SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
FRANKLIN RESOURCES, INC.
(Name of Registrant as Specified In Its Charter)
...................................................................
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
..............................................................
2) Aggregate number of securities to which transaction applies:
..............................................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
..............................................................
4) Proposed maximum aggregate value of transaction:
..............................................................
5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
1) Amount Previously Paid:
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4) Date Filed: [ ]
FRANKLIN RESOURCES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DEAR STOCKHOLDER:
The Board of Directors of Franklin Resources, Inc. invites you to attend the
annual meeting of stockholders (the "Annual Meeting"). The Annual Meeting will
be held on January 29, 2004 at 10:00 a.m., Pacific Standard Time, in the H. L.
Jamieson Auditorium, at One Franklin Parkway, Building 920, San Mateo,
California, for the following purposes:
1. To elect eleven (11) Directors to the Board of Directors. Each Director
will hold office until the next Annual Meeting of Stockholders or until
that person's successor is elected and qualified;
2. To ratify the appointment of PricewaterhouseCoopers LLP as the Company's
independent auditors for the current fiscal year ending September 30, 2004;
3. To approve the adoption of the 2004 Key Executive Incentive Compensation
Plan;
4. To approve the Amended and Restated Annual Incentive Compensation Plan; and
5. To transact such other business that may be raised at the Annual Meeting or
any adjournments or postponements of the Annual Meeting.
You must own shares at the close of business on December 1, 2003 to be entitled
to receive notice of, and to vote on, all matters presented at the Annual
Meeting. Your vote is very important. Even if you think that you will attend the
Annual Meeting, we ask you to please return the proxy card. You can vote by
telephone, over the Internet, or by using the proxy card that is enclosed.
By order of the Board of Directors,
BARBARA J. GREEN
Secretary
December 26, 2003
San Mateo, California
PLEASE VOTE BY TELEPHONE OR BY USING THE INTERNET AS INSTRUCTED ON THE ENCLOSED
PROXY CARD OR COMPLETE, SIGN AND RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE.
TABLE OF CONTENTS
SECTION PAGE
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING COVER PAGE
PROXY STATEMENT 1
VOTING INFORMATION 1
PROPOSAL NO. 1: ELECTION OF DIRECTORS 3
NOMINEES 3
INFORMATION ABOUT THE BOARD AND ITS COMMITTEES 5
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS 10
SECURITY OWNERSHIP OF MANAGEMENT 11
EXECUTIVE COMPENSATION 13
SUMMARY COMPENSATION TABLE 13
OPTION GRANTS IN LAST FISCAL YEAR 15
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES 15
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL
ARRANGEMENTS 16
COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION 17
REPORT OF THE AUDIT COMMITTEE 21
FEES PAID TO INDEPENDENT AUDITORS 22
EQUITY COMPENSATION PLAN INFORMATION 23
PERFORMANCE GRAPH 24
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 25
SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE 26
PROPOSAL NO. 2: RATIFICATION OF THE APPOINTMENT OF
INDEPENDENT AUDITORS 27
PROPOSAL NO. 3: APPROVAL OF THE 2004 KEY EXECUTIVE INCENTIVE
COMPENSATION PLAN 28
PROPOSAL NO. 4: APPROVAL OF THE AMENDED AND RESTATED
ANNUAL INCENTIVE COMPENSATION PLAN 31
STOCKHOLDER PROPOSALS 34
THE ANNUAL REPORT 34
APPENDIX A: AUDIT COMMITTEE CHARTER 35
APPENDIX B: COMPENSATION COMMITTEE CHARTER 38
APPENDIX C: CORPORATE GOVERNANCE COMMITTEE CHARTER 40
APPENDIX D: CORPORATE GOVERNANCE GUIDELINES 42
APPENDIX E: 2004 KEY EXECUTIVE INCENTIVE COMPENSATION PLAN 46
APPENDIX F: AMENDED AND RESTATED ANNUAL INCENTIVE
COMPENSATION PLAN 52
FRANKLIN RESOURCES, INC.
ONE FRANKLIN PARKWAY
SAN MATEO, CALIFORNIA 94403
PROXY STATEMENT
DECEMBER 26, 2003
This Proxy Statement and the accompanying Notice of Annual Meeting are furnished
in connection with the solicitation by the Board of Directors of Franklin
Resources, Inc., a Delaware corporation ("Franklin" or the "Company"), of the
accompanying proxy, to be voted at the Annual Meeting of Stockholders (the
"Annual Meeting"), which will be held on January 29, 2004, at 10:00 a.m.,
Pacific Standard Time, in the H. L. Jamieson Auditorium, One Franklin Parkway,
Building 920, San Mateo, California. We expect that this Proxy Statement and the
enclosed proxy will be mailed on or about December 26, 2003 to each stockholder
entitled to vote. The term "Franklin Templeton Investments" as used in this
Proxy Statement, refers to Franklin Resources, Inc. and its consolidated
subsidiaries.
VOTING INFORMATION
WHO CAN VOTE?
You may vote if you were a stockholder of record and owned shares at the close
of business on December 1, 2003 (the "Record Date"). You are entitled to one
vote for each share owned on that date on each matter presented in person or by
proxy at the meeting. As of the Record Date, Franklin had 248,473,077 shares
outstanding.
HOW MANY VOTES DO YOU NEED TO HOLD THE MEETING?
In order to take any action at the Annual Meeting, a majority of Franklin's
outstanding shares as of the Record Date must be present at the meeting. This is
called a quorum.
WHO COUNTS THE VOTES?
Our Transfer Agent, The Bank of New York, will count the votes.
WHAT IS A PROXY?
A "proxy" allows someone else (the "proxy holder") to vote your shares on your
behalf. The Board of Directors of Franklin ("Board of Directors" or "Board") is
asking you to allow the people named on the proxy card (Charles B. Johnson, the
Chief Executive Officer; Martin L. Flanagan, President; and Barbara J. Green,
the Secretary) to vote your shares at the Annual Meeting.
HOW DO I VOTE BY PROXY?
Whether you hold shares directly as a stockholder of record or beneficially in
street name, you may vote without attending the meeting. You may vote by
granting a proxy or, for shares held in street name, by submitting voting
instructions to your stockbroker or nominee. You will be able to do this by
telephone, using the Internet or by mail. The deadline for voting by telephone
or by using the Internet is 11:59 p.m., Eastern Standard Time, on January 28,
2004. Please see your proxy card or the information your bank,
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broker, or other holder of record provided to you for more information on these
options. Unless you indicate otherwise on your proxy card, the persons named as
your proxy holders on the proxy card will vote your shares FOR all nominees to
the Board of Directors, FOR the ratification of the appointment of
PricewaterhouseCoopers LLP as independent auditors for the fiscal year ending
September 30, 2004, FOR approval of the 2004 Key Executive Incentive
Compensation Plan, and FOR approval of the Amended and Restated Annual Incentive
Compensation Plan.
CAN I CHANGE OR REVOKE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. You can change or revoke your proxy by submitting another proxy with a
later date before the beginning of the Annual Meeting. You may also revoke your
proxy by attending the Annual Meeting and voting in person.
CAN I VOTE IN PERSON AT THE ANNUAL MEETING INSTEAD OF VOTING BY PROXY?
Yes. However, we encourage you to complete and return the enclosed proxy card to
ensure that your shares are represented and voted.
HOW ARE VOTES COUNTED?
To be counted as "represented", either a proxy card must have been returned for
those shares, or the stockholder must be present at the meeting. Under New York
Stock Exchange ("NYSE") rules, the proposals to elect Directors (Proposal No. 1)
and to ratify the appointment of the independent auditors (Proposal No. 2) are
considered "discretionary" items. This means that brokerage firms may vote in
their discretion on these matters on behalf of clients who have not furnished
voting instructions at least 15 days before the date of the Annual Meeting. In
contrast, the proposals for approval of the 2004 Key Executive Incentive
Compensation Plan (Proposal No. 3) and approval of the Amended and Restated
Annual Incentive Compensation Plan (Proposal No. 4) are "non-discretionary"
items. This means brokerage firms that have not received voting instructions
from their clients may not vote on this proposal. Broker "non-votes" are
considered as represented for purposes of determining a quorum, but will not be
considered as entitled to vote with respect to Proposal No. 3 and Proposal No.
4.
WHAT IS THE VOTING REQUIREMENT TO APPROVE EACH OF THE PROPOSALS?
For the election of Directors, a plurality of the votes cast is required
(Proposal No. 1). This means that the eleven (11) candidates who receive the
most votes will be elected to the eleven (11) available positions on the Board.
An affirmative vote of the holders of shares of common stock, having a majority
of the votes present in person or represented by proxy at the Annual Meeting and
entitled to vote on the matters, are necessary to approve the appointment of
PricewaterhouseCoopers LLP (Proposal No. 2), the 2004 Key Executive Incentive
Compensation Plan (Proposal No. 3) and the Amended and Restated Annual Incentive
Compensation Plan (Proposal No. 4). Shares properly voted "ABSTAIN" on a
particular matter are considered as shares present at the meeting for quorum
purposes, but are treated as having voted against the matter.
WHO PAYS FOR THIS PROXY SOLICITATION?
Your proxy is solicited by the Board of Directors of Franklin. Franklin pays the
cost of soliciting your proxy and reimburses brokerage costs and other fees for
forwarding proxy materials to you.
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PROPOSAL NO. 1
--------------
ELECTION OF DIRECTORS
NOMINEES
The following eleven (11) persons are nominated for election as members of the
Board of Directors of Franklin Resources, Inc. All nominees are currently
directors. If elected, each director will serve until the next Annual Meeting of
Stockholders or until that person's successor is elected and qualified. Unless
you mark "Exceptions" on your proxy card to withhold authority to vote for one
or all of these directors, the persons named as proxy holders intend to vote for
all of these nominees. Listed below are the names, ages, and principal
occupations for the past five years of the director nominees.
HARMON E. BURNS
AGE 58
DIRECTOR SINCE 1991
Vice Chairman and Member - Office of the Chairman of the Company; formerly,
Executive Vice President and director of the Company for more than the past five
(5) years; officer and/or director of many other Company subsidiaries; officer
and/or director or trustee in 49 investment companies of Franklin Templeton
Investments.
CHARLES CROCKER
AGE 64
DIRECTOR SINCE 2003
Chairman, Chief Executive Officer and director of BEI Technologies, Inc. since
2000; Chairman, President and Chief Executive Officer of BEI Technologies, Inc.
since 1997. Principal of Crocker Capital. Director, Pope & Talbot, Inc.,
Teledyne Technologies, Inc. and Fiduciary Trust Company International, a
subsidiary of the Company.
ROBERT D. JOFFE
AGE 60
DIRECTOR SINCE 2003
Presiding Partner and partner of Cravath, Swaine & Moore, LLP for more than the
past five (5) years. Director of Fiduciary Trust Company International, a
subsidiary of the Company.
CHARLES B. JOHNSON
AGE 70
DIRECTOR SINCE 1969
Chairman of the Board, Chief Executive Officer and Member - Office of the
Chairman of the Company for the past five (5) years; officer and/or director of
many other Company subsidiaries; officer and/or director or trustee in 46
investment companies of Franklin Templeton Investments. Effective January 1,
2004, Mr. C. Johnson will no longer serve as Chief Executive Officer of the
Company, but will continue to serve as Chairman of the Board and a director of
the Company.
3
RUPERT H. JOHNSON, JR.
AGE 63
DIRECTOR SINCE 1969
Vice Chairman and Member - Office of the Chairman of the Company; formerly,
Executive Vice President for more than the past five (5) years; officer and/or
director of many other Company subsidiaries; officer and/or director or trustee
in 49 investment companies of Franklin Templeton Investments.
THOMAS H. KEAN
AGE 68
DIRECTOR SINCE 2003
President, Drew University since 1990; formerly, Governor of the State of New
Jersey from 1982 to 1990. Director, Aramark Corporation, Amerada Hess Corp., The
CIT Group, Inc., Fiduciary Trust Company International, a subsidiary of the
Company, The Pepsi Bottling Group and UnitedHealth Group Incorporated.
JAMES A. MCCARTHY
AGE 68
DIRECTOR SINCE 1997
Private investor for the past five (5) years. From 1993 to 1995, Chairman of
Merrill Lynch & Co. Investor Client Coverage Groups; formerly, Senior Vice
President of Merrill Lynch and Director, Global Institutional Sales.
CHUTTA RATNATHICAM
AGE 56
DIRECTOR SINCE 2003
Senior Vice President and Chief Financial Officer of CNF Inc. since 1997;
formerly, Chief Executive Officer of Emery Worldwide, a subsidiary of CNF Inc.
from September 2000 to December 2001; formerly, Vice President and Director of
Finance of CNF Inc. for five (5) years prior to 1997. Chartered Accountant (Sri
Lanka). Member, American Institute of Certified Management Accountants.
PETER M. SACERDOTE
AGE 66
DIRECTOR SINCE 1993
Advisory director and Chairman of the Investment Committee of the principal
investment area of Goldman, Sachs & Co. (investment banking) since May 1999;
formerly, a general partner and then a limited partner of the Goldman Sachs
Group, L.P. for five (5) years prior to 1999. Director, Qualcomm, Inc. and
Hexcel Corporation.
ANNE M. TATLOCK
AGE 64
DIRECTOR SINCE 2001
Vice Chairman and Member - Office of the Chairman of the Company since 2001;
Chairman of the Board, Chief Executive Officer (since 2000), and director of
Fiduciary Trust Company International, a subsidiary of the Company; formerly
President of Fiduciary Trust Company International for more than the past five
(5) years; officer and/or director of certain other Company subsidiaries.
Director, Fortune Brands, Inc. and Merck & Co., Inc.
4
LOUIS E. WOODWORTH
AGE 70
DIRECTOR SINCE 1981
Private investor. President, Alpine Corp., a private investment company, for the
past five (5) years.
FAMILY RELATIONS. Charles B. Johnson, the Chairman of the Board, Chief Executive
Officer and director of the Company, and Rupert H. Johnson, Jr., the Vice
Chairman and director of the Company, are brothers. Peter M. Sacerdote, a
director of the Company, is a brother-in-law of Charles B. Johnson and Rupert H.
Johnson, Jr. Gregory E. Johnson, a President of the Company, is the son of
Charles B. Johnson, the nephew of Rupert H. Johnson, Jr. and Peter Sacerdote and
the brother of Jennifer Bolt, a Senior Vice President and Chief Information
Officer of the Company. Jennifer Bolt is the daughter of Charles B. Johnson, the
niece of Rupert H. Johnson, Jr. and Peter Sacerdote and the sister of Gregory E.
Johnson.
BOARD RECOMMENDATION
The voting requirements for this proposal are described above under "Voting
Information". The Board of Directors recommends a vote "FOR" the election of
each of the nominated directors.
INFORMATION ABOUT THE BOARD AND ITS COMMITTEES
BOARD MEETINGS
The Board of Directors held eight (8) meetings (not including committee
meetings) during the fiscal year ended September 30, 2003. For the fiscal year
ended September 30, 2003, each active director attended at least seventy-five
percent (75%) of the aggregate number of meetings held by the Board. The Board
has an Audit Committee, a Compensation Committee and a Corporate Governance
Committee. To promote open discussion among the non-management directors (those
directors who are not officers or employees of the Company), the non-management
directors will meet in executive session after each regularly scheduled Board
meeting, without management. The independent directors (as defined below) will
meet in executive session a minimum of two times per year. Mr. James A.
McCarthy, an independent director, has currently been appointed to preside at
the executive sessions of the non-management and the independent directors.
COMMITTEE MEMBERSHIP AND MEETINGS
The current standing committees of the Board are the Audit Committee, the
Compensation Committee and the Corporate Governance Committee. The table below
provides current membership and meeting information.
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AUDIT COMPENSATION CORPORATE GOVERNANCE
- -------------------------------------------------------------------------------
Charles Crocker M
Robert D. Joffe M
Thomas H. Kean M M
James A. McCarthy M C
Chutta Ratnathicam C
Louis E. Woodworth M C
2003 Meetings 8 6 4
M - Member
C - Chairperson
- -------------------------------------------------------------------------------
5
Below is a description of each standing committee of the Board of Directors. The
Board of Directors has affirmatively determined that each standing committee
consists entirely of independent directors under the rules established by the
New York Stock Exchange (the "NYSE") and the Securities Exchange Act of 1934,
and the Director Independence Standards established by the Board. See also
"Director Independence Standards".
THE AUDIT COMMITTEE
The Audit Committee consists of Messrs. Ratnathicam (Chairman), McCarthy and
Woodworth. The primary purpose of the Audit Committee is to assist the Board in
fulfilling its responsibility to oversee: (1) the Company's financial reporting
and auditing activities, including the integrity of the Company's financial
statements, (2) the Company's compliance with legal and regulatory requirements,
(3) the independent auditor's qualifications and independence, and (4) the
performance of the Company's internal audit function and independent auditors.
The Audit Committee also approves services and fees of the independent auditors
and approves the annual audited financial statements for the Company subject to
the approval of the Board. The Audit Committee meets with the Company's
independent auditors and reviews the scope of their audit, report and
recommendations. The Audit Committee also is responsible for the appointment,
compensation, retention and oversight of the independent auditor.
The Audit Committee operates under a written charter adopted by the Board of
Directors. The Audit Committee met eight (8) times during fiscal year 2003. The
Audit Committee Charter is attached as Appendix A and posted on the corporate
governance section of the Company's website at WWW.FRANKLINTEMPLETON.COM (the
"Company's website"). The Board of Directors has determined that all Audit
Committee members are financially literate under the New York Stock Exchange
listing standards. Mr. Chutta Ratnathicam qualifies as an AUDIT COMMITTEE
FINANCIAL EXPERT within the meaning of the rules and regulations of the
Securities and Exchange Commission (the "SEC").
THE COMPENSATION COMMITTEE
The Compensation Committee consists of Messrs. McCarthy (Chairman), Crocker and
Kean. The Compensation Committee has the responsibilities set forth in its
charter and reviews and sets compensation for the Chief Executive Officer,
determines the general policies and guidelines for compensating other executive
officers, and performs other duties as assigned from time to time by the Board.
