<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-b(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
FRANKLIN FINANCIAL CORPORATION
-----------------------------------------------
(Name of Registrant as Specified in Its Charter)
NOT APPLICABLE
-------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than 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)(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: __________________________________________________________
- -------------------
(1) Set forth the amount on which the filing fee is calculated and
state how it was determined.
<PAGE> 2
FRANKLIN FINANCIAL CORPORATION
April 20, 2000
Dear Shareholder:
This year's Annual Meeting of Shareholders of Franklin Financial
Corporation will be held on Tuesday, May 16, 2000, at 4:30 p.m., at Franklin
National Bank's Williamson Square office, 1105 Murfreesboro Road, Franklin,
Tennessee 37064. You are cordially invited to attend.
The Notice of Annual Meeting and a Proxy Statement, which describe the
formal business to be conducted at the Annual Meeting, follow this letter.
After reading the Proxy Statement, please promptly mark, sign and return
the enclosed proxy in the prepaid envelope to assure that your shares will be
represented. Your shares cannot be voted unless you date, sign and return the
enclosed proxy or attend the Annual Meeting in person. Regardless of the number
of shares you own, your careful consideration of, and vote on, the matters
before our shareholders are important.
A copy of the Company's 1999 Annual Report is also enclosed for your
information.
We look forward to seeing you at the Annual Meeting.
Very truly yours,
/s/ Gordon E. Inman
Gordon E. Inman
Chairman of the Board
230 Public Square, Franklin, TN 37064 790-2265
<PAGE> 3
FRANKLIN FINANCIAL CORPORATION
230 PUBLIC SQUARE
FRANKLIN, TENNESSEE 37064
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 16, 2000
The Annual Meeting of Shareholders of Franklin Financial Corporation
(the "Company") will be held on Tuesday, May 16, 2000, at 4:30 p.m., at Franklin
National Bank's Williamson Square office, 1105 Murfreesboro Road, Franklin,
Tennessee 37064, for the following purposes:
(1) To elect eight (8) directors to constitute the Board of
Directors, to serve for a term of one year and until their successors are
elected and qualified;
(2) To approve the adoption of the Company's 2000 Stock Option
Plan, a copy of which is attached as Appendix A to the Proxy Statement
accompanying this Notice; and
(3) To transact such other business as may properly come before
the Annual Meeting or any adjournments or postponements thereof.
Only shareholders of record at the close of business on April 11, 2000,
will be entitled to notice of, and to vote at, the Annual Meeting or any
adjournments or postponements thereof.
A Proxy Statement and a proxy solicited by the Board of Directors are
enclosed herewith. Please sign, date and return the proxy promptly. If you
attend the Annual Meeting, you may, if you wish, withdraw your proxy and vote in
person.
By Order of the Board of Directors,
/s/ Richard E. Herrington
Richard E. Herrington
President and Chief Executive Officer
Franklin, Tennessee
April 20, 2000
PLEASE COMPLETE AND RETURN THE ENCLOSED PROXY PROMPTLY SO THAT YOUR
VOTE MAY BE RECORDED AT THE ANNUAL MEETING IF YOU DO NOT ATTEND PERSONALLY.
<PAGE> 4
FRANKLIN FINANCIAL CORPORATION
230 PUBLIC SQUARE
FRANKLIN, TENNESSEE 37064
ANNUAL MEETING OF SHAREHOLDERS
MAY 16, 2000
--------------------------
PROXY STATEMENT
--------------------------
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Franklin Financial Corporation (the
"Company") for the Annual Meeting of Shareholders to be held on Tuesday, May 16,
2000, and any adjournments or postponements thereof, at the time and place and
for the purposes set forth in the accompanying notice of the Annual Meeting. The
expense of this solicitation, including the cost of preparing and mailing this
Proxy Statement, will be paid by the Company. In addition to solicitations by
mail, officers and regular employees of the Company, at no additional
compensation, may assist in soliciting proxies by telephone. This Proxy
Statement and the accompanying proxy are first being mailed to shareholders on
or about April 20, 2000. The address of the principal executive offices of the
Company is 230 Public Square, Franklin, Tennessee 37064.
Any proxy given pursuant to this solicitation may be revoked by any
shareholder who attends the Annual Meeting and gives oral notice of his election
to vote in person, without compliance with any other formalities. In addition,
any proxy given pursuant to this solicitation may be revoked prior to the Annual
Meeting by delivering to the Secretary of the Company an instrument revoking it
or a duly executed proxy for the same shares bearing a later date. Proxies which
are returned properly executed and not revoked will be voted in accordance with
the shareholder's directions specified thereon. Where no direction is specified,
proxies will be voted FOR the election of the nominees named below to constitute
the entire Board of Directors and FOR the approval and adoption of the Company's
2000 Stock Option Plan.
The record of shareholders entitled to vote at the annual meeting was
taken on April 11, 2000. On that date, the Company had outstanding and entitled
to vote 31,054,187 shares of common stock, no par value, with each share
entitled to one vote.
<PAGE> 5
AGENDA ITEM ONE
ELECTION OF DIRECTORS
Presently, the Board of Directors of the Company consists of six
directors. The Company's ByLaws provide that the Board of Directors shall
consist of not less than five nor more than twenty-five members, the precise
number to be determined from time to time by the Board of Directors. The Board
of Directors of the Company, pursuant to the By-Laws, has decided to increase
the number of directors to serve for the 2000 fiscal year to eight. In addition
to the six directors currently serving as members of the Board of Directors, the
Board has nominated two directors of Franklin National Bank (the "Bank") for
election to the Board of Directors of the Company. The Board of Directors
recommends the election of the eight nominees listed below.
In the event that any nominee withdraws or for any reason is not able
to serve as director, the proxy will be voted for such other person as may be
designated by the Board of Directors, but in no event will the proxy be voted
for more than eight nominees. The affirmative vote of a majority of all votes
cast at the meeting by the holders of the common stock is required for the
election of the eight nominees standing for election. With the exception of Mr.
Lanier, Ms. Smiley and Mr. Cross, all of the nominees have been directors of the
Company since December 1988. Mr. Lanier has been a director of the Company since
August 1989. Ms. Smiley has served as a director of the Bank since 1990, and Mr.
Cross has served as a director of the Bank since 1995. Management of the Company
has no reason to believe that any nominee will not serve if elected.
Each of the following persons has been nominated by management for
election to the Board of Directors to succeed themselves for a term of one year
and until their successors are elected and qualified:
RICHARD E. HERRINGTON, age 52, has served as President and Chief
Executive Officer of the Company since December 1988 and of the Bank from May
1989 to July 1992. From 1985 to 1988, Mr. Herrington served as President of
Security Information Systems, Inc., a subsidiary of Security Federal Savings and
Loan, Nashville, Tennessee.
GORDON E. INMAN, age 61, has served as Chairman of the Board of the
Company since December 1988 and of the Bank since May 1989. In addition, Mr.
Inman was the owner of Inman Realtors, a real estate brokerage firm from 1979 to
1996. Mr. Inman is also a Trustee of Belmont University in Nashville, Tennessee.
CHARLES R. LANIER, age 43, has served as Executive Vice President of
the Bank since July 1989. Mr. Lanier served in various capacities with Sovran
Bank (formerly Williamson County Bank) in Williamson County, Tennessee from 1978
to 1989, including, most recently, as Assistant Vice President for Commercial
Lending.
D. WILSON OVERTON, age 50, is an independent Certified Public
Accountant. From September 1996 through 1999, Mr. Overton was a CPA with and a
shareholder of Williams, Crosslin, Sparks & Vanden, P.C. From 1992 to September
1996, Mr. Overton was a shareholder in the regional accounting firm of Home CPA
Group, a professional association. From 1991 to 1992, Mr. Overton was a partner
in the accounting firm of Yeary, Howell, Overton & Michie, CPA's. From 1989 to
1991, Mr. Overton was the owner of D. Wilson Overton, CPA, and from 1984 to
1989, he was associated with the firm of Wilson, Work, Fossett & Greer, CPA's.
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<PAGE> 6
EDWARD M. RICHEY, age 48, has served as the President of Richey
Insurance Service, Inc. since 1976. From 1979 to 1997, Mr. Richey was also the
owner and a director of Goodman, Inman & Richey, Inc., a weight loss franchise
operation, and served as its President from 1979 to 1986.
