AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Plan"), is made as of this
1st day of March, 2007, by and between Franklin Strategic Series (the "Trust"),
a statutory trust created under the laws of the State of Delaware, with its
principal place of business at Xxx Xxxxxxxx Xxxxxxx, Xxx Xxxxx, XX 00000-0000,
on behalf of its series, Franklin Blue Chip Fund ("Blue Chip Fund"), and
Franklin Custodian Funds, Inc. (the "Company"), a corporation organized under
the laws of the State of Maryland, with its principal place of business at Xxx
Xxxxxxxx Xxxxxxx, Xxx Xxxxx, XX 00000-0000, on behalf of its series, Franklin
Growth Fund ("Growth Fund").
PLAN OF REORGANIZATION
The reorganization (hereinafter referred to as the "Plan of
Reorganization") will consist of (i) the acquisition by the Company, on behalf
of Growth Fund, of substantially all of the property, assets and goodwill of
Blue Chip Fund in exchange solely for full and fractional Class A, Class B,
Class C and Class R shares of common stock, par value $0.01 per share, of Growth
Fund ("Growth Fund Shares"); (ii) the distribution of Growth Fund Shares to the
shareholders of Class A, Class B, Class C and Class R shares of Blue Chip Fund
(the "Blue Chip Fund Shares"), respectively, according to their respective
interests in Blue Chip Fund in complete liquidation of Blue Chip Fund; and (iii)
the dissolution of Blue Chip 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 BLUE CHIP FUND.
(a) Subject to the terms and conditions of the Plan, and in reliance on
the representations and warranties of the Company, on behalf of Growth Fund,
herein contained, and in consideration of the delivery by the Company of the
number of Growth Fund Shares hereinafter provided, the Trust, on behalf of Blue
Chip Fund, agrees that it will convey, transfer and deliver to the Company, for
the benefit of Growth Fund, at the Closing all of Blue Chip 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) 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 (ii) pay such contingent
liabilities as the Board of Trustees of the Trust shall reasonably deem to exist
against Blue Chip Fund, if any, at the Closing Date, for which contingent and
other appropriate liability reserves shall be established on Blue Chip Fund's
books (hereinafter "Net Assets"). Neither the Company nor Growth Fund shall
assume any liability of Blue Chip Fund or the Trust, and Blue Chip 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. Blue Chip 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 the Plan, and in reliance on
the representations and warranties of the Trust, on behalf of Blue Chip Fund,
herein contained, and in consideration of such sale, conveyance, transfer, and
delivery, the Company agrees at the Closing to deliver to the Trust the number
of Growth Fund Shares, determined by dividing the net asset value per share of
each of Class A, Class B, Class C and Class R shares of Blue Chip Fund by the
net asset value per share of each of Class A, Class B, Class C and Class R
shares of Growth Fund, respectively, and separately multiplying the result
thereof by the number of outstanding Class A, Class B, Class C and Class R
shares, respectively, of Blue Chip Fund, as of 1:00 p.m., Pacific Time, on the
Closing Date. The Growth Fund Shares delivered to the Trust at the Closing shall
have an aggregate net asset value equal to the value of the Blue Chip Fund's Net
Assets, all determined as provided in Section 2 of this Plan and as of the date
and time specified herein.
(c) Immediately following the Closing, the Trust shall dissolve Blue Chip
Fund and distribute pro rata to Blue Chip Fund's shareholders of record as of
the close of business on the Closing Date, Growth Fund Shares received by Blue
Chip Fund pursuant to this Section 1. Such dissolution and distribution shall be
accomplished by the establishment of accounts on the share records of Growth
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
Growth 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 Blue Chip Fund shall
be entitled to surrender the same to the transfer agent for Growth Fund in
exchange for the number of Growth Fund Shares of the same class into which the
Blue Chip Fund Shares theretofore represented by the certificate or certificates
so surrendered shall have been converted. Certificates for Growth 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 Blue Chip Fund shall be deemed for
all Growth Fund purposes to evidence ownership of the number of Growth Fund
Shares into which the Blue Chip Fund Shares (which prior to the Closing were
represented thereby) have been converted.
