SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934
(Amendment No. ____)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to SS.240.14a-12
FRANKLIN CAPITAL CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
-------------
5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11 (a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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FRANKLIN CAPITAL CORPORATION
450 PARK AVENUE
NEW YORK, NEW YORK 10022
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 14, 2002
The Annual Meeting of Stockholders of Franklin Capital Corporation (the
"Corporation") will be held on August 14, 2002 at 2 o'clock p.m., New York Time,
at the offices of Weil, Gotshal and Manges, LLP, 767 Fifth Avenue, 25th Floor,
New York, New York 10153 for the following purposes:
1. To elect six (6) directors to hold office until the next Annual
Meeting of Stockholders and until their successors have been duly
elected and have qualified (four (4) of whom are to be elected by
the holders of Common Stock and Preferred Stock, voting together
as a class, and two (2) of whom are to be elected solely by
holders of Preferred Stock);
2. To approve the withdrawal of the Corporation's election to be
regulated as a business development company under the Investment
Company Act of 1940;
3. To ratify the appointment by the Board of Directors of the
Corporation (the "Board") of Ernst & Young LLP to serve as
independent auditors for the fiscal year ending December 31,
2002; and
4. To consider and transact such other business as may properly come
before the meeting or any adjournment or postponement thereof.
The Board has fixed the close of business on July 10, 2002 as the record
date for the determination of the stockholders entitled to notice of, and to
vote at, the meeting or any adjournment or postponement thereof. Each
stockholder is entitled to one vote for each share of Common Stock, $1.00 par
value, and Preferred Stock, $1.00 par value, held on the record date.
If you cannot attend the meeting, please sign and return the enclosed proxy
card as soon as possible in order that you may be represented at the meeting. If
you attend the meeting, you may vote in person even though you have sent in a
proxy.
By Order of the Board of Directors
SPENCER L. BROWN
SECRETARY
New York, New York
July 19, 2002
FRANKLIN CAPITAL CORPORATION
450 PARK AVENUE
NEW YORK, NEW YORK 10022
PROXY STATEMENT
SOLICITATION OF PROXIES
This Proxy Statement is furnished by the Board of Directors ("the Board")
of Franklin Capital Corporation, a Delaware corporation (the "Corporation", or
"Franklin"), in connection with the solicitation by the Corporation of proxies
for use at the Annual Meeting of Stockholders (the "Meeting") to be held on
August 14, 2002, at 2 o'clock p.m., New York Time, at the offices of Weil,
Gotshal and Manges, LLP, 767 Fifth Avenue, 25th Floor, New York, New York 10153.
This proxy statement and form of proxy are first being sent to stockholders on
or about July 19, 2002.
RECENT DEVELOPMENT
On July 1, 2002, Franklin announced that it has exercised its contractual
right to terminate the Agreement and Plan of Merger (the "Merger Agreement"),
dated as of December 4, 2001, between Franklin and Change Technology Partners,
Inc. The Board of Directors of Franklin believes that, because of a change in
circumstances at both companies between the time the Merger Agreement was signed
and July 1, 2002, it is no longer in the best interests of Franklin and its
stockholders to complete the merger. Franklin is currently exploring other
opportunities to solidify its financial structure and create value for its
stockholders.
VOTING AND REVOCABILITY OF PROXIES
Stockholders who execute proxies may revoke them at any time before they
are voted, by delivering to Mr. Spencer L. Brown, Secretary of the Corporation,
at the offices of the Corporation at 450 Park Avenue, 10th Floor, New York, New
York, 10022, before the ballot is cast, either an instrument revoking the proxy
or a duly executed proxy bearing a later date, or by attending the Meeting and
voting in person. A proxy, when executed and not so revoked, will be voted in
accordance with the specifications contained therein. If no contrary
specification is indicated on the proxy, the shares represented thereby will be
voted in favor of (i) the election of the nominees for directors, (ii) the
withdrawal of the Corporation's election to be regulated as a business
development company under the Investment Company Act of 1940 (the "1940 Act")
and (iii) the ratification of the appointment of Ernst & Young LLP as the
Corporation's independent auditors.
In the event that the persons named as proxies propose one or more
adjournments to permit further solicitation with respect to any proposal to be
voted upon at the Meeting, any such adjournments would require the affirmative
vote of a majority of the shares present in person or by proxy at the session of
the Meeting to be adjourned. The proxyholders will vote in favor of such an
adjournment with respect to those proxies which instruct them to vote in favor
of such proposal (including proxies which have no contrary specification with
respect to such proposal), and will vote against such an adjournment with
respect to those proxies which instruct them to vote against or abstain from
voting with respect to such proposal. No adjournment will be for any period
later than September 23, 2002.
Except as stated specifically and except with respect to the election of
directors, which is by plurality of votes cast, each of the matters being
submitted to stockholder vote pursuant to the Notice of Annual Meeting will be
approved if a quorum is present in person or by proxy and a majority of the
votes cast on a particular matter are cast in favor of that matter. In tallying
the vote, abstentions and broker non-votes will be considered to be shares of
Common Stock or Preferred Stock present at the Meeting, but not voting in favor
of the election of the nominees (i.e., they will have the same legal affect as a
vote "against" the election of the nominees).
