<PAGE> 1
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:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240-14a-11(c) or ss. 240.14a-12
STATE OF FRANKLIN BANCSHARES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Charles E. Allen, Jr.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the Appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
2. Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:[1]
----------------------------------------------------------------------
4. Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
5. Total fee paid:
----------------------------------------------------------------------
[ ] 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: ______________
2) Form, Schedule or Registration Statement No: __________
3) Filing Party ________________
4) Date Filed: _________________
<PAGE> 2
STATE OF FRANKLIN BANCSHARES, INC.
1907 NORTH ROAN STREET
JOHNSON CITY, TENNESSEE 37604
MARCH 17, 1999
TO THE SHAREHOLDERS OF STATE OF FRANKLIN BANCSHARES, INC.
You are cordially invited to attend the Annual Meeting of Shareholders
of State of Franklin Bancshares (the "Company"), which will be held at 1907
North Roan Street, Johnson City, Tennessee, on Tuesday, April 20, 1999, at 7:00
p.m., Eastern Time.
We have enclosed a Notice of Annual Meeting of Shareholders, a Proxy
Statement, and a Proxy. The matters listed in the Notice of Annual Meeting are
more fully described in the Proxy Statement.
It is important that your shares are represented and voted at the
meeting, regardless of the size of your holdings. Accordingly, we would
appreciate your completing the enclosed Proxy so that your shares can be voted
in the event you are unable to attend the meeting. If you are present at the
meeting and desire to vote your shares personally, your Proxy can be revoked
upon your request prior to balloting. If you wish to personally vote at the
meeting, but your shares are held in the name of a broker, trust, bank or other
nominee, you should bring with you a Proxy or letter from the broker, trustee,
bank or nominee confirming your beneficial ownership of the shares.
We urge you to return your Proxy by mailing it in the enclosed
postage-paid envelope to be received no later than 5:00 p.m. on April 20, 1999.
Sincerely yours,
Charles E. Allen, Jr. Randal R. Greene
Chairman of the Board President
<PAGE> 3
STATE OF FRANKLIN BANCSHARES, INC.
1907 NORTH ROAN STREET
JOHNSON CITY, TENNESSEE 37604
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 20, 1999
Notice is hereby given that the Annual Meeting of Shareholders of State
of Franklin Bancshares, Inc. (the "Company") will be held at 1907 North Roan
Street, Johnson City, Tennessee, on Tuesday, April 20, 1999, at 7:00 p.m.,
Eastern Time, for the following purposes:
1. To elect four directors to serve a three-year term and one director
to serve a one-year term or until their successors have been duly
elected and qualified.
2. To approve the State of Franklin Bancshares, Inc. Stock Incentive
Plan.
3. To ratify the appointment of Baylor & Backus as the Company's
independent accountants and auditors for 1999.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Shareholders of record at the close of business on March 15, 1999, are
entitled to notice of and to vote on all matters presented at the Annual Meeting
of Shareholders.
Dated: March 19, 1999 By Order of the Board of Directors
Becky Mominee
Secretary
IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING AND REGARDLESS OF THE NUMBER OF
SHARES YOU OWN, PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY AS
PROMPTLY AS POSSIBLE IN THE ENCLOSED ENVELOPE. YOU MAY NEVERTHELESS VOTE IN
PERSON IF YOU ATTEND THE ANNUAL MEETING.
<PAGE> 4
STATE OF FRANKLIN BANCSHARES, INC.
1907 NORTH ROAN STREET
JOHNSON CITY, TENNESSEE 37604
PROXY STATEMENT
STATE OF FRANKLIN BANCSHARES, INC.
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 20, 1999
INFORMATION CONCERNING THE SOLICITATION
This statement is furnished in connection with the solicitation of
proxies to be used at the Annual Meeting of Shareholders (the "Annual Meeting")
of State of Franklin Bancshares, Inc. (the "Company") to be held on Tuesday,
April 20, 1999 at 7:00 p.m., Eastern Time, at 1907 North Roan Street, Johnson
City, Tennessee, and at any adjournment thereof.
