SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. )
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 Sect. 240.14a-11(c) or Sect.
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:
..............................................................
[ ] 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:
.................................................
2) Form, Schedule or Registration Statement No.:
.................................................
3) Filing Party:
.................................................
4) Date Filed:
.................................................
FRANKLIN RESOURCES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
ON JANUARY 28, 1999
To the Stockholders of Franklin Resources, Inc.:
Notice is hereby given that the Annual Meeting of Stockholders (the
"Annual Meeting") of FRANKLIN RESOURCES, INC. (the "Company") will be held
at 10:00 A.M., Pacific Standard Time, on January 28, 1999 at the offices
of the Company, 777 Mariners Island Boulevard, San Mateo, California 94404
U.S.A. At this meeting, the stockholders of the Company will consider and
vote on:
1. The election of nine (9) directors to hold office until the next Annual
Meeting of Stockholders or until their successors are elected and
qualified.
2. The ratification of the appointment by the Board of Directors of
PricewaterhouseCoopers LLP as the Company's independent accountants for
the current fiscal year ending September 30, 1999.
3. The adoption of a 1998 Universal Stock Incentive Plan for the award of
restricted stock, stock options and other performance units for certain
employees of the Company and the ratification of certain grants
thereunder.
4. The transaction of such other business as properly may come before the
Annual Meeting or any adjournments or postponements thereof.
Stockholders of record at the close of business on December 8, 1998 are
entitled to notice of, and to vote on, all matters presented at the
meeting and at any adjournments or postponements thereof. Each holder of
shares of the Company's Common Stock is entitled to one (1) vote for each
share of Common Stock held on the record date.
By Order of the Board of Directors
Leslie M. Kratter
Secretary
December 23, 1998
San Mateo, California, U.S.A.
IF YOU DO NOT EXPECT TO BE PRESENT PERSONALLY AT THE MEETING, PLEASE
EXECUTE THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE.
[inside of front cover]
Table of Contents
Section Page
Notice of Annual Meeting
cover page
Proxy Statement
Voting Securities
Principal Holders of Voting Securities
Security Ownership of Management
PROPOSAL 1: ELECTION OF DIRECTORS
Director Biographies
Section 16(a) Reporting
Board and Committee Meetings
EXECUTIVE COMPENSATION
Compensation Committee Report
Compensation Committee Interlocks and Insider Participation
Employment Contracts
Summary Compensation Table
PERFORMANCE GRAPH
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF AUDITORS
PROPOSAL 3: ADOPTION OF 1998 UNIVERSAL STOCK INCENTIVE PLAN
New Plan Benefits Table
STOCKHOLDER PROPOSALS
OTHER MATTERS
PROXY
EXHIBIT A: 1998 UNIVERSAL STOCK INCENTIVE PLAN
PROXY STATEMENT
FRANKLIN RESOURCES, INC.
777 Mariners Island Boulevard
San Mateo, California 94404, U.S.A.
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 (the "Company"), of the accompanying
proxy, to be voted at the Annual Meeting of Stockholders to be held at the
offices of the Company, 777 Mariners Island Boulevard, San Mateo, California
U.S.A., on January 28, 1999, at 10:00 A.M. Pacific Standard Time and at any and
all adjournments or postponements thereof.
A proxy may be revoked by a stockholder prior to its exercise in any of three
ways: by written notice to the Secretary of the Company; by submission of
another proxy bearing a later date; or by voting in person at the Annual
Meeting. A notice to the Secretary or a proxy bearing a later date will only be
effective to revoke an earlier proxy if the notice or later proxy is received
before the vote is taken on the relevant matter. The mere presence of the
stockholder at the Annual Meeting will not revoke an earlier proxy unless the
stockholder explicitly revokes the earlier proxy at the meeting and submits a
new vote.
If not revoked, the proxy will be voted at the Annual Meeting in accordance with
the instructions indicated on the proxy by the stockholder or, if no
instructions are indicated, will be voted FOR the slate of directors described
herein, FOR ratification of the appointment of PricewaterhouseCoopers LLP as the
Company's independent accountants and FOR the adoption of the 1998 Universal
Stock Incentive Plan. These proxy materials are being mailed on or about
December 23, 1998 to stockholders of record of the Company's $0.10 par value
Common Stock on December 8, 1998 (the "Record Date").
This solicitation is being made by the Company. All expenses of the Company in
connection with this solicitation will be borne by the Company. In addition to
solicitation by mail, proxies may also be solicited personally by officers,
directors and other employees of the Company by telephone, electronic mail or
fax without additional compensation. The Company will also use a service agent
to request brokerage houses, custodians, nominees and fiduciaries to forward
proxy material to the beneficial owners of the shares held of record by such
persons and will reimburse such persons, the Company's transfer agent, and the
service agent for their reasonable out-of-pocket expenses in forwarding such
materials. The Company's transfer agent and the service agent are paid for their
services pursuant to a standard fee schedule.
The Company's Annual Report for its fiscal year ended September 30, 1998,
including financial statements, has been sent or is being sent together with
this Proxy Statement to all stockholders as of the Record Date for the Annual
Meeting. Such financial statements and the Annual Report do not form any part of
this proxy soliciting material.
VOTING SECURITIES
Stockholders of record at the close of business on the Record Date are entitled
to notice of, and to vote at, the Annual Meeting and at any adjournments or
postponements thereof. Each holder of shares of the Company's $0.10 par value
Common Stock (the "Common Stock") is entitled to one (1) vote for each share of
Common Stock held on the Record Date.
On December 8, 1998, 251,514,637 shares of Common Stock were outstanding. The
presence in person or by proxy at the Annual Meeting of the holders of a
majority of such shares will constitute a quorum. All share information
described herein reflects a two-for-one stock split of the Common Stock that was
paid on January 15, 1998.
Assuming the presence of a quorum at the Annual Meeting, votes in the amounts
listed below will be required to pass the actions listed on the accompanying
Proxy card.
The affirmative vote of a plurality of the votes cast by holders of shares
of Common Stock is required for the election of directors.
The affirmative vote of a majority of shares of Common Stock represented at
the Annual Meeting is required for the ratification of the appointment of
PricewaterhouseCoopers LLP ("PwC").
The affirmative vote of a majority of the shares of Common Stock
represented at the Annual Meeting is required for the approval of the 1998
Universal Stock Incentive Plan (the "1998 Stock Plan").
Abstentions and broker non-votes are not included in the tabulation of the
voting results on the election of directors. For issues requiring approval of a
majority of the shares present and entitled to be cast, abstentions have the
effect of votes in opposition, and broker non-votes are not included in the
tabulation of the voting results. A broker non-vote typically occurs when a
nominee holding shares for a beneficial owner does not vote on a particular
proposal because the nominee does not have discretionary voting power with
respect to that item and has not received instructions from the beneficial
owner. Shares as to which a stockholder abstains or broker non-votes are
included for purposes of determining whether a quorum of shares is present at
the Annual Meeting. The New York Stock Exchange determines whether brokers that
do not receive instructions from beneficial owners will be entitled to vote on
the proposals contained in this Proxy Statement.
Principal Holders of Voting Securities
The following persons are known by the Company as of December 8, 1998 to be
beneficial owners of more than five percent (5%) of its total outstanding Common
Stock:
Name and Address of Amount and Nature of Percent of
Beneficial Owner(a) Beneficial Ownership(b) Voting Securities
- ------------------------------------------------------------------------------
Charles B. Johnson 47,842,148 (c) 19.02%
Rupert H. Johnson, Jr. 38,224,755 (d) 15.20%
R. Martin Wiskemann 24,016,321 (e) 9.55%
(a) The addresses of Messrs. C. B. Johnson, R. H. Johnson, Jr. and R. M.
Wiskemann are: c/o Franklin Resources, Inc., 777 Mariners Island
Boulevard, San Mateo, CA 94404 U.S.A.
(b) Includes shares which the individual has the right to acquire within sixty
(60) days of December 8, 1998, but does not include any restricted shares or
options not yet issued as of December 8, 1998 under incentive compensation
arrangements described above and in the Summary Compensation Table below.
(c) Includes 42,862,516 shares held directly and 4,183,674 shares held
in an IRA account for which Mr. C. B. Johnson holds sole voting and
investment power. Also includes a total of 2,120 shares of unvested
restricted stock granted in 1997 under the Universal Stock Plan (the
"Universal Stock Plan") and pursuant to the 1994 Amended Annual
Incentive Compensation Plan (the "Incentive Plan") which may be voted by
Mr. Johnson. Also includes 6,472 shares which represent a pro-rata
number of shares equivalent to Mr. Johnson's percentage of ownership of
the holdings of the Franklin Resources, Inc. Profit Sharing Plan as of
September 30, 1998. Mr. Johnson disclaims any beneficial ownership of
such shares. Also includes 787,366 shares of which Mr. C. B. Johnson
disclaims beneficial ownership, held by a private foundation of which
Mr. C. B. Johnson is a trustee.
(d) Includes 35,669,982 shares held directly and 2,205,244 shares held
in an IRA account for which Mr. R. H. Johnson, Jr. holds sole voting and
investment power. Also includes a total of 20,902 shares of unvested
restricted stock granted in 1996 and 1997 under the Universal Stock Plan
and pursuant to the Incentive Plan which may be voted by Mr. Johnson.
Also includes 5,421 shares which represent a pro-rata number of shares
equivalent to Mr. Johnson's percentage of ownership of the holdings of
the Profit Sharing Plan as of September 30, 1998. Mr. Johnson disclaims
any beneficial ownership of such shares. Also includes 319,834 shares
of which Mr. R. H. Johnson, Jr. disclaims beneficial ownership, held by
a private foundation of which Mr. R. H. Johnson, Jr. is a trustee. Also
includes 3,372 shares held by a member of Mr. R. H. Johnson, Jr.'s
immediate family, of which Mr. R. H. Johnson, Jr. disclaims beneficial
ownership.
(e) Includes 22,812,495 shares held directly and 1,105,680 shares held in an
IRA account for which Mr. Wiskemann holds sole voting and investment power.
Also includes 98,146 shares of which Mr. Wiskemann disclaims beneficial
ownership, held by a private foundation of which Mr. Wiskemann is a trustee.
SECURITY OWNERSHIP OF MANAGEMENT
The following information with respect to the outstanding shares of 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, is furnished as of December 8, 1998:
Amount and
Nature of Percent
Beneficial of
Name Ownership(a) Class (a)
- ------------------------------------------------------------------------------
Harmon E. Burns 2,762,837 (b) 1.10%
Martin L. Flanagan 607,762 (c) - %(i)
F. Warren Hellman 164,918 (d) - %(i)
Charles B. Johnson 47,842,148 (e) 19.02%
Charles E. Johnson 667,375 (f) - %(i)
Rupert H. Johnson, Jr. 38,224,755 (g) 15.20%
Harry O. Kline 0 - %(i)
James A. McCarthy 3,000 - %(i)
Peter M. Sacerdote 15,000 - %(i)
Louis E. Woodworth 2,114,928 (h) - %(i)
Directors, Director
Nominees and
Executive Officers as
a Group (consisting
of 19 persons) 93,892,280 37.33%(a)
(a) Includes shares which the individual has the right to acquire within sixty
(60) days of December 8, 1998. Does not include an aggregate of 29,991 not yet
issued restricted shares, granted as of October 1, 1998 to certain executive
officers of the Company under the Universal Stock Plan and pursuant to the
Incentive Plan.