EXPENSES OF SOLICITATION OF PROXIES
The solicitation will be made by the Corporation and all expenses will be
borne by the Corporation. The solicitation will be conducted by mail, except
that in a limited number of instances proxies may be solicited by directors,
officers and other employees of the Corporation personally, by telephone or by
facsimile. THE CORPORATION WILL FURNISH, WITHOUT CHARGE, A COPY OF THE ANNUAL
REPORT TO ANY STOCKHOLDER UPON REQUEST IN WRITING ADDRESSED TO "FRANKLIN CAPITAL
CORPORATION, 450 PARK AVENUE, NEW YORK, NEW YORK 10022, ATTENTION: STOCKHOLDER
RELATIONS" OR BY CALLING COLLECT TO (212) 486-2323.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
OUTSTANDING SHARES AND VOTING RIGHTS
At the close of business on July 10, 2002, the record date for the Meeting
(the "Record Date"), the outstanding voting securities of the Corporation
consisted of 1,065,600 shares of Common Stock, each of which is entitled to one
vote, and 16,450 shares of Preferred Stock convertible into Common Stock, each
of which is entitled to one vote.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
holdings of any person, including any "group" as that term is defined in Section
13(d)(3) of the Securities Exchange Act of 1934 (as amended, the "1934 Act"),
who was known to the Corporation to be the "beneficial owner", as defined in
Rule 13(d)(3) under the 1934 Act, of more than 5% of the outstanding Common
Stock at the close of business on May 31, 2002. The following information is
based solely on a review by the Corporation of its capital stock transfer
records and on publicly available filings made with the Securities and Exchange
Commission (the "Commission") by or on behalf of stockholders of the
Corporation.
TITLE NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF CLASS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
Common The Prudential Insurance Company 190,966 17.9%
Stock of America
751 Broad Street
Newark, NJ 07102
Common Stephen L. Brown, Chairman 143,791(1) 13.5%
Stock c/o Franklin Capital Corporation
450 Park Avenue
New York, New York 10022
2
Common Kuby Gottlieb Special Value Fund 68,900(2) 6.5%
Stock 500 West Madison Avenue, 27th Floor
Chicago, IL 60661
(1) Does not include 41,029 shares of Common Stock beneficially owned by Mr.
Brown's children, 33,494 shares of which are owned by his son, Spencer L.
Brown, Secretary of the Corporation. Mr. Brown disclaims beneficial
ownership of all such shares.
(2) Includes Preferred Stock owned convertible into 30,000 shares of Common
Stock.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information with respect to the
Common Stock beneficially owned, as defined in Rule 13(d)(3) under the 1934 Act,
by each director of the Corporation, each nominee for director, each named
executive officer and by all directors and nominees and named executive officers
of the Corporation as a group, at the close of business on June 30, 2002.
NAME OF BENEFICIAL COMMON SHARES PREFERRED SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED PERCENT BENEFICIALLY OWNED PERCENT
Stephen L. Brown(1) 143,791 13.5% -- *
Irving Levine(2) 46,375 4.2% 4,750 28.9%
Spencer L. Brown(3) 33,494 3.1% 250 1.5%
Hiram M. Lazar(4) 9,085 * 100 *
Michael P. Rolnick(5) 7,250 * 0 --
David T. Lender 300 * 0 --
Laurence I. Foster 0 -- 0 --
All officers and directors
as a group (7 persons) 337,895 29.1% 10,100 61.4%
* Less than 1%
(1) Does not include 41,029 shares beneficially owned by Mr. Brown's children,
including 33,494 shares owned by Spencer L. Brown. See (3) below. Mr. Brown
disclaims beneficial ownership of all such shares.
(2) Includes options currently exercisable for 6,250 shares. Also includes
Preferred Stock convertible into 33,750 shares of Common Stock owned by
Copley Fund, Inc. ("Copley"). Mr. Levine may 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.
(3) Also includes Preferred Stock owned convertible into 1,875 shares of Common
Stock.
(4) Includes options currently exercisable for 1,875 shares. Also includes
Preferred Stock owned convertible into 750 shares of Common Stock.
(5) Includes options currently exercisable for 6,250 shares.
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ELECTION OF DIRECTORS
INFORMATION CONCERNING NOMINEES
At the Meeting, the Common Stockholders and Preferred Stockholders, voting
together, will elect four (4) directors. In addition, the holders of the
Preferred Stock, voting separately as a class, will elect two (2) directors who
will thereafter be designated as the Preferred Stock Directors. Each of the six
(6) directors will hold office until the next Annual Meeting of Stockholders and
until their respective successors have been elected and qualified. Each
stockholder of record at the close of business on July 10, 2002 is entitled to
one vote for each share of Common Stock and Preferred Stock registered in the
name of such stockholder on the books of the Corporation.
The term of the present directors of the Corporation expires when their
respective successors have been duly elected and qualified.
Information with respect to the nominees for election as directors of the
Corporation follows:
POSITION DIRECTOR
NAME AGE WITH THE CORPORATION SINCE
Stephen L. Brown* 64 Chairman of the Board, 1986
Chief Executive Officer and Director
Spencer L. Brown* ** 36 Senior Vice-President, Secretary --
Irving Levine** 80 Director 1990
Michael P. Rolnick 37 Director 1998
David T. Lender 49 Director 2000
Laurence I. Foster 60 -- --
* Messrs. Stephen and Spencer Brown are each an "interested person" of the
Corporation within the meaning of the Investment Company Act of 1940 (as
amended, the "1940 Act") by reason of their respective positions as
Chairman and Chief Executive Officer and Senior Vice-President and
Secretary of the Corporation.