This Compensation Committee also administers the 2002 Universal Stock Incentive
Plan (the "2002 Stock Plan") and the Amended Annual Incentive Compensation Plan.
The Compensation Committee met six (6) times during fiscal year 2003. The
Compensation Committee Charter is attached as Appendix B and posted on the
Company's website.
THE CORPORATE GOVERNANCE COMMITTEE
The Corporate Governance Committee consists of Messrs. Woodworth (Chairman),
Joffe and Kean. The Corporate Governance Committee has the responsibilities set
forth in its charter and provides counsel to the Board of Directors with respect
to the organization and function of the Board and committees, identifies
potential director candidates and nominates members of the Board of Directors.
The Corporate Governance Committee will consider nominees recommended by
stockholders. In order for such nominees to be considered, the stockholder must
submit on or before the date that stockholder proposals are due, the name and
qualifications of the nominee addressed to: Franklin Resources, Inc., One
Franklin Parkway, San Mateo, CA 94403-1906, Attention: Corporate Governance
Committee. See "Stockholder Proposals". The
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Corporate Governance Committee is also responsible for developing and
recommending to the Board corporate governance policies and procedures
applicable to Franklin. The Corporate Governance Committee met four (4) times
during fiscal year 2003. The Corporate Governance Committee Charter is attached
as Appendix C and posted on the Company's website.
DIRECTOR FEES OVERVIEW
PAYMENTS TO DIRECTORS. During the first quarter of fiscal year 2003, directors
who were not Franklin officers were paid $7,500 per quarter, plus $3,000 per
meeting attended. An additional $1,500 per committee meeting attended is paid to
directors who serve on Board committees. Effective January 1, 2003, directors
who were not Franklin officers were paid $10,000 per quarter, plus $3,000 per
meeting and received an annual stock grant valued at $40,000 on January 30, 2003
and will receive an annual stock grant valued at $40,000 on the date of the
annual organizational meeting of the Board in subsequent fiscal years. In
addition to the per committee meeting fee of $1,500 paid to directors who serve
on Board committees, Chairpersons of the Compensation Committee and the
Corporate Governance Committee receive $1,250 per quarter and the Chairperson of
the Audit Committee will receive $2,500 per quarter. In addition, the Company
has a policy of reimbursing certain health insurance coverage for a director who
is retired from other employment and is not otherwise eligible for group health
coverage under Franklin's group health plan or any other company's health plan.
Franklin will reimburse the cost of health insurance coverage comparable to that
provided to Franklin employees. During fiscal year ended September 30, 2003, Mr.
Woodworth, a director, was reimbursed $11,420 for health insurance expenses.
DEFERRED DIRECTOR FEES. Franklin also allows directors to defer payment of their
directors' fees, and to treat the deferred amounts as hypothetical investments
in Franklin common stock. Upon termination, the number of shares of stock that
the director hypothetically purchased are added together, and Franklin must pay
the director an amount equal to the value of the hypothetical investment,
including dividend reinvestment. Either Franklin or the individual director can
terminate the fee deferral with ninety (90) days notice. Pursuant to the
Deferred Compensation Agreement for Directors Fees, as amended, Mr. Woodworth
elected to defer all of his director's fees. Messrs. Crocker and Joffe elected
to defer fifty percent (50%) of their directors' fees and receive the remainder
in cash. Mr. McCarthy elected to defer his quarterly director's fee of $10,000
and receive all meeting fees and Chairperson fees in cash.
CORPORATE GOVERNANCE OVERVIEW
The Company regularly monitors regulatory developments and reviews its policies,
processes and procedures in the area of corporate governance to respond to such
developments. As part of those efforts, we review federal laws affecting
corporate governance, such as the Sarbanes-Oxley Act of 2002 as well as rules
adopted by the Securities and Exchange Commission and the New York Stock
Exchange. Our policies are intended to align the interests of directors and
management with those of Franklin shareholders.
CORPORATE GOVERNANCE GUIDELINES. The Board has adopted Corporate Governance
Guidelines, which are attached as Appendix D. The Corporate Governance
Guidelines, which are posted on the company's website and available in print to
shareholders who request a copy, set forth the practices the Board will follow
with respect to the composition of the Board, director responsibilities, Board
committees, director access, director compensation, director orientation and
continuing education, management succession and performance evaluation of the
Board.
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DIRECTOR INDEPENDENCE STANDARDS. The Board of Directors of Franklin has adopted
guidelines for determining whether a director is independent from management.
The Board will monitor and review at least once annually commercial, charitable
and other relationships that directors have with the Company to determine
whether the Company's directors are independent.
For a director to be considered independent, the Board must determine
affirmatively that the director does not have material relationships with the
Company or senior executive officers of the Company. Such determination will be
disclosed pursuant to applicable New York Stock Exchange rules. A material
relationship can include, but is not limited to, commercial, industrial,
banking, consulting, legal, accounting, charitable and family relationships. The
Board has established the following guidelines to assist it in determining
whether a director lacks material relationships and thereby qualifies as
independent:
A. A director will not be independent if, within the preceding three
years:
1. (a) the director was employed by the Company; or
(b) an immediate family member /1/ of the director was employed
by the Company as an executive officer (Section 16 reporting
person);
2. the director (or an immediate family member who is an executive
officer (Section 16 reporting person of the Company)) received
direct compensation from the Company (other than for service as a
director, or a pension or deferred compensation) of more than
$100,000 per year;
3. (a) the director was affiliated with or was employed by the
Company's internal auditor or external independent auditor;
or
(b) an immediate family member of the director was affiliated
with or employed in a professional capacity by the Company's
internal auditor or external independent auditor;
4. an executive officer of the Company was on the compensation
committee of a company, which employed the director or an
immediate family member of the director as an executive officer;
or
5. (a) the director was an executive officer or employee of a
company that makes payments to or receives payments from the
Company of the greater of more than $1 million or 2% of the
other company's consolidated gross revenues; or
(b) an immediate family member of the director was an executive
officer of a company that makes payments to or receives
payments from the Company of the greater of more than $1
million or 2% of the Company's consolidated gross revenues.
B. The following relationships are not by themselves considered to be
material and would not by themselves impair a director's independence:
1. a director (or an immediate family member) serves as an executive
officer, employee, partner or significant owner (more than 10%)
of a company that makes payments to or receives payment from the
Company of less than $1 million or 2% of the consolidated gross
revenues of the other entity, whichever is greater;
- ------------------------
/1/ An immediate family member includes a spouse, parent, child, sibling,
father- and mother-in-law, son-and daughter-in-law, brother- and sister-in-law
and anyone (other than a domestic employee) sharing the director's home.
8
2. a director is an executive officer of another company, which is
indebted to the Company, or to which the Company is indebted, and
the total amount of either company's indebtedness to the other is
less than 2% of the total consolidated assets of the other
company;
3. a director (or an immediate family member) serves as an officer,
director or trustee of a charitable organization, and the
Company's discretionary charitable contributions to the
organization are less than the greater of more than $1,000,000 or
2% of that organization's total annual charitable receipts; or
4. a director serves as a director of a subsidiary, which is a
privately held, wholly-owned, direct or indirect subsidiary of
the Company.
C. For all relationships not specifically and clearly addressed by the
guidelines above, the determination of whether a director has a
material relationship, and therefore whether the director qualifies as
independent or not, shall be made based on the totality of
circumstances.
In accordance with the Company's director independence standards, the Board has
affirmatively determined that the Board is composed of a majority of independent
directors, and that the following members are independent as that term is
defined under the rules in the listing standards of the NYSE: Charles Crocker,
Robert D. Joffe, Thomas H. Kean, James A. McCarthy, Chutta Ratnathicam, and
Louis E. Woodworth. All directors identified as independent satisfy the
Company's director independence standards and do not have a material
relationship with the Company or senior executive officers of the Company.
CODE OF ETHICS AND BUSINESS CONDUCT.
The Board has adopted a Code of Ethics and Business Conduct (the "Code of
Ethics"), which is applicable to all employees, directors and officers of the
Company. The Code of Ethics is posted on the Company's website and is available
in print to stockholders who request a copy. The Company also established a
Compliance and Ethics Hotline, where employees can report a violation of the
Code of Ethics or anonymously submit a complaint concerning auditing or
accounting matters. The Company has also established a method for shareholders
to report a concern to the Board of Directors, including non-management
directors of the Company. The contact information for the Board of Directors is
posted on the corporate governance section of the Company's website.
9
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS
The following table sets forth the common stock beneficially owned by each
stockholder known to us to beneficially own more than five percent (5%) of
Franklin's total outstanding common stock:
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER (a) BENEFICIAL OWNERSHIP VOTING SECURITIES
-------------------- -------------------- -----------------
Charles B. Johnson 45,347,532(b) 18.25%
Rupert H. Johnson, Jr. 37,922,024(c) 15.26%
Elizabeth S. Wiskemann 15,915,517(d) 6.41%
(a) The addresses of Messrs. C. Johnson and R. Johnson, Jr. are: c/o
Franklin Resources, Inc., One Franklin Parkway, San Mateo, CA 94403. The
address of Ms. Elizabeth S. Wiskemann is: c/o Mr. John Bessolo, 7 Mount
Lassen Drive, Suite B-156, San Rafael, CA 94905.
(b) Includes 37,529,945 shares held directly, 3,863,675 shares held in an
IRA account and 3,000,000 shares held in a limited partnership for which
Mr. C. Johnson holds sole voting and investment power. Also includes 45,059
shares, which may be purchased pursuant to currently exercisable options.
Also includes approximately 7,037 shares which represent a pro-rata number
of shares equivalent to Mr. C. Johnson's percentage of ownership of the
holdings of the Franklin Templeton Profit Sharing/401(k) Plan (the "Profit
Sharing Plan"), as of September 30, 2003. Mr. C. Johnson disclaims any
beneficial ownership of such shares. Also includes 901,816 shares of which
Mr. C. Johnson disclaims beneficial ownership, held by a private foundation
of which Mr. C. Johnson is a trustee.
(c) Includes 35,307,145 shares held directly and 2,205,245 shares held in
an IRA account for which Mr. R. Johnson, Jr. holds sole voting and
investment power. Also includes approximately 5,928 shares which represent
a pro-rata number of shares equivalent to Mr. R. Johnson, Jr.'s percentage
of ownership of the holdings of the Profit Sharing Plan as of September 30,
2003. Mr. R. Johnson, Jr. disclaims any beneficial ownership of such
shares. Also includes 400,334 shares of which Mr. R. Johnson, Jr. disclaims
beneficial ownership, held by a private foundation of which Mr. R. Johnson,
Jr. is a trustee. Also includes 3,372 shares held by a member of Mr. R.
Johnson, Jr.'s immediate family, of which Mr. R. Johnson, Jr. disclaims
beneficial ownership.
(d) Includes (i) 6,926,292 shares held by Ms. Wiskemann, as trustee of the
Elizabeth S. Wiskemann Family Trust, (ii) 7,713,349 shares held by Ms.
Wiskemann as trustee of the Wiskemann Family Non-Exempt Marital Trust,
(iii) 10,416 shares held by Ms. Wiskemann, as trustee of the Wiskemann
Family Exempt Trust, and (iv) 1,035,680 shares held in an IRA account for
which Ms. Wiskemann holds sole voting and investment power. Also includes
229,780 shares of which Ms. Wiskemann disclaims beneficial ownership, held
by a private foundation, of which Ms. Wiskemann is a trustee.
10
SECURITY OWNERSHIP OF MANAGEMENT
The following table lists the common stock beneficially owned by each director,
each executive officer named in the Summary Compensation Table, each nominee for
director and all directors, nominees and executive officers as a group. The
stock holdings are listed as of December 1, 2003:
AMOUNT AND NATURE OF
NAME BENEFICIAL OWNERSHIP PERCENT OF CLASS
---- -------------------- ----------------
Harmon E. Burns 1,819,135(a) *
Charles Crocker 6,303(b)(c) *
Martin L. Flanagan 1,055,953(d) *
Robert D. Joffe 2,716(c)(e) *
Charles B. Johnson 45,347,532(f) 18.25%
Gregory E. Johnson 798,938(g) *
Rupert H. Johnson, Jr. 37,922,024(h) 15.26%
Thomas H. Kean 7,673(i) *
William J. Lippman 348,071(j) *
James A. McCarthy 6,217(c) *
Chutta Ratnathicam 1,217 *
Peter M. Sacerdote 26,217 *
Murray L. Simpson 96,040(k) *
Anne M. Tatlock 271,023(l) *
Louis E. Woodworth 1,777,828(c)(m) *
Directors, Director
Nominees and
Executive Officers
as a Group
(consisting of 23 90,064,204(n) 36.07%
persons)
* Represents less than 1% of class
(a) Includes 1,230,867 shares held directly and 500,001 shares held in an
IRA account for which Mr. Burns holds sole voting and investment power.
Also includes 83,000 shares of which Mr. Burns disclaims beneficial
ownership, held by a private foundation of which Mr. Burns is a trustee.
Also includes approximately 5,267 shares which represent a pro-rata number
of shares equivalent to Mr. Burns' percentage of ownership of the holdings
of the Profit Sharing Plan, as of September 30, 2003. Mr. Burns disclaims
any beneficial ownership of such shares.
(b) Includes 6,303 shares held directly for which Mr. Crocker holds sole
voting and investment power, and which includes a total of 146 shares of
unvested restricted stock granted in July 2001 under the 2002 Stock Plan.
(c) Does not include any hypothetical shares described under "Proposal No.
1, Election of Directors - Deferred Director Fees".
(d) Includes 623,565 shares held directly for which Mr. Flanagan holds sole
voting and investment power, and which includes a total of 32,551 shares of
unvested restricted stock, of which 9,396 and 23,155 shares were granted in
November 2002 and November 2003, respectively, under the 2002 Stock Plan.
Also includes 431,672 shares, which may be purchased pursuant to currently
exercisable options. Also includes approximately 716 shares which represent
a pro-rata number of shares equivalent to Mr. Flanagan's percentage of
ownership of the holdings of the Profit Sharing Plan, as of September 30,
2003. Mr. Flanagan disclaims any beneficial ownership of such shares.
(e) Includes 2,716 shares held directly for which Mr. Joffe holds sole
voting and investment power, and which includes a total of 146 shares of
unvested restricted stock granted in July 2001 under the 2002 Stock Plan.
(f) See footnote (b) under "Security Ownership of Principal Shareholders".
11
(g) Includes 447,001 shares held directly for which Mr. G. Johnson holds
sole voting and investment power, and which includes a total of 32,551
shares of unvested restricted stock, of which 9,396 and 23,155 shares were
granted in November 2002 and November 2003, respectively, under the 2002
Stock Plan. Also includes 334,265 shares, which may be purchased pursuant
to currently exercisable options. Also includes 1,236 shares which
represent a pro-rata number of shares equivalent to Mr. G. Johnson's
percentage of ownership of the holdings of the Profit Sharing Plan, as of
September 30, 2003. Also includes 16,436 shares held by members of Mr. G.
Johnson's immediate family, of which Mr. G. Johnson disclaims beneficial
ownership.
(h) See footnote (c) under "Security Ownership of Principal Shareholders".
(i) Includes 7,673 shares held directly for which Mr. Kean holds sole
voting and investment power, and which includes a total of 146 shares of
unvested restricted stock granted in July 2001 under the 2002 Stock Plan.
(j) Includes 308,275 shares held directly for which Mr. Lippman holds sole
voting and investment power, and which includes a total of 19,596 shares of
unvested restricted stock, of which 5,904, 7,517 and 6,175 shares were
granted in October 2001, November 2002 and November 2003, respectively,
under the 2002 Stock Plan. Also includes 39,796 shares, which may be
purchased pursuant to currently exercisable options. Mr. Lippman resigned
as an executive officer of Franklin Resources, Inc. during the 2003 fiscal
year, but will continue to serve as an officer of certain subsidiaries of
the Company.
(k) Includes 32,706 shares held directly for which Mr. Simpson holds sole
voting and investment power, and which includes a total of 6,290 shares of
unvested restricted stock, of which 947, 2,255 and 3,088 shares were
granted in October 2001, November 2002 and November 2003, respectively,
under the 2002 Stock Plan. Also includes a total of 63,334 shares which may
be purchased pursuant to currently exercisable options.
(l) Includes 214,909 shares held directly for which Ms. Tatlock holds sole
voting and investment power, and which includes a total of 23,055 shares of
unvested restricted stock, of which 1,247, 5,862, 5,028, 4,666 and 6,252
shares were granted in July 2001, December 2001, September 2002, November
2002 and November 2003, respectively, under the 2002 Stock Plan. Also
includes 15,000 shares, which may be purchased pursuant to currently
exercisable options. Also includes 38,493 shares held in an employee
benefit plan in effect prior to the acquisition of Fiduciary Trust Company
International ("Fiduciary") by the Company. Also includes 2,621 shares held
by a member of Ms. Tatlock's immediate family, of which Ms. Tatlock
disclaims beneficial ownership.
(m) Includes 1,079,740 shares held directly and 478,088 shares held in an
IRA account for which Mr. Woodworth holds sole voting and investment power.
Also includes 220,000 shares held by a member of Mr. Woodworth's immediate
family, of which Mr. Woodworth disclaims beneficial ownership.
(n) Includes 1,231,508 shares, which may be purchased pursuant to currently
exercisable options. Mr. Lippman's shares are not included as part of this
group since he resigned as an executive officer during the 2003 fiscal
year. Mr. Lippman continues to serve as an officer of certain subsidiaries
of the Company.
