<PAGE>
THE FRANKLIN HOLDING CORPORATION
(DELAWARE)
June 30, 1996
SEMI-ANNUAL REPORT TO THE STOCKHOLDERS
<PAGE>
THE FRANKLIN HOLDING CORPORATION
(DELAWARE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LETTER FROM THE CHAIRMAN
To Our Stockholders:
I am pleased to inform you that, for the six-month period ended June 30,
1996, Franklin reported an increase in net assets after provision for taxes of
$528,575 (or $.66 per share) compared to a decrease in net assets of $260,058
(or $.31 per share) for the six-month period ended June 30, 1995. The Company's
net asset value as of June 30, 1996 was $12,398,453 or $15.47 per share.
During the remainder of 1996, we will continue to seek investment
opportunities which management believes will yield above average returns for
Franklin's stockholders.
On behalf of the Corporation's Board and management, I want to thank you for
your continued support.
Respectfully,
Stephen L. Brown
Chairman
September 10, 1996
1
<PAGE>
THE FRANKLIN HOLDING CORPORATION
(DELAWARE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Income from controlled affiliates (Note 6)...................... $ 375,000 $ 375,000
Interest on short term investments and money market accounts.... 7,021 108,103
Interest on loans and debt securities........................... 35,920 --
Other........................................................... -- 860
---------- ----------
417,941 483,963
---------- ----------
EXPENSES
Salaries and employee benefits (Note 8)......................... 422,616 425,344
Professional fees............................................... 62,735 70,890
Rent (Note 5)................................................... 55,678 67,940
Insurance....................................................... 25,525 25,578
Directors' fees................................................. 64,205 63,000
Taxes other than income taxes................................... 30,954 33,384
Advertising and promotion....................................... 6,391 280
Depreciation and amortization................................... 17,733 17,440
Professional fees related to Stearns and Foster litigation
(Note 5)....................................................... 30,000 199,231
Expenses related to Shareholders' litigation & proxy contest
(Note 5)...................................................... 74,631 --
General and administrative...................................... 99,691 108,459
---------- ----------
890,159 1,011,546
---------- ----------
Net investment loss before income taxes........................... (472,218) (527,583)
Provision for current state income taxes (Note 3)................. (3,000) (2,000)
---------- ----------
Net investment loss............................................... (475,218) (529,583)
Net realized gain on portfolio of investments..................... 169,118 6,225
Increase in unrealized appreciation of investments................ 1,174,675 238,300
(Provision) benefit for deferred Federal and state income taxes
(Note 3)........................................................ (340,000) 25,000
---------- ----------
Net increase (decrease) in net assets............................. $ 528,575 $ (260,058)
---------- ----------
---------- ----------
Net increase (decrease) in net assets per common share............ $ 0.66 $ (0.31)
---------- ----------
---------- ----------
Weighted average number of common shares outstanding.............. 805,017 850,505
---------- ----------
---------- ----------
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
THE FRANKLIN HOLDING CORPORATION
(DELAWARE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BALANCE SHEETS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Marketable investment securities, at market value (cost: June
30, 1996--$959,944; June 30, 1995--$468,134) (Note 2)......... $ 1,007,219 $ 578,455
Investments, at directors' valuation (cost: June 30,
1996--$5,935,599; June 30, 1995--$4,903,041) (Note 2)
Excelsior Communications Corporation (Notes 6 and 7)........ 7,751,000 8,475,000
Other investments........................................... 3,150,321 434,827
----------- -----------
10,901,321 8,909,827
----------- -----------
Cash and cash equivalents....................................... 688,291 3,122,922
Accrued interest and accounts receivable........................ 288,594 445,091
Other assets.................................................... 258,839 379,400
----------- -----------
TOTAL ASSETS.................................................... $13,144,264 $13,435,695
----------- -----------
----------- -----------
- ---------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued liabilities........................ $ 345,175 $ 230,342
Deferred taxes (Notes 2 and 3).................................. 400,636 350,000
----------- -----------
TOTAL LIABILITIES............................................... 745,811 580,342
----------- -----------
Commitments and contingencies (Note 5)
STOCKHOLDERS' EQUITY
Common stock, $1 par value: 2,000,000 shares authorized;
1,003,986 shares issued at June 30, 1996 and 1995............. 1,003,986 1,003,986
