-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IIbMWufibgesxqcyfHsnJFKcSkCKg1VB+PEmccIjKliYn7kEcTBkeR77ICQWs+MM fWtynoHwmRj0J25eqwil1w== 0000930413-01-500139.txt : 20010409 0000930413-01-500139.hdr.sgml : 20010409 ACCESSION NUMBER: 0000930413-01-500139 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN CAPITAL CORP CENTRAL INDEX KEY: 0000812301 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133419202 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 811-05103 FILM NUMBER: 1588454 BUSINESS ADDRESS: STREET 1: 450 PARK AVE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2124862323 MAIL ADDRESS: STREET 1: 450 PARK AVE CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: FRANKLIN CAPITAL CORP/ DE DATE OF NAME CHANGE: 19990407 10-K 1 c20374_10-k.txt ANNUAL REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended Commission File No. 1-9727 December 31, 2000 ------- Franklin Capital Corporation (Exact name of registrant specified in its charter) Delaware 13-3419202 - --------------------------- ------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 450 Park Avenue, 10th Floor, New York, New York 10022 - ----------------------------------------------- ----------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 486-2323 ------------------------ Securities registered pursuant to Section 12(b) of the Act: Common Stock, $1.00 par value Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Corporation was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X__ No ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of the voting stock held by non-affiliates of the Registrant as of February 28, 2001 was $3,698,716 based on the last sale price as quoted by The American Stock Exchange on such date (officers, directors and 5% stockholders are considered affiliates for the purposes of this calculation). The number of shares of common stock outstanding as of February 28, 2001 was 1,096,900. TABLE OF CONTENTS PART I Item 1. Business Item 2. Properties Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders PART II Item 5. Market for Corporation's Common Equity and Related Stockholder Matters Item 6. Selected Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Item7a. Quantitative and Qualitative Disclosures about Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure PART III Item 10. Directors and Executive Officers of the Corporation Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management Item 13. Certain Relationships and Related Transactions PART IV Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
SIGNATURES EXHIBIT INDEX FORWARD LOOKING STATEMENTS WHEN USED IN THIS ANNUAL REPORT ON FORM 10-K, THE WORDS "BELIEVES," "ANTICIPATES,"EXPECTS" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. STATEMENTS LOOKING FORWARD IN TIME ARE INCLUDED IN THIS ANNUAL REPORT ON FORM 10-K. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY, INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF. THE CORPORATION UNDERTAKES NO OBLIGATION TO PUBLICLY REVISE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES OCCURRING AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. 2 PART I ITEM 1. BUSINESS FORMATION Franklin Capital Corporation(1) (the "Registrant", "Franklin," or the "Corporation") filed on April 7, 1987, with the Securities and Exchange Commission (the "SEC" or the "Commission") a notification of registration under Section 8(a) of the Investment Company Act of 1940 (the "1940 Act") and registered as a closed-end, non-diversified management investment company. On July 10, 1987, the Corporation commenced operations as an investment company. The Corporation's common stock, par value $1.00 per share, has been listed on The American Stock Exchange since October 1, 1987. The operating strategy of providing managerial assistance to companies in which the Corporation invests has been pursued by Franklin since 1992. This strategy is consistent with the legislative intent behind the statutory framework governing business development companies under the 1940 Act. The Business Development Company ("BDC") structure is available for companies that are engaged in the business of furnishing capital and managerial expertise to other companies that might not otherwise have access to such capital. In light of this operating strategy and the Corporation's long-term objectives, management and the Board of Directors determined that it was in the best interests of the shareholders to explore the feasibility of electing to be regulated as a BDC. On August 5, 1997, the Board of Directors determined that it would be in the best interests of the Corporation and its stockholders to elect to become a BDC under the 1940 Act. On September 9, 1997, at the Annual Meeting of Stockholders, the stockholders of Franklin approved the proposal that the Corporation be regulated as a BDC. On November 18, 1997, the Corporation filed a notification of election to become a BDC with the Commission. The election became effective upon the receipt of the filing by the Commission. The Corporation operates as an internally managed BDC whereby its officers and employees, under the general supervision of its Board of Directors, conduct its operations. As a BDC, the Corporation's objective is to achieve capital appreciation through long-term investments in businesses believed to have favorable growth potential. The Corporation participates, or would participate, in start-up and early stage financing, expansion or growth financing, leveraged buy-out financing and restructurings. The Corporation has also invested and will consider investing in a broad range of industry segments. - ------------------------------------------------------------------------------- 1. On July 14, 1998, the Corporation filed a Certificate of Amendment with the Secretary of State of the State of Delaware, changing its name from The Franklin Holding Corporation (Delaware) to Franklin Capital Corporation. The Corporation's shareholders had approved a proposal to change the Corporation's name at the Annual Meeting of Stockholders held on June 16, 1998. The Corporation had filed its original Articles of Incorporation with the Secretary of State of the State of Delaware as The Franklin Holding Corporation (Delaware) on March 31, 1987. 3 PORTFOLIO OF INVESTMENTS The Corporation invests primarily in equity securities, for example common stock, preferred stock, convertible preferred stock or other equity derivatives such as options, warrants or rights to acquire stock. As of December 31, 2000, the Corporation's portfolio of investments is a composite of illiquid investments in developing companies and securities in publicly traded developing companies. The Corporation has invested a substantial portion of its assets in private development stage or start-up companies. The current portfolio is invested principally but not exclusively in securities issued by companies involved in early stage high technology sectors such as wireless communications, other telecommunications services, Internet software and information services. The Corporation generally favors investments in private companies that it believes can achieve the necessary size, profitability, management depth and sophistication to become public companies or become candidates for acquisition by merger or otherwise. The Corporation seeks to enable its stockholders to participate in investments not typically available to the public due to the private nature of a substantial majority of the Corporations portfolio companies, the size of the financial commitment often required in order to participate in such investments, and/or the experience, skill and time commitment required to identify and take advantage of these investment opportunities. The Corporation offers managerial assistance to its private portfolio companies and expects that it will play a role in setting corporate strategies and advising such companies regarding important decisions affecting their businesses, including potential acquisitions, recruiting key managers, and securing equity and debt financing. Generally, most of the Corporation's investments are, and the Corporation anticipates that they will continue to be, in small to medium sized companies with total assets or annual sales under $500 million. Many of these companies may have very limited operating histories. Each investment includes portfolio companies that have the potential for substantial growth in sales and earnings. The Corporation seeks to identify companies that management believes have significant opportunities in the industry sectors they serve or that have devised innovative products, services or ways of doing business that afford them a distinct competitive advantage. Such companies might achieve growth either internally or by acquisition. ILLIQUIDITY OF INVESTMENTS A majority of the Corporation's investments consist of securities acquired directly from the issuer in private transactions. They may be subject to restrictions on resale or otherwise be illiquid. Franklin anticipates that there may not be an established trading market for such securities. Additionally, many of the securities that the Corporation may invest in will not be eligible for sale to the public without registration under the Securities Act of 1933, as amended, which could prevent or delay any sale by the Corporation of such investments or reduce the amount of proceeds that might otherwise be realized therefrom. Restricted securities generally sell at a price lower than similar securities not subject to restrictions on resale. Further, even if a portfolio company (hereinafter referred to as an "investee") registers its securities and becomes a reporting corporation under the Securities Exchange Act of 1934, the Corporation may be considered an insider by virtue of its board representation and would be restricted in sales of such corporation's securities. 4 MANAGERIAL ASSISTANCE The Corporation believes that providing managerial assistance to its investees is critical to its business development activities. "Making available significant managerial assistance" as defined in the 1940 Act with respect to a BDC such as Franklin means (a) any arrangement whereby a BDC, through its directors, officers, employees or general partners, offers to provide, and if accepted, does so provide significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company; or (b) the exercise of a controlling influence over the management or policies of a portfolio company by a BDC acting individually or as a part of a group acting together which controls such portfolio Corporation. The Corporation, as a BDC, is required by the 1940 Act to make significant managerial assistance available at least with respect to investees that the Corporation treats as qualifying assets for purposes of the 70 percent test (see "Regulation"). The nature, timing and amount of managerial assistance provided by the Corporation vary depending upon the particular requirements of each investee company. In connection with its managerial assistance, the Corporation may be represented by one or more of its officers or directors on the board of directors of an investee. The Corporation's goal is to assist each investee company in establishing its own independent and effective board of directors and management. NEED FOR FOLLOW-ON INVESTMENTS Following its initial investments in investees, the Corporation has made and anticipates that it will continue to make additional investments in such investees as "follow-on" investments, in order to increase its investment in an investee, and may exercise warrants, options or convertible securities that were acquired in the original financing. Such follow-on investments may be made for a variety of reasons including: 1) to increase the Corporation's exposure to an investee, 2) to acquire securities issued as a result of exercising convertible securities that were purchased in a prior financing, 3) to preserve or reduce dilution of Franklin's proportionate ownership in a subsequent financing, or 4) in an attempt to preserve or enhance the value of the Corporation's investment. There can be no assurance that the Corporation will make follow-on investments or have sufficient funds to make such investments; the Corporation will have the discretion to make any follow-on investments as it determines, subject to the availability of capital resources. The failure to make such follow-on investments may, in certain circumstances, jeopardize the continued viability of an investee and the Corporation's initial investment, or may result in a missed opportunity for the Corporation to increase its participation in a successful operation. Even if the Corporation has sufficient capital to make a desired follow-on investment, the Company may, under certain circumstances be inhibited from doing so if such an investment would result in non-compliance with BDC regulations. COMPETITION Numerous companies and individuals are engaged in the venture capital business and such business is extremely competitive. The Corporation competes for attractive investment opportunities with venture capital partnerships and corporations, merchant banks, venture capital affiliates of industrial and financial companies, Small Business Investment Companies, other investment companies, pension plans, other BDCs and private individual investors. Many of these competitors have significantly greater resources and managerial capabilities than the Corporation to obtain access to venture capital investments. There can be no assurance that the Corporation will be able to compete against those competitors for attractive investments. 5 DETERMINATION OF NET ASSET VALUE Security investments which are publicly traded on a national exchange or Nasdaq Stock Market 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 of Directors of the Corporation (the "Board of Directors") 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. In the absence of a ready market for an investment, numerous assumptions are inherent in the valuation process. Some or all of these assumptions may not materialize. Unanticipated events and circumstances may occur subsequent to the date of the valuation and values may change due to future events. Therefore, the actual amounts eventually realized from each investment may vary from the valuations shown and the differences may be material. Franklin reports the unrealized gain or loss resulting from such valuation in the Statements of Operations. EMPLOYEES At December 31, 2000, the Corporation had six employees. REGULATION The Corporation is not a registered investment company. However, as a BDC it is subject to regulation under the 1940 Act, including many of the same provisions that apply to registered investment companies. The following is a brief description of the provisions of the 1940 Act applicable to the Corporation. Generally, to be eligible to elect BDC status, a corporation must primarily engage in the business of furnishing capital and managerial expertise to companies that do not have ready access to capital through conventional financial channels. Such portfolio companies are termed "eligible portfolio companies." More specifically, in order to qualify as a BDC, a corporation must (i) be a domestic corporation; (ii) have registered a class of its securities or have filed a registration statement with the SEC pursuant to Section 12 of the Securities Exchange Act of 1934; (iii) operate for the purpose of investing in the securities of certain types of portfolio companies, namely, immature or emerging companies and businesses suffering or just recovering from financial distress (see following paragraph); (iv) make available significant managerial assistance to such portfolio companies; (v) have a majority of directors who are not "interested persons" (as defined in the 1940 Act) and (vi) file (or, under certain circumstances, intend to file) a proper notice of election with the SEC. An eligible portfolio company generally is a domestic corporation that is not an investment company and that does not have a class of securities registered on which margin credit can be extended or is actively controlled by a BDC and has an affiliate of a BDC on its board of directors. Control under the 1940 Act is presumed to exist where a BDC owns more than 25 percent of the outstanding voting securities of the investee. 6 The 1940 Act restricts BDC investments in certain types of companies, such as brokerage firms, insurance companies, investment banking firms and investment companies. Moreover, the 1940 Act requires that at least 70 percent of the value of the Corporation's assets consist of qualifying assets. Qualifying assets include: (i) securities of companies that were eligible portfolio companies at the time such company acquired their securities; (ii) securities of bankrupt or insolvent companies that were eligible at the time of such company's initial investment in those companies; (iii) securities received in exchange for or distributed in or with respect to any of the foregoing and (iv) cash items, government securities and high quality short-term debt. The 1940 Act also places restrictions on the nature of the transactions in which, and the persons for whom, securities can be purchased in order for the securities to be considered qualifying assets. The Corporation is permitted by the 1940 Act, under specified conditions, to issue multiple classes of senior debt and a single class of preferred stock if its asset coverage, as defined in the 1940 Act, is at least 200 percent after the issuance of the debt or the preferred stock (i.e., such senior securities may not be in excess of 50 percent of its net assets). If the value of the Corporation's assets, as defined, were to increase through the issuance of additional capital stock or otherwise, the Corporation would be permitted under the 1940 Act to issue senior securities. These securities may be convertible into common stock subject to various statutory limitations. On February 22, 2000, the Corporation issued $1,645,000 worth of preferred stock with a 7% coupon convertible into the Corporation's common stock at $13.33 per share. The preferred stock is convertible into common stock at the discretion of the preferred stock holder beginning one year after issuance and continuing until 10 years after issuance. The Corporation at the time of the issuance and as of the date of this filing complied with the 1940 Act provisions relating to the issuance of convertible preferred stock. Certain transactions involving certain closely affiliated persons of the Corporation, including its directors, officers, and employees, may require the prior approval of the SEC. The 1940 Act generally does not restrict transactions between the Corporation and its portfolio companies. A BDC may change the nature of its business so as to cease being a BDC (and in connection therewith withdraws its election to be treated as a BDC) only if authorized to do so by a majority vote (as defined in the 1940 Act) of its outstanding voting securities. The Corporation is entitled to change its diversification status without stockholder approval. The Corporation is permitted to adopt either a profit-sharing plan pursuant to which management (including disinterested directors) could receive up to 20% of the net after-tax profits of the Corporation or an option plan covering up to 20% of the stock of the Corporation. Presently the Corporation has an option plan in effect covering 46,875 shares (4.1% on a diluted basis). RISK FACTORS There are significant risks inherent in the Corporation's venture capital business. The Corporation has invested a substantial portion of its assets in small private companies and a bulletin board listed public corporation. Because of the speculative nature of these investments, there is significantly greater risk of loss than is the case with traditional investment securities. The Corporation expects that from time to time its venture capital investments may result in a complete loss of the Corporation's invested capital or may be unprofitable. Other investments may appear likely to become successful, but may never realize their potential. Neither the Corporation's investments nor an investment in the Corporation is intended to constitute a balanced investment program. The Corporation has in the past relied and continues to rely to a 7 large extent upon proceeds from sales of investments rather than investment income to defray a significant portion of its operating expenses. INVESTING IN THE CORPORATION'S STOCK IS HIGHLY SPECULATIVE AND YOU COULD LOSE SOME OR ALL OF THE AMOUNT YOU INVEST The value of the Corporation's common stock may decline and may be affected by numerous market conditions, which could result in the loss of some or all of your investment in the Corporation's shares. The securities markets frequently experience extreme price and volume fluctuation which affect market prices for securities of companies generally, and technology companies in particular. Because of the Corporation's focus on the technology sector, its stock price is likely to be impacted by these market conditions. General economic conditions and general conditions in the Internet and information technology and other high technology industries will also affect the Corporation's stock price. INVESTING IN THE CORPORATION'S SHARES MAY BE INAPPROPRIATE FOR YOUR RISK TOLERANCE Investing in the Corporation's shares may be inappropriate for your risk tolerance. The Corporation's investments in accordance with its investment objective and principal strategies may result in an above average amount of risk and volatility or loss of principal. The Corporation's investments in portfolio companies are highly speculative and aggressive and, therefore, an investment in its shares may not be suitable for you. THE MARKET FOR VENTURE CAPITAL INVESTMENTS IS HIGHLY COMPETITIVE. IN SOME CASES, THE CORPORATION'S STATUS AS A BUSINESS DEVELOPMENT COMPANY MAY HINDER ITS ABILITY TO PARTICIPATE IN INVESTMENT OPPORTUNITIES. The Corporation faces substantial competition in its investing activities from private venture capital funds, investment affiliates of large industrial, technology, service and financial companies, small business investment companies, wealthy individuals and foreign investors. As a business development company, the Corporation is required to disclose quarterly the name and business description of portfolio companies and value of any portfolio securities. Most of the Corporation's competitors are not subject to this disclosure requirement. The Corporation's obligation to disclose this information could hinder its ability to invest in certain portfolio companies. Additionally, other regulations, current and future, may make the Corporation less attractive as a potential investor to a given portfolio company than a private venture capital fund not subject to the same regulations. REGULATORY RISKS Securities and tax laws and regulations governing the Corporation's activities may change in ways negative to the Corporation's and its shareholders' interests and interpretations of such laws and regulations may change with unpredictable consequences. THE CORPORATION IS DEPENDENT UPON KEY MANAGEMENT PERSONNEL FOR FUTURE SUCCESS The Corporation is dependent for the selection, structuring, closing and monitoring of its investments on the diligence and skill of its senior management and other management members. 8 The future success of the Corporation depends to a significant extent on the continued service and coordination of its senior management team, particularly the Chairman and Chief Executive Officer. The departure of any of the executive officers or key employees could materially adversely affect the Corporation's ability to implement its business strategy. The Corporation does not maintain key man life insurance on any of its officers or employees. INVESTMENT IN SMALL, PRIVATE COMPANIES There are significant risks inherent in the Corporation's venture capital business. The Corporation has invested a substantial portion of its assets in private development stage or start-up companies. These private businesses tend to be thinly capitalized, unproven, small companies with risky technologies that lack management depth and have not attained profitability or have no history of operations. Because of the speculative nature and the lack of a public market for these investments, there is significantly greater risk of loss than is the case with traditional investment securities. The Corporation expects that some of its venture capital investments will be a complete loss or will be unprofitable and that some will appear to be likely to become successful but never realize their potential. The Corporation has been risk seeking rather than risk averse in its approach to venture capital and other investments. Neither the Corporation's investments nor an investment in the Corporation is intended to constitute a balanced investment program. The Corporation has in the past relied, and continues to rely to a large extent, upon proceeds from sales of investments rather than investment income to defray a significant portion of its operating expenses. ILLIQUIDITY OF PORTFOLIO INVESTMENTS Most of the investments of the Corporation are or will be equity securities acquired directly from small companies. The Corporation's portfolio of equity securities are and will usually be subject to restrictions on resale or otherwise have no established trading market. The illiquidity of most of the Corporation's portfolio of equity securities may adversely affect the ability of the Corporation to dispose of such securities at times when it may be advantageous for the Corporation to liquidate such investments. THE INABILITY OF THE CORPORATION'S PORTFOLIO COMPANIES TO SUCCESSFULLY MARKET THEIR PRODUCTS WOULD HAVE A NEGATIVE IMPACT ON ITS INVESTMENT RETURNS Even if the Corporation's portfolio companies are able to develop commercially viable products, the market for new products and services is highly competitive and rapidly changing. Commercial success is difficult to predict and the marketing efforts of the Corporation's portfolio companies may not be successful. VALUATION OF PORTFOLIO INVESTMENTS There is typically no public market of equity securities of the small private companies in which the Corporation invests. As a result, the valuation of the equity securities in the Corporation's portfolio is subject to the good faith determination of the Corporation's Board of Directors. In the absence of a readily ascertainable market value, the estimated value of the Corporation's portfolio of equity securities may differ significantly from the values that would be placed on the portfolio if a ready market for the equity securities existed. Any changes in estimated net asset value are recorded in the Corporation's statement of operations as "Change in unrealized appreciation on investments." 9 FLUCTUATIONS OF QUARTERLY RESULTS The Corporation's quarterly operating results could fluctuate as a result of a number of factors. These include, among others, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which the Corporation encounters competition in its markets and general economic conditions. As a result of these factors, results for any one quarter should not be relied upon as being indicative of performance in future quarters. ITEM 2. PROPERTIES Franklin maintains its offices at 450 Park Avenue, 10th Floor, New York, New York 10022, where it leases approximately 3,600 square feet of office space pursuant to a lease agreement expiring December 31, 2003. As of December 31, 2000, Franklin had a sublet arrangement with one subtenant for a portion of Franklin's office space. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Corporation did not submit any matters to a vote of its stockholders during the fourth quarter of the 2000 fiscal year. 10 PART II ITEM 5. MARKET FOR CORPORATION'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS STOCK TRANSFER AGENT Chase Mellon Shareholder Services, 85 Challenger Road, Overpack Center, Ridgefield Park, NJ 07660 (Telephone (800) 851-9677) serves as transfer agent for the Corporation's common stock. Certificates to be transferred should be mailed directly to the transfer agent, preferably by registered mail. MARKET PRICES The Corporation's common stock is traded on The American Stock Exchange under the symbol "FKL". The following table sets forth the range of the high and low selling price of the Corporation's shares during each quarter of the last two years, as reported by the American Stock Exchange. 2000 QUARTER ENDING LOW HIGH March 31 $ 6.833 $ 31.000 June 30 $ 7.333 $ 21.000 September 30 $ 8.250 $ 9.500 December 31 $ 7.500 $ 8.750 1999 QUARTER ENDING LOW HIGH March 31 $ 3.083 $ 4.167 June 30 $ 3.333 $ 5.000 September 30 $ 3.333 $ 3.917 December 31 $ 3.417 $ 7.417 DIVIDENDS The Corporation paid $98,633 in dividends to preferred stockholders during 2000 and did not pay dividends to common stockholders during the past two years. RECENT SALES OF UNREGISTERED SECURITIES On February 22, 2000, the Corporation issued 16,450 shares of unregistered convertible preferred stock under Section 4(2) of the Securities Exchange Act of 1934 as a private placement at a price of $100 per share. The convertible preferred stock was issued with a 7% coupon convertible into the Corporation's common stock at $13.33 per share. The preferred stock is convertible into common stock at the discretion of the preferred stock holder beginning one year after issuance and continuing until 10 years after issuance. The preferred stock offered was purchased by officers, directors and other accredited investors. (See Item 12 Security Ownership of Certain Beneficial Owners and Management). 11 STOCKHOLDERS As of February 28, 2001, there were 599 registered shareholders of record of the Corporation's common stock. The Corporation has 5,000,000 shares of common stock authorized, of which 1,505,888 are issued and 1,096,900 are outstanding at February 28, 2001. The Corporation has 5,000,000 shares of convertible preferred stock authorized, of which 16,450 were issued on February 22, 2000 and are outstanding at February 28, 2001. (See section on Liquidity and Capital Resources for details of preferred stock.) ITEM 6. SELECTED FINANCIAL DATA The following tables should be read in conjunction with the Financial Statements included in Item 8 of this form 10-K. BALANCE SHEET DATA FINANCIAL POSITION AS OF DECEMBER 31:
2000 1999 1998 1997* 1996 ----------- ----------- ----------- ------------ ------------ Total assets $ 5,766,712 $ 8,995,965 $ 6,548,696 $ 7,718,458 $ 11,798,044 Liabilities $ 187,632 $ 555,583 $ 233,143 $ 375,326 $ 1,921,475 Net asset value $ 5,579,080 $ 8,440,382 $ 6,315,553 $ 7,343,132 $ 9,876,569 Basic net asset value per share $ 5.08 $ 7.70 $ 5.61 $ 6.11 $ 8.22 Diluted net asset value per share $ 4.57 $ 7.55 $ 5.61 $ 6.11 $ 8.22 Shares outstanding 1,098,200 1,095,882 1,126,029 1,201,797 1,201,797 OPERATING DATA FOR THE YEAR ENDED DECEMBER 31: 2000** 1999 1998 1997 1996 ----------- ----------- ----------- ------------ ------------ Investment income $ 115,015 $ 72,382 $ 262,323 $ 497,021 $ 852,211 Expenses $ 2,372,797 $ 1,621,780 $ 1,620,408 $ 2,400,850 $ 2,406,102 Net investment loss from operations $(2,257,782) $(1,549,398) $(1,357,085) $ (1,903,829) $ (1,553,891) Net realized gain on investments, net of income taxes $ 1,215,875 $ 688,259 $ 1,628,004 $ 3,105,165 $ 95,085 Net (decrease) increase in unrealized appreciation of investments, net of deferred income taxes $(3,365,513) $ 3,086,958 $(1,015,091) $ (1,130,879) $ 266,694 Net (decrease) increase in net assets from operations $(4,427,420) $ 2,225,819 $ (744,172) $ 70,457 $ (1,192,112)
12
2000** 1999 1998 1997 1996 ----------- ----------- ----------- ------------ ------------ Basic net (decrease) increase in net assets from operations per weighted average number of shares outstanding $ (4.05) $ 1.98 $ (0.99) $ (0.63) $ (0.99) Diluted net (decrease) increase in net assets from operations per weighted average number of shares outstanding $ (4.05) $ 1.98 $ (0.99) $ (0.63) $ (0.99)
* A special distribution of $3.25 per share was declared in July 1997. ** Expenses in the year ended December 31, 2000 include non-cash compensation of $349,644 due to the exercise of employee incentive stock options. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE INFORMATION CONTAINED IN THIS SECTION SHOULD BE READ IN CONJUNCTION WITH THE CORPORATION'S 2000 FINANCIAL STATEMENTS AND NOTES THERETO IN ITEM 8. STATEMENT OF OPERATIONS The Corporation accounts for its operations under Generally Accepted Accounting Principles for investment companies. On this basis, the principal measure of its financial performance is captioned "Net (decrease) increase in net assets from operations", which is composed of the following: "Net investment loss from operations," which is the difference between the Corporation's income from interest, dividends and fees and its operating expenses; "Net realized gain on portfolio of investments," which is the difference between the proceeds received from dispositions of portfolio securities and their stated cost; any applicable income tax (benefits) provisions; and "Net (decrease) increase in unrealized appreciation of investments," which is the net change in the fair value of the Corporation's investment portfolio, net of any (decrease) increase in deferred income taxes that would become payable if the unrealized appreciation were realized through the sale or other disposition of the investment portfolio. "Net realized gain (loss) on portfolio of investments" and "Net (decrease) increase in unrealized appreciation of investments" are directly related. When a security is sold to realize a gain, the net unrealized appreciation decreases and the net realized gain increases. When a security is sold to realize a loss, the net unrealized appreciation increases and the net realized gain decreases. FINANCIAL CONDITION The Corporation's total assets and net assets were, respectively, $5,766,712 and $5,579,080 at December 31, 2000 versus $8,995,965 and $8,440,382 at December 31, 1999. Net asset value per share was $5.08 ($4.57 diluted) at December 31, 2000 versus $7.70 ($7.55 diluted) at December 31, 1999. The Corporation's financial condition is dependent on the success of its investments. A summary of the Corporation's investment portfolio is as follows: 13 DECEMBER 31, 2000 DECEMBER 31, 1999 ----------------- ------------------ Investments, at cost $3,627,390 $2,971,347 Unrealized appreciation, net of deferred taxes 1,371,522 4,737,035 ---------- ----------- Investments, at fair value $4,998,912 $7,708,382 ========== =========== INVESTMENTS The Corporation's financial condition is dependent on the success of its investments. The Corporation has invested a substantial portion of its assets in thinly capitalized development stage companies that may lack management depth and have little history of operations. The Corporation has an investment in Avery Communications Corporation ("Avery Communications") valued at $1,198,389 at December 31, 2000, which represents 20.8% of the Corporation's total assets and 21.5% of its net assets. Avery Communication's common stock is quoted on the OTC Electronic Bulletin Board under the symbol "ATEX". Avery Communications is the public parent of two companies, Primal Solutions, Inc. ("Primal") and HBS Billing Service, Ltd ("HBS"), both of which operate in the telecommunications industry. Primal, based in Irvine, California, is a leading provider of Web-based integrated customer management and intelligence solutions that allow rapidly evolving communications and Internet service providers to stay connected with and grow their customers. It does this through an integrated suite of applications that can track and analyze customer behavior and preferences, collect usage information, and support billing and customer care back-office requirements, including those of emerging IP billing markets. HBS, based in San Antonio, Texas is a nationwide provider of a comprehensive range of Local Exchange Carrier (LEC) Billing and Collection services through an established billing network of more than 1,300 LECs. HBS has built strong billing and collection relationships with all Regional Bell Operating Companies (RBOCs), GTE, AllTel, Sprint, and several hundred independent telephone companies throughout the United States. Through these billing agreements, HBS provides clearinghouse billing services to its clients for a variety of telecommunication-related services and products, including Direct Dialed 1+, Dial-Around 10-10-xxx, and qualified non-regulated telecommunication services. On August 10, 2000, Avery Communications announced that it had revised its previously stated plan to spin-off its HBS Subsidiary to its shareholders. Pending regulatory approval, under the new plan Avery Communications shareholders will receive one share of stock in Primal for every one Avery Communications common share held on the record date. Primal has filed a registration statement with the Securities and Exchange Commission to register the Primal shares to be issued in the spin-off. During the year ended December 31, 2000, Franklin sold 202,000 shares of Avery Communications for total proceeds of $379,527 realizing a gain of $161,531. Franklin's remaining shares represent 10.5% of Avery Communications outstanding voting stock on a primary share basis and 9.5% on a fully diluted basis. Stephen L. Brown and Spencer L. Brown, officers of Franklin, did not stand for re-election to the Avery Communications Board of Directors at the annual meeting held on September 13, 2000 and are therefore, no longer members of the Avery Communications Board of Directors. In addition, Spencer L. Brown resigned from the Primal Board of Directors on December 11, 2000. Subsequent to year-end, on February 1, 2001, the Corporation sold to Avery Communications in a private transaction 1,183,938 shares of common stock and 350,000 shares of preferred stock, representing the entire ownership interest in Avery for $1,551,617 plus 14 accrued interest on the preferred stock for a realized gain net of expenses of $137,759. As part of the sale, Franklin retained the right to receive 1,533,938 shares of Primal once the spin-off, as discussed above, occurred. On February 13, 2001, Primal announced that Avery Communications had completed the spin-off of Primal and Franklin received 1,533,938 fully registered and marketable shares of Primal. At December 31, 2000, the Corporation had an investment in Data Downlink Corporation ("Data Downlink") valued at $1,000,000, which represents 17.3% of the Corporation's total assets and 17.9% of its net assets. Data Downlink, headquartered in New York and London, is a leading