** Preferred Stock Director
STEPHEN L. BROWN, Chairman of the Board, has been Chairman and Chief
Executive Officer since October 1986. Prior to joining Franklin, Mr. Brown was
Chairman of S.L. Brown & Company, Inc., a private investment firm. Mr. Brown is
a director of Copley Financial Services Corporation (advisor to Copley Fund,
Inc., a mutual fund). Mr. Brown's address is c/o Franklin Capital Corporation,
450 Park Avenue, New York, New York 10022.
SPENCER L. BROWN, Senior Vice President and Secretary, has been Senior Vice
President since November 1995, Secretary of the Corporation since October 1994
and was Vice President from August 1994 to November 1995. Mr. Brown, a nominee
for election as a Preferred Stock Director, is the son of Mr. Stephen L. Brown,
the Chairman and Chief Executive Officer of the Corporation. Mr. Brown's address
is c/o Franklin Capital Corporation, 450 Park Avenue, New York, New York 10022.
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DAVID T. LENDER, a director of the Corporation, is Managing Director at
Banc of America Securities, LLC where he specializes in mergers and
acquisitions. Prior to joining Banc of America Securities, LLC, in 2000 Mr.
Lender was a Managing Director in the Mergers and Acquisitions Group of
Rothschild, Inc. Mr. Lender's address is c/o Banc of America Securities LLC, 9
West 57th Street, New York, NY 10019.
IRVING LEVINE, a Preferred Stock Director of the Corporation, 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 also 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. Mr. Levine's address is
c/o Copley Fund, Inc. 315 Pleasant Street, 5th Floor, Fall River, MA 02721.
MICHAEL P. ROLNICK, a director of the Corporation, is a General Partner at
ComVentures, a venture capital firm that invests in early stage Internet and
communications companies. Mr. Rolnick is responsible for private equity
investments and managing portfolio companies. Prior to joining ComVentures in
1999, Mr. Rolnick had been Vice President for New Ventures at E* Trade Group
Inc. since 1997. Mr. Rolnick's address is c/o ComVentures, 305 Lytton Avenue,
Palo Alto, CA 94301.
LAURENCE I. FOSTER, a nominee for election as director of the Corporation,
was a partner at KPMG until his retirement in May, 2000 when he joined Richard
E. Eisner & Company LLP's New York City office as a partner in the personal
financial planning practice. In June, 2002 Mr. Foster became an independent
consultant. Mr. Foster holds the American Institute of Certified Public
Accountants "Personal Financial Specialist" (PFS) designation. Mr. Foster is a
member of the American Institute of Certified Public Accountants where he is the
Chairman on the PFS Credential Committee. Mr. Foster is also a member of the New
York State Society of Certified Public Accountants and the former chairman of
their Estate Planning Committee. Mr. Foster's address is 750 Third Avenue, New
York, New York 10017.
EXECUTIVE OFFICERS
In addition to Messrs. Stephen and Spencer Brown, the following individual
is an executive officer of the Corporation:
HIRAM M. LAZAR, age 38. Mr. Lazar has been Chief Financial Officer of the
Corporation since January 1999. From June 1992 to January 1999, Mr. Lazar was
Vice-President of Finance and Compliance and Corporate Controller of Lebenthal &
Co., Inc. a regional full-service brokerage firm.
The term of office of the executive officers of the Corporation expires at
the meeting of the Board of Directors when their respective successors have been
elected and have qualified. The Corporation anticipates that each such officer
will be re-elected at the meeting of the Board of Directors to be held
immediately after the Annual Meeting of Stockholders.
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REMUNERATION OF DIRECTORS AND OFFICERS
The following table sets forth information with respect to all cash
remuneration paid or accrued by the Corporation for services by the
Corporation's directors and the three most highly paid executive officers whose
compensation exceeded $60,000 for the year ended December 31, 2001:
PENSION OR
AGGREGATE RETIREMENT
COMPENSATION BENEFITS ACCRUED
FROM THE AS PART OF
NAME OF PERSON POSITION CORPORATION CORPORATION EXPENSES
Stephen L. Brown Chairman and Chief
Executive Officer $420,000 $0
Spencer L. Brown Senior Vice President
and Secretary $225,000 $0
Hiram M. Lazar Chief Financial Officer $130,000 $0
David T. Lender Director $ 3,000 $0
Irving Levine Director $ 3,000 $0
Michael P. Rolnick Director $ 3,000 $0
With the exception of Mr. Stephen L. Brown, each director of the
Corporation received director's fees of $3,000 for 2001. During the year ended
December 31, 2001, the Corporation reimbursed directors for certain receipted
expenses incurred in connection with the performance of their duties, including
attendance at Board and Committee meetings, in the aggregate amount of $800. Mr.
Brown received no such reimbursement.
On May 1, 2000, Stephen L. Brown signed an Employment Agreement with the
Corporation ("the Employment Agreement"), which superseded an agreement that was
to expire on December 31, 2000. The Employment 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 Employment Agreement.
