Target Fund in complete liquidation
of Target Fund; and (iii) the dissolution of Target Fund as soon
as is practicable after the closing (as described in Section 3,
hereinafter called the "Closing"), all upon and subject to the
terms and conditions of the Plan hereinafter set forth.
AGREEMENT
In order to consummate the Reorganization and in consideration
of the premises and of the covenants and agreements hereinafter
set forth, and intending to be legally bound, the parties hereto
covenant and agree as follows:
1. SALE AND TRANSFER OF ASSETS, LIQUIDATION AND DISSOLUTION OF
TARGET FUND.
(a) Subject to the terms and conditions of the Plan, and in
reliance on the representations and warranties of Acquiring
Trust, on behalf of Acquiring Fund, herein contained, and in
consideration of the delivery by Acquiring Trust of the number of
Acquiring Fund Shares hereinafter provided, Target Fund agrees
that, at the time of Closing, it will convey, transfer and
deliver to Acquiring Trust, for the benefit of Acquiring Fund,
all of Target Fund's then existing assets, including any interest
in pending or future legal claims in connection with past or
present portfolio holdings, whether in the form of class action
claims, opt-out or other direct litigation claims, or regulator
or government-established investor recovery fund claims, and any
and all resulting recoveries, free and clear of all liens,
encumbrances, and claims whatsoever (other than shareholders'
rights of redemption), except for cash, bank deposits, or cash
equivalent securities in an estimated amount necessary to:
(i) pay 25% of the costs and expenses of carrying out the
Reorganization (including, but not limited to, fees of counsel
and accountants, and expenses of its liquidation and dissolution
contemplated hereunder), in accordance with Section 9 of the
Plan, which costs and expenses shall be established on Target
Fund's books as liability reserves; (ii) discharge its unpaid
liabilities on its books at the Closing Date (as such term is
defined in Section 3), including, but not limited to, its income
dividends and capital gains distributions, if any, payable for
the period prior to, and through, the Closing Date; and (iii) pay
such contingent liabilities, if any, as the Board of Trustees of
Target Fund shall reasonably deem to exist against Target Fund at
the Closing Date, for which contingent and other appropriate
liability reserves shall be established on Target Fund's books
(such assets hereinafter "Net Assets"). Neither Acquiring Trust
nor Acquiring Fund shall assume any liability of Target Fund, and
Target Fund shall use its reasonable best efforts to discharge
all of its known liabilities, so far as may be possible, from the
cash, bank deposits and cash equivalent securities described
above.
(b) Subject to the terms and conditions of the Plan, and in
reliance on the representations and warranties of Target Fund
herein contained, and in consideration of such sale, conveyance,
transfer, and delivery, Acquiring Trust agrees to deliver to
Target Fund at the Closing the number of Acquiring Fund Shares,
determined by dividing the net asset value per share of Class A,
Class B, Class C, Class R, and Advisor Class shares of Target
Fund by the net asset value per share of Class A, Class B, Class
C, Class R, and Advisor Class shares, respectively, of Acquiring
Fund, and multiplying the result thereof by the number of
outstanding Class A, Class B, Class C, Class R, and Advisor Class
shares of Target Fund, all as of 1:00 p.m., Pacific Time, on the
Closing Date. Acquiring Fund Shares delivered to Target Fund at
the Closing shall have an aggregate net asset value equal to the
value of Target Fund's Net Assets, all determined as provided in
Section 2 of the Plan and as of the date and time specified
herein.
(c) Immediately following the Closing, Target Fund shall be
dissolved and shall distribute the Acquiring Fund Shares received
by Target Fund pursuant to this Section 1 pro rata to Target
Fund's shareholders of record as of the close of business on the
Closing Date. Such distribution shall be accomplished by the
establishment of accounts on the share records of Acquiring Fund
in the amounts due such shareholders based on their respective
holdings in Target Fund as of the close of business on the
Closing Date. Fractional Acquiring Fund Shares shall be carried
to the third decimal place. Certificates for Acquiring Fund
Shares shall not be issued, unless specifically requested by a
shareholder. After the distribution, Target Fund shall be
dissolved.
(d) At the Closing, each shareholder of record of Target Fund
as of the record date (the "Distribution Record Date") with
respect to any unpaid dividends and other distributions that were
declared prior to the Closing, including any dividend or
distribution declared pursuant to Section 8(e) hereof, shall have
the right to receive such unpaid dividends and distributions with
respect to the shares of Target Fund that such person had on the
Distribution Record Date.
(e) All books and records relating to Target Fund, including
all books and records required to be maintained under the
Investment Company Act of 1940, as amended (the "1940 Act"), and
the rules and regulations thereunder, shall be available to
Acquiring Trust from and after the date of the Plan, and shall be
turned over to Acquiring Trust on or prior to the Closing.
