As filed with the Securities and Exchange Commission on December 26, 2000
Registration No. 333- _________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FRANKLIN RESOURCES, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 6035 13-2670991
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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777 MARINERS ISLAND BLVD., SAN MATEO, CALIFORNIA 94404
(650) 312-2000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
LESLIE M. KRATTER, ESQ.
SENIOR VICE PRESIDENT AND SECRETARY
777 MARINERS ISLAND BLVD.
SAN MATEO, CALIFORNIA 94404-1585
(650) 312-2000
(Name, Address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
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CAROL K. DEMITZ, ESQ. RAYMOND O. GIETZ, ESQ. LAURENT ALPERT, ESQ.
SENIOR VICE PRESIDENT, JEFFREY E. TABAK, ESQ. CLEARY, GOTTLIEB, STEEN & HAMILTON
CHIEF CORPORATE COUNSEL AND SECRETARY WEIL, GOTSHAL & MANGES LLP ONE LIBERTY PLAZA
FIDUCIARY TRUST COMPANY INTERNATIONAL 767 FIFTH AVENUE NEW YORK, NEW YORK 10006
TWO WORLD TRADE CENTER NEW YORK, NEW YORK 10153
NEW YORK, NEW YORK 10048
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement and the
effective time of the acquisition of Fiduciary Trust Company International
("Fiduciary") by Franklin Resources, Inc. ("Franklin") pursuant to the Agreement
and Plan of Share Acquisition, dated as of October 25, 2000, attached as Annex A
to the Proxy Statement/Prospectus forming a part of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: |_|
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CALCULATION OF REGISTRATION FEE
========================================== ================= ====================== ======================== =====================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE OFFERING PRICE(2) REGISTRATION FEE
------------------------------------------ ----------------- ---------------------- ------------------------ ---------------------
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COMMON STOCK, PAR VALUE $.10 PER SHARE 23,791,000 NOT APPLICABLE $755,811,951 $188,953
========================================== ================= ====================== ======================== =====================
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(1) Represents the maximum number of shares of Franklin common stock that could
be issued in connection with the Acquisition (as defined herein).
(2) Estimated solely for purposes of calculating the registration fee required
by Section 6(b) of the Securities Act of 1933, as amended (the "Securities
Act"), and calculated pursuant to Rule 457(f) under the Securities Act.
Pursuant to Rule 457(f)(1) under the Securities Act, the proposed maximum
aggregate offering price of the Franklin Common Stock was calculated in
accordance with Rule 457(c) under the Securities Act as: (a) $ 103.875, the
average of the high and low prices per share of Fiduciary Common Stock on
December 18, 2000 as reported in public financial sources, multiplied by (b)
7,276,168, the aggregate number of shares of Fiduciary Common Stock
outstanding as of December 21, 2000. This amount was then multiplied by
.00025.
--------------------------------------------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
NY2:\978777\13\KZ8913!.DOC\46360.0043
<PAGE>
The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement filed
with the Securities and Exchange Commission is effective. This preliminary
prospectus is not an offer to sell nor does it seek an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted.
[FIDUCIARY TRUST COMPANY INTERNATIONAL LETTERHEAD]
YOUR VOTE ON THE PROPOSED TRANSACTION IS VERY IMPORTANT!
, 2001
Dear Fiduciary Shareholder:
You are cordially invited to attend our special meeting of shareholders on
____________, 2001, at 2:00 p.m., local time, at the Marriott World Trade
Center, Three World Trade Center, New York, New York 10048.
At the special meeting, we will ask you to vote to approve and adopt the plan of
acquisition in connection with the acquisition of Fiduciary Trust Company
International by Franklin Resources, Inc. In the acquisition, you will receive
for each outstanding share of Fiduciary common stock that you own a number of
shares of Franklin common stock determined by dividing $113.38 by the average
closing price of Franklin common stock on the New York Stock Exchange for the 20
trading days ending immediately prior to the date certain regulatory approvals
are obtained from the Federal Reserve Board. However, if the average closing
price for the 20 trading days is less than $34.68, you will receive 3.2697
shares of Franklin common stock for each share of Fiduciary common stock that
you own, and if the average closing price for the 20 trading days is greater
than $42.38, you will receive 2.6754 shares of Franklin common stock for each
share of Fiduciary common stock that you own. Thus, you will receive $113.38 in
value of Franklin common stock per share of Fiduciary common stock if the
average closing price of Franklin common stock during this period is between
$34.68 and $42.38 (inclusive), and you will receive a greater amount in value of
Franklin common stock if such average closing price is greater than $42.38 and a
lesser amount in value of Franklin common stock if such average closing price is
less than $34.68. Franklin common stock is listed on the New York Stock Exchange
under the trading symbol "BEN" and on ____________, 2001, Franklin common stock
closed at $____per share.
Instead of receiving fractional shares of Franklin common stock, the exchange
agent will sell on your behalf your fractional share interest and the cash
proceeds will be distributed to you along with your full shares of Franklin
common stock. Fiduciary shareholders who comply with the New York Banking Law
will be entitled to dissenters' rights to obtain payment for the fair value of
their shares of Fiduciary common stock.
Your vote is very important, regardless of the number of shares you own. We
cannot complete the acquisition unless the holders of at least two-thirds of the
outstanding shares of Fiduciary common stock vote to approve and adopt the plan
of acquisition. Only shareholders who hold shares of Fiduciary common stock at
the close of business on __________, 2001 will be entitled to vote at the
special meeting.
YOU SHOULD CONSIDER THE MATTERS DISCUSSED UNDER "RISK FACTORS RELATING TO THE
ACQUISITION" COMMENCING ON PAGE ___ OF THIS PROXY STATEMENT/PROSPECTUS BEFORE
VOTING. PLEASE REVIEW CAREFULLY THIS ENTIRE PROXY STATEMENT/PROSPECTUS.
After careful consideration, all members of the Fiduciary board of directors
present at a meeting unanimously approved the plan of acquisition and the
transactions contemplated by the agreement, determined that the plan of
acquisition and the transactions contemplated by the agreement are advisable to,
and in the best interests of, Fiduciary and its shareholders and recommended
that you vote FOR the approval and adoption of the plan of acquisition.
<PAGE>
If you have any questions prior to the special meeting or need further
assistance, please call our proxy solicitor, Georgeson Shareholder
Communications Inc., at 1-800-223-2064.
Thank you for your cooperation.
Very truly yours,
Anne M. Tatlock
Chairman of the Board
Chief Executive Officer
YOUR VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN, DATE AND RETURN THE PROXY CARD.
--------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any state
securities regulator has approved or disapproved the acquisition described in
this proxy statement/prospectus or the Franklin common stock to be issued in
connection with the acquisition, or determined if this proxy
statement/prospectus is accurate or adequate. Any representation to the contrary
is a criminal offense.
--------------------------------------------------------------------------------
THIS PROXY STATEMENT/PROSPECTUS IS DATED , 2001
AND IS FIRST BEING MAILED TO SHAREHOLDERS ON OR ABOUT , 2001.
<PAGE>
FIDUCIARY TRUST COMPANY INTERNATIONAL
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048-0772
NOTICE OF SPECIAL MEETING OF FIDUCIARY TRUST COMPANY INTERNATIONAL
TO BE HELD ON , 2001
To the Shareholders of Fiduciary Trust Company International:
We will hold a special meeting of the shareholders of Fiduciary Trust
Company International on ____________, 2001, at 2:00 p.m., local time, at the
Marriott World Trade Center, Three World Trade Center, New York, New York 10048,
for the following purpose:
To consider and vote upon a proposal to approve and adopt
the plan of acquisition between Franklin Resources, Inc. and
Fiduciary. Under the agreement, Fiduciary will be acquired by
Franklin and become its wholly-owned subsidiary, and you will receive
for each outstanding share of Fiduciary common stock that you own a
number of shares of Franklin common stock determined by dividing
$113.38 by the average closing price of the Franklin common stock on
the New York Stock Exchange for the 20 trading days ending
immediately prior to the date certain regulatory approvals are
obtained from the Federal Reserve Board. However, if the average
closing price for the 20 trading days is less than $34.68, you will
receive 3.2697 shares of Franklin common stock for each share of
Fiduciary common stock that you own, and if the average closing price
for the 20 trading days is greater than $42.38, you will receive
2.6754 shares of Franklin common stock for each share of Fiduciary
common stock that you own. Thus, you will receive $113.38 in value of
Franklin common stock per share of Fiduciary common stock if the
average closing price of Franklin common stock during this period is
between $34.68 and $42.38 (inclusive), and you will receive a greater
amount in value of Franklin common stock if such average closing
price is greater than $42.38 and a lesser amount in value of Franklin
common stock if such average closing price is less than $34.68.
Only holders of record of shares of Fiduciary common stock at the
close of business on ____________, 2001, the record date for the special
meeting, are entitled to notice of, and to vote at, the special meeting and any
adjournments of it. We will transact no other business at the special meeting
except such business as may properly be brought before the special meeting or
any adjournment of it by the Fiduciary board of directors.
We cannot complete the acquisition unless the holders of at least
two-thirds of the outstanding shares of Fiduciary common stock vote to approve
and adopt the plan of acquisition.
THE FIDUCIARY BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE AT THE
SPECIAL MEETING TO APPROVE AND ADOPT THE PLAN OF ACQUISITION, WHICH IS DESCRIBED
IN DETAIL IN THE PROXY STATEMENT/PROSPECTUS ACCOMPANYING THIS NOTICE.
Whether or not you plan to attend the special meeting, please submit
your proxy by completing, signing and dating the enclosed proxy card and
returning it promptly in the enclosed postage-paid envelope. IF YOUR SHARES ARE
HELD IN "STREET NAME," YOU MUST INSTRUCT YOUR BROKER, BANK OR OTHER NOMINEE IN
ORDER TO VOTE. IF YOU DO NOT VOTE BY PROXY OR IN PERSON AT THE SPECIAL MEETING,
IT WILL COUNT AS A VOTE AGAINST THE APPROVAL AND ADOPTION OF THE PLAN OF
ACQUISITION. Please note whether or not you expect to attend the special
meeting.
<PAGE>
FOR MORE INFORMATION ABOUT THE ACQUISITION, PLEASE REVIEW THIS PROXY
STATEMENT/PROSPECTUS AND THE PLAN OF ACQUISITION ATTACHED AS ANNEX A, THE STOCK
OPTION AGREEMENT ATTACHED AS ANNEX B AND THE FAIRNESS OPINION OF GOLDMAN, SACHS
& CO. ATTACHED AS ANNEX D TO THIS DOCUMENT.
By Order of the Board of Directors,
Carol K. Demitz
Secretary
New York, New York
, 2001
PLEASE VOTE YOUR SHARES PROMPTLY. YOU CAN FIND INSTRUCTIONS FOR
VOTING ON THE ENCLOSED PROXY CARD.
<PAGE>
TABLE OF CONTENTS
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PAGE
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QUESTIONS AND ANSWERS ABOUT THE ACQUISITION........................................................................1
SUMMARY............................................................................................................3
RECENT DEVELOPMENTS...............................................................................................10
COMPARATIVE MARKET PRICE AND DIVIDEND INFORMATION.................................................................11
COMPARATIVE PER SHARE INFORMATION.................................................................................13
RISK FACTORS RELATING TO THE ACQUISITION..........................................................................16
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION.......................................................18
THE SPECIAL MEETING...............................................................................................20
DATE, TIME AND PLACE..........................................................................................20
PURPOSE OF SPECIAL MEETING....................................................................................20
RECORD DATE; SHARES ENTITLED TO VOTE; QUORUM..................................................................20
VOTES REQUIRED................................................................................................20
VOTING OF PROXIES.............................................................................................20
REVOCABILITY OF PROXIES.......................................................................................21
SOLICITATION OF PROXIES.......................................................................................22
SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXIES............................................22
FRANKLIN STOCKHOLDERS.........................................................................................22
THE ACQUISITION...................................................................................................23
BACKGROUND OF THE ACQUISITION.................................................................................23
FIDUCIARY'S REASONS FOR THE ACQUISITION.......................................................................27
FRANKLIN'S REASONS FOR THE ACQUISITION........................................................................29
RECOMMENDATION OF THE FIDUCIARY BOARD OF DIRECTORS............................................................30
OPINION OF GOLDMAN, SACHS & CO................................................................................30
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION..............................................37
ACCOUNTING TREATMENT..........................................................................................39
INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS OF FIDUCIARY IN THE ACQUISITION.................................39
REGULATORY APPROVALS REQUIRED FOR THE ACQUISITION.............................................................43
REGULATORY MATTERS RELATING TO THE BUSINESS OF FRANKLIN FOLLOWING THE ACQUISITION.............................45
FIDUCIARY SHAREHOLDERS' DISSENTERS' RIGHTS TO OBTAIN PAYMENT FOR THEIR SHARES.................................53
RESTRICTIONS ON THE SALE OF FRANKLIN COMMON STOCK.............................................................56
LISTING OF FRANKLIN COMMON STOCK TO BE ISSUED IN THE ACQUISITION..............................................56
DELISTING AND DEREGISTRATION OF FIDUCIARY COMMON STOCK........................................................57
DIVIDENDS.....................................................................................................57
OPERATIONS FOLLOWING THE ACQUISITION..........................................................................57
THE PLAN OF ACQUISITION AND RELATED AGREEMENTS....................................................................58
THE PLAN OF ACQUISITION.......................................................................................58
THE ACQUISITION...............................................................................................58
ACQUISITION CONSIDERATION.....................................................................................58
EXCHANGE OF SHARES............................................................................................58
CONDITIONS TO CONSUMMATION OF THE ACQUISITION.................................................................59
i
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
TERMINATION OF THE PLAN OF ACQUISITION........................................................................60
TERMINATION BY FIDUCIARY......................................................................................61
TERMINATION BY FRANKLIN.......................................................................................61
TERMINATION FEES..............................................................................................62
REPRESENTATIONS AND WARRANTIES................................................................................62
CERTAIN COVENANTS.............................................................................................63
ACQUISITION PROPOSALS.........................................................................................65
INDEMNIFICATION AND INSURANCE OF FIDUCIARY'S OFFICERS AND DIRECTORS...........................................66
EMPLOYEE MATTERS..............................................................................................66
LISTING OF FRANKLIN COMMON STOCK..............................................................................67
FIDUCIARY SHAREHOLDER MEETING AND BOARD RECOMMENDATION........................................................67
MANAGEMENT AND CONTROL OF FIDUCIARY FOLLOWING THE ACQUISITION.................................................68
ADDITIONAL AGREEMENTS.........................................................................................69
EXPENSES......................................................................................................69
AMENDMENTS; WAIVERS...........................................................................................69
STOCK OPTION AGREEMENT........................................................................................70
DESCRIPTION OF FIDUCIARY..........................................................................................78
DESCRIPTION OF FRANKLIN...........................................................................................81
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF FIDUCIARY COMMON STOCK..........................83
DESCRIPTION OF FRANKLIN CAPITAL STOCK.............................................................................85
TRANSFER AGENT AND REGISTRAR..................................................................................85
RESTRICTIONS ON OWNERSHIP.....................................................................................85
COMPARISON OF RIGHTS OF SHAREHOLDERS OF FRANKLIN AND FIDUCIARY....................................................87
LEGAL MATTERS....................................................................................................101
EXPERTS..........................................................................................................101
WHERE YOU CAN FIND MORE INFORMATION..............................................................................101
</TABLE>
ANNEXES:
Annex A: Agreement and Plan of Share Acquisition, dated as of October
25, 2000, between Fiduciary Trust Company International and
Franklin Resources, Inc.
Annex B: Stock Option Agreement, dated as of October 25, 2000, between
Fiduciary Trust Company International and Franklin Resources,
Inc.
Annex C: Form of Voting Agreement
Annex D: Form of Fairness Opinion of Goldman Sachs & Co., dated October
25, 2000
Annex E: Section 6022 of the New York Banking Law Relating to
Dissenters' Rights
ii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE ACQUISITION
Q: WHEN AND WHERE IS THE SPECIAL MEETING?
A: The meeting will take place on ________, ______, 2001, at 2:00 p.m., local
time, at the Marriott World Trade Center, Three World Trade Center, New
York, New York 10048.
Q: WHAT WILL I RECEIVE IN THE ACQUISITION?
A: If the acquisition is completed, you will receive a certain number of
shares of Franklin common stock for each share of Fiduciary common stock
that you own. This number is referred to as the "exchange ratio" in this
document. Franklin will not issue fractional shares of common stock, but,
as a result of the exchange agent selling any fractional share interest on
your behalf, you will receive cash in lieu of fractional shares.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering the information contained in this
document, please fill out, sign and mail your signed proxy card in the
enclosed return envelope as soon as possible, so that we may vote your
shares at the special meeting.
In order to assure that we obtain your vote, please give your proxy as
instructed on your proxy card even if you currently plan to attend the
meeting in person.
Q: WHAT IF I DON'T INDICATE HOW TO VOTE MY PROXY?
A: If you do not indicate how to vote your properly signed proxy, your shares
will be voted FOR approval and adoption of the plan of acquisition.
However, please note that if you do not indicate how to vote your shares
held in an account under either the Fiduciary Trust Company International
Deferred Compensation Plan and Trust (referred to as the "FTCI Deferred
Compensation Plan") or the Profit Sharing, Savings and Employee Stock
Ownership Plan and Trust of Fiduciary Trust Company International
(referred to as the "TRIO Plan"), those shares will be voted pro rata in
accordance with the vote of shares held under, respectively, the FTCI
Deferred Compensation Plan or the TRIO Plan as to which voting
instructions were given by participants therein.
Q: WHAT IF I DON'T RETURN A PROXY CARD?
A: Not returning your proxy card will have the same effect as voting against
the acquisition.
However, please note that if you do not return your proxy card with
respect to shares held under either the FTCI Deferred Compensation Plan or
the TRIO Plan, those shares will be voted pro rata in accordance with the
vote of shares held under, respectively, the FTCI Deferred Compensation
Plan or the TRIO Plan as to which voting instructions were given by
participants therein.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before your proxy is voted at
the special meeting. You can do this in one of three ways. First, you can
send a written notice to our Secretary stating that you would like to
revoke your proxy. Second, you can complete and submit a new proxy card.
Third, you can attend the special meeting, file a written notice of
revocation of your proxy with our Secretary and vote in person. Your
attendance alone will not revoke your proxy.
1
<PAGE>
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE
MY SHARES FOR ME?
A: No. Your broker will not be able to vote your shares without instructions
from you. If you do not provide your broker with voting instructions, your
shares will be considered present at the special meeting for purposes of
determining a quorum, but will not be considered to have been voted in
favor of approval and adoption of the plan of acquisition. If you have
instructed a broker to vote your shares, you must follow directions
received from your broker to change those instructions.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the acquisition is completed, Franklin and/or its exchange agent
will send you written instructions for exchanging your stock certificates.
Q: WHAT WILL HAPPEN TO MY DIVIDENDS?
A. Prior to the acquisition, we expect to pay our regular quarterly dividend
on Fiduciary common stock. After the acquisition, Franklin expects to pay
its regular quarterly dividend on its common stock, subject to any change
Franklin's board may determine.
Q: WHEN CAN I EXPECT THE ACQUISITION TO BE COMPLETE?
A: We hope to complete the acquisition as soon as possible after the special
meeting, assuming the required shareholder approval is obtained. The
acquisition is also subject to approval of federal and state banking
regulatory authorities and the satisfaction of other closing conditions.
We expect to complete the acquisition during the first quarter of calendar
2001.
Q: WILL I RECOGNIZE A GAIN OR LOSS FOR TAX PURPOSES ON THE TRANSACTION?
A: In the opinion of our counsel, the acquisition will qualify as a tax-free
reorganization for federal income tax purposes. Accordingly, the exchange
of your Fiduciary shares for Franklin shares generally will not cause you
to recognize any gain or loss for federal income tax purposes. You will
have to recognize gain or loss in connection with any cash you receive in
lieu of fractional shares or because you have exercised dissenters'
rights. YOU SHOULD CONSULT WITH YOUR INDEPENDENT TAX ADVISER CONCERNING
YOUR PARTICULAR SITUATION, AS WELL AS WITH REGARD TO ANY STATE, LOCAL AND
FOREIGN LAWS THAT MIGHT AFFECT YOU AS A RESULT OF THE ACQUISITION.
Q: AM I ENTITLED TO DISSENTERS' RIGHTS?
A: Yes. You will have the right under the New York Banking Law to dissent
from the transaction and request an appraisal of the fair value of your
shares if you follow the required procedures.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: You may contact Georgeson Shareholder Communications Inc., our proxy
solicitation firm, by telephone at 1-800-223-2064 with any questions about
the transaction or the acquisition agreement. You may also contact
Fiduciary by telephone at 212-313-3666.
2
<PAGE>
SUMMARY
This summary highlights selected information from this document and may
not contain all of the information that is important to you. To understand the
acquisition fully and for a more complete description of the legal terms of the
acquisition, you should read carefully this entire document and the other
available information referred to in "Where You Can Find More Information" (on
page ___ ). We have included page references parenthetically to direct you to a
more complete description of the topics presented in this summary.
THE COMPANIES (PAGE __)
FRANKLIN RESOURCES, INC.
777 Mariners Island Blvd.
San Mateo, California 94404
(650) 312-2000
Franklin, which operates as Franklin Templeton Investments, is a global
investment management company with headquarters in San Mateo, California.
Franklin manages mutual funds and other investment vehicles for
individuals, institutions, pension plans, trusts, partnerships and other clients
in over 135 countries. Franklin markets investment products with distinct
objectives and risk profiles primarily through a network of professional
investment advisors, including security brokers, financial planners and
financial institutions.
FIDUCIARY TRUST COMPANY INTERNATIONAL
Two World Trade Center
New York, New York 10048
(212) 313-3666
Fiduciary is a leading provider of investment management and custody
related services for individuals and institutions with its headquarters in New
York, New York.
Through various U.S. and foreign offices and subsidiaries, Fiduciary
offers investment management and related trust and custody services for high
net-worth individuals and families and provides global institutional equity and
fixed income investment management for foundations, endowment funds, government
and corporate pension funds and other institutions. Fiduciary provides high
net-worth individuals and families with a full service package designed to
manage generational wealth, and offers institutions a range of investment
management services in the global equity, fixed income and real estate sectors.
FIDUCIARY'S REASONS FOR THE ACQUISITION (PAGE __)
In reaching their decision to approve the plan of acquisition, members of
the Fiduciary board of directors considered several factors. These factors
included, among other things, the belief that the acquisition represents a
unique strategic fit with significant synergies and complementary capabilities,
the opportunity for Fiduciary shareholders to receive a significant premium to
the current and historical trading value of Fiduciary common stock, Franklin's
intention to operate Fiduciary as a separate company that would retain the high
degree of independence necessary to preserve Fiduciary's business, and the other
strategic and financial alternatives available to Fiduciary in the changing
financial services industry.
FIDUCIARY'S RECOMMENDATION THAT YOU APPROVE THE ACQUISITION (PAGE ___)
All members of our board of directors present at the meeting determined
that the acquisition is advisable to, and in the best interests of, Fiduciary
and its shareholders and unanimously recommended that you vote FOR approval and
adoption of the plan of acquisition.
3
<PAGE>
OPINION OF GOLDMAN, SACHS & CO. (PAGE __)
Fiduciary's financial advisor, Goldman, Sachs & Co., has delivered a
written opinion to the Fiduciary board of directors that, as of October 25,
2000, the exchange ratio pursuant to the plan of acquisition was fair from a
financial point of view to the holders of the outstanding shares of Fiduciary
common stock.
The full text of the written opinion of Goldman Sachs, which sets forth
assumptions made, procedures followed, matters considered and limitations on the
review undertaken in connection with the opinion, is attached as Annex D. The
opinion of Goldman Sachs does not constitute a recommendation as to how any
holder of shares of Fiduciary common stock should vote with respect to the plan
of acquisition. HOLDERS OF SHARES OF FIDUCIARY COMMON STOCK ARE URGED TO, AND
SHOULD, READ THE OPINION IN ITS ENTIRETY.
THE ACQUISITION (PAGE__)
In accordance with the New York Banking Law, if our shareholders approve
the plan of acquisition, each share of Fiduciary common stock will be exchanged
for shares of Franklin's common stock. As a result, we will become a
wholly-owned subsidiary of Franklin. Following the acquisition, you will become
a stockholder of Franklin.
The plan of acquisition is attached as Annex A to this document. We
encourage you to read the plan of acquisition that governs the acquisition in
its entirety.
WHAT YOU WILL RECEIVE IF THE ACQUISITION IS COMPLETED (PAGE __)
If the acquisition is completed, you will receive a number of shares of
Franklin common stock for each share of Fiduciary common stock that you own. The
number of shares of Franklin common stock that you will receive is the exchange
ratio, which will be determined shortly before the acquisition is completed. The
exchange ratio will be calculated by dividing:
o the quotient obtained by dividing 825,000,000 by the average closing price
of Franklin common stock on the New York Stock Exchange for the 20 trading
days ending immediately prior to the day Franklin receives the required
regulatory approval from the Federal Reserve Board, provided that this
quotient will not be less than 19,466,700 or more than 23,791,000, by
o the number of Fiduciary shares of common stock outstanding at the
effective time.
Therefore, Franklin will not issue more than 23,791,000 or less than
19,466,700 shares of Franklin common stock in the acquisition. As of the date of
this proxy statement/prospectus, 7,276,168 shares of Fiduciary common stock were
outstanding. Fiduciary does not plan to issue any additional shares of common
stock.
Assuming there are 7,276,168 shares of Fiduciary common stock outstanding
at the effective time of the acquisition, each share of Fiduciary common stock
will be exchanged for shares of Franklin common stock having a market value of
$113.38 if the average closing price of Franklin common stock as calculated
above is between $34.68 and $42.38 (inclusive).
If the average closing price of Franklin common stock exceeds $42.38, the
exchange ratio will be fixed at 2.6754 and you will receive shares valued at
more than $113.38 for each of your shares. If the average closing price of
Franklin common stock falls below $34.68, the exchange ratio will be fixed at
4
<PAGE>
3.2697 and you will receive shares valued at less than $113.38 for each of your
shares.
This means that the number of shares of Franklin common stock received for
each share of Fiduciary common stock will not be less than 2.6754 nor more than
3.2697 regardless of what happens to the value of the Franklin common stock
before the acquisition is completed. Therefore, it is possible that each share
of Fiduciary common stock will be exchanged in the acquisition for shares valued
at more or less than $113.38.
EXAMPLE #1:
Assume that $35 is the average closing price for Franklin common stock and that
there are 7,276,168 shares of Fiduciary common stock outstanding at the
effective time. The exchange ratio would be determined by dividing 825,000,000
by 35 (which equals 23,571,428.57) and dividing that number by 7,276,168, which
equals 3.2395. Therefore you would receive 3.2395 shares of Franklin common
stock.
EXAMPLE #2:
Assume that $44 is the average closing price for Franklin common stock and that
there are 7,276,168 shares of Fiduciary common stock outstanding as of the
effective time. The exchange ratio would be determined by dividing 825,000,000
by 44 (which equals 18,750,000) and dividing this number by 7,276,168, which
equals 2.5769. However, due to the limitation on the minimum number of shares to
be issued, no less than 19,466,700 shares would be issued and the exchange ratio
would be fixed at 2.6754. Therefore you would receive 2.6754 shares of Franklin
common stock.
EXAMPLE #3:
Assume that $30 is the average closing price for Franklin common stock and that
there are 7,276,168 shares of Fiduciary common stock outstanding as of the
effective time. The exchange ratio would be determined by dividing 825,000,000
by 30 (which equals 27,500,000) and dividing this number by 7,276,168, which
equals 3.7795. However, due to the limitation on the maximum number of shares to
be issued, only 23,791,000 shares would be issued and the exchange ratio would
be fixed at 3.2697. Therefore you would receive 3.2697 shares of Franklin common
stock.
If we had received regulatory approval on the date two days prior to the
date of this proxy statement/prospectus, the 20 day average closing price of the
Franklin common stock would have been $___. [Since such price is equal to or
greater than $34.68 and equal to or less than $42.38, you would receive Franklin
common stock initially valued at $113.38 for each share of Fiduciary common
stock that you own.] [Since the price is less than $34.68, you would receive
Franklin common stock initially valued at $___. ] [Since the price is greater
than $42.38, you would receive Franklin common stock initially valued at $___. ]
The actual number of shares issued by Franklin may differ from this example and
will not be known at the special meeting because the acquisition is not
scheduled to be completed until after the special meeting.
Set forth below is a table showing a range of theoretical average prices
of Franklin common stock, along with the corresponding exchange ratios and
corresponding valuations in the acquisition of a share of theoretical Fiduciary
common stock. The table also highlights the minimum and maximum exchange ratios.
The table assumes that 7,276,168 shares of Fiduciary common stock are
outstanding at the effective time.
5
<PAGE>
THEORETICAL THEORETICAL
AVERAGE VALUE
CLOSING PRICE PER SHARE OF
OF FRANKLIN EXCHANGE FIDUCIARY
COMMON STOCK RATIO COMMON STOCK
---------------- ---------- -----------------
$50.00 2.6754 $133.77
$48.00 2.6754 $128.42
$46.00 2.6754 $123.07
$44.00 2.6754 $117.72
Ratio $42.39 2.6754 $113.41
Limitation
$42.38 2.6754 $113.38
$42.00 2.6996 $113.38
$40.00 2.8346 $113.38
$38.00 2.9838 $113.38
$36.00 3.1495 $113.38
$34.68 3.2694 $113.38
Ratio $34.67 3.2697 $113.36
Limitation
$34.00 3.2697 $111.17
$32.00 3.2697 $104.63
$30.00 3.2697 $98.09
$28.00 3.2697 $91.55
$26.00 3.2697 $85.01
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION (PAGE__)
We expect that your exchange of shares of Fiduciary common stock for
shares of Franklin common stock generally will not cause you to recognize any
gain or loss for U.S. federal income tax purposes. You will, however, have to
recognize gain or loss in connection with any cash received by you upon the sale
of fractional shares or as a result of the exercise of dissenters' rights. It is
a condition to the acquisition that we receive a legal opinion from our counsel
stating that the acquisition will be a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code.
RISKS ASSOCIATED WITH THE ACQUISITION (PAGE __)
You should be aware of and carefully consider the risks relating to the
acquisition described under "Risk Factors Relating to the Acquisition."
THE SPECIAL MEETING (PAGE___)
The special meeting of our shareholders will be held on ____________,
2001, at 2:00 p.m., local time, at the Marriott World Trade Center, Three World
Trade Center, New York, New York 10048. At the special meeting, you will be
asked to vote upon a proposal to approve and adopt the plan of acquisition
between Franklin and Fiduciary.
RECORD DATE; VOTES REQUIRED (PAGE__)
You can vote at the special meeting if you owned Fiduciary common stock as
of the close of business on ______, 2001, the record date. You can cast one vote
for each share of Fiduciary common stock you owned on that date. The plan of
acquisition must be approved by the affirmative vote of the holders of at least
two-thirds of our common stock outstanding on the record date.
You should mail your signed proxy card in the enclosed return envelope as
soon as possible so that your shares of Fiduciary common stock may be
represented at the meeting.
CONDITIONS TO COMPLETION OF THE ACQUISITION (PAGE__)
The completion of the acquisition depends on a number of conditions being
met, including:
o approval and adoption of the plan of acquisition by holders of at least
two-thirds of Fiduciary's outstanding shares of common stock entitled to
vote;
o receipt of required material regulatory approvals, including approval by
the Federal Reserve Board;
6
<PAGE>
o confirmation that Franklin's election to become a financial holding
company is effective;
o absence of any legal prohibition to the acquisition;
o receipt of an opinion from our counsel that the acquisition will qualify
as a tax-free reorganization;
o the representations and warranties contained in the plan of acquisition
having been true and correct as of October 25, 2000, subject to certain
exceptions;
o performance of the covenants contained in the plan of acquisition, subject
to certain exceptions, and
o execution of employment agreements by at least four of the following
individuals - Ms. Anne M. Tatlock, Chairman and Chief Executive Officer,
Mr. William Y. Yun, President, and the three Vice Chairmen, Mr. Jeremy H.
Biggs, Mr. James C. Goodfellow and Mr. Michael O. Magdol -- and such
employment agreements being in effect as of the closing.
If the law allows it to do so, either of Franklin or Fiduciary may choose
to complete the acquisition even though a condition has not been satisfied.
TERMINATION OF THE PLAN OF ACQUISITION (PAGE__)
Franklin and Fiduciary may jointly agree in writing to terminate the plan
of acquisition at any time, even after it is approved by Fiduciary's
shareholders. In addition, some of the circumstances under which either company
may individually terminate the plan of acquisition are:
o the acquisition is not completed by October 25, 2001;
o holders of the requisite number of Fiduciary shares do not approve the
plan of acquisition at the special meeting;
o the parties have not obtained the required regulatory approvals; or
o the other party breaches any of its representations, warranties, covenants
or agreements under the plan of acquisition and has not cured the breach
by the earlier of 60 days after written notice and October 25, 2001, and
the nature of the breach would cause one of the closing conditions to be
incapable of being satisfied.
Franklin may terminate the plan of acquisition if our board:
o breaches its obligation to recommend that our shareholders vote to approve
and adopt the plan of acquisition or modifies this recommendation in a
manner adverse to Franklin; or
o approves or recommends any other acquisition proposal.
NO SOLICITATION (PAGE___)
We have agreed, subject to certain exceptions, not to initiate or engage
in any discussions with another party regarding a business combination while the
acquisition is pending.
TERMINATION FEES (PAGE __)
Generally, we must pay Franklin a termination fee of $25 million if
Franklin terminates the plan of acquisition as described above in the last
paragraph appearing under "Termination of the Plan of Acquisition" or our
shareholders fail to approve the plan of acquisition and, in either case, within
7
<PAGE>
12 months after termination we enter into a definitive agreement to consummate
an acquisition proposal with a third party.
Generally, Franklin must pay us a termination fee of $25 million if the
plan of acquisition is terminated because any required regulatory approval is
not obtained or the acquisition is not completed by October 25, 2001 and, in
either case, the plan of acquisition is terminated at a time when Franklin has
not received the requisite federal and New York State banking approvals to
consummate the acquisition.
Payment of this termination fee will be in full satisfaction and
settlement of any claims Franklin or Fiduciary might have against each other in
respect of or under the plan of acquisition.
STOCK OPTION AGREEMENT (PAGE__)
Concurrently with the execution of the plan of acquisition, we and
Franklin entered into a stock option agreement pursuant to which we have granted
Franklin an option to purchase up to 19.9% of our outstanding common stock at a
price of $65 per share if we consummate an acquisition proposal with a third
party under certain circumstances. The stock option agreement limits to $25
million the total value Franklin may realize from the option and the termination
fee.
VOTING AGREEMENTS (PAGE__)
Certain of our directors and executive officers entered into voting
agreements with Franklin. In this document, "executive officers" means Ms. Anne
M. Tatlock, Chairman and Chief Executive Officer, Mr. William Y. Yun, President,
the three Vice Chairmen, Mr. Jeremy H. Biggs, Mr. James C. Goodfellow and Mr.
Michael O. Magdol and Mr. Stuart C. Hochberger, Executive Vice President. The
voting agreements require them to vote all of their shares of Fiduciary common
stock in favor of the approval and adoption of the plan of acquisition. These
shareholders collectively held approximately 11.28% of our common stock as of
the record date. You are urged to read the voting agreement, the form of which
is attached as Annex C.
INTEREST OF OUR DIRECTORS AND EXECUTIVE OFFICERS (PAGE __)
When considering our board's recommendation that you vote for the adoption
of the plan of acquisition, you should be aware that Fiduciary's directors and
officers have interests in the acquisition that are different from or in
addition to yours.
In connection with the acquisition, Ms. Tatlock, and Messrs. Yun, Biggs,
Goodfellow and Magdol, each a director and executive officer of Fiduciary,
agreed to enter into employment agreements with Fiduciary.
Also, the plan of acquisition provides that our current board of directors
will be permitted to continue to serve as directors of Fiduciary for at least
three years following the completion of the acquisition. Ms. Tatlock will be
appointed to the board of directors of Franklin.
Also, the acquisition will trigger benefits under certain stock plans and
severance plans of Fiduciary in which the directors and/or executive officers
participate. Lastly, Franklin will establish, immediately following the closing,
a compensation program for the salaried employees of Fiduciary, including the
executive officers, providing cash and stock option bonuses to encourage
continued employment and to compensate for services in connection with the
integration of the two organizations after the closing of the acquisition.
REGULATORY MATTERS (PAGE__)
8
<PAGE>
The acquisition is subject to Federal Reserve Board, foreign and state
regulatory approvals. The regulators must consider Franklin's and Fiduciary's
financial and managerial resources. Franklin also will seek approval to become a
bank holding company and elect to become a financial holding company. This will
subject Franklin to certain additional regulatory oversight and requirements.
DISSENTERS' RIGHTS (PAGE__)
Fiduciary shareholders who comply with the New York Banking Law will be
entitled to dissenters' rights to obtain payment for the fair value of their
Fiduciary shares.
ACCOUNTING TREATMENT (PAGE__)
We expect to take actions to cause the acquisition to qualify as a
"pooling of interests." This means that, for accounting and financial reporting
purposes, we will treat our companies as if they had always been one. However,
due to a number of uncertainties that exist in achieving pooling of interests
accounting treatment, the acquisition could be accounted for using the purchase
method of accounting in the event that pooling of interests does not apply.
In addition, the rules governing the accounting for a business
combination, such as this acquisition, are being revised and there is a
possibility that the changes in the accounting guidelines related to a business
combination might affect the selection of the method of accounting for this
acquisition. It is possible that the new rules would cause Franklin to pursue
the purchase method of accounting rather than the pooling of interests method
assuming the combined future operating results would be comparable to those to
be obtained under the pooling of interests method.
MATERIAL DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS (PAGE___)
Franklin is a Delaware corporation and Fiduciary is a bank organized under
the New York Banking Law. If the acquisition is completed, your rights as a
stockholder of Franklin will be governed by Franklin's certificate of
incorporation and bylaws and Delaware law. You should consider the fact that
Franklin's certificate of incorporation and bylaws and Delaware law differ in
some material respects from Fiduciary's charter and bylaws and the New York
Banking Law. See "Comparison of Rights of Shareholders of Franklin and
Fiduciary" beginning on page ____.
9
<PAGE>
RECENT DEVELOPMENTS
On December 8, 2000, Franklin filed with the Securities and Exchange
Commission (the "SEC") a registration statement on Form S-3 (File No. 333-51462)
under the Securities Act in connection with the proposed underwritten public
offering of up to 8.28 million shares (including 1.08 million shares that the
underwriters may purchase pursuant to their over-allotment option) of Franklin's
common stock. The principal reason for the offering is to permit the treatment
of the acquisition of Fiduciary as a pooling of interests for accounting
purposes. The offering is expected to close in late January 2001. The
comparative per share information for the Franklin common stock listed in this
proxy statement/prospectus does not give effect to this contemplated offering.
See "Comparative Per Share Information" on page ___.
10
<PAGE>
COMPARATIVE MARKET PRICE AND DIVIDEND INFORMATION
Franklin common stock is traded on the New York Stock Exchange ("NYSE")
and the Pacific Exchange, Inc. under the symbol "BEN," as well as the London
Stock Exchange under the symbol "FKR." Fiduciary common stock is traded on the
Over the Counter Bulletin Board ("OTCBB") under the symbol "FCNY."
The following table sets forth, for the calendar quarters indicated, the
high and low sale prices and the cash dividends declared during each quarter per
share of Franklin common stock as reported on the NYSE and Fiduciary common
stock as reported on the OTCBB.
All per share amounts have been adjusted to reflect a two-for-one stock
split of Franklin common stock in January 1998 and a 5% stock dividend declared
by Fiduciary in January 1999.
<TABLE>
<CAPTION>
Fiduciary Franklin
Common Stock Common Stock
------------------ ---------------
Dividend Dividend
High Low Declared High Low Declared
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1998
First Quarter.............................. $48.57 $39.05 $0.25 $ 57.25 $ 38.00 $0.050
Second Quarter............................. 48.10 44.76 0.25 57.88 47.56 0.050
Third Quarter.............................. 47.62 36.19 0.25 54.88 25.75 0.050
Fourth Quarter............................. 42.86 38.10 0.25 45.62 26.50 0.055
Year Ended December 31, 1999
First Quarter.............................. $ 47.00 $ 43.25 $0.29 $ 38.38 $ 27.00 $0.055
Second Quarter............................. 50.00 44.75 0.30 45.00 27.12 0.055
Third Quarter.............................. 48.00 38.00 0.30 43.44 29.75 0.055
Fourth Quarter............................. 39.25 32.00 0.30 35.00 27.44 0.060
Year ended December 31, 2000
First Quarter.............................. $ 37.00 $ 31.50 $0.35 $ 39.19 $ 24.63 $0.060
Second Quarter............................. 50.00 30.00 0.35 36.25 28.19 0.060
Third Quarter.............................. 58.50 45.88 0.35 45.63 30.00 0.060
Fourth Quarter
(through December 20, 2000) 112.50 57.63 N/A 45.50 33.96 0.065
</TABLE>
If the average trading price per share of Franklin common stock were
$40.40 (the closing price as reported on the NYSE on October 24, 2000, the
business day preceding the public announcement that Franklin and Fiduciary had
entered into the plan of acquisition), then you would receive for each share of
Fiduciary common stock that you own 2.8065 shares of Franklin common stock,
representing a value of $113.38 per share of Fiduciary common stock. If the
average trading price per share of Franklin common stock were $__________ (the
closing price as reported on the NYSE on _____________, the business day two
days prior to the date of this proxy statement/prospectus), then you would
receive for each share of Fiduciary common stock that you own ________ shares of
Franklin common stock, representing a value of $_______ per share of Fiduciary
common stock.
FRANKLIN AND FIDUCIARY URGE YOU TO OBTAIN CURRENT MARKET QUOTATIONS BEFORE
VOTING YOUR SHARES. BECAUSE THE SHARES OF FRANKLIN COMMON STOCK YOU WILL RECEIVE
IN THE ACQUISITION FOR EACH SHARE OF FIDUCIARY COMMON STOCK YOU OWN IS BASED ON
11
<PAGE>
THE AVERAGE OF THE CLOSING SALE PRICES OF FRANKLIN COMMON STOCK DURING THE
PRICING PERIOD SET FORTH IN THE PLAN OF ACQUISITION, THE NUMBER AND VALUE OF
SHARES OF FRANKLIN COMMON STOCK YOU WILL RECEIVE UPON THE COMPLETION OF THE
ACQUISITION MAY VARY SIGNIFICANTLY FROM THE NUMBER AND VALUE OF SHARES OF
FRANKLIN COMMON STOCK THAT HOLDERS OF FIDUCIARY COMMON STOCK WOULD RECEIVE IF
THE ACQUISITION WERE COMPLETED ON THE DATE OF THIS PROXY STATEMENT/PROSPECTUS.
12
<PAGE>
COMPARATIVE PER SHARE INFORMATION
The following table shows historical per share data of Franklin and
Fiduciary and also shows similar information reflecting the combination of the
two companies, which is referred to as "pro forma" information. In presenting
the comparative pro forma information, it is assumed that the companies have
been combined for accounting and financial reporting purposes for all periods
presented, as required by pooling-of-interests accounting.
The comparative per share data are derived from, and should be read in
conjunction with, the audited historical financial statements of Franklin that
are incorporated by reference in this proxy statement/prospectus. See "Where You
Can Find More Information" on page __ .
The pro forma equivalent per Fiduciary share data were calculated by
multiplying the corresponding pro forma combined per Franklin share data by
assuming the exchange ratio of 2.9429. The pro forma equivalent data show how
each common share of Fiduciary would have participated in the net income and
book value of the combined company if Franklin and Fiduciary had been combined
for accounting and financial reporting purposes for all periods presented. These
amounts, however, are not intended to reflect future per share levels of net
income and book value of the combined company.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
2000 1999 1998
------------------------------------------
<S> <C> <C> <C>
FRANKLIN HISTORICAL
Net income per diluted share $ 2.28 $ 1.69 $ 1.98
Cash dividends per share 0.24 0.22 0.20
Unaudited book value per share 12.17 10.59 9.06
FIDUCIARY HISTORICAL
Net income per diluted share 3.18 2.54 2.30
Cash dividends per share 1.35 1.14 0.96
Unaudited book value per share 13.43 13.47 11.77
UNAUDITED PRO FORMA COMBINED NET INCOME PER DILUTED SHARE
Per Franklin share 2.18 1.62 1.89
Equivalent per Fiduciary share 6.42 4.77 5.56
UNAUDITED PRO FORMA COMBINED CASH DIVIDEND PER SHARE
Per Franklin share 0.24 0.22 0.20
Equivalent per Fiduciary share 0.71 0.65 0.59
UNAUDITED PRO FORMA COMBINED BOOK VALUE PER SHARE
Per Franklin share 11.55 10.11 8.66
Equivalent per Fiduciary share 33.99 29.75 25.49
</TABLE>
NOTES
1 Assumes the exchange ratio of 2.9429 if the average closing price
of Franklin common stock was $38.53, which is the midpoint between
$34.68 and $42.38
13
<PAGE>
2 Equivalent per Fiduciary share is calculated by multiplying the
Franklin amounts by the exchange ratio of 2.9429
3 Based on the assumed exchange ratio of 2.9429 the number of shares
issued includes 21,411,887 shares issued related to the acquisition
4 Assumes that the dividend rate for Franklin would have been
unaffected by the acquisition
IF THE AVERAGE CLOSING PRICE OF FRANKLIN'S COMMON STOCK PRICE WAS GREATER THAN
$42.38:
<TABLE>
<S> <C> <C> <C>
UNAUDITED PRO FORMA COMBINED NET INCOME PER DILUTED SHARE
Per Franklin share $2.20 $1.64 $1.90
Equivalent per Fiduciary share 5.89 4.39 5.08
UNAUDITED PRO FORMA COMBINED CASH DIVIDEND PER SHARE
Per Franklin share 0.24 0.22 0.20
Equivalent per Fiduciary share 0.64 0.59 0.54
UNAUDITED PRO FORMA COMBINED BOOK VALUE PER SHARE
Per Franklin share 11.64 10.19 8.73
Equivalent per Fiduciary share 31.14 27.26 23.36
</TABLE>
1. Assumes exchange ratio of 2.6754 if the average closing price of Franklin
common stock was above $42.38
2. Equivalent per Fiduciary share is calculated by multiplying the Franklin
amounts by the exchange ratio of 2.6754
3. Number of shares issued includes the issuance of 19,466,700 shares related
to the transaction.
IF THE AVERAGE CLOSING PRICE OF FRANKLIN'S COMMON STOCK PRICE WAS BELOW $34.68:
<TABLE>
<S> <C> <C> <C>
UNAUDITED PRO FORMA COMBINED NET INCOME PER DILUTED SHARE
Per Franklin share $2.16 $1.61 $1.87
Equivalent per Fiduciary share 7.06 5.26 6.11
UNAUDITED PRO FORMA COMBINED CASH DIVIDEND PER SHARE
Per Franklin share 0.24 0.22 0.20
Equivalent per Fiduciary share 0.78 0.72 0.65
UNAUDITED PRO FORMA COMBINED BOOK VALUE PER SHARE
Per Franklin share 11.45 10.03 8.59
Equivalent per Fiduciary share 37.44 32.80 28.09
</TABLE>
14
<PAGE>
1. Assumes exchange ratio of 3.2697 if the average closing price of Franklin
common stock was below $34.68
2. Equivalent per Fiduciary share is calculated by multiplying the Franklin
amounts by the exchange ratio of 3.2697
3. Number of shares issued includes the issuance of 23,791,000 shares related
to the acquisition
15
<PAGE>
RISK FACTORS RELATING TO THE ACQUISITION
In addition to the other information included and incorporated by
reference in this document, Fiduciary shareholders should consider carefully the
matters described below in determining whether to approve or adopt the plan of
acquisition.
FIDUCIARY SHAREHOLDERS MAY RECEIVE FRANKLIN COMMON STOCK IN THE ACQUISITION WITH
AN INITIAL VALUE OF LESS THAN $113.38
If the average trading price of Franklin common stock used to calculate
the exchange ratio is less than $34.68, the exchange ratio will be fixed at
3.2697 shares of Franklin common stock for each share of Fiduciary common stock.
If this occurs, and the price of Franklin common stock at the completion of the
acquisition is less than $34.68, the initial value of the Franklin common stock
to be received by Fiduciary shareholders will be less than $113.38.
In addition, the price of Franklin common stock at the completion of the
acquisition could be lower than the average trading price used to determine the
exchange ratio. Therefore, even if the average trading price used to determine
the exchange ratio is greater than $34.68, Fiduciary shareholders also could
receive Franklin common stock with an initial value of less than $113.38.
The price of Franklin common stock at the completion of the acquisition
may vary from the respective prices on the date of this proxy
statement/prospectus, the date of the special meeting and the date on which the
exchange ratio is determined. This may be due to a number of factors, including:
o changes in the business, operations or prospects of Franklin or
Fiduciary;
o market assessments of the likelihood that the acquisition will be
completed and the timing of the completion of the acquisition;
o the prospects of post-acquisition operations;
o the effect of any conditions or restrictions imposed on or proposed
with respect to Franklin by regulatory agencies due to the
acquisition; or
o general market and economic conditions and other factors.
In addition, the stock market recently has experienced significant price
and volume fluctuations. These market fluctuations could have a material adverse
effect on the market price of the Franklin common stock before completion of the
acquisition.
THE EXCHANGE RATIO COULD BE SIGNIFICANTLY DIFFERENT FROM WHAT IT WOULD BE IF
DETERMINED BEFORE THE SPECIAL MEETING
Because the exchange ratio will not be determined until the receipt of
certain regulatory approvals for the acquisition which are not expected to be
obtained until after the special meeting, you must decide whether or not to
approve or adopt the plan of acquisition before knowing the actual exchange
ratio. Changes in the price of Franklin common stock between the date of this
proxy statement/prospectus and the completion of the acquisition may cause the
actual exchange ratio to differ significantly from the exchange ratio that would
have existed if it had been calculated on or before the special meeting.
16
<PAGE>
FRANKLIN MAY NOT BE ABLE TO ACHIEVE THE BENEFITS IT EXPECTS FROM THE ACQUISITION
Achieving the anticipated benefits of the acquisition will depend in part
on close collaboration between the management and key personnel of the two
companies in a timely and efficient manner so as to minimize the risk that the
acquisition will result in the loss of clients or employees or the continued
diversion of the attention of management.
There can be no assurance that any of the anticipated benefits to the
acquisition will be realized. In addition, the attention and effort devoted to
consummating and achieving the benefits of the acquisition could significantly
divert management's attention from other important issues, which could
materially and adversely affect Franklin's operating results or stock price.
FOLLOWING THE ACQUISITION, FRANKLIN WILL BE SUBJECT TO FEDERAL RESERVE BOARD
REGULATION
The transaction is subject to Federal Reserve Board and other regulatory
approvals. If such regulatory approvals are obtained and the acquisition is
completed, then Franklin will become a bank holding company and a financial
holding company and Franklin and its subsidiaries will be subject to Federal
Reserve Board regulations under the Bank Holding Company Act of 1956, which may
include minimum capital requirements. Additionally, prior approval of the
Federal Reserve Board may be required in order to effect a change in control of
Franklin.
THE ACQUISITION COULD ADVERSELY AFFECT FRANKLIN'S COMBINED FINANCIAL RESULTS OR
THE MARKET PRICE OF ITS COMMON STOCK
If the benefits of the acquisition do not exceed the costs associated with
the acquisition, including any dilution to Franklin's stockholders resulting
from the issuance of shares in connection with the acquisition, Franklin's
financial results, including earnings per share, could be adversely affected. In
addition, if Franklin does not achieve the perceived benefits of the acquisition
as rapidly as, or to the extent, anticipated by financial or industry analysts,
the market price of Franklin common stock may decline.
UNCERTAINTIES ASSOCIATED WITH THE ACQUISITION MAY CAUSE FIDUCIARY TO LOSE
CLIENTS
Fiduciary's clients may, in response to the announcement of the
acquisition, delay or defer decisions concerning their use of Fiduciary products
and services following the acquisition. Any delay or deferral could have an
adverse effect on the combined businesses of Franklin and Fiduciary. For
example, Fiduciary may experience a decrease in expected revenue as a
consequence of the uncertainties associated with the acquisition.
RISK FACTORS RELATING TO FRANKLIN'S ONGOING BUSINESS OPERATIONS
For a discussion of risk factors relating to Franklin's ongoing business
operations, see "Risk Factors" under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operation" appearing in
Franklin's Annual Report on Form 10-K for the fiscal year ended September 30,
2000. See "Where You Can Find More Information."
17
<PAGE>
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This document includes or incorporates by reference "forward-looking
statements" within the meaning of Section 27A of the Securities Act, Section 21E
of the Exchange Act and the Private Securities Litigation Reform Act of 1995
with respect to the financial condition, results of operation, plans,
objectives, future performance and business of each of Franklin and Fiduciary
both before and after the acquisition that are subject to risks and
uncertainties. These "forward-looking statements" include, without limitation:
o statements regarding expansion and growth of business;
o statements relating to revenues of the companies following the
acquisition;
o future capital expenditures;
o regulatory matters;
o business strategy and trends in or expectations regarding Franklin's
or Fiduciary's operations; and
o statements preceded by, followed by or including the words
"believe," "expect," "estimate," "anticipate," "intend," "plan,"
"foresee," "likely," " will" or other similar words or phrases.
These forward-looking statements involve risk and uncertainties that could
cause actual results to differ materially from those suggested by the
forward-looking statements, due to among other things:
o expected cost savings from the acquisition may not be fully realized
or realized within the expected time frame;
o revenues following the acquisition may be lower than expected;
o costs or difficulties relating to the integration of the businesses
of Franklin and Fiduciary may be greater than expected;
o negative impact of actions required by the Federal Reserve Board in
connection with the acquisition or Franklin's election to become a
financial holding company may be greater than expected;
o general political and economic conditions, either domestically or
internationally or in the states in which Franklin or Fiduciary are
doing business, may be less favorable than expected;
o interest rate and currency fluctuations, equity and bond market
fluctuations and perceptions, the level of personal and corporate
customers' bankruptcies, and inflation, may be greater than
expected;
o competitive product and pricing pressures among financial services
organizations may increase significantly;
o legislative or regulatory developments, including changes in laws
concerning taxes, banking, securities, insurance and other aspects
of the financial services industry, may adversely affect the
businesses in which Franklin and Fiduciary are engaged; and
o the factors set forth in "Risk Factors Relating to the Acquisition"
on page ___.
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All written and oral forward-looking statements attributable to Franklin
or Fiduciary or persons acting on behalf of Franklin and Fiduciary are expressly
qualified in their entirety by such factors. Franklin and Fiduciary disclaim any
obligation or undertaking to disseminate any updates or revisions to any
forward-looking statements contained in this document or to reflect any change
in the expectations of Franklin or Fiduciary after the date of this document or
any change in events, conditions or circumstances on which any forward-looking
statement is based.
See "Where You Can Find More Information."
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THE SPECIAL MEETING
Fiduciary is furnishing this proxy statement/prospectus to shareholders of
Fiduciary as part of the solicitation of proxies by the Fiduciary board of
directors for use at the special meeting.
DATE, TIME AND PLACE
We will hold the special meeting on ___________, 2001, at 2:00 p.m., local
time, at the Marriott World Trade Center, Three World Trade Center, New York,
New York 10048.
PURPOSE OF SPECIAL MEETING
At the special meeting, we are asking you to consider and vote on a
proposal to approve and adopt the plan of acquisition, dated as of October 25,
2000, between Franklin and Fiduciary. All members of the Fiduciary board of
directors present at a meeting unanimously approved the plan of acquisition and
the transactions contemplated by the plan of acquisition and recommended that
you vote FOR the approval and adoption of the plan of acquisition.
RECORD DATE; SHARES ENTITLED TO VOTE; QUORUM
Only holders of record of shares of Fiduciary common stock at the close of
business on ____________, 2001, the record date, are entitled to notice of and
to vote at the special meeting. On the record date, 7,276,168 shares of
Fiduciary common stock were issued and outstanding and held by approximately
___________ holders of record. A quorum is present at the special meeting if a
majority of the shares of Fiduciary common stock that are issued and outstanding
and entitled to vote at the special meeting are represented in person or by
proxy. If a quorum is not present at the special meeting, a majority of the
shares of Fiduciary common stock that are represented may adjourn the special
meeting. Holders of record of shares of Fiduciary common stock on the record
date are entitled to one vote per share at the special meeting on the proposal
to approve and adopt the plan of acquisition.
VOTES REQUIRED
The approval and adoption of the plan of acquisition requires the
affirmative vote of at least two-thirds of the shares of Fiduciary common stock
outstanding on the record date. If you abstain from voting or do not vote,
either in person or by proxy, it will count as a vote against the approval and
adoption of the plan of acquisition.