The Employment Agreement provides that, Mr. Stephen L. Brown will serve as
the Chairman and Chief Executive Officer of the Corporation and be responsible
for the general management of the affairs of the Corporation, reporting directly
to the Board. It also provides that he will 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 receives compensation under the Employment Agreement
in the form of base salary of $420,000. In addition, the Board may increase such
salary at its discretion from time to time. Mr. Brown is also entitled to be
paid bonuses as the Board determines in its sole discretion. Under the
Employment Agreement, the Corporation furnishes Mr. Brown with an automobile and
reimburses him for certain expenses related to such automobile. In addition, Mr.
Brown is reimbursed for expenses related to membership in a club to be used
primarily for business purposes. 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. Mr. Brown is also entitled to severance pay in the event of
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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 his 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 his employment is
terminated by the Corporation without cause or by the executive within one year
of such change in control. In that event, he is entitled to receive compensation
in a lump sum payment equal to 1.5 times his average compensation over the past
five years.
On May 1, 2000, Spencer L. Brown signed an Employment Agreement with the
Corporation. The term of the agreement expires on December 31, 2003. 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 agreement.
The agreement provides during the period of employment, Mr. Spencer L.
Brown will serve as the Senior Vice-President and Secretary of the Corporation
reporting to the Chairman and the Board and 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 receives compensation under his employment agreement
in the form of base salary of $225,000. In addition, the Board may increase such
salary at its discretion from time to time. Mr. Brown is also entitled to be
paid bonuses as the Board determines in its sole discretion. Under his
employment agreement, the Corporation reimburses Mr. Brown for expenses related
to the use of an automobile and for expenses related to membership in a club to
be used primarily for business purposes. Mr. Brown is entitled under his
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. Mr. Spencer L. Brown is also entitled to severance pay
in the event of termination without cause or by constructive discharge equal to
the remaining base salary payable under the agreement and provides for death
benefits payable to his 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 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 his employment is terminated by the Corporation without
cause or by the executive within one year of such change in control. In that
event, he is entitled to receive compensation in a lump sum payment equal to 1.5
times his average compensation over the past five years.
COMPENSATION PURSUANT TO 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
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plans, of which 67,500 shares have been reserved for the SIP and 45,000 shares
have been reserved for the 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 1940 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. No options were issued during 2001.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
During the year ended December 31, 2001, the Board met on seven occasions
and acted by unanimous written consent on one occasion.
The Audit Committee held one meeting during the year ended December 31,
2001. The Audit Committee meets with the Corporation's independent auditors to
review the Corporation's financial statements and the adequacy of internal
controls and accounting systems. The members of the Audit Committee as of
December 31, 2001 were Messrs. Levine (Chairman), Lender and Jonathan Marshall.
Mr. Marshall resigned on April 22, 2002 and will be replaced on the Audit
Committee by Mr. Foster upon his election to the Board.
The Executive Committee meets between meetings of the Board. The Executive
Committee generally may exercise the authority of the Board and may approve
financings not to exceed $500,000. The Executive Committee did not meet during
the year ended December 31, 2001. The members of the Executive Committee as of
December 31, 2001 were Messrs. Brown, Levine and Marshall.
The Compensation Committee meets to consider compensation of executive
officers of the Corporation. The Compensation Committee did not meet during the
year ended December 31, 2001. The members of the Compensation Committee as of
December 31, 2001 were Messrs. Marshall (Chairman) and Levine. Mr. Marshall will
be replaced on the Compensation Committee by David T. Lender.
Each director attended at least 75% of the aggregate number of meetings of
the Board and of Board Committees on which he served. The Board determines and
appoints director nominees for election.
AUDIT COMMITTEE REPORT
The Audit Committee reviewed and discussed with management the
Corporation's audited financial statements as of and for the year ended December
31, 2001. The Audit Committee also discussed with the independent accountants
the matters required to be discussed by Statement on Auditing Standards No. 61,
COMMUNICATION WITH AUDIT COMMITTEES, as amended, by the Auditing Standards Board
of the American Institute of Certified Public Accountants.
The Audit Committee's responsibilities are set forth in the Audit Committee
Charter adopted by the Board. A copy of the Audit Committee Charter is attached
as Appendix A. Each of the members of the Audit Committee qualifies as an
"independent" director under the applicable listing standards of the American
Stock Exchange.
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The Audit Committee received and reviewed the written disclosures and the
letter from the independent accountants required by Independence Standard No. 1,
INDEPENDENCE DISCUSSIONS WITH AUDIT COMMITTEES, as amended, by the Independence
Standards Board, and have discussed with the accountants the accountants'
independence. The Audit Committee considered whether the provisions of
non-financial audit services were compatible with Ernst & Young LLP's
independence in performing financial audit services.
Based on the reviews and discussions referred to above, the Audit Committee
recommended to the Board that the financial statements referred to above be
included in the Corporation's Annual Report on Form 10-K for the year ended
December 31, 2001 for filing with the Commission. The Audit Committee also
recommends the selection of Ernst & Young to serve as independent accountants
for the year ending 2002.
Members of the Audit Committee as of December 31, 2001:
Irving Levine
David T. Lender
Jonathan Marshall
BROKERAGE TRANSACTIONS
During the year ended December 31, 2001, the Corporation paid aggregate
brokerage commissions of approximately $43,000.