provider of Internet-based online information services. Data Downlink provides a service called .xls, which aggregates and cross-indexes over 70 premier business databases, delivering information directly to Microsoft Excel, HTML, Microsoft Word or PDF formats at the desktop. Other products include privatesuiteTM, a fast, easy, cost-effective way to identify and retrieve profiles of privately held companies around the world; compbookTM, a tool for company peer analysis; and Portal BTM, a fully integrated business information portal. On April 20, 2000, the Corporation purchased $1,000,000 worth of Data Downlink Series F Preferred Stock. In connection with this investment, Franklin was granted observer rights for Data Downlink Board of Directors meetings. At December 31, 2000, the Corporation had an investment in Excom Ventures, LLC ("Excom") valued at $140,000, which represents 2.4% of the Corporation's total assets and 2.5% of its net assets. Excom was formed as a limited liability holding company for the purpose of investing in Expert Commerce, Inc. ("Expert Commerce"). Expert Commerce is a Business-to-Business purchase evaluation engine that simulates the way people make decisions. Based on intelligent and proven technology, the engine helps structure complex decisions and provides an audit trail to justify transactions, empowering buyers to make purchase decisions with confidence. On June 26, 2000, the Corporation purchased $140,000 worth of Excom Units. At December 31, 2000, the Corporation owned 409,024 shares of common stock of Go America, Inc. ("Go America"), a wireless internet service provider valued at $2,198,504, which represents 38.1% of the Corporation's total assets and 39.4% of its net assets. Go America is a leading provider of nationwide wireless Internet services. Go America enables business and individual subscribers to access remotely the Internet, email and corporate intranets in real time through a wide variety of mobile computing and communications devices. Go America's Wireless Internet Connectivity Center offers subscribers comprehensive and flexible mobile data solutions for wireless Internet access by providing wireless network services, mobile devices, software and subscriber service and support. The Corporation made an initial purchase of $25,000 worth of Go America common stock in 1996. The Corporation made additional purchases of common stock of $25,000 and $324,740 in 1998 and in November 1999, respectively. Additionally, in November 1999, the Corporation purchased $125,000 of convertible preferred stock. On April 7, 2000, Go America's common stock began trading on the Nasdaq National Market. All of the convertible preferred stock owned by Franklin was converted to common on this date as well. During the year ended December 31, 2000, Franklin sold 105,760 shares of Go America for total proceeds of $946,332 realizing a gain of $843,663. At December 31, 2000, the Corporation had an investment in Structured Web, Inc. ("Structured Web") valued at $350,000, which represents 6.1% of the Corporation's total assets 15 and 6.3% of its net assets. Structured Web develops web building blocks to enable small businesses to create and manage their own digital nerve system easily and at an affordable price. Structured Web's object-based proprietary technology enables customers to choose from a growing selection of "WebBlocks" including content, communication, commerce and services. On August 8, 2000, the Corporation purchased $350,000 worth of Structured Web convertible preferred stock. In connection with this investment, Franklin was granted observer rights for Structured Web Board of Directors meetings. During the third quarter of 2000 eMattress ceased operations and as of December 31, 2000, Franklin has written off its entire investment including a loan of $56,311 that was determined to be non-collectible. eMattress was dissolved effective December 26, 2000. On December 22, 2000, TradingNews, Inc. announced that it was ceasing operations immediately and that there would be no funds available to pay back stockholders or convertible note holders. As of December 31, 2000, Franklin has written off its entire investment in TradingNews, Inc. RESULTS OF OPERATIONS INVESTMENT INCOME AND EXPENSES: The Corporation's principal objective is to achieve capital appreciation through long-term investments in businesses believed to have favorable growth potential. Therefore, a significant portion of the investment portfolio is structured to maximize the potential for capital appreciation and provides little or no current yield in the form of dividends or interest. The Corporation earns interest income from loans, preferred stocks, corporate bonds and other fixed income securities. The amount of interest income varies based upon the average balance of the Corporation's fixed income portfolio and the average yield on this portfolio. The Corporation had interest and dividend income of $93,015 in 2000, $72,382 in 1999, and $34,128 in 1998. The increase in 2000 from 1999 was the result of an increase in the amount of cash on hand in 2000 as compared to 1999. Income from controlled affiliates was $0 in 2000 and 1999, and $229,195 in 1998, representing dividend and interest income from preferred stock and a note received in connection with the Corporation's investment in Avery Communications. Avery Communications ceased being a controlled investment of Franklin during 1998. (See Footnote 6 to the Financial Statements.) The Corporation had $22,000 in other income during 2000 representing a patent infringement settlement. Operating expenses were $2,372,797 in 2000, $1,621,780 in 1999, and $1,620,408 in 1998. A majority of the Corporation's operating expenses consist of employee compensation, (which for 2000 included a non-cash charge of $349,644 due to the cashless exercise of incentive options) office and rent expense, other expenses related to identifying and reviewing investment opportunities and professional fees. Professional fees consist of general legal fees, audit and tax fees, consulting fees and investment related legal fees. Net investment losses from operations were $2,257,782 in 2000, $1,549,398 in 1999, and $1,357,085 in 1998. The Corporation has relied and continues to rely to a large extent upon proceeds from sales of investments rather than investment income to defray a significant portion of its operating 16 expenses. Because such sales cannot be predicted with certainty, the Corporation attempts to maintain adequate working capital to provide for fiscal periods when there are no such sales. NET REALIZED GAINS AND LOSSES ON PORTFOLIO OF INVESTMENTS: During the three years ended December 31, 2000, 1999, and 1998, the Corporation realized net gains before taxes of $1,215,875, $688,259, and $1,628,004, respectively, from the disposition of various investments. During 2000, Franklin realized a gain of $956,576 from the sale of 241,131 shares of Communication Intelligence Corporation ("CIC") common stock, a portfolio holding company since 1996, a gain of $161,531 from the sale of 202,000 shares of Avery common stock, and a gain of $843,663 from the sale of 105,760 shares of Go America common stock. Additionally, gains of $3,819 were realized on tail payments from partnerships liquidated during 1999. These gains were offset by a loss of $440,057 from the write-off of the Corporation's investment in eMattress.com and a loss of $300,626 from the write-off of the Corporation's investment in TradingNews, Inc as well as a realized net loss of $9,031 from the sale of various marketable securities. During 1999, Franklin realized a gain of $922,118 from the sale of 775,000 shares of CIC common stock as well as a gain of $92,300 from the liquidation of Seneca and $36,622 from the liquidation of the investment in the FMA High Yield Income Limited Partnership. Additionally, the Corporation realized $73,797 in gains from the sale of various marketable securities. These gains were offset by a loss of $226,023 from the liquidation of the Corporation's investment in Codman Research Inc., and $148,014 from the write off of the Corporation's investment in Pacific Healthcare Group. Additionally, the Corporation realized losses of $62,541 from the sale of various marketable securities. During 1998, Franklin realized a net gain from the sale of a portion of its investment in and subsequent exercise of warrants in Avery Communications of $1,308,208, as well as $350,000 in gains from Seneca, and $96,370 in gains from other investment partnerships, the sale of various marketable securities and loans. These gains were offset by a loss of $126,574 on the sales of various marketable securities, loans, and investment partnerships. UNREALIZED APPRECIATION OF INVESTMENTS: Unrealized appreciation of investments, net of deferred taxes, decreased by $3,365,513 during the year ended December 31, 2000, primarily from the decreased value of Avery Communications and the sale of Franklin's position in CIC common stock and CIC Standby Ventures, L.P. ("CIC Ventures"). The changes in the value of the investments occurred during a period of extreme volatility of publicly traded, small capitalization, high technology stocks. The volatility of the overall market will continue to impact on the performance of the Corporation's investments. The value of the Corporation's investments will vary on a quarterly basis. Unrealized appreciation of investments, net of deferred taxes, increased by $3,086,958 during the year ended December 31, 1999, primarily from the increased value of CIC and CIC Ventures and the increased value of Go America. Unrealized appreciation of investments, net of deferred taxes, decreased by $1,015,091 during the year ended December 31, 1998, primarily from realized gains due to the sale of a 17 portion of Franklin's investment in Avery Communications. This was offset by increased values for CIC and CIC Ventures. TAXES Franklin does not qualify for pass through tax treatment as a Regulated Investment Company under Subchapter M of the Internal Revenue Code for income tax purposes. Therefore, the Corporation is taxed under Regulation C. LIQUIDITY AND CAPITAL RESOURCES: The Corporation's reported total cash and cash equivalents, accrued interest and accounts receivable and marketable investment securities (the primary measure of liquidity) at December 31, 2000 was $768,582 compared to $1,710,087 at December 31, 1999 and $1,979,256 at December 31, 1998. In addition to the above amount the Corporation's portfolio position in Go America is available for sale at December 31, 2000. Management believes that these assets provide the Corporation with sufficient liquidity for its operations. On February 22, 2000, the Corporation issued $1,645,000 of convertible preferred stock. The stock was issued at a price of $100 per share and has a 7% quarterly dividend. The stock is convertible into Franklin common stock at a conversion price of $13.33 per share. ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Corporation's business activities contain elements of risk. The Corporation considers a principal type of market risk to be valuation risk. Investments are stated at "fair value" as defined in the 1940 Act and in the applicable regulations of the Securities and Exchange Commission. All assets are valued at fair value as determined in good faith by, or under the direction of, the Board of Directors. Neither the Corporation's investments nor an investment in the Corporation is intended to constitute a balanced investment program. The Corporation has exposure to public-market price fluctuations to the extent of its publicly traded portfolio. The Corporation has invested a substantial portion of its assets in private development stage or start-up companies. These private businesses tend to be thinly capitalized, unproven, small companies that lack management depth and have not attained profitability or have no history of operations. Because of the speculative nature and the lack of public market for these investments, there is significantly greater risk of loss than is the case with traditional investment securities. The Corporation expects that some of its venture capital investments will be a complete loss or will be unprofitable and that some will appear to be likely to become successful but never realize their potential. Because there is typically no public market for the equity interests of the small companies in which the Corporation invests, the valuation of the equity interests in the Corporation's portfolio is subject to the estimate of the Corporation's Board of Directors. In making its determination, the Board may consider valuation information provided by an independent third party or the investee corporation itself. In the absence of a readily ascertainable market value, the estimated value of the Corporation's portfolio of equity interests may differ significantly from the values that would be placed on the portfolio if a ready market for the equity interests existed. 18 Any changes in valuation are recorded in the Corporation's consolidated statements of operations as "Net increase (decrease) in unrealized appreciation on investments." ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA FRANKLIN CAPITAL CORPORATION INDEX TO FINANCIAL STATEMENTS AND SCHEDULES Page ---- Report of Ernst & Young, LLP.............................. 20 Balance Sheets as of December 31, 2000 and 1999....................... 21 Statements of Operations for the years ended December 31, 2000, 1999 and 1998........... 22 Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998........... 23 Statements of Changes in Net Assets for the years ended December 31, 2000, 1999 and 1998........... 24 Financial Highlights for the years ended December 31, 2000, 1999, 1998, 1997 and 1996.................. 25 Portfolio of Investments as of December 31, 2000................................ 26 Notes to Financial Statements............................. 27-35 The schedules for which provision is made in the applicable regulation of the Securities and Exchange Commission are not required under the related instruction or are inapplicable and, therefore, have been omitted 19 REPORT OF INDEPENDENT AUDITORS To the Stockholders and Board of Directors Franklin Capital Corporation We have audited the accompanying balance sheets of Franklin Capital Corporation as of December 31, 2000 and 1999, including the portfolio of investments as of December 31, 2000 and the related statements of operations, cash flows and changes in net assets and the financial highlight for each of the three years in the period ended December 31, 2000. These financial statements and financial highlights are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included the confirmation of securities owned as of December 31, 2000 by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Franklin Capital Corporation at December 31, 2000 and 1999, the results of its operations, cash flows and changes in net assets and the financial highlights for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. ERNST & YOUNG LLP New York, New York February 16, 2001 20
Exhibit 14(a)(i) FRANKLIN CAPITAL CORPORATION ================================================================================================================= BALANCE SHEETS - ----------------------------------------------------------------------------------------------------------------- DECEMBER 31, 2000 1999 - ----------------------------------------------------------------------------------------------------------------- ASSETS Marketable investment securities, at market value (cost: December 31, 2000 - $122,231; December 31, 1999 - $109,784) (Note 2) ................... $ 112,019 $ 891,462 Investments, at fair value (cost: December 31, 2000 - $3,505,159; December 31, 1999 - $2,861,563) (Note 2) Avery Communications, Inc. ............................................ 1,198,389 3,471,880 eMattress.com ......................................................... -- 100,000 Excom Ventures, LLC ................................................... 140,000 -- Other investments ..................................................... 3,548,504 3,596,040 ------------ ------------ 4,886,893 7,167,920 ------------ ------------ Cash and cash equivalents (Note 2) ............................................. 647,565 571,341 Receivable from disposal of investments ........................................ -- 231,308 Accrued interest and accounts receivable (Note 6) .............................. 8,998 15,976 Other assets ................................................................... 111,237 117,958 ------------ ------------ $ 5,766,712 $ 8,995,965 ============ ============= TOTAL ASSETS - --------------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Accounts payable and accrued liabilities ....................................... $ 187,632 $ 204,583 Deferred taxes payable ......................................................... -- 351,000 ------------ ------------- TOTAL LIABILITIES .............................................................. 187,632 555,583 ------------ ------------- Commitments and contingencies (Note 5) STOCKHOLDERS' EQUITY Common stock, $1 par value: 5,000,000 shares authorized; 1,505,888 shares issued: 1,098,200 and 1,095,882 shares outstanding at December 31, 2000 and 1999, respectively (Note 7) ...................... 1,505,888 1,003,986 Convertible preferred stock, $1 par value, cumulative 7% dividend: 5,000,000 shares authorized; 16,450 issued and outstanding at December 31, 2000, 0 issued and outstanding at December 31, 1999 (Liquidation preference $1,645,000) (Note 4) ............................... 16,450 -- Paid-in capital - common stock ................................................. 8,643,060 8,998,051 preferred stock .............................................. 1,628,550 -- Unrealized appreciation of investments, net of deferred income taxes (Notes 2 and 3) .............................. 1,371,522 4,737,035 Accumulated deficit ............................................................ (5,190,908) (4,030,368) ------------ ------------- 7,974,562 10,708,704 Deduct: 407,688 and 410,097 shares of common stock held in treasury, at cost, at December 31, 2000 and 1999, respectively (Note 4) ............. (2,395,482) (2,268,322) ------------ ------------- Net assets, equivalent to $5.08 (diluted $4.57) per share at December 31, 2000 and $7.70 (diluted $7.55) per share at December 31, 1999 ............ 5,579,080 8,440,382 ------------ ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..................................... $ 5,766,712 $ 8,995,965 ============ ============
- ------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements. 21
FRANKLIN CAPITAL CORPORATION =================================================================================================================================== STATEMENTS OF OPERATIONS - ----------------------------------------------------------------------------------------------------------------------------------- For the Year Ended December 31, .............................................. 2000 1999 1998 ----------------------------------------- INVESTMENT INCOME Interest on short term investments and money market accounts ............. $ 51,015 $ 30,382 $ 34,128 Dividend income .......................................................... 42,000 42,000 -- Income from controlled affiliates (Note 6) .............................. -- -- 229,195 Other income ............................................................. 22,000 -- -- ----------- ----------- ----------- 115,015 72,382 263,323 ----------- ----------- ----------- EXPENSES Salaries and employee benefits (Note 7) ................................. 1,419,941 870,820 882,168 Professional fees ........................................................ 367,629 330,382 223,106 Appraisal fees ........................................................... -- 20,616 3,087 Rent (Note 5) ........................................................... 104,332 83,905 99,912 Insurance ................................................................ 42,314 41,301 43,201 Directors' fees .......................................................... 67,981 48,850 54,539 Taxes other than income taxes ............................................ 45,306 28,980 49,919 Newswire and promotion ................................................... 6,823 4,424 12,774 Depreciation and amortization ............................................ 21,468 22,402 28,428 General and administrative ............................................... 297,003 170,100 223,274 ----------- ----------- ----------- 2,372,797 1,621,780 1,620,408 ----------- ----------- ----------- Net investment loss from operations .......................................... (2,257,782) (1,549,398) (1,357,085) Net realized gain (loss) on portfolio of investments: Investment securities: Affiliated ......................................................... (278,526) -- 1,308,208 Unaffiliated ....................................................... 1,490,582 559,337 (81,008) ----------- ----------- ----------- Total investment securities ............................................. 1,212,056 559,337 1,227,200 Other than investment securities ........................................ 3,819 128,922 400,804 ----------- ----------- ----------- Net realized gain on portfolio of investments ................................ 1,215,875 688,259 1,628,004 Provision for current income taxes ........................................... 20,000 -- -- ----------- ----------- ----------- Net realized loss ............................................................ (1,061,907) (861,139) 270,919 (Decrease) increase in unrealized appreciation of investments, net of deferred income taxes: Investment securities: Affiliated ......................................................... (1,771,744) (196,487) (1,040,371) Unaffiliated ....................................................... (992,907) 2,790,030 287,656 ----------- ----------- ----------- Total investment securities ............................................. (2,764,651) 2,593,543 (752,715) Other than investment securities ........................................ (951,862) 844,415 (262,376) Deferred income tax benefit (expense) ................................... 351,000 (351,000) -- (Decrease) increase in unrealized appreciation of investments, net of deferred income taxes ................................................ (3,365,513) 3,086,958 (1,015,091) ----------- ----------- ----------- Net (decrease) increase in net assets from operations ........................ (4,427,420) 2,225,819 (744,172) =========== =========== =========== Preferred dividends .......................................................... 98,633 -- -- ----------- ----------- ----------- Net (decrease) increase in net assets attributable to common stockholders .................................................... ($4,526,053) $ 2,225,819 ($ 744,172) =========== =========== =========== Basic net (decrease) increase in net assets from operations per common share (Note 8) .................................................. ($4.05) $1.98 ($0.63) =========== =========== =========== Diluted net (decrease) increase in net assets from operations per common share (Note 8) .................................................. ($4.05) $1.98 ($0.63) =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 22
FRANKLIN CAPITAL CORPORATION =================================================================================================================================== STATEMENTS OF CASH FLOWS - ----------------------------------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net (decrease) increase in net assets from operations ........................ ($4,427,420) $ 2,225,819 ($ 744,172) Adjustments to reconcile net (decrease) increase in net assets to net cash used in operating activities: Depreciation and amortization ............................................ 21,468 22,402 28,428 Non-cash compensation expense from cashless exercise of officer options .. 349,644 -- -- Decrease (increase) in unrealized appreciation of investments, net of deferred taxes ............................................... 3,365,513 (3,086,958) 1,015,091 Amortization of discount on note receivable from affiliate ............... -- -- (101,176) Net realized gain on portfolio of investments, net of current income taxes (1,195,875) (688,259) (1,628,004) Changes in operating assets and liabilities: Decrease (increase) in receivable from disposal of investments ......... 231,308 (231,308) -- Decrease in accrued interest and accounts receivable ................... 6,978 163,203 150,869 (Increase) decrease in other assets .................................... (14,741) 5,880 (7,596) Decrease in accounts payable and accrued liabilities ................... (36,951) (28,560) (142,183) ----------- ----------- ----------- Total adjustments .................................................... 2,727,344 (3,843,600) (684,571) ----------- ----------- ----------- Net cash used in operating activities ................................ (1,700,076) (1,617,781) (1,428,743) ----------- ----------- ----------- Cash flows from investing activities: Proceeds from sale of affiliate .............................................. 379,527 -- 2,500,000 Proceeds from sale of other investments ...................................... 950,151 766,308 1,432,717 Proceeds from sale of marketable investment securities ....................... 1,259,323 2,483,077 217,481 Return of capital from investments ........................................... -- 36,622 -- Loan payments received from investments ...................................... -- 66,667 -- Purchases of investment in majority owned affiliate .......................... (56,311) (375,000) -- Purchase of investment in affiliate .......................................... (140,000) -- -- Purchases of other investments ............................................... (1,575,625) (529,346) (1,025,000) Purchases of marketable investment securities ................................ (257,239) (1,247,440) (661,575) Purchases of fixed assets .................................................... -- (2,402) -- ----------- ----------- ----------- Net cash provided by investing activities ............................ 559,826 1,198,486 2,463,623 ----------- ----------- ----------- Cash flows from financing activities: Proceeds from issuance of preferred stock .................................... 1,645,000 -- -- Payments of preferred dividends .............................................. (98,633) -- -- Cash paid to common stockholders in lieu of fractional shares due to stock split of common shares ............................................... (1,448) -- -- Purchases of treasury stock .................................................. (328,445) (109,737) (283,407) ----------- ----------- ----------- Net cash provided by (used in) financing activities .................. 1,216,474 (109,737) (283,407) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents ........................... 76,224 (529,032) 751,473 Cash and cash equivalents at beginning of year ................................. 571,341 1,100,373 348,900 ----------- ----------- ----------- Cash and cash equivalents at end of year ....................................... $ 647,565 $ 571,341 $ 1,100,373 =========== =========== =========== - ----------------------------------------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements. 23
FRANKLIN CAPITAL CORPORATION =================================================================================================================================== STATEMENTS OF CHANGES IN NET ASSETS - ----------------------------------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, 2000 1999 1998 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from operations: Net investment loss ............................................ ($2,257,782) ($1,549,398) ($1,357,085) Net realized gain on portfolio of investments, net of current income taxes ................................ 1,195,875 688,259 1,628,004 (Decrease) increase in unrealized appreciation of investments, net of deferred income taxes ............................... (3,365,513) 3,086,958 (1,015,091) ----------- ----------- ----------- Net (decrease) increase in net assets from operations ...... (4,427,420) 2,225,819 (744,172) Capital stock transactions: Issuance of stock from treasury to majority owned affiliate, net -- 8,747 -- Issuance of preferred stock .................................... 1,645,000 -- -- Payment of dividends on preferred stock ........................ (98,633) -- -- Issuance of stock from treasury for exercise of officer options 349,644 -- -- Cash paid to common shareholders in lieu of fractional shares .. (1,448) -- -- Purchase of treasury stock ..................................... (328,445) (109,737) (283,407) ----------- ----------- ----------- Total (decrease) increase in net assets .................... (2,861,302) 2,124,829 (1,027,579) ----------- ----------- ----------- Net assets at beginning of year ................................... 8,440,382 6,315,553 7,343,132 ----------- ----------- ----------- Net assets at end of year ......................................... $ 5,579,080 $ 8,440,382 $ 6,315,553 =========== =========== =========== --------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements. 24
FRANKLIN CAPITAL CORPORATION =============================================================================================================== FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------------------------------------- FOR THE YEAR ENDED DECEMBER 31, 2000 1999 1998 1997(1) 1996(1) - --------------------------------------------------------------------------------------------------------------- PER SHARE OPERATING PERFORMANCE (2): Net asset value, beginning of period ...................... $7.70 $5.61 $6.11 $8.22 $9.78 ----- ----- ----- ----- ------ Net investment loss ............................... (2.07) (1.38) (1.14) (1.58) (1.29) Net gain on portfolio of investments (realized and unrealized) after taxes (1.98) 3.35 0.51 1.64 0.30 ----- ----- ----- ----- ------ Total from investment operations .......................... (4.05) 1.97 (0.63) 0.06 (0.99) ----- ----- ----- ----- ------- Less dividends and distributions: Distributions from accumulated deficit and earnings ........................... 0.00 0.00 0.00 (2.17) (0.67) ----- ----- ----- ----- ------ Total dividends and distributions ......................... 0.00 0.00 0.00 (2.17) (0.67) ----- ----- ----- ----- ----- Capital stock transactions ................................ 1.43 0.12 0.12 0.00 0.09 ----- ----- ----- ----- ----- Net asset value, end of period ............................ $5.08 $7.70 $5.61 $6.11 $8.22 ===== ===== ===== ===== ===== Market value per share, end of period ..................... $8.00 $6.83 $3.50 $4.33 $6.75 ===== ===== ===== ===== ===== TOTAL INVESTMENT RETURN: Based on market value per share (%) ....................... 17.13 95.24 (19.23) (16.62) 9.64 RATIOS TO AVERAGE NET ASSETS: Expenses (%) .............................................. 25.99 24.97 23.73 28.97 20.58 Net investment loss (%) ................................... (24.73) (23.86) (19.88) (22.97) (13.29) RATIOS/SUPPLEMENTAL DATA: Net assets at end of period (000 omitted) ................. $5,579 $8,440 $6,316 $7,343 $9,877 Portfolio turnover rate (%) ............................... 24 36 39 77 8
- -------------------------------------------------------------------------------- (1) - Audited by predecessor auditor (2) - Calculated based on weighted average number of shares outstanding during the period. The accompanying notes are an integral part of these financial highlights. 25 FRANKLIN CAPITAL CORPORATION ================================================================================ PORTFOLIO OF INVESTMENTS - -------------------------------------------------------------------------------- MARKETABLE INVESTMENT SECURITIES - --------------------------------------------------------------------------------
NUMBER OF SHARES OR MARKET PRINCIPAL VALUE DECEMBER 31, 2000 AMOUNT ($) COST(1) (NOTE 2) - ---------------------------------------------------------------------------------------------------------- Communications Intelligence Corporation - common stock 75,000 $ 87,556 $77,344 Certificate of Deposit - 5.03%, due 01/03/2001 34,675 34,675 -------- -------- Total Marketable Investment Securities (2.2% of total investments and 2.0% of net assets) $122,231 $112,019 ======== ========
- -------------------------------------------------------------------------------- INVESTMENTS, AT FAIR VALUE - --------------------------------------------------------------------------------
NUMBER OF SHARES OR DIRECTORS' EQUITY PRINCIPAL VALUATION DECEMBER 31, 2000 INVESTMENT INTEREST AMOUNT ($) COST(1) (NOTE 2) - ----------------------------------------------------------------------------------------------------------------------------------- AFFILIATES Avery Communications, Inc. Common stock 1,183,938 $1,268,089 Avery Communications, Inc. Convertible preferred stock - Series E; 12.0% dividend rate(2) 350,000 350,000 --------- Total Avery Communications, Inc. (24.0% of total investments and 21.5% of net assets) 9.32% 1,618,089 $1,198,389 (Telecommunications) (fully diluted basis) Excom Ventures, LLC (2.8% of total investments and 2.5% of net assets) Units 18.64% 140,000 140,000 140,000 (Purchase evaluation software) OTHER INVESTMENTS Data Downlink Corporation (20.0% of total investments and 17.9% of net assets) Convertible Preferred 1.68% 321,543 1,000,000 1,000,000 (Internet-based information provider) Stock Go America, Inc. (44.0% of total investments and 39.4% of net assets) Common stock 0.77% 409,024 397,070 2,198,504 (Wireless internet service provider) Structured Web, Inc. (7.0% of total investments and 6.3% of net assets) Convertible Preferred 2.02% 188,425 350,000 350,000 (Internet-based application service provider) Stock Total Other Investments 1,747,070 3,548,504 ---------- ---------- Total Investments, at Fair Value $3,505,159 $4,886,893 ========== ==========
- -------------------------------------------------------------------------------- (1) Book cost equals tax cost for all investments (2) Income producing security The accompanying notes are an integral part of these financial highlights. 26 FRANKLIN CAPITAL CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2000 1. ORGANIZATION Franklin Capital Corporation ("Franklin", or the "Corporation") is a Delaware corporation operating as a Business Development Company ("BDC") under the Investment Company Act of 1940 (the "Act"). A BDC is a specialized type of investment company under the Act. A BDC must be primarily engaged in the business of furnishing capital and managerial expertise to companies that do not have ready access to capital through conventional financial channels. Such companies are termed "eligible portfolio companies". The Corporation, as a BDC, generally may invest in other securities however such investments may not exceed 30% of the Corporation's total asset value at the time of any such investment. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles 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 considers only highly liquid investments such as money market funds and commercial paper with maturities of 90 days or less at the date of their acquisition to be cash equivalents. The Corporation paid no interest during the years ended December 31, 2000 and 1999, and paid income taxes of $2,000 during the year ended December 31, 1999. On January 25, 1999, the Corporation issued 30,069 shares of treasury stock valued at $175,000, the Net Asset Value ("NAV") on the date of the transaction, as part of an investment in a controlled affiliate. On September 30, 1999, 28,566 of these shares valued at $166,252, were canceled and placed back into treasury. (See Note 6 - Transactions with Affiliates.) At December 31, 2000, the Corporation held cash and cash equivalents primarily in money market funds at two commercial banking institutions and one broker/dealer. VALUATION OF INVESTMENTS Security investments which are publicly traded on a national exchange or Nasdaq Stock Market 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 of Directors of Franklin (the "Board of Directors") 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 in good faith by the Board of Directors. The financial condition and operating results have been derived 27 FRANKLIN CAPITAL CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) utilizing both audited and unaudited data. In the absence of a ready market for an investment, numerous assumptions are inherent in the valuation process. Some or all of these assumptions may not materialize. Unanticipated events and circumstances may occur subsequent to the date of the valuation and values may change due to future events. Therefore, the actual amounts eventually realized from each investment may vary from the valuations shown and the differences may be material. Franklin reports the unrealized gain or loss resulting 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 or dissolution of investments are consummated. INCOME TAXES Franklin does not qualify for pass through tax treatment as a Regulated Investment Company under Subchapter M of the Internal Revenue Code for income tax purposes. Therefore, the Corporation is taxed under Regulation C. Franklin accounts for income taxes in accordance with the provision of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). 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 for the respective assets. Leasehold Improvements are included in other assets and are amortized over their useful lives or the remaining life of the lease, whichever is shorter. NET INCREASE (DECREASE) IN NET ASSETS PER COMMON SHARE Basic and diluted net increase (decrease) in net assets per common share is calculated in accordance with the provisions of Statement of Financial Accounting Standards No. 128, "Earnings per Share". 3. INCOME TAXES For the years ended December 31, 2000, 1999 and 1998, Franklin's tax (provision) benefit was based on the following:
2000 1999 1998 ------------ ------------- ------------ Net investment loss from operations $(2,257,782) $(1,549,398) $(1,357,085) Net realized gain on portfolio of investments 1,215,875 688,259 1,628,004 (Decrease) increase in unrealized appreciation (3,716,513) 3,437,958 (1,015,091) ------------ ------------ ------------ Pre-tax book (loss) income $(4,758,420) $ 2,576,819 $ (744,172) =========== =========== ============
28
