THE VICTORY PORTFOLIOS
U.S. Government Obligations Fund
Gradison Government Reserves Fund
FORM OF AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION
This AGREEMENT AND PLAN OF REORGANIZATION AND TERMINATION ("Agreement")
is made as of May 23, 2001, between The Victory Portfolios, a Delaware business
trust (the "Trust"), on behalf of Gradison Government Reserves Fund, a series of
the Trust ("Acquiring Fund"), and the Trust, on behalf of U.S. Government
Obligations Fund, a series of the Trust ("Target"). (Acquiring Fund and Target
are sometimes referred to herein individually as a "Fund" and collectively as
the "Funds," and the Trust is sometimes referred to herein as the "Investment
Company.")
All agreements, representations, and obligations described herein, made
or to be taken or undertaken by either Fund, are made or shall be taken or
undertaken by the Trust on the Fund's behalf.
Shares of Target are currently divided into two classes, designated
Investor Shares and Select Shares. Shares of Acquiring Fund are currently
divided into two classes, designated Trust Shares and Class G Shares.
In accordance with the terms and conditions set forth in this
Agreement, the parties desire that Target transfer substantially all its assets
to Acquiring Fund in exchange solely for voting shares of beneficial interest of
each comparable class in Acquiring Fund ("Acquiring Fund's Shares") and the
assumption by Acquiring Fund of substantially all of Target's liabilities, and
that Target distribute Acquiring Fund's Shares pro rata to the holders of shares
of beneficial interest in Target ("Target's Shares") in liquidation of Target.
All such transactions with respect to Target and Acquiring Fund are referred to
herein collectively as the "Reorganization."
It is intended by the parties hereto that the Reorganization constitute
a reorganization within the meaning of Section 368(a)(1) of the Internal Revenue
Code of 1986, as amended (the "Code"). The parties hereto hereby adopt this
Agreement as a "plan of reorganization" within the meaning of Treasury
Regulation Sections 1.368-2(g) and 1.368-3(a).
In consideration of the mutual promises herein, the parties covenant
and agree as follows:
1. PLAN OF REORGANIZATION AND LIQUIDATION OF TARGET
1.1. At the Effective Time (as defined in paragraph 3.1), Target
agrees to assign, sell, convey, transfer, and deliver all of
its assets described in paragraph 1.2 ("Assets") to Acquiring
Fund. Acquiring Fund agrees in exchange therefore:
(a) to issue and deliver to Target the number of full and
fractional Acquiring Fund's Shares determined by
dividing the net value of Target (computed as set
forth in paragraph 2.1) by the "NAV" (computed as set
forth in paragraph 2.2) of Acquiring Fund's Shares;
and
(b) to assume Target's liabilities described in paragraph
1.3 ("Liabilities").
1.2. Assets shall include, without limitation, all cash, cash
equivalents, securities, receivables (including interest and
dividends receivable), claims and rights of action, rights to
register shares under applicable securities laws, books and
records, deferred and prepaid expenses shown as assets on
Target's books, and other property owned by Target at the
Effective Time as defined in paragraph 3.1.
1.3. Liabilities shall include (except as otherwise provided
herein) all of Target's known liabilities, debts and
obligations arising in the ordinary course of business
reflected on the books of Target at the Effective Time, and
any contingent liabilities, if any, as the Board of Trustees
shall reasonably deem exist against Target at the Effective
Time, for which contingent and other appropriate liability
reserves shall be established on Target's books.
Notwithstanding the foregoing, Target agrees to use its best
efforts to discharge all of its known Liabilities prior to the
Effective Time.
1.4. At or immediately before the Effective Time, Target shall
declare and pay to its shareholders a dividend and/or other
distribution in an amount large enough so that it will have
distributed substantially all (and in any event not less than
90%) of its investment company taxable income (computed
without regard to any deduction for dividends paid) and
substantially all of its realized net capital gain, if any,
for the current taxable year through the Effective Time.
1.5. At the Effective Time (or as soon thereafter as is reasonably
practicable), Target shall distribute Acquiring Fund's Shares
received by it pursuant to paragraph 1.1 to Target's
shareholders of record, determined as of the Effective Time
(collectively "Shareholders" and individually a
"Shareholder"), in exchange for Target's Shares and in
liquidation of Target. To accomplish this distribution,
Acquiring Fund's transfer agent ("Transfer Agent") shall open
accounts on Acquiring Fund's share transfer books in the
Shareholders' names and transfer Acquiring Fund's Shares
thereto. Each Shareholder's account shall be credited with the
pro rata number of full and fractional (rounded to the third
decimal place) Acquiring Fund's Shares due that Shareholder.
