20
NAME OF REGISTRANT
Franklin Federal Tax-Free Income Fund
File No. 811-3395
EXHIBIT ITEM No. 77Q (g): Exhibit to accompany Exhibit No. 77M.
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement
and Plan"), is made as of this 25th day of November, 2002, by
and between Franklin Tax-Free Trust ("Tax-Free Trust"), a
Massachusetts business trust with its principal place of
business at Xxx Xxxxxxxx Xxxxxxx, Xxx Xxxxx, Xxxxxxxxxx 00000,
on behalf of its series, Franklin Texas Tax-Free Income Fund
("Texas Fund"), and Franklin Federal Tax-Free Income Fund
("Federal Fund"), a California corporation with its principal
place of business at Xxx Xxxxxxxx Xxxxxxx, Xxx Xxxxx, Xxxxxxxxxx
00000.
PLAN OF REORGANIZATION
The reorganization (hereinafter referred to as the
"Reorganization") will consist of (i) the acquisition by Federal
Fund, of substantially all of the property, assets and goodwill
of Texas Fund in exchange solely for full and fractional shares
of common stock, no par value, of Federal Fund - Class A
("Federal Fund Class A Shares") and full and fractional shares
of common stock, no par value, of Federal Fund - Class C
("Federal Fund Class C Shares") (collectively, "Federal Fund
Shares"); (ii) the distribution of Federal Fund Class A Shares
to the shareholders of Texas Fund - Class A ("Texas Fund Class A
Shares") and Federal Fund Class C Shares to the shareholders of
Texas Fund - Class C ("Texas Fund Class C Shares")
(collectively, "Texas Fund Shares"), according to their
respective interests in Texas Fund in complete liquidation of
Texas Fund; and (iii) the dissolution of Texas Fund as soon as
is practicable after the closing (as defined in Section 3,
hereinafter called the "Closing"), all upon and subject to the
terms and conditions of this Agreement and Plan hereinafter set
forth.
AGREEMENT
In order to consummate the Plan of 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
Texas Fund.
(a) Subject to the terms and conditions of this Agreement
and Plan, and in reliance on the representations and warranties
of Federal Fund herein contained, and in consideration of the
delivery by Federal Fund of the number of Federal Fund Class A
Shares and Federal Fund Class C Shares hereinafter provided, Tax-
Free Trust, on behalf of Texas Fund, agrees that it will convey,
transfer and deliver to Federal Fund at the Closing all of Texas
Fund's then existing assets, 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 the costs and expenses of carrying out this Agreement
and Plan (including, but not limited to, fees of counsel and
accountants, and expenses of its liquidation and dissolution
contemplated hereunder), which costs and expenses shall be
established on Texas Fund's books as liability reserves; (ii)
discharge its unpaid liabilities on its books at the closing
date (as defined in Section 3, hereinafter called the "Closing
Date"), 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 excluding those
liabilities that would otherwise be discharged at a later date
in the ordinary course of business; and (iii) pay such
contingent liabilities as the Board of Trustees of Tax-Free
Trust shall reasonably deem to exist against Texas Fund, if any,
at the Closing Date, for which contingent and other appropriate
liability reserves shall be established on Texas Fund's books
(hereinafter "Net Assets"). Texas Fund shall also retain any and
all rights that it may have over and against any person that may
have accrued up to and including the close of business on the
Closing Date.
(b) Subject to the terms and conditions of this Agreement
and Plan, and in reliance on the representations and warranties
of Tax-Free Trust, on behalf of Texas Fund, herein contained,
and in consideration of such sale, conveyance, transfer, and
delivery, Federal Fund agrees at the Closing to deliver to Tax-
Free Trust: (i) the number of Federal Fund Class A Shares,
determined by dividing the net asset value per share of the
Texas Fund Class A Shares by the net asset value per share of
Federal Fund Class A Shares, and multiplying the result thereof
by the number of outstanding Texas Fund Class A Shares, as of
1:00 p.m. Pacific time on the Closing Date; and, (ii) the number
of Federal Fund Class C Shares, determined by dividing the net
asset value per share of the Texas Fund Class C Shares by the
net asset value per share of Federal Fund Class C Shares, and
multiplying the result thereof by the number of outstanding
Texas Fund Class C Shares, as of 1:00 p.m. Pacific time on the
Closing Date. All such values shall be determined in the manner
and as of the time set forth in Section 2 hereof.