12
EXECUTIVE COMPENSATION
The following table provides compensation information for the Company's
Chief Executive Officer and each of the four highest compensated executive
officers of the Company for the fiscal year ended September 30 during the
last three fiscal years.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS
------------------- -----------------------------
Fiscal Other Annual Restricted Securities All Other
Name and Principal Year Salary Bonus (a) Compensation Stock Underlying Compensation
Position Awards Options (f)
- -----------------------------------------------------------------------------------------------------------------------
CHARLES B. JOHNSON 2003 $ 594,330 $2,000,000 $ 75,222(b) $ 0 0 $ 7,557
Chairman of the Board, 2002 $ 554,707 $ 0 $ 129,386(b) $ 0 0 $ 7,400
Executive Officer 2001 $ 594,330 $ 0 $ 131,095(b) $ 0 0 $ 7,609
MARTIN L. FLANAGAN 2003 $ 785,758 $1,050,000 $ 0 $ 1,134,132(c) 100,000 $ 8,754
President 2002 $ 728,119 $ 812,500 $ 0 $ 463,726(d) 100,000 $ 1,082
2001 $ 783,378 $ 400,000 $ 0 $ 1,084,025(e) 250,000 $ 1,482
GREGORY E. JOHNSON 2003 $ 783,303 $1,050,000 $ 0 $ 1,134,132(c) 100,000 $ 2,214
President 2002 $ 728,123 $ 812,500 $ 0 $ 463,726(d) 100,000 $ 1,082
2001 $ 780,132 $ 400,000 $ 0 $ 0 208,000 $ 1,417
ANNE M. TATLOCK 2003 $ 596,690 $ 526,500 $ 0 $ 306,223(c) 45,000 $ 434,402(g)
Vice Chairman, Member - 2002 $ 555,583 $ 296,500 $ 0 $ 775,016(d) 0 $ 427,000(g)
Office of the Chairman 2001 $ 307,811 $ 222,375 $ 0 $ 170,943(e) 63,836 $ 2,000
MURRAY L. SIMPSON 2003 $ 671,098 $ 260,000 $ 0 $ 151,250(c) 20,000 $ 14,593
Executive Vice President 2002 $ 627,350 $ 195,000 $ 0 $ 111,301(d) 25,000 $ 37,564
and General Counsel 2001 $ 672,590 $ 178,750 $ 0 $ 96,003(e) 20,000 $ 3,564
WILLIAM J. LIPPMAN* 2003 $ 481,668 $ 520,000 $ 0 $ 302,452(c) 15,000 $ 27,783
2002 $ 448,939 $ 650,000 $ 0 $ 370,980(d) 30,000 $ 23,248
2001 $ 478,680 $ 400,000 $ 0 $ 600,003(e) 0 $ 30,307
- -----------------------------------------------------------------------------------------------------------------------
* Mr. Lippman would have been among the four highest paid executive officers for the fiscal year ending 2003, but resigned
as an executive officer during the 2003 fiscal year. See also footnote (n) of "Security Ownership of Management".
(a) Includes bonuses earned in fiscal year 2003 and paid in fiscal year
2004.
(b) Includes $75,222, $129,386 and $126,377 representing personal use of
Company aircraft by Mr. C. Johnson during fiscal years 2003, 2002 and 2001,
respectively, valued using the Standard Industry Fare formula provided for
by Internal Revenue Code regulations.
13
(c) Recipients of restricted stock are entitled to vote such shares and
receive dividends. At the end of the fiscal year ended September 30, 2003,
the aggregate number and value of restricted stock holdings for the persons
named in the Summary Compensation Table were:
NAME NUMBER OF SHARES VALUE
---- ---------------- -----
C.B. Johnson 0 $ 0
M. Flanagan 9,396 $415,397
G. Johnson 9,396 $415,397
A. Tatlock 16,803 $742,861
M. Simpson 3,202 $141,560
W. Lippman 13,421 $593,342
The above amounts do not reflect restricted stock awards granted on
November 12, 2003 by the Compensation Committee as reflected in the Summary
Compensation Table. The number of shares and value of these 2003 fiscal
year restricted stock awards were considered attributable to: Mr. Flanagan,
23,155 ($1,134,132); Mr. G. Johnson, 23,155 ($1,134,132); Ms. Tatlock,
6,252 ($306,223); Mr. Simpson, 3,088 ($151,250); and Mr. Lippman, 6,175
($302,452). The fiscal 2003 restricted stock awards vest in approximately
three equal installments on September 30, 2004, September 30, 2005 and
September 29, 2006.
(d) In fiscal 2002, the Compensation Committee granted the following number
of shares of restricted stock to the persons named in the Summary
Compensation Table: Mr. Flanagan, 14,095; Mr. G. Johnson, 14,095; Ms.
Tatlock, 23,336; Mr. Simpson, 3,383; and Mr. Lippman, 11,276. The fiscal
2002 restricted stock vested or will vest in approximately three equal
installments on September 30, 2003, September 30, 2004, and September 30,
2005. In addition, Ms. Tatlock received a restricted stock grant of 8,793
shares, which vested or will vest in approximately three equal installments
on December 31, 2002, December 31, 2003, and December 31, 2004.
(e) In fiscal 2001, the Compensation Committee granted the following number
of shares of restricted stock to the persons named in the Summary
Compensation Table: Mr. Simpson, 2,842; and Mr. Lippman, 17,713. The fiscal
2001 restricted stock vested or will vest in approximately three equal
installments on September 30, 2002, September 30, 2003 and September 30,
2004. In addition, Mr. Flanagan received a restricted stock grant of 25,000
shares, which vested in approximately three equal installments on each of
September 28, 2001, September 30, 2002 and September 30, 2003. Ms. Tatlock
received a restricted stock award of 3,743 shares in fiscal 2001, which
vested or will vest in approximately three equal installments on July 2,
2002, July 2, 2003 and July 2, 2004.
(f) Except for Ms. Tatlock, represents Company contributions to the
combined Profit Sharing/401(k) Plan and certain premium payments that were
made by the Company for the benefit of employees, including executive
officers, under the Franklin Templeton Companies, Inc. Employee Welfare
Plan. Ms. Tatlock received a contribution under the 401(k) Plan of
Fiduciary only.
(g) Also includes an "Integration Services Cash Bonus", which Ms. Tatlock
was entitled to receive under her employment agreement with the Company.
See Employment Contracts and Change-In-Control Arrangements.
14
OPTION GRANTS IN LAST FISCAL YEAR
During the last fiscal year ended September 30, 2003, options were granted to the persons listed in the
Summary Compensation Table as indicated in the table below. No Stock Appreciation Rights were awarded.
- -----------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
OF STOCK PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (e)
- -----------------------------------------------------------------------------------------------
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES IN OF BASE
OPTIONS FISCAL YEAR PRICE EXPIRATION
NAME GRANTED (a) (d) ($/SHARE) DATE 5% ($) 10% ($)
- -----------------------------------------------------------------------------------------------
CHARLES B.
JOHNSON 0 0% - - - -
- -----------------------------------------------------------------------------------------------
MARTIN L.
FLANAGAN 100,000(b) 2.8% $35.80 12/14/12 $2,251,443 $5,705,598
- -----------------------------------------------------------------------------------------------
GREGORY E.
JOHNSON 100,000(b) 2.8% $35.80 12/14/12 $2,251,443 $5,705,598
- -----------------------------------------------------------------------------------------------
ANNE M.
TATLOCK 45,000(c) 1.3% $32.90 11/09/12 $ 931,078 $2,359,536
- -----------------------------------------------------------------------------------------------
MURRAY L.
SIMPSON 20,000(c) 0.6% $32.90 11/09/12 $ 413,813 $1,048,683
- -----------------------------------------------------------------------------------------------
WILLIAM J.
LIPPMAN 15,000(c) 0.4% $32.90 11/09/12 $ 310,359 $ 786,512
- -----------------------------------------------------------------------------------------------
(a) All options in this column were granted under our 2002 Universal Stock Incentive Plan. All options
have an exercise price equal to the fair market value of the underlying common stock on the date of grant.
(b) Represents options granted December 17, 2002, which vest in equal one-third increments over a 3-year period.
(c) Represents options granted November 12, 2002, which vest in equal one-third increments over a 3-year period.
(d) Represents the aggregate percentage granted to each Named Executive Officer of the total options awarded to
employees of 3,565,192 shares in fiscal year 2003.
(e) We are required by the Securities and Exchange Commission to use a 5% and 10% assumed rate of appreciation
over the applicable option term. This does not represent our estimate or projection of the future common stock price.
If Franklin's common stock does not appreciate in value from the grant price, the Named Executive Officers will receive
no benefit from the options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides information on option exercises in fiscal year 2003 by the persons listed in the
Summary Compensation Table and the value of their unexercised options at September 30, 2003.
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT FISCAL OPTIONS AT FISCAL
ACQUIRED ON VALUE YEAR-END YEAR-END
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE (a)
- ------------------------- ------------- -------------- ------------------- ---------------------
CHARLES B. JOHNSON 0 $0.00 45,059/0 $502,119/$0
MARTIN L. FLANAGAN 0 $0.00 514,472/99,999 $4,396,403/$788,325
GREGORY E. JOHNSON 0 $0.00 434,265/99,999 $3,918,807/$788,325
ANNE M. TATLOCK 0 $0.00 15,000/93,836 $169,650/$740,718
MURRAY L. SIMPSON 0 $0.00 63,334/21,666 $521,289/$207,711
WILLIAM J. LIPPMAN 0 $0.00 39,796/20,000 $364,562/$181,400
- ------------------------- ------------- -------------- ------------------- ---------------------
(a) The market value of underlying securities is based on the closing price of Franklin's
common stock on the NYSE on September 30, 2003 of $44.21 per share minus the exercise price.
15
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
During the fiscal year ending September 30, 2003, Mr. Charles B. Johnson had an
employment contract with Franklin pursuant to which the Company is obligated, in
the event of Mr. C. Johnson's death or permanent disability, to pay one year's
salary to his estate. Under the contract, Mr. C. Johnson has been employed as
the Chairman of the Board, Chief Executive Officer, and Member - Office of the
Chairman at a salary determined from time to time by the Board of Directors,
which has assigned the review of Mr. C. Johnson's compensation arrangements to
the Compensation Committee. This contract will expire on December 31, 2003.
Effective January 1, 2004, Mr. C. Johnson will no longer serve as Chief
Executive Officer of Franklin, but will continue to be employed as Chairman of
the Board and Member - Office of the Chairman.
Ms. Anne M. Tatlock has a five year employment agreement with Franklin and
Fiduciary, which commenced in April 2001. Under the employment agreement, Ms.
Tatlock was entitled to a base salary equal to a minimum of $590,000 per year,
which is subject to review by the Chief Executive Officer and Franklin's
Compensation Committee (which shall not result in a decrease in such base
salary). Ms. Tatlock was also entitled to, at a minimum, the following bonus and
incentive compensation: (a) a bonus for the period (i) commencing January 1,
2001 and ending December 31, 2001 and (ii) commencing January 1, 2002 and ending
September 30, 2002, on an annualized basis, of not less than $609,281, of which
Ms. Tatlock is entitled to receive an annualized short-term bonus of $296,500
payable in cash and an annualized long-term bonus of $312,781 to be granted in
the form of restricted stock that vests over 3 years; (b) after September 30,
2002, awards, grants or payments that may be awarded under Franklin's incentive
compensation plan; (c) additional services compensation, in the amount of
$2,125,000, which is payable in equal annual cash payments of $425,000 over five
years, subject to certain conditions relating to Ms. Tatlock's continued
employment; (d) stock options representing 38,836 shares of common stock of
Franklin, 50% of which are exercisable on April 10, 2004 and 50% of which are
exercisable on April 10, 2005, subject to Ms. Tatlock's continued employment
with Franklin; (e) an allowance for financial and tax planning of up to $15,000
for fiscal year 2001 and $5,000 for each subsequent fiscal year during the term
of the employment agreement; and (f) such luncheon club memberships and other
memberships in accordance with Fiduciary's policy and practices.
16
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF FRANKLIN'S PREVIOUS
OR FUTURE FILINGS UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE
ACT OF 1934 THAT MIGHT INCORPORATE FUTURE FILINGS MADE BY FRANKLIN UNDER THOSE
STATUTES, THE FOLLOWING REPORT SHALL NOT BE DEEMED TO BE INCORPORATED BY
REFERENCE INTO ANY PRIOR FILINGS NOR FUTURE FILINGS MADE BY FRANKLIN UNDER THOSE
STATUTES.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee reviews and sets compensation for the Company's Chief
Executive Officer, determines the general policies and guidelines for
compensating other executive officers, and performs other duties as assigned
from time to time by the Board of Directors of the Company. This committee also
administers the Company's Amended Annual Incentive Compensation Plan (the
"Incentive Plan") and the 2002 Universal Stock Incentive Plan, which was the
successor to the Amended and Restated 1998 Universal Stock Incentive Plan (the
"2002 Stock Plan").
COMPENSATION PHILOSOPHY AND POLICIES
The Compensation Committee believes that the opportunity to earn incentive
compensation motivates employees, including executive officers, to achieve
improved results. Moreover, awarding incentive compensation in the form of
Company stock aligns the interests of management with the interests of
stockholders, and further encourages management to focus on the Company's long
range growth and development. Franklin's compensation program for executive
officers (including the Chief Executive Officer) consists primarily of salary
and annual cash and equity incentive bonuses based upon individual and Company
performance.
In its review of executive officer compensation, and, in particular, in
determining the amount and form of awards under the Incentive Plan and 2002
Stock Plan, the Compensation Committee generally considers, among other things:
survey information with respect to cash compensation and stock and option grants
for comparable companies; amounts paid to the executive officer in prior years
as salary, bonus and other compensation; the officer's responsibilities and
performance during the fiscal year ended September 30, 2003, and the Company's
overall performance during prior fiscal years and its future objectives and
challenges.
The Company generally uses a combination of two employee benefit plans to award
bonuses to employees: the Incentive Plan and the 2002 Stock Plan. The overall
bonus pool is determined pursuant to the Incentive Plan, which allows for both
cash and stock awards to Company employees, including executive officers and the
Chief Executive Officer. The stock component of an award is then granted through
the 2002 Stock Plan. As a general matter, the size of the award pool available
for bonus payments is a percentage of the Company's pre-tax operating income,
which consists of net operating income, exclusive of passive income and
calculated before non-operating interest expense, taxes, extraordinary items,
certain special items (such as special compensation payouts on account of
mergers) and before the accrual of awards under the Incentive Plan. In
determining the percentage of the pre-tax operating income that will go into the
award pool, the Compensation Committee considers a variety of factors, including
the performance of the Company's stock compared to the indices set forth in the
performance graph included in this Proxy Statement and the increase or decrease
in market price of the Company's common stock.
17
SALARIES
Base salaries are evaluated annually for all executive officers, including the
Chief Executive Officer. In connection with a company-wide review of base
salaries, the Compensation Committee determined that employees, including the
Named Executive Officers (Messrs. C. Johnson, M. Flanagan, G. Johnson, M.
Simpson and Ms. A. Tatlock, together the "Named Executive Officers"), whose
salary levels were in excess of a pre-determined amount would not be eligible to
receive an increase to base salary for fiscal 2003. This decision was based upon
several considerations -- among them was the desire to provide salary increases
to a broader group of lesser compensated employees, while judiciously managing
the Company's compensation expenses. Consequently, the base salaries of each of
the Named Executive Officers were not increased for fiscal 2003.
As part of a company-wide reduction in pay that took place during fiscal year
2002, salaries of all executive officers were reduced by 10% in November 2001
and were restored to prior levels in July 2002. It should be noted, therefore,
that the apparent increase in salaries of the Named Executive Officers from
fiscal year 2002 to fiscal year 2003 indicated in the Summary Compensation Table
included in this Proxy Statement reflect the reinstatement of their base salary
levels from the aforementioned reduction.
INCENTIVE COMPENSATION
The Compensation Committee determined that each of the Named Executive Officers,
including the Chief Executive Officer warranted incentive bonus awards in
respect of fiscal 2003 performance. Except in the case of the CEO, each bonus
award was comprised of a combination of cash and restricted stock, and a stock
option grant. In the compensation tables included in this Proxy Statement, the
Company reports the cash and restricted stock portion of any bonus award earned
during the fiscal year by a Named Executive Officer, but reports the stock
option related portion of any bonus awarded for a particular fiscal year only
after it has actually been awarded, which normally occurs in the subsequent
fiscal year.
In making the awards to the Named Executive Officers, the Compensation Committee
considers, as discussed above, a number of different individual factors and
Company performance factors. In particular, the Compensation Committee
considered the following: the 11.6% increase to pre-tax operating income between
fiscal year 2002 and fiscal year 2003; the 19.4% increase in the value of the
Company's common stock from the end of fiscal year 2002; and the 21.8% increase
in the Company's assets under management as compared to the 0.6% increase of
fiscal year 2002 from the previous year. The foregoing performance factors were
taken into consideration in determining to increase the percentage of pre-tax
operating income allocated to the award pool.
The Compensation Committee notes that Ms. A. Tatlock, in addition to her
incentive bonus award, received the second of five equal annual $425,000 cash
payments pursuant to the terms of her 2001 employment agreement, in respect of
an integration services cash bonus in connection with the acquisition of
Fiduciary Trust.
For fiscal year 2003, the Compensation Committee awarded other employees,
including other executive officers, bonuses consisting of cash and restricted
stock. In addition, in cases where special recognition of contributions was
warranted, stock option grants were also awarded. Consistent with the practice
established in fiscal year 2000, bonuses awarded generally were comprised of 65%
cash and 35% restricted stock. The Compensation Committee determined, however,
that the bonuses awarded to Messrs. G.
18
Johnson and M. Flanagan should consist of 50% cash and 50% restricted stock.
Certain non-executive officer Company employees, whose awards were in excess of
$1.0 million, were awarded those amounts in excess of $1.0 million in the form
of 40% cash and 60% restricted stock.
CEO COMPENSATION
The compensation of Mr. Charles B. Johnson, the Chief Executive Officer of the
Company, reflects his status as a principal shareholder of the Company. Mr. C.