All outstanding Target's Shares, including any represented by
certificates, shall simultaneously be canceled on Target's
share transfer books. Acquiring Fund shall not issue
certificates representing Acquiring Fund's Shares in
connection with the Reorganization. However, certificates
representing Target's Shares shall represent Acquiring Fund's
Shares after the Reorganization.
1.6. As soon as reasonably practicable after distribution of
Acquiring Fund's Shares pursuant to paragraph 1.5, Target
shall be terminated and any further actions shall be taken in
connection therewith as required by applicable law. Target
shall file such instruments and shall take all other steps
necessary to effect a complete liquidation and dissolution of
Target.
1.7. Any reporting responsibility of Target to a public authority
is and shall remain its responsibility up to and including the
date on which it is terminated.
2
1.8. Any transfer taxes payable upon issuance of Acquiring Fund's
Shares in a name other than that of the registered holder on
Target's books of Target's Shares exchanged therefor shall be
paid by the person to whom Acquiring Fund's Shares are to be
issued, as a condition of such transfer.
2. VALUATION
2.1. For purposes of paragraph 1.1(a), Target's net value shall be
(a) the value of the Assets computed as of the close of
regular trading on the New York Stock Exchange ("NYSE") on the
date of the Closing as defined in paragraph 3.1 ("Valuation
Time"), using the valuation procedures set forth in Target's
then current prospectus and statement of additional
information less (b) the amount of the Liabilities as of the
Valuation Time.
2.2. For purposes of paragraph 1.1(a), the NAV of Acquiring Fund's
Shares shall be computed as of the Valuation Time, using the
valuation procedures set forth in Acquiring Fund's then
current prospectus and statement of additional information.
2.3. All computations pursuant to paragraphs 2.1 and 2.2 shall be
made by or under the direction of Victory Capital Management
Inc.
3. CLOSING AND EFFECTIVE TIME
3.1. The Reorganization, together with related acts necessary to
consummate the same ("Closing"), shall occur at the Funds'
principal offices, located at 0000 Xxxxxxx Xxxx, Xxxxxxxx,
Xxxx 00000, on October 5, 2001, or at such other place and/or
on such other date upon which the parties may agree. All acts
taking place at the Closing shall be deemed to take place
simultaneously as of the close of business on the date thereof
or at such other time upon which the parties may agree
("Effective Time"). If, immediately before the Valuation Time,
(a) the NYSE is closed to trading or trading thereon is
restricted or (b) trading or the reporting of trading on the
NYSE or elsewhere is disrupted, so that accurate appraisal of
the net value of Target and the NAV for Acquiring Fund is
impracticable, the Effective Time shall be postponed until the
first business day after the day when such trading shall have
been fully resumed and such reporting shall have been
restored.
3.2. Target shall deliver to the Trust at the Closing a schedule of
its Assets as of the Effective Time, which shall set forth for
all portfolio securities included therein their adjusted tax
bases and holding periods by lot. Target's custodian shall
deliver at the Closing a certificate of an authorized officer
stating that (a) the Assets held by the custodian will be
transferred to Acquiring Fund at the Effective Time and (b)
all necessary taxes in conjunction with the delivery of the
Assets, including all applicable federal and state stock
transfer stamps, if any, have been paid or provision for
payment has been made.
3.3. The Transfer Agent shall deliver at the Closing a certificate
as to the opening on Acquiring Fund's share transfer books of
accounts in the names of Target's Shareholders. The Trust
shall issue and deliver a confirmation to Target evidencing
3
Acquiring Fund's Shares to be credited to Target at the
Effective Time or provide evidence satisfactory to Target that
Acquiring Fund's Shares have been credited to Target's account
on Acquiring Fund's books. At the Closing, each party shall
deliver to the other such bills of sale, checks, assignments,
stock certificates, receipts, or other documents as the other
party or its counsel may reasonably request.
3.4. The Trust, on behalf of Target and Acquiring Fund,
respectively, shall deliver at the Closing a certificate
executed in its name by its President or a Vice President and
dated as of the Effective Time, to the effect that the
representations and warranties it made in this Agreement are
true and correct in all material respects at the Effective
Time, with the same force and effect as if made at and as of
the Effective Time, except as they may be affected by the
transactions contemplated by this Agreement.