2. VALUATION.
(a) The net asset value of Acquiring Fund Shares and Target
Fund Shares and the value of Target Fund's Net Assets to be
acquired by Acquiring Fund hereunder shall in each case be
computed as of 1:00 p.m., Pacific Time, on the Closing Date,
unless on such date: (a) the New York Stock Exchange ("NYSE") is
not open for unrestricted trading; or (b) the reporting of
trading on the NYSE is disrupted; or (c) any other extraordinary
financial event or market condition occurs (each of the events
described in (a), (b) or (c), a "Market Disruption"). The net
asset value per share of Acquiring Fund Shares and Target Fund
Shares and the value of Target Fund's Net Assets shall be
computed in accordance with the valuation procedures set forth in
the most recent respective prospectuses of Acquiring Fund and
Target Fund, as amended or supplemented.
(b) In the event of a Market Disruption on the proposed
Closing Date, so that an accurate appraisal of the net asset
value of Acquiring Fund Shares or Target Fund Shares or the value
of Target Fund's Net Assets is impracticable, the Closing Date
shall be postponed until the first business day when regular
trading on the NYSE shall have been fully resumed and reporting
shall have been restored and other trading markets are otherwise
stabilized.
3. CLOSING AND CLOSING DATE.
The Closing shall take place at the principal office of
Acquiring Trust at [2:00 p.m.], Pacific Time, on May 6, 2009 or
such later date as the parties may mutually agree (the "Closing
Date"). Target Fund shall have provided for delivery as of the
Closing of those Net Assets of Target Fund to be transferred to
the account of Acquiring Fund's Custodian, The Bank of New York
Mellon, Mutual Funds Division, 000 Xxxxxx Xxxxxx, Xxx Xxxx, XX
00000. Target Fund shall deliver at the Closing a list of names
and addresses of the shareholders of record of Target Fund Shares
and the number of full and fractional shares of beneficial
interest owned by each such shareholder as of 1:00 p.m., Pacific
Time, on the Closing Date, certified by its transfer agent or by
its President to the best of its or his knowledge and belief.
Acquiring Trust on behalf of Acquiring Fund shall provide
evidence satisfactory to Target Fund that such Acquiring Fund
Shares have been registered in an account on the books of
Acquiring Fund in such manner as the officers of Target Fund may
reasonably request.
4. REPRESENTATIONS AND WARRANTIES BY ACQUIRING TRUST ON BEHALF OF
ACQUIRING FUND.
Acquiring Trust, on behalf of Acquiring Fund, represents and
warrants to Target Fund that:
(a) Acquiring Fund is a series of Acquiring Trust, a statutory
trust organized originally as a Delaware corporation in 1947,
reincorporated as a MD corporation in 1979, and converted into a
Delaware statutory trust effective February 1, 2008. Acquiring
Trust is duly registered under the 1940 Act as an open-end,
management investment company and all of Acquiring Fund Shares
sold were sold pursuant to an effective registration statement
filed under the Securities Act of 1933, as amended (the "1933
Act"), except for those shares sold pursuant to the private
offering exemption for the purpose of raising initial capital or
obtaining any required initial shareholder approvals.
(b) Acquiring Trust is authorized to issue an unlimited number
of shares of beneficial interest, without par value, of Acquiring
Fund, each outstanding share of which is, and each share of which
when issued pursuant to and in accordance with the Plan will be,
fully paid, non-assessable, and has or will have full voting
rights. Acquiring Trust currently issues shares of five
(5) series, including Acquiring Fund. Acquiring Fund issues five
classes of shares: Class A, Class B, Class C, Class R, and
Advisor Class. No shareholder of Acquiring Trust shall have any
preemptive or other right to subscribe for Acquiring Fund Shares.
(c) The financial statements appearing in Acquiring Fund's
Annual Report to Shareholders for the fiscal year ended September
30, 2008, audited by PricewaterhouseCoopers LLP, a copy of which
has been delivered to Target Fund, and any interim unaudited
financial statements, copies of which may be furnished to Target
Fund, fairly present the financial position of Acquiring Fund as
of their respective dates and the results of Acquiring Fund's
operations for the periods indicated in conformity with Generally
Accepted Accounting Principles applied on a consistent basis.
(d) The books and records of Acquiring Fund accurately
summarize the accounting data represented and contain no material
omissions with respect to the business and operations of
Acquiring Fund.
(e) Acquiring Trust, on behalf of Acquiring Fund, is not a
party to or obligated under any provision of its Agreement and
Declaration of Trust, By-laws, any contract or any other
commitment or obligation, and is not subject to any order or
decree, that would be violated by its execution of or performance
under the Plan, and no consent, approval, authorization or order
of any court or governmental authority is required for the
consummation by Acquiring Fund or Acquiring Trust of the
transactions contemplated by the Plan, except for the
registration of Acquiring Fund Shares under the 1933 Act, the
1940 Act, or as may otherwise be required under the federal and
state securities laws or the rules and regulations thereunder.
(f) Acquiring Trust has elected to treat Acquiring Fund as a
regulated investment company ("RIC") for federal income tax
purposes under Part I of Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"). Acquiring Fund is a "fund"
as defined in Section 851(g)(2) of the Code, has qualified as a
RIC for each taxable year since its inception, and intends to
continue to qualify as a RIC as of the Closing Date.
