As filed with the Securities and Exchange Commission on August 6, 2001
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FRANKLIN RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Delaware 6035 13-2670991
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification No.)
One Franklin Parkway
San Mateo, California 94403
(650) 312-2000
(Address, including zip code, and telephone
number, including area code, of
registrants' principal executive office)
Leslie M. Kratter, Esq.
Senior Vice President and Secretary
One Franklin Parkway
San Mateo, California 94403
(650) 312-2000
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Please send copies of communications to:
Jeremy W. Dickens, Esq.
Jeffrey E. Tabak, Esq.
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
(212) 310-8000
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after the effective date of this Registration
Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, as amended (the "Securities Act"), other than securities offered only
in connection with dividend or interest reinvestment plans, check the following
box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed
Title of Each Class Amount to be Aggregate Price Maximum Aggregate Amount of
of Securities to be Registered Registered (1) per Share (2) Offering Price (2) Registration Fee
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Liquid Yield Option (TM) Notes
(Zero Coupon - Senior) due 2031 $877,000,000 56.31% $493,838,700 $123,460
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Common Stock, par value $0.10 per share. (3) (3) (3) (4)
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(TM) Trademark of Merrill Lynch & Co., Inc.
(1) The Liquid Yield Option (TM) Notes (Zero Coupon - Senior), or LYONs, were
issued at an original price of $571.28 per $1,000 principal amount at
maturity, which represents an aggregate initial offering price of
$501,012,560 and a principal amount at maturity of $877,000,000.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) on the basis of the average of the bid and asked
prices of the LYONs in secondary market transactions on August 2, 2001, as
reported to the Registrant by Merrill Lynch.
(3) Includes 8,209,071 shares of common stock issuable upon conversion of the
LYONs at the rate of 9.3604 shares of common stock per $1,000 principal
amount at maturity of the LYONs. Under Rule 416 under the Securities Act,
the number of shares of common stock registered includes an indeterminate
number of shares of common stock that may be issued in connection with a
stock split, stock dividend, recapitalization or similar event.
(4) Under Rule 457(i), there is no additional filing fee with respect to the
shares of common stock issuable upon conversion of the LYONs because no
additional consideration will be received in connection with the exercise
of the conversion privilege.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
NY2:\1063553\02\MSN502!.DOC\46360.0045
The information contained in this prospectus is not complete and may be changed.
The selling shareholders may not sell any shares of common stock until our
registration statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities in any state
where the offer or sale is not permitted
Subject to Completion
Dated August 6, 2001
$877,000,000
Franklin Resources, Inc.
Liquid Yield Option(TM) Notes due 2031
(Zero Coupon - Senior)
and
Shares of Common Stock
Issuable Upon Conversion
of the LYONs
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We issued the LYONs in a private placement in May 2001 at an issue
price of $571.28 per LYON (57.128% of the principal amount at maturity). Selling
securityholders will use this prospectus to resell their LYONs and the common
stock issuable upon conversion of their LYONs.
We will not pay interest on the LYONs prior to maturity unless we elect
to pay cash interest in lieu of accruing original issue discount on the LYONs
following the occurrence of certain changes in tax law. Instead, on May 11,
2031, the maturity date of the LYONs, a holder will receive $1,000 per LYON. The
issue price of each LYON represents a yield to maturity of 1.875% per year,
calculated from May 11, 2001. The LYONs rank equally in right of payment to all
of our existing and future unsecured and unsubordinated indebtedness.
Prior to maturity holders may convert their LYONs into 9.3604 shares of
our common stock per LYON, subject to adjustment, only if (1) during any
calendar quarter commencing after June 30, 2001, the closing sale price of our
common stock for at least 20 trading days in a period of 30 consecutive trading
days ending on the last trading day of the preceding calendar quarter is more
than a specified percentage, initially 120% and declining 0.084% each quarter
thereafter, of the accreted conversion price per share of our common stock on
the last trading day of the preceding calendar quarter, (2) the assigned credit
rating by Moody's or Standard and Poor's of the LYONs is at or below Baa2 or
BBB, respectively, (3) the LYONs are called for redemption, or (4) specified
corporate transactions described in this prospectus have occurred. Our common
stock is listed on the New York Stock Exchange and the Pacific Exchange under
the symbol "BEN" and on the London Stock Exchange under the symbol "FKR". The
last reported sale price on the NYSE for our common stock was $43.79 per share
on August 3, 2001.
We will pay contingent interest to the holders of LYONs during any
six-month period commencing after May 11, 2006 if the average market price of a
LYON for a five trading day measurement period preceding such six-month period
equals 120% or more of the sum of the issue price and accrued original issue
discount for such LYON. The contingent interest payable per LYON in respect of
any quarterly period will equal the greater of (a) regular cash dividends paid
by us per share on our common stock during that quarterly period multiplied by
the then applicable conversion rate or (b) $0.065 multiplied by the then
applicable conversion rate. For United States federal income tax purposes, the
LYONs will constitute contingent payment debt instruments. You should read the
discussion of selected United States federal income tax consequences relevant to
the LYONs beginning on page 34.
Holders may require us to purchase all or a portion of their LYONs on
May 11, 2003, at a price of $593.01 per LYON, on May 11, 2004, at a price of
$604.18 per LYON, on May 11, 2006, at a price of $627.15 per LYON and every five
years thereafter until May 11, 2026, at specified prices. We may choose to pay
the purchase price of such LYONs in cash or common stock or a combination of
cash and common stock. In addition, if a change in control of Franklin Resources
occurs on or before May 11, 2006, holders may require us to repurchase all or a
portion of their LYONs for cash.
We may redeem all or a portion of the LYONs for cash at any time on or
after May 11, 2006 at the prices set forth under "Description of LYONs -
Redemption of LYONs at the Option of Franklin Resources."
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Investing in LYONs involves risks that are described in the "Risk
Factors" section beginning on page 9 of this prospectus.
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We will not receive any of the proceeds from the sale of the LYONs or
the common stock by any of the selling securityholders. The LYONs and the common
stock may be offered in negotiated transactions or otherwise, at market prices
prevailing at the time of sale or at negotiated prices. In addition, the common
stock may be offered from time to time through ordinary brokerage transactions
on the New York Stock Exchange. See "Plan of Distribution." The selling
securityholders may be deemed to be "underwriters" as defined in the Securities
Act of 1933, as amended. Any profits realized by the selling securityholders may
be deemed to be underwriting commissions. If the selling securityholders use any
broker-dealers, any commissions paid to broker-dealers and, if broker-dealers
purchase any LYONs or common stock as principals, any profits received by such
broker-dealers on the resale of the LYONs or common stock, may be deemed to be
underwriting discounts or commissions under the Securities Act.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is , 2001.
(TM)Trademark of Merrill Lynch & Co., Inc.
TABLE OF CONTENTS
Where You Can Find More Information..................1 Price Range of Common Stock and Dividends............13
Incorporation of Certain Documents Description of LYONs.................................15
by Reference....................................1 Description of Capital Stock.........................31
Forward Looking Statements...........................3 Certain United States Federal
Summary..............................................4 Income Tax Considerations.......................33
Risk Factors.........................................9 Selling Securityholders..............................37
Use of Proceeds......................................13 Plan of Distribution.................................39
Ratio of Earnings to Fixed Charges...................13 Legal Matters........................................41
Independent Accountants..............................41
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone else to provide you
with different information. If anyone provides you with different information,
you should not rely on it. We are not making an offer to sell these securities
in any jurisdiction where the offer or sale is not permitted. You should assume
that the information appearing in this prospectus or any documents incorporated
by reference is accurate only as of the date on the front cover of the
applicable document or as specifically indicated in the document. Our business,
financial condition, results of operations and business prospects may have
changed since that date.
Liquid Yield Option is a registered trademark of Merrill Lynch & Co.,
Inc.
i
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement that we have filed
with the Securities and Exchange Commission utilizing a "shelf registration"
process. You should read this prospectus and any supplement together with
additional information described under "Where You Can find More Information" and
the information we incorporate by reference in this prospectus described under
the heading "Incorporation of Certain Documents by Reference."
Where You Can Find More Information
We file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission. You can inspect
and copy these reports, proxy statements and other information at the public
reference facilities of the Commission, in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549. You can also obtain copies of these materials from the
public reference section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Please call the Commission at
1-800-SEC-0330 for further information on its public reference room. The
Commission also maintains a web site that contains reports, proxy statements and
other information regarding registrants that file electronically with the
Commission (http://www.sec.gov). You can inspect reports and other information
we file at the office of the New York Stock Exchange, Inc., 20 Broad Street, New
York, New York 10005.
We have filed with the Commission a registration statement and related
exhibits on Form S-3 under the Securities Act of 1933, as amended. This
prospectus, which constitutes a part of the registration statement, does not
include all the information contained in the registration statement and its
exhibits. For further information with respect to us and our common stock, you
should consult the registration statement and its exhibits. Statements contained
in this prospectus concerning the provisions of any contract, agreement or other
document are not necessarily complete. With respect to each contract, agreement
or other document filed as an exhibit to the registration statement, we refer
you to that exhibit for a more complete description of the matter involved, and
each statement is deemed qualified in its entirety to that reference. The
registration statement, including exhibits filed as a part of the registration
statement or any amendment to the registration statement, are available for
inspection and copying at the Commission's public reference facilities listed
above.
Incorporation of Certain Documents by Reference
We are incorporating by reference in this prospectus the information we
file with the Securities and Exchange Commission. This means that we are
disclosing important information to you by referring to those documents. The
information incorporated by reference is an important part of this prospectus,
and information that we file later with the Commission will automatically update
and supersede the information contained in this prospectus. We incorporate by
reference the following documents we filed with the Commission pursuant to
Section 13 of the Securities Exchange Act of 1934, as amended:
o Annual Report on Form 10-K for the year ended September 30,
2000;
o Quarterly Report on Form 10-Q for the quarter ended December
31, 2000;
o Quarterly Report on Form 10-Q for the quarter ended March 31,
2001;
o Current Report on Form 8-K filed with the Commission on
October 25, 2000;
o Current Report on Form 8-K/A filed with the Commission on
October 26, 2000;
o Current Report on Form 8-K filed with the Commission on
January 22, 2001;
o Current Report on Form 8-K filed with the Commission on
January 25, 2001;
o Current Report on Form 8-K filed with the Commission on March
15, 2001;
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o Current Report on Form 8-K filed with the Commission on March
27, 2001;
o Current Report on Form 8-K filed with the Commission on April
10, 2001;
o Current Report on Form 8-K filed with the Commission on April
26, 2001;
o Current Report on Form 8-K filed with the Commission on May 7,
2001;
o Current Report on Form 8-K filed with the Commission on May 8,
2001;
o Current Report on Form 8-K filed with the Commission on May
14, 2001;
o Current Report on Form 8-K/A filed with the Commission on June
19, 2001;
o Current Report on Form 8-K/A filed with the Commission on July
27, 2001;
o description of our common stock contained in our registration
statement on Form 8-A (File No. 1-9318) as filed with the
Commission on November 6, 1986, including any amendment or
report filed for the purpose of updating that description; and
o all documents filed by us with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after
the date of this prospectus to the end of the offering of the
LYONs under this document (other than current reports
furnished under item 9 of Form 8-K) shall also be deemed to be
incorporated by reference and will automatically update
information in this prospectus.
You may request a copy of these filings at no cost by writing to our Corporate
Secretary at Franklin Resources, Inc., One Franklin Parkway, San Mateo,
California 94403, or telephoning us at (650) 312-2000.
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FORWARD-LOOKING STATEMENTS
This prospectus and the documents that we incorporate by reference
contain certain statements that are, or may be considered to be, forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. We generally indicate these
statements by words or phrases such as "anticipate," "estimate," "plan,"
"expect," "believe," "intend," "foresee" and similar words or phrases. These
statements discuss, among other things, expected growth, domestic and
international development and expansion strategy, and future performance. All of
these forward-looking statements are subject to risks, uncertainties and
assumptions, which we describe under the caption "Risk Factors" or in the
documents we incorporate by reference. Consequently, actual events and results
may vary significantly from those included in or contemplated or implied by our
forward-looking statements. The forward-looking statements included in this
prospectus, the applicable prospectus supplement or the relevant incorporated
document are made only as of the date of this prospectus, the applicable
prospectus supplement or the relevant incorporated document, as the case may be,
and, except as required by law, we undertake no obligation to publicly update
these forward-looking statements to reflect subsequent events or circumstances.
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Summary
The following summary is qualified in its entirety by the more detailed
information included elsewhere or incorporated by reference into this
prospectus. Because this is a summary, it may not contain all the information
that may be important to you. You should read the entire prospectus, as well as
the information incorporated by reference, before making an investment decision.
Whenever we refer to the "Franklin Resources" or to "us," or use the terms "we"
or "our" in this prospectus, we are referring to Franklin Resources, Inc., a
Delaware corporation, and its consolidated subsidiaries. However, for purposes
of the sections entitled "Description of LYONs" and "Description of Capital
Stock," whenever we refer to "Franklin Resources" or to "us," or use the terms
"we" or "our," we are referring only to Franklin Resources, Inc. and not to any
of its subsidiaries.
Franklin Resources, Inc.
We are a global diversified financial services holding company that
manages mutual funds and other investment vehicles for individuals,
institutions, pension plans, trusts, partnerships and other clients in
approximately 135 countries. We offer a wide range of sponsored investment
products under the Franklin, Templeton and Mutual Series brand names, serviced
and supported by employees in more than 25 countries. We provide a range of
investment advisory and related services on a global basis to our investment
funds, designed to meet the wide variety of our clients' investment needs. To
complement our core business, we also offer a range of consumer lending and
selected retail banking services.
On April 10, 2001, we completed our acquisition of Fiduciary Trust
Company International. The combined entity had $269.0 billion in assets under
management worldwide as of April 30, 2001.
We were organized in Delaware in November 1969. Our executive offices
are located at One Franklin Parkway, San Mateo, California 94403 and our
telephone number is (650) 312-2000.
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The Offering
LYONs...................................... $877,000,000 aggregate principal amount at maturity of LYONs due May
11, 2031. We will not pay interest on the LYONs prior to maturity
unless semiannual interest or contingent interest becomes payable as
described below. Each LYON was issued at a price of $571.28 per LYON
and a principal amount at maturity of $1,000.
Maturity of LYONs.......................... May 11, 2031.
Yield to Maturity of LYONs................. The issue price of each LYON represents a yield to maturity of
1.875% per year, computed on a semiannual bond equivalent basis,
calculated from May 11, 2001, excluding any contingent interest.
Conversion Rights.......................... For each LYON surrendered for conversion, a holder will receive
9.3604 shares of our common stock. The conversion rate will be
adjusted for certain reasons specified in the indenture, but will
not be adjusted for accrued original issue discount. Upon
conversion, a holder will not receive any cash payment representing
accrued original issue discount or, except under limited
circumstances, contingent or semiannual interest. Instead, such
amounts will be deemed paid by the shares of common stock received
by the holder on conversion.
Holders may surrender LYONs for conversion into shares of common
stock in any calendar quarter commencing after June 30, 2001, if, as
of the last day of the preceding calendar quarter, the closing sale
price of our common stock for at least 20 trading days in a period
of 30 consecutive trading days ending on the last trading day of
such preceding calendar quarter is more than a specified percentage,
beginning at 120% and declining 0.084% per quarter thereafter, of
the accreted conversion price per share of common stock on the last
trading day of such preceding calendar quarter. The accreted
conversion price per share as of any day will equal the issue price
of a LYON plus the accrued original issue discount to that day,
divided by the number of shares of common stock issuable upon a
conversion of a LYON on that day.