Johnson's compensation is significantly lower than that received by chief
executive officers of comparable companies. In determining incentive
compensation for Mr. C. Johnson, like the other Named Executive Officers, the
Compensation Committee considers a number of individual factors and Company
performance factors, as described above. The Compensation Committee has also
taken into account Mr. C. Johnson's position as a principal stockholder of the
Company, and the dividends received on those holdings, in determining his
compensation and bonus. The Compensation Committee believes that because of his
large share holdings of Company common stock, Mr. C. Johnson is materially
impacted by changes in the Company's stock price. Therefore, the Compensation
Committee does not believe that stock-related bonuses should be a significant
component of Mr. C. Johnson's compensation and has historically awarded bonuses
to him primarily in cash. For fiscal 2003, the Compensation Committee awarded
Mr. C. Johnson a cash incentive bonus of $2 million based on these factors and
the performance of the Company, as described above.
OTHER BENEFITS
All executive officers are entitled to receive medical, life and disability
insurance coverage and other corporate benefits available to most employees of
the Company. All executive officers participate in a combined Profit
Sharing/401(k) Plan. The Board determines contributions to this Plan.
TAX DEDUCTIBILITY OF COMPENSATION
In evaluating compensation program alternatives, the Compensation Committee
considers the potential impact on the Company of Section 162(m) of the U.S.
Internal Revenue Code, as amended. Section 162(m) limits to $1 million the
amount that a publicly traded corporation, such as the Company, may deduct for
compensation paid in any year to its chief executive officer or any other of its
four most highly compensated executive officers. However, compensation which
qualifies as "performance-based" is excluded from the $1 million per executive
officer limit if, among other requirements, the compensation is payable only
upon attainment of pre-established, objective performance goals under a plan
approved by the Company's stockholders.
The Compensation Committee endeavors to maximize deductibility of compensation
under Section 162(m) to the extent practicable while maintaining competitive
compensation. Franklin believes that current stock option grants under the 2002
Stock Plan should qualify for the performance-based compensation exception to
Section 162(m) and, if stockholders approve the amendments to the Incentive Plan
at the Company's Annual Meeting in 2004, Franklin expects that performance-based
awards either in the form of cash or restricted stock, under the Incentive Plan
should also qualify for the exception. The Compensation Committee, however,
believes that it is important for it to retain maximum flexibility in designing
compensation programs that are in the best interests of the Company and its
stockholders. Therefore, the Compensation Committee, while considering tax
deductibility as a factor in determining compensation, will not limit
19
compensation to those levels or types of compensation that will be deductible if
it believes that the compensation is commensurate with the performance of the
covered employee and is necessary and appropriate to meet competitive
requirements.
Respectfully Submitted:
COMPENSATION COMMITTEE
James A. McCarthy, Chairman
Charles Crocker
Thomas H. Kean
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are set forth in the preceding
section. No member of the Compensation Committee was an officer or employee of
the Company or any of its subsidiaries during fiscal year 2003. None of the
executive officers of the Company has served on the board of directors or on the
compensation committee of any other entity that has or had executive officers
serving as a member of the Board of Directors or Compensation Committee of the
Company.
20
NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF OUR PREVIOUS OR
FUTURE FILINGS UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT
OF 1934 THAT MIGHT INCORPORATE FUTURE FILINGS MADE BY US UNDER THOSE STATUTES,
THE FOLLOWING REPORT SHALL NOT BE DEEMED TO BE INCORPORATED BY REFERENCE INTO
ANY PRIOR FILINGS NOR FUTURE FILINGS MADE BY US UNDER THOSE STATUTES.
REPORT OF THE AUDIT COMMITTEE
MEMBERSHIP AND ROLE OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors of Franklin Resources, Inc. (the
"Company") consists of Chutta Ratnathicam, James A. McCarthy and Louis E.
Woodworth. Each of the members of the Audit Committee is independent as defined
under the New York Stock Exchange ("NYSE") rules and applicable law. The primary
purpose of the Audit Committee is to assist the Board of Directors in fulfilling
its responsibility to oversee the Company's financial reporting activities. The
Audit Committee's function is more fully described in the written charter, which
is attached as Appendix A to this Proxy Statement. Chutta Ratnathicam serves as
the Chairman.
REVIEW OF THE COMPANY'S AUDITED FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED
SEPTEMBER 30, 2003
The Audit Committee has reviewed and discussed the audited financial statements
of the Company for the fiscal year ended September 30, 2003 with the Company's
management.
The Audit Committee has discussed with PricewaterhouseCoopers LLP ("PwC"), the
Company's independent auditors, the matters required to be discussed by the
Statement on Auditing Standards No. 61 (Communication with Audit Committees).
The Audit Committee has also received the written disclosures and the letter
from PwC required by Independence Standards Board Standard No. 1 (Independence
Discussion with Audit Committees), and has discussed the independence of PwC
with that firm.
Based on the Audit Committee's review and discussions noted above, the Audit
Committee recommended to the Board of Directors that the Company's audited
financial statements be included in the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 2003, for filing with the SEC.
Respectfully Submitted:
AUDIT COMMITTEE
Chutta Ratnathicam, Chairman
James A. McCarthy
Louis E. Woodworth
21
FEES PAID TO INDEPENDENT AUDITOR
The Board of Directors, with the ratification of the shareholders, engaged
PricewaterhouseCoopers LLP ("PwC") to perform an annual audit of the Company's
financial statements for the fiscal year ended September 30, 2003.
The following table sets forth the approximate aggregate fees billed to the
Company for fiscal years ended September 30, 2003 and September 30, 2002 by PwC
for the audit of the Company's annual financial statements and services rendered
by PwC. Certain amounts from fiscal 2002 have been reclassified to conform to
the 2003 presentation.
FISCAL YEARS ENDED
(in thousands)
----------------------------------
2003 2002
---- ----
Audit Fees $1,500 $1,600
Audit Related Fees (a) $500 $700
Tax Fees (b) $1,000 $900
All Other Fees (c) $1,100 $1,500
------ ------
TOTAL FEES $4,100 $4,700
(a) Audit Related Fees consist of assurance and related services that are
reasonably related to the performance of the audit or review of the
Company's financial statements. Such services related primarily to internal
control examinations pursuant to the Statement of Auditing Standards No.
70, audits of employee benefit plans and other attestation services.
(b) Tax Fees consist of professional services rendered by PwC for tax
compliance, tax advice, and tax planning (domestic and international).
(c) All Other Fees consist principally of services rendered in connection
with insurance claims submitted to the Company's insurance carriers related
to the destruction of the headquarters of our subsidiary company, Fiduciary
Trust Company International, at Two World Trade Center, on September 11,
2001.
22
EQUITY COMPENSATION PLAN INFORMATION /1/
The following table sets forth certain information as of September 30, 2003 with
respect to the shares of the Company's Common Stock that may be issued under the
Company's existing compensation plans that have been approved by stockholders
and plans that have not been approved by stockholders.
Number of
Number of securities
securities to be Weighted-average remaining available
issued upon exercise price for future issuance
exercise of of outstanding under equity
outstanding options, compensation plans
options, warrants warrants and (excluding
PLAN CATEGORY and rights rights securities
(a) (b) reflected in column
(a)) (c)
---------------- ------------------- ----------------- --------------------
Equity
compensation
plans
approved by
security
holders /2/ 13,288,991 /3/ $ 36.11 13,123,108 /4/
Equity
compensation
plans not
approved by
security
holders 0 0 0
---------------- ------------------- ----------------- --------------------
Total 13,288,991 $ 36.11 13,123,108
(1) The table includes information for equity compensation plans assumed by the
Company in connection with acquisitions of the companies, which originally
established those plans.
(2) Consists of the 2002 Universal Stock Incentive Plan and the 1998 Employee
Stock Investment Plan (the "Purchase Plan"), as amended.
(3) Excludes options to purchase accruing under the Company's Purchase Plan.
Under the Purchase Plan each eligible employee is granted a separate option to
purchase up to 2,000 shares of Common Stock each semi-annual accrual period on
January 31 and July 31 at a purchase price per share equal to 90% of the fair
market value of the Common Stock on the enrollment date or the exercise date,
whichever is lower.
(4) Includes shares available for future issuance under the Purchase Plan. As of
September 30, 2003, 2,007,662 of shares of Common Stock were available for
issuance under the Purchase Plan.
23
PERFORMANCE GRAPH
The following performance graph compares the performance of an investment in
Franklin's common stock for the last five (5) fiscal years to that of the
Standard & Poor's 500 Composite Stock Price Index (the "S&P 500 Index"), an
index to which the Company was added in April 1998, and to the Standard & Poor's
Financial Index (the "S&P Financial Index"). The S&P 500 consists of 500 stocks
chosen for market size, liquidity, and industry group representation. It is a
market-value weighted index (stock price times number of shares outstanding),
with each stock's weight in the index proportionate to its market value. The S&P
500 is one of the most widely used benchmarks of U.S. equity performance. The
S&P Financial is a capitalization-weighted index of the stocks of approximately
70 companies that are in the S&P 500 and whose primary business is in a
sub-sector of the financial industry. It is designed to measure the performance
of the financial sector of the S&P 500. The graph assumes that the value of the
investment in the Company's common stock and each index was $100 on September
30, 1998 and that all dividends were reinvested.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
FY98
Franklin
Resources: $100.00 126.57 143.10 107.30 112.33 106.67 94.49 134.38 146.14 136.67 128.26 120.90
S&P 500: $100.00 108.13 114.68 121.28 126.35 122.43 127.32 132.25 129.14 136.60 132.04 131.39
Fin. Index $100.00 112.11 119.75 122.21 124.80 126.46 131.30 140.20 132.41 137.88 129.32 123.39
FY99
Franklin
Resources: 103.00 117.96 105.95 108.26 120.50 91.80 113.10 109.09 101.48 102.95 121.59 128.59
S&P 500: 127.79 135.88 138.64 146.80 139.42 136.79 150.16 145.65 142.66 146.17 143.89 152.82
Fin. Index 116.98 136.49 129.80 127.23 123.20 109.87 130.22 126.13 134.58 126.13 139.49 152.87
FY00
Franklin
Resources: 150.79 145.39 122.89 129.53 158.97 141.90 133.18 148.64 151.53 155.86 147.12 139.93
S&P 500: 144.76 144.14 132.79 133.44 138.17 125.58 117.63 126.76 127.61 124.51 123.28 115.57
Fin. Index 156.50 155.81 146.63 159.88 159.44 148.97 144.48 149.84 155.88 155.82 153.30 143.97
FY01
Franklin
Resources: 118.24 109.70 122.17 120.17 128.23 139.91 143.78 143.71 149.30 146.25 117.98 120.29
S&P 500: 106.24 108.27 116.57 117.59 115.88 113.64 117.91 110.77 109.96 102.13 94.17 94.78
Fin. Index 135.47 132.96 142.45 145.57 143.29 141.20 150.59 146.57 146.33 139.38 128.34 130.96
FY02
Franklin
Resources: 106.88 113.62 127.26 117.63 115.08 112.77 113.85 120.67 129.28 135.42 150.60 149.70
S&P 500: 84.49 91.92 97.33 91.61 89.22 87.88 88.73 96.03 101.09 102.38 104.18 106.21
Fin. Index 115.66 126.11 131.29 124.26 122.19 118.37 117.91 132.34 139.32 139.68 146.09 144.61
FY03
Franklin
Resources 153.24
S&P 500 105.09
Fin. Index 145.58
24
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to the time that Franklin acquired substantially all of the assets of
Templeton, Galbraith & Hansberger Ltd. ("Templeton") in 1992, Templeton loaned
Mr. Martin L. Flanagan monies secured by a deed of trust on Mr. Flanagan's then
residence in Nassau, Bahamas. Such loan is outstanding to a subsidiary of the
Company and bears interest at the annual rate of 5.98%. The largest aggregate
amount outstanding during fiscal year 2003 was $356,333. As of December 1, 2003,
$325,901 was outstanding under the loan.
In June 1995, prior to the time that Mr. Kenneth A. Lewis became an executive
officer of Franklin, in connection with his relocation from Florida to
California, Franklin made a loan to Mr. Lewis, secured by a deed of trust on his
residence. The largest amount outstanding on the loan, which bore interest at
the annual rate of 5%, during fiscal year 2003 was $454,845 and as of August 29,
2003, the loan was paid in full.
In October 1997, prior to the time that Mr. Charles R. Sims became an executive
officer of Franklin, in connection with his relocation from Canada to
California, Franklin made a loan to Mr. Sims, which is secured by a deed of
trust on his residence and bears interest at the annual rate of 5%. The largest
amount outstanding on the loan during fiscal year 2003 was $598,425 and as of
December 1, 2003, $584,106 was outstanding.
In February 2000, Mr. Murray L. Simpson became an executive officer and general
counsel of Franklin, and in connection with his relocation from Hong Kong to
California, during fiscal year 2001 Franklin made a loan in the amount of
$2,000,000 to Mr. Simpson. The loan was secured by a deed of trust on his
personal residence, which bore interest at the annual rate of 5.57%, and was
payable over 30 years. The largest amount outstanding on the loan during fiscal
year 2003 was $1,971,153 and as of August 21, 2003 the loan was paid in full.
In March 2002, Franklin made a loan to Mr. Harmon E. Burns, Vice Chairman of the
Company, in connection with his long service to the company. The loan is secured
by a deed of trust on a property owned by Mr. Burns. The loan bears a variable
interest rate, which adjusts quarterly based on the prevailing prime rate.
Minimum monthly payments are payable based on a 20 year amortization schedule,
however, any unpaid principal and interest is due and payable on March 22, 2007.
The largest amount outstanding on the loan during fiscal year 2003 was
$2,040,759 and as of December 1, 2003, $1,963,285 was outstanding.
In October 2002, prior to the time that Mr. James R. Baio became an executive
officer and Chief Financial Officer of Franklin, and in connection with his
relocation from Florida to California, Franklin made a loan in the amount of
$915,000 to Mr. Baio. The loan was secured by a deed of trust on his personal
residence and had interest at the annual rate of 4.41%. The largest amount
outstanding on the loan during fiscal year 2003 was $915,000 and as of April
2003 (prior to the date Mr. Baio became an executive officer), the loan was paid
in full.
In accordance with the Sarbanes-Oxley Act of 2002, the Company will not enter
into any similar such loan transactions with its executive officers or
directors.
The Company also makes purchases of the Company's common stock from employees
and executive officers on the same terms and conditions to pay taxes due in
connection with the vesting of restricted stock awards and matching grants,
which the Company provides under the Employee Stock Incentive Plan ("ESIP").
Each purchase is ratified by the Company's Board of Directors. On January 2,
2003 and in connection with the vesting of certain restricted stock awards, the
Company purchased 1,167 shares from Ms. Anne M.
25
Tatlock at the price of $34.09 per share. On October 1, 2003 and in connection
with the vesting on September 30, 2003 of certain restricted stock awards, the
Company purchased 4,229 shares from Mr. Flanagan and 1,993 shares from Ms.
Tatlock (each an executive officer of the Company) at the price of $44.20 per
share. The price per share paid by the Company for each purchase represents the
price at which the stock vested, which is the average of the high and low price
of the Company's stock on the NYSE on that date.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires officers,
directors and persons who own more than 10% of Franklin's common stock (the
"Reporting Persons") to file reports of ownership and changes in ownership with
the SEC. During the fiscal year ended September 30, 2003, Mr. Kenneth A. Lewis,
inadvertently filed one late report on Form 4, which covered three transactions
involving the sale of common stock representing 5,061 shares, with a net
decrease of 5,061 shares. Based solely on review of copies of such forms
received or written representations from the Reporting Persons, the Company
believes that with respect to the fiscal year ended September 30, 2003, all
other Reporting Persons complied with applicable filing requirements.
26
PROPOSAL NO. 2
--------------
RATIFICATION OF THE APPOINTMENT OF
INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors has appointed
PricewaterhouseCoopers LLP as independent auditors to audit the books and
accounts of Franklin for its current fiscal year ending September 30, 2004.
PricewaterhouseCoopers LLP has no direct or indirect financial interest in
Franklin. During the fiscal year ended September 30, 2003,
PricewaterhouseCoopers LLP rendered opinions on the financial statements of
Franklin and certain of its subsidiaries, as well as many of the open-end and
closed-end investment companies managed and advised by the Company's
subsidiaries. In addition, PricewaterhouseCoopers LLP provides the Company with
tax consulting and compliance services, accounting and financial reporting
advice on transactions and regulatory filings and certain other consulting
services permitted under the Sarbanes-Oxley Act of 2002.
BOARD RECOMMENDATION
The voting requirements for this proposal are described above under "Voting
Information". The Board of Directors recommends a vote "FOR" the ratification of
the appointment of PricewaterhouseCoopers LLP as independent auditors.
27
PROPOSAL NO. 3
--------------
APPROVAL OF THE 2004 KEY EXECUTIVE INCENTIVE COMPENSATION PLAN
Franklin's stockholders are being asked to approve the 2004 Key Executive
Incentive Compensation Plan (the "Plan"). The Board of Directors approved the
adoption of the Plan on December 11, 2003. It is the intention of the persons
named as proxy holders to vote to approve the Plan. The Plan provides the
Company's key employees with the opportunity to earn incentive awards based on
the achievement of goals relating to the performance of the Company and its
business units. If the Plan is not approved by the stockholders at the Annual
Meeting, no participant will be eligible for an award under the Plan and the
Plan will be terminated.
BACKGROUND AND REASONS FOR ADOPTION
The Company currently has a performance-based bonus plan similar to the Plan,
pursuant to which the Company rewards key employees for achieving certain
performance objectives. However, under Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"), the federal income tax deductibility of
compensation paid to the Company's Chief Executive Officer and to each of its
four other most highly compensated executive officers may be limited to the
extent that such compensation exceeds $1 million in any one year. Under Section
162(m), the Company may deduct compensation in excess of that amount if it
qualifies as "performance-based compensation", as defined in Section 162(m) of
the Code. The Plan is designed to qualify awards made under the Plan as
performance-based compensation, so that the Company may continue to receive a
federal income tax deduction for the payment of incentive bonuses to its
executives. By seeking to adopt the Plan, the Company has not changed its
compensation philosophy or policies. The Company will continue to operate its
current bonus plan, for the compensation of executives and other employees for
whom Section 162(m) is not an issue.