4. REPRESENTATIONS AND WARRANTIES
4.1. Target represents and warrants as follows:
4.1.1. At the Closing, Target will have good and marketable
title to its Assets and full right, power, and
authority to sell, assign, transfer, and deliver its
Assets free of any liens or other encumbrances; and
upon delivery and payment for the Assets, Acquiring
Fund will acquire good and marketable title thereto;
4.1.2. Acquiring Fund's Shares are not being acquired for
the purpose of making any distribution thereof, other
than in accordance with the terms hereof;
4.1.3. Target's current prospectus and statement of
additional information conform in all material
respects to the applicable requirements of the
Securities Act of 1933, as amended (the "1933 Act"),
and the Investment Company Act of 1940, as amended
(the "1940 Act"), and the rules and regulations
thereunder, and do not include any untrue statement
of a material fact or omit any 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;
4.1.4. Target is not in violation of, and the execution and
delivery of this Agreement and consummation of the
transactions contemplated hereby will not (a)
conflict with or violate Delaware law or any
provision of the Trust's Trust Instrument or By-laws
or of any agreement, instrument, lease, or other
undertaking to which Target is a party or by which it
is bound or (b) result in the acceleration of any
obligation, or the imposition of any penalty, under
any agreement, judgment, or decree to which Target is
a party or by which it is bound, except as previously
disclosed in writing to and accepted by the Trust;
4.1.5. Except as otherwise disclosed in writing to and
accepted by the Trust, all material contracts and
other commitments of or applicable to Target (other
than this Agreement and investment contracts,
including options and futures) will be terminated, or
provision for discharge of any liabilities of Target
thereunder will be made, at or prior to the Effective
Time, without Target incurring any liability or
penalty with respect thereto and without diminishing
or releasing any rights
4
Target may have had with respect to actions taken or
not taken by any other party thereto prior to the
Closing;
4.1.6. Except as otherwise disclosed in writing to and
accepted by the Trust on behalf of Acquiring Fund, no
litigation, administrative proceeding, or
investigation of or before any court or governmental
body is presently pending or (to Target's knowledge)
threatened against Target or any of its properties or
assets that, if adversely determined, would
materially and adversely affect Target's financial
condition or the conduct of its business; Target
knows of no facts that might form the basis for the
institution of any such litigation, proceeding, or
investigation and is not a party to or subject to the
provisions of any order, decree, or judgment of any
court or governmental body that materially or
adversely affects its business or its ability to
consummate the transactions contemplated hereby;
4.1.7. The execution, delivery, and performance of this
Agreement has been duly authorized as of the date
hereof by all necessary action on the part of the
Trust's Board of Trustees on behalf of Target, which
has made the determinations required by Rule 17a-8(a)
under the 1940 Act; and, subject to approval by
Target's shareholders and receipt of any necessary
exemptive relief or no-action assurances requested
from the Securities and Exchange Commission ("SEC")
or its staff with respect to Sections 17(a) and 17(d)
of the 1940 Act, this Agreement will constitute a
valid and legally binding obligation of Target,
enforceable in accordance with its terms, except as
the same may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium, and
similar laws relating to or affecting creditors'
rights and by general principles of equity;
4.1.8. At the Effective Time, the performance of this
Agreement shall have been duly authorized by all
necessary action by Target's shareholders;
4.1.9. No governmental consents, approvals, authorizations,
or filings are required under the 1933 Act, the
Securities Exchange Act of 1934, as amended ("1934
Act"), or the 1940 Act for the execution or
performance of this Agreement by Target, except for
(a) a proxy statement ("Proxy Statement"), the
information for which is included in a combined
prospectus and proxy statement filed by Acquiring
Fund with the SEC on Form N-14, (b) receipt of the
exemptive relief or no-action assurances referenced
in subparagraph 4.1.7, and (c) such consents,
approvals, authorizations, and filings as have been
made or received or as may be required subsequent to
the Effective Time;
4.1.10. On the effective date of the Registration Statement,
at the time of the shareholders' meeting referred to
in paragraph 5.2, and at the Effective Time, the
Proxy Statement will (a) comply in all material
respects with the applicable provisions of the 1933
Act, the 1934 Act, and the 1940 Act and the rules and
regulations thereunder and (b) not contain any untrue
statement of a material fact or omit any material
fact required to be stated therein or necessary to
make the statements therein, in light of the
circumstances under which such statements were made,
not misleading. This provision shall not apply to
statements in or
5
omissions from the Proxy Statement made in reliance
on and in conformity with information furnished by
the Trust for use therein.