Paid-in capital................................................. 8,997,877 8,997,877
Unrealized appreciation of investments, net of deferred income
taxes (Notes 2 and 3)......................................... 4,572,361 3,767,108
Accumulated undistributed earnings.............................. (292,020) 527,856
----------- -----------
14,282,204 14,296,827
Deduct: 202,788 shares at June 30, 1996 and 161,788 shares at
June 30, 1995 of common stock held in treasury, at cost
(Note 4)...................................................... (1,883,751) (1,441,474)
----------- -----------
Net assets at market or fair value, equivalent to $15.47 per
share at June 30, 1996 and $15.26 per share at June 30,
1995........................................................ 12,398,453 12,855,353
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...................... $13,144,264 $13,435,695
----------- -----------
----------- -----------
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
THE FRANKLIN HOLDING CORPORATION
(DELAWARE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1996 1995
<S> <C> <C>
- ---------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net increase (decrease) in net assets from operations........... $ 528,575 ($ 260,058)
Adjustments to reconcile net increase (decrease) in net assets
to net cash used in operating activities:
Depreciation and amortization............................... 17,733 17,440
Increase in unrealized appreciation of investments.......... (1,174,675) (238,300)
Deferred income tax provision (benefit)..................... 300,000 (25,000)
Net realized gain on portfolio of investments............... (169,118) (6,225)
Changes in operating assets and liabilities:
Decrease (increase) in accrued interest and accounts
receivable.............................................. 110,980 (166,568)
Increase in other assets.................................. (11,332) (143,569)
Increase (decrease) in accounts payable and accrued
liabilities............................................. 145,103 (205,507)
Decrease in accrued income taxes payable.................. (237,718) --
---------- ----------
Total adjustments..................................... (1,019,027) (767,729)
---------- ----------
Net cash used in operating activities................. (490,452) (1,027,787)
---------- ----------
Cash flows from investing activities:
Proceeds from sale of investments, net of expenses.............. 677,716 4,052
Acquisitions of investments..................................... (542,921) (74,897)
Proceeds from sale of marketable investment securities, net of
expenses...................................................... 1,100,551 426,673
Purchases of marketable investment securities................... (843) (494,252)
Purchases of fixed assets....................................... (5,922) (2,977)
Sales of fixed assets........................................... -- 86,937
---------- ----------
Net cash provided by (used in) investing activities... 1,228,581 (54,464)
---------- ----------
Cash flows from financing activities:
Purchase of treasury stock...................................... (250,251) (229,194)
---------- ----------
Net cash used in financing activities................. (250,251) (229,194)
---------- ----------
Net increase (decrease) in cash and cash equivalents.............. 487,878 (1,311,445)
Cash and cash equivalents at beginning of period.................. 200,413 4,434,367
---------- ----------
Cash and cash equivalents at end of period........................ $ 688,291 $3,122,922
---------- ----------
---------- ----------
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
THE FRANKLIN HOLDING CORPORATION
(DELAWARE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED FOR THE
JUNE 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets from operations:
Net investment loss............................. $ (475,218) ($1,209,464)
Net realized gain on portfolio of investments,
net of current income taxes................... 169,118 999,029
Increase in unrealized appreciation of
investments, net of deferred income taxes..... 834,675 233,878
---------------- -----------------
Net increase in net assets from
operations................................ 528,575 23,443
Distributions to stockholders from accumulated
undistributed earnings.......................... -- (826,698)
Capital stock transactions:
Purchase of treasury stock...................... (250,251) (421,221)
---------------- -----------------
Total increase (decrease) in net assets..... 278,324 (1,224,476)
---------------- -----------------
Net assets at beginning of period................. 12,120,129 13,344,605
---------------- -----------------
Net assets at end of period....................... $ 12,398,453 $12,120,129
---------------- -----------------
---------------- -----------------
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
THE FRANKLIN HOLDING CORPORATION
(DELAWARE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE
SIX MONTHS NINE MONTHS
ENDED FOR THE YEAR ENDED ENDED FOR THE YEAR ENDED