(b) Includes 1,889,140 shares held directly and 750,000 shares held in an IRA
account for which Mr. Burns holds sole voting and investment power. Also
includes a total of 20,904 shares of unvested restricted stock granted in 1996
and 1997 under the Universal Stock Plan. Also includes 97,998 shares of which
Mr. Burns disclaims beneficial ownership, held by a private foundation of
which Mr. Burns is a trustee. Also includes 4,795 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, 1998. Mr. Burns
disclaims any beneficial ownership of such shares.
(c) Includes 582,972 shares held directly for which Mr. Flanagan holds sole
voting and investment power. Also includes a total of 24,306 shares of
restricted stock granted in 1996 and 1997 under the Universal Stock Plan. Also
includes 484 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, 1998. Mr. Flanagan disclaims any beneficial
ownership of such shares.
(d) Includes 153,090 shares held by a limited partnership, of which Mr.
Hellman disclaims beneficial ownership, and 11,828 shares held in a revocable
trust.
(e) See footnote (c) under "Principal Holders of Voting Securities."
(f) Includes 638,701 shares held directly for which Mr. C. E. Johnson
holds sole voting and investment power. Also includes a total of 24,306
shares of restricted stock granted in 1996 and 1997 under the Universal
Stock Plan. Also includes 4,368 shares held by members of Mr. C. E.
Johnson's immediate family, of which Mr. C. E. Johnson disclaims
beneficial ownership.
(g) See footnote (d) under "Principal Holders of Voting Securities."
(h) Includes 1,206,840 shares held directly and 683,088 shares held in an IRA
account for which Mr. Woodworth holds sole voting and investment power. Also
includes 225,000 shares held by a member of Mr. Woodworth's immediate family,
of which he disclaims beneficial ownership.
(i) Represents less than 1% of class.
PROPOSAL 1: ELECTION OF DIRECTORS
The following nine (9) persons have been nominated for election as directors of
the Company to serve until the next Annual Meeting of Stockholders or until
their successors are elected and qualified. Unless authority to do so is
withheld, the persons named as proxies intend to vote in favor of the election
of these nominees. The voting requirements for approval of this proposal are
more particularly described under "Voting Securities" elsewhere herein. The
information below is given as of December 1, 1998.
Name Age Principal Occupation During Last Five Years Director
Since
- --------------------------------------------------------------------------------
Charles B. Johnson 65 President, Chief Executive Officer and 1969
Director of the Company; Chairman and
Director, Franklin Advisers, Inc. and
Franklin/Templeton Distributors, Inc.;
Director, Templeton Worldwide, Inc.,
Franklin Bank, Franklin/Templeton Investor
Services, Inc. and Franklin Mutual
Advisers, Inc.; officer and/or director,
as the case may be, of most other
principal U.S. subsidiaries of the
Company; officer and/or director or
trustee, as the case may be, of 50 of the
investment companies in the Franklin
Templeton Group of Funds.
Rupert H. Johnson, 58 Executive Vice President and Director of 1969
Jr. the Company; Director and President,
Franklin Advisers, Inc.; Director and
Executive Vice President, Franklin/Templeton
Distributors, Inc.; Director, Franklin/
Templeton Investor Services, Inc.,Templeton
Worldwide, Inc., Franklin Bank and Franklin
Mutual Advisers, Inc.; officer and/or
director or trustee, as the case may be, of
most other principal U.S. subsidiaries
of the Company and of 53 of the investment
companies in the Franklin Templeton Group
of Funds.
Louis E. Woodworth 65 Private investor. President, Alpine Corp. 1981
(private investments).
Harry O. Kline 71 Vice President and Registration Sales 1990
Manager of Franklin/Templeton
Distributors, Inc. from 1980 until
becoming Director in 1990. Over 46 years
experience in the mutual fund industry.
Harmon E. Burns 53 Executive Vice President and Director of 1991
the Company; Executive Vice President and
Director of Franklin/Templeton
Distributors, Inc. and Franklin Templeton
Services, Inc.; Executive Vice President
of Franklin Advisers, Inc.; Director,
Templeton Worldwide, Inc.,
Franklin/Templeton Investor Services, Inc.
and Franklin Mutual Advisers, Inc.; officer
and/or director, as the case may be, of
most other principal U.S. subsidiaries
of the Company; officer and/or director
or trustee, as the case may be, of 53 of
the investment companies in the
Franklin Templeton Group of Funds.
F. Warren Hellman 64 Chairman, Hellman & Friedman LLC, Hellman 1992
& Friedman Capital Partners III, L.P. and
related limited partnerships and general
partners of the Hellman & Friedman Private
Equity Funds (private equity investments);
Director and General Partner, Matrix
Partners; Director, Levi Strauss & Co., Il
Fornaio (America) Corporation and Young &
Rubicam, Inc.
Peter M. Sacerdote 61 Limited Partner and Chairman of the 1993
Investment Committee of the Goldman Sachs
Group, L.P. (investment banking) and G.S.
Capital Partner, L.P. (merchant banking
fund). Director, Qualcomm, Inc. and AMF
Bowling, Inc. Formerly, General Partner
of Goldman Sachs Group, L.P.
Charles E. Johnson 42 Senior Vice President and Director of the 1993
Company; President and Director, Templeton
Worldwide, Inc.; President, Franklin/
Templeton Distributors Inc.; Chairman and
Director, Franklin Agency, Inc. and
Templeton Investment Counsel, Inc.;
Director, Franklin Mutual Advisers, Inc.;
Vice President, Franklin Advisers, Inc.;
officer and/or director, as the case may
be, of other U.S. and international
subsidiaries of the Company; officer
and/or director or trustee, as the case
may be, of 34 of the investment companies
in the Franklin Templeton Group of Funds.
James A. McCarthy 63 Private investor. From 1993-95, Chairman 1997
of Merrill Lynch & Co. ("Merrill")
Investor Client Coverage Groups; formerly,
Senior Vice President of Merrill and
Director, Global Institutional Sales.
Total of 33 years experience with Merrill.
Charles B. Johnson and Rupert H. Johnson, Jr. are brothers. Peter M. Sacerdote
is a brother-in-law of Charles B. Johnson and Rupert H. Johnson, Jr., Charles E.
Johnson is the son of Charles B. Johnson and the nephew of Rupert H. Johnson,
Jr. and Peter M. Sacerdote.
During the fiscal year ended September 30, 1998, directors who were not officers
of the Company received a standard fee of $7,500 per quarter, plus $3,000 per
meeting attended. An additional fee of $1,500 per Committee meeting attended is
paid to directors who serve on committees of the Board. Directors and Directors
Emeritus (as described below) of the Company who are retired from other
employment and not otherwise eligible for group health coverage under the group
health plan of the Company or any other corporation by whom they are or were
employed, are entitled to receive reimbursement by the Company of the cost of
health insurance coverage comparable to that provided to employees of the
Company. During the fiscal year ended September 30, 1998, Louis E. Woodworth, a
director, was reimbursed $2,444 for such expenses.
The Company has established a policy permitting the deferral of payment of
directors' fees and treatment of such deferral amounts as hypothetical
investments in the Common Stock of the Company on the dates such fees would
otherwise be payable to a director. Such deferral may be terminated by either
the Company or a director upon ninety (90) days notice. Upon termination of such
deferral, the Company is obligated to pay a director an amount equal to such
hypothetical investment in the Company's Common Stock, including reinvestment of
dividends, based upon the closing price of such stock on the New York Stock
Exchange Composite Tape ("NYSE") on the date of such termination. During the
1998 fiscal year, Louis E. Woodworth elected to defer directors' fees. As of
September 30, 1998, the amount accrued for Mr. Woodworth's benefit pursuant to
such deferral policy based upon the 1998 Price (as hereinafter defined) of the
Company's Common Stock was $160,463.23.
The Board of Directors has also adopted a policy whereby, upon reaching the age
of 75, directors who are not also officers or employees of the Company will
retire and not stand for re-election and will become eligible to serve as a
Director Emeritus, without voting authority. Each Director Emeritus will receive
such compensation and benefits from the Company as is established by the Board
of Directors. The Director Emeritus must be available to provide such services
to the Board of Directors as may be mutually determined between the Director
Emeritus and the Board of Directors. Currently, a Director Emeritus receives
compensation equal to the compensation paid to a director who attends each
meeting of the Board. During the fiscal year ended September 30, 1998, Dr.
Judson R. Grosvenor served as a Director Emeritus and received such compensation
and benefits.
Section 16(a) Beneficial Ownership Reporting Compliance
During the fiscal year ended September 30, 1998, to the knowledge of the
Company, based upon a review of written representations furnished by the
individuals subject to Section 16(a) filing requirements, the following persons
inadvertently failed to file transaction reports in a timely manner in
accordance with Section 16(a) of the Securities Exchange Act of 1934 (the
"Exchange Act") with respect to the following transactions:
Kenneth A. Lewis, a Vice President, one transaction on a Form 4 reporting the
sale of 436 shares during October 1997 which were sold to pay taxes on vesting
restricted stock; Gregory E. Johnson, a Vice President, two transactions on a
Form 4 reporting the sale of 8,528 shares in April 1998, which included shares
belonging to a family member for which Mr. Johnson disclaims beneficial
ownership, and five transactions on a Form 5, one reporting the sale of 5,205
shares in October 1998, one gift to Mr. Johnson of 738 shares, and three gifts
of 738 shares each to members of Mr. Johnson's family, for which he disclaims
beneficial ownership.
Board and Committee Meetings
The Board of Directors held five (5) meetings (exclusive of committee meetings)
during the fiscal year ended September 30, 1998. With the exception of F. Warren
Hellman, each director attended at least seventy-five percent (75%) of the
aggregate of the total number of Board meetings and the total number of
committee meetings of committees of which such director is a member held during
such period. The Board of Directors has established an Audit Committee and a
Compensation Committee. The Board does not have a nominating committee.
The Audit Committee of the Board of Directors consisted of Mr. Woodworth
(Chairman) and Messrs. McCarthy and Kline. Each of Messrs. Woodworth, McCarthy
and Kline is a director who is not employed by the Company. The Audit Committee
reviews the Company's internal accounting controls and helps to ensure the
integrity of the Company's financial statements. The Committee meets with the
Company's independent accountants and reviews the scope of their audit, report
and recommendations. The Audit Committee also recommends to the Board of
Directors the selection of the Company's independent accountants. The Committee
met two (2) times during the fiscal year.