As of the record date for the special meeting, Fiduciary directors and
executive officers were the owners of 1,113,882 shares, representing less than
16% of the issued and outstanding Fiduciary common stock. All Fiduciary
directors who are executive officers have agreed to vote the shares of Fiduciary
common stock beneficially owned by them for the approval and adoption of the
plan of acquisition. See "The Plan of Acquisition and Related Agreements--Voting
Agreements" on page ___.
VOTING OF PROXIES
You may submit your proxies by returning a properly signed proxy card in
the enclosed postage-paid envelope. If you are a beneficial owner of shares of
Fiduciary common stock and hold your shares through a broker, bank or other
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nominee, you will receive from your nominee voting instructions which must be
followed in order to vote your shares.
All shares represented by properly signed proxy cards received in time for
the special meeting will be voted at the special meeting in the manner specified
by the holders. Properly signed proxies that do not contain voting instructions
will be voted for the plan of acquisition. Proxies that are not properly signed
will not be voted at the special meeting and therefore will count as a vote
against the approval and adoption of the plan of acquisition.
Shares of Fiduciary common stock represented at the special meeting but
not voting, including shares of Fiduciary common stock for which proxies have
been received but for which holders of shares have abstained, will be treated as
present at the special meeting for purposes of determining the presence or
absence of a quorum for the transaction of all business.
Only shares affirmatively voted for the approval and adoption of the plan
of acquisition (including properly signed proxies that do not contain voting
instructions) will be counted as favorable votes for that proposal. If you
abstain from voting or do not vote, either in person or by proxy, it will count
as a vote against the approval and adoption of the plan of acquisition. However,
please note that if you do not return your proxy card with respect to your
shares held in an account under either the FTCI Deferred Compensation Plan or
the TRIO Plan or you do not indicate on such proxy card how to vote such shares,
those shares will be voted pro rata in accordance with the vote of shares held
under, respectively, the FTCI Deferred Compensation Plan or the TRIO Plan as to
which voting instructions were given by participants therein.
Brokers, banks or other nominees who hold shares of Fiduciary common stock
in street name for customers who are the beneficial owners of those shares may
not give a proxy to vote those customers' shares in the absence of specific
instructions from those customers. These non-voted shares are referred to as
broker non-votes and count as votes against the approval and adoption of the
plan of acquisition.
The persons named as proxies by a shareholder may propose and vote for one
or more adjournments of the special meeting, including adjournments to permit
further solicitations of proxies. No proxy voted against the proposal to approve
and adopt the plan of acquisition will be voted in favor of any such
adjournment.
Fiduciary does not expect that any matter other than the proposal to
approve and adopt the plan of acquisition will be brought before the special
meeting. If, however, other matters are properly presented for consideration at
the special meeting by the Fiduciary board of directors, the persons named as
proxies will vote in accordance with their judgment.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed proxy card does not preclude you from
voting in person at the special meeting. You may revoke a proxy at any time
prior to its exercise by:
o filing with the Secretary of Fiduciary a properly signed revocation
of proxy;
o submitting a properly signed proxy to the Secretary of Fiduciary
bearing a later date; or
o appearing at the special meeting, filing a written notice of
revocation of your proxy with the Secretary of Fiduciary and voting
in person.
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ATTENDANCE AT THE SPECIAL MEETING WILL NOT ITSELF CONSTITUTE REVOCATION OF
A PROXY. IN ADDITION, IF YOUR SHARES OF FIDUCIARY COMMON STOCK ARE HELD IN
STREET NAME, YOU MUST OBTAIN A PROXY, SIGNED IN YOUR FAVOR, FROM THE INSTITUTION
THAT HOLDS YOUR SHARES IN ORDER TO VOTE IN PERSON AT THE SPECIAL MEETING.
SOLICITATION OF PROXIES
Fiduciary will bear the cost of the solicitation of proxies from Fiduciary
shareholders. In addition to solicitation by mail, the directors, officers and
employees of Fiduciary and its subsidiaries may solicit proxies from
shareholders by telephone or in person. Fiduciary will cause brokerage houses
and other custodians, nominees and fiduciaries to forward solicitation materials
to the beneficial owners of shares of Fiduciary common stock held of record by
such persons. Fiduciary will reimburse these custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses in doing so.
Georgeson Shareholder Communications Inc. will assist in the solicitation
of proxies by Fiduciary from banks, brokerage firms, other nominees,
institutional holders and individual shareholders. Georgeson Shareholder
Communications Inc.'s services will include:
o delivering proxy materials to banks, brokerage firms and other
nominees for redelivery to beneficial owners of shares of Fiduciary
common stock;
o placing follow-up calls to individuals and institutions to ensure
receipt of the proxy materials and to encourage them to vote; and
o answering routine telephone inquiries from shareholders.
Fiduciary will pay a fee of approximately $_______ as compensation for its
services, plus reimbursement of reasonable out-of-pocket expenses, and will
indemnify Georgeson Shareholder Communications Inc. against any losses arising
out of Georgeson Shareholder Communications Inc.'s proxy soliciting services on
behalf of Fiduciary.
SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXIES.
A transmittal form with instructions for the surrender of certificates
representing shares of Fiduciary common stock will be mailed to Fiduciary
shareholders as soon as practicable after completion of the acquisition.
FRANKLIN STOCKHOLDERS
Under Franklin's certificate of incorporation and bylaws, the rules of the
NYSE and Delaware law, the approval and adoption of the plan of acquisition do
not require the approval of Franklin's stockholders. Consequently, the approval
of Franklin's stockholders is not being sought.
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THE ACQUISITION
The discussion in this proxy statement/prospectus of the material terms of
the acquisition, the plan of acquisition and the stock option agreement should
be read in conjunction with the plan of acquisition and the stock option
agreement, which are attached as Annex A and Annex B to this proxy
statement/prospectus.
BACKGROUND OF THE ACQUISITION
In January 2000, the Fiduciary board of directors received presentations
from senior management of Fiduciary on the challenges faced by Fiduciary as a
result of the pace and scope of change in the financial services industry and
the potential impact of this change on Fiduciary. Additionally, in January and
the first quarter of 2000, management reported a significant increase compared
to prior years in unsolicited inquiries by prospective interested buyers.
In January 2000, the Fiduciary board of directors established a study
group consisting of members of the board, Mr. Charles Crocker, Mr. Richard A.
Goldstein and Gov. Thomas H. Kean, to assist senior management in its review of
Fiduciary's business and of the competitive landscape and to develop and
implement long-term strategies for Fiduciary to maintain and enhance its
competitive position. Upon his retirement as Chairman and Chief Executive
Officer of Fiduciary Mr. Lawrence S. Huntington, also a member of the board,
joined the study group.
During the first three quarters of 2000, senior management of Fiduciary
and the study group, along with Goldman, Sachs & Co., as financial advisor, and
Cleary, Gottlieb, Steen & Hamilton, as outside counsel, had various meetings at
which they assessed Fiduciary's business and objectives and discussed various
strategies to remain competitive on a long-term basis in the financial services
industry.
During the summer of 2000, Ms. Anne M. Tatlock, Chairman and Chief
Executive Officer of Fiduciary, and Mr. William Y. Yun, President of Fiduciary,
met with a carefully selected group of institutions representing various types
of firms that might offer strategic possibilities for Fiduciary. One such
meeting occurred in late July 2000, among Ms. Tatlock, Mr. Yun and Mr. Charles
B. Johnson, Chairman and Chief Executive Officer of Franklin, at the Harvard
Club in New York City. Together they discussed the histories of the two
organizations and evolving industry trends and directions.
At regular meetings of the Fiduciary board of directors during 2000, the
Fiduciary board of directors was informed that senior management and the study
group had continued to review Fiduciary's long-term strategy and had received
input from select market participants as to how these participants were dealing
with the challenges and opportunities of the rapidly evolving financial services
landscape.
At a meeting on September 28, 2000, Ms. Tatlock, Mr. Yun and Mr. Michael
O. Magdol, Vice Chairman and Chief Financial Officer of Fiduciary, met with Mr.
Charles B. Johnson, Mr. Martin L. Flanagan, President and Member of the Office
of the President of Franklin, Mr. Charles E. Johnson, President and Member of
the Office of the President of Franklin, Mr. Gregory E. Johnson, President of
Franklin and Member of the Office of the President of Franklin, Mr. Rupert H.
Johnson, Jr., Vice Chairman and Member of the Office of the Chairman of Franklin
and Mr. Allen J. Gula, Jr., President and Member of the Office of the President
of Franklin at the Franklin headquarters. At this meeting, representatives from
each of Franklin and Fiduciary provided a review of their perspectives on
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industry trends, developments and emerging opportunities in the financial
services industry. The parties also discussed the two firms' approach to the
strategic issues within their respective lines of business and the impact of
technology on each organization. Ms. Tatlock then met alone with Mr. Charles B.
Johnson that same day. They further discussed the issues discussed in the
meeting with the larger group. It became increasingly clear to both sides that
they could be of enormous assistance to each other in implementing their
respective long-term strategies.
Ms. Tatlock subsequently reviewed with Fiduciary senior management the
discussions with Franklin. They discussed how a potential business combination
would result in a full service global asset management organization and the
importance of Fiduciary's independence in the event of such a combination in
order to maintain and enhance Fiduciary's business prospects and client
retention. It was agreed that Fiduciary would explore with Franklin the
possibility of a combination.
Mr. Charles B. Johnson subsequently reviewed with senior management of
Franklin how an alliance with Fiduciary would further Franklin's goal of being a
premier global asset management company.
On October 3, 2000, Franklin submitted to Goldman Sachs a draft indication
of interest letter, the terms of which included a purchase price for Fiduciary
of $750 million, which Fiduciary's senior management considered but rejected.
On October 5, 2000, Franklin delivered to Fiduciary a revised indication
of interest letter which included a purchase price of $825 million for
Fiduciary, or a per share consideration of $113.38. In the letter, Franklin
stressed, among other things, that in the proposed combination, Fiduciary would
retain its name and a separate board of directors and that Fiduciary would
become the global platform for the two companies' high net worth programs.
Fiduciary's senior management considered the indication of interest and found
the indicated price and terms sufficient to recommend to the study group that
they begin discussing a business combination with Franklin.
On October 6, 2000, Ms. Tatlock and Messrs. Yun, Biggs and Magdol reviewed
and discussed with the study group the ongoing discussions with Franklin and the
Franklin proposal of October 5, 2000. Also attending the meeting were Mr.
Huntington, Ms. Carol K. Demitz, Chief Corporate Counsel of Fiduciary and
representatives from Goldman Sachs and Cleary, Gottlieb, Steen & Hamilton.
Representatives of Goldman Sachs presented a comparison of the purchase price
being offered to Fiduciary by Franklin to other recent comparable transactions
in the asset management industry. Representatives of Cleary, Gottlieb, Steen &
Hamilton discussed the process in which negotiations toward a potential business
combination might take place and the fiduciary duties that members of the
Fiduciary board of directors owed to Fiduciary and its shareholders in
considering a potential business combination. Senior management and the study
group also discussed their conviction that in order to preserve Fiduciary's
clientele and business, it would be necessary in any business combination for
Fiduciary to retain a significant degree of independence and that it would be
important to offer a compensation package to employees, in order to retain
current and attract future Fiduciary employees and to compensate them for the
substantial amount of work that would be required after any business combination
over a several year period to make such combination a success. After a thorough
discussion, the study group instructed and authorized senior management to begin
negotiations with Franklin.
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On the morning of October 12, 2000, Ms. Tatlock, Mr. Huntington and
members of the study group met with Mr. Charles B. Johnson in New York and began
to discuss the acquisition. In the afternoon, Ms. Tatlock met again with Mr.
Charles B. Johnson, Mr. Charles E. Johnson and Mr. Flanagan to discuss further
issues related to Fiduciary's independence and the proposed combination.
Later that day, on October 12, 2000, Franklin and Fiduciary entered into a
confidentiality agreement containing customary terms and conditions regarding
the confidential treatment of any information exchanged by the parties.
From October 12, 2000 through October 25, 2000, representatives of
Franklin and Franklin's legal and financial advisors conducted due diligence
reviews at the offices of Weil, Gotshal & Manges LLP, Franklin's outside
counsel, and Cleary, Gottlieb, Steen & Hamilton in New York City. As part of its
due diligence review, Franklin reviewed public and non-public documents and
information of Fiduciary and heard presentations by and made inquires of
representatives of Fiduciary.
From October 12, 2000 through October 25, 2000, representatives of
Fiduciary and Fiduciary's legal and financial advisors conducted due diligence
reviews of Franklin at the offices of Weil, Gotshal & Manges LLP and Cleary,
Gottlieb, Steen & Hamilton in New York City. As part of its due diligence
review, Fiduciary reviewed public and non-public documents and information of
Franklin and heard presentations by and made inquires of representatives of
Franklin.
Between October 12, 2000 and October 25, 2000, representatives of Franklin
and Fiduciary and their respective financial, accounting, tax and legal advisors
held numerous meetings and discussions and participated in ongoing negotiations
regarding the terms and structures for the acquisition at the offices of Weil,
Gotshal & Manges LLP and Cleary, Gottlieb, Steen & Hamilton in New York City.
During this period, counsel to Franklin and Fiduciary also held telephone
conference calls and meetings at the respective law firms to review and discuss
drafts of the plan of acquisition, the stock option agreement and related
issues.
On October 21, 2000, representatives of Franklin, Fiduciary and their
respective financial advisers met and tentatively agreed, subject to further
examination and discussions as well as approval of the boards of directors of
the two companies and the execution of a definitive acquisition agreement, upon
a fixed exchange ratio of 2.9429 shares of Franklin common stock for each
outstanding share of Fiduciary common stock. This fixed exchange ratio was based
on an overall purchase price of $825 million, divided by 7,276,168, the number
of outstanding shares of Fiduciary common stock, or $113.38, divided by $38.53,
the average closing price per share of Franklin common stock over the week of
October 16-20, 2000.
On October 23, 2000 Franklin's board of directors held a special meeting
at which members of senior management, legal advisors and Merrill Lynch &
Company, which had been retained by Franklin to serve as financial advisors in
the transaction, were present. The Franklin board of directors discussed the
strategic rationale of the transaction, key transaction terms, and a valuation
and pro forma analysis of Fiduciary prepared by Merrill Lynch. After discussion,
the Franklin board of directors created a transaction committee of directors
that was authorized to review and approve an acquisition of Fiduciary on terms
similar to those discussed with the full Franklin board of directors with such
changes as it deemed appropriate.
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On October 23, 2000, representatives of Franklin and Fiduciary met with
representatives of the Federal Reserve Board in Washington D.C. to discuss
issues that might be raised if Franklin were to acquire Fiduciary and therefore
be required to become a bank holding company and a financial holding company.
On October 24, 2000, representatives of Franklin and Fiduciary met with
representatives of the New York State Banking Department and with
representatives of the Federal Reserve Bank of New York to discuss issues that
might be raised if Franklin were to acquire Fiduciary and become a bank holding
company and a financial holding company.
On the morning of October 24, 2000, Franklin, Fiduciary and their
respective financial advisors discussed appropriate financial protection for
each other if the per share price of Franklin common stock were to increase or
decrease in value from the price of $38.53, which was the price used for
calculating the fixed exchange ratio of 2.9429 shares of Franklin common stock
for each outstanding share of Fiduciary common stock. The parties agreed that
the actual exchange ratio would be based on the Franklin average closing price
for the 20 trading days immediately prior to the date certain regulatory
approvals are obtained from the Federal Reserve Board and that if such average
closing price was between $34.68 and $42.38 (inclusive), the exchange ratio
would be between 3.2697 and 2.6754, resulting in a constant value based on such
average closing price of $113.38. If the average closing price was greater than
$42.38, the exchange ratio would be fixed at 2.6754, resulting in a value to
Fiduciary shareholders of more than $113.38, and if the average closing price
was less than $34.68, the exchange ratio would be fixed at 3.2697, resulting in
a value to Fiduciary shareholders of less than $113.38.
On October 24, 2000, the Fiduciary board of directors held a regular
meeting attended by several officers of Fiduciary and representatives of Goldman
Sachs and Cleary, Gottlieb, Steen & Hamilton at which senior management informed
the board of directors of the proposed acquisition by Franklin and presented the
chronology and content of previous meetings and negotiations with Franklin. Ms.
Tatlock emphasized that the goals of Fiduciary in any potential business
combination were to meet the strategic objectives of the company, serve its
shareholders, clients and employees and leave the company with a degree of
retained independence necessary to preserve Fiduciary's clientele and business.
She also explained that it was critical to conduct a process that would not
damage Fiduciary or its franchise. Ms. Tatlock and Messrs. Magdol and Yun then
reviewed Franklin's history and current business.
In addition, representatives of Goldman Sachs described its financial
analyses performed with respect to the acquisition, which included, among other
things, an overview of Franklin, the acquisition terms, pro forma analyses and
valuation analyses. Goldman Sachs later delivered to the Fiduciary board of
directors its written opinion to the effect that, as of October 25, 2000, and
based upon and subject to the matters described in its opinion, the exchange
ratio pursuant to the plan of acquisition, was fair from a financial point of
view to the holders of the outstanding shares of Fiduciary common stock.
Following Goldman Sachs' presentation, senior management and Fiduciary's legal
counsel and financial advisors participated in discussions with the board of
directors regarding the acquisition. During the meeting, Cleary, Gottlieb, Steen
& Hamilton provided each member of the Fiduciary board of directors in
attendance with a current draft of the plan of acquisition and the stock option
agreement and summarized the terms of the proposed agreements and the
transactions contemplated by them. In addition, Cleary, Gottlieb, Steen &
Hamilton discussed the fiduciary duties that members of the Fiduciary board of
directors owed to Fiduciary and its shareholders in considering the acquisition.
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The Fiduciary board of directors considered the documents and decided to meet
again the next morning to continue discussions regarding the acquisition.
On October 25, 2000, the Fiduciary board of directors had a special
meeting also attended by representatives of Goldman Sachs and Cleary, Gottlieb,
Steen & Hamilton at which further discussion with respect to the acquisition
took place. Following discussion, all members of the Fiduciary board of
directors present at the meeting unanimously approved the plan of acquisition
and the stock option agreement and the transactions contemplated by the
agreements.
On October 25, 2000, the transaction committee of the Franklin board of
directors met and reviewed the terms and conditions of the acquisition and
authorized the execution and performance of the plan of acquisition, the stock
option agreement and the transactions contemplated by the agreements.
On October 25, 2000, following the execution and delivery of the
definitive agreements, Franklin and Fiduciary issued a joint press release
announcing the execution of the plan of acquisition.
FIDUCIARY'S REASONS FOR THE ACQUISITION
In reaching its decision to approve the plan of acquisition and the
transactions contemplated by the agreement, and to recommend that Fiduciary
shareholders vote to approve and adopt the plan of acquisition, the Fiduciary
board of directors consulted with senior management and its financial and legal
advisors. In view of the variety of material factors considered in connection
with its evaluation of the acquisition, the Fiduciary board of directors did not
find it practicable to, and did not, quantify or otherwise assign relative
weights to the specific factors considered in reaching its determination. In
addition, individual members of the Fiduciary board of directors may have given
different weight to different factors. The Fiduciary board of directors
considered a number of factors, including the following material factors:
o the belief that the acquisition represented a unique strategic fit,
which would combine two existing global financial services
franchises into one with superior growth prospects, synergies and
complementary capabilities across the two companies' business lines,
which belief stems in part from the following factors:
o both the individual and institutional businesses of Fiduciary
are complementary to the services offered by Franklin to its
clients, resulting in continuity of all key parts of
Fiduciary's business;
o Franklin will provide significant additional resources needed
for Fiduciary to retain existing, and to attract new clients
and employees while maintaining its existing business lines
and maintaining its independence;
o Franklin provides a range of investment alternatives not
currently being directly provided by Fiduciary and the
combination with Franklin would thus enable Fiduciary to
expand the range of services that Fiduciary's clients might
use in furthering their investment objectives;
o Franklin's extensive range of offices worldwide would
significantly strengthen Fiduciary's ability to broaden its
new business initiatives to global institutional clients;
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o the acquisition would allow Fiduciary access to a more
advanced technology platform to supplement its services to its
clients and put Fiduciary in a more competitive position; and
o Franklin's large market capitalization and actively traded
stock would allow Fiduciary to provide more tailored and
competitive performance-based compensation packages and
thereby enhance its ability to retain and attract skilled
professionals.
o the opportunity for Fiduciary shareholders to receive consideration
in the form of Franklin common stock at a significant premium to the
current and historical trading value of shares of Fiduciary common
stock;
o the fact that the consideration for each share of Fiduciary common
stock is fixed within an exchange ratio range, providing some
downside protection and upside advantage if general market prices or
the price of Franklin common stock decreases or increases prior to
the consummation of the acquisition;
o Franklin's intention to operate Fiduciary as a separate company that
would maintain its current board of directors, retain the Fiduciary
brand name, bank regulatory status and its headquarters in New York,
thereby enabling Fiduciary to retain the high degree of independence
necessary to preserve Fiduciary's business and to grow the combined
companies;
o Franklin's intention to have Ms. Tatlock remain as Chairman and
Chief Executive Officer of Fiduciary, to join the Franklin board of
directors and to be a member of the Office of the Chairman;
o the strategic and financial alternatives available to Fiduciary in
the rapidly changing financial services industry, including the
business risks of remaining an independent company;
o the belief of the Fiduciary board of directors that the required
regulatory approvals, including approval by the Federal Reserve
Board, for the acquisition would be obtainable;
o the terms and conditions of the plan of acquisition and the stock
option agreement and the transactions contemplated by the agreements
and the view of the Fiduciary board of directors that satisfaction
of the conditions to closing of the acquisition was probable;
o the various agreements and undertakings made by Franklin to
Fiduciary employees and the anticipated long-term and short-term
interests of Fiduciary and Fiduciary's employees, clients and other
constituencies;
o the financial presentation by Goldman Sachs and its written opinion
addressed to the Fiduciary board of directors as to the fairness,
from a financial point of view, as of October 25, 2000, to holders
of shares of Fiduciary common stock, of the exchange ratio pursuant
to the plan of acquisition, as described below under the subcaption
"The Acquisition--Opinion of Goldman, Sachs & Co." on page ____;
o the expectation that the acquisition would qualify as a tax-free
reorganization;
o historical information concerning Fiduciary's and Franklin's
respective businesses, financial performance and condition,
operations, technology, management and competitive position,
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including Franklin's filings with the Securities and Exchange
Commission concerning the results of operations;
o the financial condition, results of operations, business and
prospects of Fiduciary and Franklin before and after giving effect
to the acquisition;
o current financial market conditions and historical market prices,
volatility and trading information with respect to shares of
Fiduciary and Franklin common stock; and
o the impact of the acquisition on Fiduciary clients, employees and
other constituencies.
The Fiduciary board of directors also identified and considered a number
of potentially negative factors in its deliberations concerning the acquisition,
including:
o the uncertainty as to the effect of the public announcement of the
acquisition on various clients of Fiduciary and the ability of
Fiduciary to retain and attract employees;
o the possibility that the acquisition might not be consummated and
the risks to the business of Fiduciary if that were to occur,
including loss of clients and/or employees or the possibility of a
different and inferior third-party offer;
o the risk that the anticipated benefits sought in the acquisition
might not be fully realized, which could disrupt and adversely
affect the level of service to Fiduciary's clients, reduce the
growth prospects and opportunities for synergies and result in the
loss of employees seeking opportunities elsewhere;
o the risks resulting from the concentrated nature of the shareholding
of Franklin and of the composition of the management of Franklin;
and
o the risks associated with fluctuations in the price of Franklin
common stock prior to the completion of the acquisition.
Certain of these negative considerations are further discussed under "Risk
Factors Relating to the Acquisition" beginning on page
----.
The Fiduciary board of directors believed that some of these risks are
unlikely to occur, that Fiduciary could avoid or mitigate others, and that,
overall, these risks were outweighed by the potential benefits of the
acquisition.
FRANKLIN'S REASONS FOR THE ACQUISITION
In reaching its decision to approve the acquisition, the plan of
acquisition and the transactions contemplated by the plan of acquisition, the
Franklin board of directors consulted with and received advice from senior
management and its financial, accounting and legal advisors and considered a
number of factors. The factors include:
o the belief that Fiduciary is a preeminent global investment manager
with a strong international presence;
o Fiduciary has a successful high net worth business with $14 billion
managed for 1,100 high net worth individuals and families;
o Fiduciary has an established institutional business with strong
client and consultant relationships; and
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o the belief that Franklin could distribute Fiduciary's investment
products through Franklin's retail channel, diversify Franklin's
product portfolio and reduce business risk, extend Fiduciary's high
net worth service model to financial advisor channels and cross-sell
Fiduciary's international equity growth and international fixed
income products.
RECOMMENDATION OF THE FIDUCIARY BOARD OF DIRECTORS
AFTER CAREFUL CONSIDERATION, ALL MEMBERS OF THE FIDUCIARY BOARD OF
DIRECTORS PRESENT AT A MEETING UNANIMOUSLY APPROVED THE PLAN OF ACQUISITION AND
THE TRANSACTIONS CONTEMPLATED BY THE AGREEMENT, DETERMINED THAT THE PLAN OF
ACQUISITION AND THE TRANSACTIONS CONTEMPLATED BY THE AGREEMENT ARE ADVISABLE TO,
AND IN THE BEST INTERESTS OF, FIDUCIARY AND ITS SHAREHOLDERS AND RECOMMENDED
THAT THE SHAREHOLDERS OF FIDUCIARY VOTE FOR THE APPROVAL AND ADOPTION OF THE
PLAN OF ACQUISITION.
OPINION OF GOLDMAN, SACHS & CO.
Goldman Sachs delivered its written opinion, dated October 25, 2000, to
the Fiduciary board of directors that, as of the date of such opinion, the
exchange ratio pursuant to the plan of acquisition was fair from a financial
point of view to the holders of the outstanding shares of Fiduciary common
stock.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS, DATED OCTOBER 25,
2000, WHICH SETS FORTH ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED
AND LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS
ATTACHED HERETO AS ANNEX D AND IS INCORPORATED HEREIN BY REFERENCE. THE
DESCRIPTION OF THE OPINION SET FORTH IN THIS DOCUMENT IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO ANNEX D. HOLDERS OF SHARES OF FIDUCIARY COMMON STOCK
ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY.
In connection with its opinion, Goldman Sachs reviewed, among other
things:
o the plan of acquisition;
o Annual Reports of Fiduciary for the three years ended December 31,
1999;
o Annual Reports to stockholders and Annual Reports on Form 10-K of
Franklin for the five fiscal years ended September 30, 1999;
o Quarterly Financial Highlights of Fiduciary;
o certain interim reports to stockholders;
o Quarterly Reports on Form 10-Q of Franklin; and
o certain internal financial analyses and forecasts for Fiduciary and
Franklin prepared by their respective managements, including certain
cost savings projected by the managements of Fiduciary and Franklin
to result from the transaction contemplated by the plan of
acquisition.
Goldman Sachs also held discussions with members of the senior management
of Fiduciary and Franklin regarding their assessment of the strategic rationale
for, and the potential benefits of, the transaction contemplated by the plan of
acquisition and the past and current business operations, financial condition
and future prospects of their respective companies. In addition, Goldman Sachs:
30
<PAGE>
o reviewed reported price and trading activity for the Fiduciary
common stock and the Franklin common stock;
o compared certain financial and stock market information for
Fiduciary and Franklin with similar information for certain other
companies the securities of which are publicly traded;
o reviewed the financial terms of certain recent business combinations
in the asset management industry specifically and other industries
generally; and
o performed such other studies and analyses as it considered
appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information discussed with or reviewed by it and has assumed
such accuracy and completeness for purposes of rendering its opinion. In
addition, Goldman Sachs did not make an independent evaluation or appraisal of
the assets and liabilities of Fiduciary or Franklin or any of their subsidiaries
and Goldman Sachs was not furnished with any such evaluation or appraisal.
Goldman Sachs assumed, with the consent of Fiduciary, that the transaction
contemplated by the plan of acquisition will be accounted for as a
pooling-of-interests under generally accepted accounting principles. Goldman
Sachs also assumed that all material governmental, regulatory or other consents
and approvals necessary for the consummation of the transaction contemplated by
the plan of acquisition will be obtained without any adverse effect on Fiduciary
or Franklin or on the benefits of the transaction contemplated by the plan of
acquisition.
The advisory services and the opinion of Goldman Sachs are provided for
the information and assistance of the Fiduciary board of directors in connection
with its consideration of the transaction contemplated by the plan of
acquisition, and such opinion does not constitute a recommendation as to how any
holder of shares of Fiduciary common stock should vote with respect to such
transaction.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing its written opinion to the Fiduciary
board of directors on October 25, 2000 attached hereto as Annex D.
THE FOLLOWING SUMMARIES OF FINANCIAL ANALYSES INCLUDE INFORMATION
PRESENTED IN TABULAR FORMAT. YOU SHOULD READ THESE TABLES TOGETHER WITH THE TEXT
OF EACH SUMMARY.
SELECTED FINANCIAL SERVICES COMPANIES ANALYSIS
Goldman Sachs reviewed and compared certain financial information, ratios
and public market multiples relating to Fiduciary and Franklin to corresponding
financial information, ratios and public market multiples for thirteen
investment management companies:
o AMVESCAP PLC;
o Alliance Capital;
o Stilwell Financial;
o T. Rowe Price Associates Inc.;
o Neuberger Berman;
o Federated Investors, Inc.;
o Waddell & Reed Financial Inc.;
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<PAGE>
o BlackRock;
o Eaton Vance Corporation;
o John Nuveen Company;
o Affiliated Managers Group Inc.;
o Gabelli Asset Management; and
o Phoenix Investment Partners Ltd.
Goldman Sachs also reviewed and compared certain financial information,
ratios and public market multiples relating to Fiduciary and Franklin to
corresponding financial information, ratios and public market multiples for
three trust companies:
o Bank of New York;
o State Street Corporation; and
o Northern Trust.
The selected financial services companies were chosen because they are
publicly-traded companies with operations that for purposes of analysis may be
considered similar to Fiduciary and Franklin. Goldman Sachs calculated and
compared various financial multiples and ratios with respect to Fiduciary,
Franklin and the selected financial service companies. The multiples for
Fiduciary and Franklin were calculated using a share price of $62.75 per share
and $40.13 per share, respectively (the closing prices on October 20, 2000).
Similarly, the multiples and ratios for each of the selected companies were
based on the closing prices on October 20, 2000. With respect to the selected
companies, among other things, Goldman Sachs considered:
o estimated P/E for 2000 and 2001, based on IBES estimates with
respect to Franklin and the selected financial services companies
and based on Fiduciary management's projections with respect to
Fiduciary;
o IBES estimated 5-year growth rate;
o 2000 P/E/IBES estimated 5-year growth rate;
o levered market capitalization (i.e., the market value of common
equity plus the book value of debt and preferred stock less cash) as
a percentage of AUM, a multiple of revenue and a multiple of EBITDA;
and
o estimated EBITDA margin.
As used herein, "P/E" means the ratio of price to earnings; "IBES" means
Institutional Brokers Estimate System, a source of analysts' estimates and
research for institutional investors; "AUM" means assets under management; and
"EBITDA" means earnings before interest, taxes, depreciation and amortization.
The results of this analysis were as follows:
<TABLE>
<CAPTION>
P/E IBES 2000 P/E/ LEVERED MARKET CAP/
-------------------- 5 YR IBES 5 YR. ---------------------------------- EBITDA
COMPANY 2000E 2001E GROWTH GROWTH AUM REVENUE EBITDA MARGIN
------- ----- ----- ------ ------ --- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Fiduciary 21.8x 18.3x NA NA 0.8% 2.4x 7.8x 30.4%
Franklin 17.1 16.1 14.5 1.2 3.9 3.9 9.6 40.6
32
<PAGE>
Selected Investment Management Companies:
----------------------------------------
P/E IBES 2000 P/E/ LEVERED MARKET CAP/
-------------------- 5 YR IBES 5 YR. ---------------------------------- EBITDA
COMPANY 2000E 2001E GROWTH GROWTH AUM REVENUE EBITDA MARGIN
------- ----- ----- ------ ------ --- ------- ------ ------
High 31.9x 26.3x 22.5% 1.9x 7.1% 7.4x 17.3x 54.1%
Low 14.3 12.4 10.0 0.6 1.4 2.4 6.3 12.9
Mean 19.5 17.0 16.1 1.2 3.3 5.0 11.3 40.3
Median 18.0 15.3 15.0 1.2 3.0 5.3 10.6 42.7
Selected Trust Companies:
------------------------
P/E IBES 2000 P/E/ LEVERED MARKET CAP/
-------------------- 5 YR IBES 5 YR. ---------------------------------- EBITDA
COMPANY 2000E 2001E GROWTH GROWTH AUM REVENUE EBITDA MARGIN
------- ----- ----- ------ ------ --- ------- ------ ------
High 36.3x 32.1x 14.7% 2.7x N.M. * N.M. N.M. N.M.
Low 27.2 24.1 13.0 2.1 N.M. N.M. N.M. N.M.
Mean 31.2 27.6 13.7 2.3 N.M. N.M. N.M. N.M.
Median 30.2 26.5 13.5 2.1 N.M. N.M. N.M. N.M.
</TABLE>
* Not Meaningful (N.M.)
SUMMARY OF RECENT TRANSACTIONS OF COMPANIES IN THE U.S. ASSET MANAGEMENT
INDUSTRY
Goldman Sachs reviewed and compared certain financial information, ratios
and public market multiples relating to the acquisition to corresponding
financial information, ratios and public market multiples relating to selected
transactions of companies in the U.S. asset management industry between January
1999 and October 20, 2000. With respect to the selected transactions, among
other things, Goldman Sachs considered:
o approximate AUM;
o aggregate consideration;
o multiple of revenue;
o multiple of LTM EBITDA;
o multiple of LTM EPS/Net Income; and
o percentage of assets under management.
As used herein, "LTM" means the latest twelve month; and "EPS" means
earnings per share.
The multiples in each case were derived with respect to the year that the
relevant transaction was announced. The analysis with respect to Fiduciary and
Franklin assumed an offer price of $113.38.
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<PAGE>
The results of this analysis were as follows:
<TABLE>
<CAPTION>
PURCHASE PRICE AS
APPROXIMATE MULTIPLE OF PERCENTAGE OF
ASSETS UNDER AGGREGATE MULTIPLE OF MULTIPLE OF LTM EPS/NET ASSETS UNDER
MANAGEMENT CONSIDERATION REVENUE LTM EBITDA INCOME MANAGEMENT
--------------------------------------------------------------------------------------------------
($ IN BILLIONS) ($ IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
SUMMARY - INSTITUTIONAL MANAGERS
High $ 265.0 $ 4,650.0 9.0x 22.2x 40.8x 8.8%
Low 2.4 200.0 2.5 7.3 21.3 1.2
Mean 54.1 1,889.5 5.6 13.6 25.5 3.8
Median 14.1 2,200.0 5.0 12.9 22.6 2.9
SUMMARY - MUTUAL FUND MANAGERS
High $ 24.7 $ 1,810.0 5.7x 18.5x 40.3x 10.9%
Low 1.4 22.5 4.0 9.2 21.1 1.6
Mean 13.5 741.6 4.9 13.2 29.7 4.8
Median 12.7 550.0 4.9 12.6 27.6 4.2
SUMMARY - INDUSTRY
High $ 265.0 $ 4,650.0 9.0x 22.2x 40.8x 10.9%
Low 1.4 22.5 2.5 7.3 21.1 1.2
Mean 43.5 1,484.4 5.3 13.4 26.7 4.2
Median 14.1 1,259.0 5.0 12.9 22.8 3.6
FRANKLIN/ FIDUCIARY $ 53.2 $ 825.0 4.4x 14.4x 37.7x 1.5%
</TABLE>
COMPARISON OF MULTIPLES IN SELECTED TRANSACTIONS
Goldman Sachs reviewed and compared certain financial information, ratios
and public market multiples relating to the acquisition to corresponding
financial information, ratios and public market multiples relating to the
following two transactions in the U.S. asset management industry.
o Schwab / US Trust; and
o Alliance Capital / Sanford Bernstein.
With respect to the selected transactions, among other things, Goldman
Sachs considered:
o approximate AUM;
o aggregate consideration;
o LTM revenue;
o LTM EBIDTA; and
o LTM net income.
The results of this analysis were as follows:
<TABLE>
<CAPTION>
SCHWAB/ ALLIANCE CAPITAL/ FRANKLIN/
($ IN MILLIONS) US TRUST SANFORD BERNSTEIN FIDUCIARY
--------------- -------- ----------------- ---------
<S> <C> <C> <C>
TRANSACTION SUMMARY
Approximate AUM $ 77,400 $ 85,500 $ 53,200
Aggregate Consideration 2,850 3,500 825
MULTIPLES
LTM Revenue 5.8x N.A. 4.4x
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<PAGE>
LTM EBITDA 22.2 10.5x 14.4
LTM Net Income 40.9 N.A. 37.7
</TABLE>
ACCRETION / DILUTION ANALYSIS
Goldman Sachs prepared pro forma analyses of the financial impact of the
acquisition using estimates provided by Fiduciary's management and IBES
estimates for Franklin. Goldman Sachs compared the earnings per share on a GAAP
basis and a cash basis of Franklin on a stand-alone basis to that of the
combined company on a pro forma basis for 2001, 2002 and 2003. Goldman Sachs
performed these analyses assuming synergies for 2001, 2002 and 2003 and also
performed these analyses assuming no synergies. Both analyses were based on
equity consideration of $825 million or $113.38 per Fiduciary share.
Based on such analyses, the acquisition assuming synergies would be:
o moderately dilutive to Franklin's estimated earnings per share in
2001 and 2002 on a GAAP basis and on a cash basis; and
o moderately dilutive to Franklin's estimated earnings per share on a
GAAP basis and on a cash basis in 2003 at the lower range of the
price collar with respect to the exchange ratio, but moderately
accretive to Franklin's estimated earnings per share on a GAAP basis
and on a cash basis in 2003 at the upper range of the price collar
with respect to the exchange ratio.
Based on such analyses, the acquisition assuming no synergies would be:
o moderately dilutive to Franklin's estimated earnings per share on a
GAAP basis and on a cash basis in each of 2001, 2002 and 2003.
CONTRIBUTION ANALYSIS
Goldman Sachs reviewed historical and estimated future operating and
financial information, including, among other things, market capitalization, net
income, tangible equity and assets under management and the relative
contribution, with respect to each of Fiduciary and Franklin to the combined
entity contemplated by the plan of acquisition.
The results of this analysis were as follows:
<TABLE>
<CAPTION>
($ IN MILLIONS) FIDUCIARY % FRANKLIN % COMBINED
--------------- --------- - -------- - --------
<S> <C> <C> <C> <C> <C>
Market Cap (10/20/2000) $457 4.5% $9,773 95.5% $10,230
Market Cap at Deal Price 825 7.8 9,773 92.2 $10,598
2000E Net Income (a) 21 3.6 563 96.4 584
Tangible Equity (6/30/2000) 96 5.5 1,655 94.5 1,752
AUM ($bn) (9/30/2000) 50 17.9 230 82.1 280
</TABLE>
(a) Fiduciary management estimates annualized for year end September 30.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, could create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
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<PAGE>
transaction used in the above analyses as a comparison is directly comparable to
Franklin or the contemplated transaction.
The analyses were prepared solely for purposes of Goldman Sachs' providing
its opinion to the Fiduciary board of directors as to the fairness from a
financial point of view to the holders of shares of Fiduciary common stock of
the exchange ratio pursuant to the plan of acquisition. The analyses do not
purport to be appraisals or necessarily reflect the prices at which businesses
or securities actually may be sold. Analyses based upon forecasts of future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by such analyses. Because
such analyses are inherently subject to uncertainty, being based upon numerous
factors or events beyond the control the parties or their respective advisors,
none of the Fiduciary board of directors, Goldman Sachs or any other person
assumes responsibility if future results are materially different from those
forecast.
As described above, Goldman Sachs' opinion to the Fiduciary board of
directors was one of many factors taken into consideration by the Fiduciary
board of directors in making its determination to approve the plan of
acquisition. The foregoing summary does not purport to be a complete description
of the analyses performed by Goldman Sachs and is qualified by reference to the
written opinion of Goldman Sachs set forth in Annex D hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with Fiduciary, having acted as its financial advisor in connection
with, and having participated in certain of the negotiations leading to, the
plan of acquisition. Goldman Sachs has also provided certain investment banking
services to Franklin from time to time, including having acted as its financial
advisor in its acquisition of Templeton Galbraith and Hansberger Ltd, served as
its agent in connection with the sale of commercial paper and medium term notes
and as underwriter in connection with a Franklin subsidiary securitization of
auto loan receivables on a periodic basis. Goldman is also providing
underwriting services to Franklin in connection with an equity offering relating
to the sale of shares by Franklin separate from the shares being issued to
Fiduciary shareholders for the purpose of permitting the acquisition to be
treated as a pooling of interests. See "Recent Developments" on page __. Goldman
Sachs provides a full range of financial advisory and securities services and,
in the course of its normal trading activities, may from time to time affect
transactions and hold securities, including derivative securities, of Fiduciary
and Franklin for its own account and for the account of customers.
Pursuant to a letter agreement dated July 3, 2000, Fiduciary engaged
Goldman Sachs to act as financial advisor to assist Fiduciary in connection with
the transaction contemplated by the plan of acquisition. Pursuant to the terms
of the letter agreement, Fiduciary has agreed to pay Goldman Sachs upon
consummation of the plan of acquisition a transaction fee of $12,250,000.
Fiduciary also has agreed to reimburse Goldman Sachs for its reasonable
out-of-pocket expenses, including attorney's fees, and to indemnify Goldman
Sachs against certain liabilities, including certain liabilities under the
federal securities laws.
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<PAGE>
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE ACQUISITION
The following is a discussion of the material United States federal income
tax consequences to U.S. holders of the acquisition and is based on and subject
to the Internal Revenue Code, the regulations promulgated thereunder, existing
administrative interpretations and court decisions, all of which are subject to
change, possibly with retroactive effect. "U.S. holder" means a citizen or
resident of the United States or a corporation created or organized in the
United States or any state in the United States or the District of Columbia. In
addition, this discussion does not address all aspects of United States federal
income taxation that may be important to a U.S. holder in light of a U.S.
holder's particular circumstances or if a U.S. holder is subject to special
rules, such as rules relating to:
o shareholders who or which are not citizens, residents of the United
States or domestic entities;
o shareholders who do not hold their shares of Fiduciary common stock
as capital assets within the meaning of Section 1221 of the Internal
Revenue Code;
o shareholders subject to the alternate minimum tax provisions of the
Internal Revenue Code;
o shareholders who perfect dissenters' appraisal rights;
o dealers in securities;
o financial institutions;
o insurance companies;
o mutual funds;
o tax-exempt entities;
o shareholders who acquired their shares of Fiduciary common stock
pursuant to the exercise of options or similar derivative securities
or otherwise as compensation;
o shareholders who hold their shares of Fiduciary common stock as part
of a hedge, straddle or other risk reduction, constructive sale or
conversion transaction; and
o shareholders who hold their shares of Fiduciary common stock in a
partnership or other pass-through entity.
Fiduciary will receive from its counsel, Cleary, Gottlieb, Steen &
Hamilton, an opinion to the effect that the acquisition will be treated for
federal income tax purposes as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code. In rendering its opinion, counsel for
Fiduciary will rely upon customary representations to be made by Fiduciary and
Franklin. The opinion will neither bind the IRS nor preclude the IRS from
adopting a contrary position and it is possible that the IRS may successfully
assert a contrary position in litigation or other proceedings. Neither Franklin
nor Fiduciary intends to obtain a ruling from the IRS with respect to the tax
consequences of the acquisition.
The acquisition is intended to constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code. In the event the
acquisition so qualifies, the following tax consequences will result:
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<PAGE>
TAX CONSEQUENCES TO FIDUCIARY SHAREHOLDERS
Except as discussed below with respect to cash received upon the sale of
fractional shares or as a result of exercising your dissenters' rights, you will
not recognize gain or loss for United States federal income tax purposes when
you exchange your Fiduciary common stock for Franklin common stock pursuant to
the acquisition. The aggregate tax basis of the Franklin common stock you
receive in the acquisition will be the same as your aggregate tax basis in the
Fiduciary common stock you surrender in exchange for the Franklin common stock,
reduced by the tax basis of any fractional interest in Franklin common stock for
which you receive cash. The holding period of the Franklin common stock you
receive as a result of the exchange will include the period during which you
held the Fiduciary common stock you exchange in the acquisition.
You will recognize gain or loss for United States federal income tax
purposes with respect to the cash you receive upon disposition of your
fractional share interest in Franklin common stock. Your gain or loss will be
measured by the difference between the amount of cash you receive and the
portion of the tax basis of your shares of Fiduciary common stock allocable to
such fractional share interest. This gain or loss will be capital gain or loss
and will be a long-term capital gain or loss if you have held your shares of
Fiduciary common stock for more than one year at the time the acquisition is
completed.
TAX CONSEQUENCES TO FRANKLIN AND FIDUCIARY
Franklin and Fiduciary will not recognize gain or loss for United States
federal income tax purposes solely as a result of the acquisition.
BACKUP WITHHOLDING
Under the Internal Revenue Code, you may be subject, under certain
circumstances, to backup withholding at a rate of 31% with respect to the amount
of cash, if any, received upon the sale of your fractional share interest,
unless you provide proof of an applicable exemption or a correct taxpayer
identification number, and otherwise comply with the applicable requirements of
the backup withholding rules. Any amount withheld under such rules is not an
additional tax and may be refunded or credited against your federal income tax
liability, provided that the required information is furnished to the IRS.
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<PAGE>
THE FOREGOING DISCUSSION IS NOT INTENDED TO BE A COMPLETE ANALYSIS OR
DESCRIPTION OF ALL POTENTIAL UNITED STATES FEDERAL TAX CONSEQUENCES OR ANY OTHER
CONSEQUENCES OF THE ACQUISITION. IN ADDITION, THE DISCUSSION DOES NOT ADDRESS
TAX CONSEQUENCES THAT MAY VARY WITH, OR ARE CONTINGENT ON, YOUR INDIVIDUAL
CIRCUMSTANCES. MOREOVER, THE DISCUSSION DOES NOT ADDRESS ANY NON-INCOME TAX OR
ANY FOREIGN, STATE OR LOCAL TAX CONSEQUENCES OF THE ACQUISITION. ACCORDINGLY,
YOU ARE STRONGLY URGED TO CONSULT WITH YOUR TAX ADVISOR TO DETERMINE THE
PARTICULAR UNITED STATES FEDERAL, STATE, LOCAL AND ANY APPLICABLE FOREIGN INCOME
OR OTHER TAX CONSEQUENCES TO YOU OF THE ACQUISITION.
ACCOUNTING TREATMENT
Franklin and Fiduciary expect to take actions to cause the acquisition to
be accounted for as a "pooling of interests" under GAAP. Under this method of
accounting, Franklin and Fiduciary shareholders will be deemed to have combined
their existing voting common stock interests by virtue of the exchange of shares
of our common stock for shares of Franklin common stock. Accordingly, the book
value of the assets, liabilities and shareholders' equity of Fiduciary, as
reported or its consolidated balance sheet, will be carried over to the
consolidated balance sheet of Franklin, and no goodwill will be created.
Franklin also will include in its consolidated income the consolidated income of
Fiduciary for the entire fiscal year in which the acquisition occurs and the
reported income for the prior periods will be combined and restated as the
income of the combined company. Franklin must satisfy numerous requirements for
this accounting treatment, including the public offer for sale of approximately
8.2 million shares (including 1.08 million shares that the underwriters may
purchase pursuant to their over-allotment option) of its common stock before the
acquisition and terminating its share buyback program. This document does not
constitute an offer to sell any of these shares, which will be made by a
separate document.
However, due to a number of uncertainties that exist in achieving pooling
of interests accounting treatment, there is no guarantee that the acquisition
will be treated as a pooling of interests. In the event the acquisition is not
accounted for using the pooling of interests method for any reason, it will be
accounted for using the purchase method of accounting. Under this method of
accounting, Franklin will consolidate Fiduciary's results of operations with
Franklin's from the date of acquisition. Franklin also will allocate the cost of
the acquired business to the assets acquired and the liabilities assumed based
on estimates of fair values thereof. The excess of the purchase price over the
fair value of net assets acquired would be recorded in the balance sheet as an
intangible asset and amortized over an appropriate period based on generally
accepted accounting principles. In addition, the rules governing the accounting
for a business combination, such as this acquisition, are being revised and
there is a possibility that the changes in the accounting guidelines related to
a business combination might affect the selection of the method of accounting
for this acquisition. It is possible that the new rules would cause Franklin to
pursue the purchase method of accounting rather than the pooling of interests
method assuming the combined future operating results would be comparable to
those to be obtained under the pooling of interests method.
INTERESTS OF DIRECTORS AND EXECUTIVE OFFICERS OF FIDUCIARY IN THE ACQUISITION
When considering the recommendation of the Fiduciary board of directors
that shareholders vote in favor of the approval and adoption of the plan of
acquisition, Fiduciary shareholders should be aware that directors and executive
officers of Fiduciary have interests in the acquisition as directors or officers
39
<PAGE>
that are different from, or in addition to, those of a Fiduciary shareholder, as
described below. The Fiduciary board was aware of and considered the interests
of its directors and executive officers when it considered and approved the plan
of acquisition and transactions contemplated by the agreement.
CHANGE IN CONTROL SEVERANCE PLAN. Under the FTCI Change in Control
Severance Plan (referred to as the "Change in Control Plan"), approximately 154
employees of Fiduciary, including Ms. Tatlock and Messrs. Yun, Biggs,
Goodfellow, Magdol and Hochberger, each a director and executive officer of
Fiduciary, are entitled, under certain circumstances, to receive cash payments
and other benefits if their employment is terminated in connection with a change
in control of Fiduciary. The consummation of the acquisition would constitute a
change in control of Fiduciary for purposes of the Change in Control Plan.
However, Ms. Tatlock and Messrs. Yun, Biggs, Goodfellow and Magdol have waived
their rights under the Change in Control Plan with respect to the acquisition in
connection with the employment agreements being entered into with Franklin and
Fiduciary.
Participants in the Change in Control Plan are entitled to receive
certain benefits if the participant's employment is terminated by Fiduciary
without cause (as defined in the plan) or by the participant for good reason (as
defined in the plan) (or, depending upon the participant, for any reason during
certain window periods) during the period commencing on the change in control
and ending on the second anniversary of such change in control (or, in certain
cases, if the participant's employment is terminated during the six months prior
to the change in control). The aggregate benefits to which a participant would
be entitled in such circumstances vary depending upon the participant and
include accrued compensation (including a pro-rated bonus), continuation of
health coverage, life insurance and other welfare and fringe benefit plans for a
period ranging from one year to three years, certain supplemental pension
benefits, retiree medical benefits (if applicable), and a lump sum severance
payment equal to one, two or three times the participant's base salary and bonus
(as determined under the plan). In addition, with respect to certain
participants, Fiduciary may pay an additional amount in order to make such
participant whole for any excise taxes paid by the participant with respect to
the benefits received in connection with the change in control. In connection
with receipt of benefits pursuant to the Change in Control Plan, participants in
the Change of Control Plan have agreed to certain nondisclosure, noncompetition
and nonsolicitation covenants for a period ranging from one to two years
(depending upon the participant) following termination of employment with
Fiduciary.
EMPLOYMENT AGREEMENTS. Following the execution of the plan of acquisition,
Fiduciary entered into new five-year employment agreements with Ms. Tatlock and
Messrs. Yun, Goodfellow and Magdol, and a three-year employment agreement with
Mr. Biggs, which become effective as of the closing date of the acquisition. For
a complete description of the terms of the employment agreements, see "The Plan
of Acquisition and Related Agreements--Executive Employment Agreements and
Covenants Not to Compete" on page ___. Ms. Tatlock has been nominated for
election as a director of Franklin at its shareholders meeting on January 25,
2001. If elected, Ms. Tatlock would become a member of the Franklin board of
directors and a member of the Office of the Chairman, for so long as such office
is in existence, upon the closing of the acquisition. Additionally, the plan of
acquisition provides that the current Fiduciary board of directors will be
permitted to continue to serve as directors of Fiduciary for at least three
years following the acquisition.
HUNTINGTON CONSULTING AGREEMENT. On July 1, 2000, Fiduciary entered into a
three-year consulting agreement with Mr. Lawrence S. Huntington, Director and
former Chairman and Chief Executive Officer of Fiduciary, pursuant to which Mr.
40
<PAGE>
Huntington promised to provide certain consulting services to Fiduciary and, in
exchange for such services, is entitled to certain consulting fees. Upon a
change in control of Fiduciary, Fiduciary will no longer be obligated to pay
consulting fees to Mr. Huntington, the consulting period will terminate upon the
first anniversary of the change in control and Mr. Huntington will receive,
within 30 days after the date of the change in control, a lump sum payment of
$2,879,000 in addition to any compensation accrued through the date of the
change in control. In exchange for such payments, Mr. Huntington has agreed to
provide certain transitional consulting services for a period of 12 months
following a change in control and to be bound by certain noncompetition and
nonsolicitation covenants for a period of 30 months following termination of the
consulting period in connection with a change in control. The consummation of
the acquisition would constitute a change in control of Fiduciary for the
purposes of the consulting agreement.
ACCELERATED VESTING. In the acquisition, all of the shares of Fiduciary
common stock held in participants' accounts under the FTCI Deferred Compensation
Plan will be converted into freely tradable shares of Franklin common stock
based upon the exchange ratio. Upon consummation of the acquisition, all shares
of stock and cash held in participants' accounts (including the accounts of
directors and executive officers) under this plan will immediately vest and be
distributed to participants. See "Security Ownership of Certain Beneficial
Owners and Management of Fiduciary Common Stock" on page ___. In addition, all
amounts credited to accounts of directors pursuant to the FTCI Deferred Cash
Compensation Plan for the Fiduciary board of directors will be paid out to the
directors in lump sums upon consummation of the acquisition.
INDEMNIFICATION OF FIDUCIARY DIRECTORS AND OFFICERS. Under the terms of
the plan of acquisition, Franklin has also agreed, following the acquisition, to
indemnify the existing and past directors, officers and employees of Fiduciary
and its subsidiaries based on or arising from the fact that such person is or
was a director, officer or employee of Fiduciary or its subsidiaries or based
on, arising out of or pertaining to the transactions contemplated by the plan of
acquisition. In addition, Franklin will use its commercially reasonable efforts
to cause the officers and directors of Fiduciary immediately prior to the
consummation of the acquisition to be covered by Fiduciary's current directors'
and officers' liability insurance for a six-year period following the
acquisition, or will purchase a substitute policy of at least the same coverage
and amounts with terms and conditions no less advantageous with an insurance
company with the same or better rating by A.M. Best Company or reasonably
approved by the Fiduciary board of directors. From and after the effective time,
all rights to indemnification now existing in favor of the employees, agents,
directors or officers of Fiduciary and its subsidiaries with respect to their
activities as such prior to the effective time, as provided in Fiduciary's
organization certificate or bylaws, will survive the acquisition and will remain
in full force and effect. Additionally, Franklin has agreed to provide
substantially similar terms of indemnification for the employees, agents,
directors or officers of Fiduciary and its subsidiaries with respect to their
activities as such following the effective time.
EMPLOYEE RETENTION AND TRANSITION COMPENSATION PROGRAM
PURPOSE. Immediately following consummation of the acquisition, Franklin
will establish a pool of $85 million for the salaried employees of Fiduciary,
including all of the executive officers, which is designed to retain and
motivate employees in providing services for a several year period necessary to
41
<PAGE>
assist in the transition of ownership of Fiduciary and to integrate Fiduciary
into the Franklin organization.
ELIGIBILITY. All salaried Fiduciary employees employed on October 25, 2000
who remain continuously employed with Fiduciary through the applicable date
following the closing of the acquisition are eligible for compensation under the
program. For a discussion of the application of the compensation program to Ms.