Holders may also surrender a LYON for conversion at any time when
the credit rating assigned to the LYONs by either Moody's or
Standard & Poor's is Baa2 or BBB, respectively, or lower.
LYONs or portions of LYONs in integral multiples of $1,000 principal
amount at maturity that have been called for redemption may be
surrendered for conversion until the close of business on the second
business day prior to the redemption date. In addition, if we make a
significant distribution to our stockholders or if we are a party to
certain consolidations, mergers or binding share exchanges, LYONs
may be surrendered for conversion as provided in "Description of
LYONs--Conversion Rights." The ability to surrender LYONs for
conversion for any reason will expire at the close of business on
May 10, 2031. See "Description of LYONs--Conversion Rights."
Ranking.................................... The LYONs are unsecured and unsubordinated obligations and rank
equal in right of payment to all our existing and future unsecured
and unsubordinated indebtedness. However, the LYONs are effectively
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subordinated to all existing and future obligations of our
subsidiaries. As of March 31, 2001, we had approximately $271
million of senior indebtedness outstanding, all of which rank
equally with the LYONs, and our subsidiaries had approximately
$303.6 million of liabilities, including trade payables, outstanding
in the aggregate.
Original Issue Discount.................... We offered the LYONs at an issue price significantly below the
principal amount at maturity of the LYONs. This original issue
discount began to accrue on May 11, 2001 at a daily at a rate of
1.875% per year, calculated on a semiannual bond equivalent basis,
using a 360-day year comprised of twelve 30-day months. The accrual
of imputed interest income on the LYONs, as calculated for United
States federal income tax purposes, also referred to herein as tax
original issue discount, is expected to exceed the accrued original
issue discount. See "Certain United States Federal Income Tax
Considerations--Accrual of Interest on the LYONs."
Contingent Interest........................ We will pay contingent interest to the holders of LYONs during any
six-month period from May 12 to November 11 and from November 12 to
May 11, commencing May 12, 2006, if the average market price of a
LYON for the Applicable Five Trading Day Period equals 120% or more
of the sum of the issue price and accrued original issue discount
for such LYON to the day immediately preceding the relevant
six-month period. "Applicable Five Trading Day Period" means the
five trading days ending on the second trading day immediately
preceding the relevant six-month period, unless we declare a
dividend for which the record date falls prior to the first day of a
six-month period but the payment date falls within such six-month
period, in which case the "Applicable Five Trading Day Period" means
the five trading days ending on the second trading day immediately
preceding such record date.
The amount of contingent interest payable per LYON in respect of any
quarterly period within a six-month period in which contingent
interest is payable will equal the greater of (a) the amount of
regular cash dividends paid by us per share on our common stock
during that quarterly period multiplied by the number of shares of
common stock issuable upon conversion of a LYON at the then
applicable conversion rate or (b) $0.065 multiplied by the then
applicable conversion rate.
Contingent interest, if any, will accrue and be payable to holders
of LYONs as of the record date for the related common stock dividend
or, if no cash dividend is paid by us during a quarter within the
relevant six-month period, to holders of LYONs as of the fifteenth
day preceding the last day of the relevant six-month period. Such
payments will be paid on the payment date of the related common
stock dividend or, if no cash dividend is paid by us during a
quarter within the relevant six-month period, on the last day of the
relevant six-month period. The original issue discount will continue
to accrue at the yield to maturity whether or not contingent
interest is paid.
Tax Original Issue Discount................ The LYONs are debt instruments subject to the contingent payment
debt regulations. You should be aware that, even if we do not pay
any cash interest (including any contingent interest) on the LYONs,
you will be required to include interest in your gross income for
United States federal income tax purposes. This imputed interest,
also referred to herein as tax original issue discount, will accrue
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at a rate currently estimated at 6.19% per year, computed on a
semiannual bond equivalent basis, which represents the yield we
believe we would pay, as of the original issue date of the LYONs, on
noncontingent, nonconvertible, fixed-rate debt with terms otherwise
similar to the LYONs. The rate at which the tax original issue
discount will accrue for United States federal income tax purposes
exceeds the stated yield of 1.875% for the accrued original issue
discount. Your adjusted tax basis in a LYON will be increased over
time to reflect the accrual of the tax original issue discount and
will be decreased to reflect certain projected payments.
You will recognize gain or loss on the sale, exchange, conversion or
redemption of a LYON in an amount equal to the difference between
the amount realized on the sale, exchange, conversion or redemption
of a LYON, including the fair market value of any common stock
received upon conversion or otherwise, and your adjusted tax basis
in the LYON. Any gain recognized by you on the sale, exchange,
conversion or redemption of a LYON generally will be ordinary
interest income; any loss will be ordinary loss to the extent of the
interest previously included in income, and thereafter, capital
loss. See "Certain United States Federal Income Tax Considerations."
Sinking Fund............................... None.
Redemption of LYONs at the Option of
Franklin Resources..................... We may redeem all or a portion of the LYONs for cash at any time on
or after May 11, 2006, at the redemption prices set forth in this
prospectus. See "Description of LYONs--Redemption of LYONs at the
Option of Franklin Resources."
Purchase of LYONs by Franklin Resources at
the Option of the Holder............... Holders may require us to purchase all or a portion of their LYONs:
o on May 11, 2003 at a price of $593.01 per LYON;
o on May 11, 2004 at a price of $604.18 per LYON;
o on May 11, 2006 at a price of $627.15 per LYON;
o on May 11, 2011, at a price of $688.49 per LYON;
o on May 11, 2016, at a price of $755.83 per LYON;
o on May 11, 2021, at a price of $829.75 per LYON; and
o on May 11, 2026, at a price of $910.91 per LYON.
We may choose to pay the purchase price in cash, shares of common
stock or a combination of cash and shares of common stock. See
"Description of LYONs--Purchase of LYONs by Franklin Resources at
the Option of the Holder."
Change in Control.......................... Upon a change in control of Franklin Resources occurring on or
before May 11, 2006, each holder may require us to purchase all or a
portion of such holder's LYONs for cash at a price equal to the
issue price of such LYONs plus accrued original issue discount to
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the date of purchase. See "Description of LYONs--Change in Control
Permits Purchase of LYONs by Franklin Resources at the Option of the
Holder."
Optional Conversion to
Semiannual Coupon
Notes Upon Tax Event................... From and after the occurrence of a Tax Event, as described in this
prospectus, at the option of Franklin Resources, interest instead of
future original issue discount shall accrue on each LYON from the
option exercise date at 1.875% per year on the restated principal
amount and shall be payable semiannually on each interest payment
date to holders of record at the close of business on each regular
record date immediately preceding such interest payment date.
Interest will be computed on the basis of a 360-day year comprised
of twelve 30-day months and will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from
the option exercise date. In such event, the redemption price,
purchase price and change in control purchase price shall be
adjusted, and no future contingent interest will be paid on the
LYONs. However, other cash interest may be payable as a result of a
failure to timely file or make effective a shelf registration
statement. There will be no changes in the holder's conversion
rights.
Events of Default.......................... If there is an event of default on the LYONs, the issue price of the
LYONs plus the accrued original issue discount may be declared
immediately due and payable. These amounts automatically become due
and payable in certain circumstances. See "Description of LYONs -
Events of Default."
Use of Proceeds............................ We will not receive any of the proceeds from the sale by any selling
securityholder of the LYONs or shares of common stock issuable upon
conversion of the LYONs. See "Use of Proceeds."
DTC Eligibility............................ The LYONs were issued in book-entry form and are represented by one
or more permanent global certificates deposited with a custodian for
and registered in the name of a nominee of DTC in New York, New
York. Beneficial interests in any such securities will be shown on,
and transfers will be effected only through, records maintained by
DTC and its direct and indirect participants and any such interest
may not be exchanged for certificated securities, except in limited
circumstances. See "Description of LYONs--Book-Entry System."
Trading Symbol for our Common Stock........ The LYONs issued in the initial private placement are eligible for
trading in the PORTAL system. However, LYONs sold pursuant to this
prospectus will no longer be eligible for trading in the PORTAL
system. We do not intend to list the LYONs on any national
securities exchange. Our common stock is traded on the New York
Stock Exchange and the Pacific Exchange under the symbol "BEN" and
on the London Stock Exchange under the symbol "FKR."
- ------------------------------------------------------------------------------------------------------------------
8
Risk Factors
Before purchasing any securities, you should carefully consider the
following risk factors in addition to the other information contained and
incorporated by reference in this prospectus.
Risks Related to Our Business
We face strong competition from numerous and sometimes larger companies.
We compete with numerous investment management companies, stock
brokerage and investment banking firms, insurance companies, banks, online and
Internet investment sites, savings and loan associations and other financial
institutions. These companies also offer financial services and other investment
alternatives. Recent consolidation in the financial services industry has
created stronger competitors with greater financial resources and broader
distribution channels than our own. In addition, the online services that we may
offer may fail to compete effectively with other alternatives available to
investors. To the extent that existing or potential customers decide to invest
with our competitors, our market share, revenues and net income could decline.
Competing securities dealers and banks could restrict sales of our funds.
Many of the securities dealers on which we rely to sell and distribute
Franklin, Templeton and Mutual Series fund shares also have mutual funds under
their own names that compete directly with our products. The banking industry
also continues to expand its sponsorship of proprietary funds. These firms or
banks could decide to limit or restrict the sale of our fund shares, which could
lower our future sales and cause our revenues to decline.
Changes in the distribution channels on which we depend could reduce our
revenues and hinder our growth.
We derive nearly all of our sales through broker/dealers and other
similar investment advisors. Increasing competition for these distribution
channels has caused our distribution costs to rise and could cause further
increases in the future. Higher distribution costs lower our net revenues and
earnings. Additionally, if one of the major financial advisors who distributes
our products were to cease their operations, even for a few days, it could have
a significant adverse impact on our revenues and earnings. Moreover, our failure
to maintain strong business relationships with these advisors would impair our
ability to distribute and sell our products, which would have a negative effect
on our level of assets under management, related revenues and overall business
and financial condition.
New share classes that we have introduced yield lower revenues and have reduced
operating margins.
Although we receive reduced or no sales charge at the time of initial
investments in our class A shares that are related to tax deferred plans and
involve sales of more than $1 million, and in our class B shares and C shares,
we must nonetheless pay the related dealer commission. In addition, due to
industry competition, the dealer commissions that we pay on these types of
shares are now higher than in the past and may increase in the future. This
could have a negative effect on our liquidity and operating margins.
If our asset mix shifts to predominantly fixed-income products, our revenues
could decline.
We derive higher fee revenues and income from the equity assets that we
manage than from fixed income assets. Changing market conditions may cause a
shift in our asset mix towards fixed-income products and a decline in our
revenue and income.
We have become subject to an increased risk of asset volatility from changes in
the global equity markets.
As our asset mix has shifted since 1992 from predominantly fixed-income
to a majority of equity assets, we have become subject to an increased risk of
asset volatility from changes in global equity markets. Declines in these
markets have caused in the past, and would cause in the future, a decline in our
revenue and income.
9
The levels of our assets under management are subject to significant
fluctuations.
Global economic conditions, interest rates, inflation rates and other
factors that are difficult to predict affect the mix, market values, and levels
of our assets under management. Fluctuations in interest rates and in the yield
curve affect the value of fixed-income assets under management as well as the
flow of funds to and from fixed-income funds. In turn, this affects our asset
management revenues from those assets. Similarly, changes in the equity
marketplace may significantly affect the level of our assets under management.
The factors above often have opposite effects on equity funds and fixed-income
funds, making it difficult for us to predict the net effect of any particular
set of conditions on our business and to devise effective strategies to
counteract those conditions.
We face risks associated with conducting operations in numerous foreign
countries.
We sell mutual funds and offer investment advisory and related services
in many different regulatory jurisdictions around the world, and intend to
continue to expand our operations internationally. Regulators in these
jurisdictions could change their policies or laws in a manner that might
restrict or otherwise impede our ability to distribute or register investment
products in their respective markets, which could force us to revise our
business strategy.
General economic and securities markets fluctuations may reduce our sales and
market share.
Adverse general securities market conditions, increased market
volatility, currency fluctuations, governmental regulations and recessionary
global economic conditions could reduce our mutual fund share sales and other
financial services products sales. Increased and unusual market volatility could
also reduce our mutual fund share sales to the extent that customers decided to
shift to predominately fixed-income products. Similarly, our securitized
consumer receivables business is subject to marketplace fluctuation. General
economic and credit market downturns could reduce the ability of our customers
to repay loans, which could cause our consumer loan portfolio losses to
increase.
Our inability to meet cash needs could have a negative effect on our financial
condition and business operations.
Our ability to meet anticipated cash needs depends upon factors
including our asset value, our creditworthiness as perceived by lenders and the
market value of our stock. Similarly, our ability to securitize and hedge future
portfolios of auto loan and credit card receivables, and to obtain continued
financing for class B shares, is also subject to the market's perception of
those assets, finance rates offered by competitors, and the general market for
private debt. If we are unable, for any reason, to obtain these funds and
financing, we may be forced to incur unanticipated costs or revise our business
plan.
We face increased competition in hiring and retaining qualified employees.
Our continued success will depend upon our ability to attract and
retain qualified personnel. Competition to hire these employees is still strong,
particularly in certain geographic locations where the majority of our workforce
is employed. We may be forced to offer increases in compensation and benefits to
these employees at rates that exceed inflation. With historically low
unemployment in the United States, qualified personnel are now moving between
firms and starting their own companies with greater frequency. If we are not
able to attract and retain qualified employees, our overall business condition
and revenues could suffer.
Our emerging market portfolios and related revenues are vulnerable to
market-specific political and economic risks.
Our emerging market portfolios and revenues derived from managing these
portfolios are subject to significant risks of loss from political and
diplomatic developments, currency fluctuations, social instability, changes in
governmental polices, expropriation, nationalization, asset confiscation and
changes in legislation related to foreign ownership. Foreign trading markets,
particularly in some emerging market countries are often smaller, less liquid,
less regulated and significantly more volatile than the U.S. and other
established markets.
10
Diverse and strong competition limits the interest rates that we can charge on
consumer loans.
We compete with many types of institutions for consumer loans,
including the finance subsidiaries of large automobile manufacturers. Some of
these competitors can provide loans at significantly below-market interest rates
in connection with automobile sales. Our inability to compete effectively
against these companies or to maintain our relationships with the various
automobile dealers through which we offer consumer loans could harm the growth
of our consumer loan business.
We may not be able to achieve the benefits we expect from the recent acquisition
of Fiduciary Trust Company International.
Achieving the anticipated benefits of the acquisition will depend in
part on close collaboration between management and key personnel of the two
companies in a timely and efficient manner to minimize the risk that the
acquisition may result in the loss of clients or employees or the continued
diversion of management's attention.
The Fiduciary acquisition could adversely affect our combined financial results
or the market price of our common stock.
If the benefits of the acquisition do not exceed the costs associated
with the acquisition, including any dilution to our stockholders resulting from
the issuance of shares in connection with the acquisition, our financial
results, including earnings per share, could be adversely affected. In addition,
if we do not achieve the perceived benefits of the acquisition as rapidly as, or
to the extent, anticipated by financial or industry analysts, the market price
of our common stock may decline.
We are subject to Federal Reserve Board regulation.