(c) Immediately following the Closing, Tax-Free Trust
shall dissolve Texas Fund and distribute pro rata to its
shareholders of record as of the close of business on the
Closing Date, Federal Fund Shares received by Texas Fund
pursuant to this Section 1. Such dissolution and distribution
shall be accomplished by the establishment of accounts on the
share records of Texas Fund of the type and in the amounts due
such shareholders based on their respective holdings as of the
close of business on the Closing Date. Fractional Federal Fund
Shares shall be carried to the third decimal place. As promptly
as practicable after the Closing, each holder of any outstanding
certificate or certificates representing shares of common stock
of Texas Fund shall be entitled to surrender the same to the
transfer agent for Federal Fund in exchange for the number of
Federal Fund Shares into which the Texas Fund Shares theretofore
represented by the certificate or certificates so surrendered
shall have been converted. Certificates for Federal Fund Shares
shall not be issued, unless specifically requested by the
shareholders. Until so surrendered, each outstanding certificate
which, prior to the Closing, represented shares of common stock
of Texas Fund shall be deemed for all Federal Fund's purposes to
evidence ownership of the number of Federal Fund Shares into
which the Texas Fund Shares (which prior to the Closing were
represented thereby) have been converted.
2. Valuation.
(a) The value of Texas Fund's Net Assets to be acquired by
Federal Fund hereunder shall in each case be computed as of 1:00
p.m. Pacific time on the Closing Date using the valuation
procedures set forth in Texas Fund's currently effective
prospectus.
(b) The net asset value of a share of beneficial interest
of Texas Fund Class A Shares and of Texas Fund Class C Shares
shall be determined to the fourth decimal place as of 1:00 p.m.
Pacific time on the Closing Date using the valuation procedures
set forth in Texas Fund's currently effective prospectus.
(c) The net asset value of a share of common stock of Federal
Fund Class A Shares and Federal Fund Class C Shares shall be
determined to the nearest full cent as of 1:00 p.m. Pacific time
on the Closing Date using the valuation procedures set forth in
Federal Fund's currently effective prospectus.
3. Closing and Closing Date.
The Closing Date shall be February 20, 2003, or such later
date as the parties may mutually agree. The Closing shall take
place at the principal office of Tax-Free Trust at 2:00 p.m.
Pacific time on the Closing Date. Tax-Free Trust, on behalf of
Texas Fund, shall have provided for delivery as of the Closing
those Net Assets of Texas Fund to be transferred to the account
of Federal Fund's custodian, Bank of New York, Mutual Funds
Division, 00 Xxxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000. Also,
Tax-Free Trust, on behalf of Texas Fund, shall deliver at the
Closing a list of names and addresses of the shareholders of
record of its Texas Fund Class A Shares and Texas Fund Class C
Shares and the number of full and fractional shares of
beneficial interest of such classes owned by each such
shareholder, indicating thereon which such shares are
represented by outstanding certificates and which by book-entry
accounts, all 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. Federal Fund shall issue and
deliver a certificate or certificates evidencing the shares of
common stock of Federal Fund to be delivered to the account of
Texas Fund at said transfer agent registered in such manner as
the officers of Tax-Free Trust, on behalf of Texas Fund, may
request, or provide evidence satisfactory to Tax-Free Trust that
such Federal Fund Shares have been registered in an account on
the books of Federal Fund in such manner as the officers of Tax-
Free Trust may request.
4. Representations and Warranties by Federal Fund.
Federal Fund represents and warrants to Tax-Free Trust
that:
(a) Federal Fund is a corporation created under the laws
of the State of California on January 7, 1982, and is validly
existing under the laws of that State. Federal Fund is duly
registered under the Investment Company Act of 1940, as amended
(the "1940 Act"), as an open-end, management investment company
and all of the Federal 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 as required by the 1940 Act.