2000 1999 1998 ----------- ---------- --------- Federal tax benefit (provision) at 34% on $(4,758,420), $2,576,819, and $(744,172) respectively .... $ 1,618,000 $ (876,000) $ 253,000 State and local, net of Federal benefit .... (13,000) (49,000) -- Book losses for which no benefit is provided (130,000) (10,000) (253,000) Change in valuation allowance .............. (1,144,000) 584,000 -- ----------- ---------- --------- $ 331,000 $ (351,000) $ -- =========== ========== ========= The components of the tax benefit (provision) are as follows: 2000 1999 1998 ---------- --------- ------- Current state and local tax expense......... $ ( 20,000) $ -- $ -- Deferred tax benefit (expense).............. 351,000 (351,000) -- ---------- --------- ------- Benefit (provision) for income taxes........ $ 331,000 $(351,000) $ -- =========== ========= =======
- -------------------------------------------------------------------------------- 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. At December 31, 2000 and December 31, 1999, significant deferred tax assets and liabilities consist of: Asset (Liability) ------------------------- December 31, December 31, 2000 1999 ----------- ------------- Deferred Federal and state benefit from net operating loss carryforward .................................. $ 1,638,000 $ 1,481,000 Deferred Federal and state provision on unrealized appreciation of investments ........................ (494,000) (1,832,000) Valuation allowance .................................. (1,144,000) -- ----------- ------------ Deferred taxes ..................................... $ -- $( 351,000) =========== ============= At December 31, 2000, Franklin had net operating loss carryforwards for income tax purposes of approximately $4,551,000 that will begin to expire in 2011. At a 36% effective tax rate the after-tax net benefit from this loss would be approximately $1,638,000. 4. STOCKHOLDERS' EQUITY The Accumulated Deficit at December 31, 2000, consists of accumulated net realized gains of $4,641,000 and accumulated investment losses of $9,831,000. On February 22, 2000, the Corporation issued 16,450 shares of convertible preferred stock with a par value of $100 for $1,645,000. The stock has a cumulative 7% quarterly dividend and is convertible into the number of shares of common stock by dividing the purchase price for the convertible preferred stock by conversion price in effect (which is currently $13.33), resulting in 123,375 shares of common stock. The convertible preferred stock has antidilution provisions, which can change the conversion price in certain circumstances if the Corporation issues additional shares of common stock. The holder has the right to convert the shares of convertible preferred stock at any time until February 22, 2010 into common stock. 29 FRANKLIN CAPITAL CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) Upon liquidation, dissolution or winding up of the Corporation, the stockholders of the convertible preferred stock are entitled to receive $100 per share plus any accrued and unpaid dividends before distributions to any holder of the Corporation's common stock. On April 26, 2000, the Corporation declared a three for two stock split of the Corporation's Common Stock in the form of a stock dividend to shareholders of record on May 15, 2000, and payable June 7, 2000. The stock split has been reflected in the accompanying financial statements and all applicable references as to the number of common shares and per share information have been restated. The Board of Directors has authorized Franklin to repurchase up to an aggregate of 525,000 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. The Corporation issued 30,069 shares of stock from treasury pursuant to an investment made by Franklin on January 25, 1999. On September 30, 1999, 28,566 of these shares were canceled and placed back into the Corporation's treasury. (See Note 6 - Transactions with Affiliates) As of December 31, 1999 the Corporation had purchased 426,600 shares of its common stock of which 410,097 remained in treasury. During the year ended December 31, 2000, the Corporation purchased 32,250 shares of its common stock at a total cost of $328,445. On May 9, 2000, 17,399 shares were issued from treasury pursuant to the exercise of options by one of Franklin's officers. On September 11, 2000, 14,369 shares were issued from treasury pursuant to the exercise of options by one of Franklin's officers. On December 21, 2000, 2,891 shares were issued from treasury pursuant to the exercise of options by three of Franklin's officers. To date, Franklin has repurchased 458,850 shares of its common stock of which 407,688 shares remain in treasury at December 31, 2000. 5. COMMITMENTS AND CONTINGENCIES Franklin is obligated under an operating lease, which provides for annual minimum rental payments as follows: December 31, 2001........................................$149,600 2002........................................ 149,600 2003........................................ 149,600 -------- $448,800 ======== Rent expense for the years ended December 31, 2000, 1999 and 1998 was $104,332, $83,905 and $99,912 respectively. For the years ended December 31, 2000 and 1999, the Corporation collected rents of $40,000 and $58,032, respectively, from subtenants under month-to-month leases, for a portion of its existing office space that is reflected as a reduction in rent expense for that period. Of the amount collected from subtenants during the years ended December 31, 2000 and 1999, $30,000 and $25,000, respectively was received from a corporation included in Franklin's investment portfolio during the year ended December 31, 2000, and $10,812 was received during the year ended December 31, 1999, from a partnership in which two officers of Franklin have a non-controlling interest. 6. TRANSACTIONS WITH AFFILIATES During the year ended December 31, 2000, the Corporation invested $140,000 in Excom Ventures, LLC. ("Excom"). Excom was formed as a holding company for the purpose of investing in Expert Commerce, 30 FRANKLIN CAPITAL CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) Inc. ("Expert Commerce") a Business-to-Business purchase evaluation engine that simulates the way people make decisions. In January 1999, Franklin formed eCom Capital Corporation ("eCom"), a wholly owned subsidiary of Franklin, for the purposes of investing in Internet related ventures. On January 25, 1999, eCom invested a total of $387,500 in eMattress.com Inc. ("eMattress"), consisting of $175,000 worth of Franklin common stock (30,069 shares from treasury stock valued at the Net Asset Value on the date of the transaction) and $212,500 in cash. Franklin received preferred stock convertible into a 50% equity interest in eMattress. Two officers of Franklin were elected to serve on the five member eMattress Board of Directors. In August 1999, Franklin invested an additional $87,500 in eCom. Pursuant to this transaction, eMattress was merged into eCom and 28,566 shares of Franklin common stock were returned to Franklin's treasury. The surviving entity, eMattress.com is a Delaware corporation. In November 1999, Franklin invested an additional $75,000 into eMattress and as a result of this transaction, on December 31, 1999, Franklin owned 87.2% of eMattress. During 2000 eMattress ceased operations and has legally dissolved. Franklin has written off its entire investment including a loan of $56,311 that was determined to be non-collectible. On July 6, 1998, Franklin sold 1,500,000 shares of Avery Communications preferred Series D stock and a $1,000,000 Avery note along with 280,000 warrants to purchase Avery Communications common stock for a total of $2,500,000 to the Thurston Group, Inc. The president of the Thurston Group is the current chairman of Avery Communications. Franklin realized a net gain of $935,297 as a result of this sale. On July 13, 1998, Franklin entered into a cashless exercise of warrants to purchase 386,667 shares of Avery Communications common stock at $1.50 per share realizing a net gain of $372,911 and a decrease in unrealized appreciation of a like amount. In return, Franklin received 196,503 shares of Avery Communications common stock. During the year ended December 31, 2000, Franklin sold 202,000 shares of Avery Communications for total proceeds of $379,527 realizing a gain of $161,531. Effective July 8, 1998, Avery Communications was no longer a controlled affiliate of Franklin. At December 31, 2000, Franklin owned 9.32% of Avery Communications on a fully diluted basis, and 16.1% of Avery Communications on a primary basis. For the year ended December 31, 1998, Avery Communications was a controlled affiliate of Franklin. Income during that period received from Avery Communications was $118,431 in dividends and $110,764 in interest. 7. STOCK OPTION PLANS On September 9, 1997, Franklin's stockholders approved two Stock Option Plans: a Stock Incentive Plan ("SIP") to be offered to the Corporation's consultants, officers and employees (including any officer or employee who is also a director of the Corporation) and a Non-Statutory Stock Option Plan ("SOP") to be offered to the Corporation's "outside" directors, i.e., those directors who are not also officers or employees of Franklin. 112,500 shares of the Corporation's Common Stock have been reserved for issuance under these plans, of which 67,500 shares have been reserved for the SIP and 45,000 shares have been reserved for the 31 FRANKLIN CAPITAL CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) SOP. Shares subject to options that terminate or expire prior to exercise will be available for future grants under the Plans. Because the issuance of options to "outside" directors is not permitted under the Act without an exemptive order by the Securities and Exchange Commission, the issuance of options under the SOP was conditioned upon the granting of such order. The order was granted by the Commission on January 18, 2000. On January 27, 1998, 67,500 options were granted to three eligible officers of the Corporation under the SIP. The strike price of the options was $4.67 per share, which represented the closing price of Franklin's Common Stock as reported by the American Stock Exchange on that date. One-third of the options granted vested immediately; another one-third vested one year from the date of issuance; and the final one-third vested two years after the date of issuance. The options expire after ten years. On December 31, 1998, one of the eligible officers resigned from the Corporation and forfeited 15,000 options upon resignation and an additional 7,500 options three months after resignation. 15,000 of these options were reissued on March 18, 1999 to three eligible officers of the Corporation at a strike price of $3.83 per share, which represented the closing price of Franklin's Common Stock as reported by the American Stock Exchange on that date. These options will expire as originally issued. One-half of the reissued options vested immediately, and one-half vested on January 27, 2000. 5,625 of the remaining forfeited options were reissued on December 9, 1999 to three eligible officers of the Corporation at a strike price of $6.00 per share, which represented the closing price of Franklin's Common Stock as reported by the American Stock Exchange on that date. These options will expire as originally issued. One-half of the reissued options vested immediately, and one-half vested on December 9, 2000. The remaining 1,875 of forfeited options were reissued on March 1, 2000, to one eligible officer of the Corporation at a strike price of $14.00 per share, which represented the closing price of Franklin's Common Stock as reported by the American Stock Exchange on that date. These options will expire as originally issued. One-half of the reissued options vested immediately, and one-half will vest on March 1, 2001. On February 14, 2000, 30,000 options were granted under the SOP to four eligible "outside" directors. The strike price of the options was $11.50 per share, which represented the closing price of Franklin's Common Stock as reported by the American Stock Exchange on that date. One-third of the options granted vested immediately; another one-third vest one year from the date of issuance; and the final one-third vest two years after the date of issuance. The options expire after ten years. On June 7, 2000, 7,500 options were granted under the SOP to four eligible "outside" directors. The strike price of the options was $9.67 per share, which represented the closing price of Franklin's Common Stock as reported by the American Stock Exchange on that date. One-third of the options granted vested immediately; another one-third vest one year from the date of issuance; and the final one-third vest two years after the date of issuance. The options expire after ten years. On May 9, 2000, one of Franklin's officers made a cash-less exercise of 29,062 options resulting in a non-cash charge to compensation expense of $197,188. On September 11, 2000, one of Franklin's officers made a cash-less exercise of 29,062 options resulting in a non-cash charge to compensation expense of $129,317. On December 21, 2000, three of Franklin's officers made cash-less exercises of 7,501 options resulting in a non-cash charge to compensation expense of $23,139. Franklin accounts for the options issued to employees under APB Opinion No. 25, under which no compensation cost has been recognized. Proforma information determined consistent with the fair value method required by FASB Statement No. 123, is as follows: 32 FRANKLIN CAPITAL CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2000 December 31, 1999 ----------------- ------------------- Net (decrease) increase in net assets from operations: As reported $(4,427,420) $2,225,819 Pro forma $(4,568,005) $2,196,909 Net (decrease) increase in net assets per common share: As reported $(4.05) $1.98 Pro forma - Basic $(4.17) $1.95 Pro forma - Diluted $(4.17) $1.95 Net Asset Value per share: As reported $5.08 $7.70 Pro forma - Basic $4.95 $7.63 Pro forma - Diluted $4.45 $7.48
The fair value of the options granted was estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions: December 31, 2000 December 31, 1999 ----------------- ----------------- Stock volatility 41.3% 30.6% Risk-free interest rate 5.5% 5.5% Option term in years 4 4 Stock dividend yield -- -- The following is a summary of the status of the Stock Option Plans during the years ended: December 31, 2000 December 31, 1999 ----------------------- ------------------- Weighted Weighted Average Average Exercise Exercise Shares Price Shares Price ------ -------- ------ -------- Outstanding at beginning of period 65,625 $ 4.42 52,500 $4.67 Granted 39,375 $11.27 20,625 $4.42 Exercised 65,625 $4.42 -- -- Forfeited -- -- 7,500 $4.67 Expired -- -- -- -- Outstanding at end of period 39,375 $11.27 65,625 $4.59 Exercisable at end of period 13,438 $11.33 40,312 $4.42 Weighted average fair value of options granted $2.40 $1.42 33 FRANKLIN CAPITAL CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) The options issued under the SIP have a remaining contractual life of 7.1 years. The options issued under the SOP have a remaining contractual life of 9.1 years. 8. NET (DECREASE) INCREASE IN NET ASSETS PER COMMON SHARE The following table sets forth the computation of basic and diluted change in net assets per common share:
December 31, ----------------------------------------- 2000 1999 1998 ------------ ---------- ---------- Numerator: Net (decrease) increase in net assets from operations ($4,427,420) $2,225,819 ($744,172) Preferred stock dividends (98,633) -- -- ----------- ---------- ---------- Numerator for basic earnings per share - net (loss) income available for common stockholders (4,526,053) 2,225,819 (744,172) Effect of dilutive securities: Preferred stock dividends 98,633 -- -- Numerator for diluted earnings per share - Net (decrease) increase in net assets available for common stockholders after assumed conversions (4,427,420) 2,225,819 (744,172) Denominator: Denominator for basic (decrease) increase in net assets from operations - weighted - average shares 1,094,373 1,124,740 1,188,858 Effect of dilutive securities: Employee stock options - weighted - average shares -- 1,763 -- ----------- ---------- ---------- Denominator for diluted (decrease) increase in net assets from operations - adjusted weighted - average shares and assumed conversions 1,094,373 1,126,503 1,188,858 =========== ========== ========== Basic and diluted net (decrease) increase in net assets from operations per share $(4.05) $1.98 ($0.63) =========== ========== ========== Diluted net (decrease) increase in net assets from operations per share $(4.05) $1.98 ($0.63) =========== ========== ==========
34 FRANKLIN CAPITAL CORPORATION NOTES TO FINANCIAL STATEMENTS (CONTINUED) The following securities have been excluded from the dilutive per share computation as they are antidilutive:
Period ended December 31, ----------------------------------------- 2000 1999 1998 ----------------------------------------- Preferred stock convertible into 123,375 shares of common stock 123,375 -- -- Stock options 21,925 -- --
For additional information on the above securities, see Notes 4 and 7. 9. PURCHASES AND SALES OF INVESTMENT SECURITIES The cost of purchases and proceeds from sales of investment securities, including the issuance of treasury stock for December 31, 1999, and the cashless exercise of the Avery warrants for December 31, 1998, as discussed in Note 6 and excluding short term investments, aggregated $1,944,500 and $2,543,819 respectively, for the year ended December 31, 2000; $2,158,804 and $3,352,674 respectively, for the year ended December 31, 1999; and $4,730,199 and $2,365,820 respectively, for the year ended December 31, 1998. 10. SUBSEQUENT EVENT On February 1, 2001, Franklin sold to Avery Communications 1,183,938 shares of common stock and 350,000 shares of preferred stock of Avery Communications for $1,557,617 plus accrued interest on the preferred stock for a realized gain net of expenses of $137,759. As part of the sale Franklin retained the right to receive 1,533,938 shares of Primal a wholly owned subsidiary of Avery Communications. On February 13, 2001, Primal announced that Avery Communications had completed a spin-off of Primal and Franklin received 1,533,938 fully registered and marketable shares of Primal. 35 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no disagreements with our auditors, Ernst & Young LLP on accounting or financial disclosure. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION OFFICERS STEPHEN L. BROWN, Chairman and Chief Executive Officer. For additional information about Mr. Brown, please see the Directors' biographical information section below. SPENCER L. BROWN, age 35, has been Senior Vice President of the Corporation since November 1995, Secretary of the Corporation since October 1994 and was Vice President from August 1994 to November 1995. Mr. Brown is the son of Stephen L. Brown, the Chairman and Chief Executive of the Corporation. HIRAM M. LAZAR, age 36, joined the Corporation as Chief Financial Officer in January 1999. From June 1992 to January 1999, Mr. Lazar was the Vice-President of Finance and Corporate Controller for Lebenthal & Co., Inc., a regional full-service broker/dealer. COMMON STOCK DIRECTORS STEPHEN L. BROWN, age 62, was elected to the Corporation's Board of Directors and appointed Chairman of its Board of Directors in October 1986. He has been Chairman and Chief Executive Officer since October 1986. Prior to joining Franklin, Mr. Brown was Chairman of S.L. Brown & Company, Inc. ("SLB & Co., Inc."), a private investment firm. Mr. Brown is a director of Copley Financial Services Corporation, advisor to Copley Fund, Inc., a mutual fund. MILES L. BERGER, age 70, joined the Board as a director in 1996. Mr. Berger is Chairman of the Board of Mid Town Banc Corp, Chicago, and Berger Management Services LLC. Additionally Mr. Berger serves as a board member of Innkeepers USA Trust and Universal Health Realty Income Trust. DAVID T. LENDER, age 48, joined the Board as a director in 2000. Mr. Lender is a Managing Director at Banc of America Securities, LLC where he specializes in mergers and acquisitions. Prior to joining Banc of America Securities, LLC, Mr. Lender was a Managing Director in the Mergers and Acquisitions Group of Rothschild, Inc. JONATHAN A. MARSHALL, age 62, joined the Board as a director in 1987. Mr. Marshall is a Senior Partner in the law firm of Pennie & Edmonds, and has been a member of that firm since 1974. He is a member of the Bar of the State of New York and is admitted to practice before the United States Supreme Court and the United States Patent and Trademark Office. MICHAEL P. ROLNICK, age 35, joined the Board as a director in 1998. Mr. Rolnick is currently a General Partner at ComVentures, a venture capital firm that invests in early stage 36 Internet and communications companies. Mr. Rolnick is responsible for private equity investments and managing portfolio companies. Prior to joining ComVentures, Mr. Rolnick was Vice President for New Ventures at E*Trade Group, Inc. PREFERRED STOCK DIRECTORS PETER D. GOTTLIEB, age 33, joined the Board as a director in 2000. Mr. Gottlieb is Vice-President of Investments at First Albany Corporation and is a Portfolio Manager for First Albany Asset Management. Mr. Gottlieb serves as a director of Midwest Bank & Trust and Gottlieb Health Services. Additionally, Mr. Gottlieb serves as Treasurer of STEP, Inc. IRVING LEVINE, age 79, joined the Board as a director in 1990. He has been Chairman of the Board and President of Copley Fund, Inc., a mutual fund, since 1978, and Chairman and Treasurer of Stuffco International, Inc., a ladies handbag processor and chain-store operator, since 1978. Mr. Levine is President and a director of Copley Financial Services Corporation (advisor to Copley Fund, Inc.) as well as a director of U.S. Energy Systems, Inc. an independent producer of clean efficient energy for growing energy markets. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Corporation's officers and directors, and persons who own more than 10 percent of the Corporation's common stock to file reports (including a year-end report) of ownership and changes in ownership with the Securities and Exchange Commission (the "SEC") and to furnish the Company with copies of all reports filed. Based solely on a review of the forms furnished to the Corporation, or written representations from certain reporting persons, the Corporation believes that all persons who were subject to Section 16(a) in 2000 complied with the filing requirements. ITEM 11. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth a summary for each of the last three years of the cash and non-cash compensation awarded to, earned by, or paid to the Chief Executive Officer of the Corporation and the other executive officers of the Corporation, whose individual remuneration exceeded $100,000 for the year ended December 31, 2000.
SECURITIES OTHER UNDERLYING NAME & ANNUAL OPTIONS OTHER PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION($) (1) AWARDED (#) COMPENSATION ($) ------------------ ---- ----------- ---------- -------------------- ------------- ---------------- Stephen L. Brown 2000 350,000 125,000 - - - CHAIRMAN & 1999 350,000 70,000 - 7,500 - PRESIDENT 1998 350,000 32,500 - 22,500 - Spencer L. Brown 2000 200,000 40,000 - - - SENIOR VICE PRESIDENT 1999 151,250 30,000 - 7,500 - & SECRETARY 1998 126,250 12,500 - 22,500 -
37 Hiram M. Lazar 2000 120,000 15,000 - 1,875 - CHIEF FINANCIAL OFFICER 1999 112,917 5,000 - 5,625 -
(1) There were no perquisites paid by the Corporation in excess of the lesser of $50,000 or 10% of the compensated person's total salary and bonus for the year. COMPENSATION OF DIRECTORS Each director of the Corporation, other than Mr. Stephen L. Brown, receives a yearly fee of $12,000 plus reimbursement of expenses incurred in attending board meetings. OPTION GRANTS The following table sets forth a summary of the options granted during the year ended December 31, 2000, to the Chief Executive Officer of the Corporation and the other executive officers of the Corporation.
NUMBER OF SECURITIES UNDERLYING PERCENT OF EXERCISE GRANT DATE OPTIONS TOTAL OPTIONS PRICE EXPIRATION PRESENT NAME GRANTED(1) GRANTED PER SHARE DATE VALUE ($)(2) - --------------- ------------- ------------- --------- ---------------- ------------ Hiram M. Lazar 1,875 100% $14.00 January 27, 2008 $10,463
(1) Options granted on March 1, 2000 are exercisable starting immediately with respect to 50% of the shares granted and with the remaining 50% of the shares granted becoming exercisable on the first anniversary of the grant date. Full vesting would occur prior to the first anniversary in the case of change of control of the Corporation. (2) Black Scholes pricing model used to calculate. Assumptions used as follows, expected volatility of 41.9%, risk free rate 5.5%, dividend yield 0%, time of exercise 4 years. OPTION EXERCISES The following table sets forth a summary of the options exercised during the year ended December 31, 2000, by the Chief Executive Officer of the Corporation and the other executive officers of the Corporation.
NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED SHARES ACQUIRED UNEXERCISED IN-THE-MONEY NAME ON EXERCISE VALUE REALIZED OPTIONS OPTIONS ---- ----------- -------------- ------- ------- Stephen L. Brown 14,603 $131,192 -- -- Spencer L. Brown 17,632 $199,064 -- -- Hiram M. Lazar 2,423 $ 19,388 1,875 --
EMPLOYMENT AGREEMENTS On May 1, 2000, Stephen L. Brown signed an Employment Agreement with the Corporation ("the Employee Agreement"), which superseded an agreement that was to expire on December 31, 2000. The Employee Agreement expires on December 31, 2003, ("the Term"). The Term will automatically renew from year to year thereafter, unless the Corporation notifies 38 Mr. Brown not less than 120 days prior to the end of any Term in writing that the Corporation will not be renewing the Employee Agreement. During the period of employment, Mr. Stephen L. Brown shall serve as the Chairman and Chief Executive Officer of the Corporation; be responsible for the general management of the affairs of the Corporation, reporting directly to the Board of Directors of the Corporation, serve as a member of the Board for the period of which he is and shall from time to time be elected or reelected. Mr. Stephen L. Brown is to receive compensation under the Employment Agreement in the form of base salary of $420,000 beginning January 1, 2001. In addition, the Board of Directors may increase such salary at its discretion from time to time. Mr. Brown is also entitled to be paid bonuses as the Board of Directors determines in its sole discretion. Under the Employment Agreement, the Corporation is to provide Mr. Brown with a company car and membership in certain clubs. Mr. Brown is entitled under the Employment Agreement to participate in any employee benefit plans or programs and to receive all benefits, perquisites and emoluments for which salaried employees are eligible. Under the Employment Agreement, Mr. Stephen L. Brown is entitled to severance pay in the event of termination without cause or by constructive discharge equal to the remaining base salary payable under the Employment Agreement and provides for death benefits payable to the surviving spouse equal to Mr. Brown's base salary for a period of one year. In addition, Mr. Stephen L. Brown and the Corporation entered into a Severance Agreement ("the Severance Agreement") on May 1, 2000. Under the Severance Agreement Mr. Brown is entitled to receive severance if following a change in control as defined in the Severance Agreement, such individual's employment is terminated by the Corporation without cause or by the executive within one year of such change in control, the individual shall be entitled to receive compensation in a lump sum payment equal to 1.5 times the individual's average compensation over the past five years. On May 1, 2000, Spencer L. Brown signed an Employment Agreement with the Corporation ("the Employee Agreement"). The Employee Agreement expires on December 31, 2003, ("the Term"). The Term will automatically renew from year to year thereafter, unless the Corporation notifies Mr. Brown not less than 120 days prior to the end of any Term in writing that the Corporation will not be renewing the Employee Agreement. During the period of employment, Mr. Spencer L. Brown shall serve as the Senior Vice-President and Secretary of the Corporation; be responsible for the general management of the affairs of the Corporation, reporting directly to the Board of Directors of the Corporation, serve as a member of the Board for the period of which he is and shall from time to time be elected or reelected. Mr. Spencer L. Brown is to receive compensation under his Employment Agreement in the form of base salary of $225,000 beginning May 1, 2000. In addition, the Board of Directors may increase such salary at its discretion from time to time. Mr. Brown is also entitled to be paid bonuses as the Board of Directors determines in its sole discretion. Under the Employment Agreement, the Corporation is to provide Mr. Brown with a company car and membership in certain clubs. Mr. Brown is entitled under the Employment Agreement to participate in any employee benefit plans or programs and to receive all benefits, perquisites and emoluments for which salaried employees are eligible. 39 Under the Employment Agreement, Mr. Spencer L. Brown is entitled to severance pay in the event of termination without cause or by constructive discharge equal to the remaining base salary payable under the Employment Agreement and provides for death benefits payable to the surviving spouse equal to Mr. Brown's base salary for a period of one year. In addition, Mr. Spencer L. Brown and the Corporation entered into a Severance Agreement ("the Severance Agreement") on May 1, 2000. Under the Severance Agreement Mr. Brown is entitled to receive severance if following a change in control as defined in the Severance Agreement, such individual's employment is terminated by the Corporation without cause or by the executive within one year of such change in control, the individual shall be entitled to receive compensation in a lump sum payment equal to 1.5 times the individual's average compensation over the past five years. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT COMMON STOCK - The following table sets forth certain information with respect to beneficial ownership (as that term is defined in the rules and regulations of the Commission) of the Corporation's common stock as of February 28, 2001, by 1) each person who is known by the Corporation to be the beneficial owner of more than five percent of the outstanding common stock, 2) each director of the Corporation, 3) each current executive officer listed in the Summary Compensation Table and 4) all directors and executive officers of the Corporation as a group. Except as otherwise indicated, to the Corporation's knowledge, all shares are beneficially owned and investment and voting power is held as stated by the persons named as owners. The Corporation is not aware of any arrangement that may, at a subsequent date, result in a change of control of the Corporation. The address for all beneficial owners, unless stated otherwise below is c/o Franklin Capital Corporation 450 Park Avenue, Suite 1000, New York, NY 10022. AMOUNT AND NATURE OF NAME AND ADDRESS BENEFICIAL PERCENT OF BENEFICIAL OWNER OWNERSHIP OF CLASS -------------------- ---------- --------- The Prudential Insurance Company of America 211,557 19.3% 751 Broad Street Newark, NJ 07102 Stephen L. Brown 138,059 (1) 12.6% Peter D. Gottlieb 82,900 (2) 7.3% Irving Levine 46,375 (3) 4.1% Spencer L. Brown 32,944 (4) 3.0% Miles L. Berger 21,250 (5) 1.9% Jonathan A. Marshall 20,200 (6) 1.8% Hiram M. Lazar 8,048 (7) * Michael P. Rolnick 6,850 (5) * David T. Lender 300 * All officers and directors as a group (9 persons) 356,926 29.8% - ----------------------- * Less than 1.0% 40 (1) Does not include 5,023 shares owned by Mr. Brown's children and does not include 32,944 shares owned by Spencer L. Brown, who is also his son. See (4) below. Mr. Brown disclaims beneficial ownership of such shares. (2) Includes preferred stock held which is convertible into 3,750 shares of common stock. Also includes 44,400 shares of common stock and preferred stock which is convertible into 30,000 shares of common stock owned by Kuby Gottlieb Special Value Fund ("KGSV") and 3,750 shares of common stock owned by Kuby Gottlieb Investments ("KGI"). Mr. Gottlieb may be deemed to be a controlling person of KGSV and KGI due to his position as portfolio manager. Therefore, Mr. Gottlieb may be deemed to be a beneficial owner of all shares owned by KGSV and KGI. (3) Includes options for 2,500 shares exercisable on February 14, 2000, options for 625 shares exercisable on June 7, 2000, options for 2,500 shares exercisable on February 14, 2001 and options for 625 shares exercisable on June 7, 2001. Also includes preferred stock which is convertible into 35,625 shares of common stock owned by Copley Fund, Inc. ("Copley"). Mr. Levine may be deemed to be a controlling person of Copley due to his position as Chairman and Chief Executive Officer. Therefore, Mr. Levine may be deemed to be a beneficial owner of all shares owned by Copley. (4) Includes preferred stock held which is convertible into 1,875 shares of common stock. (5) Includes options for 2,500 shares exercisable on February 14, 2000, options for 625 shares exercisable on June 7, 2000, options for 2,500 shares exercisable on February 14, 2001 and options for 625 shares exercisable on June 7, 2001. (6) Includes options for 2,500 shares exercisable on February 14, 2000, options for 625 shares exercisable on June 7, 2000, options for 2,500 shares exercisable on February 14, 2001 and options for 625 shares exercisable on June 7, 2001. Also includes preferred stock held which is convertible into 3,750 shares of common stock. (7) Includes options for 937 shares exercisable on March 1, 2000, and options for 938 shares exercisable on March 1, 2001. Also includes preferred stock held which is convertible into 750 shares of common stock. PREFERRED STOCK - The following table sets forth certain information with respect to beneficial ownership (as that term is defined in the rules and regulations of the Commission) of the Corporation's preferred stock as of February 28, 2001, by 1) each person who is known by the Corporation to be the beneficial owner of more than five percent of the outstanding preferred stock, 2) each director of the Corporation, 3) each current executive officer listed in the Summary Compensation Table and 4) all directors and executive officers of the Corporation as a group. Except as otherwise indicated, to the Corporation's knowledge, all shares are beneficially owned and investment and voting power is held as stated by the persons named as owners. The Corporation is not aware of any arrangement that may, at a subsequent date, result in a change of control of the Corporation. The address for all beneficial owners, unless stated otherwise below is c/o Franklin Capital Corporation 450 Park Avenue, Suite 1000, New York, NY 10022. 41 AMOUNT AND NATURE OF NAME AND ADDRESS BENEFICIAL PERCENT OF BENEFICIAL OWNER OWNERSHIP OF CLASS ------------------- --------- -------- Irving Levine 4,750 (1) 28.9% Peter D. Gottlieb 4,500 (2) 27.3% Mark Rattner 2,000 (3) 12.2% c/o Professional Indemnity 37 Radio Circle Drive Mount Kisco, NY 10549 Gerry M. Ritterman 1,500 9.1% 47 Lawrence Farms Crossways Chappaqua, NY 10514 Jonathan A. Marshall 500 3.0% Spencer L. Brown 250 1.5% Hiram M. Lazar 100 * Miles L. Berger - * Stephen L. Brown - * David T. Lender - * Michael P. Rolnick - * All officers and directors as a group (9 persons) 10,100 61.4% ----------------------- * Less than 1.0% (1) Preferred stock owned by Copley Fund, Inc. ("Copley"). Mr. Levine may be deemed to be a controlling person of Copley due to his position as Chairman and Chief Executive Officer. Therefore, Mr. Levine may be deemed to be a beneficial owner of all shares owned by Copley. (2) Includes 4,000 shares of preferred stock owned by Kuby Gottlieb Special Value Fund ("KGSV"). Mr. Gottlieb may be deemed to be a controlling person of KGSV due to his position as portfolio manager. Therefore, Mr. Gottlieb may be deemed to be a beneficial owner of all shares owned by KGSV. (3) Includes 1,000 shares of preferred stock owned by Marshall Rattner, Inc. ("MRI"). Mr. Rattner may be deemed to be a controlling person of MRI due to his position as Chief Executive Officer. Therefore, Mr. Rattner may be deemed to be a beneficial owner of all shares owned by MRI. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See Items 10 through 12 and Footnote 6 to the Financial Statements. 42 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K The following financial statements are set forth under Item 8. (a) (1) Financial Statements Report of Ernst & Young, LLP Balance Sheets as of December 31, 2000 and 1999 Statements of Operations for the years ended December 31, 2000, 1999 and 1998 Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 Statements of Changes in Net Assets for the years ended December 31, 2000, 1999 and 1998 Financial Highlights for the years ended December 31, 2000, 1999, 1998, 1997 and 1996 Portfolio of Investments as of December 31, 2000 Notes to Financial Statements The following exhibits are filed herewith or incorporated as set forth below: (2) Exhibits (3) (i) Articles of Incorporation* (3) (ii) By-Laws* (3) (iii) Amendment to Articles of Incorporation (4) (i) Certificate of Designation (4) (ii) Registration Rights Agreement (4) (iii) Preferred Stock Purchase Agreement (10) (i) Employment Agreement - Stephen L. Brown (10) (ii) Employment Agreement - Spencer L. Brown (10) (iii) Severance Agreement - Stephen L. Brown (10) (iv) Severance Agreement - Spencer L. Brown (11) Computation of per share earnings are set forth in Footnote 8 of the 2000 Financial Statements as set forth in Item 8. (23) Consent of Ernst & Young, LLP (b) Reports on Form 8-K. The Corporation did not file any reports on Form 8-K during the last quarter of 2000. - -------------------------------------------------------------------------------- * Incorporated by reference to the Corporation's Form N-2, as amended, filed July 31, 1992. 43 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Corporation has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FRANKLIN CAPITAL CORPORATION Date: March 29, 2001 By: /s/ --------------------------------- Stephen L. Brown CHAIRMAN & CHIEF EXECUTIVE OFFICER Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Corporation in the capacities and on the dates indicated.