The Compensation Committee of the Board of Directors consists of Mr. Hellman
(Chairman) and Messrs. Sacerdote and Woodworth. The Compensation Committee was
established to review and set the compensation of the Chief Executive Officer,
to determine the general policies and guidelines pursuant to which the
compensation of the other executive officers is made and to perform other duties
as assigned from time to time by the Board. The Compensation Committee also
administers the Incentive Plan and the Universal Stock Plan. The Compensation
Committee will also administer the new 1998 Stock Plan if it is approved by the
stockholders. In fiscal 1998, the Compensation Committee approved grants of
options and restricted stock awards covering 1,766,814 shares of common stock of
the Company, subject to approval by the stockholders, as further described
below. The Compensation Committee met three (3) times during the fiscal year.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT
General Goals of Bonuses and Stock Awards. The Compensation Committee
believes that the opportunity to earn incentive compensation motivates
employees, including executive officers, to achieve improved results. Moreover,
the payment of incentive compensation in the form of stock of the Company aligns
the interests of the management of the Company with those of its stockholders
and further encourages them to focus on the long range growth and development of
the Company. The Company's compensation program for executive officers
(including the Chief Executive Officer) consists primarily of salary and annual
incentive bonuses based upon individual and Company performance.
Smaller Bonus Awards. Senior management of the Company, including Messrs.
C. B. Johnson, R. H. Johnson, Jr., H. E. Burns, M. L. Flanagan, and C. E.
Johnson (together, the "Named Executive Officers"), have traditionally received
their annual bonuses in the form of cash and restricted stock which vests over
three years, based on continued employment. For fiscal 1998, however, the
Compensation Committee made no stock awards to the Named Executive Officers and
made reduced stock awards and cash bonuses to certain other executives and
employees. Bonus payments to Company employees and executive officers, including
the Chief Executive Officer, are determined by the Compensation Committee under
the Incentive Plan, and any stock component of the bonus is awarded pursuant to
the Universal Stock Plan and will be awarded under the 1998 Stock Plan, if
approved. As a general matter, the size of the pool available for such bonus
payments is a percentage of pre-tax operating income of the Company, which
consists of net operating income, exclusive of passive income and calculated
before interest, taxes, and extraordinary items and after accrual of awards
under the Incentive Plan. In determining the percentage, the Compensation
Committee considers a variety of factors including the performance of the
Company's stock as 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.
In setting the award pool for fiscal year 1998, the Compensation Committee
considered the 74.4% increase in the Company's pre-tax operating income over the
last five fiscal years. The committee also considered the 35.8% overall decrease
in the value of the Company's stock from the beginning of fiscal 1998 to the end
of fiscal 1998. The committee also noted the unusual global economic conditions
during the last quarter of fiscal 1998 and the 44.7% decrease in the market
value of the Company's stock during such quarter.
The Committee considered a number of factors, but no specific weighting was
given to any particular factor in determining the percentage of pre-tax
operating income allocated to the award pool. The Compensation Committee also
considered the continuing changes in the Company's financial and business
structure as a result of the acquisition of the assets of Heine Securities
Corporation in November 1996, and the successful management of such changes.
In its review of compensation, and, in particular, in determining the
amount and form of actual awards under the Incentive Plan for the Chief
Executive Officer and the other executive officers, the Compensation Committee
considered amounts paid to executive officers in prior years as salary, bonus
and other compensation, the Company's overall performance during the prior five
(5) year period, and its future objectives and challenges. Although the
Committee considered a number of different individual and Company performance
factors, no specific weighting was given to any such factor.
Salary Cuts and Freezes. On January 1, 1998, the salaries of the Named
Executive Officers were increased by 7% for the calendar year ending December
31, 1998. However, effective November 1, 1998, the salary of each Named
Executive Officer was decreased by $25,000 and pay cuts were made for certain
other senior management. The salaries of other employees of the Company
worldwide were not increased at the end of fiscal year 1998 as had been the
general custom of the Company in prior fiscal years. The Compensation Committee
will continue to review the possibility of future salary increases or decreases
based upon several considerations, including the Company's performance and
general economic conditions.
New Stock Plan . The proposed 1998 Stock Plan, as f urther described under
Proposal Three below, is designed to comply with Section 162(m) ("Section
162(m)") of the Internal Revenue Code of 1986, as amended (the "Code"). Failure
to comply with the requirements of Section 162(m) may limit the Company's
ability to take tax deductions for compensation paid to each Named Executive
Officer in excess of $1.0 million. Subsequent to the end of fiscal 1998, the
Compensation Committee granted five-year stock options ("Five Year Options") to
certain employees of the Company, including directors and officers. The
Compensation Committee believes that the terms of the Five Year Options will
align the interests of the employees and executive officers receiving these
grants with the interests of the Company's stockholders because the accelerated
vesting terms are tied directly to the performance of the Company's stock. See
the "New Plan Benefits" table below.
Special Bonus Considerations for CEO. The Committee reviews the
participation of Mr. C. B. Johnson in the Company's Incentive Plan annually, and
has determined that he will continue to participate. Bonuses paid to Mr. C. B.
Johnson depend upon both his performance and that of the Company. The
Compensation Committee has also taken into account Mr. Johnson's position as a
principal stockholder of the Company, and the dividends received on those
holdings, in determining his compensation and bonus. Because of his large share
holdings, Mr. Johnson, is impacted by changes the Company's stock price.
Therefore, the Compensation Committee does not feel that stock bonuses should be
a significant component of Mr. Johnson's compensation and has therefore awarded
bonuses to him primarily in cash. The Compensation Committee notes Mr. Johnson's
compensation is generally lower than that received by Chief Executive Officers
of comparable companies.
Other Benefits. Executive officers also participate in a combined Profit
Sharing/401(k) Plan and are entitled to receive medical, life and disability
insurance coverage and other corporate benefits available to most employees of
the Company. Contributions to the Company's Profit Sharing Plan are determined
by the Board, which takes into consideration the profitability of the Company.
Tax Considerations of Company. Section 162(m), which limits the
deductibility by the Company of certain executive compensation for federal
income tax purposes, applied for the first time to the Company in the fiscal
year ended September 30, 1995. The 1998 Stock Plan is drafted to comply with
Section 162(m) and the options granted thereunder are qualified
performance-based incentive stock awards intended to be deductible within the
limitations of Section 162(m). The Company will endeavor to comply with Section
162(m) in the future to take advantage of potential tax benefits. However, the
Company may make awards that do not comply with Section 162(m) if it believes
that the compensation awards granted were commensurate with the performance of
the covered employees and were necessary and appropriate to meet competitive
requirements even if such compensation exceeded the deductibility limits of
Section 162(m).
Respectfully Submitted:
Compensation Committee
F. Warren Hellman, Chairman
Peter M. Sacerdote
Louis E. Woodworth
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended September 30, 1998, Goldman Sachs & Co., the parent
company of which Mr. Sacerdote is a limited partner ("Goldman"), served as an
agent for the sale of notes under the Company's medium-term note and commercial
paper programs, received payments in connection with the sale of such commercial
paper, and served as the underwriter in the auto loan receivables securitization
conducted by the Company in 1998. From time to time, Goldman has also performed
other services for the Company. Fees paid to Goldman did not exceed five percent
(5%) of that firm's consolidated gross revenues for its last full completed
fiscal year.
Employment Contracts
Mr. Charles B. Johnson has an employment contract with the Company pursuant to
which the Company is obligated, in the event of Mr. Johnson's death or permanent
disability, to pay one year's salary to his estate. Under the contract, Mr.
Johnson is employed as the President and Chief Executive Officer at a salary
determined from time to time by the Board of Directors, which has assigned the
review of Mr. Johnson's compensation arrangements to the Compensation Committee.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term
Compensation
Restricted
Other Annual Stock All Other
Name and Principal Position Year Salary Bonus Compensation Awards() Compensation(e)
- ------------------------------------------------------------------------------------------------------------
Charles B. Johnson, 1998 $ 609,832 $ 460,000 $ 57,133(a) $ 0 $ 14,014
President, Chief 1997 $ 571,922 $ 460,000 $ 55,651(a) $ 148,864(c) $ 20,292
Executive Officer 1996 $ 544,688 $ 400,000 $ 0 $ 0 $ 21,059
Rupert H. Johnson, Jr., 1998 $ 557,077 $ 460,000 $ 0 $ 0 $ 14,014
Executive Vice 1997 $ 514,730 $ 460,000 $ 0 $ 833,731(c) $ 20,292
President 1996 $ 490,219 $ 400,000 $ 0 $ 610,700(d) $ 21,059
Harmon E. Burns, 1998 $ 557,072 $ 460,000 $ 0 $ 0 $ 15,014
Executive Vice 1997 $ 514,730 $ 460,000 $ 0 $ 833,731(c) $ 21,292
President 1996 $ 490,219 $ 400,000 $ 0 $ 610,700(d) $ 22,059
Martin L. Flanagan, 1998 $ 803,412 $ 552,000 $ 0 $ 0 $ 14,014
Senior Vice President, 1997 $ 743,499 $ 552,000 $ 0 $ 945,893(c) $ 20,292
Chief Financial Officer 1996 $ 716,625 $1,480,000 $ 0 $ 732,876(d) $ 21,059
Charles E. Johnson, 1998 $ 803,253 $ 552,000 $ 0 $ 0 $ 14,014
Senior Vice President 1997 $ 743,499 $ 552,000 $ 0 $ 945,893(c) $ 21,292
1996 $ 686,094 $ 480,000 $ 0 $ 732,876(d) $ 21,547
(a) Includes $48,109 and $48,159 representing personal use of Company
aircraft by Mr. C.B. Johnson for 1998 and 1997, respectively, valued using
the Standard Industry Fare formula provided for by Internal Revenue Code
regulations.
(b) Based upon the closing price on the NYSE on September 30, 1998 of
$29.8750 (the "1998 Price"), the value of the unvested restricted stock
holdings of the persons listed in the Summary Compensation Table were as
follows: Mr. C. B. Johnson, $63,335; Mr. R. H. Johnson, Jr., $624,447; Mr.
H. E. Burns, $624,507; Mr. M. L. Flanagan, $726,142; and Mr. C. E. Johnson,
$726,142.
(c) Represents the value on date of grant of shares of restricted stock
granted by the Compensation Committee as of October 1, 1997, vested or
vesting in approximately equal installments on each of September 30, 1998,
September 30, 1999, and September 29, 2000, in the following amounts: Mr.
C. B. Johnson, 3,180; Mr. R. H. Johnson, Jr., 17,810; Mr. H. E. Burns,
17,810; Mr. M. L. Flanagan, 20,206; and Mr. C. E. Johnson, 20,206. Such
shares vest in approximately equal one-third (1/3) increments. Recipients
of restricted stock awards are entitled to vote such shares and receive
dividends.
(d) Represents the value on date of grant of shares of restricted stock
granted by the Compensation Committee as of October 1, 1996, vested or
vesting in approximately equal installments on each of September 30, 1997,
September 30, 1998, and September 30, 1999, in the following amounts: Mr.
R. H. Johnson, Jr., 27,092; Mr. H. E. Burns, 27,092; Mr. M. L. Flanagan,
32,512; and Mr. C. E. Johnson, 32,512. Such shares vest in approximately
equal one-third (1/3) increments. Recipients of restricted stock awards are
entitled to vote such shares and receive dividends.
