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 Rule 14a-11(c) or Rule 14a-12
THE FRANKLIN HOLDING CORPORATION (DELAWARE)
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
[NAME OF FILER IF APPLICABLE]
------------------------------------------------------------------------
(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)(1) 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:
THE FRANKLIN HOLDING CORPORATION (DELAWARE)
450 PARK AVENUE
NEW YORK, NEW YORK 10022
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 9, 1997
------------------------
The Annual Meeting of Stockholders of The Franklin Holding Corporation
(Delaware) will be held on September 9, 1997 at 10 o'clock a.m., New York Time,
at the offices of Weil, Gotshal & Manges LLP, 25th Floor, 767 Fifth Avenue, New
York, New York, for the following purposes:
1. To elect seven (7) directors to hold office until the next Annual
Meeting of Stockholders and until their successors have been duly elected
and have qualified;
2. To act upon a proposal to elect that the Corporation be regulated
as a business development company ('BDC') under the Investment Company Act
of 1940;
3. To act upon a proposal to approve the stock option plans for
management and the Corporation's Board of Directors;
4. To ratify the appointment by the Board of Directors of Arthur
Andersen LLP to serve as independent auditors for the fiscal year ending
December 31, 1997; and
5. To consider and transact such other business as may properly come
before the meeting or any adjournment or postponement thereof.
The Board has fixed the close of business on July 25, 1997 as the record
date for the determination of the stockholders entitled to notice of, and to
vote at, the meeting or any adjournment or postponement thereof. Each
stockholder is entitled to one vote for each share of Common Stock, $1.00 par
value, held on the record date.
If you cannot attend the meeting, please sign and return the enclosed proxy
card as soon as possible in order that you may be represented at the meeting. If
you attend the meeting, you may vote in person even though you have sent in a
proxy.
By Order of the Board of Directors
SPENCER L. BROWN
Secretary
New York, New York
August 21, 1997
[This page intentionally left blank]
THE FRANKLIN HOLDING CORPORATION (DELAWARE)
450 PARK AVENUE
NEW YORK, NEW YORK 10022
------------------------
PROXY STATEMENT
SOLICITATION OF PROXIES
This Proxy Statement is furnished by the Board of Directors of The Franklin
Holding Corporation (Delaware), a Delaware corporation (the 'Corporation'), in
connection with the solicitation by the Corporation of proxies for use at the
Annual Meeting of Stockholders (the 'Meeting') to be held on September 9, 1997,
at 10 o'clock a.m., New York time, at the offices of Weil, Gotshal & Manges LLP,
25th Floor, 767 Fifth Avenue, New York, New York.
VOTING AND REVOCABILITY OF PROXIES
Stockholders who execute proxies may revoke them at any time before they
are voted, by delivering to Mr. Spencer L. Brown, Secretary of the Corporation,
at the offices of the Corporation at 450 Park Avenue, 10th Floor, New York, New
York 10022, before the ballot is cast, either an instrument revoking the proxy
or a duly executed proxy bearing a later date, or by attending the Meeting and
voting in person. A proxy, when executed and not so revoked, will be voted in
accordance with the specifications contained therein. If no contrary
specification is indicated on the proxy, the shares represented thereby will be
voted for the election of the seven (7) nominees for directors, in favor of the
proposal for the Corporation to elect to be regulated as a BDC, in favor of the
adoption of the stock option plans for management and directors of the
Corporation and in favor of the ratification of the appointment of Arthur
Andersen LLP as the Corporation's independent auditors.
In the event that the persons named as proxies propose one or more
adjournments to permit further solicitation with respect to any proposal to be
voted upon at the Meeting, any such adjournments would require the affirmative
vote of a majority of the shares present in person or by proxy at the session of
the Meeting to be adjourned. The proxyholders will vote in favor of such an
adjournment with respect to those proxies which instruct them to vote in favor
of such proposal (including proxies that have no contrary specification with
respect to such proposal), and will vote against such an adjournment with
respect to those proxies which instruct them to vote against or abstain from
voting with respect to such proposal. No adjournment will be for any period
later than October 8, 1997.
Except as stated specifically and except (i) with respect to the election
of directors, which is by plurality of votes cast, and (ii) with respect to the
proposal to authorize the stock option plans, which are by a majority of all
outstanding shares, each of the matters being submitted to stockholder vote
pursuant to the Notice of Annual Meeting will be approved if a quorum is present
in person or by proxy and a majority of the votes cast on a particular matter
are cast in favor of that matter.
EXPENSES OF SOLICITATION OF PROXIES
The solicitation will be made by the Corporation and all expenses will be
borne by the Corporation. The solicitation will be conducted by mail, except
that in a limited number of instances proxies may be solicited by directors,
officers and other employees of the Corporation personally, by telephone or by
telecopier. This proxy statement and form of proxy are first being sent to
stockholders on or about August 21, 1997. THE CORPORATION WILL FURNISH, WITHOUT
CHARGE, A COPY OF THE ANNUAL REPORT AND MOST RECENT SEMI-ANNUAL REPORT TO
STOCKHOLDERS TO ANY STOCKHOLDER UPON REQUEST IN WRITING ADDRESSED TO 'THE
FRANKLIN HOLDING CORPORATION (DELAWARE), 450 PARK AVENUE, NEW YORK, NEW YORK
10022, ATTENTION: STOCKHOLDER RELATIONS' OR BY CALLING COLLECT (212) 486-2323.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
OUTSTANDING SHARES AND VOTING RIGHTS
At the close of business on July 25, 1997, the record date for the Meeting,
the outstanding voting securities of the Corporation consisted of 801,198 shares
of Common Stock, each of which is entitled to one vote.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
holdings of any person, including any 'group,' as that term is defined in
Section 13(d)(3) of the Securities Exchange Act of 1934 (as amended, the '1934
Act'), who was known to the Corporation to be the 'beneficial owner,' as defined
in Rule 13(d)(3) under the 1934 Act, of more than 5% of the outstanding Common
Stock at the close of business on July 1, 1997. The following information is
based solely on a review by the Corporation of the Common Stock transfer records
of the Corporation and on publicly available filings made with the Securities
and Exchange Commission (the 'Commission') by or on behalf of stockholders of
the Corporation.
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- ---------------------- ------------------------------------------- ---------- --------
Common Stock.......... Stephen L. Brown, Chairman 249,233(1) 31.1%
c/o The Franklin Holding
Corporation (Delaware)
450 Park Avenue
New York, New York 10022
Common Stock.......... Joseph S. Dresner, Milton H. Dresner 142,165(2) 17.7%
Jay B. Langner and Charles Reinwald
c/o Robinson Brog Leinwand Reich
Genovese & Gluck P.C.
1345 Avenue of the Americas
New York, NY 10105
Attention: Richard W. Cohen
Common Stock.......... The TCW Group, Inc. 68,600(3) 8.6%
865 South Figueroa Street
Los Angeles, CA 90017
Common Stock.......... Robert Day 68,600(3) 8.6%
200 Park Avenue, Suite 2200
New York, NY 10166
- ------------------
(1) Includes the 25,000 shares of Common Stock owned by S.L. Brown & Company,
Inc. ('SLB & Co., Inc.'). The Corporation has been notified that on June 30,
1997, the board of directors of SLB & Co., Inc. entered into, and the
stockholders of SLB & Co., Inc. approved, a plan of dissolution of SLB &
Co., Inc. Mr. Brown has, subject to certain limitations, voting and
investment power over the voting securities owned by SLB & Co., Inc. and is
Chairman of SLB & Co., Inc. Also includes 117,936 shares of Common Stock
owned by certain stockholders of SLB & Co., Inc., for which Mr. Brown has an
irrevocable proxy through no later than
(Footnotes continued on next page)
2
(Footnotes continued from previous page)
July 1, 1998. Does not include 1,250 shares of Common Stock owned by Mr.
