UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
...................................................................
FRANKLIN RESOURCES, INC.
...................................................................
(Name of Registrant as Specified In Its Charter)
...................................................................
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
..............................................................
4) Proposed maximum aggregate value of transaction:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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4) Date Filed: [ ]
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PRELIMINARY COPY
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FRANKLIN RESOURCES, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
DEAR STOCKHOLDER:
The Board of Directors of Franklin Resources, Inc. (the "Company") invites you
to attend the annual meeting of stockholders (the "Annual Meeting"). The Annual
Meeting will be held on January 25, 2005 at 10:00 a.m., Pacific Standard Time,
in the H. L. Jamieson Auditorium, at One Franklin Parkway, Building 920, San
Mateo, California, for the following purposes:
1. To elect eleven (11) Directors to the Board of Directors. Each Director
will hold office until the next Annual Meeting of Stockholders or until
that person's successor is elected and qualified;
2. To ratify the appointment of PricewaterhouseCoopers LLP as the Company's
independent registered public accounting firm for the current fiscal year
ending September 30, 2005;
3. To approve the amendment and restatement of the Franklin Resources, Inc.
2002 Universal Stock Incentive Plan;
4. To approve the amendment of the Company's Certificate of Incorporation, as
amended, to increase the number of shares of common stock, par value $0.10
per share, from 500,000,000 shares to 1,000,000,000 shares authorized for
issuance by the Company; and
5. To transact such other business that may be raised at the Annual Meeting or
any adjournments or postponements of the Annual Meeting.
You must have owned shares at the close of business on November 30, 2004 to be
entitled to receive notice of, and to vote on, all matters presented at the
Annual Meeting. Your vote is very important. Even if you think that you will
attend the Annual Meeting, we ask you to please return the proxy card. You can
vote by telephone, over the Internet, or by using the proxy card that is
enclosed.
By order of the Board of Directors,
BARBARA J. GREEN
SECRETARY
JANUARY 3, 2005
SAN MATEO, CALIFORNIA
PLEASE VOTE BY TELEPHONE OR BY USING THE INTERNET AS INSTRUCTED ON THE ENCLOSED
PROXY CARD OR COMPLETE, SIGN AND RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE.
TABLE OF CONTENTS
SECTION PAGE
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS COVER PAGE
PROXY STATEMENT 1
VOTING INFORMATION 1
PROPOSAL NO. 1: ELECTION OF DIRECTORS 3
NOMINEES 3
INFORMATION ABOUT THE BOARD AND ITS COMMITTEES 8
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS 12
SECURITY OWNERSHIP OF MANAGEMENT 13
EXECUTIVE COMPENSATION 15
SUMMARY COMPENSATION TABLE 15
OPTION GRANTS IN LAST FISCAL YEAR 18
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES 18
LONG-TERM INCENTIVE PLAN AWARDS 19
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL
ARRANGEMENTS 19
COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION 20
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION 23
EQUITY COMPENSATION PLAN INFORMATION 24
PERFORMANCE GRAPH 25
REPORT OF THE AUDIT COMMITTEE 26
FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 27
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 28
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE 29
PROPOSAL NO. 2: RATIFICATION OF THE APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM 30
PROPOSAL NO. 3: APPROVAL OF THE AMENDMENT AND RESTATEMENT
OF THE FRANKLIN RESOURCES, INC. 2002 UNIVERSAL
STOCK INCENTIVE PLAN 31
PROPOSAL NO. 4: APPROVAL OF THE AMENDMENT OF THE CERTIFICATE
OF INCORPORATION, AS AMENDED, TO INCREASE THE
NUMBER OF SHARES OF COMMON STOCK
AUTHORIZED FOR ISSUANCE 36
STOCKHOLDER PROPOSALS 38
CONTACT THE BOARD OF DIRECTORS 38
THE ANNUAL REPORT 39
FORM 10-K 39
SECTION PAGE
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APPENDIX A: AUDIT COMMITTEE CHARTER A-1
APPENDIX B: COMPENSATION COMMITTEE CHARTER B-1
APPENDIX C: CORPORATE GOVERNANCE COMMITTEE CHARTER C-1
APPENDIX D: CORPORATE GOVERNANCE GUIDELINES D-1
APPENDIX E: FRANKLIN RESOURCES, INC. 2002 UNIVERAL STOCK
INCENTIVE PLAN E-1
APPENDIX F: PROPOSED TEXT OF ARTICLE FOURTH OF FRANKLIN
RESOURCES, INC. CERTIFICATE OF INCORPORATION, AS
AMENDED F-1
FRANKLIN RESOURCES, INC.
ONE FRANKLIN PARKWAY
SAN MATEO, CALIFORNIA 94403
PROXY STATEMENT
JANUARY 3, 2005
This Proxy Statement and the accompanying Notice of Annual Meeting of
Stockholders are furnished in connection with the solicitation by the Board of
Directors of Franklin Resources, Inc., a Delaware corporation ("Franklin" or the
"Company"), of the accompanying proxy to be voted at the Annual Meeting of
Stockholders (the "Annual Meeting"), which will be held on January 25, 2005, at
10:00 a.m., Pacific Standard Time, in the H. L. Jamieson Auditorium, One
Franklin Parkway, Building 920, San Mateo, California. We expect that this Proxy
Statement and the enclosed proxy will be mailed on or about January 3, 2005 to
each stockholder entitled to vote.
All materials filed by the Company with the Securities and Exchange Commission
(the "SEC") can be obtained at the SEC's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549 or through the SEC's website at
www.sec.gov. You may obtain information on the operation of the Public Reference
Room by calling 1-800-SEC-0330.
VOTING INFORMATION
WHO CAN VOTE?
You may vote if you held shares of the Company's common stock directly as a
stockholder of record or beneficially in street name, at the close of business
on November 30, 2004 (the "Record Date"). You are entitled to one vote for each
share owned on that date on each matter presented in person or by proxy at the
meeting. As of the Record Date, Franklin had 251,352,866 shares outstanding.
HOW MANY VOTES ARE NEEDED TO HOLD THE MEETING?
In order to take any action at the Annual Meeting, a majority of Franklin's
outstanding shares as of the Record Date must be present at the meeting. This is
called a quorum.
WHO COUNTS THE VOTES?
The final voting results will be tallied by our Transfer Agent, The Bank of New
York, and the Inspector of Elections, and published in our next quarterly report
on Form 10-Q.
WHAT IS A PROXY?
A "proxy" allows someone else (the "proxy holder") to vote your shares on your
behalf. The Board of Directors of Franklin ("Board of Directors" or "Board") is
asking you to allow any of the persons named on the proxy card (Charles B.
Johnson, Chairman of the Board; Martin L. Flanagan, President and Co-Chief
Executive Officer; and Barbara J. Green, Secretary) to vote your shares at the
Annual Meeting.
HOW DO I VOTE BY PROXY?
Whether you hold shares directly as a stockholder of record or beneficially in
street name, you may vote without attending the Annual Meeting. You may vote by
granting a proxy or, for shares held in street name, by submitting voting
instructions to your stockbroker or nominee. You will be able to do this by
telephone, using the Internet or by mail. The deadline for voting by telephone
or by using the Internet is 11:59 p.m., Eastern Standard Time, on January 24,
2005. Please see your proxy card or the information your bank, broker, or other
holder of record provided to you for more information on these options. Unless
you indicate otherwise on your proxy card,
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the persons named as your proxy holders on the proxy card will vote your shares
FOR all nominees to the Board of Directors, FOR the ratification of the
appointment of PricewaterhouseCoopers LLP as the independent registered public
accounting firm (the "independent auditors") for the fiscal year ending
September 30, 2005, FOR the approval of the amendment and restatement of the
Franklin Resources, Inc. 2002 Universal Stock Incentive Plan, and FOR the
approval of the amendment of the Company's Certificate of Incorporation, as
amended, ("Certificate of Incorporation") to increase the number of shares of
common stock authorized for issuance. If any other matters come before the
Annual Meeting to be voted on, the persons named as your proxy holders on the
proxy card will vote, act and consent on those matters in their discretion.
CAN I CHANGE OR REVOKE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. You can change or revoke your proxy by submitting another proxy with a
later date before the beginning of the Annual Meeting. You may also revoke your
proxy by attending the Annual Meeting and voting in person.
CAN I VOTE IN PERSON AT THE ANNUAL MEETING INSTEAD OF VOTING BY PROXY?
Yes. However, we encourage you to complete and return the enclosed proxy card to
ensure that your shares are represented and voted.
HOW ARE VOTES COUNTED?
To be counted as "represented", either a proxy card must have been returned for
those shares, or the stockholder must be present at the meeting. Under New York
Stock Exchange ("NYSE") rules, the proposals to elect Directors (Proposal No. 1)
and to ratify the appointment of the independent auditors (Proposal No. 2) are
considered routine items. This means that brokers may vote in their discretion
on these matters on behalf of clients who have not furnished voting
instructions. The proposal to approve the amendment and restatement of the
Franklin Resources, Inc. 2002 Universal Stock Incentive Plan (Proposal No. 3)
and to approve the amendment of the Company's Certificate of Incorporation, as
amended, to increase the number of shares of common stock authorized for
issuance (Proposal No. 4) are considered "non-routine" items. This means brokers
that have not received voting instructions from their clients may not vote on
this proposal. Broker "non-votes" are considered as represented for purposes of
determining a quorum, but will not be considered as entitled to vote with
respect to Proposal No. 3. Broker "non-votes" will have the same effect as a
vote against Proposal No. 4 to increase the number of shares of common stock
that the Company may issue.
WHAT IS THE VOTING REQUIREMENT TO APPROVE EACH OF THE PROPOSALS?
For the election of Directors, a plurality of the votes cast is required
(Proposal No. 1). This means that the eleven (11) candidates who receive the
most votes will be elected to the eleven (11) available positions on the Board.
An affirmative vote of the holders of shares of common stock, having a majority
of the votes present in person or represented by proxy at the Annual Meeting and
entitled to vote on the matters, are necessary to ratify the appointment of
PricewaterhouseCoopers LLP (Proposal No. 2), as amended, and to approve the
amendment and restatement of the Franklin Resources, Inc. 2002 Universal Stock
Incentive Plan (Proposal No. 3). In order to approve the amendment of the
Company's Certificate of Incorporation to increase the number of shares of
common stock authorized for issuance (Proposal No. 4), a majority of the
outstanding common stock of the Company will be required to vote in favor of the
amendment. Shares properly voted "ABSTAIN" on a particular matter are considered
as shares present at the meeting for quorum purposes, but are treated as having
voted against the matter, although such abstentions will have no effect on the
voting for the election of directors (Proposal No. 1).
WHO PAYS FOR THIS PROXY SOLICITATION?
Your proxy is being solicited by the Board of Directors of Franklin. Franklin
pays the cost of soliciting your proxy and reimburses brokerage costs and other
fees for forwarding proxy materials to you.
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PROPOSAL NO. 1
ELECTION OF DIRECTORS
GENERAL
The Corporate Governance Committee of the Board recommended, and the Board
approved, the nominees named below for election as members of the Board of
Directors of Franklin Resources, Inc. The Chairman of the Board recommended
Samuel H. Armacost for consideration by the Corporate Governance Committee as a
nominee for director. Mr. Armacost was elected as member of the Board as of
December 21, 2004. All nominees are currently directors; however Mr. Armacost is
standing for election by stockholders of the Company for the first time. If
elected, each director will serve until the next Annual Meeting of Stockholders
and until that person's successor is elected and qualified or until his/her
earlier resignation, retirement, disqualification or removal. In accordance with
the Company's Director Independence Standards, as amended ("Director
Independence Standards"), described more fully below, the Board has
affirmatively determined that the Board is currently composed of a majority of
independent directors, and that the director nominee, Mr. Armacost, and the
following current members standing for re-election are independent within the
meaning of the Company's Director Independence Standards and under the rules in
the listing standards of the NYSE and do not have a material relationship with
the Company: Samuel H. Armacost, Charles Crocker, Robert D. Joffe, Thomas H.
Kean, Chutta Ratnathicam, and Louis E. Woodworth. Unless you mark "Exceptions"
on your proxy card to withhold authority to vote for one or all of the director
nominees, the persons named as proxy holders intend to vote for all of these
nominees. Listed below are the names, ages, and principal occupations for the
past five years of the director nominees.
RECOMMENDATION OF THE BOARD
The Board of Directors recommends a vote FOR the election to the Board of each
of the following nominees. The voting requirements for this proposal are
described in the "Voting Information" section.
NOMINEES
SAMUEL H. ARMACOST
AGE 65
DIRECTOR SINCE DECEMBER 21, 2004
Chairman of the Board of Directors of SRI International, formerly Stanford
Research Institute, an independent technology development and consulting
organization for more than the past five (5) years. Managing Director, Weiss,
Peck & Greer LLC from 1990 until 1998 and Merrill Lynch Capital Markets from
1987 until 1990. President, Director and Chief Executive Officer, BankAmerica
Corporation from 1981 until 1986. Director, ChevronTexaco Corp., Del Monte Foods
Company, Exponent, Inc. and Callaway Golf Company.
HARMON E. BURNS
AGE 59
DIRECTOR SINCE 1991
Vice Chairman and Member - Office of the Chairman of the Company; formerly,
Executive Vice President of the Company for more than the past five (5) years;
officer and/or director of many Company subsidiaries; officer and/or director or
trustee of 49 investment companies managed or advised by subsidiaries of the
Company.
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CHARLES CROCKER
AGE 65
DIRECTOR SINCE 2003
Chairman, Chief Executive Officer and director of BEI Technologies, Inc. since
October 1997; President of BEI Technologies, Inc. from October 1997 to May 2000.
Director, Pope & Talbot, Inc., Teledyne Technologies, Inc. and Fiduciary Trust
Company International, a subsidiary of the Company.
ROBERT D. JOFFE
AGE 61
DIRECTOR SINCE 2003
Presiding Partner and partner of Cravath, Swaine & Moore, LLP for more than the
past five (5) years. Director of Fiduciary Trust Company International, a
subsidiary of the Company.
CHARLES B. JOHNSON
AGE 71
DIRECTOR SINCE 1969
Chairman of the Board and Member - Office of the Chairman of the Company;
formerly, Chief Executive Officer of the Company; officer and/or director of
many Company subsidiaries; officer and/or director or trustee of 46 investment
companies managed or advised by subsidiaries of the Company.
RUPERT H. JOHNSON, JR.
AGE 64
DIRECTOR SINCE 1969
Vice Chairman and Member - Office of the Chairman of the Company; formerly,
Executive Vice President of the Company for more than the past five (5) years;
officer and/or director of many Company subsidiaries; officer and/or director or
trustee of 49 investment companies managed or advised by subsidiaries of the
Company.
THOMAS H. KEAN
AGE 69
DIRECTOR SINCE 2003
President, Drew University since 1990; formerly, Governor of the State of New
Jersey from 1982 to 1990. Director, Aramark Corporation, Amerada Hess Corp., The
CIT Group, Inc., Fiduciary Trust Company International, a subsidiary of the
Company, The Pepsi Bottling Group and UnitedHealth Group Incorporated.
CHUTTA RATNATHICAM
AGE 57
DIRECTOR SINCE 2003
Senior Vice President and Chief Financial Officer of CNF Inc. (formerly CNF
Transportation Inc.) since 1997; formerly, Chief Executive Officer of the Emery
Worldwide reporting segment of CNF from September 2000 to December 2001; Vice
President-International of Emery for five (5) years prior to 1997. Chartered
Accountant (Sri Lanka). Member, American Institute of Certified Management
Accountants.
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PETER M. SACERDOTE
AGE 67
DIRECTOR SINCE 1993
Advisory director and Chairman of the Investment Committee of the principal
investment area of Goldman, Sachs & Co. (investment banking) since May 1999;
formerly, a general partner and then a limited partner of the Goldman Sachs
Group, L.P. for five (5) years prior to 1999. Director, Qualcomm, Inc. and
Hexcel Corporation.
ANNE M. TATLOCK
AGE 65
DIRECTOR SINCE DECEMBER 21, 2004 AND FROM JANUARY 2001 TO DECEMBER 2004
Vice Chairman and Member - Office of the Chairman of the Company since 2001;
director of the Company from January 2001 to early December 2004 and re-elected
in late December 2004; Chairman of the Board, Chief Executive Officer (since
2000), and director of Fiduciary Trust Company International, a subsidiary of
the Company; formerly President of Fiduciary Trust Company International for
more than the past five (5) years; officer and/or director of certain other
Company subsidiaries. Director, Fortune Brands, Inc. and Merck & Co., Inc.
LOUIS E. WOODWORTH
AGE 71
DIRECTOR SINCE 1981
Private investor. President, Alpine Corp., a private investment company, for the
past five (5) years.
FAMILY RELATIONS. Charles B. Johnson, the Chairman of the Board and director of
the Company, and Rupert H. Johnson, Jr., the Vice Chairman and director of the
Company, are brothers. Peter M. Sacerdote, a director of the Company, is a
brother-in-law of Charles B. Johnson and Rupert H. Johnson, Jr. Gregory E.
Johnson, a President and Co-Chief Executive Officer of the Company, is the son
of Charles B. Johnson, the nephew of Rupert H. Johnson, Jr. and Peter M.
Sacerdote and the brother of Jennifer J. Bolt, a Senior Vice President and Chief
Information Officer of the Company. Jennifer J. Bolt is the daughter of Charles
B. Johnson, the niece of Rupert H. Johnson, Jr. and Peter M. Sacerdote and the
sister of Gregory E. Johnson.
CORPORATE GOVERNANCE
The Company regularly monitors regulatory developments and reviews its policies,
processes and procedures in the area of corporate governance to respond to such
developments. As part of those efforts, we review federal laws affecting
corporate governance, such as the Sarbanes-Oxley Act of 2002, as well as rules
adopted by the Securities and Exchange Commission and the NYSE.
CORPORATE GOVERNANCE GUIDELINES. The Board has adopted Corporate Governance
Guidelines, as amended ("Corporate Governance Guidelines") which are attached as
Appendix D. The Corporate Governance Guidelines are posted in the corporate
governance section of the Company's website at WWW.FRANKLINTEMPLETON.COM (the
"Company's website") and are available in print to stockholders who request a
copy from the Company's Secretary at the Company's principal executive offices.
The Corporate Governance Guidelines set forth the practices the Board follows
with respect to the composition of the Board, director responsibilities, Board
committees, director access to officers, employees and independent advisors,
director compensation, director orientation and continuing education, management
succession and performance evaluation of the Board.
CODE OF ETHICS AND BUSINESS CONDUCT. The Board has adopted a Code of Ethics and
Business Conduct, as amended (the "Code of Ethics"), which is applicable to all
employees, directors and officers of the Company. The Code of Ethics is posted
in the corporate governance section of the Company's website and is available in
print to stockholders who request a copy from the Company's Secretary at the
Company's principal executive offices. The Company also established a Compliance
and Ethics Hotline, where employees can report a violation
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of the Code of Ethics or anonymously submit a complaint concerning auditing or
accounting matters. Interested parties may address a written request for a
printed copy of the Code of Ethics to: Secretary, Franklin Resources, Inc., One
Franklin Parkway, San Mateo, California 94403-1906. We intend to satisfy the
disclosure requirement regarding any amendment to, or a waiver of, a provision
of the Code of Ethics for the Registrant's principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions by posting such information on our website.
DIRECTOR INDEPENDENCE STANDARDS. The Board has adopted guidelines for
determining whether a director is independent. The Board will monitor and review
as necessary, but at least once annually, commercial, charitable, family and
other relationships that directors have with the Company to determine whether
the Company's directors are independent.
For a director to be considered independent, the Board must determine
affirmatively that the director does not have material relationships with the
Company either directly or as a partner, shareholder or officer of an
organization that has a relationship with the Company. Such determination will
be made and disclosed pursuant to applicable NYSE rules. A material relationship
can include, but is not limited to, commercial, industrial, banking, consulting,
legal, accounting, charitable and family relationships. The Board has
established the following guidelines to assist it in determining whether a
director does not have material relationships and thereby qualifies as
independent:
A. A director will not be independent if, at any time within the preceding
three years (unless otherwise specified below):
1. (a) the director was employed by the Company; or
(b) an immediate family member /1/ of the director was employed by the
Company as an executive officer /2/ of the Company;
2. the director (or an immediate family member of the director who in the
capacity of an executive officer of the Company) received direct
compensation from the Company (other than for prior service as a
director, or as pension or deferred compensation) of more than
$100,000 in any 12-month period;
3. (a) the director or an immediate family member of the director is
currently a partner of the Company's internal auditor or external
independent auditor;
(b) the director is currently employed by the Company's internal
auditor or external independent auditor;
(c) an immediate family member of the director is currently employed
by the Company's internal auditor or external independent auditor and
participates in the auditor's audit assurance or tax compliance (but
not tax planning) practice; or
(d) the director or an independent family member of the director was
formerly employed by or a partner of the Company's internal auditor or
external independent auditor and personally worked on the Company's
audit;
4. the director or an immediate family member of the director was an
executive officer of another company and an executive officer of the
Company served on the compensation committee of such other company; or
5. (a) the director is an employee of a company that made payments to or
received payments from the
----------------------------------
/1/ An immediate family member includes a spouse, parent, child, sibling,
father- and mother-in-law, son- and daughter-in-law, brother- and
sister-in-law and anyone (other than a domestic employee) sharing the
director's home.
/2/ An executive officer means a Section 16 reporting person under the
Securities Exchange Act of 1934, as amended.
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Company for property or services, in any single fiscal year, of more
than the greater of $1 million or 2% of the other company's
consolidated gross revenues;
(b) an immediate family member of the director is an executive officer
of a company that made payments to or received payments from the
Company for property or services, in any single fiscal year, of more
than the greater of $1 million or 2% of the Company's consolidated
gross revenues; or
(c) the director or an immediate family member of the director serves
as an officer, director or trustee of a tax exempt organization, and
the Company's contributions to the organization, in any single fiscal
year, are more than the greater of $3 million or 5% of that
organization's consolidated gross revenues.
B. The following relationships are not by themselves considered to be material
and would not by themselves impair a director's independence:
1. a director (or an immediate family member of the director) serves as
an executive officer, employee, partner or significant owner (more
than 10%) of a company that made payments to or received payments from
the Company, in any single fiscal year, of less than the greater of $1
million or 2% of the consolidated gross revenues of the other entity;
2. a director is an executive officer of another company, which is
indebted to the Company, or to which the Company is indebted, and the
total amount of either company's indebtedness to the other, in any
single fiscal year, is less than 2% of the total consolidated assets
of the other company;
3. a director (or an immediate family member of a director) serves as an
officer, director or trustee of a tax exempt organization, and the
Company's contributions to the organization, in any single fiscal
year, are more than the greater of $1 million or 2% of that
organization's consolidated gross revenues, provided that such
contributions do not exceed the limits set forth in Paragraph A.5(c)
above and that disclosure is made in the Company's annual proxy
statement; or
4. a director serves or served as a director of a subsidiary, which is a
privately held, wholly-owned, direct or indirect subsidiary of the
Company.
C. For all relationships not specifically and clearly addressed by the
guidelines above, the determination of whether or not a director has a
material relationship, and therefore whether or not the director qualifies
as independent or not, shall be made by the Board based on the totality of
circumstances.