DESCRIPTION OF THE PLAN
The following paragraphs provide a summary of the principal features of the Plan
and its operation. The Plan is set forth in its entirety as Appendix E to this
Proxy Statement. The following summary is qualified in its entirety by reference
to Appendix E.
PURPOSE OF THE PLAN
The Plan is intended to increase stockholder value and the success of the
Company by motivating key employees to perform to the best of their abilities
and achieve the Company's objectives.
ADMINISTRATION OF THE PLAN
The Plan will be administered by the Compensation Committee in accordance with
the requirements of Section 162(m) of the Code.
ELIGIBILITY TO RECEIVE AWARDS
Key employees of the Company and its affiliates are eligible to participate in
the Plan. Participation in the Plan by any particular key employee is determined
annually in the discretion of the Compensation Committee. In selecting
participants for the Plan, the Compensation Committee will choose employees of
the Company and its affiliates who are likely to have a significant impact on
Company performance. For the
28
fiscal year ending in 2004, the participants in the Plan are expected to be
Charles B. Johnson (Chairman of the Board and Chief Executive Officer), Martin
L. Flanagan (President), Gregory E. Johnson (President), Anne M. Tatlock (Vice
Chairman and Member - Office of the Chairman) and Murray L. Simpson (Executive
Vice President and General Counsel). Participation in future years will be in
the discretion of the Compensation Committee, but it currently is expected that
5 to 15 employees will participate each year.
TARGET AWARDS AND PERFORMANCE GOALS
For each year, the Compensation Committee will establish in writing: (1) a
target award for each participant, (2) the performance goals which must be
achieved in order for the participant to be paid the target award, and (3) a
formula for increasing or decreasing a participant's target award depending upon
how actual performance compares to the pre-established performance goals.
Each participant's target award will be expressed as (1) a percentage of his or
her base salary or (2) a percentage of an award pool established for the
particular Plan year. Base salary under the Plan means the participant's annual
salary rate on the last day of the year. The Compensation Committee may
determine in its sole discretion whether or not to establish an award pool for a
particular Plan year.
The performance goals applicable to the participants may consist of one or more
of the following measures: (a) annual revenue, (b) budget comparisons, (c)
Company stock price, (d) controllable profits, (e) Company earnings per share,
(f) expense management, (g) improvements in capital structure, (h) net income,
(i) net sales, (j) pre-tax operating income, (k) profit margins, (l)
profitability of an identifiable business unit or product, (m) return on
investments, (n) return on sales, (o) return on stockholders' equity, (p) total
return to stockholders and (q) performance of the Company relative to a peer
group of companies on any of the foregoing measures. The Compensation Committee
may set performance goals which differ from participant to participant. For
example, the Compensation Committee may choose performance goals which apply on
either a corporate or business unit basis, as deemed appropriate in light of the
participant's responsibilities.
For the fiscal year ending in 2004, the Compensation Committee will establish
certain performance goals and a formula, with such goals as variables, which
will determine actual awards. The awards for the fiscal year ending in 2004 are
also conditioned upon stockholder approval of the Plan at the Annual Meeting. If
the Plan is not approved by the stockholders at the Annual Meeting, no
participant will be eligible for an award under the Plan for the fiscal year
ending in 2004.
DETERMINATION OF ACTUAL AWARDS
After the end of each Plan year, the Compensation Committee must certify in
writing the extent to which the performance goals applicable to each participant
were achieved or exceeded. The actual award (if any) for each participant will
be determined by applying the formula to the level of actual performance which
has been certified by the Compensation Committee. However, the Compensation
Committee retains discretion to eliminate or reduce the actual award payable to
any participant below that which otherwise would be payable under the applicable
formula. In addition, no participant's actual award under the Plan may exceed
$10 million for any year.
The Plan contains a continuous employment requirement. If a participant
terminates employment with the Company for any reason after the end of the
applicable Plan year but prior to the award payment date, he or she will be
entitled to the payment of the award for the year, provided, however, that the
Compensation
29
Committee may reduce (or eliminate) his or her actual award based on such
considerations as the Compensation Committee deems appropriate. If a participant
terminates employment with the Company prior to the end of the applicable Plan
year for any reason other than death, disability or retirement, the Compensation
Committee will proportionately reduce (or eliminate) his or her actual award
based on the date of termination and such other considerations as the
Compensation Committee deems appropriate. If a participant terminates employment
with the Company prior to the end of the applicable Plan year due to death,
disability or retirement, he or she will be entitled to the payment of the award
for the year, provided, however, that the Compensation Committee may reduce (or
eliminate) his or her actual award based on such considerations as the
Compensation Committee deems appropriate.
Awards under the Plan are generally payable in cash after the end of the year
during which the award was earned. However, the Compensation Committee reserves
the right to declare any award wholly or partially payable in an equivalent
amount of Company stock (either fully vested or subject to vesting) issued under
the Company's 2002 Universal Stock Incentive Plan or successor equity
compensation plan.
NEW PLAN BENEFITS
Since the benefits under the Plan have not been determined and depend on a
number of factors, which the Compensation Committee has not yet established,
including the target award for each participant, performance goals which must be
achieved and a formula for increasing or decreasing a participant's actual
award, it is not possible to determine the benefits that will be received by
executive officers and other employees if the Plan is approved by the
stockholders.
AMENDMENT AND TERMINATION OF THE PLAN
The Board of Directors may amend or terminate the Plan at any time and for any
reason, but in accordance with Section 162(m) of the Code, certain material
amendments to the Plan will be subject to stockholder approval. As long as the
Plan remains in effect, it shall be resubmitted to stockholders as necessary to
enable the Plan to continue to qualify as performance-based compensation under
Section 162(m) of the Code.
BOARD OF DIRECTORS RECOMMENDATION
The voting requirements for this proposal are described above under "Voting
Information". The Board of Directors recommends a vote "FOR" the approval of the
2004 Key Executive Incentive Compensation Plan.
30
PROPOSAL NO. 4
--------------
APPROVAL OF THE AMENDED AND RESTATED
ANNUAL INCENTIVE COMPENSATION PLAN
Franklin's stockholders are being asked to approve the Amended and Restated
Annual Incentive Compensation Plan (the "Amended and Restated Incentive Plan"),
which is an amendment and restatement of the Company's existing Amended Annual
Incentive Compensation Plan. The purpose of the amendment is to (1) increase the
award pool from a maximum of 15% of pre-tax operating income to a maximum of 20%
of pre-tax operating income, (2) give the Compensation Committee increased
discretion in determining the amount of awards payable to participants in the
Amended and Restated Incentive Plan and (3) make other technical amendments. The
original Annual Incentive Compensation Plan was adopted by the Board of
Directors on December 8, 1993 and approved by the stockholders in January 19,
1994. The Amended Annual Incentive Compensation Plan was adopted by the Board of
Directors on October 22, 1994 and approved by the stockholders on January 24,
1995.
The Board of Directors approved the Amended and Restated Incentive Plan on
December 11, 2003. It is the intention of the persons named as proxy holders to
vote to approve the Amended and Restated Incentive Plan. If stockholder approval
is not received, the Amended and Restated Incentive Plan will not be amended as
described above and awards shall continue to be made under the existing Amended
Annual Incentive Compensation Plan.
DESCRIPTION OF THE PLAN
The following summary describes the material features of the Amended and
Restated Incentive Plan as proposed to be amended, but is not intended to be
complete and is qualified in its entirety by reference to the Amended and
Restated Incentive Plan, a copy of which is attached as Appendix F. The
locations of proposed deletions are indicated by carets "^" and proposed
additions are indicated as bracketed. Capitalized terms not otherwise defined
are used as set forth in the Amended and Restated Incentive Plan.
PURPOSE OF THE PLAN
The general purpose of the Amended and Restated Incentive Plan is to reward the
contributions made to the Company by certain employees by providing them an
opportunity to share in the Company's annual performance results with a view to
attracting, retaining and motivating eligible employees to achieve the highest
levels of performance results.
ADMINISTRATION OF THE PLAN
The Plan will be administered by the Compensation Committee.
ELIGIBILITY TO RECEIVE AWARDS
Exempt employees of the Company and its subsidiaries (as used in this section,
collectively, "Company"), as that term is used in the Federal Fair Labor
Standards Act or where state law is more restrictive, then the applicable state
law, may participate in the Amended and Restated Incentive Plan. Such standard
will remain applicable to personnel of foreign subsidiaries for Amended and
Restated Incentive Plan purposes as if such statutes were applicable to such
foreign subsidiaries. Employees may be participants under the Amended and
Restated Incentive Plan as either "principals" or "associates".
31
AWARDS AND PERFORMANCE GOALS
Under the Amended and Restated Incentive Plan, awards are based upon Company
performance, but such awards are based more directly upon an employee's actual
performance and contributions during a fiscal year.
The Amended and Restated Incentive Plan provides for the establishment of an
award pool based upon pre-tax operating income. Pre-tax operating income
consists of the Company's net operating income, exclusive of passive income and
calculated before non-operating interest, taxes, extraordinary items, certain
special items (such as special compensation payouts on account of mergers) and
before the accrual of incentive awards under the Amended and Restated Incentive
Plan and the 2004 Key Executive Incentive Compensation Plan if adopted by the
stockholders. The Compensation Committee will determine on an annual basis the
percentage of pre-tax operating income to be allocated to the award pool. The
existing Amended Annual Incentive Compensation Plan currently provides that the
award pool for any plan year may equal up to 15% of pre-tax operating income as
determined by the Compensation Committee. If the Amended and Restated Incentive
Plan is approved by the stockholders of the Company, the award pool for any plan
year may equal up to 20% of pre-tax operating income as determined by the
Compensation Committee. The Compensation Committee may also determine if the
award pool should be further segregated (a) by subsidiary company or companies
and (b) between principals and associates.
No minimum or maximum awards are provided for under the Amended and Restated
Incentive Plan and allocations do not carry over from fiscal year to fiscal
year. Amounts not paid under the Amended and Restated Incentive Plan may be used
for distribution as incentive compensation to employees who are not participants
in the Amended and Restated Incentive Plan. The Compensation Committee will also
have the maximum opportunity to adjust individual awards at year end to reflect
actual demonstrated performance during such fiscal year. The Plan contains a
continuous employment requirement. The Amended and Restated Incentive Plan
provides for certain pro-rations of awards to employees in the event of death or
permanent or long-term disability. The Compensation Committee also has complete
discretion to (1) pay a participant's full award (or any greater amount) or (2)
decrease (even to zero) a participant's award.
Awards under the Amended and Restated Incentive Plan are payable after the end
of the year during which the award was earned. Awards will be made in the form
of current or deferred cash payments as well as in restricted common stock,
stock options or restricted shares of investment companies in the Franklin
Templeton Funds. At least twenty-five percent (25%) of any award under the
Amended and Restated Incentive Plan must be paid in cash. Restricted shares of
common stock may be subject to vesting requirements based upon continued
employment as established by the Compensation Committee. All non-cash awards
will be issued in accordance with the Company's 2002 Universal Stock Plan.
32
AMENDED AND RESTATED INCENTIVE PLAN BENEFITS
The following table provides certain summary information concerning dollar
amounts of benefits that were actually awarded under the Company's existing
Amended Annual Incentive Compensation Plan to our Chief Executive Officer, each
of our four other most highly compensated executive officers, and certain other
groups during fiscal year 2003.
NAME AND PRINCIPAL POSITION DOLLAR VALUE
- --------------------------- ------------
Charles B. Johnson
Chairman of the Board and Chief Executive Officer...........................$ 2,000,000
Martin L. Flanagan
President...................................................................$ 2,184,132
Gregory E. Johnson
President...................................................................$ 2,184,132
Anne M. Tatlock
Vice Chairman and Member - Office of the Chairman...........................$ 832,723
Murray L. Simpson
Executive Vice President and General Counsel................................$ 411,250
William J. Lippman*.........................................................$ 822,452
Executive Officer Group (16 persons)........................................$ 9,802,164
Director Group (Non-Management) (7 persons).................................$ 0
Non-Executive Officer Employee Group.......................................$107,785,485
*Mr. Lippman resigned as an executive officer during the 2003 fiscal year.
AMENDMENT AND TERMINATION OF THE AMENDED AND RESTATED INCENTIVE PLAN
The Board of Directors may amend or terminate the Amended and Restated Incentive
Plan at any time and for any reason and the Board of Directors will submit such
amendments to the stockholders for approval to the extent required by applicable
law or the rules of the New York Stock Exchange.
BOARD OF DIRECTORS RECOMMENDATION
The voting requirements for this proposal are described above under "Voting
Information". The Board of Directors recommends a vote "FOR" the approval of the
Amended and Restated Annual Incentive Compensation Plan.
33
STOCKHOLDER PROPOSALS
If a stockholder intends to present any proposal in accordance with Rule 14a-8
under the Securities Exchange Act of 1934 for consideration at Franklin's next
Annual Meeting in 2005, the proposal must be received by the Secretary of the
Company by August 28, 2004. Such proposal must also meet the other requirements
of the rules of the Securities and Exchange Commission relating to stockholders'
proposals.
If a stockholder submits a proposal outside of Rule 14a-8 for Franklin's next
Annual Meeting in 2005 and if such proposal is not received by November 11,
2004, then Franklin's proxy may confer discretionary authority on persons being
appointed as proxies on behalf of Franklin to vote on such proposal.
All proposals should be addressed to: Barbara J. Green, Secretary, Franklin
Resources, Inc., One Franklin Parkway, Building 920, San Mateo, CA 94403.
THE ANNUAL REPORT
Franklin's Annual Report for the fiscal year ended September 30, 2003, including
financial statements, has been sent, or is being sent together with this Proxy
Statement, and is available for viewing on the Internet, to all stockholders as
of the record date. We are legally required to send you this information to help
you decide how to vote your proxy. Please read it carefully. However, the
financial statements and the Annual Report do not legally form any part of this
proxy soliciting material.
34
APPENDIX A
----------
AUDIT COMMITTEE CHARTER
PURPOSE
The Audit Committee (the "Committee") is a committee of the Board of Directors
of Franklin Resources, Inc. (the "Company"). The Committee's primary purpose is
to assist the Board of Directors (the "Board") in fulfilling its responsibility
to oversee (1) the Company's financial reporting and auditing activities,
including the integrity of the Company's financial statements, (2) the Company's
compliance with legal and regulatory requirements, (3) the independent auditor's
qualifications and independence, and (4) the performance of the Company's
internal audit function and independent auditors.
MEMBERSHIP
The Committee shall be comprised of not less than three members of the Board,
all of whom shall be independent directors in accordance with the Sarbanes-Oxley
Act of 2002 ("Sarbanes-Oxley"). The Committee's composition shall also meet the
requirements of the rules relating to audit committees established from time to
time by the New York Stock Exchange as well as the regulatory requirements of
any other applicable governmental or self-regulatory organization. All members
of the Committee shall, in the view of the Board of Directors, be financially
literate or shall become financially literate within a reasonable period of time
after appointment to the Committee. In addition, at least one member of the
Committee shall be an "audit committee financial expert" as defined by the
Securities and Exchange Commission pursuant to Section 407 of Sarbanes-Oxley.
Each member of the Committee shall be selected by the Board of Directors and
shall serve until such time as his or her successor has been duly appointed.
MEETINGS
The Committee shall meet on a regular basis, and will hold special meetings as
circumstances require. The timing of the meetings shall be determined by the
Committee. At all Committee meetings, a majority of the total number of members
shall constitute a quorum. A majority of the members of the Committee shall be
empowered to act on behalf of the Committee. Minutes shall be kept of each
meeting of the Committee.
AUTHORITY AND RESPONSIBILITIES
The Committee's function is one of oversight only and shall not relieve the
Company's management of its responsibility for preparing financial statements,
which accurately and fairly present the Company's financial results and
condition, or the responsibilities of the independent auditors relating to the
audit or review of financial statements. The Audit Committee shall have the
authority and be responsible for:
1. The appointment, compensation, retention and oversight of the work of
the independent auditor engaged by the Company for the purpose of
preparing or issuing an audit report or related work or performing
other audit or review services for the Company. The independent
auditor shall report directly to and may only be terminated by the
Committee.
2. Reviewing with management and the independent auditors (a) the audited
financial statements, including the Company's disclosures under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" ("MD&A"), to be included in the Company's
Annual Report on Form 10-K (or the Annual Report to Shareholders if
distributed prior to the filing of Form 10-K),
35
(b) the Company's interim financial results to be included in the
Company's quarterly reports on Form 10-Q, including the disclosures
under MD&A, and (c) the matters required to be discussed by Statement
of Auditing Standards ("SAS") No. 61, as may be modified or
supplemented from time to time; which review shall occur prior to the
filing of Form 10-K or Form 10-Q, whichever is applicable.
3. Preparing the annual report of the Audit Committee, which is included
in the Company's annual proxy statement.
4. Reviewing and generally discussing policies and procedures relating to
earnings press releases as well as financial information and earnings
guidance provided to analysts and rating agencies.
5. Reviewing with Company's management and the independent auditors (i)
the accounting policies, practices and judgments which may be viewed
as critical, (ii) all alternative treatments of financial information
within generally accepted accounting principles that have been
discussed by management and independent auditors, ramifications of the
use of such alternative disclosures and treatments, and the treatment
preferred by the independent auditors, and (iii) other written
communications between independent auditors and management, such as
any management letter comments or the schedule of unadjusted
differences.
6. Reviewing with management and the independent auditors the quality and
adequacy of the Company's internal controls, disclosure controls and
procedures, and accounting procedures, including reports of material
weaknesses or deficiencies in the design or operation of internal
controls and/or any fraud that involves personnel having a significant
role in internal controls, as disclosed by the CEO and/or CFO in
connection with their certifications for the annual or quarterly
reports of the Company and/or presented in the independent auditor's
written report, a report of management or internal audit, or
otherwise.
7. Providing oversight with respect to Company risk assessment and risk
management policies and processes.
8. Requesting from the independent auditors and reviewing annually, a
formal written statement delineating all relationships between the
auditor and the Company consistent with Independence Standards Board
Standard Number 1 and reviewing disclosed relationships and their
impact on the outside auditor's independence.