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1996(3) 1995 1994 1993 1992 1992 1991
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE(1):
Net asset value, beginning
of period................ $ 14.67 $ 15.40 $ 14.96 $ 15.17 $ 14.98 $ 13.01 $ 13.50
---------- ------ ------ ------ ------ --------- ---------
Net investment loss...... (0.59) (1.43) (1.66) (1.04) (0.84) (0.79) (0.75)
Net gain on portfolio
of investments
(realized
and unrealized)........ 1.25 1.46 2.01 0.74 1.78 2.29 0.20
---------- ------ ------ ------ ------ --------- ---------
Total from investment
operations............... 0.66 0.03 0.35 (0.30) 0.94 1.50 (0.55)
---------- ------ ------ ------ ------ --------- ---------
Less dividends and
distributions:
Distributions from
accumulated
undistributed
earnings............... 0.00 (1.00) 0.00 0.00 (0.80) 0.00 0.00
---------- ------ ------ ------ ------ --------- ---------
Total dividends and
distributions............ 0.00 (1.00) 0.00 0.00 (0.80) 0.00 0.00
---------- ------ ------ ------ ------ --------- ---------
Treasury stock
transactions............. 0.14 0.24 0.09 0.09 0.05 0.47 0.06
---------- ------ ------ ------ ------ --------- ---------
Net asset value, end of
period................... $ 15.47 $ 14.67 $ 15.40 $ 14.96 $ 15.17 $ 14.98 $ 13.01
---------- ------ ------ ------ ------ --------- ---------
---------- ------ ------ ------ ------ --------- ---------
Market value per share,
end of period............ $ 11.13 $ 10.13 $ 8.13 $ 8.88 $ 8.88 $ 9.13 $ 8.13
---------- ------ ------ ------ ------ --------- ---------
---------- ------ ------ ------ ------ --------- ---------
TOTAL INVESTMENT
RETURN(2):
Based on market value
per share (%)............ 9.88 35.45 (8.45) 0.00 6.30 12.31 0.00
RATIOS TO AVERAGE NET
ASSETS(2):
Expenses (%).............. 14.91 16.59 16.04 13.50 13.61 12.53 15.73
Net investment loss (%)... (7.96) (11.17) (10.76) (7.00) (7.59) (5.61) (5.66)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of
period
(000 omitted)............ $ 12,398 $ 12,120 $ 13,345 $ 13,162 $ 13,524 $13,458 $12,919
Portfolio turnover rate
(%)(2)................... 5 32 63 79 78 110 75
</TABLE>
- --------------------------------------------------------------------------------
(1) Calculated based on weighted average number of shares outstanding during the
period.
(2) The ratios for the periods ended June 30, 1996 and December 31, 1992 have
been annualized. Total investment return and portfolio turnover rate have
not been annualized.
(3) Unaudited.
The accompanying notes are an integral part of these financial highlights.
6
<PAGE>
THE FRANKLIN HOLDING CORPORATION
(DELAWARE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
MARKETABLE INVESTMENT SECURITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MARKET
AMOUNT ($) VALUE
JUNE 30, 1996 OR # SHARES COST (NOTE 2)
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Common Stock--M.A.I.D. (ADRs) *......................... 61,000 $ 921,100 $ 968,375
Certificate of Deposit--4.25%, due November 4, 1996..... $38,844 38,844 38,844
---------- -----------
Total Marketable Investment Securities............... $ 959,944 $ 1,007,219
---------- -----------
---------- -----------
</TABLE>
- --------------------------------------------------------------------------------
INVESTMENTS, AT DIRECTORS' VALUATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRESENT OR DIRECTORS'
POTENTIAL VALUATION
JUNE 30, 1996 INVESTMENT EQUITY COST (NOTE 2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONTROLLED AFFILIATES
Excelsior Communications 100.0% $4,386,048 $ 7,751,000
Corporation ...................... ---------- -----------
(Wholly-owned subsidiary)
OTHER INVESTMENTS
Sola Enterprises, Inc. ............ First and second None 342,511 342,511
(Restaurant, motel and marina mortgage notes;
operator) 10.0% interest
rate
Avery Communications, Inc. ........ Convertible Secured None 350,000 840,000
(Telecommunications) note;
12.0% interest
rate
Avery Communications, Inc. ........ Exercise of 158,333 15,833 506,667
(Telecommunications) Warrants shares
FMA High Yield Income Limited
Partnership ........................ Limited partnership 1.05% -- 44,054
(Schroder Wertheim high yield bond interest
limited partnership)
FMA High Yield Income Limited
Partnership ........................ Limited partnership 1.50% 500,000 508,362
(high yield bond limited interest
partnership)
CIC Standby Ventures, L.P. ........ Limited partnership 1.80% 73,007 752,092
(Computer handwriting systems) interest
Hefty Profits Limited--Pacific Limited partnership 10.00% 109,179 109,179
Healthcare ....................... interest
(Home healthcare services in
Asia Pacific Region)
BP Restaurants, LP ................ Limited partnership 2.40% 159,021 47,456
(Chain of restaurants in Southwest) interest
---------- -----------
1,549,551 3,150,321
---------- -----------
Total Investments, at Directors' Valuation............ $5,935,599 $10,901,321
---------- -----------
---------- -----------
</TABLE>
- --------------------------------------------------------------------------------
(*) Non-income producing security.