(b) Federal Fund is authorized to issue 10,000,000,000
shares of common stock, no par value, each outstanding share of
which is fully paid, non-assessable, freely transferable and has
full voting rights. Federal Fund is further divided into four
classes of shares of which two classes of shares are Federal
Fund Class A Shares and Federal Fund Class C Shares, and
3,000,000,000 shares of common stock, no par value, has been
allocated and designated to each of these classes of shares.
(c) The financial statements appearing in the Federal
Fund's Annual Report to Shareholders for the fiscal year ended
April 30, 2002, audited by PricewaterhouseCoopers LLP, copies of
which have been delivered to Tax-Free Trust, fairly present the
financial position of Federal Fund as of such date and the
results of its operations for the period indicated in conformity
with generally accepted accounting principles applied on a
consistent basis.
(d) The books and records of Federal Fund accurately
summarize the accounting data represented and contain no
material omissions with respect to the business and operations
of Federal Fund.
(e) Federal Fund has the necessary power and authority to
conduct its business as such business is now being conducted.
(f) Federal Fund is not a party to or obligated under any
provision of its Articles of Incorporation, as amended
("Articles of Incorporation"), or Amended By-laws ("By-laws"),
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 this Agreement and Plan.
(g) Federal Fund has elected to be treated 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"), Federal Fund has qualified as a RIC for
each taxable year since its inception and will qualify as a RIC
as of the Closing Date, and consummation of the transactions
contemplated by the Agreement and Plan will not cause it to fail
to be qualified as a RIC as of the Closing Date.
(h) Federal 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.
(i) Federal Fund does not have any unamortized or unpaid
organizational fees or expenses.
5. Representations and Warranties by Tax-Free Trust on behalf
of Texas Fund.
Tax-Free Trust represents and warrants to Federal Fund
that:
(a) Texas Fund is a series of Tax-Free Trust, a business
trust created under the laws of the Commonwealth of
Massachusetts on September 14, 1984, and is validly existing
under the laws of that Commonwealth. Tax-Free Trust is duly
registered under the 1940 Act as an open-end, management
investment company and all of Tax-Free Trust's Texas 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 purpose of raising the
required initial capital.
(b) Tax-Free Trust is authorized to issue an unlimited
number of shares of beneficial interest, no par value, each
outstanding share of which is fully paid, non-assessable, freely
transferable, and has full voting rights and currently issues
shares of 26 series, including Texas Fund. Texas Fund is further
divided into two classes of shares consisting of Texas Fund
Class A Shares and Texas Fund Class C Shares, and an unlimited
number of shares of beneficial interest of Tax-Free Trust, no
par value, have been allocated and designated to each Class of
Texas Fund.
(c) The financial statements appearing in the Tax-Free
Trust's Annual Report to Shareholders for the fiscal year ended
February 28, 2002, audited by PricewaterhouseCoopers, LLP, and
the financial statements for Texas Fund for the six-month period
ended August 31, 2002, copies of which have been delivered to
Federal Fund, fairly present the financial position of Texas
Fund as of such date and the results of its operations for the
period indicated in conformity with generally accepted
accounting principles applied on a consistent basis.
(d) The books and records of Texas Fund accurately
summarize the accounting data represented and contain no
material omissions with respect to the business and operations
of Texas Fund.
(e) Tax-Free Trust has the necessary power and authority
to conduct Texas Fund's business as such business is now being
conducted.
(f) Tax-Free Trust is not a party to or obligated under
any provision of its Agreement and Declaration of Trust, as
amended ("Declaration of Trust") or By-laws, 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 this Agreement and Plan.
(g) Tax-Free Trust has elected to treat Texas Fund as a
RIC for federal income tax purposes under Part I of Subchapter M
of the Code, Texas Fund is a "fund" as defined in Section
851(g)(2) of the Code, Texas Fund has qualified as a RIC for
each taxable year since its inception and will qualify as a RIC
as of the Closing Date, and consummation of the transactions
contemplated by the Agreement and Plan will not cause it to fail
to be qualified as a RIC as of the Closing Date.