Consummation of the transactions contemplated by the Plan will not
cause Acquiring Fund to fail to be qualified as a RIC as of the
Closing Date.
(g) Acquiring Fund is not under jurisdiction of a Court in a
Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
(h) Acquiring Fund does not have any unamortized or unpaid
organizational fees or expenses.
(i) Acquiring Fund does not have any known liabilities, costs
or expenses of a material amount, contingent or otherwise, other
than those incurred in the ordinary course of business as an
investment company.
(j) There is no intercorporate indebtedness existing between
Target Fund and Acquiring Fund that was issued, acquired, or will
be settled at a discount.
(k) Acquiring Fund does not own, directly or indirectly, nor
has it owned during the past five (5) years, directly or
indirectly, any shares of Target Fund.
(l) Acquiring Trust has no plan or intention to issue
additional shares of Acquiring Fund following the Reorganization
except for shares issued in the ordinary course of Acquiring
Fund's business as a series of an open-end investment company; nor
does Acquiring Trust have any plan or intention to redeem or
otherwise reacquire any shares of Acquiring Fund issued pursuant
to the Plan, either directly or through any transaction,
agreement, or arrangement with any other person, other than in
the ordinary course of its business or to the extent necessary to
comply with its legal obligation under Section 22(e) of the 1940
Act.
(m) Acquiring Fund is in the same line of business as Target
Fund before the Reorganization and did not enter into such line
of business as part of the Reorganization. Acquiring Fund will
actively continue Target Fund's business in substantially the
same manner that Target Fund conducted that business immediately
before the Reorganization and has no plan or intention to change
such business. On the Closing Date, Acquiring Fund expects that
at least 33 (1)/3% of Target Fund's portfolio assets will meet
the investment objectives, strategies, policies, risks and
restrictions of Acquiring Fund. Acquiring Fund has no plan or
intention to change any of its investment objectives, strategies,
policies, risks and restrictions after the Reorganization.
Acquiring Fund has no plan or intention to sell or otherwise
dispose of any of the former assets of Target Fund, except for
dispositions made in the ordinary course of its business or
dispositions necessary to maintain its qualification as a RIC,
although in the ordinary course of its business, Acquiring Fund
will continuously review its investment portfolio (as Target Fund
did before the Closing) to determine whether to retain or dispose
of particular securities, including those included among the
former assets of Target Fund.
(n) The registration statement on Form N-14 referred to in
Section 7(g) hereof (the "Registration Statement"), and any
prospectus or statement of additional information of Acquiring
Fund contained or incorporated therein by reference, and any
supplement or amendment to the Registration Statement or any such
prospectus or statement of additional information, on the
effective and clearance dates of the Registration Statement, on
the date of the Special Meeting of Target Fund shareholders, and
on the Closing Date: (i) shall comply in all material respects
with the provisions of the 1933 Act, the Securities Exchange Act
of 1934, as amended (the "1934 Act"), the 1940 Act, the rules and
regulations thereunder, and all applicable state securities laws
and the rules and regulations thereunder; and (ii) shall not
contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under
which the statements were made, not misleading.
5. REPRESENTATIONS AND WARRANTIES BY TARGET FUND.
Target Fund represents and warrants to Acquiring Trust that:
(a) Target Fund was originally organized as a California
corporation on August 30, 1984, and was reorganized as a Delaware
statutory trust effective March 21, 2000. Target Fund is duly
registered under the 1940 Act as an open-end, management
investment company and all Target Fund Shares sold were sold
pursuant to an effective registration statement filed under the
1933 Act, except for those shares sold pursuant to the private
offering exemption for the purposes of raising the required
initial capital or obtaining any required initial shareholder
approvals.
(b) Target Fund is authorized to issue an unlimited number of
shares of beneficial interest, without par value, each
outstanding share of which is fully paid, non-assessable, and has
full voting rights. Target Fund has five classes of shares and
an unlimited number of shares of beneficial interest of Target
Fund have been allocated and designated to each such class. No
shareholder of Target Fund has or will have any option, warrant,
or preemptive rights of subscription or purchase with respect to
Target Fund Shares.
(c) The financial statements appearing in Target Fund's Annual
Report to Shareholders for the fiscal year ended June 30, 2008,
audited by PricewaterhouseCoopers LLP, and unaudited Semi-Annual
Report to Shareholders for the period ended December 31, 2008,
copies of which have been delivered to Acquiring Trust, and any
interim financial statements for Target Fund that may be
furnished to Acquiring Trust, fairly present the financial
position of Target Fund as of their respective dates and the
results of Target Fund's operations for the periods indicated in
conformity with generally accepted accounting principles applied
on a consistent basis.