Tatlock and Messrs. Yun, Biggs, Goodfellow and Magdol see "Executive Employment
Agreements and Covenants Not to Compete" on page ___. The amount and timing of
such compensation for each category of eligible employee is as follows:
<TABLE>
<CAPTION>
MULTIPLE OF 80% CASH 10% OPTION 10% OPTION
BASE SALARY PAYOUT EXERCISE DATE EXERCISE DATE
------------------- --------------------- ------------------ --------------------------
<S> <C> <C> <C> <C>
NON-OFFICERS .25x 1.5 years from 2 years from 2.5 years from Closing
Closing Date Closing Date Date
------------------- --------------------- ------------------ --------------------------
OFFICERS TO VICE PRESIDENTS .50x 1.5 years from 2 years from 2.5 years from Closing
Closing Date Closing Date Date
------------------- --------------------- ------------------ --------------------------
VICE PRESIDENTS & ABOVE .50 - 3.00x 2 years from 3 years from 4 years from Closing Date
Closing Date Closing Date
------------------- --------------------- ------------------ --------------------------
</TABLE>
FORM OF PAYMENT. Subject to a participant's continued employment with
Fiduciary (with certain exceptions in the case of death or permanent
disability), each compensation payment will be payable 80% in cash and 20% in
the form of stock options granted on the closing of the acquisition, which will
become exercisable on the applicable date set forth in the table above in two
10% tranches at an exercise price of the per share NYSE closing price of
Franklin common stock on the closing date of the acquisition. Each stock option
granted to a participating employee will be for a number of shares of Franklin
common stock equal to 10% of the employee's compensation payment divided by the
per share New York Stock Exchange composite closing price of Franklin common
stock on the day of the closing of the acquisition, multiplied by three.
TIMING OF PAYMENTS. Franklin will pay the cash portion of such payments as
soon as practicable after the applicable date indicated in the table above, but
in no event later than 30 days after the applicable date. Franklin will issue
the stock option portion of the payments on the closing of the acquisition and
the stock options will become exercisable on the applicable dates indicated in
the table above. All stock options will be granted for a five year term and will
be treated as incentive stock options to the extent permissible by applicable
law.
EFFECT OF TERMINATION OF EMPLOYMENT. In the event of a termination of
employment, the stock options that have become exercisable prior to such
termination of employment will remain exercisable until:
o 90 days following termination of employment other than for death or
permanent disability; or
o 6 months following the date of death or permanent disability or such
longer term as may be provided in Franklin's standard option plans.
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<PAGE>
If a participating employee's employment is terminated by reason of death
or permanent disability as defined in Fiduciary's long-term disability policy
prior to the payment and/or exercise date indicated in the above table, the
employee will be entitled, as of his or her termination date, to the balance of
the compensation payment allocated to him or her in either cash or stock
options, as applicable. If a participating employee's employment is terminated
for any reason other than death or permanent disability prior to the payment
and/or exercise date indicated in the above table, the employee will forfeit his
or her cash payment and non-exercisable options.
REGULATORY APPROVALS REQUIRED FOR THE ACQUISITION
Completion of the acquisition is subject to a number of regulatory
approvals and consents.
In order to complete the acquisition and thereby become a bank holding
company, Franklin must first obtain the approval of the Federal Reserve Board
under the Bank Holding Company Act (or "BHCA") and the Federal Reserve Board's
regulations. In reviewing applications under the BHCA, the Federal Reserve Board
must consider, among other factors, (1) the financial and managerial resources
and future prospects of the existing and merged institutions and (2) the
convenience and needs of the communities to be served. In addition, the Federal
Reserve Board may not approve an acquisition:
o that will result in a monopoly or be in furtherance of any
combination or conspiracy to monopolize or to attempt to monopolize
the business of banking in any part of the United States;
o if its effect in any section of the country may be substantially to
lessen competition or to tend to create a monopoly; or
o if it would in any other manner be a restraint of trade.
However, the Federal Reserve Board may approve an acquisition if it finds that
the anticompetitive effects of the acquisition are clearly outweighed by the
public interests and the probable effect of the acquisition on meeting the
convenience and needs of the communities to be served. Any acquisition approved
by the Federal Reserve Board may not be completed until 30 days after the
approval is obtained. During this 30-day period, the Department of Justice may
challenge the acquisition on antitrust grounds and seek the divestiture of
certain assets and liabilities. With the approval of the Federal Reserve Board
and the Department of Justice, the waiting period may be reduced to no less than
15 days.
As part of its consideration of Franklin's bank holding company
application, the Federal Reserve Board can be expected to evaluate the two
stockholders of Franklin who each own more than 10% of the outstanding voting
common stock of Franklin.
In order to become a financial holding company under the Bank Holding
Company Act, Franklin must file a declaration with the Federal Reserve Board
that each of Fiduciary and Franklin's thrift institution subsidiary, Franklin
Templeton Bank and Trust, F.S.B., is well capitalized and well managed. A well
capitalized institution must meet the capital requirements set forth on page __
(see "Prompt Corrective Actions" below). A well managed institution must have
received at least a satisfactory bank examination rating for management as well
as a satisfactory composite CAMEL rating.
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<PAGE>
Under the Community Reinvestment Act (or "CRA") and the Gramm-Leach-Bliley
Act, the Federal Reserve Board must also take into account the record of
performance of each of Franklin's existing and proposed FDIC-insured depository
institution subsidiaries in meeting the credit needs of its respective
community, including low and moderate income neighborhoods, through community
development activities. As part of the review process, the banking agencies
frequently receive comments and protests from community groups and others.
Franklin's thrift institution subsidiary, Franklin Templeton Bank and Trust,
F.S.B., currently holds a "satisfactory" examination rating under the CRA. Under
federal banking regulations, Fiduciary is not subject to the requirements of, or
evaluation under, the CRA because it is a "special purpose bank" that does not
perform commercial or retail banking services by granting credit to the public
in the ordinary course of business, other than as an incident to its specialized
operations. Fiduciary's federal banking regulator, the FDIC, has previously
confirmed to Fiduciary its exempt status under the CRA. Nevertheless, there can
be no assurance that community groups or others will not comment on, or seek to
file a protest regarding, Franklin's application to the Federal Reserve Board
with respect to CRA issues or other matters.
In addition, the acquisition is subject to the prior approval of the New
York State Banking Department under provisions of the New York Banking Law. In
determining whether to approve the acquisition application, the New York State
Banking Department considers, among other factors:
o whether the acquisition would be consistent with adequate or sound
banking and/or would result in concentration of assets beyond limits
consistent with effective competition;
o whether the acquisition would result in a lessening of competition
that would be injurious to the interest of the public or tend toward
monopoly; and
o whether the acquisition would serve the public interest and the
public's needs and convenience.
As part of its review of the acquisition, the New York State Banking
Department may also evaluate the two stockholders of Franklin who each own more
than 10% of the outstanding voting common stock of Franklin.
In addition, Franklin's indirect acquisition of three state-chartered
trust company subsidiaries of Fiduciary is subject to the prior approval of the
bank regulatory authorities of the states of California, Delaware and Florida.
Such approvals are subject to similar standards as those outlined above for New
York.
Additional non-banking regulatory approvals, consents and notices must be
obtained or provided in connection with the acquisition. These include notifying
or obtaining the consent or approval of various authorities or self-regulatory
organizations, including the National Association of Securities Dealers, Inc.
(or "NASD"), and obtaining the consents of the directors and shareholders of the
registered investment companies advised by Fiduciary and/or several of its
subsidiaries to the deemed assignment of their investment advisory contracts
resulting from the acquisition. Approval of, or filings with, various foreign
regulatory authorities also will be required with respect to certain of
Fiduciary's overseas offices and subsidiaries.
Franklin plans to file the applications for the approval of the Federal
Reserve Board in December 2000 and for approval of state and foreign regulators
shortly thereafter. Franklin does not know of any reason why it would not be
able to obtain the approval of the Federal Reserve Board or the relevant state
44
<PAGE>
or foreign regulators in a timely manner. Franklin and Fiduciary are not aware
of any other regulatory approvals that would be required for completion of the
acquisition, except as described above.
If any of the requisite material regulatory approvals are not obtained,
the acquisition cannot proceed. In addition, for Franklin to become a financial
holding company, Fiduciary and Franklin's thrift institution subsidiary must
continue to be well capitalized and well managed. There can be no assurance that
Franklin will be able to obtain all regulatory approvals.
REGULATORY MATTERS RELATING TO THE BUSINESS OF FRANKLIN FOLLOWING THE
ACQUISITION
FINANCIAL MODERNIZATION LEGISLATION. On November 12, 1999, the
Gramm-Leach-Bliley Act was enacted. Effective March 11, 2000, the
Gramm-Leach-Bliley Act permits qualifying bank holding companies to become
financial holding companies and thereby affiliate with a far broader range of
financial companies than had previously been permitted for bank holding
companies. Permitted affiliates include securities brokers, underwriters and
dealers, investment managers, mutual fund distributors, insurance companies and
companies engaged in other activities that are "financial in nature or
incidental thereto" or "complementary" to a financial activity. A bank holding
company may elect to become a financial holding company if each of its
subsidiary banks and other depository institution subsidiaries is well
capitalized, is well managed and has at least a "satisfactory" rating under the
CRA.
The Gramm-Leach-Bliley Act identifies several activities as financial in
nature, including securities brokerage, underwriting, dealing in or making a
market in securities, investment management services, insurance activities, and
engaging within the United States in any activity that a bank holding company
could engage in outside of the country if the Federal Reserve Board determined
before enactment of the Gramm-Leach-Bliley Act that the activity was usual in
connection with banking or other financial operations internationally. In
addition, the Federal Reserve Board, in cooperation with the Treasury
Department, may declare additional activities to be financial in nature, and the
Federal Reserve Board may unilaterally declare activities to be "complementary"
to a financial activity. On March 10, 2000, the Federal Reserve Board issued an
interim rule specifying the activities that are permissible for financial
holding companies as activities that are financial in nature. Among these
permissible activities are organizing, sponsoring and managing a mutual fund so
long as: (1) the fund does not exercise managerial control over the entities in
which the fund invests; and (2) the financial holding company reduces its
ownership in the fund, if any, to less than 25% of the equity of the fund within
one year after sponsoring the fund or such additional period as the Federal
Reserve Board permits. The Federal Reserve Board also issued an interim rule
governing the permissibility of merchant banking investments made by financial
holding companies. On March 17, 2000, the Federal Reserve Board also issued, for
public comment, a proposal that would impose a 50% capital charge on merchant
banking investments and certain other equity investments held in nonfinancial
companies by financial holding companies and bank holding companies. The Federal
Reserve Board may issue final versions of these, and other regulations regarding
financial holding companies that may limit Franklin's business or impose
additional costs or requirements.
Under the Gramm-Leach-Bliley Act and the Federal Reserve Board's
regulations, if any depository institution subsidiary of a financial holding
company subsequently fails to be well capitalized or well managed as described
above, the financial holding company must promptly enter into an agreement to
correct the condition. The Federal Reserve Board has the authority to limit the
activities of such a financial holding company. If the condition is not
corrected within six months or within the additional time granted by the Federal
45
<PAGE>
Reserve Board, the financial holding company must either divest its bank
subsidiaries or divest nonbank operations that are conducted in reliance upon
its financial holding company status.
The Gramm-Leach-Bliley Act also requires that each federally insured
depository institution of a financial holding company have received a rating of
at least "satisfactory" in its most recent examination under the CRA. The CRA
generally requires that each federally insured bank or thrift institution serve
the convenience and needs of its community, including the low and moderate
income segments of its community. The CRA also requires that Federal banking
regulators take into account an institution's record of serving its community in
connection with obtaining regulatory approvals. In addition, the Federal banking
regulators periodically assess an institution's record by conducting
examinations that result in a CRA rating. The CRA does not apply to firms that
are not insured depository institutions, or to affiliates of an insured
depository institution. If any one of the insured bank or thrift subsidiaries of
a financial holding company does not receive at least a "satisfactory" CRA
examination rating, the financial holding company may not commence any new
activity or investment, or acquire a company engaged in any activity or
investment (other than certain merchant banking or investments made by insurance
companies), in reliance upon its authority as a financial holding company under
the Gramm-Leach-Bliley Act. As noted above, Franklin's thrift institution
subsidiary, Franklin Templeton Bank and Trust, F.S.B., currently holds a
"satisfactory" CRA examination rating, and Fiduciary is exempt from the
requirements of the CRA.
The Federal Reserve Board's regulations provide that the Federal Reserve
Board reserves the right to prohibit a financial holding company from engaging
in new activities or acquiring additional companies if the Federal Reserve Board
concludes that the financial holding company's capital or managerial resources
are not adequate.
The Gramm-Leach-Bliley Act establishes the Federal Reserve Board as the
umbrella supervisor for financial holding companies and adopts an administrative
approach to regulation that requires the Federal Reserve Board to defer to the
actions and requirements of the U.S. "functional" regulators of subsidiary
broker-dealers, investment advisers, investment companies, insurance companies,
and other regulated non-depository institutions. Thus, the various state and
Federal regulators of a financial holding company's non-depository institution
subsidiaries would retain their jurisdiction and authority over such operating
entities. As the umbrella supervisor, however, the Federal Reserve Board has the
potential to affect the operations and activities of a financial holding
company's subsidiaries through its authority over the financial holding company
parent. In addition, the Gramm-Leach-Bliley Act provides the Federal Reserve
Board with back-up regulatory authority over functionally regulated
subsidiaries, such as broker-dealers and banks, to intervene directly in the
affairs of the subsidiary for specific reasons.
GENERAL. Franklin will become a bank holding company subject to
supervision and regulation by the Federal Reserve Board under the BHCA. In
addition, Franklin will take advantage of provisions added to the BHCA for a
diversified financial services firm to become a financial holding company. As a
financial holding company, Franklin's activities and those of its banking and
nonbanking subsidiaries generally will be limited to the business of banking and
activities that are financial or incidental thereto or are complementary to a
financial activity. As a bank holding company, Franklin will not be permitted,
directly or indirectly, to acquire the ownership or control of more than 5% of
any class of voting shares, or substantially all of the assets, of any bank or
thrift institution without the prior approval of the Federal Reserve Board.
46
<PAGE>
Franklin's thrift institution subsidiary and Fiduciary are subject to
supervision, regulation and examination by each institution's Federal banking
regulator -- the Office of Thrift Supervision and the FDIC, respectively. In
addition, Fiduciary is subject to supervision, regulation and examination by the
New York State Banking Department, and certain of its subsidiaries are subject
to supervision, regulation and examination by other state and foreign banking
and securities regulatory authorities. The Federal banking regulators have broad
enforcement authority over Federally-insured depository institutions, including
the power to:
o terminate deposit insurance;
o appoint a conservator or receiver if any of a number of conditions
exist; and
o impose substantial fines and other civil penalties.
Almost every aspect of the operations and financial condition of Fiduciary
and its subsidiaries, and of Franklin's thrift institution subsidiary, are
subject to extensive regulation and supervision and to various requirements and
restrictions under Federal and state law, including requirements governing:
o capital adequacy; o management practices;
o liquidity; o branching;
o earnings; o loans;
o dividends; o investments; and
o reserves against deposits; o the provision of services.
Various consumer protection laws and regulations also affect the
operations of Fiduciary and its subsidiaries. Fiduciary's deposits are insured
up to applicable limits by the FDIC. Supervision and regulation of financial
holding companies and their subsidiaries is intended primarily for the
protection of depositors, the deposit insurance funds of the FDIC and the
banking system as a whole, not for the protection of bank holding company
stockholders or creditors.
The following description summarizes some of the laws to which Fiduciary
and Franklin's thrift institution subsidiary are subject. To the extent
statutory or regulatory provisions or proposals are described, the description
is qualified in its entirety by reference to the particular statutory or
regulatory provisions or proposals.
PAYMENT OF DIVIDENDS. Franklin is a legal entity separate and distinct
from Fiduciary and from Franklin's thrift institution subsidiary. There are
various legal and regulatory limitations under Federal and state law on the
extent to which banks and thrift institutions may pay dividends, finance or
otherwise supply funds to their holding companies.
Federal Reserve Board policy provides that, as a matter of prudent
banking, a bank holding company generally should not maintain a rate of cash
dividends unless its net income available to common stockholders has been
sufficient to fully fund the dividends and the prospective rate of earnings
47
<PAGE>
retention appears to be consistent with the capital needs, asset quality and
overall financial condition of the holding company and its bank and thrift
institution subsidiaries. As Franklin will be a bank holding company, this
policy may be applied to it even though it will also be a financial holding
company. In addition, among other things, dividends from a New York-chartered
bank, such as Fiduciary, in any year are generally limited to an amount equal to
the bank's net profits for the current year plus its prior two years' retained
net profits.
Under Federal law, a depository institution is prohibited from paying a
dividend if the depository institution would thereafter be "undercapitalized" as
determined by the Federal bank regulatory agencies. The relevant Federal banking
regulatory agencies, and the state banking regulatory agencies, also have
authority to prohibit a bank or a bank holding company from engaging in what, in
the opinion of the regulatory body, constitutes an unsafe or unsound practice.
The payment of dividends could, depending upon a bank's or bank holding
company's financial condition, be deemed to constitute such an unsafe or unsound
practice.
TRANSACTIONS WITH AFFILIATES. Each of Fiduciary and Franklin's thrift
institution subsidiary is subject to restrictions under Federal law that limit
transactions with Franklin and its nonbank subsidiaries, including loans and
other extensions of credit, investments or asset purchases. In general, such
transactions by a depository institution with any one affiliate are limited in
amount to 10% of the depository institution capital and surplus and, with all
affiliates together, to an aggregate of 20% of the depository institution's
capital and surplus. Furthermore, such loans and extensions of credit are
required to be collateralized in specified amounts and such loans and extensions
of credit, as well as other transactions, could be subject to certain other
restrictions and requirements. These and various other transactions, including
any payment of money to Franklin, must be on terms and conditions that are, or
in good faith would be, offered to nonaffiliated companies.
HOLDING COMPANY LIABILITY. Under Federal Reserve Board policy, a bank
holding company is expected to act as a source of financial strength to each of
its bank subsidiaries and commit resources to their support. Such support may be
required at times when, absent this Federal Reserve Board policy, a holding
company may not be inclined to provide it. As a bank holding company, Franklin
may be subject to this policy even though it is also a financial holding
company. As discussed below under "Prompt Corrective Action," a bank holding
company could be required to guarantee the capital plan of an undercapitalized
bank or thrift institution subsidiary or subject the bank or thrift institution
to seizure by the FDIC.
Under the Gramm-Leach-Bliley Act if the Federal Reserve Board orders a
registered broker-dealer, investment adviser, investment company or insurance
company that is, or is affiliated with, a bank holding company to transfer
capital to an affiliated bank, the Securities and Exchange Commission or state
insurance regulator can veto such an order. If the Securities and Exchange
Commission or state insurance regulator vetoes such an order, the Federal
Reserve Board can order the financial holding company to divest the bank
affiliate.
In the event of a bank holding company's bankruptcy under Chapter 11 of
the U.S. Bankruptcy Code, the trustee will be deemed to have assumed and is
required to cure immediately any deficit under any commitment by the debtor
holding company to any of the Federal banking agencies to maintain the capital
of an insured depository institution, and any claim for breach of such
obligation will generally have priority over most other unsecured claims.
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<PAGE>
PROMPT CORRECTIVE ACTION. Under the Federal Deposit Insurance Corporation
Improvement Act of 1991, the Federal banking agencies must take prompt
supervisory and regulatory actions against undercapitalized depository
institutions. Depository institutions are assigned one of five capital
categories:
o well capitalized;
o adequately capitalized;
o undercapitalized;
o significantly undercapitalized; and
o critically undercapitalized.
Each capital category is subject to differing regulation. A
well-capitalized, adequately capitalized or undercapitalized institution may
sometimes be treated as if the institution were in the next lower capital
category. A depository institution is generally prohibited from making capital
distributions, including paying dividends, or paying management fees to a
holding company if the institution would thereafter be undercapitalized.
Adequately capitalized institutions cannot accept, renew or roll over brokered
deposits except with a waiver from the FDIC and are subject to restrictions on
the interest rates that can be paid on such deposits. Undercapitalized
institutions may not accept, renew or roll over brokered deposits.
The banking regulatory agencies are permitted or, sometimes, required to
take actions with respect to depository institutions falling within one of the
three undercapitalized categories. Depending on the level of an institution's
capital, the agency's corrective powers include, among other things:
o prohibiting the payment of principal and interest on subordinated
debt;
o prohibiting the holding company from making distributions without
prior regulatory approval;
o placing limits on asset growth and restrictions on activities;
o placing additional restrictions on transactions with affiliates;
o restricting the interest rate the institution may pay on deposits;
o prohibiting the institution from accepting deposits from
correspondent banks; and
o in the most severe cases, appointing a conservator or receiver for
the institution.
A depository institution that is undercapitalized is required to submit a
capital restoration plan, and this plan will not be accepted unless, among other
things, the institution's holding company guarantees the plan up to a specified
amount. The failure to submit such a guaranteed capital plan may result in the
seizure of the depository institution by the FDIC.
To be considered "well capitalized" under regulations of the Federal
banking regulators, U.S. banks and thrift institutions must have a total
risk-based capital ratio of at least 10%, a Tier 1 risk-based capital ratio of
at least 6%, and a Tier 1 leverage ratio of at least 5%, and must not be subject
to any regulatory written agreement, order or directive to meet and maintain a
specific capital level.
49
<PAGE>
As of the date of this proxy statement/prospectus, both Fiduciary and
Franklin's thrift institution subsidiary, Franklin Templeton Bank and Trust,
F.S.B., were considered to be "well capitalized" under these standards.
CAPITAL ADEQUACY. The Federal Reserve Board has adopted various capital
guidelines for bank holding companies. The Federal Reserve has not indicated
that the guidelines will be modified with respect to a bank holding company such
as Franklin that also qualifies as a financial holding company.
The Federal Reserve Board has adopted risk-based capital guidelines for
bank holding companies. The minimum ratio of total capital to risk-weighted
assets is 8%. Risk-weighted assets are the credit risk equivalents of balance
sheet assets and various off balance sheet items such as standby letters of
credit. At least half of the total capital must be composed of "Tier 1" capital,
which consists of common stockholders' equity, including retained earnings,
qualifying non-cumulative perpetual preferred stock, minority interests in the
equity accounts of consolidated subsidiaries, and a limited amount of qualifying
cumulative perpetual preferred stock, less goodwill, other disallowed
intangibles and disallowed deferred tax assets, among other items. The remainder
("Tier 2" capital) may consist of a limited amount of subordinated debt, other
perpetual preferred stock, hybrid capital instruments, mandatory convertible
debt securities that meet Federal Reserve Board requirements, as well as a
limited amount of reserves for loan losses. The Federal Reserve Board has also
adopted a minimum leverage ratio for bank holding companies, requiring Tier 1
capital to non-risk weighted, balance sheet assets of at least 3 %, in the case
of strong bank holding companies (having the highest composite regulatory
examination rating) and bank holding companies that calculate capital for
trading portfolios and foreign exchange and commodity exposures under a
supplemental Market Risk Measure component of the Federal Reserve Board's
capital adequacy guidelines. For all other bank holding companies, the minimum
leverage ratio is 4%.
The Federal Reserve Board's risk-based and leverage ratios are minimum
supervisory ratios, generally applicable to organizations that meet specified
criteria, and have high regulatory ratings. Bank holding companies not meeting
these criteria are expected to operate with capital positions well above the
minimum ratios. The Federal Reserve Board may set capital requirements for a
particular bank holding company that are higher than the minimum ratios when
circumstances warrant. Federal Reserve Board guidelines also provide that bank
holding companies experiencing internal growth or making acquisitions will be
expected to maintain strong capital positions substantially above the minimum
supervisory levels, without significant reliance on intangible assets. In
addition, the regulations of the Federal Reserve Board provide that
concentration of credit risk, interest rate risk and risks arising from
nontraditional activities, as well as an institution's ability to manage these
risks, are important factors to be taken into account by regulatory agencies in
assessing an organization's overall capital adequacy. The agencies have also
adopted an adjustment to the risk-based capital calculations to cover market
risk in trading accounts of certain institutions.
The Federal banking regulators have also established risk-based and
leverage capital guidelines that insured banks and thrift institutions are
required to meet. These regulations are generally similar to those established
by the Federal Reserve Board for bank holding companies.
The capital ratios for Franklin, on a pro forma basis, Franklin Templeton
Bank and Trust, F.S.B., and Fiduciary are provided in the chart below.
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RISK-BASED CAPITAL AND LEVERAGE RATIOS
<TABLE>
<CAPTION>
To be Well
Capitalized Under
Minimum For Capital Prompt Corrective
(in thousands) Actual Adequacy Purposes Action Provisions
------------------------------------------------------ --------- ----------- --------------------- ----------- --------------------
Amount Ratio Amount Ratio Amount Ratio
------------------------------------------------------ --------- ----------- --------------------- ----------- --------------------
<S> <C> <C> <C> <C> <C> <C>
FRANKLIN (PRO FORMA)
As of September 30, 2000
Total Capital (To Risk-Weighted Assets) $120,687 26.0% $37,186 8.0% $46,482 10.0%
Tier I Capital (To Risk-Weighted Assets) $119,912 25.8% $18,593 4.0% $27,889 6.0%
Tier 1 Capital (to Average Assets) $119,912 16.0% $29,963 4.0% $37,454 5.0%
------------------------------------------------------ --------- ----------- --------------------- ----------- --------------------
FRANKLIN TEMPLETON BANK & TRUST, F.S.B.
As of September 30, 2000
Total Capital (To Risk-Weighted Assets) $22,923 23.1% $7,946 8.0% $9,932 10.0%
Tier I Capital (To Risk-Weighted Assets) $22,148 22.3% $3,973 4.0% $5,959 6.0%
Tier 1 Capital (to Average Assets) $22,148 18.8% $4,716 4.0% $5,895 5.0%
------------------------------------------------------ --------- ----------- --------------------- ----------- --------------------
FIDUCIARY
As of September 30, 2000
Total Capital (To Risk-Weighted Assets) $97,764 26.7% $29,240 8.0% $36,550 10.0%
Tier I Capital (To Risk-Weighted Assets) $97,764 26.7% $14,620 4.0% $21,930 6.0%
Tier 1 Capital (to Average Assets) $97,764 15.5% $25,247 4.0% $31,559 5.0%
</TABLE>
The Gramm-Leach-Bliley Act authorizes the Federal Reserve Board to
establish consolidated capital requirements for financial holding companies. The
Gramm-Leach-Bliley Act prohibits the Federal Reserve Board from imposing capital
requirements on functionally regulated nonbank subsidiaries of a financial
holding company, such as broker-dealers and investment advisers. The Federal
Reserve Board has not published consolidated capital requirements specific to
financial holding companies, but may do so in the future.
As noted above, the Federal Reserve Board has issued a proposal that would
impose a 50% capital charge on merchant banking investments and certain other
equity investments held in nonfinancial companies by financial holding companies
and bank holding companies. Although that proposal may be revised, there can be
no assurance that a similar requirement will not eventually be implemented, or
that the Federal Reserve Board or other regulators will not impose, at some time
in the future, additional capital requirements on banks, thrift institutions,
bank holding companies or financial holding companies.
The Basle Committee on Banking Supervision of the Bank for International
Settlements has proposed several changes to its accord on risk-based capital
standards for internationally active banking organizations. If adopted, the U.S.
Federal banking regulators would be expected to revise their capital adequacy
regulations to reflect the Basle Committee changes. Separately, the Federal
banking regulators, on November 3, 2000, jointly issued a request for public
comments on the concept of developing simplified regulatory capital requirements
for non-complex banks and thrift institutions. It is impossible to predict the
future impact, if any, of the adoption of these proposals on Fiduciary, Franklin
or their subsidiaries.
As discussed below under "Enforcement Powers of the Federal Banking
Agencies," failure to meet the minimum regulatory capital requirements could
subject a bank holding company and its bank or thrift subsidiaries to a variety
of enforcement remedies available to Federal regulatory authorities, including,
in the most severe cases, the termination of deposit insurance by the FDIC and
the placement of the institution into conservatorship or receivership.
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ENFORCEMENT POWERS OF THE FEDERAL BANKING AGENCIES. The Federal banking
agencies have broad enforcement powers, including the power to terminate deposit
insurance, impose substantial fines and other civil and criminal penalties and
appoint a conservator or receiver. Failure to comply with applicable laws,
regulations and supervisory agreements could subject Franklin, Franklin's thrift
institution subsidiary or Fiduciary, as well as officers, directors and other
so-called "institution-affiliated parties" of these organizations, to
administrative sanctions and potentially substantial civil money penalties. In
addition to the grounds discussed above under "Prompt Corrective Action," the
appropriate Federal banking agency may appoint the FDIC as conservator or
receiver for a banking institution, or the FDIC may appoint itself if any one or
more of a number of circumstances exist, including, without limitation:
o the fact that the banking institution is undercapitalized and has no
reasonable prospect of becoming adequately capitalized;
o the institution fails to become adequately capitalized when required
to do so;
o the institution fails to submit a timely and acceptable capital
restoration plan; or
o the institution materially fails to implement an accepted capital
restoration plan.
PRIVACY. Subject to limited exceptions, the privacy provisions of the
Gramm-Leach-Bliley Act prohibit financial institutions from disclosing to
unaffiliated third parties nonpublic personal information regarding consumers
and require financial institutions to develop and disclose consumer privacy
policies. In addition, under these provisions Federal regulators may regulate
information-sharing practices of financial institutions and enforce these
provisions. Federal regulations implementing the statute have been adopted,
effective in November 2000, with full compliance required by July 2001. Federal
law does not preempt state financial privacy laws that are stricter than the
Federal provisions. Franklin and Fiduciary may be required to amend their
privacy policies and consumer disclosures to comply with the Gramm-Leach-Bliley
Act and its implementing regulations.
CONTROL ACQUISITIONS. The Change in Bank Control Act prohibits a person or
group of persons from acquiring "control" of a bank holding company such as
Franklin, unless the Federal Reserve Board has been notified and has not
objected to the transaction. Under a rebuttable presumption established by the
Federal Reserve Board, the acquisition of 10% or more of a class of voting stock
of a bank holding company, such as Franklin, with a class of securities
registered under Section 12 of the Exchange Act, could, under the circumstances
set forth in the presumption, constitute acquisition of control of Franklin.
In addition, any company is required to obtain the approval of the Federal
Reserve Board under the BHCA before acquiring 25% or more of the outstanding
common stock of Franklin, or otherwise obtaining control or a "controlling
influence" over Franklin. In the case of an acquirer that is a bank holding
company, Federal Reserve Board approval would be required before acquiring a 5%
or greater interest in Franklin.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
permits an adequately capitalized and adequately managed bank holding company,
with Federal Reserve Board approval, to acquire banking institutions located in
states other than the bank holding company's home state without regard to
whether the transaction is prohibited under state law. De novo interstate
branching by banks is permitted if the laws of the host state so authorize.
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FUTURE LEGISLATION. Various legislation is from time to time introduced in
Congress, including proposals to alter the bank regulatory system or impose
additional requirements or operating limitations on banking institutions. Such
legislation may change banking statutes and the operating environment of
Franklin and its subsidiaries in substantial and unpredictable ways. Franklin
cannot determine the ultimate effect that potential legislation, if enacted, or
implementing regulations, would have upon the financial condition or results of
operations of Franklin or its subsidiaries.
FIDUCIARY SHAREHOLDERS' DISSENTERS' RIGHTS TO OBTAIN PAYMENT FOR THEIR SHARES
Under the laws of New York, where Fiduciary is chartered as a bank,
holders of Fiduciary common stock who follow the procedures set forth in the New
York Banking Law, referred to as the "NYBL", will be entitled to dissenters'
rights to obtain payment for the fair value of their shares upon compliance with
certain procedures prescribed by the NYBL. Holders of Fiduciary common stock who
want to invoke their dissenters' rights should therefore follow the procedures
described below.
Under section 6022 of the NYBL, holders of Fiduciary common stock have a
right to dissent from the acquisition and choose to be paid the fair value of
their shares of Fiduciary common stock once the acquisition is completed,
provided they follow the procedures outlined in the statute. The complete text
of these sections is included in Annex E to this proxy statement/prospectus and
is incorporated by reference in this proxy statement/prospectus.
The dissenters' rights described in this section are your exclusive remedy
under New York law. If you wish to exercise your dissenters' rights to obtain
payment of the fair value for your shares or to preserve the right to do so, you
should carefully review Annex E and seek the advice of counsel. If you do not
comply with the deadlines and procedures specified in the applicable sections of
the NYBL, you may lose your dissenters' rights to obtain payment of the fair
value of your shares. If you have a beneficial interest in shares held of record
by another person, such as a broker or nominee, you should have the record owner
follow these procedures in a timely manner.
Under the NYBL, "fair value" means the value of the shares as of the close
of business on the day prior to the authorization date of the adoption of the
plan of acquisition, excluding any appreciation or depreciation in anticipation
of the acquisition. You should be aware that the fair value of your shares as
determined under the applicable provisions of the NYBL could be greater than,
the same as or less than, the consideration to be received in the acquisition.
To exercise your dissenters' rights, you must satisfy each of the
following conditions:
o you must file with Fiduciary, before the special meeting at which
the acquisition is submitted to a vote, or at such meeting but
before the vote, written notice of objection to the acquisition,
including a statement of your intent to demand payment of the fair
value of your shares; and
o you must not vote to authorize the approval and adoption of the plan
of acquisition and the transactions contemplated by the agreement.
If the Fiduciary shareholders authorize the adoption of the plan of
acquisition and the transactions contemplated by the plan of acquisition,
including the share exchange, at the special meeting and you meet the
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requirements above, Fiduciary will send to you, no later than 10 days after the
authorization date, written "dissenters' notice" of such authorization.
If you receive a dissenters' notice, and elect to exercise your
dissenters' rights, you must, within 20 days after such dissenters' notice, file
with Fiduciary written "notice of election to dissent," stating your name and
residence address, the number of shares of Fiduciary common stock as to which
you dissent, and a demand for payment of the fair value of your shares. You may
not dissent as to less than all of the shares of Fiduciary common stock held by
you of record, that you own beneficially. If shares of Fiduciary common stock
that you beneficially own are held of record by another person, such as a broker
or nominee, the record owner must dissent as to all of your shares held of
record by such other person.
Once you have filed a notice of election to dissent, you will no longer
have any rights of a Fiduciary shareholder except for the right to be paid the
fair value of your shares and any other rights under the applicable provisions
of the NYBL. Withdrawal of the "notice of election to dissent" will require the
written consent of Fiduciary. If the "notice of election to dissent" is
withdrawn, or the acquisition is abandoned, or a court determines that you are
not entitled to receive payment for your shares, or you otherwise lose your
dissenters' rights, you will not have the right to receive payment for your
shares in your capacity as a dissenting shareholder and you will be reinstated
to all your rights as a Fiduciary shareholder as of the filing of the notice of
election to dissent, including any intervening preemptive rights and the right
to payment of any intervening dividend or distribution or, if such rights have
expired or any such dividend or distribution other than cash has been completed,
in lieu thereof, at the election of Fiduciary, the fair value in cash as
determined by the board of directors of Fiduciary as of the time of the
expiration or completion.
On, or within one month after, the date on which you file a notice of
election to dissent, you must deposit the certificate or certificates
representing your shares to Fiduciary or its transfer agent, who shall indicate
on the certificate(s) that you have filed a notice of election to dissent and
return the certificate(s) to you or any person who submitted them on your
behalf. If you fail to submit for such notation the certificate or certificates
representing your shares, you may lose your dissenters' rights unless a court,
for good cause shown, otherwise directs. If you transfer a certificate with such
notation, each new certificate issued therefor will bear a similar notation
together with your name as the original dissenting holder of the shares and the
transferee will acquire no rights in Fiduciary other than those which you had
after the filing of a notice of election to dissent.
Within the later of seven days after the expiration of the period within
which you have to file a notice of election to dissent and seven days after the
acquisition is consummated, Fiduciary will make you a written offer to pay for
your shares at a specified price which Fiduciary considers to be their fair
value. This offer will be made at the same price per share to all dissenting
shareholders and will be accompanied by:
o Fiduciary's balance sheet as of the latest available date but not earlier
than twelve months before the offer, and a profit and loss statement or
statements for not less than a twelve month period ended on the date of
the balance sheet.
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If within thirty (30) days after the making of the offer, Fiduciary and
you agree upon the price to be paid for your shares, Fiduciary will pay you for
your shares within sixty days after the offer upon surrender of the certificates
representing the shares.
If Fiduciary does not make an offer within the period of seven days, or if
it makes the offer and you fail to agree with it on the price to be paid for
your shares within thirty days after the offer, Fiduciary will within twenty
days after the applicable period, commence a special proceeding in the Supreme
Court of the State of New York, County of New York to determine your rights and
the fair value of your shares. If Fiduciary does not timely commence this
proceeding, you may institute such proceeding not later than thirty days after
the expiration of the twenty day period. If you do not timely commence such
proceeding, your dissenters' rights will be lost unless the court, for good
cause shown, otherwise directs.
If this proceeding takes place, all dissenting shareholders, whose demands
remain unsettled, even if they are not residents of New York, will be made
parties to the proceeding, and all parties will be served with a copy of the
petition.
The court will determine whether each dissenting shareholder Fiduciary
requests the court to make party to the proceeding is entitled to receive
payment for his shares. If Fiduciary does not request the determination or the
court finds any dissenting shareholder is so entitled, it will fix the fair
value of the shares as of the close of business on the day prior to the
authorization date of the adoption of the plan of acquisition, excluding any
appreciation or depreciation in anticipation of the acquisition. The court may
appoint an appraiser who will receive evidence and recommend a decision on the
question of fair value.
The final order of the proceeding will be entered against Fiduciary in
favor of each dissenting shareholder who is party to the proceeding and entitled
to the determined fair value, plus accrued interest from the shareholders'
authorization date to the date of payment at a rate the court finds equitable,
of his shares. If the court finds that any shareholder's refusal to accept the
corporate offer of payment of his shares was arbitrary, vexatious or not in good
faith, no interest will be allowed to him.
The court will determine all costs and expenses of the proceeding,
including the reasonable compensation and expenses of the court-appointed
appraiser, but exclude the fees and expenses of counsel for and experts employed
by any party unless the court, in its discretion, otherwise awards them.
Fiduciary will generally pay these costs, but the court may order all or some of
the dissenting shareholders to pay the costs and expenses, in an amount the
court finds equitable, if the court finds that the shareholders acted
arbitrarily, vexatiously or not in good faith in demanding payment.
Within sixty days after final determination of the proceeding, Fiduciary
will pay to each dissenting shareholder the amount found to be due to him, upon
surrender of the certificates representing his shares.
The foregoing discussion is only a summary of the applicable provisions of
the NYBL and is qualified in its entirety by reference to the full text of the
provisions, which is included in Annex E to this document and is incorporated by
reference in this proxy statement/prospectus.
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RESTRICTIONS ON THE SALE OF FRANKLIN COMMON STOCK
The shares of Franklin common stock to be issued in connection with the
acquisition will be registered under the Securities Act of 1933 and will be
freely transferable under the Securities Act, except for the shares of Franklin
common stock issued to any person who is deemed to be an affiliate of Franklin
or Fiduciary at the time of the special meeting. Persons who may be deemed to be
affiliates of Franklin or Fiduciary for such purposes include individuals or
entities that control, are controlled by or are under common control of either
Franklin or Fiduciary and may include several officers and directors as well as
principal shareholders. Affiliates may not sell their shares of Franklin common
stock acquired in connection with the acquisition except pursuant to:
o an effective registration statement under the Securities Act
covering the resale of those shares;
o an exemption under paragraph (d) of Rule 145 under the Securities
Act; or
o another applicable exemption from registration under the Securities
Act, including the resale provisions of Rule 144.
Franklin's registration statement on Form S-4, of which this proxy
statement/prospectus forms a part, does not cover the resale of Franklin common
stock to be received by affiliates in the acquisition.
SEC guidelines regarding qualifying for the pooling of interests method of
accounting also limit sales of shares of the acquiring and acquired company by
affiliates of either company in a business combination. SEC guidelines indicate
that the pooling of interests method of accounting generally will not be
challenged on the basis of sales by affiliates of the acquiring or acquired
company if those affiliates do not dispose of any of the shares of the
corporation they own or shares of a corporation they receive in connection with
a merger/acquisition during the period beginning 30 days before the acquisition
and ending when financial results covering at least 30 days of post-acquisition
operations of the combined entity have been published.
Each of Fiduciary and Franklin has agreed in the plan of acquisition to
use its reasonable best efforts to cause each person who is an affiliate of that
party for purposes of qualifying the acquisition for pooling of interests
accounting treatment, and Fiduciary has agreed to use its reasonable best
efforts to cause each person who is an affiliate of it for purposes of Rule 145
under the Securities Act, to deliver to the other party a written agreement
intended to ensure compliance with the Securities Act and preserve the ability
to treat the acquisition as a pooling of interests.
LISTING OF FRANKLIN COMMON STOCK TO BE ISSUED IN THE ACQUISITION
Franklin has agreed to cause the shares of Franklin common stock to be
issued in the acquisition to be approved for listing on the NYSE. It is a
condition to the completion of the acquisition that the NYSE authorize those
shares for listing, subject to official notice of issuance.
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DELISTING AND DEREGISTRATION OF FIDUCIARY COMMON STOCK
If the acquisition is completed, the shares of Fiduciary common stock will
no longer be eligible for quotation on the OTCBB.
DIVIDENDS
The plan of acquisition provides that we and Franklin will consult with
each other regarding the record dates and payment dates of quarterly dividends
to ensure that you do not fail to receive a regular quarterly dividend payment
with respect to your shares of Fiduciary common stock or any shares of Franklin
common stock you receive in the acquisition.
OPERATIONS FOLLOWING THE ACQUISITION
Following the acquisition, Fiduciary will be a wholly-owned subsidiary of
Franklin. Upon consummation of the acquisition, the membership of Fiduciary's
board of directors will remain unchanged except to the extent necessary in
connection with the appointment of two designees of Franklin's chief executive
officer to the Fiduciary board of directors. The shareholders of Fiduciary will
become shareholders of Franklin, and their rights as stockholders will be
governed by Franklin's certificate of incorporation, Franklin's bylaws and the
laws of the state of Delaware. Please see "The Plan of Acquisition and Related
Agreements" beginning on page ___ and "Comparison of Rights of Shareholders of
Franklin and Shareholders of Fiduciary" beginning on page ___.
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THE PLAN OF ACQUISITION AND RELATED AGREEMENTS
The following description summarizes the material provisions of the plan
of acquisition, the stock option agreement and the voting agreements. You should
read these agreements, copies of which are attached as Annex A through Annex C
to this document and are incorporated herein by reference.
THE PLAN OF ACQUISITION
THE ACQUISITION
The plan of acquisition provides that following the approval of the plan
of acquisition by the holders of at least two-thirds of the outstanding shares
of Fiduciary common stock, the receipt of the required regulatory approvals and
the satisfaction or waiver of the other conditions to the completion of the
acquisition, each of the outstanding shares of Fiduciary common stock will be
deemed to be exchanged for a certain number of shares of Franklin common stock
in accordance with Section 143-a of the New York State Banking Law. Upon the
closing of the acquisition, the superintendent of banks of the state of New York
will file the plan of acquisition and other required certificates, at which time
the acquisition will become effective. Following the completion of the
acquisition, Fiduciary will be a wholly-owned subsidiary of Franklin.
ACQUISITION CONSIDERATION
At the completion of the acquisition, each outstanding share of Fiduciary
common stock will be converted into the right to receive a number of shares of
Franklin common stock equal to the exchange ratio, rounded to the nearest
1/10,000, which will be determined by dividing:
o the quotient obtained by dividing 825,000,000 by the average closing
price per share of Franklin common stock on the New York Stock
Exchange, Inc. during the 20 trading days ending immediately prior
to the date that the Federal Reserve Board approves the regulatory
applications and determines that Franklin's request to become a
financial holding company will become effective at the effective
time, provided that this quotient will not be less than 19,466,700
or more than 23,791,000, by
o the number of shares of Fiduciary common stock outstanding as of the
effective time to be exchanged for shares of Franklin common stock.
Assuming there are 7,276,168 shares of Fiduciary common stock outstanding
at the effective time of the acquisition, each share of Fiduciary common stock
will be exchanged for shares of Franklin common stock having a market value of
$113.38 if the average closing price of Franklin common stock is between $34.68
and $42.38 (inclusive), as calculated above. If the average closing price of
Franklin common stock exceeds $42.38, the exchange ratio will be fixed at
2.6754. If the average closing price of Franklin common stock falls below
$34.68, the exchange ratio will be fixed at 3.2697.
EXCHANGE OF SHARES
Franklin will appoint the Bank of New York as exchange agent to handle the
exchange of Fiduciary stock certificates in the acquisition for Franklin stock
and the payment of cash for any fractional shares of Fiduciary stock. As soon as
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reasonably practicable, the exchange agent will send each holder of Fiduciary
stock a letter of transmittal for use in the exchange and instructions
explaining how to surrender Fiduciary stock certificates to the exchange agent.
The holders of Fiduciary stock who surrender their certificates to the exchange
agent, together with a properly completed letter of transmittal, will receive
the appropriate acquisition consideration.
The holders of unexchanged shares of Fiduciary stock will not be entitled
to receive any dividends or other distributions payable with respect to
Franklin's stock after the closing until their certificates are surrendered.
YOU SHOULD NOT FORWARD FIDUCIARY STOCK CERTIFICATES TO THE EXCHANGE AGENT
UNTIL YOU HAVE RECEIVED TRANSMITTAL FORMS. YOU SHOULD NOT RETURN FIDUCIARY STOCK
CERTIFICATES WITH THE ENCLOSED PROXY.
CONDITIONS TO CONSUMMATION OF THE ACQUISITION
MUTUAL CLOSING CONDITIONS
The obligations of Franklin and Fiduciary to complete the acquisition are
subject to the satisfaction or, to the extent legally permissible, waiver of the
following conditions:
o approval and adoption of the plan of acquisition by the holders of
at least two-thirds of Fiduciary outstanding common stock;
o approval of the acquisition by the Federal Reserve Board and all
other relevant federal and state bank and thrift regulators;
o confirmation by the Federal Reserve Board that Franklin's election
to become a financial holding company is effective;
o all other regulatory approvals and all other statutory waiting
periods having been obtained, other than those which would not be
reasonably likely to have a material adverse effect on Franklin or
Fiduciary;
o the registration statement on Form S-4, of which this proxy
statement/ prospectus forms a part, having become effective and not
being subject to any stop order issued or proceeding seeking a stop
order to be issued by the SEC;
o approval for listing on the New York Stock Exchange of the shares of
Franklin common stock to be issued in the acquisition;
o absence of any law or order of any governmental entity prohibiting
the acquisition; and
o receipt of an opinion of Fiduciary's counsel, satisfactory to
Franklin and Fiduciary, that the acquisition will qualify as a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code.
ADDITIONAL CLOSING CONDITIONS FOR FRANKLIN'S BENEFIT
Franklin's obligation to complete the acquisition is subject to the
following additional conditions:
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o accuracy, as of October 25, 2000, of the representations and
warranties of Fiduciary included in the plan of acquisition, except
to the extent any inaccuracy does not have a material adverse effect
on Franklin;
o Fiduciary's performance in all material respects of its obligations
under all agreements and conditions contained in the plan of
acquisition at or prior to the closing;
o receipt of a certificate, dated as of the closing, signed by the
President or Vice President of Fiduciary certifying fulfillment of
the two prior conditions;
o receipt of written agreements from Fiduciary's affiliates, not later
than 45 days prior to the Fiduciary shareholders meeting, pursuant
to which such affiliates agree to transfer restrictions on their
shares that are necessary to comply with securities laws and to
achieve pooling accounting treatment;
o no more than 5% of the Fiduciary shares outstanding immediately
prior to the effective time having properly exercised dissenters'
rights; and
o execution of the employment agreements by at least four of the
following individuals --Ms. Tatlock and Messrs.Yun, Biggs,
Goodfellow and Magdol -- and such employment agreements being in
effect as of the closing.
ADDITIONAL CLOSING CONDITIONS FOR FIDUCIARY'S BENEFIT
Fiduciary's obligation to complete the acquisition is subject to the
following additional conditions:
o accuracy, as of October 25, 2000, of the representations and
warranties of Franklin included in the plan of acquisition, except
to the extent any inaccuracy does not have a material adverse effect
on Fiduciary;
o Franklin's performance in all material respects of its obligations
under all agreements and conditions contained in the plan of
acquisition at or prior to the closing; and
o receipt of a certificate, dated as of the closing, signed by the
President or Vice President of Franklin certifying fulfillment of
the two prior conditions.
TERMINATION OF THE PLAN OF ACQUISITION
RIGHT TO TERMINATE
The plan of acquisition may be terminated at any time prior to the effective
time of the acquisition by the mutual written consent of both Fiduciary and
Franklin even after the plan of acquisition has been approved by the Fiduciary
shareholders.
TERMINATION BY EITHER FIDUCIARY OR FRANKLIN
The plan of acquisition may be terminated at any time prior to the effective
time of the acquisition by either Fiduciary or Franklin if:
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o the acquisition has not been consummated by October 25, 2001,
whether or not this date is before or after the date of the approval
by the Fiduciary shareholders;
o the holders of at least two-thirds of Fiduciary common stock fail to
approve the plan of acquisition at a duly held meeting;
o there is a permanent legal prohibition to consummating the
acquisition; or
o any request for any requisite material regulatory consent, order or
decree has been denied and such denial is final and nonappealable.
TERMINATION BY FIDUCIARY
The plan of acquisition may be terminated at any time prior to the
effective time of the acquisition, even if it was previously approved by the
Fiduciary shareholders, by Fiduciary if Franklin breaches any of the
representations, warranties, covenants or agreements contained in the plan of
acquisition and the breach:
o is not cured by the earlier of 60 calendar days after Franklin's
receipt of written notice or October 25, 2001; or
o cannot be cured by October 25, 2001 and would cause a condition set
forth above under "Mutual Closing Conditions" or "Additional Closing
Conditions for Fiduciary's Benefit" to be incapable of being
satisfied as of October 25, 2001.
TERMINATION BY FRANKLIN
The plan of acquisition may be terminated at any time prior to the
effective time of the acquisition by Franklin if:
o the Fiduciary board of directors:
o fails to include in the proxy statement its recommendation,
without modification or qualification, that the Fiduciary
shareholders approve the plan of acquisition;
o withdraws or modifies in a manner adverse to Franklin its
approval or recommendation of the plan of acquisition;
o fails to reaffirm its approval or recommendation upon
Franklin's request within five business days of such request;
o approves or recommends any other acquisition proposal; or
o resolves to take any action specified in the preceding four
bullets; or
o Fiduciary breaches any of the representations, warranties, covenants
or agreements contained in the plan of acquisition and the breach:
o is not cured by the earlier of 60 calendar days after
Fiduciary's receipt of written notice or October 25, 2001; or
o cannot be cured by October 25, 2001 and would cause a
condition set forth above under "Mutual Closing Conditions" or
"Additional Closing Conditions for Franklin's Benefit" to be
incapable of being satisfied as of October 25, 2001.
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If the plan of acquisition is validly terminated, the plan of acquisition
will become void without any liability on the part of any party, except that no
party will be relieved of liability or damages resulting from its willful breach
of the plan of acquisition. In addition, the provisions of the plan of
acquisition relating to the effect of the termination of the plan of
acquisition, fees and expenses, as well as the confidentiality agreement entered
into between Fiduciary and Franklin, will continue in effect notwithstanding the
termination of the plan of acquisition.
TERMINATION FEES
Fiduciary has agreed to pay Franklin a termination fee of $25 million if:
o Franklin terminates the plan of acquisition under the
circumstances described in the first bullet point under
"Termination by Franklin" above; or
o Franklin or Fiduciary terminates the plan of acquisition
because the holders of at least two-thirds of Fiduciary common
stock fail to approve the plan of acquisition at a duly held
meeting,
and in either of these cases, within 12 months after the termination of
the plan of acquisition, Fiduciary consummates or enters into a
definitive agreement to consummate an acquisition proposal with any third
party.
Franklin has agreed to pay Fiduciary a termination fee of $25 million if
Franklin or Fiduciary terminate the plan of acquisition and:
o any requisite regulatory consent, order or decree has not been
obtained and the denial is final and nonappealable; or
o the acquisition has not been consummated by October 25, 2001,
whether or not this date is before or after the date of the
approval by the Fiduciary shareholders,
and in either of these cases, the plan of acquisition is terminated at a time
when Franklin has not received the requisite approvals of the Federal Reserve
Board or the requisite approvals under the New York State Banking Law to
consummate the acquisition. Payment of the termination fee will be in full
satisfaction and settlement of any claims Franklin or Fiduciary might have
against each other in respect of or under the plan of acquisition.
REPRESENTATIONS AND WARRANTIES
The plan of acquisition contains representations and warranties made by
Fiduciary and Franklin. The most significant relate to:
o corporate existence and qualification;
o capitalization of Franklin or Fiduciary and their
subsidiaries;
o absence of any breach of organizational documents, applicable
law or certain material agreements as a result of the
contemplated transaction;
o authorization to enter into the contemplated transaction;
o absence of undisclosed liabilities;
o absence of changes;
o filings with the SEC;
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o financial statements;
o mutual funds;
o information provided for inclusion in this registration
statement on Form S-4;
o compliance with applicable laws; and
o brokers' fees and finders' fees incurred in connection with
the acquisition.
In addition, Fiduciary made certain additional representations and
warranties. The most significant relate to:
o leased real property;
o labor and employee benefit matters;
o environmental matters;
o material contracts;
o insurance;
o intellectual property;
o risk management instruments;
o accounting matters; and
o tax matters.
CERTAIN COVENANTS
Each of Fiduciary and Franklin has undertaken certain covenants in the
plan of acquisition. The following summarizes the more significant of these
covenants:
INTERIM OPERATIONS OF FIDUCIARY
Fiduciary has undertaken a covenant that places restrictions on it and its
subsidiaries until the effective time of the acquisition. Fiduciary and its
subsidiaries are required to conduct their business in the ordinary course
consistent with past practice, and to preserve intact and keep available its
business organization, services of its current officers and employees and
relationships with third parties. In addition, Fiduciary has agreed that, among
other things and subject to certain limitations, neither it nor any of its
subsidiaries, without the prior consent of Franklin or unless otherwise
permitted in the plan of acquisition, may:
o amend its certificate of incorporation or bylaws (or other
similar governing documents);
o issue, sell, deliver or agree or commit to issue, sell or
deliver any stock of any class or any other securities
convertible into or exchangeable for any stock or any equity
equivalents, except for grants of restricted stock pursuant to
Fiduciary's benefit plans in the ordinary and usual course of
business consistent with past practice;
o take certain other actions with respect to its capital stock,
such as to split, combine, or reclassify any of its capital
stock; declare any dividend on its capital stock, other than
regular quarterly cash dividends not in excess of $0.35 per
share of common stock; make any other actual, constructive or
deemed distribution; or redeem or repurchase any of its
securities;
o adopt a plan of liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other
reorganization;
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o alter the corporate structure or ownership of any subsidiary;
o incur or assume any debt or guarantees except in the ordinary
course of business consistent with past practice and except
for guarantees of obligations of Fiduciary's wholly-owned
subsidiaries or pledge any material assets;
o except as may be required by law or preexisting contracts and
except for actions taken in the ordinary course of business
and consistent with past practice, enter into, adopt, amend or
terminate any bonus, profit sharing, compensation, severance,
termination, stock option, stock appreciation right,
restricted stock, performance unit, stock equivalent, stock
purchase agreement, pension, retirement, deferred
compensation, employment, severance or other employee benefit
agreement, trust, plan, fund, award or other arrangement for
the benefit or welfare of any director, officer or employee or
pay any benefit not required by any currently existing plan or
arrangement;
o acquire or dispose of any assets, except in the ordinary
course of business consistent with past practice;
o make a change in accounting principles except as required by
law or generally accepted accounting principles;
o acquire any business organization;
o enter into any contracts or agreements except in the ordinary
course of business consistent with past business practices or
amend in any material respect any material contract listed in
the plan of acquisition;
o authorize any new capital expenditure or expenditures which,
individually, is in excess of $1,000,000 or, in the aggregate,
are in excess of $5,000,000;
o pay, discharge or satisfy any material claims or obligations,
other than in the ordinary course of business consistent with
past business practices;
o take any action that would prevent or impede the acquisition
from qualifying as a "pooling of interests;"
o take any action that would materially impede or delay
Franklin's or Fiduciary's ability to obtain the necessary
regulatory approvals;
o take any action that would reasonably prevent the acquisition
from qualifying as a reorganization with the meaning of
Section 368(a) of the Internal Revenue Code; or
o voluntarily divest itself of the management of any mutual fund
or other assets currently under management other than in the
ordinary and usual course of business consistent with past
practice.
INTERIM OPERATIONS OF FRANKLIN
Franklin has agreed, that prior to the effective time of the acquisition,
neither it nor any of its subsidiaries, without the prior written consent of
Fiduciary or unless otherwise specified in the plan of acquisition, may:
o take certain actions with respect to its capital stock, such
as to declare or pay any dividend on its capital stock other
than regular quarterly cash dividends with usual record and
payment dates in accordance with past practice; make any
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actual, constructive or deemed distribution; or redeem or
repurchase any of its securities;
o change its accounting principles except as required by law or
generally accepted accounting principles;
o acquire any corporation or other business organization if
Franklin in good faith believes it would materially delay the
consummation of the acquisition;
o take any action that would materially impede or delay
Franklin's or Fiduciary's ability to obtain the necessary
regulatory approvals;
o take any action that would prevent or impede the acquisition
from qualifying as a "pooling of interests"; or
o take any action that would reasonably prevent the acquisition
from qualifying as a reorganization with the meaning of
Section 368(a) of the Internal Revenue Code.