At the Annual Meeting, the Company's shareholders will vote to elect
five directors, to approve the State of Franklin Bancshares, Inc. Stock
Incentive Plan (the "Stock Incentive Plan") and to ratify the appointment of
Baylor & Backus as the Company's independent accountants and auditors for 1999.
The affirmative vote of a plurality of the shares present or represented at the
meeting, if a quorum exists, is required to elect the directors. The affirmative
vote of a majority of the shares present or represented at the meeting, if a
quorum exists, is required to approve the Stock Incentive Plan and to ratify the
appointment of Baylor & Backus as the Company's independent accountants and
auditors for 1999.
Each holder of common stock of the Company (the "Common Stock") is
entitled to one vote for each share held on all matters submitted before the
Annual Meeting and at any adjournment thereof. The presence in person or by
proxy of the holders of a majority of the issued and outstanding shares of the
Common Stock entitled to vote at the Annual Meeting is necessary to constitute a
quorum. Under Tennessee law, shareholders who abstain from voting on a proposal
are treated as present and entitled to vote at the Annual Meeting and therefore
have the effect of a vote against the proposal. If shares of Common Stock are
held in the name of a broker, the failure of the broker to vote the shares is
treated as if the beneficial owner of such shares failed to vote such shares.
Shareholders are urged to sign the enclosed Proxy and return it
promptly in the envelope enclosed for that purpose. Proxies will be voted in
accordance with each shareholder's directions. If no directions are given,
proxies will be voted FOR the election of the nominees named herein as
directors, FOR the approval of the Stock Incentive Plan and FOR the ratification
of the appointment of Baylor & Backus as the Company's independent accountants
and auditors for 1999.
The Board of Directors knows of no other business to be presented at
the Annual Meeting. If any other business is properly presented, the persons
named in the enclosed Proxy will use their discretion in voting the shares. The
Proxy may be revoked at any time prior to the voting thereof by written request
to the Company at 1907 North Roan Street, Johnson City, Tennessee 37604,
Attention: Becky Mominee, Secretary. The Proxy also may be revoked by submission
to the Company of a subsequently dated Proxy. Giving the Proxy will not affect
the right of a shareholder to attend the Annual Meeting and vote in person.
The solicitation of proxies in the enclosed form is made on behalf of
the Company's Board of Directors. The Company will bear the entire cost of
soliciting these proxies. In addition to being solicited through the mails,
proxies may be solicited personally or by telephone or facsimile by officers,
directors and employees of the Company who will receive no additional
compensation for such activities. Arrangements also will be made with brokerage
houses and other custodians, nominees and fiduciaries to forward solicitation
materials to the beneficial owners of record of shares
- 1 -
<PAGE> 5
held by such persons, who will be reimbursed for their reasonable expenses
incurred in such connection. It is expected that this Proxy Statement will first
be sent to shareholders on or about March 17, 1999.
OUTSTANDING VOTING SECURITIES
Only stockholders of record on March 15, 1999, are entitled to notice
of and to vote at the Annual Meeting. On that date there were 1,190,363 shares
of Common Stock issued and outstanding. A list of stockholders entitled to vote
on matters at the Annual Meeting will be available at the Company's headquarters
beginning on or about March 18, 1999.
PROPOSAL 7. ELECTION OF DIRECTORS
The Company's bylaws provide that the board of directors shall consist
of no fewer than five nor more than 25 members. The board is currently set at 11
members by board resolution. The directors are divided into three classes, each
of which is as nearly equal in number as possible. The directors in each such
class hold office for staggered terms of three years each. Staggered terms make
it more difficult for shareholders, including those holding a majority of the
common stock of the Company, to force an immediate change in the composition of
a majority of the board of directors. Since the terms of only one-third of the
incumbent directors expire each year, two annual meetings of shareholders would
be required to change a majority of the directors of the Company, provided that
no directors resigned, were removed, or died during their terms of office and
the vacancies created thereby were not filled by an affirmative vote of majority
of the board of directors.