(d) Target Fund is not a party to or obligated under any
provision of its Agreement and Declaration of Trust or Bylaws, as
amended, or any contract or any other commitment or obligation,
and is not subject to any order or decree that would be violated
by its execution of or performance under the Plan. Target Fund
has no material contracts or other commitments (other than the
Plan or agreements for the purchase of securities entered into in
the ordinary course of business and consistent with its
obligations under the Plan) which will not be terminated by
Target Fund in accordance with their terms at or prior to the
Closing Date, or which will result in a penalty or additional fee
to be due or payable by Target Fund.
(e) Target Fund has elected to be treated as a RIC for federal
income tax purposes under Part I of Subchapter M of the Code.
Target Fund is a "fund" as defined in Section 851(g)(2) of the
Code, has qualified as a RIC for each taxable year since its
inception, and will qualify as a RIC as of the Closing Date.
Consummation of the transactions contemplated by the Plan will not
cause Target Fund to fail to be qualified as a RIC as of the
Closing Date.
(f) Target Fund is not under jurisdiction of a Court in a
Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
(g) Target Fund does not have any unamortized or unpaid
organization fees or expenses.
(h) Target Fund does not have any known liabilities, costs or
expenses of a material amount, contingent or otherwise, other
than those reflected in the financial statements referred to in
Section 5(c) hereof and those incurred in the ordinary course of
business as an investment company and of a nature and amount
similar to, and consistent with, those shown in such financial
statements since the dates of those financial statements.
(i) Since December 31, 2008, there has not been any material
adverse change in Target Fund's financial condition, assets,
liabilities, or business other than changes occurring in the
ordinary course of its business.
(j) No consent, approval, authorization, or order of any court
or governmental authority is required for the consummation by
Target Fund of the transactions contemplated by the Plan, except
the necessary Target Fund shareholder approval, or as may
otherwise be required under the federal or state securities laws
or the rules and regulations thereunder.
(k) There is no intercorporate indebtedness existing between
Target Fund and Acquiring Fund that was issued, acquired, or will
be settled at a discount.
(l) During the five-year period ending on the Closing Date,
(i) Target Fund has not acquired, and will not acquire, Target
Fund Shares with consideration other than Acquiring Fund Shares
or Target Fund Shares, except for redemptions in the ordinary
course of Target Fund's business or to the extent necessary to
comply with its legal obligation under Section 22(e) of the 1940
Act, and (ii) no distributions will have been made with respect
to Target Fund Shares (other than regular, normal dividend
distributions made pursuant to Target Fund's historic dividend
paying practice), either directly or through any transaction,
agreement, or arrangement with any other person, except for
distributions described in Sections 852 and 4982 of the Code.
(m) As of the Closing Date, Target Fund will not have
outstanding any warrants, options, convertible securities, or any
other type of rights pursuant to which any person could acquire
shares of Target Fund, except for the right of investors to
acquire its shares at the applicable stated offering price in the
normal course of its business as an open-end management
investment company operating under the 0000 Xxx.
(n) Throughout the five year period ending on the Closing
Date, Target Fund will have conducted its historic business
within the meaning of Section 1.368-1(d) of the Income Tax
Regulations under the Code. Target Fund did not enter into (or
expand) a line of business as part of the Reorganization. Target
Fund will not alter its investment portfolio in connection with
the Reorganization.
6. REPRESENTATIONS AND WARRANTIES BY TARGET FUND AND ACQUIRING
TRUST.
Target Fund and Acquiring Trust, on behalf of Acquiring Fund,
each represents and warrants to the other that:
(a) The statement of assets and liabilities to be furnished by
it as of 1:00 p.m., Pacific Time, on the Closing Date for the
purpose of determining the number of Acquiring Fund Shares to be
issued pursuant to Section 1 of the Plan, will accurately reflect
Target Fund's Net Assets and outstanding shares, as of such date,
in conformity with generally accepted accounting principles
applied on a consistent basis.
(b) At the Closing, it will have good and marketable title to
all of the securities and other assets shown on the statement of
assets and liabilities referred to in (a) above, free and clear
of all liens or encumbrances of any nature whatsoever, except
such imperfections of title or encumbrances as do not materially
detract from the value or use of the assets subject thereto, or
materially affect title thereto.
(c) Except as disclosed in its currently effective prospectus
relating to Target Fund or Acquiring Fund, as applicable, there
is no material suit, judicial action, or legal or administrative
proceeding pending or threatened against it. It is not a party
to or subject to the provisions of any order, decree or judgment
of any court or governmental body which materially and adversely
affects its business or its ability to consummate the
transactions herein contemplated.
(d) There are no known actual or proposed deficiency
assessments with respect to any taxes payable by it.
(e) The execution, delivery, and performance of the Plan have
been duly authorized by all necessary action of its Board of
Trustees and the Plan, subject with respect to Target Fund to the
approval of Target Fund's shareholders, constitutes a valid and
binding obligation enforceable in accordance with its terms,
subject to bankruptcy, insolvency, reorganization arrangement,
moratorium, and other similar laws of general applicability
relating to or affecting creditors' rights and to general equity
principles.