SIGNATURES TITLE DATE /s/ Chairman & March 29, 2001 - ----------------------------- Chief Executive Officer Stephen L. Brown /s/ Senior Vice President & March 29, 2001 - ----------------------------- Secretary Spencer L. Brown /s/ Chief Financial Officer March 29, 2001 - ----------------------------- Hiram M. Lazar /s/ Director March 29, 2001 - ----------------------------- Miles L. Berger /s/ Director March 29, 2001 - ----------------------------- Peter D. Gottlieb /s/ Director March 29, 2001 - ----------------------------- David T. Lender /s/ Director March 29, 2001 - ----------------------------- Irving Levine /s/ Director March 29, 2001 - ----------------------------- Jonathan A. Marshall /s/ Director March 29, 2001 - ----------------------------- Michael P. Rolnick
44 EX-3.(III) 2 c20374_ex14a23iii.txt AMENDMENT TO CERTIFICATE OF INCORPORATION Exhibit 14(a)(2)(3)(iii) CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF FRANKLIN CAPITAL CORPORATION THE UNDERSIGNED, being the Secretary of Franklin Capital Corporation (the "Corporation"), hereby certifies that: FIRST: The name of the Corporation is Franklin Capital Corporation SECOND: The original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on March 31, 1987. THIRD: Article four of said Certificate of Incorporation is hereby amended in its entirety as follows: The total number of shares of stock which the Corporation shall have authority to issue is Ten Million (10,000,000) shares consisting of Five Million (5,000,000) shares of common stock, and the par value of each such share is one dollar and Five Million (5,000,000) shares of Preferred Stock, and the par value of each such share is one dollar. The Board of Directors is expressly authorized to provide for the issuance of all or any shares of the Preferred Stock in one or more classes or series, and to fix for each such class or series such voting powers, full or limited, or no voting powers, and such distinctive designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issuance of such class or series and as may be permitted by the General Corporation Law of the State of Delaware, including, without limitation, the authority to provide that any such class or series may be (i) subject to redemption at such time or times and at such price or prices; (ii) entitled to receive dividends (which may be cumulative or non-cumulative) at such rates, on such conditions, and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or any other series; (iii) entitled to such rights upon the dissolution of, or upon any distribution of the assets of, the Corporation; or (iv) convertible into, or exchangeable for, shares of any other class or classes of stock, or of any other series of the same or any other class or classes of stock, of the Corporation at such price or prices or at such rates of exchange and with such adjustments; all as may be stated in such resolution or resolutions. FOURTH: The foregoing amendment was declared advisable and unanimously adopted by the board of directors of the Corporation on August 13, 1999 and approved by a majority of the stockholders of the Corporation at the annual meeting of the Corporation held on September 10, 1999. FIFTH: The forgoing amendment has been duly adopted in accordance with the provisions of Subchapter VIII, Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, Franklin Capital Corporation has caused this Certificate of Amendment to be issued this 18th day of February, 2000. FRANKLIN CAPITAL CORPORATION By: /s/ ------------------------- Spencer L. Brown Secretary 2 EX-4.(I) 3 c20374_ex14a24i.txt DESIGNATION OF PREFERRED STOCK EXHIBIT 14 (a)(2)(4)(i) CERTIFICATE OF DESIGNATION OF SERIES A CONVERTIBLE PREFERRED STOCK OF FRANKLIN CAPITAL CORPORATION ------------------------ Pursuant to Section 151 of the General Corporation Law of the State of Delaware ------------------------ Franklin Capital Corporation, a Delaware corporation (the "Company"), certifies that pursuant to the authority contained in its Certificate of Incorporation, as amended (the "Certificate of Incorporation"), and in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors of the Company at a meeting duly called and held on February 22, 2000 duly approved and adopted the following resolution, which resolution remains in full force and effect on the date hereof: RESOLVED, that pursuant to the authority vested in the Board of Directors by the Certificate of Incorporation, the Board of Directors does hereby designate, create, authorize and provide for the issue of a series of preferred stock having a par value of $1.00 per share, with a liquidation preference of $100 per share (the "Liquidation Preference"), which shall be designated as the Series A Convertible Preferred Stock (the "Preferred Stock"), consisting of 500,000 shares having the following voting powers, preferences and relative, participating, optional and other special rights, and qualifications, limitations and restrictions: 1. Ranking. The Preferred Stock shall, with respect to distributions upon the liquidation, winding-up and dissolution of the Company, rank (i) senior to all classes of Common Stock of the Company and to each other class of capital stock or series of preferred stock other than the Preferred Stock issued after the Initial Closing Date by the Board of Directors, the terms of which do not expressly provide that it ranks senior to or on a parity with the Preferred Stock as to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Company (collectively referred to with the Common Stock of the Company as "Junior Securities"); (ii) on a parity with any additional shares of Preferred Stock issued by the Company after the Initial Closing Date and any other class of capital stock or any additional series of preferred stock issued by the Company established after the Initial Closing Date by the Board of Directors, the terms of which expressly provide that such class or series will rank on a parity with the Preferred Stock as to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Company (collectively referred to as "Parity Securities"); and (iii) junior to each class of capital stock or series of preferred stock other than the Preferred Stock issued by the Company after the Initial Closing Date by the Board of Directors, the terms of which expressly provide that such class or series will rank senior to the Preferred Stock as to dividend distributions and distributions upon the liquidation, winding-up and dissolution of the Company (collectively referred to as "Senior Securities"). Notwithstanding the foregoing, a security shall not be deemed to be a "Senior Security" solely because such security has a stated dividend or interest coupon. 2. Dividends. (a) So long as any shares of Preferred Stock shall be outstanding, the holders of such Preferred Stock shall be entitled to receive out of any funds legally available therefor, when, as and if declared by the Board of Directors of the Company, preferential dividends in cash at a rate of 7% per annum on the Liquidation Preference hereunder, payable quarterly on the first Business Day of each calendar quarter on a pro rata basis with any Parity Securities. Such dividends shall be cumulative and begin to accrue from the date of issuance of such shares, whether or not declared and whether or not there shall be net profits or net assets of the Company legally available for the payment of those dividends. (b) So long as any shares of Preferred Stock shall be outstanding, no dividend whatsoever (except a dividend payable in Common Stock) shall be paid or declared, no distribution shall be made, on account of any Junior Securities of the Company and no Junior Securities shall be purchased unless (i) all dividends in respect of the Preferred Stock for all past and current dividend periods have been paid and all amounts in respect of the redemption of the Preferred Stock required to be paid herein have been paid in full and (ii) such Junior Securities have an "asset coverage" (as such term is used under the Investment Company Act of 1940, as amended (the "Investment Company Act")) of at least 200 percent after deducting the amount of such dividend, distribution or purchase price, as the case may be. 2 3. Conversion Rights. (a) Optional Conversion of Preferred Stock into Common Stock. A holder of shares of Preferred Stock may, commencing on or after the date hereof and prior to the tenth anniversary of the Initial Closing Date, convert such shares into Common Stock at any time, unless previously redeemed, at the option of the holder thereof. The Preferred Stock will cease to be convertible after the tenth anniversary of the Initial Closing Date. For the purposes of conversion, each share of Preferred Stock shall be valued at the Liquidation Preference, which shall be divided by the greater of $20 or a rate equal to 15% above the average closing price for the ten consecutive Trading Days prior to the Initial Closing Date (the "Conversion Rate") to determine the number of shares of Common Stock issuable upon conversion. Immediately following such conversion, the rights of the holders of converted Preferred Stock shall cease and the persons entitled to receive the Common Stock upon the conversion of Preferred Stock shall be treated for all purposes as having become the owners of such Common Stock. (b) Mechanics; Transfer Tax; Conversion Rate (i) To convert the Preferred Stock, a holder must (A) surrender the certificate or certificates evidencing the shares of Preferred Stock to be converted, duly endorsed in a form satisfactory to the Company, at the office of the Company or Transfer Agent for the Preferred Stock, (B) notify the Company at such office that holder elects to convert the Preferred Stock and the number of shares holder wishes to convert, (C) state in writing the name or names in which holder wishes the certificate or certificates for shares of Common Stock to be issued, and (D) pay any transfer or similar tax if required by clause (iii) below. In the event that holder fails to notify the Company of the number of shares of Preferred stock which holder wishes to convert, holder shall be deemed to have elected to convert all shares represented by the certificate or certificates surrendered for conversion. The date on which holder satisfies all those requirements is the "Conversion Date." As soon as practicable thereafter, the Company shall deliver a certificate for the number of full shares of Common Stock issuable upon the conversion, and a new certificate representing the unconverted portion, if any, of the shares of Preferred Stock represented by the certificate or certificates surrendered for conversion. The person in whose name the Common Stock certificate is registered shall be treated as the stockholder of record on and after the Conversion Date. (ii) The Company shall not issue any fractional shares of Common Stock upon conversion of the Preferred Stock. Instead the Company shall pay a cash adjustment based upon the closing price of the Common Stock on the principal securities exchange on which the Common Stock is then listed on the Business Day prior to the Conversion Date. (iii) If a holder converts shares of Preferred Stock, the Company shall pay any documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock 3 upon the conversion. However, the holder shall pay any such tax that is due because the shares are issued in a name other than the holder's name. (iv) The Company has reserved and shall continue to reserve out of its authorized but unissued Common Stock or its Common Stock held in treasury enough shares of Common Stock to permit the conversion, in full, of the Preferred Stock to Common Stock. All shares of Common Stock that may be issued upon conversion of the Preferred Stock shall be fully paid and nonassessable. The Company shall endeavor to comply with all securities laws regulating the offer and delivery of shares of Common Stock upon conversion of the Preferred Stock and shall endeavor to list such shares of Common Stock on each national securities exchange or automated quotation system on which the Common Stock is listed. (v) In case the outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Conversion Rate shall be reduced, and, conversely, in case the outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Conversion Rate shall be increased by the product of the Conversion Rate and a fraction the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such subdivision or combination, as the case may be, and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such subdivision or combination, as the case may be. Such reduction or increase, as the case may be, shall become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (vi) If the Company at any time while the Preferred Stock, or any portion thereof, remains outstanding, shall change any of the securities as to which conversion rights under this Certificate of Designation exist into the same or a different number of securities of any other class or classes, the Preferred Stock shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities that were subject to the conversion rights under this Certificate of Designation immediately prior to such reclassification or other change and the Conversion Rate of the Preferred Stock shall be appropriately adjusted. (vii) Shares issuable on conversion of shares of Preferred Stock shall include only shares of the class designated as Common Stock of the Company on the Initial Closing Date or shares of any class or classes resulting from any reclassification thereof and which have no preferences in respect of dividends or amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the Company and which are not subject to redemption by the Company; provided that, if at any time there shall be more than one such resulting class, the shares of each such class then so issuable shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications. 4 (viii) No adjustment in the Conversion Rate shall reduce the Conversion Rate below the then par value of the Common Stock. (ix) Whenever the Conversion Rate is adjusted, the Company shall promptly mail to holders of Preferred Stock, first class, postage prepaid, a notice of the adjustment. The Company shall file with the Transfer Agent for the Preferred Stock, if any, a certificate from the Company's chief financial officer briefly stating the facts requiring the adjustment and the manner of computing it. In the event of any dispute thereon, the opinion of the Company's independent public accountants, if accepted by the Board of Directors of the Company, shall be conclusive and binding on the holders of the Preferred Stock absent manifest error. (x) The Company from time to time may reduce the Conversion Rate if it considers such reductions to be advisable in order that any event treated for federal income tax purposes as a dividend of stock or stock rights will not be taxable to the holders of Common Stock by any amount. (xi) If: (A) the Company takes any action which would require an adjustment in the Conversion Rate pursuant to paragraph 3(b)(v) or 3(b)(vi) above; (B) the Company consolidates or merges with, or transfers all or substantially all of its assets to, another corporation (other than a wholly owned subsidiary of the Company), and stockholders of the Company must approve the transaction; or (C) there is a dissolution or liquidation of the Company; the Company shall mail to the holders of the Preferred Stock, first class, postage prepaid, a notice stating the proposed record or effective date, as the case may be. The Company shall mail the notice at least 10 days before such date. However, failure to mail the notice or any defect in it shall not affect the validity of any transaction referred to in clause (A), (B) or (C) of this paragraph 3(b)(xi). (xii) In the case of any consolidation of the Company or the merger of the Company with or into any other entity or the sale or transfer of all or substantially all the assets of the Company pursuant to which the Common Stock is converted into other securities, cash or assets, then, upon consummation of such transaction, each share of Preferred Stock shall automatically become convertible into the kind and amount of securities, cash or other assets receivable upon the consolidation, merger, sale or transfer by a holder of the number of shares of Common Stock into which such share of Preferred Stock might have been converted immediately prior to such consolidation, merger, transfer or sale (assuming such holder of Common Stock failed to exercise any rights of election and received per share the kind and amount of consideration receivable per share by a plurality of non electing shares). Appropriate 5 adjustment (as determined by the Board of Directors of the Company) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the holders of Preferred Stock, to the end that the provisions set forth herein (including provisions with respect to changes in and other adjustment of the Conversion Rate) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other securities or property thereafter deliverable upon the conversion of Preferred Stock. If this paragraph 3(b)(xii) applies, paragraph 3(b)(v) and 3(b)(vi) do not apply. (xiii) In any case in which this paragraph 3 shall require that an adjustment as a result of any event becomes effective from and after a record date, the Company may elect to defer until after the occurrence of such event the issuance to the holder of any shares of Preferred Stock converted after such record date and before the occurrence of such event of the additional shares of Common Stock issuable upon such conversion over and above the shares issuable on the basis of the Conversion Rate in effect immediately prior to adjustment; provided, however, that if such event shall not have occurred and authorization of such event shall be rescinded by the Company, the Conversion Rate shall be recomputed immediately upon such rescission to the price that would have been in effect had such event not been authorized, provided that such rescission is permitted by and effective under applicable laws. 4. Liquidation Preference. Upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company or reduction or decrease in its capital stock resulting in a distribution of assets to the holders of any class or series of the Company's capital stock, each holder of shares of the Preferred Stock will be entitled to payment out of the assets of the Company available for distribution of an amount equal to the Liquidation Preference per share of Preferred Stock held by such holder, plus accrued and unpaid dividends, if any, to the date fixed for liquidation, dissolution, winding-up or reduction or decrease in capital stock, before any distribution is made on any Junior Securities, including, without limitation, Common Stock of the Company. After payment in full of the Liquidation Preference and all accrued and unpaid dividends, if any, to which holders of Preferred Stock are entitled, such holders will not be entitled to any further participation in any distribution of assets of the Company. If, upon any voluntary or involuntary liquidation, dissolution or winding-up of the Company, the amounts payable with respect to the Preferred Stock and all other Parity Securities are not paid in full, the holders of the Preferred Stock and the Parity Securities will share equally and ratably in any distribution of assets of the Company in proportion to the full liquidation preference and accumulated and unpaid dividends, if any, to which each is entitled. However, neither the voluntary sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the property or assets of the Company nor the consolidation or merger of the Company with or into one or more Persons will be deemed to be a voluntary or involuntary liquidation, dissolution or winding-up of the Company or reduction or decrease in capital stock, unless such sale, conveyance, exchange or transfer shall be in connection with a liquidation, dissolution or winding-up of the business of the Company or reduction or decrease in capital stock. 6 5. Redemptions. (a) The Preferred Stock shall not be redeemed by the Company prior to the first anniversary of the Initial Closing Date. (b) The Preferred Stock may be redeemed by the Company at any time on or after the one year anniversary of the Initial Closing Date, in whole or in part, on a pro rata basis, if at any time on or after the Initial Closing Date the average trading price of the Common Stock for at least twenty days during any thirty consecutive Trading Days is equal to or in excess of 150% of the Conversion Rate, provided, however, that the holders of the Preferred Stock shall have the right, up until 5 p.m., New York time, on the third Business Day preceding the Redemption Date to convert the Preferred Stock to Common Stock at the Conversion Rate. If any holder fails to convert the Preferred Stock during the period contemplated above, the Company may redeem the Preferred Stock in cash at a price per share equal to the Liquidation Preference plus any accrued and unpaid dividends thereon through to the date of such redemption plus any dividends which were scheduled to accrue thereon up through the end of the calendar year of such redemption. (c) The Preferred Stock may be redeemed by the Company at any time on or after the three year anniversary of the Initial Closing Date (whether or not the circumstances described in subparagraph (b) shall have occurred prior to such time), at a redemption price in cash equal to the Liquidation Preference per share of Preferred Stock plus any accrued and unpaid dividends thereon through the date of such redemption. (d) At least 15 Business Days prior to the date fixed for any redemption of the Preferred Stock (the "Redemption Date"), written notice (the "Redemption Notice") shall be given by first-class mail, postage prepaid, to each holder of record on the record date fixed for such redemption of the Preferred Stock at such holder's address as the same appears on the stock register of the Company, provided that failure to give such notice or any deficiency therein shall not affect the validity of the procedure for the redemption of any shares of Preferred Stock to be redeemed except as to the holder or holders to whom the Company has failed to give said notice or except as to the holder or holders whose notice was defective. The Redemption Notice shall state: (i) whether the redemption is pursuant to subparagraph (b) or (c) hereof; (ii) the redemption price; (iii) whether all or less than all the outstanding shares of the Preferred Stock are to be redeemed and the total number of shares of the Preferred Stock being redeemed; (iv) the number of shares of Preferred Stock held, as of the appropriate record date, by the holder that the Company intends to redeem; (v) the Redemption Date; 7 (vi) that the holder has the right to convert the Preferred Stock to Common Stock until 5 p.m., New York time, on the third Business Day preceding the Redemption Date by complying with the provisions of Section 3 hereof; (vii) that the holder is to surrender to the Company, at the place or places where certificates for shares of Preferred Stock are to be surrendered for redemption, in the manner and at the price designated, its certificate or certificates representing the shares of Preferred Stock to be redeemed; and (viii) that dividends on the shares of the Preferred Stock to be redeemed shall cease to accrue on the Redemption Date unless the Company defaults in the payment of the redemption price. (e) Each holder of Preferred Stock shall surrender the certificate or certificates representing such shares of Preferred Stock to the Company, duly endorsed, in the manner and at the place designated in the Redemption Notice and on the date of redemption. The full redemption price for such shares of Preferred Stock shall be payable in cash to the Person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be canceled and retired. In the event that less than all of the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. (f) Unless the Company defaults in the payment in full of the applicable redemption price, dividends on the Preferred Stock called for redemption shall cease to accumulate on the Redemption Date, and the holders of such redeemed shares shall cease to have any further rights with respect thereto from and after the Redemption Date, other than the right to receive the redemption price, without interest. 6. Voting Rights. (a) The holders of Preferred Stock shall be entitled to notice of all stockholders meetings in accordance with the Company's bylaws and the Delaware General Corporation Law (the "DGCL"), and except as otherwise required by applicable law, the holders of the Preferred Stock shall be entitled to vote on all matters submitted to the stockholders for a vote, voting together with the holders of the Common Stock as a single class, with each share of Preferred Stock entitled to one vote per share. (b) The holders of the Preferred Stock, voting separately as one class, shall have the right to elect (i) two directors at all times during which the Preferred Stock is outstanding and (ii) a majority of the directors, if at any time dividends on the Preferred Stock shall be unpaid in an amount equal to two full years' dividends on such securities, and to continue to be so represented until all dividends in arrears shall have been paid or otherwise provided for (subject, however to the prior rights, if any, of the holders of any class of Senior Securities outstanding.) If any 8 vacancies shall exist in the offices of directors elected by the holders of the Preferred Stock, such vacancy shall be filled as follows: (i) Upon the written request of the holders of record of at least 25% of the shares of Preferred Stock then outstanding addressed to the Secretary of the Company, a proper officer of the Company shall call a special meeting of the holders of Preferred Stock for the purpose of electing the directors which such holders are entitled to elect. If such meeting shall not be called by the proper officer of the Company within 30 days after personal service of said written request upon the Secretary of the Company, or within 30 days after mailing the same within the United States by certified mail, addressed to the Secretary of the Company at its principal executive offices, then the holders of record of at least 25% of the outstanding shares of the Preferred Stock may designate in writing one of their number to call such meeting at the expense of the Company, and such meeting may be called by the Person so designated upon the notice required for the annual meetings of stockholders of the Company and shall be held at the place for holding the annual meetings of stockholders or such other place in the United States as shall be designated in such notice. Notwithstanding the provisions of this subparagraph, no such special meeting shall be called if any such request is received less than 60 days before the date fixed for the next ensuing annual or special meeting of stockholders of the Company. Any holder of shares of the Preferred Stock so designated shall have, and the Company shall provide, access to the lists of holders of shares of the Preferred Stock for purposes of calling a meeting pursuant to the provisions of this subparagraph. (ii) At any meeting held for the purpose of electing directors at which the holders of Preferred Stock shall have the right to elect directors, the presence in person or by proxy of the holders of at least a majority of the holders of the Preferred Stock present at such meeting, or represented by proxy, shall have the right to elect directors. (iii) Any vacancy occurring in the office of a director elected by the holders of the Preferred Stock may be filled by the remaining director elected by such holders unless and until such vacancy shall be filled by such holders. (c) The Company shall not, without the affirmative vote or consent of the holders of at least a majority of the shares of Preferred Stock then outstanding voting as one class: (i) amend or otherwise alter this Certificate of Designation or the Certificate of Incorporation in any manner that under the DGCL or the Investment Company Act requires the prior vote as a separate class of the holders of Preferred Stock; (ii) take any action which detracts from the voting powers, preferences and relative, participating, optional and other special rights, and qualifications, limitations, and restrictions of the Preferred Stock; provided, however, that the Company shall be entitled, without the consent of any holders of Preferred Stock, to make additional issuances of Preferred Stock, Senior Securities, Parity Securities or Junior Securities; 9 (iii) waive compliance with any provision of this Certificate of Designation; or (iv) complete any plan of reorganization adversely affecting the Preferred Stock or take any of the actions enumerated in Section 13(a) of the Investment Company Act. (d) Without the consent of each holder affected, an amendment or waiver of the Company's Certificate of Incorporation or of this Certificate of Designation may not (with respect to any shares of Preferred Stock held by a non-consenting holder): (i) alter the voting rights with respect to the Preferred Stock or reduce the number of shares of Preferred Stock whose holders must consent to an amendment, supplement or waiver; (ii) reduce the Liquidation Preference or alter the provisions with respect to the redemption of the Preferred Stock; (iii) alter in any manner the conversion rights of the holders of Preferred Stock set forth in paragraph 3 hereof; (iv) reduce the rate of or change the time for payment of dividends on any share of Preferred Stock; (v) waive the consequences of any failure to pay dividends on the Preferred Stock; (vi) make any share of Preferred Stock payable in any form other than as stated in this Certificate of Designation; (vii) make any change in the provisions of this Certificate of Designation relating to waivers of the rights of holders of Preferred Stock to receive the Liquidation Preference and dividends on the Preferred Stock; (viii) waive a redemption payment with respect to any share of Preferred Stock; or (ix) make any change in the foregoing amendment and waiver provisions. (e) The Company in its sole discretion may without the vote or consent of any holders of the Preferred Stock amend or supplement this Certificate of Designation: (i) to cure any ambiguity, defect or inconsistency in any manner that does not adversely affect the holders of Preferred Stock; 10 (ii) to provide for uncertificated Preferred Stock in addition to or in place of certificated Preferred Stock; or (iii) to make any change that would provide any additional rights or benefits to the holders of the Preferred Stock or that does not adversely affect the rights under this Certificate of Designation of any such holder. 7. Exclusion of Other Rights. Except as may otherwise be required by law, the shares of Preferred Stock shall not have any voting powers, preferences and relative, participating, optional or other special rights, other than those specifically set forth in this resolution (as such resolution may be amended from time to time) and in the Certificate of Incorporation. The shares of Preferred Stock shall have no preemptive or subscription rights. 8. Headings of Subdivisions. The headings of the various subdivisions hereof are for convenience of reference only and shall not affect the interpretation of any of the provisions hereof. 9. Severability of Provisions. If any voting powers, preferences and relative, participating, optional and other special rights of the Preferred Stock and qualifications, limitations and restrictions thereof set forth in this resolution (as such resolution may be amended from time to time) is invalid, unlawful or incapable of being enforced by reason of any rule of law or public policy, all other voting powers, preferences and relative, participating, optional and other special rights of Preferred Stock and qualifications, limitations and restrictions thereof set forth in this resolution (as so amended) which can be given effect without the invalid, unlawful or unenforceable voting powers, preferences and relative, participating, optional or other special rights of Preferred Stock and qualifications, limitations and restrictions thereof shall, nevertheless, remain in full force and effect and no voting powers, preferences and relative, participating, optional or other special rights of Preferred Stock and qualifications, limitations and restrictions thereof herein set forth shall be deemed dependent upon any other such voting powers, preferences and relative, participating, optional or other special rights of Preferred Stock and qualifications, limitations and restrictions thereof unless so expressed herein. 10. Re-issuance of Preferred Stock. Shares of Preferred Stock that have been issued and reacquired in any manner, including shares purchased or redeemed or exchanged or converted, shall (upon compliance with any applicable provisions of the laws of Delaware) have the status of authorized but unissued shares of preferred stock of the Company undesignated as to series and may be designated or re-designated and issued or reissued, as the case may be, as part of any series of preferred stock of 11 the Company, provided that any issuance of such shares as Preferred Stock must be in compliance with the terms hereof. 11. Mutilated or Missing Preferred Stock Certificates. If any of the Preferred Stock certificates shall be mutilated, lost, stolen or destroyed, the Company shall issue, in exchange and in substitution for and upon cancellation of the mutilated Preferred Stock certificate, or in lieu of and substitution for the Preferred Stock certificate lost, stolen or destroyed, a new Preferred Stock certificate of like tenor and representing an equivalent amount of shares of Preferred Stock, but only upon receipt of evidence of such loss, theft or destruction of such Preferred Stock certificate and indemnity, if requested, satisfactory to the Company and the Transfer Agent (if other than the Company). 12. Certain Definitions. As used in this Certificate of Designation, the following terms shall have the following meanings (with terms defined in the singular having comparable meanings when used in the plural and vice versa), unless the context otherwise requires: "Business Day" means any day except a Saturday, a Sunday, or any day on which banking institutions in New York, New York are required or authorized by law or other governmental action to be closed. "Initial Closing Date" means the date on which the first shares of Preferred Stock are originally issued by the Company under this Certificate of Designation pursuant to that certain Preferred Stock Purchase Agreement dated February 22, 2000 between the Company and the signatories thereto. "Common Stock" means the Common Stock, par value $1.00 per share, of the Company as presently constituted. "Conversion Date shall have the meaning set forth in Section 3(b)(i). "Conversion Rate" shall have the meaning set forth in Section 3(a). "Person" shall include without limitation an individual, a partnership, a company, an association, a joint stock company, a limited liability company, a trust, a joint venture, an unincorporated organization and a governmental authority. "Trading Day" means any day on which the American Stock Exchange or other applicable stock exchange or market is open for business. "Transfer Agent" shall be the Company unless and until a successor is selected by the Company. 12 IN WITNESS WHEREOF, the Company has caused this certificate to be duly executed by Spencer L. Brown, Secretary of the Company, this 22nd day of February, 2000. FRANKLIN CAPITAL CORPORATION By: /s/ ---------------------------- Spencer L. Brown Secretary 13 EX-4.(II) 4 c20374_ex14a24ii.txt REGISTRATION RIGHTS AGREEMENT EXHIBT 14 (a)(2)(4)(ii) REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT, dated as of February 22, 2000, among Franklin Capital Corporation, a Delaware corporation (the "Company"), and the other undersigned parties hereto (collectively, with the purchasers that execute the Joinder Agreement referred to below, the "Holders"). 1. INTRODUCTION. The Company and the Holders are, parties to the Preferred Stock Purchase Agreement (the "Stock Purchase Agreement") in the form set forth in Exhibit A pursuant to which the Company has agreed, among other things, to issue to each of the Holders the number of shares of its Class A Convertible Preferred Stock, par value $1.00 per share (the "Preferred Stock") which is set forth on the signature page to such Exhibit. The Company also may enter into similar preferred stock purchase agreements after the date hereof for the purchase of Preferred Stock with certain other parties (the "Other Purchase Agreements" and such agreements collectively with the Stock Purchase Agreement, the "Stock Purchase Agreements"). In connection with the consummation of those closings under the Other Purchase Agreements, each of the purchasers thereunder shall sign a joinder agreement in the form attached hereto as Exhibit B (each such agreement, a "Joinder Agreement"), pursuant to which such party will become a party to this agreement as a Holder of Registrable Securities. Pursuant to the terms of the Certificate of Designation with respect to the Preferred Stock (the "Certificate of Designation"), the Preferred Stock is convertible into shares of the Company's common stock, par value $1.00 per share (the "Common Stock"). Certain capitalized terms used in this Agreement are defined in section 3 hereof; references to a "section" shall be to one of the sections of this Agreement. 2. REGISTRATION UNDER SECURITIES ACT, ETC. 2.1 REGISTRATION ON REQUEST. (a) REQUEST. At any time prior to the second anniversary of the Closing Date, upon the written request of one or more Initiating Holders, requesting that the Company effect the registration under the Securities Act of all or part of such Initiating Holders' Registrable Securities, and specifying the intended method of disposition thereof, the Company will promptly give written notice of such requested registration to all registered holders of Registrable Securities, and thereupon the Company will, subject to the terms of this Agreement, use commercially reasonable efforts to effect the registration under the Securities Act of: (i) the Registrable Securities which the Company has been so requested to register by such Initiating Holders for disposition in accordance with the intended method of disposition stated in such request unless, an underwritten offering is requested, the Company is unable, after good faith efforts, to engage a nationally recognized investment bank to act as underwriter for such offering; (ii) all other Registrable Securities the holders of which shall have made a written request to the Company for registration thereof within 15 days after the giving of such written notice by the Company (which request shall specify the intended method of disposition of such Registrable Securities); and (iii) all shares of Common Stock which the Company or other holders of the Company's Common Stock having registration rights may elect to register in connection with the offering of Registrable Securities pursuant to this Section 2.1, all to the extent required to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities and the additional shares of Common Stock, if any so to be registered; provided, that the Company shall not be required to effect any registration requested by Initiating Holders pursuant to this Section 2.1 (x) on more than one occasion (y) if the Registrable Securities requested to be registered are eligible for resale pursuant to Rule 144 under the Securities Act and (z) unless the Holders have requested the sale of shares of Registrable Securities that have a fair market value (based upon the closing price of such Registrable Securities quoted on the securities exchange or over-the-counter quotation system on which such Registrable Securities are listed or quoted, as the case may be, on the trading day immediately preceding any request pursuant to this Section 2.1) of at least $1,000,000. (b) REGISTRATION STATEMENT FORM. Registrations under this Section 2.1 shall be on such appropriate registration form of the Commission as shall permit the disposition of such Registrable Securities in accordance with the intended method or methods of disposition specified in their request for such registration and as shall be permitted under the Securities Act; provided, that such form shall not indicate that the securities to be registered thereunder are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act. (c) EXPENSES. The Company will pay all Registration Expenses in connection with any registration requested pursuant to this Section 2.1 by any Initiating Holders. All other expenses (including underwriting discounts, commissions and transfer taxes, if any and attorney fees for the Initiating Holders) in connection with each other registration requested under this Section 2.1 shall be allocated pro rata among all Persons on whose behalf securities of the Company are included in such registration, on the basis of the respective amounts of the securities then being registered on their behalf. (d) EFFECTIVE REGISTRATION STATEMENT. A registration requested pursuant to this Section 2.1 shall not be deemed to have been effected (i) unless a 2 registration statement with respect thereto has become effective, provided that a registration which does not become effective after the Company has filed a registration statement with respect thereto by reason of the refusal to proceed of the Initiating Holders (other than a refusal to proceed based upon the written advice of counsel relating to a matter with respect to the Company) shall be deemed to have been effected by the Company at the request of such Initiating Holders (ii) if, after it has become effective, such registration becomes subject to any stop order, injunction or other order or requirement of the Commission or other governmental agency or court for any reason, other than by reason of some act or omission by such Initiating Holders with respect thereto, (iii) if the conditions to closing specified in the purchase agreement or underwriting agreement entered into in connection with such registration are not satisfied, other than by reason of some act or omission by such Initiating Holders or (iv) if the sale of the securities is not consummated due to the lack of agreement between the Initiating Holders and the underwriters with respect to the underwriting discount on the securities to be sold. (e) SELECTION OF UNDERWRITERS. If a requested registration pursuant to this Section 2.1 involves an underwritten offering, the managing or lead underwriter, and any co-managing and co-lead underwriters shall be selected by the Company. (f) PRIORITY IN REQUESTED REGISTRATIONS. If a requested registration pursuant to this Section 2.1 involves an underwritten offering, and the managing underwriter shall advise the Company that, in its opinion, the number of securities requested to be included in such registration (including Common Stock of the Company or other Persons which are not Registrable Securities) exceeds the number which can be sold in such offering within a price range acceptable to the holders of a majority of the Registrable Securities requested to be included in such registration, the Company will include in such registration, to the extent of the number which the Company is so advised can be sold in such offering, (i) first, Registrable Securities requested to be included in such registration by the holder or holders of Registrable Securities, and the holder or Holders of any other similar registration rights which hold shares of capital stock of the Company that rank senior or pari passu to the Preferred Stock, pro rata among such holders requesting such registration on the basis of the number of such securities requested to be included by such holders, (ii) second, Common Stock the Company proposes to sell and (iii) third, Common Stock of the Company held by other Persons having registration rights, other than as contemplated in sub-clause (i) above proposed to be included in such registration by the holders thereof. Notwithstanding the foregoing, in connection with any requested registration pursuant to this Section 2.1, the Company shall in all events be entitled to register and sell up to 25% of the total number of shares of Common Stock to be registered. 