EDWARD P. SILVA, age 57, is an attorney-at-law who has been a partner
in the law firm of Hartzog, Silva & Davies since 1974.
Each of the following persons has been nominated by management for
election to the Board of Directors for a term of one year and until their
successors are elected and qualified.
MELODY J. SMILEY, age 47, is a Certified Public Accountant and has been
the sole owner of Melody J. Smiley, CPA, since 1986.
JAMES W. CROSS, IV, age 36, has been the owner and President of Century
Construction Company, Inc. since 1983.
There are no family relationships between any director or executive
officer and any other director or executive officer of the Company.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers and persons who own more than 10% of the
outstanding Common Stock of the Company, to file with the Securities and
Exchange Commission reports of changes in ownership of the Common Stock of the
Company held by such persons. Officers, directors and greater than 10%
shareholders are also required to furnish the Company with copies of all forms
they file under this regulation. To the Company's knowledge, based solely on a
review of the copies of such reports furnished to the Company and
representations that no other reports were required, during the year ended
December 31, 1999, all Section 16(a) filing requirements applicable to its
officers, directors and greater than 10% shareholders were complied with.
Although it is not the Company's obligation to make filings pursuant to
Section 16 of the Securities Exchange Act of 1934, the Company has adopted a
policy requiring all Section 16 reporting persons to report monthly to the
General Counsel of the Company as to whether any transactions in the Company's
Common Stock occurred during the previous month.
MEETINGS OF THE BOARD OF DIRECTORS
AND COMMITTEES OF THE BOARD
The Board of Directors of the Company held seven meetings during the
year ended December 31, 1999. Each director attended at least 75% or more of the
aggregate number of meetings held by the Board of Directors and the committees
on which he served. The Company's Board of Directors has two standing committees
- -- the Audit Committee and the Stock Option Committee. The Board of Directors
does not have standing nominating or compensation committees, such functions
being reserved to the full Board of Directors.
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<PAGE> 7
The Audit Committee presently consists of D. Wilson Overton and Edward
M. Richey. The Audit Committee has been assigned the principal function of
reviewing the internal and external financial reporting of the Company,
reviewing the scope of the independent audit and considering comments by the
auditors regarding internal controls and accounting procedures and management's
response to these comments. The Audit Committee held four meetings during 1999.
The Stock Option Committee presently consists of D. Wilson Overton,
Edward M. Richey and Edward P. Silva. The Stock Option Committee has been
assigned the functions of administering the Company's stock option plan and
granting options thereunder. The Stock Option Committee held one meeting during
1999.
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION HELD
---- --- -------------
<S> <C> <C>
Gordon E. Inman 61 Chairman of the Board
Richard E. Herrington 52 President and Chief Executive Officer
J. Myers Jones, III 49 President of Franklin National Bank
Lisa L. Musgrove 37 Senior Vice President and Chief
Financial Officer
George J. Regg, Jr. 55 Senior Vice President, Secretary and
General Counsel
</TABLE>
Executive officers are appointed by the Board of Directors of the
Company and hold office at the pleasure of the Board. Executive officers devote
their full time to the affairs of the Company. See "Election of Directors" for
information with respect to Gordon E. Inman and Richard E. Herrington.
J. MYERS JONES, III has served as President and Chief Executive Officer
of the Bank since August 1992. From 1989 to 1992, Mr. Jones served as County
Executive Officer of NationsBank of Tennessee, N.A.
LISA MUSGROVE has served as Senior Vice President and Chief Financial
Officer of the Company since March 1999 and as Vice President and Controller of
the Bank since July 1994. Ms. Musgrove served in various capacities with
Tennessee National Bank from 1989 to 1994, including most recently, Vice
President, Controller and Treasurer.
GEORGE J. REGG, JR. has served as Senior Vice President, Secretary and
General Counsel of the Company since November 1997. Mr. Regg served as President
of Goodman, Inman, Richey, Inc., a
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<PAGE> 8
weight loss franchise operation, from 1994 to 1997, and as its Vice President
and General Counsel from 1983 to 1994.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of April 11, 2000
with respect to ownership of the outstanding Common Stock of the Company by (i)
all persons known to the Company to own beneficially more than 5% of the
outstanding shares of the Common Stock of the Company, (ii) each director and
nominee for director of the Company, (iii) each Named Executive Officer (as
defined herein) and (iv) all executive officers and directors of the Company as
a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OUTSTANDING SHARES
- ---------------- ----------------------- ------------------
<S> <C> <C>
Richard E. Herrington (2).................... 1,311,778 4.1%
Gordon E. Inman (3).......................... 16,454,276 48.3
J. Myers Jones (4)........................... 734,596 2.3
George J. Regg, Jr. (5)...................... 244,422 *
James W. Cross, IV .......................... 49,703 *
Charles R. Lanier (6)........................ 343,705 1.1
D. Wilson Overton ........................... 300,380 1.0
Edward M. Richey (7)......................... 4,355,152 14.0
Edward P. Silva ............................. 104,908 *
Melody J. Smiley ............................ 44,636 *
All executive officers and directors
as a group (11 persons).................... 23,980,858 66.9%
</TABLE>
- ---------------------
* Less than 1%
(1) Except as otherwise indicated, each person named in this table
possesses sole voting and investment power with respect to the shares
beneficially owned by such person. "Beneficial Ownership" includes
shares for which an individual, directly or indirectly, has or shares
voting or investment power or both and also includes warrants and
options which are exercisable within sixty days of the date hereof.
Beneficial ownership as reported in the above table has been determined
in accordance with Rule 13d-3 of the Securities Exchange Act of 1934,
as amended (the "Act"). The percentages are based upon 31,054,187
shares outstanding, except for certain parties who hold presently
exercisable options to purchase shares. The percentages for those
parties who hold presently exercisable options are based upon the sum
of 31,054,187 shares plus the number of shares subject to presently
exercisable options held by them, as indicated in the following notes.
(2) Includes 981,136 shares subject to presently exercisable stock options.
Also includes 6,512 shares held by the individual retirement account of
Mr. Herrington's wife.
(3) Includes 3,044,000 shares subject to presently exercisable stock
options. Mr. Inman's business address is 230 Public Square, Franklin,
Tennessee 37064.
(4) Includes 533,360 shares subject to presently exercisable stock options.
(5) Includes 5,200 shares subject to presently exercisable stock options.
(6) Includes 171,168 shares subject to presently exercisable stock options.
(7) Mr. Richey owns 3,857,872 shares individually and 497,280 shares are
owned by Richey Insurance Company, an entity owned by Mr. Richey. Mr.
Richey's address is P. O. Box 277, Franklin, Tennessee 37065.
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<PAGE> 9
There are no arrangements known to the Company the operation of which
may at a subsequent date result in a change in control of the Company.
EXECUTIVE COMPENSATION
The following table provides certain summary information for the fiscal
years ended December 31, 1999, 1998 and 1997 concerning compensation paid or
accrued by the Company to or on behalf of the Company's Chief Executive Officer
and the other executive officers of the Company who earned more than $100,000
during fiscal 1999 (together with the Chief Executive Officer, the "Named
Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
NUMBER OF
NAME AND OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY AWARDED COMPENSATION
- ------------------ ---- ------ ------- ------------
<S> <C> <C> <C> <C>
Gordon E. Inman................... 1999 $169,203 200,000 $ 26,554(1)
Chairman of 1998 166,703 800,000 22,581(2)
the Board 1997 163,114 226,000 24,235(3)
Richard E. Herrington............. 1999 $131,116 50,000 $ 9,268(4)
President and Chief 1998 122,286 176,000 7,171(5)
Executive Officer 1997 116,713 80,000 5,794(6)
J. Myers Jones.................... 1999 $124,560 25,000 $ 4,684(7)
Bank President 1998 119,869 96,000 3,745(8)
1997 115,163 40,000 3,022(9)
George J. Regg, Jr................ 1999 $107,500 10,000 $ 4,900(10)
Senior Vice President, 1998 100,833 8,000 3,175(11)
Secretary and General 1997(12) 12,500 -- 660(13)
Counsel
</TABLE>
- -----------------------
(1) Includes $9,435 paid in 1999 to Mr. Inman in lieu of cafeteria plan
benefits and $4,653 in matching contributions under the Company's
401(k) plan. Also includes $8,166 as the value of 1,950 shares of
common stock granted to Mr. Inman as compensation for his service
as a director of the Company and the Bank, and a $4,300 auto
allowance.