Brown's children. Mr. Brown disclaims beneficial ownership of such shares.
(2) Represents the aggregate number of shares of Common Stock owned by Messrs.
Joseph Dresner, Milton Dresner, Langner and Reinwald as reflected on a
statement of beneficial ownership on Schedule 13D (the '13D') as filed with
the Commission on or about March 23, 1995. The Corporation expressly
disclaims any responsibility for accuracy and completeness of the reporting
contained in the 13D. No action has been taken with respect to the 13D since
the filing of the Corporation's 1995 Proxy Statement and all litigation
related to the 13D filing is subject to the Settlement described hereinafter
under 'Certain Litigation' and in the Class notice issued in connection with
the Settlement. Pursuant to the Settlement, members of the 13D group will
exchange releases with defendants in Action No. 1 (as hereinafter defined).
(3) Represents the aggregate number of shares of Common Stock owned by TCW Asset
Management Company, a subsidiary of The TCW Group, Inc., as reflected on a
Schedule 13G (the '13G') as filed with the Commission on or about February
12, 1997. According to the 13G, Mr. Day is an individual who may be deemed
to control The TCW Group, Inc. According to the 13G, other than the indirect
holdings of The TCW Group, Inc., no Common Stock is held directly or
indirectly by The TCW Group, Inc. or Mr. Day. The Corporation expressly
disclaims any responsibility for accuracy and completeness of the reporting
contained in the 13G.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information with respect to the
Common Stock beneficially owned, as defined in Rule 13(d)(3) under the 1934 Act,
by each director of the Corporation, each nominee for director, each named
executive officer and by all directors and named executive officers of the
Corporation as a group, at the close of business on July 1, 1997. Except as
otherwise indicated, each of the persons named in the table below as
beneficially owning the shares set forth therein has sole voting power and sole
investment power with respect to such shares.
AMOUNT
NAME OF BENEFICIAL OWNER OF CLASS BENEFICIALLY OWNED PERCENT
- ---------------------------------------------------------------------- ------------------ --------
Stephen L. Brown...................................................... 249,233(1) 31.1%
Jeffrey J. Steiner.................................................... 31,481(2) 3.9%
Carl D. Glickman...................................................... 30,981(3) 3.9%
Miles L. Berger....................................................... 10,000 1.2%
Jonathan A. Marshall.................................................. 5,900 *
John Greenbaum........................................................ 4,600(4) *
Spencer L. Brown...................................................... 4,987(5) *
Irving Levine......................................................... 3,000 *
Stephen J. Mayer...................................................... 0 *
All officers and directors as a group (9 persons)..................... 285,724(6) 35.7%
- ------------------
* Less than 1%
(1) Includes 25,000 shares of Common Stock owned by SLB & Co., Inc., over which
Mr. Brown has, subject to certain limitations, voting and investment power.
Also includes 117,936 shares of Common Stock owned by certain stockholders
of SLB & Co., Inc. for which Mr. Brown has an irrevocable proxy through no
later than
(Footnotes continued on next page)
3
(Footnotes continued from previous page)
July 1, 1998. Does not include 1,250 shares of Common Stock owned by Mr.
Brown's children. Mr. Brown disclaims beneficial ownership of such shares.
(2) Includes 30,981 shares of Common Stock owned by Primrose Associates, Inc., a
corporation controlled by Mr. Steiner. Of those shares, 26,228 are subject
to an irrevocable proxy given to Stephen L. Brown through no later than July
1, 1998. Does not include 25,000 shares of Common Stock owned by SLB & Co.,
Inc. Mr. Steiner is an indirect stockholder of SLB & Co., Inc. and disclaims
beneficial ownership of such shares.
(3) Includes 26,228 shares of Common Stock owned by Mr. Glickman that are
subject to an irrevocable proxy given to Stephen L. Brown through no later
than July 1, 1998. Does not include 25,000 shares of Common Stock owned by
SLB & Co., Inc. Mr. Glickman is a direct stockholder of SLB & Co., Inc. and
disclaims beneficial ownership of such shares.
(4) Ownership is through Greenbaum Brothers Partnership, in which Mr. Greenbaum
has a 33% general partnership interest.
(5) Includes 1,338 shares of Common Stock owned by Spencer L. Brown that are
subject to an irrevocable proxy given to Stephen L. Brown through no later
than July 1, 1998. Does not include 25,000 shares of Common Stock owned by
SLB & Co., Inc. Spencer Brown is a direct stockholder of SLB & Co., Inc. and
disclaims beneficial ownership of such shares.
(6) Includes 53,794 shares of Common Stock owned by other officers and directors
that are subject to an irrevocable proxy given to Stephen L. Brown through
no later than July 1, 1998.
ELECTION OF DIRECTORS
INFORMATION CONCERNING NOMINEES
At the Meeting, the stockholders will elect seven (7) directors,
constituting the entire Board of Directors, to hold office until the next Annual
Meeting of Stockholders and until their respective successors have been elected
and qualified. Each stockholder of record at the close of business on July 25,
1997 is entitled to one vote for each share of Common Stock registered in the
name of each stockholder on the books of the Corporation.
The term of the present directors of the Corporation expires at the Meeting
when their respective successors have been duly elected and qualified.
Information with respect to the nominees for election as directors of the
Corporation follows:
POSITION WITH DIRECTOR
NAME AGE THE CORPORATION SINCE
- --------------------------------------------------- ---- ------------------------------------------ --------
Stephen L. Brown*.................................. 59 Chairman of the Board, 1986
Chief Executive Officer and Director
Miles L. Berger.................................... 66 Director 1996
Carl D. Glickman*.................................. 71 Director 1986
John Greenbaum*.................................... 46 Chief Financial Officer, Treasurer 1992
and Director
Irving Levine...................................... 75 Director 1990
Jonathan A. Marshall............................... 58 Director 1987
Jeffrey J. Steiner................................. 60 Director 1986
(Footnotes on next page)
4
(Footnotes from previous page)
- ------------------
* Mr. Brown is an 'interested person' of the Corporation within the meaning of
the Investment Company Act of 1940 (as amended, the '1940 Act') by reason of
his position as Chairman and Chief Executive Officer of the Corporation and
his beneficial ownership of shares of Common Stock of the Corporation owned by
SLB & Co., Inc. Mr. Glickman is an 'interested person' by reason of his
position as a director of The Bear Stearns Companies Inc., an 'affiliated
person' (within the meaning of the 1940 Act) of Bear, Stearns & Co. Inc., a
registered broker-dealer. Mr. Greenbaum is an 'interested person' by reason of
his position as Chief Financial Officer and Treasurer of the Corporation.
Stephen L. Brown, Chairman of the Board of Directors of the Corporation,
has been Chairman and Chief Executive Officer since October 1986. Since June
1984, Mr. Brown has been Chairman of SLB & Co., Inc., a private investment firm.
Mr. Brown is a director of Copley Financial Services Corporation (advisor to
Copley Fund, Inc., a mutual fund) and Avery Communications Inc., a holding
company in the telecommunications industry ('Avery').
Miles L. Berger, a director of the Corporation, has been Vice Chairman of
the Board of Heitman Financial Ltd., a real estate service company, for more
than the past five years. Mr. Berger is also Chairman of the Board of Mid Town
Bank, Chicago, and a director of Innkeepers USA Trust, a Maryland real estate
investment trust.
Carl D. Glickman, a director of the Corporation, has been President of The
Glickman Organization, a real estate investment firm, for more than the past
five years. Mr. Glickman is a director of The Bear Stearns Companies Inc.,
Alliance Tyre & Rubber Co., Andal Corp., Continental Health Affiliates, Inc.,
Infu Tech, Inc., Jerusalem Economics Corp., LTD, Lexington Growth Properties,
Office Max, Inc. and SLB & Co., Inc.
