AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Plan"), is made as of this
10th day of November, 2008, by and between Franklin Tax-Free Trust, a
statutory trust created under the laws of the State of Delaware ("Tax-Free
Trust"), with its principal place of business at Xxx Xxxxxxxx Xxxxxxx, Xxx
Xxxxx, XX 00000-0000, on behalf of its series, Franklin Federal Limited-Term
Tax-Free Income Fund ("Acquiring Fund"), and Franklin California Tax-Free
Trust, a statutory trust created under the laws of the State of Delaware
("Target Trust"), with its principal place of business at Xxx Xxxxxxxx
Xxxxxxx, Xxx Xxxxx, XX 00000-0000, on behalf of its series, Franklin
California Limited-Term Tax-Free Income Fund ("Target Fund").
PLAN OF REORGANIZATION
The reorganization (hereinafter referred to as the "Plan of
Reorganization") will consist of (i) the acquisition by Tax-Free 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 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
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 defined 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 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 TARGET FUND.
(a) Subject to the terms and conditions of the Plan, and in reliance on
the representations and warranties of Tax-Free Trust, on behalf of Acquiring
Fund, herein contained, and in consideration of the delivery by Tax-Free
Trust of the number of Acquiring Fund Shares hereinafter provided, Target
Trust on behalf of Target Fund agrees that, at the time of Closing, it will
convey, transfer and deliver to Tax-Free Trust, for the benefit of Acquiring
Fund, all of Target Fund's then existing assets, 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 Plan (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
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 (iii) pay
such contingent liabilities as the Board of Trustees of Target Trust shall
reasonably deem to exist against Target Fund, if any, at the Closing Date,
for which contingent and other appropriate liability reserves shall be
established on Target Fund's books (hereinafter "Net Assets"). Neither
Tax-Free Trust nor Acquiring Fund shall assume any liability of Target Fund
or Target Trust, 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 Trust, on behalf of Target Fund,
herein contained, and in consideration of such sale, conveyance, transfer,
and delivery, Tax-Free Trust agrees at the Closing to deliver to Target Trust
the number of Acquiring Fund Shares, determined by dividing the net asset
value per share of each share of Target Fund by the net asset value per share
of each share of Acquiring Fund, and multiplying the result thereof by the
number of outstanding shares of Target Fund, as of 1:00 p.m., Pacific Time,
on the Closing Date. Acquiring Fund Shares delivered to Target Trust 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 Trust shall dissolve Target
Fund and distribute pro rata to Target Fund's shareholders of record as of
the close of business on the Closing Date, Acquiring Fund Shares received by
Target Fund pursuant to this Section 1. Such dissolution and 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 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 the shareholders.
(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 Tax-Free Trust from and after the date of the Plan, and shall
be turned over to Tax-Free 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 (all such events described in (a), (b) or (c) are
each referred to as 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, or amendments thereto.
(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 Date shall be November 12, 2008 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.
Target Trust on behalf of 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. Also, Target Trust,
on behalf of 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. Tax-Free Trust on behalf of Acquiring Fund shall provide
evidence satisfactory to Target Trust 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 Trust on behalf of Target Fund may reasonably
request.
4. REPRESENTATIONS AND WARRANTIES BY TAX-FREE TRUST ON BEHALF OF ACQUIRING
FUND.
Tax-Free Trust, on behalf of Acquiring Fund, represents and warrants to
Target Trust that:
(a) Acquiring Fund is a series of Tax-Free Trust, a statutory trust
organized originally as a Massachusetts business trust in September 1984 and
converted into a Delaware statutory trust effective July 1, 2007. Tax-Free
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 purposes of raising initial capital or
obtaining any required initial shareholder approvals.
(b) Tax-Free Trust is authorized to issue an unlimited number 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. Tax-Free Trust currently issues shares of ten
(10) series, including Acquiring Fund. Acquiring Fund issues one class of
shares. No shareholder of Tax-Free 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 February 29, 2008, audited by
PricewaterhouseCoopers LLP, and unaudited Semi-Annual Report to Shareholders
for the Period ended August 31, 2008, copies of which have been delivered to
Target Trust, and any interim unaudited financial statements, copies of which
may be furnished to Target Trust, 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) Tax-Free Trust, on behalf of Acquiring Fund, is not a party to or
obligated under any provision of its Agreement and 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 the Plan, and no consent, approval, authorization or order
of any court or governmental authority is required for the consummation by
Acquiring Fund or Tax-Free 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) Tax-Free 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, and consummation of the
transactions contemplated by the Plan will not cause it 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) Tax-Free Trust has no plan or intention to issue additional shares of
Acquiring Fund following the Plan of 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 Tax-Free Trust have any plan or
intention to redeem or otherwise reacquire any shares of Acquiring Fund
issued pursuant to the Plan of Reorganization, 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 Plan of Reorganization and did not enter into such line of business as
part of the Plan of Reorganization. Acquiring Fund will actively continue
Target Fund's business in substantially the same manner that Target Fund
conducted that business immediately before the Plan of 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 Plan of 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 TRUST ON BEHALF OF TARGET FUND.