(e) Represents Company contributions to the combined Profit Sharing/401(k)
Plan for Mr. C. B. Johnson for 1996, 1997 and 1998; and for Mr. R. H.
Johnson, Jr., Mr. H. E. Burns and Mr. M. L. Flanagan for 1996, 1997 and
1998. For Mr. C. E. Johnson, represents Company contributions to the
Company's Profit Sharing Plan for 1997 and 1998, and a combination of
contributions to a profit sharing plan of a subsidiary (the "Subsidiary
Plan") and the Profit Sharing Plan for 1996.
PERFORMANCE GRAPH
The following performance graph compares the performance of an investment in the
Company'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"), an index to
which the Company was added in April 1998, and to the Standard & Poor's
Financial Index (the "S&P Financial"). The presentation below also includes the
S&P MidCap 400 Index (the "MidCap 400") an index which the Company used in the
performance graph in prior years, and in which the Company was included until it
was added to the S&P 500. Due to the inclusion of the Company in the S&P 500 in
1998 and the current market capitalization of the Company it is no longer
appropriate to use the MidCap 400 as a comparison. SEC regulations require the
Company to show all four indices this year, but in the future the Company will
cease using the MidCap 400. 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. As of September 30, 1998, Franklin Resources,
Inc. was the only company in the sub-sector of "Investment Management" in the
S&P Financial. The graph assumes that the value of the investment in the
Company's Common Stock and each index was $100 on September 30, 1993 and that
all dividends were reinvested.
Comparison of Five Year Cumulative Total Return
Franklin Resources, Inc., S&P 500 and S&P Midcap
Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
FY93
Franklin
Resources: $100 $97.21 $90.10 $93.31 $101.19 $90.26 $82.79 $77.19 $75.41 $75.82 $75.31 $80.42
S&P 500: $100 $102.03 $101.07 $102.31 $105.74 $102.89 $98.41 $99.69 $101.32 $98.81 $102.08 $106.24
S&P MidCap: $100 $100.33 $98.11 $102.67 $105.06 $103.57 $98.77 $99.51 $98.56 $95.17 $98.40 $103.55
Fin. Index $100 $94.18 $91.00 $92.77 $97.78 $92.44 $88.63 $91.71 $96.67 $93.83 $96.05 $99.47
FY94
Franklin
Resources: $76.50 $83.66 $77.78 $73.12 $69.53 $79.54 $80.00 $82.83 $90.03 $91.78 $102.87 $113.44
S&P 500: $103.68 $106.05 $102.16 $103.65 $106.35 $110.47 $113.74 $117.05 $121.68 $124.54 $128.68 $129.03
S&P MidCap: $101.62 $102.73 $98.10 $99.00 $100.03 $105.27 $107.10 $109.25 $111.88 $116.44 $122.51 $124.78
Fin. Index $92.27 $93.85 $88.35 $89.39 $95.13 $100.39 $100.73 $104.41 $112.53 $113.14 $116.45 $123.04
FY95
Franklin
Resources: $119.06 $104.85 $109.24 $104.31 $111.03 $119.32 $118.25 $118.77 $122.92 $126.78 $116.38 $123.66
S&P 500: $134.48 $134.00 $139.88 $142.58 $147.43 $148.80 $150.23 $152.45 $156.38 $156.97 $150.04 $153.21
S&P MidCap: $127.80 $124.51 $129.97 $129.64 $131.52 $135.99 $137.64 $141.84 $143.75 $141.59 $132.01 $139.62
Fin. Index $130.84 $127.06 $136.24 $137.61 $144.83 $147.59 $149.26 $146.62 $149.80 $151.44 $148.37 153.37
FY96
Franklin
Resources: $138.17 $146.76 $148.84 $142.51 $170.38 $182.89 $159.67 $185.10 $202.72 $227.46 $266.25 $242.54
S&P 500: $161.83 $166.38 $178.88 $175.33 $186.38 $187.74 $179.99 $190.84 $202.33 $211.42 $228.29 $215.48
S&P MidCap: $145.72 $146.14 $154.36 $154.53 $160.33 $159.01 $152.25 $156.19 $169.85 $174.62 $191.89 $191.66
Fin. Index $163.83 $176.08 $193.01 $186.03 $201.40 $209.30 $194.46 $208.42 $218.15 $230.25 $257.72 $238.50
FY97
Franklin
Resources: $292.19 $281.99 $281.99 $273.10 $281.54 $320.42 $336.43 $338.01 $307.35 $339.90 $274.20 $203.00
S&P 500: $227.26 $219.76 $229.84 $233.79 $236.45 $253.38 $266.36 $269.11 $264.36 $275.14 $272.29 $232.90
S&P MidCap: $202.67 $193.86 $196.73 $204.35 $200.46 $217.05 $226.84 $230.97 $220.60 $221.98 $213.37 $173.69
Fin. Index $257.78 $252.45 $262.40 $275.55 $267.73 $292.91 $309.58 $314.72 $307.12 $319.98 $320.03 $246.29
FY98
Franklin
Resources: $188.35
S&P 500: $247.77
S&P MidCap: $189.89
Fin. Index $251.25
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to the time that the Company acquired substantially all of the assets of
Templeton, Galbraith & Hansberger Ltd ("Templeton") in 1992 (the "Templeton
Acquisition"), Templeton loaned Mr. Flanagan monies secured by a mortgage on Mr.
Flanagan's then residence in Nassau, Bahamas. Such loan is still outstanding to
a subsidiary of the Company and bears interest at the annual rate of 5.98%. The
largest aggregate amount outstanding during the fiscal year was $462,032. As of
December 1, 1998, $442,599 was outstanding under the loan.
In June 1995, prior to the time that Mr. Kenneth A. Lewis became an executive
officer of the Company, in connection with his relocation from Florida to
California, the Company made two loans to Mr. Lewis, one of which is secured by
a mortgage on his residence (the "Mortgage Loan"). The largest amount
outstanding on the Mortgage Loan, which bears interest at the annual rate of 5%,
during the 1998 fiscal year was $500,825. As of December 1, 1998, $492,200 was
outstanding under the Mortgage Loan. The largest amount outstanding on the
second loan, which is non-interest bearing, during the 1998 fiscal year was
$25,000. The second loan was forgiven by the Company in equal installments over
a three (3) year period on the anniversary dates of Mr. Lewis' transfer to
California in August 1995.
In October 1997, prior to the time that Mr. Charles R. Sims became an executive
officer of the Company, in connection with his relocation from Canada to
California, the Company made two loans to Mr. Sims, one of which is secured by a
mortgage on his residence and bears interest at the annual rate of 5% (the "Sims
Mortgage"). Both loans were made after the end of the 1997 fiscal year of the
Company. The largest amount outstanding on the Sims Mortgage during fiscal year
1998 was $649,610 and as of December 1, 1998 $640,009 was outstanding. The
largest amount outstanding on the second loan during fiscal 1998 was $85,000 and
as of December 1, 1998, $56,666 was outstanding on this loan, which is
non-interest bearing. The second loan is forgivable by the Company in equal
installments over a three (3) year period on the first three anniversary dates
of Mr. Sims' transfer to California. In October 1998, $28,334 was forgiven under
the second loan, and in October 1999 and October 2000, $28,333 will be forgiven,
respectively, contingent upon Mr. Sims' continued employment.
During the 1998 fiscal year, the Company and certain of its subsidiaries were
party to a series of transactions with Wallop Software Inc. ("Wallop"), a
corporation in which certain executive officers and directors of the Company had
an interest due to their stock holdings. Ms. Jennifer Bolt, a Vice President and
daughter of Charles B. Johnson, owned approximately 17% of Wallop and her
brothers Messrs. and Charles E. Johnson, a Senior Vice President, Gregory E.
Johnson, a Vice President, each owned less than 1%. Pursuant to these
transactions, the Company paid approximately $817,315 over the course of the
fiscal year to Wallop for software license fees and intranet design services.
During the 1998 fiscal year, loans were also outstanding to certain executive
officers of the Company from Franklin Bank, a subsidiary of the Company. Such
loans were made in the ordinary course of business and on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions and did not involve more than the normal risk of
collectibility or present other unfavorable features. In addition, certain
executive officers were holders of credit cards issued by Franklin Bank upon
substantially the same terms as those prevailing at the time for comparable
cards issued to other Franklin Bank customers.
On September 30, 1998, the Company purchased 8,305 shares of the Company's
Common Stock from Mr. Charles E. Johnson, an executive officer and director of
the Company, and 3,539 and 2,384 shares from Ms. Deborah R. Gatzek and Mr.
Leslie M. Kratter, respectively, both executive officers of the Company. Each
share was purchased at a price of $30.9375 per share, representing the price at
which the stock vested, which is the average of the high and low price of the
Company's stock on the New York Stock Exchange on that date. Such purchases (and
similar purchases from other employees on the same terms and conditions) were
made for the purposes of payment of taxes due in connection with the vesting of
restricted stock awards and were notified by the Company's Board of Directors.
Mr. Charles E. Johnson abstained from voting on the ratification of his sale to
the Company.
PROPOSAL 2: RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors of the Company has appointed PwC as independent
accountants to audit the books and accounts of the Company for its current
fiscal year ending September 30, 1999. PwC has no direct or indirect financial
interest in the Company. During the fiscal year ended September 30, 1998, the
audit services provided by PwC consisted of the rendering of opinions on the
financial statements of the Company and its subsidiaries. PwC also rendered
opinions on the financial statements of open and closed-end investment companies
managed and advised by subsidiaries of the Company. In addition, PwC provides
tax consulting services for the Company and its management consulting group has
provided advice and assistance on several organizational and information systems
initiatives. The Board of Directors recommends ratification of their
appointment. It is the intention of the persons named as proxy holders to vote
for such ratification. The voting requirements for approval of this proposal are
more particularly described under "Voting Securities" elsewhere herein. It is
not expected that a representative of the accountants will be present at the
Annual Meeting.
PROPOSAL 3: ADOPTION OF 1998 UNIVERSAL STOCK INCENTIVE PLAN
On October 17, 1998, the Board of Directors of the Company adopted the 1998
Universal Stock Incentive Plan (the "1998 Stock Plan"), in the form attached as
Exhibit A. The description set forth below is a summary only and is qualified in
its entirety by the terms of the attached 1998 Stock Plan which is incorporated
herein by this reference. The affirmative vote of the holders of a majority of
the outstanding shares of Common Stock represented at the Annual Meeting is
required to authorize the 1998 Stock Plan and to ratify the New Plan Grant. It
is the intention of the persons named as proxy holders to vote for the adoption
of the 1998 Stock Plan and ratification of the New Plan Grant.
The plan is intended to (i) attract and retain persons eligible to participate
in the plan; (ii) motivate employees, by means of appropriate incentives, to
achieve long-range performance goals; (iii) provide incentive compensation
opportunities that are competitive with those of other similar companies; and
(iv) further identify employees' interests with those of the Company's other
stockholders through compensation that is based on the Company's Common Stock;
and thereby promote the long-term financial interest of the Company and the
subsidiaries, including the growth in value of the Company's equity and
enhancement of long-term stockholder return.