4.2. Acquiring Fund represents and warrants as follows:
4.2.1. Acquiring Fund's Shares to be issued and delivered to
Target hereunder will, at the Effective Time, have
been duly authorized and, when issued and delivered
as provided herein, will be duly and validly issued
and outstanding shares of Acquiring Fund, fully paid
and nonassessable by the Trust (except as disclosed
in the Trust's then current prospectus and statement
of additional information). Except as contemplated by
this Agreement, Acquiring Fund does not have
outstanding any options, warrants, or other rights to
subscribe for or purchase any of its shares, nor is
there outstanding any security convertible into any
of its shares;
4.2.2. Acquiring Fund's current prospectus and statement of
additional information conform in all material
respects to the applicable requirements of the 1933
Act and the 1940 Act and the rules and regulations
thereunder and do not include any untrue statement of
a material fact or omit any 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;
4.2.3. Acquiring Fund is not in violation of, and the
execution and delivery of this Agreement and
consummation of the transactions contemplated hereby
(a) will not conflict with or violate Delaware law or
any provision of the Trust's Trust Instrument or
By-laws or any provision of any agreement,
instrument, lease, or other undertaking to which
Acquiring Fund is a party or by which it is bound or
(b) result in the acceleration of any obligation, or
the imposition of any penalty, under any agreement,
judgment, or decree to which Acquiring Fund is a
party or by which it is bound, except as previously
disclosed in writing to and accepted by the Trust;
4.2.4. Except as otherwise disclosed in writing to and
accepted by the Trust on behalf of Target, no
litigation, administrative proceeding, or
investigation of or before any court or governmental
body is presently pending or (to Acquiring Fund's
knowledge) threatened against the Trust with respect
to Acquiring Fund or any of its properties or assets
that, if adversely determined, would materially and
adversely affect Acquiring Fund's financial condition
or the conduct of its business; Acquiring Fund knows
of no facts that might form the basis for the
institution of any such litigation, proceeding, or
investigation and is not a party to or subject to the
provisions of any order, decree, or judgment of any
court or governmental body that materially or
adversely affects its business or its ability to
consummate the transactions contemplated hereby;
4.2.5. The execution, delivery, and performance of this
Agreement has been duly authorized as of the date
hereof by all necessary action on the part of the
Trust's Board of Trustees on behalf of Acquiring
Fund, which has made the
6
determinations required by Rule 17a-8(a) under the
1940 Act; and, subject to receipt of any necessary
exemptive relief or no-action assurances requested
from the SEC or its staff with respect to Sections
17(a) and 17(d) of the 1940 Act, this Agreement will
constitute a valid and legally binding obligation of
Acquiring Fund, enforceable in accordance with its
terms, except as the same may be limited by
bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium, and similar laws relating
to or affecting creditors' rights and by general
principles of equity;
4.2.6. No governmental consents, approvals, authorizations,
or filings are required under the 1933 Act, the 1934
Act, or the 1940 Act for the execution or performance
of this Agreement by the Trust, except for (a) the
filing with the SEC of the Registration Statement and
a post-effective amendment to the Trust's
registration statement on Form N-14, (b) receipt of
the exemptive relief or no-action assurances
referenced in subparagraph 4.2.5, and (c) such
consents, approvals, authorizations, and filings as
have been made or received or as may be required
subsequent to the Effective Time;
4.3. The Trust, on behalf of each Fund, represents and warrants to
the other as follows:
4.3.1. The Trust is a business trust that is duly organized,
validly existing, and in good standing under the laws
of the State of Delaware; and a copy of its
Certificate of Trust is on file with the Secretary of
the State of Delaware;
4.3.2. The Trust is duly registered as an open-end
management investment company under the 1940 Act, and
such registration will be in full force and effect at
the Effective Time;
4.3.3. Each Fund is a duly established and designated series
of the Trust.