(d) At the Closing, each shareholder of record of Blue Chip 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(d) hereof,
shall have the right to receive such unpaid dividends and distributions with
respect to the shares of Blue Chip Fund that such person had on such
Distribution Record Date.
(e) All books and records relating to Blue Chip 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 the Company from and after the date of the Plan, and shall be
turned over to the Company on or prior to the Closing.
2. VALUATION.
(a) The net asset value of Growth Fund Shares and Blue Chip Fund Shares
and the value of Blue Chip Fund's Net Assets to be acquired by Growth 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 Growth Fund Shares and
Blue Chip Fund Shares and the value of Blue Chip Fund's Net Assets shall be
computed in accordance with the valuation procedures set forth in the respective
prospectuses of Growth Fund and Blue Chip Fund.
(b) In the event of a Market Disruption on the proposed Closing Date so
that an accurate appraisal of the net asset value of Growth Fund Shares or Blue
Chip Fund Shares or the value of Blue Chip 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 June 14, 2007 or such later date as the parties
may mutually agree. The Closing shall take place at the principal office of the
Trust at 2:00 p.m., Pacific Time, on the Closing Date. The Trust on behalf of
Blue Chip Fund shall have provided for delivery as of the Closing of those Net
Assets of Blue Chip Fund to be transferred to the account of Growth Fund's
Custodian, Bank of New York, Mutual Funds Division, 000 Xxxxxx Xxxxxx, Xxx Xxxx,
XX 00000. Also, the Trust, on behalf of Blue Chip Fund, shall deliver at the
Closing a list of names and addresses of the shareholders of record of each
class of Blue Chip Fund Shares and the number of full and fractional shares of
beneficial interest 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. The Company on behalf of Growth Fund shall provide evidence satisfactory
to the Trust that such Growth Fund Shares have been registered in an account on
the books of Growth Fund in such manner as the officers of the Trust, on behalf
of Blue Chip Fund, may reasonably request.
4. REPRESENTATIONS AND WARRANTIES BY THE COMPANY, ON BEHALF OF GROWTH FUND.
The Company, on behalf of Growth Fund, represents and warrants to the
Trust that:
(a) Growth Fund is a series of the Company, a corporation organized
originally as a Delaware corporation in 1947 and reincorporated under the laws
of the State of Maryland in 1979, and is validly existing under the laws of
Maryland. The Company is duly registered under the 1940 Act as an open-end,
management investment company and all of the Growth 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.
(b) The Company is authorized to issue forty four billion two hundred
million shares of common stock of Growth Fund, par value $0.01 per share, 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. The Company currently issues shares of five (5)
series, including Growth Fund. Growth Fund is further divided into five classes
of shares of which Growth Fund Shares represent four classes: Class A, Class B,
Class C and Class R shares of common stock. No shareholder of the Company shall
have any option, warrant or preemptive right of subscription or purchase with
respect to Growth Fund Shares.
(c) The financial statements appearing in Growth Fund's Annual Report to
Shareholders for the fiscal year ended September 30, 2006, audited by
PricewaterhouseCoopers LLP, and any interim unaudited financial statements,
copies of which may be furnished to the Trust, fairly present the financial
position of Growth Fund as of their respective dates and the results of Growth
Fund's operations for the period indicated in conformity with generally accepted
accounting principles applied on a consistent basis.
(d) The Company, on behalf of Growth Fund, is not a party to or obligated
under any provision of its Articles of Incorporation, as amended ("Articles of
Incorporation") 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 the Plan, and no consent,
approval, authorization or order of any court or governmental authority is
required for the consummation by Growth Fund or the Company of the transactions
contemplated by the Plan, except for the registration of Growth 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.
(e) The Company has elected to treat Growth 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"). Growth 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) Growth 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) Growth Fund does not have any unamortized or unpaid organizational
fees or expenses.
(h) Growth 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.
(i) There is no intercorporate indebtedness existing between Blue Chip
Fund and Growth Fund that was issued, acquired or will be settled at a discount.
(j) Growth Fund does not own, directly or indirectly, nor has it owned
during the past five (5) years, directly or indirectly, any shares of Blue Chip
Fund.