The Compensation Committee, as the administrator of the 1998 Stock Plan, has
approved the grant of options and restricted stock awards to employees to
receive 1,766,814 shares of the Company's stock as set forth in the table below
(the "New Plan Grant"). The Board of Directors recommends that the stockholders
approve the adoption of the 1998 Stock Plan and the ratification of the New Plan
Grant. The proposed 1998 Stock Plan is being adopted in part because the Company
has used nearly all of the shares reserved for issuance under the Universal
Plan, which was approved by the Company's Stockholders in 1994, and partly to
clarify the Company's intention to take advantage of the tax benefits of Section
162(m). The 1998 Stock Plan is similar in most respects to the Universal Plan.
The new 1998 Stock Plan will give participating employees a direct investment in
the future success of the Company, align the interests of those employees with
those of the stockholders, and encourage valued employees to remain employed by
the Company.
Capitalized terms not otherwise defined herein are used as set forth in the 1998
Stock Plan. In the event that stockholder approval is not received, the 1998
Stock Plan will be terminated and the grants made thereunder will be rescinded.
Shares Authorized. The 1998 Stock Plan authorizes the issuance from time to time
of up to 10,000,000 shares of Common Stock (subject to adjustment for capital
changes).
Eligibility and Participation. As of December 1, 1998, approximately 8,600
employees were eligible to participate in the 1998 Stock Plan. Under the terms
of the plan, any key executive or other employee of the Company or any of its
subsidiaries is eligible to participate.
Transferability. An employee's rights under the 1998 Stock Plan may not be
assigned, transferred, pledged or otherwise disposed of, except by will or the
laws of descent and distribution.
Amendment and Termination. The Board of Directors of the Company may at any time
terminate or amend the 1998 Stock Plan. However, no such termination may affect
options previously granted, nor may an amendment make any change in any option
previously granted which adversely affects the rights of any participant. In
addition, to the extent necessary to comply with securities and tax laws, the
Company will obtain stockholder approval of such termination or such amendments.
A participant's rights under the 1998 Stock Plan terminate upon termination of
such participant's employment.
Federal Income Tax Consequences of the New Plan. The following discussion
summarizes certain tax considerations for participants and certain tax effects
to the Company. The statements in the following paragraphs of the principal U.S.
federal income tax consequences of benefits under the 1998 Stock Plan are based
on statutory authority and judicial and administrative interpretations, as of
the date of this Proxy Statement, which are subject to change at any time
(possibly with retroactive effect). The law is technical and complex, and the
discussion below represents only a general summary:
Incentive Stock Options. Incentive stock options ("ISOs") granted under the 1998
Stock Plan are intended to meet the definitional requirements of Section 422(b)
of the Code for "incentive stock options." An employee who receives an ISO does
not recognize any taxable income upon the grant of such ISO. Similarly, the
exercise of an ISO generally does not give rise to federal income tax to the
employee, provided that (i) the federal "alternative minimum tax," which depends
on the employee's particular tax situation, does not apply and (ii) the employee
is employed by the Company from the date of the grant of the option until three
months prior to the exercise thereof, except where such employment terminates by
reason of disability (where the three month period is extended to six months) or
death (where this requirement does not apply). If any employee exercises an ISO
after the requisite periods referred to in clause (ii) above, the ISO will be
treated as an NSO (as defined below) and will be subject to the rules set forth
below under the caption "Non-Qualified Stock Options and Stock Appreciation
Rights."
Further, if after exercising an ISO, an employee disposes of the Common Stock so
acquired more than two years from the date of grant and more than one year from
the date of transfer of the Common Stock pursuant to the exercise of such ISO
(the "applicable holding period"), the employee will generally recognize capital
gain or loss equal to the difference, if any, between the amount received for
the shares and the exercise price. If, however, any employee does not hold the
shares so acquired for the applicable holding period - thereby making a
"disqualifying disposition" - the employee would recognize ordinary income equal
to the excess of the fair market value of the shares at the time the ISO was
exercised over the exercise price and the balance, if any, would generally be
treated as capital gain. If the disqualifying disposition is a sale or exchange
that would permit a loss to be recognized under the Code (were a loss in fact to
be realized), and the sales proceeds are less than the fair market value of the
shares on the date of exercise, the employee's ordinary income therefrom would
be limited to the gain (if any) realized on the sale.
An employee who exercises an ISO by delivering Common Stock previously acquired
pursuant to the exercise of another ISO is treated as making a "disqualifying
disposition" of such Common Stock if such shares are delivered before the
expiration of their applicable holding period. Upon the exercise of an ISO with
previously-acquired shares as to which no disqualifying disposition occurs,
despite some uncertainty, it appears that the employee would not recognize gain
or loss with respect to such previously-acquired shares. The Company will not be
allowed a federal income tax deduction upon the grant or exercise of an ISO or
the disposition, after the applicable holding period, of the Common Stock
acquired upon exercise of an ISO. In the event of a disqualifying disposition,
the Company generally will be entitled to a deduction in an amount equal to the
ordinary income included by the employee, provided that such amount constitutes
an ordinary and necessary business expense to the Company and is reasonable and
the limitations of Section 162(m) of the Code (discussed below) do not apply.
Non-Qualified Stock Options and Stock Appreciation Rights. Non-qualified stock
options ("NSOs") granted under the 1998 Stock Plan are options that do not
qualify as ISOs. An employee who receives an NSO or an SAR will not recognize
any taxable income upon the grant of such NSO or SAR. However, the employee
generally will recognize ordinary income upon exercise of an NSO in an amount
equal to the excess of the fair market value of the shares of Common Stock at
the time of exercise over the exercise price. Similarly, upon the receipt of
cash or shares pursuant to the exercise of an SAR, the individual generally will
recognize ordinary income in an amount equal to the sum of the cash and the fair
market value of the shares received.
As a result of Section 16(b) of the Exchange Act, under certain circumstances,
the timing of income recognition may be deferred (generally for up to six months
following the grant of an NSO or SAR (the "Deferral Period")) for any individual
who is an executive officer or director of the Company or a beneficial owner of
more than ten percent (10%) of any class of equity securities of the Company.
Absent a Section 83(b) election (as described below under "Restricted Stock
Awards"), recognition of income by the individual will be deferred until the
expiration of the Deferral Period, if any. The ordinary income recognized with
respect to the receipt of shares or cash upon exercise of an NSO or an SAR will
be subject to both wage withholding and other employment taxes.
In addition to the customary methods of satisfying the withholding tax
liabilities that arise upon the exercise an SAR for shares or upon the exercise
of an NSO, the Company may satisfy the liability in whole or in part by
withholding shares of Common Stock from those that otherwise would be issuable
to the individual or by the employee tendering other shares owned by him or her,
valued at their fair market value as of the date that the tax withholding
obligation arises. A federal income tax deduction generally will be allowed to
the Company in an amount equal to the ordinary income included by the individual
with respect to his or her NSO or SAR, provided that such amount constitutes an
ordinary and necessary business expense to the Company and is reasonable and the
limitations of Sections 162(m) of the Code do not apply. If an individual
exercises an NSO by delivering shares of Common Stock, other than shares
previously acquired pursuant to the exercise of an ISO which is treated as a
"disqualifying disposition" as described above, the individual will not
recognize gain or loss with respect to the exchange of such shares, even if
their then fair market value is different from the individual's tax basis. The
individual, however, will be taxed as described above with respect to the
exercise of the NSO as if he or she had paid the exercise paid in cash, and the
Company likewise generally will be entitles to an equivalent tax deduction.
Restricted Stock Awards. Restricted Stock Awards granted by the Company fall
within the Code's guidelines for awards that are restricted as to
transferability or subject to a substantial risk of forfeiture - absent a
written election pursuant to Section 83(b) of the Code filed with the Internal
Revenue Service within 30 days after the date of transfer of such shares
pursuant to the award (a "Section 83(b) election") - an individual will
recognize ordinary income at the earlier of the time at which (i) the shares
become transferable or (ii) the restrictions that impose a substantial risk of
forfeiture of such shares lapse, in an amount equal to the excess of the fair
market value (on such date) of such shares over the price paid for the award, if
any. If a Section 83(b) election is made, the individual will recognize ordinary
income, as of the transfer date, in an amount equal to the excess of the fair
market value of the Common Stock as of that date over the price paid for such
award, if any. The ordinary income recognized with respect to the receipt of
cash, shares of Common Stock or other property under the 1998 Stock Plan will be
subject to both wage withholding and other employment taxes. The Company
generally will be allowed a deduction for federal income tax purposes in an
amount equal to the ordinary income recognized by the employee, provided that
such amount constitutes an ordinary and necessary business expense and is
reasonable and the limitations of Section 162(m) of the Code do not apply.
Dividends and Dividend Equivalents. To the extent benefits under the 1998 Stock
Plan earn dividends or dividend equivalents, whether paid currently or credited
to an account established under the 1998 Stock Plan, an individual generally
will recognize ordinary income with respect to such dividends or dividend
equivalents.
Certain Limitations on Deductibility of Executive Compensation. With certain
exceptions, Section 162(m) of the Code denies a deduction to publicly held
corporations for compensation paid to the Named Executive Officers in excess of
$1 million per executive per taxable year (including any deduction with respect
to the exercise of an NSO or SAR or the disqualifying disposition of stock
purchased pursuant to an ISO). One such exception applies to certain
performance-based compensation provided that such compensation has been approved
by stockholders in a separate vote and certain other requirements are met. If
approved by its stockholders, the Company believes that the New Plan Grant
should qualify for the performance-based compensation exception to Section
162(m) of the Code.
NEW PLAN BENEFITS
-------------------------------------------------------------------------------
Number of Dollar Type Exercise
Name and Principal Position Shares Value(f) of Price per
Award Share
(g) (h)
-----------------------------------------------------------------------------
Charles B. Johnson,
Director and Chief Executive 23,000 N/A 5 Year $33.25
Officer(a) Option
-------------------------------------------------------------------------------
Rupert H. Johnson, Jr.,
Director and Executive Vice 69,000(e) N/A 5 Year $33.25
President (a) Option
-------------------------------------------------------------------------------
Harmon E. Burns,
Director and Executive Vice 69,000(e) N/A 5 Year $33.25
President Option
-------------------------------------------------------------------------------
Martin L. Flanagan, Senior Vice
President and Chief Financial 82,800(e) N/A 5 Year $33.25
Officer Option
-------------------------------------------------------------------------------
Charles E. Johnson,
Director and Senior Vice 82,800(e) N/A 5 Year $33.25
President (a) Option
-------------------------------------------------------------------------------
Deborah R. Gatzek, N/A 5 Year
Senior Vice President (a) 27,000 Option $33.25
-------------------------------------------------------------------------------
Gregory E. Johnson, N/A 5 Year
Vice President (a) 50,000(e) Option $33.25
-------------------------------------------------------------------------------
Jennifer J. Bolt, N/A 5 Year $33.25
Vice President (a) 35,500 Option
-------------------------------------------------------------------------------
Leslie M. Kratter, 5 Year
Vice President 11,079 $179,987 Option and $33.25
and Secretary (a) Restricted
Stock
-------------------------------------------------------------------------------
5 Year
All Executive Officers as a Group Option and
as a Group (14 persons) (b) 501,091 $887, 974 Restricted $33.25
Stock
------------------------------------------------------------------------------
Non-Executive Directors as a Group
(5 persons) (c) 0 N/A None N/A
-------------------------------------------------------------------------------
All Employees as a Group Restricted
(excluding executive officers) 1,265,723 $30,843,335 Stock,
5 Year $33.25
Option or
and $29.608
Standard
Options
-------------------------------------------------------------------------------
Total Number of Shares Awarded Restricted
(All Five Year Options Stock,
and Standard Options 5 Year $33.25
and Restricted Stock (d) 1,766,814 $31,731,309 Option or
and $29.608
Standard
Options
-------------------------------------------------------------------------------
(a) Footnote reference indicates that such person is an associate of
certain other directors, director nominees and/or executive officers of the
Company.
