22
NAME OF REGISTRANT
Franklin Capital Growth Fund
File No. 811-334
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 26th day of March 2003, by and
between Franklin Strategic Series ("Strategic Series"), a
Delaware statutory trust with its principal place of business at
Xxx Xxxxxxxx Xxxxxxx, Xxx Xxxxx, Xxxxxxxxxx 00000, on behalf of
its series, Franklin Large Cap Growth Fund ("Large Cap Fund"),
and Franklin Capital Growth Fund ("Capital Fund"), a Delaware
statutory trust with its principal place of business at Xxx
Xxxxxxxx Xxxxxxx, Xxx Xxxxx, California 94403.
PLAN OF REORGANIZATION
The reorganization (hereinafter referred to as the
"Reorganization") will consist of (i) the acquisition by Capital
Fund, of substantially all of the property, assets and goodwill
of Large Cap Fund in exchange solely for full and fractional
shares of beneficial interest, par value $0.01 per share, of
Capital Fund - Class A ("Capital Fund Class A Shares"), full and
fractional shares of beneficial interest, par value $0.01 per
share, of Capital Fund - Class B ("Capital Fund Class B
Shares"), full and fractional shares of beneficial interest, par
value $0.01 per share, of Capital Fund - Class C ("Capital Fund
Class C Shares"), full and fractional shares of beneficial
interest, par value $0.01 per share, of Capital Fund - Class R
("Capital Fund Class R Shares") and full and fractional shares
of beneficial interest, par value $0.01 per share, of Capital
Fund - Advisor Class ("Capital Fund Advisor Shares")
(collectively, "Capital Fund Shares"); (ii) the distribution of
Capital Fund Class A Shares to the holders of shares of Large
Cap Fund - Class A ("Large Cap Fund Class A Shares"), Capital
Fund Class B Shares to the holders of shares of Large Cap Fund -
Class B ("Large Cap Fund Class B Shares"), Capital Fund Class C
Shares to the holders of shares of Large Cap Fund - Class C
("Large Cap Fund Class C Shares"), Capital Fund Class R Shares
to the holders of shares of Large Cap Fund - Class R ("Large
Cap Fund Class R Shares") and Capital Fund Advisor Class Shares
to the holders of shares of Large Cap Fund - Advisor Class
("Large Cap Fund Advisor Class Shares") (collectively, "Large
Cap Fund Shares"), according to their respective interests in
Large Cap Fund in complete liquidation of Large Cap Fund; and
(iii) the dissolution of Large Cap 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
Large Cap Fund.
(a) Subject to the terms and conditions of this Agreement
and Plan, and in reliance on the representations and warranties
of Capital Fund herein contained, and in consideration of the
delivery by Capital Fund of the number of Capital Fund Class A
Shares, Capital Fund Class B Shares, Capital Fund Class C
Shares, Capital Fund Class R Shares and Capital Fund Advisor
Class Shares hereinafter provided, Strategic Series, on behalf
of Large Cap Fund, agrees that it will convey, transfer and
deliver to Capital Fund at the Closing all of Large Cap 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
Large Cap 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 Strategic Series shall reasonably deem
to exist against Large Cap Fund, if any, at the Closing Date,
for which contingent and other appropriate liability reserves
shall be established on Large Cap Fund's books (hereinafter "Net
Assets"). Large Cap 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 Strategic Series, on behalf of Large Cap Fund, herein
contained, and in consideration of such sale, conveyance,
transfer, and delivery, Capital Fund agrees at the Closing to
deliver to Strategic Series: (i) the number of Capital Fund
Class A Shares, determined by dividing the net asset value per
share of the Large Cap Fund Class A Shares by the net asset
value per share of Capital Fund Class A Shares, and multiplying
the result thereof by the number of outstanding Large Cap Fund
Class A Shares, as of 1:00 p.m. Pacific time on the Closing
Date; (ii) the number of Capital Fund Class B Shares, determined
by dividing the net asset value per share of the Large Cap Fund
Class B Shares by the net asset value per share of Capital Fund
Class B Shares, and multiplying the result thereof by the number
of outstanding Large Cap Fund Class B Shares, as of 1:00 p.m.