Upon completion of our acquisition of Fiduciary Trust Company
International, we became a bank holding company and a financial holding company
subject to the supervision and regulation of the Federal Reserve Board under the
Bank Holding Company Act of 1956. The Federal Reserve Board may impose
limitations, restrictions, or prohibitions on our activities if the Federal
Reserve Board believes that we do not have the appropriate financial and
managerial resources to commence or conduct an activity or make an acquisition,
and the Federal Reserve Board may take actions as appropriate to enforce
applicable federal law. Additionally, prior approval of the Federal Reserve
Board may be required in order to effect a change in control of us.
Risks Related to the LYONs
An active trading market for the LYONs may not develop.
There is currently no public market for the LYONs. The LYONs will not
be listed on any securities exchange or included in any automated quotation
system. We cannot assure you that an active trading market for the LYONs will
develop or as to the liquidity or sustainability of any such market, the ability
of holders to sell their LYONs or the price at which holders of the LYONs will
be able to sell their LYONs. Future trading prices of the LYONs will depend on
many factors, including prevailing interest rates, the market for similar
securities, the price of our common stock and our performance and other factors.
We may not have the funds necessary to purchase LYONs at the option of the
holders or upon a change in control.
On May 11, 2003, 2004, 2006, 2011, 2016, 2021 and 2026, holders of
LYONs may require us to purchase their LYONs. However, it is possible that we
would not have sufficient funds at that time to make the required purchase of
LYONs. We may be required to pay all or a portion of the purchase price in
shares of our common stock, subject to satisfying the conditions in the
indenture for making such payments. If we were unable to satisfy the conditions
in the indenture to use our common stock to pay the purchase price, we could be
in default of our obligations on the LYONs. In addition, if we fail to deliver
our common stock upon a conversion of a LYON and thereafter become the subject
of bankruptcy proceedings, a holder's claim for damages arising from such
failure could be subordinated to all of our existing and future obligations. See
11
"Description of LYONs--Purchase of LYONs by Franklin Resources at the Option of
the Holder."
In addition, upon the occurrence of certain specific kinds of change in
control events occurring on or before May 11, 2006, we would be required to
offer to purchase for cash all outstanding LYONs. However, it is possible that
upon a change in control we would not have sufficient funds to make the required
purchase of LYONs or that restrictions in our outstanding indebtedness would not
allow those purchases. In addition, certain important corporate events, such as
leveraged recapitalizations that would increase the level of our outstanding
indebtedness, would not necessarily constitute a "change of control" under the
indenture. See "Description of LYONs--Change in Control Permits Purchase of
LYONs by Franklin Resources at the Option of the Holder."
You should consider the United States federal income tax consequences of owning
LYONs.
The LYONs are characterized as our indebtedness for United States
federal income tax purposes. Accordingly, you will be required to include
interest with respect to the LYONs in your income.
The LYONs constitute contingent payment debt instruments. As a result,
you will be required to include amounts in income, as ordinary income, in
advance of the receipt of the cash attributable thereto. The amount of interest
income required to be included by you for each year will be in excess of the
yield to maturity of the LYONs. You will recognize gain or loss on the sale,
purchase by us at your option, conversion or redemption of a LYON in an amount
equal to the difference between the amount realized on such sale, purchase by us
at your option, conversion or redemption, including the fair market value of any
common stock received upon conversion or otherwise, and your adjusted tax basis
in the LYON. Any gain recognized by you on sale, purchase by us at your option,
conversion or redemption of a LYON generally will be ordinary interest income;
any loss will be ordinary loss to the extent of the interest previously included
in income, and thereafter, capital loss. A summary of the United States federal
income tax consequences of ownership of the LYONs is described in this
prospectus under the heading "Certain United States Federal Income Tax
Considerations."
Our holding company structure results in structural subordination and may affect
our ability to make payments on LYONs.
The LYONs are obligations exclusively of Franklin Resources, Inc. We
are a holding company and, accordingly, substantially all of our operations are
conducted through our subsidiaries. As a result, our cash flow and our ability
to service our debt, including the LYONs, depend upon the earnings of our
subsidiaries. In addition, we depend on the distribution of earnings, loans or
other payments by our subsidiaries to us.
Our subsidiaries are separate and distinct legal entities. Our
subsidiaries have no obligation to pay any amounts due on the LYONs or to
provide us with funds for our payment obligations. In addition, any payment of
dividends, distributions, loans or advances by our subsidiaries to us could be
subject to statutory or contractual restrictions, including regulatory capital
requirements. Payments to us by our subsidiaries will also be contingent upon
our subsidiaries' earnings and business considerations. Our right to receive any
assets of any of our subsidiaries, as an equity holder of such subsidiaries,
upon their liquidation or reorganization, and therefore the right of the holders
of the LYONs to participate in those assets, will be effectively subordinated to
the claims of that subsidiary's creditors, including trade creditors, and to
that subsidiary's preferred stockholders, if any. The LYONs do not restrict the
ability of our subsidiaries to incur additional indebtedness or issue preferred
stock. In addition, the LYONs are unsecured. Thus, even if we were a creditor of
any of our subsidiaries, our rights as a creditor would be subordinate to any
security interest in the assets of our subsidiaries and any indebtedness of our
subsidiaries senior to that held by us.
12
Use of Proceeds
We will not receive any of the proceeds from the sale of the LYONs or
the underlying common stock by the selling securityholders.
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges for each of the periods
indicated is as follows:
Nine Months Ended Fiscal Year ended September 30,
-------------------- ------------------------------------------------
June 30, June 30,
2001 2000 2000 1999 1998 1997 1996
---- ---- ---- ---- ---- ---- ----
Ratio of earnings to fixed charges... 15.7 18.1 17.6 14.2 13.8 12.0 11.1
For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of pretax income less equity in earnings of unconsolidated
affiliates plus fixed charges and distributed earnings of unconsolidated
affiliates. Fixed charges include gross interest expense, amortization of
deferred financing expenses and an amount equivalent to interest included in
rental charges.
Price Range of Common Stock and Dividends
Our common stock is traded on the NYSE and the Pacific Exchange under
the symbol "BEN" and on the London Stock Exchange under the symbol "FKR". The
following table sets forth for the fiscal quarters indicated the intra-day high
and low sale prices for our common stock, as reported on the NYSE Composite
Tape, and the dividends per share declared in respect of those quarters. The
last reported sale price of the common stock on the NYSE on August 3, 2001 was
$43.79 per share.
High Low Cash Dividends
Fiscal 1999
First Quarter..................................................... $45.62 $26.50 $0.055
Second Quarter.................................................... 38.38 27.00 0.055
Third Quarter..................................................... 45.00 27.12 0.055
Fourth Quarter.................................................... 43.44 29.75 0.055
Fiscal 2000
First Quarter..................................................... 35.00 27.44 0.060
Second Quarter.................................................... 39.19 24.63 0.060
Third Quarter..................................................... 36.25 28.19 0.060
Fourth Quarter.................................................... 45.63 30.00 0.060
Fiscal 2001
First Quarter..................................................... 45.34 35.16 0.065
Second Quarter ................................................... 47.83 36.08 0.065
Third Quarter..................................................... 47.40 36.05 0.065
Fourth Quarter (through August 3, 2001)........................... 46.07 41.80 *
- --------------
* Not yet declared.
We declared dividends of $0.24 per share in fiscal 2000 and $0.22 per
share in fiscal 1999. We expect to continue paying dividends on a quarterly
basis to common stockholders. In determining whether or when to pay dividends,
our board of directors will exercise its discretion and will take into account a
number of factors, including our earnings, capital requirements, the
availability of statutory surplus, our overall financial condition and the terms
of our outstanding indebtedness.
13
As of December 31, 2000, there were approximately 4,900 record holders
of our common stock. As of that date, based on nominee solicitation, we believe
that there were approximately 27,000 beneficial holders of our common stock
whose shares are held in street name.
14
DESCRIPTION OF LYONS
We issued the LYONs under an indenture, dated May 11, 2001, between us
and The Bank of New York, as trustee. The following summary is not complete, and
is subject to, and qualified by reference to, all of the provisions of the LYONs
and the indenture. As used in this description, the words "we," "us," "our" or
"Franklin Resources" do not include any current or future subsidiary of Franklin
Resources.
General
On May 11, 2001, we issued $877,000,000 aggregate principal amount at
maturity of LYONs in a private placement. The LYONs will mature on May 11, 2031.
The principal amount at maturity of each LYON is $1,000. The LYONs are payable
at the office of the paying agent, which initially will be an office or agency
of the trustee, or an office or agency maintained by us for such purpose, in the
Borough of Manhattan, The City of New York.
We offered the LYONs at a substantial discount from their principal
amount at maturity. Except as described below, we will not make periodic
payments of interest on the LYONs, other than contingent interest payments, if
any. Each LYON was issued at an issue price of $571.28 per LYON. The LYONs
accrue original issue discount while they remain outstanding. Original issue
discount is the difference between the issue price and the principal amount at
maturity of a LYON. Original issue discount is calculated on a semiannual bond
equivalent basis, using a 360-day year consisting of twelve 30-day months.
Original issue discount began to accrue as of May 11, 2001.
Maturity, conversion, purchase by us at the option of a holder or
redemption of a LYON causes original issue discount and interest, if any, to
cease to accrue on that LYON. We may not reissue a LYON that has matured or been
converted, purchased by us at the option of a holder, redeemed or otherwise
cancelled, except for registration of transfer, exchange or replacement of such
LYON.
LYONs may be presented for conversion at the office of the conversion
agent, and for exchange or registration of transfer at the office of the
registrar, each such agent initially being the trustee. No service charge will
be made for any registration of transfer or exchange of LYONs. However, we may
require the holder to pay any tax, assessment or other governmental charge
payable as a result of such transfer or exchange.
The LYONs are debt instruments subject to Treasury regulations that
govern contingent payment debt instruments. The LYONs were issued with original
issue discount for United States federal income tax purposes, referred to herein
as tax original issue discount. Even if we do not pay any cash interest
(including any contingent interest) on the LYONs, holders will be required to
include accrued tax original issue discount in their gross income for United
States federal income tax purposes. Each holder agreed in the indenture to treat
the LYONs as contingent payment debt instruments for United States federal
income tax purposes, and to be bound by our application of the contingent
payment debt regulations, including our determination that the rate at which
interest will be deemed to accrue for federal income tax purposes will be 6.19%,
which we have determined to be the rate comparable to the fixed rate at which we
would borrow on a noncontingent, nonconvertible debt security. Accordingly, each
holder will be required to accrue interest on a constant yield to maturity basis
at that rate, with the result that a holder will recognize taxable income
significantly in excess of cash received while the LYONs are outstanding and
significantly in excess of the stated yield of 1.875%. In addition, a holder
will recognize ordinary income upon a conversion of a LYON into our common
stock. However, the proper United States federal income tax treatment of a
holder of a LYON is uncertain in various respects. See "Certain United States
Federal Income Tax Considerations."
Book-Entry System
The LYONs are issued in the form of global securities held in
book-entry form. DTC or its nominee is the sole registered holder of the LYONs
for all purposes under the indenture. Owners of beneficial interests in the
LYONs represented by the global securities hold their interests pursuant to the
procedures and practices of DTC. As a result, beneficial interests in any such
securities are shown on, and transfers will be effected only through, records
maintained by DTC and its direct and indirect participants and any such interest
may not be exchanged for certificated securities, except in limited
circumstances. Owners of beneficial interests must exercise any rights in
respect of their interests, including any right to convert or require purchase
of their interests in the LYONs, in accordance with the procedures and practices
15
of DTC. Beneficial owners are not holders and are not entitled to any rights
provided to the holders of LYONs under the global securities or the indenture.
Franklin Resources and the trustee, and any of their respective agents, may
treat DTC as the sole holder and registered owner of the global securities.
Exchange of Global Securities
LYONs represented by one or more global securities are exchangeable for
certificated securities in registered form with the same terms only if:
o DTC is unwilling or unable to continue as depositary or if DTC
ceases to be a clearing agency registered under the Exchange
Act and a successor depositary is not appointed by us within
90 days;
o we decide to discontinue use of the system of book-entry
transfer through DTC (or any successor depositary); or
o a default under the indenture occurs and is continuing.
DTC has advised us as follows: DTC is a limited-purpose trust company
organized under the New York Banking Law, a "banking organization" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
facilitates the settlement of transactions among its participants through
electronic computerized book-entry changes in participants' accounts,
eliminating the need for physical movement of securities certificates. DTC's
participants include securities brokers and dealers, including Merrill Lynch,
banks, trust companies, clearing corporations and other organizations, some of
whom and/or their representatives own DTC. Access to DTC's book-entry system is
also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
either directly or indirectly.
Ranking of LYONs
The LYONs are unsecured and unsubordinated obligations. The LYONs rank
equal in right of payment to all of our existing and future unsecured and
unsubordinated indebtedness. However, we are a holding company and the LYONs are
effectively subordinated to all existing and future obligations of our
subsidiaries. See "Risk Factors--Our holding company structure results in
structural subordination and may affect our ability to make payments on LYONs."
In addition, if we fail to deliver our common stock upon a conversion of a LYON
and thereafter become the subject of bankruptcy proceedings, a holder's claim
for damages arising from such failure could be subordinated to all of our
existing and future obligations and those of our subsidiaries.
As of March 31, 2001, we had approximately $271 million of senior
indebtedness outstanding, all of which ranks equally with the LYONs, and our
subsidiaries had an aggregate of approximately $303.6 million of liabilities,
including trade payables, outstanding.
Conversion Rights
The initial conversion rate is 9.3604 shares of common stock per LYON,
subject to adjustment upon the occurrence of certain events described below. A
holder of a LYON otherwise entitled to a fractional share will receive cash in
an amount equal to the value of such fractional share based on the sale price,
as defined below, on the trading day immediately preceding the conversion date.
Conversion Based on Common Stock Price. Holders may surrender LYONs for
conversion into shares of common stock in any calendar quarter commencing after
June 30, 2001, if, as of the last day of the preceding calendar quarter, the
closing sale price of our common stock for at least 20 trading days in a period
of 30 consecutive trading days ending on the last trading day of such preceding
calendar quarter is more than a specified percentage, beginning at 120% and
declining 0.084% per quarter thereafter, of the accreted conversion price per
share of common stock on the last trading day of such preceding calendar
quarter. The accreted conversion price per share as of any day will equal the
16
issue price of a LYON plus the accrued original issue discount to that day,
divided by the number of shares of common stock issuable upon conversion of a
LYON on that day.
The table below shows the conversion trigger price per share of our
common stock in respect of each of the first 20 calendar quarters. These prices
reflect the accreted conversion price per share of common stock multiplied by
the applicable percentage for the respective calendar quarter. Thereafter, the
accreted conversion price per share of common stock increases each calendar
quarter by the accreted original issue discount for the quarter and the
applicable percentage declines by 0.084% per quarter. The conversion trigger
price for the calendar quarter beginning April 1, 2031 is $117.52.