(f) It anticipates that consummation of the Plan will not
cause Target Fund or Acquiring Fund, as applicable, to fail to
conform to the requirements of Subchapter M of the Code for
federal income taxation qualification as a RIC at the end its
fiscal year.
7. COVENANTS OF TARGET FUND AND ACQUIRING TRUST.
(a) Target Fund and Acquiring Trust, on behalf of Acquiring
Fund, each covenants to operate its respective business as
presently conducted between the date hereof and the Closing, it
being understood that such ordinary course of business will
include the distribution of customary dividends and distributions
and any other distribution necessary or desirable to minimize
federal income or excise taxes.
(b) Target Fund undertakes that it will not acquire Acquiring
Fund Shares for the purpose of making distributions thereof to
anyone other than Target Fund's shareholders.
(c) Target Fund undertakes that, if the Plan is consummated,
it will liquidate and dissolve.
(d) Target Fund and Acquiring Trust, on behalf of Acquiring
Fund, each agree that, by the Closing, all of their federal and
other tax returns and reports required by law to be filed on or
before such date shall have been filed, and either all federal
and other taxes shown as due on said returns shall have been
paid, or adequate liability reserves shall have been provided for
the payment of such taxes, and to the best of their knowledge no
such tax return is currently under audit and no tax deficiency or
liability has been asserted with respect to such tax returns or
reports by the Internal Revenue Service or any state or local tax
authority.
(e) At the Closing, Target Fund will provide Acquiring Fund
with a copy of the shareholder ledger accounts, certified by
Target Fund's transfer agent or its President to the best of its
or his knowledge and belief, for all the holders of record of
Target Fund Shares as of 1:00 p.m., Pacific Time, on the Closing
Date who are to become shareholders of Acquiring Fund as a result
of the transfer of assets that is the subject of the Plan.
(f) As of the Closing, the Board of Trustees of Target Fund
shall have called, and Target Fund shall have held, a Special
Meeting of Target Fund's shareholders to consider and vote upon
the Plan (the "Special Meeting") and Target Fund shall have taken
all other actions reasonably necessary to obtain approval of the
transactions contemplated herein. Target Fund shall have mailed
to each shareholder of record of Target Fund entitled to vote at
the Special Meeting at which action on the Plan is to be
considered, in sufficient time to comply with requirements as to
notice thereof, a combined Prospectus/Proxy Statement that
complies in all material respects with the applicable provisions
of the 1933 Act, Section 14(a) of the 1934 Act and Section 20(a)
of the 1940 Act, and the rules and regulations thereunder (the
"Prospectus/Proxy Statement").
(g) Acquiring Trust has filed the Registration Statement with
the SEC and used its best efforts to provide that the
Registration Statement became effective as promptly as
practicable. At the time it became effective, the Registration
Statement: (i) complied in all material respects with the
applicable provisions of the 1933 Act and the rules and
regulations promulgated thereunder; and (ii) did not contain any
untrue statement of material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading. At the time the Registration
Statement became effective, at the time of the Special Meeting,
and at the Closing Date, the prospectus and statement of
additional information included in the Registration Statement did
not and will not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were
made, not misleading.
(h) Subject to the provisions of the Plan, Acquiring Trust and
Target Fund each shall take, or cause to be taken, all action,
and do or cause to be done, all things reasonably necessary,
proper or advisable to consummate the transactions contemplated
by the Plan.
(i) Target Fund shall deliver to Acquiring Trust at the
Closing Date confirmation or other adequate evidence as to the
tax costs and holding periods of the assets and property of
Target Fund transferred to Acquiring Trust in accordance with the
terms of the Plan.
8. CONDITIONS PRECEDENT TO BE FULFILLED BY TARGET FUND AND
ACQUIRING TRUST.
The consummation of the Plan hereunder shall be subject to the
following respective conditions:
(a) That: (i) all the representations and warranties of the
other party contained herein shall be true and correct as of the
Closing with the same effect as though made as of and at such
date; (ii) the other party shall have performed all obligations
required by the Plan to be performed by it prior to the Closing;
and (iii) the other party shall have delivered to such party a
certificate signed by a Chief Executive Officer and by the
Secretary or equivalent officer to the foregoing effect.
(b) That each party shall have delivered to the other party a
copy of the resolutions approving the Plan adopted and approved
by the appropriate action of the Board of Trustees certified by
its Secretary or equivalent officer of such party.
(c) That the SEC shall have declared effective the
Registration Statement and not have issued an unfavorable
management report under Section 25(b) of the 1940 Act or
instituted or threatened to institute any proceeding seeking to
enjoin consummation of the Plan under Section 25(c) of the 1940
Act. And, further, no other legal, administrative or other
proceeding shall have been instituted or threatened that would
materially affect the financial condition of either party or
would prohibit the transactions contemplated hereby.
(d) That the Plan and the Reorganization contemplated hereby
shall have been adopted and approved by the appropriate action of
the shareholders of Target Fund at a meeting or any adjournment
thereof.