Pacific time on the Closing Date; (iii) the number of Capital
Fund Class C Shares, determined by dividing the net asset value
per share of the Large Cap Fund Class C Shares by the net asset
value per share of Capital Fund Class C Shares, and multiplying
the result thereof by the number of outstanding Large Cap Fund
Class C Shares, as of 1:00 p.m. Pacific time on the Closing
Date; (iv) the number of Capital Fund Class R Shares, determined
by dividing the net asset value per share of the Large Cap Fund
Class R Shares by the net asset value per share of Capital Fund
Class R Shares, and multiplying the result thereof by the number
of outstanding Large Cap Fund Class R Shares, as of 1:00 p.m.
Pacific time on the Closing Date; and, (v) the number of Capital
Fund Advisor Class Shares, determined by dividing the net asset
value per share of the Large Cap Fund Advisor Class Shares by
the net asset value per share of Capital Fund Advisor Class
Shares, and multiplying the result thereof by the number of
outstanding Large Cap Fund Advisor Class 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, Strategic Series
shall dissolve Large Cap Fund and distribute pro rata to its
shareholders of record as of the close of business on the
Closing Date, Capital Fund Shares received by Large Cap Fund
pursuant to this Section 1. Such dissolution and distribution
shall be accomplished by the establishment of accounts on the
share records of Large Cap 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 Capital
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
beneficial interest of Large Cap Fund shall be entitled to
surrender the same to the transfer agent for Capital Fund in
exchange for the number of Capital Fund Shares into which the
Large Cap Fund Shares theretofore represented by the certificate
or certificates so surrendered shall have been converted.
Certificates for Capital 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 beneficial interest of Large Cap
Fund shall be deemed for all Capital Fund's purposes to evidence
ownership of the number of Capital Fund Shares into which the
Large Cap Fund Shares (which prior to the Closing were
represented thereby) have been converted.
2. Valuation.
(a) The value of Large Cap Fund's Net Assets to be
acquired by Capital 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 Large Cap
Fund's currently effective prospectus.
(b) The net asset value of a share of beneficial interest
of Large Cap Fund Class A Shares, Large Cap Fund Class B Shares,
Large Cap Fund Class C Shares, Large Cap Fund Class R Shares and
Large Cap Fund Advisor Class 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 Large Cap
Fund's currently effective prospectus.
(c) The net asset value of a share of beneficial interest of
Capital Fund Class A Shares, Capital Fund Class B Shares,
Capital Fund Class C Shares, Capital Fund Class R Shares and
Capital Fund Advisor Class 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 Capital Fund's
currently effective prospectus.
3. Closing and Closing Date.
The Closing Date shall be June 5, 2003, or such later date
as the parties may mutually agree. The Closing shall take place
at the principal office of Strategic Series at 2:00 p.m. Pacific
time on the Closing Date. Strategic Series, on behalf of Large
Cap Fund, shall have provided for delivery as of the Closing
those Net Assets of Large Cap Fund to be transferred to the
account of Capital Fund's custodian, Bank of New York, Mutual
Funds Division, 000 Xxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000.
Also, Strategic Series, on behalf of Large Cap Fund, shall
deliver at the Closing a list of names and addresses of the
shareholders of record of its Large Cap Fund Class A Shares,
Large Cap Fund Class B Shares, Large Cap Fund Class C Shares,
Large Cap Fund Class R Shares and Large Cap Fund Advisor Class
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. Capital Fund shall issue and
deliver a certificate or certificates evidencing the shares of
beneficial interest of Capital Fund to be delivered to the
account of Large Cap Fund at said transfer agent registered in
such manner as the officers of Strategic Series, on behalf of
Large Cap Fund, may request, or provide evidence satisfactory to
Strategic Series that such Capital Fund Shares have been
registered in an account on the books of Capital Fund in such
manner as the officers of Strategic Series may request.