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INFORMATION ABOUT THE BOARD AND ITS COMMITTEES
BOARD MEETINGS AND ANNUAL MEETING OF STOCKHOLDERS
The Board held in the fiscal year ended September 30, 2004 ("fiscal year 2004")
nine (9) meetings (not including committee meetings). For fiscal year 2004, each
director attended at least seventy-five percent (75%) of the aggregate of the
total number of meetings held by the Board and the total number of meetings held
by all committees of the Board on which he served. The Board has an Audit
Committee, a Compensation Committee and a Corporate Governance Committee. To
promote open discussion among the non-management directors (those directors who
are not officers or employees of the Company), the non-management directors
generally meet in executive session after regularly scheduled Board meetings
without management. The independent directors (as defined below) meet in
executive session a minimum of two times per year. Charles Crocker, an
independent director, has been appointed to preside at the executive sessions of
the non-management and the independent directors. The Board encourages directors
to attend the annual meeting of stockholders. All of the Company's directors
standing for re-election, other than Mr. Armacost who was elected to the Board
as of December 21, 2004, attended last year's annual meeting.
COMMITTEE MEMBERSHIP AND MEETINGS
The current standing committees of the Board are the Audit Committee, the
Compensation Committee and the Corporate Governance Committee. The table below
provides current membership and meeting information.
AUDIT COMPENSATION CORPORATE GOVERNANCE
-------------------------------- ------------------------------ ------------------------------ -----------------------------
CHARLES CROCKER M C
ROBERT D. JOFFE C
THOMAS H. KEAN M M
CHUTTA RATNATHICAM C
LOUIS E. WOODWORTH M M M
2004 Meetings 10 7 6
M - Member
C - Chairman
Below is a description of each standing committee of the Board. The Board has
affirmatively determined that each standing committee consists entirely of
independent directors pursuant to rules established by the NYSE and promulgated
under the Securities Exchange Act of 1934, as amended, and the Director
Independence Standards established by the Board. See also "Director Independence
Standards" above.
The Board has also determined that each current member of the Audit Committee is
independent under the criteria established by the NYSE and the SEC for audit
committee members.
THE AUDIT COMMITTEE
The Audit Committee currently consists of Messrs. Ratnathicam (Chairman),
Crocker and Woodworth. The primary purpose of the Audit Committee is to assist
the Board in fulfilling its responsibility to oversee: (1) the Company's
financial reporting, auditing and internal control activities, including the
integrity of the Company's financial statements; (2) the Company's compliance
with legal and regulatory requirements; (3) the independent auditors'
qualifications and independence; and (4) the performance of the Company's
internal audit function and independent auditors. The Audit Committee also
prepares the report the Audit Committee is required to include in the Company's
proxy statement. In addition, the Audit Committee is responsible for the
appointment,
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compensation, retention and oversight of the work of the independent auditors,
including approval of all services and fees of the independent auditors. The
Audit Committee meets with the Company's independent auditors and reviews the
scope of their audit, the related reports and any recommendations they may make.
The Audit Committee also reviews the annual audited financial statements for the
Company.
The Audit Committee operates under a written charter adopted by the Board. The
Audit Committee met ten (10) times during fiscal year 2004. The Audit Committee
Charter, as amended, is attached as Appendix A and posted in the corporate
governance section of the Company's website. A written copy of the Charter may
also be obtained by making a written request to the Company's Secretary at the
Company's principal executive offices. The Board has determined that all Audit
Committee members are financially literate under the NYSE listing standards and
that Mr. Chutta Ratnathicam is an audit committee financial expert within the
meaning of the rules and regulations of the SEC.
THE COMPENSATION COMMITTEE
The Compensation Committee currently consists of Messrs. Crocker (Chairman),
Kean and Woodworth. The Compensation Committee has the responsibilities set
forth in its charter and reviews and sets compensation for the Co-Chief
Executive Officers, determines the general policies and guidelines for
compensating other executive officers, and performs other duties as assigned
from time to time by the Board. The Compensation Committee also administers the
2002 Universal Stock Incentive Plan, as amended and restated, (the "2002 Stock
Plan"), the Amended and Restated Annual Incentive Compensation Plan, and the
2004 Key Executive Incentive Compensation Plan. The Compensation Committee met
seven (7) times during fiscal year 2004. The Compensation Committee Charter, as
amended, is attached as Appendix B and posted in the corporate governance
section of the Company's website. A written copy of the Charter may also be
obtained by making a written request to the Company's Secretary at the Company's
principal executive offices.
THE CORPORATE GOVERNANCE COMMITTEE
The Corporate Governance Committee currently consists of Messrs. Joffe
(Chairman), Kean and Woodworth. The Corporate Governance Committee has the
responsibilities set forth in its charter and provides counsel to the Board of
Directors with respect to the organization, function and composition of the
Board and committees, and oversees the evaluation of the Board and management of
the Company. The Corporate Governance Committee is also responsible for
developing and recommending to the Board corporate governance policies and
procedures applicable to Franklin. The Corporate Governance Committee met six
(6) times during fiscal year 2004. The Corporate Governance Committee Charter,
as amended, is attached as Appendix C and posted in the corporate governance
section of the Company's website. A written copy of the Charter may also be
obtained by making a written request to the Company's Secretary at the Company's
principal executive offices.
The Corporate Governance Committee is responsible for identifying candidates for
election to the Board at the annual meeting of stockholders and uses a variety
of means as it determines are necessary or appropriate, including
recommendations of stockholders. The Corporate Governance Committee has adopted
policies regarding nominations and qualifications of Directors. Under such
policy, the Corporate Governance Committee may solicit recommendations from
current and former directors, management or others who may be familiar with
qualified candidates, and may consider current directors for re-nomination. The
Corporate Governance Committee may, in its sole discretion, retain and terminate
any search firm (and approve such search firm's fees and other retention terms)
to assist in the identification of candidates.
9
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The Corporate Governance Committee believes there are certain minimum skills and
qualifications that each director nominee must possess or satisfy, including:
* high personal and professional integrity and ethical character;
* significant accomplishments in business, finance, government,
education, law, technology or other fields important to the operation
of the Company;
* the ability to exercise sound business judgment on a broad range of
issues;
* sufficiently broad experience and professional and educational
background to have a general appreciation of the major issues facing
public companies;
* the willingness and ability to devote the necessary time to Board
duties, including preparing for and attending meetings of the Board
and its Committees; and
* being prepared to represent the best interests of the Company and its
stockholders and committed to enhancing stockholder value.
The Corporate Governance Committee also believes there are other skills and
qualifications that at least one or more directors must possess or satisfy,
including:
* experience and knowledge of the industry sector in which the Company
operates its businesses;
* a majority of the directors being "independent" directors in
accordance with the corporate governance listing standards of the
NYSE;
* at least three directors meeting the additional independence
requirements for members of the Audit Committee of the Board in
accordance with the applicable rules of the NYSE and the SEC;
* at least three directors who are eligible to serve on the Audit
Committee of the Board being "financially literate" or capable of
becoming "financially literate" within a reasonable period of time;
and
* at least one director who is eligible to serve on the Audit Committee
of the Board being an "audit committee financial expert" in accordance
with applicable rules of the SEC.
In considering candidates for director nominee, the Corporate Governance
Committee generally assembles all information regarding a candidate's background
and qualifications, evaluates a candidate's mix of skills and qualifications and
determines the contribution the candidate could be expected to make to the
overall functioning of the Board, giving due consideration to the overall Board
balance of diversity of perspectives, backgrounds and experiences. With respect
to current directors, the Corporate Governance Committee considers past
attendance at meetings and assesses the participation in and contributions to
the activities of the Board. The Corporate Governance Committee, in its
discretion, may designate one or more of its members to interview any candidate.
In addition, the Corporate Governance Committee may seek input from the
Company's management or the Board, who may interview any candidate. The
Corporate Governance Committee recommends director nominees to the Board based
on its assessment of overall suitability to serve on the Board in accordance
with the Company's policies.
The Corporate Governance Committee will consider candidates recommended for
nomination to the Board by stockholders of the Company. Stockholders may make
such a recommendation by submitting a completed Director Nomination Form, which
is posted in the corporate governance section of the Company's website at
WWW.FRANKLINTEMPLETON.COM, at least 120 days prior to the one-year anniversary
of the date of the proxy statement for the preceding annual meeting. Completed
Director Nomination Forms shall be sent to: Corporate Governance Committee,
Franklin Resources, Inc., c/o Barbara J. Green, Secretary, One Franklin Parkway,
San Mateo, CA 94403. This year our proxy statement is dated January 3, 2005;
therefore we must receive any notice of recommendation by September 5, 2005.
The manner in which the Corporate Governance Committee evaluates candidates
recommended by stockholders is generally the same as any other candidate.
However, the Corporate Governance Committee will also seek and consider
information concerning any relationship between the stockholder and the
candidate to determine if the candidate can represent the interests of all of
the stockholders. The Corporate Governance Committee will not
10
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evaluate a candidate recommended by a stockholder unless the Director Nomination
Form provides that the potential candidate has indicated a willingness to serve
as a director, to comply with the expectations and requirements for Board
service as publicly disclosed by the Company and to provide all of the
information necessary to conduct an evaluation.
NON-EMPLOYEE DIRECTOR FEES
PAYMENTS TO DIRECTORS. In fiscal year 2004, directors who were not Franklin
employees were paid $10,000 per quarter, plus $3,000 per meeting attended. These
directors received a grant of restricted stock valued at $25,000 in December of
2003, and a stock grant valued at $40,000 in January of 2004. In addition to the
per committee meeting fee of $1,500 paid to directors who serve on Board
committees, Chairpersons of the Compensation Committee and the Corporate
Governance Committee receive $1,250 per quarter and the Chairperson of the Audit
Committee receives $2,500 per quarter. Effective January 1, 2005, directors who
are not Franklin employees will be paid $12,500 per quarter, plus $3,000 per
meeting and will receive an annual stock grant valued at $75,000 on the date of
grant on January 25, 2005 and on the date of the annual organizational meeting
of the Board in subsequent fiscal years. In addition, the Company has a policy
of reimbursing certain health insurance coverage for a director who is retired
from other employment and is not otherwise eligible for group health coverage
under Franklin's group health plan or any other company's health plan. Franklin
will reimburse the cost of health insurance coverage comparable to that provided
to Franklin employees. During the fiscal year 2004, Mr. Woodworth, a director,
was reimbursed $15,904 for health insurance expenses. In connection with their
service as members of the Board of Directors of Fiduciary Trust Company
International ("Fiduciary Trust"), a subsidiary of the Company, Messrs. Crocker,
Joffe and Kean also received from Fiduciary Trust an annual retainer fee for
Board services of $25,000 (paid quarterly) and an annual retainer fee for
committee services of $5,000 (paid quarterly). Mr. Crocker also received $4,000
for his service as the Chairman of a committee.
DEFERRED DIRECTOR FEES. Franklin also allows directors to defer payment of their
directors' fees, and to treat the deferred amounts as hypothetical investments
in Franklin common stock. Upon termination, the number of shares of stock that
the director hypothetically purchased are added together, and Franklin must pay
the director an amount equal to the value of the hypothetical investment,
including dividend reinvestment. Either Franklin or the individual director can
terminate the fee deferral with ninety (90) days notice. Pursuant to the
Deferred Compensation Agreement for Directors Fees, as amended, Mr. Woodworth
elected to defer all of his director's fees. Mr. Crocker elected to defer all of
his director's fees relating to his service as a director of Fiduciary Trust and
50% of his directors fees related to his service as a director of the Company.
Mr. Joffe elected to defer fifty percent (50%) of his director's fees and
receive the remainder in cash. Mr. McCarthy, a former director of the Company
during fiscal year 2004, elected to defer his quarterly director's fee of
$10,000 and receive all meeting fees and Chairman fees in cash.
11
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SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS
The following table sets forth the common stock beneficially owned by each
stockholder known to us to beneficially own more than five percent (5%) of
Franklin's total outstanding common stock as of November 30, 2004:
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER (a) BENEFICIAL OWNERSHIP(f) CLASS
---------------------------------------------------- ----------------------------------- -----------------------------------
CHARLES B. JOHNSON 44,859,416(b)(c) 17.84%
RUPERT H. JOHNSON, JR. 37,842,496(b)(d) 15.06%
ELIZABETH S. WISKEMANN 15,812,201(e) 6.29%
(a) The addresses of Messrs. C. Johnson and R. Johnson, Jr. are: c/o Franklin
Resources, Inc., One Franklin Parkway, San Mateo, CA 94403. The address of
Ms. Elizabeth S. Wiskemann is: c/o Mr. John Bessolo, 7 Mount Lassen Drive,
Suite B-156, San Rafael, CA 94905.
(b) Excludes 403,174 shares held as of November 30, 2004 by the Franklin
Templeton Profit Sharing/401(k) Plan (the "Profit Sharing Plan"), for which
Messrs. C. Johnson and R. Johnson, Jr. serve on the investment committee.
(c) Includes 37,245,352 shares held directly, 3,563,675 shares held in an IRA
account and 3,000,000 shares held in a limited partnership for which Mr. C.
Johnson holds sole voting and investment power. Also includes 45,059
shares, which may be purchased pursuant to currently exercisable options.
Also includes 1,005,330 shares of which Mr. C. Johnson disclaims beneficial
ownership, held by a private foundation of which Mr. C. Johnson is a
trustee.
(d) Includes 35,252,145 shares held directly and 2,205,245 shares held in an
IRA account for which Mr. R. Johnson, Jr. holds sole voting and investment
power. Also includes 381,734 shares of which Mr. R. Johnson, Jr. disclaims
beneficial ownership, held by a private foundation of which Mr. R. Johnson,
Jr. is a trustee. Also includes 3,372 shares held by a member of Mr. R.
Johnson, Jr.'s immediate family, of which Mr. R. Johnson, Jr. disclaims
beneficial ownership.
(e) Includes (i) 6,815,698 shares held by Ms. Wiskemann, as trustee of the
Elizabeth S. Wiskemann Family Trust, (ii) 7,713,349 shares held by Ms.
Wiskemann as trustee of the Wiskemann Family Non-Exempt Marital Trust,
(iii) 10,416 shares held by Ms. Wiskemann, as trustee of the Wiskemann
Family Exempt Trust, and (iv) 1,015,000 shares held in an IRA account for
which Ms. Wiskemann holds sole voting and investment power. Also includes
257,738 shares of which Ms. Wiskemann disclaims beneficial ownership, held
by a private foundation, of which Ms. Wiskemann is a trustee.
(f) Except as described otherwise in the footnotes to this table, each
beneficial owner in the table has sole voting and investment power with
regard to the shares beneficially owned by such owner.
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SECURITY OWNERSHIP OF MANAGEMENT
The following table lists the common stock beneficially owned by each director,
each executive officer named in the Summary Compensation Table, each nominee for
director and all directors, nominees and executive officers as a group. The
stock holdings are listed as of November 30, 2004:
AMOUNT AND NATURE OF
NAME BENEFICIAL OWNERSHIP(a) PERCENT OF CLASS
-------------------------------------------------------------- ----------------------------- -------------------------------
SAMUEL H. ARMACOST 2,000 *
JAMES R. BAIO 66,461(b) *
JENNIFER J. BOLT 611,919(c) *
HARMON E. BURNS 1,703,996(d) *
CHARLES CROCKER 7,503(e)(f) *
MARTIN L. FLANAGAN 1,169,834(g) *
ROBERT D. JOFFE 3,916(f)(h) *
CHARLES B. JOHNSON 44,859,416(i) 17.84%
GREGORY E. JOHNSON 917,283(j) *
RUPERT H. JOHNSON, JR. 37,842,496(k) 15.06%
THOMAS H. KEAN 8,873(l) *
CHUTTA RATNATHICAM 2,417(m) *
PETER M. SACERDOTE 27,417(n) *
MURRAY L. SIMPSON 91,348(o) *
ANNE M. TATLOCK 304,868(p) *
LOUIS E. WOODWORTH 1,778,339(f)(q) *
DIRECTORS, DIRECTOR NOMINEES AND EXECUTIVE
OFFICERS AS A GROUP (CONSISTING OF 24 PERSONS) 89,960,586(r) 35.56%
* Represents less than 1% of class
(a) Excludes 403,174 shares held as of November 30, 2004 by the Profit Sharing
Plan, for which Ms. Bolt, Mr. Burns, Mr. Flanagan, Mr. C. Johnson, Mr. G.
Johnson, Mr. R. Johnson, Jr. and Ms. Tatlock serve on the investment
committee. Except as described otherwise in the footnotes to this table,
each beneficial owner in the table has sole voting and investment power
with regard to the shares beneficially owned by such owner.
(b) Includes 26,462 shares held directly for which Mr. Baio holds sole vesting
and investment power, and which includes a total of 9,752 shares of
unvested restricted stock of which 601, 1,544 and 7,607 shares were granted
in November 2002, November 2003 and November 2004, respectively, under the
2002 Stock Plan. Also includes 39,999 shares which may be purchased
pursuant to currently exercisable options.
(c) Includes 469,227 shares held directly for which Ms. Bolt holds sole voting
and investment power, and which includes a total of 11,948 shares of
unvested restricted stock of which 1,127, 2,058 and 8,763 shares were
granted in November 2002, November 2003 and November 2004, respectively,
under the 2002 Stock Plan. Also includes 103,511 shares which may be
purchased pursuant to currently exercisable options. Also includes 11,000
shares for which Ms. Bolt serves as an investment trustee of a subtrust for
her brother, who is beneficiary under such trust. Also includes 39,181
shares held by Ms. Bolt's immediate family of which Ms. Bolt disclaims
beneficial ownership.
(d) Includes 1,131,994 shares held directly and 500,002 shares held in an IRA
account for which Mr. Burns holds sole voting and investment power. Also
includes 72,000 shares of which Mr. Burns disclaims beneficial ownership,
held by a private foundation of which Mr. Burns is a trustee.
(e) Includes 7,503 shares held directly for which Mr. Crocker holds sole voting
and investment power, and which includes a total of 340 shares of unvested
restricted stock granted in December 2003 under the 2002 Stock Plan.
(f) Does not include any hypothetical shares described under "Proposal No. 1,
Election of Directors - Deferred Director Fees".
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(g) Includes 656,496 shares held directly for which Mr. Flanagan holds sole
voting and investment power, and which includes a total of 57,507 shares of
unvested restricted stock, of which 4,698, 15,436 and 37,373 shares were
granted in November 2002, November 2003 and November 2004, respectively,
under the 2002 Stock Plan. Also includes 513,338 shares, which may be
purchased pursuant to currently exercisable options.
(h) Includes 3,916 shares held directly for which Mr. Joffe holds sole voting
and investment power and which includes a total of 340 shares of unvested
restricted stock granted in December 2003 under the 2002 Stock Plan.
(i) See footnote (c) under "Security Ownership of Principal Stockholders".
(j) Includes 483,632 shares held directly for which Mr. G. Johnson holds sole
voting and investment power, and which includes a total of 57,507 shares of
unvested restricted stock, of which 4,698, 15,436 and 37,373 shares were
granted in November 2002, November 2003 and November 2004, respectively,
under the 2002 Stock Plan. Also includes 415,931 shares, which may be
purchased pursuant to currently exercisable options. Also includes 17,720
shares held by members of Mr. G. Johnson's immediate family, of which Mr.
G. Johnson disclaims beneficial ownership.
(k) See footnote (d) under "Security Ownership of Principal Stockholders".
(l) Includes 8,873 shares held directly for which Mr. Kean holds sole voting
and investment power, and which includes a total of 340 shares of unvested
restricted stock granted in December 2003 under the 2002 Stock Plan.
(m) Includes 2,417 shares held directly for which Mr. Ratnathicam holds sole
voting and investment power, and which includes a total of 340 shares of
unvested restricted stock granted in December 2003 under the 2002 Stock
Plan.
(n) Includes 27,417 shares held directly for which Mr. Sacerdote holds sole
voting and investment power, and which includes a total of 340 shares of
unvested restricted stock granted in December 2003 under the 2002 Stock
Plan.
(o) Includes 28,014 shares held directly for which Mr. Simpson holds sole
voting and investment power, and which includes a total of 9,605 shares of
unvested restricted stock, of which 1,127, 2,058 and 6,420 shares were
granted in November 2002, November 2003 and November 2004, respectively,
under the 2002 Stock Plan. Also includes a total of 63,334 shares which may
be purchased pursuant to currently exercisable options.
(p) Includes 193,502 shares held directly for which Ms. Tatlock holds sole
voting and investment power, and which includes a total of 18,218 shares of
unvested restricted stock, of which 2,931, 2,514, 2,333, 4,168 and 6,272
shares were granted in December 2001, September 2002, November 2002,
November 2003 and November 2004, respectively, under the 2002 Stock Plan.
Also includes 70,252 shares, which may be purchased pursuant to currently
exercisable options. Also includes 38,493 shares held in an employee
benefit plan in effect prior to the acquisition of Fiduciary Trust Company
International by the Company. Also includes 2,621 shares held by a member
of Ms. Tatlock's immediate family, of which Ms. Tatlock disclaims
beneficial ownership.
(q) Includes 1,080,251 shares held directly for which Mr. Woodworth holds sole
voting and investment power, and which includes a total of 340 shares of
unvested restricted stock granted in December 2003 under the 2002 Stock
Plan. Also includes 478,088 shares held in an IRA account for which Mr.
Woodworth holds sole voting and investment power. Also includes 220,000
shares held by a member of Mr. Woodworth's immediate family, of which Mr.
Woodworth disclaims beneficial ownership.
(r) Includes 1,616,390 shares, which may be purchased pursuant to currently
exercisable options.
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EXECUTIVE COMPENSATION
The following table provides compensation information for the Company's Co-Chief
Executive Officers and each of the four highest compensated executive officers
of the Company (the "Named Executive Officers") for the fiscal year ended
September 30 during the last three fiscal years.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------- -------------------
SECURITIES
FISCAL OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(a) COMPENSATION STOCK AWARDS OPTIONS(h) COMPENSATION
----------------------------------------------------------------------------------------------------------------------------
MARTIN L. FLANAGAN 2004 $789,138 $2,650,000 $ 50,094(b) $2,350,014(e) 45,000 $ 11,476(i)
PRESIDENT AND CO-CHIEF 2003 $785,758 $1,050,000 - $1,134,132(f) 100,000 $ 8,754
EXECUTIVE OFFICER 2002 $728,119 $ 812,500 - $ 463,726(g) 100,000 $ 1,082
GREGORY E. JOHNSON 2004 $789,137 $2,650,000 - $2,350,014(e) 45,000 $ 5,476(i)
PRESIDENT AND CO-CHIEF 2003 $783,303 $1,050,000 - $1,134,132(f) 100,000 $ 2,214
EXECUTIVE OFFICER 2002 $728,123 $ 812,500 - $ 463,726(g) 100,000 $ 1,082
ANNE M. TATLOCK 2004 $596,535 $ 650,000 - $ 383,909(e) 25,000 $ 442,107(i)
VICE CHAIRMAN, MEMBER- 2003 $596,690 $ 526,500 - $ 306,223(f) 45,000 $ 434,402
OFFICE OF THE CHAIRMAN 2002 $555,583 $ 296,500 - $ 775,016(g) 0 $ 427,000
MURRAY L. SIMPSON 2004 $671,344 $ 406,250 - $ 399,943(e) 15,000 $ 17,794(i)
EXECUTIVE VICE PRESIDENT 2003 $671,098 $ 260,000 - $ 151,250(f) 20,000 $ 14,593
AND GENERAL COUNSEL 2002 $627,350 $ 195,000 - $ 111,301(g) 25,000 $ 37,564
JENNIFER J. BOLT 2004 $401,782 $ 390,000 - $ 550,333(e) 17,500 $ 11,464(i)
SENIOR VICE PRESIDENT 2003 $372,042 $ 260,000 - $ 151,250(f) 20,000 $ 8,238
AND CHIEF INFORMATION OFFICER 2002 $233,811 $ 195,000 - $ 111,301(g) 30,000 $ 5,452
JAMES R. BAIO 2004 $401,169 $ 373,750 $ 63,991(c) $ 476,784(e) 15,000 $ 33,843(i)
SENIOR VICE PRESIDENT 2003 $350,874 $ 195,000 $ 65,598(c) $ 113,438(f) 15,000 $ 205,967(j)
AND CHIEF FINANCIAL OFFICER 2002 $253,054 $ 104,000 - $ 59,385(g) 25,000 $ 119,883(j)
CHARLES B. JOHNSON 2004 $594,330 $ 0 $296,008(d) $ 0 0 $ 9,880(i)
CHAIRMAN OF THE BOARD, MEMBER- 2003 $594,330 $2,000,000 $296,560(d) $ 0 0 $ 7,557
OFFICE OF THE CHAIRMAN 2002 $554,707 $ 0 $172,169(d) $ 0 0 $ 7,400
----------------------------------------------------------------------------------------------------------------------------
(a) Includes bonuses earned in the fiscal year and paid in the subsequent
fiscal year.