(h) Texas 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.
(i) Texas Fund does not have any unamortized or
unpaid organization fees or expenses.
6. Representations and Warranties by Tax-Free Trust and
Federal Fund.
Tax-Free Trust, on behalf of Texas Fund, and Federal 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 Federal Fund Shares
to be issued pursuant to Section 1 of this Agreement and Plan,
will accurately reflect each Fund's Net Assets and outstanding
shares of beneficial interest in the case of Texas Fund, and
common stock in the case of Federal Fund, 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 Texas Fund, in the case of Tax-Free
Trust, and Federal Fund, there is no material suit, judicial
action, or legal or administrative proceeding pending or
threatened against it. Neither Federal Fund nor Tax-Free Trust
are 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 Federal Fund's or Texas Fund's business or
their 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 this
Agreement and Plan have been duly authorized by all necessary
action of its Board of Trustees, in the case of Tax-Free Trust,
and its Board of Directors in the case of Federal Fund, and this
Agreement and Plan, subject to the approval of Texas Fund's
shareholders in the case of Tax-Free Trust, constitutes a valid
and binding obligation enforceable in accordance with its terms.
(f) It anticipates that consummation of this Agreement and
Plan will not cause Texas Fund, in the case of Tax-Free Trust,
and Federal Fund to fail to conform to the requirements of
Subchapter M of the Code for federal income taxation
qualification as a RIC at the end of its fiscal year.
(g) It has the necessary power and authority to conduct the
business of its Fund, as such business is now being conducted.
7. Covenants of Tax-Free Trust and Federal Fund.
(a) Tax-Free Trust, on behalf of Texas Fund, and Federal
Fund each covenant to operate their respective businesses as
presently conducted between the date hereof and the Closing.
(b) Tax-Free Trust, on behalf of Texas Fund, undertakes
that it will not acquire Federal Fund Shares for the purpose of
making distributions thereof to anyone other than Texas Fund's
shareholders.
(c) Tax-Free Trust, on behalf of Texas Fund, undertakes
that, if this Agreement and Plan is consummated, it will
liquidate and dissolve Texas Fund.
(d) Tax-Free Trust, on behalf of Texas Fund, and Federal
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 all federal and
other taxes shown as due on said returns shall have either been
paid or adequate liability reserves shall have been provided for
the payment of such taxes.
(e) At the Closing, Tax-Free Trust, on behalf of Texas
Fund, will provide Federal Fund a copy of the shareholder ledger
accounts, certified by Texas Fund's transfer agent or its
President to the best of its or his knowledge and belief, for
all the shareholders of record of Texas Fund Shares as of
1:00 p.m. Pacific time on the Closing Date who are to become
shareholders of Federal Fund as a result of the transfer of
assets that is the subject of this Agreement and Plan.
(f) The Board of Trustees of Tax-Free Trust shall call and
Tax-Free Trust shall hold, a Special Meeting of Texas Fund's
shareholders to consider and vote upon this Agreement and Plan
(the "Special Meeting") and Tax-Free Trust shall take all other
actions reasonably necessary to obtain approval of the
transactions contemplated herein. Tax-Free Trust agrees to mail
to each shareholder of record of Texas Fund entitled to vote at
the Special Meeting at which action on this Agreement and Plan
is to be considered, in sufficient time to comply with
requirements as to notice thereof, a combined Prospectus and
Proxy Statement that complies in all material respects with the
applicable provisions of Section 14(a) of the Securities
Exchange Act of 1934, as amended, and Section 20(a) of the 1940
Act, and the rules and regulations, respectively, thereunder.
(g) Federal Fund will file with the U.S. Securities and
Exchange Commission a registration statement on Form N-14 under
the 1933 Act relating to Federal Fund Shares issuable hereunder
("Registration Statement"), and will use its best efforts to
provide that the Registration Statement becomes effective as
promptly as is practicable. At the time it becomes effective,
the Registration Statement will (i) comply in all material
respects with the applicable provisions of the 1933 Act, and the
rules and regulations promulgated thereunder; and (ii) 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 becomes 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 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.