9. Pre-approving the retention of the independent auditor for any audit
and permitted non-audit services, which does not include the following
prohibited non-audit activities: (a) bookkeeping or other services
related to accounting records or financial statements of the Company;
(b) financial information systems design and implementation; (c)
appraisal or valuation services, fairness opinions or
contribution-in-kind reports; (d) actuarial services; (e) internal
audit outsourcing services; management functions; (f) human resources;
(g) broker or dealer, investment adviser or investment banking
services; (h) legal services; (i) expert services unrelated to the
audit; and (j) any other service that the Public Company Accounting
Oversight Board determines, by regulation, is impermissible. The Audit
Committee of the Company may delegate to one or more designated
members of the Audit Committee who are independent directors of the
Board of Directors, the authority to grant pre-approvals. The
decisions of any member (to whom authority is delegated) to
pre-approve any such non-audit service shall be presented to the full
Audit Committee at each of its scheduled meetings.
36
10. Approving non-audit services provided by the independent auditor to
the Company where pre-approval may be waived for non-audit services
that are deemed de minimus under the Sarbanes-Oxley Act of 2002.
Non-Audit services shall be considered de minimus if: (a) the
aggregate amount of such non-audit services constitutes not more than
5% of the total amount of revenues paid by the Company to its
independent auditor during the fiscal year in which the non-audit
services are provided; (b) the non-audit services were not recognized
by the issuer at the time of the engagement to be non-audit services;
and (c) the non-audit services are promptly brought to the attention
of the Audit Committee and approved prior to the completion of the
audit by the Audit Committee or by one or more members of the Audit
Committee whom authority to grant such approvals has been delegated by
the Audit Committee.
11. Establishing hiring policies for employees or former employees of
independent auditors.
12. Conducting a review of the independent auditor's report with respect
to the independent auditor's quality control procedures.
13. Reviewing with the independent auditor any audit problems and/or
difficulties and resolving any disagreements regarding financial
reporting arising between the Company's management and any independent
auditor employed by the Company.
14. Engaging independent professional advisers and counsel as the
Committee determines are appropriate to carry out its functions and
reviewing funding needs as appropriate.
15. Meeting separately and periodically, with management, internal
auditors and independent auditors.
16. Overseeing the Company's internal audit function and meeting
separately with internal auditors to review any audit related issues,
including:
a. Reviewing internal audit plans, staffing and budget and the
adequacy of funding to carry out the proposed work scope.
b. Reviewing and concurring in the appointment, replacement or
dismissal of the internal audit director and ensuring internal
audit's continued objectivity.
c. Discussing significant internal audit findings in appropriate
detail as well as the status of past audit recommendations.
d. Meeting regularly in private sessions with both the internal
audit director and external auditors, to allow a full and frank
discussion of potentially sensitive issues.
17. Establishing procedures for the receipt, retention, and treatment of
complaints received by the Company regarding accounting, internal
controls, or auditing matters, which procedures shall include a
process for the confidential, anonymous submission by Company
employees of concerns regarding questionable accounting or auditing
matters.
18. Reporting regularly to the Board of Directors.
19. Reviewing annually the Audit Committee Charter for adequacy and
recommending any changes to the Board.
20. Conducting an annual performance evaluation of the Committee.
21. Performing any other activities consistent with this Charter.
37
APPENDIX B
----------
COMPENSATION COMMITTEE CHARTER
PURPOSE
The purpose of the Compensation Committee (the "Committee") is to assist the
Board of Directors of Franklin Resources, Inc. (the "Board") in fulfilling its
responsibility relating to (1) the compensation of the executives of Franklin
Resources, Inc. (the "Company"), (2) the administration of the Company's
incentive compensation, stock incentive, and stock investment plans and (3) the
preparation of the annual report on executive compensation, for the Company's
proxy statement.
MEMBERSHIP
The members of the Committee shall be appointed by the Board. The Committee
shall consist of no fewer than three members. Each member of the Committee shall
satisfy the independence requirements of and the rules relating to compensation
committees established by the New York Stock Exchange. The members of the
Committee shall serve until their successors are duly appointed and qualify, and
shall designate the Chairman of the Committee.
MEETINGS
The Committee shall meet on a regular basis and will hold special meetings as
circumstances require. The timing of the meetings shall be determined by the
Chairman of the Committee. At all Committee meetings, a majority of the members
of the Committee shall constitute a quorum for the transaction of business. The
action of a majority of those present at a meeting, at which a quorum is
present, shall be the action of the Committee. The Committee shall keep a record
of its actions and proceedings and report to the Board at its next meeting.
AUTHORITY AND RESPONSIBILITIES
The Committee shall have the following authority and responsibilities:
1. The Committee shall review and approve corporate goals and objectives
relevant to the Chief Executive Officer's compensation, evaluate the
Chief Executive Officer's performance in light of those goals and
objectives, and set the Chief Executive Officer's compensation level
based on this evaluation.
2. In determining the long-term incentive component of the Chief
Executive Officer compensation, the Committee may consider, among
other factors, the Company's performance and relative shareholder
return, the value of similar incentive awards to Chief Executive
Officers at comparable companies, and the awards given to the
Company's Chief Executive Officers in past years.
3. The Committee shall make recommendations to the Board with respect to
incentive compensation plans, stock plans and stock purchase plans.
The Committee shall also review and make recommendations with respect
to performance or operating goals for participants in the Company's
incentive plans.
4. The Committee shall adopt, administer, approve and ratify awards under
incentive compensation and stock incentive plans, including amendments
to the awards made under any such plans, and review and monitor awards
under such plans. The Committee shall also serve as the plan
administrator for
38
such incentive compensation plans, stock incentive plans and stock
purchase plans as the Committee, from time to time, as required by the
Board or the plan documents.
5. The Committee shall review and make recommendations to the Board on
the overriding compensation philosophy for the Company.
6. The Committee shall meet annually with the Chief Executive Officer to
receive the Chief Executive Officer's recommendations concerning
performance goals and the Chief Executive Officer's evaluation of the
Company's progress toward meeting those goals.
7. The Committee shall review and approve: (1) employment agreements,
severance arrangements, and change in control agreements or
provisions, and (2) any special or supplemental benefits for the Chief
Executive Officer and such senior executives of the Company and its
subsidiaries where the amounts exceed certain threshold levels
determined by the Committee from time to time.
8. The Committee shall make regular reports to the Board.
9. The Committee shall review and reassess the adequacy of this Charter
annually and recommend any proposed changes to the Board for approval.
10. The Committee shall annually review its own performance.
11. The Committee may also:
a. Form and delegate authority to subcommittees as appropriate.
b. Retain independent advisors and compensation consultants at the
expense of the Company, to assist in carrying out Committee
responsibilities, as the Committee may deem appropriate.
c. Perform any other activities consistent with this Charter.
39
APPENDIX C
----------
CORPORATE GOVERNANCE COMMITTEE CHARTER
This Corporate Governance Committee Charter (the "Charter") has been adopted by
the Board of Directors (the "Board") of Franklin Resources, Inc. (the "Company")
in connection with its oversight of the Company's management and the business
affairs of the Company.
PURPOSE
The purpose of the Corporate Governance Committee (the "Committee") is to
provide counsel to the Board with respect to the organization, function and
composition of the Board and its committees. The Committee is responsible for
developing and recommending to the Board corporate governance policies and
procedures applicable to the Company, and for identifying and recommending to
the Board potential director candidates for nomination.
MEMBERSHIP
The members of the Committee shall be appointed by the Board. The Committee
shall be comprised of not less than three members of the Board. Each member of
the Committee shall satisfy the independence requirements of the New York Stock
Exchange. The members of the Committee shall serve until their successors are
duly appointed and qualify, and shall designate the Chairman of the Committee.
MEETINGS
The Committee shall meet on a regular basis and hold special meetings as
circumstances require. The timing of the meetings shall be determined by the
Committee. At all Committee meetings, a majority of the members of the Committee
shall constitute a quorum for the transaction of business. The action of a
majority of those present at a meeting, at which a quorum is present, shall be
the action of the Committee. The Committee shall keep a record of its actions
and proceedings and report to the Board at its next meeting.
AUTHORITY AND RESPONSIBILITIES
The Committee shall have the authority and responsibility to:
1. Develop and recommend to the Board for adoption specific, minimum
qualifications that the Committee believes must be met by a potential
nominee for director, including any specific qualities or skills that
the Committee believes are necessary for one or more of the directors
to possess.
2. Develop and recommend to the Board for adoption Director Independence
Standards.
3. Review shareholder recommendations for candidates for directors if
such recommendations are submitted in writing and addressed to the
Committee at the Company's offices and develop and recommend to the
Board for adoption procedures to be followed by shareholders in
submitting such recommendations.
4. Identify individuals qualified to become potential director nominees
consistent with the minimum qualifications and other criteria approved
by the Board.
5. Recommend candidates as nominees for election as members of the Board.
40
6. Retain a search firm to assist in identifying director candidates and
approve the search firm's fees and other retention terms; and retain
other independent advisors at the expense of the Company, to assist in
carrying out Committee responsibilities, as the Committee may deem
appropriate.
7. Oversee the evaluation of the executive management of the Company from
a governance point of view and make recommendations to the Board as
appropriate.
8. Oversee the Company's orientation and continuing education process for
newly elected members of the Board and assist the Board in its
implementation.
9. Develop and recommend to the Board for adoption a set of corporate
governance guidelines and assess those guidelines annually.
10. Form and delegate authority to subcommittees when appropriate.
11. Develop and recommend to the Board for adoption a Code of Business
Conduct and Ethics.
12. With respect to Committees of the Board, review annually, or more
often if appropriate, the directors who are members (including
qualifications and requirements), the structure (including authority
to delegate) and the performance (including reporting to the Board),
and make recommendations to the Board, as appropriate.
13. Receive comments from all directors and report annually to the Board
with an assessment of the Board's performance, to be discussed with
the full Board following the end of each fiscal year.
14. Review on a periodic basis, or more often if necessary, the anti-money
laundering policies, procedures and operations of the Company.
15. Review and reassess the adequacy of this Charter annually and
recommend any proposed changes to the Board for approval.
16. Annually review its own performance.
17. Perform any other activities consistent with this Charter.
This Charter is intended as a component of the flexible framework within which
the Board, assisted by its committees, directs the affairs of the Company. While
it should be interpreted in the context of applicable laws, regulations and
listing requirements, as well as in the context of the Company's Certificate of
Incorporation and By-Laws, it is not intended to establish by its own force any
legally binding obligations.
41
APPENDIX D
----------
CORPORATE GOVERNANCE GUIDELINES
These Corporate Governance Guidelines (the "Guidelines") have been adopted by
the Board of Directors (the "Board") of Franklin Resources, Inc. (the "Company")
in connection with its oversight of the Company's management and business
affairs.
1. COMPOSITION OF BOARD OF DIRECTORS.
INDEPENDENCE OF DIRECTORS. A majority of directors must qualify as independent
directors in accordance with applicable rules of the New York Stock Exchange
(the "Independence Rules").
DIRECTOR QUALIFICATIONS AND SELECTION. The Corporate Governance Committee of the
Board is responsible for reviewing with the Board the appropriate
qualifications, requisite skills and characteristics of new directors as well as
the composition of the Board as a whole. This assessment shall include
qualifications under the Independence Rules as well as consideration of the
individual skills, experience and perspectives that will help create an
effective Board. The Corporate Governance Committee shall recommend to the Board
candidates for election as directors, and the Board shall nominate directors for
election by the Company's stockholders.
SIZE OF BOARD. The Board shall periodically evaluate the appropriate size of the
Board and make any changes it deems appropriate.
TERM LIMITS. The Board does not believe that it should establish term limits for
its members. The Board recognizes the value of continuity of directors who have
experience with the Company and who have gained over a period of time a level of
understanding about the Company and its operations that enable the director to
make a significant contribution to the deliberations of the Board.
RETIREMENT. Persons are not eligible to be recommended for nomination as a
director for a term commencing on or after their 75th birthday. Incumbent
directors reaching the age of 75 during their term may complete such term.
2. CONFLICTS OF INTEREST AND OTHER COMMITMENTS.
With respect to any matter under discussion by the Board, directors must
disclose to the Board any potential conflicts of interest they may have and, if
appropriate, refrain from voting on a matter in which they may have a conflict.
Each director is responsible for ensuring that other commitments do not conflict
or materially interfere with the director's responsibilities to the Company. To
ensure that serving as a director of another company or any other change in
circumstances such as employment, business or "immediate family" relationships
(as defined under the Independence Rules) would not conflict with his or her
duties to the Company, need to be disclosed in the Company's proxy statement, or
change the director's status under the Independence Rules, the director should
consult the Chairman of the Board and the Corporate Secretary in advance of
accepting an invitation to serve on another company's board and should report
any such change to the Corporate Secretary. The Chairman of the Board and the
Corporate Secretary should report to the Corporate Governance Committee in
writing the results of such consultation.
42
3. DIRECTOR RESPONSIBILITIES.
The directors are responsible for exercising care, loyalty and good faith;
acting in a manner they reasonably believe is in the best interests of the
Company and its stockholders and in a manner consistent with their fiduciary
duties. In fulfilling their responsibilities, directors may ask such questions
and conduct such investigations as they deem appropriate, and may reasonably
rely on the information provided to them by the Company's senior executives and
its outside advisors and auditors. The directors shall be entitled to have the
Company purchase directors' and officers' liability insurance on their behalf
and receive the benefits of indemnification and exculpation to the fullest
extent permitted by law, the Company's charter and by-laws and any
indemnification agreements, as applicable.
Directors are expected to regularly attend Board meetings and meetings of
committees on which they serve, to spend the time needed in preparation for such
meetings and to meet as frequently as they deem necessary to properly discharge
their responsibilities. In addition, directors should stay abreast of the
Company's business and markets. To the extent reasonably practical, directors
should review agendas and other meeting materials in advance of any Board or
committee meetings.
The Chairman of the Board and the Corporate Secretary will establish and
disseminate the agenda for each Board meeting. Each Board member is free to
suggest the inclusion of items on the agenda. Each Board member is free to raise
at any Board meeting subjects that are not on the agenda for that meeting. The
Board will periodically review with management the Company's long-term strategic
plans.
The Board believes that management speaks for the Company. Individual directors
may, from time to time, expressly represent the Company in meetings or otherwise
communicate with various third parties on the Company's behalf. It is expected
that directors will do this with the knowledge of management and, unless
warranted by unusual circumstances or as contemplated by the committee charters,
only at the request of management.
4. EXECUTIVE SESSIONS.
The non-management directors (i.e., directors who are not Company officers) will
meet separately without management in regular executive sessions. The
"independent" directors as defined in the "Independence Rules" will meet at
least twice a year in executive session.
5. BOARD COMMITTEES.
The Board shall have an Audit Committee, a Compensation Committee and a
Corporate Governance Committee. All members of these committees will be
"independent" directors, as defined in the Independence Rules. In addition,
Audit Committee members shall qualify under applicable provisions of the
Securities Exchange Act of 1934 (as amended), the rules promulgated thereunder
and applicable rules of the New York Stock Exchange.
Committee members shall be appointed by the Board to serve until their
successors are duly appointed and qualify. Committee members shall designate the
Chairman of the committee.
Each committee shall have its own written charter. The charters will set forth
the purpose, authority and responsibilities of the committees as well as
qualifications for committee membership, procedures for committee member
appointment, committee structure and operations and how the committee reports to
the Board.
43
The charters of each committee will be reviewed periodically with a view toward
delegating to the standing committees the full authority of the Board concerning
specified matters appropriate to such committee.
The Chairman of each committee, in consultation with the committee members, will
determine the frequency and length of the committee meetings consistent with any
requirements set forth in the committee's charter. The Chairman of each
committee, in consultation with the appropriate members of the committee and
management, will develop the committee's agenda.
The Board may, from time to time, establish or maintain additional committees as
it deems appropriate and delegate to such committees such authority permitted by
applicable laws and the Company's by-laws as the Board sees fit.
6. DIRECTOR ACCESS TO OFFICERS, EMPLOYEES AND INDEPENDENT ADVISORS.
Directors shall have full and free access to officers and employees of the
Company. Any meetings or contacts that a director wishes to initiate may be
arranged directly by the directors or through the Chief Executive Officer or the
Corporate Secretary.
The Board and each Board committee shall have the power to hire legal,
accounting, financial or other advisors as they may deem necessary in best
judgment with due regard to cost, without the need to obtain the prior approval
of any officer of the Company. The Corporate Secretary of the Company will
arrange for payment of the invoices of any such third party.
7. DIRECTOR COMPENSATION.
The form and amount of director compensation will be determined by the
Compensation Committee in accordance with the policies and principles set forth
in its charter, and the Compensation Committee will conduct an annual review of
director compensation.
8. DIRECTOR ORIENTATION AND CONTINUING EDUCATION.
The Board, with the assistance of the Corporate Governance Committee, shall
establish, or identify and provide access to, appropriate orientation programs,
sessions or material for newly elected directors of the Company for their
benefit either prior to or within a reasonable period of time after their
nomination or election as a director. This orientation may include presentations
by senior management to familiarize new directors with the Company's strategic
plans, its significant financial, accounting and risk management issues, its
compliance program, its Code of Ethics and Business Conduct and Corporate
Governance Guidelines, its principal officers, and its internal and independent
auditors. In addition, the orientation will include visits to Company
headquarters and, to the extent appropriate, other of the Company's significant
facilities. All other directors are also invited to attend orientation.
The Board, with the assistance of the Corporate Governance Committee, shall also
identify and/or develop continuing education opportunities for non-management
directors.
9. MANAGEMENT SUCCESSION.
Senior management of the Company shall develop for Board approval a "Management
Succession Plan" for the Chief Executive Officer. To assist the Board, the Chief
Executive Officer shall periodically provide the Corporate Governance Committee
with an assessment of senior executives and their potential to succeed the Chief
Executive Officer.