5. COVENANTS
5.1. Each Fund covenants to operate its respective business in the
ordinary course between the date hereof and the Closing, it
being understood that (a) such ordinary course will include
declaring and paying customary dividends and other
distributions and such changes in operations as are
contemplated by each Fund's normal business activities and (b)
each Fund will retain exclusive control of the composition of
its portfolio until the Closing, provided that Target shall
not dispose of more than an insignificant portion of its
historic business assets during such period without Acquiring
Fund's prior consent.
5.2. Target covenants to call a special meeting of shareholders to
consider and act upon this Agreement and to take all other
action necessary to obtain approval of the transactions
contemplated hereby.
5.3. Target covenants that Acquiring Fund's Shares to be delivered
hereunder are not being acquired for the purpose of making any
distribution thereof, other than in accordance with the terms
hereof.
7
5.4. Target covenants that it will assist the Trust in obtaining
such information as the Trust reasonably requests concerning
the beneficial ownership of Target's Shares.
5.5. Target covenants that its books and records (including all
books and records required to be maintained under the 1940 Act
and the rules and regulations thereunder) will be turned over
to the Trust at the Closing.
5.6. Each Fund covenants to cooperate in preparing the Proxy
Statement in compliance with applicable federal securities
laws.
5.7. Each Fund covenants that it will, from time to time, as and
when requested by the other Fund, execute and deliver or cause
to be executed and delivered all such assignments and other
instruments, and will take or cause to be taken such further
action, as the other Fund may deem necessary or desirable in
order to vest in, and confirm to (a) Acquiring Fund, title to
and possession of all Target's Assets, and (b) Target, title
to and possession of Acquiring Fund's Shares to be delivered
hereunder, and otherwise to carry out the intent and purpose
hereof.
5.8. Acquiring Fund covenants to use all reasonable efforts to
obtain the approvals and authorizations required by the 1933
Act, the 1940 Act, and such state securities laws as it may
deem appropriate in order to continue its operations after the
Effective Time.
5.9. Subject to this Agreement, each Fund covenants to take or
cause to be taken all actions, and to do or cause to be done
all things, reasonably necessary, proper, or advisable to
consummate and effectuate the transactions contemplated
hereby.
6. CONDITIONS PRECEDENT
6.1. Each Fund's obligations hereunder shall be subject to (a)
performance by the other Fund of all the obligations to be
performed hereunder at or before the Effective Time, (b) all
representations and warranties of the other Fund contained
herein being true and correct in all material respects as of
the date hereof and, except as they may be affected by the
transactions contemplated hereby, as of the Effective Time,
with the same force and effect as if made at and as of the
Effective Time, and (c) the following further conditions that,
at or before the Effective Time:
6.1.1. This Agreement and the transactions contemplated
hereby shall have been duly adopted and approved by
the Trust's Board of Trustees on behalf of Target and
Acquiring Fund and shall have been approved by
Target's shareholders in accordance with applicable
law.
6.1.2. All necessary filings shall have been made with the
SEC and state securities authorities, and no order or
directive shall have been received that any other or
further action is required to permit the parties to
carry out the transactions contemplated hereby. The
Registration Statement shall have become effective
under the 1933 Act, no stop orders suspending the
effectiveness thereof shall have been issued, and the
SEC shall not have issued an unfavorable report with
respect
8
to the Reorganization under Section 25(b) of the 1940
Act nor instituted any proceedings seeking to enjoin
consummation of the transactions contemplated hereby
under Section 25(c) of the 1940 Act. All consents,
orders, and permits of federal, state, and local
regulatory authorities (including the SEC and state
securities authorities) deemed necessary by either
Fund to permit consummation, in all material
respects, of the transactions contemplated hereby
shall have been obtained, except where failure to
obtain the same would not involve a risk of a
material adverse effect on the assets or properties
of the Fund.
6.1.3. At the Effective Time, no action, suit, or other
proceeding shall be pending before any court or
governmental agency in which it is sought to restrain
or prohibit, or to obtain damages or other relief in
connection with, the transactions contemplated
hereby.