(b) Includes $50,094 representing the incremental cost of personal use of
Company aircraft by Mr. Flanagan during fiscal year 2004, based upon a
personal rate per nautical mile of use as generally used by corporate
aviation operators for cost and budget estimation purposes as published
from time to time by Conklin & deDecker Associates, Inc. for each
particular aircraft type utilized by the Company.
(c) Includes $62,731 representing relocation costs reimbursed to Mr. Baio in
fiscal 2004 in connection with his relocation from Florida to California.
Also includes $59,923 representing household and automobile relocation
costs reimbursed to Mr. Baio in connection with his relocation from Florida
to California during fiscal 2003.
(d) Includes $259,124, $293,380 and $144,001 representing the incremental cost
of personal use of Company aircraft by Mr. C. Johnson during fiscal years
2004, 2003 and 2002, respectively, based upon a personal rate per nautical
mile of use as generally used by corporate aviation operators for cost and
budget estimation purposes as published from time to time by Conklin &
deDecker
15
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Associates, Inc. for each particular aircraft type utilized by the Company.
Also includes $30,642 representing the incremental costs associated with
the personal use of Company-owned housing during fiscal year 2004. Mr. C.
Johnson served as Chief Executive Officer of the Company during fiscal year
2004 until his resignation on December 31, 2003. Mr. C. Johnson continues
to serve as Chairman of the Board.
(e) Recipients of restricted stock are entitled to vote such shares and receive
dividends.
The amounts in the Summary Compensation Table reflect restricted stock
awards granted on November 8, 2004 and November 24, 2004 by the
Compensation Committee, which were earned in fiscal year 2004 and awarded
in fiscal year 2005. The following were the number of shares and value on
the grant date of the fiscal year 2004 restricted stock awards granted on
November 8, 2004 considered attributable to: Ms. Tatlock, 6,272 ($383,909);
Mr. Simpson, 3,920 ($239,943); Mr. Baio, 3,607 ($220,784); and Ms. Bolt,
3,763 ($230,333). The following were the number of shares and value of the
fiscal year 2004 restricted stock awards granted on November 24, 2004: Mr.
Flanagan, 37,373 ($2,350,014); Mr. G. Johnson, 37,373 ($2,350,014). The
fiscal 2004 restricted stock awards vest in approximately three equal
installments on September 30, 2005, September 29, 2006 and September 28,
2007.
The amounts in the Summary Compensation Table also reflect restricted stock
awards granted on November 15, 2004 by the Compensation Committee which
were earned in fiscal year 2004 and awarded in fiscal year 2005. The
following were the number of shares and value on the grant date of these
fiscal year 2004 restricted stock awards considered attributable to: Mr.
Simpson: 2,500 shares ($160,000); Mr. Baio: 4,000 shares ($256,000); Ms.
Bolt: 5,000 shares ($320,000). The shares of common stock of the Company
(the "Stock") granted to the executive officers listed above shall vest in
full on September 28, 2007 unless subject to earlier vesting. An
accelerated vesting of the Stock will occur if either or both of the
following performance goals (the "Performance Goals") are achieved:
One-third of the number of shares of Stock granted pursuant to the
award (the "First Vesting Shares") shall vest (the "2005 Fiscal Year
Operating Income Goal") if Operating Income (as defined below) for the
fiscal year of the Company ending September 30, 2005 (the "2005 Fiscal
Year") is at least 15% greater than Operating Income for the fiscal
year of the Company ended September 30, 2004 (the "2004 Fiscal Year").
This accelerated vesting, if any, will be effective on the later of
December 15, 2005 or ten (10) business days after the release of the
annual financial statements included in the Company's Annual Report on
Form 10-K for the 2005 Fiscal Year (the "First Vesting Date"). If the
2005 Fiscal Year Operating Income Goal is not met by the First Vesting
Date, there shall be no acceleration of the vesting of the First
Vesting Shares, even if the 2005 Fiscal Year Operating Income Goal is
later achieved and such Stock shall vest in accordance with their
terms on September 28, 2007.
One-third of the number of shares of Stock granted pursuant to the
award (the "Second Vesting Shares") shall vest (the "2006 Fiscal Year
Operating Income Goal") if Operating Income for the fiscal year of the
Company ending September 30, 2006 (the "2006 Fiscal Year") is at least
32.25% greater than Operating Income for the 2004 Fiscal Year. This
accelerated vesting, if any, will be effective on the later of
December 15, 2006 or ten (10) business days after the release of the
annual financial statements included in the Company's Annual Report on
Form 10-K for the 2006 Fiscal Year (the "Second Vesting Date"). If the
2006 Fiscal Year Operating Income Goal is not met by the Second
Vesting Date, there shall be no acceleration of the vesting of the
Second Vesting Shares, even if the 2006 Fiscal Year Operating Income
Goal is later achieved and such Stock shall vest in accordance with
their terms on September 28, 2007.
"Operating Income" with respect to any fiscal year is defined as total
operating revenues less total operating expenses determined on a
consolidated basis reported in the annual financial statements
included in the Company's Annual Report on Form 10-K for such fiscal
year.
At the end of the fiscal year ended September 30, 2004, the aggregate
number and value of restricted stock holdings for the persons named in the
Summary Compensation Table were:
NAME NUMBER OF SHARES VALUE
---------------------------------------------------------------------------
M. FLANAGAN 20,134 $1,122,672
G. JOHNSON 20,134 $1,122,672
A. TATLOCK 11,946 $ 666,109
M. SIMPSON 3,185 $ 177,596
J. BOLT 3,185 $ 177,596
J. BAIO 2,145 $ 119,605
C.B. JOHNSON 0 $ 0
The above amounts exclude any restricted stock grants on November 8,
November 15 and November 24, 2004, as described above.
(f) In fiscal year 2003, the Compensation Committee granted the following
number of shares of restricted stock to the persons named in the Summary
Compensation Table: Mr. Flanagan, 23,155; Mr. G. Johnson, 23,155; Ms.
Tatlock, 6,252; Mr. Simpson, 3,088; Mr. Baio, 2,316; and Ms. Bolt, 3,088.
The fiscal 2003 restricted stock vested or will vest in approximately three
equal installments on September 30, 2004, September 30, 2005, and September
29, 2006.
(g) In fiscal year 2002, the Compensation Committee granted the following
number of shares of restricted stock to the persons named in the Summary
Compensation Table: Mr. Flanagan, 14,095; Mr. G. Johnson, 14,095; Ms.
Tatlock, 14,543; Mr. Simpson, 3,383; Mr.
16
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Baio, 1,805; and Ms. Bolt, 3,383. The fiscal 2003 restricted stock vested
or will vest in approximately three equal installments on September 30,
2003, September 30, 2004, and September 30, 2005. In addition, Ms. Tatlock
received a restricted stock grant of 8,793 shares, which vested or will
vest in approximately three equal installments on December 31, 2002,
December 31, 2003, and December 31, 2004.
(h) Represents options granted November 12, 2003, which vest in equal one-third
increments over a 3-year period. There were no options granted after
November 2003 to the Named Executive Officers.
(i) The amounts in the Summary Compensation Table reflect the following amounts
paid or contributed by the Company in fiscal year 2004 to: Mr. Flanagan:
$4,936 for the combined Profit Sharing/401(k) Plan (collectively, the
"Profit Sharing Plan") and $4,944 for premium payments under the Franklin
Templeton Companies, Inc. Employee Welfare Plan (the "EW Plan"); Mr. G.
Johnson: $10,935 for the Profit Sharing Plan and $540 for premium payments
under the EW Plan; Ms. Tatlock: $10,936 for the Profit Sharing Plan, $6,172
for premium payments under the EW Plan, and $425,000, which represents
annual cash payments, which Ms. Tatlock was entitled to receive under her
employment agreement with the Company (see the "Employment Contracts and
Change-In Control Arrangements" section); Mr. Simpson: $10,936 for the
Profit Sharing Plan and $6,858 for premium payments under the EW Plan; Ms.
Bolt: $10,936 for the Profit Sharing Plan and $529 for premium payments
under the EW Plan; Mr. Baio: $10,936 for the Profit Sharing Plan; $1,152
for premium payments under the EW Plan, and $21,756, which represent the
value of matching shares under the Employee Stock Investment Plan; and Mr.
C. Johnson: $4,936 for the Profit Sharing Plan and $4,944 for premium
payments under the EW Plan.
(j) Also includes a relocation cash bonus of $170,000 and $100,000, which Mr.
Baio was entitled to receive under his relocation agreement from the
Company in fiscal years 2003 and 2002, respectively.
17
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OPTION GRANTS IN LAST FISCAL YEAR
During the last fiscal year ended September 30, 2004, options were granted to
the persons listed in the Summary Compensation Table as indicated in the table
below. No stock appreciation rights were awarded.
INDIVIDUAL GRANTS
-----------------
POTENTIAL
REALIZABLE VALUE AT
% OF TOTAL ASSUMED ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE APPRECIATION
SECURITIES GRANTED TO FOR OPTION TERM
UNDERLYING EMPLOYEES IN EXERCISE OR (d)
OPTIONS GRANTED FISCAL YEAR BASE PRICE EXPIRATION
NAME (a) (c) ($/SHARE) DATE 5% ($) 10% ($)
----------------------------------------------------------------------------------------------------------------------------
MARTIN L. FLANAGAN 45,000(b) 2.5% $48.98 11/11/13 $1,386,147 $3,512,768
GREGORY E. JOHNSON 45,000(b) 2.5% $48.98 11/11/13 $1,386,147 $3,512,768
ANNE M. TATLOCK 25,000(b) 1.8% $48.98 11/11/13 $ 770,081 $1,951,538
MURRAY L. SIMPSON 15,000(b) 0.8% $48.98 11/11/13 $ 462,049 $1,170,923
JENNIFER J. BOLT 17,500(b) 1.0% $48.98 11/11/13 $ 539,057 $1,366,076
JAMES R. BAIO 15,000(b) 0.8% $48.98 11/11/13 $ 462,049 $1,170,923
CHARLES B. JOHNSON 0 0% - - - -
----------------------------------------------------------------------------------------------------------------------------
(a) All options in this column were granted under our 2002 Universal Stock
Incentive Plan. All options have an exercise price equal to the fair market
value of the underlying common stock on the date of grant.
(b) Represents options granted on November 12, 2003, which become exercisable
in equal one-third increments over a 3-year period.
(c) Represents the aggregate percentage granted to each Named Executive Officer
of the total options awarded to employees of 1,824,244 shares in fiscal
year 2004.
(d) We are required by the SEC to use a 5% and 10% assumed rate of appreciation
over the applicable option term. This does not represent our estimate or
projection of the future common stock price. If Franklin's common stock
does not appreciate in value from the grant price, the Named Executive
Officers will receive no benefit from the options.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides information on option exercises in fiscal year 2004
by the persons listed in the Summary Compensation Table and the value of their
unexercised options at September 30, 2004.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES ACQUIRED OPTIONS AT IN-THE-MONEY OPTIONS AT
ON EXERCISE VALUE REALIZED FISCAL YEAR-END FISCAL YEAR-END
NAME (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(a)
------------------------------ ------------------- ------------------ ------------------------- ----------------------------
MARTIN L. FLANAGAN 82,800 $1,198,058 513,338/63,333 $9,854,414/$868,727
GREGORY E. JOHNSON 100,000 $1,489,645 415,931/63,333 $8,044,505/$868,727
ANNE M. TATLOCK 0 $0.00 70,252/63,584 $1,311,667/$1,025,258
MURRAY L. SIMPSON 20,000 $437,914 63,334/16,666 $1,145,815/$220,185
JENNIFER J. BOLT 35,500 $501,800 103,511/18,332 $1,987,848/$231,480
JAMES R. BAIO 0 $0.00 39,999/15,000 $ 713,649/$182,100
CHARLES B. JOHNSON 0 $0.00 45,059/0 $1,022,550/$0
(a) The market value of underlying securities is based on the closing price of
Franklin's common stock on the NYSE on September 30, 2004 of $55.76 per
share minus the exercise price.
18
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LONG-TERM INCENTIVE PLAN AWARDS
On December 15, 2004, after the fiscal year 2004, the Compensation Committee of
the Board of Directors approved the grant of restricted stock awards under the
2002 Stock Plan to the Co-Chief Executive Officers. The following were the
numbers of shares and value of the restricted stock awards that were granted to
Mr. Flanagan: 15,625 shares, ($1,000,000) and Mr. G. Johnson: 15,625 shares,
($1,000,000). The restricted stock awards vest upon the achievement of certain
increases in pre-tax operating income for a fiscal year of the Corporation.
Pre-tax operating income is defined as total operating revenue less total
operating expenses determined on a consolidated basis and is reported in the
Corporation's annual financial statements as operating income. One-third of the
shares of restricted stock shall vest if pre-tax operating income for the 2005,
2006 or 2007 fiscal year is at least 15% greater than pre-tax operating income
for the 2004 fiscal year. Two-thirds of the shares of restricted stock shall
vest if pre-tax operating income for the 2005, 2006 or 2007 fiscal year is at
least 32.25% greater than pre-tax operating income for the 2004 fiscal year. All
of the shares of restricted stock shall vest if pre-tax operating income for the
2005, 2006 or 2007 fiscal year is at least 52.09% greater than pre-tax operating
income for the 2004 fiscal year. After the conclusion of the 2007 fiscal year,
any shares of restricted stock that do not vest based upon the achievement of
the foregoing performance goals related to increases in pre-tax operating income
shall be forfeited back to the Corporation. These awards differ in structure
from those granted to other top contributing employees and officers of the
Company, in that specific installments of restricted stock are subject to
company-related performance metrics in order to be vested over a three-year
period. Should those performance metrics not be achieved, the awards will be
forfeited either in whole or in part at the end of the performance-vesting
period. The Compensation Committee intended that the design and structure of the
Co-Chief Executive Officer performance share awards be aligned wholly and
clearly with the Company's performance, and therefore, the stockholders'
interests.
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
During the first quarter of fiscal year 2004, Mr. Charles B. Johnson had an
employment contract with Franklin, which terminated on December 31, 2003,
pursuant to which the Company was obligated, in the event of Mr. C. Johnson's
death or permanent disability, to pay one year's salary to his estate. Under the
contract, Mr. C. Johnson was employed as the Chairman of the Board, Chief
Executive Officer, and Member - Office of the Chairman at a salary determined
from time to time by the Board, which assigned the review of Mr. C. Johnson's
compensation arrangements to the Compensation Committee.
Ms. Anne M. Tatlock has a five year employment agreement with Franklin and
Fiduciary Trust, which commenced in April 2001. Under the employment agreement,
Ms. Tatlock was entitled to a base salary equal to a minimum of $590,000 per
year, which is subject to review by the Chief Executive Officer and Franklin's
Compensation Committee (which shall not result in a decrease in such base
salary). Ms. Tatlock was also entitled to, at a minimum, the following bonus and
incentive compensation: (a) a bonus for each period (i) commencing January 1,
2001 and ending December 31, 2001 and (ii) commencing January 1, 2002 and ending
September 30, 2002, on an annualized basis, of not less than $609,281, of which
Ms. Tatlock is entitled to receive an annualized short-term bonus of $296,500
payable in cash and an annualized long-term bonus of $312,781 to be granted in
the form of restricted stock that vests over 3 years; (b) after September 30,
2002, awards, grants or payments that may be awarded under Franklin's incentive
compensation plan; (c) additional services compensation, in the amount of
$2,125,000, which is payable in equal annual cash payments of $425,000 over five
years, subject to certain conditions relating to Ms. Tatlock's continued
employment; (d) stock options representing 38,836 shares of common stock of
Franklin, 50% of which were exercisable on April 10, 2004 and 50% of which are
exercisable on April 10, 2005, subject to Ms. Tatlock's continued employment
with Franklin; (e) an allowance for financial and tax planning of up to $15,000
for fiscal year 2001 and $5,000 for each subsequent fiscal year during the term
of the employment agreement; and (f) such luncheon club memberships and other
memberships in accordance with Fiduciary Trust's policy and practices.
19
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NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF FRANKLIN'S PREVIOUS
OR FUTURE FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, THAT MIGHT INCORPORATE FILINGS MADE
BY FRANKLIN UNDER THOSE STATUTES, THE FOLLOWING REPORT SHALL NOT BE DEEMED TO BE
INCORPORATED BY REFERENCE INTO ANY PRIOR FILINGS NOR FUTURE FILINGS MADE BY
FRANKLIN UNDER THOSE STATUTES.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors is composed entirely of
non-employee directors who are independent, as defined under the New York Stock
Exchange listing standards. The role of the Compensation Committee is to oversee
our compensation plans and policies, review and set compensation for the
Company's Co-Chief Executive Officers, determine the general policies and
guidelines for compensating other executive officers, and perform other duties
as assigned from time to time by the Board of Directors of the Company. The
Compensation Committee also administers the Company's Amended and Restated
Annual Incentive Compensation Plan (the "Incentive Plan"), the 2004 Key
Executive Incentive Compensation Plan ("Key Executive Incentive Plan") and the
2002 Universal Stock Incentive Plan (the "2002 Stock Plan") which is the
successor to the Amended and Restated 1998 Universal Stock Incentive Plan. The
Compensation Committee's charter reflects these various responsibilities, and
the Committee and the Board periodically review and revise the charter. The
current Compensation Committee charter is posted in the corporate governance
section of the Company's website.
This report discusses the Committee's overall objectives in designing the
Company's compensation programs. It also reviews the Compensation Committee's
compensation determinations in 2004 for the Co-Chief Executive Officers and the
Company's executive officers, including other executive officers named (the
"Named Executive Officers") in the Summary Compensation Table elsewhere in this
Proxy Statement.
COMPENSATION PHILOSOPHY AND POLICIES
The Compensation Committee believes that total compensation should vary with the
Company's performance in achieving financial and non-financial objectives and
that compensation should be aligned with the interests of the stockholders. The
Committee further believes that at least a portion of compensation should
encourage executive officers to focus on the Company's long-range growth and
development. The Company's compensation program for executive officers
(including the Co-Chief Executive Officers) consists primarily of salary and
annual cash and equity incentive bonuses based upon individual and Company
performance.
In its review of executive officer compensation, and, in particular, in
determining the amount and form of awards under the Incentive Plan, Key
Executive Incentive Plan and 2002 Stock Plan, the Compensation Committee
generally considers, among other things: market survey information with respect
to cash and long-term compensation for comparable companies; amounts paid to the
executive officer in prior years as salary, bonus and other compensation; the
officer's responsibilities and performance during the fiscal year ended
September 30, 2004; and the Company's overall performance during prior fiscal
years and its future objectives and challenges.
The Company generally uses a combination of employee benefit plans to award
bonuses to employees including executive officers. The overall bonus pool is
determined pursuant to the Incentive Plan, which allows for both cash and stock
awards to Company employees, including executive officers. Bonuses awarded to
the Co-Chief Executive Officers are generally made under the Key Executive
Incentive Plan, which was ratified and approved by stockholders in fiscal 2004.
A component of such awards may be in the form of equity securities, as was the
case in fiscal 2004, which awards are granted through the 2002 Stock Plan. As a
general matter, the size of the award pool available for bonus payments is a
percentage of the Company's net operating income, exclusive of passive income
and calculated before interest, taxes, extraordinary and certain special items,
and before the accrual of awards under both the Incentive Plan and the Key
Executive Incentive Plan (referred to as "Pre-Tax Operating Income"). In
determining the percentage of the Pre-Tax Operating Income that will go into the
award pool, the Compensation Committee considers a variety of factors, including
the performance of the Company's stock compared to the indices set forth in the
performance graph included in this Proxy Statement and the increase or decrease
in market price of the Company's common stock.
20
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In 2004, the Compensation Committee directly engaged a third-party compensation
consultant to provide independent analyses of, and counsel on, the Company's
executive compensation program and practices. The role of the independent
consultant is to objectively assess all comparative elements of executive
officer compensation, including market competitiveness and the judiciousness of
base, variable and long-term compensation.
SALARIES
Base salaries are evaluated annually for all executive officers, including the
Co-Chief Executive Officers. In connection with a Company-wide review of base
salaries, the Compensation Committee determined that employees, including the
Named Executive Officers (Messrs. C. Johnson, M. Flanagan, G. Johnson, M.
Simpson, and J. Baio and Mmes. A. Tatlock, and J. Bolt), whose salary levels
were in excess of a pre-determined amount would not be eligible to receive an
increase to base salary for fiscal 2004. This decision was based upon several
considerations, including the desire to limit base salary increases to executive
officers who, the Committee believes, should have a majority component of their
annual pay in variable compensation tied to Company performance, while
judiciously managing the Company's compensation expenses. Consequently, the base
salaries of each of the Named Executive Officers were not increased for fiscal
2004.
INCENTIVE COMPENSATION
The Compensation Committee determined that each of the Named Executive Officers,
including the Co-Chief Executive Officers, warranted incentive bonus awards in
respect of fiscal 2004 performance. Each bonus award was comprised of a
combination of cash and restricted stock. In contrast to past years, and in
light of pending accounting treatment of stock options, there were no stock
options granted in fiscal 2004. In the compensation tables included in this
Proxy Statement, stock options reported reflect the prior fiscal year grant,
consistent with the Company's past practice. In particular, the Company reports
the cash and restricted stock portion of any bonus award earned during a
particular fiscal year by a Named Executive Officer, and reports the stock
option related portion of any bonus awarded for a particular fiscal year only
after it has actually been awarded, which normally occurs in the subsequent
fiscal year.
In making the awards to the Named Executive Officers, the Compensation Committee
considers, as discussed above, a number of different individual and Company
performance factors. In particular, the Committee considered the following: the
54.4% increase to Pre-Tax Operating Income between the end of fiscal year 2003
through fiscal year 2004; the 26.1% increase in the Company's simple monthly
average assets under management; and the 26.1% increase in the value of the
Company's common stock from the end of fiscal year 2003. The foregoing
performance factors were taken into consideration in determining to increase
both the award pool and size of awards granted to employees.
The Compensation Committee notes that Ms. A. Tatlock, in addition to her
incentive bonus award, received the third of five equal annual $425,000 cash
payments pursuant to the terms of her 2001 employment agreement, in respect of a
previously agreed upon integration services cash bonus.
For fiscal year 2004, the Compensation Committee awarded other employees,
including other executive officers, bonuses consisting of cash and restricted
stock. Consistent with the practice established in fiscal year 2000, bonuses
awarded were comprised of 65% cash and 35% deferred vesting restricted stock.