(2) Includes $8,697 paid in 1998 to Mr. Inman in lieu of cafeteria plan
benefits and $3,334 in matching contributions under the Company's
401(k) plan. Also includes $6,750 as the value of 1,000 shares of
common stock granted to Mr. Inman as compensation for his service
as a director of the Company and the Bank, and a $3,800 auto
allowance.
(3) Includes $12,143 paid in 1997 to Mr. Inman in lieu of cafeteria plan
benefits and $2,742 in matching contributions under the Company's
401(k) plan. Also includes $6,050 as the value of 2,200 shares of
Common Stock granted to Mr. Inman as compensation for his service
as a director of the Company and the Bank, and a $3,300 auto
allowance.
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<PAGE> 10
(4) Includes $3,615 paid in 1999 to Mr. Herrington in matching
contributions under the Company's 401(k) plan and $5,653 as the value
of 1,350 shares of Common Stock granted to Mr. Herrington as
compensation for his service as a director of the Company and the Bank.
(5) Includes $2,446 paid in 1998 to Mr. Herrington in matching
contributions under the Company's 401(k) plan and $4,725 as the value
of 700 shares of Common Stock granted to Mr. Herrington as compensation
for his service as a director of the Company and the Bank.
(6) Includes $1,944 paid in 1997 to Mr. Herrington in matching
contributions under the Company's 401(k) plan and $3,850 as the value
of 1,400 shares of Common Stock granted to Mr. Herrington as
compensation for his service as a director of the Company and the Bank.
(7) Includes $3,428 paid in 1999 to Mr. Jones in matching contributions
under the Company's 401(k) plan and $1,257 as the value of 300 shares
of Common Stock granted to Mr. Jones as compensation for his service as
a director of the Bank.
(8) Includes $2,395 paid in 1998 to Mr. Jones in matching contributions
under the Company's 401(k) plan and $1,350 as the value of 200 shares
of Common Stock granted to Mr. Jones as compensation for his service as
a director of the Bank.
(9) Includes $1,922 paid in 1997 to Mr. Jones in matching contributions
under the Company's 401(k) plan and $1,100 as the value of 400 shares
of Common Stock granted to Mr. Jones as compensation for his service as
a director of the Bank.
(10) Includes $3,225 paid in 1999 to Mr. Regg in matching contributions
under the Company's 401(k) plan and $1,675 as the value of 400 shares
of Common Stock granted to Mr. Regg as compensation for his service as
an officer of the Company.
(11) Includes $1,150 paid in 1998 to Mr. Regg in matching contributions
under the Company's 401(k) plan and $2,025 as the value of 300 shares
of Common Stock granted to Mr. Regg as compensation for his service as
an officer of the Company.
(12) Mr. Regg joined the Company in November 1997.
(13) Represents the value of 240 shares of Common Stock granted to Mr. Regg
as compensation for his service as an officer of the Company.
DIRECTOR COMPENSATION
Although the directors of the Company did not receive any cash
compensation for their service as directors in 1999, the Company issued 150
shares of Common Stock to each outside director of the Company as compensation
for his service as a director of the Company during 1999. Gordon Inman and
Richard Herrington received 1,800 shares of Common Stock and 1,200 shares of
Common Stock, respectively, as compensation for their service as directors of
the Company. The Bank's outside directors currently receive a fee of $600 per
month. In addition, each director of the Bank (other than J. Myers Jones) was
issued 150 shares of Common Stock as compensation for his service as a director
of the Bank during 1999. Mr. Jones was issued 300 shares of Common Stock as
compensation for his service as a director of the Bank during 1999. Compensation
to be paid to directors of the Company and the Bank during fiscal 2000 has not
yet been established.
EMPLOYMENT AGREEMENT
On January 1, 2000, the Company entered into an employment agreement
with Gordon E. Inman, pursuant to which Mr. Inman serves as Chairman of the
Board. The employment agreement is for a term of five years, expiring on
December 31, 2004, and provides for automatic renewal for a period of one
additional year unless the Company gives prior written notice that the agreement
shall not be so extended. The agreement provides for Mr. Inman to be paid an
initial annual base salary of $200,000, with the amount of the base salary to be
increased annually by 5%. The agreement also provides for the annual grant of
stock options to Mr. Inman. These options are to be granted by the Board of
Directors of the
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<PAGE> 11
Company. The agreement also provides for Mr. Inman to receive an automobile, as
well as health, disability and life insurance.
STOCK OPTION PLAN
On April 18, 2000, the Board of Directors adopted the 2000 Stock Option
Plan, which has been submitted for approval by the Company's shareholders at the
Annual Meeting. For more information with respect to the 2000 Stock Option Plan,
please see "AGENDA ITEM TWO - PROPOSAL TO APPROVE AND ADOPT THE COMPANY'S 2000
STOCK OPTION PLAN."
The following table provides certain information concerning individual
grants of stock options made during the fiscal year ended December 31, 1999 to
each of the Named Executive Officers.
INDIVIDUAL GRANTS
-----------------
<TABLE>
<CAPTION>
% OF TOTAL OPTIONS
NUMBER OF GRANTED TO
OPTIONS EMPLOYEES IN FISCAL EXERCISE PRICE EXPIRATION
NAME GRANTED (1) YEAR $( PER SHARE) DATE
- ---- ----------- ------------------- ------------- -----
<S> <C> <C> <C> <C>
Gordon E. Inman...................... 200,000 61.8% $5.75 1/4/14
Richard E. Herrington................ 50,000 15.5 5.75 1/4/09
J. Myers Jones....................... 25,000 7.7 5.75 1/4/09
George J. Regg, Jr. ................. 10,000 3.1 5.75 1/4/09
</TABLE>
- ---------------------
(1) Options granted to Messrs. Inman, Herrington and Jones are immediately
exercisable. Options granted to Mr. Regg are exercisable in increments of
20% per year over five years.
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<PAGE> 12
The following table presents information regarding options and warrants
exercised during 1999 and the value of unexercised options and warrants held at
December 31, 1999 by the Named Executive Officers. There were no SARs
outstanding during fiscal 1999.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED IN-
UNEXERCISED OPTIONS THE-MONEY OPTIONS
SHARES AT FISCAL YEAR END(#) AT FISCAL YEAR END(1)
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
- ---- ----------- --------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Gordon E. Inman.................. -- -- 2,844,000/0 $7,330,750/$0
Richard E. Herrington............ 115,792(2) $528,301 931,136/0 $2,662,188/$0
J. Myers Jones................... -- -- 508,360/0 $1,467,125/$0
George J. Regg, Jr. ............. -- -- 1,600/16,400 $2,400/$9,600
</TABLE>
- ------------------
(1) Dollar values calculated by determining the difference between
the estimated fair market value of the Company's Common Stock
at December 31, 1999 $(4.25) and the exercise price of such
warrants and options.
(2) Represents the exercise of 115,792 stock purchase warrants
granted in connection with the Company's initial stock offering.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors does not have a Compensation Committee, the functions
which would be served by such a committee being reserved to the entire Board of
Directors. Gordon E. Inman, the Company's Chairman of the Board and Richard E.
Herrington, the Company's President and Chief Executive Officer, are executive
officers who are also members of the Company's Board of Directors.
In January 1989, the organizers of the Company entered into an agreement
with Gordon E. Inman, the Chairman of the Board of the Company and the Bank, to
lease a two-story office building and property located adjacent to same. Since
1989, the Company and Mr. Inman entered into several addendums to the lease
agreement providing for the lease of additional space in the building. The
monthly rental on the office building is presently $36,908, with increases to be
made on an annual basis based on any increase in the Consumer Price Index
("CPI") during the previous year. The ground lease with respect to the property
adjacent to the building requires that the Company pay a monthly rental of $587,
with increases to be made on an annual basis based on the increase in the CPI
during the previous year. In December 1993, the Bank entered into an agreement
with Mr. Inman for the lease of office/warehouse space on Main Street in
Franklin, Tennessee. As amended, the monthly rental on this facility is
presently $9,100, with increases to be made on an annual basis based on any
increase in the CPI during the previous year. In 1999, the Bank also entered
into a lease agreement with Mr. Inman for an additional building on Main Street
in Franklin, Tennessee with a monthly rental of $4,100. Lease payments to Mr.