8. Conditions Precedent to be Fulfilled by Tax-Free Trust and
Federal Fund.
The consummation of this Agreement and 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 this Agreement and 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 the President
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 Agreement and Plan
adopted and approved by the appropriate action of its Board of
Trustees, in the case of Texas Fund, and its Board of Directors,
in the case of Federal Fund, certified by its Secretary or
equivalent officer of each of the Funds.
(c) That the U.S. Securities and Exchange Commission shall
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 of
Reorganization 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 this Agreement and Plan and the Reorganization
contemplated hereby shall have been adopted and approved by the
appropriate action of the shareholders of Texas Fund at an
annual or special meeting or any adjournment thereof.
(e) That a distribution or distributions shall have been
declared for Texas 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 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 there shall be delivered to Tax-Free Trust, on
behalf of Texas Fund, and Federal Fund an opinion from Messrs.
Xxxxxxxx, Xxxxx, Xxxxxxx & Xxxxx, LLP, counsel to Tax-Free Trust
and Federal Fund, to the effect that, provided the acquisition
contemplated hereby is carried out in accordance with this
Agreement and Plan, the laws of the Commonwealth of
Massachusetts and the State of California and based upon
certificates of the officers of Tax-Free Trust and Federal Fund
with regard to matters of fact:
(1) The acquisition by Federal Fund of substantially
all the assets of Texas Fund as provided for herein in
exchange for Federal Fund Shares followed by the
distribution by Texas Fund to its shareholders of Federal
Fund Shares in complete liquidation of Texas Fund will
qualify as a reorganization within the meaning of Section
368(a)(1) of the Code, and Texas Fund and Federal 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 Texas Fund
upon the transfer of substantially all of its assets to
Federal Fund in exchange solely for voting shares of
Federal Fund (Sections 361(a) and 357(a) of the Code);
(3) No gain or loss will be recognized by Federal Fund
upon the receipt by it of substantially all of the assets
of Texas Fund in exchange solely for voting shares of
Federal Fund (Section 1032(a) of the Code);
(4) No gain or loss will be recognized by Texas Fund
upon the distribution of Federal Fund Shares to its
shareholders in liquidation of Texas Fund (in pursuance of
the Reorganization) (Section 361(c)(1) of the Code);
(5) The basis of the assets of Texas Fund received by
Federal Fund will be the same as the basis of such assets
to Texas Fund immediately prior to the exchange (Section
362(b) of the Code);
(6) The holding period of the assets of Texas Fund
received by Federal Fund will include the period during
which such assets were held by Texas Fund (Section 1223(2)
of the Code);
(7) No gain or loss will be recognized to the
shareholders of Texas Fund upon the exchange of their
shares in Texas Fund for voting shares of Federal Fund,
including fractional shares to which they may be entitled
(Section 354(a) of the Code);
(8) The basis of Federal Fund Shares received by the
shareholders of Texas Fund shall be the same as the basis
of the Texas Fund Shares exchanged therefor (Section
358(a)(1) of the Code);
(9) The holding period of Federal Fund Shares received
by shareholders of Texas Fund (including fractional shares
to which they may be entitled) will include the holding
period of the Texas Fund Shares surrendered in exchange
therefor, provided that the Texas Fund Shares were held as
a capital asset on the effective date of the exchange
(Section 1223(1) of the Code); and
(10) Federal 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 Texas 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.
(g) That there shall be delivered to Federal Fund an
opinion in form and substance satisfactory to it from Messrs.
Xxxxxxxx, Xxxxx, Xxxxxxx & Xxxxx, LLP, counsel to Tax-Free
Trust, 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) Texas Fund is a series of Tax-Free Trust, a
business trust organized under the laws of the Commonwealth
of Massachusetts on September 18, 1984, and is a validly
existing business trust and in good standing under the laws
of that Commonwealth;
(2) Tax-Free Trust is authorized to issue an unlimited
number of shares of beneficial interest, no par value. Two
(2) classes of shares of Texas Fund have been designated as
Texas Fund Class A Shares and Texas Fund Class C Shares,
and an unlimited number of shares of beneficial interest of
Tax-Free Trust has been allocated to each class of shares.