6.1.4. Target shall have received an opinion of Xxxxxx Xxxxx
Xxxxxxxx & Xxxxxxx LLP, counsel to the Trust
("Counsel"), substantially to the effect that:
6.1.4.1. Acquiring Fund is a validly existing series
of the Trust, a business trust duly formed
and validly existing and in good standing
under the laws of the State of Delaware with
the power under its Trust Instrument to
carry on its business and to own all of its
properties and assets;
6.1.4.2. This Agreement (a) has been duly authorized
and executed by the Trust on behalf of
Acquiring Fund and (b) assuming due
authorization, execution, and delivery of
this Agreement by Target, is a legal, valid
and binding obligation of Acquiring Fund,
enforceable against Acquiring Fund in
accordance with its terms, except as such
enforceability may be limited by (i)
bankruptcy, insolvency, reorganization,
receivership, fraudulent conveyance,
moratorium or other laws of general
application relating to or affecting the
enforcement of creditors' rights and
remedies, as from time to time in effect,
(ii) application of equitable principles
(regardless of whether such enforceability
is considered in a proceeding in equity or
at law) and (iii) principles of course of
dealing or course of performance and
standards of good faith, fair dealing,
materiality and reasonableness that may be
applied by a court to the exercise of rights
and remedies;
6.1.4.3. Acquiring Fund's Shares to be issued and
delivered to the Shareholders under this
Agreement, assuming their due delivery as
contemplated by this Agreement, will be duly
authorized and validly issued and
outstanding and fully paid and nonassessable
(except as disclosed in the Trust's then
current prospectus and statement of
additional information);
6.1.4.4. The execution and delivery of this Agreement
did not, and the consummation of the
transactions contemplated hereby will not
(a) materially violate the Trust's Trust
Instrument or By-laws or any provision of
any agreement to which the Trust (with
respect to Acquiring Fund) is a party or by
which it is bound or (b) to the knowledge of
Counsel, result in
9
the acceleration of any obligation, or the
imposition of any penalty, under any
agreement, judgment, or decree known to
Counsel to which the Trust (with respect to
Acquiring Fund) is a party or by which it
(with respect to Acquiring Fund) is bound,
except as set forth in such opinion or as
previously disclosed in writing to and
accepted by the Trust;
6.1.4.5. To the knowledge of Counsel, no consent,
approval, authorization or order of any
Delaware or Federal Court or governmental
authority of the State of Delaware or the
United States of America is required for the
consummation by the Trust on behalf of
Acquiring Fund, of the transactions
contemplated by the Agreement, except such
as may be required under the 1933 Act, the
1934 Act and the 1940 Act and under
securities laws of states other than the
State of Delaware;
6.1.4.6. The Trust is registered with the SEC as an
investment company, and to the knowledge of
Counsel no order has been issued or
proceeding instituted to suspend such
registration; and
6.1.4.7. To the knowledge of Counsel, (a) no
litigation, administrative proceeding, or
investigation of or before any court or
governmental body is pending or threatened
as to the Trust (with respect to Acquiring
Fund) or any of its properties or assets
attributable or allocable to Acquiring Fund
and (b) the Trust (with respect to Acquiring
Fund) is not 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 Acquiring
Fund's business, except as set forth in such
opinion or as otherwise disclosed in writing
to and accepted by the Trust.
In rendering such opinion, Counsel may (i) rely, as to matters
governed by the laws of the State of Delaware, on an opinion
of competent Delaware counsel, (ii) make assumptions regarding
the authenticity, genuineness, and/or conformity of documents
and copies thereof without independent verification thereof,
and other customary assumptions as the parties may agree,
(iii) limit such opinion to applicable federal and state law,
(iv) define the word "knowledge" and related terms to mean the
knowledge of attorneys then with such firm who have devoted
substantive attention to matters directly related to this
Agreement and the Reorganization; and (v) rely on certificates
of officers or trustees of the Trust, in each case reasonably
acceptable to the Trust.