(k) Except for a certain proposed redomestication of the Company to a
Delaware statutory trust, (i) the Company has no plan or intention to issue
additional shares of Growth Fund following the Plan of Reorganization except for
shares issued in the ordinary course of Growth Fund's business as a series of an
open-end investment company; and (ii) the Company does not have any plan or
intention to redeem or otherwise reacquire any shares of Growth 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.
(l) Growth Fund is in the same line of business as Blue Chip Fund before
the Plan of Reorganization and did not enter into such line of business as part
of the Plan of Reorganization. Growth Fund will actively continue Blue Chip
Fund's business in substantially the same manner that Blue Chip Fund conducted
that business immediately before the Plan of Reorganization and has no plan or
intention to change such business. On the Closing Date, Growth Fund expects that
at least 33 (1)/3% of Blue Chip Fund's portfolio assets will meet the investment
objectives, strategies, policies, risks and restrictions of Growth Fund. Growth
Fund has no plan or intention to change any of its investment objectives,
strategies, policies, risks and restrictions after the Plan of Reorganization.
Growth Fund has no plan or intention to sell or otherwise dispose of any of the
former assets of Blue Chip 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, Growth Fund will
continuously review its investment portfolio (as Blue Chip Fund did before the
Closing) to determine whether to retain or dispose of particular stocks or
securities, including those included among the former assets of Blue Chip Fund.
(m) 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 Growth 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 Blue Chip 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.
(n) The Prospectus for Class A, Class B, Class C and Class R shares of
Growth Fund, dated February 1, 2007, and the corresponding Statement of
Additional Information, dated February 1, 2007, as amended to date, do 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, in
light of the circumstances under which they were made, not misleading, and any
amended, revised, or new prospectus or statement of additional information of
Growth Fund or any supplement thereto, that is hereafter filed with the U.S.
Securities and Exchange Commission ("SEC"), shall 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, in light of the
circumstances in which they were made, not misleading.
5. REPRESENTATIONS AND WARRANTIES BY THE TRUST, ON BEHALF OF BLUE CHIP FUND.
The Trust, on behalf of Blue Chip Fund, represents and warrants to the
Company that:
(a) Blue Chip Fund is a series of the Trust, a statutory trust created
under the laws of the State of Delaware on January 25, 1991, and is validly
existing under the laws of the State of Delaware. The Trust is duly registered
under the 1940 Act as an open-end, management investment company and all of the
Trust's Blue Chip 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) The Trust is authorized to issue an unlimited number of shares of
beneficial interest of Blue Chip Fund, par value $0.01 per share, each
outstanding share of which is fully paid, non-assessable, and has full voting
rights. The Trust issues shares of five (5) series, including Blue Chip Fund.
Blue Chip Fund has four classes of shares: Class A, Class B, Class C and Class
R, and an unlimited number of shares of beneficial interest of the Trust have
been allocated and designated to each class of Blue Chip Fund. No shareholder of
the Trust has or will have any option, warrant or preemptive rights of
subscription or purchase with respect to Blue Chip Fund Shares.
(c) The financial statements appearing in Blue Chip Fund's Annual Report
to Shareholders for the fiscal year ended April 30, 2006, audited by
PricewaterhouseCoopers LLP, and any interim financial statements for the Trust
which may be furnished to the Company, fairly present the financial position of
Blue Chip Fund as of their respective dates and the results of Blue Chip Fund's
operations for the period indicated in conformity with generally accepted
accounting principles applied on a consistent basis.
(d) The Trust, on behalf of Blue Chip Fund, is not a party to or obligated
under any provision of its Agreement and Declaration of Trust, as amended
("Trust Instrument"), or Amended and Restated 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. Blue Chip 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 this Plan)
which will not be terminated by Blue Chip 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 Blue Chip Fund.
(e) The Trust has elected to treat Blue Chip Fund as a RIC for federal
income tax purposes under Part I of Subchapter M of the Code. Blue Chip 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) Blue Chip 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) Blue Chip Fund does not have any unamortized or unpaid organization
fees or expenses.