Assuming that the initial shares of beneficial interest of
Texas Fund were issued in accordance with the 1940 Act and
the Declaration of Trust and By-laws of Tax-Free Trust, and
that all other outstanding shares of Texas Fund were sold,
issued and paid for in accordance with the terms of Texas
Fund's prospectus in effect at the time of such sales, each
such outstanding share is fully paid, non-assessable,
freely transferable and has full voting rights;
(3) Texas Fund is an open-end investment company of
the management type registered as such under the 1940 Act;
(4) Except as disclosed in Texas Fund's currently
effective prospectus, such counsel does not know of any
material suit, action, or legal or administrative
proceeding pending or threatened against Tax-Free Trust,
the unfavorable outcome of which would materially and
adversely affect Tax-Free Trust or Texas Fund;
(5) The execution and delivery of this Agreement and
Plan and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary trust
action on the part of Tax-Free Trust; and
(6) Neither the execution, delivery, nor performance
of this Agreement and Plan by Tax-Free Trust, on behalf of
Texas Fund, violates any provision of its Declaration of
Trust or By-laws, or the provisions of any agreement or
other instrument known to such counsel to which Tax-Free
Trust is a party or by which Tax-Free Trust is otherwise
bound; this Agreement and Plan is the legal, valid and
binding obligation of Tax-Free Trust and Texas Fund and is
enforceable against Tax-Free Trust and/or Texas Fund in
accordance with its terms.
In giving the opinions set forth above, this counsel may
state that it is relying on certificates of the officers of Tax-
Free Trust with regard to matters of fact, and certain
certifications and written statements of governmental officials
with respect to the good standing of Tax-Free Trust.
(h) That there shall be delivered to Tax-Free Trust, on
behalf of Texas Fund, an opinion in form and substance
satisfactory to it from Messrs. Xxxxxxxx, Xxxxx, Xxxxxxx &
Xxxxx, LLP, counsel to Federal 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) Federal Fund is a corporation organized under the
laws
of the State of California on January 7, 1982 and is a
validly existing corporation and in good standing under the
laws of that State;
(2) Federal Fund is authorized to issue 10,000,000,000
shares of common stock, no par value. Federal Fund is
further divided into four (4) classes of shares of which
two classes of shares are Federal Fund Class A Shares and
Federal Fund Class C Shares, and 3,000,000,000 shares of
common stock, no par value, have been allocated and
designated to each class of shares. Assuming that the
initial shares of common stock of Federal Fund were issued
in accordance with the 1940 Act, and the Articles of
Incorporation and By-laws of Federal Fund, and that all
other outstanding shares of Federal Fund were sold, issued
and paid for in accordance with the terms of Federal Fund's
prospectus in effect at the time of such sales, each such
outstanding share of Federal Fund is fully paid, non-
assessable, freely transferable and has full voting rights;
(3) Federal Fund is an open-end investment company of
the management type registered as such under the 1940 Act;
(4) Except as disclosed in Federal Fund's currently
effective prospectus, such counsel does not know of any
material suit, action, or legal or administrative
proceeding pending or threatened against Federal Fund, the
unfavorable outcome of which would materially and adversely
affect Federal Fund;
(5) Federal Fund Shares to be issued pursuant to the
terms of this Agreement and Plan have been duly authorized
and, when issued and delivered as provided in this
Agreement and Plan, will have been validly issued and fully
paid and will be non-assessable by Federal Fund;
(6) The execution and delivery of this Agreement and
Plan and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary company
action on the part of Federal Fund;
(7) Neither the execution, delivery, nor performance
of this Agreement and Plan by Federal Fund violates any
provision of its Articles of Incorporation or By-laws, or
the provisions of any agreement or other instrument known
to such counsel to which Federal Fund is a party or by
which Federal Fund is otherwise bound; this Agreement and
Plan is the legal, valid and binding obligation of Federal
Fund and is enforceable against Federal Fund in accordance
with its terms; and
(8) The registration statement of Federal Fund, of
which the prospectus dated September 1, 2002, as
supplemented October 1, 2002 (the "Prospectus") is a part,
is at the time of the signing of this Agreement and 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 U.S. Securities and
Exchange Commission under the 1933 Act, and nothing has
come to counsel's attention that causes it to believe that,
at the time the Prospectus became effective, or at the time
of the signing of this Agreement and Plan, or at the
Closing, such Prospectus (except for the financial
statements and other financial and statistical data
included therein, as to which counsel need not express an
opinion), contained any untrue statement of a material fact
or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading; and such counsel knows of no legal or
government proceedings required to be described in the
Prospectus, or of any contract or document of a character
required to be described in the Prospectus that is not
described as required.