See accompanying notes.
7
<PAGE>
THE FRANKLIN HOLDING CORPORATION
(DELAWARE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
The Franklin Holding Corporation (Delaware) ('Franklin Holding' or the
'Corporation') is a Delaware corporation registered as a closed-end investment
company under the Investment Company Act of 1940 (the 'Act').
Franklin Holding's investment objective, as previously approved by the
Corporation's stockholders, is to acquire majority or greater stakes in (i) one
or more operating businesses with the ultimate purpose that the Corporation
would cease to be an investment company and would deregister under the Act, and
with the ultimate result that the Corporation's total assets would consist of
securities of one or more majority or wholly owned subsidiaries, and (ii) cash
and cash equivalents, Government securities and other assets which are not
investment securities within the meaning of the Act.
In November 1994, Franklin Holding filed an application with the Securities and
Exchange Commission (the 'SEC') requesting an order declaring that it has ceased
to be an investment company under the Act. In February 1995, the Corporation
filed a first amended and restated application. On December 31, 1995, Franklin
Holding, through its wholly owned subsidiary, Excelsior Communications
Corporation ('Excelsior'), sold its radio properties to Cox Broadcasting, Inc.
(see Note 7). As a result of the sale, the facts set forth on the Corporation's
application, which provide the grounds on which the Corporation based such
application, have materially changed. It is management's intention to continue
to seek investment opportunities consistent with the investment guidelines
previously approved by the stockholders which will allow the Corporation to
amend the application so that the SEC can consider whether an order to
deregister can be issued.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
Franklin Holding is an investment company under the Act and, accordingly, does
not consolidate non-investment company subsidiaries.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
STATEMENTS OF CASH FLOWS
For purposes of the Statements of Cash Flows, Franklin Holding considers only
highly liquid investments with maturities of 90 days or less at the date of
their acquisition by the Company to be cash equivalents.
The Corporation paid no interest during the six months ended June 30, 1996 and
1995, and paid $98,689 and $2,850 for income taxes during the six months ended
June 30, 1996 and 1995, respectively.
VALUATION OF INVESTMENTS
Security investments which are publicly traded are stated at the last reported
sales price on the day of valuation, or if no sale was reported on that date,
then the securities are stated at the last quoted bid price. The Board may
determine, if appropriate, to discount the value where there is an impediment to
the marketability of the securities held.
Investments for which there is no ready market are initially valued at cost and,
thereafter, at fair value based upon the financial condition and operating
results of the issuer and other pertinent factors as determined by the Board of
Directors. The financial condition and operating results have been derived
utilizing both audited and unaudited data. Certain assumptions inherent in the
valuation process may not materialize and unanticipated events and circumstances
may occur subsequent to the date of the valuation. Therefore, the actual amounts
eventually realized from each investment may vary from the valuations shown and
the differences may be material. Franklin Holding reports the unrealized gain or
loss resulting
8
<PAGE>
THE FRANKLIN HOLDING CORPORATION
(DELAWARE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
from such valuation in the Statements of Operations.
GAINS ON PORTFOLIO OF INVESTMENTS
Amounts reported as realized gains are measured by the difference between the
proceeds of sale or exchange and the cost basis of the investment without regard
to unrealized gains reported in the prior periods. Gains are considered realized
when sales of investments are consummated.
INCOME TAXES
Franklin Holding does not qualify as a Regulated Investment Company for income
tax purposes. Therefore, the Corporation is taxed as a regular corporation.