Certain non-executive officer Company employees, whose awards were in excess of
$1.0 million, were awarded those amounts in excess of $1.0 million in the form
of 50% cash and 50% of such restricted stock. The Compensation Committee
determined that the bonuses awarded to Messrs. G. Johnson and M. Flanagan should
be treated in a consistent manner as that of other highly compensated
non-executive officer employees.
In addition, in cases where special recognition of contributions was warranted,
additional performance-based restricted stock awards were granted to employees,
including executive officers. While these awards have an established vesting
date of September 28, 2007, a performance feature was designed to accelerate
vesting of a portion of shares should corporate performance measures exceed
established target levels.
21
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CO-CEO COMPENSATION
On January 1, 2004, Messrs. G. Johnson and M. Flanagan became Co-Chief Executive
Officers of the Company. In determining incentive compensation for Messrs. G.
Johnson and M. Flanagan, the Compensation Committee considered a number of
individual and Company performance factors, as described in the Key Executive
Incentive Plan. In light of the Company's very strong performance this fiscal
year, the Compensation Committee awarded Messrs. G. Johnson and M. Flanagan cash
and restricted stock incentive bonuses valued at $5 million each under the Key
Executive Incentive Plan. The Compensation Committee also determined that an
additional performance-based restricted stock award would be granted to each
Co-Chief Executive Officer under the 2002 Stock Plan. These awards differ in
structure from those granted to other top contributing employees and officers of
the Company, in that specific installments of restricted stock are subject to
company-related performance metrics in order to be vested over a three-year
period. Should those performance metrics not be achieved, the awards will be
forfeited either in whole or in part at the end of the performance-vesting
period. The Compensation Committee intended that the design and structure of the
Co-Chief Executive Officer performance share awards be aligned wholly and
clearly with the Company's performance and therefore the stockholders interests.
The compensation of Mr. C. Johnson, who was Chief Executive Officer of the
Company until January 1, 2004, at which time he assumed his current role as
Chairman, reflects his status as a principal stockholder of the Company. Mr. C.
Johnson's compensation is significantly lower than that received by chief
executive officers or chairmen of comparable companies. The Compensation
Committee considers a number of individual factors and Company performance
factors in determining incentive compensation for Mr. C. Johnson, as they would
with the other executive officers of the company. The Compensation Committee
also took into account Mr. C. Johnson's position as a principal stockholder of
the Company, and the dividends received on those holdings, in determining his
compensation and bonus. The Compensation Committee believes that because of his
large share holdings of Company common stock, Mr. C. Johnson is materially
impacted by changes in the Company's stock price. Therefore, the Compensation
Committee determined not to award an incentive bonus to Mr. C. Johnson for
fiscal 2004.
OTHER BENEFITS AND PERQUISITES
All executive officers are entitled to receive medical, life and disability
insurance coverage and other corporate benefits available to most employees of
the Company. All executive officers participate in a combined Profit
Sharing/401(k) Plan. The Board determines contributions to this Plan.
TAX DEDUCTIBILITY OF COMPENSATION
In evaluating compensation program alternatives, the Compensation Committee
considers the potential impact on the Company of Section 162(m) of the U.S.
Internal Revenue Code of 1986, as amended. Section 162(m) limits to $1 million
the amount that a publicly traded corporation, such as the Company, may deduct
for compensation paid in any year to its chief executive officer or any other of
its four most highly compensated executive officers. However, compensation which
qualifies as "performance-based" is excluded from the $1 million per executive
officer limit if, among other requirements, the compensation is payable only
upon attainment of pre-established, objective performance goals under a plan
approved by the Company's stockholders.
The Compensation Committee endeavors to maximize deductibility of compensation
under Section 162(m) to the extent practicable while maintaining competitive
compensation. The Company expects that performance-based awards either in the
form of cash or restricted stock should qualify for the performance-based
compensation exception to Section 162(m). The Compensation Committee, however,
believes that it is important for it to retain maximum flexibility in designing
compensation programs that are in the best interests of the Company and its
stockholders. Therefore, the Compensation Committee, while considering tax
deductibility as a factor in determining compensation, will not limit
compensation to those levels or types of compensation that will be
22
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deductible if it believes that the compensation is commensurate with the
performance of the covered employee and is necessary and appropriate to meet
competitive requirements.
Respectfully Submitted:
COMPENSATION COMMITTEE
Charles Crocker
Thomas H. Kean
Louis E. Woodworth
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are set forth in the preceding
section. No member of the Compensation Committee was an officer or employee of
the Company or any of its subsidiaries during fiscal year 2004. None of the
executive officers of the Company has served on the board of directors or on the
compensation committee of any other entity that has or had executive officers
serving as a member of the Board of Directors or Compensation Committee of the
Company.
In fiscal year 2004, Michael P. McCarthy, a senior vice president and portfolio
manager of Franklin Advisers, Inc., a subsidiary of the Company, and the son of
James A. McCarthy, a former director of the Company and member of the
Compensation Committee during the 2004 fiscal year, was paid $1,083,402, which
included a cash bonus of $825,000. Mr. M. McCarthy also received 9,408 shares of
restricted stock. Mr. M. McCarthy's base salary for fiscal year 2005 is
$325,001. Mr. M. McCarthy is entitled to receive medical, life and disability
insurance coverage and other benefits available generally to employees of the
Company.
23
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EQUITY COMPENSATION PLAN INFORMATION /1/
The following table sets forth certain information as of September 30, 2004 with
respect to the shares of the Company's common stock that may be issued under the
Company's existing compensation plans that have been approved by stockholders
and plans that have not been approved by stockholders.
NUMBER OF SECURITIES
REMAINING AVAILABLE
FOR FUTURE ISSUANCE
NUMBER OF SECURITIES UNDER EQUITY
TO BE ISSUED UPON WEIGHTED-AVERAGE EXERCISE COMPENSATION PLANS
EXERCISE OF PRICE OF OUTSTANDING (EXCLUDING SECURITIES
OUTSTANDING OPTIONS, OPTIONS, WARRANTS AND REFLECTED IN
WARRANTS AND RIGHTS RIGHTS COLUMN (a))
PLAN CATEGORY (a) (b) (c)
------------------------------------ -- ---------------------- --- --------------------------- --- ------------------------
Equity compensation plans approved
by security holders /2/ 11,268,840 /3/ $38.16 9,977,018 /4/
Equity compensation plans not
approved by security holders 0 0 0
------------------------------------ -- ---------------------- --- --------------------------- --- ------------------------
TOTAL 11,268,840 $38.16 9,977,018
------------------------------------ -- ---------------------- --- --------------------------- --- ------------------------
(1) The table includes information for equity compensation plans assumed by the
Company in connection with acquisitions of the companies that originally
established those plans.
(2) Consists of the 2002 Stock Plan and the 1998 Employee Stock Investment Plan
(the "Purchase Plan"). Equity securities granted under the 2002 Stock Plan
may include awards contemplated by the Amended and Restated Annual
Incentive Compensation Plan and the 2004 Key Executive Incentive
Compensation Plan.
(3) Excludes options to purchase accruing under the Company's Purchase Plan.
Under the Purchase Plan each eligible employee is granted a separate option
to purchase up to 2,000 shares of common stock each semi-annual accrual
period on January 31 and July 31 at a purchase price per share equal to 90%
of the fair market value of the common stock on the enrollment date or the
exercise date, whichever is lower.
(4) Includes shares available for future issuance under the Purchase Plan. As
of September 30, 2004, 1,436,376 of shares of common stock were available
for issuance under the Purchase Plan.
24
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PERFORMANCE GRAPH
The following performance graph compares the performance of an investment in
Franklin's common stock for the last five (5) fiscal years to that of the
Standard & Poor's 500 Composite Stock Price Index (the "S&P 500 Index"), an
index to which the Company was added in April 1998, and to the Standard & Poor's
500 Financials Index (the "S&P 500 Financials Index"). The S&P 500 Index
consists of 500 stocks chosen for market size, liquidity, and industry group
representation. It is a market-value weighted index (stock price times number of
shares outstanding), with each stock's weight in the index proportionate to its
market value. The S&P 500 Index is one of the most widely used benchmarks of
U.S. equity performance. The S&P 500 Financials Index is a
capitalization-weighted index of the stocks of approximately 70 companies that
are in the S&P 500 Index and whose primary business is in a sub-sector of the
financial industry. It is designed to measure the performance of the financial
sector of the S&P 500 Index. The graph assumes that the value of the investment
in the Company's common stock and each index was $100 on September 30, 1999 and
that all dividends were reinvested.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
FY99
Franklin
Resources: $100.00 114.52 102.86 105.10 116.99 89.12 109.81 105.91 98.52 99.95 118.05 125.04
S&P 500: $100.00 106.33 108.49 114.87 109.10 107.04 117.50 113.97 111.63 114.38 112.60 119.59
Fin. Index $100.00 116.67 110.95 108.76 105.31 93.92 111.31 107.82 115.04 108.07 119.24 130.68
FY00
Franklin
Resources: 146.39 141.15 119.31 125.75 154.33 137.76 129.30 144.31 147.12 151.32 142.84 135.85
S&P 500: 113.27 112.79 103.91 104.42 108.12 98.27 92.04 99.19 99.86 97.43 96.47 90.44
Fin. Index 133.78 133.19 125.34 136.67 136.29 127.34 123.50 128.09 133.25 133.20 131.05 123.07
FY01
Franklin
Resources: 114.79 106.50 118.61 117.25 124.49 135.83 139.59 139.52 144.95 141.98 114.55 116.78
S&P 500: 83.13 84.72 91.22 92.02 90.67 88.92 92.27 86.68 86.04 79.92 73.69 74.17
Fin. Index 115.80 113.66 121.77 124.43 122.49 120.70 128.73 125.29 125.09 119.15 109.71 111.95
FY02
Franklin
Resources: 103.77 110.31 123.55 114.20 111.72 109.48 110.54 117.15 125.52 131.48 146.22 145.34
S&P 500: 66.12 71.93 76.16 71.69 69.81 68.76 69.43 75.15 79.10 80.11 81.53 83.11
Fin. Index 98.87 107.80 112.23 106.22 104.45 101.19 100.79 113.13 119.10 119.40 124.88 123.62
FY03
Franklin
Resources 148.77 159.83 161.21 175.75 195.03 190.74 188.26 185.39 170.00 169.33 163.43 180.43
S&P 500 82.23 86.88 87.65 92.24 93.93 95.24 93.80 92.33 93.59 95.41 92.25 92.62
Fin. Index 124.44 133.01 132.64 139.15 143.58 147.38 145.93 139.20 141.76 142.46 139.51 144.20
FY04
Franklin
Resources: 189.15
S&P 500: 93.62
Fin. Index 142.96
1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ----
Franklin Resources, Inc. 100.0 146.4 114.8 103.8 148.8 189.2
S&P 500 Index 100.0 113.3 83.1 66.1 82.2 93.6
S&P 500 Financials Index 100.0 133.8 115.8 98.9 124.4 143.0
25
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NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN ANY OF FRANKLIN'S PREVIOUS
OR FUTURE FILINGS UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, THAT MIGHT INCORPORATE FILINGS MADE
BY US UNDER THOSE STATUTES, THE FOLLOWING REPORT SHALL NOT BE DEEMED TO BE
INCORPORATED BY REFERENCE INTO ANY PRIOR FILINGS NOR FUTURE FILINGS MADE BY
FRANKLIN UNDER THOSE STATUTES.
REPORT OF THE AUDIT COMMITTEE
MEMBERSHIP AND ROLE OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors of Franklin Resources, Inc. (the
"Company") consists of Chutta Ratnathicam, Charles Crocker and Louis E.
Woodworth. Each of the members of the Audit Committee is independent as defined
under the New York Stock Exchange ("NYSE") rules and applicable law. The primary
purpose of the Audit Committee is to assist the Board of Directors in fulfilling
its responsibility to oversee the Company's financial reporting activities. The
Audit Committee's function is more fully described in the written charter, which
is attached as Appendix A to this Proxy Statement. Chutta Ratnathicam serves as
the Chairman.
REVIEW OF THE COMPANY'S AUDITED FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2004
The Audit Committee has reviewed and discussed the audited financial statements
of the Company for the fiscal year ended September 30, 2004 with the Company's
management.
The Audit Committee has discussed with PricewaterhouseCoopers LLP ("PwC"), the
Company's independent registered public accounting firm, the matters required to
be discussed by the Statement on Auditing Standards No. 61 (Communication with
Audit Committees).
The Audit Committee has also received the written disclosures and the letter
from PwC required by Independence Standards Board Standard No. 1 (Independence
Discussion with Audit Committees), and has discussed the independence of PwC
with that firm.
Based on the Audit Committee's review and discussions noted above, the Audit
Committee recommended to the Board of Directors that the Company's audited
financial statements be included in the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 2004, for filing with the SEC.
Respectfully Submitted:
AUDIT COMMITTEE
Chutta Ratnathicam, Chairman
Charles Crocker
Louis E. Woodworth
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FEES PAID TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board, with the ratification of the stockholders, engaged
PricewaterhouseCoopers LLP ("PwC") to perform an annual audit of the Company's
financial statements for the fiscal year 2004.
The following table sets forth the approximate aggregate fees billed or expected
to be billed to the Company for fiscal years 2004 and 2003 by PwC for the audit
of the Company's annual financial statements and services rendered by PwC.
(in thousands) FISCAL YEARS ENDED
------------------------------ -------------------------------------------------
2004 2003
------------------------------ -------------------------------------------------
AUDIT FEES $ 1,800 $ 1,500
AUDIT RELATED FEES (a) $ 700 $ 500
TAX FEES (b) $ 700 $ 1,000
ALL OTHER FEES (c) $ 200 $ 1,100
------------------------------ -------------------------------------------------
TOTAL FEES $ 3,400 $ 4,100
------------------------------ -------------------------------------------------
(a) Audit Related Fees consist of assurance and related services that are
reasonably related to the performance of the audit or review of the
Company's financial statements. Such services related primarily to internal
control examinations pursuant to the Statement of Auditing Standards No.
70, audits of employee benefit plans and other attestation services.
(b) Tax Fees consist of tax preparation and compliance services rendered by
PwC.
(c) All Other Fees consist principally of services rendered in connection with
assistance in regulatory reporting in various jurisdictions and tax advice
and tax planning.
NOTE: 2.0% of the fees for services described under Audit Related Fees, Tax Fees
and All Other Fees were approved by the Audit Committee pursuant to the
pre-approval waiver requirements under 17 CFR 210.2-01(c)(7)(i)(C), of which
1.9% represented Tax Fees and 0.1% represented All Other Fees.
PRE-APPROVAL PROCESS AND POLICY
The audit and non-audit services provided to the Company and its subsidiaries by
PwC, the independent auditors, during fiscal year 2004 were pre-approved by the
Audit Committee. The Audit Committee has adopted policies and procedures for
pre-approving all audit and non-audit services provided by PwC. This policy
describes the permitted audit, audit-related, tax and other services that the
independent auditors may perform.
Any requests for audit, audit-related, tax and other services must initially be
submitted to the Company's Chief Financial Officer (the "CFO"). Any requests
preliminarily approved by the CFO are then submitted to the Audit Committee for
final and specific pre-approval. Normally, pre-approval is considered at
regularly scheduled meetings. However, the authority to grant specific
pre-approval between meetings up to a designated approval amount (the "Chairman
Approval Amount"), has been delegated to the Chairman of the Audit Committee.
The decision of the Chairman to grant specific pre-approval of a service shall
be presented to the Audit Committee at its next scheduled meeting. If the
estimated fees for proposed services exceed the Chairman Approval Amount,
specific pre-approval by the entire Audit Committee shall be required.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to the time that Franklin acquired substantially all of the assets of
Templeton, Galbraith & Hansberger Ltd. ("Templeton") in 1992, Templeton made a
loan to Mr. Martin L. Flanagan secured by a deed of trust on Mr. Flanagan's then
residence in Nassau, Bahamas. Such loan was outstanding to a subsidiary of the
Company and bore interest at the annual rate of 5.98%. The largest aggregate
amount outstanding during fiscal year 2004 was $330,380. On or about December 4,
2004, Mr. Flanagan paid off the outstanding amount of the loan.
In October 1997, prior to the time that Mr. Charles R. Sims became an executive
officer of Franklin, in connection with his relocation from Canada to
California, Franklin made a loan to Mr. Sims, which is secured by a deed of
trust on his residence and bears interest at the annual rate of 5%. The largest
amount outstanding on the loan during fiscal year 2004 was $586,203 and as of
November 30, 2004, $573,355 was outstanding.
In accordance with the Sarbanes-Oxley Act of 2002, the Company will not enter
into any similar such loan transactions with its executive officers or
directors.
During fiscal year 2004, Franklin Templeton Bank & Trust, F.S.B., and various
bank related subsidiaries of Fiduciary Trust, a subsidiary of Franklin, entered
into various transactions in the ordinary course of their business with certain
directors or executive officers of Franklin and members of their immediate
families. In particular, these transactions involved loans, deposits and sales
of commercial paper, certificates of deposit and other money market instruments
and certain other banking transactions, including, among others, a loan made in
March 2002 to Harmon E. Burns, Vice Chairman and Director of the Company. As
transactions made in the ordinary course of business, all such transactions were
made on substantially the same terms, including interest rates and collateral,
that prevailed at the time for comparable transactions with other persons and
did not involve more than the normal risk of collectibility or present other
unfavorable features.
In fiscal year 2004, Robert Dean, a vice president and portfolio manager for
Franklin Advisers, Inc., a subsidiary of the Company, and the son-in-law of Mr.
Burns, a Vice Chairman and director of the Company, was paid $300,976, which
included a cash bonus of $162,500. Mr. Dean also received 1,568 shares of
restricted stock. Mr. Dean's base salary for fiscal year 2005 is $152,500. Mr.
Dean is entitled to receive medical, life and disability insurance coverage and
other benefits available generally to employees of the Company.
Under a stock repurchase program first authorized by the Board of Directors of
the Company in September of 1985, the Company can repurchase shares of its
common stock from time to time on the open market and in private transactions in
accordance with applicable securities laws. Pursuant to this stock repurchase
program, the Company repurchased shares of the Company's common stock from,
among others, certain directors, executive officers and greater than five
percent (5%) beneficial owners of the Company's common stock, and certain
members of the immediate family of the foregoing persons, during fiscal year
2004 and in the current fiscal year. In particular, Mr. Charles B. Johnson, the
Company's Chairman of the Board, Member-Office of the Chairman, and a director
of the Company, sold back to the Company 123,000 shares of common stock for an
aggregate amount of $8,372,610 on December 15, 2004. On September 7, 2004, Mr.
C. B. Johnson also sold back to the Company 300,000 shares of common stock for
an aggregate amount of $16,104,000. Mr. Burns, a Company Vice Chairman,
Member-Office of the Chairman, and a director of the Company, sold back to the
Company 50,000 shares of common stock for an aggregate amount of $3,403,500 on
December 15, 2004. Similarly, on the same date, Mr. Rupert H. Johnson, Jr., a
Company Vice Chairman, Member-Office of the Chairman, and a director of the
Company, sold back to the Company 50,000 shares of common stock for an aggregate
amount of $3,403,500. On December 15, 2004, Mr. Flanagan, President and Co-Chief
Executive Officer of the Company, sold back to the Company 7,975 shares of
common stock for an aggregate amount of $542,858. On the same date, Mr. Greg E.
Johnson, President and Co-Chief Executive Officer of the Company, sold back to
the Company 11,981 shares of common stock for an aggregate amount of $815,547.
On December 15, 2004, Mr. Sims, a Vice President of the Company, also sold back
to the Company 6,000 shares of common stock for an aggregate amount of $408,420.
On the same date, Mr. Kenneth A. Lewis, a Vice President and Treasurer of the
Company, sold back to the Company 3,000 shares of common stock for an aggregate
amount of $204,120. On February 11, 2004,
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Penelope Alexander, Vice President, Human Resources - U.S. of the Company, sold
back to the Company 11,014 shares of common stock for an aggregate amount of
$638,041. The price per share paid by the Company for each repurchase was the
average of the high and low price of the Company's common stock on the NYSE on
the repurchase date.
Separately, each of Elizabeth S. Wiskemann, for the benefit of the Elizabeth
Wiskemann Rollover Individual Retirement Account, and The Esther B. Wiskemann
Trust under agreement dated 04/19/02 amended 11/13/02, The Christine Y.
Wiskemann Trust under agreement dated 5/7/03, and Kim D. Wiskemann sold back to
the Company 226,000 shares, 350,000 shares, 370,000 shares, and 354,000 shares,
for an aggregate amount of $15,383,820, $23,824,500, $25,185,900, and
$24,096,780, respectively, on December 15, 2004. Esther B. Wiskemann, Christine
Y. Wiskemann and Kim D. Wiskemann are children of Elizabeth S. Wiskemann. The
price per share paid by the Company for each repurchase was the average of the
high and low price of the Company's common stock on the NYSE on the repurchase
date.
The Company also makes purchases of the Company's common stock from employees
and executive officers on the same terms and conditions to pay taxes due in
connection with the vesting of restricted stock awards and matching grants,
which the Company provides under the Employee Stock Incentive Plan. On January
2, 2004 and in connection with the vesting of certain restricted stock awards,
the Company purchased 1,205 shares from Ms. Anne M. Tatlock at the price of
$52.05 per share. On October 1, 2004 and in connection with the vesting on
September 30, 2004 of certain restricted stock awards, the Company purchased
4,442 shares from Mr. Flanagan, 1,112 shares from Mr. Murray L. Simpson, 2,737
shares from Ms. Tatlock, and 691 shares from Mr. James R. Baio (each an
executive officer of the Company) at the price of $55.55 per share. The price
per share paid by the Company for each purchase was the average of the high and
low price of the Company's common stock on the NYSE on the vesting date.
Additional information regarding a former director of the Company is described
under "Compensation Committee Interlocks and Insider Information".
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires officers,
directors and persons who beneficially own more than 10% of Franklin's common
stock (the "Reporting Persons") to file reports of ownership and changes in
ownership with the SEC. Based solely on review of copies of such report received
or written representations from the Reporting Persons, except in one instance
where Ms. Jennifer J. Bolt did not timely file one Form 4 disclosing one
transaction, and one instance where Mr. Rupert H. Johnson, Jr. did not timely
file one Form 4 disclosing one transaction, the Company believes that with
respect to the fiscal year 2004, all other Reporting Persons complied with
applicable filing requirements.
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PROPOSAL NO. 2
RATIFICATION OF THE APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
GENERAL
The Audit Committee of the Board has appointed PricewaterhouseCoopers LLP as the
independent registered public accounting firm to audit the books and accounts of
Franklin for its current fiscal year ending September 30, 2005. During the
fiscal year ended September 30, 2004, PricewaterhouseCoopers LLP rendered
opinions on the financial statements of Franklin and certain of its
subsidiaries, as well as many of the open-end and closed-end investment
companies managed and advised by the Company's subsidiaries. In addition,
PricewaterhouseCoopers LLP provides the Company with tax consulting and
compliance services, accounting and financial reporting advice on transactions
and regulatory filings and certain other consulting services permitted under the
Sarbanes-Oxley Act of 2002. Representatives of PricewaterhouseCoopers LLP are
expected to be present at the Annual Meeting and will have the opportunity to
make a statement if they desire to do so. It is also expected that they will be
available to respond to appropriate questions.