At the Annual Meeting four directors are nominees for election to hold
office for a three-year term and one director is a nominee for election to hold
office for a one-year term or until their successors are elected and qualified.
If any nominee should be unable to accept nomination or election as a director,
which is not expected, the proxies may be voted with discretionary authority for
a substitute designated by the Board of Directors. The election of a director
requires the affirmative vote of a plurality of shares present or represented at
the meeting by proxy.
The Board of Directors of the Company recommends voting FOR the
election of the following nominees:
NOMINEES FOR ELECTION FOR A THREE-YEAR
TERM EXPIRING AT THE ANNUAL MEETING IN 2002
<TABLE>
<CAPTION>
DIRECTOR, YEAR FIRST PRINCIPAL OCCUPATION,
ELECTED AS DIRECTOR AGE BUSINESS AND DIRECTORSHIPS
- ------------------- --- --------------------------
<S> <C> <C>
Randal R. Greene .............. 39 President of the Company; President
1996 and Chief Executive Officer of the
Savings Bank
Kenneth E. Cutshall, M.D. ..... 38 Physician
1996
Cameron E. Perry............... 69 Banker, retired
1996
Henry J. Williams, M.D. ....... 62 Physician
1996
</TABLE>
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<PAGE> 6
NOMINEE FOR ELECTION FOR A ONE-YEAR
TERM EXPIRING AT THE ANNUAL MEETING IN 2000
<TABLE>
<CAPTION>
DIRECTOR, YEAR FIRST PRINCIPAL OCCUPATION,
ELECTED AS DIRECTOR AGE BUSINESS AND DIRECTORSHIPS
- ------------------- --- --------------------------
<S> <C> <C>
Charles E. Allen, Sr. ......... 68 Physician
1996
</TABLE>
DIRECTORS CONTINUING IN OFFICE
WHOSE TERMS EXPIRE AT THE ANNUAL MEETING IN 2001
<TABLE>
<CAPTION>
DIRECTOR, YEAR FIRST PRINCIPAL OCCUPATION,
ELECTED AS DIRECTOR AGE BUSINESS AND DIRECTORSHIPS
- ------------------- --- --------------------------
<S> <C> <C>
Charles E. Allen, Jr. ......... 38 Chairman of the Board of the Company;
1996 Chairman of the Board and Chief Financial
Officer of the Savings Bank
Stephen K. Gross............... 52 Chief Financial Officer and owner of
1996 Microporous Products, LP
Verrill M. Norwood, Jr. ....... 67 Environmental consultant
1996
Vance W. Cheek................. 75 Banker, retired
</TABLE>
DIRECTORS CONTINUING IN OFFICE
WHOSE TERMS EXPIRE AT THE ANNUAL MEETING IN 2000
<TABLE>
<CAPTION>
DIRECTOR, YEAR FIRST PRINCIPAL OCCUPATION,
ELECTED AS DIRECTOR AGE BUSINESS AND DIRECTORSHIPS
- ------------------- --- --------------------------
<S> <C> <C>
Donald R. Jeanes............... 53 President of Milligan College
1996
Richard S. Venable............. 54 Owner and President of R.S.V. Inc.
1996
</TABLE>
These persons have served as directors of the State of Franklin Savings
Bank since 1996 and as directors of the Company since its formation in May 1998.
Charles E. Allen, Sr, M.D., is the father of Charles E. Allen, Jr. Verrill M.
Norwood, Jr., is the father-in-law of Randal R. Greene. No director of the
Company is a director or executive officer of another bank holding company,
bank, savings and loan association, or credit union. The principal occupations
and employments of the persons listed above are for the past five years except
as described below:
Charles E. Allen, Jr., has served as Chairman of the Board and Chief
Financial Officer of the Savings Bank since its inception in February 1996 and
Chairman of the Board of the Company since its organization in May 1998. He is a
certified public accountant and a certified financial planner. He served two
terms in the Tennessee General Assembly from 1990-1994. Previously he was an
investment broker with J.C. Bradford & Co., until his resignation in August 1995
to form the Savings Bank. He is also president of Charles E. Allen Co. Inc.
which manages and is owner/partner in six Stowaway Self Service Storage
facilities in East Tennessee and western North Carolina.