Target Trust, on behalf of Target Fund, represents and warrants to
Tax-Free Trust that:
(a) Target Fund is a series of Target Trust, a statutory trust organized
originally as a Massachusetts business trust in July 1985, and reorganized
into a Delaware statutory trust effective November 1, 2007. Target Trust is
duly registered under the 1940 Act as an open-end, management investment
company and all of Target Trust's 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 Trust is authorized to issue an unlimited number of shares of
beneficial interest, without par value, of Target Fund, each outstanding
share of which is fully paid, non-assessable, and has full voting rights.
Target Trust issues shares of four (4) series, including Target Fund. Target
Fund has one class of shares and an unlimited number of shares of beneficial
interest of Target Trust have been allocated and designated to the Target
Fund. No shareholder of Target Trust 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, copies of which have been delivered to Tax-Free
Trust, and any interim financial statements for Target Fund that may be
furnished to Tax-Free 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 Trust, on behalf of 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 Trust has elected to treat Target Fund 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, and consummation of the transactions contemplated by the
Plan will not cause it 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 June 30, 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 or
Target Trust 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 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 Plan of
Reorganization. Target Fund will not alter its investment portfolio in
connection with the Plan of Reorganization.
6. REPRESENTATIONS AND WARRANTIES BY TARGET TRUST AND TAX-FREE TRUST.
Target Trust, on behalf of Target Fund, and Tax-Free 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, in the case of Target Trust, and Acquiring Fund, in the case of
Tax-Free Trust, there is no material suit, judicial action, or legal or
administrative proceeding pending or threatened against it. Neither Tax-Free
Trust nor Target Trust is 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 Acquiring Fund's or Target 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 the Plan have been duly
authorized by all necessary action of its Board of Trustees and the Plan,
subject to the approval of Target Fund's shareholders in the case of Target
Trust, constitutes a valid and binding obligation enforceable in accordance
with its terms, subject as to enforcement 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 either
Target Fund, in the case of Target Trust, or Acquiring Fund, in the case of
Tax-Free Trust, to fail to conform to the requirements of Subchapter M of the
Code for federal income taxation qualification as a RIC at the end their
respective fiscal years.
7. COVENANTS OF TARGET TRUST AND TAX-FREE TRUST.
(a) Target Trust, on behalf of Target Fund, and Tax-Free 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 Trust, on behalf of 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 Trust, on behalf of Target Fund, undertakes that, if the Plan
is consummated, it will liquidate and dissolve Target Fund.
(d) Target Trust, on behalf of Target Fund, and Tax-Free 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 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, 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 Trust, on behalf of 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 shareholders 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 Target Trust shall have called, and
Target Trust shall have held, a Special Meeting of Target Fund's shareholders
to consider and vote upon the Plan (the "Special Meeting") and Target Trust
shall have taken all other actions reasonably necessary to obtain approval of
the transactions contemplated herein. Target Trust 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.
(g) Tax-Free 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, Tax-Free Trust and Target Trust
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 Trust shall deliver to Tax-Free 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 Tax-Free
Trust in accordance with the terms of the Plan.
8. CONDITIONS PRECEDENT TO BE FULFILLED BY TARGET TRUST AND TAX-FREE 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 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 Plan adopted and approved by the appropriate action
of the Board of Trustees certified by its Secretary or equivalent officer of
each of the Trusts.
(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 Plan of 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 Trust, on behalf of Target
Fund, and Tax-Free 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 Tax-Free Trust and Target Trust, to the effect that,
provided the transaction contemplated hereby is carried out in accordance
with the Plan, the laws of the State of Delaware, and based upon certificates
of the officers of Target Trust and Tax-Free 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 Plan of 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 Tax-Free Trust, on behalf of
Acquiring Fund, an opinion in form and substance satisfactory to it from
Xxxxxxxx Ronon Xxxxxxx & Xxxxx, LLP, counsel to Target Trust, on behalf of
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 series of Target Trust and that Target Trust is a
validly existing statutory trust in good standing under the laws of the
State of Delaware;
(2) Target Trust 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 Trust on behalf of
Target Fund; and
(4) The Plan is the legal, valid and binding obligation of Target
Trust, on behalf of Target Fund, and is enforceable against Target Trust,
on behalf of Target 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 Target Trust with regard to
matters of fact, and certain certifications and written statements of
governmental officials with respect to the good standing of Target Trust.