(3)
(1) Conversion
Accreted (2) Trigger
Conversion Applicable Price
Quarter* Price Percentage (1)x(2)
2001 ----- ---------- -------
Third Quarter...................................... $61.03 120.00% $73.24
Fourth Quarter..................................... 61.32 119.92% 73.53
2002
First Quarter...................................... 61.60 119.83% 73.82
Second Quarter..................................... 61.89 119.75% 74.11
Third Quarter...................................... 62.18 119.66% 74.41
Fourth Quarter..................................... 62.47 119.58% 74.70
2003
First Quarter...................................... 62.76 119.50% 75.00
Second Quarter..................................... 63.06 119.41% 75.30
Third Quarter...................................... 63.35 119.33% 75.60
Fourth Quarter..................................... 63.65 119.24% 75.90
2004
First Quarter...................................... 63.95 119.16% 76.20
Second Quarter..................................... 64.25 119.08% 76.50
Third Quarter...................................... 64.55 118.99% 76.80
Fourth Quarter..................................... 64.85 118.91% 77.11
2005
First Quarter...................................... 65.15 118.82% 77.42
Second Quarter..................................... 65.46 118.74% 77.72
Third Quarter...................................... 65.76 118.66% 78.03
Fourth Quarter..................................... 66.07 118.57% 78.34
2006
First Quarter...................................... 66.38 118.49% 78.65
Second Quarter..................................... 66.69 118.40% 78.96
*This table assumes no events have occurred that would require an adjustment to
the conversion rate.
Conversion Based on Credit Ratings. Holders may also surrender a LYON for
conversion at any time when the credit rating assigned to the LYONs by either
Moody's or Standard & Poor's is Baa2 or BBB, respectively, or lower.
Conversion Upon Notice of Redemption. A holder may surrender for conversion a
LYON that has been called for redemption at any time prior to the close of
business on the second business day immediately preceding the redemption date,
even if it is not otherwise convertible at that time. A LYON for which a holder
has delivered a purchase notice or a change in control purchase notice as
17
described below requiring us to purchase the LYON may be surrendered for
conversion only if that notice is withdrawn in accordance with the indenture.
Conversion Upon Occurrence of Certain Corporate Transactions. If we are party to
a consolidation, merger or binding share exchange pursuant to which our shares
of common stock would be converted into cash, securities or other property, the
LYONs may be surrendered for conversion at any time from and after the date
which is 15 days prior to the anticipated effective date of the transaction
until 15 days after the actual date of such transaction and, at the effective
time, the right to convert a LYON into shares of common stock will be changed
into a right to convert it into the kind and amount of cash, securities or other
property of Franklin Resources or another person which the holder would have
received if the holder had converted the holder's LYON immediately prior to the
transaction. If such transaction also constitutes a change in control, as
defined in the indenture, the holder will be able to require us to purchase all
or a portion of such holder's LYONs as described under "--Change in Control
Permits Purchase of LYONs by Franklin Resources at the Option of the Holder."
On conversion of a LYON, a holder will not receive any cash payment of
interest representing accrued original issue discount or, except as described
below, contingent interest or semiannual interest. Our delivery to the holder of
the full number of shares of common stock into which the LYON is convertible,
together with any cash payment for such holder's fractional shares, will be
deemed:
o to satisfy our obligation to pay the principal amount at
maturity of the LYON; and
o to satisfy our obligation to pay accrued original issue
discount attributable to the period from the issue date
through the conversion date, as well as any obligation to pay
contingent interest or semiannual interest not paid in cash.
As a result, accrued original issue discount is deemed to be paid in
full rather than cancelled, extinguished or forfeited.
If contingent or semiannual interest is payable to holders of LYONs
during any particular six-month period, and LYONs are converted after the
applicable accrual or record date therefor and prior to the next succeeding
interest payment date, those LYONs upon surrender for conversion must be
accompanied by funds equal to the amount of contingent or semiannual interest
payable on the principal amount of LYONs so converted, unless such LYONs are
converted after they have been called for redemption, in which case no such
payment shall be required by the holder and the holder will receive a cash
payment for all accrued and unpaid contingent interest or semiannual interest to
the redemption date.
The conversion rate will not be adjusted for accrued original issue
discount or any contingent interest. A certificate for the number of full shares
of common stock into which any LYON is converted, together with any cash payment
for fractional shares, will be delivered through the conversion agent as soon as
practicable following the conversion date. For a discussion of the tax treatment
of a holder receiving shares of common stock upon conversion, see "Certain
United States Federal Income Tax Considerations--Sale, Exchange, Conversion or
Redemption."
To convert a LYON into shares of common stock, a holder must:
o complete and manually sign the conversion notice on the back
of the LYON or complete and manually sign a facsimile of the
conversion notice and deliver the conversion notice to the
conversion agent;
o surrender the LYON to the conversion agent;
o if required by the conversion agent, furnish appropriate
endorsements and transfer documents; and
o if required, pay all transfer or similar taxes.
Pursuant to the indenture, the date on which all of the foregoing
requirements have been satisfied is the conversion date.
18
The conversion rate will be adjusted for:
o dividends or distributions on our shares of common stock
payable in shares of common stock or other capital stock of
Franklin Resources;
o subdivisions, combinations or certain reclassifications of
shares of our common stock;
o distributions to all holders of shares of our common stock of
certain rights to purchase shares of our common stock for a
period expiring within 60 days of the record date for such
distribution at less than the sale price of our common stock
at the time; and
o distributions to all holders of our shares of common stock of
our assets (including shares of capital stock of a subsidiary
or equity investment of ours) or debt securities or certain
rights to purchase our securities (excluding cash dividends or
other cash distributions from current or retained earnings
unless the annualized amount thereof per share exceeds 5% of
the sale price of the shares of common stock on the day
preceding the date of declaration of such dividend or other
distribution).
In the event that we pay a dividend or make a distribution on shares of
our common stock consisting of capital stock of, or similar equity interests in,
a subsidiary or other business unit of ours, the conversion rate will be
adjusted based on the market value of the securities so distributed relative to
the market value of our common stock, in each case based on the average closing
prices of those securities for the 10 trading days commencing on and including
the fifth trading day after the date on which "ex-dividend trading" commences
for such dividend or distribution on the principal United States securities
exchange or market on which the securities are then listed or quoted. In the
event we elect to make a distribution described in the third or fourth bullet of
the preceding paragraph which, in the case of the fourth bullet, has a per share
value equal to more than 15% of the sale price of our shares of common stock on
the day preceding the declaration date for such distribution, we will be
required to give notice to the holders of LYONs at least 20 days prior to the
ex-dividend date for such distribution and, upon the giving of such notice, the
LYONs may be surrendered for conversion at any time until the close of business
on the business day prior to the ex-dividend date or until we announce that such
distribution will not take place.
No adjustment to the conversion rate or the ability of a holder of a
LYON to convert will be made if holders of LYONs will participate in the
transaction without conversion or in certain other cases. The indenture permits
us to increase the conversion rate from time to time.
In the event of:
o a taxable distribution to holders of shares of common stock
which results in an adjustment of the conversion rate; or
o an increase in the conversion rate at our discretion,
the holders of LYONs may, in certain circumstances, be deemed to have received a
distribution subject to United States federal income tax as a dividend. See
"Certain United States Federal Income Tax Considerations--Constructive
Dividends."
Upon determination that LYON holders are or will be entitled to convert
their LYONs into shares of common stock in accordance with the foregoing
provisions, we will issue a press release and publish such determination on our
web site.
Contingent Interest
Subject to the accrual and record date provisions described below, we
will pay contingent interest to the holders of LYONs during any six-month period
from May 12 to November 11 and from November 12 to May 11, commencing May 12,
2006, if the average market price of a LYON for the Applicable Five Trading Day
Period equals 120% or more of the sum of the issue price and accrued original
issue discount for such LYON to the day immediately preceding the relevant
19
six-month period. See "--Redemption of LYONs at the Option of Franklin
Resources" for some of these values. "Applicable Five Trading Day Period" means
the five trading days ending on the second trading day immediately preceding the
first day of the relevant six-month period, unless we declare a dividend for
which the record date falls prior to the first day of a six month period but the
payment date falls within such six-month period, in which case the "Applicable
Five Trading Day Period" means the five trading days ending on the second
trading day immediately preceding such record date.
The amount of contingent interest payable per LYON in respect of any
quarterly period within a six-month period in which contingent interest is
payable will equal the greater of (a) regular cash dividends paid by us per
share on our common stock during that quarterly period multiplied by the number
of shares of common stock issuable upon conversion of a LYON at the then
applicable conversion rate or (b) $0.065 multiplied by the then applicable
conversion rate. Contingent interest, if any, will accrue and be payable to
holders of LYONs as of the record date for the related common stock dividend or,
if no cash dividend is paid by us during a quarter within the relevant six-month
period, to holders of LYONs as of the fifteenth day preceding the last day of
the relevant six-month period. Such payments will be paid on the payment date of
the related common stock dividend or, if no cash dividend is paid by us during a
quarter within the relevant six-month period, on the last day of the relevant
six-month period. The original issue discount on the LYONs will continue to
accrue at the yield to maturity whether or not contingent interest is paid.
Regular cash dividends are quarterly or other periodic cash dividends
on our common stock as declared by our board of directors as part of its cash
dividend payment practices and that are not designated by them as extraordinary
or special or other nonrecurring dividends.
The market price of a LYON on any date of determination means the
average of the secondary market bid quotations per LYON obtained by the bid
solicitation agent for $10 million principal amount at maturity of LYONs at
approximately 4:00 p.m., New York City time, on such determination date from
three unaffiliated securities dealers we select, provided that if:
o at least three such bids are not obtained by the bid
solicitation agent, or
o in our reasonable judgment, the bid quotations are not
indicative of the secondary market value of the LYONs,
then the market price of the LYON will equal (a) the then applicable conversion
rate of the LYONs multiplied by (b) the average sale price of our common stock
on the five trading days ending on such determination date, appropriately
adjusted.
The bid solicitation agent will initially be The Bank of New York. We
may change the bid solicitation agent, but the bid solicitation agent will not
be our affiliate. The bid solicitation agent will solicit bids from securities
dealers that are believed by us to be willing to bid for the LYONs.
Upon determination that LYON holders will be entitled to receive
contingent interest which may become payable during a relevant six-month period,
on or prior to the start of such six-month period, we will issue a press release
which we will also post on our web site.
Redemption of LYONs at the Option of Franklin Resources
No sinking fund is provided for the LYONs. Prior to May 11, 2006, the
LYONs will not be redeemable at our option. Beginning on May 11, 2006, we may
redeem the LYONs for cash as a whole at any time, or in part from time to time.
We will give not less than 15 days' or more than 60 days' notice of redemption
by mail to holders of LYONs. LYONs or portions of LYONs called for redemption
will be convertible by the holder, even if the market price contingency
described under "Conversion Rights" has not occurred, until the close of
business on the second business day prior to the redemption date.
The table below shows redemption prices of a LYON on May 11, 2006, at
each May 11 thereafter prior to maturity and at maturity on May 11, 2031. These
prices reflect the accrued original issue discount calculated to each such date.
20
The redemption price of a LYON redeemed between such dates would include an
additional amount reflecting the additional original issue discount accrued
since the next preceding date in the table.
(3)
(1) (2) Redemption
LYON Accrued Original Price
Redemption Date Issue Price Issue Discount (1)+(2)
May 11: ----------- -------------- -------
2006 $ 571.28 $ 55.87 $ 627.15
2007 571.28 67.69 638.97
2008 571.28 79.72 651.00
2009 571.28 91.99 663.27
2010 571.28 104.48 675.76
2011 571.28 117.21 688.49
2012 571.28 130.18 701.46
2013 571.28 143.40 714.68
2014 571.28 156.86 728.14
2015 571.28 170.58 741.86
2016 571.28 184.55 755.83
2017 571.28 198.79 770.07
2018 571.28 213.30 784.58
2019 571.28 228.07 799.35
2020 571.28 243.13 814.41
2021 571.28 258.47 829.75
2022 571.28 274.11 845.39
2023 571.28 290.03 861.31
2024 571.28 306.26 877.54
2025 571.28 322.79 894.07
2026 571.28 339.63 910.91
2027 571.28 356.79 928.07
2028 571.28 374.27 945.55
2029 571.28 392.08 963.36
2030 571.28 410.23 981.51
2031 571.28 428.72 1,000.00
If converted to semiannual coupon notes following the occurrence of a Tax
Event, the notes will be redeemable at the restated principal amount plus
accrued and unpaid interest from the date of the conversion to but not including
the redemption date. However, in no event will we have the option to redeem the
LYONs or notes prior to May 11, 2006. See "--Optional Conversion to Semiannual
Coupon Note Upon Tax Event."
In addition to the redemption prices payable with respect to all LYONs
redeemed, on the redemption date we will pay any unpaid contingent interest or
semiannual interest accrued with respect to such LYONs, in cash, to the
redemption date.
If we redeem less than all of the outstanding LYONs, the trustee shall
select the LYONs to be redeemed in principal amounts at maturity of $1,000 or
integral multiples of $1,000 by lot, pro rata or by any other method the trustee
considers fair and appropriate. If a portion of a holder's LYONs is selected for
partial redemption and the holder converts a portion of the LYONs, the converted
portion shall be deemed to be the portion selected for redemption.
Purchase of LYONs by Franklin Resources at the Option of the Holder
On the dates specified below holders may require us to purchase any
outstanding LYON for which a written purchase notice has been properly delivered
by the holder and not withdrawn, subject to certain additional conditions.
Holders may submit their written purchase notice and LYONs for purchase to the
paying agent at any time from the opening of business on the date that is 20
21
business days prior to such purchase date until the close of business on such
purchase date.
The purchase price of a LYON on the relevant purchase date will be:
o $593.01 per LYON on May 11, 2003;
o $604.18 per LYON on May 11, 2004;
o $627.15 per LYON on May 11, 2006;
o $688.49 per LYON on May 11, 2011;
o $755.83 per LYON on May 11, 2016;
o $829.75 per LYON on May 11, 2021; and
o $910.91 per LYON on May 11, 2026.
These purchase prices equal the issue price plus accrued original issue
discount to the purchase dates. We may, at our option, elect to pay the purchase
price in cash, shares of common stock, or any combination thereof. For a
discussion of the tax treatment of a holder receiving cash, shares of common
stock or any combination thereof, see "Certain United States Federal Income Tax
Considerations--Sale, Exchange, Conversion or Redemption."
In addition to the purchase price payable with respect to all LYONs
purchased, we will pay any accrued and unpaid contingent interest with respect
to such LYONs, in cash.
If prior to a purchase date the LYONs have been converted to semiannual
coupon notes following the occurrence of a Tax Event, the purchase price will be
equal to the restated principal amount plus accrued and unpaid interest from the
date of the conversion to the purchase date. See "--Optional Conversion to
Semiannual Coupon Note Upon Tax Event."
We will be required to give notice on a date not less than 20 business
days prior to each purchase date to all holders at their addresses shown in the
register of the registrar, and to beneficial owners as required by applicable
law, stating among other things:
o whether we will pay the purchase price of LYONs in cash or
common stock or any combination thereof, specifying the
percentages of each;
o if we elect to pay in common stock the method of calculating
the market price of the common stock; and
o the procedures that holders must follow to require us to
purchase their LYONs.
The purchase notice given by each holder electing to require us to
purchase LYONs shall be given to the paying agent no later than the close of
business on the purchase date and must state:
o the certificate numbers of the holder's LYONs to be delivered
for purchase;
o the portion of the principal amount at maturity of LYONs to be
purchased, which must be $1,000 or an integral multiple of
$1,000;
o that the LYONs are to be purchased by us pursuant to the
applicable provisions of the LYONs; and
o in the event we elect, pursuant to the notice that we are
required to give, to pay the purchase price in common stock,
in whole or in part, but the purchase price is ultimately to
be paid to the holder entirely in cash because any of the
conditions to payment of the purchase price or portion of the
purchase price in common stock is not satisfied prior to the
close of business on the purchase date, as described below,
whether the holder elects:
(1) to withdraw the purchase notice as to some or all of the
LYONs to which it relates, or
(2) to receive cash in respect of the entire purchase price
for all LYONs or portions of LYONs subject to such purchase
notice.