John Greenbaum, a director of the Corporation, has been Chief Financial
Officer and Treasurer of the Corporation since March 1996. Mr. Greenbaum acted
as principal of Digital Media Group, a venture capital firm, from October 1994
through March 1996. From March 1988 to September 1994 he was Vice President of
the Corporation and from May 1992 to September 1994 acted as Secretary of the
Corporation. Mr. Greenbaum is also a director of Avery.
Irving Levine, a director of the Corporation, has been Chairman of the
Board and President of Copley Fund, Inc., a mutual fund, since 1978, and
Chairman and Treasurer of Stuffco International, Inc., a ladies handbag
processor and chain-store operator, since 1978. Mr. Levine is also President and
a director of Copley Financial Services Corporation (advisor to Copley Fund,
Inc.), and a director of Rexnord Holdings, Inc.
Jonathan A. Marshall, a director of the Corporation, is a Senior Partner in
the law firm of Pennie & Edmonds and has been a member of that firm since 1974.
He is a member of the Bar of the State of New York and is admitted to practice
before the United States Supreme Court and the United States Patent and
Trademark Office.
Jeffrey J. Steiner, a director of the Corporation, has been Chairman and
Chief Executive Officer of The Fairchild Corporation, an aviation services
company, since October 1985. Mr. Steiner is also Chairman, Chief Executive
Officer and a director of Banner Aerospace, Inc., a Vice Chairman and director
of Shared Technology Fairchild, Inc., and a director of Copley Financial
Services Corporation.
5
EXECUTIVE OFFICERS
In addition to Messrs. Stephen Brown and Greenbaum, the following
individuals are executive officers of the Corporation:
Spencer L. Brown, Age 31. Mr. Brown has been Senior Vice President of the
Corporation since November 1995, Secretary of the Corporation since October 1994
and was Vice President from August 1994 to November 1995. From September 1993 to
July 1994 Mr. Brown was an attorney with the firm of Wilson, Elser, Moskowitz,
Edelman & Dicker and from September 1991 to September 1993 he was an attorney
with the firm of Weil, Gotshal & Manges LLP. Mr. Brown is also a director of
Avery. Mr. Brown is the son of Mr. Stephen L. Brown, the Chairman and Chief
Executive Officer of the Corporation.
Stephen J. Mayer, Age 44. Mr. Mayer has been Vice President and Controller
of the Corporation since December 1994. From April 1994 to October 1994 Mr.
Mayer was Chief Financial Officer of Biltmore Mortgage Corp. From February 1992
to April 1994 he was Vice President and Controller of Midcoast Mortgage Corp.
The term of office of the executive officers of the Corporation expires at
the meeting of the Board of Directors when their respective successors have been
elected and have qualified. The Corporation anticipates that each such officer
will be re-elected at the meeting of the Board of Directors to be held
immediately after the Annual Meeting of Stockholders.
REMUNERATION OF DIRECTORS AND OFFICERS
The following table sets forth information with respect to all cash
remuneration paid or accrued by the Corporation for services by the
Corporation's directors and three most highly paid executive officers whose
compensation exceeded $60,000 for the year ended December 31, 1996:
PENSION OR
AGGREGATE RETIREMENT
COMPENSATION BENEFITS ACCRUED
FROM THE AS PART OF
NAME OF PERSON POSITION CORPORATION CORPORATION EXPENSES
- ------------------------------------------------- ------------------------ ------------ --------------------
Stephen L. Brown................................. Chairman and $422,500 $9,500
Chief Executive Officer
Spencer L. Brown................................. Senior Vice President 130,000 7,200
and Secretary
Miles L. Berger.................................. Director 13,500 0
Carl D. Glickman................................. Director 54,000 0
John Greenbaum................................... Chief Financial Officer, 106,808 1,000
Treasurer and Director
Irving Levine.................................... Director 18,000 0
Jonathan A. Marshall............................. Director 18,000 0
Jeffrey J. Steiner............................... Director 18,000 0
Mr. Brown is employed under a contract with the Corporation at a base
salary of $390,000 per annum. The initial term of such employment contract
expired on December 31, 1995, and is automatically extended from year to year
thereafter unless the Corporation elects not to extend the term. Each director
of the Corporation, other than those directors who are also officers of the
Corporation, received a director's fee of $18,000 per annum. See 'Certain
Litigation' below regarding future directors' fees and Mr. Brown's compensation.
Mr. Glickman, as Chairman of the Executive Committee of the Board of Directors
as well as serving as a Director of Excelsior Communications Corporation, a
wholly owned subsidiary of the Corporation ('Excelsior'), receives a fee of
6
$36,000 per annum in addition to his fee as a director of the Corporation. Mr.
Greenbaum's compensation includes all compensation received in 1996 as an
officer and director of the Corporation. Mr. Greenbaum joined the Corporation as
Chief Financial Officer and Treasurer in March 1996, and received fees of $4,500
for his service as a director of the Corporation prior to such appointment.
During the year ended December 31, 1996, the Corporation reimbursed directors,
other than directors who are also officers, for certain receipted expenses
incurred in connection with the performance of their duties, including
attendance at Board and Committee meetings, in the aggregate amount of $5,906.
Messrs. Brown and Greenbaum received no such reimbursement.
COMPENSATION PURSUANT TO PLANS
All employees of the Corporation who have been employed for a minimum of
six months are eligible to participate in The Franklin Holding Corporation
(Delaware) Profit Sharing Retirement Savings Plan (the 'Savings Plan'). The
Savings Plan, a defined contribution plan under Section 401(k) of the Internal
Revenue Code of 1986 (as amended, the 'Code'), purchases shares of Common Stock
of the Corporation and/or securities of several mutual funds. Under the terms of
the Savings Plan, the Corporation matches the voluntary contributions of
employees up to 6% of their compensation. Participants may contribute up to an
additional 7% of their compensation.
The Savings Plan was established in 1967 and the Corporation does not
maintain any other compensation, profit-sharing or deferred compensation plan.
Total contributions by employees and the Corporation to the Savings Plan for the
year ended December 31, 1996 amounted to $38,863. The employer contributions for
the account of all officers as a group were $17,700, constituting 83.6% of the
total employer contributions to the account of all employees participating in
the Savings Plan. Directors who are not salaried employees of the Corporation
are not permitted to participate in the Savings Plan.
In the event that both of the proposals to elect that the Corporation be
regulated as a BDC and to approve the Stock Option Plans (as defined herein) are
approved by stockholders, the Corporation will terminate the Savings Plan prior
to issuing any rights under either of the Stock Option Plans in order to comply
with the 1940 Act provision that does not permit the issuance by a BDC of any
warrants, options and rights to its directors, officers and employees if the BDC
maintains a profit sharing plan for officers and employees of the BDC (including
any officer or employee who is also a director of such company.) See 'Proposal
to Cause the Corporation to Make an Election to Be Regulated as a Business
Development Company' and 'Proposal to Approve the Stock Option Plans.'
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
During the year ended December 31, 1996, the Board of Directors met on five
occasions and did not act without a meeting by unanimous written consent.
The Audit Committee held one meeting during the year ended December 31,
1996. The Audit Committee meets with the Corporation's independent auditors to
review the Corporation's financial statements and the adequacy of internal
controls and accounting systems. The members of the Audit Committee are Messrs.
Levine (Chairman), Glickman,* Marshall and Berger.
The Executive Committee meets between meetings of the Board of Directors.