(i) That there shall be delivered to Target Trust, on behalf of Target
Fund, an opinion in form and substance satisfactory to it from the law firm
of Xxxxxxxx Ronon Xxxxxxx & Xxxxx, LLP, counsel to Tax-Free 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 Tax-Free Trust and Tax-Free Trust is
a validly existing statutory trust in good standing under the laws of the
State of Delaware;
(2) Tax-Free Trust is authorized to issue an unlimited number of
shares of beneficial interest, without par value, of Acquiring Fund;
(3) Tax-Free 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 Tax-Free 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 Tax-Free Trust, on behalf
of Acquiring Fund;
(6) The Plan is the legal, valid and binding obligation of Tax-Free
Trust, on behalf of Acquiring Fund, and is enforceable against Tax-Free
Trust, on behalf of Acquiring Fund, in accordance with its terms; and
(7) The registration statement of Tax-Free Trust, of which the
prospectus dated July 1, 2008, 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, 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.
(j) That Tax-Free 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 Tax-Free 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 Tax-Free 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 Trust, on behalf of Target Fund,
and Tax-Free Trust, on behalf of Acquiring Fund, will pay 25% of the costs of
the Plan of Reorganization, and Franklin Advisers, Inc., the investment
manager for both Acquiring Fund and Target Fund, will pay 50% of the costs of
the Plan of Reorganization.
10. TERMINATION; POSTPONEMENT; WAIVER; ORDER.
(a) Anything contained in the Plan to the contrary notwithstanding, the
Plan may be terminated and the Plan of 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 Trust, on behalf of Target Fund, and
Tax-Free Trust, on behalf of Acquiring Fund;
(2) by Tax-Free 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 Trust, on behalf of Target Fund, if any conditions 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 June 30, 2009, the Plan shall automatically terminate on that date, unless
a later date is agreed to by both Tax-Free Trust and Target Trust.
(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 Trust, Tax-Free Trust, Target Fund 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 Trust nor Tax-Free 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 or orders of the SEC with respect to the 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 Target Trust, on behalf of
Target Fund, or the Board of Trustees of Tax-Free Trust, on behalf of
Acquiring Fund, to be acceptable, such terms and conditions shall be binding
as if a part of the Plan without a vote or approval of the shareholders of
Target Fund, unless such terms and conditions shall result in a change in the
method of computing the number of Acquiring Fund Shares to be issued to
Target Fund in which event, unless such terms and conditions shall have been
included in the proxy solicitation material furnished to the shareholders of
Target Fund prior to the meeting at which the transactions contemplated by
the Plan shall have been approved, the Plan shall not be consummated and
shall terminate unless Target Trust shall promptly call a special meeting of
the shareholders of Target Fund at which such conditions so imposed shall be
submitted for approval.
11. LIABILITY OF TAX-FREE TRUST AND TARGET TRUST.
(a) Each party acknowledges and agrees that all obligations of Tax-Free
Trust under the Plan are binding only with respect to Acquiring Fund; that
any liability of Tax-Free Trust under the Plan with respect to Tax-Free
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 Tax-Free Trust shall be liable with
respect to the Plan or in connection with the transactions contemplated
herein; and that neither Target Trust nor Target Fund shall seek satisfaction
of any such obligation or liability from the shareholders of Tax-Free Trust,
the trustees, officers, employees or agents of Tax-Free Trust, or any of
them.
(b) Each party acknowledges and agrees that all obligations of Target
Trust under the Plan are binding only with respect to Target Fund; that any
liability of Target Trust under the Plan with respect to Target Fund, or in
connection with the transactions contemplated herein with respect to Target
Fund, shall be discharged only out of the assets of Target Fund; that no
other series of Target Trust shall be liable with respect to the Plan or in
connection with the transactions contemplated herein; and that neither
Tax-Free Trust nor Acquiring Fund shall seek satisfaction of any such
obligation or liability from the shareholders of Target Trust, the trustees,
officers, employees or agents of Target Trust, or any of them.
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
Federal Limited-Term Tax-Free Income Fund, at Franklin Tax-Free Trust, Xxx
Xxxxxxxx Xxxxxxx, Xxx Xxxxx, XX 00000-0000, Attention: Secretary, or Franklin
California Limited-Term Tax-Free Income Fund, at Franklin California Tax-Free
Trust, 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 Trust, on behalf of Target Fund, and Tax-Free
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 TAX FREE TRUST, on behalf
of FRANKLIN FEDERAL LIMITED-TERM
TAX-FREE INCOME FUND
By: /s/ XXXXX X. XXXX
Xxxxx X. Xxxx, Vice President
FRANKLIN CALIFORNIA TAX-FREE
TRUST, on behalf of FRANKLIN
CALIFORNIA LIMITED-TERM TAX-FREE
INCOME FUND
By:
/s/ XXXXX X. XXXX
Xxxxx X. Xxxx, Vice President