22
If the holder fails to indicate the holder's choice with respect to the
election described in the final bullet point above, the holder shall be deemed
to have elected to receive cash in respect of the entire purchase price for all
LYONs subject to the purchase notice in these circumstances.
Any purchase notice may be withdrawn by the holder by a written notice
of withdrawal delivered to the paying agent prior to the close of business on
the purchase date. The notice of withdrawal shall state:
o the principal amount at maturity being withdrawn;
o the certificate numbers of the LYONs being withdrawn; and
o the principal amount at maturity, if any, of the LYONs that
remain subject to the purchase notice.
If we elect to pay the purchase price, in whole or in part, in shares
of common stock, the number of shares of common stock to be delivered by us
shall be equal to the portion of the purchase price to be paid in common stock
divided by the market price of a share of common stock. We will pay cash based
on the market price for all fractional shares of common stock in the event we
elect to deliver common stock in payment, in whole or in part, of the purchase
price.
The "market price" means the average of the sale prices (determined as
described in the following paragraph) of the common stock for the
five-trading-day period ending on the third business day prior to the applicable
purchase date. If the third business day prior to the applicable purchase date
is not a trading day, the five-trading-day period shall end on the last trading
day prior to such third business day. We will appropriately adjust the market
price to take into account the occurrence, during the period commencing on the
first of such trading days during such five-trading-day period and ending on
such purchase date, of certain events that would result in an adjustment of the
conversion rate with respect to the common stock.
The "sale price" of the common stock on any date means the closing per
share sale price (or if no closing sale price is reported, the average of the
bid and ask prices or, if more than one in either case, the average of the
average bid and the average ask prices) on such date as reported in composite
transactions for the principal United States securities exchange on which the
common stock is traded (which is currently the NYSE) or, if the common stock is
not listed on a United States national or regional securities exchange, as
reported by the National Association of Securities Dealers Automated Quotation
System or by the National Quotation Bureau Incorporated. Because the market
price of the common stock is determined prior to the applicable purchase date,
holders of LYONs bear the market risk with respect to the value of the common
stock to be received from the date such market price is determined to such
purchase date. We may pay the purchase price or any portion of the purchase
price in common stock only if the information necessary to calculate the market
price is published in a daily newspaper of national circulation.
Upon determination of the actual number of shares of common stock to be
issued for each $1,000 principal amount at maturity of LYONs in accordance with
the foregoing provisions, we will publish such information on our web site.
In addition to the above conditions, our right to purchase LYONs, in
whole or in part, with common stock is subject to our satisfying various
conditions, including:
o listing such common stock on the principal United States
securities exchange on which our common stock is then listed
or, if not so listed, on Nasdaq;
o the registration of the common stock under the Securities Act
and the Exchange Act, if required; and
o any necessary qualification or registration under applicable
state securities law or the availability of an exemption from
such qualification and registration.
If such conditions are not satisfied with respect to a holder prior to
the close of business on the purchase date, we will pay the purchase price of
the LYONs to the holder entirely in cash. We may not change the form of
23
components or percentages of components of consideration to be paid for the
LYONs once we have given the notice that we are required to give to holders of
LYONs, except as described in the first sentence of this paragraph.
In connection with any purchase offer, we will:
o comply with the provisions of Rule 13e-4, Rule 14e-1 and any
other tender offer rules under the Exchange Act which may then
apply; and
o file Schedule TO or any other required schedule under the
Exchange Act.
Our obligation to pay the purchase price for a LYON for which a
purchase notice has been delivered and not validly withdrawn is conditioned upon
delivery of the LYON, together with necessary endorsements, to the paying agent
at any time after delivery of the purchase notice. Payment of the purchase
price, plus accrued and unpaid semiannual and contingent interest, if any, for
the LYON will be made promptly following the later of the purchase date and the
time of delivery of the LYON.
If the paying agent holds money or securities sufficient to pay the
purchase price of the LYON on the business day following the purchase date in
accordance with the terms of the indenture, then, immediately after the purchase
date, the LYON will cease to be outstanding and original issue discount and
semiannual and contingent interest, if any, on such LYON will cease to accrue,
whether or not the LYON is delivered to the paying agent. Thereafter, all other
rights of the holder shall terminate, other than the right to receive the
purchase price upon delivery of the LYON.
Our ability to purchase LYONs with cash may be limited by the terms of
our then existing borrowing agreements, as well as the amount of funds available
to us to fund any such purchases.
No LYONs may be purchased for cash at the option of holders if there
has occurred and is continuing an event of default with respect to the LYONs,
other than a default in the payment of the purchase price with respect to such
LYONs.
Change in Control Permits Purchase of LYONs by Franklin Resources at the Option
of the Holder
In the event of any change in control, as defined below, occurring on
or prior to May 11, 2006, each holder will have the right, at the holder's
option, subject to the terms and conditions of the indenture, to require us to
purchase for cash all or any portion of the holder's LYONs in integral multiples
of $1,000 principal amount at maturity at a price for each $1,000 principal
amount at maturity of such LYONs equal to the issue price of such LYON plus the
accrued original issue discount to the date of purchase.
We will be required to purchase the LYONs as of the date that is no
later than 35 business days after the occurrence of such change in control (a
"change in control purchase date").
If prior to a change in control purchase date the LYONs have been
converted to semiannual coupon notes following the occurrence of a Tax Event, we
will be required to purchase the notes at a cash price equal to the restated
principal amount plus accrued and unpaid interest from the date of the
conversion to the change in control purchase date.
In addition to the change in control purchase price with respect to all
LYONs purchased, we will pay any accrued and unpaid contingent interest with
respect to such LYONs, in cash.
Within 15 business days after the occurrence of a change in control, we
are obligated to mail to the trustee and to all holders of LYONs at their
addresses shown in the register of the registrar and to beneficial owners as
required by applicable law a notice regarding the change in control, which
notice shall state, among other things:
o the events causing a change in control;
o the date of such change in control;
24
o the change in control purchase price;
o the change in control purchase date; o the name and address of
the paying agent and the conversion agent;
o the conversion rate and any adjustments to the conversion
rate;
o that LYONs with respect to which a change in control purchase
notice is given by the holder may be converted only if the
change in control purchase notice has been withdrawn in
accordance with the terms of the indenture; and
o the procedures that holders must follow to exercise these rights.
To exercise this right, the holder must deliver a written notice to the
paying agent prior to the close of business on the change in control purchase
date. The required purchase notice upon a change in control shall state:
o the certificate numbers of the LYONs to be delivered by the
holder;
o the portion of the principal amount at maturity of LYONs to be
purchased, which portion must be $1,000 or an integral
multiple of $1,000; and
o that we are to purchase such LYONs pursuant to the applicable
provisions of the LYONs.
A holder may withdraw any change in control purchase notice by
delivering to the paying agent a written notice of withdrawal prior to the close
of business on the change in control purchase date. The notice of withdrawal
shall state:
o the principal amount at maturity being withdrawn;
o the certificate numbers of the LYONs being withdrawn; and
o the principal amount at maturity, if any, of the LYONs that
remain subject to a change in control purchase notice.
Our obligation to pay the change in control purchase price for a LYON
for which a change in control purchase notice has been delivered and not validly
withdrawn is conditioned upon delivery of the LYON, together with necessary
endorsements, to the paying agent at any time after the delivery of such change
in control purchase notice. Payment of the change in control purchase price plus
accrued and unpaid semiannual and contingent interest, if any, for such LYON
will be made promptly following the later of the change in control purchase date
or the time of delivery of such LYON.
If the paying agent holds money sufficient to pay the change in control
purchase price of the LYON on the business day following the change in control
purchase date in accordance with the terms of the indenture, then, immediately
after the change in control purchase date, original issue discount and
semiannual and contingent interest, if any, on such LYON will cease to accrue,
whether or not the LYON is delivered to the paying agent, and all other rights
of the holder shall terminate, other than the right to receive the change in
control purchase price upon delivery of the LYON.
Under the indenture, a "change in control" of Franklin Resources is
deemed to have occurred at such time as:
o any person, including its affiliates and associates, other
than us, our subsidiaries or our or their employee benefit
plans, files a Schedule 13D or Schedule TO (or any successor
schedule, form or report under the Exchange Act) disclosing
that such person has become the beneficial owner of 50% or
more of the voting power of Franklin Resources' common stock
or other capital stock into which Franklin Resources' common
stock is reclassified or changed, with certain exceptions; or
25
o there shall be consummated any share exchange, consolidation
or merger of Franklin Resources pursuant to which Franklin
Resources' common stock would be converted into cash,
securities or other property, in each case other than a share
exchange, consolidation or merger of Franklin Resources in
which the holders of Franklin Resources' common stock
immediately prior to the share exchange, consolidation or
merger have, directly or indirectly, at least a majority of
the total voting power in the aggregate of all classes of
capital stock of the continuing or surviving corporation
immediately after the share exchange, consolidation or merger.
The indenture does not permit our board of directors to waive our
obligation to purchase LYONs at the option of holders in the event of a change
in control.
In connection with any purchase offer in the event of a change in
control, we will:
o comply with the provisions of Rule 13e-4, Rule 14e-1 and any
other tender offer rules under the Exchange Act which may then
be applicable; and
o file Schedule TO or any other required schedule under the
Exchange Act.
The change in control purchase feature of the LYONs may in certain
circumstances make more difficult or discourage a takeover of Franklin
Resources. The change in control purchase feature, however, is not part of a
plan by management to adopt a series of anti-takeover provisions nor is it the
result of our knowledge of any specific effort:
o to accumulate shares of our common stock; or
o to obtain control of Franklin Resources by means of a merger,
tender offer, solicitation or otherwise.
Instead, the change in control purchase feature is a standard term
contained in other LYONs offerings that have been marketed by Merrill Lynch. The
terms of the change in control purchase feature resulted from negotiations
between Merrill Lynch and us.
We could, in the future, enter into certain transactions, including
certain recapitalizations, that would not constitute a change in control with
respect to the change in control purchase feature of the LYONs but that would
increase the amount of our (or our subsidiaries) outstanding indebtedness.
No LYONs may be purchased by Franklin Resources at the option of
holders upon a change in control if there has occurred and is continuing an
event of default with respect to the LYONs, other than a default in the payment
of the change in control purchase price with respect to the LYONs.
Optional Conversion to Semiannual Coupon Note Upon Tax Event
From and after the date of the occurrence of a Tax Event, we will have
the option to elect to have interest in lieu of future original issue discount
accrue at 1.875% per year on a principal amount per LYON (the "restated
principal amount") equal to the issue price plus original issue discount accrued
to the date of the Tax Event or the date on which we exercise the option
described herein, whichever is later (the "option exercise date").
Such interest shall accrue from the option exercise date and will be
payable semiannually on the interest payment dates of May 11 and November 11 of
each year to holders of record at the close of business on the April 26 or
October 27 immediately preceding the interest payment date. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Interest will accrue from the most recent date to which interest has been paid
or if no interest has been paid, from the option exercise date. In the event
that we exercise our option to pay interest in lieu of accrued original issue
discount, the redemption price, purchase price and change in control purchase
price on the LYONs will be adjusted, and no future contingent interest payments
will be made. However, other cash interest may be payable as a result of a
failure to make effective a shelf registration statement. There will be no
changes in the holder's conversion rights.
26
A "Tax Event" means that we shall have received an opinion from
independent tax counsel experienced in such matters to the effect that, on or
after the date of this prospectus, as a result of:
o any amendment to, or change (including any announced
prospective change) in, the laws (or any regulations
thereunder) of the United States or any political subdivision
or taxing authority thereof or therein, or
o any amendment to, or change in, an interpretation or
application of such laws or regulations by any legislative
body, court, governmental agency or regulatory authority,
in each case which amendment or change is enacted, promulgated, issued or
announced or which interpretation is issued or announced or which action is
taken on or after the date of this prospectus, there is more than an
insubstantial risk that amounts that are treated as interest on the LYONs for
United States federal income tax purposes as described under "Certain United
States Federal Income Tax Considerations" (including tax original issue discount
and contingent interest, if any) either:
(1) would not be deductible on a current accrual basis, or
(2) would not be deductible under any other method,
in either case in whole or in part, by Franklin Resources (by reason of
deferral, disallowance, or otherwise) for United States federal income tax
purposes.
If a proposal were ever enacted and made applicable to the LYONs in a
manner that would limit our ability to either:
o deduct, on a current accrual basis, amounts that are treated
as interest on the LYONs for United States federal income tax
purposes as described under "Certain United States Federal
Income Tax Considerations," including tax original issue
discount and contingent interest, if any, or
o deduct such amounts under any other method for United States
federal income tax purposes,
o such enactment would result in a Tax Event and the terms of
the LYONs would be subject to modification at our option as
described above.
The modification of the terms of LYONs by us upon a Tax Event as
described above would alter the timing of income recognition by holders of the
LYONs with respect to the semiannual payments of interest due on the LYONs after
the option exercise date. See "Certain United States Federal Income Tax
Considerations."
Merger and Sales of Assets by Franklin Resources
The indenture provides that we may not consolidate with or merge into
any other person or convey, transfer or lease our properties and assets
substantially as an entirety to another person, unless, among other items:
o the resulting, surviving or transferee person (if other than
Franklin Resources) were organized and existing under the laws
of the United States, any state thereof or the District of
Columbia;
o such person assumes all obligations of Franklin Resources
under the LYONs and the indenture; and
o Franklin Resources or such successor person is not immediately
thereafter in default under the indenture.
Upon the assumption of the obligations of Franklin Resources by such a
person in such circumstances, subject to certain exceptions, Franklin Resources
will be discharged from all obligations under the LYONs and the indenture.
Although such transactions are permitted under the indenture, certain of the
foregoing transactions occurring on or prior to May 11, 2006 could constitute a
change in control of Franklin Resources permitting each holder to require
27
Franklin Resources or such successor person to purchase the LYONs of such holder
as described above.
Events of Default
The following are events of default for the LYONs:
o default in payment of the principal amount at maturity (or if
the LYONs have been converted to semiannual coupon notes
following a Tax Event, the restated principal amount), issue
price, accrued original issue discount, redemption price,
purchase price or change in control purchase price with
respect to any LYON when such becomes due and payable;
o default in payment of any contingent interest or of interest
which becomes payable after the LYONs have been converted to
semiannual coupon notes following the occurrence of a Tax
Event, which default, in any such case, continues for 30 days;
o failure by Franklin Resources to comply with any of its other
agreements in the LYONs or the indenture upon receipt by
Franklin Resources of notice of such default by the trustee or
by holders of not less than 25% in aggregate principal amount
at maturity of the LYONs then outstanding and Franklin
Resources' failure to cure (or obtain a waiver of) such
default within 60 days after receipt by Franklin Resources of
such notice;
o (A) failure by Franklin Resources to make any payment by the
end of any applicable grace period after maturity of
indebtedness, which term as used in the indenture means
obligations (other than nonrecourse obligations) of Franklin
Resources for borrowed money or evidenced by bonds,
debentures, notes or similar instruments ("Indebtedness"), in
an amount in excess of $25,000,000 and continuance of such
failure, or (B) the acceleration of Indebtedness in an amount
in excess of $25,000,000 because of a default with respect to
such Indebtedness without such Indebtedness having been
discharged or such acceleration having been cured, waived,
rescinded or annulled in case of (A) or (B) above, for a
period of 30 days after receipt by Franklin Resources of
written notice of such default from the trustee or the holders
of not less than 25% in aggregate principal amount at maturity
of the LYONs then outstanding. However, if any such failure or
acceleration referred to in (A) or (B) above shall cease or be
cured, waived, rescinded or annulled, then the event of
default by reason thereof shall be deemed not to have
occurred; or
o certain events of bankruptcy or insolvency affecting Franklin
Resources or any of its significant subsidiaries.