ACCESS TO INFORMATION
Until the acquisition becomes effective, Franklin will have reasonable
access to employees, facilities and the books and records of Fiduciary and its
subsidiaries. Franklin will comply with reasonable requests of Fiduciary for
information regarding Franklin or its subsidiaries. Franklin and Fiduciary will
hold in confidence all information received from the other in connection with
the acquisition pursuant to the terms of the confidentiality agreement entered
into between Franklin and Fiduciary.
ACQUISITION PROPOSALS
Fiduciary has agreed that it and its subsidiaries and its officers,
directors, employees and advisors will not solicit, initiate or knowingly
encourage any alternative "acquisition proposals" involving Fiduciary or
participate in any discussions or negotiations with any person to facilitate an
acquisition proposal.
For these purposes, an "acquisition proposal" means any inquiry or
proposal relating to:
o any merger, consolidation, share exchange or similar business
combination;
o any sale, lease or other disposition of 20% or more of the
assets of Fiduciary;
o any acquisition or purchase of 20% or more of Fiduciary's
outstanding common stock; or
o any public announcement, proposal or intention to do any of
the foregoing.
However, Fiduciary is not prohibited from engaging in discussions or
furnishing information to a person who makes an unsolicited bona fide written
acquisition proposal so long as prior to doing so:
o the Fiduciary shareholder meeting has not yet occurred;
o the Fiduciary board determines in good faith, after receiving
advice of independent counsel, that it is necessary to do so
to comply with its fiduciary duty to shareholders;
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o the Fiduciary board determines in good faith after receipt of
advice of its financial advisor, that such proposal, if
accepted and consummated, is reasonably likely to result in a
transaction more favorable to its shareholders from a
financial point of view than the acquisition with Franklin;
and
o Fiduciary provides reasonable notice to Franklin that it is
taking such action and receives from the person an executed
confidentiality agreement with terms at least as stringent as
those contained in the existing confidentiality agreement
between Franklin and Fiduciary.
Prior to providing any information or entering into discussions or
negotiations with any person, Fiduciary must notify Franklin within 24 hours
after receiving an offer or a request for information. The notice must indicate
the identity of the person and the terms and conditions of any offer or a
request for information. Fiduciary must keep Franklin informed on a prompt basis
of the status and details of any offer or any request for information.
INDEMNIFICATION AND INSURANCE OF FIDUCIARY'S OFFICERS AND DIRECTORS
Franklin has agreed that:
o from and after the effective time, it will indemnify each
person who is, has been, or becomes prior to the effective
time, a director, officer or employee of Fiduciary or any of
its subsidiaries, against all losses arising out of, at or
prior to the effective time, the fact that such person is or
was a director, officer or employee of Fiduciary or any of its
subsidiaries or out of the transactions contemplated by the
plan of acquisition;
o it will use commercially reasonable efforts to maintain
Fiduciary's existing director's and officer's liability
insurance policy (or a policy with at least the same coverage)
for a period of six years after the acquisition with respect
to acts or omissions occurring prior to the effective time,
provided that the aggregate annual premium for maintaining
this insurance during the six year period does not exceed 200%
of the per annum aggregate premium currently paid by
Fiduciary;
o from and after the effective time, all rights to
indemnification now existing in favor of the employees,
agents, directors or officers of Fiduciary and its
subsidiaries with respect to their activities as such prior to
the effective time, as provided in Fiduciary's organization
certificate or bylaws, will survive the proposed acquisition
and will remain in full force and effect; and
o to provide substantially similar terms of indemnification for
the employees, agents, directors or officers of Fiduciary and
its subsidiaries with respect to their activities as such
following the effective time.
EMPLOYEE MATTERS
Franklin will honor all the obligations under Fiduciary's and its
subsidiaries' employment, consulting, severance, termination, change of control
and indemnification agreements with any current or former officer, director,
consultant or employee made available to Franklin. However, Ms. Tatlock and
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Messrs. Yun, Biggs, Goodfellow and Magdol have waived their rights under the
Change in Control Plan with respect to the acquisition in connection with the
employment agreements being entered into with Franklin and Fiduciary.
Franklin has also agreed, following the closing, to arrange for each
employee of Fiduciary or its subsidiaries to participate in either Franklin or
Fiduciary's employee benefit plans, depending upon which plans remain in effect
from time to time and when Fiduciary employees are included in Franklin's plans.
In addition, Franklin has specifically agreed:
o that during the 18 month-period after the effective time, it
will provide each of Fiduciary's current and former employees
and directors with benefits and compensation that are in the
aggregate no less favorable than the benefits and compensation
currently received by these officers and directors; and
o to continue to provide retiree medical insurance benefits
currently provided to retired employees of Fiduciary and its
subsidiaries, to provide those benefits upon the retirement of
any employee of Fiduciary and its subsidiaries who is at least
55 years of age as of the closing of the acquisition and has
been employed by Fiduciary and its subsidiaries for at least
ten years, and not to reduce those benefits from the levels
provided prior to the closing of the acquisition.
In addition, Franklin has agreed to a compensation program for salaried
employees of Fiduciary in the aggregate of $85 million. See "Employee Retention
and Transition Compensation Program" on page____.
LISTING OF FRANKLIN COMMON STOCK
Franklin has agreed to use its best efforts to cause the shares of
Franklin common stock to be issued in the acquisition to be listed on the NYSE
on or prior to the closing of the acquisition, subject to official notice of
issuance.
FIDUCIARY SHAREHOLDER MEETING AND BOARD RECOMMENDATION
Fiduciary has agreed to take all lawful actions necessary to cause a
special meeting of its shareholders to be duly called and held as soon as
practicable after this proxy statement/prospectus is declared effective for the
purpose of voting on the adoption and approval of the plan of acquisition and to
solicit proxies from its shareholders for approval of the plan of acquisition.
The board of directors of Fiduciary will recommend that the shareholders of
Fiduciary adopt the plan of acquisition and take all lawful action to solicit
such adoption. The board of directors of Fiduciary may, however, prior to the
special meeting of its shareholders, withdraw, modify or change any such
recommendation to the extent it determines in good faith, after outside legal
consultation, that such withdrawal, modification or change is necessary to
comply with its fiduciary duties to the shareholders, but only after five
business days following Franklin's receipt of written notice that the board
intends to make such a subsequent determination. After providing such notice,
Fiduciary will provide Franklin a reasonable opportunity to make adjustments in
the terms and conditions of the plan of acquisition as would enable Fiduciary to
proceed with its recommendation to its shareholders, without such a subsequent
determination, provided that any such adjustment is at the discretion of the
parties.
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MANAGEMENT AND CONTROL OF FIDUCIARY FOLLOWING THE ACQUISITION
We and Franklin envision that Fiduciary will continue as an independent
subsidiary of Franklin with its current name and board of directors following
the acquisition. The plan of acquisition contains several agreements between us
and Franklin in this regard. The following summarizes the most significant of
these agreements.
The Fiduciary by-laws will be amended to provide that for three years
following the closing of the acquisition:
o the Fiduciary board will consist of those members in office
immediately prior to the effective time and two additional
individuals designated by Franklin's chief executive officer;
o if a vacancy occurs in any of the seats occupied by a member
of the Fiduciary board in office immediately prior to the
effective time, the nominating committee of the Fiduciary
board will have the right to nominate three individuals for
each vacancy, and Franklin will be entitled to vote its shares
of Fiduciary common stock in this regard;
o the corporate name, bank regulatory status and location of
Fiduciary in New York will not be changed without the approval
of the Fiduciary board; and
o the size of the Fiduciary board will not be altered other than
in connection with the appointment of the two designees of
Franklin's chief executive officer, and the provisions of the
Fiduciary by-laws regarding the removal of directors without
cause will not be altered without the approval of a majority
of the Fiduciary board.
For three years following the completion of the acquisition:
o the above listed Fiduciary by-law provisions will not be
modified or removed without the approval of a majority of the
Fiduciary board;
o Fiduciary will be maintained as a separate wholly-owned
subsidiary of Franklin.
o Fiduciary's and Franklin's global high net-worth individual
businesses (excluding Franklin's wrap-fee business) will be
developed and managed by Fiduciary in consultation with
Franklin and Franklin will advance the expansion of the global
institutional separate account businesses of Fiduciary for a
full range of growth equities, fixed income and real estate
securities;
o subject to the immediately preceding bullet, Franklin will
consult with the Fiduciary board with regard to any
reorganization of the operations and corporate structures of
Fiduciary's subsidiaries and/or the integration of such
operations and corporate structures with Franklin's businesses
and subsidiaries that Franklin may wish to effect with the
goal of achieving maximum efficiencies and synergies;
o the chief executive officer of Fiduciary will report directly
to the chief executive officer of Franklin;
o personnel decisions and the reporting structure concerning the
executives, officers and employees of Fiduciary will be in the
discretion of Fiduciary's chief executive officer within a
framework jointly developed by Franklin and Fiduciary;
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o the salary, benefits and terms of employment of Fiduciary's
chief executive officer, Anne M. Tatlock will not be modified
without the approval of Franklin;
o Any vacancy in the office of Fiduciary's chief executive
officer by reason of death, retirement, resignation or
otherwise will be filled by the Fiduciary board with the prior
consent of Franklin.
o Anne M. Tatlock will be a member of the Franklin board and
Fiduciary's chief executive officer will serve as a member of
the office of the chairman of Franklin, for so long as this
office exists; and
o Franklin will involve the management of Fiduciary in the
future management of Franklin.
An integration committee the members of which will be jointly agreed upon,
but will include Michael O. Magdol, our Chief Financial Officer, and William Y.
Yun, our President, will be established. The committee will report directly to
the chief executive officers of Franklin and Fiduciary.
ADDITIONAL AGREEMENTS
The plan of acquisition contains certain additional agreements between
Fiduciary and Franklin. The following summarizes the most significant of these
agreements:
o Fiduciary and Franklin agree to prepare and file a
registration statement and all necessary filings with the SEC
relating to the acquisition;
o Fiduciary and Franklin agree to prepare and file all necessary
applications, notices, petitions and other filings with the
regulatory agencies necessary to consummate the acquisition
and to use their reasonable best efforts to obtain any
necessary permits, consents or approvals;
o Franklin will take reasonable actions to cause the acquisition
to be treated as a "pooling of interests" for accounting
purposes;
o Fiduciary and Franklin agree to use their reasonable best
efforts to have the acquisition qualify as a reorganization
within the meaning of Section 368(a) of the Internal Revenue
Code; and
o Fiduciary and Franklin agree to consult each other before
issuing any public announcements regarding the acquisition.
EXPENSES
Except as otherwise specified in the plan of acquisition, all expenses
incurred in connection with the plan of acquisition, the stock option agreement
and the transactions contemplated by the plan of acquisition and stock option
agreement will be paid by the party incurring such expenses.
AMENDMENTS; WAIVERS
Any provision of the plan of acquisition may be amended at any time before
or after approval of the acquisition by the Fiduciary shareholders if the
amendment is in writing and signed by all parties. After Fiduciary shareholders
have approved and adopted the plan of acquisition, no amendment that requires
further approval by Fiduciary shareholders may be made without the approval of
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Fiduciary shareholders. Any provision of the plan of acquisition may be waived
at or prior to the effective time of the acquisition if the waiver is in writing
and signed by the party against whom the waiver is to be effective.
STOCK OPTION AGREEMENT
GENERALLY
Simultaneously with the execution of the plan of acquisition, Franklin and
Fiduciary entered into a stock option agreement. Under the stock option
agreement, Fiduciary granted Franklin an irrevocable option to purchase from
Fiduciary a number of shares equal to up to 19.9% of the currently issued and
outstanding Fiduciary common stock, without giving effect to the shares subject
to or issued pursuant to the option. The exercise price of the Fiduciary option
is $65.00 per share.
The option agreement provides for adjustment to the number of shares and
the exercise price of the option upon the occurrence of specified changes to our
capital structure or other events or transactions.
The stock option agreement is intended to increase the likelihood that the
acquisition will be completed in accordance with the terms of the plan of
acquisition and to compensate Franklin if the acquisition is not completed. The
existence of the Fiduciary stock option could significantly increase the cost to
a potential acquiror of acquiring us. In addition, the exercise or repurchase of
the stock option is likely to prohibit another acquiror from accounting for an
acquisition of Fiduciary using the "pooling of interests" accounting method for
a period of two years following the exercise or repurchase. Consequently,
aspects of the option agreement may discourage persons who might be interested
in acquiring all of or a significant interest in Fiduciary from considering or
proposing an acquisition, even if these persons were prepared to pay
consideration with a higher value than the shares of Franklin common stock to be
received under the plan of acquisition.
EXERCISE OF THE OPTION
The option will be exercisable, subject to regulatory approval, only if a
triggering event occurs prior to an exercise termination event. These events are
defined below:
o a "triggering event" means that Fiduciary or any of its subsidiaries,
without Franklin's prior written consent, enters into an "acquisition
transaction." An acquisition transaction means the occurrence of any of
the following events:
o a merger, consolidation, share exchange, recapitalization, business
combination or other similar transaction involving us or any or any
of our subsidiaries;
o a sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 20% or more of our and our subsidiaries' assets, in a
single transaction or a series of related transactions;
o a purchase or other acquisition of beneficial ownership of 20% or
more of our voting power; or
o any substantially similar transaction.
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o an "exercise termination event" means the occurrence of any of the
following events:
o the effective time of the acquisition;
o termination of the plan of acquisition in accordance with its
terms, except in the case of termination of the plan of
acquisition by Franklin or us if at least two-thirds of our
shareholders fail to approve the plan of acquisition or
termination of the plan of acquisition by Franklin and the
Fiduciary board:
o fails to include in the proxy statement its
recommendation, without modification or qualification,
that the Fiduciary shareholders approve the plan of
acquisition and share exchange;
o withdraws or modifies in a manner adverse to Franklin,
its approval or recommendation of the plan of
acquisition or share exchange;
o fails to reaffirm its approval or recommendation upon
Franklin's request within five business days of such
request.
o approves or recommends any other acquisition proposal;
or
o resolves to take any action specified in the preceding
four bullets; or
o the date that is 12 months after the plan of acquisition was
terminated either because holders of at least two-thirds of
our outstanding common stock fail to approve the plan of
acquisition or because the Fiduciary board:
o failed to include in the proxy statement its
recommendation, without modification or qualification,
that the Fiduciary shareholders approve the plan of
acquisition and share exchange;
o withdrew or modified in a manner adverse to Franklin,
its approval or recommendation of the plan of
acquisition or share exchange;
o fails to reaffirm its approval or recommendation upon
Franklin's request within five business days of such
request; o approved or recommended any other acquisition
proposal; or
o resolved to take any action specified in the preceding
four bullets,
unless during that 12 month period, we consummate or enter
into an agreement to consummate an "acquisition transaction"
as defined above, in which case the "exercise termination
event" will be the date that is six months after the
consummation of the acquisition transaction.
As of the date of this proxy statement/prospectus, to the knowledge of
Fiduciary or Franklin, no triggering event has occurred.
If Franklin wishes to exercise the option, Franklin will deliver a written
notice to us specifying the total number of shares of our common stock Franklin
wishes to purchase.
REPURCHASE OF THE OPTION
The option agreement permits Franklin to require us to repurchase the
option and any shares purchased under the option any time after a triggering
event has occurred, but prior to the occurrence of an exercise termination
event.
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Following a request of the holder of the option, delivered prior to an
exercise termination event, we or any of our successors will repurchase the
option from the holder at a price (which we refer to as the "option repurchase
price") equal to the amount by which the market/offer price exceeds the exercise
price, multiplied by the number of shares for which the option may then be
exercised. At the request of the owner of the shares purchased under the option
(which we refer to as the "option shares"), delivered within 90 days after the
occurrence of a triggering event (or such later event as permitted under the
stock option agreement), we will repurchase the number of option shares from the
owner of those shares as the owner designates at a price (which we refer to as
the "option share repurchase price") equal to the market/offer price multiplied
by the number of option shares so designated.
The term "market/offer price" means the highest of:
o the price per share of our common stock at which a tender or
exchange offer for our common stock has been made;
o the price per share of our common stock to be paid by any third
party under an agreement with us;
o the highest closing price for shares of our common stock within the
six-month period immediately preceding the date the holder of the
option gives notice of the required repurchase of the option or the
owner of option shares gives notice of the required repurchase of
option shares, as the case may be; or
o in the event of a sale of all or a substantial portion of our
assets, the sum of the price paid in the sale for these assets and
the net current market value of our remaining assets as determined
by a nationally recognized investment banking firm selected by the
holder of the option or the owner of the option shares, and
reasonably acceptable to us, divided by the number of shares of our
common stock outstanding at the time of the sale.
SUBSTITUTE OPTION
In some situations, the option will convert into an option to purchase
shares of our successor. If prior to an exercise termination event, we enter
into any agreement:
o to consolidate with or merge into any person, other than Franklin or
one of its subsidiaries, so that we are not the continuing or
surviving corporation of the consolidation or merger;
o to permit any third party to merge with us where we are the
continuing or surviving corporation, but after the consolidation or
merger, the then outstanding shares of our common stock are changed
or exchanged for stock or other securities of any other person or
cash or any other property, or the then outstanding shares of our
common stock after the consolidation or merger represent less than
50% of the outstanding voting shares of the newly merged
corporation; or
o to sell or otherwise transfer all or substantially all of our assets
to any third party other than Franklin,
then the agreements governing these transactions must provide that, upon
completion of the transactions listed in the three previous bullets, and upon
the terms and conditions set forth in the stock option agreement, the option
will be converted into, or exchanged for, an option having substantially the
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same terms as the stock option to purchase securities, at the election of the
holder, of either the acquiring party or any party that controls the acquiring
party.
MAXIMUM PROFIT LIMITATION
The stock option agreement limits Franklin's total profit to $25 million.
Total profit means the aggregate pre-tax amount of the following:
o the excess of (i) the net cash amounts or fair market value of any
property received by Franklin pursuant to the sale of the option or
the option shares to any unaffiliated party, other than any amount
received by Franklin upon our repurchase of the option or the option
shares, after payment of applicable brokerage or sales commissions,
over (ii) Franklin's aggregate purchase price for those option
shares; plus
o all amounts received by Franklin upon our repurchase of the option
or the option shares; plus
o all equivalent amounts with respect to the substitute option and
substitute option shares; plus
o the amount on any termination fee paid by us pursuant to the plan of
acquisition as described above.
In addition, Franklin may not exercise the stock option for a number of
shares that would result in a notional total profit of more than $25 million
and, if exercise of the option would otherwise result in the notional total
profit exceeding that amount, Franklin may, in its discretion, take any of
several permitted steps so that the notional total profit will not restrict any
subsequent exercise of the option which at the time complies with this
limitation. As used in the option agreement, "notional total profit" means, with
respect to any number of option shares, the total profit, determined as of the
date of the proposed exercise assuming that the option was exercised on that
date for that number of shares, and assuming that those shares, together with
all other option shares held by Franklin as of that date, were sold for cash at
the closing market price for our common stock as of the close of business on the
preceding trading day (less customary brokerage commissions).
VOTING AGREEMENTS
As a condition to Franklin's entering into the plan of acquisition,
Franklin and Ms. Tatlock and Messrs. Yun, Biggs, Goodfellow, Magdol, and
Hochberger entered into voting agreements. Pursuant to the voting agreements,
these shareholders have agreed to vote their shares in favor of approval of the
plan of acquisition, in favor of the acquisition and in favor of each other
action required in furtherance of the acquisition.
As of October 31, 2000, these individuals collectively beneficially owned
820,890 shares of our common stock, which represented approximately 11.28% of
our outstanding common stock. None of the Fiduciary shareholders who are parties
to the voting agreements were paid additional consideration in connection with
these agreements.
Under these voting agreements, and except as otherwise waived by Franklin,
these specified Fiduciary shareholders agreed not to sell their Fiduciary common
stock and options owned, controlled or acquired, either directly or indirectly,
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by them until the earlier of the termination of the plan of acquisition or the
completion of the acquisition.
These voting agreements will terminate upon the earlier to occur of the
termination of the plan of acquisition and the completion of the acquisition.
The form of voting agreement is attached to this document as Annex C, and you
are urged to read it in its entirety.
EXECUTIVE EMPLOYMENT AGREEMENTS AND COVENANTS NOT TO COMPETE
PURPOSE. Five executives of Fiduciary, Ms. Tatlock and Messrs. Yun, Biggs,
Goodfellow and Magdol, have entered into employment agreements which will become
effective upon the closing of the acquisition. The employment agreements are for
a period of five years (except that the agreement covering Mr. Biggs is for
three years followed by a two-year consulting relationship) from the closing of
the acquisition.
COMPENSATION. Each executive is to be paid a base salary equal to the
executive's then current annual base salary. Effective as of October 25, 2000,
such salaries were $590,000 for Ms. Tatlock, $525,000 for Mr. Yun, $540,000 for
Mr. Biggs, $500,000 for Mr. Goodfellow and $510,000 for Mr. Magdol. In addition,
each executive will receive an annualized short-term bonus, which, through
September 30, 2002, will not be less than $296,500 for Ms. Tatlock, $190,000 for
Mr. Yun, $257,100 for Mr. Biggs, $194,100 for Mr. Goodfellow and $240,700 for
Mr. Magdol, and an annualized long-term bonus, which, through September 30,
2002, will not be less than $312,781 for Ms. Tatlock, $165,197 for Mr. Yun,
$309,379 for Mr. Biggs, $170,829 for Mr. Goodfellow and $301,815 for Mr. Magdol.
The short-term bonus is payable in cash. The long-term bonus is payable in
Franklin restricted stock. The Franklin restricted stock will vest ratably over
3 years and will be for a number of Franklin shares equal to the long-term bonus
divided by the 11 day average per share NYSE closing price of Franklin common
stock (which will include the five trading days immediately prior to and
following the date of grant). Annual short-term and long-term bonuses for
periods after September 30, 2002 will be in accordance with the incentive
compensation plans of Franklin in amounts comparable to those paid to senior
management employees of Franklin. The amount and payment of any such short-term
and long-term bonuses will be subject to the attainment of such performance
objectives as the Chief Executive Officer of Fiduciary determines (except for
Ms. Tatlock whose attainment of such performance objectives will be determined
by the Chief Executive Officer of Franklin), with the approval of Fiduciary's
and Franklin's compensation committees. Performance objectives may include
management, Franklin, Fiduciary and executive targets. Each executive will also
participate in an incentive compensation plan of Franklin on terms and
conditions no less favorable than those available for senior management
employees of Franklin.
Each executive will also be eligible to receive additional services
compensation, payable in the form of cash and stock options, in consideration of
services to be rendered by the executive in facilitating the integration of the
business of Fiduciary and Franklin . Such additional services cash compensation
is $2,125,000 for Ms. Tatlock, $1,720,000 for Mr. Yun, $1,910,000 for Mr. Biggs,
$1,665,000 for Mr. Goodfellow and $1,800,000 for Mr. Magdol, which will be
payable in equal installments following each of the first, second, third, fourth
and fifth anniversaries of the closing of the acquisition. In addition, each
executive will be eligible to receive additional services stock options. The
amount of the additional services stock option compensation is $530,000 for Ms.
Tatlock, $430,000 for Mr. Yun, $480,000 for Mr. Biggs, $415,000 for Mr.
Goodfellow and $450,000 for Mr. Magdol, and the stock options granted to each
executive will be for a number of Franklin shares equal to such additional
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services stock option compensation divided by the per share NYSE closing price
of Franklin common stock on the closing of the acquisition, multiplied by three.
Fifty percent of each executive's stock options (other than for Mr. Biggs)
granted will become exercisable if the executive is employed by Fiduciary on the
third anniversary of the closing of the acquisition, and the remaining 50% of
such options will become exercisable if the executive is employed by Fiduciary
on the fourth anniversary of the closing of the acquisition. All of the stock
options granted to Mr. Biggs as additional services compensation will become
exercisable if he is employed by Fiduciary on the third anniversary of the
closing of the acquisition. Once such stock options become exercisable, such
stock options will remain exercisable until the earlier of: (i) the fifth
anniversary of the date of grant (as defined in the agreement), (ii) the first
anniversary of a disabling event (as defined in the agreement) and (iii) 90 days
following termination of employment with Fiduciary (or with respect to Mr.
Biggs, termination of the consulting period). The exercise price of such options
will be the per share NYSE closing price of Franklin's common stock on the
closing of the acquisition.
Each executive will be entitled to participate in all benefit plans as are
generally available to senior management employees of Fiduciary, and without
duplication, such plans as are generally applicable to senior management
employees of Franklin. For 18 months following the acquisition, the executives
will receive benefits no less favorable in the aggregate than the benefits
provided prior to the acquisition.
In addition, each executive will be reimbursed for up to $15,000 for the
fiscal year ending September 30, 2001 and for up to $5,000 for each subsequent
fiscal year for expenses incurred in retaining an outside financial and/or tax
planner, and each executive will be provided with luncheon club and other club
memberships in accordance with Fiduciary's policies.
COVENANT NOT TO COMPETE OR SOLICIT. The employment agreements also provide
non-competition and non-solicitation covenants:
While actively employed during the term of the employment agreement or,
in the event of the termination of the executive's employment by Fiduciary for
cause or by the executive without good reason prior to the completion of the
term, for the two-year period following such termination, the executive will not
generally engage in a competitive activity. The restrictions will apply to all
geographical areas where the executive performed services for Fiduciary and to
all other places where Fiduciary does business and/or did business during the
term, and at all places where, during the term, Fiduciary had plans to do
business. In addition, during the term and for the two-year period following
cessation of the executive's employment with Fiduciary for any reason
whatsoever, the executive will not, directly or indirectly, solicit any client
or customer of Fiduciary or of any affiliate to limit, curtail or cancel its
business with Fiduciary or any affiliate or solicit such party for business.
During the term and for the two-year period following cessation of the
executive's employment with Fiduciary for any reason whatsoever, the executive
will not, directly or indirectly, solicit any current officer, director,
employee, consultant, agent or representative of Fiduciary or of any affiliate,
as well as any person with whom Fiduciary or any affiliate is at such time
engaged in discussions regarding potential employment (i) to terminate his or
her employment or business relationship with Fiduciary or any affiliate or (ii)
to commit any act that, if committed by the executive, would constitute a breach
of this provision . In addition, each executive agrees to keep confidential all
proprietary information relating to Fiduciary or its affiliates.
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TERMINATION AND SEVERANCE. Under the terms of the employment agreements,
if the employment of an executive is terminated without cause (as defined in the
agreement) or the executive resigns for good reason (as defined in the
agreement) prior to the expiration of the employment term, then the executive
will be entitled to receive:
o all unpaid base salary and unpaid bonus amount for the balance of the
term, paid periodically in accordance with Fiduciary's regular payroll
practices;
o the additional services cash and stock option compensation in accordance
with the vesting provision of such compensation; and
o health, life, disability and other insurance benefits, which will continue
to be paid or provided to the executive for the remainder of the term.
If the executive resigns without good reason or the executive's employment
is terminated for cause during the term of the employment agreement, then the
executive will be paid only the executive's unpaid base salary, unpaid bonus,
additional services cash and stock option compensation and other benefits
through the date of termination, unless such event occurs after the second
anniversary of the closing of the acquisition, in which case the executive also
will be paid the unpaid additional services cash compensation as soon as
practicable following the date of termination, and additional services stock
compensation will be exercisable, to the extent vested, in accordance with the
provisions of the grant .
If the executive's employment is terminated by reason of a disabling event
(as defined in the employment agreement), the executive will be entitled to
receive:
o unpaid base salary up to the date of the disabling event;
o unpaid pro-rated annual short-term bonus up to the date of the disabling
event, based on the amount of the prior fiscal year's short-term bonus,
and unpaid pro-rated long-term bonus up to the date of the disabling
event, based on the amount of the prior fiscal year's long-term bonus, the
restricted stock will vest immediately and any restrictions on prior
year's grants of restricted stock will lapse and options will become
immediately exercisable;
o the additional services cash compensation will be paid as soon as
practicable following the disabling event, and the additional services
stock compensation will become immediately exercisable and will remain
exercisable for one year following the disabling event; and
o health, life, disability and other insurance benefits, which will continue
or be paid or provided to the executive in accordance with the terms of
such benefit plans.
In addition, the executives will be entitled upon their retirement to
receive retiree medical (including prescription drug and dental) insurance
benefits currently provided to retired employees of Fiduciary, which will not be
reduced from the levels provided by Fiduciary prior to the acquisition.
If the Internal Revenue Service challenges the deductibility of payments
made to any executive by Fiduciary or imposes any excise tax on any executive,
in either case in connection with the acquisition or in connection with a
"change in control" (as defined in the agreement) of Franklin, Fiduciary will
make the executive whole in connection therewith and exclusively defend such
action with counsel of its own choice.
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Each executive is also entitled to reimbursement by Franklin of all legal
fees relating to any controversy or claim from or relating to the agreement or
breach of the agreement if Franklin is the non-prevailing party.
Moreover, under the employment agreements, the executives have agreed to
waive all rights under their existing change of control agreements if the
acquisition is completed.
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DESCRIPTION OF FIDUCIARY
Fiduciary Trust Company International was formed in 1931 as a bank under
the laws of the state of New York to provide investment management and custody
related services for individuals and institutions.
Fiduciary's principal executive offices are located at Two World Trade
Center, New York, New York 10048-0772.
Fiduciary is a leading provider of investment management and related trust
services to individuals and families, global institutional equity and fixed
income investment management services to foundations, endowment funds,
government and corporate pension funds and other institutions and custody
services to individuals, foundations, endowments and other institutions. As of
September 30, 2000, Fiduciary and its subsidiaries had assets under management
of approximately $49.4 billion and served as custodian for approximately $62
billion in assets.
Headquartered in New York, Fiduciary has additional offices located in the
United States in Los Angeles, Miami, Washington, D.C., and Wilmington and
overseas in London, Geneva, Melbourne, Tokyo, Hong Kong and the Cayman Islands.
The U.S. regional offices provide investment services to institutional clients
and high net worth individuals. The London office provides global and
international fixed income services to Asian, Middle Eastern and European
institutional clients, and where appropriate, acts as client liaison for other
products. The Geneva office has a full bank license and provides a full range of
services to institutions and private clients in Switzerland. The balance of our
international offices are client service and business development centers for
our global client base.
BUSINESSES AND SERVICES
Individual Investment Management Business
Fiduciary provides investment management and related trust and custody
services to high net worth individuals and families. These services focus on
managing family wealth from generation to generation through a full service
package including wealth management, estate planning, private banking and
custody services as well as Fiduciary's proprietary mutual funds. Fiduciary's
high net worth client business seeks to maintain relationships that span
generations and help families plan the best method of intergenerational wealth
transfer. As of September 30, 2000, Fiduciary and its subsidiaries had high net
worth assets under management of approximately $14 billion. The minimum asset
balance for an individual client is generally $2 million.
Individual client assets are held in accounts separately managed by
individual portfolio managers. These portfolio managers determine asset
allocation and stock selection for client accounts, taking into consideration
each client's specific long-term objectives while utilizing Fiduciary's
macroeconomic and individual stock research.
Fiduciary offers clients personalized attention and estate planning
expertise in an integrated package of services under the Family Resource
Management(R) ("FRM") brand. Services under FRM provide clients with an
integrated strategy to optimize wealth accumulation and maximize after-tax
wealth transfer to the next generation. These services include advice concerning
strategic planning and asset allocation, investment management, and custody and
reporting.
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Fiduciary's New York state bank charter permits the offering of private
banking services to our clients. Fiduciary offers these services only to clients
who maintain trust, custody or investment management accounts with Fiduciary and
not to the general public. Fiduciary's capital structure and capital adequacy
ratios substantially surpass the requirements of U.S. as well as international
regulatory standards. Fiduciary's deposit accounts are FDIC-insured.
Institutional Investment Management Business
Fiduciary provides a broad array of investment management services to
institutional clients, focusing on foundations, endowment funds and government
and corporate pension funds. Fiduciary and its subsidiaries offer a wide range
of both domestic and international equity, fixed income and real estate services
through a variety of investment vehicles, including separate and commingled
accounts and open-ended domestic and offshore mutual funds. Institutional assets
under the management of Fiduciary and its subsidiaries as of September 30, 2000
were $35.4 billion in 446 relationships. Of these, 327 relationships,
representing $29.4 billion, are domiciled in North America. The remainder are
divided between Asia, 27 relationships representing $1.6 billion; Europe, 64
relationships representing $2.7 billion; and other regions, 28 relationships
representing $1.7 billion. Approximately 52% of the institutional assets are
invested in global or international mandates.
Fiduciary primarily attracts new institutional business through its strong
relationships with fund management consultants. Business development
professionals in both the U.S. and international offices regularly maintain
contact to ensure that all developments at Fiduciary are effectively
communicated. Additionally, Fiduciary builds strong direct relationships with
trustees and fund executives where new business can be generated through
additional mandates from existing clients.
Custody Business
Fiduciary's Investor Services Division provides comprehensive master
custody and support services to its clients. With approximately $62 billion in
assets under administration, Fiduciary, through its Investor Services Division,
serves individuals, family offices, foundations, endowments and other
institutions.
Global custody services include trade settlement and safekeeping of
securities in over seventy markets throughout the world. In addition to core
custody capabilities, Fiduciary offers clients a series of other value-added
services, including foreign exchange, performance measurement, securities
lending and brokerage services. Fiduciary also provides planned giving
administration for non-profit organizations and related custody services,
including pooled income funds, charitable remainder trusts, charitable lead
trusts and gift annuities, for which Fiduciary may or may not act as trustee.
BUSINESS STRATEGY
Fiduciary's strategic goals are to maintain its competitive position as a
leading global investment manager and provide the highest level of advice and
professional service for both its individual and institutional clients.
Fiduciary intends to achieve these goals by continuing to focus on its core
individual and institutional businesses and their related services, the
fundamentals of which are extremely strong and continue to support significant
growth. Fiduciary is implementing several initiatives designed to improve and
enhance existing client relationships and provide new opportunities for growth
in both domestic and international markets.
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Fiduciary is currently focusing on expanding its available product range
to include specialty and alternative investments, broader client education
programs, enhanced banking services and a greater number of investment vehicles
for specific client needs. Additionally, Fiduciary is expanding its Internet
capabilities to provide improved services and greater access to account
information to existing clients and to market the firm's services to prospective
clients. Fiduciary believes that technology will continue to play a vital role
in investment management and is expanding its investment management platform to
provide portfolio managers with value-added and integrated investment tools to
provide greater access to the global capital markets. Additionally, Fiduciary is
enhancing its operations technology to accommodate straight-through processing
as well as a future T+1 settlement environment.
See "Where You Can Find More Information" for additional information on
Fiduciary.
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DESCRIPTION OF FRANKLIN
Franklin, which operates as Franklin Templeton Investments, is a global
investment management company headquartered in San Mateo, California.
Franklin had consolidated assets of $4.04 billion and revenues of $2.34
billion for the year ended September 30, 2000. As of September 30, 2000,
Franklin managed $230 billion in mutual funds and other investment vehicles for
individuals, institutions, pension plans, trusts, partnerships and other clients
in over 135 countries. Franklin offers over 240 investment vehicles, distributed
to the public under the Franklin, Templeton and Mutual Series brand names,
serviced and supported by approximately 6,500 employees in 29 countries.
Franklin's sponsored investment products include both domestic and
global/international equity, balanced, fixed-income, sector and money market
mutual funds as well as other products that serve the investment needs of
institutions and individuals. Franklin's common stock is listed on the NYSE and
the Pacific Exchange, Inc. under the symbol BEN and on the London Stock Exchange
under the symbol FRK, and is included in the Standard & Poor's 500 Index.
Franklin provides investment management and related services to financial
advisors, private clients and institutions worldwide. Franklin divides its
business into two segments:
o Investment Advisory and Related Services - providing investment
management, shareholder servicing fund administration, custodial,
trustee and fiduciary services to retail mutual funds, institutional
and private accounts and other investment products, and
o Banking/Finance - offering consumer lending and selected retail
banking services directly to the public.
INVESTMENT ADVISORY AND RELATED SERVICES
Franklin's principal line of business is providing investment, advisory
and management services. In support of its core business, Franklin provides the
following support services for the sponsored investment products:
o fund administration;
o shareholder servicing; and
o distribution and related services.
Fund shares are offered to:
o individual investors;
o qualified groups;
o trustees;
o tax-deferred (such as IRA) or money purchase plans;
o employee benefit and profit sharing plans;
o trust companies;
o bank trust departments; and
o institutional investors.
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In addition, various management and advisory services, commingled and
pooled accounts, wrap fee arrangements and other private investment management
services are offered to certain private and institutional investors. Franklin's
revenues are derived primarily from its investment advisory operating segment.
BANKING/FINANCE OPERATIONS
Franklin's second operating segment is banking/finance, through which
Franklin offers banking products and services through its subsidiaries Franklin
Templeton Bank and Trust F.S.B. and Franklin Capital Corporation.
Franklin Templeton Bank and Trust F.S.B. provides insured deposit
accountants and general consumer loan products such as credit card loans and
auto loans. Franklin Templeton Bank and Trust F.S.B. exercises full trust powers
through its Trust Division and serves primarily as custodian of IRAs and
business retirement plans whose assets are invested in Franklin funds. It also
serves as trustee or fiduciary of private trusts and retirement plans.
Franklin formed Franklin Capital Corporation, a finance company organized
and licensed under the laws of Utah, to expand Franklin's lending activities
related primarily to the purchase, securitization and servicing of retail
installment sales contracts originated by independent automobile dealerships.
Franklin Capital Corporation conducts its business primarily in the western
region of the United States.
See "Where You Can Find More Information" for additional information on
Franklin.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF FIDUCIARY COMMON STOCK
The following table contains information as to those persons or groups
believed by management to be beneficial owners, directly or indirectly, of more
than 5% of Fiduciary's outstanding shares of common stock as of October 31,
2000. Other than those listed in the table below, Fiduciary is not aware of any
person or group that beneficially owned more than 5% of Fiduciary's common stock
as of October 31, 2000.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL
OF BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS(1)
------------------- --------- -------------------
<S> <C> <C>
Profit Sharing, Savings and Employee Stock 1,187,961 shares (in a 16.33%
Ownership Plan of Fiduciary Trust Company fiduciary capacity) (2)
International (the "TRIO Plan")
Two World Trade Center
New York, New York 10048
Deferred Compensation Plan of Fiduciary 719,415 shares (in a 9.89%
Trust Company International (the "FTCI fiduciary capacity) (3)
Deferred Compensation Plan")
Two World Trade Center
New York, New York 10048
</TABLE>
-------------------------
(1) Calculated on the basis of 7,276,168 shares of Fiduciary common
stock outstanding as of October 31, 2000.
(2) Fiduciary serves as the trustee of the TRIO Plan. Each
participant in the TRIO Plan is entitled to direct Fiduciary, and Fiduciary has
no discretion, as to the manner in which Fiduciary common stock allocated to his
or her accounts under the TRIO Plan is to be voted. Except to the extent
prohibited by applicable law, Fiduciary has no discretion as to the voting of
Fiduciary common stock held under the TRIO Plan for which affirmative and valid
participant voting directions are not received; Fiduciary votes such shares in
the same proportions as shares held under the TRIO Plan for which it receives
written affirmative and valid participant voting instructions. Certain
participant accounts under the TRIO Plan are required to be invested in
Fiduciary common stock (subject to limited exceptions), while other participant
accounts are invested in Fiduciary common stock as directed by the participant.
(3) HSBC Bank USA serves as the trustee of the FTCI Deferred
Compensation Plan. Each participant in the FTCI Deferred Compensation Plan is
entitled to direct HSBC Bank USA as to the voting of the Fiduciary common stock
allocated to his or her accounts under the FTCI Deferred Compensation Plan.
Shares of Fiduciary common stock held under the FTCI Deferred Compensation Plan
with respect to which no voting instructions are given shall be voted pro rata
in accordance with the vote of such shares as to which such instructions are so
given. Participant accounts under the FTCI Deferred Compensation Plan are
required to be invested in Fiduciary common stock (subject to limited
exceptions).
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The number of shares of Fiduciary common stock beneficially owned as of
October 31, 2000 by each director and each current executive officer is shown in
the table below. For executive officers and directors participating in the FTCI
Deferred Compensation Plan and the TRIO Plan, the number of shares shown
includes the number of shares credited to their accounts under such plans.
Unless otherwise indicated, each executive officer and director has sole voting
and investment power, or shares such powers with a family member, with respect
to the shares of Fiduciary common stock set forth below.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP (1), (2) CLASS
---------------- ------------------ -----
<S> <C> <C>
Jeremy H. Biggs 175,170(3) 2.40%
David H. Clarke 5,553 *
Charles Crocker 2,595 *
Lucius L. Fowler 65,263(4) *
Philip H. Geier, Jr. 16,550 *
Richard A. Goldstein 1,272 *
James C. Goodfellow 56,861 *
Harry W. Havemeyer 66,471 *
Elinor H. Hirschhorn 3,017 *
Stuart C. Hochberger 108,773 *
Lawrence S. Huntington 292,992 4.03%
Robert D. Joffe 375 *
Thomas H. Kean 2,162 *
Michael O. Magdol 99,089 1.36%
Nicholas Platt 3,252 *
David H. Swanson 942 *
Anne M. Tatlock 153,190 2.10%
Oakleigh B. Thorne 1,998 *
Denie S. Weil 5,342 *
E. Thomas Williams, Jr. 1,242 *
William Y. Yun 52,498 *
All current directors and executive
officers as a group (21 people) (5) 1,114,608 15.32%
</TABLE>
-------------------------
* Represents less than 1% of Fiduciary common stock outstanding as of
October 31, 2000.
(1) Includes shares held in accounts under the FTCI Deferred
Compensation Plan for the following directors: Mr. Biggs, 49,997; Mr. Clarke,
942; Mr. Crocker, 942; Mr. Fowler, 942; Mr. Geier, 942; Mr. Goldstein, 942; Mr.
Goodfellow, 39,929; Mr. Havemeyer, 942; Ms. Hirschhorn, 942; Mr. Hochberger,
40,488; Mr. Huntington, 27,114; Mr. Joffe, 275; Mr. Kean, 942; Mr. Magdol,
46,430; Mr. Platt, 942; Mr. Swanson, 942; Ms. Tatlock, 58,255; Mr. Thorne, 942;
Mr. Weil, 942; Mr. Williams, 942; Mr. Yun, 46,127.
(2) Includes shares held in accounts under the TRIO Plan for the
following directors: Mr. Biggs, 33,827; Mr. Goodfellow, 394; Mr. Hochberger,
8,399; Mr. Huntington, 245,778; Mr. Magdol, 13,204; Ms. Tatlock, 13,619; Mr.
Yun, 1,459.
(3) Includes 22,954 shares held in the Jeremy H. Biggs U/A Trust.
(4) Includes 9,825 shares held in the names of the director's
children.
(5) Includes shares described in the notes above, as applicable.
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DESCRIPTION OF FRANKLIN CAPITAL STOCK
The following summary description of provisions of Franklin's certificate
of incorporation is qualified in its entirety by reference to the Delaware
General Corporation Law and Franklin's certificate of incorporation, as amended,
which is incorporated by reference herein.
The authorized capital stock of Franklin consists of 500,000,000 shares of
common stock, par value $0.10 per share, and 1,000,000 shares of preferred
stock, par value $1.00 per share, issuable in one or more series from time to
time by resolution of Franklin's board of directors.
As of December 1, 2000, 243,618,404 shares of Franklin common stock and no
series of preferred stock were issued and outstanding.
Franklin common stock is listed on the New York Stock Exchange, the
Pacific Exchange, Inc. and the London Stock Exchange. The outstanding shares of
Franklin common stock are, and the shares to be issued to holders of Fiduciary
common stock upon completion of the acquisition will be, validly issued, fully
paid and non-assessable.
Holders of Franklin common stock are entitled to receive dividends when,
as and if declared by Franklin's board of directors out of any funds legally
available for dividends. Holders of Franklin common stock are also entitled,
upon Franklin's liquidation, and after claims of creditors and preferences of
any other class or series of Franklin preferred stock outstanding at the time of
liquidation, to receive pro rata net assets of Franklin.
Holders of Franklin common stock are entitled to one vote for each share
that they hold and are vested with all of the voting power, except as the
Franklin board of directors may provide in the future with respect to any class
or series of Franklin preferred stock that it may authorize in the future.
Shares of Franklin common stock are not redeemable and have no subscription,
conversion or preemptive rights.
Franklin's board of directors has the authority to issue shares of
preferred stock by resolution in one or more series of equal rank with such
different series, designations, preferences and other relative participating,
optional or other special rights, and qualifications, limitations and
restrictions thereof, including the number of shares in each series, preferences
upon liquidation or dissolution, dividend and conversion rights and rates, and
redemption provisions of the shares constituting any class or series, without
any further vote or action by the stockholders. Any shares of preferred stock so
issued would have priority over the common stock with respect to dividend or
liquidation rights or both.
TRANSFER AGENT AND REGISTRAR
The transfer agent, registrar and dividend disbursing agent for Franklin
common stock is the Bank of New York.
RESTRICTIONS ON OWNERSHIP
Upon approval of Franklin's application to become a bank holding company
and election to become a financial holding company, the Bank Holding Company Act
would impose limitations on the acquisition and ownership of Franklin common
stock. The BHCA would require any "bank holding company," as defined in the
BHCA, to obtain the approval of the Federal Reserve Board prior to the
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acquisition of 5% or more of Franklin common stock. Under a rebuttable
presumption established by the Federal Reserve Board, any person, other than a
bank holding company, could be required to obtain prior approval of the Federal
Reserve Board to acquire 10% or more of Franklin common stock under the Change
in Bank Control Act. In addition, any person would be required to obtain the
approval of the Federal Reserve Board under the BHCA before acquiring 25% or
more of the outstanding common stock of Franklin, or otherwise obtaining control
or a "controlling influence" over Franklin.
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COMPARISON OF RIGHTS OF SHAREHOLDERS OF FRANKLIN AND FIDUCIARY
Franklin is incorporated under the laws of the State of Delaware and
Fiduciary is a bank organized under Article III of the New York Banking Law. If
the acquisition is consummated, the holders of Fiduciary common stock, whose
rights as stockholders are currently governed under the New York Banking Law,
the Fiduciary organization certificate and the bylaws of Fiduciary will, upon
the exchange of their Fiduciary common stock pursuant to the plan of
acquisition, become holders of shares of Franklin common stock and their rights
as such will be governed by the Delaware General Corporation Law, Franklin's
certificate of incorporation and Franklin's bylaws. The material differences
between your rights as a holder of Fiduciary common stock and the rights of
holders of Franklin common stock, resulting from the differences in their
governing documents and the application of the New York Banking Law or Delaware
law, are summarized below.
The following summary does not purport to be a complete statement of the
rights of holders of Franklin common stock under applicable Delaware law and the
Franklin certificate of incorporation and bylaws or a comprehensive comparison
with the rights of the holders of Fiduciary common stock under applicable New
York Banking Law and the Fiduciary organization certificate and bylaws, or a
complete description of the specific provisions referred to herein. This summary
contains a list of the material differences, but is not meant to be relied upon
as an exhaustive list or a detailed description of the provisions discussed and
is qualified in its entirety by reference to the Delaware General Corporation
Law, the governing corporate instruments of Franklin, the New York Banking Law
and the governing corporate instruments of Fiduciary, to which the holders of
Fiduciary common stock are referred.
Capitalization
Fiduciary
The authorized capital stock of Fiduciary consists of 15,000,000 shares of
Fiduciary common stock, par value $1.00 per share, of which, as of October 31,
2000, 7,276,168 shares were issued and outstanding.
Franklin
The authorized capital stock of Franklin consists of 501,000,000 shares,
of which, 500,000,000 shares are common stock, par value $0.10 per share, as of
December 1, 2000, 243,618,404 shares were issued and outstanding and 1,000,000
shares of preferred stock, par value $1.00 per share, as of December 1, 2000,
none were issued and outstanding.
RESTRICTIONS ON BUSINESS COMBINATIONS INVOLVING INTERESTED STOCKHOLDERS
Fiduciary
The New York Banking Law does not have a business combination statute
analogous to Section 203 of the Delaware General Corporation Law, which is
described below.
Our organization certificate provides that the affirmative vote of the
holders of not less than 80% of the outstanding shares of our capital stock and
the affirmative vote of the holders of not less than 67% of the outstanding
shares of the capital stock held by shareholders other than a Related Person are
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required for the approval or authorization of any Business Transaction to which
the Related Person is a party or any Business Transaction in which a Related
Person has an interest (except proportionately as a stockholder of the
corporation). These voting requirements will not be applicable, however, if: (a)
the Business Transaction has been expressly approved by a vote of not less than
60% of the Continuing Directors at a time when there are at least two Continuing
Directors; or (b) all of the following conditions are satisfied:
o the Business Transaction is one in which the aggregate consideration
to be received per share of our capital stock by holders (other than
the Related Person) of our capital stock (including any shares of
capital stock retained by the holders pursuant to the terms of the
Business Transaction) is at least equal in value to the Related
Party's Highest Per Share Price, and the per share consideration
either is entirely cash or is in the same form as the Related Person
has previously paid to acquire the largest number of shares of our
capital stock acquired by the Related Person prior to the Business
Transaction; and
o after the Related Person has become a Related Person and prior to
the consummation of the Business Transaction, the Related Person has
not become the Beneficial Owner of any additional shares of our
capital stock, except (i) as part of the transaction which resulted
in the Related Person becoming a Related Person, (ii) as a result of
a pro rata stock dividend or stock split, or (iii) with the express
prior approval of 60% of the Continuing Directors at a time when
there are at least two Continuing Directors; and
o after the Related Person has become a Related Person and prior to
the consummation of the Business Transaction, the Related Person has
not directly or indirectly:
o received the benefit (except proportionately as a shareholder
of the corporation) of any loans, advances, guarantees,
pledges or other financial assistance or tax credits or other
tax advantage provided by Fiduciary or any of its
subsidiaries; or
o caused any material change in Fiduciary's business or capital
structure (including without limitation, the issuance of
shares of our capital stock to any third party other than in a
public offering); or
o caused any reduction (after taking into account any stock
splits, reverse stock splits, stock dividends or similar
transactions) in our capital stock dividend rate or policy,
except, in the case of any of the foregoing, as approved in
advance by not less than 60% of the Continuing Directors at a
time when there are at least two Continuing Directors.
The term "BUSINESS TRANSACTION" is defined to include, among other
transactions between a Related Person and the corporation or a subsidiary
thereof, any merger or consolidation; any sale, lease, exchange, transfer or
other disposition of substantial assets of the corporation; any sale, lease,
exchange, or other disposition of the assets of a person to the corporation if
such assets would constitute a substantial part of the assets of the
corporation; any issuance, sale, exchange or other disposition of any securities
except on a pro rata basis to the shareholders of the corporation; any
recapitalization or reclassification of securities that would result in an
increase in the voting power of a Related Person; any liquidation, spinoff,
splitoff, splitup or dissolution. In general, and subject to certain exceptions,
a "RELATED PERSON" is any person who is the beneficial owner of 20% or more of
the outstanding capital stock of the corporation and the affiliates and
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associates of that person. The term "SUBSTANTIAL PART" is defined as more than
25% of the greater of book value and fair market value of the total consolidated
assets of the corporation. The term "CONTINUING DIRECTOR" includes any person
who was a member of the board of directors prior to the time a Related Person
became a Related Person or who subsequently became a director by a vote of at
least 60% of the Continuing Directors at a time when there were at least two
Continuing Directors, provided, however, that a Related Person cannot be a
Continuing Director if the Business Transaction is one in which the Related
Person has a material interest. The term "HIGHEST SHARE PRICE" means the highest
amount of consideration paid by a Related Person for a share of our capital
stock within two years prior to the date the person became a Related Person, as
adjusted to reflect, among other things, any reclassification, recapitalization,
stock split or other readjustment.
Franklin
Section 203 of the Delaware General Corporation Law generally prohibits a
business combination between Franklin and an interested stockholder within three
years of the time the stockholder became an interested stockholder, unless:
o prior to this time, the board of directors of Franklin approved
either the business combination or the transaction that resulted in
the stockholder becoming an interested stockholder;
o upon consummation of the transaction resulting in the stockholder
becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of Franklin outstanding at the time
the transaction commenced, excluding shares owned by directors who
are also officers and certain employee stock plans; or
o at or subsequent to this time, the business combination is approved
by the board of directors and authorized by the affirmative vote at
a stockholders' meeting of at least 66-2/3% of the outstanding
voting stock which is not owned by the interested stockholder.
The term "BUSINESS COMBINATION" is defined broadly to include, among other
things, transactions between the interested stockholder and the corporation or
any direct or indirect majority-owned subsidiary thereof, a merger or
consolidation; a sale, pledge, transfer or other disposition (including as part
of a dissolution) of assets having an aggregate market value equal to 10% or
more of either the aggregate market value of all assets of the corporation on a
consolidated basis or the aggregate market value of all the outstanding stock of
the corporation; certain transactions that would increase the interested
stockholder's proportionate share ownership of the stock of any class or series
of the corporation or subsidiary; and any receipt by the interested stockholder
of the benefit of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation or any subsidiary. In general,
and subject to certain exceptions, an "INTERESTED STOCKHOLDER" is any person
that is the owner of 15% or more of the outstanding voting stock of the
corporation, and that person's affiliates and associates. The term "OWNER" is
broadly defined to include any person that individually or with or through its
affiliates or associates, among other things, beneficially owns the stock, or
has the right to acquire the stock (whether the right is exercisable immediately
or only after the passage of time) pursuant to any agreement or understanding or
upon the exercise of warrants or options or otherwise, or has the right to vote
the stock pursuant to any agreement or understanding, or has an agreement or
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understanding with the beneficial owner of the stock for the purpose of
acquiring, holding, voting or disposing of the stock.
AUTHORIZATION OF CERTAIN ACTIONS
Fiduciary
The New York Banking Law provides that a merger, consolidation, share
exchange, voluntary liquidation, or a sale, lease, exchange or other
distribution of assets by Fiduciary must be approved by the vote of at least 66
2/3% of the stock of Fiduciary unless, in the case of a merger into Fiduciary,
the total assets of the merging entity do not exceed 10% of the total assets of
Fiduciary and the plan of merger does not change the name or the authorized
shares of capital stock of Fiduciary or make or require any other change or
amendment for which the approval or consent of shareholders of Fiduciary would
be required under the New York Banking Law. Mergers, consolidations, share
exchanges or the acquisition of all or substantially all of the assets of any
banking organization also must approved by the superintendent of banks of New
York.
Franklin
Delaware law requires the approval of the Franklin board and holders of a
majority of the outstanding Franklin common stock entitled to vote thereon for
mergers or consolidations, and for sales, leases or exchanges of substantially
all of Franklin's property and assets. Delaware law would permit Franklin to
merge with another corporation without obtaining the approval of Franklin
stockholders if:
o Franklin is the surviving corporation of the merger;
o the merger agreement does not amend the certificate of
incorporation;
o each share of Franklin common stock outstanding immediately prior to
the effective date of the merger is to be an identical outstanding
or treasury share of Franklin common stock after the merger; and
o either no shares of common stock of the surviving corporation and no
shares, securities or obligations convertible into the stock are to
be issued under the merger plan, or the authorized unissued shares
or treasury shares of Franklin common stock to be issued or
delivered under the plan of merger plus those initially issuable
upon conversion of any other securities or obligations to be issued
or delivered under the plan do not exceed 20% of the shares of
Franklin common stock outstanding immediately prior to the effective
date of the merger.
APPRAISAL RIGHTS
Fiduciary
Under the New York Banking Law, a stockholder of a bank who is entitled to
vote on a merger, consolidation, share exchange or similar transaction, and who
does not vote in favor of the action, is generally entitled to appraisal rights,
pursuant to which the stockholder has the right to demand payment of the fair or
appraised value of the stock. See Annex E.
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Franklin
Under Delaware law, except as otherwise provided in the certificate of
incorporation, stockholders of a constituent corporation in a merger or
consolidation have the right to demand and receive payment of the fair value of
their stock in a merger or consolidation. However, except as otherwise provided
by Delaware law, stockholders do not have appraisal rights in a merger or
consolidation if, among other things, their shares are:
o listed on a national securities exchange or designated as a national
market system security on an inter-dealer quotation system by the
NASD, which is true in the case of Franklin common stock to be
issued pursuant to the share exchange, or
o held of record by more than 2,000 stockholders;
and, in each case, the consideration the stockholders receive for their shares
in a merger or consolidation consists solely of:
o shares of stock of the corporation surviving or resulting from the
merger or consolidation;
o shares of stock of any other corporation that at the effective date
of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system
security on an inter-dealer quotation system by the NASD or held of
record by more than 2,000 stockholders;
o cash in lieu of fractional shares of the corporations described in
the two immediately preceding bullet points; or
o any combination of shares of stock and cash in lieu of fractional
shares described in the three immediately preceding bullet points.