The Executive Committee generally may exercise the authority of the Board of
Directors and may approve financings not to exceed $500,000. The Executive
Committee held six meetings during the year ended December 31, 1996. The members
of the Executive Committee are Messrs. Glickman (Chairman),* Brown* and
Marshall.
- ------------------
* Interested Person
7
The Compensation Committee meets to consider compensation of executive
officers of the Corporation. The Compensation Committee met twice during the
year ended December 31, 1996. The members of the Compensation Committee are
Messrs. Marshall (Chairman) and Glickman.*
Each director, with the exception of Mr. Steiner, attended at least 75% of
the aggregate number of meetings of the Board of Directors and of Board
Committees on which he served. There is no Nominating Committee.
BROKERAGE TRANSACTIONS
During the year ended December 31, 1996, the Corporation paid aggregate
brokerage commissions of approximately $2,000, none of which was paid to Bear,
Stearns & Co. Inc. ('Bear Stearns'). Mr. Glickman is a director of Bear Stearns'
parent company.
Brokers are selected by the Corporation's Board of Directors, whose primary
considerations are the cost and efficiency of execution of brokerage orders. No
person acting on behalf of the Corporation is authorized to pay a brokerage
commission to a broker in excess of that which another broker might have charged
for effecting the same transaction in recognition of the value of research
services provided by the broker.
INVESTMENT ADVISOR
The Corporation does not engage the services of an investment advisor,
principal underwriter or administrator.
AFFILIATED TRANSACTIONS
TRANSACTIONS WITH CONTROLLED AFFILIATES
On July 3, 1997, the Boards of Directors of the Company and Excelsior
authorized the dissolution and subsequent liquidation of Excelsior. Upon its
liquidation, after satisfying any liabilities and subject to applicable law, all
of its assets will be transferred to the Corporation. As of June 30, 1997,
Excelsior had total assets of approximately $3.6 million (consisting primarily
of cash, cash equivalents (including marketable securities) and receivables) and
total liabilities of approximately $1,700.
On May 30, 1997, the Corporation made an additional investment of
$2,500,000 in Avery. The investment partially consisted of a $1,000,000 loan,
represented by a note with a maturity of three years that earns interest at the
rate of 10% per annum. The first year's interest payment of $100,000 was made at
the time the loan was made. In additional consideration for this loan, Avery
issued to the Corporation as of May 30, 1997 warrants to purchase 666,666 shares
of common stock of Avery at $1.50 per share. These warrants are immediately
exercisable and expire five years from the date of issuance. The remainder of
the $1,500,000 investment purchased 7.5 units in Avery. Each unit consists of
133,333 shares of common stock of Avery and 200,000 shares of Avery's Series D
preferred stock. The Series D preferred stock earns a dividend of 10% per annum
payable quarterly and is convertible into 100,000 shares of Avery's common
stock. This transaction, coupled with the Corporation's previous investment in
common stock and Series E preferred stock of Avery, results in the Corporation
owning in excess of 25% of Avery's outstanding voting stock on a fully diluted
basis. In connection with such investment, Messrs. Stephen L. Brown, Spencer L.
Brown and John Greenbaum were appointed to Avery's six-person board of directors
and Mr. Stephen L. Brown was appointed as the Vice Chairman of Avery's board of
directors.
For the years ended December 31, 1996 and 1995, the Corporation's income
from controlled affiliates consisted of a management fee of $750,000 from
Excelsior in each such year. The Corporation did not receive interest income,
net of related expenses, in either year.
- ------------------
* Interested Person
8
CERTAIN LITIGATION
In March 1995, a complaint was filed in the United States District Court
for the Southern District of New York (the 'District Court') by a former
director of the Corporation (who in 1990 was not renominated for election to the
Board of Directors) against the Corporation, its chairman, certain of its
directors and an affiliated company ('Action No. 1'). Action No. 1 was
purportedly brought both on behalf of a class of minority stockholders of the
Corporation and derivatively on behalf of the Corporation. Action No. 1, in
substance, alleged that the Corporation's Board did not comply with the
'interested persons' provisions of the 1940 Act; that there had not been full
disclosure about various matters, including with respect to the Corporation's
application to deregister as an investment company and about the business
relationships between defendants in proxy statements from 1989 through 1994; and
that management's and directors' compensation and benefits were excessive in
relation to the financial performance of the Corporation. The complaint asserted
claims under the 1940 Act and rules of the Commission promulgated thereunder and
under common law. In May 1995, an amended complaint was filed containing, in
substance, the same claims as the original complaint, but purporting to assert
additional derivative and class action claims under Sections 10(b) and 20(a) of
the 1934 Act. The amended complaint alleged that the Corporation and its Board
failed to disclose facts in various documents, including the Corporation's 1994
Annual Report and 1993 and 1994 Proxy Statements, with respect to, among other
things, the Corporation's investment through Excelsior in various radio stations
and the current status of the Corporation's operations.
After the filing of Action No. 1, Mr. Langner and a group of other
individuals filed a Schedule 13D, pursuant to the 1934 Act and related
regulatory requirements, announcing their intention to conduct a proxy campaign
to gain control of the Corporation, with a view towards removing existing Board
members and bringing about the Corporation's dissolution and liquidation. In
July 1995, the Corporation filed suit against Mr. Langner and his group,
claiming violation of federal securities laws, in connection with the Schedule
13D filing and the group's subsequent proxy materials ('Action No. 2').
In June 1995, the Corporation and the other defendants moved to dismiss the
amended complaint in Action No. 1 for failure to make the required demand upon
the Board of Directors (as to purported derivative claims), for lack of standing
to assert the purported derivative claims, for failure to state a claim upon
which the requested relief can be granted and for failure to plead the claims
for fraud with the required specificity. Plaintiff filed a second amended
complaint in August 1995 containing in substance the same claims as the amended
complaint, but including additional factual allegations. The second amended
complaint sought unspecified monetary relief from the individual defendants and
equitable and declaratory relief with respect to the Corporation, including
setting aside the election of directors held at the Corporation's annual meeting
in August 1994 and 1995 and Board action since August 1994, declaring the
chairman's employment contract void, an accounting by defendants, and an
injunction directing the liquidation of the Corporation and the appointment of a
special fiscal agent, receiver or conservator to oversee same. The plaintiff and
the defendants submitted supplemental briefings concerning the issue of whether
the second amended complaint should be dismissed.
In January 1996, the District Court issued an opinion partially granting
and partially denying defendants' motion to dismiss. The District Court
dismissed plaintiff's derivative claims for failure to make the required demand
upon the Board of Directors and abstained from entertaining plaintiff's request
that the Corporation be dissolved and that a special fiscal agent, receiver or
conservator be appointed. The District Court denied defendants' motion to
dismiss with respect to the remainder of plaintiff's claims.
On December 10, 1996, the Court ruled that Action No. 1 could proceed as a
class action and defined the class (the 'Class') as the Company's stockholders
excluding SLB & Co., Inc., the Company's directors, and
9
their controlling stockholders, the members of their immediate families, their
partners and other legal representatives.
On July 14, 1997, the parties in Action No. 1 and Action No. 2 entered into
a Stipulation of Settlement (the 'Settlement'). A Notice of Proposed Settlement
was sent to the Class on August 4, 1997 and provides a summary of the terms of
the Settlement. The Settlement is subject to the approval of the District Court.
Pursuant to the terms of the Settlement, the Board of Directors declared on
July 18, 1997 a $3.25 special dividend to stockholders of record of the
Corporation's Common Stock as of July 28, 1997. The special dividend payable to
the Corporation's stockholders who are members of the Class in Action No. 1 was
placed in a settlement fund for the benefit of the Class on August 7, 1997. The
settlement fund, which is subject to reduction by any amount of attorneys' fees
and expenses awarded by the District Court to plaintiff's counsel in Action No.
