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,
Xxxxxxxxxx 00000.
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) 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. Stradley, Ronon,
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. Stradley, Ronon, Xxxxxxx &
Young, 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. Stradley, Ronon, 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 Franklin 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