CONSIDERATION OF OTHER CONSTITUENCIES
Fiduciary
Under the New York Banking Law, in taking action, including, without
limitation, action which may involve or relate to a change or potential change
in the control of the bank, a director is entitled to consider, without
limitation, (i) both the long-term and the short-term interests of the bank and
its shareholders and (ii) the effects that the bank's actions may have in the
short-term or in the long-term upon any of the following:
o the prospects for potential growth, development, productivity and
profitability of the bank;
o the bank's current employees;
o the bank's retired employees and other beneficiaries receiving or
entitled to receive retirement, welfare or similar benefits from or
pursuant to any plan sponsored, or agreement entered into, by the
bank;
o the bank's customers and creditors; and
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o the ability of the bank to provide, as a going concern, goods,
services, employment opportunities and employment benefits and
otherwise to contribute to the communities in which it does
business.
Franklin
Neither the Delaware General Corporation Law nor the Franklin certificate
of incorporation contains any provision specifically relating to the ability of
the Franklin board of directors to consider the interests of any constituencies
of Franklin other than its stockholders in considering whether to approve or
oppose any corporate action, including without limitation any proposal to
acquire Franklin by means of a merger, tender offer or similar business
combination.
AMENDMENTS TO THE CERTIFICATE OF INCORPORATION/ORGANIZATION CERTIFICATE
Fiduciary
The New York Banking Law provides that a bank may amend its organization
certificate by the vote of the holders of a majority of the shares entitled to
vote thereon at a meeting of stockholders unless the organization certificate
provides for a higher vote.
Our certificate provides that the articles concerning business
combinations with related persons, removal of directors, number of directors and
amendment and repeal of bylaws and the certificate may only be amended or
repealed by the holders of not less than 80% of our outstanding common stock.
Franklin
Under Delaware law, unless the certificate of incorporation requires a
greater vote, a proposed amendment to the certificate of incorporation requires
an affirmative vote of a majority of the voting power of the outstanding stock
entitled to vote thereon and a majority of the voting power of the outstanding
stock of each class entitled to vote thereon. The approval of the holders of a
majority of the outstanding shares of any class of capital stock of a
corporation, voting as a class, is required under Delaware law to approve a
proposed amendment to a corporation's certificate of incorporation, whether or
not entitled to vote on the amendment by the certificate of incorporation, if
the amendment would increase or decrease the aggregate number of authorized
shares of the class (except as provided in the last sentence of this paragraph),
increase or decrease the par value of the shares of the class, or alter or
change the powers, preferences or special rights of the shares of the class so
as to affect them adversely. For this purpose, if a proposed amendment would
alter or change the powers, preferences or special rights of one or more series
of any class so as to affect them adversely, but would not so affect the entire
class, then only the shares of the series so affected by the amendment would be
entitled to vote as a separate class on the amendment. The authorized number of
shares of any class of stock may be increased or decreased (but not below the
number of shares of the class outstanding) by the requisite vote described above
if so provided in the original certificate of incorporation or in any amendment
to the certificate of incorporation that created the class of stock or that was
adopted prior to the issuance of any shares of the class, or in an amendment to
the certificate of incorporation authorized by a majority vote of the holders of
shares of the class. The Franklin certificate of incorporation does not require
a greater vote.
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AMENDMENTS TO BYLAWS
Fiduciary
Under the New York Banking Law, bylaws may be amended, repealed or adopted
by vote of the holders of the shares at the time entitled to vote in the
election of any directors. Except when provided in the organization certificate,
a bylaw adopted by the stockholders may also be amended, repealed or adopted by
the board but any bylaw adopted by the board may be amended or repealed by the
stockholders entitled to vote thereon as herein provided.
Our certificate provides that the bylaws may not be amended, added to or
repealed unless approved by not less than 80% of our outstanding capital stock
or an affirmative vote of not less than 60% of the Continuing Directors. If any
bylaw regulating an impending election of directors is adopted, amended or
repealed by the board, notice of the next meeting of stockholders for the
election of directors will contain the bylaw so adopted, amended or repealed,
together with a concise statement of the changes made.
Franklin
Under Delaware law, the power to adopt, alter and repeal bylaws is vested
in the stockholders, except to the extent that a corporation's certificate of
incorporation vests concurrent power in the board of directors.
The Franklin certificate of in corporation provides that the power to
make, alter or repeal the Franklin bylaws, and to adopt any new bylaw, except a
bylaw classifying directors for election for staggered terms, is vested in the
board of directors, but the stockholders may make additional bylaws and may
alter and repeal any bylaws whether adopted by them or otherwise.
DIVIDEND SOURCES
Fiduciary
Under the New York Banking Law, dividends may be paid out of net profits
or surplus, but the approval of the superintendent of banks of New York may be
required if the total of all dividends declared by Fiduciary in any calendar
year exceeds the total of its net profits for that year combined with its
retained net profits of the preceding two years.
Franklin
Under Delaware law, a board of directors may authorize a corporation to
make dividends and other distributions to its stockholders, subject to any
restrictions contained in the corporation's certificate of incorporation, either
out of surplus (defined as net assets less statutory capital), or, if there is
no surplus, out of net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Under Delaware law, no distribution
out of net profits is permitted, however, if a corporation's capital is less
than the amount of capital represented by the issued and outstanding stock of
all classes having a preference upon the distribution of assets, until the
deficiency has been repaired.
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Following the acquisition, Franklin expects to continue to pay its regular
quarterly dividend on common stock at its current rate, subject to any change
that the Franklin board of directors may determine.
SPECIAL MEETINGS OF STOCKHOLDERS
Fiduciary
The New York Banking Law provides that a special meeting of stockholders
may be called by the board of directors or by the person or persons as may be
authorized in the organization certificate or bylaws.
Our bylaws provide that special meetings of our stockholders may be called
at any time only by the chairman of the board, the president, the chairman of
the executive committee, any vice-president or the board of directors, and will
be called upon the written request of one-fifth or more of the shares entitled
to vote at the special meeting.
Franklin
Delaware law provides that a special meeting of stockholders may be called
by the board of directors or by the person or persons as may be authorized by
the certificate of incorporation or the bylaws.
The Franklin bylaws provide that special meetings of Franklin's
stockholders may be called at any time only by the chairman of Franklin's board
or by the board of directors.
STOCKHOLDER ACTION BY WRITTEN CONSENT
Fiduciary
Under the New York Banking Law, stockholders may act without a meeting
only by unanimous written consent, unless the organization certificate otherwise
provides. Our organization certificate does not provide otherwise.
Franklin
Under Delaware law, unless otherwise provided in the certificate of
incorporation, any action which may be taken at an annual or special meeting of
stockholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take the action at a meeting at which all
shares entitled to vote on the action were present and voted.
The Franklin bylaws permit stockholder action by written consent provided
that the signed consent is delivered to Franklin's registered office in
Delaware, Franklin's principal place of business, or an officer of the
corporation having custody of the book in which proceedings of minutes of
stockholders are recorded.
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NOTICE OF MEETINGS OF STOCKHOLDERS
Fiduciary
Under the New York Banking Law, whenever stockholders are required or
permitted to take any action at a meeting, written notice will state the place,
date and hour of the meeting and unless it is the annual meeting, indicate that
it is being issued by or at the direction of the person or persons calling the
meeting. Notice of a special meeting will also state the purpose or purposes for
which the meeting is called. If, at any meeting, action is proposed to be taken
which would, if taken, entitle stockholders intending to enforce their right
under a section of the New York Banking Law to receive payment for their shares
if the proposed corporate action referred to in such section is taken, the
notice of such meeting will include a statement of that purpose and to that
effect. A copy of the notice of any meeting will be given, personally or by
mail, not less than ten nor more than fifty days before the date of the meeting,
to each stockholder entitled to vote at the meeting.
In case of acquisition, under the New York Banking Law, the plan of
acquisition must be submitted to the stockholders of the corporation at a
meeting thereof held upon notice of at least fifteen days specifying the time,
place and object of the meeting.
Our bylaws provide that except for merger, purchase of assets, voluntary
dissolution or other actions governed specifically by the New York Banking Law,
not less than ten days nor more than fifty days before the date on which a
meeting of the stockholders is to be held, written notice note stating the date,
hour and place, and in the case of a special meeting, indicating this purpose
and that it is being issued by or at the direction of the person or persons
calling the meeting, either personally or by mail to each stockholder entitled
to vote at such meeting. If at any meeting it is proposed that action be taken
which would entitle any stockholder to receive payment for his or her shares,
the notice of the meeting must include a statement of that purpose and to that
effect.
Franklin
Under Delaware law, whenever stockholders are required or permitted to
take any action at a meeting, a written notice of the meeting must be given
which must state the place, if any, date and hour of the meeting, the means of
remote communications, if any, by which stockholders and proxy holders may be
deemed to be present in person and vote at such meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called.
Written notice of any meeting must be given not less than ten nor more than
sixty days before the date of the meeting to each stockholder entitled to vote
at the meeting.
STOCKHOLDER LISTS AND INSPECTION RIGHTS
Fiduciary
Under the New York Banking Law, any person who has been a stockholder of
record of Fiduciary for at least six months immediately preceding the person's
demand, or any person holding at least 5% of any class of the outstanding shares
of Fiduciary, or any person duly authorized by a 5% stockholder, has the right
to examine the minutes of the proceedings of Fiduciary's stockholders and the
record of stockholders and to make extracts therefrom. The request must be made
in writing at least 5 days before the inspection, and the inspection must be
made in person and during usual business hours.
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Franklin
Under Delaware law, any stockholder may inspect the corporation's stock
ledger, a list of its stockholders and its other books and records for any
proper purpose reasonably related to the person's interest as a stockholder. A
list of stockholders is to be open to the examination of any stockholder, for
any purpose germane to a meeting of stockholders, during ordinary business
hours, for a period of at least 10 days prior to the meeting. The list is also
to be produced and kept at the place of the meeting during the entire meeting,
and may be inspected by any stockholder who is present.
Number of Directors
Fiduciary
Under the New York Banking Law, the number of directors constituting the
entire board of, among other things, every bank and trust company, must be not
less than five nor more than fifteen, except that any such corporation with
capital stock, surplus funds and undivided profits of two million dollars or
more may not have less than seven nor more than twenty directors and any such
corporation with capital stock, surplus funds and undivided profits of five
million dollars or more may not have less than seven nor more than thirty
directors.
Our bylaws provide that the total number of directors constituting the
entire board may not be less than seven nor more than twenty-five. Our bylaws
provide that the board, by a vote of 60% of the Continuing Directors at a time
when there are at least two Continuing Directors, or otherwise by a vote of the
majority of directors then in office, fix the number of directors within the
maximum and minimum limits. At present, our board has 21 members.
Franklin
Under Delaware law, a board of directors must consist of one or more
directors, with the number fixed by, or in the manner provided in, the bylaws,
unless the certificate of incorporation fixes the number of directors, in which
case a change in the number of directors may be made only by amendment to the
certificate of incorporation.
Franklin's certificate of incorporation provides that the number of
directors will be fixed by, or in the manner provided in, Franklin's bylaws. At
present, the Franklin board has 9 members.
REMOVAL OF DIRECTORS
Fiduciary
The New York Banking Law provides that any or all of the directors may be
removed for cause by a vote of the stockholders at a meeting of stockholders.
New York Banking Law further provides that the organization certificate or the
specific provisions of a bylaw adopted by the stockholders may provide that
directors may be removed with cause by action of the board of directors or
without cause by vote of the stockholders.
Our organization certificate provides that directors may be removed only
for cause by either the affirmative vote of not less than 80% of our outstanding
capital stock or the vote of not less than 60% of the entire board.
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Franklin
Delaware law provides that a director or directors may be removed with or
without cause by the holders of a majority of the shares then entitled to vote
at an election of directors, except that:
o members of a classified board of directors may be removed only for
cause, unless the certificate of incorporation provides otherwise;
and
o in the case of a corporation having cumulative voting, if less than
the entire board of directors is to be removed, no director may be
removed without cause if the votes cast against the director's
removal would be sufficient to elect the director if then
cumulatively voted at an election of the entire board of directors
or of the class of directors of which the director is a part.
The Franklin bylaws provide that any or all directors may be removed at
any time, with or without cause, by the holders of a majority of the shares of
stock outstanding and entitled to vote for the election of directors.
VACANCIES ON THE BOARD OF DIRECTORS
Fiduciary
Under the New York Banking Law, all vacancies in the office of director,
including newly created directorships resulting from an increase in the number
of directors, will be filled by election by the stockholders except as provided
in this paragraph. Vacancies not exceeding one-third of the entire board may be
filled by the affirmative vote of a majority of the directors then in office,
and the directors so elected will hold office for the balance of the unexpired
term; provided that the superintendent of banks of New York has the power to
determine by regulation the conditions under which vacancies in the office of
director may be left unfilled until the next annual election.
Each vacancy, including newly created but unfilled directorships resulting
from an increase in the number of directors, in the office of director and each
reduction in the number of directors will be reported to the superintendent of
banks of New York within 10 days after the vacancy occurs or the reduction is
effected. Each election by the board to fill the vacancy will be reported
together with the name, address and occupation of the person so elected.
Our bylaws provide that all vacancies in the office of director, including
newly created directorships resulting from an increase in the number of
directors, will be filled by election by the stockholders, except that vacancies
not exceeding one-third of the entire board will be filled by the affirmative
vote of a majority of the directors then in office, and the directors so elected
will hold office for the balance of the unexpired term. Newly created
directorships are divided among the three classes whose terms of office expire
at different times with the number of directors in three classes being as nearly
equal in number as possible.
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Franklin
Under Delaware law, unless otherwise provided in the certificate of
incorporation or the bylaws, vacancies on a board of directors and newly created
directorships resulting from an increase in the authorized number of directors
may be filled by a majority of the directors then in office, although less than
a quorum, or by the sole remaining director. In the case of a classified board
of directors, however, the vacancies and newly created directorships may be
filled by a majority of the directors elected by the class or by the sole
remaining director so elected. If, at the time of the filling of any vacancy or
newly created directorship, the directors in office constitute less than a
majority of the whole board of directors (as constituted immediately prior to
any increase), the Delaware Court of Chancery may, upon application of any
stockholder or stockholders holding at least 10% of the total number of
outstanding shares entitled to vote for the directors, summarily order an
election to fill any vacancy or newly created directorship, or replace the
directors chosen by the directors then in office.
The Franklin bylaws provide that any vacancies occurring in the board of
directors (by death, resignation, retirement, disqualification, removal or
otherwise) may be filled by the affirmative vote of a majority of the remaining
directors, by a sole remaining director or by vote of the stockholders required
for the election of directors generally.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Fiduciary
The New York Banking Law permits indemnification of a director or officer
if the person acted in good faith for a purpose that the person reasonably
believed to be in the best interests of the corporation. Indemnification is also
permitted in criminal actions or proceedings if the person had no reasonable
cause to believe that the conduct was unlawful. Indemnification may be made by
the bank only as authorized in a specific case upon a determination that the
director or officer has met the applicable standard of conduct set forth above.
The New York Banking Law also requires that:
o stockholders be notified of any expenses or other amounts paid to a
director or officer by way of indemnification, other than pursuant
to a court order or stockholder action; and
o the superintendent be notified of any amounts to be paid to a
director of officer by way of indemnification at least 30 days prior
to the payment.
Our bylaws provide that; to the fullest extent permitted by law, Fiduciary
will indemnify a person that is made or threatened to be made a party to any
civil or criminal action or proceedings by reason of the fact that:
o he or she, or his or her testator if intestate, is or was a director
of officer of Fiduciary; or
o he or she, or his or her testator if intestate being or having been
a director or officer of Fiduciary, served any other corporation of
any type or kind, whether or not formed under any law of the state
of New York, or any joint venture, trust, employee benefit plan or
other enterprise, in any capacity at the request of Fiduciary.
The board of directors power on behalf of Fiduciary to grant indemnification to
any person other than a director or officer of Fiduciary to the extent as the
board in its discretion may determine.
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Franklin
Delaware law generally permits a corporation to indemnify its directors
and officers against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with a third-party action, other
than a derivative action, and against expenses actually and reasonably incurred
in the defense or settlement of a derivative action, provided that there is a
determination that the individual acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation. The
determination will be made, in the case of a present or former director or
officer:
o by a majority of the disinterested directors, even though less than
a quorum;
o by a committee of the directors designated by a majority vote of the
directors, even though less than a quorum;
o by independent legal counsel, if there is no majority of
disinterested directors; or
o by a majority vote of the stockholders.
Without court approval, however, no indemnification may be made in respect of
any derivative action in which the individual is adjudged liable to the
corporation.
Delaware law requires indemnification of directors and officers for
expenses related to a successful defense on the merits or otherwise of a
derivative or third-party action.
Delaware law permits a corporation to advance expenses related to the
defense of any proceeding to directors and officers contingent upon the
individuals' commitment to repay any advances if it is determined ultimately
that the individuals are not entitled to be indemnified.
Under Delaware law, these rights to indemnification and advancement of
expenses are not exclusive of any other rights to which those seeking
indemnification and advancement of expenses may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise.
The Franklin certificate of incorporation and bylaws provide that Franklin
will indemnify all persons that it has the power to indemnify to the fullest
extent permitted by Section 145 of Delaware General Corporation Law.
Indemnification will continue to inure to a person who has ceased to be a
director, officer, employee or agent and will inure to the benefit of the
person's heirs, executors and administrators.
LIMITATION OF LIABILITY
Fiduciary
Neither the New York Banking Law, nor our organization certificate,
provide for the limitation of liability of directors.
Franklin
Delaware law allows a corporation to include in its certificate of
incorporation a provision limiting personal liability for a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
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duty as a director, provided that the provision does not eliminate or limit the
liability of a director:
o for any breach of the director's duty of loyalty to the corporation
or its stockholders;
o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o under Section 174 of Delaware General Corporation Law concerning
unlawful dividends and stock repurchases and redemptions; or
o for any transaction from which the director derived an improper
personal benefit.
The Franklin certificate of incorporation provides that Franklin directors
will not be liable to Franklin or its stockholders for monetary damages for
breach of fiduciary duty as a director to the fullest extent permitted by
Delaware law, except for liability:
o for any breach of the director's duty of loyalty to the corporation
or its stockholders;
o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o under Section 174 of Delaware General Corporation Law; or
o for any transaction for which the director derived an improper
personal benefit.
CLASSIFICATION OF THE BOARD OF DIRECTORS
Fiduciary
Under the New York Banking Law, the board of directors of any bank or
trust company may, by a provision in the bylaws, be classified into three
classes as nearly equal as may be, with the terms of office of one class
expiring each year.
Our bylaws provide that the directors are classified into three classes
having staggered terms of three years each, all classes being as nearly equal in
number as possible.
Franklin
Under Delaware law, the directors of a corporation may, by the certificate
of incorporation, an initial bylaw or a bylaw adopted by stockholder vote, be
divided into one, two or three classes. The Franklin certificate of
incorporation and bylaws do not provide for the division of the board into
classes.
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LEGAL MATTERS
The validity of the shares of Franklin common stock to be issued in
connection with the acquisition will be passed upon for Franklin by Weil,
Gotshal & Manges LLP, New York, New York. Legal matters with respect to federal
income tax consequences of the acquisition will be passed upon for Fiduciary by
Cleary, Gottlieb, Steen & Hamilton, New York, New York.
EXPERTS
Franklin's financial statements as of September 30, 1999 and 2000 and for
each of the years in the three-year period ended September 30, 2000, included in
the Franklin Annual Report on Form 10-K for the year ended September 30, 2000,
have been audited by PricewaterhouseCoopers LLP, independent accountants, as set
forth in their report incorporated herein by reference. Such financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Franklin has filed with the SEC a registration statement under the
Securities Act that registers the distribution to Fiduciary shareholders of the
shares of Franklin common stock to be issued in connection with the acquisition.
The registration statement, including the attached exhibits and schedules,
contains additional relevant information about Franklin and Franklin common
stock. The rules and regulations of the SEC allow Franklin to omit certain
information included in the registration statement from this proxy
statement/prospectus.
In addition, Franklin files reports, proxy statements and other
information with the SEC under the Exchange Act. You may read and copy this
information at the following locations of the SEC:
Public Reference Room Northeast Regional Office Midwest Regional Office
450 Fifth Street, N.W. 7 World Trade Center 500 West Madison Street
Room 1024 Suite 1300 Suite 1400
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661-2511
You may also obtain copies of this information by mail from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, at prescribed rates.
The SEC also maintains an Internet world wide web site that contains
reports, proxy statements and other information about issuers, like Franklin,
who file electronically with the SEC. The address of that site is
http://www.sec.gov.
You can also inspect reports, proxy statements and other information about
Franklin at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
The SEC allows Franklin to "incorporate by reference" information into
this proxy statement/prospectus. This means that Franklin may disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is considered to be a part of
101
<PAGE>
this proxy statement/prospectus, except for any information that is superseded
by information that is included directly in this document.
This proxy statement/prospectus incorporates by reference the documents
listed below that Franklin has previously filed with the SEC. They contain
important information about our companies and their financial condition.
FRANKLIN SEC FILINGS PERIOD
Annual Report on Form 10-K for: Year ended September 30, 2000, as filed
on December __, 2000.
Current Reports on Form 8-K filed: o October 3, 2000
o October 25, 2000, as amended by Form
8K/A filed on October 26, 2000
Description of Franklin common stock contained in Franklin's registration
statement on Form 8-A (File No. 1-91318) on November 6, 1986, including any
amendment or report filed for the purpose of updating that description.
Franklin incorporates by reference additional documents that it may file
with the SEC between the date of this proxy statement/prospectus and the date of
the Fiduciary special meeting. These documents include periodic reports, such as
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K, as well as proxy statements.
Franklin has supplied all information contained or incorporated by
reference in this proxy statement/prospectus relating to Franklin, and Fiduciary
has supplied all relevant information relating to Fiduciary.
You can obtain any of the documents incorporated by reference in this
document through Franklin, or from the SEC through the SEC's Internet world wide
web site at the address listed above. Documents incorporated by reference are
available from the companies without charge, excluding any exhibits to those
documents, unless the exhibit is specifically incorporated by reference as an
exhibit in this proxy statement/prospectus. You may obtain documents
incorporated by reference in this proxy statement/prospectus by requesting them
in writing or by telephone from Franklin at the following address:
Investor Relations, Franklin Resources, Inc.
777 Mariners Island Blvd.
San Mateo, California 94409
1-800-632-2350 x28900
---------------------
If you would like to request documents, please do so by _________, 2000 to
receive them before the special meeting. If you request any incorporated
documents from us, we will mail them to you by first class mail, or another
equally prompt means, within one business day after we receive your request.
102
<PAGE>
Information about Fiduciary is contained in its 1999 Annual Report to
Shareholders for the period ended December 31, 1999 and Financial Highlights for
the periods ended March 31, June 30 and September 30, 2000, which are available
through Fiduciary's website at http://www.fiduciarytrust.com. Copies also can be
obtained by contacting Fiduciary by telephone at (212) 313-3666.
We have not authorized anyone to give any information or make any
representation about the merger or our companies that is different from, or in
addition to, that contained in this proxy statement/prospectus or in any of the
materials that we have incorporated into this proxy statement/prospectus.
Therefore, if anyone does give you information of this sort, you should not rely
on it. If you are in a jurisdiction where offers to exchange or sell, or
solicitations of offers to exchange or purchase, the securities offered by this
document or the solicitation of proxies is unlawful, or if you are a person to
whom it is unlawful to direct these types of activities, then the offer
presented in this document does not extend to you. The information contained in
this document speaks only as of the date of this document unless the information
specifically indicates that another date applies.
103
<PAGE>
ANNEX A
[CONFORMED COPY]
================================================================================
AGREEMENT AND PLAN OF SHARE ACQUISITION
DATED AS OF OCTOBER 25, 2000
BETWEEN
FIDUCIARY TRUST COMPANY INTERNATIONAL
AND
FRANKLIN RESOURCES, INC.
================================================================================
NY2:\993129\01\L@@X01!.DOC\46360.0043
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Article I THE SHARE EXCHANGE............................................................................A-2
SECTION 1.1 The Share Exchange................................................................A-2
SECTION 1.2 Effective Time....................................................................A-2
SECTION 1.3 Closing of the Share Exchange.....................................................A-2
SECTION 1.4 Effects of the Share Exchange.....................................................A-2
Article II EXCHANGE OF SHARES............................................................................A-2
SECTION 2.1 Exchange of Shares................................................................A-2
SECTION 2.2 Dissenters' Rights................................................................A-3
SECTION 2.3 Exchange Fund.....................................................................A-3
SECTION 2.4 Exchange Procedures...............................................................A-4
SECTION 2.5 Distributions with Respect to Unsurrendered Certificates..........................A-4
SECTION 2.6 No Further Ownership Rights in the Shares.........................................A-5
SECTION 2.7 Fractional Shares of Parent Common Stock..........................................A-5
SECTION 2.8 Termination of Exchange Fund......................................................A-5
SECTION 2.9 No Liability......................................................................A-6
SECTION 2.10 Investment of the Exchange Fund...................................................A-6
SECTION 2.11 Lost Certificates.................................................................A-6
SECTION 2.12 Withholding Rights................................................................A-6
SECTION 2.13 Stock Transfer Books..............................................................A-6
SECTION 2.14 Affiliates........................................................................A-6
Article III REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................................A-7
SECTION 3.1 Organization and Qualification; Subsidiaries......................................A-7
SECTION 3.2 Capitalization of the Company and Its Subsidiaries................................A-7
SECTION 3.3 Authority Relative to This Agreement..............................................A-8
SECTION 3.4 Reports; Financial Statements.....................................................A-9
SECTION 3.5 No Undisclosed Liabilities.......................................................A-10
SECTION 3.6 Absence of Changes...............................................................A-10
SECTION 3.7 Information Supplied.............................................................A-11
SECTION 3.8 No Violations....................................................................A-12
i
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
SECTION 3.9 No Default.......................................................................A-12
SECTION 3.10 Property.........................................................................A-12
SECTION 3.11 Litigation.......................................................................A-13
SECTION 3.12 Compliance with Applicable Law...................................................A-13
SECTION 3.13 Employee Plans...................................................................A-13
SECTION 3.14 Environmental Liability..........................................................A-15
SECTION 3.15 Tax Matters......................................................................A-15
SECTION 3.16 Ineligible Persons...............................................................A-17
SECTION 3.17 Material Contracts...............................................................A-17
SECTION 3.18 Funds............................................................................A-18
SECTION 3.19 Insurance........................................................................A-18
SECTION 3.20 Risk Management Instruments......................................................A-18
SECTION 3.21 Intellectual Property............................................................A-18
SECTION 3.22 Labor and Employment Matters.....................................................A-19
SECTION 3.23 Restrictive Covenants............................................................A-19
SECTION 3.24 Clients..........................................................................A-19
SECTION 3.25 Opinion of Financial Advisor.....................................................A-20
SECTION 3.26 Brokers..........................................................................A-20
SECTION 3.27 Accounting Matters...............................................................A-20
SECTION 3.28 Tax Matters......................................................................A-20
Article IV REPRESENTATIONS AND WARRANTIES OF PARENT.....................................................A-20
SECTION 4.1 Organization and Qualification...................................................A-20
SECTION 4.2 Capitalization of Parent and its Subsidiaries....................................A-21
SECTION 4.3 Authority Relative to this Agreement.............................................A-21
SECTION 4.4 SEC Reports; Financial Statements................................................A-22
SECTION 4.5 Absence of Changes...............................................................A-22
SECTION 4.6 No Undisclosed Liabilities.......................................................A-22
SECTION 4.7 Information Supplied.............................................................A-23
SECTION 4.8 Consents and Approvals; NoViolations.............................................A-23
SECTION 4.9 No Default.......................................................................A-23
ii
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
SECTION 4.10 Compliance with Applicable Law...................................................A-24
SECTION 4.11 Ineligible Persons...............................................................A-24
SECTION 4.12 Parent Funds; Advisory Agreements................................................A-24
SECTION 4.13 Brokers..........................................................................A-25
Article V COVENANTS RELATED TO CONDUCT OF BUSINESS.....................................................A-25
SECTION 5.1 Conduct of Business of the Company...............................................A-25
SECTION 5.2 Conduct of Business of Parent....................................................A-28
SECTION 5.3 Access to Information............................................................A-28
Article VI ADDITIONAL AGREEMENTS........................................................................A-29
SECTION 6.1 Preparation of S-4 and the Proxy Statement.......................................A-29
SECTION 6.2 Regulatory Matters...............................................................A-29
SECTION 6.3 Letter of Accountants............................................................A-31
SECTION 6.4 Meeting..........................................................................A-31
SECTION 6.6 Company Fund Meetings............................................................A-31
SECTION 6.7 Non-Investment Company Advisory Contract Consents................................A-32
SECTION 6.8 Acquisition Proposals............................................................A-32
SECTION 6.9 Public Announcements.............................................................A-33
SECTION 6.10 Indemnification..................................................................A-33
SECTION 6.11 Notification of Certain Matters..................................................A-34
SECTION 6.12 Pooling..........................................................................A-34
SECTION 6.13 Employee Matters.................................................................A-34
SECTION 6.14 Affiliate Letters................................................................A-35
SECTION 6.15 Application of Section 16 of the Exchange Act....................................A-36
SECTION 6.16 Fees and Expenses................................................................A-36
SECTION 6.17 Listing of Stock.................................................................A-36
SECTION 6.18 Authorized Parent Stock..........................................................A-36
SECTION 6.19 Antitakeover Statutes............................................................A-36
SECTION 6.20 Certain Agreements...............................................................A-36
SECTION 6.21 Tax-Free Share Exchange..........................................................A-38
iii
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
Article VII CONDITIONS TO CONSUMMATION OF THE SHARE EXCHANGE.............................................A-38
SECTION 7.1 Conditions to Each Party's Obligations to Effect the Share Exchange..............A-38
SECTION 7.2 Conditions to Obligations of Parent..............................................A-39
SECTION 7.3 Conditions to the Obligations of the Company.....................................A-40
Article VIII TERMINATION; AMENDMENT; WAIVER...............................................................A-41
SECTION 8.1 Termination by Mutual Agreement..................................................A-41
SECTION 8.2 Termination by Either Parent or the Company......................................A-41
SECTION 8.3 Termination by the Company.......................................................A-41
SECTION 8.4 Termination by Parent............................................................A-42
SECTION 8.5 Effect of Termination and Abandonment............................................A-42
SECTION 8.6 Amendment........................................................................A-43
SECTION 8.7 Extension; Waiver................................................................A-43
Article IX MISCELLANEOUS................................................................................A-43
SECTION 9.1 Nonsurvival of Representations and Warranties....................................A-43
SECTION 9.2 Entire Agreement; Assignment.....................................................A-43
SECTION 9.3 Notices..........................................................................A-43
SECTION 9.4 Governing Law....................................................................A-44
SECTION 9.5 Descriptive Headings.............................................................A-44
SECTION 9.6 Parties in Interest..............................................................A-44
SECTION 9.7 Severability.....................................................................A-44
SECTION 9.8 Specific Performance.............................................................A-45
SECTION 9.9 Counterparts.....................................................................A-45
SECTION 9.10 Interpretation...................................................................A-45
SECTION 9.11 Definitions......................................................................A-45
</TABLE>
iv
<PAGE>
Glossary of Defined Terms
-------------------------
<TABLE>
<CAPTION>
Defined Terms Defined in Section
------------- ------------------
<S> <C>
PARENT AVERAGE CLOSING PRICE...................................................................................A-3
6.20(A) PROVISIONS.............................................................................................A-37
ACQUISITION PROPOSAL...........................................................................................A-45
ADVISERS ACT...................................................................................................A-46
AGREEMENT......................................................................................................A-1
APB 16.........................................................................................................A-1
AUDIT DATE.....................................................................................................A-10
BENEFICIAL OWNERSHIP...........................................................................................A-46
BENEFICIALLY OWN...............................................................................................A-46
CERTIFICATES...................................................................................................A-4
CLOSING DATE...................................................................................................A-2
CLOSING........................................................................................................A-2
CODE...........................................................................................................A-1
COMPANY BOARD..................................................................................................A-8
COMPANY DISCLOSURE SCHEDULE....................................................................................A-7
COMPANY EMPLOYEE BENEFIT PLAN..................................................................................A-13
COMPANY EMPLOYEE BENEFIT PLANS.................................................................................A-13
COMPANY FUND...................................................................................................A-46
COMPANY PERMITS................................................................................................A-13
COMPANY REPORTS................................................................................................A-9
COMPANY REQUISITE VOTE.........................................................................................A-9
COMPANY SECURITIES.............................................................................................A-8
COMPANY SHAREHOLDER MEETING....................................................................................A-31
COMPANY SUBSEQUENT DETERMINATION...............................................................................A-31
COMPANY........................................................................................................A-1
CONFIDENTIALITY AGREEMENT......................................................................................A-29
DCP TRUST......................................................................................................A-2
DEEMED ASSIGNMENT..............................................................................................A-32
DISSENTING SHARES..............................................................................................A-3
EFFECTIVE TIME.................................................................................................A-2
ERISA..........................................................................................................A-13
ERISA AFFILIATE................................................................................................A-14
EXCESS SHARES..................................................................................................A-5
EXCHANGE ACT...................................................................................................A-46
EXCHANGE AGENT.................................................................................................A-3
EXCHANGE FUND..................................................................................................A-4
EXCHANGE RATIO.................................................................................................A-2
FDIC...........................................................................................................A-9
FINANCIAL ADVISOR..............................................................................................A-20
FRACTIONAL INTEREST............................................................................................A-5
FRS............................................................................................................A-3
FUND...........................................................................................................A-46
v
<PAGE>
Defined Terms Defined in Section
------------- ------------------
GAAP...........................................................................................................A-10
GOVERNMENTAL ENTITY............................................................................................A-5
INDEMNIFIED PARTIES............................................................................................A-33
INDEMNIFIED PARTY..............................................................................................A-33
INSURANCE AMOUNT...............................................................................................A-34
INTELLECTUAL PROPERTY..........................................................................................A-19
INVESTMENT COMPANY ACT.........................................................................................A-46
INVESTMENT COMPANY ADVISORY AGREEMENT..........................................................................A-46
IRS............................................................................................................A-14
KNOW...........................................................................................................A-46
KNOWLEDGE......................................................................................................A-46
LAW............................................................................................................A-12
LIEN...........................................................................................................A-8
MATERIAL ADVERSE EFFECT........................................................................................A-46
MATERIAL CONTRACTS.............................................................................................A-17
NICAAS.........................................................................................................A-32
NON-INVESTMENT COMPANY ADVISORY AGREEMENT......................................................................A-47
NYBL...........................................................................................................A-1
NYSE...........................................................................................................A-5
PARENT BOARD...................................................................................................A-22
PARENT COMMON STOCK............................................................................................A-2
PARENT DISCLOSURE SCHEDULE.....................................................................................A-20
PARENT EMPLOYEE BENEFIT PLANS..................................................................................A-35
PARENT FUND....................................................................................................A-47
PARENT INVESTMENT COMPANY ADVISORY AGREEMENT...................................................................A-47
PARENT PERMITS.................................................................................................A-24
PARENT SEC REPORTS.............................................................................................A-22
PARENT SECURITIES..............................................................................................A-21
PARENT.........................................................................................................A-1
PBGC...........................................................................................................A-14
PERIOD.........................................................................................................A-37
PERSON.........................................................................................................A-47
POOLING OF INTERESTS...........................................................................................A-20
PROXY STATEMENT................................................................................................A-11
REGULATORY DOCUMENTS...........................................................................................A-9
S-4............................................................................................................A-11
SEC............................................................................................................A-1
SECURITIES ACT.................................................................................................A-6
SECURITIES LAWS................................................................................................A-47
SHARE EXCHANGE.................................................................................................A-2
SHARE EXCHANGE CONSIDERATION...................................................................................A-3
SHARE TRUST....................................................................................................A-5
SHARES.........................................................................................................A-2
STOCK OPTION AGREEMENT.........................................................................................A-1
SUBSECTION (A) CONTRACTS.......................................................................................A-17
vi
<PAGE>
Defined Terms Defined in Section
------------- ------------------
SUBSIDIARY.....................................................................................................A-47
SUPERINTENDENT.................................................................................................A-1
TAKEOVER STATUTES..............................................................................................A-36
TAX RETURNS....................................................................................................A-17
TAX............................................................................................................A-16
TAXES..........................................................................................................A-16
TERMINATION DATE...............................................................................................A-41
TERMINATION FEE................................................................................................A-42
TITLE IV PLANS.................................................................................................A-14
UNITED STATES REAL PROPERTY HOLDING COMPANY....................................................................A-16
WHOLLY-OWNED SUBSIDIARY........................................................................................A-47
</TABLE>
vii
<PAGE>
AGREEMENT AND PLAN OF SHARE ACQUISITION
THIS AGREEMENT AND PLAN OF SHARE ACQUISITION (this
"AGREEMENT"), dated as of October 25, 2000, is between Fiduciary Trust Company
International, a bank organized under the New York State Banking Law (the
"COMPANY"), and Franklin Resources, Inc., a Delaware corporation ("PARENT").
WHEREAS, Parent is a corporation having capital divided
into shares organized and existing under the Delaware General Corporation Law;
WHEREAS, the Company is a bank organized and existing under
Article III of the New York State Banking Law (the "NYBL");
WHEREAS, Section 143-a of the NYBL provides that a company
having capital stock divided into shares which desires to acquire all the
capital stock of one or more corporations organized under or subject to the
provisions of Article III of the NYBL may submit a written plan of acquisition
of such stock to the Superintendent of Banks of the State of New York (the
"SUPERINTENDENT");
WHEREAS, Parent desires to acquire all of the Shares (as
hereinafter defined) in accordance with the provisions of Section 143-a of the
NYBL and, to that end, Parent and the Company wish to adopt this Agreement which
shall constitute the "plan of acquisition" within the meaning of such Section
143-a;
WHEREAS, the Company Board and the Parent Board (as
hereinafter defined), each has, in light of and subject to the terms and
conditions set forth herein, resolved to deem this Agreement and the
transactions contemplated hereby, including the Share Exchange (as hereinafter
defined) provided for herein, advisable to and in the best interest of their
respective shareholders;
WHEREAS, for United States federal income tax purposes, it
is intended that the Share Exchange shall qualify as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the
"CODE");
WHEREAS, for accounting purposes, it is intended that the
Share Exchange be accounted for as a "pooling of interests" under Opinion 16 of
the Accounting Principles Board ("APB 16") and the applicable rules and
regulations of the Securities and Exchange Commission (the "SEC"); and
WHEREAS, contemporaneously with the execution and delivery
of this Agreement, as a condition and an inducement to the willingness of Parent
to enter into this Agreement, the Company is entering into a stock option
agreement with Parent in the form of Exhibit A hereto (the "STOCK OPTION
AGREEMENT"), pursuant to which the Company has granted Parent an option to
purchase Shares under the terms and conditions set forth in the Stock Option
Agreement;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the Company and Parent hereby agree as
follows:
<PAGE>
ARTICLE I
THE SHARE EXCHANGE
SECTION 1.1 The Share Exchange. At the Effective Time (as
hereinafter defined) and upon the terms and subject to the conditions of this
Agreement and in accordance with the NYBL, each outstanding share of common
stock, par value $1.00 per share, of the Company (the "SHARES"), other than as
provided in Section 2.1(a) hereof, shall be deemed to be exchanged for the
number of shares of Parent Common Stock (as hereinafter defined) provided for in
Section 2.1(a) below (the "SHARE EXCHANGE"). Following the Share Exchange and as
a result thereof, the Company shall be a wholly-owned Subsidiary of Parent. The
separate corporate existence of each of Parent and the Company shall continue
following the Share Exchange.
SECTION 1.2 Effective Time. Subject to the provisions of
this Agreement, the Share Exchange shall be consummated and become effective at
such time as the Superintendent files this Agreement, together with all required
certificates, as provided in Section 143-a.3 of the NYBL (the "EFFECTIVE TIME").
SECTION 1.3 Closing of the Share Exchange. (a) The closing
of the Share Exchange (the "CLOSING") will take place at a time and on a date to
be specified by the parties (the "CLOSING DATE"), which shall be no later than
the second business day after satisfaction or waiver of the conditions set forth
in Article VII (other than those conditions that by their nature are to be
satisfied at the Closing, but subject to the fulfillment or waiver of those
conditions), at the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New
York, New York 10153, or at such other time, date or place as agreed to in
writing by the parties hereto. Unless the parties otherwise agree, the Effective
Time shall occur on the Closing Date.
(b) At the Closing, Parent and the Company shall instruct
their respective representatives to make or confirm the filing of all required
certificates in the office of the Superintendent pursuant to Section 143-a of
the NYBL.
SECTION 1.4 Effects of the Share Exchange. The Share
Exchange shall have the effects set forth in the NYBL.
ARTICLE II
EXCHANGE OF SHARES
SECTION 2.1 Exchange of Shares. (a) At the Effective Time,
each Share issued and outstanding immediately prior to the Effective Time
including Shares held by the Company's Deferred Compensation Plan Trust (the
"DCP TRUST") but excluding (x) Shares held by the Company for its own account,
(y) Shares held by Parent, or (z) Dissenting Shares (as defined in Section 2.2
hereof)) shall, by virtue of the Share Exchange and without any action on the
part of Parent, the Company or the holder thereof, be deemed exchanged in
consideration for the right to receive fully paid and non-assessable shares of
common stock, par value $0.10 per share, of Parent ("PARENT COMMON STOCK") equal
to (A) divided by (B) (the "EXCHANGE RATIO"), with (A) being the quotient
obtained by dividing 825,000,000 by the Parent Average Stock Price; provided
that such quotient shall not be less than 19,466,700 or more than 23,791,000 and
(B) being the number of Shares outstanding as of the Effective Time to be
A-2
<PAGE>
exchanged for shares of Parent Common Stock pursuant to the terms of this
Agreement. For purposes of this Agreement, PARENT AVERAGE CLOSING PRICE means
the average closing price per share of the Parent Common Stock on the New York
Stock Exchange, Inc. during the twenty (20) trading days ending immediately
prior to the date that the Board of Governors of the Federal Reserve System (the
"FRS") (i) approves the Application (as hereinafter defined) of Parent to the
FRS to acquire the Shares and become a bank holding company and (ii) determines
that the election by Parent to become a financial holding company pursuant to
Sections 4(k) and (l) of the Bank Holding Company Act will become effective at
the Effective Time. An example of the calculation of the Exchange Ratio is set
forth in Schedule 2.1 of the Parent Disclosure Schedule (as hereinafter
defined). (All such shares of Parent Common Stock issued, together with any cash
in lieu of fractional shares of Parent Common Stock to be paid pursuant to
Section 2.7, are referred to herein as the "SHARE EXCHANGE CONSIDERATION".)
(b) At the Effective Time, each Share held by Parent or the
Company for its own account immediately prior to the Effective Time shall, by
virtue of the Share Exchange and in accordance with the terms of this Agreement,
and without any action on the part of Parent or the Company be canceled, retired
and cease to exist and no payment shall be made with respect thereto.
(c) If, between the date of this Agreement and the
Effective Time, the outstanding shares of Parent Common Stock shall have been
increased, decreased, changed into or exchanged for a different number of shares
or a different class of shares by reason of any stock dividend, subdivision,
reclassification, reorganization, recapitalization, stock split, reverse stock
split, combination or exchange of shares or any similar event, the amount of
shares of Parent Common Stock constituting the Exchange Ratio shall be
correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, reorganization, recapitalization, stock split, reverse stock
split, combination or exchange of shares or such similar event.
SECTION 2.2 Dissenters' Rights. Notwithstanding anything in
this Agreement to the contrary, Shares that are outstanding immediately prior to
the Effective Time and held by a holder who has not voted in favor of the Share
Exchange and who has complied with the procedures of Section 6022 of the NYBL
for appraisal of such Shares ("DISSENTING SHARES"), shall not be exchanged into
the right to receive the Share Exchange Consideration, as provided herein,
unless and until such holder fails to perfect or effectively withdraws or
otherwise loses the right to appraisal and payment under such Section 6022. If,
after the Effective Time, any such holder fails to perfect or effectively
withdraws or otherwise loses the right to appraisal, such Dissenting Shares
shall thereupon be treated as if they had been exchanged as of the Effective
Time into the right to receive the Share Exchange Consideration, without
interest thereon. The Company shall give Parent prompt notice of any demands
received by the Company for appraisal of Shares, and, prior to the Effective
Time, Parent shall have the right to direct all negotiations and proceedings
with respect to such demands. Prior to the Effective Time, the Company shall
not, except with the prior written consent of Parent, make any payment with
respect to, or settle or offer to settle, any such demands. All payments made to
the holders of Dissenting Shares pursuant to Sections 143-a.4 and 6022 of the
NYBL shall be made solely from the assets of the Company.
SECTION 2.3 Exchange Fund. Prior to the Effective Time,
Parent shall appoint a commercial bank or trust company headquartered in New
York City reasonably acceptable to the Company to act as exchange agent
hereunder for the purpose of exchanging Shares for the Share Exchange
Consideration (the "EXCHANGE AGENT"). At or prior to the Effective Time, Parent
A-3
<PAGE>
shall deposit with the Exchange Agent, in trust for the benefit of holders of
Shares, certificates representing the Parent Common Stock issuable pursuant to
Section 2.1 in exchange for outstanding Shares. Parent agrees to make available
to the Exchange Agent in accordance with Section 2.7, cash sufficient to pay any
dividends and other distributions pursuant to Section 2.5. Any cash and
certificates of Parent Common Stock deposited with the Exchange Agent shall
hereinafter be referred to as the "EXCHANGE FUND." No holder of Shares shall be
required to pay any stock transfer or similar Tax (as hereinafter defined) upon
the exchange of Shares pursuant to the terms of this Agreement unless the
transfer of such Shares to the holder thereof was not registered in the transfer
records of the Company, in which case the provisions of the last sentence of
Section 2.4 shall apply.
SECTION 2.4 Exchange Procedures. As soon as reasonably
practicable after the Effective Time, Parent shall cause the Exchange Agent to
mail to each holder of record of a certificate or certificates which immediately
prior to the Effective Time represented outstanding Shares (the "CERTIFICATES")
(i) a letter of transmittal which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon delivery of
the Certificates to the Exchange Agent, and which letter shall be in customary
form and have such other provisions as Parent may reasonably specify after
consultation with the Company; and (ii) instructions for effecting the surrender
of such Certificates in exchange for the applicable Share Exchange
Consideration, together with any dividends or distributions which a holder of
Certificates has a right to receive pursuant to Section 2.5. Upon surrender of a
Certificate to the Exchange Agent together with such letter of transmittal, duly
executed and completed in accordance with the instructions thereto, and such
other documents as may reasonably be required by the Exchange Agent, the holder
of such Certificate shall be entitled to receive in exchange therefor shares of
Parent Common Stock representing, in the aggregate, the whole number of shares
that such holder has the right to receive pursuant to Section 2.1 (after taking
into account all Shares then held by such holder) and a check representing an
aggregate amount of (x) any cash payable in lieu of fractional shares of Parent
Common Stock to which the holder is entitled pursuant to Section 2.7 and (y) any
dividends or distributions which such holder has a right to receive pursuant to
Section 2.5. No interest will be paid or will accrue on any cash payable
pursuant to Section 2.5 or 2.7. In the event of a transfer of ownership of the
Shares which is not registered in the transfer records of the Company, shares of
Parent Common Stock evidencing, in the aggregate, the proper number of shares of
Parent Common Stock, a check in the proper amount of cash in lieu of any
fractional shares of Parent Common Stock pursuant to Section 2.7 and any
dividends or other distributions to which such holder is entitled pursuant to
Section 2.5, may be issued with respect to such Shares to such a transferee if
the Certificate representing such Shares is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
to evidence that any applicable stock transfer Taxes have been paid.
SECTION 2.5 Distributions with Respect to Unsurrendered
Certificates. No dividends or other distributions declared or made with respect
to shares of Parent Common Stock with a record date at or after the Effective
Time shall be paid to the holder of any unsurrendered Certificate with respect
to the shares of Parent Common Stock that such holder would be entitled to
receive upon surrender of such Certificate and no cash payment in lieu of
fractional shares of Parent Common Stock shall be paid to any such holder
pursuant to Section 2.7 until such holder shall surrender such Certificate in
accordance with Section 2.4. Subject to the effect of applicable Laws (as
hereinafter defined), following surrender of any such Certificate, there shall
be paid to such holder of shares of Parent Common Stock issuable in exchange
therefor, without interest thereon, (a) promptly after the time of such
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surrender, the amount of dividends or other distributions with a record date at
or after the Effective Time theretofore paid with respect to such whole shares
of Parent Common Stock, and (b) at the appropriate payment date, the amount of
dividends or other distributions with a record date at or after the Effective
Time but prior to such surrender and a payment date subsequent to such surrender
payable with respect to such shares of Parent Common Stock.
SECTION 2.6 No Further Ownership Rights in the Shares. All
shares of Parent Common Stock issued and cash paid upon the exchange of the
Shares in accordance with the terms of Article I and this Article II (including
any cash paid pursuant to Sections 2.5 and 2.7) shall be deemed to have been
issued or paid in full satisfaction of all rights pertaining to the Shares.
SECTION 2.7 Fractional Shares of Parent Common Stock. No
fraction of a share of Parent Common Stock will be issued to holders of Shares,
but each holder of Shares otherwise entitled to receive a fraction of a share of
Parent Common Stock will be entitled to receive in accordance with the
provisions of this Section 2.7 from the Exchange Agent a cash payment in lieu of
such fraction of a share of Parent Common Stock, as applicable (each a
"FRACTIONAL INTEREST") representing such holder's proportionate interest in the
net proceeds from the sale by the Exchange Agent on behalf of all such holders
of the aggregate of the fractions of shares of Parent Common Stock which would
otherwise be issued ("EXCESS SHARES"). The sale of the Excess Shares by the
Exchange Agent shall be executed on the New York Stock Exchange, Inc. (the
"NYSE") through one or more member firms of the NYSE, as the case may be, and
shall be executed in round lots to the extent practicable. Until the net
proceeds of such sale or sales have been distributed to the holders of Shares
otherwise entitled to receive Fractional Interests, the Exchange Agent will hold
such proceeds in trust for such holders of shares (the "SHARE TRUST"). The
Company shall pay all commissions, transfer taxes and other out-of-pocket
transaction costs, including the expenses and compensation, of the Exchange
Agent incurred in connection with such sale of the Excess Shares. The Exchange
Agent shall determine the portion of the Share Trust to which each holder of
Shares shall be entitled, if any, by multiplying the amount of the aggregate net
proceeds comprising the Share Trust by a fraction, the numerator of which is the
amount of Fractional Interests to which such holder of Shares is entitled and
the denominator of which is the aggregate amount of Fractional Interests to
which all holders of Shares are entitled. As soon as practicable after the
determination of the amount of cash, if any, to be paid to holders of Shares in
lieu of any Fractional Interests, the Exchange Agent shall make available such
amounts to such holders of Shares without interest.
SECTION 2.8 Termination of Exchange Fund. Any portion of
the Exchange Fund which remains undistributed to the holders of Certificates for
six (6) months after the Effective Time shall be delivered to Parent or
otherwise on the instruction of Parent, and any holders of the Certificates who
have not theretofore complied with this Article II shall thereafter look only to
Parent for the Share Exchange Consideration with respect to the Shares formerly
represented thereby to which such holders are entitled pursuant to Sections 2.1,
2.4 and 2.7 and any dividends or distributions with respect to shares of Parent
Common Stock to which such holders are entitled pursuant to Section 2.5. Any
such portion of the Exchange Fund remaining unclaimed by holders of Shares five
(5) years after the Effective Time (or such earlier date immediately prior to
such time as such amounts would otherwise escheat to or become property of any
U.S. or non-U.S. federal, state or local court or tribunal or administrative,
governmental or regulatory body, agency or authority (a "GOVERNMENTAL ENTITY"))
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shall, to the extent permitted by Law, become the property of Parent free and
clear of any claims or interest of any person previously entitled thereto.
SECTION 2.9 No Liability. None of Parent, the Company or
the Exchange Agent shall be liable to any person in respect of any Share
Exchange Consideration from the Exchange Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar Law.
SECTION 2.10 Investment of the Exchange Fund. The Exchange
Agent shall invest any cash included in the Exchange Fund as directed by Parent
on a daily basis. Any interest and other income resulting from such investments
shall promptly be paid to Parent.
SECTION 2.11 Lost Certificates. If any Certificate shall
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming such Certificate to be lost, stolen or destroyed
and, the posting by such person of a bond in such reasonable and customary
amount as Parent may direct as indemnity against any claim that may be made
against it with respect to such Certificate, the Exchange Agent will deliver in
exchange for such lost, stolen or destroyed Certificate the applicable Share
Exchange Consideration with respect to the Shares formerly represented thereby,
any cash in lieu of fractional shares of Parent Common Stock and unpaid
dividends and distributions on shares of Parent Common Stock deliverable in
respect thereof, pursuant to this Agreement.
SECTION 2.12 Withholding Rights. Parent shall be entitled
to deduct and withhold from the Share Exchange Consideration otherwise payable
pursuant to this Agreement and/or from any cash in the amount of dividends or
other distributions to which a holder of Parent Common Stock is entitled
pursuant to Section 2.5 such amounts as it is required to deduct and withhold
with respect to the making of such payment under the Code and the rules and
regulations promulgated thereunder, or any provision of a Tax Law. To the extent
that amounts are so withheld by Parent, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the holder of the
Shares in respect to which such deduction and withholding was made by Parent.
SECTION 2.13 Stock Transfer Books. The stock transfer books
of the Company shall be closed immediately upon the Effective Time and there
shall be no further registration of transfers of Shares thereafter on the
records of the Company. On or after the Effective Time, any Certificates
presented to the Exchange Agent or Parent for any reason shall be converted into
the Share Exchange Consideration with respect to the Shares formerly represented
thereby, any cash in lieu of fractional shares of Parent Common Stock to which
the holders thereof are entitled pursuant to Section 2.7 and any dividends or
other distributions to which the holders thereof are entitled pursuant to
Section 2.5.
SECTION 2.14 Affiliates. Notwithstanding anything to the
contrary herein, no shares of Parent Common Stock or cash shall be delivered
pursuant to the Share Exchange to a person who may be deemed an "affiliate" of
the Company in accordance with Section 6.14 hereof for purposes of Rule 145
under the Securities Act of 1933, as amended (the "SECURITIES ACT"), or for
purposes of qualifying the Share Exchange for "pooling of interests" under APB
16 and the applicable SEC rules and regulations until such person has executed
and delivered to Parent the written agreement contemplated by Section 6.14. The
Company believes that the individuals listed on Schedule 2.14 of the Company
Disclosure Schedule (as hereinafter defined) are the "affiliates" of the Company
as of the date of this Agreement for the purposes of the transactions
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contemplated hereby and the Parent agrees that, absent a material change in
circumstances, such individuals are the only persons who will be required to
execute and deliver the written agreements contemplated by Section 6.14.
SECTION 2.15 Consultation Regarding Dividends. Prior to any
change of the regularly scheduled record dates for the payment of dividends, the
Company and Parent shall consult with the other party and hereby agree that no
such change will have the effect of causing the Company's shareholders to fail
to receive a regular quarterly dividend payment either as a Parent or Company
shareholder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedule delivered by
the Company to Parent prior to the execution of this Agreement (the "COMPANY
DISCLOSURE SCHEDULE") (each section of which qualifies the correspondingly
numbered representation and warranty or covenant to the extent specified
therein), the Company hereby represents and warrants to Parent as follows:
SECTION 3.1 Organization and Qualification; Subsidiaries.
(a) Each of the Company and its Subsidiaries (as hereinafter defined) is a
corporation or legal entity duly organized, validly existing and in good
standing under the Laws of the jurisdiction of its incorporation and has all
requisite corporate, partnership or similar power and authority to own, lease
and operate its properties and to carry on its businesses as now conducted and
proposed by the Company to be conducted, except where the failure to be duly
organized, existing and in good standing or to have such power and authority
does not and would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect (as hereinafter defined) on the Company.
(b) Section 3.1 of the Company Disclosure Schedule sets
forth a list of all Subsidiaries of the Company.
(c) Each of the Company and its Subsidiaries is duly
qualified or licensed and in good standing to do business in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification or licensing necessary, except
where the failure to be so duly qualified or licensed and in good standing does
not and would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company.
(d) Except as set forth on Schedule 3.1(d) of the Company
Disclosure Schedule, the Company has heretofore delivered to Parent accurate and
complete copies of the organizational certificate and bylaws, as currently in
effect, of each of the Company and its U.S. Subsidiaries. There are no
provisions or requirements contained in any organizational or governing
documents of the Company's non-U.S. Subsidiaries that do or would reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company.