Inman by the Company with respect to such properties totaled $548,771 during
1999 and $489,255 during 1998.
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<PAGE> 13
CERTAIN TRANSACTIONS
For information regarding transactions between the Company and Mr.
Inman, see "Executive Compensation - Compensation Committee Interlocks and
Insider Participation."
Century Construction Company, a general contractor owned and controlled
by James W. Cross, IV, a director of the Bank and a nominee for director of the
Company, served as general contractor in connection with the construction of the
Bank, Franklin Financial Center, and the Fairview, Cool Springs and Fieldstone
Farms branch facilities during 1999, 1998 and 1997. Payments by the Bank to
Century Construction Company, which includes payment for services rendered by
unrelated sub-contractors, totaled $165,608 in 1999, $570,892 in 1998, and
$414,567 in 1997.
The Bank had outstanding loans to certain of the Company's directors,
executive officers, their associates and members of the immediate families of
such directors and executive officers. These loans were made in the ordinary
course of business, were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with persons not affiliated with the Company or the Bank and did
not involve more than the normal risk of collectibility or present other
unfavorable features.
-10-
<PAGE> 14
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings, including this proxy statement, in whole or in part, the following
Report of the Board of Directors on Executive Compensation shall not be
incorporated by reference into any such filings.
REPORT OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
In accordance with proxy statement rules of the Securities and Exchange
Commission, the Board of Directors of the Company offers the following report
regarding compensation policies for executive officers and the Chief Executive
Officer of the Company with respect to compensation paid to such persons during
the last fiscal year. As the Board of Directors does not have a standing
compensation committee, such functions are performed by the entire Board of
Directors.
It is the Board of Director's responsibility to establish the salaries,
bonuses and other compensation of the Chief Executive Officer and other
executive officers of the Company and its subsidiaries. In formulating its
compensation policy and decisions, the Board of Directors endeavors to provide a
competitive compensation package that enables the Company to attract and retain
key executives and to integrate compensation programs with the Company's annual
and long-term business strategies and objectives and focus executive actions on
the fulfillment of those objectives.
The Company's executive compensation program generally consists of base
salary and long-term equity incentives in the form of stock options. Base
salaries for executive officers are reviewed annually and, following a review of
the Company's performance during the previous fiscal year, the individual's
contribution to that performance and the individual's level of responsibility,
adjusted accordingly. In order to align executive officers' interests more
closely with the interests of the shareholders of the Company, the Company's
long-term compensation program emphasizes the grant of stock options exercisable
for shares of common stock. The amount of such awards, if any, is determined
from time to time by the Stock Option Committee and reviewed by the Board of
Directors. The Stock Option Committee may take into account various factors in
evaluating the size of stock option grants, including the need to attract and
retain individuals who will provide valuable service to the Company.
In approving the compensation paid in 1999 to Mr. Herrington, the
Company's Chief Executive Officer, the Board of Directors considered the
following factors:
(i) the reasonableness of Mr. Herrington's salary relative to that
of chief executive officers of similarly placed public
companies;
(ii) Mr. Herrington's contribution to the overall financial
performance of the Company, and his leadership within the
Company and the communities it serves.
With respect to the other executive officers of the Company and its
subsidiaries, the Board of Directors considered the salaries to be commensurate
with those paid to similarly positioned executives in similar companies.
<TABLE>
<S> <C> <C>
Richard E. Herrington Charles R. Lanier Edward M. Richey
Gordon E. Inman D. Wilson Overton Edward P. Silva
</TABLE>
-11-
<PAGE> 15
SHAREHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change
in the cumulative total shareholder return on the Company's common stock against
the cumulative total return of the Nasdaq Market Index and the Nasdaq Bank
Index, for the five year period commencing December 31, 1994 and ending December
31, 1999. The graph and the table below assume that the value of an initial
investment in the Company's common stock and each index was $100 on December 31,
1994. The Company's common stock is not included in either of these indices. The
prices of the Company's common stock represent the closing bid prices of the
common stock as quoted in the "Pink Sheets," an inter-broker quotation medium.
The market for the Company's common stock must be characterized as limited due
to its relatively low trading volume and lack of analyst coverage. The change in
cumulative total return is measured by dividing (i) the sum of (a) the
cumulative amount of dividends for the period, assuming dividend reinvestment,
and (b) the change in share price between the beginning and end of the period,
by (ii) the share price at the beginning of the period.
[Shareholder Performance Graph Appears Here]
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1994 1995 1996 1997 1998 1999
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Franklin Financial Corporation(*) $100.00 $142.11 $226.33 $484.25 $1,136.94 $715.85
Nasdaq Bank Index............. $100.00 $149.00 $196.73 $329.39 $ 327.00 $314.35
Nasdaq Market Index........... $100.00 $129.71 $161.18 $197.16 $ 278.08 $490.46
</TABLE>
(*) The values represented for the Company's common stock are based on
quotations as published in the "Pink Sheets," an inter-broker quotation
medium.
-12-
<PAGE> 16
AGENDA ITEM TWO
PROPOSAL TO APPROVE AND ADOPT THE COMPANY'S 2000 STOCK OPTION PLAN
Effective April 18, 2000, the Board of Directors of the Company adopted
the 2000 Stock Option Plan (the "Plan") for eligible officers and key employees
of the Company and the Bank. The Board of Directors recommends that the
Company's shareholders vote for approval of the Plan, which provides for the
grant of both incentive and nonqualified stock options. The purpose of the Plan
is to encourage and enable participating officers and key employees to remain in
the employ of and to give a greater effort on behalf of the Company and the
Bank. Shareholder approval of the Plan requires the affirmative vote of the
holders of a majority of shares of common stock represented at the 2000 Annual
Meeting of Shareholders in person or by proxy.
The following discussion of the principal features of the Plan is
qualified in its entirety by reference to the full text of the Plan, which is
set forth in Appendix A attached hereto.
Effective Date
The effective date of the Plan is April 18, 2000. The Plan will remain
in effect until all shares subject to or which may become subject to the Plan
shall have been purchased pursuant to options granted under the Plan, provided
that options under the Plan must be granted within ten years from the effective
date.
Shares Subject to the Plan
The shares of the Company's common stock available for issuance under
the Plan may, at the election of the Board of Directors, be either treasury
shares or shares originally issued for such purpose. The maximum number of
shares which may be issued under the Plan is 7,500,000. Any shares subject to an
option which for any reason expires or is terminated may again be subject to an
option under the Plan.
Persons Eligible to Participate in the Plan
Under the Plan, options may be granted only to officers and key
employees of the Company or the Bank who are in a position to contribute
significantly to the effective management and operation of the Company or the
Bank. Only officers and employees of the Company or the Bank, however, are
eligible to receive incentive stock options under the Plan. As of April 18,
2000, 170 officers and employees of the Company or the Bank were eligible to
participate in the Plan.
Administration of the Plan
The Plan may be administered by the Board of Directors of the Company
or a committee of the Board consisting of two or more directors, each of whom is
not an employee of the Company or the Bank. Subject to the provisions of the
Plan, and with the exception of certain options granted to the executive
officers of the Company pursuant to each such officer's employment agreement,
the Board of Directors has the authority to determine the individuals to whom
options shall be granted and to determine exercise prices, vesting requirements,
the term of and the number of shares covered by each option.
-13-
<PAGE> 17
Exercise Price, Terms of Exercise and Payment for Shares
Each option granted under the Plan will be represented by an option
agreement which shall set forth the terms particular to that option, including
the number of shares covered by the option, the exercise price, the term of the
option and any vesting requirements.
The exercise price of options granted under the Plan will be determined
by the Board of Directors, but in no event shall be less than 100% of the Market
Price of one share of the Company's common stock on the date of the grant of the
option; provided, however, that a nonqualified stock option may be granted at
any exercise price. The term "Market Price" is defined in the Plan to be the
fair market value of the Company's common stock as determined by the Board of
Directors, acting in good faith, under any method consistent with the Internal
Revenue Code of 1986, as amended (the "Code"), or Treasury Regulations
thereunder, which the Board of Directors shall in its discretion apply at the
time of the grant of the option concerned.