(h) The Prospectus for Class A, Class B, Class C and Class R shares of
Blue Chip Fund, dated September 1, 2006, and the corresponding Statement of
Additional Information, dated September 1, 2006, as amended to date, do 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, in
light of the circumstances under which they were made, not misleading, and any
amended, revised, or new prospectus or statement of additional information of
Blue Chip Fund or any supplement thereto, that is hereafter filed with the SEC,
shall 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, in light of the circumstances in which they were made, not misleading.
(i) Blue Chip 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.
(j) Since September 30, 2006 there has not been any material adverse
change in Blue Chip Fund's financial condition, assets, liabilities, or business
other than changes occurring in the ordinary course of its business.
(k) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by Blue Chip Fund or the
Trust of the transactions contemplated by the Plan, except the necessary Blue
Chip Fund shareholder approval, or as may otherwise be required under the
federal or state securities laws or the rules and regulations thereunder.
(l) There is no intercorporate indebtedness existing between Blue Chip
Fund and Growth Fund that was issued, acquired or will be settled at a discount.
(m) During the five-year period ending on the Closing Date, (i) Blue Chip
Fund has not acquired, and will not acquire, Blue Chip Fund Shares with
consideration other than Growth Fund Shares or Blue Chip Fund Shares, except for
redemptions in the ordinary course of Blue Chip 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 Blue Chip Fund
Shares (other than regular, normal dividend distributions made pursuant to the
Blue Chip 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.
(n) As of the Closing Date, Blue Chip 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 Blue Chip 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.
(o) Throughout the five year period ending on the Closing Date, Blue Chip
Fund will have conducted its historic business within the meaning of Section
1.368-1(d) of the Income Tax Regulations under the Code. Blue Chip Fund did not
enter into (or expand) a line of business as part of the Plan of Reorganization.
Blue Chip Fund will not alter its investment portfolio in connection with the
reorganization.
6. REPRESENTATIONS AND WARRANTIES BY THE TRUST AND THE COMPANY.
The Trust, on behalf of Blue Chip Fund, and the Company, on behalf of
Growth Fund, each represents and warrants to the other that:
(a) Except as disclosed in its currently effective prospectus relating to
Blue Chip Fund, in the case of the Trust, and Growth Fund, in the case of the
Company, there is no material suit, judicial action, or legal or administrative
proceeding pending or threatened against it. Neither the Company nor the 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 Growth
Fund's or Blue Chip Fund's business or their ability to consummate the
transactions herein contemplated.
(b) There are no known actual or proposed deficiency assessments with
respect to any taxes payable by it.
(c) The execution, delivery, and performance of the Plan have been duly
authorized by all necessary action of its Board of Trustees/Directors, as the
case may be, and the Plan, subject to the approval of Blue Chip Fund's
shareholders in the case of the 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.
(d) It anticipates that consummation of the Plan will not cause either
Blue Chip Fund, in the case of the Trust, or Growth Fund, in the case of the
Company, 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 their respective
fiscal years.
(e) Implementation of Financial Accounting Standards Board Interpretation
No. 48, Accounting for Uncertainty in Income Taxes, in each of Growth Fund's and
Blue Chip Fund's calculation, respectively, of net asset value per share will
not result in any material adverse consequences to its shareholders.
7. COVENANTS OF THE TRUST AND THE COMPANY.
(a) The Trust, on behalf of Blue Chip Fund, and the Company, on behalf of
Growth Fund, each covenants to operate their respective businesses 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) The Trust, on behalf of Blue Chip Fund, undertakes that it will not
acquire Growth Fund Shares for the purpose of making distributions thereof to
anyone other than Blue Chip Fund's shareholders.
(c) The Trust, on behalf of Blue Chip Fund, undertakes that, if the Plan
is consummated, it will liquidate and dissolve Blue Chip Fund.
(d) The Trust, on behalf of Blue Chip Fund, and the Company, on behalf of
Growth 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, the Trust, on behalf of Blue Chip Fund, will provide
Growth Fund a copy of the shareholder ledger accounts, certified by Blue Chip
Fund's transfer agent or its President to the best of its or his knowledge and
belief, for all the shareholders of record of Blue Chip Fund Shares as of 1:00
p.m., Pacific Time, on the Closing Date who are to become shareholders of Growth
Fund as a result of the transfer of assets that is the subject of the Plan.