SECTION 3.2 Capitalization of the Company and Its
Subsidiaries. (a) The authorized capital stock of the Company consists of:
15,000,000 Shares, of which 7,276,168 Shares were issued and outstanding as of
the close of business on October 24, 2000. All of the issued and outstanding
Shares have been validly issued, and are duly authorized, fully paid,
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non-assessable and free of preemptive rights, except and to the extent provided
in Sections 114 and 6029 of the NYBL. Except as set forth above, as of the date
hereof, there are outstanding (i) no shares of capital stock or other voting
securities of the Company; (ii) no securities of the Company or any of its
Subsidiaries convertible into or exchangeable for shares of capital stock or
voting securities of the Company; (iii) no options or other rights to acquire
from the Company or any of its Subsidiaries, and no obligations of the Company
or any of its Subsidiaries to issue, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of the Company; and (iv) no equity equivalents, interests in the
ownership or earnings of the Company or any of its Subsidiaries or other similar
rights, including stock appreciation rights (collectively, "COMPANY
SECURITIES"). There are no outstanding obligations of the Company or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any Company Securities.
There are no shareholder agreements (other than the voting agreements entered
into in connection with the transactions contemplated hereby), voting trusts or
other agreements or understandings to which the Company or any of its
Subsidiaries is a party or to which it is bound relating to the voting of any
shares of capital stock of the Company.
(b) Except for minority positions held by foreign nationals
in non-U.S. Subsidiaries of the Company as required by applicable Law, all of
the outstanding capital stock of the Company's Subsidiaries is owned by the
Company, directly or indirectly, free and clear of any Lien (as hereinafter
defined) or any other limitation or restriction (including any restriction on
the right to vote or sell the same, except as may be required as a matter of
Law). There are no securities of the Company or its Subsidiaries convertible
into or exchangeable for, no options or other rights to acquire from the Company
or its Subsidiaries, and no other contract, understanding, arrangement or
obligation (whether or not contingent) providing for the issuance or sale,
directly or indirectly of, any capital stock or other ownership interests in, or
any other securities of, any Subsidiary of the Company. There are no outstanding
contractual obligations of the Company or its Subsidiaries to repurchase, redeem
or otherwise acquire any outstanding shares of capital stock or other ownership
interests in any Subsidiary of the Company. For purposes of this Agreement,
"LIEN" means, with respect to any asset (including, without limitation, any
security) any mortgage, lien, pledge, charge, security interest or encumbrance
in respect of such asset.
SECTION 3.3 Authority Relative to This Agreement. (a) The
Company has all necessary corporate power and authority to execute and deliver
this Agreement and the Stock Option Agreement and to consummate the transactions
contemplated hereby and thereby. No other corporate proceedings on the part of
the Company are necessary to authorize this Agreement and the Stock Option
Agreement or to consummate the transactions contemplated hereby and thereby
(other than, with respect to the Share Exchange and this Agreement, the Company
Requisite Vote (as hereinafter defined)). This Agreement and the Stock Option
Agreement have been duly and validly executed and delivered by the Company and
constitute valid, legal and binding agreements of the Company, enforceable
against the Company in accordance with their respective terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar Laws of general
applicability related to or affecting creditors' rights or by general equity
principles.
(b) The Board of Directors of the Company (the "COMPANY
BOARD") has duly and validly authorized the execution and delivery of this
Agreement and the Stock Option Agreement and approved the consummation of the
transactions contemplated hereby and thereby, and taken all corporate actions
required to be taken by the Company Board for the consummation of such
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transactions, including the Share Exchange, and has resolved (i) to deem this
Agreement and the transactions contemplated hereby, including the Share
Exchange, taken together, advisable to and in the best interest of the Company
and its shareholders; and (ii) to recommend that the shareholders of the Company
approve and adopt this Agreement. Pursuant to Section 143-a of the NYBL, the
Company Board has directed that this Agreement be submitted to the shareholders
of the Company for their approval. The affirmative approval of the holders of at
least two-thirds (2/3) of the outstanding Shares (voting as a single class) as
of the record date for the Company Shareholder Meeting (as hereinafter defined)
(the "COMPANY REQUISITE VOTE") is the only vote of the holders of any class or
series of capital stock of the Company necessary to adopt this Agreement and
approve the transactions contemplated hereby, including the Share Exchange.
SECTION 3.4 Reports; Financial Statements.(a) Since January
1, 1998, the Company has timely filed all reports and other documents, together
with any amendments required to be made with respect thereto, that were required
to be filed with any Governmental Entity, including the SEC (the "REGULATORY
DOCUMENTS"), and has paid all fees and assessments due and payable in connection
therewith.
(b) As of their respective dates, the Regulatory Documents
of the Company complied in all material respects with the applicable
requirements of the Securities Laws (as hereinafter defined), and the rules and
regulations of the SEC promulgated thereunder applicable to such Regulatory
Documents, and none of the Company's Regulatory Documents, as of their
respective dates, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The Company has previously delivered or made available to
Parent a complete copy of each Regulatory Document filed with the SEC, the
Federal Deposit Insurance Company (the "FDIC") or the New York State Banking
Department after January 1, 1998, including a Form ADV for any Subsidiary of the
Company that is a registered Investment Advisor (as defined in the Advisers Act
(as hereinafter defined)), and will deliver to Parent promptly after the filing
thereof a complete copy of each Regulatory Document filed with the SEC, the FDIC
or the New York State Banking Department after the date hereof and prior to the
Closing Date. There (i) is no unresolved violation with respect to any report or
statement relating to any examinations or inspections of the Company or any of
its Subsidiaries by any Governmental Entity and (ii) have been no material
disagreements or disputes with any Governmental Entity with respect to the
business, operations, policies or procedures of the Company since January 1,
1998.
(c) The Company has made available to Parent: (i) its
Annual Reports to Shareholders for each of the fiscal years ended December 31,
1998 and 1999; (ii) unaudited financial statements as of and for the quarters
ended March 31, June 30 and September 30, 2000; (iii) all definitive proxy
statements relating to the Company's meetings of shareholders (whether annual or
special) held since January 1, 1998; and (iv) all other reports either filed by
the Company with the SEC or distributed to shareholders since January 1, 1998
(each such reports, financial statements, proxy statements and other reports,
together with the amendments thereto, the "COMPANY REPORTS"). None of such
Company Reports contained, when filed, any untrue statement of a material fact
or omitted to state a material fact required to be stated or incorporated by
reference therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. The
consolidated financial statements of the Company included in the Company Reports
complied as to form in all material respects with generally accepted accounting
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principles applied on a consistent basis ("GAAP") (except as may be indicated in
the notes thereto or in the case of quarterly statements except for the absence
of notes thereto), and accurately reflected in accordance with GAAP the
consolidated financial position of the Company and its consolidated Subsidiaries
as of the dates thereof and their consolidated results of operations and changes
in financial position for the periods then ended (subject, in the case of the
unaudited interim financial statements, to normal year-end adjustments). Since
January 1, 2000, there has not been any material change, or any application or
request for any material change, by the Company or any of its Subsidiaries in
accounting principles, methods or policies for financial accounting or Tax
purposes, except for such change required by Law, SEC regulation or generally
applicable changes in GAAP.
SECTION 3.5 No Undisclosed Liabilities. Except for those
liabilities that are fully reflected or reserved against on the latest balance
sheet as of September 30, 2000 and liabilities incurred in the ordinary course
of business consistent with past practice since the date of such balance sheet,
none of the Company or its Subsidiaries has any material liabilities or
obligations of any nature, whether or not accrued, contingent or otherwise, and
whether due or to become due or asserted or unasserted, which would be required
by GAAP to be reflected in or reserved against in a consolidated balance sheet
of the Company and no liabilities that would be required by GAAP to be disclosed
in the notes thereto, other than liabilities disclosed in the Company Reports or
incurred in the ordinary course of business consistent with past practice, were
not otherwise disclosed to Parent.
SECTION 3.6 Absence of Changes. Except as set forth in
Section 3.6 of the Company Disclosure Schedule, or to the extent publicly
disclosed by the Company in the Company Reports, since December 31, 1999 (the
"AUDIT DATE"), there have been no events, changes or developments with respect
to the Company or its Subsidiaries, which do or would reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company.
Except as set forth in Section 3.6 of the Company
Disclosure Schedule or to the extent publicly disclosed in the Company Reports,
since the Audit Date, the Company and its Subsidiaries have conducted their
business in the ordinary and usual course consistent with past practice and
there has not been:
(a) any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of capital stock of
the Company (other than payment of the Company's regular quarterly cash dividend
on the Shares in the amount of $0.35 per Share), or any repurchase, redemption
or other acquisition by the Company or any Subsidiary of any Company Securities;
(b) any amendment of any term of any outstanding security
of the Company or any Subsidiary that would materially increase the obligations
of the Company or such Subsidiary under such security;
(c) (i) any incurrence or assumption by the Company or any
Subsidiary of any indebtedness for borrowed money, other than in the ordinary
and usual course of business consistent with past practice (it being understood
that any indebtedness incurred prior to the date hereof in respect of capital
expenditures shall be considered to have been in the ordinary and usual course
of business consistent with past practice), or (ii) any guarantee, endorsement
or other incurrence or assumption of liability (whether directly, contingently
or otherwise) by the Company or any Subsidiary for the obligations of any other
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person (other than any Wholly-Owned Subsidiary), other than in the ordinary and
usual course of business consistent with past practice;
(d) any creation or assumption by the Company or any
Subsidiary of any Lien on any material asset of the Company or any Subsidiary
other than in the ordinary and usual course of business consistent with past
practice;
(e) any making of any loan, advance or capital contribution
to or investment in any person by the Company or any Subsidiary other than (i)
investments made in the ordinary and usual course of business consistent with
past practice, (ii) loans, advances or capital contributions to or investments
in Wholly-Owned Subsidiaries or (iii) loans or advances made in the ordinary and
usual course of business consistent with past practice;
(f) (i) any contract or agreement entered into by the
Company or any Subsidiary on or prior to the date hereof relating to any
material acquisition or disposition of any assets or business or (ii) any
modification, amendment, assignment, termination or relinquishment by the
Company or any Subsidiary of any contract, license or other right (including any
insurance policy naming it as a beneficiary or a loss payable payee) that does
or would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company, other than, in the case of (i) and (ii),
transactions, commitments, contracts or agreements in the ordinary and usual
course of business consistent with past practice;
(g) other than in the ordinary and usual course of business
consistent with past practice, any (i) grant of any material severance or
termination pay to any director, officer or employee of the Company or any of
its Subsidiaries; (ii) entering into of any material employment, deferred
compensation or other similar agreement (or any amendment to any such existing
agreement) with any director, officer or employee of the Company or any of its
Subsidiaries; (iii) material increase in benefits payable under any existing
severance or termination pay policies or employment agreements; or (iv) material
increase in compensation, bonus or other benefits payable to directors, officers
or employees of the Company or any of its Subsidiaries other than merit
increases in salaries of employees at regularly scheduled times in customary
amounts consistent with past practices; or
(h) any making or rescission of any material express or
deemed election relating to Taxes, settlement or compromise of any material
claim, action, suit, litigation, proceeding, arbitration, investigation, audit
or controversy relating to Taxes, or except as may be required by applicable
Law, making of any change to any of its material methods of reporting income or
deductions for federal income Tax purposes from those employed in the
preparation of its most recently filed federal income Tax return.
SECTION 3.7 Information Supplied. None of the information
supplied or to be supplied by the Company for inclusion or incorporation by
reference in (i) the registration statement on Form S-4 to be filed with the SEC
by Parent in connection with the issuance of Parent Common Stock as required by
the terms of this Agreement pursuant to the Share Exchange (the "S-4"), at the
time the S-4 is filed with the SEC and at the time it becomes effective under
the Securities Act, will contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) the proxy statement relating to the
Company Shareholder Meeting to be held in connection with the Share Exchange
(the "PROXY STATEMENT") will, at the date mailed to shareholders and at the time
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of the meeting of shareholders to be held in connection with the Share Exchange,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not misleading
and (iii) the Applications (as hereinafter defined) will, at the date of filing
and through and including the date of action by the appropriate Governmental
Entities thereon, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading, or will otherwise fail to comply in all material respects
with applicable Law. If at any time prior to the Effective Time any event with
respect to the Company, its officers and directors or any of its Subsidiaries
should occur which is required to be described in an amendment of, or a
supplement to, the S-4, the Proxy Statement or an Application, the Company shall
promptly so advise Parent and such event shall be so described, and such
amendment or supplement (which Parent shall have a reasonable opportunity to
review) shall be, as required by Law, disseminated to the shareholders of the
Company or filed with the relevant Governmental Entity.
SECTION 3.8 No Violations. Except as set forth in Section
3.8 of the Company Disclosure Schedule, neither the execution, delivery and
performance of this Agreement or the Stock Option Agreement by the Company nor
the consummation by the Company of the transactions contemplated hereby or
thereby will violate, conflict with or result in any breach of, require any
consent, waiver or notice under any term of, or result in the reduction, loss or
cancellation of any benefit or the creation or acceleration of any right or
obligation under (i) any provision of the respective organizational certificate
or bylaws (or similar governing documents) of (x) the Company or (y) any of its
Subsidiaries, (ii), any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, license, contract, agreement or other
instrument or obligation to which the Company or any of its Subsidiaries is a
party or by which any of them or any of their respective properties or assets
may be bound (other than advisory agreements that contain change of control or
non assignment provisions or are otherwise terminable under applicable Law,) or
(iii) any Law applicable to the Company or any of its Subsidiaries or any of
their respective properties or assets (assuming the making by Parent of all
required filings with, and the receipt by Parent of all required permits,
authorizations, consents and approvals of all applicable Governmental Entities),
except in the case of (i)(y), (ii) or (iii) to the extent that does not or would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company.
SECTION 3.9 No Default. Neither the Company nor any of its
Subsidiaries is in violation of any term of (i) its organizational certificate
or bylaws (or similar governing documents), (ii) any agreement to which it is a
party or by which it is bound, or (iii) any non-U.S. or domestic law, order,
writ, injunction, decree, ordinance, award, stipulation, statute, rule or
regulation entered by a Governmental Entity ("LAW") applicable to the Company,
its Subsidiaries or any of their respective properties or assets, the
consequence of which violation does or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
SECTION 3.10 Property. (a) The Company owns no real
property.
(b) Each of the Company and its Subsidiaries has valid
leasehold interests in all of its leased real property.
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(c) Each of the Company and its Subsidiaries enjoy peaceful
and undisturbed possession under, and has complied in all material respects with
the terms of, all leases to which it is a party, and all such leases are in full
force and effect, except to the extent that does not or would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company.
SECTION 3.11 Litigation. Except as set forth in Section
3.11 of the Company Disclosure Schedule or to the extent publicly disclosed by
the Company in the Company Reports, there is no suit, claim, action, proceeding
or investigation pending or, to the Company's knowledge, threatened against the
Company or any of its Subsidiaries or any of their respective properties or
assets which (a) seeks damages in excess of $250,000, (b) seeks material
equitable relief or remediation, (c) does or would reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the Company
or (d) as of the date hereof, questions the validity of this Agreement, the
Stock Option Agreement or any action to be taken by the Company in connection
with the consummation of the transactions contemplated hereby or thereby or
could otherwise prevent or delay the consummation of the transactions
contemplated by this Agreement. Except as set forth in Section 3.11 of the
Company Disclosure Schedule or to the extent publicly disclosed by the Company
in the Company Reports, none of the Company or its Subsidiaries is subject to
any outstanding material order, writ, injunction, decree or cease and desist
order.
SECTION 3.12 Compliance with Applicable Law. The Company
and its Subsidiaries hold all permits, licenses, variances, exemptions, orders
and approvals of all Governmental Entities necessary for the lawful conduct of
their respective businesses (the "COMPANY PERMITS"), except for failures to hold
such permits, licenses, variances, exemptions, order and approvals which do not
or would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company. The Company and its Subsidiaries are in
compliance with the terms of the Company Permits, except where the failure to so
comply does not or would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company. The businesses of the
Company and its Subsidiaries are not being conducted in violation of any Law
applicable to the Company or its Subsidiaries except for violations or possible
violations which do not and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company. To
the Company's knowledge, no investigation by any Governmental Entity other than
periodic examinations conducted in the ordinary course with respect to the
Company or its Subsidiaries is pending or threatened, nor, to the Company's
knowledge, has any Governmental Entity indicated an intention to conduct the
same.
SECTION 3.13 Employee Plans. (a) Section 3.13(a) of the
Company Disclosure Schedule sets forth a list of all material "employee benefit
plans," as defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), and all material bonus or other incentive
compensation, stock option, stock award, stock purchase or equity-based
compensation, deferred compensation, severance, sick leave, vacation, salary
continuation, medical, life insurance, scholarship, company car, or employee
loan plan, policy or agreement except government-mandated plans (each a "COMPANY
EMPLOYEE BENEFIT PLAN" and collectively, the "COMPANY EMPLOYEE BENEFIT PLANS")
which the Company or any of its Subsidiaries has any obligation to or liability
for contingent or otherwise with respect to any current or former employee or
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director. None of the Company Employee Benefit Plans is a multiemployer plan, as
defined in Section 3(37) of ERISA or is or has been subject to Sections 4063 or
4064 of ERISA.
(b) True, correct and complete copies of the following
documents, with respect to each of the Company Employee Benefit Plans have been
made available to Parent by the Company: (i) any plans and related trust
documents, and amendments thereto; (ii) the most recent Forms 5500 and schedules
thereto; (iii) the most recent Internal Revenue Service ("IRS") determination
letter; (iv) the most recent financial statements and actuarial valuations, if
applicable; (v) summary plan descriptions; and (vi) written communications to
employees relating to the Company Employee Benefit Plans within the preceding
twelve (12) months.
(c) As of the date hereof, (i) all material payments
required to be made by or under any Company Employee Benefit Plan, any related
trusts, or any collective bargaining agreement or pursuant to Law have been made
by the due date thereof (including any valid extension); (ii) the Company and
its Subsidiaries have performed all material obligations required to be
performed by them under any Company Employee Benefit Plan; (iii) the Company
Employee Benefit Plans, have been administered in material compliance with their
terms and the requirements of ERISA, the Code and other applicable Laws; (iv)
there are no material actions, suits, arbitrations or claims (other than routine
claims for benefit) pending or, to the Company's knowledge, threatened with
respect to any Company Employee Benefit Plan; and (v) the Company and its
Subsidiaries have no material liability as a result of any "prohibited
transaction" (as defined in Section 406 of ERISA and Section 4975 of the Code)
for any excise Tax or civil penalty.
(d) Except as set forth in Section 3.13(d) of the Company
Disclosure Schedule:
(i) As of the date hereof, there is no "amount of
unfunded benefit liabilities" as defined in Section
4001(a)(18) of ERISA in any of the respective Company
Employee Benefit Plans subject to Title IV of ERISA
("TITLE IV PLANS"). As of the date hereof, each of
the respective Title IV Plans are fully funded in
accordance with the actuarial assumptions used by the
Pension Benefit Guaranty Corporation ("PBGC") to
determine the level of funding required in the event
of the termination of such Title IV Plan and the
"benefit liabilities" as defined in Section
4001(a)(16) of ERISA of such Title IV Plan using such
PBGC assumptions do not exceed the assets of such
Title IV Plan.
(ii) Neither the Company nor any person under common
control or treated as a single employer with the
Company ("ERISA Affiliate") has terminated any Title
IV Plan; or
(e) Each of the Company Employee Benefit Plans which is
intended to be "qualified" within the meaning of Section 401(a) of the Code has
been determined by the IRS to be so "qualified" and the trusts maintained
pursuant thereto are exempt from federal income taxation under Section 501 of
the Code, and the Company knows of no fact which would adversely affect the
qualified status of any such Plan or the exemption of such trust.
(f) Except as set forth in Section 3.13(f) of the Company
Disclosure Schedule, neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will by itself or in
combination with any other event, except as expressly contemplated by this
Agreement, (i) result in any payment becoming due, or increase the amount of
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compensation or benefits to any current or former employee or director of the
Company or any of its Subsidiaries; or (ii) result in the acceleration of the
time of payment or vesting of any compensation or benefits to any current or
former employee and director of the Company or any of its Subsidiaries or
increase any benefits under any Company Employee Benefit Plan.
SECTION 3.14 Environmental Liability. There are no legal,
administrative, arbitral or other proceedings, claims, actions, causes of
action, private environmental investigations or remediation activities or
governmental investigations of any nature seeking to impose, or that could
reasonably result in the imposition, on the Company of any liability or
obligation arising under common law or under any local, state or federal
environmental statute, regulation or ordinance including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, pending or threatened against the Company, which liability or
obligation will, either individually or in the aggregate, have a Material
Adverse Effect on the Company. To the knowledge of the Company, there is no
reasonable basis for any such proceeding, claim, action or governmental
investigation that would impose any such liability or obligation on the Company.
The Company is not subject to any agreement, order, judgment, decree, letter or
memorandum by or with any Governmental Entity or third party imposing any
liability or obligation with respect to the foregoing that would reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect on the Company.
SECTION 3.15 Tax Matters. (a) The Company and each of its
Subsidiaries, and each affiliated combined or unitary group of which the Company
or any of its Subsidiaries is or has been a member, has timely filed all
federal, state, local and non-U.S. income and franchise Tax Returns (as
hereinafter defined) and all other material Tax Returns and reports required to
be filed by it or has timely filed requests for extensions of the filing
deadline on such Tax Returns. All such Tax Returns are complete and correct in
all material respects. The Company and each of its Subsidiaries has paid (or the
Company has paid on its Subsidiaries' behalf) all Taxes shown as due on such Tax
Returns for the periods covered by such Tax Returns and there are no other Taxes
due for which adequate reserves have not been established.
(b) The Company is a "bank" as defined in Section 581 of
the Code.
(c) No deficiencies for any Taxes have been proposed,
asserted or assessed against the Company or any of its Subsidiaries that have
not been fully paid or adequately provided for in the appropriate financial
statements of the Company and its Subsidiaries, no requests for waivers of the
time to assess any Taxes are pending, and no power of attorney with respect to
any Taxes has been executed or filed with any taxing authority.
(d) No material liens for Taxes exist with respect to any
assets or properties of the Company or any of its Subsidiaries, except for
statutory liens for Taxes not yet due.
(e) None of the Company or any of its Subsidiaries is a
party to or is bound by any Tax sharing agreement, Tax indemnity obligation or
similar agreement, arrangement or practice with respect to Taxes (including any
advance pricing agreement, closing agreement or other agreement relating to
Taxes with any taxing authority).
(f) The Company and its Subsidiaries have complied in all
material respects with all applicable Laws relating to the payment and
withholding of Taxes and has duly and timely withheld from employee salaries,
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wages and other compensation and has paid to the appropriate taxing authorities
all material amounts required to be so withheld and paid over for all periods
under all applicable laws.
(g) No material federal, state, local or non-U.S. audits or
other administrative proceedings or court proceedings are presently pending with
regard to any federal, state, local or non-U.S. income or franchise Taxes or
material other federal, state, local or non-U.S. Taxes or Tax Returns of the
Company or its Subsidiaries and neither the Company nor any of its Subsidiaries
has received a written notice of any pending audit or proceeding. No material
issues relating to Taxes have been raised in writing by the relevant taxing
authority during any presently pending audit or examination.
(h) Neither the Company nor any of its Subsidiaries has
agreed to or is required to make any material adjustment under Section 481(a) of
the Code or any similar provision of non-U.S. law that would affect any taxable
year beginning after the date hereof.
(i) Neither the Company nor any of its Subsidiaries has
with regard to any assets or property held or acquired by any of them, filed a
consent to the application of Section 341(f) of the Code or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as such term is defined in Section 341(f)(4) of the Code) owned by the Company
or any of its Subsidiaries.
(j) The Company is not currently, has not been within the
last five (5) years, and does not anticipate becoming a "United States Real
Property Holding Company" within the meaning of Section 897(c) of the Code.
(k) No Subsidiary of the Company owns any Shares.
(l) Each Company Fund (as hereinafter defined) which is
qualified as a "registered investment company" under subchapter M of the Code
has been managed in a manner consistent with its qualification as a "registered
investment company" under Subchapter M of the Code. No such Company Fund is
subject to the payment of Tax for any taxable year by reason of its failure to
satisfy the minimum distribution requirements of Section 852(a)(1) of the Code.
(m) At the Effective Time, none of the Shares will be
subject to a substantial risk of forfeiture within the meaning of Section 83 of
the Code.
(n) Neither the Company nor any Subsidiary of the Company
has constituted either a "distributing corporation" or a "controlled
corporation" (within the meaning of Section 355(a)(1)(A) of the Code) in a
distribution of stock qualifying for tax-free treatment under Section 355 of the
Code (i) in the two (2) years prior to the date of this Agreement or (ii) in a
distribution which could otherwise constitute part of a "plan" or "series of
related transactions" (within the meaning of Section 355(e) of the Code) in
conjunction with the Share Exchange.
(o) None of the transactions contemplated by this Agreement
will cause any gains or losses to be recognized by the Company or any of its
Subsidiaries by reason of the consolidated return regulation promulgated under
Section 1502 of the Code.
(p) For purposes of this Agreement, "TAX" or "TAXES" shall
mean all taxes, charges, fees, imposts, levies, gaming or other assessments,
including, without limitation, all net income, gross receipts, capital, sales,
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use, ad valorem, value added, transfer, franchise, profits, inventory, capital
stock, license, withholding, payroll, employment, social security, unemployment,
excise, severance, stamp, occupation, property and estimated taxes, customs
duties, fees, assessments and charges of any kind whatsoever, together with any
interest and any penalties, fines, additions to Tax or additional amounts
imposed by any taxing authority (domestic or non-U.S.) and shall include any
transferee liability in respect of Taxes, any liability in respect of Taxes
imposed by contract, Tax sharing agreement, Tax indemnity agreement or any
similar agreement (whether oral or written). "TAX RETURNS" shall mean any
report, return, document, declaration or any other information or filing
required to be supplied to any taxing authority or jurisdiction (non-U.S. or
domestic) with respect to Taxes, including, without limitation, information
returns, any document with respect to or accompanying payments of estimated
Taxes, or with respect to or accompanying requests for the extension of time in
which to file any such report, return, document, declaration or other
information.
SECTION 3.16 Ineligible Persons. Subject to the provisions
of Section 202(a)(11) and Section 202(a)(26) of the Advisers Act, and to the
provisions of Section 3(a)(4) and Section 3(a)(5) of the Exchange Act (a)
neither the Company, nor any "affiliated person" (as defined in the Investment
Company Act) thereof, is ineligible pursuant to Section 9(a) or 9(b) of the
Investment Company Act to serve as an investment adviser (or in any other
capacity contemplated by the Investment Company Act) to a registered investment
company;
(b) Neither the Company nor any "associated person" (as
defined in the Advisers Act) thereof, is ineligible pursuant to Section 203 of
the Advisers Act to serve as an investment adviser or as an associated person to
a registered investment advisor; and
(c) Neither the Company nor any "associated person" (as
defined in the Exchange Act) thereof, is ineligible pursuant to Section 15(b) of
the Exchange Act to serve as a broker-dealer or as an associated person to a
registered broker-dealer.
SECTION 3.17 Material Contracts. (a) Section 3.17 of the
Company Disclosure Schedule sets forth a list of all Subsection (a) Contracts
(as hereinafter defined). The Company has heretofore made available to Parent
true, correct and complete copies of all: (i) contracts or agreements (other
than Company Employee Benefit Plans) that would be required to be filed by Item
10 of Form 10-K if the Company were required to file a Form 10-K with the SEC on
the date hereof; (ii) the Global Plus License Agreement; and (iii) commitments
and agreements to enter into any of the foregoing (collectively, the "SUBSECTION
(A) CONTRACTS").
(b) Each of the Subsection (a) Contracts, any agreements
providing for investment advisory services by the Company or any of its
Subsidiaries ("advisory agreements") and any commitments or agreements to enter
into such advisory agreements (collectively "MATERIAL CONTRACTS," and each a
"Material Contract") is in full force and effect. There is no material default
under any Material Contract either by the Company or, to the Company's
knowledge, by any other party thereto, and no event has occurred that with the
lapse of time or the giving of notice or both would constitute a material
default thereunder by the Company or, to the Company's knowledge, any other
party.
(c) Each Investment Company Advisory Agreement (as
hereinafter defined) subject to Section 15 of the Investment Company Act has
been duly approved by the Company or its Subsidiary at all times in compliance
with Section 15 of the Investment Company Act and all other applicable Laws.
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Each such Investment Company Advisory Agreement has been performed by Company in
accordance with the Investment Company Act and all other applicable Laws.
SECTION 3.18 Funds. (a) Schedule 3.18 sets forth a true,
complete and correct list, as of the date hereof, of each Fund for which the
Company or any of its Subsidiaries acts as investment adviser or subadviser.
Each Company Fund (as hereinafter defined) that is an entity is duly organized,
validly existing and in good standing under the Laws of the jurisdiction of its
organization and has the requisite corporate, trust or partnership power and
authority to own its properties and to carry on its business as it is now
conducted, and is qualified to do business in each jurisdiction where it is
required to do so under applicable Law, except where the failure to have such
power, authority or qualification does not or would not reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect on the
Company. Each Company Fund is, and at all times as required under the Securities
Laws since prior to its initial public offering of Securities (as defined in the
Securities Act) has been, duly registered with the SEC, to the extent such
registration is required, as an investment company under the Investment Company
Act.
(b) Except as set forth in Schedule 3.18 of the Company
Disclosure Schedule, (i) the shares of each Company Fund are qualified for
public offering and sale in each jurisdiction where offers are made to the
extent required under applicable Law and (ii) each Company Fund has been
operated since its organization and is currently operating in compliance in all
material respects with applicable Law.
SECTION 3.19 Insurance. Section 3.19 of the Company
Disclosure Schedule sets forth a list of insurance policies (including
information on the premiums payable in connection therewith and the scope and
amount of the coverage provided thereunder) maintained by the Company or any of
its Subsidiaries, which policies have been issued by insurers, which, to the
Company's knowledge, are reputable and financially sound and provide coverage
for the operations conducted by the Company and its Subsidiaries of a scope and
coverage consistent with customary industry practice.
SECTION 3.20 Risk Management Instruments. To the Company's
knowledge, all interest rate swaps, caps, floors, collars, option agreements,
futures and forward contracts and other similar risk management arrangements,
whether entered into for the Company's own account, or for the account of one or
more of the Company's Subsidiaries or their customers, were entered into (a) in
accordance with prudent business practices and all applicable Laws and
regulatory policies and (b) with counterparties believed to be financially
responsible at the time; and each of them constitutes the valid and legally
binding obligation of the Company or one of its Subsidiaries, enforceable in
accordance with its terms except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar Laws of general applicability relating to or affecting creditors' rights
or by general equity principles, and is in full force and effect. Neither the
Company nor any of its Subsidiaries, nor to the Company's knowledge, any other
party thereto, is in material breach of any of its obligations under any such
agreement or arrangement.
SECTION 3.21 Intellectual Property. To the knowledge of the
Company:
(a) the Company and each of its Subsidiaries owns, or is
licensed to use (in each case, free and clear of any material Liens), all
Intellectual Property (as defined below) necessary for the conduct of its
business as currently conducted;
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(b) the use of any Intellectual Property by the Company and
its Subsidiaries does not infringe on or otherwise violate in any material
respect the rights of any person and is in accordance with any applicable
license pursuant to which the Company or any Subsidiary acquired the right to
use any Intellectual Property;
(c) no Person is challenging, infringing on or otherwise
violating any material right of the Company or any of its Subsidiaries with
respect to any Intellectual Property owned by and/or licensed to the Company or
its Subsidiaries; and
(d) Except as set forth in Section 3.21 of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries has
received any written notice of any pending claim with respect to any material
Intellectual Property used by the Company and its Subsidiaries and no such
Intellectual Property owned and/or licensed by the Company or its Subsidiaries
is being used or enforced in a manner that would result in the abandonment,
cancellation or unenforceability of such Intellectual Property. For purposes of
this Agreement, "INTELLECTUAL PROPERTY" shall mean trademarks, service marks,
brand names, certification marks, trade dress and other indications of origin,
the goodwill associated with the foregoing and registrations in any jurisdiction
of, and applications in any jurisdiction to register, the foregoing, including
any extension, modification or renewal of any such registration or application;
inventions, discoveries and ideas, whether patentable or not, in any
jurisdiction; patents, applications for patents (including, without limitation,
divisions, continuations, continuations in part and renewal applications), and
any renewals, extensions or reissues thereof, in any jurisdiction; nonpublic
information, trade secrets and confidential information and rights in any
jurisdiction to limit the use or disclosure thereof by any person; writings and
other works, whether copyrightable or not, in any jurisdiction; and
registrations or applications for registration of copyrights in any
jurisdiction, and any renewals or extensions thereof; any similar intellectual
property or proprietary rights.
SECTION 3.22 Labor and Employment Matters. Except as set
forth in Section 3.22 of the Company Disclosure Schedule, (a) no collective
bargaining arrangement or agreement or similar arrangement or agreement with any
labor organization, or work rules or practices agreed to with any labor
organization or employee association, exists which is binding on the Company,
(b) the Company is, and has at all other times been, in material compliance with
the Worker Adjustment and Retraining Notification Act and all other applicable
Laws respecting employment and employment practices, terms and conditions of
employment, wages, hours of work, and occupational safety and health, (c) there
are not material controversies pending or, to the Company's knowledge,
threatened, between the Company and any of its employees, (d) there are no
unfair labor practice complaints pending against the Company before the National
Labor Relations Board, (e) there are no strikes, slowdowns, work stoppages,
lockouts, or to the Company's knowledge, threats thereof, by or with respect to
any employees of the Company and (f) there are no employment contracts currently
in effect or which will become effective upon the consummation of the
transactions contemplated hereby.
SECTION 3.23 Restrictive Covenants. Except as set forth in
Schedule 3.23 of the Company Disclosure Schedule, the Company is not a party to
any contract containing non-competition or exclusivity dealing provisions that
would limit Parent's ability after the Closing to engage in business in any area
or to compete against any person or entity.
SECTION 3.24 Clients. As of the date hereof, except as set
forth on Schedule 3.24 of the Company Disclosure Schedule, the Company has not
received any notice that any client or clients that individually or in the
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aggregate are material to the business of the Company are terminating or are
planning to terminate their relationship with the Company or will reduce
materially its or their use of the services of the Company. For the purposes of
this Section 3.24, each of the Company Funds will be deemed to be material to
the Company.
SECTION 3.25 Opinion of Financial Advisor. Goldman, Sachs &
Co. (the "FINANCIAL ADVISOR") has delivered to the Company Board its opinion,
dated the date of this Agreement, to the effect that, as of such date and based
upon and subject to the matters set forth therein, the Share Exchange
Consideration is fair to the holders of Shares from a financial point of view,
and such opinion has not been withdrawn or modified.
SECTION 3.26 Brokers. No broker, finder or investment
banker (other than the Financial Advisor, a true and correct copy of whose
engagement agreement has been provided to Parent) is entitled to any brokerage,
finder's or other fee or commission or expense reimbursement in connection with
the transactions contemplated by this Agreement based upon arrangements made by
and on behalf of the Company or any of its affiliates.
SECTION 3.27 Accounting Matters;. (a) To the Company's
knowledge, based upon discussions with Ernst & Young LLP, the Company has not
taken or agreed to take any action that would prevent the Share Exchange from
qualifying as a "pooling of interests" under APB 16 and the applicable SEC rules
and regulations other than as previously disclosed to Parent as specified in
Schedule 3.27 of the Company Disclosure Schedule.
SECTION 3.28 Tax Matters. The Company has neither directly
or indirectly taken or agreed to take any action, that would prevent the Share
Exchange from qualifying as a reorganization within the meaning of Section
368(a) of the Code.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as set forth in the disclosure schedule delivered by
Parent to the Company prior to the execution of this Agreement (the "PARENT
DISCLOSURE SCHEDULE") (each section of which qualifies the correspondingly
numbered representation and warranty or covenant to the extent specified
therein), Parent hereby represents and warrants to the Company as follows:
SECTION 4.1 Organization and Qualification. (a) Each of
Parent and its Subsidiaries, is a corporation or legal entity duly organized,
validly existing and in good standing under the Laws of the jurisdiction of its
incorporation and has all requisite corporate, power and authority to own, lease
and operate its properties and to carry on its businesses as now conducted or
proposed by Parent to be conducted, except where the failure to be duly
organized, existing and in good standing or to have such power and authority
does not or would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Parent.
(b) Each of Parent and its Subsidiaries is duly qualified
or licensed and in good standing to do business in each jurisdiction in which
the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except where
the failure to be so duly qualified or licensed and in good standing does not
and would not reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect on Parent.
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(c) Parent has heretofore delivered to the Company accurate and complete copies
of the certificate of incorporation and bylaws of Parent as currently in effect.
SECTION 4.2 Capitalization of Parent and its Subsidiaries.
(a) The authorized capital stock of Parent consists of: (i) 500,000,000 shares
of Parent Common Stock, of which 243,730,139 shares of Parent Common Stock were
issued and outstanding as of the close of business on September 30, 2000, and
(ii) 1,000,000 shares of preferred stock, $1.00 par value per share, none of
which are outstanding. All of the issued and outstanding shares of Parent Common
Stock have been validly issued, and are duly authorized, fully paid,
non-assessable and free of preemptive rights. As of September 30, 2000, no more
than 2,221,000 shares of Parent Common Stock were reserved for issuance and
issuable upon or otherwise deliverable in connection with the exercise of
outstanding options. Except as described in Section 4.2 of the Parent Disclosure
Schedule, the Parent SEC Reports (as hereinafter defined) or as set forth above,
as of the date hereof, there are outstanding (i) no shares of capital stock or
other voting securities of Parent, (ii) no securities of Parent or any of its
Subsidiaries convertible into or exchangeable for shares of capital stock or
voting securities of Parent, (iii) no options or other rights to acquire from
Parent or any of its Subsidiaries, and no obligations of Parent or any of its
Subsidiaries to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of
Parent, and (iv) other than in connection with Parent's Employee Benefit Plans
and Programs, no equity equivalents, interests in the ownership or earnings of
Parent or any of its Subsidiaries or other similar rights (including stock
appreciation rights) (collectively, "PARENT SECURITIES"). There are no
outstanding obligations of Parent or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any Parent Securities. Except as set forth in the
Parent SEC Reports, there are no shareholder agreements, voting trusts or other
agreements or understandings to which Parent or any of its Subsidiaries is a
party or to which it is bound relating to the voting of any shares of capital
stock of Parent.
(b) Except for minority positions held by foreign nationals
in non-U.S. Subsidiaries as required by applicable Law, all of the outstanding
capital stock of Parent's Subsidiaries is owned by Parent, directly or
indirectly, free and clear of any Lien or any other limitation or restriction
(including any restriction on the right to vote or sell the same, except as may
be provided as a matter of Law). There are no securities of Parent or its
Subsidiaries convertible into or exchangeable for, no options or other rights to
acquire from Parent or its Subsidiaries, and no other contract, understanding,
arrangement or obligation (whether or not contingent) providing for the issuance
or sale, directly or indirectly, of any capital stock or other ownership
interests in, or any other securities of, any Subsidiary of Parent. There are no
outstanding contractual obligations of Parent or its Subsidiaries to repurchase,
redeem or otherwise acquire any outstanding shares of capital stock or other
ownership interests in any Subsidiary of Parent.
SECTION 4.3 Authority Relative to this Agreement. (a)
Parent has all necessary corporate power and authority to execute and deliver
this Agreement and the Stock Option Agreement and to consummate the transactions
contemplated hereby and thereby. No other corporate proceedings on the part of
Parent are necessary to authorize this Agreement and the Stock Option Agreement
or to consummate the transactions contemplated hereby or thereby. This Agreement
and the Stock Option Agreement have been duly and validly executed and delivered
by Parent and constitute valid, legal and binding agreements of Parent,
enforceable against Parent in accordance with their respective terms except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar Laws of general
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applicability related to or affecting creditors' rights or by general equity
principles.
(b) The Board of Directors of Parent (the "PARENT BOARD")
has duly and validly authorized the execution and delivery of this Agreement and
the Stock Option Agreement and the consummation of the transactions contemplated
hereby and thereby, and taken all corporate actions required to be taken by the
Parent Board for the consummation of such transactions.
SECTION 4.4 SEC Reports; Financial Statements. (a) Parent
has filed all required forms, reports and documents, together with any
amendments required to be made thereto, with the SEC since January 1, 1998, each
of which has complied in all material respects with all applicable requirements
of the Securities Act and the Exchange Act, each as in effect on the dates such
forms, reports and documents were filed. Parent has heretofore delivered to the
Company, in the form filed with the SEC (including any amendments thereto), (i)
its Annual Reports on Form 10-K for the fiscal years ended September 30, 1998
and 1999, (ii) all definitive proxy statements relating to Parent's meetings of
shareholders (whether annual or special) held since January 1, 1998, and (iii)
all other reports or registration statements filed by Parent with the SEC since
January 1, 1998 (the "PARENT SEC REPORTS"). None of such forms, reports or
documents, contained, when filed, any untrue statement of a material fact or
omitted to state a material fact required to be stated or incorporated by
reference therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. The
consolidated financial statements of Parent included in the Parent SEC Reports
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto and fairly present, in conformity with GAAP on a consistent basis
(except as may be indicated in the notes thereto), the consolidated financial
position of Parent and its consolidated Subsidiaries as of the dates thereof and
their consolidated results of operations and changes in financial position for
the periods then ended (subject, in the case of the unaudited interim financial
statements, to normal year-end adjustments). Since October 1, 1999, there has
not been any material change, or any application or request for any material
change, by Parent or any of its Subsidiaries in accounting principles, methods
or policies for financial accounting or Tax purposes, except for such change
required by Law, SEC regulation or generally applicable changes in GAAP. There
is (i) no unresolved violation with respect to any report or statement relating
to any examinations or inspections of Parent or any of its Subsidiaries by any
Governmental Entity and (ii) has been no material disagreements or disputes
with, any Governmental Entity with respect to the business, operations, policies
or procedures of Parent since January 1, 1998. Parent has not filed any document
that would constitute a Parent SEC Report since October 15, 2000.
SECTION 4.5 Absence of Changes. Except as and to the extent
publicly disclosed by Parent in the Parent SEC Reports, since June 30, 2000, the
business of Parent and its Subsidiaries has been carried on in the ordinary and
usual course consistent with past practice, and there have been no events,
changes or developments with respect to Parent or its Subsidiaries, which do or
would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on Parent.
SECTION 4.6 No Undisclosed Liabilities. Except for those
liabilities that are fully reflected or reserved against on the latest balance
sheet included in the Parent SEC Reports as of June 30, 2000 and liabilities
incurred in the ordinary course of business consistent with past practices since
the date of such balance sheet, neither Parent nor its Subsidiaries has any
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material liabilities or obligations of any nature, whether or not accrued,
contingent or otherwise, and whether due or to become due or asserted or
unasserted, which would be required by GAAP to be reflected in, reserved against
or otherwise described in a consolidated balance sheet of Parent (including the
notes thereto).
SECTION 4.7 Information Supplied. None of the information
supplied or to be supplied by Parent for inclusion or incorporation by reference
in (i) the S-4 will, at the time the S-4 is filed with the SEC and at the time
it becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, (ii) the Proxy
Statement will, at the date mailed to shareholders and at the time of the
Company Shareholder Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading and (iii) the Applications will, at the date of
filing and through and including the date of action by the appropriate
Governmental Entities thereon, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statement therein, in light of the circumstances under which
they are made, not misleading, or will otherwise fail to comply in all material
respects with applicable Law. If at any time prior to the Effective Time any
event with respect to Parent, its officers and directors or any of its
Subsidiaries should occur which is required to be described in an amendment of,
or a supplement to, the S-4, the Proxy Statement or an Application, Parent shall
promptly so advise the Company and such event shall be so described, and such
amendment or supplement (which the Company shall have a reasonable opportunity
to review) shall be promptly filed with the SEC or the relevant Governmental
Entity, as the case may be. The S-4 will comply as to form in all material
respects with the provisions of the Securities Act and the rules and regulations
thereunder.
SECTION 4.8 Consents and Approvals; No Violations. (a)
Neither the execution, delivery and performance of this Agreement or the Stock
Option Agreement by Parent nor the consummation by Parent of the transactions
contemplated hereby or thereby will violate, conflict with or result in any
breach of, require any consent, waiver or notice under any term of, or result in
the reduction, loss, or cancellation of any benefit or the creation or
acceleration of any right or obligation under (i) any provision of the
respective certificate of incorporation or bylaws (or similar governing
documents) of (x) Parent or (y) any of Parent's Subsidiaries, (ii) any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which Parent
or any of its Subsidiaries is a party or by which any of them or any of their
respective properties or assets may be bound or (iii) any Law applicable to
Parent or any of its Subsidiaries or any of their respective properties or
assets (assuming the making by the Company of all required filings with, and the
receipt by the Company of all required permits, authorizations, consents and
approvals of all applicable Governmental Entities), except in the case of, (i)
(y), (ii) or (iii) for violations, breaches or defaults which do not or would
not be expected to have, individually or in the aggregate, a Material Adverse
Effect on Parent.
SECTION 4.9 No Default. Neither Parent nor any of its
Subsidiaries is in violation of any term of (i) its certificate or articles of
incorporation, or bylaws or similar governing documents, (ii) any agreement to
which it is a party or by which it is bound, or (iii) any Law applicable to
Parent, its Subsidiaries or any of their respective properties or assets, the
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consequence of which violation does or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Parent.
SECTION 4.10 Compliance with Applicable Law. Except as or
to the extent publicly disclosed by Parent in the Parent SEC Reports Parent and
its Subsidiaries hold all permits, licenses, variances, exemptions, orders and
approvals of all Governmental Entities necessary for the lawful conduct of their
respective businesses (the "PARENT PERMITS"), except for failures to hold such
permits, licenses, variances, exemptions, orders and approvals which do not or
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on Parent. Except as and to the extent publicly
disclosed by Parent in the Parent SEC Reports, Parent and its Subsidiaries are
in compliance with the terms of the Parent Permits, except where the failure so
to comply does not or would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on Parent. Except as and to the
extent publicly disclosed by Parent in the Parent SEC Reports, the businesses of
Parent and its Subsidiaries are not being conducted in violation of any Law,
ordinance or regulation of any Governmental Entity applicable to Parent or its
Subsidiaries, except for violations or possible violations which do not and
would not reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on Parent. Except as or to the extent publicly disclosed
by Parent in the Parent SEC Reports, to Parent's knowledge, no investigation or
review by any Governmental Entity other than periodic examinations conducted in
the ordinary course with respect to Parent or its Subsidiaries is pending or
threatened, nor, to Parent's knowledge, has any Governmental Entity indicated an
intention to conduct the same.
SECTION 4.11 Ineligible Persons. Neither Parent, nor any
"affiliated person" (as defined in the Investment Company Act) thereof, is
ineligible pursuant to Section 9(a) or 9(b) of the Investment Company Act to
serve as an investment adviser (or in any other capacity contemplated by the
Investment Company Act) to a registered investment company. Neither Parent nor
any "associated person" (as defined in the Advisers Act) thereof, is ineligible
pursuant to Section 203 of the Advisers Act to serve as an investment adviser or
as an associated person to a registered investment adviser. Neither Parent nor
any "associated person" (as defined in the Exchange Act) thereof, is ineligible
pursuant to Section 15(b) of the Exchange Act to serve as a broker-dealer or as
an associated person to a registered broker-dealer.
SECTION 4.12 Parent Funds; Advisory Agreements. (a) Each
Parent Fund (as hereinafter defined) that is an entity is duly organized,
validly existing and in good standing under the Laws of the jurisdiction of its
organization and has the requisite corporate, trust or partnership power and
authority to own its properties and to carry on its business as it is now
conducted, and is qualified to do business in each jurisdiction where it is
required to do so under applicable Law, except where the failure to have such
power, authority or qualification, does not or would not reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect on Parent.
Each Parent Fund is, and at all times as required under the Securities Laws
since prior to its initial public offering of Securities (as defined in the
Securities Act) has been, duly registered with the SEC, to the extent such
registration is required, as an investment company under the Investment Company
Act.
(b) (i) The shares of each Parent Fund are qualified for
public offering and sale in each jurisdiction where offers are made to the
extent required under applicable Law and (ii) each Parent Fund has been operated
since its organization and is currently operating in compliance in all material
respect with applicable Law.
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(c) Each Parent Investment Company Advisory Agreement (as
hereinafter defined) subject to Section 15 of the Investment Company Act has
been duly approved by Parent or its Subsidiary at all times in compliance with
Section 15 of the Investment Company Act and all other applicable Laws. Each
such Parent Investment Company Advisory Agreement has been performed by Parent
in accordance with the Investment Company Act and all other applicable Laws.
SECTION 4.13 Brokers. No broker, finder or investment
banker (other than Merrill Lynch & Company) is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by and on behalf of
Parent or any of their affiliates.
SECTION 4.14 Tax Matters. Parent has neither directly or
indirectly taken or agreed to take any action that would prevent the Share
Exchange from qualifying as a reorganization within the meaning of Section
368(a) of the Code.
ARTICLE V
COVENANTS RELATED TO CONDUCT OF BUSINESS
SECTION 5.1 Conduct of Business of the Company. Except as
contemplated by this Agreement, during the period from the date hereof to the
Effective Time, the Company will, and will cause each of its Subsidiaries to,
conduct its operations in the ordinary and usual course of business consistent
with past practice and, to the extent consistent therewith, with no less
diligence and effort than would be applied in the absence of this Agreement,
seek to preserve intact its current business organizations, seek to keep
available the services of its current officers and employees and seek to
preserve its relationships with clients, customers, suppliers and others having
business dealings with it to the end that goodwill and ongoing businesses shall
be unimpaired at the Effective Time. Without limiting the generality of the
foregoing, and except as otherwise expressly provided in this Agreement or in
the Company Disclosure Schedule, prior to the Effective Time, neither the
Company nor any of its Subsidiaries will, without the prior written consent of
Parent (such consent not to be unreasonably withheld or delayed);
(a) amend its certificate of incorporation or bylaws (or
other similar governing instrument);
(b) authorize for issuance, issue, sell, deliver or agree
or commit to issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or otherwise)
any stock of any class or any other securities convertible into or exchangeable
for any stock or any equity equivalents (including, without limitation, any
stock options or stock appreciation rights) other than grants of restricted
stock pursuant to the Company's Deferred Compensation Plan in the ordinary and
usual course of business consistent with past practice or pursuant to the terms
of any Company Employee Benefit Plan in existence on the date hereof as listed
in the Company Disclosure Schedule;
(c) (i) split, combine or reclassify any shares of its
capital stock; (ii) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
its capital stock, except the declaration and payment of regular quarterly cash
dividends not in excess of $0.35 per Share with usual record and payments dates
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in accordance with past dividend practice and dividends paid by Wholly-Owned
Subsidiaries; (iii) make any other actual, constructive or deemed distribution
in respect of any shares of its capital stock or otherwise make any payments to
shareholders in their capacity as such; or (iv) redeem, repurchase or otherwise
acquire for its own account any of its securities or any securities of any of
its Subsidiaries;
(d) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its Subsidiaries;
(e) alter through merger, liquidation, reorganization,
restructuring or in any other fashion the corporate structure or ownership of
any Subsidiary;
(f) (i) incur or assume any long-term or short-term debt or
issue any debt securities, except in the ordinary and usual course of business
consistent with past practice; (ii) guarantee, endorse or otherwise incur or
assume any liability (whether directly, contingently or otherwise) for the
obligations of any other person, other than in the ordinary and usual course of
business consistent with past practice and in amounts not material to the
Company and its Subsidiaries, taken as a whole, and except for obligations of
any Wholly-Owned Subsidiaries of the Company; (iii) make any loans, advances or
capital contributions to any other person, other than to Wholly-Owned
Subsidiaries of the Company or customary loans or advances made in the ordinary
and usual course of business consistent with past practice and in amounts not
material to the maker of such loan or advance; (iv) pledge or otherwise encumber
shares of capital stock of the Company or its Subsidiaries; or (v) mortgage or
pledge any of its material assets, tangible or intangible, or create or suffer
to exist any material Lien thereupon;
(g) except as may be required by Law, or preexisting
contractual commitment and except for actions taken in the ordinary course of
business consistent with past practice, enter into, adopt or amend or terminate
any bonus, profit sharing, compensation, severance, termination, stock option,
stock appreciation right, restricted stock, performance unit, stock equivalent,
stock purchase agreement, pension, retirement, deferred compensation,
employment, severance or other employee benefit agreement, trust, plan, fund,
award or other arrangement for the benefit or welfare of any director, officer
or employee in any manner, or increase in any manner the compensation or fringe
benefits of any director, officer or employee or pay any benefit not required by
any plan and arrangement as in effect as of the date hereof (including, without
limitation, the granting of stock appreciation rights or performance units);
(h) acquire, sell, lease or dispose of any assets outside
the ordinary and usual course of business consistent with past practice or any
assets which in the aggregate are material to the Company and its Subsidiaries
taken as a whole, or enter into any commitment or transaction outside the
ordinary and usual course of business consistent with past practice;
(i) except as may be required as a result of a change in
Law or in GAAP, change any of the accounting principles or practices used by it;
(j) revalue in any material respect any of its assets,
other than in the ordinary and usual course of business consistent with past
practice or as required by GAAP;
(k) acquire (by merger, consolidation, or acquisition of
stock or assets) any corporation, partnership or other business organization or
division thereof; (ii) other than in the ordinary and usual course of business
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consistent with past practice, enter into any contract or agreement or make any
material amendment to any of the Material Contracts, other than advisory
agreements; (iii) authorize any new capital expenditure or expenditures which,
individually, is in excess of $1,000,000 or, in the aggregate, are in excess of
$5,000,000; or (iv) enter into or amend any contract, agreement, commitment or
arrangement providing for the taking of any action that would be prohibited
hereunder;
(l) make or rescind any material express or deemed election
relating to Taxes, settle or compromise any material claim, action, suit,
litigation, proceeding, arbitration, investigation, audit or controversy
relating to Taxes, or except as may be required by applicable Law, make any
change to any of its material methods of reporting income or deductions for
federal income Tax purposes from those employed in the preparation of its most
recently filed federal income tax return;
(m) pay, discharge or satisfy any material claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction in
the ordinary and usual course of business consistent with past practice of
liabilities reflected or reserved against in, the consolidated financial
statements of the Company and its Subsidiaries or incurred in the ordinary and
usual course of business consistent with past practice;
(n) settle or compromise any pending or threatened suit,
action or claim relating to the transactions contemplated hereby;
(o) take any action (including any action otherwise
permitted by this Section 5.1) to the Company's knowledge, after discussions
with Ernst & Young LLP, that would prevent or impede the Share Exchange from
qualifying as a "pooling of interests" under APB 16 and the applicable SEC rules
and regulations, other than as previously disclosed to Parent as specified in
Schedule 3.27 of the Company Disclosure Schedule;
(p) enter into any agreement or arrangement that limits or
otherwise restricts the Company or any of its Subsidiaries or affiliates
(including Parent) or any successor thereto, from engaging or competing in any
line of business or in any geographic area;
(q) take any action that would materially impede or delay
the ability of the parties to obtain any necessary approvals of any Governmental
Entity required for the transactions contemplated hereby or by Stock Option
Agreement;
(r) take any action that would reasonably be likely to
prevent or impede the Share Exchange from qualifying as a reorganization within
the meaning of Section 368(a) of the Code;
(s) voluntarily divest itself of the management of any
mutual fund or other assets currently under management other than in the
ordinary and usual course of business consistent with past practice; or
(t) take, propose to or agree in writing or otherwise to
take, any of the actions described in Sections 5.1(a) through 5.1(s)
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SECTION 5.2 Conduct of Business of Parent. Except as
otherwise expressly provided in this Agreement or as set forth in the Parent
Disclosure Schedule, prior to the Effective Time, neither Parent nor any of its
Subsidiaries will, without the prior written consent of the Company (such
consent not to be unreasonably withheld or delayed):
(a) except for such actions that are adjusted for pursuant
to Section 2.1(c), (i) declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof) in
respect of its capital stock, except the declaration and payment of regular
quarterly cash dividends with usual record and payments dates in accordance with
past dividend practice; (ii) make any other actual, constructive or deemed
distribution in respect of any shares of its capital stock or otherwise make any
payments to shareholders in their capacity as such; or (iii) redeem, purchase or
otherwise acquire any of its securities or any securities of any of its
Subsidiaries;
(b) except as may be required as a result of a change in
Law or in GAAP, change any of the accounting practices used by it;
(c) revalue in any material respect any of its assets,
other than in the ordinary and usual course of business consistent with past
practice or as required by GAAP;
(d) acquire (by merger, consolidation, or acquisition of
stock or assets) any corporation, partnership or other business organization or
division thereof, if Parent in good faith believes such acquisition would
materially delay the consummation of the transactions contemplated by this
Agreement;
(e) take any action that would materially impede or delay
the ability of the parties to obtain any necessary approvals of any Governmental
Entity required for the transactions contemplated hereby or by the Stock Option
Agreement;
(f) take any action (including any action otherwise
permitted by this Section 5.2), to Parent's knowledge, after discussions with
PricewaterhouseCoopers LLP, that would prevent or impede the Share Exchange from
qualifying as a "pooling of interests" under APB 16 and the applicable SEC rules
and regulations, other than as previously disclosed to the Company;
(g) take any action that would reasonably be likely to
prevent or impede the Share Exchange from qualifying as a reorganization within
the meaning of Section 368(a) of the Code; or
(h) take, propose or agree in writing or otherwise to take,
any of the actions described in Section 5.2(a) through 5.2(g).