In giving the opinions set forth above, this counsel may
state that it is relying on certificates of the officers of
Federal Fund with regard to matters of fact, and certain
certifications and written statements of governmental officials
with respect to the good standing of Federal Fund.
(i) That Texas Fund shall have received a certificate from
the President and Secretary of Federal Fund to the effect that
the statements contained in the Prospectus, at the time the
Prospectus became effective, at the date of the signing of this
Agreement and Plan, and at the Closing, did not contain any
untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the
statements therein not misleading.
(j) That Federal Fund's Registration Statement with
respect to Federal Fund Shares to be delivered to Texas Fund's
shareholders in accordance with this Agreement and Plan shall
have become 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 Federal 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
Federal Fund Shares lawfully to be delivered to each holder of
Texas Fund Shares.
(l) That, at the Closing, there shall be transferred to
Federal Fund, aggregate Net Assets of Texas 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 Texas Fund on the Closing Date.
(m) That there be delivered to Federal Fund information
concerning the tax basis of Texas Fund in all securities
transferred to Federal Fund, together with shareholder
information including the names, addresses, and taxpayer
identification numbers of the shareholders of Texas 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
Texas Fund respect to each shareholder.
9. Brokerage Fees and Expenses.
(a) Tax-Free Trust, on behalf of Texas Fund, and Federal
Fund each represents and warrants to the other that there are no
broker or finders' fees payable by it in connection with the
transactions provided for herein.
(b) The expenses of entering into and carrying out the
provisions of this Agreement and Plan shall be borne one-quarter
by Federal Fund, one-quarter by Texas Fund, and one-half by
Xxxxxxxx Advisers, Inc.
10. Termination; Postponement; Waiver; Order.
(a) Anything contained in this Agreement and Plan to the
contrary notwithstanding, this Agreement and Plan may be
terminated and the Reorganization abandoned at any time (whether
before or after approval thereof by the shareholders of Texas
Fund) prior to the Closing, or the Closing may be postponed as
follows:
(1) by mutual consent of Tax-Free Trust on behalf of
Texas Fund and of Federal Fund;
(2) by Federal Fund if any condition of its
obligations set forth in Section 8 has not been fulfilled
or waived; or
(3) by Tax-Free Trust, on behalf of Texas Fund, if
any conditions of its obligations set forth in Section 8
have not been fulfilled or waived.
An election by Federal Fund or Tax-Free Trust to terminate
this Agreement and Plan and to abandon the Reorganization shall
be exercised respectively, by the Board of Directors of Federal
Fund or the Board of Trustees of Tax-Free Trust.
(b) If the transactions contemplated by this Agreement and
Plan have not been consummated by August 31, 2003, the Agreement
and Plan shall automatically terminate on that date, unless a
later date is agreed to by both Federal Fund and Tax-Free Trust.
(c) In the event of termination of this Agreement and Plan
pursuant to the provisions hereof, the same shall become void
and have no further effect, and neither Tax-Free Trust nor
Federal Fund nor their trustees, directors, officers, or agents
or the shareholders of Texas Fund or Federal Fund shall have any
liability in respect of this Agreement and Plan, but all
expenses incidental to the preparation and carrying out of this
Agreement and Plan shall be paid as provided in Section 9(b)
hereof.