(b) Includes directors who are also executive officers and also includes
shares awarded or granted to D. R. Gatzek, G. E. Johnson, J. J. Bolt and L.
M. Kratter. No executive officers received grants of standard options
("Standard Options") but some received restricted stock awards ("Restricted
Stock Awards").
(c) All current directors are also nominated directors. Directors who are
not executive officers of the Company - Messrs. Hellman, Kline, McCarthy,
Sacerdote and Woodworth - did not receive stock options or other stock
awards.
(d) The aggregate market value of all awarded shares in the New Plan Grant,
including Five Year Options, based on the NYSE price of $40.0625 on
December 8, 1998, is $70,782,986, assuming no restrictions.
(e) Represents 5% or greater of the aggregate amount of shares awarded
pursuant to the New Plan Grant in the form of Five Year Options and
Standard Options, not including Restricted Stock Awards.
(f) Represents the dollar value on date of grant, October 1, 1998, of
$29.608 per share as determined by the Compensation Committee using an
average of the NYSE price on September 30, 1998 and the five trading days
before and after that date, for the Restricted Stock Awards and Standard
Options, assuming no restrictions. No value is included for Five Year
Options.
(g) Recipients of a Five Year Option received an option to obtain shares of
Common Stock. Material terms of the Five Year Options are as follows:
The Five Year Options were granted on October 23, 1998 and have an exercise
price of $33.25, the NYSE price on that date. On September 30, 2003, any
unvested portion of the option will automatically become exercisable. In
addition, if at any time after September 28, 2000 and prior to September 30,
2003 the price of the Company's stock is equal to or greater than $66.50 per
share during any consecutive 30 trading day period, 100% of the option shall
become immediately exercisable until December 31, 2003 (the "Expiration Date").
In no event, however, may any shares vest nor may the recipient exercise the
option until after September 28, 2000. The vesting may also be accelerated based
upon the compounded annual growth rate of the Company's stock measured from the
price on the grant date (the "Growth Rate") as follows:
One-third Exercisable: On or after September 28, 2001 but before
September 30, 2003, if the Growth Rate is equal to or greater than 15%
but less than 20% during any consecutive 30 trading day period, 33.3%
of the original grant shall become exercisable on or after September
28, 2001 and a second 33.3% shall become exercisable on of after
September 30, 2002 with the remainder exercisable on or after
September 30, 2003 until the Expiration Date.
One-half Exercisable: On or after September 28, 2001 and prior to
September 30, 2003, if the Growth Rate is equal to or greater than 20%
but less than 25% during any consecutive 30 trading day period, 50% of
the original grant shall become exercisable on or after September 28,
2001 and the remainder shall become exercisable on or after September
30, 2002 until the Expiration Date.
Full Exercisability: On or after September 30, 2001 and prior to
September 30, 2003, if the Growth Rate is equal to or greater than 25%
during any consecutive 30 trading day period, 100% of the original
grant shall become immediately exercisable until the Expiration Date.
Recipients of a Restricted Stock Award received an award to obtain shares of
Common Stock which vest in one-third increments over three years, based upon
continued employment. Recipients of Standard Options received an option to
obtain shares of Common Stock which have the same vesting terms as the
Restricted Stock Awards. Recipients of Restricted Stock Awards are also entitled
to vote such shares and receive dividends. The Company generally awards
Standard Options to its foreign subsidiary employees in Canada, the United
Kingdom and elsewhere, but structures the Standard Options to have substantially
the same terms as the Restricted Stock Awards used in the United States. The
Restricted Stock Awards and the Standard Options were granted as of October 1,
1998. The exercise price of the Standard Options is $29.608; determined using
the same methodology as described in footnote (f) above.
(h) Represents the exercise price of $33.25 for Five Year Options and
$29.608 for Standard Options. Recipients of Restricted Stock Awards pay no
exercise price. With respect to the Standard Options included in the New
Plan Grant, the foreign subsidiaries whose employees have received Standard
Options will make equalizing payments to those recipients on a deferred
basis so that such persons receive comparable economic benefit as those
persons receiving Restricted Stock Awards.
STOCKHOLDER PROPOSALS
Any stockholder intending to present any proposal in accordance with Rule 14a-8
under the Exchange Act for consideration at the Company's next Annual Meeting
must, in addition to meeting other applicable requirements mail such proposal
to: Leslie M. Kratter, Secretary, Franklin Resources, Inc., 777 Mariners Island
Blvd., 7th Floor, San Mateo, CA 94404. The proposal must be submitted in such
form as is required under the rules and regulations promulgated by the SEC.
Stockholder proposals in accordance with Rule 14a-8 must be received by the
Company at the address above no later than August 21, 1999. The Company may
exercise discretionary voting authority under proxies solicited by it for the
2000 Annual Meeting of Stockholders if it receives notice of a proposed non-Rule
14a-8 stockholder action after November 4, 1999.
OTHER MATTERS
So far as the management of the Company is aware, only the aforementioned
matters will be acted upon at the Annual Meeting of Stockholders. If any other
matters properly come before the Annual Meeting, it is intended that the
accompanying proxy may be voted on such matters in accordance with the views of
management.
IF YOU CANNOT PERSONALLY ATTEND THE ANNUAL MEETING, PROMPT EXECUTION AND RETURN
OF THE ENCLOSED PROXY IS REQUESTED. A SELF-ADDRESSED, POSTAGE-PAID ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE.
FRANKLIN RESOURCES, INC.
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned does hereby constitute and appoint Charles B. Johnson, Harmon E.
Burns, Deborah R. Gatzek and Leslie M. Kratter or any of them, the attorneys and
proxies of the undersigned with full power of substitution and appointment,
collectively and as individuals, to vote all the undersigned's shares of Common
Stock of Franklin Resources, Inc. (the "Company") at the Annual Meeting of
Stockholders of the Company, to be held at the offices of the Company, 777
Mariners Island Boulevard, San Mateo, California, U.S.A. at 10:00 a.m., Pacific
Standard Time, on January 28, 1999 and at any and all adjournments or
postponements thereof (the "Meeting"), upon the matters set forth on the reverse
side.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND WILL BE VOTED AS
SPECIFIED. IF NO SPECIFICATION IS MADE, IT WILL BE VOTED FOR THE ELECTION AS
DIRECTORS OF THE NOMINEES SPECIFIED IN THE PROXY STATEMENT AND FOR ITEM 2 AND
FOR ITEM 3. IF ANY OTHER MATTERS DO COME BEFORE THE MEETING, THE PERSONS NAMED
IN THIS PROXY WILL VOTE, ACT AND CONSENT WITH RESPECT THERETO IN ACCORDANCE WITH
THE VIEW OF MANAGEMENT.
Continued and to be signed and dated on the reverse side.
1. ELECTION OF DIRECTORS: FOR all nominees listed below.__
WITHHOLD AUTHORITY to vote for all nominees listed below.__
* EXCEPTIONS __
Nominees: H.E. Burns, F.W. Hellman, C.B. Johnson, C.E. Johnson, R.H. Johnson,
Jr., H. Kline, J. McCarthy, P. Sacerdote, L. Woodworth
INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark the
"Exceptions" box and write that nominee's name in the space provided below.
* EXCEPTIONS__________________________________________________
2. Ratification of the selection of PricewaterhouseCoopers LLP as independent
accountants for the fiscal year ending September 30, 1999.
FOR__ AGAINST__ ABSTAIN__
3. The adoption of a 1998 Universal Stock Incentive Plan for the award of
restricted stock, stock options and other performance units for certain
employees of the Company and the ratification of certain grants thereunder.
FOR__ AGAINST__ ABSTAIN__
4. In their discretion, the proxy holders are authorized to vote upon such other
business as properly may come before the Meeting, or any adjournments or
postponements thereof.
Change of Address and or Comments Mark Here __________________________
- ----------------------------------------------------------------------
Please Sign, Date and Return the Proxy Card Promptly Using the Enclosed
Envelope. No Postage is Required.
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.
Dated:____________________, 199_
- -----------------
Signature
- -----------------
Signature
Votes must be indicated (X) in Black or Blue Ink. ___
EXHIBIT A
FRANKLIN RESOURCES, INC.
1998 UNIVERSAL STOCK INCENTIVE PLAN
1. GENERAL
1.1. Purpose. The Franklin Resources, Inc. 1998 Universal Stock Incentive
Plan (the "Plan") has been established by Franklin Resources, Inc., a Delaware
corporation (the "Company") to (i) attract and retain persons eligible to
participate in the Plan; (ii) motivate Employees, by means of appropriate
incentives, to achieve long-range performance goals; (iii) provide incentive
compensation opportunities that are competitive with those of other similar
companies; and (iv) further identify Employees' interests with those of the
Company's other stockholders through compensation that is based on the Company's
common stock; and thereby promote the long-term financial interest of the
Company and the Subsidiaries, including the growth in value of the Company's
equity and enhancement of long-term stockholder return.
1.2. Participation. Subject to the terms and conditions of the Plan, the
Committee shall determine and designate, from time to time, from among the
Eligible Employees, those persons who will be granted one or more Awards under
the Plan. An Eligible Employee who receives an Award shall be a "Participant"
under the Plan. In the discretion of the Committee, an Employee may be granted
any Award permitted under the provisions of the Plan, and more than one Award
may be granted to a Participant. Awards may be granted as alternatives to or
replacement of awards outstanding under the Plan, or any other plan or
arrangement of the Company or a Subsidiary (including a plan or arrangement of a
business or entity, all or a portion of which is acquired by the Company or a
Subsidiary).
1.3. Operation, Administration, and Definitions. The operation and
administration of the Plan, including the Awards made under the Plan, shall be
subject to the provisions of Section 4 (relating to operation and
administration). Capitalized terms in the Plan shall be defined as set forth in
the Plan (including the definition provisions of Section 8 of the Plan).
1.4 Stock Subject to Plan; Share Counting. Subject to the provisions of
Section 6.1 of the Plan, the maximum aggregate number of shares which may be
optioned and sold under the Plan is 10,000,000 Shares of Common Stock. The
shares may be authorized, but unissued, or reacquired Common Stock.