Franklin Holding adopted Statement of Financial Accounting Standards No. 109,
'Accounting for Income Taxes' ('SFAS 109') effective April 1, 1991. The
significant components of deferred tax assets and liabilities are principally
related to the Corporation's net operating loss carryforward and its unrealized
appreciation of investments.
DEPRECIATION AND AMORTIZATION
Depreciation is recorded using the straight-line method at rates based upon
estimated useful lives of five years for the respective assets. Franklin Holding
amortizes its leasehold improvements over its useful life or the remaining life
of the lease, whichever is shorter.
NET INCREASE IN NET ASSETS PER COMMON SHARE
Net increase in net assets per common share is based upon the weighted average
number of shares of common stock outstanding. Franklin Holding has no common
stock equivalents.
3. INCOME TAXES
At December 31, 1995, Franklin Holding had a net operating loss carryforward for
Federal income tax purposes of approximately $138,000 which will begin to expire
in 2002. At a 34% Federal income tax rate the benefit from this loss would be
approximately $47,000.
For the six months ended June 30, 1996 and 1995, Franklin Holding's tax benefit
(provision) was based on the following:
<TABLE>
<CAPTION>
- ------------------------------------------------
<S> <C> <C>
1996 1995
--------- ---------
Net investment loss....... $(472,218) $(529,583)
Net realized gain......... 169,118 6,225
Increase in unrealized
appreciation............. 1,174,675 238,300
--------- ---------
Pre-tax book (loss)
gain................... $ 871,575 $(285,058)
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Tax at 34% on $871,575 and
$(285,058),
respectively............. $(296,335) $ 96,920
State and local, net of
Federal benefit.......... (3,000) (2,000)
Adjustment to state and
local deferred taxes..... (43,665) --
Other, net................ -- (71,920)
--------- ---------
$(343,000) $ 23,000
--------- ---------
--------- ---------
</TABLE>
The adjustments to state and local deferred taxes of $43,665 for the six months
ended June 30, 1996 are attributable to income that was realized at tax rates
lower than had been assumed when the related deferred taxes were provided, as
well as certain gains recognized for tax purposes that are unrealized on the
books of the Corporation.
The components of the tax (provision) benefit are as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Net deferred Federal tax
(provision).............. $(230,000) $ --
Current state and local
tax (provision).......... (3,000) (2,000)
Deferred state and local
tax (provision)
benefit.................. (110,000) 25,000
--------- ---------
(Provision) benefit for
income taxes............. $(343,000) $ 23,000
--------- ---------
--------- ---------
</TABLE>
- ------------------------------------------------
Deferred income tax benefit (provision) reflects the impact of 'temporary
differences' between amounts of assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws.
9
<PAGE>
THE FRANKLIN HOLDING CORPORATION
(DELAWARE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
At June 30, 1996 and 1995, deferred tax attributes consist of:
<TABLE>
<CAPTION>
- ------------------------------------------------
<S> <C> <C>
ASSET (LIABILITY)
-----------------------
1996 1995
---------- ----------
Deferred Federal benefit
from net operating and
capital loss
carryforward........... $ 243,540 $1,163,000
Deferred Federal
provision on unrealized
appreciation of
investments............ (540,879) (760,000)
Deferred state provision
on unrealized
appreciation of
investments............ (143,297) (412,000)
Other, net.............. 40,000 (20,000)
Valuation allowance..... -- (321,000)
---------- ----------
Deferred Taxes.......... $ (400,636) $ (350,000)
---------- ----------
---------- ----------
</TABLE>
- ------------------------------------------------
4. TREASURY STOCK
The Board of Directors has authorized Franklin Holding to repurchase up to an
aggregate of 250,000 shares of its common stock in open market purchases on the
American Stock Exchange when such purchases are deemed to be in the best
interest of the Corporation and its stockholders. To date, Franklin Holding has
repurchased 212,788 shares of its common stock of which 202,788 shares remain in
treasury at June 30, 1996.
5. COMMITMENTS AND CONTINGENCIES
Franklin Holding is obligated under an operating lease which provides for annual
minimum rental payments as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------
<S> <C>
December 31,
1997............................ $ 139,000
1998............................ 139,000
1999............................ 149,000
2000............................ 149,000
2001............................ 149,000
2002 and thereafter............. 300,000
----------
$1,025,000
----------
----------
</TABLE>
- ----------------------------------------------
Rent expense for the six months June 30, 1996 and 1995 was $55,678 and $67,940,
respectively.