BOARD RECOMMENDATION
The Board of Directors recommends a vote "FOR" the ratification of the
appointment of PricewaterhouseCoopers LLP as the Company's independent
registered public accounting firm for the current fiscal year ending September
30, 2005. The voting requirements for this proposal are described in the "Voting
Information" section.
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PROPOSAL NO. 3
APPROVAL OF THE AMENDMENT AND RESTATEMENT
OF THE FRANKLIN RESOURCES, INC.
2002 UNIVERSAL STOCK INCENTIVE PLAN
Franklin's stockholders are being asked to approve an amendment and restatement
of the 2002 Universal Stock Incentive Plan (the "2002 Stock Plan"). The primary
purpose of the amendment and restatement is to (a) add additional performance
measures applicable to the grant of awards under the 2002 Stock Plan intended to
qualify as "performance-based compensation" under Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code") and (b) expand the ability of the
administrator of the 2002 Stock Plan to adjust awards issued under the 2002
Stock Plan in connection with various changes in the capitalization of Franklin.
The Board of Directors approved the 2002 Stock Plan on October 10, 2002 and the
2002 Stock Plan was approved by the stockholders in January 2003. The Board of
Directors approved the amendment and restatement of the 2002 Stock Plan on
December 16, 2004. Stockholder approval of the amendment and restatement of the
2002 Stock Plan requires the affirmative vote of a majority of the shares of
Franklin's common stock present in person or represented by proxy and entitled
to vote on the proposal. It is the intention of the persons named as proxy
holders to vote to approve the amendment and restatement of the 2002 Stock Plan.
If stockholder approval is not received, the 2002 Stock Plan will not be amended
and restated.
GENERAL DESCRIPTION OF THE 2002 STOCK PLAN, AS AMENDED AND RESTATED.
The following summary describes the material features of the 2002 Stock Plan, as
amended and restated, but is not intended to be complete and is qualified in its
entirety by reference to the 2002 Stock Plan, a copy of which is attached as
Appendix E to this Proxy Statement. In Appendix E the locations of proposed
deletions are indicated by carets "^" and proposed additions are indicated as
bracketed. Capitalized terms not otherwise defined are used as set forth in the
2002 Stock Plan.
PURPOSE.
The 2002 Stock Plan is intended to (i) attract and retain persons eligible to
participate in the plan; (ii) motivate employees, by means of appropriate
incentives, to achieve long-range performance goals; (iii) provide incentive
compensation opportunities that are competitive with those of other similar
companies; and (iv) further align employees' interests with those of Franklin's
other stockholders through compensation that is based on Franklin's common
stock.
ADMINISTRATION OF 2002 STOCK PLAN.
The Compensation Committee, as the administrator of the 2002 Stock Plan,
determines and approves the grant of incentive stock options, non-qualified
stock options, stock appreciation rights, stock units, restricted stock,
restricted stock units and performance shares to employees. The Compensation
Committee will, with regard to each stock option, determine the number of shares
subject to the option, the manner and time of the option's exercise and vesting,
and the exercise price per share of stock subject to the option. The exercise
price for incentive stock options may not be less than 100% of the fair market
value of the common stock on the date the option is granted (or 110%, in the
case of an incentive stock option granted to any employee who owns stock
representing more than 10% of the combined voting power of Franklin or any
parent or subsidiary of Franklin). In the case of all other awards granted under
the 2002 Stock Plan, the exercise or purchase price shall be determined by the
Compensation Committee.
SHARES AUTHORIZED.
The 2002 Stock Plan authorizes 30,000,000 shares of common stock for issuance
under the 2002 Stock Plan.
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ELIGIBILITY AND PARTICIPATION.
As of November 30, 2004, approximately 1,100 employees were eligible to
participate in the 2002 Stock Plan. Under the terms of the plan, any key
executive or other employee of Franklin or any of its subsidiaries is eligible
to participate.
TERM OF AWARDS.
The term of any incentive stock option may not be for more than ten years (or
five years in the case of an incentive stock option granted to any participant
who owns stock representing more than 10% of the combined voting power of
Franklin or any parent or subsidiary of the Company). The term of all other
awards shall be determined by the Compensation Committee.
TRANSFERABILITY.
An employee's rights under the 2002 Stock Plan may not be assigned, transferred,
pledged or otherwise disposed of, except by will or the laws of descent and
distribution.
PERFORMANCE BASED COMPENSATION.
The maximum number of shares with respect to which options and stock
appreciation rights may be granted to a participant during a calendar year is
400,000 shares. The foregoing limitation shall be adjusted proportionately by
the Compensation Committee in connection with any change in Franklin's
capitalization due to a stock split, stock dividend or similar event affecting
the common stock of Franklin. Under Code Section 162(m) no deduction is allowed
in any taxable year of Franklin for compensation in excess of $1 million paid to
Franklin's chief executive officer and the four other most highly compensated
officers of Franklin. An exception to this rule applies to compensation that is
paid pursuant to a stock incentive plan approved by stockholders and that
specifies, among other things, the maximum number of shares with respect to
which options and stock appreciation rights may be granted to eligible
participants under such plan during a specified period. Compensation paid
pursuant to options or stock appreciation rights granted under such a plan and
with an exercise price equal to the fair market value of Franklin's common stock
on the date of grant is deemed to be inherently performance-based, since such
awards provide value to participants only if the stock price appreciates.
For awards of stock units, restricted stock, restricted stock units and
performance shares that are intended to be performance-based compensation under
Section 162(m) of the Code, the maximum number of shares subject to such awards
that may be granted to a participant during a calendar year is 1,000,000 shares
(regardless of when such shares are deliverable to the participant). In order
for such awards to qualify as performance-based compensation, the Compensation
Committee must establish a performance goal with respect to such award in
writing not later than 90 days after the commencement of the services to which
it relates and while the outcome is substantially uncertain. In addition, the
performance goal must be stated in terms of an objective formula or standard.
Under the current version of the 2002 Stock Plan, the Compensation Committee may
use the following performance criteria when granting performance-based awards:
earnings per share, pre-tax operating income and the value of Franklin stock
(i.e., stock price). If the amendment and restatement of the 2002 Stock Plan is
approved by the stockholders of Franklin, the Compensation Committee may use the
following additional performance criteria when granting performance-based
awards: annual revenue, budget comparisons, controllable profits, expense
management, improvements in capital structure, operating income, net income, net
sales, profit margins, profitability of an identifiable business unit or
product, return on investments, return on sales, return on stockholders' equity,
total return to stockholders and performance of Franklin relative to a peer
group of companies on any of the foregoing measures. The performance criteria
may be applicable to Franklin and/or any of its individual business units and
may differ from participant to participant.
CHANGES IN CAPITALIZATION.
As amended, the 2002 Stock Plan provides that subject to any required action by
the stockholders of Franklin, (a)
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the number and/or class of securities covered by each outstanding award, (b) the
price per share covered by each such outstanding award, (c) the number and/or
class of securities which have been authorized for issuance under the 2002 Stock
Plan but as to which no awards have yet been granted or which have been returned
to the 2002 Stock Plan upon cancellation or expiration of an award, and (d) the
maximum number of options, stock appreciation rights, stock unit awards,
restricted stock awards, restricted stock unit awards and performance share
awards which may be granted to any participant in any one-calendar-year period
shall be proportionately adjusted for any increase or decrease in the number of
issued shares of common stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the common stock, or any
other increase or decrease in the number of issued shares of common stock
effected without receipt of consideration by Franklin. Such adjustment will be
made by the Compensation Committee. The Compensation Committee may also make, in
its discretion, adjustments described in (a)-(d) above in the event of any
distribution of cash or other assets to stockholders other than an ordinary cash
dividend.
In determining adjustments to be made, the Compensation Committee may take into
account such factors as it deems appropriate, including (i) the restrictions of
applicable law, (ii) the potential tax, accounting or other consequences of an
adjustment and (iii) the possibility that some participants might receive an
adjustment and a distribution or other unintended benefit, and in light of such
factors or circumstances may make adjustments that are not uniform or
proportionate among outstanding awards, modify vesting dates, defer the delivery
of stock certificates or make other equitable adjustments. Any such adjustments
to outstanding awards will be effected in a manner that precludes the
enlargement of rights and benefits under such awards. Any adjustments,
determinations or interpretations made by the Compensation Committee shall be
final, binding and conclusive.
AMENDMENT AND TERMINATION.
The Board of Directors of Franklin may at any time terminate or amend the 2002
Stock Plan. However, no such termination may affect awards previously granted,
nor may an amendment make any change in any award previously granted which
adversely affects the rights of any participant. In addition, to the extent
necessary to comply with securities and tax laws, Franklin will obtain
stockholder approval of such termination or such amendments.
FEDERAL INCOME TAX CONSEQUENCES.
The following discussion summarizes certain tax considerations for participants
and certain tax effects to Franklin. The statements in the following paragraphs
of the principal U.S. federal income tax consequences of benefits under the 2002
Stock Plan are based on statutory authority and judicial and administrative
interpretations, as of the date of this Proxy Statement, which are subject to
change at any time (possibly with retroactive effect). The law is technical and
complex, and the discussion below represents only a general summary.
INCENTIVE STOCK OPTIONS.
Incentive stock options ("ISOs") granted under the 2002 Stock Plan are intended
to meet the definitional requirements of Section 422(b) of the Code for
"incentive stock options". An employee who receives an ISO does not recognize
any taxable income upon the grant of such ISO. Similarly, the exercise of an ISO
generally does not give rise to federal income tax to the employee, provided
that (i) the federal "alternative minimum tax", which depends on the employee's
particular tax situation, does not apply and (ii) the employee is employed by
Franklin from the date of the grant of the option until three months prior to
the exercise thereof, except where such employment terminates by reason of
disability (where the three month period is extended to one year) or death
(where this requirement does not apply). If any employee exercises an ISO after
the requisite periods referred to in clause (ii) above, the ISO will be treated
as an NSO (as defined below) and will be subject to the rules set forth below
under the caption "Non-Qualified Stock Options and Stock Appreciation Rights".
Further, if after exercising an ISO, an employee disposes of the common stock so
acquired more than two years from the date of grant and more than one year from
the date of transfer of the common stock pursuant to the exercise of such ISO
(the "applicable holding period"), the employee will generally recognize capital
gain or loss equal to the
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difference, if any, between the amount received for the shares and the exercise
price.
If, however, any employee does not hold the shares so acquired for the
applicable holding period, thereby making a "disqualifying disposition", the
employee would recognize ordinary income equal to the excess of the fair market
value of the shares at the time the ISO was exercised over the exercise price
and the balance, if any, would generally be treated as capital gain. If the
disqualifying disposition is a sale or exchange that would permit a loss to be
recognized under the Code (were a loss in fact to be realized), and the sales
proceeds are less than the fair market value of the shares on the date of
exercise, the employee's ordinary income would be limited to the gain (if any)
realized on the sale. An employee who exercises an ISO by delivering common
stock previously acquired pursuant to the exercise of another ISO is treated as
making a "disqualifying disposition" of such common stock if such shares are
delivered before the expiration of their applicable holding period. Upon the
exercise of an ISO with previously acquired shares as to which no disqualifying
disposition occurs, despite some uncertainty, it appears that the employee would
not recognize gain or loss with respect to such previously acquired shares.
Franklin will not be allowed a federal income tax deduction upon the grant or
exercise of an ISO or the disposition, after the applicable holding period, of
the common stock acquired upon exercise of an ISO. In the event of a
disqualifying disposition, Franklin generally will be entitled to a deduction in
an amount equal to the ordinary income included by the employee, provided that
such amount constitutes an ordinary and necessary business expense to Franklin
and is reasonable and the limitations of Section 162(m) of the Code (discussed
above) do not apply.
NON-QUALIFIED STOCK OPTIONS AND STOCK APPRECIATION RIGHTS.
Non-qualified stock options ("NSOs") granted under the 2002 Stock Plan are
options that do not qualify as ISOs. An employee who receives an NSO or Stock
Appreciation Right ("SAR") will not recognize any taxable income upon the grant
of such NSO or SAR. However, the employee generally will recognize ordinary
income upon exercise of an NSO in an amount equal to the excess of the fair
market value of the shares of common stock at the time of exercise over the
exercise price. Similarly, upon the receipt of cash or shares pursuant to the
exercise of an SAR, the individual generally will recognize ordinary income in
an amount equal to the sum of the cash and the fair market value of the shares
received. Under certain circumstances, the timing of income recognition may be
deferred for any individual who is an executive officer or director of Franklin
or a beneficial owner of more than ten percent (10%) of any class of equity
securities of Franklin. The ordinary income recognized with respect to the
receipt of shares or cash upon exercise of an NSO or an SAR (whether or not
deferred) will be subject to both wage withholding and other employment taxes.
In addition to the customary methods of satisfying the withholding tax
liabilities that arise upon the exercise of an SAR for shares or upon the
exercise of an NSO, Franklin may satisfy the minimum tax withholding liability
in whole or in part by withholding shares of common stock from those that
otherwise would be issuable to the individual or by the employee tendering other
shares owned by him or her, valued at their fair market value as of the date
that the tax withholding obligation arises. A federal income tax deduction
generally will be allowed to Franklin in an amount equal to the ordinary income
included by the individual with respect to the exercise of his or her NSO or
SAR, provided that such amount constitutes an ordinary and necessary business
expense to Franklin and is reasonable and the limitations of Section 162(m) of
the Code do not apply. If an individual exercises an NSO by delivering shares of
common stock, other than shares previously acquired pursuant to the exercise of
an ISO which is treated as a "disqualifying disposition" as described above, the
individual will not recognize gain or loss with respect to the exchange of such
shares, even if their then fair market value is different from the individual's
tax basis. The individual, however, will be taxed as described above with
respect to the exercise of the NSO as if he or she had paid the exercise price
in cash, and the Company likewise generally will be entitled to an equivalent
tax deduction.
RESTRICTED STOCK AWARDS.
Restricted Stock Awards granted by Franklin fall within the Code's guidelines
for awards that are restricted as to transferability or subject to a substantial
risk of forfeiture and, absent a written election pursuant to Section 83(b) of
the Code filed with the Internal Revenue Service within 30 days after the date
of transfer of such shares
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pursuant to the award (a "Section 83(b) election"), an individual will recognize
ordinary income at the earlier of the time at which (i) the shares become
transferable or (ii) the restrictions that impose a substantial risk of
forfeiture of such shares lapse, in an amount equal to the excess of the fair
market value (on such date) of such shares over the price paid for the award, if
any.
If a Section 83(b) election is made, the individual will recognize ordinary
income, as of the transfer date, in an amount equal to the excess of the fair
market value of the common stock as of that date over the price paid for such
award, if any. The ordinary income recognized with respect to the receipt of
cash, shares of common stock or other property under the 2002 Stock Plan will be
subject to both wage withholding and other employment taxes. Franklin generally
will be allowed a deduction for federal income tax purposes in an amount equal
to the ordinary income recognized by the employee, provided that such amount
constitutes an ordinary and necessary business expense and is reasonable and the
limitations of Section 162(m) of the Code do not apply.
Individuals will recognize gain upon the disposition of any shares received
equal to the excess of (i) the amount realized on such disposition over (ii) the
ordinary income recognized with respect to such shares under the principles set
forth above. That gain will be taxable as long or short-term capital gain
depending on whether the shares were held for more than one year.
RESTRICTED STOCK UNITS.
Recipients of restricted stock units generally should not recognize income until
such units are converted into cash or shares of common stock. Upon conversion,
the individual will normally recognize ordinary income equal to the amount of
cash and fair market value the shares, if any, received upon such conversion.
The ordinary income recognized with respect to the receipt of cash or shares of
common stock will be subject to both wage withholding and other employment
taxes. Franklin generally will be allowed a deduction for federal income tax
purposes in an amount equal to the ordinary income recognized by the employee,
provided that such amount constitutes an ordinary and necessary business expense
and is reasonable and the limitations of Section 162(m) of the Code do not
apply.
Individuals will recognize gain upon the disposition of any shares received upon
conversion of the restricted stock units equal to the excess of (i) the amount
realized on such disposition over (ii) the ordinary income recognized with
respect to such shares under the principles set forth above. That gain will be
taxable as long or short-term capital gain depending on whether the shares were
held for more than one year.
DIVIDENDS AND DIVIDEND EQUIVALENTS.
To the extent unvested and/or unexercised shares subject to such awards under
the 2002 Stock Plan earn dividends or dividend equivalents, whether paid
currently or credited to an account established under the 2002 Stock Plan, an
individual generally will recognize ordinary income, which income is subject to
both wage withholding and other employment taxes. Franklin generally will be
allowed a deduction for federal income tax purposes in an amount equal to the
ordinary income recognized by the employee, provided that such amount
constitutes an ordinary and necessary business expense and is reasonable and the
limitations of Section 162(m) of the Code do not apply.
NEW PLAN BENEFITS.
Since no awards have yet been made under the 2002 Stock Plan, as amended and
restated by the Board on December 16, 2004, it is not possible to determine the
benefits that will be received by executive officers and other employees if the
amendment and restatement of the 2002 Stock Plan is approved by the
stockholders.
BOARD OF DIRECTORS RECOMMENDATION.
The Board of Directors recommends a vote "FOR" the approval of the amendment and
restatement of the Franklin Resources, Inc. 2002 Universal Stock Incentive Plan.
The voting requirements for this proposal are described in the "Voting
Information" section.
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PROPOSAL NO. 4
APPROVAL OF THE AMENDMENT OF THE CERTIFICATE OF
INCORPORATION, AS AMENDED, TO INCREASE THE NUMBER OF
SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE
GENERAL
The Board of Directors by unanimous vote of all directors on December 16, 2004
adopted resolutions approving and recommending that the stockholders of the
Company approve an amendment to Article Fourth of the Company's Certificate of
Incorporation ("Article Fourth"), to increase the total number of shares of
stock that the Company is authorized to issue from Five Hundred One Million
(501,000,000) shares to One Billion One Million (1,001,000,000) by increasing
the number of shares of common stock (the "Common Stock") from Five Hundred
Million (500,000,000) shares to One Billion (1,000,000,000) shares. The proposed
amendment does not change the provisions of Article Fourth permitting the Board
to adopt resolutions authorizing the issuance of up to One Million (1,000,000)
shares of $1.00 par value preferred stock (the "Preferred Stock") upon terms and
conditions approved by the Board. The relative rights and limitations of the
Common Stock and Preferred Stock would remain unchanged under the proposed
amendment and the additional shares of Common Stock would be identical to the
shares of Common Stock presently authorized. The Common Stock and Preferred
Stock do not have preemptive rights.
Under Article Fourth, the Board of Directors has the authority to issue
authorized shares of the Preferred Stock in series and to fix the number,
designation, relative rights, preferences and limitations of the shares of each
series, subject to applicable law and the provisions of Article Fourth. The
authority of the Board includes the right to fix for each series the dividend
rate, redemption price, liquidation rights, cumulation rights, sinking fund
provisions, conversion rights, and voting rights.
The full text of the proposed amendment to Article Fourth is set forth as
Appendix F to this Proxy Statement.
REASONS FOR THE PROPOSED AMENDMENT
The proposed increase in the authorized Common Stock has been recommended by the
Board to assure that an adequate supply of authorized unissued shares is
available for valid corporate purposes, including future stock dividends or
stock splits, acquisitions, financings and incentive compensation. Such Common
Stock and the presently authorized Preferred Stock would be available for
issuance without further action by the stockholders, unless required by the
Company's Certificate of Incorporation, its Amended and Restated By-Laws, by
applicable law or stock exchange listing standard.
As of the Record Date, 251,352,866 shares of Common Stock were issued and
outstanding and no shares of Preferred Stock were issued and outstanding. In
addition, approximately 17,623,490 shares were reserved for issuance (i) under
existing employee benefit plans and (ii) upon conversion of the Company's Liquid
Yield Option Notes ("LYONs") at the rate of 9.3604 shares of common stock per
$1,000 principal amount at maturity of the LYONs. Authorized shares of Common
Stock, outstanding shares and reserved shares are as summarized in
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the approximate amounts set forth in the table below:
Presently Authorized Common Shares 500,000,000
Outstanding Shares 251,352,866
Reserved Shares:
Liquid Yield Option Notes 8,209,071
Universal Stock Incentive Plan 7,204,400
Employee Stock Investment Plan 1,436,376
Universal Stock Plan 773,164
--------------
Subtotal Reserved 17,623,011
------------
REMAINING AUTHORIZED SHARES 231,024,123
===========
The issuance of additional shares of Common Stock could, among other things,
have a dilutive effect on earnings per share and on the equity and voting power
of existing holders of Common Stock. The issuance of additional shares of Common
Stock by the Company also may potentially have an anti-takeover effect by making
it more difficult to obtain stockholder approval of various actions, such as a
merger or removal of management.
If approved, the increase in authorized shares would become effective as soon as
reasonably practicable after the meeting by our filing an Amendment to our
Certificate of Incorporation with the Delaware Secretary of State.
BOARD RECOMMENDATION
The Board has unanimously approved the proposed amendment and has determined
that the increase in authorized Common Stock is in the best interests of the
Company and its stockholders. The Board recommends a vote "FOR" the approval of
the amendment to the Company's Certificate of Incorporation, as amended, to
increase the authorized shares of common stock from 500,000,000 to 1,000,000,000
shares. The voting requirements for this proposal are described in the "Voting
Information" section.
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STOCKHOLDER PROPOSALS
If a stockholder intends to present any proposal in accordance with Rule 14a-8
under the Securities Exchange Act of 1934, as amended, for consideration at
Franklin's next Annual Meeting of Stockholders in 2006, the proposal must be
received by the Secretary of the Company by September 5, 2005. Such proposal
must also meet the other requirements of the rules of the Securities and
Exchange Commission relating to stockholders' proposals.
If a stockholder submits a proposal outside of Rule 14a-8 for Franklin's next
Annual Meeting of Stockholders in 2006 and if such proposal is not received by
November 19, 2005, then Franklin's proxy may confer discretionary authority on
persons being appointed as proxies on behalf of Franklin to vote on such
proposal.
All proposals should be addressed to: Barbara J. Green, Secretary, Franklin
Resources, Inc., One Franklin Parkway, Building 920, San Mateo, CA 94403.
CONTACT THE BOARD OF DIRECTORS
Stockholders or others may contact the Board, the non-management directors or
any individual director by sending a written communication appropriately
addressed to:
Board of Directors
Franklin Resources, Inc.
c/o Barbara J. Green, Secretary
One Franklin Parkway
San Mateo, CA 94403-1906
You may specify whether you would prefer to direct your communication to the
full Board of Directors, only the non-management directors or particular
individual directors. Stockholders making such communications are encouraged to
state that they are stockholders and provide the exact name in which the shares
are held and the number of shares held.
In addition, the Company has established separate procedures for its employees
to submit concerns on a confidential basis regarding questionable accounting or
auditing matters, which are available on the Company's Intranet.
Non-employees may submit any complaint regarding accounting, internal accounting
controls or auditing matters directly to the Audit Committee of the Board of the
Directors by sending a written communication appropriately addressed to:
Audit Committee
Franklin Resources, Inc.
One Franklin Parkway
San Mateo, CA 94403-1906
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THE ANNUAL REPORT
Franklin's Annual Report for the fiscal year 2004, including financial
statements, has been sent, or is being sent together with this Proxy Statement,
and is available for viewing on the Internet, to all stockholders as of the
record date. The Company is legally required to send you this information to
help you decide how to vote your proxy. Please read it carefully. However, the
financial statements and the Annual Report do not legally form any part of this
proxy soliciting material.