1, will be distributed to Class members either upon the entry of an order of
final approval (the 'Effective Date') of the Settlement or within 10 business
days in the event the District Court fails to approve the Settlement and enters
an order to that effect or the Settlement Agreement is otherwise terminated
pursuant to its terms. The Corporation's stockholders who were recordholders on
July 28, 1997, but not members of the Class (and also including by the terms of
the Settlement, Miles L. Berger and members of his immediate family), received
the special dividend on August 4, 1997.
The terms of the Settlement also provide that the Company's directors will
use their reasonable best efforts to formulate and adopt, and to cause the
Company to call a meeting of its stockholders to vote upon, a plan to designate
the Company as a BDC pursuant to the 1940 Act.
The Settlement also provides that for not more than one year from the
Effective Date of the Settlement or the Company becoming a BDC: (a) each
director's annual fees for all meetings of the Board and its Committees actually
attended, including consulting fees, shall not exceed in the aggregate a total
of $15,000 per year, plus a fee of $500 per meeting (telephone attendance shall
not be compensated); and (b) Stephen Brown's compensation (base salary and any
additional bonus) shall not exceed $422,500 per year. If after one year from the
Effective Date of the Settlement, the Company has not become a BDC pursuant to
the 1940 Act, the Board of Directors shall determine in its absolute discretion
the compensation of the Company's directors and officers, including Stephen
Brown's compensation. Further, under the terms of the Settlement, if the Company
becomes a BDC, then for three years thereafter: (a) each director's annual fees
for all meetings of the Board and its Committees actually attended, including
consulting fees, shall not exceed in the aggregate a total of $12,000 per year,
but such directors may also receive incentive compensation, as determined in and
subject to the absolute discretion of the Board of Directors and provided that
such incentive compensation is permissible under the 1940 Act; and (b) the base
salary for Stephen Brown shall not exceed $350,000 per year, but during those
three years Mr. Brown also may receive such additional incentive compensation,
as determined by and subject to the absolute discretion of the Board of
Directors, as is permissible under the 1940 Act.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors recommends that stockholders vote 'FOR' the persons
named herein to serve as directors until the next Annual Meeting of Stockholders
and until their respective successors have been duly elected and have qualified.
Under Delaware law, directors are elected by a plurality of the votes of the
shares present in person or represented by proxy and entitled to vote in the
election of directors.
All nominees have consented to stand for election and to serve if elected.
If any nominee should be unable to serve in such position, an event not
presently anticipated, the proxies will be voted for such a person, if any, as
shall be designated by the Board of Directors to replace any such nominee,
unless the Board of Directors reduces the number of directors constituting the
whole Board.
10
In the absence of contrary instructions, the Corporation intends to vote
all proxies 'FOR' the election of the seven (7) nominees listed above as
directors of the Corporation. In tallying the vote, abstentions and broker
non-votes will be considered to be shares of Common Stock present at the
Meeting, but not voting in favor of the election of the nominees (i.e., they
will have the same legal effect as a vote 'against' the election of the
nominees).
PROPOSAL TO CAUSE THE CORPORATION TO MAKE AN ELECTION TO BE
REGULATED AS A BUSINESS DEVELOPMENT COMPANY
On April 7, 1987, in order to engage primarily in the business of investing
in securities, the Corporation filed with the Commission a notification of
registration under Section 8(a) of the 1940 Act and registered as a closed-end,
non-diversified management investment company. On July 10, 1987, the Corporation
commenced operations as an investment company. The Corporation's Common Stock,
par value $1.00 per share, has been listed on The American Stock Exchange since
October 1, 1987. The Corporation operates as an internally managed investment
company whereby its officers and employees, under the general supervision of its
Board of Directors, conduct its operations.
After commencing operations as a passive investor in a varied portfolio of
securities, the Corporation's asset portfolio evolved over a period of time such
that a large percentage of its assets was invested in a control position of a
particular company. As a result of this change in portfolio mix, the Corporation
began to take a more active role in the management of this controlled investment
and determined that registration under the 1940 Act may not have been necessary
to implement its business strategy. In 1991, the Corporation began the process
to deregister as an investment company under the 1940 Act but deregistration was
never completed.
The Corporation continued its controlled investment through 1996 and
provided significant managerial assistance with respect to such investment. This
operating strategy of providing managerial assistance is consistent with the
legislative intent behind the statutory framework governing business development
companies under the 1940 Act. The business development company classification
was created for these types of public venture funds. In light of this operating
strategy and the Corporation's long-term objectives, in 1996 the Corporation
determined to explore the feasibility of whether it was appropriate to make an
election to be regulated as a BDC. In May 1997, management of the Corporation
recommended to the Board of Directors that, consistent with the Corporation's
investment strategies, the Corporation elect to be regulated as a BDC, and on
August 5, 1997, the Board of Directors determined that it would be in the best
interests of the Corporation and its stockholders to elect to become a BDC under
the 1940 Act and authorized the Corporation to seek stockholder approval to make
such an election.
If the approval to be regulated as a BDC is obtained, the Corporation
intends promptly to make such election and if it fails to make the election
prior to the next annual meeting of stockholders, this approval will expire. The
Board of Directors may not withdraw its election to become a BDC without first
obtaining the approval of a majority of its outstanding voting securities. A BDC
is a specialized type of investment company. The Board believes the greater
operational flexibility available to the Corporation if it were to become a BDC,
including the ability of the Corporation to invest in 'start-up' companies that
expect ultimately to go public, to utilize increased leverage capacity, to
invest in entities that other affiliated persons invest in and the ability to
offer expanded management incentives and other benefits, makes this the correct
choice and recommends that you vote 'FOR' the proposal. The Corporation will
continue to be internally managed and will continue to value its investments at
fair value, as defined in the 1940 Act.
Generally, to be eligible to elect BDC status, a company must be primarily
engaged in the business of furnishing capital and managerial expertise to
companies that do not have ready access to capital through
11
conventional financial channels. Such portfolio companies are termed 'eligible
portfolio companies.' More specifically, in order to qualify as a BDC, a company
must (i) be a domestic company; (ii) have registered a class of its equity
securities or have filed a registration statement with the Commission pursuant
to Section 12 of the 1934 Act; (iii) operate for the purpose of investing in the
securities of certain types of portfolio companies, namely immature or emerging
companies and businesses suffering or just recovering from financial distress
(see following paragraph); (iv) extend significant managerial assistance to such
portfolio companies; (v) have a majority of 'disinterested' directors (as
defined in the 1940 Act); and (vi) file (or, under certain circumstances, intend
to file) a proper notice of election with the Commission.
An eligible portfolio company generally is a U.S. company that is not an
investment company and that (i) does not have a class of securities registered
on an exchange or included in the Federal Reserve Board's over-the-counter
margin list; or (ii) is actively controlled by a BDC and has an affiliate of a
BDC on its board of directors; or (iii) meets such other criteria as may be
established by the Commission. Control under the 1940 Act is generally presumed
to exist where a BDC owns 25% of the outstanding voting securities of the
company.