(a) To the extent any Shares covered by an Award are not delivered to
a Participant or beneficiary because the Award is forfeited or canceled, or the
Shares are not delivered because the Award is settled in cash or used to satisfy
the applicable tax withholding obligation, such shares shall not be deemed to
have been delivered for purposes of determining the maximum number of Shares
available for delivery under the Plan.
(b) If the exercise price of any Option granted under the Plan is
satisfied by tendering Shares to the Company (by either actual delivery or by
attestation), only the number of Shares issued net of the Shares tendered shall
be deemed delivered for purposes of determining the maximum number of Shares
available for delivery under the Plan.
(c) Subject to adjustment under Section 6.1, (i) the maximum number
of shares that may be granted to any one individual pursuant to Section 2
(relating to Options and SARs) shall be 250,000 Shares during any
one-calendar-year period and (ii) the maximum number of Shares that may be
granted to any one individual subject to Section 3 (relating to Stock Unit
Awards, Restricted Stock Awards, Restricted Stock Unit Awards and Performance
Share Awards) that are intended to be "performance-based compensation" (as that
term is used for purposes of Code Section 162(m)) shall be 1,000,000 Shares
during any one-calendar-year period (regardless of when such shares are
deliverable).
2. OPTIONS AND SARS
2.1. Options.
(a) An Option is a grant of rights to purchase Shares at an Exercise
Price established by the Committee. Options granted under this Section 2 may be
either Incentive Stock Options ("ISO") or Nonstatutory Stock Options ("NSO"), as
determined in the discretion of the Committee.
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be automatically treated as Nonstatutory
Stock Options. For purposes of this paragraph 2(b), Incentive Stock Options
shall be taken into account in the order in which they were granted, and the
Fair Market Value of the Shares shall be determined as of the original date the
Option with respect to such Shares is granted.
(c) The term of each Option shall be the term stated in the Option
Agreement; provided, however, that in the case of any Incentive Stock Option,
the term shall be no more than ten (10) years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement. However, in the
case of an Incentive Stock Option granted to an Optionee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the term of the Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
(d) The date of grant of an Option shall, for all purposes, be the
date on which the Committee makes the determination granting such Option, or
such other date as is determined by the Board. Notice of the determination shall
be given to each Employee to whom an Option is so granted within a reasonable
time after the date of such grant.
2.2, Stock Appreciation Rights. A "Stock Appreciation Right" ("SAR") is a
grant of rights to receive, in cash or Stock (as determined by the Committee),
value equal to (or otherwise based on) the excess of: (a) the Fair Market Value
of a specified number of Shares at the time of exercise; over (b) an Exercise
Price established by the Committee.
2.3. Exercise Price. The Exercise Price of each Option and SAR
shall be established by the Committee or shall be determined by a method
established by the Committee at the time the Option or SAR is granted;
provided that:
(a) In the case of an ISO,
(i) granted to an Employee who, at the time of the grant of such
Incentive Stock Option, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(ii) granted to any Employee, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
2.4. Time and Manner of Exercise. Options and SARs shall be
exercisable in accordance with such terms and conditions and during such
periods as may be established by the Committee; subject to the following terms
regarding Options:
(a) Termination of Employment. In the event of termination of an
Optionee's Continuous Status as an Employee with the Company, such Optionee may,
but only within ninety (90) days after the date of such termination (or such
other period as is set out by the Committee in the Option Agreement, but in no
event later than the expiration date of the term of such Option as set forth in
the Option Agreement), exercise the Option to the extent that Optionee was
entitled to exercise it at the date of such termination. To the extent that
Optionee was not entitled to exercise the Option at the date of such
termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
(b) Disability of Optionee. Notwithstanding the provisions of
paragraph 2.4(a) above, in the event of termination of an Optionee's Continuous
Status as an Employee as a result of disability (as determined by the Board in
accordance with the policies of the Company), Optionee may, but only within six
(6) months from the date of such termination (or such other period as is set out
by the Committee in the Option Agreement, but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent otherwise entitled to exercise it
at the date of such termination. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(c) Death of Optionee. In the event of the death of an Optionee, the
Option may be exercised, at any time within twelve (12) months following the
date of death (or such other period as is set out by the Committee in the Option
Agreement, but in no event later than the expiration date of the term of such
Option as set forth in the Option Agreement), by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent the Optionee was entitled to exercise the Option at the
date of death. To the extent that Optionee was not entitled to exercise the
Option at the date of termination, or if Optionee does not exercise such Option
to the extent so entitled within the time specified herein, the Option shall
terminate.
2.5. Payment of Exercise Price. Payment of the Exercise Price of an
Option shall be subject to the following:
(a) The full Exercise Price for Shares purchased upon the exercise of
any Option shall be paid at the time of such exercise (except that, in the case
of an exercise arrangement approved by the Committee and described in paragraph
2.5(b), payment may be made as soon as practicable after the exercise).
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Committee (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (i) cash, (ii)
check, (iii) other Shares (by delivery of certificates or attestation) which (x)
either have been owned by the Optionee for more than six months on the date of
surrender or were not acquired, directly or indirectly, from the Company, and
(y) have a Fair Market Value on the date of surrender equal to the aggregate
exercise price of the Shares as to which said Option shall be exercised, (iv)
delivery of authorization for the Company to retain from the total number of
Shares as to which the Option is exercised that number of Shares having a Fair
Market Value on the date of exercise equal to the exercise price for the total
number of Shares as to which the Option is exercised, (v) delivery of a properly
executed exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company the amount of sale or loan proceeds required to
pay the exercise price, (vi) irrevocably authorizing a third party to sell
Shares (or a sufficient portion of the shares) acquired upon exercise of the
Option and remit to the Company a sufficient portion of the sale proceeds to pay
the entire Exercise Price and any tax withholding resulting from such exercise,
(vii) any combination of the foregoing methods of payment, (viii) or such other
consideration and method of payment for the issuance of Shares to the extent
permitted under Applicable Laws.
2.6. Settlement of Award. Shares delivered pursuant to the exercise of an
Option or SAR shall be subject to such conditions, restrictions and
contingencies as the Committee may establish in the applicable Award Agreement
at the time of grant. Settlement of SARs may be made in Shares (valued at their
Fair Market Value at the time of exercise), in cash, or in a combination
thereof, as determined in the discretion of the Committee. The Committee, in its
discretion, may impose such conditions, restrictions and contingencies with
respect to Shares acquired pursuant to the exercise of an Option or an SAR as
the Committee determines to be desirable.
3. OTHER STOCK AWARDS
3.1. Definitions.
(a) A "Stock Unit" Award is the grant of a right to receive Shares
in the future.
(b) A "Performance Share" Award is a grant of a right to receive
Shares or Stock Units which is contingent on the achievement of performance or
other objectives during a specified period.
(c) A "Restricted Stock" Award is a grant of Shares, and a
"Restricted Stock Unit" Award is the grant of a right to receive Shares in the
future, with such Shares or right to future delivery of such Shares subject to a
risk of forfeiture or other restrictions that will lapse upon the achievement of
one or more goals relating to completion of service by the Employee, or
achievement of performance or other objectives, as determined by the Committee.
3.2. Restrictions on Stock Awards. Each Stock Unit Award,
Restricted Stock Award, Restricted Stock Unit Award and Performance Share
Award shall be subject to the following:
(a) Any such Award shall be subject to such conditions, restrictions
and contingencies as the Committee shall determine.
(b) The Committee may designate whether any such Award being granted
to any Employee are intended to be "performance-based compensation" as that term
is used in Section 162(m) of the Code. Any such Awards designated as intended to
be "performance-based compensation" shall be conditioned on the achievement of
one or more Performance Measures. The Performance Measures that may be used by
the Committee for such Awards shall be based on any one or more of the criteria
attached hereto on Attachment I, as selected by the Committee. For Awards
intended to be "performance-based compensation," the grant of the Awards and the
establishment of the Performance Measures shall be made during the period
required under Section 162(m) of the Code and shall be subject to the individual
share limit set out in Section 1.4(c)(ii) above.
4. OPERATION AND ADMINISTRATION
4.1. Effective Date. Subject to the approval of the stockholders of the
Company at the Company's 1999 annual meeting of its stockholders, the Plan shall
be effective as of October 17, 1998 (the "Effective Date"); provided, however,
that to the extent that Awards are granted under the Plan prior to its approval
by stockholders, the Awards shall be contingent on approval of the Plan by the
stockholders of the Company at such annual meeting. The Plan shall be unlimited
in duration and, in the event of Plan termination, shall remain in effect as
long as any Awards under it are outstanding; provided, however, that, to the
extent required by the Code, no ISO may be granted under the Plan on a date that
is more than ten years from the date the Plan is adopted or, if earlier, the
date the Plan is approved by stockholders.
4.2. General Restrictions. Delivery of Shares or other amounts
under the Plan shall be subject to the following:
(a) Notwithstanding any other provision of the Plan, the Company
shall have no liability to deliver any Shares under the Plan or make any other
distribution of benefits under the Plan unless such delivery or distribution
would comply with all applicable laws (including, without limitation, the
requirements of the Securities Act of 1933), and the applicable requirements of
any securities exchange or similar entity.
(b) To the extent that the Plan provides for issuance of stock
certificates to reflect the issuance of Shares, the issuance may be effected on
a non-certificated basis, to the extent not prohibited by applicable law or the
applicable rules of any stock exchange.
4.3. Tax Withholding. All distributions under the Plan are subject to
withholding of all applicable taxes, and the Committee may condition the
delivery of any shares or other benefits under the Plan on satisfaction of the
applicable withholding obligations. The Committee, in its discretion, and
subject to such requirements as the Committee may impose prior to the occurrence
of such withholding, may permit such withholding obligations to be satisfied
through cash payment by the Employee, through the surrender of Shares which the
Employee already owns, or through the surrender of Shares to which the Employee
is otherwise entitled under the Plan.
4.4. Use of Shares. Subject to the overall limitation on the number of
Shares that may be delivered under the Plan, the Committee may use available
Shares as the form of payment for compensation, grants or rights earned or due
under any other compensation plans or arrangements of the Company or a
Subsidiary, including the plans and arrangements of the Company or a Subsidiary
assumed in business combinations.
4.5. Dividends and Dividend Equivalents. An Award (including without
limitation an Option or SAR Award) may provide the Employee with the right to
receive dividend payments or dividend equivalent payments with respect to Stock
subject to the Award (both before and after the Stock subject to the Award is
earned, vested, or acquired), which payments may be either made currently or
credited to an account for the Employee, and may be settled in cash or Stock as
determined by the Committee. Any such settlements, and any such crediting of
dividends or dividend equivalents or reinvestment in Shares, may be subject to
such conditions, restrictions and contingencies as the Committee shall
establish, including the reinvestment of such credited amounts in Stock
equivalents.