FORM 10-K
The Company filed an annual report on Form 10-K for the fiscal year 2004, with
the Securities and Exchange Commission. Stockholders may obtain a copy of the
annual report on Form 10-K, including financial statements and schedules
included in the annual report on Form 10-K, without charge, by visiting the
Company's website at www.franklintempleton.com or by writing to the Company's
Secretary, Barbara J. Green, at the Company's principal executive offices,
Franklin Resources, Inc., One Franklin Parkway, Building 920, San Mateo, CA
94403. Upon written request to the Company's Secretary, at the address of the
Company's principal executive offices, the exhibits set forth on the exhibit
index of the Company's annual report on Form 10-K may be made available at
reasonable charge (which will be limited to our reasonable expenses in
furnishing such exhibits).
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APPENDIX A
FRANKLIN RESOURCES, INC.
AUDIT COMMITTEE CHARTER
This Audit Committee Charter (the "Charter") has been adopted by the Board of
Directors (the "Board") of Franklin Resources, Inc. (the "Company") in
connection with its oversight of the Company's management and the business
affairs of the Company.
1. PURPOSE. The purpose of the Audit Committee (the "Committee") is to:
(a) Assist the Board in fulfilling its responsibility to oversee (i) the
Company's financial reporting, auditing and internal control
activities, including the integrity of the Company's financial
statements, (ii) the Company's compliance with legal and regulatory
requirements, (iii) the independent auditor's qualifications and
independence, and (iv) the performance of the Company's internal audit
function and independent auditor.
(b) Prepare the report the Committee is required by United States
Securities and Exchange Commission (the "SEC") rules to include in the
Company's annual proxy statement.
2. MEMBERSHIP.
(a) NUMBER. The Committee shall be comprised of not less than three
members of the Board.
(b) QUALIFICATIONS.
(i) Each member of the Committee shall be an "independent" director
in accordance with the corporate governance listing standards of
the New York Stock Exchange (the "NYSE"). Each member of the
Committee must also satisfy the additional independence
requirements under the applicable rules of the SEC.
(ii) Each member of the Committee shall, in the view of the Board, be
financially literate or shall become financially literate within
a reasonable period of time after appointment to the Committee.
In addition, at least one member of the Committee shall be an
"audit committee financial expert" as defined under the
applicable rules of the SEC, who shall, in the judgment of the
Board, have accounting or related financial management expertise
in accordance with the corporate governance listing standards of
the NYSE.
(iii) No member of the Committee may serve on the audit committee of
more than three public companies, including the Company, unless
the Board has determined that such simultaneous service would not
impair the ability of such member to effectively serve on the
Committee.
(iv) The Committee's composition shall meet such other regulatory
requirements relating to audit committees established from time
to time by the NYSE, the SEC and any other applicable
governmental or self-regulatory organization.
(c) APPOINTMENT AND REMOVAL. The members of the Committee shall be
appointed and may be removed by the Board.
(d) TERM. Each member of the Committee shall serve until his or her
successor is duly appointed and qualified, or until his or her earlier
removal or resignation or such time as he or she no longer meets the
qualifications to serve on the Committee.
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(e) CHAIRMAN. The Committee shall designate a Chairman of the Committee
from among its members from time to time.
3. MEETINGS AND OPERATIONS.
(a) MEETINGS. The Committee shall meet on a regular basis, but not less
frequently than quarterly, and hold special meetings as circumstances
require. The timing of the meetings shall be determined by the
Chairman of the Committee, in consultation with the other Committee
members.
(b) MEETINGS WITH OTHERS. The Committee shall periodically meet with the
internal auditor and the independent auditor in separate executive
sessions to provide the opportunity for full and frank discussion
without members of senior management present. The Committee shall also
periodically meet separately with management.
(c) QUORUM. At all Committee meetings, a majority of the members of the
Committee shall constitute a quorum for the transaction of business.
(d) ACTIONS. A majority of the members of the Committee shall be empowered
to act on behalf of the Committee, and the action of a majority of the
members of the Committee shall be the action of the Committee. The
Committee shall keep a record of its actions and proceedings.
(e) REPORTING TO THE BOARD. The Committee shall regularly report to the
Board actions taken by the Committee.
4. AUTHORITY AND RESPONSIBILITIES. The Committee's function is essentially one
of oversight only and shall not relieve the Company's management of its
responsibility for preparing financial statements, which accurately and
fairly present the Company's financial results and condition, or the
responsibilities of the independent auditor relating to the audit or review
of financial statements. The Audit Committee shall have the following
authority and responsibilities:
INDEPENDENT AUDITOR OVERSIGHT.
(a) The Committee shall be directly responsible for the appointment,
compensation, retention and oversight of the work of the independent
auditor engaged for the purpose of preparing or issuing an audit
report or related work or performing other audit, review or attest
services for the Company. The independent auditor shall report
directly to and may only be terminated by the Committee.
(b) The Committee shall pre-approve the engagement of the independent
auditor to provide any audit or permitted non-audit services to the
Company. The Committee may establish pre-approval policies and
procedures pursuant to which audit and permitted non-audit services
may be pre-approved. The Committee may delegate the authority to grant
pre-approvals to one or more designated members of the Committee. The
decisions of any member (to whom authority is delegated) to
pre-approve any such non-audit service shall be presented to the full
Committee at its scheduled meetings.
(c) The Committee shall establish hiring policies for employees and former
employees of independent auditors.
(d) The Committee shall annually review an independent auditor's report
including (i) the independent auditor's quality control procedures,
(ii) any material issues raised by the most recent internal quality
control review, or peer review, of the independent auditor, or by any
inquiry or investigation by governmental or professional authorities,
within the preceding five years, respecting one or more independent
audits carried out by the independent auditor, and any
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steps taken to deal with any such issues, and (iii) all relationships
between the independent auditor and the Company consistent with
Independence Standards Board Standard Number 1, such as disclosure of
any other relationships with the Company or management and their
impact on the outside auditor's independence.
(e) The Committee shall evaluate the independent auditor's qualifications,
performance and independence based on a review of the independent
auditor's report described above and a review of the auditor's work
throughout the year. As part of such evaluation, the Committee shall
(i) review and evaluate all senior members of the independent
auditor's team, (ii) consider whether the audit engagement team
partners should be rotated more frequently than is required by law, so
as to assure continuing auditor independence, (iii) consider whether
the independent auditor should be rotated, so as to assure continuing
auditor independence, and (iv) obtain the opinion of management and
the internal auditor of the independent auditor's performance.
INTERNAL AUDITOR OVERSIGHT.
(f) The Committee shall oversee the Company's internal audit function and
meet separately with the internal auditor to review any audit related
issues. As part of such oversight, the Committee shall:
(i) Annually review internal audit plans, responsibilities, staffing
and budget of the Company's internal audit function and the
adequacy of funding to carry out the proposed work scope.
(ii) Review and concur in the appointment, replacement or dismissal of
the internal audit director.
(iii) Discuss significant internal audit findings in appropriate
detail as well as the status of past audit recommendations.
FINANCIAL REPORTING OVERSIGHT.
(g) The Committee shall meet to review and discuss with management and the
independent auditor: (i) the audited financial statements, including
the Company's specific disclosures under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" ("MD&A"),
to be included in the Company's Annual Report on Form 10-K (or the
Annual Report to Shareholders if distributed prior to the filing of
the Form 10-K); (ii) the Company's interim financial results to be
included in the Company's quarterly reports on Form 10-Q, including
the specific disclosures under MD & A; and (iii) the matters required
to be discussed by Statement of Auditing Standards Nos. 61, 90 and
100, as may be modified or supplemented from time to time; which
review shall occur prior to the filing of Form 10-K or Form 10-Q,
whichever is applicable.
(h) The Committee shall review and generally discuss the Company's
policies and procedures relating to earnings press releases, including
the type and presentation of information to be included therein, as
well as financial information and earnings guidance provided to
analysts and rating agencies.
(i) The Committee shall review and discuss with Company's management and
the independent auditor prior to the filing of any audit report with
the SEC: (i) all accounting policies, practices and judgments which
may be viewed as critical; (ii) any significant changes in the
Company's accounting policies; (iii) any analyses of management and/or
the independent auditor setting forth significant issues regarding
accounting principals, financial reporting issues and judgments made
in connection with the preparation of the financial statements; (iv)
all alternative treatments of financial information within generally
accepted accounting principles that have been discussed by
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management and the independent auditor, ramifications of the use of
such alternative disclosures and treatments, and the treatment
preferred by the independent auditor; (v) the effect of regulatory and
accounting initiatives, as well as off-balance sheet structures, on
the financial statements; and (vi) other material written
communications between the independent auditor and management, such as
any management letter comments or the schedule of unadjusted
differences.
(j) The Committee shall review with management and the independent auditor
the quality and adequacy of the Company's internal controls,
disclosure controls and procedures, and accounting procedures,
including reports of material weaknesses or significant deficiencies
in the design or operation of internal controls and/or any fraud that
involves personnel having a significant role in internal control over
financial reporting, as required to be disclosed by the Chief
Executive Officer(s) and/or Chief Financial Officer in connection with
their certifications for the annual or quarterly reports of the
Company and/or presented in the independent auditor's written report,
a report of management or internal audit, or otherwise.
(k) The Committee shall provide oversight and discuss policies and
procedures with respect to Company enterprise risk assessment and risk
management.
(l) The Committee shall review with the independent auditor any audit
problems and/or difficulties and management's response, and resolve
any disagreements regarding financial reporting arising between the
Company's management and any independent auditor employed by the
Company. The review shall also include discussion of the
responsibilities, budget and staffing of the internal auditor.
AUDIT COMMITTEE REPORT.
(m) The Committee shall prepare the annual report of the Committee, which
shall be included in the Company's annual proxy statement.
LEGAL AND REGULATORY COMPLIANCE OVERSIGHT.
(n) The Committee shall assist the Board in overseeing the Company's legal
and regulatory compliance.
(o) The Committee shall establish procedures for the receipt, retention,
and treatment of complaints received by the Company regarding
accounting, internal controls, or auditing matters, which procedures
shall include a process for the confidential, anonymous submission by
Company employees of concerns regarding questionable accounting or
auditing matters. In addition, the Committee shall review complaints
received directly by the Committee under those procedures or received
through the Compliance and Ethics Hot-Line established by the Company
to permit anonymous reporting of violations of the Code of Ethics and
Business Conduct.
OTHER.
(p) In discharging its oversight role, the Committee is authorized to
investigate any matter that the Committee deems appropriate, with
access to all books, records, facilities and personnel of the Company.
(q) The Committee shall have the authority to perform any other activities
it deems are appropriate, consistent with this Charter.
(r) The Committee shall have the authority to retain independent advisors,
including, but not limited to, independent counsel, auditors or other
experts, at the expense of the Company, to assist in carrying out
Committee responsibilities, as the Committee may deem appropriate.
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5. ANNUAL PERFORMANCE EVALUATION. The Committee shall annually review its own
performance in such manner as it deems appropriate.
6. ANNUAL REVIEW OF COMMITTEE CHARTER. The Committee shall annually review and
reassess the adequacy of this Charter and recommend any proposed changes to
the Board for approval.
7. GENERAL. This Charter is intended as a component of the flexible framework
within which the Board, assisted by its committees, directs the affairs of
the Company. While it should be interpreted in the context of applicable
laws, regulations and listing requirements, as well as in the context of
the Company's Articles of Incorporation, as amended, and Amended and
Restated By-Laws, it is not intended to establish by its own force any
legally binding obligations.
Last revised as of December 16, 2004
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APPENDIX B
FRANKLIN RESOURCES, INC.
COMPENSATION COMMITTEE CHARTER
This Compensation Committee Charter (the "Charter") has been adopted by the
Board of Directors (the "Board") of Franklin Resources, Inc. (the "Company" or
"Franklin") in connection with its oversight of the Company's management and the
business affairs of the Company.
1. PURPOSE. The purpose of the Compensation Committee (the "Committee") is to:
(a) Oversee the establishment of goals and objectives related to Chief
Executive Officer compensation, and determine the compensation level
of the Chief Executive Officer(s).
(b) Assist the Board in fulfilling its responsibility relating to (i) the
compensation (and related benefits) of the executive officers of the
Company, and (ii) the administration of the Company's incentive
compensation and equity-based plans that are subject to Board
approval.
(c) Prepare the annual report on executive officer compensation for the
Company's proxy statement.
2. MEMBERSHIP.
(a) NUMBER. The Committee shall consist of no fewer than three members of
the Board.
(b) QUALIFICATIONS. Each member of the Committee shall be an "independent"
director in accordance with the corporate governance listing standards
of the New York Stock Exchange. In addition, each member shall qualify
as an "outside director" for purposes of Section 162(m) of the
Internal Revenue Code of 1986, as amended, and as a "non-employee
director" for purposes of Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended.
(c) APPOINTMENT AND REMOVAL. The members of the Committee shall be
appointed and may be removed by the Board.
(d) TERM. Each member of the Committee shall serve until his or her
successor is duly appointed and qualified, or until his or her earlier
removal or resignation or such time as he or she is no longer an
"independent" director of the Board.
(e) CHAIRMAN. The Committee shall designate a Chairman of the Committee
from among its members from time to time.
3. MEETINGS AND OPERATIONS.
(a) MEETINGS. The Committee shall meet on a regular basis, but not less
frequently than quarterly, and will hold special meetings as
circumstances require. The Committee may meet in executive sessions
and invite one or more members of management, independent advisors or
other third parties to attend as it deems appropriate. The timing of
the meetings shall be determined by the Chairman of the Committee, in
consultation with the other Committee members.
(b) QUORUM. At all Committee meetings, a majority of the members of the
Committee shall constitute a quorum for the transaction of business.
(c) ACTIONS. The action of a majority of those present at a meeting, at
which a quorum is present, shall be the action of the Committee. The
Committee shall keep a record of its actions and proceedings.
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(d) REPORTING TO THE BOARD. The Committee shall regularly report to the
Board actions taken by the Committee.
(e) DELEGATION. In discharging its duties, the Committee shall have full
authority to form subcommittees and delegate any or all of its duties
to such subcommittees as the Committee deems appropriate.
(f) EXECUTIVE ATTENDANCE AT MEETINGS. No executive officer should attend
that portion of any meeting of the Committee during which such
executive officer's performance or compensation is discussed, unless
specifically invited by the Committee.
4. AUTHORITY AND RESPONSIBILITIES. The Committee shall have the following
authority and responsibilities:
CEO EVALUATION AND COMPENSATION.
(a) The Committee shall (i) review and approve corporate goals and
objectives relevant to the compensation of the Chief Executive
Officer(s), (ii) evaluate the performance of the Chief Executive
Officer(s) in light of those goals and objectives, and (iii) determine
and approve the compensation of the Chief Executive Officer(s) as the
Committee determines is in the best interests of the Company based on
this evaluation and any other factors the Committee deems appropriate.
(b) In setting the long-term incentive component of the compensation of
the Chief Executive Officer(s) as the Committee determines is in the
best interests of the Company, the Committee may consider, among other
factors, the Company's performance and relative shareholder return,
the value of similar incentive awards to Chief Executive Officers at
comparable companies, the awards given to the Company's Chief
Executive Officer(s) in past years and any other factors the Committee
deems appropriate.
(c) The Committee shall meet annually with the Chief Executive Officer(s)
to discuss the recommendations of the Chief Executive Officer(s)
concerning performance goals and the evaluation of the Chief Executive
Officer(s) of the Company's progress toward meeting those goals.
OTHER COMPENSATION RELATED RESPONSIBILITIES.
(d) The Committee shall review and make recommendations to the Board on
the overriding compensation philosophy for the Company.
(e) The Committee shall review and approve the compensation of the
executive officers of the Company (other than the Chief Executive
Officer(s)).
(f) The Committee shall review and approve: (i) employment agreements,
severance arrangements and change in control agreements or provisions;
and (ii) any special or supplemental benefits for, the Chief Executive
Officer(s) and the executive officers of the Company and its
subsidiaries where the amounts exceed certain threshold levels
determined by the Committee from time to time.
(g) The Committee shall at least annually review and make recommendations
to the Board on the compensation (including equity-based compensation)
of the Company's directors. In so reviewing and making recommendations
on director compensation, the Committee shall consider, among other
things, the following policies and principles:
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(i) that the compensation should fairly pay the directors for the
work, time commitment and efforts required by directors of a
company of Franklin's size and scope of business activities,
including service on Board committees;
(ii) that a component of the compensation should be designed to align
the directors' interest with the long-term interests of the
Company's shareholders; and
(iii) that directors' independence may be compromised or impaired for
Board or committee purposes if director compensation exceeds
customary levels.
INCENTIVE PLANS.
(h) The Committee shall make recommendations to the Board with respect to
incentive compensation and equity-based plans that are subject to
Board approval. The Committee shall also review and make
recommendations with respect to performance or operating goals for
participants in the Company's incentive plans.
(i) The Committee shall grant, administer, approve and ratify awards under
incentive compensation and stock incentive plans, including amendments
to the awards made under any such plans, and review and monitor awards
under such plans. The Committee shall also serve as the plan
administrator for such incentive compensation plans, stock incentive
plans and stock purchase plans as the Committee, from time to time, is
so designated or as required by the Board or the plan documents.
EXECUTIVE COMPENSATION REPORT.
(j) The Committee shall prepare the report on executive officer
compensation that the United States Securities and Exchange Commission
rules require to be included in the Company's annual proxy statement.
OTHER.
(k) The Committee shall have the authority to perform any other activities
it deems are appropriate, consistent with this Charter.
(l) The Committee shall have the sole authority to retain, at the expense
of the Company, and terminate any compensation consulting firm to
assist in the evaluation of director, Chief Executive Officer or
executive compensation, including the authority to approve the
consulting firm's fees and other retention terms. The Committee also
shall have the authority to retain other independent advisors,
including, but not limited to, independent counsel or other experts,
at the expense of the Company, to assist in carrying out Committee
responsibilities, as the Committee may deem appropriate.
5. ANNUAL PERFORMANCE EVALUATION. The Committee shall annually review its own
performance in such manner as it deems appropriate.
6. ANNUAL REVIEW OF COMMITTEE CHARTER. The Committee shall annually review and
reassess the adequacy of this Charter and recommend any proposed changes to
the Board for approval.
7. GENERAL. This Charter is intended as a component of the flexible framework
within which the Board, assisted by its committees, directs the affairs of
the Company. While it should be interpreted in the context of applicable
laws, regulations and listing requirements, as well as in the context of
the Company's Articles of Incorporation, as amended, and Amended and
Restated By-Laws, it is not intended to establish by its own force any
legally binding obligations.
Last revised as of December 16, 2004
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APPENDIX C
FRANKLIN RESOURCES, INC.
CORPORATE GOVERNANCE COMMITTEE CHARTER
This Corporate Governance Committee Charter (the "Charter") has been adopted by
the Board of Directors (the "Board") of Franklin Resources, Inc. (the "Company")
in connection with its oversight of the Company's management and the business
affairs of the Company.
1. PURPOSE. The purpose of the Corporate Governance Committee (the
"Committee") is to:
(a) Provide counsel to the Board with respect to the organization,
function and composition of the Board and its committees.
(b) Oversee the evaluation of the Board and management of the Company.
(c) Develop and recommend to the Board corporate governance policies and
procedures applicable to the Company.
(d) Identify and recommend to the Board potential director candidates for
nomination.
2. MEMBERSHIP.
(a) NUMBER. The Committee shall be comprised of not less than three
members of the Board.
(b) QUALIFICATIONS. Each member of the Committee shall be an "independent"
director in accordance with the corporate governance listing standards
of the New York Stock Exchange.
(c) APPOINTMENT AND REMOVAL. The members of the Committee shall be
appointed and may be removed by the Board.
(d) TERM. Each member of the Committee shall serve until his or her
successor is duly appointed and qualified, or until his or her earlier
removal or resignation or such time as he or she is no longer an
"independent" director of the Board.
(e) CHAIRMAN. The Committee shall designate a Chairman of the Committee
from among its members from time to time.
3. MEETINGS AND OPERATIONS.
(a) MEETINGS. The Committee shall meet on a regular basis, but not less
frequently than quarterly, and hold special meetings as circumstances
require. The Committee may meet in executive sessions and invite one
or more members of management, independent advisors or other third
parties to attend as it deems appropriate. The timing of the meetings
shall be determined by the Chairman of the Committee, in consultation
with the other Committee members.
(b) QUORUM. At all Committee meetings, a majority of the members of the
Committee shall constitute a quorum for the transaction of business.
(c) ACTIONS. The action of a majority of those present at a meeting, at
which a quorum is present, shall be the action of the Committee. The
Committee shall keep a record of its actions and proceedings.
(d) REPORTING TO THE BOARD. The Committee shall regularly report to the
Board actions taken by the Committee.
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(e) DELEGATION. In discharging its duties, the Committee shall have full
authority to form subcommittees and delegate any or all of its duties
to such subcommittees as the Committee deems appropriate.
4. AUTHORITY AND RESPONSIBILITIES. The Committee shall have the following
authority and responsibilities:
DIRECTOR NOMINATIONS.
(a) The Committee shall develop and recommend to the Board for adoption
specific, minimum qualifications that the Committee believes must be
met by a potential nominee for director, including any specific
qualities or skills that the Committee believes are necessary for one
or more of the directors to possess.
(b) The Committee shall develop and recommend to the Board for adoption
director independence standards.
(c) The Committee shall develop and recommend to the Board for adoption
procedures by which stockholders of the Company can recommend
candidates for nomination to the Board.
(d) The Committee shall develop and recommend to the Board for adoption
procedures by which director nominees are identified and evaluated by
the Committee.
(e) The Committee shall identify and evaluate candidates qualified to
become potential director nominees, including any such candidates
recommended by stockholders, in accordance with the minimum
qualifications and procedures approved by the Board. The Committee
shall recommend to the Board candidates or nominees for election as
members of the Board.
(f) The Committee shall have the sole authority to retain and terminate
any search firm to assist in identifying director candidates,
including the authority to approve the search firm's fees and other
retention terms.
(g) The Committee shall recommend to the Board directors for appointment
to the various committees of the Board. At least annually, the
Committee shall review the composition of each committee of the Board,
including the qualifications of its members, and make such
recommendations to the Board for rotation of the committee members as
the Committee deems appropriate.
CORPORATE GOVERNANCE.
(h) The Committee shall develop and recommend to the Board for adoption a
set of Corporate Governance Guidelines, which shall comply with the
corporate governance listing standards of the New York Stock Exchange.
The Committee shall assess such guidelines, and make recommendations
to the Board for changes to such guidelines, from time to time as the
Committee deems appropriate.
(i) The Committee shall develop and recommend to the Board for adoption a
Code of Ethics and Business Conduct for the Company's directors,
officers and employees, which shall comply with the corporate
governance listing standards of the New York Stock Exchange and the
rules of the United States Securities and Exchange Commission. The
Committee shall assess such code, and make recommendations to the
Board for changes to such code, from time to time as the Committee
deems appropriate.
(j) The Committee shall review the anti-money laundering policies,
procedures and operations of the Company on a periodic basis as the
Committee deems appropriate.
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(k) The Committee shall develop and recommend to the Board for adoption
such other policies or procedures regarding the corporate governance
of the Company from time to time as the Committee deems appropriate.
(l) The Committee shall make recommendations to the Board from time to
time as the Committee deems appropriate regarding the structure of the
various committees of the Board, including responsibilities,
qualifications of the members and delegation authority.
OVERSIGHT AND EVALUATIONS.
(m) The Committee shall oversee the evaluation of management of the
Company and make recommendations to the Board as appropriate.
(n) The Committee shall oversee the Company's orientation for newly
elected members of the Board and continuing education process for the
Board and assist the Board in its implementation.