The 1940 Act prohibits or restricts companies subject to the 1940 Act from
investing in certain types of companies, such as brokerage firms, insurance
companies, investment banking firms and investment companies. Moreover, the 1940
Act limits the type of assets that BDCs may acquire to 'qualifying assets' and
certain assets necessary for its operations (such as office furniture, equipment
and facilities) if, at the time of acquisition, less than 70% of the value of
the company's assets consist of qualifying assets. Qualifying assets include:
(i) securities of companies that were eligible portfolio companies at the time
such company acquired their securities; (ii) securities of bankrupt or insolvent
companies that were eligible at the time of such company's initial acquisition
of their securities but are no longer eligible, provided that such company has
maintained a substantial portion of its initial investment in those companies;
(iii) securities received in exchange for or distributed in or with respect to
any of the foregoing; and (iv) cash items, government securities and
high-quality short-term debt. The staff of the Commission is of the view that a
BDC must meet this test within two years of its election to be regulated as a
BDC and must have at least 50% of its assets in securities of portfolio
companies within two years. The Corporation expects to be able to meet these
criteria. The 1940 Act also places restrictions on the nature of the
transactions in which, and the persons from whom, securities can be purchased in
order for the securities to be considered qualifying assets. Such restrictions
include limiting purchases to transactions not involving a public offering and
acquiring securities from either the portfolio company or its officers,
directors of affiliates.
As a BDC, the Corporation may invest in the securities of public companies
and other investments that are not qualifying assets, but such investments may
not exceed 30% of the Corporation's total asset value at the time of any such
investment.
If the Corporation's stockholders approve the proposal to be regulated as a
BDC and the Corporation makes an election to be so regulated, the Corporation's
fundamental policy with respect to concentration of its investments will change
and the Corporation will no longer seek stockholder approval to deregister as an
investment company under the 1940 Act. The Corporation will continue to invest
in assets as described above, however, but will no longer maintain a policy to
concentrate over 25% of its total assets in any particular industry, such as
concentrating over 25% of the Corporation's total assets in each of the
manufacturing and media industries. In addition, as a BDC and as disclosed
above, the Corporation may engage in other investment activities that were not
previously investment policies of the Corporation. If the Corporation's
stockholders do not approve the proposal to be regulated as a BDC, the
Corporation will continue to operate as a closed-end, non-diversified management
investment company under the 1940 Act (and provisions under the 1940 Act
relating to business development companies will not be applicable to the
Corporation).
12
Investing in a BDC may entail special risks because of the nature of its
investments in small companies. Because of the absence of any trading market for
unlisted investments, the Corporation may require more time to liquidate its
investments than would be the case for listed securities. Companies whose
securities are unlisted tend to be smaller than established companies and
generally have small capitalizations and fewer resources and, therefore, are
often more vulnerable to financial failure. In addition, the managements of such
companies tend to be less experienced and knowledgeable than those of
established companies. Some of these companies are expected to be companies that
are in a 'start-up' stage of development, have little or no operating history,
operate at a loss or with substantial variations in operating results from
period to period, have limited products, markets or financial resources or have
the need for substantial additional 'follow-up' capital to support expansion or
to achieve or maintain a competitive position. The Corporation expects that the
business focus will not change significantly as management currently provides
direct assistance and advice to the Corporation's existing portfolio companies
and expects to continue to do so. It does so through conferences, meetings and
assistance with business planning and development as well as providing access to
knowledgeable third parties.
A BDC may issue in limited circumstances, warrants, options and rights to
purchase its securities to its employees, officers and directors in connection
with an executive compensation plan if certain conditions are met and provided
that the BDC does not maintain a profit sharing plan. The conditions include the
authorization of such issuance by a majority of the holders of the BDC's Common
Stock and the approval of a majority of the independent members of the Board of
Directors and a majority of the directors who have no financial interest in the
transaction, plan or arrangement. The issuance of options, warrants or rights to
directors who are not also employees or officers of the BDC ('outside'
directors) requires the prior approval of the Commission. The Corporation is
simultaneously herewith requesting that stockholders approve the Corporation's
Stock Option Plans. The issuance of such options is conditioned upon the
termination of the existing Savings Plan and in the case of 'outside' directors,
is also conditioned upon the receipt of an exemptive order from the Commission.
See 'Proposal to Approve the Stock Option Plans.' In the event that the approval
to elect to be regulated as a BDC is not approved, regardless of whether the
proposal to approve the Corporation's Stock Option Plans is approved, the
Corporation will continue to maintain the Savings Plan.
The foregoing is not exhaustive but intended merely to summarize the
characteristics of a BDC.
The Board of Directors recommends that you vote 'FOR' the Proposal to cause
the Corporation to make an election to be regulated as a BDC.
In the absence of contrary instructions, the Corporation intends to vote
all proxies 'FOR' the approval of the Corporation to make an election to be
regulated as a business development company. In tallying the vote, abstentions
and broker non-votes will be considered to be shares of Common Stock present at
the Meeting, but not voting in favor of the election of the nominees (i.e., they
will have the same legal effect as a vote 'against' approval to make an election
to be regulated as a BDC).
PROPOSAL TO APPROVE THE STOCK OPTION PLANS
The Proposal to approve the Stock Option Plans described below is included
in the Proxy Statement as a result of the election of BDC status. The Board
recommends that you vote 'FOR' the proposal. The Stock Option Plans operate in
concert with one another; accordingly, stockholders are being asked to vote to
approve both Stock Option Plans and do not have the option to approve just one
of the Stock Option Plans.
The principal objective of each of the Corporation's Stock Option Plans is
to align eligible employees', consultants', officers' and directors' interests
with both the success of the Corporation and the financial interests of its
stockholders. The Stock Option Plans are intended to encourage stock ownership
in the Corporation by
13
eligible employees, consultants, officers and directors, thus giving them a
proprietary interest in the Corporation's business.
The Stock Option Plans being proposed for stockholder approval at this
Meeting consist of a Stock Incentive Plan to be offered to the Corporation's
consultants, officers and employees (including any officer or employee who is
also a director of the Corporation) ('SIP') and a Non-Statutory Stock Option
Plan to be offered to the Corporation's 'outside' directors, i.e., those
directors who are not also officers or employees of the Corporation ('SOP'). SIP
and SOP are referred to herein collectively as the 'Stock Option Plans.'
The issuance of options to subscribe for voting securities of a BDC is not
permitted under the 1940 Act if the BDC maintains a profit sharing plan.
Therefore, subject to stockholder approval of this proposal, the issuance of
options pursuant to the Stock Option Plans will be conditioned upon the
termination of the Corporation's existing Savings Plan, which is described in
detail in the section entitled 'Compensation Pursuant to Plans.' The Corporation
will terminate the Savings Plan prior to the issuance of options under either of
the Stock Option Plans in compliance with the 1940 Act. In addition, because the
issuance of options to 'outside' directors is not permitted under the 1940 Act
without an exemptive order by the Commission, the issuance of options under SOP
to 'outside' directors is further conditioned upon the granting of an exemptive
order by the Commission. The Corporation intends to apply for such relief and
will not issue options to 'outside' directors until obtaining such exemptive
relief. In the event that such relief is not granted, no 'outside' directors
will be issued options pursuant to the SOP.
If stockholder approval for the Corporation to elect to be regulated as a
BDC is not obtained, the Stock Option Plans will not be implemented by the
Corporation and the Corporation will maintain its current Savings Plan.
Additionally, the Corporation will not seek exemptive relief from the Commission
to issue options to 'outside' directors.
Description of the Material Features of Each of the Stock Option Plans
The following is a description of each of the Stock Option Plans followed
by a description of the provisions applicable to both Stock Option Plans.
1. Stock Incentive Plan (SIP)
Purpose
The purpose of the SIP is to give the Corporation and its Affiliates* a
competitive advantage in attracting, retaining and motivating officers,
employees and consultants of the Corporation and to provide the Corporation with
a stock plan that provides incentives linked to the financial results of the
Corporation and increases in stockholder value.
Type of Awards
The SIP permits, at the discretion of the Committee (as defined below), the
granting to SIP participants of options to purchase Common Stock (including
incentive stock options within the meaning of Section 422 of the Code ('ISOs')
or 'non-statutory stock options' ('non-ISOs')), stock appreciation rights,
restricted stock and tax offset bonuses. A stock appreciation right entitles an
optionee to an amount equal to the excess of the fair market value of one share
of Common Stock over the per-share exercise price multiplied by the number of
shares in respect of which the stock appreciation right is exercised. Stock
appreciation rights may only be granted in conjunction with all or part of an
option grant.