4. Representations and Warranties by Capital Fund.
Capital Fund represents and warrants to Strategic Series
that:
(a) Capital Fund is a statutory trust created under the
laws of the State of Delaware as a business trust pursuant to an
Agreement and Declaration of Trust on March 21, 2000, and is
validly existing under the laws of that State. Capital 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 Capital 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) Capital Fund is authorized to issue an unlimited
number of shares of beneficial interest of Capital Fund Shares,
par value $0.01 per share, each outstanding share of which is
fully paid, non-assessable, freely transferable and has full
voting rights. Capital Fund is further divided into five classes
of shares and an unlimited number of shares of beneficial
interest, par value $0.01 per share, has been allocated and
designated to each of these classes of shares.
(c) The financial statements appearing in the Capital
Fund's Annual Report to Shareholders for the fiscal year ended
June 30, 2002, audited by PricewaterhouseCoopers LLP, and the
financial statements for Capital Fund for the six-month period
ended December 31, 2002, copies of which have been delivered to
Strategic Series, fairly present the financial position of
Capital 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 Capital Fund accurately
summarize the accounting data represented and contain no
material omissions with respect to the business and operations
of Capital Fund.
(e) Capital Fund has the necessary power and authority to
conduct its business as such business is now being conducted.
(f) Capital Fund is not a party to or obligated under any
provision of its Declaration of Trust, as amended ("Declaration
of Trust"), or By-laws, as amended ("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) Capital 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"), Capital 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) Capital 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) Capital Fund does not have any unamortized or
unpaid organizational fees or expenses.
5. Representations and Warranties by Strategic Series on
behalf of Large Cap Fund.
Strategic Series represents and warrants to Capital Fund
that:
(a) Large Cap Fund is a series of Strategic Series, a
statutory trust created under the laws of the State of Delaware
as a business trust pursuant to an Agreement and Declaration of
Trust on January 25, 1991, and is validly existing under the
laws of that State. Strategic Series is duly registered under
the 1940 Act as an open-end, management investment company and
all of Strategic Series' Large Cap 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) Strategic Series is authorized to issue an unlimited
number of shares of beneficial interest, par value $0.01 per
share, each outstanding share of which is fully paid, non-
assessable, freely transferable, and has full voting rights and
currently issues shares of 13 series, including Large Cap Fund.
Large Cap Fund is further divided into five classes of shares,
and an unlimited number of shares of beneficial interest of
Strategic Series, par value $0.01 per share, have been allocated
and designated to each class of Large Cap Fund.
(c) The financial statements appearing in the Strategic
Series' Annual Report to Shareholders for the fiscal year ended
April 30, 2002, audited by PricewaterhouseCoopers, LLP, and the
financial statements for Large Cap Fund for the six-month period
ended October 31, 2002, copies of which have been delivered to
Capital Fund, fairly present the financial position of Large Cap
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 Large Cap Fund
accurately summarize the accounting data represented and
contain no material omissions with respect to the business
and operations of Large Cap Fund.
(e) Strategic Series has the necessary power and
authority to conduct Large Cap Fund's business as such business
is now being conducted.
(f) Strategic Series is not a party to or obligated under
any provision of its Declaration of Trust or Amended and
Restated 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) Strategic Series has elected to treat Large Cap Fund as a
RIC for federal income tax purposes under Part I of Subchapter M
of the Code, Large Cap Fund is a "fund" as defined in Section
851(g)(2) of the Code, Large Cap 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) Large Cap 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) Large Cap Fund does not have any unamortized or unpaid
organization fees or expenses.
6. Representations and Warranties by Strategic Series and
Capital Fund.
Strategic Series, on behalf of Large Cap Fund, and Capital
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 Capital 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, 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 Large Cap Fund, in the case of Strategic
Series, and Capital Fund, there is no material suit, judicial
action, or legal or administrative proceeding pending or
threatened against it. Neither Capital Fund nor Strategic Series
are a party to or subject to the provisions of any order, decree
or judgment of any court or governmental body that materially
and adversely affects Capital Fund's or Large Cap 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 and this Agreement and Plan,
subject to the approval of Large Cap Fund's shareholders in the
case of Strategic Series, 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 Large Cap Fund, in the case of Strategic
Series, and Capital 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 Strategic Series and Capital Fund.