Options may be purchased in whole or in part by the optionee, but in no
event later than ten years from the date of the grant for incentive stock
options. There is no limitation on the term for non-qualified options. Any
incentive stock option granted under the Plan to an individual who owns directly
or indirectly (under applicable ownership attribution rules) more than 10
percent of the total combined voting power of all classes of stock of the
Company may not be purchased at a price less than 110% of the Market Price on
the day the option is granted, and no such option may be exercised more than
five years from the date of grant. The purchase price for the shares shall be
paid in cash or by surrendering shares of common stock of the Company valued at
the Market Price on the date of exercise. However, the shares of common stock to
be surrendered must have been held by the optionee for at least six months prior
to the date of surrender. Upon payment, the Company will deliver stock
certificates for such shares to the optionee.
Termination of Employment
In the event that a holder of an incentive option granted under the
Plan ceases to be employed by the Company for any reason other than his or her
death or total and permanent disability, any option or unexercised portion
thereof, which was otherwise exercisable on the date of such termination, shall
expire 90 days from the date of such termination, but in no event after the term
provided in the option agreement. In the event that an optionee who is at least
60 years of age and who has been employed by the Company or the Bank for seven
years retires, any options which are not otherwise exercisable on the date of
retirement will accelerate and become immediately exercisable for a period of
three months.
Upon the death or total and permanent disability of the holder of an
incentive option, any option or unexercised portion thereof which is otherwise
exercisable shall expire within one year of the date of such death or
disability, but in no event after the term provided in the option agreement. Any
options which were not exercisable on the date of such death or disability shall
be immediately exercisable for a period of one year.
Options granted under the Plan are exercisable during the lifetime of
the optionee only by the optionee. All options granted under the Plan are
non-transferable except by will or under the laws of descent and distribution.
-14-
<PAGE> 18
Reorganization and Recapitalization
In case the Company is merged or consolidated with another corporation
and the Company is not the survivor, or in case the Company is acquired by
another corporation, or in case of a separation, reorganization,
recapitalization or liquidation of the Company, the Board of Directors of the
Company shall either make appropriate provision for the protection of any
outstanding options, including without limitation the substitution of
appropriate stock of the Company or of the merged, consolidated or otherwise
reorganized corporation which will be issuable in respect of the shares of the
Company's common stock, or upon written notice to the optionee, provide that the
option must be exercised within 60 days or it will be terminated.
In the event that dividends are payable in the Company's common stock
or in the event there are splits, subdivisions or combinations of shares of the
Company's common stock, the number of shares available under the Plan will be
increased or decreased proportionately, as the case may be, and the number of
shares deliverable upon the exercise thereafter of any option theretofore
granted will be increased or decreased proportionately, as the case may be,
without change in the aggregate purchase price.
Limitation on Number of Shares that May be Purchased
For incentive stock options granted under the Plan, the aggregate fair
market value (determined at the time the option was granted) of the shares with
respect to which incentive stock options are exercisable for the first time by
an optionee during any calendar year shall not exceed $100,000. Any excess over
such amount shall be deemed to be related to and part of a nonqualified stock
option.
Amendment and Termination of the Plan
With respect to any shares of stock at the time not subject to options,
the Board of Directors may at any time and from time to time, terminate, modify
or amend the Plan in any respect, except that no such modification or amendment
shall be made absent the approval of the shareholders of the Company to: (i)
increase the number of shares for which options may be granted under the Plan
except as otherwise provided by Section 8(h) of the Plan; or (ii) change the
class of persons eligible for awards of stock options. The Company's Board of
Directors may also suspend the granting of options pursuant to the Plan at any
time and may terminate the Plan at any time; provided, however, no such
suspension or termination shall modify or amend any option granted before such
suspension or termination unless the affected participant consents in writing,
to such modification or amendment or there is a dissolution or liquidation of
the Company.
With the consent of the affected optionee, the Board of Directors may
amend outstanding option agreements in a manner consistent with the Plan.
Without employee consent, the Board of Directors may at any time and from time
to time modify or amend option agreements in such respects as it deems necessary
in order that incentive options granted under the Plan shall comply with the
appropriate provisions of the Code and regulations thereunder which are in
effect from time to time respecting qualified incentive stock options.
-15-
<PAGE> 19
Federal Income Tax Consequences
Incentive Stock Options. All incentive stock options granted or to be
granted under the Plan are intended to be incentive stock options as defined in
Section 422 of the Code.
Under the provisions of Section 422 of the Code, neither the holder of
an incentive stock option nor the issuer of such option will recognize income,
gain, deduction or loss upon the grant or exercise of an incentive stock option,
except through alternative minimum tax liability as discussed below. An optionee
will be taxed only when the stock acquired upon exercise of his or her incentive
stock option is sold or otherwise disposed of in a taxable transaction. If at
the time of such sale or disposition the optionee has held the shares for the
required holding period (two years from the date the option was granted and one
year from the date of the transfer of the shares to the optionee), the optionee
will recognize long-term capital gain or loss, as the case may be, based upon
the difference between his or her exercise price and the net proceeds of the
sale. However, if the optionee disposes of the shares before the end of such
holding period, the optionee will recognize ordinary income on such disposition
in an amount equal to the lesser of: (i) the <-1- 1>gain on the sale or other
disposition; or (ii) the amount by which the fair market value of the shares on
the date of exercise exceeded the option exercise price, with any excess gain
being capital gain, long-term or short-term, depending on whether or not the
shares had previously been held for more than one year on the date of sale or
other taxable disposition.
The foregoing discussion and the reference to capital gain or loss
treatment therein assume that the option shares are a capital asset in the hands
of the optionee. A sale or other disposition which results in the recognition of
ordinary income to the optionee will also result in a corresponding income tax
deduction for the Company.
Incentive stock options offer two principal tax benefits: (1) the
possibility of converting ordinary income into capital gain to the extent of the
excess of fair market value over option price at the time of exercise, and (2)
the deferral of recognition of gain until disposition of the stock acquired upon
the exercise of the option.
The Taxpayer Relief Act of 1997 (the "1997 Tax Act") made significant
changes to individual capital gains tax rates. The 1997 Tax Act generally
reduces the maximum tax rate for gains realized by individual taxpayers from the
sale of capital assets held for more than eighteen months from 28% to 20% (18%
if the property has been held for more than five years and is acquired and sold
after the year 2000). For capital assets held for more than one year but not
more than eighteen months, the maximum tax rate remains at 28%, as it was under
prior law. In addition, taxpayers otherwise subject to the 15% rate bracket will
be entitled to a 10% maximum tax rate on long-term capital gains (18% if the
property has been held for more than five years and is sold after the year
2000). The new maximum tax rates for long-term capital gains will apply for
purposes of both the regular income tax and the alternative minimum tax.
However, the excess of the fair market value of shares acquired through the
exercise of an incentive stock option over the exercise price is taken into
account in computing an individual taxpayer's alternative minimum taxable
income. Thus, the exercise of an incentive stock option could result in the
imposition of an alternative minimum tax liability.
In general, an option granted under the Plan which is designated as an
incentive stock option will be taxed as described above. However, in some
circumstances an option which is designated as an
-16-
<PAGE> 20
incentive stock option will be treated as a nonqualified stock option and the
holder taxed accordingly. For example, a change in the terms of an option which
gives the employee additional benefits may be treated as the grant of a new
option. Unless all the criteria for treatment as an incentive stock option are
met on the date the "new option" is considered granted (such as the requirement
that the exercise price of the option be not less than the fair market value of
the stock as of the date of the grant), the option will be treated and taxed as
a nonqualified stock option.
Nonqualified Stock Options. All options granted or to be granted under
the Plan which do not qualify as incentive stock options are nonqualified stock
options not entitled to special tax treatment under Section 422 of the Code.