- ------------------
* Defined in the SIP as a person controlled by, controlling or under common
control with the Corporation.
14
Restricted stock may be awarded to any participant, for no cash
consideration, and may be subject to such conditions, including vesting,
forfeiture and restrictions on transfer, as the Committee shall determine. Such
terms and conditions will be specified in an agreement evidencing the award.
Finally, the SIP permits the granting of a right to receive a cash payment
at such time or times as an award under the SIP results in compensation income
to the participant for the purpose of assisting the participant in paying the
resulting taxes.
Upon exercise of an ISO or non-ISO, the Committee may elect to cash out all
or any portion of the shares of Common Stock for which an option is being
exercised by paying the optionee the excess of the fair market value of a share
of Common Stock over the per-share exercise price for each such option share
being cashed out. All options granted under the SIP become automatically
exercisable upon a 'change of control' and remain exercisable until expiration
of their respective terms. A 'change in control' is defined in the Stock Option
Plans as the acquisition by any person or group (other than Stephen L. Brown and
his Affiliates) of more than 25% of the voting securities of the Corporation or
a sale or other disposition of all or substantially all of the assets of the
Corporation to any person.
Administration
The SIP will be administered by a committee (the 'Committee') of the Board
of Directors composed of not fewer than two outside directors each of whom will
qualify as a 'non-employee director' within the meaning of Rule 16b-3 of the
1934 Act and an 'outside Director' within the meaning of Section 162(m) of the
Code with all grants under the SIP approved pursuant to Section 57(o) of the
1940 Act. Section 57(o) of the 1940 Act requires that grants be approved by a
majority of the directors with no financial interest in the grant and a majority
of non-interested directors. The Committee will have the authority, among other
rights, to select the participants to whom awards may be granted, determine
whether to grant ISOs, non-ISOs, stock appreciation rights or restricted stock,
or any combination thereof, and determine the vesting terms and other conditions
of an award to an SIP participant.
Participants
SIP participants will be the officers, employees (including such officers
and employees who are also directors) or consultants of the Corporation and its
Affiliates who are responsible for or contribute to the management, growth and
profitability of the business of the Corporation and its Affiliates. Each grant
of an award under the SIP will be evidenced by an agreement between the
participant and the Corporation, which shall include such terms and provisions
as the Committee may determine from time to time.
Termination of Awards
Under the SIP, generally, upon an SIP participant's death or when an SIP
participant's employment is terminated for any reason, all unvested stock
options will be forfeited. Upon the termination of employment of an optionee
other than as a result of the optionee's death, unless otherwise provided in
such optionee's option agreement with the Corporation, an optionee's right to
exercise a vested option will expire three months after termination of
employment. If an optionee's employment is terminated by reason of death, the
period of exercise for options vested at the optionee's death is 12 months.
Options are not transferable except on the death of the optionee, by will or the
laws of descent and distribution. Stock appreciation rights may be exercised and
transferred to the same extent that the options to which they relate may be
exercised or transferred.
The Board of Directors may terminate, suspend, amend or revise the SIP at
any time except that (i) the number of shares available for issuance under the
SIP may not be increased and (ii) no amendment shall cause
15
SIP awards to fail to comply with Rule 16b-3. The Board may not, without the
consent of the optionee, alter or impair rights under any award previously
granted except in order to comply with applicable law.
2. Non-Statutory Stock Option Plan (SOP)
Purpose
The purpose of the SOP is to further the interests of the Corporation, its
stockholders and its employees by providing the 'outside' directors of the
Corporation (i.e., those who are not also officers or employees of the
Corporation) the opportunity to purchase the Common Stock of the Corporation as
an appropriate reward for the dedication and loyalty of the 'outside' directors.
Type of Awards
The SIP only permits the granting of options to purchase Common Stock. Only
non-ISOs can be granted under the SOP.
Administration
The SOP will be administered by the Board of Directors of the Corporation
with all grants approved pursuant to Section 57(o) of the 1940 Act. Options
granted under the SOP are intended to comply with the exemption afforded by Rule
16b-3 of the 1934 Act. The Board, in its discretion, can impose any vesting or
other restrictions on options granted under the SOP.
Participants
SOP participants will be outside directors of the Corporation.
Termination of Awards
Under the SOP, options expire 30 days after the date a SOP participant's
appointment with the Corporation is terminated except if such termination is by
reason of death or disability. In the event of termination by reason of
disability, options expire 12 months after such termination. In the event of the
participant's death while serving as director or within the 30-day period
following termination of the participant's appointment, options expire 12 months
following the date of death.
3. Provisions Applicable to Both Stock Option Plans
Available Shares
The aggregate number of shares of Common Stock reserved for issuance under
the Stock Option Plans will be 75,000, of which 45,000 shares have been reserved
for issuance under the SIP and 30,000 shares have been reserved for issuance
under the SOP. Shares subject to options that terminate or expire prior to
exercise will be available for future grants under the Stock Option Plans.
The number of shares of Common Stock reserved for issuance under the Stock
Option Plans, the number of shares issuable upon the exercise of options or
subject to stock appreciation rights, the exercise price of such awards and the
number of restricted stock awards granted under the Stock Option Plans may be
subject to 'anti-dilution' adjustments, in the sole discretion of the Committee,
in the event of any merger, reorganization, consolidation, separation,
liquidation, stock dividend, stock split, share combination, recapitalization or
other change in corporate structure affecting the outstanding Common Stock of
the Corporation.
16
Grant and Exercise of Awards
The exercise price for options under the Stock Option Plans will be
determined, in the case of the SIP, by the Committee, and in the case of the
SOP, by the Board of Directors, but will not be less than the 'Fair Market
Value' of the Corporation's Common Stock at the date of grant (as defined in the
Stock Option Plans as the closing market price of the Common Stock on the
American Stock Exchange on the date of such grant).
Options granted under the Stock Option Plans are exercisable for a period
of 10 years from the date of grant (five years with respect to ISOs granted to
optionees who own more than 10% of the voting power of the Corporation or any
subsidiary) or such shorter period as the administrator of such plan (either the
Committee or the Board, as the case may be) may establish as to any or all
shares of Common Stock subject to any option. Options will become exercisable,
in accordance with the vesting schedule prescribed in such optionee's option
agreement, and may be subject to satisfaction of such other conditions as the
administrator may determine. Stock appreciation rights granted under the SIP are
exercisable to the same extent as the options to which they relate and upon
exercise terminate the related option.
An employee, officer or director exercising a non-ISO pursuant to the SIP
may elect to have the Corporation withhold shares of the Corporation's Common
Stock to satisfy tax liabilities arising from the exercise of such options.
Initially there will be three employees of the Corporation, two of whom are also
directors, who will be eligible to participate in the SIP. There are five
outside directors eligible to participate in the SOP.
Certain Federal Income Tax Consequences of Options
The following discussion of certain relevant federal income tax effects
applicable to stock options granted under the Stock Option Plans is a brief
summary only, and reference is made to the Code and the regulations and
interpretations issued thereunder for a complete statement of all relevant
federal tax consequences.