6.1.5. Acquiring Fund shall have received an opinion of Counsel,
substantially to the effect that:
6.1.5.1. Target is a validly existing series of the Trust, a
business trust duly organized and validly existing
and in good standing under the laws of the State of
Delaware with power under its Trust Instrument to own
all of its properties and assets and, to the
knowledge of Counsel, to carry on its business as
presently conducted;
10
6.1.5.2. This Agreement (a) has been duly authorized and
executed by the Trust on behalf of Target and (b)
assuming due authorization, execution, and delivery
of this Agreement by the Trust on behalf of Acquiring
Fund, is a legal, valid and binding obligation of
Target, enforceable against Target in accordance with
its terms, except as such enforceability may be
limited by (i) bankruptcy, insolvency,
reorganization, receivership, fraudulent conveyance,
moratorium or other laws of general application
relating to or affecting the enforcement of
creditors' rights and remedies, as from time to time
in effect, (ii) application of equitable principles
(regardless of whether such enforceability is
considered in a proceeding in equity or at law) and
(iii) principles of course of dealing or course of
performance and standards of good faith, fair
dealing, materiality and reasonableness that may be
applied by a court to the exercise of rights and
remedies;
6.1.5.3. The execution and delivery of this Agreement did not,
and the consummation of the transactions contemplated
hereby will not, (a) materially violate the Trust's
Trust Instrument or By-laws or any provision of any
agreement known to Counsel, to which the Trust (with
respect to Target) is a party or by which it is bound
or (b) to the knowledge of such counsel, result in
the acceleration of any obligation, or the imposition
of any penalty, under any agreement, judgment, or
decree known to Counsel to which the Trust (with
respect to Target) is a party or by which it (with
respect to Target) is bound, except as set forth in
such opinion or as previously disclosed in writing to
and accepted by the Trust;
6.1.5.4. To the knowledge of Counsel, no consent, approval,
authorization or order of any Delaware or Federal
Court or governmental authority of the State of
Delaware or the United States of America is required
for the consummation by the Trust on behalf of
Target, of the transactions contemplated by the
Agreement, except such as may be required under the
1933 Act, the 1934 Act and the 1940 Act and under
securities laws of states other than the State of
Delaware;
6.1.5.5. The Trust is registered with the SEC as an investment
company, and to the knowledge of Counsel no order has
been issued or proceeding instituted to suspend such
registration; and
6.1.5.6. To the knowledge of Counsel, (a) no litigation,
administrative proceeding, or investigation of or
before any court or governmental body is pending or
threatened as to the Trust (with respect to Target)
or any of its properties or assets attributable or
allocable to Target and (b) the Trust (with respect
to Target) is not 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 Target's business, except as set
forth in such opinion or as otherwise disclosed in
writing to and accepted by the Trust.
11
In rendering such opinion, Counsel may (i) rely, as to matters
governed by the laws of the State of Delaware, on an opinion
of competent Delaware counsel, (ii) make assumptions regarding
the authenticity, genuineness, and/or conformity of documents
and copies thereof without independent verification thereof,
and other customary assumptions as the parties may agree,
(iii) limit such opinion to applicable federal and state law,
(iv) define the word "knowledge" and related terms to mean the
knowledge of attorneys then with such firm who have devoted
substantive attention to matters directly related to this
Agreement and the Reorganization, and (v) rely on certificates
of officers or trustees of Target; in each case reasonably
acceptable to the Trust.
6.1.6. The Trust, on behalf of Target and Acquiring Fund, shall have
received an opinion of Counsel addressed to and in form and
substance reasonably satisfactory to it, as to the federal
income tax consequences of the Reorganization ("Tax Opinion").
In rendering the Tax Opinion, Counsel may rely as to factual
matters, exclusively and without independent verification, on
the representations made in this Agreement (and/or in separate
letters addressed to Counsel) and each Fund's separate
covenants. Each Fund agrees to make reasonable covenants and
representations as to factual matters as of the Effective Time
in connection with the rendering of such opinion. The Tax
Opinion shall be substantially to the effect that, based on
the facts and assumptions stated therein and conditioned on
consummation of the Reorganization in accordance with this
Agreement, for federal income tax purposes:
6.1.6.1. The Reorganization will constitute a reorganization
within the meaning of section 368(a)(1) of the Code,
and each Fund will be "a party to a reorganization"
within the meaning of section 368(b) of the Code;
6.1.6.2. No gain or loss will be recognized by Target on the
transfer to Acquiring Fund of Assets in exchange
solely for Acquiring Fund's Shares and Acquiring
Fund's assumption of Liabilities or on the subsequent
distribution of those shares to the Shareholders in
liquidation of Target;
6.1.6.3. No gain or loss will be recognized by Acquiring Fund
on its receipt of Assets in exchange solely for
Acquiring Fund's Shares and its assumption of
Liabilities;
6.1.6.4. Acquiring Fund's adjusted tax basis in the Assets
acquired will be equal to the basis thereof in
Target's hands immediately before the Reorganization,
and Acquiring Fund's holding period for the Assets
will include Target's holding period therefor;
6.1.6.5. A Shareholder will recognize no gain or loss on the
exchange of Target Shares solely for Acquiring Fund's
Shares pursuant to the Reorganization; and
12
6.1.6.6. A Shareholder's aggregate tax basis in Acquiring
Fund's Shares received by it in the Reorganization
will equal its aggregate tax basis in its Target
Shares surrendered in exchange therefor, and its
holding period for Acquiring Fund Shares will include
its holding period for Target Shares, provided Target
Shares are held as capital assets by the Shareholder
at the Effective Time.