A participant in the Plan will recognize taxable income upon the grant
of a nonqualified stock option only if such option has a readily ascertainable
fair market value as of the date of the grant. In such a case, the recipient
will recognize taxable ordinary income in an amount equal to the excess of the
fair market value of the option as of such date over the exercise price, if any,
to be paid for such option. No income would then be recognized on the exercise
of the option, and when the shares obtained through the exercise of the option
are disposed of in a taxable transaction, the resulting gain or loss would be
capital gain or loss (assuming the shares are a capital asset in the hands of
the optionee). However, under the applicable Treasury Regulations, the
nonqualified stock options issued under the Plan will not have a readily
ascertainable fair market value unless at the time such options are granted
similar options of the Company are actively traded on an established market. The
Company presently has no such actively traded options.
Upon the exercise of a non-statutory option not having a readily
ascertainable fair market value, the optionee recognizes ordinary income in an
amount equal to the excess of the fair value of the shares on the date of
exercise over the option exercise price for those shares. The Company is not
entitled to an income tax deduction with respect to the grant of a nonqualified
stock option or the sale of stock acquired pursuant thereto. The Company
generally is permitted a deduction equal to the amount of ordinary income the
optionee is required to recognize as a result of the exercise of a nonqualified
stock option.
General. The Plan is not qualified under Section 401(a) of the Code and
is not subject to the provisions of the Employee Retirement Income Security Act
of 1974.
THE PRECEDING DISCUSSION IS BASED UPON FEDERAL TAX LAWS AND REGULATIONS
IN EFFECT ON THE DATE OF THIS PROXY STATEMENT, WHICH ARE SUBJECT TO CHANGE, AND
UPON AN INTERPRETATION OF THE STATUTORY PROVISIONS OF THE CODE, ITS LEGISLATIVE
HISTORY AND RELATED INCOME TAX REGULATIONS. FURTHERMORE, THE FOREGOING IS ONLY A
GENERAL DISCUSSION OF THE FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN AND DOES
NOT PURPORT TO BE A COMPLETE DESCRIPTION OF ALL FEDERAL INCOME TAX ASPECTS OF
THE PLAN. OPTION HOLDERS MAY ALSO BE SUBJECT TO STATE AND LOCAL TAXES IN
CONNECTION WITH THE GRANT OR EXERCISE OF OPTIONS GRANTED UNDER THE PLAN AND THE
SALE OR OTHER DISPOSITION OF SHARES ACQUIRED UPON EXERCISE OF THE OPTIONS.
INDIVIDUALS RECEIVING A GRANT OF OPTIONS SHOULD CONSULT WITH HIS OR HER PERSONAL
TAX ADVISOR REGARDING FEDERAL, STATE AND LOCAL CONSEQUENCES OF PARTICIPATING IN
THE PLAN.
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS THAT THE COMPANY'S
SHAREHOLDERS VOTE "FOR" APPROVAL OF THE PLAN.
-17-
<PAGE> 21
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of Deloitte & Touche LLP are expected to be present at
the Annual Meeting of Shareholders to respond to shareholders' questions and
will have the opportunity to make any statements they consider to be
appropriate. The Board of Directors of the Company has selected Deloitte &
Touche LLP as its independent auditors for the 2000 fiscal year.
ANNUAL REPORT ON FORM 10-K
The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999, as filed with the Securities and Exchange Commission, is
available to shareholders who make written request therefor to Franklin
Financial Corporation, P. O. Box 625, Franklin, Tennessee 37065, Attention:
Susan S. Lowman. Copies of exhibits and basic documents filed with that report
or referenced therein will be furnished to shareholders of record upon request.
SHAREHOLDERS' PROPOSALS FOR 2001 ANNUAL MEETING
Shareholders may submit proposals appropriate for stockholder action at
the Company's 2001 Annual Meeting, consistent with the regulations of the
Securities and Exchange Commission. Proposals by shareholders intended to be
presented at the 2001 Annual Meeting must be received by the Company no later
than December 29, 2000, in order to be included in the Company's proxy materials
for that meeting. Additionally, the Company must receive notice of any
shareholder proposal to be submitted at the 2001 Annual Meeting of Shareholders
(but not required to be included in the Company's proxy statement) by March 13,
2001, or such proposal will be considered untimely and the persons named in the
proxies solicited by management may exercise discretionary voting authority with
respect to such proposal. Such proposals should be directed to Franklin
Financial Corporation, Attention: Corporate Secretary, 230 Public Square,
Franklin, Tennessee 37064.
OTHER MATTERS
The Board of Directors knows of no other matters to be brought before
the annual meeting. However, if other matters should come before the annual
meeting it is the intention of the persons named in the enclosed form of Proxy
to vote the Proxy in accordance with their judgment of what is in the best
interest of the Company.
By Order of The Board of Directors,
/s/ Richard E. Herrington
Richard E. Herrington
President and Chief Executive Officer
Franklin, Tennessee
April 20, 2000
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<PAGE> 22
APPENDIX A
FRANKLIN FINANCIAL CORPORATION
2000 STOCK OPTION PLAN
EFFECTIVE AS OF APRIL 18, 2000
1. PURPOSE
The primary purpose of the Franklin Financial Corporation 2000 Stock
Option Plan (the "Plan") is to encourage and enable eligible officers and key
employees of Franklin Financial Corporation, a Tennessee corporation (the
"Company"), and its subsidiaries to acquire proprietary interests in the Company
through the ownership of common stock of the Company. The Company believes that
officers and key employees who participate in the Plan will have a closer
identification with the Company by virtue of their ability as shareholders to
participate in the Company's growth and earnings. The Plan also is designed to
provide motivation for participating officers and key employees to remain in the
employ of and to give greater effort on behalf of the Company. It is the
intention of the Company that the Plan provide for the award of "incentive stock
options" qualified under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") and the regulations promulgated thereunder, as well as the
award of non-qualified stock options. Accordingly, the provisions of the Plan
related to incentive stock options shall be construed so as to extend and limit
participation in a manner consistent with the requirements of Section 422 of the
Code.
2. DEFINITIONS
The following words or terms shall have the following meanings:
(a) "Agreement" shall mean a stock option agreement between the
Company and an Eligible Employee pursuant to the terms of this Plan.
(b) "Company" shall mean Franklin Financial Corporation, a
Tennessee corporation.
(c) "Board of Directors" shall mean the Board of Directors of the
Company.
(d) "Committee" shall mean the committee appointed by the Board of
Directors to administer the Plan, as set forth in Section 5 of the Plan.
(e) "Eligible Employee" shall mean a key employee regularly
employed by the Company or a Subsidiary (including an officer, whether or not he
or she is a member of the Board of Director) as the Board of Directors or the
Committee shall select from time to time.
(f) "Market Price" shall mean the closing price of the Company's
common stock on the date in question, as quoted by the Nasdaq National Market or
the Nasdaq SmallCap Market (or other nationally recognized quotation service).
If the Company's common stock is not traded on the Nasdaq Stock Market but is
registered on a national securities exchange, "Market Price" shall mean the
closing sales price of the Company's common stock on such national securities
exchange. If the Company's common stock is not traded on a national securities
exchange or through any other nationally recognized quotation service, then
"Market Price" shall mean the fair market value of the Company's common stock as
determined by the Board of Directors or the Committee, acting in good faith,
under any method consistent with the Code,
A-1
<PAGE> 23
or Treasury Regulations thereunder, as the Board of Directors or the Committee
shall in its discretion select and apply at the time of the grant of the option
concerned. Subject to the foregoing, the Board of Directors or the Committee, in
fixing the market price, shall have full authority and discretion and be fully
protected in doing so.
(g) "Optionee" shall mean an Eligible Employee having a right to
purchase Common Stock under an Agreement.
(h) "Option(s)" shall mean the right or rights granted to Eligible
Employees to purchase Common Stock under the Plan.
(i) "Plan" shall mean this Franklin Financial Corporation 2000
Stock Option Plan.
(j) "Shares," "Stock," or "Common Stock" shall mean shares of the
no par value common stock of the Company.
(k) "Subsidiary" or "Subsidiaries" shall mean any corporation(s)
of which the Company owns or controls, directly or indirectly, more than a
majority of the voting stock.
(l) "Ten Percent Owner" shall mean an individual who, at the time
an Option is granted, owns or controls, directly or indirectly, more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company or a Subsidiary.