(e) That a distribution or distributions shall have been
declared for Target Fund prior to the Closing Date that, together
with all previous distributions, shall have the effect of
distributing to its shareholders: (i) all of its ordinary income
and all of its capital gain net income, if any, for the period
from the close of its last fiscal year to 1:00 p.m., Pacific
Time, on the Closing Date; and (ii) any undistributed ordinary
income and capital gain net income from any prior period to the
extent not otherwise declared for distribution. Capital gain net
income has the meaning given such term by Section 1222(9) of the
Code.
(f) That all required consents of other parties and all other
consents, orders, and permits of federal, state and local
authorities (including those of the SEC and of state Blue Sky
securities authorities, including any necessary "no-action"
positions or exemptive orders from such federal and state
authorities) to permit consummation of the transaction
contemplated hereby shall have been obtained, except where
failure to obtain any such consent, order, or permit would not
involve a risk of material adverse effect on the assets and
properties of Target Fund or Acquiring Fund.
(g) That there shall be delivered to Target Fund and Acquiring
Trust, on behalf of Acquiring Fund, an opinion in form and
substance satisfactory to them from the law firm of Xxxxxxxx
Ronon Xxxxxxx & Xxxxx, LLP, counsel to Acquiring Trust and Target
Fund, to the effect that, provided the transaction contemplated
hereby is carried out in accordance with the Plan and the laws of
the State of Delaware, and based upon certificates of the
officers of Target Fund and Acquiring Trust with regard to
matters of fact:
(1) The acquisition by Acquiring Fund of substantially all
the assets of Target Fund, as provided for herein, in exchange
for Acquiring Fund Shares, followed by the distribution by
Target Fund to its shareholders of Acquiring Fund Shares in
complete liquidation of Target Fund, will qualify as a
reorganization within the meaning of Section 368(a)(1) of the
Code, and Target Fund and Acquiring Fund will each be a "party
to the reorganization" within the meaning of Section 368(b) of
the Code;
(2) No gain or loss will be recognized by Target Fund upon
the transfer of substantially all of its assets to Acquiring
Fund in exchange solely for voting shares of Acquiring Fund
(Sections 361(a) and 357(a) of the Code);
(3) Acquiring Fund will recognize no gain or loss upon the
receipt of substantially all of the assets of Target Fund in
exchange solely for voting shares of Acquiring Fund (Section
1032(a) of the Code);
(4) No gain or loss will be recognized by Target Fund upon
the distribution of Acquiring Fund Shares to its shareholders
in liquidation of Target Fund, in pursuance of the Plan
(Section 361(c)(1) of the Code);
(5) The basis of the assets of Target Fund received by
Acquiring Fund will be the same as the basis of such assets to
Target Fund immediately prior to the Reorganization (Section
362(b) of the Code);
(6) The holding period of the assets of Target Fund
received by Acquiring Fund will include the period during
which such assets were held by Target Fund (Section 1223(2) of
the Code);
(7) No gain or loss will be recognized by the shareholders
of Target Fund upon the exchange of their shares in Target
Fund for voting shares of Acquiring Fund including fractional
shares to which they may be entitled (Section 354(a) of the
Code);
(8) The basis of Acquiring Fund Shares received by the
shareholders of Target Fund shall be the same as the basis of
Target Fund Shares exchanged therefor (Section 358(a)(1) of
the Code);
(9) The holding period of Acquiring Fund Shares received
by shareholders of Target Fund (including fractional shares to
which they may be entitled) will include the holding period of
Target Fund Shares surrendered in exchange therefor, provided
that Target Fund Shares were held as a capital asset on the
effective date of the exchange (Section 1223(1) of the Code);
and
(10) Acquiring Fund will succeed to and take into account
as of the date of the transfer (as defined in
Section 1.381(b)-1(b) of the regulations issued by the United
States Treasury ("Treasury Regulations")) the items of Target
Fund described in Section 381(c) of the Code, subject to the
conditions and limitations specified in Sections 381, 382, 383
and 384 of the Code and the Treasury Regulations.
(h) That there shall be delivered to Acquiring Trust, on
behalf of Acquiring Fund, an opinion in form and substance
satisfactory to it from Xxxxxxxx Ronon Xxxxxxx & Xxxxx, LLP,
counsel to Target Fund to the effect that, subject in all
respects to the effects of bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and other laws
now or hereafter affecting generally the enforcement of
creditors' rights:
(1) Target Fund is a validly existing statutory trust in
good standing under the laws of the State of Delaware;
(2) Target Fund is an open-end investment company of the
management type registered as such under the 1940 Act;
(3) The execution and delivery of the Plan and the
consummation of the transactions contemplated hereby have been
duly authorized by all necessary statutory trust action on the
part of Target Fund; and
(4) The Plan is the legal, valid and binding obligation of
Target Fund and is enforceable against Target Fund in
accordance with its terms.