- 3 -
<PAGE> 7
Randal R. Greene has served as President and Chief Executive Officer of
the Savings Bank since its inception in February 1996 and President of the
Company since its organization in May 1998. Previously, Mr. Greene was a senior
vice president of First American National Bank serving as division manager of
the corporate division responsible for the Johnson City, Kingsport and Bristol
markets.
MEETINGS AND COMMITTEES
During 1998 the Board of Directors of the Company held four meetings.
The Directors of the Company also serve as directors of the Savings Bank. The
Board of Directors of the Savings Bank held 13 meetings in 1998. No director
attended less than 75% of the meetings held by the Savings Bank during 1998. The
directors received no compensation as directors of the Company or of the Savings
Bank during 1998. Each director, however, was awarded options to purchase 2,785
shares of Common Stock of the Company in 1998. These options vest over a
five-year period.
The Board of Directors has three committees. The Company's Audit
Committee, composed of Directors Perry, Gross, Jeanes and Allen, Sr., is
responsible for the review and evaluation of the Company's internal controls and
accounting procedures. It also periodically reviews audit reports with the
Company's independent auditors and recommends the annual appointment of such
auditors.
The entire Board of Directors acts as Nominating Committee for the
nomination of members of the Board of directors. The Board of directors met once
in its capacity as the Nominating Committee during 1998.
The Company's Compensation Committee is composed of directors Venable,
Gross, Jeanes, Cutshall and Perry. This Committee establishes salary and
compensation guidelines for the Company's employees. During 1998 the
Compensation Committee held three meetings.
REPORT ON EXECUTIVE COMPENSATION OF THE
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors is comprised of
five directors who are not employees of the Company. The Committee is
responsible for establishing and administering the Company's executive
compensation programs, as well as determining the salaries, compensation and
benefits of the President and CEO and the Chairman and CFO.
This report of the Compensation Committee describes the components of
the Company's executive officer compensation programs and describes the basis
upon which compensation is awarded to the executive officers of the Company.
This Compensation Committee report shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or under the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
Compensation Philosophy and Structure
The Compensation Committee establishes and periodically reviews the
compensation for the executive officers. When setting salaries and bonuses, the
Committee considers profitability of the Company, peer compensation and the
officers' effectiveness in meeting the goals established by the Board of
Directors.
COMPENSATION COMMITTEE
Richard S. Venable Stephen K. Gross
Donald R. Jeanes Kenneth E. Cutshall
Cameron E. Perry
- 4 -
<PAGE> 8
EXECUTIVE COMPENSATION
The following table sets forth the aggregate cash compensation paid by
the Company to the Chairman and the President of the Company. No other executive
officer of the Company received cash compensation in excess of $100,000
(determined as of the end of 1998) for the years ended December 31, 1998, 1997
and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------------------------
SECURITIES
UNDERLYING
NAME AND POSITION YEAR SALARY ($) BONUS ($) OPTIONS/SARS(#)
- ----------------- ---- ---------- ------------- ---------------
<S> <C> <C> <C> <C>
Charles E. Allen, Jr. ................... 1998 114,167 15,000 25,064
Chairman of the Board 1997 105,000 -- 30,500
1996 110,000 -- --
Randal R. Greene......................... 1998 114,167 15,000 25,064
President 1997 105,000 -- 30,500
1996 110,000 -- --
</TABLE>
The following table discloses the grant of stock options in fiscal year
1998 to the executive officers.