3 2.2 INCIDENTAL REGISTRATION. (a) RIGHT TO INCLUDE REGISTRABLE SECURITIES. If the Company at any time prior to the second anniversary of the Closing Date proposes to register any of its securities under the Securities Act (other than by a registration on Form S-4 or any successor form, Form S-8, or any successor form thereto, relating to a stock option plan, stock purchase plan, managing directors' plan, savings or similar plan and other than pursuant to Section 2.1), whether or not for sale for its own account, it will each such time give prompt written notice to all holders of Registrable Securities of its intention to do so and of such holders' rights under this Section 2.2. Upon the written request of any such holder made within 10 Business Days after the receipt of any such notice (which request shall specify the number of Registrable Securities intended to be disposed of by such holder and the intended method of disposition thereof), the Company will, subject to the terms of this Agreement, use commercially reasonable efforts to effect the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the holders thereof, to the extent required to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities so to be registered, by inclusion of such Registrable Securities in the registration statement which covers the securities which the Company proposes to register, provided that if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason either not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to each holder of Registrable Securities and, thereupon, (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration, without prejudice, however, to the rights of any holder or holders of Registrable Securities entitled to do so to request that such registration be effected as a registration under Section 2.1, and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities, for the same period as the delay in registering such other securities. No registration effected under this Section 2.2 shall relieve the Company of its obligation to effect any registration upon request under Section 2.1, nor shall any such registration hereunder be deemed to have been effected pursuant to Section 2.1. The Company will pay all Registration Expenses in connection with each registration of Registrable Securities requested pursuant to this Section 2.2. (b) PRIORITY IN INCIDENTAL REGISTRATIONS. If the Company at any time proposes to register any of its securities under the Securities Act as contemplated by this Section 2.2 and such securities are to be distributed by or through one or more underwriters, the Company will, if requested by any holder of Registrable Securities use commercially reasonable efforts to arrange for such underwriters to include all the Registrable Securities to be offered and sold by such holder among the securities to be distributed by such underwriters, PROVIDED that if the managing underwriter of such 4 underwritten offering shall inform the holders of the Registrable Securities requesting such registration the holders of any Common Stock or other securities of the Company which shall have exercised, in respect of such underwritten offering, registration rights comparable to the rights under this Section 2.2, by letter of its belief that inclusion in such underwritten distribution of all or a specified number of such Registrable Securities or of such other securities of the Company so requested to be included would interfere with the successful marketing of the securities so being registered (other than such Registrable Securities, Common Stock or other securities of the Company so requested to be included) by the underwriters (such writing to state the basis of such belief and the approximate number of such Registrable Securities, shares of Common Stock or other securities of the Company so requested to be included which may be included in such underwritten offering without such effect), then the Company may, upon written notice to all holders of such Registrable Securities, and holders of Common Stock or other securities of the Company so requested to be included, exclude pro rata from such underwritten offering (if and to the extent stated by such managing underwriter to be necessary to eliminate such effect) the number of such Registrable Securities, and shares of such Common Stock or other securities of the Company so requested to be included the registration of which shall have been requested by each holder of Registrable Securities, and by the holders of such Common Stock or other securities of the Company so that the resultant aggregate number of such Registrable Securities and of such other shares of Common Stock or other securities of the Company so requested to be included which are included in such underwritten offering shall be equal to the approximate number of shares stated in such managing underwriter's letter. 2.3 REGISTRATION PROCEDURES. If and whenever the Company is required to use commercially reasonable efforts to effect the registration of any Registrable Securities under the Securities Act as provided in Sections 2.1 and 2.2, the Company shall, as expeditiously as possible: (i) prepare and file with the Commission the requisite registration statement to effect such registration (including such audited financial statements as may be required by the Securities Act or the rules and regulations promulgated thereunder) and thereafter use commercially reasonable efforts to cause such registration statement to become and remain effective, provided however that the Company may discontinue any registration of its securities which are not Registrable Securities (and, under the circumstances specified in Section 2.2(a), its securities which are Registrable Securities) at any time prior to the effective date of the registration statement relating thereto, and provided further that before filing such registration statement or any amendments thereto, the Company will furnish to the counsel selected by the holders of Registrable Securities which are to be included in such registration copies of all such documents proposed to be filed, which documents will be subject to the review, but not the prior approval, of such counsel; 5 (ii) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement until the earlier of such time as all of such securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement or (i) in the case of a registration pursuant to Section 2.1, the expiration of 90 days after such registration statement becomes effective, or (ii) in the case of a registration pursuant to Section 2.2, the expiration of 30 days after such registration statement becomes effective; (iii) furnish to each seller of Registrable Securities covered by such registration statement and each underwriter, if any, of the securities being sold by such seller such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and such other documents, as such seller and underwriter, if any, may reasonably request; (iv) use commercially reasonable efforts to register or qualify all Registrable Securities and other securities covered by such registration statement under such other securities laws or blue sky laws of such jurisdictions as any seller thereof and any underwriter of the securities being sold by such seller shall reasonably request, to keep such registrations or qualifications in effect for so long as such registration statement remains in effect, and take any other action which may be reasonably necessary or advisable to enable such seller and underwriter to consummate the disposition in such jurisdictions of the securities owned by such seller, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this subdivision (iv) be obligated to be so qualified, to subject itself to taxation in any such jurisdiction or to consent to general service of process in any such jurisdiction; (v) notify the holders of Registrable Securities and the managing underwriter or underwriters, if any, promptly and confirm such advice in writing promptly thereafter: (a) when the registration statement, the 6 prospectus or any prospectus supplement related thereto or post-effective amendment to the registration statement has been filed, and, with respect to the registration statement or any post-effective amendment thereto, when the same has become effective; (b) of any request by the Commission for amendments or supplements to the registration statement or the prospectus or for additional information; (c) of the issuance by the Commission of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings by any Person for that purpose; and (d) of the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the securities or blue sky laws of any jurisdiction or the initiation or threat of any proceeding for such purpose; and (vi) notify each seller of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon the discovery that, or upon the happening of any event as a result of which, the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and at the request of any such seller promptly prepare and furnish to such seller and each underwriter, if any, a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; (vii) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the registration statement at the earliest possible moment; (viii) otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first full calendar month after the effective 7 date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder, and will furnish to each such seller at least five business days prior to the filing thereof a copy of any amendment or supplement to such registration statement or prospectus and shall not file any thereof to which any such seller shall have reasonably objected on the grounds that such amendment or supplement does not comply in all material respects with the requirements of the Securities Act or of the rules or regulations thereunder; (ix) provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by such registration statement from and after a date not later than the effective date of such registration statement; (x) use commercially reasonable efforts to list all Registrable Securities covered by such registration statement on any securities exchange on which any of the securities of the same class as the Registrable Securities are then listed; and (xi) use commercially reasonable efforts to provide a CUSIP number for the Registrable Securities, not later than the effective date of the registration statement. The Company may require each seller of Registrable Securities as to which any registration is being effected to furnish the Company such information regarding such seller and the distribution of such securities as the Company may from time to time reasonably request in writing. The Company will not file any registration statement or amendment thereto or any prospectus or any supplement thereto (including such documents incorporated by reference and proposed to be filed after the initial filing of the registration statement) to which the holders of at least a majority of the Registrable Securities covered by such registration statement or the underwriter or underwriters, if any, shall reasonably object, provided that the Company may file such document in a form required by law or upon the advice of its counsel. Each holder of Registrable Securities agrees by acquisition of such Registrable Securities that, upon receipt of any notice from the Company of the occurrence of any event of the kind described in subdivision (vi) of this Section 2.3, such holder will forthwith discontinue such holder's disposition of Registrable Securities pursuant to the registration statement relating to such Registrable Securities until such holder's receipt of the copies of the supplemented or amended prospectus contemplated by subdivision (vi) of this Section 2.3 and, if so directed by the Company, will deliver to the Company (at the 8 Company's expense) all copies, other than permanent file copies, then in such holder's possession of the prospectus relating to such Registrable Securities current at the time of receipt of such notice. In the event the Company shall give any such notice, the period mentioned in paragraph (ii) of this Section 2.3 shall be extended by the length of the period from and including the date when each seller of any Registrable Securities covered by such registration statement shall have received such notice to the date on which each such seller has received the copies of the supplemented or amended prospectus contemplated by paragraph (vi) of this Section 2.3. 2.4 UNDERWRITTEN OFFERINGS. (a) REQUESTED UNDERWRITTEN OFFERINGS. If requested by the underwriters for any underwritten offering by holders of Registrable Securities pursuant to a registration requested under Section 2.1, the Company will enter into an underwriting agreement with such underwriters for such offering, such agreement to be satisfactory in substance and form to the Company, each such holder and the underwriters, and to contain such representations and warranties by the Company and such other terms as are generally prevailing in agreements of this type. The holders of the Registrable Securities will cooperate with the Company in the negotiation of the underwriting agreement and will give consideration to the reasonable suggestions of the Company regarding the form thereof, provided that nothing herein contained shall diminish the foregoing obligations of the Company. The holders of Registrable Securities to be distributed by such underwriters shall be parties to such underwriting agreement. Any such holder of Registrable Securities shall not be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations and warranties or agreements regarding such holder, such holder's Registrable Securities and such holder's intended method of distribution and any other representation required by law. (b) INCIDENTAL UNDERWRITTEN OFFERINGS. With respect to an Incidental Registration as contemplated in Section 2.2, the holders of Registrable Securities to be distributed by such underwriters shall be parties to the underwriting agreement between the Company and such underwriters. Any such holder of Registrable Securities shall not be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such holder, such holder's Registrable Securities and such holder's intended method of distribution and any other representation required by law. (c) HOLDBACK AGREEMENTS. (i) Each holder of Registrable Securities agrees, (x) if so required by the managing underwriter, not to sell, make any short sale of, loan, grant any option for the purchase of, effect any public sale or distribution of or 9 otherwise dispose of or enter into any hedging or similar transaction relating to any Common Stock or Registrable Securities not to be sold in an underwritten offering pursuant to Section 2.1 or 2.2, during the 30 days prior to the anticipated consummation of such underwritten offering and 90 days after the applicable underwritten registration pursuant to Section 2.1 or 2.2 has become effective, except as part of such underwritten registration and (y) in connection with any acquisition by or merger with the Company which is accounted for under generally accepted accounting principles as a pooling of interest, upon the request of the Company, not to sell, make any short sale of, loan, grant any option for the purchase of, effect any public sale or distribution of or otherwise dispose of or enter into any hedging or similar transaction relating to any Common Stock or Registrable Securities, for the period commencing 30 days before the effective date of such acquisition or merger until the publication of the Company's financial results covering a period of at least 30 days following such acquisition or merger which is sufficient in accordance with Accounting Series Release No. 135, or such shorter period if consistent with the requirements for pooling of interests accounting treatment. Notwithstanding clause (x) of the foregoing sentence and subject to clause (y), during any period described above, each holder of Registrable Securities subject to the foregoing sentence shall be entitled to sell securities in a private sale so long as the purchaser of such securities agrees to be bound by the restrictions set forth above to the same extent as the seller for the remainder of the applicable period. (ii) The Company agrees if so required by the managing underwriter (x) not to sell, make any short sale of, - loan, grant any option for the purchase of, effect any public sale or distribution of or otherwise dispose of its equity securities or securities convertible into or exchangeable or exercisable for any of such securities during the 30 days prior to and the 90 days after any underwritten registration pursuant to Section 2.1 has become effective, except as part of such underwritten registration and except in connection with (A) a merger or acquisition by the Company in which securities of the Company are issued directly to shareholders of the target entity or sellers of assets in exchange for shares of such target entity or such assets or (B) a stock option plan, stock purchase plan, managing directors' plan, savings or similar plan, or an acquisition of a business, merger or exchange of stock for stock, provided that no such agreement pursuant to this clause (x) shall prevent the Company from fulfilling its obligations pursuant to Section 2.1 or 2.2, subject to the provisions of Section 2.7 and (y) to use - reasonable commercially reasonable efforts to cause each director and executive officer of the Company and any holder (other than the Holders) of its equity securities or any securities convertible into or exchangeable or exercisable for any of such equity securities, in each case purchased from the Company at any time after the date of this Agreement (other than in a public offering and other than securities issued to employees who are not directors or 10 executive officers of the Company pursuant to an employee benefit plan or similar arrangement) to agree not to sell, make any short sale of, loan, grant any option for the purchase of, effect any public sale or distribution of or otherwise dispose of such securities during such period, it being understood that no action is required by the Company pursuant to this clause (y) until the managing underwriter requests. (d) PARTICIPATION IN UNDERWRITTEN OFFERINGS. No Person (other than the Company, which will be subject to and governed by the other terms and provisions of this Agreement) may participate in any underwritten offering hereunder unless such Person (i) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved, subject to the terms and conditions hereof, by the holders of a majority of Registrable Securities to be included in such underwritten offering and (ii) completes and executes all questionnaires, indemnities, underwriting agreements and other documents (other than powers of attorney) required under the terms of such underwriting arrangements. Notwithstanding the foregoing, no underwriting agreement (or other agreement in connection with such offering) shall require any holder of Registrable Securities to make any representations or warranties to or agreements with the Company or the underwriters other than representations and warranties or agreements regarding such holder, such holder's Registrable Securities and such holder's intended method of distribution and any other representation required by law. 2.5 PREPARATION; REASONABLE INVESTIGATION. In connection with the preparation and filing of each registration statement under the Securities Act pursuant to this Agreement, the Company will give the holders of Registrable Securities registered under such registration statement, their underwriters, if any, and their respective counsel and accountants, the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment thereof or supplement thereto, and upon execution of an appropriate confidentiality agreement, will give each of them such access to its books and records (collectively, the "Records") and such opportunities to discuss the business of the Company with its officers and the independent public accountants who have certified its financial statements as shall be necessary, in the opinion of such holders' and such underwriters' respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act; provided, that Records which the Company determines, in good faith, to be confidential and which it notifies such holder, underwriter, counsel or accountant are confidential shall not be disclosed by such Person (other than to any holder of Registrable Securities) unless (a) such Records have become generally available to the public or (b) the disclosure of such Records may be necessary or, in the case of clause (z) below, appropriate (x) in compliance with any law, rule, regulation or order applicable to any such holder, underwriter, counsel or accountant, (y) in response to any subpoena or other legal process or (z) in connection with any litigation to which such holder, 11 underwriter, counsel or accountant is a party, and such Person shall sign an agreement to such effect that shall be customary in form and reasonably acceptable to the Company. 2.6 INDEMNIFICATION. (A) INDEMNIFICATION BY THE COMPANY. In the event of any registration of any securities of the Company under the Securities Act pursuant to this Agreement, the Company will, and hereby does agree to, indemnify and hold harmless in the case of any registration statement filed pursuant to Section 2.1 or 2.2, the holder of any Registrable Securities covered by such registration statement, its directors and officers, each Person, if any, who controls such holder within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such holder or any such director or officer or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered under the Securities Act, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the case of any preliminary prospectus, final prospectus or summary prospectus, in light of the circumstances under which they were made, not misleading, and the Company will reimburse such holder and each such director, officer, and controlling person for any legal or any other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, liability, action or proceeding, provided that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon (i) an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement in reliance upon and in conformity with information furnished to the Company by or on behalf of such holder specifically for use therein and (ii) an untrue statement or alleged untrue statement, or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement if such untrue statement or alleged untrue statement, omission or alleged omission is corrected in an amendment or supplement to such which amendment or supplement is delivered to holder in a timely manner and holder thereafter fails to deliver such Prospectus as so amended or supplemented prior to or concurrently with the sale of such Registrable Securities to the Person asserting such Damages. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such holder or any such director, officer, underwriter or controlling person and shall survive the transfer of such securities by such holder. 12 (b) INDEMNIFICATION BY THE SELLERS. As a condition to including any Registrable Securities in any registration statement filed pursuant to Section 2.3, the Company shall have received from each seller of Registrable Securities a written undertaking satisfactory to it from the prospective seller of such Registrable Securities, to indemnify and hold harmless (in the same manner and to the same extent as set forth in subdivision (a) of this Section 2.6) the Company, each director of the Company, each officer of the Company and each other person, if any, who controls the Company within the meaning of the Securities Act, with respect to any statement or alleged statement in or omission or alleged omission from such registration statement, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, if such statement or alleged statement or omission or alleged omission was made in reliance upon and in conformity with information furnished to the Company by or on behalf of such seller. Any such indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling person and shall survive the transfer of such securities by such seller. (c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding subdivisions of this Section 2.6, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action, provided that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subdivisions of this Section 2.6, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in such indemnified party's reasonable judgment based on written advice of counsel, a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified, to the extent that the indemnifying party may wish, with counsel reasonably satisfactory to such indemnified party. After notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof. No indemnifying party shall, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement of any such action which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such claim or litigation. No indemnified party shall consent to entry of any judgment or enter into any settlement of any such action the defense of which has been assumed by an indemnifying party without the consent of such indemnifying party. 13 (d) CONTRIBUTION. If the indemnification provided for in the preceding subdivisions of this Section 2.6 is unavailable to an indemnified party in respect of any expense, loss, claim, damage or liability referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such expense, loss, claim, damage or liability (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Holder or other Person, as the case may be, on the other from the distribution of the Registrable Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the Holder or other Person, as the case may be, on the other in connection with the statements or omissions which resulted in such expense, loss, damage or liability, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Holder or other Person, as the case may be, on the other in connection with the distribution of the Registrable Securities shall be deemed to be in the same proportion as the total net proceeds received by the Company from the initial sale of the Preferred Stock by the Company to the purchasers pursuant to the Stock Purchase Agreements bear to the gain, if any, realized by the selling holder or the underwriting discounts and commissions received by the underwriter, as the case may be. The relative fault of the Company on the one hand and of the Holder or other Person, as the case may be, on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission to state a material fact relates to information supplied by the Company, by the holder or by the other Person and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission, provided that the foregoing contribution agreement shall not inure to the benefit of any indemnified party if indemnification would be unavailable to such indemnified party by reason of the provisions contained in the first sentence of subdivision (a) of this Section 2.6, and in no event shall the obligation of any indemnifying party to contribute under this subdivision (e) exceed the amount that such indemnifying party would have been obligated to pay by way of indemnification if the indemnification provided for under subdivisions (a) or (b) of this Section 2.6 had been available under the circumstances. The Company and the holders of Registrable Securities agree that it would not be just and equitable if contribution pursuant to this subdivision (e) were determined by pro rata allocation (even if the holders and any underwriters were treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages and liabilities referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth in the preceding sentence and subdivision (c) of this 14 Section 2.6, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subdivision (e), no holder of Registrable Securities or underwriter shall be required to contribute any amount in excess of the amount by which (i) in the case of any such holder, the net proceeds received by such holder from the sale of Registrable Securities or (ii) in the case of an underwriter, the total price at which the Registrable Securities purchased by it and distributed to the public were offered to the public exceeds, in any such case, the amount of any damages that such holder or underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. 2.7 SUSPENSION OF REGISTRATION. Notwithstanding anything to the contrary contained herein, the Company will not be required to file any registration statement pursuant to Section 2.1(a) or furnish any supplement to a prospectus pursuant to Section 2.3(vi) during any of the following periods: (i) 30 days prior to the anticipated consummation of a public offering by the Company of its securities and 90 days subsequent to the consummation of such public offering where, in the good faith judgment of the managing underwriter or underwriters thereof, such filing or furnishing of such supplement would have an adverse effect on such offering, (ii) if such filing or furnishing of such supplement is prohibited by applicable law, (iii) if the filing of such registration statement or furnishing of such supplement could require the Company to disclose a material financing, acquisition or other corporate development (iv) during the period described in Section 2.4(c)(ii), provided that the Company may not delay the filing of any registration statement or furnishing of such supplement pursuant to this Section 2.7 for more than an aggregate of 120 days in any twelve-month period. 2.8 OTHER AGREEMENTS. The Company shall not enter into any agreement or instrument which would conflict with or result in a breach or violation of any of the terms or provisions of this Agreement. 3. DEFINITIONS. As used herein, unless the context otherwise requires, the following terms have the following respective meanings: BENEFICIAL OWNERSHIP or BENEFICIALLY OWNED: With respect to any person, any securities with respect to which such person is deemed to have "beneficial ownership" as defined in rule 13d-3 under the Securities Exchange Act of 1934, as amended. For purposes of this Agreement only, any holder of Preferred Stock shall be deemed to be the beneficial owner of any shares of Common Stock of the Company issuable upon conversion of such Preferred Stock. 15 BUSINESS DAY: Any day except a Saturday, Sunday or nationally recognized holiday in the State of New York, United States of America. COMMISSION: The Securities and Exchange Commission or any other Federal agency at the time administering the Securities Act. COMMON STOCK: As defined in Section 1. COMPANY: As defined in the introductory paragraph of this Agreement. EXCHANGE ACT: The Securities Exchange Act of 1934, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Reference to a particular section of the Securities Exchange Act of 1934 shall include a reference to the comparable section, if any, of any such similar Federal statute. HOLDERS: As defined in the introductory paragraph of this Agreement. INITIATING HOLDERS: Any holder or holders of Registrable Securities holding more than 50% of the Registrable Securities issued and outstanding at the time given, and initiating a request pursuant to Section 2.1 for the registration of all or part of such holder's or holders' Registrable Securities. PERSON: A corporation, limited liability company, an association, a partnership, an organization, business, an individual, a governmental or political subdivision thereof or a governmental agency. PREFERRED STOCK: As defined in Section 1. REGISTRABLE SECURITIES: The Common Stock or any other securities issuable upon conversion of the Preferred Stock issued pursuant to any and all of the Stock Purchase Agreements and any securities issued or issuable with respect to any such Common Stock by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise which the holders thereof are entitled to receive. As to any particular Registrable Securities, once issued such securities shall cease to be Registrable Securities when (a) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (b) they shall have been distributed or are eligible for distribution to the public pursuant to Rule 144 (or any successor provision) 16 under the Securities Act, (c) they shall have been otherwise transferred, new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of them shall not require registration or qualification of them under the Securities Act or any similar state law then in force, or (d) they shall have ceased to be outstanding. REGISTRATION EXPENSES: All expenses incident to the Company's performance of or compliance with Section 2, including, without limitation, (a) all Commission and any NASD registration and filing fees and expenses, (b) all fees and expenses in connection with the registration or qualification of the Registrable Securities for offering and sale under the State securities and blue sky laws, (c) all expenses relating to the preparation, printing, distribution and reproduction of the registration statement required to be filed hereunder, each prospectus included therein or prepared for distribution pursuant hereto, each amendment or supplement to the foregoing, the expenses of preparing the Registrable Securities for delivery and the expenses of printing or producing any underwriting agreement(s) among underwriters and "Blue Sky" or legal investment memoranda, any selling agreements and all other documents in connection with the offering, sale or delivery of Registrable Securities to be disposed of, (d) fees, disbursements and expenses of counsel and independent certified public accountants of the Company (but not for any attorney's fee of the Holders), (e) fees, expenses and disbursements of any other persons retained by the Company, including special experts retained by the Company in connection with such registration and, (f) all fees and expenses incurred in connection with the qualification of the shares of Common Stock constituting Registrable Securities for quotation on the Nasdaq National Market, any over-the-counter market, or the listing of such shares on any securities exchange. SECURITIES ACT: The Securities Act of 1933, or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as of the same shall be in effect at the time. References to a particular section of the Securities Act of 1933 shall include a reference to the comparable section, if any, of any such similar Federal statute. STOCK PURCHASE AGREEMENTS: As defined in Section 1. 4. RULES 144 AND 144A. The Company shall timely file the reports required to be filed by it under the Securities Act and the Exchange Act (including but not limited to the reports under Sections 13 and 15(d) of the Exchange Act referred to in subparagraph (c) of Rule 144 adopted by the Commission under the Securities Act) and 17 the rules and regulations adopted by the Commission thereunder and will take such further action as any holder of Registrable Securities or any broker facilitating such sale may reasonably request, all to the extent (i) required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission. Upon the request of any holder of Registrable Securities, the Company will deliver to such holder any information to be delivered or filed in connection with the requirements of this Section 4. 5. AMENDMENTS AND WAIVERS. This Agreement may be amended and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company shall have obtained the written consent to such amendment, action or omission to act, of the holder or holders of 50% or more of the shares of Registrable Securities and, in the case of any such amendment, action or omission to act in respect of the first sentence of Section 4 the written consent of each holder affected thereby. Each holder of any Registrable Securities at the time or thereafter outstanding shall be bound by any consent authorized by this Section 5, whether or not such Registrable Securities shall have been marked to indicate such consent. Notwithstanding the foregoing, each signatory hereby agrees that without obtaining any additional consent of any other Holder, any purchaser under any and all of the Other Purchase Agreements shall become a party hereto by signing a Joinder Agreement. 6. NOMINEES FOR BENEFICIAL OWNERS. In the event that any Registrable Securities are held by a nominee for the Beneficial Owner thereof, the Beneficial Owner thereof may, at its election, be treated as the holder of such Registrable Securities for purposes of any request or other action by any holder or holders of Registrable Securities pursuant to this Agreement or any determination of any number or percentage of shares of Registrable Securities held by any holder or holders of Registrable Securities contemplated by this Agreement. If the Beneficial Owner of any Registrable Securities so elects, the Company may require assurances reasonably satisfactory to it of such owner's beneficial ownership of such Registrable Securities. 7. NOTICES. Except as otherwise provided in this Agreement, all notices, requests and other communications to any Person provided for hereunder shall be in writing and shall be given to such Person (a) in the case of a party hereto other than the Company, addressed to such party in the manner set forth in the Stock Purchase Agreements or at such other address as such party shall have furnished to the Company in writing, or (b) in the case of any other holder of Registrable Securities, at the address that such holder shall have furnished to the Company in writing, or, until any such other holder so furnishes to the Company an address, then to and at the address of the last holder of such Registrable Securities who has furnished an address to the Company, or (c) 18 in the case of the Company, at 450 Park Avenue, 10th Floor, New York, New York 10022 to the attention of its Chief Executive Officer, or at such other address, or to the attention of such other officer, as the Company shall have furnished to each holder of Registrable Securities at the time outstanding. Each such notice, request or other communication shall be effective (i) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (ii) if given by any other means (including, without limitation, by air courier), when delivered at the address specified above, provided that any such notice, request or communication to any holder of Registrable Securities shall not be effective until received. 8. ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns. In addition, the provisions of this Agreement which are for the benefit of the parties hereto other than the Company shall also be for the benefit of and enforceable by any subsequent holder of any Registrable Securities that acknowledges such assignment in writing and agrees to the terms hereof. 9. DESCRIPTIVE HEADINGS. The descriptive headings of the several sections and paragraphs of this Agreement are inserted for reference only and shall not limit or otherwise affect the meaning hereof. 10. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS OF LAW. 11. COUNTERPARTS. This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute one and the same instrument. 12. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and understanding between the Company and each other party hereto relating to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. 13. SUBMISSION TO JURISDICTION. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE COMPANY HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS AND APPELLATE COURTS FROM ANY THEREOF. THE COMPANY HEREBY 19 IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF TO THE COMPANY BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, RETURN RECEIPT REQUESTED, TO THE COMPANY AT ITS ADDRESS SPECIFIED IN SECTION 7. THE PARTIES HERETO HEREBY IRREVOCABLY WAIVE TRIAL BY JURY, AND THE COMPANY HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS. 14. SEVERABILITY. If any provision of this Agreement, or the application of such provisions to any Person or circumstance, shall be held invalid, the remainder of this Agreement, or the application of such provision to Persons or circumstances other than those to which it is held invalid, shall not be affected thereby. 20 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their respective officers thereunto duly authorized as of the date first above written. FRANKLIN CAPITAL CORPORATION By: /s/ ---------------------------------- Spencer L. Brown Secretary Holders: COPLEY FUND INC. By: /s/ ---------------------------------- Name: Irving Levine Title: Chairman KUBY GOTTLIEB SPECIAL VALUE FUND By: /s/ ---------------------------------- Name: Peter Gottleib Title: Portfolio Manager MARSHALL RATTNER INC. By: /s/ ---------------------------------- Name: Mark Rattner Title: Chief Executive Officer 21 [SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT] By: /s/ ---------------------------------- Wendy S. Brown By: /s/ ---------------------------------- Peter Gottlieb By: /s/ ---------------------------------- Susan Gottlieb By: /s/ ---------------------------------- Daniel S. Kampel By: /s/ ---------------------------------- Patricia Karpas By: /s/ ---------------------------------- Hiram Lazar 22 [SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT] By: /s/ ---------------------------------- Jonathan A. Marshall By: /s/ ---------------------------------- David Meitus By: /s/ ---------------------------------- Leslie Murdock By: /s/ ---------------------------------- John Nebens By: /s/ ---------------------------------- Meg Nebens By: /s/ ---------------------------------- Mark Rattner By: /s/ ---------------------------------- Gerry M. Ritterman By: /s/ ---------------------------------- Edward Sheldon 23 EXHIBIT A Stock Purchase Agreement dated February 22, 2000 among the Company and the other parties listed on the signature page attached thereto. 24 EXHIBIT B Franklin Capital Corporation 450 Park Avenue New York, N.Y. 10022 Reference is hereby made to the (i) Preferred Stock Purchase Agreement dated the date hereof, pursuant to which Franklin Capital Corporation (the "Company"), issued to the undersigned purchasers shares of its Series A Convertible Preferred Stock and (ii) Registration Rights Agreement dated February 22, 2000 (the "Registration Rights Agreement"), pursuant to which the Company, among other things, has granted to certain holders of such series of preferred stock certain registration rights relating to shares of common stock of the Company into which such preferred stock is convertible. By executing the acknowledgement below each of you hereby agree to become a party to the Registration Rights Agreement and shall be entitled to all of the benefits and subject to all of the obligations as a Holder of Registrable Securities (in each case as such term is defined in the Registration Rights Agreement). FRANKLIN CAPITAL CORPORATION By: /s/ ---------------------------------- Name: Spencer L. Brown Title: Senior Vice-President and Secretary ACKNOWLEDGED AND AGREED Name of Purchaser By: /s/ -------------------------------- Name: Title: By: /s/ -------------------------------- Name: Title: 25 EX-4.(III) 5 c20374_ex14a24iii.txt PREFERRED STOCK PURCHASE AGREEMENT EXHIBIT (a)(2)(4)(iii) FRANKLIN CAPITAL CORPORATION SERIES A CONVERTIBLE PREFERRED STOCK, $1.00 Par Value PREFERRED STOCK PURCHASE AGREEMENT February 22, 2000 TABLE OF CONTENTS PAGE 1. Authorization of Stock................................................... 1 2. Sale and Purchase of Stock............................................... 1 3. Closing Date; Payment of Purchase Price.................................. 2 4. Closing Deliveries....................................................... 2 5. Representations and Warranties........................................... 2 5.1. Organization, Standing, etc........................................ 2 5.2. Subsidiaries....................................................... 2 5.3. Qualification...................................................... 3 5.4. Business; Financial Statements..................................... 3 5.5. Changes, etc....................................................... 3 5.6. Capital Stock and Related Matters.................................. 4 5.7. Tax Returns and Payments........................................... 4 5.8. Compliance With Laws............................................... 4 5.9. Litigation, etc.................................................... 4 5.10. Compliance with Other Instruments, etc............................. 5 5.11. Governmental Consents, etc......................................... 5 5.12. Offering of Securities............................................. 5 5.13. Certain Fees....................................................... 6 5.14. Disclosure......................................................... 6 5.15. Enforceability..................................................... 6 6. Investment Representations............................................... 6 6.1. Acquisition for Own Account........................................ 6 6.2. Ability to Protect Own Interests................................... 6 6.3. Accredited Investor................................................ 7 6.4. Access to Information.............................................. 7 6.5. No Brokers......................................................... 7 6.6. Compliance with Laws............................................... 7 6.7. Enforceability..................................................... 7 6.8. Litigation, etc.................................................... 7 1 TABLE OF CONTENTS (CONTINUED) PAGE 6.9. No Violations; Consents............................................ 8 7. Affirmative Covenants.................................................... 8 7.1. Reservation of Common Stock........................................ 8 7.2. Availability of Information........................................ 8 8. Registration, Transfer and Substitution of Certificates for Stock........ 8 8.1. Stock Register; Ownership of Stock................................. 8 8.2. Replacement of Certificates........................................ 9 8.3. Restrictive Legends................................................ 9 8.4. Notice of Proposed Transfer; Opinions of Counsel...................10 8.5. Termination of Restrictions........................................10 9. Definitions..............................................................11 9.1. Certain Defined Terms...............................................11 9.2. Other Provisions Regarding Definitions..............................13 10. Expenses, etc............................................................13 11. Survival of Representations and Warranties and Indemnification; Certain Limitations............................................................13 12. Amendments and Waivers...................................................14 13. Notices, etc.............................................................14 14. Indemnification..........................................................14 15. Miscellaneous............................................................15 2 Franklin Capital Corporation 450 Park Avenue New York, New York 10022 February 22, 2000 To the Purchasers listed on the signature page Gentlemen: Franklin Capital Corporation, a Delaware corporation (the "Company"), agrees with the entities who are signing this Agreement as purchasers (together, the "Purchasers") as follows: 1. AUTHORIZATION OF STOCK. The Company authorized 500,000 shares of its Series A Convertible Preferred Stock, $1.00 par value, designated as its "Series A Convertible Preferred Stock" (the "Stock"). The relative rights, preferences and limitations of the Stock, including, without limitation, the right to convert Stock into shares of the Company's common stock, par value $1.00 per share (the "Common Stock"), are set forth in the form of the Certificate of Designation of the Stock of the Company attached as Exhibit A hereto (the "Certificate of Designation"). Certain capitalized terms used in this Agreement are defined in Section 9; references to a "Schedule" or an "Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement and references to a "section" are, unless otherwise specified, to one of the sections of this Agreement. 2. SALE AND PURCHASE OF STOCK. Subject to the terms and conditions of this Agreement, the Company issued and sold to the Purchasers, and the Purchasers purchased from the Company, at the closing described in Section 3, 16,450 shares of the Stock (collectively, the "Shares") free and clear of any Lien at a purchase price of $100 per share (the "Purchase Price"). 3. CLOSING DATE; PAYMENT OF PURCHASE PRICE. The sale of the Shares to the Purchasers by the Company took place at the offices of Weil, Gotshal & Manges LLP at 9:00 a.m., New York City time, at a closing (the "Closing") on February 22, 2000 (the "Closing Date"). The name or names in which the Company registered the Shares are as set forth on the signature page of this Agreement. At the Closing, the Company delivered the Shares to the Purchasers in the form of and in the number of certificates previously requested by Purchasers, and each Purchaser tendered to the Company, in immediately available funds, the Purchase Price for the amount of Shares purchased by such Purchaser. 4. CLOSING DELIVERIES. (a) All proceedings taken and all documents executed and delivered by the parties at the Closing were deemed taken and executed simultaneously, and no proceedings was deemed taken nor any document executed or delivered until all were taken, executed and delivered. (b) At the Closing, the Company delivered or caused to be delivered to the Purchasers the following: (i) the Certificate of Designation in the form attached hereto as Exhibit A, which Exhibit was filed contemporaneously with the Secretary of State of Delaware; and (ii) the Registration Rights Agreement in the form attached hereto as Exhibit B. (c) At the Closing, the Purchasers delivered or caused to be delivered to the Company via wire transfer, in immediately available funds, the aggregate Purchase Price for the Shares. 5. REPRESENTATIONS AND WARRANTIES. Except as disclosed in Exhibit C, the Company represents and warrants that: 5.1. ORGANIZATION, STANDING, ETC. The Company is a corporation validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into and perform all of its obligations under this Agreement and each of the Collateral Agreements, to issue and sell the Shares and to carry out the transactions contemplated hereby and thereby. 5.2. SUBSIDIARIES. Exhibit D correctly lists as to each Subsidiary of the Company on the date of this Agreement (a) its name, (b) the jurisdiction of its incorporation and (c) the percentage of its issued and outstanding shares owned by the Company. Each Subsidiary of the Company is a corporation 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 and operate its properties and to carry on its business as now conducted and as proposed to be conducted. All the outstanding shares of capital stock of each Subsidiary of the Company are validly issued, fully paid and nonassessable, and all such shares indicated in Exhibit D as owned by the Company are so owned beneficially and of record by the Company, free and clear of any Lien. 5.3. QUALIFICATION. Each of the Company and its Subsidiaries is duly qualified and in good standing as a foreign corporation authorized to do business in each jurisdiction (other than the jurisdiction of its incorporation) in which the nature of its activities or the character of the properties it owns or leases makes 2 such qualification necessary and in which the failure to so qualify would have a Material Adverse Effect. 5.4. BUSINESS; FINANCIAL STATEMENTS. The audited balance sheet of the Company and the related statements of operations, cash flows and changes in net assets included in the Company's Annual Report on Form 10K for the year ended December 31, 1998 (collectively, the "Financial Statements") have been prepared in accordance with GAAP consistently applied throughout the periods involved (except as otherwise specified therein) and present fairly the financial position of the Company as of the respective dates specified and the results of its operations and changes in financial position for the respective periods specified. The Company has also delivered to the Purchasers complete and correct copies of its balance sheet as of September 30, 1999, and the related statements of operations, cash flows and changes in net assets for the three month period ended on such date (the "Unaudited Statements"). The Unaudited Statements have been prepared in accordance with GAAP consistently applied throughout the periods involved (except as otherwise specified therein) and present fairly the financial position of the Company as of the respective dates specified, and the results of its operations and changes in cash flows for the respective periods specified. 5.5. CHANGES, ETC. Since September 30, 1999, neither the Company nor any of the Subsidiaries has sustained any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree which would be material to the Company and the Subsidiaries taken as a whole, otherwise than as reserved for as disclosed in the Company's financials statements; and there has not been any change in the capital stock of the Company or increase in the long-term debt (other than accretion or scheduled repayments thereof) of the Company and the Subsidiaries taken as a whole, or any material adverse change which has had a Material Adverse Effect. 5.6. CAPITAL STOCK AND RELATED MATTERS. After giving effect to the transactions contemplated by this Agreement, the authorized capital stock of the Company on the date hereof will consist of (a) 10,000,000 shares of Common Stock, of which 730,588 shares will be outstanding and (b) 500,000 shares of Stock, of which 16,450 shares shall be outstanding. The Common Stock and the Stock are hereinafter collectively referred to as "Capital Stock". All of the outstanding shares of Capital Stock are, as of the date hereof, validly issued and outstanding, fully paid and non-assessable. Except as set forth above, the Company has no outstanding stock or securities convertible into or exchangeable for any shares of its Capital Stock, or any outstanding rights (either preemptive or other) to subscribe for or to purchase, or any outstanding options for the purchase of, or any agreements providing for the issuance (contingent or otherwise) of, or any outstanding calls, commitments or claims of any character relating to, any Capital Stock or any stock or securities convertible into or exchangeable for any Capital Stock of the Company. Except as set forth above, the 3 Company is not subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its Capital Stock or any convertible securities, rights or options of the type described in the preceding sentence. Neither the Company nor any of its Subsidiaries is a party to, or has knowledge of, any agreement restricting the transfer of any shares of the Capital Stock which would affect the transferability of the Common Stock issuable upon conversion of the Stock. 5.7. TAX RETURNS AND PAYMENTS. The Company and each of the Subsidiaries have filed all necessary-material federal, state, local and foreign income, payroll, franchise and other tax returns (after giving effect to extensions) and have paid all taxes shown as due thereon (except where the failure to so file or pay would not, singly or in the aggregate, have a Material Adverse Effect), and there is no tax deficiency that has been, or to the knowledge of the Company is likely to be, asserted against the Company, any of the Subsidiaries or any of their properties or assets that would result in a Material Adverse Effect, except for taxes that are being contested in good faith by appropriate proceedings and with respect to which the Company has established adequate reserves in accordance with United States GAAP. 5.8. COMPLIANCE WITH LAWS. The Company and each of the Subsidiaries are in material compliance with all laws applicable to the Company and the Subsidiaries or to the conduct of the business or operations of the Company and the Subsidiaries, except for such non-compliances as would not have a Material Adverse Effect. The Company and each of the Subsidiaries have all permits from Governmental Authorities which are required for the Company and each of the Subsidiaries to operate its business, except for those the absence of which would not result in a Material Adverse Effect. 5.9. LITIGATION, ETC. There is no action, proceeding or investigation pending or (to the knowledge of the Company) threatened which questions the validity of this Agreement, the Shares or any action taken or to be taken pursuant to this Agreement, the Shares or the Collateral Agreements. There are no legal or governmental proceedings pending to which the Company or any of the Subsidiaries is a party or of which any property of the Company or the Subsidiaries is the subject, which if determined adversely to the Company or any of the Subsidiaries, would individually or in the aggregate have a Material Adverse Effect; and, to the Company's knowledge, no such proceedings which would in the aggregate have a Material Adverse Effect are threatened or contemplated by Governmental Authorities or threatened by others. 5.10. COMPLIANCE WITH OTHER INSTRUMENTS, ETC. Neither the Company nor any of the Subsidiaries is in violation of any term of its certificate or articles of incorporation or by-laws. The compliance by the Company with all of the provisions of this Agreement and the Registration Rights Agreement, the execution, delivery and performance by the Company of this Agreement and the Registration Rights Agreement, the issuance by the Company of the Common Stock upon the conversion 4 of the Shares, and the compliance with the terms of the Certificate of Designation will not conflict with or result in a breach or violation of any of the material terms and provisions of, or constitute a material default under, any material indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of the Subsidiaries is a party or by which the Company or any of the Subsidiaries is bound or to which any of the property or assets of the Company or any of the Subsidiaries is subject, nor will such actions result in any violation of the provisions of the certificate of incorporation or bylaws of the Company or any of the Subsidiaries or any statute or any order, rule or regulation of any court or Governmental Authority having jurisdiction over the Company or any of the Subsidiaries or any of their properties except in each case as would not, individually or in the aggregate have a Material Adverse Effect. 5.11. GOVERNMENTAL CONSENTS, ETC. No consent, approval or authorization of, or declaration or filing with, any Governmental Authority on the part of the Company is required for the valid execution and delivery of this Agreement, the valid offer, issue, sale and delivery of the Shares pursuant to this Agreement or the valid issue and delivery of shares of Common Stock issuable upon conversion of the Stock. Except for (a) applicable state securities or blue sky laws, and (b) any consents, approvals, filings or notices given on or prior to the date hereof, neither the Company nor any of its Subsidiaries is required to obtain any consent, approval or authorization of, or to make any declaration or filing with, any Governmental Authority as a condition to the valid execution, delivery or performance of any of the Collateral Agreements or the consummation of the transactions contemplated thereby. 5.12. OFFERING OF SECURITIES. Neither the Company nor any Person acting on behalf of the Company has taken or will take any action which would subject the offering, issuance or sale of any of the Stock to the provisions of Section 5 of the Securities Act. 5.13. CERTAIN FEES. No broker's or finder's fees or commissions will be payable by the Company with respect to the transactions contemplated by this Agreement and the Collateral Agreements. 5.14. Disclosure. None of the Financial Statements, the Annual Report on Form 10K for the year ended December 31, 1998 or any document filed by the Company with the Securities and Exchange Commission pursuant to the Exchange Act since the Annual Report on Form 10K for the year ended December 31, 1998, contains (in each case, as of its date) any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they are made, not misleading. 5.15. ENFORCEABILITY. This Agreement and the Registration Rights Agreement have been duly authorized and validly executed and delivered by the Company and (assuming the due authorization, execution and delivery thereof by the other parties thereto) constitute the valid and binding obligations of the Company, 5 enforceable in accordance with their respective terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or other similar laws relating to or affecting enforcement of creditors' rights generally, or by general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). 6. INVESTMENT REPRESENTATIONS. Each Purchaser understands that neither the Shares nor any Common Stock issuable upon conversion, if any, of the Shares has been registered under the Securities Act and that the certificates for the Shares and such Common Stock will bear a legend to that effect. Each Purchaser also understands that the Shares are being offered and sold pursuant to an exemption from registration contained in the Securities Act, based in part upon their representations contained in this Agreement. Each Purchaser hereby severally represents and warrants to the Company as follows: 6.1. ACQUISITION FOR OWN ACCOUNT. Such Purchaser is acquiring the Shares for its own account for investment and not with a view toward distribution in a manner which would violate the Securities Act. 6.2. ABILITY TO PROTECT OWN INTERESTS. Such Purchaser represents that by reason of its business or financial experience, or the business and financial experience of its management, such Purchaser has the capacity to protect its own interests in connection with the transaction contemplated in this Agreement. Such Purchaser is not a corporation formed for the specific purpose of consummating this transaction. 6.3. ACCREDITED INVESTOR. Such Purchaser represents that it is an "accredited investor" as that term is defined in Rule 501 of Regulation D promulgated under the Securities Act. 6.4. ACCESS TO INFORMATION. Such Purchaser has been given access to all Company documents, records, and other information, has received physical delivery of all those which Purchaser has requested, and has had adequate opportunity to ask questions of, and receive answers from, the Company's officers, employees, agents, accountants and representatives concerning the Company's business, operations, financial condition, assets, liabilities, and all other matters relevant to its investment in the Shares. 6.5. NO BROKERS. No broker's or finder's fees or commissions will be payable by such Purchaser with respect to the transactions contemplated by this Agreement and the Collateral Agreements, and such Purchaser hereby severally indemnifies and holds the Company harmless from any claim, demand or liability for broker's or finder's fees alleged to have been incurred by such Purchaser, its affiliates or agents or any Person acting on behalf of or at the request of such Purchaser, its affiliates or agents. 6 6.6. COMPLIANCE WITH LAWs. Such Purchaser and its transferees will comply with all filing and other reporting obligations under all Requirements of Law which shall be applicable to such Purchaser with respect to the Shares and to the Common Stock issuable or issued on conversion of the Shares. 6.7. ENFORCEABILITY. This Agreement and the Registration Rights Agreement has been duly authorized and when validly executed and delivered by such Purchaser (assuming the due authorization, execution and delivery thereof by the other parties thereto) shall constitute the valid and binding obligations of such Purchaser, enforceable in accordance with their respective terms, except as the enforcement thereof may be limited by bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or other similar laws relating to or affecting enforcement of creditors' rights generally, or by general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). 6.8. LITIGATION, ETC. There is no action, proceeding or investigation pending or (to the knowledge of each Purchaser) threatened which questions the validity of this Agreement, the Shares or any action taken or to be taken pursuant to this Agreement, the Shares or the Collateral Agreements. There are no legal or governmental proceedings pending to which any Purchaser is a party or of which any property of a Purchaser is the subject, which if determined adversely to such Purchaser, would individually or in the aggregate have a material adverse effect on the consummation of the transactions contemplated hereby; and, to such Purchaser's knowledge, no such proceedings which would in the aggregate have such a material adverse effect are threatened or contemplated by Governmental Authorities or threatened by others. 6.9. NO VIOLATIONS; CONSENTS. No consent, waiver, approval, order, permit or authorization of, or declaration or filing with, or notification to, any Person, including, without limitation, any Governmental Authority, is required on the part of any Purchaser in connection with the execution and delivery of this Agreement or the Registration Rights Agreement, or the compliance by such Purchaser with any of the provisions hereof or thereof, except, in each case, for violations, conflicts, breaches or defaults which individually or in the aggregate would not have a material adverse effect on the transactions contemplated hereby. 7. AFFIRMATIVE COVENANTS. The Company covenants that from and after the date of this Agreement: 7.1. RESERVATION OF COMMON STOCK. The Company will at all times reserve and keep available, solely for issuance and delivery upon conversion of the Stock, the number of shares of Common Stock from time to time issuable upon conversion of all shares of the Stock at the time outstanding. All shares of Common 7 Stock issuable upon conversion of the Stock shall be duly authorized and, when issued upon such conversion, shall be validly issued, fully paid and non-assessable. 7.2. AVAILABILITY OF INFORMATION. Insofar as required by law, the Company will comply with the reporting requirements of Sections 13 and 15(d) of the Exchange Act and will comply with all other public information reporting requirements of the Securities and Exchange Commission (including Rule 144 under the Securities Act) from time to time in effect and relating to the availability of an exemption from the Securities Act for the sale of any Restricted Securities. The Company will also reasonably cooperate with each holder of any Restricted Securities in supplying such information as may be necessary for such holder to complete and file any information reporting forms presently or hereafter required by the Securities and Exchange Commission as a condition to the availability of an exemption from the Securities Act for the sale of any Restricted Securities. 8. REGISTRATION, TRANSFER AND SUBSTITUTION OF CERTIFICATES FOR STOCK. 8.1. STOCK REGISTER; OWNERSHIP OF STOCK. (a) Each Purchaser agrees that it will not sell, assign, transfer or otherwise dispose of (collectively, a "Transfer") any Shares prior to the first anniversary of the Closing Date other than a Transfer to any Affiliate of such Purchaser. The Company will keep at its principal office a register in which the Company will provide for the registration of the Stock and the registration of transfers or conversion of the Stock. The Company may treat the Person in whose name any of the Shares or shares issued upon conversion of any of the Stock are registered on such register as the owner thereof and the Company shall not be affected by any notice to the contrary. All references in this Agreement to a "holder" of any Shares or shares issued upon conversion of any of the Stock shall mean the Person in whose name such Shares or shares issued upon conversion of any of the Stock are at the time registered on such register. (b) Upon the surrender of any certificate for Stock, properly endorsed, for registration of transfer or for conversion at the office of the Company maintained pursuant to subdivision (a) of this Section 8.1, the Company at its expense will (subject to compliance with Section 8.2 hereof, if applicable) execute and deliver to or upon the order of the holder thereof (i) a new certificate or certificates for the same aggregate number of shares of Stock less the number of shares of Stock being converted, if any, in the name of such holder or as such holder (upon payment by such holder of any applicable transfer taxes) may direct, and (ii) a certificate or certificates for the number of shares of Common Stock to be issued upon conversion of the shares of Stock so surrendered. 8.2. REPLACEMENT OF CERTIFICATES. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any certificate representing shares of Stock or Common Stock issued upon the conversion of shares of Stock and, in the case of any such loss, theft or destruction of 8 any certificate representing shares of Stock or Common Stock issued upon the conversion of shares of Stock held by a Person other than the Purchasers, upon delivery of indemnity reasonably satisfactory to the Company in form and amount or, in the case of any such mutilation, upon surrender of such certificate representing shares of Stock or Common Stock issued upon the conversion of shares of Stock for cancellation at the office of the Company maintained pursuant to subdivision (a) of Section 8.1 hereof, the Company at its expense will execute and deliver, in lieu thereof, a new certificate representing shares of Stock or Common Stock of like tenor. 8.3. RESTRICTIVE LEGENDS. Except as otherwise permitted by this Section 8, each certificate for Stock (including each certificate for Stock issued upon the transfer of any certificate for Stock) shall be stamped or otherwise imprinted with a legend in substantially the following form: "The shares represented by this Certificate and any shares of Common Stock issuable upon conversion of any such shares have not been registered under the Securities Act of 1933 and may not be transferred in the absence of such registration or an exemption therefrom under such Act. Such shares and any such shares of Common Stock may be transferred only in compliance with the conditions specified in the Preferred Stock Purchase Agreement dated February 22, 2000 between Franklin Capital Corporation (the "Company") and the purchasers identified therein. A complete and correct copy of such Agreement is available for inspection at the principal office of the Company and will be furnished without charge to the holder of such shares upon written request." Except as otherwise permitted by this Section 8, each certificate for Common Stock issued upon the conversion of any of the Stock, and each certificate issued upon the transfer of any such Common Stock, shall be stamped or otherwise imprinted with a legend in substantially the following form: "The shares represented by this certificate have not been registered under the Securities Act of 1933 and may not be transferred in the absence of such registration or an exemption therefrom under such Act. Such shares may be transferred only in compliance with the conditions specified in the Preferred Stock Purchase Agreement dated February 22, 2000 between Franklin Capital Corporation (the "Company") and the purchasers identified therein. A complete and correct copy of such Agreement is available for inspection at the principal 9 office of the Company and will be furnished without charge to the holder of such shares upon written request." 8.4. NOTICE OF PROPOSED TRANSFER; OPINIONS OF COUNSEL. Prior to any transfer of any Restricted Securities which are not registered under an effective registration statement under the Securities Act, the holder thereof will give written notice to the Company of such holder's intention to effect such transfer and to comply in all other respects with this Section 8.4. Each such notice shall describe the manner and circumstances of the proposed transfer and shall be accompanied by an opinion of counsel for such holder, which counsel and opinion shall each be reasonably satisfactory to the Company, that the proposed transfer may be effected without registration of such shares of Restricted Securities under the Securities Act. Such holder shall thereupon be entitled to transfer such shares in accordance with the terms of the notice delivered by such holder to the Company. Each certificate representing such shares issued upon or in connection with such transfer shall bear the restrictive legends required by Section 8.3, unless the related restrictions on transfer shall have ceased and terminated as to such shares pursuant to Section 8.5 hereof. 8.5. TERMINATION OF RESTRICTIONS. The restrictions imposed by this Section 8 upon the transferability of Restricted Securities shall cease and terminate as to any particular Restricted Securities when such restrictions are no longer required in order to insure compliance with the Securities Act. Whenever such restrictions shall cease and terminate as to any Restricted Securities, the holder thereof shall be entitled to receive from the Company, without expense (other than applicable transfer taxes, if any), new certificates for such securities of like tenor not bearing the applicable legends required by Section 8.3 hereof. 9. DEFINITIONS. 9.1. CERTAIN DEFINED TERMS. As used in this Agreement the following terms have the following respective meanings: AFFILIATE: With respect to any entity, any other entity directly or indirectly controlling or controlled by, or under direct or indirect common control with, such specified entity. For purposes of this definition, the term "control" means (i) the power to direct the management and policies of an entity, directly or through one or more intermediaries, whether through the ownership of voting securities, by contract or otherwise or (ii) without limiting the foregoing, the beneficial ownership of 50% or more of the voting power of the voting common equity of such entity (on a fully diluted basis). CAPITAL STOCK: As defined in Section 5.6 of this Agreement. CERTIFICATE OF DESIGNATION: As defined in Section 1 of this Agreement. 10 CLOSING: As defined in Section 3 of this Agreement. CLOSING DATE: As defined in Section 3 of this Agreement. COLLATERAL AGREEMENTS: The Registration Rights Agreement and the Certificate of Designation. COMMON STOCK: As defined in Section 1 of this Agreement. COMPANY: As defined in the introduction to this Agreement. EXCHANGE ACT: At any time, the Securities Exchange Act of 1934 as then in effect or any similar federal statute then in effect, and any reference to a particular Section of such Act shall be deemed to include a reference to the comparable section, if any, in any such similar federal statute. FINANCIAL STATEMENTS: As defined in Section 5.4 of this Agreement. GAAP: Generally accepted accounting principles set forth in the Opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants and in statements by the Financial Accounting Standards Board or in such other statement by such other entity as may be approved by a significant segment of the accounting profession; and the requisite that such principles be applied on a consistent basis shall mean that the accounting principles observed in a current period are comparable in all material respects to those applied in a preceding period. GOVERNMENTAL AUTHORITY: Any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. LIEN: Any mortgage, pledge, hypothecation, assignment, security interest, lien, charge or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effects as any of the foregoing, and the filing of, or agreement to give, any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction). MATERIAL ADVERSE EFFECT: Any effect that is materially adverse to the properties, business, results of operations or financial condition of the Company and its Subsidiaries taken as a whole. MAJORITY IN INTEREST: At any time, the holders of a majority, by number of shares, of the outstanding Shares and the outstanding shares of Common Stock issued upon conversion of any Shares, such majority to be determined by reference to 11 the number of shares of Common Stock into which all outstanding Shares are at the time convertible. PERSON: An individual, a partnership, a joint venture, a corporation, a limited thereof. REGISTRATION RIGHTS AGREEMENT: As defined in Section (b)(ii) of this Agreement. REQUIREMENT OF LAW: As to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation, or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. RESTRICTED SECURITIES: All of the following: (a) any certificates for Stock bearing the applicable legend or legends referred to in Section 8.3 hereof, (b) any shares of Common Stock which have been issued upon the conversion of any of the Stock and which are evidenced by a certificate or certificates bearing the applicable legend or legends referred to in such Section and (c) unless the context otherwise requires, any shares of Common Stock which are at the time issuable upon the conversion of Stock and which, when so issued, will be evidenced by a certificate or certificates bearing the applicable legend or legends referred to in such section. SECURITIES ACT: At any time, the Securities Act of 1933 as then in effect or any similar federal statute then in effect, and any reference to a particular Section of such Act shall be deemed to include a reference to the comparable section, if any, in any such similar federal statute. SHARES: As defined in Section 2 of this Agreement. STOCK: As defined in Section 1 of this Agreement. SUBSIDIARIES: With respect to any Person, any corporation with respect to which more than 50% of the outstanding shares of stock of each class having ordinary voting power (other than stock having such power only by reason of the happening of a contingency) is at the time owned by such Person or by one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person. Any of the above-defined terms may, unless the context otherwise requires, be used in the singular or plural depending on the reference. 9.2. OTHER PROVISIONS REGARDING DEFINITIONS. (a) Unless otherwise defined therein, all terms defined in this Agreement shall have the defined meanings 12 when used in any certificate, report or other document made or delivered pursuant to this Agreement. (b) The words "hereof", "herein", and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. 10. EXPENSES, ETC. Whether or not the transactions contemplated by this Agreement shall be consummated, each party will bear all of its own expenses in connection with such transactions and in connection with any amendments or waivers (whether or not the same become effective) under or in respect of this Agreement or the Shares purchased by the Purchasers hereunder. 11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION; CERTAIN LIMITATIONS. The Company's indemnification obligations and all representations and warranties contained in this Agreement shall survive the execution and delivery of this Agreement, any investigation at any time made by the Purchasers or on their behalf and the purchase of the Shares by the Purchasers under this Agreement and any conversion of any of the Stock or any disposition of any shares of Common Stock issued upon conversion of any of the Stock; provided that all representations and warranties (and the indemnities in respect thereof with respect to claims not made prior to such date) shall expire 60 days after the date hereof. No written or oral statements made by or on behalf of the Company, other than those express representations and warranties contained in this Agreement, shall constitute representations or warranties within the meaning of this Agreement. In no event shall Purchasers be entitled to the remedy of rescission. 12. AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended or modified and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and a Majority in Interest. 13. NOTICES, ETC. Except as otherwise provided in this Agreement, notices and other communications under this Agreement shall be in writing and shall be delivered, or mailed by first-class mail, postage pre-paid, addressed, (a) if to the Purchasers, at the address set forth on the signature pages hereto, or at such other address as the Purchasers shall have furnished to the Company in writing, or (b) if to any other holder of any Shares or shares of Common Stock into which any of the Shares have been converted, at such address as such other holder shall have furnished to the Company in writing, or, until any such other holder so furnishes to the Company an address, then to and at the address of the last holder of such Shares or shares of Common Stock into which such Shares have been converted who has furnished an address to the Company, or (c) if to the Company at the address of the Company set forth at the beginning of this Agreement, to the attention of its President, or at such 13 other address, or to the attention of such other officer, as the Company shall have furnished to the Purchasers and each such other holder in writing. 14. INDEMNIFICATION. (a) The Company shall indemnify, defend and hold harmless the Purchasers, their affiliates, partners, officers, employees and agents (each, an "Indemnified Person") from and against any and all losses, liabilities, damages, judgments, settlements and expenses (including reasonable attorneys' fees and expenses incurred in the investigation or defense of any of the same or in asserting, preserving or enforcing any of rights hereunder), that arise out of any breach by the Company of any of its representations and warranties or covenants contained in this Agreement. (b) The Purchasers shall give the Company prompt notice of any third-party claim that may give rise to any indemnification obligation under this Section 14 and the Company shall (except as set forth below) have the right to assume and control the defense (at its expense) and settlement of any such claim through the Company's own counsel or through other counsel reasonably acceptable to the Purchasers. The Purchasers, together with any other purchaser who may have asserted a similar claim under any other preferred stock purchase agreement relating to the Preferred Stock, may retain one additional counsel to represent the interests of all of such purchasers at their own expense if, under applicable standards of professional conduct, a conflict with respect to any significant issue between such purchasers and the Company exists in respect of such third-party claim. In such event, the Company shall not assume the defense of such claim and shall also pay the reasonable fees and expenses of one counsel selected by such purchasers in respect of such claim. Notwithstanding the foregoing, without such purchasers' consent, the Company will not settle any action or proceeding which does not provide such purchasers a full, unconditional release from all liability with respect to such claim by each claimant or plaintiff in a form reasonably acceptable to such purchasers' counsel, nor will the Company consent to any injunctive or other non-monetary relief affecting any Indemnified Person. 15. MISCELLANEOUS. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, whether so expressed or not, and, in particular, shall inure to the benefit of and be enforceable by any holder or holders at the time of the Shares or shares of Common Stock into which any of the Shares have been converted. Except as aforesaid, this Agreement shall not inure to the benefit of any third party. This Agreement embodies the entire agreement and understanding between the Purchasers and the Company and supersedes all prior agreements and understandings relating to the subject matter hereof (including all term sheets relating thereto). This Agreement shall be construed and enforced in accordance with and governed by the law of the State of New York without regard to the principles regarding conflicts of laws. The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. This Agreement may be executed in any number 14 of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. 15 If the Purchasers are in agreement with the foregoing, please sign the form of agreement on the accompanying counterparts of this letter and return one of the same to the Company, whereupon this letter shall become a binding agreement between the Purchasers and the Company. Very truly yours, FRANKLIN CAPITAL CORPORATION By: /s/ ----------------------------- Spencer L. Brown Secretary The foregoing Agreement is hereby agreed to as of the date hereof. COPLEY FUND, INC. By: /s/ ------------------------------------- Name: Irving Levine Title: Chairman Address and Telecopy Number for Notices Copley Fund, Inc. Att: Irving Levine 315 Pleasant Street, 5th Floor Fall River, MA 02722 (___) ------------------------------- Number of Shares Purchased: 4750 Conversion Rate: $20 16 [SIGNATURE PAGE TO PREFERRED STOCK PURCHASE AGREEMENT] KUBY GOTTLIEB SPECIAL VALUE FUND By: /s/ ------------------------------------------- Name: Peter Gottlieb Title: Portfolio Manager Address and Telecopy Number for Notices c/o First Albany Asset Mgmt 500 W. Madison #2740 Chicago, IL 60661 (___) -------------------------------------- Number of Shares Purchased: 4000 Conversion Rate: $20 MARSHALL RATTNER INC. By: /s/ ------------------------------------------- Name: Mark Rattner Title: Chief Executive Officer Address and Telecopy Number for Notices c/o Professional Indemnity Agency, Inc. of N.Y. 37 Radio Circle Drive Mount Kisco, NY 10549-5000 (___) -------------------------------------- Number of Shares Purchased: 1000 Conversion Rate: $20 17 [SIGNATURE PAGE TO PREFERRED STOCK PURCHASE AGREEMENT] By: /s/ ------------------------------------------- Wendy S. Brown Address and Telecopy Number for Notices 220 East 72nd Street Apartment 15C New York, NY 10021 (___) -------------------------------------- Number of Shares Purchased: 250 Conversion Rate: $20 By: /s/ ------------------------------------------- Peter Gottlieb Address and Telecopy Number for Notices c/o PrivateBank & Trust Attn: Lauren Hunzel 10 N. Dearborn Chicago, IL 60202 (___) -------------------------------------- Number of Shares Purchased: 500 Conversion Rate: $20 18 [SIGNATURE PAGE TO PREFERRED STOCK PURCHASE AGREEMENT] By: /s/ -------------------------------------------- Susan Gottlieb Address and Telecopy Number for Notices c/o LaSalle National Trust Attn: Gail Levine 135 S. LaSalle Chicago, IL 60603 (___) -------------------------------------- Number of Shares Purchased: 500 Conversion Rate: $20 By: /s/ -------------------------------------------- Daniel S. Kampel Address and Telecopy Number for Notices c/o Daniel S. Kampel Associates, Inc. 600 Third Avenue New York, NY 10016 (___) -------------------------------------- Number of Shares Purchased: 500 Conversion Rate: $20 19 [SIGNATURE PAGE TO PREFERRED STOCK PURCHASE AGREEMENT] By: /s/ ------------------------------------ Patricia Karpas Address and Telecopy Number For Notices 124 West 60th Street New York, NY 10023 (___)------------------------------- Number of Shares Purchased: 200 Conversion Rate: $20 By: /s/ ------------------------------------ Hiram Lazar Address and Telecopy Number for Notices 2145 Wantagh Park Drive Wantagh, NY 11793 (___) ------------------------------- Number of Shares Purchased: 100 Conversion Rate: $20 20 [SIGNATURE PAGE TO PREFERRED STOCK PURCHASE AGREEMENT] By: /s/ ------------------------------------ Jonathan A. Marshall Address and Telecopy Number for Notices c/o Pennie & Edmonds 1155 6th Avenue, 22nd Fl. New York, NY 10036 (___) ------------------------------- Number of Shares Purchased: 500 Conversion Rate: $20 By: /s/ ------------------------------------ David Meitus Address and Telecopy Number for Notices c/o LaSalle National Trust Attn: Gail Levine 135 S. LaSalle Chicago, IL 60603 (___) ------------------------------- Number of Shares Purchased: 500 Conversion Rate: $20 21 [SIGNATURE PAGE TO PREFERRED STOCK PURCHASE AGREEMENT] By: /s/ ------------------------------------ Leslie Murdock Address and Telecopy Number for Notices 120 East 87th Street Apartment R28A New York, NY 10128 (___) ------------------------------- Number of Shares Purchased: 250 Conversion Rate: $20 By: /s/ ------------------------------------ John Nebens Address and Telecopy Number for Notices 2 Osborn Hill San Antonio, TX 78209 (___) -------------------------------- Number of Shares Purchased Jointly with Meg Nebens: 500 Conversion Rate: $20 22 [SIGNATURE PAGE TO PREFERRED STOCK PURCHASE AGREEMENT] By: /s/ ------------------------------------ Meg Nebens Address and Telecopy Number For Notices 2 Osborn Hill San Antonio, TX 78209 (___)-------------------------- Number of Shares Purchased Jointly with John Nebens: 500 Conversion Rate: $20 By: /s/ ------------------------------------ Mark Rattner Address and Telecopy Number for Notices c/o Professional Indemnity Agency, Inc. of N.Y. 37 Radio Circle Drive Mount Kisco, NY 10549-5000 (___) ------------------------------- Number of Shares Purchased: 1000 Conversion Rate: $20 23 [SIGNATURE PAGE TO PREFERRED STOCK PURCHASE AGREEMENT] By: /s/ ------------------------------------ Gerry M. Ritterman Address and Telecopy Number for Notices 47 Lawrence Farms Crossway Chappaqua, NY 10514 (___) ------------------------------- Number of Shares Purchased: 1500 Conversion Rate: $20 By: /s/ ------------------------------------ Edward Sheldon Address and Telecopy Number for Notices 20 Punchbowl Drive Westport, CT 06880 (___) ------------------------------- Number of Shares Purchased: 400 Conversion Rate: $20 24 EXHIBITS Exhibit A Certificate of Designation Exhibit B Form of Registration Rights Agreement Exhibit C Exceptions to Representations and Warranties Exhibit D Subsidiaries of the Company EXHIBIT A Certificate of Designation See Exhibit 14(a)(2)(4)(i) EXHIBIT B Registration Rights Agreement See Exhibit 14(a)(2)(4)(ii) EXHIBIT C Exceptions to Representations and Warranties NONE EXHIBIT D - -------------------------------------------------------------------------------- STATE OF EQUITY NAME OF SUBSIDIARY INCORPORATION OWNERSHIP - -------------------------------------------------------------------------------- eCom Capital Corporation Delaware 100% - -------------------------------------------------------------------------------- eMattress.com Delaware 87.19% - -------------------------------------------------------------------------------- EX-10.(I) 6 c20374_ex14a210i.txt EMPLOYMENT AGREEMENT - STEPHEN L. BROWN EXHIBIT 14(a)(2)(10)(i) EMPLOYMENT AGREEMENT AGREEMENT, made as of the 1st day of May, 2000 (the "Agreement"), by and between The Franklin Capital Corporation (formerly, The Franklin Holding Corporation(Delaware)), a Delaware corporation (the "Company"), and Stephen L. Brown (the "Executive"). WITNESSETH: WHEREAS, the Executive is currently the Chairman and Chief Executive Officer of the Company; and WHEREAS, the Board of Directors of the Company (the "Board of Directors") believes that it is in the best interests of the Company to provide for the continued employment of the Executive on the terms and subject to the conditions hereof; and WHEREAS, the Executive desires to continue his employment with the Company on the terms and subject to the conditions hereof; NOW THEREFORE, in consideration of the premises and for other good and valuable consideration, the parties hereby agree as follows: 1. EMPLOYMENT. The Company hereby employs the Executive, and the Executive hereby accepts employment with and agrees to serve the Company, for the term, in the capacities and subject to and upon the terms and conditions hereinafter set forth. 2. TERM. Subject to Section 5 hereof, the term of the Executive's employment hereunder shall be the period commencing on May 1, 2000, and expiring on December 31, 2003, and shall be automatically renewed from year to year thereafter, unless not less than one hundred twenty (120) days prior to December 31, 2003, or not less than one hundred twenty (120) days prior to December 31 of any year thereafter, the Company shall notify the Executive in writing of its intention not to renew this Agreement. 3. POSITION AND DUTIES. The Executive shall serve as the Chairman and Chief Executive Officer of the Company, reporting only to the Board of Directors, and shall have supervision and control over, and responsibility for, the general management and operation of the Company and shall have such other powers and duties as may from time to time be prescribed by the Board of Directors; provided, however, that such additional duties shall not be inconsistent with his present duties and his position as the senior executive officer in charge of the general management of the Company. If elected, the Executive shall serve as a director of the Company or of any subsidiary of the Company at no additional compensation. The Executive shall devote to the Company the major portion of his business time for the fulfillment of his obligations and the performance of his duties hereunder; provided, however, that nothing herein contained shall preclude him from performing duties as an officer or director of S.L. Brown & Company, Inc. or its subsidiaries or affiliates or from pursuing personal investments so long as such activities do not interfere with the Executive's performance of his duties hereunder. 4. COMPENSATION. 4.1 BASE SALARY. The Executive shall receive a base salary at the annual rate of $350,000 through December 31, 2000 and at the annual rate of $420,000 thereafter, or at such greater rate as the Board of Directors shall from time to time determine (the "Base Salary"), payable in accordance with the Company's normal payroll practices. This Agreement shall not be deemed abrogated or terminated if the Board of Directors shall determine to increase the Base Salary or if the Executive shall accept such increased compensation, but nothing herein contained shall be deemed to obligate the Board of Directors to make any such increase. 4.2 DISCRETIONARY BASE SALARY INCREASES. At any time or from time to time during the Period of Employment, the Board may increase the Base Salary to an amount exceeding the Base Salary determined pursuant to paragraph 4.1 above. Following any such discretionary increase in the Base Salary, the Board may or may not maintain the Base Salary at that increased level (or further increase the Base Salary beyond that level), but in no event shall the Base Salary in effect for any portion of the Period of Employment be an annual amount less than the amount determinable in accordance with paragraph 4.1 above. 4.3 BONUSES. The Executive shall be paid such bonuses from to time as shall be determined by the Board of Directors in its sole discretion. 4.4 PERQUISITES. The Company shall also furnish the Executive, without cost to him, with (1) a Company-owned or leased automobile which will be replaced with a new automobile every three years; (2) reimbursement or payment for all garaging, maintenance, fuel and insurance associated with the use of such automobile; and (3) membership in one city luncheon club of the Executive's choosing to be used for business entertainment. The Company shall also reimburse the Executive for the cost of an annual physical examination of the Executive by a physician selected by the Executive. The Executive shall properly document such costs for federal income taxation purposes to preserve any deduction for such reimbursements to which the Company may be entitled. 4.5 EXPENSES. During the term of this Agreement, the Company shall reimburse the Executive for all reasonable and necessary travel, entertainment and other expenses and disbursements incurred by him for or on his behalf in the performance of his duties hereunder, upon his providing the Company with satisfactory vouchers, receipts or other evidence of such expenses. 4.6 EMPLOYEE PLANS. The Executive shall be entitled to participate in or receive benefits under any profit-sharing plan, savings plan, pension plan, stock option plan, group insurance plan (including, by way of illustration and not limitation, life, disability, accident, medical and dental insurance), death benefits plan or other employee plan or arrangement, now existing or hereafter adopted, for which he is eligible and which the Company may provide for him or for executive employees generally (individually, a "Benefit Plan" and collectively, the "Benefit Plans") to the fullest extent permitted under any such Benefit Plans; PROVIDED HOWEVER, that the foregoing shall in no way restrict or prohibit the Company's right to terminate, amend or otherwise change any such Benefit Plan. In the event the Company terminates, amends or otherwise changes any such Benefit Plan, the Company shall immediately provide the Executive with another Benefit Plan of equal or superior coverage. Nothing paid to the Executive under any Benefit Plan shall be deemed to be in lieu of compensation to the Executive hereunder. 2 The Executive shall be entitled to retain all directors fees and compensation paid to him with respect to any corporation for which he serves as a director, regardless of whether the Company has an investment in such corporation. 4.7 VACATIONS. The Executive shall be entitled to the number of paid vacation days in each calendar year determined by the Company from time to time for its senior executive officers, but in no event less than four weeks per year. The Executive shall also be entitled to all paid holidays given by the company to its senior executive officers. 5. TERMINATION. 5.1 Subject to the provisions of Section 6 hereof, this Agreement and the employment of the Executive hereunder shall terminate upon the occurrence of the first to occur of the following events or conditions: (a) the expiration of the term specified in Section 2 hereof, and of any renewal or extension thereof in accordance with Section 2 hereof; or (b) the death of the Executive; or (c) the Executive's voluntary departure from employment by the Company; or (d) the delivery to the Executive of a Notice of Termination (as such term is defined in Section 5.3 hereof) setting forth the election of the Board of Directors to terminate the Executive's employment for "disability" (within the meaning of Section 5.2(a) hereof) or for "cause" (within the meaning of Section 5.2(b) hereof). (e) written notice to the Company of the resignation by the Executive due to a Change of Control of the Company, as defined in the Severance Agreement. 5.2 The Board of Directors of the Company may elect to terminate the employment of the Executive hereunder: (a) for "disability", if it shall determine, in good faith, that, by reason of a physical or mental illness continuing for more than one-hundred twenty (120) consecutive business days or for shorter periods aggregating more than one hundred eighty (180) business days in any period of twelve (12) consecutive months (excluding, in each case, Saturdays, Sundays, holidays and days on which the Executive was on vacation), the Executive has been and continues to be substantially unable to render services of the character contemplated by this Agreement; PROVIDED, HOWEVER, that, in the event that the Executive does not agree with such determination by the Board of Directors, he shall be examined by a physician selected by him, who shall provide a statement as to whether or not the Executive is disabled within the meaning of this Agreement; PROVIDED, FURTHER, that, if the Company does not agree with such physician's statement, the Executive shall submit to an examination by a physician selected by the Company, and, if the two physicians disagree as to whether or not the Executive is disabled within the meaning of this Agreement, then the Executive shall submit to an examination by a third physician selected by the other two physicians whose 3 determination as to disability shall be binding and conclusive; PROVIDED, FURTHER, that each such examination shall be at the Company's expense; or (b) for "cause", if it shall determine, in good faith, that the Executive has (i) willfully and continually failed to substantially perform his duties hereunder, other than because of an incapacity due to physical or mental illness or (ii) willfully engaged in gross misconduct materially injurious to the Company. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for "cause" unless and until there shall have been delivered to the Executive a copy of a resolution, duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors (excluding the Executive) at a meeting of the Board of Directors called and held for such purpose (after reasonable notice to the Executive and an opportunity for him, together with his counsel, to be heard before the Board of Directors), finding that, in the good faith opinion of the Board of Directors, the Executive was guilty of conduct set forth in clause (i) or (ii) above, and specifying the particulars thereof in detail. 5.3 Any termination by the Company of the employment of the Executive pursuant to Section 5.1(d) hereof or otherwise or by the Executive pursuant to Section 5.1(c) hereof shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. 5.4 "Date of Termination" shall mean (a) if the Executive's employment is terminated by his death, the date of his death, (b) if the Executive's employment is terminated pursuant to Section 5.2(a) hereof, thirty (30) days after the later to occur of (x) the giving of the Notice of Termination (provided that the Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period) or (y) the binding and conclusive determination of disability by the first or third physician, as the case may be, as specified in Section 5.2(a) hereof, (c) if the Executive's employment is terminated pursuant to Section 5.2(b) hereof, the date specified in the Notice of Termination, (d) if the Agreement is not renewed, on December 31 of the year during which the notice required by Section 2 hereof is given and (e) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination. 6. COMPENSATION DURING DISABILITY OR UPON TERMINATION. 6.1 During any period that the Executive fails to perform his duties hereunder as a result of incapacity due to physical or mental illness, the Executive shall continue to receive his full Base Salary until the Executive's employment is terminated pursuant to Section 5.2(a) hereof, or until the Executive terminates his employment pursuant to Section 5.1(c) hereof, whichever occurs first. 6.2 In the event that the Executive's employment hereunder is terminated by the Company by reason of the Executive's disability, then, upon such termination, the Company shall pay to the Executive, in addition to any amounts of Base Salary accrued but unpaid, an amount equal to one-half of his annual Base Salary, which payment shall be made, at the option of the Executive, either in one (1) lump sum or over a six (6) month period in six (6) equal monthly installments. 4 6.3 In the event that the Executive's employment hereunder shall be terminated by reason of his death, then the Company shall pay to the Executive's estate, in addition to any amounts of Base Salary accrued but unpaid, an amount equal to the Executive's annual Base Salary, which payment shall be made, at the option of the executor of the estate of the Executive, either in one (1) lump sum or over a one (1) year period in twelve (12) equal monthly installments. 6.4 In the event that the Executive's employment shall be terminated for any reason other than his death or disability (including for "cause", as defined in Section 5.2(b) hereof) the Company shall pay the Executive his full Base Salary through the Date of Termination, plus the amount, if any, of any bonus for a prior year which has not yet been awarded or paid to the Executive under any deferred compensation plan. 6.5 In the event that the Executive's employment hereunder shall be terminated for any reason other than as provided in Section 5.1 or Section 5.2 hereof, then, in any such event, the Company shall pay the Executive (as liquidated damages without any obligation to mitigate by the Executive) an amount (the "Severance Amount") equal to the sum of (i) any amount of Base Salary accrued but unpaid, (ii) the full Base Salary which would have been payable during the remainder of the term of this Agreement and (iii) any bonus for a prior year which has not yet been awarded or paid to the Executive under any deferred compensation plan. The Severance Amount shall be paid to the Executive, at his option, either in one (1) lump sum or over a one (1) year period in twelve (12) equal monthly installments. The Company agrees upon the Executive's demand to pay, or to reimburse the Executive for, all of the Executive's legal, valuation, investigative and other related expenses and for all out-of-pocket costs and expenses of every type and nature incurred by the Executive in connection with the Executive's enforcement of his rights under this Section 6.5 and the collection of the Severance Amount. 6.6 For a period of one (1) year from the Date of Termination, the Company shall maintain in full force and effect, for the Executive's (and, where applicable, his dependents) continued benefit all life insurance, medical, health, dental and accident, and disability plans, programs or arrangements in which the Executive (and, where applicable, his dependents) was entitled to participate immediately prior to the Date of Termination (individually, a "Pre-Termination Plan" and collectively, the "Pre-Termination Plans"). To the extent that the Company finds it undesirable or impossible to cover the Executive (and, where applicable, his dependents) under any of the Pre-Termination Plans, the Company (at its own expense) shall provide the Executive (and, where applicable, his dependents) for such one (1) year period with substantially the same or a comparable level of coverage under individual policies or otherwise at no additional after tax cost for the Executive (or, where applicable, his dependents). At the end of the period of coverage hereinafter provided for, the Executive (or, where applicable, his dependents) shall have the option to have assigned to him (or, where applicable, his dependents) at no cost and with no apportionment of prepaid premiums, any assignable insurance owned by the Company and relating specifically to the Executive (and, where applicable, his dependents). Notwithstanding the foregoing, in the event that, during the one (1) year period provided for in this Section 6.6, a subsequent employer provides the Executive (and, where applicable, his dependents) with life insurance, medical, health, dental and accident, or disability plans, programs or arrangements of equal or superior coverage to that provided under the Pre-Termination Plans, the Company shall no longer be required to provide the Executive (and, where applicable, his dependents) with coverage under such Pre-Termination Plan or Plans with respect to which such equal or superior coverage is being provided. 5 7. INDEMNIFICATION, LITIGATION. (a) In the event of any litigation or other proceeding between the Company and the Executive with respect to the subject matter of this Agreement and the enforcement of rights hereunder, the Company shall reimburse the Executive for all costs and expenses relating to such litigation or other proceeding, including reasonable attorneys' fees and expenses, provided that such litigation or proceeding results in any: (1) Settlement requiring the Company to make a payment to the Executive; or (2) Judgment, order, or award in favor of the Executive, regardless of whether such judgment, order, or award is subsequently reversed on appeal or in a collateral proceeding. (b) In no event shall the Executive be required to reimburse the Company for any of the costs and expenses relating to such litigation or other proceeding. 8. No Effect on Other Contractual Rights. The provisions of this Agreement, and any payments provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish the Executive's existing rights, or rights which would accrue solely as a result of the passage of time, under any Benefit Plan, employment agreement or other contract, plan or arrangement. 9. EFFECT OF PRIOR AGREEMENTS. This Agreement between the Company and the Executive contains the entire understanding between the Company and the Executive with respect to the subject matter hereof and supersedes any prior employment agreement (including the Prior Agreement") between the Company or any predecessor and the Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to the Executive of a kind elsewhere provided and not expressly provided in this Agreement. 10. SUCCESSORS. This Agreement shall inure to the benefit of and be binding upon the Executive, his assigns, his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees or legatees, and the Company, its successors and assigns, including any corporate successor by merger or consolidation and any person, firm or corporation to which all or substantially all of the assets and business of the Company may be sold; and as used herein, the term "Company" shall include any such successor and assign. 11. Notices. Any notice or request required or permitted under this Agreement shall be in writing and given or made by postage-paid registered or certified mail, return receipt requested, addressed as follows: If to the Executive, to: Mr. Stephen L. Brown 2 Gedney Way Chappaqua, New York 10514 6 If to the Company, to: Franklin Capital Corporation 450 Park Avenue New York, New York 10022 Attention: Secretary or to either party hereto at such other address or addresses as such other party may from time to time specify for the purpose in a notice similarly given to the other party. 12. ENTIRE AGREEMENT; AMENDMENT. Subject to the provisions of Section 8 hereof, this instrument contains the entire agreement of the parties relating to the subject matter hereof, and the parties hereto have made no agreements, representations or warranties relating to the subject matter of this Agreement which are not set forth herein. No amendment or modification of this Agreement shall be valid unless in writing and signed by the parties hereto. 13. WAIVER. The waiver of the breach of any term or condition of this Agreement shall not be deemed to constitute the waiver of any other or subsequent breach of the same or any other term or condition. 14. Choice of Law. The invalidity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York. 15. Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 16. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. THE FRANKLIN CAPITAL CORPORATION By: /s/ -------------------------------- Name: Hiram M. Lazar Title: Chief Financial Officer /s/ -------------------------------- STEPHEN L. BROWN 7 EX-10.(II) 7 c20374_ex14a210ii.txt EMPLOYEMENT AGREEMENT - SPENCER L. BROWN EXHIBIT 14(a)(2)(10)(ii) EMPLOYMENT AGREEMENT AGREEMENT, made as of the 1st day of May, 2000 (the "Agreement"), by and between The Franklin Capital Corporation (formerly, The Franklin Holding Corporation(Delaware)), a Delaware corporation (the "Company"), and Spencer L. Brown (the "Executive"). WITNESSETH: WHEREAS, the Executive is currently the Senior Vice President and Secretary of the Company; and WHEREAS, the Board of Directors of the Company (the "Board of Directors") believes that it is in the best interests of the Company to provide for the continued employment of the Executive on the terms and subject to the conditions hereof; and WHEREAS, the Executive desires to continue his employment with the Company on the terms and subject to the conditions hereof; NOW THEREFORE, in consideration of the premises and for other good and valuable consideration, the parties hereby agree as follows: 1. EMPLOYMENT. The Company hereby employs the Executive, and the Executive hereby accepts employment with and agrees to serve the Company, for the term, in the capacities and subject to and upon the terms and conditions hereinafter set forth. 2. TERM. Subject to Section 5 hereof, the term of the Executive's employment hereunder shall be the period commencing on May 1, 2000, and expiring on December 31, 2003, and shall be automatically renewed from year to year thereafter, unless not less than one hundred twenty (120) days prior to December 31, 2003, or not less than one hundred twenty (120) days prior to December 31 of any year thereafter, the Company shall notify the Executive in writing of its intention not to renew this Agreement. 3. POSITION AND DUTIES. The Executive shall serve as the Executive Vice President and Secretary of the Company, reporting to the Chairman and the Board of Directors, and shall have such executive powers and duties as may from time to time be prescribed by the Chairman and Board of Directors; provided, however, that such additional duties shall not be inconsistent with his present duties and his position as a senior executive officer of the Company. If elected, the Executive shall serve as a director of the Company or of any subsidiary of the Company at no additional compensation. The Executive shall devote to the Company substantially all of his business time for the fulfillment of his obligations and the performance of his duties hereunder; provided, however, that nothing herein contained shall preclude him from performing duties as an officer or director of S.L. Brown & Company, Inc. or its subsidiaries or affiliates or from pursuing personal investments so long as such activities do not interfere with the Executive's performance of his duties hereunder. 4. COMPENSATION. 4.1 BASE SALARY. The Executive shall receive a base salary at the annual rate of $225,000 through December 31, 2003, or at such greater rate as the Board of Directors shall from time to time determine (the "Base Salary"), payable in accordance with the Company's normal payroll practices. This Agreement shall not be deemed abrogated or terminated if the Board of Directors shall determine to increase the Base Salary or if the Executive shall accept such increased compensation, but nothing herein contained shall be deemed to obligate the Board of Directors to make any such increase. 4.2 DISCRETIONARY BASE SALARY INCREASES. At any time or from time to time during the Period of Employment, the Board may increase the Base Salary to an amount exceeding the Base Salary determined pursuant to paragraph 4.1 above. Following any such discretionary increase in the Base Salary, the Board may or may not maintain the Base Salary at that increased level (or further increase the Base Salary beyond that level), but in no event shall the Base Salary in effect for any portion of the Period of Employment be an annual amount less than the amount determinable in accordance with paragraph 4.1 above. 4.3 BONUSES. The Executive shall be paid such bonuses from to time as shall be determined by the Board of Directors in its sole discretion. 4.4 PERQUISITES. The Company shall also furnish the Executive, without cost to him, with (1) reimbursement or payment for all garaging, maintenance, fuel and insurance associated with the use of one automobile; and (2) membership in one city luncheon club of the Executive's choosing to be used for business entertainment. The Company shall also reimburse the Executive for the cost of an annual physical examination of the Executive by a physician selected by the Executive. The Executive shall properly document such costs for federal income taxation purposes to preserve any deduction for such reimbursements to which the Company may be entitled. 4.5 EXPENSES. During the term of this Agreement, the Company shall reimburse the Executive for all reasonable and necessary travel, entertainment and other expenses and disbursements incurred by him for or on his behalf in the performance of his duties hereunder, upon his providing the Company with satisfactory vouchers, receipts or other evidence of such expenses. 4.6 EMPLOYEE PLANS. The Executive shall be entitled to participate in or receive benefits under any profit-sharing plan, savings plan, pension plan, stock option plan, group insurance plan (including, by way of illustration and not limitation, life, disability, accident, medical and dental insurance), death benefits plan or other employee plan or arrangement, now existing or hereafter adopted, for which he is eligible and which the Company may provide for him or for executive employees generally (individually, a "Benefit Plan" and collectively, the "Benefit Plans") to the fullest extent permitted under any such Benefit Plans; PROVIDED HOWEVER, that the foregoing shall in no way restrict or prohibit the Company's right to terminate, amend or otherwise change any such Benefit Plan. In the event the Company terminates, amends or otherwise changes any such Benefit Plan, the Company shall immediately provide the Executive with another Benefit Plan of equal or superior coverage. Nothing paid to the Executive under any Benefit Plan shall be deemed to be in lieu of compensation to the Executive hereunder. 2 The Executive shall be entitled to retain all directors fees and compensation paid to him with respect to any corporation for which he serves as a director, regardless of whether the Company has an investment in such corporation. 4.7 VACATIONS. The Executive shall be entitled to the number of paid vacation days in each calendar year determined by the Company from time to time for its senior executive officers, but in no event less than four weeks per year. The Executive shall also be entitled to all paid holidays given by the company to its senior executive officers. 5. TERMINATION. 5.1 Subject to the provisions of Section 6 hereof, this Agreement and the employment of the Executive hereunder shall terminate upon the occurrence of the first to occur of the following events or conditions: (a) the expiration of the term specified in Section 2 hereof, and of any renewal or extension thereof in accordance with Section 2 hereof; or (b) the death of the Executive; or (c) the Executive's voluntary departure from employment by the Company; or (d) the delivery to the Executive of a Notice of Termination (as such term is defined in Section 5.3 hereof) setting forth the election of the Board of Directors to terminate the Executive's employment for "disability" (within the meaning of Section 5.2(a) hereof) or for "cause" (within the meaning of Section 5.2(b) hereof). (e) written notice to the Company of the resignation by the Executive due to a Change of Control of the Company, as defined in the Severance Agreement. 5.2 The Board of Directors of the Company may elect to terminate the employment of the Executive hereunder: (a) for "disability", if it shall determine, in good faith, that, by reason of a physical or mental illness continuing for more than one-hundred twenty (120) consecutive business days or for shorter periods aggregating more than one hundred eighty (180) business days in any period of twelve (12) consecutive months (excluding, in each case, Saturdays, Sundays, holidays and days on which the Executive was on vacation), the Executive has been and continues to be substantially unable to render services of the character contemplated by this Agreement; PROVIDED, HOWEVER, that, in the event that the Executive does not agree with such determination by the Board of Directors, he shall be examined by a physician selected by him, who shall provide a statement as to whether or not the Executive is disabled within the meaning of this Agreement; PROVIDED, FURTHER, that, if the Company does not agree with such physician's statement, the Executive shall submit to an examination by a physician selected by the Company, and, if the two physicians disagree as to whether or not the Executive is disabled within the meaning of this Agreement, then the Executive shall submit to an examination by a third physician selected by the other two physicians whose 3 determination as to disability shall be binding and conclusive; PROVIDED, FURTHER, that each such examination shall be at the Company's expense; or (b) for "cause", if it shall determine, in good faith, that the Executive has (i) willfully and continually failed to substantially perform his duties hereunder, other than because of an incapacity due to physical or mental illness or (ii) willfully engaged in gross misconduct materially injurious to the Company. Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for "cause" unless and until there shall have been delivered to the Executive a copy of a resolution, duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board of Directors (excluding the Executive) at a meeting of the Board of Directors called and held for such purpose (after reasonable notice to the Executive and an opportunity for him, together with his counsel, to be heard before the Board of Directors), finding that, in the good faith opinion of the Board of Directors, the Executive was guilty of conduct set forth in clause (i) or (ii) above, and specifying the particulars thereof in detail. 