(a) (a) Strategic Series, on behalf of Large Cap Fund, and
Capital Fund each covenant to operate their respective
businesses as presently conducted between the date hereof and
the Closing.
(b) Strategic Series, on behalf of Large Cap Fund,
undertakes that it will not acquire Capital Fund Shares for the
purpose of making distributions thereof to anyone other than
Large Cap Fund's shareholders.
(c) Strategic Series, on behalf of Large Cap Fund,
undertakes that, if this Agreement and Plan is consummated, it
will liquidate and dissolve Large Cap Fund.
(d) Strategic Series, on behalf of Large Cap Fund, and
Capital 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, Strategic Series, on behalf of Large
Cap Fund, will provide Capital Fund a copy of the shareholder
ledger accounts, certified by Large Cap Fund's transfer agent or
its President to the best of its or his knowledge and belief,
for all the shareholders of record of Large Cap Fund Shares as
of 1:00 p.m. Pacific time on the Closing Date who are to become
shareholders of Capital Fund as a result of the transfer of
assets that is the subject of this Agreement and Plan.
(f) The Board of Trustees of Strategic Series shall call
and Strategic Series shall hold, a Special Meeting of Large Cap
Fund's shareholders to consider and vote upon this Agreement and
Plan (the "Special Meeting") and Strategic Series shall take all
other actions reasonably necessary to obtain approval of the
transactions contemplated herein. Strategic Series agrees to
mail to each shareholder of record of Large Cap 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) Capital Fund will file with the U.S. Securities and
Exchange Commission a registration statement on Form N-14 under
the 1933 Act relating to Capital 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 Strategic Series
and Capital 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, 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 Large Cap Fund at an
annual or special meeting or any adjournment thereof.
(e) That a distribution or distributions shall have been
declared for Large Cap 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 Strategic Series, on
behalf of Large Cap Fund, and Capital Fund an opinion from
Messrs. Xxxxxxxx, Xxxxx, Xxxxxxx & Xxxxx, LLP, counsel to
Strategic Series and Capital Fund, to the effect that, provided
the acquisition contemplated hereby is carried out in accordance
with this Agreement and Plan, the laws of the State of Delaware
and based upon certificates of the officers of Strategic Series
and Capital Fund with regard to matters of fact:
(1) The acquisition by Capital Fund of substantially
all the assets of Large Cap Fund as provided for herein in
exchange for Capital Fund Shares followed by the
distribution by Large Cap Fund to its shareholders of
Capital Fund Shares in complete liquidation of Large Cap
Fund will qualify as a reorganization within the meaning of
Section 368(a)(1) of the Code, and Large Cap Fund and
Capital 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 Large Cap
Fund upon the transfer of substantially all of its assets
to Capital Fund in exchange solely for voting shares of
Capital Fund (Sections 361(a) and 357(a) of the Code);
(3) No gain or loss will be recognized by Capital Fund
upon the receipt by it of substantially all of the assets
of Large Cap Fund in exchange solely for voting shares of
Capital Fund (Section 1032(a) of the Code);
(4) No gain or loss will be recognized by Large Cap
Fund upon the distribution of Capital Fund Shares to its
shareholders in liquidation of Large Cap Fund (in pursuance
of the Reorganization) (Section 361(c)(1) of the Code);
(5) The basis of the assets of Large Cap Fund received
by Capital Fund will be the same as the basis of such
assets to Large Cap Fund immediately prior to the exchange
(Section 362(b) of the Code);
(6) The holding period of the assets of Large Cap Fund
received by Capital Fund will include the period during
which such assets were held by Large Cap Fund (Section
1223(2) of the Code);
(7) No gain or loss will be recognized to the
shareholders of Large Cap Fund upon the exchange of their
shares in Large Cap Fund for voting shares of Capital Fund,
including fractional shares to which they may be entitled
(Section 354(a) of the Code);
(8) The basis of Capital Fund Shares received by the
shareholders of Large Cap Fund shall be the same as the
basis of the Large Cap Fund Shares exchanged therefor
(Section 358(a)(1) of the Code);
(9) The holding period of Capital Fund Shares received
by shareholders of Large Cap Fund (including fractional
shares to which they may be entitled) will include the
holding period of the Large Cap Fund Shares surrendered in
exchange therefor, provided that the Large Cap Fund Shares
were held as a capital asset on the effective date of the
exchange (Section 1223(1) of the Code); and
(10) Capital 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 Large Cap 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 Capital Fund an
opinion in form and substance satisfactory to it from Messrs.