SECTION 5.3 Access to Information. (a) Between the date
hereof and the Effective Time, the Company will give Parent and its authorized
representatives (including counsel, financial advisors and auditors) reasonable
access during normal business hours to all employees, offices and other
facilities and to all books and records of the Company and its Subsidiaries,
will permit Parent to make such inspections as Parent may reasonably require and
will cause the Company's officers and those of its Subsidiaries to furnish
Parent with such financial and operating data and other information with respect
to the business, properties and personnel of the Company and its Subsidiaries as
Parent may from time to time reasonably request, provided that no investigation
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pursuant to this Section 5.3(a) shall affect or be deemed to modify any of the
representations or warranties made by the Company.
(b) Between the date hereof and the Effective Time, the
Company shall furnish to Parent within two (2) business days after the delivery
thereof to management, such monthly financial statements and data as are
regularly prepared for distribution to Company management.
(c) From the date hereof to the Effective Time, Parent
shall comply with the reasonable requests of the Company to make officers
available to respond to the reasonable inquiries of the Company in connection
with the transactions contemplated hereby and to make available information
regarding Parent and its Subsidiaries as the Company may reasonably request.
(d) Parent and the Company each will hold and will cause
its authorized representatives to hold in confidence all documents and
information concerning the other furnished to it in connection with the
transactions contemplated by this Agreement pursuant to the terms of that
certain Confidentiality Agreement entered into between the Company and Parent
dated October 12, 2000 (the "CONFIDENTIALITY AGREEMENT").
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Preparation of S-4 and the Proxy Statement.
Parent and the Company will, as promptly as practicable, jointly prepare the
Proxy Statement in connection with the vote of the shareholders of the Company
with respect to the Share Exchange. Parent will, as promptly as practicable,
prepare and file with the SEC the S-4, containing a proxy statement/prospectus
and form of proxy, in connection with the registration under the Securities Act
of the shares of Parent Common Stock issuable upon the Share Exchange and the
other transactions contemplated hereby. Parent will, and will cause its
accountants and lawyers to, use all reasonable best efforts to have or cause the
S-4 declared effective as promptly as practicable after filing with the SEC,
including, without limitation, causing its accountants to deliver necessary or
required instruments, such as opinions, consents and certificates, and will take
any other action required or necessary to be taken under federal or state
securities Laws or otherwise in connection with the registration process (other
than qualifying to do business in any jurisdiction which it is not now so
qualified or to file a general consent to service of process in any
jurisdiction). To the extent necessary, the Company will cooperate with Parent
to complete the foregoing. The Parent shall, as promptly as practicable after
the receipt thereof, provide to the Company copies of any written comments and
advise the Company of any oral comments, with respect to the S-4 received from
the staff of the SEC. The Company will use its reasonable best efforts to cause
the Proxy Statement to be mailed to its shareholders at the earliest practicable
date.
SECTION 6.2 Regulatory Matters. (a) Subject to the
conditions set forth in Article VII hereof, each of Parent and the Company
shall, and shall cause its Subsidiaries to, consult and cooperate with each
other and in good faith promptly (i) take, or cause to be taken, all actions
necessary, proper or advisable to comply with all legal requirements which may
be imposed on such party or its Subsidiaries with respect to the transactions
contemplated herein, to consummate the transactions contemplated by this
Agreement and (ii) prepare and file all necessary documentation, effect all
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applications, notices, petitions and filings with, and use their reasonable best
efforts to obtain as promptly as practicable all permits, consents, approvals
and authorizations of, all Governmental Entities, including without limitation,
the FRS, which are necessary or advisable to consummate the transactions
contemplated by this Agreement.
(b) In particular, Parent shall prepare and file all
requisite notices and Applications with respect to the transactions contemplated
by this Agreement required to be made by Parent with the Federal Reserve Board
or any other Governmental Entities, as promptly as practicable after the date of
this Agreement.
(c) Parent and the Company shall have the right to review
in advance and, to the extent practicable, each will consult the other on, in
each case subject to applicable Laws relating to the exchange of information,
all the information relating to the Company or Parent, as the case may be, and
any of their respective Subsidiaries, which appear in any filing made with, or
written materials submitted to, any Governmental Entity in connection with the
transactions contemplated by this Agreement. In exercising the foregoing right,
each of the parties hereto shall act reasonably and as promptly as practicable.
(d) Parent and the Company shall keep the other reasonably
informed as to the status of all notices and Applications and, subject to
applicable Law relating to the exchange of information, provide to each other,
promptly after filing, copies of such notices and applications and all
supplemental or related filed materials.
(e) Parent and the Company shall, upon request, furnish
each other with all information concerning themselves, their Subsidiaries,
directors, officers and shareholders and such other matters as may be reasonably
necessary or advisable in connection with or any statement, filing, notice or
application made by or on behalf of Parent, the Company any of their respective
Subsidiaries to any Governmental Entity in connection with the transactions
contemplated by this Agreement.
(f) Parent and the Company shall promptly advise each other
upon receiving any communication from any Governmental Entity whose consent or
approval is required for consummation of the transactions contemplated by this
Agreement which causes such party to believe that there is a reasonable
likelihood that any required approval of any Governmental Entity will not be
obtained or that the receipt of any such approval will be materially delayed.
(g) Subject to the conditions set forth in Article VII
hereof, if any administrative or judicial action or proceeding, including any
proceeding by a private party, is instituted (or threatened to be instituted)
challenging any transaction contemplated by this Agreement as violative of any
Law, each of Parent and the Company shall cooperate in all respects with each
other and use its respective commercially reasonable best efforts to contest and
resist any such action or proceeding and to have vacated, lifted, reversed or
overturned any decree, judgment, injunction or other order, whether temporary,
preliminary or permanent, that is in effect and that prohibits, prevents or
restricts consummation of the transactions contemplated by this Agreement.
(h) Notwithstanding the foregoing, neither Parent nor the
Company shall be required to disclose to the other any personal financial
statements or other similar information concerning their directors, officers,
shareholders or their respective individual affiliates.
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SECTION 6.3 Letter of Accountants. To the extent
appropriate and/or required by either party:
(a) The Company shall use all reasonable best efforts to
cause to be delivered to Parent a letter of Ernst & Young LLP, the Company's
independent auditors, dated a date within two (2) business days before the date
on which the S-4 shall become effective and addressed to Parent, in form and
substance reasonably satisfactory to Parent and customary in scope and substance
for letters delivered by independent public accountants in connection with
registration statements similar to the S-4.
(b) Parent shall use all reasonable best efforts to cause
to be delivered to the Company a letter of PricewaterhouseCoopers LLP, Parent's
independent auditors, dated a date within two (2) business days before the date
on which the S-4 shall become effective and addressed to the Company, in form
and substance reasonably satisfactory to the Company and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the S-4.
SECTION 6.4 Meeting. (a) The Company shall take all lawful
action to (i) cause a special meeting of its shareholders (the "COMPANY
SHAREHOLDER MEETING") to be duly called and held as soon as practicable after
the S-4 is declared effective for the purpose of voting on the approval and
adoption of this Agreement and (ii) solicit proxies from its shareholders to
obtain the Company Requisite Vote for the approval and adoption of this
Agreement. The Company Board shall (i) recommend that the shareholders of the
Company adopt this Agreement and thereby approve the transactions contemplated
by this Agreement and (ii) take all lawful action (including the solicitation of
proxies) to solicit such adoption; provided, however, that the Company Board
may, at any time prior to the time of the Company Shareholder Meeting, withdraw,
modify or change any such recommendation to the extent that the Company Board
determines in good faith, after consultation with outside legal counsel, that
such withdrawal, modification or change of its recommendation is necessary to
comply with its fiduciary duties to the Company's shareholders under applicable
Law (a "COMPANY SUBSEQUENT DETERMINATION"), but only at a time that is after the
fifth business day following Parent's receipt of written notice advising Parent
that the Company Board intends to make a Company Subsequent Determination. After
providing such notice, Company shall provide a reasonable opportunity to Parent
to make such adjustments in the terms and conditions of this Agreement as would
enable the Company to proceed with its recommendation to its shareholders
without a Company Subsequent Determination; provided, however, that any such
adjustment shall be at the discretion of the parties at the time.
SECTION 6.5 [Intentionally Omitted]
SECTION 6.6 Company Fund Meetings. If and to the extent
necessary, the Company shall assist each of the Company Funds to prepare and
file with the SEC, or other applicable Governmental Entity, as soon as is
reasonably practicable a preliminary proxy statement, together with a form of
proxy, to be used in connection with the meeting of the shareholders of each
such Company Fund for the purpose of approving new Investment Company Advisor
Agreements, or other applicable agreements, with the current advisor of each
such Fund, substantially on the terms of the current Investment Company Advisor
Agreements, to take effect at the Effective Time, and, as promptly as
practicable thereafter, subject to compliance with the rules and regulations of
the SEC to the extent applicable, a definitive proxy statement with respect to
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such meeting shall be mailed to the shareholders of such Company Fund. Each such
proxy statement shall comply as to form in all material respects with all
applicable Law.
SECTION 6.7 Non-Investment Company Advisory Contract
Consents. (a) As soon as reasonably practicable after the date thereof, the
Company shall inform the Funds, that are not Company Funds, of the transactions
contemplated by this Agreement and request that such Funds take such actions as
may be necessary in connection with the deemed assignment, as defined in Section
202(c) of the Investment Advisers Act of 1940, as amended (the "Advisers Act")
(the "DEEMED ASSIGNMENT") of the advisory agreements to which the Company or any
of its Subsidiaries its Subsidiaries is a party relating to such Fund.
(b) As soon as reasonably practicable after the date
thereof, the Company shall inform its investment advisory clients that are
parties to Non-Investment Company Advisory Agreements ("NICAAS") of the
transactions contemplated by this Agreement. The Company shall request written
consent of each such client to the deemed assignment of its NICAA and use its
best efforts to obtain such consent; or in the case of NICAAs which prohibit
assignment or state by their terms that they terminate upon assignment, the
Company will use its best efforts to enter into new agreements to in
substantially identical terms be effective upon Closing and the deemed
assignment. Parent agrees that, except in the case of NICAAs that prohibit
assignment or state by their terms that they terminate upon assignment or do
not, by their terms, require written consent of the client, the Company may
obtain consent by requesting written consent as aforesaid and informing such
client: (a) of the Company's intention to effect a deemed assignment of such
NICAAs; (b) of the Company's intention to continue the advisory services,
pursuant to the NICAAs with such client after the Closing if such client does
not terminate such NICAAs prior to the Closing; and (c) that the consent of such
client will be implied if such client continues to accept such advisory services
for at least 30 days after receipt of the Closing without termination (to the
extent permitted by the Advisers Act, and any rules, regulations or
interpretations of the SEC thereunder).
SECTION 6.8 Acquisition Proposals. From the date hereof
until the termination hereof and except as expressly permitted by the following
provisions of this Section 6.8, the Company will not, nor will it permit any of
its Subsidiaries to, nor will it authorize or permit any officer, director or
employee of or any investment banker, attorney, accountant or other advisor or
representative of, the Company or any of its Subsidiaries to, directly or
indirectly, (i) solicit, initiate or knowingly encourage the submission of any
Acquisition Proposal (as hereinafter defined) or (ii) participate in any
discussions or negotiations regarding, or furnish to any person any information
with respect to, or take any other action to facilitate, any Acquisition
Proposal or any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Acquisition Proposal; provided, however,
that nothing contained in this Section 6.8 shall prohibit the Company from
furnishing information to, or entering into discussions or negotiations with,
any person that makes an unsolicited bona fide written Acquisition Proposal
after the date hereof if, and only to the extent that (A) the Company
Shareholder Meeting shall not have occurred, (B) the Company Board, after
consultation with and receipt of advice of independent legal counsel, determines
in good faith that such action is necessary for the Company Board to comply with
its fiduciary duties to the Company's shareholders under applicable Law, (C) the
Company Board determines, after consultation with and receipt of advice of its
financial advisor and after taking into account the strategic benefits to be
derived from the Share Exchange and the long-term prospects of Parent and its
Subsidiaries, that such Acquisition Proposal is reasonably likely, if
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consummated, to result in a transaction more favorable to the Company's
shareholders from a financial point of view than the Share Exchange, and (D)
prior to taking such action, the Company (x) provides reasonable notice to
Parent to the effect that it is taking such action and (y) receives from such
person an executed confidentiality/standstill agreement in reasonably customary
form and in any event containing terms at least as stringent as those contained
in the Confidentiality Agreement between Parent and the Company. Prior to
providing any information to or entering into discussions or negotiations with
any person in connection with an Acquisition Proposal by such person, the
Company shall notify Parent of any Acquisition Proposal (including, without
limitation, the material terms and conditions thereof and the identity of the
person making it) as promptly as practicable (but in no case later than 24
hours) after its receipt thereof, and shall provide Parent with a copy of any
written Acquisition Proposal or amendments or supplements thereto, and shall
thereafter inform Parent on a prompt basis of the status of any discussions or
negotiations with such a third party, and any material changes to the terms and
conditions of such Acquisition Proposal, and shall promptly give Parent a copy
of any information delivered to such person which has not previously been
reviewed by Parent. Immediately after the execution and delivery of this
Agreement, the Company will, and will cause its Subsidiaries and affiliates, and
their respective officers, directors, employees, investment bankers, attorneys,
accountants and other agents to, cease and terminate any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any possible Acquisition Proposal. The Company agrees that it will take the
necessary steps to promptly inform the individuals or entities referred to in
the first sentence hereof of the obligations undertaken in this Section 6.8.
SECTION 6.9 Public Announcements. Each of Parent and the
Company will consult with one another before issuing any press release or
otherwise making any public statements with respect to the transactions
contemplated by this Agreement, including, without limitation, the Share
Exchange, and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by applicable
Law or by obligations pursuant to any listing agreement with a securities
exchange, as determined by Parent or the Company, as the case may be.
SECTION 6.10 Indemnification. (a) From and after the
Effective Time, Parent shall, to the fullest extent permitted by applicable Law,
indemnify, defend and hold harmless each person who is now, or has been at any
time prior to the date hereof, or who becomes prior to the Effective Time, a
director, officer or employee of the Company or any of its Subsidiaries (each an
"INDEMNIFIED PARTY" and, collectively, the "INDEMNIFIED PARTIES") against all
losses, expenses (including reasonable attorneys' fees and expenses), claims,
damages or liabilities or amounts paid in settlement, arising out of actions or
omissions occurring at or prior to the Effective Time and whether asserted or
claimed prior to, at or after the Effective Time that are in whole or in part
(i) based on, or arising out of the fact that such person is or was a director,
officer or employee of such party or a Subsidiary of such party or (ii) based
on, arising out of or pertaining to the transactions contemplated by this
Agreement.
(b) In the event Parent or any of its successors or assigns
(i) consolidates with or merges into any other person and shall not be the
continuing entity of such consolidation or merger or (ii) transfers all or
substantially all of its properties and assets to any person, then and in either
such case, proper provision shall be made so that the successors and assigns of
Parent shall assume the obligations set for in this Section 6.10.
(c) Parent shall use commercially reasonable efforts to
cause the persons serving as officers and directors of the Company immediately
prior to the Effective Time to be covered for a period of six (6) years from the
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Effective Time by the directors' and officers' liability insurance policy
maintained by the Company (provided that Parent may substitute therefor policies
of at least the same coverage and amounts containing terms and conditions which
are not less advantageous than such policy with an insurance company with the
same or better rating by A.M. Best Company or otherwise reasonably approved by
the Company Board) with respect to acts and omissions occurring prior to the
Effective Time which were committed by such officers and directors in their
capacity as such; provided, however, that in no event shall Parent be required
to expend on an annual basis more than 200% of the current annual amount
expended by the Company (the "INSURANCE AMOUNT") to maintain or procure
insurance coverage pursuant hereto and further provided, that if Parent is
unable to maintain or obtain the insurance called for by this Section 6.10(c),
Parent shall use commercially reasonable efforts to obtain as much comparable
insurance as available for the Insurance Amount.
(d) To the fullest extent permitted by Law, from and after
the Effective Time, all rights to indemnification now existing in favor of the
employees, agents, directors or officers of the Company and its Subsidiaries
with respect to their activities as such prior to the Effective Time, as
provided in the Company's certificate of incorporation or bylaws and those of
its Subsidiaries, in effect on the date hereof, shall survive the Share Exchange
and shall continue in full force and effect from the Effective Time and Parent
shall provide substantially similar terms of indemnification for such persons
with respect to their activities as such following the Effective Time.
(e) The provisions of this Section 6.10 are intended to be
for the benefit of, and shall be enforceable by, each Indemnified Party, his or
her heirs and his or her representatives.
SECTION 6.11 Notification of Certain Matters. The Company
shall give prompt notice to Parent, and Parent shall give prompt notice to the
Company, of (i) any notice or other communication from any third party (other
than parties to investment advisory agreements) alleging that the consent of
such third party is or may be required in connection with the transactions
contemplated by this Agreement, or (ii) the failure or prospective failure to
satisfy any condition to the consummation of the transactions contemplated by
this Agreement set out in Article VII hereof, or the occurrence or
non-occurrence of any event which would permit the termination of this
Agreement; provided, however, that the delivery of any notice pursuant to this
Section 6.11 shall not cure such non-compliance or limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
SECTION 6.12 Pooling.Parent shall take reasonable actions
as are within its control necessary to cause the accounting of the Share
Exchange to be treated as a "pooling of interests" under APB 16 and the
applicable rules and regulations of the SEC.
SECTION 6.13 Employee Matters. (a) Parent will cause the
Company to honor the obligations of the Company or any of its Subsidiaries under
the provisions of all employment, consulting, termination, severance, change in
control and indemnification agreements (set forth on Sections 3.13(a) and 3.22
of the Company Disclosure Schedule or made available to Parent) between and
among the Company or any of its Subsidiaries and any current or former officer,
director, consultant or employee of the Company or any of its Subsidiaries.
Parent acknowledges that the consummation of the Share Exchange shall constitute
a "change in control" for all purposes under the agreements specified in the
immediately preceding sentence and the applicable Company Employee Benefit
Plans.
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(b) As promptly as practicable following the Effective
Time, Parent shall arrange for each employee of the Company or any Subsidiary to
participate in the Employee Benefit Plans covering employees of the Parent
("PARENT EMPLOYEE BENEFIT PLANS") in accordance with the eligibility criteria,
provided that (i) such participants shall receive full credit, without
duplication, for years of service with the Company or any Subsidiary (and
service otherwise credited by the Company or any Subsidiary) prior to the
Effective Time for which such service was recognized under the Company Employee
Benefit Plans, for eligibility to participate and vesting and levels of
benefits, but not benefit accrual, under similar compensation or employee
benefit plans of Parent and its Subsidiaries, (ii) such participants and their
dependents (to the extent that the terms and conditions of each Parent Employee
Benefit Plan provide for coverage and/or benefits of eligible employees'
dependents) shall participate in the Parent Employee Benefit Plans on terms no
less favorable than those offered by Parent to similarly situated employees of
Parent, (iii) Parent shall cause any and all pre-existing condition limitations,
eligibility waiting periods and evidence of insurability requirements under any
group plans to be waived with respect to such participants and their eligible
dependents to the same extent waived under the Company Employee Benefit Plans
and shall provide each such participant with credit for any co-payments and
deductibles paid during the portion of the calendar year prior to the Effective
Time which includes the Closing Date for purposes of satisfying any applicable
deductible, out-of-pocket, or similar requirements during such calendar year
under all Parent Employee Benefit Plans in which such participants are eligible
to participate after the Effective Time, (iv) during the 18-month period
following the Effective Time, Parent will provide each current and former
employee or director of the Company and each Subsidiary with benefits and
compensation that are, in the aggregate, no less favorable than the benefits and
compensation received by such employee or director prior to the Effective Time,
(v) retiree medical (including prescription drug and dental) insurance benefits
currently provided to retired employees of the Company and its Subsidiaries
shall continue to be provided to such retired employees, shall be provided upon
retirement to all employees of the Company or any of its Subsidiaries who as of
the Closing Date are at least 55 years old and have been employed by the Company
or any of its Subsidiaries for at least 10 years and shall not be reduced from
the levels provided prior to the Effective Time. Notwithstanding any of the
foregoing to the contrary, none of the provisions contained herein shall operate
to duplicate any benefit provided to any employee of the Company or the funding
of any such benefit.
(c) Parent will create and fund a retention pool in the
amount of $85,000,000 for Company's employees from and after the Effective Time
in accordance with the terms set forth in Section 6.13 of the Parent Disclosure
Schedule.
SECTION 6.14 Affiliate Letters. Pursuant to Section 2.14
hereof, Section 6.14 of the Company Disclosure Schedule sets forth a list of all
individuals who are, and all individuals who to the Company's knowledge will be
at the Closing Date, "affiliates" of the Company for purposes of Rule 145 under
the Securities Act or for purposes of qualifying the Share Exchange for
"pooling-of-interests" accounting treatment under APB 16 and applicable SEC
rules, and Section 6.14 of the Parent Disclosure Schedule sets forth a list of
all persons who are, and all persons who to Parent's knowledge will be deemed at
the Closing Date, "affiliates" of Parent for purposes of qualifying the Share
Exchange for "pooling of interests" under APB 16 and the applicable SEC rules
and regulations. The Company and Parent will each respectively cause such lists
to be updated promptly through the Closing Date. Not later than 45 days prior to
the date of the Company Shareholder Meeting, the Company shall cause its
"affiliates" to deliver to Parent a written agreement substantially in the form
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attached as Exhibit B, and Parent shall cause its "affiliates" to deliver to the
Company a written agreement substantially in the form attached as Exhibit C.
SECTION 6.15 Application of Section 16 of the Exchange Act.
Assuming the Company delivers to Parent the necessary information, prior to the
Effective Time, Parent and the Company shall take all such steps as may be
required to cause the transactions contemplated by this Agreement, including any
dispositions of Shares (including derivative securities with respect to Shares)
and acquisitions of Parent Common Stock (including derivative securities with
respect to Parent Common Stock) by each person who is subject to the reporting
requirements of Section 16(a) of the Exchange Act with respect to the Company,
or who will be subject to such requirements with respect to Parent, to be exempt
under Rule 16b-3 promulgated under the Exchange Act.
SECTION 6.16 Fees and Expenses. Whether or not the Share
Exchange is consummated, all Expenses (as hereinafter defined) incurred in
connection with this Agreement, the Stock Option Agreement and the transactions
contemplated hereby and thereby shall be paid by the party incurring such
Expenses, except Expenses incurred in connection with the filing and printing of
the Proxy Statement and the S-4 shall be incurred by Parent and Expenses
incurred in connection with the mailing of the Proxy Statement and the S-4,
shall be incurred by the Company. As used in this Agreement, "EXPENSES" includes
all out-of-pocket expenses (including, without limitation, all fees and expenses
of counsel, accountants, investment bankers, experts and consultants to a party
hereto and its affiliates) incurred by a party or on its behalf in connection
with, or related to, the authorization, preparation, negotiation, execution and
performance of this Agreement, the Stock Option Agreement and the transactions
contemplated hereby and thereby, including the preparation, filing, printing and
mailing of the Proxy Statement and the S-4 and the solicitation of shareholder
approval and all other matters related to the transactions contemplated hereby.
SECTION 6.17 Listing of Stock. Parent shall use its best
efforts to cause the shares of Parent Common Stock to be issued in connection
with the Share Exchange to be approved for listing on the NYSE on or prior to
the Closing Date, subject to official notice of issuance.
SECTION 6.18 Authorized Parent Stock. Parent has reserved
sufficient shares of Parent Common Stock from its authorized and unissued
capital stock to accomplish the transactions contemplated by this Agreement,
including the Share Exchange, and shall maintain such reservation as necessary
to accomplish the transactions contemplated hereby.
SECTION 6.19 Antitakeover Statutes. If any "fair price",
"moratorium", "control share acquisition", "affiliate transaction", "business
combination" or other antitakeover Laws statute or regulation enacted under
state or federal laws (collectively, "TAKEOVER STATUTES") is or may become
applicable to the Share Exchange or the Stock Option Agreement, each of Parent
and the Company shall take such actions as are necessary so that the
transactions contemplated by this Agreement may be consummated as promptly as
practicable on the terms contemplated hereby and otherwise act to eliminate or
minimize the effects of any Takeover Statute on the Share Exchange.
SECTION 6.20 Certain AgreementS. Parent envisages that the
Company will continue to function as an independent Subsidiary with its current
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name and Company Board. In light of the importance of this independence, Parent
and the Company agree as follows:
(a) The Company's By-laws will be amended to include the
provisions set forth in clauses (i) -- (iii) of this subsection (a) of Section
6.20(a) (the "6.20(A) PROVISIONS"):
(i) The Parent, as the holder of all of the outstanding
Shares, shall elect directors of the Company. Persons
eligible to serve on the Company Board shall be:
(A) the Company's directors in office
immediately prior to the effective time;
(B) two (2) designees of Parent's chief
executive officer; and
(C) upon the departures of persons referred to
in clause (A) by reason of death,
retirement, resignation, or removal for
cause, persons nominated by the Nominating
Committee of the Company Board. For each
vacancy the Nominating Committee of the
Company Board shall nominate three persons.
The Parent shall be entitled to vote the
Shares in its discretion in this regard.
(ii) The corporate name, bank regulatory status and
location of the principal place of business of the
Company in New York shall not be changed without the
prior approval of the Company Board.
(iii) The size of the Company Board will not be altered
(other than to the extent necessary in connection
with the appointment of the two (2) designees of
Parent's Chief Executive Officer), and the provisions
of the Company's By-Laws regarding the removal of
directors without cause will not be amended or
altered without the approval of a majority of the
Company Board.
Until the third anniversary of the Closing Date (such three (3) year
period is referred to as the "PERIOD") the 6.20(a) Provisions will not be
modified or removed from the Company's By-laws without the approval of a
majority of the Company Board.
(b) The parties agree further that for the Period:
(i) The Company shall be maintained as a separate
wholly-owned Subsidiary of Parent. Subject to the
provisions of subsection (b)(ii) below, Parent shall
consult with the Company Board with regard to any
reorganization of the operations and corporate
structures of the Subsidiaries of the Company and/or
the integration of such operations and corporate
structures with Parent's businesses and Subsidiaries
that Parent may wish to effect following the
Effective Time, with the goal of achieving maximum
efficiencies and synergies;
(ii) The global high net-worth individual businesses of
the Company and Parent as of the Effective Time,
excluding Parent's wrap-fee business, will be
developed and managed by the Company in consultation
with Parent. Parent will advance the expansion of the
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global institutional separate account businesses of
the Company for a full range of growth equities,
fixed income and real estate securities;
(iii) The Chief Executive Officer of the Company shall
report directly to the Chief Executive Officer of
Parent. Personnel decisions and the reporting
structure concerning the executives, officers and
employees of Company shall be in the discretion of
the Chief Executive Officer of the Company within the
framework of an overall budget and within a context
jointly developed by Parent and the Company. In
furtherance of the foregoing, the policies and
procedures applicable to the executives, officers and
employees of the Company and its Subsidiaries on a
functional basis shall be consistent with the
analogous policies and procedures of Parent in
existence from time to time;
(iv) The salary, benefits and terms of employment of the
Company's Chief Executive Officer shall not be
modified without the prior approval of Parent. Any
vacancy in the office of Chief Executive Officer of
the Company by reason of death, retirement,
resignation or otherwise shall be filled by the
Company Board with the prior consent of Parent;
(v) (a) Anne M. Tatlock will be a member of the Parent
Board, as long as she meets the requirements to be a
director of a corporation organized under the
Delaware General Corporation Law and (b) the Chief
Executive Officer of the Company will be a member of
office of the chairman of Parent, for so long as such
office is in existence, reporting directly to the
Chief Executive Officer of Parent; and
(vi) Parent will involve the management of the Company in
the future management of the Parent group.
(c) Following the execution of this Agreement, the Company
and Parent will form an integration committee, whose members will be jointly
agreed upon but will include William Y. Yun and Michael O. Magdol. The
integration committee will report directly to the Chief Executive Officers of
Parent and the Company. The integration committee will study, among other
things, technology development and integration and back office consolidation.
SECTION 6.21 Tax-Free Share Exchange. Each of Parent and
the Company will use its reasonable best efforts, and each agrees to cooperate
with the other and provide one another with such documentation, information and
materials as may be reasonably necessary, proper and advisable to cause the
Share Exchange to qualify as a reorganization within the meaning of Section
368(a) of the Code.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE SHARE EXCHANGE
SECTION 7.1 Conditions to Each Party's Obligations to
Effect the Share Exchange. The respective obligations of each party to
consummate the transactions contemplated by this Agreement are subject to the
fulfillment at or prior to the Effective Time of each of the following
conditions, any or all of which may be waived in whole or in part by the party
being benefited thereby, to the extent permitted by applicable Law:
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(a) This Agreement shall have been approved and adopted by
the Company Requisite Vote.
(b) The approvals of the FRS (and confirmation by the FRS
that Parent's election to be a financial holding company is effective) and of
all other relevant Federal and state bank and thrift regulators required for
Parent to acquire the Company and its Subsidiaries shall have been obtained and
shall remain in full force and effect, and Parent shall have duly and validly
elected to become and shall have qualified to become, a "financial holding
company" (as such term is defined in 12 U.S.C. Section 1841(p)). All other
regulatory approvals required to consummate the transactions contemplated
hereby, and all other statutory waiting periods, the failure of any of which to
be obtained or observed would be reasonably likely to have a Material Adverse
Effect on Parent or a Material Adverse Effect on the Company, shall have been
obtained and remain in full force and effect or, in the case of waiting periods,
shall have expired or been terminated. Such approvals referred to in the
preceding two (2) sentences shall have been obtained without any limitation,
restriction or condition that has or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company or
Parent, provided, however, that except with respect to Parent's investment
advisory or mutual fund related businesses, no limitation, restriction or other
requirement imposed on Parent and its Subsidiaries (including the Company and
its Subsidiaries following the Effective Time) by reason of Parent's becoming a
bank holding company and a financial holding company under the BHCA will be
deemed, directly or indirectly, to have individually or in the aggregate, a
Material Adverse Effect on Parent or the Company;
(c) The S-4 shall have been declared effective by the SEC
and shall be effective at the Effective Time, and no stop order suspending
effectiveness shall have been issued, no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness thereof shall have been
initiated and be continuing, and all necessary approvals under state securities
Laws or the Securities Act or Exchange Act relating to the issuance or trading
of the Parent Common Stock shall have been received.
(d) The Parent Common Stock required to be issued hereunder
shall have been approved for listing on the NYSE, subject only to official
notice of issuance.
(e) No Governmental Entity of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, judgment, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and enjoins or prohibits or
prevents the consummation of the Share Exchange or any of the other material
transactions contemplated by this Agreement.
(f) The Company shall have received an opinion of Cleary,
Gottlieb, Steen & Hamilton, in form and substance reasonably satisfactory to the
Company and Parent dated as of the Closing Date, substantially to the effect
that, on the basis of the facts and assumptions described in the opinion, the
Share Exchange constitutes a reorganization within the meaning of Section 368(a)
of the Code. In rendering this opinion, counsel may require and rely upon
representations (including tax representation letters in customary form) of each
of Parent and the Company.
SECTION 7.2 Conditions to Obligations of Parent. The
obligations of Parent to consummate the transactions contemplated by this
Agreement are subject to the fulfillment at or prior to the Effective Time of
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each of the following additional conditions, any or all of which may be waived
in whole or part by Parent, to the extent permitted by applicable Law:
(a) The representations and warranties of the Company
contained herein shall be true and correct as of the date hereof, without regard
to any Material Adverse Effect qualifications, except where any such failure of
the representations and warranties to be true and correct as of the date hereof,
does not or would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company.
(b) The Company shall have performed or complied in all
material respects with all agreements and conditions contained herein required
to be performed or complied with by it prior to or at the time of the Closing.
(c) The Company shall have delivered to Parent a
certificate, dated the Closing Date, signed by the President or any Vice
President of the Company (but without personal liability thereon), certifying as
to the fulfillment of the conditions specified in Sections 7.2(a) and 7.2(b).
(d) Not later than 45 days prior to the date of the Company
Shareholder Meeting, Parent shall have received from the Company's "affiliates"
as listed on Schedule 2.14 of the Company Disclosure Schedule, a written
agreement substantially in the form attached as Exhibit B.
(e) The holders of not more than five percent (5%) of the
Shares outstanding immediately prior to the Effective Time shall have properly
exercised dissenter rights under the applicable provisions of the NYBL.
(f) Four of the five persons listed on Schedule 7.2 of the
Company Disclosure Schedule shall have entered into an employment agreement with
the Company, which agreements shall continue to be in effect as of the Closing
Date, on terms no less favorable than the employment and benefit arrangements
from the Company applicable to such employee on the date hereof, unless said
employee is, as of the Closing Date, deceased or unable to be employed due to
his or her permanent disability.
SECTION 7.3 Conditions to the Obligations of the Company.
The obligations of the Company to consummate the transactions contemplated by
this Agreement are subject to the fulfillment at or prior to the Effective Time
of each of the following additional conditions, any or all of which may be
waived in whole or in part by the Company to the extent permitted by applicable
Law:
(a) The representations and warranties of Parent contained
herein shall be true and correct as of the date hereof, without regard to any
Material Adverse Effect qualifications, except where any such failure of the
representations and warranties to be true and correct as of the date hereof,
does not or would not reasonably be expected to have individually, or in the
aggregate, a Material Adverse Effect on Parent.
(b) Parent shall have performed or complied in all material
respects with all agreements and conditions contained herein required to be
performed or complied with by it prior to or at the time of the Closing.
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(c) Parent shall have delivered to the Company a
certificate, dated the Closing Date, signed by the President or any Vice
President of Parent (but without personal liability thereon), certifying as to
the fulfillment of the conditions specified in Section 7.3(a) and 7.3(b).
ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER
SECTION 8.1 Termination by Mutual Agreement. This Agreement
may be terminated and the Share Exchange may be abandoned at any time prior to
the Effective Time, whether before or after the approval of the Share Exchange
by the Company Requisite Vote, by mutual written consent of the Company and
Parent by action of their respective Boards of Directors.
SECTION 8.2 Termination by Either Parent or the Company.
This Agreement may be terminated and the Share Exchange may be abandoned at any
time prior to the Effective Time by action of the Board of Directors of either
Parent or the Company if:
(a) the Share Exchange shall not have been consummated by
October 25, 2001, whether such date is before or after the date of approval of
the Share Exchange by the Company Requisite Vote (the "TERMINATION DATE");
(b) the Company Requisite Vote shall not have been obtained
at the Company Shareholder Meeting or at any adjournment or postponement
thereof;
(c) any Law permanently restraining, enjoining or otherwise
prohibiting consummation of the Share Exchange shall become final and
non-appealable (whether before or after the approval of the Share Exchange by
the Company Requisite Vote); or
(d) any Governmental Entity shall have failed to issue any
consent, order, decree or ruling or to take any other action which is necessary
to fulfill the conditions set forth in 7.1(b), and such denial of a request to
issue such consent, order, decree, ruling or take such other action shall have
been final and nonappealable.
Notwithstanding the foregoing, the right to terminate this
Agreement pursuant to this Section 8.2 shall not be available to any party that
has breached in any material respect its obligations under this Agreement in any
manner that shall have proximately contributed to the occurrence of the failure
of the Share Exchange to be consummated.
SECTION 8.3 Termination by the Company. This Agreement may
be terminated and the Share Exchange may be abandoned at any time prior to the
Effective Time by action of the Company Board if there is a breach by Parent of
any representation, warranty, covenant or agreement contained in this Agreement
that (i) is not cured by the earlier of 60 calendar days after receipt of
written notice from the Company to Parent or the Termination Date or (ii) cannot
be cured by the Termination Date, and would cause a condition set forth in
Section 7.1, 7.3(a) or 7.3(b) to be incapable of being satisfied as of the
Termination Date.
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SECTION 8.4 Termination by Parent. This Agreement may be
terminated and the Share Exchange may be abandoned at any time prior to the
Effective Time by action of the Parent Board, if:
(a) the Company Board (i) fails to include in the Proxy
Statement its recommendation without modification or qualification that
shareholders approve this Agreement and the Share Exchange, (ii) withdraws or
modifies in an adverse manner its approval or recommendation of this Agreement
or the Share Exchange, (iii) fails to reaffirm such approval or recommendation
upon Parent's request within five (5) business days of such request, (iv)
approves or recommends any Acquisition Proposal (other than the Share Exchange)
or (v) resolves to take any actions specified in this Section 8.4(a); or
(b) there is a breach by the Company of any representation,
warranty, covenant or agreement contained in this Agreement that (i) is not
cured by the earlier of 60 calendar days after receipt of written notice from
the Parent to the Company or the Termination Date or (ii) cannot be cured by the
Termination Date and would cause a condition set forth in Section 7.1, 7.2(a),
or 7.2(b) to be incapable of being satisfied as of the Termination Dates;
SECTION 8.5 Effect of Termination and Abandonment. (a) In
the event of termination of this Agreement and the abandonment of the Share
Exchange pursuant to this Article VIII, this Agreement (other than this Section
8.5 and Sections 5.3(d), 6.16 and Article IX) shall become void and of no effect
with no liability on the part of any party hereto (or of any of its directors,
officers, employees, agents, legal and financial advisors or other
representatives); provided, however, except as otherwise provided herein, no
such termination shall relieve any party hereto of any liability or damages
resulting from any willful breach of this Agreement.
(b) If this Agreement is terminated (i) by Parent pursuant
to Section 8.4(a) hereof, or (ii) by Parent or the Company pursuant to Section
8.2(b) and in either case within 12 months after the termination of this
Agreement, the Company consummates or enters into a definitive agreement to
consummate an Acquisition Proposal with any third party, then the Company shall
pay to Parent a termination fee of $25,000,000 (the "TERMINATION FEE"). The
Termination Fee shall be payable in cash and shall be due and owing no later
than one business day following the date such third party consummates such
Acquisition Proposal with the Company or its shareholders.
(c) If this Agreement is terminated pursuant to (i) Section
8.2 (d) at a time when Parent has not received the requisite approvals of the
FRS or the requisite approval pursuant to the NYBL to consummate the
transactions contemplated hereby or (ii) Section 8.2(a) at a time when Parent
has not received the requisite approvals of the FRS or the requisite approval
pursuant to the NYBL to consummate the transactions contemplated hereby then
Parent shall pay the Company a termination fee of $25,000,000, such fee shall be
payable in cash and due and owing no later one business day following the date
of termination. Payment of such fee shall be in full satisfaction and settlement
of any claims the Company or Parent otherwise might have against each other in
respect of or under this Agreement.
(d) The Company agrees that the agreements contained in
this Section 8.5 are an integral part of the transactions contemplated by this
Agreement and the Stock Option Agreement.
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SECTION 8.6 Amendment. This Agreement may be amended by
action taken by the Company and Parent at any time before or after approval of
the Share Exchange by the Company Requisite Vote but, after any such approval,
no amendment shall be made which requires the approval of such shareholders
under applicable Law without such approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of the parties hereto.
SECTION 8.7 Extension; Waiver. At any time prior to the
Effective Time, each party hereto may (i) extend the time for the performance of
any of the obligations or other acts of the other party, (ii) waive any
inaccuracies in the representations and warranties of the other party contained
herein or in any document, certificate or writing delivered pursuant hereto, or
(iii) waive compliance by the other party with any of the agreements or
conditions contained herein. Any agreement on the part of either party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party. The failure of either party hereto to
assert any of its rights hereunder shall not constitute a waiver of such rights.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Nonsurvival of Representations and Warranties.
None of the representations and warranties in this Agreement survive beyond the
date hereof. None of the covenants and agreements in this Agreement or in any
exhibit, schedule or instrument delivered pursuant to this Agreement shall
survive beyond the Effective Time, except to the extent set forth in those
covenants and agreements contained herein and therein that by their terms apply
or are to be performed in whole or in part after the Effective Time and this
Article IX. This Section 9.1 shall not limit any covenant or agreement of the
parties which by its terms contemplates performance after the Effective Time.
SECTION 9.2 Entire Agreement; Assignment. (a) This
Agreement constitutes the entire agreement between the parties hereto with
respect to the subject matter hereof and supersedes all other prior agreements
and understandings, both written and oral, between the parties with respect to
the subject matter hereof, other than the Stock Option Agreement or the
Confidentiality Agreement.
(b) Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by operation of Law (including, but
not limited to, by Share Exchange or consolidation) or otherwise. Any assignment
in violation of the preceding sentence shall be void. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors.
SECTION 9.3 Notices. All notices, requests, instructions or
other documents to be given under this Agreement shall be in writing and shall
be deemed given, (i) five (5) business days following sending by registered or
certified mail, postage prepaid, (ii) when sent if sent by facsimile; provided
that the fax is promptly confirmed by telephone confirmation thereof, (iii) when
delivered, if delivered personally to the intended recipient or (iv) one
business day following sending by overnight delivery via a national courier
service, and in each case, addressed to a party at the following address for
such party:
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if to Parent, to: Franklin Resources, Inc.
777 Mariners Island Blvd.
San Mateo, California 94404
Attention: Martin Flanagan
Facsimile: (650) 312-2804, and
Attention: Leslie M. Kratter
Facsimile: (650) 312-2804
with a copy to: Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Attention: Raymond O. Gietz, Esq.
Jeffrey E. Tabak, Esq.
Facsimile: (212) 310-8007
if to the Company, to: Fiduciary Trust Company International
2 World Trade Center
New York, NY 10048
Attention: Michael O. Magdol
Carol K. Demitz
Facsimile: (212) 524-5029
with a copy to: Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, NY 10006
Attention: Laurent Alpert, Esq.
Facsimile: (212) 225-3999
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above.
SECTION 9.4 Governing Law. This Agreement shall be governed
by and construed in accordance with the Laws of the State of New York.
SECTION 9.5 Descriptive Headings. The descriptive headings
herein are inserted for convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this Agreement.
SECTION 9.6 Parties in Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto and its
successors and, except as provided in Sections 6.10 and 6.20 after the Effective
Time, nothing in this Agreement, express or implied, is intended to or shall
confer upon any other person any rights, benefits or remedies of any nature
whatsoever under or by reason of this Agreement.
SECTION 9.7 Severability. The provisions of this Agreement
shall be deemed severable and the invalidity or unenforceability of any
provision shall not affect the validity or enforceability of the other
provisions hereof. If any provision of this Agreement, or the application
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thereof to any person or any circumstance, is invalid or unenforceable, (a) if
necessary, a suitable and equitable provision shall be substituted therefor in
order to carry out, so far as may be valid and enforceable, the intent and
purpose of such invalid or unenforceable provision and (b) the remainder of this
Agreement and the application of such provision to other persons or
circumstances shall not be affected by such invalidity or unenforceability, nor
shall such invalidity or unenforceability affect the validity or enforceability
of such provision, or the application thereof, in any other jurisdiction.
SECTION 9.8 Specific Performance. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement.
SECTION 9.9 Counterparts. This Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other parties.
SECTION 9.10 Interpretation. (a) The words "hereof,"
"herein" and "herewith" and words of similar import shall, unless otherwise
stated, be construed to refer to this Agreement as a whole and not to any
particular provision of this Agreement, and article, section, paragraph, exhibit
and schedule references are to the articles, sections, paragraphs, exhibits and
schedules of this Agreement unless otherwise specified. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation." All terms defined in
this Agreement shall have the defined meanings contained herein when used in any
certificate or other document made or delivered pursuant hereto unless otherwise
defined therein. The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms. Any agreement,
instrument or statute defined or referred to herein or in any agreement or
instrument that is referred to herein means such agreement, instrument or
statute as from time to time, amended, qualified or supplemented, including (in
the case of agreements and instruments) by waiver or consent and (in the case of
statutes) by succession of comparable successor statutes and all attachments
thereto and instruments incorporated therein. References to a person are also to
its permitted successors and assigns.
(b) The phrases "the date of this Agreement," "the date
hereof" and terms of similar import, unless the context otherwise requires,
shall be deemed to refer to October 25, 2000. The phrase "made available" in
this agreement shall mean that the information referred to has been actually
delivered to the party to whom such information is to be made available.
(c) The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any
provisions of this Agreement.
SECTION 9.11 Definitions. (a) "ACQUISITION PROPOSAL" means
an inquiry, an offer or proposal regarding any of the following (other than the
transactions contemplated by this Agreement) involving the Company or any of its
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Subsidiaries: (i) any merger, consolidation, share exchange, recapitalization,
business combination or other similar transaction; (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of 20 percent (20%) or
more of the assets of the Company and its Subsidiaries, taken as a whole, in a
single transaction or series of related transactions; (iii) any purchase or
other acquisition (including by way of merger, consolidation, share exchange or
otherwise) of beneficial ownership of securities representing 20 percent (20%)
or more of the outstanding Shares; or (iv) any public announcement of a
proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing.
(b) "APPLICATION" shall mean any application, notice,
document, election, declaration or other filing made by either Parent or the
Company to any Governmental Entity, with respect to the transactions
contemplated by this Agreement.
(c) "ADVISERS ACT" shall mean the Investment Advisers Act
of 1940, as amended, and the rules and regulations of the SEC thereunder.
(d) "BENEFICIAL OWNERSHIP" or "BENEFICIALLY OWN" shall have
the meaning provided in Section 13(d) of the Exchange Act and the rules and
regulations thereunder.
(e) "COMPANY FUND" shall mean any Fund bearing the
Fiduciary Trust name or a derivative, thereof.
(f) "EXCHANGE ACT" shall mean the Securities Exchange Act
of 1934, as amended.
(g) "FUND" shall mean any U.S. or non-U.S. registered or
unregistered investment company or series thereof for which the Company or any
of its Subsidiaries provides advisory or subadvisory services pursuant to an
Investment Company Act Advisory Agreement or otherwise.
(h) "INVESTMENT COMPANY ACT" shall mean the Investment
Company Act of 1940, as amended, and the rules and regulations of the SEC
thereunder.
(i) "INVESTMENT COMPANY ADVISORY AGREEMENT" shall mean an
investment advisory agreement entered into by the Company or any of its
Subsidiaries for the purpose of providing investment advisory or subadvisory
services to a registered investment company or series thereof.
(j) "KNOW" or "KNOWLEDGE" means, with respect to any party,
the knowledge of such party's executive officers after due inquiry, including
inquiry of such party's counsel and other officers of such party responsible for
the relevant matter.
(k) "MATERIAL ADVERSE EFFECT" means with respect to any
entity, any change, circumstance or effect that, individually or in the
aggregate with all other changes, circumstances and effects, is or is reasonably
likely to be materially adverse to (i) the assets, properties, financial
condition or results of operations of such entity and its Subsidiaries taken as
a whole or (ii) the ability of such entity to consummate the transactions
contemplated by this Agreement on a timely basis.
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(l) "NON-INVESTMENT COMPANY ADVISORY AGREEMENT" shall mean
any investment advisory agreement entered into by Company or any of its
Subsidiaries for the purpose of providing investment advisory services to a
client other than a registered investment company or series thereof.
(m) "PARENT FUND" shall mean any Fund sponsored by Parent
or any of its Subsidiaries and sold under the Franklin, Templeton or Mutual
Series brand name.
(n) "PARENT INVESTMENT COMPANY ADVISORY AGREEMENT" shall
mean an investment advisory agreement entered into by Parent or any of its
Subsidiaries for the purpose of providing investment advisory or subadvisory
services to a registered investment company or series thereof.
(o) "PERSON" means an individual, corporation, limited
liability company, partnership, association, trust, unincorporated organization,
other entity or group (as defined in the Exchange Act).
(p) "SECURITIES LAWS" shall mean the Securities Act; the
Investment Company Act; the Advisers Act; state "blue sky" laws and any
comparable regulations of any non-U.S. Governmental Entities.
(q) "SUBSIDIARY" of a person shall mean a second person
fifty percent (50%) or more of the voting stock (or of any other form of general
partnership or other voting or controlling equity interest in the case of a
person that is not a corporation) of which is beneficially owned by the first
person directly or indirectly through one or more other persons. For avoidance
of doubt, the Company's Deferred Compensation Plan and the Profit Sharing,
Savings and Employee Stock Ownership Plan shall not be considered a Subsidiary
of the Company.
(r) "WHOLLY-OWNED SUBSIDIARY" shall mean a Subsidiary of
the Company all of the voting stock (or of any other form of general partnership
or other voting or controlling equity interest in the case of a Subsidiary that
is not a corporation) of which is beneficially owned by the Company, except, in
the case of Subsidiaries that are incorporated outside the United States, for
any portion of such voting stock (or of any other form of general partnership or
other voting or controlling equity interest in the case of a Subsidiary that is
not a corporation) that is held by one or more persons for the purposes of
complying with applicable local laws or regulations.
[signature page follows]
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IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be duly executed on its behalf as of the day and year first above
written.
FRANKLIN RESOURCES, INC.
By: /s/ Charles B. Johnson
----------------------------------------
Name: Charles B. Johnson
Title: Chairman
FIDUCIARY TRUST COMPANY INTERNATIONAL
By: /s/ Anne M. Tatlock
----------------------------------------
Name: Anne M. Tatlock
Title: Chief Executive Officer
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ANNEX B
[CONFORMED COPY]
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated as of October 25, 2000 (the
"Agreement"), by and between Fiduciary Trust Company International, a bank
organized under the New York State Banking Law ("Issuer"), and Franklin
Resources, Inc., a Delaware corporation ("Grantee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, concurrently herewith Issuer and Grantee are
entering into an Agreement and Plan of Share Acquisition of even date herewith
(the "Plan of Acquisition"), providing for, among other things, the acquisition
of Issuer by Grantee; and
WHEREAS, as a condition and inducement to Grantee's
willingness to enter into the Plan of Acquisition and in consideration therefor,
Issuer has agreed to grant Grantee the Option (as hereinafter defined);
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein and in the Plan of Acquisition, Issuer and Grantee agree as follows:
Section 1. Grant of Option; Adjustment. (a) Subject to the
terms and conditions set forth herein, Issuer hereby grants to Grantee an
unconditional, irrevocable option (the "Option") to purchase that number of
fully paid and non-assessable shares of common stock, par value $1.00 per share,
of Issuer ("Common Stock") equal to 19.9% of the currently issued and
outstanding shares of Common Stock, without giving effect to any shares subject
to or issued pursuant to the Option, at a purchase price of $65 per share (the
"Option Price"). The number of shares of Common Stock that may be received upon
the exercise of the Option and the Option Price are subject to adjustment as
herein set forth.
(b) In the event that any additional shares of Common Stock
are either (i) issued or otherwise become outstanding after the date of this
Agreement (other than pursuant to this Agreement) or (ii) redeemed, repurchased,
retired or otherwise cease to be outstanding after the date of this Agreement,
the number of shares of Common Stock subject to the Option shall be increased or
decreased, as appropriate, so that, after such issuance or redemption,
repurchase, retirement or other action, such number equals 19.9% of the number
of shares of Common Stock then issued and outstanding without giving effect to
any shares subject or issued pursuant to the Option. Nothing contained in this
Section 1(b) or elsewhere in this Agreement shall be deemed to authorize Issuer
or Grantee to breach any provision of the Plan of Acquisition.
Section 2. Exercise of Option. (a) The holder of the Option
(the "Holder") may exercise the Option, in whole or in part, at any time or from
time to time, if, but only if, a Triggering Event (as hereinafter defined) shall
have occurred prior to the occurrence of an Exercise Termination Event (as
hereinafter defined); provided that the Holder shall have sent the written
notice of such exercise (as provided in subsection (d) of this Section 2) within
90 days following such Triggering Event. Each of the following shall be an
"Exercise Termination Event": (i) the Effective Time (as defined in the Plan of
NY2:\993134\01\L@B201!.DOC\46360.0043
<PAGE>
Acquisition) of the Share Exchange (as defined in the Plan of Acquisition); (ii)
termination of the Plan of Acquisition in accordance with the provisions
thereof, other than pursuant to Sections 8.2(b) or 8.4(a); or (iii) the passage
of 12 months after termination of the Plan of Acquisition pursuant to Sections
8.2(b) or 8.4(a) thereof, unless during such 12-month period, the Company
consummates or enters into a definitive agreement to consummate an Acquisition
Transaction (as hereinafter defined) with any person (as hereinafter defined)
other than Grantee, in which case the Exercise Termination Event shall be the
passage of six months from the consummation of such Acquisition Transaction
whether or not a Notice Date has occurred.
(b) The term "Triggering Event" shall mean the consummation
by Issuer or any of its Subsidiaries (each an "Issuer Subsidiary"), without
having received Grantee's prior written consent, of an Acquisition Transaction
(as hereinafter defined) with any person (the term "person" for purposes of this
Agreement having the meaning assigned thereto in Sections 3(a)(9) and 13(d)(3)
of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the
rules and regulations promulgated thereunder) other than Grantee or any of its
Subsidiaries (each a "Grantee Subsidiary"). For purposes of this Agreement,
"Acquisition Transaction" shall mean (w) a merger, consolidation, share
exchange, recapitalization, business combination or other similar transaction,
involving Issuer or any Subsidiary of Issuer, (x) a sale, lease, exchange,
mortgage, pledge, transfer or other disposition of 20% or more of the assets of
Issuer and its Subsidiaries, taken as a whole, in a single transaction or series
of related transactions or (y) a purchase or other acquisition (including by way
of merger, consolidation, share exchange or otherwise) of beneficial ownership
(the term "beneficial ownership" for purposes of this Agreement having the
meaning assigned thereto in Section 13(d) of the Exchange Act, and the rules and
regulations thereunder) of securities representing 20% or more of the voting
power of Issuer, or (z) any substantially similar transaction; provided,
however, that in no event shall any merger, consolidation, purchase or similar
transaction involving only the Issuer and one or more Issuer Subsidiaries or
involving only any two or more Issuer Subsidiaries, be deemed to be an
Acquisition Transaction.
(c) Issuer shall notify Grantee promptly in writing of the
occurrence of any Triggering Event, it being understood that the giving of such
notice by Issuer shall not be a condition to the right of the Holder to exercise
the Option.
(d) In the event the Holder is entitled to and wishes to
exercise the Option, it shall send to Issuer a written notice (the date of which
being herein referred to as the "Notice Date") specifying (i) the total number
of shares it will purchase pursuant to such exercise and (ii) a place and date
not earlier than ten days nor later than 60 business days from the Notice Date
for the closing of such purchase (a "Closing"; and the date of such Closing, a
"Closing Date"); provided that if prior notification to or approval of the Board
of Governors of the Federal Reserve System or any other Governmental Entity is
required in connection with such purchase, the Holder shall promptly file the
required notice or application for approval and shall expeditiously process the
same and the period of time that otherwise would run pursuant to this sentence
shall run instead from the date on which any required notification periods have
expired or been terminated, or such approvals have been obtained, and any
requisite waiting period or periods shall have passed. For purposes of
determining the timeliness of exercise, any exercise of the Option shall be
deemed to occur on the Notice Date relating thereto.
(e) At a Closing, the Holder shall pay to Issuer an amount
equal to the Option Price multiplied by the number of shares of Common Stock
purchased pursuant to the exercise of the Option in immediately available funds
by wire transfer to a bank account designated by Issuer and surrender this
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Agreement to Issuer, provided that failure or refusal of Issuer to designate
such a bank account or to surrender this Agreement shall not preclude the Holder
from exercising the Option.
(f) At such Closing, simultaneously with the delivery of
immediately available funds and the surrender of this Agreement as provided in
subsection (e) of this Section 2, Issuer shall deliver to the Holder a
certificate or certificates representing the number of shares of Common Stock
purchased by the Holder, which shares shall be free and clear of all liens,
charges or encumbrances, and, if the Option should be exercised in part only, a
new Option evidencing the rights of the Holder thereof to purchase the balance
of the shares purchasable hereunder, and the Holder shall deliver to Issuer a
letter agreeing that the Holder will not offer to sell or otherwise dispose of
such shares in violation of applicable Law or the provisions of this Agreement.