<TABLE>
<CAPTION>
OPTIONS/SARS GRANTED IN LAST FISCAL YEAR
- --------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
OPTION TERM(1)
- ------------------------------------------------------------------------------------- -----------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5%($) 10% ($)
---- ----------- ----------- ------ ---- ----- -------
<S> <C> <C> <C> <C> <C> <C>
Charles E. Allen, Jr. .... 25,064 50% 11.00 None 173,389 439,401
Randal R. Greene ......... 25,064 50% 11.00 None 173,389 439,401
</TABLE>
- -----------------
(1) Assumes a ten-year term for the options.
The following table discloses information regarding stock options held
at the end of or exercised in fiscal year 1998 for each of the executive
officers as of December 31, 1998.
- 5 -
<PAGE> 9
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
- ----------------------------------------------------------------------------------------------------------------
SHARES SECURITIES UNDERLYING VALUE OF UNEXERCISED
ACQUIRED ON VALUE UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
NAME EXERCISE(1) REALIZED(1) AT DECEMBER 31, 1998 AT DECEMBER 31, 1998 (2)
----------- ----------- ----------- -------------------- ------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles E. Allen, Jr. --- --- 17,212 38,352 12,200 18,300
Randal R. Greene --- --- 17,212 38,352 12,200 18,300
</TABLE>
- -----------------
(1) As of December 31, 1998, no options have been exercised by the executive
officers under the Stock Incentive Plan.
(2) Based on an appraisal by an independent third party of $11.00 per share.
SECURITY OWNERSHIP OF COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS
AND CERTAIN OTHER BENEFICIAL OWNERS
As of March 1, 1999, the Company's records indicated that the following
number of shares were beneficially owned by (i) each person known by the Company
to beneficially own more than 5% of the Company's shares; (ii) each Director of
the Company and executive officer; and (iii) all Directors and executive
officers of the Company as a group. Unless otherwise indicated, beneficial
ownership is direct and the person indicated has sole voting and investment
power.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL OWNERSHIP PERCENT
NAME OF BENEFICIAL OWNER (NUMBER OF SHARES) OF CLASS(1)
- ----------------------------------------------- ----------------------- ------------
<S> <C> <C>
Henry J. Williams, Jr., M.D.(2)................ 56,881 4.8%
Charles E. Allen, Jr.(2)(3).................... 129,752 10.8
Randal R. Greene(2)(3)......................... 103,539 8.6
Stephen K. Gross(2)............................ 25,430 2.1
Donald R. Jeanes(2)............................ 5,111 *
Kenneth E. Cutshall, M.D.(2)................... 21,811 1.8
Charles E. Allen, Sr., M.D.(2)................. 26,111 2.2
Richard S. Venable(2).......................... 11,111 *
Verrill M. Norwood, Jr.(2)..................... 36,111 3.0
Cameron E. Perry(2)............................ 11,111 *
Vance W. Cheek(2).............................. 8,611 *
Directors and executive officers as a
group (11 persons)(4)........................
434,679 35.3%
</TABLE>
- -------------------
* Less than 1%
(1) Unless otherwise indicated, beneficial ownership consists of sole voting
and investing power based on 1,187,148 shares issued and outstanding on
March 1, 1999. Options to purchase 44,423 shares are exercisable or become
exercisable within 60 days of March 1, 1998. Such shares are deemed to be
outstanding for the purpose of computing the percentage of outstanding
shares owned by each person to whom a portion of such options relate but
are not deemed to be outstanding for the purpose of computing the
percentage owned by any other person.
(2) Includes 1,111 shares issuable within the next 60 days upon the exercise of
options.
(3) Includes 63,636 shares held by the Employee Stock Ownership Plan for which
Mr. Allen and Mr. Greene serve as co-trustees.
- 6 -
<PAGE> 10
(4) Includes 44,423 shares issuable upon the exercise of options granted under
the Stock Incentive Plan and 63,636 shares held by the Employee Stock
Ownership Plan.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The federal securities laws require the Company's directors and
executive officers, and persons who beneficially own more than 10% of a
registered class of the Company's equity securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of any
securities of the Company. To the Company's knowledge, based solely on review of
the copies of such reports furnished to the Company and representations by
certain reporting persons, all of the Company's officers, directors and greater
than 10% beneficial owners made all filings required in a timely manner.