44
10. PERFORMANCE EVALUATION.
The Board, with the assistance of the Corporate Governance Committee, shall
conduct an annual self-evaluation to determine whether the Board and its
committees are functioning effectively. The full Board will discuss the
evaluation to determine what action, if any, could improve Board and committee
performance. The Board, with the assistance of the Corporate Governance
Committee, as appropriate, shall periodically review these Corporate Governance
Guidelines to determine whether any changes are appropriate.
These Corporate Governance Guidelines are intended as a component of the
flexible framework within which the Board, assisted by its committees, directs
the affairs of the Company. While they should be interpreted in the context of
applicable laws, regulations and listing requirements, as well as in the context
of the Company's Certificate of Incorporation and By-Laws, they are not intended
to establish by their own force any legally binding obligations.
45
APPENDIX E
----------
FRANKLIN RESOURCES, INC.
2004 KEY EXECUTIVE INCENTIVE COMPENSATION PLAN
SECTION 1
ESTABLISHMENT AND PURPOSE
1.1 PURPOSE. Franklin Resources, Inc. hereby establishes the Franklin
Resources, Inc. 2004 Key Executive Incentive Compensation Plan (the "Plan"). The
Plan is intended to increase stockholder value and the success of the Company by
motivating key employees (a) to perform to the best of their abilities and (b)
to achieve the Company's objectives. The Plan's goals are to be achieved by
providing such key employees with incentive awards based on the achievement of
goals relating to performance of the Company and its individual business units.
The Plan is intended to qualify as performance-based compensation under Code
Section 162(m).
1.2 EFFECTIVE DATE. The Plan shall be effective as of December 11, 2003,
subject to the approval of a majority of the shares of the Company's common
stock which are present in person or by proxy and entitled to vote at the 2004
Annual Meeting of stockholders. As long as the Plan remains in effect, it shall
be resubmitted to stockholders as necessary to enable the Plan to continue to
qualify as performance-based compensation under Code Section 162(m).
SECTION 2
DEFINITIONS
The following words and phrases shall have the following meanings unless a
different meaning is plainly required by the context:
2.1 "ACTUAL AWARD" means as to any Plan Year, the actual award (if any)
payable to a Participant for the Plan Year. Actual Award is determined by the
Payout Formula for the Plan Year, subject to the Committee's authority under
Section 3.6 to reduce the award otherwise determined by the Payout Formula.
2.2 "AWARD POOL" means the total dollars (if any) designated to fund Actual
Awards payable for any Plan Year.
2.3 "BASE SALARY" means as to any Plan Year, 100% of the Participant's
annualized salary rate on the last day of the Plan Year. Such Base Salary shall
be before both (a) deductions for taxes or benefits, and (b) deferrals of
compensation pursuant to Company-sponsored plans.
2.4 "BENEFICIARY" means the person(s) or entity(ies) designated to receive
payment of an Actual Award in the event of a Participant's death in accordance
with Section 4.5 of the Plan. The Beneficiary designation shall be effective
when it is submitted in writing to and acknowledged by the Committee during the
Participant's lifetime on a Beneficiary Designation form provided by the
Committee. The submission of a new Beneficiary Designation form shall cancel all
prior Beneficiary designations.
2.5 "BOARD" means the Company's Board of Directors.
46
2.6 "CODE" means the Internal Revenue Code of 1986, as amended. Reference
to a specific Section of the Code shall include such Section, any valid
regulation promulgated thereunder, and any comparable provision of any future
legislation or regulation amending, supplementing or superseding such Section or
regulation.
2.7 "COMMITTEE" means the committee appointed by the Board to administer
the Plan. The Committee shall consist of no fewer than two members of the Board.
The members of the Committee shall be appointed by, and serve at the pleasure
of, the Board. Each member of the Committee shall qualify as an "outside
director" under Code Section 162(m). Notwithstanding the foregoing, the failure
of a Committee member to qualify as an "outside director" shall not invalidate
the payment of any Actual Award under the Plan.
2.8 "COMPANY" means Franklin Resources, Inc., a Delaware corporation, and
its subsidiaries.
2.9 "DETERMINATION DATE" means as to any Plan Year, (a) the first day of
the Plan Year, or (b) if later, the latest date possible which will not
jeopardize the Plan's qualification as performance-based compensation under Code
Section 162(m).
2.10 "DISABILITY" means a permanent and total disability determined in
accordance with uniform and nondiscriminatory standards adopted by the Committee
from time to time.
2.11 "MAXIMUM AWARD" means as to any Participant for any Plan Year, ten
million dollars ($10,000,000). The Maximum Award is the maximum amount which may
be paid to a Participant for any Plan Year.
2.12 "PARTICIPANT" means as to any Plan Year, a key employee who has been
selected by the Committee for participation in the Plan for that Plan Year.
2.13 "PAYOUT FORMULA" means as to any Plan Year, the formula or payout
matrix established by the Committee pursuant to Section 3.5, below, in order to
determine the Actual Awards (if any) to be paid to Participants. The formula or
matrix may differ from Participant to Participant.
2.14 "PERFORMANCE GOALS" means the goal(s) (or combined goal(s)) determined
by the Committee (in its discretion) to be applicable to a Participant for a
Plan Year. As determined by the Committee, the Performance Goals applicable to
each Participant shall provide for a targeted level or levels of achievement
using one or more of the following measures: (a) annual revenue, (b) budget
comparisons, (c) Company stock price, (d) controllable profits, (e) Company
earnings per share, (f) expense management, (g) improvements in capital
structure, (h) net income, (i) net sales, (j) pre-tax operating income, (k)
profit margins, (l) profitability of an identifiable business unit or product,
(m) return on investments, (n) return on sales, (o) return on stockholders'
equity, (p) total return to stockholders and (q) performance of the Company
relative to a peer group of companies on any of the foregoing measures. The
Performance Goals may be applicable to the Company and/or any of its individual
business units and may differ from Participant to Participant.
2.15 "PLAN YEAR" means the fiscal year of the Company ending in 2004 and
each succeeding fiscal year of the Company.
2.16 "RETIREMENT" means retirement from service to the Company after
reaching age fifty-five (55) with at least ten (10) years of service to the
Company or a subsidiary of the Company, including service to any entity that is
acquired by the Company or a subsidiary of the Company.
47
2.17 "TARGET AWARD" means the target award payable under the Plan to a
Participant for the Plan Year as determined by the Committee in accordance with
Section 3.4 and expressed either (a) as a percentage of his or her Base Salary
or (b) as a percentage of the Award Pool.
SECTION 3
SELECTION OF PARTICIPANTS AND DETERMINATION OF AWARDS
3.1 SELECTION OF PARTICIPANTS. On or prior to the Determination Date, the
Committee, in its sole discretion, shall select the key employees who shall be
Participants for the Plan Year. In selecting Participants, the Committee shall
choose employees who are likely to have a significant impact on the performance
of the Company. Participation in the Plan is in the sole discretion of the
Committee, and on a Plan Year by Plan Year basis. Accordingly, an employee who
is a Participant for a given Plan Year in no way is guaranteed or assured of
being selected for participation in any subsequent Plan Year or Years.
3.2 DETERMINATION OF AWARD POOL. On or prior to the Determination Date, the
Committee may in its sole discretion establish an Award Pool for any Plan Year.
3.3 DETERMINATION OF PERFORMANCE GOALS. On or prior to the Determination
Date, the Committee, in its sole discretion, shall establish the Performance
Goals for each Participant for the Plan Year. Such Performance Goals shall be
set forth in writing.
3.4 DETERMINATION OF TARGET AWARDS. On or prior to the Determination Date,
the Committee, in its sole discretion, shall establish a Target Award for each
Participant. Each Participant's Target Award shall be determined by the
Committee in its sole discretion, and each Target Award shall be set forth in
writing.
3.5 DETERMINATION OF PAYOUT FORMULA OR FORMULAE. On or prior to the
Determination Date, the Committee, in its sole discretion, shall establish a
Payout Formula or Formulae for purposes of determining the Actual Award (if any)
payable to each Participant. Each Payout Formula shall (a) be in writing, (b) be
based on a comparison of actual performance to the Performance Goals, (c)
provide for the payment of a Participant's Target Award if the Performance Goals
for the Plan Year are achieved, and (d) provide for an Actual Award greater than
or less than the Participant's Target Award, depending upon the extent to which
actual performance exceeds or falls below the Performance Goals. Notwithstanding
the preceding, no participant's Actual Award under the Plan may exceed the
Maximum Award.
3.6 DETERMINATION OF ACTUAL AWARDS. After the end of each Plan Year, the
Committee shall certify in writing the extent to which the Performance Goals
applicable to each Participant for the Plan Year were achieved or exceeded. The
Actual Award for each Participant shall be determined by applying the Payout
Formula to the level of actual performance which has been certified by the
Committee. Notwithstanding any contrary provision of the Plan, the Committee, in
its sole discretion, may eliminate or reduce the Actual Award payable to any
Participant below that which otherwise would be payable under the Payout
Formula.
3.7 TERMINATION PRIOR TO THE DATE THE ACTUAL AWARD FOR THE PLAN YEAR IS
PAID. If a Participant terminates employment with the Company for any reason
after the end of the applicable Plan Year but prior to the date the Actual Award
for such Plan Year is paid, the Participant shall be entitled to the payment of
the Actual Award for the Plan Year subject to reduction or elimination under
Section 3.6 based on the circumstances surrounding such termination of
employment.
48
3.8 TERMINATION PRIOR TO END OF THE PLAN YEAR FOR REASONS OTHER THAN DEATH,
DISABILITY OR RETIREMENT. If a Participant terminates employment with the
Company prior to the end of the applicable Plan Year for any reason other than
death, Disability or Retirement, the Committee shall reduce the Participant's
Actual Award proportionately based on the date of termination (and subject to
further reduction or elimination under Section 3.6 based on the circumstances
surrounding such termination of employment).
3.9 TERMINATION PRIOR TO THE END OF THE PLAN YEAR DUE TO DEATH, DISABILITY
OR RETIREMENT. If a Participant terminates employment with the Company prior to
the end of the applicable Plan Year due to death, Disability or Retirement, the
Participant (or in the case of the Participant's death, the person who acquired
the right to payment of the Actual Award pursuant to Section 4.5) shall be
entitled to the payment of the Actual Award for the Plan Year subject to
reduction or elimination under Section 3.6.
3.10 LEAVE OF ABSENCE. If a Participant is on a leave of absence at any
time during a Plan Year, the Committee may reduce his or her Actual Award
proportionately based on the duration of the leave of absence (and subject to
further reduction or elimination under Section 3.6).
SECTION 4
PAYMENT OF AWARDS
4.1 RIGHT TO RECEIVE PAYMENT. Each Actual Award that may become payable
under the Plan shall be paid solely from the general assets of the Company.
Nothing in this Plan shall be construed to create a trust or to establish or
evidence any Participant's claim of any right other than as an unsecured general
creditor with respect to any payment to which he or she may be entitled.
4.2 TIMING OF PAYMENT. Payment of each Actual Award shall be made within
three and one-half calendar months after the end of the Plan Year during which
the Award was earned.
4.3 FORM OF PAYMENT. Each Actual Award normally shall be paid in cash (or
its equivalent) in a single lump sum. However, the Committee, in its sole
discretion, may declare any Actual Award, in whole or in part, payable in the
form of a stock bonus granted under the Company's 2002 Universal Stock Incentive
Plan (the "2002 Plan") or successor equity compensation plan (subject to the
limit on the maximum number of shares that may be issued under the 2002 Plan or
successor equity compensation plan and any additional limitations on the maximum
number of shares that may be awarded to any individual in any fiscal or calendar
year under the 2002 Plan or successor equity compensation plan, as applicable).
The number of shares granted shall be determined by dividing the cash amount of
the Actual Award by the fair market value of a share of Company common stock on
the date that the cash payment otherwise would have been made. For this purpose,
"fair market value" shall be defined as provided in the 2002 Plan or successor
equity compensation plan. Any shares issued pursuant to a stock bonus granted
under the 2002 Plan or successor equity compensation plan may be either fully
vested or subject to vesting.
4.4 OTHER DEFERRAL OF ACTUAL AWARDS. The Committee may establish one or
more programs under the Plan to permit selected Participants the opportunity to
elect to defer receipt of Actual Awards. The Committee may establish the
election procedures, the timing of such elections, the mechanisms for payments
of, and accrual of interest or other earnings, if any, on amounts so deferred,
and such other terms, conditions, rules and procedures that the Committee deems
advisable for the administration of any such deferral program.
49
4.5 PAYMENT IN THE EVENT OF DEATH. If a Participant dies prior to the
payment of an Actual Award earned by him or her for a prior Plan Year, the
Actual Award shall be paid to the Participant's Beneficiary. If a Participant
fails to designate a Beneficiary or if each person designated as a Beneficiary
predeceases the Participant or dies prior to payment of an Actual Award, then
the Committee shall direct the payment of such Actual Award to the Participant's
estate.
SECTION 5
ADMINISTRATION
5.1 COMMITTEE IS THE ADMINISTRATOR. The Plan shall be administered by the
Committee.
5.2 COMMITTEE AUTHORITY. The Committee shall have all discretion and
authority necessary or appropriate to administer the Plan and to interpret the
provisions of the Plan, consistent with qualification of the Plan as
performance-based compensation under Code Section 162(m). Any determination,
decision or action of the Committee in connection with the construction,
interpretation, administration or application of the Plan shall be final,
conclusive, and binding upon all persons, and shall be given the maximum
deference permitted by law.
5.3 TAX WITHHOLDING. The Company shall withhold all applicable taxes from
any payment, including any non-U.S., federal, state, and local taxes.
SECTION 6
GENERAL PROVISION
6.1 NONASSIGNABILITY. A Participant shall have no right to assign or
transfer any interest under this Plan.
6.2 NO EFFECT ON EMPLOYMENT. The establishment and subsequent operation of
the Plan, including eligibility as a Participant, shall not be construed as
conferring any legal or other rights upon any Participant for the continuation
of his or her employment for any Plan Year or any other period. Generally,
employment with the Company is on an at will basis only. Except as may be
provided in an employment contract with the Participant, the Company expressly
reserves the right, which may be exercised at any time and without regard to
when during a Plan Year such exercise occurs, to terminate any individual's
employment without cause, and to treat him or her without regard to the effect
which such treatment might have upon him or her as a Participant.
6.3 NO INDIVIDUAL LIABILITY. No member of the Committee or the Board, or
any officer of the Company, shall be liable for any determination, decision or
action made in good faith with respect to the Plan or any award under the Plan.
6.4 SEVERABILITY; GOVERNING LAW. If any provision of the Plan is found to
be invalid or unenforceable, such provision shall not affect the other
provisions of the Plan, and the Plan shall be construed in all respects as if
such invalid provision has been omitted. The provisions of the Plan shall be
governed by and construed in accordance with the laws of the State of
California, with the exception of California's conflict of laws provisions.
6.5 AFFILIATES OF THE COMPANY. Requirements referring to employment with
the Company or payment of awards may, in the Committee's discretion, be
performed through the Company or any affiliate of the Company.
50
SECTION 7
AMENDMENT AND TERMINATION
7.1 AMENDMENT AND TERMINATION. The Board may amend or terminate the Plan at
any time and for any reason; provided, however, that if and to the extent
required to ensure the Plan's qualification under Code Section 162(m), any such
amendment shall be subject to stockholder approval.
51
APPENDIX F
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FRANKLIN RESOURCES, INC.
AMENDED [AND RESTATED] ANNUAL INCENTIVE COMPENSATION PLAN
[(amended and restated December 11, 2003)]
I. PURPOSE
Franklin Resources, Inc. (the "Company") hereby establishes the Amended [and
Restated] Annual Incentive Compensation Plan for Principals and Associates (as
hereinafter defined) to reward the contributions to the Company made by
Principals and Associates by providing them an opportunity to share in the
organization's annual performance results. Through these incentives, the Company
intends to attract, retain, and motivate eligible employees to achieve the
highest levels of performance results in the financial services business.
II. DEFINITIONS
When used in this plan document, the following words and phrases shall have the
following meanings:
2.1 "Associates' Pool" means the portion of the Award Pool allocated to
Incentive Awards for Associates.
2.2 "Award Pool" means the total dollars available for funding awards under
the Plan. The Award Pool is comprised of the Associates' Pool and the
Principals' Pool.
2.3 "Committee" means the Compensation Committee of the Board of Directors
of the Company as described in Section 9.1 below.
2.4 "Company" means Franklin Resources, Inc.[, a Delaware Corporation,] and
its [subsidiaries]^.
2.5 "Incentive Award" means the actual current value of the award to a
Participant regardless of the form of the award, determined at the end of the
Plan Year.
2.6 "Participant" means all Principals and Associates who have been
determined by the Committee to be Participants, except employees who participate
in commission-based incentive plans or who are non-exempt employees.
2.7 "Plan" means the Amended [and Restated] Annual Incentive Compensation
Plan for Principals and Associates as set forth in this document, as amended
from time to time.
2.8 "Pre-Tax Operating Income" ([hereafter] "PTOI") means the net operating
income of ^[the Company], exclusive of passive income and calculated before
[non-operating] interest, taxes[,]^ extraordinary items [and certain special
items] (such as special compensation payouts on account of merger) and ^[before
the] accrual of Incentive Awards under the Plan [and awards under the Company's
2004 Key Executive Incentive Compensation Plan or any successor plan].
2.9 "Plan Year" means the 12-month period beginning on the first day of
each fiscal year of the Company, currently October 1.
2.10 "Principals' Pool" means the portion of the Award Pool allocated to
Incentive Awards for Principals.
52
2.11 "Stock" means Franklin Resources, Inc. common stock reserved for
issuance under the Franklin Resources, Inc. [2002] Universal Stock [Incentive]
Plan [or successor equity compensation plan] and includes shares issued subject
to restrictions and stock options.
2.12 "Target Award" means a potential bonus opportunity for a Participant
budgeted at the beginning of the Plan Year.