Incentive Stock Options
No taxable income will be realized by an optionee upon the grant or timely
exercise of an ISO. If shares are issued to an optionee pursuant to the timely
exercise of an ISO and a disqualifying disposition of such shares is not made by
the optionee (i.e., no disposition is made within two years after the date of
grant or within one year after the receipt of shares by such optionee, whichever
is later), then (i) upon sale of the shares, any amount realized in excess of
the exercise price of the ISO will be taxed to the optionee as a long-term
capital gain and any loss sustained will be long-term capital loss, and (ii) no
deduction will be allowed to the Corporation. However, if shares acquired upon
the timely exercise of an ISO are disposed of prior to satisfying the holding
period described above, generally (a) the optionee will realize ordinary income
in the year of disposition in an amount equal to the excess (if any) of the fair
market value of the shares at the time of exercise (or, if less, the amount
realized on the disposition of the shares) over the exercise price thereof, and
(b) the Corporation will be entitled to deduct an amount equal to such income.
Any additional gain recognized by the optionee upon a disposition of shares
prior to satisfying the holding period described above will be taxed as a
short-term or long-term capital gain, as the case may be, and will not result in
any deduction for the Corporation.
If an ISO is not exercised on a timely basis, the option will be treated as
a nonqualified stock option. Subject to certain exceptions, an ISO generally
will not be exercised on a timely basis if it is exercised more than three
months following termination of employment.
17
The amount that the fair market value of shares of the Common Stock on the
exercise date of an ISO exceeds the exercise price generally will constitute an
item that increases the optionee's 'alternative minimum taxable income.'
In general, the Corporation will not be required to withhold income or
payroll taxes on the timely exercise of an ISO.
Non-ISOs
In general, an optionee will not be subject to tax at the time a non-ISO is
granted. Upon exercise of a non-ISO where the exercise price is paid in cash,
the optionee generally must include in ordinary income at the time of exercise
an amount equal to the excess, if any, of the fair market value of the shares of
Common Stock at the time of exercise over the exercise price. The optionee's tax
basis in the shares acquired upon exercise will equal the exercise price plus
the amount taxable as ordinary income to the optionee. The federal income tax
consequences of an exercise of a non-ISO where the exercise price is paid in
previously owned shares of Common Stock are generally similar to those where the
exercise price is paid in cash. However, the optionee will not be subject to tax
on the surrender of such shares, and the tax basis of the shares acquired on
exercise that are equal in number to the shares surrendered will be the same as
the optionee's tax basis in such surrendered shares. Special timing rules may
apply to an optionee who is subject to reporting under Section 16(a) of the 1934
Act (generally an executive officer of the Corporation) and would be subject to
liability under Section 16(b) of the 1934 Act.
The Corporation generally will be entitled to a deduction in the amount of
an optionee's ordinary income at the time such income is recognized by the
optionee upon the exercise of a non-ISO. Income and payroll taxes are required
to be withheld for employees on the amount of ordinary income resulting from the
exercise of a non-ISO.
The Board of Directors recommends that you vote 'FOR' the Proposal to
approve the Stock Option Plans.
In tallying the vote, abstentions and broker non-votes will be considered
to be shares of Common Stock present at the Meeting, but not voting in favor of
the election of the nominees (i.e., they will have the same legal effect as a
vote 'against' the election of the Stock Option Plans).
PROPOSAL TO APPROVE SELECTION OF
ARTHUR ANDERSEN LLP AS INDEPENDENT AUDITORS
The Board of Directors has appointed Arthur Andersen LLP as the
Corporation's independent auditors for the fiscal year ending December 31, 1997.
The audit services performed by Arthur Andersen LLP for the year ended December
31, 1996 included an examination of the financial statements included in the
1996 Annual Report to Stockholders. Arthur Andersen LLP also performed certain
tax and special consulting services.
Arthur Andersen LLP has advised the Corporation that it has neither any
direct nor any material indirect financial interest in the Corporation. It is
expected that a representative of Arthur Andersen LLP will be present at the
Meeting and will have an opportunity to make a statement if he desires to do so
and to respond to appropriate questions.
The Board of Directors recommends that stockholders vote 'FOR' ratification
of the appointment of Arthur Andersen LLP as independent auditors for the year
ending December 31, 1997.
18
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1998 Annual
Meeting must be received in writing by the Corporation not later than March 31,
1998 in order to be considered for inclusion in the proxy statement relating to
such meeting, which the Corporation anticipates will be held in August 1998.
OTHER MATTERS
The Board of Directors does not know of any other matters that may properly
be brought, and which are likely to be brought, before the Meeting. However,
should other matters be properly brought before the Meeting, the persons named
on the enclosed proxy or their substitutes will vote in accordance with their
best judgment on such matters.
By Order of the Board of Directors,
SPENCER L. BROWN
Secretary
August 21, 1997
19
THE FRANKLIN HOLDING CORPORATION (DELAWARE) PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
SEPTEMBER 9, 1997
The undersigned hereby appoints Stephen L. Brown and Carl D. Glickman, or
either of them, as attorneys and proxies to vote all the shares of common stock,
par value $1.00 per share, of The Franklin Holding Corporation (Delaware) (the
'Corporation'), which are outstanding in the name of the undersigned and which
the undersigned would be entitled to vote as of July 25, 1997, at the Annual
Meeting of Stockholders of the Corporation (the 'Meeting'), to be held at the
offices of Weil, Gotshal & Manges LLP, 25th Floor, 767 Fifth Avenue, New York,
New York, on Tuesday, September 9, 1997, at 10 o'clock a.m., New York time, and
at any or all adjournments or postponements thereof; and the undersigned hereby
instructs and authorizes said attorneys to vote as indicated on the reverse
side.
The shares represented hereby will be voted in accordance with the
instructions contained on the reverse side. If no instructions are given the
shares will be voted FOR the election of all seven nominees in item 1 and FOR
items 2, 3 and 4 below, each of said items being more fully described in the
Notice of Meeting and accompanying Proxy Statement, receipt of which is hereby
acknowledged. In the event of any proposed adjournment of the Meeting to permit
further solicitation of proxies with respect to any proposal listed below,
shares will be voted FOR adjournment with respect to such proposal if they were
to be voted FOR such proposal (including if there were no specifications), and
AGAINST adjournment with respect thereto if such shares were to be voted AGAINST
or to have ABSTAINED from voting with respect to such proposal.
(Continued and to be signed on reverse side)
................................................................................
FOLD AND DETACH HERE
Please mark
your vote as /X/
indicated in
the example
FOR the election of WITHHOLDING 1. ELECTION OF DIRECTORS: Stephen L. Brown, Miles L. Berger, Carl D.
all nominees listed AUTHORITY to vote Glickman, John Greenbaum, Irving Levine, Jonathan A. Marshall,
to the right (except for all nominees Jeffrey J. Steiner.
as marked to the listed to the right (INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
contrary below) NOMINEE, WRITE THAT NOMINEE'S NAME ON THE LINE PROVIDED BELOW.)
_______________________________________________________________
/ / / /
FOR AGAINST ABSTAIN
/ / / / / / 2. Proposal for the Corporation to be regulated as a business
development company under the Investment Company Act of 1940.
/ / / / / / 3. Proposal to approve Stock Option Plans for management and the
Corporation's Board of Directors.*
/ / / / / / 4. Ratification of appointment of Arthur Andersen LLP to serve as
independent auditors of the Corporation for the fiscal year ending
December 31, 1997.
5. In their discretion, on such other
matters as may properly come before
the Meeting (other than adjournments
with respect to any proposal as
described on reverse).
* Approval of this proposal is
contingent on approval of proposal
no. 2. Accordingly, if proposal no.
2 is not approved, votes with
respect to proposal no. 3 will not
be tabulated.
THIS PROXY MAY BE REVOKED PRIOR TO ITS
EXERCISE. DATE, SIGN AND MAIL PROXY
CARD IN THE ENCLOSED ENVELOPE.
Signatures of Stockholder(s) _____________________________________________________________________ Dated_________________, 1997
Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by president or other authorized officer. If a
partnership, please sign in partnership name by authorized person.