Brokers are selected by the Board, whose primary considerations are the
cost and efficiency of execution of brokerage orders. No person acting on behalf
of the Corporation is authorized to pay a brokerage commission to a broker in
excess of that which another broker might have charged for effecting the same
transaction in recognition of the value of research services provided by the
broker.
INVESTMENT ADVISOR
The Corporation does not engage the services of an investment advisor,
principal underwriter or administrator.
AFFILIATED TRANSACTIONS
On February 1, 2001, the Corporation sold to Avery Communications, Inc.
("Avery") 1,183,938 shares of common stock and 350,000 shares of preferred stock
of Avery representing its entire holding in Avery, for $1,557,617 plus accrued
dividends on the preferred stock for a realized gain net of expenses of
$137,759. As part of the sale the Corporation retained the right to receive
1,533,938 shares of Primal Solutions, Inc. ("Primal"), a wholly-owned subsidiary
of Avery. On February 13, 2001, Primal announced that Avery had completed a
spin-off of Primal and Franklin received 1,533,938 fully registered and
marketable shares of Primal. During the year ended December 31, 2001, Franklin
sold 1,150,000 shares of Primal for total proceeds of $53,861, realizing a loss
of $130,139.
On August 28, 2001, Franklin purchased the assets of Winstar Radio
Networks, Global Media and
9
Winstar Radio Productions (collectively "WRN"), for a total purchase price of
$6.25 million. Change Technology Partners, Inc. ("Change") provided $2.25
million of senior financing for the deal. The acquisition was consummated
through eCom Capital Inc., subsequently renamed Excelsior Radio Networks, Inc.
("Excelsior"), a then wholly-owned subsidiary of Franklin. Franklin's total
investment was $2.5 million consisting of $1.5 million in cash and a $1 million
note payable to WRN. The note by its terms became due February 28, 2002 with
interest at 3.54% and has a right of set-off against certain representations and
warranties made by WRN. In October 2001, a legal proceeding was filed against
WRN, which also named Franklin as a defendant, in which the representations and
warranties made by WRN have been challenged. Until the time that this action is
settled the due date of the note is extended indefinitely. Additionally,
Franklin loaned $150,000 to Excelsior pursuant to a Note. The note bore interest
at 10% per annum and is issued for a ninety-day rolling period. In connection
with this note, Franklin was granted warrants to acquire 12,879 shares of
Excelsior common stock at an exercise price of $1.125 per share. The note was
repaid in full on February 28, 2002. In contemplation of the then proposed
merger between Franklin and Change, Change purchased from the Franklin 250,000
shares of common stock of Excelsior for $250,000. Because the merger will not be
completed, Franklin is required to repurchase, on or prior to August 29, 2002,
those shares for $250,000 plus interest at an annual rate of 10% from December
4, 2001 to the date of repurchase. After giving effect to the repurchase,
Franklin will own 57.6% of Excelsior's capital stock on a fully diluted basis
and will have 64.7% of voting control. In addition, Franklin has the right to
nominate four directors to Excelsior's seven-person board of directors.
In connection with the closing of the asset acquisition from WRN, Franklin
entered into a services agreement with Excelsior whereby Franklin agreed to
provide Excelsior with certain services. In consideration for the services
provided, for a period of six months Franklin will receive $30,000 per month and
be reimbursed for all direct expenses. Subsequently, Franklin's monthly fee will
be determined by a majority of the non-Franklin directors but will be no less
than $15,000 per month. Franklin will continue to be reimbursed for all direct
expenses. Finally, the agreement provides that Franklin's chief financial
officer will serve in that capacity for Excelsior and his salary and benefits
will be allocated between Excelsior and Franklin on an 80/20 basis. During the
year ended December 31, 2001, Franklin earned $120,000 in management fees and
was reimbursed by Excelsior $40,156 for salary and benefits for Franklin's chief
financial officer, which was recorded as a reduction of expenses on Franklin.
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, Inc., a Business-to-Business purchase
evaluation engine that simulates the way people make decisions. At December 31,
2001, the Corporation determined that this investment has no value and has
marked these securities down to reflect that determination.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board recommends that stockholders vote "FOR" the persons named herein
to serve as directors until the next Annual Meeting of Stockholders and until
their respective successors have been duly elected and have qualified. Under
Delaware law, directors are elected by a plurality of the votes of the shares
present in person or represented by proxy and entitled to vote in the election
of directors.
10
All nominees have consented to stand for election and to serve if elected.
If any nominee should be unable to serve in such position, an event not
presently anticipated, the proxies voted for such a person, if any, as shall be
designated by the Board to replace any such nominee, unless the Board reduces
the number of directors constituting the whole Board.
In the absence of contrary instructions, the Corporation intends to vote
all proxies "FOR" the election of the nominees listed above as Directors of the
Corporation. In tallying the vote, abstentions and broker non-votes will be
considered to be shares of Common Stock or Preferred Stock present at the
Meeting, but not voting in favor of the election of the nominees (i.e., they
will have the same legal affect as a vote "against" the election of the
nominees).