5.3 Any termination by the Company of the employment of the Executive pursuant to Section 5.1(d) hereof or otherwise or by the Executive pursuant to Section 5.1(c) hereof shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated. 5.4 "Date of Termination" shall mean (a) if the Executive's employment is terminated by his death, the date of his death, (b) if the Executive's employment is terminated pursuant to Section 5.2(a) hereof, thirty (30) days after the later to occur of (x) the giving of the Notice of Termination (provided that the Executive shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period) or (y) the binding and conclusive determination of disability by the first or third physician, as the case may be, as specified in Section 5.2(a) hereof, (c) if the Executive's employment is terminated pursuant to Section 5.2(b) hereof, the date specified in the Notice of Termination, (d) if the Agreement is not renewed, on December 31 of the year during which the notice required by Section 2 hereof is given and (e) if the Executive's employment is terminated for any other reason, the date specified in the Notice of Termination. 6. COMPENSATION DURING DISABILITY OR UPON TERMINATION. 6.1 During any period that the Executive fails to perform his duties hereunder as a result of incapacity due to physical or mental illness, the Executive shall continue to receive his full Base Salary until the Executive's employment is terminated pursuant to Section 5.2(a) hereof, or until the Executive terminates his employment pursuant to Section 5.1(c) hereof, whichever occurs first. 6.2 In the event that the Executive's employment hereunder is terminated by the Company by reason of the Executive's disability, then, upon such termination, the Company shall pay to the Executive, in addition to any amounts of Base Salary accrued but unpaid, an amount equal to one-half of his annual Base Salary, which payment shall be made, at the option of the Executive, either in one (1) lump sum or over a six (6) month period in six (6) equal monthly installments. 4 6.3 In the event that the Executive's employment hereunder shall be terminated by reason of his death, then the Company shall pay to the Executive's estate, in addition to any amounts of Base Salary accrued but unpaid, an amount equal to the Executive's annual Base Salary, which payment shall be made, at the option of the executor of the estate of the Executive, either in one (1) lump sum or over a one (1) year period in twelve (12) equal monthly installments. 6.4 In the event that the Executive's employment shall be terminated for any reason other than his death or disability (including for "cause", as defined in Section 5.2(b) hereof) the Company shall pay the Executive his full Base Salary through the Date of Termination, plus the amount, if any, of any bonus for a prior year which has not yet been awarded or paid to the Executive under any deferred compensation plan. 6.5 In the event that the Executive's employment hereunder shall be terminated for any reason other than as provided in Section 5.1 or Section 5.2 hereof, then, in any such event, the Company shall pay the Executive (as liquidated damages without any obligation to mitigate by the Executive) an amount (the "Severance Amount") equal to the sum of (i) any amount of Base Salary accrued but unpaid, (ii) the full Base Salary which would have been payable during the remainder of the term of this Agreement and (iii) any bonus for a prior year which has not yet been awarded or paid to the Executive under any deferred compensation plan. The Severance Amount shall be paid to the Executive, at his option, either in one (1) lump sum or over a one (1) year period in twelve (12) equal monthly installments. The Company agrees upon the Executive's demand to pay, or to reimburse the Executive for, all of the Executive's legal, valuation, investigative and other related expenses and for all out-of-pocket costs and expenses of every type and nature incurred by the Executive in connection with the Executive's enforcement of his rights under this Section 6.5 and the collection of the Severance Amount. 6.6 For a period of one (1) year from the Date of Termination, the Company shall maintain in full force and effect, for the Executive's (and, where applicable, his dependents) continued benefit all life insurance, medical, health, dental and accident, and disability plans, programs or arrangements in which the Executive (and, where applicable, his dependents) was entitled to participate immediately prior to the Date of Termination (individually, a "Pre-Termination Plan" and collectively, the "Pre-Termination Plans"). To the extent that the Company finds it undesirable or impossible to cover the Executive (and, where applicable, his dependents) under any of the Pre-Termination Plans, the Company (at its own expense) shall provide the Executive (and, where applicable, his dependents) for such one (1) year period with substantially the same or a comparable level of coverage under individual policies or otherwise at no additional after tax cost for the Executive (or, where applicable, his dependents). At the end of the period of coverage hereinafter provided for, the Executive (or, where applicable, his dependents) shall have the option to have assigned to him (or, where applicable, his dependents) at no cost and with no apportionment of prepaid premiums, any assignable insurance owned by the Company and relating specifically to the Executive (and, where applicable, his dependents). Notwithstanding the foregoing, in the event that, during the one (1) year period provided for in this Section 6.6, a subsequent employer provides the Executive (and, where applicable, his dependents) with life insurance, medical, health, dental and accident, or disability plans, programs or arrangements of equal or superior coverage to that provided under the Pre-Termination Plans, the Company shall no longer be required to provide the Executive (and, where applicable, his dependents) with coverage under such Pre-Termination Plan or Plans with respect to which such equal or superior coverage is being provided. 5 7. INDEMNIFICATION, LITIGATION. (a) In the event of any litigation or other proceeding between the Company and the Executive with respect to the subject matter of this Agreement and the enforcement of rights hereunder, the Company shall reimburse the Executive for all costs and expenses relating to such litigation or other proceeding, including reasonable attorneys' fees and expenses, provided that such litigation or proceeding results in any: (1) Settlement requiring the Company to make a payment to the Executive; or (2) Judgment, order, or award in favor of the Executive, regardless of whether such judgment, order, or award is subsequently reversed on appeal or in a collateral proceeding. (b) In no event shall the Executive be required to reimburse the Company for any of the costs and expenses relating to such litigation or other proceeding. 8. NO EFFECT ON OTHER CONTRACTUAL RIGHTS. The provisions of this Agreement, and any payments provided for hereunder, shall not reduce any amounts otherwise payable, or in any way diminish the Executive's existing rights, or rights which would accrue solely as a result of the passage of time, under any Benefit Plan, employment agreement or other contract, plan or arrangement. 9. EFFECT OF PRIOR AGREEMENTS. This Agreement between the Company and the Executive contains the entire understanding between the Company and the Executive with respect to the subject matter hereof and supersedes any prior employment agreement (including the Prior Agreement") between the Company or any predecessor and the Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to the Executive of a kind elsewhere provided and not expressly provided in this Agreement. 10. SUCCESSORS. This Agreement shall inure to the benefit of and be binding upon the Executive, his assigns, his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees or legatees, and the Company, its successors and assigns, including any corporate successor by merger or consolidation and any person, firm or corporation to which all or substantially all of the assets and business of the Company may be sold; and as used herein, the term "Company" shall include any such successor and assign. 11. NOTICES. Any notice or request required or permitted under this Agreement shall be in writing and given or made by postage-paid registered or certified mail, return receipt requested, addressed as follows: If to the Executive, to: Mr. Spencer L. Brown 220 E. 72 Street Apt. 15C New York, New York 10021-4527 6 If to the Company, to: Franklin Capital Corporation 450 Park Avenue New York, New York 10022 Attention: Chairman or to either party hereto at such other address or addresses as such other party may from time to time specify for the purpose in a notice similarly given to the other party. 12. ENTIRE AGREEMENT; AMENDMENT. Subject to the provisions of Section 8 hereof, this instrument contains the entire agreement of the parties relating to the subject matter hereof, and the parties hereto have made no agreements, representations or warranties relating to the subject matter of this Agreement which are not set forth herein. No amendment or modification of this Agreement shall be valid unless in writing and signed by the parties hereto. 13. WAIVER. The waiver of the breach of any term or condition of this Agreement shall not be deemed to constitute the waiver of any other or subsequent breach of the same or any other term or condition. 14. CHOICE OF LAW. The invalidity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York. 15. SEVERABILITY. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 16. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. THE FRANKLIN CAPITAL CORPORATION By: /s/ ---------------------------------------- Name: Stephen L. Brown Title: Chairman and Chief Executive Officer /s/ ------------------------------------------- SPENCER L. BROWN 7 EX-10.(III) 8 c20374_ex14a210iii.txt SEVERANCE AGREEMENT - STEPHEN L. BROWN EXHIBIT 14(a)(2)(10)(iii) SEVERANCE COMPENSATION AGREEMENT THIS AGREEMENT, made effective as of May 1, 2000 by and between The Franklin Capital Corporation (formerly, The Franklin Holding Corporation (Delaware)), a Delaware corporation (the "Company"), and Stephen L. Brown (the "Executive"). WHEREAS, the Company and the Executive are parties to an employment agreement effective as of May 1, 2000 (the "Employment Agreement") providing for the employment of the Executive by the Company for a period and upon the other terms and conditions therein stated; and WHEREAS, the Company considers the maintenance of a sound and vital senior management to be essential to protecting and enhancing the interests of the Company and its shareholders; and WHEREAS, the Company recognizes that, as is the case with many publicly owned corporations, the possibility of a change in control of the Company may arise and that such possibility, and the uncertainty and questions which it may raise among senior management, may result in the departure or distraction of senior management personnel to the detriment of the Company and its shareholders; and WHEREAS, accordingly the Company has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's senior management to their assigned duties and long-range responsibilities without distraction in circumstances arising from the possibility of a change in control of the Company; and WHEREAS, the Company believes it important and in the best interests of the Company and its shareholders, should the Company face the possibility of a change in control, that the senior management of the Company be able to assess and advise the Board of Directors of the Company whether such a proposed change in control would be in the best interests of the Company and its shareholders and to take such other action regarding such a proposal as the Board of Directors might determine to be appropriate, without senior management being influenced by the uncertainties of their own employment situations; and WHEREAS, in order to induce the Executive to remain in the employ of the Company in the event of any actual or threatened change in control of the Company, the Company has determined to set forth the severance benefits which the Company will provide to the Executive under the circumstances set forth below; NOW, THEREFORE, the parties hereto hereby agree as follows: 1. Definitions. (a) All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Employment Agreement. (b) "Change in Control" shall mean the occurrence of any of the following events: (i) any person, within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or group of persons, within the meaning of Exchange Act Rule 13d-5, other than the Company or any of its subsidiaries, becomes a beneficial owner, directly or indirectly, of thirty percent (30%) or more in voting power or amount of the Company's then outstanding equity securities, without the approval of not less than two-thirds of the Board in existence prior to such ownership; (ii) individuals who constitute the Board on any day (the "Incumbent Board") cease for any reason other than their deaths or resignations to constitute at least a majority of the Board on the following day (which day shall be considered the day upon which occurs the Change in Control), provided that any individual becoming a director subsequent to the date of this Agreement whose election or nomination for election by the Company's shareholders was approved by a vote of not less than three-quarters of the Incumbent Board or not less than two-thirds of the then incumbent Nominating Committee of the Board shall be for purposes of this subsection considered as though such person were a member of the Incumbent Board; (iii) the necessary majority of the Company's shareholders approve any reorganization (other than a mere change in identity, form or place of organization of the Company, however effected), merger or consolidation of the Company, or any other transaction with one or more business entities or persons as a result of which the stock of the Company is exchanged for or converted into cash or property or securities not issued by the Company, or as a result of which there is a change in ownership of existing equity securities of the Company or issuance of new equity securities of the Company (or the right or option to acquire such equity securities) which equals or exceeds thirty percent (30%) in voting power or amount of the equity securities of the Company outstanding upon completion of such transaction, unless such reorganization, merger consolidation or other transaction shall have been affirmatively recommended to the Company's shareholders by not less than two-thirds of the Incumbent Board; (iv) the necessary majority of the Company's shareholders approve the sale of (or agreement to sell or grant of a right or option to purchase as to) all or substantially all of the assets of the Company to any person or business entity, unless such sale or other transaction shall have been affirmatively recommended to the Company's shareholders by not less than two-thirds of the Board; (v) the dissolution or liquidation of the Company; (vi) the occurrence of any circumstance having the effect that persons who were nominated for election as directors by the Board shall fail to become directors of the Company other than because of their death or withdrawal; (vii) a change in control of a nature that would be required to be reported in response to Item 1(a) of the Current Report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Exchange Act, unless such change in control is approved by not less than two-thirds of the Board in existence prior to such change in control; (viii) such other events as the Board may designate. 2 2. Termination of Employment If the Executive is an employee of the Company on the day before a Change in Control and the Executive's employment with the Company is terminated (i) by the Executive or (ii) by the Company as a Without Cause Termination, in either case within one year from the date of such Change in Control, the Company hereby agrees to provide to the Executive the following benefits: (a) a lump sum payment, payable in cash, cashier's check or by wire, within ten (10) business days from the date of such termination of employment equal to 1.5 times the Executive's average base salary, incentive compensation, bonus and any other amounts which may be included in the Executive's income as compensation from the Company) over the most recent five (5) years (or such lesser time as the Executive was employed by the Company as an employee) preceding the year in which occurred the Change in Control; (b) a lump sum payment, payable in cash, cashier's check or by wire, within ten (10) business days from the date of such termination of employment in an amount equal to such termination of employment in an amount equal to any amounts forfeited, on account of such termination of employment, under any employee pension benefit plan, as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), maintained or contributed to by the Company and participated in by the Executive at any time between the day before the Change in Control and the day of the Executive's termination of employment; (c) to the extent not otherwise payable to the Executive, continued coverage of the Executive and the Executive's beneficiaries for a period extending through the latter of the date the Executive commences any subsequent full-time employment for pay and the date that is three (3) years after the Executive's termination of employment, under all employee welfare benefit plans, as defined in Section 3(1) of ERISA, maintained or contributed to by the Company and covering the Executive at any time between the day before the Change in Control and the day of the Executive's termination of employment; such continuation coverage shall (i) be provided at the expense of the Company to the extent so provided prior to the termination of employment, (ii) as of the time the coverage is being provided be identical to the highest level of coverage provided under each such plan to the Executive and the Executive's beneficiaries at any time between the day before the Change in Control and the day of the Executive's termination of employment, and (iii) not be conditioned upon, or discriminate on the basis or lack of, evidence of insurability; and (d) in the event of the termination of employment by the Company that is a Without Cause Termination or a Constructive Discharge, all benefits provided for by the Employment Agreement under such circumstances, reduced by all benefits provided pursuant to (a) through (c) above. 3. No Obligation to Mitigate Damages; No Effect on Other Contractual Rights. (a) The Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by the Executive as the result of employment by another employer after the date of termination of his employment with the Company or otherwise. (b) Except as expressly provided in Section 2(d), the provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, 3 supersede, affect or in any way diminish the Executive's existing rights, or rights which would accrue solely as a result of the passage of time, under any applicable law or any pension benefit or welfare benefit plan, employment agreement or other contract, plan or arrangement. 4. LIMITATION ON BENEFITS; ATTORNEY'S FEES; INTEREST (a) Notwithstanding any provisions to the contrary in this Agreement, if any part of the payments provided for under Section 2 of this Agreement (the "Agreement Payments") would if paid constitute a "parachute payment" under Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), then the Agreement Payments shall be payable to the Executive only if (i) the sum of the value of the Agreement Payments and of the value of all other to or for the benefit of the Executive that constitute "parachute payments" less the amount of any excise taxes payable under Code Section 4999, and any similar or comparable taxes in connection with such sum, is greater than (ii) the greatest value of payments in the nature of compensation contingent upon a change in control that could be paid at such time to or for the benefit of the Executive and not constitute a "parachute payment" (the "Alternative Payment"); otherwise, only the Alternative Payment shall be payable to the Executive. For purposes of this Section 4(a), the value of payments shall be determined in accordance with Code Section 280G(d)(4) and any regulations issued thereunder. (b) The determination of the operation of Section 4(a) and of any reduction in benefits necessary thereunder shall be made by the Executive upon reasonable advice of the Executive's counsel or accountant, except that, should the Internal Revenue Service ever determine to the Executive's satisfaction that any of the payments provided under this Agreement constitute a "parachute payment," the Executive shall repay to the Company an amount sufficient at that time to prevent any of such payments from constituting a "parachute payment". In any case in which the level of benefits provided for under this Agreement is reduced or not provided to the Executive on account of the operation of Section 4(a), the Executive may select those benefits which are to be reduced or not provided. (c) If the Company shall fail to pay or provide at any time any benefits under this Agreement or under any benefit plan, agreement or arrangement established, agreed to or contracted for by the Company for the benefit of or with the Executive, the Executive shall be entitled to consult with independent counsel, and the Company shall pay the reasonable fees and expenses of such counsel for the Executive in advising him in connection therewith or in bringing any proceedings, or in defending any proceedings, involving the Executive's rights under this Agreement, such right to reimbursement to be immediate upon the presentment by the Executive of written billings of such reasonable fees and expenses. The Executive shall be entitled to interest at the "prime rate" established from time to time by the Bank of New York for any payments of such expenses, or any other payments following the Executive's termination of employment, that are overdue. (d) The Company shall have the right to withhold from all payments due hereunder all income and excise taxes required to be withheld by applicable law and regulations. 5. Governing Law This agreement shall be governed by and construed in accordance with the laws of the State of New York. 4 6. Miscellaneous (a) If any rights pursuant to Section 2 above have accrued to the Executive prior to the Executive's death or a judicial determination of the Executive's incompetence, but have not been fully satisfied hereunder at the time of such event, such rights shall survive and shall inure to the benefit of the Executive's heirs, beneficiaries and legal representative. Otherwise, this Agreement shall terminate upon the Executive's death or a judicial determination of the Executive's incompetence. (b) Nothing herein (other than as provided in Section 2(d)) shall be deemed to affect or alter the Executive's current employment status and the status of the Employment Agreement. (c) In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions or portions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. 7. Notice. All notices or communications hereunder shall be given in accordance with the requirements for notices contained in the Employment Agreement. 8. Amendment; Termination; Waiver. No provisions of this Agreement may be amended, modified or waived and this Agreement may not be terminated unless such is authorized by a majority of the Board and agreed to in writing by the Executive; provided that if the term of the Employment Agreement, as such may be extended, expires, this Agreement shall simultaneously be terminated. No waiver by either party hereto of any breach by the other party hereto of any condition or any provision of this Agreement to be performed by such other party shall be deemed a waiver of a subsequent breach of such condition or provision or waiver of a similar or dissimilar condition or provision at the same time or any subsequent time. 9. Successors. (a) Except as otherwise provided herein, the Company's rights, duties and obligations under this Agreement shall be binding upon and inure to the benefit of the Company and any successor of the Company, including, without limitation, any business entity or business entities acquiring directly or indirectly all or substantially all of the assets or shares of Stock whether by merger, consolidation, sale or otherwise -- and such successor shall thereafter be deemed the "Company" for all purposes of this Agreement -- but such rights, duties and obligations shall not otherwise be assignable by the Company. (b) Within thirty (30) days following a Change in Control, the Company (including any successor of the Company) shall in writing affirm to the Executive its obligations under this Agreement, and any failure by the Company to so affirm this Agreement shall, for purposes of this Agreement only, be considered a Without Cause Termination. 5 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and its seal to be affixed hereunto by its duly authorized officers, and the Executive has signed and delivered this Agreement, all as of May 1, 2000, but actually on the dates set forth below. THE FRANKLIN CAPITAL CORPORATION By: /s/ ------------------------------ Name: Hiram M. Lazar Title: Chief Financial Officer /s/ --------------------------------- STEPHEN L. BROWN 6 EX-10.(IV) 9 c20374_ex14a210iv.txt SEVERANCE AGREEMENT - SPENCER L. BROWN EXHIBIT 14 (a)(2)(10)(iv) SEVERANCE COMPENSATION AGREEMENT THIS AGREEMENT, made effective as of May 1, 2000 by and between The Franklin Capital Corporation (formerly, The Franklin Holding Corporation (Delaware)), a Delaware corporation (the "Company"), and Spencer L. Brown (the "Executive"). WHEREAS, the Company and the Executive are parties to an employment agreement effective as of May 1, 2000 (the "Employment Agreement") providing for the employment of the Executive by the Company for a period and upon the other terms and conditions therein stated; and WHEREAS, the Company considers the maintenance of a sound and vital senior management to be essential to protecting and enhancing the interests of the Company and its shareholders; and WHEREAS, the Company recognizes that, as is the case with many publicly owned corporations, the possibility of a change in control of the Company may arise and that such possibility, and the uncertainty and questions which it may raise among senior management, may result in the departure or distraction of senior management personnel to the detriment of the Company and its shareholders; and WHEREAS, accordingly the Company has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's senior management to their assigned duties and long-range responsibilities without distraction in circumstances arising from the possibility of a change in control of the Company; and WHEREAS, the Company believes it important and in the best interests of the Company and its shareholders, should the Company face the possibility of a change in control, that the senior management of the Company be able to assess and advise the Board of Directors of the Company whether such a proposed change in control would be in the best interests of the Company and its shareholders and to take such other action regarding such a proposal as the Board of Directors might determine to be appropriate, without senior management being influenced by the uncertainties of their own employment situations; and WHEREAS, in order to induce the Executive to remain in the employ of the Company in the event of any actual or threatened change in control of the Company, the Company has determined to set forth the severance benefits which the Company will provide to the Executive under the circumstances set forth below; NOW, THEREFORE, the parties hereto hereby agree as follows: 1. Definitions. (a) All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Employment Agreement. (b) "Change in Control" shall mean the occurrence of any of the following events: (i) any person, within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or group of persons, within the meaning of Exchange Act Rule 13d-5, other than the Company or any of its subsidiaries, becomes a beneficial owner, directly or indirectly, of thirty percent (30%) or more in voting power or amount of the Company's then outstanding equity securities, without the approval of not less than two-thirds of the Board in existence prior to such ownership; (ii) individuals who constitute the Board on any day (the "Incumbent Board") cease for any reason other than their deaths or resignations to constitute at least a majority of the Board on the following day (which day shall be considered the day upon which occurs the Change in Control), provided that any individual becoming a director subsequent to the date of this Agreement whose election or nomination for election by the Company's shareholders was approved by a vote of not less than three-quarters of the Incumbent Board or not less than two-thirds of the then incumbent Nominating Committee of the Board shall be for purposes of this subsection considered as though such person were a member of the Incumbent Board; (iii) the necessary majority of the Company's shareholders approve any reorganization (other than a mere change in identity, form or place of organization of the Company, however effected), merger or consolidation of the Company, or any other transaction with one or more business entities or persons as a result of which the stock of the Company is exchanged for or converted into cash or property or securities not issued by the Company, or as a result of which there is a change in ownership of existing equity securities of the Company or issuance of new equity securities of the Company (or the right or option to acquire such equity securities) which equals or exceeds thirty percent (30%) in voting power or amount of the equity securities of the Company outstanding upon completion of such transaction, unless such reorganization, merger consolidation or other transaction shall have been affirmatively recommended to the Company's shareholders by not less than two-thirds of the Incumbent Board; (iv) the necessary majority of the Company's shareholders approve the sale of (or agreement to sell or grant of a right or option to purchase as to) all or substantially all of the assets of the Company to any person or business entity, unless such sale or other transaction shall have been affirmatively recommended to the Company's shareholders by not less than two-thirds of the Board; (v) the dissolution or liquidation of the Company; (vi) the occurrence of any circumstance having the effect that persons who were nominated for election as directors by the Board shall fail to become directors of the Company other than because of their death or withdrawal; (vii) a change in control of a nature that would be required to be reported in response to Item 1(a) of the Current Report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Exchange Act, unless such change in control is approved by not less than two-thirds of the Board in existence prior to such change in control; (viii) such other events as the Board may designate. 2 2. Termination of Employment If the Executive is an employee of the Company on the day before a Change in Control and the Executive's employment with the Company is terminated (i) by the Executive or (ii) by the Company as a Without Cause Termination, in either case within one year from the date of such Change in Control, the Company hereby agrees to provide to the Executive the following benefits: (a) a lump sum payment, payable in cash, cashier's check or by wire, within ten (10) business days from the date of such termination of employment equal to 1.5 times the Executive's average base salary, incentive compensation, bonus and any other amounts which may be included in the Executive's income as compensation from the Company) over the most recent five (5) years (or such lesser time as the Executive was employed by the Company as an employee) preceding the year in which occurred the Change in Control; (b) a lump sum payment, payable in cash, cashier's check or by wire, within ten (10) business days from the date of such termination of employment in an amount equal to such termination of employment in an amount equal to any amounts forfeited, on account of such termination of employment, under any employee pension benefit plan, as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), maintained or contributed to by the Company and participated in by the Executive at any time between the day before the Change in Control and the day of the Executive's termination of employment; (c) to the extent not otherwise payable to the Executive, continued coverage of the Executive and the Executive's beneficiaries for a period extending through the latter of the date the Executive commences any subsequent full-time employment for pay and the date that is three (3) years after the Executive's termination of employment, under all employee welfare benefit plans, as defined in Section 3(1) of ERISA, maintained or contributed to by the Company and covering the Executive at any time between the day before the Change in Control and the day of the Executive's termination of employment; such continuation coverage shall (i) be provided at the expense of the Company to the extent so provided prior to the termination of employment, (ii) as of the time the coverage is being provided be identical to the highest level of coverage provided under each such plan to the Executive and the Executive's beneficiaries at any time between the day before the Change in Control and the day of the Executive's termination of employment, and (iii) not be conditioned upon, or discriminate on the basis or lack of, evidence of insurability; and (d) in the event of the termination of employment by the Company that is a Without Cause Termination or a Constructive Discharge, all benefits provided for by the Employment Agreement under such circumstances, reduced by all benefits provided pursuant to (a) through (c) above. 3. No Obligation to Mitigate Damages; No Effect on Other Contractual Rights. (a) The Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by the Executive as the result of employment by another employer after the date of termination of his employment with the Company or otherwise. 3 (b) Except as expressly provided in Section 2(d), the provisions of this Agreement, and any payment provided for hereunder, shall not reduce any amounts otherwise payable, supersede, affect or in any way diminish the Executive's existing rights, or rights which would accrue solely as a result of the passage of time, under any applicable law or any pension benefit or welfare benefit plan, employment agreement or other contract, plan or arrangement. 4. Limitation on Benefits; Attorney's Fees; Interest (a) Notwithstanding any provisions to the contrary in this Agreement, if any part of the payments provided for under Section 2 of this Agreement (the "Agreement Payments") would if paid constitute a "parachute payment" under Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), then the Agreement Payments shall be payable to the Executive only if (i) the sum of the value of the Agreement Payments and of the value of all other to or for the benefit of the Executive that constitute "parachute payments" less the amount of any excise taxes payable under Code Section 4999, and any similar or comparable taxes in connection with such sum, is greater than (ii) the greatest value of payments in the nature of compensation contingent upon a change in control that could be paid at such time to or for the benefit of the Executive and not constitute a "parachute payment" (the "Alternative Payment"); otherwise, only the Alternative Payment shall be payable to the Executive. For purposes of this Section 4(a), the value of payments shall be determined in accordance with Code Section 280G(d)(4) and any regulations issued thereunder. (b) The determination of the operation of Section 4(a) and of any reduction in benefits necessary thereunder shall be made by the Executive upon reasonable advice of the Executive's counsel or accountant, except that, should the Internal Revenue Service ever determine to the Executive's satisfaction that any of the payments provided under this Agreement constitute a "parachute payment," the Executive shall repay to the Company an amount sufficient at that time to prevent any of such payments from constituting a "parachute payment". In any case in which the level of benefits provided for under this Agreement is reduced or not provided to the Executive on account of the operation of Section 4(a), the Executive may select those benefits which are to be reduced or not provided. (c) If the Company shall fail to pay or provide at any time any benefits under this Agreement or under any benefit plan, agreement or arrangement established, agreed to or contracted for by the Company for the benefit of or with the Executive, the Executive shall be entitled to consult with independent counsel, and the Company shall pay the reasonable fees and expenses of such counsel for the Executive in advising him in connection therewith or in bringing any proceedings, or in defending any proceedings, involving the Executive's rights under this Agreement, such right to reimbursement to be immediate upon the presentment by the Executive of written billings of such reasonable fees and expenses. The Executive shall be entitled to interest at the "prime rate" established from time to time by the Bank of New York for any payments of such expenses, or any other payments following the Executive's termination of employment, that are overdue. (d) The Company shall have the right to withhold from all payments due hereunder all income and excise taxes required to be withheld by applicable law and regulations. 4 5. Governing Law This agreement shall be governed by and construed in accordance with the laws of the State of New York. 6. Miscellaneous (a) If any rights pursuant to Section 2 above have accrued to the Executive prior to the Executive's death or a judicial determination of the Executive's incompetence, but have not been fully satisfied hereunder at the time of such event, such rights shall survive and shall inure to the benefit of the Executive's heirs, beneficiaries and legal representative. Otherwise, this Agreement shall terminate upon the Executive's death or a judicial determination of the Executive's incompetence. (b) Nothing herein (other than as provided in Section 2(d)) shall be deemed to affect or alter the Executive's current employment status and the status of the Employment Agreement. (c) In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions or portions of this Agreement shall be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. 7. Notice. All notices or communications hereunder shall be given in accordance with the requirements for notices contained in the Employment Agreement. 8. Amendment; Termination; Waiver. No provisions of this Agreement may be amended, modified or waived and this Agreement may not be terminated unless such is authorized by a majority of the Board and agreed to in writing by the Executive; provided that if the term of the Employment Agreement, as such may be extended, expires, this Agreement shall simultaneously be terminated. No waiver by either party hereto of any breach by the other party hereto of any condition or any provision of this Agreement to be performed by such other party shall be deemed a waiver of a subsequent breach of such condition or provision or waiver of a similar or dissimilar condition or provision at the same time or any subsequent time. 9. Successors. (a) Except as otherwise provided herein, the Company's rights, duties and obligations under this Agreement shall be binding upon and inure to the benefit of the Company and any successor of the Company, including, without limitation, any business entity or business entities acquiring directly or indirectly all or substantially all of the assets or shares of Stock whether by merger, consolidation, sale or otherwise -- and such successor shall thereafter be deemed the "Company" for all purposes of this Agreement -- but such rights, duties and obligations shall not otherwise be assignable by the Company. (b) Within thirty (30) days following a Change in Control, the Company (including any successor of the Company) shall in writing affirm to the Executive its obligations under this Agreement, and any failure by the Company to so affirm this Agreement shall, for purposes of this Agreement only, be considered a Without Cause Termination. 5 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and its seal to be affixed hereunto by its duly authorized officers, and the Executive has signed and delivered this Agreement, all as of May 1, 2000, but actually on the dates set forth below. THE FRANKLIN CAPITAL CORPORATION By: /s/ ------------------------------------------ Name: Stephen L. Brown Title: Chairman and Chief Executive Officer /s/ --------------------------------------------- SPENCER L. BROWN 6 EX-23 10 c20374_ex23.txt CONSENT OF INDEPENDENT AUDITORS EXHIBIT 14(a)(2)(23) Consent of Independent Auditors We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-306-04) pertaining to the Non-Statutory Stock Option Plan for the Directors and the Stock Incentive Plan of The Franklin Holding Corporation of our report dated February 16, 2001, with respect to the financial statements of Franklin Capital Corporation (formerly The Franklin Holding Corporation) included in the Annual Report (10-K) for the year ended December 31, 2000, filed with the Securities and Exchange Commission. ERNST & YOUNG LLP New York, New York March 27, 2001 -----END PRIVACY-ENHANCED MESSAGE-----