(o) The Committee shall oversee the Board's annual self-evaluation. In
addition, the Committee shall obtain comments regarding the Board's
performance from all directors and shall report annually to the Board
with an assessment of the Board's performance.
(p) The Committee shall oversee the annual self-evaluation of each
committee of the Board. In addition, the Committee shall at least
annually review each committee's performance, including its reporting
to the full Board, and make such recommendations to the Board as the
Committee deems appropriate.
OTHER.
(q) The Committee shall have the authority to perform any other activities
it deems are appropriate, consistent with this Charter.
(r) The Committee shall have the authority to retain independent advisors,
at the expense of the Company, to assist in carrying out Committee
responsibilities, as the Committee may deem appropriate.
5. ANNUAL PERFORMANCE EVALUATION. The Committee shall annually review its own
performance in such manner as it deems appropriate.
6. ANNUAL REVIEW OF COMMITTEE CHARTER. The Committee shall annually review and
reassess the adequacy of this Charter and recommend any proposed changes to
the Board for approval.
7. GENERAL. This Charter is intended as a component of the flexible framework
within which the Board, assisted by its committees, directs the affairs of
the Company. While it should be interpreted in the context of applicable
laws, regulations and listing requirements, as well as in the context of
the Company's Certificate of Incorporation, as amended, and Amended and
Restated By-Laws, it is not intended to establish by its own force any
legally binding obligations.
Last revised as of December 16, 2004
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APPENDIX D
FRANKLIN RESOURCES, INC.
CORPORATE GOVERNANCE GUIDELINES
These Corporate Governance Guidelines (the "Guidelines") have been adopted by
the Board of Directors (the "Board") of Franklin Resources, Inc. (the "Company")
in connection with its oversight of the Company's management and business
affairs.
1. COMPOSITION OF BOARD OF DIRECTORS.
(a) INDEPENDENCE OF DIRECTORS. A majority of directors must be
"independent" directors in accordance with the corporate governance
listing standards of the New York Stock Exchange (the "Independence
Rules"). In addition, at least three directors must also satisfy the
additional independence requirements for audit committee members under
the Independence Rules and the applicable rules of the United States
Securities and Exchange Commission (the "SEC").
(b) DIRECTOR QUALIFICATIONS AND SELECTION. The Corporate Governance
Committee of the Board is responsible for establishing a policy
setting forth the specific, minimum qualifications that the Corporate
Governance Committee believes must be met by a nominee recommended by
the Corporate Governance Committee for a position on the Board, and
describing any specific qualities or skills that the Corporate
Governance Committee believes are necessary for one or more of the
directors to possess. Such qualifications shall include the
requirements under the Independence Rules as well as consideration of
the individual skills, experience and perspectives that will help
create an effective Board. The Corporate Governance Committee shall
establish a policy setting forth the process for identifying and
evaluating nominees for directors, including the consideration of any
director candidates recommended by stockholders, and shall recommend
to the Board candidates for election as directors. The Board shall
nominate such candidates for election as directors by the Company's
stockholders or fill vacancies that may arise.
(c) SIZE OF BOARD. The Board shall periodically evaluate the size of the
Board and make any changes it deems appropriate in accordance with the
Amended and Restated By-Laws of the Company (the "By-Laws").
(d) TERM LIMITS. The Board does not believe that it should establish term
limits for its members. The Board recognizes the value of continuity
of directors who have experience with the Company and who have gained
over a period of time a level of understanding about the Company and
its operations that enable the director to make a significant
contribution to the deliberations of the Board.
(e) RETIREMENT. Persons are not eligible to be recommended for nomination
as a director for a term commencing on or after their 75th birthday,
except for any person who beneficially owns 5% or more of the
outstanding shares of the Company. Incumbent directors reaching the
age of 75 during their term may complete such term.
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2. CONFLICTS OF INTEREST AND OTHER COMMITMENTS.
(a) With respect to any matter under discussion by the Board, directors
must disclose to the Board any potential conflicts of interest they
may have and, if appropriate, refrain from voting on a matter in which
they may have a conflict.
(b) Each director is responsible for ensuring that other commitments do
not conflict or materially interfere with the director's
responsibilities to the Company. To ensure that serving as a director
of another company or any other change in circumstances such as
employment, business or "immediate family" relationships (as defined
under the Independence Rules) would not conflict with his or her
duties to the Company, and to evaluate whether disclosure needs to be
made in the Company's proxy statement or the director's status under
the Independence Rules is changed, the director should consult the
Chairman of the Board and the Corporate Secretary in advance of
accepting an invitation to serve on another company's board and should
report any change in circumstances to the Corporate Secretary. The
Chairman of the Board and the Corporate Secretary should report to the
Corporate Governance Committee in writing the results of such
consultation.
3. DIRECTOR RESPONSIBILITIES.
(a) DUTIES. The directors are responsible for exercising care, loyalty and
good faith; acting in a manner they reasonably believe is in the best
interests of the Company and its stockholders and in a manner
consistent with their fiduciary duties. In fulfilling their
responsibilities, directors may ask such questions and conduct such
investigations as they deem appropriate, and may reasonably rely on
the information provided to them by the Company's senior executives
and its outside advisors and auditors. The directors shall be entitled
to have the Company purchase directors' and officers' liability
insurance on their behalf and receive the benefits of indemnification
and exculpation to the fullest extent permitted by law, the Company's
Certificate of Incorporation, as amended (the "Certificate"), and
By-Laws and any indemnification agreements, as applicable.
(b) MEETINGS AND PREPARATION. Directors are expected to regularly attend
Board meetings and meetings of committees on which they serve, to
spend the time needed in preparation for such meetings and to meet as
frequently as they deem necessary to properly discharge their
responsibilities. In addition, directors should stay abreast of the
Company's business and markets. To the fullest extent possible,
directors should review agendas and other meeting materials in advance
of any Board or committee meetings.
(c) MEETING AGENDAS. The Chairman of the Board and the Corporate Secretary
will establish and disseminate the agenda for each Board meeting. Each
Board member is free to suggest the inclusion of items on the agenda.
Each Board member is free to raise at any Board meeting subjects that
are not on the agenda for that meeting.
(d) COMPANY REPRESENTATION. The Board believes that management speaks for
the Company. Individual directors may, from time to time, expressly
represent the Company in meetings or otherwise communicate with
various third parties on the Company's behalf. When representing the
Company, it is generally expected that directors will do this with the
knowledge of management and, unless warranted by unusual circumstances
or as contemplated by the committee charters, only at the request of
management.
4. EXECUTIVE SESSIONS. The non-management directors (i.e., directors who are
not Company officers) will meet separately without management in regular
executive sessions. The "independent" directors as defined in the
Independence Rules will meet at least twice a year in executive session.
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5. BOARD COMMITTEES.
(a) COMMITTEES. The Board shall have an Audit Committee, a Compensation
Committee and a Corporate Governance Committee. All members of these
committees will be "independent" directors, as defined in the
Independence Rules. In addition, Audit Committee members shall satisfy
the additional independence requirements for audit committee members
under the Independence Rules and the applicable rules of the SEC.
(b) APPOINTMENT, REMOVAL AND TERM. Committee members shall be appointed
and may be removed by the Board. Each member of a committee shall
serve until his or her successor is duly appointed and qualified, or
until his or her earlier removal or resignation or such time as he or
she no longer meets the qualifications to serve on the committee.
(c) CHAIRMAN. Each committee shall designate a Chairman of the committee
from among its members from time to time.
(d) CHARTERS. Each committee shall have its own written charter. The
charters will set forth the purpose, authority and responsibilities of
the committees as well as qualifications for committee membership,
procedures for committee member appointment and removal, committee
structure and operations, reporting to the Board, and annual
performance evaluations of the committee. The charters of each
committee will be reviewed periodically with a view toward delegating
to the standing committees the full authority of the Board concerning
specified matters appropriate to such committee.
(e) MEETINGS. Each committee shall meet on a regular basis, but not less
frequently than quarterly, and hold special meetings as circumstances
require. The timing of the meetings shall be determined by the
Chairman of the committee, in consultation with the other committee
members. The Chairman of each committee, in consultation with the
appropriate members of the committee and management, will develop the
committee's agenda.
(f) ADDITIONAL COMMITTEES. The Board may, from time to time, establish or
maintain additional committees as it deems appropriate and delegate to
such committees such authority permitted by applicable laws and the
By-Laws as the Board sees fit.
6. DIRECTOR ACCESS TO OFFICERS, EMPLOYEES AND INDEPENDENT ADVISORS.
(a) OFFICERS AND EMPLOYEES. Directors shall have full and free access to
officers and employees of the Company. Any meetings or contacts that a
director wishes to initiate may be arranged directly by the director
or through the Chief Executive Officer(s) or the Corporate Secretary.
(b) INDEPENDENT ADVISORS. The Board and each Board committee shall have
full and free access to the Company's independent advisors and each
shall have the power to retain legal, accounting, financial or other
advisors as they may deem appropriate at the expense of the Company,
without the need to obtain the prior approval of any officer of the
Company. The Corporate Secretary of the Company will arrange for
payment of the invoices of any such third party advisors.
7. DIRECTOR COMPENSATION. The form and amount of director compensation will be
determined by the Compensation Committee in accordance with the policies
and principles set forth in its charter, and the Compensation Committee
will conduct an annual review of director compensation.
8. DIRECTOR ORIENTATION AND CONTINUING EDUCATION.
(a) ORIENTATION. The Board, with the assistance of the Corporate
Governance Committee, shall establish, or identify and provide access
to, appropriate orientation programs, sessions or material for newly
elected directors of the Company for their benefit either prior to or
within a reasonable period of time after their nomination or election
as a director. This orientation may include
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presentations by senior management to familiarize new directors with
the Company's strategic plans, its significant financial, accounting
and risk management issues, its compliance program, its Code of Ethics
and Business Conduct and these Guidelines, its principal officers, and
its internal and independent auditors. In addition, the orientation
will include visits to Company headquarters and, to the extent
appropriate, other of the Company's significant facilities. All other
directors are also invited to attend orientation.
(b) EDUCATION. The Board, with the assistance of the Corporate Governance
Committee, shall also identify and/or develop continuing education
opportunities for the directors. Directors are encouraged to attend
continuing education programs sponsored by universities, stock
exchanges or other organizations. The Company will reimburse the
reasonable costs and expenses associated with such programs.
9. MANAGEMENT SUCCESSION. The Board shall oversee the succession planning for
the management of the Company, including policies and principles for the
selection and performance review of the Chief Executive Officer(s), as well
as policies regarding succession in the event of an emergency or the
retirement of the Chief Executive Officer(s).
10. COMPANY'S LONG-TERM STRATEGIC PLANS. The Board will periodically review
with management the Company's long-term strategic plans.
11. ANNUAL PERFORMANCE EVALUATION. The Board, with the assistance of the
Corporate Governance Committee, shall annually review its own performance
in such manner as it deems appropriate to determine whether the Board and
its committees are functioning effectively. The full Board will discuss the
evaluation to determine what action, if any, could improve Board and
committee performance.
12. REVIEW OF CORPORATE GOVERNANCE GUIDELINES. The Corporate Governance
Committee, as appropriate, shall periodically review and reassess the
adequacy of these Guidelines to determine whether any changes are
appropriate and recommend to the Board any such changes for the Board's
approval.
13. GENERAL. These Guidelines are intended as a component of the flexible
framework within which the Board, assisted by its committees, directs the
affairs of the Company. While they should be interpreted in the context of
applicable laws, regulations and listing requirements, as well as in the
context of the Company's Certificate and By-Laws, they are not intended to
establish by their own force any legally binding obligations.
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E-10
APPENDIX E
FRANKLIN RESOURCES, INC.
2002 UNIVERSAL STOCK INCENTIVE PLAN
[(as amended and restated December 16, 2004)]
1. GENERAL
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1.1 PURPOSE. The Franklin Resources, Inc. 2002 Universal Stock Incentive
Plan (the "2002 Stock Plan") has been established by Franklin Resources, Inc., a
Delaware corporation (the "Company") to (i) attract and retain persons eligible
to participate in the 2002 Stock Plan; (ii) motivate employees, by means of
appropriate incentives, to achieve long-range performance goals; (iii) provide
incentive compensation opportunities that are competitive with those of other
similar companies; and (iv) further identify employees' interests with those of
the Company's other stockholders through compensation that is based on the
Company's common stock; and thereby promote the long-term financial interest of
the Company and the Subsidiaries.
1.2 PARTICIPATION. Subject to the terms and conditions of the 2002 Stock
Plan, the Committee shall determine and designate, from time to time, from among
the Participants, those persons who will be granted one or more Awards under the
2002 Stock Plan. In the discretion of the Committee, a Participant may be
granted any Award permitted under the provisions of the 2002 Stock Plan, and
more than one Award may be granted to a Participant. Awards may be granted as
alternatives to or replacement of awards outstanding under the 2002 Stock Plan,
or any other plan or arrangement of the Company or a Subsidiary (including a
plan or arrangement of a business or entity, all or a portion of which is
acquired by the Company or a Subsidiary).
1.3 OPERATION, ADMINISTRATION, AND DEFINITIONS. The operation and
administration of the 2002 Stock Plan, including the Awards made under the 2002
Stock Plan, shall be subject to the provisions of Section 4 (relating to
operation and administration). Capitalized terms in the 2002 Stock Plan shall be
defined as set forth in the 2002 Stock Plan (including the definition provisions
of Section 8 of the 2002 Stock Plan).
1.4 STOCK SUBJECT TO 2002 STOCK PLAN; SHARE COUNTING. Subject to the
provisions of this Section 1.4 and Section 6.1 of the 2002 Stock Plan, the
maximum aggregate number of shares which may be delivered pursuant to Awards,
including without limitation, Options and SAR's granted under the 2002 Stock
Plan, is 30,000,000. The shares may be authorized, but unissued, or reacquired
Common Stock.
(a) To the extent any Shares covered by an Award are not delivered to
a Participant or beneficiary because the Award is forfeited or canceled, or the
Shares are not delivered because the Award is settled in cash, such Shares shall
not be deemed to have been delivered for purposes of determining the maximum
number of Shares available for delivery pursuant to Awards granted under the
2002 Stock Plan.
(b) If the exercise price of any Option granted under the 2002 Stock
Plan is satisfied by tendering Shares to the Company (by either actual delivery
or by attestation), only the number of Shares issued net of the Shares tendered
shall be deemed delivered for purposes of determining the maximum number of
Shares available for delivery pursuant to Awards (other than Options) granted
under the 2002 Stock Plan.
(c) Subject to adjustment under Section 6.1, (i) the maximum number of
shares that may be granted to any one individual pursuant to Section 2 (relating
to Options and SARs) shall be 400,000 Shares during any one-calendar-year period
and (ii) the maximum number of Shares that may be granted to any one individual
subject to Section 3 (relating to Stock Unit Awards, Restricted Stock Awards,
Restricted Stock Unit Awards and Performance Share Awards) shall be 1,000,000
Shares during any one-calendar-year period (regardless of when such Shares are
deliverable).
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2. OPTIONS AND SARS
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2.1 OPTIONS.
(a) An Option is a grant of rights to purchase Shares at an Exercise
Price established by the Committee. Options granted under this Section 2 may be
either Incentive Stock Options ("ISO") or Nonstatutory Stock Options ("NSO"), as
determined in the discretion of the Committee.
(b) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be automatically treated as Nonstatutory
Stock Options. For purposes of this paragraph 2.1(b), Incentive Stock Options
shall be taken into account in the order in which they were granted, and the
Fair Market Value of the Shares shall be determined as of the original date the
Option with respect to such Shares is granted.
(c) The term of each Option shall be the term stated in the Option
Agreement; provided, however, that in the case of any Incentive Stock Option,
the term shall be no more than ten (10) years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement. However, in the
case of an Incentive Stock Option granted to an Optionee who, at the time the
Option is granted, owns stock representing more than ten percent (10%) of the
voting power of all classes of stock of the Company or any Parent or Subsidiary,
the term of the Option shall be five (5) years from the date of grant thereof or
such shorter term as may be provided in the Option Agreement.
(d) The date of grant of an Option shall, for all purposes, be the
date on which the Committee makes the determination granting such Option, or
such other date as is determined by the Board. Notice of the determination shall
be given to each Participant to whom an Option is so granted within a reasonable
time after the date of such grant.
2.2 STOCK APPRECIATION RIGHTS. A "Stock Appreciation Right" ("SAR") is a
grant of rights to receive, in cash or Stock (as determined by the Committee),
value equal to (or otherwise based on) the excess of: (a) the Fair Market Value
of a specified number of Shares at the time of exercise; over (b) an Exercise
Price established by the Committee.
2.3 EXERCISE PRICE. The Exercise Price of each Option and SAR shall be
established by the Committee or shall be determined by a method established by
the Committee at the time the Option or SAR is granted; provided that:
(a) In the case of an ISO,
(i) granted to an employee who, at the time of the grant of such
Incentive Stock Option, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(ii) granted to any employee, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
2.4 TIME AND MANNER OF EXERCISE. Options and SARs shall be exercisable in
accordance with such terms and conditions and during such periods as may be
established by the Committee; subject to the following terms regarding Options:
(a) TERMINATION OF EMPLOYMENT. In the event of termination of an
Optionee's Continuous Status as an employee with the Company, such Optionee may,
but only within ninety (90) days after the date of such termination (or such
other period as is set out by the Committee in the Option Agreement, but in no
event
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later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise the Option to the extent that Optionee was entitled
to exercise it at the date of such termination. To the extent that Optionee was
not entitled to exercise the Option at the date of such termination, or if
Optionee does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.
(b) DISABILITY OF OPTIONEE. Notwithstanding the provisions of
paragraph 2.4(a) above, in the event of termination of an Optionee's Continuous
Status as an employee as a result of disability (as determined by the Board in
accordance with the policies of the Company), Optionee may, but only within six
(6) months from the date of such termination (or such other period as is set out
by the Committee in the Option Agreement, but in no event later than the
expiration date of the term of such Option as set forth in the Option
Agreement), exercise the Option to the extent otherwise entitled to exercise it
at the date of such termination. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(c) DEATH OF OPTIONEE. In the event of the death of an Optionee, the
Option may be exercised, at any time within twelve (12) months following the
date of death (or such other period as is set out by the Committee in the Option
Agreement, but in no event later than the expiration date of the term of such
Option as set forth in the Option Agreement), by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent the Optionee was entitled to exercise the Option at the
date of death. To the extent that Optionee was not entitled to exercise the
Option at the date of termination, or if Optionee does not exercise such Option
to the extent so entitled within the time specified herein, the Option shall
terminate.
2.5 PAYMENT OF EXERCISE PRICE. Payment of the Exercise Price of an Option
shall be subject to the following:
(a) The full Exercise Price for Shares purchased upon the exercise of
any Option shall be paid at the time of such exercise (except that, in the case
of an exercise arrangement approved by the Committee and described in paragraph
2.5(b), payment may be made as soon as practicable after the exercise).
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Committee (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (i) cash, (ii)
check, (iii) other Shares (by delivery of certificates or attestation) which (x)
either have been owned by the Optionee for more than six months on the date of
surrender or were not acquired, directly or indirectly, from the Company, and
(y) have a Fair Market Value on the date of surrender equal to the aggregate
exercise price of the Shares as to which said Option shall be exercised, (iv)
delivery of authorization for the Company to retain from the total number of
Shares as to which the Option is exercised that number of Shares having a Fair
Market Value on the date of exercise equal to the exercise price for the total
number of Shares as to which the Option is exercised, (v) delivery of a properly
executed exercise notice together with irrevocable instructions to a broker to
promptly deliver to the Company the amount of sale or loan proceeds required to
pay the exercise price, (vi) irrevocably authorizing a third party to sell
Shares (or a sufficient portion of the shares) acquired upon exercise of the
Option and remit to the Company a sufficient portion of the sale proceeds to pay
the entire Exercise Price and any tax withholding resulting from such exercise,
(vii) any combination of the foregoing methods of payment, (viii) or such other
consideration and method of payment for the issuance of Shares to the extent
permitted under Applicable Laws.
2.6 SETTLEMENT OF AWARD. Shares delivered pursuant to the exercise of an
Option or SAR shall be subject to such conditions, restrictions and
contingencies as the Committee may establish in the applicable Award Agreement
at the time of grant. Settlement of SARs may be made in Shares (valued at their
Fair Market Value at the time of exercise), in cash, or in a combination
thereof, as determined in the discretion of the Committee. The Committee, in its
discretion, may impose such conditions, restrictions and contingencies with
respect to Shares acquired pursuant to the exercise of an Option or an SAR as
the Committee determines to be desirable.
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3. OTHER STOCK AWARDS
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3.1 DEFINITIONS.
(a) A "Stock Unit" Award is the grant of a right to receive Shares in
the future.
(b) A "Performance Share" Award is a grant of a right to receive
Shares or Stock Units which is contingent on the achievement of performance or
other objectives during a specified period.
(c) A "Restricted Stock" Award is a grant of Shares, and a "Restricted
Stock Unit" Award is the grant of a right to receive Shares in the future, with
such Shares or right to future delivery of such Shares subject to a risk of
forfeiture or other restrictions that will lapse upon the achievement of one or
more goals relating to completion of service by the Participant, or achievement
of performance or other objectives, as determined by the Committee.
3.2 RESTRICTIONS ON STOCK AWARDS. Each Stock Unit Award, Restricted Stock
Award, Restricted Stock Unit Award and Performance Share Award shall be subject
to the following:
(a) Any such Award shall be subject to such conditions, restrictions
and contingencies as the Committee shall determine.
(b) The Committee may designate whether any such Award being granted
to any Participant are intended to be "performance-based compensation" as that
term is used in Section 162(m) of the Code. Any such Awards designated as
intended to be "performance-based compensation" shall be conditioned on the
achievement of one or more Performance Measures. The Performance Measures that
may be used by the Committee for such Awards shall be based on any one or more
of the criteria attached hereto on Attachment I, as selected [and further
defined] by the Committee. [The Performance Measures may be applicable to the
Company and/or any of its individual business units and may differ from
Participant to Participant.] For Awards intended to be "performance-based
compensation," the grant of the Awards and the establishment of the Performance
Measures shall be made during the period required under Section 162(m) of the
Code and shall be subject to the individual share limit set out in Section
1.4(c) above.
4. OPERATION AND ADMINISTRATION
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4.1 EFFECTIVE DATE. ^[The] 2002 Stock Plan ^[became] effective as of
October 10, 2002^. The 2002 Stock Plan shall be unlimited in duration and, in
the event of [the] 2002 Stock Plan termination, shall remain in effect as long
as any Awards under it are outstanding; provided, however, that, to the extent
required by the Code, no ISO may be granted under the 2002 Stock Plan ^[after
October 9, 2012].
4.2 GENERAL RESTRICTIONS. Delivery of Shares or other amounts under the
2002 Stock Plan shall be subject to the following:
(a) Notwithstanding any other provision of the 2002 Stock Plan, the
Company shall have no liability to deliver any Shares under the 2002 Stock Plan
or make any other distribution of benefits under the 2002 Stock Plan unless such
delivery or distribution would comply with all applicable laws (including,
without limitation, the requirements of the Securities Act of 1933), and the
applicable requirements of any securities exchange or similar entity.
(b) To the extent that the 2002 Stock Plan provides for issuance of
stock certificates to reflect the issuance of Shares, the issuance may be
effected on a non-certificated basis, to the extent not prohibited by applicable
law or the applicable rules of any stock exchange.