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the 1934 Act requires the Corporation's executive officers
and directors, and persons who beneficially own more than 10% of the Common
Stock, to file initial statements of beneficial ownership (Form 3), and
statements of changes in beneficial ownership (Form 4 or 5), of securities of
the Corporation with the Securities and Exchange Commission and the American
Stock Exchange. Executive officers, directors and greater than 10% stockholders
also are required to furnish the Corporation with copies of all forms that they
file pursuant to Section 16(a).
To the Corporation's knowledge, based solely on its review of the copies of
such forms received by it, or written representations from certain reporting
persons that no additional forms were required for those persons, the
Corporation believes that its executive officers, directors and greater than 10%
beneficial owners complied with the Section 16(a) filing requirements applicable
to them during 2001.
PROPOSAL TO APPROVE WITHDRAWAL OF ELECTION OF COMPANY'S STATUS AS A
BUSINESS DEVELOPMENT COMPANY
On November 17, 1997, the Corporation elected to be regulated as a business
development company (a "BDC") and to be subject to Sections 55 through 65 of the
1940 Act, by filing a properly executed notice of such election pursuant to Form
N-54A with the Securities and Exchange Commission.
In its proxy dated September 9, 1997 the Corporation stated that its
principal business objective was to furnish capital and managerial expertise to
companies that do not have ready access to capital through conventional
financial channels. As the Corporation noted then investing in a BDC may entail
special risks because of the nature of its investments in small companies.
Further, because of the absence of any trading market for unlisted investments,
the Corporation may require more time to liquidate its investments than would be
the case for listed securities. Companies whose securities are unlisted tend to
be smaller than established companies and generally have small capitalizations
and fewer resources and therefore are less experienced and knowledgeable than
those of established companies. Many of these companies are companies that are
in the "start-up" stage of development, have little or no operating history,
operate at a loss or with substantial variations in operating results from
period to period, have limited products, markets or financial resources or have
the need for substantial additional "follow-up" capital to support expansion,
achieves profitability or maintain a competitive position.
11
REASONS FOR WITHDRAWAL AS A BDC
In March 2001, the Corporation's Board of Directors begin to evaluate the
feasibility of the Corporation holding a portfolio of investment securities and
continuing its election as a BDC. This evaluation continued during subsequent
months and on September 12, 2001, the Board of Directors unanimously determined
that it would be in the best interest of the Company and its stockholders to
seek stockholder approval to withdraw the Corporation's election as a BDC. The
Board revisited the issue in June 2002, and reached the same conclusion. In
making the determination to present this proposal to the Corporation's
stockholders for approval, the Board of Directors considered a number of
factors. During the time that the Corporation has operated as a BDC, the
business, regulatory and financial climates have gradually changed. It has
become increasingly more difficult for companies similar in size to the
Corporation to raise capital for the purpose of building the Corporation's
portfolio of securities. The Board and management believe that, rather than
investing in a diverse portfolio of small companies given current market
conditions, the Corporation and its shareholders would be better served if the
Corporation focused on gaining control of profitable companies and continuing to
build Excelsior through organic growth, acquisitions and joint ventures. In
addition, upon the effectiveness of the withdrawal as a BDC, the Corporation
would no longer be subject to the limitations and additional costs of complying
with the 1940 Act. In furtherance of that decision the Corporation has realigned
its focus by leading an investment group that purchased various radio-related
operating assets from Winstar New Media and subsequently purchasing the assets
of Dial Communications, LLC. Franklin, through its Excelsior subsidiary, has a
controlling interest in the operation of these assets and management intends to
focus its attention on operating Excelsior and growing the company with its
business plan focused exclusively on acquiring companies in the radio
programming, media and related industries. As such the Corporation will act as a
holding company to execute a growth strategy in these industries.
As a BDC, Franklin is subject to certain provisions of the 1940 Act and
must invest at least 70% of its total assets in Qualifying Assets, consisting of
eligible portfolio companies and certain other assets including cash and cash
equivalents. You are being asked to approve the election of Franklin to withdraw
from the status of being regulated as a business development company and no
longer be subject to certain provisions of the 1940 Act. Although the Board has
determined that it would be in the best interests of the Corporation and its
shareholders to act as a platform or holding company that will acquire
controlling interests in one or more companies that are within the radio
programming, media and related industries, there are some possible negative
effects to withdrawing the election to be regulated as a BDC.
If the Corporation's withdrawal of its business development company
election becomes effective, the Corporation is unlikely to qualify now or in the
near future to be regulated as, or receive the favorable pass through tax
treatment available to, investment companies that qualify as a Registered
Investment Company. Franklin, however, has not in the past received this
favorable pass through tax treatment.
After the Corporation's withdrawal of its BDC election becomes effective
with the Securities and Exchange Commission, the Corporation will no longer be
subject to the regulatory provisions of the 1940 Act for BDCs, such as
insurance, custody, composition of the board, affiliated transactions, issuance
of securities and compensation arrangements. Even after the Corporation
withdraws its election as a BDC, however, the Corporation will continue to be
subject to the reporting requirements of the 1934 Act. Under the 1934 Act, the
12
Corporation would continue to file periodic reports on Form 10-K and Form 10-Q,
as well as reports on Form 8-K and proxy statements and any other reports
required under the 1934Act. Corporations not subject to the 1940 Act that enter
into transactions with affiliates do not have transactions reviewed and accepted
or rejected by the SEC prior to entering such transactions. As a result,
shareholders will no longer have the added security of having the SEC review and
accept or reject certain proposed affiliated party transactions prior to their
implementation, as required by business development companies. In addition, in
connection with the recent purchase of assets from Winstar, Franklin agreed to
guarantee certain indebtedness incurred by Excelsior in connection with the
asset purchase. Said guarantee becomes effective at the point in time when
Franklin is no longer a BDC.