Xxxxxxxx, Xxxxx, Xxxxxxx & Xxxxx, LLP, counsel to Strategic
Series, 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) Large Cap Fund is a series of Strategic Series, a
statutory trust organized as a business trust under the
laws of the State of Delaware on January 25, 1991, and is a
validly existing statutory trust and in good standing under
the laws of that State;
(2) Strategic Series is authorized to issue an
unlimited number of shares of beneficial interest, par
value $0.01 per share. Five (5) classes of shares of Large
Cap Fund have been designated as Large Cap Fund Class A
Shares, Large Cap Fund Class B Shares, Large Cap Fund Class
C Shares, Large Cap Fund Class R Shares and Large Cap Fund
Advisor Class Shares, and an unlimited number of shares of
beneficial interest of Strategic Series has been allocated
to each class of shares. Assuming that the initial shares
of beneficial interest of Large Cap Fund were issued in
accordance with the 1940 Act and the Declaration of Trust
and Amended and Restated By-laws of Strategic Series, and
that all other outstanding shares of Large Cap Fund were
sold, issued and paid for in accordance with the terms of
Large Cap 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) Large Cap Fund is an open-end investment company
of the management type registered as such under the 1940
Act;
(4) Except as disclosed in Large Cap Fund's currently
effective prospectus, such counsel does not know of any
material suit, action, or legal or administrative
proceeding pending or threatened against Strategic Series,
the unfavorable outcome of which would materially and
adversely affect Strategic Series or Large Cap 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 Strategic Series; and
(6) Neither the execution, delivery, nor performance
of this Agreement and Plan by Strategic Series, on behalf
of Large Cap 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 Strategic Series is a party or by which Strategic
Series is otherwise bound; this Agreement and Plan is the
legal, valid and binding obligation of Strategic Series and
Large Cap Fund and is enforceable against Strategic Series
and/or Large Cap 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
Strategic Series with regard to matters of fact, and certain
certifications and written statements of governmental officials
with respect to the good standing of Strategic Series.
(h) That there shall be delivered to Strategic Series, on
behalf of Large Cap Fund, an opinion in form and substance
satisfactory to it from Messrs. Xxxxxxxx, Xxxxx, Xxxxxxx &
Xxxxx, LLP, counsel to Capital 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) Capital Fund is a statutory trust organized as a
business trust under the laws of the State of Delaware on
March 21, 2000, and is a validly existing statutory trust
and in good standing under the laws of that State;
(2) Capital Fund is authorized to issue an unlimited
number of shares of beneficial interest, par value $0.01
per share. Five (5) classes of shares of Capital Fund have
been designated as Capital Fund Class A Shares, Capital
Fund Class B Shares, Capital Fund Class C Shares, Capital
Fund Class R Shares and Capital Fund Advisor Class Shares,
and an unlimited number of shares of beneficial interest of
Capital Fund has been allocated to each class of shares.
Assuming that the initial shares of beneficial interest of
Capital Fund were issued in accordance with the 1940 Act,
and the Declaration of Trust and By-laws of Capital Fund,
and that all other outstanding shares of Capital Fund were
sold, issued and paid for in accordance with the terms of
Capital Fund's prospectus in effect at the time of such
sales, each such outstanding share of Capital Fund is fully
paid, non-assessable, freely transferable and has full
voting rights;
(3) Capital Fund is an open-end investment company of
the management type registered as such under the 1940 Act;
(4) Except as disclosed in Capital Fund's currently
effective prospectus, such counsel does not know of any
material suit, action, or legal or administrative
proceeding pending or threatened against Capital Fund, the
unfavorable outcome of which would materially and adversely
affect Capital Fund;
(5) Capital 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 Capital 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 Capital Fund;
(7) Neither the execution, delivery, nor performance
of this Agreement and Plan by Capital 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 Capital Fund is a party or by which
Capital Fund is otherwise bound; this Agreement and Plan is
the legal, valid and binding obligation of Capital Fund and
is enforceable against Capital Fund in accordance with its
terms; and
(8) The registration statement of Capital Fund, of
which the prospectus for Class A shares, Class B shares,
Class C shares and Class R shares dated November 1, 2002,
as supplemented January 1, 2003, and the prospectus for
Advisor Class shares dated November 1, 2002, as
supplemented March 15, 2003 (the "Prospectus") are 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
Capital Fund with regard to matters of fact, and certain
certifications and written statements of governmental officials
with respect to the good standing of Capital Fund.