4.6. Payments. Awards may be settled through cash payments, the delivery
of Shares, the granting of replacement Awards, or combination thereof as the
Committee shall determine. Any Award settlement, including payment deferrals,
may be subject to such conditions, restrictions and contingencies as the
Committee shall determine. The Committee may permit or require the deferral of
any Award payment, subject to such rules and procedures as it may establish,
which may include provisions for the payment or crediting of interest, or
dividend equivalents, including converting such credits into deferred Stock
equivalents. Each Subsidiary shall be liable for payment of cash due under the
Plan with respect to any Employee to the extent that such benefits are
attributable to the services rendered for that Subsidiary by the Employee. Any
disputes relating to liability of a Subsidiary for cash payments shall be
resolved by the Committee.
4.7. Transferability. Unless specifically provided by the
Committee in the Award Agreement, Awards under the Plan are nontransferable
except as designated by the Employee by will or by the laws of descent and
distribution.
4.8. Form and Time of Elections. Unless otherwise specified herein, each
election required or permitted to be made by any Employee or other person
entitled to benefits under the Plan, and any permitted modification, or
revocation thereof, shall be in writing filed with the Committee at such times,
in such form, and subject to such restrictions and limitations, not inconsistent
with the terms of the Plan, as the Committee shall require.
4.9. Agreement With Company. An Award under the Plan shall be subject to
such terms and conditions, not inconsistent with the Plan, as the Committee
shall, in its sole discretion, prescribe. The terms and conditions of any Award
to any Employee shall be reflected in such form of written document as is
determined by the Committee. A copy of such document shall be provided to the
Employee, and the Committee may, but need not require that the Employee shall
sign a copy of such document. Such document is referred to in the Plan as an
"Award Agreement" regardless of whether any Employee signature is required.
4.10. Action by Company or Subsidiary. Any action required or permitted to
be taken by the Company or any Parent or Subsidiary shall be by resolution of
its board of directors, or by action of one or more members of the board
(including a committee of the board) who are duly authorized to act for the
board, or (except to the extent prohibited by applicable law or applicable rules
of any stock exchange) by a duly authorized officer of such company.
4.11. Gender and Number. Where the context admits, words in any
gender shall include any other gender, words in the singular shall include the
plural and the plural shall include the singular.
4.12. Limitation of Implied Rights.
(a) Neither a Participant nor any other person shall, by reason of
participation in the Plan, acquire any right in or title to any assets, funds or
property of the Company or any Parent or Subsidiary whatsoever, including,
without limitation, any specific funds, assets, or other property which the
Company or any Parent or Subsidiary, in their sole discretion, may set aside in
anticipation of a liability under the Plan. A Participant shall have only a
contractual right to the Stock or amounts, if any, payable under the Plan,
unsecured by any assets of the Company or any Parent or Subsidiary, and nothing
contained in the Plan shall constitute a guarantee that the assets of the
Company or any Parent or Subsidiary shall be sufficient to pay any benefits to
any person.
(b) The Plan does not constitute a contract of employment, and
selection as a Participant will not give any participating employee the right to
be retained in the employ of the Company or any Subsidiary, nor any right or
claim to any benefit under the Plan, unless such right or claim has specifically
accrued under the terms of the Plan. Except as otherwise provided in the Plan,
no Award under the Plan shall confer upon the holder thereof any rights as a
stockholder of the Company prior to the date on which the individual fulfills
all conditions for receipt of such rights.
5. COMMITTEE
5.1. Committee. The authority to control and manage the operation and
administration of the Plan shall be vested in a committee (the "Committee") in
accordance with this Section 5. The Committee shall be selected by the Board,
and shall consist solely of two or more members of the Board and, with respect
to Awards granted subject to Section 162(m) of the Code, the Committee shall be
composed of two or more members of the Board who are not employees of the
Company. If the Committee does not exist, or for any other reason determined by
the Board, the Board may take any action under the Plan that would otherwise be
the responsibility of the Committee.
5.2. Powers of Committee. The Committee's administration of the
Plan shall be subject to the following:
(a) Subject to the provisions of the Plan, the Committee will have
the authority and discretion to select from among the Eligible Employees those
persons who shall receive Awards, to determine the time or times of receipt, to
determine the types of Awards and the number of shares covered by the Awards, to
establish the terms, conditions, performance criteria(except that for purposes
of Section 162(m) of the Code, performance measures shall be based on one or
more of the criteria set out on Attachment I hereto) , restrictions, and other
provisions of such Awards, and (subject to the restrictions imposed by Section 8
hereof) to cancel or suspend Awards.
(b) To the extent that the Committee determines that the restrictions
imposed by the Plan preclude the achievement of the material purposes of the
Awards in jurisdictions outside the United States, the Committee will have the
authority and discretion to modify those restrictions as the Committee
determines to be necessary or appropriate to conform to applicable requirements
or practices of jurisdictions outside of the United States.
(c) The Committee will have the authority and discretion to interpret
the Plan, to establish, amend, and rescind any rules and regulations relating to
the Plan, to determine the terms and provisions of any Award Agreement made
pursuant to the Plan, and to make all other determinations that may be necessary
or advisable for the administration of the Plan.
(d) Any interpretation of the Plan by the Committee and any decision
made by it under the Plan is final and binding on all persons.
(e) In controlling and managing the operation and administration of
the Plan, the Committee shall take action in a manner that conforms to the
articles and by-laws of the Company, and applicable state corporate law.
5.3. Delegation by Committee. Except to the extent prohibited by
Applicable Law or the applicable rules of a stock exchange, the Committee may
allocate all or any portion of its responsibilities and powers to any one or
more of its members and may delegate all or any part of its responsibilities and
powers to any person or persons selected by it. Any such allocation or
delegation may be revoked by the Committee at any time.
5.4. Information to be Furnished to Committee. The Company and its Parent
and Subsidiaries shall furnish the Committee with such data and information as
it determines may be required for it to discharge its duties. The records of the
Company and its Parent and Subsidiaries as to an Employee's employment,
termination of employment, leave of absence, reemployment and compensation shall
be conclusive on all persons unless determined to be incorrect. Employees and
other persons entitled to benefits under the Plan must furnish the Committee
such evidence, data or information as the Committee considers desirable to carry
out the terms of the Plan.
6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR CORPORATE TRANSACTION
6.1 Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Award, and the number of shares of Common Stock which have been
authorized for issuance under the Plan but as to which no Awards have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Award, as well as the price per share of Common Stock covered by each such
outstanding Award, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Board, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of Shares of any class, or securities convertible into
Shares of any class, shall affect, and no adjustment by reason thereof shall be
made with respect to, the number or price of shares of Common Stock subject to
an Award.
6.2 Transactions. In the event of the proposed dissolution or liquidation
of the Company or of a merger or corporate combination (a "Transaction") in
which the successor corporation does not agree to assume the Award or substitute
an equivalent Award, the Committee shall make a determination (subject to
Section 7 below) as to the equitable treatment of outstanding Awards under the
Plan and shall notify Participants of such treatment no later than ten (10) days
prior to such proposed Transaction. To the extent it has not been previously
exercised, an Award will terminate immediately prior to the consummation of such
proposed Transaction.
7. AMENDMENT AND TERMINATION
The Board may, at any time, amend or terminate the Plan, provided that no
amendment or termination may, in the absence of written consent to the change by
the affected Employee (or, if the Employee is not then living, the affected
beneficiary), adversely affect the rights of any Employee or beneficiary under
any Award granted under the Plan prior to the date such amendment is adopted by
the Board; provided that adjustments pursuant to subject to Section 6.2 shall in
no event be deemed to have an adverse affect on any Award.
8. DEFINED TERMS
In addition to the other definitions contained herein, the following
definitions shall apply:
(a) Applicable Law means the corporate, securities and tax laws
(including, without limitation, the Delaware corporate law, the Exchange Act,
the Securities Act of 1933 and the Code) applicable to the establishment and
administration of an employee stock incentive plans.
(b) Award. The term "Award" shall mean any award or benefit granted under
the Plan, including, without limitation, the grant of Options, SARs, Stock Unit
Awards, Restricted Stock Awards, Restricted Stock Unit Awards and Performance
Share Awards.
(c) Board. The term "Board" shall mean the Board of Directors of the
Company.
(d) Code. The term "Code" means the Internal Revenue Code of 1986, as
amended. A reference to any provision of the Code shall include reference to any
successor provision of the Code.
(e) Continuous Status as an Employee means the absence of any
interruption or termination of the employment relationship by the Company or any
Subsidiary. Continuous Status as an Employee shall not be considered interrupted
in the case of: (i) sick leave, military leave or any other leave of absence
approved by the Board, provided that such leave is for a period of not more than
ninety (90) days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute, or unless provided otherwise pursuant to
Company policy adopted from time to time; or (ii) in the case of transfers
between locations of the Company or between the Company, its Subsidiaries or its
successor.
(f) Eligible Employee. The term "Eligible Employee" shall mean any key
executive or other employee of the Company, its Parent or Subsidiary. An Award
may be granted to an employee, in connection with hiring, retention or
otherwise, prior to the date the employee first performs services for the
Company or its Parent or Subsidiaries, provided that such Awards shall not
become vested prior to the date the employee first performs such services.
(g) Exchange Act means the Securities Exchange Act of 1934, as amended.
(h) Fair Market Value. For purposes of determining the "Fair Market
Value" of a share of Stock granted pursuant to Section 2 as of any date, the
following rules shall apply:
(i) If the principal market for the Stock is the New York Stock
Exchange ("NYSE"), then the "Fair Market Value" as of that date shall be the
closing price of the stock on the NYSE composite tape on that date as reported
in the Wall Street Journal for such date;
(ii) If the principal market for the Stock is the another national
securities exchange or the NASDAQ stock market, then the "Fair Market Value" as
of that date shall be the mean between the lowest and highest reported composite
sale prices of the Stock on that date on such exchange for such date;
(iii) If sale prices are not available or if the principal market for
the Stock is not the NYSE or another national securities exchange and the Stock
is not quoted on the NASDAQ stock market, the average between the highest bid
and lowest asked prices for the Stock on such day as reported on the NASDAQ OTC
Bulletin Board Service or by the National Quotation Bureau, Incorporated or a
comparable service.
(iv) If the day is not a business day, and as a result, paragraphs
(i), (ii) and (iii) next above are inapplicable, the Fair Market Value of the
Stock shall be determined as of the last preceding business day. If paragraphs
(i), (ii) and (iii) next above are otherwise inapplicable, then the Fair Market
Value of the Stock shall be determined in good faith by the Committee.
(i) Incentive Stock Option means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
(j) Nonstatutory Stock Option means an Option not intended to qualify as
an Incentive Stock Option.
(k) Optionee means an Employee who receives an Option.
(l) Parent means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(m) Share means a share of the Common Stock, as adjusted in accordance
with Section 6 of the Plan.
(n) Stock. The term "Stock" shall mean shares of common stock of the
Company.
(o) Subsidiaries. The term "Subsidiary" means any company during any
period in which it is a "subsidiary corporation" (as that term is defined in
Code section 424(f)) with respect to the Company.
ATTACHMENT I
PERFORMANCE CRITERIA
The Committee shall grant performance-based compensation Awards tied to
one or more of the following business criteria:
1. Changes in earnings per share
2. Changes in pre-tax operating income
3. Changes in value of stock (i.e., stock price)