III. PARTICIPATION
3.1 All Principals and Associates employed by the Company at the beginning
of the Plan Year are eligible to be Participants during that Plan Year. The
Committee shall in its sole discretion determine annually which employees are
Principals. All other eligible exempt staff are Associates. The Committee may,
in its sole discretion, add exempt employees hired during a Plan Year as either
Principals or Associates and may adjust Target Awards for such persons based
upon such interim employment.
3.2 A non-exempt employee who becomes exempt during a Plan Year shall be
eligible for an Incentive Award from the Associates' Pool, in the Committee's
sole discretion.
3.3 A Participant who changes status (e.g., Associate to Principal) shall
continue in his former status for that Plan Year [, unless otherwise determined
by the Committee].
3.4 A Participant's award will be based upon an evaluation of a
Participant's overall performance, including the successful accomplishment of
annual goals and objectives, as well as other performance factors. A Participant
who receives a formal performance appraisal and whose overall evaluation is at
less than the median level of performance relative to such Participant's peers
still remains eligible for an Incentive Award, but the award may be reduced,
even to zero. Participants on written warning may be eligible for an Incentive
Award at the sole discretion of the Committee, but the Award may be reduced,
even to zero.
IV. AWARD POOL FUNDING AND INDIVIDUAL AWARDS
4.1 At or near the beginning of each Plan Year, the Committee shall
(a) Determine the percentage, not to exceed ^[Twenty Percent (20%)], if
any, of PTOI that will be allocated to the Award Pool at various levels of
Company performance measured by changes in PTOI from the prior year. The
Committee may also determine if in its opinion prevailing circumstance dictates,
that the Award Pool for particular identified groups of Principals and/or
Associates shall be based upon the PTOI of particular identified subsidiary or
subsidiaries of the Company. The determinations made by the Committee shall be
subject to approval of the Board of Directors of the Company;
(b) Determine the allocation of the Award Pool of the Company and any
identified subsidiary or subsidiaries of the Company as described in (a) above,
between the Associates' Pool(s) and the Principal's Pool(s);
4.2 After consideration of recommendations made by management personnel,
the Committee shall generally determine the amount of Target Awards for
Participants under the Plan. The Committee may, in its sole discretion, advise
Participants of particular Target Awards or ranges of Target Awards at any time
during the Plan Year.
4.3 The actual amounts allocated to the Award Pool(s) shall be determined
after the end of each Plan Year, based upon actual Company performance and PTOI.
53
4.4 Actual Incentive Awards are determined following the end of each Plan
Year. Actual Incentive Awards will vary from the Target Awards depending on the
PTOI allocated to the Award Pool and a Participant's individual performance.
4.5 The Principals' Pool will be allocated among any or all Principals on
the basis of a Participant's individual performance and based upon the
accomplishment of such Participant's goals and objectives for the Plan Year. No
Principals are guaranteed a payout from the Principals' Pool.
4.6 The Associates' Pool will be allocated among any or all Associates on
the basis of the Participant's individual performance and based upon the
accomplishment of such Participant's goals and objectives for the Plan Year. No
Associates are guaranteed a payout from the Associates' Pool.
4.7 To promote the highest levels of individual performance, there is no
minimum or maximum which applies to individual Incentive Awards of any
Participant. Amounts not allocated as awards do not carry over to the next Plan
Year, and may be used for distribution as incentive compensation to employees
who are not Participants in the Plan.
[4.8 Notwithstanding a Participant's individual performance and anything to
the contrary in this Plan, the Committee may, in its sole discretion, increase
or decrease (even to zero) the Incentive Award payable to a Participant.]
V. PAYMENT OF ANNUAL AWARDS
5.1 Incentive Awards may, in the Committee's discretion, be paid in the
following time and manner:
(a) Incentive Awards may be paid in cash or in a combination of cash and
Stock and shares of investment companies in the Franklin Templeton funds,
subject to restrictions and vesting determined by the Committee to be
appropriate. [Incentive Awards paid in Stock under the 2002 Universal Stock
Incentive Plan or successor equity compensation plan shall also be subject to
the limit on the maximum number of shares that may be issued under such plan and
any additional limitations on the maximum number of shares that may be awarded
to any individual in any fiscal or calendar year under the such plan.]
(b) At least 25% of the Incentive Award will be paid in cash at such time
after the end of the Plan Year as determined by the Committee. The balance (if
any) of the cash portion of an Incentive Award shall be paid at such later time
and in such manner as the Committee determines. Participants shall be notified
in writing as to the date and time of payment of any such deferred portion of
the Incentive Award.
(c) Any immediately vested Stock awarded as part of an Incentive Award
shall be distributed (whether or not subject to restrictions) at such time after
the end of the Plan Year as determined by the Committee. Stock subject to future
vesting shall be issued (whether or not subject to restrictions) as soon as
administratively practicable.
VI. PAYMENT IN EVENT OF DEATH, DISABILITY, LEAVE OF ABSENCE OR RETIREMENT
6.1 Death of Participant
A Participant who dies is entitled to a pro-rated Incentive Award based on
performance up to the last day worked. Payment shall be made in cash in a single
payment as soon as practical following the end of the Plan Year in which death
occurred. If the Participant dies following the end of a Plan Year but before
Incentive Awards for that year have been paid, the Participant's full Incentive
Award shall be paid in cash
54
in a single payment when it would otherwise have been paid. Payment of Incentive
Awards on account of death shall be paid to the person designated by the
Participant as beneficiary under this Plan. If there is no such designation or
the designated beneficiary fails to survive the Participant, payment shall be
made to the Participant's spouse or if there is none, the Participant's estate.
[Notwithstanding the foregoing provisions of this Section 6.1 with respect to
the payment of Incentive Awards, the Committee, in its sole discretion, may (a)
pay the Participant's full Incentive Award (or any greater amount) or (b)
decrease (even to zero) the Participant's Incentive Award.]
6.2 Disability
A Participant who ceases to be an employee on account of permanent and
total disability as a result of which the Participant shall be eligible for
payments under Company long term disability insurance policies, shall be
entitled to receive a pro-rated Incentive Award based on performance up to the
last day worked. Payment shall be made in cash in a single installment as soon
as practical following the end of the fiscal year in which employment
terminated. [Notwithstanding the foregoing provisions of this Section 6.2 with
respect to the payment of Incentive Awards, the Committee, in its sole
discretion, may (a) pay the Participant's full Incentive Award (or any greater
amount) or (b) decrease (even to zero) the Participant's Incentive Award.]
6.3 Leave of Absence
The Committee, in its sole discretion, shall determine Incentive Awards, if
any, to be paid to Participants on leave of absence for any portion of the Plan
Year.
6.4 Retirement
A Participant who retires during the Plan Year is eligible to receive a
pro-rated Incentive Award based on performance to the date of retirement in cash
in a single payment as soon as practical following the end of the fiscal year in
which the Participant retires. A Participant has "retired" for purposes of this
Plan if he terminates employment with the Company after reaching age 55 with at
least 10 years of ^[service to the Company, including service to any entity that
is acquired by the Company]. [Notwithstanding the foregoing provisions of this
Section 6.4 with respect to the payment of Incentive Awards, the Committee, in
its sole discretion, may (a) pay the Participant's full Incentive Award (or any
greater amount) or (b) decrease (even to zero) the Participant's Incentive
Award.]
VII. PAYMENT IN EVENT OF TERMINATION OF EMPLOYMENT
7.1 Involuntary Termination of Employment
(a) If a Participant's employment is terminated by the Company as a result
of the Company's dissatisfaction with the job related activities of the
Participant or conviction of the Participant of a felony, the Participant shall
forfeit any rights to any unpaid Incentive Awards under the Plan.
[Notwithstanding the foregoing, the Committee, in its sole discretion, may (i)
pay the Participant a pro-rated Incentive Award based upon performance during
the Plan Year to the date of termination or (ii) pay the Participant's full
Incentive Award (or any greater amount).]
(b) If a Participant's employment is terminated for reasons other than
those described in 7.1(a) above, the ^[Committee], in ^[its] sole discretion,
^[may (i) pay the Participant] a pro-rated Incentive Award based upon
performance during the Plan Year to the date of termination [or (ii) pay the
Participant's full Incentive Award (or any greater amount)].
55
7.2 Voluntary Termination of Employment
If a Participant voluntarily resigns from employment at the Company, no
Incentive Awards will be paid. The Participant shall forfeit the right to any
Incentive Awards for the current performance year. [Notwithstanding the
foregoing, the Committee, in its sole discretion, may (a) pay the Participant a
pro-rated Incentive Award based upon performance during the Plan Year to the
date of termination or (b) pay the Participant's full Incentive Award (or any
greater amount).]
VIII. AMENDMENT OR TERMINATION
8.1 Amendment.
The Committee reserves the right in its discretion to amend this Plan at
any time in whole or in part, provided, however, that no amendment shall result
in the forfeiture of any Participant's Incentive Awards earned as of the end of
the fiscal year immediately preceding the date the Committee adopts the
amendment.
8.2 Termination.
The Committee may terminate the Plan at any time. Termination shall not
result in the forfeiture of any Participant's Incentive Awards which have been
determined but not yet paid.
IX. ADMINISTRATION
9.1 Administration of the Plan.
This Plan shall be adopted by the shareholders of Franklin Resources, Inc.
and administered by the Compensation Committee of the Board of Directors of
Franklin Resources, Inc. [The Compensation Committee shall consist of no fewer
than three (3) members of the Board of Directors.]
^[(a)] The Committee shall meet at such times and places and upon such
notice as the chairperson determines. A majority of the Committee shall
constitute a quorum. Any acts by the Committee may be taken at any meeting at
which a quorum is present and shall be by majority vote of those members
entitled to vote. Additionally, any acts reduced to writing or approved in
writing by all the members of the Committee shall be valid acts of the
Committee.
^[(b)] Among the administrative responsibilities of the Committee shall be
the determination of Principals [and Associates], Target Awards and Incentive
Awards. This may be accomplished by adopting specific methods of determining the
Awards which are then administered by other management personnel of the Company.
^[(c)] The Committee shall have the sole authority, in its absolute
discretion, to adopt, amend, and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of the Plan, to construe and
interpret the Plan, the rules and regulations, and any instruments evidencing
Incentive Awards and to make all other determinations deemed necessary or
advisable for the administration of the Plan. All decisions, determinations, and
interpretations of the Committee shall be binding on all Participants.
^[(d)] The Plan is intended to meet the requirements ^under Rule 16-b
promulgated by the Securities and Exchange Commission under Section 16(b) of the
Securities Exchange Act of 1934 and shall be administered and construed
accordingly.
56
9.2 Non-alienation of Benefits.
No benefit under this Plan may be sold, assigned, transferred, conveyed,
hypothecated, encumbered, anticipated, or otherwise disposed of, and any attempt
to do so shall be void. No such benefit shall, prior to receipt thereof by a
Participant, be in any manner subject to the debts, contracts, liabilities,
engagements, or torts of such Participant.
9.3 No Limitation of Rights.
Nothing in this Plan shall be construed to limit in any way the Company's
general personnel policies and procedures particularly with respect to the right
of the Company to terminate a Participant's employment at any time for any
reason whatsoever with or without cause; nor shall it be evidence of any
agreement or understanding, express or implied, that the Company (a) will employ
a Participant in any particular position, (b) will ensure participation in any
incentive programs, or (c) will grant any awards for such programs.
9.4 Applicable Law.
^[The provisions of the] Plan shall be [governed by and] construed in
accordance with the laws of the State of California[, with the exception of
California's conflict of laws provisions].
9.5 Mandatory Arbitration.
As part of this Plan, the Company is implementing an alternative dispute
resolution procedure for its employees. In the event there is any dispute
arising out of the following: unlawful harassment; discrimination and
termination of employment with the Company, which the parties are unable to
resolve through direct discussion or mediation, regardless of the kind or type
of dispute, the Participant and the Company agree to submit all such disputes
exclusively to final and binding arbitration pursuant to the provisions of the
Federal Arbitration Act, or, if inapplicable, the provisions of applicable state
law, or any successor or replacement statutes, upon a request submitted in
writing to the Human Resources Department within the applicable statutory limits
or the statute of limitations. Any failure to timely request arbitration shall
constitute a waiver of all rights to raise any claims in any forum arising out
of any dispute that was subject to arbitration. The limitations period set forth
in this paragraph shall not be subject to tolling, equitable or otherwise. Any
agreement to arbitrate disputes contained in a securities registration
application shall take precedence over this agreement. All substantive rights
guaranteed under the statutes are still recognized through arbitration, and
arbitration is merely a substituted forum for dispute resolutions.
This Plan ^[was originally approved by the stockholders of the Company on
January 19, 1994. The stockholders of the Company approved an amendment of the
Plan on January 24, 1995. The Board approved an amendment and restatement of the
Plan on December 11, 2003 to (a) provide that up to 20% of PTOI may be allocated
to the Award Pool by the Committee and (b) give broad discretion to the
Committee in determining the amount of Incentive Awards payable to Participants
in the Plan, which amendment and restatement is subject to the approval of the
stockholders of the Company].
FRANKLIN RESOURCES, INC.
57
FRANKLIN RESOURCES, INC.
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
With this proxy, the stockholder signing below appoints Charles B. Johnson,
Martin L. Flanagan, and Barbara J. Green (the "proxy holders"), or any one of
them, as the stockholder's proxies with full power of substitution. The
stockholder appoints the proxy holders collectively and as individuals, to vote
all the stockholder's shares of Franklin Resources, Inc. ("Franklin") common
stock at the Annual Meeting of Stockholders, and at any and all adjournments or
postponements of the meeting, on the matters set forth on the reverse side of
this card. The Annual Meeting of Stockholders will be held on January 29, 2004,
at 10:00 a.m., Pacific Standard Time, in the H. L. Jamieson Auditorium, One
Franklin Parkway, Building 920, San Mateo, California.
THE BOARD OF DIRECTORS HAS SOLICITED THIS PROXY AND IT WILL BE VOTED AS
SPECIFIED ON THIS PROXY CARD ON THE FOLLOWING PROPOSALS PROPOSED BY FRANKLIN. IF
YOU DO NOT MARK ANY VOTES OR ABSTENTIONS, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES TO THE BOARD OF DIRECTORS, FOR RATIFICATION OF THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT AUDITORS FOR THE FISCAL YEAR
ENDING SEPTEMBER 30, 2004, FOR APPROVAL OF THE 2004 KEY EXECUTIVE INCENTIVE
COMPENSATION PLAN, AND FOR APPROVAL OF THE AMENDED AND RESTATED ANNUAL INCENTIVE
COMPENSATION PLAN. IF ANY OTHER MATTERS COME BEFORE THE MEETING TO BE VOTED ON,
THE PROXY HOLDERS NAMED IN THIS PROXY WILL VOTE, ACT AND CONSENT ON THOSE
MATTERS IN ACCORDANCE WITH THE VIEWS OF MANAGEMENT.
Continued on the reverse side. Must be signed and dated on the reverse side.
To change your address, please mark this box [ ]
FRANKLIN RESOURCES, INC.
P.O. BOX 11121
NEW YORK, N.Y. 10203-0121
Please complete, sign and date this proxy on the reverse side and return it
promptly in the accompanying envelope.
FRANKLIN RESOURCES, INC.
Two New Ways to Vote
VOTE BY INTERNET OR TELEPHONE
24 Hours a Day - 7 Days a Week
Save your Company Money - It's Fast and Convenient
TELEPHONE
1-866-214-3728
Use any touch-tone telephone to vote your proxy. Have your proxy card in hand
when you call. You will be prompted to enter your control number, located in the
box below, and then follow the simple directions.
OR
INTERNET
http://www.proxyvotenow.com/ben
Use the Internet to vote your proxy. Have your proxy card in hand when you
access the website. You will be prompted to enter your control number, located
in the box below, to create an electronic ballot.
OR
MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope
we have provided. Make sure the pre-printed address shows through the envelope
window. Please do not mail additional cards in the return envelope.
Your telephone or Internet vote authorizes the proxy holders named in the proxy
to vote your shares in the manner as if you marked, signed and returned the
proxy card. If you have submitted your proxy by telephone or the Internet, there
is no need for you to mail back your proxy card. The deadline for voting by
telephone or by using the Internet is at 11:59 p.m., Eastern Standard Time,
January 28, 2004.
YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING
CONTROL NUMBER FOR
TELEPHONE OR INTERNET VOTING
DETACH PROXY CARD HERE IF YOU ARE NOT VOTING BY TELEPHONE OR INTERNET
- --------------------------------------------------------------------------------
[ ] MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
[X] VOTES MUST BE INDICATED (X) IN BLACK OR BLUE INK.
1. ELECTION OF DIRECTORS:
FOR ALL [ ] WITHHOLD FOR ALL [ ] EXCEPTIONS* [ ]
Nominees: 01-Harmon E. Burns, 02-Charles Crocker, 03-Robert D. Joffe, 04-Charles
B. Johnson, 05-Rupert H. Johnson, Jr., 06-Thomas H. Kean, 07-James A. McCarthy,
08-Chutta Ratnathicam, 09-Peter M. Sacerdote, 10-Anne M. Tatlock, 11-Louis E.
Woodworth.
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS*" BOX AND WRITE THAT NOMINEE'S NAME ON THE FOLLOWING BLANK
LINE.)
EXCEPTIONS*______________________________________________________________
2. Ratification of the appointment of PricewaterhouseCoopers LLP as
independent auditors for the fiscal year ending September 30, 2004.
FOR ___ AGAINST ___ ABSTAIN ___
3. Approval of the 2004 Key Executive Incentive Compensation Plan.
FOR ___ AGAINST ___ ABSTAIN ___
4. Approval of the Amended and Restated Annual Incentive Compensation Plan.
FOR ___ AGAINST ___ ABSTAIN ___
5. In their discretion, the proxy holders are authorized to vote on other
business matters that are properly brought at the meeting or any
adjournments or postponements thereof.
Note: Please sign exactly as your name appears on the proxy. If signing for
estates, trusts or corporations, title or capacity should be stated. If shares
are held jointly, each holder should sign.
Date Share Owner sign here Co-Owner sign here
______________ ______________________________ __________________________