(g) Certificates for Common Stock delivered at a Closing
hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer of the shares represented by this certificate
is subject to certain provisions of an agreement between
the registered holder hereof and Issuer, dated as of
October 25, 2000, and to resale restrictions arising under
the Securities Act of 1933, as amended. A copy of such
agreement is on file at the principal office of Issuer and
will be provided to the holder hereof without charge upon
receipt by Issuer of a written request therefor."
It is understood and agreed that:
(i) The reference to the resale restrictions of
the Securities Act of 1933, as amended (the "1933 Act"), in the above
legend shall be removed by delivery of substitute certificate(s)
without such reference if the Holder shall have delivered to Issuer a
copy of a letter from the staff of the SEC, or an opinion of counsel,
in form and substance reasonably satisfactory to Issuer, to the
effect that such legend is not required for purposes of the 1933 Act;
(ii) The reference to the provisions to this
Agreement in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if the shares have
been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention
of such reference; and
(iii) The legend shall be removed in its entirety
if the conditions in the preceding clauses (i) and (ii) are both
satisfied. In addition, such certificates shall bear any other legend
as may be required by Law.
(h) Upon the giving by the Holder to Issuer of the written
notice of exercise of the Option provided for under subsection (d) of this
Section 2 and the tender of the applicable purchase price in immediately
available funds, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of Issuer may then be closed or that certificates
representing such shares of Common Stock may not then be actually delivered to
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the Holder. Issuer shall pay all expenses, and any and all United States
federal, state and local taxes and other charges that may be payable in
connection with the preparation, issue and delivery of stock certificates under
this Section 2 in the name of the Holder or its assignee, transferee or
designee.
Section 3. Additional Covenants of Issuer. Issuer agrees:
(a) that it shall at all times maintain, free from preemptive rights, sufficient
authorized but unissued or treasury shares of Common Stock so that the Option
may be exercised without additional authorization of Common Stock after giving
effect to all other options, warrants, convertible securities and other rights
to purchase Common Stock; (b) that it will not, by charter amendment or through
reorganization, consolidation, merger, dissolution or sale of assets, or by any
other voluntary act, avoid or seek to avoid the observance or performance of any
of the covenants, stipulations or conditions to be observed or performed
hereunder by Issuer; (c) promptly to take all action as may from time to time be
required by the Board of Governors of the Federal Reserve System or any other
Governmental Entity in order to permit the Holder to exercise the Option and
Issuer duly and effectively to issue shares of Common Stock pursuant hereto; and
(d) promptly to take all action provided herein to protect the rights of the
Holder against dilution.
Section 4. Loss, Theft, etc. of Agreement. Upon receipt by
Issuer of evidence reasonably satisfactory to it of the loss, theft, destruction
or mutilation of this Agreement, and (in the case of loss, theft or destruction)
of reasonably satisfactory indemnification, and upon surrender and cancellation
of this Agreement, if mutilated, Issuer will execute and deliver a new Agreement
of like tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of Issuer, whether
or not the Agreement so lost, stolen, destroyed or mutilated shall at any time
be enforceable by anyone.
Section 5. Adjustments upon Changes in Capitalization, etc.
In addition to the adjustment in the number of shares of Common Stock that are
purchasable upon exercise of the Option pursuant to subsection (b) of Section 1
of this Agreement, the number of shares of Common Stock purchasable upon the
exercise of the Option and the Option Price shall be subject to adjustment from
time to time as provided in this Section 5. In the event of any change in, or
distributions in respect of, the Common Stock by reason of reclassifications,
recapitalizations, stock dividends, stock splits, split-ups, mergers,
combinations, subdivisions, conversions, exchanges of shares, dividends,
dividends payable in other securities, distributions on or in respect of the
Common Stock, or the like, the type and number of shares of Common Stock
purchasable upon exercise hereof and the Option Price therefor (including for
purposes of repurchase thereof pursuant to Section 7) shall be appropriately
adjusted in such manner as shall fully preserve the economic benefits provided
hereunder and proper provision shall be made in any agreement governing any such
transaction to provide for such proper adjustment and the full satisfaction of
the Issuer's obligations hereunder.
Section 6. Reserved.
Section 7. Repurchase of Option. (a) From and after a
Triggering Event, (i) following a request of the Holder, delivered prior to an
Exercise Termination Event, Issuer (or any successor thereto) shall repurchase
the Option from the Holder at a price (the "Option Repurchase Price") equal to
the amount by which (x) the Market/Offer Price (as defined below) exceeds (y)
the Option Price, multiplied by the number of shares for which this Option may
then be exercised and (ii) at the request of the owner of Option Shares from
time to time (the "Owner"), delivered within 90 days of such occurrence (or such
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later period as provided in Section 10), Issuer shall repurchase such number of
Option Shares from the Owner as the Owner shall designate at a price (the
"Option Share Repurchase Price") equal to the Market/Offer Price multiplied by
the number of Option Shares so designated, provided, however, that the Option
Purchase Price and Option Share Repurchase Price shall be subject to the
limitations set forth in Section 23. The term "Market/Offer Price" shall mean
the highest of (i) the price per share of Common Stock at which a tender offer
or exchange offer therefor has been made, (ii) the price per share of Common
Stock to be paid by any third party pursuant to an agreement with Issuer, (iii)
the highest closing price for shares of Common Stock within the six-month period
immediately preceding the date the Holder gives notice of the required
repurchase of this Option or the Owner gives notice of the required repurchase
of Option Shares, as the case may be, and (iv) in the event of a sale of all or
a substantial portion of Issuer's assets, the sum of the price paid in such sale
for such assets and the current market value of the remaining assets of Issuer,
less the current market value of the remaining liabilities of Issuer, each such
value as determined by a nationally recognized investment banking firm selected
by the Holder or the Owner, as the case may be, and reasonably acceptable to the
Issuer, divided by the number of shares of Common Stock of Issuer outstanding at
the time of such sale. In determining the Market/Offer Price, the value of
consideration other than cash shall be determined by a nationally recognized
investment banking firm selected by the Holder or Owner, as the case may be, and
reasonably acceptable to the Issuer.
(b) The Holder and the Owner, as the case may be, may
exercise its right to require Issuer to repurchase the Option and any Option
Shares pursuant to this Section 7 by surrendering for such purpose to Issuer, at
its principal office, this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that the Holder
or the Owner, as the case may be, elects to require Issuer to repurchase this
Option and/or the Option Shares in accordance with the provisions of this
Section 7. Such notice or notices shall also contain representations and
warranties to the effect that the Holder owns the Option Shares to be
repurchased, free and clear of all Liens, with full power, right and authority
to present such Option Shares for repurchase hereunder. Within five business
days after the surrender of the Option and/or certificates representing Option
Shares and the receipt of such notice or notices relating thereto, Issuer shall
deliver or cause to be delivered to the Holder the Option Repurchase Price
and/or to the Owner the Option Share Repurchase Price therefor or the portion
thereof, if any, that Issuer is not then prohibited under applicable Law from so
delivering.
(c) To the extent that Issuer is prohibited under
applicable Law or as a consequence of administrative policy arising thereunder
from repurchasing the Option and/or the Option Shares in full, Issuer shall
immediately so notify the Holder and/or the Owner and thereafter deliver or
cause to be delivered, from time to time, to the Holder and/or the Owner, as
appropriate, the portion of the Option Repurchase Price and the Option Share
Repurchase Price, respectively, that it is no longer prohibited from delivering,
within five business days after the date on which Issuer is no longer so
prohibited; provided, however, that if Issuer at any time after delivery of a
notice of repurchase pursuant to paragraph (b) of this Section 7 is prohibited
under applicable Law or as a consequence of administrative policy arising
thereunder from repurchasing the Option or the Option Shares, as the case may
be, or from delivering to the Holder and/or the Owner, as appropriate, the
Option Repurchase Price and the Option Share Repurchase Price, respectively, in
full (and Issuer hereby undertakes to use its best efforts to obtain all
required regulatory and legal approvals and to file any required notices, in
each case as promptly as practicable in order to accomplish such repurchase),
the Holder or Owner may revoke its notice of repurchase of the Option or the
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Option Shares either in whole or to the extent of the prohibition, whereupon, in
the latter case, Issuer shall promptly (i) deliver to the Holder and/or the
Owner, as appropriate, that portion of the Option Repurchase Price or the Option
Share Repurchase Price that Issuer is not prohibited from delivering; and (ii)
deliver, as appropriate, either (x) to the Holder, a new Stock Option Agreement
evidencing the right of the Holder to purchase that number of shares of Common
Stock obtained by multiplying the number of shares of Common Stock for which the
surrendered Stock Option Agreement was exercisable at the time of delivery of
the notice of repurchase by a fraction, the numerator of which is the Option
Repurchase Price less the portion thereof theretofore delivered to the Holder
and the denominator of which is the Option Repurchase Price, or (y) to the
Owner, a certificate for the Option Shares it is then so prohibited from
repurchasing.
Section 8. Substitute Option. (a) In the event that prior
to an Exercise Termination Event, Issuer shall enter into an agreement (i) to
consolidate with or merge into any person, other than Grantee or a Grantee
Subsidiary, and shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any person, other than Grantee or a
Grantee Subsidiary, to merge into Issuer and Issuer shall be the continuing or
surviving corporation, but, in connection with such merger, the then outstanding
shares of Common Stock shall be changed into or exchanged for stock or other
securities of any other person or cash or any other property or the then
outstanding shares of Common Stock shall after such merger represent less than
50% of the outstanding voting shares and voting share equivalents of the merged
company, or (iii) to sell or otherwise transfer all or substantially all of its
assets to any person, other than Grantee or a Grantee Subsidiary, then, and in
each such case, the agreement governing such transaction shall make proper
provision so that the Option shall, upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be converted
into, or exchanged for, an option (the "Substitute Option"), at the election of
the Holder, of either (x) the Acquiring Corporation (as hereinafter defined) or
(y) any person that controls the Acquiring Corporation.
(b) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean (x) the
continuing or surviving corporation of a consolidation or merger with
Issuer (if other than Issuer), (y) Issuer in a merger in which Issuer
is the continuing or surviving person, and (z) the transferee of all
or substantially all of Issuer's assets.
(ii) "Substitute Common Stock" shall mean the
common stock issued by the issuer of the Substitute Option upon
exercise of the Substitute Option.
(iii) "Assigned Value" shall mean the
Market/Offer Price, as defined in Section 7.
(iv) "Average Price" shall mean the average
closing price of a share of the Substitute Common Stock for the one
year immediately preceding the consolidation, merger or sale in
question, but in no event higher than the closing price of the shares
of Substitute Common Stock on the day preceding such consolidation,
merger or sale; provided that if Issuer is the issuer of the
Substitute Option, the Average Price shall be computed with respect
to a share of common stock issued by the person merging into Issuer
or by any company which controls or is controlled by such person, as
the Holder may elect.
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(c) The Substitute Option shall have the same terms as the
Option, provided that if the terms of the Substitute Option cannot, for legal
reasons, be the same as the Option, such terms shall be as similar as possible
and in no event less advantageous to the Holder. The issuer of the Substitute
Option shall also enter into an agreement with the then holder or holders of the
Substitute Option (the "Substitute Option Holder") in substantially the same
form as this Agreement, which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such
number of shares of Substitute Common Stock as is equal to the Assigned Value
multiplied by the number of shares of Common Stock for which the Option is then
exercisable, divided by the Average Price. The exercise price of the Substitute
Option per share of Substitute Common Stock shall then be equal to the Option
Price multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock for which the Option is then exercisable and the
denominator of which shall be the number of shares of Substitute Common Stock
for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing
paragraphs, shall the Substitute Option be exercisable for more than 19.9% of
the shares of Substitute Common Stock outstanding prior to exercise of the
Substitute Option. In the event that the Substitute Option would be exercisable
for more than 19.9% of the shares of Substitute Common Stock outstanding prior
to exercise but for this clause (e), the issuer of the Substitute Option (the
"Substitute Option Issuer") shall make a cash payment to Holder equal to the
excess of (i) the value of the Substitute Option without giving effect to the
limitation in this clause (e) over (ii) the value of the Substitute Option after
giving effect to the limitation in this clause (e). This difference in value
shall be determined by a nationally recognized investment banking firm selected
by the Holder or the Owner, as the case may be, and reasonably acceptable to the
Acquiring Corporation.
(f) Issuer shall not enter into any transaction described
in subsection (a) of this Section 8 unless the Acquiring Corporation and any
person that controls the Acquiring Corporation assume in writing all the
obligations of Issuer hereunder.
Section 9. Repurchase of Substitute Option. (a) At the
request of the Substitute Option Holder, the Substitute Option Issuer shall
repurchase the Substitute Option from the Substitute Option Holder at a price
(the "Substitute Option Repurchase Price") equal to the amount by which (i) the
Highest Closing Price (as hereinafter defined) exceeds (ii) the exercise price
of the Substitute Option, multiplied by the number of shares of Substitute
Common Stock for which the Substitute Option may then be exercised, and at the
request of the owner (the "Substitute Share Owner") of shares of Substitute
Common Stock (the "Substitute Shares"), the Substitute Option Issuer shall
repurchase the Substitute Shares at a price (the "Substitute Share Repurchase
Price") equal to the Highest Closing Price multiplied by the number of
Substitute Shares so designated. The term "Highest Closing Price" shall mean the
highest closing price for shares of Substitute Common Stock within the six-month
period immediately preceding the date the Substitute Option Holder gives notice
of the required repurchase of the Substitute Option or the Substitute Share
Owner gives notice of the required repurchase of the Substitute Shares, as
applicable.
(b) The Substitute Option Holder and the Substitute Share
Owner, as the case may be, may exercise its respective right to require the
Substitute Option Issuer to repurchase the Substitute Option and the Substitute
Shares pursuant to this Section 9 by surrendering for such purpose to the
Substitute Option Issuer, at its principal office, the agreement for such
Substitute Option (or, in the absence of such an agreement, a copy of this
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Agreement) and certificates for Substitute Shares accompanied by a written
notice or notices stating that the Substitute Option Holder or the Substitute
Share Owner, as the case may be, elects to require the Substitute Option Issuer
to repurchase the Substitute Option and/or the Substitute Shares in accordance
with the provisions of this Section 9. As promptly as practicable, and in any
event within five business days after the surrender of the Substitute Option
and/or certificates representing Substitute Shares and the receipt of such
notice or notices relating thereto, the Substitute Option Issuer shall deliver
or cause to be delivered to the Substitute Option Holder the Substitute Option
Repurchase Price and/or to the Substitute Share Owner the Substitute Share
Repurchase Price therefor or, in either case, the portion thereof which the
Substitute Option Issuer is not then prohibited under applicable Law and
regulation or as a consequence of administrative policy arising thereunder from
so delivering.
(c) To the extent the Substitute Option Issuer is
prohibited under applicable Law or as a consequence of administrative policy
arising thereunder from repurchasing the Substitute Option and/or the Substitute
Shares in part or in full, the Substitute Option Issuer following, or in
connection with, a request for repurchase pursuant to this Section 9 shall
immediately so notify the Substitute Option Holder and/or the Substitute Share
Owner and thereafter deliver or cause to be delivered, from time to time, to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate, the
portion of the Substitute Option Repurchase Price and the Substitute Share
Repurchase Price, respectively, which it is no longer prohibited from
delivering, within five business days after the date on which the Substitute
Option Issuer is no longer so prohibited; provided, however, that if the
Substitute Option Issuer is at any time after delivery of a notice of repurchase
pursuant to subsection (b) of this Section 9 prohibited under applicable Law or
regulation or as a consequence of administrative policy arising thereunder from
delivering to the Substitute Option Holder and/or the Substitute Share Owner, as
appropriate, the Substitute Option Repurchase Price and the Substitute Share
Repurchase Price, respectively, in full (and the Substitute Option Issuer shall
use its best efforts to obtain all required regulatory and legal approvals, in
each case as promptly as practicable, in order to accomplish such repurchase),
the Substitute Option Holder or Substitute Share Owner may revoke its notice of
repurchase of the Substitute Option or the Substitute Shares either in whole or
to the extent of the prohibition, whereupon, in the latter case, the Substitute
Option Issuer shall promptly (i) deliver to the Substitute Option Holder or
Substitute Share Owner, as appropriate, that portion of the Substitute Option
Repurchase Price or the Substitute Share Repurchase Price that the Substitute
Option Issuer is not prohibited from delivering; and (ii) deliver, as
appropriate, either (x) to the Substitute Option Holder, a new Substitute Option
evidencing the right of the Substitute Option Holder to purchase that number of
shares of the Substitute Common Stock obtained by multiplying the number of
shares of the Substitute Common Stock for which the surrendered Substitute
Option was exercisable at the time of delivery of the notice of repurchase by a
fraction, the numerator of which is the Substitute Option Repurchase Price less
the portion thereof theretofore delivered to the Substitute Option Holder and
the denominator of which is the Substitute Option Repurchase Price, or (y) to
the Substitute Share Owner, a certificate for the Substitute Common Shares it is
then so prohibited from repurchasing.
Section 10. Extension of Exercise Period. The relevant
period for exercise of certain rights under Sections 2, 7 and 9 shall be
extended: (a) to the extent necessary to obtain all regulatory approvals for the
exercise of such rights and for the expiration of all statutory waiting periods;
and (b) to the extent necessary to avoid liability under Section 16(b) of the
1934 Act by reason of such exercise.
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Section 11. Representations and Warranties of Issuer.
Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has all requisite corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of Issuer and no other corporate
proceedings on the part of Issuer are necessary to authorize this Agreement or
to consummate the transactions so contemplated. This Agreement has been duly and
validly executed and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to
authorize and reserve and to permit it to issue, and at all times from the date
hereof through the termination of this Agreement in accordance with its terms
will have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common Stock at
any time and from time to time issuable hereunder, and all such shares, upon
issuance pursuant hereto, will be duly authorized, validly issued, fully paid,
non-assessable, and will be delivered free and clear of all claims, liens,
encumbrances and security interests and not subject to any preemptive rights.
Section 12. Representations and Warranties of Grantee.
Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority
to enter into this Agreement and, subject to any approvals or consents referred
to herein, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Grantee. This Agreement has been duly and validly executed and delivered by
Grantee.
(b) The Option is not being, and any shares of Common Stock
or other securities acquired by Grantee upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the 1933 Act.
Section 13. Assignment. Neither of the parties hereto may
assign any of its rights or obligations under this Agreement or the Option
created hereunder to any other person, without the express written consent of
the other party.
Section 14. Further Assurances. Each of Grantee and Issuer
will use its reasonable best efforts to make all filings with, and to obtain
consents of, all third parties and any Governmental Entity necessary to the
consummation of the transactions contemplated by this Agreement, including
without limitation making application to OTC Bulletin Board and, to the extent
required, the Board of Governors of the Federal Reserve System and any other
Governmental Entity for approval to acquire the shares issuable hereunder, but
Grantee shall not be obligated to apply to banking authorities for approval to
acquire the shares of Common Stock issuable hereunder until such time, if ever,
as it deems appropriate to do so and Issuer shall not be obligated to apply to
banking authorities for approval to issue the shares of Common Stock issuable
hereunder until such time as Parent makes such application.
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<PAGE>
Section 15. Equitable Relief. The parties hereto
acknowledge that damages would be an inadequate remedy for a breach of this
Agreement by either party hereto and that the obligations of the parties hereto
shall be enforceable by either party hereto through injunctive or other
equitable relief.
Section 16. Severability. If any term, provision, covenant
or restriction contained in this Agreement is held by a court or a federal or
state regulatory agency of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions and covenants and
restrictions contained in this Agreement shall remain in full force and effect,
and shall in no way be affected, impaired or invalidated. If for any reason such
court or regulatory agency determines that the Holder is not permitted to
acquire, or Issuer is not permitted to repurchase pursuant to Section 7, the
full number of shares of Common Stock provided in Section 1(a) hereof (as
adjusted pursuant to Section 1(b) or 5 hereof), it is the express intention of
Issuer to allow the Holder to acquire or to require Issuer to repurchase such
lesser number of shares as may be permissible, without any amendment or
modification hereof.
Section 17. Delivery. All notices, requests, claims,
demands and other communications hereunder shall be deemed to have been duly
given when delivered in person, by cable, telegram, telecopy or telex, or by
registered or certified mail (postage prepaid, return receipt requested) at the
respective addresses of the parties set forth in the Plan of Acquisition.
Section 18. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof (except to the extent that mandatory provisions of
federal or state law apply).
Section 19. Counterparts. This Agreement may be executed in
two counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
Section 20. Expenses. Except as otherwise expressly
provided herein, each of the parties hereto shall bear and pay all costs and
expenses incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants and counsel.
Section 21. Entire Agreement; No Third Party Beneficiaries.
Except as otherwise expressly provided herein or in the Plan of Acquisition,
this Agreement contains the entire agreement between the parties with respect to
the transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereof, written or oral. The terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and permitted assigns. Nothing in this
Agreement, expressed or implied, is intended to confer upon any party, other
than the parties hereto, and their respective successors and permitted assigns,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided herein.
Section 22. Capitalized Terms. Capitalized terms used in
this Agreement and not defined herein shall have the meanings assigned thereto
in the Plan of Acquisition.
Section 23. Limitation on Grantee's Total Profit. (a)
Notwithstanding any other provision herein, in no event shall Grantee's Total
Profit (as defined in subsection (c) of this Section 23) exceed $25 million (the
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<PAGE>
"Maximum Profit"), and, if the Total Profit would otherwise exceed such amount,
Grantee, at its sole election, shall either (i) reduce the number of shares
subject to the Option (and any Substitute Option), (ii) deliver to Issuer, or
Substitute Issuer, as the case may be, for cancellation shares of Common Stock
or Substitute Common Stock, as the case may be, previously purchased by Grantee
valued at fair market value at the time of delivery, (iii) pay cash to Issuer,
or Substitute Issuer, as the case may be, (iv) reduce the amount of the Section
7 Option Repurchase Price or Section 9 Substitute Option Repurchase Price, or
(v) undertake any combination of the foregoing, so that Grantee's actually
realized Total Profit shall not exceed the Maximum Profit after taking into
account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement,
the Option may not be exercised for a number of shares as would, as of the date
of exercise, result in a Notional Total Profit (as defined in subsection (d) of
this Section 23) of more than the Maximum Profit and, if exercise of the Option
would otherwise result in the Notional Total Profit exceeding such amount,
Grantee, in its discretion, may take any of the actions specified in subsection
(a) of this Section 23 so that the Notional Total Profit shall not restrict any
subsequent exercise of the Option which at such time complies with this
sentence.
(c) For purposes of this Agreement, the term "Total Profit"
shall mean the aggregate amount (before taxes) of the following: (i) the excess
of (x) the net cash amounts or fair market value of any property received by
Grantee pursuant to the sale of the Option or the Option Shares (or any other
securities into which such Option Shares are converted or exchanged) to any
unaffiliated party, other than any amount received by Grantee upon the
repurchase of the Option or the Option Shares, respectively, by Issuer pursuant
to Section 7 hereof, after payment of applicable brokerage or sales commissions
and discounts, over (y) Grantee's aggregate purchase price for such Option
Shares (or other securities), plus (ii) all amounts received by Grantee upon the
repurchase of the Option or the Option Shares by Issuer pursuant to Section 7
hereof, (iii) all equivalent amounts with respect to the Substitute Option and
Substitute Shares and any amounts paid pursuant to Section 9 hereof, plus (iv)
the amount of any Termination Fee paid to Grantee pursuant to Section 8.5 of the
Plan of Acquisition.
(d) For purposes of this Agreement, the term "Notional
Total Profit" with respect to any number of shares as to which Grantee may
propose to exercise the Option shall be the Total Profit, determined as of the
date of such proposed exercise assuming that the Option were exercised on such
date for such number of shares, and assuming that such shares, together with all
other Option Shares held by Grantee and its affiliates as of such date, were
sold for cash at the closing market price for the Common Stock as of the close
of business on the preceding trading day (less customary brokerage commissions).
For purposes of this Section 23, transactions by a wholly-owned subsidiary
transferee of Grantee in respect of the Option Shares transferred to it shall be
treated as if made by Grantee.
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IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be executed on its behalf by its officers thereunto duly
authorized, all as of the date first above written.
FIDUCIARY TRUST COMPANY INTERNATIONAL
By: /s/ Anne M. Tatlock
--------------------------------------
Name: Anne M. Tatlock
Title: Chief Executive Officer
FRANKLIN RESOURCES, INC.
By: /s/ Charles B. Johnson
--------------------------------------
Name: Charles B. Johnson
Title: Chairman
Signature Page to Stock Option Agreement
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ANNEX C
FORM OF VOTING AGREEMENT
VOTING AGREEMENT, dated as of October 25, 2000 (this
"AGREEMENT"), between Franklin Resources, Inc. a Delaware corporation ("PARENT")
and _____________________________ (the "STOCKHOLDER").
W I T N E S S E T H:
WHEREAS, concurrently herewith, Parent and Fiduciary Trust
Company International, a bank organized and existing under Article III of the
New York State Banking Law (the "COMPANY"), are entering into an Agreement and
Plan of Share Acquisition (as such agreement may hereafter be amended from time
to time, the "ACQUISITION AGREEMENT"; capitalized terms used and not defined
herein have the respective meanings ascribed to them in the Acquisition
Agreement) pursuant to which all of the outstanding shares will be exchanged for
the right to receive shares of Parent Common Stock;
WHEREAS, the Stockholder Beneficially owns _________ shares
of common stock, par value $1.00 per share, of the Company, other than such
shares that he or she may be deemed Beneficial owner of as a result of his or
her employment by the Company (the "SHARES"); and
WHEREAS, as an inducement and a condition to entering into
the Acquisition Agreement, Parent has required that the Stockholder agree, and
the Stockholder has agreed, to enter into this Agreement; and further the
Stockholder has agreed to enter into this Agreement strictly in his capacity as
an owner of the Shares and not in his capacity as a director or officer of the
Company.
NOW, THEREFORE, in consideration of the foregoing and the
mutual premises, representations, warranties, covenants and agreements contained
herein, and intending to be legally bound hereby, the parties hereto hereby
agree as follows:
1. Provisions Concerning the Shares. (a) The Stockholder
hereby agrees that during the period commencing on the date hereof and
continuing until this provision terminates pursuant to Section 4 hereof, at any
meeting of the holders of Shares, however called, or in connection with any
written consent of the holders of Shares the Stockholder shall vote (or cause to
be voted) any Shares Beneficially owned, whether heretofore owned or hereafter
acquired, in favor of the adoption of the Acquisition Agreement and any actions
required in furtherance thereof and hereof.
(b) The Stockholder shall not enter into any agreement or
understanding with any person the effect of which would be inconsistent or
violative of the provisions of this Agreement.
2. Representations and Warranties. As of the date hereof,
the Stockholder hereby represents and warrants to Parent as follows:
(a) Ownership of Shares. The Stockholder is the Beneficial
owner of all of the Shares. On the date hereof, the Shares constitute all of the
shares of Common Stock of the Company Beneficially owned by the Stockholder.
NY2:\994162\01\LB3M01!.DOC\46360.0043
<PAGE>
(b) Power; Binding Agreement. The Stockholder has the legal
capacity, power and authority to enter into and perform all of his or her
obligations under this Agreement which constitutes a binding agreement on the
Stockholder.
(c) Reliance by Parent. The Stockholder understands and
acknowledges that Parent and the Company are entering into the Acquisition
Agreement in reliance upon execution and delivery of this Agreement by the
Stockholder.
(d) Sophistication. The Stockholder acknowledges being an
informed and sophisticated investor and, together with the Stockholder's
advisors, has undertaken such investigation as they have deemed necessary,
including the review of the Acquisition Agreement and this Agreement, to enable
the Stockholder to make an informed and intelligent decision with respect to the
Acquisition Agreement and this Agreement and the transactions contemplated
thereby and hereby.
3. Restriction on Transfer; Proxies; Non-Interference; Stop
Transfers;
(a) The Stockholder shall not, directly or indirectly,
during the period commencing on the date hereof and continuing until this
provision terminates pursuant to Section 4 hereof: (i) offer for sale, sell,
transfer, tender, pledge, encumber, assign or otherwise dispose of, or grant or
enter into any contract, option or other arrangement or understanding with
respect to or consent to the offer for sale, sale, transfer, tender, pledge,
encumbrance, assignment or other disposition of, any or all of the Shares or any
interest therein; (ii) except as contemplated by Section 1 grant any proxies or
powers of attorney, deposit any Shares into a voting trust or enter into a
voting agreement with respect to any Shares; or (iii) take any action that would
make any of the Stockholder's representations or warranties contained herein
untrue or incorrect or have the effect of preventing or disabling the
Stockholder from performing his/her respective obligations under this Agreement.
(b) Without limiting the generality of Section 3(a) above,
the Stockholder agrees with, and covenants to, Parent that the Stockholder shall
not, during the period set forth in Section 3(a), request that the Company
register the transfer (book-entry or otherwise) of any certificate or
uncertificated interest representing the Shares, unless such transfer is made in
compliance with this Agreement.
4. Termination. Except as otherwise provided herein, the
covenants and agreements contained in Sections 1 and 3 hereof shall terminate
(i) in the event the Acquisition Agreement is terminated in accordance with the
terms thereof, upon such termination, and (ii) in the event the Share Exchange
is consummated, upon the Effective Time. Notwithstanding anything to the
contrary herein, no termination of this Agreement shall relieve any party of
liability for a breach hereof prior to termination.
5. Entire Agreement. This Agreement constitute the entire
agreement between the parties with respect to the subject matter hereof and
supersede all other prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof.
6. Certain Events. The Stockholder agrees that this
Agreement and the obligations hereunder shall attach to the Shares and shall be
binding upon any person to which legal or Beneficial ownership of such Shares
shall pass, whether by operation of Law or otherwise, including, without
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<PAGE>
limitation, the Stockholder's heirs, executors, guardians, administrators,
trustees or successors. Notwithstanding any transfer of Shares, the transferor
shall remain liable for the performance of all obligations of the transferor
under this Agreement.
7. Assignment. This Agreement shall not be assigned by any
party hereto, by operation of law or otherwise, without the prior written
consent of the other party, and any purported assignment without such consent
shall be null and void. All covenants and agreements contained in this Agreement
by or on behalf of the parties hereto shall be binding on and inure to the
benefit of the respective successors, heirs and permitted assigns of the parties
hereto.
8. Amendments, Waivers, Etc. This Agreement may not be
amended, changed, supplemented, waived or otherwise modified or terminated
except upon the execution and delivery of a written agreement executed by each
of the parties hereto.
9. Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly received if so given) by hand delivery, telegram,
telex or telecopy, or by mail (registered or certified mail, postage prepaid,
return receipt requested) or by any courier service, such as Federal Express,
providing proof of delivery. All communications hereunder shall be delivered to
the respective parties at the following addresses: (i) if to Parent, to its
address set forth in the Acquisition Agreement; and (ii) if to the Stockholder,
to the address set forth under the Stockholder's signature on the signature page
hereto; or, in each case, to such other address as the person to whom notice is
given may have previously furnished to the others in writing in the manner set
forth above.
10. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
11. Specific Performance. The Stockholder recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause Parent to sustain damages for which it would not have
an adequate remedy at law for money damages, and therefore the Stockholder
agrees that in the event of any such breach Parent party shall be entitled to
the remedy of specific performance of such covenants and agreements and
injunctive and other equitable relief in addition to any other remedy to which
Parent may be entitled, at law or in equity.
12. Remedies Cumulative. All rights, powers and remedies
provided under this Agreement or otherwise available in respect hereof at law or
in equity shall be cumulative and not alternative, and the exercise of any
thereof by any party shall not preclude the simultaneous or later exercise of
any other such right, power or remedy by such party.
13. No Waiver. The failure of any party hereto to exercise
any right, power or remedy provided under this Agreement or otherwise available
in respect hereof at law or in equity, or to insist upon compliance by any other
party hereto with its obligations hereunder, and any custom or practice of the
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<PAGE>
parties at variance with the terms hereof, shall not constitute a waiver by such
party of its right to exercise any such or other right, power or remedy or to
demand such compliance.
14. No Third Party Beneficiaries. This Agreement is not
intended to be for the benefit of, and shall not be enforceable by, any Person
who or which is not a party hereto .
15. Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York.
16. Descriptive Headings. The descriptive headings used
herein are inserted for convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this Agreement.
17. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of which,
taken together, shall constitute one and the same Agreement.
[signature page follows]
C-4
<PAGE>
IN WITNESS WHEREOF, Parent and the Stockholder have
executed and delivered this Agreement as of the day and year first above
written.
FRANKLIN RESOURCES, INC.
By:
--------------------------------------------
Name:
Title:
STOCKHOLDER
By:
--------------------------------------------
C-5
<PAGE>
ANNEX D
PERSONAL AND CONFIDENTIAL
-------------------------
October 25, 2000
Board of Directors
Fiduciary Trust Company International
Two World Trade Center
New York, NY 10048-0772
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of view
to the holders (other than Franklin, as defined below) of the outstanding shares
of Common Stock, par value $1.00 per share (the "Shares"), of Fiduciary Trust
Company International (the "Company"), of the Exchange Ratio (as defined below)
of shares of Common Stock, par value $0.10 per share (the "Franklin Common
Stock"), of Franklin Resources, Inc. ("Franklin") to be received for each Share
(the "Exchange Ratio"), pursuant to the Agreement and Plan of Share Acquisition
dated as of October 25, 2000 between the Company and Franklin (the "Agreement").
Pursuant to the Agreement, the "Exchange Ratio" shall equal $113.38 divided by
the Franklin Average Closing Price (as defined below); provided that if the
Franklin Average Closing Price is less than $34.68, the Exchange Ratio shall be
3.2697, and if the Franklin Closing Average Price is greater than $42.38, the
Exchange Ratio shall be 2.6754. Under the Agreement, the "Franklin Average
Closing Price" equals the average closing price of the Franklin Common Stock on
the New York Stock Exchange during the 20 trading days ending immediately prior
to the date that the Board of Governors of the Federal Reserve System grants,
among other approvals, regulatory approval to Franklin to acquire the Company.
Goldman, Sachs & Co., as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. We are familiar with
the Company, having acted as its financial advisor in connection with, and
having participated in certain of the negotiations leading to, the Agreement. We
also have provided certain investment banking services to Franklin from time to
time, including having acted as its financial advisor in its acquisition of
Templeton, Galbraith and Hansberger in 1992, and may provide investment banking
services to Franklin in the future. Goldman, Sachs & Co. provides a full range
of financial advisory and securities services and, in the course of its normal
NY2:\996378\01\LCT601!.DOC\46360.0043
<PAGE>
Fiduciary Trust Company International
October 25, 2000
Page Two
trading activities, may from time to time affect transactions and hold
securities, including derivative securities, of the Company and Franklin for its
own account and the accounts of customers.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports of the Company for the three years ended December 31,
1999; Annual Reports to Stockholders and Annual Reports on Form 10-K of Franklin
for the five fiscal years ended September 30, 1999; Quarterly Financial
Highlights of the Company; certain interim reports to stockholders and Quarterly
Reports on Form 10-Q of Franklin; and certain internal financial analyses and
forecasts for the Company and Franklin prepared by their respective managements,
including certain cost savings projected by the managements of the Company and
Franklin to result from the transaction contemplated by the Agreement. We also
have held discussions with members of the senior management of the Company and
Franklin regarding their assessment of the strategic rationale for, and the
potential benefits of, the transaction contemplated by the Agreement and the
past and current business operations, financial condition and future prospects
of their respective companies. In addition, we have reviewed the reported price
and trading activity for the Shares and the Franklin Common Stock, compared
certain financial and stock market information for the Company and Franklin with
similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the asset management industry specifically and other industries
generally and performed such other studies and analyses as we considered
appropriate.
We have relied upon the accuracy and completeness of all of the financial and
other information discussed with or reviewed by us and have assumed such
accuracy and completeness for purposes of rendering this opinion. In addition,
we have not made an independent evaluation or appraisal of the assets and
liabilities of the Company or Franklin or any of their subsidiaries and we have
not been furnished with any such evaluation or appraisal. We have assumed with
your consent that the transaction contemplated by the Agreement will be
accounted for as a pooling-of-interests under generally accepted accounting
principles. We also have assumed that all material governmental, regulatory or
other consents and approvals necessary for the consummation of the transaction
contemplated by the Agreement will be obtained without any adverse effect on the
Company or Franklin or on the benefits of the transaction contemplated by the
Agreement. Our advisory services and the opinion expressed herein are provided
for the information and assistance of the Board of Directors of the Company in
connection with its consideration of the transaction contemplated by the
Agreement and such opinion does not constitute a recommendation as to how any
holder of Shares should vote with respect to such transaction.
Based upon and subject to the foregoing and based upon such other matters as we
consider relevant, it is our opinion that as of the date hereof the Exchange
Ratio pursuant to the Agreement is fair from a financial point of view to the
holders of Shares.
Very truly yours,
------------------------
Goldman, Sachs & Co.
D-2
<PAGE>
ANNEX E
SECTION 6022. PROCEDURE TO ENFORCE STOCKHOLDER'S RIGHT TO RECEIVE PAYMENT FOR
SHARES
1. A stockholder intending to enforce his right under a section of this
chapter to receive payment for his shares if the proposed corporate
action referred to therein is taken shall file with the corporation,
before the meeting of stockholders at which the action is submitted
to a vote, or at such meeting but before the vote, written objection
to the action. The objection shall include a statement that he
intends to demand payment for his shares if the action is taken. Such
objection is not required from any stockholder to whom the
corporation did not give notice of such meeting in accordance with
this chapter or where the proposed action is authorized by written
consent of stockholders without a meeting.
2. Within ten days after the stockholders' authorization date, which
term as used in this section means the date on which the
stockholders' vote authorizing such action was taken, or the date on
which such consent without a meeting was obtained from the requisite
stockholders, the corporation shall give written notice of such
authorization or consent by registered mail to each stockholder who
filed written objection or from whom written objection was not
required, excepting any who voted for or consented in writing to the
proposed action.
3. Within twenty days after the giving of notice to him, any stockholder
to whom the corporation was required to give such notice and who
elects to dissent shall file with the corporation a written notice of
such election, stating his name and residence address, the number and
classes of shares as to which he dissents and a demand for payment of
the fair value of his shares.
4. A stockholder may not dissent as to less than all of the shares, held
by him of record, that he owns beneficially. A nominee or fiduciary
may not dissent on behalf of any beneficial owner as to less than all
of the shares of such owner held of record by such nominee or
fiduciary.
5. Upon filing a notice of election to dissent, the stockholder shall
cease to have any of the rights of a stockholder except the right to
be paid the fair value of his shares and any other rights under this
section. Withdrawal of a notice of election shall require the written
consent of the corporation. If a notice of election is withdrawn, or
the proposed corporate action is abandoned or rescinded, or a court
shall determine that the stockholder is not entitled to receive
payment for his shares, or the stockholder shall otherwise lose his
dissenter's rights, he shall not have the right to receive payment
for his shares and he shall be reinstated to all his rights as a
stockholder as of the filing of his notice of election, including any
intervening preemptive rights and the right to payment of any
intervening dividend or other distribution or, if any such rights
have expired or any such dividend or distribution other than in cash
has been completed, in lieu thereof, at the election of the
corporation, the fair value thereof in cash as determined by the
board as of the time of such expiration or completion, but without
prejudice otherwise to any corporate proceedings that may have been
taken in the interim.
6. At the time of filing the notice of election to dissent or within one
month thereafter the stockholder shall submit the certificates
representing his shares to the corporation, or to its transfer agent,
E-1
<PAGE>
which shall forthwith note conspicuously thereon that a notice of
election has been filed and shall return the certificates to the
stockholder or other person who submitted them on his behalf. Any
stockholder who fails to submit his certificates for such notation as
herein specified shall, at the option of the corporation exercised by
written notice to him within forty-five days from the date of filing
of such notice of election to dissent, lose his dissenter's rights
unless a court, for good cause shown, shall otherwise direct. Upon
transfer of a certificate bearing such notation, each new certificate
issued therefor shall bear a similar notation together with the name
of the original dissenting holder of the shares and a transferee
shall acquire no rights in the corporation except those which the
original dissenting stockholder had after filing his notice of
election.
7. Within seven days after the expiration of the period within which
stockholders may file their notices of election to dissent, or within
seven days after the proposed corporate action is consummated,
whichever is later, the corporation or, in the case of a merger, the
receiving corporation, shall make a written offer by registered mail
to each stockholder who has filed such notice of election to pay for
his shares at a specified price which the corporation considers to be
their fair value. Such offer shall be made at the same price per
share to all dissenting stockholders of the same class, or if divided
into series, of the name series and shall be accompanied by a balance
sheet of the corporation whose shares the dissenting stockholder
holds as of the latest available date, which shall not be earlier
than twelve months before the making of such offer, and a profit and
loss statement or statements for not less than a twelve month period
ended on the date of such balance sheet or, if the corporation was
not in existence throughout such twelve month period, for the portion
thereof during which it was in existence. If within thirty days after
the making of such offer, the corporation making the offer and any
stockholder agree upon the price to be paid for his shares, payment
therefor shall be made within sixty days after the making of such
offer upon the surrender of the certificates representing such
shares.
8. The following procedure shall apply if the corporation fails to make
such offer within such period of seven days, or if it makes the offer
and any dissenting stockholder or stockholders fail to agree with it
within the period of thirty days thereafter upon the price to be paid
for their shares:
(a) The corporation or, in the case of a merger, the receiving
corporation shall, within twenty days after the expiration
of whichever is applicable of the two periods last
mentioned, institute a special proceeding in the supreme
court in the judicial district in which the office of the
corporation is located to determine the rights of
dissenting stockholders and to fix the fair value of their
shares.
(b) If the corporation fails to institute such proceeding
within such period of twenty days, any dissenting
stockholder may institute such proceeding for the same
purpose not later than thirty days after the expiration of
such twenty day period. If such proceeding is not
instituted within such thirty day period, all dissenter's
rights shall be lost unless the supreme court, for good
cause shown, shall otherwise direct.
(c) All dissenting stockholders, excepting those who, as
provided in subdivision seven, have agreed with the
corporation upon the price to be paid for their shares,
shall be made parties to such proceeding, which shall have
the effect of an action quasi in rem against their shares.
E-2
<PAGE>
The corporation shall serve a copy of the petition in such
proceeding upon each dissenting stockholder who is a
resident of this state in the manner provided by law for
the service of a summons, and upon each nonresident
dissenting stockholder either by registered mail and
publication, or in such other manner as is permitted by
law. The jurisdiction of the court shall be plenary and
exclusive.
(d) The court shall determine whether each dissenting
stockholder, as to whom the corporation requests the court
to make such determination, is entitled to receive payment
for his shares. If the corporation does not request any
such determination or if the court finds that any
dissenting stockholder is so entitled, it shall proceed to
fix the value of the shares, which, for the purposes of
this section, shall be the fair value as of the close of
business on the day prior to the stockholders'
authorization date, excluding any appreciation or
depreciation directly or indirectly induced by such
corporate action or its proposal. The court may, if it so
elects, appoint an appraiser to receive evidence and
recommend a decision on the question of fair value. Such
appraiser shall have the power, authority and duties
specified in the order appointing him, or any amendment
thereof.
(e) The final order in the proceeding shall be entered against
the corporation in favor of each dissenting stockholder
who is a party to the proceeding and is entitled thereto
for the value of his shares so determined.
(f) The final order shall include an allowance for interest at
such rate as the court finds to be equitable, from the
stockholders' authorization date to the date of payment.
If the court finds that the refusal of any stockholder to
accept the corporate offer of payment for his shares was
arbitrary, vexatious or otherwise not in good faith, no
interest shall be allowed to him.
(g) The costs and expenses of such proceeding shall be
determined by the court and shall be assessed against the
corporation, or, in the case of a merger, the receiving
corporation, except that all or any part of such costs and
expenses may be apportioned and assessed, as the court may
determine, against any or all of the dissenting
stockholders who are parties to the proceeding if the
court finds that their refusal to accept the corporate
offer was arbitrary, vexatious or otherwise not in good
faith. Such expenses shall include reasonable compensation
for and the reasonable expenses of the appraiser, but
shall exclude the fees and expenses of counsel for and
experts employed by any party unless the court, in its
discretion, awards such fees and expenses. In exercising
such discretion, the court shall consider any of the
following: (A) that the fair value of the shares as
determined materially exceeds the amount which such
corporation offered to pay; (B) that no offer was made by
such corporation; and (C) that such corporation failed to
institute the special proceeding within the period
specified therefor.
(h) Within sixty days after final determination of the
proceeding, the corporation or, in the case of a merger,
the receiving corporation shall pay to each dissenting
stockholder the amount found to be due him, upon surrender
of the certificates representing his shares.
E-3
<PAGE>
9. Shares acquired by the corporation upon the payment of the agreed
value therefor or of the amount due under the final order, as
provided in this section, shall be dealt with as provided in section
five thousand fourteen, except that, in the case of a merger, they
shall be disposed of as provided in the plan of merger or
consolidation.
10. The enforcement by a stockholder of his right to receive payment for
his shares in the manner provided herein shall exclude the
enforcement by such stockholder of any other right to which he might
otherwise be entitled by virtue of share ownership, except as
provided in subdivision five, and except that this section shall not
exclude the right of such stockholder to bring or maintain an
appropriate action to obtain relief on the ground that such corporate
action will be or is illegal or fraudulent as to him.
11. Except as otherwise expressly provided in this section, any notice to
be given by a corporation to a stockholder under this section shall
be given in the manner provided in section six thousand five.
E-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("DGCL") provides
that a corporation may indemnify a director, officer, employee or agent made a
party to an action by reason of the fact that he was a director, officer,
employee or agent of the corporation or was serving at the request of the
corporation, against liabilities, costs and expenses actually and reasonably
incurred by him in his capacity as a director or officer or arising out of such
action, if he acted in good faith and in a manner he reasonably believed to be
in, or not opposed to, the best interests of the corporation and, with respect
to any criminal action, had no reasonable cause to believe his conduct was
unlawful. No indemnification may be provided where the director, officer,
employee or agent has been adjudged by a court, after exhaustion of all appeals,
to be liable to the corporation, unless a court determines that the person is
entitled to such indemnity.
Section 102(b)(7) of the DGCL permits a corporation to relieve its
directors from personal liability for monetary damages to the corporation or its
stockholders for breaches of their fiduciary duty as directors except for (i) a
breach of the duty of loyalty, (ii) failure to act in good faith, (iii)
intentional misconduct or knowing violation of law, (iv) willful or negligent
violations of certain provisions of the DGCL (Sections 160, 173 and 174)
imposing certain requirements with respect to stock purchases, redemptions and
dividends or (v) any transaction from which the director derived an improper
personal benefit.
The above provisions of the DGCL are non-exclusive.
In addition to the above described provisions, Franklin's certificate
of incorporation relieves its directors from personal liability for a breach of
fiduciary duty as a director as set forth in Section 102(b)(7) of the DGCL.
Franklin's by-laws provide that directors, officers, employees and
agents who have been successful on the merits or otherwise in a civil or
criminal action referred to in Section 145(a) or 145(b) of the DGCL shall be
indemnified against expenses, including attorneys' fees, actually and reasonably
incurred in connection therewith.
It is Franklin's policy to enter into indemnification agreements
("Indemnification Agreements") with its directors, some of whom are also
executive officers ("Indemnified Persons"). The Indemnification Agreements
provide for the prompt indemnification "to the fullest extent permitted by law,"
and the prompt advancing of attorneys' fees and all other costs, expenses and
obligations paid or incurred by the Indemnified Person in connection with a
Claim.
A "Claim" consists of participation in any threatened, pending or
completed action, or any inquiry or investigation that the Indemnified Person in
good faith believes might lead to the institution of any such action, and must
be related to the fact that the Indemnified Person is or was a director,
officer, employee, agent or fiduciary of Franklin or is or was serving at the
request of Franklin in such a capacity for another entity.
<PAGE>
Additionally, the Indemnification Agreements provide that if Franklin
pays an Indemnified Person pursuant to the Indemnification Agreements, Franklin
will be subrogated to the Indemnified Person's rights to recover from third
parties.
However, the Indemnification Agreements prohibit such indemnification
(i) in connection with any Claim initiated by the Indemnified Person against
Franklin or any director or officer of Franklin unless Franklin has joined in or
consented to the Claim or (ii) if the Board of Directors or other person or body
appointed by the Board of Directors determines that such indemnification is not
permitted under applicable law. In the event of such determination, the
Indemnified Person agrees to reimburse Franklin for all amounts that Franklin
has advanced to the Indemnified Person in respect of such indemnification.
The Indemnification Agreements also provide that if there is a change
in control of Franklin, Franklin will seek legal advice from special,
independent counsel selected by the Indemnified Person and approved by Franklin
with respect to matters thereafter arising concerning rights of the Indemnified
Person under the Agreement. Additionally, the Indemnification Agreements provide
that if there is a potential change in control, Franklin will, upon written
request of the Indemnified Person, fund a trust to satisfy expenses reasonably
anticipated to be incurred in connection with a Claim relating to an
indemnifiable event. Franklin is not currently, nor does it expect to be,
subject to a change in control.
Franklin has purchased an insurance policy indemnifying its officers
and directors and the officers and directors of its subsidiaries against claims
and liabilities (with stated exceptions) to which they may become subject by
reason of their positions with Franklin as directors and officers.
The Commission has taken the position that although indemnification
by a registrant for liabilities arising under the Securities Act may be provided
as described above, such indemnification is unenforceable because it is against
public policy as expressed in the Securities Act. Therefore, if a director,
officer or controlling person asserts such a claim for indemnification, Franklin
will, unless in the opinion of counsel for Franklin the question has previously
been decided by controlling legal precedent, ask a court of competent
jurisdiction to determine whether such indemnification by it is unenforceable as
being against public policy as expressed in the Securities Act.
<PAGE>
EXHIBITS AND FINANCIAL SCHEDULES.
Exhibit No. Exhibit Description
----------- -------------------
2.1 Agreement and Plan of Share Acquisition, dated as of
October 25, 2000, between Franklin Resources, Inc. and
Fiduciary Trust Company International (included as Annex
A to the Proxy Statement/Prospectus).
3.1 Certificate of Incorporation, as filed November 28, 1969
(incorporated by reference to Exhibit (3)(i) to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended September 30, 1994).
3.2 Certificate of Amendment of the Certificate of
Incorporation, as filed March 1, 1985 (incorporated by
reference to Exhibit (3)(ii) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September
30, 1994).
3.3 Certificate of Amendment of the Certificate of
Incorporation, as filed April 1, 1987 (incorporated by
reference to Exhibit (3)(iii) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September
30, 1994).
3.4 Certificate of Amendment of the Certificate of
Incorporation, as filed February 2, 1994 (incorporated by
reference to Exhibit (3)(iii) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September
30, 1994).
3.5 Amended and Restated By-laws (incorporated by reference
to Exhibit (3)(ii) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended September 30, 2000).
5.1 * * Opinion of Weil, Gotshal & Manges LLP as to the legality
of the shares being registered.
8.1 * * Opinion of Cleary, Gottlieb, Steen & Hamilton, as to
certain United States federal income tax consequences of
the acquisition.
21.1 List of Subsidiaries (incorporated by reference to
Exhibit 21 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended September 30, 2000).
23.1 * Consent of PricewaterhouseCoopers LLP
23.3 * * Consent of Weil, Gotshal & Manges LLP (included in
Exhibit 5.1 hereto).
23.4 * * Consent of Cleary, Gottlieb, Steen & Hamilton (included
in Exhibit 8.1 hereto).
24.1 Power of Attorney (included on page___).
99.1 Stock Option Agreement, dated as of October 25, 2000,
between Franklin Resources, Inc. and Fiduciary Trust
Company International (included as Annex B to the Proxy
Statement/Prospectus).
<PAGE>
99.2 Form of Voting Agreement, dated as of October 25, 2000,
between Franklin Resources, Inc. and the stockholders
named therein (included as Annex C to the Proxy Statement
/ Prospectus).
99.3 * * Form of Proxy Card for Special Meeting of Fiduciary
shareholders.
99.4 * * Consent of Goldman, Sachs & Co.
-----------------
* Filed herewith
** To be provided by amendment
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement (notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the effective
registration statement); and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement.
That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
That for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in this registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
<PAGE>
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
That every prospectus: (i) that is filed pursuant to the paragraph
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Securities Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as part of an amendment to this
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at the time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
this Registration Statement through the date of responding to the request.
To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in this registration statement when it
became effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of San Mateo,
and state of California, on this 21st day of December, 2000.
FRANKLIN RESOURCES, INC.
By: /s/ Charles B. Johnson
-----------------------------------------
Charles B. Johnson, Chairman, Chief
Executive Officer and Member - Office
of Chairman
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned
constitutes and appoints each of Martin L. Flanagan, and Leslie M. Kratter or
any of them, each acting alone, his true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for such person and in his
or her name, place and stead, in any and all capacities, to sign this
Registration Statement (including all pre-effective and post-effective
amendments), and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming that any such attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on December 21,
2000 in the capacities indicated.
<TABLE>
SIGNATURE CAPACITY DATE
<S> <C> <C>
Chairman, Chief Executive Officer, Member - December 21, 2000
/s/ Charles B. Johnson Office of the Chairman, and Director
-----------------------------------------
Charles B. Johnson
Vice Chairman and Member - Office of the December 21, 2000
/s/ Harmon E. Burns Chairman, and Director
-----------------------------------------
Harmon E. Burns
President, Member - Office of the President, December 21, 2000
/s/ Martin L. Flanagan and Chief Financial Officer
-----------------------------------------
Martin L. Flanagan
President, and Member - Office of the December 21, 2000
/s/ Allen J. Gula, Jr. President
-----------------------------------------
Allen J. Gula, Jr.
Vice Chairman, Member - Office of the December 21, 2000
/s/ Rupert H. Johnson, Jr. Chairman, and Director
-----------------------------------------
Rupert H. Johnson, Jr.
<PAGE>
/s/ Harry O. Kline Director December 21, 2000
-----------------------------------------
Harry O. Kline
/s/ James A. McCarthy Director December 21, 2000
-----------------------------------------
James A. McCarthy
/s/ Peter M. Sacerdote Director December 21, 2000
-----------------------------------------
Peter M. Sacerdote
Vice President-Finance, Chief Accounting December 21, 2000
/s/ Charles R. Sims Officer and Treasurer
-----------------------------------------
Charles R. Sims
/s/ Louis E. Woodworth Director December 21, 2000
-----------------------------------------
Louis E. Woodworth
</TABLE>
EXHIBIT INDEX
Exhibit No. Exhibit Description
----------- -------------------
2.1 Agreement and Plan of Share Acquisition, dated as of
October 25, 2000, between Franklin Resources, Inc. and
Fiduciary Trust Company International (included as Annex
A to the Proxy Statement/Prospectus).
3.1 Certificate of Incorporation, as filed November 28, 1969
(incorporated by reference to Exhibit (3)(i) to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended September 30, 1994).
3.2 Certificate of Amendment of the Certificate of
Incorporation, as filed March 1, 1985 (incorporated by
reference to Exhibit (3)(ii) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September
30, 1994).
3.3 Certificate of Amendment of the Certificate of
Incorporation, as filed April 1, 1987 (incorporated by
reference to Exhibit (3)(iii) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September
30, 1994).
3.4 Certificate of Amendment of the Certificate of
Incorporation, as filed February 2, 1994 (incorporated by
reference to Exhibit (3)(iii) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September
30, 1994).
3.5 Amended and Restated By-laws (incorporated by reference
to Exhibit (3)(ii) to the Registrant's Annual Report on
Form 10-K for the fiscal year ended September 30, 2000).
5.1 * * Opinion of Weil, Gotshal & Manges LLP as to the legality
of the shares being registered.
<PAGE>
8.1 * * Opinion of Cleary, Gottlieb, Steen & Hamilton, as to
certain United States federal income tax consequences of
the acquisition.
21.1 List of Subsidiaries (incorporated by reference to
Exhibit 21 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended September 30, 2000).
23.1 * Consent of PricewaterhouseCoopers LLP
23.3 * * Consent of Weil, Gotshal & Manges LLP (included in
Exhibit 5.1 hereto).
23.4 * * Consent of Cleary, Gottlieb, Steen & Hamilton (included
in Exhibit 8.1 hereto).
24.1 Power of Attorney (included on page___).
99.1 Stock Option Agreement, dated as of October 25, 2000,
between Franklin Resources, Inc. and Fiduciary Trust
Company International (included as Annex B to the Proxy
Statement / Prospectus).
99.2 Form of Voting Agreement, dated as of October 25, 2000,
between Franklin Resources, Inc. and the stockholders
named therein (included as Annex C to the Proxy
Statement/Prospectus).
99.3 * * Form of Proxy Card for Special Meeting of Fiduciary
shareholders.
99.4 * * Consent of Goldman, Sachs & Co.
-----------------
* Filed herewith
** To be provided by amendment