In March 1994, Stearns and Foster Bedding Company ('Stearns & Foster') commenced
a private cost recovery and contribution action against Franklin Holding and a
number of other defendants in the United States District Court for the District
of New Jersey (Newark). Stearns & Foster is the current owner of a site located
in South Brunswick, New Jersey (the 'Site'), which is the subject of an
investigation and cleanup under the Industrial Site Recovery Act ('ISRA').
Stearns & Foster has alleged that a number of parties, including Franklin
Holding, are liable for contamination at the Site. Franklin Holding's alleged
liability is the result of an investment in a manufacturing company then located
on the Site made approximately twenty years ago by The Franklin Corporation,
which by operation of a merger became a former wholly owned subsidiary of
Franklin Holding. To date, Stearns & Foster has incurred approximately $2
million in investigation and remediation costs for which Stearns & Foster seeks
recovery from the defendants in the aforementioned action. The State of New
Jersey has not approved any specific cleanup plan for the Site and therefore
presently it is not possible to provide an estimate as to the ultimate cleanup
costs. Franklin Holding has asserted a number of legal and factual defenses,
which if successful, would exculpate the Corporation from liability.
Additionally, Franklin Holding has asserted contribution claims against the
other defendants. Based on information that is currently available, management
has no basis to expect that this matter will have a material adverse effect on
its financial position.
In December 1995, an insurer agreed to assume, in substantial part, Franklin
Holding's ongoing costs for its New Jersey legal counsel and expert consultants.
As a result of this agreement, in 1995, Franklin Holding was reimbursed $397,657
by the insurer for certain defense costs it had previously expended in the
Stearns & Foster action. On September 5, 1996, the insurer agreed to indemnify
Franklin Holding for a significant portion of any liability that Franklin
Holding may ultimately incur pursuant to a judgment or a settlement of the
Stearns & Foster action.
In March 1995, a complaint was filed in the United States District Court for the
Southern District of New York by a former director of Franklin Holding (who, in
1990, was not renominated for election to the Board of Directors) against the
Corporation, its chairman, certain of its directors and an
10
<PAGE>
THE FRANKLIN HOLDING CORPORATION
(DELAWARE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
affiliated company. The action was purportedly brought both on behalf of a class
of minority shareholders of Franklin Holding and derivatively on behalf of the
Corporation. The action, in substance, alleged that the Corporation's Board did
not comply with the 'interested persons' provisions of the Investment Company
Act of 1940; that there had not been full disclosure about various matters,
including with respect to the Corporation's application to deregister as an
investment company and about the business relationships between defendants in
proxy statements from 1989 through 1994; and that management's and directors'
compensation and benefits were excessive in relation to the financial
performance of the Corporation. The complaint asserted claims under the Act and
SEC Rules promulgated thereunder and under common law. In May 1995, an amended
complaint was filed containing in substance, the same claims as the original
complaint, but purporting to assert additional derivative and class action
claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934.
The amended complaint alleged that Franklin Holding and its Board failed to
disclose facts in various documents, including the Corporation's 1994 Annual
Report and 1993 and 1994 Proxy Statements, with respect to, among other things,
Franklin Holding's investment through Excelsior in various radio stations and
the current status of the Corporation's operations.
In June 1995, the Corporation and the other defendants moved to dismiss the
amended complaint for failure to make the required demand upon the Board of
Directors (as to purported derivative claims), for lack of standing to assert
the purported derivative claims, for failure to state a claim upon which the
requested relief can be granted and for failure to plead the claims for fraud
with the required specificity. Plaintiff filed a second amended complaint in
August 1995 containing in substance the same claims as the amended complaint,
but including additional factual allegations. The second amended complaint seeks
unspecified monetary relief from the individual defendants and equitable and
declaratory relief with respect to Franklin Holding, including setting aside the
election of directors held at the Corporation's annual meeting in August 1994
and 1995 and Board action since August 1994, declaring the chairman's employment
contract void, an accounting by defendants, and an injunction directing the
liquidation of Franklin Holding and the appointment of a special fiscal agent,
receiver or conservator to oversee same. The plaintiff and the defendants
submitted supplemental briefings concerning the issue of whether the second
amended complaint should be dismissed.