(d) At any time prior to the Closing, any of the terms or
conditions of this Agreement and Plan may be waived by the party
who is entitled to the benefit thereof by action taken by that
party's Board of Trustees, in the case of Texas Fund, or Board
of Directors, in the case of Federal Fund, if, in the judgment
of such Board, such action or waiver will not have a material
adverse effect on the benefits intended under this Agreement and
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 Reorganization on the Closing Date, and
neither Tax-Free Trust nor Federal Fund, nor any of their
officers, directors, trustees, agents or shareholders shall have
any liability with respect to such representations or warranties
after the Closing Date. This provision shall not protect any
officer, trustee, agent or shareholder of Tax-Free Trust or
Federal Fund against any liability to the entity for which that
officer, trustee, agent or shareholder so acts or to its
shareholders to which that officer, trustee, agent or
shareholder would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard
of the duties in the conduct of such office.
(f) If any order or orders of the U.S. Securities and Exchange
Commission with respect to this Agreement and Plan shall be
issued prior to the Closing and shall impose any terms or
conditions that are determined by action of the Board of
Trustees of Tax-Free Trust, on behalf of Texas Fund, or the
Board of Directors of Federal Fund, to be acceptable, such terms
and conditions shall be binding as if a part of this Agreement
and Plan without further vote or approval of the shareholders of
Texas Fund, unless such terms and conditions shall result in a
change in the method of computing the number of Federal Fund
Shares to be issued to Texas Fund. In which event, unless such
terms and conditions shall have been included in the proxy
solicitation material furnished to the shareholders of Texas
Fund prior to the meeting at which the transactions contemplated
by this Agreement and Plan shall have been approved, this
Agreement and Plan shall not be consummated and shall terminate
unless Tax-Free Trust shall promptly call a special meeting of
the shareholders of Texas Fund at which such conditions so
imposed shall be submitted for approval.
11. Entire Agreement and Amendments.
This Agreement and Plan embodies the entire agreement
between the parties and there are no agreements, understandings,
restrictions, or warranties relating to the transactions
contemplated by this Agreement and Plan other than those set
forth herein or herein provided for. This Agreement and Plan may
be amended only by mutual consent of the parties in writing.
Neither this Agreement and Plan nor any interest herein may be
assigned without the prior written consent of the other party.
12. Counterparts.
This Agreement and 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.
13. Notices.
Any notice, report, or demand required or permitted by any
provision of this Agreement and Plan shall be in writing and
shall be deemed to have been given if delivered or mailed, first
class postage prepaid, addressed to Franklin Federal Tax-Free
Income Fund, at Xxx Xxxxxxxx Xxxxxxx, Xxx Xxxxx, Xxxxxxxxxx
00000, Attention: Secretary, or Franklin Tax-Free Trust, at Xxx
Xxxxxxxx Xxxxxxx, Xxx Xxxxx, Xxxxxxxxxx 00000, Attention:
Secretary, as the case may be.
14. Governing Law.
This Agreement and Plan shall be governed by and carried
out in accordance with the laws of the Commonwealth of
Massachusetts.
IN WITNESS WHEREOF, Tax-Free Trust, on behalf of Texas
Fund, and Federal Fund, have each caused this Agreement and Plan
to be executed on its behalf by its duly authorized officers,
all as of the date and year first-above written.
XXXXXXXX TAX-FREE TRUST, on behalf of
FRANKLIN TEXAS TAX-FREE INCOME FUND
Attest:
/s/Xxxxxx X. Xxxxxxx By: /s/Xxxxx X. Xxxx
Xxxxxx X. Xxxxxxx Xxxxx X. Xxxx
Secretary Vice President
FRANKLIN FEDERAL TAX-FREE INCOME FUND
Attest:
/s/Xxxxxx X. Xxxxxxx By: /s/Xxxxx X. Xxxx
Xxxxxx X. Xxxxxxx Xxxxx X. Xxxx
Secretary Vice President