In giving the opinions set forth above, counsel may state that
it is relying on certificates of the officers of Target Fund with
regard to matters of fact, and certain certifications and written
statements of governmental officials with respect to the good
standing of Target Fund.
(i) That there shall be delivered to Target Fund an opinion in
form and substance satisfactory to it from the law firm of
Xxxxxxxx Ronon Xxxxxxx & Xxxxx, LLP, counsel to Acquiring Trust,
on behalf of Acquiring Fund, to the effect that, subject in all
respects to the effects of bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other laws
now or hereafter affecting generally the enforcement of
creditors' rights:
(1) Acquiring Fund is a series of Acquiring Trust and
Acquiring Trust is a validly existing statutory trust in good
standing under the laws of the State of Delaware;
(2) Acquiring Trust is authorized to issue an unlimited
number of shares of beneficial interest, without par value, of
Acquiring Fund;
(3) Acquiring Trust is an open-end investment company of
the management type registered as such under the 1940 Act;
(4) Acquiring Fund Shares to be issued pursuant to the
terms of the Plan have been duly authorized and, when issued
and delivered as provided in the Plan and the Registration
Statement, will have been validly issued and fully paid and
will be non-assessable by Acquiring Trust, on behalf of
Acquiring Fund;
(5) The execution and delivery of the Plan and the
consummation of the transactions contemplated hereby have been
duly authorized by all necessary statutory trust action on the
part of Acquiring Trust, on behalf of Acquiring Fund;
(6) The Plan is the legal, valid and binding obligation of
Acquiring Trust, on behalf of Acquiring Fund, and is
enforceable against Acquiring Trust, on behalf of Acquiring
Fund, in accordance with its terms; and
(7) The registration statement of Acquiring Trust, of
which the prospectus dated February 1, 2009, of Acquiring Fund
is a part (the "Prospectus"), is, at the time of the signing
of the Plan, effective under the 1933 Act, and, to the best
knowledge of such counsel, no stop order suspending the
effectiveness of such registration statement has been issued,
and no proceedings for such purpose have been instituted or
are pending before or threatened by the SEC under the 1933
Act.
In giving the opinions set forth above, counsel may state that
it is relying on certificates of the officers of Acquiring Trust
with regard to matters of fact, and certain certifications and
written statements of governmental officials with respect to the
good standing of Acquiring Trust.
(j) That Acquiring Trust's prospectus contained in the
Registration Statement with respect to Acquiring Fund Shares
delivered to Target Fund's shareholders in accordance with the
Plan shall be effective, and no stop order suspending the
effectiveness of the Registration Statement or any amendment or
supplement thereto shall have been issued prior to the Closing
Date or shall be in effect at Closing, and no proceedings for the
issuance of such an order shall be pending or threatened on that
date.
(k) That Acquiring Fund Shares to be delivered hereunder shall
be eligible for sale with each state commission or agency with
which such eligibility is required in order to permit Acquiring
Fund Shares lawfully to be delivered to each holder of Target
Fund Shares.
(l) That, at the Closing, there shall be transferred to
Acquiring Trust, on behalf of Acquiring Fund, aggregate Net
Assets of Target Fund comprising at least 90% in fair market
value of the total net assets and 70% of the fair market value of
the total gross assets recorded on the books of Target Fund on
the Closing Date.
(m) That there be delivered to Acquiring Trust, on behalf of
Acquiring Fund, information concerning the tax basis of Target
Fund in all securities transferred to Acquiring Fund, together
with shareholder information including: the names, addresses, and
taxpayer identification numbers of the shareholders of Target
Fund as of the Closing Date; the number of shares held by each
shareholder; the dividend reinvestment elections applicable to
each shareholder; and the backup withholding and nonresident
alien withholding certifications, notices or records on file with
Target Fund with respect to each shareholder.
9. EXPENSES.
The expenses of entering into and carrying out the provisions
of the Plan shall be borne as follows: each of Target Fund and
Acquiring Trust, on behalf of Acquiring Fund, will pay 25% of the
costs of the Reorganization, and Franklin Advisers, Inc., the
investment manager for both Acquiring Fund and Target Fund, will
pay 50% of the costs of the Reorganization.
10. TERMINATION; POSTPONEMENT; WAIVER; ORDER.
(a) Anything contained in the Plan to the contrary
notwithstanding, the Plan may be terminated and the
Reorganization abandoned at any time prior (whether before or
after approval thereof by the shareholders of Target Fund) to the
Closing, or the Closing may be postponed, as follows:
(1) by mutual consent of Target Fund and Acquiring Trust,
on behalf of Acquiring Fund;
(2) by Acquiring Trust, on behalf of Acquiring Fund, if
any condition of its obligations set forth in Section 8 has
not been fulfilled or waived and it reasonably appears that
such condition or obligation will not or cannot be met; or
(3) by Target Fund if any condition of its obligations set
forth in Section 8 has not been fulfilled or waived and it
reasonably appears that such condition or obligation will not
or cannot be met.