(f) The Board of Trustees of the Trust shall call and the Trust shall
hold, a Special Meeting of Blue Chip Fund's shareholders to consider and vote
upon the Plan (the "Special Meeting") and the Trust shall take all other actions
reasonably necessary to obtain approval of the transactions contemplated herein.
The Trust agrees to mail to each shareholder of record of Blue Chip 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, respectively,
thereunder.
(g) The Company has filed with the SEC the 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.
(h) Subject to the provisions of the Plan, the Company and the 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) The Trust shall deliver to the Company at the Closing Date
confirmation or other adequate evidence as to the tax costs and holding periods
of the assets and property of Blue Chip Fund transferred to the Company in
accordance with the terms of the Plan.
8. CONDITIONS PRECEDENT TO BE FULFILLED BY THE TRUST AND THE COMPANY.
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 this 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 Directors/Trustees certified by its Secretary or equivalent officer
of each of the Funds.
(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
Blue Chip Fund at a meeting or any adjournment thereof.
(e) That a distribution or distributions shall have been declared for Blue
Chip 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 Blue Chip Fund or Growth Fund.
(g) That there shall be delivered to the Trust, on behalf of Blue Chip
Fund, and the Company, on behalf of Growth Fund, an opinion in form and
substance satisfactory to them, from the law firm of Xxxxxxxx Ronon Xxxxxxx &
Xxxxx, LLP, counsel to the 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 the State of Maryland, and based upon certificates of the
officers of the Trust and the Company with regard to matters of fact:
(1) The acquisition by Growth Fund of substantially all the assets
of Blue Chip Fund as provided for herein in exchange for Growth Fund
Shares followed by the distribution by Blue Chip Fund to its shareholders
of Growth Fund Shares in complete liquidation of Blue Chip Fund will
qualify as a reorganization within the meaning of Section 368(a)(1) of the
Code, and Blue Chip Fund and Growth 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 Blue Chip Fund upon the
transfer of substantially all of its assets to Growth Fund in exchange
solely for voting shares of Growth Fund (Sections 361(a) and 357(a) of the
Code);
(3) Growth Fund will recognize no gain or loss upon the receipt of
substantially all of the assets of Blue Chip Fund in exchange solely for
voting shares of Growth Fund (Section 1032(a) of the Code);
(4) No gain or loss will be recognized by Blue Chip Fund upon the
distribution of Growth Fund Shares to its shareholders in liquidation of
Blue Chip Fund (in pursuance of the Plan) (Section 361(c)(1) of the Code);
(5) The basis of the assets of Blue Chip Fund received by Growth
Fund will be the same as the basis of such assets to Blue Chip Fund
immediately prior to the Plan of Reorganization (Section 362(b) of the
Code);
(6) The holding period of the assets of Blue Chip Fund received by
Growth Fund will include the period during which such assets were held by
Blue Chip Fund (Section 1223(2) of the Code);
(7) No gain or loss will be recognized by the shareholders of Blue
Chip Fund upon the exchange of their shares in Blue Chip Fund for voting
shares of Growth Fund including fractional shares to which they may be
entitled (Section 354(a) of the Code);
(8) The basis of Growth Fund Shares received by the shareholders of
Blue Chip Fund shall be the same as the basis of the Blue Chip Fund Shares
exchanged therefor (Section 358(a)(1) of the Code);
(9) The holding period of Growth Fund Shares received by
shareholders of Blue Chip Fund (including fractional shares to which they
may be entitled) will include the holding period of Blue Chip Fund Shares
surrendered in exchange therefor, provided that Blue Chip Fund Shares were
held as a capital asset on the effective date of the exchange (Section
1223(1) of the Code); and
(10) Growth 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 Blue Chip 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 the Company, on behalf of Growth
Fund, an opinion in form and substance satisfactory to it from Xxxxxxxx Ronon
Xxxxxxx & Xxxxx, LLP, counsel to the Trust, on behalf of Blue Chip 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) Blue Chip Fund is a series of the Trust and that the Trust is a
validly existing statutory trust in good standing under the laws of the
State of Delaware;
(2) The Trust is authorized to issue an unlimited number of shares
of beneficial interest, par value $0.01 per share, of Blue Chip Fund. Four
classes of shares of Blue Chip Fund (Class A, Class B, Class C and Class
R) have been designated as Blue Chip Fund Shares, and an unlimited number
of shares of beneficial interest of the Trust have been allocated to Blue
Chip Fund Shares;
(3) The Trust is an open-end investment company of the management
type registered as such under the 1940 Act;
(4) The execution and delivery of the Plan and the consummation of
the transactions contemplated hereby have been duly authorized by all
necessary trust action on the part of the Trust on behalf of Blue Chip
Fund; and
(5) To the knowledge of such counsel, neither the execution,
delivery, nor performance of this Plan by the Trust, on behalf of Blue
Chip Fund, violates any provision of its Trust Instrument or By-laws, or
the provisions of any agreement or other instrument filed by the Trust as
an exhibit to its Registration Statement on Form N-1A; this Plan is the
legal, valid and binding obligation of the Trust, on behalf of Blue Chip
Fund, and is enforceable against the Trust, on behalf of Blue Chip 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 the Trust with regard to matters of
fact, and certain certifications and written statements of governmental
officials with respect to the good standing of the Trust.