If an event of default shall have happened and be continuing, either
the trustee or the holders of not less than 25% in aggregate principal amount at
maturity of the LYONs then outstanding may declare the issue price of the LYONs
plus the original issue discount on the LYONs accrued through the date of such
declaration, and any accrued and unpaid interest (including semiannual interest
and contingent interest, if any) through the date of such declaration, to be
immediately due and payable. In the case of certain events of bankruptcy or
insolvency of Franklin Resources, the issue price of the LYONs plus the accrued
original issue discount on the LYONs, and any accrued and unpaid interest
(including semiannual interest and contingent interest, if any), through the
occurrence of such event shall automatically become and be immediately due and
payable.
Modification
We and the trustee may modify or amend the indenture or the terms of
the LYONs with the consent of the holders of at least a majority in principal
amount at maturity of the LYONs then outstanding. However, without the consent
of the holders of each outstanding LYON affected thereby, we may not:
o alter the manner of calculation or rate of accrual of, or
otherwise adversely affect the rights of holders of LYONs to
receive, original issue discount or interest (including
semiannual or contingent interest) on any LYON or extend the
time of payment of original issue discount or interest;
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o make any LYON payable in money or securities other than that
stated in the LYON;
o extend the stated maturity of any LYON;
o reduce the principal amount at maturity, issue price, restated
principal amount, redemption price, purchase price or change
in control purchase price with respect to any LYON;
o make any change that adversely affects the right of a holder
to convert any LYON;
o make any change that adversely affects the right to require us
to purchase a LYON;
o impair the right to receive payment with respect to the LYONs
or the right to institute suit for the enforcement of any
payment with respect to, or conversion of, the LYONs; or
o change the provisions in the indenture that relate to
modifying or amending the indenture.
Notwithstanding the foregoing, without the consent of any holder of
LYONs, we and the trustee may modify or amend the indenture or the terms of the
LYONs for any of the following purposes:
o to evidence a successor to us and the assumption by that
successor of our obligations under the indenture and the
LYONs;
o to add to our covenants for the benefit of the holders of the
LYONs or to surrender any right or power conferred upon us;
o to secure our obligations in respect of the LYONs and the
indenture;
o to make any changes or modifications to the indenture
necessary in connection with the registration of the LYONs
under the Securities Act and the qualification of the LYONs
under the Trust Indenture Act as contemplated by the
indenture;
o to cure any ambiguity, omission, defect or inconsistency in
the indenture; or
o to make any change that does not adversely affect the rights
of any holders of LYONs.
We may not modify or amend the indenture or the terms of the LYONs
pursuant to the second, third, fourth or fifth bullets of the preceding
paragraph without the consent of the holders of a majority in principal amount
at maturity of the LYONs, if such modification or amendment materially and
adversely affects the interests of the holders of the LYONs.
The holders of a majority in principal amount at maturity of the
outstanding LYONs may, on behalf of the holders of all LYONs:
o waive compliance by us with restrictive provisions of the
indenture, as detailed in the indenture; and
o waive any past default under the indenture and its
consequences, except a default in the payment of the principal
amount at maturity, issue price, accrued and unpaid interest,
accrued and unpaid semiannual interest or contingent interest,
accrued original issue discount, redemption price, purchase
price or change in control purchase price or obligation to
deliver shares of common stock upon conversion with respect to
any LYON or in respect of any provision which under the
indenture cannot be modified or amended without the consent of
the holder of each outstanding LYON affected.
Discharge of the Indenture
We may satisfy and discharge our obligations under the indenture by
delivering to the trustee for cancellation all outstanding LYONs or by
depositing with the trustee, the paying agent or the conversion agent, as
applicable, after the LYONs have become due and payable, whether at stated
maturity, or any redemption date, or any purchase date, or a change in control
purchase date, or upon conversion or otherwise, cash or shares of common stock
(as applicable under the terms of the indenture) sufficient to pay all of the
outstanding LYONs and paying all other sums payable under the indenture by
Franklin Resources.
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Calculations in Respect of LYONs
We will be responsible for making all calculations called for under the
LYONs. These calculations include, but are not limited to, determination of the
market price of the LYONs and the sales price of our common stock and amounts of
contingent interest, if any, payable on the LYONs. We will make all these
calculations in good faith and, absent manifest error, our calculations will be
final and binding on holders of LYONs. We will provide a schedule of our
calculations to the trustee, and the trustee is entitled to rely upon the
accuracy of our calculations without independent verification.
Limitations of Claims in Bankruptcy
If a bankruptcy proceeding is commenced in respect of Franklin
Resources, the claim of the holder of a LYON is, under Title 11 of the United
States Code, limited to the issue price of the LYON plus that portion of the
original issue discount that has accrued from the date of issue to the
commencement of the proceeding, plus contingent interest and semiannual
interest, if any, accrued after a Tax Event. In addition, the holders of the
LYONs will be effectively subordinated to the indebtedness and other obligations
of Franklin Resources' subsidiaries.
Information Concerning the Trustee
The Bank of New York is the trustee, registrar, paying agent and
conversion agent under the indenture. We may maintain deposit accounts and
conduct other banking transactions with the trustee in the normal course of
business.
Governing Law
The indenture and the LYONs are governed by, and construed in
accordance with, the law of the State of New York.
30
Description of Capital Stock
The following summary description of provisions of our certificate of
incorporation is qualified in its entirety by reference to the Delaware General
Corporation Law and our certificate of incorporation, as amended, which is
incorporated by reference herein.
Our authorized capital stock consists of 500,000,000 shares of common
stock, par value $0.10 per share, and 1,000,000 shares of preferred stock, par
value $1.00 per share, issuable in one or more series from time to time by
resolution of our board of directors.
As of July 31, 2001, we had 261,640,925 shares of common stock and no
shares of preferred stock issued and outstanding. Concurrently with the sale of
the LYONs we repurchased 3 million shares. Our common stock is listed on the New
York Stock Exchange, the Pacific Exchange and the London Stock Exchange.
Holders of our common stock are entitled to receive dividends when, as
and if declared by our board of directors out of any funds legally available for
dividends. Holders of our common stock are also entitled, upon our liquidation,
and after claims of creditors and preferences of any other class or series of
our preferred stock outstanding at the time of liquidation, to receive pro rata
our net assets.
Holders of our common stock are entitled to one vote for each share
that they hold and are vested with all of the voting power, except as our board
of directors may provide in the future with respect to any class or series of
our preferred stock that it may authorize in the future. Shares of our common
stock are not redeemable and have no subscription, conversion or preemptive
rights.
Our board of directors has the authority to issue shares of preferred
stock by resolution in one or more series of equal rank with such different
series, designations, preferences and other relative participating, optional or
other special rights, and qualifications, limitations and restrictions thereof,
including the number of shares in each series, preferences upon liquidation or
dissolution, dividend and conversion rights and rates, and redemption provisions
of the shares constituting any class or series, without any further vote or
action by the stockholders. Any shares of preferred stock so issued would have
priority over the common stock with respect to dividend or liquidation rights or
both.
The transfer agent, registrar and dividend disbursing agent for our
common stock is The Bank of New York.
Indemnification of Officers and Directors
Delaware General Corporation Law provides that a corporation may
indemnify a director, officer, employee or agent made a party to an action by
reason of the fact that he was a director, officer, employee or agent of the
corporation or was serving at the request of the corporation, against
liabilities, costs and expenses actually and reasonably incurred by him in his
capacity as a director or officer or arising out of such action, if he acted in
good faith and in a manner he reasonably believed to be in the best interests of
the corporation and, with respect to any criminal action, had no reasonable
cause to believe his conduct was unlawful. No indemnification may be provided
where the director, officer, employee or agent has been adjudged by a court,
after exhaustion of all appeals, to be liable to the corporation, unless a court
determines that the person is entitled to such indemnity.
Delaware General Corporation Law also permits a corporation to relieve
its directors from personal liability for monetary damages to the corporation or
its stockholders for breaches of their fiduciary duty as directors except for
(i) a breach of the duty of loyalty, (ii) failure to act in good faith, (iii)
intentional misconduct or knowing violation of law, (iv) willful or negligent
violations of certain provisions of the Delaware General Corporation Law
imposing certain requirements with respect to stock purchases, redemptions and
dividends or (v) any transaction from which the director derived an improper
personal benefit.
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In addition to the above described provisions, our certificate of
incorporation relieves our directors from personal liability for a breach of
fiduciary duty as a director as set forth in Section 102(b)(7) of the Delaware
General Corporation Law.
Our by-laws provide that our directors, officers, employees and agents
who have been successful on the merits or otherwise in a civil or criminal
action referred to the Delaware General Corporation Law shall be indemnified
against expenses, including attorneys' fees, actually and reasonably incurred in
connection therewith.
It is our policy to enter into indemnification agreements with our
directors, some of whom are also executive officers. The indemnification
agreements provide for the prompt indemnification "to the fullest extent
permitted by law," and the prompt advancing of attorneys' fees and all other
costs, expenses and obligations paid or incurred by the indemnified person in
connection with a Claim.
A "Claim" consists of participation in any threatened, pending or
completed action, or any inquiry or investigation that the indemnified person in
good faith believes might lead to the institution of any such action, and must
be related to the fact that the indemnified person is or was our director,
officer, employee, agent or fiduciary or is or was serving at our request in
such a capacity for another entity.
Additionally, the indemnification agreements provide that if we pay an
indemnified person pursuant to the indemnification agreements, we will be
subrogated to the indemnified person's rights to recover from third parties.
However, the indemnification agreements prohibit such indemnification
(i) in connection with any Claim initiated by the indemnified person against us
or any of our directors or officers unless we have joined in or consented to the
Claim or (ii) if our board of directors or other person or body appointed by our
board of directors determines that such indemnification is not permitted under
applicable law. In the event of such determination, the indemnified person
agrees to reimburse us for all amounts that we have advanced to the indemnified
person in respect of such indemnification.
The indemnification agreements also provide that if there is a change
in control of us, we will seek legal advice from special, independent counsel
selected by the indemnified person and approved by us with respect to matters
thereafter arising concerning rights of the indemnified person under the
agreement. Additionally, the indemnification agreements provide that if there is
a potential change in control, we will, upon written request of the indemnified
person, fund a trust to satisfy expenses reasonably anticipated to be incurred
in connection with a Claim relating to an indemnifiable event. We are not
currently, or do we expect to be, subject to a change in control.
We have purchased an insurance policy indemnifying our officers and
directors and the officers and directors of our subsidiaries against claims and
liabilities (with stated exceptions) to which they may become subject by reason
of their positions with us as directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
32
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
General
This is a summary of certain United States federal income tax
considerations relevant to holders of LYONs. This summary is based upon laws,
regulations, rulings and decisions now in effect, all of which are subject to
change (including retroactive changes) or possible differing interpretations.
The discussion below deals only with LYONs held as capital assets and does not
purport to deal with persons in special tax situations, such as financial
institutions, insurance companies, regulated investment companies, dealers in
securities, traders in securities electing to mark to market, tax-exempt
entities, persons holding LYONs in a tax-deferred or tax-advantaged account, or
persons holding LYONs, as a position in a "straddle" or as part of a "hedging"
or "conversion" transaction for tax purposes.
We do not address all of the tax consequences that may be relevant to
an investor in LYONs. In particular, we do not address:
o the United States federal estate, gift or alternative minimum
tax consequences of the purchase, ownership or disposition of
LYONs;
o any state, local or foreign tax consequences of the purchase,
ownership or disposition of LYONs; or
o United States federal, state, local or foreign tax
consequences of owning or disposing of our common stock.
Consequently, you should consult your own tax advisors concerning the
application of the United States federal income tax laws to their particular
situations as well as any consequences of the purchase, ownership and
disposition of the LYONs arising under the laws of any other taxing
jurisdiction.
A U.S. Holder is a beneficial owner of the LYONs who or which is:
o a citizen or individual resident of the United States, as
defined in Section 7701(b) of the Internal Revenue Code of
1986, as amended (which we refer to as the Code);
o a corporation, including any entity treated as a corporation
for United States federal income tax purposes, created or
organized in or under the laws of the United States, any state
thereof or the District of Columbia;
o an estate if its income is subject to United States federal
income taxation regardless of its source; or
o a trust if (1) a United States court can exercise primary
supervision over its administration and (2) one or more United
States persons have the authority to control all of its
substantial decisions.
Notwithstanding the preceding sentence, certain trusts in existence on August
20,1996, and treated as U.S. persons prior to such date, may also be treated as
U.S. Holders. A Non-U.S. Holder is a beneficial owner of LYONs other than a U.S.
Holder.
No statutory, administrative or judicial authority directly addresses
the treatment of the LYONs or instruments similar to the LYONs for United States
federal income tax purposes. No rulings have been sought or are expected to be
sought from the Internal Revenue Service (which we refer to as the IRS) with
respect to any of the United States federal income tax consequences discussed
below, and the IRS would not be precluded from taking contrary positions. As a
result, no assurance can be given that the IRS will agree with the tax
characterizations and the tax consequences described below.
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We urge prospective investors to consult their own tax advisors with
respect to the tax consequences to them of the purchase, ownership and
disposition of the LYONs and our common stock in light of their own particular
circumstances, including the tax consequences under state, local, foreign and
other tax laws and the possible effects of changes in United States federal or
other tax laws.
Classification of the LYONs
It is the opinion of special tax counsel, Weil, Gotshal & Manges LLP,
that the LYONs are treated as indebtedness for United States federal income tax
purposes and that the LYONs are subject to the special regulations governing
contingent payment debt instruments (which we refer to as the CPDI regulations).
Pursuant to the terms of the indenture, we and each holder of the LYONs agree,
for United States federal income tax purposes, to treat the LYONs as debt
instruments that are subject to the CPDI regulations. The remainder of this
discussion assumes such treatment for United States federal income tax purposes.
Accrual of Interest on the LYONs
Pursuant to the CPDI regulations, a U.S. Holder of the LYONs is
required to accrue interest income on the LYONs, in the amounts described below,
regardless of whether the U.S. Holder uses the cash or accrual method of tax
accounting. Accordingly, U.S. Holders are required to include interest in
taxable income in each year in excess of the accruals on the LYONs for non-tax
purposes and in excess of any contingent interest payments actually received in
that year.
The CPDI regulations provide that a U.S. Holder must accrue an amount
of ordinary interest income, as original issue discount for United States
federal income tax purposes, for each accrual period prior to and including the
maturity date of the LYONs that equals:
(1) the product of (i) the adjusted issue price (as defined below)
of the LYONs as of the beginning of the accrual period; and
(ii) the comparable yield to maturity (as defined below) of
the LYONs, adjusted for the length of the accrual period;
(2) divided by the number of days in the accrual period; and
(3) multiplied by the number of days during the accrual period
that the U.S. Holder held the LYONs.
A LYON's issue price is the first price at which a substantial amount
of LYONs are sold to investors, excluding sales to bond houses, brokers or
similar persons or organizations acting in the capacity of underwriters,
placement agents or wholesalers. The adjusted issue price of a LYON is its issue
price increased by any interest income previously accrued, determined without
regard to any adjustments to interest accruals described below, and decreased by
the amount of payments that were scheduled to have been made in accordance with
our schedule of projected payments, described below (whether or not such
payments were actually made in the scheduled amounts).