4.3 TAX WITHHOLDING. All distributions under the 2002 Stock Plan are
subject to withholding of all applicable taxes, and the Committee may condition
the delivery of any shares or other benefits under the 2002 Stock Plan on
satisfaction of the applicable withholding obligations. The Committee, in its
discretion, and subject to such requirements as the Committee may impose prior
to the occurrence of such withholding, may permit such
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withholding obligations to be satisfied through cash payment by the Participant,
through the surrender of Shares which the Participant already owns, or through
the surrender of Shares to which the Participant is otherwise entitled under the
2002 Stock Plan, provided; however, that in either case only the number of
Shares sufficient to satisfy the Company's minimum required tax withholding
obligations may be surrendered to the Company.
4.4 USE OF SHARES. Subject to the overall limitation on the number of
Shares that may be delivered under the 2002 Stock Plan, the Committee may use
available Shares as the form of payment for compensation, grants or rights
earned or due under any other compensation plans or arrangements of the Company
or a Subsidiary, including the plans and arrangements of the Company or a
Subsidiary assumed in business combinations.
4.5 DIVIDENDS AND DIVIDEND EQUIVALENTS. An Award (including without
limitation an Option or SAR Award) may provide the Participant with the right to
receive dividend payments or dividend equivalent payments with respect to Stock
subject to the Award (both before and after the Stock subject to the Award is
earned, vested, or acquired), which payments may be either made currently or
credited to an account for the Participant, and may be settled in cash or Stock
as determined by the Committee. Any such settlements, and any such crediting of
dividends or dividend equivalents or reinvestment in Shares, may be subject to
such conditions, restrictions and contingencies as the Committee shall
establish, including the reinvestment of such credited amounts in Stock
equivalents.
4.6 PAYMENTS. Awards may be settled through cash payments, the delivery of
Shares, the granting of replacement Awards, or combination thereof as the
Committee shall determine. Any Award settlement, including payment deferrals,
may be subject to such conditions, restrictions and contingencies as the
Committee shall determine. The Committee may permit or require the deferral of
any Award payment, subject to such rules and procedures as it may establish,
which may include provisions for the payment or crediting of interest, or
dividend equivalents, including converting such credits into deferred Stock
equivalents. Each Subsidiary shall be liable for payment of cash due under the
2002 Stock Plan with respect to any Participant to the extent that such benefits
are attributable to the services rendered for that Subsidiary by the
Participant. Any disputes relating to liability of a Subsidiary for cash
payments shall be resolved by the Committee.
4.7 TRANSFERABILITY. Unless specifically provided by the Committee in the
Award Agreement, Awards under the 2002 Stock Plan are nontransferable except as
designated by the Participant by will or by the laws of descent and
distribution.
4.8 FORM AND TIME OF ELECTIONS. Unless otherwise specified herein, each
election required or permitted to be made by any Participant or other person
entitled to benefits under the 2002 Stock Plan, and any permitted modification,
or revocation thereof, shall be in writing filed with the Committee at such
times, in such form, and subject to such restrictions and limitations, not
inconsistent with the terms of the 2002 Stock Plan, as the Committee shall
require.
4.9 AGREEMENT WITH COMPANY. An Award under the 2002 Stock Plan shall be
subject to such terms and conditions, not inconsistent with the 2002 Stock Plan,
as the Committee shall, in its sole discretion, prescribe. The terms and
conditions of any Award to any Participant shall be reflected in such form of
written document as is determined by the Committee. A copy of such document
shall be provided to the Participant, and the Committee may, but need not
require that the Participant shall sign a copy of such document. Such document
is referred to in the 2002 Stock Plan as an "Award Agreement" regardless of
whether any Participant signature is required.
4.10 ACTION BY COMPANY OR SUBSIDIARY. Any action required or permitted to
be taken by the Company or any Parent or Subsidiary shall be by resolution of
its board of directors, or by action of one or more members of the board
(including a committee of the board) who are duly authorized to act for the
board, or (except to the extent prohibited by applicable law or applicable rules
of any stock exchange) by a duly authorized officer of the Company.
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4.11 GENDER AND NUMBER. Where the context admits, words in any gender shall
include any other gender, words in the singular shall include the plural and the
plural shall include the singular.
4.12 LIMITATION OF IMPLIED RIGHTS.
(a) Neither a Participant nor any other person shall, by reason of
participation in the 2002 Stock Plan, acquire any right in or title to any
assets, funds or property of the Company or any Parent or Subsidiary whatsoever,
including, without limitation, any specific funds, assets, or other property
which the Company or any Parent or Subsidiary, in their sole discretion, may set
aside in anticipation of a liability under the 2002 Stock Plan. A Participant
shall have only a contractual right to the Stock or amounts, if any, payable
under the 2002 Stock Plan, unsecured by any assets of the Company or any Parent
or Subsidiary, and nothing contained in the 2002 Stock Plan shall constitute a
guarantee that the assets of the Company or any Parent or Subsidiary shall be
sufficient to pay any benefits to any person.
(b) The 2002 Stock Plan does not constitute a contract of employment,
and selection as a Participant will not give any Participant the right to be
retained in the employ of the Company or any Subsidiary, nor any right or claim
to any benefit under the 2002 Stock Plan, unless such right or claim has
specifically accrued under the terms of the 2002 Stock Plan. Except as otherwise
provided in the 2002 Stock Plan, no Award under the 2002 Stock Plan shall confer
upon the holder thereof any rights as a stockholder of the Company prior to the
date on which the individual fulfills all conditions for receipt of such rights.
5. COMMITTEE
---------
5.1 COMMITTEE. The authority to control and manage the operation and
administration of the 2002 Stock Plan shall be vested in a committee (the
"Committee") in accordance with this Section 5. The Committee shall be selected
by the Board, and shall be comprised[,] unless otherwise determined by the
Board, solely of not less than two members [of the Board] who shall be "outside"
directors within the meaning of Treasury Regulation Section 1.162-27(e)(3) under
Section 162(m) of the Code^. [With] respect to Awards granted ^[under the 2002
Stock Plan that are not intended] to [qualify as "performance-based
compensation" under] Section 162(m) of the Code, the Committee shall be composed
of two or more members of the Board who are not employees of the Company. If the
Committee does not exist, or for any other reason determined by the Board, the
Board may take any action under the 2002 Stock Plan that would otherwise be the
responsibility of the Committee.
5.2 POWERS OF COMMITTEE. The Committee's administration of the 2002 Stock
Plan shall be subject to the following:
(a) Subject to the provisions of the 2002 Stock Plan, the Committee
will have the authority and discretion to select from among the Participants
those persons who shall receive Awards, to determine the time or times of
receipt, to determine the types of Awards and the number of shares covered by
the Awards, to establish the terms, conditions, performance criteria (except
that for purposes of Section 162(m) of the Code, performance measures shall be
based on one or more of the criteria set out on Attachment I hereto) ,
restrictions, and other provisions of such Awards, and (subject to Section 7) to
cancel or suspend Awards.
(b) To the extent that the Committee determines that the restrictions
imposed by the 2002 Stock Plan preclude the achievement of the material purposes
of the Awards in jurisdictions outside the United States, the Committee will
have the authority and discretion to modify those restrictions as the Committee
determines to be necessary or appropriate to conform to applicable requirements
or practices of jurisdictions outside of the United States.
(c) The Committee may grant Awards to Participants who are subject to
the tax laws of nations other than the United States, which Awards may have
terms and conditions as determined by the Committee as necessary to comply with
applicable foreign laws. The Committee may take any action which it deems
advisable to obtain approval of such Awards by the appropriate foreign
government entity; provided however that no such Awards may be granted under
this 2002 Stock Plan and no action may be taken which would result in a
violation of the Exchange Act, the Code or any other applicable law.
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(d) The Committee will have the authority and discretion to interpret
the 2002 Stock Plan, to establish, amend, and rescind any rules and regulations
relating to the 2002 Stock Plan, to determine the terms and provisions of any
Award Agreement made pursuant to the 2002 Stock Plan, and to make all other
determinations that may be necessary or advisable for the administration of the
2002 Stock Plan.
(e) Any interpretation of the 2002 Stock Plan by the Committee and any
decision made by it under the 2002 Stock Plan is final and binding on all
persons.
(f) In controlling and managing the operation and administration of
the 2002 Stock Plan, the Committee shall take action in a manner that conforms
to the articles and by-laws of the Company, and applicable state corporate law.
5.3 DELEGATION BY COMMITTEE. Except to the extent prohibited by Applicable
Law or the applicable rules of a stock exchange, the Committee may allocate all
or any portion of its responsibilities and powers to any one or more of its
members and may delegate all or any part of its administrative duties to any
person or persons selected by it. Any such allocation or delegation may be
revoked by the Committee at any time.
5.4 INFORMATION TO BE FURNISHED TO COMMITTEE. The Company and its Parent
and Subsidiaries shall furnish the Committee with such data and information as
it determines may be required for it to discharge its duties. The records of the
Company and its Parent and Subsidiaries as to a Participant's employment,
termination of employment, leave of absence, reemployment and compensation shall
be conclusive on all persons unless determined to be incorrect. Participants
entitled to benefits under the 2002 Stock Plan must furnish the Committee such
evidence, data or information as the Committee considers desirable to carry out
the terms of the 2002 Stock Plan.
6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR CORPORATE TRANSACTION
-------------------------------------------------------------------
6.1 CHANGES IN CAPITALIZATION. Subject to any required action by the
stockholders of the Company, [(a)] the number [and/or class] of ^[securities]
covered by each outstanding Award, [(b)] the price per share covered by each
such outstanding Award, [(c)] the number ^[and/or class of securities] which
have been authorized for issuance under the 2002 Stock Plan but as to which no
Awards have yet been granted or which have been returned to the 2002 Stock Plan
upon cancellation or expiration of an Award, and [(d)] the maximum number of
Options, SARs, Stock Unit Awards, Restricted Stock Awards, Restricted Stock
Units Awards and Performance Share Awards which may be granted to any
Participant in any one-calendar-year period shall be proportionately adjusted
for any increase or decrease in the number of issued shares of Common Stock
resulting from a stock split, reverse stock split, stock dividend, combination
or reclassification of the Common Stock, or any other increase or decrease in
the number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
^[Committee. The Committee may also make, in its discretion, adjustments
described in (a)-(d) of this Section 6.1 in the event of any distribution of
cash or other assets to stockholders other than an ordinary cash dividend. In
determining adjustments to be made under this Section 6.1, the Committee may
take into account such factors as it deems appropriate, including (i) the
restrictions of applicable law, (ii) the potential tax, accounting or other
consequences of an adjustment and (iii) the possibility that some Participants
might receive an adjustment and a distribution or other unintended benefit, and
in light of such factors or circumstances may make adjustments that are not
uniform or proportionate among outstanding Awards, modify vesting dates, defer
the delivery of stock certificates or make other equitable adjustments. Any such
adjustments to outstanding Awards will be effected in a manner that precludes
the enlargement of rights and benefits under such Awards. Adjustments, if any,
and any determinations or interpretations, including any determination of
whether a distribution is other than an ordinary cash dividend, made by the
Committee] shall be final, binding and conclusive. Except as expressly provided
herein, no issuance by the Company of Shares of any class, or securities
convertible into Shares of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of Common
Stock subject to an Award.
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6.2 TRANSACTIONS. In the event of the proposed dissolution or liquidation
of the Company or of a merger or corporate combination (a "Transaction") in
which the successor corporation does not agree to assume the Award or substitute
an equivalent Award, the Committee shall make a determination (subject to
Section 7) as to the equitable treatment of outstanding Awards under the 2002
Stock Plan and shall notify Participants of such treatment no later than ten
(10) days prior to such proposed Transaction. To the extent it has not been
previously exercised, an Award will terminate immediately prior to the
consummation of such proposed Transaction.
7. AMENDMENT AND TERMINATION
-------------------------
The Board may, at any time, amend or terminate the 2002 Stock Plan, provided
that no amendment or termination may, in the absence of written consent to the
change by the affected Participant (or, if the Participant is not then living,
the affected beneficiary), adversely affect the rights of any Participant or
beneficiary under any Award granted under the 2002 Stock Plan prior to the date
such amendment is adopted by the Board; provided that adjustments pursuant to
^Section 6.2 shall in no event be deemed to have an adverse ^[effect] on any
Award.
8. DEFINED TERMS
-------------
In addition to the other definitions contained herein, the following definitions
shall apply:
(a) APPLICABLE LAW means the corporate, securities and tax laws
(including, without limitation, the Delaware corporate law, the Exchange Act,
the Securities Act of 1933 and the Code) applicable to the establishment and
administration of an employee stock incentive plans.
(b) AWARD. The term "Award" shall mean any award or benefit granted
under the 2002 Stock Plan, including, without limitation, the grant of Options,
SARs, Stock Unit Awards, Restricted Stock Awards, Restricted Stock Unit Awards
and Performance Share Awards.
(c) BOARD. The term "Board" shall mean the Board of Directors of the
Company.
(d) CODE. The term "Code" means the Internal Revenue Code of 1986, as
amended. A reference to any provision of the Code shall include reference to any
successor provision of the Code.
(e) COMMON STOCK shall mean the common stock, par value, $.10 per
share, of the Company.
(f) CONTINUOUS STATUS AS AN EMPLOYEE means the absence of any
interruption or termination of the employment relationship by the Company or any
Subsidiary. Continuous Status as an employee shall not be considered interrupted
in the case of: (i) sick leave, military leave or any other leave of absence
approved by the Board, provided that such leave is for a period of not more than
ninety (90) days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute, or unless provided otherwise pursuant to
Company policy adopted from time to time; or (ii) in the case of transfers
between locations of the Company or between the Company, its Subsidiaries or its
successor.
(g) EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
(h) FAIR MARKET VALUE. For purposes of determining the "Fair Market
Value" of a share of Stock granted pursuant to Section 2 as of any date, the
following rules shall apply:
(i) If the principal market for the Stock is the New York Stock
Exchange ("NYSE"), then the "Fair Market Value" as of that date shall be the
closing price of the stock on the NYSE composite tape on that date as reported
in the Wall Street Journal for such date;
(ii) If the principal market for the Stock is the another
national securities exchange or the NASDAQ stock market, then the "Fair Market
Value" as of that date shall be the mean between the lowest and highest reported
composite sale prices of the Stock on that date on such exchange for such date;
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(iii) If sale prices are not available or if the principal market
for the Stock is not the NYSE or another national securities exchange and the
Stock is not quoted on the NASDAQ stock market, the average between the highest
bid and lowest asked prices for the Stock on such day as reported on the NASDAQ
OTC Bulletin Board Service or by the National Quotation Bureau, Incorporated or
a comparable service.
(iv) If the day is not a business day, and as a result,
paragraphs (i), (ii) and (iii) next above are inapplicable, the Fair Market
Value of the Stock shall be determined as of the last preceding business day. If
paragraphs (i), (ii) and (iii) next above are otherwise inapplicable, then the
Fair Market Value of the Stock shall be determined in good faith by the
Committee.
(i) INCENTIVE STOCK OPTION means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
(j) NONSTATUTORY STOCK OPTION means an Option not intended to qualify
as an Incentive Stock Option.
(k) OPTIONEE means a Participant who receives an Option.
(l) PARENT means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(m) PARTICIPANTS. The term "Participant" shall mean any key executive,
employee or director of the Company, its Parent or Subsidiary. An Award may be
granted to an employee, in connection with hiring, retention or otherwise, prior
to the date the employee first performs services for the Company or its Parent
or Subsidiaries, provided that such Awards shall not become vested prior to the
date the employee first performs such services. The term "Participant" also
includes any non-employee director of the Company, its Parent or Subsidiary.
(n) SHARE means a share of the Common Stock, as adjusted in accordance
with Section 6 of the 2002 Stock Plan.
(o) STOCK. The term "Stock" shall mean shares of Common Stock of the
Company.
(p) SUBSIDIARY or SUBSIDIARIES. The term "Subsidiary" or
"Subsidiaries" mean any company during any period in which it is a "subsidiary
corporation" (as that term is defined in Code section 424(f)) with respect to
the Company.
[9. PLAN HISTORY
------------
The 2002 Stock Plan became effective as of October 10, 2002. The 2002 Stock Plan
was originally approved by the stockholders of the Company on January 30, 2003.
The Board approved an amendment and restatement of the 2002 Stock Plan on
December 16, 2004 to (a) include additional Performance Measures applicable to
the grant of Awards intended to qualify as "performance-based compensation"
under Section 162(m) of the Code and (b) amend Section 6.1 to increase the scope
of adjustments that may be made as a result of changes in capitalization of the
Company, which amendment and restatement is subject to the approval of the
stockholders of the Company.]
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ATTACHMENT I
PERFORMANCE ^[MEASURES]
The Committee shall grant performance-based compensation Awards tied to one or
more of the following business criteria:
1. ^earnings per share
2. ^pre-tax operating income
3. ^value of [Company] stock (i.e., stock price)
[4. annual revenue
5. budget comparisons
6. controllable profits
7. expense management
8. improvements in capital structure
9. operating income
10. net income
11. net sales
12. profit margins
13. profitability of an identifiable business unit or product
14. return on investments
15. return on sales
16. return on stockholders' equity
17. total return to stockholders
18. performance of the Company relative to a peer group of companies on
any of the foregoing measures]
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APPENDIX F
PROPOSED TEXT OF ARTICLE FOURTH OF
FRANKLIN RESOURCES, INC.
CERTIFICATE OF INCORPORATION, AS AMENDED
The text of the proposed amendment to Article Fourth of the Certificate of
Incorporation, as amended, of Franklin Resources, Inc., is as follows:
"FOURTH: The total number of shares of stock which the corporation shall
have authority to issue is One Billion One Million (1,001,000,000) shares,
of which One Billion (1,000,000,000) shares shall be common stock of the
par value of ten cents ($0.10), and One Million (1,000,000) shares shall be
preferred stock of the par value of one dollar ($1.00). The preferred stock
shall be issuable from time to time in one or more series of equal rank
with such different series, designations, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, and shall be subject to redemption at
such time or times and at such price or prices, and shall entitle the
holders to receive dividends at such rates, on such conditions and at such
times, and cumulative or non cumulative, and shall entitle the holders to
such rates upon the dissolution of, or upon any distribution of the assets
of, the corporation, and shall be convertible into, or exchangeable for,
shares of any class or classes or any other series, at such price or prices
or at such rate or rates of exchange and with such adjustments, as shall be
stated in the resolution or resolutions providing for the issue of such
stock adopted by the Board of Directors."
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PRELIMINARY COPY
----------------
FRANKLIN RESOURCES, INC.
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
With this proxy, the stockholder signing below appoints Charles B. Johnson,
Martin L. Flanagan, and Barbara J. Green (the "proxy holders"), or any one of
them, as the stockholder's proxies with full power of substitution. The
stockholder appoints the proxy holders collectively and as individuals, to vote
all the stockholder's shares of Franklin Resources, Inc. ("Franklin") common
stock at the Annual Meeting of Stockholders, and at any and all adjournments or
postponements of the meeting, on the matters set forth on the reverse side of
this card. The Annual Meeting of Stockholders will be held on January 25, 2005,
at 10:00 a.m., Pacific Standard Time, in the H. L. Jamieson Auditorium, One
Franklin Parkway, Building 920, San Mateo, California.
THE BOARD OF DIRECTORS HAS SOLICITED THIS PROXY AND IT WILL BE VOTED AS
SPECIFIED ON THIS PROXY CARD ON THE FOLLOWING PROPOSALS PROPOSED BY FRANKLIN. IF
YOU DO NOT MARK ANY VOTES OR ABSTENTIONS, THIS PROXY WILL BE VOTED FOR ALL
NOMINEES TO THE BOARD OF DIRECTORS, FOR RATIFICATION OF THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 2005, FOR APPROVAL OF THE AMENDMENT AND
RESTATEMENT OF THE FRANKLIN RESOURCES, INC. 2002 UNIVERSAL STOCK INCENTIVE PLAN,
AND FOR APPROVAL OF THE AMENDMENT OF THE CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FOR ISSUANCE. IF ANY
OTHER MATTERS COME BEFORE THE MEETING TO BE VOTED ON, THE PROXY HOLDERS NAMED IN
THIS PROXY WILL VOTE, ACT AND CONSENT ON THOSE MATTERS IN THEIR DISCRETION.
Continued on the reverse side. Must be signed and dated on
the reverse side.
FRANKLIN RESOURCES, INC.
P.O. BOX 11121
To change your address, please mark this box [ ] NEW YORK, NY 10203-0121
Please complete, sign and date this proxy on the reverse side and return it
promptly in the accompanying envelope.
--------------------
FRANKLIN YOUR VOTE IS IMPORTANT
RESOURCES, INC. VOTE BY INTERNET / TELEPHONE
24 HOURS A DAY, 7 DAYS A WEEK
--------------------
INTERNET TELEPHONE MAIL
HTTPS://WWW.PROXYVOTENOW.COM/BEN 1-866-214-3728
* Go to the website address OR * Use any touch-tone OR * Mark, sign and date your
listed above. telephone. proxy card.
* HAVE YOUR PROXY CARD READY. * HAVE YOUR PROXY CARD * Detach your proxy card.
* Follow the simple instructions READY. * Return your proxy card in
that appear on your computer * Follow the simple the postage-paid envelope
screen. recorded instructions. provided.
--------------------------------------------
Your telephone or Internet vote authorizes
the proxy holders named in the proxy to vote
your shares in the manner as if you marked,
signed and returned the proxy card. If you
have submitted your proxy by telephone or
the Internet, there is no need for you to
mail back your proxy card. The deadline for
voting by telephone or by using the Internet
is at 11:59 p.m., Eastern Standard Time,
January 24, 2005.
--------------------------------------------
--------------------------------------------
[CONTROL NUMBER FOR
TELEPHONE OR INTERNET VOTING]
--------------------------------------------
PLEASE DETACH PROXY CARD HERE
--------------------------------------------------------------------------------
MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
[X]
VOTES MUST BE INDICATED (X) IN BLACK OR BLUE INK
1. ELECTION OF DIRECTORS:
FOR WITHHOLD
ALL [ ] FOR ALL [ ] EXCEPTIONS* [ ]
Nominees: 01-Samuel H. Armacost, 02-Harmon E. Burns, 03-Charles Crocker,
04-Robert D. Joffe, 05-Charles B. Johnson, 06-Rupert H. Johnson, Jr., 07-Thomas
H. Kean, 08-Chutta Ratnathicam, 09-Peter M. Sacerdote, 10-Anne M. Tatlock,
11-Louis E. Woodworth
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK
THE "EXCEPTIONS*" BOX AND WRITE THAT NOMINEE'S NAME ON THE FOLLOWING BLANK
LINE.)
EXCEPTIONS*______________________________________________
FOR AGAINST ABSTAIN
2. Ratification of the appointment of [ ] [ ] [ ]
PricewaterhouseCoopers LLP as the
independent registered public accounting
firm for the fiscal year ending September
30, 2005.
3. Approval of the amendment and [ ] [ ] [ ]
restatement of the Franklin Resources,
Inc. 2002 Universal Stock Incentive Plan.
4. Approval of the amendment of the [ ] [ ] [ ]
Certificate of Incorporation, as amended,
to increase the number of shares of
common stock authorized for issuance.
5. In their discretion, the proxy holders are authorized to vote on other
business matters that are properly brought at the meeting or any adjournments
or postponements thereof.
Note: Please sign exactly as your name appears on the proxy. If signing for
estates, trusts or corporations, title or capacity should be stated. If shares
are held jointly, each holder should sign.
[SCAN LINE]
Date Share Owner sign here Co-Owner sign here
--------------- ---------------------- ---------------------