TRANSACTIONS WITH EXECUTIVE OFFICERS, DIRECTORS AND OTHERS
The Company has had and expects to have in the future banking and other
business transactions in the ordinary course of its banking business with
directors, officers, and 10% beneficial owners of the Company and their
affiliates, including members of their families, or corporations, partnerships,
or other organizations in which such officers or directors have a controlling
interest, on substantially the same terms (including price, or interest rates
and collateral) as those prevailing at the time for comparable transactions with
unrelated parties. Any such banking transactions will not involve more than the
normal risk of collectibility nor present other unfavorable features to the
Company or the Savings Bank.
The Savings Bank leases office space from a partnership, Allen and
Allen. Charles E. Allen, Jr., the Chairman of the Board of the Company and
Charles E. Allen, Sr., M.D., a director of the Company, are principals in Allen
and Allen. The 2,625 square foot building houses the Savings Bank's Browns Mill
Road branch. Rent for the first three years of the of the contract is $11.66 per
square foot or $30,600 annually. This amount includes taxes, insurance and
maintenance.
PROPOSAL 8. APPROVAL OF THE STOCK INCENTIVE PLAN
In December 1996, the Board of Directors of the Savings Bank adopted
the State of Franklin Savings Bank Stock Incentive Plan (the "Plan") pursuant to
which the Board of Directors may grant incentive stock options (within the
meaning of the Internal Revenue Code of 1986, as amended (the "Code")) and
nonqualified options (collectively, the "Options") to employees of the Company
for the purchase of Common Stock of the Company. The Plan is intended to provide
incentives to, and rewards for employees of the Company who have contributed and
will continue to contribute to the success of the Company. The option prices are
determined by the Board of Directors, but option prices may not be less than
100% of the fair market value of the Common Stock on the date the option is
granted. An aggregate of 500,000 shares of Common Stock has been reserved for
issuance under the Plan subject to appropriate adjustments for stock splits,
dividends and other transactions or events as described in the Plan. All options
may be exercised at such times and in such amounts as may be determined at the
time of the granting of the options by the Board of Directors.
Options may be exercised within 30 days, or such longer period as the
Board of Directors may determine, after retirement, resignation, or termination
of the option holder's employment or service with the Company, but only to the
extent that they had become exercisable at retirement, resignation or
termination. Any unexercised options shall expire in the event of an option
holder's retirement or dismissal or otherwise as described above. Under certain
circumstances involving change of control of the Company, the Board of Directors
may accelerate the exercisability and termination of the option.
The Board of Directors may, at any time, amend, modify, suspend or
terminate the Plan; provided however, that no amendment may increase the limit
on the maximum number of shares which may be issued upon exercise of Options
without approval by the Company's shareholders.
An employee to whom an incentive stock option ("ISO") which qualifies
under Section 422 of the Code is granted will not recognize income at the time
of grant or exercise of such Option. However, upon the exercise of an ISO, any
excess in the fair market price of the Common Stock over the option price
constitutes a tax preference item which may have alternative minimum tax
consequences for the employee. If the employee sells such shares more than one
year after the date of transfer of such shares and more than two years after the
date of grant of such ISO, the employee will generally recognize a long-term
capital gain or loss equal to the difference, if any, between the sale prices of
such shares and the option price.
- 7 -
<PAGE> 11
The Company will not be entitled to a federal income tax deduction in connection
with the grant or exercise of the ISO. If the employee does not hold such shares
for the required period, when the employee sells such shares, the employee will
recognize ordinary compensation income and possibly capital gain or loss
(long-term or short-term depending on the holding period of the stock sold) in
such amounts as are prescribed by the Code and the regulations thereunder and
the Company will generally be entitled to a Federal income tax deduction in the
amount of such ordinary compensation income recognized by the employee.