6.2. At any time before the Closing, either Fund may waive any of
the foregoing conditions if, in the judgment of the Trust's
Board of Trustees, such waiver will not have a material
adverse effect on its shareholders' interests.
7. BROKERAGE FEES AND EXPENSES
7.1. The Trust, on behalf of each Fund, represents and warrants
that there are no brokers or finders entitled to receive any
payments in connection with the transactions provided for
herein.
7.2. The Funds will be responsible for paying pro rata one-half of
the expenses incurred in connection with the Reorganization.
8. ENTIRE AGREEMENT; SURVIVAL
8.1. Neither party has made any representation, warranty, or
covenant not set forth herein, and this Agreement constitutes
the entire agreement between the parties. The representations,
warranties, and covenants contained herein or in any document
delivered pursuant hereto or in connection herewith shall
survive the Closing.
9. TERMINATION OF AGREEMENT
9.1. This Agreement may be terminated at any time at or prior to
the Effective Time, whether before or after approval by
Target's Shareholders:
9.1.1. By either Fund (a) in the event of a material breach
of any representation, warranty, or covenant
contained herein to be performed at or prior to the
Effective Time, (b) if a condition to its obligations
has not been met and it reasonably appears that such
condition will not or cannot be met, or (c) if the
Closing has not occurred on or before October 5,
2001; or
9.1.2. By the parties' mutual agreement.
9.2. In the event of termination under paragraphs 9.1.1(a), (b) or
(c) or 9.1.2, there shall be no liability for damages on the
part of either Fund affected by the termination, or the
trustees or officers of the Trust, to the other Fund.
10. AMENDMENT
10.1. This Agreement may be amended, modified, or supplemented at
any time, notwithstanding approval thereof by Target's
Shareholders, in such manner as may be
13
mutually agreed upon in writing by the parties; provided that
following such approval no such amendment shall have a
material adverse effect on such Shareholders' interests.
11. MISCELLANEOUS
11.1. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware;
provided that, in the case of any conflict between such laws
and the federal securities laws, the latter shall govern.
11.2. Nothing expressed or implied herein is intended or shall be
construed to confer upon or give any person, firm, trust, or
corporation other than the parties and their respective
successors and assigns any rights or remedies under or by
reason of this Agreement.
11.3. The parties acknowledge that the Trust is a business trust.
Notice is hereby given that this instrument is executed on
behalf of the Trust's Trustees solely in their capacity as
trustees, and not individually, and that the Trust's
obligations under this instrument on behalf of each Fund are
not binding on or enforceable against any of its trustees,
officers, or shareholders, but are only binding on and
enforceable against the respective Funds' assets and property.
Each Fund agrees that, in asserting any rights or claims under
this Agreement, it shall look only to the corresponding Fund's
assets and property in settlement of such rights or claims and
not to such Trustees or shareholders or to the assets of any
other series of the Trust.
11.4. The Trust agrees to indemnify and hold harmless each Trustee
of the Trust at the time of the execution of this Agreement
against expenses, including reasonable attorneys' fees,
judgments, fines and amounts paid in settlement, actually and
reasonably incurred by such Trustee in connection with any
claim that is asserted against such trustee arising out of
such person's service as a Trustee of the Trust, provided that
such indemnification shall be limited to the full extent of
the indemnification that is available to the Trustees of the
Trust pursuant to the provisions of the Trust's Trust
Instrument and applicable law.
11.5 The Trust, on behalf of each Fund, hereby waives any conflict
arising out of the representation of each Fund by counsel.
14
IN WITNESS WHEREOF, each party has caused this Agreement to be executed
by its duly authorized officer.
ATTEST: THE VICTORY PORTFOLIOS, on behalf of
the U.S. Government Obligations Fund
By: _________________________________ By: ________________________________
Name Name
Title Title
ATTEST: THE VICTORY PORTFOLIOS, on behalf of
the Gradison Government Reserves Fund
By: _________________________________ By: ________________________________
Name Name
Title Title
15