3. EFFECTIVE DATE
The effective date of the Plan (the "Effective Date") shall be the date
the Plan is adopted by the Board of Directors or the date the Plan is approved
by the shareholders of the Company, whichever is earlier. In the event the Plan
is not approved by the shareholders of the Company, by the affirmative vote of
the holders of not less than a majority of the Shares voted at a meeting at
which a quorum is present, within the twelve month period commencing on the
Effective Date, any Options granted pursuant to Section 8 of the Plan and
intended to be treated as incentive stock options shall be deemed to be
nonqualified stock options pursuant to Section 9 of the Plan.
4. SHARES RESERVED FOR PLAN
The shares of Common Stock to be sold to Eligible Employees and Eligible
Participants under the Plan may at the election of the Board of Directors be
either treasury shares or shares originally issued for such purpose. The maximum
number of Shares which shall be reserved and made available for sale under the
Plan shall be seven million and five hundred thousand (7,500,000); provided,
however, that such Shares shall be subject to the adjustments provided in
Section 8(h). Any Shares subject to an Option which for any reason expires or is
terminated unexercised may again be subject to an Option under the Plan.
A-2
<PAGE> 24
5. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Board of Directors or the
Committee. The Committee shall be comprised of not less than two (2) members
appointed by the Board of Directors of the Company from among its members, each
of whom qualifies as a "Non-Employee Director" as such term is defined in Rule
16b-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or any successor regulation.
Within the limitations described herein, the Board of Directors of the
Company or the Committee shall administer the Plan, select the Eligible
Employees to whom Options will be granted, determine the number of shares to be
optioned to each Eligible Employee and interpret, construe and implement the
provisions of the Plan. The Board of Directors or the Committee shall also
determine the price to be paid for the Shares upon exercise of each Option, the
period within which each Option may be exercised, and the terms and conditions
of each Option granted pursuant to the Plan. The Board of Directors and
Committee members shall be reimbursed for out-of-pocket expenses reasonably
incurred in the administration of the Plan.
If the Plan is administered by the Board of Directors, a majority of the
members of the Board of Directors shall constitute a quorum, and the act of a
majority of the members of the Board of Directors present at any meeting at
which a quorum is present, or acts approved in writing by all members of the
Board of Directors shall be the acts of the Board of Directors. If the Plan is
administered by the Committee, a majority of the members of the Committee shall
constitute a quorum, and the acts of a majority of the members present at any
meeting at which a quorum is present, or acts approved in writing by all of the
members of the Committee shall be the acts of the Committee.
6. ELIGIBILITY
Options granted pursuant to Section 8 shall be granted only to Eligible
Employees.
7. DURATION OF THE PLAN
The Plan shall remain in effect until all Shares subject to or which may
become subject to the Plan shall have been purchased pursuant to Options granted
under the Plan; provided that Options under the Plan must be granted within ten
years from the Effective Date. The Plan shall expire on the tenth anniversary of
the Effective Date.
8. QUALIFIED INCENTIVE OPTIONS
It is intended that Options granted under this Section 8 shall be
qualified incentive stock options under the provisions of Section 422 of the
Code and the regulations thereunder or corresponding provisions of subsequent
revenue laws and regulations in effect at the time such Options are granted.
Such Options shall be evidenced by stock option agreements in such form and not
inconsistent with this Plan as the Committee or the Board of Directors shall
approve from time to time, which Agreements shall contain in substance the
following terms and conditions:
(a) Price. The purchase price for shares purchased upon exercise
shall not be less than the Market Price on the day the Option is granted;
provided that the purchase price of stock deliverable upon the exercise of a
qualified incentive stock option granted to a Ten Percent Owner under this
Section 8 shall
A-3
<PAGE> 25
be not less than 110% of the Market Price on the day the Option is granted, as
determined by the Board of Directors or the Committee.
(b) Number of Shares. The Agreement shall specify the number of
Shares which the Optionee may purchase under such Option, as determined by the
Board of Directors or the Committee.
(c) Exercise of Options. The Shares subject to the Option may be
purchased in whole or in part by the Optionee, in accordance with the vesting
schedule set forth in the Agreement, from time to time after shareholder
approval of the Plan, as determined by the Board of Directors or the Committee,
but in no event later than ten years from the date of grant of the Option.
Notwithstanding the foregoing, Shares subject to an Option which is a qualified
incentive stock option granted to a Ten Percent Owner under this Section 8 may
be purchased from time to time but in no event later than five years from the
date of grant of the Option.
(d) Medium and Time of Payment. Stock purchased pursuant to an
Agreement shall be paid for in full at the time of purchase. Payment of the
purchase price shall be in cash or, in lieu of payment of all or part of the
purchase price in cash, the Optionee may surrender to the Company, Common Stock
valued at the Market Price on the date of exercise of the Option in accordance
with the terms of the Agreement; provided, however, that the shares of Common
Stock surrendered shall have been held by the Optionee for a period of at least
six months prior to the date of surrender. Upon receipt of payment, the Company
shall, without transfer or issue tax, deliver to the Optionee (or other person
entitled to exercise the Option) a certificate or certificates for such Shares.
(e) Rights as a Shareholder. An Optionee shall have no rights as a
shareholder with respect to any Shares covered by an Option until the date of
issuance of the stock certificate to the Optionee for such Shares. Except as
otherwise expressly provided in the Plan, no adjustments shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
the date such stock certificate is issued.
(f) Nonassignability of Option. No Option shall be assignable or
transferable by the Optionee except by will or by the laws of descent and
distribution. During the lifetime of the Optionee, the Option shall be
exercisable only by him or her.
(g) Effect of Termination of Employment or Death. In the event an
Optionee during his or her lifetime ceases to be an employee of the Company or
of any Subsidiary of the Company for any reason (including retirement) other
than death or permanent and total disability, any Option or unexercised portion
thereof which was otherwise exercisable on the date of termination of employment
shall expire unless exercised within a period of three months from the date on
which the Optionee ceased to be an employee, but in no event after the term
provided in the Optionee's Agreement. In the event that an Optionee who is at
least 60 years of age and who has been employed by the Company or any Subsidiary
of the Company for a continuous period of not less than seven years ceases to be
an employee of the Company or any Subsidiary of the Company by retiring, any
Option or portion thereof which would not otherwise be exercisable on the date
such Optionee retires shall be accelerated and become immediately exercisable
for a period of three months from the date on which the Optionee ceased to be an
employee, but in no event shall the exercise period extend past the term
provided in the Optionee's Agreement. Whether authorized leave of absence for
military or government service shall constitute termination of employment for
the purpose of this Plan shall be determined by the Board of Directors or the
Committee, which determination shall be final and conclusive.
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<PAGE> 26
In the event an Optionee ceases to be an employee of the Company or any
Subsidiary of the Company by reason of death or permanent and total disability,
any Option or unexercised portion thereof which was otherwise exercisable on the
date such Optionee ceased employment shall expire unless exercised within a
period of one year from the date on which the Optionee ceased to be an employee,
but in no event after the term provided in the Optionee's Agreement. In the
event that an Optionee during his or her lifetime ceases to be an employee of
the Company or any Subsidiary of the Company by reason of death or permanent and
total disability, any Option or portion thereof which was not exercisable on the
date such Optionee ceased employment may, in the discretion of the Board of
Directors or the Committee, be accelerated and become immediately exercisable
for a period of one year from the date on which the Optionee ceased to be an
employee, but in no event shall the exercise period extend past the term
provided in the Optionee's Agreement.
"Permanent and total disability" as used in this Plan shall be as
defined in Section 22(e)(3) of the Code.
In the event of the death of an Optionee, the Option shall be
exercisable by his or her personal representatives, heirs or legatees, as
provided herein.
(h) Recapitalization. In the event dividends are payable in Common
Stock or in the event there are splits, subdivisions or combinations of shares
of Common Stock, the number of Shares available under the Plan shall be
increased or decreased proportionately, as the case may be, and the number and
Option exercise price of Shares deliverable upon the exercise thereafter of any
Option theretofore granted shall be increased or decreased proportionately, as
the case may be, as determined to be proper and appropriate by the Board of
Directors or the Committee.