In January 1996, the Court issued an opinion partially granting and partially
denying defendants' motion to dismiss. The Court dismissed plaintiff's
derivative claims for failure to make the required demand and abstained from
entertaining plaintiff's claim that the Corporation be dissolved and that a
special fiscal agent, receiver or conservator be appointed. The Court denied
defendants' motion to dismiss with respect to the remainder of plaintiff's
claims.
Management believes the plaintiff's claims are without merit and intends to
continue vigorously defending the action.
6. TRANSACTIONS WITH CONTROLLED AFFILIATES
For the six months ended June 30, 1996 and 1995, Franklin Holding's income from
Excelsior consists of a management fee of $375,000.
During 1994 and 1993, Franklin Holding purchased artwork totaling approximately
$87,000 from an affiliated company. The purchase price was based upon the
affiliated company's original cost and an independent appraisal. The artwork has
been used by the Corporation at its offices at 767 Fifth Avenue since 1986 and
continues to be used at Franklin Holding's offices at 450 Park Avenue. The
artwork was repurchased by the affiliated company in June, 1995, at the cost to
Franklin Holding, approximately $87,000.
7. EXCELSIOR COMMUNICATIONS CORPORATION TRANSACTIONS
On August 30, 1995, Excelsior purchased the assets of radio station WAJE-FM for
$1.035 million, including cash of $342,750 and a note payable to the seller of
$692,250. The station, a start-up operation whose primary coverage area includes
the City of Louisville,
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THE FRANKLIN HOLDING CORPORATION
(DELAWARE)
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Kentucky, is licensed in New Albany, Indiana.
On December 31, 1995, Excelsior sold the broadcast assets of its two Louisville
radio stations, WRKA-FM and WAJE-FM, to Cox Broadcasting, Inc. for a total price
of $8.5 million in cash. Excelsior retained the cash and accounts receivable of
the station in excess of its accounts payable and accrued liabilities, a total
of approximately $565,000. Excelsior utilized a portion of the funds received
from this sale to fully satisfy its obligations under the note payable due on
the purchase of WAJE-FM.
8. EMPLOYEE STOCK SAVINGS PLAN
Franklin Holding has a contributory retirement plan (the 'Plan') covering all
employees. Contributions to the Plan are invested in Franklin Holding's common
stock and/or a selected group of mutual funds. Contributions for the six months
ended June 30, 1996 and 1995 were $13,100 and $11,329, respectively, and are
included in salaries and employee benefits in the accompanying Statements of
Operations.
9. PURCHASES AND SALES OF INVESTMENT SECURITIES
The cost of purchases and proceeds from sales of investment securities,
excluding short term investments, aggregated $543,764 and $1,778,268,
respectively, for the six months ended June 30, 1996 and $569,149 and $430,725,
respectively, for the six months ended June 30, 1995.
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BOARD OF DIRECTORS OFFICERS
STEPHEN L. BROWN* STEPHEN L. BROWN
Chairman and Chief Executive Chairman and Chief
Officer, Executive Officer
The Franklin Holding Corporation
(Delaware) SPENCER L. BROWN
Senior Vice President
MILES L. BERGER and Secretary
Vice Chairman of the Board,
Heitman Financial Ltd. JOHN GREENBAUM
Chief Financial
CARL D. GLICKMAN* Officer, Treasurer
Private Investor and Corporate Director
STEPHEN J. MAYER
JOHN GREENBAUM Vice President and
Chief Financial Officer, Treasurer, Controller
The Franklin Holding Corporation
(Delaware)
IRVING LEVINE AUDITORS
Chairman, Copley Fund, Inc. Arthur Andersen LLP
1345 Avenue of the Americas
JONATHAN A. MARSHALL* New York, NY 10105
Senior Partner, Pennie & Edmonds
JEFFREY J. STEINER
Chairman and Chief Executive Officer, SECURITIES TRADED
The Fairchild Corporation American Stock Exchange
Symbol: FKL
*Member of Executive Committee
Carl D. Glickman, Chairman
REGISTRAR & TRANSFER AGENT
Chemical Shareholder Services
450 West 33rd Street
15th Floor
New York, NY 10001
(212) 946-8484
<PAGE>
THE FRANKLIN HOLDING CORPORATION
(DELAWARE)
450 Park Avenue, New York, NY 10022
(212) 486-2323 FAX (212) 755-5451