An employee to whom a nonqualified stock option ("NSO") is granted will
not recognize income at the time of grant of such Option. When such employee
exercises such NSO, the employee will recognize ordinary compensation income
equal to the excess, if any, of the fair market value, as of the date of Option
exercise, of the shares the employee receives upon such exercise over the option
price paid. The tax basis of such shares to such employee will be equal to the
option price paid plus the amount, if any, includible in the employee's gross
income, and the employee's holding period for such shares will commence on the
date on which the employee recognizes taxable income in respect of such shares.
Gain or loss upon a subsequent sale of any Common Stock received upon the
exercise of a NSO generally would be taxed as capital gain or loss (long-term or
short-term, depending upon the holding period of the stock sold). Subject to the
applicable provisions of the Code and regulations thereunder, the Company will
generally be limited to a Federal income tax deduction in respect of a NSO in an
amount equal to the ordinary compensation income recognized by the employee.
This deduction will, in general, be allowed for the taxable year of the Company
in which the participant recognizes such ordinary income.
Currently there are options outstanding under the Plan exercisable for
111,128 shares of Common Stock.
Stock Option Plan for Outside Directors. The Stock Option Plan for
Outside Directors (the "Director Option Plan") was also adopted by the Board of
Directors of the Savings Bank in December 1996. The Director Option Plan is
intended to encourage stock ownership by directors of the Company and to provide
those individuals with an additional incentive to manage the Company in the
shareholders' best interests and to provide a form of compensation that will
attract and retain highly qualified individuals as members of the Board. The
Director Option Plan will provide for the granting of options to outside
directors, subject to certain adjustments reflecting changes in the Company's
capitalization. The full Board may make discretionary grants of options and
determine the terms and conditions of such options. Each member of the Board of
Directors who is not an employee of the Company is eligible to participate;
however, grants made must be approved by the full Board of Directors with such
member abstaining. The Director Option Plan requires that the exercise price for
each option granted under the plan must equal 100% of the fair market value of
the Company's Common Stock on the date the option is granted. Nothing contained
in the Director Option Plan or any agreement to be executed pursuant to the
Director Option Plan will obligate the Company, its Board or its shareholders to
retain an optionee as a Director of the Company.
Currently there are options outstanding under the Director Option Plan
exercisable for 53,218 shares of Common Stock.
PROPOSAL 3 RATIFICATION OF THE APPOINTMENT OF BAYLOR & BACKUS AS THE COMPANY'S
INDEPENDENT ACCOUNTANTS AND AUDITORS FOR 1999
The Board of Directors has confirmed the appointment by the Audit
Committee of Baylor & Backus as the Company's independent accountants and
auditors for 1999. Baylor & Backus has served as independent accountants and
auditors of the Company for the year ended December 31, 1998. Representatives of
the firm will be present at the Annual Meeting, will have an opportunity to make
a statement if they so desire, and are expected to be available to respond to
appropriate questions by shareholders.
The affirmative vote of the holders of a majority of the outstanding
shares of Common Stock present or represented at the Annual Meeting, if a quorum
exists, entitled to vote at the Annual Meeting is required to ratify the
appointment of Baylor & Backus as the Company's independent accountants and
auditors for 1999. If the shareholders do not ratify this appointment, other
independent auditors will be considered by the Board of Directors upon
recommendation by the Audit Committee.
- 8 -
<PAGE> 12
The Board of Directors recommends voting FOR ratification of the
appointment of Baylor & Backus as the Company's independent accountants and
auditors for 1999.
SHAREHOLDERS' PROPOSALS FOR 2000 ANNUAL MEETING
In accordance with the rules and regulations of the Securities and
Exchange Commission, shareholders' proposals intended to be presented at the
2000 Annual Meeting of Shareholders must be received in writing by the Secretary
of the Company by December 20, 1999.
OTHER MATTERS
The Board of Directors, at the time of the preparation of this Proxy
Statement, knows of no business to come before the Annual Meeting other than
that referred to herein. If any other business should come before the Annual
Meeting, the persons named in the enclosed Proxy will have discretionary
authority to vote all proxies in accordance with their best judgment.