(i) That there shall be delivered to the Trust, on behalf of Blue Chip
Fund, an opinion in form and substance satisfactory to it from the law firm of
Bleakley Xxxxx & Xxxxxxx, LLP, counsel to the Company, on behalf of Growth 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) Growth Fund is a series of the Company and the Company is a
validly existing corporation in good standing under the laws of the State
of Maryland;
(2) The Company is authorized to issue forty four billion two
hundred million shares of common stock, par value $0.01 per share of
Growth Fund. Growth Fund is further divided into five (5) classes of
shares of which Growth Fund Shares constitute Class A, Class B, Class C,
Class R and Advisor shares, par value $0.01 per share;
(3) The Company is an open-end investment company of the management
type registered as such under the 1940 Act;
(4) Growth Fund Shares to be issued pursuant to the terms of this
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 the Company, on behalf of
Growth Fund;
(5) The execution and delivery of this Plan and the consummation of
the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of the Company, on behalf of Growth
Fund;
(6) To the knowledge of such counsel, neither the execution,
delivery, nor performance of this Plan by the Company, on behalf of Growth
Fund, violates any provision of its Articles of Incorporation or By-laws,
or the provisions of any agreement or other instrument filed by the
Company as an exhibit to its Registration Statement on Form N-1A; this
Plan is the legal, valid and binding obligation of the Company, on behalf
of Growth Fund, and is enforceable against the Company, on behalf of
Growth Fund, in accordance with its terms; and
(7) The registration statement of the Company, of which the
prospectus dated February 1, 2007 of Growth Fund is a part (the
"Prospectus") is, at the time of the signing of this 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 the Company with regard to matters of
fact, and certain certifications and written statements of governmental
officials with respect to the good standing of the Company, and an opinion of
local Maryland counsel as to matters of Maryland law.
(j) That the Company's prospectus contained in the Registration Statement
with respect to Growth Fund Shares to be delivered to Blue Chip Fund's
shareholders in accordance with the 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 Growth 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 Growth Fund Shares lawfully to be delivered to each
holder of Blue Chip Fund Shares.
(l) That, at the Closing, there shall be transferred to the Company, on
behalf of Growth Fund, aggregate Net Assets of Blue Chip 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 Blue Chip Fund
on the Closing Date.
(m) That there be delivered to the Company, on behalf of Growth Fund,
information concerning the tax basis of Blue Chip Fund in all securities
transferred to Growth Fund, together with shareholder information including the
names, addresses, and taxpayer identification numbers of the shareholders of
Blue Chip 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 Blue Chip Fund with respect to each shareholder.
9. EXPENSES.
The expenses of entering into and carrying out the provisions of this Plan
shall be borne as follows: each of Franklin Advisers, Inc., Franklin Investment
Advisory Services, LLC, Blue Chip Fund and Growth Fund will pay 25% of the
expenses, including the costs of the proxy solicitation.