SHAREHOLDER APPROVAL
In order to withdraw the Corporation's election to be regulated as a BDC,
the 1940 Act requires the approval by the vote of a majority of the
Corporation's outstanding voting securities. Such approval requires the vote, at
the annual or a special meeting of the security holders of such company duly
called, (A) of 67% or more of the voting securities present at such meeting, if
the holders of more than 50% of the outstanding voting securities of such
company are present or represented by proxy; or (B) of more than 50% of the
outstanding voting securities of such company, whichever is less.
THE BOARD OF DIRECTORS RECOMMEND A VOTE "FOR" THIS PROPOSAL.
PROPOSAL TO APPROVE SELECTION OF
ERNST & YOUNG LLP AS INDEPENDENT AUDITORS
The Board has appointed Ernst & Young LLP as the Corporation's independent
auditors for the fiscal year ending December 31, 2002. The audit services
performed by Ernst & Young LLP for the year ended December 31, 2001 included an
examination of the financial statements included in the 2001 Annual Report to
Stockholders.
Ernst & Young LLP has advised the Corporation that it has neither any
direct nor any material indirect financial interest in the Corporation. It is
expected that a representative of Ernst & Young LLP will be present at the
Meeting and will have an opportunity to make a statement if he desires to do so
and to respond to appropriate questions.
AUDIT FEES. The aggregate fees billed for professional services rendered by
Ernst & Young LLP for 2001 for the audit of the Corporation's annual financial
statements for 2001 and for the review of the financial statements included in
the Corporation's Forms 10-Q for 2001 were $103,100.
ALL OTHER FEES. There were no other fees billed by Ernst & Young LLP for
2001.
The Board recommends that stockholders vote "FOR" ratification of the
appointment of Ernst & Young LLP as independent auditors for the year ending
December 31, 2002.
13
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 2002 Annual
Meeting must be received in writing by the Corporation not later than April 1,
2003 in order to be considered for inclusion in the proxy statement relating to
such meeting, which the Corporation anticipates will be held in June 2003.
OTHER MATTERS
The Board of Directors does not know of any other matters that may properly
be brought, and which are likely to be brought, before the Meeting. However,
should other matters be properly brought before the Meeting, the persons named
on the enclosed proxy or their substitutes will vote in accordance with their
best judgment on such matters.
By Order of the Board of Directors
SPENCER L. BROWN
SECRETARY
July 19, 2002
14
APPENDIX A
FRANKLIN CAPITAL CORPORATION
AUDIT COMMITTEE CHARTER
ADOPTED JUNE 7, 2000
ORGANIZATION
This charter governs the operations of the audit committee (the "Committee") of
the Board of Directors of Franklin Capital Corporation (the "Corporation"). The
Committee shall review and reassess the charter at least annually and obtain the
approval of the board of directors. The Committee shall be appointed by the
board of directors and shall comprise at least three directors, each of whom are
independent of management and the Corporation. Members of the Committee shall be
considered independent if they have no relationship that may interfere with the
exercise of their independence from management and the Corporation. All
Committee members shall be financially literate, or shall become financially
literate within a reasonable period of time after appointment to the Committee,
and at least one member shall have accounting or related financial management
expertise.
STATEMENT OF POLICY
The audit Committee shall provide assistance to the board of directors in
fulfilling their oversight responsibility to the shareholders, potential
shareholders, the investment community, and others relating to the Corporation's
financial statements and the financial reporting process, the systems of
internal accounting and financial controls, the internal audit function, the
annual independent audit of the Corporation's financial statements, and the
legal compliance and ethics programs as established by management and the board.
In so doing, it is the responsibility of the Committee to maintain free and open
communication between the Committee, independent auditors, the internal auditors
and management of the Corporation. In discharging its oversight role, the
Committee is empowered to investigate any matter brought to its attention with
full access to all books, records, facilities, and personnel of the Corporation
and the power to retain outside counsel, or other experts for this purpose.
RESPONSIBILITIES AND PROCESSES
The primary responsibility of the Committee is to oversee the Corporation's
financial reporting process on behalf of the board and report the results of
their activities to the board. Management is responsible for preparing the
Corporation's financial statements, and the independent auditors are responsible
for auditing those financial statements. The Committee in carrying out its
responsibilities believes its policies and procedures should remain flexible, in
order to best react to changing conditions and circumstances. The Committee
should take the appropriate actions to set the overall corporate "tone" for
quality financial reporting, sound business risk practices, and ethical
behavior.