UPON THE WRITTEN REQUEST OF ANY RECORD HOLDER OR BENEFICIAL OWNER OF
COMMON STOCK ENTITLED TO VOTE AT THE ANNUAL MEETING, THE COMPANY, WITHOUT
CHARGE, WILL PROVIDE A COPY OF ITS ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR
ENDED DECEMBER 31, 1998 AS FILED WITH THE SEC. REQUESTS SHOULD BE DIRECTED TO
BECKY MOMINEE, SECRETARY, STATE OF FRANKLIN BANCSHARES, INC., 1907 NORTH ROAN
STREET, JOHNSON CITY, TENNESSEE 37604, TELEPHONE (423) 926-3600.
BY ORDER OF THE BOARD OF DIRECTORS
Becky Mominee
Secretary
Johnson City, Tennessee
March 19, 1999
- 9 -
<PAGE> 13
Appendix A
PROXY
State of Franklin Bancshares, Inc.
1907 North Roan Street
Johnson City, Tennessee 37604
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS
The undersigned appoints each of Charles E. Allen, Jr., Randal R.
Greene and Becky Mominee, or any of them, with full power of substitution and
revocation as Proxy to vote all shares of stock standing in my name on the books
of State of Franklin Bancshares, Inc. (the "Company") at the close of business
on March 15, 1999, which the undersigned would be entitled to vote if personally
present at the Annual Meeting of Shareholders of the Company to be held at 1907
North Roan Street, Johnson City, Tennessee, on April 20, 1999, at 7:00 p.m.,
Eastern Time, and at any and all adjournments, upon the matters set forth in the
Notice of the meeting. The Proxy is further authorized to vote in his or her
discretion as to any other matters which may come before the meeting. At the
time of preparation of the Proxy Statement, the Board of Directors knows of no
business to come before the meeting other than that referred to in the Proxy
Statement.
THE SHARES COVERED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
INSTRUCTIONS GIVEN BELOW AND WHEN NO INSTRUCTIONS ARE GIVEN WILL BE VOTED FOR
THE PROPOSALS DESCRIBED IN THE ACCOMPANYING NOTICE OF ANNUAL MEETING AND PROXY
STATEMENT AND ON THIS PROXY.
(1) Election of four directors to serve a three-year term and one
director to serve a one-year term, or until their succesors
have been duly elected and qualified.
[ ] FOR all nominees listed below (except as indicated to the
contrary below).
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below.
THREE-YEAR TERM: ONE-YEAR TERM:
Randal R. Greene Charles E. Allen, Sr., M.D.
Kenneth E. Cutshall, M.D.
Cameron E. Perry
Henry J. Williams, M.D.
Instruction: To withhold authority to vote for any individual
nominee, write such nominee's name in the space provided
below.
- --------------------------------------------------------------------------------
(2) Approval of State of Franklin Bancshares, Inc. Stock Incentive
Plan.
[ ] For [ ] Against [ ] Abstain
(3) Ratification of the appointment of Baylor & Backus as the Company's
independent accountants and auditors for 1999.
[ ] For [ ] Against [ ] Abstain
<PAGE> 14
********************************************************************************
The undersigned hereby acknowledges receipt of the Notice of the Annual Meeting
and the related Proxy Statement.
Dated: _________, 1999 Signed:
----------------------------------
[Label to be placed here] Signed:
----------------------------------
Shareholder should sign here
exactly as shown on the label
affixed hereto. Administrator,
Trustee, or Guardian, please give
full title. If more than one
Trustee, all should sign. All Joint
Owners should sign.
Please indicate if you plan to attend the Annual Meeting of Stockholders.
[ ] Yes [ ] No
PLEASE COMPLETE, SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED
ENVELOPE TO:
Illinois Stock Transfer Company
209 West Jackson Boulevard
Suite 903
Chicago, Illinois 60606-6905