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
(whether before or after approval thereof by the shareholders of Blue Chip Fund)
prior to the Closing, or the Closing may be postponed as follows:
(1) by mutual consent of the Trust, on behalf of Blue Chip Fund, and
the Company, on behalf of Growth Fund;
(2) by the Company, on behalf of Growth 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 the Trust, on behalf of Blue Chip 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 this Plan have not been
consummated by December 31, 2007, the Plan shall automatically terminate on that
date, unless a later date is agreed to by both the Company and the Trust.
(c) In the event of termination of the Plan prior to consummation of the
Plan of Reorganization pursuant to the provisions hereof, the same shall become
void and have no further effect, and neither the Trust, the Company, Blue Chip
Fund nor Growth Fund, nor their directors, trustees, officers, or agents or the
shareholders of Blue Chip Fund or Growth Fund shall have any liability in
respect of this 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
this 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 this 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 the Trust nor the Company, nor any of their officers, directors,
trustees, agents or shareholders shall have any liability with respect to such
representations or warranties after the Closing Date.
(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 the Trust, on behalf of Blue
Chip Fund, or the Board of Directors of the Company, on behalf of Growth 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 Blue Chip Fund, unless
such terms and conditions shall result in a change in the method of computing
the number of Growth Fund Shares to be issued to Blue Chip Fund in which event,
unless such terms and conditions shall have been included in the proxy
solicitation material furnished to the shareholders of Blue Chip Fund prior to
the meeting at which the transactions contemplated by this Plan shall have been
approved, this Plan shall not be consummated and shall terminate unless the
Trust shall promptly call a special meeting of the shareholders of Blue Chip
Fund at which such conditions so imposed shall be submitted for approval.
11. LIABILITY OF THE COMPANY AND THE TRUST.
(a) Each party acknowledges and agrees that all obligations of the Company
under this Plan are binding only with respect to Growth Fund; that any liability
of the Company under this Plan with respect to the Company, or in connection
with the transactions contemplated herein with respect to Growth Fund, shall be
discharged only out of the assets of Growth Fund; that no other series of the
Company shall be liable with respect to this Plan or in connection with the
transactions contemplated herein; and that neither the Trust nor Blue Chip Fund
shall seek satisfaction of any such obligation or liability from the
shareholders of the Company, the directors, officers, employees or agents of the
Company, or any of them.
(b) Each party acknowledges and agrees that all obligations of the Trust
under this Plan are binding only with respect to Blue Chip Fund; that any
liability of the Trust under this Plan with respect to Blue Chip Fund, or in
connection with the transactions contemplated herein with respect to Blue Chip
Fund, shall be discharged only out of the assets of Blue Chip Fund; that no
other series of the Trust shall be liable with respect to this Plan or in
connection with the transactions contemplated herein; and that neither the
Company nor Growth Fund shall seek satisfaction of any such obligation or
liability from the shareholders of the Trust, the trustees, officers, employees
or agents of the 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
this Plan shall be in writing and shall be deemed to have been given if
delivered or mailed, first class postage prepaid, addressed to Growth Fund, at
Franklin Custodian Funds, Inc., Xxx Xxxxxxxx Xxxxxxx, Xxx Xxxxx, XX 00000-0000,
Attention: Secretary, or Blue Chip Fund, at Franklin Strategic Series, Xxx
Xxxxxxxx Xxxxxxx, Xxx Xxxxx, XX 00000-0000, Attention: Secretary, as the case
may be.
15. GOVERNING LAW.
This Plan shall be governed by and carried out in accordance with the laws
of the State of Delaware.
IN WITNESS WHEREOF, the Trust, on behalf of Blue Chip Fund, and the
Company, on behalf of Growth Fund, have each caused this Plan to be executed on
its behalf by its duly authorized officers, all as of the date and year
first-above written.
FRANKLIN CUSTODIAN FUNDS, INC., on
behalf of FRANKLIN GROWTH FUND
By:/s/XXXXX X. XXXX
--------------------------------
Xxxxx X. Xxxx, Vice President &
Assistant Secretary
FRANKLIN STRATEGIC SERIES, on behalf of
FRANKLIN BLUE CHIP FUND
By:/s/XXXXX X. XXXX
--------------------------------
Xxxxx X. Xxxx, Vice President &
Assistant Secretary