(b) If the transactions contemplated by the Plan have not been
consummated by December 31, 2009, the Plan shall automatically
terminate on that date, unless a later date is agreed to by both
Acquiring Trust and Target Fund.
(c) In the event of termination of the Plan prior to its
consummation, pursuant to the provisions hereof, the Plan shall
become void and have no further effect, and neither Target Fund,
Acquiring Trust, nor Acquiring Fund, nor their trustees,
officers, or agents or the shareholders of Target Fund or
Acquiring Fund shall have any liability in respect of the Plan,
but all expenses incidental to the preparation and carrying out
of the Plan shall be paid as provided in Section 9 hereof.
(d) At any time prior to the Closing, any of the terms or
conditions of the Plan may be waived by the party who is entitled
to the benefit thereof if, in the judgment of such party, such
action or waiver will not have a material adverse effect on the
benefits intended under the Plan to its shareholders, on behalf
of whom such action is taken.
(e) The respective representations and warranties contained in
Sections 4 to 6 hereof shall expire with and be terminated by the
Plan on the Closing Date, and neither Target Fund nor Acquiring
Trust, nor any of their officers, trustees, agents or
shareholders shall have any liability with respect to such
representations or warranties after the Closing Date.
(f) If any order of the SEC with respect to the Plan shall be
issued prior to the Closing that imposes any term or condition
that is determined by the Board of Trustees of Target Fund or the
Board of Trustees of Acquiring Trust, on behalf of Acquiring
Fund, to be acceptable, such term or condition shall be binding
as if it were a part of the Plan without a vote or approval of
the shareholders of Target Fund; provided that, if such term or
condition would result in a change in the method of computing the
number of Acquiring Fund Shares to be issued to Target Fund, and
such term or condition had not been included in the
Prospectus/Proxy Statement or other proxy solicitation material
furnished to the shareholders of Target Fund prior to the Special
Meeting, the Plan shall not be consummated and shall terminate
unless Target Fund promptly calls a special meeting of the
shareholders of Target Fund at which such condition shall be
submitted for approval.
11. LIABILITY OF ACQUIRING TRUST AND TARGET FUND.
(a) Each party acknowledges and agrees that all obligations of
Acquiring Trust under the Plan are binding only with respect to
Acquiring Fund; that any liability of Acquiring Trust under the
Plan with respect to Acquiring Trust, or in connection with the
transactions contemplated herein with respect to Acquiring Fund,
shall be discharged only out of the assets of Acquiring Fund;
that no other series of Acquiring Trust shall be liable with
respect to the Plan or in connection with the transactions
contemplated herein; and that Target Fund shall not seek
satisfaction of any such obligation or liability from the
shareholders of Acquiring Trust, the trustees, officers, or the
employees or agents of Acquiring Trust.
(b) Each party acknowledges and agrees that all obligations of
Target Fund under the Plan are binding only with respect to
Target Fund; that any liability of Target Fund under the Plan in
connection with the transactions contemplated herein, shall be
discharged only out of the assets of Target Fund; and that
neither Acquiring Trust nor Acquiring Fund shall seek
satisfaction of any such obligation or liability from the
shareholders of Target Fund, or the trustees, officers, or the
employees or agents of Target Fund.
12. ENTIRE AGREEMENT AND AMENDMENTS.
The Plan embodies the entire agreement between the parties and
there are no agreements, understandings, restrictions, or
warranties relating to the transactions contemplated by the Plan
other than those set forth herein or herein provided for. The
Plan may be amended only by mutual consent of the parties in
writing. Neither the Plan nor any interest herein may be assigned
without the prior written consent of the other party.
13. COUNTERPARTS.
The Plan may be executed in any number of counterparts, each
of which shall be deemed to be an original, but all such
counterparts together shall constitute but one instrument.
14. NOTICES.
Any notice, report, or demand required or permitted by any
provision of the Plan shall be in writing and shall be deemed to
have been given if delivered or mailed, first class postage
prepaid, addressed to Franklin Growth Fund, at Franklin Custodian
Funds, Xxx Xxxxxxxx Xxxxxxx, Xxx Xxxxx, XX 00000-0000, Attention:
Secretary, or Franklin Capital Growth Fund, at Xxx Xxxxxxxx
Xxxxxxx, Xxx Xxxxx, XX 00000-0000, Attention: Secretary, as the
case may be.
15. GOVERNING LAW.
The Plan shall be governed by and carried out in accordance
with the laws of the State of Delaware.
IN WITNESS WHEREOF, Target Fund and Acquiring Trust, on behalf
of Acquiring Fund, have each caused the Plan to be executed on
its behalf by its duly authorized officers, all as of the date
and year first-above written.
FRANKLIN CUSTODIAN FUNDS, on
behalf of FRANKLIN GROWTH FUND
By: /s/ XXXXX X. XXXXXXXX
Xxxxx X. Xxxxxxxx
Secretary
FRANKLIN CAPITAL GROWTH FUND
By: /s/ XXXXX X. XXXXXXXX
Xxxxx X. Xxxxxxxx
Secretary