The term "comparable yield" means the annual yield we would pay, as of
the initial issue date, on a fixed rate, nonconvertible debt security with no
contingent payments, but with terms and conditions otherwise comparable to those
of the LYONs. Weil, Gotshal & Manges LLP, counsel to our company, has advised us
as to the factors to be taken into account in computing the comparable yield and
in constructing our projected payment schedule described below. The projected
payment schedule that we have constructed is based upon our determination that
the comparable yield for the LYONs is 6.19% compounded semiannually. It is
possible that the IRS could challenge the specific yield and projected payment
schedule. The yield, if redetermined as a result of such a challenge, could be
greater or less than the comparable yield provided by us, and the projected
payment schedule (as defined below) could differ materially from the projected
payment schedule we have provided. In such case, the taxable income of a holder
arising from the ownership, sale, exchange, conversion or redemption of a LYON
could be increased or decreased.
The CPDI regulations require that we provide to U.S. Holders, solely
for United States federal income tax purposes, a schedule of the projected
amounts of payments, which we refer to as projected payments, on the LYONs. This
schedule must produce the comparable yield. The projected payment schedule
34
includes estimates for certain contingent interest payments and an estimate for
a payment at maturity taking into account the conversion feature.
The comparable yield and the schedule of projected payments will be set
forth in the indenture. U.S. Holders may also obtain the projected payment
schedule by submitting a written request for such information to: Franklin
Resources, Inc., One Franklin Parkway, San Mateo, California 94403 Attention:
Leslie M. Kratter.
Under the indenture, a U.S. Holder must, for United States federal
income tax purposes, use the comparable yield and the schedule of projected
payments in determining its interest accruals, and the adjustments thereto
described below, in respect of the LYONs.
The comparable yield and the schedule of projected payments are not
determined for any purpose other than for the determination of a U.S. Holder's
interest accruals and adjustments thereof in respect of the LYONs for United
States federal income tax purposes and do not constitute a projection or
representation regarding the actual amounts payable on the LYONs.
Amounts treated as interest under the CPDI regulations are treated as
original issue discount for all purposes of the Code.
Adjustments to Interest Accruals on the LYONs
If, during any taxable year, a U.S. Holder receives actual payments
with respect to the LYONs for that taxable year that in the aggregate exceed the
total amount of projected payments for that taxable year, the U.S. Holder will
incur a "net positive adjustment" under the CPDI regulations equal to the amount
of such excess. The U.S. Holder will treat a "net positive adjustment" as
additional interest income for such taxable year. For this purpose, the payments
in a taxable year include the fair market value of property (including our
common stock) received in that year.
If a U.S. Holder receives in a taxable year actual payments with
respect to the LYONs for that taxable year that in the aggregate were less than
the amount of projected payments for that taxable year, the U.S. Holder will
incur a "net negative adjustment" under the CPDI regulations equal to the amount
of such deficit. This adjustment will (a) reduce the U.S. Holder's interest
income on the LYONs for that taxable year, and (b) to the extent of any excess
after the application of (a), give rise to an ordinary loss to the extent of the
U.S. Holder's interest income on the LYONs during prior taxable years, reduced
to the extent such interest was offset by prior net negative adjustments.
If a U.S. Holder were to purchase a LYON at a discount or premium to
the adjusted issue price, the discount would be treated as a positive adjustment
under the CPDI regulations and the premium would be treated as a negative
adjustment under the CPDI regulations. The U.S. Holder must reasonably allocate
the adjustment over the remaining term of the LYON by reference to the accruals
of original issue discount at the comparable yield or to the projected payments.
It may be reasonable to allocate the adjustment over the remaining term of the
LYON pro rata with the accruals of original issue discount at the comparable
yield. U.S. Holders should consult their own tax advisors regarding these
allocations.
Sale, Exchange, Conversion or Redemption
Generally, the sale or exchange of a LYON, or the redemption of a LYON
for cash, will result in taxable gain or loss to a U.S. Holder. As described
above, our calculation of the comparable yield and the schedule of projected
payments for the LYONs includes the receipt of stock upon conversion as a
contingent payment with respect to the LYONs. Accordingly, we intend to treat
and you agree to treat, the receipt of our common stock by a U.S. Holder upon
the conversion of a LYON, or upon the redemption of a LYON where we elect to pay
in common stock, as a payment under the CPDI regulations. Under this treatment,
conversion or such a redemption also would result in taxable gain or loss to the
U.S. Holder. As described above, holders are generally bound by our
determination of the comparable yield and the schedule of projected payments.
35
The amount of gain or loss on a taxable sale, exchange, conversion or
redemption would be equal to the difference between (a) the amount of cash plus
the fair market value of any other property received by the U.S. Holder,
including the fair market value of any of our common stock received, and (b) the
U.S. Holder's adjusted tax basis in the LYON. A U.S. Holder's adjusted tax basis
in a LYON will generally be equal to the U.S. Holder's original purchase price
for the LYON, increased by any interest income previously accrued by the U.S.
Holder (determined without regard to any adjustments to interest accruals
described above), and decreased by the amount of any projected payments that
have been previously scheduled to be made in respect of the LYONs (without
regard to the actual amount paid). Gain recognized upon a sale, exchange,
conversion or redemption of a LYON will generally be treated as ordinary
interest income; any loss will be ordinary loss to the extent of interest
previously included in income, and thereafter, capital loss (which will be
long-term if the LYON is held for more than one year). The deductibility of net
capital losses by individuals and corporations is subject to limitations.
A U.S. Holder's tax basis in our common stock received upon a
conversion of a LYON or upon a Holder's exercise of a put right that we elect to
pay in common stock will equal the then current fair market value of such common
stock. The U.S. Holder's holding period for the common stock received will
commence on the day immediately following the date of conversion or redemption.
Constructive Dividends
If at any time we were to make a distribution of property to our
stockholders that would be taxable to the stockholders as a dividend for United
States federal income tax purposes and, in accordance with the anti-dilution
provisions of the LYONs, the conversion rate of the LYONs were increased, such
increase might be deemed to be the payment of a taxable dividend to holders of
the LYONs.
For example, an increase in the conversion rate in the event of
distributions of our evidences of indebtedness or our assets or an increase in
the event of an extraordinary cash dividend is likely to result in deemed
dividend treatment to holders of the LYONs, but generally an increase in the
event of stock dividends or the distribution of rights to subscribe for common
stock should not be so treated.
Treatment of Non-U.S. Holders
Absent further guidance from the IRS, we intend to treat payments of
contingent interest made to Non-U.S. Holders as subject to United States
withholding tax. Therefore, we intend to withhold on such payments at a rate of
30%, subject to reduction by an applicable treaty or upon the receipt of a Form
W-8ECI from a Non-U.S. Holder claiming that the payments are effectively
connected with the conduct of a United States trade or business. A Non-U.S.
Holder that is subject to the withholding tax should consult its own tax
advisors as to whether it can obtain a refund for a portion of the withholding
tax, either on the grounds that some portion of the contingent interest
represents a return of principal under the CPDI regulations, or on some other
grounds.
All other payments on the LYONs made to a Non-U.S. Holder, including a
payment in common stock pursuant to a conversion, and any gain realized on a
sale or exchange of the LYONs (other than gain attributable to accrued
contingent interest payments), will be exempt from United States income or
withholding tax, provided that: (i) such Non-U.S. Holder does not own, actually
or constructively, 10 percent or more of the total combined voting power of all
classes of our stock entitled to vote, and is not a controlled foreign
corporation related, directly or indirectly, to us through stock ownership, (ii)
the statement requirement set forth in section 871(h) or section 881(c) of the
Code has been fulfilled with respect to the beneficial owner, as discussed
below; (iii) such payments and gain are not effectively connected with the
conduct by such Non-U.S. Holder of a trade or business in the United States and
(iv) our common stock continues to be actively traded within the meaning of
section 871(h)(4)(C)(v)(I) of the Code (which, for these purposes and subject to
certain exceptions, includes trading on the NYSE).
The statement requirement referred to in the preceding paragraph will
be fulfilled if the beneficial owner of a LYONs certifies on IRS Form W-8BEN,
under penalties of perjury, that it is not a United States person and provides
its name and address or otherwise satisfies applicable documentation
requirements.
If a Non-U.S. Holder of the LYONs is engaged in a trade or business in
the United States, and if interest on the LYONs is effectively connected with
the conduct of such trade or business, the Non-U.S. Holder, although exempt from
36
the withholding tax discussed in the preceding paragraphs, will generally be
subject to regular United States federal income tax on interest and on any gain
realized on the sale or exchange of the LYONs in the same manner as if it were a
U.S. Holder. In lieu of the certificate described in the preceding paragraph,
such a Non-U.S. Holder would be required to provide to the withholding agent a
properly executed IRS Form W-8ECI (or successor form) in order to claim an
exemption from withholding tax. In addition, if such a Non-U.S. Holder is a
foreign corporation, such Holder may be subject to a branch profits tax equal to
30% (or such lower rate provided by an applicable treaty) of its effectively
connected earnings and profits for the taxable year, subject to certain
adjustments.
Backup Withholding Tax and Information Reporting
Payments of principal, premium, if any, and interest (including
original issue discount and a payment in common stock pursuant to a conversion
of the LYONs) on, and the proceeds of disposition or retirement of, the LYONs
may be subject to information reporting and United States federal backup
withholding tax at the rate of 31% if the U.S. Holder thereof fails to supply an
accurate taxpayer identification number or otherwise fails to comply with
applicable United States information reporting or certification requirements.
Any amounts so withheld do not constitute a separate tax and will be allowed as
a credit against such U.S. Holder's United States federal income tax liability.
Tax Event
The modification of the terms of the LYONs by us upon a Tax Event as
described in "Description of LYONs--Optional Conversion to Semiannual Coupon
Note Upon Tax Event," would alter the timing of income recognition by the
holders with respect to the semiannual payments of interest due after the option
exercise date.
SELLING SECURITYHOLDERS
The LYONs were originally issued by us and sold by Merrill Lynch,
Pierce, Fenner & Smith Incorporated in a transaction exempt from the
registration requirements of the Securities Act to persons reasonably believed
by Merrill Lynch to be "qualified institutional buyers" as defined by Rule 144A
under the Securities Act. The selling securityholders may from time to time
offer and sell pursuant to this prospectus any or all of the LYONs listed below
and the common stock issued conversion, of such LYONs. When we refer to the
"selling securityholders" in this prospectus, we mean those persons listed in
the table below, as well as the pledgees, donees, assignees, transferees,
successors and others who later hold any of the selling securityholders'
interests.
We are filing this registration statement pursuant to a registration
rights agreement that we have entered into with Merrill Lynch whereby we agreed,
at our expense, for the benefit of the holders, to file a shelf registration
statement covering resale of the LYONs and the shares of common stock issuable
upon conversion of the LYONs.
The table below sets forth the name of each selling securityholder, the
principal amount at maturity of LYONs that each selling securityholder may offer
pursuant to this prospectus and the number of shares of common stock into which
such LYONs are convertible. Unless set forth below, none of the selling
securityholders has, or within the past three years has had, any material
relationship with us or any of our predecessors or affiliates.
Any or all of the LYONs or shares of common stock listed below may be
offered for sale pursuant to this prospectus by the selling securityholders form
time to time. Accordingly, no estimate can be given as to the amounts of LYONs
or common stock that will be held by the selling securityholders upon
consummation of any such sales. In addition, the selling securityholders listed
in the table below may have acquired, sold or transferred, in transactions
exempt from the registration requirements of the Securities Act, some or all of
their LYONs since the date as of which the information in the table is
presented.
Information about the selling securityholders may change over time. Any
changed information will be set forth in prospectus supplements. From time to
time, additional information concerning ownership of the LYONs and common stock
may rest with certain holders thereof not named in the table below and of whom
we are unaware.
37
Principal Amount
at Maturity of
LYONs Number of shares
Beneficially Percentage of Common Stock Percentage of
Owned that may of LYONs that may be Common Stock
Name and Address: be sold Outstanding sold (1) Outstanding (2)
- ----------------- ------- ----------- -------- ---------------
Any other holder of LYONs or
future transferee, pledgee, donee
or successor of any holder (3) (4)
Total $877,000,000 100.00% 8,209,071
(1) Assumes conversion of all of the holder's LYONs at a conversion rate of
9.3604 shares of common stock per $1,000 principal amount at maturity
of the LYONs. However, this conversion rate will be subject to
adjustment as described under "Description of LYONs--Conversion
Rights." As a result, the amount of common stock issuable upon
conversion of the LYONs may increase or decrease in the future.
(2) Calculated based on 261,640,925 shares of common stock outstanding as
of July 31, 2001. In calculating this amount, we treated as outstanding
that number of shares of common stock issuable upon conversion of all
of a particular holder's LYONs. However, we did not assume the
conversion of any other holder's LYONs.
(3) Information about other selling securityholders will be set forth in
prospectus supplements, if required.
(4) Assumes that any other holders of LYONs, or any future transferees,
pledgees, donees or successors of or from any such other holders of
LYONs, do not beneficially own any common stock other than the common
stock issuable upon conversion of the LYONs at the initial conversion
rate.
38
PLAN OF DISTRIBUTION
We are registering the LYONs and shares of common stock covered by this
prospectus to permit holders to conduct public secondary trading of these
securities from time to time after the date of this prospectus. We have agreed,
among other things, to bear all expenses, other than underwriting discounts and
selling commissions, in connection with the registration and sale of the LYONs
and the common stock covered by this prospectus.
We will not receive any of the proceeds from the offering of LYONs or
underlying common stock by the selling securityholders. We have been advised by
the selling securityholders that the selling securityholders may sell all or a
portion of the LYONs and common stock beneficially owned by them and offered
hereby from time to time:
o directly; or
o through underwriters, broker-dealers or agents, who may
receive compensation in the form of discounts, commissions or
concessions from the selling securityholders or from the
purchasers of the LYONs and common stock for whom they may act
as agent.
The LYONS and the common stock may be sold from time to time in one or
more transactions at:
o fixed prices, which may be changed;
o prevailing market prices at the time of sale;
o varying prices determined at the time of sale; or
o negotiated prices.
These prices will be determined by the holders of the securities or by
agreement between these holders and underwriters or dealers who may receive fees
or commissions in connection with the sale. The aggregate proceeds to the
selling securityholders from the sale of the LYONs or common stock offered by
them hereby will be the purchase price of the LYONs or common stock less
discounts and commissions, if any.
The sales described in the preceding paragraph may be effected in
transactions:
o on any national securities exchange or quotation service on
which the LYONs and common stock may be listed or quoted at
the time of sale, including the New York Stock Exchange in the
case of the common stock;
o in the over-the-counter market;
o in transactions otherwise than on such exchanges or services
or in the over-the-counter market; or
o through the writing of options.
These transactions may include block transactions or crosses. Crosses
are transactions in which the same broker acts as an agent on both sides of the
trade.
In connection with sales of the LYONS and the common stock or
otherwise, the selling securityholders may enter into hedging transactions with
broker-dealers. These broker-dealers may in turn engage in short sales of the
LYONs and the common stock in the course of hedging their positions. The selling
securityholders may also sell the LYONs and common stock short and deliver LYONs
and the common stock to close out short positions, or loan or pledge LYONs and
the common stock to broker-dealers that in turn may sell the LYONs and the
common stock.