(i) That Large Cap Fund shall have received a certificate
from the President and Secretary of Capital 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 Capital Fund's Registration Statement with
respect to Capital Fund Shares to be delivered to Large Cap
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 Capital 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
Capital Fund Shares lawfully to be delivered to each holder of
Large Cap Fund Shares.
(l) That, at the Closing, there shall be transferred to
Capital Fund, aggregate Net Assets of Large Cap 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 Large Cap Fund on the Closing Date.
(m) That there be delivered to Capital Fund information
concerning the tax basis of Large Cap Fund in all securities
transferred to Capital Fund, together with shareholder
information including the names, addresses, and taxpayer
identification numbers of the shareholders of Large Cap 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 Large Cap Fund respect to each shareholder.
9. Brokerage Fees and Expenses.
(a) Strategic Series, on behalf of Large Cap Fund, and
Capital 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 Capital Fund, one-quarter by Large Cap 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 Large
Cap Fund) prior to the Closing, or the Closing may be postponed
as follows:
(1) by mutual consent of Strategic Series on behalf
of Large Cap Fund and of Capital Fund;
(2) by Capital Fund if any conditions of its
obligations set forth in Section 8 have not been fulfilled
or waived; or
(3) by Strategic Series, on behalf of Large Cap Fund,
if any conditions of its obligations set forth in Section 8
have not been fulfilled or waived.
An election by Capital Fund or Strategic Series to
terminate this Agreement and Plan and to abandon the
Reorganization shall be exercised respectively, by the Board of
Trustees of Capital Fund or the Board of Trustees of Strategic
Series.
(b) If the transactions contemplated by this Agreement and
Plan have not been consummated by December 31, 2003, the
Agreement and Plan shall automatically terminate on that date,
unless a later date is agreed to by both Capital Fund and
Strategic Series.
(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 Strategic Series nor
Capital Fund nor their trustees, officers, or agents or the
shareholders of Large Cap Fund or Capital 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 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 Strategic Series nor Capital Fund, nor any of their
officers, 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 Strategic Series or
Capital 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 Strategic Series, on behalf of Large Cap Fund, or
the Board of Trustees of Capital 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 Large Cap Fund, unless such terms and conditions
shall result in a change in the method of computing the number
of Capital Fund Shares to be issued to Large Cap Fund. In which
event, unless such terms and conditions shall have been included
in the proxy solicitation material furnished to the shareholders
of Large Cap 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 Strategic Series shall promptly call a
special meeting of the shareholders of Large Cap 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 Capital Growth
Fund, at Xxx Xxxxxxxx Xxxxxxx, Xxx Xxxxx, Xxxxxxxxxx 00000,
Attention: Secretary, or Franklin Strategic Series, 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 State of Delaware.
IN WITNESS WHEREOF, Strategic Series, on behalf of Large
Cap Fund, and Capital 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.
FRANKLIN STRATEGIC SERIES, on behalf of
FRANKLIN LARGE CAP GROWTH FUND
Attest:
/s/Xxxxxx X. Xxxxxxx By: /s/ Xxxxx X. Xxxx_
Xxxxxx X. Xxxxxxx Xxxxx X. Xxxx
Secretary Vice President
FRANKLIN CAPITAL GROWTH FUND
Attest:
/S/Xxxxxx X. Xxxxxxx By: /S/Xxxxx X. Xxxx___
Xxxxxx X. Xxxxxxx Xxxxx X. Xxxx
Secretary Vice President