The following shall be the principal recurring processes of the Committee in
carrying out its oversight responsibilities. The processes are set forth as a
guide with the understanding that the Committee may
15
supplement them as appropriate.
o The Committee shall have a clear understanding with management and the
independent auditors that the independent auditors are ultimately
accountable to the board and the Committee, as representatives of the
Corporation's shareholders. The Committee shall have the ultimate
authority and responsibility to evaluate and, where appropriate,
recommend the replacement of the independent auditors. The Committee
shall discuss with the auditors their independence from management and
the Corporation and the matters included in the written disclosures
required by the Independence Standards Board. Annually, the Committee
shall review and recommend to the board the selection of the
Corporation's independent auditors, subject to shareholders' approval.
o The Committee shall discuss with the internal auditors and the
independent auditors the overall scope and plans for their respective
audits including the adequacy of staffing and compensation. Also, the
Committee shall discuss with management, the internal auditors, and
the independent auditors the adequacy and effectiveness of the
accounting and financial controls, including the Corporation's system
to monitor and manage business risk, and legal and ethical compliance
programs. Further, the Committee shall meet separately with the
internal auditors and the independent auditors, with and without
management present, to discuss the results of their examinations.
o The Committee shall review the interim financial statements with
management and the independent auditors prior to the filing of the
Corporation's Quarterly Report on Form 10-Q. Also, the Committee shall
discuss the results of the quarterly review and any other matters
required to be communicated to the Committee by the independent
auditors under generally accepted auditing standards. The chair of the
Committee may represent the entire Committee for the purposes of this
review.
o The Committee shall review with management and the independent
auditors the financial statements to be included in the Corporation's
Annual Report on Form 10-K (or the annual report to shareholders if
distributed prior to the filing of Form 10-K), including their
judgment about the quality, not just acceptability, of accounting
principles, the reasonableness of significant judgments, and the
clarity of the disclosures in the financial statements. Also, the
Committee shall discuss the results of the annual audit and any other
matters required to be communicated to the Committee by the
independent auditors under generally accepted auditing standards.
16
FRANKLIN CAPITAL CORPORATION PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
AUGUST 14, 2002
The undersigned hereby appoints Stephen L. Brown and Irving Levine, or
either of them, as attorneys and proxies to vote all the shares of common stock,
par value $1.00 per share, of Franklin Capital Corporation (the "Corporation")
and/or all the shares of preferred stock, par value $1.00 per share, of the
Corporation, as applicable, which are outstanding in the name of the undersigned
and which the undersigned would be entitled to vote as of July 19, 2002, at the
Annual Meeting of Stockholders of the Corporation (the "Meeting"), to be held at
the offices of Weil, Gotshal & Manges, LLP, 767 Fifth Avenue, 25th Floor, New
York, New York, on Wednesday August 14th, 2002 at two o'clock p.m., New York
Time, and at any or all adjournments or postponements thereof; and the
undersigned hereby instructs and authorizes said attorneys to vote as indicated
on the reverse side.
The shares represented hereby will be voted in accordance with the
instructions contained on the reverse side. If no instructions are given the
shares will be voted FOR the election of all of the applicable nominees in item
1 and FOR items 2, 3 and 4 below, each of said items being more fully described
in the Notice of Meeting and accompanying Proxy Statement, receipt of which is
hereby acknowledged. In the event of any proposed adjournment of the Meeting to
permit further solicitation of proxies with respect to any proposal listed
below, shares will be voted FOR adjournment with respect to such proposal if
they were to be voted FOR such proposal (including if there were no
specifications), and AGAINST adjournment with respect thereto if such shares
were to be voted AGAINST or to have ABSTAINED from voting with respect to such
proposal.
(Continued and to be signed on reverse side)
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^ FOLD AND DETACH HERE ^
Please mark your votes as indicated in [X]
this example
1. ELECTION OF DIRECTORS: 01. Stephen L. Brown, 02. David T. Lender, 03.
Laurence I. Foster, 04. Michael P. Rolnick, 05. Spencer L. Brown (to be
elected solely by Preferred Stockholders), 06. Irving Levine (to be elected
solely by Preferred Stockholders) (Instructions: To withhold authority to
vote for any individual nominee, write that nominee's name on the line
provided below.)
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FOR the election of all applicable WITHHOLDING
nominees listed (except AUTHORITY to vote
as marked to the contrary for all applicable nominees
on the line above) listed above
[_] [_]
2. To approve the withdrawal of Franklin FOR AGAINST ABSTAIN
Capital's election to be regulated as a [_] [_] [_]
business development company under the
Investment Company Act of 1940.
3. Ratification of appointment of Ernst & Young FOR AGAINST ABSTAIN
LLP to serve as independent auditors of the [_] [_] [_]
Corporation for the fiscal year ending
December 31, 2002.
4. In their discretion, on such other matters as FOR AGAINST ABSTAIN
may properly come before the Meeting (other [_] [_] [_]
than adjournments with respect to any
proposal as described on reverse).
THIS PROXY MAY BE REVOKED PRIOR TO ITS EXERCISE.
PLEASE DATE, SIGN AND MAIL PROXY CARD IN THE ENCLOSED ENVELOPE
If you only own Common Stock of the Corporation, please sign on the line below
titled "Signature of Common Stockholder." If you only own Preferred Stock of the
Corporation, please sign on the line below titled "Signature of Preferred
Stockholder." If you own both Common Stock AND Preferred Stock, please sign both
lines.
SIGNATURE OF
COMMON STOCKHOLDER(S)__________________________________DATED _____________, 2002
SIGNATURE OF
PREFERRED STOCKHOLDER(S)_______________________________DATED _____________, 2002
Please sign as name appears hereon. When shares are held by joint tenants, both
should sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign in full
corporate name by president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
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