(i) Reorganization. In the event the Company is merged or
consolidated with another entity and the Company is not the surviving entity, or
in case the property or stock of the Company is acquired by another entity, or
in case of a separation, reorganization, recapitalization or liquidation of the
Company, the Board of Directors of the Company, or the Board of Directors of any
entity assuming the obligations of the Company hereunder, shall either (i) make
appropriate provision for the protection of any outstanding Options by the
substitution on an equitable basis of appropriate stock of the Company, or of
the merged, consolidated or otherwise reorganized entity which will be issuable
in respect to the shares of Common Stock of the Company, provided only that the
excess of the aggregate fair market value of the Shares subject to option
immediately after such substitution over the purchase price thereof is not more
than the excess of the aggregate fair market value of the Shares subject to
option immediately before such substitution over the purchase price thereof, or
(ii) provide written notice to the Optionee that the Option (including, in the
discretion of the Board of Directors, any portion of such Option which is not
then exercisable) must be exercised within sixty days of the date of such notice
or it will be terminated. If any adjustment under this Section 8(i) would create
a fractional Share or a right to acquire a fractional Share, such shall be
disregarded and the number of Shares available under the Plan and the number of
Shares covered under any Options previously granted pursuant to the Plan shall
be the next lower number of Shares, rounding all fractions downward. An
adjustment made under this Section 8(i) by the Board of Directors shall be
conclusive and binding on all affected persons.
Except as otherwise expressly provided in this Plan, the Optionee shall
have no rights by reason of any subdivision or consolidation of shares of stock
of any class, or the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class, or by reason of any
dissolution, liquidation, merger, or consolidation or spin-off of assets or
stock of another entity; and any issue by the Company of shares of stock of any
class, or securities convertible into shares of stock of any
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<PAGE> 27
class, shall not affect, and no adjustment by reason thereof shall be made with
respect to, the number or prices of Shares subject to an Option.
The grant of an Option pursuant to the Plan shall not affect in any way
the right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure or to merge or
to consolidate or to dissolve, liquidate or sell, or transfer all or any part of
its business or assets.
(j) Annual Limitation. The aggregate fair market value (determined
at the time the Option is granted) of the Shares with respect to which incentive
stock options are exercisable for the first time by an Optionee during any
calendar year (under all incentive stock option plans of the Company and its
Subsidiaries) shall not exceed $100,000. Any excess over such amount shall be
deemed to be related to and part of a non-qualified stock option granted
pursuant to Section 9.
(k) General Restriction. Each Option shall be subject to the
requirement that if at any time the Board of Directors shall determine, in its
reasonable discretion, that the listing, registration or qualification of the
Shares subject to such Option upon any securities exchange or under any state or
federal law, or the consent or approval of any government regulatory body, is
necessary or desirable as a condition of, or in connection with, the granting of
such Option or the issue or purchase of Shares thereunder, such Option may not
be exercised in whole or in part unless such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Board of Directors. Alternatively, such
Options shall be issued and exercisable only upon such terms and conditions and
with such restrictions as shall be necessary or appropriate to effect exemption
from such listing, registration, or other qualification requirement.
9. NON-QUALIFIED OPTIONS
The Board of Directors or the Committee may grant to Eligible Employees
Options under the Plan which are not qualified incentive stock options under the
provisions of Section 422 of the Code. Such non-qualified options shall be
evidenced by Agreements in such form and not inconsistent with this Plan as the
Board of Directors or the Committee shall approve from time to time, which
Agreements shall contain in substance the same terms and conditions as set forth
in Section 8 hereof with respect to qualified incentive stock options; provided,
however, that:
(i) the limitations set forth in Sections 8(a) and 8(c)
with respect to Ten Percent Owners shall not be applicable to non-qualified
options granted to any Ten Percent Owner;
(ii) the limitations set forth in Section 8(g) with
respect to termination of employment or death shall not be applicable to
non-qualified option grants, and any such limitations shall be determined on a
case by case basis by the Board of Directors or the Committee at the time of the
non-qualified option grant;
(iii) the limitation set forth in Section 8(j) with respect
to the annual limitation of incentive stock options shall not be applicable to
non-qualified option grants;
(iv) the limitation set froth in Section 8(c) with respect
to the length of the exercise period of incentive stock options shall not be
applicable to non-qualified option grants; and
A-6
<PAGE> 28
(v) the limitations set forth in Section 8(a) with
respect to the Exercise Price shall not be applicable to non-qualified option
grants.
10. AMENDMENT OF THE PLAN
The Plan may, at any time or from time to time, be terminated, modified
or amended at a meeting of the shareholders of the Company at which a quorum is
present by the affirmative vote of the holders of a majority of the Shares voted
on such issue. The Board of Directors may at any time and from time to time
modify or amend the Plan in any respect, except that without shareholder
approval, the Board of Directors may not (1) increase the maximum number of
Shares for which Options may be granted under the Plan (other than increases due
to changes in capitalization as referred to in Section 8(h) hereof), or (2)
change the class of persons eligible to receive qualified incentive options. The
termination or any modification or amendment of the Plan shall not, without the
written consent of an Optionee, affect his or her rights under an Option or
right previously granted to him or her. With the written consent of the Optionee
affected, the Board of Directors or the Committee may amend outstanding option
agreements in a manner not inconsistent with the Plan. Without employee consent,
the Board of Directors may at any time and from time to time modify or amend
outstanding option agreements in such respects as it shall deem necessary in
order that incentive options granted hereunder shall comply with the appropriate
provisions of the Code and regulations thereunder which are in effect from time
to time respecting "Qualified Incentive Options." The Company's Board of
Directors may also suspend the granting of Options pursuant to the Plan at any
time and may terminate the Plan at any time; provided, however, no such
suspension or termination shall modify or amend any Option granted before such
suspension or termination unless (1) the affected participant consents in
writing to such modification or amendment or (2) there is a dissolution or
liquidation of the Company.
11. BINDING EFFECT
All decisions of the Board of Directors or the Committee involving the
implementation, administration or operation of the Plan or any offering under
the Plan shall be binding on the Company and on all persons eligible or who
become eligible to participate in the Plan.
12. APPLICATION OF FUNDS
The proceeds received by the Company from the sale of Common Stock
pursuant to Options exercised hereunder will be used for general corporate
purposes.
A-7
<PAGE> 29
FRANKLIN FINANCIAL CORPORATION
230 PUBLIC SQUARE
FRANKLIN, TENNESSEE 37064
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE 2000
ANNUAL MEETING OF SHAREHOLDERS.
The undersigned hereby appoints Richard E. Herrington and Gordon E. Inman or
either of them, with power of substitution to each, the proxies of the
undersigned to vote the Common Stock of the undersigned at the Annual Meeting of
Shareholders of FRANKLIN FINANCIAL CORPORATION to be held on May 16, 2000, at
4:30 p.m. at Franklin National Bank's Williamson Square office, 1105
Murfreesboro Road, Franklin, Tennessee 37064, and any adjournments or
postponements thereof:
1. To elect eight (8) directors for a term of one year and until their
successors are elected and have qualified.
[ ] FOR all nominees listed below (except as marked to the contrary below)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below
RICHARD E. HERRINGTON, GORDON E. INMAN, CHARLES R. LANIER, D. WILSON OVERTON,
EDWARD M. RICHEY, EDWARD P. SILVA, MELODY J. SMILEY AND JAMES W. CROSS, IV
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE WRITE THE
NOMINEE'S NAME IN THE SPACE PROVIDED BELOW.
- --------------------------------------------------------------------------------
2. To approve the Franklin Financial Corporation 2000 Stock Option Plan:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To vote in accordance with their best judgment with respect to any other
matters that may properly come before the meeting or any adjournments or
postponements thereof.
(Continued and to be signed on other side)
(Continued from other side)
THE BOARD OF DIRECTORS FAVORS A VOTE "FOR" THE ABOVE PROPOSALS AND UNLESS
INSTRUCTIONS TO THE CONTRARY ARE INDICATED IN THE SPACE PROVIDED, THIS PROXY
WILL BE SO VOTED.
Please date and sign this
Proxy exactly as name(s)
appears on the mailing label.
------------------------------
------------------------------
Print Name(s):
----------------
NOTE: When signing as an
attorney, trustee, executor,
administrator or guardian,
please give your title as
such. If a corporation or
partnership, give full name by
authorized officer. In the
case of joint tenants, each
joint owner must sign.
Dated:
------------------------
No. of shares owned:
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