39
To our knowledge, there are currently no plans, arrangements or
understandings between any selling securityholders and any underwriter,
broker-dealer or agent regarding the sale of the LYONs and the common stock by
the selling securityholders. Selling securityholders may not sell any, or may
not sell all, of the LYONs and the common stock offered by them pursuant to this
prospectus. In addition, we cannot assure you that a selling securityholder will
not transfer, devise or gift the LYONs and the common stock by other means not
described in this prospectus. In addition, any securities covered by this
prospectus which qualify for sale pursuant to Rule 144 or Rule 144A of the
Securities Act may be sold under Rule 144 or Rule 144A rather than pursuant to
this prospectus.
The outstanding shares of common stock are listed for trading on the
New York Stock Exchange and the Pacific Exchange.
The selling securityholders and any broker and any broker-dealers,
agents or underwriters that participate with the selling securityholders in the
distribution of the LYONs or the common stock may be deemed to be "underwriters"
within the meaning of the Securities Act. In this case, any commissions received
by these broker-dealers, agents or underwriters and any profit on the resale of
the LYONs or the common stock purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. In addition, any profits
realized by the selling securityholders may be deemed to be underwriting
commissions.
The LYONs were issued and sold in May 2001 in transactions exempt from
the registration requirements of the Securities Act to persons reasonably
believed by the Initial Purchaser to be "qualified institutional buyers," as
defined in Rule 144A under the Securities Act. We have agreed to indemnify the
Initial Purchaser and each selling securityholder, and each selling
securityholder has agreed to indemnify us, the Initial Purchaser and each other
selling securityholder against specified liabilities arising under the
Securities Act.
The selling securityholders and any other person participating in such
distribution will be subject to the Exchange Act. The Exchange Act rules
include, without limitation, Regulation M, which may limit the timing of
purchases and sales of any of the LYONs and the underlying common stock by the
selling securityholders and any such other person. In addition, Regulation M of
the Exchange Act may restrict the ability of any person engaged in the
distribution of the LYONs and the underlying common stock to engage in
market-making activities with respect to the particular LYONs and the underlying
common stock being distributed for a period of up to five business days prior to
the commencement of the distribution. This may affect the marketability of the
LYONs and the underlying common stock and the ability of any person or entity to
engage in market-making activities with respect to the LYONs and the underlying
common stock.
We will use our reasonable efforts to keep the registration statement
of which this prospectus is a part effective until the earlier of:
- the sale, pursuant to the registration statement to which this
prospectus relates, of all the securities registered
thereunder;
- the expiration of the holding period applicable to the
securities held by persons that are not our affiliates under
Rule 144(k) under the Securities Act or any successor
provision; and
- the sale to the public under Rule 144 of all the securities
registered thereunder.
Our obligation to keep the registration statement to which this
prospectus relates effective is subject to specified, permitted exceptions. In
these cases, we may prohibit offers and sales of LYONs and common stock pursuant
to the registration statement to which this prospectus relates.
40
Legal Matters
The validity of the LYONs and the shares of common stock issuable upon
conversion of the LYONs will be passed upon for us by Weil, Gotshal & Manges
LLP, New York, New York.
Independent Accountants
Our financial statements as of September 30, 2000 and 1999 and for each
of the years in the three-year period ended September 30, 2000, included in our
Annual Report on Form 10-K for the year ended September 30, 2000, have been
audited by PricewaterhouseCoopers LLP, independent accountants as set forth in
their report thereon included herein and incorporated herein by reference. Such
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
41
---------------------------------------------------------
---------------------------------------------------------
$877,000,000
Franklin Resources, Inc.
Liquid Yield Option(TM)Notes due 2031
(Zero Coupon - Senior)
AND
COMMON STOCK ISSUABLE UPON
CONVERSION OF THE LYONS
------------------
(TM)Trademark of Merrill Lynch & Co. Inc.
-------------
PROSPECTUS
, 2001
-------------
---------------------------------------------------------
---------------------------------------------------------
42
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses that we expect to incur in
connection with the issuance and distribution of the securities described in
this Registration Statement, other than the underwriting discount. All amounts,
except the SEC registration fees, are estimated.
SEC registration fee.................. $ 123,460
Printing and postage fees............. *
Legal fees and expenses............... *
Accounting fees and expenses.......... *
Miscellaneous......................... *
Total $ *
* To be provided by amendment
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("DGCL") provides
that a corporation may indemnify a director, officer, employee or agent made a
party to an action by reason of the fact that he was a director, officer,
employee or agent of the corporation or was serving at the request of the
corporation, against liabilities, costs and expenses actually and reasonably
incurred by him in his capacity as a director or officer or arising out of such
action, if he acted in good faith and in a manner he reasonably believed to be
in, or not opposed to, the best interests of the corporation and, with respect
to any criminal action, had no reasonable cause to believe his conduct was
unlawful. No indemnification may be provided where the director, officer,
employee or agent has been adjudged by a court, after exhaustion of all appeals,
to be liable to the corporation, unless a court determines that the person is
entitled to such indemnity.
Section 102(b)(7) of the DGCL permits a corporation to relieve its
directors from personal liability for monetary damages to the corporation or its
stockholders for breaches of their fiduciary duty as directors except for (i) a
breach of the duty of loyalty, (ii) failure to act in good faith, (iii)
intentional misconduct or knowing violation of law, (iv) willful or negligent
violations of certain provisions of the DGCL (Sections 174, 160 and 173)
imposing certain requirements with respect to stock purchases, redemptions and
dividends or (v) any transaction from which the director derived an improper
personal benefit.
The above provisions of the DGCL are non-exclusive.
In addition to the above described provisions, the Company's
certificate of incorporation relieves its directors from personal liability for
a breach of fiduciary duty as a director as set forth in Section 102(b)(7) of
the DGCL.
The Company's by-laws provide that directors, officers, employees and
agents who have been successful on the merits or otherwise in a civil or
criminal action referred to in Section 145(a) or 145(b) of the DGCL shall be
indemnified against expenses, including attorneys' fees, actually and reasonably
incurred in connection therewith.
It is the Company's policy to enter into indemnification agreements
("Indemnification Agreements") with its directors, some of whom are also
executive officers ("Indemnified Persons"). The Indemnification Agreements
provide for the prompt indemnification "to the fullest extent permitted by law,"
and the prompt advancing of attorneys' fees and all other costs, expenses and
obligations paid or incurred by the Indemnified Person in connection with a
Claim.
43
A "Claim" consists of participation in any threatened, pending or
completed action, or any inquiry or investigation that the Indemnified Person in
good faith believes might lead to the institution of any such action, and must
be related to the fact that the Indemnified Person is or was a director,
officer, employee, agent or fiduciary of the Company or is or was serving at the
request of the Company in such a capacity for another entity.
Additionally, the Indemnification Agreements provide that if the
Company pays an Indemnified Person pursuant to the Indemnification Agreements,
the Company will be subrogated to the Indemnified Person's rights to recover
from third parties.
However, the Indemnification Agreements prohibit such indemnification
(i) in connection with any Claim initiated by the Indemnified Person against the
Company or any director or officer of the Company unless the Company has joined
in or consented to the Claim or (ii) if the Board of Directors or other person
or body appointed by the Board of Directors determines that such indemnification
is not permitted under applicable law. In the event of such determination, the
Indemnified Person agrees to reimburse the Company for all amounts that the
Company has advanced to the Indemnified Person in respect of such
indemnification.
The Indemnification Agreements also provide that if there is a change
in control of the Company, the Company will seek legal advice from special,
independent counsel selected by the Indemnified Person and approved by the
Company with respect to matters thereafter arising concerning rights of the
Indemnified Person under the Agreement. Additionally, the Indemnification
Agreements provide that if there is a potential change in control, the Company
will, upon written request of the Indemnified Person, fund a trust to satisfy
expenses reasonably anticipated to be incurred in connection with a Claim
relating to an indemnifiable event. The Company is not currently, nor does it
expect to be, subject to a change in control.
The Company has purchased an insurance policy indemnifying its officers
and directors and the officers and directors of its subsidiaries against claims
and liabilities (with stated exceptions) to which they may become subject by
reason of their positions with the Company as directors and officers.
The Commission has taken the position that although indemnification by
a registrant for liabilities arising under the Securities Act may be provided as
described above, such indemnification is unenforceable because it is against
public policy as expressed in the Securities Act. Therefore, if a director,
officer or controlling person asserts such a claim for indemnification, the
Company will, unless in the opinion of counsel for the Company the question has
previously been decided by controlling legal precedent, ask a court of competent
jurisdiction to determine whether such indemnification by it is unenforceable as
being against public policy as expressed in the Securities Act.
44
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibit No. Exhibit Description
3.1 Certificate of Incorporation, as filed November 28, 1969
(incorporated by reference to Exhibit (3)(i) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994).
3.2 Certificate of Amendment of the Certificate of
Incorporation, as filed March 1, 1985 (incorporated by
reference to Exhibit (3)(ii) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September 30,
1994).
3.3 Certificate of Amendment of the Certificate of
Incorporation, as filed April 1, 1987 (incorporated by
reference to Exhibit (3)(iii) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September 30,
1994).
3.4 Certificate of Amendment of the Certificate of
Incorporation, as filed February 2, 1994 (incorporated by
reference to Exhibit (3)(iii) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September 30,
1994).
3.5 Amended and Restated By-laws (incorporated by reference to
Exhibit 3(ii) to the Registrant's Annual Report on Form 10-K
for the year ended September 30, 2000).
4.1 Specimen Common Stock Certificate (incorporated by reference
to Exhibit 4.1 to the Registrant's Registration Statement on
Form S-3 (File No. 333-51462 ).
4.2* Indenture, dated May 11, 2001, between the Registrant and
The Bank of New York, as trustee.
4.3* Form of Liquid Yield Option(TM)Note due 2031 (Zero Coupon -
Senior) (included in Exhibit 4.2 hereto).
4.4* Registration Rights Agreement, dated May 11, 2001, between
the Registrant and Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
5.1** Opinion of Weil, Gotshal & Manges LLP as to the legality of
the shares being registered.
8.1** Opinion of Weil, Gotshal & Manges LLP as to certain United
States federal income tax consequences.
12.1* Statement regarding calculation of ratio of earnings to
fixed charges.
23.1* Consent of PricewaterhouseCoopers LLP.
23.2** Consent of Weil, Gotshal & Manges LLP (included in Exhibit
5.1 and Exhibit 8.1 hereto).
24.1 Power of Attorney (included on signature page).
25.1* Statement of Eligibility of Trustee.
-----------------
* Filed herewith
** To be filed by amendment.
45
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(a) to file, during any period in which offers or sales are
being made hereunder, a post-effective amendment to this
registration statement:
(i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of this registration
statement (or the most recent post-effective amendment hereto)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if
the total dollar value of securities offered would not exceed
that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration
statement;
(iii) to include any material information with
respect to the plan of distribution not previously disclosed
in this registration statement or any material change to such
information in this registration statement;
provided, however, that paragraphs (a)(1)(i) and
(a)(1)(ii) will not apply if the registration statement is on
Form S-3, Form S-8 or Form F-3, and the information required
to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or
furnished to the Commission by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference in the registration
statement.
(b) that, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered herein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933,
each filing of the registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that
is incorporated by reference in this registration statement shall be
deemed to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act of 1933 and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
46
appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
47
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of San Mateo, state of California, on this 6th day of
August, 2001.
FRANKLIN RESOURCES, INC.
By: /s/ Charles B. Johnson
---------------------------------------------
Charles B. Johnson, Chairman, Chief Executive
Officer and Member - Office of the Chairman
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned
constitutes and appoints each of Martin L. Flanagan, and Leslie M. Kratter or
any of them, each acting alone, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for such person and in his
or her name, place and stead, in any and all capacities, to sign this
Registration Statement on Form S-3 (including all pre-effective and
post-effective amendments), and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming that any such attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on August 6,
2001 in the capacities indicated.
SIGNATURE CAPACITY DATE
- --------- -------- ----
/s/ Charles B. Johnson Chairman, Chief Executive Officer, August 6, 2001
- ---------------------------------- Member - Office of the Chairman, and
Charles B. Johnson Director
/s/ Harmon E. Burns Vice Chairman and Member - Office of August 6, 2001
- ---------------------------------- the Chairman, and Director
Harmon E. Burns
/s/ Martin L. Flanagan President, Member - Office of the August 6, 2001
- ---------------------------------- President, and Chief Financial Officer
Martin L. Flanagan
/s/ Allen J. Gula, Jr. President, and Member - Office of the August 6, 2001
- ---------------------------------- President
Allen J. Gula, Jr.
/s/ Charles E. Johnson President, Member - Office of the August 6, 2001
- ---------------------------------- President, and Director
Charles E. Johnson
President, Member - Office of the
- ---------------------------------- President
Gregory E. Johnson
48
/s/ Rupert H. Johnson, Jr. Vice Chairman, Member - Office of the August 6, 2001
- ---------------------------------- Chairman, and Director
Rupert H. Johnson, Jr.
/s/ Anne M. Tatlock Vice Chairman, Member - Office of the August 6, 2001
- ---------------------------------- Chairman, and Director
Anne M. Tatlock
/s/ Harry O. Kline Director August 6, 2001
- ----------------------------------
Harry O. Kline
/s/ James A. McCarthy Director August 6, 2001
- ----------------------------------
James A. McCarthy
Director
- ----------------------------------
Peter M. Sacerdote
/s/ Charles R. Sims Vice President - Finance, Chief August 6, 2001
- ---------------------------------- Accounting Officer and Treasurer
Charles R. Sims
/s/ Louis E. Woodworth Director August 6, 2001
- ----------------------------------
Louis E. Woodworth
EXHIBIT INDEX
Exhibit No. Exhibit Description
3.1 Certificate of Incorporation, as filed November 28, 1969
(incorporated by reference to Exhibit (3)(i) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994).
3.2 Certificate of Amendment of the Certificate of
Incorporation, as filed March 1, 1985 (incorporated by
reference to Exhibit (3)(ii) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September 30,
1994).
3.3 Certificate of Amendment of the Certificate of
Incorporation, as filed April 1, 1987 (incorporated by
reference to Exhibit (3)(iii) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September 30,
1994).
3.4 Certificate of Amendment of the Certificate of
Incorporation, as filed February 2, 1994 (incorporated by
reference to Exhibit (3)(iii) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September 30,
1994).
3.5 Amended and Restated By-laws (incorporated by reference to
Exhibit 3(ii) to the Registrant's Annual Report on Form 10-K
for the year ended September 30, 2000).
4.1 Specimen Common Stock Certificate (incorporated by reference
to Exhibit 4.1 to the Registrant's Registration Statement on
Form S-3 (File No. 333-51462 ).
4.2* Indenture, dated May 11, 2001, between the Registrant and
The Bank of New York, as trustee.
49
4.3* Form of Liquid Yield Option(TM)Note due 2031 (Zero Coupon -
Senior) (included in Exhibit 4.2 hereto).
4.4* Registration Rights Agreement, dated May 11, 2001, between
the Registrant and Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
5.1** Opinion of Weil, Gotshal & Manges LLP as to the legality of
the shares being registered.
8.1** Opinion of Weil, Gotshal & Manges LLP as to certain United
States federal income tax consequences.
12.1* Statement regarding calculation of ratio of earnings to
fixed charges.
23.1* Consent of PricewaterhouseCoopers LLP.
23.2** Consent of Weil, Gotshal & Manges LLP (included in Exhibit
5.1 and Exhibit 8.1 hereto).
24.1 Power of Attorney (included on signature page).
25.1* Statement of Eligibility of Trustee.
- -----------------
* Filed herewith
** To be filed by amendment.
50