Franklin Templeton Services, Inc., a unit of Franklin Resources of San Mateo, Calif., has sued its previous president for allegedly breaching his $1.17 million severance agreement.

The lawsuit, filed in the United States District Court in San Jose, Calif. for the Northern District of California, is against Dan Calabria. Calabria was president and chief executive officer of Templeton Funds Management for seven years prior to the 1992 merger of Templeton, Galbraith & Hansberger with Franklin.

The suit alleges that by filing an NASD arbitration claim seeking $1.8 million in additional remuneration, Calabria breached the terms of the severance agreement he accepted after the merger.

In that May 1999 NASD claim, Calabria charged that the severance agreement he signed cheated him out of an additional $805,000 in stock options that today would be worth $1.8 million. His NASD claim, which is still pending, said his severance package "was procured through active misrepresentation and concealment" and that Franklin "defrauded" and "misled" him by not making him aware of these additional benefits.

The Franklin Templeton merger, in which Franklin bought the operating unit of Templeton Funds for $786 million, has long been lauded as an exemplary merger of complementary mutual fund companies.

In light of today's increased consolidation, it is critical for officers of a firm contemplating a merger to pay close attention to stock options, industry executives said.

Franklin filed its suit against Calabria on June 15 on the grounds that the severance agreement Calabria signed included a clause specifically stating he agreed to waive any and all future claims related to his severance package against the firm.

Franklin also contends that Calabria had ample time to review his severance agreement with his attorney. The firm said it negotiated its agreement with Calabria for several months before Calabria signed the document on June 2, 1993.

Franklin also implies Calabria is greedy: "Not satisfied with his seven-figure severance payment, Calabria has now attempted to return to the well for more," Franklin's lawsuit states.

Franklin also says that Calabria's suit has caused "immeasurable and irreparable injury to Franklin."

Franklin declined to comment for this story.

Calabria, 64, a resident of South Pasadena, Fla., is retired but serves on the boards of a number of mutual funds, including two managed by William R. Hough & Co. of St. Petersburg, Fla.

He declined to be interviewed.

Calabria only learned of Franklin's additional, 1988 restricted stock option plan, last year, said his attorney, Allan Fedor, a partner with Fedor & Fedor of Largo, Fla. Franklin intentionally hid the benefits from his client, Fedo said. "They are paying a ton of money to lots of attorneys to bury it," Fedo said.

Franklin has filed the suit to stop the NASD arbitration from progressing, since the courts have twice denied Franklin temporary restraining orders to stop the case, Fedo said.

The suit is also in violation of NASD rules that state all disagreements between NASD member firms and former NASD-licensed employees must be decided by arbitration, not lawsuits, Fedo said.

Stock options today are more important than ever as a way to attract and retain qualified personnel, said Ted Jervis, a consultant in the Los Angeles office of Towers Perrin of Valhalla, N.Y. They are also a favorable way for companies to compensate prized employees because there is no direct cash being taken out of a company's coffers.

Seventy-five percent of larger companies with median assets of $28 billion gave their employees stock options, Towers Perrin found in a study conducted in March. Another 30 percent of these firms offered restricted stock options, the study showed. Both stock plans help align the interests of executives with the interests of the company, Jervis said.

Stock options are also starting to be offered to employees at lower levels of companies, Towers Perrin found.

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